1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
APRIL 1, 1997
LAMAR ADVERTISING COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 0-20833 72-1205791
(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No.)
5551 CORPORATE BOULEVARD, BATON ROUTE, LOUISIANA 70808
(Address of principal executive offices and zip code)
(504) 926-1000
(Registrant's telephone number, including area code)
2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On April 1, 1997, Lamar Advertising Company (the "Company")
acquired the outstanding capital stock of Penn Advertising, Inc. ("Penn") for a
cash purchase price of approximately $167.0 million. Pursuant to this
acquisition, the Company has acquired a total of 8,500 outdoor advertising
displays throughout the states of Maryland, New York and Pennsylvania. On
June 3, 1997, the Company sold approximately 1,400 of these displays in
Baltimore, Maryland to Universal Outdoor, Inc. ("Universal") for a cash
purchase price of $46.5 million.
This Form 8-K is being amended to provide the historical
financial statements and related notes of Penn as well as pro forma financial
information of the Company giving effect to the Penn acquisition and subsequent
sale to Universal.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements.
Penn Advertising, Inc. and Subsidiary Consolidated
Financial Statements.
(b) Pro Forma Financial Statements.
Lamar Advertising Company Unaudited Pro Forma
Financial Statements.
(c) Exhibits.
2.1 Stock Purchase Agreement dated as of
February 7, 1997 between the Company and the
stockholders of Penn Advertising, Inc. named
therein. Previously filed.
3
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 hereunto duly authorized.
Date: June 12, 1997 LAMAR ADVERTISING COMPANY
By: /s/ Keith A. Istre
----------------------------------------
Keith A. Istre
Treasurer and Chief Financial Officer
4
PENN ADVERTISING, INC. AND SUBSIDIARY
-------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------
DECEMBER 31, 1996 AND 1995
--------------------------
TABLE OF CONTENTS
-----------------
PAGE
----
Independent Auditors' Report 1
Financial Statements
Consolidated Balance Sheets 2
Consolidated Statements of Income
and Accumulated Deficit 3
Consolidated Statements of Cash Flows 4
Notes to Consolidated Financial Statements 5-12
5
[LOGO OF PHILIP R. FRIEDMAN AND ASSOCIATES
PHILIP R. FRIEDMAN ---------------------------------
AND ASSOCIATES]
Certified Public Accountants
YORK, PENNSYLVANIA 17403 Members of
AMERICAN INSTUTUTE
WILLIAM H. FORDNEY, JR. CPA 1601 SOUTH QUEEN STREET and
DAVID R. KLUNK, CPA ----- PENNSYLVANIA INSTUTUTE
STEVEN M. MERRICK, CPA TELEPHONE (717) 843-3804 FAX (717) 854-0533 of
JOHN H. LANE, CPA CERTIFIED
TODD A. SPAHR, CPA PUBLIC ACCOUNTANTS
-----
AMY GOHN, CPA PHILIP R. FRIEDMAN (1942-1970)
DEBRA A. TAYLOR, CPA BERNARD F. OVERBAUGH (1952-1985)
PRESTON H. EISENSMITH (RETIRED)
IRWIN S. LEVINBOOK (RETIRED)
INDEPENDENT AUDITORS' REPORT
Penn Advertising, Inc.
R.D. #24
P.O. Box 6157
York, PA 17406
We have audited the accompanying consolidated balance sheets of Penn
Advertising, Inc. and subsidiary as of December 31, 1996 and 1995, and the
related consolidated statements of income and accumulated deficit and cash flows
for the years then ended. 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 Penn
Advertising, Inc. and subsidiary as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
The consolidated statements of income and accumulated deficit for the
three months ended December 31, 1996 and 1995 are presented for purposes of
additional analysis and are not a required part of the basic financial
statements. Such information has not been subjected to the auditing procedures
applied in the audits of the basic financial statements, and, accordingly, we
express no opinion on them.
