<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: March 20, 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) On January 3, 2000 (but effective by agreement for accounting purposes
as of January 1, 2000), the Registrant (through Liberty Group Nevada
Holdings, Inc., a Delaware corporation and a wholly-owned subsidiary of
the Registrant (the "Registrant's Subsidiary")) purchased (i) all of
the issued and outstanding shares of capital stock (the "Elko Shares")
of Elko Daily Free Press, Inc., a Nevada corporation ("Elko"), from the
shareholders of Elko (the "Shareholders"), and (ii) certain real
property in Elko, Nevada (the "Free Press Real Property") owned by Free
Press Properties, LLC ("Free Press"), a Nevada limited liability
company and an affiliate of the Shareholders, and leased to Elko. By
acquisition of the Elko Shares, the Registrant acquired substantially
all of the assets owned by Elko, including the mastheads, trade names,
trademarks, service marks and other marks (and the goodwill associated
therewith), subscriber lists, cash on hand, inventory, accounts
receivable and equipment of the newspapers published, marketed and
distributed by Elko.
Prior to this transaction, other than the relationship between the
Shareholders and Free Press, no material relationship existed between
the Registrant and the Shareholders or Free Press, or between any
affiliates of such entities.
At the closing of the transaction, the Registrant (a) paid to the
Shareholders $10,127,507.60, in cash, and (b) deposited an additional
$1,000,000 of the cash purchase price otherwise payable to the
Shareholders for the Elko Shares (collectively, the "Share Purchase
Price") into an escrow account until July 15, 2001 pursuant to the
Escrow Agreement between the Shareholders, the Registrant's Subsidiary
and U.S. Trust Company, N.A., as escrow agent. In addition, the
Registrant paid $2,000,000 to Free Press for the Free Press Real
Property.
The Share Purchase Price is subject to a post-closing adjustment, as
set forth in the stock purchase agreement, based upon Elko's net
working capital as of January 1, 2000.
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) The Registrant acquired (i) the Elko Shares from the Shareholders and
thereby acquired substantially all of the assets owned by Elko in its
business of publishing, marketing and distributing newspapers and (ii)
the Free Press Real Property from Free Press. The Registrant will use
these assets for the same purposes as previously used by Elko.
The foregoing summary of the terms of the transaction is qualified in its
entirety by reference to the provisions of the Stock Purchase Agreement, dated
as of January 3, 2000, by and between the Shareholders, Free Press and the
Registrant's Subsidiary, a copy of which is filed as an exhibit to the
Registrant's Form 8-K filed January 18, 2000 and is incorporated by reference
herein.
-2-
<PAGE> 3
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Businesses Acquired
Independent Auditor's Report
Combined Balance Sheet as of March 31, 1999
Combined Statement of Income for the year ended March 31, 1999
Combined Statement of Changes in Stockholders' Equity for the year
ended March 31, 1999
Combined Statement of Cash Flows for the year ended March 31, 1999
Notes to 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 an exhibit included in
the Registrant's Form 8-K filed January 18, 2000)
2.1 Stock Purchase Agreement, dated as of January 3, 2000, by and
between the Stockholders of Elko Daily Free Press, Inc., Free
Press Properties, LLC and Liberty Group Nevada Holdings, Inc.
<PAGE> 4
KAFOURY, ARMSTRONG & CO.
A PROFESSIONAL CORPORATION
CERTIFIED PUBLIC ACCOUNTANTS
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of the
Elko Daily Free Press
We have audited the accompanying combined balance sheet of Elko Daily Free
Press, Inc. and certain real property owned by Free Press Partnership as of
March 31, 1999 and the related combined statements of income, changes in
stockholders' equity, and cash flows for the year then ended. These combined
financial statements are the responsibility of the owners and management of the
Elko Daily Free Press, Inc. Our responsibility is to express an opinion on these
combined financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our
opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Elko Daily Free
Press, Inc. and certain real property owned by Free Press Partnership as of
March 31, 1999, and the combined results of its operations, stockholders'
equity, and cash flows for the year then ended, in conformity with generally
accepted accounting principles.
/s/ KAFOURY, ARMSTRONG & CO.
