<PAGE>
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
March 31, 2000
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 X NO
-
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AOA HOLDING LLC AND SUBSIDIARIES
INDEX
Page Number
-----------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets of AOA Holding
LLC and Subsidiaries as of March 31, 2000
(unaudited) and December 31, 1999.................... 1
Consolidated Statements of Operations of
AOA Holding LLC and Subsidiaries
for the quarters ended March 31, 2000
and 1999 (unaudited)................................. 2
Consolidated Statement of Changes in Member's
Deficit of AOA Holding LLC and Subsidiaries
for the three months ended March 31, 2000
(unaudited).......................................... 3
Consolidated Statements of Cash Flows of
AOA Holding LLC and Subsidiaries
for the three months ended March 31, 2000
and 1999 (unaudited)................................. 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.................. 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................... 11
Item 2. Changes in Securities................................ 11
Item 3. Defaults Upon Senior Securities...................... 11
Item 4. Submission of Matters to a Vote of Security Holders.. 11
Item 5. Other Information.................................... 11
Item 6. Exhibits and Reports on Form 8-K..................... 11
SIGNATURES............................................................ 12
i
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AOA HOLDING LLC AND SUBSIDIARIES (Note 3)
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31,
2000 December 31,
ASSETS (unaudited) 1999
----------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,732 $ 1,616
Investments 3,472 3,166
Accounts receivable, less allowance for doubtful accounts of
$1,234 and $1,167 at March 31, 2000 and December 31, 1999,
respectively 10,659 9,017
Receivables from related parties 1,316 45
Inventories 487 93
Prepaid rent 3,295 2,993
Prepaid expenses 810 680
--------- ---------
Total current assets 21,771 17,610
Property, plant and equipment, net 58,607 56,526
Intangible assets, net 30,915 9,787
Other assets 65 66
--------- ---------
$ 111,358 $ 83,989
========= =========
LIABILITIES AND MEMBER'S DEFICIT
Current liabilities:
Bank loan $ 706 -
Current portion of long-term debt 269 -
Accounts payable 1,617 926
Interest payable 987 4,820
Accrued expenses and other liabilities 3,946 3,361
Deferred compensation 241 734
--------- ---------
Total current liabilities 7,766 9,841
Long-term debt 197,136 168,947
Deferred compensation 7,489 6,226
--------- ---------
Total liabilities 212,391 185,014
Commitments and contingencies (Note 4)
Member's deficit (101,033) (101,025)
--------- ---------
$ 111,358 $ 83,989
========= =========
See accompanying notes to unaudited interim consolidated financial statements.
</TABLE>
1
<PAGE>
AOA HOLDING LLC AND SUBSIDIARIES (Note 3)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Quarter Ended
March 31,
2000 1999
---------- ----------
<S> <C> <C>
Gross Revenues $ 17,330 $ 16,552
Less agency commissions 1,452 1,503
---------- ----------
Net outdoor advertising revenue 15,877 15,049
Operating expenses:
Direct advertising expenses 8,476 7,967
Corporate general and administrative 705 594
Depreciation and amortization 1,676 1,857
Deferred compensation 360 360
---------- ----------
Total operating expenses 11,216 10,778
---------- ----------
Operating income 4,661 4,271
---------- ----------
Other expenses (income):
Interest expense 4,568 3,445
Interest expense - related parties 112 0
Other (income) expense, net (10) 12
Gain on disposals of property, plant
and equipment, net (1) (1)
---------- ----------
Total other expenses 4,668 3,456
---------- ----------
Net (loss) income $ (7) $ 815
========== ==========
See accompanying notes to unaudited interim consolidated financial statements.
</TABLE>
2
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AOA HOLDING LLC AND SUBSIDIARIES (Note 3)
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER'S DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(Unaudited)
(Dollars in Thousands)
MEMBER'S
DEFICIT
----------
BALANCE, DECEMBER 31, 1999 $ (101,025)
NET LOSS (7)
DISTRIBUTIONS -
----------
BALANCE, MARCH 31, 2000 $ (101,032)
==========
See accompanying notes to unaudited interim consolidated financial statements.
3
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AOA HOLDING LLC AND SUBSIDIARIES (Note 3)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (7) $ 815
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation 1,554 1,659
Amortization of intangible assets 265 333
Deferred compensation expense 435 360
Payments of deferred compensation (509) (3,557)
Barter income (89) (82)
Gain on disposals of property, plant and
equipment, net - (1)
Purchases of investments - (380)
Changes in assets and liabilities:
Increase in accounts receivable, net (3,481) (129)
Decrease in inventories 10 23
Increase in prepaid rent and other prepaid
expenses (376) (262)
Increase in accounts payable and accrued expense 283 101
Decrease in interest payable (3,832) (2,687)
------- -------
Net cash used in operating
activities (5,747) (3,807)
Cash flows from investing activities:
Additions to property, plant and equipment (2,351) (1,711)
Proceeds from sale of property,
plant and equipment 7 8
------- -------
Net cash used in investing
activities (2,344) (1,703)
Cash flows from financing activities:
Payments on long-term debt (6,387) (2,700)
Advances on revolving line of
credit 14,594 9,412
Distributions to partners - (500)
------- -------
Net cash provided by financing activities 8,207 6,212
------- -------
Net increase in cash and cash equivalents 116 702
Cash and cash equivalents at beginning of period 1,616 1,687
------- -------
Cash and cash equivalents at end of period $ 1,732 $ 2,389
======= =======
See accompanying notes to unaudited interim consolidated financial statements.
