UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended: November 30, 1999
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file Number: 000-21623
OBIE MEDIA CORPORATION
(Name of small business issuer in its charter)
93-0966515
Oregon (I.R.S. Employer
(State of incorporation) Identification No.)
4211 West 11th Avenue, Eugene, Oregon 97402
(Address of principal executive offices)
Issuer's telephone number: (541) 686-8400
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, without par value
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for 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
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this Form 10-KSB, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $40,466,000
State the aggregate market value of the voting stock held by
nonaffiliates computed by reference to the price at which the stock was sold, or
the average bid and asked prices of such stock, as of a specified date within 60
days prior to the date of filing: $ 30,385,519 aggregate market value as of
December 31, 1999, based on the price at which the stock was sold.
Indicate the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date: 5,884,253 shares of
Common Stock, without par value, on February 8, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form 10-KSB incorporates information from the issuer's
definitive proxy statement for the annual meeting of shareholders to be held on
April 21, 2000.
Transitional Small Business Disclosure Format (Check One): Yes ; No X
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TABLE OF CONTENTS
Part I
Item 1. Description of Business....................................... 2
Item 2. Description of Properties..................................... 10
Item 3. Legal Proceedings............................................. 10
Item 4. Submission of Matters to a Vote of Shareholders............... 10
Part II
Item 5. Market for Common Stock and Related Shareholder Matters....... 11
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................... 12
Item 7. Financial Statements.......................................... 16
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures..................................... 17
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act............. 17
Item 10. Executive Compensation........................................ 17
Item 11. Security Ownership of Certain Beneficial Owners and Management
Item 12. Certain Relationships and Related Transactions................ 17
Item 13. Exhibits and Reports on Form 8-K.............................. 18
Signatures............................................................... 20
Financial Statements..................................................... F-1
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FORM 10-KSB
This Annual Report 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 than 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 Incorporated by reference
in this Annual Report. Readers are cautioned not to place undue reliance on the
Company's forward-looking statements, which speak only as of the date of this
Annual Report. The Company does not update its forward-looking statements.
Unless otherwise indicated, the information contained in this Annual Report has
been restated to give retroactive effect to 11-for-10 stock splits declared in
October 1997, November 1998 and October 1999. Unless the context otherwise
requires, references in this Annual Report to "Obie Media," the "Company," "we,"
"us" or "our" are to Obie Media Corporation and its subsidiaries. We have
derived some information in this Annual Report from government and industry
sources. Although we believe this information is reliable, we have not
independently verified it.
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PART I
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ITEM 1. DESCRIPTION OF BUSINESS
Company Overview
Obie Media Corporation is an out-of-home advertising company which markets
advertising space primarily on transit vehicles and outdoor advertising displays
(billboards and wallscapes). As of November 30, 1999, the Company had 43
exclusive agreements with transit districts in the United States and Canada to
operate transit advertising displays. The markets in which these transit
districts are located include eight of the 30 largest U.S. markets--Dallas;
Portland, Oregon; Cleveland; Sacramento; Hartford; Ft. Lauderdale; St. Louis;
and Cincinnati--and the third largest Canadian market, Vancouver, British
Columbia. Since our initial public offering ("IPO") in November 1996, the number
of vehicles on which we have the right to operate transit advertising displays
has increased from approximately 1,200 to over 8,000. We also operate and
generally own over 1,000 advertising displays on billboards and walls primarily
in Washington, Oregon, California, Montana, Wyoming and Idaho. The Company was
formed in 1987 as a subsidiary of Obie Industries Incorporated ("Obie
Industries"), a family-owned outdoor advertising business. To facilitate its
IPO, the Company was separated from Obie Industries in November 1996.
In September 1998, we acquired P & C Media ("P & C"), which has operated in the
out-of-home advertising industry for over 50 years. At the time of acquisition,
P & C had 19 agreements with transit districts, including districts located in
Hartford and Stamford, Connecticut; Fort Lauderdale and West Palm Beach,
Florida; Cincinnati and Cleveland, Ohio; Richmond, Virginia; and Milwaukee,
Wisconsin.
In August 1999, we completed the offering of an additional 1,100,000 shares of
our common stock to the public. The net proceeds of the offering, approximately
$9.7 million, were used to reduce debt, including the debt incurred in our
acquisition of P & C.
Industry Overview
The out-of-home advertising industry includes displays on buses, trains, taxis,
subways, transit benches and shelters, billboards, wallscapes on urban
buildings, and displays in shopping centers, malls, airports, stadiums, movie
theaters and supermarkets. The industry has grown significantly in recent years.
According to estimates of the Outdoor Advertising Association of America (the
"OAAA"), between 1993 and 1998, annual revenues generated by the out-of-home
advertising industry increased 49.2% to $4.4 billion from $2.95 billion,
representing a compound annual growth rate of 8.4%.
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The out-of-home medium offers several advantages to advertisers. As compared
with television, newspapers, magazines and direct mail marketing, out-of-home
advertising offers repetitive consumer impacts at a relatively low
cost-per-thousand-impressions, a commonly used advertising measurement. Because
of its cost-effective nature, out-of-home advertising is a good vehicle to build
mass-market support. Out-of-home advertising can also be used to target a
defined audience in a specific location. This allows local businesses to
concentrate on a particular geographic area or demographic group. Additionally,
increases in automobile travel times due to highway congestion and continued
migration of businesses and residences from cities to outlying suburbs has
increased consumer exposure to out-of-home advertising.
As of 1997, the OAAA estimated that there were approximately 396,000 outdoor
advertising displays in the United States, operated by more than 500 companies.
Transit advertising represents a significant portion of the out-of-home
advertising industry. According to estimates of the Federal Transit
Administration, in 1997, there were approximately 331 transit districts in the
United States operating over 40,000 transit buses. Transport Canada estimated
that approximately 13,000 urban transit vehicles were in use in Canada in 1996.
Transit districts range in size from very large districts with thousands of
vehicles to small districts with 10 or fewer vehicles. Advertising displays
represent a significant source of revenue to transit districts.
Agreements with transit districts are awarded through a competitive proposal
process. Each transit district evaluates proposals based on a number of
criteria, but primarily on the basis of the minimum amount that the bidder
guarantees to pay to the district. A transit agreement typically requires the
transit advertising operator to guarantee to pay the transit district the
greater of a minimum stated amount or a percentage (usually over 50%) of the
advertising revenues generated by the operator's use of the district's vehicles.
The out-of-home advertising industry includes several large advertising and
media companies with operations in multiple markets. It also includes many small
and local companies operating a limited number of displays in a single or a few
local markets. There has been, and we expect there will continue to be,
consolidation in the out-of-home advertising industry.
Obie Media Strategy
Obie Media's overall business strategy is to expand upon our national presence
to become a leader in the out-of-home advertising industry. Our strategy is to
increase our revenues and improve our profitability by delivering to local,
regional and national advertisers efficient access to one or multiple markets.
The following are components of our strategy:
o Develop Regional Operating Centers ("Hubs"). We seek to increase our
revenues, profitability and operating efficiencies through our development
and use of regional operating centers, or hubs. In developing hubs, we seek
to establish an initial base of operations in a geographic region by
obtaining exclusive agreements with one or more significant transit
districts. We then seek to expand our market presence by bidding for
contracts with other transit districts in the region and by expanding the
range of non-transit products and services we offer there. We believe our
hub strategy results in revenue growth and cost savings by enabling us to
efficiently provide sales and administrative services to several
intra-regional markets from one strategically located operating base.
o Obtain Additional Transit Advertising Agreements. We believe that, by
obtaining additional transit advertising agreements, we will increase our
operating efficiencies and geographic diversity and create additional bases
from which to achieve further market penetration. We expect increased
revenue and profitability from the additional transit agreements to occur
over time as we implement our direct sales and product strategies.
o Maintain a Large, Proactive Sales Force. We believe that our large,
proactive sales force that sells directly to local advertisers and, more
traditionally, to advertising agencies, enables us to increase display
occupancy levels and maximize our advertising rates. We believe our ratio
of sales personnel to display inventory is higher than the industry
average. We devote significant resources to recruit and train individuals
who will excel in our culture. The sales force is motivated by an
incentive-based compensation program and supported by a network of
experienced local managers who operate under a centrally coordinated
marketing plan. We believe the size, quality and motivation of our sales
force provide us a competitive advantage.
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o Increase Revenues From Existing Display Space. We seek to increase the
revenue potential of our available transit and outdoor advertising display
inventory by offering innovative transit products and increasing the
percentage of time our display space is occupied. Innovative transit
products we offer include vinyl displays that are physically larger than
traditional transit advertisements. These vinyl displays offer customers
greater impact while providing us more revenue from a given transit display
space. We seek to sell advertising on our transit and outdoor displays by
means of extended contracts, which enable us to fill display space that
would normally be vacant between traditional advertising campaigns.
o Selectively Pursue Acquisition Opportunities. We continuously evaluate
opportunities to enter new markets and increase our presence in existing
markets through the selective acquisition of out-of-home advertising
companies or assets. We intend to continue to focus our acquisition efforts
on expanding around our existing hubs and developing new hubs in regions
where attractive growth and consolidation opportunities exist.
o Increase Inventory of Outdoor Displays. We expect to increase our market
penetration by acquiring or building additional outdoor displays in new and
existing markets. We believe that the resulting increase in inventory will
provide advertisers a greater variety of display alternatives and leverage
our existing sales design and production capabilities.
o Expand Obie Media's National Sales Effort. To more effectively coordinate
and expand our sales efforts to national advertisers and national
advertising agencies, Obie Media has established national sales offices in
Los Angeles, Chicago and New York City. We believe that our further growth
and expansion into new markets will continue to increase our national
sales.
o Attract New Advertisers Through Direct Local Sales. By selling directly to
local businesses not represented by advertising agencies, we seek to obtain
a larger share of the overall advertising expenditures in our markets and
broaden our customer base for out-of-home advertising. We dedicate
substantial resources to directly target local businesses whose advertising
expenditures may not typically include out-of-home advertising and
introduce them to the benefits of the medium. We offer comprehensive sales,
marketing and creative services that make it easier for these potential
customers to purchase out-of-home advertising.
Products and Markets
Obie Media offers advertisers a wide range of out-of-home advertising products,
including transit advertising and outdoor advertising displays. Our product mix
provides advertisers with significant flexibility in their advertising programs
and allows us to cross-sell multiple products and leverage our design and
production capabilities. We have also benefited from improvements in production
technology, including the use of computerized design, vinyl advertising copy and
improved lighting techniques. These improvements have facilitated a more
dynamic, colorful and creative use of the out-of-home medium.
Transit Advertising. As of November 30, 1999, the Company had 43 exclusive
agreements with transit districts in the United States and Canada to operate
transit advertising displays on over 8,000 transit vehicles. The markets in
which these transit districts are located include eight of the 30 largest U.S.
markets--Dallas; Portland, Oregon; Cleveland; St. Louis; Sacramento; Hartford;
Ft. Lauderdale; and Cincinnati--and the third-largest Canadian market,
Vancouver, British Columbia.
Pursuant to our transit advertising agreements, Obie Media is the exclusive
seller of exterior advertising on the transit vehicles operated by the
contracting transit districts. Typically, these agreements also provide us the
right to sell advertising on the interior of the vehicles.
Agreements with transit districts are awarded through a competitive proposal
process. Each transit district evaluates proposals based on a number of
criteria, but primarily on the basis of the minimum amount that the bidder
guarantees to pay to the district. A transit agreement typically requires the
transit advertising operator to guarantee to pay the transit district the
greater of a minimum stated amount or a percentage (usually over 50%) of the
advertising revenues generated by the operator's use of the district's vehicles.
Transit advertising operators often must post performance bonds or letters of
credit to secure their guarantees under their transit agreements. Obie Media's
transit agreements typically have terms of three to
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five years, with renewals or extensions either unilaterally at the discretion of
the transit district or upon the mutual agreement of the district and Obie
Media.
We also sell advertising on over 700 transit benches in Portland, Oregon,
approximately 100 transit shelters in Cincinnati, over 300 benches in Fort
Worth, Texas and on approximately 22 walkway dioramas (a display similar to a
"cut-out" billboard) in Cleveland. We believe these products complement our
other product offerings and intend to secure additional shelters, dioramas and
transit benches in our markets.
