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 May 31, 2002
-------------------------------------------------
[ ] 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 registrant 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 July 1, 2002, 5,908,577 shares of the issuer's common stock were
outstanding.
OBIE MEDIA CORPORATION
FORM 10-Q
INDEX
PART I- FINANCIAL INFORMATION Page
- ----------------------------- ----
Item 1. Financial Statements
Consolidated Balance Sheets as of May 31, 2002 and November 30, 2001 2
Consolidated Statements of Operations for the three month and six
month periods ended May 31, 2002 and 2001 3
Consolidated Statement of Cash Flows for the six months
ended May 31, 2002 and 2001 4
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk 14
PART II - OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
OBIE MEDIA CORPORATION
Consolidated Balance Sheets
ASSETS
May 31, November 30,
2002 2001
(Unaudited)
------------- ------------
CURRENT ASSETS:
Cash $ 2,410,908 $ 404,473
Accounts receivable, net 8,571,250 11,828,554
Prepaids and other current assets 5,072,999 6,108,062
Deferred income taxes 1,781,671 1,781,671
------------- ------------
Total current assets 17,836,828 20,122,760
Property and equipment, net 16,384,766 16,603,760
Goodwill, net 5,432,616 5,683,805
Other assets 867,936 822,548
------------- ------------
$40,522,146 $43,232,873
============= ============
CURRENT LIABILITIES:
Current portion of long-term debt $ 4,081,906 $ 340,418
Working capital revolver 3,287,665 1,697,117
Accounts payable 572,803 1,202,133
Accrued transit fees 2,154,981 10,295,314
Accrued expenses 581,921 668,740
Income taxes payable 45,266 286,197
Unearned revenue 805,765 1,218,088
------------- ------------
Total current liabilities 11,530,307 15,708,007
Deferred income taxes 1,461,432 1,461,432
Long-term debt, less current portion 17,409,260 13,881,200
------------- ------------
Total liabilities 30,400,999 31,050,639
------------- ------------
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
Common stock, without par value; 20,000,000 shares
Authorized, 5,908,577 shares issued and outstanding 17,272,128 17,272,128
Foreign currency translation (7,550) 11,028
Accumulated deficit (7,176,330) (5,133,821)
------------- ------------
Total shareholders' equity 10,088,248 12,149,335
------------- ------------
$40,522,146 $43,232,873
============= ============
See accompanying notes
2
OBIE MEDIA CORPORATION
Consolidated Statements of Operations
(Unaudited)
Three Months Ended May 31, Six Months Ended May 31,
-------------------------- -------------------------------
2002 2001 2002 2001
------------------- ----------------- ------------------- -----------------
REVENUES:
Transit advertising $10,449,503 $16,871,405 $19,189,556 $27,788,630
Outdoor advertising 1,735,677 1,887,214 3,690,378 3,654,487
------------------- ----------------- ------------------- -----------------
Gross revenue 12,185,180 18,758,619 22,879,934 31,443,117
Less - Agency commissions (855,752) (1,911,562) (1,421,480) (2,872,528)
------------------- ----------------- ------------------- -----------------
Net revenues 11,329,428 16,847,057 21,458,454 28,570,589
OPERATING EXPENSES:
Production and installation 1,539,592 1,623,650 3,374,857 3,050,517
Transit and outdoor occupancy 4,899,196 10,071,540 9,084,102 15,890,371
Selling 2,583,203 2,485,062 5,241,254 5,184,606
General and administrative 1,993,096 2,156,744 4,073,821 4,212,020
Start-up costs - 27,979 - 325,115
Depreciation and amortization 519,741 505,932 1,094,886 997,895
------------------- ----------------- ------------------- -----------------
Operating loss (205,400) (23,850) (1,410,466) (1,089,935)
OTHER (INCOME) EXPENSE:
Interest expense 316,148 375,921 632,043 658,991
------------------- ----------------- ------------------- -----------------
Loss before income taxes (521,548) (399,771) (2,042,509) (1,748,926)
INCOME TAX BENEFIT - (151,261) - (699,926)
------------------- ----------------- ------------------- -----------------
NET LOSS ($521,548) ($248,510) ($2,042,509) ($1,049,000)
=================== ================= =================== =================
Earnings (loss) per share:
Basic ($0.09) ($0.04) ($0.35) ($0.18)
Diluted ($0.09) ($0.04) ($0.35) ($0.18)
See accompanying notes
3
OBIE MEDIA CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended May 31,
------------------------
2002 2001
-------------- --------------
Cash Flows From Operating Activities:
Net loss ($2,042,509) ($1,049,000)
