U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1999
-------------------------------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OF 15(d) OF THE EXCHANGE ACT
For the transition period from ___________________to___________________________
Commission File Number 000-21623
OBIE MEDIA CORPORATION
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(Exact name of small business issuer as specified in its charter)
OREGON 93-0966515
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
4211 West 11th Ave., Eugene, Oregon 97402
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(Address of principal executive offices)
541-686-8400 FAX 541-345-4339
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(Issuer's telephone number)
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 11, 1999, 5,322,949 shares of the issuer's common stock were
outstanding.
This report contains 13 pages.
<PAGE>
OBIE MEDIA CORPORATION
Consolidated Balance Sheets
ASSETS
August 31, November 30,
1999 1998
-------------- --------------
CURRENT ASSETS:
Cash $ 421,460 $ 326,140
Accounts receivable, net 6,981,079 6,719,218
Prepaids and other current assets 2,086,021 1,156,061
Deferred income taxes 758,832 758,832
-------------- --------------
Total current assets 10,247,392 8,960,251
PROPERTY AND EQUIPMENT, NET 11,005,842 10,493,174
GOODWILL, NET 7,295,534 7,696,394
OTHER ASSETS, NET 343,731 497,512
-------------- --------------
$28,892,499 $27,647,331
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 2,242,647 $ 1,511,276
Line of credit 502,778 1,414,877
Accounts payable 735,384 780,268
Accrued expenses 1,423,557 2,674,287
Income taxes payable 438,374 299,090
Deferred revenue 1,654,438 1,247,470
-------------- --------------
Total current liabilities 6,997,178 7,927,268
DEFERRED INCOME TAXES 783,502 783,502
LONG-TERM DEBT, LESS CURRENT PORTION 4,357,353 13,354,395
-------------- --------------
Total liabilities 12,138,033 22,065,165
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MINORITY INTEREST IN SUBSIDIARY 35,424 35,424
SHAREHOLDERS' EQUITY:
Preferred stock, without par value, 10,000,000 shares
authorized, no shares issued or outstanding
Common stock, without par value; 20,000,000 shares
authorized, 5,322,949 and 4,315,728 shares
issued and outstanding, respectively 16,607,905 6,851,053
Options issued for common stock 211,763 211,763
Foreign currency translation 584 -
Accumulated deficit (101,210) (1,516,074)
-------------- --------------
Total shareholders' equity 16,719,042 5,546,742
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$28,892,499 $27,647,331
============== ==============
See accompanying notes
<PAGE>
OBIE MEDIA CORPORATION
Consolidated Statements of Income
<TABLE>
Three Months Ended August 31, Nine Months Ended August 31,
------------------------------ ------------------------------
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
REVENUES:
Transit advertising $ 9,187,179 $4,220,716 $23,761,395 $10,619,404
Outdoor advertising 1,569,939 1,494,239 4,383,332 4,252,092
-------------- -------------- -------------- --------------
Gross revenues 10,757,118 5,714,955 28,144,727 14,871,496
Less - Agency commissions (1,117,276) (609,988) (2,775,011) (1,409,004)
-------------- -------------- -------------- --------------
Net revenues 9,639,842 5,104,967 25,369,716 13,462,492
OPERATING EXPENSES:
Direct advertising expenses 6,970,318 3,293,890 18,266,418 8,556,792
General and administrative 1,161,717 768,584 3,473,445 2,222,152
Contract settlement (191,528) - (1,077,469) -
Start-up costs 158,745 55,641 454,527 99,194
Depreciation and amortization 363,686 227,898 1,086,582 581,578
-------------- -------------- -------------- --------------
Operating income 1,176,904 758,954 3,166,213 2,002,776
OTHER (INCOME) EXPENSE:
Interest expense 284,880 158,468 846,765 479,342
Minority interest in subsidiary - - 42,569
-------------- -------------- -------------- --------------
Income before income taxes 892,024 600,486 2,319,448 1,480,865
PROVISION FOR INCOME TAXES 347,892 228,251 904,584 562,795
-------------- -------------- -------------- --------------
NET INCOME $544,132 $372,235 $1,414,864 $918,070
============== ============== ============== ==============
Earnings per share:
Basic $0.12 $0.09 $0.32 $0.22
Diluted $0.12 $0.09 $0.32 $0.21
</TABLE>
See accompanying notes
<PAGE>
OBIE MEDIA CORPORATION
Consolidated Statements of Cash Flows
Nine Months Ended August 31,
-------------------------------
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,414,864 $918,070
