<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: July 17, 2000
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) McDonough County Shopper, Inc./Fulton County Shopper, Inc. Acquisition
On May 1, 2000, the Registrant (through Liberty Group Illinois Holdings,
Inc., a Delaware corporation and a wholly-owned subsidiary of the
Registrant (the "Registrant's Illinois Subsidiary")), purchased
substantially all of the assets of the McDonough County Shopper, Inc., an
Illinois corporation, and the Fulton County Shopper, Inc., an Illinois
corporation (collectively, the "Sellers"), including the mastheads, trade
names, trademarks, service marks and other marks (and the goodwill
associated therewith), subscriber lists, inventory, accounts receivable
and equipment of the newspapers published, marketed and distributed by the
Sellers.
Prior to this transaction, no material relationship existed between the
Registrant and the Sellers, or between any affiliates of such entities.
At the closing of this transaction, the Registrant (a) paid to the
Sellers $3,000,000 in cash, and (b) agreed to pay an additional
$500,000 in the aggregate in five (5) installments of $200,000,
$100,000, $100,000, $50,000 and $50,000 on the first, second, third,
fourth and fifth anniversaries of the closing date, together with
interest thereon at the rate set forth therein (collectively, the
"Asset Purchase Price").
The Asset Purchase Price is subject to a post-closing decrease, as set
forth in the purchase agreement, based upon the liabilities of the
Sellers as of May 1, 2000 which were assumed by Registrant's Illinois
Subsidiary under the purchase agreement.
The cash portion of the purchase price in this transaction was provided
under the credit facility the Registrant has in place which is led by
Citicorp USA, Inc., as administrative agent.
(b) McDonough County Shopper, Inc./Fulton County Shopper, Inc. Acquisition
The Registrant acquired the Purchased Assets from the Sellers
substantially all of the assets owned by the Sellers in their business
of publishing, marketing and distributing newspapers. The Registrant
will use these assets for the same purposes as previously used by the
Sellers.
The foregoing summary of the terms of this transaction is qualified in
its entirety by reference to the provisions of the Purchase Agreement,
dated as of May 1, 2000, by and between the Sellers, James M. Helenthal
and the Registrant's Illinois Subsidiary, a copy of which is filed as
an exhibit to this Report and is hereby incorporated herein by
reference.
-2-
<PAGE> 3
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of McDonough and Fulton County Shopper, Inc.
Independent Auditor's Report
Balance Sheet as of December 31, 1999
Statement of Operations for the year ended December 31, 1999
Statement of Stockholders' Equity for the year ended December 31, 1999
Statements of Cash Flows for the year ended December 31, 1999
Summary of Significant Accounting Policies
Notes to Financial Statements
Supplemental Information
(b) Financial Statements of McDonough and Fulton County Shopper, Inc.
(unaudited)
Accountant's Report
Balance Sheet as of March 31, 2000 (unaudited)
Statement of Operations for the three months ended March 31, 2000
(unaudited)
Statement of Stockholders' Equity for the three months ended March 31,
2000 (unaudited)
Statements of Cash Flows for the three months ended March 31, 2000
(unaudited)
Summary of Significant Accounting Policies (unaudited)
Notes to Financial Statements (unaudited)
Supplemental Information (unaudited)
(c) Pro Forma Financial Information
Pro Forma Consolidated Balance Sheet as of March 31, 2000 (unaudited)
Pro Forma Consolidated Statements of Operations for the year ended
December 31, 1999 (unaudited) and the three months ended March 31, 2000
(unaudited)
Notes to Unaudited Pro Forma Consolidated Financial Statements
(d) Exhibit (incorporated by reference from exhibits included in the
Registrant's Form 8-K filed May 16, 2000)
2.2 Purchase Agreement, dated as of May 1, 2000, by and between McDonough
County Shopper, Inc., Fulton County Shopper, Inc., James M. Helenthal
and Liberty Group Illinois Holdings, Inc.
-3-
<PAGE> 4
McDONOUGH AND FULTON COUNTY SHOPPER, INC.
