<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 X
---
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter ended September 30, 1997.
Commission file number 000-22713
---------
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
----------------
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
---
As of October 31, 1997 there were issued and outstanding 8,385.72
shares of the registrant's Class A Common Stock, par value $.01 per share, and
3,689.28 shares of the registrant's Class B Common Stock, par value $.01 per
share.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PART I FINANCIAL INFORMATION Page No.
ITEM 1. Financial Statements:
Condensed Consolidated Balance Sheets at September 30,
1997 (unaudited) and June 30, 1997
Condensed Consolidated Statements of Operations for the
Three Months Ended September 30, 1997 and 1996 (unaudited)
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended September 30, 1997 and 1996 (unaudited)
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
</TABLE>
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. Financial Statements
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
September 30, 1997 and June 30, 1997
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
---- ----
Assets (unaudited)
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,295,600 $ 1,712,827
Trade accounts receivable, less allowance for doubtful accounts
of $248,022 at September 30, 1997 and $317,914 at June 30, 1997 7,288,192 7,253,391
Refundable income taxes 585,100 616,100
Prepaid rent expense 1,711,579 1,805,431
Other assets 1,054,523 978,023
Deferred income taxes 438,967 438,967
------------ ------------
Total current assets 13,373,961 12,804,739
------------ ------------
Property and equipment, net 56,368,223 55,786,503
Intangible assets, less accumulated amortization 71,368,159 72,239,682
Deferred financing costs (net of accumulated amortization of $70,010 at
September 30, 1997 and $797,622 at June 30, 1997) 5,266,151 4,240,033
Other assets 543,246 605,899
------------ ------------
Total assets $146,919,740 $145,676,856
============ ============
</TABLE>
(Continued)
<PAGE>
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
---- ----
Liabilities and Stockholders' Equity (Deficit) (unaudited)
----------------------------------------------
<S> <C> <C>
Current liabilities:
Current installments of long-term debt $ 5,876,875 $ 5,876,875
Trade accounts payable 1,063,576 760,257
Income taxes payable -- 615,418
Accrued salaries, wages and benefits 649,035 1,187,104
Accrued interest 1,258,115 541,895
Other accrued expenses 717,655 491,848
Deferred advertising revenues and non-compete income 340,669 405,500
------------- -------------
Total current liabilities 9,905,925 9,878,897
Long-term debt:
Credit facility, excluding current installments 16,650,000 115,650,000
Subordinated debt -- 22,425,000
Senior Subordinated notes 105,000,000 --
Accrued interest -- 1,671,666
Deferred non-compete income, less current portion 6,667 26,667
Deferred income taxes 4,020,742 4,070,180
Preferred interests of a subsidiary 5,483,616 --
------------- -------------
Total liabilities 141,066,950 153,722,410
------------- -------------
Stockholders' equity (deficit):
Series A preferred stock, $0.01 par value. Authorized 300,000
shares; issued and outstanding 186,220.93 shares at
September 30, 1997 1,862 --
Undesignated preferred stock, $0.01 par value. Authorized
4,700,000 shares; none issued and outstanding at
September 30, 1997 -- --
Class A common stock, $0.01 par value. Authorized 10,000 shares;
issued and outstanding 8,385.72 shares at September 30, 1997
and June 30, 1997 84 84
Class B common stock, $.01 par value. Authorized 10,000 shares;
issued and outstanding 3,689.28 shares at September 30, 1997
and June 30, 1997 37 37
Additional paid-in capital 22,431,707 3,811,475
Accumulated deficit (16,580,900) (11,857,150)
------------- -------------
Total stockholders' equity (deficit) 5,852,790 (8,045,554)
------------- -------------
Total liabilities and stockholders' equity (deficit) $ 146,919,740 $ 145,676,856
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
- 2 -
<PAGE>
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
For the three months ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
(unaudited) (unaudited)
<S> <C> <C>
Gross revenues $ 14,839,947 11,245,479
Less agency commissions 1,367,739 1,152,776
------------ ------------
Net revenues 13,472,208 10,092,703
------------ ------------
Operating expenses:
Direct operating expenses 4,348,672 2,993,258
Selling, general, and administrative 3,600,149 2,563,530
Depreciation and amortization 3,182,427 1,934,776
------------ ------------
Total operating expenses 11,131,248 7,491,564
------------ ------------
Operating income 2,340,960 2,601,139
Interest expense (3,051,438) (2,174,143)
Loss on disposal of equipment (36,118) (6,295)
Other income, net 40,142 17,791
Expenses written off related to
