10-K/A 1 c72469a1e10vkza.txt AMENDMENT TO ANNUAL REPORT DATED 12/31/01 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-K/A Amendment No. 1 FOR ANNUAL AND TRANSITIONAL REPORTS PURSUANT TO SECTIONS 13 AND 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |X| FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER: 333-46959 LIBERTY GROUP OPERATING, INC. (Exact name of registrant as specified in its charter) DELAWARE 36-4197636 (State or Other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification No.) 3000 Dundee Road, Suite 203 60062 Northbrook, Illinois (Zip Code) (Address of principal offices) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (847) 272-2244 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE -------------------- Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The number of shares outstanding of the registrant's common stock, par value $.01 per share, as of March 30, 2002 was 100 all of which is owned by the parent company of the registrant. There is no public market for the common stock. ================================================================================ EXPLANATORY NOTE This Amendment No. 1 to the Annual Report on Form 10-K for Liberty Group Operating, Inc. for the year ended December 31, 2001 is being filed to, among other things, include a definition of EBITDA and to make certain other changes with respect to the presentation of EBITDA in the Annual Report on Form 10-K originally filed with the Securities and Exchange Commission on April 2, 2002. This Report speaks as of the date of the original filing, and the Company has not updated the disclosures in this Report to speak as of a later date. DRAFT TABLE OF CONTENTS PART I Item 1. Business........................................................................... 2 Item 2. Properties......................................................................... 15 Item 3. Legal Proceedings.................................................................. 16 Item 4. Submission of Matters to a Vote of Security Holders................................ 16 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.............. 17 Item 6. Selected Financial Data............................................................ 17 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations......................................................................... 19 Item 7A. Quantitative and Qualitative Disclosures about Market Risk......................... 25 Item 8. Financial Statements and Supplementary Data........................................ 25 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......................................................................... 25 PART III Item 10. Directors and Executive Officers of the Registrant................................. 26 Item 11. Executive Compensation............................................................. 28 Item 12. Security Ownership of Certain Beneficial Owners and Management..................... 31 Item 13. Certain Relationships and Related Transactions..................................... 31 PART IV Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K..................... 32 (a) Consolidated Financial Statements, Financial Statement Schedule and Exhibits (b) Reports on Form 8-K

