<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report: December 14, 1999
-----------------
Liberty Group Operating, Inc.
------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 333-46959 36-4197636
- ---------------------------- ----------- -----------------
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
3000 Dundee Road, Northbrook, Illinois 60062
- ---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (847) 272-2244
--------------
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
(a) On October 1, 1999 the Registrant (through wholly-owned subsidiaries)
consummated an exchange of assets with Lee Enterprises, Incorporated.
The Registrant transferred to Lee Enterprises substantially all the
assets used in, and the liabilities related to, the publication,
marketing and distribution of six local newspapers and related
publications in Beatrice, Nebraska, together with $8.4 million in cash.
In exchange, the Registrant accepted substantially all the assets used
in, and the liabilities related to, the publication, marketing and
distribution of ten local newspapers and related publications in
Kewanee and Geneseo, Illinois and Ottumwa, Iowa.
In addition, on October 1, 1999 the Registrant also consummated the
acquisition from Lee Enterprises of substantially all the assets used
in, and the liabilities related to, the publication, marketing and
distribution of four local newspapers and related publications in
Aledo, Illinois. The purchase price was $900,000 in cash paid at the
closing.
At the closing of the asset exchange and asset purchase, Lee
Enterprises paid to the Registrant $52,980 in cash which is the
estimated amount by which the net working capital of the publication
groups transferred to Lee Enterprises exceeded the net working capital
of the publication groups transferred to and purchased by the
Registrant. A final accounting for the adjustment for the net working
capital of the publication groups is to be made no later than the 90th
day after the closing.
The assets transferred to Lee Enterprises by the Registrant had an
approximate book value of $13.5 million and the assets transferred to
and purchased by the Registrant had an approximate fair value of $22.8
million.
Prior to this transaction, no material relationship existed between the
Registrant and Lee Enterprises, or between any affiliates of such
entities.
The funds for the exchange and purchase by the Registrant were provided
under a credit facility in place which is led by Citicorp USA, Inc.,
as administrative agent.
(b) The Registrant intends to continue to use the acquired assets for the
same purposes as previously used by Lee Enterprises.
The foregoing brief summary of the terms of the asset exchange and the
asset purchase is qualified in its entirety by reference to the
provisions of, respectively, the Asset Exchange Agreement dated as of
August 26, 1999 between Liberty Group Publishing, Inc. and Lee
Enterprises, Incorporated, a Delaware corporation, and the Asset
Purchase Agreement dated as of August 26, 1999 between Liberty Group
Publishing, Inc. and Lee Enterprises, each of which was filed as an
exhibit to the Registrant's Form 8-K filed October 15, 1999 and is
incorporated by reference herein.
-2-
<PAGE> 3
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Lee Enterprises Certain Publishing Operations
(Ottumwa, Iowa and Kewanee, Aledo, and Geneseo, Illinois)
Combined Statements of Net Assets as of September 30, 1998 and 1999
Combined Statements of Income for the years ended September 30, 1998
and 1999
Combined Statements of Changes in Net Assets for the years ended
September 30, 1998 and 1999
Combined Statements of Cash Flows for the years ended September 30,
1998 and 1999
Notes to Combined Financial Statements
(b) Pro Forma Financial Information
Pro Forma Consolidated Balance Sheet as of September 30, 1999
(unaudited)
Pro Forma Consolidated Statements of Operations for the year ended
December 31, 1998 (unaudited) and the nine months ended September 30,
1999 (unaudited)
Notes to Unaudited Pro Forma Consolidated Financial Statements
(c) Exhibits (incorporated by reference from exhibits included in the
Registrant's Form 8-K filed October 15, 1999)
2.1 Asset Exchange Agreement, dated as of August 26, 1999, between
the Liberty Group Publishing, Inc. and Lee Enterprises,
Incorporated
2.2 Asset Purchase Agreement, dated as of August 26, 1999, between
the Liberty Group Publishing, Inc. and Lee Enterprises,
Incorporated
<PAGE> 4
LEE ENTERPRISES CERTAIN PUBLISHING OPERATIONS
