<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended September 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from
Commission file number 0-20833
LAMAR ADVERTISING COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 72-1205791
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
5551 Corporate Blvd.,
Baton Rouge, LA 70808
(Address of principal (Zip Code)
executive officers)
Registrant's telephone number, including area code (504) 926-1000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Outstanding as of
Class November 10, 1997
--------------- -------------------
<S> <C> <C>
Class A Common Stock, $ .001 par value 18,648,001
Class B Common Stock, $ .001 par value 12,758,402
</TABLE>
<PAGE> 2
CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of
October 31, 1996, December 31, 1996 and 1 - 2
September 30, 1997
Condensed Consolidated Statements of Earnings
for the three months ended October 31, 1996
and September 30, 1997 and the nine months ended
October 31, 1996 and September 30, 1997 3
Condensed Consolidated Statements of Cash Flows
for the nine months ended October 31, 1996
and September 30, 1997 4 - 5
Notes to Condensed Consolidated Financial
Statements 6 - 10
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11 - 16
ITEM 3. Quantitative and Qualitative Disclosures About
Market Risks 16
PART II - OTHER INFORMATION
- ---------------------------
ITEM 6. Exhibits and Reports on Form 8-K 16 - 17
Signatures 18
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
LAMAR ADVERTISING COMPANY AND
SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
October 31, December 31, September 30,
1996 1996 1997
---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
- ------
Cash and cash equivalents $ 8,430 81,007 4,630
Receivables
Trade accounts, net 12,855 18,949 31,063
Affiliates, related parties
and employees 348 558 713
Other 327 141 946
-------- ------- ------
Net receivables 13,530 19,648 32,722
Prepaid expenses 1,973 3,939 9,731
Other current assets 1,544 1,655 1,587
-------- ------- -------
Total current assets 25,477 106,249 48,670
-------- ------- -------
Property, plant and equipment 207,071 260,325 411,692
Less accumulated depreciation
and amortization (87,343) (89,595) (100,796)
-------- ------ -------
Net property, plant and equipment 119,728 170,730 310,896
-------- ------- -------
Investment securities 4,414 2,250 1,104
Intangible assets 18,223 78,899 279,766
Receivables - noncurrent 737 761 1,575
Deferred taxes 2,463 6,862 -
Other assets 2,147 2,405 4,479
-------- ------- -------
173,189 368,156 646,490
======== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Trade accounts payable 3,263 4,279 4,914
Accrued expenses 11,066 7,900 18,942
Current maturities of long-term
debt 3,815 4,088 5,365
Deferred income 5,793 6,484 7,185
-------- ------ -------
Total current liabilities 23,937 22,751 36,406
-------- ------ -------
Long-term debt 128,140 279,260 522,987
Deferred income 811 847 865
Other liabilities 1,260 1,535 2,301
Deferred tax liability -- -- 16,391
-------- ------- -------
Total liabilities 154,148 304,393 578,950
--------- ------- -------
</TABLE>
-1-
<PAGE> 4
LAMAR ADVERTISING COMPANY AND
SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
October 31, December 31, September 30,
1996 1996 1997
---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C>
STOCKHOLDERS' EQUITY
- --------------------
Class A preferred stock, par
value $638, $63.80 cumulative
dividends, authorized 10,000
shares; 5,719.49 shares issued and
outstanding at October 31, 1996,
December 31, 1996 and
September 30, 1997, respectively 3,649 3,649 3,649
Class A common stock, $.001 par value.
Authorized 50,000,000 shares;
issued and outstanding 15,004,340
shares 17,611,240 shares and 18,629,551
shares at October 31, 1996, December
31, 1996, and September 30, 1997,
respectively 15 17 19
Class B common stock, $.001 par value.
