<PAGE> 1
FORM 8-K/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): SEPTEMBER 10, 1998 (JULY 1,
1998)
OUTDOOR SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 1-13275 86-0736400
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
2502 NORTH BLACK CANYON HIGHWAY, PHOENIX, ARIZONA 85009
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (602) 246-9569
NOT APPLICABLE
(Former name or former address, if changed since last report.)
<PAGE> 2
In the Current Report on Form 8-K filed on July 16, 1998 (the "Form 8-K"),
the Registrant reported that pursuant to an Asset Purchase and Assignment
Agreement, dated June 4, 1998, among the Registrant, Vendor, S.A. de C.V.
("Vendor") and the several other parties thereto, the Registrant had completed
the acquisition of substantially all of the assets of Vendor, the outdoor
advertising subsidiary of Televisa, S.A. de C.V., the leading diversified media
company in Mexico. Additionally, the Registrant reported that pursuant to the
Asset Purchase and Assignment Agreement, dated June 4, 1998, between the
Registrant, Multimedios Estrellas de Oro, S.A. de C.V., MM Billboard, S.A. de
C.V. ("MM Billboard") and the several other parties thereto, the Registrant had
completed the acquisition of substantially all of the outdoor advertising
business conducted by MM Billboard, an outdoor advertising company in northern
Mexico. The Form 8-K did not include the Consolidated Condensed Financial Data
required by Item 7(a) or the Pro Forma Consolidated Condensed Financial Data
required by Item 7(b). This Form 8-K/A amends Item 7 of the Form 8-K by
including the financial information referred to below.
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Businesses Acquired.
[PRICEWATERHOUSECOOPERS LOGO]
To the Board of Directors of Outdoors Systems, Inc.:
We have audited the combined balance sheet of Vendor, S. A. de C. V. and MM
Billboard, S. A. de C. V., as of December 31, 1997, and the related combined
statements of income, changes in net assets and changes in financial position
for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards
in Mexico, which are substantially the same as those in the United States. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the combined 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 audit provides a reasonable basis for our opinion.
a. As mentioned in Note 4(d), at December 31, 1997, the Company changed its
policy of recognizing their inventories from expensing them when purchased to
recognizing them as inventories. This change was made to better match the use of
those inventory items, with their related revenues.
b. As mentioned in Note 4 (e) to the combined financial statements, beginning in
1997 the Company adopted the Fifth Amendment to Bulletin B-10 (modified) issued
by the Mexican Institute of Public Accountants for the recognition of the
effects of inflation on property, plant and equipment and their corresponding
accumulated depreciation and annual depreciation.
c. As discussed in Note 4(k) to the combined financial statements, as of January
1, 1997, the Company adopted the provisions of Circular 50, issued by the
Mexican Institute of Public Accountants, for determining its seniority premium
plan.
In our opinion, the aforementioned combined financial statements present fairly,
in all material respects, the combined financial position of Vendor, S. A. de C.
V. and MM Billboard, S. A. de C. V., at December 31, 1997, and the combined
results of their operations, changes in net assets and changes in financial
position for the year then ended, in conformity with accounting principles
generally accepted in Mexico.
<PAGE> 4
-2-
Generally accepted accounting principles in Mexico vary in certain significant
respects from generally accepted accounting principles in the United States. In
our opinion, based on our audit, the application of generally accepted
accounting principles in the United States would have affected the determination
of the combined results of operations for the year ended December 31, 1997 and
the total changes in net assets at December 31, 1997 to the extent summarized in
note 15 to the combined financial statements.
PricewaterhouseCoopers
/s/ Manuel Garcia Brana
-----------------------
Manuel Garcia Brana
Public Accountant
Mexico City, Mexico
May 14, 1998
(except for notes 14 and 15
to the combined financial
statements, for which the
date is August 11, 1998)
<PAGE> 5
VENDOR, S. A. DE C. V. AND MM BILLBOARD, S. A. DE C. V.
COMBINED BALANCE SHEET
FOR THE YEAR ENDED DECEMBER 31, 1997
(Mexican pesos of purchasing power as of December 1997)
(Notes 1, 2, 3 and 4)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current:
Cash and cash equivalents Ps. 7,423,545
Intercompany receivable (Notes 5 and 7) 27,746,331
Trade accounts receivable (net of allowance for doubtful accounts of
Ps.3,999,608) 12,558,381
Taxes recoverable 6,514,937
Other accounts receivable 2,452,004
Inventory (Note 4d) 5,207,050
Prepaid rents 11,754,699
-----------
Total current assets 73,656,947
Property, plant and equipment, net (Note 6) 93,541,978
Other assets 1,632,030
-----------
Total assets Ps. 168,830,955
-----------
LIABILITIES
Current:
Trade accounts payable Ps. 9,670,212
Taxes payable 20,404,878
Accounts payable and accrued expenses 5,428,585
Customer deposits (Note 7) 8,521,291
-----------
Total current liabilities 44,024,966
Seniority premium obligations (Note 8) 712,553
Contingencies and commitments (Note 9) --
-----------
Total liabilities 44,737,519
-----------
Total net assets (Note 10) Ps. 124,093,436
===========
</TABLE>
The accompanying notes are an integral part of these
combined financial statements.
<PAGE> 6
VENDOR, S. A. DE C. V. AND MM BILLBOARD, S. A. DE C. V.
COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(Mexican pesos of purchasing power as of December 31, 1997)
(Notes 1, 2, 3 and 4)
<TABLE>
<S> <C>
Revenues Ps. 305,781,183
Cost of sales (Note 5) (81,747,941)
------------
Gross profit 224,033,242
------------
Operating expenses:
Selling (50,222,368)
Administrative (62,220,064)
Depreciation and amortization (7,934,190)
------------
Total operating expenses (120,376,622)
------------
Operating profit 103,656,620
Integral cost of financing:
Interest expense (205,826)
Interest income (Note 5) 19,315,133
Foreign exchange gain, net 955
Loss from monetary position (4,109,337)
------------
15,000,925
------------
Indemnity payments (5,116,211)
Other expenses, net (4,887,006)
------------
Income before provision for income tax and employee profit sharing 108,654,328
Provision for:
Income tax (Note 11) (30,811,971)
Employee profit sharing (3,008,679)
------------
Net income Ps. 74,833,678
============
</TABLE>
The accompanying notes are an integral part of these
combined financial statements.
<PAGE> 7
VENDOR, S. A. DE C. V. AND MM BILLBOARD, S. A. DE C. V.
COMBINED STATEMENT OF NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
(Mexican pesos of purchasing power as of December 1997)
(Notes 1, 2, 3 and 4)
<TABLE>
<CAPTION>
Accumulated
Capital gain or loss
stock Legal Retained on monetary
(Note 10) reserve earnings position
------------- ------------- -------------- -----------------
<S> <C> <C> <C> <C>
Balances at December 31, 1996 Ps.39,943,297 Ps.4,821,174 Ps.12,966,469 Ps.(47,383,902)
Appropriation of prior year's profit according
to the Ordinary Stockholders' Meeting of
April 2, 1997 3,028,756 57,546,364
Dividend payment declared at the rate of
Ps. 361.607 per share (includes restatement
of Ps. 1,689,413), in accordance with the
resolution of the Ordinary Stockholders'
Meeting of October 16, 1997 (52,323,413)
Gain or loss from holding nonmonetary
assets for the year
Net income
------------- ------------ ------------- --------------
Balances at December 31, 1997 Ps.39,943,297 Ps.7,849,930 Ps.18,189,420 Ps.(47,383,902)
------------- ------------ ------------- --------------
MM Billboard, S. A. de C. V. carve-out
net liabilities
</TABLE>
<TABLE>
<CAPTION>
Gain or
loss from
holding non
monetary assets Net income Net assets
---------------- -------------- --------------
<S> <C> <C> <C>
Balances at December 31, 1996 Ps.35,563,418 Ps.60,575,120 Ps.106,485,576
Appropriation of prior year's profit according
to the Ordinary Stockholders' Meeting of
April 2, 1997 (60,575,120) --
Dividend payment declared at the rate of
Ps. 361.607 per share (includes restatement
of Ps. 1,689,413), in accordance with the
resolution of the Ordinary Stockholders'
Meeting of October 16, 1997 (52,323,413)
Gain or loss from holding nonmonetary
assets for the year (1,099,144) (1,099,144)
Net income 72,833,255 72,833,255
------------- ------------- --------------
Balances at December 31, 1997 Ps.34,464,274 Ps.72,833,255 Ps.125,896,274
------------- ------------- --------------
MM Billboard, S. A. de C. V. carve-out
net liabilities (1,802,838)
--------------
Net assets Ps.124,093,436
==============
</TABLE>
The accompanying notes are an integral part of these
combined financial statements.
<PAGE> 8
VENDOR, S. A. DE C. V. AND MM BILLBOARD, S. A. DE C. V.
COMBINED STATEMENT OF CHANGES IN FINANCIAL POSITION
FOR THE YEAR ENDED DECEMBER 31, 1997
(Mexican pesos of purchasing power as of December 31, 1997)
(Notes 1, 2, 3 and 4)
<TABLE>
<S> <C>
Funds provided by operations:
Net income Ps.74,833,678
Items applied to income not requiring the use of funds:
Depreciation and amortization 7,934,190
Seniority premium costs 155,114
-------------
82,922,982
Changes in operating assets and liabilities
Decrease (increase) in:
Trade accounts receivable 2,550,149
Other accounts receivable 201,231
Inventory (5,207,050)
Prepaid expenses (2,098,572)
Other assets (419,816)
Increase (decrease) in:
Trade accounts payable 631,595
Taxes payable 4,907,063
Accounts payable and accrued expenses 1,894,617
Customer deposits 1,991,645
Others (143,619)
-------------
Total funds provided by operating activities 87,230,225
-------------
Funds used in financing activities:
Current accounts with affiliated companies (28,170,269)
Dividends paid (52,323,413)
-------------
Funds used in financing activities (80,493,682)
-------------
Funds used in investing activities:
Acquisition of property plant and equipment, net (4,249,127)
-------------
Funds used in investing activities (4,249,127)
-------------
Net increase in cash and cash equivalents 2,487,416
Cash and cash equivalents at beginning of year 4,936,129
-------------
Cash and cash equivalents at end of year Ps. 7,423,545
=============
</TABLE>
The accompanying notes are an integral part of these
combined financial statements.
<PAGE> 9
VENDOR, S. A. DE C. V. AND MM BILLBOARD, S. A. DE C. V.
NOTES TO THE COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997
(Mexican pesos in purchasing power as of December 31, 1997)
1. COMPANY
The combined financial statements of Vendor, S. A. de C. V. ("Vendor") and MM
Billboard, S. A. de C. V., include (i) the consolidated accounts of Vendor, S.
A. de C. V. and its wholly owned subsidiary, Servicios Administrativos America,
S. A. de C. V. ("SAA"), and (ii) the carve-out financial statements of MM
Billboard, S. A. de C. V. (together the "Company"). These combined financial
statements have been prepared pursuant to the Sale and Purchase Agreement by and
among Outdoors Systems, Inc., Outdoor Systems Mexico, S. A. de C. V., Vendor, S.
A. de C. V., Multimedios Estrella de Oro, S. A. de C. V. and MM Billboard, S. A.
de C. V. (see Note 14), for the inclusion in filings with the Securities and
Exchange Commission ("SEC") in the United States of America, under Rule 3-05 of
Regulation S-X.
