<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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FOR THE QUARTERLY PERIOD ENDED COMMISSION FILE
NUMBER
MARCH 31, 2000 333-59137
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TRI-STATE OUTDOOR MEDIA GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
KANSAS 48-1061763
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3416 Highway 41 South
Tifton, GA 31793
(Address of Principal Executive Offices) (Zip Code)
800-732-8261
(Registrant's telephone number, including area code)
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Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 / /
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date. As of March 31, 2000,
there were issued and outstanding 200 shares of the registrant's Common Stock,
par value $10.00 per share.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE NO.
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<S> <C>
Item 1. Financial Statements (unaudited)
Balance Sheets at March 31,
2000 and December 31,1999................................. 1
Statements of Operations for the
Three Months ended March 31, 2000 and 1999 ........................ 2
Statements of Cash Flows for the Three Months
ended March 31, 2000 and 1999.......................... 3
Notes to the Financial Statements......................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 6
Item 3. Quantitative and Qualitative Disclosures About Market Risk ....... 8
PART II OTHER INFORMATION
Item 1. Legal Proceedings............................................ 8
Item 2. Changes in Securities and Use of Proceeds....................... 8
Item 3. Defaults upon Senior Securities................................. 8
Item 4. Submission of Matters to a Vote of Security Holders............. 8
Item 5. Other Information............................................... 8
Item 6. Exhibits and Reports on Form 8-K................................ 8
SIGNATURES............................................................. 9
Index to Exhibits......................................................... 10
</TABLE>
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRI-STATE OUTDOOR MEDIA GROUP, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
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(unaudited)
<S> <C> <C>
Current Assets
Cash $ 71 $ 155
Accounts receivable, net of allowance for doubtful
accounts 2000 $556; 1999 $533 4,034 4,020
Supplies 657 644
Prepaid production costs 520 557
Prepaid site leases, current portion 1,937 1,677
Prepaid commissions, current portion 609 641
Other current assets 409 342
--------- ---------
Total current assets 8,237 8,036
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Property and Equipment, net 71,441 70,486
Other Assets
Intangible assets, net 44,690 46,348
Prepaid site leases and commissions, long-term portion 733 691
Deferred taxes 6,200 6,200
Other 370 364
--------- ---------
51,993 53,603
--------- ---------
$ 131,671 $ 132,125
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Current portion of long-term debt $ 1,336 $ 1,601
Accounts payable 1,713 540
Accrued interest 4,275 1,534
Accrued expenses 106 282
Deferred revenue 300 310
Due to SGH Holdings, Inc. 106 212
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Total current liabilities 7,836 4,479
Long-Term Debt,
net of current portion 119,047 119,824
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Total liabilities 126,883 124,303
--------- ---------
Commitments and Contingencies
Stockholder's Equity
Common stock, par value, $10 per share; authorized 10,000
shares; issued and outstanding, 200 shares 2 2
Paid-in capital 33,841 33,841
Accumulated deficit (29,055) (26,021)
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4,788 7,822
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$ 131,671 $ 132,125
========= =========
</TABLE>
See Notes to Financial Statements.
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TRI-STATE OUTDOOR MEDIA GROUP, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE OR PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
---- ----
<S> <C> <C>
Net revenues $ 7,415 $ 6,388
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Operating expenses:
Direct operating expenses 2,692 2,239
General and administrative 1,270 1,073
Depreciation and amortization 3,163 2,231
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7,125 5,543
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Operating income 290 845
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Other income (expense):
Interest expense (3,341) (3,065)
Other income 17 100
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Total other income (expense) (3,324) (2,965)
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Loss before income tax benefit (3,034) (2,120)
Income tax benefit -- --
-------- --------
Net loss $ (3,034) $ (2,120)
======== ========
Basic loss per common share:
Net loss $(15,170) $(10,600)
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Weighted common shares outstanding 200 200
======== ========
</TABLE>
See Notes to Financial Statements.
<PAGE> 5
TRI-STATE OUTDOOR MEDIA GROUP, INC.
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31,
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(3,034) $(2,120)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 3,163 2,231
Accrued interest added to pledged securities -- (69)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (14) (456)
Supplies and prepaid production costs 24 51
Prepaid site leases (260) (199)
Prepaid commissions (10) (169)
Other assets (73) (132)
Increase (decrease) in:
Accounts payable 1,173 (728)
Accrued interest and accrued expenses 2,565 2,531
Deferred revenue (10) 45
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Net cash provided by operating
activities 3,524 985
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INVESTING ACTIVITIES
Purchase of property and equipment (2,452) (2,083)
Proceeds from sale-and-leaseback transaction -- 860
Other -- 60
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Net cash used in
investing activities (2,452) (1,163)
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FINANCING ACTIVITIES
Deferred issuance costs (8) --
Borrowings under long-term debt agreement -- 1,450
Proceeds from revolver borrowings 200 (188)
Payments on revolver borrowings (900) --
Principal payments on long-term debt (342) --
Decrease in due to SGH Holding, Inc. (106) --
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Net cash provided by (used in)
financing activities (1,156) 1,262
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Net increase(decrease) in cash (84) 1,084
CASH:
Beginning 155 73
------- -------
Ending $ 71 $ 1,157
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SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for interest $ 600 $ 328
======= =======
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Property and equipment acquired under capital leases $ -- $ 860
======= =======
</TABLE>
See Notes to Financial Statements.