/s/ Philip R. Friedman and Associates
May 13, 1997
6
PENN ADVERTISING, INC. AND SUBSIDIARY
-------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
DECEMBER 31, MARCH 31
ASSETS 1996 1995 1997 1996
------ ------------ ------------ ---------- ------------
(Unaudited)
Current Assets
Cash and cash equivalents $ 235,741 $ -- $ 16,859 $ --
Accounts receivable, less allowance for doubtful
accounts of $333,837 in 1996 and $393,094 in 1995 5,182,495 4,901,887 3,822,149 4,052,674
Prepaid outdoor advertising site rentals 1,833,908 1,743,812 1,979,345 1,912,612
Deferred income taxes (Note 4) 306,980 317,498 929,932 309,417
Other current assets 412,112 408,473 402,103 863,024
------------ ------------ ----------- ------------
Total Current Assets 7,971,236 7,371,670 7,150,388 7,137,727
------------ ------------ ----------- ------------
Property, Plant and Equipment, at cost (Notes 2 and 3)
Land 4,281,855 4,081,466 4,281,263 4,129,471
Buildings and improvements 3,157,790 3,087,999 4,122,758 3,087,999
Outdoor advertising structures 58,971,564 55,400,464 59,108,287 58,440,752
Equipment 5,101,144 4,591,362 5,091,596 4,866,944
Construction-in-progress 621,269 641,304 430,650 575,474
------------ ------------ ----------- ------------
72,133,622 67,802,595 73,034,554 71,100,640
Accumulated depreciation and amortization 47,073,209 43,413,576 47,981,927 44,262,651
------------ ------------ ----------- ------------
25,060,413 24,389,019 25,052,627 26,837,989
------------ ------------ ----------- ------------
Goodwill, net 15,747,763 16,262,359 15,619,116 16,133,710
------------ ------------ ----------- -----------
Deferred Income Taxes (Note 4) 1,588,767 852,256 936,307 930,430
------------ ------------ ----------- -----------
Other Assets (Note 2) 1,380,487 1,788,676 1,252,533 1,782,662
------------ ------------ ----------- -----------
$ 51,748,666 $ 50,663,980 $50,010,971 $52,822,518
============ ============ =========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
Current Liabilities
Cash overdrafts $ -- $ 182,795 $ -- $ 277,394
Current portion of long-term debt (Note 3) 4,900,000 4,425,000 4,600,000 6,550,000
Accounts payable 574,247 688,533 451,870 631,924
Accrued income taxes (Note 4) 1,103,112 295,552 102,421 --
Accrued interest 394,639 528,005 687,995 963,870
Other accrued expenses 1,243,341 1,036,415 1,013,606 1,093,464
------------ ------------ ------------ -----------
Total Current Liabilities 8,215,339 7,156,300 6,855,892 9,516,652
------------ ------------ ------------ -----------
Long-term Debt (Note 3) 48,084,780 51,047,984 48,133,041 51,343,053
------------ ------------ ------------ -----------
Stockholders' Deficit (Notes 3 and 7)
Common stock, Class A voting, $1 par value, 125,000
shares authorized, 78,244 shares issued and outstanding 78,244 78,244 78,244 78,244
Common stock, Class B non-voting, $1 par value, 25,000
shares authorized, 2,241 and 2,266 shares issued
and outstanding in 1996 and 1995, respectively 2,241 2,266 2,241 2,266
Additional paid-in capital 14,447,808 14,445,870 14,258,134 14,445,870
Accumulated deficit (19,079,746) (22,066,684) (19,316,581) (22,563,567)
------------ ------------ ------------ -----------
Total Stockholders' Deficit (4,551,453) (7,540,304) (4,977,962) (8,037,187)
------------ ------------ ------------ -----------
$ 51,748,666 $ 50,663,980 $ 50,010,971 $52,822,518
============ ============ ============ ===========
The accompanying notes are an integral part of the financial statements.
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PENN ADVERTISING, INC. AND SUBSIDIARY
-------------------------------------
CONSOLIDATED STATEMENTS OF INCOME AND
-------------------------------------
ACCUMULATED DEFICIT
-------------------
FOR THE YEARS THREE MONTHS ENDED
ENDED DECEMBER 31, MARCH 31,
1996 1995 1997 1996
------------ ------------ ------------ ------------
(UNAUDITED)
REVENUES
- --------
Outdoor advertising $ 44,320,530 $ 40,485,816 $ 8,908,827 $ 8,447,386
Other 62,944 212,840 23,962 27,376
------------ ------------ ------------ ------------
44,383,474 40,698,656 8,932,789 8,474,762
------------ ------------ ------------ ------------
EXPENSES
- --------
Operating 13,039,969 12,185,978 3,241,660 3,135,697
Selling and administrative 14,278,269 13,286,483 2,975,886 3,194,534
Depreciation and amortization 5,446,386 4,592,128 1,279,666 1,276,755
Interest 6,050,075 6,133,997 1,356,028 1,510,782
Other 1,537,537 864,105 366,384 304,877
------------ ------------ ------------ ------------
40,352,236 37,062,691 9,219,624 9,422,645
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME
- ---------------------------
TAXES 4,031,238 3,635,965 (286,835) (947,883)
-----
PROVISION (BENEFIT) FOR
- -----------------------
INCOME TAXES (NOTE 4) 1,044,300 761,600 (50,000) (451,000)
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) 2,986,938 2,874,365 (236,835) (496,883)
- -----------------
ACCUMULATED DEFICIT,
- -------------------
beginning of period (22,066,684) (24,941,049) (19,079,746) (22,066,684)
------------ ------------ ------------ ------------
ACCUMULATED DEFICIT,
- --------------------
end of period $(19,079,746) $(22,066,684) $(19,316,581) $(22,563,567)
============ ============ ============ ============
NET INCOME (LOSS) PER
- ---------------------
COMMON SHARE $ 37.11 $ 35.89 $ (2.94) $ (6.17)
------------ ============ ============ ============ ============
The accompanying notes are an integral part of the financial statements.
