U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- ----- ACT OF 1934
For the quarterly period ended September 30, 1996
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 91-1117599
(State of incorporation (I.R.S. Employer
or organization) Identification No.)
4370 Peachtree Road, N.E., Atlanta, GA 30319
(Address of principal executive offices)
(404) 266-8333
(Issuer's telephone number)
Check whether issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 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
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 21,915,227 shares of Common Stock,
par value $.01 per share, were outstanding as of November 8, 1996.
<PAGE>
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
BULL RUN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................ $ 166,854 $ 145,867
Accounts receivable.................................................. 4,912,035 3,908,802
Inventories.......................................................... 3,288,158 3,755,443
Other................................................................ 112,176 184,793
----------- ----------
Total current assets............................................ 8,479,223 7,994,905
Property and equipment, net............................................. 2,330,549 2,511,686
Investment in affiliated companies...................................... 53,642,560 29,246,010
Goodwill................................................................ 4,081,340 4,313,783
Other assets............................................................ 307,810 234,020
----------- ----------
$ 68,841,482 $ 44,300,404
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable and current portion of long-term debt................... $ 500,000 $ 1,285,000
Accounts payable..................................................... 1,860,319 1,590,659
Accrued and other liabilities:
Employee compensation and related taxes........................... 464,424 569,209
Interest.......................................................... 454,905 101,125
Income taxes...................................................... 175,647 393,227
Other............................................................. 356,561 316,986
---------- -----------
Total current liabilities....................................... 3,811,856 4,256,206
---------- ----------
Long-term debt.......................................................... 31,656,795 14,895,600
---------- ----------
Deferred income taxes................................................... 4,599,575 1,069,732
---------- ----------
Stockholders' equity:
Common stock ($.01 par value, authorized 100,000,000 shares; issued
22,309,727 shares as of September 30, 1996 and 22,279,727 shares
as of December 31, 1995).......................................... 223,097 222,797
Additional paid-in capital........................................... 20,528,562 20,502,612
Retained earnings.................................................... 8,935,468 3,683,091
Treasury stock, at cost (350,500 shares as of
September 30, 1996 and 123,000 shares as of
December 31, 1995)................................................ (913,871) (329,634)
----------- -----------
Total stockholders' equity..................................... 28,773,256 24,078,866
---------- ----------
$ 68,841,482 $ 44,300,404
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
BULL RUN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------ ------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue from printer operations........................ $ 5,987,676 $ 6,097,082 $ 17,842,461 $ 20,668,171
Cost of goods sold..................................... 4,390,992 4,255,512 12,812,383 14,394,513
--------- --------- ---------- ----------
Gross profit....................................... 1,596,684 1,841,570 5,030,078 6,273,658
--------- --------- --------- ---------
Other operating revenue:
Consulting fees.................................... 473,267 841,615 435,000
Royalties.......................................... 1,136 1,032 1,031
--------- ---------- ---------- ----------
473,267 1,136 842,647 436,031
------- ---------- ---------- ---------
Operating expenses:
Research and development........................... 349,227 498,931 1,186,226 1,407,169
Selling, general and administrative................ 1,164,095 1,024,165 3,586,503 3,704,250
--------- --------- --------- ---------
1,513,322 1,523,096 4,772,729 5,111,419
--------- --------- --------- ---------
Income from operations................................. 556,629 319,610 1,099,996 1,598,270
Other income (expense):
Equity in earnings (losses) of affiliated
companies...................................... 962,478 (38,620) 1,672,286 181,433
Gain on issuance of common shares by
affiliated company............................. 8,178,678 8,178,678
Interest and dividend income....................... 205,167 1,713 598,954 33,265
Interest expense................................... (522,419) (293,839) (1,512,076) (675,969)
--------- -------- ---------- ----------
Income before income taxes, cumulative effect of
accounting change and extraordinary item....... 9,380,533 (11,136) 10,037,838 1,136,999
Income tax benefit (provision)......................... (3,900,337) 38,095 (4,215,890) (466,169)
---------- -------- ---------- ----------
Income before cumulative effect of accounting
change and extraordinary item.................. 5,480,196 26,959 5,821,948 670,830
Cumulative effect of accounting change recognized
by affiliate (net of $141,280 tax benefit)..... (274,248)
Extraordinary loss recognized by affiliated
company (net of $184,877 tax benefit) ......... (295,322) (295,322)
----------- ---------- ----------- ----------
Net income............................................. 5,184,874 26,959 5,252,378 670,830
Retained earnings, beginning of period................. 3,750,594 3,603,896 3,683,090 2,960,025
--------- --------- --------- ---------
Retained earnings, end of period....................... $ 8,935,468 $ 3,630,855 $ 8,935,468 $ 3,630,855
========= ========= ========= =========
Earnings per share:
Income before cumulative effect of accounting
change and extraordinary item................... $ .24 $ .00 $ .25 $ .03
Cumulative effect of accounting change.............. (.01)
Extraordinary item.................................. (.01) ___ (.01) ___
---- ----
Net income.......................................... $ .23 $ .00 $ .23 $ .03
===== ===== ===== =====
Weighted average number of common
shares outstanding............................... 22,851,002 23,359,084 23,017,805 23,240,925
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
BULL RUN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30
------------------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................. $ 5,252,378 $ 670,830
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary loss................................................ 480,199
Cumulative effect of accounting change............................ 415,528
Gain on issuance of common shares by affiliate.................... (8,178,678)
