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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 September 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 November 12, 1999: 186,341,498 SHARES.
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CONTENTS
PAGE
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PART I - FINANCIAL INFORMATION
ITEM 1. UNAUDITED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets September 30, 1999 and
December 31, 1998.......................................................................... 1
Condensed Consolidated Statements of Operations for the Three and Nine Months ended
September 30, 1999 and 1998................................................................ 2
Condensed Consolidated Statements of Comprehensive Income for the Three and
Nine Months ended September 30, 1999 and 1998.............................................. 3
Condensed Consolidated Statements of Cash Flows for the Nine Months ended
September 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....................................................................... 12
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.......................................................................... 13
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.................................................. 13
ITEM 3. DEFAULTS UPON SENIOR SECURITIES............................................................ 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........................................ 13
ITEM 5. OTHER INFORMATION.......................................................................... 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................................................... 13
SIGNATURES ......................................................................................... 14
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OUTDOOR SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
SEPTEMBER 30, DECEMBER 31,
1999 1998
----------- -----------
ASSETS
Current Assets:
Cash and cash equivalents $ 16,317 $ 16,554
Accounts receivable, net 175,000 136,817
Prepaid land leases 30,692 23,467
Other current assets 28,422 14,544
Value added taxes receivable 35,918 33,876
Deferred income taxes 12,553 12,546
----------- -----------
Total current assets 298,902 237,804
Property and Equipment, net 1,897,784 1,876,065
Other Assets 19,008 15,881
Deferred Financing Costs 29,783 35,070
Goodwill and Other Intangibles, Net 604,919 592,006
----------- -----------
$ 2,850,396 $ 2,756,826
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 6,530 $ 12,855
Accrued interest 24,723 8,696
Accrued expenses and other liabilities 57,535 48,208
Current maturities of long-term debt 183,310 130,247
----------- -----------
Total current liabilities 272,098 200,006
Long-term Debt 1,628,344 1,676,985
Other Long-term Obligations 10,260 9,688
Deferred Income Taxes 98,547 99,221
----------- -----------
Total liabilities 2,009,249 1,985,900
----------- -----------
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 185,079,517
and 184,369,963 shares, respectively 1,851 1,844
Additional paid-in-capital 764,593 762,775
Retained earnings 79,799 31,305
Treasury stock at cost - 36,235,206 (3,794) (3,794)
Accumulated other comprehensive loss (1,302) (21,204)
----------- -----------
Total stockholders' equity 841,147 770,926
----------- -----------
$ 2,850,396 $ 2,756,826
=========== ===========
See notes to condensed consolidated financial statements.
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OUTDOOR SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
---- ---- ---- ----
REVENUES:
Outdoor advertising $ 236,628 $ 216,639 $ 651,338 $ 574,379
Less agency commissions and discounts 29,477 27,877 79,271 74,715
------------ ------------ ------------ ------------
207,151 188,762 572,067 499,664
Other income 9,180 5,090 18,549 14,739
------------ ------------ ------------ ------------
Net Revenues 216,331 193,852 590,616 514,403
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Direct advertising 98,008 87,824 271,389 243,867
General and administrative 9,131 9,438 28,115 26,596
Depreciation and amortization 37,440 33,658 108,569 88,506
------------ ------------ ------------ ------------
144,579 130,920 408,073 358,969
------------ ------------ ------------ ------------
Operating income 71,752 62,932 182,543 155,434
OTHER:
Foreign currency transaction loss (gain) (43) 1,646 (1,876) 3,490
Interest expense 36,853 37,089 110,943 101,349
------------ ------------ ------------ ------------
INCOME BEFORE ITEMS SET FORTH BELOW 34,942 24,197 73,476 50,595
Income tax provision 10,339 10,748 24,982 22,363
------------ ------------ ------------ ------------
NET INCOME $ 24,603 $ 13,449 $ 48,494 $ 28,232
============ ============ ============ ============
BASIC AND DILUTED INCOME PER SHARE:
Basic:
Net income $ .13 $ .07 $ .26 $ .15
============ ============ ============ ============
Weighted average number of shares 184,895,090 184,350,275 184,655,622 183,012,217
============ ============ ============ ============
Diluted:
Net income $ .12 $ .07 $ .24 $ .14
============ ============ ============ ============
Weighted average number of shares 206,069,466 205,048,130 205,759,947 203,603,825
============ ============ ============ ============
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 NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
---- ---- ---- ----
Net income $ 24,603 $ 13,449 $ 48,494 $ 28,232
Other comprehensive income:
Unrealized foreign currency translation
gain (loss) 5,006 (32,483) 19,902 (33,557)
-------- -------- -------- --------
Comprehensive income (loss) $ 29,609 $(19,034) $ 68,396 $ (5,325)
======== ======== ======== ========
See notes to condensed consolidated financial statements.
