UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-K (MarkForm 10-K/A
Amendment No. 1
(Mark One)
[X][X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934For the fiscal year ended December 31,
20022003[]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934For the transition period fromto
--------------- ---------------Commission File Number 0-30242
LAMAR ADVERTISING COMPANY
Lamar Advertising CompanyCommission File Number 1-12407
LAMAR MEDIA CORP. (ExactLamar Media Corp.(Exact name of registrants as specified in their charters)
Delaware 72-1449411 Delaware 72-1205791 (State(State or other jurisdiction of incorporation or organization) (I.R.S.(I.R.S. Employer Identification No) 5551 Corporate Blvd., Baton Rouge, LA 70808 (Address(Address of principal executive offices) (Zip(Zip Code) Registrants'Registrants’ telephone number, including area code: (225) 926-1000SECURITIES OF LAMAR ADVERTISING COMPANY
REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each Exchange Title of Each Class: On Which Registered: -------------------- ---------------------None N/ANone
SECURITIES OF LAMAR ADVERTISING COMPANY
REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:Class A common stock, $.001 par value
SECURITIES OF LAMAR MEDIA CORP.
REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:None
REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark whether each 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Lamar Advertising
Company'sCompany’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]Indicate by check mark whether Lamar Advertising Company is an accelerated filer (as defined in Rule 126-2 under the Securities Exchange Act of 1934). Yes [X] No [ ]
Indicate by check mark whether Lamar Media Corp. is an accelerated filer (as defined in Rule 126-2 under the Securities Exchange Act of 1934). Yes [ ] No [X]
The aggregate market value of the voting stock held by nonaffiliates of Lamar Advertising Company as of June
28, 2002: $2,949,493,18130, 2003: $2,897,761,305The number of shares of Lamar Advertising
Company'sCompany’s Class A common stock outstanding as ofMarch 5, 2003: 85,677,059February 20, 2004: 87,546,504
The number of shares of the Lamar AdvertisingCompany'sCompany’s Class B common stock outstanding as ofMarch 5, 2003: 16,417,073 THIS COMBINED FORM 10-K IS SEPARATELY FILED BYFebruary 20, 2004: 16,147,073This combined Form 10-K/A is separately filed by (i)
LAMAR ADVERTISING COMPANY AND II) LAMAR MEDIA CORP. (WHICH IS A WHOLLY-OWNED SUBSIDIARY OF LAMAR ADVERTISING COMPANY)Lamar Advertising Company and (ii) Lamar Media Corp. (which is a wholly-owned subsidiary of Lamar Advertising Company).LAMAR MEDIA CORP. MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONLamar Media Corp. meets the conditions set forth in general instruction I(1) (a)ANDand (b) of Form 10-K and is, therefore, filing this form with the reduced disclosure format permitted by such instruction.TABLE OFFORM 10-K AND IS, THEREFORE, FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT PERMITTED BY SUCH INSTRUCTION. 1CONTENTS DOCUMENTS INCORPORATED BY REFERENCE
Portions of Lamar Advertising
Company'sCompany’s proxy statement for the Annual Meeting of Stockholders to be held on May22, 200327, 2004 are incorporated by reference into Part III of this Form10-K.10-K/A.NOTE REGARDING FORWARD-LOOKING STATEMENTS
This combined Annual Report on Form
10-K10-K/A of Lamar Advertising Company and Lamar Media Corp. contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These are statements that relate to future periods and include statements about theCompany's,Company’s, and LamarMedia's: o expected operating results; o market opportunities; o acquisition opportunities; o ability to compete; and o stock price.Media’s:
• expected operating results; • market opportunities; • acquisition opportunities; • ability to compete; and • stock price. Generally, the words anticipates, believes, expects, intends, estimates, projects, plans and similar expressions identify forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the
Company'sCompany’s and LamarMedia'sMedia’s actual results, performance or achievements or industry results, to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. These risks, uncertainties and other important factors include, among others:o the performance of the U.S. economy generally and the level of expenditures on outdoor advertising particularly; o the Company's ability to renew expiring contracts at favorable rates; o the integration of companies that the Company acquires and its ability to recognize cost savings or operating efficiencies as a result of these acquisitions; o risks and uncertainties relating to the Company's significant indebtedness; o the Company's need for and ability to obtain additional funding for acquisitions or operations; and o the regulation of the outdoor advertising industry.
• risks and uncertainties relating to the Company’s significant indebtedness; • the demand for outdoor advertising; • the performance of the U.S. economy generally and the level of expenditures on outdoor advertising particularly; • the Company’s ability to renew expiring contracts at favorable rates; • the integration of companies that the Company acquires and its ability to recognize cost savings or operating efficiencies as a result of these acquisitions; • the Company’s need for and ability to obtain additional funding for acquisitions or operations; and • the regulation of the outdoor advertising industry. The forward-looking statements contained in this combined Annual Report on Form
10-K10-K/A speak only as of March 10, 2004, the dateofthis combined AnnualReport.Report was originally filed. Lamar Advertising Company and Lamar Media Corp. expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained in this combined Annual Report to reflect any change in their expectations with regard thereto or any change in events, conditions or circumstances on which any forward-looking statement is based.2
PART I
Explanatory Note
The purpose of this Form 10-K/A is to amend the Form 10-K filed March 10, 2004 to reflect a change in the way the Company applies Financial Accounting Standard 143, “Accounting for Asset Retirement Obligations,” which the Company adopted effective January 1, 2003. In connection with the preparation of its Form 10-Q for the quarter ended September 30,2004, the Company decided, in consultation with its outside auditors, to expand the scope of the outdoor advertising structures that are subject to the calculation of the asset retirement obligation required under Financial Accounting Standard 143 by including steel structures in addition to non-steel structures, instead of accounting for such costs under Financial Accounting Standard 13, “Accounting for Leases.”
This change in the application of this accounting policy requires the Company to restate its financial statements for the year ended December 31, 2003 included in Item 8. As a result of this restatement, the Company has also made changes to Selected Financial Data (Item 6) and Management’s Discussion and Analysis of Financial Condition and Results of Operations (Item 7) to reflect the restatement. In order to preserve the nature and character of the disclosures set forth in our Form 10-K as originally filed, no attempt has been made in this amendment to modify or update such disclosures except as required to reflect the effects of the restatement. As a result, this Form 10-K/A contains forward-looking information which has not been updated for events subsequent to March 10, 2004, and we direct you to our SEC filings filed subsequent to March 10, 2004. The Company is also restating unaudited condensed consolidated financial statements for quarters ended March 31, 2004 and June 30, 2004 and amending the respective Form 10-Q filings for those periods.
For more information, see note 2
PART Ito the audited consolidated financials statements and “Restatement of Financial Statements” under Management’s Discussion and Analysis of Financial Condition and Results of Operations.ITEM 1. BUSINESS
GENERALGeneral
Lamar Advertising Company, referred to herein as the Company or Lamar Advertising, is one of the largest outdoor advertising companies in the United States based on number of displays and has operated under the Lamar name since 1902. As of December 31,
2002,2003, the Company owned and operatedapproximately 146,000over 147,000 billboard advertising displays in4443 states, operated over95,00098,000 logo advertising displays in2120 states and the province of Ontario, Canada, and operated approximately 13,000 transit advertising displays in1614 states.The Company makes its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports available free of charge through its website, www.lamar.com, as soon as reasonably practicable after filing them with or furnishing them to the Securities and Exchange Commission. Information contained on the website is not part of this report.
The three principal areas that make up the
Company'sCompany’s business are:o Billboard advertising.
•Billboard advertising.The Company offers customers a fully integrated service, covering their billboard display requirements from ad copy production to placement and maintenance. The Company’s billboard advertising displays are comprised of bulletins and posters. As a result of their greater impact and higher cost, bulletins are usually located on major highways. Posters are usually concentrated on major traffic arteries or on city streets to target pedestrian traffic. •Logo signs.The Company is the largest provider of logo sign services in the United States, operating 20 of the 25 privatized state logo sign contracts. Logo signs are erected near highway exits to direct motor traffic to service and tourist attractions, as well as to advertise gas, food, camping and lodging. •Transit advertising.The Company provides transit advertising in 38 transit markets. Transit displays appear on the exterior or interior of public transportation vehicles or stations. The
Company offers customers a fully integrated service, covering their billboard display requirements from ad copy production to placement and maintenance. The Company's billboard advertising displays are comprised of bulletins and posters. As a result of their greater impact and higher cost, bulletins are usually located on major highways. Posters are usually concentrated on major traffic arteries or on city streets to target pedestrian traffic. o Logo signs. The Company is the largest provider of logo sign services in the United States, operating 21 of the 26 privatized state logo sign contracts. Logo signs are erected near highway exits to direct motor traffic to service and tourist attractions, as well as to advertise gas, food, camping and lodging. o Transit advertising. The Company provides transit advertising in 41 transit markets. Transit displays appear on the exterior or interior of public transportation vehicles or stations, such as buses, trains, commuter rail, subways, platforms and terminals. The Company'sCompany’s business has grown rapidly through a combination of internal growth and acquisitions. TheCompany'sCompany’s growth has been enhanced by strategic acquisitions that resulted in increased operating efficiencies, greater geographic diversification and increased market penetration. Historically, focus has been on small to mid-sized markets where acquisition opportunities have been pursued in order to establish a leadership position. Since January 1, 1997, the Company has successfully completed over450538 acquisitions of outdoor advertising businesses and assets. TheCompany'sCompany’s acquisitions have expanded its operations in major markets and it currently has a presence in3532 of the top 50 outdoor advertising markets in the United States. TheCompany'sCompany’s large national footprint gives it the ability to offer cross-market advertising opportunities to both local and national advertising customers.The Company has been in operation since 1902 and completed a reorganization on July 20, 1999 to create a new holding company structure. At that time, Lamar Advertising Company was renamed Lamar Media Corp. and all its stockholders became stockholders in a new holding company. The new holding company then took the Lamar Advertising Company name and Lamar Media Corp. became a wholly owned subsidiary of Lamar Advertising Company.
STRATEGYStrategy
The
Company'sCompany’s objective is to be a leading provider of outdoor advertising services in the markets it serves. TheCompany'sCompany’s strategy to achieve this goal includes the following elements:Continue to provide high quality local sales and service.The Company seeks to identify and closely monitor the needs of its customers and to provide them with a full complement of high quality advertising
services at a lower cost than competitive media.services. Local advertising constituted approximately86%82% of its net revenues for the year ended December 31,2002,2003, which management believes is higher than the industry average. The Company believes that the experience of its regional and local managers has contributed greatly to its success. For example, theCompany'sCompany’s regional managers have been with the Company for an average of2223 years. In an effort to provide high quality sales service at the local level, the Company employed785524 local account executives as of December 31,2002.2003. Local account executives are typically supported by additional local staff and have the ability to draw upon the resources of the central office, as well as offices in its other markets, in the eventthatbusiness opportunities orcustomers'customers’ needs support such an allocation of resources.Continue a centralized control and decentralized management structure.The
Company'sCompany’s management believes that for its particular business, centralized control and a decentralized organization provides for greater economies of scale and is more3
responsive to local market demands. Therefore, the Company maintains centralized accounting and financial control over its local operations, but the local managers are responsible for the day-to-day operations in each local market and are compensated according to that
market'smarket’s financial performance.Continue to focus on internal growth.Within its existing markets, the Company seeks to increase its revenue and improve its cash flow by employing highly targeted local marketing efforts to improve its display occupancy rates and by increasing advertising rates. This strategy is facilitated through its local offices, which allows the Company to respond quickly to the demands of its local customer base. In addition, the Company routinely invests in upgrading its existing displays and constructing new displays in order to provide high quality service to its current customers and to attract new advertisers. From January 1, 1997 to December 31,
2002,2003, the Company has invested over$410$489.3 million in improvements to its existing displays and in constructing new displays.Continue to pursue strategic acquisitions.The Company intends to enhance its growth by pursuing strategic acquisitions, which it anticipates will result in increased operating efficiencies, greater geographic diversification and increased market penetration. In addition to acquiring outdoor advertising assets in new markets, the Company purchases
complimentarycomplementary outdoor advertising assets within its existing markets or in contiguous markets. The Company believes that acquisitions offer opportunities for inter-market cross-selling. Although the advertising industry is becoming more consolidated, the Company believes there will be continuing opportunities for implementing its acquisition strategy given theindustry'sindustry’s continued fragmentation among smaller advertising companies. From January 1,20022003 to December 31,2002,2003, the Company completed7584 acquisitions of advertising businesses and assets for an aggregate purchase price of approximately$135$188.2 million. Certain of theCompany'sCompany’s principal acquisitions since January 1,20022003 are described below.Delite Outdoor,
of Ohio Holdings,Inc.- OnJanuary 1, 2002,March 3, 2003, the Company purchased the stock of Delite Outdoor,of Ohio Holdings,Inc. for$38$18.0 million. The purchase price consisted of963,488588,543 shares of Lamar Advertising Class A commonstock. MC Partnersstock valued at $18.0 million.Outdoor Media Group, Inc.- On
January 8, 2002,May 1, 2003, the Company purchased the assets ofMC Partners for a cash purchase price of approximately $15.3 million. AmericanOutdoorAdvertising, Inc. On May 31, 2002, the Company purchased the assets of American Outdoor Advertising,Media Group, Inc. for$15.7$40.0 million. The purchase price consisted of349,376307,134 shares of Lamar Advertising Class A common stock as well as approximately$725 thousand in$30.0 million cash.Adams Outdoor, Inc.- On June 2, 2003, the Company purchased the stock of Adams Outdoor, Inc. for approximately $40.1 million. The purchase price included 501,626 shares of Lamar Advertising Class A common stock and approximately $22.6 million cash.
Continue to pursue other outdoor advertising opportunities.The Company plans to pursue additional logo sign contracts. Logo sign opportunities arise periodically, both from states initiating new logo sign programs and states converting from government-owned and operated programs to privately-owned and operated programs. Furthermore, the Company plans to pursue additional tourist oriented directional sign programs in both the United States and Canada and also other motorist information signing programs as opportunities present themselves. In an effort to maintain market share, the Company has entered the transit advertising business through the operation of displays on bus shelters, benches and buses in
4138 of its outdoor advertising markets.COMPANY OPERATIONS
BILLBOARD ADVERTISING INVENTORY:Billboard Advertising
Inventory:
The Company operates the following types of billboard advertising displays:
BULLETINSBulletinsgenerally are 14 feet high and 48 feet wide (672 square feet) and consist of panels on which advertising copy is displayed. The advertising copy is printed with computer-generated graphics on a single sheet of vinyl that is wrapped around the structure. On occasion, to attract more attention, some of the panels may extend beyond the linear edges of the display face and may include three-dimensional embellishments. Because of their greater impact and higher cost, bulletins are usually located on major highways.
POSTERSPostersgenerally are 12 feet high by 25 feet wide (300 square feet) and are the most common type of billboard. Advertising copy for these posters consists of lithographed or silk-screened paper sheets supplied by the advertiser that are pasted and applied like wallpaper to the face of the display, or single sheets of vinyl with computer-generated advertising copy that are wrapped around the structure. Standardized posters are concentrated on major traffic arteries or on city streets and target pedestrian traffic.
4
For the year ended December 31,
2002,2003 approximately 72% of theCompany'sCompany’s billboard advertising net revenues were derived from bulletin sales and 28% from poster sales.4The physical structures on which the advertising displays are located are owned by the Company and are built on locations the Company either owns or leases. In each local office one employee typically performs site leasing activities for the markets served by that office. See Item 2.
- "Properties".– “Properties.”Bulletin space is generally sold as individually selected displays for the duration of the advertising contract. Bulletins may also be sold as part of a rotary plan where advertising copy is periodically rotated from one location to another within a particular market. Poster space is generally sold in packages called showings, which comprise a given number of displays in a market area. Posters provide advertisers with access either to a specified percentage of the general population or to a specific targeted audience. Displays making up a showing are placed in well-traveled areas and are distributed so as to reach a wide audience in a particular market. Bulletin space is generally sold for 6 to 12 month periods. Poster space averages between 30 and 90 days.
PRODUCTION:Production:
In the majority of the
Company'sCompany’s markets, its local production staffs perform the full range of activities required to create and install billboard advertising displays. Production work includes creating the advertising copy design and layout, coordinating its printing and installing the designs on displays. The Company provides its production services to local advertisers and to advertisers that are not represented by advertising agencies, since national advertisers represented by advertising agencies often use preprinted designs that require only installation. TheCompany'sCompany’s creative and production personnel typically develop new designs or adopt copy from other media for use on billboards. TheCompany'sCompany’s artists also often assist in the development of marketing presentations, demonstrations and strategies to attract new customers.With the increased use of vinyl and pre-printed advertising copy furnished to the outdoor advertising company by the advertiser or its agency, outdoor advertising companies require less labor-intensive production work. In addition, increased use of vinyl and preprinted copy is also attracting more customers to the outdoor advertising medium. The Company believes this trend over time will reduce operating expenses associated with production activities.
CATEGORIES OF BUSINESS:Categories of Business:
The following table sets forth the top ten categories of business from which the Company derived its billboard advertising revenues for the year ended December 31,
20022003 and the respective percentages of such revenue. These categories accounted for approximately71%73% of theCompany'sCompany’s billboard advertising net revenues in the year ended December 31,2002.2003. No one advertiser accounted for more than 1% of theCompany'sCompany’s billboard advertising net revenues in that period.
PERCENTAGE NET ADVERTISING CATEGORIES REVENUESPercentage Net Advertising Categories Revenues Restaurants 12%12 % Retailers 10%10 % Automotive 10%10 % Hotels and Motels 9%8 % Gaming 6%6 % Health Care 6%6 % Service 5%6 % Amusement -– Entertainment/Sports5%5 % Financial -– Banks/Credit Unions4%5 % Real Estate Companies 4% ------ 71%5 % 73 % LOGO SIGNSLogo Signs
The Company entered the business of logo sign advertising in 1988. The Company is the largest provider of logo sign services in the United States, operating
2120 of the2625 privatized state logo contracts. The Company operates over 28,000 logo sign structures containing over95,00098,000 logo advertising displays in the United States and Canada.5
The Company has been awarded contracts to erect and operate logo signs in the province of Ontario, Canada and the following states:
Colorado Kentucky Missouri (1) Ohio Delaware Maine Nebraska Oklahoma Florida Michigan Nevada South Carolina Georgia Minnesota New Jersey Texas Kansas Mississippi New Mexico Utah Virginia - ----------
Colorado Kentucky Missouri(1) Oklahoma Delaware Maine Nebraska South Carolina Florida Michigan Nevada Texas Georgia Minnesota New Jersey Utah Kansas Mississippi Ohio Virginia
(1) The logo sign contract in Missouri is operated by a 66 2/3% owned partnership.The Company also operates the tourism signing contracts for the states of Colorado, Kentucky, Michigan, Missouri, Nebraska, Nevada, New Jersey and Ohio, as well as for the province of Ontario, Canada.
State logo sign contracts represent the contract right to erect and operate logo signs within a state. The term of the contracts vary, but generally range from five to ten years, with additional renewal terms. The logo sign contracts generally provide for termination by the state prior to the end of the term of the contract, in most cases with compensation to be paid to the Company. At the end of the term of the contract, ownership of the structures is transferred to the state. Depending on the contract in question, the Company may or may not be entitled to compensation at the end of the contract term. Of the
Company'sCompany’s logo sign contracts in place at December 31,2002,2003, three are due to terminate in2003,2004, one inSeptemberApril, one in June andtwoone in December andtwo areone is subject to renewal in2003, one in July and one in September.April 2004. The Company also designs and produces logo sign plates for its customers throughout the country, as well as customers in states which have not yet privatized their logo sign programs.TRANSIT ADVERTISINGTransit Advertising
The Company entered into the transit advertising business in 1993. The Company provides transit advertising on bus shelters, benches and buses in
4138 transit markets. TheCompany'sCompany’s production staff provides a full range of creative and installation services to its transit advertising customers.COMPETITION
BILLBOARD ADVERTISINGBillboard Advertising
The Company competes in each of its markets with other outdoor advertisers, as well as other media, including broadcast and cable television, radio, print media and direct mail marketers. In addition, the Company also competes with a wide variety of out-of-home media, including advertising in shopping centers, malls, airports, stadiums, movie theaters and supermarkets, as well as on taxis, trains and buses. Advertisers compare relative costs of available media and cost-per-thousand impressions, particularly when delivering a message to customers with distinct demographic characteristics. In competing with other media, outdoor advertising relies on its relative cost efficiency and its ability to reach a broad segment of the population in a specific market or to target a particular geographic area or population with a particular set of demographic characteristics within that market.
The outdoor advertising industry is fragmented, consisting of several large outdoor advertising and media companies with operations in multiple markets, as well as smaller and local companies operating a limited number of structures in single or a few local markets. Although the advertising industry is becoming more consolidated, according to the Outdoor Advertising Association of America (OAAA) as of December 31,
2002,2003, there were approximately600645 companies in the outdoor advertising industry operating approximately600,0001,165,444 outdoor displays. In a number of its markets, the Company encounters direct competition from other major outdoor media companies, including Infinity Broadcasting Corp. (formerly Outdoor Systems, Inc.) and Clear Channel Communications, Inc. (formerly Eller Media Company) both of which may have greater total resources than the Company. The Company believes that its strong emphasis on sales and customer service and its position as a major provider of advertising services in each of its primary markets enables it to compete effectively with the other outdoor advertising companies, as well as other media, within those markets. However, certain of theCompany'sCompany’s large competitors with other media assets such as radio and television have the ability to cross-sell their different advertising products to their customers.LOGO SIGNSLogo Signs
The Company faces competition in obtaining new logo sign contracts and in bidding for renewals of expiring contracts. The Company faces competition from three other providers of logo signs in seeking state-awarded logo service contracts. In addition, local companies within each of the states that solicit bids will compete against the Company in the open-bid process. Competition from these sources is also encountered at the end of each contract period. In marketing logo signs to advertisers, the Company competes with
theother forms of out-of-home advertising described above.6
REGULATION
Outdoor advertising is subject to governmental regulation at the federal, state and local levels. Federal law, principally the Highway Beautification Act of 1965 (the HBA), regulates outdoor advertising on federally aided primary and interstate highways. The HBA requires, as a condition to federal highway assistance, states to restrict billboards on such highways to commercial and industrial areas, and requires certain additional size, spacing and other limitations. All states have passed state billboard control statutes and regulations at least as restrictive as the federal requirements, including removal at the
owner'sowner’s expense and without compensation of any illegal signs on such highways. The Company believes that the number of its billboards that may be subject to removal as illegal is immaterial. No state in which the Company operates has banned billboards, but some have adopted standards more restrictive than the federal requirements. Municipal and county governments generally also have sign controls as part of their zoning laws. Some local governments prohibit construction of new billboards and some allow new construction only to replace existing structures, although most allow construction of billboards subject to restrictions on zones, size, spacing and height.Federal law does not require removal of existing lawful billboards, but does require payment of compensation if a state or political subdivision compels the removal of a lawful billboard along a federally aided primary or interstate highway. State governments have purchased and removed legal billboards for beautification in the past, using federal funding for transportation enhancement programs, and may do so in the future. Governmental authorities from time to time use the power of eminent domain to remove billboards. Thus far, the Company has been able to obtain satisfactory compensation for any of its billboards purchased or removed as a result of governmental action, although there is no assurance that this will continue to be the case in the future. Local governments do not generally purchase billboards for beautification, but some have attempted to force removal of legal but nonconforming billboards (billboards
whichthat conformed with applicable zoning regulations when built but which do not conform to current zoning regulations) after a period of years under a concept called amortization, by which the governmental body asserts that just compensation is earned by continued operation over time. Although there is some question as to the legality of amortization under federal and many state laws, amortization has been upheld in some instances. The Company generally has been successful in negotiating settlements with municipalities for billboards required to be removed. Restrictive regulations also limit theCompany'sCompany’s ability to rebuild or replace nonconforming billboards. The outdoor advertising industry is heavily regulated and at various times and in various markets can be expected to be subject to varying degrees of regulatory pressure affecting the operation of advertising displays. Accordingly, although theCompany'sCompany’s experience to date is that the regulatory environment can be managed, no assurance can be given that existing or future laws or regulations will not materially and adversely affect the Company.EMPLOYEES
The Company employed approximately 3,000 persons at December 31,
2002.2003. Of these, approximately107119 were engaged in overall management and general administration at theCompany'sCompany’s management headquarters and the remainder were employed in theCompany'sCompany’s operating offices. Of the total employees, approximately785817 were direct sales and marketing personnel.The Company has
1413 local offices covered by collective bargaining agreements, consisting of billposters and construction personnel. The Company believes that its relations with its employees, including its124129 unionized employees, are good, and the Company has never experienced a strike or work stoppage.7
ITEM 1A. EXECUTIVE OFFICERS OF THE REGISTRANT
NAME AGE TITLE ---- --- -----Kevin P. Reilly, Jr. 4849 Chairman, President and Chief Executive Officer Keith A. Istre 5051 Chief Financial Officer and Treasurer Sean E. Reilly 4142 Chief Operating Officer and President of the Outdoor Division Each
officer'sofficer’s term of office extends until the meeting of the Board of Directors following the next annual meeting of stockholders and until a successor is elected and qualified or until his or her earlier resignation or removal.Kevin P. Reilly, Jr. has served as the
Company'sCompany’s President and Chief Executive Officer since February 1989 and as a director of the Company since February 1984. Mr. Reilly served as President of theCompany'sCompany’s Outdoor Division from 1984 to 1989. Mr. Reilly, an employee of the Company since 1978, has also served as Assistant and General Manager of theCompany'sCompany’s Baton Rouge Region and Vice President and General Manager of the Louisiana Region. Mr. Reilly received a B.A. from Harvard University in 1977.Keith A. Istre has been Chief Financial Officer of the Company since February
1989 and a director of the Company since February 1991.1989. Mr. Istre joined the Company as Controller in 1978 and became Treasurer in 1985. He also served as a director of the Company from February 1991 to May 2003. Prior to joining the Company, Mr. Istre was employed by a public accounting firm in Baton Rouge from 1975 to 1978. Mr. Istre graduated from the University of Southwestern Louisiana in 1974 with a B.S. in Accounting.Sean E. Reilly has been Chief Operating Officer and President of the
Company'sCompany’s Outdoor Division since November 2001.He has been a director of the Company since 1999.He began working with the Company as Vice President of Mergers and Acquisitions in 1987 and served in that capacity until 1994. He also served as a director of the Company from May 1989 to1996.May 1996 and from May 1999 to May 2003. Mr. Reilly was the Chief Executive Officer of Wireless One, Inc., a wireless cable television company, from 1994 to 1997 after which he rejoined the Company as Vice President of Mergers and Acquisitions and President of theCompany'sCompany’s real estate division, TLC Properties, Inc. Mr. Reilly received a B.A. from Harvard University in 1984 and a J.D. from Harvard Law School in 1989.ITEM 2. PROPERTIES
The
Company'sCompany’s 53,500 square foot management headquarters is located in Baton Rouge, Louisiana. The Company occupies approximately 90% of the space in this facility and leases the remaining space. The Company owns160164 local operating facilities with front office administration and sales office space connected to back-shop poster and bulletin production space. In addition, the Company leases an additional124110 operating facilities at an aggregate lease expense for20022003 of approximately$3.8$3.6 million.The Company owns approximately
3,3004,000 parcels of property beneath outdoor structures. As of December 31,2002,2003, the Company had approximately75,70076,100 active outdoor site leases accounting for a total annual lease expense of approximately$132.3$143.1 million. This amount represented 18% of total outdoor advertising net revenues for that period. TheCompany'sCompany’s leases are for varying terms ranging from month-to-month to in some cases a term of over ten years, and many provide the Company with renewal options. There is no significant concentration of displays under any one lease or subject to negotiation with any one landlord. The Company believes that an important part of its management activity is to manage its lease portfolio and negotiate suitable lease renewals and extensions.ITEM 3. LEGAL PROCEEDINGS
The Company from time to time is involved in litigation in the ordinary course of business, including disputes involving advertising contracts, site leases, employment claims and construction matters. The Company is also involved in routine administrative and judicial proceedings regarding billboard permits, fees and compensation for condemnations. The Company is not a party to any lawsuit or proceeding which, in the opinion of management, is likely to have a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report.
8
PART II
ITEM 5. MARKET FOR THE
REGISTRANT'SREGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERSSince August 2, 1996, the
Company'sCompany’s Class A common stock has traded on the over-the-counter market and prices have been quoted on the Nasdaq National Market under the symbol LAMR. Prior to August 2, 1996, the day on which the Class A common stock was first publicly traded, there was no public market for the Class A common stock. As ofMarch 5, 2003,February 20, 2004, the Class A common stock was held by198189 shareholders of record. The Company believes, however, that the actual number of beneficial holders of the Class A common stock may be substantially greater than the stated number of holders of record because a substantial portion of the Class A common stock is held in street name.The following table sets forth, for the periods indicated, the high and low bid prices for the Class A common stock as reported on the Nasdaq National Market.
HIGH LOW ------- -------Fiscal year ended December 31, 2001: First Quarter $ 49.38 $ 32.13 Second Quarter 46.78 34.13 Third Quarter 46.12 24.65 Fourth Quarter 42.55 28.70 Fiscal year ended December 31, 2002: First Quarter $ 43.50 $ 33.35 Second Quarter 45.66 32.90 Third Quarter 37.72 25.48 Fourth Quarter 36.80 27.55
High Low Year ended December 31, 2002: First Quarter $ 43.50 $ 33.35 Second Quarter 45.66 32.90 Third Quarter 37.72 25.48 Fourth Quarter 36.80 27.55 Year ended December 31, 2003: First Quarter $ 38.04 $ 27.65 Second Quarter 37.98 28.71 Third Quarter 35.57 28.95 Fourth Quarter 37.69 29.30 The
Company'sCompany’s Class B common stock is not publicly traded and is held of record by members of the ReillyFamilyfamily and the Reilly Family Limited Partnership.The Company does not anticipate paying dividends on either class of its common stock in the foreseeable future. The
Company'sCompany’s Series AA preferred stock is entitled to preferential dividends, in an annual aggregate amount of $364,903, before any dividends may be paid on the common stock. In addition, theCompany's newCompany’s bank credit facility and other indebtedness have terms restricting the payment of dividends. Any future determination as to the payment of dividends will be subject to such limitations, will be at the discretion of theCompany'sCompany’s Board of Directors and will depend on theCompany'sCompany’s results of operations, financial condition, capital requirements and other factors deemed relevant by the Board of Directors.9
ITEM 6. SELECTED FINANCIAL DATA
LAMAR ADVERTISING COMPANYLamar Advertising Company
The selected consolidated statement of operations and balance sheet data presented below are derived from the audited consolidated financial statements of the Company. The data presented below should be read in conjunction with the audited consolidated financial statements, related notes and
Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations included herein.9STATEMENT OF OPERATIONS DATA: (DollarsStatement of Operations Data:
(Dollars in Thousands)
For the Years Ended December 31, 2003
(Restated)2002 2001 2000 1999 Net revenues $ 810,139 $ 775,682 $ 729,050 $ 687,319 $ 444,135 Operating expenses: Direct advertising expenses 292,017 274,772 251,483 217,465 143,090 General and administrative expenses 171,520 167,182 151,048 138,072 94,372 Depreciation and amortization 284,947 271,832 349,550 312,191 173,647 Gain on disposition of assets (1,946 ) (336 ) (923 ) (986 ) (5,481 ) Total operating expenses 746,538 713,450 751,158 666,742 405,628 Operating income (loss) 63,601 62,232 (22,108 ) 20,577 38,507 Other expense (income): Loss on extinguishment of debt 33,644 5,850 — — 298 Interest income (502 ) (929 ) (640 ) (1,715 ) (1,421 ) Interest expense 93,787 113,333 132,840 153,512 93,110 Total other expense 126,929 118,254 132,200 151,797 91,987 Loss before income taxes and cumulative effect of a change in accounting principle (63,328 ) (56,022 ) (154,308 ) (131,220 ) (53,480 ) Income tax benefit (23,573 ) (19,694 ) (45,674 ) (37,115 ) (9,712 ) Loss before cumulative effect of a change in accounting principle (39,755 ) (36,328 ) (108,634 ) (94,105 ) (43,768 ) Cumulative effect of a change in accounting principle, net 40,240 — — — 767 Net loss (79,995 ) (36,328 ) (108,634 ) (94,105 ) (44,535 ) Preferred stock dividends 365 365 365 365 365 Net loss applicable to common stock $ (80,360 ) $ (36,693 ) $ (108,999 ) $ (94,470 ) $ (44,900 ) Loss per common share – basic and diluted: Loss before cumulative effect of a change in accounting principle $ (0.39 ) $ (0.36 ) $ (1.11 ) $ (1.04 ) $ (0.64 ) Cumulative effect of a change in accounting principle (0.39 ) — — — (0.01 ) Net loss $ (0.78 ) $ (0.36 ) $ (1.11 ) $ (1.04 ) $ (0.65 ) Other Data: $ 260,075 $ 240,443 $ 190,632 $ 177,601 $ 110,551 $ (210,041 ) $ (155,763 ) $ (382,471 ) $ (435,595 ) $ (950,650 ) $ (57,847 ) $ (81,955 ) $ 132,384 $ 321,933 $ 719,903 Cash and cash equivalents $ 7,797 $ 15,610 $ 12,885 $ 72,340 $ 8,401 Cash on deposit for debt extinguishment — 266,657 — — — 69,902 95,922 27,261 72,526 43,112 3,669,373 3,888,106 3,671,652 3,642,844 3,209,270 Total debt (including current maturities) 1,704,863 1,994,433 1,811,585 1,738,280 1,615,781 1,905,497 1,856,372 1,877,532 1,824,928 1,733,035 Stockholders’ equity 1,689,661 1,709,173 1,672,221 1,689,455 1,391,529
For the Years Ended December 31, 2002 2001 2000 1999 1998 ------------ ------------ ------------ ------------ ------------Net revenues $ 775,682 $ 729,050 $ 687,319 $ 444,135 $ 288,588 ------------ ------------ ------------ ------------ ------------ Operating expenses: Direct advertising expenses 274,772 251,483 217,465 143,090 92,849 General and administrative expenses 167,182 151,048 138,072 94,372 60,935 Depreciation and amortization 277,893 355,529 318,096 177,138 88,791 Gain on disposition of assets (336) (923) (986) (5,481) (1,152) ------------ ------------ ------------ ------------ ------------ Total operating expenses 719,511 757,137 672,647 409,119 241,423 ------------ ------------ ------------ ------------ ------------ Operating income (loss) 56,171 (28,087) 14,672 35,016 47,165 ------------ ------------ ------------ ------------ ------------ Other expense (income): Loss on early extinguishment of debt 5,850 -- -- 298 -- Interest income (929) (640) (1,715) (1,421) (762) Interest expense 107,272 126,861 147,607 89,619 60,008 ------------ ------------ ------------ ------------ ------------ Total other expense 112,193 126,221 145,892 88,496 59,246 ------------ ------------ ------------ ------------ ------------ Loss before income taxes and cumulative effect of an accounting (56,022) (154,308) (131,220) (53,480) (12,081) change Income tax benefit (19,694) (45,674) (37,115) (9,712) (191) ------------ ------------ ------------ ------------ ------------ Loss before cumulative effect of an accounting change (36,328) (108,634) (94,105) (43,768) (11,890) Cumulative effect of an accounting change -- -- -- (767) -- ------------ ------------ ------------ ------------ ------------ Net loss (36,328) (108,634) (94,105) (44,535) (11,890) Preferred stock dividends (365) (365) (365) (365) (365) ------------ ------------ ------------ ------------ ------------ Net loss applicable to common stock $ (36,693) $ (108,999) $ (94,470) $ (44,900) $ (12,255) ============ ============ ============ ============ ============ Loss per common share - basic and diluted: Loss before accounting change $ (0.36) $ (1.11) $ (1.04) $ (0.64) $ (0.24) Cumulative effect of a change in accounting principle -- -- -- (0.01) -- ------------ ------------ ------------ ------------ ------------ Net loss $ (0.36) $ (1.11) $ (1.04) $ (0.65) $ (0.24) ============ ============ ============ ============ ============ Other Data: Adjusted EBITDA(1) $ 333,728 $ 326,519 $ 331,782 $ 206,673 $ 134,804 Adjusted EBITDA margin(2) 43% 45% 48% 47% 47%Cash flows provided byfrom operating,activities (3) $ 237,017 $ 190,632 $ 177,601 $ 110,551 $ 72,498 Cash flows used ininvesting,activities (3) $ (155,763) $ (382,471) $ (435,595) $ (950,650) $ (535,217) Cash flows (used in) provided byand financing activities(3) $ (78,529) $ 132,384 $ 321,933 $ 719,903 $ 584,070 BALANCE SHEET DATA (4) Cash andare obtained from the Company’s consolidated statements of cashequivalents $ 15,610 $ 12,885 $ 72,340 $ 8,401 $ 128,597 Working capital (5) 95,922 27,261 72,526 43,112 96,205 Total assets (5) 3,888,106 3,671,652 3,642,844 3,209,270 1,415,361 Total debt (includingflows prepared in accordance with accounting principles generally accepted in the United States of America (GAAP).(2) As of the end of the period. (3) Certain balance sheet reclassifications were made in order to be comparable to the current maturities) 1,994,433 1,811,585 1,738,280 1,615,781 876,532 Total long-term obligations (5) 1,856,372 1,877,532 1,824,928 1,733,035 859,744 Stockholders' equity 1,709,173 1,672,221 1,689,455 1,391,529 466,779year presentation.(1) Adjusted EBITDA is defined as operating income (loss) before depreciation and amortization and gain or loss on disposition of assets. Adjusted EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States of America (GAAP). Adjusted EBITDA should not be considered in isolation or as an alternative to net income or cash flows from operating activities, which are determined in accordance with GAAP, as an indicator of the Company's operating performance or as measure of its liquidity. It is, however, a measurement that Company management believes is useful to evaluate the Company's operating performance as it reflects operating income before the impact of depreciation and amortization and gain or loss of disposition of assets, which can vary widely depending on non-operating activities. Adjusted EBITDA is also a measure that management believes is customarily used by financial analysts to evaluate the financial performance of companies in the media industry. The calculation of Adjusted EBITDA used by the Company may not be comparable to similarly titled measures used by other companies. Set forth below is a reconciliation of Adjusted EBITDA to operating income (loss):
Years ended December 31, 2002 2001 2000 1999 1998 ---------- ---------- ---------- ---------- ----------Operating income (loss) $ 56,171 $ (28,087) $ 14,672 $ 35,016 $ 47,165 Depreciation and amortization 277,893 355,529 318,096 177,138 88,791 Gain on disposition of assets (336) (923) (986) (5,481) (1,152) ---------- ---------- ---------- ---------- ---------- Adjusted EBITDA $ 333,728 $ 326,519 $ 331,782 $ 206,673 $ 134,804 ========== ========== ========== ========== ==========(2) Adjusted EBITDA margin is defined as Adjusted EBITDA divided by net revenues. (3) Cash flows from operating, investing, and financing activities are obtained from the Company's consolidated statements of cash flows prepared in accordance with GAAP. (4) As of the end of the period. (5) Certain balance sheet reclassifications were made in order to be comparable to the current year presentation.10
ITEM 7.
MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThis report contains forward-looking
statements, including in particular, statements regarding the Company's anticipated performance for the first quarter of 2003.statements. These statements are subject to risks and uncertainties including those described below under the heading “Factors Affecting Future Operating Results,” and elsewhere in this report, that could cause actual results to differ materially from those projected in these forward-looking statements.These risks and uncertainties include, among others, (1) the Company's significant indebtedness; (2) the continued popularity of outdoor advertising as an advertising medium; (3) the regulation of the outdoor advertising industry; (4) the Company's need for and ability to obtain additional funding for acquisitions or operations; (5) the integration of companies that the Company acquires and its ability to recognize cost savings or operating efficiencies as a result of these acquisitions; (6) the extent and length of the current economic downturn generally and the demand for advertising in particular; and (7) other factors, including those described below under the heading "Factors Affecting Future Operating Results", and elsewhere in this Annual Report.The Company cautions investors not to place undue reliance on the forward-looking statements contained in this document. These statements speak only as of the date of this document, and the Company undertakes no obligation to update or revise the statements, except as may be required by law.LAMAR ADVERTISING COMPANYLamar Advertising Company
The following is a discussion of the consolidated financial condition and results of operations of the Company for the years ended December 31, 2003, 2002
2001and2000.2001. This discussion reflects the restatement of the Company’s financial statements for the year ended December 31, 2003, and should be read in conjunction with the consolidated financial statements of the Company and the relatednotes.notes, see “—Restatement of Financial Statements” for more information.OVERVIEW
The
Company'sCompany’s net revenues, which represent gross revenues less commissions paid to advertising agencies that contract for the use of advertising displays on behalf of advertisers, are derived primarily from the sale of advertising on outdoor advertising displays owned and operated by the Company.Since December 31, 2000, the Company has increased the number of outdoor advertising displays it operates by approximately 11% by completing over 180 strategic acquisitions of outdoor advertising and transit assets for an aggregate purchase price of approximately $466 million, which included the issuance of 2,130,464 shares of Lamar Advertising Company Class A common stock valued at the time of issuance at approximately $85.1 million. The Company has financed its recent acquisitions and intends to finance its future acquisition activity from available cash, borrowings under its bank credit agreement and the issuance of Class A common stock. See "Liquidity and Capital Resources" below. As a result of acquisitions, the operating performance of individual markets and of the Company as a whole are not necessarily comparable on a year-to-year basis.The Company relies on sales of advertising space for its revenues, and its operating results are therefore affected by general economic conditions, as well as trends in the advertising industry. Advertising spending is particularly sensitive to changes in general economic conditions, and in general advertising spending has decreased in response to the decline in economic conditions.Since December 31, 2001, the Company has increased the number of outdoor advertising displays it operates by approximately 2% by completing approximately 160 strategic acquisitions of outdoor advertising and transit assets for an aggregate purchase price of approximately $323 million, which included the issuance of 2,955,559 shares of Lamar Advertising Company Class A common stock valued at the time of issuance at approximately $106.7 million. The Company has financed its recent acquisitions and intends to finance its future acquisition activity from available cash, borrowings under its bank credit agreement, as amended, and the issuance of Class A common stock. See “Liquidity and Capital Resources” below. As a result of acquisitions, the operating performance of individual markets and of the Company as a whole are not necessarily comparable on a year-to-year basis. The Company expects to continue to pursue acquisitions that complement the Company’s existing operations.
Growth of the
Company'sCompany’s business requires expenditures for maintenance and capitalized costs associated with new billboard displays, logo sign and transit contracts, and the purchase of real estate and operating equipment. Capitalized expenditures were $78.3 million in 2003, $78.4 million in 2002 and $85.3 million in2001 and $78.3 million in 2000.2001. The following table presents a breakdown of capitalized expenditures for the past three years:
In Thousands 2002 2001 2000 --------- --------- ---------Billboard $ 47,424 $ 53,486 $ 46,412 Logos 6,605 8,222 10,595 Transit 3,949 6,447 5,225 Land and buildings 13,761 10,115 9,824 PP&E 6,651 7,050 6,248 --------- --------- --------- Total capital expenditures $ 78,390 $ 85,320 $ 78,304 ========= ========= =========
In Thousands 2003 2002 2001 Billboard $ 51,390 $ 47,424 $ 53,486 Logos 7,315 6,605 8,222 Transit 1,982 3,949 6,447 Land and buildings 9,823 13,761 10,115 PP&E 7,765 6,651 7,050 Total capital expenditures $ 78,275 $ 78,390 $ 85,320 11
CRITICAL ACCOUNTING POLICIES The Company believes the following critical accounting policies effect its significant judgments and estimates used in the preparation of its consolidated financial statements: Revenue Recognition - As discussed in Note 1 of the Notes to the Consolidated Financial Statements, the Company recognizes revenues as advertising services are provided. Advertising revenue is recorded net of agency commissions. Intangible Assets - The Company has significant intangible assets recorded on its balance sheet. Intangible assets primarily represent goodwill of $1,178 million, site locations of $761 million and customer relationships of $176 million associated with the Company's acquisitions. The fair values of intangible assets recorded are determined using discounted cash flow models that require management to make assumptions related to the future operating results of each acquisition and the anticipated future economic environment. If actual results differ from management's assumptions, an impairment of these intangibles may exist and a charge to income would be made in the period such impairment is determined. Accounting Estimates - Management is required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent liabilities. The Company bases its estimates on historical experience, reasonable assumptions and where applicable, established valuation techniques. Specifically, management has made critical estimates in the following areas: Allowance for Doubtful Accounts - The Company maintains allowances for doubtful accounts based on the payment patterns of its customers. Management analyzes historical results, the economic environment, changes in the credit worthiness of its customers, and other relevant factors in determining the adequacy of the Company's allowance. Bad debt expense was $9 million, $8 million and $6 million or approximately 1% of net revenue for the years ended December 31, 2002, 2001 and 2000, respectively. If the future economic environment continues to decline, the inability of customers to pay may occur and the allowance for doubtful accounts may need to be increased, which will result in additional bad debt expense in future years. Long-Lived Asset Recovery - Long-lived assets, consisting primarily of property, plant and equipment and intangibles comprise a significant portion of the Company's total assets. Property, plant and equipment of $1,284 million and intangible assets of $989 million are reviewed for impairment whenever events or changes in circumstances have indicated that their carrying amounts may not be recoverable. Recoverability of assets is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by that asset before interest expense. These undiscounted cash flow projections are based on management assumptions surrounding future operating results and anticipated future economic environment. If actual results differ from management's assumptions, an impairment of these intangible assets may exist and a charge to income would be made in the period such impairment is determined. Goodwill Impairment - The Company had goodwill of $1,178 million as of December 31, 2002 and must perform an annual impairment analysis of goodwill or more frequently if events and circumstances indicate that the asset might be impaired. This analysis requires management to make assumptions as to the implied fair value of goodwill as compared to its carrying value. In conducting the impairment analysis, the Company determines implied fair value of goodwill utilizing quoted market prices of its Class A common stock, as well as discounted cash flow models before interest expense. These discounted cash flow models require management to make assumptions related to the future operating results of the Company and the anticipated future economic environment. Based upon the Company's review, no impairment charge was required upon the adoption of Statement of Financial Accounting Standard (SFAS) No. 142, "Goodwill and Other Intangible Assets," in January 2002 or at its annual test for impairment on December 31, 2002. Deferred Taxes - As of December 31, 2002, the Company has made the determination that its deferred tax assets of $146.9 million, the primary component of which is the Company's net operating loss carryforward, are fully realizable due to the existence of certain deferred tax liabilities of approximately $254.8 million that are anticipated to reverse during the carryforward period. Accordingly, the Company has not recorded a valuation allowance to reduce its deferred tax assets. Should the Company determine that it would not be able to realize all or part of its net deferred tax assets in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made. For a more detailed description, see Note 9 of the Notes to the Consolidated Financial Statements. 12RESULTS OF OPERATIONS
The following table presents certain items in the Consolidated Statements of Operations as a percentage of net revenues for the years ended December 31, 2003, 2002
2001and2000:
Year ended December 31, ---------------------------------- 2002 2001 2000 -------- -------- --------Net revenues 100.0% 100.0% 100.0% Operating expenses: Direct advertising expenses 35.4 34.5 31.6 General and administrative expenses 21.6 20.7 20.1 Depreciation and amortization 35.8 48.9 46.3 Operating income (loss) 7.2 (3.9) 2.1 Interest expense 13.8 17.4 21.5 Net loss (4.7) (14.9) (13.7) Adjusted EBITDA 43.0 44.8 48.3Adjusted EBITDA is defined2001:
Year ended December 31, 2003 2002 2001 Net revenues 100.0 % 100.0 % 100.0 % Operating expenses: Direct advertising expenses 36.0 35.4 34.5 General and administrative expenses 18.0 18.0 17.0 Corporate expenses 3.2 3.6 3.7 Depreciation and amortization 35.2 35.0 47.9 Operating income (loss) 7.9 8.0 (3.0 ) Interest expense 11.6 14.6 18.2 Net loss (9.9 ) (4.7 ) (14.9 ) Year ended December 31, 2003 compared to year ended December 31, 2002
Net revenues increased $34.4 million or 4.4% to $810.1 million for the year ended December 31, 2003 from $775.7 million for the same period in 2002. This increase was attributable primarily to (i) an increase in billboard net revenues of $29.8 million or 4.1%, (ii) a $3.2 million increase in logo sign revenue, which represents an increase of 8.4% over the prior year, and (iii) a $1.5 million increase in transit revenue, which represents a 17.0% increase over the prior year.
The increase in billboard net revenues of $29.8 million was due to both acquisition activity and internal growth while the increase in logo sign revenue of $3.2 million and transit revenue growth of $1.5 million was generated by internal growth across various markets within the logo sign and transit programs. Net revenues for the year ended December 31, 2003 as
operating income (loss) before depreciation and amortization and gaincompared to acquisition-adjusted net revenue(1) for the year ended December 31, 2002, which includes adjustments for acquisitions for the same time frame as actually owned in 2003, increased $14.4 million orloss on disposition1.8% as a result ofassets. Adjusted EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States of America (GAAP). Adjusted EBITDA should not be considered in isolation or as an alternative tonetincome or cash flows from operating activities, which are determined in accordance with GAAP, as an indicator of the Company's operating performance or as measure of its liquidity. It is, however, a measurement that Company management believes is useful to evaluate the Company's operating performance as it reflects operating income before the impactrevenue internal growth.Operating expenses, exclusive of depreciation and amortization and gain on sale of assets, increased $21.5 million or 4.9% to $463.5 million for the year ended December 31, 2003 from $442.0 million for the same period in 2002. There was a $23.6 million increase as a result of additional operating expenses related to the operations of acquired outdoor advertising assets and increases in costs in operating the Company’s core assets. This increase was offset by a $2.0 million decrease in corporate expenses due to the partial reversal in the second quarter of 2003 of a charge related to a jury verdict rendered against the Company in the third quarter of 2002, which is discussed below.
In the third quarter of 2002, the Company recorded a charge of $2.3 million related to a jury verdict rendered in August 2002 against the Company for compensatory and punitive damages. In May 2003, the Court ordered a reduction to the punitive damage award, which was subject to the plaintiff’s consent. The plaintiff rejected the reduced award and the Court ordered a new trial. Based on legal analysis, management believes the best estimate of the Company’s potential liability related to this claim is currently $1.3 million. The $1.0 million reduction in the reserve for this liability was recorded as a reduction of corporate expenses in the second quarter of 2003.
Depreciation and amortization expense increased $13.1 million or 4.8% from $271.8 million for the year ended December 31, 2002 to $284.9 million for the year ended December 31, 2003, due to continued acquisition activity and capital expenditures and additional depreciation and accretion of $12.6 million related to the Company’s adoption of Financial Accounting Standard 143, “Accounting for Asset Retirement Obligations” effective January 1, 2003.
Due to the above factors, operating income increased $1.4 million to $63.6 million for year ended December 31, 2003 compared to $62.2 million for the same period in 2002.
(1) Reconciliation of Reported Net Revenue to Acquisition-Adjusted Net Revenue:
Year ended December 31, (in thousands) 2003 2002 Reported net revenue $ 810,139 $ 775,682 Acquisition net revenue — 20,016 Acquisition-adjusted net revenue $ 810,139 $ 795,698
The Company’s management believes that acquisition-adjusted net revenue is useful in evaluating the Company’s performance and provides investors and financial analysts a better understanding of the Company’s core operating results. The acquisition adjustments are intended to provide information that may be useful for investors when assessing period to period results. Our presentations of this measure, however, may not be comparable to similarly titled measures used by other companies. 12
In January 2003, the Company’s wholly owned subsidiary, Lamar Media Corp., redeemed all of its outstanding 9 5/8% Senior Subordinated Notes due 2006 in aggregate principal amount of approximately $255.0 million for a redemption price equal to 103.208% of the principal amount of the notes. In the first quarter of 2003, the Company recorded approximately $11.2 million as a loss on extinguishment of debt related to the prepayment of the 9 5/8% Senior Subordinated Notes due 2006 and the write-off of related debt issuance costs.
In June 2003, Lamar Media Corp., redeemed $100.0 million in principal amount of its 8 5/8% Senior Subordinated Notes due 2007, for a redemption price equal to 104.313% of the principal amount of the notes. In the second quarter of 2003, the Company recorded a loss on extinguishment of debt of $5.8 million, related to this prepayment.
In July 2003, the Company redeemed all of its outstanding 5 1/4% Convertible Notes due 2006 in aggregate principal amount of approximately $287.5 million for a redemption price equal to 103.0% of the principal amount of the notes. As a result of this redemption, the Company recorded a loss on extinguishment of debt of $12.6 million.
In December 2003, Lamar Media redeemed the remaining $100.0 million of its 8 5/8% Senior Subordinated Notes due 2007 for a redemption price equal to 102.875% of the principal amount of the notes. As a result of this redemption, the Company recorded a loss on extinguishment of debt of $4.2 million in the fourth quarter of 2003 related to the prepayment of the notes and associated debt issuance costs.
Interest expense decreased $19.5 million from $113.3 million for the year ended December 31, 2002 to $93.8 million for the year ended December 31, 2003 as a result of lower interest rates both on existing and recently refinanced debt.
The increase in operating income and the decrease in interest expense described above offset by the loss on extinguishment of debt resulted in a $7.3 million increase in loss before income taxes and cumulative effect of a change in accounting principle. There was an increase in the income tax benefit of $3.9 million for the year ended December 31, 2003 over the same period in 2002 due primarily to an increase in total tax benefit resulting from changes to the expected utilization of the Company’s net operating loss carryforward. The effective tax rate for the year ended December 31, 2003 is 37.2%.
Due to the adoption of SFAS No. 143, the Company recorded a cumulative effect of a change in accounting principle in the amount of $40.2 million net of an income tax benefit of $25.7 million.
As a result of the above factors, the Company recognized a net loss for the year ended December 31, 2003 of $80.0 million, as compared to a net loss of
disposition of assets, which can vary widely depending on non-operating activities. Adjusted EBITDA is also a measure that management believes is customarily used by financial analysts to evaluate$36.3 million for thefinancial performance of companiessame period inthe media industry. The calculation of Adjusted EBITDA used by the Company may not be comparable to similarly titled measures used by other companies. Set forth below is a reconciliation of Adjusted EBITDA to operating income (loss):
2002. Year ended December
31, -------------------------------------- (dollars in thousands) 2002 2001 2000 ---------- ---------- ----------Operating income (loss) $ 56,171 $ (28,087) $ 14,672 Depreciation and amortization 277,893 355,529 318,096 Gain on disposition of assets (336) (923) (986) ---------- ---------- ---------- Adjusted EBITDA $ 333,728 $ 326,519 $ 331,782YEAR ENDED DECEMBER31, 2002COMPARED TO YEAR ENDED DECEMBERcompared to year ended December 31, 2001Net revenues increased $46.6 million or 6.4% to $775.7 million for the year ended December 31, 2002 from $729.1 million for the same period in 2001. This increase was attributable primarily to (i) an increase in billboard net revenues of $38.3 million
orwhich represents an increase of 5.5%,over the prior year, (ii) a $2.6 million increase in logo sign revenue, which represents an increase of 7.3% over the prior year, and (iii) a $3.8 million increase in transit revenue, which represents an 81.7% increase over the prior year.The increase in billboard net revenues of $38.3 million was
significantlydue to acquisitionactivity. During the two year period ending December 31, 2002, the Company acquired approximately $466.3 million of outdoor advertising assets within markets the Company previously operated. The aggregate net revenues of these acquired assets for the twelve-month period prior to acquisition was approximately $65 million. The acquisitions were completed at various intervals during 2001activity and2002 and the actual net revenues were included in the Company's performance at that time. Because of adverse economic conditions that existed in 2002, the Company's billboard net revenue growth came from acquisitions as described above.internal growth. The increase in logo sign revenue of $2.6 million wassignificantlyprimarily due to price increases negotiated by the Company with the state of Virginia, which generated an increase in net revenue of $1.3 million as compared to the same period in 2001. The remaining increase of $1.3 million was generated by internal growth across various markets within the logo sign program. The increase in transit revenue of $3.8 million was generated by internal growth resulting from changes in management and sales processes within the transit program. Net revenues for the year ended December 31, 2002 as compared to acquisition–adjusted net revenue(2) for the year ended December 31, 2001 which includes adjustments for acquisitions for the same time frame as actually owned in 2002 increased $16.2 million or 2.1% as a result of net revenue growth.
(2) Reconciliation of Reported Net Revenue to Acquisition-Adjusted Net Revenue:
Year ended December 31, (in thousands) 2002 2001 Reported net revenue $ 775,682 $ 729,050 Acquisition net revenue — 30,481 Acquisition-adjusted net revenue $ 775,682 $ 759,531
The Company’s management believes that acquisition-adjusted net revenue is useful in evaluating the Company’s performance and provides investors and financial analysts a better understanding of the Company’s core operating results. The acquisition adjustments are intended to provide information that may be useful for investors when assessing period to period results. Our presentations of this measure, however, may not be comparable to similarly titled measures used by other companies. 13
Operating expenses, exclusive of depreciation and amortization and gain on sale of assets, increased $39.5 million or 9.8% to $442.0 million for the year ended December 31, 2002 from $402.5 million for the same period in 2001. There was a $36.2 million increase as a result of additional operating expenses related to the operations of acquired outdoor advertising assets and increases in personnel, sign site rent, insurance costs and property taxes. The remaining $3.3 million increase in expenses is a result of increases in logo sign, transit and corporate overhead expenses.
13As a result of the contributing factors discussed above, Adjusted EBITDA increased $7.2 million to $333.7 million for the year ended December 31, 2002 from $326.5 million for the same period in 2001. The definition of Adjusted EBITDA and other important information, including a reconciliation to operating income (loss), are set forth above. See "Results of Operations" on page 13.Depreciation and amortization expense decreased
$77.6$77.8 million or21.8%22.3% from$355.5$349.6 million for the year ended December 31, 2001 to$277.9$271.8 million for the year ended December 31, 2002 as a result of theCompany'sCompany’s adoption of SFAS No. 142,"Goodwill“Goodwill and Other IntangibleAssets",Assets,” which eliminated the amortization expense for goodwill.Due to the above factors, operating income increased $84.3 million to
$56.2$62.2 million for year ended December 31, 2002 compared to an operating loss of$28.1$22.1 million for the same period in 2001.On October 25, 2002, the
Company's wholly-ownedCompany’s wholly owned subsidiary, Lamar Media Corp., redeemed all of its outstanding 9 1/4% Senior Subordinated Notes due 2007 in aggregate principal amount of approximately $74.1 million for a redemption price equal to 104.625% of the principal amount thereof plus accrued interest to the redemption date of approximately $1.3 million. In the fourth quarter of 2002, the Company recorded approximately $5.9 million as an expense related to the prepayment of the 9 1/4% Senior Subordinated Notes due 2007.Interest expense decreased
$19.6$19.5 million from$126.9$132.8 million for the year ended December 31, 2001 to$107.3$113.3 million for the year ended December 31, 2002 as a result of lower interest rates for the year ended December 31, 2002 as compared to the same period in 2001.The increase in operating income and the decrease in interest expense described above resulted in a $98.3 million decrease in loss before income taxes. The decrease in loss before income taxes, resulted in a decrease in the income tax benefit of $26.0 million for the year ended December 31, 2002 over the same period in 2001. The effective tax rate for the year ended December 31, 2002 is 35.2%.
As a result of the above factors, the Company recognized a net loss for the year ended December 31, 2002 of $36.3 million, as compared to a net loss of $108.6 million for the same period in 2001.
YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000 Net revenues increased $41.7 million or 6.1% to $729.1 million for the year ended December 31, 2001 from $687.3 million for the same period in 2000. This increase was predominantly attributable to (i) an increase in billboard net revenues of $43.4 million or 6.7%, which was generated by acquisitions during 2001 and 2000, and (ii) a $2.7 million increase in logo sign revenue, which represents a 8.2% increase over the prior year, and (iii) offset by at $2.6 million decrease in transit revenue. The increase in billboard net revenues of $43.4 million was due to acquisition activity. During the two year period ending December 31, 2001, the Company acquired approximately $876.8 million of outdoor advertising assets within markets the Company previously operated. The aggregate net revenues of these assets for the twelve-month period prior to acquisition was approximately $117 million. The acquisitions were completed at various intervals during 2000 and 2001 and the actual net revenues were included in the Company's performance at that time. Because of adverse economic conditions that existed in 2001, the Company's billboard net revenue growth came from acquisitions as described above. The increase in logo sign revenue of $2.7 million was due to both price increases negotiated by the Company with the state of Texas, which generated an increase in net revenue of $0.7 million as compared to the same period in 2000, and additional logo interchanges awarded in the state of Michigan, which generated an increase in net revenue of $0.5 million as compared to the same period in 2000. The remaining increase of $1.5 million was generated by internal growth across various markets within the logo sign program. The decrease in transit revenue of $2.6 million was primarily caused by a decrease in net revenue of $2.2 million in the Company's Denver, Colorado market, as a result of a management problem and other sales processes issues, which were subsequently addressed by allocating additional management resources to this market and renegotiating certain contractual obligations to reduce required fixed payments. Operating expenses, exclusive of depreciation and amortization and gain on disposition of assets, increased $47.0 million or 13.2% to $402.5 million for the year ended December 31, 2001 from $355.5 million for the same period in 2000. This increase is primarily due to additional operating expenses associated with acquisitions made in 2001 and 2000 and increases in personnel, sign site rent, materials and overhead. 14As a result of these factors, Adjusted EBITDA decreased $5.3 million or 1.6% to $326.5 million for the year ended December 2001 from $331.8 million for the same period in 2000. The definition of Adjusted EBITDA and other important information, including a reconciliation to operating income (loss), are set forth above. See "Results of Operations" on page 13. Depreciation and amortization expense increased $37.4 million or 11.8% from $318.1 million for the year ended December 31, 2000 to $355.5 million for the year ended December 31, 2001 as a result of an increase in capital assets resulting from the Company's recent acquisition activity. Due to the above factors, operating income decreased $42.8 million or 291.2% from $14.7 million for the year ended December 31, 2000 to a $28.1 million operating loss for the year ended December 31, 2001. Interest expense decreased $20.7 million from $147.6 million for the year ended December 31, 2000 to $126.9 million for the year ended December 31, 2001 as a result of declining interest rates for the year ended December 31, 2001 over the same period in 2000. The decrease in operating income offset by the decrease in interest expense described above resulted in a $23.1 million increase in loss before income taxes. The increase in loss before income taxes, resulted in an increase in the income tax benefit of $8.6 million for the year ended December 31, 2001 over the same period in 2000. The effective tax rate for the year ended December 31, 2001 is 29.6% which is less than the statutory rates due to permanent difference resulting from non-deductible amortization of goodwill. As a result of the foregoing factors, the Company recognized a net loss for the year ended December 31, 2001 of $108.6 million, as compared to a net loss of $94.1 million for the same period in 2000.LIQUIDITY AND CAPITAL RESOURCES
The Company has historically satisfied its working capital requirements with cash from operations and borrowings under its bank credit facility. The
Company'sCompany’s wholly owned subsidiary, Lamar Media Corp., is the borrower under the bank credit facility and maintains all corporate cash balances. Any cash requirements of Lamar Advertising, therefore, must be funded by distributions from Lamar Media. TheCompany'sCompany’s acquisitions have been financed primarily with funds borrowed under the bank credit facility and issuance of its Class A common stock and debt securities. If an acquisition is made by one of theCompany'sCompany’s subsidiaries using theCompany'sCompany’s Class A common stock, a permanent contribution of additional paid-in-capital of Class A common stock is distributed to that subsidiary.The
Company'sCompany’s cash flows provided by operating activities increased by $19.6 million for the year ended December 31, 2003 due primarily to an increase in adjustments to reconcile net loss to cash provided by operating activitiesincreased to $237.0of $71.1 million, which primarily includes an increase infiscal 2002 due primarily tothe loss on extinguishment of debt of $27.8 million, an increase in depreciation and amortization of $13.1 million and the cumulative effect of adecreasechange in accounting principle of $40.2 million offset by an increase in deferred income tax benefit of $7.9 million. This increase was offset by an increase in net loss of$72.3$43.7 million. In addition, as compared to the same period in 2002, there were increases in the change in receivables of $3.1 million, in other assets of $4.7 million, in other liabilities of $1.3 million, in trade accounts payable of $1.3 million, and prepaid expenses of $0.4 million and increases in the change in accrued expenses of $2.9 million.Cash flows used in investing activities increased $54.2 million from $155.8 million in 2002 to $210.0 million in 2003 primarily due to the increase in cash used in acquisition activity by the Company in 2003 of $58.5 million offset by a decrease in
noncash itemsthe change in notes receivable of$42.6 million, which primarily includes a decrease in depreciation and amortization of $77.6 million offset by a decrease in deferred income tax benefit of $30.8 million, the loss on early extinguishment of debt of $2.4$1.7 million and an increase inthe provision for doubtful accounts of $1.2 million as a result of an increase in bad debt expense of the same amount. In addition as compared to 2001, there was a decrease in receivables of $5.0 million, an increase in accrued expenses of $11.8 million and an increase in deferred income of $2.3 million. Net cash used in investing activities decreased $226.7 million from $382.5 million in 2001 to $155.8 million in 2002 primarily due to the decrease in merger and acquisition activity by the Company in 2002 of $222.9 million. There was also a $6.9 million decrease in capital expenditures and a decrease inproceeds fromthesale of property and equipment of$1.5$2.4 million.Net cashCash flows used in financing activities
increased to $78.5decreased by $24.1 millionin fiscal 2002for the year ended December 31, 2003 due to a$73.6$152.0 million increase in net proceeds from note offerings and new notes payable, which is due to the issuance of Lamar Advertising’s $287.5 million 2 7/8% Convertible Notes, Lamar Media’s issuance of $125.0 million 7 1/4% Senior Subordinated Notes and increase in cash from deposits for debt extinguishment of $533.3 million offset by a $627.3 million increase in principal payments of long-term debt due primarily to the redemption of Lamar Media’s 9 5/8% Senior Subordinated Notes, 8 5/8% Senior Subordinated Notes and theLamar Media's 9Company’s 5 1/4%Senior SubordinatedConvertible Notes. In addition, there was a$46.3$5.2 million decrease in proceeds from issuance of theCompany'sCompany’s Class A common stock, an $8.7 million increase in debt issuance costs andan $80a $20.0 million decrease in net borrowings from credit agreements.14
During the year ended December 31,
2002,2003, the Company financed its acquisition activity of approximately$135.2$188.2 million withapproximately $60.0 million inborrowings underthe Company's old bankLamar Media’s revolving creditagreementfacility and cash on hand totaling $137.6 million as well as the issuance1,405,464of shares of theCompany'sCompany’s Class A commonstock. During 2002,stock valued at theCompany paid off its outstanding revolver balance and made scheduled principal paymentstime of issuance at approximately$66.6 million under the Company's old bank credit agreement. As of December 31, 2002, the Company had $309.6 million available under the old revolving bank credit facility.$50.6 million.The
Company's wholly-ownedCompany’s wholly owned subsidiary, Lamar Media Corp., replaced itsold bank credit facility with a newbank credit facility on March 7,2003.2003 and subsequently amended it in February 2004. Thenewbank credit facility is comprised of a $225.0 million revolving bank credit facility and a $975.0 million term facility. Thenewbank credit facility also includes a $500.0 million incremental facility, which permits Lamar Media to request that its lenders enter into commitments to make additional term loans to it, up to a maximum aggregate amount of $500.0 million. The lenders have no obligation to make additional term loans to Lamar Media under the incremental facility, but may enter into such commitments in their sole discretion. At December 31, 2003 Lamar Media had $179.4 million available under its revolving bank credit facility.In the future, Lamar Media has principal reduction obligations and revolver commitment reductions under its
newbank credit agreement. In addition it has fixed commercial commitments. These commitments are detailed as follows:15
Payments Due by Period (in millions) Contractual Balance at Less than 1 – 3 4 - 5 After 5 Obligations December 31, 2003 1 Year Years Years Years Long-Term Debt $ 1,704.9 5.0 126.2 165.2 1,408.5 Billboard site and building leases $ 838.8 112.2 179.7 137.2 409.7 Total Payments due $ 2,543.7 117.2 305.9 302.4 1,818.2
Amount of Expiration Per Period (in millions) Other Commercial Total Amount Less than 1 – 3 4 - 5 After 5 Commitments Committed 1 Year Years Years Years $ 225.0 — — — 225.0 Standby Letters of Credit $ 5.6 1.3 4.3 — —
Payments Due by Period (in millions) ------------------------------------------ Balance(1)Lamar Media had $40.0 million outstanding at Less ContractualDecember 31,than 1 1 - 3 4 - 5 After 5 Obligations 2002 Year Years Years Years - ---------------------------------------- ------------ ---------- ---------- ---------- ----------Long-Term Debt (1) $ 1,994.4 259.7 60.8 638.1 1,035.8 Billboard site and building leases $ 783.0 103.0 168.3 127.2 384.5 ---------- ---------- ---------- ---------- ---------- Total Payments due $ 2,777.4 362.7 229.1 765.3 1,420.3 ========== ========== ========== ========== ==========2003.
Amount of Commitment Expiration Per Period ------------------------------------------ Other Less Commercial Total Amount than 1 1 - 3 4 - 5 After 5 Commitments Committed Year Years Years Years - ---------------------------------------- ------------ ---------- ---------- ---------- ----------Revolving Bank Facility (1) (2) $ 225.0 -- -- -- 225.0 ========== ========== ========== ========== ========== Standby Letters of Credit $ 5.4 1.1 -- 4.3 -- ========== ========== ========== ========== ==========(1) Updated to reflect the terms of the Company's new credit facility, effective March 7, 2003. (2)In January 2003, Lamar Media
had no balance outstanding at December 31, 2002. On September 25, 2002, the Company's wholly owned subsidiary, Lamar Media Corp., called for full redemption on October 25, 2002redeemed all of itsoutstanding 9 1/4% Senior Subordinated Notes due 2007 in aggregate principal amount of approximately $74.1 million for a redemption price equal to 104.625% of the principal amount thereof plus accrued interest to the redemption date of approximately $1.3 million. Lamar Media called the 9 1/4% Senior Subordinated Notes due 2007 pursuant to the optional redemption provisions of the 9 1/4% Senior Subordinated Notes due 2007 and the related indenture applicable to optional redemptions. Lamar Media used cash on hand to redeem the 9 1/4% Senior Subordinated Notes due 2007. In the fourth quarter of 2002, the Company recorded approximately $5.9 million as an expense related to the prepayment of the 9 1/4% Senior Subordinated Notes due 2007. On September 25, 1997, Lamar Media issued $200 million aggregate principal amount of 8 5/8% Senior Subordinated Notes due 2007. These notes are redeemable at its option at any time at redemption prices with a premium that decreases annually from approximately 4.3% for a redemption on or after September 15, 2002, to approximately 2.9% on or after September 15, 2003, and further to approximately 1.5% on or after September 15, 2004, with no premium if the redemption occurs on or after September 15, 2005. The notes are required to be repurchased earlier in the event of a change of control. The indenture covering the notes also includes certain restrictive covenants that limit its ability to incur additional debt, pay dividends and make other restricted payments, consummate certain transactions and other matters. On December 23, 2002, Lamar Media issued $260 million in principal amount of 7 1/4% Senior Subordinated Notes due 2013. These notes are unsecured senior subordinated obligations of Lamar Media and (i) are subordinated to all of Lamar Media's existing senior debt, (ii) will be subordinated to any future senior debt incurred by Lamar Media, (iii) rank equally with all of Lamar Media's existing and any future senior subordinated debt and (iv) will rank senior to any future subordinated debt incurred by Lamar Media. The net proceeds from the issuance and sale of these notes, together with additional cash, were used on January 22, 2003 to redeem all of Lamar Media'soutstanding 9 5/8% Senior Subordinated Notes due 2006for a total redemption pricein aggregate principal amount of approximately$266.7$255.0 millionwhich consisted offor a redemption price equal to 103.208% of theoutstanding $255 million aggregateprincipal amountand accrued interest thereon toof thedatenotes. As a result of this redemption,of approximately $3.5 million. Thethe Companywill recordrecorded a loss ontheextinguishment of debt of $11.2 million which consisted of a prepayment penalty of $8.2 million and associated debt issuance costs of approximately$6.8$3.0 million.In June 2003, Lamar Media Corp. called for the redemption of $100.0 million of its $200.0 million 8 5/8% Senior Subordinated Notes due 2007. The redemption was funded by the issuance on June 12, 2003 of a $125.0 million add-on to its $260.0 million 7 1/4% Notes due 2013 issued in December 2002. The issue price of the
first quarter$125.0 million 7 1/4% Notes was 103.661% of the principal amount of the notes, which yields an effective rate of 6 5/8%. The redemption price of the $100.0 million 8 5/8% senior subordinated notes was equal to 104.313% of the principal amount of the notes. As a result of this redemption, the Company recorded a loss on extinguishment of debt of $5.8 million which consisted of a prepayment penalty of $4.3 million and associated debt issuance costs of approximately $1.5 million.In July 2003, the Company redeemed all of its $287.5 million 5 1/4% Convertible Notes due 2006. The redemption was funded by the issuance on June 16, 2003 of $287.5 million 2 7/8% Convertible Notes due 2010. The redemption price of the notes was equal to 103.0% of the principal amount of the notes. As a result of this redemption, the Company recorded a loss on extinguishment of debt of $12.6 million, which consisted of a prepayment penalty of $8.6 million and associated debt issuance costs of approximately $4.0 million.
In December 2003, Lamar Media redeemed the remaining $100.0 million of its 8 5/8% Senior Subordinated Notes due 2007 for a redemption price equal to 102.875% of the principal amount of the notes. The redemption was funded by cash from operations and borrowings under the Company’s bank credit facility. As a result of this redemption, the Company recorded a loss on extinguishment of debt of $4.2 million which consisted of a prepayment penalty of $2.9 million and associated debt issuance costs of approximately $1.3 million.
Currently Lamar Media has outstanding approximately $385.0 million 7 1/4% Senior Subordinated Notes due 2013 issued in December 2002 and June 2003. The indentures relating to Lamar
Media'sMedia’s outstanding notes restrict its ability to incur indebtedness other than:o up to $1.3 billion of indebtedness under its bank credit facility; o currently outstanding indebtedness or debt incurred to refinance outstanding debt; o inter-company debt between Lamar Media and its subsidiaries or between subsidiaries; and o certain other debt incurred in the ordinary course of business (provided that all of the above ranks junior in right of payment to the notes that has a maturity or mandatory sinking fund payment prior to the maturity of the notes).15
• up to $1.2 billion of indebtedness under its bank credit facility; • currently outstanding indebtedness or debt incurred to refinance outstanding debt; • inter-company debt between Lamar Media and its subsidiaries or between subsidiaries; and • certain other debt incurred in the ordinary course of business (provided that all of the above ranks junior in right of payment to the notes that has a maturity or mandatory sinking fund payment prior to the maturity of the notes). Lamar Media is required to comply with certain covenants and restrictions under its
newbank credit agreement. If the Company fails to comply with these tests, the payments set forth in the above table may be accelerated. At December 31,20022003 and currently Lamar Media is in compliance with all such tests.16Lamar Media cannot exceed the following financial ratios under its
newbank credit facility:o a total debt ratio, defined as total consolidated debt to EBITDA, as defined below, for the most recent four fiscal quarters, of 6.00 to 1 (through December 30, 2004) and 5.75 to 1 (after December 30, 2004); and o a senior debt ratio, defined as total consolidated senior debt to EBITDA, as defined below, for the most recent four fiscal quarters, of 4.00 to 1 (through December 30, 2004) and 3.75 to 1 (after December 30, 2004).
• a total debt ratio, defined as total consolidated debt to EBITDA, as defined below, for the most recent four fiscal quarters, of 6.00 to 1 (through December 30, 2004) and 5.75 to 1 (after December 30, 2004); and • a senior debt ratio, defined as total consolidated senior debt to EBITDA, as defined below, for the most recent four fiscal quarters, of 4.00 to 1 (through December 30, 2004) and 3.75 to 1 (after December 30, 2004). In addition, the
newbank credit facility requires that Lamar Media must maintain the following financial ratios:o an interest coverage ratio, defined as EBITDA, as defined below, for the most recent four fiscal quarters to total consolidated accrued interest expense for that period, of at least 2.25 to 1; and o a fixed charges coverage ratio, defined as the ratio of EBITDA, as defined below, for the most recent four fiscal quarters to (1) the total payments of principal and interest on debt for such period (2) capital expenditures made during such period and (3) income and franchise tax payments made during such period, of at least 1.05 to 1.
