<PAGE> 1
File Pursuant to Rule 424(b)(4)
Registration No. 333-05479
PROSPECTUS
4,735,000 SHARES
[LAMAR LOGO]
CLASS A COMMON STOCK
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Of the 4,735,000 shares of Class A Common Stock, $0.001 par value per share
(the "Class A Common Stock"), offered hereby, 4,000,000 shares are being issued
and sold by Lamar Advertising Company (the "Company") and 735,000 shares are
being sold by certain stockholders of the Company (the "Selling Stockholders").
The Company will not receive any of the proceeds from the sale of shares by the
Selling Stockholders. See "Principal and Selling Stockholders." Prior to this
offering (the "Offering"), there has been no public market for the Class A
Common Stock. See "Underwriting" for information relating to the factors
considered in determining the initial public offering price. The shares of Class
A Common Stock have been approved for quotation on The Nasdaq National Market
under the symbol "LAMR."
Upon consummation of this Offering, the Company's authorized capital stock
will include the Class A Common Stock and shares of Class B Common Stock, $0.001
par value per share (the "Class B Common Stock"). The economic rights of the
Class A Common Stock and the Class B Common Stock (collectively, the "Common
Stock") will be identical, except that each share of Class A Common Stock will
entitle the holder thereof to one vote in respect of matters submitted for the
vote of holders of Common Stock, whereas each share of Class B Common Stock will
entitle the holder thereof to ten votes on such matters. Immediately after this
Offering, the Reilly Family Limited Partnership, of which Kevin P. Reilly, Jr.,
the Company's Chief Executive Officer, is managing general partner, will have
the power to vote all the outstanding shares of Class B Common Stock
(representing approximately 93.1% of the aggregate voting power of the Common
Stock, assuming no exercise of the Underwriters' over-allotment option). Each
share of Class B Common Stock will convert automatically into one share of Class
A Common Stock upon sale or other transfer to a party other than a Permitted
Transferee (as defined herein). See "Description of Capital Stock."
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SEE "RISK FACTORS" BEGINNING ON PAGE 9 OF THIS PROSPECTUS FOR A DISCUSSION
OF RISK FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
SHARES OF CLASS A COMMON STOCK OFFERED HEREBY.
------------------
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>
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS AND PROCEEDS TO TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKGHOLDERS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share $16.00 $1.12 $14.88 $14.88
- ------------------------------------------------------------------------------------------------------------
Total(3) $75,760,000 $5,303,200 $59,520,000 $10,936,800
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of $750,000, all of which will be
paid by the Company.
(3) The Company and certain Selling Stockholders have granted to the
Underwriters a 30-day option to purchase an additional 294,041 and
416,209 shares, respectively, of Class A Common Stock on the same terms
as set forth above solely to cover over-allotments, if any. See
"Underwriting." If all such 710,250 shares are purchased, the total
Price to Public, Underwriting Discounts and Commissions, Proceeds to
Company and Proceeds to Selling Stockholders will be $87,124,000,
$6,098,680, $63,895,330 and $17,129,990, respectively. See
"Underwriting." The Company will not receive any of the proceeds from
the sale of shares by the Selling Stockholders pursuant to the
over-allotment option.
------------------
The shares of Class A Common Stock are being offered by the several
Underwriters named herein, subject to prior sale, when, as and if received and
accepted by them and subject to certain conditions. It is expected that
certificates for shares of Class A Common Stock will be available for delivery
on or about August 7, 1996 at the offices of Smith Barney Inc., 333 W. 34th
Street, New York, New York 10001.
------------------
SMITH BARNEY INC.
ALEX. BROWN & SONS
INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
August 2, 1996
<PAGE> 2
[COMPANY MAP -- OUTDOOR MARKETS AND LOGO STATES]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A COMMON
STOCK OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE> 3
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise provided herein, the "Company"
refers to Lamar Advertising Company, together with its consolidated
subsidiaries. Unless otherwise indicated, the information in this Prospectus (i)
gives effect to the amendment and restatement of the Company's certificate of
incorporation and by-laws and related actions regarding the restructuring of the
Company's capital stock immediately prior to this Offering as more fully
described below under "The Company" and (ii) assumes the Underwriters'
over-allotment option is not exercised.
THE COMPANY
Lamar Advertising Company is one of the largest and most experienced owners
and operators of outdoor advertising structures in the United States. It
conducts a business that has operated under the Lamar name since 1902. As of
April 30, 1996, the Company operated approximately 23,000 outdoor advertising
displays in 13 southeastern, midwestern and mid-Atlantic states. In each of the
Company's 33 primary markets, the Company believes that it is the only
full-service outdoor advertising company serving such markets. The Company also
operates the largest logo sign business in the United States. Logo signs are
erected pursuant to state-awarded franchises on public rights-of-way near
highway exits and deliver brand name information on available gas, food, lodging
and camping services. The Company currently operates logo sign franchises in 12
of the 20 states which have a privatized logo sign program. In addition, the
Company has recently acquired the logo sign franchises in Tennessee and Kansas
and has been awarded the logo sign franchise for the state of New Jersey. As of
April 30, 1996, the Company maintained over 13,500 logo sign structures
containing over 34,000 logo advertising displays under these franchises. The
Company has recently expanded into the transit advertising business through the
operation of displays on bus shelters, benches and buses in 7 of its 33 primary
markets. For the twelve months ended October 31, 1995, the Company reported net
revenues and operating income of $102.4 million and $26.9 million, respectively.
For the six months ended April 30, 1996, the Company reported net revenues and
operating income of $56.6 million and $14.0 million, respectively, compared to
$50.0 million and $11.8 million, respectively, for the six months ended April
30, 1995.
The Company's strategy is to be the leading provider of outdoor advertising
in each of the markets it serves, with an emphasis on markets with a media
industry ranking based on population between 50 and 250. Important elements of
this strategy are the Company's decentralized management structure and its focus
on providing high quality local sales and service. Through its local offices,
the Company offers a full complement of outdoor advertising services coupled
with local production facilities, management and account executives in order to
be more responsive to specific local market demands. While maintaining its local
focus, the Company seeks to expand its operations within existing and contiguous
markets. The Company also pursues expansion opportunities, including
acquisitions, in additional markets which the Company believes provide it with
an opportunity to gain a leading revenue share. In the logo sign business, the
Company's strategy is to maintain its position as the largest operator of logo
signs in the U.S. by expanding through the addition of state logo franchises as
they are awarded and through possible acquisitions. The Company may also pursue
expansion opportunities in transit and other out-of-home media which the Company
believes will enable it to leverage its management skills and market position.
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<PAGE> 4
Management believes that operating in small to medium-sized markets
provides the Company with a diverse and reliable mix of local advertisers,
geographic diversification, direct transactions which eliminate many agency
commissions, rate integrity, stable real estate portfolios and an ability to
package inventory effectively. Local advertising constituted over 81% of the
Company's outdoor advertising net revenues in fiscal 1995, which management
believes is higher than the industry average.
The Company believes that the experience of its senior and local managers
has contributed greatly to its success. Its regional managers have been with the
Company, on average, for 24 years. The average tenure of the Company's 33 local
managers is 11 years. In addition, each of the four regional managers and 30 of
the 33 local managers began their careers with the Company as local sales
executives. The Company emphasizes decentralized local management of operations
with centralized support and financial and accounting controls. As a result of
this local focus, the Company maintains an extensive local operating presence
within its markets and employs a total of 120 local account executives. Local
account executives are typically supported by additional local staff and have
the ability to draw upon the resources of the central office and offices in
other markets in the event that business opportunities or customers' needs
support such allocation of resources.
Outdoor advertising generated total revenues of approximately $1.8 billion
in 1995, or approximately 1.1% of the total advertising expenditures in the
United States, according to recent estimates by the Outdoor Advertising
Association of America (the "OAAA"), the trade association for the outdoor
advertising industry. This represents growth of approximately 8.2% over
estimated total 1994 revenues and compares favorably to the growth of total U.S.
advertising expenditures of approximately 7.7% during the same period. Outdoor
advertising offers repetitive impact and a relatively low cost-per-thousand
impressions compared to broadcast media, newspapers, magazines and direct mail
marketing, making it attractive to both local businesses targeting a specific
geographic area or set of demographic characteristics and national advertisers
seeking mass market support. Outdoor advertising services have recently expanded
beyond billboards to include a wide variety of out-of-home advertising media,
including advertising displays in shopping centers, malls, airports, stadiums,
movie theaters and supermarkets, as well as on taxis, trains, buses and subways.
The OAAA estimates that total out-of-home advertising revenues, including
traditional billboard advertising, exceeded $3.0 billion in 1995.
As used in this Prospectus, the term "market" refers to the geographic area
represented by the Fall 1995 Arbitron Radio Metro Market ranking, as determined
by The Arbitron Company, which ranks, according to population of persons 12
years or older, the largest 261 markets in the U.S. -- from New York, NY (1) to
Casper, WY (261). The Company believes that the Metro Market ranking is a
standard measure of market size used by the media industry.
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<PAGE> 5
The following table sets forth certain information regarding the Company's
33 primary outdoor advertising markets and the Company's logo sign franchises.
THE COMPANY'S 33 PRIMARY OUTDOOR ADVERTISING MARKETS
AND LOGO SIGN FRANCHISES(1)
OUTDOOR ADVERTISING
<TABLE>
<CAPTION>
NUMBER OF DISPLAYS(4)
------------------------------------------------------------
STATE/PRIMARY MARKET MARKET RANK(3) BULLETINS POSTERS NET REVENUES(5)
- --------------------------------------------------------- -------------- --------- ------- ---------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
LOUISIANA
Baton Rouge............................................ 81 419 684 $ 7,280
Shreveport............................................. 126 268 730 3,389
Lafayette.............................................. 97 154 353 2,035
Lake Charles........................................... 202 189 285 1,915
Monroe................................................. 224 123 508 1,534
Alexandria............................................. 198 49 224 757
Houma(2)............................................... -- 40 164 --
------ ----- ---------
Total............................................ 1,242 2,948 16,910
TENNESSEE
Nashville.............................................. 44 326 1,174 7,488
Knoxville.............................................. 69 694 896 7,171
Clarksville............................................ -- 98 357 1,533
------ ----- ---------
Total............................................ 1,118 2,427 16,192
FLORIDA
Pensacola.............................................. 125 250 662 3,113
Lakeland............................................... 104 184 372 2,586
Fort Myers............................................. 77 133 297 2,153
Panama City............................................ 223 223 306 1,962
Tallahassee............................................ 167 121 302 1,908
Fort Walton............................................ 206 151 220 1,627
Daytona Beach.......................................... 93 54 339 1,456
------ ----- ---------
Total............................................ 1,116 2,498 14,805
ALABAMA
Mobile................................................. 84 381 630 4,755
Montgomery............................................. 142 248 499 3,598
------ ----- ---------
Total............................................ 629 1,129 8,353
MISSISSIPPI
Jackson................................................ 118 268 698 4,420
Gulfport............................................... 134 207 559 2,953
------ ----- ---------
Total............................................ 475 1,257 7,373
GEORGIA
Savannah............................................... 153 344 604 3,307
Augusta................................................ 116 163 471 2,482
Albany................................................. 241 92 271 1,031
------ ----- ---------
Total............................................ 599 1,346 6,820
VIRGINIA
Richmond............................................... 56 309 616 4,288
Roanoke................................................ 101 83 450 1,750
------ ----- ---------
Total............................................ 392 1,066 6,038
TEXAS
Brownsville............................................ 63 204 873 2,577
Beaumont............................................... 127 204 308 2,165
Wichita Falls.......................................... 233 89 165 902
------ ----- ---------
Total............................................ 497 1,346 5,644
KENTUCKY
Lexington.............................................. 105 117 507 3,127
WEST VIRGINIA
Wheeling............................................... 212 261 551 2,626
COLORADO
Colorado Springs....................................... 98 141 355 2,486
OHIO
Dayton................................................. 52 3 529 1,960
------ ----- ---------
TOTAL.................................................... 6,590 15,959 $92,334
</TABLE>
5
<PAGE> 6
LOGO SIGN FRANCHISES
<TABLE>
<CAPTION>
LOGO LOGO
YEAR ADVERTISING YEAR ADVERTISING
FRANCHISE AWARDED DISPLAYS(6) FRANCHISE AWARDED DISPLAYS(6)
- ----------- ------- ----------- -------------- ------- -----------
<S> <C> <C> <C> <C> <C>
Nebraska 1989 784 Georgia 1995 5,236
Oklahoma 1989 1,363 Minnesota(8) 1995 1,922
Utah 1990 1,463 South Carolina 1995 1,887
Missouri(7) 1991 7,619 Virginia 1995 4,748
Ohio 1992 5,447 Michigan 1996 --(9)
Texas 1993 924 New Jersey 1996 --(9)
Mississippi 1993 2,761
</TABLE>
- ---------------
(1) Includes additional or outlying markets served by the office in the
applicable market.
(2) Houma was established as a separate primary market in fiscal 1995, and,
therefore, net revenues is not included.
(3) Indicates the Fall 1995 Arbitron Radio Metro Market ranking within which the
office is located, as determined by The Arbitron Company. The Company
believes that the Metro Market ranking, which ranks, according to population
of persons 12 years or older, the largest 261 markets in the U.S., is a
standard measure of market size used by the media industry. Houma and
Clarksville are not ranked.
(4) The two standardized types of industry displays are bulletins and posters.
See "Business -- Company Operations." The display count is as of October 31,
1995.
(5) Represents net revenues for fiscal year ended October 31, 1995 attributable
to each outdoor advertising market. These revenues, together with logo sign
and transit advertising revenues and production revenue, comprise outdoor
advertising net revenues shown in the Company's consolidated statements of
earnings (loss).
(6) Number of logo advertising displays as of April 30, 1996, which totals
34,154.
(7) Franchise operated by a 66.7% owned partnership.
(8) Franchise operated by a 95.0% owned partnership.
(9) The Company was recently awarded the New Jersey and Michigan franchises,
and, accordingly, no logo signs had been erected as of April 30, 1996.
The Company's address is 5551 Corporate Boulevard, Baton Rouge, Louisiana
70808. Its telephone number is (504) 926-1000.
6
<PAGE> 7
THE OFFERING
Class A Common Stock offered by
the Company...................... 4,000,000 shares
Class A Common Stock offered by
the Selling Stockholders......... 735,000 shares
Common Stock to be outstanding
after the Offering............... 14,446,735 shares of Class A Common Stock
14,035,289 shares of Class B Common Stock
28,482,024 total shares of Common Stock
Use of proceeds.................. $43.8 million to repay certain outstanding
bank debt; $5 million for payment of
contingent consideration in connection with
certain previous common stock redemptions;
and the remainder for general corporate
purposes, including possible acquisitions
and repayment of indebtedness. See "Use of
Proceeds."
Voting rights.................... The holders of the Class A Common Stock and
the holders of the Class B Common Stock
vote together as a single class (except as
may be otherwise required by Delaware law)
on all matters submitted to a vote of
stockholders, with each share of Class A
Common Stock entitled to one vote and each
share of Class B Common Stock entitled to
ten votes. Each share of Class B Common
Stock converts automatically into one share
of Class A Common Stock upon the sale or
other transfer of such share of Class B
Common Stock to a person or entity other
than a Permitted Transferee (as defined
under "Description of Capital
Stock -- Common Stock"). Each class of
Common Stock otherwise has identical
rights.
Nasdaq National Market Symbol.... LAMR
Dividend policy.................. The Company does not expect to pay
dividends on the Common Stock in the
foreseeable future. The Company's ability
to pay dividends in the future to holders
of the Common Stock is subject to
limitations and prohibitions contained in
certain debt instruments to which the
Company is a party and to the rights of the
holders of its preferred stock. See
"Dividend Policy."
7
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30, FISCAL YEAR ENDED OCTOBER 31,
----------------- ------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------- ------- -------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues.............................. $56,645 $49,999 $102,408 $84,473 $66,524 $61,955 $62,262
Operating expenses:
Direct advertising expenses............. 20,893 18,184 34,386 28,959 23,830 22,783 22,143
General and administrative expenses..... 14,695 13,243 27,057 24,239 19,504 18,225 17,703
Depreciation and amortization........... 7,028 6,768 14,090 11,352 8,924 8,881 8,826
Total operating expenses......... 42,616 38,195 75,533 64,550 52,258 49,889 48,672
Operating income.......................... 14,029 11,804 26,875 19,923 14,266 12,066 13,590
Interest expense.......................... 7,852 7,857 15,783 13,599 11,502 10,454 11,650
Earnings before income taxes and
extraordinary item...................... 5,451 2,802 8,308 5,227 1,677 2,625 936
Income tax expense (benefit)(1)........... 2,190 (1,767) (2,390) (2,072) 476 270 207
Net earnings (loss)(2).................... 3,261 4,569 10,698 7,299 (653) 2,355 729
Net earnings (loss) applicable to common
stock................................... 3,079 4,569 10,698 7,299 (653) 2,355 729
Earnings per common share before
extraordinary item(3)................... $ .11 $ .14 $ .32 $ .21 $ .03 $ .07 $ .02
======= ======= ======== ======= ======= ======= =======
Net earnings (loss) per common share(3)... $ .11 $ .14 $ .32 $ .21 $ (.02) $ .07 $ .02
======= ======= ======== ======= ======= ======= =======
OTHER DATA:
Operating cash flow(4).................... $21,057 $18,572 $ 40,965 $31,275 $23,190 $20,947 $22,416
Cash flows from operating activities(5)... 8,486 4,977 25,065 15,214 12,411 12,930 10,328
Cash flows from investing activities(5)... (18,403) (7,030) (17,817) (53,569) (10,064) (7,273) (4,236)
Cash flows from financing activities(5)... 5,783 (2,855) (9,378) 37,147 6,802 (6,734) (5,133)
Capital expenditures:
Outdoor advertising..................... 2,676 2,628 6,643 4,997 2,374 1,695 1,847
Logos................................... 5,849 330 1,567 2,761 2,009 3,056 629
Number of outdoor advertising
displays(6)............................. 23,209 22,555 22,547 22,369 17,659 17,835 18,829
Number of logo advertising displays(6).... 34,154 19,161 24,219 18,266 13,820 11,371 5,027
Cumulative logo sign franchises(6)(7)..... 12 8 11 7 7 5 4
</TABLE>
<TABLE>
<CAPTION>
AS OF APRIL 30, 1996
---------------------------
ACTUAL AS ADJUSTED(8)
-------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................... $ 1,752 $ 12,772
Working capital............................. 1,164 15,184
Total assets................................ 142,360 153,380
Total long-term obligations................. 153,567 133,817
Stockholders' equity (deficit).............. (28,288) 5,482
</TABLE>
- ---------------
(1) The benefit of the Company's net operating loss carryforward was fully
recognized as of October 31, 1995, resulting in the income tax expense shown
for the six months ended April 30, 1996, compared to the income tax benefit
for the same period in the prior year.
(2) Includes, in 1993, an extraordinary loss on debt extinguishment, net of an
income tax benefit, of $1.9 million.
(3) After giving effect to the proposed stock split and subsequent exchanges
discussed under "The Company."
(4) "Operating Cash Flow" is defined as operating income before depreciation and
amortization. It represents a measure which management believes is
customarily used to evaluate the financial performance of companies in the
media industry. However, operating cash flow is not a measure of financial
performance under generally accepted accounting principles and should not be
considered an alternative to operating income or net earnings as an
indicator of the Company's operating performance or to net cash provided by
operating activities as a measure of its liquidity.
(5) Cash flows from operating, investing and financing activities are obtained
from the Company's consolidated statements of cash flows prepared in
accordance with generally accepted accounting principles.
(6) As of the end of the period.
(7) In May 1996, the Company was awarded the logo sign franchise for the state
of New Jersey and has recently acquired the logo sign franchises in
Tennessee and Kansas.
(8) Adjusted for the Offering and the other matters discussed under "The
Company."
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<PAGE> 9
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 Class A Common Stock offered hereby.
FLUCTUATIONS IN ECONOMIC AND ADVERTISING TRENDS
The Company relies on sales of advertising space for its revenues, and its
operating results are therefore 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. Although the Company believes that in recent years outdoor advertising
expenditures have increased more rapidly than total U.S. advertising
expenditures, there can be no assurance that this trend will continue or that in
the future outdoor advertising expenditures will not grow more slowly than the
advertising industry as a whole.
REGULATION OF OUTDOOR ADVERTISING
The outdoor advertising business is subject to regulation by federal, state
and local governments. Federal law requires states, as a condition to federal
highway assistance, to restrict billboards on federally-aided primary and
interstate highways to commercial and industrial areas and imposes certain
additional size, spacing and other limitations on billboards. Some states have
adopted standards more restrictive than federal requirements. Local governments
generally control billboards as part of their zoning regulations, and some local
governments prohibit construction of new billboards and reconstruction of
substantially damaged billboards or allow new construction only to replace
existing structures. In addition, some jurisdictions (including certain of those
within the Company's markets) have adopted amortization ordinances under which
owners and operators of outdoor advertising displays are required to remove
existing structures at some future date, often without condemnation proceeds
being available. Federal and corresponding state outdoor advertising statutes
require payment of compensation for removal by governmental order in some
circumstances. Ordinances requiring the removal of a billboard without
compensation, whether through amortization or otherwise, have been challenged in
various state and federal courts on both statutory and constitutional grounds,
with conflicting results. Although the Company has been successful in the past
in negotiating acceptable arrangements in circumstances in which its displays
have been subject to removal or amortization, there can be no assurance that the
Company will be successful in the future and what effect, if any, such
regulations may have on the Company's operations. In addition, the Company is
unable to predict what additional regulation may be imposed on outdoor
advertising in the future. Legislation regulating the content of billboard
advertisements has been introduced in Congress from time to time in the past,
although no laws which, in the opinion of management, would materially and
adversely affect the Company's business have been enacted to date. Changes in
laws and regulations affecting outdoor advertising at any level of government
may have a material adverse effect on the Company's results of operations.
DECLINING TOBACCO ADVERTISING
Approximately 9% of the Company's outdoor advertising net revenues in
fiscal 1995 came from the tobacco products industry, compared to 7% for fiscal
1994 and 1993, 12% for fiscal 1992 and 17% for fiscal 1991. Manufacturers of
tobacco products, principally cigarettes, were historically major users of
outdoor advertising displays. Beginning in 1992, the leading tobacco companies
substantially reduced their domestic advertising expenditures in response to
societal and governmental pressures and other factors. There can be no assurance
that the tobacco industry will not further reduce advertising expenditures in
the future either voluntarily or as a result of governmental regulation or as to
what affect any such reduction may have on the Company. See "Business -- Company
Operations -- Categories of Business." Tobacco advertising is currently subject
to regulation and legislation has been introduced from time to time in Congress
that would further regulate advertising of tobacco products. In addition, the
United States Food and Drug Administration recently proposed regulations which
would prohibit the use of pictures and color in tobacco advertising and
9
<PAGE> 10
restrict the proximity of outdoor tobacco advertising to schools and
playgrounds. While such regulations have not been adopted, there can be no
assurance that national or local legislation or regulations restricting tobacco
advertising will not be adopted in the future or as to the effect any such
legislation or the voluntarily curtailment of advertising by tobacco companies
would have on the Company. See "Business -- Regulation."
COMPETITION
In addition to competition from other forms of media, including television,
radio, newspapers and direct mail advertising, the Company faces competition in
some of its markets from other outdoor advertising companies, some of which may
be larger and better capitalized than the Company. The Company also competes
with a wide variety of other out-of-home advertising media, the range and
diversity of which have increased substantially over the past several years to
include advertising displays in shopping centers, malls, airports, stadiums,
movie theaters and supermarkets, and on taxis, trains and buses. The Company
believes that its local orientation, including the maintenance of local offices,
has enabled it to compete successfully in its markets to date. However, there
can be no assurance that the Company will be able to continue to compete
successfully against current and future sources of outdoor advertising
competition and competition from other media or that the competitive pressures
faced by the Company will not adversely affect its profitability or financial
performance. In its logo sign business, the Company currently faces competition
for state franchises from four other national logo sign providers as well as
local companies. Competition from these sources is encountered both when a
franchise is first privatized and upon renewal thereafter. See "Business --
Competition."
POTENTIAL LOSSES FROM HURRICANES
A significant portion of the Company's structures are located in the
mid-Atlantic and Gulf Coast regions of the United States. These areas are highly
susceptible to hurricanes during the late summer and early fall. In the past,
severe storms have caused the Company to incur material losses resulting from
structural damage, overtime compensation, loss of billboards that could not
legally be replaced and reduced occupancy because billboards are out of service.
The Company has determined that it is not economical to obtain insurance against
losses from hurricanes and other storms. The Company has developed contingency
plans to deal with the threat of hurricanes, including plans for early removal
of advertising faces to permit the structures to better withstand high winds and
the replacement of such faces after storms have passed. As a result of these
contingency plans, the Company has experienced lower levels of losses from
recent storms and hurricanes. Structural damage attributable to Hurricane Andrew
in 1992 was less than $500,000, and three hurricanes caused aggregate structural
damage of less than $1,000,000 in 1995. There can be no assurance, however, that
the Company's contingency plans will continue to be effective.
