SECURITIES AND EXCHANGE COMMISSIONSECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter ended December 31, 1997.
Commission file number 000-22713
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OUTDOOR COMMUNICATIONS, INC.
-------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 38-3286430
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
512 TAYLOR STREET, CORINTH, MISSISSIPPI 38834
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (601) 286-3334
------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
As of January 31, 1998 there were issued and outstanding 8,385.72 shares of
the registrant's Class A Common Stock, par value $0.01 per share, and 3,689.28
shares of the registrant's Class B Common Stock, par value $0.01 per share.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION Page No.
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
at December 31, 1997 (unaudited) and June 30, 1997
Condensed Consolidated Statements of Operations
for the Three Months Ended December 31, 1997 and
1996 (unaudited) and the Six Months Ended
December 31, 1997 and 1996 (unaudited)
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended December 31, 1997
and 1996 (unaudited)
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
December 31, June 30,
1997 1997
------------ --------
Assets (unaudited)
------
Current assets:
Cash and cash equivalents $ 2,248,524 $ 1,712,827
Trade accounts receivable, less
allowance for doubtful accounts of
$295,642 at December 31, 1997 and
$317,914 at June 30, 1997 7,189,598 7,253,391
Refundable income taxes 100,000 616,100
Prepaid rent expense 1,775,940 1,805,431
Other assets 1,519,062 978,023
Deferred income taxes 405,020 438,967
------------ ------------
Total current assets 13,238,144 12,804,739
------------ ------------
Property and equipment, net 58,189,283 55,786,503
Intangible assets, less accumulated
amortization 81,728,390 72,239,682
Deferred financing costs (net of
accumulated amortization of $211,151
at December 31, 1997 and $797,622 at
June 30, 1997) 5,156,625 4,240,033
Other assets 818,171 605,899
------------ ------------
Total assets $159,130,613 $145,676,856
============ ============
December 31, June 30,
1997 1997
------------ --------
Liabilities and Stockholders' Equity (Deficit) (unaudited)
- ----------------------------------------------
Current liabilities:
Current installments of long-term debt $ 5,876,875 $ 5,876,875
Trade accounts payable 610,093 760,257
Income taxes payable - 615,418
Accrued salaries, wages and benefits 605,392 1,187,104
Accrued interest 3,815,935 541,895
Other accrued expenses 621,269 491,848
Deferred advertising revenues and
non-compete income 286,582 405,500
------------ ------------
Total current liabilities 11,816,146 9,878,897
------------ ------------
Long-term debt:
Credit facility, excluding current
installments 29,150,000 115,650,000
Senior subordinated notes 105,000,000 -
Subordinated debt - 22,425,000
Deferred income taxes 3,237,866 4,070,180
Preferred interests of a subsidiary 5,483,616 -
Accrued interest - 1,671,666
Deferred non-compete income, less
current portion - 26,667
------------ ------------
Total liabilities 154,687,628 153,722,410
------------ ------------
Stockholders' equity (deficit):
Series A preferred stock, $0.01 par
value. Authorized 300,000 shares;
issued and outstanding 186,220.93
shares at December 31, 1997 1,862 -
Undesignated preferred stock, $0.01
par value. Authorized 4,700,000
shares; none issued and outstanding
at December 31, 1997 - -
Class A common stock, $0.01 par value.
Authorized 10,000 shares; issued and
outstanding 8,385.72 shares at
December 31, 1997 and June 30, 1997 84 84
Class B common stock, $0.01 par value.
Authorized 10,000 shares; issued and
outstanding 3,689.28 shares at
December 31, 1997 and June 30, 1997 37 37
Additional paid-in capital 22,431,707 3,811,475
Accumulated deficit (17,990,705) (11,857,150)
------------ ------------
Total stockholders' equity (deficit) 4,442,985 (8,045,554)
------------ ------------
Commitments and contingencies
Total liabilities and stockholders'
equity (deficit) $159,130,613 $145,676,856
============ ============
See accompanying notes to condensed consolidated financial statements.