Authorized 25,000,000 shares;
issued and outstanding 13,791,387
shares, 13,716,387 shares, and
12,758,402 shares at October 31, 1996,
December 31, 1996 and September 30, 1997,
respectively 14 14 13
Additional paid in capital 38,060 92,258 93,223
Accumulated deficit (24,681) (32,796) (29,273)
Unrealized gain (loss) on investment
securities net of deferred tax
benefit/expense 1,984 621 (91)
--------- -------- --------
Stockholders' equity 19,041 63,763 67,540
--------- -------- --------
Total liabilities and
stockholders' equity $ 173,189 $368,156 $ 646,490
========= ======== =========
</TABLE>
-2-
<PAGE> 5
LAMAR ADVERTISING COMPANY AND
SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
October 31, September 30, October 31, September 30,
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Net advertising revenue $ 32,253 $ 55,372 $ 92,477 $ 143,016
Other income 184 113 513 424
--------- --------- --------- ---------
32,437 55,485 92,990 143,440
--------- --------- --------- ---------
Operating expenses
Outdoor advertising:
Direct advertising
expenses 10,215 16,511 30,340 45,461
Selling, general and
administrative expenses 6,624 12,554 21,775 32,635
Depreciation and
amortization 4,981 14,058 12,162 31,785
--------- --------- --------- ---------
21,820 43,123 64,277 109,881
--------- --------- --------- ---------
Operating income 10,617 12,362 28,713 33,559
--------- --------- --------- ---------
Non-operating (income)
expense:
Interest income (100) (178) (187) (1,599)
Interest expense 3,484 10,356 11,614 25,760
Loss on disposition
of assets 194 (143) 924 599
Other expenses (12) 140 90 317
--------- --------- --------- ---------
3,566 10,175 12,441 25,077
--------- --------- --------- ---------
Earnings before
income taxes 7,051 2,187 16,272 8,482
Income tax expense 2,679 1,180 6,424 4,594
--------- --------- --------- ---------
Net earnings 4,372 1,007 9,848 3,888
========= ========= ========= =========
Preferred stock dividends 91 91 274 365
--------- --------- --------- ---------
Net earnings applicable to
common stock 4,281 916 9,574 3,523
========= ========= ========= =========
Net earnings per common
share .15 .03 .36 .11
========= ========= ========= =========
</TABLE>
-3-
<PAGE> 6
LAMAR ADVERTISING COMPANY AND
SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
October 31, 1996 September 30,1997
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 9,848 3,888
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 12,162 31,785
Loss on disposition of assets 924 599
Deferred taxes 1,722 (1,297)
Provision for doubtful accounts 278 985
Changes in operating assets and liabilities:
Decrease (Increase) in:
Receivables (205) (8,295)
Prepaid expenses (87) 93
Other assets 1,287 (816)
Increase (Decrease) in:
Trade accounts payable 1,085 (42)
Accrued expenses 6,322 9,917
Other liabilities 562 9
Deferred income 1,934 533
-------- --------
Net cash provided by operating
activities 35,832 37,359
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in notes receivable -- (1,338)
Acquisition of new markets (15,748) (377,710)
Capital expenditures (20,915) (24,664)
Proceeds from disposition of assets 768 54,352
Purchase of intangible assets (1,176) (2,273)
-------- --------
Net cash used in investing
activities (37,071) (351,633)
-------- --------
</TABLE>
-4-
<PAGE> 7
LAMAR ADVERTISING COMPANY AND
SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
October 31,1996 September 30,1997
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 63,064 965
Principal payments on long-term debt (40,209) (3,163)
Proceeds from issuance of notes payable -- 34
Proceeds from note offering -- 193,426
Proceeds under Bank Credit Agreement 18,000 300,000
Principal payments under Bank Credit
Agreement (24,500) (253,000)
Stock redemption (7,962) --
Dividends (524) (365)
-------- --------
Net cash provided in financing
activities 7,869 237,897
-------- --------
Net increase (decrease) in cash and
cash equivalents 6,630 (76,377)
Cash and cash equivalents at beginning
of year 1,800 81,007
-------- --------
Cash and cash equivalents at end of
year $ 8,430 4,630
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 8,924 19,050
======== ========
Cash paid for state and
federal income taxes $ 3,451 4,244
======== ========
</TABLE>
-5-
<PAGE> 8
LAMAR ADVERTISING COMPANY AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
1. SIGNIFICANT ACCOUNTING POLICIES
The information included in the foregoing interim financial statements is
unaudited. In the opinion of management, all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of the Company's
financial position and results of operations for the interim periods presented
have been reflected herein. The results of operations for interim periods are
not necessarily indicative of the results to be expected for the entire year.
These condensed consolidated financial statements should be read in conjunction
with the Company's consolidated financial statements and the notes thereto
included in the Company's Annual Report on Form 10-K.
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.