MACOMB AND CANTON, ILLINOIS
FINANCIAL STATEMENTS
DECEMBER 31, 1999
<PAGE> 5
McDONOUGH AND FULTON COUNTY SHOPPER, INC.
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITOR'S REPORT 1
FINANCIAL STATEMENTS
Statement 1 - Balance Sheet 2
Statement 2 - Statement of Operations 3
Statement 3 - Statement of Stockholders' Equity 4
Statement 4 - Statement of Cash Flows 5
Statements of Significant Accounting Policies 6
Notes to Financial Statements 7
SUPPLEMENTAL INFORMATION
Schedule A - Schedule of Operating Costs and Expenses 8
<PAGE> 6
INDEPENDENT AUDITOR'S REPORT
Board of Directors
McDonough and Fulton County Shopper, Inc.
Macomb and Canton, Illinois
I have audited the accompanying balance sheet of McDonough and Fulton County
Shopper, Inc. as of December 31, 1999, and the related statement of operations,
stockholders' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. My responsibility
is to express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I 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.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of McDonough and Fulton County
Shopper, Inc. as of December 31, 1999, and the results of its operations and
cash flows for the year then ended, in conformity with generally accepted
accounting principles.
My audit was made for the purpose of forming an opinion on the basic financial
statements taken as whole. The accompanying supplemental information is
presented for purposes of additional analysis and is not a required part of the
basic financial statements. Such information has been subjected to the auditing
procedures applied in the audit of the basic financial statements, and in my
opinion is fairly stated, in all material respects in relation to the basic
financial statements taken as a whole.
/s/ Alan P. Reusch
-----------------------------
Certified Public Accountant
June 27, 2000
<PAGE> 7
STATEMENT 1
McDONOUGH AND FULTON COUNTY SHOPPER, INC.
BALANCE SHEET
DECEMBER 31, 1999
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents (Note 1) $162,184
Accounts Receivable 170,048
Note Receivable 5,050
--------
TOTAL CURRENT ASSETS 337,282
--------
PROPERTY, PLANT & EQUIPMENT, at cost (Note 2) 418,308
Less Accumulated Deprecation ( 277,788)
--------
Net Property, Plant & Equipment 140,520
--------
TOTAL ASSETS $477,802
========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 53,960
Accrued Payroll Taxes 4,234
Note Payable (Note 3) 4,945
--------
TOTAL CURRENT LIABILITIES 63,139
--------
STOCKHOLDERS' EQUITY
Common Stock, $100 par Value. 200 Shares
Authorized, 20 Shares Issued 2,000
Retained Earnings 412,663
--------
TOTAL STOCKHOLDERS' EQUITY 414,663
--------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $477,802
========
These financial statements should be read only in connection with the
accompanying accountant's report, summary of significant accounting policies,
and notes to financial statements.
<PAGE> 8
STATEMENT 2
McDONOUGH AND FULTON COUNTY SHOPPER, INC.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
REVENUES:
Advertising Sales $1,727,597
Job Printing and Other 22,255
----------
TOTAL REVENUES 1,749,852
OPERATING COSTS AND EXPENSES:
Operating Costs 295,790
Selling, General &
Administrative Expenses 1,241,261
Depreciation
28,932
----------
TOTAL OPERATING COSTS AND EXPENSES 1,565,983
Income From Operations 183,869
----------
OTHER INCOME (EXPENSE)
Interest Income 8,561
Interest Expense ( 11,049)
----------
Net Other Income ( 2,488)
----------
Income Before Income
Taxes 181,381
REPLACEMENT TAXES ( 2,303)
----------
NET INCOME $ 179,078
==========
These financial statements should be read only in connection with the
accompanying accountant's report, summary of significant accounting policies,
and notes to financial statements.
<PAGE> 9
STATEMENT 3
McDONOUGH AND FULTON COUNTY SHOPPER, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1999
TOTAL
COMMON RETAINED STOCKHOLDERS'
STOCK EARNINGS EQUITY
-------- --------- -------------
BALANCES AT JANUARY 1, 1999 $ 2,000 $341,540 $343,540
Net Income -- 179,078 179,078
Distribution of Earnings -- (107,955) (107,955)
-------- -------- --------
BALANCES AT DECEMBER 31, 1999 $ 2,000 $412,663 $414,663
======== ======== ========
These financial statements should be read only in connection with the
accompanying accountant's report, summary of significant accounting policies,
and notes to financial statements.