• an interest coverage ratio defined as EBITDA (defined below) for the most recent four fiscal quarters to total consolidated accrued interest expense for that period, of at least 2.25 to 1; and • a fixed charges coverage ratio, defined as the ratio of EBITDA (as defined below) for the most recent four fiscal quarters to (1) the total payments of principal and interest on debt for such period (2) capital expenditures made during such period and (3) income and franchise tax payments made during such period, of at least 1.05 to 1. As defined under Lamar
Media's newMedia’s bank credit facility, EBITDA is for any period, operating income for Lamar Media and its restricted subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP) for such period (calculated before taxes, interest expense, depreciation, amortization and any other non-cash income or charges accrued for such period and (except to the extent received or paid in cash by Lamar Media or any of its restricted subsidiaries) income or loss attributable to equity in affiliates for such period) excluding any extraordinary and unusual gains or losses during such period and excluding the proceeds of any casualty events whereby insurance or other proceeds are received and certain dispositions not in the ordinary course. Any dividend payment made by Lamar Media or any of its restricted subsidiaries to Lamar Advertising Company during any period to enable Lamar Advertising Company to pay certain qualified expenses on behalf of Lamar Media and its subsidiaries, shall be treated as operating expenses of Lamar Media for the purposes of calculating EBITDA for such period. EBITDA under thenewbank credit agreement is also adjusted to reflect certain acquisitions or dispositions as if such acquisitions or dispositions were made on the first day of such period.The Company believes that its current level of cash on hand, availability under its
newbank credit agreement and future cash flows from operations are sufficient to meet its operating needs through the year2003.2004. All debt obligations are on theCompany'sCompany’s balance sheet.Restatement of Financial Statements
The Company is restating its financial statements for the year ended December 31, 2003. This restatement of the financial statements corrects the adoption of Statement of Financial Accounting Standard 143, “Accounting for Asset Retirement Obligations” (Statement 143), effective January 1, 2003. Previously all of the Company’s liabilities for asset retirement obligations related to the Company’s structure inventory that it considers would be retired upon dismantlement of the advertising structure. The Company’s steel structures, unlike its non-steel structures, are not typically retired but relocated to another location. As such, the costs associated with the removal of the steel structures and resurfacing of the land were believed to be outside the scope of Statement 143 and were recorded when incurred in accordance with Statement of Financial Accounting Standard 13, “Accounting for Leases”. The Company reconsidered the provisions of Statement 143 and has determined that the liabilities should include costs associated with the removal of the steel structures and resurfacing of the land in the asset retirement obligation.
The effect of the restatement on the condensed consolidated statements of operations for the year ended December 31, 2003 are set forth below:
Year ended December 31, 2003 As Previously As Restated Reported Depreciation and amortization* 284,947 282,273 Gain on disposition of assets (1,946 ) (748 ) Operating expenses 746,538 745,062 Operating income 63,601 65,077 Interest expense* 93,787 87,750 Loss before income tax and cumulative effect of a change in accounting principle (63,328 ) (55,815 ) Income tax benefit (23,573 ) (20,643 ) Loss before cumulative effect of a changing in accounting principle (39,755 ) (35,172 ) Cumulative effect of a change in accounting principle, net of tax (40,240 ) (11,679 ) Net loss (79,995 ) (46,851 ) Net loss applicable to common stock (80,360 ) (47,216 )
* The as restated year ended December 31, 2003 results have been adjusted for the amortization of deferred financing cost reclassification as discussed in footnote 1 to these financial statements.
Year ended December 31, 2003 As Previously As Restated Reported Loss per share: Basic and diluted: Before cumulative effect of a change in accounting principle (0.39 ) (0.35 ) Cumulative effect of a change in accounting principle (0.39 ) (0.11 )
Basic and diluted loss per share (0.78 ) (0.46 )
The effect of the restatement of the condensed consolidated balance sheet as of December 31, 2003 is set forth below:
December 31, 2003 As Previously As Restated Reported Property, plant & equipment 1,988,096 1,933,003 Accumulated depreciation (702,272 ) (679,205 ) Total Assets 3,669,373 3,637,347 Deferred income tax liabilities 73,352 94,542 Asset retirement obligation 123,217 36,857 Total Liabilities 1,979,712 1,914,542 Accumulated Deficit (407,997 ) (374,853 ) Stockholder’s Equity 1,689,661 1,722,805 Total liabilities and stockholder’s equity 3,669,373 3,637,347 The restatement did not effect cash provided by operations, cash used in investing activities or cash provided by financing activities for the year ended December 31, 2003 or the Company’s compliance with debt agreements.
The Company is also restating unaudited condensed consolidated financial statements for quarters ended March 31, 2004 and June 30, 2004 and amending the respective Form 10-Q filings for those periods.
CRITICAL ACCOUNTING ESTIMATES
Our discussion and analysis of our results of operations and liquidity and capital resources are based on our consolidated financial statements, which have been prepared in accordance with the accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate our estimates and judgments, including those related to long-lived asset recovery, intangible assets, goodwill impairment, deferred taxes and allowance for doubtful accounts. We base our estimates on historical and anticipated results and trends and on various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events and, where applicable, established valuation techniques. These estimates form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results may differ from our estimates. We believe that the following significant accounting policies and assumptions may involve a higher degree of judgment and complexity than others.
Long-Lived Asset Recovery Long-lived assets, consisting primarily of property, plant and equipment and intangibles comprise a significant portion of the Company’s total assets. Property, plant and equipment of $1,286 million and intangible assets of $939 million are reviewed for impairment whenever events or changes in circumstances have indicated that their carrying amounts may not be recoverable. Recoverability of assets is measured by a comparison of the carrying amount of an asset to
16
future undiscounted net cash flows expected to be generated by that asset before interest expense. These undiscounted cash flow projections are based on management assumptions surrounding future operating results and the anticipated future economic environment. If actual results differ from management’s assumptions, an impairment of these intangible assets may exist and a charge to income would be made in the period such impairment is determined. No such impairment charge has been recorded by the Company that management believes is due to the Company’s disciplined approach in determining the purchase price of acquisitions that drives the growth of the Company’s long-lived assets.
Intangible Assets The Company has significant intangible assets recorded on its balance sheet. Intangible assets primarily represent goodwill of $1,240 million, site locations of $778 million and customer relationships of $140.2 million associated with the Company’s acquisitions. The fair values of intangible assets recorded are determined using discounted cash flow models that require management to make assumptions related to the future operating results, including projecting net revenue growth discounted using current cost of capital rates, of each acquisition and the anticipated future economic environment. If actual results differ from management’s assumptions, an impairment of these intangibles may exist and a charge to income would be made in the period such impairment is determined. Historically no impairment charge has been required with respect to the Company’s intangible assets.
Goodwill Impairment The Company had goodwill of $1,240 million as of December 31, 2003 and must perform an impairment analysis of goodwill annually or if events and circumstances indicate that the asset might be impaired on a more frequent basis. This analysis requires management to make assumptions as to the implied fair value of goodwill as compared to its carrying value. In conducting the impairment analysis, the Company determines implied fair value of goodwill utilizing quoted market prices of its Class A common stock which are used to calculate the Company’s enterprise value as compared to the carrying value of the Company’s assets. Discounted cash flow models before interest expense are also used. These discounted cash flow models require management to make assumptions including projecting the Company’s net revenue growth discounted using current cost of capital rates related to the future operating results of the Company and the anticipated future economic environment. Based upon the Company’s review, no impairment charge was required upon the adoption of Statement of Financial Accounting Standard (SFAS) No. 142, “Goodwill and Other Intangible Assets,” in January 2002 or at its annual test for impairment on December 31, 2002 and December 31, 2003.
Deferred Taxes As of December 31, 2003, the Company has made the determination that its deferred tax assets of $189.7 million, the primary component of which is the Company’s net operating loss carryforward, are fully realizable due to the existence of certain deferred tax liabilities of approximately $257.0 million that are anticipated to reverse during the carryforward period. The Company bases this determination by projecting taxable income over the relevant period. The Company has not recorded a valuation allowance to reduce its deferred tax assets. Should the Company determine that it would not be able to realize all or part of its net deferred tax assets in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made. For a more detailed description, see Note 11 of the Notes to the Consolidated Financial Statements.
Asset Retirement ObligationsThe Company had an asset retirement obligation of $123.2 million as of December 31, 2003 as a result of its adoption of SFAS No. 143, “Accounting for Asset Retirement Obligations”, on January 1, 2003. This liability relates to the Company’s obligation upon the termination or non-renewal of a lease to dismantle and remove its billboard structures from the leased land and to reclaim the site to its original condition. The Company records the present value of obligations associated with the retirement of tangible long-lived assets in the period in which they are incurred. The liability is capitalized as part of the related long-lived asset’s carrying amount. Over time, accretion of the liability is recognized as an operating expense and the capitalized cost is depreciated over the expected useful life of the related asset. In calculating the liability, the Company calculates the present value of the estimated cost to dismantle using an average cost to dismantle, adjusted for inflation and market risk.
This calculation includes 100% of the Company’s billboard structures on leased land (which currently consist of approximately 75,000 structures). The Company uses a 15 year retirement period based on historical operating experience in its core markets, including the actual time that billboard structures have been located on leased land in such markets and the actual length of the leases in the core markets, which includes the initial term of the lease, plus any renewal period. Historical third-party cost information is used with respect to the dismantling of the structures and the reclamation of the site. The interest rate used to calculate the present value of such costs over the retirement period is based on credit rates historically available to the Company.
Allowance for Doubtful Accounts The Company maintains allowances for doubtful accounts based on the payment patterns of its customers. Management analyzes historical results, the economic environment, changes in the credit worthiness of its customers, and other relevant factors in determining the adequacy of the Company’s allowance. Bad debt expense was $9 million, $9 million and $8 million or approximately 1% of net revenue for the years ended December 31, 2003, 2002 and 2001, respectively. If the future economic environment declines, the inability of customers to pay may occur and the allowance for doubtful accounts may need to be increased, which will result in additional bad debt expense in future years.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001,
Financial Accounting Standards Board (FASB) issued SFASFASB Statement No. 143,"Accounting“Accounting for Asset RetirementObligations." SFAS No.Obligations,” was issued. Statement 143 requires the Company to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development, and/or normal use of the assets. The Companywillalso would record a corresponding asset that is depreciated over the life of the asset. Subsequent to the initial measurement of the asset retirement obligation, the obligationwillwould be adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. The Companyisadopted Statement 143 as required,to adopt SFAS No. 143on January 1, 2003.The Company has not yet determined the impact to the consolidated financial statements for the adoption of SFAS No. 143.17
In June 2002, the FASB issued SFAS No. 146,
"Accounting“Accounting for Costs Associated with Exit or DisposalActivities", ("Activities” (“Statement146"146”), which addresses financial accounting and reporting for costs associated with exit or disposal activities. It nullifies EITF Issue No. 94-3,"Liability“Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)."” The principal difference between Statement 146 and Issue 94-3 relates to the recognition of a liability for a cost associated with an exit or disposal activity. Statement 146 requires that a liability be recognized for those costs only when the liability is incurred, that is, when it meets the definition of a liability in theFASB'sFASB’s conceptual framework. In contrast, under Issue 94-3, a company recognized a liability for an exit cost when it committed to an exit plan. Statement 146 also establishes fair value as the objective for initial measurement of liabilities related to exit or disposal activities. The Statement is effective for exit or disposal activities that are initiated after December 31, 2002 andisdid notexpected tohaveana material impact on theCompany'sCompany’s financial statements. The Company adopted the provisions related to Statement No. 146 as of January 1, 2003.In November 2002, the FASB issued Interpretation No. 45,
"Guarantor's“Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others, an interpretation of FASB Statements No. 5, 57 and 107 and a rescission of FASB Interpretation No.34".34.” This Interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees issued. The Interpretation also clarifies that a17guarantor is required to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken. The initial recognition and measurement provisions of the Interpretation are applicable to guarantees issued or modified after December 31, 2002 and aredid notexpected tohave a material effect on theCompany'sCompany’s financial statements.The disclosure requirements are effective for financial statements of interim and annual periods ending after December 15, 2002.In December
2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure, an amendment of FASB Statement No. 123." This Statement amends FASB Statement No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement No. 123 to require prominent disclosures in both annual and interim financial statements. Certain of the disclosure modifications are required for fiscal years ending after December 15, 2002 and are included in the notes to these consolidated financial statements. In January2003, the FASB issued Interpretation No. 46"Consolidation(revised December 2003), “Consolidation of Variable Interest Entities, an interpretation of ARB No. 51."” This interpretation addresses the consolidation by business enterprises of variable interest entities as defined in the Interpretation. The Interpretation applies immediately to variable interests in variable interest entities created after January 31, 2003, and to variable interests in variable interest entities obtained after January 31, 2003. The application of the Interpretationisdid notexpected tohavea materialan effect on theCompany'sCompany’s financial statements as the Company has no variable interest entities.In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities,” which amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities.” The
Interpretation requires certain disclosuresCompany adopted SFAS No. 149 effective June 30, 2003. The adoption of SFAS No. 149 did not have an impact on its consolidated financial statements.In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” Statement 150 affects the issuer’s accounting for three types of freestanding financial instruments. One type is mandatory redeemable shares, which the issuing company is obligated to buy back in exchange for cash or other assets. A second type, which includes put options and forward purchase contracts, involves instruments that do or may require the issuer to buy back some of its shares in exchange for cash or other assets. The third type of instruments that are liabilities under this Statement is obligations that can be settled with shares, the monetary value of which is fixed, tied solely or predominately to a variable such as a market index, or varies inversely with the value of the issuers’ shares. Statement 150 does not apply to features embedded in a financial
statements issuedinstrument that is not a derivative in its entirety. Most of the guidance in Statement 150 is effective for all financial instruments entered into or modified afterJanuaryMay 31, 2003,if itand otherwise isreasonably possibleeffective at the beginning of the first interim period beginning after June 15, 2003. The Company currently does not have any financial instruments that are within theCompany will consolidate or disclose information about variable interest entities when the Interpretation becomes effective. LAMAR MEDIA CORP.scope of SFAS No. 150.Lamar Media Corp.
The following is a discussion of the consolidated financial condition and results of operations of Lamar Media for the years ended December 31, 2003, 2002
2001and2000.2001. This discussion should be read in conjunction with the consolidated financial statements of Lamar Media and the related notes.The following table presents certain items in the Consolidated Statements of Operations as a percentage of net revenues for Lamar Media Corp. for the years ended December 31, 2003, 2002
2001and2000:
Year ended December 31, ---------------------------------------- 2002 2001 2000 -------- -------- --------Net revenues 100.0% 100.0% 100.0% Operating expenses: Direct advertising expenses 35.4 34.5 31.6 General and administrative expenses 21.5 20.7 20.0 Depreciation and amortization 35.4 48.2 45.9 Operating income (loss) 7.7 (3.3) 2.6 Interest expense 11.9 15.5 21.5 Net loss (3.2) (13.4) (13.4) Adjusted EBITDA 43.1 44.8 48.4Adjusted EBITDA is defined2001:18
Year ended December 31, 2003 2002 2001 Net revenues 100.0 % 100.0 % 100.0 % Operating expenses: Direct advertising expenses 36.0 35.4 34.5 General and administrative expenses 18.0 18.0 17.1 Corporate expenses 3.1 3.5 3.6 Depreciation and amortization 35.2 35.0 47.9 Operating income (loss) 7.9 8.1 (3.0 ) Interest expense 9.6 12.2 15.8 Net loss (7.7 ) (3.2 ) (13.4 ) Year ended December 31, 2003 compared to year ended December 31, 2002
Net revenues increased $34.4 million or 4.4% to $810.1 million for the year ended December 31, 2003 from $775.7 million for the same period in 2002. This increase was attributable primarily to (i) an increase in billboard net revenues of $29.8 million or 4.1%, (ii) a $3.2 million increase in logo sign revenue, which represents an increase of 8.4% over the prior year, and (iii) a $1.5 million increase in transit revenue, which represents a 17.0% increase over the prior year.
The increase in billboard net revenues of $29.8 million was due to both acquisition activity and internal growth while the increase in logo sign revenue of $3.2 million and transit revenue growth of $1.5 million was generated by internal growth across various markets within the logo sign and transit programs. Net revenues for the year ended December 31, 2003 as
operating income (loss) before depreciation and amortization and gaincompared to acquisition-adjusted net revenue(3) for the year ended December 31, 2002, which includes adjustments for acquisitions for the same time frame as actually owned in 2003, increased $14.4 million orloss on disposition1.8% as a result ofassets. Adjusted EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States of America (GAAP). Adjusted EBITDA should not be considered in isolation or as an alternative tonetincome or cash flows from operating activities, which are determined in accordance with GAAP, as an indicator of Lamar Media's operating performance or as measure of its liquidity. It is, however, a measurement that Lamar Media management believes is useful to evaluate Lamar Media's performance as it reflects operating income before the impactrevenue internal growth.Operating expenses, exclusive of depreciation and amortization and gain on sale of assets, increased $21.5 million or 4.9% to $463.2 million for the year ended December 31, 2003 from $441.7 million for the same period in 2002. There was a $23.6 million increase as a result of additional operating expenses related to the operations of acquired outdoor advertising assets and increases in costs in operating Lamar Media’s core assets. This increase was offset by a $2.0 million decrease in corporate expenses due to the partial reversal in the second quarter of 2003 of a charge related to a jury verdict rendered against Lamar Media in the third quarter of 2002, which is discussed below.
In the third quarter of 2002, Lamar Media recorded a charge of $2.3 million related to a jury verdict rendered in August 2002 against Lamar Media for compensatory and punitive damages. In May 2003, the Court ordered a reduction to the punitive damage award, which was subject to the plaintiff’s consent. The plaintiff rejected the reduced award and the Court ordered a new trial. Based on legal analysis, management believes the best estimate of Lamar Media’s potential liability related to this claim is currently $1.3 million. The $1.0 million reduction in the reserve for this liability was recorded as a reduction of corporate expenses in the second quarter of 2003.
Depreciation and amortization expense increased $13.1 million or 4.8% from $271.8 million for the year ended December 31, 2002 to $284.9 million for the year ended December 31, 2003 primarily due to additional depreciation and amortization of $12.6 million related to the Company’s adoption of Financial Accounting Standard 143, “Accounting for Asset Retirement Obligations” effective January 1, 2003.
Due to the above factors, operating income increased $1.4 million to $63.9 million for year ended December 31, 2003 compared to $62.5 million for the same period in 2002.
In January 2003, Lamar Media redeemed all of its outstanding 9 5/8% Senior Subordinated Notes due 2006 in aggregate principal amount of approximately $255.0 million for a redemption price equal to 103.208% of the principal amount of the notes. In the first quarter of 2003, Lamar Media recorded approximately $11.2 million as a loss on extinguishment of debt related to the prepayment of the 9 5/8% Senior Subordinated Notes due 2006 and the write-off of related debt issuance costs. In June 2003, Lamar Media redeemed $100.0 million in principal amount of its 8 5/8% Senior Subordinated Notes due 2007, for a redemption price equal to 104.313% of the principal amount of the notes. In the second quarter of 2003, Lamar Media recorded a loss on extinguishment of debt of $5.8 million, related to this prepayment.
(3) Reconciliation of Reported Net Revenue to Acquisition-Adjusted Net Revenue:
Year ended December 31, (in thousands) 2003 2002 Reported net revenue $ 810,139 $ 775,682 Acquisition net revenue — 20,016 Acquisition-adjusted net revenue $ 810,139 $ 795,698
The Company’s management believes that acquisition-adjusted net revenue is useful in evaluating the Company’s performance and provides investors and financial analysts a better understanding of the Company’s core operating results. The acquisition adjustments are intended to provide information that may be useful for investors when assessing period to period results. Our presentations of this measure, however, may not be comparable to similarly titled measures used by other companies. 19
In December 2003, Lamar Media redeemed the remaining $100.0 million of its 8 5/8% Senior Subordinated Notes due 2007 for a redemption price equal to 102.875% of the principal amount of the notes. As a result of this redemption, Lamar Media recorded a loss on extinguishment of debt of $4.2 million related to the prepayment of the notes and associated debt issuance costs.
Interest expense decreased $17.1 million from $95.0 million for the year ended December 31, 2002 to $77.9 million for the year ended December 31, 2003 as a result of lower interest rates both on existing and recently refinanced debt.
The increase in operating income and the decrease in interest expense described above offset by the loss on extinguishment of debt resulted in a $2.9 million decrease in loss before income taxes and cumulative effect of a change in accounting principle. Because of the decrease in loss before income taxes and cumulative effect of a change in accounting principle, there was a decrease in the income tax benefit of $.1 million for the year ended December 31, 2003 over the same period in 2002. The effective tax rate for the year ended December 31, 2003 is 35.8%.
Due to the adoption of SFAS No. 143, the Company recorded a cumulative effect of a change in accounting principle, net of tax of $40.2 million.
As a result of the above factors, the Company recognized a net loss for the year ended December 31, 2003 of $62.4 million, as compared to a net loss of
disposition of assets, which can vary widely depending on non-operating activities. Adjusted EBITDA is also a measure that management believes is customarily used by financial analysts to evaluate$25.0 million for thefinancial performance of companiessame period inthe media industry. The calculation of Adjusted EBITDA used by Lamar Media may not be comparable to similarly titled measures used by other companies. Set forth below is a reconciliation of Adjusted EBTIDA to operating income (loss):
2002. Year ended December
31, ----------------------------------------------- (dollars in thousands) 2002 2001 2000 ----------- ----------- -----------Operating income (loss) $ 59,707 $ (24,050) $ 18,083 Depreciation and amortization 274,644 351,754 315,465 Gain on disposition of assets (336) (923) (986) ----------- ----------- ----------- Adjusted EBITDA $ 334,015 $ 326,781 $ 332,56218YEAR ENDED DECEMBER31, 2002COMPARED TO YEAR ENDED DECEMBERcompared to year ended December 31, 2001Net revenues increased $46.6 million or 6.4% to $775.7 million for the year ended December 31, 2002 from $729.1 million for the same period in 2001. This increase was attributable primarily to (i) an increase in billboard net revenues of $38.3 million or 5.5%, (ii) a $2.6 million increase in logo sign revenue, which represents
aan increase of 7.3%increaseover the prior year, and (iii)anda $3.8 million increase in transit revenue, which representsaan 81.7% increase over the prior year.The increase in billboard net revenues of $38.3 million was
significantlydue to acquisitionactivity. During the two year period ending December 31, 2002, Lamar Media acquired approximately $461.6 million of outdoor advertising assets within markets Lamar Media previously operated. The aggregate net revenues of these acquired assets for the twelve month period prior to acquisition was approximately $65.0 million. The acquisitions were completed at various intervals during 2001activity and2002 and the actual net revenues were included in Lamar Media's performance at that time. Because of adverse economic conditions that existed in 2002, Lamar Media's billboard net revenue growth came from acquisitions as described above.internal growth. The increase in logo sign revenue of $2.6 million was significantly due to price increases negotiated byLamar Mediathe Company with the state of Virginia, which generated an increase in net revenue of $1.3 million as compared to the same period in 2001. The remaining increase of $1.3 million was generated by internal growth across various markets within the logo sign program. The increase in transit revenue of $3.8 million was generated by internal growth resulting from changes in management and sales processes within the transit program. Net revenues for the year ended December 31, 2002 as compared to acquisition–adjusted net revenue(4) for the year ended December 31, 2001 which includes adjustments for acquisitions for the same time frame as actually owned in 2002 increased $16.2 million or 2.1% as a result of net revenue growth.Operating expenses, exclusive of depreciation and amortization and gain on sale of assets, increased $39.4 million or 9.8% to $441.7 million for the year ended December 31, 2002 from $402.3 million for the same period in 2001. There was a $36.2 million increase as a result of additional operating expenses related to the operations of acquired outdoor advertising assets and increases in personnel, sign site rent, insurance costs and property taxes. The remaining $3.2 million increase in expenses is a result of increases in logo sign, transit and corporate overhead expenses.
As a result of the contributing factors discussed above, Adjusted EBITDA increased $7.2 million to $334.0 million for the year ended December 31, 2002 from $326.8 million for the same period in 2001. The definition of Adjusted EBITDA and other important information, including a reconciliation to operating income (loss) are set forth above. See "Results of Operations" on page 18.Depreciation and amortization expense decreased
$77.2$77.8 million or21.9%22.3% from$351.8$349.6 million for the year ended December 31, 2001 to$274.6$271.8 million for the year ended December 31, 2002 as a result ofLamar Media'sthe Company’s adoption of SFAS No. 142,"Goodwill“Goodwill and Other IntangibleAssets",Assets,” which eliminated the amortization expense for goodwill.Due to the above factors, operating income increased
$83.8$84.3 million to$59.7$62.5 million for year ended December 31, 2002 compared to an operating loss of$24.1$21.8 million for the same period in 2001.
(4) Reconciliation of Reported Net Revenue to Acquisition-Adjusted Net Revenue:
Year ended December 31, (in thousands) 2002 2001 Reported net revenue $ 775,682 $ 729,050 Acquisition net revenue — 30,481 Acquisition-adjusted net revenue $ 775,682 $ 759,531
The Company’s management believes that acquisition-adjusted net revenue is useful in evaluating the Company’s performance and provides investors and financial analysts a better understanding of the Company’s core operating results. The acquisition adjustments are intended to provide information that may be useful for investors when assessing period to period results. Our presentations of this measure, however, may not be comparable to similarly titled measures used by other companies. 20
On October 25, 2002, Lamar Media redeemed all of its outstanding
9 1/4%9¼% Senior Subordinated Notes due 2007 in aggregate principal amount of approximately $74.1 million for a redemption price equal to 104.625% of the principal amount thereof plus accrued interest to the redemption date of approximately $1.3 million. In the fourth quarter of 2002, Lamar Media recorded approximately $5.9 million as an expense related to the prepayment of the9 1/4%9¼% Senior Subordinated Notes due 2007.Interest expense decreased
$20.8$20.2 million from$113.0$115.2 million for the year ended December 31, 2001 to$92.2$95.0 million for the year ended December 31, 2002 as a result of lower interest rates for the year ended December 31, 2002 as compared to the same period in 2001.The increase in operating income and the decrease in interest expense described above resulted in a $99.0 million decrease in loss before income taxes. The decrease in loss before income taxes, resulted in
ana decrease in the income tax benefit of $26.4 million for the year ended December 31, 2002 over the same period in 2001. The effective tax rate for the year ended December 31, 2002 is 33.3%.As a result of the above factors, Lamar Media recognized a net loss for the year ended December 31, 2002 of $25.0 million, as compared to a
$97.6 millionnet lossin 2001. YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000 Net revenues increased $41.8 million or 6.1% to $729.1 million for the year ended December 31, 2001 from $687.3of $97.6 million for the same period in2000. This increase was predominantly attributable to (i) an increase in billboard net revenues of $43.4 19million or 6.7%, which was generated by acquisitions during 2001 and 2000, and (ii) a $2.7 million increase in logo sign revenue, which represents a 8.2% increase over the prior year, and (iii) offset by at $2.6 million decrease in transit revenue. The increase in billboard net revenues of $43.4 million was due to acquisition activity. During the two year period ending December 31, 2001, Lamar Media acquired approximately $868.7 million of outdoor advertising assets within markets it previously operated. The aggregate net revenues of these acquired assets for the twelve month period prior to its acquisition was approximately $117 million. The acquisitions were completed at various intervals during 2000 and 2001 and the actual net revenues were included in Lamar Media's performance at that time. Because of adverse economic conditions that existed in 2001, Lamar Media's billboard net revenue growth came from acquisitions as described above. The increase in logo sign revenue of $2.7 million was due to both price increases negotiated by Lamar Media with the state of Texas, which generated an increase in net revenue of $0.7 million as compared to the same period in 2000 and additional logo interchanges awarded in the state of Michigan, which generated an increase in net revenue of $0.5 million as compared to the same period in 2000. The remaining increase of $1.5 million was generated by internal growth across various markets within the logo sign program. The decrease in transit revenue of $2.6 million was primarily caused by a decrease in net revenue of $2.2 million in the Company's Denver, Colorado market, as a result of a management problem and other sales processes issues which were subsequently addressed by allocating additional management resources to this market and renegotiating certain contractual obligations to reduce required fixed payments. Operating expenses, exclusive of depreciation and amortization and gain on disposition of assets, increased $47.5 million or 13.4% to $402.3 million for the year ended December 31, 2001 from $354.8 million for the same period in 2000. This increase is primarily due to additional operating expenses associated with acquisitions made in 2001 and 2000 and increases in personnel, sign site rent, materials and overhead. As a result of these factors, Adjusted EBITDA decreased $5.8 million or 1.7% to $326.8 million for the year ended December 2001 from $332.6 million for the same period in 2000. The definition of Adjusted EBITDA and other important information, including a reconciliation to operating income (loss), as set forth above. See "Results of Operations" on page 18. Depreciation and amortization expense increased $36.3 million or 11.5% from $315.5 million for the year ended December 31, 2000 to $351.8 million for the year ended December 31, 2001 as a result of an increase in capital assets resulting from Lamar Media's recent acquisition activity. Due to the above factors, operating income decreased $42.2 million or 233.1% from $18.1 million for the year ended December 31, 2000 to a $24.1 million operating loss for the year ended December 31,2001.Interest expense decreased $34.6 million from $147.6 million for the year ended December 31, 2000 to $113.0 million for the year ended December 31, 2001 as a result of declining interest rates for the twelve months ending December 31, 2001 over the same period in 2000. The decrease in operating income offset by the decrease in interest expense described above resulted in a $8.6 million increase in loss before income taxes. The increase in loss before income taxes, resulted in an increase in the income tax benefit of $3.0 million for the year ended December 31, 2001 over the same period in 2000. The effective tax rate for the year ended December 31, 2001 is 28.5% which is less than the statutory rates due to the permanent differences resulting from nondeductible amortization of goodwill. As a result of the foregoing factors, Lamar Media recognized a net loss for the year ended December 31, 2001 of $97.6 million, as compared to a net loss of $91.9 million for the same period in 2000.FACTORS AFFECTING FUTURE OPERATING RESULTS
THE COMPANY'S SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT ITS BUSINESS AND MAY CREATE A NEED TO BORROW ADDITIONAL MONEY IN THE FUTURE TO MAKE THE SIGNIFICANT FIXED PAYMENTS ON ITS DEBT AND OPERATE ITS BUSINESS.The Company’s substantial indebtedness could adversely affect its business and may create a need to borrow additional money in the future to make the significant fixed payments on its debt and operate its business.
The Company has borrowed substantial amounts of money in the past and may borrow more money in the future. At December 31,
2002,2003, Lamar Advertising Company had approximately $287.5 million of convertible notes outstanding. At December 31,2002, after giving effect to the redemption of Lamar Media's 9 5/8% Senior Subordinated Notes due 2006 on January 22,2003, Lamar Mediawould havehad approximately$1.5$1.4 billion of debt outstanding consisting of approximately$975.5$1,015.0 million in bank20debt, $1.2 million in senior notes, $459.2$389.4 million in various series of senior subordinated notes and$16.0$13.0 million in various other short-term and long-term debt. In addition, the indentures governing LamarMedia'sMedia’s notes and bank credit facility allows it to incur substantial additional indebtedness in the future. As of December 31,2002,2003, Lamar Media had approximately$309.6$179.4 million available to borrow under itsthen existingbank credit facility.On March 7, 2003, Lamar Media replaced the bank credit facility with a new bank credit facility under which it had $219.6 million of borrowing capacity as of March 7, 2003.Thenew bank credit facility also permits Lamar Media to request that its lenders enter into commitments to make additional term loans to Lamar Media, up to a maximum aggregate amount of $500.0 million. Lamar Media's lenders have no obligation to make additional term loans to Lamar Media, but may enter into such commitments in their sole discretion. The Company'sCompany’s substantial indebtedness and the fact that a large part of theCompany'sCompany’s cash flow from operations must be used to make principal and interest payments on its debt may have important consequences, including:o limiting cash flow available to fund the Company's working capital, capital expenditures, potential acquisitions or other general corporate requirements; o increasing the Company's vulnerability to general adverse economic and industry conditions; o limiting the Company's ability to obtain additional financing to fund future working capital, capital expenditures, potential acquisitions or other general corporate requirements; o limiting the Company's flexibility in planning for, or reacting to, changes in its business and industry; o placing the Company at a competitive disadvantage compared to its competitors with less indebtedness; and o making it more difficult for the Company to comply with financial covenants in its bank credit facility.
• limiting cash flow available to fund the Company’s working capital, capital expenditures, potential acquisitions or other general corporate requirements; • increasing the Company’s vulnerability to general adverse economic and industry conditions; • limiting the Company’s ability to obtain additional financing to fund future working capital, capital expenditures, potential acquisitions or other general corporate requirements; • limiting the Company’s flexibility in planning for, or reacting to, changes in its business and industry; • placing the Company at a competitive disadvantage compared to its competitors with less indebtedness; and • making it more difficult for the Company to comply with financial covenants in its bank credit facility. In addition, if the
Company'sCompany’s operations make less money in the future, it may need to borrow to make principal and interest payments on its debt. The Company also finances most of its acquisitions through borrowings under LamarMedia'sMedia’s bank credit facility. Since its borrowing capacity under its credit facility is limited, the Company may not be able to continue to finance future acquisitions at its historical rate with borrowings under its credit facility. The Company may need to borrow additional amounts or seek other sources of financing to fund future acquisitions. Such additional financing may not be available on favorable terms. The Company may need the consent of the banks under its credit facility, or the holders of other indebtedness, to borrow additional money.RESTRICTIONS IN THE COMPANY'S, AND ITS WHOLLY OWNED, DIRECT SUBSIDIARY, LAMAR MEDIA'S DEBT AGREEMENTS REDUCE OPERATING FLEXIBILITY AND CONTAIN COVENANTS AND RESTRICTIONS THAT CREATE THE POTENTIAL FOR DEFAULTS.Restrictions in the Company’s, and its wholly owned, direct subsidiary, Lamar Media’s debt agreements reduce operating flexibility and contain covenants and restrictions that create the potential for defaults.
The terms of the indenture relating to Lamar
Advertising'sAdvertising’s outstanding notes, LamarMedia'sMedia’s bank credit facility and the indentures relating to LamarMedia'sMedia’s outstanding notes restrict, among other things, the ability of Lamar Advertising and Lamar Media to:o incur or repay debt; o dispose of assets; o create liens; o make investments; o enter into affiliate transactions; and o pay dividends.
• incur or repay debt; • dispose of assets; • create liens; • make investments; • enter into affiliate transactions; and • pay dividends. 21
Lamar
Media'sMedia’s ability to make distributions to Lamar Advertising is also restricted under the terms of these agreements.See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" on page 15.Under LamarMedia'sMedia’s bank credit facility the Company must maintain specified financial ratios and levels including:o a minimum interest coverage ratio; o a minimum fixed charges ratio; o a maximum senior debt ratio; and o a maximum total debt ratio.
• a minimum interest coverage ratio; • a minimum fixed charges ratio; • a maximum senior debt ratio; and • a maximum total debt ratio. See
"Management's“Management’s Discussion and Analysis of Financial Condition and Results of Operations-– Liquidity and CapitalResources"Resources” beginning on page15.14.If Lamar Media fails to comply with these tests, the lenders have the right to cause all amounts outstanding under the bank credit facility to become immediately due. If this were to occur, and the lenders decide to exercise their right to accelerate the indebtedness, it would create serious financial problems for the Company and could lead to an event of default under the indentures governing its debt. Any of these events could have a material adverse effect on its business, financial condition and results of operations. The
Company'sCompany’s ability to comply with these restrictions, and any similar restrictions in future agreements, depends on its operating performance. Because its performance is subject to prevailing economic, financial and business conditions and other factors that are beyond theCompany'sCompany’s control, it may be unable to comply with these restrictions in the future.21THE COMPANY'S BUSINESS IS DERIVED FROM ADVERTISING AND ADVERTISING IS PARTICULARLY SENSITIVE TO CHANGES IN ECONOMIC CONDITIONS AND ADVERTISING TRENDS.The Company’s business is derived from advertising and advertising is particularly sensitive to changes in economic conditions and advertising trends.
The Company sells advertising space to generate revenues. Advertising spending is particularly sensitive to changes in general economic conditions and advertising spending typically decreases when economic conditions are tough. A decrease in demand for advertising space could adversely affect the
Company'sCompany’s business. A reduction in money spent on advertising displays could result from:o a general decline in economic conditions; o
• a general decline in economic conditions; • a decline in economic conditions in particular markets where the Company conducts business; • a reallocation of advertising expenditures to other available media by significant users of the Company’s displays; or • a decline in the amount spent on advertising in general. The Company’s continued growth by acquisitions may become more difficult and involves costs and uncertainties.
Historically, the Company has substantially increased its inventory of advertising displays through acquisitions. The Company’s growth strategy involves acquiring outdoor advertising businesses and assets in markets where it currently competes as well as in new markets. However, the following factors may affect the Company’s ability to continue to pursue this strategy effectively:
• there might not be suitable acquisition candidates, particularly as a result of the consolidation of the outdoor advertising industry, and the Company may have a more difficult time negotiating acquisitions that are favorable to it; • the Company may face increased competition from other outdoor advertising companies, which may have greater financial resources than the Company, for the businesses and assets it wishes to acquire, which may result in higher prices for those businesses and assets; • the Company may not have access to sufficient capital resources on acceptable terms, if at all, to finance its acquisitions and may not be able to obtain required consents from its lenders; • the Company may be unable to effectively integrate acquired businesses and assets with its existing operations as a result of unforeseen difficulties that could require significant time and attention from its management that would otherwise be directed at developing its existing business; and • the Company may not realize the benefits and cost savings that it anticipates from its acquisitions. The Company
conducts business; o a reallocationfaces competition from larger and more diversified outdoor advertisers and other forms of advertisingexpendituresthat could hurt its performance.The Company may not be able to compete successfully against the current and future forms of outdoor advertising and other
availablemedia. The competitive pressure that it faces could adversely affect its profitability or financial performance. Although Lamar Advertising is the largest company focusing exclusively on outdoor advertising, it faces competition from larger companies with more diversified operations that also include television, radio and other broadcast media. In addition, the Company’s diversified competitors have the opportunity to cross-sell their different advertising products to their customers. The Company also faces competition from other forms of media, including newspapers, direct mail advertising and the Internet. It must also compete with an increasing variety of other out-of-home advertising media that include advertising displays in shopping centers, malls,22
airports, stadiums, movie theaters and supermarkets, and on taxis, trains and buses.
The Company’s operations are impacted by
significant usersthe regulation ofthe Company's displays; or o a decline in the amount spent onoutdoor advertisingin general. THE COMPANY'S OPERATIONS ARE IMPACTED BY THE REGULATION OF OUTDOOR ADVERTISING BY FEDERAL, STATE AND LOCAL GOVERNMENTS.by federal, state and local governments.The
Company'sCompany’s operations are significantly impacted by federal, state and local government regulation of the outdoor advertising business.The federal government conditions federal highway assistance on states imposing location restrictions on the placement of billboards on primary and interstate highways. Federal laws also impose size, spacing and other limitations on billboards. Some states have adopted standards more restrictive than the federal requirements. Local governments generally control billboards as part of their zoning regulations. Some local governments have enacted ordinances which require removal of billboards by a future date. In addition, four states have enacted bans on billboard advertising. Others prohibit the construction of new billboards and the reconstruction of significantly damaged billboards, or allow new construction only to replace existing structures.
Local laws which mandate removal of billboards at a future date often do not provide for payment to the owner for the loss of structures that are required to be removed. Some federal and state laws require payment of compensation in such circumstances. Local laws that require the removal of a billboard without compensation have been challenged in state and federal courts with conflicting results. Accordingly, the Company may not be successful in negotiating acceptable arrangements when the
Company'sCompany’s displays have been subject to removal under these types of local laws.Additional regulations may be imposed on outdoor advertising in the future. Legislation regulating the content of billboard advertisements has been introduced in Congress from time to time in the past. Additional regulations or changes in the current laws regulating and affecting outdoor advertising at the federal, state or local level may have a material adverse effect on the
Company'sCompany’s results of operations.THE COMPANY'S CONTINUED GROWTH BY ACQUISITIONS MAY BECOME MORE DIFFICULT AND INVOLVES COSTS AND UNCERTAINTIES. Historically,The Company’s logo sign contracts are subject to state award and renewal.
