10-K For the fiscal year ended December 31, 2005 For the transition period from to
SECURITIES AND EXCHANGE COMMISSION10-K/AAmendment No. 1þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 19342003o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 []TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934namenames of registrants as specified in their charters)
Delaware | 72-1449411 | |||
Delaware | 72-1205791 | |||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No) | |||
5551 Corporate Blvd., Baton Rouge, LA | 70808 | |||
(Address of principal executive offices) | (Zip Code) |
Noo o o latest practicable date.
REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Class A common stock, $.001$0.001 par value
REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NoneNone [X]þ No [ ] [X](as definedor a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 126-2 under12b-2 of the Securities Exchange Act of 1934)Act.
Large accelerated filerþ Accelerated filer o Non-accelerated filero. Yes [X] No [ ]
Large accelerated filero Accelerated filero Non-accelerated filerþ.126-2 under12b-2 of the Securities Exchange Act of 1934)Act). Yes [ ]o No [X]Theþ.2003: $2,897,761,305The2005, the aggregate market value of the voting stock held by nonaffiliates of Lamar Media Corp. was $0.Lamar Advertising Company’s Class Aeach of the issuers’ classes of common stock, outstanding as of February 20, 2004: 87,546,504The number of shares of the Lamar Advertising Company’s Class B common stock outstanding as of February 20, 2004: 16,147,073Class Outstanding at March 3, 2006 Lamar Advertising Company Class A common stock, $0.001 par value per share 90,275,194 shares Lamar Advertising Company Class B common stock, $0.001 par value per share 15,647,865 shares Lamar Media Corp. common stock, $0.001 par value per share 100 shares Document Parts Into Which Incorporated Proxy Statement for the Annual Meeting of Stockholders to be held on May 25, 2006 (Proxy Statement) Part III 10-K/A10-K is separately filed by (i) Lamar Advertising Company and (ii) Lamar Media Corp. (which is a wholly-ownedwholly owned subsidiary of Lamar Advertising Company). Lamar Media Corp. meets the conditions set forth in general instruction I(1) (a) and (b) ofForm 10-K and is, therefore, filing this form with the reduced disclosure format permitted by such instruction.
• | the Company’s future financial performance and condition; | ||
• | the Company’s business plans, objectives, prospects, growth and operating strategies; | ||
• | market opportunities and competitive positions; | ||
• | estimated risks; and | ||
• | stock price. |
• | national and local economic conditions that may affect the markets in which the Company operates; | ||
• | the levels of expenditures on advertising in general and outdoor advertising in particular; | ||
• | increased competition within the outdoor advertising industry; | ||
• | the regulation of the outdoor advertising industry; | ||
• | the Company’s need for, and ability to obtain, additional funding for acquisitions and operations; | ||
• | risks and uncertainties relating to the Company’s significant indebtedness; | ||
• | the Company’s ability to renew expiring contracts at favorable rates; | ||
• | the integration of businesses that the Company acquires and its ability to recognize cost savings and operating efficiencies as a result of these acquisitions; and | ||
• | changes in accounting principles, policies or guidelines. |
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of Lamar Advertising Company’s proxy statement for the Annual Meeting of Stockholders to be held on May 27, 2004 are incorporated by reference into Part III of this Form 10-K/A.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This combined Annual Report on Form 10-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 the Company’s, and Lamar Media’s:
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’s and Lamar Media’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:
The forward-looking statements contained in this combined Annual Report on Form 10-K/A speak only as of March 10, 2004, the date this combined Annual 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.
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Explanatory NoteThe 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 to the audited consolidated financials statements and “Restatement of Financial Statements” under Management’s Discussion and Analysis of Financial Condition and Results of Operations.
17 states and Canada. The Company offers its customers a fully integrated service, satisfying all aspects of their billboard display requirements from ad copy production to placement and maintenance.Company“Company” or Lamar Advertising,“Lamar Advertising” or “we” 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, 2003,2005, the Company owned and operated over 147,000151,000 billboard advertising displays in 4344 states and Canada, operated over 98,000 logo advertising displays in 2019 states and the province of Ontario, Canada, and operated approximately 13,00031,330 transit advertising displays in 14 states.• Bulletinsare generally large, illuminated advertising structures that are located on major highways and target vehicular traffic. • Postersare generally smaller advertising structures that are located on major traffic arteries and city streets and target vehicular and pedestrian traffic. • Logo signsgenerally advertise nearby gas, food, camping, lodging and other attractions.
The three principal areas that make up the Company’s business are:3
The Company’s business has grown rapidly through a combination of internal growth and acquisitions. The Company’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 over 538 acquisitions of outdoor advertising businesses and assets. The Company’s acquisitions have expanded its operations in major markets and it currently has a presence in 32 of the top 50 outdoor advertising markets in the United States. The Company’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.
Strategy
The Company’s objective is
include:
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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’s financial performance.
Our regular improvement and expansion of our advertising display inventory allow us to provide high quality service to our current advertisers and to attract new advertisers.
Outdoor Media Group, Inc.- On May 1, 2003, the Company purchased the assets of Outdoor Media Group, Inc. for $40.0 million. The purchase price consisted of 307,134 shares of Lamar Advertising Class A common stock as well as approximately $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.
ContinueContinuing 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 UnitedUntied 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 3875 of its outdoor advertising markets.
Inventory:
displays in 44 states and Canada. In 2005, we derived approximately 73% of our billboard advertising net revenues from bulletin sales and 27% from poster sales.
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Fortraffic and nearby residents. Posters provide advertisers with access to either a specified percentage of the year endedgeneral population or a specific targeted audience. At December 31, 20032005, we operated approximately 72%78,000 posters.
Thevarious advertisers in a slide show fashion, rotating each advertisement roughly every 6 to 7 seconds. We give digital advertisers flexibility to change their advertising copy quickly by sending new artwork over a secured internet connection. As of December 31, 2005, we operated approximately 31 digital billboards in 14 test markets.
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:
With
Categories of Business:
The following table sets forth the top ten categories of business fromproviders which the Company derived its billboard advertising revenues for the year ended December 31, 2003 and the respective percentages of such revenue. These categories accounted for approximately 73% of the Company’s billboard advertising net revenuesare described in the year ended December 31, 2003. No one advertiser accounted for more than 1% of the Company’s billboard advertising net revenues in that period.
section entitled “-Competition” below.
The CompanySign Advertising
5
The Company has been awarded
Colorado | Kentucky | Missouri | Oklahoma | |||
Delaware | Maine | Nebraska | ||||
Florida | Michigan | Nevada | ||||
Georgia | Minnesota | New Jersey | ||||
Kansas | Mississippi | Ohio |
The Company
(1) | The logo sign contract in Missouri is operated by a 66 2/3% owned partnership. |
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to advertise, advertisers consider a number of factors and advertising providers which are described in the section entitled "-Competition” below.
The Company
COMPETITION
Billboard Advertising
The As of December 31, 2005, the Company competesoperated approximately 31,330 transit advertising displays in each of its markets17 states and Canada.
The outdoor advertising industry has encountered a wave of consolidation, the industry remains fragmented. Currently, according to the Outdoor Advertising Association of America, approximately 565 outdoor advertising companies operated over 850,000 outdoor displays. The industry is fragmented, consistingcomprised 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 singleone or a few local markets.
• | Larger outdoor advertising providers, such as (i) Clear Channel Outdoor Holdings, Inc., which operates billboards, street furniture displays, transit displays and other out-of-home advertising displays in North America and worldwide, and (ii) CBS Outdoor, a division of CBS Corporation, which operates traditional outdoor, street furniture and transit advertising properties in North America and worldwide. Clear Channel Outdoor and CBS Outdoor each have corporate relationships with large media conglomerates and may have greater total resources, product offerings and opportunities for cross-selling than we do. | ||
• | Other forms of media, such as broadcast and cable television, radio, print media, direct mail marketing, telephone directories and the Internet. | ||
• | An increasing variety of out-of-home advertising media, such as advertising displays in shopping centers, malls, airports, stadiums, movie theaters and supermarkets and advertising displays on taxis, trains and buses. |
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Logo 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 Companynet revenues in the open-bid process. Competition from these sources is also encountered at the endyear ended December 31, 2005. No individual advertiser accounted for more than 2% of each contractour billboard advertising net revenues in that period. In marketing logo signs to advertisers, the Company competes with other forms of out-of-home advertising described above.
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Percentage of Net Billboard | ||||
Categories | Advertising Revenues | |||
Restaurants | 11 | % | ||
Retailers | 10 | % | ||
Automotive | 9 | % | ||
Real Estate Companies | 7 | % | ||
Hotels and Motels | 6 | % | ||
Health Care | 6 | % | ||
Service | 6 | % | ||
Gaming | 6 | % | ||
Financial – Banks/Credit Unions | 5 | % | ||
Amusement – Entertainment/Sports | 5 | % | ||
71 | % |
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. Statetime governments have purchasedrequired us to remove signs and removed legal billboards for beautificationlegally erected in the past, usingaccordance with federal, state and local permit requirements and laws.
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us.
The Company
The Company has 13 local officesconstruction personnel who are covered by collective bargaining agreements, consisting of billposters and construction personnel. The Company believesagreements. We believe that its relationsour relationship with itsour employees, including its 129our 117 unionized employees, areis good, and the Company haswe have never experienced a strike or work stoppage.
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9EXECUTIVE OFFICERS OF THE REGISTRANT • limit the cash flow available to fund the Company’s working capital, capital expenditure or other general corporate requirements; NAME• AGElimit the Company’s ability to obtain additional financing to fund future working capital, capital expenditure or other general corporate requirements;• TITLEinhibit the Company’s ability to fund or finance an appropriate level of acquisition activity, which has traditionally been a significant component of the Company’s year-to-year revenue growth;•
place the Company at a competitive disadvantage relative to those of its competitors that have less debt;•
make it more difficult for the Company to comply with the financial covenants in its bank credit facility, which could result in a default and an acceleration of all amounts outstanding under the facility;Kevin P. Reilly, Jr.• force the Company to seek and obtain alternate or additional sources of funding, which may be unavailable, or may be on less favorable terms, or may require the Company to obtain the consent of lenders under its bank credit facility or the holders of its other debt; 49• Chairman, Presidentlimit the Company’s flexibility in planning for, or reacting to, changes in its business and Chief Executive Officerindustry; andKeith A. Istre• increase the Company’s vulnerability to general adverse economic and industry conditions. 51• Chief Financial Officer and Treasurerincur or repay debt;Sean E. Reilly• dispose of assets; 42• create liens; Chief Operating Officer•make investments; • enter into affiliate transactions; and President• pay dividends and make inter-company distributions.
• | a decline in general economic conditions, which could reduce national advertising spending disproportionately; | ||
• | a decline in economic conditions in specific geographical markets, which could reduce local advertising spending in those particular markets disproportionately; | ||
• | a widespread reallocation of advertising expenditures to other available media by significant users of the | ||
• | a decline in the amount spent on advertising in general or outdoor advertising in particular; and | ||
• | increased regulation of the subject matter, location or operation of outdoor advertising displays and taxation on outdoor advertising. |
• | the pool of suitable acquisition candidates is dwindling, and the Company may have a more difficult time negotiating acquisitions on favorable terms; | ||
• | the Company may face increased competition for acquisition candidates from other outdoor advertising companies, some of which have greater financial resources than the Company, which may result in higher prices for those businesses and assets; | ||
• | the Company may not have access to the capital needed to finance potential acquisitions and may be unable to obtain any required consents from its current lenders to obtain alternate financing; | ||
• | the Company may be unable to integrate acquired businesses and assets effectively with its existing operations and systems as a result of unforeseen difficulties that could divert significant time, attention and effort from management that could otherwise be directed at developing existing business; | ||
• | the Company may be unable to retain key personnel of acquired businesses; | ||
• | the Company may not realize the benefits and cost savings anticipated in its acquisitions; and | ||
• | as the industry consolidates further, larger mergers and acquisitions may face substantial scrutiny under antitrust laws. |
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Each officer’s
whose interest in the Company may be different than yours.
Keith A. Istre has been Chief Financial Officer of the Company since February 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 its Outdoor Division, owned in the aggregate approximately 16% of the Company’s Outdoor Division since November 2001. He began working withcommon stock, assuming the Company as Vice Presidentconversion of Mergers and Acquisitions in 1987 and served inall Class B common stock to Class A common stock. As of that capacity until 1994. He also served asdate, their combined holdings represented 64% of the voting power of Lamar Advertising’s capital stock, which would give the Reilly family the power 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 matter requiring stockholder approval, including charter amendments, mergers, consolidations and asset sales. |
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The Company’sThe Company occupiesWe occupy approximately 90%97% of the space in this facilitythe headquarters and leaseslease the remaining space. The Company owns 164We own 156 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 additional 110138 operating facilities at an aggregate lease expense for 20032005 of approximately $3.6$5 million.The Company owns4,0005,500 parcels of property beneath outdoorour advertising structures. As of December 31, 2003, the Company had2005, we leased approximately 76,10080,000 active outdoor site leasessites, accounting for a total annual lease expense of approximately $143.1$167.5 million. This amount represented 18%approximately 16% of total outdoor advertising net revenues for that period. The Company’sThese 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 anAn important part of itsour management activity is to manage itsour lease portfolio and negotiate suitable lease renewals and extensions.
128
PART II
13prices havehas 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.“LAMR.” As of February 20, 2004,23, 2006, the Class A common stock was held by 189209 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. 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 High Low Year ended December 31, 2004: First Quarter $ 41.85 $ 36.56 Second Quarter 44.66 38.83 Third Quarter 44.11 38.62 Fourth Quarter 43.95 39.13 Year ended December 31, 2005: First Quarter $ 43.98 $ 37.62 Second Quarter 43.25 36.63 Third Quarter 45.97 39.24 Fourth Quarter 48.15 42.80 stock in the foreseeable future.stock. The Company’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, the Company’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 the Company’s Board of Directors and will depend on the Company’s results of operations, financial condition, capital requirements and other factors deemed relevant by the Board of Directors. (a) (b) (c) (d) Total No. of Shares Approximate Dollar Purchased as Part Value of Shares of Publicly that May Yet Be Total No. of Shares Average Price Paid Announced Plans or Purchased Under the Period Purchased per Share Programs Plans or Programs November 1 through November 30, 2005 154,000 $ 45.92 154,000 $ 242,927,289 December 1 through December 31, 2005 390,770 $ 47.21 390,770 $ 224,477,567 9
14Company.Company, which are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The data presented below should be read in conjunction with the audited consolidated financial statements, related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included herein.
