10-Q 1 f103q01.txt THIRD QUARTER 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 NOVEMBER 30, 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 November 30, 2001 and February 28, 2001 3 Consolidated Statements of Operations and Members' Deficiency for the Three Months and Nine Months Ended November 30, 2001 and 2000 4 Consolidated Statements of Cash Flows for the Nine Months Ended November 30, 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 14 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)

See accompanying notes to the consolidated financial statements. 4 Brill Media Company, LLC (A Limited Liability Company) Consolidated Statements of Cash Flows (Unaudited)

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 and nine month period ended November 30, 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 November 30, 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 November 30, 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. Due to weakened economic conditions, the contraction of the financial markets and the general state of affairs following the terrorist attacks of September 11, 2001, the Company did not have sufficient cash available to make its semi-annual interest payment on the Senior Notes of $6.3 million on December 17, 2001. The Company was notified by the Trustee of the Senior Notes that continued failure to make the interest payment would constitute an event of default under the terms of the Indenture. Following an event of default, the Indenture permits the Trustee or the Holders of 25% in aggregate principal amount of the Senior Notes to declare the entire principal amount of the Senior Notes plus accrued interest, due and payable immediately. In addition, as of January 14, 2002, the Company failed to comply with certain covenants related to earnings coverage contained in the Senior Secured Facility. As a result, the Senior Secured Facility and certain other debt obligations would be in default and may be accelerated under the terms of their respective loan agreements. The Company and Mr. Brill have been exploring, and continue to explore, possible remedies to cure the defaults. These remedies include the sale of strategic assets and financing options that would allow related parties to repay amounts owed to the Company. 7 4. Affiliate Transactions In November 2001, the Company loaned $1,270,000 to related parties. Interest accrues on the notes at the prime rate and is payable annually until maturity in December 2003 and November 2004. 5. Recently Issued Accounting Pronouncements In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS 141") and No 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141, which became effective on July 1, 2001, eliminated the use of pooling of interests for all business combinations initiated after June 29, 2001 and also established specific criteria for the recognition of intangible assets separate from goodwill. SFAS 142 requires that a company no longer amortize the goodwill and intangible assets determined to have an indefinite life and also requires an annual impairment testing of those assets. The Company is required to adopt SFAS 142 on March 1, 2002 and is currently evaluating the full impact this standard will have on the consolidated financial statements. SFAS 142 could have a material impact on the financial statements as amortization of goodwill and certain other intangible assets represent a significant expense for the Company. 6. 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 and nine month period ended November 30, 2001 and 2000 regarding the Company's major operating segments is presented in the following table:

8 Depreciation and amortization expense: Radio 459,564 462,249 1,391,703 1,391,437 News 495,896 445,783 1,587,386 1,273,132 ------------------------------------------------------------------------ Total 955,460 908,032 2,979,089 2,664,569 Capital expenditures: Radio 54,028 125,074 144,795 484,211 News 95,564 290,100 266,301 896,611 ------------------------------------------------------------------------ Total 149,592 415,174 411,096 1,380,822

