LAMAR ADVERTISING CO/NEW - Quarter Report: 2008 March (Form 10-Q)
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
þ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended March 31, 2008
or
o | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission File Number 0-30242
Lamar Advertising Company
Commission File Number 1-12407
Lamar Media Corp.
(Exact name of registrants as specified in their charters)
Delaware | 72-1449411 | |
Delaware | 72-1205791 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S Employer Identification No.) |
|
5551 Corporate Blvd., Baton Rouge, LA | 70808 | |
(Address of principle executive offices) | (Zip Code) |
Registrants telephone number, including area code: (225) 926-1000
Indicate by check mark whether each 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 þ No o
Indicate by check mark whether Lamar Advertising Company is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of
large accelerated filer and accelerated filer and smaller reporting company in Rule 12b-2
of the Exchange Act.
Large accelerated filer
þ Accelerated filer
o
Non-accelerated filer
o
Smaller reporting company
o
(Do not check if a smaller reporting company)
Indicate by check mark whether Lamar Media Corp. is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company . See the definitions of large
accelerated filer and accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
Large accelerated filer
o Accelerated filer
o
Non-accelerated filer
þ
Smaller reporting company
o
(Do not check if a smaller reporting company)
Indicate by check mark whether Lamar Advertising Company is a shell company (as defined in Rule
12b-2 of the Exchange Act): Yes o No þ
Indicate by check mark whether Lamar Media Corp. is a shell company (as defined in Rule 12b-2 of
the Exchange Act): Yes o No þ
The number of shares of Lamar Advertising Companys Class A common stock outstanding as of May 1,
2008: 76,991,663
The number of shares of the Lamar Advertising Companys Class B common stock outstanding as of May
1, 2008: 15,372,865
The number of shares of Lamar Media Corp. common stock outstanding as of May 1, 2008: 100
This combined Form 10-Q is separately filed by (i) Lamar Advertising Company and (ii) Lamar Media
Corp. (which is a wholly owned subsidiary of Lamar Advertising Company). Lamar Media Corp. meets
the conditions set forth in general instruction H(1) (a) and (b) of Form 10-Q and is, therefore,
filing this form with the reduced disclosure format permitted by such instruction.
Table of Contents
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This combined Quarterly Report on Form 10-Q of Lamar Advertising Company (Lamar Advertising or
the Company) and Lamar Media Corp. (Lamar Media) contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. These are statements that relate to future periods and include statements about the
Companys and Lamar Medias:
| expected operating results; | ||
| market opportunities; | ||
| acquisition opportunities; | ||
| stock repurchase program; | ||
| ability to compete; and | ||
| stock price. |
Generally, the words anticipates, believes, expects, intends, estimates, projects, plans and
similar expressions identify forward-looking statements. These forward-looking statements involve
known and unknown risks, uncertainties and other important factors that could cause the Companys
and Lamar Medias actual results, performance or achievements or industry results to differ
materially from any future results, performance or achievements expressed or implied by these
forward-looking statements. These risks, uncertainties and other important factors include, among
others:
| risks and uncertainties relating to the Companys significant indebtedness; | ||
| the demand for outdoor advertising; | ||
| the performance of the U.S. economy generally and the level of expenditures on outdoor advertising particularly; | ||
| the Companys ability to renew expiring contracts at favorable rates; | ||
| the integration of companies that the Company acquires and its ability to recognize cost savings or operating efficiencies as a result of these acquisitions; | ||
| the Companys need for and ability to obtain additional funding for acquisitions or operations; | ||
| the market price of the Companys Class A common stock; | ||
| the existence and nature of investment and digital deployment opportunities available to the Company from time to time; and | ||
| the regulation of the outdoor advertising industry by federal, state and local governments. |
For a further description of these and other risks and uncertainties, the Company encourages you to
read carefully Item 1A to the combined Annual Report on Form 10-K for the year ended December 31,
2007 of the Company and Lamar Media (the 2007 Combined Form 10-K).
The forward-looking statements contained in this combined Quarterly Report on Form 10-Q speak only
as of the date of this combined report. Lamar Advertising Company and Lamar Media Corp. expressly
disclaim any obligation or undertaking to disseminate any updates or revisions to any
forward-looking statement contained in this combined Quarterly Report to reflect any change in
their expectations with regard thereto or any change in events, conditions or circumstances on
which any forward-looking statement is based, except as may be required by law.