-3-
8
PENN ADVERTISING, INC. AND SUBSIDIARY
-------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
1996 1995 1997 1996
------------ ------------ ------------ ------------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
Net income (loss) $ 2,986,938 $ 2,874,365 $ (236,835) $ (496,883)
Adjustments to reconcile net income to net cash:
Depreciation and amortization 5,446,386 4,592,128 1,279,666 1,276,755
Accretion of zero coupon convertible subordinated notes 186,796 172,076 48,261 45,069
Deferred financing expense amortization 274,997 279,310 61,979 70,749
Deferred income taxes (725,993) (800,936) (29,000) (70,093)
Increase (decrease) in allowance for doubtful accounts (59,256) 88,838 (56,200) (33,024)
------------ ------------ ----------- ------------
8,109,868 7,205,781 1,067,871 792,573
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (221,352) (656,823) 1,416,548 882,237
Increase in prepaid outdoor advertising site rentals (90,096) (160,787) (145,437) (168,800)
Decrease (increase) in other current assets (3,639) 3,053 10,009 (104,439)
Decrease in accounts payable (114,286) (75,848) (122,377) (56,609)
Change in accrued income taxes 807,560 (29,047) (942,183) (645,664)
Increase (decrease) in accrued interest (133,366) 5,603 293,358 435,865
Increase (decrease) in other accrued expenses 206,926 37,431 (229,739) 57,049
------------ ------------ ----------- ------------
Net cash provided by operating activities 8,561,615 6,329,363 1,348,050 1,192,212
------------ ------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Net increase (decrease) in revolving credit facility
and working capital facility (875,000) 25,375,000 2,375,000
Repayment of other debt (1,800,000) (24,950,000) (300,000) --
Increase (decrease) in cash overdrafts (182,795) 182,795 94,599
Sale of Class "B" common stock 12,513 176,799 --
Repurchase of Class "B" common stock (10,600) -- --
Payments of deferred financing costs -- (467,000) (189,674) --
------------ ------------ ----------- ------------
Dividends paid
Net cash provided (used) by financing activities (2,855,882) 317,594 (489,674) 2,469,599
------------ ------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Purchase of property, plant and equipment, net (5,348,157) (8,851,992) (1,077,258) (3,539,974)
Covenants not to compete (150,000) (600,000) (150,000)
Decrease in other assets 28,165 4,149 28,163
------------ ------------ ----------- ------------
Net cash used by investing activities (5,469,992) (9,447,843) (1,077,258) (3,661,811)
------------ ------------ ----------- ------------
NET INCREASE (DECREASE) IN CASH
- -------------------------------
AND CASH EQUIVALENTS 235,741 (2,800,886) (218,882) --
--------------------
CASH AND CASH EQUIVALENTS, January 1, -- 2,800,886 235,741 --
- ------------------------- ------------ ------------ ----------- ------------
CASH AND CASH EQUIVALENTS, December 31, $ 235,741 $ -- $ 16,859 $ --
- ------------------------- ============ ============ =========== ============
The accompanying notes are an integral part of the financial statements.
-4-
9
PENN ADVERTISING, INC. AND SUBSIDIARY
-------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
DECEMBER 31, 1996 AND 1995
--------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS - Penn Advertising, Inc. and its subsidiary, Penn
Advertising of Baltimore, Inc., (the Company) is an outdoor advertising
company which operates in Pennsylvania, Maryland and New York.
Substantially all revenues are from the sale of billboard advertising to
national and local accounts.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of Penn Advertising, Inc. and its subsidiary. All significant
intercompany accounts and transactions are eliminated.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS - The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
CASH AND CASH OVERDRAFTS - For purposes of the statements of cash flows,
the Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. The Company uses
all cash receipts to reduce borrowings and funds disbursements with
additional borrowings as needed. Cash overdrafts represent uncleared
disbursements.
PROPERTY, PLANT AND EQUIPMENT - These assets are stated at cost and
depreciated over their estimated useful lives using the straight-line
method. Additions and major renovations are capitalized and depreciated.
Maintenance, repairs and minor renovations are charged against income as
incurred. Retirement gains and losses are reflected in income. Major
classes of property, plant and equipment are depreciated using the
following useful lives:
Buildings and improvements 15 to 40 years
Outdoor advertising structures 10 years
Equipment 3 to 10 years
GOODWILL - Goodwill is amortized using the straight-line method over forty
years.
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10
PENN ADVERTISING, INC. AND SUBSIDIARY
-------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
DECEMBER 31, 1996 AND 1995
--------------------------
1. SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
IMPAIRMENT OF LONG-LIVED ASSETS - The Company adopted Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed
of", as of January 1, 1996. Accordingly, when events or changes in
circumstances indicate that the carrying value of an asset or group of
assets may be impaired, the estimated future undiscounted pretax cash flows
from the affected asset(s) are compared with carrying value to determine if
an impairment loss must be recorded. The adoption of this standard did not
have a material effect on the Company's financial position or results of
operations.