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OUTDOOR SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
NINE MONTHS
ENDED
SEPTEMBER 30,
1999 1998
---- ----
OPERATING ACTIVITIES:
Net income $ 48,494 $ 28,232
(Decrease in) provision for deferred taxes (4,902) 17,037
Depreciation and amortization 108,569 88,506
Foreign currency transaction (gain) loss (1,876) 3,490
Other 699 699
Changes in assets and liabilities:
Increase in accounts receivable, net (38,180) (17,526)
(Increase) decrease in prepaid expenses and other (20,919) 1,159
Decrease in deferred financing costs 5,287 5,287
Increase in accrued interest 16,016 16,668
Increase (decrease) in accounts payable and other liabilities 1,492 (27,104)
--------- ---------
Net Cash Provided by Operating Activities 114,680 116,448
--------- ---------
INVESTING ACTIVITIES:
Acquisitions of outdoor advertising assets (80,300) (362,608)
Capital expenditures (39,820) (25,947)
--------- ---------
Net Cash Used in Investing Activities (120,120) (388,555)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from Senior Credit Facility 86,460 377,906
Principal payments on long-term debt and capital leases (83,844) (94,390)
Increase in deferred financing costs (600)
Stock split (7)
Issuance of common stock, net 1,826 111
--------- ---------
Net Cash Provided by Financing Activities 4,442 283,020
--------- ---------
Effect of exchange rate changes on cash 761 (637)
--------- ---------
NET INCREASE IN CASH AND CASH
EQUIVALENTS (237) 10,276
CASH AND CASH EQUIVALENTS - BEGINNING 16,554 5,897
--------- ---------
CASH AND CASH EQUIVALENTS - ENDING $ 16,317 $ 16,173
========= =========
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 and
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 nine months ended September 30, 1999, are not necessarily
indicative of the results that may be expected for the year ending December 31,
1999. 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 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 Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
---- ---- ---- ----
Basic weighted average shares 184,895,090 184,350,275 184,655,622 183,012,217
Add:
Shares issuable upon exercise of
stock options 21,174,376 20,697,855 21,104,325 20,591,608
----------- ----------- ----------- -----------
Diluted weighted average shares 206,069,466 205,048,130 205,759,947 203,603,825
=========== =========== =========== ===========
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 September 30, 1999
United
States Canada Mexico Elim Total
------ ------ ------ ---- -----
(In thousands)
Net revenues from
external customers .......... $ 179,146 $ 18,079 $ 19,106 $ 216,331
Intersegment revenues .......... -- 1,466 -- (1,466) --
Interest expense - net ......... 35,628 1,470 (245) 36,853
Depreciation and
amortization expense ........ 28,236 3,044 6,160 37,440
Foreign currency
transaction (gain) loss ..... -- (55) 12 (43)
Income tax provision (benefit) . 11,890 2,397 (3,948) 10,339
Segment net income ............. 13,006 1,981 9,616 24,603
Capital expenditures ........... 8,663 4,519 2,779 15,961
Total assets ................... 2,666,938 195,872 418,478 (430,892) 2,850,396
Three Months Ended September 30, 1998
United
States Canada Mexico Elim Total
------ ------ ------ ---- -----
(In thousands)
Net revenues from
external customers .......... $ 165,192 $ 17,844 10,816 $ 193,852
Intersegment revenues .......... -- 1,675 (1,675) --
Interest expense - net ......... 35,198 1,905 (14) 37,089
Depreciation and
amortization expense ........ 26,928 2,561 4,169 33,658
Foreign currency
transaction loss ............ -- 1,646 1,646
Income tax provision ........... 6,956 2,188 1,604 10,748
Segment net income (loss) ...... 13,406 (263) 306 13,449
Capital expenditures ........... 6,940 2,495 9,435
Total assets ................... 2,551,152 144,400 241,410 (316,847) 2,620,115
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NOTE 5 - SEGMENTS (CON'T)
Nine Months Ended September 30, 1999
United
States Canada Mexico Elim Total
------ ------ ------ ---- -----
(In thousands)
Net revenues from
external customers ................. $ 501,598 $ 48,995 $ 40,023 $ 590,616
Intersegment revenues ................. --- 4,319 --- (4,319) ---
Interest expense - net ................ 106,533 4,503 (93) 110,943
Depreciation and
amortization expense ............... 82,963 8,765 16,841 108,569
Foreign currency
transaction (gain) loss ............ --- (1,987) 111 (1,876)
Income tax provision (benefit) ........ 23,212 6,689 (4,919) 24,982
Segment net income .................... 35,017 4,835 8,642 48,494
