<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: MARCH 29, 1999
LIBERTY GROUP OPERATING, INC.
(Exact Name of Registrant as Specified in its Charter)
333-46959
(Commission File Number)
<TABLE>
<S> <C>
DELAWARE 36-4197636
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3000 DUNDEE ROAD, SUITE 203, NORTHBROOK, ILLINOIS 60062
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code (847) 272-2244
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
(a) On January 13, 1999 (but effective by agreement for accounting
purposes as of January 1, 1999) the Registrant purchased (i) all
of the issued and outstanding shares of capital stock (the "Life
Printing Shares") of Life Printing & Publishing Co., Inc., an Illinois
corporation ("Life Printing"), from the shareholders of Life Printing
(the "Shareholders"), and (ii) certain real property in Oak Brook,
Illinois (the "Jongo Real Property") owned by Jongo Real Estate
Partnership ("Jongo"), an Illinois general partnership and an
affiliate of the Shareholders, and leased to Life Printing.
Prior to this transaction, other than the relationship between the
Shareholders and Jongo, no material relationship existed between the
Registrant and the Shareholders or Jongo, or between any affiliates of
such entities.
At the closing of the transaction, the Registrant (a) paid to the
Shareholders $23,784,004 in cash, (b) deposited an additional
$2,500,000 of the cash purchase price otherwise payable to the
Shareholders into an escrow account until April 16, 2000 pursuant to
the Escrow Agreement between the Shareholders, the Registrant's
Subsidiary and Old Kent Bank, as escrow agent, and (c) assumed
approximately $285,406 of bank indebtedness which the Registrant paid
in full immediately after the closing. In addition, the Registrant
paid $2,700,000 to Jongo for the Jongo Real Property. By acquisition
of the Life Printing Shares, the Registrant acquired substantially all
of the assets owned by Life Printing, including the mastheads, trade
names, trademarks, service marks and other marks (and the goodwill
associated therewith), subscriber lists, cash on hand as of December
31, 1998 of $1,066,841 inventory, accounts receivable (net of a
reserve for bad debts) of $1,054,062, equipment and real property
located in Berwyn, Illinois of the newspapers published, marketed and
distributed by Life Printing.
The cash portion of the purchase price in this transaction was paid
out of proceeds form the Registrant's existing credit facility with
its lenders, Citicorp USA, Inc., as Administrative Agent and Swingline
Lender, Citibank, N.A., as Issuing Bank, BT Alex. Brown Incorporated
as Syndication Agent, Wells Fargo Bank, N.A., as Documentation Agent
and Bank of America NT & SA, as Co-Agent.
(b) The Registrant acquired (i) the Life Printing Shares from the
Shareholders and thereby acquired substantially all of the assets
owned by Life Printing in its business of publishing, marketing and
distributing newspapers and (ii) the Jongo Real Property from Jongo.
The Registrant will use these assets for the same purposes as
previously used by Life Printing.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFOMRATION AND EXHIBITS.
(a) Financial Statements of Businesses Acquired
Independent Auditors' Report
Combined Balance Sheet as of December 31, 1998
<PAGE> 3
Combined Statement of Income for the year ended December 31, 1998
Combined Statement of Stockholders' Equity for the year ended December
31, 1998
Combined Statement of Cash Flows for the year ended December 31, 1998
Notes to Combined Financial Statements
(b) Pro Forma Financial Information
Pro Forma Consolidated Balance Sheet as of December 31, 1998.
(unaudited)
Pro Forma Consolidated Statement of Operations for the year ended
December 31, 1998 (unaudited)
Notes to Pro Forma Consolidated Financial Statements
(c) Exhibit (incorporated by reference from exhibits included in
the Company's Form 8-K filed January 28, 1999)
2.1 Stock Purchase Agreement, dated as of December 16, 1998, by
and between the shareholders of Life Printing & Publishing
Co., Inc., Jongo Real Estate Partnership and Liberty Group
Operating, Inc.
