<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report: July 17, 2000
Liberty Group Operating, Inc.
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 333-46959 36-4197636
---------------------------- ------------ -------------------
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
3000 Dundee Road, Northbrook, Illinois 60062
-------------------------------------- --------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (847) 272-2244
--------------
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
(a) Downers Grove Reporter, Inc. Acquisition
On May 1, 2000, the Registrant (through Liberty Group Suburban
Newspapers, Inc., a Delaware corporation and a wholly-owned subsidiary
of the Registrant (the "Registrant's Suburban Newspapers Subsidiary")),
purchased (i) all of the issued and outstanding shares of capital stock
(the "Downers Grove Shares") of Downers Grove Reporter, Inc., an
Illinois corporation ("Downers Grove"), from the shareholders of
Downers Grove (the "Shareholders"), and (ii) certain real property in
Downers Grove, Illinois (the "Reporter Real Property") owned by Downers
Grove Reporter, an Illinois general partnership (the "Reporter"), and
an affiliate of the Shareholders, and leased to Downers Grove. By
acquisition of the Downers Grove Shares, the Registrant acquired
substantially all of the assets owned by Downers Grove, including the
mastheads, trade names, trademarks, service marks and other marks (and
the goodwill associated therewith), subscriber lists, cash on hand,
inventory, accounts receivable and equipment of the newspapers
published, marketed and distributed by Downers Grove.
Prior to this transaction, other than the relationship between the
Shareholders and the Reporter, no material relationship existed between
the Registrant and the Shareholders or the Reporter, or between any
affiliates of such entities.
At the closing of this transaction, the Registrant (a) paid to the
Shareholders $8,419,496, in cash, and (b) deposited an additional
$1,000,000 of the cash purchase price otherwise payable to the
Shareholders for the Downers Grove Shares (collectively, the "Share
Purchase Price") into an escrow account until November 2, 2001 pursuant
to the Escrow Agreement between the Shareholders, the Registrant's
Subsidiary and Old Kent Bank, as escrow agent. In addition, the
Registrant paid $2,000,000 to the Reporter for the Reporter Real
Property.
The Share Purchase Price includes a payment for the net working capital
(cash, accounts receivable, inventory and other assets net of current
liabilities) of Downers Grove as of May 1, 2000 which was estimated to
be in the amount of approximately $980,000 for closing purposes and is
subject to a post-closing adjustment, as set forth in the purchase
agreement.
The cash portion of the purchase price in this transaction was provided
under the credit facility the Registrant has in place which is led by
Citicorp USA, Inc., as administrative agent.
-2-
<PAGE> 3
(b) Downers Grove Reporter, Inc. Acquisition
The Registrant acquired (i) the Downers Grove Shares from the
Shareholders and thereby acquired substantially all of the assets owned
by Downers Grove in its business of publishing, marketing and
distributing newspapers and (ii) the Reporter Real Property from the
Reporter. The Registrant will use these assets for the same purposes as
previously used by Downers Grove.
The foregoing summary of the terms of this transaction is qualified in
its entirety by reference to the provisions of the Purchase Agreement,
dated as of May 1, 2000, by and between the Shareholders, the Reporter
and the Registrant's Suburban Newspapers Subsidiary, a copy of which is
filed as an exhibit to this Report and is hereby incorporated herein by
reference.
