1
EXHIBIT 99.1
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
June 30, 1998 and 1997 and 1996
(With Independent Auditors' Report Thereon)
2
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Table of Contents
Page(s)
-------
Independent Auditors' Report 1
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Stockholders' Equity (Deficit) 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-24
3
Independent Auditors' Report
The Board of Directors and Stockholders
Outdoor Communications, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Outdoor
Communications, Inc. (formerly known as OCI Holdings Corp.) and subsidiaries as
of June 30, 1998 and 1997, and the related consolidated statements of
operations, stockholders' deficit, and cash flows for the years ended June 30,
1998 and 1997 and the period April 4, 1996 to June 30, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Outdoor
Communications, Inc. as of June 30, 1998 and 1997, and the results of their
operations and their cash flows for the years ended June 30, 1998 and 1997 and
the period April 4, 1996 to June 30, 1996, in conformity with generally accepted
accounting principles.
/s/ KPMG PEAT MARWICK, LLP
East Lansing, Michigan
August 14, 1998
4
(Continued)
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1998 and 1997
1998 1997
------------ ------------
Assets
Current assets:
Cash and cash equivalents $ 1,542,309 $ 1,712,827
Trade accounts receivable, less allowance for doubtful accounts
of $240,681 in 1998 and $317,914 in 1997 6,659,697 7,253,391
Refundable income taxes 50,088 616,100
Prepaid rent expense 2,094,299 1,805,431
Other assets 798,714 978,023
Deferred income taxes 294,069 438,967
------------ ------------
Total current assets 11,439,176 12,804,739
------------ ------------
Property and equipment, net 61,747,164 55,786,503
Intangible assets, less accumulated amortization 81,908,708 72,239,682
Deferred financing costs (net of accumulated amortization of $493,997
in 1998 and $797,622 in 1997) 4,890,768 4,240,033
Other assets 529,092 605,899
------------ ------------
Total assets $160,514,908 $145,676,856
============ ============
5
1998 1997
------------- -------------
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Trade accounts payable $ 1,120,640 $ 760,257
Accrued salaries, wages and benefits 1,237,279 1,187,104
Accrued interest 3,855,766 541,895
Other accrued expenses 775,988 491,848
Deferred advertising revenues and non-compete income 317,541 405,500
Current installments of long-term debt -- 5,876,875
Income taxes payable -- 615,418
------------- -------------
Total current liabilities 7,307,214 9,878,897
------------- -------------
Long-term debt:
Credit facility, excluding current installments 36,100,000 115,650,000
Senior subordinated notes 105,000,000 --
Subordinated debt -- 22,425,000
Notes payable to stockholders 2,000,000 --
Deferred income taxes 1,899,684 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 157,790,514 153,722,410
------------- -------------
Stockholders' equity (deficit):
Series A preferred stock, $0.01 par value. Authorized
300,000 shares; issued and outstanding 186,220.93
shares in 1998 and none in 1997 (aggregate
liquidation preference of $20,018,750) 1,862 --
Undesignated preferred stock, $0.01 par value
Authorized 4,700,000 shares; none issued and
outstanding in 1998 and 1997 -- --
Class A common stock, $0.01 par value. Authorized
10,000 shares; issued and outstanding 8,417.72 shares
in 1998 and 8,385.72 in 1997 84 84
Class B common stock, $0.01 par value. Authorized
10,000 shares; issued and outstanding 3,689.28 shares
in 1998 and 1997 37 37
Additional paid-in capital 22,624,442 3,811,475
Accumulated deficit (19,902,031) (11,857,150)
------------- -------------
Total stockholders' equity (deficit) 2,724,394 (8,045,554)
------------- -------------
Commitments and contingencies
Total liabilities and stockholders' equity (deficit) $ 160,514,908 $ 145,676,856
============= =============
See accompanying notes to consolidated financial statements.
-2-
6
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended June 30, 1998 and 1997 and
the period April 4, 1996 to June 30, 1996
1998 1997 1996
------------ ------------ ------------
Gross revenues $ 61,841,085 $ 49,169,290 $ 9,535,542
Less agency commissions 5,606,975 4,665,764 987,032
------------ ------------ ------------
Net revenues 56,234,110 44,503,526 8,548,510
------------ ------------ ------------
Operating expenses:
Direct operating expenses 19,865,596 15,106,559 2,753,970
Selling, general, and administrative 15,102,801 12,030,361 2,308,313
Depreciation and amortization 13,628,849 9,821,294 1,801,892
------------ ------------ ------------
Total operating expenses 48,597,246 36,958,214 6,864,175
------------ ------------ ------------
Operating income 7,636,864 7,545,312 1,684,335
Interest expense (13,546,092) (11,623,563) (1,953,993)
Loss on disposal of equipment, net (511,335) (458,541) (67,328)
Other income (expense), net 168,016 194,306 64,494
Expenses written off related to proposed equity offering (148,506) -- --
Expenses written off related to abandoned acquisitions (595,806) -- --
------------ ------------ ------------
Loss before income taxes and
extraordinary item (6,996,859) (4,342,486) (272,492)
Income tax benefit (1,628,050) (1,023,412) (10,814)
------------ ------------ ------------
Loss before extraordinary item (5,368,809) (3,319,074) (261,678)
Extraordinary loss from early extinguishment of debt, net of income
tax benefit of $1,710,931 (2,676,072) -- --
------------ ------------ ------------
Net loss $ (8,044,881) $ (3,319,074) $ (261,678)
============ ============ ============
See accompanying notes to consolidated financial statements.
