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, 2002
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 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 whether the 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 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, 2002 5,908,577 shares of the issuer's common stock were
outstanding.
OBIE MEDIA CORPORATION
FORM 10-Q
INDEX
PART 1 - FINANCIAL INFORMATION Page
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Item 1. Financial Statements
Consolidated Balance Sheets as of February 28, 2002 and
November 30, 2001 2
Consolidated Statements of Operations for the three months
ended February 28, 2002 and 2001 3
Consolidated Statement of Cash Flows for the three months
ended February 28, 2002 and 2001 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. Submissions of Matters to Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
OBIE MEDIA CORPORATION
Consolidated Balance Sheets
ASSETS
February 28, November 30,
2002 2001
------------------ ----------------
CURRENT ASSETS:
Cash $ 356,698 $ 404,473
Accounts receivable, net 9,053,893 11,828,554
Prepaids and other current assets 4,542,136 4,227,021
Refundable income taxes 1,881,041 1,881,041
Deferred income taxes 1,781,671 1,781,671
------------------ ----------------
Total current assets 17,615,439 20,122,760
Property and equipment, net 16,635,119 16,603,760
Goodwill, net 5,558,211 5,683,805
Other assets 795,137 822,548
------------------ ----------------
$ 40,603,906 $ 43,232,873
================== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,736,418 $ 340,418
Line of credit 2,307,117 1,697,117
Accounts payable 564,156 1,202,133
Accrued expenses 448,917 668,740
Accrued transit fees 8,924,218 10,295,314
Income taxes payable - 286,197
Unearned revenue 1,270,383 1,218,088
------------------ ----------------
Total current liabilities 15,251,209 15,708,007
Deferred income taxes 1,461,432 1,461,432
Long-term debt, less current portion 13,220,300 13,881,200
------------------ ----------------
Total liabilities 29,932,941 31,050,639
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Minority interest in subsidiary 32,899 32,899
------------------ ----------------
Shareholders' equity:
Preferred stock, without par value,
10,000,000 shares authorized, no shares
issued or outstanding 17,272,890 17,272,128
Common stock, without par value;
20,000,000 shares authorized, 5,908,577
issued and outstanding 19,981 11,028
Foreign currency translation (6,654,805) (5,133,821)
------------------ ----------------
Retained earnings (accumulated deficit) 10,638,066 12,149,335
------------------ ----------------
Total shareholders' equity $40,603,906 $43,232,873
================== ================
See accompanying notes
OBIE MEDIA CORPORATION
Consolidated Statements of Operations
Three Months Ended February 28,
-------------------------------
2002 2001
------------------- ------------------
REVENUES:
Transit advertising $8,740,053 $10,917,225
Outdoor advertising 1,954,701 1,767,273
------------------- ------------------
Gross revenue 10,694,754 12,684,498
Less - Agency commissions (565,728) (960,966)
------------------- ------------------
Net revenues 10,129,026 11,723,532
OPERATING EXPENSES:
Production and installation 1,835,265 1,426,867
Transit and outdoor occupancy 4,184,906 5,818,831
Selling 2,658,051 2,699,544
General and administrative 2,080,725 2,055,276
Start-up costs - 297,136
Depreciation and amortization 575,145 491,963
------------------- ------------------
Operating loss (1,205,066) (1,066,085)
OTHER (INCOME) EXPENSE:
Interest expense 315,895 283,070
------------------- ------------------
Loss before income taxes (1,520,961) (1,349,155)
PROVISION FOR (BENEFIT
FROM) INCOME TAXES - (548,665)
------------------- ------------------
NET LOSS ($1,520,961) $(800,490)
=================== ==================
Earnings per share:
Basic ($.26) ($0.14)
Diluted ($.26) ($0.14)
See accompanying notes
OBIE MEDIA CORPORATION
Consolidated Statements of Cash Flows
Three Months Ended February 28,
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2002 2001
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Cash Flows From Operating Activities:
Net loss $ (1,520,961) $ (800,490)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 539,762 491,963
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable 2,774,661 (28,032)
Prepaid and other assets (287,727) (75,410)
Increase (decrease) in:
Accounts payable (637,977) 399,706
Accrued expenses (1,824,821) (485,567)
---------------- -----------------
Net cash used in operating activities (957,063) (497,830)
---------------- -----------------
Cash Flows From Investing Activities:
