<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: September 13, 2000
------------------
Liberty Group Operating, Inc.
--------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 333-46957 36-4197635
---------------------------- ------------- ------------------
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
3000 Dundee Road, Northbrook, Illinois 60062
-------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (847) 272-2244
-------------
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
(a) On July 1, 2000, Registrant, through Liberty Group Michigan Holdings,
Inc., a Delaware corporation and an indirect wholly-owned subsidiary of
Registrant (the "Registrant's Michigan Subsidiary"), purchased from IMG
Holdings, Inc., a Delaware corporation ("IMGH"), Independent Media
Holdings, Inc., a Delaware corporation and a wholly-owned subsidiary of
IMGH ("IMH"), and Independent Media Group, Inc., a Wisconsin corporation
and a wholly-owned subsidiary of IMH ("IMG," and together with IMGH and
IMH, the "Sellers") certain assets, including the real property,
mastheads, trade names, trademarks, service marks and other marks (and
the good will associated therewith), subscriber lists, inventory,
accounts receivable and equipment of or relating to certain newspapers
published, marketed and distributed by Sellers in the State of Michigan
(the "Newspapers").
Prior to this transaction, no material relationship existed between
Registrant and Sellers, or between any affiliates of such entities.
On July 1, 2000, Registrant paid to IMG $40,445,000 in cash (the
"Purchase Price").
The Purchase Price was adjusted by a payment by Registrant for the net
working capital (current assets, security and other deposits, certain
inventory, and other assets net of current liabilities) of Sellers with
respect to the business of operating the Newspapers as of July 1, 2000,
estimated at approximately $301,759 for purposes of the closing of the
transaction, and subject to a post-closing adjustment, as set forth in
the purchase agreement.
The Purchase Price was funded via Registrant's credit facility, which is
led by Citicorp USA, Inc., as administrative agent.
(b) Registrant acquired the Purchased Assets, constituting substantially all
of the assets owned by Sellers in their business of publishing, marketing
and distributing the Newspapers. Registrant will use these assets for the
same purposes as previously used by Sellers.
The foregoing summary of the terms of this transaction is qualified in
its entirety by reference to the provisions of that certain Asset
Purchase Agreement, dated as of June 29, 2000, by and between Midwest
Publishing Statutory Trust, a Connecticut statutory trust and parent of
IMG, and Registrant's Michigan Subsidiary, as amended and joined by each
of Sellers pursuant to that certain Joinder and Assumption Agreement,
dated as of June 30, 2000, copies of which are filed as exhibits to this
Report and are hereby incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
<PAGE> 3
(a) Financial Statements of Michigan Newspapers
Report of Independent Accountants
Combined Balance Sheets at June 30, 2000 and 1999
Combined Statements of Operations for the years ended June 30, 2000
and 1999
Combined Statements of Cash Flows for the years ended June 30, 2000
and 1999
Notes to Combined Financial Statements
(b) Pro Forma Financial Information
Pro Forma Consolidated Balance Sheet as of June 30, 2000 (unaudited)
Pro Forma Consolidated Statements of Operations for the year ended
December 31, 1999 (unaudited) and the six months ended June 30, 2000
(unaudited)
Notes to Pro Forma Consolidated Financial Statements
(c) Exhibits (incorporated by reference from exhibits included in the
Registrant's Form 8-K filed July 14, 2000)
2.1 Asset Purchase Agreement, dated as of June 29, 2000, by and
between Midwest Publishing Statutory Trust and Liberty Group
Michigan Holdings, Inc.
2.2 Joinder and Assumption Agreement, dated as of June 30, 2000, by
IMG Holdings, Inc., Independent Media Holdings, Inc. and
Independent Media Group, Inc. and acknowledged by Midwest
Publishing Statutory Trust and Liberty Group Michigan Holdings,
Inc.
<PAGE> 4
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Liberty Group Operating, Inc.