-2-
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
1997 1996 1997 1996
------------- ------------- ------------- -------------
Gross revenues $15,690,593 $12,000,729 $30,530,540 $23,246,208
Less agency commissions 1,445,351 1,090,856 2,813,090 2,243,632
----------- ----------- ----------- -----------
Net revenues 14,245,242 10,909,873 27,717,450 21,002,576
----------- ----------- ----------- -----------
Operating expenses:
Direct operating expenses 4,831,198 3,619,907 9,179,870 6,613,165
Selling, general, and administrative 3,953,493 2,853,790 7,553,642 5,417,320
Depreciation and amortization 3,587,732 1,739,593 6,770,159 3,674,369
----------- ----------- ----------- -----------
Total operating expenses 12,372,423 8,213,290 23,503,671 15,704,854
----------- ----------- ----------- -----------
Operating income 1,872,819 2,696,583 4,213,779 5,297,722
Interest expense (3,323,418) (2,661,599) (6,374,856) (4,835,742)
Gain (loss) on disposal of equipment (52,384) 6,405 (88,502) 110
Other income (expense), net (115,478) 58,571 (75,336) 76,362
Expenses written off related to
proposed equity offering - - (148,506) -
----------- ----------- ----------- -----------
Income (loss) before income taxes and
extraordinary item (1,618,461) 99,960 (2,473,421) 538,452
Income taxes (benefit) (208,656) 38,984 984,062 209,996
----------- ----------- ----------- -----------
Income (loss) before extraordinary item (1,409,805) 60,976 (3,457,483) 328,456
Extraordinary loss from early
extinguishment of debt, net of income
tax benefit of $1,710,931 - - (2,676,072) -
----------- ----------- ----------- -----------
Net income (loss) $(1,409,805) $ 60,976 $(6,133,555) $ 328,456
=========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements.
-3-
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited)
Six Months Ended
December 31,
1997 1996
------------- ------------
Net cash provided by operating $ 6,063,486 $ 3,623,648
activities ------------- ------------
Cash flows from investing activities:
Purchase of Jennings Outdoor, Inc. and
Jennings Media Services, LLC (14,159,837) -
Purchase of Skoglund Communications,
Inc. and Skoglund Communications of
St. Cloud, Inc. - (21,246,850)
Purchase of other companies (1,816,250) (6,059,644)
Capital expenditures (2,352,750) (1,603,262)
Deferred acquisition costs (386,103) (647,513)
Proceeds from sale of equipment 54,927 -
------------- ------------
Net cash used in investing activities (18,660,013) (29,557,269)
------------- ------------
Cash flows from financing activities:
Proceeds from issuance of senior
subordinated notes 105,000,000 -
Borrowings under long-term debt
agreement 31,650,000 34,000,000
Repayment of long-term debt (118,150,000) (6,500,000)
Deferred financing costs (5,367,776) (1,723,775)
Proceeds from issuance of subordinated
notes - 195,000
Proceeds from issuance of common stock - 105,000
Payments on obligation under
non-compete agreement - (100,000)
------------- ------------
Net cash provided by financing
activities 13,132,224 25,976,225
------------- ------------
Net increase in cash and cash
equivalents 535,697 42,604
Cash and cash equivalents at beginning
of the period 1,712,827 1,259,441
------------- ------------
Cash and cash equivalents at end of the
period $ 2,248,524 $ 1,302,045
============= ============
Supplemental cash flow disclosures:
Cash paid for interest $ 3,328,017 $ 3,604,950
Cash paid for income taxes 186,950 64,410
Supplemental noncash financing
activities:
Preferred stock issued in exchange for
subordinated debt including accrued
interest of $1,332,093 $ 18,622,093 $ -
Preferred interests issued in exchange
for subordinated debt including
accrued interest of $348,616 5,483,616 -
See accompanying notes to condensed consolidated financial statements.
-4-
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Six months ended December 31, 1997 and 1996
(Unaudited)
Basis of Presentation
- ---------------------
The accompanying unaudited condensed consolidated financial statements of
Outdoor Communications, Inc. and subsidiaries, (the Company) have been prepared
in conformity with generally accepted accounting principles and with the
instructions for Form 10-Q and Rule 10-01 of Regulation S-X as they apply to
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. All significant intercompany transactions
have been eliminated in consolidation. The consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1997.