(OTTUMWA, IOWA AND KEWANEE, ALEDO, AND GENESEO, ILLINOIS)
FINANCIAL REPORT
SEPTEMBER 30, 1999
<PAGE> 5
CONTENTS
- --------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT 1
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
Combined statements of net assets 2
Combined statements of income 3
Combined statements of changes in net assets 4
Combined statements of cash flows 5
Notes to combined financial statements 6 - 8
- --------------------------------------------------------------------------------
<PAGE> 6
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Lee Enterprises, Incorporated
Davenport, Iowa
We have audited the accompanying combined statements of net assets of Lee
Enterprises Certain Publishing Operations (Ottumwa, Iowa and Kewanee, Aledo, and
Geneseo, Illinois) (not a legal entity, see Note 1) as of September 30, 1998 and
1999, and the related statements of income, changes in net assets, and cash
flows for the years then ended. These financial statements are the
responsibility of Lee Enterprises Certain Publishing Operations (Ottumwa, Iowa
and Kewanee, Aledo, and Geneseo, Illinois)'s management. Our responsibility is
to express an opinion on these combined financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the net assets of Lee Enterprises Certain
Publishing Operations (Ottumwa, Iowa and Kewanee, Aledo, and Geneseo, Illinois)
as of September 30, 1998 and 1999, and the results of their operations and their
cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ McGladrey & Pullen LLP
Davenport, Iowa
November 24, 1999
1
<PAGE> 7
LEE ENTERPRISES CERTAIN PUBLISHING OPERATIONS
(OTTUMWA, IOWA AND KEWANEE, ALEDO, AND GENESEO, ILLINOIS)
COMBINED STATEMENTS OF NET ASSETS
SEPTEMBER 30, 1998 AND 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS 1998 1999
- -----------------------------------------------------------------------
<S> <C> <C>
Current Assets:
Cash $ 295 $ 271
Trade receivables, including amounts due from
affiliates 1998 $58; 1999 $5, less allowance for
doubtful accounts 1998 $116; 1999 $132 936 921
Inventories 126 56
Prepaid expenses 96 37
---------------
TOTAL CURRENT ASSETS 1,453 1,285
---------------
Property and Equipment:
Land and improvements 153 110
Buildings and improvements 1,150 1,094
Equipment 2,314 2,106
---------------
3,617 3,310
Less accumulated depreciation 2,604 2,546
---------------
1,013 764
---------------
Intangible Assets, net of accumulated amortization 800 721
---------------
$3,266 $2,770
===============
LIABILITIES AND NET ASSETS
- -----------------------------------------------------------------------
Current Liabilities:
Accounts payable, including amounts due to
affiliates 1998 $18; 1999 $10 $ 307 $ 109
Compensation and other accruals 299 175
Unearned income 683 674
---------------
TOTAL LIABILITIES 1,289 958
---------------
Net Assets 1,977 1,812
---------------
$3,266 $2,770
===============
</TABLE>
See Notes to Combined Financial Statements.
2
<PAGE> 8
LEE ENTERPRISES CERTAIN PUBLISHING OPERATIONS
(OTTUMWA, IOWA AND KEWANEE, ALEDO, AND GENESEO, ILLINOIS)
COMBINED STATEMENTS OF INCOME
YEARS ENDED SEPTEMBER 30, 1998 AND 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1999
- ------------------------------------------------------------------------
<S> <C> <C>
Revenue:
Advertising $ 6,716 $ 6,718
Circulation 2,833 2,674
Other 736 780
-----------------
10,285 10,172
-----------------
Operating expenses:
Compensation costs including expenses from parent
1998 $347; 1999 $430 4,193 4,323
Newsprint and ink 631 488
Depreciation 312 288
Amortization of intangibles 82 79
Other, including printing services purchased from
affiliates 1998 $800; 1999 $855 3,686 3,798
-----------------
8,904 8,976
-----------------
INCOME BEFORE INCOME TAXES 1,381 1,196
Income tax expense 539 466
-----------------
NET INCOME $ 842 $ 730
=================
</TABLE>
See Notes to Combined Financial Statements.
3
<PAGE> 9
LEE ENTERPRISES CERTAIN PUBLISHING OPERATIONS
(OTTUMWA, IOWA AND KEWANEE, ALEDO, AND GENESEO, ILLINOIS)
COMBINED STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED SEPTEMBER 30, 1998 AND 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1999
- ----------------------------------------------------------------
<S> <C> <C>
Balance, beginning $ 1,920 $ 1,977
Net income 842 730
Transfers to parent, net (1,324) (1,361)
Income tax expense transferred to parent 539 466
------------------
Balance, ending $ 1,977 $ 1,812
==================
</TABLE>
See Notes to Combined Financial Statements.
