10-Q 1 d10q.txt QUARTERLY REPORT FOR PERIOD ENDING 3-31-2001 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, 2001 ADAMS OUTDOOR ADVERTISING LIMITED PARTNERSHIP (Exact name of registrant as specified in its charter) Commission File No. 333-3338 Minnesota 41-1540241 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) ____________________ ADAMS OUTDOOR ADVERTISING, INC. (Exact name of registrant as specified in its charter) Commission File No. 333-3338-01 Minnesota 41-1540245 (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 3/4% 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 __ -- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. (Applicable only to Adams Outdoor Advertising, Inc.) Class Outstanding as of May 14, 2001 ----- ------------------------------ Common Stock, 10,000 $.001 par value ADAMS OUTDOOR ADVERTISING LIMITED PARTNERSHIP ADAMS OUTDOOR ADVERTISING, INC. Securities and Exchange Commission Form 10-Q for the First Quarter Ended March 31, 2001

ii ADAMS OUTDOOR ADVERTISING LIMITED PARTNERSHIP CONSOLIDATED BALANCE SHEETS (Dollars in thousands)

See accompanying notes to unaudited interim consolidated financial statements. 1 ADAMS OUTDOOR ADVERTISING LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS (Unaudited) (Dollars in Thousands)

See accompanying notes to unaudited interim financial statements. 2 ADAMS OUTDOOR ADVERTISING LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in Thousands)

See accompanying notes to unaudited interim consolidated financial statements. 3 ADAMS OUTDOOR ADVERTISING LIMITED PARTNERSHIP NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS March 31, 2001 (Unaudited) (1) Basis of Presentation The accompanying unaudited consolidated financial statements included herein have been prepared by Adams Outdoor Advertising Limited Partnership (the "Company") 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 described, 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 Company's 2000 Annual Report on Form 10-K. Certain reclassifications have been made to prior year amounts to conform with the current year presentation. (2) Reorganization and Offering In May 1999, the Partnerships' majority partner contributed his direct and indirect interests in the Company and Adams Outdoor Advertising Inc. to a newly formed Limited Liability Company, AOA Holding LLC ("AOA Holding".) Following the reorganization, AOA Holding and its 100% owned subsidiary, AOA Capital Corp., issued $50 million of 10 3/8% Senior Notes due 2006. The net proceeds from the offering were used by AOA Holding to make a distribution to its sole member, to repay $13.5 million of indebtedness of the Company, and to make a $2.5 million payment to the minority limited partner. Amounts loaned to the Company are non- interest bearing and are reflected as Advances from AOA Holding LLC in the accompanying consolidated balance sheets. In connection with the reorganization, the partnership agreement was amended to provide that the limited partnership interest of AOA Holding LLC 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) Acquisitions On March 9, 2000, two indirect wholly owned subsidiaries of the Company together acquired all of the outstanding stock of HSP Graphics ("HSP"), a printing operation headquartered in Canada which was majority-owned by two officers of the Company. The total amount of consideration was $21,000,000 and was financed by issuing notes payable to the former owners, bearing interest at 20% and payable over a one-year period. The transaction was accounted for as a purchase and, as such, the results of HSP's operations have been included in the Company's financial statements from the date of acquisition. The excess of the purchase price over the fair value of the net assets acquired, which was approximately 4 $20,000,000, was allocated to goodwill and is being amortized on a straight-line basis over a period of 20 years. On June 28, 2000, the Company acquired all of the outstanding stock of Horizon Outdoor ("Horizon"), an outdoor advertising company in Charlotte, North Carolina. The total amount of consideration was $17,000,000, consisting of $15,500,000 in cash and a $1,500,000 note payable to the former owners and payable over an 18-month period. The transaction was accounted for as a purchase and, as such, the results of Horizon's operations have been included in the Company's financial statements from the date of acquisition. The excess of the purchase price over the fair value of the net assets acquired, which was approximately $15,900,000, was allocated to goodwill and is being amortized on a straight-line basis over a period of 20 years. On January 1, 2001, the Company acquired certain assets of PNE Media ("PNE") and Four Winds, Inc. ("Four Winds"), both outdoor advertising companies in South Carolina. The total amount of consideration was $19,000,000 paid in cash. The transaction was accounted for as a purchase, and, as such, the results of PNE/Four Wind's operations have been included in the Company's financial statements from the date of acquisition. The estimated excess of purchase price over the fair value of the net assets acquired, which was approximately $500,000, was preliminarily allocated to goodwill and is being amortized on a straight-line basis over a period of 20 years. The purchase price allocation for PNE/Four Winds is preliminary and is subject to change based upon final analysis of information the Company has arranged to obtain. 5 ADAMS OUTDOOR ADVERTISING, INC. BALANCE SHEETS