<PAGE> 6
Notes to Financial Statements
(Unaudited)
NOTE 1
BASIS OF REPRESENTATION
The accompanying unaudited financial statements of Tri-State Outdoor Media
Group, Inc., (the "Company") have been prepared in conformity with generally
accepted accounting principles and with the instructions for Form 10-Q and Rule
10-01 of Regulation S-X as they apply to interim financial information.
Accordingly, they do not include all of the information and disclosures required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation of financial position
and results of operations have been included. The operating results for the
three month period ended March 31, 2000 are not necessarily indicative of the
results to be expected for the year ending December 31, 2000. Although the
Company believes that the disclosures are adequate to make the information
presented not misleading, these financial statements should be read in
conjunction with the financial statements for the fiscal year ended December 31,
1999 and notes thereto included in the Company's Report on Form 10-K for the
fiscal year ended December 31, 1999.
NOTE 2
FINANCINGS
The Company has $100 million aggregate principal 11% Notes (the
"Notes") outstanding. The Company entered into an amended and restated loan
agreement ("The Agreement") to the original credit agreement ("Credit
Agreement") with The First National Bank of Chicago originally dated September
20, 1998 on August 12, 1999. The Agreement consists of a term loan for $10
million and a revolving credit of $10 million of which $2 million is restricted
for payment of interest. The Agreement provides for no principal payment until
January 1, 2001.
Annual interest payments on the Notes are $11.0 million.
Substantially all of the Company's cash flow will have to be devoted to interest
payments on the Notes and to its credit facility. There can be no assurance that
the cash flow will be sufficient for such purpose, or if borrowings are
necessary, that the Company will be able to borrow funds sufficient for its
purposes. As of May 12, 2000, the Company had $14.3 million outstanding under
its credit facility. The Company anticipates borrowing $5.5 million against that
availability to pay interest on the Notes on May 15, 2000. Failure to make the
interest payments on the Senior Notes of the Credit Agreement would have a
material adverse effect on the Company.
NOTE 3
CONTRIBUTION AGREEMENT
In January 2000, SGH Holdings, Inc. ("SGH") entered into a definitive agreement
whereby it will acquire substantially all the interest in PNE Media Holdings,
Inc.("PNE Holdings"). The agreement has certain conditions precedent that must
be met for the transaction to close. There can be no assurance that these
conditions will be met and that the transaction will close. PNE Holdings owns
and operates approximately 7,700 outdoor advertising billboard faces primarily
in metropolitan markets in 14 states. PNE Holdings would be operated as a stand
alone subsidiary of SGH. SGH will continue to operate the Company as a stand
alone subsidiary. This transaction will not result in a "change of control"
under the public debt indenture governing the $100 million, 11% Notes due 2008
and such existing debt of the Company would remain outstanding.
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking
statements concerning, among other things, the Company's expected future
revenues, operations and expenditures, competitors or potential competitors,
acquisition activity, and the regulation of the outdoor advertising industry.
These forward-looking statements are identified by their use of terms and
phrases such as "anticipate," "believe," "could," "estimate," "expect,"
"intent," "may," "plan," "predict," "project," "will" and similar terms and
phrases, including references to assumptions. These statements are contained in
certain sections of this Quarterly Report and in the documents incorporated by
reference herein. These forward-looking statements represent the expectations of
the Company's management as of the filing date of this Report on Form 10-Q. The
Company's actual results could differ materially from those anticipated by the
forward-looking statements due to a number of factors, including (i) risks and
uncertainties relating to leverage; (ii) the need for additional funds; (iii)
the integration of companies acquired by the Company and the Company's ability
to recognize cost savings or operating efficiencies as a result of such
acquisitions; (iv) the continued popularity of outdoor advertising as an
advertising medium; (v) the regulation of the outdoor advertising industry and
(vi) the risks and uncertainties described under the caption "Factors Affecting
Future Operating Results" under Item 7. - Management's Discussion and Analysis
of Financial Condition and Results of Operations set forth in the Company's
Annual Report on Form 10-K for the year ended December 31, 1999.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 1999
Net revenues. Net revenues increased 16.1% to $7.4 million for the three months
ended March 31, 2000 from $6.4 million for the three months ended March 31,
1999. The assets acquired from PNE Media Holdings, LLC ("PNE"), completed in
October 1999 accounted for approximately $.5 million of the period-to-period
revenue growth.
Direct operating expenses. Direct operating expenses (which include sales, lease
and production expenses) increased 20.2% to $2.7 million for the first quarter
of 2000 from $2.2 million for the comparable period in 1999. Most of this
increase was the result of assets acquired. Sales expense increased as a
percentage of net revenues from 8.5% in the first quarter of 1999 to 9.9% in
2000. The Company has increased the quantity and quality of its sales force to
support future growth. Lease expense remained unchanged as a percentage of net
revenues in the first quarter of 1999 to 2000 at 14.9%. Production expense
decreased as a percentage of net revenues from 11.8% in the first quarter of
1999 to 11.5% in 2000, due to a shift in sales mix.
