UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the quarterly period ended November 30, 2002 | ||
| OR | ||
| o | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the transition period from to . | ||
| Commission file number 0-9385 | ||
Bull Run Corporation
(Exact name of registrant as specified in its charter)
| Georgia | 58-2458679 | |
| (State of incorporation or organization) | (I.R.S. Employer Identification No.) |
4370 Peachtree Road, N.E., Atlanta, GA 30319
(Address of principal executive offices) (Zip Code)
(404) 266-8333
(Registrant’s telephone number, including area code)
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. Yes x No o
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 38,634,424 shares of Common Stock, par value $.01 per share, were outstanding as of December 31, 2002.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BULL RUN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Amounts in thousands)
| November 30, | August 31, | |||||||||
| 2002 | 2002 | |||||||||
ASSETS |
||||||||||
Current assets: |
||||||||||
Cash and cash equivalents |
$ | 302 | $ | 397 | ||||||
Accounts receivable, net of allowance of $512 and $514 as of
November 30, 2002 and August 31, 2002, respectively |
20,526 | 13,502 | ||||||||
Inventories |
693 | 1,005 | ||||||||
Prepaid costs and expenses |
1,511 | 1,559 | ||||||||
Net current assets of discontinued segment |
106 | |||||||||
Total current assets |
23,032 | 16,569 | ||||||||
Property and equipment, net |
4,921 | 5,171 | ||||||||
Investment in affiliated companies |
24,600 | 25,013 | ||||||||
Goodwill |
57,862 | 57,862 | ||||||||
Customer base and trademarks |
16,695 | 16,999 | ||||||||
Deferred income taxes |
20,531 | 21,381 | ||||||||
Other assets |
7,506 | 8,818 | ||||||||
| $ | 155,147 | $ | 151,813 | |||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||
Current liabilities: |
||||||||||
Current portion of long-term debt |
$ | 93,932 | $ | 19,850 | ||||||
Accounts payable |
4,322 | 6,558 | ||||||||
Deferred revenue |
7,322 | 13,616 | ||||||||
Accrued and other liabilities |
17,438 | 8,797 | ||||||||
Total current liabilities |
123,014 | 48,821 | ||||||||
Long-term debt |
19,184 | 93,091 | ||||||||
Other liabilities |
664 | 1,284 | ||||||||
Total liabilities |
142,862 | 143,196 | ||||||||
Commitments and contingencies |
||||||||||
Redeemable Series B convertible preferred stock, $.01 par value,
(authorized 100 shares; issued and outstanding 5.4 shares; $5,400
aggregate liquidation value) |
5,400 | 5,400 | ||||||||
Stockholders’ equity: |
||||||||||
Series C convertible preferred stock, $.01 par value (authorized
100 shares;
issued and outstanding 7.1 shares with $7,097 aggregate
liquidation value
as of November 30, 2002 and 4.1 shares with $4,097
aggregate liquidation
value as of August 31, 2002) |
7,097 | 4,097 | ||||||||
Common stock, $.01 par value (authorized 100,000 shares;
issued 39,129
and 38,548 shares as of November 30, 2002 and August 31, 2002,
respectively) |
391 | 385 | ||||||||
Additional paid-in capital |
79,582 | 79,101 | ||||||||
Treasury stock, at cost (542 shares) |
(1,393 | ) | (1,393 | ) | ||||||
Other comprehensive accumulated loss |
(366 | ) | (2,050 | ) | ||||||
Retained earnings (accumulated deficit) |
(78,426 | ) | (76,923 | ) | ||||||
Total stockholders’ equity |
6,885 | 3,217 | ||||||||
| $ | 155,147 | $ | 151,813 | |||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
BULL RUN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Amounts in thousands, except per share data)
| Three Months Ended | ||||||||||||
| November 30, | ||||||||||||
| 2002 | 2001 | |||||||||||
Revenue from services rendered |
$ | 31,109 | $ | 35,718 | ||||||||
Operating costs and expenses: |
||||||||||||
Direct operating costs for services rendered |
18,066 | 27,229 | ||||||||||
Selling, general and administrative |
6,431 | 8,387 | ||||||||||
Amortization of acquisition intangibles |
304 | 204 | ||||||||||
Total operating costs and expenses |
24,801 | 35,820 | ||||||||||
Income (loss) from operations |
6,308 | (102 | ) | |||||||||
Other income (expense): |
||||||||||||
Equity in earnings (losses) of affiliated companies |
579 | (208 | ) | |||||||||
Net change in value of certain derivative instruments |
(1,674 | ) | (1,512 | ) | ||||||||
Loss on issuance of shares by affiliate |
(2,339 | ) | ||||||||||
Gain (loss) on investment dispositions and investment
valuation adjustments |
(977 | ) | 3,064 | |||||||||
Interest expense |
(2,193 | ) | (2,712 | ) | ||||||||
Debt issue cost amortization |
(544 | ) | (822 | ) | ||||||||
Other income (expense), net |
2 | 191 | ||||||||||
Loss before income taxes and extraordinary item |
(838 | ) | (2,101 | ) | ||||||||
Income tax benefit |
736 | |||||||||||
Loss before extraordinary item |
(838 | ) | (1,365 | ) | ||||||||
Proportionate share of affiliate’s extraordinary loss |
(406 | ) | ||||||||||
Net loss |
(1,244 | ) | (1,365 | ) | ||||||||
Preferred dividends |
(259 | ) | (67 | ) | ||||||||
Net loss available to common stockholders |
$ | (1,503 | ) | $ | (1,432 | ) | ||||||
Loss per share available to common stockholders,