(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 2005 2004 2003 2002 2001 Net revenues $ 1,021,656 $ 883,510 $ 810,139 $ 775,682 $ 729,050 Operating expenses: Direct advertising expenses 353,139 302,157 292,017 274,772 251,483 General and administrative expenses 212,727 188,320 171,520 167,182 151,048 Depreciation and amortization 290,089 294,056 284,947 271,832 349,550 Gain on disposition of assets (1,119 ) (1,067 ) (1,946 ) (336 ) (923 ) Total operating expenses 854,836 783,466 746,538 713,450 751,158 Operating income (loss) 166,820 100,044 63,601 62,232 (22,108 ) Other expense (income): Loss on extinguishment of debt 3,982 — 33,644 5,850 — Interest income (1,511 ) (495 ) (502 ) (929 ) (640 ) Interest expense 90,671 76,079 93,787 113,333 132,840 Total other expense 93,142 75,584 126,929 118,254 132,200 Income (loss) before income taxes and cumulative effect of a change in accounting principle 73,678 24,460 (63,328 ) (56,022 ) (154,308 ) Income tax expense (benefit) 31,899 11,305 (23,573 ) (19,694 ) (45,674 ) Income (loss) before cumulative effect of a change in change in accounting principle 41,779 13,155 (39,755 ) (36,328 ) (108,634 ) Cumulative effect of a change in accounting principle, net — — 40,240 — — Net income (loss) 41,779 13,155 (79,995 ) (36,328 ) (108,634 ) Preferred stock dividends 365 365 365 365 365 Net income (loss) applicable to common stock $ 41,414 $ 12,790 $ (80,360 ) $ (36,693 ) $ (108,999 ) Income (loss) per common share – basic and diluted: Income (loss) before cumulative effect of a change in accounting principle $ 0.39 $ 0.12 $ (0.39 ) $ (0.36 ) $ (1.11 ) Cumulative effect of a change in accounting principle — — (0.39 ) — — Net income (loss) $ 0.39 $ 0.12 $ (0.78 ) $ (0.36 ) $ (1.11 ) Statement of Cash Flow Data: $ 347,257 $ 323,164 $ 260,075 $ 240,443 $ 190,632 $ 267,970 $ 263,747 $ 210,041 $ 155,763 $ 382,471 $ (104,069 ) $ (23,013 ) $ (57,847 ) $ (81,955 ) $ 132,384 Cash and cash equivalents $ 19,419 $ 44,201 $ 7,797 $ 15,610 $ 12,885 Cash deposit for debt extinguishment — — — 266,657 — Working capital 93,816 34,476 69,902 95,922 27,261 Total assets 3,737,079 3,689,472 3,669,373 3,888,106 3,671,652 Total debt (including current maturities) 1,576,326 1,659,934 1,704,863 1,994,433 1,811,585 Total long-term obligations 1,826,138 1,805,021 1,905,497 1,856,372 1,877,532 Stockholders’ equity 1,817,482 1,736,347 1,689,661 1,709,173 1,672,221 (1)Cash flows from operating, investing, and financing activities are obtained from the Company’s consolidated statements of cash flows prepared in accordance with accounting principles generally accepted in the United States of America (GAAP).(2)(1) As of the end of the period. (3)(2) Certain balance sheet reclassifications were made in order to be comparable to the current year presentation. 10
notes. sales on our displays. 15belowin Item 1A under the heading “Factors Affecting Future Operating Results,“Risk Factors,” and elsewhere in this report, that could cause actual results to differ materially from those projected in these forward-looking statements. 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.2003, 20022005, 2004 and 2001.2003. 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 related notes, see “—Restatement of Financial Statements” for more information.in generalour ability to maximize advertising spending has decreased in response to the decline in economic conditions.2%5% by completing approximately 160 strategic acquisitions of outdoor advertising and transit assets for an aggregate purchase price of approximately $323$705.8 million, which included the issuance of 2,955,5594,050,958 shares of Lamar Advertising Company Class A common stock valued at the time of issuance at approximately $106.7$152.5 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 acquisitions completed during the year ended December 31, 2005, with the exception of the new transit markets acquired as a result of the acquisition of Obie Media Corporation (“Obie”) in January, were in existing markets and have caused no material integration issues. The Company expects to continue to pursue acquisitions that complement the Company’s existing operations.Capitalized expenditures were $78.3 million in 2003, $78.4 million in 2002 and $85.3 million in 2001. The following table presents a breakdown of capitalized expenditures for the past three years: 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 In Thousands 2005 2004 2003 Billboard $ 88,493 $ 57,195 $ 51,390 Logos 7,249 6,320 7,315 Transit 1,057 1,190 1,982 Land and buildings 13,966 10,896 9,823 PP&E 10,352 6,430 7,765 Total capital expenditures $ 121,117 $ 82,031 $ 78,275 11
2003: 2004 period. The increase in transit revenue was primarily due to the Obie acquisition. See “Reconciliations” below. 162003, 20022005, 2004 and 2001: 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, 2005 2004 2003 Net revenues 100.0 % 100.0 % 100.0 % Operating expenses: Direct advertising expenses 34.6 34.2 36.0 General and administrative expenses 17.2 17.9 18.0 Corporate expenses 3.6 3.4 3.2 Depreciation and amortization 28.4 33.3 35.2 Operating income 16.3 11.3 7.9 Interest expense 8.9 8.6 11.6 Net income (loss) 4.1 1.5 (9.9 ) 20032005 compared to yearYear ended December 31, 2002$34.4$138.2 million or 4.4%15.6% to $810.1 million$1.0217 billion for the year ended December 31, 20032005 from $775.7$883.5 million for the same period in 2002.2004. This increase was attributable primarily to (i) an increase in billboard net revenues of $29.8$88.5 million or 4.1%, (ii)10.6% over the prior period, a $3.2$3.6 million increase in logo sign revenue, which represents an increase of 8.4%8.7% over the prior year,period, and (iii) a $1.5$45.7 million increase in transit revenue which represents a 17.0% increase over the prior year.revenuesrevenue of $29.8$88.5 million was due to bothgenerated by acquisition activity of approximately $34.3 million and internal growth of approximately $54.2 million, while the increase in logo sign revenue of $3.2 million and transit revenue growth of $1.5$3.6 million was generated by internal growth across various markets within the logo sign programs of approximately $4.7 million, which was offset by the loss of $1.1 million of revenue due to the expiration of the Company’s South Carolina logo contract. The increase in transit revenue of approximately $45.7 million was due to internal growth of approximately $8.2 million and transit programs. acquisition activity that resulted primarily from the Obie acquisition of $37.5 million.20032005, as compared 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 2003,2004, increased $14.4$59.8 million or 1.8%6.5% as a result of net revenue internal growth.$21.5$75.4 million or 4.9%15.4% to $463.5$565.9 million for the year ended December 31, 20032005 from $442.0$490.5 million for the same period in 2002.2004. There was a $23.6$68.9 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. Thisassets and a $6.5 million increase was offset by a $2.0 million decreasein corporate expenses. The increase in corporate expenses dueis primarily related to additional expenses related to expanded efforts in the Company’s business development and national sales department.partial reversalyear ended December 31, 2004.second quarter of 2003Company’s wholly owned subsidiary, Lamar Media Corp., refinanced its bank credit facility. The new bank credit facility is comprised of a charge related$400.0 million revolving bank credit facility and a $400.0 million term facility. The bank 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 jury verdict rendered againstmaximum aggregate amount of $500.0 million. The lenders have no obligation to make additional loans under the Company in the third quarterincremental facility. As a result of 2002, which is discussed below.In the third quarter of 2002,this refinancing, the Company recorded a chargeloss on extinguishment 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 estimatedebt of the Company’s potential liability related to this claim is currently $1.3$4.0 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$13.1$14.6 million or 4.8% from $271.8$76.1 million for the year ended December 31, 20022004 to $90.7 million for the year ended December 31, 2005 due to an increase in interest rates on variable-rate debt.
Year ended | ||||
December 31, | ||||
2004 | ||||
(in thousands) | ||||
Reported net revenue | $ | 883,510 | ||
Acquisition net revenue, excluding the Obie markets | 32,120 | |||
Acquisition-adjusted net revenue | $ | 915,630 | ||
Year ended | ||||
December 31, | ||||
2005 | ||||
(in thousands) | ||||
Reported net revenue | $ | 1,021,656 | ||
Less net revenue — Obie markets | (46,261 | ) | ||
Net revenue (excluding the Obie markets) | $ | 975,395 | ||
Year ended | ||||||||
December 31, | ||||||||
2005 | 2004 | |||||||
(in thousands) | ||||||||
Reported net revenue | $ | 1,021,656 | $ | 883,510 | ||||
Acquisition net revenue, excluding the Obie markets | — | 32,120 | ||||||
Less net revenue — Obie markets | (46,261 | ) | — | |||||
Adjusted totals | $ | 975,395 | $ | 915,630 | ||||
17
structures destroyed by the storms in the quarter ended September 30, 2004.
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 | ||||
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. 2003.
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.
the prepayment of $100.0 million in principal amount of Lamar Media’s 8 5/8% Senior Subordinated Notes due 2007. In Julythe third quarter of 2003, the Company redeemed all of its outstanding 5 1/4%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 recordednotes which resulted in a loss on extinguishment of debt of $12.6 million.
In Decemberthe fourth quarter of 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. Asnotes, which resulted in a resultloss extinguishment of this redemption,debt of $4.2 million. During the Company recordedyear ended December 31, 2004, there were no refinancing activities resulting in 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.
debt.
Due46.2% which is greater than the statutory rates due to permanent differences resulting from non-deductible expenses.
As a result of the above factors, the Company recognized a net lossincome for the year ended December 31, 20032004 of $80.0$13.2 million, as compared to a net loss of $36.3$80.0 million for the same period in 2002.
Year ended2003.
Net revenues increased $46.6 million or 6.4% to $775.7 millionour net revenue results 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 billboardperiods presented, we provide 2003 acquisition-adjusted net revenues of $38.3 million which 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% overadjusts our 2003 net revenue by adding to it the prior year, and (iii) a $3.8 million increase in transitnet revenue which represents an 81.7% increase over the prior year.
The increase in billboard net revenues of $38.3 million was due to acquisition activity and internal growth. The increase in logo sign revenue of $2.6 million was primarily due to price increases negotiatedgenerated by the Company with the stateacquired assets in 2003 prior to our acquisition 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 acquisitionsthem for the same time frame as actuallythat those assets were owned in 2002 increased $16.2 million or 2.1%2004. We provide this information as a resultsupplement to net revenues to enable investors to compare periods in 2004 and 2003 on a more consistent basis without the effects of net revenue growth.acquisitions. Management uses this comparison to assess how well our core
18
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 | ||||
13
Operating expenses, exclusive
Depreciation and amortization expense decreased $77.8 million or 22.3% from $349.6 million for the year ended December 31, 20012003 Reported Net Revenue to $271.8 million for the year ended December 31, 20022003 Acquisition-Adjusted Net Revenue as a result of the Company’s adoption of SFAS No. 142, “Goodwill and Other Intangible Assets,” which eliminated the amortization expense for goodwill.
DueCompared to the above factors, operating income increased $84.3 million to $62.2 million for year ended December 31, 2002 compared to an operating loss of $22.1 million for the same period in 2001.
On October 25, 2002, the Company’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 $19.5 million from $132.8 million for the year ended December 31, 2001 to $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.
2004 Reported Net Revenue:
2004 | 2003 | |||||||
(in thousands) | ||||||||
Reported net revenue | $ | 883,510 | $ | 810,139 | ||||
Acquisition net revenue | — | 15,994 | ||||||
2004 reported net revenue as compared to 2003 acquisition — adjusted net revenue | $ | 883,510 | $ | 826,133 | ||||
The Company’s
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 the change in notes receivable of $1.7 million and an increase in proceeds from sale of property and equipment of $2.4 million.
Cash flows used in financing activities decreased by $24.1 million for the year ended December 31, 2003 due to a $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 the Company’s 5 1/4% Convertible Notes. In addition, there was a $5.2 million decrease in proceedsworking capital of $20.5 million. We generated cash flows from issuanceoperations during 2005 in excess of our cash needs for operations and capital expenditures as described herein. We used the Company’s Class A common stock, an $8.7 million increase in debt issuance costsexcess cash generated principally for acquisitions and a $20.0 million decrease in net borrowings from credit agreements.
14
During the year endedto reduce debt. See “—Cash Flows” for more information.
The Company’s wholly owned subsidiary, Lamar Media Corp., replaced its bank credit facility on March 7, 2003 and subsequently amended it in February 2004.facility. The bank credit facility was refinanced on September 30, 2005 and is comprised of a $225.0$400.0 million revolving bank credit facility and a $975.0$400.0 million term facility. The bank 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, 2003This refinancing resulted in a loss on debt extinguishment of $4.0 million.
Inuncommitted incremental loan facility was thereby reduced to $463.0 million.
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 | |||||||||||||||
Revolving Bank Facility(1) | $ | 225.0 | — | — | — | 225.0 | ||||||||||||||
Standby Letters of Credit | $ | 5.6 | 1.3 | 4.3 | — | — | ||||||||||||||
Equity Securities. 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. As a result of this redemption, the Company recorded a loss on extinguishment of debt of $11.2 million, which consisted of a prepayment penalty of $8.2 million and associated debt issuance costs of approximately $3.0 million.