Transit districts range in size from very large districts with thousands of
vehicles to small districts with 10 or fewer vehicles. Through our hub strategy
and proactive marketing to local advertisers, we are able to profitably offer
our services to both large and small transit districts. The following table sets
forth certain information about Obie Media's transit district agreements as of
November 30, 1999:
No. of Served
Transit District Agreements Vehicles Since
British Columbia
Vancouver 1,136 1998
Victoria and 27 smaller districts 380 1998
Ohio
Cleveland 833 1997 (2)
Cincinnati 385 1981 (2)
Texas
Dallas 809 1997
Austin 303 1998
Oregon
Portland 726 1994
Eugene and Springfield 102 1980 (1)
Salem 54 1994
Missouri
St. Louis 631 1999
Kansas City 280 1999
Wisconsin
Milwaukee 546 1992 (2)
Madison 150 1999
Racine 50 1997 (2)
Kenosha 42 1996 (2)
Connecticut
Hartford and Stamford 380 1996 (2)
Danbury 52 1999
Bridgeport 50 1981 (2)
New Britain 30 1981 (2)
Waterbury 25 1981 (2)
California
Sacramento 246 1994
Santa Cruz 112 1997
Stockton 111 1989
Paratransit, Inc. (Sacramento) 86 1997
Monterey 72 1995
Yolo County 29 1997
Florida
Ft. Lauderdale 202 1998 (2)
West Palm Beach 139 1998 (2)
Gainesville 50 1981 (2)
Daytona Beach 45 1981 (2)
Ontario, Canada
London 170 1999
St. Catharines 49 1999
Burlington 46 1999
Oshawa 41 1999
Cambridge 26 1999
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Niagara Falls 26 1999
Whitby 18 1999
Virginia
Richmond 170 1984 (2)
Danville 14 1998 (2)
Petersburg 12 1988 (2)
Washington
Spokane 133 1999
Bremerton 115 1996
Yakima 22 1999
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Total 8,898
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(1) This agreement was serviced by a division of Obie Industries (Obie
Media's parent corporation until 1996) prior to 1987, when Obie Media
was formed.
(2) These dates reflect periods of service under agreements with P & C,
which Obie Media acquired in September 1998.
The above transit district agreements are scheduled to expire as follows:
Approximate
Number of
Vehicles
Number of Covered Under
Agreements Agreements
Calendar Scheduled to Scheduled to
Year Expire(1) Expire (1)(2)
2000 6 1,200
2001 4 1,100
2002 7 2,100
2003 7 800
2004 11 1,900
2005 2 1,500
2006 and after 2 200
(1) In addition, four agreements covering a total of approximately 100
vehicles are awarded on a year-to-year basis. We have served each of
these four transit districts since the 1980s.
(2) Certain of our transit district agreements provide that they may be
renewed for additional one-year to five-year periods beyond the
specified expiration date, either unilaterally by the transit district
or by mutual agreement of Obie Media and the transit district. The
table above represents the last expiration date in the contract,
including extensions. Some of our transit district agreements provide
that the transit district may terminate the agreement before the end of
the specified term at the convenience of the transit district, or if
the transit district determines that such termination is in its best
interest or in the public interest.
Transit Display Products. We offer traditional and innovative non-traditional
transit advertising products. Traditionally, transit advertisements have been
inserted into metal frames mounted on the exterior or interior of a bus.
Industry standard sizes include "Kings," "Queens," "Tails" and "Heads." While
still offering traditional advertising products, we also offer vinyl displays
that cover almost the entire side and/or rear of a bus. These vinyl products
create significant additional revenue potential per bus when compared to
traditional products. We believe these products also give us a competitive
advantage in bidding for transit advertising agreements in districts that use or
are willing to use them.
Outdoor Advertising Displays. Obie Media owns and operates over 1,000 billboards
primarily in Washington, Oregon, California, Montana, Wyoming and Idaho.
Substantially all of our billboards are bulletins. We have no 30-sheet or
8-sheet poster units. Our bulletins are generally located on major thoroughfares
and provide greater impact and higher value than traditional posters.
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We lease the property underlying our billboards, generally under 10-year leases
that give us renewal rights for two additional five-year periods. The lessor
typically reserves the right to cancel the lease if construction of permanent
improvements on the subject property conflicts with the billboard.
Most of our billboards were designed and installed within the last nine years,
and most are built of steel and engineered to withstand high winds. More than
two-thirds of our billboards are illuminated. The displays are insured against
damage caused to them by storms, vandalism and other causes.
Obie Media also leases, from others, building walls in urban areas for wallscape
displays. Wallscapes are painted on vinyl surfaces or directly on the sides of
buildings. We currently lease 7 building walls for wallscape displays in Seattle
and own a 50% interest in a corporation that leases, from others, 19 building
walls for wallscape displays in Portland.
The following table gives the number of our outdoor displays at November 30,
1999:
Market Displays(1)
Washington 459
Oregon 157
California 87
Montana 212
Wyoming, Idaho and other 176
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Total 1,091
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(1) The number of displays listed includes approximately 200 displays, primarily
in Montana and Wyoming, purchased in a transaction which closed in January,
2000. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations-Recent Developments."
Sales and Service
In each of our principal markets, Obie Media maintains a large, high quality,
proactive sales force. We believe our ratio of sales personnel to display
inventory is higher than the industry average. At November 30, 1999, we had 112
sales and marketing employees. Our superior sales and service efforts are a key
element in maximizing our inventory occupancy levels.
We view our proactive sales efforts as an important part of our culture. In
hiring our sales force, we carefully screen applicants. We typically hire
college graduates who have demonstrated their suitability and aptitude to excel
in our unique sales environment. New sales employees undergo extensive training
and are supervised by regional sales managers with substantial advertising sales
experience. Obie Media and each of our sales representatives jointly establish
individual sales targets. We have monthly sales meetings with all our
salespeople to acknowledge and reward individuals who are meeting or exceeding
their targets. A sales representative's compensation depends significantly on
meeting or exceeding individual targets. Sales representatives also participate
in our broad-based stock option plan.
We are significantly expanding our national presence by growing in diverse
geographic areas. To complement our growth, we have added to our national sales
team working out of certain of our local offices by establishing national sales
and marketing offices in Los Angeles, Chicago and New York City. Our national
sales team services national advertising accounts, calls on customers in major
cities where we do not have sales offices and supports our sales force in local
markets.
We work directly with companies and advertising agencies in coordinating the
marketing, production and installation of advertising displays. Our sales
personnel also serve as customer service representatives, maintaining frequent
and regular contact with our advertising customers to resolve customer concerns
in the field. We believe that our high quality customer service contributes to
customer loyalty and improves renewal rates.
Out-of-home advertisements are traditionally sold for a few months at a time. To
increase occupancy, Obie Media employs several techniques to encourage customers
to commit to longer contracts, including offering incentives through our rate
structure and pricing policies. We sell certain innovative transit
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products primarily by means of year-long contracts. We also sell space on almost
all of our outdoor advertising displays by means of extended contracts, and
offer our outdoor display customers the opportunity to rotate their
advertisements among several display faces within the same market.
Design and Production
We maintain our own design and production facilities. We offer advertisers
customized design and production services as well as display space. Charges for
design and production are typically added to the cost of the space and billed to
customers over the life of the advertising contract. We believe that our design
and production capabilities give us a significant competitive advantage in
direct sales to advertisers and brings new customers to the out-of-home
advertising medium.
Obie Media's design and production services are used primarily by direct sales
customers that are not represented by advertising agencies. The design
department works with these advertisers and our sales representatives to create
advertising copy, design and layout.
We view transit advertising design and production as a distinct activity. We
attempt to achieve independent profitability in this operation. Customers that
are represented by advertising agencies generally arrange for the production of
their ads, with Obie Media providing installation services. We increasingly act
as a broker with respect to this production.
Customers
Obie Media maintains a broad base of local, regional and national advertising
customers. Most of our regional and national customers are represented by
advertising agencies. Customers represented by advertising agencies accounted
for approximately 66% of our gross revenues for fiscal 1999. Consistent with
standard industry practice, advertising agencies working with Obie Media
typically retain 15% of the gross advertising revenues from their accounts.
Advertising agencies generally create the artistic design and written content of
their customers' advertising. They plan and implement their customers' overall
advertising campaign, including the selection of advertising media. Obie Media's
sales personnel, including our national sales team, are trained to work closely
with advertising agencies to service the needs of these customers.
A key component of our sales and marketing strategy is the proactive marketing
of our services to local advertisers. Local advertisers tend to have smaller
advertising budgets and to require greater assistance from our production and
creative personnel to design and produce advertising copy. With respect to local
sales, we often expend significant sales efforts on educating potential
out-of-home advertising customers about the benefits of the medium and on
developing advertising strategies. While price and availability of display space
are important factors in local sales, service and customer relationships are
also critical. We believe that our strength in sales, design and service gives
us an advantage in local sales, and that our direct sales focus on local
companies significantly contributes to increased occupancy and renewal rates.
Further, we believe this focus is an important competitive advantage that
enables us to profitably serve small transit districts.
Competition
Obie Media's markets are highly competitive. In the transit advertising market,
we compete with other out-of-home advertising companies that submit proposals
for exclusive agreements with transit districts by means of a formal proposal
process. In the outdoor advertising display market, we compete with other
out-of-home advertising companies for customers. We also compete for customers
with other advertising media, including broadcast and cable television, radio,
print media, direct mail marketing and displays in shopping centers and malls,
airports, stadiums, movie theaters and supermarkets and on taxis, trains and
subways.
In recent years, there has been consolidation among our competitors, including
consolidation between out-of-home advertising companies and broadcast or other
media. For example, in May 1999, Infinity Broadcasting Corporation ("Infinity"),
a subsidiary of CBS Corporation and the sole shareholder of TDI Worldwide, Inc.
("TDI"), agreed to acquire Outdoor Systems, Inc., a leading company in the
outdoor advertising display market. Several of our competitors, including
diversified media companies such as Infinity, are substantially larger, better
capitalized, more widely known and have access to substantially
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greater resources than we do. These traits may provide competitive advantages,
particularly in large advertising markets.
Transit. The transit advertising market has historically been fragmented,
consisting of a few national transit advertising companies with operations in
multiple markets and numerous small companies operating under one or a few
agreements. In large advertising markets, Obie Media encounters direct
competition for transit agreements from major transit advertising companies such
as TDI, one of the largest transit advertising companies in the United States
and a dominant competitor in such markets. Competition among transit advertising
companies is primarily based on obtaining and retaining agreements with transit
districts. Agreements with transit districts are awarded primarily on the basis
of the minimum amount the bidder guarantees to the district. Other factors which
transit districts may consider in awarding agreements are the financial
resources of the bidder available to support its minimum revenue guarantee, the
bidder's business reputation and the soundness of the bidder's marketing plan.
The agreements generally give the operator the exclusive right to provide
transit advertising services within the transit district. The number and nature
of competitors for each agreement depend upon the desirability of the market,
including the number of vehicles operated by the transit district, and the size
and rank of the market.
Outdoor Advertising Displays. The outdoor advertising display market is also
fragmented. Several large outdoor advertising companies have operations in
multiple markets. Many more small companies operate a limited number of displays
in a single or a few local markets. Although some consolidation has occurred in
this segment of the out-of-home industry over the past few years, the OAAA
estimated that, as of 1997, there were approximately 396,000 outdoor displays in
the United States operated by more than 500 companies. The primary competitive
factors in the outdoor advertising display market are the location of a
company's displays and the price charged for their use.
Government Regulation
The government extensively regulates the outdoor advertising industry at the
federal, state and local levels. These laws and regulations limit the growth of
outdoor advertising companies and operate as a substantial barrier to entry in
the industry and, in limited circumstances, may restrict advertising content.
Construction of new outdoor structures has been substantially restricted to
commercial and industrial areas. Many jurisdictions also have restricted the
location, relocation, height and size of outdoor advertising structures. Some
jurisdictions also restrict the ability to enlarge or upgrade existing
structures, such as converting from wood to steel or from non-illuminated to
illuminated displays, and restrict the reconstruction of structures that are
substantially destroyed as a result of storms or other causes. Some
jurisdictions have enacted local laws and ordinances that prohibit wallscapes
and other outdoor advertising on urban buildings.
We believe our displays conform to current laws and regulations. When leasing
property for the installation of new outdoor advertising displays, we carefully
review applicable laws, including building, sign and zoning ordinances. Because
billboards are typically located adjacent to roads and highways, they are also
subject to removal through condemnation or other actions by governmental
entities in the event of road or highway improvement or expansion. While
compensation for such actions is generally available, under existing state and
local regulations, we may not be permitted to relocate any condemned displays.
In limited circumstances, governmental laws and regulations may also restrict
the content of outdoor advertising. For example, some states have banned all
outdoor advertising of tobacco products. In November 1998, 46 states signed a
settlement agreement with the four largest American tobacco companies. Among
other things, the agreement bans transit and outdoor advertising of the
companies' tobacco products in the 46 states. The U.S Congress has also
considered legislation that would severely restrict or ban such advertising.
The outdoor advertising industry is heavily regulated and existing or future
laws or regulations could adversely affect us. To date, our operations have not
been materially adversely affected by such laws and regulations.
Employees
At November 30, 1999, we had 205 full-time and 9 part-time employees, of whom
112 were primarily engaged in sales and marketing, 20 were engaged in art design
and production, 53 were engaged in installation, construction or maintenance of
transit or outdoor advertising displays, and 29 were employed
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in financial, administrative or similar capacities. None of our employees is
covered by collective bargaining agreements, except for 8 installers in
Portland, Oregon and 14 installers in British Columbia.