Adjustments to reconcile net income to
net cash provide by operating activities:
Depreciation and amortization 1,086,582 581,578
Contract settlement (527,469) -
Minority interest in subsidiary - 42,569
Changes in assets and liabilities (1,546,965) (470,418)
-------------- ---------------
Net cash provided by operating activities 427,012 1,071,799
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,203,787) (1,250,897)
Other (46,946) -
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Net cash used in investing activities (1,250,733) (1,250,897)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 10,103,603 42,575
Net borrowings (payments) on lines of credit (912,099) 784,334
Checks outstanding in excess of cash deposits - 50,941
Payments on long-term debt (8,265,671) (636,276)
Other (7,376) 28,419
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Net cash provided by financing activities 918,457 269,993
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EFFECT OF EXCHANGE RATE CHANGES ON CASH 584 -
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NET INCREASE IN CASH 95,320 90,895
CASH, BEGINNING OF PERIOD 326,140 -
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CASH, END OF PERIOD $ 421,460 $ 90,895
============== ===============
SUPPLEMENTAL DISCLOSURE:
Issuance of stock to employee benefit plan $ 85,928 $ 71,903
Accrual of stock offering costs 389,370 -
Note issued to acquire advertising structures - 698,000
Interest capitalized 11,727 9,000
Income tax benefit of non-qualified stock
option exercise - 28,419
Cash Paid for Interest 267,338 448,010
Cash Paid for Taxes 934,805 -
See accompanying notes
<PAGE>
OBIE MEDIA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The interim financial statements have been prepared by Obie Media
Corporation (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, 1999, and
the results of operations and cash flows of the Company for the three and nine
months ended August 31, 1999 and 1998, 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, 1998 Form 10-KSB. This quarterly report should be
read in conjunction with such annual report. Operating results for the nine
months ended August 31, 1999 are not necessarily indicative of the results that
may be expected for any future period.
2. Public Stock
Offering On August 10, 1999, we completed a public offering of one
million shares of our common stock, raising approximately $9,655,000, net of
underwriter discounts and commissions of approximately $886,000 and offering
expenses of approximately $575,000, including approximately $43,000 of expenses
previously deferred. The net proceeds were used to repay previously outstanding
debt.
3. Contract Settlement
During the nine months ended August 31, 1999, we provided advertising
sales services to the Tri-County Metropolitan Transit District ("Tri-Met") in
Portland, Oregon under a contract which, by its terms, was scheduled to expire
in June 2001. We originally began serving Tri-Met in January 1994, pursuant to a
five-year agreement, which was later extended for an additional two years. The
Federal Transit Administration ("FTA"), which provides substantial monies to
transit districts, has taken the position that transit advertising contracts may
not exceed five years in length. At the request of the FTA, Tri-Met and we
agreed that our agreement with Tri-Met would terminate on June 30, 1999.
However, Tri-Met subsequently informed us that our agreement would terminate on
July 30, 1999 or 10 days after notification by Tri-Met of its award of a new
agreement, whichever was later. In December 1998, Tri-Met agreed pursuant to a
settlement agreement to compensate us for early termination of the existing
contract. Under the terms of the settlement agreement, we received a one-time
cash payment and related financial benefits which resulted in a pre-tax gain of
approximately $886,000 during the first quarter of fiscal 1999. During the third
quarter of fiscal 1999, Tri-Met awarded us a new contract with an initial term
of three years followed by a two-year renewal at the option of Tri-Met. As a
result of obtaining the new contract, certain anticipated expenses associated
with the transition to another provider were avoided, resulting in an additional
pre-tax gain of approximately $192,000.
4. Long Term Borrowings
The Company's Term Loan Agreement contains certain covenants including
maintenance of a cash flow leverage ratio and cash flow coverage. The Company
was in compliance with these covenants as of August 31, 1999.
