1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended September 30, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from
Commission file number 0-20833
LAMAR ADVERTISING COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 72-1205791
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
5551 Corporate Blvd.,
Baton Rouge, LA 70808
(Address of principal (Zip Code)
executive officers)
Registrant's telephone number, including area code (225) 926-1000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding as of
Class November 3, 1998
----- ----------------
Class A Common Stock,$ .001 par value 35,938,970
Class B Common Stock,$ .001 par value 18,117,440
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CONTENTS
Page
----
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of
September 30, 1998 and December 31, 1997 . . . . . . . . . . . . . . . . . 1 - 2
Condensed Consolidated Statements of Operations for the three
months ended September 30, 1998 and September 30, 1997 and
nine months ended September 30, 1998 and September 30, 1997 . . . . . . . . . 3
Condensed Consolidated Statements of Comprehensive Income for
the three months ended September 30, 1998 and September 30,
1997 and nine months ended September 30, 1998 and September
30, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows
for the nine months ended September 30, 1998 and
September 30, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 - 6
Notes to Condensed Consolidated Financial
Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 - 10
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . . . . 11 - 16
ITEM 3. Quantitative and Qualitative Disclosures About
Market Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
PART II - OTHER INFORMATION
ITEM 2. Changes in Securities and Use of Proceeds . . . . . . . . . . . . . . . . . 16
ITEM 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . 17 - 18
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3
PART I - FINANCIAL INFORMATION
ITEM 1.- FINANCIAL STATEMENTS
LAMAR ADVERTISING COMPANY AND
SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
September 30, December 31,
1998 1997
---- ----
ASSETS
- ------
Cash and cash equivalents $ 6,224 $ 7,246
Receivables
Trade accounts, net 33,730 29,854
Affiliates, related parties
and employees 277 788
Other 274 1,284
--------- ---------
Net receivables 34,281 31,926
Prepaid expenses 10,316 9,112
Other current assets 2,718 1,136
--------- ---------
Total current assets 53,539 49,420
--------- ---------
Property, plant and equipment 542,540 429,615
Less accumulated depreciation
and amortization (141,322) (113,477)
--------- ---------
Net property, plant and equipment 401,218 316,138
--------- ---------
Investment securities -- 679
Intangible assets 392,691 278,923
Receivables - noncurrent 1,938 1,625
Other assets 17,152 4,551
--------- ---------
Total assets 866,538 651,336
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Trade accounts payable 4,133 3,308
Accrued expenses 19,587 14,804
Current maturities of long-term
debt 3,950 5,109
Deferred income 9,718 7,537
--------- ---------
Total current liabilities 37,388 30,758
Long-term debt 562,343 534,091
Deferred income 1,012 837
Other liabilities 2,959 2,250
Deferred tax liability 10,713 14,687
--------- ---------
Total liabilities 614,415 582,623
--------- ---------
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LAMAR ADVERTISING COMPANY AND
SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS, CONTINUED
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
September 30, December 31,
1998 1997
---- ----
Stockholders' Equity:
Class A preferred stock, par value $638, $63.80 cumulative dividends, authorized
10,000 shares; 5,719.49 shares issued and outstanding at September 30,
1998, and December 31, 1997 3,649 3,649
Class A common stock, $.001 par value, authorized 75,000,000 shares; issued and
outstanding 35,937,996 shares and 28,453,805 shares at September 30, 1998,
and December 31, 1997, respectively 36 28
Class B common stock, $.001 par value, authorized 37,500,000 shares; issued and
outstanding 18,117,440 shares at September 30, 1998, and 18,762,909 at
December 31, 1997 18 19
Additional paid-in capital 283,137 95,691
Accumulated deficit (34,717) (30,320)
Accumulated other comprehensive income
Unrealized loss on investment
securities net of deferred tax
benefit -- (354)
--------- -------
Stockholders' equity 252,123 68,713
--------- -------
Total liabilities and
stockholders' equity $ 866,538 651,336
========= =======
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LAMAR ADVERTISING COMPANY AND
SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
Net Revenues $ 73,528 $ 55,485 $ 201,600 $ 143,440
------------ ------------ ------------ ------------
Operating expenses
Outdoor advertising:
Direct advertising
expenses 22,257 16,511 64,696 45,461
Selling, general and
administrative expenses 14,954 12,554 43,178 32,635
Depreciation and
amortization 20,224 14,058 57,053 31,785
------------ ------------ ------------ ------------
57,435 43,123 164,927 109,881
------------ ------------ ------------ ------------
Operating Income 16,093 12,362 36,673 33,559
------------ ------------ ------------ ------------
Non-operating (income)
expense:
Interest income (123) (178) (359) (1,599)
Interest expense 12,116 10,356 39,357 25,760
Loss (gain) on disposition
of assets 81 (143) 619 599
Other expenses 151 140 272 317
------------ ------------ ------------ ------------