ITEM 2. DESCRIPTION OF PROPERTIES
Our headquarters are located in a 20,000 square foot facility in Eugene, Oregon.
The headquarters includes space for our centralized design and production
departments, as well as our accounting, credit, marketing and management
personnel. The headquarters is leased at market rates from Obie Industries, an
affiliate of Obie Media, pursuant to a lease under which Obie Media moved into
the facility and began paying rent in May 1997. Lease payments were
approximately $180,000 and $171,000 during fiscal 1999 and 1998, respectively.
Brian Obie, our Chairman of the Board, President and Chief Executive Officer, is
the President, a director and the controlling shareholder of Obie Industries.
Delores Mord, our Secretary and a director of Obie Media, is Vice President, a
director and a shareholder of Obie Industries.
We lease parcels of property beneath outdoor advertising structures. Our site
leases are generally for a term of ten years, with two five-year renewal options
at our discretion. We also lease local operating offices for sales, service and
installation in Spokane and Yakima, Washington; Portland and Salem, Oregon; Ft.
Lauderdale and Daytona Beach, Florida; Wallingford, Connecticut; Cleveland and
Cincinnati, Ohio; Langhorne, Pennsylvania; Dallas and Austin, Texas; Sacramento,
Monterey, Stockton and Santa Cruz, California; Richmond, Virginia; St. Louis and
Kansas City Missouri; Milwaukee and Madison, Wisconsin; Vancouver and Victoria,
British Columbia; and London, Richmond Hill, Burlington, and St. Catharines,
Ontario. We also lease national sales offices in Los Angeles, Chicago and New
York City. Total lease payments for the forgoing leases were approximately $1.3
million and $1.1 million for fiscal 1999 and 1998, respectively.
ITEM 3. LEGAL PROCEEDINGS
Heard Communications, Inc., doing business as Gateway Outdoor
Advertising ("Gateway"), 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),
has contested 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 administrative action commenced July 2, 1999, Gateway alleges
that the procurement process which awarded the contract to us was arbitrary and
capricious in part because Gateway's proposal guaranteed greater minimum revenue
to Bi-State over the term of the contract. Bi-State denied Gateway's protest by
letter dated July 19, 1999. Gateway filed a protest with Bi-State's Executive
Director requesting our contract with Bi-State be terminated and the bidding for
the contract be reopened. The Executive Director denied Gateway's protest.
Gateway then appealed the Executive Director's decision to the Federal Transit
Administration ("FTA"). The appeal to the FTA was denied.
In the judicial proceeding before the United States District Court for
the Eastern District of Missouri, Case No. 4:99-CV-1054-CAS, commenced June 30,
1999, Gateway challenges the award of the St. Louis contract to us and seeks a
declaratory judgment and an injunction prohibiting Bi-State and Obie from
performing under the contract. We have intervened in the proceeding as a
party-defendant. Gateway's challenge is based on its claim that its final bid
documents relating to the contract were mishandled prior to the award of the
contract as well as the grounds relied upon in the administrative proceeding.
The Court denied a motion by Gateway for a temporary restraining order which
would have delayed the award of the contract to us. The Court has allowed the
judicial proceeding to enter the "discovery" stage in order to fully develop an
administrative record for trial.
The judicial proceeding is currently in this "discovery" stage. Several
depositions of Bi-State officials have taken place. We intend to vigorously
defend against termination of our St. Louis contract.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
No matters were submitted to a vote of Obie Media's shareholders during the
fourth quarter of fiscal 1999.
10
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PART II
- -------
ITEM 5. MARKET FOR COMMON STOCK AND RELATED SHAREHOLDER MATTERS
Price Range of Common Stock
Since November 21, 1996, our Common Stock has been traded on the Nasdaq Market
under the symbol "OBIE." The following table presents the high and low bid
prices of our Common Stock as reported by The Nasdaq Stock Market, as adjusted
to give retroactive effect to 11-for-10 stock splits declared by Obie Media in
October 1997, November 1998 and October 1999:
Fiscal 1999 High Low
First Quarter .......................... $17.73 $11.82
Second Quarter ......................... 14.66 9.55
Third Quarter........................... 11.82 9.38
Fourth Quarter ......................... 10.75 8.58
Fiscal 1998 High Low
First Quarter .......................... $ 9.66 $8.18
Second Quarter ......................... 10.91 9.32
Third Quarter .......................... 15.00 9.32
Fourth Quarter ......................... 15.00 9.09
As of February 8, 2000, there were approximately 64 holders of record of the
Company's Common Stock. The Company believes the number of beneficial owners is
substantially greater than the number of record holders because a large portion
of the Company's outstanding Common Stock is held of record in "street name."
Dividends
The Company has not paid cash dividends on its Common Stock during the last two
fiscal years and does not anticipate doing so in the foreseeable future. The
Company plans to retain any future earnings to finance operations. In addition,
our credit agreements may limit our ability to pay dividends or make other
distributions on our Common Stock.
Recent Exempt Sales of Securities
Effective June 1, 1999, in connection with our lease of real property from
Robert Evanson, we issued to Mr. Evanson options to purchase 13,310 shares of
our common stock at an exercise price of $5.27 per share. All such options were
exercisable upon the effective date of their issuance. We did not register the
issuance of the options under the Securities Act in reliance upon the exemption
from registration contained in Section 4(2) thereof. The options are not
transferable without our consent.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
Obie Media is an out-of-home advertising company, which markets advertising
space primarily on transit vehicles and outdoor advertising displays (billboards
and wallscapes). As of November 30, 1999, we had 43 exclusive agreements with
transit districts in the United States and Canada to operate transit advertising
displays. Since our IPO in November 1996, the number of vehicles on which we
have the right to operate transit advertising displays has increased from
approximately 1,200 to over 8,000. We also operate and generally own over 1,000
advertising displays on billboards and walls primarily in Washington, Oregon,
Montana, Wyoming, California and Idaho.
Our gross revenues increased from $25.2 million in fiscal 1998 to $40.5 million
in fiscal 1999, representing an increase of 60.5%. EBITDA increased from $4.2
million to $5.8 million in the same period, representing an increase of 37.3%.
EBITDA (earnings before interest, taxes, depreciation and amortization) is
defined as operating income before depreciation and amortization expense.
Our significant growth since fiscal 1996 is primarily the result of: (i) growth
in our existing transit advertising business, primarily resulting from
agreements with additional transit districts; (ii) the acquisition of P & C on
September 1, 1998; and (iii) the development and acquisition of new outdoor
displays. As a result of these factors, our operating performance is not
necessarily comparable on a period-to-period basis. We plan to continue a
strategy of expanding through both internal growth and acquisitions.
Our operating results are affected by general economic conditions, as well as
trends in the advertising industry. Based on industry sources, in recent years
outdoor advertising expenditures in the United States have increased more
rapidly than total U.S. advertising expenditures. However, this trend may not
continue and future outdoor advertising expenditures may grow more slowly than
expenditures for the advertising industry as a whole.
Our gross revenues are derived from the sale of advertising on out-of-home
advertising displays, primarily on transit vehicles under our transit district
agreements and on outdoor advertising displays we own or operate. Gross revenues
are a function of both the occupancy of these display spaces and the rates we
charge. We focus our sales effort on maximizing occupancy levels while
maintaining rate integrity in our markets. Over the past several years, our
transit advertising operations have expanded more rapidly than our outdoor
advertising operations. Revenues from transit advertising sales, as a percentage
of gross revenues, increased from 77.0% in fiscal 1998 to 85.3% in fiscal 1999.
Increases in our gross revenues over the last two fiscal years are primarily the
result of the increased number of transit vehicles and outdoor displays on which
we market advertising space and, to a lesser extent, rate increases.
Net revenues represent gross revenues less agency commissions. Consistent with
standard industry practice, advertising agencies working with Obie Media
typically retain 15% of the gross advertising revenues from their accounts.
While advertising agencies purchase the majority of the out-of-home advertising
that we sell, we believe our focus on direct sales to accounts not served by
advertising agencies has resulted in Obie Media recognizing agency commissions
that, as a percentage of our aggregate gross revenues, are lower than the
industry average. Customers represented by advertising agencies currently
account for approximately 66% of our gross revenues. Agency commissions, as a
percentage of our gross revenues, have risen recently, in large part because we
have obtained new transit agreements in a number of districts where the previous
providers made substantially all sales through advertising agencies.
Direct advertising expenses consist primarily of occupancy, production and
installation, and sales costs. Occupancy expense primarily consists of two
elements: (i) payments to transit districts for the right to sell advertising
displayed on their vehicles; and (ii) lease payments to owners of property on
which our outdoor advertising structures are located. Under our transit
agreements, we typically guarantee to pay the transit district the greater of a
minimum stated amount or a percentage (usually over 50%) of the advertising
revenues generated by our use of the district's vehicles. Occupancy expense also
includes the cost of illuminating outdoor displays and property taxes on the
outdoor advertising structures. Production and installation expenses consist
primarily of the costs of producing, shipping and installing the advertising
displays. Sales expenses consist primarily of the cost of staffing our sales
force.
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General and administrative expenses include costs related to individual markets,
as well as corporate expenses. Expenses related to individual markets include
expenses for the personnel and facilities required to administer that and
neighboring markets. Corporate general and administrative expenses represent
personnel and facilities costs for our executive offices and centralized staff
functions. We believe that, although general and administrative expenses will
increase on an absolute dollar basis as our revenues increase, such expenses
will decline as a percentage of revenues.
Contract settlement represents the financial impact of the settlement reached
regarding the early termination of the Tri-Met contract. See the Notes to our
Consolidated Financial Statements and "Recent Developments."
Start-up costs are the costs we incur in pursuing new transit district
agreements and the costs of establishing a sales force and office in a new
market prior to beginning to operate under a new agreement. These costs consist
primarily of travel expenses, various personnel costs, legal fees and the costs
of preparing our proposals in response to transit district requests for
proposals. The amount of start-up costs we will incur in the future will vary,
both in total amount and as a percentage of revenues, depending on the number
and complexity of proposals for new districts and our success in obtaining new
contracts.
Recent Developments
Additional Transit Advertising Agreements. In fiscal 1999, we began operating
displays on approximately 1,500 additional vehicles and over 300 additional
benches, including St. Louis (approximately 630 vehicles; the former operator is
disputing the award of the St. Louis contract. See "Legal Proceedings") and
Kansas City (approximately 280 vehicles).
Outdoor Asset Acquisitions. In October 1999 and January 2000, we acquired the
outdoor assets of two Montana based companies. The acquisitions added over 300
displays to our outdoor display inventory, primarily in Montana and Wyoming. The
total purchase price was $4.0 million cash. We borrowed $4.0 million from our
lender to finance the transactions.
Early Termination of Transit Advertising Agreement for Portland, Oregon; Award
of New Contract. We began serving as the exclusive transit advertising provider
for the Tri-County Metropolitan Transit District, Tri-Met (Portland, Oregon) in
1994, pursuant to a five-year agreement. In 1996, Tri-Met extended its contract
with us through June 30, 2001. The 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 Obie
Media agreed to terminate our agreement with Tri-Met in 1999.
In December 1998, Tri-Met and Obie Media negotiated a settlement for damages
resulting from the early termination of the contract. Under the terms of the
settlement, Obie Media received cash payments and other financial benefits. The
settlement resulted in a pre-tax gain of $1.1 million during fiscal 1999. In
anticipation of the termination of our transit agreement, Tri-Met solicited
proposals for the operation of the Portland transit district by means of a
competitive proposal process. We were the successful proposer and, in September
of 1999, we began a new contract with Tri-Met.
Acquisition of P & C. In September 1998, we acquired P & C, which has operated
in the out-of-home advertising industry for over 50 years. At the time of
acquisition P & C had 19 agreements with transit districts covering
approximately 3,200 vehicles, including districts located in Hartford, Stamford
and New Haven, Connecticut; Fort Lauderdale and West Palm Beach, Florida;
Cincinnati and Cleveland, Ohio; Richmond, Virginia; and Milwaukee, Wisconsin.
Obie Media acquired P & C for an aggregate purchase price of $7.6 million in
cash, up to 151,250 shares of our common stock and options to purchase up to
163,350 additional shares of our common stock, of which $6.1 million and 60,500
shares were paid at closing, and options to purchase 30,250 shares were
exercisable on the closing date. Of the remaining $1.5 million of the cash
purchase price, $500,000 was paid on January 1, 2000 and the remainder will be
paid as follows; $500,000 on or before January 1, 2001, and $250,000 on or
before each of January 1, 2002 and 2003. The remaining 90,750 shares will be
issued depending on P & C's performance through November 30, 2001 and the
unvested options will become exercisable over 4 years, depending on Wayne
Schur's continued employment by us. We financed the acquisition of P & C from
borrowings and repaid those borrowings with a portion of the proceeds of our
August 1999 stock offering. See "Description of Business - Company Overview."