OTHER ASSETS - Deferred financing expenses related to securing financing
are capitalized and amortized over the related debt's repayment period
using the straight-line method.
FINANCIAL INSTRUMENTS AND CREDIT RISK - Financial instruments include cash
and cash equivalents and long-term debt. Concentrations of credit risk
include accounts receivable, cash and cash equivalents. The Company
deposits its cash and cash equivalents in high quality institutions. The
Company's accounts receivable are largely from retail and consumer
businesses whose ability to pay is subject to changes in general economic
conditions.
INTEREST - Interest paid was $5,722,000 and $5,677,000 for the years ended
December 31, 1996 and 1995, respectively. Interest relating to construction
of plant and equipment is capitalized as part of the related asset's cost.
No interest was capitalized for the years ended December 31, 1996 or 1995.
INCOME TAXES - The Company uses the liability method of accounting for
income taxes. The provision for income taxes includes income taxes
currently payable and those deferred. Deferred income taxes reflects the
future tax consequences of temporary differences between the tax bases of
assets and liabilities and their financial reporting amounts at each
year-end. Changes in enacted tax rates are reflected in the tax provision
as they occur.
2. ACQUISITION OF POSTER AND BULLETIN DISPLAYS
On February 26, 1996, the Company purchased 367 poster and bulletin faces
located in upper New York state for $3,100,000 cash. The seller signed a
three year covenant not to compete in the areas covered by the acquisition
in exchange for $150,000 cash at closing.
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11
PENN ADVERTISING, INC. AND SUBSIDIARY
-------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
DECEMBER 31, 1996 AND 1995
--------------------------
2. ACQUISITION OF POSTER AND BULLETIN DISPLAYS, CONTINUED
On May 31, 1995, the Company acquired 564 poster and bulletin faces located
in Rochester, New York. The faces and a three year covenant not to compete
valued at $500,000 were purchased for $5 million cash. The Company also
purchased 65 additional faces and a three year covenant not to compete
valued at $100,000 in Erie, Pennsylvania on June 30, 1995 for $2 million
cash. The unamortized portion of the covenants not to compete is included
in other assets.
3. LONG-TERM DEBT
Long-term debt includes:
1996 1995
Revolving credit facility, payable
to banks, due in 1998 $23,500,000 $22,625,000
Working capital facility, payable
to banks, due in 1998 1,000,000 2,750,000
11.55% Senior Notes, payable to
insurance companies, due in 1997 and
1998, secured by property and equipment 13,000,000 13,000,000
14% Subordinated Notes, due March 31, 2002 11,630,000 11,630,000
11.10% Senior Notes, payable to
insurance companies, due in semi-annual
installments through 1997 1,410,000 3,210,000
Zero Coupon Convertible Subordinated Notes,
due March 31, 2002 2,444,780 2,257,984
----------- -----------
52,984,780 55,472,984
Less amounts payable within one year 4,900,000 4,425,000
----------- -----------
$48,084,780 $51,047,984
=========== ===========
The Company's revolving credit facility consists of a $23.5 million Tranche
A commitment and a $5.5 million Tranche B commitment, both maturing
December 31, 1998. Interest on these credits is variable, ranging from
LIBOR plus 1.75% to LIBOR plus 2%, based on leverage ratio and prime plus
0.5% to prime plus 0.75% also based on leverage ratio. The weighted average
interest rate on this facility was 7.65% and 7.93% at December 31, 1996 and
1995. The debt is collateralized by property and equipment and a pledge of
the Company's stock. The facility was modified on December 11, 1996 to
postpone a $3,500,000 reduction scheduled for December 31, 1996 until
February 28, 1997. The related commitments reduce as follows:
1997 7,100,000
1998 21,900,000
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12
PENN ADVERTISING, INC. AND SUBSIDIARY
-------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
DECEMBER 31, 1996 AND 1995
--------------------------
3. LONG-TERM DEBT, CONTINUED
The Company has agreed to make additional annual principal payments without
premium to banks and insurance companies on a pro rata basis to the extent
its cash flow exceeds certain thresholds.
The insurance company notes issued by the Company carry interest rates of
11.55% and 11.10%. Prepayments of the 11.55% Senior Notes and the 11.10%
Senior Notes are permitted in multiples of $100,000 at a premium equal to
the applicable Yield Maintenance Premium.
Subordinated Notes interest is payable quarterly. Prepayments of at least
$500,000 may be made by paying, in addition to such principal, a premium on
such principal which decreased to 10% after March 31, 1996.
The Zero Coupon Convertible Subordinated Notes are due March 31, 2002. The
face amount of $3,704,951 has been discounted using an 8% rate to
$2,444,780. The notes are convertible into 19,756 shares of Class A or
Class B common stock (see Note 9).
