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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
September 30, 1999
AOA HOLDING LLC AND SUBSIDIARIES
(Exact name of registrant as specified in its charter)
Commission File No. 333-82145
Minnesota 36-4298658
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
--------------------
1380 West Paces Ferry Road, N.W.
Suite 170, South Wing
Atlanta, GA 30327
(Address of principal executive offices)
(404) 233-1366
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
None.
Securities Registered Pursuant to Section 12(g) of the Act:
10 3/8% Senior Notes Due 2006
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 NO X
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AOA HOLDING LLC AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page Number
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets of AOA Holding LLC and Subsidiaries
as of September 30, 1999 (unaudited) and December 31, 1998 ............................... 1
Consolidated Statements of Operations of AOA Holding LLC and
Subsidiaries for the quarters and nine months ended September 30, 1999
and 1998 (audited)........................................................................ 2
Consolidated Statement of Changes in Member's
Deficit of AOA Holding LLC and Subsidiaries
for the nine months ended September 30, 1999 (unaudited).................................. 3
Consolidated Statements of Cash Flows of AOA Holding LLC and
Subsidiaries for the nine months ended September 30, 1999
and 1998 (audited)........................................................................ 4
Notes to Interim Consolidated Financial Statements of
AOA Holding LLC and Subsidiaries (unaudited) ............................................. 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ...................................................... 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ........................................................................ 14
Item 2. Changes in Securities .................................................................... 14
Item 3. Defaults Upon Senior Securities .......................................................... 14
Item 4. Submission of Matters to a Vote of Security Holders ...................................... 14
Item 5. Other Information ........................................................................ 14
Item 6. Exhibits and Reports on Form 8-K ......................................................... 14
SIGNATURES ............................................................................................... 15
</TABLE>
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AOA HOLDING LLC AND SUBSIDIARIES (Note 3)
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30,
1999 December 31,
ASSETS (unaudited) 1998
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,369 $ 1,687
Investments 2,742 1,879
Accounts receivable, less allowance for doubtful
accounts of $1,136 and $648 at September 30, 1999
and December 31, 1998, respectively 9,985 8,424
Receivables from related parties 72 129
Inventories 63 69
Prepaid rent 3,221 2,826
Prepaid expenses 774 647
--------- --------
Total current assets 20,226 15,661
Property, plant and equipment, net 55,901 53,350
Intangible assets, net 9,865 9,108
Other assets 218 74
--------- --------
$ 86,210 $ 78,193
========= ========
LIABILITIES AND MEMBER'S DEFICIT
Current liabilities:
Accounts payable $ 625 $ 558
Interest payable 1,057 3,606
Accrued expenses and other liabilities 2,868 2,583
Deferred compensation 738 4,108
--------- --------
Total current liabilities 5,288 10,855
Long-term debt 176,297 132,728
Deferred compensation 5,163 4,057
--------- --------
Total liabilities 186,748 147,640
Commitments and contingencies (Note 4)
Member's deficit (100,538) (69,447)
--------- --------
$ 86,210 $ 78,193
========= ========
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
1
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AOA HOLDING LLC AND SUBSIDIARIES (Note 3)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Gross Revenues $ 20,226 $ 19,083 $ 56,152 $ 53,447
Less agency commissions 1,858 1,942 5,122 5,335
-------- -------- -------- --------
Net outdoor advertising revenue 18,368 17,141 51,030 48,112
Operating expenses:
Direct advertising expenses 8,499 8,226 24,774 23,593
Corporate general and administrative 946 1,067 2,244 3,177
Depreciation and amortization 1,466 2,084 5,231 6,217
Deferred compensation 360 203 1,230 533
-------- -------- -------- --------
Total operating expenses 11,271 11,580 33,479 33,520
-------- -------- -------- --------
Operating income 7,097 5,561 17,551 14,592
-------- -------- -------- --------
Other expenses (income):
Interest expense 4,581 3,568 12,001 10,859
Interest expense - related parties 0 1 0 15
Payments to Adams Partnership minority limited partners 0 0 2,500 0
Other expenses (income), net 4 (6) (10) 56
(Gain) loss on disposals of property, plant
and equipment, net (63) 81 (42) 100
-------- -------- -------- --------
Total other expenses 4,522 3,644 14,449 11,030
-------- -------- -------- --------
Income before extraordinary loss
on early extinguishment of debt 2,575 1,917 3,102 3,562
Extraordinary loss on early extinguishment of debt (194) (330) (194) (330)
-------- -------- -------- --------
Net income $ 2,381 $ 1,587 $ 2,908 $ 3,232
======== ======== ======== ========
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
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AOA HOLDING LLC AND SUBSIDIARIES (Note 3)
CONSOLIDATED STATEMENT OF CHANGES IN MEMBER'S DEFICIT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(Unaudited)
(Dollars in Thousands)
MEMBER'S
DEFICIT
---------
BALANCE, DECEMBER 31, 1998 $ (69,447)
NET INCOME 2,908
DISTRIBUTIONS (33,999)
---------
BALANCE, SEPTEMBER 30, 1999 $(100,538)
=========
See accompanying notes to unaudited interim consolidated financial statements.