2. DESCRIPTION OF BUSINESS
The Company is principally engaged in providing billboard advertising services,
as well as producing and maintaining such billboards.
3. BASIS OF PRESENTATION OF THE CARVE-OUT FINANCIAL STATEMENTS
OF MM BILLBOARD, S. A. DE C. V.
The carve-out financial statements of MM Billboard, S. A. de C. V. ("MM
Billboard") include the assets and liabilities and results of operations related
to the business that will be sold pursuant to the Sale and Purchase Agreement
(see Note 14). Accordingly, the carve-out financial statements contain necessary
allocations of assets, liabilities, revenues and expenses attributable to the
business sold, as deemed reasonable by management to present the business sold
on a stand alone basis.
4. ACCOUNTING POLICIES
The principal accounting policies followed by the Company in the preparation on
these combined financial statements are summarized below:
a) Combined financial statements
The combined financial statements include the consolidated accounts of Vendor
and the carve-out financial statements of MM Billboard. Material intercompany
transactions are eliminated.
b) Effects of inflation on the financial information
The Company recognizes the effects of inflation in the basic financial
statements, in accordance with the guidelines provided for in Bulletin B-10 and
its amendments, issued by the Mexican Institute of Public Accountants. The basic
combined financial statements are stated in Mexican pesos of purchasing power as
of December 31, 1997.
<PAGE> 10
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c) Foreign currency translation
Assets and liabilities denominated in foreign currencies are translated at the
prevailing exchange rate at the balance sheet date. Exchange rate differences
are recognized in income and are part of the integral cost of financing.
d) Inventory
Effective December 31, 1997, the Company changed its policy of recognizing their
inventories from expensing them when purchased to recognizing them as
inventories.
Inventories are recorded at historical cost and are restated for inflation by
applying factors derived from the National Consumer Price Index, published by
Banco de Mexico ("NCPI"). At December 31, 1997, these inventory items are valued
at the lesser of restated cost or net realizable value.
e) Valuation of property, plant and equipment
Property, plant and equipment are recorded at acquisition cost.
Through December 31, 1996, property, plant and equipment were stated at net
replacement cost. Net replacement cost were determined from appraisals performed
by independent appraisers registered with the Comision Nacional Bancaria y de
Valores (the Mexican National Banking and Securities Commission).
Effective January 1, 1997, property, plant and equipment is restated using the
NCPI, except for equipment of foreign origin, which is restated by an index
which reflects the inflation of the country of origin and the exchange rate of
the Mexican peso against the currency of that country as of the balance sheet
date ("Specific Index").
Electronic billboards are capitalized as part of property, plant and equipment.
f) Depreciation and amortization
As of December 31, 1997, property, plant and equipment is depreciated using the
straight-line method, based on the useful life of the assets, over monthly
balances restated using the NCPI. Leasehold improvements are amortized based on
the straight-line method at an annual rate of 5%.
g) Customer deposits
Deposits made by customers for future advertising services provide that
customers receive advertising services for renting spaces (normally over the
following year) at prices that are fixed for the contract period and on terms
that are substantially more favorable than those received by customers in
general.
Deposits made by customers for future advertising are recognized as income at
the time the advertising services are rendered. For tax purposes, these deposits
have the same treatment, except for deposits received to be applied to
advertisement production and maintenance, which are applied to income when
received.
Deposits made by customers are considered to be non-monetary items and are
restated to recognize the effects of inflation, using the NCPI.
h) Cost of manufacturing non electronic billboards
Cost of manufacturing non electronic billboards that are used in advertising
spaces are charged to income in the year in which they are disbursed.
i) Prepaid expenses
Prepaid rents for sites where advertising spaces are located are charged to
income when incurred based on the contract period.
<PAGE> 11
-3-
j) Deferred Income taxes and deferred employees' profit sharing
Deferred income taxes and deferred employees' profit sharing are determined the
partial liability method of accounting, under which deferred income taxes and
deferred employees' profit sharing are provided for identifiable, non-recurring
temporary differences (i.e., those that are expected to reverse over a definite
period of time) at rates expected to be in effect at the time those temporary
differences reverse. The recognition of deferred tax assets is subject to
"practical absolute assurance" that they are realizable through future
operations, which cannot be presumed to exist in the long-term.
k) Employee benefits
The Company established a seniority premium plan for all of its personnel. The
liability for and the contribution to this fund are determined by an independent
actuary using the projected unit credit method.
As of 1997, costs, assets, and liabilities derived from labor obligations at
retirement are determined by using real interest rates in the actuarial
valuation. They are considered non-monetary items, as provided for in Circular
50, issued by the Mexican Institute of Public Accountants.
Payments for seniority premiums are charged to the related liability at the time
they are made.
Indemnities to dismissed personnel are charged to income in the year in which
they are incurred.
Vacation premiums are expensed at the time they are earned.
l) Integral cost of financing
Interest income and interest expense, exchange gains or losses from translating
monetary assets and liabilities denominated in foreign currency and the gain or
loss from monetary position, which represents the effects of inflation on
monetary assets and liabilities, are part of the integral cost of financing.
Holding monetary assets produces a loss; holding monetary liabilities, a gain.
m) Net assets
Net assets include the effect of restatement determined by applying the NCPI
factor to the applicable year. It represents the reserve required to maintain
owners' contributions and retained earnings in terms of constant purchasing
power.
n) Insufficiency in the restatement
This caption shows the degree to which the Company's Management has successfully
retained the purchasing power of its owners. The components of this caption are
as follows:
- - Accumulated gain or loss on monetary position: This represents the effect of
inflation on monetary assets and liabilities. This gain or loss was determined
in the first restatement of the financial statements. In the following years, it
was restated to pesos of purchasing power of the last financial statements.