PART I DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS This amended Annual Report contains certain "forward-looking statements" (as defined in Section 21E of the Securities Exchange Act of 1934) that reflect the Company's expectations regarding its future growth, results of operations, performance and business prospects and opportunities. Words such as "anticipates," "believes," "plans," "expects," "intends," "estimates" and similar expressions have been used to identify these forward-looking statements, but are not the exclusive means of identifying these statements. These statements reflect the Company's current beliefs and expectations and are based on information currently available to the Company. Accordingly, these statements are subject to known and unknown risks, uncertainties and other factors that could cause the Company's actual growth, results of operations, performance and business prospects and opportunities to differ from those expressed in, or implied by, these statements. As a result, no assurance can be given that the Company's future growth, results of operations, performance and business prospects and opportunities covered by such forward-looking statements will be achieved. Such factors include, among others: (1) the Company's dependence on local economies and vulnerability to general economic conditions; (2) the Company's substantial indebtedness; (3) the Company's holding company structure; (4) the Company's ability to implement its acquisition strategy; (5) the Company's competitive business environment, which may reduce demand for advertising; and (6) the Company's ability to attract and retain key employees. For purposes of this amended Annual Report, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. The Company is not obligated to update or revise these forward-looking statements to reflect new events or circumstances. ITEM 1. BUSINESS OVERVIEW Liberty Group Operating, Inc. (the "Company", "Operating Company", "LGO", or "Registrant") is a Delaware corporation formed on January 27, 1998 for purposes of acquiring a portion of the daily and weekly newspapers owned by American Publishing Company or its subsidiaries ("APC"), a wholly-owned subsidiary of Hollinger International Inc. ("Hollinger"). LGO is a wholly-owned subsidiary of Liberty Group Publishing, Inc. ("Parent" or "LGP"). The consolidated financial statements include the accounts of Operating Company and its consolidated subsidiaries. The Company is a leading U.S. publisher of local newspapers and related publications that are the dominant source of local news and print advertising in their markets. At December 31, 2001, the Company owned and operated 328 publications in 17 states. The Company's 2001 total revenues were derived from advertising (75%), circulation (18%) and job print and other (7%). The majority of the Company's paid daily newspapers have been published for more than 100 years and are typically the only paid daily newspapers of general circulation in their respective non-metropolitan markets. The Company's newspapers generally face limited competition as a result of operating in markets that are distantly located from large metropolitan areas and that can typically support only one primary newspaper, with the exception of the Company's publications in the Chicago suburban market. The Company has increased revenues and income from operations since 1998 primarily by acquiring new publications, saturating existing markets and aggressively pursuing cost reduction opportunities. The Company's newspapers are comprised of 67 paid daily newspapers and 147 paid non-daily newspapers. In addition, the Company publishes 114 free circulation and "total market coverage" ("TMC") publications with limited or no news or editorial content. TMC publications are distributed free of charge and generally provide 100% penetration in their areas of distribution. The Company believes that its paid newspapers, together with its free circulation and TMC publications, are an effective medium for advertisers to reach substantially all of the households in the markets served by the Company. The Company's publications focus on local content, including coverage of local youth, high school and college sports, as well as local business, politics, entertainment and cultural news. Each of the Company's publications is tailored to its market in order to provide local content that radio, television and large metropolitan newspapers are generally unable to provide on a cost-effective basis because of their broader geographic coverage. 2 The Company maintains its principal executive offices at 3000 Dundee Road, Suite 203, Northbrook, Illinois 60062, and its telephone number is (847) 272-2244. INITIAL ACQUISITION On January 27, 1998, the Company acquired from APC virtually all of the assets that were used primarily in the business of publishing, marketing and distributing APC's local newspapers (the "Initial Acquisition"). The Initial Acquisition, including the payment of related fees and expenses, was financed from: (1) proceeds of $180.0 million from the issuance and sale of LGO's 9 3/8% Senior Subordinated Notes due February 1, 2008 (the "Notes"); (2) proceeds of $50.5 million from the issuance and sale of LGP's 11 5/8% Senior Discount Debentures due February 1, 2009 (the "Debentures"); (3) proceeds of $45.0 million from the issuance and sale of LGP's 14 3/4% Senior Redeemable Exchangeable Cumulative Preferred Stock, liquidation preference $25 per share (the "Senior Preferred Stock"); (4) proceeds of $49.0 million from the issuance and sale of LGP's Series B 10% Junior Redeemable Cumulative Preferred Stock ("Junior Preferred Stock"); and (5) proceeds of $8.0 million from the issuance and sale of shares of LGP's common stock, par value $0.01 per share (the "LGP Common Stock"). The Company has accounted for the Initial Acquisition using the purchase method of accounting. Accordingly, the costs of the Initial Acquisition have been allocated to the assets acquired and liabilities assumed based upon their respective fair values using independent valuations. The fair values of certain identifiable intangible assets acquired are being amortized over periods ranging from five to 40 years. Through the end of 2001, any goodwill allocated to the Initial Acquisition was amortized over 40 years. Beginning in 2002, and for subsequent years, the Company will discontinue this goodwill amortization in accordance with Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets" (see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Critical Accounting Policy Disclosure"). Prior to the Initial Acquisition, the Company operated as a business unit of APC (the "Predecessor") and as such did not file separate tax returns. The income tax provision included in the Predecessor's financial data, included in Item 6. "Selected Financial Data," was computed as if the Predecessor were a separate company. Since the Initial Acquisition, the Company has been and anticipates that it will be, for the foreseeable future, in a tax loss position. Given the uncertainty as to the timing of the Company's ability to utilize such losses to offset future taxable income, the Company does not presently anticipate recording any tax benefit associated with its pre-tax losses. In addition, due to the acquisition of the Company's assets from APC, the Company's asset values and capital structure are materially different than those set forth in the Predecessor's financial data for periods preceding the Initial Acquisition and, accordingly, historical interest expense is not indicative of the interest expense that the Company has incurred or will continue to incur. OVERVIEW OF OPERATIONS The Company's operations consist of 328 local newspapers and publications strategically positioned in markets in 17 states. The Company's publications are comprised of 67 paid daily and 147 paid non-daily newspapers. In addition, the Company publishes 114 free circulation publications with limited or no news or editorial content. The following is a summary of the publications owned by the Company as of December 31, 2001, separated by state, region and the name and type of publication (as abbreviated below): 3 (D=DAILY, W=WEEKLY, S=SHOPPER, T=TOTAL MARKET COVERAGE, F=FREE, A=ANNUAL, BI-A=BI-ANNUAL, MAG=MAGAZINE) ARIZONA GLOBE ARIZONA SILVER BELT (W) GILA COUNTY ADVANTAGE (S) MOCCASIN (W) ARKANSAS HEBER SPRINGS THE SUN TIMES (W) HELENA THE DAILY WORLD (D) DAILY WORLD TMC (T) RICE WORLD (W) NEWPORT NEWPORT INDEPENDENT (W) STUTTGART STUTTGART DAILY LEADER (D) THE STUTTGART DAILY TMC (T) CALIFORNIA GRIDLEY THE GRIDLEY HERALD (W) THE GRIDLEY SHOPPING NEWS (S) MOUNT SHASTA DUNSMUIR NEWS (W) MOUNT SHASTA HERALD (W) SUPERSAVER ADVERTISER (S) VOICE OF THE MOUNTAIN (T) WEED PRESS (W) TAFT DAILY MIDWAY DRILLER (D) THE WESTSIDE SHOPPING NEWS (T) YREKA SISKIYOU DAILY NEWS (D) SISKIYOU DAILY NEWS "EXTRA" (T) IDAHO BURLEY SOUTH IDAHO PRESS (D) SUPER TUESDAY (S) HAILEY WOOD RIVER JOURNAL (W) WOOD RIVER JOURNAL DINING (W) JEROME NORTH SIDE NEWS (W) THE GOODING COUNTY LEADER (W) LINCOLN COUNTY JOURNAL (W) MINODOKA MINIDOKA COUNTY NEWS (W) 4 ILLINOIS ALEDO TIMES RECORD (W) TOWN CRIER (S) BENTON BENTON EVENING NEWS (D) THE BENTON STANDARD (W) CANTON DAILY LEDGER (D) SPOON RIVER ADVERTISER (S) FULTON COUNTY SHOPPER (S) CARMI THE CARMI TIMES (D) THE WEEKLY TIMES (W) WHITE COUNTY SHOPPER NEWS (S) CHESTER CHESTER HERALD TRIBUNE (W) CHRISTOPHER CHRISTOPHER PROGRESS (W) DUQUOIN DUQUOIN EVENING CALL (D) THE ASHLEY NEWS (W) DUQUOIN NEWS (W) DWIGHT DWIGHT STAR & HERALD (W) GARDNER CHRONICLE (W) COURIER PRESS (HERSCHER) (W) FAIRBURY THE BLADE (W) FLORA CCAP SPECIAL (T) DAILY ADVOCATE PRESS (D) GALATIA MONEY STRETCHER (S) GENESEO HENRY COUNTY ADVERTIZER (S) THE GENESEO REPUBLIC (W) CAMBRIDGE GAZETTE (W) ORION GAZETTE (W) HARRISBURG ELDORADO DAILY JOURNAL (D) HARRISBURG DAILY REGISTER (D) HERRIN THE SPOKESMAN (W) THE SPOKESMAN SUNDAY (T) KEWANEE STAR COURIER (D) STAR EXTRA (T) MACOMB MACOMB JOURNAL (D) JOURNAL EXTRA (T) MCDONOUGH COUNTY SHOPPER (S) MARION MARION DAILY REPUBLICAN (D) MARION DAILY EXTRA (T) 5 MONMOUTH DAILY REVIEW ATLAS (D) OQUAWKA CURRENT (W) PENNYSAVER (S) THE PAPER (S) MURPHYSBORO MURPHYSBORO AMERICAN (W) AMERICAN MONDAY (T) NEWTON NEWTON PRESS-MENTOR (W) NORRIS CITY NORRIS CITY BANNER (W) OLNEY ADVANTAGE (S) JASPER COUNTY NEWS EAGLE, ADVANTAGE (F) THE OLNEY DAILY MAIL (D) THE WEEKLY MAIL (W) PEKIN PEKIN DAILY TIMES (D) TIMES REVIEW (T) PONTIAC DAILY LEADER (D) HOME TIMES (W) LIVINGSTON SHOPPING NEWS (S) SHAWNEETOWN GALLATIN DEMOCRAT (W) RIDGWAY NEWS (W) SPRINGFIELD SPRINGFIELD SHOPPER (S) SUBURBAN CHICAGO NEWSPAPERS BERWYN/STICKNEY/FOREST VIEW LIFE (W) CICERO LIFE (W) BROOKFIELD/LYONS SUBURBAN LIFE (W) COUNTRYSIDE/HODGKINS/INDIAN HEAD PARK/ BROOKFIELS SUBURBAN LIFE (W) HILLSIDE/BROADVIEW/BERKELEY PRESS (W) LAGRANGE/LAGRANGE PARK SUBURBAN LIFE (W) NORTH RIVERSIDE/RIVERSIDE SUBURBAN LIFE (W) WESTCHESTER SUBURBAN LIFE (W) WESTERN SPRINGS SUBURBAN LIFE (W) WESTCHESTER NEWS (W) LAGRANGE PRESS(W) ADDISON PRESS (W) BENSENVILLE/WOODDALE PRESS (W) ELMHURST PRESS (W) LOMBARD SPECTATOR (W) OAKBROOK TERRACE/VILLA PARK PRESS (W) ELMHURST SUBURBAN LIFE (W) LOMBARD SUBURBAN LIFE (W) VILLA PARK SUBURBAN LIFE (W) BURR RIDGE/WILLOWBROOK SUBURBAN LIFE (W) CLARENDON HILLS SUBURBAN LIFE (W) DARIEN SUBURBAN LIFE (W) DOWNERS GROVE REPORTER (W) HINSDALE/OAK BROOK SUBURBAN LIFE (W) WESTMONT SUBURBANLIFE (W) LISLE/NAPERVILLE REPORTER (W) WOODRIDGE PROGRESS (W) 6 LEMONT REPORTER/METROPOLITAN (W) BOLINGBROOK/ROMEOVILLE REPORTER/METROPOLITAN (W) BURR RIDGE PROCESS (W) CLARENDON HILLS PROGRESS (W) DARIEN PROGRESS (W) HINSDALE PROGRESS (W) WESTMONT PROGRESS (W) WILLOWBROOK PROGRESS (W) DOWNERS GROVE PROGRESS (W) GLEN ELLYN NEWS (W) WHEATON LEADER (W) WARRENVILLE POST (W) WEST CHICAGO PRESS (W) WINFIELD PRESS (W) BARTLETT/HANOVER PARK/STREAMWOOD PRESS (W) BLOOMINGDALE PRESS (W) CAROL STREAM/GLENDALE HEIGHTS PRESS (W) ITASCA/ROSELLE PRESS (W) BATAVIA REPUBLICAN (W) ELBURN REPUBLICAN (W) GENEVA REPUBLICAN (W) NORTH AURORA REPUBLICAN (W) ST. CHARLES/WAYNE REPUBLICAN (W) HUNTLEY FARMSIDE PRESS (W) LIFE'S EXTRA (MAG) LIFE CAREER MOVES (MAG) HOMETOWN (MAG) SELECT HOMES (MAG) TEUTOPOLIS TEUTOPOLIS PRESS (W) WEST FRANKFORT DAILY AMERICAN (D) SI TRADER (W) FRANKLIN PRESS (T) IOWA CHARLES CITY CHARLES CITY PRESS (D) THE EXTRA (T) SIX COUNTY SHOPPER (T) CRESCO TIMES-PLAIN DEALER (W) THE EXTRA (S) ELDORA ELDORA HERALD-LEDGER (W) HARDIN COUNTY INDEX (W) NEW HAMPTON NEW HAMPTON TRIBUNE (W) THE ADVERTISER (S) KANSAS ANDOVER ANDOVER SHOPPER (S) AUGUSTA AUGUSTA DAILY GAZETTE (D) 7 AUGUSTA ADVERTISER (T) DERBY DAILY REPORTER (D) THE RECORD JOURNAL (W) SHOPPER'S GUIDE (S) EL DORADO THE EL DORADO TIMES (D) SHOPPERS GUIDE (S) KANSAS CITY KANSAS CITY KANSAN (D) KANSAS CITY KANSAN "SUNDAY" (W) WYNADOTT COUNTY SHOPPER (S) LEAVENWORTH THE LEAVENWORTH TIMES (D) THE LEAVENWORTH TIMES SUNDAY (W) RIVER BEND JOURNAL (T) CHRONICLE SHOPPER (S) THE LEAVENWORTH LAMP (W) MCPHERSON MCPHERSON SENTINEL (D) THE SENTINEL AD-VISER (T) MAC SHOPPER (S) PRATT THE PRATT TRIBUNE (D) BARBER COUNTY INDEX (W) ST. JOHNS NEWS (W) KIOWA COUNTY SIGNAL (W) SUNFLOWER SHOPPER TMC (T) SHAWNEE JOURNAL-HERALD (W) WELLINGTON DAILY NEWS (D) LOUISIANA BASTROP THE BASTROP DAILY ENTERPRISE (D) THE EXTRA (T) DERIDDER BEAUREGARD DAILY NEWS (D) DONALDSONVILLE THE DONALDSONVILLE CHIEF (W) GONZALES ASCENSION CITIZEN (W) NICKEL ADS (S) THE MARKETEER (T) LEESVILLE LEESVILLE DAILY LEADER (D) PIERRE PART THE CAJUN GAZETTE (W) PLAQUEMINE POST SOUTH (W) WEST BANK SHOPPER (S) SULPHUR SOUTHWEST DAILY NEWS (D) GUARDIAN (S) 8 CALCASLEU SHOPPER (S) VINTON VINTON NEWS (W) MICHIGAN ADRIAN THE DAILY TELEGRAM (D) ADRIAN MEDLEY (T) ADRIAN ACCESS SHOPPER (S) BRONSON BRONSON JOURNAL (W) CHEBOYGAN CHEBOYGAN DAILY TRIBUNE (D) SHOPPERS FAIR (S) COLDWATER THE DAILY REPORTER (D) THE REPORTER EXTRA (T) COLDWATER SHOPPERS GUIDE (S) COLON COLON EXPRESS (W) IONIA SENTINEL-STANDARD (D) SENTINEL STANDARD TMC (T) JONESVILLE JONESVILLE INDEPENDENT (W) SAULT STE. MARIE THE EVENING NEWS (D) TRI COUNTY BUYERS GUIDE (T) STURGIS STURGIS JOURNAL (D) THE WEEKENDER (T) STURGIS GATEWAY SHOPPER (S) UNION CITY UNION CITY REGISTER-TRIBUNE (W) VICKSBURG THE VICKSBURG COMMERCIAL EXPRESS (W) THE VICKSBURG BROADCAST (S) MINNESOTA COTTONWOOD TRI-COUNTY NEWS (W) CROOKSTON CROOKSTON DAILY TIMES (D) CROOKSTON VALLEY SHOPPER (S) GRANITE FALLS GRANITE FALLS/CLARKFIELD ADVOCATE-TRIBUNE (W) HALSTAD THE HALSTAD SHOPPER (S) THE VALLEY JOURNAL (W) MONTEVIDEO MONTEVIDEO AMERICAN NEWS (W) THE STAR ADVISOR (S) REDWOOD FALLS REDWOOD FALLS GAZETTE (W) REDWOOD FALLS LIVEWIRE (S) 9 ST. JAMES ST. JAMES PLAIN DEALER (W) TOWN AND COUNTRY SHOPPER (S) SLEEPY EYE SLEEPY EYE HERALD DISPATCH (W) THE SLEEPY EYE REMINDER (S) WABASSO THE WABASSO STANDARD (W) MISSOURI ALBANY GENTRY COUNTY SHOPPER (S) BOONVILLE BOONVILLE DAILY NEWS (D) THE RECORD (T) BROOKFIELD DAILY NEWS BULLETIN (D) DAILY NEWS BULLETIN EXTRA (T) CAMDENTON LAKE SUN LEADER (D) HOMES (W) PENNYSAVER (T) CARTHAGE THE CARTHAGE PRESS (D) THE CARTHAGE PRESS SCOPE (T) CHILLICOTHE C.T. EXTRA (S) CONSTITUTION TRIBUNE (D) GREENFIELD LAKE STOCKTON SHOPPER (S) THE VEDETTE (W) JOPLIN BIG NICKEL (S) COUPON CLIPPER (T) THE LITTLE NICKEL (T) KIRKSVILLE KIRKSVILLE CRIER (S) KIRKSVILLE DAILY EXPRESS & NEWS (D) LAKE OZARKS LAKE AREA NEWS FOCUS (S) TUBE TAB (S) LAKE OF THE OZARKS BOATS (S) LAKE OF THE OZARKS REAL ESTATE (S) LAKE LIFE STYLES MAGAZINE (W) MACON CHRONICLE HERALD (D) MACON JOURNAL (T) MARCELINE MARCELINE PRESS (W) SHO-ME SHOPPER (T) MARYVILLE MARYVILLE DAILY FORUM (D) PENNY PRESS 2 (S) MEXICO THE MEXICO LEDGER (D) THE MEXICO LEDGER TMC (T) 10 MOBERLY MOBERLY MONITOR INDEX (D) NEOSHO NEOSHO DAILY NEWS (D) NEIGHBORHOOD NEWS (T) NEOSHO DAILY NEWS "SUNDAY" (W) NEOSHO POST (W) OSAGE BEACH VACATION NEWS (F) ROLLA ROLLA DAILY NEWS (D) ROLLA DAILY NEWS "PLUS" (T) SAINT JAMES ST. JAMES LEADER