-3-
<PAGE> 4
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Combined Financial Statements of Downers Grove Reporter, Inc. and
Certain Real Property of the Downers Grove Reporter
Independent Auditors' Report
Combined Statements of Net Assets as of September 30, 1999 and March
31, 2000 (unaudited)
Combined Statements of Income for the year ended September 30, 1999 and
the six months ended March 31, 2000 (unaudited)
Combined Statements of Changes in Net Assets and Comprehensive Income
for the years ended September 30, 1999 and the six months ended March
31, 2000 (unaudited)
Combined Statements of Cash Flows for the year ended September 30, 1999
and the six months ended March 31, 2000 (unaudited)
Notes to Combined Financial Statements
(b) Pro Forma Financial Information
Pro Forma Consolidated Balance Sheet as of March 31, 2000 (unaudited)
Pro Forma Consolidated Statements of Operations for the year ended
December 31, 1999 (unaudited) and the three months ended March 31, 2000
(unaudited)
Notes to Unaudited Pro Forma Consolidated Financial Statements
(c) Exhibit (incorporated by reference from exhibits included in the
Registrant's Form 8-K filed May 16, 2000)
2.1 Asset Purchase Agreement, dated as of May 1, 2000, between the
Registrant and the Shareholders of Downers Grove Reporter,
Inc. and Downers Grove Reporter
-4-
<PAGE> 5
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Liberty Group Operating, Inc. and subsidiaries:
We have audited the accompanying combined statements of net assets of
Downers Grove Reporter, Inc. and certain real property of Downers Grove
Reporter (collectively, "Downers Grove Reporter" or the "Business") as of
September 30, 1999 and the related combined statements of income, changes
in net assets and comprehensive income, and cash flows for the year then
ended. These combined financial statements are the responsibility of the
Business' 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 net assets of Downers Grove Reporter
as of September 30, 1999 and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Chicago, Illinois
July 7, 2000
-5-
<PAGE> 6
DOWNERS GROVE REPORTER, INC. AND CERTAIN REAL
PROPERTY OF DOWNERS GROVE REPORTER
Combined Statements of Net Assets
September 30, 1999 and March 31, 2000 (unaudited)
<TABLE>
<CAPTION>
MARCH 31,
SEPTEMBER 30, 2000
1999 (UNAUDITED)
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 464,910 756,264
Marketable securities 193,446 --
Inventory 131,578 135,716
Accounts receivable, net of allowance of $35,000 at September
30, 1999 and $30,986 at March 31, 2000 (unaudited) 626,217 647,417
Prepaid expenses and other current assets 16,254 16,254
---------- ----------
Total current assets 1,432,405 1,555,651
Officer life insurance 450,743 450,743
Property, plant, and equipment, net 1,183,503 1,185,609
---------- ----------
Total assets $3,066,651 3,192,003
========== ==========
LIABILITIES AND NET ASSETS
Current liabilities:
Current portion of long-term debt $ 107,769 61,622
Notes Payable 5,272 62,642
Due to affiliates 21,000 --
Accounts payable 188,794 212,107
Accrued expenses 124,795 71,815
Unearned revenue 112,233 97,185
---------- ----------
Total current liabilities 559,863 505,371
Other liabilities:
Long-term debt less current portion 742,994 674,188
Non-current unearned revenue 23,887 25,546
---------- ----------
Total liabilities 1,326,744 1,205,105
Net assets:
Net assets $1,604,840 1,986,898
Accumulated other comprehensive income 135,067 --
---------- ----------
Total net assets 1,739,907 1,986,898
---------- ----------
Total liabilities and net assets $3,066,651 3,192,003
========== ==========
</TABLE>
See accompanying notes to combined financial statements.
-6-
<PAGE> 7
DOWNERS GROVE REPORTER, INC. AND CERTAIN REAL
PROPERTY OF DOWNERS GROVE REPORTER
Combined Statements of Income
Year ended September 30, 1999 and the Six Months ended March 31, 2000
(unaudited)
SIX MONTHS
YEAR ENDED ENDED MARCH
SEPTEMBER 30, 31, 2000
1999 (UNAUDITED)
------------ -----------
Revenues:
Advertising $3,539,147 1,644,227
Circulation 169,913 89,753
Job printing 2,691,655 1,424,091
Other 42,864 32,972
---------- ----------
Total revenues 6,443,579 3,191,043
---------- ----------
Operating expenses:
Operating costs 3,588,965 1,766,317
Selling, general and administrative 2,593,346 1,166,165
Depreciation and amortization 150,326 56,822
---------- ----------
6,332,637 2,989,304
---------- ----------
Income from operations 110,942 201,739
Other income:
Interest income 8,667 6,240
Realized gain on sale of marketable securities -- 192,814
---------- ----------
Net income $ 119,609 400,793
========== ==========
See accompanying notes to combined financial statements.
