-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E4Otl+STCOqFUakLAL2wxUj2ezVcDLI6hpIV4Xq9PIWeVw5SBN4VORx/etHu4gSr 8VkFNy/AeVoj6eCnFrOx/Q== 0000950123-02-010964.txt : 20021114 0000950123-02-010964.hdr.sgml : 20021114 20021114170608 ACCESSION NUMBER: 0000950123-02-010964 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRI STATE OUTDOOR MEDIA GROUP INC CENTRAL INDEX KEY: 0001065983 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ADVERTISING [7310] IRS NUMBER: 481061763 STATE OF INCORPORATION: KS FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-59137 FILM NUMBER: 02826078 BUSINESS ADDRESS: STREET 1: 3416 HIGHWAY 41 SOUTH CITY: TIFTON STATE: GA ZIP: 31793 BUSINESS PHONE: 8007328261 MAIL ADDRESS: STREET 1: PO BOX 1247 CITY: TIFTON STATE: GA ZIP: 31794 10-Q 1 y65775e10vq.txt TRI STATE OUTDOOR MEDIA GROUP, INC FORM 10-Q UNITED STATES 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 COMMISSION FILE NUMBER SEPTEMBER 30, 2002 333-59137 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) 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 September 30, 2002, there were issued and outstanding 200 shares of the registrant's Common Stock, par value $10.00 per share. TABLE OF CONTENTS
PAGE NO. -------- PART I FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Balance Sheets at September 30, 2002 and December 31, 2001 ..................................................1 Statements of Operations for the Three Months September 30, 2002 and 2001 and Nine Months ended September 30, 2002 and 2001 ..........................................2 Statements of Cash Flows for the Nine Months ended September 30, 2002 and 2001 ...........................................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 ...........................9 PART II OTHER INFORMATION Item 1. Legal Proceedings ....................................................................9 Item 2. Changes in Securities and Use of Proceeds ............................................9 Item 3. Defaults upon Senior Securities ......................................................9 Item 4. Submission of Matters to a Vote of Security Holders ..................................9 Item 5. Other Information ....................................................................9 Item 6. Exhibits and Reports on Form 8-K .....................................................9 SIGNATURES ...................................................................................10 Index to Exhibits ............................................................................11
PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS TRI-STATE OUTDOOR MEDIA GROUP, INC. DEBTOR-IN-POSSESSION BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
September 30, December 31, 2002 2001 --------- --------- (unaudited) ASSETS Current Assets Cash and cash equivalents $ 1,501 $ 502 Accounts receivable, net of allowance for doubtful accounts 2002 $629; 2001 $536 1,915 3,019 Supplies 374 447 Prepaid production costs 880 775 Prepaid site leases, current portion 1,846 1,490 Prepaid commissions, current portion 705 704 Other current assets 248 284 --------- --------- Total current assets 7,469 7,221 --------- --------- Property and Equipment, net 60,702 63,092 --------- --------- Other Assets Intangible assets, net 35,085 35,858 Prepaid site leases and commissions, long-term portion 544 550 Other 203 208 --------- --------- 35,832 36,616 --------- --------- $ 104,003 $ 106,929 ========= ========= LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT) Current Liabilities Liabilities not subject to compromise Current portion of long-term debt $ 18,999 $ 117,263 Accounts payable 2,132 1,292 Accrued interest 163 7,026 Accrued expenses 64 254 Deferred revenue 425 461 --------- --------- Total current liabilities 21,783 126,296 Long-Term Debt, net of current portion 2,565 3,125 --------- --------- Total liabilities not subject to compromise 24,348 129,421 --------- --------- Liabilities subject to compromise(Note 1) Accounts payable 640 -- Accrued interest 10,379 -- Senior notes 100,000 -- --------- --------- Total liabilities subject to compromise 111,019 -- --------- --------- Total liabilities 135,367 129,421 --------- --------- Commitments and Contingencies Stockholder's Equity (Deficit) Common stock, par value, $10 per share; authorized 10,000 shares; issued and outstanding 2002 and 2001; 200 shares 2 2 Paid-in capital 33,841 33,841 Accumulated deficit (65,207) (56,335) --------- --------- (31,364) (22,492) --------- --------- $ 104,003 $ 106,929 ========= =========