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AOA HOLDING LLC AND SUBSIDIARIES (Note 3)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 2,908 $ 3,232
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation 4,559 5,587
Amortization of intangible assets 1,088 1,020
Deferred compensation expense 1,230 533
Payments of deferred compensation (4,044) (1,262)
Barter expense (income) 27 (40)
(Gain) loss on disposals of property, plant and
equipment, net (42) 100
Purchases of investments (598) (95)
Extraordinary loss 194 330
Changes in assets and liabilities:
Accounts receivable, net (1,504) (1,841)
Inventories 6 20
Prepaid rent and other prepaid expenses (522) (310)
Other assets (144) 223
Accounts payable and accrued expenses 527 83
Interest payable (2,549) (3,157)
Other liabilities - long term -- --
-------- --------
Net cash provided by operating activities 1,136 4,423
Cash flows from investing activities:
Additions to property, plant and equipment (7,055) (8,191)
Proceeds from sale of property, plant
and equipment 71 343
-------- --------
Net cash used in investing activities (6,984) (7,848)
Cash flows from financing activities:
Debt financing costs (1,846) (68)
Payments on revolving line of credit (27,119) (15,944)
Advances on revolving line of credit 20,688 19,910
Premium on Senior Notes redemption (194) (198)
Proceeds from long-term debt 50,000 --
Distributions to partners (33,999) (546)
-------- --------
Net cash provided by financing activities 7,530 3,154
-------- --------
Net increase (decrease) in cash and cash equivalents 1,682 (271)
Cash and cash equivalents at beginning of period 1,687 3,121
-------- --------
Cash and cash equivalents at end of period $ 3,369 $ 2,850
======== ========
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
4
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AOA HOLDING LLC AND SUBSIDIARIES (Note 3)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
(1) The Limited Liability Corporation
Organization
AOA Holding LLC ("AOA Holding" or the "Company") was incorporated on May 4,
1999, as a Minnesota limited liability company. AOA Holding was formed to
acquire the direct individual interests of Stephen Adams in Adams Outdoor
Advertising Limited Partnership ("Adams Partnership") and Adams Outdoor
Advertising Inc. ("Adams Inc.") and to serve as a co-issuer of the 10 3/8%
Senior Notes due 2006 (the "Senior Notes") (Note 2). AOA Holding's assets
consist of 100% of the outstanding capital stock of Adams Inc., a 0.70% general
partnership interest and a 68.3% limited partnership interest in Adams
Partnership. Mr. Adams is the sole member of AOA Holding and all operations are
conducted through Adams Partnership.
AOA Capital Corp. ("AOA Capital"), a wholly-owned subsidiary of AOA Holding, was
incorporated on May 4, 1999 for the sole purpose of serving as co-issuer of the
Senior Notes.
(2) Offering
In May 1999, following the organization, AOA Holding and its 100% owned
subsidiary, AOA Capital issued $50 million of Senior Notes. The net proceeds
from the offering were used by AOA Holding (i) to make a $32.5 million
distribution to its sole member, (ii) to repay $13.25 million of indebtedness of
Adams Partnership, and (iii) to make a $2.5 million allocation to the Adams
Partnership minority limited partners.