19
15
• | up to | ||
• | currently outstanding indebtedness or debt incurred to refinance outstanding debt; | ||
• | inter-company debt between Lamar Media and its subsidiaries or between subsidiaries; | ||
• | certain purchase money indebtedness and capitalized lease obligations to acquire or lease property in the ordinary course of business that cannot exceed the greater of $20 million or 5% of Lamar Media’s net tangible assets; and | ||
• |
• | 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 | ||
• | a senior debt ratio, defined as total consolidated senior debt to EBITDA |
• | an interest coverage ratio, defined as EBITDA | ||
• | a fixed charges coverage ratio, defined as the ratio of EBITDA (as defined below) for the most recent four fiscal quarters to |
20
(1) the total payments of principal and interest on debt for such period plus (2) capital expenditures made during such period |
Restatement
The Company is restating its financial statementsCash
Payments Due by Period | ||||||||||||||||||||
(in millions) | ||||||||||||||||||||
Less than 1 | ||||||||||||||||||||
Contractual Obligations | Total | Year | 1–3 Years | 4–5 Years | After 5 Years | |||||||||||||||
Long-Term Debt | 1,576.3 | 2.8 | 27.2 | 379.4 | 1,166.9 | |||||||||||||||
Interest obligations on long term debt(1) | 662.6 | 92.4 | 183.2 | 173.1 | 213.9 | |||||||||||||||
Billboard site and other operating leases | 1,011.2 | 136.4 | 220.2 | 161.6 | 493.0 | |||||||||||||||
Total payments due | 3,250.10 | 231.6 | 430.6 | 714.1 | 1,873.8 |
(1) | Interest rates on our variable rate instruments are assuming rates at the December 2005 levels. |
Amount of Expiration Per Period | ||||||||||||||||||||
(in millions) | ||||||||||||||||||||
Total Amount | Less than 1 | |||||||||||||||||||
Other Commercial Commitments | Committed | Year | 1–3 Years | 4–5 Years | After 5 Years | |||||||||||||||
Revolving Bank Facility(2) | 400.0 | — | — | — | 400.0 | |||||||||||||||
Standby Letters of Credit(3) | 10.4 | 1.7 | 8.7 | — | — |
(2) | Lamar Media had $95 million outstanding at December 31, 2005. | |
(3) | The standby letters of credit are issued under Lamar Media’s revolving bank facility and reduce the availability of the facility by the same amount. |
21
The effect of the restatement on the condensed consolidated statements of operationscash flows provided by operating activities increased by $24.1 million 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 | ) |
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, cashoperating activities of $12.3 million primarily due to an increase in deferred income tax expense of $16.2 million, loss on extinguishment of debt of $4.0 million offset by a decrease in depreciation and amortization of $6.8 million. In addition, as compared to the same period in 2004, there were increases in the change in receivables of $20.1 million, in other assets of $5.2 million and in the change in accrued expenses of $5.8 million.
The Company is also restating unaudited condensed consolidated financial statementsbank credit facility refinancing discussed above and cash used for quarters ended March 31, 2004 and June 30, 2004 and amending the respective Form 10-Q filings for those periods.
purchase of treasury shares of $25.5 million, offset by $18.6 million in net proceeds from issuance of common stock.
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, thatwhich 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.
required.
22
In June 2001,
23
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the financial statements in analyzing the information provided. We will follow the guidance prescribed in SAB No. 107 in connection with our adoption of SFAS No. 123R.
In December 2003, the FASB issued Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities, an interpretation of ARB No. 51.”15, 2005. 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 Interpretation did not have an effect on the Company’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 Company adopted SFAS No. 149 effective June 30, 2003. The adoption of SFAS No. 149 did not have an impact on itsour consolidated financial statements.
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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 | ) |
2003:
Year ended December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
Net revenues | 100.0 | % | 100.0 | % | 100.0 | % | ||||||
Operating expenses: | ||||||||||||
Direct advertising expenses | 34.6 | 34.2 | 36.0 | |||||||||
General and administrative expenses | 17.2 | 17.9 | 18.0 | |||||||||
Corporate expenses | 3.5 | 3.4 | 3.1 | |||||||||
Depreciation and amortization | 28.4 | 33.3 | 35.2 | |||||||||
Operating income | 16.4 | 11.4 | 7.9 | |||||||||
Interest expense | 8.0 | 7.3 | 9.6 | |||||||||
Net income (loss) | 4.6 | 2.7 | (7.7 | ) |
2005 from $883.5 million for the same period in 2004. This increase was attributable primarily to an increase in billboard net revenues of $88.5 million or 10.6% over the prior period, a $3.6 million increase in logo sign revenue, which represents an increase of 8.7% over the prior period, and a $45.7 million increase in transit revenue over the prior period. The increase in transit revenue was primarily due to the Obie acquisition.
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Year ended | ||||
December 31, | ||||
2004 | ||||
(in thousands) | ||||
Reported net revenue | $ | 883,510 | ||
Acquisition net revenue, excluding the Obie markets | 32,120 | |||
Acquisition-adjusted net revenue | $ | 915,630 | ||
Year ended | ||||
December 31, | ||||
2005 | ||||
(in thousands) | ||||
Reported net revenue | $ | 1,021,656 | ||
Less net revenue — Obie markets | (46,261 | ) | ||
Net revenue (excluding the Obie markets) | $ | 975,395 | ||
Year ended | ||||||||
December 31, | ||||||||
2005 | 2004 | |||||||
(in thousands) | ||||||||
Reported net revenue | $ | 1,021,656 | $ | 883,510 | ||||
Acquisition net revenue, excluding the Obie markets | — | 32,120 | ||||||
Less net revenue — Obie markets | (46,261 | ) | — | |||||
Adjusted totals | $ | 975,395 | $ | 915,630 | ||||
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See “Reconciliations” 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.
Company’s business development.
structures destroyed by the storms in the quarter ended September 30, 2004.
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. 2003.
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 | ||||
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the prepayment of $100.0 million in principal amount of its 8 5/8% Senior Subordinated Notes due 2007. 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 During the year ended December 31, 2002 to2004, there were no refinancing activities resulting in a loss on extinguishment of debt.
Due to
As a result of the above factors, the Company recognized a net lossincome for the year ended December 31, 20032004 of $62.4$24.2 million, as compared to a net loss of $25.0$62.4 million for the same period in 2002.
Year ended2003.
Net revenues increased $46.6 million or 6.4% to $775.7 millionour net revenue results 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 billboardperiods presented, we provide 2003 acquisition-adjusted net revenues of $38.3 million or 5.5%, (ii) a $2.6 million increase in logo sign revenue, which represents an increase of 7.3% overadjusts our 2003 net revenue by adding to it the prior year, and (iii) a $3.8 million increase in transitnet revenue which represents an 81.7% increase over the prior year.
The increase in billboard net revenues of $38.3 million was due to acquisition activity and internal growth. The increase in logo sign revenue of $2.6 million was significantly due to price increases negotiatedgenerated by the Company with the stateacquired assets in 2003 prior to our acquisition 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 acquisitionsthem for the same time frame as actuallythat those assets were owned in 2002 increased $16.2 million or 2.1%2004. We provide this information as a resultsupplement to net revenues to enable investors to compare periods in 2004 and 2003 on a more consistent basis without the effects of acquisitions. Management uses this comparison to assess how well our core assets are performing. Acquisition-adjusted net revenue growth.
Operating expenses, exclusiveis not determined in accordance with generally accepted accounting principles (GAAP). For this adjustment, we measure the amount of depreciation and amortization and gain on sale ofpre-acquisition revenue generated by the assets increased $39.4 million or 9.8% to $441.7 million forduring 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 to2003 that corresponds with the operations ofactual period we have owned the 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.
Depreciation and amortization expense decreased $77.8 million or 22.3% from $349.6 million for the year ended December 31, 2001 to $271.8 million for the year ended December 31, 2002 as a result of the Company’s adoption of SFAS No. 142, “Goodwill and Other Intangible Assets,” which eliminated the amortization expense for goodwill.
Due to the above factors, operating income increased $84.3 million to $62.5 million for year ended December 31, 2002 compared to an operating loss of $21.8 million for the same period in 2001.
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 | ||||
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On October 25, 2002, Lamar Media redeemed all of its outstanding 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 the 9¼% Senior Subordinated Notes due 2007.
Interest expense decreased $20.2 million from $115.2 million for the year ended December 31, 2001 to $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 a 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 net loss of $97.6 million for the same period in 2001.
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 has borrowed substantial amounts of money in the past and may borrow more money in the future. At December 31, 2003, Lamar Advertising Company had approximately $287.5 million of convertible notes outstanding. At December 31, 2003, Lamar Media had approximately $1.4 billion of debt outstanding consisting of approximately $1,015.0 million in bank debt, $389.4 million in various series of senior subordinated notes and $13.0 million in various other short-term and long-term debt. In addition, the indentures governing Lamar Media’s notes and bank credit facility allows it to incur substantial additional indebtedness in the future. As of December 31, 2003, Lamar Media had approximately $179.4 million available to borrow under its bank credit facility. The Company’s substantial indebtedness and the fact that a large part of the Company’s cash flow from operations must be used to make principal and interest payments on its debt may have important consequences, including:
In addition, if the Company’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 Lamar Media’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.
The terms of the indenture relating to Lamar Advertising’s outstanding notes, Lamar Media’s bank credit facility and the indentures relating to Lamar Media’s outstanding notes restrict, among other things, the ability of Lamar Advertising and Lamar Media to:
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Lamar Media’s ability to make distributions to Lamar Advertising is also restricted under the terms of these agreements. Under Lamar Media’s bank credit facility the Company must maintain specified financial ratios and levels including:
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” beginning on page 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’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 the Company’s control, it may be unable to comply with these restrictions in the future.
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’s business. A reduction in money spent on advertising displays could result from:
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,2004 (to the following factors may affectextent within the Company’s ability to continue to pursue this strategy effectively:
The Company faces competition from larger and more diversified outdoor advertisers and other forms of advertising that could hurt its performance.
The Company may not be able to compete successfully against the current and future forms of outdoor advertising and other media. 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,
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airports, stadiums, movie theaters and supermarkets, and on taxis, trains and buses.
The Company’s operations are impacted by the regulation of outdoor advertising by federal, state and local governments.
The Company’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’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’s results of operations.
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 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 20 logo sign contracts in place at December 31, 2003, one is subject to renewal in April 2004 and three are scheduled to terminate in 2004, one in April, one in June and one in December 2004. 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, 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 power to:
If the Company’s contingency plans relating to hurricanes fail, the 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.
INFLATION
In the last three years, inflation has not had a significant impact on the Company.
SEASONALITY
The Company’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 the Company’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.which
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24
2004 | 2003 | |||||||
(in thousands) | ||||||||
Reported net revenue | $ | 883,510 | $ | 810,139 | ||||
Acquisition net revenue | — | 15,994 | ||||||
2004 reported net revenue as compared to 2003 acquisition — adjusted net revenue | $ | 883,510 | $ | 826,133 | ||||
income.2003,2005, and should be read in conjunction with Note 98 of the Notes to the Company’s Consolidated Financial Statements.2003,2005 there was approximately $1,015.0$495 million of aggregate indebtedness outstanding under the bank credit agreement,facility, or approximately 59.7%31.5% of the Company’s outstanding long-term debt on that date, bearing interest at variable rates. The aggregate interest expense for 20032005 with respect to borrowings under the bank credit agreement was $36.1$38.7 million, and the weighted average interest rate applicable to borrowings under this credit facility during 20032005 was 3.4%4.7%. Assuming that the weighted average interest rate was 200-basis points higher (that is 5.4%6.7% rather than 3.4%4.7%), then the Company’s 20032005 interest expense would have been approximately $20.1$16.4 million higher resulting in a $12.2$9.3 million increasedecrease in the Company’s 20032005 net loss.
2825
29
AND SUBSIDIARIES Independent Auditors’Management’s Report on Internal Control over Financial Reporting 2730Report of Independent Registered Public Accounting Firm — Internal Control over Financial Reporting 31 Report of Independent Registered Public Accounting Firm — Consolidated Financial Statements 32 Consolidated Balance Sheets as of December 31, 20032005 and 20022004 2833 Consolidated Statements of Operations for the years ended December 31, 2003, 20022005, 2004 and 20012003 2934 Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2003, 20022005, 2004 and 20012003 3035 Consolidated Statements of Cash Flows for the years ended December 31, 2003, 20022005, 2004 and 20012003 3136 Notes to Consolidated Financial Statements 32 – 5037-53 Schedule 2 –— Valuation and Qualifying Accounts for the years ended December 31, 2003, 20022005, 2004 and 20012003 5154 26
30
/s/ KPMG LLP | ||
KPMG LLP | ||
New Orleans, Louisiana | ||
March 13, 2006 |
31
As discussed
As discussed2005, based on criteria established in Note 1(d) toInternal Control—Integrated Framework issued by the consolidated financial statements, effective July 1, 2001,Committee of Sponsoring Organizations of the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 141, “Business Combinations”Treadway Commission (COSO), and certain provisionsour report dated March 13, 2006 expressed an unqualified opinion on management’s assessment of, SFAS No. 142, “Goodwill and Other Intangible Assets”, as required for goodwill and intangible assets resulting from business combinations consummated after June 30, 2001. The provisionsthe effective operation of, SFAS No. 142 were fully adopted on January 1, 2002. As discussed in Note 9 to the consolidatedinternal control over financial statements, the Company adopted the provisions of SFAS No. 143, “Accounting for Asset Retirement Obligations” on January 1, 2003.reporting.
