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, 2001
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ----- SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
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Commission File Number: 333-44177
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BRILL MEDIA COMPANY, LLC
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(Exact name of registrant as specified in its charter)
Virginia 52-2071822
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(State of Formation) (I.R.S. Employer Identification No.)
420 N.W. Fifth Street
Evansville, Indiana 47708
(address of principal executive offices)
(812) 423-6200
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act: None
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Securities registered pursuant to Section 12 (g) of the Act: None
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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
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TABLE OF CONTENTS
PART NO. ITEM NO. Page No.
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I 1 FINANCIAL STATEMENTS
Consolidated Statements of Financial Position
as of May 31, 2001 and February 28, 2001 3
Consolidated Statements of Operations and
Members' Deficiency for the Three Months
Ended May 31, 2001 and 2000 4
Consolidated Statements of Cash Flows for the
Three Months Ended May 31, 2001 and 2000 5
Notes to Consolidated Financial Statements 6
2 MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 8
3 QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK 13
II 6 EXHIBITS AND REPORTS ON
FORM 8-K 13
2
PART I
ITEM 1. FINANCIAL STATEMENTS
Brill Media Company, LLC
(A Limited Liability Company)
Consolidated Statements of Financial Position
May 31 February 28
2001 2001
------------------------------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 5,119,021 $ 6,123,340
Accounts receivable, net 6,781,026 5,735,542
Inventories 502,255 533,546
Other current assets 801,844 660,059
------------------------------------
Total current assets 13,204,146 13,052,487
Notes receivable from managed affiliates 8,584,595 8,302,167
Property and equipment 31,264,083 31,150,125
Less: Accumulated depreciation (11,132,404) (10,580,030)
------------------------------------
Net property and equipment 20,131,679 20,570,095
Goodwill and FCC licenses, net 20,655,031 20,796,324
Covenants not to compete, net 1,888,051 2,136,170
Other assets, net 4,633,108 4,864,591
Amounts due from related parties 4,545,871 4,466,268
------------------------------------
$ 73,642,481 $ 74,188,102
====================================
Liabilities and members' deficiency
Current liabilities:
Amounts payable to related parties $ 2,666,035 $ 3,372,480
Accounts payable 1,338,437 1,017,897
Accrued payroll and related expenses 948,636 961,041
Accrued interest 5,881,674 2,753,111
Other accrued expenses 101,222 80,896
Current maturities of long-term obligations 1,321,903 1,332,628
------------------------------------
Total current liabilities 12,257,907 9,518,053
Long-term notes and other obligations 134,689,989 134,923,297
Members' deficiency (73,305,415) (70,253,248)
------------------------------------
$ 73,642,481 $ 74,188,102
====================================
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
2001 2000
------------------------------
Revenues $ 11,432,306 $ 11,792,330
Operating expenses:
Operating departments 8,838,228 8,653,582
Management fees 737,759 763,076
Time brokerage agreement fees, net 3,000 -
Depreciation 552,372 476,845
Amortization 390,988 387,007
------------------------------
10,522,347 10,280,510
------------------------------
Operating income 909,959 1,511,820
Other income (expense):
Interest income - managed affiliates 282,428 235,601
Interest income- advances from/loans to
related parties, net 76,274 114,613
Interest income - other 47,459 221,838
Interest expense - long-term notes and
other obligations (4,051,535) (3,999,539)
Amortization of deferred financing costs (227,402) (218,206)
Loss on sale of assets, net - (17,296)
Other, net (36,724) (40,931)
------------------------------
(3,909,500) (3,703,920)
------------------------------
Loss before income taxes (2,999,541) (2,192,100)
Income tax provision 52,626 58,003
------------------------------
Net loss (3,052,167) (2,250,103)
Members' deficiency, beginning of period (70,253,248) (58,769,008)
Capital contributions - 2,000
------------------------------
Members' deficiency, end of period $(73,305,415) $(61,017,111)
==============================
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
2001 2000
------------------------------
Operating activities
Net loss $(3,052,167) $(2,250,103)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 943,360 863,852