ACQUISITION AND GROWTH STRATEGY RISKS
The Company's growth has been enhanced materially by strategic acquisitions
that have substantially increased the Company's inventory of advertising
displays. One element of the Company's operating strategy is to make strategic
acquisitions in markets in which it currently competes as well as in new
markets. 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 for available acquisition opportunities. In addition, if the prices
sought by sellers of outdoor advertising displays continue to rise, as
management believes may happen, the Company may find fewer acceptable
acquisition opportunities. There can be no assurance that the Company will have
sufficient capital resources to complete acquisitions or be able to obtain any
required consents of its bank lenders, that acquisitions can be completed on
terms acceptable to the Company, or that any acquisitions that are completed can
be integrated successfully into the Company. While the Company continues to
evaluate acquisition opportunities, the Company has not entered into any
definitive agreement or understanding with respect to any particular acquisition
as of the date of this Prospectus, although the Company has recently acquired
the Tennessee and Kansas logo sign franchises for an aggregate purchase price of
$1.4 million. The Company has entered into letters of intent to purchase certain
10
<PAGE> 11
outdoor advertising properties for an aggregate purchase price of $11.2 million.
There is no assurance that any of these transactions will be consummated. In
addition, the Company recently has entered into the transit advertising business
and, while the Company believes that it will be able to utilize its expertise in
outdoor advertising to operate this business, it has had limited experience in
transit advertising and there is no assurance that it will be successful in
operating this business.
RISKS IN OBTAINING AND RETAINING LOGO SIGN FRANCHISES
State logo sign franchises represent a growing portion of the Company's
revenues and operating income. The Company cannot predict the number of
remaining states, if any, that will initiate logo sign programs or convert
state-run logo sign programs to privately operated programs. Competition for new
state logo sign franchises is intense and, even after a favorable award,
franchises may be subject to challenge under state contract bidding
requirements, resulting in delays and litigation costs. In addition, state logo
sign franchises are generally, with renewal options, ten to twenty-year
franchises subject to earlier termination by the state, in most cases upon
payment of compensation. Typically, at the end of the term of the franchise,
ownership of the structures is transferred to the state without compensation to
the Company. None of the Company's logo sign franchises are due to terminate in
the next two years; only two are subject to renewal during that period and, in
one case, the state authority has verbally agreed to renew the franchise for
five years. There can be no assurance that the Company will be successful in
obtaining new logo sign franchises or renewing existing franchises. Further,
following the receipt by the Company of a new state logo sign franchise, the
Company generally incurs significant start-up capital expenditures and there can
be no assurance that the Company will continue to have access to capital to fund
such expenditures.
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 Kevin P. Reilly, Jr., the Company's Chief Executive Officer, the
Company's four regional managers and the manager of its logo sign business.
Although the Company believes it has incentive and compensation programs
designed to retain key employees, the Company has no employment contracts with
any of its employees, and none of its executive officers are bound by
non-compete agreements. The Company does not maintain key man insurance on its
executives. The unavailability of the continuing services of any of its
executive officers and other key management and sales personnel could have an
adverse effect on the Company's business. See "Management."
SUBSTANTIAL INDEBTEDNESS OF THE COMPANY
The Company has substantial indebtedness and, subject to the terms of the
covenants included in the Indenture (the "Senior Note Indenture") governing its
11% Senior Secured Notes due May 15, 2003 (the "Senior Notes") and in its bank
credit agreements (the "Bank Credit Agreements"), may incur additional
indebtedness in the future. See "Description of Indebtedness." At April 30,
1996, after giving effect to the issuance of ten-year subordinated notes being
issued at the time of completion of this Offering as described under "Certain
Transactions," the Company's total long-term debt was approximately $171.7
million. Annual interest expense for fiscal 1995 was approximately $15.8 million
or 15.4% of net revenues and, after giving effect to the issuance of the
ten-year subordinated notes, would have been approximately $17.4 million or
17.0% of net revenues. Additionally, at April 30, 1996, the Company had $3.6
million of Class A Preferred Stock, $638 par value per share (the "Class A
Preferred Stock"), outstanding which is entitled to a cumulative preferential
dividend of $364,903 annually. If the Company's net cash provided by operating
activities were to decrease from present levels, the Company could experience
difficulty in meeting its debt service obligations without additional financing.
In addition, the entire outstanding principal amount of the Senior Notes will
become due in 2003, and the Company may be required to obtain additional debt or
equity financing or sell assets to make such principal payment. There can be no
assurance that, in the event the Company were to require additional financing,
such additional financing would be available or, if available, would be
available on favorable terms. In addition, any such additional financing may
require the consent of lenders under the Bank Credit Agreements or holders of
other debt of the Company.
11
<PAGE> 12
The level of the Company's indebtedness could have important consequences
to stockholders, including: (i) a substantial part of the Company's cash flow
from operations must be dedicated to debt service and will not be available for
other purposes; (ii) the Company's ability to obtain additional financing in the
future, if needed, may be limited; (iii) the Company's leveraged position and
covenants contained in the Senior Note Indenture and the Bank Credit Agreements
(or any replacements thereof) could limit its ability to expand and make
acquisitions; (iv) the Senior Note Indenture and Bank Credit Agreements contain
certain restrictive covenants, including covenants that restrict or prohibit the
payment of dividends or other distributions by the Company to its stockholders;
and (v) the Company's level of indebtedness could make it more vulnerable to
economic downturns, limit its ability to withstand competitive pressures and
limit its flexibility in reacting to changes in its industry and economic
conditions generally. Certain of the Company's competitors currently operate on
a less leveraged basis and may have greater operating and financial flexibility
than the Company. In addition, in the event of a liquidation of the Company, the
Class A and Class B Common Stock would be subordinate to the Company's debt
instruments, as well as other indebtedness incurred, the Class A Preferred Stock
and, possibly, any other preferred stock which may be issued in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources," "Description of Indebtedness"
and "Description of Capital Stock."
RESTRICTIVE COVENANTS IN DEBT INSTRUMENTS
The Company's Bank Credit Agreements and Senior Note Indenture contain
numerous restrictive covenants which, among other things, restrict the ability
of the Company to dispose of assets, incur or repay debt, pay dividends, redeem
stock, make capital expenditures and make certain investments or acquisitions
and which otherwise restrict corporate activities. The Company has expanded in
part through acquisitions that have required the consent of its lenders under
the Bank Credit Agreements and, while the Company has been able to obtain such
consents in the past, there can be no assurance that the Company will be able to
obtain such consents as necessary to make future acquisitions. In addition,
pursuant to the Bank Credit Agreements, the Company is required to maintain
specified financial ratios and levels, including cash interest coverage, fixed
charges coverage and total debt ratios. The ability of the Company to comply
with such provisions will depend on its future performance, which performance is
subject to prevailing economic, financial and business conditions and other
factors beyond the Company's control. See "Description of Indebtedness."
STOCKHOLDERS' DEFICIT
At April 30, 1996 and October 31, 1995, the Company had a stockholders'
deficit of $28.3 million and $28.2 million, respectively. The deficit results
primarily from net losses that were incurred during the fiscal years ended
October 31, 1983 through 1990 caused primarily by high levels of depreciation
and amortization of fixed assets and acquired intangibles, and from stock
redemptions and dividends. Although the stockholders' deficit declined by
approximately $9.2 million in fiscal 1995, primarily as a result of net
earnings, there can be no assurance that this trend will continue. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of the Class A Common Stock offered hereby will suffer an
immediate and substantial dilution in the net tangible book value of the Common
Stock from the initial public offering price. See "Dilution."
CONTROLLING STOCKHOLDER
Upon consummation of this Offering, the Reilly Family Limited Partnership,
of which Kevin P. Reilly, Jr., the Company's Chief Executive Officer, is the
managing general partner, will beneficially own shares of the Company's Common
Stock having approximately 93.1% of the total voting power of the Common Stock.
As a result, Mr. Reilly, or his successor as managing general partner, will
effectively be able to control the outcome of matters requiring a stockholder
vote, including electing directors, adopting or amending certain provisions of
the Company's certificate of incorporation and by-laws and approving or
preventing certain mergers or other similar transactions, such as a sale of
substantially all the Company's assets (including
12
<PAGE> 13
transactions that could give holders of the Company's Class A Common Stock the
opportunity to realize a premium over the then-prevailing market price for their
shares). In addition, upon consummation of this Offering, the Company's
officers, directors and their respective affiliates, other than the Reilly
Family Limited Partnership, will beneficially own shares of the Company's Common
Stock having approximately 2.6% of the total voting power of the Company's
Common Stock. Therefore, purchasers of Class A Common Stock offered hereby will
become minority stockholders of the Company and will be unable to control the
management or business policies of the Company. Moreover, subject to contractual
restrictions and general fiduciary obligations, the Company is not prohibited
from engaging in transactions with its management and principal stockholders, or
with entities in which such persons are interested. The Company's certificate of
incorporation does not provide for cumulative voting in the election of
directors and, as a result, the controlling stockholders can elect all the
directors if they so choose.
CERTAIN ANTI-TAKEOVER PROVISIONS
Prior to the completion of the Offering, the Company will adopt an amended
and restated certificate of incorporation and amended and restated by-laws.
Certain provisions of these documents may have the effect of discouraging a
third party from making an acquisition proposal for the Company and thereby
inhibit a change in control of the Company in circumstances that could give the
holders of the Class A Common Stock the opportunity to realize a premium over
the then prevailing market price of such stock. Such provisions may also
adversely affect the market price of the Class A Common Stock. For example, the
Company's certificate of incorporation will authorize the issuance of "blank
check" preferred stock (the "Preferred Stock") with such designations, rights
and preferences as may be determined from time to time by the Board of
Directors. In the event of issuance, such Preferred Stock could be utilized,
under certain circumstances, as a method of discouraging, delaying or preventing
a change in control of the Company. In addition, the issuance of Preferred Stock
may adversely affect the voting and dividend rights, rights upon liquidation and
other rights of the holders of Common Stock (including the purchasers of Class A
Common Stock in this Offering). Although the Company has no present intention to
issue any shares of such Preferred Stock, the Company retains the right to do so
in the future. See "Description of Capital Stock -- Additional Preferred Stock."
Furthermore, the Company is subject to Section 203 of the Delaware General
Corporation Law. The existence of this provision, as well as the control of the
Company by the Reilly Family Limited Partnership, would be expected to have an
anti-takeover effect, including possibly discouraging takeover attempts that
might result in a premium over the market price for the shares of Class A Common
Stock. See "Description of Capital Stock" and "Principal and Selling
Stockholders."
ABSENCE OF PRIOR PUBLIC MARKET; DETERMINATION OF OFFERING PRICE; POSSIBLE
VOLATILITY OF STOCK PRICE
Prior to this Offering, there has been no public market for the Class A
Common Stock of the Company. There can be no assurance that, following this
Offering, an active trading market for the Class A Common Stock will develop or
be sustained or that the market price of the Class A Common Stock will not
decline below the initial public offering price. The initial public offering
price was determined by negotiations among the Company and the Representatives
of the Underwriters and is not necessarily indicative of the market price of the
Class A Common Stock after this Offering. See "Underwriting" for a discussion of
the factors considered in determining the initial public offering price. From
time to time, the stock market experiences significant price and volume
volatility, which may affect the market price of the Class A Common Stock for
reasons unrelated to the Company.
BENEFITS OF OFFERING TO CERTAIN STOCKHOLDERS
Approximately $1.25 million of the net proceeds to the Company of the
Offering will be paid to executive officers, directors, beneficial owners of 5%
or more of the Common Stock and their affiliates in satisfaction of contingent
consideration due in connection with prior repurchases of common stock. See "Use
of Proceeds." Of this amount, approximately $362,000 is payable to Charles W.
Lamar, III, approximately $731,000 is payable to Mary Lee Lamar Dixon, and
approximately $161,000 is payable to Gerald H. Marchand. Such persons will also
receive approximately $5.0 million aggregate principal amount of ten-year
subordinated notes
13
<PAGE> 14
of the Company as part of such contingent consideration. Mr. Lamar and Ms. Dixon
are also Selling Stockholders and will receive $930,000 and $1,860,000,
respectively, in net proceeds from sales of Class A Common Stock in the
Offering.
MANAGEMENT DISCRETION OVER USE OF NET PROCEEDS
A portion of the net proceeds of the Offering will be available for general
corporate purposes. Accordingly, management will have considerable discretion
over the use of such proceeds and may use them without stockholder approval.
Because of the amendment of the Senior Note Indenture permitting the
reincurrence of indebtedness, the Company will use a portion of the net proceeds
from this Offering for repayment of outstanding indebtedness. It is, however,
able to reborrow the amounts repaid on a discretionary basis. See "Use of
Proceeds."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market after
this Offering could adversely affect the prevailing market price of such shares.
In addition to the 4,735,000 shares of Class A Common Stock offered hereby, as
of the date of this Prospectus, there will be 23,747,024 shares of Common Stock
outstanding, all of which are "restricted" shares (the "Restricted Shares")
under the Securities Act of 1933, as amended (the "Securities Act"). Of the
Restricted Shares, 715,922 will be eligible for sale immediately following this
Offering subject to certain volume and other resale restrictions pursuant to
Rule 144 under the Securities Act. Beginning 180 days after such date, an
additional 23,031,102 Restricted Shares will first become eligible for sale in
the public market subject to certain volume and resale restrictions pursuant to
Rule 144 under the Securities Act, upon the expiration of certain lock-up
agreements with the Underwriters. See "Principal and Selling Stockholders" and
"Shares Eligible for Future Sale."
ABSENCE OF DIVIDENDS
The Company does not anticipate paying dividends on its Common Stock in the
foreseeable future. In addition, as stated above, the Company's Bank Credit
Agreements and Senior Note Indenture place limitations on the Company's ability
to pay dividends and make other distributions on its Common Stock, and the
Company's Class A Preferred Stock is entitled to preferential dividends before
any dividends may be paid on the Common Stock. See "Dividend Policy,"
"Description of Capital Stock" and "Description of Indebtedness."
14
<PAGE> 15
THE COMPANY
The Company is one of the largest and most experienced owners and operators
of outdoor advertising structures in the United States. The Company also
operates the largest logo sign business in the United States and has recently
expanded into the transit advertising business.
Prior to this Offering, the Company's equity has been privately held, with
the Reilly Family Limited Partnership holding a controlling interest. See
"Principal and Selling Stockholders."
Immediately prior to this Offering, the Company will adopt an Amended and
Restated Certificate of Incorporation (the "Certificate of Incorporation") and
By-Laws (the "By-Laws"). The Certificate of Incorporation will provide for Class
A Common Stock, Class B Common Stock, Class A Preferred Stock and "blank check"
preferred stock. See "Description of Capital Stock." Also immediately prior to
this Offering, the Company will effect an approximate 778.9 for one stock split
of its existing common stock and the Company's current stockholders will
exchange such common stock on a one-for-one basis for Class A Common Stock or,
in the case of the Reilly Family Limited Partnership, Class B Common Stock. The
holders of Class A and Class B Common Stock will have identical economic rights
and will vote together as a single class (except as may otherwise be required
under Delaware law) on all matters submitted to a vote of stockholders; however,
in any such vote, each share of Class A Common Stock will be entitled to one
vote and each share of Class B Common Stock will be entitled to ten votes. Each
share of the Company's Class B Common Stock automatically converts into a share
of Class A Common Stock upon transfer to a person or entity other than a
Permitted Transferee, as defined in "Description of Capital Stock."
In October 1995 and March 1996, the Company repurchased 1,220,500 and
3,617,884 shares, respectively, of its then outstanding common stock (as
adjusted to reflect the stock split referred to above). In satisfaction of the
rights of the holders of those shares to receive additional consideration upon
consummation by the Company of this Offering, the Company will pay such holders
$5.0 million from the proceeds of this Offering and issue to them $20.0 million
aggregate principal amount of ten-year subordinated notes. These notes will bear
interest at a rate equal to 100 basis points over the United States Treasury
ten-year note rate in effect ten days prior to their issuance and will amortize
monthly until their maturity in 2006. Also in March 1996, the Company issued
shares of its Class A Preferred Stock with an aggregate liquidation preference
of $3.6 million to certain of its stockholders in exchange for shares of its
then outstanding common stock. The Class A Preferred Stock is entitled to
cumulative dividends at the rate of 10% per annum. See "Certain Transactions."
15
<PAGE> 16
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 4,000,000 shares of
Class A Common Stock offered by it hereby are estimated to be approximately
$58,770,000 (or approximately $63,145,330 if the Underwriters' over-allotment
option to purchase an additional 294,041 shares from the Company is exercised in
full), after deducting estimated expenses and underwriting discounts.
As a result of recent amendments to the Senior Note Indenture permitting
the reincurrence of indebtedness as described under "Description of
Indebtedness -- Senior Notes," the Company will use a portion of the net
proceeds from this Offering to repay existing indebtedness in the aggregate
principal amount of approximately $43.8 million, consisting of (i) bank term
loans, of which $37.8 million is expected to be outstanding at the time of this
Offering, and (ii) an estimated $6.0 million of outstanding loans under a
revolving credit facility. The term loans mature October 31, 2001 and amortize
as set forth under "Description of Indebtedness -- Bank Credit Facilities," and
the revolving credit facility is required to be repaid at various times from
1999 to 2001, as set forth under such caption. The term loans and revolving
credit loans bear interest at variable rates which, at June 30, 1996, were 7.23%
and 7.50%, respectively. The foregoing indebtedness may be repaid without
premium.
In addition, the Company intends to use approximately $5.0 million of the
net proceeds from this Offering to pay a portion of the contingent consideration
payable to stockholders whose shares of common stock were repurchased by the
Company in October 1995 and March 1996. The Company will also issue to such
stockholders $20.0 million aggregate principal amount of ten-year subordinated
notes as the balance of the contingent consideration. See "Description of
Indebtedness -- Subordinated Notes" and "Certain Transactions."
The remaining net proceeds from this Offering will be available for general
corporate purposes, including possible acquisitions and repayment of
indebtedness. The Company has entered into letters of intent to purchase certain
outdoor advertising properties for an aggregate cash price of $11.2 million. If
any of these transactions is consummated, the Company plans to use the net
proceeds from this Offering to fund such transaction.
The Company will not receive any proceeds from the sale of Class A Common
Stock by the Selling Stockholders. Such net proceeds are estimated to be
$10,936,800 (or approximately $17,129,990 if the Underwriters' over-allotment
option to purchase an additional 416,209 shares from the Selling Stockholders is
exercised in full).
DIVIDEND POLICY
The Company does not anticipate paying dividends on its Common Stock in the
foreseeable future. The Company intends to retain future earnings for
reinvestment in the Company. In addition, the Company's Bank Credit Agreements
and Senior Note Indenture place limitations on the Company's ability to pay
dividends or make any other distributions on the Common Stock. The Company's
Class A Preferred Stock is entitled to preferential dividends, in an annual
aggregate amount of $364,903, before any dividends may be paid on the Common
Stock. See "Description of Capital Stock" and "Description of Indebtedness." Any
future determination as to the payment of dividends will be subject to such
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.
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<PAGE> 17
DILUTION
The deficit in net tangible book value of the Common Stock as of April 30,
1996 was approximately $(42.8) million, or $(1.75) per share of Common Stock.
The deficit in net tangible book value per share of Common Stock represents the
amount of the Company's Stockholders' Deficit, less intangible assets, divided
by 24,482,024 shares of Common Stock outstanding as of April 30, 1996.
Net tangible book value dilution per share of Common Stock represents the
difference between the amount per share paid by purchasers of shares of Common
Stock in this Offering and the pro forma net tangible book value per share of
Common Stock immediately after completion of this Offering. After giving effect
to the sale of 4,000,000 shares of Class A Common Stock by the Company in this
Offering and the application of the estimated net proceeds therefrom, and the
issuance of $20 million aggregate principal amount of ten-year subordinated
notes to certain stockholders. See "Certain Transactions." The pro forma deficit
in net tangible book value of the Common Stock as of April 30, 1996 would have
been $(9.1) million or $(.32) per share of Common Stock. This represents an
immediate decrease in the deficit in net tangible book value of $1.43 per share
of Common Stock to existing common stockholders and an immediate dilution in net
tangible book value of $16.32 per share of Class A Common Stock to purchasers of
Class A Common Stock in this Offering. The following table illustrates the
dilution in the net tangible book value per share to new investors:
<TABLE>
<S> <C> <C>
Initial public offering price per share of Class A Common Stock......... $ 16.00
Deficit in net tangible book value per share of Common Stock at April
30, 1996, after giving effect to the stock split discussed under "The
Company".............................................................. (1.75)
Decrease in deficit per share of Common Stock attributable to new
investors............................................................. 1.43
Pro forma net tangible book value per share of Common Stock after the
Offering.............................................................. (0.32)
-----
Dilution per share to new investors..................................... 16.32
=====
</TABLE>
The following table sets forth, as of the close of this Offering, the
number of shares of Common Stock issued by the Company and the total
consideration paid and the average price per share paid by new investors
purchasing shares of Class A Common Stock in this Offering:
<TABLE>
<CAPTION>
SHARES OF COMMON TOTAL
STOCK ACQUIRED CONSIDERATION(1)
---------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE(1)
---------- ------- ---------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 24,482,024 86.0 -- -- --
---------- ------- ---------- ----- ------
New investors................. 4,000,000 14.0 64,000,000 100 16.00
---------- ------- ---------- ----- ------
Total............... 28,482,024 100.00 64,000,000 100 2.25
========== ======= ========== ===== ======
</TABLE>
- ---------------
(1) The Common Stock held by existing stockholders has been issued over time for
various consideration and, for purposes of this comparison, is assumed to
have been issued for nominal consideration.
17
<PAGE> 18
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
April 30, 1996 and the capitalization adjusted for the sale by the Company of
4,000,000 shares of Class A Common Stock offered hereby and the application of
the net proceeds therefrom as set forth in "Use of Proceeds."
<TABLE>
<CAPTION>
AS OF APRIL 30, 1996
--------------------------
ACTUAL(1) AS ADJUSTED(2)
--------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents............................................ $ 1,752 $ 12,772
======== ========
Current maturities of long-term debt................................. 4,617 1,617
Long-term debt, less current maturities
Senior secured notes............................................... 100,000 100,000
Notes payable to bank group........................................ 35,250 0
Revolving credit facilities........................................ 11,000 6,500
Other long-term debt............................................... 5,423 5,423
Ten-year subordinated notes........................................ -- 20,000
-------- --------
Total long-term debt, less current maturities.............. 151,673 131,923
-------- --------
Stockholders' equity
Class A Preferred Stock, $638 par value, 10,000 shares authorized,
5,719.49 issued and outstanding................................. 3,649 3,649
Preferred Stock, $0.01 par value, 1,000,000 shares authorized, no
shares issued and outstanding................................... 0 0
Class A Common Stock, $0.001 par value, 50,000,000 shares
authorized, 10,180,485 actual shares issued and outstanding,
14,446,735 issued and outstanding, as adjusted.................. 10 14
Class B Common Stock, $0.001 par value, 25,000,000 shares
authorized, 14,301,539 actual shares issued and outstanding,
14,035,289 issued and outstanding, as adjusted.................. 14 14
Additional paid-in capital......................................... -- 33,766
Accumulated deficit................................................ (31,961) (31,961)
-------- --------
Total stockholders' equity (deficit)....................... (28,288) 5,482
-------- --------
Total capitalization....................................... $123,385 $137,405
======== ========
</TABLE>
- ---------------
(1) After giving effect to the proposed stock split and subsequent exchanges
discussed under "The Company."
(2) As adjusted for the Offering and the issuance of the ten-year subordinated
notes discussed under "The Company."