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation of financial position
and results of operations have been included. The operating results for the six
month period ended December 31, 1997 are not necessarily indicative of the
results to be expected for the year ending June 30, 1998.
Property and Equipment
- ----------------------
Major categories of property, plant, and equipment at December 31, 1997 and June
30, 1997 were as follows:
Estimated December 31, June 30,
Life (Years) 1997 1997
------------ ------------- ------------
(unaudited)
Land -- $ 1,639,979 $ 1,610,126
Building and improvements 10-25 1,480,468 1,469,852
Advertising structures 8-15 62,965,128 57,910,710
Leasehold improvements 2-20 913,452 872,674
Equipment 3-10 4,731,450 4,317,355
Construction in progress -- 191,798 102,666
----------- -----------
71,922,275 66,283,383
Less accumulated depreciation 13,732,992 10,496,880
----------- -----------
Net property and equipment $58,189,283 $55,786,503
=========== ===========
-5-
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, Continued
Intangible Assets
- ------------------
Intangible assets at December 31, 1997 and June 30, 1997 consist of the
following:
Estimated December 31, June 30,
Life (Years) 1997 1997
------------ ------------ ------------
(unaudited)
Covenants not to compete 4-10 $ 8,780,667 $ 8,495,667
Goodwill 20-25 58,826,993 46,619,981
Customer lists 8 27,097,653 26,833,154
----------- -----------
94,705,313 81,948,802
Less accumulated amortization 12,976,923 9,709,120
----------- -----------
$81,728,390 $72,239,682
=========== ===========
Initial Public Offering of Senior Subordinated Notes
- ----------------------------------------------------
On August 15, 1997, the Company completed a Public Note Offering (the Offering)
of $105 million aggregate principle amount of 9.25% subordinated notes due
August 15, 2007 (the Notes). Net proceeds of the Offering, after deduction of
associated expenses, were approximately $100.3 million. Accrued interest on the
Notes is payable in semi-annual installments on each February 15 and August 15,
commencing February 15, 1998. The Notes are redeemable at the Company's option,
in whole or in part, at any time on or after August 15, 2002 in accordance with
a prepayment premium as described in the indenture governing the Notes. Other
prepayments may occur prior to August 15, 2000 based on certain limitations as
described in the indenture governing the Notes.
The Notes are fully and unconditionally guaranteed, on a senior subordinated
basis, as to payment of principal, premium, if any, and interest, jointly and
severally by all of the Company's direct and indirect subsidiaries. Separate
financial statements of the Company's subsidiaries have not been presented
because (a) such guarantor subsidiaries have jointly and severally guaranteed
the notes on a full and unconditional basis, (b) the aggregate assets,
liabilities, earnings and equity of the guarantor subsidiaries are substantially
equivalent to the assets, liabilities, earnings and equity of the parent on a
consolidated basis and (c) the Company has not presented separate financial
statements and other disclosures concerning the subsidiary guarantors because
management has determined that such information is not material to investors.
New Credit Facility
- -------------------
Simultaneous to the Offering, the Company entered into a new $150 million senior
credit facility (New Credit Facility) with The Chase Manhattan Bank and a
syndicate consisting of various other financial institutions (collectively, the
New Bank). The New Credit Facility consists of a Revolving Loan Commitment (the
New Revolver) of $110 million and a Term Loan Commitment for $40 million
(collectively the New Borrowings). The New Revolver matures on December 21,
2004 and the Term Loan Commitment matures on June 30, 2005. The New Credit
Facility provides for annual reductions in the New Revolver and amortization of
the term loan facility. Collateral includes a first lien on all tangible and
intangible property of the Company, assignment of all leases, and a guaranty
by the Company.
-6-
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, Continued
The New Credit Facility enables the Company to borrow funds at a rate equal to
2.25% plus LIBOR or 1.0% over the New Bank's base rate, as defined. The New
Credit Facility also enables the Company to realize a lower interest rate if its
leverage ratio meets certain levels as stipulated in the Credit Facility. For
the quarter ended December 31, 1997, the average interest rate under the New
Credit Facility was 8.2%. Accrued interest is payable in quarterly installments
on March 31, June 30, September 30, and December 31. The Credit Facility also
requires payment of a commitment fee of 0.375% per annum, which may be reduced
based on the Company's leverage ratio, on the daily average aggregate unutilized
commitment from the Bank. Accrued commitment fees are due quarterly on March
31, June 30, September 30, and December 31.
