<PAGE> 1
Filed pursuant to Rule 424(b)(3)
Registration No. 333-26407
13,000,000 SHARES
[OUTDOOR SYSTEMS LOGO]
COMMON STOCK
------------------
Of the shares of Common Stock offered hereby (the "Offering") 12,000,000
shares are being sold by Outdoor Systems, Inc. (the "Company") and 1,000,000
shares are being sold by the Selling Stockholders named herein under "Principal
and Selling Stockholders." The Company will not receive any of the proceeds from
the sale of Common Stock by the Selling Stockholders.
The Common Stock is quoted on the Nasdaq National Market under the symbol
"OSIA." On May 21, 1997, the last reported sale price for the Common Stock, as
reported on the Nasdaq National Market, was $30.50 per share. See "Price Range
of Common Stock."
Following the Offering, the Company intends to offer $300 million aggregate
principal amount of Senior Subordinated Notes (the "Notes") by a separate
Prospectus (the "Notes Offering" and, together with the Offering, the
"Offerings"). The consummation of the Offering is not contingent upon the
completion of the Notes Offering.
------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 13 HEREOF.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
============================================================================================================
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO DISCOUNTS AND TO SELLING
PUBLIC COMMISSIONS COMPANY(1) STOCKHOLDERS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share................................... $30.25 $1.15 $29.10 $29.10
- ------------------------------------------------------------------------------------------------------------
Total(2).................................... $393,250,000 $14,950,000 $349,200,000 $29,100,000
============================================================================================================
</TABLE>
(1) Before deducting expenses of the offering payable by the Company estimated
at $750,000.
(2) The Company and certain of the Selling Stockholders have granted the
Underwriters a 30-day option to purchase up to an additional 1,950,000
shares of Common Stock solely to cover over-allotments, if any. To the
extent that the option is exercised, the Underwriters will offer the
additional shares at the Price to Public shown above. If the option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, Proceeds to Company and Proceeds to Selling Stockholders will
be $452,237,500, $17,192,500, $377,572,500 and $57,472,500, respectively.
See "Underwriting."
------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the offices
of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on or about May 28,
1997.
ALEX. BROWN & SONS
INCORPORATED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CIBC WOOD GUNDY SECURITIES CORP.
MONTGOMERY SECURITIES
PRUDENTIAL SECURITIES INCORPORATED
THE DATE OF THIS PROSPECTUS IS MAY 22, 1997.
<PAGE> 2
[INSIDE COVER PAGE CONTAINS PHOTOGRAPHS OF VARIOUS BILLBOARDS ADVERTISING
PRODUCTS FOR POLO RALPH LAUREN, SAKS FIFTH AVENUE, ENERGIZER BATTERIES, ANNE
KLEIN AND TIME WARNER MOVIE STUDIOS.]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF
THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE
COMMON STOCK OFFERING AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN
THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN PERSONS PARTICIPATING IN THIS
OFFERING MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
NASDAQ IN ACCORDANCE WITH RULE 103 UNDER REGULATION M. SEE "UNDERWRITING."
<PAGE> 3
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
appearing elsewhere in this Prospectus and in documents incorporated by
reference into this Prospectus. Unless otherwise indicated, all information in
this Prospectus gives effect to two three-for-two Common Stock splits effected
in the form of stock dividends paid on July 22, 1996 and November 22, 1996, and
assumes no exercise of the Underwriters' over-allotment option. The discussion
below includes certain Acquisitions (as defined) that, if not already completed,
are scheduled to occur concurrently with or after consummation of the Offering.
The "Acquisitions" consist of the Completed Acquisitions (as defined), the
pending acquisition (the "3M Media Acquisition") of the outdoor advertising
operations ("3M Media") of Minnesota Mining and Manufacturing Company ("3M"),
and the pending acquisition (the "Van Wagner Acquisition" and, together with the
3M Media Acquisition, the "Pending Acquisitions") of all of the outstanding
common stock of Van Wagner Communications, Inc. ("Van Wagner"). The "Completed
Acquisitions" means, collectively, the Gannett Outdoor Acquisition, the Houston
Acquisition, the Denver Disposition, the CSX Assets Acquisition, the Villepigue
Acquisition, the Scadron Acquisition, the Reynolds Acquisition, the Burlington
Northern and Santa Fe Assets Acquisition and the Other Completed Acquisitions
(each as defined). The "Completed 1997 Acquisitions" means the Completed
Acquisitions consummated following December 31, 1996. As used herein, the
"Company" or "Outdoor Systems" refers to Outdoor Systems, Inc. together with its
consolidated subsidiaries and, where the context requires, includes the
operations to be acquired in the Pending Acquisitions, and "market" in the
United States refers to the geographic area constituting a Designated Market
Area as defined by The A.C. Nielsen Company and in Canada refers to Census Metro
Area as defined by Statistics Canada.
THE COMPANY
Outdoor Systems is the largest outdoor advertising company in North America
and upon completion of the Pending Acquisitions will operate approximately
96,500 bulletin, poster, transit, mall and other advertising display faces in 46
states, including 65 metropolitan markets in the United States and seven
metropolitan markets in Canada. The Company also operates approximately 125,000
subway advertising display faces in New York City. Upon completion of the
Pending Acquisitions, the Company will have operations in 20 of the 25 largest
U.S. markets, as well as six of the 10 largest Canadian markets. Giving effect
to the Acquisitions, as if each occurred at the beginning of the period, the
Company had pro forma net revenues of $601.4 million and pro forma EBITDA of
$256.7 million for the year ended December 31, 1996 and pro forma net revenues
of $140.9 million and pro forma EBITDA of $58.0 million for the three months
ended March 31, 1997.
Through the Acquisitions, the Company will have significantly increased its
presence in North America and diversified into additional major metropolitan
markets. The Company believes that there are significant opportunities for
revenue enhancement and cost reduction in the integration of its combined
operations. The increased presence in North America resulting from the
Acquisitions should provide the Company with an increased opportunity to
effectively convey advertisers' marketing messages locally, regionally and
nationally. In addition, the Company believes that its operating and sales
strategies will allow it to continue to improve utilization of the acquired
advertising display faces. The following table sets forth certain information
with respect to the Company's outdoor markets as of December 31, 1996 after
giving effect to the Acquisitions.
- ---------------
"3M Media" is a trademark of Minnesota Mining and Manufacturing Company.
3
<PAGE> 4
<TABLE>
<CAPTION>
MALL AND TOTAL
MARKET 30-SHEET 8-SHEET AIRPORT DISPLAY
MARKET RANK BULLETINS POSTERS POSTERS POSTERS TRANSIT FACES
- -------------------------------------------- ------ --------- -------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
UNITED STATES:
New York-New Jersey(1)...................... 1 864 2,979 262 -- 2,710 6,815
Los Angeles................................. 2 1,587 2,961 -- -- 2,912 7,460
Chicago..................................... 3 756 -- 640 -- -- 1,396
Philadelphia................................ 4 23 -- -- -- 498 521
San Francisco............................... 5 213 1,005 563 -- 1,528 3,309
Dallas...................................... 8 849 -- -- -- -- 849
Detroit..................................... 9 1,099 1,342 91 -- 1,000 3,532
Houston..................................... 10 1,316 -- -- -- -- 1,316
Atlanta..................................... 11 1,234 1,679 -- -- 650 3,563
Cleveland................................... 13 70 -- -- -- -- 70
Minneapolis................................. 14 54 -- -- -- -- 54
Miami-Ft. Lauderdale........................ 15 404 -- -- -- -- 404
Tampa-St. Petersburg-Sarasota............... 16 881 -- -- -- -- 881
Phoenix..................................... 17 807 1,516 659 -- 1,490 4,472
Sacramento-Stockton-Modesto................. 18 506 1,271 -- -- -- 1,777
Denver...................................... 19 399 784 -- -- 5,266 6,449
St. Louis................................... 20 466 833 1 -- -- 1,300
San Diego................................... 23 109 541 -- -- 680 1,330
Orlando..................................... 24 466 -- -- -- -- 466
Portland, OR................................ 25 17 -- -- -- -- 17
Indianapolis................................ 26 137 -- -- -- -- 137
Hartford-New Haven.......................... 27 151 831 -- -- -- 982
Cincinnati.................................. 28 104 -- -- -- -- 104
Salt Lake................................... 29 61 -- -- -- -- 61
Charlotte................................... 30 145 -- -- -- -- 145
Raleigh-Durham.............................. 32 33 -- -- -- -- 33
Nashville................................... 33 248 -- -- -- -- 248
Kansas City................................. 34 432 840 -- -- -- 1,272
Columbus, OH................................ 35 104 -- -- -- -- 104
San Antonio................................. 36 85 -- -- -- -- 85
Grand Rapids................................ 38 120 568 -- -- 180 868
New Orleans................................. 40 458 1,042 428 -- 214 2,142
Memphis..................................... 41 77 -- -- -- -- 77
Buffalo..................................... 42 116 -- -- -- -- 116
Albuquerque................................. 43 99 -- -- -- -- 99
Fresno...................................... 46 125 892 -- -- -- 1,017
Louisville.................................. 49 329 1,052 243 -- 224 1,848
Winston-Salem............................... 50 35 -- -- -- -- 35
Birmingham.................................. 51 154 -- -- -- -- 154
West Palm Beach............................. 52 219 -- -- -- -- 219
Dayton...................................... 53 123 -- -- -- -- 123
Jacksonville................................ 55 178 -- -- -- -- 178
Charleston, SC.............................. 57 181 -- -- -- -- 181
Flint....................................... 59 86 423 32 -- -- 541
Knoxville................................... 63 78 -- -- -- -- 78
Roanoke..................................... 70 49 -- -- -- -- 49
Rochester................................... 73 -- -- -- -- 3,715 3,715
Shreveport.................................. 74 41 -- -- -- -- 41
Omaha....................................... 75 52 -- -- -- -- 52
Tucson...................................... 78 170 6 338 -- 10 524
Rio Grande.................................. 82 316 -- -- -- -- 316
Columbia, SC................................ 83 158 -- -- -- -- 158
El Paso..................................... 84 81 -- -- -- -- 81
Chattanooga................................. 85 63 -- -- -- -- 63
Jackson, MS................................. 87 76 -- -- -- -- 76
Ft. Myers................................... 96 108 -- -- -- -- 108
Colorado Springs............................ 99 62 -- -- -- -- 62
Ft. Wayne................................... 106 69 -- -- -- -- 69
Tyler, TX................................... 110 87 -- -- -- -- 87
Eugene...................................... 123 77 382 -- -- -- 459
Bakersfield, CA............................. 124 50 -- -- -- -- 50
Reno........................................ 126 104 -- -- -- -- 104
Columbus, GA................................ 127 190 412 100 -- -- 702
Beaumont.................................... 135 110 -- -- -- -- 110
Midland-Odessa, TX.......................... 144 47 -- -- -- -- 47
Non-Metro Markets........................... N/A 12,439 175 -- -- -- 12,614
Mall Advertising Displays................... N/A -- -- -- 6,700 -- 6,700
------ ------ ----- ----- ------ ------
UNITED STATES TOTAL(1).................... 30,347 21,534 3,357 6,700 21,077 83,015
------ ------ ----- ----- ------ ------
</TABLE>
4
<PAGE> 5
<TABLE>
<CAPTION>
MALL AND TOTAL
MARKET 30-SHEET 8-SHEET AIRPORT DISPLAY
MARKET RANK BULLETINS POSTERS POSTERS POSTERS TRANSIT FACES
- -------------------------------------------- ------ --------- -------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
CANADA:
Toronto..................................... 1 157 1,491 -- 408 3,202 5,258
Montreal.................................... 2 77 793 -- 297 1,788 2,955
Ottawa...................................... 6 8 188 -- 61 -- 257
Winnipeg.................................... 7 107 247 -- 56 349 759
Quebec City................................. 8 184 333 -- 125 241 883
Hamilton.................................... 9 19 303 -- 80 598 1,000
Halifax..................................... 14 15 173 -- 28 214 430
Other....................................... N/A 145 1,247 -- 278 301 1,971
-------- ------- ------ ------- ------ ------
CANADA TOTAL.............................. 712 4,775 0 1,333 6,693 13,513
-------- ------- ------ ------- ------ ------
TOTAL(1)(2)............................... 31,059(3) 26,309 3,357 8,033 27,770 96,528
======== ======= ====== ======= ====== ======
</TABLE>
- ---------------
(1) Display faces do not include 125,000 subway advertising display faces in New
York City.
(2) If the Pending Acquisitions are not consummated, the Company will have 7,849
bulletins, 23,846 30-sheet posters, 3,219 8-sheet posters, 1,333 mall and
airport posters, and 27,700 transit display faces, for a total of 63,947
display faces. In addition, the Company may be required to make divestitures
in certain markets in order to receive antitrust clearance for the Pending
Acquisitions. See "Risk Factors -- Possible Non-Consummation of the Pending
Acquisitions."
(3) Includes 141 wall murals and 51 "Spectacular" signs.
RECENT DEVELOPMENTS
Since the Company's initial public offering on April 24, 1996, the Company
has completed 14 acquisitions of outdoor advertising businesses or assets for an
aggregate of more than $860 million, including the Gannett Outdoor Acquisition
for approximately $700 million. In addition, the Company has entered into
binding contracts to purchase two additional outdoor advertising businesses with
operations in 58 metropolitan markets for approximately $1.2 billion. There is
no assurance that the Pending Acquisitions will be consummated or that the 3M
Media Acquisition will not be delayed due to required antitrust clearance or
other factors. The Offering is not conditioned on the consummation of the
Pending Acquisitions. See "Risk Factors -- Possible Non-Consummation of the
Pending Acquisitions."
Completed Acquisitions
- - Gannett Outdoor Acquisition. On August 22, 1996, the Company purchased
substantially all of the assets of the outdoor advertising division ("Gannett
Outdoor") of Gannett Co., Inc. ("Gannett"), including the stock of certain
indirect subsidiaries of Gannett, for approximately $700.0 million in cash
(the "Gannett Outdoor Acquisition"). The Company acquired from Gannett a total
of approximately 40,000 advertising display faces consisting of bulletins,
posters and transit advertising display faces in 15 metropolitan markets in
the United States and seven metropolitan markets in Canada and approximately
125,000 subway advertising display faces in New York City.
Upon consummation of the Gannett Outdoor Acquisition, the Company immediately
began implementing its cost savings and integration strategy, which included
the consolidation of certain administrative, sales management and leasing
management functions. This strategy has resulted in the reduction and
consolidation of duplicative functions in: (i) production and sales overhead;
(ii) production and administrative support; (iii) national sales and marketing
support; and (iv) accounting and administrative areas. In addition, the
Company has eliminated certain duplicative operations by closing a billboard
production facility in Canada, consolidating sales offices in Toronto and
closing Gannett Outdoor's corporate office.
5
<PAGE> 6
The Company had estimated that these measures would result in annual cost
savings of approximately $33.0 million. Based upon the results of the
Company's consolidation and cost savings efforts to date, the Company believes
that annual cost savings will exceed the original estimate. The Company also
believes that it has increased revenues generated by the Gannett Outdoor
assets primarily through changing the sales compensation system from one that
was predominantly salary-based to one that is commission-based. The Company
has also increased revenues through streamlining the sales approval process
and improving utilization of the Gannett Outdoor billboard inventory. The
Company believes that opportunities still exist to improve the operations
acquired in the Gannett Outdoor Acquisition.
- - Houston Acquisition and Denver Disposition. In connection with the Gannett
Outdoor Acquisition, on November 14, 1996, the Company acquired Gannett's
outdoor operations in Houston, Texas (the "Houston Acquisition") for $10.0
million in cash plus the net book value of working capital and certain other
specified assets. Also in connection with the Gannett Outdoor Acquisition, on
August 8, 1996, the Company sold substantially all of its then existing
billboard assets in Denver (the "Denver Disposition") to an unrelated party
for $9.2 million consisting of $2.8 million in cash paid at closing and a ten
year 9% promissory note for the balance of the purchase price.
- - CSX Assets Acquisition. On May 22, 1996, the Company acquired permanent
easements for 1,360 plots of land in 17 eastern states for $21.5 million (plus
future consideration estimated to be payable in 2006) from CSX Realty
Development Corporation (the "CSX Assets Acquisition"). Currently, 130
different outdoor advertising companies have licenses to operate approximately
2,240 advertising displays on these plots of land. As a result of this
purchase, the Company has the right to collect the proceeds from these
licenses.
- - Villepigue Acquisition. On January 9, 1997, the Company completed the
acquisition of Villepigue Outdoor Advertising (the "Villepigue Acquisition")
and related entities, consisting of approximately 110 bulletin display faces
in the New York metropolitan area, for a purchase price of approximately $27.0
million in cash, subject to working capital adjustments.
- - Scadron Acquisition. On February 14, 1997, the Company purchased a portion of
the assets of Scadron Enterprises (the "Scadron Acquisition") consisting of
approximately 100 wall and bulletin display faces in the Chicago metropolitan
area, for a purchase price of approximately $24.5 million in cash, subject to
working capital adjustments. In addition, the Company agreed to acquire
certain other assets of Scadron Enterprises for aggregate additional
consideration of up to $3.5 million upon the satisfaction of certain
conditions, which may or may not be satisfied.
- - Reynolds Acquisition. On February 28, 1997, the Company acquired the assets
of Reynolds Outdoor, L.P. (the "Reynolds Acquisition") and certain related
joint ventures, consisting of approximately 325 bulletin faces in the
Dallas/Ft. Worth metropolitan area, for a purchase price of approximately
$31.6 million in cash, subject to working capital adjustments.
- - Burlington Northern and Santa Fe Assets Acquisition. On March 26, 1997, the
Company purchased from The Burlington Northern and Santa Fe Railway Company
(the "Burlington Northern and Santa Fe Assets Acquisition") permanent
easements for approximately 1,350 plots of land located in 26 western and
midwestern states and the rights to signboard licenses with respect to
advertising displays located on the plots of land covered by the easement. The
purchase price for the assets consists of approximately $17.0 million in cash
which was paid on March 26, 1997 and approximately $12.5 million in cash
payable no later than July 11, 1997 upon delivery by the seller of additional
easements and assignment of license agreements.
6
<PAGE> 7
- - Other Completed Acquisitions. In addition to these acquisitions, the Company
has acquired certain outdoor advertising assets in Denver, Chicago, Atlanta,
Louisville, Toronto, Montreal, and Halifax for aggregate consideration of
approximately $19.6 million (the "Other Completed Acquisitions").
Pending Acquisitions
- - 3M Media Acquisition. On April 30, 1997, the Company entered into an
Agreement of Purchase and Sale (the "3M Media Purchase Agreement") to acquire
3M Media, through the purchase of the capital stock of National Advertising
Company, a subsidiary of 3M, for approximately $1.0 billion in cash. In the 3M
Media Acquisition, the Company will acquire from 3M a total of approximately
31,700 advertising display faces consisting of 22,600 bulletins, 2,400 posters
and 6,700 mall advertising display faces in 56 metropolitan markets and
non-metropolitan locations in the United States.
The operations of 3M Media will be integrated into the Company principally as
an acquisition of advertising display inventory in locations that can be
administered from existing Company offices. Accordingly, the Company believes
that the consolidation of certain functions will result in certain cost
savings, including the elimination of duplicative administrative, sales and
production overhead positions in the 3M Media corporate headquarters and in
operating locations. The Company believes that the pro forma annualized cost
savings attributable to the elimination of such functions will be
approximately $41.7 million. In addition to these cost savings, the Company
believes that it may be able to achieve additional cost savings arising from
reductions in facility costs through renegotiated rents or reduced space, the
reduction of expenses associated with a reduced work force, and other
reductions in administrative expenses associated with the integration of the
combined businesses.
The Company also believes that there are significant opportunities for revenue
enhancement in 3M Media's operations upon completion of the 3M Media
Acquisition. The Company believes that its local market operating and sales
strategies will allow it to improve utilization of the 3M Media advertising
display faces.
- - Van Wagner Acquisition. On April 11, 1997, the Company entered into a Stock
Purchase Agreement (the "Van Wagner Stock Purchase Agreement") to purchase the
stock of Van Wagner for approximately $170 million in cash. The Van Wagner
operations include approximately 50 "Spectacular" signs in Times Square, as
well as 105 bulletins and 172 posters and eight wall murals in New York City,
372 bulletins and 16 wall murals in Los Angeles, four bulletins in San
Francisco, and additional transit displays and transit management agreements
in New York, Los Angeles, Northern California and Las Vegas.
The Van Wagner Acquisition will provide the Company with high profile display
faces in Times Square and west Los Angeles which will complement its existing
display inventory. The Company will eliminate certain duplicative
administrative, sales and production functions in connection with the
integration of Van Wagner's operations into the Company's existing operations,
which the Company believes will result in pro forma annualized cost savings of
approximately $8.6 million.
Each Pending Acquisition is subject to various conditions, including
clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"). The applicable waiting period under the HSR Act with
respect to the Van Wagner Acquisition expired on May 16, 1997 and the Company
expects to consummate the Van Wagner Acquisition as soon as practicable. The
Company believes that Department of Justice ("DOJ") clearance of the 3M Media
Acquisition will be forthcoming, but there can be no assurance that this will be
the case. In order to obtain such clearance, it is likely that the Company will
be required to divest assets in certain markets in which both the Company and 3M
Media currently conduct business. There is no assurance that the Pending
7
<PAGE> 8
Acquisitions will be consummated or that they will not be delayed due to
required antitrust clearance or other factors.
The Company will finance the purchase price of the Pending Acquisitions and
the fees and expenses associated with the Pending Acquisitions and the
acquisition financing through (i) the proceeds of the Offering, (ii) borrowings
under its senior credit facility (the "Senior Credit Facility") which is
expected to be amended to provide for a revolving credit facility and term loans
of up to approximately $1.1 billion (the "Bank Financing") and (iii) the net
proceeds of the Notes Offering. If the Company does not complete the Notes
Offering, a portion of the purchase price of the 3M Media Acquisition will be
financed through bridge loans ("Bridge Loans") of up to $300 million under a
senior subordinated credit facility (the "Subordinated Credit Facility") to be
entered into concurrently with the closing of the 3M Media Acquisition.
The Company believes that its experienced and sales-oriented management
team is an important asset in the successful implementation of its operating
strategy. William S. Levine, Chairman, Arthur R. Moreno, President and Chief
Executive Officer, Wally C. Kelly, Senior Vice President of Sales, Bill M.
Beverage, Chief Financial Officer, and Robert M. Reade, Vice President, Real
Estate, together possess approximately 110 years of sales and management
experience in the outdoor advertising industry.
The Company was organized in 1980. The Company's executive offices are
located at 2502 N. Black Canyon Highway, Phoenix, Arizona 85009, and its
telephone number is (602) 246-9569.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company................... 12,000,000 shares
Common Stock offered by the Selling Stockholders...... 1,000,000 shares
Common Stock to be outstanding after the Offering..... 52,330,631 shares(1)
Use of proceeds....................................... To pay a portion of the purchase
price of the Pending Acquisitions.
See "Use of Proceeds."
Nasdaq National Market symbol......................... OSIA
</TABLE>
- ---------------
(1) Excludes 6,261,497 shares of Common Stock issuable upon exercise of options,
of which 4,484,214 are exercisable immediately, and 248,392 shares of Common
Stock issuable in settlement of Incentive Units.
THE NOTES OFFERING
Following the Offering, the Company intends to offer $300 million aggregate
principal amount of the Notes, the proceeds of which will be used to fund a
portion of the purchase price of the 3M Media Acquisition or to retire
indebtedness under the Subordinated Credit Facility. The Notes will be offered
by the Company exclusively pursuant to a separate Prospectus. The consummation
of the Offering is not contingent upon the completion of the Notes Offering.
8
<PAGE> 9
FORWARD-LOOKING STATEMENTS
This Prospectus contains and incorporates by reference certain statements
that are "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). When used in
this Prospectus, the words "estimate," "expect," "anticipate," "believe" and
similar expressions are intended to identify forward-looking statements. Those
statements include, among other things, the discussions of the Company's
business strategy and expectations concerning the Company's market position,
future operations, margins, profitability, liquidity and capital resources, as
well as statements concerning the integration of the Acquisitions and
achievement of cost savings in connection therewith. Investors in the Common
Stock offered hereby are cautioned that reliance on any forward-looking
statement involves risks and uncertainties, and that although the Company
believes that the assumptions on which the forward-looking statements contained
herein are based are reasonable, any of those assumptions could prove to be
inaccurate, and as a result, the forward-looking statements based on those
assumptions also could be incorrect. The uncertainties in this regard include,
but are not limited to, those identified in the risk factors discussed herein.