The insurance company notes are collateralized by the Company's property
and equipment. A bank has agreed to act as agent for the insurance
companies in matters regarding any actions taken against the collateral
under the Note Purchase Agreements or the Credit Agreement.
The Company's financing agreements contain covenants requiring the Company
to maintain cash flow and financial ratios at prescribed levels. Other
covenants limit the Company's ability to incur additional debt, pay
dividends, enter into leases, merge, consolidate or transfer assets, change
ownership or capital structure, enter new businesses, make certain payments
and enter into transactions with affiliates.
The non-current portion of long-term debt matures in the following years:
1998 34,010,000
2002 14,075,000
The carrying value of floating-rate debt approximates its fair value as of
December 31, 1996 and 1995. The fair value of fixed-rate debt, excluding
the Zero Coupon Convertible Subordinated Notes which were subsequently
exercised, was determined by using the Company's average floating rate. The
fair value of fixed-rate debt was $26,000,000 and $27,600,000 at December
31, 1996 and 1995, respectively.
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13
PENN ADVERTISING, INC. AND SUBSIDIARY
-------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
DECEMBER 31, 1996 AND 1995
--------------------------
4. INCOME TAXES
The provision for income taxes is summarized as follows:
1996 1995
---------- ----------
Currently Payable
-----------------
Federal $1,340,393 $1,166,936
State 429,900 395,600
---------- ----------
Total currently payable 1,770,293 1,562,536
---------- ----------
Deferred
--------
Federal (788,693) (852,136)
State 62,700 51,200
---------- ----------
Total deferred (725,993) (800,936)
---------- ----------
Provision For Income Taxes $1,044,300 $ 761,600
-------------------------- ========== ==========
Significant temporary differences giving rise to the Company's deferred tax
assets and liabilities are net operating losses and depreciation
differences between financial statements and tax returns.
The Company has generated the following unrealized federal tax net
operating loss and investment tax credit carryforwards. Utilization of
federal tax carryforwards is limited to $542,000 in any year due to the
Company's 1992 change in ownership. Federal net operating loss and
investment tax credit carryforwards expire as shown below based on
assumptions used in computing 1996's tax provision:
Net Operating Loss Investment Tax Credit
Year Expires Carryforwards Carryforwards
------------ ------------------ ---------------------
1997 $ -- $107,800
1999 -- 10,300
2000 -- 18,300
2003 1,962,000 --
2004 3,966,000 --
2005 1,811,000 --
2007 834,000 --
-9-
14
PENN ADVERTISING, INC. AND SUBSIDIARY
-------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
DECEMBER 31, 1996 AND 1995
--------------------------
4. INCOME TAXES, CONTINUED
Deferred tax assets at December 31, 1996 and 1995 totaled $6,515,000 and
$6,822,000.
The valuation allowance for deferred tax assets at December 31, 1996 and
1995 was $4,619,000 and $5,653,000, respectively. The decrease in the
valuation allowance of $1,034,000 and $912,000 for the years ended December
31, 1996 and 1995 respectively relates primarily to utilization of deferred
tax assets.
Reconciliations of the difference between the U. S. statutory income tax
rate and the annual effective book income tax rate follow:
1996 1995
---- ----
U. S. statutory rate 35.0% 35.0%
State income taxes, net of
federal income tax benefit 7.4 8.0
Non-deductible amortization and
other expenses 5.0 7.3
Other (21.5) (29.4)
---- ----
Annual effective book income tax rate 25.9% 20.9%
==== ====
5. PENSION PLANS
The Company provides non-contributory defined benefit pension plan coverage
for hourly employees (the hourly plan) and for all eligible full-time
employees not covered by the hourly plan (the salaried plan). Benefits
under the plans are based on employees' years of service for the hourly
plan, and on employees' years of service and earnings over their careers
for the salaried plan. The Company's funding policy is to make required
minimum contributions, as required by various regulations. Plan assets,
primarily listed bonds and stocks, are held by independent trustees.
The weighted average discount rate used in determining the actuarial
present value of projected benefit obligations was 7.5% for 1996 and 6.75%
for 1995. The assumed rate of increase in future compensation levels was
5.0% for 1996 and 4.5% for 1995. The expected long-term rate of return on
plan assets is 9.0% for both 1996 and 1995.
The Company recognized $180,000 and $164,000 in pension costs for the years
ended December 31, 1996 and 1995, respectively.