The New Credit Facility contains certain warranties and affirmative covenants
that must be complied with on a continuing basis. In addition, the New Credit
Facility contains certain restrictive covenants which, among other things,
restrict the Company from incurring additional debt and liens on assets, limits
the amount of capital expenditures during any fiscal year, and prohibits the
consolidation, merger or sale of assets, or issuance of common stock except as
permitted by the New Credit Facility. The New Credit Facility also requires the
Company to maintain certain financial ratios.
Under the terms of the New Credit Facility, the subsidiaries are restricted in
their ability to make distributions to the Company to distributions necessary to
enable the Company to make interest payments due under the New Credit Facility
and make federal income tax payments. The indenture governing the Notes provides
that the Company will not, and will not permit any of the subsidiaries to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any consensual encumbrance or restriction of any kind on the ability
of the subsidiaries to make distributions to the Company with certain limited
exceptions including the restrictions under the New Credit Facility described in
the preceding sentence.
As of December 31, 1997, borrowings under the New Revolver totaled $29.15
million. The Company has the right to prepay the Borrowings in whole or in
part, without premium or penalty, as stipulated in the New Credit Facility.
Preferred Stock
- ---------------
In July 1997, the Company entered into an agreement, effective June 30, 1997,
with the Series A and B subordinated debt holders to exchange the notes and
accrued and unpaid interest through June 30, 1997 for Series A preferred stock
and/or preferred interest in OCIH LLC (OCIH) (the Debt Conversion).
-7-
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, Continued
The Board of Directors has authorized 5,000,000 shares of preferred stock, par
value $0.01 per share, of which 300,000 shares shall be designated Series A
(Series A Preferred Stock) and 4,700,000 shares shall be undesignated
(Undesignated Preferred Stock). Upon the closing of the Public Note Offering on
August 15, 1997, 186,220.93 shares of Series A Preferred Stock were issued in
exchange for subordinated debt and the related unpaid and accrued interest
thereon through June 30, 1997, totaling $17,290,000 and $1,332,093,
respectively, resulting in a corresponding increase in stockholders' equity of
$18,622,093. Additionally, $5,135,000 of subordinated debt and $348,616 of
unpaid and accrued interest thereon through June 30, 1997 were assigned by
certain subordinated note holders to OCIH in exchange for all of the preferred
interests of OCIH.
No dividends will be declared or paid on the common stock during any year unless
the full amount of accrued dividends on the Series A Preferred Stock has been
paid. Upon declaration, the holders of the Series A Preferred Stock are
entitled to cumulative cash dividends of $10 per annum, per share.
In the event of liquidation or dissolution of the Company, the holders of the
preferred stock are entitled to receive a preferential amount equal to $100 per
share of the issued and outstanding preferred stock and a further preferential
amount equal to all declared and unpaid dividends thereon. This liquidation
value will be paid before the payment or distribution of any assets of the
Company to the holders of the common stock.
Abandoned Equity Offering
- -------------------------
The Company abandoned plans for an initial public offering of its common stock
during July 1997. As a result, the Company has recognized approximately
$149,000 of expense in the first quarter of fiscal year 1998, due to the write
off of costs incurred related to the abandoned offering.
Extraordinary Loss
- ------------------
Effective August 15, 1997, the proceeds from the Offering were used for the
early extinguishment of the outstanding debt related to the prior credit
facility. As a result, deferred financing fees of $4,387,003 were written off
and have been recorded as an extraordinary loss.
Earnings Per Share
- ------------------
An earnings per share calculation has not been presented because the Company is
closely held by a private investor group and, accordingly, earnings per share is
not required or meaningful.
Acquisitions
- ------------
On October 2, 1997, the Company acquired the stock of Jennings Outdoor, Inc. and
the assets of Jennings Media Services, L.L.C. for a cash payment of $14.2
million of which $14 million was financed through the New Credit Facility. As a
result of this acquisition, the Company acquired approximately 740 display faces
in Alabama. The acquisitions have been accounted for by the purchase method and
the unaudited condensed consolidated financial statements include the operating
results of each business from the date of acquisition.
