<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
SPECIAL FINANCIAL REPORT
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1997.________________________________________
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number 333-28489
---------
OUTDOOR COMMUNICATIONS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 38-3286430
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
512 Taylor Street, Corinth, Mississippi 38834
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (601) 286-3334
-----------------------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
- --------------------------------------------------------------------------------
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 No X (2)
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of October 30, 1997, all voting stock of the Registrant was held by
affiliates of the Registrant.
The number of shares of the Registrant's common stock outstanding as of
October 30, 1997 was 12,075.
Documents incorporated by reference: None
Exhibit Index appears on page ___________ of __________ pages.
- ------------------------
(1) This Special Financial Report on Form 10-K is being filed pursuant to Rule
15d-2 under the Securities Exchange Act of 1934. Pursuant to such rule,
this report contains only the certified financial statements for the
Registrant's fiscal year ended June 30, 1997.
(2) The registrant has been subject to such filing requirements for less
than 90 days.
1
<PAGE>
PART I
ITEM 1. BUSINESS
Not applicable.
ITEM 2. PROPERTIES
Not applicable.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
2
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Not applicable.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
Not applicable.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
OUTDOOR COMMUNICATIONS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS (1)
<TABLE>
<S> <C>
Independent Auditors' Report ..................................................
Consolidated Balance Sheets ...................................................
Consolidated Statements of Operations .........................................
Consolidated Statements of Stockholders' Deficit ..............................
Consolidated Statements of Cash Flows .........................................
Notes to Consolidated Financial Statements ....................................
</TABLE>
- ------------------------
(1) All schedules have been omitted because they are not required, not
applicable or are included in Notes to Consolidated Financial Statements.
3
<PAGE>
Independent Auditors' Report
----------------------------
The Board of Directors and Stockholders
Outdoor Communications, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Outdoor
Communications, Inc. (formerly known as OCI Holdings Corp.) and subsidiaries as
of June 30, 1997 and 1996, and the related consolidated statements of
operations, stockholders' deficit, and cash flows for the year ended June 30,
1997 and the period April 4, 1996 to June 30, 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Outdoor
Communications, Inc. as of June 30, 1997 and 1996, and the results of their
operations and their cash flows for the year ended June 30, 1997 and the period
April 4, 1996 to June 30, 1996, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
East Lansing, Michigan
September 18, 1997
4
<PAGE>
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ ----------
<S> <C> <C>
Assets (notes 5 and 8)
------
Current assets:
Cash and cash equivalents $ 1,712,827 1,259,441
Trade accounts receivable, less allowance
for doubtful accounts of $317,914 in 1997
and $273,110 in 1996 7,253,391 5,050,490
Refundable income taxes 616,100 185,893
Prepaid rent expense 1,805,431 1,077,830
Other assets 978,023 771,979
Deferred income taxes (note 9) 438,967 276,703
------------ ----------
Total current assets 12,804,739 8,622,336
------------ ----------
Property and equipment, net (note 3) 55,786,503 37,765,591
Intangible assets, less accumulated
amortization (note 4) 72,239,682 45,155,192
Deferred financing costs (note 5) 4,240,033 3,169,224
Other assets 605,899 116,638
------------ ----------
Total assets $145,676,856 94,828,981
============ ==========
</TABLE>
(Continued)
5
<PAGE>
<TABLE>
<CAPTION>
1997 1996
-------------- -----------
<S> <C> <C>
Liabilities and Stockholders' Deficit
-------------------------------------
Current liabilities:
Current installments of long-term
debt (notes 5 and 7) $ 5,876,875 4,750,000
Obligation under non-compete
agreement - 100,000
Trade accounts payable 760,257 770,147
Income taxes payable 615,418 179,822
Accrued salaries, wages and benefits 1,187,104 708,252
Accrued interest 541,895 1,038,833
Other accrued expenses 491,848 620,318
Deferred advertising revenues and
non-compete income 405,500 303,512
------------ ----------
Total current liabilities 9,878,897 8,470,884
------------ ----------
Long-term debt (note 19):
Credit facility, excluding current
installments (notes 5 and 18) 115,650,000 57,750,000
Subordinated debt (notes 6 and 11) 22,425,000 22,100,000
Notes payable--stockholders (note 7) - 5,876,875
------------ ----------
Total long-term debt 138,075,000 85,726,875
Accrued interest (notes 6 and 11) 1,671,666 262,488
Deferred non-compete income, less
current portion 26,667 106,667
Deferred income taxes (note 9) 4,070,180 5,163,547
------------ ----------
153,722,410 99,730,461
------------ ----------
Stockholders' deficit
(notes 10, 11 and 19):
Class A common stock, $0.01 par value.
Authorized 10,000 shares; issued and
outstanding 8,385.72 in 1997 and
8,210.72 shares in 1996 84 82
Class B common stock, $.01 par value.