Capital expenditures (445,527) (310,808)
Other 762 19,796
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Net cash used in investing activities (444,765) (291,012)
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Cash Flows From Financing Activities:
Net borrowings on line of credit 610,000 400,000
Borrowings of long-term debt 800,000 -
Payments on long-term debt (64,900) (14,123)
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Net cash provided by financing activities 1,345,100 385,877
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Effect of exchange rate changes on cash 8,953 1,850
---------------- ------------------
Net decrease in cash (47,775) (401,115)
Cash, beginning of period 404,473 634,633
---------------- -----------------
Cash, end of period $ 356,698 $ 233,518
================ =================
See accompanying notes
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The interim financial statements have been prepared by Obie Media
Corporation ("Obie Media," the "Company,") 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, 2002 and November 30, 2001, and the results of operations and
cash flows of the Company for the three months ended February 28, 2002 and 2001,
as applicable. The condensed consolidated financial statements include the
accounts of the Company and its subsidiary, 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 files as part of
the Company's November 30, 2001 Form 10-K. This quarterly report should be read
in conjunction with such annual report.
2. Provision for Transit Contract Losses
The Company is in the process of restructuring its business model
regarding transit fee arrangements with transit authorities. Most transit
arrangements include a provision that a certain percentage of net revenues be
shared with the transit authorities (transit fees) on a revenue sharing basis (a
certain percentage to the transit authorities, the balance retained by the
Company), but often with minimum payment requirements. Agreements that contain
large minimum transit fee payment guarantees significantly hinder the Company's
ability to manage its operating expenses in a weak economic environment, and
were the primary reason for the Company's operating loss for the year ended
November 30, 2001 (fiscal 2001).
As of March 10, 2002 contracts (excluding the Chicago Transit
Authority), accounting for 23.3% of fiscal 2001 gross transit revenues had been
successfully renegotiated, and contracts accounting for an additional 14.6% of
those revenues are currently under negotiation. In addition, contracts
accounting for approximately 15.1% of fiscal gross 2001 revenues expire at the
end of March 2002 and are currently in the bidding process.
3. Contract Termination
On December 5, 2001 the Company received notice from the Chicago
Transit Authority (CTA) that it was terminating the Company's transit
advertising agreement effective as of that date. The Company and the CTA are in
the process of negotiating a settlement for fiscal 2001 transit fees in light of
the nature of the early termination and a shortage of advertising space made
available to the Company. The Company believes that amounts accrued will be
sufficient to cover any settlement with the CTA.
4. Debt Agreements
The Company's credit arrangements are with US Bank, which includes a
$16 million term loan revolver maturing in August 2007 and a $6 million working
capital revolver, which are collateralized by substantially all of the assets of
the Company. Interest rates on each, at the Company's option, are based upon a
range of basis points above either London Inter-Bank Offered rate (LIBOR) or
U.S. Bank's prime rate, with the range based upon certain financial ratio
requirements. The term revolver does not require any principal payments until
the third quarter of the year ending November 30, 2002 (fiscal 2002). The
effective rate on the term loan and working capital revolvers at February 28,
2002 was 7.75%. Amounts outstanding under the working capital revolver amounted
to $2,307,117 at February 28, 2002.
The US Bank loan agreements contain certain restrictive covenants and
required ratios. As of February 28, 2002 the Company was out of compliance with
certain of the ratios, and has received a waiver of such violations from the
bank. US Bank and the Company have agreed to a revised credit facility which
includes modified financial ratio covenants. The credit facility requires the
execution and delivery of definitive transaction documentation and the Company's
continuing compliance with the revised covenants. We expect the revised facility
documents to be executed during the second fiscal quarter of this year.