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 1,094,886 997,895
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable 3,257,304 (3,914,489)
Prepaid and other assets 989,675 (2,385,702)
Increase (decrease) in:
Accounts payable (629,330) 139,413
Accrued expenses (2,785,058) 3,071,123
-------------- --------------
Net cash used in operating activities (115,032) (3,140,760)
-------------- --------------
Cash Flows From Investing Activities:
Capital expenditures (633,288) (1,270,089)
-------------- --------------
Net cash used in investing activities (633,288) (1,270,089)
-------------- --------------
Cash Flows From Financing Activities:
Net borrowing on line of credit 1,590,548 3,229,544
Borrowings of long-term debt 1,300,000 700,000
Payments on long-term debt (129,800) (26,123)
-------------- --------------
Net cash provided by financing activities 2,760,748 3,903,421
-------------- --------------
Effect of exchange rate changes on cash (5,993) (461)
-------------- --------------
Net increase (decrease) in cash 2,006,435 (507,889)
Cash, beginning of period 404,473 634,633
-------------- --------------
Cash, end of period $2,410,908 $126,744
============== ==============
See accompanying notes
4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The interim financial statements have been prepared by Obie Media
Corporation ("Obie Media"or 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 May 31, 2002 and November 30, 2001, and the results of operations and cash
flows of the Company for the three and six months ended May 31, 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. Transit Contract Modifications
The Company has been 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.
As of July 1, 2002, contracts (excluding the Chicago Transit Authority)
accounting for 42% of fiscal 2001 gross transit revenues, had been successfully
renegotiated or rebid, and contracts accounting for an additional 14% of those
revenues are currently under negotiation.
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 have
been disputing settlement of 2001 transit fees in light of the nature of the
early termination and a shortage of advertising space made available to the
Company, and the parties entered into an agreement effective June 1, 2002
resolving the issues.
The agreed upon fee for the 2001 contract year has been settled at $17
million, substantially less than the original contracted guaranteed payment of
$21.8 million. As of May 31, 2002, approximately $7.5 million had been paid to
the CTA, and an additional $1.5 million was paid on June 1, 2002. The balance is
payable in substantially equal monthly payments of $116,080 beginning June 2002
and ending May 2007, with an additional $1.0 million balloon payment due in
December 2003. The monthly payments are without interest through May 2003, and
include a 5% interest charge thereafter. These periodic deferred payments have
been valued using a junior unsecured discount rate of 15%, resulting in a
present value of $6.1 million, which is included within long-term debt in the
accompanying balance sheet. The result is a present value of $15.1 for the
settlement. The cost of the settlement is covered by previous accruals,
including an accrual which the Company established in the third quarter of
fiscal 2001.
4. Debt Agreements
The Company's credit arrangements are with US Bank, which includes a
$14.8 million term loan revolver maturing in February 2003 and a $6 million
working capital revolver, which are collateralized by substantially all of the
assets of the Company. The term loan revolver limits decrease quarterly through
the maturity date. Interest rates are at U.S. Bank's prime rate plus 3.0%. The
effective rate on the term loan and working capital revolvers at May 31, 2002
was 7.75%. Amounts outstanding under the working capital revolver amounted to
$3,287,665 at May 31, 2002.
5
The US Bank loan agreements contain certain restrictive covenants and
required ratios. As of May 31, 2002 the Company was out of compliance with
certain of the ratios and covenants, and the bank has indicated they will
provide a waiver of such violations.
The Company has an arrangement with Travelers Casualty & Surety Company
of America ("Travelers"), to bond the CTA settlement as well as to provide other
bonds required by the Company. The Company and Travelers have entered into a
security agreement whereby Travelers maintains a second secured position on
certain of the Company's assets, subordinate to the security arrangements with
US Bank or any other primary lender.
