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 quarterly 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 _______ to _______
Commission file number 1-13275
OUTDOOR SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 86-0736400
(State or other jurisdiction of incorporation) (I.R.S. Employer Identification No.)
2502 N. BLACK CANYON HIGHWAY, PHOENIX, ARIZONA 85009
(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 August 13, 1999: 184,830,793 SHARES.
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CONTENTS
PAGE
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PART I - FINANCIAL INFORMATION
ITEM 1. UNAUDITED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets June 30, 1999 and
December 31, 1998.......................................................................... 1
Condensed Consolidated Statements of Income for the Three and Six Months ended
June 30, 1999 and 1998..................................................................... 2
Condensed Consolidated Statements of Comprehensive Income for the Three and
Six Months ended June 30, 1999 and 1998.................................................... 3
Condensed Consolidated Statements of Cash Flows for the Six Months ended
June 30, 1999 and 1998..................................................................... 4
Notes to Condensed Consolidated Financial Statements............................................. 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..................................................... 8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK............................................................................. 11
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.......................................................................... 12
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.................................................. 12
ITEM 3. DEFAULT UPON SENIOR SECURITIES............................................................. 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........................................ 12
ITEM 5. OTHER INFORMATION.......................................................................... 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................................................... 12
SIGNATURES ......................................................................................... 13
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OUTDOOR SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents $ 12,707 $ 16,554
Accounts receivable, net 163,912 136,817
Prepaid land leases 27,055 23,467
Other current assets 31,064 14,544
Value added taxes receivable 31,215 33,876
Deferred income taxes 12,550 12,546
----------- -----------
Total current assets 278,503 237,804
Property and Equipment, Net 1,894,768 1,876,065
Other Assets 17,531 15,881
Deferred Financing Costs 31,546 35,070
Goodwill and Other Intangibles, Net 604,171 592,006
----------- -----------
$ 2,826,519 $ 2,756,826
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 7,655 $ 12,855
Accrued interest 8,386 8,696
Accrued expenses and other liabilities 56,118 48,208
Current maturities of long-term debt 186,270 130,247
----------- -----------
Total current liabilities 258,429 200,006
Long-term Debt 1,645,343 1,676,985
Other Long-term Obligations 10,070 9,688
Deferred Income Taxes 101,899 99,221
----------- -----------
Total liabilities 2,015,741 1,985,900
----------- -----------
Common Stockholders' Equity:
Preferred stock, $1.00 par value - authorized 12,000,000
shares; no shares issued and outstanding
Common stock, $.01 par value - authorized 600,000,000
shares; issued and outstanding 184,746,744 and
184,369,963 shares 1,847 1,844
Additional paid-in capital 763,838 762,775
Retained earnings 55,195 31,305
Treasury stock at cost - 36,235,206 shares (3,794) (3,794)
Accumulated other comprehensive loss (6,308) (21,204)
----------- -----------
Total common stockholders' equity 810,778 770,926
----------- -----------
$ 2,826,519 $ 2,756,826
=========== ===========
See notes to condensed consolidated financial statements.
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OUTDOOR SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
-------------------------------- --------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
REVENUES:
Outdoor advertising $ 224,822 $ 193,998 $ 414,710 $ 357,740
Less agency commissions and discounts 27,355 25,700 49,794 46,838
------------- ------------- ------------- -------------
197,467 168,298 364,916 310,902
Other income 4,604 5,531 9,369 9,649
------------- ------------- ------------- -------------
Net Revenues 202,071 173,829 374,285 320,551
------------- ------------- ------------- -------------
OPERATING EXPENSES:
Direct advertising 90,773 81,169 173,381 156,043
General and administrative 9,175 8,605 18,984 17,158
Depreciation and amortization 35,702 27,812 71,128 54,848
------------- ------------- ------------- -------------
135,650 117,586 263,493 228,049
------------- ------------- ------------- -------------
Operating income 66,421 56,243 110,792 92,502
OTHER:
Foreign currency transaction (gain) loss (1,287) 2,324 (1,832) 1,844
Interest expense 36,834 32,393 74,090 64,260
------------- ------------- ------------- -------------
INCOME BEFORE TAXES 30,874 21,526 38,534 26,398
Income tax provision 11,732 9,472 14,643 11,615
------------- ------------- ------------- -------------
NET INCOME $ 19,142 $ 12,054 $ 23,891 $ 14,783
============= ============= ============= =============
BASIC AND DILUTED INCOME PER SHARE:
Basic income per share $ .10 $ .07 $ .13 $ .08
============= ============= ============= =============
Weighted average number of shares 184,614,089 182,926,049 184,533,904 182,332,099
============= ============= ============= =============
Diluted income per share $ .09 $ .06 $ .12 $ .07
============= ============= ============= =============
Weighted average number of shares 205,647,296 203,600,759 205,599,521 202,861,251
============= ============= ============= =============
See notes to condensed consolidated financial statements.