<PAGE>
5. Earnings Per Share
Basic earnings per share is computed based on the weighted average
number of common shares outstanding during the applicable period, and diluted
earnings per share is computed using the weighted average number of common
shares and dilutive common equivalent shares outstanding. All share and
per-share information has been adjusted to give retroactive effect to an
11-for-10 stock split which occurred in November 1998. The following is a
reconciliation of the basic and diluted shares used in the per-share
calculations:
Three Months Ended Nine Months Ended
August 31, August 31,
------------------ -----------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
Basic shares (weighted average) 4,542,730 4,253,919 4,394,759 4,245,361
Dilutive effect of stock options 42,275 82,606 82,105 74,991
---------- ---------- ---------- ----------
Diluted shares 4,585,005 4,336,525 4,476,864 4,320,352
========== ========== ========== ==========
6. Newly Issued Financial Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard 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. The
Company adopted SFAS 130 during the first quarter of fiscal 1999. Comprehensive
income did not differ materially from currently reported net income in the
periods presented.
Effective in its fiscal year ending November 30, 1999, the Company will
be required to adopt SFAS No. 131 "Disclosures about Segments of an Enterprise
and Related Information." SFAS No. 131 changes current practice under SFAS No.
14 by establishing a new framework on which to base segment reporting (referred
to as the "management" approach) and also requires interim reporting of segment
information. Management does not expect that the impact of adoption of this
pronouncement will be material to the Company's financial position or results of
operations.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for all derivative instruments. SFAS No. 133 was to be effective for
fiscal years beginning after June 15, 1999. In June 1999, the FASB issued SFAS
No. 137 as an amendment to SFAS No. 133 and deferred the effective date of SFAS
No. 133 to fiscal years beginning after June 15, 2000. The Company currently has
no derivative instruments and, therefore, the adoption of SFAS 133 will have no
impact on the Company's financial position or results of operations.
<PAGE>
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. The Company's actual results
could differ materially from the forward-looking statements. Factors that could
cause or contribute to such differences include: a decline in the demand for
advertising in the areas where the Company conducts its business; a
deterioration of business conditions generally in such areas; slower that
expected acceptance of the Company's innovative display products; competitive
factors, including increased competition and price pressures; changes in
regulatory or other external factors; failure to successfully conclude
negotiations on pending transactions or to successfully assimilate expanded
operations, inability to generate advertising revenues to meet contractual
guarantees, and cancellation or interruption of contracts with governmental
agencies, as well as those factors listed from time to time in the Company's
filings with the SEC, including, but not limited to, the factors discussed in
Exhibit 99.1 filed in connection with the Company's Annual Report on Form 10-KSB
for the year ended November 30, 1998 and the factors discussed in the Risk
Factors section of the Company's Registration Statement on Form S-1, as amended,
filed with the SEC on August 11, 1999, which are incorporated herein by
reference.
New Transit Contracts
During the nine months ended August 31, 1999, we began operating
transit advertising displays on more than 1,500 additional vehicles. During the
first quarter of fiscal 1999, we began operating transit advertising displays
for three new transit districts: Madison, Wisconsin, Spokane, Washington and
London, Ontario (representing a total of approximately 500 vehicles). During the
second quarter of fiscal 1999, we began operating transit advertising displays
for three new transit districts, as well as Gray Line of Victoria, (representing
a total of approximately 175 vehicles). During the third quarter of fiscal 1999,
we began operating transit advertising displays for eight new transit districts.
In June 1999, we added Cambridge and Burlington, Ontario (representing a total
of approximately 70 vehicles). In July 1999, we added St. Louis, Missouri and
Danbury, Connecticut, as well as Oshawa, Whitby and Pickering, Ontario
(representing a total of approximately 800 vehicles). In August 1999, we added
Jefferson, Washington (covering approximately 15 vehicles).
In August 1999, we were awarded contracts to provide advertising
services in Kansas City, Missouri (covering approximately 280 vehicles) and Fort
Worth, Texas (covering approximately 380 benches). We expect to begin operating
these contracts in September and October 1999, respectively. Also in August
1999, we were awarded a renewal contract in Portland, Oregon (covering
approximately 720 vehicles) and were notified by Norfolk and Roanoke, Virginia
that, effective October 1, 1999, they would begin using their own employees to
manage advertising sales and would no longer be contracting with Obie Media
(representing a loss of approximately 200 vehicles).