The Senior Notes are unsecured obligations of AOA Holding and its 100% owned
subsidiary, AOA Capital. The Senior Notes mature on June 1, 2006 and bear
interest at 10 3/8%. Interest is payable semi-annually in arrears on March 15
and September 15, commencing September 15, 1999. The interest rate is subject
to increase if the Senior Notes are not registered with the Securities and
Exchange Commission and declared effective within 150 days of the original
issuance.
The Senior Notes are redeemable at the option of the Company, in whole or in
part after June 1, 2003 at the following redemption prices (expressed as
percentage of principal amount), together, in each case, with accrued and unpaid
interest to the redemption date; 105.188% in 2003, 102.594% in 2004 and 100.00%
in 2005 and thereafter. The Company may also redeem the Senior Notes in whole
but not in part at any time during the nine-month period beginning on April 15,
2001 at 100% of the aggregate principal plus accrued and unpaid interest in the
event of a concurrent redemption by Adams Partnership of its outstanding notes.
The Indenture contains, among other things, covenants restricting the ability of
the Company to incur additional indebtedness, make certain distributions, make
certain investments, change the status of
5
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company subsidiaries, create liens, enter into transactions with affiliates,
dispose of assets, enter into sale-leaseback transactions, make payments for
consents, and enter into additional lines of business.
In connection with the reorganization, the Adams Partnership agreement was
amended to provide that the limited partnership interest of AOA Holding become a
"priority" interest whereby all limited partner distributions (other than
permitted tax distributions) will be made only to AOA Holding until the notes
are paid in full. In recognition of the change in the partnership agreement,
the Company paid to the minority limited partners approximately $2.5 million,
which has been reflected as other expense in the accompanying consolidated
statements of operations.
(3) Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
by AOA Holding in accordance with the instructions for Form 10-Q and therefore
do not include all information and footnotes necessary for a fair presentation
of financial position, results of operations, and cash flows in conformity with
generally accepted accounting principles. However, in the opinion of
management, all adjustments, which consist of normal recurring accruals
necessary for a fair presentation of the information for the periods presented
have been made. Certain information and footnote disclosures normally included
in consolidated financial statements prepared in accordance with generally
accepted accounting principles have been considered or omitted pursuant to such
rules and regulations. Although the Company believes that the disclosures are
adequate to make the information presented not misleading, it is suggested that
these consolidated financial statements be read in conjunction with the
predecessor companies, Adams Inc.'s and Adams Partnership's, Annual reports on
Form 10-K. Certain reclassifications have been made to prior year amounts to
conform with the current year presentation.
The transfer of ownership of Adams Inc. and Adams Partnership to AOA Holding has
been accounted for as a reorganization of entities under common control similar
to a pooling of interests. Therefore, the consolidated financial statements of
AOA Holding for the periods prior to its formation include the accounts of Adams
Inc. and Adams Partnership, the predecessor companies, and for the periods
subsequent to its formation, the Company and its majority owned subsidiaries.
All significant intercompany transactions and balances have been eliminated.
(4) Commitment and Contingencies
Zoning Regulations
In 1988, the city of Charlotte, North Carolina, adopted a comprehensive sign
ordinance prohibiting the construction of virtually all new, off-premise outdoor
advertising signs within the city limits and mandating that all nonconforming
signs either be brought into compliance or be removed by February 1, 1998 at the
owner's expense without payment of compensation. Through March 1998, the
Company had received a total of 307 notices of violation ("NOV's".) The Company
does not anticipate receiving any additional NOV's at this time. In 1998, the
Company filed a lawsuit in the Superior Court of Mecklenburg County, North
Carolina, challenging the constitutionality of the Charlotte sign ordinance. In
1998 the case was settled, and approximately 160 of the billboards in question
must be removed at the Company's expense by December 5, 2002. This will result
in a material adverse impact on the gross
6
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revenues and cash flow attributable to the Charlotte market, but, in the opinion
of management, not on the financial condition of the Company as a whole.
In other localities in which the Company operates, outdoor advertising is
subject to restrictive and, in some cases, prohibitive, zoning regulations.