A portion of the Company’s revenues and operating income come from its state-awarded service contracts for logo signs. For the year ended December 31, 2003, approximately 5% of the Company’s net revenues were derived from its logo sign contracts. The Company
has substantially increased its inventory of advertising displays through acquisitions.cannot predict what remaining states, if any, will start logo sign programs or convert state-run logo sign programs to privately operated programs. TheCompany's growth strategy involves acquiring outdoor advertising businesses and assets in markets where itCompany currently competes with three other logo sign providers as well as local companies for state-awarded service contracts for logo signs.Generally, state-awarded logo sign contracts have a term of five to ten years, with additional renewal periods. Some states have the right to terminate a contract early, but in
new markets. However,most cases must pay compensation to thefollowing factors may affectlogo sign provider for early termination. At theCompany's ability to continue to pursue this strategy effectively: o there might not be suitable acquisition candidates, particularly as a resultend of theconsolidationterm of theoutdoor advertising industry, andcontract, ownership of theCompanystructures is transferred to the state. Depending on the contract in question, the logo provider mayhave a more difficult time negotiating acquisitions that are favorable to it; o the Company may face increased competition from other outdoor advertising companies, which may have greater financial resources than the Company, for the businesses and assets it wishes to acquire, which may result in higher prices for those businesses and assets; o the Company may not have access to sufficient capital resources on acceptable terms, if at all, to finance its acquisitions andor may not beableentitled toobtain required consents from its lenders; ocompensation at theCompany may be unableend of the contract term. Of the Company’s 20 logo sign contracts in place at December 31, 2003, one is subject toeffectively integrate acquired businessesrenewal in April 2004 andassets with its existing operations as a result of unforeseen difficulties that could require significant timethree are scheduled to terminate in 2004, one in April, one in June andattention from its management that would otherwise be directed at developing its existing business; and o the Company may not realize the benefits and cost savings that it anticipates from its acquisitions. THE COMPANY FACES COMPETITION FROM LARGER AND MORE DIVERSIFIED OUTDOOR ADVERTISERS AND OTHER FORMS OF ADVERTISING THAT COULD HURT ITS PERFORMANCE.one in December 2004. The Company may not be able tocompete successfully against the current and future forms of outdoor advertising and other media. The competitive pressure that it faces could adversely affectobtain new logo sign contracts or renew itsprofitability or financial performance. Although Lamar Advertising is the largest company focusing exclusively on outdoor advertising, it faces competition from larger companies with 22more diversified operations that also include television, radio and other broadcast media.existing contracts. In addition, after a new state-awarded logo contract is received, theCompany's diversified competitorsCompany generally incurs significant start-up costs. If the Company does not continue to have access to the capital necessary to finance those costs, it will not be able to accept new contracts.The Company is controlled by certain significant stockholders who are able to control the outcome of all matters submitted to its stockholders for approval and whose interest in the Company may be different than yours.
Certain members of the Reilly family, including Kevin P. Reilly, Jr., the Company’s president and chief executive officer, as of December 31, 2003, own in the aggregate approximately 16% of Lamar Advertising’s common stock, assuming the conversion of all Class B common stock to Class A common stock. This represents 65% of Lamar Advertising’s outstanding voting stock. By virtue of such stock ownership, such persons have the
opportunitypower to:
• elect the Company’s entire board of directors; • control the Company’s management and policies; and • determine the outcome of any corporate transaction or other matters required to be submitted to the Company’s stockholders for approval, including the amendment of its certificate of incorporation, mergers, consolidation and the sale of all or substantially all of its assets. If the Company’s contingency plans relating to
cross-sell their different advertising products to their customers. The Company also faces competition from other forms of media, including newspapers, direct mail advertising andhurricanes fail, theInternet. It must also compete with an increasing variety of other out-of-home advertising media that include advertising displays in shopping centers, malls, airports, stadiums, movie theaters and supermarkets, and on taxis, trains and buses. IF THE COMPANY'S CONTINGENCY PLANS RELATING TO HURRICANES FAIL, THE RESULTING LOSSES COULD HURT THE COMPANY'S BUSINESS.resulting losses could hurt the Company’s business.Although the Company has developed contingency plans designed to deal with the threat posed to advertising structures by
23
hurricanes, it is possible that these plans will not work. If these plans fail, significant losses could result.
The Company has determined that it is not economical to obtain insurance against losses from hurricanes and other natural disasters. Instead, the Company has developed contingency plans to deal with the threat of hurricanes. For example, the Company attempts to remove the advertising faces on billboards at the onset of a storm, when possible, which better permits the structures to withstand high winds during a storm. The Company then replaces these advertising faces after the storm has passed. However, these plans may not be effective in the future and, if they are not, significant losses may result.
THE COMPANY'S LOGO SIGN CONTRACTS ARE SUBJECT TO STATE AWARD AND RENEWAL. A portion of the Company's revenues and operating income come from its state-awarded service contracts for logo signs. For the year ended December 31, 2002, approximately 5% of the Company's net revenues were derived from its logo sign contracts. The Company cannot predict what remaining states, if any, will start logo sign programs or convert state-run logo sign programs to privately operated programs. The Company currently competes with three other logo sign providers as well as local companies for state-awarded service contracts for logo signs. Generally, state-awarded logo sign contracts have a term of five to ten years, with additional renewal periods. Some states have the right to terminate a contract early, but in most cases must pay compensation to the logo sign provider for early termination. At the end of the term of the contract, ownership of the structures is transferred to the state. Depending on the contract in question, the logo provider may or may not be entitled to compensation at the end of the contract term. Of the Company's 21 logo sign contracts in place at December 31, 2002, two are subject to renewal, one in July 2003 and one in September 2003. Three are scheduled to terminate, one in September 2003, and two in December 2003. The Company may not be able to obtain new logo sign contracts or renew its existing contracts. In addition, after a new state-awarded logo contract is received, the Company generally incurs significant start-up costs. If the Company does not continue to have access to the capital necessary to finance those costs, it will not be able to accept new contracts. THE COMPANY IS CONTROLLED BY CERTAIN SIGNIFICANT STOCKHOLDERS WHO ARE ABLE TO CONTROL THE OUTCOME OF ALL MATTERS SUBMITTED TO ITS STOCKHOLDERS FOR APPROVAL AND WHOSE INTEREST IN THE COMPANY MAY BE DIFFERENT THAN YOURS. Certain members of the Reilly family, including Kevin P. Reilly, Jr., the Company's president and chief executive officer, as of December 31, 2002, own in the aggregate approximately 16% of Lamar Advertising's common stock, assuming the conversion of all Class B common stock to Class A common stock. This represents 66% of Lamar Advertising's outstanding voting stock. By virtue of such stock ownership, such persons have the power to: o elect the Company's entire board of directors; o control the Company's management and policies; and o determine the outcome of any corporate transaction or other matters required to be submitted to the Company's stockholders for approval, including the amendment of its certificate of incorporation, mergers, consolidation and the sale of all or substantially all of its assets.INFLATION
In the last three years, inflation has not had a significant impact on the Company.
SEASONALITY
The
Company'sCompany’s revenues and operating results have exhibited some degree of seasonality in past periods. Typically, the Company experiences its strongest financial performance in the summer and fall and its lowest in the first quarter of the calendar year. The Company expects this trend to continue in the future. Because a significant portion of theCompany'sCompany’s expenses is fixed, a reduction in revenues in any quarter is likely to result in a period to period decline in operating performance and net earnings.2324
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
LAMAR ADVERTISING COMPANY AND LAMAR MEDIA CORP.Lamar Advertising Company and Lamar Media Corp.
Lamar Advertising Company is exposed to interest rate risk in connection with variable rate debt instruments issued by its wholly owned subsidiary Lamar Media Corp. The information below summarizes the
Company'sCompany’s interest rate risk associated with its principal variable rate debt instruments outstanding at December 31,2002,2003, and should be read in conjunction with Note89 of the Notes to theCompany'sCompany’s Consolidated Financial Statements.Loans under Lamar Media Corp.
's’s bank credit agreement bear interest at variable rates equal to the JPMorgan Chase Prime Rate or LIBOR plus the applicable margin. Because the JPMorgan Chase Prime Rate or LIBOR may increase or decrease at any time, the Company is exposed to market risk as a result of the impact that changes in these base rates may have on the interest rate applicable to borrowings under the bank credit agreement. Increases in the interest rates applicable to borrowings under the bank credit agreement would result in increased interest expense and a reduction in theCompany'sCompany’s net income.At December 31,
2002,2003, there was approximately$975.5$1,015.0 million of aggregate indebtedness outstanding under thethen existingbank credit agreement, or approximately56.2%59.7% of theCompany'sCompany’s outstanding long-term debt on that date, bearing interest at variable rates. The aggregate interest expense for20022003 with respect to borrowings under the bank credit agreement was$43.0$36.1 million, and the weighted average interest rate applicable to borrowings under this credit facility during20022003 was4.0%3.4%. Assuming that the weighted average interest rate was 200-basis points higher (that is6.0%5.4% rather than4.0%3.4%), then theCompany's 2002Company’s 2003 interest expense would have been approximately$20.5$20.1 million higher resulting in a$12.5$12.2 million increase in theCompany's 2002Company’s 2003 net loss.The Company has mitigated the interest rate risk resulting from its variable interest rate long-term debt instruments by issuing fixed rate long-term debt instruments and maintaining a balance over time between the amount of the
Company'sCompany’s variable rate and fixed rate indebtedness. In addition, the Company hasand hadthe capability under theold and newbank credit agreement to fix the interest rates applicable to its borrowings at an amount equal to LIBOR plus the applicable margin for periods of up to twelve months, which would allow the Company to mitigate the impact of short-term fluctuations in market interest rates. In the event of an increase in interest rates, the Company may take further actions to mitigate its exposure. The Company cannot guarantee, however, that the actions that it may take to mitigate this risk will be feasible or that, if these actions are taken, that they will be effective.ITEM 8. FINANCIAL STATEMENTS
(FOLLOWING ON NEXT PAGE) 24(following on next page) 25
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES
Independent Auditors'Auditors’ Report................................................... 2627 Consolidated Balance Sheets as of December 31, 20022003 and2001 ................... 27200228 Consolidated Statements of Operations for the years ended December 31, 2003, 2002 2001and2000 ....................................................... 28200129 Consolidated Statements of Stockholders'Stockholders’ Equity for the years ended December 31, 2003, 20022001and2000 .......................................... 29200130 Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 2001and2000 ...................................................... 30200131 Notes to Consolidated Financial Statements ..................................... 31-5132 – 50 Schedule 2 -– Valuation and Qualifying Accounts for the years ended December 31, 2003, 20022001and2000 ......................................... 52200151 25INDEPENDENT AUDITORS' REPORT26
Report of Independent Registered Public Accounting Firm
Board of Directors
Lamar Advertising Company:We have audited the
accompanyingconsolidatedbalance sheetsfinancial statements of Lamar Advertising Company and subsidiaries asof December 31, 2002 and 2001, andlisted in therelated consolidated statements of operations, stockholders' equity and cash flows for eachaccompanying index. In connection with our audits of theyearsconsolidated financial statements, we also have audited the financial statement schedule as listed in thethree-year period ended December 31, 2002.accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of theCompany'sCompany’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.We conducted our audits in accordance with
auditingthe standardsgenerally accepted inof theUnited States of America.Public Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Lamar Advertising Company and subsidiaries as of December 31,
20022003 and2001,2002, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31,2002,2003, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.As discussed in Note 2 to the consolidated financial statements, the Company has restated its consolidated financial statements for the year ended December 31, 2003.
As discussed in Note 1(d) to the consolidated financial statements, effective July 1, 2001, the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 141,
"Business Combinations"“Business Combinations”, and certain provisions of SFAS No. 142,"Goodwill“Goodwill and Other IntangibleAssets"Assets”, as required for goodwill and intangible assets resulting from business combinations consummated after June 30, 2001. The provisions of SFAS No. 142 were fully adopted on January 1, 2002./s/As discussed in Note 9 to the consolidated financial statements, the Company adopted the provisions of SFAS No. 143, “Accounting for Asset Retirement Obligations” on January 1, 2003./s/ KPMG LLP
KPMG LLPNew Orleans, Louisiana
February5, 2003,9, 2004, except
for Notes 2 and 10, as toNote 8
which the date isas of March 7, 2003 26November 15, 2004 27
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS
DECEMBER 31, --------------------------- 2002 2001 ------------ ------------ (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)ASSETS Current assets: Cash and cash equivalents................................. $ 15,610 $ 12,885 Cash on deposit for debt extinguishment (note 8).......... 266,657 -- Receivables, net of allowance for doubtful accounts of $4,914 in 2002 and 2001................................. 92,382 95,135 Prepaid expenses.......................................... 30,091 27,176 Deferred income tax asset................................. 6,428 5,945 Other current assets...................................... 7,315 8,019 ---------- ---------- Total current assets........................................ 418,483 149,160 ---------- ---------- Property, plant and equipment (note 4)...................... 1,850,657 1,777,399 Less accumulated depreciation and amortization............ (566,889) (451,686) ---------- ---------- Net property, plant and equipment........................... 1,283,768 1,325,713 ---------- ---------- Goodwill (note 5)........................................... 1,178,428 1,134,760 Intangible assets (note 5).................................. 988,953 1,044,715 Other assets................................................ 18,474 17,304 ---------- ---------- Total assets................................................ $3,888,106 $3,671,652 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Trade accounts payable.................................... $ 10,051 $ 10,048 Current maturities of long-term debt (note 8)............. 4,687 66,559 Current maturities related to debt extinguishment (note 8)...................................................... 255,000 -- Accrued expenses (note 7)................................. 38,881 33,674 Deferred income........................................... 13,942 11,618 ---------- ---------- Total current liabilities................................... 322,561 121,899 Long-term debt (note 8)..................................... 1,734,746 1,745,026 Deferred income taxes (note 9).............................. 114,260 124,782 Other liabilities........................................... 7,366 7,724 ---------- ---------- Total liabilities........................................... 2,178,933 1,999,431 ---------- ---------- Stockholders' equity (note 11): Series AA preferred stock, par value $.001, $63.80 cumulative dividends, authorized 5,720 shares; 5,719 shares issued and outstanding at 2002 and 2001.......... -- -- Class A preferred stock, par value $638, $63.80 cumulative dividends, 10,000 shares authorized, 0 shares issued and outstanding at 2002 and 2001............................ -- -- Class A common stock, par value $.001, 175,000,000 shares authorized, 85,077,038 and 82,899,800 shares issued and outstanding at 2002 and 2001, respectively.............. 85 83 Class B common stock, par value $.001, 37,500,000 shares authorized, 16,417,073 and 16,611,835 shares issued and outstanding at 2002 and 2001, respectively.............. 16 17 Additional paid-in capital................................ 2,036,709 1,963,065 Accumulated deficit....................................... (327,637) (290,944) ---------- ---------- Stockholders' equity........................................ 1,709,173 1,672,221 ---------- ---------- Total liabilities and stockholders' equity.................. $3,888,106 $3,671,652 ========== ==========Consolidated Balance Sheets
December 31, 2003 and 2002
(In thousands, except share and per share data)
2003 2002 (Restated) ASSETS Current assets: Cash and cash equivalents $ 7,797 $ 15,610 Cash on deposit for debt extinguishment (note 9) — 266,657 Receivables, net of allowance for doubtful accounts of $4,914 in 2003 and 2002 90,072 91,982 Prepaid expenses 32,377 30,091 Deferred income tax assets (note 11) 6,051 6,428 Other current assets 7,820 7,715 Total current assets 144,117 418,483 Property, plant and equipment (note 5) 1,988,096 1,850,657 Less accumulated depreciation and amortization (702,272 ) (566,889 ) Net property, plant and equipment 1,285,824 1,283,768 Goodwill (note 6) 1,240,275 1,178,428 Intangible assets (note 6) 938,643 961,859 Deferred financing costs, net of accumulated amortization of $20,783 and $25,108, respectively 28,355 27,094 Other assets 32,159 18,474 Total assets $ 3,669,373 $ 3,888,106 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Trade accounts payable $ 8,813 $ 10,051 Current maturities of long-term debt (note 9) 5,044 4,687 Current maturities related to debt extinguishment (note 9) — 255,000 Accrued expenses (note 8) 45,986 38,881 Deferred income 14,372 13,942 Total current liabilities 74,215 322,561 Long-term debt (note 9) 1,699,819 1,734,746 Deferred income tax liabilities (note 11) 73,352 114,260 Asset retirement obligation (note 10) 123,217 — Other liabilities 9,109 7,366 Total liabilities 1,979,712 2,178,933 Stockholders’ equity (note 13): Series AA preferred stock, par value $.001, $63.80 cumulative dividends, authorized 5,720 shares; 5,719 shares issued and outstanding at 2003 and 2002 — — Class A preferred stock, par value $638, $63.80 cumulative dividends, 10,000 shares authorized, 0 shares issued and outstanding at 2003 and 2002 — — Class A common stock, par value $.001, 175,000,000 shares authorized, 87,266,763 and 85,077,038 shares issued and outstanding at 2003 and 2002, respectively 87 85 Class B common stock, par value $.001, 37,500,000 shares authorized, 16,147,073 and 16,417,073 are issued and outstanding at 2003 and 2002, respectively 16 16 Additional paid-in-capital 2,097,555 2,036,709 Accumulated deficit (407,997 ) (327,637 ) Stockholders’ equity 1,689,661 1,709,173 Total liabilities and stockholders’ equity $ 3,669,373 $ 3,888,106 See accompanying notes to consolidated financial statements.
2728
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, ------------------------------------------------- 2002 2001 2000 --------------- -------------- -------------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)Net revenues:........................................ $ 775,682 $ 729,050 $ 687,319 ------------ ----------- ----------- Operating expenses: Direct advertising expenses........................ 274,772 251,483 217,465 General and administrative expenses................ 167,182 151,048 138,072 Depreciation and amortization...................... 277,893 355,529 318,096 Gain on disposition of assets...................... (336) (923) (986) ------------ ----------- ----------- 719,511 757,137 672,647 ------------ ----------- ----------- Operating income (loss)............................ 56,171 (28,087) 14,672 Other expense (income): Loss on early extinguishment of debt............... 5,850 -- -- Interest income.................................... (929) (640) (1,715) Interest expense................................... 107,272 126,861 147,607 ------------ ----------- ----------- 112,193 126,221 145,892 ------------ ----------- ----------- Loss before income taxes............................. (56,022) (154,308) (131,220) Income tax benefit (note 9).......................... (19,694) (45,674) (37,115) ------------ ----------- ----------- Net loss............................................. (36,328) (108,634) (94,105) Preferred stock dividends............................ 365 365 365 ------------ ----------- ----------- Net loss applicable to common stock.................. $ (36,693) $ (108,999) $ (94,470) ============ =========== =========== Net loss per common share -- basic and diluted....... $ (0.36) $ (1.11) $ (1.04) ============ =========== =========== Weighted average common shares outstanding........... 101,089,215 98,566,949 91,164,884 Incremental common shares from dilutive stock options............................................ -- -- -- Incremental common shares from convertible debt...... -- -- -- ------------ ----------- ----------- Weighted average common shares assuming dilution..... 101,089,215 98,566,949 91,164,884 ============ =========== ===========Consolidated Statements of Operations
Years Ended December 31, 2003, 2002 and 2001
(In thousands, except share and per share data)
2003 2002 2001 (Restated) Net revenues $ 810,139 $ 775,682 $ 729,050 Operating expenses (income): Direct advertising expenses 292,017 274,772 251,483 General and administrative expenses 145,971 139,610 124,339 Corporate expenses 25,549 27,572 26,709 Depreciation and amortization 284,947 271,832 349,550 Gain on disposition of assets (1,946 ) (336 ) (923 ) 746,538 713,450 751,158 Operating income (loss) 63,601 62,232 (22,108 ) Other expense (income): Loss on extinguishment of debt 33,644 5,850 — Interest income (502 ) (929 ) (640 ) Interest expense 93,787 113,333 132,840 126,929 118,254 132,200 Loss before income tax benefit and cumulative effect of a change in accounting principle (63,328 ) (56,022 ) (154,308 ) Income tax benefit (note 11) (23,573 ) (19,694 ) (45,674 ) Loss before cumulative effect of a change in accounting principle (39,755 ) (36,328 ) (108,634 ) Cumulative effect of a change in accounting principle, net of tax benefit of $25,727 40,240 — — Net loss (79,995 ) (36,328 ) (108,634 ) Preferred stock dividends 365 365 365 Net loss applicable to common stock $ (80,360 ) $ (36,693 ) $ (108,999 ) Loss per common share: Loss before cumulative effect of a change in accounting principle $ (0.39 ) $ (0.36 ) $ (1.11 ) Cumulative effect of a change in accounting principle $ (0.39 ) $ — $ — Net loss $ (0.78 ) $ (0.36 ) $ (1.11 ) Weighted average common shares outstanding 102,686,780 101,089,215 98,566,949 Incremental common shares from dilutive stock options — — — Incremental common shares from convertible debt — — — Weighted average common shares assuming dilution 102,686,780 101,089,215 98,566,949 See accompanying notes to consolidated financial statements.
2829
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY For the years endedConsolidated Statements of Stockholders’ Equity
Years Ended December 31, 2003, 20022001and20002001
SERIES AA CLASS A CLASS A CLASS B ADDITIONAL PREFERRED PREFERRED COMMON COMMON PAID-IN ACCUMULATED STOCK STOCK STOCK STOCK CAPITAL DEFICIT TOTAL --------- --------- ------- ------- ---------- ----------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA)BALANCE, DECEMBER 31, 1999....... $ -- -- 71 17 1,478,916 (87,475) 1,391,529 Issuance of 4,238,416 shares of common stock in acquisitions................. -- -- 4 -- 185,599 -- 185,603 Exercise of stock options...... -- -- -- -- 7,471 -- 7,471 Conversion of 449,997 shares of Class B common stock to Class A common stock......... -- -- -- -- -- -- -- Issuance of 37,510 shares of common stock through employee purchase plan................ -- -- -- -- 1,261 -- 1,261 Issuance of 4,500,000 shares of common stock for cash........ -- -- 5 -- 198,056 -- 198,061 Net loss....................... -- -- -- -- -- (94,105) (94,105) Dividends ($63.80 per preferred share)....................... -- -- -- -- -- (365) (365) ----- ---- -- --- --------- -------- ---------- BALANCE, DECEMBER 31, 2000....... $ -- -- 80 17 1,871,303 (181,945) 1,689,455 Issuance of 725,000 shares of common stock in acquisitions................. -- -- 1 -- 28,999 -- 29,000 Exercise of stock options...... -- -- 1 -- 12,941 -- 12,942 Conversion of 388,165 shares of Class B common stock to Class A common stock......... -- -- -- -- -- -- -- Issuance of 59,599 shares of common stock through employee purchase plan................ -- -- -- -- 1,823 -- 1,823 Issuance of 1,200,000 shares of common stock for cash........ -- -- 1 -- 47,999 -- 48,000 Net loss....................... -- -- -- -- -- (108,634) (108,634) Dividends ($63.80 per preferred share)....................... -- -- -- -- -- (365) (365) ----- ---- -- --- --------- -------- ---------- BALANCE, DECEMBER 31, 2001....... $ -- -- 83 17 1,963,065 (290,944) 1,672,221 Issuance of 1,405,464 shares of common stock in acquisitions................. -- -- 1 -- 56,099 -- 56,100 Exercise of stock options...... -- -- -- -- 15,722 -- 15,722 Conversion of 194,762 shares of Class B common stock to Class A common stock......... -- -- 1 (1) -- -- -- Issuance of 61,424 shares of common stock through employee purchase plan................ -- -- -- -- 1,823 -- 1,823 Net loss....................... -- -- -- -- -- (36,328) (36,328) Dividends ($63.80 per preferred share)....................... -- -- -- -- -- (365) (365) ----- ---- -- --- --------- -------- ---------- BALANCE, DECEMBER 31, 2002....... $ -- -- 85 16 2,036,709 (327,637) 1,709,173 ===== ==== == === ========= ======== ==========
(In thousands, except per share data)
SERIES ADDI- AA CLASS A CLASS A CLASS B TIONAL ACCUM- PREFERRED PREFERRED COMMON COMMON PAID-IN ULATED STOCK STOCK STOCK STOCK CAPITAL DEFICIT TOTAL Balance, December 31, 2000 $ — — 80 17 1,871,303 (181,945 ) 1,689,455 Issuance of 725,000 shares of common stock in acquisitions — — 1 — 28,999 — 29,000 Exercise of 425,243 shares of stock options — — 1 — 12,941 — 12,942 Conversion of 388,165 shares of Class B common stock to Class A common stock — — — — — — — Issuance of 59,599 shares of common stock through employee purchase plan — — — — 1,823 — 1,823 Issuance of 1,200,000 shares of common stock for cash — — 1 — 47,999 — 48,000 Net loss — — — — — (108,634 ) (108,634 ) Dividends ($63.80 per preferred share) — — — — — (365 ) (365 ) Balance, December 31, 2001 $ — — 83 17 1,963,065 (290,944 ) 1,672,221 Issuance of 1,405,464 shares of common stock in acquisitions — — 1 — 56,099 — 56,100 Exercise of 515,588 shares of stock options — — — — 15,722 — 15,722 Conversion of 194,762 shares of Class B common stock to Class A common stock — — 1 (1 ) — — — Issuance of 61,424 shares of common stock through employee purchase plan — — — — 1,823 — 1,823 Net loss — — — — — (36,328 ) (36,328 ) Dividends ($63.80 per preferred share) — — — — — (365 ) (365 ) Balance, December 31, 2002 $ — — 85 16 2,036,709 (327,637 ) 1,709,173 Issuance of 1,550,095 shares of common stock in acquisitions — — 2 — 50,628 — 50,630 Exercise of 298,105 shares of stock options — — — — 8,272 — 8,272 Conversion of 270,000 shares of Class B common stock to Class A stock — — — — — — — Issuance of 72,025 shares of common stock through employee purchase plan — — — — 1,946 — 1,946 Net loss (restated) — — — — — (79,995 ) (79,995 ) Dividends ($63.80 per preferred share) — — — — — (365 ) (365 ) Balance, December 31, 2003 (restated) $ — — 87 16 2,097,555 (407,997 ) 1,689,661 See accompanying notes to consolidated financial statements.
2930
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, --------------------------------- 2002 2001 2000 --------- --------- --------- (IN THOUSANDS)Cash flows from operating activities: Net loss.................................................. $ (36,328) $(108,634) $ (94,105) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization........................... 277,893 355,529 318,096 Gain on disposition of assets........................... (336) (923) (986) Loss on debt extinguishment............................. 2,424 -- -- Deferred income tax benefit............................. (15,584) (46,387) (36,974) Provision for doubtful accounts......................... 9,036 7,794 5,991 Changes in operating assets and liabilities: (Increase) decrease in: Receivables........................................... (4,359) (9,413) (13,232) Prepaid expenses...................................... (2,533) (1,321) (1,371) Other assets.......................................... 1,704 2,192 349 Increase (decrease) in: Trade accounts payable................................ 3 131 (1,574) Accrued expenses...................................... 3,551 (8,287) 2,175 Deferred income....................................... 2,051 (173) (964) Other liabilities..................................... (505) 124 196 --------- --------- --------- Net cash provided by operating activities.......... 237,017 190,632 177,601 --------- --------- --------- Cash flows from investing activities: Capital expenditures...................................... (78,390) (85,320) (78,304) Purchase of new markets................................... (79,135) (302,067) (360,118) Increase in notes receivable.............................. (1,650) -- -- Proceeds from sale of property and equipment.............. 3,412 4,916 2,827 --------- --------- --------- Net cash used in investing activities.............. (155,763) (382,471) (435,595) --------- --------- --------- Cash flows from financing activities: Net proceeds from issuance of common stock................ 13,976 60,368 205,098 Proceeds from issuance of long-term debt.................. 256,360 -- -- Deposits for debt extinguishment.......................... (266,657) -- -- Principle payments on long-term debt...................... (140,700) (67,046) (5,330) Debt issuance costs....................................... (1,183) (573) (1,470) Increase in notes payable................................. 40 -- -- Net borrowing under credit agreements..................... 60,000 140,000 124,000 Dividends................................................. (365) (365) (365) --------- --------- --------- Net cash (used in) provided by financing activities....................................... (78,529) 132,384 321,933 --------- --------- --------- Net increase (decrease) in cash and cash equivalents...................................... 2,725 (59,455) 63,939 Cash and cash equivalents at beginning of period.......... 12,885 72,340 8,401 --------- --------- --------- Cash and cash equivalents at end of period................ $ 15,610 $ 12,885 $ 72,340 ========= ========= ========= Supplemental disclosures of cash flow information: Cash paid for interest.................................... $ 104,722 $ 128,434 $ 147,875 ========= ========= ========= Cash paid for state and federal income taxes.............. $ 745 $ 1,189 $ 1,936 ========= ========= =========Consolidated Statements of Cash Flows
Years Ended December 31, 2003, 2002 and 2001
(In thousands)
2003 2002 2001 (Restated) Cash flows from operating activities: Net loss $ (79,995 ) $ (36,328 ) $ (108,634 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 284,947 271,832 349,550 Amortization costs included in interest expense 6,037 6,061 5,979 Gain on disposition of assets (1,946 ) (336 ) (923 ) Loss on extinguishment of debt 33,644 5,850 — Cumulative effect of a change in accounting principle 40,240 — — Deferred income tax benefit (23,531 ) (15,584 ) (46,387 ) Provision for doubtful accounts 8,599 9,036 7,794 Changes in operating assets and liabilities: (Increase) decrease in: Receivables (7,425 ) (4,359 ) (9,413 ) Prepaid expenses (2,923 ) (2,533 ) (1,321 ) Other assets (3,038 ) 1,704 2,192 Increase (decrease) in: Trade accounts payable (1,238 ) 3 131 Accrued expenses 6,450 3,551 (8,287 ) Other liabilities 254 1,546 (49 ) Cash flows provided by operating activities 260,075 240,443 190,632 Cash flows from investing activities: Capital expenditures (78,275 ) (78,390 ) �� (85,320 ) Purchase of new markets (137,595 ) (79,135 ) (302,067 ) Increase in notes receivable — (1,650 ) — Proceeds from sale of property and equipment 5,829 3,412 4,916 Cash flows used in investing activities (210,041 ) (155,763 ) (382,471 ) Cash flows from financing activities: Net proceeds from issuance of common stock 8,798 13,976 60,368 Cash from deposits for debt extinguishment 266,657 (266,657 ) — Principle payments on long-term debt (771,388 ) (144,126 ) (67,046 ) Debt issuance costs (9,899 ) (1,183 ) (573 ) Net proceeds from note offerings and new notes payable 408,350 256,400 — Net borrowing under credit agreements 40,000 60,000 140,000 Dividends (365 ) (365 ) (365 ) Cash flows (used in) provided by financing activities (57,847 ) (81,955 ) 132,384 Net increase (decrease) in cash and cash equivalents (7,813 ) 2,725 (59,455 ) Cash and cash equivalents at beginning of period 15,610 12,885 72,340 Cash and cash equivalents at end of period $ 7,797 $ 15,610 $ 12,885 Supplemental disclosures of cash flow information: Cash paid for interest $ 81,342 $ 104,722 $ 128,434 Cash paid for state and federal income taxes $ 825 $ 745 $ 1,189 Common stock issuance related to acquisitions $ 50,630 $ 56,100 $ 29,000 See accompanying notes to consolidated financial statements.
3031
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)(1)
SIGNIFICANT ACCOUNTING POLICIES (a) NATURE OF BUSINESS Lamar Advertising Company (the Company) is engaged in the outdoor advertising business operating approximately 146,000 outdoor advertising displays in 44 states. The Company's operating strategy is to be the leading provider of outdoor advertising services in the markets it serves. In addition, the Company operates a logo sign business in 21 states throughout the United States and in one province of Canada. Logo signs are erected pursuant to state-awarded service contracts on public rights-of-way near highway exits and deliver brand name information on available gas, food, lodging and camping services. Included in the Company's logo sign business are tourism signing contracts. (b) PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include Lamar Advertising Company, its wholly-owned subsidiary, Lamar Media Corp. (Lamar Media), and its majority-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. (c) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost. Depreciation is calculated using accelerated and straight-line methods over the estimated useful lives of the assets. (d) GOODWILL AND INTANGIBLE ASSETSSignificant Accounting Policies
(a) Nature of Business Lamar Advertising Company (the Company) is engaged in the outdoor advertising business operating over 147,000 outdoor advertising displays in 43 states. The Company’s operating strategy is to be the leading provider of outdoor advertising services in the markets it serves. In addition, the Company operates a logo sign business in 20 states throughout the United States and in one province of Canada and a transit advertising business in 38 markets. Logo signs are erected pursuant to state-awarded service contracts on public rights-of-way near highway exits and deliver brand name information on available gas, food, lodging and camping services. Included in the Company’s logo sign business are tourism signing contracts. The Company provides transit advertising on bus shelters, benches and buses in the markets it serves. (b) Principles of Consolidation The accompanying consolidated financial statements include Lamar Advertising Company, its wholly owned subsidiary, Lamar Media Corp. (Lamar Media), and its majority-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. (c) Property, Plant and Equipment Property, plant and equipment are stated at cost. Depreciation is calculated using accelerated and straight-line methods over the estimated useful lives of the assets. (d) Goodwill and Intangible Assets Goodwill represents the excess of costs over fair value of assets of businesses acquired in accordance with Statement of Financial Accounting Standards (SFAS) No. 141, “Business Combinations,” which was adopted for all business combinations consummated after June 30, 2001 as well as certain provisions of SFAS No. 142, “Goodwill and Other Intangible Assets.” The Company fully adopted the provisions of SFAS No. 142, as of January 1, 2002. Goodwill and other intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets.” In connection with SFAS No. 142’s transitional goodwill impairment evaluation, SFAS No. 142 required the Company to perform an assessment of whether there was an indication that goodwill is impaired as of the date of adoption. To accomplish this, the Company was required to identify its reporting units and determine the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units as of January 1, 2002. The Company was required to determine the fair value of each reporting unit and compare it to the carrying amount of the reporting unit. To the extent the carrying amount of a reporting unit exceeded the fair value of the reporting unit, the Company would be required to perform the second step of the impairment test, as this is an indication that the reporting unit goodwill may be impaired. The fair value of each reporting unit exceeded its carrying amount at adoption on January 1, 2002 and at its annual impairment test dates on December 31, 2002 and December 31, 2003 and the Company was not required to recognize an impairment loss. Prior to the adoption of SFAS No. 142, goodwill was amortized on a straight-line basis over the expected periods to be benefited, generally 15 years, and assessed for recoverability by determining whether the amortization of the goodwill balance over its remaining life could be recovered through undiscounted future operating cash flows of the acquired operation before interest expense. The amount of goodwill and other intangible asset impairment, if any, was measured based on projected discounted future operating cash flows using a discount rate reflecting the Company’s average cost of funds. Intangible assets, consisting primarily of site locations, customer lists and contracts, and non-competition agreements are amortized using the straight-line method over the assets estimated useful lives, generally from 5 to 15 years. Debt issuance costs are deferred and amortized over the terms of the related credit facilities using the interest method. 32
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)
(e) Impairment of Long-Lived Assets SFAS No. 144 provides a single accounting model for long-lived assets to be disposed of. SFAS No. 144 also changes the criteria for classifying an asset as held for sale; and broadens the scope of businesses to be disposed of that qualify for reporting as discontinued operations and changes the timing of recognizing losses on such operations. The Company adopted SFAS No. 144 on January 1, 2002. The adoption of SFAS No. 144 did not affect the Company’s financial statements. In accordance with SFAS No. 144, long-lived assets, such as property, plant and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset before interest expense. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet. Prior to the adoption of SFAS No. 144, the Company accounted for long-lived assets in accordance with SFAS No. 121, “Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of.” (f) Deferred Income Deferred income consists principally of advertising revenue received in advance and gains resulting from the sale of certain assets to related parties. Deferred advertising revenue is recognized in income as services are provided over the term of the contract. Deferred gains are recognized in income in the consolidated financial statements at the time the assets are sold to an unrelated party or otherwise disposed of. (g) Revenue Recognition The Company recognizes revenue, net of agency commissions, if any, on an accrual basis ratably over the term of the contracts, as services are provided. The Company engages in barter transactions where the Company trades advertising space for goods and services. The Company recognizes revenues and expenses from barter transactions at fair value which is determined based on the Company’s own historical practice of receiving cash for similar advertising space from buyers unrelated to the party in the barter transaction. The amount of revenue and expense recognized for advertising barter transactions is as follows:
2003 2002 2001 Net revenues $ 6,360 3,677 1,315 Direct advertising expenses 2,780 691 500 General and administrative expenses 3,197 2,557 208
(h) Income Taxes The Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. 33
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)
(i) Earnings Per Share Earnings per share are computed in accordance with SFAS No. 128, “Earnings Per Share.” The calculation of basic earnings per share excludes any dilutive effect of stock options and convertible debt, while diluted earnings per share includes the dilutive effect of stock options and convertible debt. The number of potentially dilutive shares excluded from the calculation because of their anti-dilutive effect are 6,726,508, 6,762,452 and 6,834,065 for the years ended December 31, 2003, 2002 and 2001, respectively. (j) Stock Option Plan The Company accounts for its stock option plan under the intrinsic value method in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees”, and related interpretations. As such, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. SFAS No. 123, “Accounting for Stock-Based Compensation” and FASB Statement No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure, an amendment of FASB Statement No. 123,” established accounting and disclosure requirements using a fair-value-based method of accounting for stock-based employee compensation plans. As permitted by existing accounting standards, the Company has elected to continue to apply the intrinsic-value-based methods of accounting described above, and has adopted only the disclosure requirements of Statement 123, as amended. The following table illustrates the effect on net income if the fair-value-based method had been applied to all outstanding and unvested awards in each period.
2003 2002 2001 Net loss applicable to common stock, as reported (Restated) $ (80,360 ) (36,693 ) (108,999 ) Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (3,472 ) (6,614 ) (16,552 ) Pro forma net loss applicable to common stock (Restated) $ (83,832 ) (43,307 ) (125,551 ) ��
2003 2002 2001 Net loss per common share – as reported (Restated) (basic and diluted) $ (0.78 ) (0.36 ) (1.11 ) Net loss per common share – pro forma (Restated) (basic and diluted) $ (0.82 ) (0.43 ) (1.27 )
(k) Cash and Cash Equivalents The Company considers all highly-liquid investments with original maturities of three months or less to be cash equivalents. (l) Reclassification of Prior Year Amounts The Company previously included amortization of debt insurance costs under depreciation and amortization in the Consolidated Statement of Operations. The Company is reclassifying this cost to interest expense. The effect of this reclassification is a decrease in depreciation and amortization and an increase in interest expense and operating income in the prior periods. The reclassification had no effect on previously reported net income. The amortization of debt issuance fees was $6,037, $6,061 and $5,979 for the years ended December 31, 2003, 2002 and 2001, respectively. (m) Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 34
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)
(n) Asset Retirement Obligations In 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations” (Statement 143). Statement 143 requires companies to record the present value of obligations associated with the retirement of tangible long-lived assets in the period in which it is incurred. The liability is capitalized as part of the related long-lived asset’s carrying amount. Over time, accretion of the liability is recognized as an operating expense and the capitalized cost is depreciated over the expected useful life of the related asset. The Company’s asset retirement obligations relate primarily to the dismantlement, removal, site reclamation and similar activities of its properties. The Company adopted Statement 143 effective January 1, 2003, using the cumulative effect approach to recognize transition amounts for asset retirement obligations, asset retirement costs and accumulated depreciation. Prior to adoption of this statement, the Company expensed these costs at the date of retirement. (2) Restatement of Financial Statements
The Company is restating its financial statements for the year ended December 31, 2003. The restatement also impacted quarterly periods in the year ended December 31, 2003. The restated amounts for these quarters are presented in Note 18, Quarterly Financial Data (unaudited).