7. Subsequent Events Effective December 20, 2001, a corporate subsidiary revoked its "S" corporation status under the Internal Revenue Code and reverted to "C" corporation. 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. As of November 30, 2001, the Company 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 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. Recent Developments The Company failed to make a cash interest payment of $6.3 million on its Senior Notes on December 17, 2001. The Company and Mr. Brill are actively exploring alternatives to restructure the capital of the Company. See "Liquidity and Capital Resources." 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. 9 Three Months Ended November 30, 2001 Compared to Three Months Ended November 30, 2000 Revenues for the three months ended November 30, 2001 were $10.9 million, a $.9 million or 8% decrease from the prior comparative period. For the current quarter, Stations' revenues represented $4.2 million and Newspapers' revenues represented $6.7 million. Stations' revenues decreased $.4 million or 10% from the prior comparative period and the Newspapers' revenues decreased $.5 million or 7% from the prior comparative period. Both decreases were due to general economic conditions in the Company's markets, including weaker demand for advertising and the general state of affairs following the terrorist attacks of September 11, 2001. Operating expenses for the three months ended November 30, 2001 were $10.9 million, which remained relatively unchanged from the prior comparative period. As a result of the above, operating income for the three months ended November 30, 2001 was $.1 million, a decrease of $.8 million or 94% from the prior comparative period. Other expense for the three months ended November 30, 2001 was $4.1 million, which remained unchanged from the prior comparative period. Net loss for the three months ended November 30, 2001 was $4.1 million, an increase in loss of $0.9 million or 26% over the prior comparative period. This was primarily due to a reduction in revenue while maintaining adequate operational resources. Nine Months Ended November 30, 2001 Compared to Nine Months Ended November 30, 2000 Revenues for the nine months ended November 30, 2001 were $33.8 million, a $1.8 million or 5% decrease from the prior comparative period. For the year to date, Stations' revenues represented $13.0 million and Newspapers' revenues represented $20.8 million. Stations' revenues decreased $.8 million or 6% from the prior comparative period and the Newspapers' revenues decreased $1.0 million or 5% from the prior comparative period. Both decreases were again due to general economic conditions in the Company's markets, including weaker demand for advertising and the general state of affairs following the terrorist attacks of September 11, 2001. 10 Operating expenses for the nine months ended November 30, 2001 were $32.1 million, which remained relatively unchanged from the prior comparative period. As a result of the above, operating income for the nine months ended November 30, 2001 was $1.7 million, a decrease of $1.9 million or 53% from the prior comparative period. Other expense for the nine months ended November 30, 2001 was $11.9 million, a $.1 million or 1% increase from the prior comparative period. Net loss for the nine months ended November 30, 2001 was $10.4 million, an increase in loss of $2.2 million or 26% over the prior comparative period. This difference is primarily due to a decrease in revenues and interest income reflective of reduced cash levels. 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 used in operating activities was $3.3 million for the nine months ended November 30, 2001. The increase of $.8 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, management fees and related party interest. Net cash used in investing activities was $1.4 million for the nine months ended November 30, 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 related parties including the managed affiliate. The cash used in investing activities increased by $.5 million. The largest components during the prior comparative reporting period related to the final payment made to the FCC for the Wellington, Colorado license and the purchase of property and equipment offset by decrease in loans from related parties. Net cash used in financing activities was $0.9 million for the nine months ended November 30, 2001. The cash used by financing activities for the current reporting period is attributable primarily to a decrease in amounts payable to related parties and the principal payment of long-term obligations. Overall the cash used in financing activities remained the same as the prior comparative period, however, the composition of the activities was different. The largest component used in financing activities during the prior comparative reporting period was related to the principal payment of long-term obligations. Media Cashflow was $7.7 million and $9.3 million for the nine-month periods ended November 30, 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 11 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 cash flow 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 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 $8.9 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 nine month period ended November 30, 2001, the Managed Affiliate reported revenues of $1.8 million, net loss of $.9 million and Media Cashflow of $.4 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 its ability to obtain funding from other sources, 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. Due to weakened economic conditions, the contraction of the financial markets and the general state of affairs following the terrorist attacks of September 11, 2001, the Company did not have sufficient cash available to make its semi-annual interest payment on the Senior Notes of $6.3 million on December 17, 2001. The Company was notified by the Trustee of the Senior Notes that continued failure to make the interest payment would constitute an event of default under the terms of the Indenture. Following an event of default, the Indenture permits the Trustee or the Holders of 25% in aggregate principal amount of the Senior Notes to declare the entire principal amount of the Senior Notes plus accrued interest, due and payable immediately. In addition, as of January 14, 2002, the Company failed to comply with certain covenants related to earnings coverage contained in the Senior Secured Facility. As a result, the Senior Secured Facility and certain other debt obligations would be in default and may be accelerated under the terms of their respective loan agreements. 12 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 and meet debt service requirements. Historically, the Company's principal sources of liquidity have been cash on hand, cashflow from operations, repayments on notes receivable, proceeds from sales of properties and indebtedness permitted under the Indenture. The Company has limited ability to incur additional indebtedness under the Indenture and to meet its liquidity needs during the next 12 months, the Company may need to receive a prepayment on its notes receivable, or to sell some of its properties. The Company cannot give any assurance that it will be able to achieve either of these alternatives on terms acceptable to it. Furthermore, the Company does not have sufficient funds to pay any indebtedness which may be accelerated as a result of the Company's aforementioned defaults. Currently, the Company and Mr. Brill have been exploring, and continue to explore, possible remedies to cure the aforementioned defaults on indebtedness. These remedies include the sale of strategic assets and financing options that would allow related parties to repay amounts owed to the Company. In addition, the Company and Mr. Brill are actively exploring alternatives to restructure the capital of the Company. These alternatives may include a sale or transfer of part or all of the equity ownership of the Company, purchases of the Senior Notes at market prices by related or unrelated buyers, or a combination of these or other measures. The Company cannot provide any assurance that any of these remedies or alternatives will be consummated, and cannot provide any assurance that consummation of these measures would benefit the holders of the Senior Notes. During the nine month period ended November 30, 2001, the Company has expended $.4 million to purchase property and equipment and projects approximately $.2 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 13 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, the ability of the Company to sell properties or restructure its capital, 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. 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 November 30, 2001, the Company has debt outstanding of approximately $136.2 million. Senior Notes with a carrying value of $103.6 million have an estimated fair value of approximately $34.7 million. The fair value of the Senior Notes is estimated based on market trading activity in the Senior Notes and price estimates used by national brokerage firms, however, as there are few holders of the Senior Notes and minimal trading activity has occurred and as a result of the Company's default in payment of its interest on the Senior Notes, the fair value, if any, of the Senior Notes may vary significantly from the estimate. The fair market value of the Company's remaining debt of $32.7 million approximates its carrying value. Fixed interest rate debt totals approximately $119.9 million as of November 30, 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 $16.3 million, or 12% of the total, is variable rate debt. The majority of such debt is the Senior Secured Facility, 14 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).

15 PART II ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K None. 16 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 January 14, 2002 By /s/ Alan R. Brill ---------------------------------- Alan R. Brill DIRECTOR, PRESIDENT AND CHIEF EXECUTIVE OFFICER January 14, 2002 By /s/ Donald C. TenBarge ---------------------------------- Donald C. TenBarge VICE PRESIDENT, CHIEF FINANCIAL OFFICER, SECRETARY AND TREASURER (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER) 17

BRILL MEDIA CO LLC 10-Q