JOURNAL (W) WAYNESVILLE THE DAILY GUIDE (D) DAILY GUIDE CONSTITUTION (T) FORT WOOD CONSTITUTION (F) AT EASE (S) NEVADA ELKO ELKO DAILY FREE PRESS (D) THE FREE PRESS EXTRA (T) NEW YORK BATH STEUBEN COURIER ADVOCATE (F) CANISTEO HORNELL CANSITEO PENN-E-SAVER (S) DANSVILLE GENESEE COUNTY EXPRESS (W) GENESEEWAY SHOPPER (S) DANSVILLE-WAYLAND PENNYSAVER (S) FT. PLAIN MOHAWK VALLEY PENNYSAVER (S) HERKIMER THE EVENING TELEGRAM (D) IMAGES (F) HORNELL EVENING TRIBUNE (D) THE SPECTATOR (SUNDAY) (W) THE TRIBUNE EXTRA (T) HORSEHEADS THE SHOPPER (S) LIBERTY CATSKILL SHOPPER (S) LITTLE FALLS THE EVENING TIMES (D) OSWEGO THE PALLADIUM TIMES (D) COMMUNITY PREVIEW TMC (T) PAINTED POST CORNING-ELMIRA PENNYSAVER (S) PENN YAN 11 CHRONICLE AD-VISER (S) THE CHRONICLE-EXPRESS (W) SAUGERTIES MOUNTAIN PENNYSAVER (F) SAUGERTIES PENNYSAVER (S) SAUGERTIES POST STAR (W) SYRACUSE THE BUSINESS RECORD (W) WELLSVILLE ALLEGANY CO. PENNYSAVER (S) WELLSVILLE DAILY REPORTER (D) WELLSVILLE DAILY TMC (T) NORTH DAKOTA DEVILS LAKE DEVILS LAKE DAILY JOURNAL (D) THE COUNTY PEDDLER (W) PENNSYLVANIA CARBONDALE THE CARBONDALE NEWS (W) HONESDALE THE INDEPENDENT EXTRA (T) THE WAYNE INDEPENDENT (D) MILTON LEWISBURG DAILY JOURNAL (D) MILTON DAILY STANDARD (D) THE STANDARD-JOURNAL (T) MOSCOW/HAMLIN THE VILLAGER (W) SAYRE THE EVENING TIMES (D) THE TIMES EXTRA (T) WAYNESBORO THE RECORD HERALD (D) WEST VIRGINIA KEYSER MINERAL DAILY NEWS TRIBUNE (D) NEWS TRIBUNE & MOUNTAIN ECHO (W) TODAY'S SHOPPER (S) WISCONSIN CLINTONVILLE CLINTONVILLE TRIBUNE-GAZETTE (W) 12 INDUSTRY Newspaper publishing is the oldest and largest segment of the media industry. Due to their focus on local news, newspapers remain the dominant medium for local advertising. Newspapers continue to be the best medium for retail advertising, which emphasizes the price of goods, in contrast to television, which is generally used for image advertising. Readers of daily and Sunday newspapers tend to be more highly educated and have higher incomes than non-newspaper readers. Management believes that newspapers continue to be the most cost-effective means for advertisers to reach this highly targeted demographic group. Advertising revenues are the largest component of a newspaper's revenues followed by circulation revenues. Advertising rates at each newspaper are based upon market size, circulation, readership, demographic makeup of the market and the availability of alternative advertising media in the marketplace. While circulation revenue is not as significant as advertising revenue, circulation trends can impact the decisions of advertisers and advertising rates. Newspaper advertising revenues are cyclical and are generally affected by changes in national and regional economic conditions. Classified advertising, which generally makes up approximately 40% of U.S. newspaper advertising revenues as a whole, is the most sensitive to economic improvements or slowdowns as it is primarily affected by the demand for employment, real estate transactions and automotive sales. OPERATING STRATEGY The Company's strategy is to increase revenues and cash flows through: (1) local news and other content leadership; (2) strategic technological investments; (3) geographic clustering; (4) high quality editorial content and presentation; (5) circulation growth; and (6) cost control, as described below: Local News and Other Content Leadership. The Company believes that its newspapers generally have the largest local news gathering resources in their markets. As a result of emphasizing local content, including youth sports, community events, business, politics, and entertainment, the Company believes that its newspapers generate reader loyalty and create franchise value. Because the Company's vision of local news is typically a unique product in its markets, its newspapers differentiate themselves from other forms of media and satisfy the demands of both its readers and advertisers. Revenue Enhancement. The Company aggressively capitalizes on the good name and reputation it has built in each of its local communities to reach out to non-traditional newspaper customers through the development of special sections, community oriented events, Internet activities and other successful marketing ideas that are constantly shared by and among the Company's newspapers. Strategic Technological Investments. The Company has committed to develop and maintain Internet websites for all of its daily newspapers and certain of its weekly papers. The websites provide an Internet editorial presence and full Internet classified services for the Company's newspapers and should allow the Company to take advantage of the increasing use of the Internet and the potential advertising opportunities. Although the Company believes that providing an Internet product is an important part of broadening the presence of its newspapers in their respective communities and ultimately increasing the Company's revenues through such value added services, the Company believes that most of its customers prefer the newspaper in printed form. Management believes that by being the leading provider of local news and other content in most of its markets, its newspapers are well positioned to maintain their leadership position among local advertisers, whether in print or electronic form. Geographic Clustering. The Company has acquired and assembled newspapers, and may continue to acquire newspapers, in contiguous markets ("Clustering"). Clustering enables the Company to realize operating efficiencies and economic synergies, such as the sharing of management, accounting and production functions. In addition, the Company seeks to increase operating cash flows at acquired newspapers through cost reductions, including labor and web width reductions, as well as overall improved cost management. Clustering also enables management to maximize revenues through the cross selling of advertising 13 among contiguous newspaper markets. As a result of Clustering, management believes that the Company's newspapers are able to obtain higher operating margins than they would otherwise be able to achieve on a stand-alone basis. High Quality Editorial Content and Presentation. The Company's newspapers are committed to editorial excellence, providing the proper mix of local and national news to effectively serve the needs of their local markets. The Company's newspapers often receive awards for excellence in various areas in their respective regions and categories. In addition, the Company's newspapers are designed to attract readers through attractive layouts and color enhancements. Clustering allows for better quality personnel and equipment than smaller markets might otherwise attract, resulting in a significant increase in newspaper quality. Circulation Growth. The Company believes that circulation growth is important to the creation of long-term franchise value at its newspapers. Accordingly, the Company has and will continue to invest in telemarketing and promotional campaigns where appropriate to increase circulation and readership. Cost Control. Each of the Company's newspapers emphasizes cost control with a particular focus on managing staffing requirements. In addition, the Company further controls labor costs through investments in state-of-the-art production equipment that improves production efficiencies. Management is equally focused on newsprint cost control. The Company takes advantage of group discounts for its major operating and capital costs including newsprint, ink, supplies, computers, software and printing equipment. Management believes that successful implementation of the operating strategy described above should position the Company to continue to optimize its operating cash flow. The Company may also continue to seek strategic newspaper acquisitions that would contribute to the Company's overall growth strategy, whether through revenue growth and/or cost reduction opportunities that meet the Company's acquisition criteria. ADVERTISING, CIRCULATION AND PRINTING REVENUES Advertising revenues include display (local department stores, local accounts at national department stores, specialty shops and other retailers), national (national advertising accounts) and classified advertising (employment, automotive, real estate and personals). Management believes that classified and national advertising revenues are more volatile than display advertising revenues. Classified and national advertising for the Company represents a smaller portion of its revenues than other newspapers in the industry. As a result, management believes its advertising revenue stream is more predictable than other newspaper companies. The contribution of display, national, classified, circulation, and job printing and other revenues to total revenues for fiscal years 2000 and 2001 were as follows: YEARS ENDED DECEMBER 31, ------------------------ 2000 2001 ---- ---- Display.......................................... 56% 57% National......................................... 3% 3% Classified....................................... 18% 15% Circulation...................................... 17% 18% Job printing and other........................... 6% 7% --- --- 100% 100% Newsprint. Newsprint represents one of the largest costs of producing a newspaper. The Company's newspapers buy newsprint from a number of suppliers, resulting in an adequate supply of newsprint at market prices. The Company incurred newsprint expense with respect to the Company's internal publications of approximately $12.2 million in 2000 and $13.8 million in 2001. Newsprint expense as a percentage of advertising and circulation revenue for 2000 and 2001 was 6.7% and 7.4%, respectively. Newsprint expense as a percentage of revenue increased in 2001 due to higher newsprint prices and lower revenues during the year. 14 Employee Relations. The Company employs approximately 2,100 full-time employees and approximately 1,400 part-time employees. Less than 4% of its employees belong to labor unions. There has never been a strike or work stoppage against any of the Company's newspapers during the Company's ownership, and the Company considers its relations with its employees to be good. Seasonality. Newspaper companies tend to follow a distinct and recurring seasonal pattern, with high advertising revenues in months containing significant events or holidays. Accordingly, due to fewer holidays and more inclement weather compared to other quarters, the Company's first fiscal quarter is historically the Company's weakest revenue quarter of the year. Competition. Each of the Company's newspapers competes to varying degrees for advertising and circulation revenue with magazines, radio, television and cable television, as well as with some weekly publications and other advertising media, including electronic media. Competition for newspaper advertising is largely based upon circulation, price and the content of the newspaper. The Company's newspapers are the dominant source for local news and other content, with strong name recognition in their market and minimal direct competition from similar daily newspapers published in their markets. However, as with most suburban and smaller daily newspapers, some circulation competition exists from larger daily newspapers which are usually published in nearby metropolitan areas. Management believes larger daily newspapers with circulation in the Company's newspaper markets generally do not compete in any meaningful way for local advertising revenues, the main source of revenues for the Company's newspapers. The Company's daily newspapers generally capture the largest share of local advertising as a result of their direct coverage of the market. In addition, management believes advertisers generally regard newspaper advertising as the most effective method of advertising promotions and pricing as compared to television, which is generally used to advertise image. The Company may from time to time compete with other companies which have greater financial resources than the Company. Electronic Media. Many newspaper companies are now publishing news and other content on the Internet. In addition, there are several companies which have developed sites on the Internet which are, by design, advertising and/or subscription supported. Many of these sites target specific types of advertising such as employment and automotive classified. The Company believes it has the most effective means of gathering and distributing its local news and other content. All of the Company's daily publications and certain of the weekly publications have their own web sites, currently numbering 77 in all. The Company's web sites have a consistent format providing a selection of local and other news along with classified advertising, features and details of local events and activities. The Company has been able to expand the reach of its classified reader ads by placing the ads on the Internet as well as in the newspapers. The Company believes that its ability to self-promote its websites in its printed newspapers as Internet portals for the community and its focus on local content limits the competitive threat to its core newspaper business from new media businesses. Additionally, the Company considers its local display advertising revenues to be less threatened by new media than larger metropolitan newspaper classified advertising which lends itself more to sifting and searching. Classified advertising represents a lower proportion of the Company's revenues than is the case for larger market publications representing 20% of the Company's advertising revenues in 2001 compared with 40% for the U.S. newspaper industry as a whole. ITEM 2. PROPERTIES The Company has 143 operating and production facilities for its publications in the United States. The Company owns 107 of these facilities and leases the remaining 36 for terms ranging from one to five years. These facilities range in size from approximately 1,000 to 55,000 square feet. The Company's executive offices are located in Northbrook, Illinois, where the Company leases approximately 4,879 square feet under a lease terminating in 2004. The Company does not believe any individual property is material to its financial condition or results of operations. 15 ITEM 3. LEGAL PROCEEDINGS The Company is involved from time to time in legal proceedings relating to claims arising out of its operations in the ordinary course of business. The Company is not party to any legal proceedings that, in the opinion of management, are reasonably expected to have a material adverse effect on the Company's business, financial condition or cash flows. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 16 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION AND HOLDERS There is no public market for the Company's common stock, par value $0.01 per share (the "Common Stock"). All of the Company's issued and outstanding common stock is owned by LGP. The Company has no outstanding capital stock other than common stock, nor are there any outstanding options, warrants, or other rights to purchase the Company's capital stock. As of March 30, 2002, LGP was the only holder of the Company's common stock. DIVIDENDS In 2001, the Company paid a cash dividend to Parent of $62,500. The Company did not pay any dividends on its Common Stock in 2000. RECENT SALES OF UNREGISTERED SECURITIES None. ITEM 6. SELECTED FINANCIAL DATA. The following table sets forth selected historical financial data of the Company. The data presented below should be read in conjunction with the consolidated financial statements, including the notes thereto, and with Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this Annual Report. The combined historical financial information of the newspapers acquired from APC prior to the Initial Acquisition on January 1, 1998 is referred to as "Predecessor". 17