-8-
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, Continued
The Company also consummated the purchase of three smaller acquisitions
consisting of approximately 92 display faces during the six months ended
December 31, 1997 for aggregate cash payments of $1.8 million. The acquisitions
have been accounted for using the purchase method.
New Accounting Pronouncements
- -----------------------------
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income",
which will require the Company to disclose, in financial statement format, all
non-owner changes in equity. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. Adoption of this standard is not expected to
have a material impact on disclosures in the Company's financial statements.
The FASB has issued SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information", which established a new accounting principle for
reporting information about operating segments in annual financial statements
and interim financial reports. It also established standards for related
disclosures about products and services, geographic areas and major customers.
SFAS No. 131 is effective for fiscal years beginning after December 15, 1997.
The Company is currently evaluating the applicability of this standard.
However, the Company does not expect a material impact on disclosures in the
Company's financial statements.
Commitments and Contingencies
- -----------------------------
In July 1997, the Company and a prospective seller agreed to terminate a
contract to purchase the assets of an outdoor advertising company for which the
Company had tendered a deposit in the form of a letter of credit in the amount
of $1.0 million. The Company and the seller have each made claims to the deposit
and, while the Company believes that it is entitled to have the deposit
returned, there can be no assurance that the Company will be successful in
recovering the deposit. Pursuant to the contract, the prospective seller has
filed for arbitration before the Center for Public Resources and seeks an order
permitting it to draw upon the letter of credit. The Company does not believe
that any losses incurred by it in connection with this matter would have a
material impact on the financial condition or results of operations of the
Company.
Subsequent Events
- -----------------
Effective January 1, 1998, the Company acquired the assets of City Signs, LLC,
including 160 display faces, for approximately $2.7 million. Effective February
1, 1998, the Company acquired the assets of Bradley Outdoor Advertising,
including 97 display faces, for approximately $2.2 million. These acquisitions
will be accounted for by the purchase method.
-9-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain statements in Management's Discussion and Analysis of Financial
Condition and Results of Operations contain "forward-looking" information (as
defined in the Private Securities Litigation Reform Act of 1995). The words
"believe," "expect," "anticipate," "intend," "estimate," "assume" and other
similar expressions which are predictions of or indicate future events and
trends and which do not relate to historical matters identify forward-looking
statements. Reliance should not be placed on forward-looking statements because
they involve known and unknown risks, uncertainties and other factors, which are
in some cases beyond the control of the Company and may cause the actual
results, performance or achievements of the Company to differ materially from
anticipated future results, performance or achievements expressed or implied by
such forward-looking statements.
For further discussion identifying other important factors that could cause
actual results to differ materially from those anticipated in forward-looking
statements, see the Company's SEC filings, particularly the "Risk Factors"
discussion in the Company's Registration Statement on Form S-1 (No. 333-28489)
which was declared effective on August 12, 1997. Such factors include risks to
the Company presented by financial leverage, government regulation with respect
to zoning, restrictions on outdoor advertising by the tobacco industry,
competition and general economic conditions.
The Company was formed in April 1996 to acquire the operations of its
subsidiaries OCI (N) Corp. ("OCI North") and OCI (S) Corp. ("OCI South").
Unless otherwise indicated, references to the Company in the following
discussion refer to the consolidated operations of the Company and its
subsidiaries.
RESULTS OF OPERATIONS
Six Months Ended December 31, 1997 Compared To The Six Months Ended December 31,
1996.
The Company's net revenues increased $6.7 million, or 32.0%, to $27.7
million for the six months ended December 31, 1997 compared to $21.0 million in
net revenues for the six months ended December 31, 1996. This increase was
primarily due to revenues from acquisitions completed during the twelve-month
period ended December 31, 1997 and increased rates. Occupancy levels declined
slightly compared to the same period in 1996, as anticipated, due in part to the
absence of revenues related to the 1996 Olympics in the Company's Georgia and
Birmingham divisions.