<PAGE> 4
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Life Printing & Publishing Co., Inc. and
Jongo Real Estate Partnership
We have audited the accompanying combined balance sheet of Life Printing &
Publishing Co., Inc. and certain real property of Jongo Real Estate Partnership
(collectively, "Life Printing") as of December 31, 1998, and the related
combined statements of income, stockholders' equity and cash flows for the year
then ended. These combined financial statements are the responsibility of
Life Printing's management. Our responsibility is to express an opinion on these
combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Life Printing as of
December 31, 1998, and the results of their operations and their cash flows for
the year then ended in conformity with generally accepted accouting principles.
/s/ KPMG LLP
Chicago, Illinois
March 26, 1999
<PAGE> 5
LIFE PRINTING & PUBLISHING CO., INC. AND
CERTAIN REAL PROPERTY OF JONGO REAL ESTATE PARTNERSHIP
COMBINED BALANCE SHEET
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1998
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $ 1,067
Accounts receivable, net of allowance for doubtful
accounts of $61 in 1997 and $51 in 1998 1,054
Prepaid expenses 22
Other current assets 18
--------
Total current assets 2,161
Property, plant and equipment, net of accumulated
depreciation 2,566
--------
Total assets $ 4,727
========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term liabilities $ 386
Obligations under capital leases 107
Accounts payable 346
Accrued expenses 247
Deferred revenue 667
--------
Total current liabilities 1,753
Long-term liabilities, less current portion 824
Obligations under capital leases, less current portion 243
--------
Total liabilities 2,820
Stockholders' equity
Common stock 44
Additional paid-in-capital 3
Retained earnings 1,860
--------
Total stockholders' equity 1,907
--------
Total liabilities and stockholders' equity $ 4,727
--------
</TABLE>
See accompanying notes to combined financial statements
<PAGE> 6
LIFE PRINTING & PUBLISHING CO., INC. AND
CERTAIN REAL PROPERTY OF JONGO REAL ESTATE PARTNERSHIP
COMBINED STATEMENT OF INCOME
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1998
----
<S> <C>
REVENUES:
Advertising 13,148
Circulation 1,524
Job printing and other 417
------
Total revenues 15,089
OPERATING COSTS AND EXPENSES:
Operating costs 11,094
Selling, general and administrative 1,641
Depreciation and amortization 392
------
Income from operations 1,962
Interest expense 127
Other expense 52
------
Net income 1,783
</TABLE>
See accompanying notes to combined financial statements.
<PAGE> 7
LIFE PRINTING & PUBLISHING CO., INC. AND
CERTAIN REAL PROPERTY OF JONGO REAL ESTATE PARTNERSHIP
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Additional Total
Common Paid-In Retained Stockholders'
Stock Capital Earnings Equity
<S> <C> <C> <C> <C>
Balances at December 31, 1997 44 3 2,101 2,148
Net Income -- - 1,783 1,783
Distributions to Stockholders -- - (2,024) (2,024)
--- - ------ ------
Balances at December 31, 1998 44 3 1,860 1,907
=== = ====== ======
</TABLE>
See accompanying notes to combined financial statements.
<PAGE> 8
LIFE PRINTING & PUBLISHING CO., INC. AND
CERTAIN REAL PROPERTY OF JONGO REAL ESTATE PARTNERSHIP
COMBINED STATEMENT OF CASH FLOWS
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1998
----
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,783
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 392
Loss on dispositions of property, plant and 84
equipment
Changes in assets and liabilities:
Accounts receivable 202
Prepaid expenses and other assets 389
Accounts payable 100
Accrued expenses (168)
Deferred revenue (33)
--------
Cash provided by operating activities 2,749
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (172)
Proceeds from dispositions of property, plant,
and equipment 47
Net sales (purchases) of marketable securities 740
--------
Cash provided by investing activities 615
========
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of obligation under capital leases (92)
Stockholder distributions (2,024)
Payments on long term debt (307)
--------
Cash used in financing activities (2,423)
Net increase in cash and cash
equivalents 941
Cash and cash equivalents, at beginning
of year 126
--------
Cash and cash equivalents, at end of year $ 1,067
========
Supplemental disclosure of cash flow
information - interest paid 127
Supplemental disclosure of noncash financing
activities - capital lease obligations 46
</TABLE>
See accompanying notes to combined financial statements.