-3-
7
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
Years ended June 30, 1998 and 1997 and
the period April 4, 1996 to June 30, 1996
Series A Class A Class B Additional Total
Preferred Common Common Paid-in Accumulated Stockholders'
Stock Stock Stock Capital Deficit Equity(Deficit)
----------- ----------- ----------- ----------- ----------- ---------------
Balances at April 3, 1996 $ 90 10 -- 1,235,326 (8,276,398) (7,040,972)
Class A common shares issued for
cash -- 35 -- 3,536,895 -- 3,536,930
Class B common shares issued for
cash -- -- 2 189,270 -- 189,272
Merger with OCI of Michigan -- 19 -- (19) -- --
Redemption of OCI Michigan stock (90) (10) -- (7,589,932) -- (7,590,032)
Class A common shares issued for
MCC stock -- 28 -- 2,764,972 -- 2,765,000
Class B common shares issued for
cash -- -- 35 3,499,965 -- 3,500,000
Net loss -- -- -- -- (261,678) (261,678)
----------- ----------- ----------- ----------- ----------- -----------
Balances at June 30, 1996 -- 82 37 3,636,477 (8,538,076) (4,901,480)
Class A common shares issued for
cash -- 2 -- 174,998 -- 175,000
Net loss -- -- -- -- (3,319,074) (3,319,074)
----------- ----------- ----------- ----------- ----------- -----------
Balances at June 30, 1997 -- 84 37 3,811,475 (11,857,150) (8,045,554)
----------- ----------- ----------- ----------- ----------- -----------
Series A preferred shares issued
for subordinated debt 1,862 -- -- 18,620,230 -- 18,622,092
Class A common shares issued for
cash -- -- -- 192,737 -- 192,737
Net loss -- -- -- -- (8,044,881) (8,044,881)
----------- ----------- ----------- ----------- ----------- -----------
Balances at June 30, 1998 $ 1,862 84 37 22,624,442 (19,902,031) 2,724,394
=========== =========== =========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
-4-
8
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended June 30, 1998 and 1997 and
the period April 4, 1996 to June 30, 1996
1998 1997 1996
------------- ------------- -------------
Cash flows from operating activities:
Net loss $ (8,044,881) $ (3,319,074) $ (261,678)
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:
Allowance for doubtful accounts 561,552 317,964 48,265
Depreciation of equipment 6,692,141 5,069,744 903,191
Amortization of intangible assets 7,483,758 5,441,136 1,026,557
Extraordinary item 4,149,303 -- --
Loss on disposal of equipment 511,335 458,541 67,328
Deferred income taxes (3,343,873) (1,255,631) (112,776)
Changes in assets and liabilities, net of effects from purchase of
company, which increase (decrease) cash flows:
Trade accounts receivable 205,945 (1,083,210) (1,084,980)
Refundable income taxes 566,012 (430,207) (81,182)
Prepaid rent expense (288,868) (303,145) (116,876)
Other assets 256,116 (240,413) 394,681
Trade accounts payable 360,383 (27,528) 79,701
Income taxes payable (615,418) 435,596 179,822
Accrued expenses 3,657,229 1,112,794 (5,069,984)
Deferred advertising revenues and non-compete income (114,626) (78,828) (142,665)
------------- ------------- -------------
Net cash provided by (used in) operating activities 12,036,108 6,097,739 (4,170,596)
------------- ------------- -------------
Cash flows from investing activities:
Purchase of AOA Holding, L.L.C -- -- (34,132,908)
Purchase of Georgia Outdoor Advertising, Inc. -- -- (11,650,000)
Purchase of Mass Communications Corp. warrants, common and
preferred stock -- -- (767,850)
Purchase of Skoglund Communications, Inc. and Skoglund
Communications of St. Cloud, Inc. -- (21,246,850) --
Purchase of Outdoor West of Tennessee -- (11,802,444) --
Purchase of Summey Outdoor Advertising, Inc. -- (5,145,000) --
Purchase of Jennings Outdoor, Inc. and Jennings Media Services, LLC
(14,159,837) -- --
Purchase of other businesses (6,668,902) (13,639,159) --
Capital expenditures (7,545,532) (4,338,483) (597,849)
Proceeds from sale of property and equipment 190,855 36,617 2,625
Deferred acquisition costs (404,306) (1,318,458) (452,814)
------------- ------------- -------------
Net cash used in investing activities (28,587,722) (57,453,777) (47,598,796)
------------- ------------- -------------
Cash flows from financing activities:
Proceeds from issuance of senior subordinated notes 105,000,000 -- --
Borrowings under long-term debt agreement 45,750,000 54,750,000 80,465,000
Repayment of long-term debt (125,300,000) (1,600,000) (23,950,000)
Repayment of notes payable to shareholders (3,876,875) -- --
Deferred financing costs (5,384,766) (1,740,576) (3,281,537)
Proceeds from issuance of subordinated notes -- 325,000 --
Proceeds from issuance of common stock 192,737 175,000 7,226,202
Redemption of OCI Corp. of Michigan common and preferred stock -- -- (7,590,032)
Payments on obligation under non-compete agreement -- (100,000) (100,000)
------------- ------------- -------------
Net cash provided by financing activities 16,381,096 51,809,424 52,769,633
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents (170,518) 453,386 1,000,241
Cash and cash equivalents at beginning of the period 1,712,827 1,259,441 259,200
------------- ------------- -------------
Cash and cash equivalents at end of the period $ 1,542,309 $ 1,712,827 $ 1,259,441
============= ============= =============
See accompanying notes to consolidated financial statements.