Depreciation and amortization..................................... 730,546 831,540
Equity in earnings of affiliated companies........................ (1,672,286) (181,433)
Change in operating assets and liabilities:
Accounts receivable............................................ (1,003,233) 161,755
Inventories.................................................... 467,285 (1,813,680)
Other current assets........................................... 72,616 (123,938)
Accounts payable and accrued expenses.......................... 340,649 640,868
Deferred income taxes.......................................... 3,529,843
----------- ----------
Net cash provided by operating activities......................... 434,847 185,942
------------ ----------
Cash flows from investing activities:
Sale of marketable securities.......................................... 500,000
Capital expenditures................................................... (303,254) (671,580)
Investment in affiliated companies..................................... (5,490,377) (12,161,958)
Note purchased from affiliated company................................. (10,000,000)
Dividends received from affiliated companies........................... 49,064 68,287
------------ ------------
Net cash used in investing activities............................. (15,744,567) (12,265,251)
---------- ----------
Cash flows from financing activities:
Borrowings on revolving lines of credit................................ 8,706,195 9,222,750
Repayments on revolving lines of credit................................ (7,730,000) (8,131,750)
Proceeds from long-term debt........................................... 15,000,000 13,500,000
Repayments on long-term debt........................................... (3,000,000)
Loan commitment fees................................................... (87,500) (126,250)
Repurchase of common stock............................................. (584,238) (207,134)
Exercise of incentive stock options.................................... 26,250 69,406
------------ ------------
Net cash provided by financing activities......................... 15,330,707 11,327,022
---------- ----------
Net increase (decrease) in cash and cash equivalents........................... 20,987 (752,287)
Cash and cash equivalents, beginning of period................................. 145,867 824,207
----------- -----------
Cash and cash equivalents, end of period....................................... $ 166,854 $ 71,920
=========== ===========
Supplemental cash flow disclosures:
Interest paid.......................................................... $ 1,586,614 $ 404,310
Income taxes paid...................................................... 579,925 190,866
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
BULL RUN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. 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 Annual Report on Form 10-KSB
of Bull Run Corporation for the year ended December 31, 1995.
2. The accompanying condensed consolidated financial statements include the
accounts of Bull Run Corporation and its wholly-owned subsidiary, Datasouth
Computer Corporation ("Datasouth", and collectively, unless the context
otherwise requires, the "Company"), after elimination of intercompany accounts
and transactions.
3. The Company accounts for its investments in Gray Communication Systems, Inc.
("Gray"), Host Communications, Inc. ("HCI") and Capital Sports Properties, Inc.
("CSP") using the equity method. The excess of the Company's investments in
Gray, HCI and CSP over the underlying equity thereof is being amortized over
forty years, with such amortization (totaling $107,000 and $93,000 in the three
months ended September 30, 1996 and 1995, respectively, and $320,000 and
$274,000 in the nine months ended September 30, 1996 and 1995, respectively)
reported as a reduction in the Company's equity in earnings (losses) of
affiliated companies.
In September 1996, Gray consummated a public offering of 3.5 million
shares of its newly-issued class B common stock at $20.50 per share, resulting
in net proceeds to Gray of approximately $67.1 million. As a result of such
issuance, the Company's common equity ownership of Gray was reduced from 27.1%
to 15.2%, resulting in a pretax gain for the Company of approximately $8.2
million (approximately $5.0 million after tax). Such offering also reduced the
Company's common equity voting power in Gray from 27.1% to 25.1%. Gray is a
Southeast United States communications company that operates two NBC-affiliated
television stations, five CBS-affiliated television stations (two of which were
acquired in September 1996), three daily newspapers, two advertising weekly
shoppers, plus a satellite broadcasting operation and a paging business which
were also acquired in September 1996.
The Company provides consulting services to Gray from time to time in
connection with Gray's acquisitions and acquisition financing. Income on a
portion of such fees is deferred and recognized over forty years as a result of
the Company's equity investment position in Gray. Due to the reduction in the
Company's equity ownership of Gray as described above, $174,000 of previously
deferred consulting fees were recognized as consulting fee income in the quarter
ended September 30, 1996.
In January 1996, the Company purchased an 8% Subordinated Note (the "8%
Note") of Gray in the principal amount of $10.0 million, on which the Company
received interest income of $580,000 during 1996. In connection with the
purchase of the 8% Note, Gray issued to the Company warrants to purchase up to
487,500 shares of Gray's class A common stock at $17.88 per share. In September
1996, the Company exchanged the 8% Note for 1,000 shares of Gray's series A
preferred stock, which entitles the holder thereof to cash dividends at an
annual rate of $800 per share. At that same time, the Company purchased for $5.0
million, 500 shares of Gray's series B preferred stock entitling the holder
thereof to cumulative dividends of $600 per share. Dividends on the series B
preferred stock are payable in cash or in additional shares of series B
preferred stock, at Gray's option. In connection with the Company's acquisition
of series B preferred stock, Gray issued to the Company warrants to purchase up
to 250,000 shares of Gray's class A common stock at $24.00 per share. Of the
total warrants owned by the Company to purchase 737,500 shares of Gray's class A
<PAGE>
common stock, 450,000 are fully vested, with the remaining warrants vesting
periodically over five years. Such warrants are exercisable beginning in January
1998 and expire in 2006.
In September 1996, Gray retired certain of its debt, thereby incurring
an extraordinary loss of $3,159,000 (net of a tax benefit of $2,157,000) related
to deferred financing costs associated with the retired debt. As a result, the
Company has recognized 15.2% of Gray's charge as a $295,300 extraordinary loss,
net of the Company's own tax benefit of $184,900.