Amortization of deferred financing costs and 291,583 287,645
original issue discount
Management fees accrual 107,761 281,040
Related parties interest accrual (109,246) (76,228)
Loss on sale of assets, net - 17,296
Changes in operating assets and liabilities,
net of the effect of acquisitions:
Accounts receivable (1,045,484) (1,567,428)
Other current assets (110,494) (107,807)
Accounts payable 320,540 615,945
Other accrued expenses 3,136,484 3,296,908
------------------------------
Net cash provided by operating activities 482,337 1,361,120
Investing activities
Purchase of property and equipment (113,958) (650,753)
Purchase of radio stations and FCC licenses - (1,248,800)
Proceeds from sale of assets - 27,261
Loans to managed affiliates (282,428) -
Decrease in other assets 2,502 17,562
------------------------------
Net cash used in investing activities (393,884) (1,854,730)
Financing activities
Increase (decrease) in amounts payable to
related parties (784,558) 328,388
Payment of deferred financing costs and other - (30,503)
Principal payments on long-term obligations (308,214) (334,278)
Proceeds from long-term borrowings - 79,177
Capital contributions - 2,000
------------------------------
Net cash provided by (used in) financing
activities (1,092,772) 44,784
------------------------------
Net decrease in cash and cash equivalents (1,004,319) (448,826)
Cash and cash equivalents at beginning of period 6,123,340 17,101,966
------------------------------
Cash and cash equivalents at end of period $ 5,119,021 $16,653,140
==============================
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-month period ended May 31, 2001 are not necessarily
indicative of the results that may be expected for the year ending February 28,
2002. 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, 2001.
2. Dispositions and Acquisitions
In November 2000, certain wholly-owned subsidiaries of the Company paid
$1,099 in cash to acquire 100% of the membership interest of TSB IV, LLC (T4L),
a Virginia limited liability company, pursuant to an Agreement for Transfer of
Membership Interest. Simultaneously, Mr. Brill made a capital contribution of
$1,099 in cash to the Company. Prior to the transaction, T4L had been a "managed
affiliate" of the Company as described in Note 9 to the consolidated financial
statements included in the Annual Report on Form 10-K of the Company for the
fiscal year ended February 28, 2001 and was indirectly owned by Mr. Brill.
The consolidated financial statements give retroactive effect to the
acquisition of T4L, which was accounted for similar to a pooling-of-interests
due to the related party nature of the transaction. Accordingly, the net assets
acquired from T4L were recorded at T4L's book value and the results of
operations of the Company include the historical results of operations of T4L.
T4L assets, at book value, included current assets of $394,000,
broadcasting equipment of $1,501,000 and intangibles of $5,770,000. T4L
liabilities totaled approximately $14 million at November 17, 2000 and included
accounts payable, other accrued expenses, a promissory note payable of
$12,906,000 to the Company, as well as other purchase money and capital lease
obligations including a capitalized lease to a related party.
6
3. Long Term Debt
Long-term obligations include the Company's 12% senior notes due 2007
(the Senior Notes). The Senior Notes are senior unsecured obligations of BMC and
a subsidiary of BMC, Brill Media Management, Inc. (Media). The Senior Notes are
unconditionally guaranteed, fully, jointly, and severally, by each of the direct
and indirect subsidiaries of BMC, 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
concerning the subsidiaries have not been presented because management has
determined that they would not be material to investors.
Media has minimal assets and liabilities ($100 cash and $100 capital at
May 31, 2001 and February 28, 2001) and no income or expenses since its
formation in October 1997.
In October 1999, as permitted under the Indenture governing the Senior
Notes (the Indenture), the Company borrowed $15 million under a secured credit
facility with a senior lender (the Senior Secured Facility), which matures
October 2004. The Senior Secured Facility bears interest, payable monthly, at
the prime rate plus 1% (effectively 8.0% at May 31, 2001) with a minimum
interest rate of 8% per annum and restricts the Company from essentially the
same defined limitations as contained in the Indenture and includes certain
financial covenants with respect to earnings and asset coverage. The Senior
Secured Facility is secured by substantially all assets of the restricted
subsidiaries, as defined in the Indenture.