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<PAGE> 19
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The selected consolidated statement of operations and balance sheet data
presented below are derived from the audited consolidated financial statements
of the Company. The financial statements of the Company for the three years
ended October 31, 1995 and as of October 31, 1995 and 1994 were audited by KPMG
Peat Marwick LLP, independent auditors, as indicated in their report included
elsewhere in this Prospectus. The consolidated statement of operations and
balance sheet data as of and for the six months ended April 30, 1996 and 1995
are derived from unaudited financial statements. The unaudited financial
statements include all adjustments, consisting of normal recurring adjustments,
which management considers necessary for a fair presentation of the financial
position and the results of operations for these periods. The results of
operations for any such period are not necessarily indicative of the results of
operations for a full year. The data presented below should be read in
conjunction with the audited consolidated financial statements, related notes,
Management's Discussion and Analysis of Financial Condition and Results of
Operations and other financial information included herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30, YEAR ENDED OCTOBER 31,
----------------- -------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------- ------- -------- -------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Net advertising revenues............................ $56,261 $49,686 $101,871 $ 83,627 $65,365 $60,760 $60,834
Management fees..................................... 30 15 31 334 595 623 827
Rental income....................................... 354 298 506 512 564 572 601
------- ------- -------- -------- ------- ------- -------
Total net revenues............................ 56,645 49,999 102,408 84,473 66,524 61,955 62,262
Operating expenses:
Direct advertising expenses......................... 20,893 18,184 34,386 28,959 23,830 22,783 22,143
General and administrative expenses................. 14,695 13,243 27,057 24,239 19,504 18,225 17,703
Depreciation and amortization....................... 7,028 6,768 14,090 11,352 8,924 8,881 8,826
------- ------- -------- -------- ------- ------- -------
Total operating expenses...................... 42,616 38,195 75,533 64,550 52,258 49,889 48,672
Operating income...................................... 14,029 11,804 26,875 19,923 14,266 12,066 13,590
Non-operating expense (income):
Interest income..................................... (101) (81) (199) (194) (218) (96) (213)
Interest expense.................................... 7,852 7,857 15,783 13,599 11,502 10,454 11,650
Loss (gain) on disposition of assets................ 581 816 2,328 675 729 (1,309) 216
Other expense....................................... 246 410 655 616 576 392 1,001
------- ------- -------- -------- ------- ------- -------
Total non-operating expense................... 8,578 9,002 18,567 14,696 12,589 9,441 12,654
------- ------- -------- -------- ------- ------- -------
Earnings before income taxes and extraordinary item... 5,451 2,802 8,308 5,227 1,677 2,625 936
Income tax expense (benefit)(1)....................... 2,190 (1,767) (2,390) (2,072) 476 270 207
------- ------- -------- -------- ------- ------- -------
Earnings before extraordinary item.................... 3,261 4,569 10,698 7,299 1,201 2,355 729
Extraordinary loss on debt extinguishment, net of
income tax benefit of $98........................... -- -- -- -- (1,854) -- --
------- ------- -------- -------- ------- ------- -------
Net earnings (loss)................................... 3,261 4,569 10,698 7,299 (653) 2,355 729
Preferred stock dividends............................. (182) -- -- -- -- -- --
------- ------- -------- -------- ------- ------- -------
Net earnings (loss) applicable to common stock........ 3,079 4,569 10,698 7,299 (653) 2,355 729
======= ======= ======== ======== ======= ======= =======
Earnings per common share before extraordinary
item(2)............................................. $ .11 $ .14 $ .32 $ .21 $ .03 $ .07 $ .02
======= ======= ======== ======== ======= ======= =======
Net earnings (loss) per common share(2)............... $ .11 $ .14 $ .32 $ .21 $ (.02) $ .07 $ .02
======= ======= ======== ======== ======= ======= =======
OTHER DATA:
Operating cash flow(3)................................ 21,057 18,572 40,965 31,275 23,190 20,947 22,416
Cash flows from operating activities(4)............... 8,486 4,977 25,065 15,214 12,411 12,930 10,328
Cash flows from investing activities(4)............... (18,403) (7,030) (17,817) (53,569) (10,064) (7,273) (4,236)
Cash flows from financing activities(4)............... 5,783 (2,855) (9,378) 37,147 6,802 (6,734) (5,133)
Capital expenditures:
Outdoor advertising................................. 2,676 2,628 6,643 4,997 2,374 1,695 1,847
Logos............................................... 5,849 330 1,567 2,761 2,009 3,056 629
Number of outdoor advertising displays(5)............. 23,209 22,555 22,547 22,369 17,659 17,835 18,829
Number of logo advertising displays(5)................ 34,154 19,161 24,219 18,266 13,820 11,371 5,027
Cumulative logo sign franchises(5)(6)................. 12 8 11 7 7 5 4
BALANCE SHEET DATA(5):
Cash and cash equivalents............................. 1,752 3,108 5,886 8,016 9,224 75 1,152
Working capital....................................... 1,164 956 1,737 1,691 7,274 (7,557) (2,876)
Total assets.......................................... 142,360 130,114 133,885 130,008 92,041 78,649 81,737
Total long-term obligations........................... 153,567 145,034 143,944 147,957 122,774 103,567 111,267
Stockholders' deficit................................. (28,288) (33,033) (28,154) (37,352) (43,249) (41,870) (43,787)
</TABLE>
- ---------------
(1) The benefit of the Company's net operating loss carryforward was fully
recognized as of October 31, 1995, resulting in the income tax expense shown
for the six months ended April 30, 1996, compared to the income tax benefit
for the same period in the prior year.
(2) After giving effect to the proposed stock split and subsequent exchanges
discussed under "The Company."
(3) "Operating cash flow" is defined as operating income before depreciation and
amortization. It represents a measure which management believes is
customarily used to evaluate the financial performance of companies in the
media industry. However, operating cash flow is not a measure of financial
performance under generally accepted accounting principles and should not be
considered an alternative to operating income or net earnings as an
indicator of the Company's operating performance or to net cash provided by
operating activities as a measure of its liquidity.
(4) Cash flows from operating, investing and financing activities are obtained
from the Company's consolidated statements of cash flows prepared in
accordance with generally accepted accounting principles.
(5) As of the end of the period.
(6) In May 1996, the Company was awarded the logo sign franchise for the state
of New Jersey and has recently acquired the logo sign franchises in
Tennessee and Kansas.
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<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the consolidated financial condition and
results of operations of the Company for the three fiscal years ended October
31, 1995, and for the six months ended April 30, 1996 compared to the same
period for the prior year. This discussion should be read in conjunction with
the consolidated financial statements of the Company and the related notes
included elsewhere in this Prospectus. References herein to specific years refer
to the Company's fiscal year ending on October 31 of such years.
OVERVIEW
The Company's net revenues, which represent gross revenues less commissions
paid to advertising agencies that contract for the use of advertising displays
on behalf of advertisers, are derived primarily from the sale of advertising on
outdoor advertising displays owned and operated by the Company. In recent years,
the Company's logo sign business has expanded rapidly and may in the future have
an increasing impact on the Company's revenues and operating income.
The Company has grown significantly during the last three years, primarily
as the result of (i) internal growth in its existing outdoor advertising
business resulting from construction of additional outdoor advertising displays,
general improvements in occupancy and operating efficiency and increases in
advertising rates, (ii) acquisitions of outdoor advertising businesses and
structures, the most significant of which was the Company's acquisition of the
50.6% interest that it did not already own in Lamar Holding Corporation ("LHC")
in 1994, and (iii) the rapid expansion of the Company's logo sign business. The
Company's net advertising revenues increased by $36.4 million, representing a
compound annual growth rate of 24.8%, from $65.4 million for the fiscal year
ended October 31, 1993 to $101.9 million for the fiscal year ended October 31,
1995. During the same period, operating cash flow increased $17.8 million,
representing a compound annual growth rate of 32.9%, from $23.2 million for the
fiscal year ended October 31, 1993 to $41.0 million for the fiscal year ended
October 31, 1995.
The Company plans to continue a strategy of expanding through both internal
growth and acquisitions. As a result of acquisitions, principally the LHC
acquisition, the purchase of displays in existing markets to increase market
penetration and the effects of consolidation of operations following each
acquisition, the operating performance of certain markets and of the Company as
a whole are not necessarily comparable on a year-to-year basis. All recent
acquisitions have been accounted for using the purchase method of accounting
and, consequently, operating results from acquired operations are included from
the respective dates of those acquisitions.
The Company relies on sales of advertising space for its revenues, and its
operating results are therefore affected by general economic conditions, as well
as trends in the advertising industry. The Company believes that in recent years
outdoor advertising expenditures have increased more rapidly than total U.S.
advertising expenditures, but there can be no assurance that this trend will
continue or that in the future outdoor advertising will not grow more slowly
than the advertising industry as a whole.
Manufacturers of tobacco products, primarily cigarettes, were historically
major users of outdoor advertising displays. Due to societal and governmental
pressures and other factors, in the early 1990's, leading tobacco manufacturers
substantially reduced their domestic advertising expenditures. The Company's
tobacco revenues, as a percentage of total net revenues, declined from 17% in
fiscal 1991 to 12% in fiscal 1992, 7% in fiscal 1993 and 1994 and 9% in fiscal
1995. During this period, the Company has replaced the reduced tobacco
advertising by diversifying its customer base and increasing sales to local
advertisers.
Growth of the Company's business requires significant capital expenditures
to finance internal growth, acquisitions and the up-front costs associated with
new logo sign franchises. The Company expended $7.6 million on capital
expenditures in fiscal 1993, $13.4 million in fiscal 1994 and $14.0 million in
fiscal 1995. Of these amounts, $2.0 million, $2.8 million and $1.6 million,
respectively, were attributable to the logo sign business. See "-- Liquidity and
Capital Resources."
In the fiscal years ended October 31, 1995 and 1994, the Company recognized
an income tax benefit from a net operating loss carryforward. The benefit of the
Company's net operating loss carryforward was fully
20
<PAGE> 21
recognized as of October 31, 1995, resulting in the recognition of income tax
expense for the six months ended April 30, 1996.
The following table presents certain items in the Consolidated Statements
of Earnings (Loss) as a percentage of net revenues for the years ended October
31, 1995, 1994 and 1993 and for the six months ended April 30, 1996 and 1995:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED APRIL 30, YEAR ENDED OCTOBER 31,
--------------- -----------------------
1996 1995 1995 1994 1993
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net revenues..................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses
Direct advertising expenses.................... 36.9 36.4 33.6 34.3 35.8
General and administrative expenses............ 25.9 26.5 26.4 28.7 29.3
Operating cash flow.............................. 37.2 37.1 40.0 37.0 34.9
Depreciation and amortization.................... 12.4 13.5 13.8 13.4 13.4
Operating income................................. 24.8 23.6 26.2 23.6 21.4
Interest expense................................. 13.9 15.7 15.4 16.1 17.3
Non-operating expense............................ 15.1 18.0 18.1 17.4 18.9
Net earnings (loss).............................. 5.8 9.1 10.4 8.6 (1.0)
</TABLE>
SIX MONTHS ENDED APRIL 30, 1996 COMPARED TO SIX MONTHS ENDED APRIL 30, 1995
Net revenues increased $6.6 million or 13.3% to $56.6 million for the six
months ended April 30, 1996 compared to $50.0 million for the same period in
1995. This increase was primarily a result of the $4.1 million increase in
outdoor advertising net revenues, principally attributable to increases in
number of displays and advertising rates, with occupancy rates remaining
relatively steady. In addition, revenues from the logo sign business increased
$2.2 million or 79.5% due to the continued development of that program.
Operating expenses, exclusive of depreciation and amortization, increased
$4.2 million or 13.2% for the six months ended April 30, 1996 as compared to the
same period in 1995. This increase was the result of an increase in health
insurance rates, increases in personnel costs, sign site rent, graphics expense,
other costs related to the increase in revenue and additional operating expenses
related to outdoor asset acquisitions and the continued development of the logo
sign business.
Depreciation and amortization expense increased $0.3 million or 3.8% from
$6.8 million for the six months ended April 30, 1995 to $7.0 million for six
months ended April 30, 1996.
Due to the above factors, operating income increased $2.2 million or 18.8%
to $14.0 million for the six months ended April 30, 1996 from $11.8 million for
the same period in 1995.
Interest expense remained constant for both periods.
Income tax expense for the six months ended April 30, 1996 increased $4.0
million over the same period in 1995. For the past several years the Company has
had a substantial net operating loss carryforward. The benefit of the Company's
net operating loss carryforward was fully recognized as of October 31, 1995.
As a result of the foregoing factors, net earnings for the six months ended
April 30, 1996 decreased $1.3 million as compared to the same period in 1995.
YEAR ENDED OCTOBER 31, 1995 COMPARED TO YEAR ENDED OCTOBER 31, 1994
Net revenues increased $17.9 million or 21.2% to $102.4 million for the
twelve months ended October 31, 1995 from $84.5 million for the same period in
1994. This increase was predominantly attributable to higher outdoor advertising
net revenues, which rose $17.9 million or 23.0% during this period. The increase
in outdoor advertising net revenues was principally attributable to increases in
number of displays and advertising rates, with occupancy rates remaining
relatively steady. Operations acquired subsequent to fiscal 1993 generated $9.1
million of this increase in outdoor advertising net revenues. This increase in
net revenues was partially
21
<PAGE> 22
offset by a decrease in management fees resulting from the LHC acquisition.
Continued development of the logo sign business resulted in logo advertising
revenue increasing $0.3 million or 5.5% for the twelve months ended October 31,
1995 as compared to the prior fiscal year.
Operating expenses, exclusive of depreciation and amortization, increased
$8.2 million or 15.5% to $61.4 million for the twelve months ended October 31,
1995 from $53.2 million for the same period in 1994. The LHC operations acquired
in May 1994 generated $5.5 million of this increase in operating expenses; the
remaining $2.7 million of the increase was generated by previously existing
operations. This $2.7 million increase was primarily the result of acquisitions
which caused an expansion of the Company's work force, which required higher
aggregate commissions, workers' compensation costs and employee benefit
expenses.
Depreciation and amortization expense increased $2.7 million or 24% from
$11.4 million for the year ended October 31, 1994 to $14.1 million for the year
ended October 31, 1995. This increase in depreciation and amortization was
generated by the assets purchased during fiscal years 1994 and 1995.
Because the Company's operating expenses declined as a percentage of net
revenues to 73.8% for fiscal 1995 from 76.4% for fiscal 1994, operating income
increased $7.0 million or 34.9% from $19.9 million for the twelve months ended
October 31, 1994 to $26.9 million for the twelve months ended October 31, 1995.
Interest expense increased $2.2 million or 16.1% to $15.8 million for the
twelve months ended October 31, 1995 from $13.6 million for the same period in
1994. Approximately $1.8 million of the increase in interest expense reflected
an additional $35.0 million in debt incurred in May 1994 to finance the LHC
acquisition. The remaining $0.4 million increase in interest expense was due to
increased working capital borrowings throughout fiscal 1995.
The Company had a significant net operating loss carryforward and,
therefore, income tax expense for this period reflected the alternative minimum
tax, state income tax and the recognition in the current year of the deferred
tax benefit generated by the net operating loss carryforward.
As a result of the foregoing factors, net earnings increased $3.4 million
or 46.6% to $10.7 million for the twelve months ended October 31, 1995 from $7.3
million for the same period in 1994.
YEAR ENDED OCTOBER 31, 1994 COMPARED TO YEAR ENDED OCTOBER 31, 1993
Net revenues increased $18.0 million or 27.0% to $84.5 million for the
twelve months ended October 31, 1994 from $66.5 million for the same period in
1993. Higher outdoor advertising net revenues contributed $16.6 million of this
increase, resulting from increases in number of displays, occupancy rates and
advertising rates. Logo advertising revenues increased $1.4 million or 34% from
$4.3 million for the twelve months ended October 31, 1993 to $5.7 million for
the twelve months ended October 31, 1994. The increase in revenues from logo
advertising was generated by the build-out of logos in Texas and Mississippi and
the continued expansion of the existing systems.
Operating expenses, exclusive of depreciation and amortization, increased
$9.9 million or 22.8% to $53.2 million for the twelve months ended October 31,
1994 from $43.3 million for the same period in 1993. This increase was
approximately evenly split between existing operations and those acquired after
fiscal 1993.
Depreciation and amortization expense increased $2.4 million or 27.2% to
$11.4 million for the twelve months ended October 31, 1994 from $8.9 million for
the twelve months ended October 31, 1993. $1.8 million of such increase was
attributable to operations acquired after fiscal 1993, with $1.2 million
representing depreciation of newly acquired boards and $0.6 million representing
amortization related to intangibles capitalized as part of such acquisitions.
Because revenue growth outpaced increases in expenses, operating income
increased $5.7 million or 39.7% to $19.9 million for the twelve months ended
October 31, 1994 from $14.3 million for the same period in 1993.
22
<PAGE> 23
Interest expense increased $2.1 million or 18.2% to $13.6 million for the
twelve months ended October 31, 1994 from $11.5 million for the twelve months
ended October 31, 1993. Approximately $1.4 million of such increase reflects an
additional $35.0 million of debt incurred in connection with the May 1994 LHC
acquisition. The remaining $0.7 million of the increase in interest expense was
due to the issuance in May 1993 of $100 million in aggregate principal amount of
Senior Notes with a fixed interest rate of 11.0%. Prior to the issuance of the
Senior Notes, the Company's debt consisted primarily of variable rate bank
financing with a lower net interest cost.
As a result of the foregoing factors, net earnings increased $8.0 million
to $7.3 million for the twelve months ended October 31, 1994 from a net loss of
$0.7 million for the same period in 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash provided by operating activities increased to $15.2
million in fiscal 1994 from $12.4 million in fiscal 1993 due primarily to the
increase in net earnings. Net cash used in investing activities increased from
$10.1 million in fiscal 1993 to $53.6 million in fiscal 1994, due primarily to
the LHC acquisition. Net cash used in financing activities increased from $6.8
million in fiscal 1993 to $37.1 million in fiscal 1994 due primarily to the
incurrence of indebtedness pursuant to a new $35.0 million bank term loan used
to complete the LHC acquisition.
The Company's net cash provided by operating activities increased to $25.1
million in fiscal 1995 due primarily to a $3.4 million increase in net earnings
and the addition of non-cash items, including a $2.7 million increase in
depreciation and amortization. Net cash used in investing activities decreased
from $53.6 million in fiscal 1994 to $17.8 million in fiscal 1995 due primarily
to a $37.6 million decrease in purchase of new markets attributable to the
inclusion of the LHC acquisition in fiscal 1994, offset by a $1.8 million
increase in capital expenditures and purchases of intangibles. Net cash used in
financing activities decreased $46.5 million in fiscal 1995 due to a $44.5
million decrease in proceeds from issuance of long term debt compared to fiscal
1994.
For the six months ended April 30, 1996, net cash provided by operating
activities was $8.5 million, a $3.5 million increase from $5.0 million in the
corresponding period of 1995. The increase was due primarily to the addition of
a non-cash $4.1 million increase in deferred taxes due to the benefit of the
Company's net operating loss carryforward having been fully recognized at year
end October 31, 1995, and a $0.8 million increase in accrued expenses offset by
a $1.3 million decrease in net earnings for the six months ended April 30, 1996
compared to the same period in fiscal 1995. Net cash used in investing
activities increased $11.4 million for the six months ended April 30, 1996 as
compared to the same period in 1995 due to a $5.5 million increase in capital
expenditures, a $4.7 million increase in purchase of new markets and a $0.6
million increase in purchase of intangible assets. Net cash provided by
financing activities increased $8.6 million for the six months ended April 30,
1996 as compared to the same period in 1995. The increase was due to the
increase in borrowings of $10.0 million under revolving credit facilities to
finance capital expenditures, purchase new markets and meet seasonal operating
requirements. A $1.8 million decrease in principal payments on long-term debt
was partially offset by a $3.0 million stock redemption.
In the past, as a private company, the Company followed a policy of
offering to purchase its stock on occasion when it was in a financial position
to do so. In October 1995 and March 1996, the Company redeemed 3.6% and 12.9%,
respectively, of its then outstanding common stock (1,220,500 and 3,617,884
shares, respectively, on a post-split basis) for $1.0 million and $3.0 million
in cash, respectively. The stockholders whose shares were redeemed were
primarily non-affiliates and non-employees of the Company. In connection with
the March 1996 redemption, the Company agreed to pay additional consideration in
the event of a public offering of its shares at a higher price, and in
satisfaction of this agreement it will pay $5.0 million from the proceeds of
this Offering and issue $20.0 million of ten-year subordinated notes.
During the three fiscal years ended October 31, 1995, the Company's
aggregate capital expenditures, as shown in the Consolidated Statements of Cash
Flow, were $35.0 million. Of this amount, the Company spent
23
<PAGE> 24
in the fiscal years 1993, 1994 and 1995 approximately $2.4 million, $5.0 million
and $9.3 million, respectively, to build and maintain structures within its
existing markets and $2.0 million, $2.8 million and $1.6 million, respectively,
to meet the capital expenditures requirements of state logo sign franchise
operations.
During fiscal 1995, the Company was awarded new state logo sign franchises
in the following four states: Georgia, Minnesota, South Carolina and Virginia.
In addition, during fiscal 1996, the State of Texas expanded its existing
program, which is currently run by the Company, and awarded the expansion
contract to the Company. In addition, the Company has recently been awarded the
franchises for the states of Michigan and New Jersey. Due to the capital needed
in 1996 to fund these new franchises, the Company amended its existing Bank
Credit Agreement effective October 1995, partially deferring short-term
principal payments. In December 1995, the Company entered into a $15 million
reducing credit line with its bank group. This line may only be used to finance
the cost of logo sign franchises awarded to the Company after October 31, 1995.
Effective May 1, 1994, the Company completed the LHC acquisition in a
transaction accounted for as a purchase for a price of $43.5 million, which was
financed with the proceeds of a bank term loan in the amount of $35.0 million,
with the remainder financed from the Company's revolving credit facilities.
On May 19, 1993, the Company issued $100 million in aggregate principal
amount of Senior Notes. Simultaneously with the sale of the Senior Notes, the
Company entered into a new Bank Credit Agreement which provided an $8 million
term loan and a $20 million working capital line of credit. The majority of the
net proceeds from the issuance of Senior Notes was utilized to extinguish
existing variable rate debt prior to maturity and pay related expenses. See
"Description of Indebtedness--Senior Notes."
The Company will use a portion of the net proceeds of this Offering to
repay approximately $43.8 million of outstanding bank debt.
The Company expects to pursue a policy of continued growth through
acquisitions. In this connection, the Company has recently acquired logo sign
franchises in two states for an aggregate cash purchase price of $1.4 million.
The Company has also entered into letters of intent to purchase certain outdoor
advertising properties for an aggregate cash cost of $11.2 million. If any of
these transactions is consummated, the Company plans to fund such transaction
from the net proceeds of the Offering.
The Company believes that remaining net proceeds of this Offering,
internally generated funds and funds available for borrowing under the Bank
Credit Agreements will be sufficient for the foreseeable future to satisfy all
debt service obligations and to finance its current operations. At April 30,
1996 the Company had $22.6 million available under its Bank Credit Agreements,
$8.5 million of which is restricted to fund the development of certain logo sign
franchises. See "Description of Indebtedness."
INFLATION
In the last three years, inflation has not had a significant impact on 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 fiscal quarter and its lowest revenues in
the first fiscal 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 earnings.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," which established a new accounting principle for accounting for
the impairment of certain loans, certain investments in debt and equity
securities,
24
<PAGE> 25
long-lived assets that will be held and used including certain identifiable
intangibles and goodwill related to those assets and long-lived assets and
certain identifiable intangibles to be disposed of. This statement is effective
for fiscal years beginning after December 15, 1995. While the Company has not
completed its evaluation of the impact that will result from adopting this
statement, it does not believe that adoption of the statement will have a
significant impact on the Company's financial position and results of
operations.
The Financial Accounting Standards Board also issued SFAS No. 123,
"Accounting for Stock Based Compensation," effective also for fiscal years
beginning after December 15, 1995. The new statement encourages, but does not
require, companies to measure stock-based compensation cost using a fair value
method, rather than the intrinsic value method prescribed by the Accounting
Principles Board (APB) Opinion No. 25. Companies choosing to continue to measure
stock-based compensation using the intrinsic value method must disclose on a pro
forma basis net earnings per share as if the fair value method were used.
Management is currently evaluating the requirements of SFAS No. 123. Management
does not believe that SFAS No. 123 will have a material impact on operating
income.
25
<PAGE> 26
BUSINESS
GENERAL
The Company is one of the largest and most experienced owners and operators
of outdoor advertising structures in the United States. It conducts a business
that has operated under the Lamar name since 1902. As of April 30, 1996, the
Company operated approximately 23,000 outdoor advertising displays in 13
southeastern, midwestern and mid-Atlantic states. In each of the Company's 33
primary markets, the Company believes that it is the only full-service outdoor
advertising company serving such markets. The Company also operates the largest
logo sign business in the United States. Logo signs are erected pursuant to
state-awarded franchises on public rights-of-way near highway exits and deliver
brand name information on available gas, food, lodging and camping services. The
Company currently operates logo sign franchises in 12 of the 20 states which
have a privatized logo sign program. In addition, the Company has recently
acquired the logo sign franchises in Tennessee and Kansas and has been awarded
the logo sign franchise for the state of New Jersey. As of April 30, 1996, the
Company maintained over 13,500 logo sign structures containing over 34,000 logo
advertising displays under these franchises. The Company has recently expanded
into the transit advertising business through the operation of displays on bus
shelters, benches and buses in 7 of its 33 primary markets. For the twelve
months ended October 31, 1995, the Company reported net revenues and operating
income of $102.4 million and $26.9 million, respectively. For the six months
ended April 30, 1996, the Company reported net revenues and operating income of
$56.6 million and $14.0 million, respectively, compared to $50.0 million and
$11.8 million, respectively, for the six months ended April 30, 1995.
The Company's strategy is to be the leading provider of outdoor advertising
in each of the markets it serves, with an emphasis on markets with a media
industry ranking based on population between 50 and 250. Important elements of
this strategy are the Company's decentralized management structure and its focus
on providing high quality local sales and service. Through its local offices,
the Company offers a full complement of outdoor advertising services coupled
with local production facilities, management and account executives in order to
be more responsive to specific local market demands. While maintaining its local
focus, the Company seeks to expand its operations within existing and contiguous
markets. The Company also pursues expansion opportunities, including
acquisitions, in additional markets which the Company believes provide it with
an opportunity to gain a leading revenue share. In the logo sign business, the
Company's strategy is to maintain its position as the largest operator of logo
signs in the U.S. by expanding through the addition of state logo franchises as
they are awarded and through possible acquisitions. The Company may also pursue
expansion opportunities in transit and other out-of-home media which the Company
believes will enable it to leverage its management skills and market position.
