8-K/A 1 c57423ae8-ka.txt AMENDMENT TO CURRENT REPORT 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 ------------- 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 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. 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 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 - 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 - 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) -------------------------------------------------------------------------------
2000 1999 ------ ------ 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 ======= =======
The accompanying notes are an integral part of these financial statements. - 4 - 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 - 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 - 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 - 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 - 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 - 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 - 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. 15 LIBERTY GROUP OPERATING, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET JUNE 30, 2000 (DOLLARS IN THOUSANDS)
LIBERTY GROUP OPERATING, INC. MICHIGAN PRO FORMA PRO FORMA CONSOLIDATED NEWSPAPERS ADJUSTMENTS (A) --------------------------------------------------------- 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 =========================================================
See accompanying notes to pro forma consolidated financial statements. 16 LIBERTY GROUP OPERATING, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1999 (DOLLARS IN THOUSANDS)
LIBERTY GROUP OPERATING, INC. MICHIGAN PRO FORMA PRO FORMA CONSOLIDATED NEWSPAPERS ADJUSTMENTS (A) DESCRIPTION -------------------------------------------------- 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 ===============================================
See accompanying notes to pro forma consolidated financial statements. 17 LIBERTY GROUP OPERATING, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 2000 (DOLLARS IN THOUSANDS)
LIBERTY GROUP OPERATING, INC. MICHIGAN PRO FORMA PRO FORMA DESCRIPTION CONSOLIDATED NEWSPAPERS ADJUSTMENTS (A) ------------------------------------------------------- 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) =======================================================
See accompanying notes to pro forma consolidated financial statements. 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. 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