Elko, Nevada
March 18, 2000
<PAGE> 5
ELKO DAILY FREE PRESS, INC. AND
CERTAIN REAL PROPERTY OWNED BY FREE PRESS PARTNERSHIP
COMBINED BALANCE SHEET
MARCH 31, 1999
ASSETS
CURRENT ASSETS
Cash $ 272,169
Accounts receivable, net of allowance of $14,434 421,637
Inventories 48,310
Prepaid expenses 11,921
Prepaid income taxes 3,564
Deferred tax benefit 7,041
Note receivable 959
Notes receivable related parties, current portion 14,197
Marketable securities 244,833
------------
1,024,631
------------
PROPERTY AND EQUIPMENT
Buildings and improvements 1,182,339
Machinery and equipment 1,198,325
Furniture and fixtures 151,035
Transportation equipment 152,590
------------
2,684,289
Less: Accumulated depreciation (1,502,804)
------------
1,181,485
Land 115,000
------------
1,296,485
------------
OTHER ASSETS
Deposits 11,995
Computer software costs, net of amortization 9,358
Non-compete covenant 30,825
Notes receivable, related parties 31,565
Other investments 47,006
------------
130,749
------------
$ 2,451,865
============
<PAGE> 6
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 68,915
Current maturity of long-term note 66,121
Current maturity of non-compete covenant 10,000
Accrued wages and vacation 49,309
Accrued expenses 32,656
--------------
227,001
--------------
LONG-TERM LIABILITIES
Notes payable 332,608
Non-compete covenant 20,833
Deferred taxes 5,364
--------------
358,805
--------------
OTHER LIABILITIES
Unearned subscription income 142,986
--------------
Total Liabilities 728,792
--------------
STOCKHOLDERS' EQUITY
Common stock: Authorized 25,000 shares; no par value
1,000 shares issued and 206 shares outstanding 61,564
Preferred stock: Authorized 2,500 shares, no par value;
non-voting, nonparticipating, non-convertible with a
non-cumulative dividend of 7% per annum; 1,150 shares
issued with 114 outstanding 5,948
Additional paid-in capital 21,822
Additional paid-in capital: building 657,611
Accumulated other comprehensive income (5,018)
Retained earnings 2,138,129
--------------
2,880,056
Less: Treasury stock, 1,830 shares at cost (1,156,984)
--------------
1,723,072
--------------
$ 2,451,864
==============
The accompanying notes are an integral part of these financial statements.
<PAGE> 7
ELKO DAILY FREE PRESS, INC. AND
CERTAIN REAL PROPERTY OWNED BY FREE PRESS PARTNERSHIP
COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED MARCH 31, 1999
AMOUNT PERCENT
----------- --------
REVENUE
Job printing $ 607,138 13.7
Subscriptions 660,111 14.9
Advertising 2,358,212 53.3
Classified advertising 746,776 16.9
Miscellaneous 54,498 1.2
----------- --------
4,426,735 100.0
----------- --------
COST OF SALES
Beginning inventory, April 1 56,795
Purchases 603,576
Salaries 1,251,250
News services 87,291
Carrier and delivery 130,332
Newspaper postage 72,475
T.M.C. costs 145,937
Advertising discounts 356,468
-----------
2,704,124
Less: Ending inventory, March 31 48,310
-----------
2,655,814 60.0
----------- --------
Gross Profit 1,770,921 40.0
----------- --------
GENERAL AND ADMINISTRATIVE EXPENSES
Officer salaries 306,133 6.9
Other salaries 122,042 2.8
Payroll taxes 178,684 4.0
Advertising and promotion 13,731 0.3
Insurance 111,866 2.5
Legal and accounting 13,413 0.3
Office supplies and postage 22,754 0.5
Repairs and maintenance 41,037 0.9
Utilities 32,440 0.7
Telephone 18,652 0.4
Travel and entertainment 38,683 0.9
Depreciation 158,982 3.6
Bad debts 17,604 0.4
Taxes and licenses 27,972 0.6
Rent 11,611 0.3
Contributions 13,206 0.3
<PAGE> 8
AMOUNT PERCENT
--------- --------
Dues and subscriptions 8,034 0.2
Auto costs 35,518 0.8
Employee education/moving 1,512 -
Airplane costs 6,469 0.1
Janitorial 12,485 0.3
Software costs 8,022 0.2
Amortization: non-compete covenant 10,008 0.2
--------- --------
1,210,858 27.2
--------- --------
Income from Operations 560,063 12.8
--------- --------
OTHER INCOME (EXPENSES)
Finance income 5,476 0.1
Interest income 12,327 0.3
Dividend income 5,774 0.1
Gain on investments 8,238 0.2
Miscellaneous expense (4,838) (0.1)
Profit sharing plan contribution (63,314) (1.4)
Interest expense (38,987) (0.9)
Loss on sale of assets (1,720) -
--------- --------
(77,044) (1.7)
--------- --------
Income Before Income Taxes 483,019 11.1
Provision For Income Taxes 111,438 2.5
--------- --------
Net Income 371,581 8.6
========= ========
The accompanying notes are an integral part of these financial statements.
