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 June 30, 1999
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 August 6, 1999
----- -----------------
Class A Common Stock,$ .001 par value 43,568,340
Class B Common Stock,$ .001 par value 17,699,997
2
CONTENTS
Page
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of
June 30, 1999 and December 31, 1998................................................1-2
Condensed Consolidated Statements of Operations for the three
months ended June 30, 1999 and June 30, 1998 and six months
ended June 30, 1999 and June 30, 1998................................................3
Condensed Consolidated Statements of Comprehensive Income for
the three months ended June 30, 1999 and June 30, 1998 and
six months ended June 30, 1999 and June 30, 1998.....................................4
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 1999 and
June 30, 1998......................................................................5-6
Notes to Condensed Consolidated Financial
Statements........................................................................7-11
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations....................................12-15
ITEM 3. Quantitative and Qualitative Disclosures About
Market Risks........................................................................15
ITEM 4. Submission of matters to a vote of security holders.................................16
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.................................................16-17
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)
June 30, December 31,
1999 1998
---------- ----------
ASSETS
Cash and cash equivalents $ 4,249 $ 128,597
Receivables
Trade accounts, net 45,534 39,681
Affiliates, related parties
and employees 564 378
Other 495 321
---------- ----------
Net receivables 46,593 40,380
Prepaid expenses 13,321 12,346
Other current assets 2,327 1,736
---------- ----------
Total current assets 66,490 183,059
---------- ----------
Property, plant and equipment 723,828 661,324
Less accumulated depreciation
and amortization (177,700) (153,972)
---------- ----------
Net property, plant and equipment 546,128 507,352
---------- ----------
Intangible assets 781,217 705,934
Receivables - noncurrent 3,632 1,972
Other assets 13,467 15,060
---------- ----------
Total assets 1,410,934 1,413,377
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 4,325 4,258
Accrued expenses 25,870 25,912
Current maturities of long-term
debt 4,078 49,079
Deferred income 8,261 9,589
---------- ----------
Total current liabilities 42,534 88,838
Long-term debt 885,306 827,453
Deferred tax liability 21,848 25,613
Deferred income 1,283 1,293
Other liabilities 4,833 3,401
---------- ----------
Total liabilities 955,804 946,598
---------- ----------
(continued)
-1-
4
LAMAR ADVERTISING COMPANY AND
SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS, CONTINUED
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
June 30, December 31,
1999 1998
----------- -----------
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 June
30, 1999, and December 31, 1998, respectively 3,649 3,649
Class A common stock, $.001 par value, authorized 125,000,000 shares; issued
and outstanding 43,568,340 shares and 43,392,876 shares at June 30, 1999,
and December 31, 1998, respectively 44 43
Class B common stock, $.001 par value, authorized 37,500,000 shares; issued and
outstanding 17,699,997 shares at June 30, 1999, and December 31, 1998 18 18
Additional paid in capital 509,952 505,644
Accumulated deficit (58,533) (42,575)
----------- -----------
Stockholders' equity 455,130 466,779
----------- -----------
Total liabilities and
stockholders' equity $ 1,410,934 1,413,377
=========== ===========
See accompanying notes to consolidated financial statements
-2-
5
LAMAR ADVERTISING COMPANY AND
SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
Net revenues $ 97,809 $ 69,675 $ 183,575 $ 128,072
- ------------ ------------ ------------ ------------ ------------
Operating expenses
Direct advertising expenses 30,481 21,609 60,245 42,439
Selling, general and administrative expenses 20,754 15,008 40,853 28,224
Depreciation and amortization 32,652 19,491 64,213 37,096
------------ ------------ ------------ ------------
83,887 56,108 165,311 107,759
------------ ------------ ------------ ------------
Operating income 13,922 13,567 18,264 20,313
------------ ------------ ------------ ------------
Other expense (income)
Interest income (269) (129) (955) (236)
Interest expense 18,234 13,915 36,379 27,241
(Gain) loss on disposition of assets (141) 709 (477) 392
------------ ------------ ------------ ------------
17,824 14,495 34,947 27,397
------------ ------------ ------------ ------------
Loss before income taxes and cumulative effect
of a change in accounting principle (3,902) (928) (16,683) (7,084)