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations and of cash flows present fairly, in all
material respects, the financial position of the Michigan Newspapers (A
Component of IMG Holdings, Inc.) (the "Company") at June 30, 2000 and 1999, and
the results of their operations and their cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
As described in Note 1 to the financial statements, the Company, which has
historically been included in the consolidated financial statements of IMG
Holdings, Inc., was acquired by Liberty Group Operating, Inc. on June 30, 2000.
/s/ PriceWaterhouseCoopers LLP
Milwaukee, Wisconsin
August 31, 2000
<PAGE> 5
MICHIGAN NEWSPAPERS
(A COMPONENT OF IMG HOLDINGS, INC.)
COMBINED BALANCE SHEETS
JUNE 30, 2000 AND 1999
(IN THOUSANDS)
-------------------------------------------------------------------------------
2000 1999
------ ------
Assets
Current assets:
Cash $ 142 $ 312
Accounts receivable, net of allowance for doubtful
accounts of $290 and $156, respectively 1,502 1,853
Inventories 133 155
Prepaid expenses 68 82
------- -------
Total current assets 1,845 2,402
------- -------
Property, plant and equipment, net 3,725 4,294
Intangible assets, net 20,622 22,509
Deferred financing costs, net 865 991
------- -------
Total assets $27,057 $30,196
======= =======
Liabilities and Divisional Equity
Current liabilities:
Accounts payable $ 270 $ 184
Accrued expenses 773 702
Deferred revenues 563 496
------- -------
Total current liabilities 1,606 1,382
------- -------
Long-term debt 19,516 24,501
Commitments and contingencies (Notes 10 and 11)
Divisional Equity 5,935 4,313
------- -------
Total liabilities and divisional equity $27,057 $30,196
======= =======
The accompanying notes are an integral part of these financial statements.
- 2 -
<PAGE> 6
MICHIGAN NEWSPAPERS
(A COMPONENT OF IMG HOLDINGS, INC.)
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
-------------------------------------------------------------------------------
(IN THOUSANDS)
2000 1999
-------- --------
Revenues:
Advertising $ 10,475 $ 9,761
Circulation 2,982 3,041
Commercial printing and other 1,198 1,118
-------- --------
Total revenues 14,655 13,920
-------- --------
Operating costs and expenses:
Operating costs 7,708 7,975
Selling, general and administrative 2,932 2,483
Parent allocation 449 705
Depreciation and amortization 2,686 2,615
-------- --------
Total operating costs and expenses $ 13,775 $ 13,778
-------- --------
Income from operations 880 142
Interest expense 1,765 1,955
Transaction related expenses 733 --
Other expense, net 82 42
-------- --------
Net loss $ (1,700) $ (1,855)
======== ========
The accompanying notes are an integral part of these financial statements.
- 3 -
<PAGE> 7
MICHIGAN NEWSPAPERS
(A COMPONENT OF IMG HOLDINGS, INC.)
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
(IN THOUSANDS)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,700) $(1,855)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Provision for depreciation and amortization 2,686 2,615
Changes in operating assets and liabilities:
Accounts receivable 316 (384)
Inventories 22 (25)
Prepaid expenses 14 42
Accounts payable 86 (93)
Deferred revenue 67 67
Accrued expenses 71 441
------- -------
Net cash provided by operating activities 1,562 808
------- -------
Cash flows from investing activities:
Property, plant and equipment additions (69) (505)
------- -------
Net cash used in investing activities (69) (505)
------- -------
Cash flows from financing activities:
Net proceeds/payments on long-term debt (4,985) 6,345
Deferred refinancing costs -- (765)
Activity with Parent and other affiliates, net 3,322 (5,938)
------- -------
Net cash used for financing activities (1,663) (358)
------- -------
Net decrease in cash (170) (55)
Cash at beginning of year 312 367
------- -------
Cash at end of year $ 142 $ 312
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 4 -
<PAGE> 8
MICHIGAN NEWSPAPERS
(A COMPONENT OF IMG HOLDINGS, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS UNLESS INDICATED)
1. SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
The combined financial statements of the Michigan Newspapers (the
"Company") reflect certain holdings of Independent Media Group, Inc. and
IMG Michigan Newspapers, Inc. including the net assets and operations of
the Adrian Daily Telegram, Adrian Medley, Adrian Access Shopper, Sturgis
Journal, The Weekender, Sturgis Gateway Shopper, Coldwater Daily Reporter,
The Reporter Extra and the Coldwater Shoppers Guide. The Company publishes
newspapers and shopper guides in the State of Michigan and performs
contract commercial printing. The Company has historically been included in
the consolidated financial statements of IMG Holdings, Inc. (the "Parent").
