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The following is an excerpt from a S-4/A SEC Filing, filed by MORRIS PUBLISHING FINANCE CO on 5/12/2004.
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MORRIS PUBLISHING FINANCE CO - S-4/A - 20040512 - FORM
Table of Contents

As filed with the Securities and Exchange Commission on May 12, 2004

Registration No. 333-112246 and, 333-112246-01 thru 18

 


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


 

Amendment No. 3

to

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 


 

MORRIS PUBLISHING GROUP, LLC

MORRIS PUBLISHING FINANCE CO.

(Exact names of registrants as specified in their charters)

 

(FOR CO-REGISTRANTS, PLEASE SEE “TABLE OF CO-REGISTRANTS”

ON THE FOLLOWING PAGE)

 


 

Georgia   2711

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Numbers)

 

58-1445060

20-0183044

(I.R.S. Employer Identification Numbers)

 

725 Broad Street

Augusta, Georgia 30901

(706) 724-0851

(Address, including zip code, and telephone number, including area code, of registrants’ principal executive offices)

 


 

William S. Morris IV

President and Chief Executive Officer

Morris Publishing Group, LLC

725 Broad Street

Augusta, Georgia 30901

(706) 724-0851

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 


 

Copy to:

Mark S. Burgreen, Esq.

Hull, Towill, Norman, Barrett & Salley, P.C.

801 Broad Street, 7 th Floor

Augusta, Georgia 30901

(706) 722-4481

 

Approximate date of commencement of proposed sale to the public:     As soon as practicable after this Registration Statement becomes effective.

 

If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. ¨

 

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

 

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

 


 

The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 



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TABLE OF CO-REGISTRANTS

 

Name of Additional Registration


   State of
Incorporation/
Formation


   Primary Standard
Industrial
Classification
Code


   I.R.S.
Employer
Identification
Number


Yankton Printing Company

   South Dakota    2711    46-0208120

Broadcaster Press, Inc.

   South Dakota    2711    46-0283275

The Sun Times, LLC

   Georgia    2711    58-1445060

Homer News, LLC

   Georgia    2711    58-1445060

Log Cabin Democrat, LLC

   Georgia    2711    58-1445060

Athens Newspapers, LLC

   Georgia    2711    58-1445060

Southeastern Newspapers Company, LLC

   Georgia    2711    58-1445060

Stauffer Communications, Inc.

   Delaware    2711    58-2450047

Florida Publishing Company

   Florida    2711    58-2228216

Southwestern Newspapers Company, L.P.

   Texas    2711    58-2361328

Fall Line Publishing, Inc.

   Georgia    2711    58-1969520

The Blue Springs Examiner, LLC

   Missouri    2711    58-1445060

The Examiner of Independence, LLC

   Missouri    2711    58-1445060

The Newton Kansan, LLC

   Kansas    2711    58-1445060

Oak Grove Shopper, LLC

   Missouri    2711    58-1445060

The Oak Ridger, LLC

   Tennessee    2711    58-1445060

MPG Allegan Property, LLC

   Georgia    2711    58-1445060

MPG Holland Property, LLC

   Georgia    2711    58-1445060


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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer of sale is not permitted.

 

Subject to Completion Dated May 10, 2004

 

Preliminary Prospectus

 

LOGO     

Morris Publishing Group, LLC

Morris Publishing Finance Co.

 

OFFER TO EXCHANGE

ALL OUTSTANDING

Series A 7% Senior Subordinated Notes Due 2013

FOR

Series B 7% Senior Subordinated Notes Due 2013

OF

Morris Publishing Group, LLC and

Morris Publishing Finance Co.

THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME

ON [                ], 2004, UNLESS EXTENDED

 

Morris Publishing Group, LLC and Morris Publishing Finance Co. hereby offer to exchange for their unregistered 7% Senior Subordinated Notes due 2013, of which $250.0 million aggregate principal amount were issued on August 7, 2003 and another $50.0 million aggregate principal amount were issued on September 24, 2003, an equal face amount of registered 7% Senior Subordinated Notes due 2013. The terms of the Series B registered notes, also referred to as exchange notes, are identical in all material respects to the Series A unregistered notes, also referred to as the original notes, except that the exchange notes are registered under the Securities Act of 1933 and the transfer restrictions and registration rights applicable to the original notes generally do not apply to the exchange notes.

 

The exchange notes will mature on August 1, 2013. Interest on the exchange notes is payable semi-annually on February 1 and August 1 of each year.

 

The exchange notes will be our unsecured senior subordinated obligations and will be subordinated to all of our existing and future senior debt, rank equally with all of our existing and future senior subordinated debt and rank senior to all of our future subordinated debt. The exchange notes will be unconditionally guaranteed, on a senior subordinated basis, with joint and several liability, by each of our existing and future restricted subsidiaries other than the co-issuer Morris Publishing Finance Co.

 

Original notes may be tendered only in multiples of $1,000. All original notes that are validly tendered and not validly withdrawn will be exchanged. Tenders of original notes may be withdrawn at any time prior to the expiration of the exchange offer. The exchange offer is subject to customary conditions, including the condition that the exchange offer not violate applicable law or any applicable interpretation of the staff of the Securities and Exchange Commission.

 

The exchange of original notes for exchange notes will not be a taxable sale for U.S. federal income tax purposes.

 

See “ Risk factors ” beginning on page 14 for a discussion of certain risks that you should consider before you tender your original notes.

 

The exchange notes will not be listed on any securities exchange.

 

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

 

The date of this Prospectus is [                ], 2004.


Table of Contents

Table of contents


 

 

     Page

Summary

   1

Risk factors

   14

Disclosure regarding forward-looking statements

   26

Use of proceeds

   27

Capitalization

   28

Selected historical financial data

   29

Management’s discussion and analysis of financial condition and results of operations

   31

Business

   43

Industry and market data

   48

Management

   59

Beneficial ownership

   62

Certain relationships and related transactions

   63

 

     Page

The exchange offer

   65

Description of other indebtedness

   74

Description of the exchange notes

   76

Exchange offer and registration rights agreement s

   117

Book-entry settlement and clearance

   118

Material U.S. federal income tax considerations

   121

Plan of distribution

   127

Legal matters

   128

Experts

   128

Where you can find more information

   128

Index to financial statements

   F-1

 

i


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Summary

 

This summary highlights the information contained elsewhere in this prospectus. Because this is only a summary, it does not contain all of the information that may be important to you. For a more complete understanding of this offering, we encourage you to read this entire prospectus and the documents to which this prospectus refers. You should read the following summary together with the more detailed information and consolidated financial statements and the notes to those statements included elsewhere in this prospectus. Unless otherwise indicated, financial information included in this prospectus is presented on an historical basis.

 

Overview

 

Morris Publishing is a private company beneficially owned by the William S. Morris III family as part of their Morris Communications group of companies. The Morris Publishing Group consists of 26 daily, ten non-daily, and 23 free community newspapers. Our primary sources of revenue are advertising, which accounted for 79.6% of our 2003 total operating revenues, and circulation, which accounted for 16.3% of our 2003 total operating revenues. We publish newspapers in the United States ranging from Texas to Michigan and Georgia to Alaska. In 2003 our newspapers had unaudited average daily and Sunday paid circulation aggregating 686,754 and 765,871, respectively. Our largest newspapers are The Florida Times-Union , Jacksonville, Florida, The Augusta Chronicle , Augusta, Georgia, The Topeka Capital-Journal , Topeka, Kansas, Savannah Morning News , Savannah, Georgia, Lubbock Avalanche-Journal , Lubbock, Texas, and Amarillo Globe-News , Amarillo, Texas.

 

We have historically been consistently profitable in varying economic climates, with generally stable operating results. Our total operating revenues for 2003 were $438.3 million and have ranged between $433.4 million and $455.4 million since 1999. Operating income was $79.6 million in 2003 and has ranged between $68.4 million and $88.3 million since 1999. Our operating margin was 18.2% in 2003 and has ranged between 15.6% and 20.4% since 1999.

 

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 the notes in order to facilitate the offering. Morris Publishing Finance Co. does not have any operations or assets of any kind and will not have any revenues. Prospective investors in the exchange notes should not expect Morris Publishing Finance Co. to have the ability to service the interest and principal obligations on the exchange notes. Our principal executive offices are located at 725 Broad Street, Augusta, Georgia 30901, and our telephone number at that address is (706) 724-0851. Our parent company’s web site is located at http://www.morris.com. The information on our parent’s web site is not part of this prospectus.

 

In this prospectus, “Morris Publishing,” “we,” “us” and “our” refer to Morris Publishing Group, LLC and its subsidiaries, except in the section “Description of the exchange notes” and where the context otherwise excludes subsidiaries. “Morris Communications” refers to Morris Communications Company, LLC. Morris Publishing Group was formed in 2001 and assumed the operations of the newspaper business segment of our parent, Morris Communications. Discussions of Morris Publishing and our results of operations include the business as previously conducted by the Morris Communications newspaper business segment.

 

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Operating Strategy

 

Our strategy to increase our revenues and cash flows is to grow our market share and operate efficiently. Towards this end, we are pursuing the following initiatives:

 

·   Being a leader in providing local information and advertising .    We believe we are the trusted source of local news, information, and advertising in each of the communities we serve in both the print and online formats.

 

·   Increasing readership.     We conduct extensive market research and strive to deliver the service and content each of our markets demand. Positioning ourselves as an essential part of our customers’ lives is particularly critical as we face increasing competition for their free time from other sources.

 

·   Growing advertising revenues.     Through targeted market research we attempt to understand the needs of our advertisers so that we may develop programs to meet those specific needs. While our newspapers generally do not directly compete in their communities with other daily newspapers, competition for advertising comes from a variety of other sources.

 

·   Enhancing online initiatives.     We have made a substantial commitment to enhancing our websites that complement all of our daily newspapers. Over the last four years, our newspapers have won 21 national Digital Edge awards from the Newspaper Association of America.

 

·   Centralizing operations to support multiple publications.     We create synergies and cost savings by producing our weekly newspapers, free distribution shoppers and additional niche or regional publications using the facilities of our daily newspapers.

 

·   Focusing on cost control.     We continue to focus on managing our operating costs by creating, beginning in 2002, a Shared Services Center and participating in a newsprint purchasing consortium.

 

·   Investing in strategic technologies.     We continue to explore technologies that will enable us to more efficiently print, produce, and deliver our newspapers in addition to streamlining our back office operations.

 

Our operating strategy may not successfully increase revenues and cash flows, based upon a number of factors. For example, a decline in economic conditions, the effects of competition from newspapers or other forms of advertising, or a decrease in the price of local or national advertising could adversely impact our advertising revenues. Our circulation may be adversely effected by competition from other publications and other forms of media and a declining number of regular newspapers buyers. A decline in circulation could adversely impact both our circulation revenue and our advertising revenue, because advertising rates are dependent upon readership. Further, our efforts to control costs, especially newsprint costs, and to create operating synergies may not be as successful as we anticipate. For further discussion of these and other risks relating to our business and operating strategy, see “Risk factors” beginning on page 14.

 

Purpose

 

The purpose of this offering is to exchange the original notes (issued and sold on August 7 and September 24, 2003) for exchange notes. The original notes were not registered under the Securities Act of 1933. We and the initial purchasers of the original notes entered into registration rights agreements in which we agreed to file a registration statement with the SEC

 

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to exchange the original notes for exchange notes. We will not receive any cash proceeds from the issuance of these exchange notes and our indebtedness will not change as a result of this exchange. The proceeds of the initial issuance of $250.0 million of the original notes together with the proceeds of our new credit facility were used to repay our debt to Morris Communications, our parent company, and to fund our general corporate activities. The proceeds of the additional $50.0 million of the original notes were used to reduce existing indebtedness under the new revolving credit facility.

 

We are offering to exchange $1,000 principal amount of exchange notes for each $1,000 principal amount of original notes. We have agreed to pay the expenses of this exchange offer.

 

Strategic acquisitions

 

We may, from time to time, seek strategic or targeted investments, including newspaper acquisitions and dispositions and, in that regard, we periodically review newspaper and other acquisition candidates that we believe are underperforming in terms of operating cash flows, are in the same geographic region as one of our existing newspapers where we can achieve an efficient operating cluster of newspapers, or otherwise present us with strategic opportunities for growth. Morris Publishing currently has no present commitments with respect to any material acquisitions, dispositions or joint ventures.

 

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History and corporate structure

 

Morris Publishing is a private company owned by the William S. Morris III family, as a part of their Morris Communications group of companies. In 1929, William S. Morris, Jr., the father of today’s chairman, became a bookkeeper at The Augusta Chronicle . In the 1940s William S. Morris, Jr. and another investor purchased The Augusta Chronicle . While Morris Communications’ principal business is newspaper publishing conducted by Morris Publishing, Morris Communications has other investments and operations including outdoor advertising, magazines and specialized publications, book publishing and distribution, radio broadcasting, visitor publications, event management and online services. The chart below is a summary of the organizational structure (with intermediate holding companies and lower tier subsidiaries eliminated):

 

LOGO

 

 

Financing developments

 

On August 7, 2003, we issued $250.0 million aggregate principal amount of 7% senior subordinated notes due 2013. On September 24, 2003, we issued an additional $50.0 million aggregate principal amount of 7% senior subordinated notes due 2013. Collectively, these notes constitute a single series of Series A notes in an aggregate principal amount of $300.0 million, and are the original notes for which the registered exchange notes are offered in exchange pursuant to this exchange offer.

 

On August 7, 2003, we also entered into new senior secured credit facilities, consisting of a $225.0 million term loan facility and a $175.0 million revolving loan facility. The proceeds of the

 

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initial issuance of $250.0 million of the original notes together with the proceeds of our new credit facility, were used to (i) repay our debt to Morris Communications, which repaid its existing credit facilities, the proceeds of which were used in large part to fund our business, and (ii) to fund our general corporate activities, including working capital requirements and capital expenditures. The proceeds of the subsequent issuance of the additional $50.0 million of the original notes were used to reduce existing indebtedness (but not available borrowings) under the new revolving credit facility. At December 31, 2003, we had no outstanding balance on our $175.0 million revolving credit facility.

 

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The exchange offer

 

In August and September, 2003, we completed two private offerings aggregating $300.0 million in aggregate principal amount of 7% senior subordinated notes due 2013. In connection with the offerings of those original notes, we entered into registration rights agreements with the initial purchasers of those original notes in which we agreed to deliver this prospectus to you and to complete an exchange offer for those original notes. Below is a summary of the exchange offer.

 

Securities offered   $300,000,000 aggregate principal amount of 7% senior subordinated notes due 2013.
Exchange offer   We are offering to exchange an aggregate of $300,000,000 principal amount of exchange notes for an aggregate of $300,000,000 principal amount of original notes. The original notes may be exchanged only in multiples of $1,000.
Expiration date   This exchange offer will expire at 5:00 p.m., New York City time, on [                ], 2004, unless we extend the offer.
Procedures for tendering original notes   The procedures for exchanging original notes involve notifying the exchange agent before the expiration date of the exchange offer of your intention to do so. The procedures for properly providing notice are described on page 67 of this prospectus under the heading “The exchange offer — Exchange offer procedures — How to tender.”
    In order to participate in the exchange offer, you will be required to make specified representations in a letter of transmittal, including that:
   

·       you are not an “affiliate” of ours, as defined in Rule 405 of the Securities Act of 1933;

 

·       you are not a broker-dealer who owns original notes acquired directly from us;

 

·       you will acquire the exchange notes in the ordinary course of business; and

 

·       you have not agreed with anyone to distribute the exchange notes.

    If you are a broker-dealer that purchased original notes for your own account as part of market-making or other trading activities, you

 

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    may represent to us that you have not agreed with us or our affiliates to distribute the exchange notes. If you make this representation, you must agree to deliver a prospectus in connection with any resale of the exchange notes and you need not make the last representation provided for above.
Guaranteed delivery procedures   If you wish to accept the exchange offer and time will not permit a letter of transmittal or original notes to reach the exchange agent before the date on which the exchange offer expires, you must deliver to the exchange agent a letter, telegram or facsimile transmission from a bank, broker, dealer, credit union, savings association, clearing agency or other institution that is a member of a recognized guarantee medallion program in the time and manner described in “The exchange offer—Exchange offer procedures—Guaranteed delivery procedures.”
Acceptance of original notes and delivery of exchange notes  

We will accept any original notes that are properly tendered for exchange before 5:00 p.m., New York City time, on the day this exchange offer expires. The exchange notes will be delivered promptly after expiration of this exchange offer.

Exchange date   We will notify the exchange agent of the date of acceptance of the original notes for exchange.
Withdrawal rights   If you tender your original notes for exchange in this exchange offer and later wish to withdraw them, you may do so at any time before 5:00 p.m., New York City time, on the day this exchange offer expires.
Effect on holders of original notes   Any original notes that remain outstanding after this exchange offer will continue to be subject to restrictions on their transfer. After the expiration of this exchange offer, holders of original notes will not (with limited exceptions) have any further rights under the registration rights agreements. Any market for original notes that are not exchanged could be adversely affected by the completion of this exchange offer. See “Risk factors — The original notes are, and will continue to be, subject to restrictions on transfer, and the

 

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    trading market, if any, for original notes may be adversely affected by completion of this exchange offer” on page 25.
Resale of the exchange notes   Based on the position of the staff of the Division of Corporation Finance of the SEC as stated in certain interpretive letters issued to third parties in other transactions, we believe that the exchange notes acquired in this exchange offer may be freely traded without compliance with the provisions of the Securities Act of 1933, as amended, that call for registration and delivery of a prospectus, except as described in the following paragraphs. See “Plan of distribution” on page 127.
Accrued interest on the original notes   Any interest that has accrued on an original note before its exchange in this exchange offer will be payable on the exchange note on the first interest payment date after the completion of this exchange offer. If your original notes are accepted for exchange, then you will receive interest on the exchange notes and not on the original notes.
Tax consequences   The exchange of the original notes for the exchange notes will not be a taxable exchange for United States federal income tax purposes. See “Material U.S. federal income tax considerations” on page 121.
Exchange agent   Wachovia Bank is serving as the exchange agent. Its address and telephone number are provided in this prospectus under the heading “The exchange offer — Exchange agent” on page 72.
Use of proceeds   We will not receive any cash proceeds from this exchange offer.

 

Please review the information in the section “The exchange offer” for more detailed information concerning the exchange offer.

 

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Terms of the exchange notes

 

The following summary contains basic information about the exchange notes and is not intended to be complete. It does not contain all the information that is important to you. For a more complete understanding of the exchange notes, please refer to the section of this prospectus entitled “Description of the exchange notes.”

 

Issuers   Morris Publishing Group, LLC and Morris Publishing Finance Co.
Securities offered   $300,000,000 aggregate principal amount of 7% senior subordinated notes due 2013.
Maturity date   August 1, 2013.
Interest rate   7% per year.
Interest payment dates   February 1 and August 1 of each year, beginning on February 1, 2004.
Guarantees   Each of our existing and future restricted subsidiaries, other than the co-issuer Morris Publishing Finance Co., will jointly, severally and unconditionally guarantee the notes on a senior subordinated basis. All of our existing subsidiaries are restricted subsidiaries. We may designate a restricted subsidiary as an unrestricted subsidiary, and terminate its guarantee, under procedures set forth in the indenture, including compliance with the “Limitation on Restricted Payments” covenant.
Ranking   The exchange notes will be our unsecured senior subordinated obligations and will be subordinated to all of our existing and future senior debt, including secured indebtedness under our new credit facilities, rank equally with all of our existing and future senior subordinated debt and rank senior to all of our future subordinated debt.
   

The guarantees by our restricted subsidiaries will be subordinated to existing and future senior debt of such subsidiaries, including each such subsidiary’s guarantee of the indebtedness under our new credit facilities. The guarantees will rank equally with all of the guarantors’ existing and future senior subordinated debt, and rank senior to all of the guarantors’ future subordinated debt.

 

The notes will be effectively subordinated to all of our and our subsidiaries existing and

 

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    future secured debt to the extent of the value of collateral securing each debt. The notes will be effectively subordinated to all existing and future liabilities, including trade payables, of any subsidiary that is not a guarantor. As of December 31, 2003, after giving effect to our new credit facilities and the sale of the notes and the application of the proceeds therefrom, the notes and the subsidiary guarantees would have been subordinated to $225.0 million of senior debt, not including $175.0 million of additional borrowing capacity we have available under our new credit facilities.
Optional redemption   We may redeem some or all of the notes at any time on or after August 1, 2008. We may also redeem up to 35% of the aggregate principal amount of the notes using the proceeds of certain public equity offerings on or before August 1, 2006. The redemption prices are described under “Description of the exchange notes — Redemption.”
Change of control and asset sales  

If we experience specific kinds of changes of control or we sell assets under certain circumstances, we will be required to make an offer to purchase the notes at the prices listed in “Description of the exchange notes — Redemption.” We may not have sufficient funds available at the time of any change of control, to effect the purchase.

 

Certain covenants   The indenture restricts our ability and the ability of our restricted subsidiaries to, among other things:
   

·       incur additional debt and issue preferred stock;

   

·       make certain distributions, investments and other restricted payments;

   

·       create certain liens;

   

·       enter into transactions with affiliates;

   

·       limit the ability of restricted subsidiaries to make payments to us;

 

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·       merge, consolidate or sell substantially all of our assets;

   

·       issue preferred stock of a restricted subsidiary;

   

·       sell certain assets; and

   

·       enter into new lines of business.

    These covenants are subject to important exceptions and qualifications, which are described under the heading ”Description of the exchange notes” in this prospectus.
Exchange offer; registration rights   Under registration rights agreements with the initial purchasers, we and the guarantors agreed to use our reasonable best efforts to cause to become effective a registration statement with respect to an offer to exchange the notes for the exchange notes. If we are not able to effect the exchange offer, we will use our commercially reasonable efforts to file and cause to become effective a shelf registration statement relating to resales of the notes. We will be obligated to pay additional interest on the notes if we do not complete the exchange by May 3, 2004 or, if required, the shelf registration statement is not declared effective by May 3, 2004.

 

Risk factors. See “Risk factors” on page 14 of this prospectus for a discussion of certain factors that you should carefully consider before investing in the notes.