12,225 10,175 39,889 25,077
------------ ------------ ------------ ------------
Earnings (loss) before
income taxes 3,868 2,187 (3,216) 8,482
Income tax expense 2,239 1,180 816 4,594
------------ ------------ ------------ ------------
Net earnings (loss) 1,629 1,007 (4,032) 3,888
============ ============ ============ ============
Preferred stock dividends 91 91 365 365
------------ ------------ ------------ ------------
Net earnings (loss)
applicable to common stock 1,538 916 (4,397) 3,523
============ ============ ============ ============
Net earnings (loss) per
common share - basic .03 .02 (.09) .07
============ ============ ============ ============
Net earnings (loss) per
common share - diluted .03 .02 (.09) .07
============ ============ ============ ============
Weighted average common
shares outstanding 54,005,114 46,979,499 50,076,742 47,065,080
Incremental common shares from
dilutive stock options 596,604 958,854 -- 903,080
------------ ------------ ------------ ------------
Weighted average common
shares assuming dilution 54,601,718 47,938,353 50,076,742 47,968,160
============ ============ ============ ============
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LAMAR ADVERTISING COMPANY AND
SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(IN THOUSANDS)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
Net earnings (loss) applicable
to common stock $ 1,538 $ 916 $ (4,397) $ 3,523
Other comprehensive income
unrealized loss on investment
securities (net of deferred
tax benefit (expense) of -0-
and (89) for the three months
ended September 30, 1998 and
1997, respectively and 217
and 435 for the nine months
ended September 30, 1998 and
1997, respectively.) -0- 145 354 (711)
------------ ------------ ------------ ------------
Comprehensive income (loss) 1,538 1,061 (4,043) 2,812
============ ============ ============ ============
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LAMAR ADVERTISING COMPANY AND
SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Nine Months Ended Nine Months Ended
September 30, 1998 September 30, 1997
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (4,032) $ 3,888
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
Depreciation and amortization 57,053 31,785
Loss on disposition of assets 619 599
Deferred taxes (2,548) (1,297)
Provision for doubtful accounts 1,265 985
Changes in operating assets and liabilities:
Decrease (Increase) in:
Receivables (1,520) (8,295)
Prepaid expenses (714) 93
Other assets 978 (816)
Increase (Decrease) in:
Trade accounts payable 770 (42)
Accrued expenses 1,288 9,917
Other liabilities (144) 9
Deferred income 2,252 533
--------- ---------
Net cash provided by operating
activities 55,267 37,359
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in notes receivable (280) (1,338)
Acquisition of new markets (220,780) (374,733)
Capital expenditures (40,148) (24,664)
Proceeds from disposition of assets 1,419 54,352
--------- ---------
Net cash used in investing activities (259,789) (346,383)
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LAMAR ADVERTISING COMPANY AND
SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Nine Months Ended Nine Months Ended
September 30, 1998 September 30, 1997
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
Debt issuance costs (2,503) (5,250)
Net proceeds from issuance of common stock 181,450 965
Principal payments on long-term debt (4,152) (3,163)
Proceeds from issuance of notes payable 70 34
Net borrowings under credit agreements 29,000 47,000
Proceeds from note offering -- 193,426
Dividends (365) (365)
--------- ---------
Net cash provided by financing activities 203,500 232,647
Net decrease in cash and cash equivalents (1,022) (76,377)
Cash and cash equivalents at beginning
of period 7,246 81,007
--------- ---------
Cash and cash equivalents at end of
period 6,224 4,630
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
- --------------------------------------------------
Cash paid for interest $ 37,328 $ 19,050
========= =========
Cash paid for state and
federal income taxes $ 6,129 $ 4,244
========= =========
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LAMAR ADVERTISING COMPANY AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
1. Significant Accounting Policies
The information included in the foregoing interim financial statements is
unaudited. In the opinion of management, all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of the Company's
financial position and results of operations for the interim periods presented
have been reflected herein. The results of operations for interim periods are
not necessarily indicative of the results to be expected for the entire year.
These condensed consolidated financial statements should be read in conjunction
with the Company's consolidated financial statements and the notes thereto
included in the Company's Annual Report on Form 10-K.
Earnings per share are computed in accordance with SFAS No. 128, "Earnings Per
Share." SFAS No. 128 requires the replacement of previously reported primary and
fully diluted earnings per share required by Accounting Principles Board Opinion
No. 15 with earnings per share and diluted earnings per share. The calculations
of earnings per share exclude any dilutive effect of stock options, while
diluted earnings per share includes the dilutive effect of stock options. Per
share amounts for all periods presented have been restated to conform to the
requirements of SFAS No. 128.