-5-
9
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1998 and 1997 and 1996
(1) Organization and Acquisition of Assets
After the close of business on April 3, 1996, the stockholders of OCI
Corp. of Michigan (OCIM) and Mass Communications Corp. (MCC)
(collectively, the companies) entered into a plan of reorganization (the
Reorganization Plan) to restructure and merge the companies. Pursuant to
the Reorganization Plan, the stockholders agreed to sell their entire
interests in the common and preferred stock of the companies. In
conjunction with the Reorganization Plan, OCI Holdings Corp. (Holdings)
was incorporated for the purpose of effecting the reorganization and
merger. Holdings is a holding company with no assets or operations other
than its investment in its subsidiaries.
Under the Reorganization Plan, a series of planned transactions were
executed in the following order: (1) certain outside investors of OCIM
(the Investors) purchased 24.67 shares and 60 shares of OCIM's common and
preferred stock, respectively, from the minority shareholders of OCIM for
$1,908,798; (2) the Investors then exchanged these same shares, together
with $14,191,202 in cash, for 5,410.73 and 3,869.28 shares of Holdings'
Class A and Class B common stock, respectively, and $10,465,000 of
subordinated debt (see note 6); and (3) the remaining 75.33 shares and
840 shares of OCIM's common and preferred stock, respectively, were
purchased by Holdings for $7,508,367, which resulted in Holdings being
the sole stockholder in OCIM's common and preferred stock.
As a result of the above transactions, OCIM became a wholly-owned
subsidiary of Holdings. As such, the closing balance sheet of OCIM at
April 3, 1996, adjusted to reflect the above transactions, became the
opening balance sheet of Holdings.
Immediately following the execution of the Reorganization Plan
transactions listed above, the stockholders of MCC exchanged 7,731.01
shares of common stock and 308.78 shares of preferred stock and sold
5,128.99 shares of common stock and 691.22 shares of preferred stock for
an aggregate value of $25,747,927. This transaction resulted in MCC
becoming a wholly owned subsidiary of Holdings. The acquisition has been
accounted for using the purchase method of accounting and, accordingly,
the purchase price has been allocated to the assets purchased and
liabilities assumed based upon the fair value at the date of acquisition
as follows:
Adjusted working capital $ 1,450,063
Goodwill 8,741,590
Property and equipment 11,529,274
Customer list 4,027,000
---------------
$ 25,747,927
===============
-6-
10
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(1) Organization and Acquisition of Assets, Continued
The details of the acquisition for the fair value of assets acquired and
liabilities assumed are as follows: liabilities assumed of $10,750,000;
subordinated debt issued to the MCC shareholders in the amount of
$11,011,875; 2,764.99 shares of OCI Holdings Inc. common stock issued to
MCC shareholders with a value of $2,765,000; and cash paid in the amount
of $1,221,052 equaling the purchase price of $25,747,927.
Effective June 30, 1997, OCI Holdings Corp. was renamed Outdoor
Communications, Inc. (OCI). Simultaneously, New South Holdings Corp. and
MCC were merged into OCI and MCC's subsidiary, Outdoor Communications,
Inc. was renamed OCI (S) Corp. Also during 1997, OCI Corp. of Michigan
was renamed OCI (N) Corp. As a result of these transactions, the Company
now has two wholly owned subsidiaries, OCI (N) Corp. and OCI (S) Corp.
Outdoor Communications, Inc. and subsidiaries (the Company) is a leading
outdoor advertising company in the Midwest and Southeast Regions of the
United States. The Company owns and operates outdoor advertising display
faces in 12 states throughout these regions. The Company sells outdoor
advertising space to national and local advertisers.
(2) Summary of Significant Accounting Policies
The accounting policies of the Company, as summarized below, conform with
generally accepted accounting principles and reflect practices
appropriate to the business in which it operates.
(a) Principles of Consolidation
The consolidated financial statements include the financial
statements of Outdoor Communications, Inc. and its wholly owned
subsidiaries, OCI (N) Corp. and OCI (S) Corp. All significant
intercompany balances and transactions have been eliminated in
consolidation.
(b) Cash Equivalents
Cash equivalents consist of repurchase agreements and money market
funds. For purposes of the consolidated statements of cash flows, the
Company considers all highly liquid debt instruments with maturities
of three months or less at the time of purchase to be cash
equivalents.
(c) Property and Equipment
Property and equipment are stated at cost. Depreciation on plant and
equipment is computed using the straight-line method over the
estimated useful lives of the assets.
-7-
11
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(2) Summary of Significant Accounting Policies, Continued
(d) Intangible Assets
Intangible assets include goodwill, non-compete agreements and
customer lists. Goodwill, which represents the excess of purchase
price over fair value of net assets acquired on their dates of
acquisition, is amortized on a straight-line basis over the expected
periods to be benefited, ranging from 20 to 25 years. The non-compete
agreements are amortized over the terms of the respective agreements,
which range from 4 to 10 years. Customer lists resulting from
acquisitions are amortized on the straight-line method over 8 years.
The Company assesses the recoverability of all long-lived intangible
assets by determining whether the amortization of the intangible
assets over their remaining lives can be recovered through
undiscounted future operating cash flows of the acquired operation.
The amount of impairment, if any, is measured based on projected
undiscounted future operating cash flows of the underlying assets.
(e) Deferred Financing Costs
Financing costs incurred as a result of obtaining long-term debt are
recorded as deferred financing costs and are amortized on a
straight-line basis over the term of the related debt (see note 5)
and reflected as interest expense in the accompanying consolidated
statements of operations.