/s/ KPMG LLP | ||
KPMG LLP | ||
New Orleans, Louisiana | ||
March 13, 2006 |
32
/s/ KPMG LLP
New Orleans, LouisianaFebruary 9, 2004, exceptfor Notes 2 and 10, as towhich the date is November 15, 2004
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33 34 35 36 37 38 Year Ended December 31, 2005 39 $5,926. 2004 the time of issuance at $2,476, warrants valued at $1,794 and $196,220 cash. 40 $189,563, which consisted of the issuance of 1,550,095 shares of Lamar Advertising Class A common stock valued at the time of issuance at $50,630 and $138,933 cash. 41 2005: 42 a follows: 43 $463,000. 44 45 46 2003. 47 (iii) to extend the Company’s ability to issue incentive stock options for an additional ten years, pursuant to Section 422 of the Internal Revenue Code of 1986, as amended. 48 2005: Plan. Plans 49 2005. Directors also approved the adoption of a grantor trust (the “Trust”) pursuant to which amounts may be set aside, but remain subject to claims of the Company’s creditors, for payments of liabilities under the New Plan, including amounts contributed under the Old Plan. 2006. 50 51 position, results of operations or cash flows. position, results of operations or cash flows. 52 53 55 56 57 58 59 60 61 62 markets it serves. 2003: 63 2004: 64 65 as of December 31, 2004 there was a receivable from its parent of $7,383. 66 67 Procedures. 68 69 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. 70 71 72 73 74 75
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 20032005 and 20022004
(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 2005 2004 Current assets: Cash and cash equivalents $ 19,419 $ 44,201 Receivables, net of allowance for doubtful accounts of $6,000 and $5,000 in 2005 and 2004 114,733 87,962 Prepaid expenses 35,763 35,287 Deferred income tax assets (note 11) 7,128 6,899 Other current assets 10,232 8,231 Total current assets 187,275 182,580 Property, plant and equipment (note 4) 2,191,443 2,077,379 Less accumulated depreciation and amortization (902,138 ) (807,735 ) Net property, plant and equipment 1,289,305 1,269,644 Goodwill (note 5) 1,295,050 1,265,106 Intangible assets (note 5) 896,943 920,373 Deferred financing costs net of accumulated amortization of $22,350 and $26,113 at 2005 and 2004, respectively 26,549 24,552 Other assets 41,957 27,217 Total assets $ 3,737,079 $ 3,689,472 Current liabilities: Trade accounts payable $ 13,730 $ 10,412 Current maturities of long-term debt (note 8) 2,788 72,510 Accrued expenses (note 7) 61,996 50,513 Deferred income 14,945 14,669 Total current liabilities 93,459 148,104 Long-term debt (note 8) 1,573,538 1,587,424 Deferred income tax liabilities (note 11) 107,696 76,240 Asset retirement obligation (note 9) 135,538 132,700 Other liabilities 9,366 8,657 Total liabilities 1,919,597 1,953,125 Stockholders’ equity (note 13): Series AA preferred stock, par value $.001, $63.80 cumulative dividends, authorized 5,720 shares; 5,720 shares issued and outstanding at 2005 and 2004 — — Class A preferred stock, par value $638, $63.80 cumulative dividends, 10,000 shares authorized, 0 shares issued and outstanding at 2005 and 2004 — — Class A common stock, par value $.001, 175,000,000 shares authorized, 90,409,282 and 88,742,430 shares issued and outstanding at 2005 and 2004, respectively 90 89 Class B common stock, par value $.001, 37,500,000 shares authorized, 15,672,527 are issued and outstanding at 2005 and 2004, respectively 16 16 Additional paid-in-capital 2,196,691 2,131,449 Accumulated deficit (353,793 ) (395,207 ) Cost of shares held in treasury, 544,770 shares and 0 shares in 2005 and 2004, respectively (25,522 ) — Stockholders’ equity 1,817,482 1,736,347 Total liabilities and stockholders’ equity $ 3,737,079 $ 3,689,472 28
AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 31, 2003, 20022005, 2004 and 20012003
(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 2005 2004 2003 Net revenues $ 1,021,656 $ 883,510 $ 810,139 Operating expenses (income): Direct advertising expenses (exclusive of depreciation and amortization) 353,139 302,157 292,017 General and administrative expenses (exclusive of depreciation and amortization) 176,099 158,161 145,971 Corporate expenses (exclusive of depreciation and amortization) 36,628 30,159 25,549 Depreciation and amortization (Note 10) 290,089 294,056 284,947 Gain on disposition of assets (1,119 ) (1,067 ) (1,946 ) 854,836 783,466 746,538 Operating income 166,820 100,044 63,601 Other expense (income): Loss on extinguishment of debt 3,982 — 33,644 Interest income (1,511 ) (495 ) (502 ) Interest expense 90,671 76,079 93,787 93,142 75,584 126,929 Income (loss) before income tax expense (benefit) and cumulative effect of a change in accounting principle 73,678 24,460 (63,328 ) Income tax expense (benefit) (note 11) 31,899 11,305 (23,573 ) Income (loss) before cumulative effect of a change in accounting principle 41,779 13,155 (39,755 ) Cumulative effect of a change in accounting principle, net of tax benefit of $25,727 — — 40,240 Net income (loss) 41,779 13,155 (79,995 ) Preferred stock dividends 365 365 365 Net income (loss) applicable to common stock $ 41,414 $ 12,790 $ (80,360 ) Earnings (loss) per share: Basic: Before cumulative effect of a change in accounting principle $ 0.39 0.12 $ (0.39 ) Cumulative effect of a change in accounting principle $ — — $ (0.39 ) Basic earnings (loss) per share $ 0.39 $ 0.12 $ (0.78 ) Diluted: Before cumulative effect of a change in accounting principle $ 0.39 0.12 $ (0.39 ) Cumulative effect of a change in accounting principle $ — — $ (0.39 ) Diluted earnings (loss) per share $ 0.39 $ 0.12 $ (0.78 ) Weighted average common shares outstanding 105,605,873 104,041,030 102,686,780 Incremental common shares from dilutive stock options 483,884 530,453 — Incremental common shares from convertible debt — — — Weighted average common shares assuming dilution 106,089,757 104,571,483 102,686,780 29
AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
Years Ended December 31, 2003, 20022005, 2004 and 20012003
(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 SERIES AA CLASS A CLASS A CLASS B ADDITIONAL PREFERRED PREFERRED COMMON COMMON TREASURY PAID IN ACCUMULATED STOCK STOCK STOCK STOCK STOCK CAPITAL DEFICIT TOTAL 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 — — — — — 1,946 — 1,946 Issuance of 72,025 shares of common stock through employee purchase plan — — — — — — — — Net loss — — — — — — ( 79,995 ) ( 79,995 ) Dividends ($63.80 per preferred share) — — — — — — ( 365 ) ( 365 ) Balance, December 31, 2003 $ — — 87 16 — 2,097,555 ( 407,997 ) 1,689,661 Issuance of 68,986 shares of common stock in acquisitions — — 1 — — 4,271 — 4,272 Exercise of 865,443 shares of stock options — — 1 — — 27,369 — 27,370 Conversion of 474,546 shares of Class B common stock to Class A stock — — — — — — — — Issuance of 66,692 shares of common stock through employee purchase plan — — — — — 2,254 — 2,254 Net income — — — — — — 13,155 13,155 Dividends ($63.80 per preferred share) — — — — — — ( 365 ) ( 365 ) Balance, December 31, 2004 $ — — 89 16 — 2,131,449 ( 395,207 ) 1,736,347 Issuance of 1,026,413 shares of common stock in acquisitions — — 1 — — 43,313 — 43,314 Exercise of 552,781 shares of stock options — — — — — 19,151 — 19,151 Issuance of 78,194 shares of common stock through employee purchase plan — — — — — 2,778 — 2,778 Purchase of 544,770 shares of treasury stock — — — — ( 25,522 ) — — ( 25,522 ) Net income — — — — — — 41,779 41,779 Dividends ($63.80 per preferred share) — — — — — — ( 365 ) ( 365 ) Balance, December 31, 2005 $ — — 90 16 ( 25,522 ) 2,196,691 ( 353,793 ) 1,817,482 30
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 2003, 20022005, 2004 and 20012003
(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 2005 2004 2003 Cash flows from operating activities: Net income (loss) $ 41,779 $ 13,155 $ (79,995 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 287,212 294,056 284,947 Amortization included in interest expense 5,335 5,330 6,037 Gain on disposition of assets (1,119 ) (1,067 ) (1,946 ) Loss on extinguishment of debt 3,982 — 33,644 Cumulative effect of a change in accounting principle — — 40,240 Deferred income tax expenses (benefit) 23,852 7,748 (23,531 ) Provision for doubtful accounts 6,674 7,772 8,599 Changes in operating assets and liabilities: (Increase) decrease in: Receivables (24,915 ) (4,824 ) (6,217 ) Prepaid expenses (448 ) (2,509 ) (2,923 ) Other assets (6,063 ) (887 ) (4,246 ) Increase (decrease) in: Trade accounts payable 3,318 1,600 (1,238 ) Accrued expenses 8,810 3,024 6,450 Other liabilities (1,160 ) (234 ) 254 Cash flows provided by operating activities 347,257 323,164 260,075 Cash flows from investing activities: Capital expenditures (121,117 ) (82,031 ) (78,275 ) Acquisitions (145,228 ) (189,540 ) (137,595 ) Increase in notes receivable (7,175 ) — — Proceeds from sale of property and equipment 5,550 7,824 5,829 Cash flows used in investing activities (267,970 ) (263,747 ) (210,041 ) Cash flows from financing activities: Net proceeds from issuance of common stock 18,672 23,806 8,798 Cash used for purchase of treasury shares (25,522 ) — — Cash from deposits for debt extinguishment — — 266,657 Principle payments on long-term debt (485,539 ) (44,928 ) (771,388 ) Debt issuance costs (5,315 ) (1,526 ) (9,899 ) Net proceeds from note offerings and new notes payable 394,000 — 448,350 Dividends (365 ) (365 ) (365 ) Cash flows used in financing activities (104,069 ) (23,013 ) (57,847 ) Net (decrease) increase in cash and cash equivalents (24,782 ) 36,404 (7,813 ) Cash and cash equivalents at beginning of period 44,201 7,797 15,610 Cash and cash equivalents at end of period $ 19,419 $ 44,201 $ 7,797 Supplemental disclosures of cash flow information: Cash paid for interest $ 78,097 $ 69,922 $ 81,342 Cash paid for state and federal income taxes $ 3,365 $ 1,946 $ 825 Common stock issuance related to acquisitions $ 43,314 $ 4,270 $ 50,630 31
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)(a) Nature of Business
Lamar Advertising Company (the Company) is engaged in the outdoor advertising business operating over 147,000 outdoor151,000 billboard advertising displays in 4344 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 2019 states throughout the United States and in one province of Canada and a transit advertising business in 3875 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
Under 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.”(SFAS No. 142) goodwill is subject to an annual impairment test. The Company fully adopteddesignated December 31 as the provisionsdate of SFAS No. 142, asits annual goodwill impairment test. If an event occurs or circumstances change that would more likely than not reduce the fair value of January 1, 2002. Goodwill and other intangible assets acquired in a purchase business combination and determined to havereporting unit below its carrying value, an indefinite useful life are not amortized, but instead tested forinterim impairment at least annually intest would be performed between annual tests. 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 requiredstandard, 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.units. The Company wasis 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 exceededexceeds 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, 20022005 and December 31, 2003 and2004 therefore 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.32LAMAR ADVERTISING COMPANYAND SUBSIDIARIESNotes 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.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)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 outdoor advertising revenue, net of agency commissions, if any, on an accrual basis ratably over the term of the contracts, as services are provided. Production revenue and the related expense for the advertising copy are recognized upon completion of the sale. 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 2005 2004 2003 Net revenues $ 5,766 5,490 6,360 Direct advertising expenses 2,972 3,124 2,780 General and administrative expenses 2,521 2,002 3,197 (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.33LAMAR ADVERTISING COMPANYAND SUBSIDIARIESNotes 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 6,834,0655,581,755 for the years ended December 31, 2003, 20022005 and 2001, respectively.2004 and 6,726,508 for the year ended December 31, 2003. (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 ) 2005 2004 2003 Net income (loss) applicable to common stock, as reported $ 41,414 12,790 (80,360 ) Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (5,013 ) (8,834 ) (3,472 ) Pro forma net income (loss) applicable to common stock $ 36,401 3,956 (83,832 ) 2005 2004 2003 Net income (loss) per common share — as reported (basic and diluted) $ 0.39 0.12 (0.78 ) Net income (loss) per common share — pro forma (basic and diluted) $ 0.34 0.04 (0.82 )
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)(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
Certain amounts in the prior periods. The reclassificationyears’ consolidated financial statements have been reclassified to conform to the current year presentation. These reclassifications 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.income (loss). (m) Use of EstimatesThe 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.34LAMAR ADVERTISING COMPANYAND SUBSIDIARIESNotes 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.(n) Use of Estimates
The Company adopted Statement 143 effective January 1, 2003, usingpreparation of financial statements in conformity with accounting principles generally accepted in the cumulative effect approachUnited States of America requires management to recognize transitionmake estimates and assumptions that affect the reported amounts for asset retirement obligations, asset retirement costsof assets and accumulated depreciation. Prior to adoptionliabilities and disclosure of this statement, the Company expensed these costscontingent assets and liabilities at the date of retirement.the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.Restatement of Financial StatementsThe 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 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:Acquisitions 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)Acquisitions2003On 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 approximately $30,000 cash.On June 2, 2003, the Company purchased the stock of Adams 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.yeartwelve months ended December 31, 2003,2005, the Company completed additionalover 65 acquisitions of outdoor advertising assets for a total purchase price of approximately $91,426,$188,542, which consisted of the issuance of 152,7921,026,413 shares of Lamar Advertising Class A common stock valued at the time of issuance at $43,314 and $86,296$145,228 in cash. 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 Current assets $ 10,374 Property, plant and equipment 59,846 Goodwill 29,944 Site locations 87,263 Non-competition agreements 1,439 Customer lists and contracts 15,372 Other assets 548 Current liabilities (3,852 ) Long term liabilities (12,392 ) $ 188,542
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)20032005 was $163,475,$134,018, of which $61,847$29,944 was assigned to goodwill which is not subject to amortization. The remaining $101,628$104,074 of acquired intangible assets have a weighted average useful life of approximately 14 years. The intangible assets include customer lists and contracts of $17,138$15,372 (7 year weighted average useful life), site locations of $83,849$87,263 (15 year weighted average useful life), and non-competition agreements of $641 (10$1,439 (7.4 year weighted average useful life). Approximately $35,878Of the $29,944 of the $61,847 of goodwill, approximately $9,058 is expected to be fully deductible for tax purposes. The aggregate amortization expense related to the 20032005 acquisitions for the year ended December 31, 20032005 was approximately $6,481.35LAMAR ADVERTISING COMPANYAND SUBSIDIARIESNotes to Consolidated Financial Statements(Dollars in thousands, except share and per share data)20032005 and 20022004 acquisitions as if they had occurred on January 1, 2002.2003. 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. 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 ) 2005 2004 Net revenues $ 1,029,151 963,200 Net income applicable to common stock 40,384 13,468 Net income per common share (basic and diluted) $ 0.38 0.13 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.2002,2004, the Company completed 72 additionalover 80 acquisitions of outdoor advertising assets for a cashtotal purchase price of approximately $63,160 and$200,490, which consisted of the issuance of 92,60068,986 shares of Lamar Advertising Class A common stock valued at $3,100. 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 Total Current assets $ 2,846 Property, plant and equipment 64,917 Goodwill 24,831 Site locations 87,281 Non-competition agreements 515 Customer lists and contracts 21,577 Current liabilities (1,477 ) $ 200,490 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 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