(1) EBITDA is defined as earnings before interest, taxes, depreciation and amortization, which for the Company is income from operations plus depreciation and amortization. EBITDA is not a measurement of financial performance under accounting principles generally accepted in the United States of America, or GAAP, and should not be considered as an alternative to income from operations, net income (loss), cash flows from operating activities or any other measure of performance or liquidity derived in accordance with GAAP. The Company believes that EBITDA is a standard measure commonly reported and widely used by analysts, investors and other interested parties in the Company's industry. Accordingly, this information has been disclosed herein to permit a more complete comparative analysis of the Company's operating performance relative to other companies in its industry. However, not all companies calculate EBITDA using the same methods; therefore, the EBITDA figures set forth herein may not be comparable to EBITDA reported by other companies. A substantial portion of the Company's EBITDA must be dedicated to the payment of interest on its outstanding indebtedness and to service other commitments, thereby reducing the funds available to the Company for other purposes. Accordingly, EBITDA does not represent an amount of funds that is available for management's discretionary use. See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations."

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the historical financial statements of the Company, including the notes thereto. The discussion and analysis below includes certain "forward-looking statements" (as such terms are defined in Section 21E of the Securities Exchange Act of 1934) pertaining to, among other things, competition in the Company's markets, availability of adequate acquisition opportunities, price and availability of newsprint, significant use of leverage, general economic conditions, and environmental matters. These statements are based on the beliefs, assumptions made by, and information currently available to, the Company's management. The Company's actual growth, results, performance and business prospects in 2002 and beyond could differ materially from those expressed in, or implied by, such forward-looking statements. See Item 1. "Business -- Disclosure Regarding Forward-Looking Statements" for certain factors that could cause or contribute to such material differences. OVERVIEW Liberty Group Operating, Inc. (the "Company", "Operating Company", "LGO", or "Registrant") is a Delaware corporation formed on January 27, 1998 for purposes of acquiring a portion of the daily and weekly newspapers owned by American Publishing Company or its subsidiaries ("APC"), a wholly-owned subsidiary of Hollinger International Inc. ("Hollinger"). LGO is a wholly-owned subsidiary of Liberty Group Publishing, Inc. ("Parent" or "LGP"). The consolidated financial statements include the accounts of Operating Company and its consolidated subsidiaries. The Company is a leading U.S. publisher of local newspapers and related publications that are the dominant source of local news and print advertising in their markets. At December 31, 2001, the Company owned and operated 328 publications in 17 states. The Company's 2001 total revenues were derived from advertising (75%), circulation (18%) and job print and other (7%). The majority of the Company's paid daily newspapers have been published for more than 100 years and are typically the only paid daily newspapers of general circulation in their respective non-metropolitan markets. The Company's newspapers generally face limited competition as a result of operating in markets that are distantly located from large metropolitan areas and that can typically support only one primary newspaper, with the exception of the Company's publications in the Chicago suburban market. The Company has increased revenues and income from operations since 1998 primarily by acquiring new publications, saturating existing markets and aggressively pursuing cost reduction opportunities. The Company's newspapers are comprised of 67 paid daily newspapers and 147 paid non-daily newspapers. In addition, the Company publishes 114 free circulation and "total market coverage" ("TMC") publications with limited or no news or editorial content. TMC publications are distributed free of charge and generally provide 100% penetration in their areas of distribution. The Company generates revenues from advertising, circulation and job printing. Advertising revenue is recognized upon publication of the advertisements. Circulation revenue, which is billed to customers at the beginning of the subscription period, is recognized on a straight-line basis over the term of the related subscription. The revenue for job printing is recognized upon delivery. The Company's operating costs consist primarily of newsprint, labor and delivery costs. The Company's selling, general and administrative expenses consist primarily of labor costs. 19 On January 27, 1998, the Company acquired from APC virtually all of the assets and assumed certain liabilities that were used primarily in the business of publishing, marketing and distributing certain local newspapers (the "Initial Acquisition"). The initial purchase price including fees and expenses was $322.4 million. The effective date of the Initial Acquisition was January 1, 1998. The Company has accounted for the Initial Acquisition using the purchase method of accounting. Accordingly, the costs of the Initial Acquisition have been allocated to the assets acquired and liabilities assumed based upon their respective fair values using independent valuations. The fair values of certain identifiable assets acquired and goodwill of $296.5 million are being amortized over periods ranging from 5 to 40 years. In 1998, the Company acquired 91 additional publications in 18 transactions for a total acquisition cost of $61.8 million. The Company acquired 49 and 43 publications, in 13 and 12 transactions, for a total acquisition cost of $54.8 million and $84.5 million, during 1999 and 2000, respectively. The Company has not acquired any significant publications since December 2000. On January 7, 2002, the Company disposed of the assets of six related publications (acquired in 1999) in one transaction for proceeds of $26.5 million. RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000 Total revenues for the year ended December 31, 2001 ("2001") increased by $7.3 million, or 4%, to $202.0 million. The increase in total revenues was primarily due to revenue from properties acquired in 2000 and same-property increases in circulation partially offset by decreases in same-property printing and advertising revenue. The increase in total revenues for 2001 was comprised of a $2.2 million, or 1%, increase in advertising revenue, a $3.0 million, or 9%, increase in circulation revenue, and a $2.1 million, or 18%, increase in job printing and other revenue. Operating costs for 2001 were $90.4 million, or 45% of total revenues, which was an increase of $6.7 million over the year ended December 31, 2000 ("2000") when operating costs were $83.7 million, or 43% of total revenues. The increase in operating costs as a percentage of revenue for 2001 was primarily due to higher same-property delivery and newsprint costs and lower revenues, partially offset by lower labor costs. Selling, general and administrative expenses for 2001 increased by $2.8 million to $66.6 million, or 33% of total revenues, from $63.8 million for 2000 when expenses were also 33% of total revenues. EBITDA for 2001 decreased by $2.2 million to $45.0 million, from $47.2 million for 2000. The decrease was primarily driven by a decrease in same-property advertising and higher same-property delivery and newsprint costs, offset by lower labor costs from reduced headcount. EBITDA as a percentage of total revenues declined from 24% to 22%. Depreciation and amortization expenses for 2001 increased by $2.1 million to $22.0 million, from $19.9 million for 2000. The increase was due to depreciation of assets acquired in 2000, depreciation on capital expenditures made in 2001, and a full year of amortization of intangibles from 2000 acquisitions. Income from operations decreased by $4.3 million from $27.3 million, or 14% of total revenues, for 2000 to $23.0 million, or 11% of total revenues, for 2001. The decrease was primarily driven by a decrease in same-property advertising revenue, higher newsprint and delivery costs, and higher depreciation and amortization expenses partially offset by lower labor costs. Interest expense (including amortization of deferred financing costs) decreased by $0.4 million to $31.7 million for 2001 from $32.1 million for 2000, primarily due to lower interest rates on borrowings under the Company's Amended Credit Facility. 20 Income tax expense for the year ended December 31, 2001 increased by $0.1 million to $0.5 million from $0.4 million for the year ended December 31, 2000. The increase in income tax expense was due to higher state and local income taxes and an increase in the Company's deferred tax liability. For 2001, the Company recognized a net loss of $9.1 million compared to a net loss of $5.3 million for 2000. The $3.8 million increase in the net loss was due primarily to lower same-property advertising revenues, higher newsprint and delivery costs, as well as higher depreciation and amortization expense, which was partially offset by lower labor costs. YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999 Total revenues for 2000 increased by $33.3 million, or 21%, to $194.7 million. The increase in total revenues was primarily due to revenue from acquired properties and same-property increases in advertising partially offset by decreases in same-property printing and circulation revenue. The increase in total revenues for 2000 was comprised of a $28.8 million, or 24%, increase in advertising revenue, a $4.8 million, or 17%, increase in circulation revenue, and a $0.3 million, or 2%, decrease in job printing and other revenue. Operating costs for 2000 were $83.7 million, or 43% of total revenues, which was an increase of $15.4 million over the year ended December 31, 1999 ("1999") when operating costs were $68.4 million, or 42% of total revenues. The increase in operating costs as a percentage of revenue for 2000 was primarily due to higher cost structures of acquired properties and higher same-property labor, delivery, and newsprint costs. Selling, general and administrative expenses for 2000 increased by $12.3 million to $63.8 million, or 33%, of total revenues from $51.5 million for 1999 when expenses were 32% of total revenues. The increase in selling, general, and administrative expenses for 2000 was primarily due to higher same-property labor costs. EBITDA for 2000 increased by $5.7 million to $47.2 million, from $41.5 million for 1999. The increase was primarily driven by acquisitions and growth in same-property advertising revenue, offset by lower same-property print and circulation revenue and higher same-property labor, delivery and newsprint costs. EBITDA as a percentage of total revenues declined from 26% to 24% due to lower margins at properties acquired during 2000. Depreciation and amortization expenses for 2000 increased by $3.2 million to $19.9 million from $16.7 million for 1999. The increase was due to depreciation of assets acquired in 2000, depreciation on capital expenditures made in 2000, and a full year of amortization of intangibles from 1999 acquisitions. Income from operations increased by $2.5 million from $24.8 million, or 15%, of total revenues for 1999 to $27.3 million, or 14%, of total revenues for 2000. The increase was primarily driven by acquisitions and growth in same-property advertising revenue, which was offset by same-property reductions in printing and circulation revenue, higher labor, newsprint and delivery costs and higher depreciation and amortization expenses. Interest expense (including amortization of deferred financing costs) increased by $6.9 million to $32.1 million for 2000 from $25.2 million for 1999, primarily due to higher debt balances borrowed to fund acquisitions and higher interest rates on borrowings under the Amended Credit Facility. Income tax expense for the year ended December 31, 2000 increased by $0.2 million to $0.5 million from $0.3 million for the year ended December 31, 1999. The increase in income tax expense was due to higher state and local income taxes. For 2000, the Company recognized a net loss of $5.3 million compared to a net income of $3.5 million in 1999. The $8.8 million increase in the net loss was due primarily to decreases in print and circulation revenue, higher labor, newsprint and delivery costs, higher depreciation, amortization and interest expenses, a 1999 net gain from the exchange and disposition of certain publications, and a 1999 extraordinary gain on insurance proceeds. 21 CRITICAL ACCOUNTING POLICY DISCLOSURE The preparation of financial statements in conformity with GAAP requires management to make estimates and assumption 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. Valuation of long-lived and intangible assets and goodwill. The Company assesses the impairment of identifiable intangibles, long-lived assets and related goodwill and enterprise level goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers important which could trigger an impairment review include the following: - significant underperformance relative to expected historical or projected future operating results; - significant changes in the manner of the Company's use of the acquired assets or the strategy for the its overall business; and - significant negative industry or economic trends. When the Company determines that the carrying value of intangibles, long-lived assets and related goodwill and enterprise level goodwill may not be recoverable based upon the existence of one or more of the above indicators of impairment, the Company measures any impairment based on the excess of the expected fair market value, which is consistent with the current methods used in valuing newspaper companies, over the carrying amount of the asset. Net intangible assets, long-lived assets and goodwill amounted to $511.3 million as of December 31, 2001. In 2002, SFAS No. 142, "Goodwill and Other Intangible Assets" became effective and as a result, the Company will cease to amortize approximately $196.1 million of goodwill. The Company had recorded approximately $3.9 million of amortization expense on these amounts during 2001 and would have recorded approximately $3.9 million of amortization during 2002. In lieu of amortization, the Company is required to perform an initial impairment review of its goodwill in 2002 and an annual impairment review thereafter. The Company expects to complete its initial review prior to the release of its first quarter earnings. LIQUIDITY AND CAPITAL RESOURCES Cash Flows from Operating Activities. Cash provided by operating activities in 1999 was $8.5 million and increased $7.2 million to $15.7 million in 2000. Cash provided by operating activities decreased by $2.8 million to $12.9 million in 2001. The decrease in 2001 was primarily due to lower EBITDA and higher interest payments. Cash Flows from Investing Activities. Cash used in investing activities was $60.5 million, $92.1 million, and $3.3 million in 1999, 2000 and 2001, respectively. The increase of $31.6 million from 1999 to 2000 was primarily due to costs related to 2000 acquisitions. The decrease of $88.8 million from 2000 to 2001 relates to a decrease in the number and size of acquisitions from 2000 to 2001 and a decrease in capital expenditures. The Company's capital expenditures in 2001 consisted of the purchase of machinery, equipment, furniture and fixtures relating to its publishing operations. The Company has no material commitments for capital expenditures. The Company intends to continue to pursue its strategy of opportunistically purchasing community newspaper in contiguous markets and new markets. Cash Flows from Financing Activities. Cash provided by financing activities was $52.9 million in 1999 and $75.5 million in 2000 compared to cash used in financing activities of $9.2 million in 2001. Cash provided by financing activities primarily resulted from borrowings under the Company's revolving credit facility in 1999. Cash provided by financing activities in 2000 resulted from net contributions from Parent, as well as, borrowings under the Amended Credit Facility, partially offset by the repayment of the previous revolving credit facility. Net cash used in financing activities in 2001 related to the repayment of a portion of the Amended Credit Facility and other long term debt. Amended Revolving Credit Facility. The Company is a party to an Amended and Restated Credit Agreement dated as of April 18, 2000, as further amended, with a syndicate of financial institutions led by Citibank, N.A. with Citicorp USA, Inc. as administrative agent (the "Amended Credit Facility"). The Amended Credit Facility provides for 22 a $100.0 million principal amount Term Loan B that matures in March 2007 and a revolving credit facility with a $135.0 million aggregate commitment amount available, including a $10.0 million sub-facility for letters of credit, that matures in March 2005. The Amended Credit Facility is secured by a first-priority security interest in substantially all of the tangible and intangible assets of the Company, the Parent and all of the Parent's other present and future direct and indirect subsidiaries. Additionally, the loans under the Amended Credit Facility are guaranteed, subject to specified limitations, by the Parent and all of the future direct and indirect subsidiaries of the Company and the Parent. The Company is required to permanently reduce the Term Loan B and/or revolving commitment amount with disposition proceeds in excess of $1.5 million if the proceeds are not reinvested in Permitted Acquisitions (as defined under the Amended Credit Facility) within 300 days of receipt of such proceeds. The Term Loan B and the revolving credit facility bear interest, at the Company's option, equal to the Alternate Base Rate for an ABR loan (as defined in the Amended Credit Facility) or the Adjusted LIBO Rate for a eurodollar loan (as defined in the Amended Credit Facility) plus an applicable margin. The applicable margin is based on: (1) whether the loan is an ABR loan or eurodollar loan; and (2) the ratio of (a) indebtedness of the Company and its subsidiaries that requires interest to be paid in cash to (b) pro forma EBITDA for the 12-month period then ended. The Company also pays an annual fee equal to the applicable eurodollar margin for the aggregate amount of outstanding letters of credit. Additionally, the Company pays a fee on the unused portion of the revolving credit facility. No principal payments are due on the revolving credit facility until the maturity date, while the Term Loan B requires annual principal payments of $1.0 million each year from 2002 through 2004, $36.1 million in 2005, $47.5 million in 2006 and $11.9 million in 2007. The Amended Credit Facility contains financial covenants that require the Company and the Parent to satisfy specified quarterly financial tests, including a maximum senior leverage ration, a minimum cash interest coverage ratio and a maximum leverage ratio. The Amended Credit Facility also contains affirmative and negative covenants customarily found in loan agreements for similar transactions. The Company is highly leveraged and has indebtedness that is substantial in relation to its stockholder's equity, tangible equity and cash flow. Interest expense for 2001 was $31.7 million, including amortization of deferred financing costs of $1.7 million. The degree to which LGO is leveraged could have important consequences, including the following: (1) a substantial portion of the Company's cash flow from operations must be dedicated to the payment of interest on the Notes and interest on its other indebtedness, thereby reducing the funds available to the Company for other purposes; (2) indebtedness under the Amended Credit Facility is at variable rates of interest, which causes the Company to be vulnerable to increases in interest rates; (3) the Company is more leveraged than certain competitors in its industry, which might place the Company at a competitive disadvantage; (4) the Company may be hindered in its ability to adjust rapidly to changing market conditions; (5) the Company's substantial degree of leverage could make it more vulnerable in the event of a downturn in general economic conditions or other adverse events in its business; and (6) the Company's ability to obtain additional financing for working capital, capital expenditures, acquisitions or general corporate purposes may be impaired. As of December 31, 2001, $141.5 million was outstanding under the Amended Credit Facility, including Term Loan B, and the aggregate principal amount of the Notes outstanding was $180.0 million. Liquidity. The Company's principal sources of funds will be cash provided by operating activities and borrowings under its Amended Credit Facility. The Company's ability to fully utilize its Amended Credit Facility is limited by certain financial covenants, including the Senior Leverage Ratio and Cash Interest Coverage Ratio as said terms are defined in the Amended Credit Facility. The Indenture relating to the Notes and the Amended Credit Facility impose upon the Company certain financial and operating covenants, including, among others, requirements that the Company satisfy certain financial tests, limitations on capital expenditures and restrictions on the ability of the Company to incur debt, pay dividends or take certain other corporate actions. Management believes that the Company has adequate capital resources and liquidity to meet its borrowing obligations, all required capital expenditures and pursue its business strategy for at least the next 12 months. 23 SUMMARY DISCLOSURE ABOUT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS The following table reflects a summary of the Company's contractual cash obligations as of December 31, 2001:

SUMMARY DISCLOSURES REGARDING RELATED PARTIES EXECUTIVE STOCK INVESTMENTS Upon the commencement of his employment in January 1998, the Parent loaned the Chief Executive Officer $250,000 pursuant to an Unsecured Promissory Note. The loan was forgiven on a pro rata daily basis from January 28, 1998 to January 28, 2001. In addition, certain other executives were given the opportunity to purchase LGP Common Stock. Under the plan, each executive paid cash for 50% of their stock investment and executed a five year note for the remaining 50%. The Board of Directors approved the forgiveness of these loans including accrued interest, in 3 equal installments in January 1999, 2000, and 2001. The Parent has the right to repurchase the LGP Common Stock at the original cost if the executive terminates his employment or is terminated for cause. On August 11, 2000, the Company, Inc., Kenneth L. Serota, the Parent, Green II and Green III entered into that certain Amendment to Employment Agreement, dated as of such date, pursuant to which that certain Employment Agreement, dated as of November 21, 1997, between the Company, Mr. Serota and the Parent was amended. Under and pursuant to the amendment, the Parent issued and sold to Mr. Serota 4,372 shares of LGP Common Stock and 184.42 shares of Series B 10% Junior Redeemable Cumulative Preferred Stock of the Parent ("LGP Junior Preferred Stock") for an aggregate purchase price of $250,000. In addition, the Parent issued and sold to Mr. Serota 23,174 shares of LGP Common Stock for a purchase price of $15.00 per share for an aggregate purchase price of $348,000. On December 15, 2000, the Parent issued and sold to management investors 28,626 shares of LGP Common Stock for an aggregate purchase price of $429,000. During 2001, the Parent repurchased 22,344 shares of LGP Common Stock from former management stockholders. The purchase price was paid through loan forgiveness and cash. OTHER RELATED PARTY TRANSACTIONS The Company paid $1.3 million and $1.5 million in management fees in 2000 and 2001, respectively, and $356,000 and $475,000 in other fees in 2000 and 2001, respectively, to Leonard Green & Partners, L.P. The Company is obligated to pay other fees to Leonard Green & Partners, L.P. of $475,000, of which $350,000 will be paid in 2002 and the remaining $125,000 will be paid in 2003. NEW ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 142 replaces the requirement to amortize intangible assets with indefinite lives and goodwill with a requirement for an impairment test. 24 SFAS No. 142 also requires an evaluation of intangible assets and their useful lives and a transitional impairment test for goodwill and certain intangible assets upon adoption. After transition, the impairment tests will be performed annually. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001, as of the beginning of the year. The Company has not yet determined the impact of the new accounting standards on its financial reporting. In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and for the associated asset retirement costs. SFAS No. 143 must be applied starting with fiscal years beginning after June 15, 2002. The Company is currently evaluating the impact that the adoption of SFAS No. 143 will have on its consolidated financial statements. In August 2001, the FASB issued SFAS No. 144, "Accounting for Impairment of Long-Lived Assets." The new standard supercedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." Although retaining many of the fundamental recognition and measurement provisions of SFAS No. 121, the new rules significantly change the criteria that would have to be met to classify an asset as held-for-sale. The new standard also supercedes the provisions of Accounting Principles Board Opinion No. 30 (APB No. 30), "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," and will require expected future operating losses from discontinued operations to be displayed in discontinued operations in the period(s) in which the losses are incurred rather than as of the measurement date as presently required by APB No. 30. The provisions of SFAS No. 144 are effective for financial statements beginning after December 15, 2001, but allow for early application. The Company plans to adopt this standard as of the beginning of its fiscal 2002. The provisions of SFAS No. 144 generally are to be applied prospectively. Therefore, the adoption of this standard will not affect previously reported financial information. The Company is currently evaluating the impact SFAS No. 144 will have on its results of operations and financial condition. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has a $135.0 million revolving credit facility and a separate Term Loan B that mature in March 2005 and 2007, respectively. Borrowings under the revolving credit facility and the Term Loan B bear interest at an annual rate, at the Company's option, equal to the Alternate Base Rate (as defined in the Amended Credit Facility) or the Adjusted LIBO Rate (as defined in the Amended Credit Facility) plus a margin that varies based upon a ratio set forth in the Amended Credit Facility. As a result, the Company's interest expense will be affected by changes in the Alternate Base Rate or in the Adjusted LIBO Rate. At December 31, 2001, the Company had borrowings outstanding of $43.0 million under the revolving credit facility and $98.5 million under the Term Loan B. A hypothetical 100 basis point change in interest rates would impact annual interest expense by approximately $1.4 million based on the amount outstanding at December 31, 2001. Additional information regarding the Company's Amended Revolving Credit Facility is contained in Item 7 of this Form 10-K/A under "Liquidity and Capital Resources." ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information in response to this Item 8 is included in the consolidated financial statements and notes thereto, and related Independent Auditors' Report, appearing on pages F-1 to F-14 of this Form 10-K/A. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 25 PART III ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT The following table sets forth the name, age and position of individuals who served as directors and executive officers of LGP and LGO, as of March 30, 2002. Each director of the Company will hold office until the next annual meeting of the stockholders or until his successor has been elected. Qualified officers of LGP and the Company are elected by their respective Boards of Directors and serve at the discretion of such Boards.