<PAGE> 9
ELKO DAILY FREE PRESS, INC. AND
CERTAIN REAL PROPERTY OWNED BY FREE PRESS PARTNERSHIP
COMBINED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
OTHER
COMPREHENSIVE RETAINED COMPREHENSIVE COMMON PREFERRED
TOTAL INCOME EARNINGS INCOME STOCK STOCK
----------- ------------- ------------ ------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance March 31, 1998 $ 2,509,707 $ $ 1,933,067 $ (3,786) $ 61,564 $ 5,948
Comprehensive income:
Net income 371,581 371,581 205,062 - - -
Unrealized holding gains (losses),
net of reclassification adjustment (1,232) (1,232) - (1,232) - -
----------- ------------- ------------ --------- -------- --------
Comprehensive Income $ 370,349
=============
Balance March 31, 1999 $ 2,880,056 $ 2,138,129 $ (5,018) $ 61,564 $ 5,948
=========== ============ ========= ======== ========
Disclosure of reclassification amount:
Unrealized holding losses arising during period $ (5,198)
Less: reclassification adjustment for losses included in net income 3,966
------------
Net unrealized losses on securities $ (1,232)
============
<CAPTION>
PAID-IN
PAID-IN CAPITAL
CAPITAL BUILDING
--------- ----------
<S> <C> <C>
Balance March 31, 1998 $ 21,822 $ 491,092
Comprehensive income:
Net income - 166,519
Unrealized holding gains (losses),
net of reclassification adjustment - -
--------- ---------
Comprehensive Income
Balance March 31, 1999 $ 21,822 $ 657,611
========= =========
Disclosure of reclassification amount:
Unrealized holding losses arising during period
Less: reclassification adjustment for losses included in net income
Net unrealized losses on securities
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 10
ELKO DAILY FREE PRESS, INC. AND
CERTAIN REAL PROPERTY OWNED BY FREE PRESS PARTNERSHIP
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED MARCH 31, 1999
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 371,581
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation/Amortization 177,012
(Increase) decrease in assets:
Receivables (39,707)
Inventories 8,485
Prepaid expenses 5,922
Deposits (1,825)
Increase (decrease) in liabilities:
Accounts payable (12,847)
Accrued expenses (30,427)
Deferred taxes 11,968
Unearned subscription revenue (10,254)
Realized gain on marketable securities (10,619)
Loss on sale of equipment 1,720
----------
Net Cash Provided by Operating Activities 471,009
----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (49,709)
Purchase of marketable securities (183,057)
Proceeds from sale of marketable securities 47,070
Payments on non-compete contract (10,000)
Payments received from related party notes 4,855
----------
Net Cash Applied to Investing Activities (190,841)
----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payment received on notes receivables 1,907
Repayments of notes payable (60,451)
Purchase of treasury stock (20,000)
----------
Net Cash Applied to Financing Activities (78,544)
----------
Net Increase in Cash 201,624
CASH BALANCE, March 31 70,545
----------
CASH BALANCE, April 1 $ 272,169
==========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTNG
AND FINANCING ACTIVITIES
Income reinvested on marketable securities $ (14,585)
Unrealized loss on marketable securities 1,232
----------
$ (13,353)
==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Total federal income tax paid $ 103,034
==========
Total interest paid $ 38,987
==========
The accompanying notes are an integral part of these financial statements.