proposed equity offering (148,506) --
------------ ------------
Income (loss) before income taxes and
extraordinary item (854,960) 438,492
Income taxes 1,192,718 171,012
------------ ------------
Income (loss) before extraordinary item (2,047,678) 267,480
Extraordinary loss from early extinquishment of debt, net of income
tax benefit of ($1,710,931) (2,676,072) --
------------ ------------
Net income (loss) $ (4,723,750) 267,480
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
- 3 -
<PAGE>
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the three months ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
(unaudited) (unaudited)
<S> <C> <C>
Net cash provided by operating activities $ 2,686,939 2,561,835
------------- -------------
Cash flows from investing activities:
Purchase of companies (1,816,250) (4,315,641)
Capital expenditures (979,504) (675,070)
Other 27,750 (16,851)
------------- -------------
Net cash used in investing activities (2,768,004) (5,007,562)
------------- -------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 16,650,000 4,000,000
Repayment of long-term debt (115,650,000) (1,000,000)
Proceeds from issuance of subordinated notes -- 195,000
Deferred financing costs (5,336,162) --
Proceeds from issuance of senior subordinated notes 105,000,000 --
Proceeds from issuance of common stock -- 105,000
Payments on obligation under non-compete agreement -- (100,000)
------------- -------------
Net cash provided by financing activities 663,838 3,200,000
------------- -------------
Net increase in cash and cash equivalents 582,773 754,273
Cash and cash equivalents at beginning of the period 1,712,827 1,259,441
------------- -------------
Cash and cash equivalents at end of the period $ 2,295,600 2,013,714
============= =============
Supplemental cash flow disclosures:
Cash paid for interest $ 2,570,267 1,604,253
Cash paid for income taxes 186,950 8,957
Supplemental noncash financing activities:
Preferred stock issued in exchange for subordinated debt including
accrued interest of $1,332,093 18,622,093 --
Preferred interests issued in exchange for subordinated debt
including accrued interest of $348,616 5,483,616 --
</TABLE>
See accompanying notes to condensed consolidated financial statements.
- 4 -
<PAGE>
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Three months ended September 30, 1997 and 1996
(Unaudited)
Basis of Presentation
- ---------------------
The accompanying unaudited condensed consolidated financial statements of
Outdoor Communications, Inc. (the Company) have been prepared in conformity with
generally accepted accounting principles and with the instructions for Form 10-Q
and Rule 10-01 of Regulation S-X as they apply to interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
All significant intercompany transactions have been eliminated in consolidation.
The consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1997. The Company
is a holding company with no assets or operations other than its investment in
its subsidiaries.
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation of financial position
and results of operations have been included. The operating results for the
three month period ended September 30, 1997 are not necessarily indicative of
the results to be expected for the year ending June 30, 1998.
Property and Equipment
- ----------------------
Major categories of property, plant, and equipment at September 30, 1997 and
June 30, 1997 were as follows:
<TABLE>
<CAPTION>
Estimated September 30, June 30,
Life (Years) 1997 1997
------------ ---- ----
<S> <C> <C> <C>
Land -- $ 1,631,026 $ 1,610,126
Building and improvements 10-25 1,480,468 1,469,852
Advertising structures 8-15 59,843,485 57,910,710
Leasehold improvements 2-20 883,960 872,674
Equipment 3-10 4,482,621 4,317,355
Construction in progress -- 41,118 102,666
--------------- ---------------
68,362,678 66,283,383
Less accumulated depreciation 11,994,455 10,496,880
--------------- ---------------
Net property and equipment $ 56,368,223 $ 55,786,503
=============== ===============
</TABLE>
- 5 -
<PAGE>
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, Continued
Intangible Assets
- -----------------
Intangible assets at September 30, 1997 and June 30, 1997 consist of the
following:
<TABLE>
<CAPTION>
Estimated September 30, June 30,
Life (Years) 1997 1997
------------ ---- ----
<S> <C> <C> <C>
Covenants not to compete 4-10 $ 8,530,667 $ 8,495,667
Goodwill 20-25 46,993,803 46,619,981
Customer lists 8 27,097,654 26,833,154
------------------ ------------------
82,622,124 81,948,802
Less accumulated amortization 11,253,965 9,709,120
------------------ ------------------
$ 71,368,159 $ 72,239,682
================== ==================
</TABLE>
Initial Public Offering
- -----------------------
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) management believes that separate financial
statements and other disclosures concerning the subsidiary guarantors
would not be material to investors.