See Notes to Financial Statements. TRI-STATE OUTDOOR MEDIA GROUP, INC. DEBTOR-IN-POSSESSION STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE OR PER SHARE AMOUNTS) (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, --------------------------- --------------------------- 2002 2001 2002 2001 -------- -------- -------- -------- Net revenues $ 6,306 $ 6,755 $ 18,756 $ 20,353 -------- -------- -------- -------- Operating expenses: Direct operating expenses 2,683 2,450 8,083 7,340 General and administrative 1,198 1,885 3,537 4,423 Depreciation and amortization 2,112 2,950 6,336 9,210 Restructuring Charges 1,354 -- 4,569 -- -------- -------- -------- -------- 7,347 7,285 22,525 20,973 -------- -------- -------- -------- Operating income (loss) (1,041) (530) (3,769) (620) -------- -------- -------- -------- Other income (expense): Interest expense (653) (3,427) (5,399) (10,104) Other income 3 4 7 24 Gain on sale of property and equipment -- 286 289 6,002 -------- -------- -------- -------- Total other income (expense) (650) (3,137) (5,103) (4,078) -------- -------- -------- -------- Loss before income taxes and extra- ordinary loss on early extinguishment of debt (1,691) (3,667) (8,872) (4,698) Income tax expense -- -- -- 2,200 -------- -------- -------- -------- Loss before extraordinary loss on early extinguishment of debt (1,691) (3,667) (8,872) (6,898) Extraordinary loss on early extinguishment of debt -- -- -- (398) -------- -------- -------- -------- Net loss $ (1,691) $ (3,667) $ (8,872) $ (7,296) ======== ======== ======== ======== Basic loss per common share: Loss before extraordinary loss on early extinguishment of debt $ (8,455) $(18,335) $(44,360) $(34,490) Extraordinary loss on early extinguishment of debt -- -- -- (1,990) -------- -------- -------- -------- Net loss $ (8,455) $(18,335) $(44,360) $(36,480) ======== ======== ======== ======== Weighted common shares outstanding 200 200 200 200 ======== ======== ======== ========
See Notes to unaudited Financial Statements. TRI-STATE OUTDOOR MEDIA GROUP, INC. DEBTOR-IN-POSSESSION STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, (IN THOUSANDS) (UNAUDITED)
2002 2001 -------- -------- OPERATING ACTIVITIES Net loss $ (8,872) $ (7,296) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 6,336 9,210 Gain on disposal of property and equipment, net (289) (6,002) Extraordinary loss on early extinguishment of debt -- 398 Deferred income tax expense -- 2,200 Disposition costs on property and equipment -- (1,106) Non-cash restructuring charge 156 -- Changes in assets and liabilities: (Increase) decrease in: Accounts receivable 1,104 1,109 Supplies and prepaid production costs (32) (244) Prepaid site leases (356) (51) Prepaid commissions 5 (117) Other assets 41 (108) Increase (decrease) in: Accounts payable 569 (1,178) Liabilities subject to compromise 640 -- Accrued interest and other accrued expenses 3,309 2,982 Deferred revenue (36) 28 -------- -------- Net cash provided by (used in) operating activities 2,575 (175) -------- -------- INVESTING ACTIVITIES Purchase of property and equipment (2,885) (3,062) Proceeds from sale of property and equipment 289 10,642 -------- -------- Net cash provided by (used in) investing activities (2,596) 7,580 -------- -------- FINANCING ACTIVITIES Borrowings under long-term debt agreement -- 13,000 Proceeds from revolver borrowings 1,500 4,400 Payments on revolver borrowings -- (10,865) Principal payments on long-term debt (480) (11,500) Decrease in Due to SGH Holdings, Inc. -- (276) Payments to related party -- (900) Deferred issuance costs -- (969) -------- -------- Net cash provided by (used in) financing activities 1,020 (7,110) -------- -------- Net increase in cash and cash equivalents 999 295 CASH AND CASH EQUIVALENTS: Beginning 502 46 -------- -------- Ending $ 1,501 $ 341 ======== ======== SUPPLEMENTAL CASH FLOW INFORMATION Cash payments for interest $ 1,883 $ 7,284 ======== ======== SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Property and equipment acquired through accounts payable $ 288 $-- ======== ======== Accrued Interest added to Principal $-- $ 156 ======== ========
See Notes to Financial Statements. 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 accounting principles generally accepted in the United States of America 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 accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments and restructuring adjustments) considered necessary for a fair presentation of financial position and results of operations have been included. The operating results for the nine month period ended September 30, 2002 are not necessarily indicative of the results to be expected for the year ending December 31, 2002. 