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 February 28, 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
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
OREGON 93-0966515
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
4211 West 11th Ave., Eugene, Oregon 97402
- --------------------------------------------------------------------------------
(Address of principal executive offices)
541-686-8400 FAX 541-345-4339
- --------------------------------------------------------------------------------
(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 April 6, 1999, 4,322,949 shares of the issuer's common stock were
outstanding.
This report contains 12 pages. The only exhibit is the Financial Data
Schedule.
<PAGE>
OBIE MEDIA CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
February 28, November 30,
1999 1998
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash $11,180 $326,140
Accounts receivable, net 5,280,406 6,719,218
Prepaids and other current assets 1,194,524 1,156,061
Deferred income taxes 758,832 758,832
------------ ------------
Total current assets 7,244,942 8,960,251
PROPERTY AND EQUIPMENT, NET 10,657,744 10,493,174
GOODWILL, NET 7,556,264 7,696,394
OTHER ASSETS 478,195 497,512
------------ ------------
$25,937,145 $27,647,331
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $2,285,422 $1,511,276
Line of credit 827,079 1,414,877
Accounts payable 1,088,128 780,268
Accrued expenses 1,111,580 2,674,287
Income taxes payable 333,008 299,090
Deferred revenue 1,111,881 1,247,470
------------ ------------
Total current liabilities 6,757,098 7,927,268
DEFERRED INCOME TAXES 783,502 783,502
LONG-TERM DEBT, LESS CURRENT PORTION 12,287,680 13,354,395
------------ ------------
Total liabilities 19,828,280 22,065,165
------------ ------------
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, 4,321,321 and 4,315,728 shares
issued and outstanding, respectively 6,941,599 6,851,053
Options issued for common stock 211,763 211,763
Foreign currency translation 273 0
Accumulated deficit (1,080,194) (1,516,074)
------------ ------------
Total shareholders' equity 6,073,441 5,546,742
------------ ------------
$25,937,145 $27,647,331
============ ============
</TABLE>
See accompanying notes
<PAGE>
OBIE MEDIA CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED FEBRUARY 28, 1999 AND 1998
1999 1998
------------ ------------
REVENUES:
Transit advertising $6,024,908 $2,824,912
Outdoor advertising 1,361,729 1,344,935
------------ ------------
Gross revenues 7,386,637 4,169,847
Less - agency commissions (626,409) (350,485)
------------ ------------
Net revenues 6,760,228 3,819,362
------------ ------------
OPERATING EXPENSES:
Direct advertising expenses 5,020,229 2,497,963
General and administrative 1,160,602 688,366
Contract settlement (885,941) -
Start up costs 105,679 18,240
Depreciation and amortization 355,723 177,439
------------ ------------
Operating income 1,003,936 437,354
OTHER (INCOME) EXPENSE:
Interest expense 277,473 166,178
Minority interest in subsidiary - 3,762
------------ ------------
Income before income taxes 726,463 267,414
PROVISION FOR INCOME TAXES 290,583 101,617
------------ ------------
NET INCOME $435,880 $165,797
============ ============
Earnings per share:
Basic $0.10 $0.04
Diluted $0.10 $0.04
See accompanying notes
<PAGE>
OBIE MEDIA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED FEBRUARY 28, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $435,880 $165,797
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation and amortization 355,723 177,439
Changes in operating assets and liabilities 168,595 61,388
----------- -----------
Net cash provided by operating activities 960,198 404,624
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (385,560) (269,622)
Other (12,043) -
----------- -----------
Net cash used in investing activities (397,603) (269,622)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (payments) on lines of credit (587,798) 103,463
Payments on long-term debt (292,569) (272,424)
Other 2,539 33,959
----------- -----------
Net cash used in financing activities (877,828) (135,002)
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 273 -
----------- -----------
NET DECREASE IN CASH (314,960) -
CASH, BEGINNING OF PERIOD 326,140 -
----------- -----------
CASH, END OF PERIOD $11,180 -
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Issuance of stock to employee benefit plan $85,928 -
Note issued to acquire advertising structures - $698,000
Interest capitalized 4,769 2,704
Cash Paid for Interest 305,440 37,862
Cash Paid for Taxes 257,782 -
</TABLE>
See accompanying notes
<PAGE>
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 February 28, 1999,
and the results of operations and cash flows of the Company for the three months
ended February 28, 1999 and 1998. 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.
The results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for the full year.
2. Contract Settlement
The Company has a contract to provide advertising sales services to the
Tri-County Metropolitan Transit District ("Tri-Met") in Portland, Oregon, which,
by its terms, was scheduled to expire in June 2001. The Company 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 the Company have agreed that the
Company's agreement with Tri-Met will terminate on June 30, 1999 and in December
1998 entered into a settlement agreement to compensate the Company for early
termination of the existing contract. Under the terms of the settlement
agreement, Obie Media receives cash payments and other financial benefits, and
transfers to Tri-Met the transit benches on which the Company sells advertising.
