U.S. 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 February 28, 2001
-------------------------------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OF 15(d) OF THE
EXCHANGE ACT
For the transition period from ___________________to_________________________
Commission File Number 000-21623
OBIE MEDIA CORPORATION
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(Exact name of small business issuer as specified in its charter)
OREGON 93-0966515
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
4211 West 11th Ave., Eugene, Oregon 97402
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(Address of principal executive offices)
541-686-8400 FAX 541-345-4339
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(Issuer's telephone number)
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 [ ]
-----
As of April 1, 2001, 5,896,232 shares of the issuer's common stock were
outstanding.
OBIE MEDIA CORPORATION
FORM 10-Q
INDEX
PART 1 - FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets as of February 28, 2001 and November 30, 2000 2
Consolidated Statements of Operations for the quarters ended February 28, 2001
and February 29, 2000 3
Consolidated Statements of Cash Flows for the quarters ended
February 28, 2001 and February 29, 2000 4
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures about Market Risk 9
PART II - OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders 9
Item 6. Exhibits and Reports on Form 8-K 9
1
Item 1. Financial Statements
OBIE MEDIA CORPORATION
Consolidated Balance Sheets
(Unaudited)
ASSETS
February 28, November 30,
2001 2000
------------- -------------
CURRENT ASSETS:
Cash $ 233,518 $ 634,633
Accounts receivable, net 10,951,892 11,174,866
Prepaids and other current assets 4,939,182 4,837,954
Deferred income taxes 419,258 419,258
------------- -------------
Total current assets 16,543,850 17,066,711
Property and equipment, net 16,712,767 16,770,943
Goodwill, net 6,293,478 6,423,335
Other assets 557,270 577,066
------------- -------------
$40,107,365 $40,838,055
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 188,888 $200,888
Line of credit 400,000 ---
Accounts payable 2,379,011 1,979,305
Accrued expenses 1,600,717 1,623,581
Income taxes payable 53,741 497,504
Deferred revenue 1,970,417 2,221,423
------------ ------------
Total current liabilities 6,592,774 6,522,701
Deferred income taxes 1,360,392 1,360,392
Long-term debt, less current portion 13,692,818 13,694,941
------------ ------------
Total liabilities 15,053,210 15,055,333
------------ ------------
Minority interest in subsidiary 35,424 35,424
Shareholders' equity:
Preferred stock, without par value, 10,000,000 shares
authorized, no shares issued or outstanding --- ---
Common stock, without par value; 20,000,000 shares
authorized, 5,896,232 shares issued and
outstanding 16,960,365 16,960,365
Note receivable from shareholder (59,895) (59,895)
Options issued for common stock 211,763 211,763
Foreign currency translation (353) (2,203)
Retained earnings 1,314,077 2,114,567
------------ ------------
Total shareholders' equity 18,425,957 19,224,597
------------ ------------
$40,107,365 $40,838,055
============ ============
See accompanying notes
2
OBIE MEDIA CORPORATION
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
------------------
February 28, February 29,
----------- ------------
2001 2000
------------- -------------
REVENUES:
Transit advertising $10,917,225 $7,831,173
Outdoor advertising 1,767,273 1,482,096
------------- -------------
Gross revenue 12,684,498 9,313,269
Less - Agency commissions (960,966) (767,446)
------------- -------------
Net revenues 11,723,532 8,545,823
OPERATING EXPENSES:
Direct advertising expenses 9,945,242 6,454,209
General and administrative 2,055,276 1,575,766
Start-up costs 297,136 31,132
Depreciation and amortization 491,963 421,020
------------- -------------
Operating income (loss) (1,066,085) 63,696
OTHER EXPENSE:
Interest expense 283,070 215,392
------------- -------------
Loss before income taxes (1,349,155) (151,696)
BENEFIT FROM INCOME TAXES (548,665) (59,161)
------------- -------------
NET LOSS $(800,490) ($92,535)
============= =============
Loss per share:
Basic ($0.14) ($0.02)
Diluted ($0.14) ($0.02)
See accompanying notes
3
OBIE MEDIA CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
Three Months ended
February 28, February 29,
2001 2000
------------ ------------
Cash Flows From Operating Activities:
Net loss $(800,490) $(92,535)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 491,963 421,020
Changes in operating assets and liabilities (189,303) (337,295)
------------ ------------
Net cash used in operating activities (497,830) (8,810)
------------ ------------
Cash Flows From Investing Activities:
Capital expenditures (310,808) (2,912,495)
Other
19,796 (20,358)
------------ ------------
Net cash used in investing activities (291,012) (2,932,853)
------------ ------------
Cash Flows From Financing Activities:
Net borrowing (payments) on line of credit 400,000 (465,084)
Borrowings of long-term debt ---- 4,000,000
Net payments on long-term debt (14,123) (712,012)
Other ---- 99,771
------------ ------------
Net cash provided by financing activities 385,877 2,922,675
------------ ------------
Effect of exchange rate changes on cash 1,850 (2,498)
------------ ------------
Net decrease in cash (401,115) (21,486)
Cash, beginning of period 634,633 34,224
------------ ------------
Cash, end of period $233,518 $12,738
============ ============
Supplemental Disclosure:
Issuance of stock to employee benefit plan ---- $ 91,160
Interest capitalized ---- 3,808
Cash Paid for Interest $328,030 $ 195,983
Cash Paid for Taxes $40,950 $29,912
See accompanying notes
4
OBIE MEDIA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The interim financial statements have been prepared by Obie Media
Corporation ("Obie Media," the "Company," "We," "Us," or "Our") without audit.