Authorized 10,000 shares; issued and
outstanding 3,689.28 shares 37 37
Additional paid-in capital 3,811,475 3,636,477
Accumulated deficit (11,857,150) (8,538,076)
------------ ----------
Total stockholders' deficit (8,045,554) (4,901,480)
------------ ----------
Commitments and contingencies
(notes 10, 11, 12 and 13)
Total liabilities and
stockholders' deficit $145,676,856 94,828,981
============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
For the year ended June 30, 1997 and
the period April 4, 1996 to June 30, 1996
<TABLE>
<CAPTION>
1997 1996
------------- -----------
<S> <C> <C>
Gross revenues $ 49,169,290 9,535,542
Less agency commissions 4,665,764 987,032
------------ ----------
Net revenues 44,503,526 8,548,510
------------ ----------
Operating expenses:
Direct operating expenses (note 12) 15,106,559 2,753,970
Selling, general, and administrative 12,030,361 2,308,313
Depreciation and amortization 9,821,294 1,801,892
------------ ----------
Total operating expenses 36,958,214 6,864,175
------------ ----------
Operating income 7,545,312 1,684,335
Interest expense (11,623,563) (1,953,993)
Loss on disposal of equipment (458,541) (67,328)
Other income, net 194,306 64,494
------------ ----------
Loss before income tax benefit (4,342,486) (272,492)
Income tax benefit (note 9) (1,023,412) (10,814)
------------ ----------
Net loss $ (3,319,074) (261,678)
============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Deficit
For the year ended June 30, 1997 and
the period April 4, 1996 to June 30, 1996
<TABLE>
<CAPTION>
Series A Class A Class B Additional Total
Preferred Common Common Paid-in Accumulated Stockholders'
Stock Stock Stock Capital Deficit Deficit
---------- -------- ------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Balances at April 3, 1996 $ 90 10 - 1,235,326 (8,276,398) (7,040,972)
Class A common shares issued for cash - 35 - 3,536,895 - 3,536,930
Class B common shares issued for cash - - 2 189,270 - 189,272
Merger with OCI of Michigan - 19 - (19) - -
Redemption of OCI Michigan stock (90) (10) - (7,589,932) - (7,590,032)
Class A common shares issued for
MCC stock - 28 - 2,764,972 - 2,765,000
Class B common shares issued for cash - - 35 3,499,965 - 3,500,000
Net loss - - - - (261,678) (261,678)
--------- --- ------- ---------- ----------- ----------
Balances at June 30, 1996 - 82 37 3,636,477 (8,538,076) (4,901,480)
Class A common shares issued for cash - 2 - 174,998 - 175,000
Net loss - - - - (3,319,074) (3,319,074)
--------- --- ------- ---------- ----------- ----------
Balances at June 30, 1997 $ - 84 37 3,811,475 (11,857,150) (8,045,554)
========= === ======= ========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE>
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the year ended June 30, 1997 and
the period April 4, 1996 to June 30, 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,319,074) (261,678)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Allowance for doubtful accounts 317,964 48,265
Depreciation of equipment 5,069,744 903,191
Amortization of intangible assets 5,441,136 1,026,557
Loss on disposal of equipment 458,541 67,328
Deferred income taxes (1,255,631) (112,776)
Changes in assets and liabilities, net
of effects from purchase of
company, which increase
(decrease) cash flows:
Trade accounts receivable (1,083,210) (1,084,980)
Refundable income taxes (430,207) (81,182)
Prepaid rent expense (303,145) (116,876)
Other assets (240,413) 394,681
Trade accounts payable (27,528) 79,701
Income taxes payable 435,596 179,822
Accrued expenses 1,112,794 (5,069,984)
Deferred advertising revenues and
non-compete income (78,828) (142,665)
------------ -----------
Net cash provided by
(used in) operating
activities 6,097,739 (4,170,596)
------------ -----------
Cash flows from investing activities:
Purchase of AOA Holding, L.L.C. - (34,132,908)
Purchase of Georgia Outdoor
Advertising, Inc. - (11,650,000)
Purchase of Mass Communications
Corp. warrants, common and
preferred stock - (767,850)
Purchase of Skoglund Commun-
ications, Inc. and Skoglund
Communications of St. Cloud,
Inc. (21,246,850) -
Purchase of Outdoor West of
Tennessee (11,802,444) -
Purchase of Summey Outdoor
Advertising, Inc. (5,145,000) -
Purchase of other businesses (13,639,159) -
Capital expenditures (4,338,483) (597,849)
Proceeds from sale of property
and equipment 36,617 2,625
Deferred acquisition costs (1,318,458) (452,814)
------------ -----------
Net cash used in
investing activities (57,453,777) (47,598,796)
------------ -----------
Cash flows from financing activities:
Proceeds from issuance of long-
term debt 54,750,000 80,465,000
Repayment of long-term debt (1,600,000) (23,950,000)
Deferred financing costs (1,740,576) (3,281,537)
Proceeds from issuance of
subordinated notes 325,000 -
Proceeds from issuance of common
stock 175,000 7,226,202
Redemption of OCI Corp. of
Michigan common and preferred
stock - (7,590,032)
Payments on obligation under
non-compete agreement (100,000) (100,000)
------------ -----------
Net cash provided by
financing activities 51,809,424 52,769,633
------------ -----------
Net increase in cash and cash
equivalents 453,386 1,000,241
Cash and cash equivalents at beginning
of the period 1,259,441 259,200
------------ -----------
Cash and cash equivalents at end of
the period $ 1,712,827 1,259,441
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
9
<PAGE>
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1997 and 1996
(1) Organization and Acquisition of Assets
--------------------------------------
After the close of business on April 3, 1996, the stockholders of OCI Corp.
of Michigan (OCIM) and Mass Communications Corp. (MCC) (collectively, the
companies) entered into a plan of reorganization (the Reorganization Plan)
to restructure and merge the companies. Pursuant to the Reorganization
Plan, the stockholders agreed to sell their entire interests in the common
and preferred stock of the companies. In conjunction with the
Reorganization Plan, OCI Holdings Corp. (Holdings) was incorporated for the
purpose of effecting the reorganization and merger. Holdings is a holding
company with no assets or operations other than its investment in its
subsidiaries.
Under the Reorganization Plan, a series of planned transactions were
executed in the following order: (1) certain outside investors of OCIM (the
Investors) purchased 24.67 shares and 60 shares of OCIM's common and
preferred stock, respectively, from the minority shareholders of OCIM for
$1,908,798; (2) the Investors then exchanged these same shares, together
with $14,191,202 in cash, for 5,410.73 and 3,869.28 shares of Holdings'
Class A and Class B common stock, respectively, and $10,465,000 of
subordinated debt (see note 6); and (3) the remaining 75.33 shares and 840
shares of OCIM's common and preferred stock, respectively, were purchased
by Holdings for $7,508,367, which resulted in Holdings being the sole
stockholder in OCIM's common and preferred stock.
As a result of the above transactions, OCIM became a wholly-owned
subsidiary of Holdings. As such, the closing balance sheet of OCIM at April
3, 1996, adjusted to reflect the above transactions, became the opening
balance sheet of Holdings.
Immediately following the execution of the Reorganization Plan transactions
listed above, the stockholders of MCC exchanged 7,731.01 shares of common
stock and 308.78 shares of preferred stock and sold 5,128.99 shares of
common stock and 691.22 shares of preferred stock for an aggregate value of
$25,747,927. This transaction resulted in MCC becoming a wholly owned
subsidiary of Holdings. The acquisition has been accounted for using the
purchase method of accounting and, accordingly, the purchase price has been
allocated to the assets purchased and liabilities assumed based upon the
fair value at the date of acquisition as follows:
<TABLE>
<CAPTION>
<S> <C>
Adjusted working capital $ 1,450,063
Goodwill 8,741,590
Property and equipment 11,529,274
Customer list 4,027,000
------------
$ 25,747,927
============
</TABLE>
10
<PAGE>
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(1) Organization and Acquisition of Assets, Continued
-------------------------------------------------
The details of the acquisition for the fair value of assets acquired and
liabilities assumed are as follows: liabilities assumed of $10,750,000;
subordinated debt issued to the MCC shareholders in the amount of
$11,011,875; 2,764.99 shares of OCI Holdings Inc. common stock issued to
MCC shareholders with a value of $2,765,000; and cash paid in the amount of
$1,221,052 equaling the purchase price of $25,747,927.