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 $30,000.2001,2003, the Company completed 101 additionalover 84 acquisitions of outdoor advertising and transit assets for an aggregate casha total purchase price of approximately $138,750.werewas accounted 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 of acquisition. The purchase price hasacquisition 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 purchase priceacquisition costs 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 27,168 31,536 20,000 45,645 20,903 42,980 30,110 138,750 329,924 (4) Total Current assets $ 2,437 Property, plant and equipment 28,089 Goodwill 61,847 Site locations 83,849 Non-competition agreements 641 Customer lists and contracts 17,138 Other assets 6,666 Current liabilities (956 ) Long-term liabilities (10,148 ) $ 189,563 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) 2005 2004 2003 Issuance of Class A common stock in acquisitions $ 43,314 4,270 50,630 20032005 and 20022004 are as follows: 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 Estimated Life (Years) 2005 2004 Land — $ 115,449 90,951 Building and improvements 10 – 39 72,718 69,993 Advertising structures 15 1,911,429 1,834,302 Automotive and other equipment 3 – 7 91,847 82,133 $ 2,191,443 2,077,379 2005 2004 Estimated Life Gross Carrying Accumulated Gross Carrying Accumulated (Years) Amount Amortization Amount Amortization Amortizable Intangible Assets: Customer lists and contracts 7 – 10 $ 425,739 $ 344,125 $ 410,368 $ 298,108 Non–competition agreements 3 – 15 59,618 53,437 58,179 51,284 Site locations 15 1,195,581 391,926 1,108,318 313,776 Other 5 – 15 13,600 8,107 13,817 7,141 1,694,538 797,595 1,590,682 670,309 Unamortizable Intangible Assets: Goodwill $ 1,548,685 $ 253,635 $ 1,518,741 $ 253,635 37
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)(6) Goodwill and Other Intangible AssetsThe following is a summary of intangible assets at December 31, 2003 and December 31, 2002. 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 20032005 are as follows: 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 Balance as of December 31, 2004 $ 1,518,741 Goodwill acquired during the year 29,944 Impairment losses — Balance as of December 31, 2005 $ 1,548,685 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’s review, no impairment charge was required upon the adoption of SFAS No. 142 or at its annual tests for impairment on December 31, 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’s earnings per share: 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 ) 38LAMAR ADVERTISING COMPANYAND SUBSIDIARIESNotes to Consolidated Financial Statements(Dollars in thousands, except share and per share data)(7) Year ended December 31, 2006 $ 123,400 Year ended December 31, 2007 $ 103,420 Year ended December 31, 2008 $ 96,652 Year ended December 31, 2009 $ 93,622 Year ended December 31, 2010 $ 90,135 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, 2003: 2004 $ 112,218 2005 96,163 2006 83,559 2007 73,821 2008 63,313 Thereafter 409,703 2006 $ 136,380 2007 119,464 2008 100,760 2009 87,588 2010 74,024 Thereafter 493,017 $146,684, $135,944$178,387, $160,808 and $124,734$150,983 for the years ended December 31, 2005, 2004 and 2003, 2002 and 2001, respectively.(8)20032005 and 2002: 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)2004: 2005 2004 Payroll $ 11,888 12,894 Interest 25,840 18,601 Insurance benefits 9,337 9,260 Other 14,931 9,758 $ 61,996 50,513 20032005 and 2002: 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 2005 2004 Bank Credit Agreement $ 495,000 $ 975,000 2 7/8% Convertible notes 287,500 287,500 8% Unsecured subordinated notes 1,333 3,333 7 1/4% Senior subordinated notes 388,628 389,020 6 5/8% Senior Subordinated notes 400,000 — Other notes with various rates and terms 3,865 5,081 1,576,326 1,659,934 Less current maturities (2,788 ) (72,510 ) Long-term debt, excluding current maturities $ 1,573,538 $ 1,587,424 Long-term debt matures as follows: 2004 $ 5,044 2005 57,160 2006 69,067 2007 82,568 2008 82,612 Later years 1,408,412 39
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.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 used the effective interest method to recognize the discount over the life of the 1997 Notes.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 were 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 rate was 21.6216 shares per $1 in principle amount of notes.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 $5,850an expense related to the prepayment of those notes. In accordance with SFAS No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections,” the extinguishment of this debt has not been reflected in the Statement of Operations as an extraordinary item. 2006 $ 2,788 2007 6,098 2008 21,154 2009 31,021 2010 348,386 Later years 1,166,879 1/4%1/4% Senior Subordinated Notes due 2013. These notes are unsecured senior subordinated obligations and will be subordinated to all of Lamar Media’s existing and future senior debt, rank equally with all of Lamar Media’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 Lamar Media’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 Company recorded a loss on the extinguishment of debt of $11,173 in the first quarter of 2003.Corp’s priorCorp., replaced its bank credit facility. The new bank facility for which JPMorgan Chase Bank serves as administrative agent, consistedis comprised of (1) a $350,000$400,000 revolving bank credit facility (2)and a $650,000$400,000 term facility. The bank credit facility also includes a $500,000 incremental facility, which permits Lamar Media to request that its lenders enter into a commitment to make additional term loans to it, up to a maximum
aggregate amount of $500,000. As a result of this refinancing, the Company recorded a loss on extinguishment of debt of $3,982. As of December 31, 2005, there was $95,000 outstanding under the revolving facility. The revolving facility terminates September 30, 2012 and the quarterly amortization of the 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.is as follows: Term December 31, 2007 – September 30, 2009 $ 5,000 December 31, 2009 – September 30, 2011 15,000 December 31, 2011 – September 30, 2012 60,000 40
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)BeginningMarch 31, 2002, the amount available for borrowing under the then existing revolving bank credit facility reduced quarterly in annual increments of 10%, 10%, 30% and 35% of the original commitment with a final payment of 15% on March 31,February 27, 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.On March 7, 2003, the Company’s wholly owned subsidiary Lamar Media, replaced its existing bank credit facility. The current bank creditavailable uncommitted incremental loan 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. This bank credit facility also includes a $500,000 incremental facility, which permits Lamar Mediawas thereby reduced 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. The credit agreement modified the repayment terms to extend the maturities of the debt. The balance sheet as of December 31, 2002 was adjusted to reflect the terms of the March 7, 2003 credit agreement.Availability under the revolving credit facility terminates on June 30, 2009 and is not subject to commitment reduction prior to that date. As of December 31, 2003, the Company had $40,000 outstanding under the revolving line of credit.The March 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 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 indenturesindenture relating to Lamar Media’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; • make investments; and • pay dividends. 41LAMAR ADVERTISING COMPANYAND SUBSIDIARIESNotes to Consolidated Financial Statements(Dollars in thousands, except share and per share data)• interest coverage; • fixed charges ratios; • senior debt ratios; and • total debt ratios. (10) As restated As previously
reported Balance 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 Balance at December 31, 2003 $ 123,217 Additions to asset retirement obligations 3,687 Accretion expense 10,204 Liabilities settled (4,408 ) Balance at December 31, 2004 $ 132,700 Additions to asset retirement obligations 1,612 Accretion expense 7,039 Liabilities settled (5,813 ) Balance at December 31, 2005 $ 135,538 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
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data) Year ended December 31, 2005 2004 2003 Direct expenses $ 276,977 279,735 267,078 General and administrative expenses 6,870 8,403 11,214 Corporate expenses 6,242 5,918 6,655 $ 290,089 294,056 284,947 2003, 20022005, 2004 and 2001,2003, consists of: 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 ) Current Deferred Total Year ended December 31, 2005: U.S. federal $ 2,500 22,504 25,004 State and local 2,530 1,221 3,751 Foreign 3,017 127 3,144 $ 8,047 23,852 31,899 Year ended December 31, 2004: U.S. federal $ — 5,621 5,621 State and local 3,557 1,339 4,896 Foreign — 788 788 $ 3,557 7,748 11,305 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 ) benefitexpense (benefit) attributable to continuing operations for the years ended December 31, 2003, 20022005, 2004 and 2001,2003, differs from the amounts computed by applying the U.S. federal income tax rate of 35 percent for 2005 and 34 percent for 2004 and 2003, to lossincome (loss) before income taxes as follows: 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 ) 2005 2004 2003 Computed expected tax expense (benefit) $ 25,787 8,316 (21,531 ) Increase (reduction) in income taxes resulting from: Book expenses not deductible for tax purposes 4,012 825 1,150 Amortization of non-deductible goodwill 26 2 (14 ) State and local income taxes, net of federal income tax benefit 2,438 3,231 (3,099 ) Other differences, net (364 ) (1,069 ) (79 ) $ 31,899 11,305 (23,573 ) 43
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)20032005 and 20022004 are presented below: 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 ) 2005 2004 Current deferred tax assets: Receivables, principally due to allowance for doubtful accounts $ 2,316 1,950 Accrued liabilities not deducted for tax purposes 1,609 2,396 Other 3,203 2,553 Net current deferred tax asset 7,128 6,899 Non-current deferred tax liabilities: Plant and equipment, principally due to differences in depreciation $ (10,893 ) (5,845 ) Intangibles, due to differences in amortizable lives (244,712 ) (238,116 ) (255,605 ) (243,961 ) Non-current deferred tax assets: Plant and equipment, due to basis differences on acquisitions and costs capitalized for tax purposes 34,080 40,521 Investment in affiliates and plant and equipment, due to gains recognized for tax purposes and deferred for financial reporting purposes 931 941 Accrued liabilities not deducted for tax purposes 3,232 2,579 Net operating loss carryforward 69,955 88,540 Asset retirement obligation 35,289 34,654 Tax credits 3,319 0 Other, net 1,103 486 Non-current deferred tax assets 147,909 167,721 Net non-current deferred tax liability $ (107,696 ) (76,240 ) 2003,2005, the Company had gross federal net operating losses of $258,336,$170,705, and state net operating losses of $210,889, which expire through 2023.2024. 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.20032005 and 2002,2004, the outstanding balance of the ten year subordinated notes was $5,333$1,333 and $7,333,$3,333, respectively. The Company’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, 20022005, 2004 and 2001,2003, related to the ten year subordinated notes was $193, $354, and the Company’s debentures that were paid off during the year ended December 31, 2001, was $513, $673, and $855, respectively.44
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)20032005 and 2002,2004, 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, 20022005, 2004 and 2001.$342$49 and $400$413 at December 31, 20032005 and 2002,2004, respectively. These receivables are primarily relocation loans for employees. The Company does not have any receivables from its current executive officers.$1,236 and $1,842 of highway signs and transit bus shelters from IHS which represented approximately 13%, 12% and 13% of total capitalized expenditures for its logo sign and transit advertising businesses during the yearsyear ended December 31, 2003, 2002 and 2001, respectively.2003. The Company does not use IHS exclusively for its highway sign and transit bus shelter purchases.terminationstermination to the other. The amended agreement provides for an annual consulting 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.term. The agreement also contains a non-disclosure provision and a non-competition restriction which extends for two years beyond the termination agreement.LLC,LLC), which Kevin P. Reilly Sr. controls, for the use of an airplane. The Company payspaid a monthly fee plus expenses which entitlesentitled the Company to 6.67 hours of flight time, with any unused portion carried over into the next succeeding month. This agreement was amended in October 2004, whereby the Company would pay $100 per year for 125 guaranteed flight hours. Total fees paid under this arrangementthese arrangements for fiscal 2003, 20022005, 2004 and 20012003 were approximately $104, $70 and $55, $75 and $42, respectively.Kevin P. Reilly, Sr. is the father of Kevin P. Reilly, Jr., the Company’s President, Chief Executive Officer and Director, and Sean E. Reilly, the Company’s Chief Operating 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. has a 15% ownership interest in the LLC. Sean E. Reilly, Kevin P. Reilly, Jr.’s brother and also one of the Company’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’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.45LAMAR ADVERTISING COMPANYAND SUBSIDIARIESNotes to Consolidated Financial Statements(Dollars in thousands, except share and per share data)amended the preferred stock of the Company by designatingdesignated 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 passu 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, 20032005 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.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)seniorbank credit facility. Subject to the preferential rights of the holders of any class of preferred stock, holders of shares of common stock are entitled to receive such dividends as may be declared by the Company’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 of common stock unless simultaneously the same dividend is declared or paid on each share of the other class of common stock, provided that, in the event of stock dividends, holders of a specific class of common stock shall be entitled to receive only additional shares of such class. 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. 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 8,000,000 shares to 10,000,000 million shares.46LAMAR ADVERTISING COMPANYAND SUBSIDIARIESNotesConsolidated Financial Statements(Dollarsthe Plan, subject to stockholders approval, primarily to specify the manner in thousands, except sharewhich performance-based compensation can be granted under the 1996 Plan. The amendments to the Plan included the following: (i) to provide for the issuance of performance-based cash bonuses of up to $10,000 in the aggregate, with a $2,000 maximum cash award issuable to any one individual in any calendar year; (ii) to raise the limit on certain stock grants to any individual in any calendar year from 300,000 shares to 350,000 shares; and per share data) 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 Grant Year Dividend Yield Expected Volatility Risk Free Interest Rate Expected Lives 2005 0 % 43 % 4 % 7 2004 0 % 46 % 4 % 6 2003 0 % 46 % 4 % 6