- 6 -
<PAGE>
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, Continued
New Credit Facility
- -------------------
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 the Company
and its subsidiaries, OCI(N) Corp., OCI(S) Corp. and OCIH LLC (collectively
the Subsidiary Guarantors).
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 New Credit Facility. At
August 15, 1997, date of the initial borrowing, and at September 30, 1997, the
interest rate was 9.5% and 8.2%, respectively. Accrued interest is payable in
quarterly installments on March 31, June 30, September 30, and December 31. The
New 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 New 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 New Credit Facility and make federal income tax payments. The
indenture governing the Notes 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 consentual
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 New 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. Net additional draws for the quarter totaled
$150,000. 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.
- 7 -
<PAGE>
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, Continued
Preferred Stock
- ---------------
In July 1997, the Company entered into an agreement, effective June 30, 1997,
with its Series A and B subordinated debt holders to exchange such notes and
accrued and unpaid interest thereon through June 30, 1997 for Series A preferred
stock of the Company and/or preferred membership interests in OCIH LLC (OCIH)
(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 15, 1997, approximately 186,220.93 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.
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.
Proposed Equity Offering
- ------------------------
The Company determined not to proceed with plans for a proposed initial public
offering of its common stock during July 1997. As a result, the Company has
recognized approximately $149,000 of expense in the first quarter of fiscal year
1998, due to the write off of costs incurred in connection with such proposed
offering.
Extraordinary Loss
- ------------------
Effective August 15, 1997, the proceeds from the Offering were used for the
early extinguishment of the outstanding debt related to the Company's prior
credit facility. As a result, deferred financing fees of $4,387,003 were written
off and have been recorded as an extraordinary loss.
- 8 -
<PAGE>
OUTDOOR COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, Continued
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.
Acquisitions
- ------------
The Company consummated the purchase of three in-market acquisitions during the
three months ended September 30, 1997 for aggregate cash payments of $1,816,250.
The acquisitions have been accounted for using the purchase method.
Subsequent Event
- ----------------
On October 2, 1997, the Company acquired the stock of Jennings Outdoor, Inc. and
the assets of Jennings Media Services, L.L.C. for a cash payment of $14,300,000,
of which $14 million was financed through the New Credit Facility. As a result
of this acquisition, the Company acquired approximately 740 display faces in
Alabama. The acquisitions will be accounted for by the purchase method.
New Accounting Pronouncements
- -----------------------------
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income",
which will require the Company to disclose, in financial statement format, all
non-owner changes in equity. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. Adoption of this standard is not expected to
have a material impact on disclosures in the Company's financial statements.
The FASB has issued SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information", which established a new accounting principle for
reporting information about operating segments in annual financial statements
and interim financial reports. It also established standards for related
disclosures about products and services, geographic areas and major customers.
SFAS No. 131 is effective for fiscal years beginning after December 15, 1997.
The Company is currently evaluating the applicability of this standard. However,
the Company does not expect a material impact on disclosures in the Company's
financial statements.
- 9 -
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Certain statements in Management's Discussion and Analysis of Financial
Condition and Results of Operations contain "forward-looking" information (as
defined in the Private Securities Litigation Reform Act of 1995). The words
"believe," "expect," "anticipate," "intend," "estimate", "assume" and other
similar expressions which are predictions of or indicate future events and
trends and which do not relate to historical matters identify forward-looking
statements. Reliance should not be placed on forward-looking statements because
they involve known and unknown risks, uncertainties and other factors, which are
in some cases beyond the control of the Company and may cause the actual
results, performance or achievements of the Company to differ materially from
anticipated future results, performance or achievements expressed or implied by
such forward-looking statements.
