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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 quarterly period ended March 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 1-13275
OUTDOOR SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 86-0736400
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(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
2502 N. BLACK CANYON HIGHWAY, PHOENIX, ARIZONA 85009
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (602) 246-9569
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 [ ]
Number of Common Shares outstanding at May 11, 1998: 121,166,188 SHARES.
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CONTENTS
PAGE
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PART I - FINANCIAL INFORMATION
ITEM 1. UNAUDITED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of March 31, 1998 and
December 31, 1997 (unaudited).............................................................. 1
Condensed Consolidated Statements of Operations for the Three Months ended
March 31, 1998 and 1997 (unaudited)........................................................ 2
Condensed Consolidated Statements of Cash Flows for the Three Months ended
March 31, 1998 and 1997 (unaudited)........................................................ 3
Notes to Condensed Consolidated Financial Statements (unaudited)................................. 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................................................. 5
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK............................................................................. 6
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.......................................................................... 7
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.................................................. 7
ITEM 3. DEFAULT UPON SENIOR SECURITIES............................................................. 7
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........................................ 7
ITEM 5. OTHER INFORMATION.......................................................................... 7
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................................................... 7
SIGNATURES.......................................................................................... 8
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OUTDOOR SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
MARCH 31, DECEMBER 31,
1998 1997
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ASSETS
Current Assets:
Cash and cash equivalents $ 777 $ 5,897
Accounts receivable, net 130,763 119,745
Prepaid land leases 27,441 28,659
Other current assets 23,099 22,600
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Total current assets 182,080 176,901
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Property and Equipment, net 1,592,423 1,598,011
Prepaid Land Leases and Other 13,161 13,565
Deferred Financing Costs 38,786 40,520
Goodwill, net 396,308 400,160
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$ 2,222,758 $ 2,229,157
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LIABILITIES AND STOCKHOLDERS' CAPITAL DEFICIENCY
Current Liabilities:
Accounts payable $ 12,438 $ 11,454
Accrued interest 25,685 8,940
Accrued expenses and other liabilities 32,619 44,678
Current maturities of long-term debt 50,600 50,600
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Total current liabilities 121,342 115,672
Long-term Debt 1,377,081 1,393,550
Other Long-term Obligations 4,493 4,327
Deferred Income Taxes 21,121 20,137
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Total liabilities 1,524,037 1,533,686
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Common Stockholders' Equity:
Common stock, $.01 par value - authorized, 200,000,000
shares; issued and outstanding 121,164,008 and
121,123,367 shares 1,212 1,211
Additional paid-in capital 709,830 709,730
Accumulated deficit (7,110) (9,837)
Treasury stock at cost - 25,819,997 shares (4,053) (4,053)
Foreign currency translation adjustment (1,158) (1,580)
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Total common stockholders' equity 698,721 695,471
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$ 2,222,758 $ 2,229,157
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See notes to condensed consolidated financial statements.
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OUTDOOR SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
THREE MONTHS
ENDED
MARCH 31,
1998 1997
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REVENUES:
Outdoor advertising $ 163,742 $ 89,713
Less agency commissions and discounts 21,138 12,497
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Total 142,604 77,216
Lease, printing and other revenues 4,118 2,864
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Net revenues 146,722 80,080
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OPERATING EXPENSES:
Direct advertising 74,873 44,615
General and administrative 8,554 6,717
Depreciation and amortization 27,037 11,635
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110,464 62,967
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Operating income 36,258 17,113
OTHER:
Interest expense 31,387 15,922
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Income before income tax expense 4,871 1,191
INCOME TAX PROVISION 2,143 500
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NET INCOME $ 2,728 $ 691
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BASIC AND DILUTED INCOME PER SHARE:
Basic:
Net income $ .02 $ .01
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Weighted average number of shares 121,154,578 90,350,129
============ ============
Diluted:
Net income $ .02 $ .01
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Weighted average number of shares 134,719,594 103,569,030
============ ============
See notes to condensed consolidated financial statements.