On August 30, 1996, CSP exercised warrants to acquire HCI common
shares. As a result, the Company's direct common equity ownership in HCI,
combined with the Company's indirect common equity ownership in HCI through its
investment in CSP, increased from 8.9% to 29.9%. Additionally, the Company owns
indirectly, through CSP, 51.5% of HCI's 8% series B preferred stock having a
face value of $5 million. HCI, based in Lexington, Kentucky, and its 33.8%
affiliate, Universal Sports America, Inc. ("USA"), 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. The Company began accounting for its investment
in HCI and CSP under the equity method in March 1995, when it made its initial
investment in CSP.
The Company recognizes its equity in earnings of HCI on a six month lag
basis, in order to align HCI's fiscal year ending June 30 with the Company's
fiscal year. Effective July 1, 1995 (the first day of HCI's 1996 fiscal year),
HCI adopted a new accounting policy for the recognition of corporate sponsor
license fee revenue and guaranteed rights fee expenses, since the nature of
HCI's contracts were changing to include revenue-sharing or net profit split
arrangements, rather than guaranteed rights fee payments. As a result, the
rights fee expense associated with this type of contract could not be accurately
measured until the expiration of each contract period when the revenue-sharing
or net profit split amount was determined. Under the new policy, license fee
revenue and rights fee expense are recognized on a straight-line basis over the
life of the contract, instead of recognizing revenue and expense in their
entirety on the effective date of the contract, thereby providing for the
uniform matching of revenue and expenses. As a result of such adoption, HCI
recognized a $4.6 million charge against its first quarter earnings,
representing the after-tax cumulative effect of the accounting change. The
Company has reported 9.1% of such charge, or $415,000, less a $141,000 deferred
tax benefit, as a charge against its first quarter 1996 earnings.
In September 1995, HCI sold certain of its operations to USA in
exchange for its 33.8% common equity position. The transaction resulted in a
gain, net of tax, of approximately $4.0 million for HCI, the Company's share of
which amounted to $377,000, as reflected in the Company's equity in earnings of
affiliated companies for the nine months ended September 30, 1996, favorably
impacting the Company's net income for the period by approximately $196,000, or
$.01 per share.
Recognition of the impact of HCI's cumulative effect of the accounting
change and its gain on the sale of assets to USA resulted in the Company's
filing of amended Form 10-QSB's for the quarterly periods ended March 31, 1996
and June 30, 1996 on Form 10-QSB/A-1 for each of such quarters.
Assuming the CSP investment had occurred on January 1, 1995 and the HCI
accounting change had been applied retroactively in 1995, pro forma net income
and earnings per share would have been approximately $577,000 and $.02,
respectively, for the nine months ended September 30, 1995, compared to
$5,527,000 and $.24, respectively, for the nine months ended September 30, 1996,
and approximately $30,000 and $.00, respectively, for the three months ended
September 30, 1995, compared to $5,185,000 and $.23, respectively, for the three
months ended September 30, 1996, after giving effect to pro forma adjustments to
the Company's equity in earnings of HCI, interest expense associated with the
<PAGE>
acquisition financing and the related income tax effects.
Aggregate operating results of affiliated companies (reflecting Gray and CSP
for the three months and nine months ended September 30, 1996 and 1995, combined
with HCI for the three months and nine months ended March 31, 1996 and 1995) are
as follows:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 1996 September 30, 1995
<S> <C> <C>
Operating revenue $31,755,000 $26,785,000
Income from operations 4,603,000 3,167,000
Income before cumulative effect
of accounting change and
extraordinary item 4,542,000 716,000
Net income 1,383,000 716,000
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1996 September 30, 1995
<S> <C> <C>
Operating revenue $79,257,000 $73,006,000
Income from operations 10,453,000 9,148,000
Income before cumulative effect
of accounting change and
extraordinary item 9,647,000 2,537,000
Net income 1,929,000 2,537,000
</TABLE>
4. Inventories associated with Datasouth's printer manufacturing
operations consist of the following:
September 30, 1996 December 31, 1995
Raw materials $ 2,413,432 $ 2,489,539
Work-in-process 659,484 617,397
Finished goods 215,242 648,507
--------- ---------
$ 3,288,158 $ 3,755,443
========= =========
5. In connection with the purchase of the 8% Note and the acquisition of Gray's
series B preferred stock, the Company modified its Loan Agreement, increasing
its outstanding bank term loan borrowings by $10 million in January 1996 and by
an additional $5 million in September 1996.
In September 1996, the Company extended one of its revolving bank
credit facilities to April 1998 and increased the available borrowings under the
facility to $2.0 million, on which $1,498,795 had been borrowed as of September
30, 1996. The Company has, in addition, a bank credit facility for revolving
loans of up to $3 million through April 1999, on which $2,158,000 was
outstanding as of September 30, 1996.
6. The principal differences between the federal statutory tax rate of 34% and
the effective tax rates are nondeductible goodwill amortization and state income
taxes.
7. Earnings per share is based on the weighted average number of shares of Bull
Run common stock and common stock equivalents (i.e., stock options) outstanding
during the period, computed in accordance with the treasury stock method.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Total revenue for the three months ended September 30, 1996, primarily
from the printer manufacturing operations of Datasouth Computer Corporation
("Datasouth"), a wholly-owned subsidiary of Bull Run Corporation (collectively,
with Datasouth, unless the context otherwise requires, the "Company"), was
$6,461,000, compared to $6,098,000 for the same period in 1995. Gross profit
from printer operations of 26.7% for the three months ended September 30, 1996,
decreased from the 30.2% realized during the same period in 1995 primarily due
to a different mix of products sold. Total revenue for the nine months ended
September 30, 1996 decreased to $18,685,000, from $21,104,000 for the same
period in 1995. Gross profit from printer operations of 28.2% for the nine
months ended September 30, 1996, was less than the 30.4% realized during the
same period in 1995 primarily due to a different mix of products sold and
greater manufacturing overhead efficiencies gained in 1995 as a result of higher
unit volumes.
