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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-28256
OUTDOOR SYSTEMS, INC.
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(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 86-0736400
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(State or other jurisdiction of incorporation) (I.R.S. Employer Identification No.)
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2502 N. BLACK CANYON HIGHWAY, PHOENIX, ARIZONA 85009
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (602) 246-9569
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Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Number of Common Shares outstanding at May 14, 1997: 40,155,631 SHARES.
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CONTENTS
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PAGE
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of March 31, 1997 and
December 31, 1996 (unaudited) ........................................ 1
Condensed Consolidated Statements of Operations for the Three Months ended
March 31, 1997 and 1996 (unaudited) .................................. 2
Condensed Consolidated Statements of Cash Flows for the Three Months ended
March 31, 1997 and 1996 (unaudited) .................................. 3
Notes to Condensed Consolidated Financial Statements (unaudited) ............. 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ...................................... 6
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ......................................... 8
SIGNATURES ....................................................................... 9
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OUTDOOR SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
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MARCH 31, DECEMBER 31,
1997 1996
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ASSETS
Current Assets:
Cash and cash equivalents $ 4,921 $ 11,887
Accounts receivable, net 59,402 56,975
Prepaid land leases 11,745 10,938
Other current assets 19,403 17,374
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Total current assets 95,471 97,174
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Property and Equipment, net 849,653 742,144
Prepaid Land Leases and Other 9,739 10,155
Deferred Financing Costs 23,157 24,151
Goodwill, net 60,825 59,831
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$ 1,038,845 $ 933,455
=========== =========
LIABILITIES AND STOCKHOLDERS' CAPITAL DEFICIENCY
Current Liabilities:
Accounts payable $ 7,759 $ 8,323
Accrued interest 12,938 7,056
Accrued expenses and other liabilities 17,474 17,653
Current maturities of long-term debt 31,700 28,000
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Total current liabilities 69,871 61,032
Long-term Debt 674,728 578,409
Other Long-term Obligations 3,734 3,552
Deferred Income Taxes 2,057 2,283
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Total liabilities 750,390 645,276
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Common Stockholders' Equity:
Common stock, $.01 par value - authorized, 60,000,000
shares; issued and outstanding 40,155,631 shares 402 402
Additional paid-in capital 316,988 316,988
Accumulated deficit (24,585) (25,275)
Treasury stock at cost - 11,475,554 shares (4,053) (4,053)
Foreign currency translation adjustment (297) 117
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Total common stockholders' equity 288,455 288,179
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$ 1,038,845 $ 933,455
=========== =========
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See notes to condensed consolidated financial statements.
1
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OUTDOOR SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
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THREE MONTHS
ENDED
MARCH 31,
1997 1996
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REVENUES:
Outdoor advertising $ 89,713 $ 19,722
Less agency commissions and discounts 12,497 2,777
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Total 77,216 16,945
Lease, printing and other revenues 2,864 --
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Net revenues 80,080 16,945
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OPERATING EXPENSES:
Direct advertising 44,615 7,859
General and administrative 6,717 1,078
Depreciation and amortization 11,635 2,561
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62,967 11,498
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Operating income 17,113 5,447
INTEREST EXPENSE 15,922 4,152
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Income before income tax expense 1,191 1,295
INCOME TAX PROVISION 500 518
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Net income $ 691 $ 777
=========== ============
LESS PREFERRED STOCK DIVIDENDS AND
PREFERRED AND COMMON STOCK ACCRETIONS -- 907
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NET INCOME (LOSS) ATTRIBUTABLE TO COMMON
STOCKHOLDERS $ 691 $ (130)
=========== ============
NET INCOME (LOSS) PER COMMON AND EQUIVALENT
SHARE:
Net income (loss) per common share $ .02 $ (.01)
=========== ============
Weighted average number of shares 46,030,680 25,366,144
=========== ============
</TABLE>
See notes to condensed consolidated financial statements.