On December 17, 1996, the Board of Directors of the Company voted to
change the Company's fiscal year so that the Company's fiscal year would end on
December 31 of each year. The Company's last fiscal year ended on October 31,
1996. The two-month period from November 1, 1996 to December 31, 1996 was
treated as a transition period that will not be a part of fiscal year 1996 or
calendar year 1997, and was reported on a Form 10 Q/T. In light of the
Company's public equity offering in fiscal 1996, this year end change was made
to conform to predominant year ends within the industry.
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 (28,986,956 for the three months ended October
31, 1996, 26,395,554 for the nine months ended October 31, 1996, 31,958,902 for
the three months ended September 30, 1997 and 31,978,773 for the nine months
ended September 30, 1997). Weighted average shares for the three months ended
September 30, 1997 and nine months ended September 30, 1997 include the effect
of 639,236 shares and 602,053 shares, respectively, issuable upon the exercise
of stock options calculated using the treasury stock method, respectively.
2. Long-Term Debt
In November 1996, the Company commenced a tender offer for all of its $100,000
outstanding principal amount of 11% Senior Secured Notes due 2003 (the "1993
Notes"). As of September 30, 1997, approximately $98,500 of the 1993 Notes
were tendered to the Company and retired. As a result of this tender offer and
the extinguishment of other credit facilities, the Company incurred a loss on
debt extinguishment of approximately $9,500, net of income tax benefit of
$5,700.
-6-
<PAGE> 9
LAMAR ADVERTISING COMPANY AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
Also in November 1996, the Company issued $255,000 in principal amount of 9
5/8% Senior Subordinated Notes due 2006 (the "1996 Notes"), with interest
payable semi-annually on June 1 and December 1 of each year commencing June 1,
1997. The 1996 Notes are senior subordinated unsecured obligations of the
Company and are subordinated in right of payment to all senior indebtedness of
the Company and are senior to all existing and future subordinated indebtedness
of the Company.
The 1996 Notes are redeemable at the Company's option at any time on or after
December 31, 2001 at redemption prices specified by the indenture covering the
1996 Notes, and are required to be repurchased earlier in the event of a change
of control of the Company. The indenture covering the Notes includes certain
restrictive covenants which limit the Company's ability to incur additional
debt, pay dividends and make other restricted payments, consummate certain
transactions and other matters.
In December 1996, the Company entered into a credit facility (the "Bank Credit
Agreement") with a syndicate of financial institutions which replaced the
Company's then existing bank credit facilities. The Bank Credit Agreement
provides the Company with a committed $225,000 revolving credit facility and a
$75,000 incremental term facility funded at the discretion of the lenders.
Availability of the line under the revolving facility will be reduced over a
five year period from 1999 to 2003 and will bear interest at a variable rate of
interest based upon an applicable margin over prime or the LIBOR rate. The
term loan will amortize over six years beginning in 1999. The Bank Credit
Agreement is guaranteed by the Company's subsidiaries and secured by the
capital stock of the Company's subsidiaries. The Bank Credit Agreement
contains various restrictive covenants which require that the Company meet
certain minimum leverage and coverage ratios, restrict additional indebtedness,
limit dividends and other restricted payments, limit capital expenditures and
dispositions of assets, and other restrictions. In September 1997, the Company
amended certain financial and other covenants in the Bank Credit Facility,
including increases in permitted capital expenditures and permitted
acquisitions. As of September 30, 1997 there was $47,000 outstanding under
the Bank Credit Agreement.
In September 1997, the Company issued $200,000 in principal amount of 8 5/8%
Senior Subordinated Notes due 2007 (the "1997 Notes") with interest payable
semi-annually on March 15 and September 15 of each year, commencing March 15,
1998. The 1997 Notes are senior subordinated unsecured obligations of the
Company, subordinated in right of payment to all senior indebtedness of the
Company, pari passu with the 1996 Notes and are senior to all existing and
future subordinated indebtedness of the Company.
The redemption provisions and restrictive covenants contained in the indenture
covering the 1997 Notes are identical to those contained in the indenture
covering the 1996 Notes.
-7-
<PAGE> 10
LAMAR ADVERTISING COMPANY AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
3. Acquisitions
Effective November 1, 1996, the Company purchased all of the outstanding
capital stock of FKM Advertising Co., Inc. for a cash purchase price of
approximately $40,000, and on December 10, 1996, the Company purchased
substantially all of the assets of Outdoor East, L.P. for a total cash purchase
price of approximately $60,500.