-7-
<PAGE> 8
DOWNERS GROVE REPORTER, INC. AND CERTAIN REAL
PROPERTY OF DOWNERS GROVE REPORTER
Combined Statements of Changes in Net Assets and Comprehensive Income
Year ended September 30, 1999 and the Six Months ended
March 31, 2000 (unaudited)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE
NET ASSETS INCOME TOTAL
------------ ------------- -------------
<S> <C> <C> <C>
Balance at September 30, 1998 $ 1,553,339 79,462 $ 1,632,801
Distributions to shareholders (68,108) - (68,108)
-
Unrealized gain on marketable securities - 55,605 55,605
-
Net income 119,609 - 119,609
------------ ----------- -------------
Balance at September 30, 1999 $ 1,604,840 135,067 $ 1,739,907
============ =========== =============
Distributions to shareholders (unaudited) (18,735) - (18,735)
Unrealized loss on marketable securities (unaudited) - (135,067) (135,067)
Net income (unaudited) 400,793 - 400,793
------------ ----------- -------------
Balance at March 31, 2000 (unaudited) $ 1,986,898 - $ 1,986,898
============ =========== =============
Disclosure of reclassification amount (unaudited):
Unrealized holding gains arising during period $ 57,747
Less: reclassification adjustment for gains
included in net income (192,814)
-----------
Net unrealized loss on securities (135,067)
===========
</TABLE>
See accompanying notes to combined financial statements.
-8-
<PAGE> 9
DOWNERS GROVE REPORTER, INC. AND CERTAIN REAL
PROPERTY OF DOWNERS GROVE REPORTER
Combined Statements of Cash Flows
Year ended September 30, 1999 and the Six Months ended
March 31, 2000 (unaudited)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
SEPTEMBER 30, MARCH 31, 2000
1999 (UNAUDITED)
--------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 119,609 400,793
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 150,326 56,822
Gain on sale of marketable securities - (192,814)
Change in assets and liabilities:
Accounts receivable, net 49,480 (21,200)
Prepaid expenses and other current assets (1,707) -
Inventory 45,332 (4,138)
Accounts payable (7,724) 23,313
Accrued expenses 3,752 (52,980)
Unearned revenue 8,848 (13,389)
Due to affiliates (23,250) (21,000)
--------- ---------
Net cash provided by operating activities 344,666 175,407
--------- ---------
Cash flows from investing activities:
Acquisition of fixed assets (33,256) (58,928)
Proceeds from sale of marketable securities (6,310) 251,193
--------- ---------
Net cash provided by (used in) investing activities (39,566) 192,265
--------- ---------
Cash flows from financing activities:
Distribution to stockholders (68,108) (18,735)
Repayments of long-term debt (115,729) (114,953)
Repayments of notes payable 5,272 57,370
--------- ---------
Net cash provided by financing activities (178,565) (76,318)
--------- ---------
Net increase in cash 126,535 291,354
Cash and cash equivalents at beginning of period 338,375 464,910
--------- ---------
Cash and cash equivalents at end of period $ 464,910 756,264
========= =========
Supplemental cash flow information - cash
paid for interest $ 73,549 35,367
========= =========
See accompanying notes to combined financial statements.
</TABLE>
-9-
<PAGE> 10
DOWNERS GROVE REPORTER, INC. AND CERTAIN REAL
PROPERTY OF DOWNERS GROVE REPORTER
Notes to Combined Financial Statements
September 30, 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
(a) DESCRIPTION OF BUSINESS
Downers Grove Reporter, Inc. (the Company) is engaged in the
business of newspaper publications. Such publications are
generally distributed to a circulation base of qualified
readers. These readers are highly attractive to advertisers
of goods and services within the newspaper publications. In
addition, the Company is engaged in the printing of
customers' newspaper publications. Downers Grove Reporter
(the Partnership) owns and leases real property. Certain
real property of the Partnership and the operations of the
Company represent the business acquired as described in note
8 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) 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.
(d) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments
purchased with an original maturity of three months or less
to be cash equivalents.
(e) 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 method (FIFO).
(f) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are recorded at cost. Routine
maintenance and repairs are expensed as incurred.