Management believes that operating in small to medium-sized markets
provides the Company with a diverse and reliable mix of local advertisers,
geographic diversification, direct transactions which eliminate many agency
commissions, rate integrity, stable real estate portfolios and an ability to
package inventory effectively. Local advertising constituted over 81% of the
Company's outdoor advertising net revenues in fiscal 1995, which management
believes is higher than the industry average.
INDUSTRY OVERVIEW
Outdoor Advertising
Outdoor advertising generated total revenues of approximately $1.8 billion
in 1995, or approximately 1.1% of the total advertising expenditures in the
United States, according to recent estimates by the OAAA. This represents growth
of approximately 8.2% over estimated total 1994 revenues and compares favorably
to the growth of total U.S. advertising expenditures of approximately 7.7%
during the same period. Outdoor advertising offers repetitive impact and a
relatively low cost-per-thousand impressions (a standard measurement of the
cost-effectiveness of an advertising medium) compared to broadcast media,
newspapers, magazines and direct mail marketing, making it attractive to both
local businesses targeting a specific geographic area or set of demographic
characteristics and national advertisers seeking mass market support.
Advertisers purchase outdoor advertising for a variety of reasons. Outdoor
advertising is a highly targeted medium that can be used to concentrate on a
particular geographic location or demographic group. In the case of local
businesses such as hotels, restaurants, service stations and other roadside
businesses, the use of
26
<PAGE> 27
outdoor advertising generates a message that reaches potential customers close
to the point of sale and provides ready directional information. Similarly,
national advertisers often use outdoor advertising when test marketing a product
because of the medium's ability to reach a broad audience in a specific market.
In addition, outdoor advertising is attractive because of its constant
repetition and comparatively low cost-per-thousand impressions as compared to
broadcast media, magazines, newspapers and direct mail marketing. As a result,
advertisers desiring to build brand awareness and develop mass-market support
often find outdoor advertising effective in generating high visibility in a
cost-effective manner. Outdoor advertising is also often combined with other
media to reinforce messages being provided to consumers.
Outdoor advertising, which began in the late 19th century when advertising
"bills" were pasted or "posted" on rented wooden boards, has evolved over the
years to its present form with two types of standardized displays -- posters in
standard and junior sizes and more permanent fixed and rotary bulletins. The
outdoor advertising industry continues to evolve as a result of a number of
factors. The category of out-of-home advertising (advertising transmitted other
than through the print and broadcast media) now includes more than just
traditional billboard and roadside displays. The use of displays in shopping
centers, malls, airports, stadiums, movie theaters and supermarkets has
expanded, and the presence of advertising on subways, buses, taxicabs and
transit shelters is now commonplace. In addition, while tobacco product
companies, historically the largest users of outdoor advertising, have reduced
their reliance on the medium, the outdoor advertising industry has continued to
grow through increasing visibility and attractiveness to local advertisers and
national retail and consumer products companies. Also, advances in production
technology, such as computer printing, vinyl advertising copy and improved
lighting techniques, have facilitated a more creative and effective use of the
medium and a more durable product. These technological improvements also permit
outdoor advertising companies to respond more promptly to customer needs,
operate more efficiently and make greater use of advertising copy used in other
print media, thus providing advertisers the opportunity to present a unified
campaign. Finally, the outdoor advertising industry has benefitted from the
increase in automobile travel time for business and leisure due to increased
highway congestion and the movement of businesses and residences from cities to
outlying suburbs. A study recently published by the Office of Highway
Information Management of the Federal Highway Administration indicated that,
during the period from 1983 to 1990, licensed drivers in the United States
increased by 11%, vehicles owned increased by 15%, the number of vehicle trips
increased by 25% and vehicle miles increased by 40%. The Company believes that
these trends demonstrate that consumer exposure to existing billboard structures
also increased during this period.
According to media publications, the top ten categories of business ranked
by outdoor advertising expenditures for 1995 were entertainment and amusements,
tobacco products, retail establishments, business and consumer services,
automotive, travel and hotels, publishing and media, beer and wine, insurance
and real estate, and drugs and remedies. The Company's sales by category of
business is described under "Company Operations" below.
The outdoor advertising industry is comprised of several large outdoor
advertising and media companies with operations in multiple markets, as well as
many smaller and local companies operating a limited number of displays in a
single or a few local markets. The OAAA estimates that there are approximately
1,000 companies in the industry operating a total of approximately 396,000
displays. There has been a trend toward consolidation in the outdoor advertising
industry in recent years and the Company expects this trend to continue.
Logo Signs
Throughout the 1970's and 1980's many states developed logo sign programs
using state and federal highway matching dollars. Logo signs provide brand name
information on available gas, food, lodging and camping services near highway
exits. Brand name advertising display plates are posted on logo sign structures
to provide this information to highway travellers. In 1985, Minnesota became the
first state to privatize its logo sign program by contracting with a private
firm for the construction, marketing, administration and maintenance of logo
signs in lieu of using government resources. Since then 20 other states have
awarded contracts for privatized logo sign programs, and several others are
considering such privatization programs.
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<PAGE> 28
Conversion of state-run logo sign programs to privately owned and operated
programs is attractive to state governments, in part because of the efficiencies
offered by private contractors.
Transit
A relatively new opportunity within the out-of-home advertising industry is
transit advertising. Increasing numbers of local governments are providing
transit shelters and benches to enhance the service and image of local transit
systems. New government regulations pertaining to the Americans with
Disabilities Act, as well as demands by the public, are creating a need for bus
shelter locations which are practical and accessible by handicapped individuals.
These locations, as well as buses, are increasingly being used for out-of-home
advertising.
As with state-awarded logo sign franchises, municipalities have begun to
issue contracts for transit displays on bus shelters, benches and buses to
private enterprises. Under these contracts, the private party constructs the
shelters or benches, which it can use for advertising displays. In some cases,
the rights for bus displays are also included under the contract. The primary
benefits of privatizing transit advertising are the avoidance of capital
expenditures by the municipality, the prospect of additional revenue for the
municipality, the consistent quality that a coordinated transit program can
provide and the benefits of regular cleaning and maintenance undertaken by
private enterprises.
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<PAGE> 29
MARKETS
The following table sets forth certain information with respect to the
Company's 33 primary outdoor advertising markets and the Company's logo sign
franchises.
THE COMPANY'S 33 PRIMARY OUTDOOR ADVERTISING MARKETS
AND LOGO SIGN FRANCHISES(1)
OUTDOOR ADVERTISING
<TABLE>
<CAPTION>
NUMBER OF DISPLAYS(4)
------------------------------------------------------------------
STATE/PRIMARY MARKET MARKET RANK(3) BULLETINS POSTERS NET REVENUES(5)
- --------------------------------------------------- -------------- --------- ------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
LOUISIANA
Baton Rouge...................................... 81 419 684 $ 7,280
Shreveport....................................... 126 268 730 3,389
Lafayette........................................ 97 154 353 2,035
Lake Charles..................................... 202 189 285 1,915
Monroe........................................... 224 123 508 1,534
Alexandria....................................... 198 49 224 757
Houma(2)......................................... -- 40 164 --
------ ------ -------
Total...................................... 1,242 2,948 16,910
TENNESSEE
Nashville........................................ 44 326 1,174 7,488
Knoxville........................................ 69 694 896 7,171
Clarksville...................................... -- 98 357 1,533
------ ------ -------
Total...................................... 1,118 2,427 16,192
FLORIDA
Pensacola........................................ 125 250 662 3,113
Lakeland......................................... 104 184 372 2,586
Fort Myers....................................... 77 133 297 2,153
Panama City...................................... 223 223 306 1,962
Tallahassee...................................... 167 121 302 1,908
Fort Walton...................................... 206 151 220 1,627
Daytona Beach.................................... 93 54 339 1,456
------ ------ -------
Total...................................... 1,116 2,498 14,805
ALABAMA
Mobile........................................... 84 381 630 4,755
Montgomery....................................... 142 248 499 3,598
------ ------ -------
Total...................................... 629 1,129 8,353
MISSISSIPPI
Jackson.......................................... 118 268 698 4,420
Gulfport......................................... 134 207 559 2,953
------ ------ -------
Total...................................... 475 1,257 7,373
GEORGIA
Savannah......................................... 153 344 604 3,307
Augusta.......................................... 116 163 471 2,482
Albany........................................... 241 92 271 1,031
------ ------ -------
Total...................................... 599 1,346 6,820
VIRGINIA
Richmond......................................... 56 309 616 4,288
Roanoke.......................................... 101 83 450 1,750
------ ------ -------
Total...................................... 392 1,066 6,038
TEXAS
Brownsville...................................... 63 204 873 2,577
Beaumont......................................... 127 204 308 2,165
Wichita Falls.................................... 233 89 165 902
------ ------ -------
Total...................................... 497 1,346 5,644
KENTUCKY
Lexington........................................ 105 117 507 3,127
WEST VIRGINIA
Wheeling......................................... 212 261 551 2,626
COLORADO
Colorado Springs................................. 98 141 355 2,486
OHIO
Dayton........................................... 52 3 529 1,960
------ ------ -------
TOTAL.............................................. 6,590 15,959 $92,334
</TABLE>
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<PAGE> 30
LOGO SIGN FRANCHISES
<TABLE>
<CAPTION>
LOGO LOGO
YEAR ADVERTISING YEAR ADVERTISING
FRANCHISE AWARDED DISPLAYS(6) FRANCHISE AWARDED DISPLAYS(6)
- ----------- ------- ----------- -------------- ------- -----------
<S> <C> <C> <C> <C> <C>
Nebraska 1989 784 Georgia 1995 5,236
Oklahoma 1989 1,363 Minnesota(8) 1995 1,922
Utah 1990 1,463 South Carolina 1995 1,887
Missouri(7) 1991 7,619 Virginia 1995 4,748
Ohio 1992 5,447 Michigan 1996 --(9)
Texas 1993 924 New Jersey 1996 --(9)
Mississippi 1993 2,761
</TABLE>
- ---------------
(1) Includes additional or outlying markets served by the office in the
applicable market.
(2) Houma was established as a separate primary market in fiscal 1995, and,
therefore, net revenues is not included.
(3) Indicates the Fall 1995 Arbitron Radio Metro Market ranking within which the
office is located, as determined by The Arbitron Company. The Company
believes that Metro Market ranking, which ranks, according to population of
persons 12 years or older, the largest 261 markets in the U.S., is a
standard measure of market size used by the media industry. Houma and
Clarksville are not ranked.
(4) The two standardized types of industry displays are bulletins and posters.
See "Business -- Company Operations." The display count is as of October 31,
1995.
(5) Represents net revenues for fiscal year ended October 31, 1995 attributable
to each outdoor advertising market. These revenues, together with logo sign
and transit advertising revenues and production revenue, comprise outdoor
advertising net revenues shown in the Company's consolidated statements of
earnings (loss).
(6) Number of logo advertising displays as of April 30, 1996, which totals
34,154.
(7) Franchise operated by a 66.7% owned partnership.
(8) Franchise operated by a 95.0% owned partnership.
(9) The Company was recently awarded the New Jersey and Michigan franchises,
and, accordingly, no logo signs had been erected as of April 30, 1996.
BUSINESS STRATEGY
Outdoor Advertising
The Company's overall business strategy is to be the leading provider of
outdoor advertising in each of the markets it serves, with an emphasis on
markets with a population ranking between 50 and 250. This strategy includes the
following elements:
OPERATING STRATEGY
Small and Medium-Sized Market Focus. The Company's leading position in
each of its 33 primary outdoor advertising markets is a result of a successful
operating strategy dedicated to growth and acquisitions primarily within the
target range of markets having a population ranking between 50 and 250.
Management believes that operating in these markets provides the benefits of a
diverse and reliable mix of local advertisers, geographic diversification,
direct transactions which eliminate many agency commissions, rate integrity,
stable real estate portfolios and an ability to package inventory effectively.
High Quality Local Sales and Service. The Company identifies and closely
monitors the needs of its customers and seeks to provide them with quality
advertising products at a lower cost than competitive media. The Company
believes it has a reputation for providing excellent customer service and
quality outdoor advertising space and displays.
The Company's 120-person sales force is supported by 33 full-service
offices. In each primary market, the Company has recruited and trained a skilled
sales force, placing an emphasis on market research and use of artistic
creativity. Each salesperson is compensated under a performance-based
compensation system and supervised by a local sales manager executing a
coordinated marketing plan. Art departments assist local customers in the
development and production of creative, effective advertisements. The Company
believes repeat sales are evidence that the Company delivers quality products
and services.
Centralized Control/Decentralized Management. Management believes that, in
its 33 primary markets, the Company is the only full-service outdoor advertising
company offering a full complement of outdoor
30
<PAGE> 31
advertising services coupled with local production facilities, management and
account executives. Local offices operate in defined geographic areas and
function essentially as independent business units, consistent with senior
management's philosophy that a decentralized organization is more responsive to
particular local market demands.
The Company maintains centralized accounting and financial control over its
local operations, but local managers are responsible for the day-to-day
operations in each local market and are compensated according to that market's
financial performance. Each local manager reports to one of four regional
managers who in turn report to the Company's Chief Executive Officer. Management
believes empowering local management and sales personnel to respond to market
conditions has been a major factor in the Company's success.
Effective Inventory Management. The Company believes that the local
presence of sales personnel contributes to the Company's ability to increase
occupancy rates by attracting and servicing local customers. Additionally, a
national sales office at corporate headquarters allows the Company to package
inventory effectively to take advantage of national advertising campaigns in the
Company's markets. The Company's inventory is managed by state-of-the-art
mapping, charting and accounting software.
GROWTH STRATEGY
Internal Growth. Within its existing markets, the Company enhances revenue
and cash flow growth by employing highly targeted local marketing efforts to
improve display occupancy rates and by selectively increasing advertising rates.
This strategy is facilitated through its local sales and service offices which
allow management to respond quickly to the demands of its local customer base.
In addition, the Company routinely invests in upgrading its existing structures
and constructing new display faces in order to provide quality service to its
current customers and to attract new advertisers.
Acquisitions. Aggressive internal growth is enhanced by focused
acquisitions in small to medium-sized markets, resulting in increased operating
efficiencies, greater geographic diversification and increased market
penetration. The Company has demonstrated its ability to grow successfully
through acquisitions, having completed over 80 acquisitions since 1983. In
addition to acquiring leading positions in new markets, the Company purchases
smaller outdoor advertising properties within existing or contiguous markets.
Acquisitions offer opportunities for inter-market cross-selling and the
opportunity to centralize and combine accounting and administrative functions,
thereby achieving economies of scale. As part of its acquisition strategy,
management maintains close ties with industry associations and other advertising
company executives, and the Company also prepares surveys of billboards owned by
competitors within states in which the Company operates.
The table below sets forth certain information regarding acquisitions made
by the Company subsequent to the fiscal year ended October 31, 1993:
<TABLE>
<CAPTION>
YEAR MARKET BULLETINS POSTERS
- ---- ----------------------- --------- -------
<S> <C> <C> <C>
1994 Panama City, FL(1)..... 214 317
1994 Daytona Beach, FL(1)... 56 353
1994 Shreveport, LA(1)...... 271 760
1994 Savannah, GA(1)........ 350 621
1994 Beaumont, TX(1)........ 200 295
1994 Fort Myers, FL(1)...... 123 221
1994 Clarksville, TN(1)..... 112 327
1994 Lakeland, FL(1)........ 209 356
1994 Augusta, GA............ 8 69
<CAPTION>
YEAR MARKET BULLETINS POSTERS
- ---- ----------------------- --------- -------
<S> <C> <C> <C>
1994 Pensacola, FL.......... 49 218
1994 Montgomery, AL......... 76 33
1994 Branmont, TX........... 40 0
1995 Richmond, VA........... 184 0
1995 Nashville, TN.......... 0 254
1995 Nashville, TN.......... 317 0
1995 Roanoke, VA............ 129 0
1995 Augusta, GA............ 98 0
1996 Lakeland, FL........... 249 0
</TABLE>
- ---------------
(1) Acquired on May 1, 1994 from LHC, which prior to such date was a 49% owned
and managed subsidiary of the Company.
The Company believes that there will be future opportunities for
implementing the Company's acquisition strategy given the industry's
fragmentation and current consolidation trends. Additionally, the
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<PAGE> 32
small to medium-sized markets which fit the Company's growth strategy offer a
large number of potential acquisition opportunities.
Logo Signs
The Company entered the business of logo sign advertising in 1988. The
Company is now the largest provider of logo sign services in the United States,
having been awarded 13 of the 21 privatized state logo sign franchises awarded
to date. In addition, the Company has recently acquired the logo sign franchises
in Tennessee and Kansas. The Company's strategy is to be the leading logo sign
provider in the country.
Adopting many of the decentralized operational strategies of the outdoor
advertising division, the Company's logo sign division maintains contacts and
local sales offices in each of the states in which it operates. Relationships
with customers are developed and maintained at the state level; accounting, MIS
and certain administrative functions are centralized at the Company's
headquarters.
In competing for state-awarded logo sign franchises, the Company seeks to
form strategic alliances with premier signing contractors in order to present to
state highway departments the combined benefits of entities with substantial
local presence and national resources. As the industry leader, the Company has
gained significant operating experience and compiled a database of information
it believes is unequalled in this industry. The Company shares its knowledge and
database information with state highway departments initiating new logo sign
programs, and believes this interaction provides significant advantages when
seeking new logo sign franchises.
After securing a franchise, the Company generally contracts with an
independent construction firm for the erection and maintenance of the logo sign
structures in order to avoid the expense of staffing and maintaining a
construction presence. The Company then processes orders for logo sign services
through its corporate staff and a small sales force in the state.
The Company maximizes participation and customer satisfaction through the
use of market surveys, coupled with a customer focused sales program to
potential logo sign advertisers. Employing these methods, in Mississippi, for
example, the revenue from logo sign advertising displays increased from $263,100
for the twelve months prior to the Company receiving the state's logo sign
franchise to $621,000 for the twelve months following the Company being awarded
such franchise. This revenue increase was the result of a 57% increase in the
number of logo advertising displays and an increase in advertising rates during
the twelve months following receipt of the franchise.
The Company believes its market-leading position in the logo sign industry
will continue to increase as additional states recognize the track record and
core competency of the Company in building and servicing logo sign programs. The
Company anticipates bidding on logo sign franchises in two additional states
during 1996. The Company plans to pursue additional logo sign franchises,
through both new franchise awards and, possibly, the acquisition of other logo
sign franchise operators. Logo sign opportunities arise periodically, both from
states initiating new logo sign programs and states converting from government
owned and operated programs to privately owned and operated programs.
Additionally, the Company plans to pursue logo sign programs in Canada and is
seeking to expand into other state-authorized signage programs, such as those
involving directional signs providing tourist information.
Transit and Other
The Company has recently expanded into the transit advertising business
through the operation of displays on bus shelters, benches and buses in seven of
its 33 primary markets. The Company plans to continue pursuing transit
advertising opportunities that arise in its primary markets and to expand into
other markets.
With the growth in wireless communication, particularly the buildout of
personal communications services systems following the recent FCC allocation of
radio spectrum, the Company is exploring ways to realize additional revenue by
contracting with communications providers for use of the Company's billboard
32
<PAGE> 33
structures to attach transmission and reception devices. The Company has
agreements with two of the largest potential wireless communication service
providers regarding possible future use of its billboards.
COMPANY OPERATIONS
Outdoor Advertising
Sales and Service
The Company conducts its outdoor advertising operations through its 33
local offices. Local offices operate in defined geographic areas and function
essentially as independent business units, consistent with senior management's
philosophy that a decentralized organization is more responsive to particular
local market demands and provides greater incentives to employees. The Company's
management policy is one of centralized accounting and financial control coupled
with decentralized sales and production. Local managers in each of the Company's
primary markets are responsible for the day-to-day operations of their outdoor
office and are compensated according to the Company's financial performance in
that market. Each local manager reports to one of four regional managers who in
turn report to the Company's Chief Executive Officer.
The following is a list of the Company's regional managers and their
experience with the Company and in the outdoor advertising industry as of April
30, 1996:
<TABLE>
<CAPTION>
YEARS YEARS
WITH IN
NAME REGION COMPANY INDUSTRY
- -------------------- ------------------- ------- --------
<S> <C> <C> <C>
Gerald H. Marchand Baton Rouge Region 37 37
Robert E. Campbell Central Region 24 24
Phillip C. Durant Knoxville Region 19 21
Thomas F. Sirmon Mobile Region 16 16
</TABLE>
The Company's regional managers have been with the Company, on average, for
24 years. The Company's local managers have been with the Company, on average,
for 11 years and have worked in the industry, on average, for 14 years.
Inventory
The Company operates the following types of outdoor advertising displays:
Bulletins generally are 14 feet high and 48 feet wide (672 square
feet) and consist of panels on which advertising copy is displayed. The
advertising copy is either handprinted onto the panels at the Company's
facilities in accordance with design specifications supplied by the
advertiser and attached to the outdoor advertising structure, or printed
with computer-generated graphics on a single sheet of vinyl that is
"wrapped" around the structure. On occasion, to attract more attention,
some of the panels may extend beyond the linear edges of the display face
and may include three-dimensional embellishments. Because of their greater
impact and higher cost, bulletins are usually located on major highways.
Standardized posters generally are 12 feet high by 25 feet wide (300
square feet) and are the most common type of billboard. Advertising copy
for these posters consists of lithographed or silk-screened paper sheets
supplied by the advertiser that are pasted and applied like wallpaper to
the face of the display, or single sheets of vinyl with computer-generated
advertising copy that are wrapped around the structure. Standardized
posters are concentrated on major traffic arteries.
Junior posters usually are 6 feet high by 12 feet wide (72 square
feet). Displays are prepared and mounted in the same manner as standardized
posters, except that vinyl sheets are not typically used on junior posters.
Most junior posters, because of their smaller size, are concentrated on
city streets and target pedestrian traffic.
For the Company's fiscal year ended October 31, 1995, approximately 55% of
the Company's outdoor advertising net revenues were derived from bulletin sales
and 45% from poster sales. Over the same period,
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<PAGE> 34
bulletin and poster occupancy averaged approximately 82% and 77%, respectively.
The Company regularly donates unoccupied display space for use by charitable and
civic organizations.
The physical structures are typically owned by the Company and are built on
locations the Company either owns or leases. In each local office one employee
typically performs site leasing activities for the markets served by that
office. See "--Facilities."
Bulletin space is generally sold as individually selected displays which
remain in one location, usually an interstate highway or other main road, for
the duration of the advertising contract. Bulletins may also be sold as part of
a rotary plan where advertising copy is periodically rotated from one location
to another within a particular market. Poster space is generally sold in
packages called "showings," which comprise a given number of displays in a
market area. Posters provide advertisers with access either to a specified
percentage of the general population or to a specific targeted audience.
Displays making up a showing are placed in well-traveled areas and are
distributed so as to reach a wide audience in a particular market.
Production
The Company's production staff in each of its 33 primary markets performs
the full range of activities required to create and install outdoor advertising
in all of its markets. Production work includes creating the advertising copy
design and layout, painting the design or coordinating its printing and
installing the designs on displays. The Company provides its production services
to local advertisers and to advertisers that are not represented by advertising
agencies, since national advertisers represented by advertising agencies often
use preprinted designs that require only installation. The Company's creative
and production personnel typically develop new designs or adopt copy from other
media for use on billboards. The Company's artists also often assist in the
development of marketing presentations, demonstrations and strategies to attract
new advertisers.
With the increased use of vinyl and pre-printed advertising copy furnished
to the outdoor advertising company by the advertiser or its agency, outdoor
advertising companies require less labor-intensive production work. In addition,
increased use of vinyl and preprinted copy is also attracting more customers to
the outdoor advertising medium. The Company believes that this trend over time
will reduce operating expenses associated with production activities.
Categories of Business
The following table sets forth the top ten categories of business from
which the Company derived its outdoor advertising revenues for fiscal 1995 and
the respective percentages of such revenue. These business categories accounted
for approximately 73.6% of the Company's total outdoor advertising net revenues
in the fiscal year ended October 31, 1995. No one advertiser accounted for more
than 3.0% of the Company's total outdoor advertising net revenues in that
period.
<TABLE>
<CAPTION>
PERCENTAGE OF FISCAL 1995
CATEGORY NET ADVERTISING REVENUES
------------------------------------------------ -------------------------
<S> <C>
Restaurants..................................... 14.9%
Retail establishments........................... 11.4
Tobacco products................................ 9.2
Hotels and motels............................... 7.3
Entertainment and sports........................ 5.9
Automotive...................................... 5.9
Hospitals and medical care...................... 5.1
Services........................................ 4.8
Media........................................... 4.6
Financial institutions.......................... 4.5
----
Total................................. 73.6%
</TABLE>
Beginning in 1992, the leading tobacco companies substantially reduced
their domestic advertising expenditures in response to societal and governmental
pressure and other factors. Because tobacco advertisers
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<PAGE> 35
tend to occupy displays in highly desirable locations, the Company historically
has been able to attract substitute advertising for space which has become
unoccupied as a result of reduced tobacco product advertisements, and management
believes that the Company will continue to be able to attract such substitute
advertising should tobacco advertisers further reduce their spending in the
future.
