UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MAY 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934
For the transition period from ______________ to ____________.
Commission File Number: 333-44177
BRILL MEDIA COMPANY, LLC
(Exact name of registrant as specified in its charter)
Virginia 52-2071822
(State of Formation) (I.R.S. Employer Identification No.)
420 N.W. Fifth Street
Evansville, Indiana 47708
(address of principal executive offices)
(zip code)
(812) 423-6200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
_X_ YES ___ NO
TABLE OF CONTENTS
PART NO. ITEM NO. Page No.
- -------- -------- --------
I 1 FINANCIAL STATEMENTS
Consolidated Statements of Financial Position
May 31, 1998 and February 28, 1998 3
Consolidated Statements of Operations and
Members' Deficiency
Three Months Ended May 31, 1998 and 1997 4
Consolidated Statements of Cash Flows
Three Months Ended May 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
2 MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 7
II 6 EXHIBITS AND REPORTS ON
FORM 8-K 12
2
PART I
ITEM 1. FINANCIAL STATEMENTS
Brill Media Company, LLC
(A Limited Liability Company)
Consolidated Statements of Financial Position
May 31 February 28
1998 1998
------------------------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 11,000,636 $ 10,917,613
Accounts receivable, net 5,868,628 3,544,246
Interest receivable on notes from managed affiliates 824,706 324,357
Inventories 588,414 628,711
Other current assets 448,296 567,632
------------------------------
Total current assets 18,730,680 15,982,559
Notes receivable from managed affiliates 16,315,747 16,315,747
Property and equipment 21,320,352 20,713,615
Less: Accumulated depreciation 9,217,817 8,874,995
------------------------------
Net property and equipment 12,102,535 11,838,620
Goodwill and FCC licenses, net 12,022,516 12,056,591
Covenants not to compete, net 3,625,506 3,884,427
Other assets, net 6,398,275 6,071,047
------------------------------
22,046,297 22,012,065
------------------------------
$ 69,195,259 $ 66,148,991
==============================
Liabilities and members' deficiency
Current liabilities:
Amounts payable to affiliates $ 811,043 $ 724,587
Accounts payable 1,655,682 745,210
Accrued payroll and related expenses 693,620 595,762
Accrued interest 3,288,615 1,341,390
Other accrued expenses 452,973 195,378
Current maturities of long-term obligations 979,494 1,005,875
------------------------------
Total current liabilities 7,881,427 4,608,202
Long-term notes and other obligations 110,026,952 109,050,787
Members' deficiency (48,713,120) (47,509,998)
------------------------------
$ 69,195,259 $ 66,148,991
==============================
See accompanying notes to the consolidated financial statements.
3
Brill Media Company, LLC
(A Limited Liability Company)
Consolidated Statements of Operations and Members' Deficiency
(Unaudited)
Three Months Ended May 31
1998 1997
----------------------------
Revenues $ 10,604,521 $ 7,528,230
Operating expenses:
Operating departments 7,400,165 5,067,977
Incentive plan -- 242,500
Management fees 684,444 541,336
Time brokerage agreement fees, net 12,000 12,000
Consulting 61,999 58,998
Depreciation 343,314 253,549
Amortization 336,358 116,047
----------------------------
8,838,280 6,292,407
----------------------------
Operating income 1,766,241 1,235,823
Other income (expense):
Interest - managed affiliates 500,350 71,888
Interest - affiliates, net (6,846) 68,651
Interest - other, net (3,250,772) (1,982,419)
Amortization of deferred financing costs (146,573) (130,747)
Loss on sale of assets, net -- (2,040)
Other, net (41,062) (5,785)
----------------------------
(2,944,903) (1,980,452)
----------------------------
Loss before income taxes (1,178,662) (744,629)
Income tax provision 40,500 50,866
----------------------------
Net loss (1,219,162) (795,495)
Members' deficiency, beginning of period (47,509,998) (26,609,973)
Capital contributions 16,040 20
----------------------------
Members' deficiency, end of period $(48,713,120) $(27,405,448)
============================
See accompanying notes to the consolidated financial statements.