4
<PAGE> 10
LEE ENTERPRISES CERTAIN PUBLISHING OPERATIONS
(OTTUMWA, IOWA AND KEWANEE, ALEDO, AND GENESEO, ILLINOIS)
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1998 AND 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1999
- -------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 842 $ 730
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 394 367
(Gain) on sale of property and equipment - (21)
Income tax expense transferred to parent 539 466
Change in assets and liabilities:
(Increase) decrease in receivables (78) 15
Decrease in inventories 9 70
(Increase) decrease in prepaid expenses (19) 59
(Decrease) in accounts payable, accrued
expenses and unearned income (66) (331)
------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,621 1,355
------------------
Cash Flows from Investing Activities:
Purchase of property and equipment (249) (44)
Proceeds from sale of property and equipment - 26
------------------
NET CASH (USED IN) INVESTING ACTIVITIES (249) (18)
------------------
Cash Flows (Used In) Financing Activities,
transfers to parent, net (1,324) (1,361)
------------------
NET INCREASE (DECREASE) IN CASH 48 (24)
Cash:
Beginning 247 295
------------------
Ending $ 295 $ 271
==================
</TABLE>
See Notes to Combined Financial Statements.
5
<PAGE> 11
LEE ENTERPRISES CERTAIN PUBLISHING OPERATIONS
(Ottumwa, Iowa and Kewanee, Aledo, and Geneseo, Illinois)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars In Thousands)
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS:
Lee Enterprises Certain Publishing Operations (Business) consists of two
daily newspapers and one weekly newspaper, as well as other specialty and
classified publications in Kewanee, Geneseo, and Aledo, Illinois and Ottumwa,
Iowa owned by Lee Enterprises, Incorporated (Parent).
SIGNIFICANT ACCOUNTING POLICIES:
Basis of presentation: The accompanying combined financial statements
represent the net assets and associated revenues, expenses, and cash flows of
the Business, assuming that the Business was organized as a separate legal
entity.
The Parent provides certain administrative services to the Business including
general management, insurance, accounting, and payroll. Included within
compensation costs are $347 and $430 of costs allocated from the Parent for
the years ended September 30, 1998 and 1999, respectively.
During the years ended September 30, 1998 and 1999, the Business utilized the
printing services of affiliate newspapers owned by the Parent. Included
within operating costs are approximately $800 and $855 of printing services
purchased from affiliates of the Parent for the years ended September 30,
1998 and 1999, respectively.
Accounting estimates: The preparation of financial statements, in conformity
with generally accepted accounting principles, requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Inventories: Inventories consist principally of newsprint, which is priced at
the lower of cost or market with cost being determined by the last-in,
first-out method. Inventories as of September 30, 1998 and 1999 were less
than replacement cost by $83 and $29, respectively.
Property and equipment: Property and equipment is recorded at cost.
Depreciation is calculated under the straight-line method over the estimated
useful lives, 5 to 20 years for buildings and improvements, and 20 years for
printing presses. Other major equipment is calculated under accelerated
methods over 3 to 11 years.
Revenue recognition: Circulation revenue, which is billed to the customers at
the beginning of the subscription period, is recognized on a straight-line
basis over the term of the related subscription. Advertising revenue is
recognized upon publication of the advertisements. Revenue for job printing
is recognized upon delivery. No individual customer accounts for a
significant percentage of revenues.
6
<PAGE> 12
LEE ENTERPRISES CERTAIN PUBLISHING OPERATIONS
(Ottumwa, Iowa and Kewanee, Aledo, and Geneseo, Illinois)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars In Thousands)
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income taxes: The Business represents a business unit of Lee Enterprises,
Incorporated and as such does not file separate income tax returns. The
provision for income taxes of the Business has been calculated as if the
Business was a stand-alone corporation filing separate tax returns.
The Business accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes.
Cumulative deferred taxes have been settled through net assets.
Financial instruments: The Business has reviewed the following financial
instruments and has determined that their fair values approximated their
carrying values as of September 30, 1998 and 1999 trade receivables,
accounts payable, and accrued expenses.
Intangible assets: Intangible assets consist of noncompetition agreements
with former owners of the business, customer lists, and the excess of
acquisition costs over estimated fair value of net assets acquired
(goodwill). Amortization is calculated using the straight-line method over
the respective estimated useful lives ranging from 3 years for noncompetition
agreements, 5 years for customer lists, and 15 years for goodwill.
Net Assets: The Business participates in the Parent's cash management
system. Under the system, all cash generated by the Business is transferred
to the Parent and all cash requirements of the Business are funded by the
Parent. These transfers of funds are reflected in the net asset balance.