Capital expenditures .................. 25,002 9,913 4,905 39,820
Total assets .......................... 2,666,938 195,872 418,478 (430,892) 2,850,396
Nine Months Ended September 30, 1998
United
States Canada Mexico Elim Total
------ ------ ------ ---- -----
(In thousands)
Net revenues from
external customers ................. $ 455,858 $ 47,729 10,816 $ 514,403
Intersegment revenues ................. --- 5,359 (5,359) ---
Interest expense - net ................ 95,964 5,399 (14) 101,349
Depreciation and
amortization expense ............... 77,450 6,887 4,169 88,506
Foreign currency
transaction loss ................... --- 3,490 3,490
Income tax provision .................. 15,821 4,938 1,604 22,363
Segment net income (loss) ............. 28,994 (1,068) 306 28,232
Capital expenditures .................. 20,439 5,508 25,947
Total assets .......................... 2,551,152 144,400 241,410 (316,847) 2,620,115
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 Company's stockholders approved the proposed merger
at a Special Meeting of Stockholders held on November 4, 1999. The completion of
the merger remains subject to regulatory approvals, including clearance 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 nine months ended September 30, 1999 and financial
condition at September 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 nine 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, Vendor, S.A. de C.V.
and MM Billboard, S.A. de C.V., completed on July 1, 1998, and the acquisition
of Probert Exterior, S.A. de C.V. and Ainsa, S.A. de C.V., completed on October
27, 1998.
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Gross revenues increased 9.2% to $236.6 million during the third quarter of
1999 compared to $216.6 million in the third quarter of 1998. Gross revenues
increased approximately 8.1% during the third quarter of 1999 compared to the
third 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 12.5% and 12.9% of gross revenues in the third
quarter of 1999 and the third 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 11.6% to $216.3 million in the third quarter of
1999 compared to $193.9 million in the third quarter of 1998, primarily as a
result of the increase in gross revenues and the increase in other income
resulting from additional amounts to be received relating to the value added tax
receivable for the third quarter of 1999.
Direct advertising expenses increased to $98.0 million in the third quarter
of 1999 compared to $87.8 million in the third quarter of 1998. This was
primarily a result of the 1998 Acquisitions. As a percentage of net revenues,
direct advertising expenses were approximately 45.3% for both the third quarter
of 1999 and 1998 because of efficiencies realized from economies of scale.
General and administrative expenses decreased to $9.1 million in the third
quarter of 1999 compared to $9.4 million in the third quarter of 1998. This was
primarily a result of efficiencies realized from economies of scale. As a
percentage of net revenues, general and administrative expenses decreased to
approximately 4.2% in the third quarter of 1999 from 4.9% in the third 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 13.0% to $109.2
million in the third quarter of 1999 from $96.6 million in the third quarter of
1998.
Depreciation and amortization expense increased to $37.4 million for the
third quarter of 1999 compared to $33.7 million in the third quarter of 1998,
primarily due to the 1998 Acquisitions, offset in part by certain assets
becoming fully depreciated during the third quarter of 1999. As a percentage of
net revenues, depreciation and amortization expense decreased to 17.3% from
17.4% in the third quarter of 1999 compared to the third quarter of 1998.
Interest expense decreased to $36.9 million in the third quarter of 1999
compared to $37.1 million in the third quarter of 1998, as a result of a lower
marginal interest rate on the senior credit facility. As a percentage of net
revenues, interest expense decreased to 17.0% for the third quarter of 1999 from
19.1% for the third quarter of 1998.
The Company recorded an income tax provision of approximately $10.3 million
in the third quarter of 1999 compared to $10.7 million in the third quarter of
1998. The overall effective tax rate declined due to the Mexico acquisitions.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Gross revenues increased by 13.4% to $651.3 million during the first nine
months of 1999 compared to $574.4 million in the first nine months of 1998.