 

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Summary historical financial data

 

The summary historical financial data of Morris Publishing set forth below should be read in conjunction with our consolidated financial statements, including the notes thereto, and “Management’s discussion and analysis of financial condition and results of operations” included elsewhere in this prospectus. The consolidated statement of income and other operating and financial information data for each of the years ended December 31, 2003, 2002 and 2001 and the consolidated balance sheet data as of December 31, 2003 and 2002 are derived from our audited consolidated financial statements included elsewhere in this prospectus . We do not have audited financial statements for the years ended December 31, 2000 and 1999 and, therefore, the consolidated statement of income and other operating and financial information data for the years ended December 31, 2000 and 1999 and the consolidated balance sheet data as of December 31, 2000 and 1999 are derived from our unaudited consolidated financial statements. See “Risk factors.” Net cash flow information for 1999 is not available.

 

Morris Publishing was formed in late 2001 as part of a corporate reorganization of our parent, Morris Communications and, therefore, does not have a recent operating history as an independent company. Our historical consolidated financial statements contained in this prospectus reflect periods during which we did not operate as an independent company. See Note 1 to Notes to Consolidated Financial Statements.

 

The financial information we have included in this prospectus reflects the historical results of operations and cash flows of Morris Publishing with allocations made for corporate and other services provided to us by Morris Communications. Operating costs and expenses reflect our direct costs together with certain allocations by Morris Communications for corporate services, debt and other shared services that have been charged to us based on usage or other methodologies we believe are appropriate for such expenses. In the opinion of management, these allocations have been made on a reasonable basis and approximate all the material incremental costs we would have incurred had we been operating on a stand-alone basis; however, there has been no independent study or any attempt to obtain quotes from third parties to determine what the costs of obtaining such services would have been.

 

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Years ended December 31,


 

(Dollars in thousands)


   2003

    2002(e)

    2001(e)

    2000(e)

    1999(e)

 
           (As
restated)
    (As
restated)
    (As
restated)
    (As
restated)
 

Consolidated statement of income data

                                        

Operating revenues:

                                        

Advertising

   $ 348,736     $ 342,976     $ 341,947     $ 356,825     $ 341,733  

Circulation

     71,518       71,906       74,756       76,492       77,079  

Other

     18,093       18,480       20,781       22,098       25,079  
    


 


 


 


 


Total operating revenues

     438,347       433,362       437,484       455,415       443,891  
    


 


 


 


 


Operating expenses:

                                        

Labor and employee benefits

     172,221       162,540       163,097       161,189       153,364  

Newsprint, ink and supplements

     50,608       48,815       62,193       66,431       61,599  

Other operating costs

     115,408       110,059       106,219       113,029       108,369  

Depreciation and amortization

     20,535       23,627       37,563       37,439       36,035  
    


 


 


 


 


Total operating expenses

     358,772       345,041       369,072       378,088       359,367  
    


 


 


 


 


Operating income

     79,575       88,321       68,412       77,327       84,524  
    


 


 


 


 


Other expense (income):

                                        

Interest expense, including amortization of debt issuance costs

     26,088       25,056       33,424       45,230       37,737  

Loss on extinguishment of debt

     5,957       —         1,578       —         —    

Other, net

     (59 )     187       285       (103 )     (266 )
    


 


 


 


 


Total other expenses

     31,986       25,243       35,287       45,127       37,471  
    


 


 


 


 


Income before income taxes and minority interest

     47,589       63,078       33,125       32,200       47,053  

Provision for income taxes

     18,744       24,758       15,039       15,795       21,413  

Minority interest, net

     —         —         —         282       400  
    


 


 


 


 


Net income

   $ 28,845     $ 38,320     $ 18,086     $ 16,123     $ 25,240  
    


 


 


 


 


Consolidated balance sheet data at period end

                                        

Total assets

   $ 445,828     $ 437,287     $ 443,352     $ 455,466     $ 466,714  

Goodwill and other intangibles

     210,643       215,680       220,802       233,196       248,580  

Total long-term debt and capital lease obligations

     525,000       516,000       538,046       566,128       544,627  

Member’s deficit

     (170,758 )     (153,909 )     (163,913 )     (189,431 )     (171,699 )

Other operating and financial information data

                                        

Earnings to fixed charges (a)

     2.8 x     3.5 x     2.0 x     1.7 x     (b )

Pro forma earnings to fixed charges (c)

     2.5 x     3.0 x     —         —         —    

Operating margin (d)

     18.2 %     20.4 %     15.6 %     17.0 %     19.0 %
(a)   Earnings to fixed charges is defined as income before income taxes and minority interest plus fixed charges, divided by fixed charges. Fixed charges are interest expense including amortization of debt issuance costs, plus one-third of rent expense.

 

(b)   Not available.                                                                                                                                                                                                                 

 

(c)   Our interest expense would have increased by $4,669 and $6,742, respectively, for the years ended December 31, 2003 and December 31, 2002, assuming we had issued our $300.0 million of 7% Senior Subordinated Notes Due 2013 at the beginning of such periods. Pro forma earnings to fixed charges assumes issuance of said Notes at January 1, 2002.

 

(d)   Operating margin is operating income as a percentage of total operating revenues.

 

(e)   We restated our financial statements as of December 31, 2002 and 2001 and for the years then ended. See note 10 to the financial statements. The financial statements as of and for the years ended December 31, 2000 and 1999 also give effect to the restatement adjustments.

 

 

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Risk factors

 

In deciding whether to participate in the exchange offer, you should carefully consider the risks described below, which could cause our operating results and financial condition to be materially adversely affected, as well as other information and data included in this prospectus.

 

Risks relating to our business and our industry

 

A decline in advertising revenue, our largest source of revenue, would adversely affect us.

 

A primary source of our revenue is advertising. For both 2002 and 2003, advertising revenues, which include retail, national and classified advertising revenues, constituted approximately 79% and 80%, respectively, of our total operating revenues. A reduction in demand for advertising could result from:

 

  ·   a general decline in economic conditions;

 

  ·   a decline in economic conditions in particular markets where we conduct business, and in particular the Jacksonville, Florida market where we derived approximately 26.2% of our revenues for the year ending December 31, 2003;

 

  ·   a decline in the circulation of our newspapers;

 

  ·   a decline in the popularity of our editorial content;

 

  ·   a change in the demographic makeup of the population where our newspapers are sold;

 

  ·   a decrease in the price of local and national advertising;

 

  ·   the activities of our competitors, including increased competition from other forms of advertising-based mediums, including local, regional and national newspapers, shoppers, radio and television broadcasters, cable television (national and local), direct mail and electronic media (including the internet); and

 

  ·   a decline in the amount spent on advertising in general.

 

Our revenues are cyclical and may decrease due to an economic downturn.

 

Newspaper companies tend to follow a distinct and recurring seasonal pattern. The first quarter of the year tends to be the weakest quarter because advertising volume is then at its lowest level. The fourth quarter tends to be the strongest quarter as it includes holiday season advertising. As a result, our consolidated results may not be comparable from quarter to quarter.

 

Our advertising revenues, as well as those of the newspaper industry in general, may be cyclical and dependent upon general economic conditions. We cannot assure you that the demand for our services will continue at current levels. The newspaper industry in general, like other media, has suffered from the continued downturn in the national economy. Historically, advertising revenues have increased with the beginning of an economic recovery, principally with increases in classified advertising for employment, real estate and automobiles. Decreases in advertising revenues have historically corresponded with general economic downturns and regional and local recessionary conditions. While we believe that the geographic diversity of our operations mitigates, to some degree, the effects of regional and local economic downturns, a decline in the national economy generally may adversely affect our operating results.

 

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A decline in circulation revenue would adversely affect us.

 

We also rely on circulation revenue, which is affected by, among other things, competition and consumer trends, including declining consumer spending on newspapers. Circulation is a significant source of our revenue. Circulation revenue and our ability to achieve price increases for our print products are affected by:

 

  ·   competition from other publications and other forms of media available in our various markets, including network, cable and satellite television, the internet and radio;

 

  ·   declining consumer spending on discretionary items like newspapers;

 

  ·   competing uses of free time; and

 

  ·   declining number of regular newspaper buyers.

 

Fluctuations in newsprint costs, or increases in labor or health care costs could adversely affect our financial results.

 

Newsprint, ink and supplements are the major components of our cost of raw materials. Newsprint, ink and supplements were 11.5%, 11.3% and 14.2% of our total operating revenues in 2003, 2002 and 2001, respectively. Historically newsprint prices have fluctuated substantially. Accordingly, our earnings are sensitive to changes in newsprint prices. We have no long-term supply contracts and we have not attempted to hedge fluctuations in the normal purchases of newsprint or enter into contracts with embedded derivatives for the purchase of newsprint. If the price of newsprint increases materially, our operating results could be adversely affected. In addition, substantial increases in labor or health care costs could also affect our operating results.

 

Competition could have a material adverse effect on us.

 

Revenue generation in the newspaper industry is dependent primarily upon the sale of advertising and paid circulation. Competition and pricing are largely based on readership, market penetration, quality and servicing the specialized needs of advertisers and readers. Currently, our daily newspapers generally do not directly compete in their respective communities with other daily newspapers covering local news. Competition for advertising and circulation, however, also comes from regional and national newspapers, radio and television broadcast, cable television (national and local), non-daily newspapers, direct mail, electronic media (including the internet) and other communications and advertising media that operate in our markets. Certain of our competitors are larger and have greater financial resources than we have. The extent and nature of such competition is, in large part, determined by the location and demographics of the market and the number of media alternatives in those markets. For more information on our competition and factors that could affect our competitive position, see “Business—Competition.”

 

We must constantly expand and develop new publications and services to compete for advertising dollars against competitors who may target the specific needs of advertisers.

 

In recent years, newspapers have faced competition for advertising dollars from publishers of specialized publications targeted to specific groups of readers. To meet this competition, our future success depends in part on our ability to continue offering new publications and services that successfully gain market acceptance by addressing the needs of specific audience groups within our target markets. The process of internally researching, developing, launching, gaining

 

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acceptance and establishing profitability for a new publication or service, is inherently risky and costly. We cannot assure you that our efforts to introduce new publications or services will be successful.

 

We are subject to legal proceedings that, if determined adversely to us, could adversely affect our financial results.

 

We are subject to legal proceedings that arise in the ordinary course of our business. We do not expect that the outcome of any pending legal proceedings will have a material adverse impact upon our business. However, the damages that may be claimed in these legal proceedings could be substantial, including claims for punitive or extraordinary damages. It is possible that, if the outcomes of these legal proceedings are not favorable to us, it could adversely affect our future financial results. In addition, our results of operations, financial condition or liquidity may be adversely affected if in the future our insurance coverage proves to be inadequate or unavailable or there is an increase in liabilities for which we are self-insured.

 

The interests of our parent, Morris Communications, and its ultimate owners, the Morris family, may be different than yours, and they may take actions that may be viewed as adversely affecting our business or the notes.

 

Morris Communications, its ultimate parent company, Shivers Trading & Operating Company, and the Morris family have interests in other businesses that may have conflicting business interests. Other subsidiaries of Morris Communications operate businesses that also derive revenue from advertising, including broadcast radio stations, outdoor advertising, magazines, book publishing and specialized publications. These other subsidiaries may compete with us for advertising revenues. Because the Morris family’s interests as an equity holder may conflict with the interests of holders of the notes, Morris Communications may cause us to take actions that, in their judgment, could enhance their equity investment, even though such actions might involve risks to you as a holder of the notes.

 

There can be no assurance that Morris Communications or the Morris family will exercise control in our best interests as opposed to their own best interests.

 

The Morris family, including William S. Morris III, our chairman, and his son, William S. Morris IV, our president and chief executive officer, beneficially own all of the equity interests in Morris Communications, our parent company, through their ownership of the stock of Shivers Trading & Operating Company. By virtue of such equity ownership, the Morris family has the sole power to:

 

  ·   elect the entire board of directors of Shivers Trading & Operating Company, Morris Communications and each of their subsidiaries, including us;

 

  ·   control all of our management and policies, including as to the making of payments to Morris family members or other affiliates, whether by way of dividend, stock repurchase, compensation or otherwise or the entering into other transactions with Morris Communications, its subsidiaries or other affiliates, or other transactions that could result in a change of control of Morris Communications or Morris Publishing; and

 

  ·   determine the outcome of any corporate matter or transaction, including mergers, joint ventures, consolidations and asset sales, equity issuances or debt incurrences.

 

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We have no independent directors and no independent audit committee to review the actions of management or the Morris family.

 

Currently five of the six directors on the boards of directors of Shivers Trading & Operating Company, Morris Communications and each of their subsidiaries (including our board) are members of the Morris family and the sixth is Craig S. Mitchell who is also the Senior Vice President – Finance, Secretary and Treasurer of Shivers Trading & Operating Company, Morris Communications and each of their subsidiaries. Mr. Mitchell serves at the pleasure of the Morris family. None of these boards has a separate audit committee and will not necessarily have as a member a “financial expert” as defined under the rules of the Commission as a result of the Sarbanes-Oxley Act of 2002. We have been advised that the Morris family does not plan to appoint any non-family members to any such boards, other than the current single existing non-family member director, or any “independent” directors. No member of any such board of directors has been elected, or is anticipated to be elected, to represent the interests of the holders of the notes.

 

In addition, as private companies, Shivers Trading & Operating Company, Morris Communications and its subsidiaries, including Morris Publishing, have not been required to comply with the corporate governance or other provisions of the Sarbanes-Oxley Act or any of the corporate governance or other rules and regulations of any stock exchange or national stock quotation system. Morris Publishing will become subject to certain provisions of the Sarbanes-Oxley Act when this exchange offer is completed, but those provisions will not require Morris Publishing to have independent directors or an audit committee.

 

We depend upon the Morris family for management, leadership and general policy-making.

 

The unavailability for any reason of the managerial services presently provided by the Morris family (particularly our chairman William S. Morris III and our chief executive officer William S. Morris IV) to Morris Publishing, could be disruptive to our business for some period of time. While we have been advised that the Morris family has no intention to engage in a transaction that would lead to a change of control of Shivers Trading & Operating Company, Morris Communications or Morris Publishing, no assurances can be given that future events or other circumstances may arise that would lead to a possible change of control.

 

Various entities which are affiliated with Morris Communications and the Morris family have engaged, and may in the future engage, in transactions with us some of which may be viewed, from the perspective of a holder of the notes, as disadvantageous to us or an inappropriate use of our resources.

 

These transactions may not necessarily be consummated on an arm’s-length basis and therefore may not be as favorable to us as those that could be negotiated with non-affiliated third parties. See “Certain relationships and related transactions” for a description of such transactions, including the following:

 

  ·   We are managed by Morris Communications pursuant to a management agreement and also participate in its Shared Services Center operated by its subsidiary, MStar Solutions, LLC.

 

  ·  

In addition to the management services, we may share other facilities and costs with Morris Communications and its other subsidiaries. Shared costs may include joint promotions or the use of facilities, equipment, supplies or employees of one division for

 

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the benefit of an affiliate and the costs will be allocated among the various entities by Morris Communications.

 

  ·   Rental arrangements with a company controlled by Morris family members for the use of our Savannah, Georgia newspaper operation.

 

  ·   In the ordinary course of our business, we may sell or purchase goods and services from our affiliates, such as radio or outdoor advertising and promotions, space in hotels owned by affiliates, or farm products from farms owned by affiliates, on terms that we determine to be comparable to transactions with unrelated third parties.

 

  ·   We may provide loans to Morris Communications or its subsidiaries. Any such loans may utilize borrowing capacity under our new credit facilities that may otherwise have been available for our business purposes. It is expected that the principal external source of liquidity for Morris Communications and its other subsidiaries will be loans by or distributions from Morris Publishing.

 

  ·   We are a single member limited liability company that is disregarded for federal income tax purposes and we are part of the consolidated tax return of our ultimate parent corporation and its subsidiaries. We participate in a tax sharing agreement with our affiliates whereby we are required to pay to Morris Communications an amount equal to the taxes we would have been required to pay as if we were a separate taxable corporation. We may become jointly and severally liable for all income tax liability of the group in the event other subsidiaries are unable to pay the taxes attributable to their operations.

 

Because of the FCC’s cross-ownership limitations and Morris Communications’ ownership of radio stations, we may not be able to make acquisitions that would be favorable, or we may be required to dispose of existing newspapers.

 

Rules of the Federal Communications Commission, or FCC, limit the cross-ownership of a broadcast radio station and a newspaper in the same market. Morris Communications owns other subsidiaries which own radio broadcast licenses that are subject to regulation by the FCC. These subsidiaries currently hold, under waivers granted by the FCC, radio broadcast licenses in two of Morris Publishing’s newspaper markets: Amarillo, Texas and Topeka, Kansas. A subsidiary of Morris Communications has also received from the FCC a twelve month waiver to hold a radio broadcast license for a station it expects to acquire with a service contour that includes Newton, Kansas, which is also one of our newspaper markets. The FCC recently adopted ownership rules that would permit cross-ownership of a broadcast radio station and a newspaper in the same market in many instances, but these rules have been challenged in the U.S. Court of Appeals for the Third Circuit, which has stayed the rules’ effective date pending outcome of the litigation. Should the new rules become effective, we believe that the radio broadcast licenses held for these locations will be able to continue to be held without waivers. If, however, the court challenge seeking to overturn the rules is successful, or if Congress were to overturn the new ownership rules or to impose new limitations on newspaper-broadcast cross-ownership, Morris Communications and Morris Publishing might need to divest either their radio broadcast licenses for these markets or their newspaper interests in these markets. Further, FCC cross-ownership rules may have the effect of preventing us from pursuing or consummating a newspaper acquisition that our management would have otherwise pursued in markets in which Morris Communications owns radio stations.

 

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If we fail to implement our business strategy, our business will be adversely affected.

 

Our future financial performance and success are dependent in large part upon our ability to successfully implement our business strategy. We cannot assure you that we will be able to successfully implement our business strategy or be able to improve our operating results. In particular, we cannot assure you that we will be able to maintain circulation of our publications, obtain new sources of advertising revenues, generate additional revenues by building on the brand names of our publications or raise the cover prices of our publications without causing a decline in circulation.

 

Implementation of our business strategy could be affected by a number of factors beyond our control, such as increased competition, general economic conditions, legal developments or increased operating costs or expenses. In particular, there has been a recent trend of increased consolidation among major retailers, including as a result of bankruptcies of certain retailers. This trend may adversely affect our results of operations by reducing the number of advertisers using our products and increasing the purchasing power of the consolidated retailers, thereby leading to a decline in our advertising revenues. Any failure by us to successfully implement our business strategy may adversely affect our ability to service our indebtedness, including our ability to make principal and interest payments on the notes. We may, in addition, decide to alter or discontinue certain aspects of our business strategy at any time.

 

Consolidation in the markets in which we operate could place us at a competitive disadvantage.

 

Recently, some of the markets in which we operate have experienced significant consolidation. In particular, the combinations of traditional media content companies and new media distribution companies have resulted in new business models and strategies. Should the revised ownership rules adopted by the FCC withstand court and Congressional challenges, they will increase the potential of consolidation for our sector. We cannot predict with certainty the extent to which these types of business combinations may occur or the impact that they may have. These combinations could potentially place us at a competitive disadvantage with respect to negotiations, sales, resources and our ability to develop and to take advantage of new media technologies.

 

We may pursue acquisitions, but we may not be able to identify attractive acquisition candidates, successfully integrate acquired operations or realize the intended benefits of our acquisitions and we may enter into joint ventures.

 

We may pursue growth in part through the acquisition of additional newspapers or certain other businesses and assets and we may enter into joint ventures. This strategy is subject to numerous risks, including:

 

  ·   an inability to obtain sufficient financing to complete our acquisitions;

 

  ·   increases in purchase prices for newspaper assets due to increased competition for acquisition opportunities;

 

  ·   an inability to negotiate definitive purchase agreements on satisfactory terms;

 

  ·   difficulty in obtaining regulatory approval;

 

  ·   difficulty in integrating the operations, systems and management of acquired assets and absorbing the increased demands on our administrative, operational and financial resources;

 

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  ·   the diversion of our management’s attention from their other responsibilities;

 

  ·   the loss of key employees following completion of our acquisitions;

 

  ·   the failure to realize the intended benefits of our acquisitions;

 

  ·   our being subject to unknown liabilities; and

 

  ·   participation in joint ventures may limit our access to the cash flow of assets contributed to the joint venture.

 

Our inability to effectively address these risks could force us to revise our business plan, incur unanticipated expenses or forego additional opportunities for expansion.

 

The financial data presented in this prospectus for the year ended December 31, 1999 have not been audited and you will not be able to recover damages from an auditor under Section 11 of the Securities Act of 1933 for any untrue statements of material facts or omissions to state a material fact, if any, contained in audited financial statements.

 

We have not obtained audits of our business for the years ended December 31, 2000 and 1999. The unaudited financial information for the years ended December 31, 2000 and 1999 are based upon the financial records of the Morris Communications newspaper business segment and reflect certain adjustments and allocations that our management believes are reasonable. However, the financial data provided for the years ended December 31, 2000 and 1999 have not been subjected to the independent testing and procedures of an auditor designed to provide assurances of their accuracy and comparability to subsequent audited years.

 

We are subject to extensive environmental regulations.

 

We are subject to a variety of environmental laws and regulations concerning, among other things, emissions to the air, waste water and storm water discharges, handling, storage and disposal of wastes, recycling, remediation of contaminated sites, or otherwise relating to protection of the environment. Environmental laws and regulations and their interpretation have changed rapidly in recent years and may continue to do so in the future. Failure to comply with present or future requirements could result in material liability to us. Some environmental laws impose strict, and under certain circumstances joint and several, liability for costs of remediation of soil and groundwater contamination at our facilities or those where our wastes have been disposed. Our current and former properties may have had historic uses which may require investigation or remedial measures. We believe we are in substantial compliance with all applicable environmental requirements. However, we cannot guarantee that material costs and/or liabilities will not occur in the future including those which may arise from discovery of currently unknown conditions.

 

The new FTC Do Not Call rule will adversely effect our ability to sell newspaper subscriptions by telephone marketing .