General and administrative expenses. General and administrative expenses
increased by 18.4% to $1.3 million for the quarter ended March 31, 2000 from
$1.1 million in 1999, an increase as a percentage of net revenues to 17.1% from
16.8% primarily due to increased compensation to market managers, professional
fees, and higher levels of travel.
Depreciation and amortization expense. Depreciation and amortization expense
increased to $3.2 million for the quarter ended March 31, 2000 from $2.2 million
in 1999. The increase is due primarily to the PNE assets acquired.
Interest expense. Interest expense increased to $3.3 million for the quarter
ended 2000 from $3.1 million for the comparable period in 1999. This increases
was due primarily to an increase in interest rates.
Income taxes. At December 31, 1999, the Company had net operating loss carry
forwards of approximately $34.6 million for federal and state income tax
purposes, which expire in varying amounts from 2009 through 2018.
<PAGE> 8
During the quarter ended March 31, 2000, the Company recorded a valuation
allowance of $1.1 million on deferred tax assets. At March 31, 2000, the total
valuation allowance recorded aggregated $6.5 million on deferred tax assets of
$12.7 million to reduce the total to an amount that management believes will
more likely than not be realized. Realization of deferred tax assets is
dependent upon sufficient future taxable income during the period that
deductible temporary differences and carry forwards are expected to be available
to reduce taxable income. If the Company is unable to generate sufficient
taxable income in the future, increases in the valuation allowance may be
required through a charge to income tax expense.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically satisfied its cash requirements with cash from
operations, revolving credit borrowings, other long-term debt financing, equity
financing and sales of assets. Its acquisitions have been financed primarily
with borrowed funds and equity financing.
On May 20, 1998, the Company sold $100 million in aggregate principal amount of
11% Notes, and received net proceeds, after underwriting discounts, of $95.3
million. The Company used a portion of the proceeds of the Notes to repay all
borrowings and accrued interest under its existing credit facility, which
totaled $57.4 million, whereupon that facility was terminated. The Company also
used the proceeds of the Notes to repay a $10.0 million loan, plus $232,000 of
accrued interest, from Holdings. Additionally, in conjunction with the sale of
the Notes, $16.1 million of subordinated intercompany promissory notes including
accrued interest of $3.2 million thereon due to Holdings were converted into
stockholder's equity.
On August 12, 1999, the Credit Agreement was amended to revise certain payment
dates and amounts, financial reporting requirements, restrictions on sale and
leaseback transactions, and financial covenants. As of March 31, 2000, the
Company had $16.4 million of borrowings outstanding under its credit facility.
The Company used the proceeds from the credit facility to pay a portion of the
acquisition of Western. On October 15, 1999, $19 million of debt was provided to
SGH Holdings, Inc. ("SGH"), the parent of the Company, which contributed
substantially all of the funds to the Company in the form of additional paid in
capital. As of May 12, 2000, the Company had $14.3 million outstanding under its
credit facility. The Company anticipates borrowing $5.5 million against that
availability to pay interest on the Notes on May 15, 2000.
Net cash provided in operating activities was $3.5 million for the first three
months of 2000 compared to net cash provided from operating activities of $1.0
million for the first three months of 1999. Net cash provided by operating
activities reflects the Company's net loss adjusted for non-cash items and net
changes in working capital components. The Company had a working capital of $.4
million as of March 31, 2000, compared to working capital of $3.6 million as of
December 31, 1999.
Annual interest payments on the Notes are $11.0 million. Substantially all of
the Company's cash flow will have to be devoted to interest payments on the
Notes and to its credit facility. There can be no assurance that the cash flow
will be sufficient for such purpose, or if borrowings are necessary, that the
Company will be able to borrow funds sufficient for its purposes. Failure to
make the interest payments on the Notes of the Credit Agreement would have a
material adverse effect on the Company.
<PAGE> 9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the Company's market risk
exposure from that reported in the Company's Annual Report on Form 10-K for the
year ended December 31, 1999 incorporated by reference herein.
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
A. Exhibits
27.1 Financial Data Schedule. Filed herewith.
B. Report on Form 8-K.
A report on form 8-K was filed on February 7, 2000
reporting the execution of a definitive agreement whereby SGH, the
parent of the Company, would acquire substantially all of PNE Media
Holdings, Inc subject to certain closing requirements.
<PAGE> 10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Tri-State Outdoor Media Group, Inc.
May 15, 2000 /s/ Sheldon G. Hurst
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Sheldon G. Hurst
Chief Executive Officer and Director
May 15, 2000 /s/ William G. McLendon
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William G. McLendon
Chief Financial Officer, Secretary, Director and
Principal Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001065983
<NAME> TRI-STATE OUTDOOR MEDIA GROUP, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 71
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