Independent Media Group, Inc. and IMG Michigan Newspapers, Inc. are
subsidiaries of the Parent.
On June 30, 2000, Liberty Group Operating, Inc. (the "Purchaser") acquired
substantially all of the assets of the Company pursuant to certain Merger
and Asset Purchase Agreements (the "Agreements") among the Purchaser, IMG
Holdings, Inc. (the "Seller") and Midwest Publishing Statutory Trust, a
Connecticut statutory trust. The purchase consideration approximated $41
million, subject to certain adjustments as set forth in the Agreements.
All significant intercompany balances and transactions have been
eliminated. Payables and receivables with the Company's parent or its
affiliates are recorded as a component of divisional equity.
USE OF ESTIMATES
Preparation of the combined financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from
those estimates.
INVENTORIES
Inventories, consisting of newsprint and printing related materials, are
valued at the lower of cost (determined on the first-in, first-out method)
or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost. Maintenance and repair
costs are charged to expense as incurred. Gains and losses on disposition
of property, plant and equipment are reflected in income. Depreciation of
property, plant and equipment are recorded using principally the
straight-line method over the estimated useful lives of the assets as
follows:
Building and improvements 40 years
Machinery and equipment 5 years
Furniture and fixtures 5-10 years
- 5 -
<PAGE> 9
MICHIGAN NEWSPAPERS
(A COMPONENT OF IMG HOLDINGS, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS UNLESS INDICATED)
-------------------------------------------------------------------------------
INTANGIBLE ASSETS
Intangible assets are stated at cost and are amortized on a straight-line
basis over their estimated economic or contractual lives ranging from five
to fifteen years. Intangible assets primarily include goodwill,
subscription lists, non-compete agreements and archives. The Company
reviews the carrying value of intangibles for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. Measurement of any impairment would include a comparison of
estimated future operating cash flows anticipated to be generated during
the remaining life of the intangible to the net carrying value of the
intangible. Deferred financing costs are amortized over the remaining term
of the related debt instrument.
REVENUE RECOGNITION
Subscription revenue is recognized ratably over the term of the newspaper
subscriptions, generally one year or less. Advertising revenues are
recognized upon publication or delivery of the advertisement.
INCOME TAXES
The results of the Company's operations are included in the income tax
return as filed by its Parent. No intercompany tax allocation arrangement
exists. The Company's income tax provision included in these financial
statements reflects the tax position of the Company on a stand-alone basis
such that the income taxes payable is recorded as if the Company filed
separate income tax returns. The Company records its income taxes payable
as an intercompany payable within divisional equity.
Deferred income taxes have been provided under the liability method.
Deferred income tax assets and liabilities are determined based upon the
difference between the financial statement and tax bases of assets and
liabilities, as measured by the enacted tax rate which will be in effect
when these differences are expected to reverse. Deferred income tax expense
is the result of changes in the deferred tax assets and liabilities. A
valuation allowance is provided when it is more likely than not that some
portion or all of the deferred income tax assets will not be realized.
2. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at June 30:
2000 1999
------ ------
Land $ 360 $ 360
Buildings and improvements 1,758 1,756
Machinery and equipment 2,605 2,663
Furniture and fixtures 833 832
------- -------
5,556 5,611
Less accumulated depreciation (1,831) (1,317)
------- -------
$ 3,725 $ 4,294
======= =======
- 6 -
<PAGE> 10
MICHIGAN NEWSPAPERS
(A COMPONENT OF IMG HOLDINGS, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS UNLESS INDICATED)
-------------------------------------------------------------------------------
3. INTANGIBLE ASSETS
Intangible assets, net at June 30 are as follows:
2000 1999
------ ------
Goodwill $ 7,735 $ 8,350
Subscription lists 12,270 13,168
Non-compete agreements 540 857
Archives and other 77 134
-------- --------
$ 20,622 $ 22,509
======== ========
Accumulated amortization was $6,327 and $4,405 at June 30, 2000 and 1999,
respectively.
4. ACCRUED EXPENSES
Accrued expenses consist of the following at June 30:
2000 1999
------ ------
Accrued payroll $ 186 $ 133
Accrued vacation 102 76
Accrued bonus 38 35
Accrued interest 277 282
Accrued other 170 176
------ -----
$ 773 $ 702
====== =====
5. LONG-TERM DEBT
Long-term debt consists of the following at June 30:
2000 1999
------ ------
Line of credit facility $ 19,516 $ 24,501
======== ========
The Parent entered into a Credit Facility Agreement (the "Agreement") with
several banks on February 7, 1997 (amended and restated on October 9,
1998). The Agreement provides the Parent with interest rate options based
on the bank's prime interest rate or LIBOR plus a rate margin increase
ranging from .25% to 2.75% as determined based on the financial performance
of the Parent (8.77% to 10.75% at June 30, 2000). Interest on borrowings is
payable quarterly. Substantially all of the Parent's assets are pledged as
collateral for the outstanding borrowings under the Agreement.
- 7 -
<PAGE> 11
MICHIGAN NEWSPAPERS
(A COMPONENT OF IMG HOLDINGS, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS UNLESS INDICATED)
-------------------------------------------------------------------------------
The debt, which was fully repaid using proceeds from the transaction
disclosed in Note 1 and another transaction entered into by the Parent, was
allocated from the Parent based on an average asset allocation method.
6. DIVISIONAL EQUITY
The changes in divisional equity for the two years ended June 30, 2000
are as follows:
Balance July 1, 1998 $ 12,106
Net loss (1,855)
Activity with Parent and other affiliates - net (5,938)
--------
Balance June 30, 1999 4,313
Net loss (1,700)
Activity with Parent and other affiliates - net 3,322
--------
Balance June 30, 2000 $ 5,935
========
7. INCOME TAXES
As of June 30, deferred tax liabilities and assets were comprised of
the following:
2000 1999
------ ------
Deferred tax liabilities:
Buildings and equipment $ 323 $ 192
------- ------
Deferred tax assets:
Net operating loss carryforward 1,436 841
Intangible assets 184 209
Other 116 87
------- ------
1,736 1,137
Valuation allowance (1,413) (945)
------- ------
Total deferred tax assets 323 192
------- ------
Net deferred income taxes $ - $ -
======= ======
The net operating losses carryforwards available to the Parent expire
beginning in 2018. A valuation allowance has been established for the
future tax benefits related to the deferred tax assets due to the
uncertainty regarding their ultimate realization in these financial
statements.
- 8 -
<PAGE> 12
MICHIGAN NEWSPAPERS
(A COMPONENT OF IMG HOLDINGS, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS UNLESS INDICATED)
-------------------------------------------------------------------------------
8. TRANSACTIONS WITH PARENT AND AFFILIATES
The Company and its Parent have entered into a management arrangement
whereby the Company is provided with certain services, including but not
limited to matters of organization and administration, cash and debt
management, employee benefits, taxation, risk management and legal affairs.
The annual fees charged to the Company for these services reflect its pro
rata share of corporate administrative costs using various allocation
methodologies. Company management and its Parent believe that the fees
charged are reasonable in light of the level of services provided and such
fees totaled $371 and $613 in 2000 and 1999, respectively.