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments necessary to present fairly the financial position of
the Company as of February 28, 2001 and November 30, 2000, and the results of
operations and cash flows of the Company for the three months ended February 28,
2001 and February 29, 2000, as applicable. The condensed consolidated financial
statements include the accounts of the Company and its subsidiaries, and all
significant intercompany accounts and transactions have been eliminated in
consolidation.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted as permitted by rules and regulations of the
Securities and Exchange Commission. The organization and business of the
Company, accounting policies followed by the Company and other information are
contained in the notes to the Company's financial statements filed as part of
the Company's November 30, 2000 Form 10-K. This quarterly report should be read
in conjunction with such annual report.
2. Debt Agreements
In February 2001 the Company and U.S. Bank agreed on a new financing
arrangement. The arrangement includes a $16 million term loan revolver and a $6
million working capital revolver. Interest rates on each, at the Company's
option, are based upon a range of basis points above either the London
Inter-Bank Offering rate (LIBOR) or U.S. Bank's prime rate, the range is based
upon certain financial ratio requirements. The Company used the term loan
revolver to refinance all existing debt, including the then outstanding line of
credit. The term loan revolver does not require any principal payments until
fiscal 2002. The effective rate on the term loan and working capital revolver at
February 28, 2001 was 7.28% and 8.50%, respectively. Amounts outstanding under
the working capital revolver were $400,000 at February 28, 2001.
The Company's Term Loan Agreement contains certain restrictive
covenants including maintenance of certain financial ratios and debt service
coverage. The Company was in compliance with these covenants as of February 28,
2001.
3. Earnings Per Share
Basic earnings per share (EPS) is calculated using the weighted average
number of common shares outstanding for the period and diluted EPS is calculated
using the weighted average number of common shares and dilutive common
equivalent shares outstanding. The following is a reconciliation of the basic
and diluted shares used in the per share calculation:
Three Months Ended
February 28, February 29,
------------- ------------
2001 2000
------------- ------------
Basic shares (weighted average) 5,896,232 5,871,699
Dilutive effect of stock options -- --
--------- ---------
Diluted shares 5,896,232 5,871,699
========= =========
At February 28 and 29, 2001 and 2000 respectively, the Company had options
outstanding covering 709,146 and 458,497 shares of the Company's common stock,
respectively, that were not considered in the dilutive EPS calculation since
they would have been antidilutive.
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4. Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130 "Reporting Comprehensive Income" (SFAS
130). This statement establishes standards for reporting and displaying
comprehensive income and its components in a full set of general-purpose
financial statements. The objective of SFAS 130 is to report a measure of all
changes in equity of an enterprise that result from transactions and other
economic events of the period other than transactions with owners. Comprehensive
loss did not materially differ from reported net loss for the three month
periods ended February 28 and 29, 2001 and 2000, respectively.
5. New Accounting Pronouncements
In June 2000 the FASB issued Statement of Financial Accounting
Standards No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities - an amendment of FASB Statement No. 133" ("SFAS 138"). In
June 1999 the FASB issued Statement of Financial Accounting Standards No. 137 -
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 137").
SFAS 137 is an amendment to Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS 133 and 138
establish accounting and reporting standards for all derivative instruments.
SFAS 133 and 138 are effective for fiscal years beginning after June 15, 2000.
The Company adopted SFAS 133 and 138 for its fiscal year beginning December 1,
2000. The Company does not currently have any derivative instruments nor does it
participate in hedging activities, and therefore the adoption of these standards
did not have any impact on its financial position or results of operations.
In December 1999 the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"). SAB 101 summarized certain areas of the
staff's views in applying generally accepted accounting principles to revenue
recognition in financial statements. In June 2000, SAB 101B was issued which
deferred the implementation date of SAB 101 until the fourth quarter of the
first fiscal year beginning after December 15, 1999. The Company does not expect
that SAB 101 will have a significant impact on its financial condition or
results of operations.