2
CONTENTS
3
Table of Contents
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LAMAR ADVERTISING COMPANY AND
SUBSIDIARIES
SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
March 31, | December 31, | |||||||
2008 | 2007 | |||||||
(Unaudited) | ||||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 18,861 | $ | 76,048 | ||||
Receivables, net of allowance for doubtful accounts of $8,154 and $6,740 in 2008 and 2007, respectively |
147,820 | 147,301 | ||||||
Prepaid expenses |
60,094 | 40,657 | ||||||
Deferred income tax assets |
8,227 | 19,857 | ||||||
Other current assets |
28,167 | 29,004 | ||||||
Total current assets |
263,169 | 312,867 | ||||||
Property, plant and equipment |
2,756,288 | 2,686,116 | ||||||
Less accumulated depreciation and amortization |
(1,207,020 | ) | (1,169,152 | ) | ||||
Net property, plant and equipment |
1,549,268 | 1,516,964 | ||||||
Goodwill |
1,387,412 | 1,376,240 | ||||||
Intangible assets |
810,744 | 802,953 | ||||||
Deferred financing costs, net of accumulated amortization of $32,973 and $31,731 in 2008 and 2007,
respectively |
28,085 | 29,164 | ||||||
Other assets |
47,621 | 43,575 | ||||||
Total assets |
$ | 4,086,299 | $ | 4,081,763 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Trade accounts payable |
$ | 21,140 | $ | 19,569 | ||||
Current maturities of long-term debt |
32,017 | 31,742 | ||||||
Accrued expenses |
45,419 | 75,670 | ||||||
Deferred income |
26,837 | 30,657 | ||||||
Total current liabilities |
125,413 | 157,638 | ||||||
Long-term debt |
2,781,466 | 2,694,028 | ||||||
Deferred income tax liabilities |
131,677 | 136,118 | ||||||
Asset retirement obligation |
152,726 | 150,046 | ||||||
Other liabilities |
18,670 | 12,926 | ||||||
Total liabilities |
3,209,952 | 3,150,756 | ||||||
Stockholders equity: |
||||||||
Series AA preferred stock, par value $.001, $63.80 cumulative dividends, authorized 5,720 shares;
5,720 shares issued and outstanding at 2008 and 2007 |
| | ||||||
Class A preferred stock, par value $638, $63.80 cumulative dividends, 10,000 shares authorized; 0
shares issued and outstanding at 2008 and 2007 |
| | ||||||
Class A common stock, par value $.001, 175,000,000 shares authorized, 92,825,290 and 92,525,349 shares
issued at 2008 and 2007, respectively; 76,990,663 and 78,216,053
issued and outstanding at 2008 and 2007,
respectively |
93 | 93 | ||||||
Class B common stock, par value $.001, 37,500,000 shares authorized, 15,372,865 shares issued and
outstanding at 2008 and 2007 |
15 | 15 | ||||||
Additional paid-in capital |
2,303,480 | 2,299,110 | ||||||
Accumulated comprehensive income |
4,885 | 9,286 | ||||||
Accumulated deficit |
(589,148 | ) | (587,523 | ) | ||||
Cost of shares held in treasury, 15,834,627 and 14,309,296 shares in 2008 and 2007, respectively |
(842,978 | ) | (789,974 | ) | ||||
Stockholders equity |
876,347 | 931,007 | ||||||
Total liabilities and stockholders equity |
$ | 4,086,299 | $ | 4,081,763 | ||||
See accompanying notes to condensed consolidated financial statements.
4
Table of Contents
LAMAR ADVERTISING COMPANY AND
SUBSIDIARIES
SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Three months ended | ||||||||
March 31, | ||||||||
2008 | 2007 | |||||||
Net revenues |
$ | 282,776 | $ | 275,185 | ||||
Operating expenses (income) |
||||||||
Direct advertising expenses (exclusive of depreciation and amortization) |
104,787 | 100,783 | ||||||
General and administrative expenses (exclusive of depreciation and amortization) |
51,987 | 55,302 | ||||||
Corporate expenses (exclusive of depreciation and amortization) |
13,197 | 14,572 | ||||||
Depreciation and amortization |
77,693 | 73,318 | ||||||
Gain on disposition of assets |
(943 | ) | (312 | ) | ||||
246,721 | 243,663 | |||||||
Operating income |
36,055 | 31,522 | ||||||
Other expense (income) |
||||||||
Gain on disposition of/return on investment |
(1,533 | ) | (15,448 | ) | ||||
Interest income |
(449 | ) | (493 | ) | ||||
Interest expense |
40,768 | 31,845 | ||||||
38,786 | 15,904 | |||||||
(Loss) income before income tax expense |
(2,731 | ) | 15,618 | |||||
Income tax expense (benefit) |
(1,197 | ) | 6,779 | |||||
Net (loss) income |
(1,534 | ) | 8,839 | |||||
Preferred stock dividends |
91 | 91 | ||||||
Net (loss) income applicable to common stock |
$ | (1,625 | ) | $ | 8,748 | |||
Earnings per share: |
||||||||
Basic (loss) earnings per share |
$ | (0.02 | ) | $ | 0.09 | |||
Diluted (loss) earnings per share |
$ | (0.02 | ) | $ | 0.09 | |||
Cash dividends declared per share of common stock |
$ | | $ | 3.25 | ||||
Weighted average common shares used in computing earnings per share: |
||||||||
Weighted average common shares outstanding |
93,429,973 | 99,222,644 | ||||||
Incremental common shares from dilutive stock options |
252,495 | 842,221 | ||||||
Incremental common shares from convertible debt |
| | ||||||
Weighted average common shares diluted |
93,682,468 | 100,064,865 | ||||||
See accompanying notes to condensed consolidated financial statements.