Certain amounts in the prior year's consolidated financial statements have been
reclassified to conform with the current year presentation. These
reclassifications had no effect on previously reported net earnings.
New Accounting Pronouncements
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-5, Reporting on the Costs of Start-Up
Activities. SOP 98-5 is effective for financial statements for fiscal years
beginning after December 15, 1998, and requires that the costs of start-up
activities, including organizational costs, be expensed as incurred. At
September 30, 1998, the Company estimates that $1,240, of such capitalized costs
are included in intangible assets on the Company's balance sheet.
Effective January 1, 1998, the Company adopted the Statement of Financial
Accounting Standards (SFAS) No. 130 "Reporting Comprehensive Income", which
requires disclosure, in financial statement format, of all non-owner changes in
equity. Adoption of this statement requires the presentation of comprehensive
income, which includes the unrealized gain or loss on investment securities.
Investment securities consist of the Company's investment in approximately
340,000 shares of common stock of Wireless One, Inc., a publicly-held company in
the wireless cable business. The former Chief Executive Officer of Wireless One,
Inc. is an employee and principal shareholder of the Company. The shares were
sold in May, 1998, resulting in a realized loss of $875.
-7-
10
LAMAR ADVERTISING COMPANY AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
2. Acquisitions
On January 2, 1998, the Company purchased all the outdoor advertising assets of
Ragan Outdoor Advertising Company, Ragan Outdoor Advertising Company of Cedar
Rapids, and Ragan Outdoor Advertising Company of Rockford, L.L.C. for a cash
purchase price of $25,000. The acquisition consisted of displays located in
Rockford, Illinois, Cedar Rapids, Iowa and Davenport, Iowa.
On January 30, 1998, the Company acquired all of the outdoor advertising assets
of three related outdoor advertising companies (Pioneer Advertising Company,
Superior Outdoor Advertising Company and Overland Outdoor Advertising Company,
Inc.) located in Missouri and Arkansas for a cash purchase price of $19,200.
On April 30, 1998, the company purchased all the outdoor advertising assets of
Northwest Outdoor Advertising, L.L.C. for a cash purchase price of approximately
$70,000. The acquired displays are located in the states of Washington, Montana,
Oregon, Idaho, Wyoming, Nebraska, Nevada and Utah.
On May 15, 1998, the Company purchased the assets of Odegard Outdoor
Advertising, L.L.C., for a cash purchase price of approximately $8,500. This
acquisition increases the Company's presence in the Kansas City, Missouri
market.
On May 29, 1998, the Company entered into an agreement to purchase from Rainier
Evergreen, Inc. or through it's affiliates (i) all of the issued and outstanding
common stock of American Signs, Inc., (ii) the assets of the Sun Media division
and (iii) the assets of Sun Media of the Rockies, Inc. The asset purchases were
closed on that date; while the stock purchase was delayed due to lease transfer
issues involving the Bureau of Interior Affairs. The stock purchase was
completed in September, 1998. The total purchase price was $26,550. The
acquisition gives the Company a presence in Tacoma, Washington.
On September 1, 1998, the Company entered into an agreement to purchase all of
the outdoor advertising assets of Nichols & Vann Advertising. The Company paid a
cash purchase price of $11,000 which is held on deposit as of September 30,
1998. This acquisition increases the Company's presence in Buffalo and
Rochester, New York.
During the nine months ended September 30, 1998, the Company completed 46
additional acquisitions of outdoor advertising assets, none of which were
individually significant, for an aggregate cash purchase price of approximately
$62 million and issuance of 63,005 shares of Class A common stock valued at
approximately $2,400.
Each of these acquisitions were accounted for under the purchase method of
accounting, and accordingly, the accompanying financial statements include the
results of operations of each acquired entity from the date of acquisition. The
acquisition costs have been allocated to assets acquired and liabilities assumed
based on fair market value at the dates of acquisition. The following is a
summary of the allocation of the acquisition costs in the above transactions.
Current assets $ 3,136
Property, plant and equipment 75,476
Other assets 11,059
Intangible assets 141,129
Current liabilities 2,929
Long term liabilities 723
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LAMAR ADVERTISING COMPANY AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
Summarized below are certain unaudited pro forma statement of operations data
for the three months ended September 30, 1998 and 1997, and the nine months
ended September 30, 1998 and 1997 as if each of the above acquisitions and the
acquisitions occurring in 1997, which are discussed in the Company's December
31, 1997 Consolidated Financial Statements, had been consummated as of January
1, 1997.
This pro forma information does not purport to represent what the Company's
results of operations actually would have been had such transactions occurred on
the date specified or to project the Company's results of operations for any
future periods.