Effective April 1, 1997, the Company acquired all of the outstanding capital
stock of Penn Advertising, Inc. for a cash purchase price of approximately
$167,000. The Company subsequently sold approximately 16% of the displays
acquired to Universal Outdoor, Inc. for a cash purchase price of $46,500.
On May 15, 1997, the Company acquired all of the outstanding capital stock of
McWhorter Advertising, Inc. for a cash purchase price of $8,500.
On June 3, 1997, the Company purchased substantially all of the assets of
Headrick Outdoor, Inc. for a cash price of $76,600. Simultaneous with the
acquisition, the Company sold approximately 9% of the outdoor displays acquired
for a total sales price of $6,000.
On August 15, 1997 the Company purchased from Outdoor Systems, Inc. ("OSI"),
for a cash purchase price of approximately $116,000 (excluding approximately
$2,000 in capitalized costs), certain outdoor advertising assets that OSI had
acquired from National Advertising Company ("3M").
Each of these acquisitions were accounted for under the purchase method of
accounting. The following is a summary of the allocation of the acquisition
costs in the above transactions.
<TABLE>
<S> <C>
Current assets 13,128
Property, plant, and equipment 177,662
Intangibles 261,170
Current liabilities 2,311
Long-term liabilities 1,001
Deferred tax liabilities 29,084
</TABLE>
-8-
<PAGE> 11
LAMAR ADVERTISING COMPANY AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
Summarized below are certain unaudited pro forma statement of operations data
for the three months ended October 31, 1996 and September 30, 1997 and nine
months ended October 31, 1996 and September 30, 1997 as if each of these
acquisitions had been consummated as of February 1, 1996. This pro forma
information does not purport to represent what the Company's results of
operations actually would have been had such transactions occurred on the date
specified or to project the Company's results of operations for any future
periods.
<TABLE>
<CAPTION>
Three months ended Nine months ended
October 31, September 30, October 31, September 30,
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues, net $ 56,193 $ 58,124 $160,640 $ 168,924
====== ====== ======= =======
Net loss, applicable to
common stock 136 151 (4,331) (3,949)
====== ====== ======= =======
Net (loss) per common share .005 .005 (.15) (.12)
====== ====== ======= =======
</TABLE>
4. Stockholders Equity
In November 1996, the Company completed an offering of 2,530,000 shares of its
Class A Common Stock at a price to the public of $23.00 per share. This
transaction resulted in a $54,171 increase in total stockholder's equity after
deducting commissions and fees related to the transaction.
5. Summarized Financial Information of Subsidiaries
Separate financial statements of each of the Company's direct or indirect
wholly owned subsidiaries that have guaranteed the Company's obligations with
respect to the 1996 Notes and 1997 Notes (collectively, the "Guarantors") are
not included herein because the Guarantors are jointly and severally liable
under the guarantees, and the aggregate assets, liabilities, earnings and
equity of the Guarantors are substantially equivalent to the assets,
liabilities, earnings and equity of the Company on a consolidated basis.
-9-
<PAGE> 12
LAMAR ADVERTISING COMPANY AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
Summarized financial information for Missouri Logos, a Partnership, a 66 2/3%
owned subsidiary of the Company and the only subsidiary of the Company that is
not a Guarantor, is set forth below:
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1997
------------------------------------
(Unaudited)
<S> <C>
Current assets 588
Total assets 642
Total liabilities 354
Venturers' equity 288
Revenues 677
Net income 354
</TABLE>
-10-
<PAGE> 13
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As a result of the change in the Company's year end from October 31 to
December 31, the results of operations set forth in the accompanying financial
statements reflect the three month period ended September 30, 1997 and October
31, 1996, and the nine month period ended September 30, 1997 and October 31,
1996. As a result, the results of operations do not reflect comparative
periods. As an aid to understanding and comparing the Company's operating
results, the following table sets forth results of operations for the three
month period ended September 30, 1996 and 1997, and the nine month period ended
September 30, 1996 and 1997. The discussion that follows compares these two
periods.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Outdoor advertising net $ 31,729 $ 55,372 $ 90,226 $143,016
Other income 184 113 479 424
-------- -------- -------- --------
31,913 55,485 90,705 143,440
Direct advertising expenses 9,916 16,511 31,024 45,461
General and administrative
expenses 7,821 12,554 22,684 32,635
Depreciation and
amortization 4,475 14,058 11,510 31,785
-------- -------- -------- --------