See "Risk Factors." In light of these and other uncertainties, the inclusion of
a forward-looking statement herein should not be regarded as a representation by
the Company that the Company's plans and objectives will be achieved.
9
<PAGE> 10
SUMMARY UNAUDITED CONSOLIDATED PRO FORMA FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
The following sets forth summary unaudited consolidated pro forma financial
information derived from the Unaudited Consolidated Pro Forma Financial
Information included elsewhere in this Prospectus. The summary unaudited
consolidated pro forma statement of operations combines the historical financial
information of the Company and the businesses acquired and to be acquired in the
Acquisitions for the year ended December 31, 1996 and for the three months ended
March 31, 1997, giving effect to (i) the Bank Financing, (ii) net reductions in
operating expenses associated with the Acquisitions, and (iii) the Offerings and
the application of the net proceeds therefrom, as if each had occurred at the
beginning of the period. The summary unaudited consolidated pro forma balance
sheet as of March 31, 1997 has been prepared as if the Pending Acquisitions, the
Bank Financing and the Offerings and the application of the net proceeds
therefrom had occurred on March 31, 1997.
The summary unaudited consolidated pro forma financial information does not
purport to present the actual financial position or results of operations of the
Company had the Acquisitions and events assumed therein in fact occurred on the
dates specified, nor are they necessarily indicative of the results of
operations that may be achieved in the future. The summary unaudited
consolidated pro forma financial information is based on certain assumptions and
adjustments described in the notes to the Unaudited Consolidated Pro Forma
Financial Information and should be read in conjunction therewith. See
"Unaudited Consolidated Pro Forma Financial Information" and "Management's
Discussion and Analysis of Results of Operations and Financial Condition,"
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA
---------------------------------------
THREE MONTHS
YEAR ENDED ENDED MARCH 31,
DECEMBER 31, 1996 1997
----------------- ----------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues(1)......................................... $ 601,409 $140,901
Direct advertising expenses............................. 310,163 74,066
General and administrative expenses..................... 34,502 8,798
Depreciation and amortization........................... 111,353 26,569
Gain on Denver Disposition.............................. 7,344 --
Operating income........................................ 152,735 31,468
Interest expense........................................ 144,811 36,249
Income (loss) before extraordinary loss................. 4,369 (2,892)
Net loss................................................ (13,411) (2,892)
OTHER DATA:
EBITDA(2)............................................... $ 256,744 $ 58,037
EBITDA margin(3)........................................ 42.7% 41.2%
After-tax cash flow(4).................................. $ 111,643 $ 23,677
Capital expenditures.................................... 39,146 11,421
Number of advertising displays(5)....................... 96,528 96,528
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
--------------------------
PRO FORMA
AS
ACTUAL ADJUSTED
---------- ----------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital..................................................... $ 25,601 $ 50,845
Total assets........................................................ 1,038,845 2,276,266
Total debt.......................................................... 706,428 1,571,444
Stockholders' equity................................................ 288,456 630,278
</TABLE>
- ---------------
(1) Net revenues are gross revenues minus agency commissions, plus other income
of $12.8 million for the year ended December 31, 1996 and $4.4 million for
the three months ended March 31, 1997.
(2) "EBITDA" is defined as operating income before depreciation and amortization
expense and excludes the gain on the Denver Disposition. While EBITDA should
not be considered in isolation or as a substitute for net income, cash flows
from operating activities and other income or cash flow statement data
prepared in accordance with generally accepted accounting principles, or as
a measure of profitability or liquidity, management understands that it is
widely used by certain investors as one measure to evaluate the financial
performance of companies in the outdoor advertising industry.
(3) "EBITDA margin" is EBITDA stated as a percentage of net revenues.
(4) "After-tax cash flow" is defined as income before extraordinary loss plus
depreciation and amortization expense, and deferred tax expense and excludes
the gain on the Denver Disposition. After-tax cash flow is presented here
not as a measure of operating results and does not purport to represent cash
provided by operating activities. After-tax cash flow should not be
considered in isolation or as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles such as
net income and cash provided by operating activities.
(5) Does not include approximately 125,000 subway advertising display faces in
New York City.
10
<PAGE> 11
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth summary historical financial data for the
Company and 3M Media for the periods indicated. The information presented below
is qualified in its entirety by, and should be read in conjunction with,
"Management's Discussion and Analysis of Results of Operations and Financial
Condition," "Selected Historical Financial and Other Data" and the consolidated
financial statements and notes thereto of the Company and the financial
statements and notes thereto of 3M Media contained herein.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEARS ENDED DECEMBER 31, 31,
-------------------------------------- ------------------------
OUTDOOR SYSTEMS(1) 1994 1995 1996 1996 1997
- -------------------------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues(2)................................. $ 52,077 $ 64,813 $ 173,116 $ 16,945 $ 80,080
Operating expenses:
Direct advertising............................ 24,433 30,462 87,593 7,859 44,615
General and administrative.................... 3,357 4,096 13,458 1,078 6,717
Depreciation and amortization................. 9,165 9,970 22,384 2,561 11,635
Gain on 1994 disposal and the Denver
Disposition................................... 4,325 -- 7,344 -- --
Operating income................................ 19,447 20,285 57,025 5,447 17,113
Interest expense................................ 16,393 17,199 32,489 4,152 15,922
Income before extraordinary loss(3)............. 1,333 2,768 14,336 777 691
Net income (loss)(3)............................ 1,333 2,768 (3,444) 777 691
Net income (loss) attributable to common
stockholders.................................. (263) 307 (6,905) (130) 691
Net income (loss) per common share(3)........... $ (0.01) $ 0.01 $ (0.19) $ (.01) $ .02
Shares used in computing per share
computations(4)............................... 21,096,379 25,424,078 35,263,336 25,366,144 46,030,680
OTHER DATA:
EBITDA(5)....................................... $ 24,287 $ 30,255 $ 72,065 $ 8,008 $ 28,748
EBITDA margin(6)................................ 46.6% 46.7% 41.6% 47.3% 35.9%
After-tax cash flow(7).......................... $ 7,497 $ 12,829 $ 39,286 $ 3,338 $ 12,326
Capital expenditures............................ 4,924 7,070 9,046 1,194 5,140
Number of advertising displays.................. 11,900 12,700 61,600(8) 12,700 63,900(8)
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEARS ENDED DECEMBER 31, 31,
-------------------------------------- ------------------------
3M MEDIA 1994 1995 1996 1996 1997
- -------------------------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenues(2)................................. $ 196,948 $ 205,418 $ 211,310 $ 49,261 $ 49,505
---------- ---------- ---------- ---------- ----------
Operating expenses:
Direct advertising(9)......................... 131,422 137,131 139,223 35,007 33,197
General and administrative.................... 12,024 11,790 12,406 2,912 3,139
Depreciation and amortization................. 18,061 17,144 15,382 3,857 3,785
Loss (gain) on disposal of property and
equipment................................... 343 (806) 21 (638) (395)
---------- ---------- ---------- ---------- ----------
Operating income................................ $ 35,098 $ 40,159 $ 44,278 $ 8,123 $ 9,779
========== ========== ========== ========== ==========
</TABLE>
11
<PAGE> 12
NOTES TO SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
(1) During 1996, the Company completed certain acquisitions, including the
Gannett Outdoor Acquisition on August 22, 1996. See "Prospectus
Summary--Recent Developments." In addition, in 1994 the Company completed
certain acquisitions and dispositions. Accordingly, operating results are
not necessarily comparable on a year-to-year basis.
(2) Net revenues are gross revenues minus agency commissions and for the
Company include other income of $1.0 million, $0.4 million and $6.1 million
for the years ended December 31, 1994, 1995 and 1996, and $0 and $2.9
million for the three months ended March 31, 1996 and 1997, respectively.
(3) Deferred financing costs of $17.8 million associated with the early
redemption of borrowings were charged as an extraordinary loss during 1996.
(4) Weighted average share amounts have been adjusted to reflect the
three-for-two Common Stock splits effected in the form of stock dividends
paid on each of July 22, 1996 and November 22, 1996.
(5) "EBITDA" is defined as operating income before depreciation and
amortization expense and, in 1994 and 1996, before the gain on the 1994
disposal and the Denver Disposition, respectively. While EBITDA should not
be considered in isolation or as a substitute for net income, cash flows
from operating activities and other income or cash flow statement data
prepared in accordance with generally accepted accounting principles, or as
a measure of profitability or liquidity, management understands that it is
widely used by certain investors as one measure to evaluate the financial
performance of companies in the outdoor advertising industry.
(6) "EBITDA margin" is EBITDA stated as a percentage of net revenues.
(7) "After-tax cash flow" is defined as income before extraordinary loss plus
depreciation and amortization expense, and deferred tax expense and
excludes the gain on the 1994 disposal and the Denver Disposition.
After-tax cash flow is presented here not as a measure of operating results
and does not purport to represent cash provided by operating activities.
After-tax cash flow should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with
generally accepted accounting principles such as net income and cash
provided by operating activities.
(8) Does not include approximately 125,000 subway advertising display faces in
New York City and the Pending Acquisitions and, with respect to the year
ended December 31, 1996, does not give effect to the Completed 1997
Acquisitions.
(9) Direct advertising expenses for 3M Media include direct advertising and
selling and marketing expenses.
12
<PAGE> 13
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the shares
of Common Stock offered by this Prospectus.
Substantial Leverage. Upon completion of the Pending Acquisitions, the
Bank Financing and the Offerings and the application of the net proceeds
therefrom, the Company's total indebtedness will be approximately $1.6 billion,
representing approximately 71% of total capitalization. There can be no
assurance that the Company will have adequate cash available to make required
principal and interest payments. In addition, the terms of the Senior Credit
Facility and of the indenture (the "1996 Notes Indenture") governing the
Company's $250 million 9 3/8% Senior Subordinated Notes due 2006 (the "1996
Notes") include, and the indenture that will govern the Notes (the "Indenture")
will include, significant operating and financial restrictions, such as limits
on the Company's ability to incur indebtedness, create liens, sell assets,
engage in mergers or consolidations, make investments and pay dividends.
The Company's high degree of leverage may have important consequences for
the Company: (i) the ability of the Company to obtain additional financing for
acquisitions, working capital, capital expenditures or other purposes, if
necessary, may be impaired or such financing may not be available on terms
favorable to the Company; (ii) a substantial portion of the Company's cash flow
will be used to pay the Company's interest expense and under certain conditions
to repay indebtedness, which will reduce the funds that would otherwise be
available to the Company for its operations and future business opportunities;
(iii) a substantial decrease in net operating cash flows or an increase in
expenses of the Company could make it difficult for the Company to meet its debt
service requirements and force it to modify its operations; (iv) the Company may
be more highly leveraged than its competitors which may place it at a
competitive disadvantage; and (v) the Company's high degree of leverage may make
it more vulnerable to a downturn in its business or the economy generally. Any
inability of the Company to service its indebtedness or obtain additional
financing, as needed, would have a material adverse effect on the Company.
The Company's ability to pay interest and principal on its debt obligations
will depend upon its future operating performance, which will be affected by
prevailing economic conditions and financial, business and other factors,
certain of which are beyond its control. The Company anticipates that its
operating cash flow, together with borrowings under the Senior Credit Facility,
will be sufficient to meet its operating expenses and to service its debt
requirements as they become due. However, if the Company is unable to service
its indebtedness, whether upon acceleration of such indebtedness or in the
ordinary course of business, the Company will be forced to pursue one or more
alternative strategies such as selling assets, restructuring or refinancing its
indebtedness, or seeking additional equity capital. There can be no assurance
that any of these strategies could be effected on satisfactory terms, if at all.
See "Management's Discussion and Analysis of Results of Operations and Financial
Condition -- Liquidity and Capital Resources."
Possible Non-Consummation of the Pending Acquisitions. The consummation of
the Pending Acquisitions is subject to various conditions, including, in the
case of the 3M Media Acquisition, clearance under the HSR Act. There is no
assurance that the Pending Acquisitions will be consummated or that the 3M Media
Acquisition will not be delayed due to required antitrust clearance or other
factors. The Company believes that DOJ clearance will be forthcoming, but there
can be no assurance that this will be the case. In order to obtain such
clearance, it is likely that the Company will be required to divest assets in
certain markets in which both the Company and 3M Media currently conduct
business. There can be no assurance that the purchase price payable in respect
of any such divestiture will be comparable to the purchase price paid for such
assets in the 3M Media Acquisition. Any such divestitures, as well as other
conditions which may be imposed in connection with the antitrust clearance, may
adversely affect the operations of the Company and may reduce the expected
return from the 3M Media Acquisition. If the Company is unable to consummate the
3M Media Acquisition because of failure to receive antitrust clearance or
otherwise, the
13
<PAGE> 14
Company will forfeit a $20 million purchase price deposit and may become subject
to claims for damages for breach of its obligations under the 3M Media
Acquisition Agreement.
Challenges of Business Integration. The Company faces significant
challenges in integrating the operations of the Acquisitions with those of the
Company. The continued integration of Gannett Outdoor and the integration of 3M
Media will require substantial attention from the Company's management team.
Diversion of management attention from the Company's existing business could
have an adverse impact on the revenues and operating results of the Company.
There can be no assurance that the Company will be able to successfully
integrate the operations of the Acquisitions with those of the Company. In
addition, 3M Media and Van Wagner have historically operated with higher cost
structures than that of the Company and the pro forma financial statements
assume that the Company will be able to achieve significant cost reductions
following the closing of the Pending Acquisitions, including cost reductions
associated with employee reductions. The Company could face regulatory,
contractual and other restrictions on its ability to implement the cost
reductions. There can be no assurance that the Company will be successful in
reducing the overhead and other costs associated with 3M Media and Van Wagner or
other acquisitions, or that realization of such cost reductions will not be
delayed. In addition, to the extent that the Company is successful in achieving
part or all of such cost reductions, there can be no assurance that the
reductions will not have a material adverse effect on the business of the
Company.
Restrictions on Tobacco Advertising. Tobacco revenues have historically
accounted for a significant portion of outdoor advertising revenues. Beginning
in 1992, the leading tobacco companies substantially reduced their domestic
advertising expenditures in response to a declining population of smokers in the
United States, societal pressures to reduce advertising, consolidation in the
tobacco industry and increasing price competition from generic products. Tobacco
advertising accounted for 8.2% of the net revenues for the Company and 5.9% of
the net revenues for the Pending Acquisitions for fiscal 1996. In addition, the
Food and Drug Administration recently promulgated rules which, among other
things, would limit certain types of outdoor advertising by tobacco companies.
While certain of these regulations have been declared invalid by a lower court
ruling, appeals are likely and there can be no assurance that further
developments resulting in a validation or implementation of these or similar
regulations will not occur. Outdoor advertising of tobacco products also may be
affected by city or state regulations. For example, in 1995, the Court of
Appeals for the Fourth Circuit upheld the validity of a Baltimore city ordinance
restricting the placement of outdoor advertisements of cigarettes and alcohol in
publicly visible locations, such as billboards, signboards and sides of
buildings. Subsequently, the United States Supreme Court declined to review an
appeal of the case. In addition, the City Council of New York City, following
the Baltimore ordinance, introduced legislation to ban outdoor tobacco
advertising near schools and other locations where children are likely to
assemble. While Baltimore is not a municipality in which the Company conducts
business, there can be no assurance that other local or state governments will
not enact similar ordinances or statutes to limit outdoor advertising of tobacco
in the future.
It also recently has been reported that certain cigarette manufacturers who
are defendants in numerous class action suits throughout the United States have
proposed an out of court settlement with respect to such suits that could
potentially include restrictions on billboard advertising by these and other
cigarette manufacturers. There can be no assurance as to the effect of these
regulations, potential legislation or settlement discussions on the Company's
business and on its net revenues and financial position. A reduction in
billboard advertising by the tobacco industry would cause an immediate reduction
in the Company's direct revenue from such advertisers and would simultaneously
increase the available space on the existing inventory of billboards in the
outdoor advertising industry. This could in turn result in a lowering of outdoor
advertising rates in each of the Company's outdoor advertising markets or limit
the ability of industry participants to increase rates for some period of time.
Any such consequence could have a material adverse effect on the Company.
14
<PAGE> 15
Economic Conditions; Advertising Trends. The Company relies on sales of
advertising space for its revenues and its operating results therefore are
affected by general economic conditions, as well as trends in the advertising
industry. A reduction in advertising expenditures available for the Company's
displays could result from a general decline in economic conditions, a decline
in economic conditions in particular markets where the Company conducts business
or a reallocation of advertising expenditures to other available media by
significant users of the Company's displays. The Company has benefitted from
special events in the past, such as the 1996 Olympic Games in Atlanta. However,
there can be no assurance that the Company will continue to benefit to the same
degree in the future from special events, and results in a particular market,
year or period could be adversely affected by the lack of such special events.
Reliance on Key Executives. The Company's success depends to a significant
extent upon the continued services of its executive officers and other key
management and sales personnel, in particular its President and Chief Executive
Officer, Arthur R. Moreno, and its Senior Vice President of Sales, Wally C.
Kelly. Although the Company has designed its incentive and compensation programs
to retain key employees, including options to purchase shares of Common Stock
(certain of which are subject to forfeiture in the event the recipients violate
non-competition clauses included therein), the Company has no employment
contracts with any of its employees, and none of its employees are bound by
non-competition agreements. The unavailability of the continuing services of its
executive officers and other key management and sales personnel could have a
material adverse effect on the Company's business.
Increase in Interest Rates. All of the indebtedness under the Senior
Credit Facility, as expected to be amended, will bear interest at variable
rates. While the Company will be required by the Senior Credit Facility, as
expected to be amended, to enter into interest rate cap agreements to reduce its
exposure to increases in such interest rates with respect to a minimum of
approximately $297 million of indebtedness, such agreements will not apply to
the Company's entire variable rate debt and, therefore, will not entirely
eliminate the Company's exposure to variable rates. Any increase in the interest
rates on the Company's indebtedness will reduce funds available to the Company
for its operations and future business opportunities and will exacerbate the
consequences of the Company's leveraged capital structure. See "Description of
Indebtedness and Other Commitments -- Senior Credit Facility."
Acquisition Strategy. The Company's growth has been facilitated by
strategic acquisitions that have substantially increased the Company's inventory
of advertising display faces, and the Company intends to continue to pursue such
acquisitions. While the Company believes that the outdoor advertising industry
is highly fragmented and that significant acquisition opportunities are
available, there can be no assurance that suitable acquisition candidates can be
found, and the Company is likely to face competition from other outdoor
advertising companies or other parties for acquisition opportunities that are
available. In addition, if the prices sought by sellers of outdoor advertising
displays and companies continue to rise, as management believes may happen, the
Company may find fewer acceptable acquisition opportunities. The Company's
indebtedness will increase as a result of the Pending Acquisitions and debt
covenants may constrain the Company's ability to complete significant
acquisitions in the future. There can be no assurance that the Company will have
sufficient capital resources to complete acquisitions, that acquisitions can be
completed on terms acceptable to the Company, or that any acquisitions that are
completed can be successfully integrated into the Company. The process of
integrating such acquired businesses may involve unforeseen difficulties and may
utilize a significant portion of the Company's financial, managerial and other
resources.
Competition. The Company faces competition for advertising revenues from
other outdoor advertising companies, as well as from other media such as radio,
television, print media and direct mail marketing. The Company also competes
with a wide variety of other "out-of-home" advertising media, the range and
diversity of which has increased substantially over the past several years to
include advertising displays in shopping centers and malls, airports, stadiums,
movie theaters and
15
<PAGE> 16
supermarkets, and on taxis, trains, buses and subways. Some of the Company's
competitors, principally in other media such as radio and television, are
substantially larger, better capitalized and have access to greater resources
than the Company. There can be no assurance that outdoor advertising media will
be able to compete with other types of media, or that the Company will be able
to compete successfully either within the outdoor advertising industry or with
other media.
Regulation of Outdoor Advertising. Outdoor advertising displays are
subject to governmental regulation at the federal, state and local levels. These
regulations, in some cases, limit the height, size, location and operation of
billboards and, in limited circumstances, regulate the content of the
advertising copy displayed on the billboards. Some governmental regulations
prohibit the construction of new billboards or the replacement, relocation,
enlargement, material repair, material alteration or upgrading of existing
structures. Some local government entities, including municipalities or
townships in Houston, Jacksonville, Kansas City and St. Louis, have adopted
amortization ordinances or regulations under which, after the expiration of a
specified period of time, certain billboards must be removed at the owner's
expense and without the payment of compensation. Ordinances requiring the
removal of a billboard without compensation, whether through amortization or
otherwise, are being challenged in various state and federal courts with
conflicting results. To date, regulations in the Company's markets have not
materially adversely affected its operations. However, no assurance can be given
as to the effect on the Company of existing laws and regulations or of new laws
and regulations that may be adopted in the future.
Because outdoor advertising displays are typically located adjacent to
roads and highways, they are also subject to the risk of being removed through
condemnation actions or other actions by governmental entities in the event of
road or highway improvement or expansion projects. While compensation is
generally available for such actions, there can be no assurance that the Company
would be permitted to relocate these displays under existing state and local
regulations.
In recent years, there have been efforts to restrict billboard advertising
of certain products, including tobacco and alcohol. Congress has passed no
legislation at the federal level except legislation requiring health hazard
warnings similar to those on cigarette packages and print advertisements.
Certain states in which the Company operates have historically prohibited the
outdoor advertising of distilled spirits. In California, transit shelter
advertising posters are maintained on public rights of way, and most of the
contracts prohibit tobacco and/or alcohol advertising. San Francisco has adopted
an ordinance banning all tobacco and alcohol advertising on public property, but
has "grandfathered" Gannett Outdoor's existing contract through 2002. For each
of the past three years, the California legislature has considered proposed
legislation which would ban, or substantially limit, all outdoor advertising of
tobacco. While that legislation has not been passed, the proponents have
publicly stated they will continue to attempt to have such proposals enacted. It
is uncertain whether additional legislation of this type will be enacted at the
national level or in any of the markets in which the Company operates.
Outdoor advertising in Canada is subject to regulation at the federal,
provincial and municipal levels. These regulations may prohibit advertising of
certain products on outdoor signs in certain locations. For example, in Ontario,
billboards and posters advertising liquor may not be placed within 200 meters of
a primary or secondary school. Additionally, Canadian federal legislation was
enacted in April, 1997, which effectively prohibits substantially all outdoor
tobacco advertising. While challenges to this legislation may be made, there can
be no assurance that any such challenges, if made, will be successful.
A reduction in billboard advertising by the tobacco and alcohol industries
in the United States or Canada would cause a reduction in the Company's direct
revenue from such advertisers. Such a reduction would increase the available
space on the existing inventory of billboards in the outdoor advertising
industry and could result in a reduction of outdoor advertising rates in markets
affected by this type of legislation.
16
<PAGE> 17
Transit Business. A portion of the business acquired from Gannett Outdoor
(pro forma net revenues of approximately $31.4 million in 1996) consists of
revenues under contracts for the operation of display faces on bus shelters and
in subway stations and subways in the City of New York. Most of these contracts
are subject to termination upon short notice by the applicable governmental
authority, include letter of credit and other requirements obligating the
Company to fund and meet certain minimum payment requirements to the
governmental authority and erect and maintain shelters in the applicable
jurisdiction, and contain other performance obligations which are imposed on the
Company. In addition, upon scheduled termination of such contract, the Company
must meet competitive bidding and other requirements for renewal. There can be
no assurance that these various obligations and conditions will not adversely
affect the Company or that the Company will be awarded renewals in the future.
The subway business in New York historically has generated relatively low
operating margins and there can be no assurance that the Company will be able to
improve the performance of this business.
Environmental Matters. As the owner, lessee or operator of various real
properties and facilities, the Company is subject to various federal, state and
local environmental laws and regulations. To date, compliance with such laws and
regulations has not had a material adverse effect on the historical business of
the Company. However, a number of the properties acquired in the Completed
Acquisitions or to be acquired in the Pending Acquisitions have existing
environmental conditions relating primarily to underground storage tanks for
which the Company has assumed responsibility. In addition, certain properties
and facilities are on, in the vicinity of, or classified as, hazardous waste
sites (including Superfund sites). Of the properties adjacent to Superfund sites
or in the vicinity of hazardous waste sites, at least one is believed to be
contaminated by such site. There can be no assurance that environmental
conditions will not create greater costs than currently expected or that
compliance with existing or new environmental laws or regulations will not
require the Company to make significant expenditures in the future, all of which
could adversely affect the Company.
