10-Q 1 d24428_form10q.txt FORM 10-Q 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, 2000 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, 2000 and February 29, 2000 3 Consolidated Statements of Operations and Members' Deficiency for the Three and Nine Months Ended November 30, 2000 and 1999 4 Consolidated Statements of Cash Flows for the Nine Months Ended November 30, 2000 and 1999 5 Notes to Consolidated Financial Statements 6 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 14 II 6 EXHIBITS AND REPORTS ON FORM 8-K 15 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 both the three and nine month periods ended November 30, 2000 are not necessarily indicative of the results that may be expected for the year ending February 28, 2001. 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 29, 2000. 2. Dispositions and Acquisitions On November 17, 2000, certain wholly-owned subsidiaries of the Company paid $1,099 in cash to acquire 100% of the membership interests 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 29, 2000 and was indirectly owned by Mr. Brill. T4L assets constituted cash, accounts receivable, other current assets, broadcasting equipment and other assets as well as intangibles used in the radio broadcasting operations which will continue to be utilized by the Company for such purposes. In addition, T4L liabilities totaled approximately $14 million at November 17, 2000 and included accounts payable, other accrued expenses, a promissory note payable to the Company, as well as other purchase money and capital lease obligations including a capitalized lease to a related party. 6 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. In April 1999, the Company acquired a real estate magazine that has monthly distribution of approximately 20,000 households in the northwestern portion of the lower peninsula of Michigan (the 2000 News acquisition). Total consideration was $217,000, which consisted of $55,000 cash and a secured seller note valued at $162,000. The Company also entered into a six-year covenant not to compete valued at $54,000. In October 1999, the Company submitted the winning bid of $1,561,000 in accordance with the FCC rules for auctioning broadcast spectrum for a new FM radio broadcast signal in Wellington, Colorado. The Company paid the FCC an initial deposit of $312,000 in October 1999 with the balance due after final FCC authorization. In April 2000, the Company received FCC authorization and licensing of the station was completed and the remaining amount of $1,249,000 was paid. The Company expects to begin broadcasting in calendar 2001. In January 2000, the Company acquired radio station KUSZ-FM located in the Duluth, Minnesota (the 2000 Radio acquisition) market for $1,000,000 in cash and a five-year covenant not to compete valued at $156,000. The Company had been operating the radio station pursuant to a Time Brokerage Agreement (TBA) since August 1999. In February 2000, the Company sold the operating assets of its Missouri radio stations (collectively, the Missouri Properties), which had been operated pursuant to TBAs by the prospective buyer since November 1997. The sales price was $7,419,000 and resulted in a pretax gain of $6,175,000, net of related expenses. 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, 2000 and February 29, 2000) and no income or expenses since its formation in October 1997. 7 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 facility bears interest, payable monthly, at the prime rate plus 1% (effectively 10.5% at November 30, 2000) with a minimum interest rate of 8% per annum. The facility 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 facility is secured by substantially all assets of the restricted subsidiaries, as defined in the Indenture. 4. Affiliate Transactions During the first nine months of fiscal 2001, the Company entered into capital leases for leasehold improvements and equipment totaling $5,362,000 with related companies. 5. Cumulative Effect of Change in Accounting Principle The Company adopted AcSEC Statement of Position 98-5 "Reporting on the Costs of Start-Up Activities" (SOP) in the first quarter of fiscal 2000 and wrote-off, as required, $165,000 of previously capitalized start-up costs as a cumulative effect of change in accounting principle. 8 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 and nine-month periods ended November 30, regarding the Company's major operating segments is presented in the following table:

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 fourteen 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 9 the central and northern portions of the lower peninsula of Michigan. This operation offers a three-edition daily newspaper, twenty-three weekly publications, four monthly real estate guides, 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 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 November 30, 2000 Compared to Three Months Ended November 30, 1999 Revenues for the three months ended November 30, 2000 were $11.9 million, a $.3 million or 2.9% increase from the prior comparative period. For the current quarter, Stations' revenues represented $4.6 million and Newspapers' revenues represented $7.3 million. Stations' revenues, excluding the Missouri Properties, increased 4.0% from the prior comparative period. This increase is due to continuing operations growth within each market. The Newspapers' revenues increased $.3 million or 4.6% from the prior comparative period due to growth in continuing operations. Operating expenses for the three months ended November 30, 2000 were $11.0 million, a $.5 million or 4.2% increase from the prior comparative period. The Stations' operating expenses, excluding the Missouri Properties, increased .5% primarily as a result of closer monitoring of expenditures. The Newspapers' operating expenses increased $.5 million or 8.1% from the prior comparative period, primarily from additional compensation and newsprint costs. As a result of the above, operating income for the three months ended November 30, 2000 was $.9 million, a decrease of $.1 million or 11.6% from the prior comparative period. 10 Other expense for the three months ended November 30, 2000 was $4.1 million, an increase of $.1 million or 3.1% over the prior comparative period, primarily due to increased interest expense. Nine Months Ended November 30, 2000 Compared to Nine Months Ended November 30, 1999 Revenues for the nine months ended November 30, 2000 were $35.6 million, a $.9 million or 2.6% increase from the prior comparative period. For the current fiscal year, Stations' revenues represented $13.8 million and Newspapers' revenues represented $21.8 million. The Stations' revenues, excluding the Missouri Properties, grew 3.3% from the prior comparative period due to continued operations growth. The Newspapers' revenues increased $1.0 million or 4.6% from the prior comparative period due to continued growth in operations. Operating expenses for the nine months ended November 30, 2000 were $32.0 million, a $1.7 million or 5.6% increase from the prior comparative period. The Stations' operating expenses, excluding the Missouri Properties, increased $.5 million from the prior comparative period primarily as a result of compensation and administrative related expenses. The Newspapers' operating expenses increased $1.5 million or 7.9% from the prior comparative period. This increase results primarily from additional compensation and newsprint costs. As a result of the above, operating income for the nine months ended November 30, 2000 was $3.6 million, a decrease of $.8 million or 18% from the prior comparative period. Other expense for the nine months ended November 30, 2000 was $11.8 million of net expense, an increase of $.8 million or 7.4% over the prior comparative period, primarily due to increased interest expense. 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. 11 Net cash used in operating activities was $2.5 million for the nine months ended November 30, 2000. The increase of $4.7 million from the comparative fiscal 2000 period is primarily attributable to reduced earnings and increased payments of interest and management fees. Net cash used in investing activities was $.9 million for the nine months ended November 30, 2000. The cash used in investing activities for the current reporting period is primarily attributable to the final payment to the FCC for the Wellington, Colorado license and purchase of property and equipment offset by the repayment of a related party loan. The decrease in cash used in investing activities from the prior comparative reporting period was primarily related to the decease in loans to Managed Affiliates and related parties. Net cash used in financing activities was $.9 million for the nine months ended November 30, 2000. The cash used in financing activities for the current reporting period is attributable primarily to payments of long-term obligations. The decrease of $13.9 million in cash provided by financing activities from the prior comparative reporting period is related primarily to the decrease in long-term borrowings and capital contributions. Media Cashflow was $9.3 million and $9.8 million for the nine-month periods ended November 30, 2000 and 1999, 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 Managed Affiliates. EBITDA represents operating income plus depreciation and amortization expense. Media Cashflow and EBITDA as used above include the results of operations from unrestricted subsidiaries and therefore differ from the same terms as defined in the Indenture. Although Media Cashflow is not a measure of performance calculated in accordance with GAAP, management believes it is useful in evaluating the Company and measurements of cashflow are 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, the term Media Cashflow may not be comparable to related or similar measures as reported by other companies and does not represent funds available for discretionary use. In November 2000, a previous Managed Affiliate Note due January 1, 2001 was replaced when the Company issued a new Managed Affiliate Note due November 15, 2003. At November 30, 2000, loans to Managed Affiliates approximated $7.3 million, are unsecured and bear interest at the rate of 12% per annum. For the nine-month period 12 ended November 30, 2000, the Managed Affiliates reported revenues of $1.9 million, net loss of $.8 million and Media Cashflow of $.5 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 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 expected to be cashflow from operations and cash on hand. 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 nine month period ended November 30, 2000, the Company has expended $1.4 million to purchase property and equipment and projects approximately $1 million will be required during the remainder of fiscal 2001. The increase in projected 13 capital expenditures for fiscal 2001 is primarily due to the purchase of equipment for the new central Michigan facility, as well as the opportunity to purchase previously leased office buildings. 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, 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. 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, 2000, the Company has debt outstanding of approximately $137.4 million. Senior Notes with a carrying value of $103.3 million have an estimated fair value of approximately $57.8 million. The fair market value of the Company's remaining debt of $34.1 million approximates its carrying value. 14 Fixed interest rate debt totals approximately $121.0 million as of November 30, 2000 and includes: the Senior Notes which bear cash interest, payable semiannually, at a rate of 12% until maturity on December 15, 2007; and other debt, the majority of which have stated rates of 7% to 8%. The remainder of the debt totaling $16.4 million, or 11.9% of the total, is variable rate debt. The majority of such debt is the Senior Secured Facility, which currently bears interest at 10.5% (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 29, 2000). At November 30, 2000 long-term debt matures as follows:

PART II ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K The following exhibits are furnished with this report: Exhibit 27 -- Financial Data Schedule 15 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 16, 2001 By /s/ Alan R. Brill ------------------------------- Alan R. Brill DIRECTOR, PRESIDENT AND CHIEF EXECUTIVE OFFICER January 16, 2001 By /s/ Donald C. TenBarge ------------------------------- Donald C. TenBarge VICE PRESIDENT, CHIEF FINANCIAL OFFICER, SECRETARY AND TREASURER (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER) 16

BRILL MEDIA CO LLC 10-Q