2
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OUTDOOR SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
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THREE MONTHS
ENDED
MARCH 31,
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1997 1996
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OPERATING ACTIVITIES:
Net income $ 691 $ 777
Changes to reconcile net income to net cash provided by
operating activities:
Decrease in deferred taxes (364) --
Amortization of discounts on notes payable 131 100
Depreciation and amortization 11,635 2,561
Loss on currency adjustment 331
Changes in net assets and liabilities:
(Increase) decrease in accounts receivable (2,088) 1,162
(Increase) decrease in prepaid expenses and other (293) 279
Increase (decrease) in accrued interest 5,884 (3,091)
Decrease in accounts payable and other liabilities (346) (28)
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Net Cash Provided by Operating Activities 15,581 1,760
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INVESTING ACTIVITIES:
Acquisitions of outdoor advertising assets (117,903) --
Capital expenditures (5,140) (1,194)
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Net Cash Used in Investing Activities (123,043) (1,194)
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FINANCING ACTIVITIES:
Proceeds from long-term debt 110,563 5,000
Principal payments on long-term debt and capital leases (10,000) (4,889)
Cash dividends paid on preferred stock -- (218)
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Net Cash (Used) in Provided by Financing Activities 100,563 (107)
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Effect of exchange rate changes on cash (67) --
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NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (6,966) 459
CASH AND CASH EQUIVALENTS - BEGINNING 11,887 1,739
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CASH AND CASH EQUIVALENTS - ENDING $ 4,921 $ 2,198
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</TABLE>
See notes to condensed consolidated financial statements.
3
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OUTDOOR SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q 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. The enclosed
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Form 10-K filed
with the Securities and Exchange Commission on March 31, 1997.
NOTE 2 - NET INCOME (LOSS) PER SHARE
Primary income (loss) per common and common equivalent share is computed on
the weighted average number of common and common equivalent shares outstanding
during each period and includes shares issuable upon exercise of stock options.
NOTE 3 - ACQUISITIONS
During the first quarter of 1997, the Company acquired outdoor advertising
assets in the following locations for the following purchase prices:
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DATE PURCHASE
ACQUIRED PRICE
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(In thousands)
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Villepigue Outdoor - New York January 9 $ 27,261
Atlanta Bus Shelters - Atlanta January 10 6,401
Philbin & Coine, Inc. - Louisville January 22 830
Scadron Enterprises - Chicago February 14 24,515
Murad Communications - Toronto February 28 5,418
Reynolds Outdoor, LP - Dallas February 28 31,651
Ad Outdoor - Halifax March 6 946
Burlington Northern/Santa Fe - Western and Midwestern states March 26 17,500
3M Transit - Toronto March 31 3,381
--------
$117,903
========
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Each of these acquisitions has been accounted for using the purchase method
of accounting. The purchase prices above include working capital purchased; such
working capital is subject to final adjustment before December 31, 1997. These
acquisitions were financed, primarily, utilizing cash flows and borrowings
under the Company's senior credit facility.
4
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NOTE 4 - NEW ACCOUNTING PRONOUNCEMENT
Effective in 1997, the Company is 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 and fully diluted earnings (loss) per share would have
been $0.02 and $(0.01), respectively for the three months ended March 31, 1997
and 1996, respectively, under SFAS 128.
NOTE 5 - SUBSEQUENT EVENTS
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 Manufacturing 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 a registration statement filed with
the Securities and Exchange Commission (the "SEC") on May 8, 1997, (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.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1997 AND
MARCH 31, 1996
Operating results for the first quarter of 1997 include the operations of
the Gannett Outdoor acquisition (the "Gannett Outdoor Acquisition") completed
August 23, 1996, and the several acquisitions completed during the first quarter
of 1997 (see Note 3 to the Condensed Consolidated Financial Statements
(unaudited)) (collectively the "Acquisitions"). Gross revenues increased by
354.9% to $89.7 million in the first quarter of 1997 compared to $19.7 million
in the first quarter of 1996. Gross revenues increased approximately 8.2% during
the first quarter of 1997 compared to the first quarter of 1996 for markets
where the Company operated both in the 1997 and 1996 periods. The balance of the
increased revenues were a result of the Acquisitions.
Agency commissions were 13.9% and 14.1% of gross revenues in the first
quarter of 1997 and 1996, respectively, primarily as a result of a slightly
lower proportion of revenues generated through advertising agencies in the 1997
period.
Net revenues increased by 372.6% to $80.1 million in the first quarter of
1997 from $16.9 million in the first quarter of 1996, primarily as a result of
the increase in gross revenues combined with an increase of $2.9 million of
other income. Other income increased primarily due to the inclusion of license
fee revenue from perpetual easements acquired in the second quarter of 1996 and
the inclusion of revenues from a printing operation acquired in connection with
the Gannett Outdoor Acquisition.