22,212 43,123 65,218 109,881
-------- -------- -------- --------
Operating income 9,701 12,362 25,487 33,559
-------- -------- -------- --------
Other expenses (income)
Interest income (90) (178) (181) (1,599
Interest expense 3,846 10,356 11,829 25,760
Other expenses (income) 176 (3) 996 91
-------- -------- -------- --------
3,932 10,175 12,644 25,077
-------- -------- -------- --------
Earnings before income
taxes 5,769 2,187 12,843 8,482
Income tax expense 2,323 1,180 5,152 4,594
-------- -------- -------- --------
Net earnings 3,446 1,007 7,691 3,888
======== ======== ======== ========
</TABLE>
The following discussion is a summary of the key factors management considers
necessary in reviewing the Company's results of operations, liquidity and
capital resources. Forward-looking statements contained in the following
discussion are expectations only and there can be no assurance that actual
results will not materially differ from these expectations. This discussion
should be read in conjunction with the financial statements and related notes
of the Company. See also "Important Factors Regarding Forward-Looking
Statements" included as Exhibit
-11-
<PAGE> 14
99.1 to the Company's Annual Report on Form 10-K for the year ended October 31,
1996.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1997 Compared to Nine Months Ended
September 30, 1996
Net revenues increased $52.7 million or 58.1% to $143.4 million for the nine
months ended September 30, 1997. This increase was the result of a (i) $46.8
million increase in billboard net revenues, of which $36.6 million is
attributable to the Company's acquisitions of FKM Outdoor Advertising Co.,
Outdoor East, L.P., Revere National Corporation, Penn Advertising, Inc.,
McWhorter Advertising, Inc., Headrick Outdoor, Inc. and National Advertising
Company with the remaining $10.2 million attributable to existing operations,
and a (ii) $5.6 million increase in logo sign revenue due to the completion of
development of the new state logo sign franchises awarded and acquired in 1996
and the continued expansion of the Company's existing logo sign franchises.
Net billboard advertising revenue for the nine month period ended September 30,
1997 was $126.1 million and net logo sign revenue was $15.0 million.
Operating expenses, exclusive of depreciation and amortization, increased $24.4
million or 45.4% for the nine months ended September 30, 1997 as compared to
the same period in 1996. This was primarily the result of the additional
operating expenses related to acquisitions of outdoor advertising assets and
the newly developed and acquired logo sign franchises.
Depreciation and amortization expense increased $20.3 million or 176.2% from
$11.5 million for the nine months ended September 30, 1996 to $31.8 million for
nine months ended September 30, 1997 as a result of an increase in capital
assets resulting from the Company's recent acquisition activity.
Due to the above factors, operating income increased $8.1 million or 31.7% to
$33.6 million for nine months ended September 30, 1997 from $25.5 million for
the same period in 1996.
Interest income increased $1.4 million as a result of earnings on excess cash
investments made during the period. Interest expense increased $13.9 million
from $11.8 million for the nine months ended September 30, 1996 to $25.8
million for nine months ended September 30, 1997 as a result of interest
expense on the 1996 Notes and borrowings under the Bank Credit Facility.
Income tax expense decreased $0.6 million or 10.8 % to $4.6 million for the
nine months ended September 30,1997 as compared to the same period in 1996.
As a result of the above factors, the Company recognized net earnings for the
nine months ended September 30, 1997 of $3.9 million, as compared to $7.7
million for the same period in 1996.
-12-
<PAGE> 15
Three Months Ended September 30, 1997 Compared to Three Months Ended
September 30, 1996
Net revenues for the three months ended September 30, 1997 increased
$23.6 million or 73.9% to $55.5 million from $31.9 million for the same period
in 1996.
Operating expenses, exclusive of depreciation and amortization, for
the three months ended September 30, 1997 increased $11.3 million or 63.9% over
the same period in 1996.
Depreciation and amortization expense increased $9.6 million or 214.1%
from $4.5 million for three months ended September 30, 1996 to $14.1 million
for the three months ended September 30, 1997.
Due to the above factors, operating income increased $2.7 million or
27.4% from $9.7 million for the three months ended September 30, 1996 to $12.4
million for the same period in 1997.
Interest expense increased $6.5 million from $3.8 million for the
three months ended September 30, 1996 to $10.4 million for the same period in
1997.
Income tax expense for the period decreased $1.1 million from $2.3
million for the three months ended September 30, 1996 to $1.2 million for the
same period in 1997.