4
Brill Media Company, LLC
(A Limited Liability Company)
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended May 31
1998 1997
----------------------------
Operating activities
Net loss $ (1,219,162) $ (795,495)
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:
Depreciation and amortization 679,672 369,596
Amortization of deferred financing costs and original issue 1,322,021 130,747
discount
Management fees accrual 173,939 249,925
Affiliate interest accrual (553,516) (168,240)
Additional interest accrual -- 575,668
Incentive plan accrual -- 242,500
Loss on sale of assets, net -- 2,040
Changes in operating assets and liabilities:
Accounts receivable (2,324,382) (771,928)
Other current assets 159,633 (60,548)
Accounts payable 910,472 363,840
Other accrued expenses 2,302,678 (224,169)
----------------------------
Net cash provided by (used in) operating activities 1,451,355 (86,064)
Investing activities
Purchase of property and equipment (606,733) (144,405)
Proceeds from sale of assets -- 29,667
Loans to managed affiliates -- (8,747,580)
Increase in other assets (16,688) (17,507)
----------------------------
Net cash used in investing activities (623,421) (8,879,825)
Financing Activities
Increase (decrease) in amounts due to affiliates (36,689) 1,268,322
Payment of deferred financing costs (498,596) (59,967)
Principal payments on long-term obligations (241,295) (473,980)
Proceeds from long-term borrowings 15,629 8,149,500
Capital contributions 16,040 20
----------------------------
Net cash provided by (used in) financing activities (744,911) 8,883,895
----------------------------
Net increase (decrease) in cash and cash equivalents 83,021 (81,994)
Cash and cash equivalents at beginning of period 10,917,613 775,363
----------------------------
Cash and cash equivalents at end of period $ 11,000,636 $ 693,369
============================
See accompanying notes to the consolidated financial statements.
5
Brill Media Company, LLC
Notes to the Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements include the
accounts of Brill Media Company, LLC (BMC) and its subsidiaries, all of which
are wholly owned (collectively, the Company). BMC's members are directly owned
by Alan R. Brill (Mr. Brill). These statements have been prepared in accordance
with generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments, consisting of normal recurring
accruals, considered necessary for a fair presentation have been included along
with the elimination of all intercompany balances and transactions. Operating
results for the three months ended May 31, 1998 are not necessarily indicative
of the results that may be expected for the year ending February 28, 1999. For
further information, refer to the consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
February 28, 1998.
2. Pending Dispositions and Completed Acquisitions
On October 24, 1997, the Company entered into contracts to sell the
operating assets of its Missouri Stations (collectively, the Missouri
Properties). The Company also executed Time Brokerage Agreements (TBAs) under
which the proposed buyers would operate the Missouri Properties beginning
November 1, 1997, for $50,000 per month, until transfer of the Federal
Communications Commission (FCC) licenses is complete. Accordingly, other than
pursuant to the TBAs, no broadcast revenue or operating expenses were recorded
for the Missouri Properties subsequent to October 31, 1997. Applications for
transfer of the broadcast licenses of the Missouri Properties have been filed
with the FCC by the buyers. A local market competitor has objected to the
transfer of the licenses and on December 12, 1997, filed with the FCC a Petition
to Deny the license transfers and to terminate the TBAs. No action has been
taken on the Petition to Deny by the FCC. The Attorney General of the State of
Missouri on January 9, 1998 filed a civil investigative demand on the Company to
provide documents in order to consider whether the proposed transactions would
violate federal or Missouri antitrust laws. The Company has complied with the
demand and no further action has been taken with the State. The Company believes
that, even if the Petition to Deny were granted, the consequences to the Company
would not be material.
During the year ended February 28, 1998, the Company acquired eleven weekly
shopping guide publications, a printing business and two print distribution
operations reaching approximately 164,000 households in the north-central
portion of the lower peninsula of Michigan (the 1998 News acquisitions).
6
Of such acquisitions, two weekly shopping guide publications and one print
distribution operation were acquired on October 1, 1997 and nine weekly shopping
guide publications, the printing business and one distribution operation were
acquired on February 23, 1998.