Depreciation is calculated on accelerated methods over the
estimated useful lives, 15 to 39 years for buildings and
improvements, 5 to 7 years for machinery and equipment, 3 to
7 years for office equipment, 5 years for delivery equipment
and leasehold improvements are amortized over the lesser of
the estimated useful life or the term of the applicable
lease.
-10-
<PAGE> 11
DOWNERS GROVE REPORTER, INC. AND CERTAIN REAL
PROPERTY OF DOWNERS GROVE REPORTER
Notes to Combined Financial Statements
September 30, 1999
(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
stockholders' 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) 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.
(i) FINANCIAL INSTRUMENTS
The Business has reviewed the following financial instruments and
has determined that their fair values approximated their carrying
values as of September 30, 1999: cash equivalents; accounts
receivable; long-term liabilities, accounts payable, and accrued
expenses.
(j) MARKETABLE SECURITIES
Marketable securities consist of equity securities. The Business
accounts for its marketable securities under the provisions of
Statement of Financial Accounting Standards (SFAS) No. 115,
Accounting for Certain Investments in Debt and Equity Securities.
Under SFAS No. 115, the Company classifies its marketable equity
securities as available-for-sale.
Available-for-sale securities are recorded at fair value.
Unrealized holding gains and losses are excluded from earnings,
and are reported as a separate component of net assets as other
comprehensive income until realized.
A decline in the market value of any available-for-sale security
below cost that is deemed to be other than temporary results in a
reduction in carrying amount to fair value. The impairment is
charged to earnings and a new cost basis for the security is
established. Dividend and interest income are recognized when
earned.
(k) INTERIM FINANCIAL INFORMATION
The combined financial statements as of March 31, 2000 and for
the six months then ended are unaudited; however, in the opinion
of management all adjustments (consisting solely of normal
recurring adjustments) necessary for a fair presentation of the
combined financial statements for the interim period have been
included. The results of operations for the six months ended
March 31, 2000 are not necessarily indicative of the results to
be achieved for the full fiscal year.
-11-
<PAGE> 12
DOWNERS GROVE REPORTER, INC. AND CERTAIN REAL
PROPERTY OF DOWNERS GROVE REPORTER
Notes to Combined Financial Statements
September 30, 1999
(2) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment at cost, less accumulated
depreciation, are summarized as follows as of September 30, 1999:
Building and improvements $1,636,919
Land and land improvements 245,519
Machinery and equipment 1,996,035
Delivery equipment 207,409
Office equipment 700,833
Leasehold improvements 26,490
----------
4,813,205
Less accumulated depreciation and amortization 3,629,702
----------
$1,183,503
==========
Depreciation and amortization expenses totaled $150,326 for the
year ended September 30, 1999.
(3) LEASE COMMITMENTS
The Business leases an office facility under a noncancelable
operating lease which expires December 2001. Rent expense for the
year ended September 30, 1999 was $3,378.
The future minimum annual lease payments under the noncancelable
lease at September 30, 1999 are as follows:
OPERATING
LEASE
--------------
2000 $ 4,376
2001 4,376
2002 729
2003 and thereafter -
--------------
$ 9,481
==============
(4) LONG-TERM DEBT
In March 1997, the Business purchased computer equipment funded
by way of borrowings. At September 30, 1999, $31,354 remains
outstanding which is secured by the related computer equipment
initially purchased. The annual interest rate is the prime rate.
Future minimum principal payments amount to: $18,813 in 2000 and
$12,541 in 2001.
In September 1997, the Business purchased additional computer
equipment funded by way of borrowings. As September 30, 1999,
$39,551 remains outstanding which is secured by the related
-12-
<PAGE> 13
DOWNERS GROVE REPORTER, INC. AND CERTAIN REAL
PROPERTY OF DOWNERS GROVE REPORTER
Notes to Combined Financial Statements
September 30, 1999
computer equipment initially purchased. The annual interest rate
is 8.75%. Future minimum principal payments amount to: $21,661 in
2000 and $17,890 in 2001.
In January 1998, the Business purchased machinery funded by way
of borrowings. At September 30, 1999, $13,236 remains outstanding
which is secured by the related machinery initially purchased.