5. Income taxes
The benefit from income taxes for the three months ended May 31, 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:
Six Months ended
May 31,
------------------
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 - (1.6%)
-------------------
Actual income tax rate 0.0% (40.0%)
-------------------
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 and six Months Ended
May 31,
-----------------------
2002 2001
---------- ----------
Basic shares (weighted average) 5,908,577 5,896,232
Dilutive effect of stock options - -
---------- ----------
Diluted shares 5,908,577 5,896,232
---------- ----------
At May 31, 2002 the Company had options outstanding covering 713,982 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 loss for the three and six
month periods ended May 31, 2002 and 2001.
6
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.
In October, 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" which supercedes SGAF121,
"Accounting for the Impairment of Long-Lived Assets to be disposed of". SFAS 144
applies to all long-lived assets (including discontinued operations) and
consequently amends Accounting Principles Board Opinion No. 20 (APB 30),
"Reporting Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions". SFAS 144 develops one accounting model for long-lived
assets that are to be disposed of by sale and requires that they be measured at
the lower of book value or fair value, less costs to sell. Additionally, SFAS
144 expands the scope of discontinued operations to include all components of an
entity with operations that (1) can be distinguished from the rest of the entity
and (2) will be eliminated from the ongoing operations of the entity in a
disposal transaction. The provisions of this Statement are effective for
financial statements issued for fiscal years beginning after December 15, 2001
and interim periods within those fiscal years, with early application
encouraged. The Company does not expect the impact of adopting SFAS 144 to be
material.
9. Reclassifications
Certain amounts previously reported in the Company's financial
statements as of November 30, 2001 have been reclassified to conform to the
current fiscal year presentation.
7
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.
Critical Accounting Policies and Estimates
Management's Discussion and Analysis of Financial Condition and Results
of Operations discusses Obie's consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. On an on-going basis, management evaluates its
estimates and judgements, including those related to bad debts, valuation of
long-lived assets and goodwill, provision for transit contract losses and income
taxes. Management bases its estimates and judgements on historical experience
and on various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgements about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
Management believes the following critical accounting policies, among
others, affect its more significant judgements and estimates used in the
preparation of its consolidated financial statements. Obie maintains allowances
for doubtful accounts for estimated losses resulting from the inability of its
customers to make required payments. If the financial condition of Obie's
customers were to deteriorate, resulting in an impairment of their ability to
make payments, additional allowances may be required. Obie assesses the
impairment of long-lived assets and goodwill whenever events or changes in
circumstances indicate that the carrying value of long-lived assets and/or
goodwill may not be recoverable. If one or more indicators of impairment were to
occur and it became apparent that the carrying value of long-lived assets and/or
goodwill may not be recoverable, any impairment would be based on a projected
discounted cash flow method. Obie records provisions for contract losses, when
appropriate, to accrue for amounts estimated to be due related to contract
negotiations, modifications and terminations. If negotiations, modifications and
settlements do not get resolved in the amounts currently estimated, additional
accruals may be required. Obie records a valuation allowance to reduce its
deferred tax assets to the amount that it believes is more likely than not to be
realized. Should Obie determine that it would be able to realize its deferred
tax assets in the future in excess of its net recorded amount, an adjustment to
the deferred tax assets would increase income in the period such determination
was made.
8
Recent Developments
The Company is continuing 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.
As of July 1, 2002 contracts (excluding the Chicago Transit Authority),
accounting for 42% of fiscal 2001 gross transit revenues had been successfully
renegotiated or rebid, and contracts accounting for an additional 14% of those
revenues are currently under negotiation.
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 have
been disputing settlement of 2001 transit fees in light of the nature of the
early termination and a shortage of advertising space made available to the
Company, and the parties entered into an agreement effective June 1, 2002
resolving the issues.
The agreed upon fee for the 2001 contract year has been settled at $17
million, substantially less than the original contracted guaranteed payment of
$21.8 million. As of May 31, 2002, approximately $7.5 million had been paid to
the CTA, and an additional $1.5 million was paid on June 1, 2002. The balance is
payable in substantially equal monthly payments of $116,080 beginning June 2002
and ending May 2007, with an additional $1.0 million balloon payment due in
December 2003. The monthly payments are without interest through May 2003, and
include a 5% interest charge thereafter. These periodic deferred payments have
been valued using a junior unsecured discount rate of 15%, resulting in a
present value of $6.1 million, which is included within long-term debt in the
accompanying balance sheet. The result is a present value of $15.1 for the
settlement. The cost of the settlement is covered by previous accruals,
including an accrual which the Company established in the third quarter of
fiscal 2001.