(f) Employee Benefits
The Company is partially self-insured for its employee health care
plan. The liability for self-insurance reflects the cost for the
uninsured portion of unpaid claims at year end. The liability is
based on estimates for claims reported prior to year end, using
reported claim information, and estimates for claims incurred but not
reported, based on historical results of the Company's plan, as well
as certain industry information.
(g) Retirement Program
The Company provides a defined contribution 401(k) plan, which covers
all of its full-time employees with one or more years of service.
Eligible employees can contribute up to 15% of their compensation
through payroll deductions. The Company contributes an amount equal
to 50% of each employee's contribution up to 3% of the employee's
total compensation.
(h) Revenue Recognition
The Company recognizes revenue from advertising contracts on an
accrual basis ratably over the term of the contracts, which range
from 1 to 12 months, as advertising services are provided.
Advertising revenues from retail consumer products, hospitality, and
automotive industry constitute approximately 36.5% of gross revenues.
No other industry is the source of 10% or more of gross revenues.
-8-
12
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(2) Summary of Significant Accounting Policies, Continued
(i) Income Taxes
Income taxes are accounted for 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 and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted 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.
(j) Other Assets
Other assets consist principally of inventory and the cash surrender
value of officers life insurance.
(k) Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and
the disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(l) Financial Instruments
The Company periodically utilizes hedged interest rate swap
agreements. The interest rate swap agreements involve the exchange of
fixed- and floating-rate interest payments over the life of the
agreement without the exchange of the underlying principal amounts.
The differential to be paid or received, on a quarterly basis, is
accrued as interest rates change and is recognized as an adjustment
to interest expense.
(m) Stock-Based Compensation
As more fully described in note 17, the Company records compensation
expense for stock options only if the market price of the Company's
stock, on the date of grant, exceeds the amount an individual must
pay to acquire the stock.
(n) 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.
-9-
13
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(3) Property and Equipment
Major categories of property, plant, and equipment at June 30, 1998 and
1997 were as follows:
Estimated
Life (Years) 1998 1997
------------ ----------- -----------
Land -- $ 1,663,662 1,610,126
Building and improvements 10-25 1,731,293 1,469,852
Advertising structures 8-15 77,035,217 57,910,710
Leasehold improvements 2-20 1,184,408 872,674
Equipment 3-10 5,282,078 4,317,355
Construction in progress -- 466,523 102,666
----------- -----------
87,363,181 66,283,383
Less accumulated depreciation 25,616,017 10,496,880
----------- -----------
Net property and equipment $61,747,164 55,786,503
=========== ===========
(4) Intangible Assets
Intangible assets at June 30, 1998 and 1997 consist of the following:
Estimated
Life (Years) 1998 1997
------------ ----------- -----------
Covenants not to compete 4-10 $ 8,872,167 8,495,667
Goodwill 20-25 58,631,327 46,619,981
Customer lists 8 31,018,388 26,833,154
----------- -----------
98,521,882 81,948,802
Less accumulated amortization 16,613,174 9,709,120
----------- -----------
$81,908,708 72,239,682
=========== ===========
(5) Public Offering of Senior Subordinated Notes
On August 15, 1997, the Company completed a Public Note Offering (the
Offering) of $105 million aggregate principal 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.
-10-
14
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(5) Public Offering of Senior Subordinated Notes, Continued
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.
The Company abandoned plans for an initial public offering of its common
stock during July 1997. As a result, the Company recognized an expense of
$148,506 due to the write off of costs incurred related to the abandoned
offering.
(6) Indebtedness
A. New Credit Facility
Simultaneous to the Offering on August 15, 1997, 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
guaranties by the Company's subsidiaries.
The Credit Facility enables the Company to borrow funds at a rate equal
to 3% plus the London Interbank Offered Rate (LIBOR) or 1.75% over the
Bank's prime lending rate. The 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. At June 30, 1998 the average
interest rate was 8.5% on outstanding borrowings. 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 1/2 of 1% per annum 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 and totaled $311,052 for
the year ended June 30, 1998.
-11-
15
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(6) Indebtedness, Continued
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. At June 30, 1998, the Company was in compliance
with all such covenants.
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 principal and
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.
At June 30, 1998, borrowings under the New Revolver totaled $36.1
million. The Company has the right to prepay the New Borrowings in whole
or in part, without premium or penalty, as stipulated in the New Credit
Facility.
B. Prior Credit Facility
Prior to August 15, 1997, the Company had a credit agreement with Chase
Manhattan Bank, N.A. and a syndicate of other banks which consisted of a
Term Loan A Commitment for $40 million, a Term Loan B Commitment for $40
million, and a Revolving Loan Commitment of $60 million. The term loans
were due on June 30, 2003. Collateral included a first lien on all
tangible and intangible property of the Company, assignment of all
leases, and a guaranty by OCI and all of its subsidiaries. At June 30,
1997, the interest rate was 8.5%, and the Company had borrowed
$35,650,000 under the facility.
As a result of the refinancing of the prior credit facility in August
1997, the Company recognized an extraordinary loss of $4,387,003 related
to the write-off of deferred financing fees.
C. Prior Subordinated Notes
The Company entered into a Securities Purchase Agreement (the
"Agreement") after the close of business on April 3, 1996 with certain
management investors and outside investors. In connection with the
reorganization discussed in note 1, the Company issued its 10%
subordinated notes due December 31, 2003. The subordinated notes were
comprised of two series; Series A 10% subordinated notes in the amount of
$5,525,000 and Series B 10% subordinated notes in the amount of
$16,900,000.