This restatement of the financial statements corrects the adoption of Statement of Financial Accounting Standard 143, “Accounting for Asset Retirement Obligations” (Statement 143), effective January 1, 2003. Previously all of the Company’s liabilities for asset retirement obligations related to the Company’s structure inventory that it considers would be retired upon dismantlement of the advertising structure. The Company’s steel structures, unlike its non-steel structures, are not typically retired but relocated to another location. As such, the costs associated with the removal of the steel structures and resurfacing of the land were believed to be outside the scope of Statement 143 and were recorded when incurred in accordance with Statement of Financial Accounting
Standards (SFAS) No. 141, "Business Combinations", which was adoptedStandard 13, “Accounting forall business combinations consummated after June 30, 2001Leases”. The Company reconsidered the provisions of Statement 143 and has determined that the liabilities should include costs associated with the removal of the steel structures and resurfacing of the land in the asset retirement obligation.The effect of the restatement on the condensed consolidated statements of operations for the year ended December 31, 2003 are set forth below:
Year ended December 31, 2003 As Previously As Restated Reported Depreciation and amortization* 284,947 282,273 Gain on disposition of assets (1,946 ) (748 ) Operating expenses 746,538 745,062 Operating income 63,601 65,077 Interest expense* 93,787 87,750 Loss before income tax and cumulative effect of a change in accounting principle (63,328 ) (55,815 ) Income tax benefit (23,573 ) (20,643 ) Loss before cumulative effect of a changing in accounting principle (39,755 ) (35,172 ) Cumulative effect of a change in accounting principle, net of tax 40,240 11,679 Net Loss (79,995 ) (46,851 ) Net loss applicable to common stock (80,360 ) (47,216 )
* The as restated year ended December 31, 2003 results have been adjusted for the amortization of deferred financing cost reclassification as discussed in footnote 1(L) to these financial statements.
Year ended December 31, 2003 As Previously As Restated Reported Loss per share: Basic and diluted: Before cumulative effect of a change in accounting principle (0.39 ) (0.35 ) Cumulative effect of a change in accounting principle (0.39 ) (0.11 )
Basic and diluted loss per share (0.78 ) (0.46 )
The effect of the restatement of the condensed consolidated balance sheet as of December 31, 2003 is set forth below:
December 31, 2003 As Previously As Restated Reported Property, plant & equipment 1,988,096 1,933,003 Accumulated depreciation (702,272 ) (679,205 ) Total Assets 3,669,373 3,637,347 Deferred income tax liabilities 73,352 94,542 Asset retirement obligation 123,217 36,857 Total Liabilities 1,979,712 1,914,542 Accumulated Deficit (407,997 ) (374,853 ) Stockholder’s Equity 1,689,661 1,722,805 Total liabilities and stockholder’s equity 3,669,373 3,637,347 The restatement did not effect cash provided by operations, cash used in investing activities or cash provided by financing activities for the year ended December 31, 2003.
(3) Acquisitions Year Ended December 31, 2003
On March 3, 2003, the Company purchased the stock of Delite Outdoor, Inc. for $18,000. The purchase price consisted of 588,543 shares of Lamar Advertising Class A common stock valued at $18,000.
On May 1, 2003, the Company purchased the assets of Outdoor Media Group, Inc. for $40,000. The purchase price consisted of 307,134 shares of Lamar Advertising Class A common stock as well as
certain provisions of SFAS No. 142, "Goodwill and Other Intangible Assets". The Company fully adopted the provisions of SFAS No. 142, as of January 1, 2002. Goodwill and other intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets." In connection with SFAS No. 142's transitional goodwill impairment evaluation, SFAS No. 142 requiredapproximately $30,000 cash.On June 2, 2003, the Company
to perform an assessmentpurchased the stock ofwhether thereAdams Outdoor, Inc. for approximately $40,137. The purchase price included 501,626 shares of Lamar Advertising Class A common stock and approximately $22,637 cash.During the year ended December 31, 2003, the Company completed additional acquisitions of outdoor advertising assets for a total purchase price of approximately $91,426, which consisted of the issuance of 152,792 shares of Lamar Advertising Class A common stock and $86,296 cash.
Each of these acquisitions was
an indication that goodwill is impaired asaccounted for under the purchase method of accounting, and, accordingly, the accompanying consolidated financial statements include the results of operations of each acquired entity from the date ofadoption. To accomplish this, the Company was requiredacquisition. The acquisition costs have been allocated toidentify its reporting units and determine the carrying value of each reporting unit by assigning theassets acquired and liabilitiesincludingassumed based on fair market value at theexisting goodwill anddates of acquisition. The following is a summary of the preliminary allocation of the acquisition costs in the above transactions.
Delite Adams Outdoor Outdoor Outdoor Media Inc. Inc. Group, Inc. Other Total Current assets $ 911 1,327 19 180 2,437 Property, plant and equipment 4,580 2,307 2,793 18,409 28,089 Goodwill 43 24,246 17,111 20,447 61,847 Site locations 10,048 16,221 16,335 41,245 83,849 Non-competition agreements 145 — — 496 641 Customer lists and contracts 2,732 3,716 3,742 6,948 17,138 Other assets — — — 6,666 6,666 Current liabilities 108 403 — 445 956 Long-term liabilities 351 7,277 — 2,520 10,148 $ 18,000 40,137 40,000 91,426 189,563 Total acquired intangible assets
to those reporting units as of January 1, 2002. The Company was required to determinefor thefair value of each reporting unit and compare it to the carrying amount of the reporting unit. To the extent the carrying amount of a reporting unit exceeded the fair value of the reporting unit, the Company would be required to perform the second step of the impairment test, as this is an indication that the reporting unit goodwill may be impaired. The fair value of each reporting unit exceeded its carrying amount at adoption on January 1, 2002 and at its annual impairment test date onyear ended December 31,2002 and the Company2003 was $163,475, of which $61,847 was assigned to goodwill which is notrequiredsubject torecognize an impairment loss. Prior to the adoptionamortization. The remaining $101,628 ofSFAS No. 142, goodwill was amortized onacquired intangible assets have astraight-line basis over the expected periods to be benefited, generally 15 years, and assessed for recoverability by determining whether the amortizationweighted average useful life ofthe goodwill balance over its remaining life could be recovered through undiscounted 31LAMAR ADVERTISING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) future operating cash flows of the acquired operation before interest expense.approximately 14 years. Theamount of goodwill and otherintangibleasset impairment, if any, was measured based on projected discounted future operating cash flows using a discount rate reflecting the Company's average cost of funds. Intangibleassetsconsisting primarily of site locations,include customer lists and contracts of $17,138 (7 year weighted average useful life), site locations of $83,849 (15 year weighted average useful life), and non-competition agreementsare amortized using the straight-line method over the assets estimatedof $641 (10 year weighted average usefullives, generally from 5 to 15 years. Debt issuance costs are deferred and amortized over the termslife). Approximately $35,878 of therelated credit facilities using the interest method. (e) IMPAIRMENT OF LONG-LIVED ASSETS SFAS No. 144 provides a single accounting model for long-lived assets$61,847 of goodwill is expected to bedisposed of. SFAS No. 144 also changesfully deductible for tax purposes. The aggregate amortization expense related to thecriteria2003 acquisitions forclassifying an assetthe year ended December 31, 2003 was approximately $6,481.35
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)The following unaudited pro forma financial information for the Company gives effect to the 2003 and 2002 acquisitions as
held for sale; and broadens the scope of businesses to be disposed of that qualify for reporting as discontinued operations and changes the timing of recognizing losses on such operations. The Company adopted SFAS No. 144if they had occurred on January 1, 2002.The adoption of SFAS No. 144 didThese pro forma results do notaffect the Company's financial statements. In accordance with SFAS No. 144, long-lived assets, such as property, plant, and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assetspurport to beheld and used is measured by a comparisonindicative of thecarrying amountresults ofan assetoperations which actually would have resulted had the acquisitions occurred on such date or toestimated undiscountedproject the Company’s results of operations for any futurecash flows expected to be generated by the asset before interest expense. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet. Prior to the adoption of SFAS No. 144, the Company accounted for long-lived assets in accordance with SFAS No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." (f) DEFERRED INCOME Deferred income consists principally of advertising revenue received in advance and gains resulting from the sale of certain assets to related parties. Deferred advertising revenue is recognized in income as services are provided over the term of the contract. Deferred gains are recognized in income in the consolidated financial statements at the time the assets are sold to an unrelated party or otherwise disposed of. (g) REVENUE RECOGNITION The Company recognizes revenue, net of agency commissions, if any, on an accrual basis ratably over the term of the contracts, as services are provided. The Company engages in barter transactions where the Company trades advertising space for goods and services. The Company recognizes revenues and expenses from barter transactions at fair value which is determined based on the Company's own historical practice of receiving cash for similar advertising 32LAMAR ADVERTISING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) space from buyers unrelated to the party in the barter transaction. The amount of revenue and expense recognized for advertising barter transactions is as follows:
2002 2001 2000 ----- ----- -----Net revenues................................................ 3,677 1,315 1,453 Direct advertising expenses................................. 691 500 390 General and administrative expenses......................... 2,557 208 386(h) INCOME TAXES The Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. (i) EARNINGS PER SHARE Earnings per share are computed in accordance with SFAS No. 128, "Earnings Per Share". The calculation of basic earnings per share excludes any dilutive effect of stock options and convertible debt, while diluted earnings per share includes the dilutive effect of stock options and convertible debt. The number of potentially dilutive shares excluded from the calculation because of their anti-dilutive effect are 6,762,452 and 6,834,065 and 6,807,708 for the years endedperiod.
2003 2002 Net revenues $ 818,417 803,237 Net loss applicable to common stock (81,825 ) (43,930 ) Net loss per common share (basic and diluted) $ (0.80 ) (0.43 ) Year Ended December 31, 2002
2001 and 2000, respectively. (j) STOCK OPTION PLAN The Company accounts for its stock option plan under the intrinsic value method in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations. As such, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. SFAS No. 123, "Accounting for Stock-Based Compensation", permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method defined in SFAS No. 123 has been applied. The following table illustrates the effect on net loss and net loss per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation.
2002 2001 2000 -------- --------- --------Net loss applicable to common stock, as reported....................................... $(36,693) (108,999) (94,470) Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects........................................ (6,614) (16,552) (6,407) -------- --------- -------- Proforma net loss applicable to common stock...... $(43,307) (125,551) (100,877) ======== ========= ========33LAMAR ADVERTISING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2002 2001 2000 ----- ----- -----Net loss per common share - as reported (basic and diluted).................................................. (0.36) (1.11) (1.04) ===== ===== ===== Net loss per common share - pro forma (basic and diluted)... (0.43) (1.27) (1.11) ===== ===== =====(k) CASH AND CASH EQUIVALENTS The Company considers all highly-liquid investments with original maturities of three months or less to be cash equivalents. (l) RECLASSIFICATION OF PRIOR YEAR AMOUNTS Certain amounts in the prior years' consolidated financial statements have been reclassified to conform to the current year presentation. These reclassifications had no effect on previously reported net loss. (m) USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (2) ACQUISITIONS YEAR ENDED DECEMBER 31, 2002On January 1, 2002, the Company purchased the stock of Delite Outdoor of Ohio Holdings, Inc. for $38,000. The purchase price consisted of 963,488 shares of Lamar Advertising Class A common stock.
On January 8, 2002, the Company purchased the assets of MC Partners for a cash purchase price of approximately $15,313.
On May 31, 2002, the Company purchased the assets of American Outdoor Advertising, Inc. for $15,725. The purchase price consisted of 349,376 shares of Lamar Advertising Class A common stock, as well as approximately $725 in cash.
During the year ended December 31, 2002, the Company completed 72 additional acquisitions of outdoor advertising assets for a cash purchase price of approximately
$63,161$63,160 and the issuance of 92,600 shares of Lamar Advertising Class A common stock valued at $3,100.Each of these acquisitions was accounted for under the purchase method of accounting, and, accordingly, the accompanying financial statements include the results of operations of each acquired entity from the date of acquisition. The acquisition costs have been allocated to assets acquired and liabilities assumed based on fair market value at the dates of acquisition. The following is a summary of the preliminary allocation of the acquisition costs in the above transactions.
34LAMAR ADVERTISING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DELITE OUTDOOR OF OHIO MC HOLDINGS PARTNERS AMERICAN OTHER TOTAL ---------- -------- -------- ------ ------Current Assets......................... 961 245 725 790 2,721 Property, Plant & Equipment............ 9,807 2,563 8,388 12,449 33,207 Goodwill............................... 12,704 5,523 -- 25,441 43,668 Site Locations......................... 17,430 7,310 5,356 25,498 55,594 Non-competition agreements............. 102 330 -- 172 604 Customer lists and contracts........... 4,108 1,723 1,256 5,546 12,633 Other Assets........................... -- -- -- 29 29 Current Liabilities.................... 1,602 40 -- 640 2,282 Long-term Liabilities.................. 5,510 2,341 -- 3,025 10,876The aggregate amortization expense related to the 2002 acquisitions for the year ended
Delite American Outdoor of Outdoor Ohio MC Advertising, Holdings Partners Inc. Other Total Current Assets $ 961 245 725 790 2,721 Property, Plant & Equipment 9,807 2,563 8,388 12,449 33,207 Goodwill 12,704 5,523 — 25,441 43,668 Site Locations 17,430 7,310 5,356 25,498 55,594 Non-competition agreements 102 330 — 172 604 Customer lists and contracts 4,108 1,723 1,256 5,546 12,633 Other Assets — — — 29 29 Current Liabilities 1,602 40 — 640 2,282 Long-term Liabilities 5,510 2,341 — 3,025 10,876 38,000 15,313 15,725 66,260 135,298 Year Ended December 31,
2002 was approximately $4,303. The following is a summary of the estimated amortization expense for these acquisitions for the next five years:
Year ended December 31, 2003................................ $5,490 Year ended December 31, 2004................................ $5,490 Year ended December 31, 2005................................ $5,484 Year ended December 31, 2006................................ $5,484 Year ended December 31, 2007................................ $5,475Total acquired intangible assets for the year ended December 31, 2002 was $112,499, of which $43,668 was assigned to goodwill which is not subject to amortization. The remaining $68,831 of acquired intangible assets have a weighted average useful life of approximately 13 years. The intangible assets include customer lists of $12,633 (7 year weighted average useful life), site locations of $55,594 (15 year weighted average useful life), and non-competition agreements of $604 (9 year weighted average useful life). Approximately $32,900 of the $43,668 of goodwill is expected to be fully deductible for tax purposes. The following unaudited pro forma financial information for the Company gives effect to the 2002 and2001acquisitions as if they had occurred on January 1, 2001. These pro forma results do not purport to be indicative of the results of operations which actually would have resulted had the acquisitions occurred on such date or to project the Company's results of operations for any future period.
2002 2001 -------- --------Net revenues................................................ $778,745 756,224 ======== ======== Net loss applicable to common stock......................... (37,344) (113,506) ======== ======== Net loss per common share (basic and diluted)............... $ (0.37) (1.13) ======== ========YEAR ENDED DECEMBER 31, 2001On January 1, 2001, the Company purchased the assets of two outdoor advertising companies, American Outdoor Advertising, LLC and Appalachian Outdoor Advertising Co., Inc. for a total cash purchase price of approximately $31,500 and $20,000, respectively.
On February 1, 2001, the Company purchased all of the outstanding common stock of Bowlin Outdoor Advertising and Travel Centers, Inc. for a total purchase price of approximately $45,650. The
35LAMAR ADVERTISING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)purchase price consisted of approximately $16,650 cash and the issuance of 725,000 shares of Lamar Advertising Company Class A common stock valued at $29,000.On April 1, 2001, the Company purchased all of the outstanding common stock of DeLite Outdoor Advertising, LLC and DeLite Outdoor Advertising, Inc. for a cash purchase price of approximately $43,000.
36
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)On April 1, 2001, the Company purchased certain assets of PNE Media, LLC for a cash purchase price of approximately $21,000.
On August 2, 2001, the Company purchased the assets of Capital Outdoor, Inc. for a cash purchase price of approximately $30,000.
During the year ended December 31, 2001, the Company completed 101 additional acquisitions of outdoor advertising and transit assets for an aggregate cash purchase price of approximately $138,750.
Each of these acquisitions were accounted for under the purchase method of accounting, and, accordingly, the accompanying financial statements include the results of operations of each acquired entity from the date of acquisition. The purchase price has been allocated to assets acquired and liabilities assumed based on fair market value at the dates of acquisition. The following is a summary of the allocation of the purchase price in the above transactions.
AMERICAN APPALACHIAN BOWLIN DELITE OUTDOOR OUTDOOR OUTDOOR PNE GROUP, INC. CAPITAL OTHER TOTAL -------- ----------- ------- ----- ----------- ------- ------ -------Current Assets........... $ 557 325 1,699 180 1,159 197 2,139 6,256 Property, Plant & Equipment.............. 1,185 5,822 30,171 4,879 10,864 5,761 34,567 93,249 Goodwill................. 18,662 2,666 2,731 4,500 20,033 12,530 50,674 111,796 Site Locations........... 8,993 9,316 19,333 9,180 15,728 9,476 43,812 115,838 Customer Lists and Contracts.............. 2,119 2,196 4,557 2,164 3,707 2,233 12,311 29,287 Non-Competition Agreements............. 20 -- 1,380 -- -- -- 1,211 2,611 Other Assets............. -- -- -- -- -- -- 700 700 Current Liabilities...... -- 325 563 -- 543 87 1,127 2,645 Long-term Liabilities.... -- -- 13,663 -- 7,968 -- 5,537 27,168YEAR ENDED DECEMBER 31, 2000 On January 14, 2000, the Company purchased all of the outstanding common stock of Aztec Group, Inc. for a purchase price of approximately $34,485. The purchase price consisted of approximately $5,259 cash
American Appalachian Bowlin Delite Outdoor Outdoor Outdoor PNE Group, Inc. Capital Other Total Current Assets $ 557 325 1,699 180 1,159 197 2,139 6,256 Property, Plant & Equipment 1,185 5,822 30,171 4,879 10,864 5,761 34,567 93,249 Goodwill 18,662 2,666 2,731 4,500 20,033 12,530 50,674 111,796 Site Locations 8,993 9,316 19,333 9,180 15,728 9,476 43,812 115,838 Customer Lists and Contracts 2,119 2,196 4,557 2,164 3,707 2,233 12,311 29,287 Non-Competition Agreements 20 — 1,380 — — — 1,211 2,611 Other Assets — — — — — — 700 700 Current Liabilities — 325 563 — 543 87 1,127 2,645 Long-term Liabilities — — 13,663 — 7,968 — 5,537 27,168 31,536 20,000 45,645 20,903 42,980 30,110 138,750 329,924 (4) Noncash Financing and
the issuance of 481,481 shares of Lamar Advertising Company Class A common stock valued at approximately $29,226. On March 31, 2000, the Company purchased the assets of an outdoor company in the Company's Northeast Region for a cash purchase price of approximately $33,605. Effective May 1, 2000, the Company purchased all of the outstanding common stock of Outdoor West, Inc. for a total cash purchase price of approximately $39,287. On May 24, 2000, the Company purchased all of the outstanding common stock of Advantage Outdoor Company, Inc. for a cash purchase price of approximately $76,764 and the issuance of 2,300,000 shares of Lamar's Class A common stock valued at approximately $92,805. 36LAMAR ADVERTISING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) On July 1, 2000, the Company purchased the stock of Tyler Media Group, Inc. for a purchase price of approximately $30,937. The purchase price consisted of approximately $4,478 cash and the issuance of 611,764 shares of Lamar Advertising Company Class A common stock valued at approximately $26,459. On July 21, 2000, the Company purchased the assets of Root Outdoor Advertising, Inc. for a total cash purchase price of approximately $41,059. During the year ended December 31, 2000, the Company completed 97 additional acquisitions of outdoor advertising assets for a total purchase price of approximately $187,416. The purchase price included the issuance of 845,171 shares of Lamar Advertising Company Class A common stock valued at approximately $37,113. Each of these acquisitions were accounted for under the purchase method of accounting, and, accordingly, the accompanying financial statements include the results of operations of each acquired entity from the date of acquisition. The acquisition costs have been allocated to assets acquired and liabilities assumed based on fair market value at the dates of acquisition. The following is a summary of the preliminary allocation of the acquisition costs in the above transactions.
AZTEC NORTHEAST OUTDOOR ADVANTAGE TYLER MEDIA ROOT OUTDOOR GROUP, INC. REGION ACQ. WEST OUTDOOR GROUP, INC. ADV., INC. OTHER TOTAL ----------- ----------- ------- --------- ----------- ------------ ------ -------Current Assets........... $ 500 480 1,131 3,256 378 1,632 2,497 9,874 Property, Plant & Equipment.............. 8,279 2,604 9,187 65,534 16,241 9,098 56,583 167,526 Goodwill................. 21,879 16,804 21,297 78,846 12,876 8,266 81,303 241,271 Site Locations........... 8,518 11,396 13,937 46,274 9,001 18,688 42,872 150,686 Customer Lists and Contracts.............. 2,008 2,686 3,285 10,828 2,122 4,404 16,971 42,304 Non-Competition Agreements............. -- 20 -- 1,340 -- -- 1,267 2,627 Current Liabilities...... 827 385 675 4,456 -- 1,029 1,550 8,922 Long-term Liabilities.... 5,872 -- 8,875 32,053 9,681 -- 12,527 69,008(3) NONCASH FINANCING AND INVESTING ACTIVITIESInvesting ActivitiesA summary of significant noncash financing and investing activities for the years ended December 31, 2003, 2002 and 2001 follows:
2003 2002 2001 Issuance of Class A common stock in acquisitions $ 50,630 56,100 29,000 Debt issuance costs 8,807 3,640 — (5) Property, Plant and
2000 follows:
2002 2001 2000 ------- ------ -------Issuance of Class A common stock in acquisitions......... $56,100 29,000 185,603 Debt issuance costs...................................... 3,640 -- --37LAMAR ADVERTISING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (4) PROPERTY, PLANT AND EQUIPMENTEquipmentMajor categories of property, plant and equipment at December 31,
20022003 and20012002 are as follows:
ESTIMATED LIFE (YEARS) 2002 2001 -------------- ---------- ---------Land............................................ -- $ 67,241 60,775 Building and improvements....................... 10 - 39 58,883 53,602 Advertising structures.......................... 15 1,652,189 1,594,142 Automotive and other equipment.................. 3 - 7 72,344 68,880 ---------- --------- $1,850,657 1,777,399 ========== =========(5) GOODWILL
Estimated Life (Years) 2003 2002 Land — $ 75,556 67,241 Building and improvements 10 – 39 64,650 58,883 Advertising structures 15 1,770,942 1,652,189 Automotive and other equipment 3 – 7 76,948 72,344 $ 1,988,096 1,850,657 37
LAMAR ADVERTISING COMPANY
ANDOTHER INTANGIBLE ASSETSSUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)(6) Goodwill and Other Intangible Assets
The following is a summary of intangible assets at December 31,
20022003 and December 31,2001.2002.
2002 2001 ESTIMATED ----------------------------- ----------------------------- LIFE GROSS CARRYING ACCUMULATED GROSS CARRYING ACCUMULATED (YEARS) AMOUNT AMORTIZATION AMOUNT AMORTIZATION --------- -------------- ------------ -------------- ------------Amortizable Intangible Assets: Debt issuance costs and fees..................... 7 - 10 $ 52,202 $ 27,533 $ 47,379 $ 19,048 Customer lists and contracts................ 7 - 10 371,787 196,084 359,154 145,180 Non-competition agreements............... 3 - 15 57,023 39,458 56,419 31,841 Site locations............. 15 937,773 177,016 882,180 115,314 Other...................... 5 - 15 15,997 5,738 15,270 4,304 ---------- -------- ---------- -------- 1,434,782 445,829 1,360,402 315,687 Unamortizable Intangible Assets: Goodwill................... $1,432,063 $253,635 $1,388,395 $253,635
2003 2002 Estimated Life Gross Carrying Accumulated Gross Carrying Accumulated (Years) Amount Amortization Amount Amortization Amortizable Intangible Assets: Customer lists and contracts 7 – 10 $ 388,791 $ 248,617 $ 371,787 $ 196,084 Non-competition agreements 3 – 15 57,664 46,197 57,023 39,458 Site locations 15 1,021,037 243,170 937,773 177,016 Other 5 – 15 17,578 8,443 15,997 8,163 1,485,070 546,427 1,382,580 420,721 Unamortizable Intangible Assets: Goodwill $ 1,493,910 $ 253,635 $ 1,432,063 $ 253,635 The changes in the carrying amount of goodwill for the year ended December 31,
20022003 are as follows:
Balance as of December 31, 2001............................. $1,388,395 Goodwill acquired during the year........................... 43,668 Impairment losses........................................... -- ---------- Balance as of December 31, 2002............................. $1,432,063 ==========
Balance as of December 31, 2002 $ 1,432,063 Goodwill acquired during the year 61,847 Impairment losses — Balance as of December 31, 2003 $ 1,493,910 The following is a summary of the estimated amortization expense for the next five years:
Year ended December 31, 2004 $ 123,258 Year ended December 31, 2005 $ 113,440 Year ended December 31, 2006 $ 101,310 Year ended December 31, 2007 $ 81,976 Year ended December 31, 2008 $ 75,306 In accordance with SFAS No. 142, the Company was required to evaluate its existing intangible assets and goodwill that were acquired in purchase business combinations, and to make any necessary reclassifications in order to conform with the new classification criteria in SFAS No. 141 for recognition separate from goodwill. The Company was required to reassess the useful lives and residual values of all intangible assets acquired, and make any necessary amortization period adjustments. If an intangible asset is identified as having an indefinite useful life, the Company was required to test the intangible asset for impairment in accordance with the provisions of SFAS No. 142. Impairment of an intangible asset is measured as the excess of carrying value over the fair value. Based upon the
Company'sCompany’s review, no impairment charge was required upon the adoption of SFAS No. 142 or at its annualtesttests for impairment on December 31,2002. 38LAMAR ADVERTISING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)2002 and December 31, 2003.The following table illustrates the effect of the adoption of SFAS No. 142 on prior periods and its effect on the
Company'sCompany’s earnings per share:
YEARS ENDED DECEMBER 31, ------------------------------- 2002 2001 2000 -------- --------- --------Reported net loss applicable to common stock........ $(36,693) $(108,999) $(94,470) Add: goodwill amortization, net of tax.............. -- 70,463 60,752 -------- --------- -------- Adjusted net loss applicable to common stock........ $(36,693) $ (38,536) $(33,718) ======== ========= ======== Earnings per common share -- basic and diluted Reported net loss per common share.................. $ (0.36) $ (1.11) $ (1.04) Add: goodwill amortization per share, net of tax.... -- 0.72 0.67 -------- --------- -------- Adjusted net loss per common share.................. $ (0.36) $ (0.39) $ (0.37) ======== ========= ========(6) LEASES
Years ended December 31, 2003
(Restated)2002 2001 Reported net loss applicable to common stock $ (80,360 ) $ (36,693 ) $ (108,999 ) Add: goodwill amortization, net of tax — — 70,463 Adjusted net loss applicable to common stock $ (80,360 ) $ (36,693 ) $ (38,536 ) Earnings per common share – basic and diluted Reported net loss per common share $ (0.78 ) $ (0.36 ) $ (1.11 ) Add: goodwill amortization per share, net of tax — — 0.72 Adjusted net loss per common share $ (0.78 ) $ (0.36 ) $ (0.39 ) 38
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)(7) Leases
The Company is party to various operating leases for production facilities and sites upon which advertising structures are built. The leases expire at various dates, generally during the next five years, and have varying options to renew and to cancel. The following is a summary of minimum annual rental payments required under those operating leases that have original or remaining lease terms in excess of one year as of December
31:31, 2003:
2003........................................................ $103,025 2004........................................................ 89,847 2005........................................................ 78,432 2006........................................................ 67,749 2007........................................................ 59,420 Thereafter.................................................. 384,560
2004 $ 112,218 2005 96,163 2006 83,559 2007 73,821 2008 63,313 Thereafter 409,703 Rental expense related to the
Company'sCompany’s operating leases was$136,013,$146,684, $135,944 and $124,734and $105,661for the years ended December 31, 2003, 2002 and 2001,and 2000,respectively.(7) ACCRUED EXPENSES(8) Accrued Expenses
The following is a summary of accrued expenses at December 31,
20022003 and2001:
2002 2001 ------- ------Payroll..................................................... $ 7,686 4,982 Interest.................................................... 13,020 15,571 Insurance benefits.......................................... 8,297 6,802 Other....................................................... 9,878 6,319 ------- ------ $38,881 33,674 ======= ======39LAMAR ADVERTISING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (8) LONG-TERM DEBT2002:
2003 2002 Payroll $ 7,698 7,686 Interest 19,428 13,020 Insurance benefits 8,150 8,297 Other 10,710 9,878 $ 45,986 38,881 (9) Long-term Debt
Long-term debt consists of the following at December 31,
20022003 and2001:2002:
2002 2001 ---------- ---------9 5/8% Senior subordinated notes (1996 Notes)............... $ 255,000 255,000 8 5/8% Senior subordinated notes (1997 Notes)............... 199,230 199,104 Bank Credit Agreement....................................... 975,500 978,500 5 1/4% Convertible notes.................................... 287,500 287,500 9 1/4% Senior subordinated notes............................ -- 74,073 8% Unsecured subordinated notes............................. 7,333 9,333 7 1/4% Senior subordinated notes............................ 260,000 -- Other notes with various rates and terms.................... 9,870 8,075 ---------- --------- 1,994,433 1,811,585 Less current maturities..................................... (259,687) (66,559) ---------- --------- Long-term debt, excluding current maturities................ $1,734,746 1,745,026 ========== =========
2003 2002 9 5/8% Senior subordinated notes (1996 Notes) $ — 255,000 8 5/8% Senior subordinated notes (1997 Notes) — 199,230 Bank Credit Agreement 1,015,000 975,500 5 1/4% Convertible notes — 287,500 2 7/8% Convertible notes 287,500 — 8% Unsecured subordinated notes 5,333 7,333 7 1/4% Senior subordinated notes 389,387 260,000 Other notes with various rates and terms 7,643 9,870 1,704,863 1,994,433 Less current maturities (5,044 ) (259,687 ) Long-term debt, excluding current maturities $ 1,699,819 1,734,746 Long-term debt matures as follows:
2003........................................................ $ 259,687 2004........................................................ 4,336 2005........................................................ 56,545 2006........................................................ 356,124 2007........................................................ 281,978 Later years................................................. 1,035,763
2004 $ 5,044 2005 57,160 2006 69,067 2007 82,568 2008 82,612 Later years 1,408,412 39
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)In November 1996, the Company issued $255,000 in principal amount of 9 5/8% Senior Subordinated Notes due 2006 (the 1996 Notes), with interest payable semi-annually on June 1 and December 1 of each year.
The 1996 Notes are senior subordinated unsecured obligations of the Company and are subordinated in right of payment to all senior indebtedness of the Company, pari passu with the 1997 Notes (as defined below), and are senior to all existing and future subordinated indebtedness of the Company.In September 1997, the Company issued $200,000 in principal amount of 8 5/8% Senior Subordinated Notes due 2007 (the 1997 Notes) with interest payable semi-annually on March 15 and September 15 of each year, commencing March 15, 1998. The 1997 Notes were issued at a discount for $198,676. The Company
is usingused the effective interest method to recognize the discount over the life of the 1997 Notes.The 1997 Notes are senior subordinated unsecured obligations of the Company, subordinated in right of payment to all senior indebtedness of the Company, pari passu with the 1996 Notes and are senior to all existing and future subordinated indebtedness of the Company. The 1996 and 1997 Notes are redeemable at the Company's option at any time on or after December 31, 2001 and September 15, 2002, respectively, at redemption prices specified by the indentures, and are required to be repurchased earlier in the event of a change of control of the Company. The indentures covering the 1996 and 1997 Notes include certain restrictive covenants which limit the Company's ability to incur additional debt, pay dividends and make other restricted payments, consummate certain transactions and other matters.On August 10, 1999, Lamar Advertising Company, completed an offering of $287,500 5 1/4% Convertible Notes due 2006. The net proceeds of approximately $279,594 of the convertible notes were used to pay down existing bank debt. The Notes
arewere convertible, into shares of Lamar Advertising Company Class A common stock at any time prior to their maturity or redemption by Lamar Advertising Company. The conversion rateiswas 21.6216 shares per $1 in principle amount of notes.40LAMAR ADVERTISING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)On October 25, 2002, Lamar Media Corp. redeemed all of the outstanding 9 1/4% Senior Subordinated Notes due 2007 in aggregate principle amount of $74,073 for a redemption price equal to 104.625% of the principle amount thereof plus accrued interest to the redemption date of approximately $1,300. In the fourth quarter of 2002, the Company recorded $5,850 as an expense related to the prepayment of those notes. In accordance with SFAS No. 145,
"Rescission“Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and TechnicalCorrections",Corrections,” the extinguishment of this debt has not been reflected in the Statement of Operations as an extraordinary item.On December 23, 2002, Lamar Media Corp. completed an offering of $260,000 7 1/4% Senior Subordinated Notes due 2013. These notes are unsecured senior subordinated obligations and will be subordinated to all of Lamar
Media'sMedia’s existing and future senior debt, rank equally with all of LamarMedia'sMedia’s existing and future senior subordinated debt and rank senior to any future subordinated debt of Lamar Media. The net proceeds from the issuance and sale of these notes, together with additional cash, was used to redeem all of the outstanding $255,000 principal amount of LamarMedia'sMedia’s 9 5/8% Senior Subordinated Notes due 2006 on January 22, 2003 at a redemption price equal to 103.208% of the aggregate principal amount thereof plus accrued interest to the redemption date of approximately $3,500 for a total redemption price of approximately $266,657. The Companywill recordrecorded a loss on the extinguishment of debt of$6,816$11,173 in the first quarter of 2003.On June 12, 2003, Lamar Media Corp. issued $125,000 7 1/4% Senior Subordinated Notes due 2013 as an add on to the $260,000 issued in December 2002. The
Company'sissue price of the $125,000 7 1/4% Notes was 103.661% of the principal amount of the notes, which yields an effective rate of 6 5/8% . The proceeds of the issuance were used to redeem approximately $100,000 of Lamar Media’s 8 5/8% senior subordinated notes for a redemption price equal to 104.313% of the principal amount of the notes. The Company recorded a loss on extinguishment of debt of $5,754 in the second quarter of 2003 related to this prepayment. The remaining $100,000 in aggregate principal amount of Lamar Media’s 8 5/8% notes outstanding following this redemption were redeemed for a redemption price equal to 102.875% of the principle amount of the notes in December 2003. As a result of this redemption, the Company recorded a loss on extinguishment of debt of $4,151 related to the prepayment of the notes and associated debt issuance costs.On June 16, 2003, the Company issued $287,500 2 7/8% Convertible Notes due 2010. The net proceeds from these notes together with additional cash were used on July 16, 2003 to redeem all of the Company’s outstanding 5 1/4% convertible notes due 2006 in aggregate principal amount of approximately $287,500 for a redemption price equal to 103.0% of the principal amount of notes. The Company recorded a loss on extinguishment of debt in the third quarter of 2003 of $12,566 related to this redemption.
The Company’s obligations with respect to its publicly issued notes are not guaranteed by the
Company'sCompany’s direct or indirectwholly-ownedwholly owned subsidiaries. Certain obligations of theCompany'sCompany’s wholly-owned subsidiary, Lamar Media Corp. are guaranteed by its subsidiaries.Lamar Media
Corp.'s existingCorp’s prior bank credit facility, for which JPMorgan Chase Bank serves as administrative agent,consistsconsisted of (1) a $350,000 revolving bank credit facility, (2) a $650,000 term facility with two tranches, a $450,000 Term A facility and a $200,000 Term B facility, and (3) a $750,000 incremental facility of which $450,000 has been funded in four tranches, a $20,000 Series A-1 facility, a $130,000 Series A-2 facility, a $100,000 B-1 facility, and a $200,000 Series C facility.40
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)Beginning on March 31, 2002, the amount available for borrowing under the then existing revolving bank credit facility
began to bereduced quarterly in annual increments of 10%, 10%, 30% and 35% of the original commitment with a final payment of 15% on March 31, 2006. The Term A loans, the Term B loans and the Series A-1, A-2 and B-1 began amortizing on September 30, 2001. The Series C loans would have begun amortizing on March 31, 2003.The revolving bank credit facility under our new bank credit facility, effective as of March 7, 2003, is not subject to commitment reduction.On March 7, 2003, the
Company'sCompany’s wholly owned subsidiary Lamar Media, replaced its existing bank credit facility. Thenewcurrent bank credit facility, for which JPMorgan Chase Bank acts as administrative agent, is comprised of a $225,000 revolving bank credit facility and $975,000 term facility with two tranches, a $300,000 Tranche A term facility and a $675,000 Tranche B term facility.The newThis bank credit facility also includes a $500,000 incremental facility, which permits Lamar Media to request that its lenders enter into commitments to make additional term loans to it, up to a maximum aggregate amount of $500,000. The lenders have no obligation to make additional term loans to Lamar Media under the incremental facility, but may enter into such commitments in their sole discretion. Thenewcredit agreement modified the repayment terms to extend the maturities of the debt. The balance sheet as of December 31, 2002has beenwas adjusted to reflect the terms of thenewMarch 7, 2003 credit agreement.41LAMAR ADVERTISING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)Availability
of the lineunder theRevolving Credit Facilityrevolving credit facility terminates on June 30,2009.2009 and is not subject to commitment reduction prior to that date. As of December 31,2002 and March 7,2003, the Company hadno balance$40,000 outstanding under the revolving line of credit.The
newMarch 7, 2003 Term Facility amortizes quarterly in the following quarterly amounts:
TRANCHE A TRANCHE B --------- ---------March 31, 2005 -- December 31, 2005......................... $11,250 $1,687.5 March 31, 2006 -- December 31, 2006......................... 15,000 1,687.5 March 31, 2007 -- December 31, 2008......................... 18,750 1,687.5 March 31, 2009 -- June 30, 2009............................. 22,500 1,687.5 September 30, 2009 -- December 31, 2009..................... -- 1,687.5 March 31, 2010 -- June 30, 2010............................. -- 320,625
Tranche A Tranche B March 31, 2005 - December 31, 2005 $ 11,250 $ 1,687.5 March 31, 2006 - December 31, 2006 15,000 1,687.5 March 31, 2007 - December 31, 2008 18,750 1,687.5 March 31, 2009 - June 30, 2009 22,500 1,687.5 September 30, 2009 - December 31, 2009 — 1,687.5 March 31, 2010 - June 30, 2010 — 320,625 On February 6, 2004, Lamar Media amended its credit agreement dated March 7, 2003 whereby it changed its $975,000 term facility to include a $425,000 Tranche A facility and a $550,000 Tranche C facility. The proceeds were used to pay off the Tranche B lenders and the total debt outstanding remained unchanged. The amortization of this amended facility is as follows:
Tranche A Tranche B Tranche C March 31, 2005 - December 31, 2005 $ 15,937.5 $ — $ 1,375 March 31, 2006 - December 31, 2006 21,250.0 — 1,375 March 31, 2007 - December 31, 2008 26,562.5 — 1,375 March 31, 2009 - June 30, 2009 31,875.0 — 1,375 September 30, 2009 - December 31, 2009 — — 1,375 March 31, 2010 - June 30, 2010 — — 261,250 Revolving credit loans may be requested under the
Revolving Credit Facilityrevolving credit facility at any time prior to maturity. The loans bear interest, at theCompany'sCompany’s option, at the LIBOR Rate or JPMorgan Chase Prime Rate plus applicable margins, such margins being set from time to time based on theCompany'sCompany’s ratio of debt to trailing twelve month EBITDA, as defined in the agreement. The terms of the indenture relating to LamarAdvertising'sAdvertising’s outstanding notes, LamarMedia'sMedia’s bank credit facility and the indentures relating to LamarMedia'sMedia’s outstanding notes restrict, among other things, the ability of Lamar Advertising and Lamar Media to:- dispose of assets; - incur or repay debt; - create liens; -
• dispose of assets; • incur or repay debt; • create liens; • make investments; and • pay dividends. 41
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and- pay dividends.per share data)Lamar
Media'sMedia’s ability to make distributions to Lamar Advertising is also restricted under the terms of these agreements. Under LamarMedia'sMedia’s credit facility the Company must maintain specified financial ratios and levels including:- interest coverage; - fixed charges ratios; - senior debt ratios; and - total debt ratios.