5. Income taxes
The benefit from income taxes for the three months ended February 28,
2002 and 2001 differs from the amounts computed by applying the U.S. federal
income tax rate of 34 percent to pretax income as follows:
Three Months ended
February 28,
-----------------------------
2002 2001
----
Statutory federal income tax rate (34.0%) (34.0%)
Increase in income taxes resulting from:
State and local taxes, net of federal income tax benefit (3.6%) (4.4%)
Net operating loss valuation allowance 37.6% -
Other differences, net - (2.3%)
-----------------------------
Actual income tax rate 0.0% (40.7%)
-----------------------------
The valuation allowance is related to operating loss carryforwards
which expire through 2022.
6. 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,
-----------------------------
2002 2001
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Basic shares (weighted average) 5,908,577 5,896,232
Dilutive effect of stock options - -
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Diluted shares 5,908,577 5,896,232
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At February 28, 2002 the Company had options outstanding covering 673,736 shares
of the company's common stock that were not considered in the dilutive EPS since
they would have been antidilutive.
7. 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
income did not materially differ from reported net income (loss) for the three
month periods ended February 28, 2002 and 2001.
8. New Accounting Pronouncements
On June 30, 2001, the FASB issued SFAS 142, "Goodwill and Other
Intangible Assets", which eliminates the amortization of goodwill and other
acquired intangible assets with indefinite economic useful lives. SFAS 142
requires an annual impairment test of goodwill and other intangible assets that
are not subject to amortization. SFAS 142 is effective for fiscal years
beginning after December 15, 2001. The impact of adopting SFAS 142 has not yet
been determined.
9. Reclassifications
Certain amounts previously reported in the Company's financial
statements as of February 28, 2001 have been reclassified to conform to the
current fiscal year presentation.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion includes certain forward-looking statements
that involve a number of risks and uncertainties. Obie's actual results could
differ materially from the forward-looking statements. Factors that could cause
or contribute to such differences include: failure to conclude favorable
negotiations on pending transactions with existing transit agency partners or to
successfully assimilate expanded operations; potential impairments of liquidity
or capital resources; inability to generate sufficient advertising revenues to
meet contractual guarantees; inability to renew existing lending arrangements as
they expire; potential for cancellation or interruption of contracts with
governmental agencies; a further decline in the demand for advertising in the
areas where we conduct our business, or a deterioration of business conditions
generally in those areas; slower than expected acceptance of our innovative
display products; competitive factors, including increased competition and price
pressures; changes in the seasonality of our business; and changes in regulatory
or other external factors; as well as those factors listed from time to time in
Obie's SEC reports, including, but not limited to, the factors discussed in this
quarterly report. You should recognize that these forward-looking statements,
which speak only as of the date of this quarterly report, reflect management's
expectations based on information available as of that date; you should not
construe our forward-looking statements as assurances of future performance. We
do not intend to update our forward-looking statements except as required by
law.
Recent Developments
The Company is in the process of restructuring its business model
regarding transit fee arrangements with transit authorities. Most transit
arrangements include a provision that a certain percentage of net revenues be
shared with the transit authorities (transit fees) on a revenue sharing basis (a
certain percentage to the transit authorities, the balance retained by the
Company), but often with minimum payment requirements. Agreements that contain
large minimum transit fee payment guarantees significantly hinder the Company's
ability to manage its operating expenses in a weak economic environment. These
high minimum payment requirements have resulted in higher than acceptable direct
advertising expense levels, and were primarily responsible for the operating
losses reported during the year ended November 30, 2001 (fiscal 2001).
As of March 10, 2002 contracts (excluding the Chicago Transit
Authority) accounting for 23.3% of fiscal 2001 gross transit revenues had been
successfully renegotiated, and contracts accounting for an additional 14.6% of
those revenues are currently under negotiation. In addition, contracts
accounting for approximately 15.1% of fiscal 2002 gross revenues expire at the
end of March 2002 and are currently in the bidding process.