Income tax expense (benefit) 1,076 142 (1,766) (1,423)
------------ ------------ ------------ ------------
Loss before cumulative effect of a change
in accounting principle (4,978) (1,070) (14,917) (5,661)
------------ ------------ ------------ ------------
Cumulative effect of a change in accounting
principle -- -- (767) --
------------ ------------ ------------ ------------
Net loss (4,978) (1,070) (15,684) (5,661)
Preferred stock dividends 183 183 274 274
------------ ------------ ------------ ------------
Net loss applicable to common stock (5,161) (1,253) (15,958) (5,935)
------------ ============ ============ ============
Loss before cumulative effect of a change in
accounting principle per common share -
basic and diluted $ (.08) $ (.02) $ (.25) $ (.12)
============ ============ ============ ============
Cumulative effect of a change in accounting
principle, net of tax, per common share -
basic and diluted $(--) $(--) $ (.01) $(--)
============ ============ ============ ============
Net loss per common share - basic $ (.08) $ (.02) $ (.26) $ (.12)
============ ============ ============ ============
Net loss per common share - diluted $ (.08) $ (.02) $ (.26) $ (.12)
============ ============ ============ ============
Weighted average common shares outstanding 61,227,406 48,802,640 61,185,610 48,080,862
Incremental common shares from dilutive stock
options -- -- -- --
------------ ------------ ------------ ------------
Weighted average common shares assuming dilution 61,227,406 48,802,640 61,185,610 48,080,862
============ ============ ============ ============
See accompanying notes to consolidated financial statements
-3-
6
LAMAR ADVERTISING COMPANY AND
SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(IN THOUSANDS)
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
-------- -------- -------- --------
Net loss applicable to common
stock $ (5,161) $ (1,253) $(15,958) $ (5,935)
Other comprehensive income (loss) unrealized
loss on investment securities (net
of deferred tax benefit of $0 and $84
for the three months ended June 30,
1999 and 1998, respectively and $0 and
$217 for the six months ended June 30, 1999
and 1998, respectively.) -- (137) -- 354
-------- -------- -------- --------
Comprehensive Income (loss) $ (5,161) $ (1,390) $(15,958) $ (5,581)
======== ======== ======== ========
See accompanying notes to consolidated financial statements
-4-
7
LAMAR ADVERTISING COMPANY AND
SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Six Months Ended
June 30,
1999 1998
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (15,684) $ (5,661)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 64,213 37,096
(Gain) loss on disposition of assets (477) 392
Deferred taxes (4,469) (654)
Provision for doubtful accounts 500 703
Changes in operating assets and liabilities:
Decrease (Increase) in:
Receivables (6,945) (1,042)
Prepaid expenses (150) (295)
Income taxes refundable 1,086 (1,854)
Other assets (63) (1,214)
Increase (Decrease) in:
Trade accounts payable 67 200
Accrued expenses (4,441) (1,420)
Other liabilities 36 (167)
Deferred income (1,373) (853)
--------- ---------
Net cash provided by operating
activities 32,300 25,231
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in notes receivable (1,590) (280)
Acquisition of new markets (138,297) (187,175)
Capital expenditures (30,274) (24,260)
Proceeds from disposition of assets 1,602 1,289
--------- ---------
Net cash used in investing activities (168,559) (210,426)
(continued)
-5-
8
LAMAR ADVERTISING COMPANY AND
SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Six Months Ended
June 30,
1999 1998
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 2,194 179,929
Principal payments on long-term debt (47,009) (2,341)
Proceeds from issuance of notes payable -- 70
Net borrowings under credit agreements 57,000 7,000
Dividends (274) (274)
--------- ---------
Net cash provided by financing activities 11,911 184,384
Net decrease in cash and cash equivalents (124,348) (811)
Cash and cash equivalents at beginning
of period 128,597 7,246
--------- ---------
Cash and cash equivalents at end of
period 4,249 6,435
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 36,196 $ 27,100
========= =========
Cash paid for state and
federal income taxes $ 1,485 $ 872
========= =========
See accompanying notes to consolidated financial statements
-6-
9
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." The calculations of basic earnings per share exclude any dilutive effect
of stock options, while diluted earnings per share includes the dilutive effect
of stock options. Antidilutive shares of 555,558, 611,296, 579,170 and 623,742
for the three month periods ended June 30, 1999 and 1998 and six month periods
ended June 30, 1999 and 1998 respectively have been excluded from the
calculations of diluted earnings per share.