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
Revenues, net $ 74,194 $ 66,485 $ 210,946 $ 195,122
========== ========== ========== ==========
Net earnings (loss) applicable
to common stock 1,422 (2,056) (6,870) (10,037)
========== ========== ========== ==========
Net earnings (loss) per
common share - basic .03 (.04) (.14) (.21)
========== ========== ========== ==========
Net earnings (loss) per
common share - diluted .03 (.04) (.14) (.21)
========== ========== ========== ==========
3. Summarized Financial Information of Subsidiaries
Separate financial statements of each of the Company's direct or indirect wholly
owned subsidiaries that have guaranteed the Company's obligations with respect
to the 1996 Notes and 1997 Notes (collectively, the "Guarantors") are not
included herein because the Guarantors are jointly and severally liable under
the guarantees, and the aggregate assets, liabilities, earnings and equity of
the Guarantors are substantially equivalent to the assets, liabilities, earnings
and equity of the Company on a consolidated basis.
Summarized financial information for Missouri Logos, a Partnership, a 66 2/3%
owned subsidiary of the Company and the only subsidiary of the Company that is
not a Guarantor, is set forth below:
September 30, December 31,
Balance Sheet Information: 1998 1997
------ ------
(Unaudited)
Current assets 235 237
Total assets 285 290
Total liabilities - 7
Venturers' equity 285 283
Income Statement Information: Nine Months Ended September 30,
1998 1997
------ ------
(Unaudited)
Revenues 748 677
Net income 416 354
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LAMAR ADVERTISING COMPANY AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
4. Stockholders' Equity
In June, 1998, the Company completed an equity offering of 6,375,000 shares of
Class A Common Stock at an offering price of $29 per share. This transaction
resulted in a $177,133 increase in total stockholders' equity after deducting
commissions and fees related to the transaction.
5. Credit Agreement
In July, 1998, the Company entered into a new Bank Credit Agreement (the "New
Bank Credit Agreement") which consists of a committed $250,000 revolving credit
facility (the "New Revolving Credit Facility"), a $150,000 term facility (the
"Term Facility") and a $100,000 incremental facility funded at the discretion of
the lenders. As of September 30, 1998, the Company had borrowings under the New
Bank Credit Agreement of $88 million under the Revolving Credit Facility. The
New Bank Credit Agreement replaced the Company's previous Bank Credit Facility.
The revolving credit loans and term loans begin amortizing in March 2000 and
September 2000, respectively, and mature on December 31, 2005. Term loans may be
requested under the Term Facility at any time prior to June 30, 1999 and
revolving credit loans may be requested under the New Revolving Credit Facility
at any time prior to maturity. The loans bear interest, at the Company's option,
at the LIBOR Rate or Chase Prime Rate plus applicable margins, such margins
being set from time to time based on the Company's ratio of debt to trailing
twelve month EBITDA. EBITDA is operating income before depreciation and
amortization, a commonly used measure of financial performance. LIBOR is the
London Interbank Offered rate, a commonly used reference for variable interest
rates. The New Bank Credit Agreement contains restrictive covenants comparable
to those under the prior agreement and of a sort customary in credit facilities
for outdoor advertising companies.
In September 1998 the Company entered into an Amendment No. 1 to Amended and
Restated Credit Agreement pursuant to which the New Bank Credit Agreement was
amended to facilitate the acquisition of Outdoor Communications, Inc. ("OCI"),
which was completed on October 1, 1998.
6. Subsequent events
On October 1, 1998, the Company purchased all of the outstanding stock of OCI
for a purchase price of $385,000. The purchase price included approximately
$235,000 in cash, the assumption of OCI debt of approximately $105,000 and the
issuance of notes in the aggregate amount of $45,000 to certain principal
stockholders of OCI. Pursuant to this acquisition, the Company acquired
approximately 14,700 displays in 12 states.
Funds for this acquisition were provided from borrowings under the New Revolving
Credit Facility and the Term Facility.
-10-
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the consolidated financial condition and
results of operations of the Company for the nine month and three month periods
ended September 30, 1998 and 1997. This discussion should be read in conjunction
with the consolidated financial statements of the Company and the related notes.
The following discussion is a summary of the key factors management considers
necessary in reviewing the Company's results of operations, liquidity and
capital resources. The future operating results of the Company may differ
materially from the results described below. For a discussion of certain factors
which may affect the Company's future operating performance, please refer to
Exhibit 99.1 filed herewith, including without limitation, the factors described
under the headings "Fluctuations in Economic and Advertising Trends,"
"Acquisition and Growth Strategy," "Competition," and "Substantial Indebtedness
of the Company" in such Exhibit 99.1, and the factors described under the
heading "Regulation of Tobacco Advertising" below.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1998 Compared to Nine Months Ended
September 30,1997
Net revenues increased $58.2 million or 40.5% to $201.6 million for the nine
months ended September 30, 1998 as compared to the same period in 1997. This
increase was primarily the result of (i) a $56.0 million increase in billboard
net revenues, and (ii) a $2.5 million increase in logo sign revenue due to the
completion and development of the new state logo sign franchises awarded and
acquired in 1997 and the continued expansion of the Company's existing logo sign
franchises.