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, 2001 and notes thereto included in the Company's Report on Form 10-K for the fiscal year ended December 31, 2001. On Thursday, April 25, 2002, certain holders of the Company's $100.0 million of Senior Notes due May 15, 2008 (the "Notes") had filed an involuntary petition under Chapter 11 of the United States Bankruptcy Law, Title 11, United States Code against the Company. The Company consented to the entry of an Order for Relief on April 26, 2002. At a May 21, 2002 hearing held before the United States Bankruptcy Court for the Middle District of Georgia in Columbus, Georgia, the Company was authorized to use cash collateral - i.e. the cash proceeds of its assets in which Ableco Finance, LLC held a security interest. The Company is currently operating as debtor-in-possession and expects to continue to conduct its business in the ordinary course and to pursue its efforts to reorganize and restructure its debts during the bankruptcy case. The Company has attempted to maintain normal and regular trade terms with its suppliers and customers. The restructuring contemplates that the Company's trade suppliers, employees and customers will not be adversely affected while the Company is in the reorganization proceedings or thereafter, though the ultimate treatment of any creditor group in the Chapter 11 case remains uncertain. The Company believes that it has sufficient liquidity to pay its post-bankruptcy obligations as they arise in the ordinary course of business. There can be no assurance that a plan will be approved by the Bankruptcy Court. There can also be no assurance that the Company's suppliers will continue to provide normal trade credit or credit on other terms acceptable to the Company, if at all, or that customers will continue to do business or enter into new business with the Company. No assurances can be given that the Company will be successful in getting a plan confirmed by the United States Bankruptcy Court. Going Concern: The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in the financial statements for the fiscal year ended December 31, 2001 and notes thereto included in the Company's Report on Form 10-K and as shown in the accompanying financial statements, the Company has defaulted on its debt obligations, has substantial operations and liquidity issues, and is now a debtor in a bankruptcy reorganization case under Chapter 11 of the United State Bankruptcy Code, which raises substantial doubt about the Company's ability to continue as a going concern. There can be no assurance that the Company will be able to restructure successfully its indebtedness or that its liquidity and capital resources will be sufficient to maintain its normal operations. These financial statements do not include any adjustment relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern. These unaudited financial statements have been prepared in accordance with the Statement of Position ("SOP") No. 90-7, "Financial Reporting by Entities in Reorganization under the Bankruptcy Code". SOP 90-7 requires an entity to distinguish pre-petition liabilities subject to compromise from postpetition liabilities on its balance sheet. In the accompanying unaudited balance sheet the caption "liabilities subject to compromise" reflects the Company's best current estimate of the amount of pre-petition claims that will be restructured in the Debtors' Chapter 11 case. In addition, its statement of operations should portray the results of operations of the reporting entity during Chapter 11 proceedings. As a result any revenues, expenses, realized gains and losses, and provisions resulting from the reorganization and restructuring of the organization should be reported separately as restructuring charges, except those required to be reported as discontinued operations, and extraordinary items in conformity with Accounting Principles Board No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual, and Infrequently Occurring Events and Transactions" and Statement of Financial Accounting Standard No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". Liabilities Subject to Compromise The principal categories of claims classified as liabilities subject to compromise under the Chapter 11 Case are discussed below. All amounts may be subject to adjustment depending on Bankruptcy Court action, further developments with respect to disputed claims, or other events, including the reconciliation of claims filed with the Bankruptcy Court to amounts included in the Company's records. Under a confirmed plan of reorganization, all pre-petition claims may be paid and discharged at amounts substantially less that their allowed amounts. As a result of the Chapter 11 Case, no principal or interest payments may be made on unsecured pre-petition debt without Bankruptcy Court approval or until a plan of reorganization providing for the repayment terms has been confirmed by the Bankruptcy Court and becomes effective. Therefore, interest on pre-petition unsecured obligations has not been accrued or recorded after the Petition Date. Contractual interest expense not accrued or recorded on certain prepetition debt totaled approximately $4.8 million since the filing of the Chapter 11 case. Restructuring Charges Expenses directly incurred as a result of the Chapter 11 Case have been segregated within normal operations and are disclosed separately. The