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OUTDOOR SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(IN THOUSANDS)
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
1999 1998 1999 1998
-------- -------- -------- --------
Net income $ 19,142 $ 12,054 $ 23,891 $ 14,783
Other comprehensive income:
Unrealized foreign currency translation
gain (loss) 2,637 (1,496) 14,896 (1,074)
-------- -------- -------- --------
Comprehensive income $ 21,779 $ 10,558 $ 38,787 $ 13,709
======== ======== ======== ========
See notes to condensed consolidated financial statements.
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OUTDOOR SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
SIX MONTHS
ENDED
JUNE 30,
----------------------
1999 1998
-------- --------
OPERATING ACTIVITIES:
Net income $ 23,891 $ 14,783
Changes to reconcile net income to net cash provided by
operating activities:
Deferred taxes (954) 8,521
Depreciation and amortization 71,128 54,848
Currency adjustment (1,832) 1,844
Other 466 466
Changes in net assets and liabilities:
Increase in accounts receivable (26,117) (13,602)
Increase in prepaids and other (12,903) (6,429)
Decrease in accrued interest (321) (242)
(Increase) decrease in accounts payable and other liabilities 1,774 (8,088)
-------- --------
Net Cash Provided by Operating Activities 55,132 52,101
-------- --------
INVESTING ACTIVITIES:
Acquisitions of outdoor advertising assets (59,488) (70,449)
Capital expenditures (23,859) (16,512)
-------- --------
Net Cash Used in Investing Activities (83,347) (86,961)
-------- --------
FINANCING ACTIVITIES:
Proceeds from long-term debt 68,248 98,383
Principal payments on long-term debt (45,505) (60,500)
Increase in deferred financing costs (537)
Stock split (7)
Issuance of common stock 1,067 (4)
-------- --------
Net Cash Provided by Financing Activities 23,810 37,335
-------- --------
Effect of exchange rate changes on cash 558 (52)
-------- --------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (3,847) 2,423
CASH AND CASH EQUIVALENTS - BEGINNING 16,554 5,897
-------- --------
CASH AND CASH EQUIVALENTS - ENDING $ 12,707 $ 8,320
======== ========
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 and six months ended June 30, 1999, are not necessarily indicative of
the results that may be expected for the year ending December 31, 1999. The
accompanying 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 15, 1999.
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.
The following is a reconciliation of basic and diluted weighted average shares.
Three Months Six Months
Ended June 30, Ended June 30,
--------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
Basic weighted average shares 184,614,089 182,926,049 184,533,904 182,332,099
Add:
Shares issuable upon exercise of
stock options 21,033,207 20,674,710 21,065,617 20,529,152
----------- ----------- ----------- -----------
Diluted weighted average shares 205,647,296 203,600,759 205,599,521 202,861,251
=========== =========== =========== ===========
NOTE 3 - NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities ("SFAS No. 133")
which is effective for fiscal quarters beginning after June 15, 2000, and
requires all derivative contracts to be carried on the balance sheet at their
fair values. The Company is currently evaluating the impact of SFAS No. 133 on
its financial statements.
NOTE 4 - FOREIGN CURRENCY TRANSLATION
In accordance with the principles of Statement of Financial Accounting
Standards ("SFAS") No. 52, "Foreign Currency Translation," the Company is using
the local currency as the functional currency of its Canadian and Mexican
operating subsidiaries. Accordingly, assets and liabilities held outside the
United States are translated into U.S. dollars at the rate of exchange in effect
at the balance sheet date. Income and expense items are translated from the
functional currency into U.S. dollars at the weighted average exchange rate
prevailing during the period. Translation gains and losses are included in other
comprehensive loss in the stockholders' equity. Gains and losses resulting from
foreign currency transactions are reflected currently in the consolidated
statements of operations.
