-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KSm/ZK1X4s/SKHG0HXil6N3EnneM4UdZSk8pUNptj29OcdDW1mtFoZQN0tPMJLgA +qhelrFPadXSxynMAPqL3Q== 0000950144-00-006801.txt : 20000516 0000950144-00-006801.hdr.sgml : 20000516 ACCESSION NUMBER: 0000950144-00-006801 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BULL RUN CORP CENTRAL INDEX KEY: 0000319697 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 911117599 STATE OF INCORPORATION: GA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-09385 FILM NUMBER: 634564 BUSINESS ADDRESS: STREET 1: 4370 PEACHTREE RD NE CITY: ATLANTA STATE: GA ZIP: 30319 BUSINESS PHONE: 4042668333 MAIL ADDRESS: STREET 1: 4310 PEACHTREE ROAD N.E. CITY: ATLANTA STATE: GA ZIP: 30319 FORMER COMPANY: FORMER CONFORMED NAME: BULL RUN GOLD MINES LTD DATE OF NAME CHANGE: 19920703 10-Q 1 BULL RUN CORPORATION 1 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 MARCH 31, 2000 OR 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 (I.R.S. Employer or organization) 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 [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 34,926,630 shares of Common Stock, par value $.01 per share, were outstanding as of April 30, 2000. 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS BULL RUN CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, June 30, 2000 1999 ------------- ------------- ASSETS Current assets: Cash and cash equivalents $ 158,068 $ 323,202 Accounts and notes receivable 54,982,904 3,927,085 Inventories 7,183,400 5,504,597 Prepaid costs and expenses 12,963,674 160,041 ------------- ------------- Total current assets 75,288,046 9,914,925 Property and equipment, net 9,125,359 2,620,345 Investment in affiliated companies 84,527,909 85,311,175 Goodwill 73,742,014 7,417,146 Deferred acquisition costs 673,605 Other assets 25,756,348 160,967 ------------- ------------- $ 268,439,676 $ 106,098,163 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable and current portion of long-term debt $ 10,000,000 $ 67,360,921 Accounts payable 3,478,886 1,951,357 Accrued expenses: Employee compensation and related taxes 1,168,126 417,492 Incurred unbilled costs 9,322,613 Guaranteed rights fees 14,554,453 Interest 1,908,929 578,698 Other 5,192,304 1,202,019 Deferred revenue 13,028,408 Deferred income taxes 967,462 ------------- ------------- Total current liabilities 59,621,181 71,510,487 Long-term debt 117,494,013 Deferred income taxes 6,738,079 4,408,711 Other liabilities 2,587,390 2,185,433 Stockholders' equity: Common stock, $.01 par value (authorized 100,000,000 shares; issued 35,468,364 and 22,983,271 shares as of March 31, 2000 and June 30, 1999, respectively) 354,684 229,832 Additional paid-in capital 75,978,561 21,839,571 Treasury stock, at cost (542,004 shares) (1,392,430) (1,392,430) Retained earnings 7,058,198 7,316,559 ------------- ------------- Total stockholders' equity 81,999,013 27,993,532 ------------- ------------- $ 268,439,676 $ 106,098,163 ============= =============
See accompanying notes to condensed consolidated financial statements. 3 BULL RUN CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Nine Months Ended March 31, March 31, ------------------------------- ------------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Net revenues: Revenue from services rendered $ 39,426,195 $ 195,298 $ 46,816,168 $ 1,161,558 Revenue from computer printer operations 5,472,932 7,532,940 20,361,545 23,223,429 ------------ ------------ ------------ ------------ 44,899,127 7,728,238 67,177,713 24,384,987 Operating costs and expenses: Direct operating costs for services rendered 25,992,404 31,027,961 Cost of revenue from printer operations 4,099,375 5,374,925 14,716,257 16,841,332 Selling, general and administrative 10,006,703 1,634,532 14,556,499 4,529,623 Research and development 482,344 705,641 1,451,204 1,874,757 ------------ ------------ ------------ ------------ 40,580,826 7,715,098 61,751,921 23,245,712 ------------ ------------ ------------ ------------ Operating income (loss) before goodwill amortization 4,318,301 13,140 5,425,792 1,139,275 Goodwill amortization 1,254,457 132,474 1,715,513 378,059 ------------ ------------ ------------ ------------ Operating income (loss) 3,063,844 (119,334) 3,710,279 761,216 Other income (expense): Equity in earnings (losses) of affiliated companies (514,145) (469,680) (647,832) 6,410,281 Gain on issuance of shares by affiliate 2,492,231 Interest and dividend income 243,932 226,365 698,965 748,918 Interest expense (2,817,054) (1,205,033) (5,791,752) (3,351,053) Debt issue cost amortization (414,713) (7,795) (529,183) (23,385) Other income (expense), net 172,232 (2,111) 559,462 (121,749) ------------ ------------ ------------ ------------ Income (loss) before income taxes (265,904) (1,577,588) 492,170 4,424,228 Income tax benefit (expense) (515,528) 520,604 (750,531) (1,839,490) ------------ ------------ ------------ ------------ Net income (loss) $ (781,432) $ (1,056,984) $ (258,361) $ 2,584,738 ============ ============ ============ ============ Earnings (loss) per share: Basic $ (0.02) $ (0.05) $ (0.01) $ 0.12 Diluted $ (0.02) $ (0.05) $ (0.01) $ 0.11
See accompanying notes to condensed consolidated financial statements. 3 4 BULL RUN CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
Common Stock Additional Total ------------------------ Paid-In Treasury Retained Stockholders' Shares Amount Capital Stock Earnings Equity ---------- --------- ----------- ----------- ---------- ------------ Balances, June 30, 1999 22,983,271 $ 229,832 $21,839,571 $(1,392,430) $7,316,559 $ 27,993,532 Issuance of common shares in connection with acquisition 11,687,164 116,872 43,441,188 43,558,060 Issuance of stock options in connection with acquisition 8,700,000 8,700,000 Issuance of common shares in connection with bank debt guarantee 304,688 3,047 1,215,705 1,218,752 Exercise of stock options 493,241 4,933 668,036 672,969 Income tax benefit of stock options exercised 114,061 114,061 Net loss (258,361) (258,361) ---------- --------- ----------- ----------- ---------- ------------ Balances, March 31, 2000 35,468,364 $ 354,684 $75,978,561 $(1,392,430) $7,058,198 $ 81,999,013 ========== ========= =========== =========== ========== ============