 

We utilize telephone direct marketing efforts to maintain and increase our newspaper circulation. This has accounted for an estimated 30% of our new starts in subscriptions. Pursuant to the Telemarketing and Consumer Fraud and Abuse Prevention Act, the Federal Trade Commission, or FTC, has issued the Telemarketing Sales Rule prohibiting a telemarketer from calling persons who

 

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have registered on the recently-created National Do Not Call Registry. As of October, 2003 the FTC, the Federal Communications Commission and state law enforcement officials may enforce violations. Once consumers register online or by telephone with the registry, most telemarketers, generally other than those calling to solicit political or charitable contributions, will be required to remove telephone numbers on the registry from their call lists. Persons who have registered by August 31, 2003 must be removed from telemarketer lists by October 1, 2003 and covered telemarketers may not call persons who register after September 1, 2003 within three months of the date of registration. Thus, the issuance of the Telemarketing Sales Rule will limit our ability to engage in telephone marketing efforts.

 

Risks relating to the notes

 

Our substantial indebtedness could adversely affect our business and prevent us from fulfilling our obligations under the notes.

 

We have a substantial amount of indebtedness. As of December 31, 2003, we had $525.0 million of debt outstanding, consisting of approximately $225.0 million of senior debt and $300.0 million of senior subordinated notes. In addition, the indenture governing the notes and our new credit facilities allow us to incur substantial additional indebtedness in the future. As of December 31, 2003, we had $175.0 million available to borrow under our new credit facilities. Our substantial indebtedness may have important consequences, including:

 

  ·   making it more difficult for us to satisfy our obligations with respect to the notes;

 

  ·   limiting cash flow available to fund our working capital, capital expenditures, potential acquisitions or other general corporate requirements;

 

  ·   increasing our vulnerability to general adverse economic and industry conditions;

 

  ·   limiting our ability to obtain additional financing to fund future working capital, capital expenditures, potential acquisitions or other general corporate requirements;

 

  ·   limiting our flexibility in planning for, or reacting to, changes in our business and industry;

 

  ·   placing us at a competitive disadvantage compared to our competitors with less indebtedness; and

 

  ·   making it more difficult for us to comply with financial covenants in our new credit facilities.

 

We may be unable to generate sufficient cash flow to satisfy our debt service obligations.

 

Our ability to generate cash flow from operations to make principal and interest payments on our debt, including the notes, will depend on our future performance, which will be affected by a range of economic, competitive and business factors. We cannot control many of these factors, including general economic conditions, the reallocation of advertising expenditures to other available media and a decline in the amount spent on advertising in general. If our operations do not generate sufficient cash flow from operations to satisfy our debt service obligations, we may need to seek additional capital to make these payments or undertake alternative financing plans, such as refinancing or restructuring our debt, selling assets or reducing or delaying capital investments and acquisitions. We cannot assure you that such additional capital or alternative financing will be available on favorable terms, if at all. Our inability to generate sufficient cash flow from operations or obtain additional capital or alternative financing on acceptable terms

 

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could have a material adverse effect on our business, financial condition and results of operations.

 

Restrictions in our debt agreements reduce our operating flexibility and contain covenants and restrictions that create the potential for defaults.

 

The terms of our new credit facilities and the indenture relating to the notes restrict, among other things, our ability to:

 

  ·   incur or repay debt;

 

  ·   dispose of assets;

 

  ·   create liens;

 

  ·   make investments;

 

  ·   enter into affiliate transactions; and

 

  ·   pay dividends.

 

Under our new credit facilities we are required to maintain specified financial ratios and levels including:

 

  ·   a minimum interest coverage ratio;

 

  ·   a minimum fixed charges coverage ratio; and

 

  ·   a maximum cash flow ratio.

 

If we fail to comply with any of these tests, the lenders have the right to cause all amounts outstanding under our new credit facilities to become immediately due. If this were to occur, and the lenders decide to exercise their right to accelerate the indebtedness, it would create serious financial problems for us and could lead to an event of default under the indenture governing the notes. In such an event, we cannot assure you that we would have sufficient assets to pay amounts due on the notes. As a result, you may receive less than the full amount you would be otherwise entitled to receive on the notes. Any of these events could have a material adverse effect on our business, financial condition and results of operations. Our ability to comply with these restrictions, and any similar restrictions in future agreements, depends on our operating performance. Since our performance is subject to prevailing economic, financial and business conditions and other factors that are beyond our control, we may be unable to comply with these restrictions in the future. See “Description of other indebtedness” and “Description of the exchange notes” for additional information.

 

Your right to receive payments on the notes is junior to our existing senior indebtedness and the existing senior indebtedness of the subsidiary guarantors and possibly all of our and their future indebtedness and our new credit facility will have the benefit of guarantees by Morris Communication and certain of its subsidiaries.

 

The notes and the subsidiary guarantees will be subordinated in right of payment to the prior payment in full of our and the subsidiary guarantors’ respective current and future senior indebtedness, including our and their obligations under our new credit facilities. As of December 31, 2003, the notes were subordinated to approximately $225.0 million of senior indebtedness, not including $175.0 million of senior debt that is available for borrowing under our new credit facilities. As a result of the subordination provisions of the notes, in the event of the bankruptcy, liquidation or dissolution of us or any subsidiary guarantor, our assets or the assets of the

 

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applicable subsidiary guarantor would be available to pay obligations under the notes and our other senior subordinated obligations only after all payments had been made on our senior indebtedness or the senior indebtedness of the applicable subsidiary guarantor. Sufficient assets may not remain after all of these payments have been made to make any payments on the notes and our other senior subordinated obligations, including payments of interest when due. In addition, all payments on the notes and the subsidiary guarantees will be prohibited in the event of a payment default on our new revolving credit facilities, and may be prohibited in any future senior indebtedness.

 

All obligations under the senior credit facilities are guaranteed by Morris Communications and certain of its subsidiaries, and such guarantees are secured with substantially all of their assets.

 

The notes and the subsidiary guarantees are effectively subordinated to all of our and our subsidiary guarantors’ secured indebtedness and all indebtedness of our non-guarantor subsidiaries.

 

The notes will not be secured. The lenders under our new credit facilities are secured by liens on substantially all of our and our subsidiaries’ assets and by a pledge of the stock of all of the subsidiary guarantors. If we, Morris Communications or any of the subsidiary guarantors declare bankruptcy, liquidate or dissolve, or if payment under the new credit facilities or any of our other secured indebtedness is accelerated, our secured lenders would be entitled to exercise the remedies available to a secured lender under applicable law and will have a claim on those assets before the holders of the notes. As a result, the notes are effectively subordinated to our and our subsidiaries’ secured indebtedness to the extent of the value of the assets securing that indebtedness, and the holders of the notes would in all likelihood recover ratably less than the lenders of our and our subsidiaries’ secured indebtedness in the event of our bankruptcy, liquidation or dissolution. As of December 31, 2003, we had $225.0 million of secured indebtedness outstanding, not including $175.0 million of additional secured indebtedness that would have been available for borrowing under our new credit facilities.

 

Some of our future subsidiaries may not be guarantors on the notes and some of our existing subsidiaries may be released from their guarantees upon becoming an unrestricted subsidiary in the manner provided in the indenture. Payments on the notes will only be required to be made by us and the subsidiary guarantors. As a result, no payments are required to be made from assets of subsidiaries which do not guarantee the notes. The notes will be structurally subordinated to all of the liabilities of our subsidiaries that do not guarantee the notes. In the event of a bankruptcy, liquidation or dissolution of any non-guarantor subsidiary, holders of its indebtedness, its trade creditors and holders of its preferred equity will generally be entitled to payment on their claims from assets of that subsidiary before any assets are made available for distribution to us. However, under some circumstances, the terms of the notes will permit our non-guarantor subsidiaries to incur additional specified indebtedness. Initially, we will have no non-guarantor subsidiaries.

 

We may not be able to purchase the notes upon a change of control.

 

Upon the occurrence of certain specific kinds of change of control events, we will be required to offer to repurchase all outstanding notes at a price equal to 101% of their principal amount plus accrued and unpaid interest, if any, to the date of repurchase. However, it is possible that we will

 

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not have sufficient funds at the time of the change of control to make the required repurchase of notes or that restrictions in our senior credit facilities would not allow such repurchase.

 

Federal and state statutes allow courts, under specific circumstances, to void the guarantees of the notes by our subsidiaries and require the holders of the notes to return payments received from the subsidiary guarantors.

 

Under the federal bankruptcy law and comparable provisions of state fraudulent transfer laws, the subsidiary guarantees could be voided, or claims in respect of the subsidiary guarantees could be subordinated to all other debts of a subsidiary guarantor if, either, the subsidiary guarantee was incurred with the intent to hinder, delay or defraud any present or future creditors of the subsidiary guarantor or the subsidiary guarantor, at the time it incurred the indebtedness evidenced by its subsidiary guarantee, received less than reasonably equivalent value or fair consideration for the incurrence of such indebtedness and the subsidiary guarantor either:

 

  ·   was insolvent or rendered insolvent by reason of such incurrence;

 

  ·   was engaged in a business or transaction for which such subsidiary guarantor’s remaining assets constituted unreasonably small capital; or

 

  ·   intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they mature.

 

The measures of insolvency for purposes of these fraudulent transfer laws will vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred. Generally, however, a subsidiary guarantor would be considered insolvent if:

 

  ·   the sum of its debts, including contingent liabilities, were greater than the fair saleable value of all of its assets;

 

  ·   the present fair saleable value of its assets were less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or

 

  ·   it could not pay its debts as they become due.

 

On the basis of historical financial information, recent operating history and other factors, we and each subsidiary guarantor believe that, after giving effect to the indebtedness incurred in connection with this offering, no subsidiary guarantor will be insolvent, will have unreasonably small capital for the business in which it is engaged or will have incurred debts beyond its ability to pay such debts as they mature. There can be no assurance, however, as to what standard a court would apply in making such determinations or that a court would agree with our or the subsidiary guarantors’ conclusions in this regard.

 

An active trading market may not develop for the exchange notes.

 

The exchange notes are a new issue of securities with no established trading market and will not be listed on any securities exchange. The initial purchasers have informed us that they currently intend to make a market in the exchange notes. However, the initial purchasers are not obligated to do so and may discontinue any such market making at any time without notice. The liquidity of any market for the notes will depend upon various factors, including:

 

  ·   the number of holders of the notes;

 

  ·   the interest of securities dealers in making a market for the notes;

 

 

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  ·   the overall market for high yield securities;

 

  ·   our financial performance or prospects; and

 

  ·   the prospects for companies in our industry generally.

 

Accordingly, we cannot assure you that a market or liquidity will develop for the exchange notes. Historically, the market for non-investment grade debt has been subject to disruptions that have caused substantial volatility in the prices of securities similar to the exchange notes. We cannot assure you that the market for the exchange notes, if any, will not be subject to similar disruptions. Any such disruptions may adversely affect you as a holder of the exchange notes.

 

The original notes are, and will continue to be, subject to restrictions on transfer, and the trading market, if any, for original notes may be adversely affected by completion of this exchange offer.

 

The original notes have not been registered under the Securities Act of 1933 or any state securities laws and therefore may not be offered, sold or otherwise transferred except in compliance with the registration requirements of the Securities Act of 1933 and any other applicable securities laws, or pursuant to an exemption from those laws or in a transaction not subject to those laws. We do not intend to register under the Securities Act of 1933 the original notes that remain outstanding after completion of this exchange offer, and agreed to do so only in the event that original notes are not eligible for exchange in the exchange offer. We are not aware of any reason that original notes would not be eligible for exchange. Original notes that remain outstanding after the completion of this exchange offer will continue to bear a legend reflecting those restrictions on transfer, and holders of those original notes will not be entitled to any rights to have those original notes registered under the Securities Act of 1933 or to any similar rights under the registration rights agreements (subject to the limited exception noted above). To the extent that original notes are tendered and accepted in the exchange offer, the trading market, if any, for remaining original notes may be adversely affected.

 

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Table of Contents

Disclosure regarding forward-looking statements

 

This prospectus 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 “Management’s discussion and analysis of financial condition and results of operations,” in our vision statement on the inside front cover, and within this prospectus generally.

 

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. These risks, uncertainties and other important factors are disclosed under “Risk factors” and elsewhere in this prospectus, including, without limitation, in conjunction with the forward-looking statements included in this prospectus.

 

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, prospective investors are cautioned not to place undue reliance on these forward-looking statements. These forward-looking statements are made as of the date of this prospectus. 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;

 

  ·   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, including those listed under the caption “Risk factors.”

 

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Use of proceeds

 

This exchange offer is intended to satisfy some of our obligations under the registration rights agreements. We will not receive any cash proceeds from the issuance of the exchange notes in this exchange offer. In exchange for issuing the exchange notes as described in this prospectus, we will receive an equal principal amount of original notes, which will be canceled. Accordingly, issuance of the exchange notes will not result in any increase or decrease in the amount of our indebtedness. We have agreed to pay the expenses of the exchange offer.

 

The proceeds of the initial issuance of $250.0 million of the original notes together with the proceeds of our new credit facility, were used to (i) repay our debt to Morris Communications, which repaid its existing credit facilities, the proceeds of which were used in large part to fund our business, and (ii) to fund our general corporate activities, including working capital requirements and capital expenditures. The proceeds of the subsequent issuance of the additional $50.0 million of the original notes were used to reduce existing indebtedness (but not available borrowings) under the new revolving credit facility. We use our revolving credit facility to fund our general corporate activities including future acquisitions, working capital requirements, capital expenditures and loans to affiliates.

 

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Capitalization

 

The following table sets forth the capitalization of Morris Publishing as of December 31, 2003 and the capitalization as of such date as adjusted to reflect the consummation of the exchange offer. This table should be read in conjunction with our consolidated financial statements and the notes thereto included in this prospectus. See “Use of proceeds.”

 

     December 31, 2003  
   
 
(Dollars in millions)    Actual and
as adjusted
 

 

New revolving credit facilities

     —    

New term loan

     225.0  
    


Total senior debt

     225.0  

7% senior subordinated notes due 2013

     300.0  
    


Total debt

   $ 525.0  
    


Member’s deficit

     (170.8 )
    


Total capitalization

   $ 354.2  
    


          

 

 

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Selected historical financial data

 

The selected historical financial data of Morris Publishing set forth below should be read in conjunction with our consolidated financial statements, including the notes thereto, and “Management’s discussion and analysis of financial condition and results of operations” included elsewhere in this prospectus. The consolidated statement of income and other operating and financial information data for each of the years ended December 31, 2003, 2002 and 2001 and the consolidated balance sheet data as of December 31, 2003 and 2002 are derived from our audited consolidated financial statements included elsewhere in this prospectus. We do not have audited financial statements for the years ended December 31, 2000 and 1999 and, therefore, the consolidated statement of income and other operating and financial information data for the years ended December 31, 2000 and 1999 and the consolidated balance sheet data as of December 31, 2000 and 1999 are derived from our unaudited consolidated financial statements. See “Risk factors.” Net cash flow information for 1999 is not available.

 

Morris Publishing was formed in late 2001 as part of a corporate reorganization of our parent, Morris Communications and, therefore, does not have a recent operating history as an independent company. Our historical consolidated financial statements contained in this prospectus reflect periods during which we did not operate as an independent company. See Note 1 to Notes to Consolidated Financial Statements.

 

The financial information we have included in this prospectus reflects the historical results of operations and cash flows of Morris Publishing with allocations made for corporate and other services provided to us by Morris Communications. Operating costs and expenses reflect our direct costs together with certain allocations by Morris Communications for corporate services, debt and other shared services that have been charged to us based on usage or other methodologies we believe are appropriate for such expenses. In the opinion of management, these allocations have been made on a reasonable basis and approximate all the material incremental costs we would have incurred had we been operating on a stand-alone basis; however, there has been no independent study or any attempt to obtain quotes from third parties to determine what the costs of obtaining such services would have been.

 

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Years ended December 31,


 

(Dollars in thousands)


   2003

    2002(e)

    2001(e)

    2000(e)

    1999(e)

 
           (As
restated)
    (As
restated)
    (As
restated)
    (As
restated)
 

Consolidated statement of income data

                                        

Operating revenues:

                                        

Advertising

   $ 348,736     $ 342,976     $ 341,947     $ 356,825     $ 341,733  

Circulation

     71,518       71,906       74,756       76,492       77,079  

Other

     18,093       18,480       20,781       22,098       25,079  
    


 


 


 


 


Total operating revenues

     438,347       433,362       437,484       455,415       443,891  
    


 


 


 


 


Operating expenses:

                                        

Labor and employee benefits

     172,221       162,540       163,097       161,189       153,364  

Newsprint, ink and supplements

     50,608       48,815       62,193       66,431       61,599  

Other operating costs

     115,408       110,059       106,219       113,029       108,369  

Depreciation and amortization

     20,535       23,627       37,563       37,439       36,035  
    


 


 


 


 


Total operating expenses

     358,772       345,041       369,072       378,088       359,367  
    


 


 


 


 


Operating income

     79,575       88,321       68,412       77,327       84,524  
    


 


 


 


 


Other expense (income):

                                        

Interest expense, including amortization of debt issuance costs

     26,088       25,056       33,424       45,230       37,737  

Loss on extinguishment of debt

     5,957       —         1,578       —         —    

Other, net

     (59 )     187       285       (103 )     (266 )
    


 


 


 


 


Total other expenses

     31,986       25,243       35,287       45,127       37,471  
    


 


 


 


 


Income before income taxes and minority interest

     47,589       63,078       33,125       32,200       47,053  

Provision for income taxes

     18,744       24,758       15,039       15,795       21,413  

Minority interest, net

     —         —         —         282       400  
    


 


 


 


 


Net income

   $ 28,845     $ 38,320     $ 18,086     $ 16,123     $ 25,240  
    


 


 


 


 


Consolidated balance sheet data at period end

                                        

Total assets

   $ 445,828     $ 437,287     $ 443,352     $ 455,466     $ 466,714  

Goodwill and other intangibles

     210,643       215,680       220,802       233,196       248,580  

Total long-term debt and capital lease obligations

     525,000       516,000       538,046       566,128       544,627  

Member’s deficit

     (170,758 )     (153,909 )     (163,913 )     (189,431 )     (171,699 )

Other operating and financial information data

                                        

Earnings to fixed charges (a)

     2.8 x     3.5 x     2.0 x     1.7 x     (b )

Pro forma earnings to fixed charges (c)

     2.5 x     3.0 x     —         —         —    

Operating margin (d)

     18.2 %     20.4 %     15.6 %     17.0 %     19.0 %
(a)   Earnings to fixed charges is defined as income before income taxes and minority interest plus fixed charges, divided by fixed charges. Fixed charges are interest expense including amortization of debt issuance costs, plus one-third of rent expense.

 

(b)   Not available.                                                                                                                                                                                                                 

 

(c)   Our interest expense would have increased by $4,669 and $6,742, respectively, for the years ended December 31, 2003 and December 31, 2002, assuming we had issued our $300.0 million of 7% Senior Subordinated Notes Due 2013 at the beginning of such periods. Pro forma earnings to fixed charges assumes issuance of said Notes at January 1, 2002.

 

(d)   Operating margin is operating income as a percentage of total operating revenues.

 

(e)   We restated our financial statements as of December 31, 2002 and 2001 and for the years then ended. See note 10 to the financial statements. The financial statements as of and for the years ended December 31, 2000 and 1999 also give effect to the restatement adjustments.

 

 

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Management’s discussion and analysis of financial condition

and results of operations

 

Overview

 

Morris Publishing was formed in 2001 as “MCC Newspapers, LLC” to own and operate the newspaper business historically operated by our parent, Morris Communications. Discussions of Morris Publishing and our results of operations include the business as previously conducted by the Morris Communications newspaper business segment. We changed our name to Morris Publishing Group, LLC in July 2003.

 

Morris Publishing is in the business of owning and operating newspapers in mid-sized to small markets across the United States. Our newspapers derive their revenues primarily from advertising and circulation. We also print and distribute periodical publications and operate commercial printing operations as part of our newspaper operations in some of our markets. Other revenues consist primarily of commercial printing revenues. Our primary operating expenses are personnel costs and newsprint, ink and supplements. Newsprint costs have represented 10 - 15% of total operating expenses. For 2003, consumption was approximately 83,000 metric tons of newsprint. Based on the current level of operations, expected annual consumption for 2004 is estimated to be 84,000 metric tons.

 

Historically, newsprint has been subject to significant price fluctuations from year to year, unrelated in many cases to general economic trends. Supply and demand has typically controlled pricing. Since 1990, quarterly average newsprint costs ranged from $420.0 to $740.0 per metric ton and averaged $534.0 per metric ton during the same period. Newsprint prices were down 20% on average in 2002 compared to 2001. Newsprint prices increased by almost 20% on average in 2003 compared to 2002.

 

Morris Publishing was formed in late 2001 as part of a corporate reorganization of our parent, Morris Communications and, therefore, does not have a recent operating history as an independent company. Our historical consolidated financial statements contained in this document reflect periods during which we did not operate as an independent company. See Note 1 to Notes to consolidated financial statements for the years ended December 31, 2003, 2002 and 2001.

 

The financial information we have included in this prospectus reflects the historical results of operations and cash flows of Morris Publishing with allocations made for corporate and other services provided to us by Morris Communications. Operating costs and expenses reflect our direct costs together with certain allocations by Morris Communications for corporate services, debt and other shared services that have been charged to us based on usage or other methodologies we believe are appropriate for such expenses. In the opinion of management, these allocations have been made on a reasonable basis and approximate all the material incremental costs we would have incurred had we been operating on a stand-alone basis; however, there has been no independent study or any attempt to obtain quotes from third parties to determine what the costs of obtaining such services would have been. See Notes 1 and 8 to consolidated financial statements for the years ended December 31, 2003, 2002 and 2001.

 

We restated our financial statements as of and for the years ended December 31, 2002, 2001, 2000 and 1999. See note 10 to our consolidated financial statements. This management’s discussion and analysis of financial condition and results of operation gives effect to this restatement.

 

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Recent events

 

On August 7, 2003, Morris Publishing and Morris Communications realigned various aspects of their debt and capital structure, including the following:

 

  ·   Morris Publishing issued $250.0 million aggregate principal amount of 7% senior subordinated notes due 2013, which constitute some of the original notes.

 

  ·   Morris Publishing entered into new $400.0 million senior secured credit facilities, which rank senior to the notes, and are guaranteed by Morris Communications and its restricted subsidiaries, including all of our existing subsidiaries.