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15
PENN ADVERTISING, INC. AND SUBSIDIARY
-------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
DECEMBER 31, 1996 AND 1995
--------------------------
5. PENSION PLANS, CONTINUED
Funded status of the plans and the accrued pension cost at December 31,
1996 and 1995, follows:
1996 1995
---------- ----------
Accumulated benefit obligations
- vested $1,442,000 $1,506,000
- nonvested 56,000 61,000
---------- ----------
$1,498,000 $1,567,000
========== ==========
Plan assets at fair value $1,760,000 $1,426,000
Projected benefit obligations for service
to date 1,856,000 1,818,000
---------- ----------
Projected benefit obligations in excess
of plan assets 96,000 392,000
Unrecognized prior service costs (144,000) (154,000)
Unrecognized net gain 229,000 8,000
Unrecognized transition assets 33,000 39,000
---------- ----------
Accrued pension cost $ 214,000 $ 285,000
========== ==========
Net pension cost for the periods ended December 31, 1996 and 1995 includes
the following components:
1996 1995
--------- ---------
Service cost $ 141,000 $ 128,000
Interest cost 125,000 106,000
Actual return on plan assets (185,000) (287,000)
Net amortization and deferral 76,000 189,000
--------- ---------
Net pension cost $ 157,000 $ 136,000
========= =========
-11-
16
PENN ADVERTISING, INC. AND SUBSIDIARY
-------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
DECEMBER 31, 1996 AND 1995
--------------------------
6. LEASES
The Company leased a building from a partnership composed of certain
related individuals. Under terms of an eight year lease, the Company paid
rent of $162,000 for 1996. On March 27, 1997, the Company acquired this
building from the partnership for $950,000 cash. The lease, which was
accounted for as an operating lease, was canceled with the purchase.
Total rental expenses were $5,528,000 and $5,101,000 for the years ended
December 31, 1996 and 1995, respectively.
7. STOCKHOLDERS' DEFICIT
In 1992, TCW Capital acquired 49.9% of the Company's common stock. If TCW
exercises its rights to convert zero coupon convertible notes to common
stock, TCW will own approximately 60% of the Company. Certain shareholders
may earn up to 8% of the Company if specified goals are achieved by
December 31, 1997 (See Note 9).
On October 3, 1996, the Company sold 25 shares of Class B common stock for
$12,513. The Company repurchased 50 shares of Class B common stock on
August 7, 1996 for $10,600.
On February 28, 1995, the Board of Directors approved an offering of 868
Class B non-voting shares to key employees at $211.99 per share. On June
30, 1995, offerees purchased 834 shares for $176,799.
8. CONTINGENCIES
The Company is involved in litigation and administrative proceedings
primarily arising in the normal course of its business. In the opinion of
Management, the Company's recovery, if any, or the Company's liability, if
any, under any pending litigation or administrative proceeding would not
materially affect its financial condition or operations.
9. SALE OF COMPANY
On April 1, 1997, the Company's shareholders sold all their shares to an
unrelated corporation for approximately $113,300,000 cash. A reserve of
$4,500,000 was established for any post-closing items. Concurrent with the
sale, the buyer repaid all of the Company's outstanding debt. Before
closing, TCW Capital exercised its right to convert the Zero Coupon
Convertible Notes to common stock (see notes 3 and 7).
-12-
17
LAMAR ADVERTISING COMPANY
Index to Unaudited Pro Forma Financial Statements
-------------------------------------------------
Pro Forma Condensed Consolidated Balance Sheet
as of March 31, 1997.................................................... 2
Pro Forma Condensed Consolidated Statement of
Earnings (Loss) for the Three Months Ended
March 31, 1997.......................................................... 3
Pro Forma Condensed Consolidated Statement of
Earnings (Loss) for the Year Ended
October 31, 1996........................................................ 4
Notes to Unaudited Pro Forma Condensed
Consolidated Financial Statements....................................... 5
- 1 -
18
LAMAR ADVERTISING COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
March 31, 1997
(dollars in thousands, except per share data)
ACQUISITION SALE OF PROFORMA
LAMAR PENN ADV ADJUSTMENTS BALTIMORE COMBINED
------- -------- ----------- --------- --------
Current assets
Cash 78,421 17 (73,000)(8) (14)(8) 5,424
Net receivables 20,147 3,822 (772)(9) 23,197
Other current assets 6,028 3,311 (930)(10) (488)(10) 7,921
------- ------ ------- ------ -------
Total current assets 104,596 7,150 (73,930) (1,274) 36,542
------- ------ ------- ------ -------
Property, plant and equipment
Property, plant and equipment, net 174,971 25,053 32,418 (11) (9,157)(11) 223,285
------- ------ ------- ------ -------
Other assets
Investment securities 1,189 0 1,189