An affiliate of the Parent also provides certain administrative services on
behalf of the Parent, the Company and its affiliates. The Company's pro
rata share of those management fees for the years ended June 30, 2000 and
1999 were $78 and $92, respectively.
9. PROFIT SHARING PLAN
The Company participates in a qualified 401(k) profit sharing plan which is
sponsored by its Parent and covers substantially all full-time employees.
The plan provides for Company matching contributions of twenty-five percent
of the initial two percent of participant contributions. Company
contributions charged to operations during the years ended June 30, 2000
and 1999 were approximately $10 and $7, respectively.
10. LEASES
The Company has several operating lease agreements primarily involving
buildings, vehicles and office equipment. These leases are noncancelable
and expire on various dates through 2005. Future minimum payments under
noncancelable operating leases approximate the following:
2001 $ 27
2002 12
2003 8
2004 5
2005 2
----
$ 54
====
Rent expense approximated $12 for both fiscal 2000 and 1999, respectively.
11. COMMITMENTS AND CONTINGENCIES
In the ordinary course of conducting business, the Company occasionally
becomes involved in legal proceedings relating to contracts, environmental
issues and other matters. While these matters have an element of
uncertainty, management believes that the outcome of any pending or
threatened actions will not have a material adverse effect on financial
position, results of operations, or cash flows of the Company.
- 9 -
<PAGE> 13
MICHIGAN NEWSPAPERS
(A COMPONENT OF IMG HOLDINGS, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS UNLESS INDICATED)
-------------------------------------------------------------------------------
12. TRANSACTION RELATED EXPENSES
The Parent incurred the expenses described below which were triggered as a
result of the transaction described in Note 1. The portion of these
expenses related to the Company were recognized in 2000.
The Parent provided stock appreciation rights to four key employees
including the president of the Parent and a publisher of the Company.
During 2000 the Parent entered into a severance agreement with the
president. The combined payment to the president to settle the stock
appreciation rights and severance agreement was $1,500. Approximately $510
of the $1,500 was allocated to the Company in 2000. The Parent also settled
the stock appreciation rights with a publisher of the Company for $256.
Approximately $172 was allocated from the Parent to the Company in 2000.
The remainder was recorded by the Parent for services rendered to other
operations.
The Parent also entered into stay-put bonus arrangements with several
employees of the Company during 2000. These totaled approximately $56.
- 10 -
<PAGE> 14
PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) OF
LIBERTY GROUP OPERATING, INC. AND SUBSIDIARIES AND ACQUIRED BUSINESS
The following unaudited pro forma consolidated balance sheet as of June
30, 2000 and the pro forma consolidated statements of operations for the year
ended December 31, 1999 and six months ended June 30, 2000 give effect to the
Company's acquisition of the Michigan newspapers. The pro forma information is
based on the respective historical financial statements of Liberty Group
Operating, Inc. and subsidiaries and the Michigan Newspapers 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 statements of
operations for the year ended December 31, 1999, and six months ended June 30,
2000 reflect adjustments as if the acquisition had occurred on January 1, 1999.
The unaudited pro forma balance sheet as of June 30, 2000 gives effect to the
acquisition as if it had occurred on June 30, 2000. 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 the unaudited financial statements of the Michigan Newspapers for the year
ended December 31, 1999 and the unaudited financial statements of these entities
for the six months ended June 30, 2000. 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 financial statements of the
Michigan Newspapers and notes thereto included elsewhere in this Form 8-K/A.