Seasonality. The Company's revenues and operating results have exhibited
some degree of seasonality in past periods. Typically, the Company experiences
its strongest financial performance in the fourth quarter and its lowest
revenues in the first quarter. The Company expects this trend to continue in the
future. Because a significant portion of the Company's expenses are fixed, a
reduction in revenues in any quarter is likely to result in a period-to-period
decline in operating performance and net income.
Control by Executive Officers and Directors. Upon consummation of the
Offering, the Company's executive officers, directors and their respective
affiliates will beneficially own (including for this purpose options exercisable
within 60 days after the date of this Prospectus and shares over which such
persons have voting control) approximately 36.9% of the outstanding shares of
Common Stock. Such persons, if acting together, would have sufficient voting
power to control the outcome of corporate actions submitted to the stockholders
for approval and to control the management and affairs of the Company, including
the election of the Board of Directors of the Company. As a result of such
control, certain transactions may not be possible without the approval of such
stockholders, including proxy contests, mergers involving the Company and tender
offers or other purchases of Common Stock that could give stockholders of the
Company the opportunity to realize a premium over the then-prevailing market
price for their shares of Common Stock. See "Principal and Selling
Stockholders."
Nature of Acquisition Agreements; Limited Recourse to Sellers. The
representations and warranties made by 3M in connection with the 3M Media
Acquisition relating to the assets to be acquired and the associated indemnities
are limited and qualified. The Company's recourse to 3M is extremely limited.
Agreements related to other acquisitions, including the Gannett Outdoor
Acquisition, have been, and agreements for future acquisitions may be, similar
to the 3M Media and Gannett Outdoor acquisition agreements with respect to
representations, warranties and indemnification provisions. Accordingly,
unanticipated events or liabilities related to the Gannett Outdoor and 3M Media
businesses or other businesses acquired or that may be acquired in the future
could materially and adversely affect the Company.
17
<PAGE> 18
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 12,000,000 shares of
Common Stock offered by it hereby are estimated to be approximately $348 million
(or approximately $377 million if the Underwriters' over-allotment option is
exercised in full), after deducting estimated underwriting discounts and
commissions and offering expenses.
The Company intends to use such proceeds to pay a portion of the purchase
price of the Pending Acquisitions. Until completion of the Pending Acquisitions,
the Company will use such net proceeds to reduce indebtedness outstanding under
the Company's Senior Credit Facility or will invest such proceeds in short-term
interest bearing securities. To the extent the Pending Acquisitions are not
consummated, the Company will use the net proceeds of the Offering for general
corporate purposes which may include repayment of existing indebtedness or other
acquisitions.
If the Notes Offering is consummated, the net proceeds therefrom will be
used to pay a portion of the purchase price of the 3M Media Acquisition or to
repay amounts outstanding under the Subordinated Credit Facility.
The Company will not receive any proceeds from the sale of Common Stock by
the Selling Stockholders.
PRICE RANGE OF COMMON STOCK
The Common Stock is quoted on the Nasdaq National Market under the symbol
"OSIA." The following table sets forth, for the periods indicated, the high and
low sales prices for the Common Stock as reported by the Nasdaq National Market.
Prior to April 24, 1996, the day on which the Common Stock was first publicly
traded, there was no public market for the Common Stock.
<TABLE>
<CAPTION>
1996 HIGH LOW
------ ------
<S> <C> <C>
Second Quarter (beginning April 24, 1996)........................ $16.78 $ 9.33
Third Quarter.................................................... $31.50 $15.25
Fourth Quarter................................................... $33.00 $23.00
</TABLE>
<TABLE>
<CAPTION>
1997 HIGH LOW
------ ------
<S> <C> <C>
First Quarter.................................................... $33.88 $21.75
Second Quarter (through May 21, 1997)............................ $33.25 $24.13
</TABLE>
On May 21, 1997, the last reported sale price per share for the Common
Stock on the Nasdaq National Market was $30.50 per share.
DIVIDEND POLICY
The Company has not declared or paid dividends on the Common Stock and does
not anticipate paying dividends in the foreseeable future. The Company intends
to retain any future earnings to repay senior indebtedness or reinvest in the
Company. In addition, the Company's debt instruments place limitations on the
Company's ability to pay dividends or make any other distributions on the Common
Stock. See "Description of Indebtedness and Other Commitments." Any future
determination as to the payment of dividends will be subject to such
prohibitions and limitations, will be at the discretion of the Company's Board
of Directors and will depend on the Company's results of operations, financial
condition, capital requirements and other factors deemed relevant by the Board
of Directors.
18
<PAGE> 19
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company (i) as of March 31, 1997 and (ii) pro forma giving effect as of March
31, 1997 to the Pending Acquisitions, the Bank Financing and the Offerings and
the application of the estimated net proceeds therefrom. See "Use of Proceeds"
and "Unaudited Consolidated Pro Forma Financial Information."
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
------------------------
ACTUAL PRO FORMA
-------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current maturities of long-term debt............................... $ 31,700 $ 31,700
-------- ----------
Long-term debt:
Senior Credit Facility........................................... 424,667 989,683
1996 Notes....................................................... 250,000 250,000
Notes(1)......................................................... -- 300,000
Other............................................................ 61 61
-------- ----------
Total long-term debt.......................................... 674,728 1,539,744
-------- ----------
Common stockholders' equity:
Common Stock, $0.01 par value.................................... 402 524
Additional paid in capital....................................... 316,988 665,461
Accumulated deficit.............................................. (24,584) (31,357)
Treasury stock (at cost) 11,475,554 shares....................... (4,053) (4,053)
Foreign currency translation adjustment.......................... (297) (297)
-------- ----------
Total common stockholders' equity(2).......................... 288,456 630,278
-------- ----------
Total capitalization..................................... $994,884 $ 2,201,722
======== ==========
</TABLE>
- ---------------
(1) Assumes the issuance of $300 million aggregate principal amount of Notes
pursuant to the Notes Offering. If the Notes Offering is not consummated,
$300 million of indebtedness will be incurred under the Subordinated Credit
Facility. See "Description of Indebtedness and Other Commitments -- The
Subordinated Credit Facility."
(2) Actual amounts exclude 6,436,497 shares of Common Stock issuable upon
exercise of options outstanding at March 31, 1997, of which 4,659,214 were
exercisable, and 248,392 shares of Common Stock issuable in settlement of
Incentive Units outstanding at March 31, 1997. Pro forma amounts reflect the
exercise of options to purchase 175,000 shares of Common Stock being sold by
one of the Selling Stockholders in the Offering.
19
<PAGE> 20
UNAUDITED CONSOLIDATED PRO FORMA FINANCIAL INFORMATION
The following unaudited consolidated pro forma statement of operations
combines the historical financial information of the Company and the businesses
acquired and to be acquired in the Acquisitions for the year ended December 31,
1996 and the three month period ended March 31, 1997 giving effect to (i) the
Bank Financing, (ii) the net reduction in operating expenses associated with the
Acquisitions and (iii) the Offerings and the application of the net proceeds
therefrom, as if such events had occurred at the beginning of the period. The
unaudited pro forma consolidated balance sheet as of March 31, 1997 has been
prepared as if the Pending Acquisitions, the Bank Financing and the Offerings
and the application of the net proceeds therefrom had occurred on March 31,
1997.
The detailed assumptions used to prepare the unaudited consolidated pro
forma financial information are contained in the notes to unaudited consolidated
pro forma financial information. The unaudited consolidated pro forma financial
information reflects the use of the purchase method of accounting for the
Acquisitions.
Pro forma adjustments for the Acquisitions are based upon preliminary
estimates, available information and certain assumptions that the management of
the Company deems appropriate. Final adjustments may differ from the pro forma
adjustments presented herein. The unaudited consolidated pro forma financial
information does not purport to represent the results of operations or the
financial position of the Company that actually would have resulted had the
Acquisitions occurred as of the dates indicated, nor should it be taken as
indicative of the future results of the operations or future financial position
of the Company. The unaudited consolidated pro forma financial information
should be read in conjunction with the notes to unaudited consolidated pro forma
financial information and the separate historical financial statements and notes
thereto of the Company and 3M Media which are contained elsewhere herein.
20
<PAGE> 21
OUTDOOR SYSTEMS, INC.
UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEET
MARCH 31, 1997
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------
PENDING PRO FORMA
------------------------- PENDING
3M MEDIA VAN WAGNER ACQUISITIONS TOTAL
COMPANY ACQUISITION ACQUISITION ADJUSTMENTS PRO FORMA
----------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS............................... $ 95,471 $ 46,771 $ 7,985 $ 1,071(1) $ 151,298
PROPERTY AND EQUIPMENT -- Net................ 849,653 128,771 7,978 675,123(1) 1,661,525
INTANGIBLE ASSETS -- Net..................... 60,825 12,288 320,000(1) 393,113
DEFERRED FINANCING COSTS..................... 23,157 -- 29,463(1) 41,332
(11,288)(2)
OTHER ASSETS................................. 9,739 1,946 13,880 4,515(2) 28,998
(1,082)(1)
---------- -------- ------- ---------- ----------
TOTAL........................................ $ 1,038,845 $177,488 $ 42,131 $1,017,802 $2,276,266
========== ======== ======= ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES.......................... $ 69,870 $ 19,444 $ 9,489 $ (3,850)(1) $ 100,453
5,500(1)
---------- -------- ------- ---------- ----------
LONG-TERM DEBT:
1993 Notes................................. 15 -- -- -- 15
Senior Credit Facility..................... 424,667 -- -- 565,016(1) 989,683
1996 Notes................................. 250,000 -- -- -- 250,000
Notes...................................... -- -- -- 300,000(1) 300,000
Other...................................... 46 -- 40,420 (40,420)(1) 46
---------- -------- ------- ---------- ----------
Total long-term debt..................... 674,728 -- 40,420 824,596 1,539,744
---------- -------- ------- ---------- ----------
OTHER LONG-TERM LIABILITIES.................. 3,734 -- 1,720 (1,720)(1) 3,734
---------- -------- ------- ---------- ----------
DEFERRED INCOME TAXES........................ 2,057 9,763 110 (9,873)(1) 2,057
---------- -------- ------- ---------- ----------
Total liabilities........................ 750,389 29,207 51,739 814,653 1,645,988
---------- -------- ------- ---------- ----------
NET ASSETS (LIABILITIES) TO BE ACQUIRED...... -- 148,281 (9,608) (138,673)(1) --
---------- -------- ------- ---------- ----------
COMMON STOCKHOLDERS' EQUITY:
Common stock............................... 402 -- -- 122(1) 524
Additional paid-in capital................. 316,988 -- -- 348,473(1) 665,461
Accumulated deficit........................ (24,584) -- -- (6,773)(2) (31,357)
Treasury stock at cost..................... (4,053) -- -- -- (4,053)
Foreign currency translation adjustment.... (297) -- -- -- (297)
---------- -------- ------- ---------- ----------
Total common stockholders' equity........ 288,456 -- -- 341,822 630,278
---------- -------- ------- ---------- ----------
TOTAL........................................ $ 1,038,845 $177,488 $ 42,131 $1,017,802 $2,276,266
========== ======== ======= ========== ==========
</TABLE>
21
<PAGE> 22
OUTDOOR SYSTEMS, INC.
NOTES TO UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEET
AT MARCH 31, 1997
(DOLLARS IN THOUSANDS)
The following explanations describe the assumptions used in determining the
pro forma adjustments necessary to present the pro forma financial position of
the Company after giving effect to the Completed 1997 Acquisitions, the Pending
Acquisitions, the Bank Financing and the Offerings.
<TABLE>
<CAPTION>
DEBIT
(CREDIT)
---------
<C> <S> <C>
1. Entry records the Pending Acquisitions, the Bank Financing and the Offerings:
Sale of 12,000,000 shares of Common Stock at $30.25 per share:
Common Stock................................................................. $ (122)
Additional paid in capital................................................... (348,473)
Increase debt as follows:
Senior Credit Facility....................................................... (565,016)
Notes........................................................................ (300,000)
Elimination of historical net assets (liabilities) of Pending Acquisitions... 138,673
Change in assets and liabilities resulting from allocation of purchase price:
Intangibles.................................................................. 320,000
Property and equipment....................................................... 675,123
Increase in deferred financing costs......................................... 29,463
Increase in current assets................................................... 1,071
Accrual for estimated severance costs related to the Pending Acquisitions.... (5,500)
Deferred income taxes........................................................ 9,873
Assumption of long-term debt by Van Wagner selling shareholders.............. 40,420
Assumption of current portion of long-term debt by Van Wagner selling
shareholders............................................................... 3,850
Assumption of liabilities by Van Wagner selling shareholders................. 1,720
Joint venture assets retained by Van Wagner selling shareholders............. (1,082)
---------
$ 0
=========
2. Entry records the write-off of bridge commitment fees and the related tax
effect:
Write-off of deferred financing fees........................................... $(11,288)
Tax effect at a blended rate of 40%............................................ 4,515
Increase in accumulated deficit................................................ 6,773
--------
$ 0
========
</TABLE>
22
<PAGE> 23
OUTDOOR SYSTEMS, INC.
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMPLETED ACQUISITIONS
--------------------------------- PENDING ACQUISITIONS
GANNETT -------------------------
OUTDOOR OTHER 3M MEDIA VAN WAGNER
COMPANY ACQUISITION(1) TRANSACTIONS(2) ACQUISITION ACQUISITION
----------- -------------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES:
Outdoor advertising -- net............. $ 167,047 $156,896 $23,447 $ 211,310 $29,894
Other income........................... 6,069 201 5,893 -- 652
----------- -------- ------- -------- -------
Net revenues..................... 173,116 157,097 29,340 211,310 30,546
----------- -------- ------- -------- -------
OPERATING EXPENSES:
Direct advertising..................... 87,593 106,205 12,174 139,223 18,012
General and administrative............. 13,458 22,126 6,942 12,427 4,502
Depreciation and amortization.......... 22,384 11,369 814 15,382 2,541
----------- -------- ------- -------- -------
Total operating expenses......... 123,435 139,700 19,930 167,032 25,055
----------- -------- ------- -------- -------
GAIN ON DENVER DISPOSITION.............. 7,344 -- -- -- --
----------- -------- ------- -------- -------
OPERATING INCOME........................ 57,025 17,397 9,410 44,278 5,491
INTEREST EXPENSE (INCOME)............... 32,489 -- 363 (2,059) 2,792
----------- -------- ------- -------- -------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY LOSS..................... 24,536 17,397 9,047 46,337 2,699
INCOME TAXES (BENEFIT).................. 10,200 -- -- -- --
----------- -------- ------- -------- -------
INCOME (LOSS) BEFORE EXTRAORDINARY
LOSS................................... 14,336 17,397 9,047 46,337 2,699
EXTRAORDINARY LOSS...................... (17,780) -- -- -- --
----------- -------- ------- -------- -------
NET (LOSS) INCOME....................... (3,444) 17,397 9,047 46,337 2,699
LESS STOCK DIVIDENDS, ACCRETIONS AND
DISCOUNT ON REDEMPTIONS................ 3,461 -- -- -- --
----------- -------- ------- -------- -------
NET (LOSS) INCOME ATTRIBUTABLE TO COMMON
STOCKHOLDERS........................... $ (6,905) $ 17,397 $ 9,047 $ 46,337 $ 2,699
=========== ======== ======= ======== =======
NET (LOSS) INCOME PER COMMON AND
EQUIVALENT SHARE:
Income (loss) before extraordinary
loss................................. $ 0.31
Extraordinary loss..................... (0.50)
-----------
NET (LOSS) INCOME PER COMMON SHARE...... $ (0.19)
===========
WEIGHTED AVERAGE NUMBER OF SHARES....... 35,263,336
===========
<CAPTION>
SUPPLEMENTAL ADJUSTMENTS
PURCHASE ----------------------------
ACCOUNTING COMPLETED PENDING PRO
ADJUSTMENTS TOTAL ACQUISITIONS ACQUISITIONS FORMA
----------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
REVENUES:
Outdoor advertising -- net............. $ 588,594 $ 588,594
Other income........................... 12,815 12,815
----------- -----------
Net revenues..................... 601,409 601,409
----------- -----------
OPERATING EXPENSES:
Direct advertising..................... 363,207 $(14,114)(6) $(38,930)(6) 310,163
General and administrative............. 59,455 (13,608)(6) (11,345)(6) 34,502
Depreciation and amortization.......... $ 58,863(3) 111,353 111,353
---------- ----------- --------- --------- -----------
Total operating expenses......... 58,863 534,015 (27,722) (50,275) 456,018
---------- ----------- --------- --------- -----------
GAIN ON DENVER DISPOSITION.............. 7,344 7,344
---------- ----------- --------- --------- -----------
OPERATING INCOME........................ (58,863) 74,738 27,722 50,275 152,735
INTEREST EXPENSE (INCOME)............... 111,226(4) 144,811 144,811
---------- ----------- --------- --------- -----------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY LOSS..................... (170,089) (70,073) 27,722 50,275 7,924
INCOME TAXES (BENEFIT).................. (37,844)(5) (27,644) 11,089(7) 20,110(7) 3,555
---------- ----------- --------- --------- -----------
INCOME (LOSS) BEFORE EXTRAORDINARY
LOSS................................... (132,245) (42,429) 16,633 30,165 4,369
EXTRAORDINARY LOSS...................... (17,780) (17,780)
---------- ----------- --------- --------- -----------
NET (LOSS) INCOME....................... (132,245) (60,209) 16,633 30,165 (13,411)
LESS STOCK DIVIDENDS, ACCRETIONS AND
DISCOUNT ON REDEMPTIONS................ 3,461 3,461
---------- ----------- --------- --------- -----------
NET (LOSS) INCOME ATTRIBUTABLE TO COMMON
STOCKHOLDERS........................... $(132,245) $ (63,670) $ 16,633 $ 30,165 $ (16,872)
========== =========== ========= ========= ===========
NET (LOSS) INCOME PER COMMON AND
EQUIVALENT SHARE:
Income (loss) before extraordinary
loss................................. $ (0.97) $ 0.02
Extraordinary loss..................... (0.38) (0.38)
----------- -----------
NET (LOSS) INCOME PER COMMON SHARE...... $ (1.35) $ (0.36)
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES....... 47,263,336 47,263,336
=========== ===========
</TABLE>
23
<PAGE> 24
OUTDOOR SYSTEMS, INC.
NOTES TO UNAUDITED CONSOLIDATED PRO FORMA
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
The following explanations describe the assumptions used in determining the
pro forma adjustments necessary to present the pro forma results of operations
of the Company for the year ended December 31, 1996.
<TABLE>
<C> <S> <C>
(1) Represents the operations of Gannett Outdoor excluding the
Houston Acquisition, for the period from January 1, 1996
through August 23, 1996.
(2) Represents 1996 revenues and expenses associated with the
CSX Assets Acquisition and the Houston Acquisition prior
to the respective dates of their acquisition and the 1996
historical results of the Completed 1997 Acquisitions less
revenues and expenses associated with assets sold in the
Denver Disposition.
(3) Entry records the increase in depreciation and
amortization expense arising from purchase accounting
adjustments as follows:
</TABLE>
<TABLE>
<CAPTION>
ACQUISITIONS
AMORTIZATION -------------------
ASSETS PERIOD COMPLETED PENDING TOTAL
-------------------------------------------- ------------ --------- ------- -------
<C> <S> <C> <C> <C> <C>
Advertising structures...................... 20 years $31,796 $45,194 $76,990
Goodwill.................................... 30 years 1,312 10,667 11,979
------- ------- -------
Total..................................................... 33,108 55,861 88,969
Amount recorded in financial statements................... 12,183 17,923 30,106
------- ------- -------
Pro forma adjustment...................................... $20,925 $37,938 $58,863
======= ======= =======
</TABLE>
(4) Entry records interest expense and amortization of
deferred financing fees on the debt issued in connection
with the Acquisitions less interest on the debt redeemed
in 1996, as follows:
<TABLE>
<CAPTION>
ACQUISITIONS
-------------------
COMPLETED PENDING TOTAL
--------- ------- --------
<C> <S> <C> <C> <C>
Interest expense:
Senior Credit Facility.................................. $ 27,723 $46,896 $ 74,619
1996 Notes.............................................. 14,063 -- 14,063
Notes................................................... -- 28,125 28,125
Less interest on the debt redeemed in 1996......... (7,823) -- (7,823)
Less interest on Van Wagner debt assumed by selling
shareholders..................................... -- (2,792) (2,792)
Amortization of deferred financing costs........... 2,817 2,217 5,034
-------- ------- --------
Total interest expense.................................. $ 36,780 $74,446 $111,226
======== ======= ========
</TABLE>
24
<PAGE> 25
OUTDOOR SYSTEMS, INC.
NOTES TO UNAUDITED CONSOLIDATED PRO FORMA
STATEMENTS OF OPERATIONS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACQUISITIONS
--------------------
COMPLETED PENDING TOTAL
--------- -------- --------
<C> <S> <C> <C> <C>
(5) Entry records the income tax effect on the income of
the Acquisitions and purchase adjustments at a blended
rate of 40%............................................ $(12,505) $(25,339) $(37,844)
======== ======== ========
(6) Entry records a) a decrease in payroll and payroll
related costs in direct advertising and general and
administrative expense categories due to termination of
employees in the following functions; and b) the
elimination of general corporate alloca-tions not
considered attributable to operations sold, as follows:
</TABLE>
<TABLE>
<CAPTION>
ACQUISITIONS
-------------------
COMPLETED PENDING
--------- -------
<C> <S> <C> <C>
Direct Advertising:
Elimination of production and sales
overhead functions................................. $13,073 $19,182
Consolidation of Canadian production facility......... 1,041 --
Elimination of national sales and marketing costs..... -- 15,748
Elimination of general corporate overhead
allocation......................................... -- 4,000
------- -------
Total direct advertising........................... 14,114 38,930
------- -------
General and Administrative:
Elimination of national office function, accounting
and administrative personnel....................... 13,608 10,245
Elimination of corporate facility rent allocations.... -- 1,100
------- -------
Total general and administrative................... 13,608 11,345
------- -------
Total......................................... $27,722 $50,275
======= =======
</TABLE>
<TABLE>
<CAPTION>
ACQUISITIONS
-------------------
COMPLETED PENDING
--------- -------
<C> <S> <C> <C>
(7) Entry records the income tax effect of pro forma
adjustments at a blended rate of 40%.................... $11,089 $20,110
======= =======
</TABLE>
25
<PAGE> 26
OUTDOOR SYSTEMS, INC.
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PENDING ACQUISITIONS
OTHER ------------------------- PURCHASE
COMPLETED 3M MEDIA VAN WAGNER ACCOUNTING
COMPANY TRANSACTIONS(1) ACQUISITION ACQUISITION ADJUSTMENTS
----------- --------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES:
Outdoor advertising -- net.................. $ 77,216 $ 2,353 $49,505 $ 7,390
Other income................................ 2,864 1,147 -- 426
----------- ------- ------- -------
Net revenues.......................... 80,080 3,500 49,505 7,816
----------- ------- ------- -------
OPERATING EXPENSES:
Direct advertising.......................... 44,615 1,621 33,197 4,711
General and administrative.................. 6,717 1,158 2,744 1,390
Depreciation and amortization............... 11,635 118 3,785 626 $ 10,405(2)
----------- ------- ------- ------- ---------
Total operating expenses.............. 62,967 2,897 39,726 6,727 10,405
----------- ------- ------- ------- ---------
OPERATING INCOME............................. 17,113 603 9,779 1,089 (10,405)
INTEREST EXPENSE (INCOME).................... 15,922 91 (464) 591 20,109(3)
----------- ------- ------- ------- ---------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY LOSS.......................... 1,191 512 10,243 498 (30,514)
INCOME TAXES (BENEFIT)....................... 500 -- -- -- (7,704)(4)
----------- ------- ------- ------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS...... 691 512 10,243 498 (22,810)
EXTRAORDINARY LOSS........................... -- -- -- -- --
----------- ------- ------- ------- ---------
NET (LOSS) INCOME............................ $ 691 $ 512 $10,243 $ 498 $ (22,810)
=========== ======= ======= ======= =========
NET (LOSS) INCOME PER COMMON AND EQUIVALENT
SHARE:
NET (LOSS) INCOME PER COMMON SHARE........... $ 0.02
===========
WEIGHTED AVERAGE NUMBER OF SHARES............ 46,030,680
===========
<CAPTION>
SUPPLEMENTAL ADJUSTMENTS
----------------------------
COMPLETED PENDING
TOTAL ACQUISITIONS ACQUISITIONS PRO FORMA
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
REVENUES:
Outdoor advertising -- net.................. $ 136,464 $ 136,464
Other income................................ 4,437 4,437
----------- -----------
Net revenues.......................... 140,901 140,901
----------- -----------
OPERATING EXPENSES:
Direct advertising.......................... 84,144 $ (345)(6) $ (9,733)(6) 74,066
General and administrative.................. 12,009 (383)(6) (2,828)(6) 8,798
Depreciation and amortization............... 26,569 26,569
----------- -------- -------- -----------
Total operating expenses.............. 122,722 (728) (12,561) 109,433
----------- -------- -------- -----------
OPERATING INCOME............................. 18,179 728 12,561 31,468
INTEREST EXPENSE (INCOME).................... 36,249 36,249
----------- -------- -------- -----------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY LOSS.......................... (18,070) 728 12,561 (4,781)
INCOME TAXES (BENEFIT)....................... (7,204) 291(7) 5,024(7) (1,889)
----------- -------- -------- -----------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS...... (10,866) 437 7,537 (2,892)
EXTRAORDINARY LOSS........................... -- -- -- --
----------- -------- -------- -----------
NET (LOSS) INCOME............................ $ (10,866) $ 437 $ 7,537 $ (2,892)
=========== ======== ======== ===========
NET (LOSS) INCOME PER COMMON AND EQUIVALENT
SHARE:
NET (LOSS) INCOME PER COMMON SHARE........... $ (0.19) $ (0.05)
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES............ 58,030,680 58,030,680
=========== ===========
</TABLE>
26
<PAGE> 27
OUTDOOR SYSTEMS, INC.