3. Long Term Debt
As of May 31, 1998, the Company had approximately $111 million of long-term
obligations, including the Company's 12% senior notes due 2007 (the Notes) and
Appreciation Notes due 2007 (the Appreciation Notes). The Notes are senior
unsecured obligations of BMC and a subsidiary of BMC, Brill Media Management,
Inc. (Media). The Appreciation Notes are unsecured subordinated obligations of
BMC and Media. The Notes and the Appreciation Notes are unconditionally
guaranteed, fully, jointly, and severally, by each of the Company's subsidiaries
other than Media (the Guarantors) all of which are wholly owned. BMC is a
holding company and has no operations, assets, or cash flows separate from its
investments in its subsidiaries. Accordingly, separate financial statements and
other disclosures concerning Media and the Guarantors have not been presented
because management has determined that they would not be material to investors.
ITEM 2. MANAGEMENT'S DISSCUSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General Information and Basis of Presentation
The Company is a diversified media enterprise that acquires, develops,
manages, and operates radio stations, newspapers and related businesses in
middle markets. The Company presently owns, operates, or manages fifteen radio
stations (the Stations) serving five markets located in Pennsylvania,
Kentucky/Indiana, Colorado, Minnesota/Wisconsin, and Missouri. The Company's
newspaper businesses (the Newspapers) operate integrated newspaper publishing,
printing and print advertising distribution operations, providing total-market
print advertising coverage throughout a thirty-one-county area in the central
and north-central portions of the lower peninsula of Michigan. This operation
offers a three-edition daily newspaper, twenty-two weekly publications, web
offset printing operations for Newspapers' publications and outside customers,
and private distribution systems. Mr. Brill founded the business and began its
operations in 1981. The Company's overall operations, including its sales and
marketing strategy, long-range planning, and management support services are
managed by Brill Media Company, L.P., a limited partnership indirectly owned by
Mr. Brill.
Results of Operations
The Company's unaudited consolidated financial statements tend not to be
directly comparable from period to period due to both completed acquisitions and
pending dispositions. These activities, since the first quarter and through the
end of fiscal year 1998, are identified in the notes to the consolidated
financial statements.
7
Three Months Ended May 31, 1998 Compared to Three Months Ended May 31, 1997
Revenues for the three months ended May 31, 1998 were $10.6 million, a $3.1
million or 40.9% increase from the prior comparative period. For the current
quarter, Stations' revenues represented $3.9 million and Newspapers' revenues
represented $6.7 million.
The Stations' revenues, excluding the broadcasting revenue of the Missouri
Properties, grew $.3 million or 10.1% from the prior comparative period due
to continued operations growth.
The Newspapers' revenues increased $3.1 million or 85.5% from the prior
comparative period. The 1998 News acquisitions accounted for $3.0 million
of the increase.
Operating expenses for the three months ended May 31, 1998 were $8.8
million, a $2.5 million or 40.5% increase from the prior comparative period.
The Stations' operating expenses increased primarily as a result of salary
and promotional related expenditures necessary for continued market
expansion and increased amortization expense. This increase was offset by
the elimination of the Missouri Properties' operating expenses.
The operations acquired in the 1998 News acquisitions accounted for $2.5
million of increased operating expenses.
As a result of the above, operating income for the three months ended
May 31, 1998 was $1.8 million, an increase of $.5 million or 43.0% from the
prior comparative period.
Other income (expense) for the three months ended May 31, 1998 was $2.9
million of net expense, an increase of $1.0 million or 48.7% over the prior
comparative period. This is due to an increase in interest expense and
amortization of deferred financing costs of $1.4 million associated with the
additional borrowing and financing activities for the acquisitions referenced
above, offset by $.4 million of managed affiliate interest income.
8
Liquidity and Capital Resources
Generally, the Company's operating expenses are paid before its advertising
revenues are collected. As a result, working capital requirements have increased
as the Company has grown and will likely increase in the future. During the
three months ended May 31, 1998, accounts receivable net of accounts payable
increased by $1.4 million, as a result of seasonal fluctuations and the 1998
News acquisitions.
Net cash provided by operating activities was $1.45 million for the three
months ended May 31, 1998. The increase of $1.54 million from the comparative
fiscal 1997 period is attributable to the interest on long-term debt being
payable on a monthly basis at May 31, 1997 versus semi-annually on June and
December 15 for the current year, along with the timing related to the
collection of receivables and the payment of operating expenses.
Net cash used in investing activities was $.62 million for the three months
ended May 31, 1998. The cash used in investing activities for the current
reporting period is primarily attributable to the purchase of property and
equipment. The decrease of $8.26 million in cash used in investing activities
from the comparative fiscal 1997 period is related primarily to the loans to
managed affiliates completed in May 1997.