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. The effect
of SOP 98-5 is recorded as a cumulative effect of a change in accounting
principle as described in Accounting Principles Board Opinion No. 20
"Accounting Changes".
-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 5, 1999, the Company purchased all of the outdoor advertising assets
of American Displays, Inc. for a cash purchase price of approximately $14,500.
On February 1, 1999, the company purchased all of the outdoor advertising
assets of KJS, LLC for a cash purchase price of $40,500.
On April 1, 1999, the Company purchased all of the assets of Frank Hardie, Inc.
for a cash purchase price of approximately $20,300.
On June 1, 1999, the Company purchased the assets of Vivid, Inc. for a cash
purchase price of approximately $22,100.
During the six months ended June 30, 1999, the company completed 30 additional
acquisitions of outdoor advertising and transit assets for an aggregate cash
purchase price of approximately $42,100 and the issuance of 13,023 shares of
Class A common stock valued at approximately $500.
Each of these acquisitions were accounted for under the purchase method of
accounting, and, accordingly, the accompanying financial statements include the
results of operations of each acquired entity from the date of acquisition. The
purchase price has been allocated to assets acquired and liabilities assumed
based on fair market value at the dates of acquisition. The following is a
summary of the allocation of the purchase price in the above transactions.
Property
Current Plant & Customer Other Current Long-term
Assets Equipment Goodwill Lists Assets Liabilities Liabilities
-------- --------- -------- -------- ------ ----------- -----------
American Displays 87 899 10,532 3,227 50 (284) --
KJS, LLC 46 9,468 30,543 4,479 10 (2,079) (1,921)
Frank Hardie 187 6,595 10,451 3,620 10 (525) --
Vivid, Inc. 357 8,402 9,830 4,055 30 (593)
Other 189 11,301 28,713 4,810 165 (1,103) (1,549)
------ ------ ------ ------ ------ ------- ------
866 36,665 90,069 20,191 265 (4,584) (3,470)
====== ====== ====== ====== ====== ====== ======
-8-
11
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 statements of operations data
for the six months ended June 30, 1999 and June 30, 1998 as if each of the
above acquisitions and the acquisitions occurring in 1998, which were fully
described in the Company's December 31, 1998 Annual Report on Form 10-K, had
been consummated as of January 1, 1998. 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 Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
Revenues, net $ 98,541 $ 91,047 $ 188,072 $ 173,915
Net loss applicable to
common stock (5,450) (7,173) (17,034) (18,630)
Net loss per common share - basic (.09) (.15) (.28) (.39)
Net loss per common share - diluted (.09) (.15) (.28) (.39)
In addition, on June 1, 1999, the Company agreed to purchase the outdoor
advertising business of Chancellor Media Outdoor Corporation for $700,000 in
cash and 26,227,273 shares of the Company's Class A Common Stock. The
acquisition is subject to antitrust review by the Department of Justice and the
Federal Trade Commission under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976. The completion of the acquisition is also subject to approval by the
Company's stockholders of the issuance of the shares of Class A common stock as
proposed in the acquisition, lender approvals, and the satisfaction of other
customary closing conditions. Accordingly, the Company cannot be sure whether
or when the Chancellor Outdoor acquisition will be completed. The Reilly Family
Limited Partnership, which is controlled by Kevin P. Reilly, Jr., Chief
Executive Officer of the Company and holds more than 80% of the Company
stockholder voting power, has agreed to vote in favor of the transaction. Lamar
expects to fund the cash portion of the purchase price with bank loans under a
new credit facility which it expects to put in place prior to closing.