NOTES TO UNAUDITED CONSOLIDATED PRO FORMA
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(DOLLARS IN THOUSANDS)
The following explanations describe the assumptions used in determining the
pro forma adjustments necessary to present the pro forma results of operations
of the Company for the three months ended March 31, 1997.
<TABLE>
<C> <S> <C>
(1) Represents 1997 revenues and expenses associated with the
Completed 1997 Acquisitions prior to the respective dates
of their acquisition.
(2) Entry records the increase in depreciation and
amortization expense arising from purchase accounting
adjustments as follows:
</TABLE>
<TABLE>
<CAPTION>
ACQUISITIONS
AMORTIZATION -------------------
ASSETS PERIOD COMPLETED PENDING TOTAL
-------------------------------------------- ------------ --------- ------- -------
<C> <S> <C> <C> <C> <C>
Advertising structures...................... 20 years $ 1,007 $11,250 $12,257
Goodwill.................................... 30 years 10 2,667 2,677
------- ------- -------
Total..................................................... 1,017 13,917 14,934
------- ------- -------
Amount recorded in financial statements................... 118 4,411 4,529
------- ------- -------
Pro forma adjustment...................................... $ 899 $ 9,506 $10,405
======= ======= =======
</TABLE>
(3) Entry records interest expense and amortization of
deferred financing fees on the debt issued in connection
with the Acquisitions as follows:
<TABLE>
<CAPTION>
ACQUISITIONS
-------------------
COMPLETED PENDING TOTAL
--------- ------- -------
<C> <S> <C> <C> <C>
Interest expense:
Senior Credit Facility................................... $ 1,391 $11,724 $13,115
Notes.................................................... -- 7,031 7,031
Less interest on Van Wagner debt assumed by selling
shareholders...................................... -- (591) (591)
Amortization of deferred financing costs............ -- 554 554
------- ------- -------
Total interest expense................................... $ 1,391 $18,718 $20,109
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
ACQUISITIONS
-------------------
COMPLETED PENDING TOTAL
--------- ------- -------
<C> <S> <C> <C> <C>
(5) Entry records the income tax effect on the income of the
Acquisitions and purchase adjustments at a blended rate
of 40%................................................... $(711) $(6,993) $(7,704)
===== ======= =======
</TABLE>
27
<PAGE> 28
OUTDOOR SYSTEMS, INC.
NOTES TO UNAUDITED CONSOLIDATED PRO FORMA
STATEMENTS OF OPERATIONS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACQUISITIONS
-------------------
COMPLETED PENDING
--------- -------
<C> <S> <C> <C>
(6) Entry records a) a decrease in payroll and payroll
related costs in direct advertising and general and
administrative expense categories due to termination of
employees in the following functions; and b) the
elimination of general corporate alloca-tions not
considered attributable to operations sold, as follows:
Direct Advertising:
Elimination of production and sales
overhead functions.................................. $ 345 $ 4,796
Elimination of national sales and marketing costs...... -- 3,937
Elimination of general corporate overhead allocation... -- 1,000
----- -------
Total direct advertising............................ 345 9,733
----- -------
General and Administrative:
Elimination of national office function, accounting and
administrative personnel............................ 383 2,553
Elimination of corporate facility rent allocations..... -- 275
----- -------
Total general and administrative.................... 383 2,828
----- -------
Total.......................................... $ 728 $12,561
===== =======
</TABLE>
<TABLE>
<CAPTION>
ACQUISITIONS
-------------------
COMPLETED PENDING
--------- -------
<C> <S> <C> <C>
(7) Entry records the income tax effect of pro forma
adjustments at a blended rate of 40%..................... $ 291 $ 5,024
===== =======
</TABLE>
28
<PAGE> 29
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected consolidated financial data presented below were derived from
the audited consolidated financial statements of the Company for the five years
ended December 31, 1996. The financial statements of the Company for the three
years in the period ended December 31, 1996 and as of December 31, 1995 and 1996
were audited by Deloitte & Touche LLP, independent auditors, as indicated in
their report included elsewhere in this Prospectus. The selected balance sheet
data as of March 31, 1996 and 1997 and statement of operations data for the
three months ended March 31, 1996 and 1997 are unaudited, but, in the opinion of
management of the Company, reflect all adjustments (consisting only of normal,
recurring adjustments) necessary for fair presentation of results for such
periods. Results for these periods are not necessarily indicative of the results
that may be expected for the year ending December 31, 1997. The data set forth
below should be read in conjunction with "Management's Discussion and Analysis
of Results of Operations and Financial Condition" and the consolidated financial
statements, including the Notes thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------------- ----------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Net revenues(2)................ $ 44,886 $ 49,151 $ 52,077 $ 64,813 $173,116 $ 16,945 $ 80,080
Operating expenses:
Direct advertising........... 21,781 23,721 24,433 30,462 87,593 7,859 44,615
General and administrative... 2,238 2,777 3,357 4,096 13,458 1,078 6,717
Depreciation and
amortization............... 12,350 10,421 9,165 9,970 22,384 2,561 11,635
Gain on 1994 disposal and the
Denver Disposition........... -- -- 4,325 -- 7,344 -- --
Operating income............... 8,517 12,232 19,447 20,285 57,025 5,447 17,113
Interest expense............... 9,526 11,894 16,393 17,199 32,489 4,152 15,922
Income (loss) before
extraordinary loss and change
in accounting principle(3)... (955) 111 1,333 2,768 14,336 777 691
Net income (loss)(3)........... 5,775 (3,176) 1,333 2,768 (3,444) 777 691
Net income (loss) attributable
to common stockholders....... 1,937 (5,748) (263) 307 (6,905) (130) 691
Net income (loss) per common
share(3)..................... $ 0.07 $ (0.26) $ (0.01) $ 0.01 $ (0.19) $ (.01) $ .02
Shares used in computing per
share computations(4)........ 28,267,380 22,228,834 21,096,379 25,424,078 35,263,336 25,366,144 46,030,680
OTHER DATA:
EBITDA(5)...................... $ 20,867 $ 22,653 $ 24,287 $ 30,255 $ 72,065 $ 8,008 $ 28,748
EBITDA margin(6)............... 46.5% 46.1% 46.6% 46.7% 41.6% 47.3% 35.9%
After-tax cash flow(7)......... $ 11,041 $ 10,532 $ 7,497 $ 12,829 $ 39,286 $ 3,338 $ 12,326
Capital expenditures........... 5,382 4,387 4,924 7,070 9,046 1,194 5,140
Number of advertising
displays..................... 10,700 10,800 11,900 12,700 61,600(8) 12,700 63,900(8)
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital................ $ 5,218 $ 13,967 $ 15,022 $ 8,221 $ 36,142 $ 10,492 $ 25,601
Total assets................... 129,651 129,433 151,260 138,213 933,455 135,863 1,038,845
Total debt..................... 109,283 129,812 155,204 142,269 606,409 142,479 706,428
Common stockholders' equity
(deficiency)................. (23,769) (28,811) (29,074) (28,767) 288,179 (28,898) 288,456
</TABLE>
29
<PAGE> 30
NOTES TO SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
(1) During 1996, the Company completed certain acquisitions, including the
Gannett Outdoor Acquisition on August 22, 1996. See "Prospectus
Summary --Recent Developments." In addition, in 1993 and 1994 the Company
completed certain acquisitions and dispositions. Accordingly, operating
results are not necessarily comparable on a year-to-year basis.
(2) Net revenues are gross revenues minus agency commissions, plus other income
of $1.0 million, $0.4 million and $6.1 million for the years ended December
31, 1994, 1995 and 1996, and $0 and $2.9 million for the three months ended
March 31, 1996 and 1997, respectively.
(3) Deferred financing costs of $3.3 million and $17.8 million associated with
borrowings which were retired or redeemed were charged as an extraordinary
loss during 1993 and 1996, respectively. As of January 1, 1992, the Company
adopted Statement of Financial Accounting Standards ("SFAS") No. 109
Accounting for Income Taxes. SFAS No. 109 allows the income tax consequences
resulting from the utilization of net operating loss carry forwards to be
recorded as a deferred asset. The cumulative effect of this change in
accounting principle was a one-time credit to income of $6.7 million in the
first quarter of 1992.
(4) Weighted average share amounts have been adjusted to reflect the
three-for-two Common Stock splits effected in the form of stock dividends
paid on each of July 22, 1996 and November 22, 1996.
(5) "EBITDA" is defined as operating income before depreciation and amortization
expense and, in 1994 and 1996, before the gain on the 1994 disposal and the
Denver Disposition, respectively. While EBITDA should not be considered in
isolation or as a substitute for net income, cash flows from operating
activities and other income or cash flow statement data prepared in
accordance with generally accepted accounting principles, or as a measure of
profitability or liquidity, management understands that it is customarily
used by certain investors as one measure to evaluate the financial
performance of companies in the outdoor advertising industry.
(6) "EBITDA margin" is EBITDA stated as a percentage of net revenues.
(7) "After-tax cash flow" is defined as income (loss) before extraordinary loss
and change in accounting principle plus depreciation and amortization
expense, and deferred tax expense and excludes the gain on the 1994 disposal
and the Denver Disposition. After-tax cash flow is presented here not as a
measure of operating results and does not purport to represent cash provided
by operating activities. After-tax cash flow should not be considered in
isolation or as a substitute for measures of performance prepared in
accordance with generally accepted accounting principles such as net income
and cash provided by operating activities.
(8) Does not include approximately 125,000 subway advertising display faces in
New York City and the Pending Acquisitions and, with respect to the year
ended December 31, 1996, does not give effect to the Completed 1997
Acquisitions.
30
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
CERTAIN EFFECTS OF THE GANNETT OUTDOOR ACQUISITION
On August 22, 1996, the Company purchased substantially all of the assets
of Gannett Outdoor, including the stock of certain indirect subsidiaries of
Gannett, for approximately $700.0 million in cash. The Company acquired from
Gannett a total of approximately 40,000 advertising display faces consisting of
bulletins, posters and transit advertising display faces in 15 metropolitan
markets in the United States and seven metropolitan markets in Canada and
approximately 125,000 subway advertising display faces in New York City.
Upon consummation of the Gannett Outdoor Acquisition, the Company
immediately began implementing its cost savings and integration strategy, which
included the consolidation of certain administrative, sales management and
leasing management functions. This strategy has resulted in the reduction and
consolidation of duplicative functions in: (i) production and sales overhead;
(ii) production and administrative support; (iii) national sales and marketing
support; and (iv) accounting and administrative areas. In addition, the Company
has eliminated certain duplicative operations by closing a billboard production
facility in Canada, consolidating sales offices in Toronto and closing Gannett
Outdoor's corporate office.
The Company had estimated that these measures would result in annual cost
savings of approximately $33.0 million. Based upon the results of the Company's
consolidation and cost savings efforts to date, the Company believes that annual
cost savings will exceed the original estimate. The Company also believes that
it has increased revenues generated by the Gannett Outdoor assets primarily
through changing the sales compensation system from one that was predominantly
salary-based to one that is commission-based. The Company has also increased
revenues through streamlining the sales approval process and improving
utilization of the Gannett Outdoor billboard inventory. The Company believes
that opportunities still exist to improve the operations of Gannett Outdoor.
While management believes that additional cost savings and revenue
increases are achievable, the Company's ability to achieve such cost savings and
revenue increases is uncertain and subject to numerous factors, many of which
are beyond the Company's control. There can be no assurance that the Company
will realize such additional cost savings and revenue increases or that the
realization of such cost savings and revenue increases will not be delayed over
an extended period of time. See "Risk Factors -- Acquisition Strategy".
CERTAIN EFFECTS OF THE PENDING ACQUISITIONS
3M Media Acquisition. On April 30, 1997, the Company entered into the 3M
Media Purchase Agreement pursuant to which it agreed to purchase 3M Media for
approximately $1.0 billion in cash. In the 3M Media Acquisition, the Company
will acquire from 3M a total of approximately 31,700 advertising display faces
consisting of 22,600 bulletins, 2,400 posters and 6,700 mall advertising display
faces in 56 metropolitan markets and non-metropolitan locations in the United
States.
The operations of 3M Media will be integrated into the Company principally
as an acquisition of advertising display inventory in locations that can be
administered from existing Company offices. Accordingly, the Company believes
that the consolidation of certain functions will result in certain cost savings,
including the elimination of duplicative administrative, sales and production
overhead positions in the 3M Media corporate headquarters and in operating
locations. In addition to these cost savings, the Company believes that it may
be able to achieve additional cost savings arising from reductions in facility
costs through renegotiated rents or reduced space, the reduction of expenses
associated with a reduced work force, and other reductions in administrative
expenses associated with the integration of the combined businesses.
31
<PAGE> 32
Van Wagner Acquisition. On April 11, 1997, the Company entered into the Van
Wagner Stock Purchase Agreement pursuant to which it will purchase all of the
capital stock of Van Wagner for approximately $170 million in cash. The Van
Wagner operations include approximately 50 "Spectacular" signs in Times Square,
105 bulletins and 172 posters and eight wall murals in New York City, 372
bulletins and 16 wall murals in Los Angeles, four bulletins in San Francisco,
and additional transit displays and transit management agreements in New York,
Los Angeles, Northern California and Las Vegas. The Van Wagner operations will
be integrated as an acquisition of advertising display inventory. The Company
will eliminate certain duplicative administrative, sales and production
functions in connection with the integration of the Van Wagner operations with
those of the Company.
Certain Cost Savings. The Company believes that had the cost savings
associated with the 3M Media and Van Wagner Acquisitions been implemented as of
January 1, 1996 such annual savings would have been approximately $50.3 million
in aggregate as detailed below.
<TABLE>
<CAPTION>
VAN
3M MEDIA WAGNER TOTAL
-------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Elimination of production and sales overhead functions........... $14,460 $4,722 $19,182
Elimination of national sales and marketing costs................ 15,748 -- 15,748
Elimination of general corporate overhead allocation............. 4,000 -- 4,000
Elimination of national office function, accounting and
administrative personnel....................................... 6,377 3,868 10,245
Elimination of corporate facility rent allocations............... 1,100 -- 1,100
------- ------ -------
$41,685 $8,590 $50,275
======= ====== =======
</TABLE>
Certain Costs Associated with the Pending Acquisitions. The Company will
incur significant additional costs as a result of the Pending Acquisitions. The
financing of the Pending Acquisitions will significantly increase the Company's
interest expense, adding approximately $865 million to the Company's total
indebtedness assuming completion of the Offerings. Depreciation and amortization
expense will also increase significantly. The Company will record goodwill and
other intangible assets of approximately $320 million in connection with the
Pending Acquisitions, which will be amortized over a period of 30 years. In
addition, the cost basis of advertising display inventory to be acquired by the
Company in the Pending Acquisitions will increase by approximately $675 million
which will be amortized over 20 years.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital decreased to $25.6 million at March 31, 1997
compared to $36.1 million at December 31, 1996. This decrease resulted primarily
from cash used for the financing of the Completed 1997 Acquisitions and the
increase in accrued interest and the current maturities relating to existing
debt associated with the Gannett Outdoor Acquisition and new debt associated
with the Completed 1997 Acquisitions.
Net cash provided by operating activities increased by $13.7 million to
$15.5 million for the three months ended March 31, 1997, compared to $1.8
million for the three months ended March 31, 1996, primarily due to changes in
working capital accounts and the effect of a larger depreciation and
amortization expense as a component of net income. Net cash used in investing
activities increased to $123.0 million in the first quarter of 1997 from $1.2
million in the first quarter of 1996, primarily because of the Completed 1997
Acquisitions. Net cash provided by financing activities was $100.6 million for
the first three months of 1997 compared to net cash used in financing activities
of $0.1 million for the first three months of 1996, primarily because of
borrowings under the Senior Credit Facility used for the Completed 1997
Acquisitions.
32
<PAGE> 33
The Company's working capital was $8.2 million at December 31, 1995 and
$36.1 million at December 31, 1996. The increase in working capital resulted
primarily from working capital acquired in the Gannett Outdoor Acquisition,
offset by an increase in accrued interest and current maturities relating to new
debt associated with the Gannett Outdoor Acquisition.
Net cash provided by operating activities increased by $29.6 million from
$18.6 million during 1995 to $48.2 million during 1996, primarily due to
increased net revenues resulting from the Gannett Outdoor Acquisition. Net cash
used in investing activities increased from $6.3 million in 1995 to $754.1
million in 1996, primarily due to the Gannett Outdoor Acquisition, partially
offset by proceeds from the Denver Disposition in 1996. Net cash used in
financing activities was $14.2 million in 1995 compared to net cash provided by
financing activities of $716.0 million in 1996, primarily due to borrowings
under the Senior Credit Facility used to finance the Gannett Outdoor
Acquisition, and net proceeds from the initial public offering ("IPO") of Common
Stock in April 1996, an offering of Common Stock in August 1996 (the "1996
Common Stock Offering") and the offering of the 1996 Notes in October 1996 (the
"1996 Notes Offering").
The Company made approximately $9.0 million of capital expenditures during
1996, an increase from approximately $7.1 million during 1995. Currently, the
Company has no material commitments for capital expenditures, although it
anticipates ongoing capital expenditures in the ordinary course of business,
other than for acquisitions, will be approximately $26.0 million to $30.0
million in each of the next two years.
The Company completed the IPO on April 24, 1996, resulting in net proceeds
to the Company of $36.6 million. The Company completed the 1996 Common Stock
Offering on August 22, 1996, resulting in net proceeds to the Company of $283.2
million. In addition, on August 22, 1996, the Company increased the revolving
credit facility and term loans under its Senior Credit Facility up to
approximately $530.0 million and incurred bridge loans of $180.0 million under a
subordinated credit facility. The proceeds from these financing activities were
used to purchase substantially all the assets of Gannett Outdoor, to pay the
related fees and expenses and to redeem the $115.0 million 1993 Notes.
In October 1996, the Company completed the 1996 Notes Offering. The net
proceeds from the 1996 Notes Offering of approximately $241.8 million were used
to repay the bridge loan under the subordinated credit facility and to repay a
portion of the term loans under the Senior Credit Facility.
The Company has received a written commitment from Canadian Imperial Bank
of Commerce ("CIBC") to increase the amounts that may be borrowed under the US
portion of its Senior Credit Facility to up to $325 million of revolving credit
loans and up to $715 million in term loans. See "Description of Indebtedness and
Other Commitments -- Senior Credit Facility" and " -- Amendment to the Senior
Credit Facility." The Company believes that the net proceeds of the Offerings,
available borrowings under the Senior Credit Facility as expected to be amended
and internally generated funds will be sufficient to fund the purchase price of
the Pending Acquisitions, allow the Company to make required interest and
principal payments under the Senior Credit Facility, as expected to be amended,
and interest payments on the Notes and the 1996 Notes and to satisfy its
operating cash requirements for at least the next twelve to twenty-four months.
The Company may, however, require additional capital to consummate significant
acquisitions in the future and there can be no assurance that such capital will
be available. After giving effect to the Offerings and the application of the
net proceeds therefrom and the consummation of the Pending Acquisitions, the
Company will have approximately $755.0 million and cdn$48.0 of term loans
outstanding under the Senior Credit Facility, as expected to be amended. The
term loans will require mandatory amortization payments of $60.4 million and
cdn$4.8 million in 1998 and $70.4 million and cdn$7.2 million in 1999. In
addition, the Company will have $252.2 million and cdn$28.3 million of
borrowings outstanding under the revolving credit portion of the Senior Credit
Facility. The revolving credit portion of the Senior Credit Facility, as
expected to be amended, will permit the Company to borrow
33
<PAGE> 34
up to $325.0 million and cdn$35.0 million (approximately $25.0 million based on
current exchange rates).
The Company has also obtained a written commitment from CIBC, Inc. for up
to $300 million principal amount of Bridge Loans. In the event that the Notes
Offering is not consummated prior to or concurrently with the closing of the 3M
Media Acquisition, the Company will fund a portion of the purchase price of the
3M Media Acquisition with Bridge Loans under the Subordinated Credit Facility.
See "Description of Indebtedness and Other Commitments -- The Subordinated
Credit Facility.
34
<PAGE> 35
PRINCIPAL AND SELLING STOCKHOLDERS
The table below sets forth the number and percentage of outstanding shares
of Common Stock beneficially owned by (i) each person known by the Company to
own beneficially more than 5% of the outstanding shares of Common Stock, (ii)
each of the Selling Stockholders, (iii) each director of the Company, (iv) each
executive officer of the Company, and (v) all directors and executive officers
of the Company as a group. The Company believes that each individual or entity
named has sole investment and voting power with respect to shares of Common
Stock indicated as beneficially owned by such stockholder, except as otherwise
noted.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
OF COMMON STOCK OF COMMON STOCK
PRIOR TO THE OFFERING AFTER THE OFFERING++
------------------------ ------------------------
NUMBER PERCENT SHARES NUMBER OF PERCENT
NAME OF BENEFICIAL OWNER OF SHARES OF CLASS BEING OFFERED SHARES OF CLASS
- ---------------------------- ---------- --------- -------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
William S. Levine........... 14,734,240(1) 36.7% 262,500 14,171,740 27.1%
1702 E. Highland, Suite
310
Phoenix, Arizona 85016
Arthur R. Moreno............ 12,051,487(2) 27.2 262,500 11,488,987 20.4
2502 N. Black Canyon
Highway
Phoenix, Arizona 85009
Stephen J. Haberkorn........ 5,511,615(3) 13.7 300,000 5,211,615 10.0
1702 E. Highland, Suite
310
Phoenix, Arizona 85016
Putnam Investments, Inc..... 4,007,831(4) 10.0 4,007,831 7.7
One Post Office Square
Boston, Massachusetts
02109
Wally C. Kelly.............. 462,012(5) 1.1 175,000 287,012 *
Bill M. Beverage............ 42,188(6) * 42,188 *
Robert M. Reade............. 28,125(7) * 28,125 *
Stephen F. Butterfield...... 49,500(8) * 49,500 *
Brian J. O'Connor........... 15,750(9) * 15,750 *
All directors and executive
officers as a group (7
persons).................. 21,951,687(10) 49.0% 20,951,687 36.9%
</TABLE>
- ---------------
++ Assumes no exercise of the Underwriters' over-allotment option.
* Represents less than 1% of the number of outstanding shares of Common Stock.
(1) Includes 5,431,615 shares (5,131,615 shares after the Offering) of Common
Stock owned by M-K Link Investments Limited Partnership ("M-K Link") over
which Mr. Levine shares voting control with Mr. Moreno and over which
Messrs. Levine and Moreno have certain rights of first refusal with respect
to certain private sales. Of those 5,431,615 shares (5,131,615 shares after
the Offering), 301,507 shares are subject to an option granted to Mr.
Levine (now held by Levine Investments Limited Partnership, Mr. Levine's
family partnership) and 1,993,418 shares are subject to an option granted
to Mr. Moreno (see Note 2 below). Mr. Levine disclaims beneficial ownership
of the shares owned by M-K Link except to the extent of the 301,507 shares
subject to the option granted to Mr. Levine. The option for the 301,507
shares of Common Stock of M-K Link and 9,202,625 shares (8,940,125 shares
after the Offering) of Common Stock attributed to Mr. Levine are owned by
Levine Investments Limited Partnership, 1702 E. Highland, Suite 310,
Phoenix, Arizona 85016. Mr. Levine is the sole general partner of Levine
Investments Limited Partnership; Mr. Levine, his wife and children are the
limited partners. Mr. Levine disclaims beneficial ownership of such shares
and option except in his capacity as general partner and to the extent of
his partnership interest therein. The remaining 100,000 shares of Common
Stock attributed to Mr. Levine are held by William S. and Ina Levine
Foundation (the "Levine Family Foundation") a charitable foundation
35
<PAGE> 36
of which Mr. Levine is President and member of the Board of Directors. Mr.