As a result of the above factors, the Company recognized net earnings
for the three months ended September 30, 1997 of $1.0 million as compared to
$3.4 million for the three months ended September 30, 1996.
The results for the three months ended September 30, 1997 were
affected by the same factors as the nine months ended September 30, 1997.
Reference is made to the discussion of the nine month results.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically satisfied its working capital requirements with
cash from operations and revolving credit borrowings. Its acquisitions have
been financed primarily with borrowed funds.
In November and December of 1996, the Company engaged in several transactions
which significantly changed its capital structure and positioned it to expand
operations through acquisitions. These transactions were: (i) a public
offering of 2,530,000 shares of Class A Common Stock at $23 per share, (ii) a
tender offer that retired approximately $98.5 million of the 1993 Notes (iii)
an offering of $255 million in principal amount of the 1996 Notes, and (iv)
entering into the Bank Credit Agreement, which consists of a committed $225
million revolving credit facility (the "Revolving Facility") and a $75 million
incremental facility (the "Incremental Facility") funded at the discretion of
the lenders. The Bank Credit Agreement replaced the Company's previous bank
credit facilities.
Net proceeds to the Company, after underwriting discounts, from the equity and
-13-
<PAGE> 16
1996 Note offerings were $55.4 million and $248.0 million, respectively. These
proceeds were used to extinguish outstanding bank debt of approximately $47.0
million, fund the tender offer for the 1993 Notes, purchase Outdoor East for
$60.5 million and pay investment banking fees as well as other related costs of
approximately $12.0 million related to the above transactions. The balance of
approximately $85 million was used for acquisitions (including a portion of the
purchase price of the Penn acquisition) and to fund operations.
The Company has primarily used the Bank Credit Agreement to finance its
acquisition activity. In this regard, the Company borrowed approximately $48
million and $66 million under the Bank Credit Agreement to finance the Penn
acquisition and Headrick acquisition, respectively, in each case after giving
effect to proceeds received by the Company from the disposition of certain
assets acquired in these acquisitions, which were applied to reduce the amount
outstanding under the Bank Credit Agreement. In addition, the Company
completed the 3M Acquisition in August 1997, which was financed with $74
million in borrowings under the Revolving Facility and $40 million of borrowing
under the Incremental Facility.
In September 1997, the Company completed the offering of $200 million in
principal amount of the 1997 Notes, the net proceeds of which (approximately
$193.4 million) were used to repay amounts then outstanding under the Bank
Credit Agreement. Following the application of such proceeds, approximately
$172 million was available under the Revolving Facility and $75 million was
available but not committed under the Incremental Facility. In connection with
the offering of the 1997 Notes, the Company amended certain financial and
other covenants in the Bank Credit Agreement, including an increase in
permitted capital expenditures from 20% of the Company's EBITDA to 35% of the
Company's EBITDA and an increase in the size of permitted acquisitions from $50
million to $100 million.
The Company's net cash provided by operating activities was $37.4 million for
the nine months ended September 30, 1997 due to the Company's net earnings of
$3.9 million, non-cash items of $32.1 million (including depreciation and
amortization of $31.8 million), an increase in receivables of $8.3 million, and
an increase in accrued expenses of $9.9 million. Net cash used in investing
activities was $351.6 million for the nine months ended September 30, 1997 due
to an increase in notes receivable of $1.3 million, acquisitions of new markets
of $377.7 million, (offset by proceeds from dispositions of assets of $54.4
million), capital expenditures of $24.7 million, and purchases of intangible
assets of $2.3 million. Net cash provided by financing activities was $237.9
million for the nine months ending September 30, 1997 due to proceeds from
issuance of notes payable to banks of $300 million and proceeds from note
offering of $193.4 million offset by principal payments on long-term debt of
$3.2 million and principal payments on notes payable to banks of $253 million.
The items described above yield a net decrease in cash and cash equivalents of
$76.4 million for the nine months ending September 30, 1997.
The Company believes that internally generated funds and funds available for
borrowing under the Bank Credit Agreement will be sufficient for the
foreseeable future to satisfy all debt service obligations and to finance its
current operations.