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)2003, 20022005, 2004 and 2001,2003, 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 2005 2004 2003 Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price Outstanding, beginning of year 4,347,267 $ 33.72 3,822,710 $ 30.27 4,067,365 $ 29.83 Granted 177,296 41.87 1,416,000 37.77 117,500 31.55 Exercised (552,781 ) 28.83 (865,443 ) 25.03 (298,105 ) 23.03 Canceled (16,000 ) 34.00 (26,000 ) 37.42 (64,050 ) 38.06 Outstanding, end of year 3,955,782 $ 34.76 4,347,267 $ 33.72 3,822,710 $ 30.27 Price for exercised shares $ 28.83 $ 25.03 $ 23.03 Shares available for grant, end of year 1,767,213 1,927,759 1,317,759 Weighted average fair value of options granted during the year $ 23.70 $ 18.48 $ 15.00 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 Weighted Average Weighted Weighted Range of Number Remaining Average Number Average Exercise Outstanding at Contractual Exercise Exercisable at Exercise Prices December 31, 2005 Life Price December 31, 2005 Price 10.67 – 30.34 1,202,482 4.37 25.83 1,148,482 25.65 30.50 – 37.19 877,150 4.24 34.04 678,650 34.10 37.35 – 37.35 1,114,850 8.10 37.35 378,050 37.35 37.56 – 60.63 761,300 5.97 45.93 442,634 48.32 authorized byhave been granted under the 1996 Plan have been granted.47LAMAR ADVERTISING COMPANYAND SUBSIDIARIESNotes to Consolidated Financial Statements(Dollars in thousands, except share and per share data)Health In accordance with the Plan, the number of shares available for issuance under the plan is increased at the beginning of each fiscal year by the lesser of $500,000 shares or one tenth of 1% of the total of shares outstanding or a lessor amount determined by the board of directors.Planlimits of $150 per employee, per claim, per year.limits. 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, 2003,2005, the Company maintained $4,202$8,829 in letters of credit with a bank to meet requirements of the Company’s worker’s compensation and general liability insurance carrier.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)relatedeligible compensation. Employees can contribute up to 15%100% of compensation. Full vesting on the Company’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. Annually, at the Company’s discretion, an additional profit sharing contribution may be made on behalf of each eligible employee. In total,The Company’s matched contributions for the years ended December 31, 2005, 2004 and 2003 2002were $2,537, $2,254 and 2001, the$2,110 respectively. The Company contributed $2,804, $2,709an additional $694 for the year ended December 31, 2003. There were no additional contributions for the years ended December 31, 2004 and $2,422, respectively.senior managementboard-elected officers who meet specific age and years of service and other criteria. Employees whoOfficers have attained the age of 30 and have a minimum of 10 years of Lamar service and satisfying additional eligibility guidelines are eligible for annual contributions to the Plan generally ranging from $3 to $8, depending on the employee’s length of service. The Company’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.Company in other assets and other liabilities. Upon termination, death or disability, participating employees are eligible to receive an amount equal to the fair market value of the assets in the employee’s deferred compensation account. The Company has contributed $668, $619$754, $727 and $550$668 to the Plan during the years ended December 31, 2005, 2004 and 2003, 2002 and 2001, respectively. Contributionsare discretionaryin order to (1) to comply with the requirements of Section 409A of the Internal Revenue Code applicable to deferred compensation (“Section 409A”) and are determined by(2) to reflect changes in the administration of the Plan. The Company’s Board of Directors.$1,277. The $1,000 reduction$376. It is anticipated that a new trial with respect to punitive damages will take place in the reserve for this liability was recorded as a reduction of corporate expenses in the secondfourth quarter of 2003.noany independent assets or operations, the guarantees are full and unconditional and joint and several and the only subsidiarysubsidiaries that isare not a guarantor isguarantors are considered to be minor. Lamar Media’s ability to make distributions to Lamar Advertising is restricted under the terms of its bank credit facility and the indenturesindenture relating to Lamar Media’s outstanding notes. As of December 31, 20032005 and 2002,2004, 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$675,264 and $1,915,035,$1,943,280, respectively.48LAMAR ADVERTISING COMPANYAND SUBSIDIARIESNotes to Consolidated Financial Statements(Dollars in thousands, except share and per share data)20032005 and 2002.2004. 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. 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 2005 2004 Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value Long-term debt $ 1,573,538 $ 1,606,726 $ 1,587,424 $ 1,647,032
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)• 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. 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 ) Year 2005 Quarters March 31 June 30 September 30 December 31 Net revenues $ 232,829 $ 264,743 $ 265,594 $ 258,490 Net revenues less direct advertising expenses 148,353 177,999 175,669 166,496 Net income applicable to common stock 4,944 18,653 11,990 5,827 Net income per common share basic 0.05 0.18 0.11 0.06 Net income per common share — diluted 0.05 0.18 0.11 0.05 Year 2004 Quarters March 31 June 30 September 30 December 31 Net revenues $ 200,976 $ 226,915 $ 231,622 $ 223,997 Net revenues less direct advertising expenses 127,185 152,553 155,232 146,383 Net income (loss) applicable to common stock (3,724 ) 7,590 8,194 730 Net income (loss) per common share (basic and diluted) (0.04 ) 0.07 0.08 0.01 In June 2002,146,109-1”). The guidance in this FSP applies to financial statements for periods ending after the date the Act was enacted. FSP 109-1, “Application of FASB Statement No. 109, ‘Accounting for Income Taxes,’ to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004”, clarifies that the tax deduction for domestic manufacturers under the Act should be accounted for as a special deduction in accordance with SFAS 109, “Accounting for Income Taxes.” Based on our current tax position, we do not expect to get any current benefit.Associated with Exit or Disposal Activities.” SFASan amendment of ARB No. 146 addresses financial accounting43, Chapter 4” (“Statement 151”). The amendments made by Statement 151 clarify that abnormal amounts of idle facility expense, freight, handling costs, and reporting for costs associated with exit or disposal activitieswasted materials (spoilage) should be recognized as current-period charges and nullified Emerging Issues Task Force (EITF) Issue 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costsrequire the allocation of fixed production overheads to Exit an Activity.”inventory based on the normal capacity of the production facilities. The provisions of this Statement areguidance is effective for exit or disposal activities that are initiatedinventory costs incurred during fiscal years beginning after December 31, 2002, with earlyJune 15, 2005. Earlier application encouraged. The adoptionis permitted for inventory costs incurred during fiscal years beginning after November 23, 2004. We have assessed the impact of SFAS No. 146 didStatement 151, which is not expected to have an effectimpact on the Company’sour financial statements.position, results of operations or cash flows.49
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)November 2002,December 2004, the FASB issued InterpretationStatement of Financial Accounting Standards No. 45, “Guarantor’s Accounting and Disclosure Requirements152 “Accounting for Guarantees, Including Indirect Guarantees of IndebtednessReal Estate Time-Sharing Transactions — An Amendment to Others, an interpretation of FASB Statements No. 5, 5766 and 10767” (“Statement No. 152”). Statement 152 amends FASB Statement No. 66, “Accounting for Sales of Real Estate,”to reference the financial accounting and a rescissionreporting guidance for real estate time-sharing transactions that is provided in AICPA Statement of Position (SOP) 04-2, “Accounting for Real Estate Time-Sharing Transactions.”Statement 152 also amends FASB InterpretationStatement No. 34.67, “Accounting for Costs and Initial Rental Operations of Real Estate Projects,” This Interpretation elaborates onto state that the disclosuresguidance for (a) incidental operations and (b) costs incurred to be made by a guarantorsell real estate projects does not apply to real estate time-sharing transactions. The accounting for those operations and costs is subject to the guidance in its interim and annualSOP 04-2. Statement 152 is effective for financial statements about its obligations under guarantees issued. The Interpretation also clarifies that a guarantorfor fiscal years beginning after June 15, 2005. We have assessed the impact of Statement 152, which is requirednot expected 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 did not have an effectimpact on the Company’sour financial statements.2003,2004, the FASB issued InterpretationStatement of Financial Accounting Standards No. 46 (revised December 2003), “Consolidation153 “Exchanges of Variable Interest Entities,Non-monetary assets – an interpretationamendment of ARBAPB Opinion No. 51.” This Interpretation addresses29” (“Statement 153”). Statement 153 amends Accounting Principles Board (“APB”) Opinion 29 to eliminate the consolidation by business enterprisesexception for nonmonetary exchanges of variable interest entities as defined in the Interpretation. The Interpretation applies immediately to variable interests in variable interest entities created after January 31, 2003similar productive assets and to variable interest entities obtained after January 31, 2003. The applicationreplaces it with a general exception for exchanges of this Interpretation didnonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. Statement 153 does not apply to a pooling of assets in a joint undertaking intended to fund, develop, or produce oil or natural gas from a particular property or group of properties. The provisions of Statement 153 shall be effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. Early adoption is permitted and the provisions of Statement 153 should be applied prospectively. We have assessed the impact of Statement 153, which is not expected to have an effectimpact on the Company’sour financial statements as the Company has no variable interest entities.April 2003,December of 2004, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities,123R, “Share-Based Payment,” which amendsreplaces the requirements under SFAS No. 123 and clarifiesAPB No. 25. The statement sets accounting requirements for “share-based” compensation to employees, including employee stock purchase plans, and requires all share-based payments, including employee stock options, to be recognized in the financial statements based on their fair value. It carries forward prior guidance on accounting and reporting for derivative instruments, including certain derivative instruments embeddedawards to non-employees. The accounting for employee stock ownership plan transactions will continue to be accounted for in other contracts (collectively referredaccordance with Statement of Position (SOP) 93-6, while awards to most non-employee directors will be accounted for as derivatives) and for hedging activities under FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities.”employee awards. The Company adoptedwill adopt this standard effective January 1, 2006. We have also decided that we will use the modified prospective method for our adoption of SFAS 123R, and anticipate that the related compensation expense that will be recognized during fiscal 2006 will range from $7,000 to $10,000 based on awards existing at December 31, 2005. SFAS No. 149123R also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption.all contracts entered into or modified after June 30, 2003.public companies. The interpretive guidance is intended to assist companies in applying the provisions of SFAS No. 123R and investors and users of the financial statements in analyzing the information provided. We will follow the guidance prescribed in SAB No. 107 in connection with our adoption of SFAS No. 149 did123R.have an impact on its consolidated financial statements.be within the control of the entity. FIN No. 47 is effective no later than the end of fiscal years ending after December 15, 2005.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)2003,2005, the FASB issued SFAS No. 150,154, “Accounting Changes and Error Corrections—A replacement of APB Opinion No 20 and FASB Statement No. 30” (“SFAS 154”). SFAS 154 replaces APB Opinion No. 20, “Accounting Changes,” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements,” and changes the requirements for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” Statement 150 affects the issuer’s accounting for, three typesand reporting of, freestandinga change in accounting principles. This statement applies to all voluntary changes in accounting principles and changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. Under previous guidance, changes in accounting principle were recognized as a cumulative affect in the net income of the period of the change. SFAS 154 requires retrospective application of changes in accounting principle, limited to the direct effects of the change, to prior periods’ financial instruments. One typestatements, unless it is mandatory redeemable shares, whichimpracticable to determine either the issuing company is obligated to buy back in exchange for cashperiod-specific effects 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 somecumulative effect of its shares in exchange for cash or other assets. The third type of instruments that are liabilities underthe change. Additionally, this Statement is obligationsrequires that cana change in depreciation, amortization or depletion method for long-lived, nonfinancial assets be settled with shares, the monetary value of which is fixed, tied solely or predominately to a variable suchaccounted for as a market index,change in accounting estimate effected by a change in accounting principle and that correction of errors in previously issued financial statements should be termed a “restatement.” The provisions in SFAS 154 are effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005. The adoption of this pronouncement will not have a material effect on our consolidated financial position, results of operations or varies inversely withcash flows.value ofEITF reached consensus on Issue No. 05-6, “Determining the issuers’ shares. Statement 150 does not apply to features embeddedAmortization Period for Leasehold Improvements” (“EITF 05-6.”) EITF 05-6 provides guidance on determining the amortization period for leasehold improvements acquired in a financial instrument that is not a derivative in its entirety. Most of thebusiness combination or acquired subsequent to lease inception. The guidance in Statement 150EITF 05-6 will be applied prospectively and is effective for all financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim periodperiods beginning after June 15, 2003. The Company currently does29, 2005. Adoption of this standard did not have anya material impact on our consolidated financial instruments that are within the scopeposition or results of SFAS No. 150.operations.50
Valuation and Qualifying Accounts
Years Ended December 31, 2003, 20022005, 2004 and 20012003
(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 Balance at Charged to Balance at Beginning Costs and End of of Period Expenses Deductions Period Year ended December 31, 2005 Deducted in balance sheet from trade accounts receivable: Allowance for doubtful accounts $ 5,000 7,674 6,674 6,000 Deducted in balance sheet from intangible assets: Amortization of intangible assets $ 923,944 136,383 9,097 1,051,230 Year ended December 31, 2004 Deducted in balance sheet from trade accounts receivable: Allowance for doubtful accounts $ 4,914 7,772 7,686 5,000 Deducted in balance sheet from intangible assets: Amortization of intangible assets $ 800,062 123,882 — 923,944 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 5154