The Company's direct operating expenses increased $2.6 million, or
38.8%, to $9.2 million for the six months ended December 31, 1997 compared to
$6.6 million in direct operating expenses for the six months ended December 31,
1996. Operating expenses attributed to the Skoglund companies, acquired by the
Company on October 31, 1996,
-10-
Outdoor West of Tennessee, acquired by the Company on March 31, 1997 and the
Jennings companies, acquired by the Company on October 1, 1997, accounted for
$2.0 million of the increase in direct operating expenses. The remaining $0.6
million of the increase was directly related to operating expenses associated
with in-market acquisitions and normal inflationary cost increases.
The Company's selling, general and administrative expenses increased
$2.2 million, or 39.4%, to $7.6 million for the six months ended December 31,
1997 compared to $5.4 million in selling, general and administrative expenses
for the six months ended December 31, 1996. Increased selling, general and
administrative expenses attributable to the Skoglund companies, Outdoor West of
Tennessee and the Jennings companies, accounted for $1.2 million of this
increase. The remaining $1.0 million of the increase was due to costs generated
by in-market acquisitions, increases in corporate overhead and normal
inflationary cost increases.
The Company's depreciation and amortization expense increased $3.1
million, or 84.3%, to $6.8 million for the six months ended December 31, 1997
compared to $3.7 million in depreciation and amortization expense for the six
months ended December 31, 1996. This increase was a result of the acquisitions
previously discussed which were completed in the last twelve months.
The Company's operating expenses, excluding depreciation and
amortization, as a percentage of net revenues for the six months ended December
31, 1997 increased to 60.4% compared to operating expenses, excluding
depreciation and amortization, as a percentage of net revenues of 57.3% for the
six months ended December 31, 1996.
The Company's interest expense increased $1.6 million, or 31.8%, to
$6.4 million for the six months ended December 31, 1997 compared to $4.8 million
in interest expense for the six months ended December 31, 1996. The increase is
attributable to debt incurred as a result of acquisitions completed during the
twelve months ending December 31, 1997.
During the six months ended December 31, 1997 the Company recognized an
extraordinary loss of $2.7 million, net of an income tax benefit of $1.7
million. This loss was due to the write-off of deferred financing costs related
to its previous credit facility which was refinanced in August of 1997.
As a result of the foregoing factors, the Company's net loss for the
six months ended December 31, 1997 was $6.1 million as compared to net income of
$0.3 million for the six months ended December 31, 1996.
-11-
Three Months Ended December 31, 1997 Compared To The Three Months Ended December
31, 1996
The Company's net revenues increased $3.3 million, or 30.6%, to $14.2
million for the three months ended December 31, 1997 compared to $10.9 million
in net revenues for the three months ended December 31, 1996. This increase was
primarily due to revenues from acquisitions completed during the twelve-month
period ended December 31, 1997.
The Company's direct operating expenses increased $1.2 million, or
33.5%, to $4.8 million for the three months ended December 31, 1997 compared to
$3.6 million in direct operating expenses for the three months ended December
31, 1996. Operating expenses attributed to the Skoglund companies, Outdoor West
of Tennessee, and the Jennings companies, accounted for $1.0 million of the
increase in direct operating expenses. The remaining $0.2 million of the
increase was directly related to operating expenses associated with in-market
acquisitions and normal inflationary cost increases.
The Company's selling, general and administrative expenses increased
$1.1 million, or 38.5%, to $4.0 million for the three months ended December 31,
1997 compared to $2.9 million in selling, general and administrative expenses
for the three months ended December 31, 1996. Increased selling, general and
administrative expenses attributable to the Skoglund companies, Outdoor West of
Tennessee and the Jennings companies, accounted for $0.6 million of this
increase. The remaining $0.5 million of the increase was due to costs generated
by in-market acquisitions, increases in corporate overhead and normal
inflationary cost increases.
The Company's depreciation and amortization expense increased $1.9
million, or 106.2%, to $3.6 million for the three months ended December 31, 1997
compared to $1.7 million in depreciation and amortization expense for the three
months ended December 31, 1996. This increase was a result of the acquisitions
previously discussed which were completed in the last twelve months.
The Company's operating expenses, excluding depreciation and
amortization, as a percentage of net revenues for the three months ended
December 31, 1997 increased to 61.7% compared to operating expenses, excluding
depreciation and amortization, as a percentage of net revenues of 59.3% for the
three months ended December 31, 1996.