Logo Signs
The Company is the largest provider of logo sign services in the United
States and operates over 13,500 logo sign structures containing over 34,000 logo
advertising displays. The Company has been awarded exclusive franchises to erect
and operate logo signs in the states of Georgia, Michigan, Mississippi,
Nebraska, New Jersey, Ohio, Oklahoma, South Carolina, Texas, Utah, Virginia,
through a 66.7% owned partnership in the state of Missouri and through a 95.0%
owned partnership in the state of Minnesota. In addition, the Company has
recently acquired the logo sign franchises in Tennessee and Kansas.
State logo sign franchises represent the exclusive contract right to erect
and operate logo signs within a state. The term of the contracts vary, but
generally range from ten to twenty years, including renewal terms. The logo sign
contracts generally provide for termination by the state, in most cases with
compensation to be paid to the Company. Typically, at the end of the term of the
franchise, ownership of the structures is transferred to the state without
compensation to the Company. None of the Company's logo sign franchises
terminates in the next two years and only two are subject to renewal during that
period. In one of those cases, the state authority has verbally agreed to the
renewal of the term for five years. The Company expects to be able to compete
effectively for retention of franchises when their terms expire.
The Company also designs and produces logo sign plates for customers
throughout the country, including for use in states which have not yet
privatized their logo sign programs.
EMPLOYEES
The Company employed approximately 825 persons at April 30, 1996. Of these,
37 were engaged in overall management and general administration at the
Company's management headquarters and the remainder were employed in the
Company's operating offices. Of these, approximately 120 were direct sales and
marketing personnel.
The Company has three local offices covered by collective bargaining
agreements, consisting of painters, billposters and construction personnel. A
union is organized in one other local office, but this union is currently
operating without a collective bargaining agreement. The Company believes that
its relations with its employees, including its 37 unionized employees, are
good, and the Company has never experienced a strike or other labor dispute.
The Company believes its employee retention record evidences its good
employee relations. The average tenure for the Company's employees is six years.
The Company offers most employees a range of benefits including a profit
sharing/401(k) plan and life, health and dental insurance.
FACILITIES
The Company's 53,500 square foot management headquarters is located in
suburban Baton Rouge, Louisiana. The Company occupies approximately 30% of the
space in this facility and leases the remaining space. The Company owns 26 local
operating facilities with front office administration and sales office space
connected to back-shop poster and bulletin production space, and leases an
additional 24 operating facilities at an aggregate lease expense in 1995 of
approximately $775,000.
The Company owns approximately 450 parcels of property beneath outdoor
structures. As of October 31, 1995, the Company had approximately 12,000 active
outdoor site leases accounting for a total annual lease expense of $14.2
million. This amount represented 15.4% of total net outdoor advertising revenues
for that period, which is consistent with the Company's historical lease expense
experience. The Company's leases are for varying terms ranging from
month-to-month to in some cases a term of over ten years, and many provide the
Company with renewal options. There is no significant concentration of displays
under any one lease or
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<PAGE> 36
subject to negotiation with any one landlord. The Company believes that an
important part of its management activity is to manage its lease portfolio and
negotiate suitable lease renewals and extensions.
COMPETITION
Outdoor Advertising
The Company competes in each of its markets with other outdoor advertisers
as well as other media, including broadcast and cable television, radio, print
media and direct mail marketers. In addition, the Company also competes with a
wide variety of out-of-home media, including advertising in shopping centers,
malls, airports, stadiums, movie theaters and supermarkets, as well as on taxis,
trains and buses. Advertisers compare relative costs of available media and
cost-per-thousand impressions, particularly when delivering a message to
customers with distinct demographic characteristics. In competing with other
media, outdoor advertising relies on its relative cost efficiency and its
ability to reach a broad segment of the population in a specific market or to
target a particular geographic area or population with a particular set of
demographic characteristics within that market.
The outdoor advertising industry is highly fragmented, consisting of
several large outdoor advertising and media companies with operations in
multiple markets as well as smaller and local companies operating a limited
number of structures in single or a few local markets. Although some
consolidation has occurred over the past few years, according to the OAAA there
are approximately 1,000 companies in the outdoor advertising industry operating
approximately 396,000 billboard displays. In several of its markets, the Company
encounters direct competition from other major outdoor media companies,
including Gannett Outdoor (the sale of which by Gannett Co. Inc. to Outdoor
Systems, Inc. has been announced), Eller Media, Inc. (formerly Patrick Media
Group) and 3M National Advertising Co. (a division of Minnesota Mining and
Manufacturing Company), each of which has a larger national network and greater
total resources than the Company. The Company believes that its strong emphasis
on sales and customer service and its position as a major provider of
advertising services in each of its primary markets enables it to compete
effectively with the other outdoor advertising companies, as well as other
media, within those markets. See "Risk Factors -- Competition."
Logo Signs
The Company faces competition in obtaining new logo sign franchises and in
bidding for renewals of expiring franchises. The Company faces competition from
four other national providers of logo signs in seeking logo franchises. In
addition, local companies within each of the states which solicit bids will
compete against the Company in the open-bid process. Competition from these
sources is also encountered at the end of each contract period. The Company
believes its operations model, which includes local sales offices, comprehensive
databases of information and strategic alliances and its knowledge of the
industry, should provide a competitive advantage in pursuing future franchises.
In marketing logo signs to advertisers, the Company competes with other
forms of out-of-home advertising. The Company believes, however, that logo sign
advertising offers a effective, low-cost directional advertising service, which
makes it attractive to potential advertisers.
REGULATION
Outdoor advertising is subject to governmental regulation at the federal,
state and local levels. Federal law, principally the Highway Beautification Act
of 1965 (the "HBA") regulates outdoor advertising on federally aided primary and
interstate highways. The HBA requires, as a condition to federal highway
assistance, states to restrict billboards on such highways to commercial and
industrial areas, and requires certain additional size, spacing and other
limitations. All states have passed state billboard control statutes and
regulations at least as restrictive as the federal requirements, including
removal at the owner's expense and without compensation of any illegal signs on
such highways. The Company believes that the number of its billboards that may
be subject to removal as illegal is immaterial. No state in which the Company
operates has banned billboards, but some have adopted standards more restrictive
than the federal requirements. Municipal
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<PAGE> 37
and county governments generally also have sign controls as part of their zoning
laws. Some local governments prohibit construction of new billboards and some
allow new construction only to replace existing structures, although most allow
construction of billboards subject to restrictions on zones, size, spacing and
height.
Federal law does not require removal of existing lawful billboards, but
does require payment of compensation if a state or political subdivision compels
the removal of a lawful billboard along a federally aided primary or interstate
highway. State governments have purchased and removed legal billboards for
beautification in the past, using federal funding for transportation enhancement
programs, and may do so in the future. Governmental authorities from time to
time use the power of eminent domain to remove billboards. Thus far, the Company
has been able to obtain satisfactory compensation for any of its billboards
purchased or removed as a result of governmental action, although there is no
assurance that this will continue to be the case in the future. Local
governments do not generally purchase billboards for beautification, but some
have attempted to force removal of legal but nonconforming billboards
(billboards which conformed with applicable zoning regulations when built but
which do not conform to current zoning regulations) after a period of years
under a concept called "amortization," by which the governmental body asserts
that just compensation is earned by continued operation over time. Although
there is some question as to the legality of amortization under federal and many
state laws, amortization has been upheld in some instances. The Company
generally has been successful in negotiating settlements with applicable
localities for billboards required to be removed. Restrictive regulations also
limit the Company's ability to rebuild or replace nonconforming billboards.
In recent years, bills have been introduced in Congress that would affect
billboard advertising of tobacco or alcohol products. No bills have become law
except those requiring the familiar health hazard warnings appearing on
cigarette packages and advertisements. It is uncertain whether such regulation
will be enacted in the future, what such regulation might provide or what impact
such regulation might have on the Company's business. Federal law generally
prevents state or local restrictions on the content of billboard advertisements.
The FDA has proposed new rules which, among other things, regulate
advertising of certain tobacco products, including prohibiting the placement of
tobacco products advertising within 1,000 feet of playgrounds and primary and
secondary schools and limiting tobacco products advertising to a format
consisting of black text on a white background. The Liggett Group, Inc.
("Liggett"), in recent settlements of two tobacco liability actions, agreed to
comply with certain of the proposed FDA advertising regulations. Liggett
controls approximately 2% of the U.S. market for tobacco products and the
remainder of the tobacco industry has yet to comply voluntarily with the
proposed FDA regulations. If the larger tobacco companies were to elect to
comply voluntarily with the proposed FDA regulations, the Company's outdoor
advertising revenues could be adversely affected. In response to the proposed
FDA regulations, Philip Morris Companies Inc. recently proposed to Congress an
alternative version of regulations which would also restrict certain tobacco
advertising as part of a general legislative plan. The Company cannot predict
whether or in what form the proposed FDA regulations will be adopted, or whether
they will be modified or nullified by legislative or judicial action, or whether
legislation restricting tobacco advertising will be enacted.
To date, regulations in the Company's markets have not materially adversely
affected its operations. However, the outdoor advertising industry is heavily
regulated and at various times and in various markets can be expected to be
subject to varying degrees of regulatory pressure affecting the operation of
advertising displays. Accordingly, although the Company's experience to date is
that the regulatory environment can be managed, no assurance can be given that
existing or future laws or regulations will not materially and adversely affect
the Company.
LITIGATION
The Company from time to time is involved in litigation in the ordinary
course of business, including disputes involving advertising contracts, site
leases, employment claims and construction matters. The Company is also involved
in routine administrative and judicial proceedings regarding billboard permits,
fees and compensation for condemnations. The Company is not a party to any
lawsuit or proceeding which, in the opinion of management, is likely to have a
material adverse effect on the Company.
37
<PAGE> 38
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company as of July 10, 1996
were as follows:
<TABLE>
<CAPTION>
YEARS WITH
NAME AGE TITLE THE COMPANY
- ------------------------------ --- ------------------------------------------- -----------
<S> <C> <C> <C>
Kevin P. Reilly, Jr........... 41 Chairman, President, Chief Executive 18
Officer and Director
Keith A. Istre................ 43 Chief Financial Officer, Treasurer and 17
Director
Charles W. Lamar, III......... 48 General Counsel, Secretary and Director 14
Gerald H. Marchand............ 65 Vice President, Regional Manager of Baton 37
Rouge Region, and Director
T. Everett Stewart, Jr........ 42 President of Interstate Logos, Inc., a 16
subsidiary of the Company, and Director
Robert E. Campbell............ 47 Vice President, Regional Manager of Central 24
Region
Phillip C. Durant............. 49 Vice President, Regional Manager of 19
Knoxville Region
Thomas F. Sirmon.............. 40 Vice President, Regional Manager of Mobile 16
Region
Robert B. Switzer............. 43 Vice President of Operations 20
Dudley W. Coates*............. 65 Director --
Jack S. Rome, Jr.*............ 48 Director --
William R. Schmidt*........... 44 Director --
</TABLE>
- ---------------
* Outside directors
Kevin P. Reilly, Jr. has served as the Company's President and Chief
Executive Officer since February 1989 and as a director of the Company since
February 1984. Mr. Reilly served as President of the Company's Outdoor Division
from 1984 to 1989. Mr. Reilly, an employee of the Company since 1978, has also
served as Assistant and General Manager of the Company's Baton Rouge Region and
Vice President and General Manager of the Louisiana Region. Mr. Reilly received
a B.A. from Harvard University in 1977.
Keith A. Istre has been Chief Financial Officer of the Company since
February 1989 and a director of the Company since February 1991. Mr. Istre
joined the Company as Controller in 1978 and became Treasurer in 1985. Prior to
joining the Company, Mr. Istre was employed by a public accounting firm in Baton
Rouge from 1975 to 1978. Mr. Istre graduated from the University of Southwestern
Louisiana in 1974 with a degree in accounting.
Charles W. Lamar, III joined the Company in 1982 as General Counsel and has
been a director of the Company since June 1973. Prior to joining the Company,
Mr. Lamar maintained his own law practice and was employed by a law firm in
Baton Rouge. Mr. Lamar received a B.A. in Philosophy from Harvard University in
1971, a M.A. in Economics from Tufts University in 1972 and a J.D. from Boston
University in 1975.
Gerald H. Marchand has been Regional Manager of the Baton Rouge Region,
which encompasses operations in Florida, Louisiana, Mississippi and Texas, since
1988 and a director of the Company since 1978. He began his career with the
Company in leasing and went on to become President of the Outdoor Division. He
has served as General Manager of the Lake Charles and Mobile operations. Mr.
Marchand received a Masters in Education from Louisiana State University in
1955.
T. Everett Stewart, Jr. has been President of Interstate Logos, Inc. since
1988, and has recently been named a director. He served as Regional Manager of
the Company's Baton Rouge Region from 1984 to 1988. Previously, he served the
Company as Sales Manager in Montgomery and General Manager of the Monroe and
Alexandria operations. Before joining the Company in 1979, Mr. Stewart was
employed by the Lieutenant
38
<PAGE> 39
Governor of the State of Alabama and by a United States Senator from the State
of Alabama. Mr. Stewart received a B.S. in Finance from Auburn University in
1976.
Robert E. Campbell has been Regional Manager of the Central Region, which
encompasses operations in Alabama, Colorado, Kentucky, Ohio, Texas and Virginia,
since 1983. Mr. Campbell served from 1972 to 1983 as Sales Manager of the
Company's Mobile operation and as General Manager of the Company's Midland and
Mobile operations. Mr. Campbell received a B.A. in Political Science and History
from the University of South Alabama in 1971.
Phillip C. Durant joined the Company in 1974 in Pensacola, Florida and is
currently the Regional Manager of the Knoxville Region, which encompasses
operations in Tennessee and West Virginia. Previously he served as Sales Manager
in Pensacola and General Manager of Monroe, Alexandria, Lake Charles and
Lafayette, Louisiana and Nashville.
Thomas F. Sirmon has served the Company as Regional Manager of the Mobile
Region, which encompasses operations in Alabama, Florida and Georgia, since
1990. He began his career with the Company as an Account Executive in the Mobile
operation in 1979. In 1981, he was appointed General Manager in Augusta; in
1984, General Manager in Nashville; and in 1988, General Manager in Mobile. Mr.
Sirmon received a degree in Marketing from the University of South Alabama in
1978.
Robert B. Switzer has been Vice President of Operations of the Company
since 1984. In 1976, he joined the Company as Posting Superintendent in Mobile
and became Operations Manager in Pensacola. Since 1991, he has also served as
General Manager of the Pensacola operation and, since 1993, as General Manager
of the Fort Walton operation. Mr. Switzer received a B.S. in Zoology from the
University of South Florida in 1975.
Dudley W. Coates has been a director of the Company since 1973. Mr. Coates
received a Liberal Arts degree from Yale University in 1953, and, since that
time, has been an investment broker with the firm of Legg Mason, Inc.
Jack S. Rome, Jr. has been a director of the Company since 1974. Since
1988, Mr. Rome has been President of No Fault Industries, Inc., a construction
company specializing in outdoor recreational facilities. Mr. Rome has also
served as President of Jack Rome, Jr. & Associates, Inc., a management
consulting company, since October 1987. Mr. Rome served the Company in various
capacities from 1975 to 1986. Mr. Rome received his B.S. in accounting from
Southeastern Louisiana University in 1971.
William R. Schmidt became a director of the Company in 1994. He is an
Assistant Vice President for Pacific Mutual Life Insurance Company in its
Securities Department, where he has been employed since 1990. He has a B.S. in
Finance from Pennsylvania State University and an MBA from the Amos Tuck School
of Business at Dartmouth College.
Kevin P. Reilly, Jr., Charles W. Lamar, III and Robert B. Switzer are
cousins.
BOARD COMMITTEES
The Board of Directors has a Compensation Committee, which makes
recommendations concerning salaries for employees and consultants to the
Company, and an Audit Committee, which reviews the results of the Company's
audit and other services provided by the Company's independent auditors. The
Compensation Committee and the Audit Committee currently consist of Dudley
Coates, Jack S. Rome, Jr. and William R. Schmidt. During fiscal year 1995, the
Compensation Committee consisted of Jack S. Rome, Jr., Mary Lee Lamar Dixon and
Carolyn Sample Abshire, who were directors. Mr. Rome was employed by the Company
from 1975 to 1985.
The Executive Committee, which has authority to operate the affairs of the
Company between Board meetings, currently consists of Kevin P. Reilly, Jr.,
Gerald H. Marchand, Keith A. Istre and Charles W. Lamar, III.
39
<PAGE> 40
BOARD COMPENSATION
All directors of the Company hold office until the next annual meeting of
stockholders of the Company or until their successors are duly elected and
qualified. Directors who are not employed by the Company receive a fee of $500
for each Board meeting attended and are reimbursed for travel expenses incurred
to attend Board meetings. Executive officers of the Company are elected by the
Board of Directors on an annual basis and serve at the discretion of the Board
of Directors.
EXECUTIVE COMPENSATION
The following table sets forth certain compensation information for the
Chief Executive Officer and each of the four most highly compensated executive
officers of the Company for the fiscal year ended October 31, 1995.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------------------
ALL OTHER
COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(1)
- --------------------------------------------------- ---- --------- -------- ------------
<S> <C> <C> <C> <C>
Kevin P. Reilly, Jr. 1995 120,000 200,000 5,500
Chairman, President and Chief Executive Officer 1994 120,000 150,000 5,000
1993 120,000 100,000 --
Gerald H. Marchand 1995 106,000 156,543 50,000
Vice President, Regional Manager of Baton Rouge 1994 106,000 197,443 50,000
Region 1993 106,000 75,000 --
Robert E. Campbell 1995 90,000 96,984 7,500
Vice President, Regional Manager of Central 1994 90,000 73,208 7,500
Region 1993 84,000 61,000 --
T. Everett Stewart, Jr. 1995 80,000 116,500 4,500
President of Interstate Logos, Inc. 1994 80,000 65,000 4,000
1993 80,000 50,000 --
Hollis T. Wood(2) 1995 90,000 93,862 6,500
Former Vice President, Regional Manager of 1994 90,000 89,638 6,000
Knoxville Region 1993 90,000 40,000 --
</TABLE>
- ---------------
(1) The reported amounts consist of employer contributions under the Company's
deferred compensation plan.
(2) Mr. Wood is no longer employed by the Company.
EMPLOYMENT AGREEMENTS
The Company does not have employment contracts with any of its officers or
employees.
The Company had a consulting agreement with Kevin P. Reilly, Sr., its
former Chairman, which expired on January 15, 1996. Under that agreement, Mr.
Reilly, Sr. received $120,000 in annual consulting fees and was eligible for a
$100,000 annual bonus, which was paid for the fiscal year ended October 31,
1995. The Company continued to pay Mr. Reilly, Sr. his consulting fee on a
month-to-month basis until July 1, 1996. Effective July 1, 1996, the Lamar Texas
Limited Partnership, a subsidiary of the Company, and Reilly Consulting Company,
L.L.C., of which Mr. Reilly, Sr. is the manager and, with his wife, the sole
members, entered into a replacement consulting agreement. This new consulting
agreement has a ten year term and provides for a $120,000 annual consulting fee.
The agreement contains a non-disclosure provision and a noncompetition
restriction which extends for two years beyond the termination of the agreement.
STOCK OPTION PLANS
The Company's 1996 Equity Incentive Plan (the "1996 Plan") was adopted by
the Board of Directors in July 1996. The purpose of the 1996 Plan is to attract
and retain key employees and consultants of the
40
<PAGE> 41
Company, to provide an incentive for them to achieve long-range performance
goals, and to enable them to participate in the long-term growth of the Company.
The 1996 Plan authorizes the grant of stock options (incentive and
nonstatutory), stock appreciation rights ("SARs") and restricted stock to
employees and consultants of the Company capable of contributing to the
Company's performance. The Company has reserved an aggregate of 2.0 million
shares (subject to adjustment for stock splits and similar capital changes) of
Class A Common Stock for awards under the 1996 Plan. Stock options and SARs may
not be granted at less than fair market value of the Class A Common Stock and
not more than 200,000 shares may be granted in any calendar year to any
participant. Incentive stock options may be granted only to persons eligible to
receive them under the Internal Revenue Code of 1996, as amended. The Company
expects that options to purchase approximately 1.2 million shares of Class A
Common Stock will be granted concurrently with the Offering.
The Board of Directors has appointed the Compensation Committee (the
"Committee") to administer the 1996 Plan. Awards under the 1996 Plan contain
such terms and conditions not inconsistent with the 1996 Plan as the Committee
in its discretion approves. The Committee has discretion to administer the 1996
Plan in the manner which it determines, from time to time, is in the best
interest of the Company. For example, the Committee will fix the terms of stock
options, SARs and restricted stock grants and determine whether, in the case of
options and SARs, they may be exercised immediately or at a later date or dates.
Awards may be granted subject to conditions relating to continued employment and
restrictions on transfer. The Committee may provide, at the time an award is
made or at any time thereafter, for the acceleration of a participant's rights
or cash settlement upon a change in control of the Company. The terms and
conditions of awards need not be the same for each participant. The foregoing
examples illustrate, but do not limit, the manner in which the Committee may
exercise its authority in administering the 1996 Plan. In addition, all
questions of interpretation of the 1996 Plan are determined by the Committee.
CERTAIN TRANSACTIONS
The Company has from time to time made various personal loans to the
persons listed below. The loans bear interest at a rate equal to 100 basis
points above the rate applicable to United States Treasury six-month bills.
<TABLE>
<CAPTION>
LARGEST OUTSTANDING
BALANCE SINCE
BEGINNING OF LAST BALANCE OUTSTANDING AS
NAME FISCAL YEAR OF MAY 31, 1996
- --------------------------------------------------------- ------------------- ----------------------
<S> <C> <C>
Wendell S. Reilly(1)..................................... $ 500,000 $500,000
Jack S. Rome (2)......................................... 147,230 147,230
Kevin P. Reilly, Jr.(1)(2)(3)............................ 135,000 100,000
Sean E. Reilly(1)........................................ 73,945 58,532
Anna Reilly Cullinan(1).................................. 80,000 53,500
Robert B. Switzer(3)..................................... 80,582 50,592
T. Everett Stewart(2)(3)................................. 75,000 37,500
Kevin P. Reilly, Sr.(1)(4)............................... 154,586 29,105
Gerald H. Marchand(3).................................... 175,000 0
</TABLE>
- ---------------
(1) Member of the Reilly family.
(2) The named individual is a director of the Company.
(3) The named individual is an executive officer of the Company.
(4) Kevin P. Reilly, Sr. was President and Chairman of the Board of the Company
until January 1992.
In October 1995 and in March 1996, the Company repurchased 3.6% and 12.9%,
respectively, of its then outstanding common stock (1,220,500 and 3,617,884
shares, respectively, after giving effect to the stock split described under
"The Company") from certain of its existing stockholders for an aggregate
purchase price of approximately $4.0 million. The terms of the March 1996
repurchase entitled the selling stockholders to receive additional consideration
from the Company in the event that the Company consummated a public
41
<PAGE> 42
offering of its common stock at a higher price within 24 months of the
repurchase. In satisfaction of that obligation, upon completion of this
Offering, the Company will pay the selling stockholders an aggregate of $5.0
million in cash from the proceeds of this Offering and issue to them $20.0
million aggregate principal amount of ten-year subordinated notes. See
"Description of Indebtedness -- Subordinated Notes." Of the total $25.0 million
additional amount payable on account of the common stock repurchased, $6.3
million will be payable to the Company's executive officers, directors,
beneficial owners of 5% or more of the Common Stock and their affiliates.
On December 31, 1995, the Company issued 5,719.49 shares of its Class A
Preferred Stock with an aggregate liquidation preference of $3.6 million to
certain of its stockholders in exchange for an equal number of shares of its
then outstanding common stock. See "Description of Capital Stock -- Class A
Preferred Stock." Of the Class A Preferred Stock so issued, 3,134.80 shares were
issued to the Reilly Family Limited Partnership, 1,500 shares to Charles W.
Lamar, III and 1,084.69 shares to Mary Lee Lamar Dixon and trusts for her
children. See "Description of Capital Stock -- Class A Preferred Stock."
In 1993, the Company acquired LHC shares from certain members of the Reilly
family, Charles W. Lamar, III, Mary Lee Lamar Dixon and Robert B. Switzer in
exchange for 8.0% of the then outstanding shares of common stock of the Company.
In 1994, in connection with the Company's acquisition of the interest in LHC
which it did not already own, certain officers and directors of the Company who
were stockholders of LHC received approximately $226,000 from the proceeds of
the transaction.
In May 1993, the Company purchased the outstanding stock of Lamar
Advertising of Wichita Falls, Inc., which was substantially owned by Kevin P.
Reilly, Sr., Kevin P. Reilly, Jr., Charles W. Lamar, III, Gerald H. Marchand and
certain of their relatives. The total consideration for the stock purchase was
approximately $1.2 million, which approximated the book value of the underlying
assets.