AND SUBSIDIARIES Independent Auditors’Management’s Report on Internal Control Over Financial Reporting 5356Report of Independent Registered Public Accounting Firm – Internal Control over Financial Reporting 57 Report of Independent Registered Public Accounting Firm – Consolidated Financial Statements 58 Consolidated Balance Sheets as of December 31, 20032005 and 20022004 5459 Consolidated Statements of Operations for the years ended December 31, 2003, 20022005, 2004 and 20012003 5560 Consolidated Statements of Stockholder’s Equity for the years ended December 31, 2003, 20022005, 2004 and 20012003 5661 Consolidated Statements of Cash Flows for the years ended December 31, 2003, 20022005, 2004 and 20012003 5762 Notes to Consolidated Financial Statements 58 – 6263–66 Schedule 2 – Valuation and Qualifying Accounts for the years ended December 31, 2003, 20022005, 2004 and 20012003 6367 52
Lamar Media Corp.:
KPMG LLP
March 13, 2006
Lamar Media Corp.: also audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.20032005 and 2002,2004, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2003,2005, in conformity with accounting principlesU.S. generally accepted in the United States of America.accounting principles. 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 discussedNote 2accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Lamar Advertising Company’s consolidatedMedia Corp.’s internal control over financial statements, the Company has restated its consolidated financial statements for the year endedreporting as of December 31, 2003.As discussed2005, based on criteria established in Note 1(d) toInternal Control—Integrated Framework issued by the consolidated financial statementsCommittee of Lamar Advertising Company, effective July 1, 2001,Sponsoring Organizations of the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 141, “Business Combinations”Treadway Commission (COSO), and certain provisionsour report dated March 13, 2006 expressed an unqualified opinion on management’s assessment of, SFAS No. 142, “Goodwill and Other Intangible Assets”, as required for goodwill and intangible assets resulting from business combinations consummated after June 30, 2001. The provisionsthe effective operation of, SFAS No. 142 were fully adopted on January 1, 2002. As discussed in Note 9 to the consolidatedinternal control over 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.reporting./s/ KPMG LLPKPMG LLP
KPMG LLPFebruary 9, 2004, exceptfor Notes 2 and 10 of Lamar Advertising Company, as towhich the date is November 15, 2004March 13, 200653
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 20032005 and 20022004
(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 2005 2004 Current assets: Cash and cash equivalents $ 19,419 $ 44,201 Receivables, net of allowance for doubtful accounts of $6,000 and $5,000 in 2005 and 2004 114,733 87,962 Prepaid expenses 35,763 35,287 Deferred income tax assets (note 6) 7,128 6,899 Other current assets 10,189 8,121 Total current assets 187,232 182,470 Property, plant and equipment 2,191,443 2,077,379 Less accumulated depreciation and amortization (902,138 ) (807,735 ) Net property, plant and equipment 1,289,305 1,269,644 Goodwill (note 3) 1,285,807 1,256,835 Intangible assets (note 3) 896,328 919,791 Deferred financing costs net of accumulated amortization of $7,923 and $14,302 as of 2005 and 2004 respectively 17,977 13,361 Other assets 36,251 30,361 Total assets $ 3,712,900 $ 3,672,462 Current liabilities: Trade accounts payable $ 13,730 $ 10,412 Current maturities of long-term debt (note 5) 2,788 72,510 Accrued expenses (note 4) 52,659 41,253 Deferred income 14,945 14,669 Total current liabilities 84,122 138,844 Long-term debt (note 5) 1,573,538 1,299,924 Deferred income tax liabilities (note 6) 138,642 103,598 Asset retirement obligation 135,538 132,700 Other liabilities 11,344 8,657 Total liabilities 1,943,184 1,683,723 Stockholder’s equity: Common stock, $.01 par value, authorized 3,000 shares; 100 shares issued and outstanding at 2005 and 2004 — — Additional paid-in-capital 2,390,458 2,343,929 Accumulated deficit (620,742 ) (355,190 ) Stockholder’s equity 1,769,716 1,988,739 Total liabilities and stockholder’s equity $ 3,712,900 $ 3,672,462 54
AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 31, 2003, 20022005, 2004 and 20012003
(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 ) 2005 2004 2003 Net revenues $ 1,021,656 $ 883,510 $ 810,139 Operating expenses (income): Direct advertising expenses (exclusive of depreciation and amortization) 353,139 302,157 292,017 General and administrative expenses (exclusive of depreciation and amortization) 176,099 158,161 145,971 Corporate expenses (exclusive of depreciation and amortization) 36,163 29,795 25,229 Depreciation and amortization 290,089 294,056 284,947 Gain on disposition of assets (1,119 ) (1,067 ) (1,946 ) 854,371 783,102 746,218 Operating income 167,285 100,408 63,921 Other expense (income): Loss on extinguishment of debt 3,982 — 21,077 Interest income (1,511 ) (495 ) (502 ) Interest expense 81,856 64,920 77,852 84,327 64,425 98,427 Income (loss) before income tax expense (benefit) and cumulative effect of a change in accounting principle 82,958 35,983 (34,506 ) Income tax expense (benefit) (note 6) 35,488 11,764 (12,338 ) Income (loss) before cumulative effect of a change in accounting principle 47,470 24,219 (22,168 ) Cumulative effect of a change in accounting principle, net of tax benefit of $25,727 — — 40,240 Net income (loss) $ 47,470 $ 24,219 $ (62,408 ) 55
AND SUBSIDIARIES
Consolidated Statements of Stockholder’s Equity
Years Ended December 31, 2003, 20022005, 2004 and 20012003
(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 ADDITIONAL COMMON PAID-IN ACCUMULATED STOCK CAPITAL DEFICIT TOTAL 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 — — (62,408 ) (62,408 ) Balance, December 31, 2003 $ — 2,333,951 (379,409 ) 1,954,542 Contribution from parent — 9,978 — 9,978 Net income — — 24,219 24,219 Balance, December 31, 2004 $ — 2,343,929 (355,190 ) 1,988,739 Contribution from parent — 46,529 — 46,529 Net income — — 47,470 47,470 Dividend to parent — — (313,022 ) (313,022 ) Balance, December 31, 2005 $ — 2,390,458 (620,742 ) 1,769,716 56
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 2003, 20022005, 2004 and 20012003
(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 2005 2004 2003 Cash flows from operating activities: Net income (loss) $ 47,470 $ 24,219 $ (62,408 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 287,212 294,056 284,947 Amortization included in interest expense 2,719 2,437 2,797 Gain on disposition of assets (1,119 ) (1,067 ) (1,946 ) Loss on extinguishment of debt 3,982 — 21,077 Cumulative effect of a change in accounting principle — — 40,240 Deferred income tax expenses (benefit) 27,440 8,207 (12,296 ) Provision for doubtful accounts 6,674 7,772 8,599 Changes in operating assets and liabilities: (Increase) decrease in: Receivables (24,915 ) (4,824 ) (6,217 ) Prepaid expenses (448 ) (2,509 ) (2,923 ) Other assets 919 14,400 (7,461 ) Increase (decrease) in: Trade accounts payable 3,318 1,600 (1,238 ) Accrued expenses 3,107 1,682 11,431 Other liabilities 8,202 (234 ) 254 Cash flows provided by operating activities 364,561 345,739 274,856 Cash flows from investing activities: Capital expenditures (120,114 ) (81,165 ) (78,275 ) Acquisitions (145,228 ) (189,540 ) (135,319 ) Increase in notes receivable (7,175 ) — — Proceeds from sale of property and equipment 5,550 7,824 5,829 Cash flows used in investing activities (266,967 ) (262,881 ) (207,765 ) Cash flows from financing activities: Increase in notes payable 287,500 — 128,038 Deposits for debt extinguishment — — 266,657 Principal payments on long-term debt (485,539 ) (44,928 ) (483,888 ) Debt issuance costs (5,315 ) (1,526 ) (9,899 ) Net proceeds from note offerings and new notes payable 394,000 — 24,188 Dividends to parent (313,022 ) — — Cash flows used in financing activities (122,376 ) (46,454 ) (74,904 ) Net increase (decrease) in cash and cash equivalents (24,782 ) 36,404 (7,813 ) Cash and cash equivalents at beginning of period 44,201 7,797 15,610 Cash and cash equivalents at end of period $ 19,419 $ 44,201 $ 7,797 Supplemental disclosures of cash flow information: Cash paid for interest $ 71,898 $ 65,747 $ 64,245 Cash paid for state and federal income taxes $ 3,365 $ 1,946 $ 825 57
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)approximately 147,000over 151,000 outdoor advertising displays in 4344 states. Lamar Media’s operating strategy is to be the leading provider of outdoor advertising services in the markets it serves.2019 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.Lamar Media previously included amortization of debt issuance costs under depreciation The Company provides transit advertising on bus shelters, benches and buses 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.3, 5, 7, 12,4, 6, 9, 10, 13, 14, 15, 16, 1817 and 19 and portions of notes 1 9 and 1112 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 a wholly owned subsidiary of Lamar Advertising Company.2003, 20022005, 2004 and 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 — 2005 2004 2003 Parent company stock contributed for acquisitions $ 43,314 4,270 50,630 20032005 and December 31, 2002. 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 Estimated 2005 2004 Life Gross Carrying Accumulated Gross Carrying Accumulated (Years) Amount Amortization Amount Amortization Amortizable Intangible Assets: Customer lists and contracts 7 – 10 425,739 344,125 410,368 298,108 Non-competition agreements 3 – 15 59,618 53,437 58,179 51,284 Site locations 15 1,195,581 391,926 1,108,318 313,776 Other 5 – 15 13,002 8,124 13,235 7,141 1,693,940 797,612 1,590,100 670,309 Unamortizable Intangible Assets: Goodwill $ 1,538,573 $ 252,766 $ 1,509,601 $ 252,766 58
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)20032005 are as follows: 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’s review, no impairment charge was required upon the adoption of SFAS No. 142 or at its annual tests for impairment on December 31, 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, 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 ) Balance as of December 31, 2004 $ 1,509,601 Goodwill acquired during the year 28,972 Impairment losses — Balance as of December 31, 2005 $ 1,538,573 20032005 and 2002: 2003 2002 Payroll $ 7,698 7,686 Interest 19,428 8,618 Other 10,942 9,677 $ 38,068 25,981 2005 2004 Payroll $ 11,889 12,894 Interest 25,840 18,601 Other 14,930 9,758 $ 52,659 41,253 20032005 and 2002: 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 2005 2004 7 1/4% Senior subordinated notes $ 388,628 389,020 Mirror note to parent 287,500 — Bank Credit Agreement 495,000 975,000 8% Unsecured subordinated notes 1,333 3,333 6 5/8% Senior subordinated notes 400,000 — Other notes with various rates and terms 3,865 5,081 1,576,326 1,372,434 Less current maturities (2,788 ) (72,510 ) Long-term debt excluding current maturities $ 1,573,538 1,299,924 2006 $ 2,788 2007 6,098 2008 21,154 2009 31,021 2010 348,386 Later years 1,166,879 59
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)Long-term debt matures as follows: 2004 $ 5,044 2005 57,160 2006 69,067 2007 82,568 2008 82,612 Later years 1,120,912 benefitexpense (benefit) for the years ended December 31, 2003, 20022005, 2004 and 2001,2003, consists of: 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 ) Current Deferred Total Year ended December 31, 2005: U.S. federal $ 2,500 26,111 28,611 State and local 2,530 1,203 3,733 Foreign 3,017 127 3,144 $ 8,047 27,441 35,488 Year ended December 31, 2004: U.S. federal $ — 11,314 11,314 State and local 3,557 (3,895 ) (338 ) Foreign — 788 788 $ 3,557 8,207 11,764 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 ) 2003, 20022005, 2004 and 2001,2003, differs from the amounts computed by applying the U.S. federal income tax rate of 35 percent for 2005 and 34 percent for 2004 and 2003, to lossincome (loss) before income taxes as follows:60LAMAR MEDIA CORP.AND SUBSIDIARIESNotes 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 ) 2005 2004 2003 Computed expected tax expense (benefit) $ 29,035 12,234 (11,732 ) Increase (reduction) in income taxes resulting from: Book expenses not deductible for tax purposes 4,012 825 1,149 Amortization of non-deductible goodwill 24 (3 ) (19 ) State and local income taxes, net of federal income tax benefit 2,427 (223 ) (1,657 ) Other differences, net (10 ) (1,069 ) (79 ) $ 35,488 11,764 (12,338 ) 20032005 and 20022004 are presented below: 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 ) 2005 2004 Current deferred tax assets: Receivables, principally due to allowance for doubtful accounts $ 2,316 $ 1,950 Accrued liabilities not deducted for tax purposes 1,609 2.396 Other 3,203 2,553 Net current deferred tax asset 7,128 6,899 Non-current deferred tax liabilities: Plant and equipment, principally due to differences in depreciation (10,893 ) (5,845 ) Intangibles, due to differences in amortizable lives (244,127 ) (237,617 ) (255,020 ) (243,462 ) Non-current deferred tax assets: Plant and equipment, due to basis differences on acquisitions and costs capitalized for tax purposes 34,080 40,521 Investment in affiliates and plant and equipment, due to gains recognized for tax purposes and deferred for financial reporting purposes 931 941 Accrued liabilities not deducted for tax purposes 3,232 2,579 Net operating loss carryforward 38,424 61,143 Asset retirement obligation 35,289 34,654 Other, net 4,422 26 116,378 139,864 Net non-current deferred tax liability $ (138,642 ) $ (103,598 )
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)2003 and 2002,2005, there was a receivable frompayable to Lamar Advertising Company, its parent, in the amount of $22,152$1,979 and $6,978, respectively.61LAMAR MEDIA CORP.AND SUBSIDIARIESNotes to Consolidated Financial Statements(Dollars in thousands, except share and per share data) 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 ) Year 2005 Quarters March 31 June 30 September 30 December 31 Net revenues $ 232,829 $ 264,743 $ 265,594 $ 258,490 Net revenues less direct advertising expenses 148,353 177,999 175,669 166,496 Net income applicable to common stock 6,843 20,734 13,916 5,977 Year 2004 Quarters March 31 June 30 September 30 December 31 Net revenues $ 200,976 $ 226,915 $ 231,622 $ 223,997 Net revenues less direct advertising expenses 127,185 152,553 155,232 146,383 Net (loss) income applicable to common stock (2,051 ) 9,463 10,188 6,619 62
and Subsidiaries
Valuation and Qualifying Accounts
Years Ended December 31, 2003, 20022005, 2004 and 20012003
(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 Balance at Charged to Balance Beginning of Costs and at end Period Expenses Deductions of Period Year Ended December 31, 2005 Deducted in balance sheet from trade accounts receivable: Allowance for doubtful accounts $ 5,000 7,674 6,674 6,000 Deducted in balance sheet from intangible assets: Amortization of intangible assets $ 923,075 133,519 6,216 1,050,378 Year Ended December 31, 2004 Deducted in balance sheet from trade accounts receivable: Allowance for doubtful accounts $ 4,914 7,772 7,686 5,000 Deducted in balance sheet from intangible assets: Amortization of intangible assets $ 799,176 123,899 — 923,075 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 63
None
Nonea) Evaluationdisclosure controlsDisclosure Controls and procedures.(asas such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended)amended, as of the end of the period covered by this annual report.December 31, 2005. Based on this evaluation, the principal executive officer and principal financial officer of the Company and Lamar Media concluded, as of December 31, 2005, 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(as definedwhich is set forth on page 31 of this combined Annual Report and is incorporated herein by reference.Rules 13a-15(f)conditions, or that the degree of compliance with the policies or procedures may deteriorate.15d-15(f) underis incorporated herein by reference. KPMG LLP, an independent registered public accounting firm, has issued an attestation report on management’s assessment of Lamar Media’s internal control over financial reporting, which is set forth on page 57 of this combined Annual Report and is incorporated herein by reference.Securities Exchange Actrisk that controls may become inadequate because of 1934, as amended)changes in conditions, or that the degree of compliance with the Company andpolicies or procedures may deteriorate.MediaMedia’s internal control over financial reporting identified in connection with the evaluation of the Company’s and Lamar Media’s internal controlcontrols performed during the fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s andor Lamar Media’s internal control over financial reporting.