Comparison of the Nine Months Ended August 31, 1999 and 1998
Gross revenues increased $13.3 million, or 89.3%, to $28.1 million for
the nine months ended August 31, 1999 from $14.9 million for the same period in
fiscal 1998. This increase was principally due to transit advertising revenues
associated with the operations of P & C Media ("P & C") (which we acquired in
September 1998), as well as the addition of new districts, including British
Columbia (which we began operating in August 1998) and Austin, Texas (which we
began operating in June 1998). Transit revenues increased $13.1 million, or
123.8%, to $23.8 million for the nine months ended August 31, 1999 from $10.6
million for the same period in fiscal 1998. Outdoor advertising revenues
increased to $4.4 million for the nine months ended August 31, 1999 from $4.3
million for the same period in fiscal 1998. Agency commissions increased $1.4
million, or 96.9%, to $2.8 million for the nine months ended August 31, 1999
from $1.4 million for the same period in fiscal 1998. As a percentage of gross
revenues, agency commissions increased to 9.9% for the nine months ended August
31, 1999 from 9.5% for the same period in fiscal 1998. The increase in agency
commissions, in both dollar amounts and as a percentage of gross revenues, is
primarily due to the large proportion of agency business in markets not served
in the 1998 period. As a result of the foregoing reasons, net revenues increased
$11.9 million, or 88.4%, to $25.4 million for the nine months ended August 31,
1999 from $13.5 million for the same period in fiscal 1998.
<PAGE>
Direct advertising expenses increased $9.7 million, or 113.5%, to $18.3
million for the nine months ended August 31, 1999 from $8.6 million for the same
period in fiscal 1998. This increase was primarily the result of activities
required to support an increased level of business. Direct advertising expenses
increased, as a percentage of gross revenues, from 57.5% for the first nine
months of fiscal 1998 to 64.9% for the same period in fiscal 1999, primarily due
to the faster growth of the transit advertising business, where costs,
especially occupancy costs, are higher than in the outdoor advertising business.
General and administrative expenses increased $1.3 million, or 56.3%,
to $3.5 million for the nine months ended August 31, 1999 from $2.2 million for
the same period in fiscal 1998. The increase resulted primarily from the
increased costs of administering new transit district contracts, including
contracts obtained in connection with the acquisition of P & C. General and
administrative expenses, as a percentage of gross revenues, decreased to 12.3%
for the nine months ended August 31, 1999 from 14.9% for the same period in
fiscal 1998.
During the nine months ended August 31, 1999, we recognized a
non-recurring pre-tax gain of $1,077,000 associated with our contract settlement
with Tri-Met (see Note 3 to our consolidated financial statements).
In anticipation of the termination of our transit district agreement,
Tri-Met solicited proposals for the operation of the Portland transit district
by means of a competitive bidding process. In September 1999, we began operating
under a new contract.
Start-up costs increased to $455,000 for the nine months ended August
31, 1999 from $99,000 for the same period in fiscal 1998, primarily due to our
increased number of responses to requests for proposals for transit district
contracts, including the Tri-Met proposal mentioned above. 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 competing for 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.
Depreciation and amortization expenses increased $505,000, or 86.8%, to
$1.1 million for the nine months ended August 31, 1999 from $582,000 for the
same period in fiscal 1998, primarily due to the amortization of goodwill
associated with the P & C acquisition as well as our investments in equipment in
new markets and our upgrading of computer capabilities in our existing markets.
We are amortizing goodwill of $7.8 million from the P&C acquisition over 15
years using the straight-line method of amortization.
Due to the above factors, operating income increased $1.2 million, or
58.1%, to $3.2 million for the nine months ended August 31, 1999 from $2.0
million for the same period in fiscal 1998.
Interest expense increased $367,000, or 76.7%, to $847,000 for the nine
months ended August 31, 1999 from $479,000 for the same period in fiscal 1998,
primarily due to the indebtedness incurred in connection with the acquisition of
P & C. In August 1999, we completed a public offering of our common stock, the
proceeds of which were used to retire debt (see Note 2 to our consolidated
financial statements). Accordingly, we expect interest expense to decrease in
future periods.
Provision for income taxes increased $342,000, or 60.7%, to $905,000
for the nine months ended August 31, 1999 from $563,000 for the same period in
fiscal 1998. The increase in the provision for income taxes is greater, in
percentage terms, than the increase in income before income taxes due to
increased operations in higher tax rate jurisdictions, including Canada.
As a result of the foregoing factors, net income increased $497,000, or
54.1%, to $1.4 million for the nine months ended August 31, 1999 from $918,000
for the same period in fiscal 1998.