Georgia Acquisition
-------------------
Simultaneous to the Reorganization Plan, Outdoor Communications, Inc.,
(since renamed OCI(S) Corp.) a subsidiary of MCC, completed the purchase of
the business operations and certain assets of Georgia Outdoor Advertising,
Inc. (GOA), pursuant to an Asset Purchase Agreement dated March 8, 1996,
for cash of $11,650,000. The acquisition has been accounted for using the
purchase method of accounting and, accordingly, the purchase price has been
allocated to the net assets based upon their fair values at the date of
acquisition as follows:
<TABLE>
<S> <C>
Adjusted working capital $ 415,864
Goodwill 2,968,896
Property and equipment 2,282,240
Non-compete agreement 700,000
Customer list 5,283,000
------------
Cash purchase price $ 11,650,000
============
</TABLE>
Effective June 30, 1997, OCI Holdings Corp. was renamed Outdoor
Communications, Inc. (OCI). Simultaneously, New South Holdings Corp. and
MCC were merged into OCI and MCC's subsidiary, Outdoor Communications, Inc.
was renamed OCI (S) Corp. (OCIS). Also during 1997, OCI Corp. of Michigan
was renamed OCI (N) Corp. (OCIN). As a result of these transactions, the
Company now has two wholly owned subsidiaries, OCI (N) Corp. and OCI (S)
Corp.
Outdoor Communications, Inc. and subsidiaries (the Company) is a leading
outdoor advertising company in the Midwest and Southeast Regions of the
United States. The Company owns and operates outdoor advertising display
faces in 12 states throughout these regions. The Company sells outdoor
advertising space to national and local advertisers.
11
<PAGE>
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(2) Summary of Significant Accounting Policies
------------------------------------------
The accounting policies of the Company, as summarized below, conform with
generally accepted accounting principles and reflect practices appropriate
to the business in which it operates.
(a) Principles of Consolidation
---------------------------
The consolidated financial statements include the financial
statements of Outdoor Communications, Inc. and its wholly owned
subsidiaries, OCI (N) Corp. and OCI (S) Corp. All significant
intercompany balances and transactions have been eliminated in
consolidation.
(b) Cash Equivalents
----------------
Cash equivalents consist of repurchase agreements and money market
funds. For purposes of the consolidated statement of cash flows, the
Company considers all highly liquid debt instruments with maturities
of three months or less at the time of purchase to be cash
equivalents.
(c) Property and Equipment
-----------------------
Property and equipment are stated at cost. Depreciation on plant and
equipment is computed using the straight-line method over the
estimated useful lives of the assets.
(d) Intangible Assets
-----------------
Intangible assets include goodwill, non-compete agreements and
customer lists. Goodwill, which represents the excess of purchase
price over fair value of net assets acquired on their dates of
acquisition, is amortized on a straight-line basis over the expected
periods to be benefited, ranging from 20 to 25 years. The non-compete
agreements are amortized over the terms of the respective agreements,
which range from 4 to 10 years. Customer lists resulting from
acquisitions are amortized on the straight-line method over 8 years.
The Company assesses the recoverability of all long-lived intangible
assets by determining whether the amortization of the intangible
assets over their remaining lives can be recovered through
undiscounted future operating cash flows of the acquired operation.
The amount of impairment, if any, is measured based on projected
discounted future operating cash flows using a discount rate
reflecting the Company's average cost of funds.
12
<PAGE>
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(2) Summary of Significant Accounting Policies, Continued
-----------------------------------------------------
(e) Deferred Financing Costs
------------------------
Financing costs incurred as a result of obtaining long-term debt are
recorded as deferred financing costs and are amortized on a straight-
line basis over the term of the related debt (see note 5) and
reflected as interest expense in the accompanying consolidated
statements of operations.
(f) Employee Benefits
-----------------
The Company is self-insured for its employee health care plan. The
liability for self-insurance reflects the cost for the uninsured
portion of unpaid claims at year end. The liability is based on
estimates for claims reported prior to year end, using reported claim
information, and estimates for incurred but not reported, based on
historical results of the Company's plan, as well as certain industry
information.
(g) Retirement Program
------------------
OCIN provides a defined contribution 401(k) plan, which covers all of
its full-time employees with one or more years of service. Eligible
employees can contribute up to 12% of their compensation through
payroll deductions. OCIN contributes an amount equal to 50% of each
employee's contribution up to 3% of the employee's total
compensation.
(h) Revenue Recognition
-------------------
The Company recognizes revenue from advertising contracts on an
accrual basis ratably over the term of the contracts, which range
from 1 to 12 months, as advertising services are provided.
Advertising revenues from retail consumer products, hospitality, and
automotive industry constitute approximately 34% of gross revenues.
No other industry is the source of 10% or more of gross revenues.
(i) Income Taxes
------------
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that
includes the enactment date.
13
<PAGE>
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(2) Summary of Significant Accounting Policies, Continued
-----------------------------------------------------
(j) Other Assets
------------
Other assets consist principally of inventory and the cash surrender
value of officer life insurance.
(k) Use of Estimates
----------------
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and
the disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(l) Financial Instruments
---------------------
The Company utilizes hedged interest rate swap agreements. The
interest rate swap agreements involves the exchange of fixed- and
floating-rate interest payments periodically over the life of the
agreement without the exchange of the underlying principal amounts.
The differential to be paid or received, on a quarterly basis, is
accrued as interest rates change and is recognized as an adjustment
to interest expense.
(m) Earnings Per Share
------------------
An earnings per share calculation has not been presented because the
Company is closely held by a private investor group and, accordingly,
earnings per share is not required or meaningful.
(n) Reclassifications
-----------------
Certain 1996 financial statement amounts have been reclassified to
conform to the 1997 presentation.
