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 August 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 October 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 August 31, 2002 and November 30, 2001 2
Consolidated Statements of Operations for the three month and nine month
periods ended August 31, 2002 and 2001 3
Consolidated Statement of Cash Flows for the nine months
ended August 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 13
PART II - OTHER INFORMATION
- ---------------------------
Item 4. Submission of Matters to Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 14
Item 7. Certifications 15
OBIE MEDIA CORPORATION
Consolidated Balance Sheets
ASSETS
August 31, November 30,
2002 2001
Unaudited)
-------------- --------------
CURRENT ASSETS:
Cash $2,325,134 $404,473
Accounts receivable, net 8,552,978 11,828,554
Prepaids and other current assets 5,001,975 6,108,062
Deferred income taxes 1,781,671 1,781,671
-------------- --------------
Total current assets 17,661,758 20,122,760
Property and equipment, net 16,129,551 16,603,760
Goodwill, net 5,307,021 5,683,805
Other assets 771,213 822,548
-------------- --------------
$39,869,543 $43,232,873
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 3,556,271 $ 340,418
Working capital revolver 4,415,483 1,697,117
Accounts payable 491,075 1,202,133
Accrued transit fees 228,812 10,295,314
Accrued expenses 992,791 668,740
Income taxes payable 131,974 286,197
Unearned revenue 1,075,773 1,218,088
------------- -------------
Total current liabilities 10,892,179 15,708,007
Deferred income taxes 1,461,432 1,461,432
Long-term debt, less current portion 17,360,011 13,881,200
------------- -------------
Total liabilities 29,713,622 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 4,234 11,028
Accumulated deficit (7,153,340) (5,133,821)
------------- -------------
Total shareholders' equity 10,123,022 12,149,335
------------- -------------
$39,869,543 $43,232,873
============= =============
See accompanying notes
2
OBIE MEDIA CORPORATION
Consolidated Statements of Operations
(Unaudited)
Three Months Ended August 31, Nine Months Ended August 31,
------------------------------ ------------------------------
2002 2001 2002 2001
-------------- -------------- -------------- --------------
REVENUES:
Transit advertising $11,315,144 $16,907,894 $30,504,700 $45,437,739
Outdoor advertising 1,674,650 1,780,273 5,365,028 5,434,760
-------------- -------------- -------------- --------------
Gross revenue 12,989,794 18,688,167 35,869,728 50,872,499
Less - Agency commissions (913,747) (1,642,704) (2,335,227) (4,515,232)
-------------- -------------- -------------- --------------
Net revenues 12,076,047 17,045,463 33,534,501 46,357,267
OPERATING EXPENSES:
Production and installation 1,675,315 1,993,816 5,050,172 5,785,548
Transit and outdoor occupancy 5,142,290 9,337,683 14,226,392 25,228,054
Selling 2,181,387 3,075,933 7,422,641 8,260,539
General and administrative 1,887,733 3,382,639 5,960,884 7,594,659
Start-up costs - 8,251 - 333,367
Provision for contract losses - 6,007,233 - 6,007,233
Depreciation and amortization 547,696 500,025 1,642,582 1,497,920
-------------- -------------- -------------- --------------
Operating income (loss) 641,626 (7,260,117) (768,170) (8,350,053)
OTHER EXPENSE:
Interest expense 558,990 300,125 1,191,033 959,115
-------------- -------------- -------------- --------------
Income (loss) before income
taxes 82,636 (7,560,242) (1,959,203) (9,309,168)
INCOME TAX EXPENSE (BENEFIT)
60,316 (1,598,892) 60,316 (2,298,818)
-------------- -------------- -------------- --------------
NET INCOME (LOSS) $22,320 ($5,961,350) ($2,019,519) ($7,010,350)
============== ============== ============== ==============
Earnings (loss) per share:
Basic $0.00 ($1.01) ($0.34) ($1.19)
Diluted $0.00 ($1.01) ($0.34) ($1.19)
See accompanying notes
3
OBIE MEDIA CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended August 31,
2002 2001
------------ ------------
Cash Flows From Operating Activities:
Net loss ($2,019,519) ($7,010,350)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,599,278 1,497,920
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable 3,275,576 (2,745,102)
Prepaid and other assets 1,106,087 (2,556,089)
Increase (decrease) in:
Accounts payable (711,058) (286,144)
Other current liabilities (3,892,307) 8,617,573
----------- -----------
Net cash used in operating activities (641,953) (2,482,192)
----------- -----------
Cash Flows From Investing Activities:
Capital expenditures (748,285) (1,474,354)
----------- -----------
Net cash used in investing activities (748,285) (1,474,354)
----------- -----------
Cash Flows From Financing Activities:
Net borrowing on line of credit 2,718,366 3,079,181
Borrowings of long-term debt 1,300,000 700,000
Payments on long-term debt (696,684) (32,000)
Other (3,999) 57,771
----------- -----------
Net cash provided by financing activities 3,317,683 3,804,952
----------- -----------
Effect of exchange rate changes on cash (6,794) 829
----------- -----------
Net increase (decrease) in cash 1,920,661 (150,765)
Cash, beginning of period 404,473 634,633
----------- -----------
Cash, end of period $2,325,134 $483,868
=========== ===========
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" 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 August 31, 2002 and November 30, 2001, and the results of operations and cash
flows of the Company for the three and nine months ended August 31, 2002 and
2001, 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, 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 September 1, 2002, contracts accounting for 42% of fiscal 2001 gross
transit revenues (excluding the Chicago Transit Authority) 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 had
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 all of the outstanding 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 at August 3, 2002. 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.
