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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 0-28256
OUTDOOR SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 86-0736400
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
2502 N. BLACK CANYON HIGHWAY, PHOENIX, ARIZONA 85009
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (602) 246-9569
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Number of Common Shares outstanding at May 14, 1996: 12,053,571 SHARES.
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CONTENTS
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PAGE
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of March 31, 1996 (unaudited)
and December 31, 1995.................................................. 1
Condensed Consolidated Statements of Operations for the Three Months
ended March 31, 1996 and 1995 (unaudited).............................. 2
Condensed Consolidated Statements of Cash Flows for the Three Months
ended March 31, 1996 and 1995 (unaudited).............................. 3
Notes to Condensed Consolidated Financial Statements.................... 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS......................... 6
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................. 8
SIGNATURES ................................................................ 9
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OUTDOOR SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
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<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
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(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 2,198 $ 1,739
Accounts receivable, net 9,810 10,971
Prepaid expenses and other 2,890 2,719
--------- ---------
Total current assets 14,898 15,429
--------- ---------
Property and Equipment, net 110,375 111,729
Prepaid Land Leases and Other 1,525 1,525
Deferred Financing Costs 4,328 4,275
Deferred Income Taxes 4,737 5,255
--------- ---------
$ 135,863 $ 138,213
========= =========
LIABILITIES AND STOCKHOLDERS' CAPITAL DEFICIENCY
Current Liabilities:
Accounts payable $ 577 $ 642
Accrued interest 1,753 4,843
Accrued commissions 454 483
Accrued expenses and other liabilities 712 690
Current maturities of long-term debt 910 550
--------- ---------
Total current liabilities 4,406 7,208
Long-term Debt 141,569 141,719
Other Long-term Obligations 1,028 984
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Total liabilities 147,003 149,911
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Common Stock - Subject to Put Option 3,869 3,420
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Redeemable Preferred Stock:
Exchangeable preferred stock 3,525 3,504
Class A preferred stock 5,745 5,526
Class B preferred stock 4,619 4,619
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Total redeemable preferred stock 13,889 13,649
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Stockholders' Capital Deficiency (28,898) (28,767)
--------- ---------
$ 135,863 $ 138,213
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
1
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OUTDOOR SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
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THREE MONTHS
ENDED
MARCH 31,
--------------------------------
1996 1995
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REVENUES:
Outdoor advertising $ 19,722 $ 15,893
Less agency commissions and discounts 2,777 2,135
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Net Revenues 16,945 13,758
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OPERATING EXPENSES:
Direct advertising 7,859 7,242
General and administrative 1,078 992
Depreciation and amortization 2,561 2,476
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11,498 10,710
------------ ------------
Operating income 5,447 3,048
INTEREST EXPENSE 4,152 4,313
------------ ------------
Income (loss) before income tax benefit 1,295 (1,265)
INCOME TAX PROVISION 518
------------ ------------
Net income (loss) $ 777 $ (1,265)
============ ============
LESS PREFERRED STOCK DIVIDENDS AND
PREFERRED AND COMMON STOCK ACCRETIONS 907 587
------------ ------------
NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS $ (130) $ (1,852)
============ ============
NET LOSS PER COMMON AND EQUIVALENT SHARE:
Net loss per common share $ (.01) $ (.16)
============ ============
Weighted average number of shares 11,273,842 11,222,976
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
2
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OUTDOOR SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
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<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
----------------------
1996 1995
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OPERATING ACTIVITIES:
Net income (loss) $ 777 $(1,265)
Amortization of discounts on notes payable 100 87
Depreciation and amortization 2,561 2,476
Changes in assets and liabilities:
Decrease in accounts receivable 1,162 2,016
Decrease in prepaid expenses and other 279 50
Decrease in accrued interest (3,091) (3,229)
Decrease in accounts payable and other liabilities (28) (1,038)
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Net Cash Provided by (Used) in Operating Activities 1,760 (903)
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INVESTING ACTIVITIES:
Capital expenditures (1,194) (1,689)
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Net Cash Used in Investing Activities (1,194) (1,689)
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FINANCING ACTIVITIES:
Proceeds from long-term debt 5,000 5,500
Principal payments on long-term debt and capital leases (4,889) (4,628)
Cash dividends paid on preferred stock (218) (198)
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Net Cash (Used) in Provided by Financing Activities (107) 674
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NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 459 (1,918)
CASH AND CASH EQUIVALENTS - BEGINNING 1,739 3,658
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CASH AND CASH EQUIVALENTS - ENDING $ 2,198 $ 1,740
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
3
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OUTDOOR SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the information
and notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments and
reclassifications considered necessary for a fair and comparable presentation
have been included and are of a normal recurring nature. Operating results for
the three months ended March 31, 1996, are not necessarily indicative of the
results that may be expected for the year ending December 31, 1996. The enclosed
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Form 10-K filed
with the Securities and Exchange Commission on March 31, 1996 and amended on
Form 10-K/A2 filed with the Securities and Exchange Commission on April 22,
1996.