<PAGE> 10
STATEMENT 4
McDONOUGH AND FULTON COUNTY SHOPPER, INC.
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 179,078
ADJUSTMENTS TO RECONCILE NET INCOME
NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Depreciation 28,932
EFFECTS OF CHANGES IN OPERATING ASSETS
& LIABILITIES:
(Increase) Decrease in Accts Receivable 2,475
(Increase) Decrease in Note Receivable 12,522
Increase (Decrease) in Accounts Payable 4,434
Increase (Decrease) in Accrued Expenses 4,234
---------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 231,675
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (1,209)
---------
NET CASH USED IN INVESTING ACTIVITIES ( 1,209)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on Note Payable (68,723)
Distribution of Earnings (107,955)
---------
NET CASH USED IN FINANCING ACTIVITIES (176,678)
---------
Net Increase (Decrease) in
Cash & Cash Equivalents 53,788
CASH & CASH EQUIVALENTS AT BEGINNING
OF YEAR 108,396
---------
CASH & CASH EQUIVALENTS AT END OF YEAR $ 162,184
=========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
CASH PAID DURING YEAR FOR:
Replacement Taxes $ 2,303
=========
Interest Expense $ 11,049
=========
These financial statements should be read only in connection with the
accompanying accountant's report, summary of significant accounting policies,
and notes to financial statements.
<PAGE> 11
McDONOUGH AND FULTON COUNTY SHOPPER, INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DECEMBER 31, 1999
The McDonough and Fulton County Shopper, Inc. are publishers of community
shoppers with print advertising and other local content in their communities.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
DOUBTFUL ACCOUNTS
Accounts receivable are considered fully collectible by management, therefore,
no allowance for doubtful accounts has been provided.
DEPRECIATION
Depreciation is computed over the estimated useful lives of assets using
accelerated and straight-line methods.
INCOME TAXES
The Company has elected under provisions of the Internal Revenue Code
(Subchapter S) to have its income treated for federal income tax purposes
substantially as if the Company were a partnership. Since a Subchapter S
Corporation, as such, is not liable for federal or state income taxes, the
financial statements do not reflect a provision for federal or state income
taxes. However, a provision for state replacement tax is included.
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
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 revenue and expenses during the reporting period. Actual
results could differ from those estimates.
This information should be read only in connection with the accompanying
accountant's report.
<PAGE> 12
McDONOUGH AND FULTON COUNTY SHOPPER, INC.
Notes to Financial Statements
December 31, 1999
Note 1 - Cash and Cash Equivalents
At year end the carrying amount of the Company's deposits was $162,184 and
the bank balance was $166,509. Of the bank balance, $166,509 was covered by
federal depository insurance.
Note 2 - Property, Plant and Equipment
A summary of property, plant and equipment at December 31, 1999 follows:
Furniture and Fixtures $ 59,331
Leasehold Improvements 31,730
Machinery & Equipment 215,710
--------
Vehicles $418,308
========
Depreciation expense for the year ended December 31, 1999 was $28,932.
Note 3 - Note Payable
The Company has a note payable in the amount of $4,945, payable to
MidAmerica National Bank at 10.00% interest, with monthly payments of
$1,680.98, due March 16, 2000.
Note 4 - Subsequent Events
On May 1, 2000, the Company's stockholder agreed to sell substantially all
of the assets of McDonough County Shopper, Inc. and Fulton County Shopper,
Inc. The selling price was $3,500,000, payable as follows: $3,000,000 paid
on the closing date and $500,000 payable over a five year period. The
assets sold did not include cash and cash equivalents on hand or on deposit
in bank accounts, two automobiles, personal office furniture and
decorations currently located in James Helenthal's office. The cost and
accumulated depreciation of the excluded assets are as follows:
Cost A/D
---------- ---------
Vehicles $ 89,136 $ 9,720
Furniture and Fixtures 13,255 10,409
---------- ---------
Total $102,391 $20,129
This information should be read only in connection with
the accompanying accountant's report.