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The acquisition of P & C has been accounted for under the purchase method of
accounting, with Obie Media recording most of the purchase price as goodwill.
The amount of goodwill may increase in the future as additional stock options
vest and if additional shares are issued as a result of P & C's future
performance. Goodwill is being amortized over 15 years. The acquisition occurred
on September 1, 1998 and our financial statements do not include P & C
operations prior to that date.
Expansion into Canada. In August 1998, our wholly owned Canadian subsidiary,
Obie Media Limited, began operating transit advertising displays for BC Transit
on approximately 1,500 vehicles covering substantially all of the transit
districts in British Columbia, including Vancouver (Canada's third largest
market) and Victoria.
Operating Results
Comparison of Years Ended November 30, 1999 and 1998
The following table presents certain items from our consolidated statements of
income (and EBITDA) as a percentage of gross revenues.
<TABLE>
<CAPTION>
Year Ended
November 30,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Transit advertising revenue.................. 85.3 % 77.0 %
Outdoor advertising revenue.................. 14.7 23.0
-------- --------
Gross revenue................................ 100.0 100.0
Less agency commissions...................... 9.9 9.9
-------- --------
Net revenues................................. 90.1 90.1
Operating expenses:
Direct advertising expense............... 65.3 58.7
General and administrative............... 11.6 14.4
Start-up costs........................... 1.7 0.4
Contract settlement...................... (2.7) -
-------- --------
EBITDA....................................... 14.2 16.6
Depreciation and amortization................ 3.7 3.7
-------- --------
Operating income............................. 10.5 12.9
Interest expense............................. 2.3 3.1
-------- --------
Income before income taxes and extraordinary item 8.2 9.8
Provision for income taxes................... 3.2 3.8
-------- --------
Net income................................... 5.0 % 6.0 %
======== ========
</TABLE>
Revenues. Gross revenues increased $15.2 million, or 60.5%, from $25.2 million
in fiscal 1998 to $40.5 million in fiscal 1999. This increase was principally
due to transit advertising revenues associated with the operations of P & C
(which we acquired September 1, 1998), as well as the addition of new districts,
and transit districts operating less than a full year in 1998, primarily British
Columbia (which we began operating in August 1998). Transit revenues increased
$15.1 million, or 77.8%, from $19.4 million in fiscal 1998 to $34.5 million in
fiscal 1999, primarily due to the above factors. Outdoor advertising revenues
increased $146,000, or 2.5%, from $5.8 million in fiscal 1998 to $5.9 million in
fiscal 1999. Agency commissions increased $1.5 million, or 60.2%, from $2.5
million in fiscal 1998 to $4.0 million in fiscal 1999, primarily due to the
large proportion of existing agency business in our new markets. As a result of
the foregoing reasons, net revenues increased $13.7 million, or 60.4%, from
$22.7 million in fiscal 1998 to $36.5 million in fiscal 1999.
Direct Advertising Expenses. Direct advertising expenses increased $11.6
million, or 78.7%, from $14.8 million in fiscal 1998 to $26.4 million in fiscal
1999. This increase was primarily the result of activities required to support
our increased level of business. Direct advertising expenses increased, as a
percentage of gross revenues, from 58.7% in fiscal 1998 to 65.3% in fiscal 1999,
primarily due to the growth of the transit advertising business, where costs,
especially occupancy costs, are higher as a percentage of revenue, than in the
outdoor advertising business.
14
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General and Administrative Expenses. General and administrative expenses
increased $1.0 million, or 28.9%, from $3.6 million in fiscal 1998 to $4.7
million in fiscal 1999. The increase resulted primarily from increased costs of
administering new transit districts and districts which operated for less than
all of fiscal 1998. General and administrative expenses, as a percentage of
gross revenues, decreased from 14.4% in fiscal 1998 to 11.6% in fiscal 1999.
Contract Settlement. During 1999, we recognized a non-recurring pre-tax gain of
$1.1 million associated with our contract settlement with Tri-Met (See Note 11
to our Consolidated Financial Statements).
Start-Up Costs. Start-up costs increased $562,000, from $106,000 in fiscal 1998
to $668,000 in fiscal 1999, primarily due to our increased response to requests
for proposal for transit district contracts, our bidding on a greater number of
large district contracts, and the costs incurred in retaining the Portland
contract.
Depreciation and Amortization Expenses. Depreciation and amortization expenses
increased $577,000, or 61.7%, from $936,000 in fiscal 1998 to $1.5 million in
fiscal 1999, primarily due to our investment in equipment in new markets, our
upgrading of computer capabilities and adding outdoor displays in our existing
operations and the amortization of goodwill associated with the P & C
acquisition. Depreciation and amortization expenses are expected to increase in
fiscal 2000 primarily due to depreciation from our Montana acquisitions. See
"Recent Developments."
Operating Income. Due to the above factors, operating income increased $1.0
million, or 30.3%, from $3.3 million in fiscal 1998 to $4.2 million in fiscal
1999.
Interest Expense. Interest expense increased $166,000, or 21.4%, from $776,000
in fiscal 1998 to $942,000 in fiscal 1999, primarily due to the indebtedness
incurred in connection with the acquisition of P & C, offset by the reduction in
debt from the net proceeds of our August 1999 stock offering. See "Recent
Developments."
Provision for Income Taxes. Provision for income taxes increased $309,000, or
31.6%, from $978,000 for fiscal 1998 to $1.3 million in fiscal 1999, primarily
due to the increase in income before income taxes.
Net Income. As a result of the foregoing factors, net income increased $511,000,
or 34.1%, from $1.5 million for fiscal 1998 to $2.0 million for 1999.
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.
Liquidity and Capital Resources
We have historically satisfied our working capital requirements with cash from
operations and revolving credit borrowings. Our working capital at November 30,
1998 and 1999 was $1.0 million and $3.0 million, respectively. Acquisitions and
capital expenditures, primarily for the construction of new outdoor advertising
displays, have been financed primarily with borrowed funds. At November 30,
1999, Obie Media had outstanding borrowings of $ 9.2 million, of which $ 5.2
million was pursuant to long-term credit agreements, $1.5 million was pursuant
to the agreement to acquire P & C, and $ 2.5 million was pursuant to our
operating line of credit. Our indebtedness is collateralized by substantially
all of our assets (See Note 5 to our Consolidated Financial Statements). At
November 30, 1999, available borrowing capacity under the line of credit, based
on collateralized accounts, was $1.5 million.
15
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Obie Media's net cash provided by operations was $ 1.8 million and $ 251,000 in
fiscal 1998 and 1999, respectively. The decrease was primarily due to decreases
in accrued expenses and increased accounts receivable and prepaid production
expenses, offset in part by an increase in net income and depreciation and
amortization.
Net cash used in investing activities was $ 8.0 million and $ 3.3 million in
fiscal 1998 and 1999, respectively. The decrease from fiscal 1998 to fiscal 1999
was primarily due to the $6.3 million used in our 1998 acquisition of P & C.
Capital expenditures totaled $ 1.7 million and $ 3.2 million in fiscal 1998 and
1999, respectively. Capital expenditures consist primarily of the cost of
building and acquiring outdoor advertising displays. We anticipate that our
capital expenditures, exclusive of those related to an acquisition closed in
January 2000 (see "Recent Developments"), will approximate $2.5 million in
fiscal 2000.
Net cash provided by financing activities was $ 6.6 million and $ 2.7 million in
fiscal 1998 and 1999, respectively. Cash provided in fiscal 1999 was primarily
from the proceeds of our public stock offering completed in August 1999, net of
payments on long-term debt.
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 2000. Future
acquisitions by Obie Media, if any, may require additional debt or equity
financing.
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.
Prior to December 31, 1999, we completed an assessment of our internal technical
and non-technical systems to ascertain whether they were Year 2000 compliant. We
identified and replaced one information processing system that was not Year 2000
compliant. Following such assessment and system replacement, we believe that all
of our internal technical and non-technical systems are Year 2000 compliant.
To date, we have not, nor to our knowledge, has any third party transit
district, vendor or service provider significant to our operations, experienced
any material Year 2000 related problems. However, we cannot determine if we will
be subject to Year 2000 compliance problems in the future, particularly with
respect to February 29, 2000, or if Year 2000 problems have arisen that we have
failed to detect.
We will continuously monitor our systems to resolve any Year 2000 problems that
may arise in the future. We believe that our efforts to achieve Year 2000
compliance and the impact of the Year 2000 problem will not have a material
effect on our operations.
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.
New Accounting Pronouncements
New accounting pronouncements are discussed in Note 1 to our Consolidated
Financial Statements.
ITEM 7. FINANCIAL STATEMENTS
The financial statements and supplementary data required by this item are
included on pages F-1 to F-21 of this Annual Report.
16
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Information with respect to directors and executive officers is included under
"Election of Directors" and "Executive Officers" in the Company's definitive
proxy statement for its 2000 Annual Meeting of Shareholders to be filed not
later than 120 days after the end of the fiscal year covered by this Annual
Report, and such information is incorporated herein by reference.
Information with respect to Section 16(a) of the Securities Exchange Act is
included under "Compliance with Section 16(a) of the Securities Exchange Act" in
the Company's definitive proxy statement for its 2000 Annual Meeting of
Shareholders to be filed not later than 120 days after the end of the fiscal
year covered by this Annual Report, and such information is incorporated herein
by reference.
ITEM 10. EXECUTIVE COMPENSATION
Information with respect to executive compensation is included under "Executive
Compensation" in the Company's definitive proxy statement for its 2000 Annual
Meeting of Shareholders to be filed not later than 120 days after the end of the
fiscal year covered by this Annual Report, and such information is incorporated
herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to security ownership of certain beneficial owners and
management is included under "Principal Shareholders and Management Ownership"
in the Company's definitive proxy statement for its 2000 Annual Meeting of
Shareholders to be filed not later than 120 days after the end of the fiscal
year covered by this Annual Report, and such information is incorporated herein
by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to certain relationships and related party transactions
is included under "Certain Transactions" in the Company's definitive proxy
statement for its 2000 Annual Meeting of Shareholders to be filed not later than
120 days after the end of the fiscal year covered by this Annual Report, and
such information is incorporated herein by reference.
17
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a)(1) Financial Statements. The Financial Statements are listed in the Index
to Consolidated Financial Statements on page F-1 of this Annual Report.
(a)(2) Exhibits:
---------
Exhibit Description
- -------------------
3.1 Restated Articles of Incorporation, as amended (1)
3.2 Restated Bylaws, as amended (1)
4.1 See Articles 3, 4 and 8 of Exhibit 3.1 and Articles 1, 2, 5, 6 and 7 of
Exhibit 3.2
10.1* Restated 1996 Stock Incentive Plan (4)
10.2 Form of Indemnification Agreement between the Company and its directors
(4)
10.3 Form of Indemnification Agreement between the Company and its officers
(4)
10.4 Lease between Obie Industries Incorporated and the Company, dated
November 12, 1996 (1)
10.5 Amendment, dated July 15, 1997, to lease agreement between Obie
Industries Incorporated and the Company (2)
10.6 Restated and Amended Loan Agreement, dated as of September 1, 1998,
among the Company, Obie Media Limited, Philbin & Coine, Inc., and U.S.
Bank National Association, and related documents (4)
10.7 First Amendment, dated as of January 3, 2000, of Restated and Amended
Loan Agreement among the Company, Obie Media Limited, Philbin & Coine,
Inc., and U.S. Bank National Association.
10.8 Stock Purchase Agreement among Registrant and Philbin & Coine, Inc. and
Wayne P. Schur dated August 25, 1998 (3)
10.9* Employment Agreement, dated September 1, 1998, between the Company and
Wayne P. Schur (4)
10.10* Addendum, entered into September 1, 1999, to Employee Agreement between
the Company and Wayne P. Schur.
10.11* Non-Qualified Stock Option Agreement, dated September 1, 1998, between
the Company and Wayne P. Schur(4)
10.12 Settlement Offer Letter dated September 25, 1998 from Tri-County
Metropolitan Transportation District of Oregon to Registrant, signed by
the Registrant indicating acceptance (5)
20.1 Portions of the Definitive Proxy Statement for the 2000 Annual Meeting
of Shareholders to be held on April 21, 2000 (6)
21.1 List of Subsidiaries (4)
23.1 Consent of Arthur Andersen LLP, Independent Public Accountants
27.1 Financial Data Schedule
99.1 Safe Harbor for Forward-Looking Statements under Private Securities
Litigation Reform Act of 1995: Certain Cautionary Statements (4)
- ----------
*Management Contract or Compensatory Plan or Arrangement.
(1) Incorporated herein by reference from the Company's Registration
Statement on Form SB-2 (Registration No. 333-5728-LA), declared
effective on November 21, 1996.
(2) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended November 30, 1997 filed February 27, 1998.
(3) Incorporated by reference to the Company's Form 8-K filed September 14,
1998.
18
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(4) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended November 30, 1998 filed March 1, 1999.