- - Gain or loss from holding non monetary assets: As of December 31, 1997, this
represents the net difference between specific indexation applied to certain
fixed assets of foreign origin against restatement by the index method.
o) Other accounts
Other captions in the balance sheet (monetary items) are presented in current
currency. The accounts in the statement of income are considered at pesos of
purchasing power as of December 1997.
<PAGE> 12
-4-
5. CURRENT ACCOUNT WITH AFFILIATED COMPANIES
Current account with affiliated companies is as follows:
<TABLE>
<S> <C>
Accounts receivable-
Televisa, S. A. de C. V. Ps. 76,361,958
Multimedios Estrella de Oro, S. A. de C. V. 2,372,046
Other, net 860,885
----------
79,594,889
Accounts payable-
Televisa, S. A. de C. V. (51,848,558)
---------
Net balance receivable Ps. 27,746,331
=========
</TABLE>
The statement of income includes the following affiliated company transactions:
<TABLE>
<CAPTION>
Income from Cost
rental of spaces of sales and
and other other operating Interest
income expenses income
------ -------- ------
<S> <C> <C> <C>
Televisa, S. A. de C. V. Ps. - Ps.57,181,799 Ps.18,902,911
Sistema Radiopolis, S. A. de C. V. - 13,167 -
Televimex, S. A. de C. V. 6,720 - -
----------- ---------- ----------
Ps. 6,720 Ps.57,194,966 Ps.18,902,911
=========== ========== ==========
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT
The components of this caption are as follows:
<TABLE>
<S> <C>
Land Ps. 35,831,498
Buildings and construction 26,906,398
Electronic advertisements 41,828,712
Furniture and fixtures 13,443,807
Transportation equipment 15,067,202
Computer equipment 6,031,466
-----------
Subtotal 139,109,083
Accumulated depreciation (45,819,189)
-----------
93,289,894
Advances to suppliers 252,084
-----------
Ps. 93,541,978
===========
</TABLE>
<PAGE> 13
-5-
The depreciation rates used by the Company are as follows:
<TABLE>
<CAPTION>
%
-
<S> <C>
Buildings 2-5
Electronic billboards 9-10
Furniture and fixtures 5-10
Transportation equipment 12-25
Computers equipment and software 10-30
</TABLE>
Depreciation expense amounted to Ps. 7,903,788 for the year ended December 31,
1997.
7. CUSTOMER DEPOSITS
During 1997, the Company entered into agreements with its principal customers
whereby the Company received deposits in exchange for future advertising
services in the amount of Ps. 285,372,325.
A portion of the deposits referred to above are received by Televisa, S. A. de
C. V. in its capacity as a depositary. The deposits are delivered to the Company
as the stipulated consideration becomes payable for renting space and as the
applicable services are rendered.
The agreements for the advertising services to be rendered provide for
sustaining the rates in effect in the year in which the deposit is received and
during the duration of the agreement.
8. SENIORITY PREMIUM PLAN
Seniority premium amounts are actuarially determined in accordance with Bulletin
D-3 and, effective January 1, 1997, under the provisions of circular 50 (See
Note 4 k). Under circular 50, the actuarial calculations are determined using
real assumptions (net of inflation) and attributing the present value of all
future expected benefits proportionately over each year from date of hire to age
65 using a 4% discount rate, 2% salary scale, and 5% return on assets rate.
Prior to Circular 50, the Company utilized nominal rates (a 10% discount rate,
8% salary scale and 11% return on assets rate in 1996).
The net cost of the year for this obligation amounted to Ps. 155,114.
The seniority premium plan liability as of December 31, 1997 is as follows:
<TABLE>
<S> <C>
Obligations for current benefits Ps. 1,071,335
Additional amount for projected benefits 91,039
---------
Obligations for projected benefits 1,162,374
Less, plan assets 361,822
---------
Projected benefit obligation in excess of plan assets 800,552
Items to be amortized over a 17-year period:
Prior service cost (296,136)
Other adjustments and changes 208,137
---------
Net projected liability and accrued liability Ps. 712,553
=========
</TABLE>
<PAGE> 14
-6-
9. CONTINGENCIES AND COMMITMENTS
Contingent liabilities:
The Company has not determined the maximum liability for indemnity obligations
to be paid to personnel who could be dismissed in the future, under provisions
of the Mexican Federal Labor Law.
Contingent assets:
The company retains the right, unquantified, to the materials recovered at the
end of the leasing operation of the sites where the advertisement spaces are
installed.
Leases commitments:
The company leases land and property under operating leases with various terms
expiring at various dates. At December 31, 1997, minimum annual rentals under
all operating leases for the next five years are as follows:
<TABLE>
<S> <C>
1998 Ps. 1,106,215
1999 687,165
2000 326,654
2001 192,974
2002 88,749
2003 and thereafter 17,750
</TABLE>
The lease agreements are revised annually by the inflation.
For the year ended December 31, 1997, rent expense under operating leases
amounted to Ps.30,821,511.
10. NET ASSETS
Net assets are comprised of the following:
<TABLE>
<CAPTION>
Number
of Par
shares Value Amount
------ ----- ------
<S> <C> <C> <C>
Vendor, S. A. de C. V.:
Fixed capital, without retirement rights, represented by Series
A shares 500 Ps. .10 Ps. 50
Variable capital, represented by Series B shares 139,500 Ps. .10 Ps. 13,950
------- --------------
140,000 Ps. 14,000
=======
Excess from restatement 39,929,297
--------------
Total capital 39,943,297
Legal reserve 7,849,930
Retained earnings 18,189,420
Accumulated gain or loss on monetary position (47,383,902)
Gain or loss from holding non monetary assets 34,464,274
Net income 72,833,255
--------------
Total Vendor, S. A. de C.V. stockholders' equity 125,896,274
MM Billboard, S. A. de C.V. net liabilities (1,802,838)
--------------
Total net assets Ps.124,093,436
==============
</TABLE>
<PAGE> 15
-7-
With respect to Vendor, net income for the year is subject to a restriction of
5% to increase the legal reserve until this reserve equals 20% of the capital
stock and other retentions that could be resolved by the stockholders at
Stockholders' Meetings.