<PAGE> 13
SUPPLEMENTAL INFORMATION
<PAGE> 14
SCHEDULE A
McDONOUGH AND FULTON COUNTY SHOPPER, INC.
SCHEDULE OF OPERATING COSTS AND EXPENSES
YEAR ENDED DECEMBER 31, 1999
OPERATING COSTS:
Advertising $ 3,574
Auto 8,700
Bank Charges 521
Cellular Phone 4,301
Donations 761
Dues and Subscriptions 757
Group Benefits 3,833
Gifts 4,633
Insurance 8,450
Internet Service 281
Legal and Professional 10,953
Promotion 45
License and Permits 125
Meals and Entertainment 1,413
Miscellaneous 2,030
Office Supplies 7,245
Postage 4,764
Rent 19,425
Repairs and Maintenance 9,662
Salaries and Wages 41,560
Officers Wages 140,000
Payroll Taxes 11,875
Telephone 10,882
----------
TOTAL OPERATING COSTS 295,790
SELLING, GENERAL & ADMINISTRATIVE EXPENSES:
Discounts 40
Circulation Postage 392,547
Custom Marketing Printing 5,500
Production Supplies 25,214
Printing 434,186
Commission 9,476
Contract Services 894
Delivery Expense 953
Freight 143
Group Benefits 5,608
Rent - Equipment 13,424
Salaries and Wages 265,644
Supplies 30,903
Payroll Taxes 22,226
Travel and Lodging 34,503
----------
TOTAL SELLING, GENERAL & ADMINISTRATIVE 1,241,261
Depreciation 28,932
----------
TOTAL OPERATING COSTS AND
EXPENSES (STATEMENT 2) $1,565,983
==========
This information should be read only in connection with the accompanying
accountant's report.
<PAGE> 15
McDONOUGH AND FULTON COUNTY SHOPPER, INC.
MACOMB AND CANTON, ILLINOIS
FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000
<PAGE> 16
McDONOUGH AND FULTON COUNTY SHOPPER, INC.
TABLE OF CONTENTS
PAGE
ACCOUNTANT'S REPORT 1
FINANCIAL STATEMENTS (Unaudited)
Statement 1 - Balance Sheet 2
Statement 2 - Statement of Operations 3
Statement 3 - Statement of Stockholders' Equity 4
Statement 4 - Statement of Cash Flows 5
Statements of Significant Accounting Policies 6
Notes to Financial Statements 7
SUPPLEMENTAL INFORMATION (Unaudited)
Schedule A - Schedule of Operating Costs and Expenses 8
<PAGE> 17
ACCOUNTANT'S REPORT
Board of Directors
McDonough and Fulton County Shopper, Inc.
Macomb and Canton, Illinois
I have reviewed the accompanying unaudited balance sheet of McDonough and Fulton
County Shopper, Inc. as of March 31, 2000, and the related statement of
operations, stockholders' equity, and cash flows for the three months then
ended, in accordance with Statements on Standards for Accounting and Review
Services issued by the American Institute of Certified Public Accountants. All
information included in these financial statements is the representation of the
management of McDonough and Fulton County Shopper, Inc.
A review consists principally of inquiries of company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, I do not express such an opinion.
Based on my review, I am not aware of any material modifications that should be
made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
The supplemental information accompanying the financial statements is presented
only for additional analysis purposes and has been subjected to the inquiry and
analytical procedures applied in the review of the basic financial statements. I
did not become aware of any material modifications that should be made to such
information.
/s/ Alan P. Reusch
-----------------------------
Certified Public Accountant
June 27, 2000
<PAGE> 18
STATEMENT 1
McDONOUGH AND FULTON COUNTY SHOPPER, INC.