(5) Incorporated by reference to the Company's Registration Statement on
Form S-1 (Registration No. 333-79367), declared effective on August 10,
1999.
(6) To be filed with the Securities and Exchange Commission within 120 days
after the end of the fiscal year covered by this report.
Upon written request to Brian B. Obie, CEO and President of Obie Media
Corporation, 4211 West 11th Avenue, Eugene, OR 97402, shareholders will be
furnished a copy of any exhibit, upon payment of $.25 per page, which represents
the Company's reasonable expense in furnishing the exhibit requested.
(b) Reports on Form 8-K. Obie Media filed no reports on Form 8-K during the
fourth quarter of fiscal 1999.
19
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
OBIE MEDIA CORPORATION
Dated: February 28, 2000 By/s/Brian B. Obie
----------------------------------
Brian B. Obie, Chairman, President
and Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
PRINCIPAL EXECUTIVE OFFICER AND
DIRECTOR:
Dated: February 28, 2000 By/s/Brian B. Obie
----------------------------------
Brian B. Obie, Chairman, President
and Chief Executive Officer
PRINCIPAL FINANCIAL AND ACCOUNTING
OFFICER:
Dated: February 28, 2000 By/s/Michael E. Hubbard
----------------------------------
Michael E. Hubbard,
Corporate Controller
DIRECTORS:
Dated: February 28, 2000 By/s/Delores M. Mord
----------------------------------
Delores M. Mord, Director
Dated: February 28, 2000 By/s/Randall C. Pape'
----------------------------------
Randall C. Pape', Director
Dated: February 28, 2000 By/s/Stephen A. Wendell
----------------------------------
Stephen A. Wendell, Director
Dated: February 28, 2000 By/s/Richard C. Williams
----------------------------------
Richard C. Williams, Director
Dated: February 28, 2000 By/s/Wayne P. Schur
----------------------------------
Wayne P. Schur, Director
20
<PAGE>
EXHIBIT INDEX
Exhibit*
- -------
10.7 First Amendment, dated as of January 3, 2000, of Restated and Amended
Loan Agreement among the Company, Obie Media Limited, Philbin & Coine,
Inc., and U.S. Bank National Association.
10.10 Addendum, entered into September 1, 1999, to Employee Agreement between
the Company and Wayne P. Schur.
23.1 Consent of Arthur Andersen LLP, Independent Public Accountants
27.1 Financial Data Schedule
- --------------
* See Item 13(a)(2) of this Annual Report for a list of all exhibits, including
those incorporated by reference.
21
<PAGE>
OBIE MEDIA CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants F-2
Consolidated Balance Sheet as of November 30, 1999 and 1998 F-3
Consolidated Statements of Income for the years ended
November 30, 1999 and 1998 F-4
Consolidated Statements of Changes in Shareholders'Equity
(Deficit) for the years ended November 30, 1999 and 1998 F-5
Consolidated Statements of Cash Flows for the years ended
November 30, 1999 and 1998 F-6
Notes to Consolidated Financial Statements F-8
<PAGE>
Report of Independent Public Accountants
To the Board of Directors and Shareholders
of Obie Media Corporation:
We have audited the accompanying consolidated balance sheets of Obie Media
Corporation (an Oregon corporation) and subsidiaries as of November 30, 1999 and
1998, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the two years in the period
ended November 30, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Obie Media Corporation and
subsidiaries as of November 30, 1999 and 1998, and the results of their
operations and their cash flows for each of the two years in the period ended
November 30, 1999 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
/s/Arthur Andersen LLP
Portland, Oregon
February 16, 2000
F-2
<PAGE>
OBIE MEDIA CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF NOVEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
ASSETS
------ 1999 1998
----------- -------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 34,224 $ 326,140
Accounts receivable, net of allowance for doubtful
accounts of $359,850 and $291,938, respectively 8,715,044 6,719,218
Prepaid expenses and other current assets 2,134,137 1,156,061
Deferred income taxes 959,427 758,832
----------- -----------
Total current assets 11,842,832 8,960,251
PROPERTY AND EQUIPMENT, net 12,837,224 10,493,174
OTHER ASSETS:
Goodwill, net 7,183,581 7,696,394
Other assets, net 336,464 497,512
----------- -----------
$32,200,101 $27,647,331
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,743,718 $ 1,511,276
Line of credit 2,505,534 1,414,877
Accounts payable 999,894 780,268
Accrued expenses 1,581,257 2,674,287
Income taxes payable 443,916 299,090
Deferred revenue 1,610,855 1,247,470
----------- -----------
Total current liabilities 8,885,174 7,927,268
DEFERRED INCOME TAXES 995,407 783,502
LONG-TERM DEBT, less current portion 4,919,353 13,354,395
----------- -----------
Total liabilities 14,799,934 22,065,165
MINORITY INTEREST IN SUBSIDIARY 35,424 35,424
COMMITMENTS (Note 8)
SHAREHOLDERS' EQUITY:
Preferred stock, without par value, 10,000,000 shares
authorized, no shares issued and outstanding - -
Common stock, without par value; 20,000,000 shares
authorized, 5,855,244 and 4,747,833 shares
issued and outstanding, respectively 16,657,650 6,851,053
Options issued for common stock 211,763 211,763
Foreign currency translation (993) -
Retained earnings (accumulated deficit) 496,323 (1,516,074)
----------- -----------
Total shareholders' equity 17,364,743 5,546,742
----------- -----------
$32,200,101 $27,647,331
=========== ===========
The accompanying notes are an integral part of these consolidated balance sheets.
</TABLE>
F-3
<PAGE>
OBIE MEDIA CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED NOVEMBER 30, 1999 AND 1998
1999 1998
----------- -----------
REVENUES:
Outdoor advertising $ 5,942,294 $ 5,796,230
Transit advertising 34,523,332 19,421,970
----------- -----------
Gross revenues 40,465,626 25,218,200
Less- Agency commissions (4,005,600) (2,500,455)
----------- -----------
Net revenues 36,460,026 22,717,745
OPERATING EXPENSES:
Direct advertising expenses 26,438,100 14,792,952
General and administrative 4,676,977 3,628,028
Depreciation and amortization 1,512,890 935,545
Start-up costs 668,200 106,375
Contract settlement (1,077,469) -
----------- -----------
Operating income 4,241,328 3,254,845
INTEREST EXPENSE 942,316 776,001
----------- -----------
INCOME BEFORE INCOME TAXES 3,299,012 2,478,844
PROVISION FOR INCOME TAXES 1,286,615 977,665
----------- -----------
NET INCOME $ 2,012,397 $ 1,501,179
=========== ===========
BASIC NET INCOME PER SHARE $ .40 $ .32
=========== ===========
DILUTED NET INCOME PER SHARE $ .39 $ .32
=========== ===========
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
OBIE MEDIA CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED NOVEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
Options Cumulative Retained
Issued for Other Earnings
Common Comprehensive (Accumulated
Shares Amount Stock Loss Deficit) Total
--------- ----------- -------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, November 30, 1997 4,665,137 $ 6,173,967 $ - $ - $(2,378,073) $ 3,795,894
Issuance of common stock for benefit
plan and stock option exercises 22,196 127,788 - - - 127,788
Issuance of common stock for the
acquisition of business 60,500 512,500 - - - 512,500
Purchase of property from related party
in excess of net book value - - - - (639,180) (639,180)
Options issued for common stock for the
acquisition of business - - 211,763 - - 211,763
Income tax benefit of nonqualified
stock option exercises - 36,798 - - - 36,798
Net income - - - - 1,501,179 1,501,179
--------- ----------- -------- ----- ----------- -----------
BALANCE, November 30, 1998 4,747,833 6,851,053 211,763 - (1,516,074) 5,546,742
Issuance of common stock for benefit
plan and stock option exercises 7,433 102,149 - - - 102,149
Issuance of common stock for public
offering, net of expenses 1,100,000 9,704,745 - - - 9,704,745
Purchase of fractional shares (22) (297) - - - (297)
Foreign currency translation - - - (993) - (993)
Net income - - - - 2,012,397 2,012,397
--------- ----------- -------- ----- ----------- -----------
BALANCE, November 30, 1999 5,855,244 $16,657,650 $211,763 $(993) $ 496,323 $17,364,743
========= =========== ======== ===== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
OBIE MEDIA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,012,397 $ 1,501,179
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation and amortization 1,512,890 935,545
Contract settlement (527,469) -
Deferred income taxes 11,310 499,359
Change in assets and liabilities net of effect
of acquisition:
(Increase) decrease in-
Accounts receivable (1,995,826) (2,759,773)
Prepaid expenses and other assets (967,558) (231,977)
Increase (decrease) in-
Accounts payable 219,626 337,735
Accrued expenses (522,778) 927,378
Income taxes payable 144,826 335,888
Deferred revenue 363,385 230,859
----------- -----------
Net cash provided by operating activities 250,803 1,776,193
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,196,166) (1,679,981)
Acquisition of business, net of cash required - (6,288,846)
Other investing activities (69,219) (36,259)
----------- -----------
Net cash used in investing activities (3,265,385) (8,005,086)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock for offering 11,000,000 -
Costs to issue common stock (1,077,243) (43,012)
Proceeds from issuance of common stock for options 16,221 55,885
Net borrowings (payments) on lines of credit 1,090,657 672,013
Checks outstanding in excess of cash deposits - (173,611)
Proceeds from long-term debt - 7,000,000
Net payments on long-term debt (8,298,600) (886,871)
Payments of debt issuance costs (7,079) (69,371)
Other financing activities (297) -
----------- -----------
Net cash provided by financing activities 2,723,659 6,555,033
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (993) -
----------- -----------
NET INCREASE (DECREASE) IN CASH (291,916) 326,140
CASH, beginning of period 326,140 -
----------- -----------
CASH, end of period $ 34,224 $ 326,140
=========== ===========
(Continued)
F-6
<PAGE>
OBIE MEDIA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 30, 1999 AND 1998
(Continued)
1999 1998
----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Issuance of stock to employee benefit plan 85,928 $ 71,903
Note payable issued to acquire outdoor advertising
structures 96,000 698,000
Issuance of common stock and stock options for the
acquisition of business - 724,263
Issuance of note payable for the acquisition of
business - 1,500,000
Costs associated with financing activities 175,000 131,855
Income tax benefit of nonqualified stock option
exercises - 36,798
Interest capitalized 14,886 14,104
CASH PAID FOR INTEREST 921,998 850,626
CASH PAID FOR TAXES 1,130,479 138,216
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE>
OBIE MEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1999 AND 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------------------
Company
- -------
Obie Media Corporation (the Company) is a full service out-of-home advertising
company which markets advertising space primarily on transit vehicles and
outdoor advertising displays (billboards and wallscapes). At November 30, 1999,
the Company had 43 exclusive agreements with transit districts in the United
States and Canada to operate transit advertising displays. These transit
districts are located in, among other advertising markets: Dallas; Portland,
Oregon; Cleveland; Sacramento; Hartford; Ft. Lauderdale; Cincinnati, St. Louis
and Vancouver, British Columbia. The Company also operates and generally owns
advertising displays on billboards and walls primarily located in Washington,
Oregon, California, Montana and Idaho.
On August 16, 1999, the Company completed a secondary offering of 1,100,000
shares of its common stock, raising $9,704,745, net of expenses of $1,295,255.
The net proceeds were used to reduce previously outstanding debt.
Philbin & Coine, Inc. Acquisition
- ---------------------------------
On September 1, 1998, the Company acquired all of the outstanding stock of
Philbin & Coine, Inc., a New York corporation doing business as P&C Media (P&C)
in exchange for 60,500 newly issued shares of the Company's common stock valued
at $512,500, stock options for 30,250 shares of the Company's common stock
valued at $211,763 (Note 7), cash of approximately $6.1 million, a note for
$1,500,000 (Note 5) and incurred fees and expenses of $191,497. Additionally,
subject to certain performance contingencies in the purchase agreement, the
Company will be required to issue up to an additional 90,750 shares of the
Company's common stock to the former P&C shareholder in future years. The value
of any subsequently issued shares will be allocated to costs in excess of the
fair value of net assets acquired.
Included in accounts receivable in the accompanying balance sheets at November
30, 1999 and 1998 is a receivable from the former shareholder of P&C for
approximately $76,000, which relates to the acquisition of P&C.
The transaction has been accounted for as a purchase with the excess of the
purchase price over the fair value (which approximated historical carrying
value) of the net assets acquired allocated to goodwill. The operations of P&C
have been included in the accompanying financial statements since the date of
acquisition.
A summary of the net assets acquired follows:
Working capital $ 408,123
Property and equipment 273,564
Other assets 11,680
Intangibles 7,822,393
----------
$8,515,760
==========
F-8
<PAGE>
The following unaudited pro forma consolidated results of operations for the
year ended November 30, 1998, have been prepared as if the acquisition of P&C
had occurred as of the beginning of fiscal year 1998:
Net revenue $28,197,250
Operating income 2,847,366
Net income 1,054,648
Net income per share-
Basic $.22
Diluted $.22
These pro forma results are not necessarily indicative of what actually would
have occurred had the acquisition been completed as of the beginning of the
period presented, nor are they necessarily indicative of the results that will
be obtained in the future.