<PAGE> 11
ELKO DAILY FREE PRESS, INC. AND
CERTAIN REAL PROPERTY OWNED BY FREE PRESS PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
- - Nature of business - Elko Daily Free Press, Inc. (EDFP) publishes a local
daily newspaper every day except Sunday and provides job printing services
to northeastern Nevada. Free Press Partnership (FPP) owns and leases real
property to EDFP. Fpp IS 60% OWNED BY THE STOCKHOLDERS OF EDFP. The
operations of EDFP and certain real property owned by FPP represent the
business acquired as described in Note 10.
- - Basis of Presentation - The accompanying combined financial statements
represent all of the net assets and associated revenues, expenses, and cash
flows of the business assuming that the business was organized for all
periods as a separate legal entity. Intercompany transactions between
entities comprising the business have been eliminated in the presentation
of the combined financial statements.
- - Inventories - Inventories are stated at the lower of cost or market. Cost
is determined principally by the first-in, first-out method.
- - Depreciation - Depreciation is provided for in amounts sufficient to relate
the cost of depreciable assets to operations over their estimated service
lives, principally on accelerated methods. All assets are stated at cost at
time of acquisition.
- - Computer software cost - Computer software costs are being amortized over
three years using the straight-line method and are stated at acquisition
cost less accumulated amortization. The accumulated amortization for the
year ended March 31, 1999 is $8,022.
- - Use of 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 the reported amounts of revenues and expenses for the year
ended March 31, 1999. These estimates are based on management's knowledge
and experience and due to their prospective nature, actual results could
differ from those estimates.
- - Income taxes - The business provides for deferred income taxes, based on
the estimated future tax effects of differences between financial statement
carrying amounts and the tax bases of existing assets and liabilities
related to the newspaper and job printing operations. Certain real property
owned by FPP have retained their partnership tax attributes.
- - Cash and Cash Equivalents - Cash and cash equivalents consist of all cash
and marketable securities with a maturity of three months or less.
- - Concentrations of credit risk and economic dependency - Financial
instruments that potentially subject the business to credit risk consist
principally of cash and trade receivables. The business holds cash in
several financial institutions. However, FSLIC coverage was exceeded by
$59,558 at one institution. The newspaper's circulation exists principally
in northeastern Nevada and the economy in this locale is largely influenced
by the mining industry. Consequently, the economic well-being of the
business is, in large part, dependent on the mining industry's economic
well-being.
- - Advertising Costs - Advertising costs are charged to expense as incurred.
<PAGE> 12
ELKO DAILY FREE PRESS, INC. AND
CERTAIN REAL PROPERTY OWNED BY FREE PRESS PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
Note receivable as of March 31, 1999 consists of the following:
Note receivable from Kathy Dodge, an employee, dated January 30, 1998.
The note is unsecured and payable $150 monthly including interest at
6.5% beginning March 1, 1998 and maturing on December 31, 1999.
$959
Less: Current Maturity 959
----
$ -
====
NOTE 3 - RELATED PARTY NOTES RECEIVABLE:
Related party notes as of March 31, 1999 consists of the following:
Note receivable from Mr. Dan Steninger (stockholder), payable
through payroll deduction at $338 semi-monthly including
interest at 4.86%. The note is unsecured and will mature
April 30, 2002. $ 17,269
Note receivable from Mr. Kim Steninger (stockholder),
accrued interest payable at the semi-annual applicable
federal rate. Commencing June 1, 2000 a minimum payment
of $1,000 will be due monthly. This will be applied first
to accrued interest at the date of payment and the
remainder applied to the principal balance. 28,493
---------
Total related party notes receivable 45,762
Less: Current maturities 14,197
---------
$ 31,565
=========
NOTE 4 - MARKETABLE SECURITIES:
Investment securities are classified as "available-for-sale."