BALANCE SHEET
MARCH 31, 2000
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents (Note 1) $ 171,908
Accounts Receivable 173,553
---------
TOTAL CURRENT ASSETS 345,461
---------
PROPERTY, PLANT & EQUIPMENT, at cost (Note 2) 418,308
Less Accumulated Deprecation (282,695)
---------
Net Property, Plant & Equipment 135,613
---------
TOTAL ASSETS $ 481,074
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 33,920
Accrued Payroll Taxes 5,709
---------
TOTAL CURRENT LIABILITIES 39,629
---------
STOCKHOLDERS' EQUITY
Common Stock, $100 par Value 200 Shares
Authorized, 20 Shares Issued 2,000
Retained Earnings 439,445
---------
TOTAL STOCKHOLDERS' EQUITY 441,445
---------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 481,074
=========
These financial statements should be read only in connection with the
accompanying accountant's report, summary of significant accounting policies,
and notes to financial statements.
<PAGE> 19
STATEMENT 2
McDONOUGH AND FULTON COUNTY SHOPPER, INC.
STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000
(Unaudited)
REVENUES:
Advertising Sales $ 402,271
Job Printing and Other 2,298
---------
TOTAL REVENUES 404,569
OPERATING COSTS AND EXPENSES:
Operating Costs 68,560
Selling, General &
Administrative Expenses 278,483
Depreciation 4,907
---------
TOTAL OPERATING COSTS AND EXPENSES 351,950
Income From Operations 52,619
---------
OTHER INCOME (EXPENSE)
Interest Income 528
Interest Expense (81)
---------
Net Other Income 447
---------
Income Before Income Taxes 53,066
REPLACEMENT TAXES (2,806)
---------
NET INCOME $ 50,260
=========
These financial statements should be read only in connection with the
accompanying accountant's report, summary of significant accounting policies,
and notes to financial statements.
<PAGE> 20
STATEMENT 3
McDONOUGH AND FULTON COUNTY SHOPPER, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 2000
(Unaudited)
TOTAL
COMMON RETAINED STOCKHOLDERS'
STOCK EARNINGS EQUITY
----- -------- ------
BALANCES AT JANUARY 1, 2000 $ 2,000 $ 412,663 $ 414,663
Net Income -- 50,260 50,260
Distribution of Earnings -- (23,478) (23,478)
--------- --------- ---------
BALANCES AT MARCH 31, 2000 $ 2,000 $ 439,445 $ 441,445
========= ========= =========
These financial statements should be read only in connection with the
accompanying accountant's report, summary of significant accounting policies,
and notes to financial statements.
<PAGE> 21
STATEMENT 4
McDONOUGH AND FULTON COUNTY SHOPPER, INC.
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2000
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 50,260
ADJUSTMENTS TO RECONCILE NET INCOME
NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Depreciation 4,907
EFFECTS OF CHANGES IN OPERATING ASSETS
& LIABILITIES:
(Increase) Decrease in Accts Receivable (3,505)
(Increase) Decrease in Note Receivable 5,050
Increase (Decrease) in Accounts Payable (20,040)
Increase (Decrease) in Accrued Expenses 1,475
---------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 38,147
---------
CASH FLOWS FROM INVESTING ACTIVITIES: --
---------
NET CASH USED IN INVESTING ACTIVITIES --
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on Note Payable (4,945)
Distribution of Earnings (23,478)
---------
NET CASH USED IN FINANCING ACTIVITIES (28,423)
---------
Net Increase (Decrease) in
Cash & Cash Equivalents 9,724
CASH & CASH EQUIVALENTS AT JANUARY 1, 2000 162,184
---------
CASH & CASH EQUIVALENTS AT MARCH 31, 2000 $ 171,908
=========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
CASH PAID DURING YEAR FOR:
Replacement Taxes $ 2,806
=========
Interest Expense $ 81
=========
These financial statements should be read only in connection with the
accompanying accountant's report, summary of significant accounting policies,
and notes to financial statements.
<PAGE> 22
McDONOUGH AND FULTON COUNTY SHOPPER, INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THREE MONTHS ENDED MARCH 31, 2000
(Unaudited)
The McDonough and Fulton County Shopper, Inc. are publishers of community
shoppers with print advertising and other local content in their communities.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
DOUBTFUL ACCOUNTS
Accounts receivable are considered fully collectible by management, therefore,
no allowance for doubtful accounts has been provided.