The annual interest rate is the prime rate. Future minimum
principal payments amount to: $5,673 in 2000, $5,673 in 2001, and
$1,890 in 2002.
The Business has a mortgage on real property. At September 30,
1999, $766,622 remains outstanding which is secured by the
property purchased. The annual interest rate on this loan is the
prime rate. Future minimum principal payments amount to: $61,622
in 2000, $61,622 in 2001, $61,622 in 2002, $44,748 in 2003, and
$537,008 in 2004.
(5) 401(k) RETIREMENT PLAN
The Business has established a 401(k) Savings Plan (the Plan)
that covers all full-time employees who have satisfied minimum
age and service requirements. Each year the employer will
announce whether a matching contribution will be made and what
form the match will take. Employer contributions to the Plan for
the year ended September 30, 1999 were $20,000.
(6) MARKETABLE SECURITIES
The cost, gross unrealized holding gains, gross unrealized
holding losses, and fair value of available-for-sale securities
by major security type and class of security at September 30,
1999 were as follows:
GROSS
GROSS UNREALIZED
UNREALIZED HOLDING
COST HOLDING GAINS LOSSES FAIR VALUE
-------- ------------- ---------- ----------
Equity Securities $ 58,379 135,067 -- 193,446
-------- -------- -------- --------
$ 58,379 135,067 -- 193,446
-------- -------- -------- --------
(7) RELATED-PARTY TRANSACTIONS
The Business is indebted to the Partnership for the amount of
$21,000 at September 30,1999. Amount is included in due to
affiliates on the statement of net assets.
(8) SUBSEQUENT EVENTS (UNAUDITED)
On May 1, 2000, the shareholders of the Downers Grove Reporter,
Inc. and the partners of the Downers Grove Reporter executed an
asset purchase agreement to sell the outstanding shares of the
Downers Grove Reporter, Inc. and certain real property of the
Downers Grove Reporter for a combined amount of approximately
$11,500,000.
-13-
<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 March 31,
2000 and the unaudited pro forma consolidated statements of operations for the
year ended December 31, 1999 and the three months ended March 31, 2000 give
effect to Liberty Group Operating, Inc. and subsidiaries' (the Company)
acquisition of Downers Grover Reporter, Inc. and certain real property of
Downers Grove Reporter (collectively "Downers Grove Reporter"). The pro forma
financial information is based on the respective historical financial statements
of the Company and Downers Grove Reporter giving effect to the acquisition under
the purchase method of accounting and the assumptions and adjustments described
in the accompanying notes to the unaudited pro forma consolidated financial
statements. The unaudited pro forma consolidated statements of operations for
the year ended December 31, 1999 and the three months ended March 31, 2000
reflect adjustments as if the purchase had occurred on January 1, 1999. The
unaudited pro forma balance sheet as of March 31, 2000 gives effect to the
purchase as if it had occurred on March 31, 2000. See "Acquisition or
Disposition of Assets."
The unaudited pro forma consolidated financial statements combine the unaudited
balance sheet of the Company as of March 31, 2000 and the balance sheet of
Downers Grove Reporter as of March 31, 2000 and the consolidated statements of
operations of the Company for the year ended December 31, 1999 with Downers
Grover Reporter's results for the fiscal year ended September 30, 1999. In
addition, the unaudited pro forma results for the interim period combine the
Company for the three months ended March 31, 2000 with Downers Grove Reporter
for the three months ended March 31, 2000. The financial effects of the purchase
as presented in the unaudited pro forma financial statements are not necessarily
indicative of either financial position or results of operations that would have
been obtained had the acquisition actually occurred on the dates set forth
above, nor are they necessarily indicative of the results of future operations.
The unaudited pro forma consolidated financial statements should be read in
conjunction with the notes thereto, which are an integral part thereof, with the
consolidated financial statements of Liberty Group Operating, Inc. and
subsidiaries and notes thereto, and with the financial statements of the Downers
Grove Reporter, Inc. and Certain Real Property of the Downer Grove Reporter and
notes thereto included elsewhere in this Form 8-K/A.