Direct advertising expenses increased to $44.6 million in the first quarter
of 1997 compared to $7.9 million in the first quarter of 1996. This was
primarily a result of the Acquisitions, offset by a slight decrease in direct
advertising expenses for markets where the Company operated both in the 1997 and
1996 periods. As a percentage of net revenues, direct advertising expenses were
approximately 55.7% in the first quarter of 1997 compared to 46.4% in the first
quarter of 1996.
General and administrative expenses as a percentage of net revenues was
approximately 6.4% in the first quarter of 1997 and 1996 for markets where the
Company operated both in 1997 and 1996. General and administrative expenses
increased to 8.4% of net revenues for the first quarter of 1997 as a result of
the Acquisitions.
As a result of the above factors, EBITDA (operating income (loss) before
interest, taxes, depreciation and amortization expense) increased by 259.0% to
$28.7 million in the first quarter of 1997 from $8.0 million in the first
quarter of 1996.
Depreciation and amortization expense increased to $11.6 million for the
first quarter of 1997 compared to $2.6 million in the first quarter of 1996,
primarily due to the Acquisitions, offset in part by certain assets becoming
fully depreciated during the first quarter of 1997. As a percentage of net
revenues, depreciation and amortization expense decreased to 14.5% from 15.1% in
the first quarter of 1997 compared to the first quarter of 1996.
Interest expense increased to $15.9 million in the first quarter of 1997
compared to $4.2 million in the first quarter of 1996, as a result of interest
expense related to obligations incurred in connection with the Acquisitions. As
a percentage of net revenue, interest expense decreased to 19.9% for the first
quarter of 1997 compared to 24.5% for the first quarter of 1996.
The Company recorded an income tax provision of $0.5 million for each of
the first quarter of 1997 and 1996.
6
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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 acquisitions completed during the first quarter of 1997
(the "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 1997 Acquisitions.
Net cash provided by operating activities increased by $13.8 million to
$15.6 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 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 1997 Acquisitions.
The Company made approximately $5.1 million of capital expenditures during
the first quarter of 1997, an increase from approximately $1.2 million during
the first quarter of 1996. 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 $18.0 million to $20.0 million ($26.0 million to $30.0 million if
the pending acquisitions, see Note 5 of the Notes to Condensed Consolidated
Financial Statements (unaudited), are completed) in each of the next two years.
On April 11, 1997, the Company entered into a Stock Purchase Agreement to
purchase the stock of Van Wagner for approximately $170 million in cash.
Additionally, on April 30, 1997, the Company entered into an Agreement of
Purchase and Sale to acquire the outdoor advertising operations of 3M through
the purchase of the capital stock of 3M Media for approximately $1.0 billion in
cash. Each of these pending acquisitions 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 Common Stock
Offering to the public pursuant to a registration statement filed with the SEC
on May 8, 1997, (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 from 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.
The Company believes that the net proceeds of the Common Stock Offering and
the Notes Offering (or the preferred stock and senior subordinated credit
facilities), internally generated funds and available borrowings under the
senior credit facility, as proposed to be amended, will be sufficient to satisfy
its operating cash requirements for at least the next twelve to twenty-four
months. The Company may, however, require additional capital to consummate
significant acquisitions in the future and there can be no assurance that such
capital will be available.
7
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PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith:
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Exhibit No. Document
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27 Financial Data Schedule
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(b) Reports on Form 8-K.
None.
8
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OUTDOOR SYSTEMS, INC.
DATED: May 14, 1997 By /S/ Bill Beverage
--------------------------------------------------
Bill Beverage, Chief Financial Officer,
Secretary/Treasurer
(Principal Accounting Officer)
9
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 4,921
<SECURITIES> 0
<RECEIVABLES> 59,402
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 95,471
<PP&E> 849,653
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,038,845
<CURRENT-LIABILITIES> 69,871
<BONDS> 0
0
0
<COMMON> 402
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,038,845
<SALES> 0
<TOTAL-REVENUES> 80,080
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 62,967
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,922
<INCOME-PRETAX> 1,191
<INCOME-TAX> 500
<INCOME-CONTINUING> 691
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 691
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</TABLE>