5
Table of Contents
LAMAR ADVERTISING COMPANY AND
SUBSIDIARIES
SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
(UNAUDITED)
(IN THOUSANDS)
Three months ended | ||||||||
March 31, | ||||||||
2008 | 2007 | |||||||
Cash flows from operating activities: |
||||||||
Net (loss) income |
$ | (1,534 | ) | $ | 8,839 | |||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
77,693 | 73,318 | ||||||
Non-cash equity-based compensation |
1,410 | 9,447 | ||||||
Amortization included in interest expense |
1,245 | 1,090 | ||||||
Gain on disposition of/return on assets and investments |
(2,476 | ) | (15,760 | ) | ||||
Deferred tax expense (benefit) |
(1,818 | ) | 3,981 | |||||
Provision for doubtful accounts |
2,459 | 1,148 | ||||||
Changes in operating assets and liabilities: |
||||||||
(Increase) decrease in: |
||||||||
Receivables |
(2,665 | ) | 1,033 | |||||
Prepaid expenses |
(19,571 | ) | (18,858 | ) | ||||
Other assets |
(4,668 | ) | (4,391 | ) | ||||
Increase (decrease) in: |
||||||||
Trade accounts payable |
1,571 | 4,327 | ||||||
Accrued expenses |
(24,708 | ) | (27,062 | ) | ||||
Other liabilities |
(4,579 | ) | (3,760 | ) | ||||
Net cash provided by operating activities |
22,359 | 33,352 | ||||||
Cash flows from investing activities: |
||||||||
Acquisitions |
(68,006 | ) | (60,067 | ) | ||||
Capital expenditures |
(50,245 | ) | (50,064 | ) | ||||
Proceeds from disposition of assets |
4,883 | 19,857 | ||||||
Payments received on notes receivable |
76 | 9,056 | ||||||
Net cash used in investing activities |
(113,292 | ) | (81,218 | ) | ||||
Cash flows from financing activities: |
||||||||
Cash used for purchase of treasury stock |
(53,004 | ) | (130,106 | ) | ||||
Net proceeds from issuance of common stock |
2,961 | 4,967 | ||||||
Principal payments on long term debt |
(7,288 | ) | (27 | ) | ||||
Net borrowings under credit agreements |
95,000 | 482,000 | ||||||
Debt issuance costs |
(168 | ) | (2,107 | ) | ||||
Dividends |
(91 | ) | (318,394 | ) | ||||
Net cash provided by financing activities |
37,410 | 36,333 | ||||||
Effect of exchange rate changes in cash and cash equivalents |
(3,664 | ) | 16 | |||||
Net decrease in cash and cash equivalents |
(57,187 | ) | (11,517 | ) | ||||
Cash and cash equivalents at beginning of period |
76,048 | 11,796 | ||||||
Cash and cash equivalents at end of period |
$ | 18,861 | $ | 279 | ||||
Supplemental disclosures of cash flow information: |
||||||||
Cash paid for interest |
$ | 54,463 | $ | 50,262 | ||||
Cash paid for foreign, state and federal income taxes |
$ | 994 | $ | 1,627 | ||||
Common stock issuance related to acquisitions |
$ | | $ | | ||||
See accompanying notes to condensed consolidated financial statements.
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Table of Contents
LAMAR ADVERTISING COMPANY AND
SUBSIDIARIES
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
1. Significant Accounting Policies
The information included in the foregoing interim condensed consolidated financial statements is
unaudited. In the opinion of management, all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the Companys 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 interim condensed consolidated financial statements should be read in conjunction with
the Companys consolidated financial statements and the notes thereto included in the 2007 Combined
Form 10-K.