NOTE 2 - NET LOSS PER SHARE
Primary loss per common and common equivalent share is computed on the
weighted average number of common shares outstanding during each year and
includes shares issuable upon exercise of stock options when the effect of such
issuance is dilutive. Such amounts have been adjusted to reflect the
36.4535-for-1 stock split as discussed in Note 4.
NOTE 3 - STOCKHOLDERS' CAPITAL DEFICIENCY
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<CAPTION>
MARCH DECEMBER
31, 31,
1996 1995
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<S> <C> <C>
Common stock, $.01 par value - authorized, 1,000,000 shares; issued
397,119 shares; outstanding, 257,209 shares $ 4 $ 4
Accumulated deficit (24,849) (24,718)
Treasury stock at cost, 139,910 shares (4,053) (4,053)
-------- --------
$(28,898) $(28,767)
======== ========
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NOTE 4 - SUBSEQUENT EVENTS
INITIAL PUBLIC OFFERING
On April 24, 1996, the Company completed an initial public offering ("IPO")
of its common stock. The holders of the Common Stock Subject to Put Option sold
their shares in the IPO, resulting in the removal of the put option. The removal
of the put option will result in the liability representing the Common Stock
Subject to Put Option to be credited to stockholders' capital deficiency. The
Company utilized a portion of the net proceeds from the IPO to redeem at par or
face value all of the outstanding Class A Preferred Stock and the 1990
Subordinated Notes which are also held by these shareholders. The Company
utilized the remaining portion of the net proceeds to redeem at par value all of
the outstanding Class B Preferred Stock, the Junior Subordinated Exchange Notes,
and repay $17.0 million of the Senior Credit Facility.
In connection with the IPO, the Company's Board of Directors adopted a
resolution which on April 17, 1996, increased the authorized number of common
shares to 60,000,000 and split the common stock 36.4535 for 1. In addition, the
Board of Directors authorized the issuance of 12,000,000 shares of preferred
stock, the terms of which will be designated at the time of issuance. All per
share information in these financial statements has been adjusted to give effect
to this split.
4
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Additionally, in connection with the IPO, effective January 1, 1996, the
Company ceased allocating amounts to the accounts maintained under the Incentive
Plan. The Company offered to each current employee who was a participant in the
Incentive Plan the alternative of having their account settled upon completion
of the IPO in cash, in shares of the Common Stock of the Company, or both, with
actual distributions of cash or Common Stock to be made over a period of four
years upon termination of the participant's employment by reason of the
participant's death, disability, reaching 65 years of age or for any other
reason. All participants elected to settle their accounts in shares of common
stock, and the Company has reserved 104,531 shares of common stock to be
distributed as discussed above. Those portions of accounts under the Incentive
Plan that were not accrued as a liability as of January 1, 1996, aggregating $.6
million, will be charged to expense over a four-year period following
settlement.
Upon completion of the IPO, the Company issued options for 807,516 common
shares to key employees at an exercise price equal to the IPO price. Such
options will vest over a four year period.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1996 AND
MARCH 31, 1995
Gross revenues increased by 24.1% to $19.7 million compared to $15.9 million
in the first quarter of 1996 and 1995, respectively. This increase was
attributable to increased revenues in all markets, particularly in Phoenix,
which hosted the 1996 Super Bowl, and in Atlanta where the Company has
experienced continued growth since its acquisition in late December 1994 and
where the 1996 Olympics is being held.
Agency commissions were 14.1% and 13.4% of gross revenues in the first
quarter of 1996 and 1995, respectively, primarily as a result of a slightly
higher proportion of revenues generated through advertising agencies.
Net revenues increased by 23.1% to $16.9 million compared to $13.8 million
in the first quarter of 1996 and 1995, respectively, primarily as a result of
the increase in gross revenues.
Direct advertising expenses decreased by 6.2% as a percentage of net
revenues to 46.4% compared to 52.6% in the first quarter of 1996 and 1995,
respectively. This is primarily a result of increased net revenue coverage of
fixed costs included in direct advertising expenses.
General and administrative expenses decreased to 6.4% compared to 7.2% in
the first quarter of 1996 and 1995, respectively. This is primarily due to
increased net revenue coverage of fixed costs included in general and
administrative expenses.
Operating Cash Flow increased by 45% to $8.0 million compared to $5.5
million for the first quarter of 1996 and 1995, respectively, as a result of the
above factors. Management believes Operating Cash Flow, which is operating
income before depreciation and amortization, is a measure commonly reported and
widely used by analysts, investors and other interested parties in the media
industry as a measure of a media company's operating performance because it
assists in comparing media company performance on a consistent basis without
regard to depreciation and amortization, which can vary significantly depending
upon accounting methods and the capitalization of individual companies.
Depreciation and amortization expense increased by 3.4% to $2.6 million
compared to $2.5 million in the first quarter of 1996 and 1995, respectively,
primarily due to depreciation expense associated with small acquisitions in New
Orleans and Atlanta in the last half of 1995 which was offset in part by certain
assets becoming fully depreciated during the first quarter of 1996.