Revenue from printer operations for the nine months ended September
30, 1996 was lower than the same period in 1995, when the Company received large
orders from several key customers. Printer sales to the Company's largest
customer were approximately $1.5 million for the three months and $5.2 million
for the nine months ended September 30, 1996, as compared to approximately $1.7
million and $6.4 million for the same respective periods in 1995. Also, printer
sales to a large distributor were lower by approximately $200,000 for the three
months and $1.1 million for the nine months ended September 30, 1996, compared
to the 1995 periods, due to a significant printer installation project by the
distributor's customer maturing in late 1995. Short term revenue trends in the
Company's printer business fluctuate due to variable ordering patterns of these
and other large customers. Despite this volatility, revenue from printer
operations has been relatively consistent over the past five successive
quarters. In the second quarter of 1996, the Company began shipping two new
products, a high speed version of the Documax dot matrix printer and the
WinLiner, a portable thermal printer. Although the contribution from these new
products was not significant in the quarter just completed, it is expected that
the Company will realize a gradually increasing contribution from these new
products in the future.
The Company provides consulting services to Gray Communications
Systems, Inc. ("Gray") in connection with Gray's acquisitions and acquisition
financing. Income on a portion of such fees is deferred and recognized over
forty years as a result of the Company's equity investment position in Gray. Due
to the reduction in the Company's equity investment from 27.1% to 15.2% of
Gray's outstanding common shares (primarily as a result of Gray's public
offering of stock completed in September 1996 as described below), $174,000 of
previously deferred fees was recognized as consulting fee income in September
1996. In addition, the Company invoiced Gray for fees totaling $350,000 and
$850,000 during the three months and nine months ended September 30, 1996,
respectively, in connection with Gray's purchase of two television stations, a
broadcasting operation and a paging business, of which $53,000 and $129,000 were
deferred, respectively, for future period revenue recognition. Deferred
consulting fees, which totaled $274,000 as of September 30, 1996, are currently
recognized as income over forty years. Consulting fee income of $435,000 was
recognized during the nine months ended September 30, 1995. Except for an
additional $350,000 to be charged to Gray for services to be rendered in
connection with Gray's latest acquisition, there can be no assurance that the
Company will recognize any consulting fees in the future.
Operating expenses of $1,513,000 for the three months and $4,773,000
for the nine months ended September 30, 1996 represented a 1% and a 7%
reduction, respectively, in comparison with the same periods last year, due to
reductions in certain project-specific
<PAGE>
research and development expenses and certain general and administrative
expenses. Operating expenses included goodwill amortization of approximately
$77,000 for each of the three month periods and $232,000 for each of the nine
month periods ended September 30, 1996 and 1995.
Equity in earnings (losses) of affiliated companies, totaling $962,000
and $(39,000) for the three months ended September 30, 1996 and 1995,
respectively, included the Company's proportionate share of the earnings of
Gray, Host Communications, Inc. ("HCI") and Capital Sports Properties, Inc.
("CSP"), net of goodwill amortization totaling $107,000 and $94,000 for the
respective periods. Equity in earnings of affiliated companies totaled
$1,672,000 and $181,000 for the nine months ended September 30, 1996 and 1995,
respectively, net of goodwill amortization totaling $320,000 and $274,000 for
the respective periods.
In September 1996, Gray consummated a public offering of 3.5 million
shares of its newly-issued class B common stock at $20.50 per share, resulting
in net proceeds of approximately $67.1 million. As a result of such issuance,
the Company's common equity ownership of Gray was reduced from 27.1% to 15.2%,
resulting in a pretax gain for the Company of approximately $8.2 million
(approximately $5.0 million after tax). Such offering also reduced the Company's
common equity voting power in Gray from 27.1% to 25.1%. Although future sales by
Gray of its common stock would likely result in the recognition by the Company
of additional gains, there is no assurance that such sales of a material nature
will occur in the future. Gray is a Southeast United States communications
company that operates two NBC-affiliated television stations, five
CBS-affiliated television stations (two of which were acquired in September
1996), three daily newspapers, two advertising weekly shoppers, plus a satellite
broadcasting operation and a paging business which were also acquired in
September 1996. In August 1996, Gray sold a television station for approximately
$9.5 million, recognizing a pretax gain of approximately $5.7 million.
Interest expense, net of interest earned on an 8% Subordinated Note
due from Gray in the principal amount of $10 million (the "8% Note") and
dividends accrued on the Company's investment in Gray's series A and series B
preferred stock, totaling $317,000 and $913,000 for the three months and nine
months ended September 30, 1996, respectively, was attributable to bank term
loans and borrowings on the Company's revolving credit facilities. Net interest
expense of $292,000 for the three months and $643,000 for the nine months ended
September 30, 1995 was attributable to the bank term loans executed in March
1995, a $3 million bank term loan (which was replaced by the 8% Note in January
1996), and short-term borrowings on lines of credit and revolving credit
facilities.
The principal differences between the federal statutory tax rate of
34% and the effective tax rates for each period are nondeductible goodwill
amortization and state income taxes.
In September 1996, Gray retired certain debt with the proceeds from
its public offerings of class B common stock and notes, and the sale of its
series B preferred stock. As a result, Gray incurred an extraordinary loss of
$3,159,000 (net of a tax benefit of $2,157,000) related to deferred financing
costs associated with the retired debt. The Company therefore recognized 15.2%
of Gray's charge as an extraordinary loss, net of its own deferred tax benefit.