<PAGE>
Comparison of the Three Months Ended August 31, 1999 and 1998
Gross revenues increased $5.0 million, or 88.2%, to $10.8 million for
the three months ended August 31, 1999 from $5.7 million for the same period in
fiscal 1998. This increase was principally due to transit advertising revenues
associated with the operations of P&C Media, as well as the addition of new
districts, including British Columbia and Austin, Texas. Transit revenues
increased $5.0 million, or 117.7%, to $9.2 million for the three months ended
August 31, 1999 from $4.2 million for the same period in fiscal 1998. Outdoor
advertising revenues increased to $1.6 million for the three months ended August
31, 1999 from $1.5 million for the same period in fiscal 1998. Agency
commissions increased $507,000, or 83.2%, to $1.1 million for the three months
ended August 31, 1999 from $610,000 for the same period in fiscal 1998,
primarily because of the large proportion of agency business in our new markets.
As a result of the foregoing reasons, net revenues increased $4.5
million, or 88.8%, to $9.6 million for the three months ended August 31, 1999
from $5.1 million for the same period in fiscal 1998.
Direct advertising expenses increased $3.7 million, or 111.6%, to $7.0
million for the three months ended August 31, 1999 from $3.3 million for the
same period in fiscal 1998. This increase was primarily the result of activities
required to support an increased level of business. Direct advertising expenses
increased, as a percentage of gross revenues, to 64.8% for the three months
ended August 31, 1998 from 57.6% for the same period in fiscal 1999, primarily
due to the faster growth of the transit advertising business, where costs,
especially occupancy costs, are higher than in the outdoor advertising business.
General and administrative expenses increased $393,000, or 51.2%, to
$1.2 million for the three months ended August 31, 1999 from $768,000 for the
same period in fiscal 1998. The increase resulted primarily from the increased
costs of administering new transit district contracts, including contracts
obtained in connection with the acquisition of P & C. General and administrative
expenses, as a percentage of gross revenues, decreased to 10.8% for the three
months ended August 31, 1999 from 13.4% for the same period in fiscal 1998.
During the three months ended August 31, 1999, we recognized a
non-recurring pre-tax gain of $192,000 associated with our contract settlement
with Tri-Met (see Note 3 to our consolidated financial statements).
Start-up costs increased to $159,000 for the three months ended August
31, 1999 from $56,000 for the same period in fiscal 1998, primarily due to our
increased response to requests for proposals for transit district contracts,
including the new Tri-Met contract.
Depreciation and amortization expenses increased $136,000, or 59.6%, to
$364,000 for the three months ended August 31, 1999 from $228,000 for the same
period in fiscal 1998, primarily due to the amortization of goodwill associated
with the P & C acquisition as well as our investments in equipment in new
markets and our upgrading of computer capabilities in our existing markets.
Due to the above factors, operating income increased $418,000, or
55.1%, to $1.2 million for the three months ended August 31, 1999 from $759,000
for the same period in fiscal 1998.
Interest expense increased $126,000, or 79.8%, to $285,000 for the
three months ended August 31, 1999 from $158,000 for the same period in fiscal
1998, primarily due to the indebtedness incurred in connection with the
acquisition of P & C. In August 1999, we completed a public offering of our
common stock, the proceeds of which were used to retire debt (see Note 2 to our
consolidated financial statements). Accordingly, we expect interest expense to
decrease in future periods.
Provision for income taxes increased $120,000, or 52.4%, to $348,000
for the three months ended August 31, 1999 from $228,000 for the same period in
fiscal 1998.
As a result of the foregoing factors, net income increased $172,000, or
46.2%, to $544,000 for the three months ended August 31, 1999 from $372,000 for
the same period in fiscal 1998.
<PAGE>
Liquidity and Capital Resources
We have historically satisfied our working capital requirements with
cash from operations and revolving credit borrowings. Our working capital at
August 31, 1999 and November 30, 1998 was $3.3 million and $1.0 million,
respectively. The increase in working capital is primarily the result of our
stock offering, which was completed in August, 1999. The net proceeds from the
offering were used to reduce our debt, including borrowings on our line of
credit.
Net cash provided by operating activities was $427,000 during the nine
months ended August 31, 1999 compared to $1.1 million during the same period in
fiscal 1998. The decrease from the first nine months of fiscal 1998 to the first
nine months of fiscal 1999 was primarily due to reductions in liabilities for
transit district fees which were partially offset by increases in deferred
revenue.