Intangibles 78,389 16,872 110,112 (12) (39,078)(12) 166,295
Deferred taxes 6,560 936 (7,496)(13) 0
Other assets 3,598 0 3,598
------- ------ ------- ------ -------
Total assets 369,303 50,011 61,104 (49,509) 430,909
======= ====== ======= ====== =======
Current liabilities
Current maturities of long-term debt 4,018 4,600 (4,600)(14) 4,018
Other current liabilities 19,959 2,256 (789)(15) 709 (15) 22,135
------- ------ ------- ------ -------
23,977 6,856 (5,389) 709 26,153
------- ------ ------- ------ -------
Long-term liabilities
Long-term debt 278,223 48,133 45,867 (16) (46,500)(16) 325,723
Deferred income - Long term 864 0 864
Other liabilities 1,900 0 1,900
Deferred tax liabiltiy 0 0 15,648 (17) (3,718)(17) 11,930
------- ------ ------- ------ -------
Total Liabilities 304,964 54,989 56,126 (49,509) 366,570
------- ------ ------- ------ -------
Stockholders' equity (deficit)
Stockholders' equity ( deficit) 64,339 (4,978) 4,978 (18) 64,339
------- ------ ------- ------ -------
Total liabilities and
stockholders' deficit 369,303 50,011 61,104 (49,509) 430,909
======= ====== ======= ====== =======
- 2 -
19
LAMAR ADVERTISING COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (LOSS)
Three Months Ended March 31, 1997
(dollars in thousands, except per share data)
ACQUISITION SALE OF PROFORMA
LAMAR PENN ADJUSTMENTS BALTIMORE COMBINED
----------- ----- ----------- --------- -----------
Revenues
Outdoor advertising, net 37,682 8,909 (972)(1) (2,097)(6) 43,522
Other income 165 24 (4)(1) (4)(6) 181
----------- ----- ----- ----- -----------
37,847 8,933 (976) (2,101) 43,703
----------- ----- ----- ----- -----------
Direct expenses
Direct advertising expenses 13,467 3,242 600 (1)(5) (943)(6) 16,366
General and administrative expenses 9,253 2,976 (1,679)(1)(5) (253)(6) 10,297
Depreciation and Amortization 6,750 1,280 1,215 (2) (25)(6) 9,220
----------- ----- ----- ----- -----------
29,470 7,498 136 (1,221) 35,883
----------- ----- ----- ----- -----------
Operating income 8,377 1,435 (1,112) (880) 7,820
----------- ----- ----- ----- -----------
Other expense (income)
Interest income (1,121) 0 1,045 (1)(3) 0 (76)
Interest expense 6,944 1,356 (472)(4) 0 7,828
Loss on disposition of assets 447 0 (5)(1) 8 (6) 450
Other expenses 13 366 (366)(1) 0 13
----------- ----- ----- ----- -----------
6,283 1,722 202 8 8,215
----------- ----- ----- ----- -----------
Earnings (loss) before income taxes 2,094 (287) (1,314) (888) (395)
Income tax expense (benefit) 798 (50) (111)(7) (332)(7) 305
----------- ----- ----- ----- -----------
Net earnings (loss) 1,296 (237) (1,203) (556) (700)
===== ===== =====
Preferred stock dividends 91 91
----------- -----------
Net earnings (loss) applicable to common stock 1,205 (791)
=========== ===========
Net earnings (loss) per common share $ 0.04 $ (0.03)
Weighted average number of shares outstanding 31,661,388 31,661,388
=========== ===========
- 3 -
20
LAMAR ADVERTISING COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
Year Ended October 31, 1996
(dollars in thousands, except per share data)
ACQUISITION SALE OF PROFORMA
LAMAR PENN ADJUSTMENTS BALTIMORE COMBINED
----------- ------ ----------- --------- -----------
Revenues
Outdoor advertising, net 119,900 44,321 (4,992)(1) (9,919)(6) 149,310
Other income 702 63 0 (16)(6) 749
----------- ------ ----- ----- -----------
120,602 44,384 (4,992) (9,935) 150,059
----------- ------ ----- ----- -----------
Direct expenses
Direct advertising expenses 41,184 13,040 3,292 (1)(5) (4,086)(6) 53,430
General and administrative expenses 29,466 14,278 (9,151)(1)(5) (1,082)(6) 33,511
Depreciation and Amortization 15,549 5,447 4,535 (2) (39)(6) 25,492
----------- ------ ----- ----- -----------
86,199 32,765 (1,324) (5,207) 112,433
----------- ------ ----- ----- -----------
Operating income 34,403 11,619 (3,668) (4,728) 37,626
----------- ------ ----- ----- -----------
Other expense (income)
Interest income (240) 0 0 (240)
Interest expense 15,441 6,050 (2,517)(4) 0 18,974
Loss on disposition of assets 1,012 515 (1) (233)(6) 1,294
Other expenses 242 1,538 (1,538)(1) 0 242
----------- ------ ----- ----- -----------
16,455 7,588 (3,540) (233) 20,270
----------- ------ ----- ----- -----------
Earnings before income taxes 17,948 4,031 (128) (4,495) 17,356
Income tax expense 7,099 1,044 2,527 (7) (1,776)(6)(7) 8,894
----------- ------ ----- ----- -----------
Net earnings 10,849 2,987 (2,655) (2,719) 8,462
====== ===== =====
Preferred stock dividends 365 365
----------- -----------
Net earnings applicable to common stock 10,484 8,097
=========== ===========
Net earnings per common share $ 0.38 $ 0.29
Weighted average number of shares outstanding 27,562,564 27,562,564
=========== ===========
- 4 -
21
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
For purposes of determining the pro forma effect of the acquisition of
Penn Advertising and sale of Baltimore on the Company's unaudited Condensed