5
4. Debt Agreements
The Company's credit arrangements with US Bank include a $14.8 million
term loan revolver maturing in August 2007 and a $6 million working capital
revolver and 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 August 31, 2002 was 7.75%.
Amounts outstanding under the working capital revolver amounted to $4,415,483 at
August 31, 2002.
The US Bank loan agreements contain certain restrictive covenants and
required ratios. As of August 31, 2002 the Company was out of compliance with
certain of the ratios and covenants, and the bank has provided 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 replacement primary lender.
5. Income taxes
The Company utilized all of 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. This results in an income tax provision
for the quarter and nine months ended August 31, 2002 that includes only state
and foreign taxes. The effective tax rate for the comparable period in fiscal
2001 varied from federal statutory rates because a valuation allowance was
established against the net operating loss carryforwards that were generated in
2001.
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 Nine Months Ended
August 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 August 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 for the nine months ended August 31, 2002 and
the three and nine month periods ended August 31, 2001. For the three months
ended August 31, 2002 the exercise prices of the outstanding options were
greater than the market price of the common shares and therefore were not
considered in dilutive EPS.
6
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 nine
month periods ended August 31, 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.
In October, 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" which supercedes SFAS 121,
"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
We have evaluated the Company's disclosure controls and procedures
within ninety days ("Evaluation Date") prior to this report and concluded that
there were no material weaknesses in those controls and procedures as of that
date. To the best of our knowledge and belief, there have been no significant
changes in internal controls or other factors subsequent to the Evaluation Date
that could materially affect internal controls and procedures.
We have evaluated the Company's disclosure controls and procedures
within ninety days ("Evaluation Date") prior to this report and concluded that
there were no material weaknesses in those controls and procedures as of that
date. To the best of our knowledge and belief, there have been no significant
changes in internal controls or other factors subsequent to the Evaluation Date
that could materially affect internal controls and procedures.
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 September 1, 2002 contracts accounting for 42% of fiscal 2001
gross transit revenues (excluding the Chicago Tgransit Authority) 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 had
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 all of the outstanding 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 $6.0 million, which is included within long-term debt in the
accompanying balance sheet. The result was 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 with US Bank include a $14.8 million
term loan revolver maturing in August 2007 and a $6 million working capital
revolver and 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 August 31, 2002 was 7.75%.
Amounts outstanding under the working capital revolver amounted to $4,415,483 at
August 31, 2002.
The US Bank loan agreements contain certain restrictive covenants and
required ratios. As of August 31, 2002 the Company was out of compliance with
certain of the ratios and covenants, and the bank has provided 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 replacement primary lender.
9
Comparison of the Three Months Ended August 31, 2002 and 2001
Gross revenues decreased $5.7 million, or 30.5%, to $13.0 million for
the three months ended August 31, 2002 from $18.7 million for the comparable
period in fiscal 2001. Transit revenues decreased $5.6 million, or 33.1%, to
$11.3 million for the three months ended August 31, 2002 from $16.9 million for
the third quarter of fiscal 2001. This decrease was principally due to the exit
from the Chicago market December 2001. Outdoor advertising revenues decreased
$106,000, or 5.9%, to $1.7 million for the third quarter of fiscal 2002 from
$1.8 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 $729,000, or 44.4%, to $914,000 for the three months ended August 31,
2002 from $1.6 million for the third 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
$5.0 million, or 29.2%, to $12.1 million for the three months ended August 31,
2002 from $17.0 million for the comparable period in fiscal 2001
Production and installation expenses decreased $319,000, or 16.0% to
$1.7 million for the three months ended August 31, 2002, from $2.0 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 Company's other remaining transit markets.