Operating expenses, exclusive of depreciation and amortization, increased $29.8
million or 38.1% for the nine months ended September 30, 1998 as compared to the
same period in 1997. This was primarily the result of the additional operating
expenses related to acquired outdoor advertising assets and the newly developed
and acquired logo sign franchises.
Depreciation and amortization expense increased $25.3 million or 79.5% from
$31.8 million for the nine months ended September, 30, 1997 to $57.1 million for
the nine months ended September 30, 1998 as a result of an increase in
capitalized assets resulting from the Company's recent acquisition activity.
Due to the above factors, operating income increased $3.1 million or 9.3% to
$36.7 million for nine months ended September 30, 1998 from $33.6 million for
the same period in 1997.
Interest income decreased $1.2 million due to lower excess cash balances
available for investment during the nine months ended September 30, 1998 as
compared to the same period in 1997. Interest expense increased $13.6 million
from $25.8 million for the nine months ended September 30, 1997 to $39.4 million
for the same period in 1998 as a result of interest expense on the 1997 Notes
issued by the company in September, 1997 and additional borrowings under the
Company's bank credit facility to finance acquisitions.
-11-
14
Income tax expense decreased $3.8 million creating income tax expense of $.8
million for the nine months ended September 30,1998 as compared to the same
period in 1997. The Company recorded income tax expense for the nine months
ended September 30, 1998, due to permanent differences resulting from
non-deductible goodwill.
As a result of the above factors, the Company recognized a net loss for the nine
months ended September 30, 1998 of $4.0 million, as compared to net earnings of
$3.9 million for the same period in 1997.
Three Months Ended September 30, 1998 Compared to Three Months Ended
September 30, 1997
Net revenues for the three months ended September 30, 1998 increased $18.0
million or 32.5% to $73.5 million from $55.5 million for the same period in
1997.
Operating expenses, exclusive of depreciation and amortization, for the three
months ended September 30, 1998 increased $8.2 million or 28.0% over the same
period in 1997.
Depreciation and amortization expense increased $6.2 million or 43.9% from $14.1
million for three months ended September 30, 1997 to $20.2 million for the three
months ended September 30, 1998.
Operating income increased $3.7 million or 30.2% to $16.1 million for the three
months ended September 30, 1998 as compared to $12.4 million for the same period
in 1997.
Interest expense increased $1.8 million from $10.4 million for the three months
ended September 30, 1997 to $12.1 million for the same period in 1998.
The Company recognized net earnings for the three months ended September 30,
1998 of $1.6 million as compared to net earnings of $1.0 million for the three
months ended September 30, 1997.
The results for the three months ended September 30, 1998 were affected by the
same factors as the nine months ended September 30, 1998. Reference is made to
the discussion of the nine month results.
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.
In June, 1998, the Company completed a public offering of 6,375,000 shares of
Class A Common Stock at $29.00 per share. Net proceeds to the Company after
underwriting discounts from the equity offering were $177.5 million. These
proceeds were used to pay down outstanding bank debt of approximately $173.0
million with the remainder used for operations.
In July, 1998, the Company entered into a new Bank Credit Agreement (the "New
Bank Credit Agreement") in replacement of its previous Agreement. The New Bank
Credit Agreement consists of a committed $250,000 revolving credit facility (the
"New Revolving Credit Facility"), a $150,000 term facility (the "Term Facility")
and a $100,000 incremental facility funded at the discretion of the lenders. The
revolving credit loans and term loans begin amortizing in March 2000 and
-12-
15
September 2000, respectively, and mature on December 31, 2005. Term loans may be
requested under the Term Facility at any time prior to June 30, 1999 and
revolving credit loans may be requested under the New Revolving Credit Facility
at any time prior to maturity. The loans bear interest, at the Company's option,
at the LIBOR Rate or Chase Prime Rate plus applicable margins, such margins
being set from time to time based on the Company's ratio of debt to trailing
twelve month EBITDA. EBITDA is operating income before depreciation and
amortization, a commonly used measure of financial performance. The New Bank
Credit Agreement contains restrictive covenants comparable to those under the
prior agreement and of a sort customary in credit facilities for outdoor
advertising companies.