Management expects federal, state, and local regulations to continue to be a
significant factor in the operation of the Company's business.
Concentration Of Risks
Approximately 10.3%, 10.5%, and 12.5% of the Company's net revenues for the
years ended December 31, 1998, 1997, and 1996, respectively, were attributable
to the tobacco products industry. In November 1998, the major U.S. tobacco
companies (the "Tobacco Companies") reached an out of court settlement (the
"Agreement") with 46 states, the District of Columbia, the Commonwealth of
Puerto Rico and four other U.S. territories (the "Settling States".) The
remaining four states had already reached similar settlements with the Tobacco
Companies. The Agreement calls for the removal of tobacco advertising from out-
of-home media, including billboards, along with signs and placards in arenas,
stadiums, shopping malls and video game arcades by April 23, 1999.
Additionally, the Agreement provides that, at the Settling States' option, the
Tobacco Companies must, at their expense, substitute for tobacco advertising
alternative advertising which discourages youth smoking. That alternative
advertising must remain in place for the duration of the Tobacco Companies' out-
of-home media advertising contracts which existed as of the date of the
Agreement.
The elimination of tobacco advertising as called for by the Agreement will cause
a reduction in direct revenues from Tobacco Companies and may simultaneously
increase the available space on the existing inventory of billboards in the
outdoor advertising industry. Although the extent of the future impact on
operations is not known, the Company has been successful thus far in replacing
tobacco advertising in its Minneapolis market where settlement was reached prior
to the Agreement. While this is positive, the Company can give no assurance
that the further cutbacks in tobacco advertising during 1999 will not have an
adverse effect on operations for 1999 or beyond.
7
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Certain matters discussed in this Quarterly Report on Form 10-Q are "forward-
looking statements" intended to qualify for the safe harbors from liability
established by the Private Securities Litigation Reform Act of 1995. These
forward-looking statements can generally be identified as such because the
context of the statement will include forward-looking terminology such as
"believes," "anticipates," "expects," "would," "estimate," "continue," or the
negative thereof or variations thereon or comparable terminology. Similarly,
statements that describe the Company's future plans, objectives or goals are
also forward-looking statements. Such forward-looking statements are subject to
certain risks and uncertainties which could cause actual results to differ
materially from those anticipated as of the date of this report. Certain of
such risks and uncertainties are described in close proximity to such forward-
looking statements. Other factors that could effect such results, performance
or achievement are set forth in "Risk Factors" in Amendment No. 3 to the
Company's Registration Statement on Form S-4 (Registration No. 333-03338) as
updated by the Company's Annual Report on Form 10-K for the year ended
December 31, 1998 including those risks to the Company presented by financial
leverage, government regulation with respect to zoning, restrictions on outdoor
advertising by the tobacco industry, competition and general economic
conditions.
Results of Operations
Quarter Ended September 30, 1999 Compared With Quarter Ended September 30, 1998
- -------------------------------------------------------------------------------
Net revenues (gross revenues net of agency commissions) for the quarter ended
September 30, 1999 of $18.4 million increased by 7.2% from $17.1 million for the
comparable period in 1998. This increase resulted from higher advertising rates
and an increase in the number of displays sold.
Direct advertising expenses for the quarter ended September 30, 1999 of $8.5
million increased by 3.3% from $8.2 million for the comparable period in 1998.
The increase was attributable to direct costs associated with increased sales
from new displays and an increase in sales commissions due to higher average
rates.
Corporate, general and administrative expenses for the quarter ended
September 30, 1999 of $946,000 decreased by 11.4% from $1.1 million for the
comparable period in 1998. This decrease was attributable to a decrease in
professional fees, travel expenses and costs associated with the new Company
logo and identification project in 1998.
Depreciation and amortization for the quarter ended September 30, 1999 of $1.5
million decreased by 29.7% from $2.1 million for the comparable period in 1998.
Depreciation expense decreased due to structures which became fully depreciated
at the end of 1998.
8
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Deferred compensation expense for the quarter ended September 30, 1999 of
$360,000 increased significantly from $203,000 for the comparable period in 1998
primarily due to increased Operating Income and vesting and the reinstatement of
the CEO into the plan.