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OUTDOOR SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
THREE MONTHS
ENDED
MARCH 31,
1998 1997
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OPERATING ACTIVITIES:
Net income $ 2,728 $ 691
Changes to reconcile net income to net cash provided by
operating activities:
Provision for deferred taxes 928 (364)
Amortization of discounts on notes payable and bonds 233 131
Depreciation and amortization 27,037 11,635
Other (480) 331
Changes in net assets and liabilities:
(Increase) decrease in accounts receivable (9,869) (2,088)
(Increase) decrease in prepaid expenses and other (426) (293)
Increase (decrease) in accrued interest 16,740 5,884
Decrease in accounts payable and other liabilities (11,057) (346)
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Net Cash Provided by Operating Activities 25,834 15,581
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INVESTING ACTIVITIES:
Acquisitions of outdoor advertising assets (9,260) (117,903)
Capital expenditures (7,235) (5,140)
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Net Cash Used in Investing Activities (16,495) (123,043)
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FINANCING ACTIVITIES:
Proceeds from long-term debt 9,189 110,563
Principal payments on long-term debt and capital leases (23,750) (10,000)
Issuance of common stock 100 --
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Net Cash (Used in) Provided by Financing Activities (14,461) 100,563
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Effect of exchange rate changes on cash 2 (67)
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NET DECREASE IN CASH AND CASH EQUIVALENTS (5,120) (6,966)
CASH AND CASH EQUIVALENTS - BEGINNING 5,897 11,887
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CASH AND CASH EQUIVALENTS - ENDING $ 777 $ 4,921
======== =========
See notes to condensed consolidated financial statements.
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OUTDOOR SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments and
reclassifications considered necessary for a fair and comparable presentation
have been included and are of a normal recurring nature. Operating results for
the three months ended March 31, 1998, are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998. The enclosed
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Form 10-K filed
with the Securities and Exchange Commission on March 18, 1998.
NOTE 2 - INCOME PER SHARE
Basic net income per share is computed based on the weighted average number
of common shares outstanding during each period. Diluted net income per share is
computed based on the weighted average number of common and common equivalent
shares outstanding during each period and includes shares issuable upon exercise
of stock options except in those circumstances where such options would be
anti-dilutive.
NOTE 3 - NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued SFAS No. 130, Reporting
Comprehensive Income ("SFAS No. 130") and SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information ("SFAS No. 131"). SFAS No. 130
and 131 are effective for fiscal years beginning after December 15, 1997. SFAS
No. 130 changes the reporting of certain items currently reported in the equity
section of the balance sheet. The unrealized foreign currency adjustment is the
only addition to net income in arriving at comprehensive income for the Company.
Comprehensive income for the three months ended March 31, 1998 and 1997, was
$3.2 million and $0.3 million, respectively. SFAS No. 131 requires that public
companies report certain information about operating segments in their financial
statements. It also establishes related disclosures about products and services,
geographic areas, and major customers. The Company is currently evaluating what
impact SFAS 131 will have on its financial statements.
NOTE 5 - SUBSEQUENT EVENT
Philadelphia Outdoor Acquisition - On April 7, 1998, the Company purchased
the assets of Philadelphia Outdoor for approximately $52.8 million in cash.
Stock Split - On May 8, 1998, the Board of Directors of the Company approved
a three-for-two stock split to be effected in the form of a 50% stock dividend
payable on May 29, 1998 to stockholders of record as of the close of business on
May 19, 1998. The payment of this stock dividend is contingent upon the approval
by the Company's stockholders of an increase in the number of authorized shares
of its common stock from 200,000,000 to 600,000,000 at the Annual Meeting of
stockholders to be held on May 21, 1998.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
Operating results for the first quarter of 1998 include the operations of
Van Wagner Communications, Inc., the acquisition of which was completed May 22,
1997, the outdoor advertising operations of Minnesota Mining and Manufacturing
Company, the acquisition of which was completed August 15, 1997, and the several
other acquisitions completed during 1997 (collectively, the "1997
Acquisitions").