14
<PAGE>
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(3) Property and Equipment
----------------------
Major categories of property, plant, and equipment at June 30, 1997 and
1996 were as follows:
<TABLE>
<CAPTION>
Estimated
Life (Years) 1997 1996
------------ ---- ----
<S> <C> <C> <C>
Land -- $ 1,610,126 1,204,494
Building and improvements 10-25 1,469,852 564,274
Advertising structures 8-15 57,910,710 38,309,049
Leasehold improvements 2-20 872,674 832,203
Equipment 3-10 4,317,355 2,737,091
Construction in progress -- 102,666 41,256
------------ ----------
66,283,383 43,688,367
Less accumulated depreciation 10,496,880 5,922,776
------------ ----------
Net property and equipment $ 55,786,503 37,765,591
============ ==========
</TABLE>
(4) Intangible Assets
-----------------
Intangible assets at June 30, 1997 and 1996 consist of the following:
<TABLE>
<CAPTION>
Estimated
Life (Years) 1997 1996
------------ ---- ----
<S> <C> <C> <C>
Covenants not to compete 4-10 $ 8,495,667 3,935,667
Goodwill 20-25 46,619,981 29,756,723
Customer lists 8 26,833,154 16,386,000
------------ ----------
81,948,802 50,078,390
Less accumulated amortization 9,709,120 4,923,198
------------ ----------
$ 72,239,682 45,155,192
============ ==========
</TABLE>
(5) Credit Facility
---------------
The Company entered into a credit agreement (the "Credit Facility") with
Chase Manhattan Bank, N.A. (Chase) and a syndicate consisting of various
other financial institutions (collectively called the "Bank") on the close
of business on April 3, 1996. The Credit Facility consists of a Term Loan A
Commitment for $40 million, Term Loan B Commitment for $20 million, (the
"Term Loans") and a Revolving Loan Commitment (the "Revolver") of $30
million (collectively the "Borrowings"). The Credit Facility was amended at
October 31, 1996 and the term loan B commitment and Revolver were increased
to $40 million and $60 million, respectively. The Term Loans are due June
30, 2003. Collateral includes a first lien on all tangible and intangible
property of the Company, assignment of all leases, and a guaranty by OCI
and all of its subsidiaries.
15
<PAGE>
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(5) Credit Facility, Continued
--------------------------
The Credit Facility enables the Company to borrow funds at a rate equal to
3% plus the London Interbank Offered Rate (LIBOR) or 1.75% over the Bank's
prime lending rate. The Credit Facility also enables the Company to realize
a lower interest rate if its leverage ratio meets certain levels as
stipulated in the Credit Facility. At June 30, 1997, the interest rate was
8.5%. Accrued interest is payable in quarterly installments on March 31,
June 30, September 30, and December 31. The Credit Facility also requires
payment of a commitment fee of 1/2 of 1% per annum on the daily average
aggregate unutilized commitment from the Bank. Accrued commitment fees are
due quarterly on March 31, June 30, September 30, and December 31.
Available borrowings under the Revolver are permanently reduced on the last
day of each fiscal quarter beginning September 30, 1997 by $1,250,000,
thereby reducing the availability to zero on June 30, 2003. At June 30,
1997, the Company had borrowed $35,650,000 and $17,473,125 of the Revolver
was available for additional borrowings by the Company.
The Credit Facility contains certain warranties and affirmative covenants
that must be complied with on a continuing basis. In addition, the Credit
Facility contains certain restrictive covenants which, among other things,
restrict the Company from incurring additional debt and liens on assets,
limits the amount of capital expenditures during any fiscal year, and
prohibits the consolidation, merger or sale of assets, or issuance of
common stock except as permitted by the Credit Facility. The Credit
Facility also requires the Company to maintain certain financial ratios. At
June 30, 1997 and 1996, the Company was in compliance with all such
covenants.
The Company has the right to prepay the Borrowings in whole or in part,
without premium or penalty, as stipulated in the Credit Facility. In
August, 1997, the Credit Facility was replaced with a New Credit Facility
and Public Note Offering (see note 18). As such, the portion of long-term
debt outstanding at June 30, 1997 under the Credit Facility has been
classified as long-term in the accompanying consolidated balance sheet.
Under the New Credit Facility and Public Note Offering, there are no
principle payments due in the next five years. Additionally, the Company
will recognize an extraordinary loss of approximately $4,200,000 in the
first quarter of fiscal year 1998 as a result of the refinancing (note 19).
16
<PAGE>
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(6) Subordinated Debt
------------------
The Company entered into a Securities Purchase Agreement (the "Agreement")
after the close of business on April 3, 1996 with certain management
investors and outside investors. In connection with the reorganization
discussed in note 1, the Company issued its 10% subordinated notes
("notes") due December 31, 2003. The subordinated notes are comprised of
two series; Series A 10% subordinated notes in the amount of $5,525,000 in
1997 and $5,200,000 in 1996, and Series B 10% subordinated notes in the
amount of $16,900,000 in 1997 and 1996.
Accrued interest on the outstanding principal balance of the notes is
payable at a rate of 10% per annum, computed on the basis of a 365 day
year, and is payable annually on March 31, commencing in 1997. The
Agreement allows the Company to only pay 46% of the accrued and unpaid
interest on an annual basis. The remaining 54% is deferred and bears
interest at a rate of 10% per annum and is due in accordance with the terms
of the Agreement, but in any event no later than December 31, 2003. Accrued
interest at June 30, 1997 and 1996 amounted to $1,911,584 and $489,370,
respectively.
The Agreement contains certain warranties and affirmative covenants that
must be complied with on a continuing basis. The Agreement also contains
certain restrictive covenants which, among other things, restricts the
Company from entering into transactions with affiliates outside the
ordinary course of business, consummating a sale of the Company, or
engaging in any new lines of business. At June 30, 1997 and 1996, the
Company was in compliance with all such covenants.
See note 11 regarding the exchange of subordinated debt and accrued
interest for Series A Preferred Stock of the Company and preferred
interests in a newly formed non-operating subsidiary, OCIH LLC (OCIH). See
note 18 regarding the Company's Public Note Offering on August 12, 1997,
and note 19 for pro forma effects of this transaction.
(7) Notes Payable--Stockholders
---------------------------
On the close of business on April 3, 1996, New South Holdings Corp., a
wholly owned subsidiary of Holdings, entered into written agreements with
the Company's chairman and president, borrowing in total $5,876,875. The
entire principal balance is due in full on April 3, 1998. The notes bear
interest at a rate which fluctuates quarterly based on the interest rate
per the Credit Agreement less the sum of the applicable eurodollar margin
(as defined in the Credit Agreement) and 1/8 of 1%. The interest rate at
June 30, 1997 was 5.41%. Accrued interest on the outstanding principal
balance of the notes is payable quarterly, commencing June 30, 1996. The
notes are secured by a Letter of Credit issued by The Chase Manhattan Bank,
N.A.
17
<PAGE>
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(8) Fair Value of Financial Instruments
-----------------------------------
The following disclosure of the estimated fair value of the Company's
financial instruments is made in accordance with the requirements of FASB
Statement No. 107, "Disclosure about Fair Value of Financial Instruments"
("Statement 107"). Statement 107 defines the fair value of a financial
instrument as the amount at which the instrument could be exchanged in a
current transaction between willing parties.