Interest expense for the quarter ended September 30, 1999 of $4.6 million
increased by 28.4% from $3.6 million for the third quarter of 1998. For the
quarters ended September 30, 1999 and September 30, 1998, the effective interest
rates were 10.2% and 10.0%, respectively, on average outstanding balances of
$173.8 million and $137.3 million, respectively, primarily due to the issuance
of $50 million of new debt in May 1999.
During the quarter ended September 30, 1999, the Company incurred an
extraordinary loss of $194,000 on the early extinguishment of $3.3 million of
its Senior Notes.
Net income for the quarter ended September 30, 1999 increased to $2.4 million
from $1.6 million for the comparable period in 1998 as a result of the items
discussed above.
Results of Operations
Nine Months Ended September 30, 1999 Compared With
- --------------------------------------------------
Nine Months Ended September 30, 1998
- ------------------------------------
Net revenues (gross revenues net of agency commissions) for the nine months
ended September 30, 1999 of $51.0 million increased by 6.1% from $48.1 million
for the comparable period in 1998. This increase resulted from higher
advertising rates and an increase in the number of displays sold.
Direct advertising expenses for the nine months ended September 30, 1999 of
$24.8 million increased by 5.0% from $23.6 million for the comparable period in
1998. The increase was attributable to direct costs associated with increased
sales from new displays and an increase in sales commissions due to higher
average rates.
Corporate, general and administrative expenses for the nine months ended
September 30, 1999 of $2.2 million decreased by 29.4% from $3.2 million for the
comparable period in 1998. This decrease was attributable to a decrease in
professional fees, travel expenses and costs associated with the new Company
logo and identification project in 1998.
Depreciation and amortization for the nine months ended September 30, 1999 of
$5.2 million decreased by 15.9% from $6.2 million for the comparable period in
1998. Depreciation expense decreased due to structures which became fully
depreciated at the end of 1998.
Deferred compensation expense for the nine months ended September 30, 1999 of
$1.2 million increased significantly from $533,000 for the comparable period in
1998 primarily due to increased Operating Income and vesting and the
reinstatement of the CEO into the plan.
9
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Interest expense for the nine months ended September 30, 1999 of $12.0 million
increased by 10.4% from $10.9 million for the comparable period in 1998. For the
nine months ended September 30, 1999 and September 30, 1998, the effective
interest rates were 10.1% and 10.2%, respectively, on average outstanding
balances of $153.9 million and $137.1 million, respectively, primarily due to
the issuance of $50 million of new debt in May 1999.
During the nine months ended September 30, 1999, the Company incurred an
extraordinary loss of $194,000 on the early extinguishment of $3.3 million of
its Senior Notes.
Net income for the nine months ended September 30, 1999 decreased to $2.9
million from $3.2 million for the comparable period in 1998 as a result of the
items discussed above.
Operating Cash Flow is defined as operating income (loss) before (i)
depreciation and amortization expenses and (ii) deferred compensation expense.
As a partnership, the Company is not subject to federal corporate income tax.
Operating Cash Flow is not intended to represent net cash provided by operating
activities as defined by generally accepted accounting principles and should not
be considered as an alternative to net income or loss as an indicator of the
Company's operating performance or to net cash provided by operating, investing
and financing activities as a measure of liquidity or ability to meet cash
needs. The Company believes Operating Cash Flow is a measure commonly reported
and widely used by analysts, investors and other interested parties in the media
industry. Accordingly, this information is disclosed herein to permit a more
complete comparative analysis of the Company's performance relative to other
companies in the media industry. Operating Cash Flow for the nine months ended
September 30, 1999 of $24.0 million increased by 12.5% from $21.3 million for
the comparable period in 1998. Operating Cash Flow for the quarter ended
September 30, 1999 of $8.9 million increased by 13.7% from $7.8 million for the
comparable period in 1998.