-12-
16
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(6) Indebtedness, Continued
Accrued interest on the outstanding principal balance of the notes was
payable at a rate of 10% per annum, computed on the basis of a 365 day
year, and was payable annually on March 31, commencing in 1997. The
Agreement allowed the Company to only pay 46% of the accrued and unpaid
interest on an annual basis. The remaining 54% was deferred and accrued
interest at a rate of 10% per annum and was due in accordance with the
terms of the Agreement, but in any event no later than December 31, 2003.
Accrued interest at June 30, 1997 amounted to $1,911,584.
The Agreement contained certain warranties and affirmative covenants that
were complied with on a continuing basis. The Agreement also contained
certain restrictive covenants which, among other things, restricted the
Company from entering into transactions with affiliates outside the
ordinary course of business, consummating a sale of the Company, or
engaging in any new lines of business. At June 30, 1997, the Company was
in compliance with all such covenants.
See note 10 regarding the exchange of these subordinated notes and
accrued interest for Series A Preferred Stock of the Company and
preferred interests in a newly formed non-operating subsidiary, OCIH LLC
(OCIH). See note 5 regarding the Company's Public Offering of Senior
Subordinated Notes on August 15, 1997.
D. Notes Payable to Stockholders
On the close of business on April 3, 1996, New South Holdings Corp., a
wholly owned subsidiary of Holdings, entered into written agreements with
the Company's chairman and president, borrowing in total $5,876,875.
Effective April 3, 1998, the notes were paid in full with the exception
of $2,000,000 of notes payable to the chairman, due April 3, 2000. The
notes bear interest at a rate which fluctuates quarterly based on the
interest rate per the New Credit Facility less the sum of the applicable
eurodollar margin (as defined in the Credit Agreement) and 1/8 of 1%. The
interest rate was 5.65% at June 30, 1998 and 5.41% at June 30, 1997.
Accrued interest on the outstanding principal balance of the notes is
payable quarterly. The notes are secured by a Letter of Credit issued by
The Chase Manhattan Bank, N.A.
(7) Fair Value of Financial Instruments
The following disclosure of the estimated fair value of the Company's
financial instruments is made in accordance with the requirements of FASB
Statement No. 107, "Disclosure about Fair Value of Financial Instruments"
("Statement 107"). Statement 107 defines the fair value of a financial
instrument as the amount at which the instrument could be exchanged in a
current transaction between willing parties.
The carrying values of cash and cash equivalents, trade accounts
receivable, trade accounts payable, accrued expenses, and obligations
under non-compete agreements approximate fair values due to the
short-term maturities of these instruments. Interest rate swaps, credit
facility, senior subordinated debt and notes payable to stockholders are
estimated to approximate fair values as rates are tied to short-term
indices. The subordinated debt bears interest at a rate which
approximates market for unsecured debt.
-13-
17
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(8) Income Taxes
Total income tax expense (benefit) for the years ended June 30, 1998 and
1997 and the period ended June 30, 1996 were allocated as follows:
1998 1997 1996
----------- ----------- -----------
Income from continuing operations $(1,628,050) (1,023,412) (10,814)
Extraordinary item (1,710,931) -- --
----------- ----------- -----------
$(3,338,981) (1,023,412) (10,814)
=========== =========== ===========
Income tax expense (benefit) attributable to loss from continuing
operations for the periods ended June 30 consists of:
Current Deferred Total
--------------- --------------- ----------------
1998
Federal $ 10,997 (1,488,673) (1,477,676)
State and local 22,418 (172,792) (150,374)
--------------- --------------- ----------------
$ 33,415 (1,661,465) (1,628,050)
=============== =============== ===============
1997
Federal $ 92,805 (1,189,910) (1,097,105)
State and local 139,414 (65,721) 73,693
--------------- --------------- ---------------
$ 232,219 (1,255,631) (1,023,412)
=============== =============== ===============
1996
Federal $ 81,962 (72,889) 9,073
State and local 20,000 (39,887) (19,887)
--------------- --------------- ---------------
Total $ 101,962 (112,776) (10,814)
=============== =============== ===============
-14-
18
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(8) Income Taxes, Continued
Income tax expense differed from the amounts computed by applying the
federal income tax rate of 34% for the periods ended June 30 to income
before income tax expense as a result of the following:
1998 1997 1996
----------- ----------- -----------
Computed "expected" tax expense (benefit) $(2,378,935) (1,476,446) (92,647)
Increase (reduction) in income taxes resulting from:
State and local income taxes, net of federal income tax
expense 99,247 (6,887) (15,891)
Non-deductible expenses 34,820 29,467 6,599
Nondeductible goodwill 284,875 175,346 44,242
Adjustment of prior period accrual -- 121,833 74,292
Other, net 56,295 151,275 12,591
Change in the beginning-of-the-year balance of the valuation
allowance for deferred tax assets allocated to income tax
expense (275,648) (18,000) (40,000)
----------- ----------- -----------
$(1,628,050) (1,023,412) (10,814)
=========== =========== ===========
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at each
June 30, is presented below:
1998 1997
----------- -----------
Deferred tax assets:
Net operating loss carryforwards $ 3,397,793 283,268
Alternative minimum tax credit carryforwards 71,473 182,973
Investment tax credit carryforwards 12,949 12,949
Deferred revenue, principally related to advertising leases 68,663 72,787
Accrued expenses, principally related to compensated
absences, health care claims and sales discounts 217,291 281,031
Deferred noncompete income 9,067 36,267
Other 96,300 119,707
----------- -----------
Total gross deferred tax assets 3,873,536 988,982
Less valuation allowance (417,648) (142,000)
----------- -----------
Net deferred tax assets 3,455,888 846,982
----------- -----------
Deferred tax liabilities:
Property and equipment, principally due to differences in
financial statement carrying amounts and tax basis (3,743,828) (3,403,385)
Intangible assets, principally due to differences in length
of amortization period (1,317,675) (1,074,810)
----------- -----------
Total gross deferred tax liabilities (5,061,503) (4,478,195)
----------- -----------
Net deferred tax liabilities $(1,605,615) $(3,631,213)
=========== ===========
-15-
19
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(8) Income Taxes, Continued
The above deferred tax assets (liabilities) are presented in the June 30,
1998 and 1997 balance sheets as follows:
1998 1997
----------- -----------
Current assets $ 294,069 438,967
Non-current liabilities (1,899,684) (4,070,180)
----------- -----------
Net deferred tax liabilities $(1,605,615) (3,631,213)
=========== ===========
The net change in the total valuation allowance for the years ended June
30, 1998 and 1997 and for the period ended June 30, 1996 was an increase
of $275,648, a decrease of $18,000 and a decrease of $40,000,
respectively.