The carrying values of cash and cash equivalents, trade accounts receivable,
due from affiliated entity, trade accounts payable, accrued expenses, and
obligations under non-compete agreements approximate fair values due to the
short-term maturities of these instruments. Interest rate swaps, long-term
debt instruments and notes payable stockholders are estimated to approximate
fair values as rates are tied to short-term indices. The subordinated debt
bears interest at a rate which approximates market for unsecured debt.
(9) Income Taxes
------------
Income tax expense (benefit) attributable to loss before income tax expense
for the periods ended June 30 consists of:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -----
<S> <C> <C> <C>
1997
----
Federal $ 92,805 (1,189,910) (1,097,105)
State and local 139,414 (65,721) 73,693
-------- ---------- ----------
$232,219 (1,255,631) (1,023,412)
======== ========== ==========
1996
----
Federal $ 81,962 (72,889) 9,073
State and local 20,000 (39,887) (19,887)
-------- ---------- ----------
Total $101,962 (112,776) (10,814)
======== ========== ==========
</TABLE>
18
<PAGE>
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(9) Income Taxes, Continued
-----------------------
Income tax expense differed from the amounts computed by applying the
federal income tax rate of 34% for the periods ended June 30 to income
before income tax expense as a result of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Computed "expected" tax expense (benefit) $(1,476,446) (91,677)
Increase (reduction) in income taxes resulting from:
State and local income taxes, net of federal
income tax expense (6,887) (15,891)
Non-deductible expenses 29,467 6,599
Nondeductible goodwill 175,346 44,242
Adjustment of prior period accrual 121,833 74,292
Other, net 151,275 11,621
Change in the beginning-of-the-year balance of the
valuation allowance for deferred tax assets
allocated to income tax expense (18,000) (40,000)
----------- ---------
$(1,023,412) (10,814)
=========== =========
</TABLE>
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at each
June 30, is presented below:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 283,268 320,576
Alternative minimum tax credit carryforwards 182,973 60,606
Investment tax credit carryforwards 12,949 12,949
Deferred revenue, principally related to
advertising leases 72,787 72,944
Accrued expenses, principally related to
compensated absences, health care claims and
sales discounts 281,031 158,346
Deferred noncompete income 36,267 63,466
Other 119,707 45,413
----------- ----------
Total gross deferred tax assets 988,982 734,300
Less valuation allowance (142,000) (160,000)
----------- ----------
Net deferred tax assets 846,982 574,300
----------- ----------
Deferred tax liabilities:
Property and equipment, principally due to
differences in financial statement carrying
amounts and tax basis (3,403,385) (3,952,655)
Intangible assets, principally due to differences
in length of amortization period (1,074,810) (1,508,489)
----------- ----------
Total gross deferred tax liabilities (4,478,195) (5,461,144)
----------- ----------
Net deferred tax liabilities $(3,631,213) (4,886,844)
=========== ==========
</TABLE>
19
<PAGE>
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(9) Income Taxes, Continued
-----------------------
The above deferred tax assets and liabilities are presented in the June
30, 1997 and 1996 balance sheets as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Current assets $ 438,967 276,703
Non-current liabilities (4,070,180) (5,163,547)
----------- ----------
Net deferred tax liabilities $(3,631,213) (4,886,844)
=========== ==========
</TABLE>
The net change in the total valuation allowance for the year ended June
30, 1997 was a decrease of $18,000 and for the period ended June 30, 1996
was a decrease of $40,000.
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become
deductible. Management considers the scheduled reversals of deferred
taxes, projected future taxable income, and tax planning strategies in
making this assessment. In order to fully realize the deferred tax
assets, the Company will need to generate future taxable income of
approximately $833,000 for OCIN prior to the expiration of the net
operating loss carryforwards in 2010. Based upon the level of historical
taxable income and projections for future taxable income over the periods
which the deferred tax assets are deductible, management believes it is
more likely than not that the Company will realize the benefits of these
deductible differences, net of the existing valuation allowance at June
30, 1997 and 1996. The amount of the deferred tax assets considered
realizable, however, could be reduced in the near term if estimates of
future taxable income during the carryforward period are reduced.
At June 30, 1997, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $833,000, all of which were
incurred prior to the restructuring of the ownership of OCIN, with
Holdings becoming the common parent. As a result of the restructuring,
future utilization of the net operating loss carryforwards is limited
under Internal Revenue Code Section 382 to approximately $487,000
annually for OCIN. Additionally, these net operating loss carryforwards
can only be utilized to offset future taxable income of OCIN, if any,
through the year 2010.
The Company also has an alternative minimum tax credit carryforward of
$182,973, which is available to reduce future regular income taxes, if
any, over an indefinite period. In addition, the Company has an
investment tax credit carryforward of $12,949, which is available to
reduce future regular income taxes, if any, through 2001.
20
<PAGE>
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(10) Stockholders' Equity
--------------------
All general voting power is vested in the holders of Class A common stock.
The holders of Class B common stock are not entitled to vote at any
stockholders' meetings. Any share of Class B common stock can be
converted, at the option of the holder, into Class A common stock at the
rate of one share of Class A common stock for each share of Class B common
stock, subject to certain approvals.
Also, any share of Class A common stock can be converted, at the option of
the holder, into Class B common stock at the rate of one share of Class B
common stock for each share of Class A common stock, subject to and upon
compliance with the provisions of the Certificate of Incorporation of OCI
Holdings Corp.
Dividends or distributions of common stock shall be payable on shares of
Class A and B common stock, share and share alike.
In the event of liquidation, the holders of Class A and B common stock
shall be entitled to share ratably in the net assets of the Company after
payment of debts and other liabilities.
The Corporation shall not take any action (e.g., redeem, purchase, or
acquire) affecting outstanding shares of common stock if after giving
effect to such action any one, as defined, stockholder would own more than
24.95% of Class A common stock.
(11) Preferred Stock
----------------
In July 1997, the Company entered into an agreement, effective June 30,
1997, with the Series A and B subordinated debt holders to exchange the
notes and accrued and unpaid interest through June 30, 1997 for Series A
preferred stock (the Debt Conversion).
The Board of Directors has authorized 5,000,000 shares of preferred stock,
par value $.01 per share, of which 300,000 shares shall be designated
Series A (Series A Preferred Stock) and 4,700,000 shares shall be
undesignated (Undesignated Preferred Stock). Upon the closing of the
Public Note Offering on August 12, 1997, approximately 240,967 shares of
Series A Preferred Stock were issued in exchange for subordinated debt and
the related unpaid and accrued interest through June 30, 1997 totaling
$17,290,000 and $1,332,093, respectively, resulting in a corresponding
increase in stockholders' equity of $18,622,093. Additionally, $5,135,000
of subordinated debt and $348,616 of unpaid and accrued interest through
June 30, 1997 were assigned by the respective note holders to OCIH in
exchange for all of the preferred interests of OCIH. See note 19 for pro
forma effect of this transaction.