On August 31, 1998, the Company financed the deposit related to the Nichols and
Van acquisition with a $10.0 million draw under the New Revolving Credit
Facility. In September, 1998 the Company financed two acquisitions, Johnstown
Poster and Advantage Outdoor, with draws under the New Revolving Credit Facility
totaling $10.0 million.
On October 1, 1998, the Company financed the cash portion of the purchase price
for the acquisition of Outdoor Communications, Inc. ("OCI") with a $85.0 million
draw under the New Revolving Credit Facility and a $150.0 million draw under the
Term Facility. The Company also assumed $105.0 million of 9 1/4% Senior
Subordinated Notes due 2007 previously issued by OCI and issued approximately
$45.0 million in notes to the three principal shareholders of OCI. The notes
issued to the former OCI stockholders are guaranteed by letters of credit issued
against the Company's Bank Credit Agreement and are due January, 1999. There is
currently $169.0 million outstanding under the New Revolving Credit Facility and
$150 million outstanding under the Term Facility.
The Company's net cash provided by operating activities increased to $55.3
million for the nine months ended September 30, 1998 due primarily to an
increase in noncash items of $24.3 million, which is primarily an increase in
depreciation and amortization of $25.3 million offset by a change in deferred
taxes of $1.3 million. The increase in noncash items was offset by a decrease in
net earnings of $7.9 million, a decrease in accrued expenses of $8.6 million and
an increase in other assets of $1.8 million. There was also a decrease in
receivables of $6.8 million and an increase in deferred income of $1.7 million.
Net cash used in investing activities decreased $86.6 million from $346.4
million for the nine months ended September 30, 1997 to $259.8 million for the
same period in 1998. This decrease was due to a $154.0 million decrease in the
purchase of new markets offset by a $15.5 million increase in capital
expenditures and a $52.9 million decrease in proceeds from disposition of
assets. Net cash provided by financing activities decreased $29.1 million for
the nine months ended September 30, 1998 due to a $180.5 million increase in net
proceeds from issuance of common stock offset by a $18.0 million decrease in net
borrowings under credit agreements, a $193.4 million decrease in proceeds from
note offering and a $2.7 million decrease in debt issuance costs.
The Company believes that internally generated funds and available funds under
the New Bank Credit Agreement will be sufficient to satisfy all debt service
obligations, and to finance additional acquisition activity and current
operations.
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Regulation of Tobacco Advertising
POTENTIAL ELIMINATION OR REDUCTION OF TOBACCO ADVERTISING
Manufacturers of tobacco products, mainly cigarettes, were historically major
users of outdoor advertising displays. Beginning in 1992, the leading tobacco
companies substantially reduced their domestic advertising expenditures in
response to societal and governmental pressures and other factors. The Company's
revenues from the tobacco products industry are depicted in the following table.
PERIOD ENDED OUTDOOR ADVERTISING
NET REVENUES
September 30, 1998 8%
December 31, 1997 9%
October 31, 1996 10%
October 31, 1995 9%
October 31, 1994 7%
October 31, 1993 7%
October 31, 1992 12%
As you can see from the table, the percentage of the Company's advertising
revenues that come from the tobacco products industry has decreased over the
last several years. The tobacco industry could further decrease its outdoor
advertising expenditures voluntarily or as a result of governmental regulation.
The Company is not certain what affect any such reduction would have on our
operations.
In June 1997 several of the major tobacco companies in the United States that
had been sued by numerous state attorneys general reached agreement on a
proposed settlement. The terms of this proposed settlement included a ban on all
outdoor advertising of tobacco products commencing nine months after
finalization of the settlement. The settlement, however, was subject to numerous
conditions, most importantly the enactment of legislation by the federal
government. The settlement collapsed in June 1998 after Congress failed to enact
the required legislation. The bill was resubmitted to the Senate Commerce
Committee, but further action is uncertain.
In October 1998, the tobacco companies and attorneys general of 38 states began
discussing a new national tobacco settlement. Under the terms of the proposed
plan, tobacco companies would discontinue all advertising on billboards. At this
time the timing and terms of any definitive settlement are uncertain. If the
tobacco industry eliminates or reduces billboard advertising, the Company's
outdoor advertising revenues could decrease immediately and the Company's
available inventory could increase. An increase in available inventory could
cause the Company to reduce our rates or limit the Company's ability to raise
rates for some period. If a new tobacco settlement were finalized according to
the proposed terms and if the Company was unable to replace revenues from
tobacco advertising, the proposed settlement would have an adverse effect on the
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Company's results of operations. While the Company believes that it would be
able to replace a substantial portion of the tobacco advertising revenues that
would be eliminated, the Company cannot guarantee that it will be able to do so
or do so at comparable advertising rates.