For income tax purposes, dividends paid in cash or in assets will be subject to
a withholding, depending on the origin thereof, as shown below:
Adjusted net taxable income 0%
Other 34%
As of December 31, 1997, cumulative earnings that have been subject to income
tax and can be distributed by the Vendor free of Mexican withholding tax were
approximately Ps. 31,875,471.
At the General Ordinary Stockholders' Meeting of Vendor held on October 16,
1997, the stockholders resolved to pay dividends at a rate of Ps. 361.6071 per
share, amounting to Ps. 50,625,000.
11. PROVISIONS FOR INCOME TAX
The following items represent the principal differences between Vendor's income
tax calculated at the effective tax rate and statutory tax rate:
<TABLE>
<S> <C>
Income tax at the effective tax rate Ps. 35,800,422
Depreciation 604,592
Effects of inflation (907,063)
Non-deductible expenses 3,840,136
Interest earned (6,139,879)
Other items (4,313,982)
---------------
Income tax at the statutory tax rate Ps. 28,884,226
Restatement to pesos of 1997 year-end 927,745
---------------
Income tax according to the statement of income Ps. 29,811,971
===============
</TABLE>
12. FOREIGN CURRENCY POSITION
As of December 31, 1997, the Company has no foreign currency denominated assets
or liabilities; it only has non-monetary assets, which are purchased in the
United States of the America, with an aggregate net replacement value of US
$5,192,243 (equivalent to Ps.41,828,712).
13. FINANCIAL INSTRUMENTS
a) Value of financial instruments- The reported amounts such as cash and
temporary investments, accounts receivable, accrued liabilities, and other
payables approximate fair value due to their short-term maturities.
b) Concentration of risk- Financial instruments that are potentially subject to
an excessive concentration of risk are principally cash and temporary
investments, and trade accounts receivable.
<PAGE> 16
-8-
The Company invests excess cash in a large institution. The concentration of
credit risk with regard to its trade accounts receivable is limited, since
advertisement services are rendered to a large number of well-established
customers in different locations in Mexico.
14. SUBSEQUENT EVENTS
On July 1, 1998, pursuant to an Asset Purchase Agreement between Vendor, S. A.
de C. V. (the "Seller"), and Outdoor Systems Mexico, S. A. de C. V. (the
"Buyer"), the Seller sold to the Buyer the assets, and the liabilities related
to providing advertising services for renting space, including intangible rights
and 49,997 shares of SSA, in exchange for consideration totaling US$216,000,000.
On July 1, 1998, pursuant to an Asset Purchase Agreement between Multimedios
Estrella de Oro, S. A. de C. V. (Multimedios) and the Buyer, Multimedios sold to
the Buyer the assets and transferred the employees of MM Billboard and assumed
MM Billboard's liabilities related to providing advertising services for renting
space, in exchange for consideration totaling US$22,500,000.
15. DIFFERENCES BETWEEN MEXICAN GAAP AND U.S. GAAP
A summary of the significant differences between accounting principles followed
by the Company and generally accepted accounting principles in the United States
("U.S. GAAP") are presented below.
The reconciliation to U.S. GAAP includes a reconciling item for the effect of
applying the option provided by the Modified Fifth amendment for the restatement
of equipment of non-Mexican origin because, as described below, this provision
of inflation accounting under Mexican GAAP does not meet the consistent
reporting currency requirement of regulation S-X of the Securities and Exchange
Commission ("SEC"). The reconciliation to U.S. GAAP does not include the
reversal of the other adjustments to the financial statements for the effects of
the inflation required under Mexican GAAP Bulletin B-10, because the application
on Bulletin B-10 represents a comprehensive measure of the effects of price
level changes in the inflationary Mexican economy and, as such, is considered a
more meaningful presentation than historical, cost-based financial reporting for
both Mexican and U.S. accounting purposes.
The accompanying combined financial statements have been prepared in accordance
with Mexican GAAP, which differ in certain respects from U.S. GAAP. The
principal differences between Mexican GAAP and U.S. GAAP are reconciled as
follows:
<TABLE>
<S> <C>
Income for the year reported under Mexican GAAP Ps. 74,833,678
U.S. GAAP adjustments:
Deferred income taxes and employees' profit sharing (11,789,436)
Capitalization of Billboards 19,028,817
Depreciation of capitalized Billboards (17,336,046)
Net monetary effect on the U.S. GAAP adjustments 11,367,817
----------------
Total approximate U.S. GAAP adjustments, net 1,271,152
----------------
Income for the year under U.S. GAAP Ps. 76,104,830
================
Equity is reconciled as follows:
Equity under Mexican GAAP Ps. 124,093,436
U.S. GAAP adjustments:
Deferred income taxes and employees' profit sharing (84,103,793)
Capitalization of Billboards 275,558,251
Accumulated depreciation of capitalized Billboards (76,058,300)
Equipment restatement 2,422,558
----------------
Total approximate U.S. GAAP adjustments, net 117,818,716
----------------
Equity under U.S. GAAP Ps. 241,912,152
================
</TABLE>
<PAGE> 17
-9-
I. Explanation of reconciling items:
(a) Deferred Income taxes and deferred employees' profit sharing
Under Mexican GAAP, deferred income taxes and deferred employees' profit sharing
are determined using the partial liability method of accounting, under which
deferred income taxes and deferred employees' profit sharing are provided for
identifiable, non-recurring temporary differences (i.e., those that are expected
to reverse over a definite period of time) at rates expected to be in effect at
the time those temporary differences reverse. The recognition of deferred tax
assets under Mexican GAAP is subject to "practical absolute assurance" that they
are realizable through future operations, which cannot be presumed to exist in
the long-term.