majority of the expenses consist of professional fees for financial advisors, legal counsel, consulting and other costs related to professional services. Costs incurred related to the restructuring approximate $4.6 million through the period ended September 30, 2002 NOTE 2 FINANCINGS The Company presently has outstanding $100.0 million of Senior Notes due on May 15, 2008 that bear interest at 11% per annum, payable semi-annually. The Company did not make the required $5.5 million interest payment due November 15, 2001 or the payment due on May 15, 2002 and does not anticipate making the November 15, 2002 payment. The Company is currently in default under the Notes. The Company will seek to negotiate a plan of reorganization under Chapter 11 of the United States Bankruptcy Code. The Company has a credit facility (the "Credit Facility") for $20.0 million. The Company is in default of certain financial covenants and cross default provisions of the Credit Facility agreement. NOTE 3 RECENT ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142 (SFAS 142), "Goodwill and Other Intangible Assets." SFAS 142 supersedes AFB Option No. 17, "Intangible Assets," and requires goodwill and other intangible assets that have an indefinite useful life to no longer be amortized; however, these assets must be reviewed at least annually for impairment. The Company has completed the transitional goodwill impairment test and has concluded that there was no impairment to goodwill as of January 1, 2002, the date of adoption of SFAS 142. If SFAS 142 had been adopted for the three and nine months ended September 30, 2001, reported net loss and basis earnings per share would have been as follows (in thousands, except per share amounts):
Three months ended Nine months ended September 30, 2002 September 30, 2002 ------------------- ------------------ Reported Net Income (Loss) $(3,667) $ (7,296) Add back: Goodwill Amortization 467 1,910 ------- -------- Adjusted net income (Loss) (3,200) $ (5,386) ------- -------- Basic Earnings Per Share Reported net income (Loss) $(18,335) $(36,480) Goodwill amortization 2,334 9,550 -------- -------- Adjusted net income (Loss) $(16,000) $(26,930) -------- --------
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, 2001. RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2001 Net revenues. Net revenues decreased 7.1% to $6.3 million for the three months ended September 30, 2002 from $6.8 million for the three months ended September 30, 2001. The decrease in revenues was primarily due to a drop in the Company's overall bulletin occupancy from 61.2% as of September 30, 2001 to 57.4% in September 30, 2002. This overall drop was primarily in the Midwest and Mid Atlantic divisions. Direct operating expenses. Direct operating expenses (which include sales, lease and production expenses) increased 9.5% to $2.7 million for the third quarter of 2002 from $2.5 million for the comparable period in 2001. This increase was primarily attributed to increases in production and lease expense. Sales expense increased as a percentage of net revenues from 9.9% in the third quarter of 2001 to 11.2% in 2002. The increase in sales expense as a percentage of net revenues was primarily due to an increase in the number of salesmen and higher commission rates paid in an effort to stimulate more sales. Lease expense increased as a percentage of net revenues in the third quarter from 15.0% in 2001 to 18.1% in 2002. This was due primarily to the fixed nature of the Company's lease cost on lower revenues. Production expense increased as a percentage of net revenues from 11.4% in the third quarter of 2001 to 13.3% in 2002, primarily due to significant increases in sign maintenance costs attributed to increased paint outs of non-paying customers, and higher utility costs. General and administrative expenses. General and administrative expenses decreased by 36.4% to $1.2 million for the quarter ended September 30, 2002 from $1.9 million in 2001, a decrease as a percentage of net revenues to 19.0% from 27.9%. This decrease is primarily due to additional bad debt expense and higher expenses in the salary expense recorded in the third quarter of 2001. Depreciation and amortization expense. Depreciation and amortization expense decreased to $2.1 million for the quarter ended September 30, 2002 from $3.0 million in 2001. The decrease is primarily due to the accelerated amortization of certain financing costs attributed to the Refinancing that was booked in the quarter ended September 30, 2001. In addition, the Company had no goodwill amortization expense in the quarter ended September 30, 2002 due to the adoption of FAS. 142. Restructuring charges. Restructuring charges of $1.4 million were incurred in the quarter ended September 30, 2002 compared to the quarter ended September 30, 2001. This increase is attributed to charges relating to the voluntary bankruptcy and