NOTE 2. INTANGIBLE ASSETS
Intangible assets as of September 30, 1998 and 1999 consists of the following:
<TABLE>
<CAPTION>
1998 1999
--------------
<S> <C> <C>
Noncompetition agreements $ 50 $ 50
Customer lists 50 50
Goodwill 785 785
--------------
885 885
Less accumulated amortization 85 164
--------------
$800 $721
==============
</TABLE>
NOTE 3. RETIREMENT PLAN
The Parent maintains a qualified defined contribution retirement plan (Plan)
that covers all full-time employees of the Business who have satisfied minimum
age and service requirements. Total contributions to the plan for the years
ended September 30, 1998 and 1999 were approximately $182 and $197,
respectively.
7
<PAGE> 13
LEE ENTERPRISES CERTAIN PUBLISHING OPERATIONS
(Ottumwa, Iowa and Kewanee, Aledo, and Geneseo, Illinois)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars In Thousands)
- --------------------------------------------------------------------------------
NOTE 4. SUBSEQUENT EVENT
On October 1, 1999 Lee Enterprises, Incorporated (Lee) consummated an exchange
of assets with Liberty Group Publishing, Inc. (Liberty). Lee transferred to
Liberty substantially all the assets used in, and the liabilities related to,
the publication, marketing, and distribution of the business. In exchange, Lee
accepted substantially all the assets used in, and the liabilities related to,
the publication, marketing, and distribution of six local newspapers and related
publications in Beatrice, Nebraska together with $9,300,000 in cash.
8
<PAGE> 14
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
OF LIBERTY GROUP OPERATING, INC. AND SUBSIDIARIES AND
ACQUIRED BUSINESS
The following unaudited pro forma consolidated balance sheet as of September 30,
1999 and the unaudited pro forma consolidated statements of operations for the
year ended December 31, 1998 and the nine months ended September 30, 1999 give
effect to Liberty Group Operating, Inc. and subsidiaries' (the Company) exchange
of assets with Lee Enterprises, Incorporated (Lee Enterprises) and the purchase
of assets from Lee Enterprises. The pro forma financial information is based on
the respective historical financial statements of the Company and Lee
Enterprises Certain Publishing Operations (Ottumwa, Iowa and Kewanee, Aledo, and
Geneseo, Illinois) (Lee Newspapers) giving effect to the exchange and purchase
both under the purchase method of accounting and the assumptions and adjustments
described in the accompanying notes to the unaudited pro forma consolidated
financial statements. The unaudited pro forma consolidated statements of
operations for the year ended December 31, 1998 and the nine months ended
September 30, 1999 reflect adjustments as if the exchange and purchase both had
occurred on January 1, 1998. The unaudited pro forma balance sheet as of
September 30, 1999 gives effect to the exchange and purchase both has if they
had occurred on September 30, 1999. See "Acquisition or Disposition of Assets."
The unaudited pro forma consolidated financial statements combine the unaudited
balance sheet of the Company as of September 30, 1999 and the balance sheet of
Lee Newspapers as of September 30, 1999 and the consolidated statements of
operations of the Company for the year ended December 31, 1998 with Lee
Newspapers' results for the fiscal year ended September 30, 1998. In addition,
the unaudited pro forma results for the interim period combine the Company for
the nine months ended September 30, 1999 with Lee Newspapers for the nine months
ended September 30, 1999. Lee Newspapers' results for the nine months ended
September 30, 1999 have been derived from Lee Newspapers' combined statements of
income for the year ended September 30, 1999. The financial effects of the
exchange and purchase as presented in the unaudited pro forma financial
statements are not necessarily indicative of either financial position or
results of operations that would have been obtained had the exchange or
acquisition actually occurred on the dates set forth above, nor are they
necessarily indicative of the results of future operations. The unaudited pro
forma consolidated financial statements should be read in conjunction with the
notes thereto, which are an integral part thereof, with the consolidated
financial statements of Liberty Group Operating, Inc. and subsidiaries and notes
thereto, and with the financial statements of the Lee Enterprises Certain
Publishing Operations (Ottumwa, Iowa and Kewanee, Aledo, and Geneseo, Illinois)
and notes thereto included elsewhere in this Form 8-K/A.