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NOTE 5 - SEGMENTS
The Company has operations in 147 metropolitan markets throughout North
America which have similar operations, but are managed independently. No single
customer accounts for 10% or more of any segment's revenue. None of these
markets, individually, account for a significant portion of the Company's
assets, revenues or net income and, therefore, they have been aggregated by
geographical region as follows:
Three Months Ended June 30, 1999
------------------------------------------------------------------------
United
States Canada Mexico Elim Total
---------- ---------- ---------- ------- ---------
(In thousands)
Net revenues from
external customers ... $ 171,984 $ 17,481 $ 12,606 $ 202,071
Intersegment revenues ... -- 1,627 -- (1,627) --
Interest expense - net .. 35,139 1,475 220 36,834
Depreciation and
amortization expense . 27,441 2,847 5,414 35,702
Foreign currency
transaction gain ..... -- (1,275) (12) (1,287)
Income tax expense ...... 7,859 2,933 940 11,732
Segment net income (loss) 17,065 2,525 (448) 19,142
Capital expenditures .... 9,488 3,028 1,097 13,613
Total assets ............ 2,656,230 190,147 405,392 (425,250) 2,826,519
Three Months Ended June 30, 1998
---------------------------------------------------------------
United
States Canada Mexico Elim Total
--------- --------- ------ ------- ---------
(In thousands)
Net revenues from
external customers ... $ 157,025 $ 16,804 $ 173,829
Intersegment revenues ... -- 1,785 (1,785) --
Interest expense - net .. 30,589 1,804 32,393
Depreciation and
amortization expense . 25,535 2,277 27,812
Foreign currency
transaction loss ..... -- 2,324 2,324
Income tax expense ...... 7,838 1,634 9,472
Segment net income (loss) 13,103 (1,049) 12,054
Capital expenditures .... 7,494 1,783 9,277
Total assets ............ 2,259,149 148,792 (56,291) 2,351,650
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NOTE 5 - SEGMENTS (CON'T)
Six Months Ended June 30, 1999
-----------------------------------------------------------------------------
United
States Canada Mexico Elim Total
---------- ---------- ---------- --------- ----------
(In thousands)
Net revenues from
external customers ...... $ 322,452 $ 30,916 $ 20,917 $ 374,285
Intersegment revenues ...... -- 2,853 -- (2,853) --
Interest expense - net ..... 70,905 3,033 152 74,090
Depreciation and
amortization expense .... 54,727 5,721 10,680 71,128
Foreign currency
transaction (gain) loss . -- (1,931) 99 (1,832)
Income tax expense (benefit) 11,322 4,292 (971) 14,643
Segment net income (loss) .. 22,011 2,854 (974) 23,891
Capital expenditures ....... 16,339 5,394 2,126 23,859
Total assets ............... 2,656,230 190,147 405,392 (425,250) 2,826,519
Six Months Ended June 30, 1998
---------------------------------------------------------------------------
United
States Canada Mexico Elim Total
--------- -------- ------------ ---------- ---------
(In thousands)
Net revenues from
external customers..............$ 290,666 $ 29,885 $ 320,551
Intersegment revenues.......... --- 3,684 (3,684) ---
Interest expense - net........... 60,766 3,494 64,260
Depreciation and
amortization expense.......... 50,522 4,326 54,848
Foreign currency
transaction loss............ --- 1,844 1,844
Income tax expense............... 8,865 2,750 11,615
Segment net income (loss)........ 15,588 (805) 14,783
Capital expenditures............. 13,499 3,013 16,512
Total assets.......................2,259,149 148,792 (56,291) 2,351,650
NOTE 6 - PROPOSED MERGER WITH INFINITY BROADCASTING CORPORATION
On May 27, 1999, the Company entered into an Agreement and Plan of Merger
(as amended by Amendment No. 1 dated June 16, 1999, the "Merger Agreement") with
Infinity Broadcasting Corporation ("Infinity") and its wholly-owned subsidiary,
Burma Acquisition Corp. ("Subsidiary"). The Merger Agreement provides for the
acquisition of the Company by Infinity pursuant to the merger of Subsidiary with
and into the Company, with the Company surviving the merger and becoming a
wholly-owned subsidiary of Infinity.