<PAGE>
Liquidity and Capital Resources
In January 1996, the Company purchased the 8% Note issued by Gray for
$10.0 million. In September 1996, the Company exchanged the 8% Note for 1,000
shares of Gray's series A preferred stock, which entitles the Company to cash
dividends at an annual rate of $800 per share. At that same time, the Company
acquired, for $5.0 million, 500 shares of Gray's series B preferred stock.
Dividends on such series B preferred stock are payable in cash (at an annual
rate of $600 per share) or, at Gray's option, in additional shares of series B
preferred stock. The Company anticipates that dividends on the series B
preferred stock will initially be paid in additional shares of series B
preferred stock.
The Company modified its Loan Agreement in connection with the
purchase of the 8% Note and the acquisition of Gray's series B preferred stock,
in order to increase its outstanding bank term loan borrowings by $10.0 million
in January 1996 and an additional $5.0 million in September 1996. The bank term
loans, totaling $28.5 million as of September 30, 1996, are payable in monthly
installments of $250,000 beginning February 1999, and currently bear interest at
the London Interbank Offered Rate ("LIBOR"), plus 1.75% (7.44% for the 120-day
period including September 30, 1996).
In September 1996, the Company extended one of its revolving bank
credit facilities until April 1998 and increased the available borrowings under
the facility to $2.0 million. Borrowings under one such facility ($1,499,000 at
September 30, 1996) bears interest at the bank's prime rate (8.25% as of
September 30, 1996). The Company also has a bank credit facility for revolving
loans of up to $3.0 million through April 1999, bearing interest principally at
LIBOR plus 2.25% (7.72% for the 30-day period including September 30, 1996), on
which $2,158,000 was outstanding as of September 30, 1996. Although there exists
no commitment to repay any amounts outstanding on the revolving credit
facilities during the next twelve months, the Company estimates the aggregate
amount outstanding on the revolving credit facilities will be reduced by
approximately $500,000 during that period, and accordingly, such amount was
recorded as a short-term obligation as of September 30, 1996.
The Company's total working capital of $4.7 million as of September
30, 1996 increased from $3.7 million as of December 31, 1995, primarily as a
result of refinancing a short-term bank line of credit with the $3.0 million
revolving credit facility. In April 1996, the Company announced that its Board
of Directors had reauthorized the repurchase of up to 2 million shares of its
common stock. Repurchases may be made from time to time in the open market or
directly from shareholders at prevailing market prices, and may be discontinued
at any time. During the nine months ended September 30, 1996, 227,500 shares
were repurchased at a total cost of $584,000, and an additional 50,000 shares
were repurchased at a cost of $121,000 subsequent to September 30, 1996. The
Company has repurchased a total of 400,500 shares at an average cost of $2.58
per share since the initial Board authorization in November 1994.
The Company anticipates that its current working capital, funds
available under its revolving credit facilities, quarterly cash dividends on the
Gray Series A preferred stock 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 twelve months. Any capital required for
potential additional business acquisitions would have to be funded by issuing
additional securities or by entering into other financial arrangements.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 1 - Second Modification of Loan Agreement
Exhibit 2 - Computation of Earnings Per Share
Exhibit 3 - Financial Data Schedule
(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: November 12, 1996 By: /s/ FREDERICK J. ERICKSON
-------------------------
Frederick J. Erickson
Vice President-Finance, Treasurer
and Assistant Secretary
(Mr. Erickson is the Chief Financial Officer and has
been duly authorized to sign on behalf of the registrant.)
<PAGE>
EXHIBIT 1
SECOND MODIFICATION OF LOAN AGREEMENT
THIS MODIFICATION is made as of this 24th day of September, 1996, by
and between BULL RUN CORPORATION, a Georgia corporation ("Borrower"), and
NATIONSBANK, N.A. (SOUTH), a Georgia banking corporation, successor by merger to
Bank South ("Lender").
Statement of Facts
Lender and Borrower are parties to that certain Loan Agreement, dated
as of March 29, 1995, as amended by the First Modification of Loan Agreement,
dated as of January 3, 1996, (the "Loan Agreement"), pursuant to which Lender
has agreed to make one or more loans from time to time to the Borrower in
accordance with the terms and conditions thereof. Lender and Borrower desire to
modify the Loan Agreement in order to provide for a new $5,000,000 term loan, to
increase the revolving credit loan to $2,000,000, and in certain other respects
in accordance with the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises, the covenants and
agreements contained herein, and other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, Borrower and Lender do
hereby agree that all capitalized terms used herein shall have the meanings
ascribed thereto in the Loan Agreement as amended hereby (except as otherwise
expressly defined or limited herein) and do hereby further agree as follows:
Statement of Terms
1. Amendments of Loan Agreement. Subject to the fulfillment of the
conditions precedent to the effectiveness of this Modification which are set
forth below, the Loan Agreement shall be amended as follows:
(a) Section 1.01 of the Loan Agreement is hereby amended by
adding to Section 1.01 the following new definitions:
"Capital Expenditures" shall mean the cost,
determined in accordance with GAAP, of any fixed asset or
improvement, or replacement, substitution, or addition
thereto, which have a useful life of more than one year,
including, without limitation, those arising in connection
with Capital Leases.
"Capital Lease" shall mean any lease of Property by a
Person that, in accordance with GAAP, should be reflected as a
liability on the balance sheet of such Person.
<PAGE>
"Debt Service" shall mean, for any period of
determination, the sum of the following (determined without
duplication) for the Borrower and its Subsidiaries, determined
on a consolidated basis in accordance with GAAP: (a) interest
expense for such period; (b) dividends paid during such period
(other than any dividend or distribution payable in capital
stock of the same class); (c) the aggregate amount of all
regularly scheduled payments of principal to be made during
the four consecutive fiscal quarters immediately following the
determination of the Debt Service Ratio pursuant to Section
7.05(d) hereof, and (d) payments for state and federal income
taxes during such period, provided, however, that Debt Service
shall not include payment by the Borrower in March, 1996 of
its tax liability for 1995 in an amount of approximately
$450,000.