Interest expense decreased by 3.7% to $4.2 million compared to $4.3 million
in the first quarter of 1996 and 1995, respectively, primarily because of the
repayment of borrowings under the Credit Facility in the last quarter of 1995
and the first quarter of 1996.
In accordance with Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes, the Company recorded an income tax provision of $.5
million in the first quarter of 1996. No income tax benefit was recorded for the
first quarter of 1995.
The Company's net income increased $2.1 million to $.8 million in the first
quarter of 1996 from a net loss of $1.3 million in the first quarter of 1995 as
a result of the foregoing factors.
6
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LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased $2.3 million to $10.5 million at
March 31, 1996 compared to $8.2 million at December 31, 1995. This increase
resulted primarily from the increase in cash provided by operations.
Net cash provided by operating activities increased by $2.7 million to $1.8
million for the three months ended March 31, 1996, compared to net cash used in
operating activities of $.9 million for the three months ended March 31, 1995,
primarily due to higher income in the first three months of 1996. Net cash used
in investing activities decreased to $1.2 million in the first quarter of 1996
from $1.7 million in the first quarter of 1995, primarily because of increased
construction activity in the first quarter of 1995 relating to the December 1994
acquisition in Atlanta. Net cash used in financing activities was $.1 million
for the first three months of 1996 compared to net cash provided by financing
activities of $.7 million for the first three months of 1995, primarily because
of payments on borrowings under the Senior Credit Facility.
The Company made approximately $1.2 million of capital expenditures during
the first quarter of 1996, a decrease from approximately $1.7 million during the
first quarter of 1995. Currently, the Company has no material commitments for
capital expenditures, although it expects ongoing capital expenditures in the
ordinary course of business (including a small acquisition of assets in the
Denver market in April 1996) to continue in amounts not materially greater than
the amounts of such capital expenditures in prior periods.
The Company completed an initial public offering ("IPO") of 2,677,392 shares
of its common stock on April 24, 1996, resulting in net proceeds to the Company
of $37.3 million. The holders of the Common Stock Subject to Put Option sold
their shares with the completion of the IPO, resulting in the removal of the put
option. The removal of the put option will result in the liability representing
the Common Stock Subject to Put Option to be credited to stockholders' capital
deficiency. The Company utilized a portion of the net proceeds from the IPO to
redeem at par or face value all of the outstanding Class A Preferred Stock and
the 1990 Subordinated Notes which are also held by these shareholders. The
Company utilized the remaining portion of the net proceeds to redeem at par
value all of the outstanding Class B Preferred Stock, the Junior Subordinated
Exchange Notes, and repay $17.0 million of the Senior Credit Facility.
The Company believes that the net proceeds from its IPO, internally
generated funds and available borrowings under the Senior Credit Facility will
be sufficient to satisfy its operating cash requirements for at least the next
twelve to twenty-four months. The Company also expects that it will be able to
renew its Senior Credit Facility when it comes due. The Company may, however,
require additional capital to consummate significant acquisitions in the future
and there can be no assurance that such capital will be available.
7
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PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith:
Exhibit No. Document
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27 Financial Data Schedule
(b) Reports on Form 8-K.
The Company filed a Form 8-K dated December 19, 1994, which is
incorporated herein by reference. On March 3, 1995, the Company filed
Form 8-K/A dated December 19, 1994, with audited financial information
for the periods available, which report is incorporated herein by
reference. On September 25, 1995, the Company filed Form 8-K/B for the
periods required by Rule 3-05 or Regulation S-X, which report is
incorporated herein by reference. On April 3, 1996, the Company filed
Form 8-K/A3 for the periods required by Rule 3-05 or Regulation S-X,
which report is incorporated herein by reference. The Company believes
it has now filed all audited financial information required by Form 8-
K, therefore, any registration statements under the Securities Act of
1933 and post-effective amendments to registration statements will not
be adversely effected.
8
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OUTDOOR SYSTEMS, INC.
DATED: May 14, 1995 By /S/ Bill Beverage
-------------------------------------------------------
Bill Beverage, Chief Financial Officer,Secretary/Treasurer
(Principal Accounting Officer)
9
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<ARTICLE> 5
<CIK> 0000874534
<NAME> OUTDOOR SYSTEMS, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,198
<SECURITIES> 0
<RECEIVABLES> 9,810
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,898
<PP&E> 110,375
<DEPRECIATION> 0
<TOTAL-ASSETS> 135,863
<CURRENT-LIABILITIES> 4,406
<BONDS> 141,569
0
13,889
<COMMON> 4
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<TOTAL-LIABILITY-AND-EQUITY> 135,863
<SALES> 0
<TOTAL-REVENUES> 16,945
<CGS> 0
<TOTAL-COSTS> 8,937
<OTHER-EXPENSES> 2,561
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<INTEREST-EXPENSE> 4,152
<INCOME-PRETAX> 1,295
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