The Company's credit arrangements are with US Bank, which include a
$14.8 million term loan revolver maturing in February 2003 and a $6 million
working capital revolver, which are collateralized by substantially all of the
assets of the Company. The term loan revolver limit decreases quarterly through
the maturity date. Interest rates are at U.S. Bank's prime rate plus 3.0%. The
effective rate on the term loan and working capital revolvers at May 31, 2002
was 7.75%. Amounts outstanding under the working capital revolver amounted to
$3,287,665 at May 31, 2002.
The US Bank loan agreements contain certain restrictive covenants and
required ratios. As of May 31, 2002 the Company was out of compliance with
certain of the ratios and covenants, and the bank has indicated they will
provide a waiver of such violations.
The Company has an arrangement with Travelers Casualty & Surety Company
of America ("Travelers"), to bond the CTA settlement as well as to provide other
bonds required by the Company. The Company and Travelers have entered into a
security agreement whereby Travelers maintains a second secured position on
certain of the Company's assets, subordinate to the security arrangements with
US Bank or any other primary lender.
9
Comparison of the Three Months Ended May 31, 2002 and 2001
Gross revenues decreased $6.6 million, or 35%, to $12.2 million for the
three months ended May 31, 2002 from $18.8 million for the comparable period in
fiscal 2001. Transit revenues decreased $6.4 million, or 38.1%, to $10.4 million
for the three months ended May 31, 2002 from $16.9 million for the second
quarter of fiscal 2001. This decrease was principally due to the exit from the
Chicago market at the end of fiscal 2001. Outdoor advertising revenues decreased
$152,000, or 8.0%, to $1.7 million for the second quarter of fiscal 2002 from
$1.9 million for the comparable period in fiscal 2001, primarily as a result of
the overall weakness in out of home advertising spending. Agency commissions
decreased $1.1 million, or 55.2%, to $856,000 for the three months ended May 31,
2002 from $1.9 million for the second quarter of fiscal 2001, primarily due to
the exit from the Chicago market, where sales in 2001 were substantially all
subject to agency discount. As a result of the foregoing, net revenues decreased
$5.5 million, or 32.8%, to $11.3 million for the three months ended May 31, 2002
from $16.9 million for the comparable period in fiscal 2001.
Production and installation expenses decreased $84,000, or 5.2% to $1.5
million for the three months ended May 31, 2002, from $1.6 million for the
comparable period in fiscal 2001. The decrease is a net result of a reduction in
installation costs relative to the exit from the Chicago market coupled with an
increase in in-house production revenues and related costs relative to the
remaining transit markets.
Transit and outdoor occupancy expenses, which include fees to transit
agencies and lease costs for billboard sites, decreased $5.2 million, or 51.4%,
to $4.9 million for the three months ended May 31, 2002, from $10.1 million for
the comparable period in fiscal 2001. This also resulted in a reduction of these
expenses to 43.2% of net revenues for the three month period in 2002 as compared
to 59.8% of net revenues for the comparable period of fiscal 2001. The decrease
was due both to the exit from the Chicago transit market as well as transit fee
reductions in other markets as described under recent developments above.
Selling expenses increased $98,000, or 3.9% to $2.6 million for the
three months ended May 31, 2002, from $2.5 million for the comparable period in
fiscal 2001. The net increase incorporated a reduction in expenses relative to
the exit from the Chicago market and an increase in recruiting and training
costs in other markets. These expenses, as a percentage of net revenues,
increased to 22.8% of net revenue for the three month period of fiscal 2002 as
compared to 14.8% of net revenues in the comparable period of fiscal 2001. This
change was primarily due to the exit from the Chicago market where selling
expenses were limited to direct charges relative to the primarily national
revenues in that market. We expect this ratio to remain substantially constant
for the remainder of the fiscal year.
General and administrative expenses decreased $164,000, or 7.6%, to
$2.0 million for the three months ended May 31, 2002 from $2.2 million for the
comparable period in fiscal 2001. The decrease resulted primarily from the exit
from the Chicago market. General and administrative expenses, as a percentage of
net revenues, increased to 17.6% for the three months ended May 31, 2001 from
12.8% for the same period in fiscal 2001. We expect general and administrative
expenses to decease slightly as a percentage of gross revenues during the
remaining quarters of fiscal 2002, as a result of anticipated seasonal revenue
increases.