Net cash used in financing activities was $.74 million for the three months
ended May 31, 1998. The use of cash for the current reporting period is
attributable primarily to the payment of both deferred financing costs and
existing long-term obligations. The decrease of $9.63 million in cash provided
by financing activities from the comparative fiscal 1997 period is related
primarily to the proceeds from long-term borrowings in 1997 and a decrease in
amounts due to affiliates.
Media cashflow was $3.70 million and $2.53 million for the three-month
periods ended May 31, 1998 and 1997, respectively. Media cashflow represents
revenues less operating department expenses plus interest income from loans made
by the Company to managed affiliates (which are described in the Company's
Annual Report on Form 10-K for the year ended February 28, 1998). Although media
cashflow is not a measure of performance calculated in accordance with GAAP,
management believes it is useful in evaluating the Company and is widely used in
the media industry to evaluate a media company's performance. However, media
cashflow should not be considered in isolation or as a substitute for net
income, cash flows from operating activities and other income or cash flow
statements prepared in accordance with GAAP as a measure of liquidity or
profitability. In addition, media cashflow as determined by the Company may not
be comparable to related or similar measures as reported by other companies and
does not represent funds available for discretionary use.
The Notes require semi-annual cash interest payments on each June 15 and
December 15 of $3.9 million through December 15, 1999 and $6.3 million from
June 15, 2000 until maturity. The holders of the Appreciation Notes have the
right to require redemption of the Appreciation Notes at various prices and upon
various events (including an initial public offering of equity) and dates,
including a right to require redemption of the Appreciation Notes at an
aggregate price of $24 million on June 30, 2003 if an initial public offering of
equity has not occurred on or before that date. The Company intends to redeem
the Appreciation Notes on June 15, 1999 at an aggregate price of $3 million, but
there can be no assurances that it will have sufficient resources to do so.
The Company's ability to pay interest on the Notes when due, redeem the
Appreciation Notes and to satisfy its other obligations depends upon its future
operating performance, and will be affected by financial, business, market,
technological, competitive and other conditions, developments, pressures, and
factors, many of which are beyond the control of the Company. The Company is
highly leveraged, and many of its competitors are believed to operate with much
less leverage and to have significantly greater operating and financial
flexibility and resources.
9
Historically, the Company has achieved significant growth through
acquisitions. In order for the Company to achieve needed future growth in
revenues and earnings and to replace the revenues and earnings of properties
that may be sold by one or more of the subsidiaries from time to time,
additional acquisitions may be necessary. Meeting this need for acquisitions
will depend upon several factors, including the continued availability of
suitable financing. There can be no assurance that the Company can or will
successfully acquire and integrate future operations. In connection with future
acquisition opportunities, the Company, or one or more of its subsidiaries, may
need to incur additional indebtedness or issue additional equity or debt
instruments. There can be no assurance that debt or equity financing for such
acquisitions will be available on acceptable terms, or that the Company will be
able to identify or consummate any new acquisitions.
The indenture under which the Notes were issued (the Indenture) limits the
Company's ability to incur additional indebtedness. In addition to certain other
permitted indebtedness, the Indenture permits the Company to incur indebtedness
under revolving credit facilities. Limitations in the Indenture on the Company's
ability to incur additional indebtedness, together with the highly leveraged
nature of the Company, could limit operating activities, including the Company's
ability to respond to market conditions, to provide for unanticipated capital
investments or to take advantage of business opportunities.
The Company's primary liquidity needs are to fund capital expenditures,
provide working capital, meet debt service requirements and make acquisitions.
The Company's principal sources of liquidity are expected to be cashflow from
operations, cash on hand, consummation of the sale of the Missouri Properties
and indebtedness permitted under the Indenture. The Company believes that
liquidity from such sources should be sufficient to permit the Company to meet
its debt service obligations, capital expenditures and working capital needs for
the next 12 months, although additional capital resources may be required in
connection with the further implementation of the Company's acquisition
strategy.
10
Seasonality
Seasonal revenue fluctuations are common in the newspaper and radio
broadcasting industries, caused by localized fluctuations in advertising
expenditures. Accordingly, the Stations' and Newspapers' quarterly operating
results have fluctuated in the past and will fluctuate in the future as a result
of various factors, including seasonal demands of retailers and the timing and
size of advertising purchases. Generally, in each calendar year the lowest level
of advertising revenues occurs in the first quarter and the highest levels occur
in the second and fourth quarters.