The Company's interest expense increased $0.6 million, or 24.9%, to
$3.3 million for the three months ended December 31, 1997 compared to $2.7
million in interest expense for the three months ended December 31, 1996. The
increase was due to debt incurred as a result of acquisitions completed during
the twelve months ending December 31, 1997.
As a result of the foregoing factors, the Company's net loss for the
three months ended December 31, 1997 was $1.4 million as compared to net income
of $0.1 million for the three months ended December 31, 1996.
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LIQUIDITY AND CAPITAL RESOURCES
The Company has historically satisfied its working capital
requirements with cash from operations and revolving credit borrowings. Its
acquisitions have been financed primarily with borrowed funds.
On August 15, 1997, the Company successfully completed a public
offering (the "Offering") of $105,000,000 aggregate principal amount of its 9
1/4% Senior Subordinated Notes due 2007 (the "Notes") and entered into a new
secured credit facility (the "New Credit Facility" and, together with the
Offering, the "Financing Plan") pursuant to which the Company may borrow up to
$150 million. Net proceeds to the Company, after underwriting discounts, from
the Offering totaled $100.3 million. In addition, holders of the Company's
subordinated notes exchanged such notes, together with accrued but unpaid
interest thereon, for shares of the Company's Series A Preferred Stock, par
value $0.01 per share, or Series A Preferred Interests of the Company's OCIH LLC
subsidiary. The proceeds from the Financing Plan were used by the Company to
repay all outstanding amounts under its then-existing facility.
The New Credit Facility consists of an immediately available revolving
line of credit facility providing for borrowings of up to $110.0 million and a
$40.0 million term loan facility that, upon the request of the Company, will
become available subject to the approval of the lenders under the New Credit
Facility. At December 31, 1997, the outstanding borrowings under the New Credit
Facility were $29.15 million. The New Credit Facility is secured by all of the
assets and capital stock of OCI North, OCI South and OCIH LLC. Permitted
borrowings under the New Credit Facility are subject to various conditions,
including the attainment of certain performance measures by the Company.
The Company's growth since its formation in April 1996 has been
facilitated by strategic acquisitions that have substantially increased the
Company's inventory of advertising display faces. The Company currently
operates approximately 14,400 advertising displays in 12 midwestern and
southeastern states. The Company intends to continue its growth by pursuing an
aggressive acquisition strategy emphasizing acquisitions in new markets as well
as those currently served by the Company. In the past, its acquisitions have
been funded by borrowings under its credit facilities. To finance future
acquisitions, the Company will likely be required to borrow under the New Credit
Facility. In addition, the Company may require additional debt or equity
financing. There can be no assurance that such additional sources of funding
will be available on terms acceptable to the Company.
The Company's primary sources of cash are net cash generated from
operating activities and borrowings under the New Credit Facility. The
Company's net cash provided from operations increased $2.5 million, or 67.3%, to
$6.1 million for the six months ended December 31, 1997 compared to $3.6 million
for the six months ended December 31, 1996. Net cash used in investing
activities was $18.7 million for the six months ended December 31, 1997,
resulting primarily from acquisitions and capital expenditures. Net cash
provided by
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financing activities was $13.1 million for the six months ended December 31,
1997, resulting primarily from net borrowings under the New Credit Facility and
the Notes.
The Company made capital expenditures of $2.4 million during the six
months ended December 31, 1997 compared to $1.6 million during the six months
ended December 31, 1996.
Under the terms of the New Credit Facility, the Subsidiaries are
restricted in their ability to make distributions to the Company to
distributions necessary to enable the Company to make interest payments due
under the Notes and tax payments. The indenture pursuant to which the Notes
were issued (the "Indenture") provides that the Company will not, and will not
permit any of its subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any consensual encumbrance or
restriction of any kind on the ability of the Company's subsidiaries to make
distributions to the Company with certain limited exceptions including the
restrictions under the New Credit Facility described in the preceding sentence.
The agreement governing the New Credit Facility contains a number of covenants
that are more restrictive than those contained in the Indenture, including
covenants requiring the Company to maintain certain financial ratios that become
more restrictive over time.