See accompanying notes to condensed consolidated financial statements. 4 5 BULL RUN CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended March 31, ------------------------------- 2000 1999 ------------ ------------ Cash flows from operating activities: Net income (loss) $ (258,361) $ 2,584,738 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Provision for bad debts 115,467 14,023 Depreciation and amortization 3,180,426 767,905 Equity in (earnings) losses of affiliated companies 647,832 (6,410,281) Gain on issuance of shares by affiliate (2,492,231) Loss on disposition of assets 63,764 121,890 Deferred income taxes (1,083,684) 1,822,265 Accrued preferred stock dividend income (24,692) Change in operating assets and liabilities: Accounts and notes receivable 175,369 92,806 Inventories (760,698) 268,252 Prepaid costs and expenses 2,766,471 220,650 Accrued income taxes 128,052 44,830 Accounts payable and accrued expenses 5,663,867 (53,500) Deferred revenue (2,537,982) ------------ ------------ Net cash provided by (used in) operating activities 5,608,292 (551,114) ------------ ------------ Cash flows from investing activities: Capital expenditures (589,430) (227,884) Investment in affiliated companies (1,614,125) (15,331,803) Proceeds on sale of investment 288,736 Acquisition of businesses and product rights, net of cash acquired (45,022,286) (957,728) Redemption of preferred stock investment 3,804,692 Dividends received from affiliated company 121,763 93,835 ------------ ------------ Net cash used in investing activities (46,815,342) (12,618,888) ------------ ------------ Cash flows from financing activities: Borrowings on notes payable 10,000,000 Repayments on notes payable (12,000,000) (700,000) Borrowings from revolving lines of credit 29,792,808 15,601,499 Repayments on revolving lines of credit (24,088,567) (15,239,052) Borrowings from long-term debt 95,000,000 4,026,250 Repayments on long-term debt (47,164,994) (921,729) Debt issue costs (1,170,300) Exercise of stock options 672,969 66,063 Repurchase of common stock (147,500) ------------ ------------ Net cash provided by financing activities 41,041,916 12,685,531 ------------ ------------ Net decrease in cash and cash equivalents (165,134) (484,471) Cash and cash equivalents, beginning of period 323,202 587,965 ------------ ------------ Cash and cash equivalents, end of period $ 158,068 $ 103,494 ============ ============
See accompanying notes to condensed consolidated financial statements. 5 6 BULL RUN CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 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 interim periods reported. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements contained in the Transition Report on Form 10-K of Bull Run Corporation for the period from January 1, 1999 to June 30, 1999. The accompanying condensed consolidated financial statements include the accounts of Bull Run Corporation and its wholly owned subsidiaries (collectively, unless the context otherwise requires, the "Company"), after elimination of intercompany accounts and transactions. 2. HOST-USA ACQUISITION On December 17, 1999, the Company acquired the stock of Host Communications, Inc. ("Host"), Universal Sports America, Inc. ("USA") and Capital Sports Properties, Inc. ("Capital") not previously owned, directly or indirectly, by the Company (the "Host-USA Acquisition"). Aggregate consideration (net of cash acquired) was approximately $115.9 million, which included common stock and stock options valued at approximately $52.3 million, 8% subordinated notes having a face value of approximately $18.6 million, cash (net of approximately $10.8 million in cash acquired) of $43.7 million and transaction expenses of approximately $1.3 million. Prior to the Host-USA Acquisition, the Company accounted for its investment in Host and Capital under the equity method, and for its investment in USA under the cost method. Beginning December 17, 1999, the financial results of Host, USA and Capital have been consolidated with those of the Company. The acquisition has been accounted for under the purchase method of accounting, whereby the assets and liabilities of the acquired businesses have been included as of December 17, 1999 based on a preliminary allocation of the purchase price. The preliminary allocation of the purchase price was based upon estimated fair values at the date of acquisition and is subject to refinement upon obtaining certain additional information. The excess of the purchase price over assets acquired (i.e., goodwill) of approximately $67.1 million is being amortized on a straight-line basis over 20 years. Host, based in Lexington, Kentucky, and USA, based in Dallas, Texas, provide media and marketing services to universities, athletic conferences and various associations representing collegiate sports and, in addition, market and operate amateur participatory sporting events. Capital has no operating assets. In connection with the Host-USA Acquisition, the Company accrued approximately $250,000 for costs to close certain duplicative office facilities and accrued approximately $500,000 in severance costs for approximately fifty terminated employees of the acquired companies primarily in the Collegiate and Streetball business segments. These costs were accrued as part of the preliminary allocation of the purchase price. The facility consolidation and employee terminations resulted primarily from combining certain office facilities and duplicative functions, including management functions, of Host and USA. The Company has not yet finalized its plans to consolidate facilities and to terminate or relocate employees, nor has it finalized a determination of costs to be incurred upon the termination of certain office facility leases or its ability to sublease vacated office space. Accordingly, unresolved issues could result in an increase or decrease in the liabilities for facility consolidation and employee termination. These adjustments will be reported as an increase or decrease in goodwill. Through March 31, 2000, the Company had charged approximately $240,000 (which consisted of cash expenditures) against the reserve, and the accrual for future costs to be incurred was approximately $510,000 as of March 31, 2000. 6 7 Pro forma operating results, assuming the Host-USA Acquisition had been consummated as of January 1, 1999 for the three months ended March 31, 1999, and July 1, 1999 and 1998 for the nine months ended March 31, 2000 and 1999, respectively, would have been as follows:
Nine Months Ended Three Months Ended March 31, March 31, --------------------------------- 1999 2000 1999 ------------ ------------- ------------- Net revenue $ 46,079,000 $ 124,890,000 $ 122,474,000 Operating income (loss) before goodwill amortization (1,878,000) 5,815,000 724,000 Operating income (loss) (3,124,000) 2,059,000 (2,995,000) Net loss (4,449,000) (5,522,000) (4,004,000) Loss per share: Basic $ (0.13) $ (0.15) $ (0.12) Diluted $ (0.13) $ (0.15) $ (0.12)
These pro forma results are not necessarily indicative of actual results that might have occurred had the operations and management of the Company and the acquired companies been combined in prior years. 3. SUPPLEMENTAL CASH FLOW DISCLOSURES Supplemental cash flow information follows:
Nine Months Ended December 31, ---------------------------- 2000 1999 ----------- ----------- Interest paid $ 4,461,522 $ 2,930,283 Income taxes paid (received) 151,814 (21,000) Noncash investing and financing activities in connection with the Host-USA Acquisition: Common stock and stock options issued as a component of the purchase price $52,258,060 Subordinated notes issued as a component of the purchase price 18,594,013 Common stock issued in connection with debt issue costs 1,218,752
7 8 4. INVESTMENT IN AFFILIATED COMPANIES The Company's investment in affiliated companies is comprised of the following: March 31, June 30, 2000 1999 ----------- ----------- Gray Communications Systems, Inc. $46,377,528 $45,512,799 Sarkes Tarzian, Inc. 10,000,000 10,000,000 Rawlings Sporting Goods Company, Inc. 13,724,597 13,007,820 Total Sports, Inc. 10,450,728 3,499,999 iHigh.com, Inc. 2,402,159 Host Communications, Inc. 2,747,427 Capital Sports Properties, Inc. 9,893,130 Universal Sports America, Inc. 650,000 Other 1,572,897 ----------- ----------- $84,527,909 $85,311,175 =========== =========== As part of the Host-USA Acquisition, the Company acquired an additional investment in Total Sports, Inc. valued at $6,950,729, an investment in iHigh.com, Inc. ("iHigh.com") valued at $2,622,147 and other investments valued at $1,546,769. The Company accounts for its investments in Gray Communications Systems, Inc. ("Gray"), Rawlings Sporting Goods Company, Inc. ("Rawlings"), and prior to December 17, 1999 (the date the Company consummated the Host-USA Acquisition), Host and Capital, using the equity method. Beginning December 17, 1999, the Company also accounts for its investment in iHigh.com (an investee of Host) using the equity method. The amount that the Company's equity investments exceed the Company's proportionate share of the investee's book value is being amortized over 20 to 40 years, with such amortization (totaling $478,000 and $473,000 for the three months ended March 31, 2000 and 1999, respectively, and $1,481,000 and $1,332,000 for the nine months ended March 31, 2000 and 1999, respectively) reported as a reduction (increase) in the Company's equity in earnings (losses) of affiliated companies. In October 1999, Gray acquired three television stations for consideration that included shares of Gray's class B common stock. The transaction resulted in diluting the Company's investment in Gray from approximately 16.9% to 13.2% (resulting in a reduction in the Company's voting interest in Gray from 27.5% to 26.2%). As a result of this dilution, the Company recognized a $2,492,231 gain on Gray's issuance of shares in the nine months ended March 31, 2000. The Company provides consulting services to Gray from time to time in connection with Gray's acquisitions and dispositions. Income on a portion of such fees is deferred and recognized over 40 years as a result of the Company's 13.2% equity investment position in Gray as of March 31, 2000. The Company and Gray entered into an agreement under which Gray has the option to acquire the Company's investment in Sarkes Tarzian, Inc. for $10,000,000, plus related costs. Under the terms of the option agreement, Gray has the ability to extend such option for $66,700 per month. A portion of this option income is deferred and recognized over 40 years as a result of the Company's 13.2% equity investment position in Gray. The total amount of deferred consulting fee and option income to be recognized by the Company in future periods was $820,000 as of March 31, 2000. Prior to the Host-USA Acquisition on December 17, 1999, the Company accounted for its investment in Host by the equity method on a six-month lag basis. The Company accounts for its investment in Rawlings by the equity method on a one month lag basis, in order to align Rawlings' fiscal quarters ending November 30, February 28, May 31 and August 31 with the Company's fiscal quarters. In January 1999, USA sold its investment in broadcast.com, inc., recognizing an after-tax gain of approximately 8 9 $40,000,000. As a result of Host's equity investment in USA and the Company's equity investment in Host reported on a six-month lag basis, the Company recognized approximately $1,900,000 in equity in earnings of affiliates in the nine months ended March 31, 2000 pertaining to USA's gain on the sale of its investment in broadcast.com, inc. In July 1998, Gray disposed of a television station and recognized an after-tax gain of approximately $43,000,000 in connection with the disposition. As a result, the Company's equity in Gray's earnings was favorably impacted by approximately $6,900,000 in the nine months ended March 31, 1999. Aggregate operating results of affiliated companies reflecting, for 2000: (i) Gray, iHigh.com and certain other equity investments for the three months and nine months ended March 31, 2000; (ii) Capital for the six months ended December 31, 1999; (iii) Host for the six months ended June 30, 1999; and (iv) Rawlings for the three months and nine months ended February 29, 2000; and reflecting, for 1999: (i) Gray and Capital for the three months and nine months ended March 31, 1999; (ii) Host for the three months and nine months ended September 30, 1998; and (iii) Rawlings for the three months and nine months ended February 28, 1998) were as follows:
Three Months Ended Nine Months Ended March 31, March 31, -------------------------------- -------------------------------- 2000 1999 2000 1999 ------------- ------------ ------------- ------------ Net revenue $ 105,582,000 $ 96,645,000 $ 279,774,000 $258,628,000 Income from operations 10,968,000 9,069,000 15,767,000 22,214,000 Net income (loss) (490,000) (694,000) (8,066,000) 42,357,000
5. INVENTORIES Inventories consist of the following: March 31, June 30, 2000 1999 ---------- ---------- Computer printer operations: Raw materials $4,253,103 $3,423,468 Work-in-process 701,067 742,465 Finished goods 1,250,108 1,338,664 ---------- ---------- 6,204,278 5,504,597 Printing operations materials and supplies 618,577 Marketing materials and supplies 360,545 ---------- ---------- $7,183,400 $5,504,597 ========== ========== 6. NOTES PAYABLE AND LONG-TERM DEBT In connection with the Host-USA Acquisition, the Company entered into a new credit agreement with a group of banks on December 17, 1999, providing for (a) two term loans (the "Term Loans") for borrowings totaling $95,000,000, bearing interest at either the banks' prime rate or the London Interbank Offered Rate ("LIBOR") plus 2.5%, requiring a minimum aggregate principal payment of $10,000,000 by December 17, 2000 and a minimum aggregate principal payment of $30,000,000 by December 17, 2001, with all amounts outstanding under the term loans due on December 17, 2002; and (b) a revolving loan commitment (the "Revolver") for borrowings of up to $35,000,000 through December 17, 2002, bearing interest at either the banks' prime rate or LIBOR plus 2.5%. Borrowings under the Revolver are limited to an amount not to exceed a percentage of eligible accounts receivable, determined monthly, and such borrowings may include up to $20,500,000 in outstanding letters of credit. As of March 31, 2000, borrowings of $13,900,000 and letters of credit totaling $7,375,000 were outstanding under the Revolver, and additional available borrowing capacity under the Revolver was $3,534,000 at that date. As of 9 10 March 31, 2000, borrowings totaling $99,900,000 under the Term Loans and the Revolver were subject to a LIBOR-based rate of 8.69% and borrowings of $9,000,000 were subject to the banks' prime rate of 9.0%. Interest on prime rate advances is payable quarterly beginning April 1, 2000 and at least quarterly on LIBOR-based borrowings. The credit agreement contains certain financial covenants, the most restrictive of which requires the maintenance of a debt service coverage ratio determined quarterly. Also in connection with the Host-USA Acquisition, the Company issued subordinated notes on December 17, 1999, bearing interest at 8%, having an aggregate face value of $18,594,013. Interest is payable quarterly beginning May 15, 2000 until maturity on January 17, 2003. Payment of interest and principal are subordinate to the bank credit agreement. The new bank credit agreement and the subordinated notes provided the necessary financing for the Host-USA Acquisition, and refinanced all existing bank indebtedness of the Company, Host and USA. The Company is a party to two interest rate swap agreements, which effectively modify the interest characteristics of $45,000,000 of its outstanding long-term debt. The first agreement, effective January 1, 1999, involves the exchange of amounts based currently on a fixed interest rate of 8.58% for amounts currently based on a variable interest rate of LIBOR plus 2.5% through December 31, 2007, without an exchange of the $20,000,000 notional amount upon which the payments are based. The second agreement, effective January 5, 2000, involves the exchange of amounts based currently on a fixed interest rate of 9.21% for amounts currently based on a variable interest rate of LIBOR plus 2.5% through December 31, 2002 (or December 31, 2004, at the bank's option), without an exchange of the $25,000,000 notional amount upon which the payments are based. The differential to be paid or received as interest rates change is accrued and recognized as an adjustment of interest expense related to the debt. The estimated amount to be received on terminating the swap agreements, if the Company elected to do so, was approximately $1,292,000 and $432,000 as of March 31, 2000 and June 30, 1999, respectively. 7. INCOME TAXES The principal differences between the federal statutory tax rate of 34% and the effective tax rates are nondeductible goodwill amortization and state income taxes. 8. EARNINGS (LOSS) PER SHARE The following table sets forth the computation of basic and diluted earnings (loss) per share:
Three Months Ended Nine Months Ended March 31, March 31, ------------------------------- ------------------------------ 2000 1999 2000 1999 ------------ ------------ ------------ ----------- Net income (loss) $ (781,432) $ (1,056,984) $ (258,361) $ 2,584,738 ============ ============ ============ =========== Weighted average number of common shares outstanding for basic earnings (loss) per share 34,699,603 22,263,634 27,082,147 22,274,302 Effect of dilutive employee stock options 924,541 ------------ ------------ ------------ ----------- Adjusted weighted average number of common shares and assumed conversions for diluted earnings (loss) per share 34,699,603 22,263,634 27,082,147 23,198,843 ============ ============ ============ =========== Basic earnings (loss) per share $ (0.02) $ (0.05) $ (0.01) $ 0.12 Diluted earnings (loss) per share $ (0.02) $ (0.05) $ (0.01) $ 0.11