Levine disclaims beneficial ownership of the shares held by the Levine
Family Foundation.
(2) Includes 5,431,615 shares (5,131,615 shares after the Offering) of Common
Stock owned by M-K Link over which Mr. Moreno shares voting control with
Mr. Levine and over which Messrs. Levine and Moreno have certain rights of
first refusal with respect to certain private sales. Of those 5,431,615
shares (5,131,615 shares after the Offering), 1,993,418 shares are subject
to an option granted to Mr. Moreno and 301,507 shares are subject to an
option granted to Mr. Levine now held by Mr. Levine's family partnership
(see Note 1 above). Mr. Moreno disclaims beneficial ownership of the shares
owned by M-K Link except to the extent of the 1,993,418 shares subject to
the option granted to Mr. Moreno. Also includes (i) 4,120,139 shares of
Common Stock that may be purchased by Mr. Moreno pursuant to options
granted by the Company that are currently exercisable; (ii) 1,278,617
shares (1,016,117 after the Offering) of Common Stock held by Mr. Moreno
and his wife, as joint tenants; and (iii) 1,221,116 shares held by BRN
Properties Limited Partnership, an Arizona limited partnership of which Mr.
Moreno is the sole general partner.
(3) Represents (i) 5,431,615 shares (5,131,615 shares after the Offering) of
Common Stock held by M-K Link, 1702 E. Highland, Suite 310, Phoenix,
Arizona 85016, an Arizona limited partnership of which Mr. Haberkorn is the
sole general partner and (ii) 80,000 shares owned by M-K Link Foundation, a
charitable foundation of which Mr. Haberkorn is President and member of the
Board of Directors. Of the shares held by M-K Link, 2,294,925 are subject
to options held by Levine Investments Limited Partnership and Mr. Moreno.
Mr. Haberkorn disclaims beneficial ownership of shares owned by M-K Link,
except in his capacity as general partner and to the extent of his
partnership interest therein, and both he and M-K Link disclaim beneficial
ownership of shares subject to options in favor of Levine Investments
Limited Partnership and Mr. Moreno. Mr. Haberkorn also disclaims beneficial
ownership of the shares owned by the M-K Link Foundation. Messrs. Levine
and Moreno hold certain voting and rights of refusal power as to shares
owned by M-K Link. See Notes 1 and 2 above.
(4) Based on Schedule 13G, as amended, filed by the indicated person with the
Securities and Exchange Commission reporting beneficial ownership as of
December 31, 1996. Each of Putnam Investment Management, Inc. and the
Putnam Advisory Company, Inc., wholly-owned registered investment advisors
of Putnam Investments, Inc. having the same address, also filed a Schedule
13G with the Commission which, as amended, reports beneficial ownership of
3,757,910 shares and 249,921 shares, respectively, as of December 31, 1996.
(5) Represents options to purchase shares of Common Stock from the Company that
are currently exercisable. Does not include any shares of Common Stock that
Mr. Kelly may receive in settlement of Incentive Units.
(6) Represents shares of Common Stock subject to options that are currently
exercisable. Does not include any shares of Common Stock that Mr. Beverage
may receive in settlement of Incentive Units.
(7) Represents shares of Common Stock subject to options that are currently
exercisable. Does not include any shares of Common Stock that Mr. Reade may
receive in settlement of Incentive Units.
(8) Includes (i) 2,250 shares of Common Stock owned by Mr. Butterfield's
children, and (ii) 2,250 shares of Common Stock subject to options that are
currently exercisable.
(9) Includes 4,500 shares of Common Stock subject to options that are currently
exercisable.
(10) Includes (i) 301,507 and 1,993,418 shares of Common Stock that may be
acquired by Levine Investments Limited Partnership and Mr. Moreno,
respectively, upon the exercise of options held by them to purchase shares
held by M-K Link (see Notes 1 and 2 above), and (ii) 4,659,214 shares
(4,484,214 shares after the Offering) of Common Stock that may be acquired
upon the exercise of options granted by the Company which are currently
exercisable. Does not include shares of Common Stock that may be issued in
settlement of Incentive Units.
36
<PAGE> 37
DESCRIPTION OF CAPITAL STOCK
As of the date of this Prospectus, the Company's authorized capital stock
consists of 60,000,000 shares of Common Stock, $.01 par value per share, and
12,000,000 shares of preferred stock, $1.00 par value each ("Preferred Stock"),
the terms and provisions of which may be designated by the Board of Directors in
the future. The following summary of the Company's capital stock is qualified in
its entirety by reference to the Company's Third Amended and Restated
Certificate of Incorporation (the "Certificate of Incorporation") and Amended
and Restated Bylaws (the "By-laws"), each of which was filed as an exhibit to
the registration statement of which this Prospectus is a part.
COMMON STOCK
The Company is authorized to issue 60,000,000 shares of Common Stock, $0.01
par value per share. Following the Offering, 52,330,631 shares of Common Stock
will be issued and outstanding (assuming no exercise of the Underwriters'
over-allotment option). See "Capitalization." Holders of Common Stock are
entitled to one vote per share on all matters on which the holders of Common
Stock are entitled to vote. Because holders of Common Stock do not have
cumulative voting rights and the Company has a classified Board of Directors,
the holders of a majority of the shares of Common Stock voting for the election
of directors can elect all of the members of the Board of Directors standing for
election at any particular meeting. The Common Stock is not redeemable and has
no conversion or preemptive rights. All of the outstanding shares of Common
Stock are, and all of the shares of Common Stock sold in the Offering will be,
when issued and paid for, fully paid and nonassessable. In the event of the
liquidation or dissolution of the Company, subject to the rights of the holders
of any outstanding shares of Preferred Stock, the holders of Common Stock are
entitled to share pro rata in any balance of the corporate assets available for
distribution to them. The Company may pay dividends if, when and as declared by
the Board of Directors from funds legally available therefor, subject to the
dividend provisions of any outstanding shares of Preferred Stock and
restrictions set forth in the Company's debt instruments. See "Dividend Policy."
PREFERRED STOCK
Holders of shares of Preferred Stock have no preemptive rights or
cumulative voting rights. In addition to specific prohibitions set forth in the
Certificate of Incorporation, under Delaware law holders of preferred stock are
entitled to vote as a class upon any proposed amendment, whether or not entitled
to vote thereon by the Certificate of Incorporation, if such amendment would
increase or decrease the par value of the shares of such class, or alter or
change the powers, preferences, or special rights of the shares of such class so
as to affect them adversely.
DESCRIPTION OF INDEBTEDNESS AND OTHER COMMITMENTS
The following is a description of the principal agreements that will govern
the indebtedness of the Company following the consummation of the Acquisitions.
The following summaries of certain provisions of the Senior Credit Facility and
the 1996 Notes Indenture are qualified in their entirety by reference to such
documents, a copy of each of which is filed or incorporated by reference as an
exhibit to the registration statement of which this Prospectus is a part. See
"Available Information." Capitalized terms used below and not defined have the
meanings set forth in the respective documents.
THE NOTES
The Notes intended to be offered in the Notes Offering are to be issued
under an indenture (the "Indenture") among the Company, the Subsidiary
Guarantors (as defined) and a trustee to be selected by the Company. The
Indenture will provide for the issuance of up to $300 million aggregate
principal amount of the Notes, which will be general unsecured obligations of
the Company subordinate in right of payment to all existing and future senior
indebtedness of the
37
<PAGE> 38
Company. The Notes will be unconditionally guaranteed, on an unsecured senior
subordinated basis, as to payment of principal, premium, if any, and interest,
jointly and severally, by all of the Subsidiary Guarantors. The Notes will be
pari passu with the 1996 Notes.
The Notes will be redeemable at the option of the Company, in whole or in
part, at any time on or after the fifth anniversary of the date of original
issuance thereof, at the redemption prices set forth in the Indenture plus
accrued and unpaid interest, if any, to but excluding the date of redemption.
Also, on or prior to the third anniversary of the date of original issuance
thereof, the Company may redeem up to 35% of principal amount of the Notes with
the net proceeds of one or more future public equity offerings, in cash, at 110%
of the principal amount thereof, together with accrued and unpaid interest, if
any, to the date of redemption; provided that Notes having an aggregate
principal amount of at least $195 million remain outstanding immediately after
any such redemption.
The Indenture will contain covenants, events of default and other
provisions that will be substantially the same as those contained in the 1996
Notes Indenture. See "-- The 1996 Notes" below.
THE 1996 NOTES
The 1996 Notes were issued under the 1996 Notes Indenture among the
Company, the Subsidiary Guarantors (as defined therein) and The Bank of New
York, as trustee. The 1996 Notes are general unsecured obligations of the
Company subordinate in right of payment to all existing and future senior
indebtedness of the Company. The 1996 Notes are unconditionally guaranteed, on
an unsecured senior subordinated basis, as to payment of principal, premium, if
any, and interest, jointly and severally, by all of the Subsidiary Guarantors.
The 1996 Notes mature on October 15, 2006.
The 1996 Notes are redeemable at the option of the Company, in whole or in
part, at any time on or after October 15, 2001, at the redemption prices set
forth in the 1996 Notes Indenture plus accrued and unpaid interest, if any, up
to but excluding the date of redemption. Also, on or prior to October 15, 1999,
the Company may redeem up to 35% of principal amount of the 1996 Notes with the
net proceeds of one or more future public equity offerings, in cash, at 110% of
the principal amount thereof, together with accrued and unpaid interest, if any,
to the date of redemption; provided that 1996 Notes having an aggregate
principal amount of at least $162.5 million remain outstanding immediately after
any such redemption. Upon the occurrence of a Change of Control (as defined),
the Company will be required to make an offer to purchase all 1996 Notes then
outstanding at a purchase price, in cash, equal to 101% of the principal amount
thereof, together with accrued and unpaid interest, if any, to the date of
purchase.
The 1996 Notes Indenture contains certain restrictive covenants, including
limitations on (i) the incurrence of indebtedness; (ii) the payment of dividends
and the making of restricted payments; (iii) transactions with affiliates; (iv)
the existence of liens; (v) the disposition of proceeds of asset sales; (vi)
entering into sale and lease-back transactions; (vii) the making of guarantees
by the Company and its subsidiaries; (viii) transfers and issuances of stock of
its subsidiaries; (ix) the imposition of restrictions on certain payments by the
Company or its subsidiaries; (x) the making of certain investments by the
Company or its subsidiaries; and (xi) certain mergers and consolidations.
The 1996 Notes Indenture contains customary events of default, including,
without limitation, the following: (i) the failure to pay principal or interest
when due; (ii) certain defaults under agreements relating to other indebtedness;
(iii) the material breach of any covenant; (iv) the levy of certain judgments;
and (v) certain bankruptcy, reorganization and insolvency events. The occurrence
of an event of default will permit the holders of the 1996 Notes to accelerate
the 1996 Notes and to pursue other remedies.
38
<PAGE> 39
SENIOR CREDIT FACILITY
The Senior Credit Facility provides for revolving credit loans, letters of
credit and term loans to the Company (the "US Facility") and for revolving
credit loans, letters of credit, bankers' acceptances and term loans to Mediacom
Inc., a wholly-owned Canadian subsidiary (the "Canadian Subsidiary") of the
Company (the "Canadian Facility").
US Facility
The US Facility provides for: (i) revolving credit loans of up to $400
million subject to reduction by the amount (up to $275 million) by which the
aggregate principal amount of any additional subordinated indebtedness issued by
the Company on or prior to June 30, 1997 exceeds $200 million and subject to
automatic reduction each year commencing in 1998 and continuing through 2002;
(ii) term loans in the aggregate amount of $350 million, payable in quarterly
installments with a final installment due in 2003; and (iii) letter of credit
commitments of $35 million (but only to the extent there is available US
revolving credit commitment which is not being utilized).
The US revolving credit loans and US term loans may be, at the option of
the Company, Eurodollar Loans, ABR Loans, or a combination thereof. Eurodollar
Loans bear interest at a rate per annum equal to the Eurodollar rate (as
hereinafter described) plus an applicable margin. The "Eurodollar rate" is a
rate per annum determined by CIBC, as administrative agent, based upon the rates
at which US dollar deposits with a term comparable to the interest period
applicable to the Eurodollar Loan being made are offered by leading banks in the
London interbank deposit market (adjusted for maximum reserves). ABR Loans bear
interest at a rate per annum equal to the ABR (as defined below) plus an
applicable margin. "ABR" means, on a particular date, a rate per annum equal to
the highest of (a) the rate of interest most recently announced by CIBC as its
Base Rate, (b) the rate of interest for such date offered in the interbank
market to CIBC, as administrative agent, at the overnight Federal Funds Rate,
plus 1%, and (c) the rate determined by CIBC, as administrative agent, based on
the latest 3-week moving average of daily secondary market morning offering
rates in the United States for 3-month certificates of deposit of major United
States money market lenders as published by the Federal Reserve Bank of New York
(as adjusted for reserves and assessments), plus 1%.
The obligations of the Company under the Senior Credit Facility are secured
by a security interest in substantially all of the Company's assets, including,
with certain exceptions, both real and personal property.
Canadian Facility
The Canadian Facility provides for: (i) revolving credit loans to the
Canadian Subsidiary of up to cdn$35 million (the equivalent of approximately $25
million at current exchange rates), subject to automatic reduction each year
from 1999 to 2002; (ii) term loans to the Canadian Subsidiary (A) payable in
Canadian dollars ("cdn$") in the aggregate amount of cdn$48 million (the
equivalent of approximately $35 million at current exchange rates) payable in
quarterly installments with the final installment due in 2002 and (B) payable in
US dollars ("US$") in the aggregate amount of $40 million payable in quarterly
installments with the final installment due in 2003; (iii) revolving credit loan
borrowings and certain term loan borrowings through the issuance of bankers'
acceptances in a minimum aggregate face amount of cdn$4 million and for a term
of 30, 60, 90 or 180 days; and (iv) letter of credit commitments of cdn$7
million (but only to the extent there is available Canadian revolving credit
commitment which is not being utilized).
The Canadian revolving credit loans and the cdn$ term loans may be, at the
option of the Canadian Subsidiary, cdn$ Prime Loans, bankers' acceptances or a
combination thereof. Cdn$ Prime Loans bear interest at a rate per annum equal to
the cdn$ Prime Rate (as hereinafter described) plus an applicable margin. The
cdn$ Prime Rate is a rate per annum equal to the greater of (i) the CIBC
reference rate and (ii) the sum of 0.50% plus the per annum rate of interest
appearing on "Reuters Screen CDOR Page" applicable to 30 day cdn$ bankers'
acceptances of certain Canadian banks. The
39
<PAGE> 40
US$ term loans may be, at the option of the Canadian Subsidiary, Eurodollar
Loans, ABR Loans or a combination thereof. See "-- US Facility" above.
The obligations of the Canadian Subsidiary under the Senior Credit Facility
are secured by a security interest in substantially all of the assets of the
Canadian Subsidiary, including, with certain exceptions, both real and personal
property.
General Terms
The Senior Credit Facility contains various covenants that limit the
ability of the Company to, among other things, incur indebtedness, dispose of
assets, pay dividends or purchase or redeem any shares of capital stock, make
capital expenditures and make loans or investments.
The Senior Credit Facility also requires the Company and its subsidiaries
to maintain a total leverage ratio and a senior leverage ratio at certain levels
and to maintain certain interest expense coverage and fixed charges coverage.
The Senior Credit Facility contains various affirmative covenants including,
without limitation, a covenant to enter into hedging arrangements to provide
interest rate protection in respect of a portion of the Company's indebtedness.
The Senior Credit Facility contains customary events of default, including,
without limitation, the Company's failure to pay principal or interest when due,
the Company's material breach of any covenant, representation or warranty or the
Company's bankruptcy. In addition, under the Senior Credit Facility, events of
default will occur if the Company's revenues from tobacco advertisements exceeds
15% of revenues for four consecutive quarters, and upon a change of control of
the Company.
AMENDMENT TO THE SENIOR CREDIT FACILITY
The Company has received a written commitment from CIBC to increase the
amounts that may be borrowed under the US Facility to (i) up to $325 million of
revolving credit loans and (ii) up to $715 million of term loans. The Senior
Credit Facility is expected to be amended effective upon the consummation of the
3M Media Acquisition to reflect such increase, to extend the maturity of the
loans by one year and to make certain other related changes. The Company intends
to use additional borrowings under the Senior Credit Facility, as expected to be
amended, to finance a portion of the purchase price of the 3M Media Acquisition.
There can be no assurance, however, that the expected amendment will be entered
into as currently contemplated.
THE SUBORDINATED CREDIT FACILITY
The Company has received a commitment from CIBC, Inc. for a Subordinated
Credit Facility under which it may obtain up to $300 million of Bridge Loans in
the event the Notes Offering is not consummated. The Bridge Loans, if made, will
constitute unsecured, senior subordinated indebtedness of the Company. The
following is a summary of the principal terms of the Subordinated Credit
Facility as currently proposed by the Company and CIBC, Inc. There is no
assurance, however, that the terms of the Subordinated Credit Facility that will
be entered into if the Notes Offering is not consummated will not contain terms
and conditions that are substantially different than the proposed terms
summarized below.
Conversion to Term Loans. Subject to the absence of any existing default
or event of default and certain other conditions, the Bridge Loans will be
converted on the first anniversary of the closing of the Bridge Loans (the
"Conversion Date") into term loans (the "Term Loans"), which will mature on the
10th anniversary of the closing date (the "Maturity Date").
Interest. Interest on the Bridge Loans and any Term Loans will be a
variable rate which will fluctuate monthly in relation to the three-month LIBOR,
plus the Applicable Spread. The "Applicable Spread" will be an increasing
percentage per annum which will rise prior to the Conversion Date from the
initial Applicable Spread of 6% to 7.5%. On the Conversion Date, the Applicable
40
<PAGE> 41
Spread will increase by 0.5% over the then current Applicable Spread, and will
continue to increase by the same increment after each three-month period
following the Conversion Date, subject to a maximum interest rate of 20% per
annum. The Company will have the option to pay any portion of the interest on
the Bridge Loans and the Term Loans in excess of 15% per annum by issuing
additional Bridge Loan Promissory Notes or additional Term Loan Promissory
Notes, as applicable.
Voluntary Prepayments. The Company may prepay the Bridge Loans without
penalty or premium, in whole or in part. The Term Loans may be prepaid in whole
or in part at a prepayment price initially at 101% of the principal amount
thereof on the first anniversary of the closing date, increasing annually
thereafter to 104% of the principal amount thereof on the fourth and fifth
anniversaries and then declining annually to 100% of the principal amount
thereof on the ninth anniversary of the closing date, plus accrued interest to
the prepayment date.
Mandatory Prepayments. The Company will be required to apply net cash
proceeds from certain asset sales in excess of $5 million to prepay a portion of
the Bridge Loans or Term Loans (collectively, "Loans"), as the case may be, to
the extent that such net cash proceeds are not used to prepay term loans and
revolving credit loans under the Senior Credit Facility, to repurchase 1996
Notes or to make an investment in a related business. The Company will also be
required, subject to compliance with the terms of the Senior Credit Facility, to
apply net proceeds received from the issuance of securities to the prepayment of
the Loans.
Change of Control. Upon a change of control of the Company, each holder of
Bridge Loans may require the Company to purchase all or a portion of such
holder's Bridge Loans at a purchase price equal to 100% of the outstanding
principal amount thereof, plus accrued interest thereon to the date of purchase.
Prior to any purchase of the Bridge Loans, the Company will be required to
either repay its obligations under the Senior Credit Facility or to obtain the
consent of the lenders thereunder.
Covenants. The Subordinated Credit Facility will restrict the ability of
the Company and its subsidiaries to, among other things: (i) incur indebtedness;
(ii) incur liens; (iii) declare dividends, repurchase its capital stock or
prepay, repurchase or make sinking fund payments in respect of any subordinated
indebtedness; (iv) make certain investments; (v) guarantee indebtedness; (vi)
incur indebtedness unless subordinated to the Bridge Loans; (vii) enter into
mergers or consolidations or sell all or substantially all of its business,
property or assets, except for the Pending Acquisitions and in certain other
circumstances; (viii) enter into agreements prohibiting or limiting the ability
of subsidiaries of the Company to pay dividends, transfer property or assets to
the Company or any other subsidiary of the Company; (ix) enter into transactions
with affiliates; (x) sell capital stock of any of the Company's subsidiaries;
(xi) enter into amendments or waivers with respect to the Senior Credit Facility
materially adversely affecting the issuance of the Demand Take Out Notes (as
defined below); (xii) amend its charter documents; (xiii) refinance the Bridge
Loans in part other than through the Demand Take Out Notes (as defined below) or
the Exchange Notes (as defined below), except under certain circumstances; (xiv)
enter into asset sales; (xv) transfer assets to a subsidiary of the Company
other than for payment of fair market value except under certain circumstances;
and (xvi) permit its subsidiaries to guarantee certain indebtedness.
Subordination of Loans and Guarantees of Subsidiaries. The obligations of
the Company and of the Subsidiary Guarantors under the Subordinated Credit
Facility will be subordinated to the rights of holders of senior indebtedness of
the Company and the Subsidiary Guarantors, as the case may be.
Events of Default. The Subordinated Credit Facility will contain customary
events of default, including, without limitation, the following: (i) the failure
to pay principal or interest when due; (ii) certain defaults under agreements
relating to other indebtedness; (iii) the material breach of any covenant,
representation or warranty; (iv) the levy of certain judgments; (v) default
under a guarantee of a Subsidiary Guarantor relating to the Company's
obligations under certain agreements'; (vi) the commencement of a proceeding in
foreclosure with respect to collateral securing
41
<PAGE> 42
the Senior Credit Facility; and (vii) certain bankruptcy, reorganization and
insolvency events. The occurrence of an event of default permits the Bridge
Lenders to accelerate the indebtedness under the Subordinated Credit Facility
and to pursue other remedies.
Demand Take Out Notes. The Company will be required to take all reasonable
actions necessary to the extent within its power, upon request by one or more
investment banks (the "Take Out Banks") prior to the Conversion Date, to enable
the Take Out Banks to publicly sell or privately place senior subordinated notes
(the "Demand Take Out Notes"), the proceeds of which are to be used to repay the
Bridge Loans in whole or in part and which will be guaranteed by each subsidiary
of the Company that guarantees the Bridge Loans.
Exchange Notes. At the written request of the holder of any Term Loan, the
Company and each Subsidiary Guarantor will be required to enter into a trust
indenture in substantially the form to be attached as an exhibit to the
Subordinated Credit Facility and to issue notes (the "Exchange Notes")
thereunder in exchange for the same principal amount of Term Loans or portion
thereof being exchanged.
42
<PAGE> 43
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters") have severally agreed to purchase
from the Company and the Selling Stockholders, the following respective numbers
of shares of Common Stock at the public offering price less the underwriting
discounts and commissions set forth on the cover page of the Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- -------------------------------------------------------------------------------- ----------
<S> <C>
Alex. Brown & Sons Incorporated................................................. 2,600,000
Donaldson, Lufkin & Jenrette Securities Corporation............................. 2,600,000
CIBC Wood Gundy Securities Corp. ............................................... 2,600,000
Montgomery Securities........................................................... 2,600,000
Prudential Securities Incorporated.............................................. 2,600,000
----------
Total................................................................. 13,000,000
==========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all shares of the Common Stock offered hereby if any
of such shares are purchased.
The Company and the Selling Stockholders have been advised by the
Underwriters that the Underwriters propose to offer the shares of Common Stock
to the public at the public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $0.67 per share. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $0.10 per share to certain other dealers. After the
public offering, the offering price and other selling terms may be changed by
the Underwriters.
The Company and certain of the Selling Stockholders have granted to the
Underwriters an option, exercisable not later than 30 days after the date of
this Prospectus, to purchase up to 1,950,000 additional shares of Common Stock
(up to 975,000 shares to be purchased from the Company and up to 975,000 shares
from such Selling Stockholders) at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it shown in the above table bears to 13,000,000, and the Company and the Selling
Stockholders will be obligated, pursuant to the option, to sell such shares to
the Underwriters. The Underwriters may exercise such option only to cover
over-allotments made in connection with the sale of Common Stock offered hereby.
