UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2004
Commission File Number: 333-112246
Morris Publishing Group, LLC
Morris Publishing Finance Co.*
(Exact name of Registrants as specified in their charters)
| Georgia | 58-1445060 | |
| Georgia | 20-0183044 | |
| (State of organization) | (I.R.S. Employer Identification Numbers) |
725 Broad Street
Augusta, Georgia 30901
(Address of principal executive offices)
(706) 724-0851
(Registrants’ Telephone number)
Indicate by check mark whether the Registrants (1) have filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.
Yes ¨ No x
Indicate by check mark whether the Registrants are accelerated filers (as defined in Rule 12b-2 of the Act).
Yes ¨ No x
| * | Morris Publishing Finance Co. meets the conditions set forth in General Instruction H (1) (a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format. |
1
MORRIS PUBLISHING FINANCE CO.
QUARTERLY REPORT
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004
TABLE OF CONTENTS
Morris Publishing Group, LLC is a wholly-owned subsidiary of Morris Communications Company, LLC, a privately held media company. Morris Publishing Finance Co., a wholly-owned subsidiary of Morris Publishing Group, LLC, was incorporated in 2003 for the sole purpose of serving as a co-issuer of Morris Publishing’s 7% Senior Subordinated Notes Due 2013 in order to facilitate their issuance. Morris Publishing Finance Co. does not have any operations or assets of any kind and will not have any revenues. Separate financial statements for Morris Publishing Finance Co. are not provided. In this report, “Morris Publishing,” “we,” “us” and “our” refer to Morris Publishing Group, LLC and its subsidiaries. “Morris Communications” refers to Morris Communications Company. Morris Publishing Group was formed in 2001 and took over the operations of the newspaper business segment of our Parent, Morris Communications. Discussions of Morris Publishing and our operations prior to November 2001 refer to our business as previously conducted by the Morris Communications newspaper business segment.
FORWARD LOOKING STATEMENTS
This report contains forward-looking statements. These are statements that relate to future periods and include statements regarding our anticipated performance. You may find discussions containing such forward-looking statements in “Managements discussion and analysis of financial condition and results of operations” in Item 2 of this report.
Generally, the words anticipates, believes, expects, intends, estimates, projects, plans and similar expressions identify forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance or achievements or industry results, to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements.
Although we believe that these statements are based upon reasonable assumptions, we can give no assurance that these statements will be realized. Given these uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. These forward-looking statements are made as of the date of this report. We assume no obligation to update or revise them or provide reasons why actual results may differ. Important factors that could cause our actual results to differ materially from our expectations include, without limitation:
| • | delay in any economic recovery or the recovery not being as robust as might otherwise have been anticipated; |
| • | increases in financing, labor, health care and/or other costs, including costs of raw materials, such as newsprint; |
2
| • | general economic or business conditions, either nationally, regionally or in the individual markets in which we conduct business (and, in particular, the Jacksonville, Florida market), may deteriorate and have an adverse impact on our advertising or circulation revenues or on our business strategy; and |
| • | other risks and uncertainties. |
3
PART I
| ITEM 1. | FINANCIAL STATEMENTS |
Morris Publishing Group, LLC
(Formerly Morris Communications Company, LLC
Newspaper Business Segment)