-14-
<PAGE> 15
Liberty Group Operating, Inc. and Subsidiaries
Unaudited Pro Forma Consolidated Balance Sheet
March 31, 2000
(dollars in thousands)
<TABLE>
<CAPTION>
LIBERTY GROUP DOWNERS
OPERATING, INC GROVE PRO FORMA
CONSOLIDATED REPORTER ADJUSTMENTS PRO FORMA
-------------------------------------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents 2,319 756 -- 3,075
Accounts receivable, net 18,888 647 -- 19,535
Inventories 2,421 136 -- 2,557
Prepaid expenses 1,684 16 -- 1,700
Other current assets 342 -- -- 342
----------------------------------- ---------
Total current assets 25,654 1,555 -- 27,209
Property, plant and equipment, net 43,067 1,186 (23)(b) 44,230
Intangible assets, net 415,086 -- 11,192 (a) 426,278
Deferred financing costs, net 6,823 -- -- 6,823
Other assets 5,496 451 (451)(b) 5,496
----------------------------------- ---------
Total assets 496,126 3,192 10,718 510,036
=================================== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under revolving credit facility 120,650 -- 11,419 (g) 132,069
Current portion of long-term liabilities 456 124 (124) 456
Accounts payable 2,498 212 -- 2,710
Accrued expenses 11,750 72 80 (a) 11,902
Deferred revenue 8,276 97 -- 8,373
----------------------------------- ---------
Total current liabilities 143,630 505 11,375 155,510
Senior subordinated notes 180,000 -- -- 180,000
Long-term liabilities, less current portion 1,842 674 (674) 1,842
Noncurrent unearned revenues -- 26 -- 26
Deferred income taxes 21,974 -- 2,004 (a) 23,978
----------------------------------- ---------
Total liabilities 347,446 1,205 12,705 361,356
Stockholders' equity:
Common stock -- -- -- --
Additional paid-in capital 148,707 -- -- 148,707
Accumulated earnings (27) -- -- (27)
Net assets -- 1,987 (1,987)(c) --
----------------------------------- ---------
Total stockholders' equity 148,680 1,987 (1,987) 148,680
Total liabilities and stockholders' equity 496,126 3,192 10,718 510,036
=================================== ========
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
-15-
<PAGE> 16
Liberty Group Operating, Inc. and Subsidiaries
Unaudited Pro Forma Consolidated Statements of Operations
Three Months Ended March 31, 2000
(dollars in thousands)
<TABLE>
<CAPTION>
LIBERTY GROUP DOWNERS
OPERATING, INC GROVE PRO FORMA
CONSOLIDATED REPORTER ADJUSTMENTS PRO FORMA
---------------------------------------------- -----------
<S> <C> <C> <C> <C>
Revenues:
Advertising 32,225 777 -- 33,002
Circulation 7,374 44 -- 7,418
Job printing and other 2,698 693 (184) (d) 3,207
---------------------------------------------- -----------
Total revenues 42,297 1,514 (184) 43,627
Operating costs and expenses:
Operating costs 18,176 858 (271)(d)(h) 18,763
Selling, general and administration 14,604 579 -- 15,183
Depreciation and amortization 4,537 28 70 (b)(e) 4,635
---------------------------------------------- -----------
Income from operations 4,980 49 17 5,046
Interest expense (6,939) 4 (243) (g) (7,178)
Amortization of debt issue costs (296) 192 -- (104)
---------------------------------------------- -----------
Income (loss) before income taxes (2,255) 245 (226) (2,236)
--
Income tax expense 96 -- -- 96
Net income (2,351) 245 (226) (2,332)
============================================== ===========
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
-16-
<PAGE> 17
Liberty Group Operating, Inc. and Subsidiaries
Unaudited Pro Forma Consolidated Statements of Operations
Year Ended December 31, 1999
(dollars in thousands)
<TABLE>
<CAPTION>
LIBERTY GROUP DOWNERS
OPERATING, INC GROVE PRO FORMA
CONSOLIDATED REPORTER ADJUSTMENTS PRO FORMA
--------------------------------------------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Advertising 120,573 3,539 - 124,112
Circulation 27,543 170 - 27,713
Job printing and other 13,239 2,735 (617) (d) 15,357
--------------------------------------------------- -------------
Total revenues 161,355 6,444 (617) 167,182
Operating costs and expenses:
Operating costs 68,351 3,589 (971) (d)(h) 70,969
Selling, general and administration 51,522 2,593 - 54,115
Depreciation and amortization 16,657 150 280 (b)(e) 17,087
--------------------------------------------------- -------------
Income from operations 24,825 112 74 25,011
Interest income/ (expense) (25,216) 8 (971) (g) (26,179)