10 11 9. SEGMENT INFORMATION Following the Host-USA Acquisition, the Company operates in five business segments that provide different products or services: (a) collegiate marketing and production services, which also includes services rendered in connection with high schools and printing/publishing operations ("Collegiate"); (b) event management and marketing services ("Streetball"); (c) computer printer manufacturing and related sales and services ("Datasouth"); (d) association management services ("Association Management") and (e) consulting services ("Consulting"). Information for each of the Company's segments is presented below:
Three Months Ended Nine Months Ended March 31, March 31, ------------------------------- ------------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Net revenues: Collegiate $ 34,905,316 $ $ 40,357,146 $ Streetball 2,742,223 3,038,611 Datasouth 5,472,932 7,532,940 20,361,545 23,223,429 Association Management 1,773,968 2,117,093 Consulting 4,688 195,298 1,303,318 1,161,558 ------------ ------------ ------------ ------------ $ 44,899,127 $ 7,728,238 $ 67,177,713 $ 24,384,987 ============ ============ ============ ============ Operating income (loss): Collegiate $ 5,044,163 $ $ 4,775,183 $ Streetball (328,935) (579,129) Datasouth (41,620) 206,210 983,835 971,609 Association Management 28,263 93,116 Consulting 4,688 195,298 1,303,318 1,161,558 Goodwill amortization (1,254,457) (132,474) (1,715,513) (378,059) Unallocated general and administrative costs (388,258) (388,368) (1,150,531) (993,892) ------------ ------------ ------------ ------------ $ 3,063,844 $ (119,334) $ 3,710,279 $ 761,216 ============ ============ ============ ============
March 31, June 30, 2000 1999 ------------ ------------ Total assets: Collegiate $ 52,274,412 $ Streetball 12,319,791 Datasouth 12,391,961 11,860,601 Association Management 8,381,112 Investments in affiliated companies 84,527,909 85,311,175 Goodwill 96,406,614 7,417,146 Other 2,137,877 1,509,241 ------------ ------------ $268,439,676 $106,098,163 ============ ============
No assets are allocated to the Consulting segment. 10. RECENTLY-ISSUED ACCOUNTING STANDARD In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Investments and Hedging Activities." The Company will be required to adopt the new Statement effective July 1, 2000. The Statement will require the Company to recognize all derivatives on the balance sheet at fair value. The Company has not yet determined what the effect of Statement No. 133 will be on its results of operations or financial position. However, the Statement could increase the volatility in earnings and comprehensive income. 11 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Bull Run Corporation (collectively with its wholly-owned subsidiaries, unless the context otherwise requires, the "Company") acquired all of the outstanding capital stock of Host Communications, Inc. ("Host"), Universal Sports America, Inc. ("USA") and Capital Sports Properties, Inc. ("Capital") that it did not then own prior to the December 17, 1999 acquisition date (the "Host-USA Acquisition"). As a result of the Host-USA Acquisition, the Company added new business segments, including sports marketing, event management and association management, in addition to its existing wholly-owned computer printer manufacturing operation, Datasouth Computer Corporation. The results of Host and USA for the period from December 17, 1999 (the date of their acquisition by the Company) through March 31, 2000 are not necessarily indicative of the results that would have been obtained for Host and USA for the nine months ended March 31, 2000. The Company also makes significant investments in other sports and media companies, including Gray Communications Systems, Inc. ("Gray"), the owner and operator of, among other businesses, 13 television stations and four daily newspapers; Sarkes Tarzian, Inc. ("Tarzian"), the owner and operator of two television stations and four radio stations; Rawlings Sporting Goods Company, Inc. ("Rawlings"), a supplier of team sports equipment; Total Sports, Inc. ("Total Sports"), a sports content Internet company; and iHigh.com, Inc., a company formed in July 1999 that creates an Internet network of websites devoted to high school sports and activities. In addition, the Company provides consulting services to Gray in connection with Gray's acquisitions and dispositions. For information with respect to the Host-USA Acquisition, reference is made to Note 2 of the Company's financial statements included in Item 1 hereof. Effective June 30, 1999, the Company changed its fiscal year end from December 31 to June 30. RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999 Total revenues for the three months ended March 31, 2000 were $44,899,000 compared to $7,728,000 for the same period in 1999. Revenue from computer printer operations decreased by $2,060,000 to $5,473,000 for the three months ended March 31, 2000, from $7,533,000 for the same period in 1999, primarily as a result of a decrease in sales to The Sabre Group, Inc., Datasouth's largest customer, from $1,933,000 in 1999 to $735,000 in 2000. Short-term revenue trends in the Company's computer printer business fluctuate due to variable ordering patterns of large customers. Host and USA had combined revenue of $39,421,000 for the three months ended March 31, 2000, of which, $34,905,000 was attributable to Host's and USA's Collegiate business segment. Host's and USA's Collegiate segment is favorably impacted in the quarter ended March 31 because a significant amount of its revenue is associated with NCAA basketball tournaments occurring primarily during the month of March. A portion of the income from consulting fees for services provided to Gray is deferred and recognized over 40 years as a result of the Company's equity investment in Gray. As of March 31, 2000, consulting