<PAGE> 9
LIFE PRINTING & PUBLISHING CO., INC. AND
CERTAIN REAL PROPERTY OF REAL ESTATE PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
Life Printing & Publishing Co., Inc. (Life) owns and operates 17 paid
weekly newspapers in the western suburbs of Chicago, Illinois. The newspapers'
focus is on local news in each of the communities it serves. Jongo Real Estate
Partnership (Jongo) owns and leases real property. Certain real property of
Jongo and the operations of Life represent the business acquired as described in
note 6 herein (the Business).
(b) BASIS OF PRESENTATION
The accompanying combined financial statements represent all of the net
assets and associated revenues, expenses, and cash flows of the Business,
assuming that the Business was organized for all periods as a separate legal
entity. Intercompany transactions between entities comprising the Business have
been eliminated in the presentation of the combined financial statements.
(c) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
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) CASH AND CASH EQUIVALENTS
Cash and cash equivalents represent cash and highly liquid investments
purchased with a maximum term at origination of three months or less.
(e) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost. Routine maintenance
and repairs are expensed as incurred.
Depreciation is calculated on accelerated methods over the estimated useful
lives, 7 to 40 years for buildings and improvements, 5 to 10 years for vehicles,
7 years for furniture and fixtures, and 5 years for computer equipment. Leased
assets are amortized over the estimated useful life of the asset or the term of
the applicable lease.
(f) 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.
<PAGE> 10
(g) INCOME TAXES
The Company has elected to be treated as an S Corporation under the
provisions of Subchapter S of the Internal Revenue Code, whereby its income is
not subject to Federal income taxes and is allocated and taxed to its
stockholders by inclusion in the stockholder's Federal income tax return.
Accordingly, no liability or provision for Federal income taxes is required nor
are any deferred taxes provided for temporary differences between tax and
financial reporting.
(h) FINANCIAL INSTRUMENTS
The Business has reviewed the following financial instruments and has
determined that their fair values approximated their carrying values as of
December 31, 1998: cash equivalents; accounts receivable; long-term
liabilities, accounts payable, and accrued expenses.
(2) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1998
----
<S> <C>
Land $ 74
Buildings and improvements 2,659
Vehicles 383
Furniture and fixtures 1,125
Computer equipment 862
Leased equipment 516
Less accumulated depreciation and amortization (3,053)
-------
$ 2,566
=======
</TABLE>
(3) LEASE COMMITMENTS
The Business finances the acquisition of certain office equipment under
capital lease arrangements. The net book value of assets acquired through
capital leases amounted to $335 at December 31, 1998.
The Business leases certain furniture and fixtures under noncancelable
operating leases which will expire at various dates through July 2000. Rent
expense for the year ended December 31, 1998 was $59.
The future minimum annual lease payments under noncancelable leases at
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
<S> <C> <C>
1999 $ 7 $ 149
2000 1 133
2001 -- 110
2002 -- 48
---------- ----------
$ 8 $ 440
========== ==========
Interest component $ 90
==========
</TABLE>
(4) LONG-TERM DEBT
In June 1994, the Business purchased computer software funded through
borrowings. At December 31, 1998, $283 of principal remains outstanding which
is secured by the related computer software initially purchased. The annual
interest rate on this loan is the prime rate (7.75% at December 31, 1998).
Future minimum principal payments amount to: $179 in 1999, and $104 in 2000.
In January 1994, the Business purchased real property funded through
borrowings. At December 31, 1998, $927 remains outstanding which is secured by
the property purchased. The annual interest rate on this loan is 7.5%. Future
minimum principal payments amount to: $207 in 1999, $223 in 2000, $240 in 2001,
and $257 in 2002.