7
4. Operating Segments
The Company has two operating segments: operation of AM and FM radio
stations and publication of daily and weekly newspapers and shoppers.
Information for the three month period ended May 31, regarding the Company's
major operating segments is presented in the following table:
Three Months Ended May 31
2001 2000
--------------------------------
Revenues:
Radio $ 4,276,562 $ 4,495,463
News 7,155,744 7,296,867
--------------------------------
Total 11,432,306 11,792,330
Operating income:
Radio 324,166 568,571
News 585,793 943,249
--------------------------------
Total 909,959 1,511,820
Total assets:
Radio 43,084,289 50,616,689
News 30,558,192 34,440,176
--------------------------------
Total 73,642,481 85,056,865
Depreciation and amortization
expense:
Radio 468,480 463,097
News 474,880 400,755
--------------------------------
Total 943,360 863,852
Capital expenditures:
Radio 45,719 202,766
News 68,239 447,987
--------------------------------
Total 113,958 650,753
ITEM 2. MANAGEMENT'S DISCUSSION 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 thirteen radio stations
(the Stations) serving four markets located in Pennsylvania, Kentucky/Indiana,
Colorado and Minnesota/Wisconsin. 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-six-county area in the central and northern
portions of the lower peninsula of Michigan. This operation
8
offers a two-edition daily newspaper, twenty-three weekly publications, two
monthly real estate guides, two web offset printing operations for Newspapers'
publications and outside customers and three 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 and pending
acquisitions and dispositions. These activities are identified in the notes to
the audited and unaudited consolidated financial statements of the Company.
Three Months Ended May 31, 2001 Compared to Three Months Ended May 31, 2000
Revenues for the three months ended May 31, 2001 were $11.4 million, a
$.4 million or 3% decrease from the prior comparative period. For the current
quarter, Stations' revenues represented $4.3 million and Newspapers' revenues
represented $7.1 million.
Stations' revenues decreased $.2 million or 5% from the prior
comparative period. This decrease is due to a slower economy and a
weaker demand for advertising.
The Newspapers' revenues decreased $.1 million or 2% from the prior
comparative period.
Operating expenses for the three months ended May 31, 2001 were $10.5
million, a $.2 million or 2% increase from the prior comparative period.
The Stations' operating expenses remained constant with the same prior
year comparative period.
The Newspapers' operating expenses increased $.2 million or 2% from the
prior comparative period.
As a result of the above, operating income for the three months ended
May 31, 2001 was $.9 million, a decrease of $.6 million or 40% from the prior
comparative period.
Other expense for the three months ended May 31, 2001 was $3.9 million,
an increase of $.2 million or 6% over the prior comparative period, primarily
due to decreased interest income.
9
Net loss for the three months ended May 31, 2001 was $3 million, an
increase in loss of $0.8 million or 35.6% over the prior comparative period.
This is primarily due to reduced revenue and the increases in operating
expenses, as well as a decrease in interest income as noted above.
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.
Net cash provided by operating activities was $.5 million for the three
months ended May 31, 2001. The decrease of $.9 million from the comparative
fiscal 2001 period is primarily attributable to the increased net loss offset by
the timing related to the collection of receivables and the payment of operating
expenses.
Net cash used in investing activities was $.4 million for the three
months ended May 31, 2001. The cash used in investing activities for the current
reporting period is primarily attributable to purchase of property and equipment
and additional loans to the managed affiliate. The additional $1.5 million in
cash used in investing activities during the prior comparative reporting period
was related to the final payment made to the FCC for the Wellington, Colorado
license coupled with the expenditure for property and equipment.
Net cash used in financing activities was $1.1 million for the three
months ended May 31, 2001. The cash used in financing activities for the current
reporting period is attributable primarily to the decrease in amounts payable to
related parties and payments of long-term obligations. The decrease of $1.1
million in cash provided by financing activities from the prior comparative
reporting period is related primarily to the decrease in amounts payable to
related parties.