Impact of Year 2000
The Company has developed a plan to modify its information technology to
recognize the year 2000 and has identified critical data processing systems that
will be upgraded or replaced with new systems. However, it is not possible to
estimate the extent of year 2000 deficiencies in all of the Company's systems,
the costs to the Company of correcting such deficiencies and the time frame in
which any required corrections will be made. In addition, numerous uncertainties
relating to such matters exist, including the ability to locate, test and
correct or replace relevant computer codes in software and embedded
microprocessors, the availability and cost of personnel trained in this area, if
required, and the extent to which third parties will be able to timely correct
year 2000 problems which originate with such third parties, but which impact the
Company's operations. Given such uncertainties, there can be no assurances that
year 2000- related deficiencies and required corrective measures will not have a
material adverse effect on the Company's business, financial conditions or
results of operations.
Forward-Looking Statements
Certain items in this Form 10-Q constitute "forward-looking statements"
within the meaning of the Federal Private Securities Litigation Reform Act of
1995. Forward-looking statements are typically identified by the words
"believe," "expect," "anticipate," "intend," "estimate," and similar
expressions. Readers are cautioned that any such forward-looking statements are
not guarantees of future performance and that matters referred to in such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause actual results, performance or achievements of the
Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, but are not limited to, risks and uncertainties relating to
leverage, the need for additional funds, consummation of the pending
acquisitions, integration of the recently completed acquisitions, the ability of
the Company to achieve certain cost savings, the management of growth, the
introduction of new technology, changes in the regulatory environment, the
popularity of radio and newsprint as a communication/advertising medium and
changing consumer tastes. The Company undertakes no obligation to publicly
release the results of any revisions to these forward-looking statements that
may be made to reflect any future events or circumstances.
11
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibit is furnished within this report: Exhibit 27 -
Financial Data Schedule
(b) The Company on May 11, 1998 filed a report on Form 8-K to report, in Items
2 and 7 thereof, the acquisition of certain newspaper publishing, printing
and distribution assets in northern Michigan. The report included the
following financial statements as exhibits thereto:
(1) Financial Statements of Business Acquired - Star Publications, Inc.,
Central Printing Corporation and Advertiser's Postal Service
Corporation
(i) Independent Auditor's Report
(ii) Combined Balance Sheet as of December 31, 1997
(iii) Combined Statement of Income and Retained Earnings for the
year ended December 31, 1997
(iv) Combined Statement of Cash Flows for the year ended December 31,
1997
(v) Notes to Combined Financial Statements
(2) Pro Forma Financial Information of Brill Media Company, LLC
(i) Unaudited Pro Forma Condensed Combined Statement of Operations
for the year ended February 28, 1997.
(ii) Notes to Unaudited Pro Forma Condensed Combined Statement of
Operations for the year ended February 28, 1997.
(iii)Unaudited Pro Forma Condensed Combined Statement of Operations
for the nine months ended November 30, 1997.
(iv) Notes to Unaudited Pro Forma Condensed Combined Statement of
Operations for the nine months ended November 30, 1997.
(v) Unaudited Pro Forma Condensed Combined Balance Sheet as of
November 30, 1997.
(vi) Notes to Unaudited Pro Forma Condensed Combined Balance Sheet as
of November 30, 1997.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BRILL MEDIA COMPANY, LLC
By: BRILL MEDIA MANAGEMENT, INC.,
Manager
July 15, 1998 By /s/ Alan R. Brill
----------------------------------
Alan R. Brill
DIRECTOR, PRESIDENT, CHIEF
EXECUTIVE OFFICER AND TREASURER
July 15, 1998 By /s/ Donald C. TenBarge
----------------------------------
Donald C. TenBarge
VICE PRESIDENT, CHIEF FINANCIAL
OFFICER, SECRETARY AND ASSISTANT
TREASURER (PRINCIPAL FINANCIAL
AND ACCOUNTING OFFICER)
13
EXHIBIT INDEX
Exhibit Number Description of Exhibits
- -------------- -----------------------
27 Financial Data Schedule