"Debt Service Ratio" shall mean for any period of
determination the ratio of (a) EBITDA for such period to (b)
Debt Service for such period.
"EBITDA" shall mean, with respect to any period of
determination, the Borrower's net income for such period, as
determined on a consolidated basis together with its
Subsidiaries in accordance with GAAP and reported on the
financial statements for such period delivered pursuant to
Section 7.01 hereof, plus any and all of the following
deducted in determining such net income: (a) interest expense;
(b) state and federal income taxes accrued or otherwise
provided for; (c) depreciation; and (d) amortization.
"Marketable Securities" shall mean any security
traded on the American Stock Exchange, the New York Stock
Exchange or NASDAQ.
"Property" shall mean any interest in any kind of
property or asset, whether real, personal or mixed, or
tangible or intangible.
"Third Term Loan" shall mean any and all advances
made by Lender to Borrower under the Third Term Loan Facility.
"Third Term Loan Facility" shall mean the term loan
facility provided by Lender to Borrower under Section 3.02A
hereof.
"Third Term Loan Facility Expiration Date" shall mean
September 30, 1996 (as such date may be extended, accelerated
or amended from time to time pursuant to this Agreement).
"Third Term Loan Maximum Availability" shall mean
$5,000,000.
<PAGE>
"Third Term Loan Note" shall mean the Third Term Loan
Note, dated as of the date of the Second Modification of Loan
Agreement, executed by the Borrower and payable to the order
of the Lender as evidence of the Third Term Loan and any
extension, renewal, modification or replacement thereof or
therefor.
"Third Term Loan Obligations" shall mean,
collectively, any and all Obligations of Borrower to pay
Lender the principal of, interest or fees on, collection costs
for, or any other sums owing in respect of the Third Term Loan
or the Third Term Loan Note.
(b) Section 1.01 of the Loan Agreement is hereby further
amended by deleting from Section 1.01 the terms "Collateral,"
"Revolving Credit Facility Expiration Date," "Revolving Credit Maximum
Availability," "Term Loan Facilities," "Term Loan Notes," "Term Loans,"
and "Warrant" by substituting in lieu thereof the following new
definitions of such terms:
"Collateral" shall mean (i) the Pledged Shares, (ii)
the Warrants, (iii) any and all other property which may be
hereafter pledged or collaterally assigned to Lender or in
which Lender may be otherwise granted a Lien to secure the
Obligations pursuant to any and all of the Credit Documents
and (iv) any and all cash and non-cash proceeds of the
foregoing.
"Revolving Credit Facility Expiration Date" shall
mean April 1, 1998, (as such date may be extended, accelerated
or amended from time to time pursuant to this Agreement).
"Revolving Credit Maximum Availability" shall mean
$2,000,000 (as such amount may be adjusted from time to time
pursuant to this Agreement).
"Term Loan Facilities" shall mean, collectively, the
First Term Loan Facility, the Second Term Loan Facility, and
the Third Term Loan Facility.
"Term Loan Notes" shall mean, collectively, the
First Term Loan Note, the Second Term Loan Note, and the
Third Term Loan Note.
"Term Loans" shall mean, collectively, the First Term
Loan, the Second Term Loan, and the Third Term Loan.
"Warrants" shall mean (a) the warrant to purchase
487,500 shares of the common stock of Gray issued on January
3, 1996, by Gray in favor of Borrower in connection with the
Subordinated Note, and any extension, modification, supplement
or replacement thereof or therefor, and (b) the warrant to
purchase 250,000 shares of common stock of Gray issued or to
be issued by Gray in favor of the Borrower in connection with
the issuance of series B preferred stock of Gray, and any
extension, modification, supplement or replacement thereof or
therefor.
<PAGE>
(c) The Loan Agreement is hereby further amended by adding the
following Section 3.02A after the existing Section 3.02 and before the
existing Section 3.03:
Section 3.02A. Third Term Loan Facility.
(a) Subject to the terms and conditions of this
Agreement, the Lender agrees to advance to the Borrower, from
time to time on or prior to the Third Term Loan Facility
Expiration Date and upon the Borrower's request therefor, a
Third Term Loan in the principal amount of up to the Third
Term Loan Maximum Availability.
(b) The proceeds of the Third Term Loan shall be used
to purchase (i) 500 shares of series B preferred stock of Gray
and (ii) warrants to purchase 250,000 shares of class A common
stock of Gray.
(d) The Loan Agreement is hereby further amended by deleting
the existing Section 3.03(d) in its entirety and by substituting in
lieu thereof, the following new Section 3.03(d):
(d) The Lender, upon determining the Adjusted LIBOR
for any Interest Period applicable to any Term Loan, shall
promptly notify by telephone (confirmed in writing) or in
writing the Borrower thereof and any such determination by the
Lender shall, in the absence of manifest error, be final,
conclusive and binding for all purposes.
(e) The Loan Agreement is hereby further amended by adding to
Section 3.04 the following subsection (d) after subsection (c) thereof:
(d) The Borrower's obligation to pay to the Lender
the principal of and interest on the Third Term Loan shall be
evidenced by the records of the Lender (subject to Section
4.05 hereof) and by the Third Term Loan Note. The principal
balance of the Third Term Loan shall be payable in forty-seven
(47) consecutive monthly installments of $50,000 each, with
the first such installment due on February 1, 1999 and each of
the remaining installments being due on the same day of each
succeeding month thereafter, together with a forty-eighth
(48th) and final installment of principal on the Third Term
Loan which shall be due on January 1, 2003 in an amount equal
to the entire remaining unpaid principal balance of the Third
Term Loan.