For further discussion identifying other important factors that could
cause actual results to differ materially from those anticipated in
forward-looking statements, see the Company's SEC filings, particularly the
"Risk Factors" discussion in the Company's Registration Statement on Form S-1
(No. 333-28489) which was declared effective on August 12, 1997. Such factors
include risks to the Company presented by financial leverage, government
regulation with respect to zoning, restrictions on outdoor advertising by the
tobacco industry, competition and general economic conditions.
The Company was formed in April 1996 to acquire the operations of its
subsidiaries OCI (N) Corp. ("OCI North") and OCI (S) Corp. ("OCI South"). Unless
otherwise indicated, references to the Company in the following discussion refer
to the consolidated operations of the Company and its subsidiaries.
RESULTS OF OPERATIONS
THE COMPANY'S THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1996.
The following discussion reflects a comparison of the Company's results
of operations for the three months ended September 30, 1997 and the three months
ended September 30, 1996.
The Company's net revenues increased $3.4 million, or 33.5%, to $13.5
million for the three months ended September 30, 1997 compared to $10.1 million
in net revenues for the three months ended September 30, 1996. This increase was
primarily due to revenues from acquisitions completed during the twelve-month
period ended September 30, 1997 and increased rates. Occupancy levels declined
slightly compared to the same period in 1996, as anticipated, due in part to the
absence of revenues related to the 1996 Olympics in the Company's Georgia and
Birmingham divisions.
The Company's direct operating expenses increased $1.3 million, or
45.3%, to $4.3 million for the three months ended September 30, 1997 compared to
$3.0 million in direct operating expenses for the three months ended September
30, 1996. Operating expenses attributed to the Skoglund companies, acquired by
the Company on October 31, 1996, and Outdoor West of Tennessee, acquired by the
Company on March 31, 1997, accounted for $.9 million of this increase in direct
operating expenses. The remaining $.4 million of the increase was directly
related to operating expenses associated with in-market acquisitions and normal
inflationary cost increases.
- 10 -
<PAGE>
The Company's selling, general and administrative expenses increased
$1.0 million, or 40.4%, to $3.6 million for the three months ended September 30,
1997 compared to $2.6 million in selling, general and administrative expenses
for the three months ended September 30, 1996. Increased selling, general and
administrative expenses attributable to the Skoglund companies and Outdoor West
of Tennessee, which were acquired by the Company in fiscal year 1997, accounted
for $.7 million of this increase. The remaining $.3 million increase was due
to costs generated by in-market acquisitions and normal inflationary cost
increases.
The Company's depreciation and amortization expense increased $1.3
million, or 64.5%, to $3.2 million for the three months ended September 30, 1997
compared to $1.9 million in depreciation and amortization expense for the three
months ended September 30, 1996. This increase was due to higher levels of
depreciation relating to acquisitions and amortization of intangibles
capitalized as part of such acquisitions.
As a result, the Company's operating income decreased $.3 million, or
10%, to $2.3 million for the three months ended September 30, 1997 compared to
$2.6 million in operating income for the three months ended September 30, 1996.
The Company's operating expenses, excluding depreciation and amortization, as a
percentage of net revenues for the three months ended September 30, 1997
increased to 59% compared to operating expenses, excluding depreciation and
amortization, as a percentage of net revenues of 55.1% for the three months
ended September 30, 1996. The Company's operating income as a percentage of net
revenues for the three months ended September 30, 1997 decreased to 17.4%
compared to operating income as a percentage of net revenues of 25.8% for the
three months ended September 30, 1996.
The Company's interest expense increased $.9 million, or 40.4%, to $3.1
million for the three months ended September 30, 1997 compared to $2.2 million
in interest expense for the three months ended September 30, 1996. The increase
was due to debt incurred as a result of acquisitions completed during the twelve
months ending September 30, 1997.
During the three months ended September 30, 1997 the company recognized
an extraordinary loss of $2.7 million, net of income tax benefit of $1.7
million. This loss was due to the write off of deferred financing costs related
to its credit facility which was refinanced in August.
The Company's income tax expense increased $1.0 million to $1.2 million
for the three months ended September 30, 1997. Approximately $.9 million of
expense is due to an increase in the valuation allowance against deferred tax
assets related to net operating losses. The remaining $.3 million of income tax
expense is due to permanent and timing differences related to the amortization
of intangible assets. For the quarter ended September 30, 1996 the effective tax
rate was 39%.