If purchased, the Underwriters will offer such additional shares on the same
terms as those in which the 13,000,000 shares are being offered.
In connection with the Offering, certain Underwriters may engage in passive
market making transactions in the Common Stock on the Nasdaq National Market
immediately prior to the commencement of sales in the Offering in accordance
with Rule 103 of Regulation M. Passive market making consists of displaying bids
on the Nasdaq National Market limited by the bid prices of independent market
makers and making purchases limited by such prices and effected in response to
order flow. Net purchases by a passive market maker on each day are limited to a
specified percentage of the passive market maker's average daily trading volume
in the Common Stock during a specified period and must be discontinued when such
limit is reached. Passive market making may stabilize the market price of the
Common Stock at a level above that which might otherwise prevail and, if
commenced, may be discontinued at any time.
Subject to applicable limitations, the Underwriters, in connection with the
Offering, may place bids for or make purchases of the Common Stock in the open
market or otherwise, for long or short account, or cover short positions
incurred, to stabilize, maintain or otherwise affect the price of the Common
Stock, which may be higher than the price that might otherwise prevail in the
open market. There can be no assurance that the price of the Common Stock will
be stabilized, or that stabilizing, if commenced, will not be discontinued at
any time. Subject to applicable limitations,
43
<PAGE> 44
the Underwriters may also place bids or make purchases on behalf of the
underwriting syndicate to reduce a short position created in connection with the
Offering. The Underwriters are not required to engage in these activities and
may end these activities at any time.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.
The Selling Stockholders and certain other stockholders of the Company, who
will hold in the aggregate 20,851,687 shares of Common Stock after the Offering
(including currently exercisable options to purchase 4,484,214 shares of Common
Stock) have agreed not to offer, sell or otherwise dispose of any of such Common
Stock for a period of 180 days after the date of this Prospectus without the
prior consent of Alex. Brown & Sons Incorporated.
CIBC Wood Gundy Securities Corp. ("CIBC Wood Gundy") is an affiliate of
CIBC, which is the administrative agent and a lender under the Senior Credit
Facility. Affiliates of CIBC Wood Gundy have committed to provide any necessary
bridge financing in connection with the Pending Acquisitions for which they have
received customary fees. CIBC Wood Gundy has also provided the Company with
financial advisory services in connection with the Pending Acquisitions for
which it will receive customary fees.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Powell, Goldstein, Frazer & Murphy LLP,
Atlanta, Georgia. Certain legal matters will be passed upon for the Underwriters
by Piper & Marbury L.L.P., Baltimore, Maryland.
EXPERTS
The Consolidated Financial Statements of the Company as of December 31,
1996 and 1995 and for each of the three years in the period ended December 31,
1996 included in this Prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein and are
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
The Gannett Outdoor Combined Statement of Net Assets to be Acquired by
Outdoor Systems, Inc. as of December 31, 1994 and 1995 and the Gannett Outdoor
Combined Statements of Revenues and Direct Expenses of Net Assets to be Acquired
by Outdoor Systems, Inc. for the years ended December 31, 1993, 1994 and 1995
incorporated in this Prospectus by reference from the Company's Prospectus
included in the Registration Statement on Form S-3 (File No. 333-9713) have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which is incorporated herein by reference, and have been so incorporated
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
The financial statements of National Advertising Company as of December 31,
1996 and 1995 and for each of the three years in the period ended December 31,
1996, included in this Prospectus have been included herein in reliance on the
report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
44
<PAGE> 45
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and, in accordance therewith, files reports and other information with the
Commission. Reports and other information filed with the Commission pursuant to
the Exchange Act may be inspected and copied, at the offices of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549 and at its regional offices at
Seven World Trade Center, New York, New York 10048, and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials may be obtained
from the public reference section of the Commission at its Washington address
upon payment of the prescribed fee. The Commission also maintains an Internet
Web Site at http://www.sec.gov. that contains reports and other information
about the Company.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents or information filed by the Company with the
Commission are incorporated in this Prospectus by reference and made a part
hereof: (i) Annual Report on Form 10-K for the fiscal year ended December 31,
1996 (File No. 0-28256); (ii) Current Report on Form 10-Q for the quarter ended
March 31, 1997 (File No. 0-28256); (iii) the Proxy Statement for the 1997 Annual
Meeting of Shareholders (File No. 0-28256); (iv) the Gannett Outdoor Combined
Statements of Net Assets to be Acquired as of December 31 1994 and 1995 and the
Gannett Outdoor Combined Statements of Revenues and Direct Expenses of Net
Assets to be Acquired for the years ended December 31, 1993, 1994 and 1995,
together with notes thereto and Independent Auditors' Report thereon, contained
in the Company's Prospectus dated October 9, 1996 included in its Registration
Statement on Form S-3 (File No. 333-9713); and (v) the description of the Common
Stock contained in Registration Statement on Form 8-A filed on April 19, 1996
(File No. 0-28256).
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 and
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the Offering shall be deemed to be incorporated by reference
in this Prospectus and to be a part hereof from the respective dates of filing
of such documents. Any statement contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document incorporated or
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute part of this Prospectus.
The Company undertakes to provide without charge to each person to whom a
copy of this Prospectus has been delivered, upon written or oral request, a copy
of any or all information incorporated by reference in this Prospectus (not
including exhibits to such information, unless such exhibits are specifically
incorporated by reference into such information). Such requests should be
directed to Outdoor Systems, Inc., Attention: Bill M. Beverage, Chief Financial
Officer, Treasurer and Secretary, at 2502 North Black Canyon Highway, Phoenix,
Arizona 85009, telephone number (602) 246-9569.
45
<PAGE> 46
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE COMPANY:
Independent Auditors' Report.......................................... F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996 and March
31, 1997............................................................ F-3
Consolidated Statements of Operations for the Years Ended December 31,
1994, 1995 and 1996 and the three months ended March 31, 1996 and
1997................................................................ F-4
Consolidated Statements of Common Stockholders' Equity (Deficiency)
for the Years Ended December 31, 1994, 1995 and 1996 and the three
months ended March 31, 1997......................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1994, 1995 and 1996 and the three months ended March 31, 1996 and
1997................................................................ F-6
Notes to Consolidated Financial Statements............................ F-7
NATIONAL ADVERTISING COMPANY:
Report of Independent Accountants..................................... F-22
Balance Sheets as of December 31, 1995 and 1996 and March 31, 1997.... F-23
Statements of Income for the Years Ended December 31, 1994, 1995 and
1996 and the three months ended March 31, 1996 and 1997............. F-24
Statements of Cash Flows for the Years Ended December 31, 1994, 1995
and 1996 and the three months ended March 31, 1996 and 1997......... F-25
Notes to Financial Statements......................................... F-26
</TABLE>
F-1
<PAGE> 47
INDEPENDENT AUDITORS' REPORT
Board of Directors
Outdoor Systems, Inc.
Phoenix, Arizona
We have audited the accompanying consolidated balance sheets of Outdoor
Systems, Inc. and subsidiaries (the "Company") as of December 31, 1995 and 1996,
and the related consolidated statements of operations, common stockholders'
equity (deficiency) and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
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, such consolidated financial statements present fairly, in
all material respects, the financial position of Outdoor Systems, Inc. and
subsidiaries at December 31, 1995 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Phoenix, Arizona
February 14, 1997, except for Note 16 as
to which the date is March 26, 1997
F-2
<PAGE> 48
OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1995 1996 1997
-------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................................... $ 1,739 $ 11,887 $ 4,921
Accounts receivable -- less allowance for doubtful accounts of
$1,010, $5,398, and $5,940....................................... 10,971 56,975 59,402
Prepaid land leases................................................ 1,691 10,938 11,745
Other current assets, including amounts due from related parties of
$62, $385, and $374 (Notes 2 and 14)............................. 613 15,737 17,766
Deferred income taxes (Note 11).................................... 415 1,637 1,637
-------- -------- ----------
Total current assets........................................ 15,429 97,174 95,471
PROPERTY AND EQUIPMENT -- Net (Notes 2, 3 and 5)..................... 111,729 742,144 849,653
OTHER ASSETS (Note 2)................................................ 981 10,155 9,739
DEFERRED FINANCING COSTS -- Net (Notes 5 and 6)...................... 4,275 24,151 23,157
DEFERRED INCOME TAXES (Note 11)...................................... 5,255 -- --
GOODWILL -- Net (Note 2)............................................. 544 59,831 60,825
-------- -------- ----------
TOTAL................................................................ $138,213 $933,455 $1,038,845
======== ======== ==========
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable................................................... $ 642 $ 8,323 $ 7,758
Accrued interest................................................... 4,843 7,056 12,938
Accrued expenses and other liabilities (Notes 4 and 12)............ 1,173 17,653 17,474
Current maturities of long-term debt (Notes 3 and 5)............... 550 28,000 31,700
-------- -------- ----------
Total current liabilities................................... 7,208 61,032 69,870
LONG-TERM DEBT (Notes 3 and 5)....................................... 141,719 578,409 674,728
OTHER LONG-TERM OBLIGATIONS (Note 2)................................. 984 3,552 3,734
DEFERRED INCOME TAXES (Note 11)...................................... -- 2,283 2,057
-------- -------- ----------
Total liabilities........................................... 149,911 645,276 750,389
-------- -------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 2, 9, 10, 12 and 16)
COMMON STOCK -- Subject to put option (Note 8)....................... 3,420 -- --
-------- -------- ----------
REDEEMABLE PREFERRED STOCK (Note 8).................................. 13,649 -- --
-------- -------- ----------
COMMON STOCKHOLDERS' EQUITY (DEFICIENCY) (Notes 2 and 9):
Common stock, $.01 par value -- authorized, 60,000,000 shares;
issued and outstanding, 21,096,379, 40,155,631 and 40,155,631
shares........................................................... 4 402 402
Additional paid-in capital......................................... -- 316,988 316,988
Accumulated deficit................................................ (24,718) (25,275) (24,584)
Treasury stock at cost -- 11,475,554 shares........................ (4,053) (4,053) (4,053)
Foreign currency translation adjustment............................ -- 117 (297)
-------- -------- ----------
Total common stockholders' equity (deficiency).............. (28,767) 288,179 288,456
-------- -------- ----------
TOTAL................................................................ $138,213 $933,455 $1,038,845
======== ======== ==========
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE> 49
OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------ -----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Outdoor advertising (Note 13)................ $ 59,150 $ 74,690 $ 194,183 $ 19,722 89,713
Less agency commissions...................... 8,073 10,294 27,136 2,777 12,497
---------- ---------- ---------- ---------- ----------
Total................................. 51,077 64,396 167,047 16,945 77,216
Lease, printing and other revenues........... 1,000 417 6,069 -- 2,864
---------- ---------- ---------- ---------- ----------
Net revenues.......................... 52,077 64,813 173,116 16,945 80,080
---------- ---------- ---------- ---------- ----------
OPERATING EXPENSES:
Direct advertising -- including $139, $139,
$139, $35 and $35 to related parties (Note
14)........................................ 24,433 30,462 87,593 7,859 44,615
General and administrative -- including $354,
$385, $450, $113 and $113 to related
parties (Note 14).......................... 3,357 4,096 13,458 1,078 6,717
Depreciation and amortization................ 9,165 9,970 22,384 2,561 11,635
---------- ---------- ---------- ---------- ----------
Total operating expenses.............. 36,955 44,528 123,435 11,498 62,967
---------- ---------- ---------- ---------- ----------
GAIN ON ATLANTA AND DENVER DISPOSITIONS (Note
2)........................................... 4,325 -- 7,344 -- --
---------- ---------- ---------- ---------- ----------
OPERATING INCOME (Note 13)..................... 19,447 20,285 57,025 5,447 17,113
INTEREST EXPENSE (Note 5)...................... 16,393 17,199 32,489 4,152 15,922
---------- ---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY
LOSS......................................... 3,054 3,086 24,536 1,295 1,191
INCOME TAXES (Note 11)......................... 1,721 318 10,200 518 500
---------- ---------- ---------- ---------- ----------
INCOME BEFORE EXTRAORDINARY LOSS............... 1,333 2,768 14,336 777 691
EXTRAORDINARY LOSS (Note 6).................... -- -- (17,780) -- --
---------- ---------- ---------- ---------- ----------
NET (LOSS) INCOME.............................. 1,333 2,768 (3,444) 777 691
LESS STOCK DIVIDENDS, ACCRETIONS AND DISCOUNT
ON REDEMPTIONS (Note 8)...................... 1,596 2,461 3,461 907 --
---------- ---------- ---------- ---------- ----------
NET (LOSS) INCOME ATTRIBUTABLE TO COMMON
STOCKHOLDERS................................. $ (263) $ 307 $ (6,905) $ (130) $ 691
---------- ---------- ---------- ---------- ----------
NET (LOSS) INCOME PER COMMON AND EQUIVALENT
SHARE (Note 1):
Income (loss) before extraordinary loss...... $ (.01) $ .01 $ .31 $ (.01) $ .02
Extraordinary loss........................... -- -- (.50) -- --
---------- ---------- ---------- ---------- ----------
NET (LOSS) INCOME PER COMMON SHARE............. $ (.01) $ .01 $ (.19) $ (.01) $ .02
========== ========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES.............. 21,096,379 25,424,078 35,263,336 25,366,144 46,030,680
========== ========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 50
OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY (DEFICIENCY)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------- THREE MONTHS ENDED
1994 1995 1996 MARCH 31, 1997
----------- ----------- ---------- ------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
COMMON STOCK OUTSTANDING: Shares:
Balance, beginning of year............... 397,119 21,096,379 21,096,379 40,155,631
Stock splits............................. 20,699,260 -- 7,691,862 --
Initial public offering (Note 2)......... -- -- 2,677,390 --
Secondary offering....................... -- -- 8,690,000 --
----------- ----------- ---------- ----------
Balance, end of year..................... 21,096,379 21,096,379 40,155,631 40,155,631
=========== =========== ========== ==========
COMMON STOCK OUTSTANDING: Amount:
Balance, beginning of year............... $ 4 $ 4 $ 4 $ 402
Stock splits............................. -- -- 284 --
Initial public offering (Note 2)......... -- -- 27 --
Secondary offering (Note 2).............. -- -- 87 --
----------- ----------- ---------- ----------
Balance, end of year..................... $ 4 $ 4 $ 402 $ 402
----------- ----------- ---------- ----------
ADDITIONAL PAID-IN CAPITAL:
Balance, beginning of year............... $ -- $ -- $ -- $ 316,988
Stock splits............................. -- -- (284) --
Initial public offering (Note 2)......... -- -- 36,617 --
Secondary offering (Note 2).............. -- -- 283,135 --
Common/preferred stock accretion......... -- -- (2,480) --
----------- ----------- ---------- ----------
Balance, end of year..................... $ -- $ -- $ 316,988 $ 316,988
----------- ----------- ---------- ----------
ACCUMULATED DEFICIT:
Balance, beginning of year............... $ (24,762) $ (25,025) $ (24,718) $ (25,275)
Common/preferred stock accretion......... (714) (1,507) (688) --
Dividend on exchangeable preferred
stock.................................. (82) (82) (293) --
Cash dividends........................... (800) (872) -- --
Cancellation of put option on common
stock.................................. -- -- 3,868 --
Net income (loss)........................ 1,333 2,768 (3,444) 691
----------- ----------- ---------- ----------
Balance, end of year..................... $ (25,025) $ (24,718) $ (25,275) $ (24,584)
----------- ----------- ---------- ----------
COMMON STOCK IN TREASURY: Amount:
Balance.................................. $ (4,053) $ (4,053) $ (4,053) $ (4,053)
----------- ----------- ---------- ----------
FOREIGN CURRENCY TRANSLATION ADJUSTMENT.... $ -- $ -- $ 117 $ (297)
----------- ----------- ---------- ----------
TOTAL COMMON STOCKHOLDERS' EQUITY
(DEFICIENCY)............................. $ (29,074) $ (28,767) $ 288,179 $ 288,456
=========== =========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 51
OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------- --------------------
1994 1995 1996 1996 1997
-------- -------- --------- ------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income.................................................. $ 1,333 $ 2,768 $ (3,444) $ 777 $ 691
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
Extraordinary loss............................................... -- -- 27,615 -- --
Gain on sale of land............................................. -- (417) -- -- --
Gain on disposals................................................ (4,325) (7,344) -- --
Deferred taxes................................................... 1,324 90 (1,714) -- (364)
Depreciation and amortization.................................... 9,165 9,970 22,384 2,561 11,635
Allowance for doubtful accounts.................................. 792 761 2,492 178 957
Other............................................................ 383 363 3,664 100 395
Changes in net assets and liabilities -- net of effects from
acquisitions and disposals (Note 2):
Accounts receivable.............................................. 1,092 4,539 (767) 984 (3,045)
Other current assets............................................. 704 2,486 74 279 (293)
Accrued interest................................................. 187 (84) 2,216 (3,091) 5,884
Accounts payable and other liabilities........................... 850 (1,924) 3,023 (28) (346)
--------- -------- -------- ------- ---------
Net cash provided by operating activities.................... 11,505 18,552 48,199 1,760 15,514
--------- -------- -------- ------- ---------
INVESTING ACTIVITIES:
Acquisition of Gannett Outdoor, net of cash overdraft acquired..... -- -- (712,545) -- --
Acquisition of Gannett Houston..................................... -- -- (12,174) -- --
Capital expenditures............................................... (4,924) (7,070) (9,046) (1,194) (5,140)
Proceeds from sale of land......................................... -- 769 -- -- --
Other acquisitions................................................. (44,347) -- (1,817) -- (117,903)
Net proceeds from disposals........................................ 21,715 -- 3,049 -- --
Acquisition of perpetual easements................................. -- -- (21,525) -- --
--------- -------- -------- ------- ---------
Net cash used in investing activities........................ (27,556) (6,301) (754,058) (1,194) (123,043)
--------- -------- -------- ------- ---------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt........................... 39,252 10,679 846,853 5,000 110,563
Tender for 10.75% notes............................................ -- -- (128,205) -- --
Principal payments on debt and capital leases...................... (20,726) (23,977) (269,893) (4,889) (10,000)
Increase in deferred financing fees................................ -- -- (35,952) -- --
Cash dividends paid on preferred stock............................. (800) (872) (293) (218) --
Redemption of preferred and exchangeable preferred stock........... -- -- (16,369) -- --
Issuance of common stock........................................... -- -- 319,866 -- --
--------- -------- -------- ------- ---------
Net cash provided by (used in) financing activities.......... 17,726 (14,170) 716,007 (107) 100,563
--------- -------- -------- ------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................. 1,675 (1,919) 10,148 459 (6,966)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD....................... 1,983 3,658 1,739 1,739 11,887
--------- -------- -------- ------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD............................. $ 3,658 $ 1,739 $ 11,887 $ 2,198 $ 4,921
========= ======== ======== ======= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest......................................................... $ 14,095 $ 16,162 $ 27,519 $ 7,067 $ 8,649
========= ======== ======== ======= =========
Income taxes..................................................... $ 343 $ 227 $ 275 $ 91 $ 21
========= ======== ======== ======= =========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
In conjunction with acquisitions described in Note 2, liabilities
were assumed as follows:
Fair value of assets acquired.................................... $ 45,696 $ -- $ 728,848 $ -- $ 117,903
Cash paid........................................................ (42,636) -- 707,980 -- (117,903)
--------- -------- -------- ------- ---------
Liabilities assumed and incurred and issuance of notes payable..... $ 3,060 $ -- $ 20,868 $ -- $ --
========= ======== ======== ======= =========
Accretion of common and preferred stock............................ $ 714 $ 1,507 $ -- $ -- $ --
========= ======== ======== ======= =========
Accrued dividends on exchangeable preferred stock.................. $ 82 $ 82 $ -- $ -- $ --
========= ======== ======== ======= =========
Additional obligation on CSX transaction (Note 2).................. $ -- $ -- $ 2,198 $ -- $ --
========= ======== ======== ======= =========
Write-off of deferred financing costs (Note 6)..................... $ -- $ -- $ 14,073 $ -- $ --
========= ======== ======== ======= =========
Note receivable on Denver Disposition.............................. $ -- $ -- $ 6,440 $ -- $ --
========= ======== ======== ======= =========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 52
OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization -- Outdoor Systems, Inc. was incorporated on February 22,
1980, and is engaged principally in the rental of advertising space on outdoor
advertising structures in 22 metropolitan markets in the United States and seven
metropolitan markets in Canada.
Principles of consolidation -- The consolidated financial statements
include the accounts of Outdoor Systems, Inc. and its subsidiaries
(collectively, the "Company"), including its Canadian subsidiary Mediacom, Inc.
("Mediacom"). All significant intercompany accounts and transactions have been
eliminated in consolidation.
Significant accounting policies are as follows:
a. Cash and cash equivalents -- The Company considers all highly liquid
investments with an initial maturity of three months or less to be cash
equivalents.
b. Property and equipment are recorded at cost. Normal maintenance and
repair costs are expensed. Improvements which extend the life or usefulness of
an asset are capitalized. Depreciation is computed principally on a
straight-line method based upon the following useful lives:
<TABLE>
<S> <C>
Buildings...................................................... 25-32 years
Advertising structures......................................... 5-20 years
Vehicles....................................................... 3-5 years
Furniture and fixtures......................................... 5 years
Perpetual easements............................................ 40 years
</TABLE>
c. Deferred financing costs are amortized using the effective interest
method over the terms of the related loans.
d. Intangibles include the excess purchase price over net assets acquired
and are amortized over 15 to 30 year periods. Amortization expense was $47,000,
$47,000 and $713,000 in 1994, 1995 and 1996, respectively.
e. Revenue recognition -- The Company recognizes revenue from advertising
contracts when billed, which is on a straight-line pro rata monthly basis in
accordance with contract terms. Costs associated with providing service for
specific contracts are expensed as incurred, although such contracts generally
extend beyond one month. Other revenue represents license fees from perpetual
easements and revenues from a printing operation.
f. Net income (loss) per share -- Primary income (loss) per common and
common equivalent share is computed based on the weighted average number of
common and common equivalent shares outstanding during each year and includes
shares issuable upon exercise of stock options. Such amounts have been adjusted
to reflect the 36.4535 for 1, 3 for 2 and 3 for 2 stock splits on April 17,
1996, July 22, 1996 and November 22, 1996, respectively.
g. Impairment of long-lived assets -- On January 1, 1996, the Company
adopted Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting
for the Impairment of Long-Lived Assets and of Long-Lived Assets to Be Disposed
Of. In accordance with the provisions of SFAS No. 121, the Company reviews the
carrying values of its long-lived assets and identifiable intangibles for
possible impairment whenever events or changes in circumstances indicate that
the carrying amount of assets to be held and used may not be recoverable. The
adoption of SFAS No. 121 had no effect on the December 31, 1996 consolidated
financial statements.
F-7
<PAGE> 53
OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
h. Use of estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles necessarily requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from these
estimates.
i. Stock-based compensation -- In October 1995, the Financial Accounting
Standards Board issued SFAS No. 123, Accounting for Stock-Based Compensation. As
permitted by SFAS No. 123, the Company uses the intrinsic value based method
prescribed by the Accounting Principles Board ("APB") Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations in accounting for its
plans. Accordingly, no compensation expense has been recognized for its stock-
based compensation plans. A summary of the pro forma effects on reported income
from continuing operations and earnings per share for 1996, as if the fair value
based method of accounting defined in SFAS No. 123 had been applied is included
in Note 9 to these consolidated financial statements. Such information is not
presented for 1995 and 1994 because no options were issued in such years.
j. Environmental remediation costs -- The Company accrues for losses
associated with environmental remediation obligations when such losses are
probable and reasonably estimable. Accruals for estimated losses from
environmental remediation obligations generally are recognized no later than
completion of the remedial feasibility study. Such accruals are adjusted as
further information develops or circumstances change. Costs of future
expenditures for environmental remediation obligations are not discounted to
their present value.
k. New accounting pronouncement -- Beginning in 1997, the Company will be
required to implement SFAS No. 128 "Earnings Per Share" which requires, among
other matters, presentation of basic earnings per share, which is calculated
utilizing only weighted average common shares outstanding. Basic earnings (loss)
per share would have been $0.01 and $(0.26) and fully diluted earnings (loss)
per share would have been $0.01 and $(0.19), respectively for the years ended
December 31, 1995 and 1996 under SFAS 128.
l. Reclassifications -- Certain reclassifications were made to the 1994 and
1995 financial statements to conform with the 1996 presentation.