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1998 AND MARCH 31, 1997
Gross revenues increased by 82.5% to $163.7 million in the first quarter of
1998 compared to $89.7 million in the first quarter of 1997. Gross revenues
increased approximately 10 percent during the first quarter of 1998 compared to
the first quarter of 1997 for markets where the Company operated both in the
1998 and 1997 periods due to increased utilization. The balance of the increased
revenues were a result of the 1997 Acquisitions.
Agency commissions were 12.9% and 13.9% of gross revenues in the first
quarter of 1998 and 1997, respectively, primarily as a result of a slightly
lower proportion of revenues generated through advertising agencies in the 1998
period.
Net revenues increased by 83.2% to $146.7 million in the first quarter of
1998 from $80.1 million in the first quarter of 1997, primarily as a result of
the increase in gross revenues combined with an increase of $1.3 million of
other revenue. Other revenue increased primarily due to the inclusion of license
fee revenue from perpetual easements acquired in the second quarter of 1997.
Direct advertising expenses increased to $74.9 million in the first quarter
of 1998 compared to $44.6 million in the first quarter of 1997. This was
primarily a result of the 1997 Acquisitions. As a percentage of net revenues,
direct advertising expenses were approximately 51.0% in the first quarter of
1998 compared to 55.7% in the first quarter of 1997 because of efficiencies
realized from economies of scale.
General and administrative expenses increased to $8.6 million in the first
quarter of 1998 compared to $6.7 million in the first quarter of 1997. This was
primarily a result of the 1997 Acquisitions. As a percentage of net revenues
general and administrative expenses decreased to approximately 5.8% in the first
quarter of 1998 from 8.4% in the first quarter of 1997 because of efficiencies
realized from economies of scale.
As a result of the above factors, EBITDA increased by 120.2% to $63.3
million in the first quarter of 1998 from $28.7 million in the first quarter of
1997. The performance of an outdoor advertising business, such as the Company is
measured by its ability to generate EBITDA. EBITDA is defined as operating
income (loss) before interest, taxes, depreciation and amortization expense.
EBITDA is not a measure of performance calculated in accordance with generally
accepted accounting principles, the Company believes that EBITDA is accepted by
the outdoor advertising industry as a generally recognized measure of
performance and is used by analysts who report publicly on the performance of
outdoor advertising companies. Nevertheless, this measure should not be
considered in isolation or as a substitute for operating income, net income, net
cash provided by operating activities or any other measure for determining the
Company's operating performance or liquidity which is calculated in accordance
with generally accepted accounting principles.
Depreciation and amortization expense increased to $27.0 million for the
first quarter of 1998 compared to $11.6 million in the first quarter of 1997,
primarily due to the 1997 Acquisitions, offset in part by certain assets
becoming fully depreciated during the first quarter of 1998. As a percentage of
net revenues, depreciation and amortization expense increased to 18.4% from
14.5% in the first quarter of 1998 compared to the first quarter of 1997.
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Interest expense increased to $31.9 million in the first quarter of 1998
compared to $15.6 million in the first quarter of 1997, as a result of interest
expense related to obligations incurred in connection with the 1997
Acquisitions. As a percentage of net revenue, interest expense increased to
21.4% for the first quarter of 1998 compared to 19.9% for the first quarter of
1997.
The Company recorded an income tax provision of $2.1 million for the first
quarter of 1998 and $0.5 million for the first quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital decreased to $60.7 million at March 31, 1998
compared to $61.2 million at December 31, 1997. This decrease resulted primarily
from cash used to repay long term debt and the increase in accrued interest
relating to new debt associated with the 1997 Acquisitions, offset by the
increase in accounts receivable and decrease in other liabilities associated
with the 1997 Acquisitions.
Net cash provided by operating activities increased by $10.3 million to
$25.8 million for the three months ended March 31, 1998, compared to $15.5
million for the three months ended March 31, 1997, primarily due to the increase
in net income, changes in working capital accounts and the effect of a larger
depreciation and amortization expense as a component of net income. Net cash
used in investing activities decreased to $16.5 million in the first quarter of
1998 from $123.0 million in the first quarter of 1997, primarily because of the
1997 Acquisitions. Net cash used in financing activities was $14.5 million for
the first three months of 1998 compared to net cash provided by financing
activities of $100.6 million for the first three months of 1997, primarily
because of borrowings under the senior credit facility used for the 1997
Acquisitions.