DEPRECIATION
Depreciation is computed over the estimated useful lives of assets using
accelerated and straight-line methods.
INCOME TAXES
The Company has elected under provisions of the Internal Revenue Code
(Subchapter S) to have its income treated for federal income tax purposes
substantially as if the Company were a partnership. Since a Subchapter S
Corporation, as such, is not liable for federal or state income taxes, the
financial statements do not reflect a provision for federal or state income
taxes. However, a provision for state replacement tax is included.
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
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 revenue and expenses during the reporting period. Actual
results could differ from those estimates.
This information should be read only in connection
with the accompanying accountant's report.
<PAGE> 23
McDONOUGH AND FULTON COUNTY SHOPPER, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000
(Unaudited)
NOTE 1 - CASH AND CASH EQUIVALENTS
At year end the carrying amount of the Company's deposits was $171,908 and
the bank balance was $191,059. Of the bank balance, $191,059 was covered by
federal depository insurance.
NOTE 2 - PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment at March 31, 2000 follows:
Furniture and Fixtures $ 59,331
Leasehold Improvements 31,730
Machinery & Equipment 215,710
Vehicles 111,537
--------
$418,308
========
Depreciation expense for the three months ended March 31, 2000 was $4,907.
NOTE 3 - SUBSEQUENT EVENTS
On May 1, 2000, the Company's stockholder agreed to sell substantially all
of the assets of McDonough County Shopper, Inc. and Fulton County Shopper,
Inc. The selling price was $3,500,000, payable as follows: $3,000,000 paid
on the closing date and $500,000 payable over a five year period. The
assets sold did not include cash and cash equivalents on hand or on deposit
in bank accounts, two automobiles, personal office furniture and
decorations currently located in James Helenthal's office. The cost and
accumulated depreciation of the excluded assets are as follows:
Cost A/D
---- ---
Vehicles $ 89,136 $ 9,720
Furniture and Fixtures 13,255 10,409
-------- --------
TOTAL $102,391 $ 20,129
======== ========
This information should be read only in connection with
the accompanying accountant's report.
<PAGE> 24
SUPPLEMENTAL INFORMATION
<PAGE> 25
SCHEDULE A
McDONOUGH AND FULTON COUNTY SHOPPER, INC.
SCHEDULE OF OPERATING COSTS AND EXPENSES
THREE MONTHS ENDED MARCH 31, 2000
(Unaudited)
OPERATING COSTS:
Advertising $ 320
Auto 3,504
Bank Charges 85
Cellular Phone 772
Meetings 1,315
Group Benefits 4,006
Insurance 150
Internet Service 105
Legal and Professional 1,590
Miscellaneous 127
Office Supplies 1,922
Rent 3,691
Repairs and Maintenance 1,870
Salaries and Wages 10,067
Officers Wages 32,308
Payroll Taxes 4,497
Telephone 2,231
--------
TOTAL OPERATING COSTS 68,560
SELLING, GENERAL & ADMINISTRATIVE EXPENSES:
Discounts 382
Circulation Postage 95,771
Custom Marketing Printing 188
Printing 78,324
Commission 15,069
Contract Services 202
Group Benefits 5,862
Rent - Equipment 2,311
Salaries and Wages 65,993
Supplies 7,378
Payroll Taxes 7,003
--------
TOTAL SELLING, GENERAL & ADMINISTRATIVE 278,483
Depreciation 4,907
--------
TOTAL OPERATING COSTS AND
EXPENSES (STATEMENT 2) $351,950
========
This information should be read only in connection with the accompanying
accountant's report.
<PAGE> 26
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 March 31,
2000 and the unaudited pro forma consolidated statements of operations for the
year ended December 31, 1999 and the three months ended March 31, 2000 give
effect to Liberty Group Operating, Inc. and subsidiaries' (the Company) purchase
of assets of McDonough County Shopper, Inc. and Fulton County Shopper, Inc. The
pro forma financial information is based on the respective historical financial
statements of the Company and McDonough and Fulton County Shopper, Inc.,
(McDonough and Fulton) giving effect to the purchase of assets 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, 1999 and the three months ended March 31, 2000
reflect adjustments as if the purchase had occurred on January 1, 1999. The
unaudited pro forma balance sheet as of March 31, 2000 gives effect to the
purchase as if it had occurred on March 31, 2000. See "Acquisition or
Disposition of Assets."