Accordingly, unrealized gains and losses and the related deferred income tax
effects are excluded from net income and included as part of a separate
component of stockholders' equity entitled "accumulated other comprehensive
income." The following are the investment securities available for sale as of
March 31, 1999:
1,400 shares Royal Gold, Inc. $ 10,158
2,390.129 shares Growth Fund of America, Inc. 52,542
1,548.082 shares Washington Mutual Investors Fund, Inc. 50,526
839.751 shares Fundaments Investors, Inc. 24,330
992.516 shares New Perspective Fund Inc. 23,314
7,800 shares Van Kampen Sen Income Trust 74,510
1,048.218 shares Morgan Stanley Dean Witter Value Fund B 10,000
---------
<PAGE> 13
ELKO DAILY FREE PRESS, INC. AND
CERTAIN REAL PROPERTY OWNED BY FREE PRESS PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
Total cost 245,380
Unrealized gains (losses) (547)
---------
Fair value of securities $ 244,833
=========
The business also owns 168 ounces of gold coins whose value fluctuates
with the worldwide gold market. These unrealized gains and losses and the
related deferred income tax effects are also excluded from net income and
included as part of the separate component of stockholders' equity entitled
"accumulated other comprehensive income." The following is the change in value
of this investment as of March 31, 1999:
Total cost $ 51,477
Unrealized gains (losses) (4,471)
---------
Fair value of investment $ 47,006
=========
NOTE 5 - COVENANT NOT TO COMPETE:
The business acquired an agreement not to compete prohibiting John M.
and Mae Steninger (former employees and shareholders) from competing against the
business within the State of Nevada for a period of ten years. In consideration
for the agreement, the business agreed to pay the Steninger's the sum of
$100,000 in monthly installments of $833.34. The covenant not to compete is
being amortized over the life of the agreement which is the same as the
scheduled payments. The balance of the asset, net of amortization and the
liability due to the Steningers as of March 31, 1999 is $30,825. The maturity of
this liability for years after March 31, 1999, based on present arrangements, is
as follows:
Year Amount
---------------- --------------
2000 $ 10,000
2001 10,000
2002 10,000
2003 833
--------------
$ 30,833
==============
NOTE 6 - NOTE PAYABLE:
Note payable as of March 31, 1999 consists of the following:
<PAGE> 14
ELKO DAILY FREE PRESS, INC. AND
CERTAIN REAL PROPERTY OWNED BY FREE PRESS PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
Note payable to John M. and Mae Steninger, $8,276
monthly including interest at 9%. The note is
secured by common stock of the company. $ 398,729
Less: Current maturity
66,121
-----------
$ 332,608
===========
The maturity of the note payable for years after March 31, 1999, based
on present arrangements, is as follows:
Year Amount
----------------- -----------
2000 $ 66,121
2001 72,324
2002 79,109
2003 86,529
2004 94,646
-----------
$ 398,729
===========
NOTE 7 - EMPLOYEE PROFIT SHARING PLAN:
The business adopted an employee profit sharing plan during March 1983.
The plan is non-contributory, covers all employees who meet age and service
requirements, and allows participants to be fully vested within three years.
Under the plan, the annual discretionary contribution is determined by the Board
of Directors and is limited to fifteen percent of aggregate compensation of the
plan participants. The contributions to the plan for the year ended March 31,
1999 were $63,314. As of March 31, 1999, the fair value of plan assets available
for participants is $1,261,330.
NOTE 8 - INCOME TAXES:
The provision for income taxes is as follows:
Current $ 99,470
Deferred 11,968
-----------
$ 111,438
===========
The components of deferred tax assets and (liabilities) for the year
ending March 31, 1999 are as follows:
<PAGE> 15
ELKO DAILY FREE PRESS, INC. AND
CERTAIN REAL PROPERTY OWNED BY FREE PRESS PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
Deferred Tax Assets:
Allowance for bad debt $ 2,165
Vacation accrual 4,876
--------------
7,041
--------------
Deferred Tax Liabilities:
Accelerated depreciation (5,364)
Net Deferred Tax Assets
(Liabilities) $ 1,677
--------------
Represented by:
Current $ 7,041
Long-Term (5,364)
--------------
$ 1,677
==============
NOTE 9 - TREASURY STOCK:
During the year ending March 31, 1995, the management, with Board of
Director approval, began to redeem outstanding preferred stock. The final
redemption payment for the retirement of all outstanding preferred stock will
occur during the year ended March 31, 2000. The business expended $20,000 for
the year ended March 31, 1999 to redeem 200 shares of preferred stock.