<PAGE> 15
Liberty Group Operating, Inc. and Subsidiaries
Unaudited Pro Forma Consolidated Balance Sheet
September 30, 1999
(dollars in thousands)
<TABLE>
<CAPTION>
LIBERTY GROUP
OPERATING, INC LEE PRO FORMA
CONSOLIDATED NEWSPAPERS ADJUSTMENTS PRO FORMA
--------------------------------------------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents -- 271 (218)(c) 53
Accounts receivable, net 19,742 921 (290)(d) 20,373
Inventories 1,938 56 (36)(d) 1,958
Prepaid expenses 679 37 (7)(d) 709
Other current assets 644 -- -- 644
--------------------------------------------- ---------
Total current assets 23,003 1,285 (551) 23,737
Property, plant and equipment, net 35,763 764 (456)(d) 36,071
Intangible assets, net 403,903 721 8,153 (b)(d) 412,777
Deferred financing costs, net 6,539 -- -- 6,539
--------------------------------------------- ---------
Total assets 469,208 2,770 7,146 479,124
============================================= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under revolving credit facility 92,400 -- 9,300 (a) 101,700
Current portion of long-term liabilities 400 -- -- 400
Accounts payable 4,528 109 (10)(e) 4,627
Accrued expenses 12,834 175 (126)(d) 12,883
Deferred revenue 6,897 674 (206)(d) 7,365
--------------------------------------------- ---------
Total current liabilities 117,059 958 8,958 126,975
Senior subordinated notes 180,000 -- -- 180,000
Long-term liabilities, less current portion 1,517 -- -- 1,517
Deferred income taxes 15,691 -- -- 15,691
--------------------------------------------- ---------
Total liabilities 314,267 958 8,958 324,183
Stockholders' equity:
Common stock -- -- -- --
Additional paid-in capital 148,663 -- -- 148,663
Accumulated earnings 6,278 -- -- 6,278
Net assets -- 1,812 (1,812)(e) --
--------------------------------------------- ---------
Total stockholders' equity 154,941 1,812 (1,812) 154,941
Total liabilities and stockholders' equity 469,208 2,770 7,146 479,124
============================================= =========
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
<PAGE> 16
Liberty Group Operating, Inc. and Subsidiaries
Unaudited Pro Forma Consolidated Statements of Operations
Year Ended December 31, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
LIBERTY GROUP
OPERATING, INC LEE PRO FORMA
CONSOLIDATED NEWSPAPERS ADJUSTMENTS PRO FORMA
---------------------------------------------- ---------
<S> <C> <C> <C> <C>
Revenues:
Advertising 81,554 6,716 -- 88,270
Circulation 22,844 2,833 -- 25,677
Job printing and other 8,133 736 -- 8,869
---------------------------------------------- ---------
Total revenues 112,531 10,285 -- 122,816
Operating costs and expenses:
Operating costs 45,976 5,021 -- 50,997
Selling, general and administration 36,303 3,489 -- 39,792
Depreciation and amortization 11,917 394 530 (f) 12,841
---------------------------------------------- ---------
Income from operations 18,335 1,381 (530) 19,186
Interest expense 18,372 -- 752 (h) 19,124
Other expense 928 -- -- 928
---------------------------------------------- ---------
Income (loss) before income taxes (965) 1,381 (1,282) (866)
Income tax expense -- 539 (539)(g) --
---------------------------------------------- ---------
Net income (loss) (965) 842 (743) (866)
============================================== =========
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
<PAGE> 17
Liberty Group Operating, Inc. and Subsidiaries
Unaudited Pro Forma Consolidated Statements of Operations
Nine Months Ended September 30, 1999
(dollars in thousands)
<TABLE>
<CAPTION>
LIBERTY GROUP
OPERATING, INC LEE PRO FORMA
CONSOLIDATED NEWSPAPERS ADJUSTMENTS PRO FORMA
-------------------------------------------------- ---------
<S> <C> <C> <C> <C>
Revenues:
Advertising 86,707 4,954 (591)(d) 91,070
Circulation 20,250 1,999 (158)(d) 22,091
Job printing and other 9,636 596 (14)(d) 10,218
-------------------------------------------------- ---------
Total revenues 116,593 7,549 (763) 123,379
Operating costs and expenses:
Operating costs 51,787 3,784 (225)(d) 55,346
Selling, general and administration 34,554 2,630 (245)(d) 36,939
Depreciation and amortization 11,093 272 299 (f)(d) 11,664
-------------------------------------------------- ---------
Income from operations 19,159 863 (592) 19,430
Interest expense 17,790 -- 564 (h) 18,354
Amortization of debt issue costs 815 -- -- 815
-------------------------------------------------- ---------
Income before net gain on
exchange and disposition of
assets and income tax expense 554 863 (1,156) 261
Net gain on exchange and disposition of assets 6,689 -- -- 6,689
Income tax expense -- 336 (336)(g) --
-------------------------------------------------- ---------
Net income 7,243 527 (820) 6,950
================================================== =========
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
<PAGE> 18
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Pro Forma Financial Statements
The unaudited pro forma consolidated financial statements combine the unaudited
balance sheet of the Company as of September 30, 1999 and the balance sheet of
Lee Newspapers as of September 30, 1999 and the consolidated statements of
operations of the Company for the year ended December 31, 1998 with Lee
Newspapers' results for the fiscal year ended September 30, 1998. In addition,
the unaudited pro forma results for the interim period combine the Company for
the nine months ended September 30, 1999 with Lee Newspapers for the nine months
ended September 30, 1999. Lee Newspapers' results for the nine months ended
September 30, 1999 have been derived from Lee Newspapers' combined statements of
income for the year ended September 30, 1999. The results of Lee Newspapers
excluded from the September 30, 1999 statement of operations are net revenues of
$2,623 and net income of $203.