Consolidated Statements of Earnings for the three months ended March 31, 1997
and the year ended October 31, 1996, the following adjustments have been made:
Three months ended Year ended
March 31, 1997 October 31, 1996
------------------ ----------------
(1) To reclassify amounts in order
to conform to the Company's
classification
Outdoor advertising revenues, net (972) (4,992)
Other income (4)
Direct expenses 696 3,666
General administrative
expenses (1,297) (7,635)
Interest income (4)
Loss on disposition of assets (5) 515
Other expenses (366) (1,538)
(2) Represents incremental depreciation
and amortization due to the application
of purchase accounting. Depreciation and
amortization are calculated using
accelerated and straight line methods
over the estimated useful lives of
the assets 1,215 4,535
(3) To eliminate historical interest
income on the Company's financial
statements that would not have existed
had the transaction taken place at the
beginning of the period 1,049 ---
- 5 -
22
Three months ended Year ended
March 31, 1997 October 31, 1996
------------------ ----------------
(4) Represents the net effect on interest
expense resulting from the (i) borrowings
used to finance the acquisition, and (ii)
the elimination of interest expense on Penn's
historical financial statements that related
to debt not assumed in the Penn acquisition. (472) (2,517)
(5) To eliminate management fees charged by
Penn's former parent company included in the
historical financial statements that would
not exist had the acquisition taken place in
the beginning of the period
Direct expenses (96) (374)
General and administrative (382) (1,516)
(6) To eliminate income and expenses
of the Baltimore subsidiary included
in Penn's historical financial statements
Outdoor advertising revenue, net (2,097) (9,919)
Other income (4) (16)
Direct advertising expense (943) (4,086)
General and administrative
expenses (253) (1,082)
Depreciation and amortization (25) (39)
Gain/loss on disposition of assets 8 (233)
Income tax expense (benefit) -- 73
(7) To record the income tax effect of the
adjustments related to
(i) the acquisition of Penn (111) 2,527
(ii) the sale of Baltimore (332) (1,849)
- 6 -
23
For purposes of determining the pro forma effect of the Penn acquisition and
the sale of Baltimore on the Company's unaudited condensed consolidated Balance
Sheet as of March 31, 1997, the following adjustments have been made:
Acquisition Sale of
Adjustments Baltimore
----------- ---------
(8) Cash
Represents cash used in the purchase
of Penn Advertising (73,000)
To remove the operating accounts
related to the sale of the Baltimore subsidiary (14)
(9) Net receivables
To record the sale of Baltimore's net
receivables (772)
(10) Other current assets
To record the sale of Baltimore's other
current assets (488)
To remove the deferred tax asset
related to the Penn acquisition (930)
(11) Property, plant and equipment
To record the net increase in advertising
structures from the allocation of the
purchase price to assets acquired in the
Penn acquisition 32,418
To record the sale of Baltimore property plant
and equipment (9,157)
(12) Intangibles
To record the net increase in intangibles related
to the Penn acquisition 110,112
To record the net decrease in intangibles related to
the sale of the Baltimore subsidiary (39,078)
- 7 -
24
Acquisition Sale of
Adjustments Baltimore
----------- ---------
(13) Deferred tax asset
To remove the deferred tax asset not assumed in
the Penn acquisition (936)
To reclass the Company's historical deferred
tax asset to deferred tax liabilities (6,560)
------
(7,496)
======
(14) Current maturities of long- term debt
To remove current maturities from Penn's
historical balance sheet that were not
assumed in the acquisition (4,600)
(15) Other current liabilities
To remove accrued expenses on Penn's
historical balance sheet, not assumed in the
acquisition (789)
To remove Baltimore's accrued expenses in
order to properly record the sale of the subsidiary (431)
To record the income taxes payable related to
the gain on the sale of the stock of the
Baltimore subsidiary 1,140
------
709
======
(16) Long- term debt
To remove long term obligations not assumed
in the Penn acquisition (48,133)
To record the borrowings under the Credit Agreement 94,000
To record the proceeds from the sale of the
Baltimore subsidiary used to pay down borrowings
under the Credit Agreement (46,500)
------ ------
45,867 (46,500)
====== ======
- 8 -
25
Acquisition Sale of
Adjustments Baltimore
----------- ---------
(17) Deferred tax liability
To record the deferred tax liability generated
from the acquisition of Penn Advertising 22,208
To remove the deferred tax liability related to the
sale of the Baltimore subsidiary (3,718)
To reclass the Company's historical deferred
tax asset in order to show a net liability (6,560)
------
15,648
======
(18) Stockholders equity
To reverse historical equity in connection
with the acquisition 4,978 ---
- 9 -