Pursuant to the Merger Agreement, the Company's stockholders will receive in
the merger 1.25 shares of Infinity Class A Common Stock for each share of Common
Stock of the Company held immediately prior to the merger and cash in lieu of
any fractional shares. The completion of the merger is subject to certain
conditions, including adoption of the Merger Agreement by the Company's
stockholders and the expiration or early termination of the applicable waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
The following discussion of the consolidated results of operations of
the Company for the three and six months ended June 30, 1999 and financial
condition at June 30, 1999 should be read in conjunction with the December 31,
1998 Consolidated Financial Statements of the Company and the related Notes
included therein.
USE OF EBITDA
EBITDA is defined as operating income or loss before depreciation and
amortization expense, gain or loss on dispositions and foreign currency gain or
loss. Although EBITDA is not a measure of performance calculated in accordance
with generally accepted accounting principles, the Company believes that it is
useful to an investor in evaluating the Company because the measure is widely
used in the outdoor advertising industry to evaluate a company's operating
performance. Nevertheless, EBITDA should not be considered in isolation or as a
substitute for operating income, cash flows from operating activities or any
other measures for determining the Company's operating performance or liquidity
that is calculated in accordance with generally accepted accounting principles.
As EBITDA is not a measure of performance in accordance with generally accepted
accounting principles, this measure may not be comparable to similarly titled
measures employed by other companies.
RESULTS OF OPERATIONS
Operating results for the first six months of 1999 include the
operations of the several acquisitions completed during 1998 (collectively the
"1998 Acquisitions"), including Philadelphia Outdoor, completed on April 7,
1998, Gator Outdoor Advertising, Inc., completed on May 19, 1998 and the
acquisition of Vendor, S.A. de C.V. and MM Billboard, S.A. de C.V., completed on
July 1, 1998.
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998
Gross revenues increased 15.9% to $224.8 million during the second quarter of
1999 compared to $194.0 million in the second quarter of 1998. Gross revenues
increased approximately 7.5% during the second quarter of 1999 compared to the
second quarter of 1998 for markets where the Company operated both in the 1999
and 1998 periods due to increased utilization. The balance of the increased
revenues were a result of the 1998 Acquisitions.
Agency commissions were 12.2% and 13.2% of gross revenues in the second
quarter of 1999 and the second quarter of 1998, respectively. The decrease in
agency commissions as a percentage of gross revenues was primarily a result of a
lower proportion of revenues generated through advertising agencies in the 1999
period.
Net revenues increased by 16.2% to $202.1 million in the second quarter of
1999 compared to $173.8 million in the second quarter of 1998, primarily as a
result of the increase in gross revenues combined with the lower agency
commissions as a percentage of gross revenues for the second quarter of 1999.
Direct advertising expenses increased to $90.8 million in the second quarter
of 1999 compared to $81.2 million in the second quarter of 1998. This was
primarily a result of the 1998 Acquisitions. As a percentage of net revenues,
direct advertising expenses were approximately 44.9% in the second quarter of
1999 compared to 46.7% in the second quarter of 1998 because of efficiencies
realized from economies of scale.
General and administrative expenses increased to $9.2 million in the second
quarter of 1999 compared to $8.6 million in the second quarter of 1998. This was
primarily a result of the 1998 Acquisitions. As a percentage of net revenues,
general and administrative expenses decreased to approximately 4.5% in the
second quarter of 1999 from 5.0% in the second quarter of 1998 because of
efficiencies realized from economies of scale.
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As a result of the above factors, EBITDA increased by 21.5% to $102.1 million
in the second quarter of 1999 from $84.1 million in the second quarter of 1998.
Depreciation and amortization expense increased to $35.7 million for the
second quarter of 1999 compared to $27.8 million in the second quarter of 1998,
primarily due to the 1998 Acquisitions, offset in part by certain assets
becoming fully depreciated during the second quarter of 1999. As a percentage of
net revenues, depreciation and amortization expense increased to 17.7% from
16.0% in the second quarter of 1999 compared to the second quarter of 1998.
Interest expense increased to $36.8 million in the second quarter of 1999
compared to $32.4 million in the second quarter of 1998, as a result of interest
expense related to the obligations incurred in connection with the 1998
Acquisitions. As a percentage of net revenues, interest expense decreased to
18.2% for the second quarter
of 1999 from 18.6% for the second quarter of 1998.