(f) The Loan Agreement is hereby further amended by deleting
Section 4.04(b) and Section 4.04(c) in their entireties and by
substituting in lieu thereof the following new Section 4.04(b) and
Section 4.04(c):
(b) The Obligations shall be secured by (i) the
Borrower's first-priority and perfected pledge to the Lender
of one hundred percent of the outstanding capital stock of
Guarantor pursuant to the Borrower Stock Pledge Agreement,
(ii) the Guarantor's first priority and perfected pledge to
the Lender of 169,431 shares of the common stock of Gray
pursuant to the First Guarantor Pledge Agreement, and (iii)
the Partnership's first priority and perfected pledge to the
Lender of 1,284,000 shares of the common stock of the Borrower
pursuant to the Partnership Pledge Agreement.
<PAGE>
(c) The Second Term Loan Obligations and the Third
Term Loan Obligations shall be secured by the Guarantor's
first-priority and perfected pledge to the Lender of 906,294
shares of the common stock of Gray in exchange for the
Subordinated Note pursuant to the Second Guarantor Pledge
Agreement and shall be further secured by the Borrower's
first-priority and perfected pledge to the Lender of 500
shares of series B preferred stock of Gray, 1000 shares of
series A preferred stock of Gray and all of the Warrants
pursuant to the Second Borrower Pledge Agreement.
(g) The Loan Agreement is hereby further amended by deleting
Section 7.05(c) in its entirety and by substituting in lieu thereof the
following new Section 7.05(c):
(c) Borrower's Leverage Ratio shall not be more than
1.8 to 1.0 as of the end of any fiscal quarter or year ending
on or after September 30, 1996.
(h) The Loan Agreement is hereby further amended by deleting
Section 7.05(d) in its entirety, and by substituting in lieu thereof,
the following new Section 7.05(d):
(d) As of the last day of each fiscal quarter,
Borrower's Debt Service Ratio for the four quarter period then
ended shall not be less than 1.1 to 1.0 at any time on or
after December 31, 1996.
(i) The Loan Agreement is hereby further amended by adding the
following new Section 9.01(xiv) after the existing Section 9.01(xiii):
(xiv) the aggregate value of all of Purchaser's
unpledged and non-affiliated Marketable Securities shall be
less than $60,000,000 at any time on or after September 30,
1996.
2. No Other Amendments. Except for the amendments expressly set forth
and referred to in Section 1 above, the Loan Agreement shall remain unchanged
and in full force and effect. Nothing in this Modification or any of the other
Supplemental Credit Documents (as defined below) is intended, or shall be
construed, to constitute a novation or an accord and satisfaction of any of the
Obligations or to modify, affect or impair the perfection or continuity of
Lender's security interests in, security titles to or other Liens on any
Collateral for the Obligations.
3. Representations and Warranties. To induce Lender to enter into this
Modification, the Borrower does hereby warrant, represent and covenant to Lender
that: (a) each representation or warranty of the Borrower set forth in the Loan
Agreement is hereby restated and reaffirmed as true and correct on and as of the
date hereof as if such representation or warranty were made on and as of the
date hereof (except to the extent that any such representation or warranty
expressly relates to a prior specific date or period), and no Default or Event
of Default has occurred and is continuing as of this date under the Loan
Agreement as amended by this Modification; and (b) each of the Borrower, the
Guarantor and the Partnership has the power and is duly authorized to enter
into, deliver and perform the Supplemental Credit Documents to which it is a
party, and each of the Supplemental Credit Documents is the legal, valid and
binding obligation of each Credit Party enforceable against such Credit Party in
accordance with its terms.
4. Facility Fee. In consideration of Lender entering into this
Modification, Borrower shall pay to Lender on or before the date of this
Modification, a non-refundable facility fee of $37,500. Borrower acknowledges
that such facility fee shall be fully earned by the Lender
<PAGE>
upon the Lender's receipt of such fee and shall be non-refundable.
5. Reimbursement of Costs and Expenses. The Borrower hereby agrees to
reimburse Lender on demand for all costs (including reasonable attorneys' fees)
incurred by Lender in negotiating, documenting and consummating this
Modification, the other documents referred to herein, and the transactions
contemplated hereby and thereby.