The states of Florida, Mississippi, Texas and Minnesota have reached separate
settlements of litigation with the tobacco industry. These settlements were not
conditioned on federal government approval. The Florida and Mississippi
settlements provided for the elimination of all outdoor advertising of tobacco
products by February 1998 and the Texas settlement requires removal by June
1998. The Company removed all of its tobacco billboards and advertising in
Florida, Mississippi and Texas in compliance with those settlement deadlines.
The Minnesota settlement requires the elimination of all outdoor advertising of
tobacco products by November 1998. The following table sets forth information
about the Company's advertising markets in Florida, Mississippi and Texas at
December 31, 1997.
STATE # OF ADVERTISING # OF MARKETS IN THE TOTAL ADVERTISING PORTION OF TOTAL
DISPLAY STATE REVENUES IN STATE ADVERTISING REVENUES
(IN MILLIONS) FROM TOBACCO
ADVERTISING
Florida 4,253 7 $ 19.2 $ 1.8
Mississippi 2,532 3 $ 10.6 $ 0.8
Texas 3,300 6 $ 11.0 $ 0.8
Before the Company's acquisition of Outdoor Communications, Inc. on October 1,
1998, the Company did not have any outdoor advertising displays for tobacco
products in Minnesota. By acquiring Outdoor Communications, Inc. the Company
acquired 1,329 outdoor advertising displays, some of which were used for
advertising tobacco products. However, we removed all of our outdoor advertising
displays for tobacco products in Minnesota before the settlement deadline of
November 1998.
Although the Company has removed all of our tobacco advertising in states where
settlements are in place, the size and scope of the Minnesota settlement, which
includes the ban on all outdoor tobacco advertising, may foreshadow similar
settlements of tobacco-related litigation in other states, which may adversely
affect the Company's outdoor advertising revenues.
New Accounting Pronouncements
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.
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The AICPA has issued SOP 98-5, "Reporting on the Costs of Start-Up Activities",
which requires costs of start-up activities and organization costs to be
expensed as incurred. The statement is effective for financial statements for
fiscal years beginning after December 15, 1998. At September 30, 1998, the
Company estimates that $1.24 million of capitalized costs are included in
intangible assets on the Company's balance sheet.
Impact of Year 2000
The year 2000 issue is the result of the development of computer programs and
systems using two digits rather than four digits to define the applicable year.
Computer programs and equipment with time-sensitive software may recognize the
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculations causing disruptions to business operations.
The Company has conducted an assessment of its software and related systems and
believes they are year 2000 compliant. The Company's year 2000 effort also
included communication with all significant third party vendors and customers to
determine the extent to which the Company's systems are vulnerable to those
parties' failure to reach year 2000 compliance. There can be no guarantee that
the Company's third party vendors or customers will be year 2000 compliant on a
timely basis and that failure to achieve compliance would not have a material
adverse impact on the Company's business operations.
The Company believes that it is difficult to fully assess the risks of the year
2000 problem due to numerous uncertainties surrounding the issue. Management
believes that primary risks are external to the Company and relate to the year
2000 readiness of its third party business partners.
Accordingly, the Company plans to devote the resources it concludes are
appropriate to address all significant year 2000 issues in a timely manner.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Not applicable
PART II - OTHER INFORMATION
ITEM 2.
CHANGES IN SECURITIES AND USE OF PROCEEDS
In July 1998 the Company issued an aggregate 63,005 shares of Class A Common
Stock to Oshel B. Craigo and Thomas Susman for a purchase price of $37.39 per
share. Messrs. Craigo and Susman were the sole stockholders of Mountaineer
Outdoor Sign, Inc., which was acquired by the Company in July 1998, and such
shares were issued to them as payment of the purchase price of approximately
$2.4 million for such acquisition. These shares were issued in reliance on the
exemption provided for private placements under Section 4(2) of the Securities
Act of 1933, as amended.
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ITEM 6.
EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
2.1 Stock Purchase Agreement dated as of August 10, 1998 by
and among the Company, OCI and the stockholders of OCI.
Previously filed as Exhibit 2.1 to the Company's current
report on Form 8-K (File No. 0-20833) filed on October
15, 1998 and incorporated herein by reference.
2.2 First Amendment to the Stock Purchase Agreement dated
August 25, 1998 by and among the Company, OCI and the
stockholders of OCI. Previously filed as Exhibit 2.2 to
the Company's current report on Form 8-K (File No.
0-20833) filed on October 15, 1998 and incorporated
herein by reference.
2.3 Second Amendment to the Stock Purchase Agreement dated
September 30, 1998 by and among the Company, OCI and the
stockholders of OCI. Previously filed as Exhibit 2.3 to
the Company's current report on Form 8-K (File No.
0-20833) filed on October 15, 1998 and incorporated
herein by reference.