2. OFFERINGS AND ACQUISITIONS
COMPLETION OF INITIAL PUBLIC OFFERING
On April 24, 1996, the Company completed its Initial Public Offering
("IPO") by selling 6,024,132 shares of its common stock. The Company received
proceeds of approximately $36,644,000 net of underwriting discounts and
commissions and offering expenses of approximately $3,517,000.
GANNETT OUTDOOR ACQUISITION
On August 22, 1996, the Company purchased substantially all of the
billboard and transit advertising operations of the Outdoor Advertising Division
("Gannett Outdoor" or the "Gannett Outdoor Acquisition") of Gannett Co., Inc.,
for approximately $712,545,000 ($707,980,000 before cash overdraft acquired of
$4,565,000). The Company also acquired an option to acquire the Gannett Outdoor
operations in Houston ("Gannett Houston"), which option was exercised on
November 14, 1996 for $12,174,000. The principal assets of Gannett Outdoor and
Gannett Houston were approximately 40,000 advertising display faces consisting
of bulletins, posters and transit advertising displays (the Company also
acquired approximately 125,000 subway advertising display faces in New York
City) in and around New York, Los Angeles, Chicago, Philadelphia, San Francisco,
F-8
<PAGE> 54
OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Detroit, Sacramento, St. Louis, Denver, San Diego, New Haven, Houston, Kansas
City, Grand Rapids, Flint and Rochester and in various locations in New Jersey
and Canada.
The Company financed the acquisition through a Senior Credit Facility, a
Subordinated Credit Facility ("Bridge Loan") and the sale on August 22, 1996 of
12,885,000 shares of common stock for which it received proceeds of
approximately $283,222,000 net of underwriting discounts and commissions and
offering expenses of approximately $13,133,000. In October 1996, the Company
sold $250,000,000 of 9 3/8% Senior Subordinated Notes due 2006 (the "1996
Notes"). The proceeds from this offering were used to repay all borrowings under
the Bridge Loan and to partially repay amounts outstanding under the Senior
Credit Facility (Note 5).
The acquisition was accounted for using the purchase method of accounting
and the results of operations have been included in the consolidated financial
statements subsequent to the date of acquisition. The acquisition resulted in
goodwill of $60,000,000 which represents the excess of the purchase price over
the fair value of the assets which amount will be amortized on a straight-line
basis over 30 years. The Company is continuing its evaluation of the fair value
of the Gannett Outdoor Acquisition and further adjustments to the purchase price
may be made.
DENVER DISPOSITION
In connection with the Gannett Outdoor Acquisition, on August 8, 1996, the
Company sold substantially all of its existing billboard assets in Denver
("Denver Disposition") to an unrelated party for $2,760,000 in cash and a
$6,440,000 9% promissory note due November 8, 2006, which is included in other
assets. The Denver Disposition resulted in a gain of $7,344,000.
OTHER 1996 ACQUISITIONS
On May 22, 1996, the Company completed the acquisition of perpetual
easements located on real property and leased to independent outdoor advertising
companies from CSX Realty Development Corporation ("CSX") for $21,525,000 in
cash and certain future payments in an aggregate amount not to exceed
$10,000,000 payable over a period of ten years beginning no later than the year
2006. The exact amount and timing of such payments is to be determined based
upon the results of the Company's operation of the easements. The cost of the
perpetual easements is included in property and equipment and will be amortized
on a straight-line basis over 40 years.
In April 1996, the Company acquired all of the stock of Decade
Communications Group, Inc. (the "Bench Ad Acquisition"), which owned
approximately 5,300 bus benches in the Denver metropolitan area for a purchase
price of approximately $1,817,000. The acquisition was accounted for as a
purchase and the results of operations of the Bench Ad Acquisition are included
in these financial statements from the date of acquisition.
ATLANTA ACQUISITION AND DISPOSITION
On December 19, 1994, the Company acquired the assets of Capitol Outdoor
Advertising, Inc. (the "1994 Acquisition") located in Atlanta, Georgia for cash
of $44,347,000. This acquisition has been accounted for using the purchase
method of accounting, and the results of operation have been included in the
consolidated financial statements subsequent to the acquisition. As a condition
of allowing the 1994 Acquisition, the United States Justice Department required
the Company to sell substantially all the operating assets of its business then
operating in Atlanta (the "Atlanta Disposition"). This disposal was effective
December 19, 1994 and the resulting gain on sale of $4,325,000 is included in
income for 1994.
F-9
<PAGE> 55
OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
UNAUDITED PRO FORMA INFORMATION
The following table summarizes unaudited pro forma operating results for
the Company for the two years in the two-year period ended December 31, 1996,
assuming that the Gannett Outdoor Acquisition and other 1996 acquisitions and
the Denver Disposition had occurred at the beginning of the applicable year and
after giving effect to financing costs and purchase accounting adjustments.
<TABLE>
<CAPTION>
1995 1996
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Consolidated net revenues.................................... $ 314,386 $ 335,826
======== ========
Income before extraordinary loss............................. $ 5,005 $ 14,173
======== ========
Net income................................................... $ 5,005 $ 13,329
======== ========
Income attributable to common stockholders................... $ 2,544 $ 9,868
======== ========
Net income per common share.................................. $ .07 $ .23
======== ========
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Advertising structures and display leases.................... $153,080 $736,731
Perpetual land easements..................................... -- 24,428
Vehicles..................................................... 1,832 5,796
Furniture and fixtures....................................... 2,654 8,859
Buildings.................................................... 4,747 15,934
Land......................................................... 6,628 15,881
Other........................................................ 481 8,963
-------- --------
Total........................................................ 169,422 816,592
Less accumulated depreciation................................ 57,693 74,448
-------- --------
Property and equipment -- net................................ $111,729 $742,144
======== ========
</TABLE>
Advertising structures include $163,704 allocated to display leases related
to such advertising structures.
The Company has granted a security interest in substantially all of its
assets to lenders in connection with the Senior Credit Facility.
F-10
<PAGE> 56
OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities is comprised of the following at
December 31:
<TABLE>
<CAPTION>
1995 1996
------ -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Accrued payroll, payroll taxes and severance.................. $ 922 $ 7,118
Percentage lease payments..................................... -- 2,206
Other liabilities assumed in Gannett acquisition.............. -- 3,272
Customer deposits............................................. -- 909
Unearned revenue.............................................. -- 796
Taxes......................................................... 90 422
Other......................................................... 161 2,930
------ -------
$1,173 $17,653
====== =======
</TABLE>
5. LONG-TERM DEBT
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Senior Credit Facility....................................... $ 21,000 $356,348
9 3/8% Senior Subordinated Notes............................. -- 250,000
10.75% Senior Notes.......................................... 114,670 15
Other........................................................ 6,599 46
-------- --------
Total........................................................ 142,269 606,409
Less current maturities...................................... 550 28,000
-------- --------
Long-term debt -- net........................................ $141,719 $578,409
======== ========
</TABLE>
At December 31, 1996, the Company was in compliance with the covenants of
its debt agreements.
SENIOR CREDIT FACILITY
The Senior Credit Facility, dated October 22, 1996, consists of 1) a U.S.
Dollar senior revolving line of credit facility of up to $125,000,000 including
a $35,000,000 letter of credit subfacility ("United States Revolver"), and a
Canadian Dollar ("C$") senior revolving line of credit facility ("Canadian
Revolver") of up to C$35,000,000 including a C$7,000,000 letter of credit
sub-facility; 2) a $240,000,000 and $10,000,000 Senior Secured U.S. Dollar Term
Loans A and B, respectively; and, 3) C$48,000,000 and $40,000,000 Senior Secured
Canadian Term Loans A and B, respectively. The Company has issued letters of
credit totaling $28,876,000 at December 31, 1996. Availability under the Senior
Credit Facility totaled approximately $90,000,000 at December 31, 1996.
The commitment of the lenders under the United States Revolver will be
reduced annually on December 31st of each year by $20,000,000 during 1998 and
1999, $25,000,000 during 2000 and $30,000,000 during 2001 and 2002. The
commitment under the Canadian Revolver will be reduced annually on December 31st
of each year by C$5,000,000 during 1999-2001 and C$20,000,000 during 2002. The
United States Term Loan A commitment will reduce in equal quarterly installments
commencing on March 31, 1997, with annual amortization of $24,000,000 during
1997, $36,000,000 during 1998, $45,000,000 during 1999, $55,000,000 during 2000,
$50,000,000 during 2001, and
F-11
<PAGE> 57
OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$30,000,000 during 2002. The Canadian Term Loan A commitment will reduce in
equal quarterly installments commencing on March 31, 1997, with annual
amortization of C$4,800,000 during 1997, C$7,200,000 during 1998, C$9,000,000
during 1999, C$11,000,000 during 2000, C$10,000,000 during 2001 and C$6,000,000
during 2002. The United States Term Loan B commitment will reduce in equal
quarterly installments commencing on March 31, 1997, with annual amortization of
$100,000 during 1997-2000, $1,000,000 during 2001, $3,100,000 during 2002, and
$5,500,000 during 2003. The Canadian Term Loan B commitment will reduce in equal
quarterly installments commencing on March 31, 1997, with annual amortization of
$400,000 during 1997-2000, $4,400,000 during 2001, $12,000,000 during 2002, and
$22,000,000 during 2003.
The United States and Canadian Revolvers and United States and Canadian
Term Loans A bear interest at the bank's base rate (8.25% at December 31, 1996)
plus 0.125% to 1.75% or LIBOR (5.53% at December 31, 1996) plus 1.125% to 2.75%,
based on the Company's total leverage ratio. The United States and Canadian Term
Loans B bear interest at the base rate plus 1.75% to 2% or LIBOR plus 2.75% to
3%, based on the Company's total leverage ratio.
The Company's obligations under the Senior Credit Facility are secured by a
first perfected lien on substantially all of the present and future assets of
the Company and a pledge of the Company's equity interest in its subsidiaries
provided that the United States facilities will only be secured by two thirds of
the stock of Mediacom. The Canadian facilities will be guaranteed by Mediacom's
subsidiaries, the Company and each of the Company's subsidiaries.
Under the Senior Credit Facility, among other things, conditions of default
arise if tobacco advertisement revenues exceed 15% of consolidated gross
revenues for any four consecutive quarters. The credit facility also places
limitations on the Company's acquisitions, dispositions, asset swaps, stock
repurchases, and capital expenditures, and requires the Company to comply with
financial covenants concerning leverage, interest coverage, fixed charges and
minimum cash flows.
9 3/8% SENIOR SUBORDINATED NOTES
In October 1996, the Company completed the sale of $250,000,000 of 9 3/8%
Senior Subordinated Notes due 2006 (the "1996 Notes"). The net proceeds of the
1996 Notes were used to repay the Bridge Loan and to reduce amounts borrowed
under the Senior Credit Facility and to pay related fees and expenses. The 1996
Notes represent general unsecured obligations of the Company and are
subordinated to all existing and future senior indebtedness of the Company and
are senior to all subordinated indebtedness of the Company.
Under the 1996 Notes, among other things, the Company is restricted in its
ability to incur additional indebtedness, make certain investments, create
liens, enter into transactions with affiliates, issue stock of a restricted
subsidiary, enter into sale and leaseback transactions, merge or consolidate the
Company, and transfer or sell assets. The Company is prohibited from paying cash
dividends and distributions.
F-12
<PAGE> 58
OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MATURITIES
The annual maturities of long-term debt at December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
----------------------
<S> <C>
1997..................................................... $ 28,000
1998..................................................... 61,785
1999..................................................... 59,679
2000..................................................... 67,133
2001..................................................... 58,939
Thereafter............................................... 330,873
--------
Total.......................................... $606,409
========
</TABLE>
6. EXTRAORDINARY LOSS ARISING FROM EARLY EXTINGUISHMENT OF DEBT
The extraordinary loss arising from the early extinguishment of debt
consisted of the following:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
----------------------
<S> <C>
Redemption of subordinated debt subsequent to IPO........ $ 1,415
Redemption of 10.75% Senior Notes:
Tender offer........................................... 13,542
Deferred debt costs.................................... 3,802
Bridge Redeemable Preferred Stock and Bridge Loan
financing costs........................................ 8,856
--------
Total.................................................... 27,615
Less related tax benefit................................. (9,835)
--------
Total extraordinary loss....................... $ 17,780
========
</TABLE>
In connection with the IPO, the Company redeemed $6,583,000 principal
amount of subordinated debt that had a carrying value of $6,099,000 for
$7,514,000 in cash, resulting in an extraordinary loss of $1,415,000.
In order to facilitate the financing of the Gannett Outdoor Acquisition,
the Company purchased, pursuant to a tender offer (the "Debt Tender Offer"), all
but $15,000 aggregate principal amount of its outstanding 10.75% Senior Notes
due 2003 (the "Senior Notes"). The aggregate consideration paid by the Company
in the Debt Tender Offer of $1,116.25 per $1,000 principal amount of Senior
Notes, plus expenses associated therewith, resulted in an extraordinary loss
from debt extinguishment of $13,542,000.
In connection with the Gannett Outdoor Acquisition, the Company entered
into long-term bridge financing commitments for the Bridge Loan and redeemable
preferred stock. Such commitment fees and bridge loan issuance costs aggregated
$8,949,000. The commitment on the redeemable preferred stock was canceled at the
date of the Gannett Outdoor Acquisition and the Bridge Loan was repaid with the
net proceeds of the offering of the 1996 Notes resulting in an extraordinary
loss of $8,856,000.
7. FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
Disclosures About Fair Value of Financial
F-13
<PAGE> 59
OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Instruments. The carrying amounts and estimated fair values of the Company's
financial instruments are as follows:
The carrying values of cash and cash equivalents, receivables,
accounts payable and accrued expenses approximate fair values due to the
short-term maturities of these instruments. The carrying amount of variable
rate long-term debt instruments is estimated to approximate fair values as
the underlying agreements have been recently negotiated and rates are tied
to short-term indices.
The 1996 Notes are estimated to approximate market value as the trade
price of those notes approximates par value at December 31, 1996. Other
fixed rate long-term debt instruments are estimated to approximate fair
values as actual rates are consistent with rates estimated to be currently
available for debt of similar terms and remaining maturities.
8. OTHER EQUITY MATTERS
Redeemable preferred stock at December 31, 1995 consisted of the following:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
----------------------
<S> <C>
Exchangeable Preferred Stock, 10% cumulative dividend, $1
par value -- authorized, issued and outstanding, 24,235
shares................................................. $ 3,504
Class A Preferred Stock, $1 par value -- authorized,
issued and outstanding, 40,000 shares.................. 5,526
Class B Preferred Stock, 9% cumulative, $1 par value --
authorized, 5,000 shares; issued and outstanding, 4,619
shares................................................. 4,619
--------
Total redeemable preferred stock............... $ 13,649
========
</TABLE>
In connection with the IPO, the Company redeemed all of its outstanding
preferred stock for approximately $16,369,000.
In 1990, the Company issued common stock in connection with the financing
of an acquisition under which the Company was required to redeem the common
stock at a redemption price based upon the appraised value of the common stock
as of the redemption date. Because this common stock was subject to redemption
at the option of the holder, the Company accreted the stock to its estimated
appraised value over the redemption period based upon annual estimates of value
determined as a multiple of cash flow. Accretion was calculated on a
straight-line basis and was charged directly to stockholders' deficit. At the
date of the IPO, the common stock was sold by the holders and the related put
options were terminated. Accordingly, amounts aggregating $3,868,000 were
credited to paid-in capital.
9. STOCK OPTIONS
The Company applies APB No. 25 and related interpretations in accounting
for its stock option plan. Accordingly, no compensation expense has been
recognized for its stock-based compensation plan. Had compensation cost for the
Company's stock option plan been determined based upon the fair value at the
grant date for awards under this plan consistent with the methodology prescribed
in SFAS No. 123, the Company's net income and earnings per share for the year
ended December 31, 1996 would have been reduced by approximately $1,366,200, or
$0.04 per share. The fair value of the options granted during 1996 is estimated
as $2,277,000 on the date of grant using an option-pricing model with the
following assumptions: dividend yield 0%, volatility of 62.0%, an average
risk-free interest rate of 6.0%, assumed forfeiture rate of 0%, and an average
expected life of three years.
F-14
<PAGE> 60
OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of changes in outstanding options:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
SHARES PRICE
--------- ----------------
<S> <C> <C>
Outstanding at December 31, 1994...................... 4,476,204 $0.05 to $0.83
Granted............................................... -- --
Cancelled or expired.................................. -- --
Exercised............................................. -- --
---------
Outstanding at December 31, 1995...................... 4,476,204 $0.05 to $0.83
Granted............................................... 2,065,293 $6.67 to $23.00
Cancelled or expired.................................. -- --
Exercised............................................. (150,000) $0.83
---------
Outstanding at December 31, 1996...................... 6,391,497 $0.05 to $23.00
---------
Exercisable at December 31, 1996...................... 4,326,204 $0.05 to $0.83
---------
</TABLE>
The following table summarizes information concerning currently outstanding
and exercisable options:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED AVERAGE --------------------------------
NUMBER REMAINING WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 0.05 3,464,706 N/A $ 0.05 3,464,706 $ 0.05
$ 0.83 861,498 N/A $ 0.83 861,498 $ 0.83
$ 6.67 2,052,113 9.3 years $ 6.67 -- --
$ 23.00 13,180 9.7 years $23.00 -- --
--------- ---------
6,391,497 4,326,204
========= =========
</TABLE>
The options issued prior to January 1, 1996 are fully exercisable and have
no expiration date. Options issued during 1996 vest ratably over a four year
period and expire in 2006.
10. BENEFIT PLANS
The Company had established an Incentive Plan (the "Plan") covering certain
managers and key employees. Incentive Awards ("Awards") were made under the Plan
in the form of shares of phantom stock based on the individual's performance.
Awards were valued each year based upon the estimated value of the Company. The
awards are vested at the date of grant and any increases in value vested over a
four year period. For the years ended December 31, 1994, 1995 and 1996, the
Company charged earnings for compensation expense of $218,000, $304,000 and
$159,000, respectively. 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 is a
participant in the Incentive Plan the alternative of having their account
settled in cash, in shares of the common stock of the Company, or both, with
actual distributions of cash or common stock subject to both vesting
requirements and terms and conditions similar to those under which distributions
would have been made under the Incentive Plan. To the extent participants
elected to settle their accounts in common stock, the Company issued (subject to
the vesting requirements and distribution terms and conditions) to such
participants options to purchase common stock at the initial public offering
price.
The Company has a 401(k) savings plan under which it has the discretion of
making contributions as a percentage of employee contributions. For the years
ended December 31, 1994,
F-15
<PAGE> 61
OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1995 and 1996, the Company's contributions to the 401(k) plan were $49,000,
$56,000 and $63,000, respectively.
11. INCOME TAXES
The provision (benefit) for income taxes is comprised of the following for
the years ended December 31,
<TABLE>
<CAPTION>
1994 1995 1996
------- ---- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.............................................. $ 179 $ 50 $ 108
State -- including franchise taxes................... 218 177 182
------- ---- -------
Total current.......................................... 397 227 290
Deferred............................................... 1,324 91 9,910
------- ---- -------
Total income tax provisions............................ $ 1,721 $318 $10,200
======= ==== =======
</TABLE>
The Company has federal net operating loss carryforwards of approximately
$34,693,000 as of December 31, 1996. These net operating loss carryforwards
expire as follows: $1,189,000 (2003), $3,494,000 (2004), $4,308,000 (2005),
$4,104,000 (2006), $1,193,000 (2007), $3,243,000 (2008), $68,000 (2009) and
$17,094,000 (2011).
Although realization is not assured, the Company believes, based on
operating results in 1996, and its expectations for the future, that taxable
income of the Company will more likely than not be sufficient to utilize all of
the $34,693,000 net operating loss carryforwards prior to their ultimate
expiration in the year 2011. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced.
Significant components of the Company's net deferred tax asset (liability)
as of December 31 are as follows:
<TABLE>
<CAPTION>
1995 1996
------------------- --------------------
NON- NON-
CURRENT CURRENT CURRENT CURRENT
------ -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Deferred taxes:
Financial statement expenses not
currently deductible for income tax
purposes........................... $ 415 $ 393 $1,637 $ 435
Tax loss and other credit
carryforwards...................... -- 6,854 -- 13,059
Deferred tax liability -- Excess of tax
over book depreciation................ -- (1,992) -- (15,777)
------ -------- ------ --------
Total asset (liability)....... $ 415 $ 5,255 $1,637 $ (2,283)
====== ======== ====== ========
</TABLE>
F-16
<PAGE> 62
OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a reconciliation of the income taxes to the statutory
rates:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Statutory rate.................................................. 34% 34% 35%
Impact of adjustment to valuation allowance..................... -- (34) ---
State income taxes, franchise tax............................... 20 7 4
Other........................................................... 2 3 3
--- --- ---
Reported rate................................................... 56% 10% 42%
=== === ===
</TABLE>
12. COMMITMENTS AND OTHER
LEASES
The Company leases land and equipment under operating leases with various
terms expiring at various dates. Certain of the land leases provide for periodic
rental increases. At December 31, 1996, minimum annual rentals under all
operating leases for the next five years are as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
----------------------
<S> <C>
1997..................................................... $ 33,391
1998..................................................... 17,116
1999..................................................... 12,034
2000..................................................... 7,946
2001..................................................... 6,212
Thereafter............................................... 11,970
--------
Total.......................................... $ 88,669
========
</TABLE>
Operating lease expense was $9,969,000, $13,533,000 and $29,790,000 for
1994, 1995 and 1996, respectively.
TRANSIT AGREEMENTS
The Company has signed agreements which provide an exclusive right to sell
advertising space in various airports, transit shelters and transit systems.
Under the various agreements, the Company must make minimum guarantee payments
as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
----------------------
<S> <C>
1997..................................................... $9,393
1998..................................................... 2,810
1999..................................................... 1,397
2000..................................................... 1,397
2001..................................................... 1,397
</TABLE>
LITIGATION
The Company is party either as plaintiff or defendant to various actions,
proceedings and pending claims, in the ordinary course of business. Litigation
is subject to many uncertainties and it is possible that some of the legal
actions, proceedings or claims referred to above could be decided against the
Company. Although the ultimate amount for which the Company or its subsidiaries
may be held liable with respect to matters where the Company is defendant is not
ascertainable, the
F-17
<PAGE> 63
OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company believes that any resulting liability should not materially affect the
Company's financial position or results of operations.
In connection with the due diligence procedures performed by the Company
for the Gannett Outdoor acquisition, it was discovered that certain sites had
been contaminated as a result of removing various underground storage tanks. The
Company has estimated the costs to remediate the contamination and such amount
has been accrued in the financial statements at December 31, 1996 and is
included in accrued expenses and other.
13. FOREIGN OPERATIONS
The assets and operations of Mediacom are included in these financial
statements subsequent to August 22, 1996 and are as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
----------------------
<S> <C>
Net revenues:
United States.......................................... $150,970
Canadian............................................... 22,146
---------
Total net revenues....................................... $173,116
=========
Income from operations:
United States.......................................... $ 52,150
Canadian............................................... 4,875
---------
Total income from operations............................. $ 57,025
=========
Assets:
United States.......................................... $800,184
Canadian............................................... 133,271
---------
Total assets............................................. $933,455
=========
</TABLE>
14. TRANSACTIONS WITH RELATED PARTIES
During 1994, 1995 and 1996, the Company entered into a number of
transactions with officers and/or stockholders of the Company, affiliated
companies and affiliated partnerships.
The following summarizes those transactions as of and for the years ended
December 31:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Due from employees and related parties, included in other
current assets............................................ $ 59 $ 62 $385
==== ==== ====
Rental income from affiliated company....................... $ 45 $ 24 $ 6
==== ==== ====
Land rent paid to affiliated company and related parties.... $139 $139 $139
==== ==== ====
Administrative services agreement........................... $104 $ 35 $ --
==== ==== ====
Services agreement.......................................... $250 $350 $450
==== ==== ====
</TABLE>
F-18
<PAGE> 64
OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER
----------------------------------------------
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER
SHARE DATA)
<S> <C> <C> <C> <C>
1995:
Net revenues................................ $13,758 $15,979 $16,886 $18,910
Operating income............................ 3,048 5,128 5,586 6,523
Net (loss) income........................... (1,265) 425 1,400 2,208
Net (loss) income per common share.......... (.07) (.01) .03 .06
1996:
Net revenues................................ $16,945 $19,582 $41,769 $94,820
Operating income............................ 5,447 7,457 18,153 25,968
Net income (loss)........................... 777 1,364 (7,220) 1,637
Net (loss) income per common share.......... (.01) (.02) (.20) .04
</TABLE>
The fourth quarter of 1995 includes other income of $1,000,000 relating to
cash payments received from the early termination of agreements made in
connection with an acquisition in 1992.