Basis of Presentation
- ---------------------
The consolidated financial statements include the Company, its wholly owned
subsidiary, Obie Media Limited, and its 50% owned subsidiary, OB Walls, Inc. All
significant intercompany accounts and transactions between the Company and its
subsidiaries have been eliminated in consolidation.
Foreign Currency Translation
- ----------------------------
The financial statements of the Company's foreign subsidiary, Obie Media
Limited, are translated into United States dollars using exchange rates at the
balance sheet date for assets and liabilities, and average exchange rates for
the period for revenues and expenses. The effect of the foreign currency
translation was insignificant for the years ended November 30, 1999 and 1998.
Use of Estimates
- ----------------
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
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. Actual results could differ from those estimates.
Revenue Recognition
- -------------------
The Company has contracts to provide future advertising to its customers.
Advertising revenue is recognized ratably over the period the advertising is
displayed. Payments received and amounts billed for advertising revenue in
advance of display are deferred. Costs incurred for the production and
installation of outdoor advertising displays, which are not specifically
recoverable in the event the related contract is canceled, are expensed as
incurred. Costs incurred for the production and installation of displays for
transit advertising, which are paid for by the customer ratably over the term of
the advertising contract and are specifically recoverable in the event the
related contract is canceled, are deferred and recognized as expense as the
related revenue is recognized over the life of respective contracts.
F-9
<PAGE>
Concentration of Credit Risk
- ----------------------------
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash and accounts receivable. The Company
places its cash with high credit quality financial institutions. Concentrations
of credit risk with respect to accounts receivable are not significant due to
the large number of customers, and their dispersion across different industries
and geographic areas.
At November 30, 1999, the Company had 43 agreements with transit districts.
Customers advertising on transit vehicles owned by seven of the transit
districts served by the Company: Dallas; Portland, Oregon; British Columbia;
Cleveland; Sacramento; Cincinnati and Milwaukee represented approximately 55.4%
of the Company's total net revenues for the year ended November 30, 1999. No
single advertising customer represented 10% or more of the Company's revenues
for any of the periods presented in the accompanying financial statements.
Transit agreements range from one to five years and are subject to renewal
either at the discretion of the transit district or upon the mutual agreement of
the Company and the transit district. Generally, these agreements require the
Company to pay the transit district the greater of a percentage of the related
advertising revenues, net of the advertising production charges, or a guaranteed
minimum amount (Notes 8 and 11).
Fair Value of Financial Instruments
- -----------------------------------
The Company's financial instruments consist of cash, accounts receivable,
accounts payable, accrued expenses and debt instruments. At November 30, 1999
and 1998, the fair value of the Company's financial instruments are estimated to
be equal to their reported carrying value. The carrying value of long-term debt
approximates fair value. The resulting estimates of fair value require
subjective judgments and are approximates. Changes in the methodologies and
assumptions could significantly affect the estimates.
Property and Equipment
- ----------------------
Property and equipment are stated at cost. Depreciation is provided on the
straight-line method over the estimated useful lives. Additions and
improvements, including interest incurred during construction, are capitalized.
Normal repairs and maintenance are expensed as incurred. The cost and
accumulated depreciation of assets sold or otherwise retired are removed from
the accounts and the resulting gain or loss is recognized. Interest expense
incurred is capitalized in connection with the construction of properties and
equipment.
Goodwill and Other Long-Lived Assets
- ------------------------------------
Goodwill resulting from the P&C acquisition is being amortized over 15 years
using the straight-line method and is net of accumulated amortization of
$651,416 and $126,000 at November 30, 1999 and 1998, respectively. Goodwill and
other long-lived assets are periodically evaluated when facts and circumstances
indicate that the value of such assets may be impaired. Evaluations are based on
undiscounted projected earnings. If the valuation indicates that undiscounted
earnings are insufficient to recover the recorded assets, then the projected
earnings are discounted to determine the revised carrying value and a write-down
for the difference is recorded.
Other assets include loan costs, which are stated at cost and amortized over the
life of the loan.
F-10
<PAGE>
Income Taxes
- ------------
The Company uses the liability method to record deferred tax assets and
liabilities that are based on the difference between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes. These
temporary differences result from the use of different accounting methods for
financial statement and tax reporting purposes.
Earnings Per Share
- ------------------
Basic earnings per share (EPS) and diluted EPS are computed using the methods
prescribed by Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings per Share." Basic 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. Such amounts have been retroactively adjusted to reflect the
11-for-10 stock split which occurred in November 1998 and the 11-for-10 stock
split which occurred in November 1999 (Note 7).
Following is a reconciliation of basic EPS and diluted EPS:
Year Ended November 30, 1999
-----------------------------------
Per Share
Income Shares Amount
---------- --------- ---------
Basic EPS-
Income available to common shareholders $2,012,397 5,089,486 $0.40
Effect of Dilutive Securities-
Stock options - 91,504
---------- ---------
Diluted EPS-
Income available to common shareholders $2,012,397 5,180,990 $0.39
========== =========
Year Ended November 30, 1998
-----------------------------------
Per Share
Income Shares Amount
---------- --------- ---------
Basic EPS-
Income available to common shareholders $1,501,179 4,689,659 $0.32
Effect of dilutive securities-
Stock options - 65,166
---------- ---------
Diluted EPS-
Income available to common shareholders $1,501,179 4,754,825 $0.32
========== =========
F-11
<PAGE>
Recent Accounting Pronouncements
- --------------------------------
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 of
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
does not materially differ from currently reported net income in the periods
presented.
Effective in its fiscal year ending November 30, 1999, the Company adopted
Statement of Financial Accounting Standards No. 131 "Disclosures about Segments
of an Enterprise and Related Information" (SFAS 131). SFAS 131 changes current
practice under SFAS 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. Based upon definitions contained within SFAS
131, the Company has determined that it operates in one segment.
In June 1998, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133), which establishes accounting and reporting standards for
all derivative instruments. SFAS 133 was to be effective for fiscal years
beginning after June 15, 1999. In June 1999, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 137 as an amendment
to SFAS 133 and deferred the effective date of SFAS 133 to fiscal years
beginning after June 15, 2000. The Company currently has no derivative
instruments and, therefore, the adoption of SFAS 133 is not expected to have an
impact on the Company's financial position or results of operations.
2. PREPAID EXPENSES AND OTHER CURRENT ASSETS:
------------------------------------------
Prepaid expenses and other current assets consist of the following:
November 30,
----------------------
1999 1998
---------- ----------
Prepaid leases $ 384,893 $ 379,435
Transit advertising production costs 1,041,430 500,297
Other 707,814 276,329
---------- ----------
$2,134,137 $1,156,061
========== ==========
F-12
<PAGE>
3. PROPERTY AND EQUIPMENT:
-----------------------
Property and equipment consist of the following:
November 30,
------------------------
1999 1998 Asset Lives
----------- ----------- -----------
Outdoor advertising structures $13,835,142 $11,281,887 20 years
Other equipment and leaseholds 4,173,827 3,434,153 5-20 years
----------- -----------
18,008,969 14,716,040
Less- Accumulated depreciation 5,171,745 4,222,866
----------- -----------
$12,837,224 $10,493,174
=========== ===========
4. ACCRUED EXPENSES:
-----------------
Accrued expenses consist of the following:
November 30,
----------------------
1999 1998
---------- ----------
Transit district fees $ 314,183 $1,890,581
Payroll and related items 592,788 403,073
Other 674,286 380,633
---------- ----------
$1,581,257 $2,674,287
========== ==========
F-13
<PAGE>
5. FINANCING ARRANGEMENTS:
-----------------------
Long-term debt consists of the following:
<TABLE>
<CAPTION>
November 30,
-----------------------------
1999 1998
---------- ----------
<S> <C> <C>
Term loan with U.S. Bank National Association (U.S. Bank),
payable in monthly installments, with interest to be
based, at the Company's option, partially at the London
Inter-Bank Offering rate (LIBOR) plus 2% (7.44375% at
November 30, 1999) and the remainder at U.S. Bank's
prime rate plus .5% (9.00% at November 30, 1999) the
loan is collateralized by substantially all of the
Company's assets. $4,500,000 $5,565,000
Note payable in annual payments of $12,000 plus interest
at 10%, repaid in October 1999 - 12,000
Note payable in monthly payments of $5,900 including
interest at 10%, repaid in April 1999 - 96,025
Note payable to U.S. Bank, as described below 575,071 664,762
Notes payable in monthly payments of $2,219 including
interest ranging from 9% to 9.98%, repaid in September
1999 - 27,884
Bridge loan with U.S. Bank, as described below - 7,000,000
Note payable to former shareholder of P&C in certain
installment payments plus interest at 6%, due January 1,
2003 (Note 1) 1,500,000 1,500,000
Note payable in monthly payments of $4,000 plus interest
at 8%, due September 2001 88,000 -
---------- -----------
6,663,071 14,865,671
Less- Current portion 1,743,718 1,511,276
---------- -----------
$4,919,353 $13,354,395
========== ===========
</TABLE>
The aggregate principal payments due on the above debt subsequent to November
30, 1999 are:
Fiscal Year Ending
November 30,
2000 $1,743,718
2001 1,743,718
2002 1,449,718
2003 1,449,708
2004 199,708
Thereafter 76,501
----------
$6,663,071
==========
F-14
<PAGE>
On August 1, 1998, the Company received a $698,000 loan from U.S. Bank, which
was used to pay a note due to an affiliated partnership (Note 8). The loan is
payable in monthly installments of $8,310 through July 15, 2005, with interest
to be based, at the Company's option, partially at LIBOR plus 2% (7.44375% at
November 30, 1999) and the remainder at U.S. Bank's prime rate plus .5% (9.0% at
November 30, 1999). The loan is collateralized by substantially all of the
Company's assets.
On September 1, 1998, the Company received a $7,000,000 bridge loan from U.S.
Bank, which was used to finance the Company's acquisition of P&C (Note 1) as
well as pay down certain indebtedness of P&C in connection with the acquisition.
The principal balance was repaid with the proceeds of the Company's secondary
offering, completed in August 1999.
The Company also has a $4,000,000 operating line of credit with U.S. Bank. The
interest rate is at U.S. Bank's prime rate (8.5% at November 30, 1999) and the
line is collateralized by receivables, equipment, inventory and contract rights.
The outstanding balance on this line of credit at November 30, 1999 and 1998,
was $2,505,534 and $1,414,877, respectively.
The Company was in compliance with all loan covenants at November 30, 1999.
6. INCOME TAXES:
-------------
For the year ended November 30, 1999, the provision for income taxes included a
current provision of $1,275,305 and a deferred provision of $11,310. For the
year ended November 30, 1998 the provision for income taxes included a current
provision of $478,306 and a deferred provision of $499,359.
The tax effects of temporary differences that give rise to deferred tax assets
and liabilities are as follows:
November 30,
----------------------------
1999 1998
---------- ---------
Current deferred tax assets:
Deferred revenue $ 851,800 $ 621,895
Prepaid commissions 234,215 224,560
Allowance for doubtful accounts 115,142 112,746
Accrued expenses and other 59,244 25,468
---------- ---------
Total current deferred tax assets 1,260,401 984,669
Current deferred tax liabilities:
Prepaid fees and other (300,974) (225,837)
---------- ---------
Net current deferred tax assets $ 959,427 $ 758,832
========== =========
Noncurrent deferred tax liabilities:
Property and equipment $ 995,407 $ 783,502
========== =========
F-15
<PAGE>
Income tax expense for the years ended November 30, 1999 and 1998 differs from
the amounts computed by applying the U.S. federal income tax rate of 34% to
pretax income, as follows:
Year Ended
November 30,
-------------------
1999 1998
----- ----
Statutory federal income tax rate 34.0% 34.0%
Increase in income taxes resulting from-
Foreign, State and local taxes, net of
federal income tax benefit 4.0 4.6
Other differences, net 1.0 0.8
---- -----
Actual income tax expense 39.0% 39.4%
==== =====
7. SHAREHOLDERS' EQUITY:
---------------------
The Company's Restated Articles of Incorporation authorize the issuance of up to
20,000,000 shares of common stock and 10,000,000 shares of preferred stock
issuable in series (Preferred Stock).
In November 1998, the Company declared an 11-for-10 stock split for shareholders
of record on November 21, 1998. In October 1999, the Company declared an
11-for-10 stock split for shareholders of record on November 22, 1999.
Preferred Stock
- ---------------
The Board of Directors is authorized, without further shareholder authorization,
to issue Preferred Stock in one or more series and to fix the terms and
provisions of each series, including dividend rights and preferences, conversion
rights, voting rights, redemption rights and rights on liquidation, including
preferences over common stock.