None
None64PART III–— Family Relationships,” “Election of Directors –— Board and Committee Meetings” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s Proxy Statement relating to the 20042006 Annual Meeting of Stockholders (the “2004“2006 Proxy Statement”).tothat is incorporated by reference into 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.20042006 Proxy Statement: “Election of Directors -— Director Compensation,” “Election of Directors -— Executive Compensation” and “Election of Directors - Compensation Committee Interlocks and Insider Participation.”20042006 Proxy Statement.20032005 is incorporated herein by reference from the discussion responsive thereto under the caption “Equity Compensation Plan Information” in the 20042006 Proxy Statement.20042006 Proxy Statement.20042006 Proxy Statement. AND REPORTS ON FORM 8-K REPORTS ON FORM 8-K65Reports on Form 8-K were filed with the Commission during the fourth quarter of 2003 to report the following items as of the dates indicated:On November 5, 2003, Lamar Advertising Company furnished a Current Report on Form 8-K to the Commission with its earnings press release for the third 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.66 November 30, 2004March 14, 2006 By: /s//s/ Kevin P. Reilly, Jr. Kevin P. Reilly, Jr.
President and Chief Executive OfficerPOWER OF ATTORNEYEach of the undersigned hereby appoints Kevin P. Reilly and Keith 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. Signature Title Date President, Chief Executive Officer and Director November 30, 20043/14/06
Kevin P. Reilly, Jr. (Principal Executive Officer) Kevin P.Chief Financial Officer 3/14/06 Keith A. Istre (Principal Financial and Accounting Officer) Jr.Director 3/14/06 Wendell S. Reilly /s/ Keith A. IstreChief Financial OfficerNovember 30, 2004(Principal Financial and Accounting Officer)Keith A. Istre/s/ Charles W. Lamar, IIIDirectorNovember 30, 2004Charles W. Lamar, III Director November 30, 20043/14/06 Stephen P. Mumblow Director November 30, 20043/14/06 John Maxwell Hamilton Director November 30, 20043/14/06 Thomas Reifenheiser Cullinan Director November 30, 20043/14/06 Anna Reilly Cullinan Director November 30, 20043/14/06Robert M. Jelenic 67 November 30, 2004March 14, 2006 By: /s//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 and Keith 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. Signature Title Date Chief Executive Officer and Director November 30, 2004(Principal Executive Officer)3/14/06 Kevin P. Reilly, Jr. (Principal Executive Officer) Chief Operating Officer, Vice President November 30, 2004and Director3/14/06 Sean E. Reilly and Director Chief Financial and Accounting Officer November 30, 2004and Director 3/14/06 Keith A. Istre (Principal Financial and Accounting Officer) Director November 30, 20043/14/06 T. Everett Stewart, Jr. 68 EXHIBIT NUMBER DESCRIPTION
3.1
Restated Certificate of Incorporation of the Company. Filed herewith.2.1 3.2 Amended and Restated Certificate of Incorporation of Lamar Media. Filed as Exhibit 3.1 to Lamar Media’s Registration Statement on Form S-1/A (File No. 333-05479) filed on July 31, 1996, and incorporated herein by reference. 3.3 Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Lamar Media. Previously filed as Exhibit 3.2 to Lamar Media’s Annual Report on Form 10-K for fiscal year ended December 31, 1997 (File No. 1-12407) filed on March 30, 1998, and incorporated herein by reference. 3.4 Amendment to Amended and Restated Certificate of Incorporation of Lamar Media, as set forth in the 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 exhibitExhibit 2.1 to the Company’s Current Report on Form 8-K filed on July 22, 1999 (File No. 0-30242) and incorporated herein by reference.3.1Certificate of Incorporation of Lamar New Holding Co. Previously filed as exhibit 3.1 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.3.2Certificate 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’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.3.3Certificate of Amendment of Certificate of Incorporation of Lamar Advertising Company. Previously filed as Exhibit 3.3 to the Company’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.3.4Certificate of Correction of Certificate of Incorporation of Lamar Advertising Company. Previously filed as Exhibit 3.4 to the 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. 3.5 Amended and Restated Bylaws of the Company. Previously filed as Exhibit 3.3 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. 3.6 Amended and Restated Bylaws of Lamar Media Corp.Media. Previously filed as Exhibit 3.1 to Lamar Media’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’s Registration Statement on Form S-1 (File No. 333-05479), and incorporated herein by reference. 4.2 Senior Secured Note dated as of May 19, 1993. Previously filed as Exhibit 4.1 to the Company’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’s 8% Unsecured Subordinated Debentures. Previously filed as Exhibit 10.3 to the Company’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’s 11% Senior Secured Notes due May 15, 2003. Previously filed as Exhibit 4.3 to the Company’s Registration Statement on Form S-1 (File No. 33-59624), and incorporated herein by reference. 4.5 First Supplemental Indenture dated as of July 30, 1996 relating to the Company’s 11% Senior Secured Notes due May 15, 2003. Previously filed as Exhibit 4.5 to the Company’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 as of November 8, 1996 relating to the Company’s 11% Senior Secured Notes due May 15, 2003. Previously filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K (File No. 1-12407) 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’s 11% Senior Secured Notes due May 15, 2003. Previously filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on November 15, 1996 (File No. 1-12407), and 69EXHIBITNUMBERDESCRIPTIONincorporated herein by reference. 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 Indenture dated as of December 23, 2002 amongbetween Lamar Media, Corp., certain subsidiaries of Lamar Media, Corp., as guarantors and Wachovia Bank of Delaware, National, as trustee. FiledPreviously filed as Exhibit 4.1 to Lamar Media’s Current Report on Form 8-K (File No. 0-20833) filed on December 27, 2002, (File No. 0-20833) and incorporated herein by reference. 4.10 Supplemental Indenture to the Indenture dated as of December 23, 2002 among Lamar Media, Corp., certain of its subsidiaries and Wachovia Bank of Delaware, National Association, as Trustee, dated as of 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. EXHIBIT NUMBER DESCRIPTION 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’s Current Report on Form 8-K (File No. 0-20833) filed on December 27, 2002, (File No. 0-20833) and incorporated herein by reference. 4.13 Form of Exchange Note. Filed as Exhibit 4.29 to Lamar Media’s Registration Statement on Form S-4 (File No. 333-102634), and incorporated herein by reference. 4.14 Indenture dated as of June 16, 2003 between Lamar Advertising CompanyMedia and Wachovia Bank of Delaware, National Association, as Trustee. Previously filed as Exhibit 4.4 to Lamar Media’s Quarterly Report on Form 10-Q for the period ended June 30, 2003 (File No. 1-12407) filed on August 13, 2003, and incorporated herein by reference. 4.15 First Supplemental Indenture dated as of June 16, 2003 between Lamar Advertising CompanyMedia and Wachovia Bank of Delaware, National Association, as Trustee. Previously filed as Exhibit 4.5 to Lamar Media’s Quarterly Report on Form 10-Q for the period ended June 30, 2003 (File No. 1-12407) filed on August 13, 2003, and incorporated herein by reference. 10.1*4.16 TheSupplemental Indenture to the Indenture dated as of December 23, 2002 among Lamar SavingsMedia, Lamar Canadian Outdoor Company and Profit Sharing Plan Trust.Wachovia Bank of Delaware, National Association, as Trustee, dated as of April 5, 2004. Previously filed as Exhibit 10.44.1 to the Company’s Registration StatementQuarterly Report on Form S-110-Q for the period ended June 30, 2004 (File No. 33-59624),0-30242) filed on August 6, 2004, and incorporated herein by reference. 10.24.17 Trust under TheSupplemental Indenture to Indenture dated as of December 23, 2002 among Lamar Corporation,Media, certain of its Affiliatessubsidiaries and Subsidiaries Deferred Compensation PlanWachovia Bank of Delaware, National Association, as Trustee, dated October 3, 1993.as of January 19, 2005. Previously filed as Exhibit 10.114.1 to the Company’s AnnualQuarterly Report on Form 10-K10-Q for the fiscal yearperiod ended OctoberMarch 31, 19952005 (File No. 33-59624),0-30242) filed on May 6, 2005, and incorporated herein by reference. 10.3*4.18 1996 Equity Incentive Plan.Indenture dated as of August 16, 2005 between Lamar Media, the guarantors named therein, and The Bank of New York Trust Company, N.A., as Trustee. Previously filed as Exhibit 10.24.1 to the Company’s QuarterlyCurrent Report on Form 10-Q8-K (File No. 0-30242), for the period ended June 30, 2000 filed on August 11, 200018, 2005 and incorporated herein by reference. 10.44.19 Stock Purchase AgreementRelease of Guaranty under the Indenture dated as of October 1, 1998,December 3, 2002 between Lamar Media, certain of its subsidiaries named therein, and Wachovia Bank of Delaware, National Association, as Trustee, by the Company and the stockholdersTrustee, dated as of Outdoor Communications, Inc. named therein. Previously filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on October 15, 1998 (File No. 0-20833), and incorporated herein by reference.December 30, 2005. Filed herewith. 10.54.20 Second Amended and Restated Stock Purchase AgreementRelease of Guaranty under the Indenture dated as of August 11, 1999 among the Company,16, 2005 between Lamar Media, Corp.the guarantors named therein, and The Bank of New York Trust Company, N.A., Chancellor Media Corporationas Trustee, by the Trustee, dated as of Los Angeles and Chancellor Mezzanine Holdings Corporation. Previously filed as Appendix A to the Company’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.December 30, 2005. Filed herewith. 10.6*10.1* 2000 Employee Stock Purchase Plan. Previously filed as Exhibit 10.3 to Lamar Advertisingthe 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. 70EXHIBITNUMBERDESCRIPTION10.710.2 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. Previously filed as Exhibit 10.38 to Lamar Media Corp.’sMedia’s Registration Statement on Form S-4/A (File No. 333-102634) filed on March 18, 2003, and incorporated herein by reference. 10.8EXHIBITNUMBER DESCRIPTION 10.3 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) filed on November 5, 2003, and incorporated herein by reference.10.4 Amendment No. 1 dated as of January 28, 2004 to the Credit Agreement dated as of March 7, 2003 between Lamar Media, the Subsidiary Guarantors a party thereto and JPMorgan Chase Bank, as administrative agent for the lenders. Previously filed as Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2004 (File No. 0-30242) filed on May 10, 2004, and incorporated by reference. 10.5 Tranche C Term Loan Agreement dated as of February 6, 2004 between Lamar Media, the Subsidiary Guarantors a party thereto, the Tranche C Loan Lenders a party thereto and JPMorgan Chase Bank, as administrative agent. Previously filed as Exhibit 4.2 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2004 (File No. 0-30242) filed on May 10, 2004, and incorporated by reference. 10.6 Joinder Agreement dated as of April 19, 2004 to Credit Agreement dated as of March 7, 2003 between Lamar Media and Lamar Canadian Outdoor Company, the Lenders party thereto and JPMorgan Chase 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, 2004 (File No. 0-30242) filed on August 6, 2004, and incorporated herein by reference. 10.7* 1996 Equity Incentive Plan, as amended. Previously filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2004 (File No. 0-30242) filed on August 6, 2004, and incorporated herein by reference. 10.8 Tranche D Term Loan Agreement dated August 12, 2004 among Lamar Media, the Subsidiary Guarantors thereunder, the Lenders party thereto and JP Morgan Chase Bank, as Administrative Agent. Previously filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2004 (File No. 0-30242) filed on November 15, 2004, and incorporated herein by reference. 10.9* Form of Stock Option Agreement under the 1996 Equity Incentive Plan, as amended. Previously filed as Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 (File No. 0-30242) filed on March 10, 2005, and incorporated herein by reference. 10.10 Joinder Agreement to Credit Agreement dated as of March 7, 2003 among Lamar Media, the Subsidiary Guarantors party thereto, the Lenders party thereto and JPMorgan Chase Bank, as Administrative Agent, by certain of Lamar Media’s subsidiaries, dated as of January 19, 2005. Previously filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2005 (File No. 0-30242) filed on May 6, 2005, and incorporated herein by reference. 10.11* Lamar Advertising Company Non-Management Director Compensation Plan. Previously filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2005 (File No. 0-30242) filed on May 6, 2005, and incorporated herein by reference. 10.12 Credit Agreement dated as of September 30, 2005 between Lamar Media and JPMorgan Chase Bank, N.A., as Administrative Agent. Filed herewith. 10.13* Lamar Deferred Compensation Plan, as adopted on December 8, 2005. Previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 0-30242) filed on December 14, 2005 and incorporated herein by reference. 10.14* Form of Trust Agreement for the Lamar Deferred Compensation Plan. Previously filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No. 0-30242) filed on December 14, 2005 and incorporated herein by reference. EXHIBIT NUMBER DESCRIPTION 10.15 Series A Incremental Loan Agreement dated as of February 8, 2006 between Lamar Media, the Subsidiary Guarantors named therein, the Series A Incremental Lenders named therein and JPMorgan Chase Bank, N.A., as Administrative Agent for the Company. Filed herewith. 10.16* Form of Restricted Stock Agreement. Filed herewith. 11.1 Statement regarding computation of per share earnings. Filed herewith. 12.1 Statement regarding computation of earnings to fixed charges for the Company. Filed herewith. 12.2 Statement regarding computation of earnings to fixed charges for Lamar Media. Filed herewith. 14.1 Lamar Advertising Company Code of Business Conduct and Ethics. Previously filed as Exhibit 14.1 to the Company’s Annual Report on Form 10-K for the fiscal yearperiod ended December 31, 2003 as(File No. 0-30242) filed on March 10, 2004.2004, and incorporated herein by reference. 21.1 Subsidiaries of the Company. 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.Filed herewith. 23.1 Consent of KPMG LLP. Filed herewith. 31.1 Certification of the Chief Executive Officer of Lamar Advertisingthe 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-OxleySarbanes- Oxley Act of 2002. Filed herewith.31.2 Certification of the Chief Financial Officer of Lamar Advertisingthe 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-OxleySarbanes- 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. * Denotes management contract or compensatory plan or arrangement in which the executive officers or directors of the Company participate. * Management contract or compensatory plan or arrangement in which the executive officers or directors of the Company participate.71