The third and fourth quarters of 1996 include the operating results from
the acquisition of Gannett Outdoor and an extraordinary loss from the early
extinguishment of debt of approximately $12.4 million and $4.5 million,
respectively, net of tax.
16. SUBSEQUENT EVENTS
Subsequent to December 31, 1996, the Company has acquired outdoor
advertising assets in the following locations and for the following purchase
prices:
<TABLE>
<CAPTION>
DESCRIPTION
--------------------------------------------------------- PURCHASE PRICE
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Villepigue Outdoor -- New York City...................... $ 27,000
========
Atlanta Bus Shelters -- Atlanta.......................... $ 6,000
========
Philbin & Coine, Inc. -- Louisville...................... $ 830
========
Scadron Enterprises -- Chicago........................... $ 24,500
========
Murad Communications -- Toronto.......................... $ 5,489
========
Reynolds Outdoor, L.P. -- Dallas......................... $ 31,600
========
Ad Outdoor -- Halifax.................................... $ 879
========
Burlington Northern/Santa Fe -- Western and Midwestern
States................................................. $ 29,500
========
</TABLE>
Each of these acquisitions will be accounted for using the purchase method
of accounting. The purchase prices above do not include any working capital
adjustments. These acquisitions were financed, primarily, utilizing cash flows
and amounts available under the Senior Credit Facility.
F-19
<PAGE> 65
OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. SUMMARY FINANCIAL INFORMATION OF GUARANTORS
The 9 3/8% Senior Subordinated Notes are guaranteed on a senior
subordinated basis by all of the domestic subsidiaries of the Company (the
"Guarantors"). The guarantees are subordinate to the Senior Credit Facility.
Condensed balance sheet and statement of operation data for the guarantor and
non-guarantor subsidiaries are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------------------------
ELIMINATION
GUARANTORS NON-GUARANTORS ENTRIES CONSOLIDATED
---------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Summary Balance Sheet Data:
Current assets.................... $ 72,654 $ 23,157 $ 1,363 $ 97,174
Noncurrent assets................. 726,248 110,114 (81) 836,281
Current liabilities............... 55,062 5,916 54 61,032
Noncurrent liabilities............ 495,561 89,175 (492) 584,244
Stockholders' equity.............. 284,557 38,180 (34,558) 288,179
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------------
ELIMINATION
GUARANTORS NON-GUARANTORS ENTRIES CONSOLIDATED
---------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Summary Income Statement Data:
Net revenues...................... $150,970 $ 22,996 $ (850) $173,116
Operating income.................. 52,150 4,875 -- 57,025
Income before income taxes and
extraordinary loss............. 20,908 3,628 -- 24,536
Net (loss) income................. (6,950) 1,792 1,714 (3,444)
Net (loss) income attributable to
common stockholders............ (10,411) 1,792 1,714 (6,905)
</TABLE>
18. UNAUDITED NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q of Regulation S-X.
Accordingly, they do not include all of the information and notes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments and reclassifications considered
necessary for a fair and comparable presentation have been included and are of a
normal recurring nature. Operating results for the three months ended March 31,
1997, are not necessarily indicative of the results that may be expected for the
year ending December 31, 1997. Such 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, 1997.
PENDING ACQUISITIONS
Van Wagner Acquisition -- On April 11, 1997, the Company entered into a
Stock Purchase Agreement to purchase the stock of Van Wagner Communications,
Inc. ("Van Wagner") for approximately $170 million in cash.
3M Media Acquisition -- On April 30, 1997, the Company entered into an
Agreement of Purchase and Sale to acquire the outdoor advertising operations of
Minnesota Mining and Manufac-
F-20
<PAGE> 66
OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
turing Company ("3M") through the purchase of the capital stock of National
Advertising Company, a subsidiary of 3M ("3M Media") for approximately $1.0
billion in cash.
Each pending acquisition is subject to various conditions, including
clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
The Company intends to finance the purchase price of the pending
acquisitions and the fees and expenses associated with the pending acquisitions
and the acquisition financing through (i) the proceeds from the offering of
12,000,000 shares of common stock (the "Common Stock Offering") to the public,
pursuant to this registration statement, (ii) borrowings under the Company's
senior credit facility which is expected to be amended to provide for a
revolving credit facility and term loans of up to approximately $1.1 billion and
(iii) proceeds of an offering of up to $300 million aggregate principal amount
of senior subordinated notes (the "Notes Offering").
The Company received written commitments from Canadian Imperial Bank of
Commerce ("CIBC") to increase the amounts that may be borrowed under its senior
credit facility to up to $325 million of revolving credit loans and up to $715
million of term loans. In addition, the Company received written commitments
from CIBC for a preferred stock facility of up to $335 million and a senior
subordinated credit facility of up to $300 million. If the Common Stock Offering
or the Notes Offering is not consummated, the Company will use proceeds from the
preferred stock and senior subordinated credit facilities to finance a portion
of the purchase price of the pending acquisitions.
F-21
<PAGE> 67
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Minnesota Mining and Manufacturing Company
We have audited the accompanying balance sheets of National Advertising
Company (the Company) as of December 31, 1996 and 1995, and the related
statements of income and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements have been prepared on the
basis described in Note 1 and are the responsibility of the Company's
management. Our responsibility is to express an opinion on these 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 financial statements referred to above present fairly,
in all material respects, the financial position of National Advertising Company
as of December, 31, 1996 and 1995 and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
March 21, 1997, except for Note 10,
as to which the date is May 1, 1997
F-22
<PAGE> 68
NATIONAL ADVERTISING COMPANY
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Trade receivables, net of allowances of $1,767,
$1,500 and $1,874................................. $ 24,512 $ 21,896 $ 19,578
Inventories.......................................... 3,508 4,047 3,876
Prepaid land rents, current portion.................. 13,994 15,189 16,438
Deferred income taxes................................ 5,492 5,702 5,702
Other current assets................................. 1,237 1,411 1,177
-------- -------- ---------
Total current assets......................... 48,743 48,245 46,771
Property, plant and equipment, net of accumulated
depreciation and amortization........................ 128,436 127,362 128,771
Prepaid land rents, non-current portion................ 907 1,885 1,754
Other assets........................................... 324 200 192
-------- -------- ---------
Total assets................................. $178,410 $177,692 $ 177,488
======== ======== =========
LIABILITIES AND NET ASSETS
Current liabilities:
Accounts payable..................................... $ 2,856 $ 1,684 $ 1,067
Accrued payroll and related expenses................. 6,191 6,149 6,146
Deferred revenue..................................... 736 1,053 919
Accrued legal........................................ 2,756 3,331 1,731
Accrued workers compensation......................... 2,970 2,540 2,540
Accrued property taxes............................... 1,817 966 1,072
Other current liabilities............................ 6,163 6,478 5,969
-------- -------- ---------
Total current liabilities.................... 23,489 22,201 19,444
Deferred income taxes.................................. 6,931 9,763 9,763
-------- -------- ---------
Total liabilities............................ 30,420 31,964 29,207
Net assets............................................. 147,990 145,728 148,281
-------- -------- ---------
Total liabilities and net assets............. $178,410 $177,692 $ 177,488
======== ======== =========
</TABLE>
The accompanying notes are integral part of these financial statements.
F-23
<PAGE> 69
NATIONAL ADVERTISING COMPANY
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------ ---------------------
1994 1995 1996 1996 1997
-------- --------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues..................... $221,540 $ 232,162 $ 239,469 $ 55,662 $ 55,995
Agency commissions......... (24,592) (26,744) (28,159) (6,401) (6,490)
--------- --------- --------- -------- --------
Net revenues................. 196,948 205,418 211,310 49,261 49,505
Operating expenses:
Direct advertising......... (97,673) (102,485) (104,510) (26,114) (24,364)
Selling and marketing...... (33,749) (34,646) (34,713) (8,893) (8,833)
General and
administrative.......... (12,024) (11,790) (12,406) (2,912) (3,139)
Depreciation and
amortization............ (18,061) (17,144) (15,382) (3,857) (3,785)
(Loss) gain on disposal of
property and
equipment............... (343) 806 (21) 638 395
--------- --------- --------- -------- --------
Operating income............. 35,098 40,159 44,278 8,123 9,779
Interest income, net......... 1,147 1,924 2,059 368 464
--------- --------- --------- -------- --------
Income before
income taxes..... 36,245 42,083 46,337 8,491 10,243
Provision for income taxes... (14,967) (17,510) (19,122) (3,507) (4,230)
--------- --------- --------- -------- --------
Net income................... $ 21,278 $ 24,573 $ 27,215 $ 4,984 $ 6,013
========= ========= ========= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE> 70
NATIONAL ADVERTISING COMPANY
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------ -------------------
1994 1995 1996 1996 1997
-------- -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.......................... $ 21,278 $ 24,573 $ 27,215 $ 4,984 $ 6,013
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization.... 18,061 17,144 15,382 3,857 3,785
Loss (gain) on disposal of
property and equipment......... 343 (806) 21 (638) (395)
Deferred income tax provision.... 2,121 562 2,622
Provision for doubtful
accounts....................... 628 840 694 252 225
Changes in operating assets and
liabilities:
Decrease (increase) in trade
receivables.................... (3,685) (2,566) 1,922 3,618 2,093
(Increase) decrease in
inventories.................... 1,274 5,125 (539) (116) 171
Increase in other assets......... (394) (1,612) (2,347) (1,204) (884)
(Decrease) increase in accounts
payable........................ (190) 665 (1,172) (1,323) (617)
(Decrease) increase in accrued
payroll and related expenses... 255 2,271 (42) 38 (3)
Decrease in other liabilities.... (2,277) (983) (74) (1,086) (2,137)
-------- -------- -------- ------- -------
Net cash provided by
operating activities...... 37,414 45,213 43,682 8,382 8,251
-------- -------- -------- ------- -------
Cash flows from investing activities:
Purchases of property and
equipment........................ (26,142) (24,963) (17,497) (4,490) (5,787)
Proceeds from sales of property and
equipment........................ 1,956 3,608 3,292 1,554 996
Payment for non-compete agreement... -- (312) -- --
-------- -------- -------- ------- -------
Net cash used in investing
activities................ (24,186) (21,667) (14,205) (2,936) (4,791)
-------- -------- -------- ------- -------
Cash flows from financing activities:
Payments of dividends............... (13,000) (18,000) (20,000) -- --
Net change in net assets............ (228) (5,546) (9,477) (5,446) (3,460)
-------- -------- -------- ------- -------
Net cash used in financing
activities................ (13,228) (23,546) (29,477) (5,446) (3,460)
-------- -------- -------- ------- -------
Net change in cash.................... $ -- $ -- $ -- $ -- $ --
======== ======== ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE> 71
NATIONAL ADVERTISING COMPANY
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
1. BASIS OF PRESENTATION
The accompanying financial statements include certain accounts of National
Advertising ("NADCO" or "the Company"), that are primarily dedicated to the
outdoor media and mall advertising businesses in the United States. The Company
is a wholly-owned subsidiary of Minnesota Mining and Manufacturing Company
("3M"). The accounts of the Company have been adjusted to exclude the effects
and results of the following: (1) the Travel Center Advertising business and (2)
the In-Store Media program utilizing 3M Floorminder's Graphics.
The financial statements present the historical financial position, results
of operations and cash flows of the Company, on the basis described above. Other
than amounts related to the customary time lag in paying monthly charges, the
Company has excluded from the balance sheets assets and liabilities related to
its employees' participation in the 3M pension and other postretirement benefit
plans. Current federal and state income taxes payable have been recorded as a
component of net assets.
NADCO owns and operates advertising display faces in outdoor and other
out-of-home media, selling the advertising space to national, regional and local
advertisers throughout the United States.
The statement of income reflects an allocation of certain costs and
expenses from 3M based on services provided by 3M (see Notes 2, 6 and 8). The
accompanying financial statements may not necessarily be indicative of the
financial position, results of operations or cash flows of the Company in the
future or what the financial position, results of operations or cash flows would
have been had the Company been a separate, independent company during the
periods presented.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
NADCO's revenues are generated from contracts with advertisers generally
covering periods ranging from one to thirty-six months. NADCO recognizes
revenues ratably over the contract term and defers customer prepayments of
rental fees. Costs incurred for the production of outdoor advertising displays
are recognized in the initial month of the contract or as incurred during the
contract period.
PREPAID LAND RENT
Most of NADCO's advertising structures are located on leased land. Land
rents are generally paid in advance for periods ranging from one to twelve
months. Prepaid rents are expensed ratably over the related rental term.
INVENTORIES
Inventories consist principally of parts and materials for the construction
and replacement of outdoor and mall advertising signage. Inventories are stated
at the lower of cost of market, cost being determined using the first-in,
first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant, and equipment are stated at cost. Depreciation is recorded
using the straight-line method over estimated useful lives of the assets.
F-26
<PAGE> 72
NATIONAL ADVERTISING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Repairs and maintenance are charged to expense when incurred. Expenditures
for significant improvements are capitalized. Upon sale or retirement of
property, plant and equipment, the cost and accumulated depreciation are
eliminated from the accounts, and the related gain or loss is included in the
statement of income.
IMPAIRMENT OF LONG-LIVED ASSETS
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of. The Company assesses the impairment
of its long-lived assets, including intangibles and property and equipment,
whenever economic events or changes in circumstances indicate that the carrying
amounts of the assets may not be recoverable. Long-lived assets are considered
to be impaired when the sum of the expected future operating cash flows,
undiscounted and without interest charges, is less than the carrying amounts of
the related assets. No adjustment was necessary as a result of the above
adoption.
PENSION AND POSTRETIREMENT PLANS
NADCO employees participate in 3M pension and other postretirement plans.
The Company has accounted for its participation in the 3M plans as a
participation in multi-employer plans. Accordingly, the statement of income
includes an allocation from 3M for the costs associated with the NADCO employees
who participate in these plans that is comparable to the Company's required
contribution to the plans for the periods presented. Additionally, no assets and
liabilities have been reflected in the balance sheets related to the overall 3M
pension and other postretirement benefit plans since it is not practicable to
segregate the amounts applicable to the Company.
INCOME TAXES
The Company is included in the consolidated income tax returns of 3M. The
Company has no tax-sharing agreement, formal or informal, with 3M. For purposes
of the accompanying financial statements, income taxes are determined on the
"separate return" method. The financial statements reflect the application of
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes, for all periods presented. Current federal and state income taxes payable
for the Company's operations are included in Net Assets as 3M pays all income
taxes and receives all income tax refunds on the Company's behalf.
Deferred income taxes are recognized for the future tax consequences of
differences between the bases of assets and liabilities and their
financial-reporting amounts at each year-end based on enacted laws and statutory
tax rates applicable to the periods in which the differences are expected to
affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amounts expected to be realized. Income tax
expense is the payable for the period and the change during the period in
deferred tax assets and liabilities.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
F-27
<PAGE> 73
NATIONAL ADVERTISING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1996 and 1995 consists of the
following:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Signs, principally outdoor advertising structures.......... $272,219 $262,766
Land....................................................... 3,578 3,624
Buildings and leasehold improvements....................... 6,261 6,289
Machinery and equipment.................................... 1,138 1,261
Mobile equipment........................................... 5,457 5,951
Furniture and fixtures..................................... 9,762 8,711
Construction in progress................................... 2,313 4,954
--------- ---------
300,728 293,556
Accumulated depreciation and amortization.................. (173,366) (165,120)
--------- ---------
Property, plant and equipment, net......................... $127,362 $128,436
========= =========
</TABLE>
4. NET ASSETS
Net assets is comprised of the following components at December 31, 1996
and 1995:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Capital........................................................ $ 4,000 $ 4,000
Retained earnings.............................................. 170,886 163,671
Intercompany accounts with affiliates.......................... (29,158) (19,681)
-------- --------
$145,728 $147,990
======== ========
</TABLE>
The authorized capital stock of the Company consists of 50,000 shares of no
par common stock, of which 40,000 shares are issued and outstanding.
As discussed in Notes 1 and 2, the intercompany accounts with affiliates
include net charges from 3M and other affiliates for various services and cost
allocations. In addition, the intercompany accounts with affiliates include
liabilities relating to current federal and state income taxes, and state sales
and use taxes.
5. OPERATING LEASES
Rental expense for operating leases totaled $38,754, $36,775, and $35,441
including contingent rental payments of $3,251, $2,802, and $2,136 for the years
ended December 31, 1996, 1995 and 1994, respectively. Contingent payments are
primarily based on related signage revenues. Land leases are generally entered
into for terms of 10 years or less.
F-28
<PAGE> 74
NATIONAL ADVERTISING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Minimum future lease commitments at December 31, 1996 for the next five
years are as follows:
<TABLE>
<CAPTION>
OTHER LAND
LEASES LEASES TOTAL
------ -------- ---------
<S> <C> <C> <C>
1997.................................................... $ 95 $ 33,680 $33,775
1998.................................................... 29 33,733 33,762
1999.................................................... 19 33,819 33,838
2000.................................................... 5 33,846 33,851
2001.................................................... 33,860 33,860
------ -------- ---------
Total minimum lease payments............................ $148 $168,938 $169,086
===== ========= =========
</TABLE>
The total minimum lease payments for land leases assumes that the company
will continue to renew, at current lease rates, its existing leases which may
expire during the five years presented.
6. EMPLOYEE BENEFITS
PENSION PLANS
Substantially all of the Company's employees participate in defined benefit
pension plans sponsored by 3M. 3M's pension benefits are based principally on an
employee's years of service and compensation near retirement. 3M has allocated
pension expense to the Company of approximately $1,861, $1,711 and $1,793 in
1996, 1995 and 1994, respectively.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Under various 3M plans, the Company provides health care and life insurance
benefits to substantially all employees who reach retirement age while employed
by 3M, their covered dependents and beneficiaries. 3M has allocated to the
Company postretirement benefit expense of approximately $949, $768, and $711 for
the years ended December 31, 1996, 1995 and 1994, respectively.
DEFINED CONTRIBUTION PLANS
Employees of the Company also participate in a 3M sponsored Employee
Savings Plan under section 401(k) of the Internal Revenue Code. Under this plan,
3M matches employee contributions of up to 6 percent of compensation at rates
ranging from 10 to 85 percent depending upon 3M financial performance. 3M's
matching contributions to the employee savings plan are funded through an
employee stock ownership plan. The Company's allocation of the expense related
to the Employee Savings Plan was $478, $430, and $425 in 1996, 1995, and 1994,
respectively.
F-29
<PAGE> 75
NATIONAL ADVERTISING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES
The provision for income taxes for the years ended December 31, 1996, 1995
and 1994 is comprised of the following amounts:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Provision for income taxes:
Federal:
Current........................................ $13,225 $13,582 $10,294
Deferred....................................... 2,100 450 1,699
------- ------- -------
15,325 14,032 11,993
State and local:
Current........................................ 3,275 3,366 2,552
Deferred....................................... 522 112 422
------- ------- -------
3,797 3,478 2,974
------- ------- -------
Total provision for income taxes.................... $19,122 $17,510 $14,967
======= ======= =======
</TABLE>
The effective tax rate differs from the U.S. federal statutory rate
principally due to state income taxes and certain non-deductible expenses.
The tax effects of temporary differences which gave rise to deferred income
tax assets and liabilities consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Deferred income tax assets:
Accrued vacation.................................... $ 1,017 $ 1,017 $ 945
Lease acquisition costs............................. 1,153 868 677
Allowance for doubtful accounts..................... 711 603 570
Accrued legal....................................... 1,339 1,108 1,108
Accrued workers compensation........................ 1,021 1,194 1,194
Other accrued liabilities........................... 1,614 1,570 1,510
-------- ------- -------
Total deferred income tax assets............ 6,855 6,360 6,004
-------- ------- -------
Deferred income tax liabilities:
Property, plant & equipment......................... 10,773 7,656 6,734
Other............................................... 143 143 147
-------- ------- -------
Total deferred income tax liabilities....... 10,916 7,799 6,881
-------- ------- -------
Net deferred income tax liabilities................... $ 4,061 $ 1,439 $ 877
======== ======= =======
</TABLE>
The deferred income tax assets and liabilities have been classified in the
balance sheet as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Net deferred income tax assets -- current............. $ 5,702 $ 5,492 $ 5,327
Net deferred income tax liabilities -- non-current.... 9,763 6,931 6,204
-------- ------- -------
Net deferred income tax liabilities................... $ 4,061 $ 1,439 $ 877
======== ======= =======
</TABLE>
F-30
<PAGE> 76
NATIONAL ADVERTISING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. TRANSACTIONS WITH RELATED PARTIES
3M provides the Company with various services, including certain corporate
accounting, finance and administration, facility management, human resource and
legal. The cost allocations to the Company for such services were approximately
$9,183, $9,058, and $9,305 for the years ended December 31, 1996, 1995 and 1994,
respectively. The amounts allocated are based on historical or actual usage of
services relative to the usage of the other participating affiliated businesses.
Additionally, 3M allocates charges to the Company for its share of the
annual self-insurance expense, consisting of workers' compensation, auto and
general liability claims. This expense allocation is based upon the ratio of
NADCO claims and loss development to the total amount of 3M claims and loss
development. The self-insurance expense allocated to the Company was $6,432,
$6,240, and $5,284 for the years ended December 31, 1996, 1995 and 1994,
respectively.
The Company also rents its corporate headquarters and is charged for the
use of other 3M facilities. The expense allocated to the Company was $5,227,
$4,281 and $4,537 for the years ended December 31, 1996, 1995 and 1994,
respectively.
Personnel of the Company use certain automobiles owned by 3M. The Company
recognized $993, $930 and $956 in rental expense for 1996, 1995 and 1994,
respectively, related to the use of these assets.
The Company invests its excess cash with 3M in a participation investment
account. Interest income earned was $2,073, $1,962 and $1,249 for the years
ended December 31, 1996, 1995 and 1994.
9. LITIGATION AND CLAIMS
The Company is a defendant in a 1995 Florida federal court suit, filed by
two former NADCO sales representatives who formed a company to compete with
NADCO. This suit seeks approximately $36 million in damages for lost profits and
punitive damages, allegedly arising out of violations of antitrust laws,
intentional tortious interference with business opportunities and defamation of
business reputation. Trial of this matter is scheduled to begin in April 1997.
The plaintiffs have made settlement demands for amounts significantly less than
the amount sought in the suit. Management believes it has adequate defenses,
however, if liability is found, management is not able, at this time, to
estimate the amount or range of potential loss.
In addition to the above matter, various legal actions and claims are
pending or may be instituted or asserted against the Company in the future,
including those arising out of alleged personal injury, discrimination and
antitrust violations, condemnation matters, permit appeals, property owner
disputes, amortization issues, permit violation questions, lease disputes,
foreclosures and property tax issues. Liabilities have been recorded for these
matters to the extent that it is probable that the Company will be found liable
and the minimum amount of liability is determinable.
Management believes that the ultimate outcome of all pending litigation,
after considering recorded liabilities, would not have a material adverse effect
on the Company's financial position or results of operations.
10. PENDING SALE OF THE COMPANY
On April 30, 1997, 3M agreed to sell all of the outstanding common stock of
the Company to Outdoor Systems, Inc. for approximately $1.0 billion cash.
F-31
<PAGE> 77
NATIONAL ADVERTISING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
11. UNAUDITED NOTE TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The accompanying unaudited interim financial statements have been prepared
in accordance with generally accepted accounting principles applicable to
interim financial statements. 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, 1997, are not necessarily indicative of the
results that may be expected for the year ending December 31, 1997.
F-32
<PAGE> 78
======================================================
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR
ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 13
Use of Proceeds....................... 18
Price Range of Common Stock........... 18
Dividend Policy....................... 18
Capitalization........................ 19
Unaudited Consolidated Pro Forma
Financial Information............... 20
Selected Consolidated Financial and
Other Data.......................... 29
Management's Discussion and Analysis
of Results of Operations and
Financial Condition................. 31
Principal and Selling Stockholders.... 35
Description of Capital Stock.......... 37
Description of Indebtedness and Other
Commitments......................... 37
Underwriting.......................... 43
Legal Matters......................... 44
Experts............................... 44
Available Information................. 45
Incorporation of Certain Documents by
Reference........................... 45
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
======================================================
======================================================
13,000,000 SHARES
[OUTDOOR SYSTEMS LOGO]
COMMON STOCK
-------------------
PROSPECTUS
-------------------
ALEX. BROWN & SONS
INCORPORATED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CIBC WOOD GUNDY SECURITIES CORP.
MONTGOMERY SECURITIES
PRUDENTIAL SECURITIES INCORPORATED
May 22, 1997
======================================================