Gross revenues increased approximately 7.8% during the first nine months of 1999
compared to the first nine 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 12.2% and 13.0% of gross revenues in the first nine
months of 1999 and the first nine 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 14.8% to $590.6 million in the first nine months
of 1999 compared to $514.4 million in the first nine 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 and the increase in other income
resulting from additional amounts to be received relating to the value added tax
receivable for the first nine months of 1999.
Direct advertising expenses increased to $271.4 million in the first nine
months of 1999 compared to $243.9 million in the first nine months of 1998. This
was primarily a result of the 1998 Acquisitions. As a percentage of net
revenues, direct advertising expenses were approximately 46.0% in the first nine
months of 1999 compared to 47.4% in the first nine months of 1998 because of
efficiencies realized from economies of scale.
General and administrative expenses increased to $28.1 million in the first
nine months of 1999 compared to $26.6 million in the first nine 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 4.8% in
the first nine months of 1999 from 5.2% in the first nine months of 1998 because
of efficiencies realized from economies of scale.
As a result of the above factors, EBITDA increased by 19.3% to $291.1
million in the first nine months of 1999 from $243.9 million in the first nine
months of 1998.
Depreciation and amortization expense increased to $108.6 million in the
first nine months of 1999 compared to $88.5 million in the first nine months of
1998, primarily due to the 1998 Acquisitions, offset in part by certain assets
becoming fully depreciated during the first nine months of 1999. As a percentage
of net revenues, depreciation and amortization expense increased to 18.4% from
17.2% in the first nine months of 1999 compared to the first nine months of
1998.
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Interest expense increased to $110.9 million in the first nine months of
1999 from $101.3 million in the first nine 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
18.8% for the first nine months of 1999 from 19.7% for the first nine months of
1998 due to a lower marginal interest rate on the senior credit facility.
The Company recorded an income tax provision of approximately $25.0 million
in the first nine months of 1999 compared to $22.4 million in the first nine
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 $26.8 million at September 30,
1999 compared to $37.8 million at December 31, 1998. This decrease resulted
primarily from the increase in accounts receivable and taxes recoverable
relating to the Mexico Acquisitions, partially offset by the increase in accrued
interest and current maturities of long-term debt.
Net cash provided by operating activities decreased by $1.7 million to
$114.7 million for the nine months ended September 30, 1999, compared to $116.4
million for the nine months ended September 30, 1998, primarily due to the
increase in accounts receivable and changes in working capital accounts offset
in part by the increase in net income and the effect of a larger depreciation
and amortization expense as a component of net income. Net cash used in
investing activities decreased to $118.1 million in the first nine months of
1999 from $388.6 million in the first nine months of 1998, primarily because of
lower cash expenditures required for the acquisitions completed during the first
nine months of 1999 as compared to the 1998 Acquisitions. Net cash provided by
financing activities decreased to $4.4 million for the first nine months of 1999
compared to $283.0 million for the first nine months of 1998, primarily because
of the lower level of borrowings under the senior credit facility used for the
acquisitions completed during the first none months of 1999 compared with the
higher level of borrowings under the senior credit facility used for the 1998
Acquisitions.
The Company made approximately $39.8 million of capital expenditures during
the first nine months of 1999, an increase from approximately $25.9 million
during the first nine 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 $45.0 million to $46.0 million 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.
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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 Company's stockholders approved the proposed merger
at a Special Meeting of Stockholders held on November 4, 1999. The completion of
the merger remains subject to regulatory approvals, including clearance under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
The Company and Infinity are working towards a closing of the proposed
merger during November 1999, although the Company can give no assurances that
this closing target will be met.
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 have been 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 $900,000 of which approximately
$700,000 has been spent to date. All critical upgrades have been completed and
the Company plans on completing all remaining upgrades before December 31, 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).
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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.
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 nine months ended September 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.
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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
Following the fiscal quarter and, a Special Meeting of Stockholders of
the Company was held on November 4, 1999. The following matter was submitted to
a vote at the meeting:
A proposal to adopt the Agreement and Plan of Merger, dated as of May
27, 1999, as amended, by and among Outdoor Systems, Infinity
Broadcasting Corporation and Burma Acquisition Corp., a wholly owned
subsidiary of Infinity formed solely for the purposes of the merger,
which provides for the merger of Burma Acquisition into Outdoor Systems
as described in the merger agreement. The results of the voting on this
matter were as follows:
For Against Abstain
--- ------- -------
160,685,912 20,666 2,635
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.
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: November 15, 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