4.1 Indenture dated August 15, 1997, relating to Outdoor
Communications, Inc. 9 1/4% Senior Subordinated Notes.
Filed herewith.
4.2 Supplemental Indenture to the Indenture dated August 15,
1997 among Outdoor Communications, Inc., certain of its
subsidiaries and First Union National Bank, as Trustee,
dated October 1, 1998. Filed herewith.
4.3 Supplemental Indenture to the Indenture dated August 15,
1997 among Outdoor Communications, Inc., certain of its
subsidiaries and First Union National Bank, as Trustee,
dated October 23, 1998. Filed herewith.
4.4 Supplemental Indenture to the Indenture dated November
15, 1996 among the Company, certain of its subsidiaries
and State Street Bank and Trust Company, as Trustee,
dated October 23, 1998. Filed herewith.
4.5 Supplemental Indenture to the Indenture dated September
25, 1997 among the Company, certain of its subsidiaries
and State Street Bank and Trust Company, as Trustee,
dated October 23, 1998. Filed herewith.
10.1 Amendment No. 1 to the Amended and Restated Bank Credit
Agreement dated September 15, 1998, between the Company,
certain of its subsidiaries, the lenders party thereto
and The Chase Manhattan Bank, as administrative agent.
Filed herewith.
27.1 Financial Data Schedule. Filed herewith.
99.1 Important Factors Regarding Forward Looking Statements.
Filed herewith.
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(b) Reports on Form 8-K
Reports on Form 8-K were filed with the Commission during the
second quarter of 1998 to report the following items as of the
dates indicated:
On August 14, 1998, the Company filed an 8-K to
announce that it had entered into a definitive
agreement to purchase all of the outstanding capital
stock of Outdoor Communications, Inc. for a purchase
price of approximately $385 million consisting of
cash and the assumption of debt. This acquisition
consists of approximately 14,700 displays in 12
states. Among the markets included in this
acquisition are the following: Birmingham, AL;
Huntsville, AL; Tuscaloosa, AL; Athens, GA; Rome, GA;
Decatur, Il; Paducah, KY; Duluth, MN; St. Cloud, MN;
Saginaw, MI; Corinth, MS; Traverse City, MI and
Johnson City, TN.
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.
LAMAR ADVERTISING COMPANY
DATED: November 11, 1998 BY: /s/ Keith A. Istre
------------------------------
Keith A. Istre
Chief Financial and Accounting
Officer and Director
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.1 Stock Purchase Agreement dated as of August 10, 1998 by and among the Company, OCI
and the stockholders of OCI. Previously filed as Exhibit 2.1 to the Company's
current report on Form 8-K (File No. 0-20833) filed on October 15, 1998 and
incorporated herein by reference.
2.2 First Amendment to the Stock Purchase Agreement dated August 25, 1998 by and among
the Company, OCI and the stockholders of OCI. Previously filed as Exhibit 2.2 to
the Company's current report on Form 8-K (File No. 0-20833) filed on October 15,
1998 and incorporated herein by reference.
2.3 Second Amendment to the Stock Purchase Agreement dated September 30, 1998 by and
among the Company, OCI and the stockholders of OCI. Previously filed as Exhibit
2.3 to the Company's current report on Form 8-K (File No. 0-20833) filed on
October 15, 1998 and incorporated herein by reference.
4.1 Indenture dated August 15, 1997, relating to Outdoor Communications, Inc. 9 1/4%
Senior Subordinated Notes. Filed herewith.
4.2 Supplemental Indenture to the Indenture dated August 15, 1997 among Outdoor
Communications, Inc., certain of its subsidiaries and First Union National Bank,
as Trustee, dated October 1, 1998. Filed herewith.
4.3 Supplemental Indenture to the Indenture dated August 15, 1997 among Outdoor
Communications, Inc., certain of its subsidiaries and First Union National Bank,
as Trustee, dated October 23, 1998. Filed herewith.
4.4 Supplemental Indenture to the Indenture dated November 15, 1996 among the Company,
certain of its subsidiaries and State Street Bank and Trust Company, as Trustee, dated
October 23, 1998. Filed herewith.
4.5 Supplemental Indenture to the Indenture dated September 25, 1997 among the Company,
certain of its subsidiaries and State Street Bank and Trust Company, as Trustee, dated
October 23, 1998. Filed herewith.
10.1 Amendment No. 1 to the Amended and Restated Bank Credit Agreement dated September
15, 1998, between the Company, certain of its subsidiaries, the lenders party
thereto and The Chase Manhattan Bank, as administrative agent. Filed herewith.
27.1 Financial Data Schedule. Filed herewith.
99.1 Important Factors Regarding Forward Looking Statements, filed herewith.