In 1993, the Company purchased a building from a joint venture whose
principals included Kevin P. Reilly, Sr., Kevin P. Reilly, Jr., and Charles W.
Lamar, III for $740,000.
The Company has made investments totalling $1.25 million in Wireless One,
Inc., a publicly-held company in the wireless cable business, of which Sean E.
Reilly, a member of the Reilly family and a former director, is Chief Executive
Officer. The current market value of these investments, which are restricted
from sale by the Company until October 1997, exceeds the Company's cost.
42
<PAGE> 43
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the ownership
of the Company's capital stock as of April 30, 1996, as adjusted to reflect the
sale of the shares offered hereby, (i) by each person known by the Company to
own beneficially five percent or more of any class of the Company's capital
stock, (ii) by each director of the Company, (iii) by each executive officer of
the Company, (iv) by all directors and executive officers as a group and (v) by
each Selling Stockholder. The capital stock of the Company is owned
substantially by members of four related families.
<TABLE>
<CAPTION>
AMOUNT OF
BENEFICIAL OWNERSHIP AMOUNT OF BENEFICIAL
PRIOR TO THE OWNERSHIP AFTER THE
OFFERING(1) OFFERING(1)
--------------------- SHARES ---------------------
DIRECTORS, OFFICERS AND 5% NUMBER OF BEING NUMBER OF
STOCKHOLDERS SECURITY(2) SHARES PERCENT OFFERED(2) SHARES PERCENT
- -------------------------------- ---------- ---------- ------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
The Reilly Family Limited
Partnership(3)................ Common 14,301,539 58.42% 297,500 14,004,039 49.17%
c/o The Lamar Companies Preferred 3,134.80 54.81% 0 3,134.80 54.81%
5551 Corporate Blvd.
Baton Rouge, LA 70808
Mary Lee Lamar Dixon(4)......... Common 2,297,688 9.39% 125,000 2,172,688 7.63%
c/o The Lamar Companies Preferred 1,084.69 18.96% 0 1,084.69 18.96%
5551 Corporate Blvd.
Baton Rouge, LA 70808
Charles W. Lamar, III(5)........ Common 4,575,904 19.27% 62,500 4,513,404 15.85%
c/o The Lamar Companies Preferred 1,500.00 26.23% 0 1,500.00 26.23%
5551 Corporate Blvd.
Baton Rouge, LA 70808
Dudley W. Coates(6)............. Common 288,564 1.18% 125,000 163,564 *
Phillip C. Durant............... -- -- -- -- --
Keith A. Istre.................. -- -- -- -- --
Gerald H. Marchand.............. Common 155,775 * 0 155,775 *
Jack S. Rome, Jr................ -- -- -- -- --
William R. Schmidt.............. -- -- -- -- --
Robert B. Switzer(7)............ Common 785,683 3.21% 25,000 760,683 2.67%
Robert E. Campbell.............. -- -- -- -- --
Thomas F. Sirmon................ -- -- -- -- --
T. Everett Stewart, Jr.......... -- -- -- -- --
All Directors and Executive
Officers
as a Group (12 Persons)....... Common 20,107,465 82.13% 510,000 19,597,465 68.81%
Preferred 4,634.80 81.04% 0 4,634.80 81.04%
Albert L. Lamar................. Common 122,284 * 12,500 109,784 *
Allison J. Lamar................ Common 264,818 1.08% 6,250 258,568 *
Kevin P. Reilly, Sr.(8) ........ Common 389,439 1.59% 156,250 233,189 *
Charles Switzer(9).............. Common 688,324 2.81% 25,000 663,324 2.33%
John Switzer.................... Common 737,005 3.01% 25,000 712,005 2.53%
</TABLE>
- ---------------
* Less than 1%
(1) The persons and entities named in the table have sole voting and investment
power with respect to all shares beneficially owned by them, except as noted
below.
(2) Common shares refer to Class A Common Stock, except with respect to shares
of the Reilly Family Limited Partnership, which refer to shares of Class B
Common Stock. Preferred shares refer to Class A Preferred Stock. Upon the
sale of any shares of Class B Common Stock to a person other than to a
Permitted Transferee (as defined herein), such shares will automatically
convert into
43
<PAGE> 44
shares of Class A Common Stock. See "Description of Capital Stock." "Shares
Being Offered" does not include shares that may be sold pursuant to the
Underwriters' over-allotment option. The Selling Stockholders have granted
the Underwriters a 30-day over-allotment option to purchase an additional
416,209 shares of Class A Common Stock, of which 212,650 shares have been
granted by the Reilly Family Limited Partnership, 85,244 shares by Mary Lee
Lamar Dixon, 42,622 shares by Charles W. Lamar, III, and the balance by the
other named Selling Stockholders.
(3) These shares are owned by the Reilly Family Limited Partnership. Kevin P.
Reilly, Jr. is the managing general partner of the Reilly Family Limited
Partnership; Wendell S. Reilly, Sean E. Reilly and Anna R. Cullinan are each
general partners; and Kevin P. Reilly, Sr. holds all of the outstanding
preferred interests in the partnership.
(4) Includes 1,752,474 shares of Class A Common Stock and 700 shares of Class A
Preferred Stock held in a trust, of which LaBanc & Co. is the nominee of the
trustee, for the benefit of Mrs. Dixon.
(5) Includes 1,335,775 shares of Class A Common Stock held in trust for Mr.
Lamar's three children, of which Mr. Lamar is considered the beneficial
owner.
(6) Includes 163,564 shares which are held in trust for Mr. Coates' three
children, as to which Mr. Coates disclaims beneficial ownership. Also
includes 125,000 shares which are held by a charitable remainder trust for
which Mr. Coates is the trustee and Kevin P. Reilly, Sr. is the sole
beneficiary, as to which Mr. Coates disclaims beneficial ownership. All
125,000 of such shares will be sold in the Offering.
(7) Includes 97,360 shares of Class A Common Stock held by Mr. Switzer's wife
(12,500 of which are to be sold in the Offering), as to which he disclaims
beneficial ownership, and 688,323 shares of Class A Common Stock held by Mr.
Switzer as custodian for his three children.
(8) Of the shares being sold in the Offering, 125,000 are held in a charitable
remainder trust of which Mr. Reilly, Sr. is the sole beneficiary.
(9) Includes 171,352 shares of Class A Common Stock held by Mr. Switzer's
children (6,250 of which are to be sold in the Offering).
Kevin P. Reilly, Jr. is the managing general partner of the Reilly Family
Limited Partnership (the "Partnership"), owner of all of the issued and
outstanding Class B Common Stock of the Company. As managing general partner, he
has the ability to vote all the shares of the Company owned by the Partnership
and, with the approval of the partners owning a majority of the general partner
interests and the holders of preferred interests, to dispose of such shares. The
other general partners of the Partnership, Mr. Reilly's three siblings, and Mr.
Reilly presently own equal partnership interests. Two of the other general
partners may remove Mr. Reilly as managing general partner and any three of the
general partners may select one of them to replace him. If no successor is
selected, three of the general partners may act on behalf of the Partnership.
The Partnership continues in effect until December 21, 2020 unless terminated
earlier by unanimous vote of the general partners and the holders of preferred
interests.
DESCRIPTION OF CAPITAL STOCK
After giving effect to the matters described under "The Company," as of the
date of this Prospectus, the Company's authorized capital stock consists of
50,000,000 shares of Class A Common Stock, $0.001 par value per share,
25,000,000 shares of Class B Common Stock, $0.001 par value per share, 10,000
shares of Class A Preferred Stock, $638 par value per share, and 1,000,000
additional shares of 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 Amended and Restated Certificate of Incorporation (the "Certificate of
Incorporation") and By-Laws (the "By-Laws"), each of which is filed as an
exhibit to the registration statement of which this Prospectus is a part.
COMMON STOCK
Following this Offering, 14,446,735 shares of Class A Common Stock will be
issued and outstanding and 14,035,289 shares of Class B Common Stock will be
issued and outstanding. See "Capitalization."
Except for voting rights, the rights of the holders of the Class A Common
Stock and the Class B Common Stock are substantially identical. The holders of
the Class A Common Stock and the holders of the Class B Common Stock vote
together as a single class (except as may otherwise be required by Delaware
law), with the holders of the Class A Common Stock entitled to one vote per
share and the holders of Class B Common Stock entitled to ten votes per share,
on all matters on which the holders of Common Stock are entitled to vote. Each
share of Class B Common Stock is convertible at the option of its holder into
one share of Class A Common Stock at any time. In addition, each share of Class
B Common Stock converts automatically into one share of Class A Common Stock
upon the sale or other transfer of such share of
44
<PAGE> 45
Class B Common Stock to a person who, or entity which, is not a Permitted
Transferee. Permitted Transferees include (i) Kevin P. Reilly, Sr.; (ii) a
descendant of Kevin P. Reilly, Sr.; (iii) a spouse or surviving spouse (even if
remarried) of any individual named or described in (i) or (ii) above; (iv) any
estate, trust, guardianship, custodianship, curatorship or other fiduciary
arrangement for the primary benefit of any one or more of the individuals named
or described in (i), (ii) and (iii) above; and (v) any corporation, partnership,
limited liability company or other business organization controlled by and
substantially all of the interests in which are owned, directly or indirectly,
by any one or more of the individuals and entities named or described in (i),
(ii), (iii) and (iv) above.
All of the outstanding shares of Common Stock are, and all of the shares of
Class A Common Stock sold in this Offering will be, when issued and paid for,
fully paid and nonassessable. In the event of the liquidation or dissolution of
the Company, following any required distribution to the holders of 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 restrictions set forth in
the Company's Senior Note Indenture and Bank Credit Agreements. Subject to the
preferential rights of the holders of any class of preferred stock, holders of
shares of Common Stock are entitled to receive such dividends as may be declared
by the Company's Board of Directors out of funds legally available for such
purpose. No dividend may be declared or paid in cash or property on any share of
either class of Common Stock unless simultaneously the same dividend is declared
or paid on each share of the other class of Common Stock, provided that, in the
event of stock dividends, holders of a specific class of Common Stock shall be
entitled to receive only additional shares of such class. See "Dividend Policy."
Under Delaware law, the affirmative vote of the holders of a majority of
the outstanding shares of any class of common stock is required to approve any
amendment to the Certificate of Incorporation that would increase or decrease
the par value of such class, or modify or change the powers, preferences or
special rights of the shares of any class so as to affect such class adversely.
The Certificate of Incorporation provides that no such separate class vote shall
be available for increases or decreases in the number of authorized shares of
Class A Common Stock.
The Common Stock is redeemable in the manner and on the conditions
permitted under Delaware law and as may be authorized by the Board of Directors.
Holders of Common Stock have no preemptive rights.
CLASS A PREFERRED STOCK
All outstanding shares of the Company's Class A Preferred Stock are fully
paid and nonassessable. For information regarding ownership of the issued and
outstanding shares of Class A Preferred Stock, see "Principal and Selling
Stockholders."
Rank. The Class A Preferred Stock, with respect to dividends and upon
liquidation, ranks senior to Class A and Class B Common Stock.
Dividends. Holders of shares of Class A Preferred Stock are entitled to
receive, when and if declared by the Board of Directors out of funds legally
available therefor, cash dividends at a rate of $15.95 per share per quarter.
Dividends accrue and are cumulative from the date of the issuance of shares. As
of the date of this Prospectus, all accrued dividends have been paid. The
Company intends to continue paying dividends on the Class A Preferred Stock.
Dissolution or Liquidation. In the case of voluntary or involuntary
dissolution or liquidation of the Company, subject to the rights of holders of
any additional Preferred Stock issued in the future, the holders of the Class A
Preferred Stock are entitled to receive out of the assets of the Company the sum
of the par value of the Class A Preferred Stock ($638 per share) and any accrued
and unpaid dividends thereon before any payment may be made or any assets
distributed to the holders of Common Stock. Upon any distribution or
liquidation, whether voluntary or involuntary, if the assets distributed among
the holders of the Class A Preferred Stock are insufficient to permit the
payment to a stockholder of the full preferential amounts, subject to the rights
of holders of any additional Preferred Stock issued in the future, the entire
assets of the
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<PAGE> 46
Company to be distributed will be distributed ratably among the holders of the
Class A Preferred Stock and, after payment of such preferential amounts and any
preferential amounts due holders of additional Preferred Stock, if any, the
holders of Common Stock will be entitled to receive ratably all the remaining
assets. A merger or consolidation of the Company with or into any other
corporation or corporations, will not, however, be deemed to be a dissolution or
liquidation.
Voting Rights. Holders of Class A Preferred Stock have no voting rights
with respect to general corporate matters except as provided by law. Under
Delaware law, holders of the Class A 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.
ADDITIONAL PREFERRED STOCK
Additional Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more classes or series. Subject to the provisions
of the Company's Certificate of Incorporation, including those regarding the
rights of the holders of Class A Preferred Stock, and limitations prescribed by
law, the Board of Directors is expressly authorized to adopt resolutions to
issue the shares, to fix the number of shares and to change the number of shares
constituting any series, and to provide for or change the voting powers,
designations, preferences, and relative participating, optional or other special
rights, qualifications, limitations or restrictions thereof, including dividend
rights, sinking fund provisions, redemption prices conversion rights and
liquidation preferences of the shares constituting any class or series of this
additional Preferred Stock, in each case without any further action or vote by
the stockholders. The Company has no current plans to issue any shares of
additional Preferred Stock of any class or series.
One of the effects of undesignated additional Preferred Stock may be to
enable the Board of Directors to render more difficult or to discourage an
attempt to obtain control of the Company by means of a tender offer, proxy
contest, merger or otherwise, and thereby to protect the continuity of the
Company's management. The issuance of shares of additional Preferred Stock
pursuant to the Board of Directors' authority described above may adversely
affect the rights of the holders of Common Stock. For example, additional
Preferred Stock issued by the Company may rank prior to the Common Stock as to
dividend rights, liquidation preference or both, may have full or limited voting
rights and may be convertible into shares of Common Stock. Accordingly, the
issuance of shares of additional Preferred Stock may discourage bids for the
Common Stock or may otherwise adversely affect the market price of the Class A
Common Stock.
SPECIAL PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BY-LAWS AND DELAWARE LAW
Certain provisions of the Company's Certificate of Incorporation and
By-Laws as well as certain provisions of Delaware law may be deemed to have an
anti-takeover effect or may delay, defer or prevent a tender offer or takeover
attempt that a stockholder might consider in such stockholder's best interest,
including those attempts that might result in a premium over the market price
for the shares held by a stockholder. These provision are in addition to the
anti-takeover effect of the substantial ownership and voting power of the
controlling stockholders of the Company.
Delaware Anti-Takeover Law. Section 203 of the Delaware General
Corporation Law ("Section 203") generally provides that a person who, together
with affiliates and associates owns, or within three years did own, 15% or more
of the outstanding voting stock of a corporation, but less than 85% of such
stock (an "Interested Stockholder"), may not engage in certain business
combinations with the corporation for a period of three years after the date on
which the person became an Interested Stockholder unless (i) prior to such date,
the corporation's board of directors approved either the business combination or
the transaction in which the stockholder became an Interested Stockholder or
(ii) subsequent to such date, the business combination is approved by the
corporation's board of directors and authorized at a stockholders' meeting by a
vote of at least two-thirds of the corporation's outstanding voting stock not
owned by the Interested Stockholder. Section 203 defines the term "business
combination" to encompass a wide variety of transactions with or caused by an
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<PAGE> 47
Interested Stockholder, including mergers, asset sales, and other transactions
in which the Interested Stockholder receives or could receive a benefit on other
than a pro rata basis with other stockholders.
The provisions of Section 203, coupled with the Board's authority to issue
Preferred Stock without further stockholder action and the fact that, after
giving effect to the Offering, 93.1% of the voting power of the Common Stock
will be held by the Reilly Family Limited Partnership, could delay or frustrate
the removal of incumbent directors or a change in control of the Company. The
provisions also could discourage, impede or prevent a merger, tender offer or
proxy contest, even if such event would be favorable to the interests of
stockholders. The Company's stockholders, by adopting an amendment to the
Certificate of Incorporation, may elect not to be governed by Section 203 which
election would be effective twelve months after such adoption. Such a change in
the Company's Certificate of Incorporation could not be made without the
affirmative vote of shares held by the Reilly Family Limited Partnership.
Neither the Certificate of Incorporation nor the By-Laws exclude the Company
from the restrictions imposed by Section 203. These restrictions will not apply
to stockholders who were interested stockholders prior to the date of this
Offering.
Notice Provisions. The By-Laws provide that only business or proposals,
properly brought before an annual meeting of stockholders may be conducted at
such meeting. In order to bring business or a proposal before an annual meeting,
a stockholder is required to provide written notice to the Company at least 45
days prior to the annual meeting which described the business or proposal to be
brought before the annual meeting, the name and address of the stockholder
proposing the business, the class and number of shares of stock held by such
stockholder, and any material interest of the stockholder in the business to be
brought before the meeting. These procedures may operate to limit the ability of
stockholders to bring business before the annual meeting or consider any
transaction that could result in a change of control of the Company. In
addition, the By-Laws provide that in order for a stockholder to nominate a
candidate for election to the Board of Directors, the stockholder must provide
written notice of intent to nominate a candidate at least 45 days prior to the
meeting of stockholders called for the election of directors. Such written
notice is required to contain the name and address of the stockholder, a
representation that the stockholder is a holder of record of the Company's
voting stock and intends to appear in person or by proxy at the meeting to
nominate the persons specified in the notice, such information regarding each
nominee as would have been required to have been included in a proxy statement
filed pursuant to Regulation 14A of the rules and regulations of the Securities
and Exchange Commission (the "Commission") under the Securities Exchange Act of
1934 had proxies been solicited with respect to such nominee by the Board of
Directors, a description of all arrangements or other understandings among the
stockholder and any other person pursuant to which such nominations are to be
made by the stockholder and the written consent of each nominee to serve as a
director of the Company if elected. These requirements will limit the ability of
stockholders to nominate candidates for election to the Board of Directors to
the extent that the notice requirements are not satisfied.
Procedures for Special Meeting of Stockholders. The By-Laws provide for
special meetings of stockholders only upon the direction of the Chairman of the
Board of Directors, the President, or a majority of the Board of Directors.
Exculpation and Indemnification. The Company's Certificate of
Incorporation provides that no director of the Company shall be personally
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law or (iv) for any transaction from which the director derived an improper
personal benefit. The effect of these provisions is to eliminate the rights of
the Company and its stockholders (through stockholders' derivative suits on
behalf of the Company) to recover monetary damages against a director for breach
of fiduciary duty as a director (including breaches resulting from grossly
negligent behavior), except in the situations described above. The Commission
has taken the position that the provision will have no effect on claims arising
under federal securities law.
The Company's By-Laws provide that the Company will indemnify its directors
and officers to the fullest extent permissible under Delaware law. These
indemnification provisions require the Company to indemnify
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<PAGE> 48
such persons against certain liabilities and expenses to which they may become
subject by reason of their service as a director or officer of the Company. The
provisions also set forth certain procedures, including the advancement of
expenses, that apply in the event of a claim for indemnification.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Class A Common Stock is Chase
Mellon Shareholder Services, L.L.C.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no public market for the Common
Stock of the Company. No prediction can be made as to the effect, if any, that
market sales of shares of Common Stock or the availability of shares of Common
Stock for sale will have on the market price prevailing from time to time.
Nevertheless, sales of substantial amounts of Common Stock of the Company in the
public market after the restrictions described below lapse could adversely
affect the prevailing market price of the Common Stock and the ability of the
Company to raise equity capital in the future.
Upon completion of this Offering, the Company will have outstanding
28,482,024 shares of Common Stock. See "Capitalization." Of these shares, the
4,735,000 shares (5,445,250 shares if the Underwriters' over-allotment option is
exercised in full) of Common Stock sold in this Offering will be freely tradable
without restriction under the Securities Act except for any shares purchased by
"affiliates," as that term is defined in the Securities Act, of the Company. The
remaining 23,747,024 shares are "restricted securities" within the meaning of
Rule 144 adopted under the Securities Act (the "Restricted Shares"). The
Restricted Shares generally may not be sold unless they are registered under the
Securities Act or are sold pursuant to an exemption from registration, such as
the exemption provided by Rule 144.
Certain of the Company's security holders and all of its executive officers
and directors have agreed not to offer, sell or otherwise dispose of any shares
of Common Stock for a period of 180 days after the date of this Prospectus (the
"Lock-up Period") without the prior written consent of Smith Barney Inc. on
behalf of the Underwriters. See "Underwriting." Following the Lock-up Period,
any shares owned prior to this Offering will not be eligible for sale in the
public market without registration unless such sales meet the conditions and
restrictions of Rule 144 as described below.
In general, under Rule 144, as currently in effect, any person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
shares for a period of at least two years (as computed under Rule 144) is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of (i) 1% of the then-outstanding shares of Common Stock
(approximately 284,820 shares after giving effect to this Offering) and (ii) the
average weekly trading volume in the Company's Common Stock during the four
calendar weeks immediately preceding the date on which the notice of such sale
on Form 144 is filed with the Commission. Sales under Rule 144 are also subject
to certain provisions relating to notice and manner of sale and the availability
of current public information about the Company. In addition, a person (or
persons whose shares are aggregated) who has not been an affiliate of the
Company at any time during the 90 days immediately preceding a sale, and who has
beneficially owned the shares for at least three years (as computed under Rule
144), would be entitled to sell such shares under Rule 144(k) without regard to
the volume limitation and other conditions described above. The foregoing
summary of Rule 144 is not intended to be a complete description thereof. In
addition, the Commission has proposed reducing the two-year and three-year
periods referred to above to one and two years, respectively.
As soon as practicable following the consummation of this Offering, the
Company intends to file a registration statement under the Securities Act to
register the shares of Common Stock available for issuance pursuant to its stock
option plans as of the date hereof. Shares issued pursuant to such plans after
the effective date of such registration statement will be available for sale in
the open market subject to the Lock-up Period and, for affiliates of the
Company, subject to certain conditions and restrictions of Rule 144.
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<PAGE> 49
DESCRIPTION OF INDEBTEDNESS
The following is a description of the principal agreements governing the
indebtedness of the Company. The following summaries of certain provisions of
the Bank Credit Agreements and the Senior Note Indenture are qualified in their
entirety by reference to the credit and security agreements and indenture to
which each summary relates, copies of which are exhibits to the Registration
Statement of which this Prospectus is a part. Defined terms used below and not
defined herein have meanings set forth in such respective agreements.
BANK CREDIT FACILITIES
Primary Facility and New Logo Facility. The Company has two syndicated
bank credit facilities, both of which are agented by Chase Manhattan Bank
(National Association): (i) a revolving credit and term loan facility (the
"Primary Facility") providing for term loans in the principal amount currently
outstanding of $38.3 million and a reducing revolving facility with a maximum
borrowing availability of $20 million and (ii) a revolving credit facility (the
"New Logo Facility") with a maximum borrowing availability of $15 million. The
proceeds of the Primary Facility may be used for general corporate purposes,
including working capital requirements of the Company and its subsidiaries in
the outdoor advertising and logo sign business of subsidiaries created prior to
October 31, 1995. The proceeds of the New Logo Facility may be used for start-up
and construction costs in connection with the logo sign business of subsidiaries
created after October 31, 1995 (the "New Logo Subsidiaries"). The Primary
Facility and New Logo Facility are collectively referred to hereinafter as the
"Credit Facilities".
Interest. Borrowings under the Credit Facilities bear interest computed as
a margin over either Chase's "Base Rate" or the London Interbank Offered Rate
(the "LIBOR Rate"). The margins range from 0 to 75 basis points and from 125 to
200 basis points over the Base Rate and LIBOR rate, respectively, depending on
the Company's current leverage ratio, as such ratio is defined under the
subheading "Covenants."
Reductions in Commitments; Amortization. The Primary Facility and New Logo
Facility, both of which mature October 31, 2001, provide for reductions in
revolving credit commitments and amortization of term loans as follows:
<TABLE>
<CAPTION>
NEW LOGO FACILITY
REVOLVING CREDIT TERM LOAN REVOLVING CREDIT
FISCAL YEAR REDUCTION AMORTIZATION(1) REDUCTION(1)
------------------------------------------ ---------------- --------------- -----------------
<S> <C> <C> <C>
1996 (after 4/30/96)...................... -- $ 1,000,000 --
1997...................................... -- $ 4,000,000 $ 2,000,000
1998...................................... -- $ 8,000,000 $ 3,000,000
1999...................................... $ 3,000,000 $11,000,000 $ 4,000,000
2000...................................... $ 5,000,000 $12,000,000 $ 6,000,000
2001...................................... $ 12,000,000 $ 2,250,000 --
</TABLE>
- ---------------
(1) The term loan amortizes quarterly, and the New Logo Facility revolving
credit commitment is reduced quarterly.
Guarantees; Security. The obligations of the Company under the Primary
Facility are guaranteed by all of the Company's Restricted Subsidiaries with the
exception of Missouri Logos, a partnership and, subject to the approval of the
Primary Facility Banks, any joint ventures that may be formed hereafter between
Restricted Logo Subsidiaries and entities not affiliated or related to the
Company or any Restricted Subsidiary. The obligations under the Primary Facility
and the guarantees in respect thereof are secured, on an equal and ratable basis
with the subsidiary guarantees and Company obligations in respect of the Senior
Notes, by a pledge of the capital stock of all of the Company's Restricted
Subsidiaries with the exception of the New Logo Subsidiaries.