Kenneth L. Serota is President and Chief Executive Officer and has served in that capacity since January 1998. Mr. Serota has also been a Director since January 1998. Previously, he served as Vice President -- Law & Finance and Secretary for Hollinger from May 1995 to December 1997 and as a director of its APC Division, which owned the publications initially acquired by the Company, from 1996 to 1997. Previously, Mr. Serota served as an attorney and a certified public accountant. Mr. Serota has significant experience negotiating and closing acquisitions of publications and primarily focuses his efforts on executing its acquisition functions and overseeing all of the Company's administrative and finance functions. Scott T. Champion is Executive Vice President-Operations and has primary responsibility for all community publications. Mr. Champion has also been a Director since January 2000. In 1998, he served as LGP's Senior Vice President. Prior to 1998, he served as Senior Vice President, regional manager, and district manager of APC and had been employed at APC since 1988. Prior to his employment at APC, Mr. Champion served as the publisher of a group of privately owned publications. Mr. Champion has more than 19 years of experience in the newspaper industry. Gene A. Hall is Senior Vice President and has primary responsibility for publications in the Midwestern region of the United States. He was appointed LGP's Senior Vice President in January 1998. Prior to his employment with LGP, he served as a Senior Vice President of APC from 1992 to 1998. Prior to 1992, he served as a regional manager and had been employed at APC since 1988. Prior to his employment at APC, Mr. Hall was the owner and publisher of the Charles City Press, Six County Shopper and The Extra in Charles City, Iowa, which the Company currently owns. Mr. Hall has more than 33 years of experience in the newspaper industry. Daniel D. Lewis is Vice President and Secretary and has had primary responsibility over the Company's financial and accounting activities since September 1999. Prior to joining LGP, Mr. Lewis served as a management consultant for PricewaterhouseCoopers LLP. In addition, Mr. Lewis has held management positions with Kraft Foods Inc. and Berkshire Hathaway Inc. Mr. Lewis is a certified public accountant. Randall W. Cope is Vice President and has been responsible for newspaper operations in Missouri, Kansas and Arkansas since December 1998. Mr. Cope also oversees the Company's national classified advertising network. From 1995 to 1998, Mr. Cope was regional manager and publisher of the Northwest Arkansas Times in Fayetteville, Arkansas, which was owned by APC. Mr. Cope has 20 years of experience covering all areas of newspaper operations. Kelly Luvison is Vice President responsible for newspaper operations in western New York, Pennsylvania and West Virginia, as well as Liberty Business Development Group. Mr. Luvison served as regional manager for LGP since January 1998, was appointed a Vice President in January 2000. Prior to January 1998, Mr. Luvison was a regional manager for APC. Since 1996, Mr. Luvison has been publisher of the Evening Tribune in Hornell, New York, a newspaper the Company currently owns, in addition to his duties as a regional manager and Vice President. 26 Theodore G. Mike is Vice President and has primary responsibility for many of the Company's newspaper operations in the eastern region of the United States. Mr. Mike served as regional manager since January 1998, and was appointed Vice President in January 1999. Mr. Mike served as a regional manager for APC from 1992 to 1997. Mr. Mike has also been publisher of The Evening Times in Sayre, Pennsylvania, a newspaper the Company currently owns, since 1992. Mr. Mike has more than 35 years of experience in the newspaper industry. Leonard I. Green has been a Director since January 1998 and served as the Chairman of the Board of Directors since January 1998. Mr. Green has been a partner of Leonard Green & Partners, L.P. since its formation in 1994. Mr. Green has also been, individually or through a corporation, a partner in a merchant banking firm affiliated with Leonard Green & Partners, L.P. since its inception in 1989. Mr. Green is also a director of Rite Aid Corporation, Communications & Power Industries Inc. and Dollar Financial Group, Inc. John G. Danhakl has been a Director since January 1998. Mr. Danhakl has been a partner of Leonard Green & Partners, L.P. since 1995. Mr. Danhakl had previously been a Managing Director at Donaldson, Lufkin & Jenrette Securities Corporation (DLJ) and had been with DLJ since 1990. Prior to joining DLJ, Mr. Danhakl was a Vice President at Drexel Burnham Lambert Incorporated from 1985 to 1990. Mr. Danhakl is also a director of Arden Group, Inc., Big 5 Sporting Goods Corporation, Communications & Power Industries Inc., Twinlab Corporation, Diamond Triumph Auto Glass, Inc., Leslie's Poolmart, Inc., VCA Antech, Inc., PETCO Animal Supplies, Inc. and MEMC Electronic Materials Inc. Peter J. Nolan. Mr. Nolan has been a Director since January 1998. Mr. Nolan has been a partner of Leonard Green & Partners, L.P. since 1997. Mr. Nolan previously served as Managing Director and Co-Head of DLJ's Los Angeles Investment Banking Division since 1990. Prior to joining DLJ, Mr. Nolan had been a Vice President at Drexel Burnham Lambert Incorporated and a First Vice President at Prudential Securities Incorporated. Mr. Nolan is also a director of VCA Antech, Incorporated and several private companies. Jonathan A. Seiffer has been a Director since January 1998. Mr. Seiffer has been a partner of Leonard Green & Partners, L.P. since 1999. From 1994 through 1999, Mr. Seiffer was a Vice President and Associate of Leonard Green & Partners, L.P. Prior to joining Leonard Green & Partners, L.P., Mr. Seiffer was a member of the corporate finance department of DLJ. Mr. Seiffer is also a director of Diamond Triumph Auto Glass, Inc., Gart Sports Company, Dollar Financial Group, Inc. and several private companies. 27 ITEM 11. EXECUTIVE COMPENSATION. COMPENSATION OF EXECUTIVE OFFICERS The following table sets forth the cash and non-cash compensation paid to the Company's chief executive officer and each of the four other most highly compensated executive officers of the Company and its Parent who earned more than $100,000 in salary and bonus during 2001 (each a named executive officer and, collectively, the named executive officers): Summary Compensation Table

(1) Includes $109,973 of loan forgiveness for fiscal year 2000. (2) Includes $110,013 of loan forgiveness for fiscal year 1999. (3) Mr. Lewis commenced employment with the Company in September 1999. (4) Represents options for shares of LPG Common Stock. COMPENSATION OF DIRECTORS AND MANAGEMENT FEES Individuals who are officers of Operating Company and LGP, as well as Messrs. Green, Seiffer, Danhakl and Nolan, do not receive any compensation directly for their service on LGP's and Operating Company's Boards of Directors. Operating Company has agreed, however, to pay Leonard Green & Partners, L.P. an annual management fee of $1.5 million. Such fee is payable in equal monthly installments, but is subordinated in right of payment to the Senior Discount Debentures and the Senior Subordinated Notes for various management, consulting and financial planning services, including assistance in strategic planning, providing market and financial analyses, negotiating and structuring financing and exploring expansion opportunities. Leonard Green & Partners, L.P. also received other fees of $375,000 in 2001 and is owed $475,000 at December 31, 2001. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Mr. Nolan, Mr. Seiffer and Mr. Serota, who also serves as the President and Chief Executive Officer of the Company, served on the Company's compensation committee during the last fiscal year. The Company provided Mr. Serota a loan in the principal amount of $250,000 in January 1998, which, together with all accrued interest, was forgiven on a pro rata daily basis from January 1, 1998 to January 1, 2001. The Company also provided Mr. Serota with 28 three additional loans on August 11, 2000, in the principal amounts of $250,000, $225,947 and $121,663, the proceeds of which were used by Mr. Serota to purchase an aggregate of 4,372 shares of LGP Common Stock and 184.42 shares of LGP Junior Preferred Stock. Each of these loans accrues interest at a rate of 6.22% per annum until each loan matures. The Company is required to forgive the $250,000 loan, including all accrued interest, under certain circumstances. The $225,947 and $121,663 loans become due, including unpaid accrued interest, when Mr. Serota sells all or part of the LGP Common Stock purchased with the proceeds of such loans in an amount proportional to the number of shares of LGP Common Stock sold. See Item 11. "Executive Compensation -- Employment Agreement" and Item 13. "Certain Relationship and Related Transactions." Messrs. Nolan and Seiffer are partners in Leonard Green & Partners, L.P., which acts as the manager under the management services agreement. See Item 13. "Certain Relationships and Related Transactions." None of the Company's executive officers currently serves, or in the past, has served, on the board of directors or compensation committee of any other company that has one or more executive officers serving on the Company's board of directors or compensation committee. 29 EMPLOYMENT AGREEMENT The Parent, the Company and Kenneth Serota entered into an employment agreement, dated as of November 21, 1997, whereby Mr. Serota agreed to serve as President and Chief Executive Officer of the Parent, the Company and any of the Parent's other subsidiaries for a period of three years commencing January 1, 1998 and for additional successive one-year periods thereafter, unless either the Company or Mr. Serota gives timely notice to the other that the employment term shall not be so extended. The employment agreement provided for a base salary of $350,000, $375,000 and $400,000 for the years 1998, 1999 and 2000, respectively, and provided for those benefits generally available to the Company's employees, including life insurance, health insurance, deferred compensation and profit sharing. In addition to receiving a base salary, Mr. Serota is eligible to receive a bonus based on the attainment of applicable performance standards agreeable to the Company and Mr. Serota, including standards based on annual revenue growth, EBITDA growth, completion of reasonably acceptable acquisitions and growth of acquired properties. The employment agreement also provided, subject to certain exceptions, that upon a termination of Mr. Serota's employment during the term thereof (other than for "cause" or voluntary resignation without "good reason," as defined therein, but including a "change of control" as defined therein), the Company was generally obligated to pay Mr. Serota the greater of one year's salary or an amount equal to his base salary for the remaining term under the employment agreement plus, in either case, a portion of his bonus for the year of termination. The employment agreement provides that during its term Mr. Serota shall be a member of the board of directors of the Parent and each of its subsidiaries and he shall also be a member of any executive or similar committee of the Parent and its subsidiaries that has executive functions or responsibilities. On August 11, 2000, the Parent, the Company, Mr. Serota, Green II and Green III entered into an amendment to the employment agreement, pursuant to which: (1) the term of the employment agreement was extended for an additional three-year period until January 1, 2004 and for additional successive one-year periods thereafter, unless either the Company or Mr. Serota gives timely notice to the other that the employment term shall not be so extended; (2) the annual base salary payable to Mr. Serota thereunder for years 2001, 2002 and 2003 of the extended term thereof was established at $450,000, $475,000 and $500,000, respectively; (3) the Company agreed to pay, in arrears, to Mr. Serota an automobile allowance of $500 per month for each month from January 1, 1998 through December 31, 2000 and $800 per month for each month thereafter; (4) Mr. Serota's severance package was amended whereby LGO agreed to pay to Mr. Serota eighteen (18) months of base salary at the then current annual base salary payable to Mr. Serota in the event that Mr. Serota's employment with the Company is terminated by the Company without cause or by Mr. Serota for good reason (including a change of control, as defined therein); (5) the Parent issued and sold to Mr. Serota (a) 4,372 shares of LGP's Common Stock and 184.42 shares of LGP Junior Preferred Stock for an aggregate purchase price of $250,000 and (b) 23,174 shares of LGP Common Stock for a purchase price of $15.00 per share, for an aggregate purchase price of $347,610; and (6) the Parent provided Mr. Serota with (a) an unsecured full-recourse loan in the principal amount of $250,000 to pay the consideration for the shares of LGP Common Stock and 184.42 shares of LGP Junior Preferred Stock, (b) a secured non-recourse loan in the principal amount of $225,947 to pay a portion of the consideration for the 23,174 shares of LGP Common Stock and (c) a secured recourse loan in the amount of $121,663 to pay the remaining consideration for the 23,174 shares of LGP Common Stock. To secure repayment of the secured loans, the Parent retained a security interest in the LGP Common Stock described in clause 5(b) above. Each of these loans accrues interest at a rate of 6.22% per annum, which accrues until such loan matures. The Parent is required under the amendment to the employment agreement to forgive the unsecured loan, including all accrued interest, upon the consummation of a public offering of LGP Common Stock. The secured loans become due, including unpaid accrued interest, when Mr. Serota sells all or part of the LGP Common Stock purchased with the proceeds of such loans in an amount proportional to the number of shares of LGP Common Stock sold. 30 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT NO. % OWNED OF SHARES ------- --------- COMMON STOCK: Liberty Group Publishing, Inc...................... 100% 100 3000 Dundee Rd., Suite #203 Northbrook, IL 60062 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS EMPLOYMENT AGREEMENT The Company has employment agreements and arrangements with its Chief Executive Officer. See "Item 11. Executive Compensation -- Employment Agreements." MANAGEMENT SERVICES AGREEMENT On April 18, 2000, the Company entered into a management services agreement with Leonard Green & Partners, L.P., an affiliate of each of Green II and Green III, which acts as the manager under the agreement. The management services agreement provides that the manager will provide management, consulting and financial planning services and transaction-related financial advisory and investment banking services to the Company. The manager receives an annual fee of approximately $1.5 million as compensation for its management, consulting and financial planning services, which is payable in equal monthly installments and is subordinated in right of payment to the Notes, and the Amended Credit Facility. The manager also receives reasonable and customary fees for transaction-related services and is reimbursed for out-of-pocket expenses. The management services agreement terminates on January 27, 2010. The Company paid approximately $1.3 million and $1.5 million in management fees in 2000 and 2001, respectively, and $356,000 and $475,000 in other fees, in 2000 and 2001, respectively, to the manager. The Company is also obligated to pay other fees of $475,000 to the manager, of which $350,000 will be paid in 2002 and the remaining $125,000 will be paid in 2003. 31 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K (a) 1. Consolidated Financial Statements. Independent Auditors' Report. Consolidated Balance Sheets as of December 31, 2000 and 2001. Consolidated Statements of Operations for the years ended December 31, 1999, 2000, and 2001. Consolidated Statements of Stockholder's Equity for the years ended December 31, 1999, 2000, and 2001. Consolidated Statements of Cash Flows for the years ended December 31, 1999, 2000, and 2001. Notes to Consolidated Financial Statements. 2. The following consolidated financial statement schedule of the Company and the related Independent Auditors' Report are included in this Form 10-K/A on pages S-1 and S-2: Independent Auditors' Report - Schedule II - Valuation and Qualifying Accounts. All other financial statement schedules are omitted because such schedules are not required or the information required has been presented in the aforementioned consolidated financial statements. 3. The exhibits filed as a part of this report are listed in the following Exhibit Index. 32 EXHIBIT INDEX