(5) 401(k) RETIREMENT PLAN
The Business maintains a 401(k) Savings Plan (the Plan) that covers all
full-time employees who have satisfied minimum age and service requirements.
The Business provides an employer match based on a percentage of employee
contributions. Business contributions to the Plan for the year ended
December 31, 1998 were $143.
(6) SUBSEQUENT EVENT
On December 16, 1998, the stockholders of Life Printing and Publishing
Co., Inc. and the partners of Jongo Real Estate Partnership executed purchase
agreements to sell the outstanding shares of Life common stock and certain real
property of Jongo to Liberty Operating Group, Inc. for a combined amount of $29
million. This transaction was closed on January 13, 1999.
<PAGE> 11
PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) OF
LIBERTY GROUP OPERATING, INC. AND SUBSIDIARIES AND ACQUIRED BUSINESS
The following unaudited pro forma consolidated balance sheet as of
December 31, 1998 and the pro forma consolidated statement of operations for the
year ended December 31, 1998 give effect to the acquisition of Life Printing &
Publishing Co., Inc. and certain real property of Jongo Real Estate Partnership
(collectively, "Life Printing"). The pro forma information is based on the
respective historical financial statements of Liberty Group Operating, Inc. and
subsidiaries and Life Printing giving effect to the acquisition under the
purchase method of accounting and the assumptions and adjustments described in
the accompanying notes to the pro forma consolidated financial statements. The
unaudited pro forma consolidated statement of operations for the year ended
December 31, 1998, reflects adjustments as if the acquisition had occurred on
January 1, 1998. The unaudited pro forma balance sheet as of December 31, 1998
gives effect to the acquisition as if it had occurred on December 31, 1998. See
"Acquisition or Disposition of Assets".
The pro forma consolidated financial statements have been prepared by the
management of Liberty Group Operating, Inc. and subsidiaries based upon the
audited financial statements of Liberty Group Operating, Inc. and subsidiaries
and of Life Printing, both for the year ended December 31, 1998. The financial
effects of the acquisition as presented in the pro forma financial statements
are not necessarily indicative of either financial position or results of
operations that would have been obtained had the acquisition actually occurred
on the dates set forth above, nor are they necessarily indicative of the results
of future operations. The pro forma consolidated financial statements should be
read in conjunction with the notes thereto, which are an integral part thereof,
with the consolidated financial statements of Liberty Group Operating, Inc. and
subsidiaries and notes thereto, and with the combined financial statements of
Life Printing and notes thereto included elsewhere in this Form 8-K/A.
<PAGE> 12
LIBERTY GROUP OPERATING, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
LIBERTY GROUP
OPERATING, INC. LIFE PRO FORMA PRO FORMA
CONSOLIDATED PRINTING ADJUSTMENTS (A)
----------------------------------------------------------------
ASSETS
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents 1,025 1,067 2,092
Accounts receivable, net 15,021 1,054 16,075
Inventories 2,200 - 2,200
Prepaid expenses 240 22 262
Other current assets 144 18 162
----------------------------------------------------------------
Total current assets 18,630 2,161 20,791
Property, plant and equipment, net 29,283 2,566 1,489 A 33,338
Intangible assets, net 361,569 - 35,665 A,B 397,234
Other assets 54 - 54
----------------------------------------------------------------
Total assets 409,536 4,727 37,154 451,417
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under revolving credit facility 46,000 - 46,000
Current portion of long-term liabilities 388 386 (207) A 567
Obligations under capital leases - 107 107
Accounts payable 2,658 346 3,004
Accrued expenses 14,482 247 14,729
Deferred revenue 5,777 667 6,444
----------------------------------------------------------------
Total current liabilities 69,305 1,753 (207) 70,851
Senior subordinated notes 180,000 - 180,000
Long-term liabilities, less current portion 1,446 824 (720) A 1,550
Obligations under capital leases, less current portion - 243 243
Deferred income taxes 11,590 - 10,722 A 22,312
----------------------------------------------------------------