The Company made approximately $7.2 million of capital expenditures during
the first quarter of 1998, an increase from approximately $5.1 million during
the first quarter of 1997. Currently, the Company has no material commitments
for capital expenditures, although it anticipates ongoing capital expenditures
in the ordinary course of business, other than for acquisitions, will be
approximately $30.0 million to $32.0 million in each of the next two years.
On April 7, 1998, the Company purchased the assets of Philadelphia Outdoor
for approximately $52.8 million in cash. The Company financed the purchase price
with borrowings under the Company's senior credit facility.
The Company believes that internally generated funds and available
borrowings under the senior credit facility will be sufficient to satisfy its
operating cash requirements for at least the next twelve to twenty-four months.
The Company may, however, require additional capital to consummate significant
acquisitions in the future and there can be no assurance that such capital will
be available.
FORWARD-LOOKING STATEMENTS
This report contains certain statements that are "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
When used in this report, the words "estimate", "expect", "anticipate",
"believe" and similar expressions are intended to identify forward-looking
statements. The Company cautions that reliance on any forward-looking statement
involves risk and uncertainties, and that although the Company believes that the
assumptions on which the forward-looking statements contained herein are based
are reasonable, any of those assumptions could prove to be inaccurate, and as a
result, the forward-looking statements based on those assumptions also could be
incorrect. The uncertainties in this regard include, but are not limited to,
those identified in the risk factors discussed under "Risk Factors" in the
Company's Prospectus dated July 24, 1997 included in the Company's Registration
Statement on Form S-4 (Reg. No. 333-30957).
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith:
Exhibit No. Document
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27 Financial Data Schedule
99.1 Amendment dated as of March 17, 1998, to the Fifth
Amended and Restated Credit Agreement dated as of
August 15, 1997, among the Registrant, Mediacom,
Inc., the several banks and other financial
institutions parties thereto and Canadian Imperial
Bank of Commerce as administrative agent.
99.2 Asset Purchase Agreement dated as of April 8, 1998,
by and among Outdoor Systems, Inc., the Barbara Shop,
Inc. d/b/a Philadelphia Outdoor and Leslie Kaplan.
The Exhibit contains a list briefly identifying the
contents of Schedules and Exhibits, some of which
have been omitted. The Registrant agrees to furnish
supplementally a copy of any omitted Schedule or
Exhibit to the Securities and Exchange Commission
upon request.
99.3 Assumption and Amendment Agreement dated as of April
15, 1998, made by Salm Enterprises, Inc. and Atlantic
Prospect, Inc. in favor of Canadian Imperial Bank of
Commerce as administrative agent.
(b) Reports on Form 8-K.
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OUTDOOR SYSTEMS, INC.
DATED: May 11, 1998 By /s/ Bill Beverage
------------------------------------------------
Bill Beverage, Chief Financial Officer,
Secretary/Treasurer
(Principal Accounting Officer)
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EXHIBIT INDEX
Exhibit No. Description
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27 Financial Data Schedule
99.1 Amendment dated as of March 17, 1998, to the Fifth
Amended and Restated Credit Agreement dated as of
August 15, 1997, among the Registrant, Mediacom,
Inc., the several banks and other financial
institutions parties thereto and Canadian Imperial
Bank of Commerce as administrative agent.
99.2 Asset Purchase Agreement dated as of April 8, 1998,
by and among Outdoor Systems, Inc., the Barbara Shop,
Inc. d/b/a Philadelphia Outdoor and Leslie Kaplan.
The Exhibit contains a list briefly identifying the
contents of Schedules and Exhibits, some of which
have been omitted. The Registrant agrees to furnish
supplementally a copy of any omitted Schedule or
Exhibit to the Securities and Exchange Commission
upon request.
99.3 Assumption and Amendment Agreement dated as of April
15, 1998, made by Salm Enterprises, Inc. and Atlantic
Prospect, Inc. in favor of Canadian Imperial Bank of
Commerce as administrative agent.