6. Reclassifications
Certain amounts previously reported in the Company's financial
statements as of November 30, 2000 have been reclassified to conform to the
current fiscal year presentation.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion includes various forward-looking statements
that involve a number of risks and uncertainties. The Company's actual results
could differ materially from the forward-looking statements. Factors that could
cause or contribute to such differences include: the inability to finance
expected operations or strategic developments; a decline in the demand for
advertising in the areas where the Company conducts its business; a
deterioration of business conditions generally in those areas; slower than
expected acceptance of the Company's innovative display products; competitive
factors, including increased competition and price pressures; changes in the
seasonality of our business; changes in regulatory or other external factors;
failure to successfully conclude negotiations on pending transactions or to
successfully assimilate expanded operations, inability to generate advertising
revenues to meet contractual guarantees, and cancellation or interruption of
contracts with governmental agencies, as well as those factors listed from time
to time in the Company's SEC reports.
Recent Developments
On March 1, 2001 the Company was notified that it had been selected as
the successful bidder for a new contract for bus advertising for the Milwaukee,
Wisconsin transit District for a five year period. We have been serving that
transit market since April of 1992.
The company intends to acquire additional digital production printing
equipment during the second quarter of 2001. This purchase will supplement
existing equipment used to produce transit and outdoor advertising display
content which is currently producing at capacity. This additional capacity will
allow us to produce, for our customers, a significant amount of product now
being subcontracted to outside vendors. The purchase will be financed from our
working capital line of credit.
Comparison of the Three Months Ended February 28 and 29, 2001 and 2000,
respectively
Gross revenues increased $3.4 million, or 36.2%, to $12.7 million for
the three months ended February 28, 2001 from $9.3 million for the comparable
period in fiscal 2000. Transit revenues increased $3.1 million, or 39.4%, to
$10.9 million for the three months ended February 28, 2001 from $7.8 million for
the first quarter of fiscal 2000. This increase was due to volume and rate
increases in our existing markets, as well as revenues associated with new
transit operations in Chicago. Outdoor advertising revenues increased $285,000,
or 19.2%, to $1.8 million for the first quarter of fiscal 2001 from $1.5 million
for the comparable period in fiscal 2000, primarily as a result of revenues
associated with our acquisition of outdoor advertising displays in the third
quarter of fiscal 2000. Agency commissions paid to third parties increased
$193,000, or 25.2%, to $1.0 million for the three months ended February 28, 2001
from $767,000 for the first quarter of fiscal 2000, primarily due to revenues
associated with new transit operations in Chicago. As a result of the foregoing,
net revenues increased $3.2 million, or 37.2%, to $11.7 million for the first
quarter of 2001 from $8.5 million for the comparable period in fiscal 2000.
Direct advertising expenses increased $3.5 million, or 54.1%, to $9.9
million for the three months ended February 28, 2001 from $6.5 million for the
comparable period in fiscal 2000. Direct advertising expenses increased, as a
percentage of gross revenues, to 78.4% for the first quarter of fiscal 2001 from
69.3% for the same period in fiscal 2000. This increase was due primarily to
increased transit occupancy costs in 2001 versus 2000, as a result of higher
revenue sharing rates on certain new and renewed contracts.
General and administrative expenses increased $480,000, or 30.4%, to
$2.1 million for the three months ended February 28, 2001 from $1.6 million for
the comparable period in fiscal 2000. The increase resulted primarily from
increases in personnel and related costs associated with managing the growth of
our transit business, plus additional accounting and credit management
resources. General and administrative expenses, as a percentage of gross
revenues, decreased to 16.2% for the first quarter of 2001 from 16.9% for the
same period in fiscal 2000.
Start-up costs increased to $297,000 for the three months ended
February 28, 2001 from $31,000 for the comparable period in fiscal 2000.
Start-up costs include expenses incurred in new markets before we begin its sale
operations, as well as costs incurred in obtaining new transit district
contracts. The increase in the first quarter of 2001
7
was due primarily to costs related to the start up of the Chicago, San Antonio
and Tampa transit markets as well as expanded national sales support.
Depreciation and amortization expenses increased $71,000, or 16.9%, to
$492,000 for the three months ended February 28, 2001 from $421,000 for the
comparable period in fiscal 2000. This increase was primarily due to the impact
of capital expenditures for outdoor advertising displays incurred in first and
third quarter of 2000, as well as our investment in equipment in new markets and
our upgrading of computer capabilities in our existing markets.
As a result of the above factors, operating income decreased $1.1
million to a loss of $1.1 million for the three months ended February 28, 2001,
compared to operating income of $64,000 for the three months ended February 29,
2000. As mentioned above, increased start up and general and administrative
costs, business seasonality and increased transit occupancy costs were the
primary reasons for the decrease. These results were in line with management's
expectations.