---------------- * Management Contract/Compensatory Plan or Arrangement The Company has agreed to furnish to the Commission, upon request, a copy of each agreement defining the rights of holders of long-term debt not filed herewith in reliance upon the exemption from filing applicable to any such agreement pursuant to which the total amount of securities authorized does not exceed 10% of the total consolidated assets of the Company. (b) The Company did not file any current reports on Form 8-K during the fourth quarter of the year ended December 31, 2001. 35 INDEPENDENT AUDITORS' REPORT The Board of Directors Liberty Group Operating, Inc.: We have audited the accompanying consolidated balance sheets of Liberty Group Operating, Inc. and subsidiaries as of December 31, 2000 and 2001, and the related consolidated statements of operations, stockholder's equity and cash flows for each of the years in the three-year period ended December 31, 2001. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 consolidated financial statements present fairly, in all material respects, the financial position of Liberty Group Operating, Inc. and subsidiaries as of December 31, 2000 and 2001, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP Chicago, Illinois March 18, 2002 F-1 LIBERTY GROUP OPERATING, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

See accompanying notes to consolidated financial statements. F-2 LIBERTY GROUP OPERATING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS)

See accompanying notes to consolidated financial statements. F-3 LIBERTY GROUP OPERATING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)

See accompanying notes to consolidated financial statements. F-4 LIBERTY GROUP OPERATING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)

See accompanying notes to consolidated financial statements. F-5 LIBERTY GROUP OPERATING, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (A) DESCRIPTION OF BUSINESS Liberty Group Operating, Inc. and subsidiaries (the "Company") is a wholly-owned subsidiary of Liberty Group Publishing, Inc. (the "Parent" or "LGP"). The Company is a leading U.S. publisher of local newspapers and related publications that are the dominant source of local news and print advertising in their markets. The Company owns and operates 328 publications in 17 states. The Company's total revenues in 2001 were derived from advertising (75%), circulation (18%) and job printing and other (7%). Raw materials, mainly newsprint and ink, are readily available from a number of suppliers. No single display advertiser accounted for greater than one percent, and no single display, national or classified advertiser accounted for greater than 10%, of the Company's total revenues in 2001. (B) BASIS OF PRESENTATION LGP was formed for purposes of acquiring a portion of the daily and weekly newspapers owned by American Publishing Company or its subsidiaries ("APC"), a wholly-owned subsidiary of Hollinger International Inc. ("Hollinger"). LGP is a holding company for the Company. The consolidated financial statements include the accounts of the Company and its consolidated subsidiaries (the "Company"). All significant intercompany accounts and transactions have been eliminated. On January 27, 1998, the Parent acquired from Hollinger virtually all of the assets and assumed certain liabilities that were used primarily in the business of publishing, marketing and distributing certain local newspapers (the "Initial Acquisition"). The initial purchase price including fees and expenses was $322,378. The effective date of the Initial Acquisition was January 1, 1998. (C) USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. (D) INVENTORIES Inventories consist principally of newsprint, which is valued at the lower of cost or net realizable value. Cost is determined using the first-in, first-out (FIFO) or moving-average method. (E) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is recorded at cost. Routine maintenance and repairs are expensed as incurred. Depreciation is calculated under the straight-line method over the estimated useful lives, principally 25 years for buildings and improvements and 5 to 10 years for machinery and equipment. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or estimated useful life of the asset. F-6 LIBERTY GROUP OPERATING, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (F) INTANGIBLE ASSETS Intangible assets consist of subscriber and advertiser relationships, mastheads, non-compete agreements with former owners of acquired newspapers, and the excess of acquisition costs over the estimated fair value of net assets acquired (goodwill). The fair value of intangible assets acquired is determined primarily through the use of independent appraisals. Amortization is calculated using the straight-line method over the respective estimated useful lives ranging from 33 years for subscriber intangibles, up to 10 years for noncompetition agreements depending upon the specifics of the agreement, and 40 years for mastheads, advertiser intangibles and goodwill. The Company assesses the recoverability of its long-lived assets, such as property, plant and equipment and intangible assets, whenever events or changes in business circumstances indicate the carrying amount of the assets, or related group of assets, may not be fully recoverable. Factors leading to impairment include significant under performance relative to expected historical or projected future operating losses, significant changes in the manner of use of the acquired assets or the strategy for the Company's overall business, and significant negative industry or economic trends. The assessment of recoverability is based on management's estimate. If undiscounted future operating cash flows do not exceed the net book value of the long-lived assets, then a permanent impairment has occurred. The Company would record the difference between the net book value of the long-lived asset and the fair value of such asset as a charge against income in the consolidated statement of operations if such a difference arose. (G) 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. The revenue for job printing is recognized upon delivery. (H) INCOME TAXES The Company has been, and anticipates that it will be for the foreseeable future, in a tax loss position. Given the uncertainty as to the timing of the Company's ability to utilize such losses to offset future taxable income, the Company does not presently anticipate recording any tax benefit associated with its pre-tax losses. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to the difference between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. (I) FAIR VALUE OF FINANCIAL INSTRUMENTS AND LONG-LIVED ASSETS The Company has reviewed the following financial instruments and determined that their fair values approximated their carrying values as of December 31, 2001: cash equivalents; borrowings under revolving credit facility; accounts receivable; accounts payable and accrued expenses; and long-term liabilities. It is not practical to determine the fair value of the senior subordinated notes as such securities are not actively traded. (J) CASH EQUIVALENTS Cash equivalents represent highly liquid certificates of deposit with a maximum term at origination of three months or less. F-7 LIBERTY GROUP OPERATING, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (K) RECLASSIFICATIONS Certain amounts in prior years' consolidated financial statements and related notes have been reclassified to conform to the 2001 presentation. (2) ACQUISITIONS AND DISPOSITIONS During 1999, the Company acquired (net of exchanges and divestitures) 49 newspapers in 13 transactions for an aggregate purchase price of approximately $54,822. The excess of the purchase prices over the estimated fair value of the tangible and identifiable intangible assets acquired (goodwill) was approximately $48,195. In 2000, the Company acquired 43 publications in 12 transactions for an aggregate cash purchase price of $84,541. The excess of purchase prices over the estimated fair value of tangible and identifiable intangible assets acquired (goodwill) was approximately $39,685. The Company has accounted for these acquisitions using the purchase method of accounting. Accordingly, the costs of each acquisition has been allocated to the assets acquired and liabilities assumed based upon their respective fair values using independent valuations where appropriate. The costs of certain intangible assets acquired are being amortized over periods ranging from 5 to 40 years. The results of operations are included in the consolidated financial statements since the dates of acquisition. (3) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following: DECEMBER 31, ------------ 2000 2001 ---- ---- Land .................................................. $ 8,112 $ 8,125 Buildings and improvements.............................. 26,410 26,841 Machinery and equipment................................. 26,992 28,965 Furniture and fixtures.................................. 2,932 3,199 -------- -------- 64,446 67,130 Less accumulated depreciation and amortization.......... (8,629) (14,594) -------- -------- $ 55,817 $ 52,536 ======== ======== F-8 LIBERTY GROUP OPERATING, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (4) INTANGIBLE ASSETS Intangible assets consisted of the following: DECEMBER 31, ------------ 2000 2001 ---- ---- Non-compete agreements............................ $ 17,351 $ 17,536 Subscriber relationships.......................... 53,348 53,385 Advertiser relationships.......................... 202,606 202,756 Mastheads......................................... 19,149 19,168 Goodwill.......................................... 212,103 212,528 ----------- --------- 504,557 505,373 Less accumulated amortization..................... (36,953) (52,955) ----------- --------- $ 467,604 $ 452,418 =========== ========= (5) ACCRUED EXPENSES Accrued expenses consisted of the following: DECEMBER 31, ------------ 2000 2001 ---- ---- Accrued payroll................................... $ 1,500 $ 1,823 Accrued vacation.................................. 646 594 Accrued bonus..................................... 1,509 853 Accrued interest.................................. 10,160 7,949 Accrued other..................................... 2,490 2,175 ----------- ---------- $ 16,305 $ 13,394 =========== ========== (6) SENIOR SUBORDINATED NOTES The acquisition of 166 newspapers from Hollinger in January 1998 was financed in part by: (i) $180,000 from the issuance and sale by the Company of $180,000 aggregate principal amount of 9 3/8% Senior Subordinated Notes (the "Notes") due February 1, 2008 and (ii) $50,500 from the issuance and sale by LGP of $89,000 aggregate principal amount of 11 5/8% Senior Discount Debentures (the "Debentures") due February 1, 2009. The Notes were issued by the Company and are general unsecured obligations of the Company. The Notes are irrevocably and unconditionally jointly and severally guaranteed by each of the Company's existing and future subsidiaries. The Notes are redeemable for cash at the option of the Company anytime after February 1, 2003 at stipulated redemption amounts. In the event of a change in control (as defined in the Notes) of the Company, the Company must offer to repurchase the Notes at 101% of their principal amount. F-9 LIBERTY GROUP OPERATING, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (7) REVOLVING CREDIT FACILITY AND TERM LOAN B On April 18, 2000, the Company entered into an agreement to amend and restate its $175,000 revolving credit facility. The amendment and restatement extended the maturity date of the revolving credit facility from January 2003 to March 2005, and included the issuance of a $100,000 Term Loan B. The Term Loan B matures in March 2007 and requires annual principal payments of $500 in 2000, $1,000 from 2001 through 2004, $36,125 in 2005, $47,500 in 2006, and $11,875 in 2007. On May 10, 2001, the Company entered into an amendment to its Amended Credit Facility. The amendment decreased the aggregate commitment available under the revolving credit facility from $175,000 to $135,000 and amended the Cash Coverage Ratio and Senior Leverage Ratio as defined within the Amended Credit Facility. The Term Loan B and the revolving credit facility bear interest at the Company's option equal to the Base Rate (as defined in the Amended Credit Facility) or the adjusted LIBO Rate for a eurodollar loan (as defined in the Amended Credit Facility) plus a margin that varies based upon a ratio set forth in the Amended Credit Facility. There is an individual margin applicable to each of the Term Loan B and the revolving credit facility. The Company pays a fee on the aggregate amount of outstanding letters of credit. The Company also pays a fee on the unused portion of the revolving credit facility. No principal payments are due on the revolving credit facility until the maturity date. At December 31, 2001, the Company had utilized $42,950 of the revolving credit facility and $98,500 of the Term Loan B. The average interest rate on borrowings under the Amended Credit Facility for 2001 was 8.1%. The Amended Credit Facility contains certain financial covenants and other limitations on LGP and the Company, including restrictions on the ability of LGP and its subsidiaries, including the Company, to make investments or other loans or to pay dividends or make other specified restricted payments. These provisions generally prohibit dividend payments, loans or advances by LGP or by the Company to LGP without the consent of the lenders under the Amended Credit Facility. (8) LONG-TERM LIABILITIES Long-term liabilities principally represents amounts due under non-interest-bearing non-compete agreements, deferred acquisition consideration and principal payments on capital leases through 2008. The aggregate amount of payments related to long-term liabilities at December 31, 2001 are as follows: 2002........................................... $ 981 2003........................................... 511 2004........................................... 286 2005........................................... 282 2006........................................... 177 Thereafter..................................... 262 --------- $ 2,499 ========= (9) COMMON STOCK On the date of the Initial Acquisition, the Company issued 100 shares of common stock, par value $0.01 per share ("Common Stock"), to LGP. No other common shares were issued in 1999, 2000, or 2001. F-10 LIBERTY GROUP OPERATING, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (10) INCOME TAXES Income taxes for the periods shown below consisted of:

Income tax expense differed from the amounts computed by applying the U.S. Federal income tax rate of 34% to income (loss) before income tax expense as a result of the following:

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are presented below:

F-11 LIBERTY GROUP OPERATING, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 2000 2001 ---- ---- Deferred tax liabilities: Long-lived assets, principally due to differences in depreciation and amortization.............................. 8,789 19,200 Intangible assets, principally due to differences in amortization...................... 29,311 24,893 ---------- -------- 38,100 44,093 ---------- -------- Net deferred tax liability.......................... $ 25,484 $ 25,484 ========== ======== The valuation allowance increased by $1,536 in 2000 and in 2001. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary difference become deductible. In assessing the realizability of the Company's deferred tax assets, which are principally net operating loss carry-forwards, management considers the reversal of deferred tax liabilities which are scheduled to reverse during the carry-forward period and tax planning strategies. At December 31, 2001, the Company has net operating loss carry-forwards for Federal and state income tax purposes of $47,885, which are available to offset future taxable income, if any. These federal and state net operating loss carry-forwards begin to expire in 2018 and 2003, respectively. The Company acquired deferred tax liabilities of $5,996 in 2000 through corporate acquisitions. (11) EMPLOYEE BENEFIT PLANS The Parent maintains certain benefit plans for the employees of the Company. The Parent maintains a defined contribution plan conforming to IRS rules for 401(k) plans, for all of its employees satisfying minimum service requirements as set forth under the plan. The plan allows for a matching contribution at the discretion of the Company. The Company recorded $129, $271, and $296 in expenses related to the plan in 1999, 2000 and 2001, respectively. The Parent maintains three non-qualified deferred compensation plans, as described below, for certain of the Company's employees. The Parent maintains the Liberty Group Publishing, Inc. Publishers' Deferred Compensation Plan ("Publishers Plan"), a non-qualified deferred compensation plan for the benefit of certain designated publishers of the Company's newspapers. Under the Publishers' Plan, the Parent credits an amount to a bookkeeping account established for each participating publisher pursuant to a pre-determined formula which is based upon the gross operating profits of each such publisher's newspaper. The bookkeeping account is credited with earnings and losses based upon the investment choices selected by the participant. The amounts credited to the bookkeeping account on behalf of each participating publisher vest on an installment basis over a period of 15 years. A participating publisher forfeits all amounts under the Publishers' Plan in the event that the publisher's employment with the Company is terminated for "cause" as defined in the Publishers' Plan. Amounts credited to a participating publisher's bookkeeping account are distributable upon termination of the publisher's employment with the Company and will be made in a lump sum or installments as elected by the publisher. The Company recorded $133, $160 and $146 of compensation expense related to the plan in 1999, 2000 and 2001, respectively. F-12 LIBERTY GROUP OPERATING, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Parent maintains the Liberty Group Publishing, Inc. Executive Benefit Plan ("Executive Benefit Plan"), a non-qualified deferred compensation plan for the benefit of certain key employees of the Company. Under the Executive Benefit Plan, the Parent credits an amount, determined at the Company's sole discretion, to a bookkeeping account established for each participating key employee. The bookkeeping account is credited with earnings and losses based upon the investment choices selected by the participant. The amounts credited to the bookkeeping account on behalf of each participating key employee vest on an installment basis over a period of 5 years. A participating key employee forfeits all amounts under the Executive Benefit Plan in the event that the key employee's employment with the Company is terminated for "cause" as defined in the Executive Benefit Plan. Amounts credited to a participating key employee's bookkeeping account are distributable upon termination of the key employee's employment with the Company, and will be made in a lump sum or installments as elected by the key employee. The Company recorded $65, $66 and $61 of compensation expense related to the plan in 1999, 2000 and 2001, respectively. The Parent maintains the Liberty Group Publishing, Inc. Executive Deferral Plan ("Executive Deferral Plan"), a non-qualified deferred compensation plan for the benefit of certain key employees of the Company. Under the Executive Deferral Plan, eligible key employees may elect to defer a portion of their compensation for payment at a later date. Currently, the Executive Deferral Plan allows a participating key employee to defer up to 100% of his or her annual compensation until termination of employment or such earlier period as elected by the participating key employee. Amounts deferred are credited to a bookkeeping account established by the Parent for this purpose. The bookkeeping account is credited with earnings and losses based upon the investment choices selected by the participant. Amounts deferred under the Executive Deferral Plan are fully vested and nonforfeitable. The amounts in the bookkeeping account are payable to the key employee at the time and in the manner elected by the key employee. (12) RELATED PARTY TRANSACTIONS EXECUTIVE STOCK INVESTMENTS Upon the commencement of his employment in January 1998, the Parent loaned the Chief Executive Officer $250 pursuant to an Unsecured Promissory Note. The loan was forgiven on a pro rata daily basis from January 28, 1998 to January 28, 2001. In addition, certain other executives were given the opportunity to purchase LGP Common Stock. Under the plan, each executive paid cash for 50% of their stock investment and executed a five year note for the remaining 50%. The Board of Directors approved the forgiveness of these loans including accrued interest, in 3 equal installments in January 1999, 2000, and 2001. The Parent has the right to repurchase the LGP Common Stock at the original cost if the executive terminates his employment or is terminated for cause. On August 11, 2000, the Company, Kenneth L. Serota (the "Executive"), LGP, Green Equity Investors II, L.P. ("Green II") and Green Equity Investors III, L.P. ("Green III") entered into that certain Amendment to Employment Agreement, dated as of such date (the "Employment Agreement Amendment"), pursuant to which that certain Employment Agreement, dated as of November 21, 1997, between the Company, the Executive and LGP was amended. Under and pursuant to the Employment Agreement Amendment, the Parent issued and sold to the Executive 4,372 shares of LGP's Common Stock and 184.42 shares of LGP Junior Preferred Stock for an aggregate purchase price of $250. In addition, the Parent issued and sold to the Executive 23,174 shares of LGP Common Stock for a purchase price per share of $15.00 for an aggregate purchase price of $348. F-13 LIBERTY GROUP OPERATING, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) On December 15, 2000, the Parent issued and sold to management investors 28,626 shares of LGP Common Stock for an aggregate purchase price of $429. During 2001, the Company repurchased 22,344 shares of LGP Common Stock from former management stockholders. The purchase price was paid through loan forgiveness and $63 in cash. OTHER RELATED PARTY TRANSACTIONS The Company paid $1,320 and $1,480 in management fees in 2000 and 2001, respectively, and $356 and $475 in other fees in 2000 and 2001, respectively, to Leonard Green & Partners, L.P. The Company is obligated to pay other fees to Leonard Green & Partners, L.P. of $475 at December 31, 2001. (13) NEW ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 142 replaces the requirement to amortize intangible assets with indefinite lives and goodwill with a requirement for an annual impairment test. SFAS No. 142 also requires an evaluation of intangible assets and their useful lives and a transitional impairment test for goodwill and certain intangible assets upon adoption. After transition, the impairment tests will be performed annually. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001, as of the beginning of the year. The Company has not yet determined the impact of the new accounting standards on its financial reporting. In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and for the associated asset retirement costs. SFAS No. 143 must be applied starting with fiscal years beginning after June 15, 2002. The Company is currently evaluating the impact that the adoption of SFAS No. 143 will have on its consolidated financial statements. In August 2001, the FASB issued SFAS No. 144, "Accounting for Impairment of Long-Lived Assets." The new standard supercedes FASB Statement No. 121 (SFAS No. 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." Although retaining many of the fundamental recognition and measurement provisions of SFAS No. 121, the new rules significantly change the criteria that would have to be met to classify an asset as held-for-sale. The new standard also supercedes the provisions of Accounting Principles Board Opinion No. 30 (APB No. 30), "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," and will require expected future operating losses from discontinued operations to be displayed in discontinued operations in the period(s) in which the losses are incurred rather than as of the measurement date as presently required by APB No. 30. The provisions of SFAS No. 144 are effective for financial statements beginning after December 15, 2001, but allow for early application. The Company plans to adopt this standard as of the beginning of its new fiscal year on January 1, 2002. The Company is currently evaluating the impact of SFAS No. 144 will have on its results of operations and financial condition. (14) SUBSEQUENT EVENTS On January 7, 2002, the Company sold the assets of The Ottumwa Courier, a daily newspaper with a circulation of approximately 15,000. Along with the Courier, the property publishes five other shopper publications. The total sales price was $26,519 resulting in a gain for financial statement purposes of $7,117, or a gain of $4,342, net of the tax effect of $2,775. F-14 INDEPENDENT AUDITORS' REPORT ON SCHEDULE II The Board of Directors Liberty Group Operating, Inc.: Under date of March 18, 2002, we reported on the consolidated balance sheets of Liberty Group Operating, Inc. and subsidiaries as of December 31, 2000 and 2001, and the related consolidated statements of operations, stockholder's equity and cash flows for each of the years in the three-year period ended December 31, 2001. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on the consolidated financial statement schedule based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ KPMG LLP Chicago, Illinois March 18, 2002 S-1 SCHEDULE II LIBERTY GROUP OPERATING, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS

See accompanying Independent Auditors' Report on Schedule II. S-2 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: November 20, 2002 LIBERTY GROUP OPERATING, INC. (Registrant) By /s/ KENNETH L. SEROTA ------------------------------------------ Kenneth L. Serota, President, Chief Executive Officer and Chairman of the Board of Directors Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant in the capacities on the dates indicated. Dated: November 20, 2002 /s/ KENNETH L. SEROTA ------------------------------------------ Kenneth L. Serota, President, Chief Executive Officer and Chairman of the Board of Directors Dated: November 20, 2002 /s/ DANIEL D. LEWIS ------------------------------------------ Daniel D. Lewis, Chief Financial Officer Dated: November 20, 2002 /s/ SCOTT T. CHAMPION ------------------------------------------ Scott T. Champion, Director Dated: November 20, 2002 /s/ LEONARD I. GREEN ------------------------------------------ Leonard I. Green, Director Dated: November 20, 2002 /s/ JOHN G. DANHAKL ------------------------------------------ John G. Danhakl, Director Dated: November 20, 2002 /s/ PETER J. NOLAN ------------------------------------------ Peter J. Nolan, Director Dated: November 20, 2002 /s/ JONATHAN A. SEIFFER ------------------------------------------ Jonathan A. Seiffer, Director S-3 CERTIFICATION I, Kenneth L. Serota, certify that: 1. I have reviewed this annual report on Form 10-K/A of Liberty Group Operating, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report. Date: November 20, 2002 /s/ KENNETH L. SEROTA --------------------------------------------- Name: Kenneth L. Serota Title: President, Chief Executive Officer and Chairman of the Board of Directors S-4 CERTIFICATION I, Daniel D. Lewis, certify that: 1. I have reviewed this annual report on Form 10-K/A of Liberty Group Operating, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report. Date: November 20, 2002 /s/ DANIEL D. LEWIS ------------------------------------------ Name: Daniel D. Lewis Title: Chief Financial Officer S-5 EXHIBIT INDEX

S-6

S-7

LIBERTY GROUP OPERATING INC 10-K/A