• interest coverage; • fixed charges ratios; • senior debt ratios; and • total debt ratios. Lamar Advertising and Lamar Media were in compliance with all of the terms of all of the indentures and the bank credit agreement during the periods presented.
(10) Asset Retirement Obligation
Effective January 1, 2003, the Company adopted Statement 143, and recorded a restated loss of $40,240 as the cumulative effect of a change in accounting principle, which is net of an income tax benefit of $25,727. Prior to its adoption of Statement 143, the Company expensed these costs at the date of retirement. Also, as of January 1, 2003, the Company recorded additions to property, plant and equipment totaling $76,930 and accumulated depreciation totaling $28,862 under the provisions of Statement 143.
The Company’s asset retirement obligation includes the costs associated with the removal of its structures, resurfacing of the land and retirement cost, if applicable, related to the Company’s outdoor advertising portfolio. The following table reflects information related to our asset retirement obligations:
As restated As previously
reportedBalance at December 31, 2002 — — Net impact at initial adoption $ 114,035 $ 33,467 Balance at January 1, 2003 $ 114,035 $ 33,467 Additions to asset retirement obligations 4,254 1,487 Accretion expense 7,562 2,350 Liabilities settled (2,634 ) (447 ) Balance at December 31, 2003 $ 123,217 $ 36,857 The pro forma asset retirement obligation at December 31, 2002 and 2001 would have been $114,035 and $106,512, respectively. The following pro forma data summarizes the Company’s net loss and net loss per common share as if the Company had adopted the provisions of Statement 143 on December 31, 2000, including an associated pro forma asset retirement obligation on that date of $92,813.
Year ended Year Ended December 31, 2002 December 31, 2001 Net loss applicable to common stock, as reported $ (36,693 ) $ (108,999 ) Pro forma adjustments to reflect retroactive adoption of Statement 143 (restated) (6,722 ) (6,600 ) Pro forma net loss applicable to common stock (restated) $ (43,415 ) $ (115,599 ) Net loss per common share – basic and diluted: Net loss, as reported $ (0.36 ) $ (1.11 ) Net loss, pro forma $ (0.42 ) $ (1.17 ) 42
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (9)INCOME TAXES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)(11) Income Taxes
Income tax expense (benefit) for the years ended December 31, 2003, 2002
2001and2000,2001, consists of:
CURRENT DEFERRED TOTAL ------- -------- -------Year ended December 31, 2002: U.S. federal.......................................... $(5,068) (12,951) (18,019) State and local....................................... 869 (3,084) (2,215) Foreign............................................... 89 451 540 ------- ------- ------- $(4,110) (15,584) (19,694) ======= ======= ======= Year ended December 31, 2001: U.S. federal.......................................... $ -- (37,102) (37,102) State and local....................................... 713 (8,834) (8,121) Foreign............................................... -- (451) (451) ------- ------- ------- $ 713 (46,387) (45,674) ======= ======= ======= Year ended December 31, 2000: U.S. federal.......................................... $ -- (29,864) (29,864) State and local....................................... (141) (7,110) (7,251) ------- ------- ------- $ (141) (36,974) (37,115) ======= ======= =======
Current Deferred Total Year ended December 31, 2003: U.S. federal $ — (19,543 ) (19,543 ) State and local (42 ) (4,653 ) (4,695 ) Foreign — 665 665 $ (42 ) (23,531 ) (23,573 ) Year ended December 31, 2002: U.S. federal $ (5,068 ) (12,951 ) (18,019 ) State and local 869 (3,084 ) (2,215 ) Foreign 89 451 540 $ (4,110 ) (15,584 ) (19,694 ) Year ended December 31, 2001: U.S. federal $ — (37,102 ) (37,102 ) State and local 713 (8,834 ) (8,121 ) Foreign — (451 ) (451 ) $ 713 (46,387 ) (45,674 ) Income tax benefit attributable to continuing operations for the years ended December 31, 2003, 2002
2001and2000,2001, differs from the amounts computed by applying the U.S. federal income tax rate of 34 percent to loss before income taxes as follows:
2002 2001 2000 -------- ------- -------Computed expected tax benefit.......................... $(19,048) (52,465) (44,615) Increase (reduction) in income taxes resulting from: Book expenses not deductible for tax purposes........ 689 590 754 Amortization of non-deductible goodwill.............. (26) 13,546 11,926 State and local income taxes, net of federal income tax benefit....................................... (1,490) (5,360) (4,786) Other differences, net............................... 181 (1,985) (394) -------- ------- ------- $(19,694) (45,674) (37,115) ======== ======= =======
2003 2002 2001 Computed expected tax benefit $ (21,531 ) (19,048 ) (52,465 ) Increase (reduction) in income taxes resulting from: Book expenses not deductible for tax purposes 1,150 689 590 Amortization of non-deductible goodwill (14 ) (26 ) 13,546 State and local income taxes, net of federal income tax benefit (3,099 ) (1,490 ) (5,360 ) Other differences, net (79 ) 181 (1,985 ) $ (23,573 ) (19,694 ) (45,674 ) 43
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31,
20022003 and20012002 are presented below:
2002 2001 --------- --------Current deferred tax assets: Receivables, principally due to allowance for doubtful accounts............................................... $ 1,916 1,916 Accrued liabilities not deducted for tax purposes......... 2,142 1,578 Net operating loss carryforward........................... -- 451 Other..................................................... 2,370 2,000 --------- -------- Net current deferred tax asset............................ 6,428 5,945 ========= ======== Non-current deferred tax liabilities: Plant and equipment, principally due to differences in depreciation........................................... $ (10,821) (3,550) Intangibles, due to differences in amortizable lives...... (243,971) (245,790) --------- -------- (254,792) (249,340) Non-current deferred tax assets: Plant and equipment, due to basis differences on acquisitions........................................... 47,492 57,349 Plant and equipment, due to basis differences on acquisitions and costs capitalized for tax purposes.... 4,288 4,305 Investment in affiliates and plant and equipment, due to gains recognized for tax purposes and deferred for financial reporting purposes........................... 941 941 Accrued liabilities not deducted for tax purposes......... 3,062 2,861 Net operating loss carryforward........................... 84,119 58,078 Minimum tax credit........................................ -- 331 Other, net................................................ 630 693 --------- -------- Non-current deferred tax assets........................ 140,532 124,558 --------- -------- Net non-current deferred tax liability...................... $(114,260) (124,782) ========= ========
2003
(Restated)2002 Current deferred tax assets: Receivables, principally due to allowance for doubtful accounts $ 1,916 1,916 Accrued liabilities not deducted for tax purposes 1,584 2,142 Other 2,551 2,370 Net current deferred tax asset 6,051 6,428 Non-current deferred tax liabilities: Plant and equipment, principally due to differences in depreciation $ (11,738 ) (10,821 ) Intangibles, due to differences in amortizable lives (245,270 ) (243,971 ) (257,008 ) (254,792 ) Non-current deferred tax assets: Plant and equipment, due to basis differences on acquisitions and costs capitalized for tax purposes 48,479 51,780 Investment in affiliates and plant and equipment, due to gains recognized for tax purposes and deferred for financial reporting purposes 941 941 Accrued liabilities not deducted for tax purposes 2,900 3,062 Net operating loss carryforward 100,350 84,119 Asset retirement obligation 30,113 — Other, net 873 630 Non-current deferred tax assets 183,656 140,532 Net non-current deferred tax liability $ (73,352 ) (114,260 ) As of December 31, 2003, the Company had gross net operating losses of $258,336, which expire through 2023. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences. The amount of the deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced.
(10) RELATED PARTY TRANSACTIONS(12) Related Party Transactions
Affiliates, as used within these statements, are persons or entities that are affiliated with Lamar Advertising Company or its subsidiaries through common ownership and directorate control.
In October 1995 and in March 1996, the Company repurchased 3.6% and 12.9%, respectively, of its then outstanding Class A common stock (1,220,500 and 3,617,884 shares, respectively) from certain of its
44LAMAR ADVERTISING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)existing stockholders, directors and employees for an aggregate purchase price of approximately $4,000. The term of the March 1996 repurchase entitled the selling stockholders to receive additional consideration from the Company in the event that the Company consummated a public offering of its Class A common stock at a higher price within 24 months of the repurchase. In satisfaction of that obligation, upon completion of theCompany'sCompany’s initial public offering, the Company paid the selling stockholders an aggregate of $5,000 in cash from the proceeds and issued them $20,000 aggregate principal amount of ten year subordinated notes. As of December 31,20022003 and20012002, the outstanding balance of the ten year subordinated notes was$7,333$5,333 and$9,333,$7,333, respectively. TheCompany'sCompany’s current executive officers do not hold any of the ten year subordinated notes described above. Interest expense during the years ended December 31, 2003, 20022001and20002001, related to the ten year subordinated notes and theCompany'sCompany’s debentures that were paid off during the year ended December 31, 2001, was $513, $673, and $855, respectively.44
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and$1,080, respectively.per share data)Prior to 1996, the Company entered into various related party transactions for the purchase and sale of advertising structures whereby any resulting gains were deferred at that date. As of December 31,
20022003 and2001,2002, the deferred gains related to these transactions were $1,001 and are included in deferred income on the balance sheets. No gains related to these transactions have been realized in the Statement of Operations for the years ended December 31, 2003, 20022001and2000.2001.In addition, the Company had receivables from employees of
$400$342 and$494$400 at December 31,20022003 and2001,2002, respectively. These receivables are primarily relocation loans for employees. The Company does not have any receivables from its current executive officers.Interstate Highway Signs Corp., (IHS) is a wholly owned subsidiary of Sign Acquisition Corp. Prior to December 16, 2003, Kevin P. Reilly, Jr. had voting control over a majority of the outstanding shares of Sign Acquisition Corp. through a voting trust. Mr. Reilly’s interest was sold on December 16, 2003. The Company purchased approximately $1,229, $1,236
$1,842and$2,407$1,842 of highway signs and transit bus shelters fromInterstate Highway Signs Corp., (IHS)IHS which represented approximately12%13%,13%12% and15%13% of total capitalized expenditures for its logo sign and transit advertising businesses during the years ended December 31, 2003, 20022001and2000,2001, respectively. The Company does not use IHS exclusively for its highway sign and transit bus shelter purchases.IHS is a wholly-owned subsidiary of Sign Acquisition Corp. Kevin P. Reilly, Jr. has voting control over a majority of the outstanding shares of Sign Acquisition Corp. through a voting trust.Effective July 1, 1996, the Lamar Texas Limited Partnership, one of the
Company'sCompany’s subsidiaries, and Reilly Consulting Company, L.L.C., which Kevin P. Reilly, Sr. controls, entered into a consultingagreement.agreement which was amended January 1, 2004. This consulting agreement as amended, has atenterm through December 31, 2008 with automatic renewals for successive one yearterm andperiods after that date unless either party provides written terminations to the other. The amended agreement provides fora $120an annual consultingfee.fee of $190 for the five year period commencing on January 1, 2004 and an annual consulting fee of $150 for any subsequent one year renewal terms. The agreement also contains a non-disclosure provision and a non-competition restriction which extends for two years beyond the termination agreement.The Company also has a lease arrangement with Reilly Enterprises, LLC, which Kevin P. Reilly Sr. controls for the use of an airplane. The Company pays a monthly fee plus expenses which entitles the Company to 6.67 hours of flight time, with any unused portion carried over into the next succeeding month. Total fees paid under this arrangement for fiscal 2003, 2002
2001and20002001 were approximately $55, $75 and $42,and $46,respectively.As of December 31,
2002,2003, the Company had a receivable of$920$959 for premiums paid on split-dollar life insurance arrangements for Kevin P. Reilly, Sr. that were entered into in 1990 and 1995 as a component of his compensation asitsour Chief Executive Officer and his continuing retirement benefits thereafter. In accordance with the terms of the arrangements,the Companywe will recover all of the cumulative premiums paid byitus upon the termination, surrender or cancellation of the policies or upon the death of the insured. In February 2004, the obligation to the Company was repaid and the split dollar agreements were terminated.Kevin P. Reilly, Sr. is the father of Kevin P. Reilly, Jr., the
Company'sCompany’s President, Chief Executive Officer and Director, and Sean E. Reilly, the Company’s Chief OperatingOfficer and also one of the Company's directors. 45LAMAR ADVERTISING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)Officer.The Company has made two loans to Live Oak Living Centers, LLC. One loan was for $61 at an interest rate of 7.5% and the second loan was for $112 at an interest rate of 6%. Kevin P. Reilly, Jr.
, the Company's President, Chief Executive Officer and Director,has a 15% ownership interest in the LLC. Sean E. Reilly, Kevin P. Reilly, Jr.'s’s brother and also one of theCompany'sCompany’s Directors at that time, has a 7.5% ownership interest in the LLC. Both loans, totaling $208 in outstanding principal and interest, were repaid in full in September 2002.On September 6, 2002, the Company entered into an agreement with Charles W. Lamar III, its director, to settle Mr.
Lamar'sLamar’s obligation to reimburse the Company for premiums that it had paid under a split-dollar life insurance policy. These premiums had been paid under an original policy, which was subsequently surrendered to a new insurer for a new policy. The Company paid no further premiums under the new policy but the new policy replaced the surrendered policy as collateral for the $90 in aggregate premiums paid by the Company under the old policy. In exchange for the right to receive the death proceeds from the new policy at some indeterminate future date, the Company accepted stock of the original insurer, which was issued in connection with its demutualization, and cash with a value of approximately $53, in full satisfaction of this obligation.(11) STOCKHOLDERS' EQUITY45
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)(13) Stockholders’ Equity
On July 16, 1999, the Board of Directors amended the preferred stock of the Company by designating 5,720 shares of the 1,000,000 shares of previously undesignated preferred stock, par value $.001 as Series AA preferred stock. The previously issued Class A preferred stock par value $638 was exchanged for the new Series AA preferred stock and no shares of Class A preferred stock are currently outstanding. The new Series AA preferred stock and the Class A preferred stock rank senior to the Class A common stock and Class B common stock with respect to dividends and upon liquidation. Holders of Series AA preferred stock and Class A preferred stock are entitled to receive, on a pari
pasupassu basis, dividends at the rate of $15.95 per share per quarter when, as and if declared by the Board of Directors. The Series AA preferred stock and the Class A preferred stock are also entitled to receive, on a pari pasu basis, $638 plus a further amount equal to any dividend accrued and unpaid to the date of distribution before any payments are made or assets distributed to the Class A common stock or Class B stock upon voluntary or involuntary liquidation, dissolution or winding up of the Company. The liquidation value of the outstanding Series AA preferred stock at December 31,20022003 was $3,649. The Series AA preferred stock and the Class A preferred stock are identical, except that the Series AA preferred stock is entitled to one vote per share and the Class A preferred stock is not entitled to vote.All of the outstanding shares of
Common Stockcommon stock are fully paid and nonassessable. In the event of the liquidation or dissolution of the Company, following any required distribution to the holders of outstanding shares ofPreferred Stock,preferred stock, the holders ofCommon Stockcommon stock are entitled to share pro rata in any balance of the corporate assets available for distribution to them. The Company may pay dividends if, when and as declared by the Board of Directors from funds legally available therefore, subject to the restrictions set forth in theCompany's Existing IndenturesCompany’s existing indentures and theSenior Credit Facility.senior credit facility. Subject to the preferential rights of the holders of any class of preferred stock, holders of shares ofCommon Stockcommon stock are entitled to receive such dividends as may be declared by theCompany'sCompany’s Board of Directors out of funds legally available for such purpose. No dividend may be declared or paid in cash or property on any share of either class ofCommon Stockcommon stock unless simultaneously the same dividend is declared or paid on each share of the other class ofCommon Stock,common stock, provided that, in the event of stock dividends, holders of a specific class ofCommon Stockcommon stock shall be entitled to receive only additional shares of such class.The rights of the Class A and Class B common stock are equal in all respects, except holders of Class B common stock have ten votes per share on all matters in which the holders of common stock are entitled to vote and holders of Class A common stock have one vote per share on such matters. The Class B common stock will convert automatically into Class A common stock upon the sale or transfer to
46LAMAR ADVERTISING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)persons other than permitted transferees (as defined in theCompany'sCompany’s certificate of incorporation, as amended).On May 25, 2000,(14) Benefit Plans
Equity Incentive Plan
In 1996, thestockholders approvedCompany adopted the 1996 Equity Incentive Plan (the 1996 Plan). The purpose of the 1996 Plan is to attract and retain key employees and consultants of the Company. The 1996 Plan authorizes the grant of stock options, stock appreciation rights and restricted stock to employees and consultants of the Company capable of contributing to the Company’s performance. Options granted under the 1996 Plan generally become exercisable over aresolution to amendfive-year period and expire 10 years from theCompany's Restated Certificatedate ofIncorporation to increasegrant unless otherwise authorized by thenumberBoard. As ofauthorizedDecember 31, 2002, the Company had reserved an aggregate of 8,000,000 shares of Class A common stock for awards under the 1996 Plan.In August 2000, the Board of Directors voted to amend the 1996 Plan to (i) authorize grants to members of the Company’s board of directors (ii) provide the Committee with more flexibility in determining the exercise price of awards made under the 1996 Plan (iii) allow for grants of unrestricted stock and (iv) set forth performance criteria that the Committee may establish for the granting of stock awards. These amendments were approved by the Company’s stockholders in May 2001.
In February 2004, the Board of Directors voted, subject to stockholder approval, to amend the 1996 plan to increase the aggregate number of shares of the Company’s Class A Common Stock available for issuance under the 1996 Plan by 2,000,000 shares so that the aggregate number of shares of Common Stock available for issuance under the Plan is increased from
125,000,0008,000,000 shares to175,000,000 shares which increased10,000,000 million shares.46
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)The fair value of each option grant is estimated on the
totaldate of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used:
Grant Year Dividend Yield Expected Volatility Risk Free Interest Rate Expected Lives 2003 0 % 46 % 4 % 6 2002 0 % 51 % 5 % 9 2001 0 % 53 % 5 % 9 Information regarding the 1996 Plan for the years ended December 31, 2003, 2002 and 2001, is as follows:
2003 2002 2001 Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price Outstanding, beginning of year 4,067,365 29.83 4,517,653 $ 29.11 2,865,647 $ 30.48 Granted 117,500 31.55 142,000 35.01 2,195,500 27.02 Exercised (298,105 ) 23.03 (515,088 ) 23.74 (425,243 ) 24.80 Canceled (64,050 ) 38.06 (77,200 ) 36.36 (118,251 ) 42.42 Outstanding, end of year 3,822,710 30.27 4,067,365 $ 29.83 4,517,653 $ 29.08 Price for exercised shares $ 23.03 $ 23.74 $ 24.80 Shares available for grant, end of year 1,317,759 1,371,209 1,436,009 Weighted average fair value of options granted during the year $ 15.00 $ 22.48 $ 13.26 The following table summarizes information about fixed-price stock options outstanding at December 31, 2003:
Weighted Average Weighted Weighted Range of Number Remaining Average Number Average Exercise Outstanding at Contractual Exercise Exercisable at Exercise Prices December 31, 2003 Life Price December 31, 2003 Price $10.67 – 26.17 389,786 2.94 $ 12.85 389,786 $ 12.85 26.42 – 26.69 1,437,924 7.40 26.45 1,437,924 26.45 29.34 – 33.38 1,187,500 5.54 31.86 1,030,500 32.05 34.16 – 60.63 807,500 6.37 43.16 139,600 41.37 No stock appreciation rights or restricted stock authorized
capital stock from 163,510,000 shares to 213,510,000 shares.by the 1996 Plan have been granted.Employee Stock Purchase Plan
On May 25, 2000, the stockholders approved the 2000 Employee Stock Purchase Plan whereby 500,000 shares of theCompany'sCompany’s Class A common stock have been reserved for issuance under the Plan. Under this plan, eligible employees may purchase stock at 85% of the fair market value of a share on the offering commencement date or the respective purchase date whichever is lower. Purchases are limited to ten percent of anemployee'semployee’s total compensation. The initial offering under the Plan commenced on April 1, 2000 with a single purchase date on June 30, 2000. Subsequent offerings shall commence each year on July 1 with a termination date of December 31 and purchase dates on September 30 and December 31; and on January 1 with a termination date on June 30 and purchase dates on March 31 and June 30.On June 7, 2001, the Company issued 1,200,000 shares of its Class A common stock at a price of $40.00 per share. The equity offering was to cover over-allotments related to an underwriting agreement between Lamar Advertising Company, AMFM Operating, Inc. and Deutsche Banc Alex Brown Inc. filed on June 4, 2001. Under the terms of a consent decree with the United States Department of Justice, AMFM Operating, Inc. had to dispose of its Lamar Advertising Class A common stock by January 1, 2003. As of December 31, 2001, AMFM Operating, Inc. had complied with the terms of the consent decree. (12) STOCK OPTION PLAN In 1996, the Company adopted the 1996 Equity Incentive Plan (the 1996 Plan). The purpose of the 1996 Plan is to attract and retain key employees and consultants of the Company. The 1996 Plan authorizes the grant of stock options, stock appreciation rights and restricted stock to employees and consultants of the Company capable of contributing to the Company's performance. Options granted under the 1996 Plan generally become exercisable over a five-year period and expire 10 years from the date of grant unless otherwise authorized by the Board. As of December 31, 2002, the Company had reserved an aggregate of 8,000,000 shares of Class A common stock for awards under the 1996 Plan. In August 2000, the Board of Directors voted to amend the 1996 Plan to (i) authorize grants to members of the Company's board of directors (ii) provide the Committee with more flexibility in determining the exercise price of awards made under the 1996 Plan (iii) allow for grants of unrestricted stock and (iv) set forth performance criteria that the Committee may establish for the granting of stock awards. These amendments were approved by the Company's stockholders in May 2001. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used:
DIVIDEND EXPECTED RISK FREE EXPECTED GRANT YEAR YIELD VOLATILITY INTEREST RATE LIVES - ---------- -------- ---------- ------------- --------2002............................................ 0% 51% 5% 4 2001............................................ 0% 53% 5% 4 2000............................................ 0% 54% 6% 447
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Information regarding the 1996
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)Health Insurance Plan
for the years ended December 31, 2002, 2001 and 2000, is as follows:
2002 2001 2000 --------------------- --------------------- --------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE ---------- -------- ---------- -------- ---------- --------Outstanding, beginning of year.... 4,517,653 $29.11 2,865,647 $30.48 2,757,954 $27.14 Granted........................... 142,000 35.01 2,195,500 27.02 470,500 43.87 Exercised......................... (515,088) 23.74 (425,243) 24.80 (299,619) 17.75 Canceled.......................... (77,200) 36.36 (118,251) 42.42 (63,188) 39.09 ---------- ------ ---------- ------ ---------- ------ Outstanding, end of year.......... 4,067,365 $29.83 4,517,653 $29.08 2,865,647 $30.59 ========== ====== ========== ====== ========== ====== Price for exercised shares........ $ 23.74 $ 24.80 $ 17.75 Shares available for grant, end of year............................ 1,369,520 1,436,009 513,258 Weighted average fair value of options granted during the year............................ $ 22.48 $ 13.26 $ 26.57The following table summarizes information about fixed-price stock options outstanding at December 31, 2002:
NUMBER WEIGHTED NUMBER OUTSTANDING AVERAGE WEIGHTED EXERCISABLE WEIGHTED AT REMAINING AVERAGE AT AVERAGE DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE RANGE OF EXERCISE PRICES 2002 LIFE PRICE 2002 PRICE - ------------------------ -------------- ----------- -------- -------------- --------$10.67 - 26.17........................ 506,312 4.01 $13.68 479,312 $12.98 26.42................................. 1,401,553 8.74 26.42 1,120,353 26.42 26.69 - 33.38......................... 1,356,000 6.27 31.25 906,750 31.79 34.16 - 47.75......................... 708,000 7.25 41.26 92,200 37.61 60.63................................. 95,000 7.01 60.63 18,000 60.63No stock appreciation rights or restricted stock authorized by the 1996 Plan have been granted. (13) COMMITMENTS AND OTHER CONTINGENCIESThe Company sponsors a partially self-insured group health insurance program. The Company is obligated to pay all claims under the program, which are in excess of premiums, up to program limits of $150 per employee, per claim, per year. The Company is also self-insured with respect to its income disability benefits and against casualty losses on advertising structures. Amounts for expected losses, including a provision for losses incurred but not reported, is included in accrued expenses in the accompanying consolidated financial statements. As of December 31,
2002,2003, the Company maintained$3,417$4,202 in letters of credit with a bank to meet requirements of theCompany's worker'sCompany’s worker’s compensation and general liability insurance carrier.Profit Sharing Plan
The Company sponsors The Lamar Corporation Savings and Profit Sharing Plan covering employees who have completed one year of service and are at least 21 years of age. The Company matches 50% of
employees'employees’ contributions up to 5% of related compensation. Employees can contribute up to 15% of compensation. Full vesting on theCompany'sCompany’s matched contributions occurs after five years for contributions made prior to January 1, 2002 and three years for contributions made after January 1, 2002.48LAMAR ADVERTISING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)Annually, at theCompany'sCompany’s discretion, an additional profit sharing contribution may be made on behalf of each eligible employee. In total, for the years ended December 31, 2003, 20022001,and2000,2001, the Company contributed $2,804, $2,709 and $2,422,and $1,671,respectively.Deferred Compensation Plan
The Company sponsors a Deferred Compensation Plan for the benefit of certain of its senior management who meet specific age and years of service criteria. Employees who have attained the age of 30 and have a minimum of 10 years of service are eligible for annual contributions to the Plan generally ranging from $3 to $8, depending on the
employee'semployee’s length of service. TheCompany'sCompany’s contributions to the Plan are maintained in a rabbi trust and, accordingly, the assets and liabilities of the Plan are reflected in the balance sheet of the Company. Upon termination, death or disability, participating employees are eligible to receive an amount equal to the fair market value of the assets in theemployee'semployee’s deferred compensation account. The Company has contributed $668, $619$550and$456$550 to the Plan during the years ended December 31, 2003, 20022001and2000,2001, respectively. Contributions to the Deferred Compensation Plan are discretionary and are determined by the Board of Directors.(14) SUMMARIZED FINANCIAL INFORMATION OF SUBSIDIARIES(15) Commitment and Contingencies
In August 2002, a jury verdict was rendered in a lawsuit filed against the Company in the amount of $32 in compensatory damages and $2,245 in punitive damages. As a result of the verdict, the Company recorded a $2,277 charge in its operating expenses during the quarter ended September 30, 2002. In May 2003, the Court ordered a reduction to the punitive damage award, which was subject to the plaintiff’s consent. The plaintiff rejected the reduced award and the Court ordered a new trial. Based on legal analysis, management believes the best estimate of the Company’s potential liability related to this claim is currently $1,277. The $1,000 reduction in the reserve for this liability was recorded as a reduction of corporate expenses in the second quarter of 2003.
The Company is involved in various other claims and legal actions arising in the ordinary course of business. In the opinion of management , the ultimate disposition of the these matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations, or liquidity.
(16) Summarized Financial Information of Subsidiaries
Separate financial statements of each of the
Company'sCompany’s direct or indirectwholly-ownedwholly owned subsidiaries that have guaranteed LamarMedia'sMedia’s obligations with respect to its publicly issued notes (collectively, the Guarantors) are not included herein because the Company has no independent assets or operations, the guarantees are full and unconditional and joint and several and the only subsidiary that is not a guarantor is considered to be minor. LamarMedia'sMedia’s ability to make distributions to Lamar Advertising is restricted under the terms of its bank credit facility and the indentures relating to LamarMedia'sMedia’s outstanding notes. As of December 31,20022003 and2001,2002, the net assets restricted as to transfers from Lamar Media Corp. to Lamar Advertising Company in the form of cash dividends, loans or advances were $1,903,600 and $1,915,035, respectively.48
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and$1,896,992, respectively. (15) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTSper share data)(17) Disclosures About Fair Value of Financial Instruments
The following table presents the carrying amounts and estimated fair values of the
Company'sCompany’s financial instruments at December 31,20022003 and2001.2002. The fair value of the financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties.
2002 2001 ----------------------- ----------------------- CARRYING ESTIMATED CARRYING ESTIMATED AMOUNT FAIR VALUE AMOUNT FAIR VALUE ---------- ---------- ---------- ----------Long-term debt....................... $1,734,746 $1,758,380 $1,745,026 $1,770,439
2003 2002 Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value Long-term debt $ 1,699,819 $ 1,735,925 $ 1,734,746 $ 1,758,380 The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies as follows:
- The carrying amounts of cash and cash equivalents, prepaids, receivables, trade accounts payable, accrued expenses, and deferred income approximate fair value because of the short term nature of these items. - The fair value of long-term debt is based upon market quotes obtained from dealers where available and by discounting future cash flows at rates currently available to the Company for similar instruments when quoted market rates are not available.
• The carrying amounts of cash and cash equivalents, prepaids, receivables, trade accounts payable, accrued expenses, and deferred income approximate fair value because of the short term nature of these items. • The fair value of long-term debt is based upon market quotes obtained from dealers where available and by discounting future cash flows at rates currently available to the Company for similar instruments when quoted market rates are not available. Fair value estimates are subject to inherent limitations. Estimates of fair values are made at a specific point in time, based on relevant market information and information about the financial instrument. The estimated fair values of financial instruments presented above are not necessarily indicative of amounts the
49LAMAR ADVERTISING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)Company might realize in actual market transactions. Estimates of fair value are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.(16) QUARTERLY FINANCIAL DATA (UNAUDITED)
FISCAL YEAR 2002 QUARTERS ------------------------------------------------ MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 -------- -------- ------------ -----------Net revenues........................... $176,538 $202,529 $201,918 $194,697 Net revenues less direct advertising expenses............................. 109,311 135,897 130,233 125,469 Net loss applicable to common stock.... (16,254) (399) (6,079) (13,961) Net loss per common share (basic and diluted)............................. (0.16) (--) (0.06) (0.14)
FISCAL YEAR 2001 QUARTERS ------------------------------------------------ MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 -------- -------- ------------ -----------Net revenues........................... $170,385 $191,788 $188,267 $178,610 Net revenues less direct advertising expenses............................. 108,849 130,473 123,674 114,571 Net loss applicable to common stock.... (34,381) (20,491) (24,452) (29,675) Net loss per common share (basic and diluted)............................. (0.35) (0.21) (0.25) (0.30)(17) NEW ACCOUNTING PRONOUNCEMENTS In June 2001,(18) Quarterly Financial Data (Unaudited)
Year 2003 Quarters (Restated) March 31 June 30 September 30 December 31 Net revenues $ 184,221 $ 208,178 $ 211,720 $ 206,020 Net revenues less direct advertising expenses 112,664 134,817 137,149 133,492 Net loss applicable to common stock (62,070 ) (3,438 ) (7,744 ) (7,108 ) Net loss per common share (basic and diluted) (0.61 ) (0.03 ) (0.07 ) (0.07 )
Year 2002 Quarters March 31 June 30 September 30 December 31 Net revenues $ 176,538 $ 202,529 $ 201,918 $ 194,697 Net revenues less direct advertising expenses 109,311 135,897 130,233 125,469 Net loss applicable to common stock (16,254 ) (399 ) (6,079 ) (13,961 ) Net loss per common share (basic and diluted) (0.16 ) — (0.06 ) (0.14 ) (19) New Accounting
Standards Board (FASB) issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 requires the Company to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development, and/or normal use of the assets. The Company will also record a corresponding asset that is depreciated over the life of the asset. Subsequent to the initial measurement of the asset retirement obligation, the obligation will be adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. The Company is required to adopt SFAS No. 143 on January 1, 2003. The Company has not yet determined the impact to the consolidated financial statements for the adoption of SFAS No. 143.PronouncementsIn June 2002, the FASB issued SFAS No. 146,
"Accounting“Accounting for Costs Associated with Exit or Disposal Activities."” SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullified Emerging Issues Task Force (EITF) Issue 94-3,"Liability“Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity."” The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. The adoption of SFAS No. 146isdid notexpected tohavea materialan effect on theCompany'sCompany’s financial statements.49
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)In November 2002, the FASB issued Interpretation No. 45,
"Guarantor's“Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others, an interpretation of FASB Statements No. 5, 57 and 107 and a rescission of FASB Interpretation No. 34."” This Interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees issued. The Interpretation also clarifies that a guarantor is required to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken. The initial recognition and measurement provisions of the Interpretation are applicable to50LAMAR ADVERTISING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)guarantees issued or modified after December 31, 2002 andaredid notexpected tohavea materialan effect on theCompany'sCompany’s financial statements.The disclosure requirements are effective for financial statements of interim and annual periods ending after December 15, 2002.In December
2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation -- Transition and Disclosure, an amendment of FASB Statement No. 123." This Statement amends FASB Statement No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement No. 123 to require prominent disclosures in both annual and interim financial statements. Certain of the disclosure modifications are required for fiscal years ending after December 15, 2002 and are included in the notes to these consolidated financial statements. In January2003, the FASB issued Interpretation No. 46"Consolidation(revised December 2003), “Consolidation of Variable Interest Entities, an interpretation of ARB No. 51."” This Interpretation addresses the consolidation by business enterprises of variable interest entities as defined in the Interpretation. The Interpretation applies immediately to variableinterestinterests in variable interest entities created after January 31, 2003 and to variable interest entities obtained after January 31, 2003. The application of this Interpretationisdid notexpected tohavea materialan effect on theCompany'sCompany’s financial statements as the Company has no variable interest entities.In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities,” which amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities.” The
Interpretation requires certain disclosuresCompany adopted SFAS No. 149 for all contracts entered into or modified after June 30, 2003. The adoption of SFAS No. 149 did not have an impact on its consolidated financial statements.In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” Statement 150 affects the issuer’s accounting for three types of freestanding financial instruments. One type is mandatory redeemable shares, which the issuing company is obligated to buy back in exchange for cash or other assets. A second type, which includes put options and forward purchase contracts, involves instruments that do or may require the issuer to buy back some of its shares in exchange for cash or other assets. The third type of instruments that are liabilities under this Statement is obligations that can be settled with shares, the monetary value of which is fixed, tied solely or predominately to a variable such as a market index, or varies inversely with the value of the issuers’ shares. Statement 150 does not apply to features embedded in a financial
statements issuedinstrument that is not a derivative in its entirety. Most of the guidance in Statement 150 is effective for all financial instruments entered into or modified afterJanuaryMay 31, 2003,if itand otherwise isreasonably possibleeffective at the beginning of the first interim period beginning after June 15, 2003. The Company currently does not have any financial instruments that are within theCompany will consolidate or disclose information about variable interest entities when the Interpretation becomes effective. 51scope of SFAS No. 150. 50
SCHEDULE 2
LAMAR ADVERTISING COMPANY VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBERLamar Advertising Company
Valuation and Qualifying Accounts
Years Ended December 31, 2003, 2002 and 2001AND 2000
BALANCE AT CHARGED TO BEGINNING COSTS AND BALANCE AT OF PERIOD EXPENSES DEDUCTIONS END OF PERIOD ---------- ---------- ---------- ------------- (IN THOUSANDS)Year ended December 31, 2002 Deducted in balance sheet from trade accounts receivable: Allowance for doubtful accounts................................... $ 4,914 9,036 9,036 4,914 Deducted in balance sheet from intangible assets: Amortization of intangible assets..................................... $569,322 130,142 -- 699,464 Year ended December 31, 2001 Deducted in balance sheet from trade accounts receivable: Allowance for doubtful accounts................................... $ 4,914 7,794 7,794 4,914 Deducted in balance sheet from intangible assets: Amortization of intangible assets..................................... $356,725 212,597 -- 569,322 Year ended December 31, 2000 Deducted in balance sheet from trade accounts receivable: Allowance for doubtful accounts................................... $ 3,928 5,991 5,005 4,914 Deducted in balance sheet from intangible assets: Amortization of intangible assets..................................... $171,316 185,409 -- 356,72552
(in thousands)
Balance at Charged to Balance at Beginning Costs and End of of Period Expenses Deductions Period Year ended December 31, 2003 Deducted in balance sheet from trade accounts receivable: Allowance for doubtful accounts $ 4,914 8,599 8,599 4,914 Deducted in balance sheet from intangible assets: Amortization of intangible assets $ 674,356 125,706 — 800,062 Year ended December 31, 2002 Deducted in balance sheet from trade accounts receivable: Allowance for doubtful accounts $ 4,914 9,036 9,036 4,914 Deducted in balance sheet from intangible assets: Amortization of intangible assets $ 550,275 124,081 — 674,356 Year ended December 31, 2001 Deducted in balance sheet from trade accounts receivable: Allowance for doubtful accounts $ 4,914 7,794 7,794 4,914 Deducted in balance sheet from intangible assets: Amortization of intangible assets $ 343,657 206,618 — 550,275 51
LAMAR MEDIA CORP.