basic and diluted: |
||||||||||||
Loss available to common stockholders before
extraordinary item |
$ | (0.03 | ) | $ | (0.04 | ) | ||||||
Extraordinary loss |
(0.01 | ) | ||||||||||
Net loss available to common stockholders |
$ | (0.04 | ) | $ | (0.04 | ) | ||||||
Weighted average number of common shares outstanding: |
||||||||||||
Basic and diluted |
38,312 | 36,024 | ||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
BULL RUN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE
PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (Unaudited)
(Amounts in thousands)
| Redeemable | ||||||||||||||||||||
| Series B | Series C | Additional | ||||||||||||||||||
| Preferred | Preferred | Common Stock | Paid-In | |||||||||||||||||
| Stock | Stock | Shares | Amount | Capital | ||||||||||||||||
As of September 1, 2002 |
$ | 5,400 | $ | 4,097 | 38,548 | $ | 385 | $ | 79,101 | |||||||||||
Issuance of Series C preferred stock |
3,000 | |||||||||||||||||||
Issuance of common stock |
581 | 6 | 481 | |||||||||||||||||
As of November 30, 2002 |
$ | 5,400 | $ | 7,097 | 39,129 | $ | 391 | $ | 79,582 | |||||||||||
| Other | Retained | |||||||||||||||||||
| Comprehensive | Earnings | Total | ||||||||||||||||||
| Treasury | Accumulated | (Accumulated | Stockholders’ | |||||||||||||||||
| Stock | Loss | Deficit) | Equity | |||||||||||||||||
As of September 1, 2002 |
$ | (1,393 | ) | $ | (2,050 | ) | $ | (76,923 | ) | $ | 3,217 | |||||||||
Issuance of Series C preferred stock |
3,000 | |||||||||||||||||||
Issuance of common stock |
487 | |||||||||||||||||||
Other comprehensive income (loss) |
1,684 | 1,684 | ||||||||||||||||||
Preferred dividends |
(259 | ) | (259 | ) | ||||||||||||||||
Net loss |
(1,244 | ) | (1,244 | ) | ||||||||||||||||
As of November 30, 2002 |
$ | (1,393 | ) | $ | (366 | ) | $ | (78,426 | ) | $ | 6,885 | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
BULL RUN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Amounts in thousands)
| Three Months Ended | ||||||||||
| November 30, | ||||||||||
| 2002 | 2001 | |||||||||
Cash flows from operating activities: |
||||||||||
Net loss |
$ | (1,244 | ) | $ | (1,365 | ) | ||||
Adjustments to reconcile net loss to net cash used in operations: |
||||||||||
Extraordinary loss |
406 | |||||||||
Provision for bad debts |
54 | 91 | ||||||||
Depreciation and amortization |
1,166 | 1,422 | ||||||||
Equity in (earnings) losses of affiliated companies |
(579 | ) | 208 | |||||||
Dividends received from affiliated company |
41 | 41 | ||||||||
Gain (loss) on dispositions of investments and valuation adjustments |
1,032 | (3,064 | ) | |||||||
Net change in value of certain derivative instruments |
1,674 | 1,512 | ||||||||
Loss on issuance of shares by affiliate |
2,339 | |||||||||
Deferred income taxes |
(736 | ) | ||||||||
Change in operating assets and liabilities: |
||||||||||
Accounts receivable |
(7,078 | ) | 271 | |||||||
Inventories |
312 | (14 | ) | |||||||
Prepaid costs and expenses |
48 | (1,354 | ) | |||||||
Accounts payable and accrued expenses |
(480 | ) | 1,092 | |||||||
Other long-term liabilities |
(534 | ) | (61 | ) | ||||||
Net cash used in continuing operations |
(2,843 | ) | (1,957 | ) | ||||||
Net cash provided by (used in) discontinued operations |
106 | (147 | ) | |||||||
Net cash used in operating activities |
(2,737 | ) | (2,104 | ) | ||||||
Cash flows from investing activities: |
||||||||||
Capital expenditures |
(67 | ) | (226 | ) | ||||||
Proceeds on sale of investments |
6,803 | |||||||||
Investment in affiliated companies |
(455 | ) | ||||||||
Increase in other assets |
487 | (29 | ) | |||||||
Net cash used in continuing operation investing activities |
420 | 6,093 | ||||||||
Net cash provided by (used in) discontinued operation investing activities |
(62 | ) | ||||||||
Net cash provided by (used in) investing activities |
420 | 6,031 | ||||||||
Cash flows from financing activities: |
||||||||||
Borrowings from revolving lines of credit |
175 | 12,300 | ||||||||
Repayments on revolving lines of credit |
(4,100 | ) | ||||||||
Repayments on long-term debt |
(12,293 | ) | ||||||||
Debt issue costs |
(953 | ) | ||||||||
Issuance of preferred stock |
3,000 | 2,400 | ||||||||
Issuance of common stock |
350 | |||||||||
Net cash provided by (used in) financing activities |
2,222 | (1,343 | ) | |||||||
Net decrease in cash and cash equivalents |
(95 | ) | 2,584 | |||||||
Cash and cash equivalents, beginning of period |
397 | (1,051 | ) | |||||||
Cash and cash equivalents, end of period |
$ | 302 | $ | 1,533 | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
BULL RUN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts)
1. BASIS OF PRESENTATION
In management’s opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting solely of normal, recurring adjustments) necessary to present fairly the financial position and results of operations for the transition and comparative period reported. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements contained in the Annual Report on Form 10-K of Bull Run Corporation for the fiscal year ended June 30, 2002.