 

  ·   Morris Publishing repaid its intercompany debt due to its parent, Morris Communications, which in turn repaid its senior secured credit facilities. As a result, we incurred a non-cash financing loss on extinguishment of debt of approximately $6.0 million related to the write off of the unamortized deferred loan costs. Prior to this repayment, Morris Publishing’s debt due to its parent increased by $18.1 million, which borrowings were used to repay other indebtedness of its parent. As a result, we recorded an $18.1 million distribution to our parent.

 

  ·   Morris Communications contributed various real estate and trademarks owned by Morris Communications but primarily used in the newspaper business to Morris Publishing (or the appropriate Morris Publishing subsidiary). Morris Publishing distributed to Morris Communications various parcels of real estate and related personal property (or interests in subsidiaries owning such property) that are not part of the newspaper business of Morris Publishing. These contributions and distributions will not effect the consolidated financial statements of Morris Publishing, which treat Morris Publishing historically as the owner of the property received and do not treat Morris Publishing as the owner of the property distributed.

 

  ·   Morris Publishing entered into a management agreement with Morris Communications, whereby Morris Communications and its subsidiary, MStar Solutions, provide a wide range of management and general corporate services to Morris Publishing for certain fees payable by us. See “Certain relationships and related transactions.”

 

On September 24, 2003, we issued an additional $50.0 million aggregate principal amount of 7% senior subordinated notes due 2013, which constitute some of the original notes. These notes were issued as part of the same series as the original notes issued on August 7, 2003 (and accrue interest from that same date). The net proceeds from the issuance of these notes were used to reduce existing indebtedness (but not available borrowings) under our new revolving credit facility.

 

Critical accounting policies and estimates

 

The preparation of consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses and related disclosure of contingent assets and liabilities. We continually evaluate our estimates, including those related to allowances for doubtful accounts, intangible assets, management fees, income taxes and post-retirement benefits. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Actual results may differ from those estimates.

 

We believe the following critical accounting policies are our most significant judgments and estimates used in the preparation of our consolidated financial statements.

 

The cost of newsprint inventory is determined by the last-in-first out method. At year end, the newsprint inventory is evaluated and adjusted to the lower of cost or market. Newsprint purchases are combined with those of other newspaper companies to obtain the best price

 

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available. The company considers its relationship with newsprint producers to be good. The company has not entered into any derivative contracts for newsprint.

 

We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances could be required. We assess, at least annually, the adequacy of our allowances for losses on accounts receivable using a combination of specific identification and the aging of accounts receivable. Payment in advance for some advertising and circulation revenue and credit background checks, have assisted us in maintaining historical bad debt losses of less than 1.0% of revenue.

 

We have significant intangible assets recorded on our balance sheet. Certain of our newspapers operate in highly competitive markets. Prior to January 1, 2002, we amortized our goodwill and identifiable intangible assets over their estimated useful lives. Upon the adoption, effective January 1, 2002, of a new accounting standard (Statement of Financial Accounting Standards (“SFAS”) No. 142) we ceased amortizing goodwill and now test goodwill and indefinite-lived assets for impairment on an annual basis. Inability to sustain profitable operations in our newspapers could result in a material impairment of our intangible assets in the future.

 

Operating costs and expenses reflect our direct charges, together with certain allocations by Morris Communications for corporate services, debt and employee benefits that have been charged to us based on usage or other methodologies deemed by management to be appropriate for such expenses. In the opinion of management, these allocations have been made on a reasonable basis and approximate all the material incremental costs we would have incurred had we been operating on a stand-alone basis; however, there has been no independent study or any attempt to obtain quotes from third parties to determine what costs of obtaining such services would have been. Beginning in August 2003, the costs for these services, debt and employee benefits are based on new agreements and could result in a change in expenses incurred (see “—Recent events”). For 2003, the management expenses allocated to us through August 7, 2003 totaled $7.8 million. The management fee under our new management agreement from August 7, 2003 through the end of the year totaled $7.8 million, for total management fees and expenses for the year of $15.6 million. On a pro forma basis, had the management agreement been in place at the beginning of the years 2002 and 2003, our management fees would have been $17.5 million in 2003, an increase of $1.9 million over our actual 2003 results, and $17.4 million in 2002, which was the same as our actual results.

 

On August 7, 2003, we refinanced substantially all of our long term indebtedness and issued $250 million of our 7% senior subordinated notes due 2013. In September 2003, we issued an additional $50 million of these notes. The fixed interest rate on these long term notes is higher than the floating rates we were previously paying on our floating rate indebtedness. On a pro forma basis, had the refinancing been in place at the beginning of the years 2003 and 2002, our interest expense would have increased by $4.7 million and $6.7 million, respectively. The interest rate on these notes will temporarily increase to 7.25% per annum on May 4, 2004, and will increase an additional 0.25% per annum each 90 days thereafter, to a maximum of 8%, until this exchange offer is completed.

 

We have significant retiree health care and health and disability plan benefit costs and obligations that are allocated from Morris Communications. Inherent in these allocations are key assumptions including projected costs, discount rates and expected return on plan assets. We are required to consider current market conditions, including changes in interest rates, in selecting these assumptions. Changes in the related retiree health care and health and disability costs or obligations may occur in the future because of changes resulting from fluctuations in our employee headcount and/or changes in the various assumptions.

 

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Consolidated financial and other information

 

                      Percentage change
over prior year
                   
    

Years ended
December 31,

     

Years ended

December 31,

   
     
(Dollars in millions)    2003    2002   2001       2003    2002

     

Operating revenues:

                          

Advertising

                          

Retail

   $189.5    $188.4   $191.1       0.6 %    (1.4)%

Classified

   134.4    130.2   128.0       3.2    1.7

National

   24.8    24.4   22.8       1.6    7.0
    
  
 
            

Total

   348.7    343.0   341.9       1.7    0.3

Circulation

   71.5    71.9   74.8       (0.6)    (3.9)

Other

   18.1    18.5   20.8       (2.2)    (11.1)
    
  
 
            

Total operating revenues

   $438.3    $433.4   $437.5       1.1 %    (0.9)%
    
  
 
            

Operating expenses:

                          

Labor and employee benefits

   $172.2    $162.5   $163.1       6.0 %    (0.4)%

Newsprint, ink and supplements

   50.6    48.8   62.2       3.7    (21.5)

Other operating costs

   115.4    110.1   106.2       4.8    3.7

Depreciation and amortization

   20.6    23.6   37.6       (13.1)%    (37.2)%
    
  
 
            

Total operating expenses

   $358.8    $345.0   $369.1       4.0%    (6.5)%
    
  
 
            

Circulation:

                          

Daily

   686,754    685,558   693,664       0.2 %    (1.2)%

Sunday

   765,871    766,299   770,459       (0.1)%    (0.5)%

 

Percentage of total operating revenues

 

    

Years ended

December 31,


 

   2003

    2002

    2001

 

Operating revenues

                  

Advertising

                  

Retail

   43.2 %   43.5 %   43.7 %

Classified

   30.7     30.0     29.3  

National

   5.7     5.6     5.2  
    

 

 

Total

   79.6     79.1     78.2  

Circulation

   16.3     16.6     17.1  

Other

   4.1     4.3     4.8  
    

 

 

Total operating revenues

   100.0 %   100.0 %   100.0 %
    

 

 

Operating expenses

                  

Labor and employee benefits

   39.3 %   37.5 %   37.3 %

Newsprint, ink and supplements

   11.5     11.3     14.2  

Other operating costs

   26.3     25.4     24.3  

Depreciation and amortization

   4.7     5.4     8.6  
    

 

 

Total operating expenses

   81.8 %   79.6 %   84.4 %
    

 

 

 

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Results of operations for the years ended December 31, 2003 and December 31, 2002

 

Operating revenues.

 

The table below presents operating revenue and related statistics for newspaper operations for the year ended December 31, 2003 compared to the year ended December 31, 2002:

 

     Years ended
December 31,
   Change
over same
period in
2002
    Percentage
change over
same period
in 2002
 
   
 
(Dollars in thousands)    2003    2002             

 
Operating revenues:                             

Advertising

                            

Retail

   $ 189,533    $ 188,339    $ 1,194     0.6 %

Classified

     134,450      130,204      4,246     3.3 %

National

     24,753      24,433      320     1.3 %
    

  

  


     

Total

     348,736      342,976      5,760     1.7 %

Circulation

     71,518      71,906      (388 )   (0.5 %)

Other

     18,093      18,480      (387 )   (2.1 %)
    

  

  


     

Total operating revenues

   $ 438,347    $ 433,362    $ 4,985     1.2 %
    

  

  


     

 

Operating revenues increased by $5.0 million, or 1.2%, to $438.3 million for the year ended December 31, 2003 from $433.4 million for the year ended December 31, 2002. This was primarily due to an increase in advertising revenue of $5.8 million, or 1.7%. All categories of advertising revenue showed gains. The increase in advertising revenue was partially offset by $0.4 million, or 0.5% decrease in circulation revenue.

 

Operating Expenses.

 

The table below presents operating costs for newspaper operations for the year ended December 31, 2003 compared to the year ended December 31, 2002:

 

     Years ended
December 31,
   Change
over same
period in
2002
    Percentage
change over
same period
in 2002
 
   
 
(Dollars in thousands)    2003    2002             

 

Operating expenses:

                            

Labor and employee benefits

   $ 172,221    $ 162,540    $ 9,681     6.0 %

Newsprint, ink and supplements

     50,608      48,815      1,793     3.7 %

Other operating costs

     115,408      110,059      5,349     4.9 %

Depreciation and amortization

     20,535      23,627      (3,092 )   (13.1 )%
    

  

  


     

Total operating expenses

   $ 358,772    $ 345,041    $ 13,731     4.0 %
    

  

  


     

 

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Operating expenses increased by $13.7 million, to $358.8 million for the year ended December 31, 2003 from $345.0 million during the year ended December 31, 2002. Labor and employee benefits increased $9.7 million, or 6.0%, primarily due to higher salaries and rising health care costs. Labor costs accounted for $5.0 million and 51.2% of the overall increase. This represents an overall 3.6% increase in labor costs. The remaining increase is due to the increased costs of health care. Year over year we experienced approximately an 18.4% increase in health care costs. Newsprint, ink and supplements increased by $1.8 million, or 3.7%. This increase was driven largely by a 6.3% increase in the average cost per ton of newsprint, (significantly lower than the overall market increase due to our participation in group purchases with other newspapers beginning in late 2002) offset by a 3.5% decrease in consumption. During 2004, we expect the price of newsprint to increase 10%–15%. Other operating costs increased by $5.3 million, or 4.9%, primarily due to increased costs relating to our shared services initiative. Depreciation and amortization declined $3.1 million, or 13.1%, due primarily to assets that became fully depreciated.

 

Interest expense .    Interest expense, including amortization of debt issuance cost, net of interest income, increased $1.0 million, or 4.1% to $26.1 million for the year ended December 31, 2003. While there was a general decline in short-term interest rates, these were offset by the $300.0 million of indebtedness represented by our 7% senior subordinated notes due 2013. Our interest expenses will continue to rise as we cycle the partial year effect of these notes.

 

Provision for income taxes .    The provision for income taxes decreased by $6.0 million, or 24.3%, to $18.7 million for the year ended December 31, 2003. The decrease in the provision was caused by a decrease in taxable income.

 

Net income .    As a result of the factors described above and a loss of $6.0 million on extinguishment of debt, our net income decreased by $9.5 million, or 24.7%, from $38.3 million for the year ended December 31, 2002.

 

Results of operations for the years ended December 31, 2002 and December 31, 2001

 

     Years ended
December 31,
   Change
over same
period in
2001
    Percentage
change over
same period
in 2001
 
   
 
(Dollars in thousands)    2002    2001             

 

Operating revenues:

                            

Advertising

                            

Retail

   $ 188,339    $ 191,197    $ (2,858 )   (1.5 )%

Classified

     130,204      127,969      2,235     1.7 %

National

     24,433      22,781      1,652     7.3 %
    

  

  


     

Total

     342,976      341,947      1,029     0.3 %

Circulation

     71,906      74,756      (2,850 )   (3.8 )%

Other

     18,480      20,781      (2,301 )   (11.1 )%
    

  

  


     

Total Operating Revenues

   $ 433,362    $ 437,484    $ (4,122 )   (0.9 )%
    

  

  


     

 

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Operating revenues .    Operating revenues decreased by $4.1 million, or 0.9%, to $433.4 million in 2002 from $437.5 million in 2001. An increase in advertising revenue of $1.0 million was more than offset by decreases in circulation revenue of $2.9 million and decreases in other revenue of $2.3 million. The decrease in circulation revenue primarily resulted from a shift in sales to independent contractors resulting in lower rates. Circulation declines of 1.2% also contributed to the decrease. The decreases in other revenue resulted from decreases in commercial printing revenue of $1.2 million and revenue from other products of $1.1 million.

 

     Years ended
December 31,
   Change
over same
period in
2001
    Percentage
change over
same period
in 2001
 
   
 
(Dollars in thousands)    2002    2001             

 

Operating expenses:

                            

Labor and employee benefits

   $ 162,540    $ 163,097    $ (557 )   (0.3 )%

Newsprint, ink and supplements

     48,815      62,193      (13,378 )   (21.5 )%

Other operating costs

     110,059      106,219      3,840     3.6 %

Depreciation and amortization

     23,627      37,563      (13,936 )   (37.1 )%
    

  

  


     

Total Operating Expenses

   $ 345,041    $ 369,072    $ (24,031 )   (6.5 )%
    

  

  


     

 

Operating expenses .    Operating expenses decreased by $24.0 million, or 6.5%, to $345.0 million in 2002 from $369.1 million in 2001. This decrease was the result of newsprint, ink and supplements being $13.4 million, or 21.5%, less than the previous year primarily due to decreased newsprint pricing. Other operating costs increased by $3.8 million, or 3.6%, primarily due to our costs associated with the shared services initiative and, to a lesser extent, due to increased costs relating to retiree health care benefits from $0.7 million for the year ended December 31, 2001 to $1.8 million for the year ended December 31, 2002. Additionally, depreciation and amortization of intangibles decreased by $13.9 million, or 37.1%, to $23.6 million in 2002 from $37.6 million in 2001. The decrease in depreciation and amortization was primarily the result of our adoption of SFAS No. 142 on January 1, 2002, which resulted in a reduction of $10.7 million in intangibles amortization. The remaining decrease primarily resulted from a reduction of depreciation expense as a result of assets that became fully depreciated.

 

Interest expense .    Interest expense decreased by $8.4 million, or 25.0%, to $25.1 million in 2002 from $33.4 million in 2001. The decrease is attributed to a decrease in average interest rates and a reduction in average debt outstanding.

 

Provision for income taxes .    The provision for income taxes increased by $9.7 million, or 64.6%, to $24.8 million in 2002 from $15.0 million in 2001. The increase in provision for income taxes was caused primarily by an increase in taxable income of $20.2 million.

 

Net income .    As a result of the factors described above we increased our net income by $20.2 million, or 111.9%, to $38.3 million in 2002 from $18.1 million in 2001.

 

Liquidity and capital resources

 

Cash flow generated from operations is the company’s primary source of liquidity. Net cash provided by operations was $ 68.7 million in 2003, up from $ 64.8 million in 2002, and from $60.8 million in 2001. The company expects to fund capital expenditures and other operating requirements with net cash provided by operations. The company has pursued, and will continue to pursue, a business strategy that includes selective acquisitions and new product development.

 

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New product development and acquisitions are financed by available cash flow from operations and, if necessary, by borrowing under our $175.0 million revolving credit facility. As of December 31, 2003, we had no borrowings outstanding under our revolving credit facility.

 

Until August 7, 2003, our revolving credit facilities consisted of a borrowing arrangement with our parent, Morris Communications, which made available to us its borrowing capacity under its revolving credit facility. On August 7, 2003, concurrently with the sale of our 7% senior subordinated notes due 2013 in an aggregate principal amount of $250.0 million, our borrowing arrangement with Morris Communications was replaced by new credit facilities totaling $400.0 million, including a $175.0 million revolving credit facility. See “Description of other indebtedness.” The Term Loan Facility bears interest at (i) LIBOR plus 2.25% or (ii) the applicable federal funds rate plus 0.5% (“ABR”) plus 1.25%. The Revolving Loan Facility bears interest (i) at a spread above a base rate equal to the higher of (x) JPMorgan Chase Bank’s prime lending rate or (y) the ABR, or (ii) at a spread above the Eurodollar rate. The spread applicable to borrowings under the revolving facility will be determined by reference to our total debt to cash flow ratio. The spread applicable for ABR borrowings will range from 1.0% to 1.5%. The spread applicable for Eurodollar rate borrowings will range from 2.0% to 2.5%. We have agreed that, for a period of six months after the August 7, 2003 closing date of the senior secured credit facilities, the spread on ABR borrowing will be 1.25% and the spread on Eurodollar rate borrowings will be 2.25%.

 

The Term Loan Facility requires the following principal amortization: 2003- none; 2004,-$562,500; 2005-2010,-$2.25 million per year, and the remaining principal amount of $210.9 million in 2011.

 

On September 24, 2003, we issued an additional $50.0 million aggregate principal amount of our 7% senior subordinated notes due 2013.

 

We believe that cash on hand, cash flows provided from operating activities and amounts available as revolving credit under our new credit facilities will be sufficient to meet our operating requirements for the next three years.

 

Our primary needs for cash are funding operating expenses, debt service on the new credit facilities and these notes, capital expenditures, income taxes, dividends and loans to affiliates, acquisitions and working capital. We have pursued, and will continue to pursue, a business strategy that includes selective acquisitions and new product development. However, we cannot assure you that we will not require additional financing and may need additional funds to pursue our strategy of selected acquisitions, to respond to competitive pressures or to respond to unanticipated circumstances. We cannot assure you that additional funding will be available on attractive terms or at all.

 

In past periods, we have paid significant distributions to Morris Communications. Future distributions will be limited by the terms of the indenture for our 7% Senior Subordinated Notes due 2013. We expect to pay distributions or make loans to affiliates as permitted by the indenture to fund cash needs for general business purposes, capital expenditures and acquisitions by Morris Communications and its other operating subsidiaries. Morris Communications anticipates capital expenditures of approximately $15.0 million and $10.0 million in 2004 and 2005 for MStar Solutions’ Shared Services Center and technology infrastructure. Although near term costs will increase as Morris Communications brings the Shared Services Center online, all of these initiatives, which are anticipated to be fully implemented by the end of 2005, are expected to result in aggregate annual cost savings of up to $10.0 million for the company. Any loans to

 

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Morris Communications or its operating subsidiaries are expected to be made at interest rates equal to our cost of borrowing under our new credit facilities. Any such loans may utilize borrowing capacity under our new credit facilities that may otherwise have been available for our business purposes. As of December 31, 2003, we had outstanding loans due from Morris Communications of $4.5 million.

 

We expect that our capital expenditures will approximate $20.0 to $25.0 million in 2004, 2005 and 2006, respectively. These amounts will be used primarily to upgrade existing production facilities and for new technology infrastructure at those locations.

 

Cash flows for the years ended December 31, 2003, 2002 and 2001

 

The following table presents our net cash flows provided by (used in) operating, investing and financing activities for the years 2003, 2002 and 2001.

 

                       Percentage
change over
prior year
 
(Dollars in thousands)   Years ended December 31:     

Years ended

December 31:

 

    2003     2002     2001      2003     2002  

 

Operating activities

  68.7     64.8     60.8      6.0 %   6.6 %

Investing activities

  (22.3 )   (16.8 )   (36.9 )    32.7 %   (54.5 )%

Financing activities

  (47.0 )   (48.2 )   (27.6 )    (2.5 )%   74.6 %
   

 

 

  

 

 

Operating activities.     Net cash flows provided by operating activities increased by $3.9 million to $68.7 million in 2003. The increase was primarily due to increases in accrued interest, accounts payable, post-retirement obligations, other liabilities and a decrease in inventories offset by increases in accounts receivable and other assets. Net cash flows provided by operating activities were $64.8 million and $60.8 million for the years ended December 31, 2002 and December 31, 2001, respectively. The $4.0 million increase in net cash flows was attributable to an increase in net income of $20.2 million caused primarily by a decrease in newsprint, ink and supplements expenses and interest expense, partially offset by a $13.9 million decrease in depreciation and amortization expense.

 

Investing activities.     Net cash flows used in investing activities increased by $5.5 million to $22.3 million in 2003. During 2003, cash required for investing activities was primarily for the purchase of $17.7 million of property, plant and equipment, and a loan to our parent of $4.5 million. Net cash flows used in investing activities were $16.8 million and $36.9 million for the years ended December 31, 2002 and December 31, 2001, respectively. The decrease in net cash flows used of $20.1 million primarily resulted from proceeds of $11.9 million from the sale and subsequent leaseback of our Savannah production facility in 2002 compared to our 2001 purchase of the minority stake in Athens Newspapers, Inc. for $11.3 million. Our capital expenditures increased by $1.7 million in 2002, from $26.8 million in 2001.

 

Financing activities.     Net cash flows used in financing activities decreased by $1.2 million from $48.2 million in 2002 to $47.0 million in 2003. During 2003, the company repaid $516.0 million of debt due Morris Communications, and issued $525.0 million of long term debt. Additional debt issuance cost amounted to $12.7 million. We also made distributions to our parent of $43.3 million.

 

As of December 31, 2003, our total debt was $525.0 million and our annualized cost of debt capital was approximately 4.6%. Approximately $125.0 million could be borrowed and used for

 

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general corporate purposes under the most restrictive covenants in our debt arrangements. As of December 31, 2003, our parent and we were in compliance with all covenants under our debt arrangements.

 

Net cash flows used in financing activities were $48.2 million and $27.6 million for the years ended December 31, 2002 and December 31, 2001, respectively. The change in net cash flows resulted from reduced repayments of long-term borrowings to our parent, which was more than offset by increased distributions to our parent.

 

As of December 31, 2002, our total debt was $516.0 million and our cost of debt capital was approximately 4.5%. Approximately $84.0 million could be borrowed and used for general corporate purposes under the most restrictive covenants in our debt arrangements. As of December 31, 2002, we and our parent were in compliance with all covenants under our debt arrangements.