Under U.S. GAAP, Statement of Financial Accounting Standards No. 109 ("SFAS
109), "Accounting for Income Taxes", requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of events that
have been included in the financial statements. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
(b) Capitalization of billboards
For Mexican GAAP, the cost of non-electronic billboards are expensed as
incurred. For U.S. GAAP purposes, these costs are capitalized as property, plant
and equipment and are depreciated over the useful life of those assets, using
the straight-line method.
(c) Equipment restatement
The company adopted the Modified Fifth Amendment effective January 1, 1997 which
eliminated the use of the replacement costs for the restatement of property,
plant and equipment and instead, included an option using a specific Index for
the restatement of equipment of non-Mexican origin. The Company has elected to
apply the Specific Index option for determining the restated balances under
Mexican GAAP. Under Regulation S-X of the SEC, the restatement of the equipment
of non-Mexican origin by the Specific Index under the provisions of the Modified
Fifth Amendment is a derivation from the historical cost concept and also does
not reflect a replacement cost value as previously determined by independent
appraisers and as required by Mexican GAAP prior to the adoption of the Modified
Fifth Amendment. Had the Company restated equipment of non Mexican origin by the
NCPI, there would be no differences with the criteria as established by the
SEC's staff. The U.S. GAAP net income and stockholders' equity reconciliations
reflect adjustments to restate equipment of non-Mexican origin by the NCPI and
recalculate the depreciation expense of this basis. The effect was to increase
net assets by Ps 2,422,558.
II. Additional Disclosure Requirement
Cash Flow Information
Under Mexican GAAP, the Company presents a statement of changes in financial
position. In contrast to the statement of cash flows required by U.S. GAAP, the
Company's statement of changes in financial position does not include certain
information relating to the major categories of sources and uses of funds: funds
from operating, financing and investing activities.
Under U.S. GAAP the following information would be disclosed separately in
reconciling income for the year to funds provided by operations: the provision
for doubtful accounts and gains on sales of property, plant and equipment.
Additionally, under U.S. GAAP the specific indexation effect applied to certain
fixed assets of foreign origin would not be presented in arriving at funds from
investing activities and proceeds received from sales of property, plant and
equipment would be presented as funds provided by investing activities.
<PAGE> 18
-10-
The following schedule presents a SFAS 95 cash flows provided by (used in)
operating, financing and investing activities for the year ended December 31,
1997, excluding the effects of inflation as prescribed by the Bulletin B-10.
Such information has been prepared on a nominal Mexican peso.
<TABLE>
<S> <C>
Funds provided by operations:
Net income Ps 74,833,678
Items applied to income not requiring the use of funds:
Depreciation and amortization 7,934,190
Seniority premium costs 155,114
Gain or loss from monetary position (inflation adjustment) 757,413
Net gain from sale of property, plant and equipment (243,508)
Provision for doubtful accounts 418,731
--------------
Ps 83,855,618
Changes in operating assets and liabilities Decrease (increase) in:
Trade accounts receivable 2,097,997
Other accounts receivable (2,381,331)
Inventory (5,207,050)
Other assets 6,755,460
Increase (decrease) in:
Intercompany accounts payable 13,992,337
Trade accounts payable 631,595
Trade payable 4,907,063
Accounts payable and accrued expenses 5,013,983
Customer deposits 1,991,645
Others (143,619)
---------------
Total funds provided by operating activities Ps 111,513,698
---------------
Funds used in financing activities:
Current accounts with affiliated companies (52,642,848)
Dividend paid (50,386,384)
---------------
Funds used in financing activities (Ps 103,029,232)
---------------
Funds used in investing activities:
Acquisition of property plant and equipment (6,403,760)
Proceeds from sale of property, plant and equipment 860,929
---------------
Funds used in investing activities (Ps 5,542,831)
---------------
Inflation effect on cash transactions (Ps 454,219)
Net increase in cash and cash equivalents 2,487,416
Cash and cash equivalents at beginning of year 4,936,129
---------------
Cash and cash equivalents at end of year Ps 7,423,545
===============
</TABLE>
<PAGE> 19
-11-
Additional cash flow information
<TABLE>
<S> <C>
Taxes paid Ps. 21,275,303
Interest paid 198,370
</TABLE>
Cash and cash equivalents
Cash and cash equivalents include all cash balances and highly liquid
instruments purchased with an original maturity of three months or less.
- - - - - - - - - -
<PAGE> 20
(b) Pro Forma Financial Information.
On July 1, 1998, Outdoor Systems, Inc. (the "Company") acquired
substantially all of the assets of Vendor, the outdoor advertising subsidiary of
Televisa, S.A. de C.V., the leading diversified media company in Mexico, for a
purchase price of US$216,000,000. In addition, on July 1, 1998, the Company
acquired substantially all of the outdoor advertising business conducted by MM
Billboard, an outdoor advertising company in northern Mexico, for a purchase
price of US$21,875,000. The assets acquired by the Company upon the completion
of these acquisitions ("Acquisitions") consisted of approximately 6,600
advertising displays in more than 20 of Mexico's largest metropolitan markets,
including Mexico City, Monterrey and Guadalajara.
The following unaudited condensed consolidated pro forma balance sheet
as of December 31, 1997 has been prepared as if the Acquisitions had occurred on
December 31, 1997. The unaudited condensed consolidated pro forma statement of
operations combines the historical financial information of the Company and the
businesses acquired in the Acquisitions for the year ended December 31, 1997 as
if the Acquisitions had occurred on January 1, 1997.