Note 2 - Pro Forma Adjustments
The following adjustments are reflected in the unaudited pro forma consolidated
statements of operations under the columns headed "Pro Forma Adjustments."
(a) The fair value of the Lee Newspapers approximates the cash paid plus
the book value of the net assets transferred to Lee Enterprises. In the
opinion of management of the Company, the book values of the assets and
liabilities of the six local newspapers and related publications in
Beatrice, Nebraska (Liberty Newspapers) approximates their fair values.
As the fair value of the Lee Newspapers purchased by the Company equals
the fair value of the Liberty Newspapers exchanged in the transaction
plus the cash consideration paid to Lee Enterprises no gain or loss was
recognized. The $9.3 million cash consideration paid in the exchange
and purchase by the Company was provided under a credit facility in
place which is led by Citicorp USA, Inc., as administrative agent.
(b) Represents the adjustment necessary to increase the Company's
intangible assets balance as a result of the excess of the fair value
of the Lee Newspapers over the fair value of the Liberty Newspapers, as
follows:
<TABLE>
<S> <C>
Fair value of Lee Newspapers $22,802
Tangible assets of the Lee Newspapers
assumed by the Company (1,831)
Tangible liabilities of the Lee Newspapers
assumed by the Company 948
-------
Excess of fair value over net assets assumed 21,919
Intangible assets of the Liberty Newspapers reflected
in the Liberty Group Operating, Inc.
Consolidated total (13,045)
-------
Increase in Company's intangible assets 8,874
Intangible assets of the Lee Newspapers
not assumed by the Company (721)
-------
Pro forma adjustment required 8,153
=======
</TABLE>
<PAGE> 19
The $1,831 of tangible assets of the Lee Newspapers assumed by the
Company includes the $53 of cash received from Lee Enterprises and
excludes $271 of cash and $721 of intangible assets.
(c) Represents the $53 of cash received from Lee Enterprises less the $271
of cash not assumed by the Company from the Lee Newspapers as part of
the exchange.
(d) Represents the elimination of the Liberty Newspapers from the Liberty
Group Operating, Inc. Consolidated total. The Liberty Newspapers were
acquired by Liberty Group Operating, Inc. and Subsidiaries on July 1,
1999 in a transaction accounted for under the purchase method of
accounting.
(e) Represents the elimination of the Lee Newspapers related party
liability and net assets that would not be recorded by the Company as
part of the exchange.
(f) Represents the adjustment necessary to amortize the additional $21,198
of intangible assets over their estimated useful lives, presently
estimated for mastheads, advertising lists, and goodwill over 40 years,
and subscriber lists over 33 years. The $21,198 of additional
intangible assets is calculated as the $21,919 excess of fair value
over net assets assumed (calculated in note (b)) less the $721 of
intangible assets of the Lee Newspapers not assumed by the Company.
(g) Represents the elimination of the Lee Newspapers tax expense that would
not be recorded by the Company had the exchange occurred on January 1,
1998.
(h) Represents the adjustment necessary to increase interest expense
related to the additional borrowings of $9.3 million related to the
exchange and purchase.
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Liberty Group Operating, Inc.
Date: December 14, 1999 By: /s/ KENNETH L. SEROTA
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Title: President and Chief Executive Officer
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