In addition, the Company will retain a significant residual value of advertising
contracts in existence at June 30, 1999, for up to one year. The contract
settlement resulted in a pre-tax gain of $885,941 during the first quarter of
fiscal 1999.
3. Long-Term Borrowings
The Company's Term Loan Agreement contains certain covenants including
maintenance of current ratio and cash flow coverage. The Company was in
compliance with these covenants as of February 28, 1999.
<PAGE>
4. Earnings Per Share
Basic earnings per share is computed based on the weighted average
number of common shares outstanding during the periods 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 reroactive effect to an 11-for-10 stock
split which occured in November 1998. The following is a reconciliation of the
basic and diluted shares used in the per share calculations:
February 28, February 28,
1999 1998
----------- -----------
Basic shares (weighted average) 4,318,901 4,241,035
Dilutive effect of stock options 109,921 66,340
----------- -----------
Diluted shares 4,428,822 4,307,375
=========== ===========
5. 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 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 Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for all derivative instruments.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. 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 FINACIAL 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 SEC
reports, including, but not limited to, the factors discussed in Exhibit 99.1
filed in connection with the Company's Annual Report of Form 10-KSB for the year
ended November 30, 1998, which is incorporated herein by reference.
New Transit Contracts
In January 1999, the Company began operating transit advertising
display contracts for transit districts in Madison, Wisconsin; Spokane,
Washington and London, Ontario (representing a total of approximately 475
vehicles). In addition, in February 1999, the Company began operating a transit
advertising display contract for a transit district in Yakima, Washington
(representing approximately 20 vehicles).
Comparison of the Three Months Ended February 28, 1999 and 1998
Gross revenues increased $3.2 million, or 77.1%, to $7.4 million for
the three months ended February 28, 1999 from $4.2 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 September 1, 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 $3.2
million, or 113.3%, to $6.0 million for the three months ended February 28, 1999
from $2.8 for the same period in fiscal 1998. Outdoor advertising revenues
increased to $1.4 million for the first quarter of fiscal 1999 from $1.3 million
for the first quarter of fiscal 1998. Agency commissions increased $276,000, or
78.7%, to $626,000 for the three months ended February 28, 1999 from $350,000
for the same period in fiscal 1998, primarily due to the large proportion of
existing agency business in our new markets. As a result of the foregoing
reasons, net revenues increased $2.9 million, or 77.0%, to $6.8 million for the
three months ended February 28, 1999 from $3.8 million for the same period in
fiscal 1998.
Direct advertising expenses increased $2.5 million, or 101.0%, to $5.0
million for the three months ended February 28, 1999 from $2.5 million for the
same period in fiscal 1998. This increase was primarily the result of increased
revenues. Direct advertising expenses increased, as a percentage of gross
revenues, from 59.9% for the first quarter of fiscal 1998 to 68.0% 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 $472,000, or 68.6%, to
$1.2 million for the three months ended February 28, 1999 from $688,000 for the
same period in fiscal 1998. The increase resulted primarily from the increased
costs of administering new transit districts, including P & C. General and
administrative expenses, as a percentage of gross revenues, decreased to 15.7%
for the three months ended February 28, 1999 from 16.5% for the same period in
fiscal 1998.
<PAGE>
During the first quarter of fiscal 1999, the Company recognized a
pre-tax gain of $885,941 associated with its contract settlement with Tri-Met
(see Note 2 of Notes to Condensed Consolidated Financial Statements). In March
1999, Tri-Met management decided to award the new contract to a third party. We
protested that decision; Tri-Met rejected our protest. We are now seeking a
judicial review of the bidding process. As a result of the settlement, the
Company does not expect that fiscal 1999 income and cash flows will be
significantly affected in the event we are unable to renew our agreement with
Tri-Met for the period after June 30, 1999.
Start-up costs increased to $106,000 for the three months ended
February 28, 1999 from $18,000 for the same period in fiscal 1998. Start-up
costs include expenses incurred in new markets prior to the time the Company
begins its sales operations, as well as costs incurred in obtaining new transit
district contracts. These costs vary depending on the number and size of transit
districts that become available for proposal during the period and our success
in obtaining new contracts.
Depreciation and amortization expenses increased $178,000, or 100.5%,
to $356,000 for the three months ended February 28, 1999 from $177,000 for the
same period in fiscal 1998, primarily due to the amortization of goodwill
associated with the P & C acquisition as well as our investment in equipment in
new markets and our upgrading of computer capabilities in our existing markets.
Due to the above factors, operating income increased $567,000, or
129.5%, to $1.0 million for the three months ended February 28, 1999 from
$437,000 for the same period in fiscal 1998.
Interest expense increased $111,000, or 67.0%, to $277,000 for the
three months ended February 28, 1999 from $166,000 for the same period in fiscal
1998, primarily due to the indebtedness incurred in connection with the
acquisition of P & C.