The Company recorded an income tax provision of approximately $11.7 million
in the second quarter of 1999 compared to $9.5 million in the second quarter of
1998. The overall effective tax rate declined due to the Mexico acquisitions.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998
Gross revenues increased by 15.9% to $414.7 million during the first six
months of 1999 compared to $357.7 million in the first six months of 1998. Gross
revenues increased approximately 7.8% during the first six months of 1999
compared to the first six months of 1998 for markets where the Company operated
both in the 1999 and 1998 periods due to increased utilization. The balance of
the increased revenues were a result of the 1998 Acquisitions.
Agency commissions were 12.0% and 13.1% of gross revenues in the first six
months of 1999 and the first six months of 1998, respectively. The decrease in
agency commissions as a percentage of gross revenues was primarily a result of a
lower proportion of revenues generated through advertising agencies in the 1999
period.
Net revenues increased by 16.8% to $374.3 million in the first six months of
1999 compared to $320.6 million in the first six months of 1998, primarily as a
result of the increase in gross revenues combined with the lower agency
commissions as a percentage of gross revenues for the first six months of 1999.
Direct advertising expenses increased to $173.4 million in the first six
months of 1999 compared to $156.0 million in the first six months of 1998. This
was primarily a result of the 1998 Acquisitions. As a percentage of net
revenues, direct advertising expenses were approximately 46.3% in the first six
months of 1999 compared to 48.7% in the first six months of 1998 because of
efficiencies realized from economies of scale.
General and administrative expenses increased to $19.0 million in the first
six months of 1999 compared to $17.2 million in the first six months of 1998.
This was primarily a result of the 1998 Acquisitions. As a percentage of net
revenues, general and administrative expenses decreased to approximately 5.1% in
the first six months of 1999 from 5.4% in the first six months of 1998 because
of efficiencies realized from economies of scale.
As a result of the above factors, EBITDA increased by 23.5% to $181.9 million
in the first six months of 1999 from $147.4 million in the first six months of
1998.
Depreciation and amortization expense increased to $71.1 million in the first
six months of 1999 compared to $54.8 million in the first six months of 1998,
primarily due to the 1998 Acquisitions, offset in part by certain assets
becoming fully depreciated during the first six months of 1999. As a percentage
of net revenues, depreciation and amortization expense increased to 19.0% from
17.1% in the first six months of 1999 compared to the first six months of 1998.
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Interest expense increased to $74.1 million in the first six months of 1999
from $64.3 million in the first six months of 1998, as a result of interest
expense related to the obligations incurred in connection with the 1998
Acquisitions. As a percentage of net revenues, interest expense decreased to
19.8% for the first six months of 1999 from 20.1% for the first six months of
1998 due to a lower marginal interest rate on the senior credit facility.
The Company recorded an income tax provision of approximately $14.6 million
in the first six months of 1999 compared to $11.6 million in the first six
months of 1998. The overall effective tax rate declined due to the Mexico
acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital decreased to $20.1 million at June 30, 1999
from $37.8 million at December 31, 1998. This decrease resulted primarily from
the increase in the current portion of long-term debt and accrued expenses,
offset by the increase in accounts receivable resulting primarily from increased
net revenues.
Net cash provided by operating activities increased by $3.0 million to $55.1
million for the six months ended June 30, 1999, compared to $52.1 million for
the six months ended June 30, 1998, 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 $83.3 million in the first six months of 1999 from $87.0
million in the first six months of 1998, primarily because in the 1999 period
the Company made acquisitions that involved smaller investments than the 1998
Acquisitions completed during the first six months of 1998. Net cash provided by
financing activities decreased to $23.8 million for the first six months of 1999
from $37.3 million for the first six months of 1998, primarily because
borrowings under the senior credit facility to finance acquisitions during the
1999 period were lower than borrowings used for the 1998 Acquisitions.
The Company made approximately $23.9 million of capital expenditures during
the first six months of 1999, an increase from approximately $16.5 million
during the first six months of 1998. 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 $38.0 million to $40.0 million, on an annualized basis, in
each of the next two years.
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.
PROPOSED MERGER WITH INFINITY BROADCASTING CORPORATION
On May 27, 1999, the Company entered into an Agreement and Plan of Merger (as
amended by Amendment No. 1 dated June 16, 1999, the "Merger Agreement") with
Infinity Broadcasting Corporation ("Infinity") and its wholly-owned subsidiary,
Burma Acquisition Corp. ("Subsidiary"). The Merger Agreement provides for the
acquisition of the Company by Infinity pursuant to the merger of Subsidiary with
and into the Company, with the Company surviving the merger and becoming a
wholly-owned subsidiary of Infinity.