On December 17, 1999, Bull Run Corporation (“Bull Run”) acquired the stock of Host Communications, Inc. (“Host” or “Host Communications”), Universal Sports America, Inc. and Capital Sports Properties, Inc. not previously owned, directly or indirectly, by Bull Run (the “Host-USA Acquisition”). All operations of the acquired entities are now combined under Host.
The accompanying condensed consolidated financial statements include the accounts of Bull Run and its wholly owned subsidiaries (collectively, unless the context otherwise requires, the “Company”), after elimination of intercompany accounts and transactions.
In 2002, the Company changed its fiscal year end from June 30 to August 31, and filed with the U.S. Securities and Exchange Commission a Form 10-Q for the transition period July 1, 2002 to August 31, 2002. Condensed consolidated operating results and cash flows for the quarterly period ended November 30, 2001 are presented herein for comparative purposes.
Unless otherwise indicated, amounts provided in these notes to the consolidated financial statements pertain to continuing operations.
2. DISCONTINUED OPERATION
On September 29, 2000, the Company consummated the sale of the inventories, property and equipment and intangible assets of Datasouth Computer Corporation (“Datasouth”), a wholly owned subsidiary, for cash and an installment note payable. Accordingly, the operating results and net assets associated with Datasouth’s computer printer manufacturing business have been reported as discontinued operations in the accompanying financial statements. To the extent actual proceeds ultimately received on the sale differ from estimates that are reported as of August 31, 2002, such differences will be reported as discontinued operations in future periods.
3. SUPPLEMENTAL CASH FLOW DISCLOSURES
Supplemental cash flow information follows:
| Three Months Ended | |||||||||
| November 30, | |||||||||
| 2002 | 2001 | ||||||||
Interest paid |
$ | 2,433 | $ | 2,858 | |||||
Income taxes paid (recovered) |
9 | (333 | ) | ||||||
Noncash investing and financing activity: |
|||||||||
Issuance of common stock primarily in
connection with debt issuance costs |
$ | 487 | |||||||
6
4. INVESTMENT IN AFFILIATED COMPANIES
The Company’s investment in affiliated companies is comprised of the following:
| November 30, 2002 | August 31, 2002 | |||||||||||||||
| Amount | Voting % | Amount | Voting % | |||||||||||||
Gray Television, Inc. |
$ | 17,125 | 18.0 | % | $ | 19,102 | 26.1 | % | ||||||||
Rawlings Sporting Goods
Company, Inc. |
6,170 | 10.1 | % | 4,377 | 10.1 | % | ||||||||||
iHigh, Inc. |
1,305 | 35.1 | % | 1,534 | 35.1 | % | ||||||||||
| $ | 24,600 | $ | 25,013 | |||||||||||||
The Company accounts for its investments in Gray Television, Inc. (“Gray”), and iHigh, Inc. (“iHigh”) using the equity method. Gray’s two classes of common stock are publicly traded on the New York Stock Exchange under the symbols “GTN.A” and “GTN”. The Company accounts for its investment in Rawlings Sporting Goods Company, Inc. (“Rawlings”) as an “available-for-sale” marketable security. As a result, the Company’s carrying value of its investment in Rawlings is based on the closing price of Rawlings’ common stock as quoted on the Nasdaq Stock Market, and is included as a component of “Investment in affiliated companies.” Subsequent to November 30, 2002, the Company’s investment in Rawlings was sold in the open market for cash of $6,