As discussed in Note 10, all general voting power is vested in holders of
Class A common stock. Shares of Series A Preferred Stock shall not be
included in determining the number of shares entitled to vote.
21
<PAGE>
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(11) Preferred Stock, Continued
--------------------------
No dividends will be declared or paid on the common stock during any year
unless the full amount of accrued dividends on the Series A Preferred
Stock has been paid. Upon declaration, the holders of the Series A
Preferred Stock are entitled to cumulative cash dividends of $10 per
annum, per share.
In the event of liquidation or dissolution of the Company, the holders of
the preferred stock are entitled to receive a preferential amount equal to
$100 per share of the issued and outstanding preferred stock and a further
preferential amount equal to all declared and unpaid dividends thereon.
This liquidation value will be paid before the payment or distribution of
any assets of the Company to the holders of the common stock.
(12) Leases
-------
The Company leases substantially all of the land presently used as sites
for advertising panels under various terms. The leases are classified as
operating leases. These leases generally contain renewal options ranging
from 1 to 15 years and require the Company to pay all executory costs,
such as maintenance and insurance. Rental expense for operating leases
amounted to approximately $5,825,000 for the year ended June 30, 1997 and
$931,000 for the period April 4, 1996 to June 30, 1996.
Future minimum lease payments under noncancelable operating leases with
non-related parties (with initial or remaining lease terms in excess of
one year) as of June 30, 1997 are:
<TABLE>
<CAPTION>
Year ending June 30:
<S> <C>
1998 $ 4,482,000
1999 3,425,000
2000 2,678,000
2001 1,954,000
2002 1,449,000
-----------
$13,988,000
===========
</TABLE>
(13) Employee Health Care Plan
-------------------------
Under the Company's self insurance plan for employee health care, eligible
participants receive payment or reimbursement of all or a portion of
eligible participants medical expenses, after deductibles and co-payments,
up to a lifetime aggregate benefit of $1 million. Eligible participants
(and their dependents) include active full-time employees. The plan is
primarily funded by the Company, with contributions from participants for
a portion of dependent's coverage, as required under the health care plan.
22
<PAGE>
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(13) Employee Health Care Plan, Continued
------------------------------------
The plan has obtained aggregate excess of loss coverage of $955,000 in
excess of $45,000 per eligible participant. The Company incurred
approximately $99,000 and $11,600 for such coverage for the year ended June
30, 1997 and for the period April 4, 1996 to June 30, 1996, respectively.
Additionally, the Company incurred approximately $480,000 and $180,000 in
expense for self insured health care claims for the years ended June 30,
1997 and for the period April 4, 1996 to June 30, 1996, respectively.
(14) Retirement Program
------------------
Retirement program expense with respect to OCIN's defined contribution
401(k) plan approximated $62,000 and $11,000 for the year ended June 30,
1997 and for the period April 4, 1996 to June 30, 1996, respectively.
(15) Supplemental Cash Flow Information
-----------------------------------
Non cash investing and financing activities for the year ended June 30,
1997 and for the period April 4, 1996 to June 30, 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash paid for income taxes $ 80,000 3,322
Cash paid for interest 11,846,217 6,881,000*
</TABLE>
*$6,531,384 pertained to the interest paid on the junior and senior
subordinated debt and senior debt existing prior to the close of business
on April 3, 1996.
Amortization of deferred financing fees in the amount of $667,838 and
$127,856 in 1997 and 1996, respectively, has been classified as interest
expense.
On April 4, 1996, the Company issued 2,764.99 shares of its common stock
valued at $2,765,000 and series A subordinated notes in the amount of
$5,135,000 for the purchase of 7,371.01 common shares and 308.78 preferred
shares of MCC. Also, the Company issued subordinated notes in the amount
$5,876,875 for the purchase of 5,128.99 common shares and 562.5 preferred
shares of Mass Communications Corp.
<TABLE>
<S> <C>
Details of acquisition:
Fair value of assets acquired $ 25,747,927
Liabilities assumed (10,750,000)
Subordinated debt issued (11,011,875)
Stock issued (2,765,000)
------------
Cash paid 1,221,052
Less cash acquired 453,202
------------
Net cash paid for acquisition $ 767,850
============
</TABLE>
23
<PAGE>
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(16) Financial Instruments
---------------------
On May 30, 1996, the Company entered into three-year interest swap
agreements, expiring on June 30, 1999, with First Union National Bank of
North Carolina (First Union) and Chase to manage its interest rate
exposure. Interest rate exchange transactions generally involve the
exchange of fixed and floating-rate interest payment obligations without
the exchange of the underlying principal amounts. Entering into interest
rate exchange agreements involves the risk of dealing with counterparties
and their ability to meet the terms of the contracts. Notional principal
amounts are used to express the volume of these transactions. The floating
interest rate on the interest swap agreement is based on three month U.S.
dollar LIBOR. The Chase agreement was terminated on December 30, 1996 and
replaced with a new three year swap agreement. The fixed-for-floating
interest rate swap agreements as of June 30, 1997 are summarized as
follows:
<TABLE>
<CAPTION>
Chase First Union
----- -----------
<S> <C> <C>
Notional principal amount $25,395,825 $15,000,000
Fixed rate paid 6.25% 6.34%
Floating rate 5.75% 5.76172%
</TABLE>
Subsequent to June 30, 1997, the Company paid approximately $238,000 to
buy out the swap agreements.
(17) Acquisitions
------------
On April 30, 1996, Holdings completed the purchase of certain assets and
assumed certain liabilities of AOA Acquisition, L.L.C. (AOA), pursuant to
an Asset Sale Agreement dated March 19, 1996, for cash of $34,132,908. The
acquisition has been accounted for using the purchase method of accounting
and, accordingly, the purchase price has been allocated to the assets
purchased and the liabilities assumed based upon the fair value at the
date of acquisition. The excess of the purchase price over the fair values
of the net assets acquired was $10,084,666 and has been recorded as
goodwill.