Gain on exchange and disposition of assets 6,197 - - 6,197
--------------------------------------------------- -------------
Income (loss) before income taxes and
extraordinary item 5,806 120 (897) 5,029
Income tax expense 2,752 - 57 (f) 2,809
--------------------------------------------------- -------------
Income before extraordinary item 3,054 120 (954) 2,220
Extraordinary gains on insurance proceeds 485 - - 485
Net income (loss) 3,539 120 (954) 2,705
=================================================== =============
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
-17-
<PAGE> 18
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS
Note 1 - Pro Forma Financial Statements
The unaudited pro forma consolidated financial statements combine the unaudited
balance sheet of the Company as of March 31, 2000 and the unaudited combined
statement of net assets of the Downers Grove Reporter as of March 31, 2000 and
the consolidated statements of operations of the Company for the year ended
December 31, 1999 with Downers Grove Reporter's results for the fiscal year
ended September 30, 1999. In addition, the unaudited pro forma results for the
interim period combine the Company for the three months ended March 31, 2000
with Downers Grove Reporter for the three months ended March 31, 2000. Downers
Grove Reporter's results for the three months ended March 31, 2000 are included
in the Downers Grove Reporter's unaudited combined statement of income for the
six month period ended March 31, 2000. The results of the Downers Grove Reporter
excluded from the March 31, 2000 consolidated statements of operations, are net
revenues of $1,677 and net income of $156.
Note 2 - Pro Forma Adjustments
The following adjustments are reflected in the unaudited pro forma consolidated
statements of operations under the columns headed "Pro Forma Adjustments."
(a) Represents recording of excess of purchase price over fair value of
net assets acquired as follows:
Purchase price $11,419
Tax effects of stock purchase price 2,004
Acquisition fees and expenses 80
--------
Total purchase price (1) $13,503
Tangible net assets acquired (2,311)
-------
Excess purchase price $11,192
=======
(1) Purchase price includes cost associated with the acquisition and
acquired deferred tax liability.
The excess purchase price of the acquisition has been allocated to
intangible assets. Subject to the completion of management's final
valuation of these allocated amounts, the specific intangible assets and
estimated fair value to which the excess purchase price will be allocated
include: mastheads of $455, advertising lists for $3,643, and subscriber
lists for $911 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.
-18-
<PAGE> 19
(b) Represents the elimination of the Downers Grove Reporter assets and
related depreciation expense that were not included as part of the
purchase agreement between the Company and the Downers Grove Reporter.
(c) Represents the elimination of the Downers Grove Reporter net asset
balance that would not be recorded by the Company's as part of the
acquisition.
(d) Represents the elimination of the intercompany sales between the
Downers Grove Reporter and the Company that would have been eliminated
had the acquisition occurred on January 1, 1999.
(e) Represents the adjustment necessary to amortize the additional $11,192
of intangible assets (calculated in note (b)) over their estimated
useful lives, presently estimated for mastheads, advertising lists,
and goodwill over 40 years, and subscriber lists over 33 years.
(f) Represents the Downers Grove Reporter tax expense that would have been
recorded by the Company had the purchase occurred on January 1, 1999.
(g) Represents the adjustment necessary to reflect the borrowings and to
increase interest expense related to the additional borrowings of
$11.4 million related to the acquisition.
(h) Represents the elimination of the Downers Grove Reporter shareholders'
excess distributions in the period, net of the salary of the current
publishers.
-19-
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Liberty Group Operating, Inc.
Date: July 17, 2000 By: /s/ KENNETH L. SEROTA
---------------------------
Title: President and Chief Executive Officer
-------------------------------------
-20-