3. New Bank Credit Facility
On June 15, 1999, the Company received a commitment from The Chase Manhattan
Bank to replace its existing bank credit facility with a new bank credit
facility under which The Chase Manhattan Bank will serve as administrative
agent. The new $1,000,000 bank credit facility consists of (1) a $350,000
revolving bank credit facility and (2) a $650,000 term facility with two
tranches, a $450,000 Term A facility and a $200,000 Term facility. As a result
of the holding company reorganization completed on July 20, 1999 and explained
in footnote 5, the existing bank credit facility and the new bank credit
facility will be obligations of Lamar Media Corp. and not Lamar Advertising
Company.
-9-
12
LAMAR ADVERTISING COMPANY AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
4. 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 its publicly issued 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:
Balance Sheet Information: June 30, 1999 December 31, 1998
------------- -----------------
(Unaudited)
Current assets 391 248
Total assets 439 297
Total liabilities 10 7
Venturers' equity 429 290
Income Statement Information: Three months ended Six months ended
June 30 June 30
1999 1998 1999 1998
---- ---- ---- ----
(Unaudited) (Unaudited)
Revenues 258 237 532 501
Net income 106 137 320 299
5. Subsequent Events
On July 16, 1999, the Board of Directors amended the Preferred Stock of the
Corporation by establishing 5,720 shares of the 1,000,000 shares of previously
undesignated Preferred Stock, par value .001 to be designated "Series AA
Preferred Stock". The previously issued Class A Preferred Stock par value $638
was exchanged for the new Series AA Preferred Stock.
On July 20, 1999, the Company reorganized into a new holding company structure.
As a result of this reorganization (1) the former Lamar Advertising Company
became a wholly owned subsidiary of a newly formed holding company, (2) the
name of the former Lamar Advertising Company was changed to Lamar Media Corp.,
(3) the name of the new holding company became Lamar Advertising Company, (4)
the outstanding shares of capital stock of the former Lamar Advertising
Company, including the Class A common stock, were automatically converted, on a
share for share basis, into identical shares of capital stock of the new
holding company and (5) the Class A common stock of the new holding company
commenced trading on the Nasdaq National Market under the symbol "LAMR" instead
of the Class A common stock of the former Lamar Advertising Company. In
addition, following the holding company reorganization, substantially all of
the former Lamar Advertising Company's debt obligations, including the bank
credit facility and other long-term debt remained the
-10-
13
LAMAR ADVERTISING COMPANY AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
obligations of Lamar Media Corp. Under Delaware law, the reorganization did not
require the approval of the stockholders of the former Lamar Advertising
Company. The purpose of the reorganization was to provide Lamar Advertising
Company with a more flexible capital structure and to enhance its financing
options. The business operations of the former Lamar Advertising Company and its
subsidiaries will not change as a result of the reorganization. Stockholders do
not need to take any action since their existing stock certificates represent
shares of the new holding company.
On August 10, 1999, the Company completed an offering of $250,000 5 1/4%
convertible notes. The proceeds of approximately $243,000 of the convertible
notes were used to pay down existing bank debt. The convertible notes were
issued by the new holding company, Lamar Advertising Company.
-11-
14
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 six month and three month periods
ended June 30, 1999 and 1998. 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 hereto entitled "Factors Affecting Future Operating
Results".
RESULTS OF OPERATIONS
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Net revenues increased $55.5 million or 43.3% to $183.6 million for the six
months ended June 30, 1999 as compared to the same period in 1998. This
increase was attributable to the Company's acquisitions during 1998 and 1999
and internal growth within the Company's existing markets.
Operating expenses, exclusive of depreciation and amortization, increased $30.4
million or 43.1% for the six months ended June 30, 1999 as compared to the same
period in 1998. This was primarily the result of the additional operating
expenses related to acquired outdoor advertising assets and the newly developed
logo sign contracts.