The obligations of the Company under the New Logo Facility are guaranteed
by the New Logo Subsidiaries. Such obligations and guarantees are secured by a
pledge of capital stock, and security interest in the assets, of the New Logo
Subsidiaries.
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<PAGE> 50
Covenants. Each of the Credit Facilities places certain restrictions upon
the ability of the Company and its Restricted Subsidiaries that are parties
thereto, among other things, to (i) incur indebtedness, (ii) incur liens or
guarantee obligations, (iii) declare dividends and make other distributions,
(iv) make investments and enter into joint ventures, (v) make capital
expenditures, (vi) dispose of assets and (vii) engage in transactions with
affiliates except on an arms-length basis. In addition, the Credit Facilities
require the Company and its Restricted Subsidiaries which are parties thereto to
maintain (a) a minimum leverage ratio, defined as Total Debt to Operating Cash
Flow of between 4.5 to 1 and 3.0 to 1 under the Primary Facility and from 6.0 to
1 and 4.0 to 1 under the New Logo Facility; (b) an interest coverage ratio,
defined as pro forma Operating Cash Flow for the period of 12 months most
recently ended to total accrued cash interest expense for such period, of at
least 2.0 to 1; and (c) a fixed charge coverage ratio, defined as pro forma
Operating Cash Flow for the period of 12 months most recently ended to total
projected payments of principal and interest on debt to be made in the
succeeding four fiscal quarters plus (i) capital expenditures (excluding logo
contract expenditures) and (ii) income and franchise tax payments and stock
dividends and redemptions during such period, of at least 1.1 to 1.
Change of Control. A change of control of the Company constitutes an event
of default, permitting the banks under the Credit Facilities to accelerate the
indebtedness and terminate the Credit Facilities. Such a change in control would
occur if Kevin P. Reilly, Sr. and his immediate family (including grandchildren)
and certain entities under their control cease to own at least 20.0% of the
total amount of voting stock of the Company.
SENIOR NOTES
General. On May 15, 1993, the Company issued $100 million aggregate
principal amount of 11% Senior Secured Notes due May 15, 2003 pursuant to an
indenture between the Company, as issuer, its Restricted Subsidiaries, as
"Subsidiary Guarantors", and State Street Bank and Trust Company, as Trustee.
The Senior Notes are senior secured obligations of the Company and Restricted
Subsidiaries ranking pari passu with all present and future indebtedness of the
Company and the Subsidiary Guarantors that by its terms is not subordinated to
the obligations represented by the Senior Notes.
Interest. The Senior Notes bear interest at 11% per annum. Interest is
payable semi-annually on each May 15 and November 15.
Security. The Senior Notes and the Guarantees in respect thereof are
secured, on an equal and ratable basis with the Company obligations and
subsidiary guarantees in respect of the Primary Facility, by a pledge of the
capital stock of all the Company's Restricted Subsidiaries with the exception of
the New Logo Subsidiaries.
Redemption. The securities may be redeemed at the election of the Company,
as a whole or from time-to-time in part, at any time after May 15, 1998 at
redemption prices declining from 105.5% of the principal amount for the twelve
months after May 15, 1998 to 102.75% of such amount for the twelve months after
May 15, 1999, and thereafter at a redemption price equal to 100.0% of such
principal amount, plus in each case accrued in unpaid interest to the applicable
redemption date.
Covenants. The Senior Note Indenture places certain restrictions on the
ability of the Company and its Restricted Subsidiaries to (i) incur
indebtedness, (ii) incur liens or guaranty obligations, (iii) make restricted
payments (dividends, redemptions and certain other payments), (iv) engage in
transactions with affiliates except on an arms-length basis, (v) dispose of
assets, (vi) enter into mergers, consolidations or acquisitions.
Change of Control. Upon a Change of Control (as defined in the Senior Note
Indenture), each holder of a Senior Note may require the Company to repurchase
all or portions of such holder's Senior Notes at a purchase price equal to 101%
of the aggregate principal amount thereof plus accrued and unpaid interest, if
any, to the date of purchase. A "Change of Control" occurs if (a) any person or
group, other than stockholders of the Company as of May 15, 1993 and related and
affiliated persons ("Permitted Holder") beneficially owns at least 30% of the
aggregate voting power of all classes of voting stock of the Company or (b) any
person or group other than Permitted Holders succeed in electing a majority of
the Board of Directors of the Company.
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<PAGE> 51
Recent Amendment. The holders of the Senior Notes recently consented to
certain amendments to the Senior Note Indenture which permit the Company to
retire approximately $38 million of currently outstanding bank term loans under
the Primary Facility while preserving the Company's ability, upon satisfying
certain financial ratios, to reincur indebtedness up to such amount, secured and
guaranteed in the same manner as the existing term loans. Restrictions in the
Senior Note Indenture prior to the amendments precluded the Company from
securing, and its Restricted Subsidiaries from guaranteeing, any indebtedness in
excess of the $20 million revolving credit facility and the presently
outstanding term loans, as such term loans are reduced by amortization.
SUBORDINATED NOTES
After the completion of the Offering, the Company will have outstanding
three classes of subordinated notes: (i) $2.5 million aggregate principal amount
of 8% Series A Unsecured Subordinated Discount Debentures due 2001; (ii) $0.4
million aggregate principal amount of 10% to 12% Series A Unsecured Subordinated
Debentures due 1996 and 1997; and (iii) $20.0 million aggregate principal amount
of ten-year subordinated notes which are to be issued at the time of the
completion of the Offering. The Series A debentures referred to in clauses (i)
and (ii) of the preceding sentence were issued in consideration of stock
redemptions occurring in 1993 and 1994. The ten-year subordinated notes referred
to in clause (iii) will be issued as a portion of the additional consideration
to be paid on account of stock redemptions occurring in October 1995 and March
1996. These subordinated notes will bear interest at a rate equal to 100 basis
points over the United States Treasury ten-year note rate in effect ten days
prior to their issuance and will amortize monthly until their maturity in 2006.
See "Certain Transactions."
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<PAGE> 52
UNDERWRITING
Upon the terms and subject to the conditions stated in the Underwriting
Agreement dated August 1, 1996, each of the underwriters named below (the
"Underwriters"), for whom Smith Barney Inc., Alex. Brown & Sons Incorporated and
Prudential Securities Incorporated are acting as representatives (the
"Representatives"), has severally agreed to purchase, and the Company and the
Selling Stockholders have agreed to sell to each such Underwriter, the number of
shares of Class A Common Stock set forth opposite the name of such Underwriter.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ------------------------------------------- ---------
<S> <C>
Smith Barney Inc........................... 991,668
Alex. Brown & Sons Incorporated............ 991,666
Prudential Securities Incorporated......... 991,666
Advest, Inc. .............................. 70,000
Bear, Stearns & Co. Inc. .................. 130,000
J.C. Bradford & Co. ....................... 70,000
The Chicago Corporation.................... 70,000
Dean Witter Reynolds Inc. ................. 130,000
Donaldson, Lufkin & Jenrette
Securities Corporation................... 130,000
A. G. Edwards & Sons, Inc. ................ 130,000
First of Michigan Corporation.............. 70,000
Furman Selz Incorporated................... 70,000
<CAPTION>
NUMBER OF
NAME SHARES
- ------------------------------------------- ---------
<S> <C>
J.J.B. Hilliard, W.L. Lyons, Inc. ......... 70,000
Interstate/Johnson Lane Corporation........ 70,000
Janney Montgomery Scott Inc. .............. 70,000
Edward D. Jones & Co. ..................... 70,000
Legg Mason Wood Walker, Incorporated....... 70,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............................. 130,000
Morgan Keegan & Company, Inc. ............. 70,000
PaineWebber Incorporated................... 130,000
Raymond James & Associates, Inc. .......... 70,000
The Robinson-Humphrey Company, Inc. ....... 70,000
Sterne, Agee & Leach, Inc. ................ 70,000
---------
Total.............................. 4,735,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are obligated to take and pay for all shares of Class A Common
Stock offered hereby (other than those covered by the over-allotment option
described below) if any such shares are taken.
The Underwriters initially propose to offer part of the shares directly to
the public at the public offering price set forth on the cover page of this
Prospectus and part of the shares to certain dealers at a price which represents
a concession not in excess of $0.68 per share below the public offering price.
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 initial public
offering of the shares to the public, the public offering price and such
concessions may be changed by the Underwriters. The Representatives of the
Underwriters have advised the Company that the Underwriters do not intend to
confirm any shares to any accounts over which they exercise discretionary
authority.
The Company and certain of the Selling Stockholders have granted to the
Underwriters an option, exercisable for thirty days from the date of this
Prospectus, to purchase up to an aggregate of 710,250 additional shares of Class
A Common Stock (294,041 from the Company and 416,209 from the Selling
Stockholders) at the public offering price set forth on the cover page of this
Prospectus less the underwriting discounts and commissions. The Underwriters may
exercise such option solely for the purpose of covering over-allotments, if any,
in connection with the Offering.
The Company, its officers and directors, and certain stockholders of the
Company have agreed that, for a period of 180 days from the date of this
Prospectus, they will not, without the prior written consent of Smith Barney
Inc., offer, sell, contract to sell, or otherwise dispose of, any shares of
Common Stock of the Company or any securities convertible into, or exercisable
or exchangeable for, Common Stock of the Company.
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<PAGE> 53
Prior to this offering, there has not been any public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
shares of Class A Common Stock included in this Offering has been determined by
negotiations between the Company and the Representatives. Among the factors
considered in determining such price were the history of and prospects for the
Company's business and the industry in which it competes, an assessment of the
Company's management and the present state of the Company's development, the
past and present revenues and earnings of the Company, the prospects for growth
of the Company's revenues and earnings, the current state of the economy in the
United States and the current level of economic activity in the industry in
which the Company competes and in related or comparable industries, and
currently prevailing conditions in the securities markets, including current
market valuations of publicly traded companies which are comparable to the
Company. There can be no assurance that an active trading market will develop
for the Class A Common Stock or that the Class A Common Stock will trade in the
public market subsequent to the Offering at or above the initial public offering
price.
The Company, the Selling Stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act of 1933.
CERTAIN LEGAL MATTERS
The validity of the issuance of the shares of Class A Common Stock will be
passed upon for the Company by Palmer & Dodge LLP, Boston, Massachusetts.
Chadbourne & Parke LLP, New York, New York will pass on certain legal matters
for the Underwriters in connection with this Offering.
EXPERTS
The consolidated financial statements of Lamar Advertising Company and
Subsidiaries as of October 31, 1995 and 1994, and for each of the years in the
three-year period ended October 31, 1995, included in this Prospectus and
Registration Statement have been included herein and in the Registration
Statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company files reports and other information with the Commission
pursuant to the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act").
The Company has filed with the Commission a Registration Statement (which
term shall include all amendments thereto) on Form S-1 under the Securities Act,
with respect to the Class A Common Stock offered hereby. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission.
Statements contained in this Prospectus as to the contents of any contract,
agreement or other document referred to herein are not necessarily complete.
With respect to each report or other information filed with the Commission
pursuant to the Exchange Act, and such contract, agreement or document filed as
an exhibit to the Registration Statement, reference is made to such exhibit for
a more complete description, and each such statement is deemed to be qualified
in all respects by such reference. The Registration Statement may be inspected,
without charge, 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.
53
<PAGE> 54
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 55
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report........................................................... F-2
Consolidated Balance Sheets as of April 30, 1996, actual and pro forma (unaudited), and
October 31, 1995 and 1994............................................................ F-3
Consolidated Statements of Earnings (Loss) for the six months ended April 30, 1996 and
1995 (unaudited) and the years ended October 31, 1995, 1994 and 1993................. F-4
Consolidated Statements of Stockholders' Deficit for the years ended October 31, 1993,
1994 and 1995 and the six months ended April 30, 1996 (unaudited).................... F-5
Consolidated Statements of Cash Flows for the six months ended April 30, 1996 and 1995
(unaudited) and the years ended October 31, 1995, 1994 and 1993...................... F-6
Notes to Consolidated Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE> 56
INDEPENDENT AUDITORS' REPORT
Board of Directors
Lamar Advertising Company:
We have audited the accompanying consolidated balance sheets of Lamar
Advertising Company and subsidiaries as of October 31, 1995 and 1994, and the
related consolidated statements of earnings (loss), stockholders' deficit and
cash flows for each of the years in the three-year period ended October 31,
1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Lamar
Advertising Company and subsidiaries as of October 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended October 31, 1995, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
New Orleans, Louisiana
January 12, 1996, except as to notes 12 and 14,
which are as of July 24, 1996
F-2
<PAGE> 57
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
APRIL 30, 1996
----------------------- OCTOBER 31,
PRO FORMA --------------------
(NOTE 14) ACTUAL 1995 1994
----------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents........................ $ 1,752 $ 1,752 $ 5,886 $ 8,016
Receivables (note 3):
Trade accounts, less allowance for doubtful
accounts of $872 (unaudited) in 1996 and $551
in 1995 and 1994............................. 13,128 13,128 10,741 9,963
Affiliates, related parties and employees...... 450 450 583 560
Other.......................................... 81 81 109 68
-------- -------- -------- --------
13,659 13,659 11,433 10,591
Prepaid expenses................................. 1,145 1,145 1,247 1,200
Other current assets............................. 1,689 1,689 1,266 1,287
-------- -------- -------- --------
Total current assets...................... 18,245 18,245 19,832 21,094
-------- -------- -------- --------
Property, plant and equipment (note 4)............. 183,270 183,270 168,402 159,707
Less accumulated depreciation and amortization... (81,888) (81,888) (77,524) (70,884)
-------- -------- -------- --------
101,382 101,382 90,878 88,823
-------- -------- -------- --------
Intangible assets (note 5)......................... 14,548 14,548 13,406 14,062
Receivables -- noncurrent (note 3)................. 806 806 918 751
Deferred taxes (note 10)........................... 4,043 4,043 5,951 2,650
Other assets....................................... 3,336 3,336 2,900 2,628
-------- -------- -------- --------
Total assets.............................. $142,360 $142,360 $133,885 $130,008
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Trade accounts payable........................... 2,191 2,191 2,435 1,123
Current maturities of long-term debt (note 9).... 4,617 4,617 3,479 7,054
Accrued expenses (note 8)........................ 12,014 7,014 9,733 9,647
Deferred income.................................. 3,259 3,259 2,448 1,579
-------- -------- -------- --------
Total current liabilities................. 22,081 17,081 18,095 19,403
Long-term debt (note 9)............................ 171,673 151,673 142,572 146,875
Deferred income.................................... 754 754 749 668
Other liabilities.................................. 1,140 1,140 623 414
-------- -------- -------- --------
195,648 170,648 162,039 167,360
-------- -------- -------- --------
Stockholders' deficit (note 12):
Class A preferred stock, par value $638, $63.80
cumulative, 10,000 shares authorized, 5,719.49
(unaudited) shares issued and outstanding in
1996........................................... 3,649 3,649 $ -- $ --
Class A common stock, par value $.001, 50,000,000
shares authorized, 10,180,483 (unaudited),
15,657,623 and 16,504,263 shares issued and
outstanding in 1996, 1995 and 1994,
respectively................................... 10 10 16 17
Class B common stock, par value $.001, 25,000,000
shares authorized, 14,301,537 (unaudited),
16,897,379 and 17,271,240 shares issued and
outstanding in 1996, 1995 and 1994,
respectively................................... 14 14 17 17
Accumulated deficit.............................. (56,961) (31,961) (28,187) (37,386)
-------- -------- -------- --------
Stockholders' deficit..................... (53,288) (28,288) (28,154) (37,352)
Commitments and contingencies (notes 7 and 13)
-------- -------- -------- --------
Total liabilities and stockholders'
deficit................................. $142,360 $142,360 $133,885 $130,008
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 58
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30, YEARS ENDED OCTOBER 31,
------------------------- ----------------------------
1996 1995 1995 1994 1993
----------- ----------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Outdoor advertising, net.................. $56,261 $49,686 $101,871 $83,627 $65,365
Management fees from related and
affiliated parties..................... 30 15 31 334 595
Rental income............................. 354 298 506 512 564
------- ------- -------- ------- -------
56,645 49,999 102,408 84,473 66,524
------- ------- -------- ------- -------
Operating expenses:
Direct advertising expenses............... 20,893 18,184 34,386 28,959 23,830
General and administrative expenses....... 14,695 13,243 27,057 24,239 19,504
Depreciation and amortization............. 7,028 6,768 14,090 11,352 8,924
------- ------- -------- ------- -------
42,616 38,195 75,533 64,550 52,258
------- ------- -------- ------- -------
Operating income.................. 14,029 11,804 26,875 19,923 14,266
------- ------- -------- ------- -------
Other expense (income):
Interest income........................... (101) (81) (199) (194) (218)
Interest expense.......................... 7,852 7,857 15,783 13,599 11,502
Loss on disposition of assets............. 581 816 2,328 675 729
Other expenses............................ 246 410 655 616 576
------- ------- -------- ------- -------
8,578 9,002 18,567 14,696 12,589
------- ------- -------- ------- -------
Earnings before income taxes and
extraordinary item.............. 5,451 2,802 8,308 5,227 1,677
Income tax expense (benefit) -- (note 10)... 2,190 (1,767) (2,390) (2,072) 476
------- ------- -------- ------- -------
Earnings before extraordinary
item............................ 3,261 4,569 10,698 7,299 1,201
------- ------- -------- ------- -------
Extraordinary loss on debt extinguishment,
net of income tax benefit of $98 (note
9)........................................ -- -- -- -- (1,854)
------- ------- -------- ------- -------
Net earnings (loss)............... 3,261 4,569 10,698 7,299 (653)
Preferred stock dividends................... (182) -- -- -- --
------- ------- -------- ------- -------
Net earnings (loss) applicable to common
stock..................................... $ 3,079 $ 4,569 $ 10,698 $ 7,299 $ (653)
======= ======= ======== ======= =======
Earnings per common share before
extraordinary item........................ $ .11 $ .14 $ .32 $ .21 $ .03
======= ======= ======== ======= =======
Net earnings (loss) per common share........ $ .11 $ .14 $ .32 $ .21 $ (.02)
======= ======= ======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 59
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CLASS A CLASS A CLASS B ADDITIONAL
PREFERRED COMMON COMMON PAID-IN ACCUMULATED
STOCK STOCK STOCK CAPITAL DEFICIT TOTAL
--------- ------- ------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, October 31, 1992........................ $ -- $19 $15 $ 403 $(42,307) $(41,870)
Shares issued.................................. -- 1 2 627 -- 630
Redemption of 1,690,163 shares of common
stock....................................... -- (2) -- (899) -- (901)
Net loss....................................... -- -- -- -- (653) (653)
Dividends ($.01 per share)..................... -- -- -- -- (455) (455)
------ ---- ---- ----- -------- --------
Balance, October 31, 1993........................ -- 18 17 131 (43,415) (43,249)
Redemption of 1,327,985 shares of common
stock....................................... -- (1) -- (131) (771) (903)
Net earnings................................... -- -- -- -- 7,299 7,299
Dividends ($.01 per share)..................... -- -- -- -- (499) (499)
------ ---- ---- ----- -------- --------
Balance, October 31, 1994........................ -- 17 17 -- (37,386) (37,352)
Redemption of 1,220,500 shares of common
stock....................................... -- (1) -- -- (999) (1,000)
Net earnings................................... -- -- -- -- 10,698 10,698
Dividends ($.01 per share)..................... -- -- -- -- (500) (500)
------ ---- ---- ----- -------- --------
Balance, October 31, 1995........................ -- 16 17 -- (28,187) (28,154)
Conversion of 4,454,779 shares of common stock
to 5,719 shares preferred stock
(unaudited)................................. 3,649 (2) (2) -- (3,645) --
Redemption of 3,618,203 shares of common stock,
(unaudited)................................. -- (4) (1) -- (2,958) (2,963)
Net earnings (unaudited)....................... -- -- -- -- 3,261 3,261
Dividends ($.004 per common share at January
1996 $.005 per common share at April 1996,
$15.95 per preferred
share) -- (unaudited)....................... -- -- -- -- (432) (432)
------ ---- ---- ----- -------- --------
Balance, April 30, 1996, (unaudited)............. $3,649 $10 $14 $ -- $(31,961) $(28,288)
====== ==== ==== ===== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 60
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30, YEARS ENDED OCTOBER 31,
-------------------------- --------------------------------
1996 1995 1995 1994 1993
----------- ----------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss).......................... $ 3,261 $ 4,569 $ 10,698 $ 7,299 $ (653)
Adjustments to reconcile net earnings (loss)
to net cash provided by operating
activities:
Depreciation and amortization.............. 7,028 6,768 14,090 11,352 8,924
Loss on disposition of assets.............. 581 816 2,328 675 729
Deferred taxes............................. 1,908 (2,208) (3,301) (2,650) --
Provision for doubtful accounts............ 621 203 502 508 471
Changes in operating assets and
liabilities:
Increase in receivables.................. (2,608) (2,854) (1,344) (1,391) (1,998)
(Increase) decrease in prepaid
expenses.............................. 67 (192) (47) (321) 4
(Increase) decrease in other assets...... (323) (296) (418) (1,640) 34
Increase (decrease) in trade accounts
payable............................... (243) 1 1,312 (69) (502)
Increase (decrease) in accrued
expenses.............................. (2,718) (1,880) 86 1,356 4,817
Increase (decrease) in deferred income... 817 51 950 (113) 596
Increase (decrease) in other
liabilities........................... 95 (1) 209 208 (11)
--------- ------- -------- -------- --------
Net cash provided by operating
activities............................ 8,486 4,977 25,065 15,214 12,411
--------- ------- -------- -------- --------
Cash lows from investing activities:
Capital expenditures......................... (10,557) (5,044) (14,046) (13,357) (7,550)
Purchase of new markets...................... (7,043) (2,329) (2,885) (40,482) --
Proceeds from sale of property and
equipment.................................. 236 558 717 733 396
Purchase of intangible assets................ (833) (211) (1,603) (463) (2,352)
Investments in and advances to affiliated
companies.................................. -- -- -- -- (558)
Increase in notes receivable................. (206) (4) -- -- --
--------- ------- -------- -------- --------
Net cash used in investing activities.... (18,403) (7,030) (17,817) (53,569) (10,064)
--------- ------- -------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt..... 11,000 1,000 -- 44,515 105,611
Principal payments on long-term debt......... (1,821) (3,605) (7,878) (5,966) (97,453)
Redemption of common stock................... (2,964) -- (1,000) (903) (901)
Dividends.................................... (432) (250) (500) (499) (455)
--------- ------- -------- -------- --------
Net cash provided by (used in) financing
activities............................ 5,783 (2,855) (9,378) 37,147 6,802
--------- ------- -------- -------- --------
Net increase (decrease) in cash and cash
equivalents........................... (4,134) (4,908) (2,130) (1,208) 9,149
Cash and cash equivalents at beginning of
year.................................. 5,886 8,016 8,016 9,224 75
--------- ------- -------- -------- --------
Cash and cash equivalents at end of
year.................................. $ 1,752 $ 3,108 $ 5,886 $ 8,016 $ 9,224
========= ======= ======== ======== ========
Supplemental disclosures of cash flow
information:
Cash paid for interest....................... $ 7,917 $ 7,879 $ 15,825 $ 13,461 $ 6,994
========= ======= ======== ======== ========
Cash paid for income taxes................... $ 542 $ 490 $ 1,028 $ 267 $ 295
========= ======= ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 61
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
OCTOBER 31, 1995, 1994 AND 1993
(INFORMATION AS OF APRIL 30, 1996 AND FOR
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1995 IS UNAUDITED)
(1) SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The accompanying consolidated financial statements include Lamar
Advertising Company, its wholly-owned subsidiaries, Lamar Holding Company (LHC)
and The Lamar Corporation (TLC), their majority-owned subsidiaries and
Interstate Logos, Inc., a subsidiary of both LAC and TLC (collectively, the
Company or LAC). All intercompany transactions and balances have been
eliminated. Prior to May 1994, the Company owned 49.36% of the outstanding stock
of LHC, which investment was accounted for by the equity method. On May 10,
1994, LAC acquired substantially all of the assets of LHC. The proceeds from the
sale of its assets were used by LHC to repay existing debt and redeem all of its
shareholders other than LAC, resulting in LHC becoming a wholly-owned subsidiary
of LAC. The acquisition has been accounted for using the purchase method of
accounting.
(b) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is
calculated using accelerated and straight-line methods over the estimated useful
lives of the assets.
(c) Intangible Assets
Debt issuance costs are deferred and amortized over the terms of the
related credit facilities using the interest method. Other intangible assets are
initially recorded at cost and amortized using the straight-line method over the
assets' estimated useful lives, generally from 5 to 10 years.
(d) Deferred Income
Deferred income consists principally of advertising revenue received in
advance and gains resulting from the sale of certain assets to related parties.