Net cash used in investing activities was $1.3 million during each of
the nine months ended August 31, 1999 and 1998. These expenditures were
principally related to the cost of building outdoor advertising displays,
upgrading our computer capabilities and capital expenditures related to opening
new offices.
Net cash provided by financing activities was $918,000 and $270,000
during the nine months ended August 31, 1999 and 1998, respectively. In August
1999, we completed an offering of 1,000,000 shares of our common stock at $11.00
per share, the net proceeds of $9.7 million from the offering were used to
retire debt. As of August 31, 1999, we had borrowings on our line of credit of
$503,000 and available borrowing capacity, based on collateralized accounts, of
$3.4 million.
We expect to pursue a policy of continued growth through obtaining new
transit district agreements, acquiring out-of-home advertising companies or
assets and constructing new outdoor advertising displays. We intend to finance
our future expansion activities using a combination of internal and external
sources. We believe that internally generated funds and funds available for
borrowing under our bank credit facilities will be sufficient to satisfy all
debt service obligations and to finance our existing operations, including
anticipated capital expenditures, but excluding possible acquisitions, for the
next twelve months. We may require additional debt or equity financing in the
event of future acquisitions, if any, or if we obtain significant new transit
advertising agreements.
Seasonality
Obie Media's revenues and operating results historically have
fluctuated by season. Typically, our results of operations are strongest in the
fourth quarter and weakest in the first quarter of our fiscal year ending
November 30. Our transit advertising operations are more seasonal than our
outdoor advertising operations because our outdoor advertising display space,
unlike our transit advertising display space, is and has been sold nearly
exclusively by means of 12-month contracts. We believe that the seasonality of
our revenues and operating results will increase as our transit advertising
operations continue to expand more rapidly than our outdoor advertising
operations. This seasonality, together with fluctuations in general and regional
economic conditions and the timing and expenses related to acquisitions, the
obtaining of new transit agreements and other actions we have taken to implement
our growth strategy, have contributed to fluctuations in our periodic operating
results. These fluctuations likely will continue. Accordingly, our results of
operations in any period may not be indicative of the results to be expected for
any future period.
Market Risk
We have not entered into derivative financial instruments. We may be
exposed to future interest rate changes on our debt. We do not believe that a
hypothetical 10 % change in interest rates would have a material effect on our
cash flows.
<PAGE>
Year 2000 Compliance
The Year 2000 problem is the result of the inability of some computers
and computer software programs to accurately recognize, for dates after 1999,
dates which are often expressed as a two-digit number. The inability to
accurately recognize date information could adversely affect computer operations
and calculations or cause computer systems and computer-dependent mechanical
systems not to operate at all.
We have completed the assessment of our internal technical and
non-technical systems to ascertain whether they are Year 2000 compliant. After
conducting certain tests, we have identified one information system that is not
Year 2000 compliant. We have obtained a replacement system and are in the
process of converting our data for use in the new system. The total replacement
and conversion cost is not expected to exceed $30,000. We believe that our
information processing systems used in financial reporting and record-keeping,
and our incidental software systems, are Year 2000 compliant or can be made
compliant on a timely basis without material cost. We have phased out
substantially all of our personal computer workstations that are not Year 2000
compliant. All of our information processing systems used in designing and
producing artwork have been determined to be year 2000 compliant. Our telephone
and voice-mail systems were upgraded to Year 2000 compliant versions at minimal
costs to us. We believe the remainder of our non-technical systems (primarily
small copiers and facsimile machines at our sales offices) can be replaced, if
necessary, on a timely basis without material cost.
We have engaged the services of a full-time information processing
manager to, among other duties, assist in identifying any Year 2000 issues that
may arise in our technical and non-technical systems and implement any necessary
modifications. We have completed our Year 2000 assessment of our key internal
technical systems and do not believe that such systems require material
modification. We intend to be Year 2000 compliant by November 30, 1999.