 

 

Inflation

 

The impact of inflation on our operations was immaterial for all periods presented. In the past the effects of inflation on operating expenses have been substantially offset by our ability to increase advertising rates. No assurances can be given that we can pass such cost increases through to our customers in the future.

 

Seasonality

 

Newspaper companies tend to follow a distinct and recurring seasonal pattern. The first quarter of the year tends to be the weakest quarter because advertising volume is then at its lowest level. Correspondingly, the fourth quarter tends to be the strongest quarter as it includes heavy holiday season advertising. As a result, our consolidated results may not be comparable from quarter to quarter.

 

Quantitative and qualitative disclosures about market risk

 

We are exposed to the impact of changes in interest rates. In the normal course of business, we have insured against spikes in interest rates through the use of interest rate caps. The table below provides the expected maturity and fair value of the our debt (dollars in thousands) as of December 31, 2003. See Note 5 to our consolidated financial statements for December 31, 2003, 2002 and 2001.

 

Contractual obligations

 

 

At December 31, 2003 the aggregate maturities on our long term debt for the next five years and thereafter are as follows:

 

(Dollars in thousands)         Payments due by period

 
Contractual obligations   Balance at
December 31,
2003
    Less
than
1 year
    1-3
years
    4-5
years
   

Over

5 years

 

 

Long-term debt at variable rates

  $ 225,000     $ 563     $ 4,500     $ 4,500     $ 215,437  

Interest rate at December 31, 2003

    3.4 %     3.4 %     3.4 %     3.4 %     3.4 %

Long-term debt at fixed rate

  $ 300,000       —         —         —       $ 300,000  

Interest rate

    7 %     —         —         —         7 %

Operating leases to Morris Communications and affiliates

  $ 10,175     $ 1,100     $ 2,200     $ 2,200     $ 4,675  

Other operating leases

  $ 1,084     $ 1,054     $ 30       —         —    
   


 


 


 


 


Total payments due

  $ 536,259     $ 2,717     $ 6,730     $ 6,700     $ 520,675  
   


 


 


 


 


 

 

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At December 31, 2003, under our $400.0 million bank credit facilities, we had a $225.0 million term loan outstanding and had no outstanding amounts under the $175.0 million revolving credit facility. The interest rates on loans under our bank credit facilities are determined with reference to a spread above either LIBOR, the federal funds rate or JPMorgan Chase Bank’s prime lending rate. The spread applicable to any borrowings under our revolving credit facility is determined by reference to our trailing total debt to cash flow ratio. For further details on the interest rate alternatives and spreads, see “Description of other indebtedness.”

 

Because LIBOR, the federal funds rate or the JPMorgan Chase Prime Rate may increase or decrease at any time, we are exposed to market risk as a result of the impact that changes in these base rates may have on the interest rate applicable to borrowings under the bank credit facilities. Increases in the interest rates applicable to borrowings under the bank credit facilities would result in increased interest expense and a reduction in our net income. As of December 31, 2003, the interest rate on our term loan was 3.4375%, base upon a spread above LIBOR. For each 100-basis point increase in LIBOR, the annual interest payable on our $225.0 variable rate term loan would increase $2.25 million (assuming that the applicable federal funds rate would not produce a lower effective interest rate).

 

Under the terms of our senior secured credit facility, we must maintain certain levels of interest rate protection. The following interest rate caps were owned or held for our benefit as of December 31, 2003 (dollars in thousands):

 


 

Notional

     Expiring   Strike

$  45,000      January 2004   Three-month LIBOR 8%
  100,000      February 2004   Three-month LIBOR 7%
    25,000      April 2005   One-month LIBOR 7%

          
$170,000           

          

 

Although these interest rate caps are effective as hedges from an economic perspective, they do not qualify for hedge accounting under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended. The fair value of these interest rate caps as of December 31, 2003 was nominal, and the losses recorded for the three year period ended December 31, 2003 was nominal.

 

Recent accounting pronouncements

 

In November 2002, the FASB issued FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others an Interpretation of SFAS No. 5, 57, and 107, and rescission of FASB Interpretation No. 34.” The interpretation elaborates on the disclosures to be made by a guarantor in its financial statements. It also requires a guarantor to recognize a liability for the fair market value of the obligation undertaken in issuing the guarantee at the inception of the guarantee. The initial recognition and measurement provisions are effective for guarantees issued or modified after December 31, 2002. This interpretation is not expected to have a material effect on our financial position, results of operations, or cash flows.

 

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In January 2003, as revised in December 2003, the FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51. The interpretation requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional financial support from other parties. This interpretation is effective for the periods ending after December 15, 2003 for certain types of entities and after March 15, 2004 for other types of entities. This interpretation is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.

 

 

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Business

 

General

 

Morris Publishing is a private company owned by the William S. Morris III family as part of their Morris Communications group of companies. The Morris Publishing Group consists of 26 daily, ten non-daily and 23 free community newspapers in the United States. For the year 2003, our newspapers had unaudited average daily and Sunday paid circulation aggregating 686,754 and 765,871, respectively. Our largest newspapers (with their respective average daily circulations in parentheses) are The Florida Times-Union, Jacksonville, Florida (167,229), The Augusta Chronicle , Georgia (74,291), The Topeka Capital-Journal, Kansas (58,684), Savannah Morning News , Georgia (55,119), Lubbock Avalanche-Journal , Texas (54,178) and Amarillo Globe-News, Texas (51,800). For the year of 2003, we also had weekly circulation of 51,538 non-daily newspapers and 390,588 free community newspapers or shoppers, in communities in or near our daily newspapers.

 

Our newspapers are geographically diverse, primarily serving mid-sized to small communities in Florida, Georgia, Texas, Kansas, Nebraska, Oklahoma, Michigan, Missouri, Minnesota, Alaska, Arkansas, South Dakota, Tennessee and South Carolina. The majority of our daily newspapers have no significant competition from other local daily newspapers in their respective communities.

 

We have been consistently profitable in varying economic climates, with generally stable operating results. Our total operating revenues for 2003 were $438.3 million and have ranged between $433.4 million and $455.4 million for each year since 1999. Operating income was $79.6 million in 2003 and has ranged between $68.4 million and $88.3 million since 1999. Our operating margin was 18.2% in 2003 and has ranged between 15.6% and 20.4% since 1999.

 

We have one reporting segment with two primary sources of revenue: Advertising and Circulation. In 2003, the advertising segment represented 79.6% of total operating revenues. Retail, Classified and National advertising revenue represented 43.2%, 30.7%, and 5.7%, respectively, of total advertising revenue. Circulation revenue comprised 16.3% of total operating revenue.

 

Advertising revenue is primarily determined by the linage, rate and mix of advertisement. The advertising rate depends largely on our market reach, primarily through circulation, and market dominance. Circulation revenue is based on the number of copies sold

 

History

 

Morris Publishing was formed in 2001 as “MCC Newspapers, LLC” to own and operate the newspaper business historically operated by our parent, Morris Communications. Discussions of Morris Publishing and our results of operations include the business as previously conducted by the Morris Communications newspaper business segment. We changed our name to Morris Publishing Group, LLC in July 2003.

 

William S. Morris III joined our business in the 1950s and has been our chairman for more than three decades. William S. Morris IV, his elder son, is president and CEO of Morris Publishing. The Morris family became involved with The Augusta Chronicle in 1929, when William S. Morris, Jr., father of today’s chairman, became a bookkeeper at the daily newspaper, which was started in 1785 as the Augusta Gazette , the town’s first newspaper. Mr. Morris, Jr. purchased The Augusta Chronicle in the early 1940s with a partner, and later purchased his partner’s half interest.

 

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With the Augusta newspapers as a base, our expansion commenced in the 1950s with the purchase of a television station in Augusta and an initial public offering of common shares, which were re-purchased in 1959. In the 1960s, we sold the television station and purchased two other daily newspapers in Georgia—one in Savannah and one in Athens. In 1972, we purchased our Texas newspapers in Amarillo and Lubbock. In 1983, we acquired The Florida Publishing Company, which included The Florida Times-Union and other Florida newspapers.

 

Our expansion continued in 1995 with the purchase of all of the outstanding stock of Stauffer Communications, Inc. This purchase included 20 daily newspapers, non-daily newspapers and shoppers, as well as television and radio stations and other properties that are owned, or have been disposed of, by Morris Communications or its other operating subsidiaries.

 

Operating strategy

 

Our strategy is to increase our revenues and cash flows by growing market share and operating efficiently. Achieving this strategy is based upon the following initiatives:

 

  ·   Being a leader in providing local information and advertising .    We believe we are the trusted source of local news and information and local advertising in the communities we serve. As the leading provider of local news and information in print and online formats in our markets, we believe we can both maintain and increase our readership and our share of local advertising expenditures.

 

  ·   Increasing readership .    We are committed to maintaining the high quality of our newspapers and their editorial integrity to assure continued reader loyalty. Through extensive market research we strive to deliver the service and content each of our markets demand. Our newspapers have won various editorial awards in many of our markets. Furthermore, by introducing niche publications that address the needs of targeted groups and by offering earlier delivery times, we continue to create opportunities to introduce new readers to our newspapers.

 

  ·   Growing advertising revenue.     Through targeted market research we attempt to understand the needs of our advertisers. This market understanding enables us to develop programs that address the individual needs of our advertisers and to appeal to targeted groups of advertisers and readers with niche publications addressing specific areas such as real estate, automobiles, employment, farming, nursing, antiques, college student guides, foreign language and other items of local interest. In addition, we are dedicated to establishing a better trained and focused sales staff.

 

We expect these initiatives, combined with our focus on increasing readership, to enhance our opportunities to increase our revenues.

 

  ·   Enhancing online initiatives.     To further support our readership and revenue growth initiatives, we have made a substantial commitment to enhancing our local web sites that complement all of our daily newspapers. Over the last four years, our newspapers have won 21 national Digital Edge awards from the Newspaper Association of America. We continue to pursue various initiatives to attract new readers and grow revenues.

 

  ·  

Centralizing operations to support multiple publications.     We create synergies and cost savings, including through cross-selling of advertising, centralizing news gathering and consolidating printing, production and back-office activities. This involves producing our weekly newspapers, free distribution shoppers and additional niche or regional

 

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publications using the facilities of our daily newspapers. We can thereby improve distribution, introduce new products and services in a cost-effective manner and increase readership, offering advertisers expanded reach both geographically and demographically.

 

  ·   Focusing on cost control.     We continue to focus on managing our operating costs. Recent initiatives to further reduce costs include creation, beginning in 2002, of a Shared Services Center, established by Morris Communications, serving Morris Publishing as well as other Morris Communications’ companies, which we expect over time to create cost synergies by leveraging technologies and simplifying, standardizing and centralizing most administrative functions, thereby reducing our headcount. Beginning in the fourth quarter of 2002 we began participation in a newsprint purchasing consortium. While initially near term costs will increase as we bring the Shared Services Center online, all of these initiatives, which are anticipated to be fully implemented by the end of 2005, are expected to result in aggregate annual cost savings of up to $10.0 million.

 

  ·   Investing in strategic technologies.     In conjunction with the Shared Services Center initiative, we will utilize technology to help streamline our back-office operations, improve efficiency and reduce employee headcount. Additionally, we continue to explore technologies that will enable us to more efficiently print, produce and deliver our newspapers.

 

Our operating strategy may not successfully increase revenues and cash flows, based upon a number of factors. For example, a decline in economic conditions, the effects of competition from newspapers or other forms of advertising, or a decrease in the price of local or national advertising could adversely impact our advertising revenues. Our circulation may be adversely effected by competition from other publications and other forms of media and a declining number of regular newspapers buyers. A decline in circulation could adversely impact both our circulation revenue and our advertising revenue, because advertising rates are dependent upon readership. Further, our efforts to control costs, especially newsprint costs, and to create operating synergies may not be as successful as we anticipate. For further discussion of these and other risks relating to our business and operating strategy, see “Risk factors” beginning on page 14.

 

Strategic acquisitions

 

We may, from time to time, seek strategic or targeted investments, including newspaper acquisitions and dispositions and, in that regard, we periodically review newspaper and other acquisition candidates that we believe are underperforming in terms of operating cash flows, are in the same geographic region as one of our existing newspapers where we can achieve an efficient operating cluster of newspapers, or otherwise present us with strategic opportunities for growth. Acquisitions would be made only in circumstances in which management believes that such acquisitions would contribute to our overall growth strategy, whether through revenue growth or cost reduction opportunities, and represent attractive values based on price. In addition, we may, in connection with such acquisitions, or otherwise, dispose of or realign our newspapers and this could be accomplished by dispositions, swaps, the exchange of one newspaper for another newspaper, or joint ventures in which we and others may contribute newspaper properties to be owned and operated through a joint venture. We may not control such joint ventures and any contribution of assets to a joint venture may reduce our ability to access cash from those assets contributed to the joint venture. Morris Publishing currently has no present commitments with respect to any material acquisitions, dispositions or joint ventures.

 

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Industry background

 

Key revenue drivers

 

The newspaper industry is reported to generate annual revenues of approximately $60.0 billion primarily based on advertising and circulation. For typical newspapers, 70-75% of their total revenue is derived from advertising, while 15-20% comes from circulation. Other sources account for 5-15%. Other revenue streams may include commercial printing, shoppers and magazines, direct marketing and online revenues, including advertising and website development.

 

While newspaper revenue is directly impacted by the level of advertising, it is indirectly impacted by market conditions and factors like demand and interest rates. Newspaper companies can affect, to some extent, the demand for advertising by influencing circulation and readership, and by adjusting advertising rates, sales efforts and customer service.

 

There are three major classifications of newspaper advertising:  retail, classified, and national.

 

  ·   Retail advertising, also called local advertising, makes up approximately 48% of total newspaper advertising. Department and discount stores, grocery and drug stores, and furniture and appliance stores are the main advertisers in this category.

 

  ·   Classified advertising includes employment, real estate, automotive and other categories, and comprises approximately 36% of total advertising; it is the most cyclical type of newspaper advertising.

 

  ·   National advertising, also known as general advertising, includes manufacturers’ product advertising and travel and resorts. This category is the smallest, comprising approximately 16% of the total, and carries the highest rates.

 

Of rising importance across these classifications, is the preprint insert advertising. Preprints have become the dominant form of display advertising in the industry, with preprint revenue surpassing revenue from in-paper or “Run of Press” advertising in the late 1990s.

 

In the past decade, newspapers in general have been reported to have increased advertising revenue but lost advertising market share. In 1990, the newspaper industry was reported to capture $32.0 billion in advertising revenue and to have garnered a 24.8% share of advertising market expenditures; revenue was reported to rise to $44.0 billion in 2002, but advertising market share was reported to decline to 18.6% in 2002. While newspapers may continue to lose advertising market share to other media, we believe newspapers should remain competitive. Local newspapers still reach 54% of adults and there is one daily newspaper in most markets.

 

Key cost drivers

 

The two largest costs of a newspaper are labor and newsprint.

 

Labor:   Labor costs represent approximately 30-40% of total revenues. Total industry employment steadily declined in the 1990s, as significant investment in more automated production methods has led to efficiencies and higher productivity per worker. However, industry-wide medical health care insurance and pension benefit costs are rising.

 

Newsprint:   Newsprint costs represent approximately 10-15% of newspapers’ total revenues, and supply and demand have typically controlled pricing. Since 1990, quarterly average newsprint costs ranged from $420.0 to $740.0 per metric ton and averaged $534.0 per metric ton during the same period. Newsprint prices were down 20% on average in 2002 compared to 2001. Newsprint prices increased by almost 20% on average in 2003 compared to 2002.

 

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Newspapers continue to face volatile newsprint prices. In the first half of 2001, newsprint prices in the U.S. were at their highest point since mid-1996. Prices dropped to their lowest level in a decade in mid-2002, but have trended upward since then. Much of the newsprint consumed in the U.S. comes from Canada and a rise in the value of the Canadian dollar combined with production curtailments may offset stable demand and drive prices higher in the near term.

 

 

Circulation

 

Circulation is important to the newspaper industry in two ways. From an editorial perspective, increased circulation demonstrates the quality of the editorial product and the demand for the paper from readers. From a revenue perspective, advertisers are willing to pay higher rates for greater reach.

 

The newspaper industry has faced circulation and readership declines since the 1980s. Over the past 20 years, the total number of daily newspapers has decreased from 1,745 in 1980 to 1,468 in 2001. The drop is largely due to a 49% decline in evening newspapers, principally because of the emergence of nightly news broadcasts, 24-hour news channels, and the internet. The total number of morning newspapers has doubled and Sunday newspapers have increased by 24%.

 

The advertising recession over the past two years has driven publishing companies to significantly reduce their operating costs. Consequently, the industry is experiencing a trend towards consolidation. By owning multiple properties in specific markets, newspaper publishers can spread costs and achieve greater efficiencies. The 25 largest U.S. newspapers (in terms of largest reported circulation) are reported to have accounted for approximately 40% of circulation in 2002. The top 10 newspaper companies are reported to own more than 280 newspapers, whose combined circulation accounts for roughly 57% of the industry’s total.

 

Recently enacted telemarketing rules adopted by the Federal Trade commission and Federal Communications Commission, including the National Do-Not-Call Registry and regulations will have an impact on our ability to source subscriptions through telemarketing. This has accounted for an estimated 30% of our new starts in circulation. We have begun several programs to offset the effect of this legislation. We are focusing on retaining current customers through stronger retention efforts. Our retention efforts include increased customer service, lengthening the subscriptions periods for new and existing customers, and enhanced payment methods. Additionally, we are focusing our circulation sales efforts on kiosk sales, newspaper in education programs, and third party sales. While we know that the legislation will have an impact on our ability to source subscriptions through telemarketing, we have yet to determine the extent.

 

Online

 

The internet provides an additional medium through which newspapers reach audiences, and newspapers have ventured online to increase readership and leverage their local brands.

 

Forty-nine percent of internet users looking for local news are reported to turn to online newspapers; this has helped newspapers secure a reported 40% of local online advertising spending. Broadcast television and direct mail are reported to have collected 3% and less than 1%, respectively, of internet revenues last year.

 

The majority of local online advertising dollars comes from classifieds. While online employment classifieds have taken share from newspaper classifieds, the number of those who read newspaper employment advertisements is reported to still exceed web job classified visitors by a factor of

 

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three. Though the largest online employment classified player, Monster.com, made a strong entry into the recruitment market, newspapers have the ability to combine print and online ads into one package, while Monster.com offers only an online component. This dual product offering, in addition to newspapers’ ties to local communities, gives newspapers a distinct advantage in local markets.

 

Industry and market data

 

Unless otherwise indicated, information contained in this prospectus concerning the newspaper industry, our general expectations concerning the industry and its segments and our market position and market share within the industry and its segments are derived from data from various third party sources as well as management estimates. Management’s estimates are derived from third party sources as well as data from our internal research and from assumptions made by us, based on such data and our knowledge of the newspaper industry which we believe to be reasonable. We have not independently verified any information from third party sources and cannot assure you of its accuracy or completeness. Our internal research has not been verified by any independent source. While we are not aware of any misstatements regarding any industry or similar data presented herein, such data involves risks and uncertainties, and is subject to change based on various factors, including those discussed under the caption “Risk factors” in this prospectus.

 

Data on our market position and market share within our industry is based, in part, on independent industry publications, government publications, reports by market research firms or other published independent sources, including Newspaper Association of America and Audit Bureau of Circulation statistics. Unless otherwise indicated, all readership information contained in this prospectus for non-daily newspapers and free community newspapers is based upon our internal records, and represents approximate current or average readership.

 

Unless otherwise indicated, all circulation information contained in this prospectus represents unaudited approximate three month average daily or non-daily circulation, as the case may be, for the third quarter of 2003 derived from our internal records. Certain of our circulation figures for most of our daily newspapers and one of our weekly newspapers are subject to audit by the Audit Bureau of Circulation or Verified Audit Circulation. Our circulation figures for our other daily and weekly newspapers are not subject to audit by the Audit Bureau of Circulation or any other independent source, but we attempt to internally measure their circulation figures under the same guidelines as if they were audited by the Audit Bureau of Circulation or Verified Audit Circulation.

 

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Newspapers

 

The following table sets forth our daily newspapers with circulation statistics:

 

           Audited circulation(a)

      

Unaudited circulation


Daily
newspaper
markets


         Audit period
(twelve months
ending)


                at December 31,
2003
    

Publication


    Daily

   Sunday

       Daily

  Sunday

Alaska

                                

Juneau

    

Juneau Empire

  —     —      —          6,206   6,937

Kenai

    

Peninsula Clarion

  —     —      —          6,090   6,320

Arkansas

                                

Conway

    

Log Cabin Democrat

  —     —      —          10,465   11,894

Florida

                                

Jacksonville

    

The Florida Times-Union

  June 2003   168,351    229,896        167,229       229,926

St. Augustine

    

The St. Augustine Record

  *June 2003   15,328    16,360        16,046   17,237

Winter Haven

    

News Chief

  —     —      —          9,009   8,939

Georgia

                                

Athens

    

Athens Banner—Herald

  March 2003   27,221    32,526        27,861   32,124

Augusta

    

The Augusta Chronicle

  March 2003   73,389    94,205        74,291   93,880

Savannah

    

Savannah Morning News

  March 2003   55,912    72,150        55,119   67,892

Kansas

                                

Dodge City

    

Dodge City Daily Globe

  —     —      —          7,284   —  

Newton

    

The Newton Kansan

  —     —      —          7,747   —  

Pittsburg

    

The Morning Sun

  —     —      —          8,751   9,184

Topeka

    

The Topeka Capital Journal

  June 2003   57,719    66,666        58,684   66,704

Michigan

                                

Hillsdale

    

Hillsdale Daily News

  —     —      —          7,565   —  

Holland

    

The Holland Sentinel

  *September 2002   18,813    20,229        18,979   20,267

Minnesota

                                

Brainerd

    

The Brainerd Daily Dispatch

  *March 2002   13,589    17,634        13,719   17,591

Missouri

                                

Hannibal

    

Hannibal Courier Post

  *March 2002   8,686    —          8,475   —  

Independence/

Blue Springs

    

The Examiners

  September 2003   13,625    —          14,362   —  

Nebraska

                                

Grand Island

    

The Grand Island Independent

  March 2003   23,307    24,839        22,896   24,652

York

    

York News-Times

  —     —      —          4,332   —  

Oklahoma

                                

Ardmore

    

The Daily Ardmoreite

  December 2003   10,721    12,791        10,851   12,891

Shawnee

    

The Shawnee News-Star

  *March 2002   9,805    10,889        9,832   10,830

South Dakota

                                

Yankton

    

Yankton Daily Press & Dakotan

  —     —      —          7,911   —  

Tennessee

                                

Oak Ridge

    

The Oak Ridger

  —     —      —          7,072   —  

Texas

                                

Amarillo

    

Amarillo Globe—News

  September 2003   51,871    65,054        51,800   65,344

Lubbock

    

Lubbock Avalanche—Journal

  September 2003   54,402    63,449        54,178

  63,259

Total

                           686,754   765,871
                            
 
                                  
(a)   Audits conducted by the the Audit Bureau of Circulation or Verified Audit Circulation.
*   Audited every two years.