The unaudited pro forma consolidated financial statements combine the unaudited
balance sheets of the Company and McDonough and Fulton as of March 31, 2000 and
the consolidated statements of operations of the Company with McDonough and
Fulton for the year ended December 31, 1999. In addition, the unaudited pro
forma results for the interim period combine the Company with McDonough and
Fulton for the three months ended March 31, 2000. The financial effects of the
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 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 McDonough
and Fulton County Shopper, Inc. and notes thereto included elsewhere in this
Form 8-K/A.
<PAGE> 27
Liberty Group Operating, Inc. and Subsidiaries
Unaudited Pro Forma Consolidated Balance Sheet
March 31, 2000
(dollars in thousands)
<TABLE>
<CAPTION>
LIBERTY GROUP McDONOUGH AND
OPERATING, INC FULTON COUNTY PRO FORMA
CONSOLIDATED SHOPPER ADJUSTMENTS PRO FORMA
------------------------------------------------------- -----------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents 2,319 172 (172)(b) 2,319
Accounts receivable, net 18,888 173 - 19,061
Inventories 2,421 - - 2,421
Prepaid expenses 1,684 - - 1,684
Other current assets 342 - - 342
------------------------------------------------------- -----------------
Total current assets 25,654 345 (172) 25,827
Property, plant and equipment, net 43,067 136 (79)(b) 43,124
Intangible assets, net 415,086 - 3,390 (a) 418,476
Deferred financing costs, net 6,823 - - 6,823
Other assets 5,496 - - 5,496
------------------------------------------------------- -----------------
Total assets 496,126 481 3,139 499,746
======================================================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under revolving credit facility 120,650 - 3,000 (f) 123,650
Current portion of long-term liabilities 456 - 200 (a) 656
Accounts payable 2,498 34 - 2,532
Accrued expenses 11,750 6 80 (a) 11,836
Deferred revenue 8,276 - - 8,276
------------------------------------------------------- -----------------
Total current liabilities 143,630 40 3,280 146,950
Senior subordinated notes 180,000 - - 180,000
Long-term liabilities, less current portion 1,842 - 300 (a) 2,142
Noncurrent unearned revenues - - -
Deferred income taxes 21,974 - - 21,974
------------------------------------------------------- -----------------
Total liabilities 347,446 40 3,580 351,066
Stockholders' equity:
Common stock - - - -
Additional paid-in capital 148,707 - - 148,707
Accumulated earnings (27) - - (27)
Net assets 441 (441)(c) -
------------------------------------------------------- -----------------
Total stockholders' equity 148,680 441 (441) 148,680
Total liabilities and stockholders' equity 496,126 481 3,139 499,746
======================================================= =================
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
<PAGE> 28
Liberty Group Operating, Inc. and Subsidiaries
Unaudited Pro Forma Consolidated Statements of Operations
Three Months Ended March 31, 2000
(dollars in thousands)
<TABLE>
<CAPTION>
LIBERTY GROUP McDONOUGH AND
OPERATING, INC FULTON COUNTY PRO FORMA
CONSOLIDATED SHOPPER ADJUSTMENTS PRO FORMA
-------------------------------------------------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Advertising 32,225 402 - 32,627
Circulation 7,374 - - 7,374
Job printing and other 2,698 3 - 2,701
-------------------------------------------------------- -------------
Total revenues 42,297 405 - 42,702
Operating costs and expenses:
Operating costs 18,176 69 (13) (g) 18,232
Selling, general and administration 14,604 278 - 14,882
Depreciation and amortization 4,537 5 18 (b),(d) 4,560
-------------------------------------------------------- -------------
Income from operations 4,980 53 (5) 5,028
Interest expense (6,939) - (63)(f),(b) (7,002)
Amortization of debt issue costs (296) - - (296)
-------------------------------------------------------- -------------
Income (loss) before incomes taxes (2,255) 53 (68) (2,270)
Income tax expense 96 3 - 99
-------------------------------------------------------- -------------
Net income (2,351) 50 (68) (2,369)
======================================================== =============
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
<PAGE> 29
Liberty Group Operating, Inc. and Subsidiaries
Unaudited Pro Forma Consolidated Statements of Operations