We have only generally assessed our relationships with third parties
whose inability to achieve timely Year 2000 compliance could have a material
adverse effect on our financial condition or results of operations. These third
parties are primarily transit districts, advertising agencies, vendors, banks,
utilities and freight companies whose failure to achieve timely Year 2000
compliance could delay customer orders for our services, delay receipt of
payments by customers for services rendered and disrupt other aspects of our
operations. We expect to continue to evaluate Year 2000 issues with regard to
our material relationships with third parties through 1999. Certain of such
third parties are subject to stringent regulations which mandate that they
achieve timely Year 2000 compliance. In addition, we believe that our
diversified customer and supplier base should prevent one or a few of our
vendors' or customers' failure to be Year 2000 compliant from having a material
adverse effect on our financial condition or results of operations.
We have yet to determine the total estimated cost of our Year 2000
compliance program. Expenditures through August 31, 1999 were approximately
$20,000. We do not expect that Year 2000 compliance will have a material adverse
effect on us. We believe that a reasonably likely worst case scenario as to the
effect on us of the Year 2000 compliance issue is that several of our large
customers fail to become Year 2000 compliant, thus delaying their advertising
orders and reducing our revenues.
We have not developed a contingency plan in the event we or any of the
third parties with which we have a material relationship fail to achieve timely
Year 2000 compliance. We will continue to update our assessment of our Year 2000
readiness as we receive updated information from our Year 2000 compliance
program and, if necessary, develop an appropriate contingency plan.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The former operator of transit advertising displays for the Bi-State
Development Agency of the Missouri-Illinois Metropolitan District ("Bi-State")
in metropolitan St. Louis (including St. Clair County, Illinois), Heard
Communications, Inc., doing business as Gateway Outdoor Advertising ("Gateway"),
is contesting both judicially and administratively Bi-State's award of the
transit advertising agreement for St. Louis to us. We began operating under such
agreement in July 1999.
In the judicial proceeding before the United States District Court for
the Eastern District of Missouri commenced June 30, 1999, Gateway seeks a
declaratory judgment and an injunction prohibiting Bi-State from performing
under the contract. We have intervened in the proceeding as a defendant.
Gateway's challenge is primarily based on its claim that its final bid documents
relating to the contract were mishandled after being sent to Bi-State in late
April 1999. The court denied a motion by Gateway for a temporary restraining
order which would have delayed the award of the contract to us.
In the administrative proceedings before Bi-State commenced July 2,
1999, Gateway protests Bi-State's award of the contract to us, alleging that
Bi-State improperly evaluated the bids, by failing, among other things, to
properly evaluate that Gateway's bid guaranteed greater minimum revenue to
Bi-State. Bi-State denied the protest by letter dated July 19, 1999, and Gateway
then appealed that decision to Bi-State's Executive Director. The Executive
Director denied Gateway's appeal. We are informed that the Gateway appealed the
Executive Director's decision to Federal Transit Administration ("FTA"). The
appeal to the FTA is still pending. In each of the above actions, among other
remedies, Gateway seeks to have our contract with Bi-State terminated and
bidding for the St. Louis contract reopened. These actions are in preliminary
stages. We intend to vigorously defend against termination of our St. Louis
contract.
Item 4. Submission of Matters to Vote of Security Holders
The Company held its annual meeting of shareholders on June 15, 1999.
At the meeting Delores M. Mord and Wayne P. Schur were elected to the Board of
Directors for three-year terms. Voting on the election of directors was as
follows:
Votes Votes Broker
For Withheld Non-Votes
--------- --------- ---------
Delores M. Mord 3,806,733 693 0
Wayne P. Schur 3,807,426 0 0
In addition, the following directors continued in office following the
shareholder meeting: Brian B. Obie, Randall C. Pape, Stephen A. Wendell and
Richard C. Williams.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) No reports on Form 8-K were filed by the Company during the three months
ended August 31, 1999.
<PAGE>
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 15, 1999 By: /s/ James W. Callahan
James W. Callahan
Chief Financial Officer
Date October 15, 1999 By: /s/ Michael E. Hubbard
Michael E. Hubbard
Corporate Controller
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Obie Media Corporation, which are included in its
quarterly report on Form 10-QSB for the quarter ended August 31, 1999, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1999
<PERIOD-END> AUG-31-1999
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<SECURITIES> 0
<RECEIVABLES> 7,402,747
<ALLOWANCES> 421,668
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<CURRENT-ASSETS> 10,247,392
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<DEPRECIATION> 4,914,069
<TOTAL-ASSETS> 28,892,499
<CURRENT-LIABILITIES> 6,997,178
<BONDS> 6,600,000
0
0
<COMMON> 16,607,905
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