Depreciation and amortization expense increased $27.1 million or 73.1% from
$37.1 million for the six months ended June 30, 1998 to $64.2 million for the
six months ended June 30, 1999 as a result of an increase in capitalized assets
resulting from the Company's recent acquisition activity.
Due to the above factors, operating income decreased $2.0 million or 10.1% to
$18.3 million for six months ended June 30, 1999 from $20.3 million for the
same period in 1998.
Interest income increased $.7 million as a result of earnings on excess cash
investments made during the six months ended June 30, 1999 as compared to the
same period in 1998 due to proceeds from a public offering of the Company's
securities in December 1998. Interest expense increased $9.2 million from $27.2
million for the six months ended June 30, 1998 to $36.4 million for the same
period in 1999 as a result of additional borrowings under the Company's bank
credit facility.
Income tax benefit increased $.4 million creating a tax benefit of $1.8 million
for the six months ended June 30, 1999 as compared to $1.4 million for the same
period in 1998. The effective tax rate for the six months ended June 30, 1999 is
10.6 % which is less than the statutory rate due to permanent differences
resulting from non-deductible amortization of goodwill.
Due to the adoption of 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 Company recognized an expense of $.8 million as a
cumulative effect of a change in accounting principle. This expense is a one
time adjustment to recognize start-up activities and organization costs that
were capitalized in prior periods.
-12-
15
As a result of the above factors, the Company recognized a net loss for the six
months ended June 30, 1999 of $15.7 million, as compared to a net loss of $5.7
million for the same period in 1998.
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998
Revenues for the three months ended June 30, 1999 increased $28.1 million or
40.4% to $97.8 million from $69.7 million for the same period in 1998.
Operating expenses, exclusive of depreciation and amortization, for the three
months ended June 30, 1999 increased $14.6 million or 39.9% over the same
period in 1998.
Depreciation and amortization expense increased $13.2 million or 67.5% from
$19.5 million for three months ended June 30, 1998 to $32.7 million for the
three months ended June 30, 1999.
Operating income increased $.3 million or 2.6% to $13.9 million for the three
months ended June 30, 1999 as compared to $13.6 million for the same period in
1998.
Interest expense increased $4.3 million from $13.9 million for the three months
ended June 30, 1998 to $18.2 million for the same period in 1999.
The Company recognized a net loss for the three months ended June 30, 1999 of
$5.0 million.
The results for the three months ended June 30, 1999 were affected by the same
factors as the six months ended June 30, 1999. Reference is made to the
discussion of the six 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 and the issuance of debt and equity
securities.
During the six months ended June 30, 1999, the Company financed its acquisition
activity of approximately $138.3 million with remaining proceeds from the
December, 1998 equity offering and borrowings under the Company's revolving
bank credit facility. At June 30, 1999, following these acquisitions, the
Company had $192 million available under the revolving bank credit facility. In
July 1999, the Company financed the Action Outdoor acquisition with a draw of
$9 million under the revolving bank credit facility.
The Company's net cash provided by operating activities increased $7.1 million
from $25.2 million for the six months ended June 30, 1998 to $32.3 million for
the six months ended June 30, 1999 due primarily to an increase in noncash
items of $22.2 million, which includes an increase in depreciation and
amortization of $27.1 million offset by a decrease in deferred taxes of $3.8
million and a decrease in gain or loss on disposition of assets of $.9 million.