The Company incurred no start up costs during the three months ended
May 31, 2002 as compared to $30,000 for the comparable period in fiscal 2001.
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.
10
Depreciation and amortization expenses increased $14,000, or 2.8%, to
$520,000 for the three months ended May 31, 2002 from $506,000 for the
comparable period in fiscal 2001, primarily due to capital expenditures relative
to our digital production printing capabilities.
As a result of the foregoing factors, the Company experienced an
operating loss of $205,000 for the three months ended May 31, 2002 compared to
an operating loss of $24,000 for the second quarter of fiscal 2001.
Interest expense decreased $60,000, or 15.9%, to $316,000 for the
second quarter of fiscal 2002 from $376,000 for the comparable period in fiscal
2001, due primarily to lower effective interest rates.
As a result of the foregoing factors the Company realized a net loss
before income taxes of $522,000 for the three month period ended May 31, 2002 as
compared to a loss of $400,000 for the comparable period in fiscal 2001. The
Company utilized its federal loss carryback benefits during fiscal 2001, and has
net operating loss carryforwards of approximately $5.1 million. A valuation
allowance has been provided for the tax benefit of the entire net operating loss
carryforward, resulting in no income tax provision or benefit for the quarter
ended May 31, 2002. The effective tax rate for the comparable period in fiscal
2001 was 37.8%, varying from federal statutory rates because of the effects of
state and foreign income taxes.
As a result of the foregoing factors, the Company realized a net loss
of $522,000 for the three months ended May 31, 2002, as compared to net loss of
$249,000 for the three months ended May 31, 2001.
Comparison of the Six Months Ended May 31, 2002 and 2001
Gross revenues decreased $8.6 million, or 27.2%, to $22.9 million for
the six months ended May 31, 2002 from $31.4 million for the comparable period
in fiscal 2001. Transit revenues decreased $8.6 million, or 30.9%, to $19.2
million for the six months ended May 31, 2002 from $27.8 million for the
comparable period of fiscal 2001. This decrease was principally due to the exit
from the Chicago market at the end of fiscal 2001. Outdoor advertising revenues
were unchanged for the same period. Agency commissions decreased $1.5 million,
or 50.5%, to $1.4 million for the six months ended May 31, 2002 from $2.9
million for the first six months of fiscal 2001, primarily due to the exit from
the Chicago market, where sales in 2001 were substantially all subject to agency
discount. As a result of the foregoing, net revenues decreased $7.1 million, or
24.9%, to $21.5 million for the six months ended May 31, 2002 from $28.6 million
for the comparable period in fiscal 2001.
Production and installation expenses increased $324,000, or 10.6% to
$3.4 million for the six months ended May 31, 2002, from $3.1 million for the
comparable period in fiscal 2001. The increase is a net result of a reduction in
installation costs relative to the exit from the Chicago market coupled with an
increase in in-house production revenues and related costs, particularly in the
first quarter of fiscal 2002, relative to the remaining transit markets.
Transit and outdoor occupancy expenses, which include fees to transit
agencies and lease costs for billboard sites, decreased $6.8 million, or 42.8%,
to $9.1 million for the six months ended May 31, 2002, from $15.9 million for
the comparable period in fiscal 2001. This also resulted in a reduction of these
expenses to 42.3% of net revenues for the six month period in 2002 as compared
to 55.6% of net revenues for the comparable period of fiscal 2001. The decrease
was due both to the exit from the Chicago transit market as well as transit fee
reductions in other markets as described under recent developments above.
11
Selling expenses increased $57,000, or 1.1% to $5.2 million for the six
months ended May 31, 2002, substantially the same amount as or the comparable
period in fiscal 2001. Incorporated are a reduction in expenses relative to the
exit from the Chicago market and an increase in recruiting and training costs in
other markets. These expenses, as a percentage of net revenues, increased to
24.4% of net revenue for the six month period of fiscal 2002 as compared to
18.1% of net revenues in the comparable period of fiscal 2001. This change was
primarily due to the exit from the Chicago market where selling expenses were
limited to direct charges relative to the primarily national revenues in that
market. We expect this ratio to reduce slightly for the remainder of the fiscal
year in expectation of seasonal increases in advertising revenues.