Unaudited condensed consolidated balance sheets
| (Dollars in thousands) |
June 30, 2004 |
December 31, 2003 |
||||||
| ASSETS |
||||||||
| CURRENT ASSETS: |
||||||||
| Cash and cash equivalents |
$ | 10,076 | $ | 7,342 | ||||
| Accounts receivable, net of allowance for doubtful accounts of $3,038 at June 30, 2004 and $2,793 at December 31, 2003 |
50,677 | 52,177 | ||||||
| Inventories |
3,712 | 3,796 | ||||||
| Deferred income taxes |
2,414 | 2,458 | ||||||
| Prepaid and other current assets |
1,124 | 1,086 | ||||||
| Total current assets |
68,003 | 66,859 | ||||||
| LOAN RECEIVABLE FROM MORRIS COMMUNICATIONS |
39,500 | 4,500 | ||||||
| NET PROPERTY AND EQUIPMENT |
149,161 | 150,353 | ||||||
| OTHER ASSETS: |
||||||||
| Goodwill |
185,972 | 185,552 | ||||||
| Intangible assets, net of accumulated amortization of $49,999 at June 30, 2004 and $47,251 at December 31, 2003 |
23,857 | 26,258 | ||||||
| Deferred loan costs and other assets, net of accumulated loan amortization of $1,267 at June 30, 2004 and $576 at December 31, 2003 |
13,092 | 13,611 | ||||||
| 222,921 | 225,421 | |||||||
| Total assets |
$ | 479,585 | $ | 447,133 | ||||
| LIABILITIES AND MEMBER’S DEFICIT |
||||||||
| CURRENT LIABILITIES: |
||||||||
| Current maturities of long-term debt |
$ | 1,688 | $ | 563 | ||||
| Accounts payable |
8,040 | 7,542 | ||||||
| Accrued interest |
9,155 | 8,989 | ||||||
| Due to Morris Communications |
770 | 339 | ||||||
| Deferred revenues |
17,466 | 16,678 | ||||||
| Accrued employee costs |
11,987 | 10,590 | ||||||
| Other accrued liabilities |
3,261 | 2,083 | ||||||
| Total current liabilities |
52,367 | 46,784 | ||||||
| LONG-TERM DEBT, less current portion |
536,312 | 524,437 | ||||||
| DEFERRED INCOME TAXES, less current portion |
22,086 | 22,528 | ||||||
| POSTRETIREMENT BENEFITS DUE TO MORRIS COMMUNICATIONS |
21,400 | 19,547 | ||||||
| OTHER LONG-TERM LIABILITIES |
3,329 | 3,298 | ||||||
| Total liabilities |
635,494 | 616,594 | ||||||
| COMMITMENTS AND CONTINGENCIES (NOTE 5) |
||||||||
| MEMBER’S DEFICIT |
(155,909 | ) | (169,461 | ) | ||||
| Total liabilities and member’s deficit |
$ | 479,585 | $ | 447,133 | ||||
See notes to condensed consolidated financial statements.
4
Morris Publishing Group, LLC
(Formerly Morris Communications Company, LLC
Newspaper Business Segment)
Unaudited condensed consolidated statements of income
| Three Months Ended June 30, |
Six Months Ended June 30, | ||||||||||||
| (Dollars in thousands) |
2004 |
2003 |
2004 |
2003 | |||||||||
| (As restated, See Note 6) |
(As restated, See Note 6) | ||||||||||||
| NET OPERATING REVENUES: |
|||||||||||||
| Advertising |
$ | 92,306 | $ | 88,719 | $ | 178,138 | $ | 171,053 | |||||
| Circulation |
17,431 | 17,810 | 35,296 | 35,745 | |||||||||
| Other |
4,890 | 4,597 | 9,204 | 9,095 | |||||||||
| Total net operating revenue |
114,627 | 111,126 | 222,638 | 215,893 | |||||||||
| OPERATING EXPENSES: |
|||||||||||||
| Labor and employee benefits |
44,956 | 42,295 | 88,449 | 83,921 | |||||||||
| Newsprint, ink and supplements |
13,512 | 13,037 | 26,534 | 25,435 | |||||||||
| Other operating costs (excluding depreciation and amortization) |
29,739 | 27,008 | 59,043 | 53,804 | |||||||||
| Depreciation and amortization |
5,169 | 4,155 | 10,308 | 9,890 | |||||||||
| Total operating expenses |
93,376 | 86,495 | 184,334 | 173,050 | |||||||||
| Operating income |
21,251 | 24,631 | 38,304 | 42,843 | |||||||||
| OTHER EXPENSES: |
|||||||||||||
| Interest expense, including amortization of debt issuance costs |
8,008 | 5,563 | 15,820 | 11,419 | |||||||||
| Other, net |
(259 | ) | 53 | 130 | 130 | ||||||||
| Total other expense |
7,749 | 5,616 | 15,950 | 11,549 | |||||||||
| INCOME BEFORE INCOME TAXES |
13,502 | 19,015 | 22,354 | 31,294 | |||||||||
| PROVISION FOR INCOME TAXES |
5,306 | 7,344 | 8,838 | 12,173 | |||||||||
| NET INCOME |
$ | 8,196 | $ | 11,671 | $ | 13,516 | $ | 19,121 | |||||
See notes to condensed consolidated financial statements.