6. Conditions Precedent to Effectiveness of this Modification. The
effectiveness of this Modification and the amendments provided in Section 1
above are subject to the truth and accuracy in all material respects of the
representations and warranties of the Borrower contained in Section 3 above and
to the fulfillment of the following additional conditions precedent (all
documents described below shall be in form and substance satisfactory to Lender,
and the documents described in paragraph (a) below are herein collectively
called the Supplemental Credit Documents.):
(a) Lender shall have received one or more duly executed
counterparts of this Modification, the Revolving Credit Note, the Third
Term Loan Note, the First Modification of Second Borrower Pledge
Agreement, and the Second Modification of Amended and Restated Second
Guarantor Pledge Agreement;
(b) Lender shall have received the originals of all
certificates or other instruments, evidencing the shares and warrants
covered by the First Modification of Second Borrower Pledge Agreement
and a UCC-1 financing statement covering such collateral, both duly
executed and delivered by Borrower;
(c) Lender shall have received a duly executed Guarantor
Reaffirmation and Consent from the Guarantor, a duly executed
Partnership Reaffirmation and Consent from the Partnership, and a duly
executed Purchaser Consent to Second Modification of Loan Agreement
from the Purchaser;
(d) Lender shall have received closing certificates duly
executed and completed by the Borrower, the Guarantor and the
Partnership and a duly executed and completed Federal Reserve Form U-1
relating to each of the Revolving Credit Loan, the Second Term Loan,
and the Third Term Loan;
(e) Lender shall have received an opinion of the Borrower's,
the Guarantor's, the Partnership's and the Purchaser's counsel
addressing such legal matters as may be requested by the Lender;
(f) Lender shall have received a certificate of existence for
Borrower from the Secretary of State of Georgia and a good standing
certificate for Guarantor from the Secretary of State of Delaware;
(g) Lender shall have received payment of the facility fee by
Borrower pursuant to Section 4 hereof plus all interest accrued through
the effective date of this Modification on the First Term Loan and the
Second Term Loan;
7. Conditions Precedent to Funding of the Third Term Loan. The
following condition, together with the conditions set forth in Section 6 hereof,
are conditions precedent to the funding of the Third Term Loan:
(a) All conditions precedent to the issuance of the series A
preferred stock of Gray, the series B preferred stock of Gray, and the
Warrants shall have been fulfilled (other than the disbursement of the
Third Term Loan proceeds as contemplated hereby), and the series A
preferred stock of Gray, the series B preferred stock of Gray,
<PAGE>
and the Warrants shall be issued on terms and conditions acceptable to
Lender in all respects;
8. Post-Closing Matters. Borrower acknowledges that a written report of
examinations of the Uniform Commercial Code financing statement, tax lien and
judgment lien records of Fulton County has been requested and will be returned
to Lender. Borrower agrees that if such written report shows Liens of record
upon the Borrower other than those of Lender or any other item of record
unsatisfactory to Lender, Borrower shall, upon Lender's request, cause same to
be removed from the record within thirty (30) days of such request.
9. Counterparts. This Modification may be executed in multiple
counterparts, each of which shall be deemed to be an original and all of which
when taken together shall constitute one and the same instrument.
10. Governing Law. This Modification shall be governed by, and
construed in accordance with, the internal laws of the State of Georgia
applicable to contracts made and performed in such state.
IN WITNESS WHEREOF, the parties hereto have caused this Modification to
be duly executed and delivered as of the day and year specified at the beginning
hereof.
BORROWER:
BULL RUN CORPORATION
By: /s/ Robert S. Prather, Jr.
---------------------------------
Robert S. Prather, Jr., President
LENDER:
NATIONSBANK, N.A. (SOUTH)
By: /s/ Gary L. Young
------------------------------------
Gary L. Young, Senior Vice President
EXHIBIT 2
BULL RUN CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(Dollars and shares in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary:
Income before cumulative effect of
accounting change and extraordinary item $ 5,480 $ 27 $ 5,821 $ 671
Cumulative effect of accounting change (274)
Extraordinary item (295) (295)
------ ---- ------ ----
Net income $ 5,185 $ 27 $ 5,252 $ 671
====== ==== ====== ====
Primary shares:
Weighted average number of shares
outstanding 21,971 22,099 22,058 22,120
Assuming exercise of options 880 1,260 960 1,121
------- ------ ------- ------
Weighted average number of shares
outstanding, as adjusted 22,851 23,359 23,018 23,241
====== ====== ====== ======
Primary earnings per share:
Income before cumulative effect of
accounting change and extraordinary item $ .24 $ .00 $ .25 $ .03
Cumulative effect of accounting change (.01)
Extraordinary item (.01) (.01)
---- ---- ---- ----
Net income $ .23 $ .00 $ .23 $ .03
==== ==== ==== ====
Assuming Full Dilution:
Income before cumulative effect of
accounting change and extraordinary item $ 5,480 $ 27 $ 5,821 $ 671
Cumulative effect of accounting change (274)
Extraordinary item (295) (295)
------ ----- ------ -----
Net income $ 5,185 $ 27 $ 5,252 $ 671
====== ===== ====== =====
Fully diluted shares:
Weighted average number of shares
outstanding 21,971 22,099 22,058 22,120
Assuming exercise of options 880 1,287 960 1,288
------- ------ ------ ------
Weighted average number of shares
outstanding, as adjusted 22,851 23,386 23,018 23,408
====== ====== ====== ======
Fully diluted earnings per share:
Income before cumulative effect of
accounting change and extraordinary item $ .24 $ .00 $ .25 $ .03
Cumulative effect of accounting change (.01)
Extraordinary item (.01) (.01)
---- ---- ---- ----
Net income $ .23 $ .00 $ .23 $ .03
==== ==== ==== ====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000319697
<NAME> BULL RUN CORPORATION
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 166,854
<SECURITIES> 0
<RECEIVABLES> 4,957,035
<ALLOWANCES> 45,000
<INVENTORY> 3,288,158
<CURRENT-ASSETS> 8,479,223
<PP&E> 3,589,638
<DEPRECIATION> 1,259,089
<TOTAL-ASSETS> 68,841,482
<CURRENT-LIABILITIES> 3,811,856
<BONDS> 32,156,795
<COMMON> 223,097
0
0
<OTHER-SE> 28,550,159
<TOTAL-LIABILITY-AND-EQUITY> 68,841,482
<SALES> 17,842,461
<TOTAL-REVENUES> 18,685,108
<CGS> 12,812,383
<TOTAL-COSTS> 12,812,383
<OTHER-EXPENSES> 1,186,226
<LOSS-PROVISION> 1,397
<INTEREST-EXPENSE> 1,512,076
<INCOME-PRETAX> 8,365,552
<INCOME-TAX> 4,215,890
<INCOME-CONTINUING> 5,821,948
<DISCONTINUED> 0
<EXTRAORDINARY> (295,322)
<CHANGES> (274,248)
<NET-INCOME> 5,252,378
<EPS-PRIMARY> .23
<EPS-DILUTED> .23
</TABLE>