 

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The following table sets forth our non-daily newspapers with circulation statistics:

 


              

Unaudited circulation—at
December 31, 2003

           
Newspaper markets         Publication    Weekly

Alaska

              

Homer

       

Homer News

   3,553

Georgia

              

Augusta(a)

       

The Columbia County News Times

   26,950

Louisville

       

The News & Farmer

   4,544

Thomson(b)

       

McDuffie Mirror

   1,499

Kansas

              

Dodge City

       

La Estrella

   4,100

Minnesota

              

Pequot Lakes

       

Lake Country Echo

   4,624

Pine River

       

Pine River Journal

   1,878

South Carolina

              

Ridgeland

       

Hardeeville Times

Jasper County Sun

   800
1,600

South Dakota

              

Vermillion

       

Vermillion Plain Talk

   1,990
              

Total

             51,538
              
                

(a)   On Wednesdays, 27,000 copies of The Columbia County News-Times are inserted into The Augusta Chronicle and distributed in Columbia County. On Sundays, 36,000 copies of The Columbia County News-Times are inserted into the Chronicle and distributed in Columbia and McDuffie Counties.

 

(b)   The McDuffie Mirror is a new publication that did not exist as of March 31, 2003. Paid circulation as of December 31, 2003 was 1,499 with an additional 2,843 copies delivered with The Augusta Chronicle home delivery in McDuffie County.

 

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Daily circulation and household penetration (average city-zone circulation divided by the number of city-zone households in the defined market area) in each of our newspaper markets is outlined in the table below:

 

      

Total circulation at

December 31, 2003

         Household penetration at
December 31, 2003
   
     

Newspaper markets


     Daily

     Sunday

         Daily      Sunday
               

Alaska

                               

Juneau

     6,206      6,937              36%          37%

Kenai

     6,090      6,320          34%      34%

Arkansas

                               

Conway

     10,465      11,894          34%      40%

Florida

                               

Jacksonville

     167,229      229,926          33%      48%

St. Augustine

     16,046      17,237          41%      46%

Winter Haven

     9,009      8,939          14%      15%

Georgia

                               

Athens

     27,681      32,124          31%      35%

Augusta

     74,291      93,880          43%      57%

Savannah

     55,119      67,892          45%      54%

Kansas

                               

Dodge City

     7,284      —            45%      —  

Newton

     7,747      —            60%      —  

Pittsburgh

     8,751      9,184          53%      54%

Topeka

     58,684      66,704          59%      58%

Michigan

                               

Hillsdale

     7,565      —            29%      —  

Holland

     18,979      20,267          39%      41%

Minnesota

                               

Brainerd

     13,719      17,591          57%      73%

Missouri

                               

Hannibal

     8,475      —            60%      —  

Independence/Blue Springs

     14,362      —            21%      —  

Nebraska

                               

Grand Island

     22,896      24,562          74%      78%

York

     4,332      —            61%      —  

Oklahoma

                               

Ardmore

     10,851      12,891          48%      52%

Shawnee

     9,832      10,830          38%      43%

South Dakota

                               

Yankton

     7,911      —            40%      —  

Tennessee

                               

Oak Ridge

     7,072      —            41%      —  

Texas

                               

Amarillo

     51,800      65,344          41%      54%

Lubbock

     54,178      63,259          40%      48%

Sources:    Individual newspaper circulation reports; Morris Communications Corporate Circulation Department reports; Household counts from SRC 2003.

 

Jacksonville.     The Florida Times-Union , which we have operated since 1983, is our largest newspaper with average daily circulation of 167,229 and serves the Jacksonville, Florida community of approximately 441,000 households with a population total of approximately 1.1 million. Moreover, an estimated 414,765 north Floridians read The Florida Times-Union daily, 560,065 read The Florida Times-Union on Sunday and 699,713 read The Florida Times-Union at least once in seven days. In this market, we publish various niche publications such as Jacksonville , a newcomer’s guide; and Water’s Edge , a lifestyle publication for affluent readers. We also publish three contract military publications, two of which have been awarded the highest Navy awards for excellence.

 

Augusta.     The Augusta Chronicle , which we have operated since the early 1940s, is our second largest newspaper with an average daily circulation of 74,291 and serves the Augusta, Georgia

 

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community of approximately 182,000 households with a population total of approximately 488,000. We expect continued growth in Augusta, through a city magazine, and a variety of targeted niche publications, as well as in the surrounding communities, through the purchase in 2003 of The News and Farmer, a weekly newspaper serving Louisville, Georgia, and the launch of the McDuffie Mirror , a new weekly publication serving Thomson, Georgia. In addition, we expect to launch new publications, including a women’s magazine and a youth publication. The Augusta Chronicle website has won awards for quality and creativity.

 

Topeka.     The Topeka Capital-Journal , which we have operated since 1995, has an average daily circulation of 58,684 and serves the Topeka, Kansas community of approximately 69,000 households with a population total of approximately 171,000. Through marketing partnerships with other Morris Communications subsidiaries, and through the development of more products such as Hers Kansas and Rock Kansas , The Topeka Capital-Journal has increased its daily and Sunday circulation.

 

The Topeka Capital-Journal also publishes a wide variety of books aimed at serving the community and its visitors, including a pictorial history of Topeka as well as several publications devoted to the University of Kansas sports teams. CJ Online , our online counterpart to The Topeka Capital-Journal , records over 48 million page views annually and has generated over $1.0 million in advertising revenues. CJ Online has won several prestigious awards, including being named the best newspaper internet site by the Newspaper Association of America and Editor and Publisher Magazine .

 

Savannah.     The Savannah Morning News , which we have operated since the 1960s, has an average daily circulation of 55,119 and serves the Savannah, Georgia community of approximately 114,000 households with a population total of approximately 299,000.

 

Lubbock.     The Lubbock Avalanche-Journal , which we have operated since 1972, has an average daily circulation of 54,178 and serves the Lubbock, Texas community of approximately 94,000 households with a total population of approximately 245,000. Lubbock Online , our online counterpart to The Lubbock Avalanche-Journal , records over 50 million page views annually and has generated over $1.0 million in advertising revenue annually.

 

Amarillo.     The Amarillo Globe-News , which we have operated since 1972, has an average daily circulation of 51,800 and serves the Amarillo, Texas community of approximately 84,000 households with a population total of approximately 217,000.

 

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The following table sets forth Morris Publishing’s free community newspapers and circulation:

 

Newspaper markets    Publication    Circulation

Florida

         

Bartow

  

Bartow Shopper

   2,100

Haines City

  

Auburndale Shopper

   5,050

Haines City

  

Ridge Shopper

   16,350

Lake Wales

  

Lake Whales Shopper

   17,025

Lakeland

  

Lakeland Shopper

   15,600

Winter Haven

  

Winter Haven Shopper

   9,000

Kansas

         

Dodge City

  

The Shopper’s Weekly

   21,000

Michigan

         

Allegan

  

Flashes Shopping Guide

   15,502

Holland

  

Flashes Shopping Guide

   27,775

Lakeshore

  

Flashes Shopping Guide

   8,793

Kalamazoo

  

Flashes Shopping Guide

   78,581

Quad Cities

  

Flashes Shopping Guide

   8,065

Zeeland

  

Flashes Shopping Guide

   17,002

Jonesville

  

Tip-Off Shopping Guide

   19,000

Minnesota

         

Pequot Lakes

  

Echoland Shopper

   24,500

Pine River

  

Piper Shopper

   14,000

Missouri

         

Oak Grove

  

Town & Country

   10,000

Nebraska

         

Grand Island

  

Mid-Nebraska Connections

   15,000

York

  

Trade & Transactions

   22,995

South Carolina

         

Bluffton

  

The Okatie Sun

   3,000

Ridgeland

  

The Jasper Shopper

   6,850

South Dakota

         

Yankton

  

Missouri Valley Shopper

   23,400

Vermillion

  

The Broadcaster

   10,000
         

Total

        390,588
         
           

 

Morris Publishing circulates free community papers to maximize penetration in certain communities.

 

Morris Publishing management

 

Morris Communications, our parent, provides management and related services to us, as well as its other operating subsidiaries. Currently, a significant portion of Morris Communications’ time is devoted to our affairs.

 

Morris Communications provides senior executive management services and personnel (including the services of Mr. Morris III, Mr. Morris IV, Craig S. Mitchell and Steve K. Stone), as well as general and administrative services such as legal, accounting, finance and treasury, tax, merger and acquisition, risk management, human resources/personnel, employee benefits, travel and aircraft usage, corporate communications, real estate, online services, architectural and engineering, and external and internal audit functions, purchasing and participation in the Shared Services Center operated by MStar Solutions, LLC, a subsidiary of Morris Communications.

 

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As compensation for these services, beginning August 7, 2003, Morris Communications is entitled to receive annual management fees (payable monthly) equal to the greater of 4.0% of our annual total operating revenues or the amount of actual expenses allocable to the management of our business (such allocations to be based upon time and resources spent on the management of our business by Morris Communications). Prior to August 7, 2003, Morris Communications’ costs of providing these services has been allocated among its operating divisions and our allocated share is reflected in our financial statements. From the year 2000 through August 7, 2003, our allocable costs for the services provided by Morris Communications have ranged from approximately 3.9% to 4.4% of our annual total operating revenues. In addition, as part of the initiatives commenced in 2002 to develop the Shared Services Center and technological platform, we also pay our allocable share (based upon usage) of the actual costs of operations of MStar Solutions.

 

The management agreement is for a term of 10 years. Morris Communications may terminate the agreement if Morris Publishing fails to pay the fees or experiences a change in control. We may terminate the agreement if Morris Communications fails to cure a material breach, performs dishonestly, files bankruptcy, or in certain other events.

 

Employee Relations

 

Morris Publishing employs approximately 3,950 full-time and 1,100 part-time employees, none of whom are covered by collective bargaining agreements. We believe that our relations with our employees are generally good.

 

Seasonality

 

Newspaper companies tend to follow a distinct and recurring seasonal pattern. The first quarter of the year tends to be the weakest quarter because advertising volume is then at its lowest level. Correspondingly, the fourth quarter tends to be the strongest quarter as it includes holiday season advertising.

 

Competition

 

While most of our daily newspapers are the only daily newspapers of general circulation published in their respective communities, they do compete within their own geographic areas with other weekly newspapers in their own or adjacent communities, other daily newspapers of general circulation published in adjacent or nearby cities and towns, as well as regional and national newspapers. Competition for advertising and paid circulation comes from local, regional and national newspapers, shoppers, radio and television broadcasters, cable television (national and local), direct mail, electronic media, including the internet, and other forms of communication and advertising media that operate in our markets. Competition for advertising revenue (the aggregate amounts of which is largely driven by national and regional general economic conditions) is largely based upon advertiser results, readership, advertising rates, demographics and circulation levels, while competition for circulation and readership is based largely upon the content of the newspaper, its price and the effectiveness of its distribution. Our non-daily publications, including shoppers, compete primarily with direct mail advertising, shared mail packages and other private advertising delivery services.

 

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Property and equipment

 

Management believes that all of our properties are in generally good condition and suitable for current operations. Our executive offices are located in Augusta, Georgia. Our main facilities are shown on the following table. Our production facilities, which are indicated by the presence of a press line, are in most cases, newspaper office facilities as well. We own all of the following facilities except the facilities located on Chatham Parkway in Savannah, Georgia, which are operated under a long-term operating lease with an affiliate. See “Certain relationships and related transactions.”

 

State


     

City


     
          Sq. ft.

     
 

Press

lines


Alaska

      Homer                   2,418          

Alaska

      Kenai                   19,307           1

Alaska

      Juneau                   55,045           1

Arkansas

      Conway                   20,431           1

Florida

      St. Augustine                   55,264           1

Florida

      Jacksonville                   328,106           4

Florida

      Winter Haven                   24,399           2

Georgia

      Athens                   110,000           1

Georgia

      Augusta                   159,758           1

Georgia

      Louisville                   2,500          

Georgia

      Savannah                   145,000           2

Georgia

      Savannah                   46,746          

Kansas

      Topeka                   153,467           1

Kansas

      Pittsburg                   13,950           1

Kansas

      Newton                   10,304           1

Kansas

      Dodge City                   23,700           1

Michigan

      Allegan                   48,000           2

Michigan

      Hillsdale                   11,552           1

Michigan

      Holland                   23,919           1

Minnesota

      Brainerd                   25,500           1

Minnesota

      Pine River                   1,750          

Minnesota

      Pequot Lakes                   4,563          

Missouri

      Hannibal                   18,602           1

Missouri

      Independence                   32,000           1

Nebraska

      York                   5,950           1

Nebraska

      Grand Island                   28,680           1

Oklahoma

      Ardmore                   51,339           1

Oklahoma

      Shawnee                   30,958           1

South Carolina

      Ridgeland                   1,500          

South Dakota

      Vermillion                   7,200           1

South Dakota

      Yankton                   13,778           1

Tennessee

      Oak Ridge                   29,700           1

Texas

      Amarillo                   84,251           1

Texas

      Lubbock                   160,644           1

 

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Legal proceedings

 

From time to time, we are involved in litigation in the ordinary course of our business. In our opinion, the outcome of any pending legal proceedings will not have a material adverse impact on our financial position or results of operations.

 

Regulatory matters

 

FCC ownership rules.     Morris Communications, our parent, owns other subsidiaries which in turn own radio broadcast licenses which are subject to regulation by the Federal Communications Commission (“FCC”) under the Communications Act of 1934, as amended (the “Communications Act”). The ownership by such entities of radio broadcast licenses may limit our opportunity to acquire additional newspapers in certain geographic locations.

 

FCC rules include restrictions on the common ownership or control of interests in radio stations and certain other media interests in the same market, including television and radio broadcast stations, as well as daily newspapers.

 

On June 2, 2003, the FCC by a three-to-two vote adopted new ownership rules, which make significant changes to the previous rules. The United States Court of Appeals for the Third Circuit has stayed the effective date of these new rules, however, pending the outcome of litigation concerning them. In the interim, the ban on common ownership of radio stations and newspapers in the same market remains in effect, as do the FCC restrictions on same-market radio and television combinations. Should they take effect, the new rules will include the following generally less restrictive provisions:

 

  ·   Cross-Media Limits

 

The new FCC rules eliminate the prior prohibition on broadcast-newspaper cross ownership and radio-television cross ownership rules and adopt the following less restrictive “cross-media limits”:

 

- In markets with nine or more TV stations, there will be no FCC restriction on newspaper-broadcast cross-ownership or television-radio cross-ownership.

 

- In markets with four to eight TV stations, combinations will be limited so as to permit ownership of the following: a) daily newspapers, one TV station and up to one-half of the radio station limit for that market; or b) daily newspapers and up to the radio station limit for that market (but no TV stations); or c) two TV stations (if permitted under the local TV ownership rule), and up to the radio station limit for that market (but no daily newspapers).

 

- In markets with three or fewer TV stations, no cross-ownership will be permitted among TV, radio and newspapers, but a company may seek a waiver of the ban if it can show that the cross-owned properties do not serve the same area. In addition, waivers may be available if it can be shown that the combination will increase the availability of local news.

 

Morris Communications’ subsidiaries currently hold, under waivers granted by the FCC, radio broadcast licenses in two of Morris Publishing’s newspaper markets: Amarillo, Texas and Topeka, Kansas. A subsidiary of Morris Communications has also received from the FCC a twelve month waiver to hold a radio broadcast license for a station it expects to acquire with a service contour that includes Newton, Kansas, which is also one of our newspaper markets. Should the revised ownership rules adopted by the FCC withstand court and Congressional challenges and become effective, we believe that the radio broadcast licenses held for these locations will be able to

 

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continue to be held without waivers. If, however, the court challenge seeking to overturn the rules is successful or if Congress were to overturn the new ownership rules or to impose new limitations on newspaper-broadcast cross-ownership, Morris Communications and Morris Publishing might need to divest either their radio broadcast licenses for these markets or their newspaper interests in these markets. Further, FCC cross-ownership rules may have the effect of preventing us from pursuing or consummating a newspaper acquisition that our management would have otherwise pursued in markets in which Morris Communications owns radio stations.

 

  ·   Local Radio Ownership Limit

 

With respect to local radio ownership, the FCC limits the number of radio stations that a single entity may own in a single market. The new rule retains the current limits on local radio ownership, but modifies the methodology for defining a radio market. The signal contour method of defining local radio markets would be replaced with a geographic approach assigned by Arbitron. The FCC has initiated a rulemaking proceeding seeking comment on how to define, under its new rules, radio markets not ranked by Arbitron.

 

Numerous parties filed appeals of the FCC’s new rules, and the U.S. Court of Appeals for the Third Circuit has issued a stay pending the outcome of litigation. Thus, it could be some time, if ever, before the FCC’s new rules take effect. In addition, legislation has been proposed in Congress to codify certain of the existing FCC ownership rules and/or to overturn certain of the new FCC ownership rules and/or to impose new limitations on newspaper-broadcast cross-ownership.

 

The U.S. Congress and the FCC currently have under consideration, and may in the future adopt, new laws, regulations and policies regarding a wide variety of matters that could, directly or indirectly, materially adversely affect the operation and ownership of Morris Publishing. Morris Publishing is unable to predict the outcome of future federal legislation or the impact of any such laws or regulations on our operations.

 

Environmental matters

 

Our newspapers use inks, photographic chemicals, solvents and fuels. The use, management and disposal of these substances and our operations in general are regulated by federal, state, local and foreign environmental laws and regulations including those regarding the discharge, emission, storage, treatment, handling and disposal of hazardous or toxic substances as well as remediation of contaminated soil and groundwater. These laws and regulations impose significant capital and operating costs on our business and there are significant penalties for violations.

 

Certain environmental laws hold current owners or operators of land or businesses liable for their own and for previous owners’ or operators’ releases of hazardous or toxic substances. Because of our operations, the long history of industrial operations at some of our facilities, the operations of predecessor owners or operators of certain of our businesses, and the use, production and release of regulated materials at these sites and at surrounding sites, we may be subject to liability under these environmental laws. Many of our facilities have never been subjected to phase I environmental audits. Various facilities of ours have experienced some level of regulatory scrutiny in the past and are, or may become, subject to further regulatory inspections, future requests for investigation or liability for past practices.

 

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The federal Comprehensive Environmental Response, Compensation & Liability Act of 1980 as amended (“CERCLA”) and similar state counterpart acts, provide for strict, and under certain circumstances, joint and several liability, for among other things, generators of hazardous substances disposed of at contaminated sites. We have received requests for information or notifications of potential liability from the United States Environmental Protection Agency under CERCLA and states under counterpart acts for a few off-site locations. We have not incurred any significant costs relating to these matters and we have no information to suggest that we will incur material costs in the future in responding to conditions at these sites.

 

The nature of our operations exposes us to certain risks of liabilities and claims with respect to environmental matters. We believe our operations are currently in material compliance with applicable environmental laws and regulations. In many jurisdictions, environmental requirements may be expected to become more stringent in the future which could affect our ability to obtain or maintain necessary authorizations and approvals or result in increased environmental compliance costs.

 

We do not believe that environmental compliance requirements are likely to have a material effect on us. We cannot predict what additional environmental legislation or regulations will be enacted in the future or how existing or future laws or regulations will be administered or interpreted, or the amount of future expenditures that may be required in order to comply with these laws. There can be no assurance that future environmental compliance obligations or discovery of new conditions will not arise in connection with our operations or facilities and that these would not have a material adverse effect on our business, financial condition or results of operations.

 

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Management

 

Directors and executive officers

 

The following table sets forth certain information with respect to our directors and executive officers:

 

Name    Age    Years in
newspaper
business
   Title

William S. Morris III

   69    47   

Chairman of the Board of Directors

William S. Morris IV

   44    14   

CEO, President and Director

Craig S. Mitchell

   45    10   

Director, Senior Vice President—Finance, Secretary and Treasurer

Carl N. Cannon

   60    39   

Executive Vice President

James C. Currow

   60    40   

Executive Vice President

Steve K. Stone

   51    25   

Senior Vice President—Chief Financial Officer

Susie Morris Baker

   36    11   

Director, Vice President

J. Tyler Morris

   41    15   

Director

Mary E. Morris

   70    8   

Director

 

Our directors and executive officers are elected by, and serve at the discretion of, Morris Communications, which can add, remove and replace them at any time. References to service as directors and executive officers for periods prior to the formation of Morris Publishing in 2001 are to positions with our corporate predecessors in the newspaper business. These individuals also hold the same positions in the co-issuer, Morris Publishing Finance Co. The board of directors does not have any committees.

 

William S. Morris III —Mr. Morris has served as chairman of our board of directors for at least 30 years. Mr. Morris is the chairman of Morris Communications, Shivers Trading & Operating Company, our ultimate parent, and its other subsidiaries and is also the chief executive officer of all of these companies except Morris Publishing and its subsidiaries. Mr. Morris is active in community and state affairs, as well as in the newspaper and outdoor advertising industry and has recently completed a tenor as Chairman of the Newspaper Association of America. Mr. Morris has a journalism degree from the University of Georgia and has been in the newspaper business all of his working career.

 

William S. Morris IV —Mr. Morris has been our president since 1996, our chief executive officer since 2001, and a director since 1996 and is also a director and the president of Morris Communications, Shivers Trading & Operating Company, our ultimate parent, and its other subsidiaries. He joined the family business in 1990 and prior to becoming our president has served as assistant to the president. Prior to that he served as assistant to the general manager, general manager and publisher of various of our newspapers and magazines. Prior to joining us, Mr. Morris worked for United Yellow Pages, Inc., selling independent telephone advertising and Gannett Outdoor Group in the leasing department and as national sales manager. He graduated from Emory University in 1983 with a degree in economics.