Media Cashflow was $2.9 million and $3.4 million for the three-month
periods ended May 31, 2001 and 2000, respectively. Media Cashflow represents
EBITDA plus incentive plan expense, management fees, time brokerage fees paid,
acquisition related consulting expense, and interest income from loans made by
the Company to the Managed Affiliate. EBITDA represents operating income plus
depreciation and amortization expense. Media Cashflow and EBITDA as used above
include the results of unrestricted subsidiaries and therefore differ from the
same terms as defined in the Indenture.
Although Media Cashflow and EBITDA are not measures of performance
calculated in accordance with GAAP, management believes that they are useful
measures in evaluating the Company and that measurements of cashflow are widely
used in the media industry to evaluate a media company's performance. However,
Media Cashflow and EBITDA should not be considered in isolation or as a
substitute for net income, cash
10
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, the terms Media Cashflow and EBITDA as determined by
the Company may not be comparable to related or similar measures as reported by
other companies and do not represent funds available for discretionary use.
The Company has loaned $8.6 million to a Managed Affiliate and received
in return a Managed Affiliate Note, which is unsecured, matures on November 15,
2003 and bears interest at the rate of 12% per annum. For the three month period
ended May 31, 2001, the Managed Affiliate reported revenue of $.6 million, net
loss of $.3 million and Media Cashflow of $.2 million.
The Senior Notes require semi-annual cash interest payments on each June
15 and December 15 of $6.3 million until maturity.
The Company's ability to pay interest on the Senior Notes and the Senior
Secured Facility when due, 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.
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 limits the Company's ability to incur additional indebtedness.
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 and 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 cashflow from operations, cash
on hand, repayments on
11
notes receivable, proceeds from sales of 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.
During the three month period ended May 31, 2001, the Company has
expended $.1 million to purchase property and equipment and projects
approximately $.9 million will be required during the remainder of fiscal 2001.
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.
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, 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.
12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risk sensitive instruments do not subject the
Company to material risk exposures, except for such risks related to interest
rate fluctuations. As of May 31, 2001, the Company has debt outstanding of
approximately $136.0 million. Senior Notes with a carrying value of $103.5
million have an estimated fair value of approximately $52.6 million. The fair
market value of the Company's remaining debt of $32.5 million approximates its
carrying value.
Fixed interest rate debt totals approximately $119.6 million as of May
31, 2001 and includes: the Senior Notes which bear cash interest, payable
semiannually, at a rate of 12% until maturity on December 15, 2007; other debt
with stated rates of 7% to 10%; and capital leases with effective rates of 12%.
The remainder of the debt totaling $16.4 million, or 12% of the total, is
variable rate debt. The majority of such debt is the Senior Secured Facility,
which currently bears interest at 8.0% (all of which are described in the notes
to the consolidated financial statements included in the Company's Annual Report
on Form 10-K for the year ended February 28, 2001).
At May 31, 2001 long-term debt matures as follows:
(in Millions)
==========================================================================================
Fiscal Year 2002 2003 2004 2005 2006 Thereafter Total
- ------------------------------------------------------------------------------------------
Senior Notes, $ - $ - $ - $ - $ - $103.5 $103.5
net of
unamortized
discount of
$1.5
Senior Secured
Facility 15.0 15.0
Other 1.3 1.4 3.4 1.4 .8 9.2 17.5
----------------------------- ------------------------------ ----------
$1.3 $1.4 $3.4 $16.4 $ .8 $112.7 $136.0
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PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are furnished with this report:
Exhibit 99 - Press Release
13
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 16, 2001 By: /s/ Alan R. Brill
----------------------------------
Alan R. Brill
DIRECTOR, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
July 16, 2001 By: /s/ Donald C. TenBarge
----------------------------------
Donald C. TenBarge
VICE PRESIDENT, CHIEF FINANCIAL
OFFICER, SECRETARY AND TREASURER
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
14
EXHIBIT INDEX
Exhibit Number Description of Exhibits
- -----------------------------------------------------------------------------
99 Press Release
15