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become
deductible. Management considers the scheduled reversals of deferred
taxes, projected future taxable income, and tax planning strategies in
making this assessment. Based upon the level of historical taxable income
and projections for future taxable income over the periods which the
deferred tax assets are deductible, management believes it is more likely
than not that the Company will realize the benefits of these deductible
differences, net of the existing valuation allowance at June 30, 1998,
1997, and 1996. The amount of the deferred tax assets considered
realizable, however, could be reduced in the near term if estimates of
future taxable income during the carryforward period are reduced.
At June 30, 1998, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $9,993,500. These net
operating loss carryforwards can be utilized to offset future taxable
income, if any, through the year 2013.
The Company also has an alternative minimum tax credit carryforward of
$71,973, which is available to reduce future regular income taxes, if
any, over an indefinite period. In addition, the Company has an
investment tax credit carryforward of $12,949, which is available to
reduce future regular income taxes, if any, through 2001.
-16-
20
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(9) Stockholders' Equity
All general voting power is vested in the holders of Class A common
stock. The holders of Class B common stock are not entitled to vote at
any stockholders' meetings. Any share of Class B common stock can be
converted, at the option of the holder, into Class A common stock at the
rate of one share of Class A common stock for each share of Class B
common stock, subject to certain approvals.
Also, any share of Class A common stock can be converted, at the option
of the holder, into Class B common stock at the rate of one share of
Class B common stock for each share of Class A common stock, subject to
and upon compliance with the provisions of the Certificate of
Incorporation of OCI Holdings Corp.
Dividends or distributions of common stock shall be payable on shares of
Class A and B common stock, share and share alike.
In the event of liquidation, the holders of Class A and B common stock
shall be entitled to share ratably in the net assets of the Company after
payment of debts and other liabilities.
The Corporation shall not take any action (e.g., redeem, purchase, or
acquire) affecting outstanding shares of common stock if after giving
effect to such action any one, as defined, stockholder would own more
than 24.95% of Class A common stock.
(10) 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 (the Debt Conversion).
The Board of Directors has authorized 5,000,000 shares of preferred
stock, par value $.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, approximately 240,967 shares of
Series A Preferred Stock were issued in exchange for subordinated debt
and the related unpaid and accrued interest through June 30, 1997
totaling $17,290,000 and $1,332,092, respectively, resulting in a
corresponding increase in stockholders' equity of $18,622,092.
Additionally, $5,135,000 of subordinated debt and $348,616 of unpaid and
accrued interest through June 30, 1997 were assigned by the respective
note holders to OCIH in exchange for all of the preferred interests of
OCIH.
As discussed in Note 9, all general voting power is vested in holders of
Class A common stock. Shares of Series A Preferred Stock are not included
in determining the number of shares entitled to vote.
-17-
21
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(10) Preferred Stock, Continued
No dividends can 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.
(11) Leases
The Company leases substantially all of the land presently used as sites
for advertising panels under various terms. The leases are classified as
operating leases. These leases generally contain renewal options ranging
from 1 to 15 years and require the Company to pay all executory costs,
such as maintenance and insurance. Rental expense for operating leases
amounted to approximately $7,657,000 for the year ended June 30, 1998,
$5,825,000 for the year ended June 30, 1997 and $931,000 for the period
April 4, 1996 to June 30, 1996.
Future minimum lease payments under noncancelable operating leases with
non-related parties (with initial or remaining lease terms in excess of
one year) as of June 30, 1998 are:
Year ending June 30:
1999 $ 5,792,581
2000 4,779,852
2001 3,944,768
2002 3,381,616
2003 2,803,461
---------------
$ 20,702,278
===============
(12) Employee Health Care Plan
Under the Company's self insurance plan for employee health care,
eligible participants receive payment or reimbursement of all or a
portion of eligible participants medical expenses, after deductibles and
co-payments, up to a lifetime aggregate benefit of $1 million. Eligible
participants (and their dependents) include active full-time employees.
The plan is primarily funded by the Company, with contributions from
participants for a portion of dependent's coverage, as required under the
health care plan.