AND SUBSIDIARIES
Independent Auditors'Auditors’ Report........................................................... 5453 Consolidated Balance Sheets as of December 31, 20022003 and2001 ........................... 55200254 Consolidated Statements of Operations for the years ended December 31, 2003, 2002 2001and2000 .............................................................. 56200155 Consolidated Statements of Stockholder'sStockholder’s Equity for the years ended December 31, 2003, 20022001and2000 ................................................. 57200156 Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 2001and2000 ............................................................. 58200157 Notes to Consolidated Financial Statements ............................................. 59 - 6458 – 62 Schedule 2 -– Valuation and Qualifying Accounts for the years ended December 31, 2003, 20022001and2000 .............................................................. 65200163 53INDEPENDENT AUDITORS' REPORT52
Report of Independent Registered Public Accounting Firm
Board of Directors
Lamar Media Corp.:We have audited the
accompanyingconsolidatedbalance sheetsfinancial statements of Lamar Media Corp. and subsidiaries asof December 31, 2002 and 2001, andlisted in therelated consolidated statements of operations, stockholder's equity and cash flows for eachaccompanying index. In connection with our audits of theyearsconsolidated financial statements, we have also audited the financial statement schedule as listed in thethree-year period ended December 31, 2002.accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of theCompany'sCompany’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.We conducted our audits in accordance with
auditingthe standardsgenerally accepted inof theUnited States of America.Public Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Lamar Media Corp. and subsidiaries as of December 31,
20022003 and2001,2002, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31,2002,2003, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.As discussed in Note 2 of Lamar Advertising Company’s consolidated financial statements, the Company has restated its consolidated financial statements for the year ended December 31, 2003.
As discussed in Note 1(d) to the consolidated financial statements of Lamar Advertising Company, effective July 1, 2001, the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 141,
"Business Combinations"“Business Combinations”, and certain provisions of SFAS No. 142,"Goodwill“Goodwill and Other IntangibleAssets"Assets”, as required for goodwill and intangible assets resulting from business combinations consummated after June 30, 2001. The provisions of SFAS No. 142 were fully adopted on January 1, 2002./s/ KPMG LLP KPMG LLPAs discussed in Note 9 to the consolidated financial statements of Lamar Advertising Company, the Company adopted the provisions of SFAS Statement No. 143, “Accounting for Asset Retirement Obligations” on January 1, 2003.
/s/ KPMG LLP KPMG LLP New Orleans, Louisiana
February5, 2003,9, 2004, except
for Notes 2 and 10 of Lamar Advertising Company, as toNote 5
which the date isas of March 7, 2003 54November 15, 2004 53
LAMAR MEDIA CORP.
AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS
DECEMBER 31, --------------------------- 2002 2001 ------------ ------------ (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)ASSETS Current assets: Cash and cash equivalents................................. $ 15,610 $ 12,885 Cash on deposit for debt extinguishment................... 266,657 -- Receivables, net of allowance for doubtful accounts of $4,914 in 2002 and 2001................................ 92,295 93,043 Prepaid expenses.......................................... 30,091 27,176 Deferred income tax asset................................. 6,428 5,945 Other current assets...................................... 14,293 17,688 ---------- ---------- Total current assets........................................ 425,374 156,737 ---------- ---------- Property, plant and equipment............................... 1,850,657 1,777,399 Less accumulated depreciation and amortization............ (566,889) (451,686) ---------- ---------- Net property, plant and equipment........................... 1,283,768 1,325,713 ---------- ---------- Goodwill (note 3)........................................... 1,171,595 1,127,426 Intangible assets (note 3).................................. 975,998 1,028,653 Other assets................................................ 18,174 16,580 ---------- ---------- Total assets................................................ $3,874,909 $3,655,109 ========== ========== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Trade accounts payable.................................... $ 10,051 $ 10,048 Current maturities of long-term debt (note 5)............. 4,687 66,559 Current maturities related to debt extinguishment......... 255,000 -- Accrued expenses (note 4)................................. 25,981 22,362 Deferred income........................................... 13,942 11,618 ---------- ---------- Total current liabilities................................... 309,661 110,587 ---------- ---------- Long-term debt (note 5)..................................... 1,447,246 1,457,526 Deferred income taxes (note 6).............................. 129,924 133,186 Other liabilities........................................... 7,366 7,724 ---------- ---------- Total liabilities........................................... 1,894,197 1,709,023 ---------- ---------- Stockholder's equity: Common stock, $.01 par value, authorized 3,000 shares; 100 shares issued and outstanding at December 31, 2002 and 2001................................................... -- -- Additional paid-in capital................................ 2,281,901 2,222,317 Accumulated deficit....................................... (301,189) (276,231) ---------- ---------- Stockholder's equity........................................ 1,980,712 1,946,086 ---------- ---------- Total liabilities and stockholder's equity.................. $3,874,909 $3,655,109 ========== ==========
Consolidated Balance Sheets
December 31, 2003 and 2002
(In thousands, except share and per share data)
2003 2002 (Restated) ASSETS Current assets: Cash and cash equivalents $ 7,797 $ 15,610 Cash on deposit for debt extinguishment — 266,657 Receivables, net of allowance for doubtful accounts of $4,914 in 2003 and 2002 90,072 91,982 Prepaid expenses 32,377 30,091 Deferred income tax assets 6,051 6,428 Other current assets 7,665 14,606 Total current assets 143,962 425,374 Property, plant and equipment 1,988,096 1,850,657 Less accumulated depreciation and amortization (702,272 ) (566,889 ) Net property, plant and equipment 1,285,824 1,283,768 Goodwill (note 3) 1,232,857 1,171,595 Intangible assets (note 3) 938,062 961,859 Deferred financing fees, net of accumulated amortization of $11,864 and $14,567 respectively 14,285 14,139 Other assets 50,744 18,174 Total assets $ 3,665,734 $ 3,874,909 LIABILITIES AND STOCKHOLDER’S EQUITY Current liabilities: Trade accounts payable $ 8,813 $ 10,051 Current maturities of long-term debt (note 5) 5,044 4,687 Current maturities related to debt extinguishment — 255,000 Accrued expenses (note 4) 38,068 25,981 Deferred income 14,372 13,942 Total current liabilities 66,297 309,661 Long-term debt (note 5) 1,412,319 1,447,246 Deferred income tax liabilities (note 6) 100,250 129,924 Asset retirement obligation 123,217 — Other liabilities 9,109 7,366 Total liabilities 1,711,192 1,894,197 Stockholder’s equity: Common stock, $.01 par value, authorized 3,000 shares; 100 shares issued and outstanding at December 31, 2003 and 2002 — — Additional paid-in capital 2,333,951 2,281,901 Accumulated deficit (379,409 ) (301,189 ) Stockholder’s equity 1,954,542 1,980,712 Total liabilities and stockholder’s equity $ 3,665,734 $ 3,874,909 See accompanying notes to consolidated financial statements.
5554
LAMAR MEDIA CORP.
AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, -------------------------------- 2002 2001 2000 -------- --------- --------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)Net revenues............................................... $775,682 $ 729,050 $ 687,319 -------- --------- --------- Operating expenses: Direct advertising expenses............................. 274,772 251,483 217,465 General and administrative expenses..................... 166,895 150,786 137,292 Depreciation and amortization........................... 274,644 351,754 315,465 Gain on disposition of assets........................... (336) (923) (986) -------- --------- --------- 715,975 753,100 669,236 -------- --------- --------- Operating income (loss)................................. 59,707 (24,050) 18,083 Other expense (income): Loss on early extinguishment of debt.................... 5,850 -- -- Interest income......................................... (929) (640) (1,715) Interest expense........................................ 92,178 113,026 147,607 -------- --------- --------- 97,099 112,386 145,892 -------- --------- --------- Loss before income taxes................................... (37,392) (136,436) (127,809) Income tax benefit (note 6)................................ (12,434) (38,870) (35,879) -------- --------- --------- Net loss................................................... $(24,958) $ (97,566) $ (91,930) ======== ========= =========
Consolidated Statements of Operations
Years Ended December 31, 2003, 2002 and 2001
(In thousands)
2003 2002 2001 (Restated) Net revenues $ 810,139 $ 775,682 $ 729,050 Operating expenses (income): Direct advertising expenses 292,017 274,772 251,483 General and administrative expenses 145,971 139,610 124,339 Corporate expenses 25,229 27,285 26,447 Depreciation and amortization 284,947 271,832 349,550 Gain on disposition of assets (1,946 ) (336 ) (923 ) 746,218 713,163 750,896 Operating income (loss) 63,921 62,519 (21,846 ) Other expense (income): Loss on extinguishment of debt 21,077 5,850 — Interest income (502 ) (929 ) (640 ) Interest expense 77,852 94,990 115,230 98,427 99,911 114,590 Loss before income tax benefit and cumulative effect of a change in accounting principle (34,506 ) (37,392 ) (136,436 ) Income tax benefit (note 6) (12,338 ) (12,434 ) (38,870 ) Loss before cumulative effect of a change in accounting principle (22,168 ) (24,958 ) (97,566 ) Cumulative affect of a change in accounting principle net of tax benefit of $25,727 40,240 — — Net loss $ (62,408 ) $ (24,958 ) $ (97,566 ) See accompanying notes to consolidated financial statements.
5655
LAMAR MEDIA CORP.
AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY For the years ended
Consolidated Statements of Stockholder’s Equity
Years Ended December 31, 2003, 20022001and20002001
ADDITIONAL COMMON PAID-IN ACCUMULATED STOCK CAPITAL DEFICIT TOTAL ------- ----------- ------------ ---------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)Balance, December 31, 1999........................... $ -- 1,469,606 (86,735) 1,382,871 Contribution from parent.......................... -- 385,815 -- 385,815 Net loss.......................................... -- -- (91,930) (91,930) ----- --------- -------- --------- Balance, December 31, 2000........................... $ -- 1,855,421 (178,665) 1,676,756 Contribution from parent.......................... -- 366,896 -- 366,896 Net loss.......................................... -- -- (97,566) (97,566) ----- --------- -------- --------- Balance, December 31, 2001........................... $ -- 2,222,317 (276,231) 1,946,086 Contribution from parent.......................... -- 59,584 -- 59,584 Net loss.......................................... -- -- (24,958) (24,958) ----- --------- -------- --------- Balance, December 31, 2002........................... $ -- 2,281,901 (301,189) 1,980,712 ===== ========= ======== =========
(In thousands, except share and per share data)
ADDITIONAL COMMON PAID-IN ACCUMULATED STOCK CAPITAL DEFICIT TOTAL Balance, December 31, 2000 $ — 1,855,421 (178,665 ) 1,676,756 Contribution from parent — 366,896 — 366,896 Net loss — — (97,566 ) (97,566 ) Balance, December 31, 2001 $ — 2,222,317 (276,231 ) 1,946,086 Contribution from parent — 59,584 — 59,584 Net loss — — (24,958 ) (24,958 ) Balance, December 31, 2002 $ — 2,281,901 (301,189 ) 1,980,712 Dividend to parent — (15,812 ) (15,812 ) Contribution from parent — 52,050 — 52,050 Net loss (restated) — — (62,408 ) (62,408 ) Balance, December 31, 2003 (restated) $ — 2,333,951 (379,409 ) 1,954,542 See accompanying notes to consolidated financial statements.
5756
LAMAR MEDIA CORP.
AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------------ 2002 2001 2000 -------- -------- -------- (IN THOUSANDS)Cash flows from operating activities: Net loss.................................................. $(24,958) $(97,566) $(91,930) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization.......................... 274,644 351,754 315,465 Gain on disposition of assets.......................... (336) (923) (986) Loss on early extinguishment of debt................... 2,424 -- -- Deferred income tax benefit............................ (8,325) (39,582) (35,737) Provision for doubtful accounts........................ 9,036 7,794 5,991 Changes in operating assets and liabilities: (Increase) decrease in: Receivables.......................................... (6,451) (9,810) (13,786) Prepaid expenses..................................... (2,533) (1,322) (1,371) Other assets......................................... 2,804 2,916 4,568 Increase (decrease) in: Trade accounts payable............................... 3 131 (1,574) Accrued expenses..................................... 1,965 (14,641) (1,910) Deferred income...................................... 2,051 (173) (964) Other liabilities.................................... (505) 124 196 -------- -------- -------- Net cash provided by operating activities......... 249,819 198,702 177,962 -------- -------- -------- Cash flows from investing activities: Capital expenditures...................................... (78,390) (85,320) (78,304) Purchase of new markets................................... (78,326) (298,134) (355,958) Increase in notes receivable.............................. (1,650) -- -- Proceeds from sale of property and equipment.............. 3,412 4,916 2,827 -------- -------- -------- Net cash used in investing activities............. (154,954) (378,538) (431,435) -------- -------- -------- Cash flows from financing activities: Contribution from parent.................................. -- 48,000 200,212 Proceeds from issuance of long-term debt.................. 256,360 -- -- Deposits for debt extinguishment.......................... (266,657) -- -- Principal payments on long-term debt...................... (140,700) (67,046) (5,330) Debt issuance costs....................................... (1,183) (573) (1,470) Increase in notes payable................................. 40 -- -- Net borrowing under credit agreements..................... 60,000 140,000 124,000 -------- -------- -------- Net cash (used in) provided by financing activities...................................... (92,140) 120,381 317,412 -------- -------- -------- Net increase (decrease) in cash and cash equivalents..................................... 2,725 (59,455) 63,939 Cash and cash equivalents at beginning of period.......... 12,885 72,340 8,401 -------- -------- -------- Cash and cash equivalents at end of period................ $ 15,610 $ 12,885 $ 72,340 ======== ======== ======== Supplemental disclosures of cash flow information: Cash paid for interest.................................... $ 94,729 $119,000 $147,875 ======== ======== ======== Cash paid for state and federal income taxes.............. $ 745 $ 1,189 $ 1,936 ======== ======== ========
Consolidated Statements of Cash Flows
Years Ended December 31, 2003, 2002 and 2001
(In thousands)
2003 2002 2001 (Restated) Cash flows from operating activities: Net loss $ (62,408 ) $ (24,958 ) $ (97,566 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 284,947 271,832 349,550 Amortization included in interest expense 2,797 2,812 2,204 Gain on disposition of assets (1,946 ) (336 ) (923 ) Loss on extinguishment of debt 21,077 5,850 — Cumulative effect of a change in accounting principle 40,240 — — Deferred income tax benefit (12,296 ) (8,325 ) (39,582 ) Provision for doubtful accounts 8,599 9,036 7,794 Changes in operating assets and liabilities: (Increase) decrease in: Receivables (7,360 ) (6,451 ) (9,810 ) Prepaid expenses (2,923 ) (2,533 ) (1,322 ) Other assets (6,318 ) 2,804 2,916 Increase (decrease) in: Trade accounts payable (1,238 ) 3 131 Accrued expenses 11,431 1,965 (14,641 ) Other liabilities 254 1,546 (49 ) Cash flows provided by operating activities 274,856 253,245 198,702 Cash flows from investing activities: Capital expenditures (78,275 ) (78,390 ) (85,320 ) Purchase of new markets (135,319 ) (78,326 ) (298,134 ) Increase in notes receivable — (1,650 ) — Proceeds from sale of property and equipment 5,829 3,412 4,916 Cash flows used in investing activities (207,765 ) (154,954 ) (378,538 ) Cash flows from financing activities: Contribution from parent — — 48,000 Proceeds from issuance of long-term debt 128,038 256,400 — Deposits for debt extinguishment 266,657 (266,657 ) — Principal payments on long-term debt (483,888 ) (144,126 ) (67,046 ) Debt issuance costs (9,899 ) (1,183 ) (573 ) Dividends (15,812 ) — — Net borrowing under credit agreements 40,000 60,000 140,000 Cash flows (used in) provided by financing activities (74,904 ) (95,566 ) 120,381 Net (decrease) increase in cash and cash equivalents (7,813 ) 2,725 (59,455 ) Cash and cash equivalents at beginning of period 15,610 12,885 72,340 Cash and cash equivalents at end of period $ 7,797 $ 15,610 $ 12,885 Supplemental disclosures of cash flow information: Cash paid for interest $ 64,245 $ 94,729 $ 119,000 Cash paid for state and federal income taxes $ 825 $ 745 $ 1,189 See accompanying notes to consolidated financial statements.
5857
LAMAR MEDIA CORP.
AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)(1)
SIGNIFICANT ACCOUNTING POLICIES (A) NATURE OF BUSINESSSignificant Accounting Policies(a) Nature of Business
Lamar Media Corp. is a
wholly-ownedwholly owned subsidiary of Lamar Advertising Company. Lamar Media Corp. is engaged in the outdoor advertising business operating approximately146,000147,000 outdoor advertising displays in4443 states. LamarMedia'sMedia’s operating strategy is to be the leading provider of outdoor advertising services in the markets it serves.In addition, Lamar Media operates a logo sign business in
2120 states throughout the United States and in one province of Canada. Logo signs are erected pursuant to state-awarded service contracts on public rights-of-way near highway exits and deliver brand name information on available gas, food, lodging and camping services. Included in theCompany'sCompany’s logo sign business are tourism signing contracts.Lamar Media previously included amortization of debt issuance costs under depreciation in the Consolidated Statement of Operations. The Company is reclassifying this cost to interest expense. The effect of this reclassification is a decrease in depreciation and amortization and an increase expense and operating income in the prior periods. The reclassification had no effect on previously reported net income. The amortization of debt issuance fees was $2,797, $2,812 and $2,204 for the years ended December 31, 2003, 2002 and 2001, respectively.
Certain footnotes are not provided for the accompanying financial statements as the information in notes 2,
4, 6, 11 through 13,3, 5, 7, 12, 14, 15, 16, 18 and1719 and portions of notes 1,89 and1011 to the consolidated financial statements of Lamar Advertising Company included elsewhere in this Annual Report are substantially equivalent to that required for the consolidated financial statements of Lamar Media Corp. Earnings per share data is not provided for the operating results of Lamar Media Corp. as it is awholly-ownedwholly owned subsidiary of Lamar Advertising Company.(B) PRINCIPLES OF CONSOLIDATION(b) Principles of Consolidation
The accompanying consolidated financial statements include Lamar Media Corp., its
wholly-ownedwholly owned subsidiaries, The Lamar Company, LLC, Lamar Central Outdoor, Inc., Lamar Oklahoma Holding Co., Inc., Lamar Advertising Southwest, Inc., Lamar DOA Tennessee Holdings, Inc., and Interstate Logos, LLC. and their majority-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.(2)
NONCASH FINANCING AND INVESTING ACTIVITIESNoncash Financing and Investing ActivitiesA summary of significant noncash financing and investing activities for the years ended December 31, 2003, 2002
2001and2000:
2002 2001 2000 ------- ------- -------Parent company stock contributed for acquisitions....... $56,100 29,000 185,603 Note payable converted to contributed capital........... -- 287,500 -- Debt issuance costs..................................... 3,640 -- --59LAMAR MEDIA CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)2001:
2003 2002 2001 Parent company stock contributed for acquisitions $ 50,630 56,100 29,000 Note payable converted to contributed capital — — 287,000 Debt issuance costs 1,619 3,640 — (3)
GOODWILL AND OTHER INTANGIBLE ASSETSGoodwill and Other Intangible AssetsThe following is a summary of intangible assets at December 31,
20022003 and December 31,2001:2002.
2002 2001 ------------------------- ------------------------- ESTIMATED GROSS GROSS LIFE CARRYING ACCUMULATED CARRYING ACCUMULATED (YEARS) AMOUNT AMORTIZATION AMOUNT AMORTIZATION --------- ---------- ------------ ---------- ------------AMORTIZABLE INTANGIBLE ASSETS: Debt issuance costs and fees.................. 7-10 $ 29,304 $ 16,992 $ 24,625 $ 11,756 Customer lists and contracts............. 7-10 371,787 196,084 359,154 145,180 Non-competition agreements............ 3-15 57,023 39,458 56,419 31,841 Site locations........... 15 937,773 177,016 882,180 115,314 Other.................... 5-15 15,399 5,738 14,605 4,239 ---------- -------- ---------- -------- 1,411,286 435,288 1,336,983 308,330 UNAMORTIZABLE INTANGIBLE ASSETS: Goodwill................. $1,424,361 $252,766 $1,380,192 $252,766
2003 2002 Estimated Life Gross Carrying Accumulated Gross Carrying Accumulated (Years) Amount Amortization Amount Amortization Amortizable Intangible Assets: Customer lists and contracts 7 – 10 388,791 248,617 371,787 196,084 Non-competition agreements 3 – 15 57,664 46,197 57,023 39,458 Site locations 15 1,021,037 243,170 937,773 177,016 Other 5 – 15 16,980 8,426 15,399 7,565 1,484,472 546,410 1,381,982 420,123 Unamortizable Intangible Assets: Goodwill $ 1,485,623 $ 252,766 $ 1,424,361 $ 252,766 58
LAMAR MEDIA CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)The changes in the carrying amount of goodwill for the year ended December 31,
20022003 are as follows:
Balance as of December 31, 2001............................. $1,380,192 Goodwill acquired during the year........................... 44,169 Impairment losses........................................... -- ---------- Balance as of December 31, 2002............................. $1,424,361 ==========
Balance as of December 31, 2002 $ 1,424,361 Goodwill acquired during the year 61,262 Impairment losses — Balance as of December 31, 2003 $ 1,485,623 In accordance with SFAS No. 142, Lamar Media is required to evaluate its existing intangible assets and goodwill that were acquired in purchase business combinations, and to make any necessary reclassifications in order to conform with the new classification criteria in SFAS No. 141 for recognition separate from goodwill. Lamar Media is required to reassess the useful lives and residual values of all intangible assets acquired, and make any necessary amortization period adjustments. If an intangible asset is identified as having an indefinite useful life, Lamar Media will be required to test the intangible asset for impairment in accordance with the provisions of SFAS No. 142. Impairment is measured as the excess of carrying value over the fair value of an intangible asset with an indefinite life. Based upon
it'sit’s review, no impairment charge was required upon the adoption of SFAS No. 142 or at its annualtesttests for impairment on December 31,2002.2002 and December 31, 2003.The following table illustrates the effect of the adoption of SFAS No. 142 on prior periods:
YEARS ENDED DECEMBER 31, -------------------------------- 2002 2001 2000 -------- --------- ---------Reported net loss applicable to common stock....... $(24,958) $ (97,566) $ (91,930) Add: goodwill amortization, net of tax............. -- 70,463 60,752 -------- --------- --------- Adjusted net loss applicable to common stock....... $(24,958) $ (27,103) $ (31,178) ======== ========= =========60LAMAR MEDIA CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Years ended December 31, 2003 2002 2001 Reported net loss $ (62,408 ) $ (24,958 ) $ (97,566 ) Add: goodwill amortization, net of tax — — 70,463 Adjusted net loss $ (62,408 ) $ (24,958 ) $ (27,103 ) (4)
ACCRUED EXPENSESAccrued ExpensesThe following is a summary of accrued expenses at December 31,
20022003 and2001:2002:
2002 2001 ------- ------Payroll..................................................... $ 7,686 4,982 Interest.................................................... 8,618 11,169 Other....................................................... 9,677 6,211 ------- ------ $25,981 22,362 ======= ======
2003 2002 Payroll $ 7,698 7,686 Interest 19,428 8,618 Other 10,942 9,677 $ 38,068 25,981 (5)
LONG-TERM DEBTLong-term DebtLong-term debt consists of the following at December 31,
20022003 and2001:2002:
2002 2001 ---------- ---------7 1/4% Senior subordinated notes............................ $ 260,000 -- 9 5/8% Senior subordinated notes (1996 Notes)............... 255,000 255,000 8 5/8% Senior subordinated notes (1997 Notes)............... 199,230 199,104 Bank Credit Agreement....................................... 975,500 978,500 9 1/4% Senior subordinated notes............................ -- 74,073 8% Unsecured subordinated notes............................. 7,333 9,333 Other notes with various rates and terms.................... 9,870 8,075 ---------- --------- 1,706,933 1,524,085 Less current maturities..................................... (259,687) (66,559) ---------- --------- $1,447,246 1,457,526 ========== =========
2003 2002 7 1/4% Senior subordinated notes $ 389,387 260,000 9 5/8% Senior subordinated notes (1996 Notes) — 255,000 8 5/8% Senior subordinated notes (1997 Notes) — 199,230 Bank Credit Agreement 1,015,000 975,500 8% Unsecured subordinated notes 5,333 7,333 Other notes with various rates and terms 7,643 9,870 1,417,363 1,706,933 Less current maturities (5,044 ) (259,687 ) Long-term debt excluding current maturities $ 1,412,319 1,447,246 59
LAMAR MEDIA CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)Long-term debt matures as follows:
2003........................................................ $ 259,687 2004........................................................ 4,336 2005........................................................ 56,545 2006........................................................ 68,624 2007........................................................ 281,978 Later years................................................. 1,035,763On August 10, 1999, Lamar Media Corp. borrowed from Lamar Advertising Company, its parent, $287,500 in exchange for a note payable bearing interest at 5 1/4% due 2006. The proceeds were used to pay down existing bank debt of the Company. Effective January 30, 2001, Lamar Media Corp. and its subsidiaries entered into an amendment to its bank credit agreement for the purposes of increasing "Incremental Loan Commitments" from $400,000 to $1,000,000 and affording Lamar Media Corp. and Lamar Advertising Company more flexibility in incurring debt. The "Total Debt Ratio", previously measured at the Lamar Advertising Company level, is now measured at the Lamar Media Corp. level with the result that the 5 1/4% convertible Notes will be excluded from this ratio. In connection with these changes, the note receivable and notes payable of equal amounts between Lamar Advertising and Lamar Media, its wholly-owned subsidiary, were canceled. The cancellation of the note of $287,500 is treated as capital contributed by the parent on Lamar Media's balance sheet effective January 30, 2001. 61LAMAR MEDIA CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The presentation of long-term debt is in accordance with the terms of the new credit agreement discussed in Note 8 to the consolidated financial statements of Lamar Advertising Company.
2004 $ 5,044 2005 57,160 2006 69,067 2007 82,568 2008 82,612 Later years 1,120,912 (6)
INCOME TAXESIncome TaxesIncome tax benefit for the years ended December 31, 2003, 2002
2001and2000,2001, consists of:
CURRENT DEFERRED TOTAL ------- -------- -------Year ended December 31, 2002: U.S. federal.......................................... $(5,068) (7,090) (12,158) State and local....................................... 870 (1,685) (815) Foreign............................................... 89 450 539 ------- ------- ------- $(4,109) (8,325) (12,434) ======= ======= ======= Year ended December 31, 2001: U.S. federal.......................................... $ -- (31,618) (31,618) State and local....................................... 712 (7,513) (6,801) Foreign............................................... -- (451) (451) ------- ------- ------- $ 712 (39,582) (38,870) ======= ======= ======= Year ended December 31, 2000: U.S. federal.......................................... $ -- (28,865) (28,865) State and local....................................... (142) (6,872) (7,014) ------- ------- ------- $ (142) (35,737) (35,879) ======= ======= =======
Current Deferred Total Year ended December 31, 2003: U.S. federal $ — (10,492 ) (10,492 ) State and local (42 ) (2,469 ) (2,511 ) Foreign — 665 665 $ (42 ) (12,296 ) (12,338 ) Year ended December 31, 2002: U.S. federal $ (5,068 ) (7,090 ) (12,158 ) State and local 870 (1,685 ) (815 ) Foreign 89 450 539 $ (4,109 ) (8,325 ) (12,434 ) Year ended December 31, 2001: U.S. federal $ — (31,618 ) (31,618 ) State and local 712 (7,513 ) (6,801 ) Foreign — (451 ) (451 ) $ 712 (39,582 ) (38,870 ) Income tax expense (benefit) attributable to continuing operations for the years ended December 31, 2003, 2002
2001and2000,2001, differs from the amounts computed by applying the U.S. federal income tax rate of 34 percent to loss before income taxes as follows:
2002 2001 2000 -------- -------- --------Computed expected tax benefit........................ $(12,713) $(46,388) $(43,455) Increase (reduction) in income taxes resulting from: Book expenses not deductible for tax purposes..... 689 590 754 Amortization of non-deductible goodwill........... (31) 13,402 11,845 State and local income taxes, net of federal income tax benefit............................. (560) (4,488) (4,629) Other differences, net............................ 181 (1,986) (394) -------- -------- -------- $(12,434) $(38,870) $(35,879) ======== ======== ========6260
LAMAR MEDIA CORP.
AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)
2003 2002 2001 Computed expected tax benefit $ (11,732 ) (12,713 ) (46,388 ) Increase (reduction) in income taxes resulting from: Book expenses not deductible for tax purposes 1,149 689 590 Amortization of non-deductible goodwill (19 ) (31 ) 13,402 State and local income taxes, net of federal income tax benefit (1,657 ) (560 ) (4,488 ) Other differences, net (79 ) 181 (1,986 ) $ (12,338 ) (12,434 ) (38,870 ) The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31,
20022003 and20012002 are presented below:
2002 2001 --------- ---------Current deferred tax assets: Receivables, principally due to allowance for doubtful accounts.............................................. $ 1,916 $ 1,916 Accrued liabilities not deducted for tax purposes........ 2,142 1,578 Net operating loss carryforward.......................... -- 451 Other.................................................... 2,370 2,000 --------- --------- Net current deferred tax asset........................... $ 6,428 $ 5,945 ========= ========= Non-current deferred tax liabilities: Plant and equipment, principally due to differences in depreciation.......................................... $ (10,821) $ (3,550) Intangibles, due to differences in amortizable lives..... (243,680) (245,587) --------- --------- (254,501) (249,137) Non-current deferred tax assets: Plant and equipment, due to basis differences on acquisitions.......................................... 47,492 57,349 Plant and equipment, due to basis differences on acquisitions and costs capitalized for tax purposes... 4,288 4,305 Investment in affiliates and plant and equipment, due to gains recognized for tax purposes and deferred for financial reporting purposes.......................... 941 941 Accrued liabilities not deducted for tax purposes........ 3,062 2,861 Net operating loss carryforward.......................... 68,164 49,470 Minimum tax credit....................................... -- 331 Other, net............................................... 630 694 --------- --------- 124,577 115,951 --------- --------- Net non-current deferred tax liability................... $(129,924) $(133,186) ========= =========
2003 2002 Current deferred tax assets: Receivables, principally due to allowance for doubtful accounts $ 1,916 $ 1,916 Accrued liabilities not deducted for tax purposes 1,584 2,142 Other 2,551 2,370 Net current deferred tax asset 6,051 6,428 Non-current deferred tax liabilities: Plant and equipment, principally due to differences in depreciation (11,738 ) (10,821 ) Intangibles, due to differences in amortizable lives (244,880 ) (243,680 ) (256,618 ) (254,501 ) Non-current deferred tax assets: Plant and equipment, due to basis differences on acquisitions and costs capitalized for tax purposes 48,479 51,780 Investment in affiliates and plant and equipment, due to gains recognized for tax purposes and deferred for financial reporting purposes 941 941 Accrued liabilities not deducted for tax purposes 2,900 3,062 Net operating loss carryforward 73,061 68,164 Asset retirement obligation 30,113 — Other, net 874 630 156,368 124,577 Net non-current deferred tax liability $ (100,250 ) (129,924 ) In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that Lamar Media will realize the benefits of these deductible differences. The amount of the deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced.
(7)
RELATED PARTY TRANSACTIONSRelated Party TransactionsAffiliates, as used within these statements, are persons or entities that are affiliated with Lamar Media Corp. or its subsidiaries through common ownership and directorate control.
63LAMAR MEDIA CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)As of December 31,
20022003 and2001,2002, there was a receivable from Lamar Advertising Company, its parent, in the amount of $22,152 and $6,978,and $9,671,respectively.(8) QUARTERLY FINANCIAL DATA (UNAUDITED)
FISCAL YEAR 2002 QUARTERS ------------------------------------------------ MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 -------- -------- ------------ -----------Net revenues........................... $176,538 $202,529 $201,918 $194,697 Net revenues less direct advertising expenses............................ 109,311 135,897 130,233 125,469 Net (loss) income applicable to common stock............................... (13,331) 2,542 (3,145) (11,024)
FISCAL YEAR 2001 QUARTERS ------------------------------------------------ MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 -------- -------- ------------ -----------Net revenues........................... $170,385 $191,788 $188,267 $178,610 Net revenues less direct advertising expenses............................ 108,849 130,473 123,674 114,571 Net loss applicable to common stock.... (32,146) (17,476) (21,434) (26,510)64SCHEDULE 261
LAMAR MEDIA CORP.
AND SUBSIDIARIESVALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)(8) Quarterly Financial Data (Unaudited)
Year 2003 Quarters
(Restated)March 31 June 30 September 30 December 31 Net revenues $ 184,221 $ 208,178 $ 211,720 $ 206,020 Net revenues less direct advertising expenses 112,664 134,817 137,149 133,492 Net (loss) income applicable to common stock (59,152 ) (210 ) 2,226 (5,272 )
Year 2002 Quarters March 31 June 30 September 30 December 31 Net revenues $ 176,538 $ 202,529 $ 201,918 $ 194,697 Net revenues less direct advertising expenses 109,311 135,897 130,233 125,469 Net (loss) income applicable to common stock (13,331 ) 2,542 (3,145 ) (11,024 ) 62
SCHEDULE 2
Lamar Media Corp.
and Subsidiaries
Valuation and Qualifying Accounts
Years Ended December 31, 2003, 2002 and 2001AND 2000
BALANCE AT CHARGED TO BALANCE AT BEGINNING OF COSTS AND END OF PERIOD EXPENSES DEDUCTIONS PERIOD ------------ ---------- ---------- ---------- (IN THOUSANDS)Year Ended December 31, 2002 Deducted in balance sheet from trade accounts receivable: Allowance for doubtful accounts................................... $ 4,914 9,036 9,036 4,914 Deducted in balance sheet from intangible assets: Amortization of intangible assets..................................... $561,096 126,958 -- 688,054 Year Ended December 31, 2001 Deducted in balance sheet from trade accounts receivable: Allowance for doubtful accounts................................... $ 4,914 7,794 7,794 4,914 Deducted in balance sheet from intangible assets: Amortization of intangible assets..................................... $352,314 208,782 -- 561,096 Year Ended December 31, 2000 Deducted in balance sheet from trade accounts receivable: Allowance for doubtful accounts................................... $ 3,928 5,991 5,005 4,914 Deducted in balance sheet from intangible assets: Amortization of intangible assets..................................... $170,410 181,904 -- 352,31465
(in thousands)
Balance at Charged to Balance Beginning of Costs and at end Period Expenses Deductions of Period Year Ended December 31, 2003 Deducted in balance sheet from trade accounts receivable: Allowance for doubtful accounts $ 4,914 8,599 8,599 4,914 Deducted in balance sheet from intangible assets: Amortization of intangible assets $ 672,889 126,287 — 799,176 Year Ended December 31, 2002 Deducted in balance sheet from trade accounts receivable: Allowance for doubtful accounts $ 4,914 9,036 9,036 4,914 Deducted in balance sheet from intangible assets: Amortization of intangible assets $ 546,916 124,146 — 672,889 Year Ended December 31, 2001 Deducted in balance sheet from trade accounts receivable: Allowance for doubtful accounts $ 4,914 7,794 7,794 4,914 Deducted in balance sheet from intangible assets: Amortization of intangible assets $ 340,338 206,578 — 546,916 63
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Lamar Advertising Company
NoneLamar Media Corp.
NoneITEM 9A. CONTROLS AND PROCEDURES
a) Evaluation of disclosure controls and procedures.
The Company’s and Lamar Media’s management, with the participation of the principal executive officer and principal financial officer of the Company and Lamar Media, have evaluated the effectiveness of the design and operation of the Company’s and Lamar Media’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this annual report. Based on this evaluation, the principal executive officer and principal financial officer of the Company and Lamar Media concluded that these disclosure controls and procedures are effective and designed to ensure that the information required to be disclosed in the Company’s and Lamar Media’s reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the requisite time periods.
b) Changes in internal controls.
There was no change in the internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) of the Company and Lamar Media identified in connection with the evaluation of the Company’s and Lamar Media’s internal control performed during the fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s and Lamar Media’s internal control over financial reporting.
64
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ThePortions of the response to this item
isare contained in part under the caption"Executive“Executive Officers of theRegistrant"Registrant” in Part I, Item 1A hereof andthe remainderadditional information is incorporated herein by reference from the discussion responsive thereto under the captions"Election“Election ofDirectors"Directors andSectionNominees for Director,” “Election of Directors – Family Relationships,” “Election of Directors – Board and Committee Meetings” and “Section 16(a)"BeneficialBeneficial Ownership ReportingCompliance"Compliance” in theCompany'sCompany’s Proxy Statement relating to the20032004 Annual Meeting ofStockholders.Stockholders (the “2004 Proxy Statement”).We have adopted a Code of Business Conduct and Ethics (the “code of ethics”) that applies to all of our directors, officers and employees. The code of ethics is filed as an exhibit to this report. In addition, if we make any substantive amendments to the code of ethics or grant any wavier, including any implicit wavier, from a provision of the code to any of our executive officers or directors, we will disclose the nature of such amendment or waiver in a report on Form 8-K.
ITEM 11. EXECUTIVE COMPENSATION
The response to this item is incorporated herein by reference from the discussion responsive thereto under the following captions in the
Company's2004 ProxyStatement relating to the 2003 Annual Meeting of Stockholders: "ElectionStatement: “Election of Directors - DirectorCompensation", "ExecutiveCompensation,” “Election of Directors - Executive Compensation” and “Election of Directors - Compensation Committee Interlocks and InsiderParticipation".Participation.”ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The response to this item regarding security ownership is
in partincorporated herein by reference from the discussion responsive thereto under the caption"Share Ownership"“Share Ownership” in theCompany's2004 ProxyStatement relatingStatement.This response to
the 2003 Annual Meeting of Stockholders. EQUITY COMPENSATION PLAN INFORMATION The following table provides informationthis item with respect to our equity compensation plans as of December 31,2002 with respect to shares of our Class A common stock that may be issued under our existing compensation plans.
(a) (b) (c) Plan category Number of securities to be Weighted-average Number of securities issued upon exercise of exercise price of remaining available for future outstanding options, warrants outstanding options, issuance under equity and rights warrants and rights compensation plans (excluding securities reflected in column (a))EQUITY COMPENSATION PLANS APPROVED 4,067,365(2) $ 29.83 1,873,988(3) BY SECURITY HOLDERS(1) EQUITY COMPENSATION PLANS NOT N/A N/A N/A APPROVED BY SECURITY HOLDERS TOTAL 4,067,365 $ 29.83 1,873,988- ---------- (1) Consists of2003 is incorporated herein by reference from the1996 Equity Incentive Plan and 2000 Employee Stock Purchase Plan. (2) Does not include purchase rights accruingdiscussion responsive thereto under the2000 Employee Stock Purchasecaption “Equity Compensation PlanbecauseInformation” in thepurchase price (and therefore the number of shares to be purchased) will not be determined until the end of the purchase period. (3) Includes shares available for future issuance under the 2000 Employee Stock Purchase Plan. Under the evergreen formula of this plan, on the first day of each fiscal year beginning with 2001, the aggregate number of shares that may be purchased through the exercise of rights granted under the plan is increased by the lesser of (a) 500,000 shares, (b) one-tenth of one percent of the total number of shares of Class A common stock outstanding on the last day of the preceding fiscal year, and (c) a lesser amount determined by the board of directors. Pursuant to the evergreen formula, as of December 31, 2002, 163,002 shares have been added to the 2000 Employee Stock Purchase Plan. 662004 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The response to this item is incorporated herein by reference from the discussion responsive thereto under the caption
"Certain“Certain Relationships and RelatedTransactions"Transactions” in theCompany's2004 ProxyStatement relating to the 2003 Annual Meeting of Stockholders.Statement.ITEM 14.