The net purchase price was allocated as follows:
<TABLE>
<S> <C>
Adjusted working capital $ 1,959,432
Goodwill 10,084,666
Property and equipment 15,012,810
Customer list 7,076,000
-----------
Purchase price $34,132,908
===========
</TABLE>
24
<PAGE>
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(17) Acquisitions, Continued
-----------------------
On October 31, 1996, the Company acquired substantially all of the assets
and business operations of Skoglund Communications, Inc. and Skoglund
Communications of St. Cloud, Inc. for a cash payment of $21,246,850. As a
result of this transaction, the Company acquired display faces in
Minnesota and Wisconsin. This acquisition has been accounted for by the
purchase method and, accordingly, the purchase price has been allocated to
the assets purchased and the liabilities assumed based upon the fair value
at the date of acquisition as follows:
<TABLE>
<CAPTION>
<S> <C>
Adjusted working capital $ 1,336,989
Goodwill 7,953,899
Property and equipment 7,537,470
Customer list 4,418,492
-----------
Cash purchase price $21,246,850
===========
</TABLE>
On March 31, 1997, the Company acquired substantially all of the assets
and business operations of Outdoor West of Tennessee (Outdoor West) for a
cash payment of $11,802,444. As a result of this acquisition, the Company
acquired display faces in Tennessee and a right of first refusal to
purchase Outdoor West, Inc. of Georgia, an affiliate of Outdoor West. This
purchase has been accounted for by the purchase method and, accordingly,
the purchase price has been allocated to the assets purchased and the
liabilities assumed based upon the fair value at the date of acquisition
as follows:
<TABLE>
<CAPTION>
<S> <C>
Adjusted working capital $ 475,564
Goodwill 1,545,334
Property and equipment 4,621,720
Non-compete agreement 2,600,000
Customer list 2,559,826
-----------
Cash purchase price $11,802,444
===========
</TABLE>
On May 1, 1997, the Company acquired substantially all of the assets and
business operations of Summey Outdoor Advertising, Inc. for a cash payment
of $5,145,000. As a result of this acquisition, the Company acquired
display faces in North Carolina and South Carolina. This purchase has been
accounted for by the purchase method and, accordingly, the purchase price
has been allocated to the assets purchased and liabilities assumed based
upon the fair value at the date of acquisition as follows:
<TABLE>
<CAPTION>
<S> <C>
Adjusted working capital $ 236,169
Goodwill 950,680
Property and equipment 2,168,760
Non-compete agreement 1,000,000
Customer list 789,391
----------
Cash purchase price $5,145,000
==========
</TABLE>
25
<PAGE>
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(17) Acquisitions, Continued
-----------------------
In addition to the acquisitions described above, the Company has
consummated numerous smaller acquisitions within the past twelve months for
aggregate cash payments totaling $13,639,159. These purchases have been
accounted for by the purchase method and, accordingly, the purchase price
has been allocated to the assets purchased and the liabilities assumed
based upon the fair value at the date of acquisition as follows:
<TABLE>
<S> <C>
Goodwill $ 5,095,973
Property and equipment 4,919,380
Non-compete agreement 2,663,806
Customer list 960,000
-----------
Cash purchase price $13,639,159
===========
</TABLE>
The consolidated financial statements include the operating results of all
of the above businesses from their respective dates of acquisition.
(18) Initial Public Offering and New Credit Facility
-----------------------------------------------
On August 12, 1997, the Company completed a Public Note Offering (the
Offering) of $105 million aggregate principle amount of 9.25% subordinated
notes due August 15, 2007 (the Notes). Net proceeds of the Offering, after
deduction of associated expenses, were approximately $100.3 million.
Accrued interest on the Notes is payable in semi-annual installments on
each February 15 and August 15, commencing February 15, 1998. The Notes are
redeemable at the Company's option, in whole or in part, at any time on or
after August 15, 2002 in accordance with a prepayment premium as described
in the note agreement. Other prepayments may occur prior to August 15, 2000
based on certain limitations as described in the note agreement.
The Notes are fully and unconditionally guaranteed, on a senior
subordinated basis, as to payment of principal, premium, if any, and
interest, jointly and severally by all of the Company's direct and indirect
subsidiaries. Separate financial statements of the Company's subsidiaries
have not been presented because (a) such guarantor subsidiaries have
jointly and severally guaranteed the notes on a full and unconditional
basis, (b) the aggregate assets, liabilities, earnings and equity of the
guarantor subsidiaries are substantially equivalent to the assets,
liabilities, earnings and equity of the parent on a consolidated basis and
(c) that the Company has not presented separate financial statements and
other disclosures concerning the subsidiary guarantors because management
has determined that such information is not material to investors.
The Company abandoned plans for an initial public offering of its common
stock during July 1997. As a result, the Company will recognize expense of
approximately $268,000 in the first quarter of fiscal year 1998, due to the
write off of costs incurred related to the abandoned offering.
26
<PAGE>
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(18) Initial Public Offering and New Credit Facility, Continued
----------------------------------------------------------
Simultaneous to the Offering, the Company entered into a new $150 million
senior credit facility (New Credit Facility) with The Chase Manhattan Bank
and a syndicate consisting of various other financial institutions
(collectively, the New Bank). The New Credit Facility consists of a
Revolving Loan Commitment (the New Revolver) of $110 million and a Term
Loan Commitment for $40 million (collectively the New Borrowings). The New
Revolver matures on December 21, 2004 and the Term Loan Commitment matures
on June 30, 2005. The New Credit Facility provides for annual reductions in
the New Revolver and amortization of the term loan facility. Collateral
includes a first lien on all tangible and intangible property of the
Company, assignment of all leases, and a guaranty by OCI, OCIN, and OCIS.
The New Credit Facility enables the Company to borrow funds at a rate equal
to 2.25% plus LIBOR or 1.0% over the New Bank's base rate, as defined. The
New Credit Facility also enables the Company to realize a lower interest
rate if its leverage ratio meets certain levels as stipulated in the Credit
Facility. At August 15, 1997, date of the initial borrowing, the interest
rate was 9.5%. Accrued interest is payable in quarterly installments on
March 31, June 30, September 30, and December 31. The Credit Facility also
requires payment of a commitment fee of 0.375% per annum, which may be
reduced based on the Company's leverage ratio, on the daily average
aggregate unutilized commitment from the Bank. Accrued commitment fees are
due quarterly on March 31, June 30, September 30, and December 31.
The New Credit Facility contains certain warranties and affirmative
covenants that must be complied with on a continuing basis. In addition,
the New Credit Facility contains certain restrictive covenants which, among
other things, restrict the Company from incurring additional debt and liens
on assets, limits the amount of capital expenditures during any fiscal
year, and prohibits the consolidation, merger or sale of assets, or
issuance of common stock except as permitted by the New Credit Facility.
The New Credit Facility also requires the Company to maintain certain
financial ratios.