Interest expense increased $68,000 or 31.4% to $283,000 for the three
months ended February 28, 2001 as compared to $215,000 for the same period in
2000.
Benefit from income taxes increased $490,000 to $549,000 for the three
months ended February 28, 2001, from a $59,000 for the comparable period in
fiscal 2000. The Company's effective tax rate was 40.7% for the first quarter of
2001 as compared to 39.0% for the comparable period in 2000. The difference
between the statutory United States federal income tax rate and the effective
tax rates is primarily the result of the aggregate effect of foreign, state and
local taxes.
As a result of the foregoing factors, the Company's net loss increased
$708,000 to $800,000 for the three months ended February 28, 2001 from $93,000
for the same period in fiscal 2000. This result was in line with management's
expectations.
Liquidity and Capital Resources
We have historically satisfied our working capital requirements with
cash from operations and revolving credit borrowings. Our working capital at
February 28, 2001 and November 30, 2000 was $10.0 million and $10.5 million,
respectively. At February 28, 2001, Obie Media had outstanding borrowings of
$14.3 million, of which $13.2 million was pursuant to long-term credit
agreements, $400,000 was pursuant to our operating line of credit, and $689,000
was related to other indebtedness. Our indebtedness is collateralized by
substantially all of our assets. See Note 2 to our condensed consolidated
financial statements. At February 28, 2001, available borrowing capacity under
the line of credit, based on collateralized accounts, was $5.6 million.
Obie Media's net cash used in operating activities was $498,000 during
the three months ended February 28, 2001 as compared to net cash used in
operating activities of $9,000 for the same period in fiscal 2000.
Net cash used in investing activities was $291,000 and $2.9 million
during the three months ended February 28, 2001 and February 29, 2000,
respectively. The difference in these expenditures during the comparable three
month periods was principally related to the acquisition of approximately 200
outdoor advertising displays for approximately $2.5 million which occurred in
the first quarter of fiscal 2000. We have a $400,000 commitment for the
acquisition of digital production equipment (see Recent Developments above) and
a $175,000 commitment for the acquisition of outdoor advertising displays during
the second quarter of 2001. There are no other material future commitments for
capital expenditures, and we anticipate that additional capital expenditures,
excluding those related to any future acquisitions, may be up to an additional
$900,000 during the remainder of fiscal 2001.
Net cash provided by financing activities was $386,000 and $2.9 million
during the three months ended February 28, 2001 and February 29, 2000,
respectively. The difference is primarily the result of increased borrowings
used to finance our acquisition of outdoor advertising displays in first quarter
of fiscal 2000.
We plan to pursue continued growth by seeking new transit district
agreements, acquiring out-of-home advertising companies or assets, and
constructing new outdoor advertising displays. We intend to finance our future
expansion activities using a combination of internal and external sources. We
believe that internally generated funds and funds available for borrowing under
our bank credit facilities will be sufficient to satisfy all debt service
obligations and to
8
finance our existing operations, including anticipated capital expenditures, but
excluding possible acquisitions, through fiscal 2001. Future acquisitions by
Obie Media, if any, may require additional debt or equity financing.
Seasonality
Obie Media's revenues and operating results historically have
fluctuated by season, generally following the advertising trends in our major
transit markets. Typically, our results of operations are strongest in the
fourth quarter and weakest in the first quarter of our fiscal year. Our transit
advertising operations are more seasonal than our outdoor advertising operations
as our outdoor advertising display space, unlike our transit advertising display
space, is and has been sold nearly exclusively by means of 12-month contracts.
We believe that the seasonality of our revenues and operating results will
increase as our transit advertising operations continue to expand more rapidly
than our outdoor advertising operations. This seasonality, together with
fluctuations in general and regional economic conditions and the timing and
expenses related to acquisitions, the obtaining of new transit agreements and
other actions we have taken to implement our growth strategy, have contributed
to fluctuations in our periodic operating results. These fluctuations likely
will continue. Accordingly, our results of operations in any period may not be
indicative of the results that may be expected for any future period.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We have not entered into derivative financial instruments. We may be
exposed to future interest rate changes on our debt. The effective interest rate
on the term loan and working capital revolvers at February 28, 2001 was 7.28%
and 8.5%, respectively. We do not believe that a hypothetical 10% change in
interest rates would have a material effect on our cash flows.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders
No matters were submitted to security holders for vote during the three months
ending February 28, 2001.
Item 6. Exhibits and Reports on Form 8-K
No Forms 8-K were filed by the company during the three months ended February
28, 2001.
Signature
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Obie Media Corporation
Date April 13, 2001 By: /s/ Gary F. Livesay *
Gary F. Livesay
Vice President - Chief Financial Officer
* Signing on behalf of the registrant as
principal financial and accounting officer
9