<PAGE> 15
LIBERTY GROUP OPERATING, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 2000
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
LIBERTY GROUP
OPERATING, INC. MICHIGAN PRO FORMA PRO FORMA
CONSOLIDATED NEWSPAPERS ADJUSTMENTS (A)
---------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,168 142 (142)(b) 2,168
Accounts receivable, net 21,168 1,502 -- 22,670
Inventories 2,323 133 -- 2,456
Prepaid expenses 1,602 68 -- 1,670
Other current assets 287 -- -- 287
---------------------------------------------------------
Total current assets 27,548 1,845 (142) 29,251
Property, plant and
equipment, net 50,772 3,725 -- 54,497
Acquisitions in progress 40,748 -- (40,748)(c) --
Intangible assets, net 426,735 20,622 (20,622)(b)
36,815 (a) 463,550
Deferred financing costs, net 8,005 865 (865)(b) 8,005
Other assets 395 -- -- 395
---------------------------------------------------------
Total assets $554,203 27,057 (25,562) 555,698
=========================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under revolving
credit facility $ 44,000 -- -- 44,000
Current portion of long-term
liabilities 456 -- -- 456
Accounts payable 2,215 270 -- 2,485
Accrued expenses 16,067 773 (111)(b) 16,729
Deferred revenue 8,302 563 -- 8,865
---------------------------------------------------------
Total current liabilities 71,040 1,606 (111) 72,535
Term loan B 100,000 -- -- 100,000
Senior subordinated notes 180,000 -- -- 180,000
Long-term debt -- 19,516 (19,516)(b) --
Long-term liabilities, less
current portion 1,577 -- -- 1,577
Deferred income taxes 24,247 -- -- 24,247
---------------------------------------------------------
Total liabilities 376,864 21,122 (19,627) 378,359
Stockholders' equity
Common stock -- -- -- --
Additional paid-in-capital 176,967 -- -- 176,967
Retained earnings 372 -- -- 372
Divisional equity -- 5,935 (5,935)(d) --
---------------------------------------------------------
Total stockholders'
equity 177,339 5,935 (5,935) 177,339
---------------------------------------------------------
Total liabilities and
stockholders' equity $554,203 27,057 (25,562) 555,698
=========================================================
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
<PAGE> 16
LIBERTY GROUP OPERATING, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
LIBERTY GROUP
OPERATING, INC. MICHIGAN PRO FORMA PRO FORMA
CONSOLIDATED NEWSPAPERS ADJUSTMENTS (A)
DESCRIPTION --------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Advertising $ 120,573 10,124 -- 130,697
Circulation 27,543 2,999 -- 30,542
Job printing and other 13,239 1,059 -- 14,298
-----------------------------------------------
Total revenues 161,355 14,182 -- 175,537
OPERATING COSTS AND EXPENSES:
Operating costs 68,351 7,499 -- 75,850
Selling, general and
administrative 51,522 3,168 -- 54,690
Depreciation and
amortization 16,657 2,676 (2,102)(e)
-- -- 940 (f) 18,171
Allocation from Parent -- 577 (577)(g) --
-----------------------------------------------
Income from operations 24,825 262 1,739 26,826
OTHER INCOME (EXPENSE):
Interest expense (25,216) (1,860) 1,860 (e)
(3,463)(h) (28,679)
Net gain on exchange and
disposition of properties 6,197 -- -- 6,197
Other expense, net -- (68) -- (68)
-----------------------------------------------
Total other income (expense) (19,019) (1,928) (1,603) (22,550)
Income (loss) before income
taxes and extraordinary item 5,806 (1,666) 136 4,276
Income tax expense 2,752 -- 65 (i) 2,817
-----------------------------------------------
Income (loss) before
extraordinary item 3,054 (1,666) 71 1,459
Extraordinary gain on
insurance proceeds 485 -- -- 485
-----------------------------------------------
Net income (loss) $ 3,539 (1,666) 71 1,944
===============================================
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
<PAGE> 17
LIBERTY GROUP OPERATING, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
LIBERTY GROUP
OPERATING, INC. MICHIGAN PRO FORMA PRO FORMA
DESCRIPTION CONSOLIDATED NEWSPAPERS ADJUSTMENTS (A)
-------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Advertising $ 69,674 5,149 -- 74,823
Circulation 15,153 1,448 -- 16,601
Job printing and other 5,913 681 -- 6,594
-------------------------------------------------------
Total revenues 90,740 7,278 -- 98,018
OPERATING COSTS AND EXPENSES:
Operating costs 38,033 3,953 -- 41,986
Selling, general and
administrative 30,178 1,344 -- 31,522
Depreciation and