NOTE 10 - SUBSEQUENT EVENTS:
On January 3, 2000 the business was acquired by Liberty Group
Publishing. The acquisition consisted of the purchase of EDFP's outstanding
common stock from the existing shareholders and the building and land EDFP
leased for use in its operations from FPP.
<PAGE> 16
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 the acquisition of Elko Daily Free Press, Inc., and certain real
property owned by Free Press Partnership (collectively, "Elko"). The pro forma
financial information is based on the respective historical financial statements
of Liberty Group Operating, Inc. and subsidiaries (the "Company") and Elko
giving effect to the acquisition 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
acquisition had occurred on January 1, 1998. The unaudited pro forma balance
sheet as of September 30, 1999 gives effect to the acquisition as if it 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
Elko as of December 31, 1999 and the consolidated statements of operations of
the Company for the year ended December 31, 1998 with Elko's results for the
fiscal year ended March 31, 1999. In addition, the unaudited pro forma results
for the interim period combine the Company for the nine months ended September
30, 1999 with Elko for the nine months ended December 31, 1999. The financial
effects of the acquisition 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 Elko Daily Free Press, Inc., and certain real property owned by
Free Press Partnership and notes thereto included elsewhere in this Form 8-K/A.
<PAGE> 17
Liberty Group Operating, Inc. and Subsidiaries
Unaudited Pro Forma Consolidated Balance Sheet
September 30, 1999
(dollars in thousands)
<TABLE>
<CAPTION>
Liberty Group
Operating, Inc Pro Forma
Consolidated Elko Adjustments Pro forma
-------------------------------- --------
<S> <C> <C> <C> <C>
ASSET
Current assets:
Cash and cash equivalents -- 424 -- 424
Accounts receivable, net 19,742 625 -- 20,367
Inventories 1,938 66 -- 2,004
Prepaid expenses 679 6 -- 685
Other current assets 644 74 -- 718
-------------------------------- --------
Total current assets 23,003 1,195 -- 24,198
Property, plant and equipment, net 35,763 1,276 -- 37,039
Intangible assets, net 403,903 -- 13,720a 417,623
Deferred financing costs, net 6,539 -- -- 6,539
Other assets -- 138 (51)g 87
-------------------------------- --------
Total assets 469,208 2,609 13,669 485,486
================================ ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under revolving credit facility 92,400 -- 13,128e 105,528
Current portion of long-term liabilities 400 81 -- 481
Accounts payable 4,528 62 -- 4,590
Accrued expenses 12,834 67 28a,b,f 12,929
Deferred revenue 6,897 150 -- 7,047
-------------------------------- --------
Total current liabilities 117,059 360 13,156 130,575
Senior subordinated notes 180,000 -- -- 180,000
Long-term liabilities, less current portion 1,517 292 -- 1,809
Deferred income taxes 15,691 10 2,460a 18,161
-------------------------------- --------
Total liabilities 314,267 662 15,616 330,545
Stockholders' equity:
Common stock -- 62 (62)g --
Preferred stock -- 6 (6)g --
Treasury stock -- (1,172) 1,172g --
Additional paid-in capital 148,663 624 (624)g 148,663
Accumulated earnings 6,278 2,427 (2,427)g 6,278
-------------------------------- --------
Total stockholders' equity 154,941 1,947 (1,947) 154,941
Total liabilities and stockholders' equity 469,208 2,609 13,669 485,486
================================ ========
</TABLE>
See accompanying notes to unaudited pro forma consolidated
financial statements.
<PAGE> 18
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 Pro Forma
Consolidated Elko Adjustments Pro forma
================================ =========
<S> <C> <C> <C> <C>
Revenues:
Advertising 86,707 2,310 -- 89,017
Circulation 20,250 486 -- 20,736
Job printing and other 9,636 535 -- 10,171
-------------------------------- ---------
Total revenues 116,593 3,331 -- 119,924
Operating costs and expenses:
Operating costs 51,787 1,779 -- 53,566
Selling, general and administration 34,554 1,110 (306)b,c 35,358
Depreciation and amortization 11,093 95 260 d,h 11,448
-------------------------------- ---------
Income from operations 19,159 347 46 19,552
Interest expense 17,790 24 837 e 18,651
Other expense 815 -- -- 815
-------------------------------- ---------
Income [loss] before net gain on exchange and disposition
of assets and income tax expense 554 323 (791) 86
Net gain on exchange and disposition of assets 6,689 68 (68)b 6,689
Income tax expense -- 90 (90)f --
-------------------------------- ---------
Net income 7,243 301 (769) 6,775
================================ =========
</TABLE>
See accompanying notes to unaudited pro forma
consolidated financial statements.