See accompanying notes to unaudited interim financial statements 6 ADAMS OUTDOOR ADVERTISING, INC. STATEMENTS OF OPERATIONS (Unaudited)

See accompanying notes to unaudited interim financial statements 7 ADAMS OUTDOOR ADVERTISING, INC. STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31, ------------------ 2001 2000 ------- ------- Cash flows from operating activities............................................ $ - $ - Cash flows from investing activities............................................ - - Cash flows from financing activities............................................ - - ------- ------ Net change in cash........................................................ - - Cash at beginning of period..................................................... - - ------- ------ Cash at end of period........................................................... $ - $ - ======= ======

See accompanying notes to unaudited interim financial statements 8 ADAMS OUTDOOR ADVERTISING, INC. NOTES TO INTERIM FINANCIAL STATEMENTS March 31, 2001 (Unaudited) (1) Basis of Presentation The accompanying unaudited financial statements included herein have been prepared by Adams Outdoor Advertising, Inc. ("AOAI") 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 described, have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been considered or omitted pursuant to such rules and regulations. Although AOAI believes that the disclosures are adequate to make the information presented not misleading, it is suggested that these financial statements be read in conjunction with AOAI's 2000 Annual Report on Form 10-K. (2) Reorganization and Offering In May 1999, the Partnerships' majority partner contributed his direct and indirect interests in Adams Outdoor Advertising Limited Partnership ("AOALP") and AOAI to a newly formed Limited Liability Company, AOA Holding LLC ("AOA Holding".) Following the reorganization, AOA Holding and its 100% owned subsidiary AOA Capital Corp. issued $50 million of 10 3/8% Senior Notes due 2006. The net proceeds from the offering were used by AOA Holding to make a distribution to its sole member, to repay $13.5 million of indebtedness of AOALP, and to make a $2.5 million payment to the minority limited partner. In connection with the reorganization, the partnership agreement was amended to provide that the limited partnership interest of AOA Holding LLC 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. 9 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Except for its interests and activities as managing general partner of Adams Outdoor Advertising Limited Partnership (the "Company"), Adams Outdoor Advertising, Inc. ("AOAI") has nominal assets and does not conduct any operations. Accordingly, the following "Management's Discussion and Analysis of Financial Condition and Results of Operations" relate to the Company and the consolidated financial statements of the Company included in this filing. 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 affect 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, 2000 including those risks to the Company presented by financial leverage, government regulation with respect to zoning, competition and general economic conditions. Results of Operations Quarter Ended March 31, 2001 Compared With Quarter Ended March 31, 2000 ----------------------------------------------------------------------- Net revenues (gross revenues net of agency commissions) for the quarter ended March 31, 2001 of $20.0 million increased by 26.1% from $15.9 million for the comparable period in 2000. This increase resulted from higher advertising rates and an increase in the number of displays sold, as well as revenues generated by HSP, Horizon and PNE during the first quarter of 2001. Direct advertising expenses for the quarter ended March 31, 2001 of $10.4 million increased by 22.5% from $8.5 million for the comparable period in 2000. 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, as well as direct advertising expenses generated by HSP, Horizon and PNE during the first quarter of 2001. Corporate general and administrative expenses for the quarter ended March 31, 2001 of $10,000 decreased significantly from $705,000 for the comparable period in 2000. This decrease was attributable to the first quarter 2001 release of insurance reserves booked in 2000, for which the actual costs were significantly less than anticipated. In addition, bonuses which were accrued for in 2000 have not been and will not be paid. Depreciation and amortization for the quarter ended March 31, 2001 of $2.6 million increased by 60.7 % from $1.6 million for the comparable period in 2000. Depreciation expense increased due to new builds in 2000, as well as the acquisitions of HSP, Horizon and PNE. Amortization expense increased due to the amortization of goodwill for HSP and Horizon. 