Common Stock
- ------------
Holders of common stock are entitled to one vote per share on all matters
requiring shareholder vote. Holders of common stock are entitled to receive
dividends when and as declared by the Board of Directors out of any funds
lawfully available therefor, and, in the event of liquidation or distribution of
assets, are entitled to participate ratably in the distribution of such assets
remaining after payment of liabilities, in each case subject to any preferential
rights granted to any series of Preferred Stock that may then be outstanding.
F-16
<PAGE>
Stock Options
- -------------
On September 1, 1998, the Company granted nonstatutory stock options to the
former shareholder of P&C, as part of the acquisition of P&C (Note 1),
exercisable for 151,250 shares of the Company's common stock. Additionally, as
part of the acquisition, the Company granted nonstatutory stock options to the
legal counsel of the P&C shareholder exercisable for 12,100 shares of the
Company's common stock. Of the 163,350 stock options granted, 30,250 were
exercisable on the date of grant at an exercise price of $7.20 per share, and
included in the purchase price for the acquisition of P&C (Note 1). The
remaining 121,000 options granted to the former shareholder of P&C are
exercisable in 30,250 increments on the annual anniversary dates of the
Company's employment agreement signed with the former P&C shareholder, subject
to certain provisions regarding the former P&C shareholder's employment with the
Company. These options will be recorded as additional goodwill once the
contingent provisions are met.
In addition, on October 2, 1996, the Company's Board of Directors and
shareholders adopted the 1996 Stock Incentive Plan (the Plan), which provides
for the issuance of up to 399,300 shares of common stock pursuant to Incentive
Stock Options (ISOs), Nonqualified Stock Options (NSOs), stock bonuses and stock
sales to employees, directors and consultants of the Company. ISOs may be issued
only to employees of the Company and will have a maximum term of ten years from
the date of grant. The exercise price for ISOs may not be less than 100% of the
fair market value of the common stock at the time of the grant, and the
aggregate fair market value (as determined at the time of the grant) of shares
issuable upon the exercise of ISOs for the first time in any one calendar year
by any one person may not exceed $100,000. In the case of ISOs granted to
holders of more than 10% of the voting power of the Company, the exercise price
may not be less than 110% of the fair market value of the common stock at the
time of the grant, and the term of the option may not exceed five years. NSOs
may be granted at not less than 85% of the fair market value of the common stock
at the date of grant. Options become exercisable in whole or in part from time
to time as determined by the Board of Directors' Compensation Committee, which
administers the Plan. Activity under the Plan is summarized as follows:
Weighted
Shares Shares Average
Available Subject to Exercise
for Grant Options Price
-------- -------- --------
BALANCES, November 30, 1997 224,274 175,027 $ 5.08
Options granted (79,365) 79,365 10.22
Options canceled 30,608 (30,608) 6.83
Options exercised - (13,709) 5.02
-------- --------
BALANCES, November 30, 1998 175,517 210,075 6.77
Options granted (106,281) 106,281 12.27
Options canceled 38,358 (38,358) 11.45
Options exercised - (1,629) 6.01
-------- --------
BALANCES, November 30, 1999 107,594 276,369 8.24
======== ========
F-17
<PAGE>
Statement of Financial Accounting Standards No. 123
- ---------------------------------------------------
During 1995, the Financial Accounting Standards Board issued SFAS 123, which
defines a fair value based method of accounting for employee stock options and
similar equity instruments and encourages all entities to adopt that method of
accounting for all of their employee stock compensation plans. However, it also
allows an entity to continue to measure compensation cost for those plans using
the method of accounting prescribed by APB 25. Entities electing to continue to
use the accounting treatment in APB 25 must make pro forma disclosures of net
income and, if presented, earnings per share, as if the fair value based method
of accounting defined in SFAS 123 had been adopted.
The Company has elected to account for its stock-based compensation plans under
APB 25; however, the Company has computed, for pro forma disclosure purposes,
the value of all options granted during the years ended November 30, 1999 and
1998, using the Black-Scholes option pricing model as prescribed by SFAS 123
using the following weighted average assumptions for grants:
Year Ended
November 30,
--------------------
1999 1998
------- -------
Risk-free interest rate 5.50% 6.00%
Expected dividend yield 0% 0%
Expected lives 6 years 6 years
Expected volatility 72.00% 53.11%
Using the Black-Scholes methodology, the total value of options granted during
the years ended November 30, 1999 and 1998, was $895,367 and $1,535,903,
respectively, which would be amortized on a pro forma basis over the vesting
period of the options (typically five years). The weighted average per share
fair value of options granted during the years ended November 30, 1999 and 1998,
was $8.42 and $7.66, respectively. If the Company had accounted for its
stock-based compensation plans in accordance with SFAS 123, the Company's net
income and net income per share would approximate the pro forma disclosures
below:
<TABLE>
<CAPTION>
Year Ended November 30,
--------------------------------------------------------------
1999 1998
--------------------------- ---------------------------
As As
Reported Pro Forma Reported Pro Forma
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income $2,012,397 $1,626,324 $1,501,179 $1,355,304
Basic net income per share $0.40 $0.32 $0.32 $0.30
Diluted net income per share $0.39 $0.32 $0.32 $0.30
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not indicative
of future amounts. SFAS 123 does not apply to awards prior to January 1, 1995,
and additional awards are anticipated in future years.
F-18
<PAGE>
The following table summarizes information about stock options outstanding at
November 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ----------------------------------------------------------- --------------------------
Weighted
Number Average Weighted Number Weighted
Range of Outstanding at Remaining Average Exercisable at Average
Exercise November 30, Contractual Exercise November 30, Exercise
Prices 1999 Life - Years Price 1999 Price
- --------------- -------------- ------------ -------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
$ 5.00 - 5.68 139,753 12.0 $ 5.08 80,391 $ 5.06
7.20 139,150 13.8 7.20 60,500 7.20
8.47 - 9.30 54,407 13.5 8.62 9,341 8.64
10.44 - 10.63 23,804 14.6 10.56 - -
11.57 - 12.60 29,173 13.6 11.66 5,615 11.63
13.53 53,432 14.1 13.63 - -
-------------- ------- ---- ------ ------- -------
$ 5.00 - 13.53 439,719 13.2 $ 7.95 155,847 $ 6.34
============== ======= ==== ====== ======= =======
</TABLE>
At November 30, 1998, 84,288 options were exercisable at a weighted average
exercise price of $5.82 per share.
8. COMMITMENTS AND CERTAIN RELATED PARTY TRANSACTIONS:
---------------------------------------------------
Transit Agreements
- ------------------
Certain transit agreements require the Company to remit to the transit district
the greater of a percentage of the related advertising revenues or a guaranteed
minimum amount. At November 30, 1999 future guaranteed minimum payments under
the transit agreements are as follows:
Fiscal Year Ending
November 30,
------------------
2000 $17,409,718
2001 17,169,432
2002 14,090,414
2003 8,926,526
2004 6,122,053
Thereafter 2,965,184
Operating Leases
- ----------------
The Company leased outdoor advertising structures from an affiliated
partnership. The lease agreement required monthly payments of a minimum base
rent plus additional rent equal to 5% of the gross revenues derived from
advertising displayed on the structures. Minimum base rent payments were $8,500
per month through December 1996, and increased to $9,000 per month for the
following calendar year. The lease expired December 31, 1997. Total lease
expense pursuant to this lease was $17,981 for the year ended November 30, 1998.
In December 1997, the Company exercised its option to purchase the property
discussed above at a purchase price of $698,000. In accordance with generally
accepted accounting principles, the Company recorded only the book value carried
on the books of the affiliated partnership at the date of purchase. The
difference between the net book value of these assets and the purchase price has
been recorded as a charge to the Company's accumulated deficit.
F-19
<PAGE>
The Company also rents office and production space from affiliates. Such rents
totaled $180,311 and $171,096 for the years ended November 30, 1999 and 1998,
respectively.
The Company leases parcels of property beneath outdoor advertising structures.
These leases are generally for a term of up to ten years, with two five-year
renewal options at the Company's discretion. The Company also leases facilities
for sales, service and installation for its operating offices. Total rent
expense pursuant to these leases was $1,338,141 and $1,073,074 for the years
ended November 30, 1999 and 1998, respectively.
At November 30, 1999, future minimum lease payments for all operating leases
described above are as follows:
Fiscal Year Ending
November 30,
------------------
2000 $1,493,986
2001 1,338,225
2002 1,129,168
2003 903,209
2004 790,392
Thereafter 878,492
9. EMPLOYEE BENEFIT PLAN:
----------------------
Substantially all of the Company's employees who have met vesting requirements
participate in a defined contribution benefit plan that provides for
discretionary annual contributions by the Company. During the years ended
November 30, 1999 and 1998, the Company accrued $100,000 and $86,304,
respectively, as contributions to the plan. In 1999, the Company paid the 1998
accrued contribution through a contribution of 5,643 shares of its common stock
to the Plan and the balance in cash. In 1998, the Company paid the 1997 accrued
contribution through a contribution of 8,486 shares of its common stock to the
Plan and the balance in cash.
10. GEOGRAPHIC INFORMATION:
-----------------------
For geographic information, revenues are allocated between the United States and
Canada, depending on whether the advertising contracts are to customers within
the United States or located outside the United States. Long-lived assets
outside the United States were immaterial for all periods presented.
Years Ended November 30,
------------------------------
1999 1998
----------- -----------
Canada $ 5,275,211 $ 1,518,643
United states 31,184,815 21,199,102
----------- -----------
$36,460,026 $22,717,745
=========== ===========
F-20
<PAGE>
11. CONTRACT SETTLEMENT:
--------------------
The Company had 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 agreed that the Company's
agreement with Tri-Met was to terminate on June 30, 1999 and in December 1998
entered into an agreement to compensate the Company for early termination of the
existing contract. The total amount of the contract settlement was $1,077,469
and is included as an offset in operating expenses in the accompanying
consolidated statements of income for the year ended November 30, 1999.
In anticipation of the termination of the Company's transit district agreement,
Tri-Met solicited proposals for the operation of the Portland transit district.
On August 2, 1999, Tri-Met announced its intention to award the new Portland
contract to the Company.
F-21
Exhibit 10.7
FIRST AMENDMENT OF LOAN AGREEMENT
PARTIES:
OBIE MEDIA CORPORATION, an Oregon corporation
OBIE MEDIA LTD., a British Columbia corporation
PHILBIN & COINE, INC., a New York corporation
U. S. BANK NATIONAL ASSOCIATION, a national banking association
RECITALS:
A. On September 1, 1998, the parties entered into a certain Restated
and Amended Loan Agreement (the Original Loan Agreement). Except as specifically
set forth in this amendment, all capitalized terms have the meanings assigned in
the Original Loan Agreement.
B. No Advances were ever made under the 1998/1999 Construction Loan,
and Borrower's right to request Advances under that Loan have expired. Borrower
has repaid the Bridge Loan in full with the proceeds of the Secondary Offering.
Because the Secondary Offering was successful, Term Loan B was never made by
Bank to Borrower.
C. Borrower desires to borrow from Bank, and Bank is prepared to lend
to Borrower, a new Loan in the amount of $4,000,000, on the terms and conditions
of this amendment.
AGREEMENTS:
1. DEFINITIONS.
0.1. DELETED DEFINITIONS. The following definitions are deleted from
the Original Loan Agreement: 1998/1999 Construction Loan, 1998/1999 Construction
Note, Bridge Loan, Bridge Note, Term Loan B and Term Note B.
0.2. REVISED DEFINITIONS. The following definitions in Paragraph 1.
of the Original Loan Agreement are revised to read as follows:
a. "Advance" means any one or more of the loans made by Bank to
Borrower pursuant to the Revolving Loan, Term Loan A, the MO Partners Loan or
Bridge Loan 2.
b. "Loan" means one or more of the Revolving Loan, Term Loan A,
the MO Partners Loan and Bridge Loan 2.
Page 1-FIRST AMENDMENT OF LOAN AGREEMENT
<PAGE>
c. "Note" means one or more of the Revolving Note, Term Note A,
the MO Partners Note and Bridge Note 2.
0.3. NEW DEFINITIONS. As used in the Agreement, the following terms
have the following meanings:
a. "Bridge Loan 2" means the Loan described in Paragraph 3. of this
amendment.
b. "Bridge Note 2" means any promissory note evidencing Bridge Loan
2, any promissory note substituted for one or more of them, and any document
evidencing a renewal, extension or modification of one or more of them.
1. TERMINATED LOANS. The following paragraphs of the Original Loan
Agreement are deleted in their entirety: Paragraph 4., 1998/1999 Construction
Loan; Paragraph 5., Conversion to Term Loan; Paragraph 7., Bridge Loan; and
Paragraph 8., Term Loan B. Borrower acknowledges that the termination of those
loans does not affect Bank's right to retain fees previously paid by Borrower
for those loans.