 

Craig S. Mitchell —Mr. Mitchell became senior vice president-finance in November 2003 and has served as vice president-finance, secretary and treasurer since 1999 and as a director since 1999.

 

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He holds similar positions with Morris Communications, Shivers Trading & Operating Company, our ultimate parent, and its other subsidiaries. Prior to joining Morris Publishing, Mr. Mitchell was employed by Deloitte Haskins & Sells in its tax department and by President Baking Company as its treasurer. Mr. Mitchell holds an accounting degree from Augusta College and a Master of Accountancy (tax option) from the University of Georgia.

 

Carl N. Cannon —Mr. Cannon became executive vice president in November 2003 and has served as vice president-newspapers with responsibility for our Florida publishing group and our eastern community newspapers division, including The Florida Times-Union , our largest publication, since 1991. Prior to that Mr. Cannon held numerous management positions with us in Georgia, Texas, and Florida. He has a degree in journalism from the University of Georgia and has spent his entire business career with Morris Publishing.

 

James C. Currow —Mr. Currow became executive vice president in November 2003 and has served as vice president-newspapers with responsibility for our metro newspapers outside of Florida and for our western community newspapers since 1998. Prior to joining us, Mr. Currow started a newspaper management consulting firm and also served as vice president of Sales and Marketing at The Miami Herald , and as president and chief executive officer of Milwaukee Journal and Sentinel . In April 1997, he was named senior vice president and chief marketing officer of the Newspaper Association of America. Mr. Currow serves on the Board of the Newspaper Association of America, chairs the Marketing Committee and serves on the Executive Committee. Mr. Currow holds a B.S. degree in management from Charleston Southern University and is a 1992 graduate of the Harvard Business School Advanced Management Program.

 

Steve K. Stone —Mr. Stone became senior vice president in November 2003 and has served as our vice president and chief financial officer-newspapers and has been the head of MStar Solutions, LLC, the Morris Communications subsidiary operating the Shared Services Center since 2002. Mr. Stone has 24 years experience in the newspaper industry and prior to joining us in 2002, Mr. Stone was Assistant Vice President/Shared Services for Knight Ridder, Inc. He has also served as Vice President/Chief Financial Officer for the Charlotte Observer , Director of Finance/Controller for The Miami Herald , and held various financial positions at the San Jose Mercury News , Columbus Ledger-Inquirer and the Wichita Eagle Beacon . Mr. Stone holds a BBA degree from Southwestern College.

 

Susie Morris Baker —Mrs. Baker has been a director and vice president of newspapers since 1999 and is also a director of Morris Communications, Shivers Trading & Operating Company, our ultimate parent, and its other subsidiaries. She has also served as vice president of the Alaska newspapers for Morris Publishing, with responsibility for the Juneau Empire , the Peninsula Clarion in Kenai, and The Alaska Journal of Commerce and Alaskan Equipment Trader in Anchorage. Prior to that, Mrs. Baker was the publisher of the Quarter Horse News and Barrel Horse News in Fort Worth, Texas and publisher of the Peninsula Clarion . Mrs. Baker received a B.A. from Mary Baldwin College in Staunton, Virginia in 1990 and received a master’s degree in business administration from Southern Methodist University in Dallas, Texas in 1998.

 

J. Tyler Morris —J. Tyler Morris has been a director since 1996 and is also a director of Morris Communications, Shivers Trading & Operating Company, our ultimate parent, and its other subsidiaries. He has served as the vice president of the Morris Communications’ Cowboy Publishing Group in the magazine division. He is currently chairman, president and chief executive officer of Texas Aerospace Services in Abilene, Texas. Prior to that he worked at Lubbock Avalanche-Journal and Gray’s Sporting Journal and at the Fort Worth Star-Telegram . Mr. Morris graduated from the University of Georgia in 1987 with a degree in journalism.

 

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Mary E. Morris —Mrs. Morris has been a director of Morris Publishing since 1996 and is also a director of Morris Communications, Shivers Trading & Operating Company, our ultimate parent, and its other subsidiaries. She is active in volunteer work with church and civic organizations and has served on many boards including the board of the Morris Museum of Art and the State Botanical Garden of Georgia.

 

William Morris III and Mary Morris are husband and wife. William Morris IV, J. Tyler Morris and Susie Morris Baker are their children.

 

Executive compensation

 

Some of our executive officers serve in similar capacities for our parent, Morris Communications, its ultimate parent, Shivers Trading & Operating Company, and their other subsidiaries. Historically, we have allocated a portion of their services and compensation to Morris Publishing. Commencing August 7, 2003, compensation for services rendered by William S. Morris III, William S. Morris IV, Susie M. Baker, Craig S. Mitchell and Steve K. Stone will not be payable directly by us but their services will be provided under the management agreement. See “Certain relationships and related transactions.” The following table sets forth all compensation awarded to, earned by, or paid for services rendered to Morris Publishing in all capacities during the three years ended December 31, 2003 for our chief executive officer, our four other most highly compensated executive officers and our executive officer director.

 

 

Name and principal position    Year    Annual compensation    All other
compensation
 
   
 
      Salary ($)    Bonus($)   

 

William S. Morris IV(g)

   2003    315,000    $ 267,034    17,079 (a)

President and Chief

Executive Officer

   2002
2001
   510,000
450,000
    
 
60,000
63,000
   31,199
25,732
 
 

Carl C. Cannon

   2003    700,000      114,763    366,123 (b)

Executive Vice President  

   2002
2001
   650,000
600,000
    
 
108,447
1,480
   233,349
225,800
 
 

James C. Currow

   2003    566,667      60,794    139,695 (c)

Executive Vice President  

   2002
2001
   500,000
475,000
    
 
96,332
44,923
   33,439
30,218
 
 

Craig S. Mitchell(g)

   2003    105,000      210,000    5,044 (d)

Senior Vice President-Finance,

Treasurer and Secretary

   2002
2001
   165,000
150,000
    
 
60,000
—  
   8,879
—  
 
 

Steve K. Stone(g)

   2003    87,500      71,292    3,500 (e)

Senior Vice President  

Chief Financial Officer

   2002
2001
   109,650
—  
    
 
—  
—  
   8,416
—  
 
 

Susie M. Baker(g)

   2003    85,313      48,000    18,969 (f)

Vice President  

   2002
2001
   131,262
120,000
    
 
—  
27,000
   27,904
21,624
 
 
(a)   Includes (a) imputed income for use of company vehicle in the amount of $4,717, $4,717 and $2,752 for 2001, 2002 and 2003 (b) employer contributions to the Morris Communications 401(k) Plan in the amounts of $5,100, $6,000 and $3,500 for 2001, 2002 and 2003, respectively and (c) other fringe benefits for the use of company facilities and participation in the executive medical reimbursement plan in the amounts of $15,915, $20,482 and $10,827 for 2001, 2002 and 2003, respectively.

 

(b)  

Includes (a) employer contributions and earnings under Morris Communications deferred compensation plan of $200,000 , $200,000 and $331,706 for 2001, 2002 and 2003, respectively (b) imputed income for use of company vehicle in the amount of $9,924 for 2001, 2002 and 2003, respectively (c) employer contributions to the Morris Communications 401(k) Plan in the

 

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amounts of $8,500, $10,000 and $10,000 for 2001, 2002 and 2003, respectively and (d) other fringe benefits for the use of company facilities and participation in the executive medical reimbursement plan in the amounts of $7,360, $13,515 and $14,493 for 2001 and 2002 and 2003, respectively.

 

(c)   Includes (a) imputed income for use of company vehicle in the amount of $16,718 each year for 2001 and 2002, and $21,236 for 2003 (b) employer contributions to the Morris Communications 401(k) Plan in the amounts of $8,500, $10,000 and $10,000 for 2001, 2002 and 2003, respectively; (c) employer contributions and earnings under Morris Communications deferred compensation plan of $102,891 for 2003, and (d) other fringe benefits such as the executive medical reimbursement plan in the amounts of and of $5,000, $9,961 and $5,568 for 2001, 2002 and 2003, respectively.

 

(d)   Includes (a) employer contributions to the Morris Communications 401(k) Plan in the amounts of $5,100, $6,000 and $3,500 for 2001, 2002 and 2003, respectively (b) other fringe benefits such as participation in the executive medical reimbursement plan in the amount of $2,934, $2,879 and $1,544 for 2001, 2002 and 2003, respectively.

 

(e)   Includes (a) employer contributions to the Morris communications 401(k) Plan in the amount of $3,500 for 2003 and (b) other fringe benefits such as reimbursement of taxable moving expenses in the amount of $8,416 for 2002.

 

(f)   Includes (a) imputed income for use of company vehicle in the amount of $11,657 for 2001 and $11,657 for 2002 and $6,800 for 2003 (b) employer contributions to the Morris Communications 401(k) Plan in the amounts of $5,100, $6,000 and $3,500 for 2001, 2002 and 2003, respectively and (c) other fringe benefits for the use of company facilities and participation in the executive medical reimbursement plan in the amounts of $4,867, $10,247 and $8,669 for 2001, 2002 and 2003, respectively.

 

(g)   For each year, this table does not include compensation paid to this individual for services to Morris Communications or its other affiliates. For 2003, this table includes compensation paid to this individual for services through August 7, 2003, but includes no compensation for services provided to us by such individual under the management agreement with Morris Communications after such date (because their services were covered by the management fee). Taking into account the compensation paid to these individuals after August 7, 2003 by Morris Communications, with respect to their services for our benefit under the management agreement, the salaries and other compensation, would have totaled (a) for Mr. Morris $540,000 salary and $29,278 other, (b) for Mr. Mitchell $180,000 salary and $8,647 other, (c) for Mr. Stone $150,000 salary and $6,000 other, and (d) for Mrs. Baker $146,250 salary and $32,519 other.

 

No information is presented for options, restricted stock awards, long term incentive or other compensation because no such compensation has been awarded. We have not granted any options or stock appreciation rights in the last fiscal year or otherwise.

 

Employment agreements

 

Morris Publishing has no employment agreements with its executive officers. We have designed our incentive and compensation programs to retain key employees, but no such programs obligate any employee to continue to work for us, nor commit Morris Publishing to continue to employ any officer.

 

Compensation of directors

 

Our directors received no compensation for their services as such in 2003, and received less than $500 per year in 2002 and 2001.

 

Compensation committee interlocks and insider participation

 

Our board of directors does not maintain a compensation committee. No executive officer or member of our board of directors also serves as an officer or on the compensation committee of any other entity with an executive officer on our board of directors. The Morris family, including William S. Morris III, our chairman, and his son, William S. Morris IV, our president and chief executive officer, beneficially own all of the equity interests in Morris Communications, our parent company. By virtue of such equity ownership, the Morris family has the sole power to determine the outcome of any company matter or transaction, including compensation matters.

 

Beneficial ownership

 

Morris Communications and Morris Publishing are lower tier subsidiaries of Shivers Trading & Operating Company, which is beneficially owned 100% by William S. Morris III and members of his immediate family. Mr. Morris III and his wife, Mary E. Morris, together directly own over 50% of the voting stock of Shivers and together beneficially own approximately 66% of the total common stock of Shivers. Their three adult children, including Mr. Morris IV, each directly own approximately 16% of the voting stock and each beneficially own approximately 11% of the total common stock of Shivers.

 

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Certain relationships and related transactions

 

Various entities which are affiliated with Morris Communications and the Morris family have engaged, and will in the future engage, in transactions with us some of which may be viewed, from the perspective of a note holder of Morris Publishing, as significant. These transactions may not necessarily be consummated on an arm’s-length basis and therefore may not be as favorable to us as those that could be negotiated with non-affiliated third parties.

 

We receive certain services from, and have entered into certain transactions with, Morris Communications. Costs of the services that have been allocated to us are based on actual direct costs incurred or on Morris Communications’ estimate of the proportion of expenses incurred by Morris Communications that related to the services provided to us. Morris Communications made the allocations based on usage or other factors such as percentage of revenues, number of employees and other applicable factors in estimating the proportion of corporate expenses to allocate to us. We believe that these allocations have been made on a reasonable basis, and approximate all of the material incremental costs we would have incurred had we been operating on a stand-alone basis; however, there has been no independent study or any attempt to obtain quotes from third parties to determine what the costs of obtaining such services from third parties would have been. Management fees and technology and shared services fees aggregated $28.2 million for the year ended December 31, 2002 and $33.9 million for the year ended December 31, 2003. These fees do not include other transactions between Morris Publishing, on the one hand, and Morris Communications and its other subsidiaries, on the other hand, including cash management, employer 401(k) contributions, workers’ compensation expense and intercompany borrowings. See Notes 1 and 8 to Notes to Consolidated Financial Statements for December 31, 2003, 2002 and 2001.

 

While historically balances between Morris Publishing, on the one hand, and Morris Communications, and its other subsidiaries, on the other hand, were settled primarily through member’s deficit (as distributions or contributions), it is expected that such amounts in the future will be settled through payment. While historically Morris Communications provided cash management for Morris Publishing, at and after August 1, 2003 Morris Publishing’s cash and investment management activities have been segregated from those of Morris Communications and its other subsidiaries and all cash and investments are held in separate accounts of Morris Publishing.

 

Historically borrowing capacity for Morris Publishing was provided in large part through borrowings by Morris Communications under its credit facility, the proceeds of which were then lent to Morris Publishing through intercompany loans. On August 7, 2003, Morris Publishing repaid its indebtedness to Morris Communications and entered into the new credit facilities described in “Description of other indebtedness.” It is expected that the principal external source of liquidity for Morris Communications and its other subsidiaries will be loans by or distributions from Morris Publishing. We may provide loans to Morris Communications or its operating subsidiaries for general business purposes or to make acquisitions in the future, at interest rates equal to our cost of borrowing under our new credit facilities. Any such loans may utilize borrowing capacity under our new credit facilities that may otherwise have been available for our business purposes. As of December 31, 2003, we had $4.5 million of outstanding loans due from Morris Communications.

 

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We will continue to be managed by Morris Communications pursuant to a management agreement and as compensation for these services, Morris Communications will be entitled to receive annual management fees (payable monthly) equal to the greater of 4.0% of our annual total operating revenues or the amount of actual expenses allocable to the management of our business by Morris Communications (such allocations to be based upon time and resources spent on the management of our business by Morris Communications). Historically, Morris Communications’ costs of providing these services has been allocated among its operating divisions and our allocated share is reflected in our financial statements. For the last four years, our allocable costs for the services provided by Morris Communications have been approximately 4.2% of our annual total operating revenues, ranging from 4.4% in 2000 to 3.9% in 2003 through August 7, 2003. In addition, as part of the initiatives commencing in 2002 to develop the Shared Services Center and technological platform, we will also pay our allocable share (based upon usage) of the actual costs of operations of MStar Solutions.

 

In addition to the management services, we may share other miscellaneous facilities and costs with Morris Communications and its other subsidiaries. Shared costs may include joint promotions or the use of facilities, equipment, supplies or employees of one division for the benefit of an affiliate and the costs will be allocated among the various entities by Morris Communications. Shared facilities include the home office complex of buildings in Augusta, Georgia, which we own for use of The Augusta Chronicle , but which will also be used as the home office and principal place of business of Morris Communications.

 

In December 2002, we sold our recently completed facility in Savannah, Georgia to an affiliated party at carrying value for cash of $11.9 million, and entered into a 10 year operating lease expiring on December 31, 2012. We are required to make equal monthly payments of $92,000 beginning January 1, 2003, and continuing on the first date of each subsequent month during the term of this lease. Beginning on January 1, 2004 and January 1 of each subsequent year during the lease term the annual base rent shall increase by the lesser of (i) four percent, and (ii) the percentage increase in the Consumer Price Index for the preceding calendar year.

 

As chairman, Mr. Morris III received aggregate compensation in 2003 of less than $60,000.

 

In the ordinary course of our business, we may sell goods and services to affiliates, including newspaper advertising, and we may purchase goods and services from affiliates, such as radio or outdoor advertising and promotions or space in hotels owned by affiliates.

 

We participate in a tax sharing agreement with our affiliates whereby we are required to pay to our parent an amount equal to the taxes we would have been required to pay as a separate corporation. We are a single member limited liability company that is disregarded for federal income tax purposes and are part of the consolidated tax return of our ultimate parent corporation and its subsidiaries. We may become jointly and severally liable for all income tax liability of the group in the event other subsidiaries are unable to pay the taxes attributable to their operations.

 

See “Risk factors” and “Management—Executive compensation.”

 

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The exchange offer

 

Purpose of the exchange offer

 

The original notes were initially issued and sold on August 7 and September 24, 2003. Those sales were not registered under the Securities Act of 1933, as amended, in reliance upon the exemption provided by Section 4(2) of the Securities Act and Rule 144A under the Securities Act. We and the initial purchasers of the original notes entered into registration rights agreements on the issuance dates of the original notes. Under the registration rights agreements, we agreed to file and cause to become effective with the SEC the registration statement of which this prospectus is a part to effect the exchange of original notes for exchange notes.

 

The sole purpose of this exchange offer is to fulfill our obligations under the registration rights agreements.

 

Conditions to exchange offer

 

Completion of the exchange offer is subject to the conditions that the exchange offer not violate any applicable law or interpretation of the staff of the Division of Corporation Finance of the SEC and that no injunction, order or decree has been issued that would prohibit, prevent or materially impair our ability to proceed with the exchange offer. The exchange offer is also subject to various procedural requirements discussed below with which holders must comply. We reserve the right, in our absolute discretion, to waive compliance with these requirements subject to applicable law, however, all conditions must be satisfied or waived prior to the expiration of the exchange offer in order for exchange notes to be issued in exchange for original notes.

 

In addition, we will not accept for exchange any original notes tendered, and no exchange notes will be issued in exchange for any such original notes, if at such time any stop order shall be threatened or in effect with respect to the registration statement of which this prospectus is a part or qualification of the Indenture under the Trust Indenture Act of 1939, as amended.

 

Terms of the exchange offer

 

We are offering to exchange, upon the terms and subject to the conditions described in this prospectus and the accompanying letter of transmittal, $1,000 principal amount of exchange notes for each $1,000 principal amount of original notes. Based on the position of the staff of the Division of Corporation Finance of the SEC as stated in certain interpretive letters issued to third parties in other transactions, we believe that the exchange notes will generally be freely transferable by holders thereof. See “Plan of distribution” on page 127. However, we have not asked for an interpretive letter from the SEC with respect to the exchange offer. Otherwise, the terms of the exchange notes are identical in all respects to the terms of the original notes for which they may be exchanged pursuant to this exchange offer. The exchange notes will evidence the same debt as the original notes and will be entitled to the benefits of the indenture. See “Description of the exchange notes” on page 76.

 

Each broker-dealer that receives exchange notes for its own account in exchange for original notes, where those original notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of those exchange notes. See “Plan of distribution” on page 127.

 

If you are an affiliate of ours or if you intend to participate in the exchange offer for the purpose of distributing the exchange notes, or if you are a broker-dealer that purchased original notes

 

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from us to resell pursuant to Rule 144A or any other available exemption under the Securities Act, you will not be permitted or entitled to tender those original notes in the exchange offer and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or transfer of those original notes unless that sale is made pursuant to an exemption from such requirements. See “Plan of distribution” on page 127.

 

The exchange offer is not conditioned upon any minimum aggregate principal amount of original notes being tendered or accepted for exchange.

 

Holders of original notes do not have any appraisal or dissenters’ rights in connection with this exchange offer.

 

Neither we nor our board of directors makes any recommendation to you as to whether to tender or refrain from tendering all or any portion of your original notes in this exchange offer. In addition, no one has been authorized to make any recommendation as to whether you should tender notes in this exchange offer. You must make your own decision whether to tender original notes in the exchange offer and, if so, the aggregate amount of original notes to tender based on your own financial positions and requirements.

 

If any tendered original notes are not accepted for exchange because of an invalid tender, global securities for any such unaccepted original notes will be returned, without expense, to the tendering holder promptly after completion of this exchange offer.

 

Holders who tender original notes in connection with this exchange offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the letter of transmittal, transfer taxes with respect to the exchange of original notes in connection with this exchange offer. We will pay all charges and expenses in connection with this exchange offer. See “— Fees and expenses” on page 73.

 

Expiration date; extensions; termination; amendments

 

The exchange offer will expire at 5:00 p.m., New York City time, on [            ], 2004 unless we, in our sole discretion, extend the period during which the exchange offer is open by giving written notice to the exchange agent and by timely public announcement communicated no later than 9:00 a.m. on the next business day following the date for expiration, unless otherwise required by applicable law or regulation, by making a press release. During any extension of the exchange offer, all original notes previously tendered pursuant to the exchange offer will remain subject to the exchange offer.

 

We expressly reserve the right to:

 

  ·   terminate the exchange offer and not accept for exchange any original notes if we reasonably determine that the conditions to the exchange offer have not been satisfied, and

 

  ·   amend the terms of the exchange offer in any manner permitted by applicable law, whether before or after any tender of original notes.

 

If any such termination or amendment occurs, we will notify the exchange agent in writing and will either issue a press release or give written notice to the holders of original notes as promptly as practicable. Unless we terminate the exchange offer prior to 5:00 p.m., New York City time, on the date of expiration, we will exchange the exchange notes for original notes on the first business day following the expiration date.

 

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If we waive any material condition to the exchange offer, or amend the exchange offer in any other material respect, we will promptly disclose such waiver or amendment by means of a prospectus supplement that will be distributed to the holders of the original notes, and if at the time that such prospectus supplement is first sent or given to holders of original notes, the exchange offer is scheduled to expire at any time earlier than the expiration of a period ending on the fifth business day from, and including, the date that such prospectus supplement is first so sent or given, then the exchange offer will be extended until the expiration of such period of five business days.

 

We will mail this prospectus and the related letter of transmittal and other relevant materials to record holders of original notes and to brokers, banks and similar persons whose names, or the names of whose nominees, appear on the lists of holders for subsequent transmittal to beneficial owners of original notes.

 

Exchange offer procedures

 

How to tender

 

Your tender to us of original notes pursuant to one of the procedures set forth below will constitute an agreement between you and us in accordance with the terms and subject to the conditions stated below and in the letter of transmittal.