10 Deferred compensation expense for the quarter ended March 31, 2001 of $366,000 increased by 1.6% from $360,000 for the comparable period in 2000. Interest expense for the quarter ended March 31, 2001 of $5.3 million increased by 56.0% from $3.4 million for the first quarter of 2000. For the quarters ended March 31, 2001 and March 31, 2000, the effective interest rates were 10.7% and 10.2% on average outstanding balances of $171.3 million and $126.3 million, respectively. Net income for the quarter ended March 31, 2001 decreased to $1.2 million from $1.4 million for the comparable period in 2000 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, 2001 of $9.6 million increased by 43.8% from $6.7 million for the comparable period in 2000. Liquidity and Capital Resources In 1996, the Company, together with its managing general partner, AOAI, placed $105,000,000 of their 10 3/4% Senior Notes due 2006 issued under an indenture (the "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. 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 decreased to $1.8 million for the three months ended March 31, 2001 from $3.2 million for the three months ended March 31, 2000. The Company expects that its capital expenditures during 2001 will be approximately $29.0 million and will be primarily for new billboard construction and the upgrading of existing displays. The Company made capital expenditures of $1.2 million during the three months ended March 31, 2001 compared to $2.4 million during the three months ended March 31, 2000. At March 31, 2001 and December 31, 2000, the Company's accrued liability for deferred compensation payable under phantom stock agreements with key employees was $5.8 million and $5.4 million, respectively, in the aggregate. The Credit Facility and the Indenture permit the payment of the 11 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, 2001, payments of deferred compensation totaled $167,000. The Company has revolving credit facilities of up to $80 million, $35 million secured and $45 million unsecured. At March 31, 2001, the outstanding borrowings were $79.8 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. Acquisitions On March 9, 2000, two indirect wholly owned subsidiaries of the Company together acquired all of the outstanding stock of HSP Graphics ("HSP"), a printing operation headquartered in Canada which was majority-owned by two officers of the Company. The total amount of consideration was $21,000,000 and was financed by issuing notes payable to the former owners, bearing interest at 20% and payable over a one-year period. The transaction was accounted for as a purchase and, as such, the results of HSP's operations have been included in the Company's financial statements from the date of acquisition. The excess of the purchase price over the fair value of the net assets acquired, which was approximately $20,000,000, was allocated to goodwill and is being amortized on a straight-line basis over a period of 20 years. On June 28, 2000, the Company acquired all of the outstanding stock of Horizon Outdoor ("Horizon"), an outdoor advertising company in Charlotte, North Carolina. The total amount of consideration was $17,000,000, consisting of $15,500,000 in cash and a $1,500,000 note payable to the former owners and payable over an 18-month period. The transaction was accounted for as a purchase and, as such, the results of Horizon's operations have been included in the Company's financial statements from the date of acquisition. The excess of the purchase price over the fair value of the net assets acquired, which was approximately $15,900,000, was allocated to goodwill and is being amortized on a straight-line basis over a period of 20 years. On January 1, 2001, the Company acquired certain assets of PNE Media ("PNE") and Four Winds, Inc. ("Four Winds"), both outdoor advertising companies in South Carolina. The total amount of consideration was $19,000,000 paid in cash. The transaction was accounted for as a purchase, and, as such, the results of PNE/Four Wind's operations have been included in the Company's financial statements from the date of acquisition. The estimated excess of purchase price over the fair value of the net assets acquired, which was approximately $500,000, was preliminarily allocated to goodwill and is being amortized on a straight-line basis over a period of 20 years. The purchase price allocation for PNE/Four Winds is preliminary and is subject to change based upon final analysis of information the Company has arranged to obtain. 12 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 income 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. 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 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) No exhibits are included herein. (b) No reports on Form 8-K have been filed during the quarter for which the report is filed. 14 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 14, 2001 ADAMS OUTDOOR ADVERTISING LIMITED PARTNERSHIP By Adams Outdoor Advertising, Inc. Its General Partner 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) ADAMS OUTDOOR ADVERTISING, INC. 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

ADAMS OUTDOOR ADVERTISING LTD PARTNERSHIP 10-Q