5
Morris Publishing Group, LLC
(Formerly Morris Communications Company, LLC
Newspaper Business Segment)
Unaudited condensed consolidated statements of cash flows
| Six Months Ended June 30, |
||||||||
| (Dollars in thousands) |
2004 |
2003 |
||||||
| (as restated, see note 6) |
||||||||
| OPERATING ACTIVITIES: |
||||||||
| Net income |
$ | 13,516 | $ | 19,121 | ||||
| Adjustments to reconcile net income to cash provided by operating activities: |
||||||||
| Depreciation and amortization |
10,308 | 9,890 | ||||||
| Deferred income taxes |
(398 | ) | (1,064 | ) | ||||
| Amortization of debt issuance costs |
691 | 580 | ||||||
| Loss on disposal of assets |
426 | 64 | ||||||
| Loss on extinguishment of debt |
||||||||
| Changes in assets and liabilities, net of effects of businesses acquired: |
||||||||
| Accounts receivable |
1,575 | 2,566 | ||||||
| Inventories |
84 | 350 | ||||||
| Prepaids and other current assets |
(38 | ) | (458 | ) | ||||
| Other assets |
(222 | ) | (123 | ) | ||||
| Accounts payable |
485 | (1,039 | ) | |||||
| Due to Morris Communications |
419 | |||||||
| Accrued employee costs |
1,397 | (484 | ) | |||||
| Accrued interest |
166 | (3,050 | ) | |||||
| Deferred revenues and other liabilities |
1,961 | 1,653 | ||||||
| Postretirement obligations due to Morris Communications |
1,853 | 243 | ||||||
| Other long-term liabilities |
31 | 86 | ||||||
| Net cash provided by operating activities |
32,254 | 28,335 | ||||||
| INVESTING ACTIVITIES: |
||||||||
| Capital expenditures |
(6,783 | ) | (9,432 | ) | ||||
| Acquisition of businesses, net of cash acquired |
(737 | ) | ||||||
| Net cash used in investing activities |
(7,520 | ) | (9,432 | ) | ||||
| FINANCING ACTIVITIES: |
||||||||
| Repayment of long-term debt due Morris Communications |
0 | 6,000 | ||||||
| Proceeds from long-term debt |
13,000 | 0 | ||||||
| Loan receivable from Morris Communications |
(35,000 | ) | 0 | |||||
| Net change due to allocations and intercompany reimbursements with Morris Communications |
0 | (25,582 | ) | |||||
| Net cash used in financing activities |
(22,000 | ) | (19,582 | ) | ||||
| NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS |
2,734 | (679 | ) | |||||
| CASH AND CASH EQUIVALENTS, beginning of period |
7,342 | 7,993 | ||||||
| CASH AND CASH EQUIVALENTS, end of period |
$ | 10,076 | $ | 7,314 | ||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
||||||||
| Interest paid |
$ | 14,879 | $ | |||||
| Interest paid to Morris Communications |
$ | $ | 10,736 | |||||
| Income taxes paid to Morris Communications |
$ | 9,235 | $ | 9,582 | ||||
See notes to condensed consolidated financial statements.
6
MORRIS PUBLISHING GROUP, LLC
(FORMERLY MORRIS COMMUNICATIONS COMPANY, LLC NEWSPAPER BUSINESS SEGMENT)
Notes to Condensed consolidated financial statements (unaudited)
(Dollars in Thousands)
| 1. | NATURE OF OPERATIONS AND BASIS OF PRESENTATION |
Basis of Presentation and Nature of Operations – Morris Publishing Group, LLC (“Morris Publishing” or the “Company”) was formerly named MCC Newspapers, LLC prior to July 2003. Prior to the formation of MCC Newspapers, LLC in 2001, the Morris Communications Company, LLC (“Morris Communications” or the “parent”) newspaper business segment operated as a division of Morris Communications.
These condensed consolidated financial statements of Morris Publishing, a wholly owned subsidiary of Morris Communications, include the consolidated financial statements of Morris Publishing subsequent to July 2003 and the combined financial statements of the Morris Communications Company, LLC Newspaper Business Segment for all periods prior to July 2003. Morris Communications legally transferred the net assets of its newspaper business segment to the Company. As a result, the Company has accounted for the assets and liabilities at historical cost, in a manner similar to that in pooling of interest accounting.
The accompanying condensed consolidated financial statements furnished here reflect all adjustments, which are in th