As a result of the foregoing factors, the Company's net loss for the
three months ended September 30, 1997 was $4.7 million as compared to net income
of $.3 million for the three months ended September 30, 1996.
It has been reported that certain cigarette manufacturers who are
defendants in numerous class-action suits throughout the United States have
reached agreement with the Attorneys General of various states for an out of
court settlement with respect to such suits. The settlement is subject to
various conditions including approval and implementing legislation by the United
States Congress. A reduction in outdoor advertising by the tobacco industry
would cause an immediate reduction in the Company's direct revenue from such
advertisers at least in the immediate term following the imposition of such ban
while alternate sources of advertising are secured. Such ban would also increase
the available space on the existing inventory of billboards in the outdoor
advertising industry. This could in turn result in a reduction of outdoor
advertising rates in each of the Company's outdoor advertising markets or limit
the ability of industry
- 11 -
<PAGE>
participants to increase rates for some period of time. Accordingly, there can
be no assurance that the Company will immediately replace tobacco industry
advertising revenue in the event of a total ban of tobacco advertising on
outdoor billboards and signs and the consequences of such ban could have a
material adverse affect on the Company. For the quarter ended September 30,
1997, tobacco advertisers accounted for approximately 8.8% of the Company's net
revenues.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically satisfied its working capital requirements
with cash from operations and revolving credit borrowings. Its acquisitions have
been financed primarily with borrowed funds.
On August 15, 1997, the Company successfully completed a public
offering (the "Offering") of $105,000,000 aggregate principal amount of its 9
1/4% Senior Subordinated Notes due 2007 (the "Notes") and entered into a new
secured credit facility (the "New Credit Facility" and, together with the
Offering, the "Financing Plan") pursuant to which the Company may borrow up to
$150 million. Net proceeds to the Company, after underwriting discounts, from
the Offering totaled $100.3 million. In addition, holders of the Company's
subordinated notes, together with accrued but unpaid interest thereon, exchanged
such notes for shares of the Company's Series A Preferred Stock, par value $.01
per share, or Series A Preferred Interests of the Company's OCIH LLC subsidiary.
The proceeds from the Financing Plan were used by the Company to repay all
outstanding amounts under its then-existing facility.
The New Credit Facility consists of an immediately available revolving
line of credit facility providing for borrowings of up to $110.0 million and a
$40.0 million term loan facility that, upon the request of the Company, will
become available subject to the approval of the lenders under the New Credit
Facility. At September 30, 1997, the outstanding borrowings under the New Credit
Facility were $16.65 million. The New Credit Facility is secured by all of the
assets and capital stock of OCI North, OCI South and OCIH LLC. Permitted
borrowings under the New Credit Facility are subject to various conditions,
including the attainment of certain performance measures by the Company.
The Company's growth since its formation in April 1996 has been
facilitated by strategic acquisitions that have substantially increased the
Company's inventory of advertising display faces. The Company intends to
continue its growth by pursuing an aggressive acquisition strategy emphasizing
acquisitions in new markets as well as those currently served by the Company. In
the past, its acquisitions have been funded by borrowings under its credit
facilities. To finance future acquisitions, the Company will likely be required
to borrow under the New Credit Facility. In addition, the Company may require
additional debt or equity financing. There can be no assurance that such
additional sources of funding will be available on terms acceptable to the
Company.
The Company's primary sources of cash are net cash generated from
operating activities and borrowings under the New Credit Facility. The Company's
net cash provided from operations increased $.1 million, or 4.9%, to $2.7
million for the three months ended September 30, 1997 compared to $2.6 million
for the three months ended September 30, 1996. Net cash used in investing
activities was $2.8 million for the three months ended September 30, 1997,
- 12 -
<PAGE>
resulting primarily from acquisitions and capital expenditures. Net cash
provided by financing activities was $.7 million for the three months ended
September 30, 1997, resulting primarily from net borrowings under the New Credit
Facility and the Notes.
The Company made capital expenditures of $1.0 million during the three
months ended September 30, 1997 compared to $.7 million during the three months
ended September 30, 1996.
Under the terms of the New Credit Facility, the Subsidiaries 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 Notes and tax payments. The indenture pursuant to which the Notes were
issued (the "Indenture") provides that the Company will not, and will not permit
any of its subsidiaries 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 Company's subsidiaries to make distributions to
the Company with certain limited exceptions including the restrictions under the
New Credit Facility described in the preceding sentence. The agreement governing
the New Credit Facility contains a number of covenants that are more restrictive
than those contained in the Indenture, including covenants requiring the Company
to maintain certain financial ratios that become more restrictive over time.