fees of $706,000 were deferred for future revenue recognition. There can be no assurance that the Company will earn any consulting fees in the future, other than recognition of currently deferred fees. Operating costs and expenses of $40,581,000 for the three months ended March 31, 2000 included $34,679,000 associated with Host and USA for the three months ended March 31, 2000. Excluding the effects of Host and USA, total costs and expenses for the three months ended March 31, 2000 declined $1,813,000 from the same period last year, due to (a) a $1,276,000 reduction in Datasouth's cost of sales, as a result of the reduction in revenue; (b) a $224,000 decrease in research and development expenses; (c) a $112,000 decrease in sales and marketing expenses; and (d) a $102,000 decrease in general and administrative expenses. Goodwill and debt issue cost amortization increased for the three months ended March 31, 2000 from the same 12 13 period last year as a result of the Host-USA Acquisition and related financing. Equity in earnings (losses) of affiliated companies, totaling $(514,000) and $(470,000) for the three months ended March 31, 2000 and 1999, respectively, included the Company's proportionate share of the earnings or losses of (a) Gray; (b) Rawlings; (c) solely in 2000, iHigh.com and certain other equity investments; and (d) solely in 1999, Host and Capital, net of goodwill amortization totaling $478,000 and $473,000 in 2000 and 1999, respectively. Interest and dividend income of $244,000 and $226,000 for the three months ended March 31, 2000 and 1999, respectively, was primarily derived from dividends accrued on the Company's investment in Gray's series A and series B preferred stock. Interest expense increased to $2,817,000 from $1,205,000 for the three months ended March 31, 2000 compared to the same period in the prior year, primarily as a result of financing the Host-USA Acquisition in December 1999 and, to a lesser extent, an increase in interest rates. During the quarter ended March 31, 2000, the Company issued approximately 305,000 shares of its common stock to a director of the Company who personally guaranteed up to $75 million of the Company's debt under its bank credit agreement. The value of the shares issued, approximately $1,219,000, is being amortized over one year, and approximately $305,000 is included in debt issue cost amortization for the three months ended March 31, 2000. Other income for the three months ended March 31, 2000 consisted primarily of income on an option agreement with Gray. Under the option agreement, whereby Gray has the option until June 30, 2000 to acquire the Company's investment in Tarzian for $10,000,000 plus related costs, the Company received $200,100 in the three months ended March 31, 2000. The option agreement provides that Gray may extend the expiration date of the option in 30-day increments at a fee of $66,700 per extension. The Company currently anticipates that Gray will continue to extend its option for the foreseeable future. A portion of the option income from Gray is deferred and recognized over 40 years as a result of the Company's equity investment in Gray. As of March 31, 2000, option income of $114,000 was deferred for future revenue recognition. The principal differences between the federal statutory tax rate of 34% and the effective tax rates are nondeductible goodwill amortization and state income taxes. RESULTS OF OPERATIONS - NINE MONTHS ENDED MARCH 31, 2000 COMPARED TO NINE MONTHS ENDED MARCH 31, 1999 Total revenues for the nine months ended March 31, 2000 were $67,178,000 compared to $24,385,000 for the same period in 1999. Revenue from computer printer operations was $20,362,000 for the nine months ended March 31, 2000, compared to $23,223,000 for the same period in 1999, primarily as a result of a decrease in sales to The Sabre Group, Inc., Datasouth's largest customer, from $6,793,000 in 1999 to $3,761,000 in 2000. Host and USA added combined revenue of $45,513,000 for the period from December 17, 1999 (date of acquisition) through March 31, 2000, of which, $40,357,000 was attributable to Host's and USA's Collegiate segment. Consulting fee income on services provided to Gray was $1,303,000 for the nine months ended March 31, 2000 compared to $1,162,000 for the same period in 1999. Operating costs and expenses of $61,752,000 for the nine months ended March 31, 2000 included $41,224,000 associated with Host and USA, for the period from December 17, 1999 (date of acquisition) through March 31, 2000. Excluding the effects of Host and USA, total costs and expenses for the nine months ended March 31, 2000 declined $2,719,000 from the same period last year, due to (a) a $2,125,000 reduction in Datasouth's cost of sales due to the reduction in Datasouth's revenue for the comparable periods; (b) a $424,000 decrease in research and development expenses; and (c) a $251,000 decrease in sales and marketing costs; net of an $82,000 increase in general and administrative expenses. Goodwill and debt issue cost amortization increased for the nine months ended March 31, 2000 from the same period last year as a result of the Host-USA Acquisition and related financing. Equity in earnings (losses) of affiliated companies, totaling $(648,000) and $6,410,000 for the nine months ended March 31, 2000 and 1999, respectively, included the Company's proportionate share of the earnings or losses of (a) 13 14 Gray; (b) Rawlings; (c) subsequent to December 17, 1999, iHigh.com and certain other equity investments; and (d) prior to December 17, 1999, Host and Capital, net of goodwill amortization totaling $1,481,000 for the current year and $1,332,000 for the prior year. In January 1999, USA sold its investment in broadcast.com, inc., recognizing an after-tax gain of approximately $40,000,000. As a result of Host's equity investment in USA and the Company's equity investment in Host reported on a six-month lag basis, the Company recognized approximately $1,900,000 in equity in earnings of affiliates in the nine months