Under the terms of the Credit Facility, the Subsidiary Guarantors are
restricted in their ability to make distributions to the Company to
distributions necessary to enable the Company to make interest payments due
under the Credit Facility and make federal income tax payments. The
Indenture provides that the Company will not, and will not permit any of
the Subsidiary Guarantors to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any consensual encumbrance or
restriction of any kind on the ability of the Subsidiary Guarantors to make
distributions to the Company with certain limited exceptions including the
restrictions under the Credit Facility described in the preceding sentence.
Initial borrowings under the New Credit Facility totaled $16.5 million,
which were drawn from the New Revolver. The Company has the right to prepay
the Borrowings in whole or in part, without premium or penalty, as
stipulated in the New Credit Facility. See note 19 for proforma effects of
the above transactions.
27
<PAGE>
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(19) Pro Forma Effects of Subsequent Events
--------------------------------------
The following table presents the capitalization of the Company as of June
30, 1997 as reported and on an unaudited pro forma basis giving effect to
the Debt Conversion, Offering, New Credit Facility, and abandonment of
the common stock offering as if the transactions had occurred on that
date:
<TABLE>
<CAPTION>
June 30, 1997
-----------------------------
As Reported Pro Forma
----------- ---------
(unaudited)
<S> <C> <C>
Long-term debt, including current installments:
Credit facility $ 115,650,000 -
New credit facility - 16,500,000
9.25% senior subordinated notes due August 15, 2007 - 105,000,000
Subordinated debt, including accrued interest 24,336,584 -
Notes payable - stockholders 5,876,875 5,876,875
------------- -----------
Total long-term debt 145,863,459 127,376,875
Preferred interests of a subsidiary - 5,483,615
------------- -----------
Stockholders' equity (deficit):
Class A preferred stock - 1,861
Class A common stock 84 84
Class B common stock 37 37
Additional paid-in capital 3,811,475 22,431,707
Accumulated deficit (11,857,150) (16,365,183)
------------- -----------
Total stockholders' equity (deficit) (8,045,554) 6,068,506
------------- -----------
Total capitalization $ 137,817,905 138,928,996
============= ===========
</TABLE>
28
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
29
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Not applicable.
ITEM 11. EXECUTIVE COMPENSATION
Not applicable.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Not applicable.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
30
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Index of Financial Statements. The following financial statements
-----------------------------
appear in response to Item 8 of this Report:
Independent Auditors' Report
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Deficit
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(a)(2) Index of Financial Statement Schedules. All financial statement
--------------------------------------
schedules have been omitted because they are not required, not applicable or are
included in Notes to Consolidated to Financial Statements.
(b) Reports on Form 8-K. During the period from April 4, 1996 to June 30,
-------------------
1997 the Company filed no reports on Form 8-K with the Securities and Exchange
Commission.
(c) Exhibits.
--------
The following exhibits are filed as a part of this report:
24.1 Powers of Attorney (included on the signature page hereto)
27.1 Financial Data Schedule
31
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 COMMUNICATIONS, INC.
Dated: November 3, 1997 /s/ John C Stanley IV
------------------------------------
By: John C Stanley IV
Chairman and Chief Executive
Officer
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of Outdoor Communications, Inc. hereby severally constitute John C
Stanley IV, our true and lawful attorney with full power to him to sign for us
and in our names in the capacities indicated below, the Special Financial Report
under cover of Form 10-K filed herewith and any and all amendments to said
Special Financial Report, and generally to do all such things in our names and
in our capacities as officers and directors to enable Outdoor Communications,
Inc. to comply with the provisions of the Securities Act of 1934, and all
requirements of the Securities and Exchange Commission, hereby ratifying and
confirming our signatures as they may be signed by our said attorney, to said
Special Financial Report and any and all amendments thereto.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ John C Stanley IV Director, Chief Executive November 3, 1997
- --------------------------- Officer and Chairman (Principal
John C Stanley IV Executive Officer)
/s/ A.B. Isbell Director, Chief Operating November 3, 1997
- --------------------------- Officer and President
A. B. Isbell
/s/ Richard W. Ebersole Treasurer and Chief Financial November 3, 1997
- --------------------------- Officer (Principal Financial
Richard W. Ebersole Officer and Principal Accounting
Officer)
/s/Douglas W. Ferris, Jr. Director November 3, 1997
- ---------------------------
Douglas W. Ferris, Jr.
/s/ Stephen F. Gormley Director November 3, 1997
- ---------------------------
Stephen F. Gormley
/s/ John G. Hayes Director November 3, 1997
- ---------------------------
John G. Hayes
/s/ Brian J. Richmand Director November 3, 1997
- ---------------------------
Brian J. Richmand
</TABLE>
32
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
24.1 Powers of Attorney (included on the signature page hereto)
27.1 Financial Data Schedule
33
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIALS INCLUDED IN THE REGISTRANT'S SPECIAL FINANCIAL REPORT UNDER COVER OF
FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> JUN-30-1997 JUN-30-1996
<PERIOD-START> JUL-01-1996 APR-04-1996
<PERIOD-END> JUN-30-1997 JUN-30-1996
<CASH> 1,712,827 1,259,441
<SECURITIES> 0 0
<RECEIVABLES> 7,571,305<F1> 5,323,600<F1>
<ALLOWANCES> (317,914) (273,110)
<INVENTORY> 437,112 389,458
<CURRENT-ASSETS> 12,804,739 8,622,336
<PP&E> 66,283,383<F2> 43,688,367<F2>
<DEPRECIATION> (10,496,880) (5,922,776)
<TOTAL-ASSETS> 145,676,856 94,828,881
<CURRENT-LIABILITIES> 9,878,897 8,470,884
<BONDS> 138,075,000<F3> 85,726,875<F3>
0 0
0 0
<COMMON> 121 119
<OTHER-SE> (8,045,675) (4,901,599)
<TOTAL-LIABILITY-AND-EQUITY> 145,676,856 94,828,981
<SALES> 49,169,290 9,535,542
<TOTAL-REVENUES> 49,169,290 9,535,542
<CGS> 0 0
<TOTAL-COSTS> (36,958,214) (6,864,175)
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> (317,964) (49,373)
<INTEREST-EXPENSE> (11,623,563) (1,953,993)
<INCOME-PRETAX> (4,342,486) (272,492)
<INCOME-TAX> 1,023,412 10,814
<INCOME-CONTINUING> (3,319,074) (261,678)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,319,074) (261,678)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<FN>
<F1>Gross
<F2>Gross
<F3>Excluding current portion
</FN>
</TABLE>