The increase in noncash items was offset by a decrease in net earnings of $10.0
million, a decrease in accrued expenses of $3.0 million and an increase in
receivables of $5.9 million. Net cash used in investing activities decreased
$41.8 million from $210.4 million for the six months ended June 30, 1998 to
$168.6 million for the same period in 1999. This decrease was due to a $48.9
million decrease in acquisition of outdoor advertising assets offset by a $6.0
million increase in capital expenditures and a $1.3 million increase in notes
receivable. Net cash used
-13-
16
in financing activities for the six months ended June 30, 1999 is $11.9 million
due to $47.0 million in principal payments on long-term debt which primarily
consists of the payment of approximately $45.0 million in notes to the three
principal shareholders of OCI which was purchased by the Company in October,
1998. The principal payments were offset by $57.0 million in net borrowings
under credit agreements which was used primarily to finance acquisitions and
$2.2 million in net proceeds from issuance of common stock under the Company's
1996 Equity Incentive Plan.
On June 15, 1999, the Company received a commitment from The Chase Manhattan
Bank to replace its existing bank credit facility with a new bank credit
facility for which The Chase Manhattan Bank would serve as administrative
agent. The new $1 billion bank credit facility would consist of (1) a $350
million revolving bank credit facility, (2) a $650 million term facility with
two tranches, a $450 million Term A facility and a $200 million Term B
facility. In addition, the new bank credit facility will provide for an
uncommitted $400 million incremental facility available at the discretion of
the lenders. As a result of the holding company reorganization completed on
July 20, 1999 and explained in footnote 5, the existing bank credit facility
and the new bank credit facility will be obligations of Lamar Media Corporation
and not Lamar Advertising Company.
On August 10, 1999 the Company completed an offering of $250 million of 5 1/4%
convertible notes. The proceeds of approximately $243 million of the
convertible notes were used to pay existing bank debt. The convertible notes
are convertible into Lamar Advertising Company Class A Common Stock at an
initial conversion price of $46.25 per share.
Elimination of Tobacco Advertising
By the end of April, 1999, the Company had removed all of its outdoor
advertising of tobacco products in connection with settlements the states had
reached with the U.S. tobacco companies. Because of these settlements, the
Company's tobacco revenues as a percentage of consolidated net revenue have
declined from 7% for the 12 months ended December 31, 1998 to 4% for the six
months ended June 30, 1999. When displays formerly occupied by tobacco
advertisers have become available in the recent past, the Company has been able
to attract substitute advertising for the unoccupied space on comparable or more
favorable terms. While both of these trends are positive, the Company cannot
guarantee that it will be able to attract substitute advertising to occupy the
displays which will become unoccupied, or that substitute advertisers will pay
rates as favorable to the Company as those paid by tobacco advertisers. If the
Company is unable to continue to replace tobacco advertising, the resulting
increase in available inventory could cause the Company to reduce its rates or
limit the Company's ability to raise rates. In addition, the Company cannot
guarantee that substitute advertisers will pay rates as favorable to the Company
as those paid by tobacco advertisers.
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.
The year 2000 date recognition problem could cause the Company's computer
systems to fail, resulting in miscalculations and incorrect data. Computer
systems which may be affected by this year 2000 problem include computer systems
embedded in production equipment; displays containing computer systems; business
data processing systems;
-14-
17
production, management and planning systems; and personal computers.
Consequently, the year 2000 problem could disrupt the Company's daily commercial
activities if the Company does not take the steps necessary to address it
effectively. In addition, the Company cannot assure you that the Company's
customers, suppliers and other third parties that the Company deals with are or
will be year 2000 compliant in a timely manner. Interruptions in services
provided to the Company or in the purchases made by these third parties could
also disrupt the Company's operations. Parties affected by a disruption in the
Company's operations and services could make claims or bring lawsuits against
the Company. Depending upon the extent and duration of any disruptions caused by
the year 2000 problem and the specific services affected, these disruptions
could have an adverse affect on the Company's business.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company is exposed to interest rate risk in connection with variable rate
debt instruments issued by the Company. The Company does not enter into market
risk sensitive instruments for trading purposes. The information below
summarizes the Company's interest rate risk associated with its principal
variable rate debt instruments outstanding at June 30, 1999.
Loans under the Company's bank credit facility bear interest at variable rates
equal to the Chase Prime Rate or LIBOR plus the applicable margin. Because the
Chase Prime Rate or LIBOR may increase or decrease at any time, the Company is
exposed to market risk as a result of the impact that changes in these base
rates may have on the interest rate applicable to borrowings under the bank
credit facility. Increases in the interest rates applicable to borrowings under
the bank credit facility would result in increased interest expense and a
reduction in the Company's net income and after tax cash flow.