2. BRIDGE LOAN 2.
2.1. MAXIMUM AMOUNT. Subject to the terms and conditions of this
Agreement, Bank, at its option, may make Advances to Borrower from time to time
through January 15, 2000, in an aggregate principal amount not to exceed Four
Million Dollars ($4,000,000).
2.2. REQUESTS FOR ADVANCES. Whenever Borrower desires to request an
Advance, Borrower shall give Bank notice thereof in accordance with the Bridge
Note 2.
2.3. PURPOSE OF ADVANCES. Borrower shall use the proceeds of
Advances for the following purposes:
a. To purchase of approximately 200 billboards in Montana,
Wyoming, Nebraska, South Dakota and Idaho from JCW Corporation, for a purchase
price of approximately Two Million Four Hundred Twenty-Five Thousand Dollars
($2,425,000), of which One Hundred Thousand Dollars ($100,000) has already been
paid.
b. As a payment upon the Revolving Loan to repay an Advance
previously made to purchase approximately 117 billboards in Montana from Sign
Products, Inc., for a purchase price of approximately One Million Four Hundred
Fifty-Six Thousand Dollars ($1,456,000).
Page 2-FIRST AMENDMENT OF LOAN AGREEMENT
<PAGE>
c. The remaining balance of approximately One Hundred Nineteen
Thousand Dollars ($119,000) may be used by Borrower for working capital.
2.4. REPRESENTATION AND WARRANTY. Each request by Borrower for an
Advance shall be deemed to be Borrower's representation and warranty that no
Event of Default, or event which, with notice or lapse of time, or both, would
be an Event of Default, has occurred or will occur as a result of making the
Advance.
2.5. BRIDGE NOTE 2. Bridge Loan 2 shall be subject to all of the
terms and conditions of Bridge Note 2 and the Agreement.
2.6. PRIME AND/OR LIBOR BORROWING RATES.
a. LIBOR BORROWING RATE. Borrower may elect from time to time
to have portions of the Principal Balance of Bridge Loan 2 accrue interest at a
LIBOR Borrowing Rate on the terms and conditions of Paragraph 9 of the Original
Loan Agreement.
b. PRIME BORROWING RATE. Except for portions of the Principal
Balance of Bridge Loan 2 that are accruing interest at a LIBOR Borrowing Rate,
Borrower shall pay interest on the Principal Balance of Bridge Loan 2 at a
variable interest rate equal to the Prime Rate plus one-half of one percent
(0.5%). The interest rate shall be adjusted without notice effective on each day
the Prime Rate changes.
c. DEFAULT INTEREST RATE. Notwithstanding anything in the
Agreement to the contrary, upon the occurrence of an Event of Default, the Prime
Borrowing Rate Amount of Bridge Loan 2 shall thereafter accrue interest at a
variable interest rate equal to the Prime Rate plus five and one-half percent
(5.5%), and each outstanding LIBOR Borrowing Rate Amount shall accrue interest
at a LIBOR Borrowing Rate equal to the LIBOR Rate previously determined by Bank
for the LIBOR Borrowing Rate Amount plus seven percent (7%).
d. PAYMENT OF INTEREST. Borrower shall pay accrued interest on
the fifteenth (15th) day of the first calendar month following the first Advance
under Bridge Loan 2 and on the fifteenth (15th) day of every calendar month
thereafter prior to Maturity, and at Maturity. In addition, with respect to all
LIBOR Borrowing Rate Amounts, accrued interest shall be paid on the last day of
the applicable LIBOR Interest Period.
e. COMPUTATION OF INTEREST. All interest will be computed at
the applicable rate based on a three hundred sixty (360) day year and applied to
the actual number of days lapsed.
2.7. PAYMENT OF PRINCIPAL. The Principal Balance of Bridge Loan 2
shall be due and payable on July 3, 2000.
Page 3-FIRST AMENDMENT OF LOAN AGREEMENT
<PAGE>
2.8. PREPAYMENT. Subject to Paragraph 3.9 of this amendment,
prepayment may be made in whole or in part at any time. All prepayments shall be
applied first to the Prime Borrowing Rate Amount and then to any LIBOR Borrowing
Rate Amounts (in such order as Bank may determine in Bank's absolute
discretion), and then to accrued interest.
2.9. PREPAYMENT PREMIUM. Upon payment of all or any portion of
Bridge Loan 2 on a date other than the regularly scheduled due date for payment,
including, without limitation, voluntary prepayment or repayment upon
acceleration following an Event of Default, Borrower shall pay to Bank on
demand, with respect to all LIBOR Borrowing Rate Amounts, a yield maintenance
charge calculated in accordance with Exhibit A of the Original Loan Agreement.
2.10. FEE. Contemporaneously with the execution of this amendment,
Borrower shall pay to Bank a fee for Bridge Loan 2 in the amount of Ten Thousand
Dollars ($10,000).
3. CASH FLOW COVERAGE RATIO. For purposes of calculating the ratio of
Cash Flow to Cash Requirements pursuant to Paragraph 13.11 of the Original Loan
Agreement, it shall be assumed that the Principal Balance of Bridge Loan 2 is
payable in eighty-four (84) equal monthly installments of Forty Seven Thousand
Six Hundred Nineteen Dollars Five Cents ($47,619.05) each, with the first
monthly installment due and payable on February 15, 2000, and with an additional
monthly installment due on the 15th day of each month thereafter.
4. ADDITIONAL DOCUMENTS. Contemporaneously with the execution of this
amendment, Borrower shall deliver to Bank, in form and substance satisfactory to
Bank, the following:
4.1. Bridge Note 2.
4.2. Amendments of the Commercial Security Agreement and Stock
Pledge Agreement executed by Borrower contemporaneously with the Original Loan
Agreement.
4.3. A written opinion of Gleaves, Swearingen, Larsen, Potter,
Scott & Smith, LLP, counsel for Borrower, dated as of the date of this amendment
and addressed to Bank.
4.4. Any other documents that Bank may reasonably request.
5. REPRESENTATIONS AND WARRANTIES. To induce Bank to enter into this
amendment, Borrower and Guarantor represent and warrant to Bank that:
5.1. All representations and warranties of Borrower contained in the
Original Loan Agreement continue to be true and complete as of the date of this
amendment.
Page 4-FIRST AMENDMENT OF LOAN AGREEMENT
<PAGE>
5.2. No Event of Default has occurred or is continuing, and no event
has occurred and is continuing that, with the giving of notice or the passage of
time, or both, would be an Event of Default under the Agreement.
5.3. No material adverse change has occurred in the financial
condition or business of Borrower since the date of the Original Loan Agreement.
5.4. Borrower's execution, delivery and performance of this
amendment and all documents executed pursuant to this amendment have been duly
authorized by all necessary action, do not contravene any Law binding on it or
its organizational documents, and do not contravene the provisions of or
constitute a default under any agreement or instrument to which it is a party or
by which it may be bound or affected.
5.5. This amendment and all documents executed pursuant to this
amendment are, and when delivered will be, valid, binding and enforceable in
accordance with their respective terms.
6. COUNTERPARTS; EXECUTION BY FACSIMILE. This amendment may be executed
in several counterparts, each of which will be deemed to be an original and all
of which together constitute one and the same instrument. Delivery of an
executed copy of this amendment by telecopy, telex or other means of electronic
communication producing a printed copy will be deemed to be an execution and
delivery of this amendment on the date of such communication by the parties so
delivering such a copy. The party so delivering such a copy via electronic
communication shall deliver an executed original of this amendment to the other
party within one week of the date of delivery of the copy sent via electronic
communication.
7. EFFECT. Except as specifically modified by this amendment, or any
document executed pursuant to this amendment, the Loan Documents remain in full
force and effect.
Page 5-FIRST AMENDMENT OF LOAN AGREEMENT
<PAGE>
8. DISCLOSURE. UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND
COMMITMENTS MADE BY BANK AFTER OCTOBER 3, 1989, CONCERNING LOANS AND OTHER
CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR
SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS
CONSIDERATION AND BE SIGNED BY THE BANK TO BE ENFORCEABLE.
DATED as of January 3, 2000.
OBIE MEDIA CORPORATION PHILBIN & COINE, INC.
By: By:
------------------------------- -------------------------------
Brian Obie, President Wayne P. Schur, President
OBIE MEDIA LTD. U. S. BANK NATIONAL ASSOCIATION
By: By:
------------------------------- -------------------------------
Brian Obie, President Larry Johnson, Vice President
Page 6-FIRST AMENDMENT OF LOAN AGREEMENT
<PAGE>
FIRST AMENDMENT OF COMMERCIAL SECURITY AGREEMENT
PARTIES:
OBIE MEDIA CORPORATION, an Oregon corporation
OBIE MEDIA LTD., a British Columbia corporation
PHILBIN & COINE, INC., a New York corporation
U. S. BANK NATIONAL ASSOCIATION, a national banking association
RECITALS:
A. On September 1, 1998, the parties entered into a certain Commercial
Security Agreement (the Original Security Agreement). Except as specifically set
forth in this amendment, all capitalized terms have the meanings assigned in the
Original Security Agreement.
B. Contemporaneously with the execution of this amendment, the parties
are executing a first amendment of the Loan Agreement.
AGREEMENTS:
1. DEFINITIONS. The following definition in Paragraph 1 of the Original
Security Agreement is revised to read as follows:
"Note" means one or more of (a) the Revolving Note,
Term Note A, the MO Partners Note and Bridge Note 2 (as those
terms are defined in the Loan Agreement), (b) any other
promissory note now or hereafter delivered to Lender in
connection with the Loan Agreement, (c) any other promissory
note now or hereafter delivered to Lender in connection with
any other Indebtedness, (d) any promissory note substituted
for one or more of them, and (e) any document evidencing a
renewal, extension or modification of one or more of them.
2. COUNTERPARTS; EXECUTION BY FACSIMILE. This amendment may be executed
in several counterparts, each of which will be deemed to be an original and all
of which together constitute one and the same instrument. Delivery of an
executed copy of this amendment by telecopy, telex or other means of electronic
communication producing a printed copy will be deemed to be an execution and
delivery of this amendment on the date of such communication by the
Page 1-FIRST AMENDMENT OF COMMERCIAL SECURITY AGREEMENT
<PAGE>
parties so delivering such a copy. The party so delivering such a copy via
electronic communication shall deliver an executed original of this amendment to
the other party within one week of the date of delivery of the copy sent via
electronic communication.
3. EFFECT. Except as specifically modified by this amendment, the
Original Security Agreement remains in full force and effect.
DATED as of January 3, 2000.
OBIE MEDIA CORPORATION PHILBIN & COINE, INC.
By: By:
------------------------------- -------------------------------
Brian Obie, President Wayne P. Schur, President
OBIE MEDIA LTD. U. S. BANK NATIONAL ASSOCIATION
By: By:
------------------------------- -------------------------------
Brian Obie, President Larry Johnson, Vice President
Page 2-FIRST AMENDMENT OF COMMERCIAL SECURITY AGREEMENT
ADDENDUM TO EMPLOYMENT AGREEMENT
THIS ADDENDUM is made and entered into this 1 day of September, 1999,
between OBIE MEDIA CORPORATION, an Oregon Corporation (the "Company") and Wayne
P. Schur (the "Executive").
WHEREAS, the Company and Executive entered into an Employment Agreement
dated September 1, 1998;
WHEREAS, the Company and Executive desire to amend the Employment
Agreement; and
WHEREAS, Paragraph 12.3 provides for modification by writing duly
executed by the parties.
NOW, THEREFORE, in consideration of the mutual promises and conditions contained
herein and other good and valuable consideration, the Company and Executive
hereby agree to add the following provisions:
1. "Section 3.a Executive agrees to use his best efforts to promote the
interests of the company and to devote sixty percent (60%) of his
working time, attention and energies (three (3) days per week) to
performance of his duties under this Agreement effective September 1,
1999."
2. "Section 4.a Subject to Section 7 of this Agreement, the Company agrees
to pay a salary of $116,673 per year less any federal and state
withholding taxes or other employment taxes, payable in substantially
equal installments at the same intervals as other senior executives of
the Company are paid. The salary shall increase by $16,668 in each of
the third, fourth and fifth years of employment"
3. "Section 12.11 Notwithstanding anything herein to the contrary, Executive and
the Company upon their mutual agreement and in good faith may reinstate the
original terms of Sections 3 and 4 of the Employment Agreement."
<PAGE>
IN WITNESS WHEREOF, the parties have signed this Addendum on the date
first written above.
Attest: OBIE MEDIA COPRORATION
By: /s/
- --------------------------- ------------------
Secretary Brian Obie, President
/s/ (SEAL)
---------------------
Wayne P. Schur
Exhibit 23.1
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of our
reports included or incorporated by reference in this Form 10-KSB, into the
Company's previously filed Registration Statement No. 333-48447 on Form S-8.
ARTHUR ANDERSEN LLP
/s/Arthur Andersen LLP
Portland, Oregon
February 28, 2000
<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 annual
report on Form 10-KSB for the year ended November 30, 1999, and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
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0
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