ended March 31, 2000 due to USA's gain on the sale of its investment in broadcast.com, inc. In July 1998, Gray disposed of a television station and recognized an after-tax gain of approximately $43,000,000 in connection with the disposition. As a result, the Company's equity in Gray's earnings was favorably impacted by approximately $6,900,000 in the nine months ended March 31, 1999. There is no assurance that such sales or such gains of a material nature will occur in the future. Excluding the impact of the USA gain in the current year and the Gray gain in the prior year, equity in earnings (losses) of affiliated companies decreased from the prior year period as a result of a decrease in the net income (or increase in net loss) of Gray and Rawlings in the nine month periods ended March 31, 2000 and February 29, 2000, respectively, compared to the prior year. As a result of Gray's issuance of shares of its class B common stock on October 1, 1999 in connection with consideration paid in the acquisition of three television stations, the Company's common equity ownership of Gray was reduced from 16.9% to 13.2%, resulting in a pretax gain for the Company of $2,492,231 recognized by the Company in the nine months ended March 31, 2000. This share issuance also reduced the Company's common equity voting power in Gray from 27.5% to 26.2%. Interest and dividend income of $699,000 and $749,000 for the nine months ended March 31, 2000 and 1999, respectively, was primarily derived from dividends accrued on the Company's investment in Gray's series A and series B preferred stock. Interest expense increased to $5,792,000 from $3,351,000 for the nine months ended March 31, 2000 and 1999, respectively, primarily as a result of financing the Host-USA Acquisition in December 1999, and to a lesser extent, the Company's investment in Tarzian in January 1999 and an increase in interest rates. During the nine months ended March 31, 2000, the Company issued approximately 305,000 shares of its common stock to a director of the Company who personally guaranteed up to $75 million of the Company's debt under its bank credit agreement. The value of the shares issued, approximately $1,219,000, is being amortized over one year, and approximately $305,000 is included in debt issue cost amortization for the nine months ended March 31, 2000. Other income for the nine months ended March 31, 2000 consisted primarily of income on the option agreement with Gray. The principal differences between the federal statutory tax rate of 34% and the effective tax rates are nondeductible goodwill amortization and state income taxes. LIQUIDITY AND CAPITAL RESOURCES Cash provided by operating activities was $5,608,000 for the nine months ended March 31, 2000, compared to cash used in operating activities of $551,000 for the same period in 1999. In the nine months ended March 31, 2000, receivables decreased $175,000; accounts payable and accrued expenses increased $5,664,000 due primarily to increases in the accrual for Host's and USA's guaranteed rights payments under various contracts; and deferred income associated with Host and USA decreased $2,538,000 due to the completion of certain services provided by Host since the December 17, 1999 acquisition date invoiced in advance. In the nine months ended March 31, 1999, receivables decreased $93,000, inventories decreased $268,000 and accounts payable and accrued expenses decreased $54,000. Cash used in investing activities was $46,815,000 for the nine months ended March 31, 2000, of which, 14 15 $45,022,000 was associated with the Host-USA Acquisition, compared to cash used in investing activities of $12,619,000 for the same period in 1999, of which $10,000,000 was associated with the Company's investment in Sarkes Tarzian, Inc. During the nine months ended March 31, 2000, the Company capitalized approximately $1.5 million in connection with a potential transaction involving one of its investments. If it becomes apparent that these costs will not be recovered or realized in full within a reasonable period of time, the Company will expense some or all of these costs in a future accounting period. In the nine months ended March 31, 1999, the Company received proceeds of $3,805,000 from Gray on the redemption of shares of its series B preferred stock. Also during the 1999 period, the Company made its initial investment in Total Sports of $2,500,000 and acquired printer product rights for approximately $660,000. Cash provided by financing activities was $41,042,000 for the nine months ended March 31, 2000 as a result of borrowings utilized for the Host-USA Acquisition, compared to cash provided by financing activities of $12,686,000 for the nine months ended March 31, 1999, primarily as a result of financing the $10,000,000 investment in Sarkes Tarzian, Inc. The Company is a party to two interest rate swap agreements, which effectively modify the interest characteristics of $45,000,000 of its outstanding long-term debt. The first agreement, effective January 1, 1999, involves the exchange of amounts based currently on a fixed interest rate of 8.58% for amounts currently based on a variable interest rate of LIBOR plus 2.5% through December 31, 2007, without an exchange of the $20,000,000 notional amount upon which the payments are based. The second agreement, effective January 5, 2000, involves the exchange of amounts based currently on a fixed interest rate of 9.21% for amounts currently based on a variable interest rate of LIBOR plus 2.5% through December 31, 2002 (or December 31, 2004, at the bank's option), without an exchange of the $25,000,000 notional amount upon which the payments are based. The differential to be paid or received as interest rates change is accrued and recognized as an adjustment of interest expense related to the debt. The estimated amount to be received on terminating the swap agreements, if the Company elected to do so, was approximately $1,292,000 as of March 31, 2000. Dividends on the series B preferred stock of Gray owned by the