At June 30, 1999, there was approximately $307 million of aggregate
indebtedness outstanding under the bank credit facility, or approximately 34.7%
of the Company's outstanding long-term debt on that date, bearing interest at
variable rates. The aggregate interest expense for the six months ended June
30, 1999 with respect to borrowings under the bank credit facility was $9.1
million, and the weighted average interest rate applicable to borrowings under
these credit facilities during the six months ended June 30, 1999 was 6.8%.
Assuming that the weighted average interest rate was 200-basis points higher
(that is 8.8% rather than 6.8%), then the Company's 1999 interest expense would
have been approximately $2.7 million higher resulting in a $1.6 million
decrease in the Company's six months ended June 30, 1999 net income and after
tax cash flow.
The Company attempts to mitigate the interest rate risk resulting from its
variable interest rate long-term debt instruments by also issuing fixed rate
long-term debt instruments and maintaining a balance over time between the
amount of the Company's variable rate and fixed rate indebtedness. In addition,
the Company has the capability under the bank credit facility to fix the
interest rates applicable to its borrowings at an amount equal to LIBOR plus
the applicable margin for periods of up to twelve months, which would allow the
Company to mitigate the impact of short-term fluctuations in market interest
rates. In the event of an increase in interest rates, the Company may take
further actions to mitigate its exposure. The Company cannot guarantee,
however, that the actions that it may take to mitigate this risk will be
feasible or that, if these actions are taken, that they will be effective.
-15-
18
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held its annual meeting of stockholders on Thursday, May 27, 1999.
The following represents the results of the proposals submitted to a vote of
security holders:
Proposal to Elect Directors
The following persons were elected to the Company's Board of Directors for a
term of office expiring at the Company's 2000 Annual Meeting of Stockholders:
Votes Cast For Votes Withheld
-------------- --------------
Kevin P. Reilly, Jr 217,684,867 145,991
Sean E. Reilly 217,684,867 145,991
Keith A. Istre 217,684,117 146,741
Charles W. Lamar, III 217,684,867 145,991
Gerald H. Marchand 217,684,867 145,991
Jack S. Rome, Jr 217,684,867 145,991
T. Everett Stewart Jr 217,684,867 145,991
Stephen P. Mumblow 217,679,717 151,141
There were no abstentions or broker non-votes.
Approval of Amendment to the Company's 1996 Equity Incentive Plan
FOR AGAINST ABSTAIN
--- ------- -------
177,000,000 -- --
27,170,524 13,611,562 13,972
34,800 -- --
------------
204,205,324
Approval of Amendment to the Company's Restated Certificate of Incorporation
FOR AGAINST ABSTAIN
--- ------- -------
177,000,000 -- --
40,266,145 517,919 11,994
34,800 -- --
------------
217,300,945
The Company's 2000 annual meeting of stockholders has been scheduled for May
25, 2000.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit 3.1 Certificate of Incorporation of Lamar New Holding Co.
Filed herewith.
Exhibit 3.2 Certificate of Amendment of Certificate of Incorporation of
Lamar New Holding Co. (whereby the name of Lamar New
Holding Co. was changed to Lamar Advertising Company.)
Filed herewith.
Exhibit 3.3 Amended and Restated Bylaws. Filed herewith.
-16-
19
Exhibit 4.1 Indenture dated as of August 10, 1999 between the Company
and State Street Bank and Trust Company, as Trustee. Filed
herewith.
Exhibit 4.2 First Supplemental Indenture dated as of August 10, 1999
between the Company and State Street Bank and Trust
Company, as Trustee. Filed herewith.