Pursuant to the Merger Agreement, the Company's stockholders will receive in
the merger 1.25 shares of Infinity Class A Common Stock for each share of Common
Stock of the Company held immediately prior to the merger and cash in lieu of
any fractional shares. The completion of the merger is subject to certain
conditions, including adoption of the Merger Agreement by the Company's
stockholders and the expiration or early termination of the applicable waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "Hart-Scott-Rodino Act"). The Company and Infinity have received a
request for additional information from the Department of Justice pursuant to
the Hart-Scott-Rodino Act.
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YEAR 2000 COMPLIANCE
The Company recognizes the need to ensure that its operations will not be
adversely impacted by Year 2000 software failures. The Company has identified
all significant internal information technology systems ("IT Systems") that will
require modification to ensure Year 2000 compliance ("Year 2000 Compliance").
Internal and external resources are being used to make the required
modifications and test Year 2000 Compliance for these IT Systems as well as
non-IT Systems (i.e., telephone, security, etc.) (collectively "Business
Systems"). The incremental cost to make the Business Systems Year 2000 compliant
is estimated to be no more than approximately $700,000 of which approximately
$500,000 has been spent to date. The Company plans on completing substantially
all upgrades by the end of the third quarter of 1999. These costs and the date
on which the Company plans to complete the Year 2000 modification and testing
processes are based on management's best estimates, which were derived utilizing
numerous assumptions of future events including the continued availability of
certain resources, third party modification plans and other factors. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ from those plans.
In addition, the Company has communicated with others with whom it does
significant business, primarily banks and suppliers of electricity, to determine
their Year 2000 Compliance readiness and the extent to which the Company is
vulnerable to any third party Year 2000 issues. There can be no guarantee that
the systems of other companies on which the Company relies will be timely
converted, or that a failure to convert by another company would not have a
material adverse effect on the Company.
Based on the results of its review of the Year 2000 issues to date, the
Company does not believe that a contingency plan to handle Year 2000 problems is
necessary at this time and has not developed such a plan. The Company will,
however, continue to monitor the Year 2000 compliance program and evaluate the
need for a contingency plan to handle the most reasonably likely worst case Year
2000 scenario, which might be disruptions in service from suppliers in a few
isolated places in North America.
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
INTEREST RATE RISK
The Company carries some floating rate debt and thus is exposed to the impact
of interest rate changes. The Company mitigates this exposure through the use of
an interest rate protection agreement which allows it to manage its mix of
variable rate and fixed rate debt. There have been no significant changes in the
Company's interest rates or in its mix of variable rate and fixed rate debt
since December 31, 1998. The Company does not enter into derivative arrangements
for trading purposes. In the event of an adverse change in interest rates,
management would likely take actions to further mitigate its exposure.
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FOREIGN CURRENCY RISK
The Company's earnings are affected by fluctuations in the value of the U.S.
dollar as compared to foreign currencies as a result of its operations in Canada
and Mexico. Both the Canadian and Mexican currencies strengthened in relation to
the U.S. dollar during the three and six months ended June 30, 1999.
Although the Company continues to evaluate derivative financial instruments,
including forwards, swaps and purchased options, to manage foreign currency
exchange rate changes, the Company does not currently hold derivatives for
managing these risks or for trading purposes.
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
27 Financial Data Schedule
(b) Reports on Form 8-K.
Form 8-K filed May 27, 1999 reporting the signing of the merger
agreement with Infinity Broadcasting Corporation and the postponement
of the 1999 Annual Meeting of Stockholders.
Form 8-K filed June 3, 1999 reporting further on the signing of the
merger agreement with Infinity Broadcasting Corporation and containing
the principal transaction documents as exhibits.
Form 8-K filed June 24, 1999 reporting an amendment to the merger
agreement with Infinity Broadcasting Corporation.
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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: August 13, 1999 By /S/ Bill Beverage
--------------------------------------------
Bill Beverage, Chief Financial Officer,
Secretary/Treasurer
(Principal Accounting Officer)
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EXHIBIT INDEX
Exhibit No. Description
27 Financial Data Schedule