Year Ended December 31, 1999
(dollars in thousands)
<TABLE>
<CAPTION>
LIBERTY GROUP McDONOUGH AND
OPERATING, INC FULTON COUNTY PRO FORMA
CONSOLIDATED SHOPPER ADJUSTMENTS PRO FORMA
----------------------------------------------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Advertising 120,573 1,728 - 122,301
Circulation 27,543 - - 27,543
Job printing and other 13,239 22 - 13,261
----------------------------------------------------- --------------
Total revenues 161,355 1,750 - 163,105
Operating costs and expenses:
Operating costs 68,351 296 (53) (g) 68,594
Selling, general and administration 51,522 1,241 52,763
Depreciation and amortization 16,657 29 77 (b),(d) 16,763
----------------------------------------------------- --------------
Income from operations 24,825 184 (24) 24,985
Interest income/(expense) (25,216) (3) (263)(b),(f) (25,482)
Gain on exchange and disposition of assets 6,197 - - 6,197
----------------------------------------------------- --------------
Income (loss) before income taxes and
extraordinary item 5,806 181 (287) 5,700
Income tax expense 2,752 2 84 (e) 2,838
----------------------------------------------------- --------------
Income before extraordinary item 3,054 179 (371) 2,862
Extraordinary gains on insurance proceeds 485 - - 485
Net income (loss) 3,539 179 (371) 3,347
===================================================== ==============
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
<PAGE> 30
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 sheets of the Company with McDonough and Fulton as of March 31, 2000 and
the consolidated statements of operations of the Company with McDonough and
Fulton's results for the year ended December 31, 1999. In addition, the
unaudited pro forma results for the interim period combine the Company with
McDonough and Fulton for the three months ended March 31, 2000.
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) Represents recording of excess of purchase price over fair value of net
assets acquired as follows:
Purchase price $ 3,500
Acquisition fees and expenses 80
-------
Total purchase price (1) $ 3,580
Tangible net assets acquired (190)
-------
Excess purchase price $ 3,390
=======
(1) Purchase price includes cost associated with the acquisition and
$500,000 in installment payments of $200,000, $100,000, $100,000,
$50,000, and $50,000 on the first, second, third, fourth, and fifth
anniversaries of the closing date, respectively.
The excess purchase price of the acquisition has been allocated to
intangible assets. Subject to the completion of management's final
valuation of these allocated amounts, the specific intangible assets
and estimated fair value to which the excess purchase price will be
allocated include: mastheads of $166, advertising lists for $1,324, and
subscriber lists for $331 and the remainder representing goodwill. In
the opinion of management, completion of the final valuation will not
materially impact the unaudited pro forma consolidated balance sheet.
(b) Represents the elimination of the McDonough and Fulton's assets and
related depreciation expense and interest income that were not included
as part of the purchase agreement between the Company and the McDonough
and Fulton.
<PAGE> 31
(c) Represents the elimination of the McDonough and Fulton net asset
balance that would not be recorded by the Company's as part of the
acquisition.
(d) Represents the adjustment necessary to amortize the additional $3,390
of intangible assets (calculated in note (a)) over their estimated
useful lives, presently estimated for mastheads, advertising lists, and
goodwill over 40 years, and subscriber lists over 33 years.
(e) Represents the McDonough and Fulton tax expense that would have been
recorded by the Company had the purchase occurred on January 1, 1999.
(f) Represents the adjustment necessary to reflect the borrowings and
increase interest expense related to the additional borrowings of
$3.0 million related to the acquisition.
(g) Represents the elimination of the McDonough and Fulton stockholders'
excess distributions in the period, net of the salary of the current
publishers.
<PAGE> 32
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: July 17, 2000 By: /s/ KENNETH L. SEROTA
---------------------------
Title: President and Chief Executive Officer
-------------------------------------
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