Transit and outdoor occupancy expenses, which include fees to transit
agencies and lease costs for billboard sites, decreased $4.2 million, or 44.9%,
to $5.1 million for the three months ended August 31, 2002, from $9.3 million
for the comparable period in fiscal 2001. This also resulted in a reduction of
these expenses to 42.6% of net revenues for the three month period in 2002 as
compared to 54.8% 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 decreased $895,000, or 29.1% to $2.2 million for the
three months ended August, 2002, from $3.1 million for the comparable period in
fiscal 2001. The decrease was caused by a reduction in expenses relative to the
exit from the Chicago market and cost reductions in other markets.
General and administrative expenses decreased $1.5 million, or 44.2%,
to $1.9 million for the three months ended August 31, 2002 from $3.4 million for
the comparable period in fiscal 2001. The decrease resulted primarily from the
exit from the Chicago market and cost reductions in other markets. General and
administrative expenses, as a percentage of net revenues, decreased to 15.6% for
the three months ended August 31, 2002 from 19.8% for the same period in fiscal
2001. Throughout this year the Company has been aggressively attacking
administrative costs resulting in substantial reductions in certain areas. We
expect general and administrative expenses to decease slightly as a percentage
of gross revenues during the remainder of fiscal 2002.
The Company incurred no start up costs during the three months ended
August 31, 2002 as compared to $8,000 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.
Depreciation and amortization expenses increased $48,000, or 9.5%, to
$548,000 for the three months ended August 31, 2002 from $500,000 for the
comparable period in fiscal 2001. The increase was primarily due to the
additional expense on equipment acquisitions.
10
During the third quarter of 2001 the Company reported a provision for
transit contract losses of $6.0 million relative to renegotiating the payment
terms of certain transit contracts. There was no similar charge in the third
quarter of 2002.
As a result of the foregoing factors, the Company experienced operating
income of $415,000 for the three months ended August 31, 2002 compared to an
operating loss of $7.3 million for the second quarter of fiscal 2001.
Interest expense increased $259,000, or 86.2%, to $559,000 for the
third quarter of fiscal 2002 from $300,000 for the comparable period in fiscal
2001. The increase was due primarily to discount amortization on payments made
relative to the settlement with the Chicago Transit Authority in 2002.
As a result of the foregoing factors the Company realized net income
before income taxes of $83,000 for the three month period ended August 31, 2002
as compared to a loss of $7.6 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 an income tax provision for the
quarter ended August 31, 2002 which includes only state and foreign taxes. The
effective tax rate for the comparable period in fiscal 2001 was 21.1%, varying
from federal statutory rates because net operating loss carrybacks available
were not sufficient to offset the entire operating loss before income taxes.
As a result of the foregoing factors, the Company experienced net
income of $22,000 for the three months ended August 31, 2002, as compared to net
loss of $6.0 million for the three months ended August 31, 2001.
Comparison of the Nine Months Ended August 31, 2002 and 2001
Gross revenues decreased $15.0 million, or 29.5%, to $35.9 million for
the nine months ended August 31, 2002 from $50.9 million for the comparable
period in fiscal 2001. Transit revenues decreased $14.9 million, or 32.9%, to
$30.5 million for the nine months ended August 31, 2002 from $45.4 million for
the comparable period of fiscal 2001. This decrease was principally due to the
exit from the Chicago market in December 2001. Outdoor advertising revenues
decreased by $100,000, or 1.3% as compared to the comparable period in 2001.
Agency commissions decreased $2.2 million, or 48.3%, to $2.3 million for the
nine months ended August 31, 2002 from $4.5 million for the first nine 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 $12.9 million, or 27.7%, to $33.5 million for
the nine months ended August 31, 2002 from $46.4 million for the comparable
period in fiscal 2001.
Production and installation expenses decreased $735,000, or 12.7% to
$5.0 million for the nine months ended August 31, 2002, from $5.8 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 $11.0 million, or 43.6%,
to $14.2 million for the nine months ended August 31, 2002, from $25.2 million
for the comparable period in fiscal 2001. This also resulted in a reduction of
these expenses to 42.4% of net revenues for the nine month period in 2002 as
compared to 54.4% 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 decreased $838,000, or 10.1% to $7.4 million for the
nine months ended August, 2002, from $8.3 million for the comparable period in
fiscal 2001. The decrease was caused by a reduction in expenses relative to the
exit from the Chicago market and cost reductions in other markets.