CONTROLSPRINCIPAL ACCOUNTANT FEES ANDPROCEDURES (A) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES Within 90 days priorSERVICESThe response to this item is incorporated herein by reference from the
date of this report, the Company and Lamar Media carried out an evaluationdiscussion responsive thereto under thesupervision and with the participation of their management, including the Company's and Lamar Media's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's and Lamar Media's disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's and Lamar Media's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company and Lamar Media required to be includedcaption “Information Concerning Auditors” in theCompany's and Lamar Media's reports filed with or submitted to the Securities and Exchange Commission under the Securities Exchange Act of 1934. (B) CHANGES IN INTERNAL CONTROLS Since the date of that evaluation, there have been no significant changes in the Company's or Lamar Media's internal controls or in other factors that could significantly affect those controls.2004 Proxy Statement.PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) 1. FINANCIAL STATEMENTS
The financial statements are listed under Part II, Item 8 of this Report.
2. FINANCIAL STATEMENT SCHEDULES
The financial statement schedules are included under Part II, Item 8 of this Report.
3. EXHIBITS
The exhibits filed as part of this report are listed on the Exhibit Index immediately following the signature page hereto, which Exhibit Index is incorporated herein by reference.
(B) REPORTS ON FORM 8-K
65
Reports on Form 8-K were filed with the Commission during the fourth quarter of
20022003 to report the following items as of the dates indicated:On
December 13, 2002,November 5, 2003, LamarMedia Corp. filed a Current Report on 8-K to announce its intention to offer $260 million in senior subordinated notes in a private placement, subject to market and other conditions. On December 23, 2002, Lamar Media Corp. filedAdvertising Company furnished a Current Report on Form 8-Kin ordertoreportthesale of $260 million aggregate principal amount of 7 1/4% Notes due 2013 (the "Notes") to JPMorgan Securities Inc., Wachovia Securities, Inc., SunTrust Capital Markets, Inc. and BNP Paribas Securities Corp. (collectively, the "Initial Purchasers") pursuant to an Amended and Restated Purchase Agreement dated as of December 17, 2002. Lamar Media issued the Notes pursuant to an Indenture dated as of December 23, 2002 among Lamar Media, certain ofCommission with itssubsidiaries as guarantors, and Wachovia Bank of Delaware, National Association, as trustee. The net proceeds of the offering were used, together with available cash, to redeem all of the outstanding $255 million principal amount of Lamar Media's 9 5/8% Senior Subordinated Notes due 2006. On December 23, 2002, Lamar Media also reported that it and certain of its subsidiaries, as guarantors, entered into a Registration Rights Agreement with the Initial Purchasers, pursuant to which Lamar Media agreed to file with the Securities and Exchange Commission a registration statement on an appropriate form under the Securities Act relating to a registered exchange offerearnings press release for theNotes under the Securities Act. 67third quarter ended September 30, 2003. (C) Exhibits required by Item 601 of Regulation S-K are listed on the Exhibit Index immediately following the signature page hereto.
6866
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
LAMAR ADVERTISING COMPANY
March 25, 2003
November 30, 2004 By: /s/ Kevin P. Reilly, Jr. Kevin P. Reilly, Jr. President and Chief Executive Officer POWER OF ATTORNEYEach of the undersigned hereby appoints Kevin P. Reilly
Jr. -------------------------------------- Kevin P. Reilly, Jr. PresidentandChief Executive OfficerKeith A. Istre as his attorneys-in-fact to sign his or her name, in any and all capacities, to any amendments to this Form 10-K/A and any other documents filed in connection therewith to be filed with the Securities and Exchange Commission. Each of such attorneys has the power to act with or without the others.Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date - ------------------------------ ------------------------------------------- ----------/s//s/ Kevin P. Reilly, Jr. President, Chief Executive Officer and Director 3/25/03 - --------------------------------November 30, 2004 (Principal Executive Officer) Kevin P. Reilly, Jr. /s/ Sean E. Reilly Chief Operating Officer, Vice President 3/25/03 - -------------------------------- and Director Sean E. Reilly /s//s/ Keith A. Istre Chief Financial Officer November 30, 2004 (Principal Financial and Accounting Officer 3/25/03 - -------------------------------- and DirectorOfficer)Keith A. Istre /s/ T. Everett Stewart, Jr. Director 3/25/03 - -------------------------------- T. Everett Stewart, Jr. /s//s/ Charles W. Lamar, III Director 3/25/03 - --------------------------------November 30, 2004 Charles W. Lamar, III /s/ Gerald H. Marchand Director 3/25/03 - -------------------------------- Gerald H. Marchand /s//s/ Stephen P. Mumblow Director 3/25/03 - --------------------------------November 30, 2004 Stephen P. Mumblow /s//s/ John Maxwell Hamilton Director 3/25/03 - --------------------------------November 30, 2004 John Maxwell Hamilton /s//s/ Thomas Reifenheiser Director 3/25/03 - --------------------------------November 30, 2004 Thomas Reifenheiser /s//s/ Anna Reilly Cullinan Director 3/25/03 - --------------------------------November 30, 2004 Anna Reilly Cullinan /s/ Robert M. Jelenic Director November 30, 2004 Robert M. Jelenic 6967
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
LAMAR MEDIA CORP.
March 25, 2003
November 30, 2004 By: /s/ Kevin P. Reilly, Jr. Kevin P. Reilly, Jr. President and Chief Executive Officer POWER OF ATTORNEY
Each of the undersigned hereby appoints Kevin P. Reilly
Jr. ------------------------------------- Kevin P. Reilly, Jr. PresidentandChief Executive OfficerKeith A. Istre as his attorneys-in-fact to sign his or her name, in any and all capacities, to any amendments to this Form 10-K/A and any other documents filed in connection therewith to be filed with the Securities and Exchange Commission. Each of such attorneys has the power to act with or without the others.Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date - ------------------------------- ---------------------------------------- ----------/s//s/ Kevin P. Reilly, Jr. Chief Executive Officer and Director 3/25/03 - ---------------------------------November 30, 2004 (Principal Executive Officer) Kevin P. Reilly, Jr. /s//s/ Sean E. Reilly Chief Operating Officer, Vice President 3/25/03 - ---------------------------------November 30, 2004 and Director Sean E. Reilly /s//s/ Keith A. Istre Chief Financial and Accounting Officer 3/25/03 - ---------------------------------November 30, 2004 and Director Keith A. Istre /s/(Principal Financial and Accounting Officer) /s/ T. Everett Stewart, Jr. Director 3/25/03 - ---------------------------------November 30, 2004 T. Everett Stewart, Jr. /s/ Gerald H. Marchand Director 3/25/03 - --------------------------------- Gerald H. Marchand70CERTIFICATIONS I, Kevin P. Reilly, Jr., certify that: 1. I have reviewed this combined annual report on Form 10-K of Lamar Advertising Company and Lamar Media Corp.; 2. Based on my knowledge, this combined annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this combined annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this combined annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrants as of, and for, the periods presented in this combined annual report; 4. The registrants' other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrants and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrants, including their consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this combined annual report is being prepared; b) evaluated the effectiveness of the registrants' disclosure controls and procedures as of a date within 90 days prior to the filing date of this combined annual report (the "Evaluation Date"); and c) presented in this combined annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrants' other certifying officer and I have disclosed, based on our most recent evaluation, to the registrants' auditors and the audit committee of the registrants' board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants' ability to record, process, summarize and report financial data and have identified for the registrants' auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants' internal controls; and 6. The registrants' other certifying officer and I have indicated in this combined annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 25, 2003 /s/ Kevin P. Reilly, Jr. -------------------------------------------------- Kevin P. Reilly, Jr. Chief Executive Officer, Lamar Advertising Company Chief Executive Officer, Lamar Media Corp. 71I, Keith A. Istre, certify that: 1. I have reviewed this combined annual report on Form 10-K of Lamar Advertising Company and Lamar Media Corp.; 2. Based on my knowledge, this combined annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this combined annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this combined annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrants as of, and for, the periods presented in this combined annual report; 4. The registrants' other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrants and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrants, including their consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this combined annual report is being prepared; b) evaluated the effectiveness of the registrants' disclosure controls and procedures as of a date within 90 days prior to the filing date of this combined annual report (the "Evaluation Date"); and c) presented in this combined annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrants' other certifying officer and I have disclosed, based on our most recent evaluation, to the registrants' auditors and the audit committee of the registrants' board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants' ability to record, process, summarize and report financial data and have identified for the registrants' auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants' internal controls; and 6. The registrants' other certifying officer and I have indicated in this combined annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 25, 2003 /s/ Keith A. Istre -------------------------------------------------- Keith A. Istre Chief Financial Officer, Lamar Advertising Company Chief Financial Officer, Lamar Media Corp. 7268
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- -----------2.1 Agreement and Plan of Merger dated as of July 20, 1999 among Lamar Media Corp., Lamar New Holding Co., and Lamar Holdings Merge Co. Previously filed as exhibit 2.1 to the Company'sCompany’s Current Report on Form 8-K filed on July 22, 1999 (File No. 0-30242) and incorporated herein by reference.3.1 Certificate of Incorporation of Lamar New Holding Co. Previously filed as exhibit 3.1 to the Company'sCompany’s Quarterly Report on Form 10-Q for the period ended June 30, 1999 (File No. 0-20833) filed on August 16, 1999 and incorporated herein by reference.3.2 Certificate of Amendment of Certificate of Incorporation of Lamar New Holding Co. (whereby the name of Lamar New Holding Co. was changed to Lamar Advertising Company). Previously filed as exhibit 3.2 to the Company'sCompany’s Quarterly Report on Form 10-Q for the period ended June 30, 1999 (File No. 0-20833) filed on August 16, 1999 and incorporated herein by reference.3.3 Certificate of Amendment of Certificate of Incorporation of Lamar Advertising Company. Previously filed as Exhibit 3.3 to the Company'sCompany’s Quarterly Report on Form 10-Q for the period ended June 30, 2000 (Filed No. 0-30242) filed on August 11, 2000 and incorporated herein by reference.3.4 Certificate of Correction of Certificate of Incorporation of Lamar Advertising Company. Previously filed as Exhibit 3.4 to the Company'sCompany’s Quarterly Report on Form 10-Q for the period ended September 30, 2000 (File No. 0-30242) filed on November 14, 2000 and incorporated herein by reference.3.5 Amended and Restated Bylaws of the Company. Previously filed as Exhibit 3.3 to the Company'sCompany’s Quarterly Report on Form 10-Q for the period ended June 30, 1999 (File No. 0-20833) filed on August 16, 1999 and incorporated herein by reference.3.6 Amended and Restated Bylaws of Lamar Media Corp. Previously filed as Exhibit 3.1 to Lamar Media'sMedia’s Quarterly Report on Form 10-Q for the period ended September 30, 1999 (File No. 1-12407) filed on November 12, 1999 and incorporated herein by reference.4.1 Specimen certificate for the shares of Class A common stock of the Company. Previously filed as Exhibit 4.1 to the Company'sCompany’s Registration Statement on Form S-1 (File No. 333-05479), and incorporated herein by reference.4.2 Senior Secured Note dated May 19, 1993. Previously filed as Exhibit 4.1 to the Company'sCompany’s Registration Statement on Form S-1 (File No. 33-59624), and incorporated herein by reference.4.3 Indenture dated as of September 24, 1986 relating to the Company'sCompany’s 8% Unsecured Subordinated Debentures. Previously filed as Exhibit 10.3 to theCompany'sCompany’s Registration Statement on Form S-1 (File No. 33-59624), and incorporated herein by reference.4.4 Indenture dated May 15, 1993 relating to the Company'sCompany’s 11% Senior Secured Notes due May 15, 2003. Previously filed as Exhibit 4.3 to theCompany'sCompany’s Registration Statement on Form S-1 (File No. 33-59624), and incorporated herein by reference.4.5 First Supplemental Indenture dated July 30, 1996 relating to the Company'sCompany’s 11% Senior Secured Notes due May 15, 2003. Previously filed as Exhibit 4.5 to theCompany'sCompany’s Registration Statement on Form S-1(File No. 333-05479), and incorporated herein by reference.4.6 Form of Second Supplemental Indenture in the form of an Amended and Restated Indenture dated November 8, 1996 relating to the Company'sCompany’s 11% Senior Secured Notes due May 15, 2003. Previously filed as Exhibit 4.1 to theCompany'sCompany’s Current Report on Form 8-K filed on November 15, 1996 (File No. 1-12407), and incorporated herein by reference.4.7 Notice of Trustee dated November 8, 1996 with respect to the release of the security interest in the Trustee on behalf of the holders of the Company'sCompany’s 11% Senior Secured Notes due May 15, 2003. Previously filed as Exhibit 4.2 to theCompany'sCompany’s Current Report on Form 8-K filed on 15, 1996 (File No. 1-12407), and69
EXHIBIT NUMBER DESCRIPTION incorporated herein by reference. 73
4.8 Form of Subordinated Note. Previously filed as Exhibit 4.8 to the Registration Statement on Form S-1 (File No. 333-05479), and incorporated herein by reference. 4.9 Form of 8 5/8% Senior Subordinated Note due 2007. Previously filed as Exhibit 4.10 to the Company's Annual Report on Form 10-K for fiscal year ended December 31, 1997, (File No. 1-12407), and incorporated herein by reference. 4.10 Indenture dated as of September 25, 1997 between the Company, certain of its subsidiaries, and State Street Bank and Trust Company, as trustee, relating to the Company's 8 5/8% Senior Subordinated Notes due 2007. Previously filed as Exhibit 4.2 to the Company's Current Report on Form 8-K filed on September 30, 1997 (File No. 1-12407), and incorporated herein by reference. 4.11 Supplemental Indenture to the Indenture dated September 25, 1997 among the Company, certain of its subsidiaries and State Street Bank and Trust Company, as Trustee, dated October 23, 1998. Previously filed as Exhibit 4.5 to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1998, (File No. 1-12407) and incorporated herein by reference. 4.12 Indenture dated as of August 10, 1999 between the Company and State Street Bank and Trust Company, as Trustee. Previously filed as Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1999 (File No. 0-20833) filed on August 16, 1999 and incorporated herein by reference. 4.13 First Supplemental Indenture dated as of August 10, 1999 between the Company and State Street Bank and Trust Company, as Trustee. Previously filed as Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1999 (File No. 0-20833) filed on August 16, 1999 and incorporated herein by reference. 4.14 Supplemental Indenture to the Indenture dated September 25, 1997 among Lamar Media Corp., certain of its subsidiaries and State Street Bank and Trust Company, as Trustee, dated September 15, 1999. Previously filed as Exhibit 4.2 to Lamar Advertising Company's Quarterly Report on Form 10-Q for the period ended September 30, 1999 (File No. 0-30242) filed on November 12, 1999 and incorporated herein by reference. 4.15 Supplemental Indenture to the Indenture dated September 25, 1997 among Lamar Media Corp., certain of its subsidiaries and State Street Bank and Trust Company, as Trustee, dated July 20, 1999. Previously filed as Exhibit 4.4 to Lamar Advertising Company's Quarterly Report on Form 10-Q for the period ended September 30, 1999 (File No. 0-30242) filed on November 12, 1999 and incorporated herein by reference. 4.16 Supplemental Indenture to the Indenture dated September 25, 1997 among Lamar Media Corp., certain of its subsidiaries and State Street Bank and Trust Company, as Trustee, dated as of August 8, 2000. Previously filed as Exhibit 4.3 to Lamar Advertising Company's Quarterly Report on Form 10-Q for the period ended September 30, 2000 (File No. 0-30242) filed on November 14, 2000 and incorporated herein by reference. 4.17 Supplemental Indenture to the Indenture dated September 25, 1997 among Lamar Media Corp., certain of its subsidiaries and State Street Bank and Trust Company, as Trustee, dated December 23, 1999. Previously filed as Exhibit 4.30 to the Company's Annual Report on Form 10-K for fiscal year ended December 31, 1999, (File No. 0-30242), and incorporated herein by reference. 4.18 Supplemental Indenture to the Indenture dated September 25, 1997 among Lamar Media Corp., certain of its subsidiaries and State Street Bank and Trust Company, as Trustee, dated as of August 8, 2000. Previously filed as Exhibit 4.3 to Lamar Advertising Company's Quarterly Report on Form 10-Q for the period ended September 30, 1999 (File No. 0-30242) filed on November 14, 2000 and incorporated herein by reference. 4.19 Supplemental Indenture to the Indenture dated September 25, 1997 among Lamar Media Corp., certain of its subsidiaries and State Street Bank and Trust Company, as Trustee, dated as of June 1, 2000. Previously filed as Exhibit 4.3 to Lamar Advertising Company's Quarterly Report on Form 10-Q for the period ended June 30, 2000 (File No. 0-30242) filed on August 11, 2000 and incorporated herein by reference. 4.20 Supplemental Indenture to the Indenture dated September 25, 1997 among Lamar Media Corp., certain of its subsidiaries and State Street Bank and Trust Company, as Trustee, dated as of March 2, 2000. Previously filed as Exhibit 4.3 to Lamar Advertising Company's Quarterly Report on Form 10-Q for the period ended March 31, 2000 (File No. 0-30242) filed on May 15, 2000 and incorporated herein by reference.74
4.21 Supplemental Indenture to the Indenture dated September 25, 1997 among Lamar Media Corp., certain of its subsidiaries and State Street Bank and Trust Company, as Trustee, dated as of December 31, 2000. Previously filed as Exhibit 4.40 to Lamar Advertising Company's Annual Report on Form 10-K for the period ended December 31, 2000 (File No. 0-30242) filed on March 23, 2001 and incorporated herein by reference. 4.22 Supplemental Indenture to the Indenture dated September 25, 1997 among Lamar Media Corp., certain of its subsidiaries and State Street Bank and Trust Company, as Trustee, dated as of August 30, 2001. Previously filed as Exhibit 4.3 to Lamar Advertising Company's Quarterly Report on Form 10-Q for the period ended ended September 30, 2001 (File No. 0-30242) filed on November 13, 2001 and incorporated herein by reference. 4.23 Supplemental Indenture to the Indenture dated September 25, 1997 among Lamar Media Corp., certain of its subsidiaries and State Street Bank and Trust Company, as Trustee, dated as of April 9, 2001. Previously filed as Exhibit 4.3 to Lamar Advertising Company's Quarterly Report on Form 10-Q for the period ended June 30, 2001 (File No. 0-30242) filed on August 13, 2001 and incorporated herein by reference. 4.24 Supplemental Indenture to the Indenture dated September 25, 1997 among Lamar Media Corp., certain of its subsidiaries and State Street Bank and Trust Company, as Trustee, dated as of March 15, 2001. Previously filed as Exhibit 4.3 to Lamar Advertising Company's Quarterly Report on Form 10-Q for the period ended March 31, 2001 (File No. 0-30242) filed on May 14, 2001 and incorporated herein by reference. 4.25 Supplemental Indenture to the Indenture dated September 25, 1997 among Lamar Media Corp., certain of its subsidiaries and State Street Bank and Trust Company, as Trustee, dated November 12, 2001. Filed as Exhibit 4.3 to Lamar Advertising Company's Quarterly Report on Form 10-Q for the period ended March 31, 2002 (File No. 0-30242) filed on May 9, 2002 and incorporated herein by reference. 4.26 Supplemental Indenture to the Indenture dated September 25, 1997 among Lamar Media Corp., certain of its subsidiaries and State Street Bank and Trust Company, as Trustee, dated August 16, 2002. Filed as Exhibit 4.3 to Lamar Advertising Company's Quarterly Report on Form 10-Q for the period ended September 30, 2002 (File No. 0-30242) filed on November 13, 2002 and incorporated herein by reference. 4.27Indenture dated as of December 23, 2002 among Lamar Media Corp., certain subsidiaries of Lamar Media Corp., as guarantors and Wachovia Bank of Delaware, National, as trustee. Filed as Exhibit 4.1 to Lamar Media'sMedia’s Current Report on Form 8-K filed on December 27, 2002 (File No. 0-20833) and incorporated herein by reference.4.284.10 Supplemental Indenture to the Indenture dated December 23, 2002 among Lamar Media Corp., certain of its subsidiaries and Wachovia Bank of Delaware, National Association, as Trustee, dated June 9, 2003. Previously filed as Exhibit 4.31 to Lamar Media’s Registration Statement on Form S-4 (File No. 333-107427) filed on July 29, 2003 and incorporated herein by reference. 4.11 Supplemental Indenture to the Indenture dated December 23, 2002 among Lamar Media Corp., certain of its subsidiaries and Wachovia Bank of Delaware, National Association, as Trustee, dated October 7, 2003. Previously filed as Exhibit 4.1 to Lamar Media’s Quarterly Report on Form 10-Q for the period ended September 30, 2003 (File No. 1-12407) filed on November 5, 2003 and incorporated herein by reference. 4.12 Form of 7 1/4% Notes Due 2013. Filed as Exhibit 4.2 to Lamar Media'sMedia’s Current Report on Form 8-K filed on December 27, 2002 (File No. 0-20833) and incorporated herein by reference.4.29 Registration Rights Agreement dated as of December 23, 2002 among Lamar Media Corp., the guarantors listed on Schedule 1 thereto and J.P. Morgan Securities Inc., Wachovia Securities, Inc., SunTrust Capital Markets, Inc. and BNP Paribas Securities Corp. Filed as Exhibit 10.1 to Lamar Media's Current Report on Form 8-K filed on December 27, 2002 (File No. 0-20833) and incorporated herein by reference. 4.304.13 Form of Exchange Note. Filed as Exhibit 4.29 to Lamar Media'sMedia’s Registration Statement on Form S-4 (File No. 333-102634) and incorporated herein by reference.4.31 Supplemental Indenture to the4.14 Indenture dated September 25, 1997 amongJune 16, 2003 between LamarMedia Corp., certainAdvertising Company and Wachovia Bank ofits subsidiaries and the State Street Bank and Trust Company,Delaware, National Association, asTrustee, dated as of November 25, 2002. FiledTrustee. Previously filed as Exhibit4.304.4 to LamarMedia Corp.'s Registration StatementMedia’s Quarterly Report on FormS-4/A10-Q for the period ended June 30, 2003 (File No.333-102634)1-12407) filed onMarch 18,August 13, 2003 and incorporated herein by reference.10.1 Consulting Agreement4.15 First Supplemental Indenture dated July 1, 1996June 16, 2003 betweentheLamarTexas Limited PartnershipAdvertising Company andthe Reilly Consulting Company, L.L.C.,Wachovia Bank ofwhich Kevin P. Reilly, Sr. is the manager.Delaware, National Association, as Trustee. Previously filed as Exhibit10.24.5 tothe Company's Registration StatementLamar Media’s Quarterly Report on FormS-110-Q for the period ended June 30, 2003 (File No.33-05479),1-12407) filed on August 13, 2003 and incorporated herein by reference.10.3*10.1* The Lamar Savings and Profit Sharing Plan Trust. Previously filed as Exhibit 10.4 to the Company'sCompany’s Registration Statement on Form S-1 (File No. 33-59624), and incorporated herein by reference.10.410.2 Trust under The Lamar Corporation, its Affiliates and Subsidiaries Deferred Compensation Plan dated October 3, 1993. Previously filed as Exhibit 10.11 to the Company'sCompany’s Annual Report on Form 10-K for the fiscal year ended October 31, 1995 (File No. 33-59624), and incorporated herein by reference.75
10.5*10.3* 1996 Equity Incentive Plan. Previously filed as Exhibit 10.2 to the Company'sCompany’s Quarterly Report on Form 10-Q (File No. 0-30242), for the period ended June 30, 2000 filed on August 11, 2000 and incorporated herein by reference.10.6 Bank Credit Agreement dated December 18, 1996 between the Company, certain of its subsidiaries, the lenders party thereto and The Chase Manhattan Bank, as administrative agent. Previously filed as Exhibit 10.18 to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1996 (File No. 1-12407), and incorporated herein by reference. 10.7 Amendment No. 1 to the Bank Credit Agreement dated as of March 31, 1997 between the Company, the Subsidiary Guarantors party thereto, the Lenders party thereto and the Chase Manhattan Bank, as administrative agent. Previously filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended March 31, 1997 (File No. 1-12407), and incorporated herein by reference. 10.8 Amendment No. 2 to the Bank Credit Agreement dated as of September 12, 1997 between the Company, certain of its subsidiaries, the lenders party thereto and The Chase Manhattan Bank, as Administrative Agent. Previously filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed on September 30, 1997 (File No. 1-12407), and incorporated herein by reference. 10.9 Amendment No. 3 to the Bank Credit Agreement dated as of December 31, 1997 between the Company, certain of its subsidiaries, the lenders party thereto and The Chase Manhattan Bank, as Administrative Agent. Previously filed as Exhibit 10.9 to the Company's Annual Report on Form 10-K for fiscal year ended December 31, 1997, (File No. 1-12407), and incorporated herein by reference. 10.10 Contract to Sell and Purchase, dated as of October 9, 1996, between the Company and Outdoor East L.P. Previously filed as Exhibit 10.16 to the Company's Registration Statement on Form S-3 (File No. 333-14677), and incorporated herein by reference. 10.11 Stock Purchase Agreement, dated as of September 25, 1996, between the Company and the shareholders of FKM Advertising, Co., Inc. Previously filed as Exhibit 10.17 to the Company's Registration Statement on Form S-3 (File No. 333-14677), and incorporated herein by reference. 10.12 Stock Purchase Agreement dated as of February 7, 1997 between the Company and the stockholders of Penn Advertising, Inc. named therein. Previously filed as Exhibit 2.1 to the Company's Current Report on Form 8-K filed on April 14, 1997 (File No. 1-12407), and incorporated herein by reference. 10.13 Asset Purchase Agreement dated as of August 15, 1997 between The Lamar Corporation and Outdoor Systems, Inc. Previously filed as Exhibit 2.1 to the Company's Current Report on Form 8-K filed on August 27, 1997 (File No. 1-12407), and incorporated herein by reference. 10.14 Bank Credit Agreement dated July 16, 1998, between the Company, certain of its subsidiaries, the lenders party thereto and The Chase Manhattan Bank, as administrative agent. Previously filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1998, (File No. 0-020833), and incorporated herein by reference. 10.15 Amendment No. 1 to the Amended and Restated Bank Credit Agreement dated September 15, 1998, between the Company, certain of its subsidiaries, the lenders party thereto and The Chase Manhattan Bank, as Administrative Agent. Previously filed as Exhibit10.4 to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1998 (File No. 0-20833) and incorporated herein by reference. 10.16Stock Purchase Agreement dated as of October 1, 1998, between the Company and the stockholders of Outdoor Communications, Inc. named therein. Previously filed as Exhibit 2.1 to the Company'sCompany’s Current Report on Form 8-K filed on October 15, 1998 (File No. 0-20833), and incorporated herein by reference.10.17 Amendment No. 4 to Credit Agreement dated as of March 31, 1998, between Lamar Advertising Company, certain of its subsidiaries, the lenders party thereto and The Chase Manhattan Bank, as administrative agent. Previously filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended March 31, 1998 (File No. 1-12407), and incorporated herein by reference.76
10.1810.5 Second Amended and Restated Stock Purchase Agreement dated as of August 11, 1999 among the Company, Lamar Media Corp., Chancellor Media Corporation of Los Angeles and Chancellor Mezzanine Holdings Corporation. Previously filed as Appendix A to the Company'sCompany’s Schedule 14C Information Statement filed on August 13, 1999 and incorporated herein by reference. Pursuant to Item 601(b)(2) of Regulation S-K, the Schedules and Annexes A and B referred to in the Second Amended and Restated Stock Purchase Agreement are omitted. The Company hereby undertakes to furnish supplementary a copy of any omitted Schedule or Annex to the Commission upon request.10.19 Bank Credit Agreement dated August 13, 1999, between Lamar Media Corp., certain of its subsidiaries, the lenders party thereto and The Chase Manhattan Bank, as administrative agent. Previously filed as Exhibit 10.1 to Lamar Advertising Company's Quarterly Report on Form 10-Q for the period ended September 30, 1999 (File No. 0-30242) filed on November 12, 1999 and incorporated herein by reference. 10.20 Assumption Agreement dated as of July 20, 1999 is by and among Lamar Advertising Company, Lamar Media Corp., and the direct and indirect subsidiaries of such corporations. Previously filed as Exhibit 10.4 to Lamar Advertising Company's Quarterly Report on Form 10-Q for the period ended September 30, 1999 (File No. 0-030242) filed on November 12, 1999 and incorporated herein by reference. 10.21 Joinder Agreement to the Lamar Media Corp. Credit Agreement dated August 13, 1999 by Lamar Florida, Inc. in favor of The Chase Manhattan Bank, as Administrative Agent dated December 23, 1999. Previously filed as Exhibit 10.23 to the Company's Annual Report on Form 10-K for fiscal year ended December 31, 1999, (File No. 1-12407), and incorporated herein by reference. 10.22*10.6* 2000 Employee Stock Purchase Plan. Previously filed as Exhibit 10.3 to Lamar Advertising Company'sCompany’s Quarterly Report on Form 10-Q for the period ended June 30, 2000 (File No. 0-30242) filed on August 11, 2000 and incorporated herein by reference.10.23 Series A-1 Incremental Loan Agreement among Lamar Advertising Company, Lamar Media Corp. and certain of its subsidiaries, the Series A-1 Lenders and the Chase Manhattan Bank, as Administrative Agent, dated as of May 31, 2000. Previously filed as exhibit 10.4 to Lamar Advertising Company's Quarterly Report on Form 10-Q for the period ended June 30, 2000 (File No. 0-30242) filed on August 11, 2000 and incorporated herein by reference. 10.24 Series A-2 and B-1 Incremental Loan Agreement among Lamar Advertising Company, Lamar Media Corp. and certain of its subsidiaries, the Series A-2 and B-1 Lenders and the Chase Manhattan Bank, as Administrative Agent, dated as of June 22, 2000. Previously filed as exhibit 10.4 to Lamar Advertising Company's Quarterly Report on Form 10-Q for the period ended June 30, 2000 (File No. 0-30242) filed on August 11, 2000 and incorporated herein by reference. 10.25 Amendment No. 1 to Credit Agreement and Guaranty and Pledge Agreement dated as of April 10, 2000 in respect of (i) the Credit Agreement dated as of August 13, 1999 between Lamar Media Corp., the Subsidiary Guarantors party thereto, the lenders party thereto, and The Chase Manhattan Bank, as Administrative Agent, and (ii) the Guaranty and Pledge Agreement dated as of September 15, 1999 between Lamar Advertising Company and The Chase Manhattan Bank. Previously filed as Exhibit 10.27 to Lamar Advertising Company's Annual Report on Form 10-K for the period ended December 31, 2000 (File No. 0-30242) filed on March 23, 2001 and incorporated herein by reference. 10.26 Amendment No. 2 to Credit Agreement and Guaranty and Pledge Agreement dated as of January 30, 2001 in respect of (i) the Credit Agreement dated as of August 13, 1999 between Lamar Media Corp., the Subsidiary Guarantors party thereto, the lenders party thereto, and The Chase Manhattan Bank, as Administrative Agent, and (ii) the Guaranty and Pledge Agreement dated as of September 15, 1999 between Lamar Advertising Company and The Chase Manhattan Bank. Previously filed as Exhibit 10.28 to Lamar Advertising Company's Annual Report on Form 10-K for the period ended December 31, 2000 (File No. 0-30242) filed on March 23, 2001 and incorporated herein by reference. 10.27 Joinder Agreement to the Lamar Media Corp. Credit Agreement dated August 13, 1999 by Lamar Ohio Outdoor Holding Corp. in favor of The Chase Manhattan Bank, as Administrative Agent dated September 13, 2000. Previously filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000, (File No. 0-30242) filed on November 14, 2000, and incorporated herein by reference. 10.28 Joinder Agreement to the Lamar Media Corp. Credit Agreement dated August 13, 1999 by Outdoor West, Inc. of Georgia and Outdoor West, Inc. of Tennessee in favor of The Chase Manhattan Bank, as Administrative Agent dated December 23, 1999. Previously filed as Exhibit 10.1 to the Company's Quarterly Report on Form7770
10-Q for quarter ended June 30, 2000, (File No. 0-30242) filed on August 11, 2000, and incorporated herein by reference. 10.29 Joinder Agreement to the Lamar Media Corp. Credit Agreement dated August 13, 1999 by Lamar Advan, Inc. in favor of The Chase Manhattan Bank, as Administrative Agent dated March 2, 2000. Previously filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for quarter ended March 31, 2000, (File No. 0-30242) filed on May 15, 2000, and incorporated herein by reference. 10.30 Joinder Agreement to the Lamar Media Corp. Credit Agreement dated August 13, 1999 by Texas Logos, L.P., in favor of The Chase Manhattan Bank, as Administrative Agent dated December 31, 2000. Previously filed as Exhibit 10.33 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000 (File No. 0-30242) filed on March 23, 2001 and incorporated herein by reference. 10.31 Amendment No. 3 dated as of December 20, 2001 to the Credit Agreement dated as of August 13, 1999 between Lamar Media Corp., the Subsidiary Guarantors party thereto, the lenders party thereto, and JPMorgan Chase Bank (formerly known as The Chase Manhattan Bank), as Administrative Agent. Filed as Exhibit 10.31 to the Company's Annual Report on Form 10-K for the year ended December 31, 2001 (File No. 0-30242) filed on March 21, 2002 and incorporated herein by reference. 10.32 Joinder Agreement to the Lamar Media Corp. Credit Agreement dated August 13, 1999 by Maine Logos, L.L.C. in favor of The Chase Manhattan Bank, as Administrative Agent dated August 30, 2001. Previously filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001, (File No. 0-30242) filed on November 13, 2001, and incorporated herein by reference. 10.33 Joinder Agreement to the Lamar Media Corp. Credit Agreement dated August 13, 1999 by Lamar Bellows Outdoor Advertising, Inc. in favor of The Chase Manhattan Bank, as Administrative Agent dated April 9, 2001. Previously filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001, (File No. 0-30242) filed on August 13, 2001, and incorporated herein by reference. 10.34 Joinder Agreement to the Lamar Media Corp. Credit Agreement dated August 13, 1999 by Lamar Hardy Outdoor Corporation in favor of The Chase Manhattan Bank, as Administrative Agent dated March 15, 2001. Previously filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001, (File No. 0-30242) filed on May 14, 2001, and incorporated herein by reference. 10.35 Joinder Agreement dated November 12, 2001 to the Lamar Media Corp. Credit Agreement dated August 13, 1999 by Trans West Outdoor Advertising, Inc. Filed as Exhibit 10.1 to Lamar Advertising Company's Quarterly Report on Form 10-Q for the period ended March 31, 2002 (File No. 0-30242) filed on May 9, 2002 and incorporated herein by reference. 10.36 Series C Incremental Loan Agreement among Lamar Advertising Company, Lamar Media Corp. and certain of its subsidiaries, the Series C Lenders and JPMorgan Chase Bank, as Administrative Agent, dated as of January 8, 2002. Filed as Exhibit 10.2 to Lamar Advertising Company's Quarterly Report on Form 10-Q for the period ended March 31, 2002 (File No. 0-30242) filed on May 9, 2002 and incorporated herein by reference. 10.37 Joinder Agreement dated August 16, 2002 to the Lamar Media Corp. Credit Agreement dated August 13, 1999 by Washington Logos L.L.C. Filed as Exhibit 10.1 to Lamar Advertising Company's Quarterly Report on Form 10-Q for the period ended September 30, 2002 (File No. 0-30242) filed on November 13, 2002 and incorporated herein by reference. 10.38 Amendment No. 4 dated as of October 23, 2002 in respect of the Credit Agreement dated as of August 13, 1999 between Lamar Media Corp., the Subsidiary Guarantors party thereto, the Lenders party thereto, and JPMorgan Chase Bank (formerly known as The Chase Manhattan Bank),as Administrative Agent. Filed as Exhibit 10.2 to Lamar Advertising Company's Quarterly Report on Form 10-Q for the period ended September 30, 2002 (File No. 0-30242) filed on November 13, 2002 and incorporated herein by reference. 10.39 Joinder Agreement dated November 25, 2002 to the Lamar Media Corp. Credit Agreement dated August 13, 1999 by Lamar Pinnacle Acquisition Co. Filed as Exhibit 10.39 to Lamar Media Corp.'s Registration Statement on Form S-4/A (File No. 333-102634) filed on March 18, 2003 and incorporated herein by reference. 10.40EXHIBIT NUMBER DESCRIPTION 10.7 Credit Agreement dated as of March 7, 2003 between Lamar Media Corp. and the Subsidiary Guarantors party thereto, the Lenders party thereto, and JPMorgan Chase Bank, as Administrative Agent. FiledPreviously filed as Exhibit 10.38 to Lamar Media Corp.'s’s Registration Statement on Form S-4/A (File No. 333-102634)filedon March 18, 2003 and incorporated herein by reference.78
10.8 Joinder Agreement dated as of October 7, 2003 to Credit Agreement dated as of March 7, 2003 between Lamar Media Corp. and the Subsidiary Guarantors party thereto, the Lenders party thereto, and JPMorgan Chase Bank, as Administrative Agent by Premere Outdoor, Inc. Previously filed as Exhibit 10.1 to Lamar Media’s Quarterly Report on Form 10-Q for the period ended September 30, 2003 (File No. 1-12407) on November 5, 2003 and incorporated herein by reference. 11.1 Statement regarding computation of per share earnings. Filed herewith. 12.114.1 Lamar Advertising Company ComputationCode ofRatio of EarningsBusiness Conduct and Ethics. Previously filed as Exhibit 14.1 toFixed Charges. Filed herewith. 12.2 Lamar Media Corp. Computation of Ratio of Earnings to Fixed Charges. Filed herewith.the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003 as filed on March 10, 2004.21.1 Subsidiaries of the Company. Filed herewith.Previously filed as Exhibit 21.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003 as filed on March 10, 2004.23.1 Consent of KPMG LLP. Filed herewith. 99.131.1 Certification of the Chief Executive Officer of Lamar Advertising Company and Lamar Media Corp. pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith. 31.2 Certification of the Chief Financial Officer of Lamar Advertising Company and Lamar Media Corp. pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith. 32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith. * Management contract or compensatory plan or arrangement in which the executive officers or directors of the Company participate.
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