The Company's credit facility arrangement with US Bank provides for a
$16.0 million term revolver maturing in August of 2007, and a $6.0 million
working capital line of credit available for general purposes. The credit
facility is collateralized by substantially all of the assets of Obie and its
subsidiaries. The term revolver does not require any principal payments until
third quarter of fiscal 2002. As of February 28, 2002 we were not in compliance
with our operating covenants in our existing credit facility that relate to
certain financial ratios, and U.S. Bank has granted us a waiver of that non
compliance. U.S. Bank and the Company have agreed to a revised credit facility
which includes modified financial ratio covenants. The revised agreement extends
the term of the credit facility through February 2003. The credit facility
requires the execution and delivery of definitive transaction documentation and
the Company's continued compliance with the revised covenants. Management can
provide no assurances that U.S. Bank will continue to renew our credit
arrangements as they expire.
During the first quarter of 2002 the Company acquired, at a cost of
approximately $200,000, additional digital production printing equipment. This
purchase supplements existing equipment used to produce transit and outdoor
advertising display content. This additional capacity will allow us to produce,
for our customers, a significant amount of product previously subcontracted to
outside vendors. The purchase was financed using the credit facilities described
above.
Comparison of the Three Months Ended February 28, 2002 and 2001
Gross revenues decreased $2.0 million, or 15.7%, to $10.7 million for
the three months ended February 28, 2002 from $12.7 million for the comparable
period in fiscal 2001. Transit revenues decreased $2.2 million, or 19.9%, to
$8.7 million for the three months ended February 28, 2002 from $10.9 million for
the first quarter of fiscal 2001. This decrease was due to continuing weakness
in the media economy, and the fact that the first quarter of 2001 included $2.3
million of revenues associated with the Chicago Transit Authority Contract that
was terminated in December 2001. Outdoor advertising revenues increased
$200,000, or 10.6%, to $2.0 million for the first quarter of fiscal 2002 from
$1.8 million for the comparable period of 2001. Agency commissions decreased
$395,000, or 41.1%, to $566,000 for the three months ended February 28, 2002
from $961,000 for the first quarter of fiscal 2001, primarily due to the loss of
revenues associated with the Chicago contract. As a result of the foregoing
reasons, net revenues decreased $1.6 million, or 13.6%, to $10.1 million for the
three months ended February 28, 2002 from $11.7 million for the comparable
period in fiscal 2001.
Direct advertising expenses decreased $1.2 million, or 12.7%, to $8.7
million for the three months ended February 28, 2002 from $9.9 million for the
comparable period in fiscal 2001. Direct advertising expenses, as a percentage
of gross revenues, was approximately 85% for both the first quarter of fiscal
2002 and for the same period in fiscal 2001. We expect direct advertising
expenses to decrease as a percentage of gross revenues during the remainder of
fiscal 2002 due to seasonal fluctuations in transit revenues.
General and administrative expenses was unchanged at $2.1 million for
the three months ended February 28, 2002 as compared to the comparable period in
fiscal 2001. General and administrative expenses, as a percentage of gross
revenues, increased to 20.5% for the three months ended February 28, 2002 from
17.5% for the same period in fiscal 2001. We expect general and administrative
expenses to decrease as a percentage of gross revenues during the remainder of
fiscal 2002 due to the seasonal fluctuations in transit revenues.
The Company incurred no start up costs for the period ended February
28, 2002 as compared to costs of $297,000 in the comparable period in fiscal
2001. Start-up costs include expenses incurred in new markets prior to the time
the Company begins its sales operations, as well as costs incurred in obtaining
new transit district contracts. These costs vary depending on the number and
size of transit districts that become available for proposal during the period
and our success in obtaining new contracts. The costs in the first quarter of
2001 were attributable to new market operations in Chicago, Tampa and San
Antonio.
Depreciation and amortization expenses increased $83,000, or 16.9%, to
$575,000 for the three months ended February 28, 2002 from $492,000 for the
comparable period in fiscal 2001.
Due to the above factors, the Company experienced an operating loss of
$1.2 million for the three months ended February 28, 2002 as compared to an
operating loss of $1.1 million for the first quarter of fiscal 2001.
Interest expense increased $33,000, or 11.6% for the three months
ending February 28, 2002 to $316,000 compared to $283,000 for the same period of
2001. As a percentage of gross revenues interest expense increased to 3.0% for
the three months ending February 28, 2002 from 2.2% in the same period of 2001.
This increase was due to an increase in the amount of interest bearing debt and
an increase in the effective interest rate on the debt.