Liquidity and Capital Resources
In 1996 the Company's subsidiaries, Adams Outdoor Advertising Limited
Partnership, together with Adams Outdoor Advertising Inc. placed $105 million of
their 10 3/4% Senior Notes due 2006 issued under an indenture and entered into a
Credit Facility (the "Credit Facility"). As part of the Refinancing,
substantially all of the Company's outstanding debt was refinanced. As a result
of the Refinancing, the average maturities of the Company's debt were extended
to 2006. In May 1999, AOA Holding, together with its wholly-owned subsidiary,
AOA Capital, placed $50 million of Senior Notes at 10 3/8% due 2006 issued under
an indenture.
Historically, the Company's cash needs have arisen from operating expenses
(primarily direct advertising expenses and corporate general and administrative
expenses), debt service, capital expenditures and deferred compensation payments
under phantom stock agreements. As a result of the Refinancing, the Company's
interest expense has increased due to the higher weighted average interest rate.
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The Company's primary sources of cash are net cash generated from operating
activities and borrowings under the Credit Facility. The Company's net cash
provided by operations decreased significantly to $1.1 million for the nine
months ended September 30, 1999 from $4.4 million for the nine months ended
September 30, 1998 primarily as a result of payments made to the Adams Outdoor
Advertising Limited Partnership minority limited partners.
The Company expects that its capital expenditures during 1999 will be
approximately $9.0 million and will be primarily for new billboard construction
and the upgrading of existing displays. The Company made capital expenditures of
$7.1 million during the nine months ended September 30, 1999 compared to $8.2
million during the nine months ended September 30, 1998.
At September 30, 1999 and December 31, 1998, the Company's accrued liability for
deferred compensation payable under phantom stock agreements with key employees
was $3.2 million and $6.3 million, respectively, in the aggregate. The Credit
Facility and the Indenture permit the payment of the deferred compensation when
due, subject to certain annual limitations. Such payments are scheduled to be
paid during the 1998 through 2002 period. During the nine months ended
September 30, 1999, payments of deferred compensation totaled $4.0 million.
The Company has revolving credit facilities of up to $43.0 million, $35 million
secured and $8 million unsecured. At September 30, 1999, the outstanding
borrowings were $28.6 million. Substantially all of the assets of the Company
are pledged to secure indebtedness under the secured credit facility. The
agreement governing the secured credit facility contains a number of covenants
that are more restrictive than those contained in the Indenture, including
covenants requiring the Company to maintain certain financial ratios that become
more restrictive over time. Adverse operating results could cause noncompliance
with one or more of these covenants, reducing the Company's borrowing
availability and, in certain circumstances, entitling the lenders to accelerate
the maturity of outstanding borrowings.
The Company believes that net cash provided from operations and available credit
under its credit facilities will be sufficient to meet its cash needs for its
current operations, required debt payments, anticipated capital expenditures and
deferred compensation payments for the next twelve months.
Impact of Inflation
Though increases in operating costs could adversely affect the Company's
operations, management does not believe that inflation has had a material effect
on operating profit during the past several years.
11
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Seasonality
Although revenues during the first and fourth quarter are slightly lower than
the other quarters, management does not believe that seasonality has a
significant impact on the operations or cash flow of the Company.
Information contained in this 10-Q including, without limitation, in the
foregoing Management's Discussion and Analysis of Financial Condition and
Results of Operations may contain "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995, which can be
identified by the use of forward-looking terminology as "may," "will," "would,"
"expect," "anticipate," "estimate," or "continue" or the negative thereof or
other variations thereon or comparable terminology. Certain factors, including
financial leverage, government regulation with respect to zoning and
restrictions on outdoor advertising by the tobacco industry, competition and
general economic condition could cause actual results to differ materially from
those in such forward-looking statements.
Year 2000 Compliance
Overview
The "Year 2000 issue" is a general term used to describe the various problems
that may result from the improper processing of dates and date-sensitive
calculations by computers and other machinery as the year 2000 approaches. The
Year 2000 issue exists because many existing computer systems and software
products have been written using two digits, rather than four, to define the
applicable year, thus not properly recognizing dates after December 31, 1999.
Company's State of Readiness
The Company recognizes the need to ensure that its operations will not be
adversely impacted by Year 2000 software failures and has therefore undertaken
the project of identifying and resolving its Year 2000 issues. The Company's
assessment included both its software and hardware. The Company has identified
all significant applications that require modification to ensure Year 2000
compliance and during the second quarter of 1998, Year 2000 compliant versions
of these programs (primarily financial applications) were installed. The vendor
upgrades have been tested and certified as Year 2000 compliant by an independent
third party.