The detailed assumptions used to prepare the unaudited condensed
consolidated pro forma financial information are contained in the notes to the
unaudited condensed consolidated pro forma financial information. The unaudited
condensed 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 condensed consolidated pro forma
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 condensed consolidated pro forma financial
information should be read in conjunction with the notes to the unaudited
condensed consolidated pro forma financial information, the separate historical
financial statements and notes thereto of the Company and the separate
historical combined financial statements and notes thereto of Vendor and MM
Billboard which are contained elsewhere herein.
<PAGE> 21
OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
AS OF DECEMBER 31, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS
Historical
------------------------------- Pro forma
Vendor and Acquisitions Total
Company MM Billboard(1) Adjustments Pro forma
----------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
CURRENT ASSETS $ 176,901 $ 9,298 $ (8,257)(2) $ 207,942
30,000(2)
PROPERTY AND EQUIPMENT-Net 1,598,011 36,613 153,159(2) 1,787,783
OTHER ASSETS 13,565 241 41,184(2) 54,990
DEFERRED FINANCING COSTS-Net 40,520 40,520
GOODWILL-Net 400,160 9,568(2) 409,728
----------- ----------- ----------- -----------
TOTAL $ 2,229,157 $ 46,152 $ 225,654 $ 2,500,963
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES $ 115,672 $ 5,697 $ 13,332(2) $ 137,591
2,890(2)
LONG-TERM DEBT 1,393,550 249,887(2) 1,643,437
OTHER LONG-TERM LIABILITIES 24,464 10,478 (10,478)(2) 24,464
----------- ----------- ----------- -----------
Total liabilities 1,533,686 16,175 255,631 1,805,492
----------- ----------- ----------- -----------
NET ASSETS (LIABILITIES) TO BE
ACQUIRED 29,977 (29,977)(2)
----------- ----------- ----------- -----------
COMMON STOCKHOLDERS' EQUITY
Common stock 1,211 1,211
Additional paid-in capital 709,730 709,730
Accumulated deficit (9,837) (9,837)
Treasury stock (4,053) (4,053)
Foreign currency translation adjustment (1,580) (1,580)
----------- ----------- ----------- -----------
Total common stockholders' equity 695,471 695,471
----------- ----------- ----------- -----------
TOTAL $ 2,229,157 $ 46,152 $ 225,654 $ 2,500,963
=========== =========== =========== ===========
</TABLE>
<PAGE> 22
OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
AS OF DECEMBER 31, 1997
(Dollars in thousands)
(1) The following schedule is presented to reconcile the Vendor and MM
Billboard combined financial statements as of December 31, 1997, included
elsewhere herein, to the historical amounts included on the pro forma
financial statements. The adjustments are necessary to convert the combined
financial statements, included elsewhere herein, from Mexican generally
accepted accounting principles ("MX GAAP") to U.S. generally accepted
accounting principles ("US GAAP") and from Mexican pesos ("Ps") to U.S.
dollars ("$").
<TABLE>
<CAPTION>
Adjustment to Divide by
Convert to Conversion Amount per
MX GAAP US GAAP US GAAP Rate (c) Pro Forma
--------- -------------- ---------- ----------- ----------
ASSETS:
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS Ps 73,657 Ps 1,381(a) Ps 75,038 8.07 $ 9,298
PROPERTY AND EQUIPMENT-Net 93,542 275,558(b) 295,465 8.07 36,613
(76,058)(b)
2,423(b)
OTHER ASSETS 1,632 314(a) 1,946 8.07 241
LIABILITIES:
CURRENT LIABILITIES 44,025 1,952(a) 45,977 8.07 5,697
OTHER LONG-TERM LIABILITIES 713 83,847(a) 84,560 8.07 10,478
</TABLE>
(a) Amount represents an adjustment to record the deferred income
tax and deferred employee profit sharing asset/liability. See
note 15 to the Vendor and MM Billboard combined financial
statements.
(b) Vendor and MM Billboard historically expensed the costs of
constructing the billboard structures whereas the Company
capitalizes such costs and depreciates them over the estimated
useful life of the asset using the straight-line method. This
adjustment conforms the Vendor and MM Billboard accounting
policy to that of the Company. See note 15 to the Vendor and
MM Billboard combined financial statements.
(c) Represents the exchange rate at December 31, 1997 to convert
from Mexican pesos to U.S. dollars.