-18-
22
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(12) Employee Health Care Plan, Continued
The plan has obtained aggregate excess of loss coverage of $970,000 in
excess of $45,000 per eligible participant. The Company incurred
approximately $134,000, $99,000 and $11,600 for such coverage for the
years ended June 30, 1998, 1997, and for the period April 4, 1996 to June
30, 1996, respectively. Additionally, the Company incurred approximately
$716,000, $480,000 and $180,000 in expense for self-insured health care
claims for the years ended June 30, 1998, 1997 and for the period April
4, 1996 to June 30, 1996, respectively.
(13) Retirement Program
Retirement program expense with respect to the Company's defined
contribution 401(k) plan approximated $163,000 for the year ended June
30, 1998, $62,000 for the year ended June 30, 1997, and $11,000 for the
period April 4, 1996 to June 30, 1996.
(14) Supplemental Cash Flow Information
Non cash investing and financing activities for the years ended June 30,
1998, 1997 and for the period April 4, 1996 to June 30, 1996 are as
follows:
1998 1997 1996
----------- ----------- -----------
Cash paid for income taxes $ 91,044 80,000 3,322
Cash paid for interest $ 9,645,230 11,846,217 6,881,000*
Supplemental noncash financing activities:
Preferred stock issued in exchange for
subordinated debt including accrued
interest of $1,332,092 $18,662,092 -- --
Preferred interests issued in exchange for
subordinated debt including accrued
interest of $348,616 5,483,616 -- --
*$6,531,384 pertained to the interest paid on the junior and senior
subordinated debt and senior debt existing prior to the close of business
on April 3, 1996.
The extraordinary item as reflected in the consolidated statements of
cash flows, for the year ended June 30, 1998 in the amount of $4,149,303
is comprised of $4,387,003, which represents the write off of deferred
financing fees; net of a cash payment of $237,700 to buy out the
Company's swap agreements (Note 15).
Amortization of deferred financing fees in the amount of $547,050,
$667,838 and $127,856 in 1998, 1997 and 1996, respectively, has been
classified as interest expense.
On April 4, 1996, the Company issued 2,764.99 shares of its common stock
valued at $2,765,000 and series A subordinated notes in the amount of
$5,135,000 for the purchase of 7,371.01 common shares and 308.78
preferred shares of MCC. Also, the Company issued subordinated notes in
the amount $5,876,875 for the purchase of 5,128.99 common shares and
562.5 preferred shares of Mass Communications Corp.
-19-
23
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(14) Supplemental Cash Flow Information, Continued
Details of acquisition:
Fair value of assets acquired $ 25,747,927
Liabilities assumed (10,750,000)
Subordinated debt issued (11,011,875)
Stock issued (2,765,000)
------------
Cash paid 1,221,052
Less cash acquired 453,202
------------
Net cash paid for acquisition $ 767,850
============
(15) Interest Rate Swap Agreements
On May 30, 1996, the Company entered into three-year interest swap
agreements, expiring on June 30, 1999, with First Union National Bank of
North Carolina (First Union) and Chase to manage its interest rate
exposure. Interest rate exchange transactions generally involve the
exchange of fixed and floating-rate interest payment obligations without
the exchange of the underlying principal amounts. Entering into interest
rate exchange agreements involves the risk of dealing with counterparties
and their ability to meet the terms of the contracts. Notional principal
amounts are used to express the volume of these transactions. The
floating interest rate on the interest swap agreement is based on three
month U.S. dollar LIBOR. The Chase agreement was terminated on December
30, 1996 and replaced with a new three year swap agreement. The
fixed-for-floating interest rate swap agreements as of June 30, 1997 are
summarized as follows:
Chase First Union
----- -----------
Notional principal amount $ 25,395,825 $ 15,000,000
Fixed rate paid 6.25% 6.34%
Floating rate 5.75% 5.76172%
In August 1997, the Company paid approximately $238,000 to buy out the
swap agreements.
(16) Acquisitions
On October 31, 1996, the Company acquired substantially all of the assets
and business operations of Skoglund Communications, Inc. and Skoglund
Communications of St. Cloud, Inc. for a cash payment of $21,246,850. As a
result of this transaction, the Company acquired display faces in
Minnesota and Wisconsin. This acquisition has been accounted for by the
purchase method and, accordingly, the purchase price has been allocated
to the assets purchased and the liabilities assumed based upon the fair
value at the date of acquisition as follows:
Adjusted working capital $ 1,336,989
Goodwill 7,953,899
Property and equipment 7,537,470
Customer list 4,418,492
-----------
Cash purchase price $21,246,850
===========
-20-
24
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(16) Acquisitions, Continued
On March 31, 1997, the Company acquired substantially all of the assets
and business operations of Outdoor West of Tennessee (Outdoor West) for a
cash payment of $11,802,444. As a result of this acquisition, the Company
acquired display faces in Tennessee and a right of first refusal to
purchase Outdoor West, Inc. of Georgia, an affiliate of Outdoor West.