As a result of the foregoing factors the Company realized a net loss
before income taxes of $1.5 million for the three months ended February 28, 2002
as compared to a loss of $1.3 million for the same period in fiscal 2001. The
company utilized its available federal loss carryback benefits during fiscal
2001, and has net operating loss carryforwards of $4.6 million. A valuation
allowance has been provided for the tax benefit of the entire net operating loss
carryforward, and there is
no provision or benefit during the quarter ending February 28, 200. The
effective tax rate for the three months ending February 28, 2001 was 40.9% due
to the effects of foreign and state income taxes.
As a result of the foregoing factors the Company realized a net loss of
$1.5 million during the three months ending February 28, 2002 compared to a net
loss of $800,000 for the same period in fiscal 2001.
Liquidity and Capital Resources
The Company has historically satisfied our working capital requirements
with cash from operations and revolving credit borrowings. Our working capital
at February 28, 2002 and November 30, 2001 was $2.8 million and $4.4 million,
respectively. The decrease in working capital is primarily due to the operating
loss during the first quarter of fiscal 2002. Acquisitions and capital
expenditures, primarily for the construction of new outdoor advertising
displays, digital printing equipment and technology related assets have been
financed primarily with borrowed funds. At February 28, 2002, Obie Media had
outstanding borrowings of $17.3 million, of which $14.7 million was pursuant to
long-term credit agreements, $260,000 pursuant to the agreement to acquire P & C
Media in September 1998, and $2.3 million pursuant to our working capital line
of credit. The Company's indebtedness is collateralized by substantially all of
its assets. See Note 4 to the condensed consolidated financial statements. At
February 28, 2002, available borrowing capacity under the line of credit, based
on collateralized accounts, was $1.2 million.
Obie Media's net cash used in operating activities was $957,000 during
the three months ended February 28, 2002 as compared to net cash used in
operating activities of $498,000 for the same period in fiscal 2001. The change
between periods was primarily due to the increase in the net loss.
Net cash used in investing activities was $445,000 and $291,000 during
the three months ended February 28, 2002 and 2001, respectively. The increase in
these expenditures during the first three months of fiscal 2002 was principally
related to the acquisition of digital printing equipment in the fiscal 2002
period. The Company has no material future commitments for capital expenditures
but anticipates that our capital expenditures, exclusive of those related to any
future acquisitions, may be up to $1.0 million during the remainder of fiscal
2002.
Net cash provided by financing activities was $1.3 million and $386,000
during the three months ended February 28, 2002 and 2001, respectively. The
increase was primarily the result of borrowings used to finance capital
expenditures and operating requirements.
The Company expects to pursue a policy of measured growth through
obtaining favorable new transit district agreements, acquiring out-of-home
advertising companies or assets and constructing new outdoor advertising
displays. The Company intends to finance future expansion activities using a
combination of internal and external sources. The Company believes that
internally generated funds and funds available for borrowing under bank credit
facilities will be sufficient to satisfy all debt service obligations, to
finance existing operations and payment of transit contract loss accruals,
including anticipated capital expenditures, but excluding possible acquisitions,
through fiscal 2002. 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, results of operations are strongest in the fourth
quarter and weakest in the first quarter of our fiscal year which ends on
November 30. Transit advertising operations are more seasonal than outdoor
advertising operations as the Company's outdoor advertising display space,
unlike its transit advertising display space, is and has been sold nearly
exclusively by means of 12-month contracts. The Company believes that the
seasonality of revenues and operating results will increase as transit
advertising operations continue to expand more rapidly than 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 that have been taken to
implement the Company's growth strategy, have contributed to fluctuations in
periodic operating results. These fluctuations likely will continue.
Accordingly, results of operations in any period may not be indicative of the
results to be expected for any future period.
Market Risk
The Company has not entered into derivative financial instruments.
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 ended February 28, 2002.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) On December 6, 2001 the Company filed a Form 8-K announcing the termination
of its transit advertising contract with the Chicago Transit Authority. No
other Forms 8-K were filed by the Company during the three months ended
February 28, 2002.
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 11, 2002 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