-14-
<PAGE> 17
Regulation of Tobacco Advertising
Approximately 10% of the Company's billboard advertising net revenues and 8% of
consolidated net revenues in fiscal 1996 came from the tobacco products
industry, compared to 9% of billboard advertising net revenues for fiscal 1995,
7% for fiscal 1994 and 1993, 12% for fiscal 1992 and 17% for fiscal 1991. The
percentage for the nine months ended September 30, 1997 on a historical basis
was approximately 9%, and on a proforma basis giving effect to the Company's
acquisitions of FKM, Outdoor East, Penn and 3M was approximately 9%.
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. Although
the Company has attempted to replace tobacco advertising by diversifying its
customer base and increasing sales to local advertisers, 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
regulations or as to what affect any such reduction may have on the Company.
In June 1997 several of the major tobacco companies in the U.S. and numerous
state attorneys general reached agreement on a proposed settlement of
litigation between such parties. The terms of this proposed settlement include
a ban on all outdoor advertising of tobacco products commencing nine months
after finalization of the settlement. The settlement, however, is subject to
numerous conditions, the most notable of which is the enactment of legislation
by the federal government. At this time, it is uncertain when a definitive
settlement will be reached, if at all, or what the terms of any such
settlement will be. A reduction in billboard advertising by the tobacco
industry could cause an immediate reduction in the Company's outdoor
advertising revenues, may simultaneously increase the Company's available
inventory, and could have a material adverse effect on the Company's results of
operations. The Company believes, however, that it would be able to replace a
substantial portion of revenues from tobacco advertising that would be
eliminated due to such a settlement with revenues from other sources.
In addition, the states of Florida and Mississippi have entered into separate
settlements of litigation with the tobacco industry. These settlements are not
conditioned on federal government approval and provide for the elimination of
all outdoor advertising of tobacco products by February 1998 in such states.
The Company operates approximately 4,200 outdoor advertising displays in seven
markets in Florida and approximately $1.4 million of its approximately $17.0
million in net revenues in Florida for the fiscal year ended October 31, 1996
were attributable to tobacco advertising. In addition, the Company operates
approximately 2,600 outdoor advertising displays in three markets in
Mississippi and approximately $0.6 million of its approximately $7.8 million in
net revenues in Mississippi for the fiscal year ended October 31, 1996 were
attributable to tobacco advertising. Further, the settlement of
tobacco-related claims and litigation in other jurisdictions may also adversely
affect outdoor advertising revenues.
-15-
<PAGE> 18
New Accounting Pronouncements
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards (SFAS) No. 128 "Earnings Per Share", which
established a new accounting principle for the calculation of earnings per
share. This SFAS is effective for accounting periods ending after December 15,
1997. Management does not believe that SFAS No. 128 will have a material
impact on earnings per share for the periods presented.
The FASB has issued SFAS No. 130, "Reporting Comprehensive Income", which will
require the Company to disclose, in financial statement format, all non-owner
changes in equity. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. Adoption of this standard is not expected to have a
material impact on disclosures in the Company's financial statements.
The FASB has issued SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information", which established a new accounting principle for
reporting information about operating segments in annual financial statements
and interim financial reports. It also established standards for related
disclosures about products and services, geographic areas and major customers.
SFAS No. 131 is effective for fiscal years beginning after December 15, 1997.
The Company is currently evaluating the applicability of this standard.
However, the Company does not expect a material impact on disclosures in the
Company's financial statements.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Not applicable
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
<TABLE>
<S> <C>
Exhibit 2.1 Asset Purchase Agreement dated as of August 15, 1997 between The Lamar Corporation and
Outdoor Systems, Inc. Previously filed as Exhibit 2.1 to the Company's Current Report
on Form 8-K filed with the Commission on August 27, 1997 and incorporated herein by
reference.
Exhibit 4.1 Form of 8 5/8% Senior Subordinated Notes due 2007. Previously filed as Exhibit 4.1 to
the Company's Current Report on Form 8-K filed with the Commission on September 30,
1997 and incorporated herein by reference.
Exhibit 4.2 Indenture dated September 25, 1997 between Lamar
</TABLE>
-16-
<PAGE> 19
<TABLE>
<S> <C>
Advertising Company, certain of its subsidiaries, and State Street Bank and Trust Company, as
trustee. Previously filed as Exhibit 4.2 to the Company's Current Report on Form 8-K filed with
the Commission on September 30, 1997 and incorporated herein by reference.
Exhibit 10.1 Exchange and Registration Rights Agreement dated September 25, 1997 between Lamar
Advertising Company and Chase Securities Inc., Smith Barney Inc., BT Alex. Brown
Incorporated and Montgomery Securities. Previously filed as Exhibit 10.1 to the
Company's Current Report on Form 8-K filed with the Commission on September 30, 1997
and incorporated herein by reference.