Exhibit 10.1 Second Amended and Restated Stock Purchase Agreement
dated as of August 11, 1999 among the Company, Lamar Media
Corp., Chancellor Media Corporation of Los Angeles and
Chancellor Mezzanine Holdings Corporation. Previously
filed as Appendix A to the Company's Schedule 14C
Information Statement filed on August 13, 1999 and
incorporated herein by reference. Pursuant to Item
601(b)(2) of Regulation 5-K, the Schedules and Annexes A
and B referred to in the Second Amended and Restated Stock
Purchase Agreement are omitted. The Company hereby
undertakes to furnish supplementary a copy of any omitted
Schedule or Annex to the Commission upon request.
Exhibit 27.1 Financial Data Schedule.
Exhibit 99.1 Factors Affecting Future Operating Results.
(b) Reports on Form 8-K
Reports on Form 8-K were filed with the Commission during the
second quarter of 1999 to report the following items as of the
dates indicated:
On May 7, 1999, the Company filed an 8-K in order to
furnish an exhibit for incorporation by reference
into the Registration Statements on Form S-3 of Lamar
Advertising Company previously filed with Securities
and Exchange Commission (File Nos. 333- 50559 and
333-71929), which Registration Statements were
declared effective by the Commission on April 28,
1998 and February 12, 1999, respectively, the Company
filed as Exhibit 1.1 to such Registration Statements
a form of Underwriting Agreement for use in
connection with underwritten sales of securities
pursuant to such Registration Statements.
On June 8, 1999, the Company filed an 8-K/A amending
the previously filed 8-K on October 15, 1998 and
8-K/A on October 19, 1998 in order to provide updated
historical financial statements and related notes for
Outdoor Communications, Inc., which the Company
acquired as of October 1, 1998, as well as to include
updated pro forma financial information of the
Company giving effect to the acquisition. The Company
filed as exhibits the unaudited condensed
consolidated balance sheets of OCI as of September
30, 1998 and June 30, 1998 and unaudited condensed
consolidated statements of operations, and cash flow
for the three-month periods ended September 30, 1998
and 1997, and the unaudited pro forma condensed
consolidated balance sheet as of September 30, 1998
and statements of loss of the Company giving effect
to the OCI acquisition for the year ended December
31, 1998 and the nine months ended September 30,
1998.
On June 10, 1999, the Company filed an 8-K announcing
that the Company entered into a definitive agreement
pursuant to which Lamar Media Corporation will
acquire Chancellor's outdoor advertising business for
approximately $1.6 billion in stock and cash. Filed
as Exhibit 99.1 was a copy of the press release
issued on June 1, 1999.
-17-
20
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: August 13, 1999 BY: /s/ Keith Istre
------------------------------
Keith A. Istre
Chief Financial and Accounting
Officer and Director
-18-
21
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
Exhibit 3.1 Certificate of Incorporation of Lamar New Holding Co.
Filed herewith.
Exhibit 3.2 Certificate of Amendment of Certificate of Incorporation
of Lamar New Holding Co. (whereby the name of Lamar New
Holding Co. was changed to Lamar Advertising Company).
Filed herewith.
Exhibit 3.3 Amended and Restated Bylaws. Filed herewith.
Exhibit 4.1 Indenture dated as of August 10, 1999 between the Company
and State Street Bank and Trust Company, as Trustee. Filed
herewith.
Exhibit 4.2 First Supplemental Indenture dated as of August 10, 1999
between the Company and State Street Bank and Trust
Company, as Trustee. Filed herewith.
Exhibit 10.1 Second Amended and Restated Stock Purchase Agreement
dated as of August 11, 1999 among the Company, Lamar Media
Corp., Chancellor Media Corporation of Los Angeles and
Chancellor Mezzanine Holdings Corporation. Previously
filed an Appendix A to the Company's Schedule 14C
Information Statement filed on August 13, 1999 and
incorporated herein by reference. Pursuant to Item
601(b)(2) of Regulation 5-K, the Schedules and Annexes A
and B referred to in the Second Amended and Restated Stock
Purchase Agreement are omitted. The Company hereby
undertakes to furnish supplementary a copy of any omitted
Schedule or Annex to the Commission upon request.
Exhibit 27.1 Financial Data Schedule.
Exhibit 99.1 Factors Affecting Future Operating Results.