General and administrative expenses decreased $1.6 million, or 21.5%,
to $6.0 million for the nine months ended August 31, 2002 from $7.6 million for
the comparable period in fiscal 2001. The decrease resulted primarily from the
exit from the Chicago market and cost reductions in other markets. General and
administrative expenses, as a percentage of net revenues, increased to 17.8% for
the nine months ended August 31, 2002 from 16.4% for the same period in fiscal
2001. Throughout this year the Company has been aggressively attacking
administrative costs resulting in substantial reductions in certain areas. We
expect general and administrative expenses to decease slightly as a percentage
of gross revenues during the remainder of fiscal 2002.
The Company incurred no start up costs during the nine months ended
August 31, 2002 as compared to $333,000 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.
During the first nine months of 2001 the Company reported a provision
for transit contract losses of $6.0 million relative to renegotiating the
payment terms of certain transit contracts. There was no similar charge in the
first three quarters of 2002.
Depreciation and amortization expenses increased $145,000, or 9.7%, to
$1.6 million for the nine months ended August 31, 2002 from $1.5 million for the
comparable period in fiscal 2001. The increase was primarily due to the
additional expense relative to equipment acquisitions.
As a result of the foregoing factors, the Company experienced an
operating loss of $768,000 for the nine months ended August 31, 2002 compared to
an operating loss of $8.3 million for the comparable period of fiscal 2001.
Interest expense increased $232,000 or 24.2% to $1.2 million for the
first nine months of fiscal 2002 from $959,000 for the comparable period in
fiscal 2001. The increase was due primarily to discount amortization on payments
made relative to the settlement with the Chicago Transit Authority in 2002.
As a result of the foregoing factors, the Company realized a net loss
before income taxes of $2.0 million for the nine month period ended August 31,
2002 as compared to a loss of $9.3 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 an income tax provision for the nine
months ended August 31, 2002 which includes only state and foreign taxes. The
effective tax rate for the comparable period in fiscal 2001 was 24.7%, varying
from federal statutory rates because net operating loss carrybacks available
were not sufficient to offset the entire operating loss before income taxes.
As a result of the foregoing factors, the Company realized a net loss
of $2.0 million for the nine months ended August 31, 2002, as compared to net
loss of $7.0 million for the nine months ended August 31, 2001.
Liquidity and Capital Resources
12
The Company has historically satisfied our working capital requirements
with cash from operations and revolving credit borrowings. Our working capital
at August 31, 2002 and November 30, 2001 was $6.8 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 nine 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 August 31, 2002,
Obie had outstanding borrowings of $25.3 million, of which $14.8 million was
pursuant to long-term credit agreements, $142,000 pursuant to the agreement to
acquire P & C Media in September 1998, $4.4 million pursuant to our working
capital revolver, and $6.0 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 August 31, 2002, available borrowing capacity under the
line of credit, based on collateralized accounts, was $1.6 million.
Obie's net cash used in operating activities was $642,000 during the
nine months ended August 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 in 2002.
Net cash used in investing activities was $749,000 and $1.3 million
during the nine months ended August 31, 2002 and 2001, respectively. The
decrease in these expenditures during the first nine 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 $500,000 during the remainder of fiscal 2002.
Net cash provided by financing activities was $3.3 million and $3.8
million during the nine months ended August 31, 2002 and 2001, respectively. The
decrease was primarily the result of reduced utilization of the working capital
credit line during the first nine 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, if any, may require additional
debt or equity financing.
Seasonality
Obie'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 if 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.
13
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 August 31, 2002.
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 nine months
ended August 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 October 8, 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
14
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Obie Media Corporation (the Company )
on Form 10Q for the quarterly period ended August 31, 2002, as filed with the
Securities and Exchange Commission on the date hereof (the Report ), I, Gary F.
Livesay, Vice President and Chief Financial Officer, certify, pursuant to 18
U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes Oxley Act of 2002, that
to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
By: /s/GARY F. LIVESAY
Vice President
Chief Financial Officer
In connection with the Quarterly Report of Obie Media Corporation (the Company )
on Form 10Q for the quarterly period ended August 31, 2002, as filed with the
Securities and Exchange Commission on the date hereof (the Report ), I, Brian B.
Obie, President and Chief Executive Officer, certify, pursuant to 18 U.S.C.
1350, as adopted pursuant to 906 of the Sarbanes Oxley Act of 2002, that to the
best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
By: /s/BRIAN B. OBIE
President
Chief Executive Officer
15
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Gary F. Livesay, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Obie Media Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: October 8, 2002
By: /s/ GARY F. LIVESAY
Vice President
Chief Financial Officer
16
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Brian B. Obie, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Obie Media Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: October 8, 2002
By: /s/ BRIAN B. OBIE
President
Chief Executive Officer
17