Exhibit 10.2 Amendment No. 2 to Credit Agreement dated as of September 12, 1997 between Lamar
Advertising Company, certain of its subsidiaries, the lenders party thereto and The
Chase Manhattan Bank, as administrative agent. Previously filed as Exhibit 10.2 to
the Company's Current Report on Form 8-K filed with the Commission on September 30,
1997 and incorporated herein by reference.
Exhibit 27.1 Financial Data Schedule. Filed herewith.
</TABLE>
(b) Reports on Form 8-K
Reports on Form 8-K were filed with the Securities and Exchange
Commission during the quarter ended September 30, 1997 to report the
following items as of the dates indicated:
o The Company filed on August 27, 1997 a report on Form 8-K
reporting under Item 2 that a wholly-owned subsidiary of the
Company had completed the acquisition (the "3M Acquisition")
from Outdoor Systems, Inc. ("OSI"), for a cash purchase price
of approximately $116.0 million (excluding approximately $2.0
million in capitalized costs), certain outdoor advertising
assets that OSI had acquired from National Advertising Company,
previously a wholly-owned subsidiary of Minnesota Mining and
Manufacturing Company ("3M"). On October 27, 1997, the Company
amended this report to present under Item 7 a statement of
assets acquired and liabilities assumed by the Company in the
3M Acquisition, a related statement of revenues and expenses,
and pro forma financial information of the Company giving
effect to the 3M Acquisition.
o The Company filed on September 30, 1997 a report on Form 8-K
reporting under Item 5 the private placement of $200,000,000
aggregate principal amount of 8 5/8% Senior Subordinated Notes
due 2007 and the amendment of the Company's credit facility
with a syndicate of commercial banks.
-17-
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LAMAR ADVERTISING COMPANY
DATED: November 13, 1997 BY /s/ Keith Istre
----------------------------
Keith A. Istre
Chief Financial and Accounting Officer
and Director
-18-
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DEFINITION
------- ----------
<S> <C>
Exhibit 2.1 Asset Purchase Agreement dated as of August 15, 1997 between The Lamar Corporation and
Outdoor Systems, Inc. Previously filed as Exhibit 2.1 to the Company's Current Report
on Form 8-K filed with the Commission on August 27, 1997 and incorporated herein by
reference.
Exhibit 4.1 Form of 8 5/8% Senior Subordinated Notes due 2007. Previously filed as Exhibit 4.1 to
the Company's Current Report on Form 8-K filed with the Commission on September 30,
1997 and incorporated herein by reference.
Exhibit 4.2 Indenture dated September 25, 1997 between Lamar Advertising Company, certain of its
subsidiaries, and State Street Bank and Trust Company, as trustee. Previously filed
as Exhibit 4.2 to the Company's Current Report on Form 8-K filed with the Commission
on September 30, 1997 and incorporated herein by reference.
Exhibit 10.1 Exchange and Registration Rights Agreement dated September 25, 1997 between Lamar
Advertising Company and Chase Securities Inc., Smith Barney Inc., BT Alex. Brown
Incorporated and Montgomery Securities. Previously filed as Exhibit 10.1 to the
Company's Current Report on Form 8-K filed with the Commission on September 30, 1997
and incorporated herein by reference.
Exhibit 10.2 Amendment No. 2 to Credit Agreement dated as of September 12, 1997 between Lamar
Advertising Company, certain of its subsidiaries, the lenders party thereto and The
Chase Manhattan Bank, as administrative agent. Previously filed as Exhibit 10.2 to
the Company's Current Report on Form 8-K filed with the Commission on September 30,
1997 and incorporated herein by reference.
Exhibit 27.1 Financial Data Schedule. Filed herewith.
</TABLE>
-19-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,630
<SECURITIES> 1,104
<RECEIVABLES> 34,122
<ALLOWANCES> 1,400
<INVENTORY> 0
<CURRENT-ASSETS> 48,670
<PP&E> 411,692
<DEPRECIATION> 100,796
<TOTAL-ASSETS> 646,490
<CURRENT-LIABILITIES> 36,406
<BONDS> 522,987
0
3,649
<COMMON> 32
<OTHER-SE> 63,859
<TOTAL-LIABILITY-AND-EQUITY> 646,490
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