 

General procedures

 

You may tender your original note by:

 

  ·   properly completing and signing the letter of transmittal and delivering it, together with the certificate or certificates representing the original notes being tendered and any required signature guarantees (or a timely confirmation of a book-entry transfer pursuant to the procedure described below), to the exchange agent at its address set forth below on or prior to the date the exchange offer expires, or

 

  ·   complying with the guaranteed delivery procedures described below.

 

Each broker-dealer that receives exchange notes for its own account in exchange for original notes, where those original notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of those exchange notes. See “Plan of distribution” on page 127.

 

If tendered original notes are registered in the name of the signer of the letter of transmittal and the exchange notes to be issued in exchange for those original notes are to be issued (and any untendered original notes are to be reissued) in the name of the registered holder, the signature of such signer need not be guaranteed. In any other case, the tendered original notes must be endorsed or accompanied by written instruments of transfer in form satisfactory to us and duly executed by the registered holder and the signature on the endorsement or instrument of transfer must be guaranteed by a bank, broker, dealer, credit union, savings association, clearing agency or other institution that is a member of a recognized signature guarantee medallion program within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended. If the exchange notes and/or original notes not exchanged are to be delivered to an address other than that of the registered holder appearing on the note register for the original notes, the signature on the letter of transmittal must be guaranteed by one of the institutions just described.

 

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If your original notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and you wish to tender those original notes, you should contact that holder promptly and instruct that holder to tender those original notes on your behalf. If you wish to tender those original notes yourself, you must, prior to completing and executing the letter of transmittal and delivering those original notes, make appropriate arrangements to register ownership of those original notes in your name and follow the procedures described in the immediately preceding paragraph. The transfer of record ownership may take considerable time due to the transfer procedures the broker must follow to register the transfer.

 

Book-entry transfer

 

The exchange agent will make a request to establish an account with respect to the original notes at The Depository Trust Company (DTC) for purposes of the exchange offer within two business days after receipt of this prospectus, and any financial institution that is a participant in DTC’s system may make book-entry delivery of original notes by causing DTC to transfer such original notes into the exchange agent’s account at DTC in accordance with DTC’s procedures for transfer. Although delivery of original notes may be effected through book-entry transfer at DTC, you must send the letter of transmittal, with any required signature guarantees and any other required documents, to the exchange agent at the address specified below and it must be received by the exchange agent on or prior to the date the exchange offer expires or you must comply with the guaranteed delivery procedures described below.

 

The exchange agent and DTC have confirmed that any financial institution that is a participant in DTC’s system may use the Automated Tender Offer Program procedures to tender original notes.

 

Any participant in DTC’s system may make book-entry delivery of original notes by causing DTC to transfer such original notes into the exchange agent’s account in accordance with the Automated Tender Offer Program procedures for transfer. However, the exchange for original notes so tendered will be made only after a book-entry confirmation of such book-entry transfer of original notes into the exchange agent’s account, and timely receipt by the exchange agent of an agent’s message and any other documents required by the letter of transmittal. An agent’s message is a message, transmitted by DTC and received by the exchange agent and forming part of a book-entry confirmation, that states that DTC has received an express acknowledgment from a participant tendering original notes that are the subject of such book-entry confirmation that such participant has received and agrees to be bound by the terms of the letter of transmittal, and that we may enforce that agreement against that participant.

 

Letters of transmittal and original notes must be sent only to the exchange agent. Do not send letters of transmittal or original notes to us or DTC.

 

THE METHOD OF DELIVERY OF ORIGINAL NOTES AND ALL OTHER DOCUMENTS, INCLUDING DELIVERY THROUGH DTC AND ANY ACCEPTANCE OF AN AGENT’S MESSAGE THROUGH THE AUTOMATED TENDER OFFER PROGRAM, IS AT YOUR ELECTION AND RISK. IF YOU SEND THESE DOCUMENTS BY MAIL, WE RECOMMEND THAT YOU USE REGISTERED MAIL, RETURN RECEIPT REQUESTED, THAT YOU OBTAIN PROPER INSURANCE, AND THAT YOU MAIL THOSE DOCUMENTS SUFFICIENTLY IN ADVANCE OF THE DATE ON WHICH THE EXCHANGE OFFER EXPIRES TO PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE SUCH DATE.

 

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Guaranteed delivery procedures

 

If you wish to accept the exchange offer and time will not permit a letter of transmittal or original notes to reach the exchange agent before the date on which the exchange offer expires, you must deliver to the exchange agent a letter, telegram or facsimile transmission from a bank, broker, dealer, credit union, savings association, clearing agency or other institution that is a member of a recognized guarantee medallion program within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, stating:

 

  ·   the name and address of the tendering holder,

 

  ·   the principal amount of the original notes being tendered,

 

  ·   the names in which the original notes are registered,

 

  ·   if possible, the certificate numbers of the original notes to be tendered, and

 

  ·   that the tender is being made thereby and guaranteeing that within three New York Stock Exchange trading days after the date of execution of such letter, telegram or facsimile transmission by the appropriate submitting institution, the original notes, in proper form for transfer, will be delivered by such appropriate submitting institution together with a properly completed and duly executed letter of transmittal (and any other required documents).

 

Such a tender will be effective only if such notice is received by the exchange agent before the exchange offer expires.

 

Unless original notes being tendered by the above-described method (or a timely book-entry confirmation) are deposited with the exchange agent within the time period set forth above (accompanied or preceded by a properly completed letter of transmittal and any other required documents), we may, at our option, reject the tender. Copies of a notice of guaranteed delivery which may be used by appropriate submitting institutions for the purposes described in the paragraphs above are available from the exchange agent.

 

A tender will be deemed to have been received as of the date when your properly completed and duly signed letter of transmittal or agent’s message accompanied by the original notes (or a timely book-entry confirmation) is received by the exchange agent. Issuances of exchange notes in exchange for original notes tendered pursuant to a notice of guaranteed delivery or letter, telegram or facsimile transmission to similar effect (as provided above) by an appropriate submitting institution will be made only against deposit of the letter of transmittal (and any other required documents) and the tendered original notes (or a timely book-entry confirmation).

 

All questions as to the validity, form, eligibility (including time of receipt) and acceptance for exchange of any tender of original notes will be determined by us, which determination will be final and binding. We reserve the absolute right to reject any and all tenders not in proper form or the acceptances for exchange of which may, in the opinion of our counsel, be unlawful. We also reserve the absolute right to waive any of the conditions of the exchange offer or any defect or irregularities in tenders; provided any such waivers, if made, shall apply to all tenders. Neither we, the exchange agent nor any other person will be under any duty to give notification of any defects or irregularities in tenders or shall incur any liability for failure to give any such notification. Our interpretation of the terms and conditions of the exchange offer (including the letter of transmittal and the instructions thereto) will be final and binding.

 

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Terms and conditions of the letter of transmittal

 

The letter of transmittal contains, among other things, the following terms and conditions, which are part of the exchange offer.

 

By tendering your original notes for exchange, you thereby exchange, assign and transfer the original notes to us and irrevocably constitute and appoint the exchange agent as your agent and attorney-in-fact to cause the original notes to be assigned, transferred and exchanged. You will be required to represent and warrant that you have full power and authority to tender, exchange, assign and transfer the original notes and to acquire exchange notes issuable upon the exchange of those tendered original notes, and that, when the same are accepted for exchange, we will acquire good and unencumbered title to the tendered original notes, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim or proxy. You will also warrant that you will, upon request, execute and deliver any additional documents deemed by us to be necessary or desirable to complete the exchange, assignment and transfer of tendered original notes by us, and the issuance of exchange notes in exchange for those notes shall constitute performance in full by us of our obligations under the registration rights agreements and that we will have no further obligations or liabilities under that agreement (except in certain limited circumstances). All authority conferred by you will survive your death or incapacity, and all of your obligations will be binding upon your heirs, legal representatives, successors, assigns, executors and administrators.

 

By tendering original notes and executing the letter of transmittal, or transmitting an agent’s message, as the case may be, you represent that:

 

  ·   you are not an affiliate of ours as defined in Rule 405 of the Securities Act of 1933;

 

  ·   you are not a broker-dealer that owns original notes acquired directly from us or from an affiliate of ours;

 

  ·   you are acquiring the exchange notes offered hereby in the ordinary course of business; and

 

  ·   you have not agreed with anyone to distribute the exchange notes.

 

If you are a broker-dealer that purchased original notes for your own account as part of market-making or other trading activities, you represent that you have not agreed with us or our affiliates to distribute the exchange notes and agree to deliver a prospectus in connection with any resale of the exchange notes; and you may exclude the representation in the last bullet point above.

 

No person has been authorized to give any information or to make any representations in connection with the exchange offer other than those contained in this prospectus. If given or made, such information or representations should not be relied upon as having been authorized by us. Neither the delivery of this prospectus nor any exchange made hereunder shall, under any circumstances, create any implication that there has been no change in our business since the respective dates as of which information is given herein. We are not making the exchange offer to (nor will tenders be accepted from or on behalf of) holders of original notes in any jurisdiction in which the making of the exchange offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction. However, we may, at our discretion, take such action as we may deem necessary to make the exchange offer in any such jurisdiction and extend the exchange offer to holders of original notes in such jurisdiction. In any jurisdiction the securities laws or blue sky laws of which require the exchange offer to be made by a licensed

 

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broker or dealer, the exchange offer may be made on our behalf by one or more registered brokers or dealers which are licensed under the laws of such jurisdiction.

 

Withdrawal rights

 

You may withdraw any original notes you have tendered pursuant to the exchange offer, in multiples of $1,000, at any time prior to the date on which the exchange offer expires.

 

For a withdrawal to be effective, a written or facsimile transmission notice of withdrawal must be timely received by the exchange agent at its address set forth below in the “Exchange agent” section prior to the date on which the exchange offer expires. Any such notice of withdrawal must state:

 

  ·   the person named in the letter of transmittal as having tendered original notes to be withdrawn;

 

  ·   if possible, the certificate numbers of original notes to be withdrawn;

 

  ·   the principal amount of original notes to be withdrawn;

 

  ·   a statement that such holder is withdrawing its election to have those original notes exchanged, and

 

  ·   the name of the registered holder of those original notes.

 

The withdrawal notice must be signed by the holder in the same manner as the original signature on the letter of transmittal (including any required signature guarantees) or be accompanied by evidence satisfactory to us that the person withdrawing the tender has succeeded to the beneficial ownership of the original notes being withdrawn.

 

The exchange agent will return the properly withdrawn original notes promptly following receipt of the notice of withdrawal. We will determine all questions as to the validity of notices of withdrawal, including time of receipt, and such determinations will be final and binding on all persons.

 

Acceptance of original notes for exchange; delivery of exchange notes

 

Upon the terms and subject to the conditions of the exchange offer, we will choose and notify the exchange agent of the date on which the acceptance for exchange of original notes validly tendered and not withdrawn and the issuance of the exchange notes will be made. For the purposes of the exchange offer, we will be deemed to have accepted for exchange validly tendered original notes when we have given written notice thereof to the exchange agent.

 

The exchange agent will act as agent for the tendering holders of original notes for the purposes of receiving exchange notes from us and causing the original notes to be assigned, transferred and exchanged. Upon the terms and subject to the conditions of the exchange offer, delivery of the exchange notes to be issued in exchange for accepted original notes will be made by the exchange agent promptly after acceptance of the tendered original notes. Original notes not accepted for exchange by us will be returned without expense to the tendering holders (or in the case of original notes tendered by book-entry transfer into the exchange agent’s account at DTC pursuant to the procedures described above, such non-exchanged original notes will be credited to an account maintained with DTC) promptly following the date on which the exchange offer expires, or, if we terminate the exchange offer prior to such date, promptly after the exchange offer is so terminated.

 

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Accrued interest on exchange notes

 

You will not receive accrued but unpaid interest on original notes at the time you tender them. Rather, that interest will be payable on the exchange notes delivered in exchange for the original notes on the first interest payment date after the exchange date.

 

Accounting treatment

 

The exchange notes will be recorded at the same carrying value as the original notes for which they are exchanged, which is the aggregate principal amount of the original notes, as reflected in our accounting records on the date of exchange. Accordingly, no gain or loss for accounting purposes will be recognized in connection with the exchange offer. The cost of the exchange offer will be amortized over the term of the exchange notes.

 

Exchange agent

 

Wachovia Bank, National Association has been appointed as the exchange agent for the exchange offer. You should direct questions and requests for assistance and requests for additional copies of this prospectus or of the letter of transmittal to the exchange agent as follows:

 

By Regular, Registered or Certified Mail, or by Hand:

 

Wachovia Bank, National Association

Customer Information Center

Corporate Trust Operations

1525 West W.T. Harris Blvd., 3C3

Charlotte, NC 28288-1153

Attention: Carrie Garris

 

or

 

By Overnight Courier:

 

Wachovia Bank, National Association

Customer Information Center

Corporate Trust Operations

1525 West W.T. Harris Blvd., 3C3

Charlotte, NC 28262

Attention: Carrie Garris

 

Telephone:

704-590-7415

 

Alternatively, if a New York address is preferred, please send to:

 

Wachovia Bank, National Association

Corporate Trust Group

Mailcode NY4040

One Penn Plaza, Suite 1414

New York, NY 37203

Attention: Raymond DelliColli

 

Telephone:

212-273-7013

 

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Delivery to an address other than as stated above, or transmissions of instructions to a facsimile number other than the one stated above, will not constitute a valid delivery.

 

 

Fees and expenses

 

We have not retained any dealer-manager or similar agent in connection with the exchange offer and will not make any payments to brokers, dealers or others for soliciting acceptances of the exchange offer. We will, however, pay the exchange agent reasonable and customary fees for its services and will reimburse it for reasonable out-of-pocket expenses in connection with its services. We will also pay brokerage houses and other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding tenders for their customers. We will pay the expenses to be incurred in connection with the exchange offer, including the fees and expenses of the exchange agent, printing, accounting and legal fees.

 

Holders who tender their original notes for exchange notes will not be obligated to pay any transfer taxes in connection with the exchange. If, however, exchange notes are to be delivered to, or are to be issued in the name of, any person other than the registered holder of the original notes tendered, or if a transfer tax is imposed for any reason other than the exchange of the original notes in connection with the exchange offer, then the amount of any such transfer taxes (whether imposed on the registered holder or any other person) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption from such taxes is not submitted with the letter of transmittal, the amount of such taxes will be billed directly to such tendering holder.

 

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Description of other indebtedness

 

Senior secured indebtedness

 

Term loan facility and revolving loan facility

 

Our $400.0 million senior Secured Credit Facilities (“Senior Secured Credit Facilities”), for which JPMorgan Chase Bank serves as administrative agent, consist of (1) a term loan facility that will mature on March 31, 2011, in an aggregate principal amount of $225.0 million (the “Term Loan Facility”) and (2) a revolving credit facility that will mature on September 30, 2010, in an aggregate principal amount of $175.0 million (the “Revolving Loan Facility”). As of December 31, 2003, we had no amount outstanding on the Revolving Loan Facility.

 

In addition, at any time after the closing of the Senior Secured Credit Facilities, Morris Publishing may solicit any or all of the lenders to provide, in one or more series, additional term loans in an aggregate amount of up to $300.0 million, less the principal amount of any future senior unsecured notes (not including these notes).

 

Interest rate

 

The Term Loan Facility bears interest at (i) LIBOR plus 2.25% or (ii) the applicable federal funds rate plus 0.5% (“ABR”) plus 1.25%.

 

The Revolving Loan Facility bears interest (i) at a spread above a base rate equal to the higher of (x) JPMorgan Chase Bank’s prime lending rate or (y) the ABR, or (ii) at a spread above the Eurodollar rate. The spread applicable to borrowings under the Revolving Loan Facility is determined by reference to our trailing total debt to cash flow ratio. The spread applicable for ABR borrowings ranges from 1.0% to 1.5%. The spread applicable for Eurodollar rate borrowings ranges from 2.0% to 2.5%. For the period of six months after the closing date of the Senior Secured Credit Facilities, the spread on ABR borrowings is 1.25% and the spread on Eurodollar rate borrowings is 2.25%.

 

Amortization Schedule

 

The Term Loan Facility requires the following principal amortization: 2003—none; 2004,—$562,500; 2005–2010,—$2.25 million per year; and the remaining principal amount in 2011.

 

There is no required amortization of the Revolving Loan Facility prior to its maturity on September 30, 2010.

 

Guarantees

 

The Senior Secured Credit Facilities are guaranteed by Morris Communications and most of its subsidiaries (existing or thereafter acquired) including subsidiaries with operations in outdoor advertising, radio broadcasting and book publishing. Morris Communications and its subsidiaries with operations in outdoor advertising, radio broadcasting and book publishing will not be guarantors of the notes.

 

Collateral

 

The term loan facility and the revolving facility are secured by perfected first-priority security interests in, and (as applicable) mortgages on:

 

  (1)   all equity capital of Morris Communications held by its direct parent, Morris Communications Holding Company, LLC;

 

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  (2)   all of the equity capital of each of the credit parties under the Senior Secured Credit Facilities;

 

  (3)   certain intercompany notes; and

 

  (4)   substantially all tangible and intangible assets of Morris Communications and each guarantor (including but not limited to accounts receivable, inventory, intellectual property, all material real property, rental agreements and other contractual rights, permits and authorizations, and proceeds of the foregoing, subject to customary exceptions).

 

Representations and warranties, events of default, covenants and other terms

 

The Senior Secured Credit Facilities:

 

  (1)   require us to meet certain financial tests on an on-going basis, including minimum interest coverage ratio, minimum fixed charge coverage ratio, and maximum cash flow ratios;

 

  (2)   include customary representations and warranties, customary events of default (including an event of default resulting from a change of control), and other customary covenants including, among others, covenants that limit our and our subsidiaries’ ability to:

 

  (a)   incur additional debt or guarantees;

 

  (b)   create, or permit to exist, liens on our property or grant negative pledges;

 

  (c)   merge with other entities;

 

  (d)   make asset sales;

 

  (e)   pay dividends or other amounts in respect of equity capital;

 

  (f)   make investments, loans or advances;

 

  (g)   engage in transactions with affiliates; and

 

  (h)   change our fiscal year or the nature of our business.

 

Optional prepayments

 

The Senior Secured Credit Facilities may be prepaid and commitments may be reduced by Morris Publishing in certain minimum amounts. Optional prepayments of the Term Loan Facility and any incremental loan facility shall be applied to the Term Loan Facility and any incremental loan facility ratably in accordance with the principal amounts thereof, and to the installments thereof ratably in accordance with the respective amounts thereof, and may not be reborrowed.

 

Mandatory prepayments

 

The Senior Secured Credit Facilities will be mandatorily prepayable with:

 

  (1)   the net proceeds from equity offerings, above designated amounts in the event of offerings to affiliates of Morris Communications; and

 

  (2)   the net proceeds from certain non-ordinary course asset sales.

 

In addition, in the event that there is a change of control pursuant to the terms of the indenture governing the notes, the Senior Secured Credit Facilities must be paid in full and all commitments under the Senior Secured Credit Facilities shall terminate.

 

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Description of the exchange notes

 

The Exchange Notes will be issued under an indenture dated August 7, 2003 (the “ Indenture ”), among Morris Publishing Group, LLC (“ Morris Publishing ”), Morris Publishing Finance Co. (“ Morris Finance ”), the Guarantors and Wachovia Bank, National Association, as Trustee (the “ Trustee ”). The following is a summary of the material provisions of the Indenture. It does not include all of the provisions of the Indenture. We urge you to read the Indenture because it defines your rights. The terms of the Exchange Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (the “ TIA ”). A copy of the Indenture is available upon request.

 

You can find definitions of certain capitalized terms used in this description under “— Certain definitions.” In this section of the prospectus:

 

  ·   references to “ Morris Publishing ,” “ we ,” “ us ,” “ our ” or similar terms refer only to Morris Publishing and not to any of its Subsidiaries;

 

  ·   references to “ Morris Finance ,” a Wholly-Owned Restricted Subsidiary of Morris Publishing, shall refer only to Morris Finance;

 

  ·   references to the “ Issuers ” shall mean Morris Publishing and Morris Finance together;

 

  ·   references to the “ Guarantors ” shall mean our direct and indirect Restricted Subsidiaries that guarantee the Notes; and

 

  ·   references to “ Morris Communications ” shall mean our parent, Morris Communications Company, LLC, and its successors.

 

Brief description of the notes and the guarantees

 

The Exchange Notes

 

The Exchange Notes will be:

 

  ·   general unsecured obligations of the Issuers;

 

  ·   ranked subordinate in right of payment with all existing and future Senior Debt of the Issuers;

 

  ·   ranked equally in right of payment with any future senior subordinated Indebtedness of the Issuers;

 

  ·   ranked senior in right of payment to any future subordinated Indebtedness of the Issuers;

 

  ·   ranked effectively junior to all debt and other liabilities (including trade payables) of the Issuers’ Subsidiaries that are not Guarantors, all debt and other liabilities (including trade payables) of any Guarantor if such Guarantor’s Guarantee is subordinated or avoided by a court of competent jurisdiction and all secured obligations of the Issuers to the extent of the collateral securing such obligations, including the Issuers’ obligations under the Credit Agreement; and

 

  ·   unconditionally guaranteed by the Guarantors.

 

The Exchange Notes will be issued in fully registered form only, without coupons, in denominations of $1,000 and integral multiples of $1,000. The Trustee will initially act as Paying Agent and Registrar for the Exchange Notes. The Exchange Notes may be presented for registration of transfer and exchange at the offices of the Registrar. The Issuers may change any

 

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Paying Agent and Registrar without notice to holders of the Exchange Notes (the “ Holders ”). The Issuers will pay principal (and premium, if any) on the Exchange Notes at the Trustee’s corporate office in New York, New York. At the Issuers’ option, interest may be paid at the Trustee’s corporate trust office or by check mailed to the registered address of Holders.

 

The Guarantees

 

The Exchange Notes will be guaranteed by the Guarantors, which currently include all of the Issuer’s direct and indirect Restricted Subsidiaries. The Guarantees will be:

 

  ·   general unsecured obligations of each Guarantor;

 

  ·   ranked subordinate in right of payment with all existing and future Senior Debt of such Guarantor;