Company are payable in cash at an annual rate of $600 per share or, at Gray's option, payable in additional shares of series B preferred stock. The Company anticipates that dividends on the series B preferred stock will be paid in cash for the foreseeable future. The Company anticipates that its current working capital, funds available under its current credit facilities (see Note 6 in Item 1), quarterly cash dividends on the Gray preferred stock and common stock, anticipated extension fees on the option agreement with Gray and cash flow from operations will be sufficient to fund its debt service, working capital requirements and capital spending requirements for at least the next 12 months. The $10,000,000 principal payment due under the new credit facility in December 2000 will likely require the sale of certain investments and/or the redemption of some or all of the Gray preferred stock. INTEREST RATE RISK MANAGEMENT The Company is exposed to changes in interest rates due to the Company's financing of its acquisitions, investments and operations. Interest rate risk is present with both fixed and floating rate debt. The Company uses interest rate swap agreements (as detailed in "Liquidity and Capital Resources" above) to manage its debt profile. Interest rate swap agreements generally involve exchanges of underlying face (notional) amounts of designated hedges. The Company continually evaluates the credit quality of counterparties to interest rate swap agreements and does not believe there is a significant risk of nonperformance by any of the counterparties. Based on the Company's debt profile at March 31, 2000 and 1999, and June 30, 1999 and 1998, a 1% increase in market interest rates would increase interest expense and decrease the income before income taxes (or alternatively, increase interest expense and increase the loss before income taxes) by $205,000 and $107,000 for the three months ended March 31, 2000 and 1999, respectively, and $420,000 and $370,000 for the nine months ended March 31, 2000 and 1999, respectively. These amounts were determined by calculating the effect of the 15 16 hypothetical interest rate on the Company's floating rate debt, after giving consideration to the Company's interest rate swap agreements. These amounts do not include the effects of certain potential results of increased interest rates, such as a reduced level of overall economic activity or other actions management may take to mitigate the risk. Furthermore, this sensitivity analysis does not assume changes in the Company's financial structure that could occur if interest rates were higher. RECENTLY-ISSUED ACCOUNTING STANDARD In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Investments and Hedging Activities." The Company will be required to adopt the new Statement effective July 1, 2000. The Statement will require the Company to recognize all derivatives on the balance sheet at fair value. The Company has not yet determined what the effect of Statement No. 133 will be on its results of operations or financial position. However, the Statement could increase volatility in earnings and comprehensive income. FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this report, the words "believes," "expects," "anticipates," "estimates" and similar words and expressions are generally intended to identify forward-looking statements. Statements that describe the Company's future strategic plans, goals or objectives are also forward-looking statements. Readers of this Report are cautioned that any forward-looking statements, including those regarding the intent, belief or current expectations of the Company or management, are not guarantees of future performance, results or events, and involve risks and uncertainties. The Company undertakes no obligation to update such forward-looking statements to reflect subsequent events or circumstances. Actual results and events may differ materially from those in the forward-looking statements as a result of various factors including, but not limited to the following: (i) the Company's and Gray's leverage may adversely affect their ability to obtain financing, thereby impairing their ability to withstand economic downturns or competitive pressures; (ii) Gray's business depends on its relationships with, and success of, its national network affiliates; (iii) Rawlings', Host's and USA's businesses are seasonal; (iv) adverse events affecting baseball, such as negative publicity or strikes, may adversely affect Rawlings' business; (v) Rawlings', Host's and USA's businesses depend on short term contracts and the inability to renew or extend these contracts could adversely affect their businesses; and (vi) Host and USA may lose money on some of their contracts, because they guarantee certain payments thereunder. 16 17 PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS (c) On March 31, 2000, the Company issued 304,688 shares of its common stock, $.01 par value, to J. Mack Robinson, a director of the Company, as compensation for his guarantee of up to $75 million in debt under the Company's bank credit agreement. The shares were not registered under the Securities Act of 1933 pursuant to the exemption provided by Section 4(2) thereof, since such offering did not involve a public offering. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 27 - Financial Data Schedule (for SEC use only) (b) Reports on Form 8-K None 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. BULL RUN CORPORATION Date: May 12, 2000 By: /s/ FREDERICK J. ERICKSON --------------------------------- Frederick J. Erickson Vice President-Finance, Treasurer and Assistant Secretary 17 EX-27 2 FINANCIAL DATA SCHEDULE
5 6-MOS JUN-30-2000 OCT-01-1999 DEC-31-1999 158,068 0 55,559,989 577,085 7,183,400 75,288,046 12,615,147 3,489,788 268,439,678 59,621,181 117,494,013 0 0 354,684 81,644,329 268,439,676 5,472,932 44,899,127 4,099,375 30,091,779 482,344 59,361 2,817,054 248,241 515,528 (781,432) 0 0 0 (781,432) (.02) (.02)
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