In addition, the Company has communicated with others with whom it does
significant business to determine their Year 2000 Compliance readiness and the
extent to which the Company is vulnerable to any third party Year 2000 issues.
The Company's principal suppliers are local power companies. However, there can
be no guarantee that the systems of other companies on which the Company's
systems rely will be timely converted, or that a failure to convert by another
company, or a conversion that is incompatible with the Company's systems, would
not have a material adverse effect on the Company. Certain power companies may
12
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experience problems supplying power to us. If that occurs, our only liability
will be to issue immaterial illumination credits.
Costs to Address the Company's Year 2000 Issues
During 1998, the Company incurred approximately $150,000 in Year 2000
compliance efforts and estimates of additional costs to complete its Year 2000
compliance plan are not anticipated to be material to the Company's financial
condition or results of operations. No costs have been incurred during 1999.
Risks of the Company's Year 2000 Issues and the Company's Contingency Plans
Based on the results of its review of Year 2000 issues to date and compliance
efforts completed, the Company does not believe that the Year 2000 issue
presents a significant risk of disruption of the Company's ability to transact
business with its major customers and suppliers. Therefore, the Company does
not believe that a contingency plan to handle Year 2000 problems is necessary at
this time and has not yet developed such a plan. The Company will, however,
continue to monitor the Year 2000 issues and evaluate the need for a contingency
plan to handle the most reasonably likely worst case Year 2000 scenario.
New Accounting Standards
In September 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." In July 1999, the FASB issued
SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities --
Deferral of Effective Date of FASB Statement No. 133 -- An Amendment to FASB
Statement No. 133." This statement delayed the effective date of SFAS No. 133
for one year and is effective for the Company beginning January 1, 2001. This
statement establishes accounting and reporting standards requiring that every
derivative instrument (including certain instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or a liability
measured at its fair value. The statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. The Company has not yet quantified the
impact of adopting SFAS No. 133 and has not determined the timing or method of
its adoption, however it is not expected that adoption will have a material
impact on earnings.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
During the period covered by this Report, the constituent instruments defining
the rights of the holders of registered securities were not materially modified,
nor were the rights evidenced by the registered securities limited or qualified
by the issuance or modification of any other class of securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
During the period covered by this Report, there has been no material default
with respect to any indebtedness of the Registrants.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
(27) Financial data schedule
(b) No reports on Form 8-K have been filed during the quarter for which
the report is filed.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: December 6, 1999 AOA HOLDING LLC
By /s/ J. Kevin Gleason
-----------------------------------------
J. Kevin Gleason
President and Chief Executive Officer
By /s/ Abe Levine
-----------------------------------------
Abe Levine
Chief Financial Officer
(Principal Financial and
Accounting Officer)
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF AOA HOLDING LLC AND SUBSIDIARIES AS OF SEPTEMBER
30, 1999 AND THE RELATED CONSOLIDATED STATEMENTS OF OPERATIONS AND CASH FLOWS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001088933
<NAME> AOA HOLDING LLC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,369
<SECURITIES> 2,742
<RECEIVABLES> 11,193
<ALLOWANCES> (1,136)
<INVENTORY> 63
<CURRENT-ASSETS> 20,226
<PP&E> 123,895
<DEPRECIATION> (67,994)
<TOTAL-ASSETS> 86,210
<CURRENT-LIABILITIES> 5,288
<BONDS> 176,297
0
0
<COMMON> 0
<OTHER-SE> (100,538)
<TOTAL-LIABILITY-AND-EQUITY> 86,210
<SALES> 18,368
<TOTAL-REVENUES> 18,368
<CGS> 0
<TOTAL-COSTS> 9,805
<OTHER-EXPENSES> 1,466
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,581
<INCOME-PRETAX> 2,575
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,575
<DISCONTINUED> 0
<EXTRAORDINARY> (194)
<CHANGES> 0
<NET-INCOME> 2,381
<EPS-BASIC> 0
<EPS-DILUTED> 0
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