Deferred advertising revenue is recognized in income as services are provided
over the term of the contract. Deferred gains are recognized in income in the
consolidated financial statements at the time the assets are sold to an
unrelated party or otherwise disposed of.
(e) Revenue Recognition
The Company recognizes revenue from outdoor and logo sign advertising
contracts, net of agency commissions, on an accrual basis ratably over the term
of the contracts, as advertising services are provided.
(f) Income Taxes
The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
F-7
<PAGE> 62
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION AS OF APRIL 30, 1996 AND FOR
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1995 IS UNAUDITED)
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
(g) Earnings Per Share
Earnings per common share are computed by dividing net earnings applicable
to common stock by the weighted average number of common shares outstanding
during each period presented. (28,373,710 shares and 33,775,222 shares for the
six-month periods ended April 30, 1996 and 1995 respectively and 33,772,107
shares, 35,089,188 shares, and 35,470,837 shares, respectively for the years
ended October 31, 1995, 1994 and 1993.) Such amounts have been adjusted to
reflect the approximate 778.9-for-1 stock split and the concurrent exchanges of
shares in a recapitalization that will occur in connection with the Offering
referred to in Note 14.
(h) Cash and Cash Equivalents
The Company considers all highly-liquid investments with original
maturities of three months or less to be cash equivalents.
(i) Reclassification of Prior Year Amounts
Certain amounts in the prior year's consolidated financial statements have
been reclassified to conform with the current year presentation. These
reclassifications had no effect on previously reported net earnings.
(j) Unaudited Interim Financial Statements
The unaudited interim financial statements include all adjustments,
consisting of normal recurring adjustments, which are, in the opinion of
management, necessary for a fair presentation of the financial position and the
results of operations of the Company.
(2) NONCASH FINANCING AND INVESTING ACTIVITIES
A summary of significant noncash financing and investing activities
follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
APRIL 30,
----------------
1996 1995 1995 1994 1993
------ ------ ------ ---- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Noncash dispositions of assets.............. $ -- $3,788 $3,788 $445 $ 336
Noncash acquisitions of assets.............. 1,113 4,341 4,341 -- 1,817
Common stock issued in exchange for
investment in affiliate................... -- -- -- -- 630
Noncash issuance of preferred stock in
exchange of common stock.................. 3,649 -- -- -- --
</TABLE>
F-8
<PAGE> 63
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION AS OF APRIL 30, 1996 AND FOR
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1995 IS UNAUDITED)
(3) RECEIVABLES
The following is a summary of accounts and notes receivable as of October
31:
<TABLE>
<CAPTION>
1995 1994
--------------------- ---------------------
CURRENT NONCURRENT CURRENT NONCURRENT
------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Trade accounts receivable, net.............. $10,741 $ -- $ 9,963 $ --
Related parties............................. 452 -- 291 --
Employees, other than related parties....... 131 -- 269 --
Other....................................... 109 918 68 751
------- ---- ------- ----
$11,433 $918 $10,591 $751
======= ==== ======= ====
</TABLE>
(4) PROPERTY, PLANT AND EQUIPMENT
Major categories of property, plant and equipment at October 31, 1995 and
1994 are as follows:
<TABLE>
<CAPTION>
ESTIMATED
LIFE (YEARS) 1995 1994
------------ -------- --------
<S> <C> <C> <C>
Land................................................. - $ 7,826 $ 7,739
Building and improvements............................ 10-32 15,553 15,132
Advertising structures............................... 15 131,071 123,592
Automotive and other equipment....................... 3-7 13,952 13,244
-------- --------
$168,402 $159,707
======== ========
</TABLE>
(5) INTANGIBLE ASSETS
The following is a summary of intangible assets at October 31:
<TABLE>
<CAPTION>
ESTIMATED
LIFE (YEARS) 1995 1994
------------ ------- -------
<S> <C> <C> <C>
Debt issuance costs.................................. 10 $ 3,180 $ 3,604
Customer lists and unexpired contracts............... 7 7,103 7,581
Non-compete agreements............................... 7-15 1,036 1,296
Organization costs................................... 5 673 219
Loan fees............................................ 7-10 1,051 1,027
Other................................................ 7-10 363 335
------- -------
$13,406 $14,062
======= -------
Cost................................................. 20,473 18,870
Accumulated amortization............................. 7,067 4,808
------- -------
Net intangible assets...................... $13,406 $14,062
======= =======
</TABLE>
(6) LAMAR HOLDINGS CORPORATION
Prior to May 1994, the Company owned 49.36% of the common stock of LHC. LHC
was founded in 1989 by TLC, members of its management and certain institutional
investors to provide outdoor advertising services in markets other than those
served by TLC.
F-9
<PAGE> 64
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION AS OF APRIL 30, 1996 AND FOR
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1995 IS UNAUDITED)
Effective May 1, 1994, LAC acquired substantially all of the assets and
assumed certain liabilities of LHC for a purchase price of $43,500. The proceeds
from the sale of its assets were used by LHC to repay existing debt and redeem
all of its shareholders other than LAC, resulting in LHC becoming a wholly-owned
subsidiary of LAC. The acquisition has been accounted for as a purchase and
accordingly, the purchase price attributable to shareholders other than LAC
(50.64%) has been allocated to the assets acquired based on their fair values.
The results of operations of LHC have been included in LAC's consolidated
financial statements from May 1, 1994.
The following unaudited pro forma financial information presents the
combined results of operations of LAC and LHC as if the acquisition had occurred
as of the beginning of 1994 and 1993, after giving effect to certain
adjustments, including additional depreciation expense, increased interest
expense on debt related to the acquisition, and related income tax effects. The
pro forma financial information does not necessarily reflect the results of
operations that would have occurred had the companies constituted a single
entity during such period.
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
-------------------
1994 1993
------- -------
(UNAUDITED)
<S> <C> <C>
Revenues......................................................... $92,480 $81,303
======= =======
Net income (loss) before extraordinary item...................... $ 6,265 $(1,856)
======= =======
Net income (loss)................................................ $ 6,265 $(3,710)
======= =======
Earnings (loss) per share before extraordinary item.............. $ .18 $ (.05)
======= =======
Earnings (loss) per share........................................ $ .18 $ (.10)
======= =======
</TABLE>
(7) LEASES
The Company is party to various operating leases for production facilities
and sites upon which advertising structures are built. The leases expire at
various dates, generally during the next five years, and have varying options to
renew and to cancel. The following is a summary of minimum annual rental
payments required under those operating leases that have original or remaining
lease terms in excess of one year as of October 31:
<TABLE>
<S> <C>
1996..................................................... $10,546
1997..................................................... 8,654
1998..................................................... 7,172
1999..................................................... 5,857
2000..................................................... 4,486
</TABLE>
Rental expense related to the Company's operating leases was $17,053,
$14,999 and $10,983 for the years ended October 31, 1995, 1994 and 1993,
respectively.
F-10
<PAGE> 65
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION AS OF APRIL 30, 1996 AND FOR
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1995 IS UNAUDITED)
The Company leases a portion of its corporate office building to tenants
under operating leases. The following is a summary of property held for lease at
October 31:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Land........................................................... $ 53 $ 47
Buildings...................................................... 1,892 2,454
Less accumulated depreciation.................................. (1,124) (1,754)
------- -------
$ 821 $ 747
======= =======
</TABLE>
Minimum future rental income for noncancelable leases in effect as of
October 31, 1995 is as follows:
<TABLE>
<S> <C>
Year ending October 31:
1996.................................................... $224
1997.................................................... 152
1998.................................................... 115
1999.................................................... 99
2000.................................................... 97
====
</TABLE>
(8) ACCRUED EXPENSES
The following is a summary of accrued expenses at October 31:
<TABLE>
<CAPTION>
1995 1995
------ ------
<S> <C> <C>
Payroll............................................................ $2,134 $2,084
Interest........................................................... 5,400 5,442
Insurance benefits................................................. 1,457 1,374
Other.............................................................. 742 747
------ ------
$9,733 $9,647
====== ======
</TABLE>
F-11
<PAGE> 66
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION AS OF APRIL 30, 1996 AND FOR
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1995 IS UNAUDITED)
(9) LONG-TERM DEBT
Long-term debt consists of the following at April 30, 1996 and October 31:
<TABLE>
<CAPTION>
APRIL 30,
1996 1995 1994
----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Senior Secured Notes................................ $ 100,000 $100,000 $100,000
Note payable to a bank group........................ 38,250 39,250 43,000
1993 Series A Line of Credit, payable to bank....... 4,500 -- 2,000
1995 Series B Line of Credit, payable to bank....... 6,500 -- --
8% Series A unsecured subordinated discount
debentures, maturing through 2001 (11.5% effective
yield)............................................ 2,509 2,706 3,095
5% to 10% notes payable to banks and others with
varying maturities secured by plant and
equipment......................................... 4,157 3,713 4,960
10% to 12% Series A unsecured subordinated
debentures maturing in 1996 and 1997.............. 372 372 372
Other notes with various rates and terms............ 2 10 502
-------- -------- --------
156,290 146,051 153,929
Less current maturities............................. (4,617) (3,479) (7,054)
-------- -------- --------
Long term debt, excluding current maturities........ $ 151,673 $142,572 $146,875
======== ======== ========
</TABLE>
Long term debt matures as follows:
<TABLE>
<S> <C>
1996...................................................... $ 3,479
1997...................................................... 5,465
1998...................................................... 9,235
1999...................................................... 12,154
2000...................................................... 12,516
Later years............................................... 103,202
--------
$146,051
========
</TABLE>
The Senior Secured Notes were issued on May 19, 1993. The notes bear
interest at 11% payable semiannually. The notes mature in 2003 and are subject
to redemption at the option of the Company at any time on or after May 15, 1998.
There is no sinking fund obligation associated with the notes. The notes rank
senior in right of payment to all subordinated debt of the Company and pari
passu in right of payment with all unsubordinated borrowings of the Company and
are unconditionally guaranteed by certain subsidiaries of the Company. The notes
are secured by a pledge of the capital stock of all of the Subsidiary
Guarantors, subject to certain provisions. Additionally, the Company is
obligated to pledge the capital stock and obtain the guarantee of all future
restricted subsidiaries as security.
A portion of the proceeds from the Senior Secured Notes was used to
extinguish existing variable and fixed rate debt prior to maturity. In
connection with the extinguishment, the Company incurred a loss of approximately
$1,900 which has been reflected as an extraordinary item in the accompanying
consolidated financial statements. The per share amount of the aggregate loss
net of related income tax effect is $0.05 for the year ended October 31, 1993.
F-12
<PAGE> 67
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION AS OF APRIL 30, 1996 AND FOR
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1995 IS UNAUDITED)
The indenture contains certain restrictive financial covenants, including
the following:
- Limitation on outstanding debt of the Company and any of its restricted
subsidiaries;
- Limitation of the payment of cash dividends and other restricted
payments;
- Limitation on sale and leaseback transactions, and
- Limitation on sales or disposals of assets.
The Company was in compliance with such covenants as of October 31, 1995.
On May 19, 1993, the Company also entered into a Bank Credit Agreement
which provided an $8,000 term loan and a $20,000 working capital line of credit.
The term loan will amortize over four years beginning in 1995 and the
availability under the revolving credit facility will be reduced over a
three-year period beginning in 1995 until the facility terminates in 1998. The
term loan and the revolving credit facility are secured by a pledge of the
capital stock of all of the Company's present subsidiaries. During 1994, the
Company executed certain amendments to the Bank Credit Agreement, including
increasing of the term loan to $43,000. During 1995, the Company executed
additional amendments to the Bank Credit Agreement, including a change in the
Commitment to reduce the revolving line of credit over a three-year period
beginning in 1999 until the facility terminates in 2001. As of October 31, 1995,
the balance of the term loan was $39,250 with an interest rate of 8.09%. The
Bank Credit Agreement contains certain restrictive financial covenants,
including the following:
- Maintaining specific ratios of cash flow to debt service and total debt;
- Limitation of the payment of dividends;
- Limitation on investments and joint ventures,
- Limitation on capital expenditures, and
- Limitation on sales or disposals of assets.
The Company was in compliance with such covenants as of October 31, 1995.
The 8% Series A, unsecured subordinated debentures with an original face
amount of $4,844 were issued in 1986 at a discount of $986, which is being
amortized over the life of the debentures. The total unamortized discount was
$238 and $314 at October 31, 1995 and 1994, respectively.
(10) INCOME TAXES
LAC files a consolidated federal income tax return which includes all of
its qualifying subsidiaries.
Total income tax expense (benefit) for the years ended October 31, 1995,
1994 and 1993 is allocated as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- ----
<S> <C> <C> <C>
Income from continuing operations........................ $(2,390) $(2,072) $476
Extraordinary item....................................... -- -- (98)
------- ------- ----
$(2,390) $(2,072) $378
======= ======= ====
</TABLE>
F-13
<PAGE> 68
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION AS OF APRIL 30, 1996 AND FOR
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1995 IS UNAUDITED)
Income tax expense (benefit) attributable to continuing operations for the
years ended October 31, 1995, 1994 and 1993 consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -------
<S> <C> <C> <C>
1995:
U.S. federal......................................... $ 290 $ (3,301) $(3,011)
State and local...................................... 621 -- 621
----- -------- -------
$ 911 $ (3,301) $(2,390)
===== ======== =======
1994:
U.S. federal......................................... 165 (2,650) (2,485)
State and local...................................... 413 -- 413
----- -------- -------
$ 578 $ (2,650) $(2,072)
===== ======== =======
1993:
U.S. federal......................................... 155 -- 155
State and local...................................... 321 -- 321
----- -------- -------
$ 476 $ -- $ 476
===== ======== =======
</TABLE>
Income taxes attributable to continuing operations in 1995 and 1994 include
adjustments to the beginning-of-the-year valuation allowance on the Company's
deferred tax assets in the amount of $5,939 and $3,882, respectively. The
improved business conditions and resulting profitability has resulted in a
change in management's judgment regarding the realizability of the deferred tax
assets.
Income tax expense (benefit) for 1995, 1994 and 1993, differs from the
amounts computed by applying the U.S. federal income tax rate of 34 percent to
pretax income from continuing operations as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -----
<S> <C> <C> <C>
Computed "expected" tax expense........................... $ 2,825 $ 1,777 $ 570
Increase (reduction) in income taxes resulting from:
Change in beginning of the year balance of the
valuation allowance for deferred tax assets........ (5,939) (3,882) (217)
State and local income taxes, net of federal income
tax benefit........................................ 410 273 214
Other differences, net............................... 314 (240) (91)
------- ------- -----
Actual income tax expense (benefit)............. $(2,390) $(2,072) $ 476
======= ======= =====
</TABLE>
F-14
<PAGE> 69
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION AS OF APRIL 30, 1996 AND FOR
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1995 IS UNAUDITED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at October 31,
1995 and 1994 are presented below:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Deferred tax liabilities:
Plant and equipment, principally due to differences in
depreciation................................................ $(4,656) $(5,411)
Intangibles, due to differences in amortizable lives........... (594) (569)
------- -------
Deferred tax liabilities............................... $(5,250) $(5,980)
======= =======
Deferred tax assets:
Receivables, principally due to allowance for doubtful accounts
and accounts written off.................................... $ 193 $ 187
Plant and equipment, due to additional costs capitalized for
tax purposes pursuant to the Tax Reform Act of 1986......... 764 641
Plant and equipment, due to basis differences on acquisitions
of assets................................................... 4,064 4,276
Investment in affiliates and plant and equipment due to gains
previously recognized for tax purposes and deferred for
financial reporting purposes................................ 1,719 1,357
Net operating loss carryforwards............................... 2,262 6,512
Investment tax credit carryforwards............................ 929 982
Other, net..................................................... 1,270 614
------- -------
Gross deferred tax assets.............................. 11,201 14,569
Less valuation allowance....................................... -- (5,939)
------- -------
Deferred tax assets.................................... $11,201 $ 8,630
======= =======
Net deferred taxes..................................... $ 5,951 $ 2,650
======= =======
</TABLE>
The valuation allowance for deferred tax assets as of November 1, 1993 was
$9,821.
For federal income tax purposes, the following carryforwards are available
as of October 31, 1995:
<TABLE>
<CAPTION>
EXPIRATION
-----------
<S> <C> <C>
Net operating loss.............................................. $6,465 2003-2005
Investment credit............................................... 929 1995-2001
Alternative minimum tax credit.................................. 660 Indefinite
</TABLE>
(11) OTHER RELATED PARTY TRANSACTIONS
Affiliates, as used within these statements, are companies which are
affiliated with Lamar Advertising Company or its subsidiaries through common
ownership and directorate control.
F-15
<PAGE> 70
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION AS OF APRIL 30, 1996 AND FOR
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1995 IS UNAUDITED)
The Company receives income and incurs costs in transactions with related
parties and affiliates. The following is a summary of such transactions for the
years ending October 31:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenues:
Management fee income....................................... $ 31 $334 $595
Rental income............................................... -- -- 209
Interest income............................................. 8 59 75
Production of logo plates................................... 143 143 341
Expenses:
Interest expense............................................ 296 308 390
Rent expense................................................ -- 71 143
</TABLE>
The Company is a party to a consulting agreement with a shareholder and
former Chairman of the Board of the Company. The agreement, which expires in
1996, provides for annual payments of $120 and an annual bonus of up to $100.
The Company incurred consulting expense of $120 under this agreement in 1995,
1994 and 1993. Additionally, the Company paid consulting fees of $110 to this
individual in 1995.
As of October 31, 1995 and 1994, debentures totaling $2,950 and $3,600,
respectively, are owned by shareholders, directors and employees.
During 1993, the Company purchased all outstanding stock of Lamar
Advertising of Wichita Falls, Inc., a company which, at the time of the
acquisition, was owned by certain stockholders of LAC. The total consideration
was approximately $1,200, which approximated the book value of the underlying
assets.
During 1993, a subsidiary of the Company purchased a building from a joint
venture whose principals included the former Chairman of the Board and two
officers of the Company for a price of approximately $740. Additionally in 1993,
this subsidiary purchased two buildings from a director of the Company for
approximately $530.
(12) COMMON STOCK
The rights of Class A and Class B common stock (as in effect on October 31,
1995) are equal in all respects, except holders of Class A common stock shall
have preemptive rights with respect to Class A common stock and Class B is
non-voting. In connection with the Offering referred to in Note 14, the Company
effected a recapitalization consisting of an approximate 778.9-for-1 stock split
and an exchange of common stock for new Class A and Class B common stock which
are equal in all respects, except holders of Class B common stock have ten votes
per share and holders of Class A common stock have one vote per share. Class B
common stock will convert automatically into Class A common stock upon the sale
or transfer to persons other than permitted transferees. All share information
has been adjusted to reflect the recapitalization.
(13) COMMITMENTS AND OTHER CONTINGENCIES
The Company sponsors a partially self-insured group health insurance
program. Coverage is available to all employees who work in excess of 30 hours
per week. The Company is obligated to pay all claims under the program which are
in excess of premiums, up to program limits of $150 per employee, per claim, per
year. The Company has purchased third-party insurance coverage for claims in
excess of this amount. The Company is
F-16
<PAGE> 71
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION AS OF APRIL 30, 1996 AND FOR
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1995 IS UNAUDITED)
also self-insured with respect to its income disability benefits and against
casualty losses on advertising structures. Amounts for expected losses including
a provision for losses incurred but not reported, are included in accrued
expenses in the accompanying consolidated financial statements. The Company
maintains a $1,000 letter of credit with a bank to meet requirements of the
Company's workers' compensation insurance carrier. The Company also maintains a
$375 letter of credit with an insurance company to partially collateralize a
surety bond for a logo company.
The Company established The Lamar Corporation Savings and Profit Sharing
Plan effective January 1, 1988. Participants include all employees who have
completed one year of service and are at least 21 years of age. The Company
matches 50% of employees' contributions up to 5% of related compensation.
Employees can contribute up to 15% of compensation. Full vesting on the
Company's matched contributions occurs after five years. The Company contributed
$512, $230 and $313 for the years ended October 31, 1995, 1994, and 1993,
respectively.
On November 1, 1993, LAC established The Lamar Corporation, Its Affiliates
and Subsidiaries Deferred Compensation Plan (the Plan) for the benefit of
certain of its senior management who meet specified age and years of service
criteria. Employees who have attained the age of 30 and have a minimum of 10
years of service are eligible for annual contributions to the Plan generally
ranging from $3 to $8, depending on the employee's length of service. LAC's
contributions to the Plan will be maintained in a "rabbi" trust and,
accordingly, the assets and liabilities of the Plan will be reflected in the
balance sheet of LAC. Upon termination, death or disability, participating
employees are eligible to receive an amount equal to the fair market value of
the assets in the employee's deferred compensation account. The Company has
contributed $240, $442 and $101 to the Plan during 1995, 1994 and 1993,
respectively. Contributions to the Plan are discretionary and are determined by
the Board of Directors.
The Company is the subject of litigation arising during the normal course
of business. In the opinion of management and general counsel of the Company,
those claims will not have a material impact on the financial position, results
of operations or liquidity of the Company.
(14) SUBSEQUENT EVENTS (UNAUDITED)
On December 30, 1995, the Certificate of Incorporation of the Company was
amended to authorize 10,000 shares of Class A preferred stock with a par value
of $638 per share and no voting rights. The Class A preferred stock are
cumulative and are priority to Class A and Class B common stock dividends at the
rate of $15.95 per share per quarter.
As of December 30, 1995, 4,454,397 shares of Class A common stock with a
$.001 per share par value were converted into 5,719.49 shares of Class A
preferred stock with a $638 per share par value. This conversion resulted in a
$3,600 charge to accumulated deficit.
On March 1, 1996, 3,463,666 shares of Class A common stock and 154,218
shares of Class B common stock, $.001 par value, were redeemed at a price of
$0.82 per share. This redemption resulted in a $3,000 charge to accumulated
deficit. In connection with the redemption, the Company has agreed, contingent
upon completion of the Offering referred to below, to pay additional
consideration of $1.38 per share in cash and $5.52 per share in ten-year
subordinated notes, which would result in an additional charge to stockholders'
equity of $25,000. The accompanying pro forma financial information gives effect
to the additional consideration to be paid upon completion of the Offering, but
does not give effect to the Offering proceeds.
F-17
<PAGE> 72
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION AS OF APRIL 30, 1996 AND FOR
THE SIX MONTHS ENDED APRIL 30, 1996 AND 1995 IS UNAUDITED)
Subsequent to April 30, 1996, the Company advanced $450 to a stockholder.
The loan is payable on or before October 15, 1996.
Effective July 1, 1996, the Company entered into a consulting agreement
with an affiliate of a shareholder and former Chairman of the Board of the
Company to replace the expiring consulting agreement discussed in Note 11. The
agreement provides for a $120 annual consulting fee for a term of ten years.
On July 24, 1996, the Board of Directors of the Company authorized the
issuance of up to 5,445,250 shares of Class A Common Stock, $.001 par value per
share, to be registered under the Securities Act of 1933 (the "Offering"). In
connection with the Offering, the Company effected the recapitalization referred
to in Note 12.
Also in connection with the Offering, the Company proposes to adopt the
1996 Equity Incentive Plan (the "1996 Plan"). The purpose of the 1996 Plan is to
attract and retain key employees and consultants of the Company. The 1996 Plan
will authorize the grant of stock options, stock appreciation rights and
restricted stock to employees and consultants of the Company capable of
contributing to the Company's performance. The Company will reserve an aggregate
of 2,000,000 shares of Class A Common Stock for awards under the 1996 Plan.
F-18
<PAGE> 73
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 74
[PHOTOGRAPH OF POSTER, BULLETIN, HIGHWAY LOGO SIGN AND BUS SHELTER]
<PAGE> 75
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- ------------------------------------------------------
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer contained herein and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company, any of the Selling Stockholders or any of the
Underwriters. This Prospectus does not constitute an offer of any securities
other than those to which it relates or an offer to sell, or a solicitation of
an offer to buy, those to which it relates in any State to any person to whom it
is not lawful to make such offer in such State. The delivery of this Prospectus
at any time does not imply that the information herein is correct as of any time
subsequent to its date.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 9
The Company........................... 15
Use of Proceeds....................... 16
Dividend Policy....................... 16
Dilution.............................. 17
Capitalization........................ 18
Selected Consolidated Financial and
Operating Data...................... 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 20
Business.............................. 26
Management............................ 38
Certain Transactions.................. 41
Principal and Selling Stockholders.... 43
Description of Capital Stock.......... 44
Shares Eligible for Future Sale....... 48
Description of Indebtedness........... 49
Underwriting.......................... 52
Certain Legal Matters................. 53
Experts............................... 53
Additional Information................ 53
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
Until August 27, 1996 (25 days after the date of this Prospectus), all dealers
effecting transactions in the Class A Common Stock, whether or not participating
in this distribution, may be required to deliver a Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus when acting as
Underwriters and with respect to their unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
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4,735,000 SHARES
[LAMAR LOGO]
CLASS A COMMON STOCK
------------
PROSPECTUS
AUGUST 2, 1996
------------
SMITH BARNEY INC.
ALEX. BROWN & SONS
INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
- --------------------------------------------------------------------------------
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