reorganization efforts of the Company. Interest expense. Interest expense decreased to $.7 million for the third quarter ended 2002 compared to $3.4 million in the same period in 2001. This decrease is attributable to the interest on the Notes not accruing for this period due to the Chapter 11 case. Income taxes. At December 31, 2001, the Company had net operating loss carry forwards of approximately $61.0 million for federal and state income tax purposes, which expire in varying amounts from 2009 through 2021. During the quarter ended September 30, 2002, the Company increased the valuation allowance by $.6 million on deferred tax assets. The Company is required to record a valuation allowance when it is "more likely than not that some portion or all of the deferred tax assets will not be realized," The Company has assessed its earnings history and anticipated earnings, the expiration dates of carry forwards and other factors and has determined that the valuation allowances is required. NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2001 Net revenues. Net revenues decreased 7.8% to $18.8 million for the nine months ended September 30, 2002 from $20.4 million for the nine months ended September 30, 2001. The decrease in revenues was primarily due to a drop in the Company's overall bulletin occupancy from 61.2% as of September 30, 2001 to 57.4% in September 30, 2002. This overall drop was primarily in the Midwest and Mid Atlantic divisions. Direct operating expenses. Direct operating expenses (which include sales, lease and production expenses) increased 10.0% to $8.1 million for the first nine months of 2002 from $7.3 million for the comparable period in 2001. This increase was primarily attributed to increases in production and lease expense. Sales expense increased as a percentage of net revenues from 10.1% in the first nine months of 2001 to 11.3% in 2002. The increase in sales expense as a percentage of net revenues was primarily due to an increase in the number of salesmen and higher commission rates paid in an effort to stimulate more sales. Lease expense increased as a percentage of net revenues in the first nine months from 15.4% in 2001 to 18.8% in 2002. This was due primarily to the fixed nature of the Company's lease cost on lower revenues. Production expense increased as a percentage of net revenues from 10.5% in the first nine months of 2001 to 13.0% in 2002, primarily due to significant increases in sign maintenance costs, attributed to increased paint outs of non-paying customers, higher utility costs, and increased paint face cost reflecting sales shift to shorter term contracts. General and administrative expenses. General and administrative expenses decreased by 20.0% to $3.5 million for the nine months ended September 30, 2002 from $4.4 million in 2001, a decrease as a percentage of net revenues to 18.9% from 21.7%. This decrease in 2002 is primarily due to additional bad debt expense and higher expenses in the salaries category booked in the first quarter of 2001. Depreciation and amortization expense. Depreciation and amortization expense decreased to $6.3 million for the nine months ended September 30, 2002 from $9.2 million in 2001. The decrease is due primarily to the accelerated amortization of certain financing costs attributed to the Refinancing that was booked in the nine month period ended September 30, 2001. Also, the Company had no goodwill amortization expense in the nine month period ended September 30, 2002 due to the adoption of FAS. 142. Restructuring charges. Restructuring charges of $4.6 million were incurred in the nine month period ended September 30, 2002 compared to the nine month period ended September 30, 2001. This increase is attributed to charges relating to the voluntary bankruptcy and reorganization efforts of the Company. Interest expense. Interest expense decreased to $5.4 million for the nine month period ended 2002 compared to $10.1 million in the same period in 2001. This decrease is attributable to the interest not being accrued on the Notes since the Company filed for Chapter 11 protection. Income taxes. At December 31, 2001, the Company had net operating loss carry forwards of approximately $61.0 million for federal and state income tax purposes, which expire in varying amounts from 2009 through 2021. During the nine month period ended September 30, 2002, the Company increased the valuation allowance by $3.4 million on deferred tax assets. The Company is required to record a valuation allowance when it is "more likely than not that some portion or all of the deferred tax assets will not be realized," The Company has assessed its earnings history and anticipated earnings, the expiration dates of carry forwards and other factors and has determined that the valuation allowances is required. 