This purchase has been accounted for by the purchase method and,
accordingly, the purchase price has been allocated to the assets
purchased and the liabilities assumed based upon the fair value at the
date of acquisition as follows:
Adjusted working capital $ 475,564
Goodwill 1,545,334
Property and equipment 4,621,720
Non-compete agreement 2,600,000
Customer list 2,559,826
-----------
Cash purchase price $11,802,444
===========
On May 1, 1997, the Company acquired substantially all of the assets and
business operations of Summey Outdoor Advertising, Inc. for a cash
payment of $5,145,000. As a result of this acquisition, the Company
acquired display faces in North Carolina and South Carolina. This
purchase has been accounted for by the purchase method and, accordingly,
the purchase price has been allocated to the assets purchased and
liabilities assumed based upon the fair value at the date of acquisition
as follows:
Adjusted working capital $ 236,169
Goodwill 950,680
Property and equipment 2,168,760
Non-compete agreement 1,000,000
Customer list 789,391
----------
Cash purchase price $5,145,000
==========
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 $14,159,837. As a result of this acquisition, the Company acquired
approximately 740 display faces in Alabama. This purchase has been
accounted for by the purchase method and, accordingly, the purchase price
has been allocated to the assets purchased and liabilities assumed based
upon the fair value at the date of acquisition as follows:
Adjusted working capital $ 173,803
Goodwill 8,722,162
Property and equipment 2,519,950
Non-compete agreement 250,000
Customer list 2,799,744
Deferred income taxes payable (366,362)
Other intangibles 60,540
------------
Cash purchase price $ 14,159,837
============
-21-
25
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(16) Acquisitions, Continued
In addition to the acquisitions described above, the Company has
consummated numerous smaller acquisitions for aggregate cash payments
totaling $6,042,342 in 1998 and $13,639,159 in 1997. These purchases have
been accounted for by the purchase method and, accordingly, the purchase
price has been allocated to the assets purchased and the liabilities
assumed based upon the fair value at the date of acquisition as follows:
1998 1997
---------- ----------
Working Capital $ 18,468 --
Goodwill 1,867,401 5,095,973
Property and equipment 2,770,982 4,919,380
Non-compete agreement -- 2,663,806
Customer list 1,385,491 960,000
---------- ----------
Cash purchase price $6,042,342 13,639,159
========== ==========
The consolidated financial statements include the operating results of
all of the above businesses from their respective dates of acquisition.
(17) Stock Options and Awards
In February 1998, the Company established the 1998 Stock Option and
Incentive Plan (the "Incentive Plan") under which, subject to adjustment,
1,328 shares of the Company's Class A common stock are available to grant
incentive and non-qualified stock options, stock appreciation rights
(SARs), restricted stock, deferred stock awards, unrestricted stock
awards, performance awards, dividend equivalents and other stock-based
awards to employees of, including any officer or officer-director, or
consultants to the Company and its subsidiaries. All terms and conditions
of any grants under the Incentive Plan are at the discretion of the
Company's Board of Directors. During 1998, 621 options were granted at
the fair market value of the Company's common stock on the date of grant.
These options vest and become exercisable over five years beginning in
2001, and expire in 2005. No charges to operations are recorded with
respect to authorization, grant or exercise of options. Proceeds received
upon exercise are credited to stockholder's equity.
-22-
26
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Information regarding the Incentive Plan for 1998 follows:
Options Outstanding Options Exercisable
------------------------------- ----------------------
Weighted
Weighted Average Number Weighted
Average Remaining Exercisable Average
Exercise Contractual At June 30, Exercise
Shares Price Life 1998 Price
------ -------- ----------- ----------- --------
Options outstanding,
beginning of year 0
Options granted 621 $6,345 6 years 0
Options outstanding,
end of year 621 $6,345 6 years 0
Range of exercise $6,023
prices for options $6,626
outstanding, end of
year
Options available for
grant, end of year 707
Weighted average fair
value of options
granted during the $1,736
year
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" (SFAS No. 123). This standard prescribes a method of
accounting for stock-based compensation that recognizes compensation cost
based on the fair value of options at grant date. In lieu of applying
this fair value based method, a company may elect to disclose only the
proforma effects of such application in the footnotes to its financial
statements.
The Company has elected the disclosure-only provisions of SFAS No. 123.
Accordingly, had compensation cost for the Incentive Plan been based on
the fair value of options at grant date, the Company's 1998 net loss (in
thousands) would have been increased to the proforma amount below:
Net loss:
As reported $ 8,044,881
Proforma $ 8,756,398
The fair value of options at date of grant was estimated using the
Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1998: dividend yield of 0%; expected
volatility of 0%; risk free interest rates of 5.48% and 5.59% and
expected lives of 5 and 7 years. The proforma effect on net income for
1998 is not representative of the proforma effect on net income for
future years because additional stock option awards could be made in
future years.
-23-
27
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(18) Quarterly Financial Data (Unaudited)
Fiscal year 1998 quarters:
Sept 30 Dec 31 Mar 31 June 30 Year
-------- -------- -------- -------- --------
(In thousands)
Net Revenues $ 13,472 14,245 13,335 15,182 56,234
Operating Income 2,341 1,873 1,337 2,086 7,637
Income (loss) before extraordinary item (2,048) (1,410) (1,129) (782) (5,369)
Net income (loss) (4,724) (1,410) (1,129) (782) (8,045)
Fiscal year 1997 quarters:
Sept 30 Dec 31 Mar 31 June 30 Year
------- ------- ------- ------- -------
(In thousands)
Net Revenues $10,093 10,910 10,739 12,762 44,504
Operating Income 2,601 2,697 353 1,894 7,545
Income (loss) before extraordinary item 267 61 (1,782) (1,865) (3,319)
Net income (loss) 267 61 (1,782) (1,865) (3,319)
(19) Subsequent Events
On August 10, 1998, the Company entered into a Stock Purchase Agreement,
pursuant to which Lamar Advertising Company will acquire 100% of the
Company's outstanding stock for $385 million which includes the
assumption of debt. The Acquisition is subject to approval under the
Hart-Scott-Rodino Antitrust Improvements Act and the satisfaction of
other customary closing conditions. The Acquisition is expected to be
consummated by September 30, 1998.
-24-