(2) Entry records the acquisition financing that the Company used for the
Acquisitions and the allocation of the purchase price:
<TABLE>
<CAPTION>
Debit
(Credit)
--------
<S> <C>
Increase in Senior Credit Facility $(249,887)
Change in assets and liabilities resulting from allocation of purchase
price and the elimination of historical net assets (liabilities) of
Acquisitions:
Current assets (8,257)
Value added tax receivable 30,000
Property and equipment 153,159
Other assets 41,184
Intangibles 9,568
Current liabilities (13,332)
Other long-term liabilities 10,478
Historical net liabilities of Acquisitions 29,977
Accrual for transaction costs incurred during the Acquisitions (2,890)
</TABLE>
<PAGE> 23
OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Historical
---------------------------------- Pro forma
Vendor and Acquisitions Total
Company MM Billboard(1) Adjustments Pro forma
------------- ------------- ------------- -------------
REVENUES:
<S> <C> <C> <C> <C>
Outdoor advertising-net $ 455,749 $ 36,553 $ $ 492,302
Lease, printing and other revenues 15,255 15,255
------------- ------------- ------------- -------------
Net revenues 471,004 36,553 507,557
------------- ------------- ------------- -------------
OPERATING EXPENSES:
Direct advertising 237,175 13,041 250,216
General and administrative 28,563 9,120 37,683
Depreciation and amortization 75,327 3,151 10,894(2) 89,691
319(3)
------------- ------------- ------------- -------------
341,065 25,312 11,213 377,590
------------- ------------- ------------- -------------
OPERATING INCOME 129,939 11,241 (11,213) 129,967
OTHER:
Foreign currency translation loss (gain) 2,093 0 2,093
Interest income (2,267) (2,267)
Interest expense 87,150 24 16,677(4) 103,851
------------- ------------- ------------- -------------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY LOSS 40,696 13,484 (27,890) 26,290
INCOME TAXES 18,485 5,224 (9,483)(5) 14,226
------------- ------------- ------------- -------------
INCOME BEFORE EXTRAORDINARY LOSS 22,211 8,260 (18,407) 12,064
EXTRAORDINARY LOSS (6,773) (6,773)
------------- ------------- ------------- -------------
NET INCOME (Loss) $ 15,438 $ 8,260 $ (18,407) $ 5,291
============= ============= ============= =============
BASIC AND DILUTED INCOME (LOSS) PER SHARE
Basic:
Income before extraordinary loss $ 0.13 $ 0.07
Extraordinary loss (0.04) (0.04)
------------- -------------
Net income $ 0.09 $ 0.03
============= =============
Weighted average number of shares
outstanding 163,644,016 163,644,016
============= =============
Diluted:
Income before extraordinary loss $ 0.12 $ 0.07
Extraordinary loss (0.04) (0.04)
------------- -------------
Net income $ 0.08 $ 0.03
============= =============
Weighted average number of shares
outstanding 183,913,342 183,913,342
============= =============
</TABLE>
<PAGE> 24
OUTDOOR SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(Dollars in thousands)
(1) The following schedule is presented to reconcile the Vendor and MM
Billboard combined financial statements as of December 31, 1997,
included elsewhere herein, to the historical amounts included on the pro
forma financial statements. The adjustments are necessary to convert the
combined financial statements, included elsewhere herein, from MX GAAP
to U.S. GAAP and from Ps to $.
<TABLE>
<CAPTION>
Adjustment to US GAAP
Inflation Convert to Amounts in Conversion Amount per
MX GAAP Adjustment(a) US GAAP Pesos Rate (e) Pro Forma
---------- ------------- ------------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES Ps 305,781 Ps (14,928) Ps Ps 290,853 7.96 $ 36,553
---------- ---------- ---------- ------------- --------
DIRECT ADVERTISING EXPENSE
Cost of sales 81,748 (4,287) (19,029)(b) 58,432
Selling 50,222 (4,888) 45,334
---------- ---------- ---------- -------------
131,970 (9,175) (19,029) 103,766 7.96 13,041
---------- ---------- ---------- ------------- --------
GENERAL AND ADMINISTRATIVE EXPENSES
Administrative 62,220 (2,802) 59,418
Indemnity payments 5,116 5,116
Other expenses, net 4,887 35 4,922
Employee profit sharing 3,009(c) 3,111
102(d)
---------- ---------- ---------- -------------
72,223 (2,767) 3,111 72,567 7.96 9,120
---------- ---------- ---------- ------------- --------
DEPRECIATION AND AMORTIZATION EXPENSE 7,934 (201) 17,336(b) 25,069 7.96 3,151
---------- ---------- ---------- ------------- --------
FOREIGN CURRENCY TRANSLATION LOSS
Foreign exchange gain, net (1) (1)
Loss from monetary position 4,109 (4,109) 0
---------- ---------- ---------- -------------
4,108 (4,109) (1) 7.96 (0)
---------- ---------- ---------- ------------- --------
INTEREST INCOME (19,315) 1,275 (18,040) 7.96 (2,267)
---------- ---------- ---------- ------------- --------
INTEREST EXPENSE 206 (12) 194 7.96 24
---------- ---------- ---------- ------------- --------
INCOME TAX EXPENSE 30,812 (928) 11,687(d) 41,571 7.96 5,224
EMPLOYEE PROFIT SHARING 3,009 (3,009)(c) 0
---------- ---------- ---------- ------------- --------
NET INCOME Ps 74,834 Ps 989 Ps (10,096) Ps 65,727 $ 8,260
========= ========== ========== ============= ========
</TABLE>
(a) Adjusts for the effect of inflation recorded in the MX GAAP
financial statements.
(b) Vendor and MM Billboard has historically expensed the costs of
constructing the billboard structures whereas the Company
capitalizes such costs and depreciates them over the estimated
useful life of the asset using the straight-line method. This
adjustment conforms the Vendor and MM Billboard accounting
policy to that of the Company. See note 15 to the Vendor and
MM Billboard combined financial statements.
(c) To reclassify the employee profit sharing expense to general
and administrative expenses.
(d) Amount represents an adjustment to increase income tax expense
and employee profit sharing expense as a result of the
difference in calculating these costs for MX GAAP and U.S.
GAAP purposes. See note 15 to the Vendor and MM Billboard
combined financial statements.
(e) Represents the average exchange rate during 1997 to convert
from Mexican pesos to U.S. dollars.
<TABLE>
<CAPTION>
Debit
(Credit)
--------
<S> <C>
(2) Entry records the increase in depreciation expense
arising from purchase accounting adjustments to
property, plant and equipment $ 10,894
(3) Entry records the increase in amortization expense
arising from amortization of the goodwill over
a period of 30 years 319
(4) Entry records the increase in interest expense on the
debt issued in connection with the Acquisitions 16,677
(5) Entry records the income tax effect of pro forma
adjustments at the statutory rate of 34% (9,483)
</TABLE>
<PAGE> 25
SIGNATURE
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 hereunto duly authorized.
Dated: September 10, 1998
OUTDOOR SYSTEMS, INC.
By: /s/ Bill M. Beverage
------------------------
Bill M. Beverage
Chief Financial Officer,
Treasurer and Secretary