General and administrative expenses decreased $138,000, or 3.3%, to
$4.1 million for the six months ended May 31, 2002 from $4.2 million for the
comparable period in fiscal 2002. The decrease resulted primarily from the exit
from the Chicago market. General and administrative expenses, as a percentage of
net revenues, increased to 19.0% for the six months ended May 31, 2002 from
14.7% for the same period in fiscal 2001. We expect general and administrative
expenses to decrease slightly as a percentage of gross revenues during the
remaining quarters of fiscal 2002, as a result of anticipated seasonal revenue
increases.
The Company incurred no start up costs during the six months ended May
31, 2002 as compared to $325,000 for the comparable period in fiscal 2001. The
costs in 2001 related to entries into new transit markets, including Chicago,
San Antonio, Indianapolis and Tampa. 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.
Depreciation and amortization expenses increased $97,000, or 9.7%, to
$1.1 million for the six months ended May 31, 2002 from $1.0 million for the
comparable period in fiscal 2001, primarily due to capital expenditures relative
to our digital production printing capabilities.
As a result of the foregoing factors, the Company experienced an
operating loss of $1.4 million for the six months ended May 31, 2002 compared to
an operating loss of $1.1 million for the comparable period of fiscal 2001.
Interest expense decreased $27,000, or 4.1%, to $632,000 for the first
six months of fiscal 2002 from $659,000 for the comparable period in fiscal
2001, due primarily to lower effective interest rates.
As a result of the foregoing factors the Company realized a net loss
before income taxes of $2.0 million for the six month period ended May 31, 2002
as compared to a loss of $1.7 million for the comparable period in fiscal 2001.
The Company utilized its federal loss carryback benefits during fiscal 2001, and
has net operating loss carryforwards of approximately $5.1 million. A valuation
allowance has been provided for the tax benefit of the entire net operating loss
carryforward, resulting in no income tax provision or benefit for the six months
ended May 31, 2002. The effective tax rate for the comparable period in fiscal
2001 was 40.0%, varying from federal statutory rates because of the effects of
state and foreign income taxes.
As a result of the foregoing factors, the Company realized a net loss of $2.0
million for the six months ended May 31, 2002, as compared to net loss of $1.0
million for the six months ended May 31, 2001.
12
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 May 31, 2002 and November 30, 2001 was $6.3 million and $4.4 million,
respectively. The increase in working capital is primarily due to a reduction in
accrued transit fees payable during the first six months 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 May 31, 2002, Obie
Media had outstanding borrowings of $24.8 million, of which $15.2 million was
pursuant to long-term credit agreements, $203,000 pursuant to the agreement to
acquire P & C Media in September 1998, $3.3 million pursuant to our working
capital revolver, and $6.1 million relative to the settlement of the Chicago
Transit Authority dispute. The Company's indebtedness is collateralized by
substantially all of its assets. See Note 4 to the condensed consolidated
financial statements. At May 31, 2002, available borrowing capacity under the
line of credit, based on collateralized accounts, was $2.7 million.
Obie Media's net cash used in operating activities was $121,000 during
the six months ended May 31, 2002 as compared to net cash used in operating
activities of $3.1 million for the same period in fiscal 2001. The change
between periods was primarily due to reductions in accounts receivable and
prepaid expenses.
Net cash used in investing activities was $633,000 and $1.3 million
during the six months ended May 31, 2002 and 2001, respectively. The decrease in
these expenditures during the first six months of fiscal 2002 was principally
related to billboard acquisitions and the acquisition of digital printing
equipment in the fiscal 2001 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 $2.8 million and $3.9
million during the six months ended May 31, 2002 and 2001, respectively. The
decrease was primarily the result of reduced utilization of the working capital
credit line during the first six months of fiscal 2002.
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,
13
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.
14
PART II - OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders
The Company held its annual meeting of shareholders on April 26, 2002.
At the meeting Brian Obie, Richard C. Williams, Randall C. Pape, Stephen A.
Wendell and Delores M. Mord were elected to the Board of Directors for one-year
terms. Voting on the election of directors was as follows:
Votes Votes
For Withheld Abstained
--------- -------- ---------
Brian Obie 5,396,652 11,827 0
Richard C. Williams 5,396,652 11,827 0
Randall C. Pape 5,396,652 11,827 0
Stephen A. Wendell 5,396,652 11,827 0
Delores M. Mord 5,396,652 11,827 0
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) No reports on Form 8-K were filed by the Company during the six months
ended May 31, 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 July 10, 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