</TABLE>
4
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AOA HOLDING LLC AND SUBSIDIARIES (Note 3)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
(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" or "the 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 "Parent 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
Parent Senior Notes.
(2) Offering
In May 1999, following the organization, AOA Holding and its 100% owned
subsidiary, AOA Capital issued $50 million of Parent 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 Parent Senior Notes are unsecured obligations of AOA Holding and its 100%
owned subsidiary, AOA Capital. The Parent 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 Parent 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 Parent 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 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
5
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paid in full. In recognition of the change in the partnership agreement,
the Company paid to the minority limited partners approximately $2.5 million.
(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) Acquisition
On March 9, 2000, two indirect wholly-owned subsidiaries of the Partnership
together acquired all of the outstanding stock of HSP Graphics, a company with
which the Partnership has been doing business for a number of years.
Approximately $21.4 million of goodwill was generated as a result of this
purchase. The acquisition was financed by issuing Notes Payable to the owners.
6
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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, 1999 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 March 31, 2000 Compared With Quarter Ended March 31, 1999
- -----------------------------------------------------------------------
Net revenues (gross revenues net of agency commissions) for the quarter ended
March 31, 2000 of $15.9 million increased by 5.5% from $15.0 million for the
comparable period in 1999. This increase resulted from higher advertising rates
and an increase in the number of displays sold.
Direct advertising expenses for the quarter ended March 31, 2000 of $8.5 million
increased by 6.4% from $8.0 million for the comparable period in 1999. 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 March 31,
2000 of $705,000 increased by 18.6% from $594,000 for the comparable period in
1999. This increase was attributable to an increase in travel expenses, as
well as the monthly dues paid to the Outdoor Advertising Association of America,
which were expensed at the plant level during the first quarter of 1999.
Depreciation and amortization for the quarter ended March 31, 2000 of $1.7
million decreased by 9.7% from $1.9 million for the comparable period in 1999.
Depreciation expense decreased due to structures which became fully depreciated
at the end of 1999.
Deferred compensation expense for the quarter ended March 31, 2000 of $360,000
did not change from the comparable period in 1999.
Interest expense for the quarter ended March 31, 2000 of $4.7 million increased
by 35.8% from $3.4 million for the first quarter of 1999. For the quarters
ended March 31, 2000 and March 31, 1999, the effective interest rates were 10.3%
and 9.8% on average outstanding balances of $176.3 million and $135.8 million,
respectively.
7
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There was a net loss of $7,000 for the quarter ended March 31, 2000 compared to
net income of $815,000 for the comparable period in 1999 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 quarter ended
March 31, 2000 of $6.7 million increased by 3.2% from $6.5 million for the
comparable period in 1999.
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.
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
used in operations increased significantly to $5.7 million for the three months
ended March 31, 2000 from $3.8 million for the three months ended March 31, 1999
primarily as a result of an increase in Accounts Receivable.
The Company expects that its capital expenditures during 2000 will be
approximately $11.0 million and will be primarily for new billboard construction
and the upgrading of existing displays. The Company made capital expenditures of
$2.4 million during the three months ended March 31, 2000 compared to $1.7
million during the three months ended March 31, 1999.
At March 31, 2000 and December 31, 1999, the Company's accrued liability for
deferred compensation payable under phantom stock agreements with key employees
was $4.3 million and $3.8 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 three months ended March
31, 2000, payments of deferred compensation totaled $509,000.
8
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The Company has revolving credit facilities of up to $43.0 million, $35 million
secured and $8 million unsecured. At March 31, 2000, the outstanding borrowings
were $31.0 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.
Acquisition
On March 9, 2000, two indirect wholly-owned subsidiaries of the Partnership
together acquired all of the outstanding stock of HSP Graphics, a company with
which the Partnership has been doing business for a number of years.
Approximately $21.4 million of goodwill was generated as a result of this
purchase. The acquisition was financed by issuing Notes Payable to the owners.
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.
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.
9
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Year 2000 Compliance
Overview
The "Year 2000 issue" has had no significant effect on the Company, and the
Company does not believe that a significant future impact is likely.
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.
10
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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.
11
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrants have duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 4, 2000 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)
12
<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 March 31,
2000 and the related Statements of Operations and Cash Flows and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<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> 1,732
<SECURITIES> 3,472
<RECEIVABLES> 13,209
<ALLOWANCES> (1,234)
<INVENTORY> 487
<CURRENT-ASSETS> 21,771
<PP&E> 129,144
<DEPRECIATION> (70,538)
<TOTAL-ASSETS> 111,358
<CURRENT-LIABILITIES> 7,766
<BONDS> 197,136
0
0
<COMMON> 0
<OTHER-SE> (101,033)
<TOTAL-LIABILITY-AND-EQUITY> 111,358
<SALES> 15,877
<TOTAL-REVENUES> 15,877
<CGS> 0
<TOTAL-COSTS> 9,541
<OTHER-EXPENSES> 1,676
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,680
<INCOME-PRETAX> (7)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