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. The Company is highly leveraged with debt. The Company is presently experiencing a downturn in advertising revenues and is not generating sufficient cash flow to service all of its debts. There can be no assurance that the advertising revenues will increase sufficiently for the Company to be able to service its debt. The Company is in default under its debt instruments. The Company presently has outstanding $100.0 million of Senior Notes due on May 15, 2008 that bear interest at 11% per annum, payable semi-annually (the "Notes"). The Company is in default under the Notes because the Company did not make the required $5.5 million interest payment due November 15, 2001 or the May 15, 2002 payment and does not anticipate making the November 15, 2002 payment. The Company has a credit facility (the "Credit Facility") for $20.0 million. The Company is in default of certain financial covenants and cross default provisions of the Credit Facility agreement. The Company had $18.2 million outstanding as of September 30, 2002 under the Credit Facility. On Thursday April 25, 2002, certain holders of the Notes filed an involuntary petition under Chapter 11 of the United States Bankruptcy Law, Title 11, United States Code against the Company. The Company consented to the entry of an Order for Relief and filed a series of motions that were heard by the Bankruptcy Court in Columbus, Georgia, on April 26, 2002. At a May 21, 2002 hearing held before the United States Bankruptcy Court for the Middle District of Georgia in Columbus, Georgia, the Company was authorized to use cash collateral- i.e. the cash proceeds of its assets in which Ableco Finance, LLC held a security interest. The Company is currently operating as debtor-in-possession and expects to continue to conduct its business in the ordinary course and to pursue its efforts to reorganize and restructure its debts during the bankruptcy case. The Company has attempted to maintain normal and regular trade terms with its suppliers and customers. The restructuring contemplates that the Company's trade suppliers, employees and customers will not be adversely affected while the Company is in the reorganization proceedings or thereafter. The Company believes that it has sufficient liquidity to pay its post-bankruptcy obligations as they arise in the ordinary course of business. There can be no assurance that a plan will be approved by the Bankruptcy Court. There can also be no assurance that the Company's suppliers will continue to provide normal trade credit or credit on other terms acceptable to the Company, if at all, or that customers will continue to do business or enter into new business with the Company. No assurances can be given that the Company will be successful in getting a plan confirmed by the United States Bankruptcy Court. The Company had an agreement with Jefferies & Co. to serve as its financial advisor that was terminated by Jefferies & Co. as of May 1, 2002. The Company currently has not hired a new financial advisor. Net cash provided by operating activities was $2.6 million for the first nine months of 2002 compared to net cash used in operating activities of $.2 million for the first nine months of 2001. 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 deficit of $125.3 million as of September 30, 2002 compared to a working capital deficit of $119.1 million as of December 31, 2001. 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, 2001 incorporated by reference herein. PART II-OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On Thursday, April 25, 2002, certain holders of the Company's $100.0 million of Senior Notes due on May 15, 2008, including Sun-America Life Insurance Company, Pacholder High Yield Fund, Inc. and Strong High-Yield Bond Fund, filed an involuntary petition under Chapter 11 of the United States Bankruptcy Law, Title 11, United States Code against the Company. The case was filed in the United States Bankruptcy Court for the Middle District of Georgia. The Company consented to the entry of an Order for Relief and filed a series of motions that were heard by the Bankruptcy Court in Columbus, Georgia on April 26, 2002. At a May 21, 2002 hearing held before the United States Bankruptcy Court for the Middle District of Georgia in Columbus, Georgia, the Company was authorized to use cash collateral- i.e. the cash proceed of its assets in which Ableco Finance, LLC held a security interest. The Company is currently operating as debtor-in-possession and expects to continue to conduct its business in the ordinary course and to pursue its efforts to reorganize and restructure its debts during the bankruptcy case. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None ITEM 3. DEFAULTS UPON SENIOR SECURITIES The Company presently has outstanding $100.0 million of Senior Notes due May 15, 2008 that bear interest at 11% per annum, payable semi-annually. The Company is in default under the Notes because the Company did not make the $5.5 million interest payment due November 15, 2001 or the May 15, 2002 payment and does not anticipate making the payment due on November 15, 2002. The Company has a $20.0 million credit facility (the "Credit Facility"). The Company is in default on certain financial covenants and cross-default provisions of the Credit Facility Agreement. The Company has $18.2 million outstanding as of September 30, 2002 under the Credit Facility. The lender under the Credit Facility is not required to make additional advances under the Credit Facility so long as the Company remains in default. 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 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION *3.1 Restate Certificate of Incorporation of the Company by the Secretary of State of Kansas *3.2 By-Laws of the Company *4.1 Indenture dated as of May 15, 1998 relating to the Company's Senior Notes due 2008 and the 11% Senior Services B Notes due 2008 *4.2 Form of Global Note *10.1 Asset Purchase Agreement, dated as of May 6, 1997, between the Company and Tri-State Systems, Inc. *10.2 Asset Purchase Agreement, dated as of February 13, 1998, between the Company and Unisign Corporation, Inc. *10.3 Registration Rights Agreement dated as of May 13, 1998 relating to the Company's 11% Senior Notes due 2008 *10.4 Pledge Agreement dated as of May 15, 1998 relating to the Company's 11% Senior Notes due 2008 *10.5 Tax Sharing Agreement dated as of May 20, 1998 relating to SGH Holdings, Inc. and the Company *10.6 Second Amended and restated Stockholders Agreement dated as of February 27, 1998 *10.7 Anti-Dilution Agreement, dated as of February 19, 1998 *10.8 Credit Agreement dated as of May 20, 1998 between the Company and The First National Bank of Chicago *10.9 Asset Purchase Agreement dated as of September 4, 1998, by and between Tri-State Outdoor Media Group, Inc. and Western Outdoor Advertising Co. *10.10 Credit Agreement among Tri-State Outdoor Media Group, Inc., the Lending Institutions Party Thereto, as Lenders and The First National Bank of Chicago, as Agent, dated as of September 18, 1998
**10.11 Asset Purchase Agreement dated as of September 12, 1998 by and between Tri-State Outdoor Media Group, Inc. and John R. Leslie, Sr., Trading as Leslie Outdoor Advertising, Filed herewith **10.12 Asset Purchase Agreement dated as of July 23, 1998 by and between Tri-State Outdoor Media Group, Inc. and Boon Company, Inc. Filed herewith **10.13 First Amendment to Credit Agreement dated as of March 1, 1999. ***10.14 Amended and Restated Credit Agreement dated as of August 12, 1999. ****10.15 Amendment to the Credit Agreement dated as of October 15, 1999. *****10.16 Credit Agreement dated as of March 20, 2001 between the Company and Ableco Finance LLC ******10.17 Forbearance Agreement dated as of November 13, 2001 between the Company and Ableco Finance LLC *25.1 Statement of Eligibility of Trustee on Form T-1 of IBJ Schroder Bank & Trust Company
- ---------- * Incorporated herein by reference to the Exhibits to the Company's registration statement on Form S-4 (Registration Number 333-59137). ** Incorporated herein by reference to Exhibits to the Company's Form 10-K for the year ended December 31, 1999. *** Incorporated herein by referenced to the Exhibits to the Company's Form 10-Q for the quarter ended September 30, 1999. **** Incorporated herein by reference to Exhibits to the Company's Form 10-K for the year ended December 31,1999 ***** Incorporated herein by reference to Exhibits to the Company's Form 10-Q for the quarter ended September 30, 2001 ****** Incorporated herein by reference to Exhibits to the Company's Form 10-Q for the quarter ended September 30, 2001 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. November 14, 2002 /s/Sheldon G. Hurst --------------------- Sheldon G. Hurst Chief Executive Officer and Director November 14, 2002 /s/ Matthew B. Holt ------------------- Matthew B. Holt Acting Chief Financial Officer, Secretary, and Principal Accounting Officer EXHIBIT A CERTIFICATION OF PERIODIC REPORT I, SHELDON G. HURST of TRI-STATE OUTDOOR MEDIA GROUP,INC. (the "Company"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: (1) the Quarterly Report on Form 10-Q of the Company for the QUARTERLY PERIOD ended September 30, 2002 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: November 14, 2002 Sheldon G. Hurst ---------------- Sheldon G. Hurst CEO EXHIBIT A CERTIFICATION OF PERIODIC REPORT I, MATTHEW B. HOLT of TRI-STATE OUTDOOR MEDIA GROUP,INC. (the "Company"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: (3) the Quarterly Report on Form 10-Q of the Company for the QUARTERLY PERIOD ended September 30, 2002 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (4) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: November 14, 2002 Matthew B. Holt --------------- Matthew B. Holt ACTING CFO -----END PRIVACY-ENHANCED MESSAGE-----