Provision for income taxes increased $189,000, or 186.0%, to $291,000
for the three months ended February 28, 1999 from $102,000 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 $270,000, or
162.9%, to $436,000 for the three months ended February 28, 1999 from $166,000
for the same period in fiscal 1998.
Liquidity and Capital Resources
We have historically satisfied our working capital requirements with
cash from operations and revolving credit borrowings. Our working capital at
February 28, 1999 and November 30, 1998 was $488,000 and $1.0 million,
respectively. The decrease in working capital is primarily the result of capital
expenditures and payments on long-term debt, which were funded from operations.
Obie Media's net cash provided by operations was $960,000 and $405,000
during the three months ended February 28, 1999 and 1998, respectively. The
increase was primarily due to cash received in connection with the Company's
contract settlement with Tri-Met.
Net cash used in investing activities was $398,000 and $270,000 during
the three months ended February 28, 1999 and 1998, respectively. These
expenditures were principally related to the cost of building outdoor
advertising displays and expenditures related to opening new offices.
<PAGE>
Net cash used in financing activities was $878,000 and $135,000 during
the three months ended February 28, 1999 and 1998, respectively. The increase in
1999 was primarily the result of payments on the Company's line of credit. As of
February 28, 1999, the Company had borrowed $827,000 on this line of credit, and
the Company's available borrowing capacity, based on collateralized accounts,
was $2.2 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 finance our operations, including anticipated
capital expenditures, but excluding possible acquisitions, through fiscal 1999.
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. 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 as our outdoor advertising display space, unlike
our transit advertising display space, is and has been sold nearly exclusively
by means of 12-month contracts. We believe that the seasonality of our revenues
and operating results will increase as our transit advertising operations
continue to expand more rapidly than our outdoor advertising operations. This
seasonality, together with fluctuations in general and regional economic
conditions and the timing and expenses related to acquisitions, the obtaining of
new transit agreements and other actions we have taken to implement our growth
strategy, have contributed to fluctuations in our periodic operating results.
These fluctuations likely will continue. Accordingly, our results of operations
in any period may not be indicative of the results to be expected for any future
period.
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 are in various stages of assessing our internal technical and
non-technical systems to ascertain whether they are Year 2000 compliant. After
conducting certain tests, we have identified one information processing system
that is not Year 2000 compliant and have determined that the cost of replacing
or updating the system should not exceed $25,000. We believe that our
information processing systems used in financial reporting and record-keeping,
and the majority of our incidental software systems, are Year 2000 compliant or
can be made compliant on a timely basis without material cost. We are in the
process of phasing out all of our personal computer workstations that are not
Year 2000 compliant. We do not believe that a material number of our
workstations will need to be replaced. With the exception of two color printers
which have not yet been tested, 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 are scheduled to be upgraded to
a Year 2000 compliant version in April 1999, at minimal cost to the Company. We
have only generally assessed our other non-technical systems, including copiers
and facsimile machines, in order to identify systems that are not Year 2000
compliant.
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 intend to complete our Year 2000 assessment of our internal
technical and non-technical systems by May 31, 1999 and to be Year 2000
compliant by November 30, 1999.
<PAGE>
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. We do not believe that the commodities and
services upon which we rely are of a kind or nature which is particularly
sensitive to Year 2000 issues. 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 February 28, 1998 are immaterial. 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 may develop a Year 2000 contingency plan depending on
the results of our internal and external assessment of Year 2000 issues. We will
continue to update our assessment of our Year 2000 readiness as we receive
updated information from our Year 2000 compliance program.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) The Company filed no reports on Form 8-K during the quarter ended February
28, 1999.
Signature
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Obie Media Corporation
Date April 14, 1999 By: /s/ James W. Callahan
James W. Callahan
Chief Financial Officer
Date April 14, 1999 By: /s/ Michael E. Hubbard
Michael E. Hubbard
Corporate Controller
Signing on behalf of the Registrant
and as principal financial and
accounting officers.
<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 Form 10-QSB, for the quarter ended February
28, 1999 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1999
<PERIOD-END> FEB-28-1999
<CASH> 11,180
<SECURITIES> 0
<RECEIVABLES> 5,633,704
<ALLOWANCES> 353,298
<INVENTORY> 0
<CURRENT-ASSETS> 7,244,942
<PP&E> 15,102,021
<DEPRECIATION> 4,444,277
<TOTAL-ASSETS> 25,937,145
<CURRENT-LIABILITIES> 6,757,098
<BONDS> 14,573,102
0
0
<COMMON> 6,941,599
<OTHER-SE> (868,158)
<TOTAL-LIABILITY-AND-EQUITY> 25,937,145
<SALES> 0
<TOTAL-REVENUES> 6,760,228
<CGS> 0
<TOTAL-COSTS> 5,020,229
<OTHER-EXPENSES> 355,723
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 277,473
<INCOME-PRETAX> 726,463
<INCOME-TAX> 290,583
<INCOME-CONTINUING> 435,880
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 435,880
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