<PAGE> 19
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 PRO FORMA
CONSOLIDATED ELKO ADJUSTMENTS PRO FORMA
============================================== =========
<S> <C> <C> <C> <C>
Revenues:
Advertising 81,554 2,749 - 84,303
Circulation 22,844 660 - 23,504
Job printing and other 8,133 662 - 8,795
--------------------------------------------- ---------
Total revenues 112,531 4,071 - 116,602
Operating costs and expenses:
Operating costs 45,976 2,120 - 48,096
Selling, general and administration 36,303 1,270 (298)c 37,275
Depreciation and amortization 11,917 169 342 d,h 12,428
--------------------------------------------- ---------
Income from operations 18,335 512 (44) 18,803
Interest expense 19,300 27 1,116 e 20,443
--------------------------------------------- ---------
Income (loss) before net loss on sale of
assets and income taxes (965) 485 (1,160) (1,640)
Net loss on sale of assets - 2 - 2
Income tax expense - 111 (111) f -
--------------------------------------------- ---------
Net income (loss) (965) 372 (1,049) (1,642)
============================================= =========
</TABLE>
See accompanying notes to unaudited pro forma
consolidated financial statements.
<PAGE> 20
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
Elko as of December 31, 1999 and the consolidated statements of operations of
the Company for the year ended December 31, 1998 with Elko's results for the
fiscal year ended March 31, 1999. In addition, the unaudited pro forma results
for the interim period combine the Company for the nine months ended September
30, 1999 with Elko for the nine months ended December 31, 1999.
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 of acquisition over fair
value of net assets acquired, as follows:
Purchase price $ 13,128
Tax effects of stock purchase 2,460
Acquisition fees and expenses 80
-----------
Total purchase price (1) $ 15,668
Tangible net assets acquired (1,947)
-----------
Excess purchase price $ 13,721
-----------
(1) Purchase price includes costs associated with the acquisition and
acquired deferred tax liabilities.
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 values to which the excess purchase price will be
allocated include: mastheads for $559 advertising lists for $4,472
subscriber lists for $1,118, and the remainder representing goodwill. In
the opinion of management, completion of the final valuation will not
materially impact on the unaudited pro forma consolidated balance sheet.
(b) Represents the distribution of assets to the shareholders of Elko prior
to the acquisition of Elko by the Company, which were recorded as a
compensation expense, payroll tax liability, and resulting gain on the
disposal.
(c) Represents the elimination of the Elko shareholders' excess distributions
in the period, net of the salary of the current publisher.
(d) Represents the adjustment necessary to amortize the additional $13,721
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. In the opinion of management,
completion of the allocation of the purchase price will not materially
impact the estimate of the fair value of intangible assets or their
useful lives and, therefore, will not materially impact the unaudited
pro forma consolidated statement of operations.
<PAGE> 21
(e) Represents the adjustment necessary to increase interest expense related
to the additional borrowings of $ 13.1 million related to the
acquisition.
(f) Represents the elimination of the Elko tax expense that would not be
recorded by the Company had the exchange occurred on January 1, 1998.
(g) Represents certain Elko assets and Shareholders' equity that were not
transferred to the Company on acquisition.
(h) Represents the elimination of the depreciation expense related to the
excluded assets.
<PAGE> 22
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.
Dated: March 20, 2000 Liberty Group Nevada Holdings, Inc.
By /s/ Kevin O'Shea
------------------------------------------
Kevin O'Shea
Executive Vice President,
Chief Financial Officer and Secretary
<PAGE> 23
Exhibit Index
<TABLE>
<CAPTION>
Sequential
Page
Exhibit # Item Number
- ---------- --------------------------------------------------- -----------
<S> <C> <C>
</TABLE>