amortization 9,258 1,332 (1,029)(e)
470 (f) 10,031
Allocation from Parent -- 224 (224)(g) --
-------------------------------------------------------
Income (loss) from operations 13,271 425 783 14,479
OTHER INCOME (EXPENSE):
Interest expense (14,963) (882) 882 (e)
(1,935)(h) (16,898)
Transaction related expenses -- (773) 773 (g) --
Other income, net -- 7 -- 7
-------------------------------------------------------
Total other income (expense) (14,963) (1,648) (280) (16,891)
Income (loss) before
income taxes (1,692) (1,223) 503 (2,412)
Income tax expense
(benefit) 260 -- -- 260
-------------------------------------------------------
Net income (loss) $ (1,952) (1,223) 503 (2,672)
=======================================================
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
<PAGE> 18
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Pro Forma Consolidated Financial Statements
The unaudited pro forma consolidated financial statements combine the
unaudited consolidated balance sheets of the Company and the Michigan
Newspapers as of June 30, 2000 and the unaudited consolidated statements of
operations of the Company and the Michigan Newspapers for the year ended
December 31, 1999 and the six months ended June 30, 2000.
Note 2 - Pro Forma Adjustments
(a) Represents recording of excess purchase price of acquisition over fair
value of net assets acquired, as follows:
Purchase price $ 40,748
Acquisition fees and expenses 120
---------------------------------------------------------
Total purchase price $ 40,868
Tangible net assets acquired (4,053)
---------
Excess purchase price $ 36,815
---------------------------------------------------------
The excess purchase price of the acquisition has been allocated to
intangible assets. Subject to the completion of management's final
valuation of these allocated amounts, the specific intangible assets and
estimated fair values to which the excess purchase price will be allocated
include: mastheads for $1,841, advertising lists for $14,726, subscriber
list for $3,682 and the remainder representing goodwill. In the opinion of
management, completion of the final valuation will not materially impact
the unaudited pro forma consolidated balance sheet.
(b) Represents the elimination of the historical assets and liabilities of the
Michigan Newspapers that were not included as part of the purchase
agreement between the Registrant and the Michigan Newspapers.
(c) Represents the elimination of the Registrant's acquisitions in progress
balance related to the Michigan Newspapers as of June 30, 2000. On June 30,
2000, the Registrant transferred $40,748 in cash to an escrow account
toward the purchase of the Michigan Newspapers.
(d) Represents the elimination of the divisional equity of the Michigan
Newspapers that would not be recorded by the Registrant as part of the
acquisition.
(e) Represents the elimination of the historical amortization and interest
expense of the Michigan Newspapers that would not have been recorded by the
Registrant. See notes (f) and (h) for the additional amortization and
interest expense that would have been incurred by the Registrant.
(f) Represents the adjustment necessary to amortize the additional $36,815 of
intangible assets (calculated in note (a)) over their estimated useful
lives, presently estimated for mastheads, advertising lists, and goodwill
over 40 years, and subscriber lists over 33 years.
(g) Represents the elimination of the historical transaction related expenses
and allocation from Parent incurred by the Michigan Newspapers that would
not have been recorded by the Registrant.
(h) Represents the adjustment necessary to reflect the additional interest
expense that the Registrant would have incurred during the year ended
December 31, 1999 and the six months ended June 30, 2000 had the
Registrant financed the purchase of the Michigan Newspapers with its
revolving credit facility on January 1, 1999.
(i) Represents the adjustment necessary to reflect the additional income tax
expense that the Registrant would have incurred during the year ended
December 31, 1999 had the Registrant acquired the Michigan Newspapers on
January 1, 1999.
<PAGE> 19
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: September 13, 2000 Liberty Group Operating, Inc.
By /s/ Kevin O'Shea
-----------------------------------------
Kevin O'Shea,
Executive Vice President,
Chief Financial Officer and Secretary