The Company believes that its cash from operations, together with available
borrowings under the New Credit Facility, will be sufficient to satisfy its cash
requirements, including anticipated capital expenditures, for the foreseeable
future. However, in the event that cash from operations, together with available
funds under the New Credit Facility, are insufficient to satisfy cash
requirements, the Company may require additional indebtedness to finance its
operations including, without limitation, additional acquisitions. There can be
no assurance that such additional debt will be available or that the Company
will be able to incur such additional debt.
-14-
REGULATION OF TOBACCO ADVERTISING
In June 1997, it was reported that certain cigarette manufacturers who
are defendants in numerous class-action suits throughout the United States have
reached agreement with the Attorneys General of various states for an out of
court settlement with respect to such suits. The settlement is subject to
various conditions including approval and implementing legislation by the United
States Congress. A reduction in outdoor advertising by the tobacco industry
would cause an immediate reduction in the Company's direct revenue from such
advertisers at least in the immediate term following the imposition of such ban
while alternate sources of advertising are secured. Such ban would also increase
the available space on the existing inventory of billboards in the outdoor
advertising industry. This could in turn result in a reduction of outdoor
advertising rates in each of the Company's outdoor advertising markets or limit
the ability of industry participants to increase rates for some period of time.
Accordingly, there can be no assurance that the Company will immediately replace
tobacco industry advertising revenue in the event of a total ban of tobacco
advertising on outdoor billboards and signs and the consequences of such ban
could have a material adverse affect on the Company.
In addition, the State of Mississippi has entered into a separate
settlement of litigation with the tobacco industry. This settlement is not
conditioned on federal government approval and provides for the elimination of
all outdoor advertising of tobacco products by February 1998 in Mississippi.
The Company operates approximately 595 outdoor advertising displays in markets
in Mississippi and approximately $0.3 million of its approximately $3.7 million
in net revenues in Mississippi for the fiscal year ended June 30, 1997 were
attributable to tobacco advertising. Further, the settlement of tobacco-related
claims and litigation in other jurisdictions may also adversely affect outdoor
advertising revenues; however, the Company does not believe that the settlement
will have a material adverse effect on the financial condition or operations of
the Company.
INFLATION
In the last three years, inflation has not had a significant impact on
the Company.
-15-
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In July 1997, the Company and a prospective seller agreed to terminate
a contract to purchase the assets of an outdoor advertising company for which
the Company had tendered a deposit in the form of a letter of credit in the
amount of $1.0 million. The Company and the seller have each made claims to the
deposit and, while the Company believes that it is entitled to have the deposit
returned, there can be no assurance that the Company will be successful in
recovering the deposit. Pursuant to the contract, the prospective seller has
filed for arbitration before the Center for Public Resources and seeks an order
permitting it to draw upon the letter of credit. The Company does not believe
that any losses incurred by it in connection with this matter would have a
material impact on the financial condition or results of operations of the
Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
--------
3.1 Amended and Restated Certificate of Incorporation of the
Company(1)
3.2 By-laws of the Company(1)
Exhibit 27.1 Financial Data Schedule
b. Reports on Form 8-K: No reports on Form 8-K were filed by the
-------------------
Company during the period covered by this report.
---------------
(1) Incorporated by reference to the relevant exhibit to the Company's
Registration Statement on Form S-1 (333-28489) as declared
effective by the Commission on August 12, 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OUTDOOR COMMUNICATIONS, INC.
February __ 1998 /s/ John C Stanley IV
--------------------------------
John C Stanley IV
Chairman and Chief Executive Officer
February __ 1998 /s/ Ricky W. Thomas
--------------------------------
Ricky W. Thomas
Chief Financial Officer and Treasurer
(Principal Accounting Officer)
-17-
EXHIBIT INDEX
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EXHIBIT NUMBER DESCRIPTION PAGE
- -------------- ----------- ----
3.1 Amended and Restated Certificate of Incorporation of the
Company(1)
3.2 By-laws of the Company(1)
Exhibit 27 Financial Data Schedule
- ---------------
(1) Incorporated by reference to the relevant exhibit to the Company's
Registration Statement on Form S-1 (333-28489) as declared
effective by the Commission on August 12, 1997.