10-Q 1 brill10q1q01.txt 1ST Q 2001 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 ------------------------------------------- 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) (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 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

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).

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

BRILL MEDIA CO LLC 10-Q