Total liabilities 262,341 2,820 9,795 274,956
Stockholders' equity (deficit)
Common stock - 44 (44) A -
Additional paid-in-capital 148,160 3 30,197 A 178,360
Accumulated deficit (965) 1,860 (2,794) A (1,899)
----------------------------------------------------------------
Total stockholders' equity (deficit) 147,195 1,907 27,359 176,461
----------------------------------------------------------------
Total liabilities and stockholders' equity (deficit) 409,536 4,727 37,154 451,417
</TABLE>
<PAGE> 13
LIBERTY GROUP OPERATING, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
LIBERTY GROUP
OPERATING, INC. PRO FORMA PRO FORMA
DESCRIPTION CONSOLIDATED LIFE PRINTING ADJUSTMENTS (A)
<S> <C> <C> <C> <C>
REVENUES:
Advertising 81,554 13,148 94,702
Circulation 22,844 1,524 24,368
Job printing and other 8,133 417 8,550
---------------------------------------------------------------------
Total revenues 112,531 15,089 127,620
OPERATING COSTS AND EXPENSES:
Operating costs 45,976 11,094 57,070
Selling, general and administrative 36,303 1,641 37,944
Depreciation and amortization 11,917 392 934 B 13,243
---------------------------------------------------------------------
Income from operations 18,335 1,962 19,363
Interest expense 18,372 127 2,037 C 20,536
Other expense 928 52 980
---------------------------------------------------------------------
Income (loss) before income taxes (965) 1,783 (2,971) (2,153)
Income taxes -- -- --
---------------------------------------------------------------------
Net income (loss) (965) 1,783 (2,971) (2,153)
=====================================================================
</TABLE>
See accompanying notes to pro forma condensed financial statements.
<PAGE> 14
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(A) Represents recording of excess of purchase price of acquisition over fair
value of net assets acquired, as follows:
Purchase price $ 28,984
Tax effects of stock purchase 10,722
Acquisition fees and expenses 1,216
-------------------------------------------------------------
Total purchase price 40,922
Historical tangible net assets acquired (1,907)
Excess purchase price $ 39,015
-------------------------------------------------------------
In the opinion of management, the book values of certain tangible assets of
the acquired business, principally land and buildings, were less than their
respective fair values. Accordingly, these values have been increased by
$1,489 to reflect their fair value. In addition, the outstanding mortgage
loan related to certain land and buildings in the amount of $927 was
extinguished in connection with the acquisition. The remaining excess
purchase price of the acquisition has been allocated to intangible assets.
Subject to the completion of management's final valuation of these
allocated amounts, the specific intangible assets and estimated fair values
to which the excess purchase price will be allocated include: mastheads
for $1,834, advertising lists for $14,668, subscriber lists for $3,667 and
the remainder representing goodwill. In the opinion of management,
completion of the final valuation will not materially impact the Company's
estimate of the fair values of the intangible assets or their useful lives,
and, therefore, will not have a material impact on the unaudited pro forma
consolidated balance sheet.
(B) Represents adjustment necessary to amortize intangible assets over their
estimated useful lives, presently estimated for mastheads, advertising
lists, and goodwill over 40 years, and subscriber lists over 33 years. In
the opinion of management, completion of the allocation of the purchase
price will not materially impact the estimate of the fair value of the
intangible assets or their useful lives and, therefore, will not
materially impact the unaudited pro forma consolidated statement of
operations.
(C) Represents adjustment necessary to reflect interest expense with respect
to the acquisition:
Interest on revolving credit facility $ 2,114
Less: amounts in historical
statement of operations (77)
-------------------------------------------------------------
Adjustment to interest expense $ 2,037
-------------------------------------------------------------
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
Dated: March 29, 1999 Liberty Group Operating, Inc.
By /s/Kenneth L. Serota
-----------------------------------------
Kenneth L. Serota,
President and
Chief Executive Officer