The Company believes that its cash from operations, together with
available borrowings under the New Credit Facility, will be sufficient to
satisfy its cash requirements, including anticipated capital expenditures, for
the foreseeable future. However, in the event that cash from operations,
together with available funds under the New Credit Facility, are insufficient to
satisfy cash requirements, the Company may require additional indebtedness to
finance its operations including, without limitation, additional acquisitions.
There can be no assurance that such additional debt will be available or that
the Company will be able to incur such additional debt.
INFLATION
In the last three years, inflation has not had a significant impact on
the Company.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards board (FASB) has issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income",
which will require the Company to disclose, in financial statement format, all
non-owner changes in equity. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. Adoption of this standard is not expected to
have a material impact on disclosures in the Company's financial statements.
The FASB has issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information", which established a new accounting
principle for reporting information about operating segments in annual financial
statements and interim financial reports. It also established standards for
related disclosures about products and services, geographic areas and
- 13 -
<PAGE>
major customers. SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997. The Company is currently evaluating the applicability of this
standard. However, the Company does not expect a material impact on disclosures
in the Company's financial statements.
- 14 -
<PAGE>
PART II -- OTHER INFORMATION
ITEM 1. Legal Proceedings
In July 1997, the Company and a prospective seller agreed to terminate
a contract to purchase the assets of an outdoor advertising company for which
the Company had tendered a deposit in the form of a letter of credit in the
amount of $1.0 million. The Company and the seller have each made claims to the
deposit and, while the Company believes that it is entitled to have the deposit
returned, there can be no assurance that the Company will be successful in
recovering the deposit. The Company does not believe that any losses incurred by
it in connection with this matter would have a material impact on the financial
condition or results of operations of the Company.
ITEM 2. Changes in Securities
Not applicable.
ITEM 3. Defaults Upon Senior Securities
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders
Not applicable.
ITEM 5. Other Information
Not applicable.
ITEM 6. Exhibits and Reports on Form 8-K
a. Exhibits:
--------
27.1 Financial Data Schedule
b. Reports on Form 8-K: No reports on Form 8-K
-------------------
were filed by the Company during the period covered
by this report.
- 15 -
<PAGE>
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 COMMUNICATIONS, INC.
November 14, 1997 /s/ John C Stanley IV
---------------------------------------
John C Stanley IV
Chairman and Chief Executive Officer
November 14, 1997 /s/ Richard W. Ebersole
---------------------------------------
Richard W. Ebersole
Treasurer and Chief Financial Officer
(Principal Accounting Officer)
- 16 -
<PAGE>
Exhibit Index
-------------
Exhibit Number Description Page
- --------------------------------------------------------------------------------
Exhibit 27 Financial Data Schedule
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1997
<PERIOD-START> JUL-01-1997 JUL-01-1996
<PERIOD-END> SEP-30-1997 SEP-30-1996
<CASH> 2,295,600 0
<SECURITIES> 0 0
<RECEIVABLES> 7,536,214 0
<ALLOWANCES> 248,022 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 13,373,961 0
<PP&E> 68,362,678 0
<DEPRECIATION> 11,994,455 0
<TOTAL-ASSETS> 146,919,740 0
<CURRENT-LIABILITIES> 9,905,925 0
<BONDS> 121,650,000 0
0 0
1,862 0
<COMMON> 121 0
<OTHER-SE> 5,850,807 0
<TOTAL-LIABILITY-AND-EQUITY> 146,919,740 0
<SALES> 14,839,947 11,245,479
<TOTAL-REVENUES> 14,839,947 11,245,479
<CGS> 0 0
<TOTAL-COSTS> 11,131,248 7,491,564
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3,051,438 2,174,143
<INCOME-PRETAX> (854,960) 438,492
<INCOME-TAX> 1,192,718 171,012
<INCOME-CONTINUING> (2,047,678) 267,480
<DISCONTINUED> 0 0
<EXTRAORDINARY> 2,676,072 0
<CHANGES> 0 0
<NET-INCOME> (4,273,750) 267,480
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