2. Stock-Based Compensation
Equity Incentive Plan. Lamars 1996 Equity Incentive Plan has reserved 10 million shares of Class A
common stock for issuance to directors and employees, including shares underlying granted options
and common stock reserved for issuance under its performance-based incentive program. Options
granted under the plan expire ten years from the grant date with vesting terms ranging from three
to five years which primarily includes 1) options that vest in one-fifth increments beginning on
the grant date and continuing on each of the first four anniversaries of the grant date and 2)
options that cliff-vest on the fifth anniversary of the grant date. All grants are made at fair
market value based on the closing price of our Class A common stock as reported on the NASDAQ
Global Select Market on the date of grant.
We use a Black-Scholes-Merton option pricing model to estimate the fair value of share-based awards
under Statement of Financial Accounting Standard No. 123R, Shared-based Payment, (SFAS 123R). The
Black-Scholes-Merton option pricing model incorporates various and highly subjective assumptions,
including expected term and expected volatility. The Company granted options for an aggregate of
18,000 shares of its Class A common stock during the three months ended March 31, 2008.
Stock Purchase Plan. Lamars 2000 Employee Stock Purchase Plan has reserved 924,000 shares of
common stock for issuance to employees. The following is a summary of ESPP share activity for the
three months ended March 31, 2008:
Shares | ||||
Available for future purchases, January 1, 2008 |
392,997 | |||
Purchases |
37,615 | |||
Available for future purchases, March 31, 2008 |
355,382 | |||
Performance-based compensation. Unrestricted shares of our Class A common stock may be awarded to
key officers, employees and directors under our 1996 Equity Incentive Plan. The number of shares to be issued, if any,
will be dependent on the level of achievement of performance measures for key officers and
employees, as determined by the Companys Compensation Committee based on our 2008 results. Any
shares issued based on the achievement of performance goals will be issued in the first quarter of
2009. The shares subject to these awards can range from a minimum of 0% to a maximum of 100% of the
target number of shares depending on the level at which the goals are attained. Through March 31,
2008, the Company has recorded $174 as compensation expense related to both the executive
performance based and non-employee director agreements.
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Table of Contents
LAMAR ADVERTISING COMPANY AND
SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
3. Acquisitions
During the three months ended March 31, 2008, the Company completed several acquisitions of outdoor
advertising assets for a total cash purchase price of approximately $68,006.
Each of these acquisitions was accounted for under the purchase method of accounting, and,
accordingly, the accompanying condensed consolidated financial statements include the results of
operations of each acquired entity from the date of acquisition. The acquisition costs have been
allocated to assets acquired and liabilities assumed based on fair value at the dates of
acquisition. The allocations are pending final determination of the fair value of certain
intangible assets. The following is a summary of the preliminary allocation of the acquisition
costs in the above transactions.
Total | ||||
Current assets |
$ | 519 | ||
Property, plant and equipment |
32,422 | |||
Goodwill |
11,301 | |||
Site locations |
25,030 | |||
Non-competition agreements |
2,660 | |||
Customer lists and contracts |
7,552 | |||
Current liabilities |
(263 | ) | ||
Deferred tax liability |
(11,215 | ) | ||
$ | 68,006 | |||
Summarized below are certain unaudited pro forma statements of operations data for the three months
ended March 31, 2008 and March 31, 2007 as if each of the above acquisitions and the acquisitions
occurring in 2007, which were fully described in the 2007 Combined Form 10-K, had been consummated
as of January 1, 2007. This pro forma information does not purport to represent what the Companys
results of operations actually would have been had such transactions occurred on the date specified
or to project the Companys results of operations for any future periods.
Three months ended | ||||||||
March 31, | ||||||||
2008 | 2007 | |||||||
Pro forma net revenues |
$ | 283,854 | $ | 277,528 | ||||
Pro forma net income applicable to common stock |
$ | (1,772 | ) | $ | 8,169 | |||
Pro forma net income per common share basic |
$ | (0.02 | ) | $ | 0.08 | |||
Pro forma net income per common share diluted |
$ | (0.02 | ) | $ | 0.08 | |||
4. Depreciation and Amortization
The Company includes all categories of depreciation and amortization on a separate line in its
Statement of Operations. The amounts of depreciation and amortization expense excluded from the
following operating expenses in its Statement of Operations are:
Three months ended | ||||||||
March 31, | ||||||||
2008 | 2007 | |||||||
Direct advertising expenses |
$ | 73,264 | $ | 69,128 | ||||
General and administrative expenses |
1,635 | 1,691 | ||||||
Corporate expenses |
2,794 | 2,499 | ||||||
$ | 77,693 | $ | 73,318 | |||||
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Table of Contents
LAMAR ADVERTISING COMPANY AND
SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
5. Goodwill and Other Intangible Assets
The following is a summary of intangible assets at March 31, 2008 and December 31, 2007.
Estimated | March 31, 2008 | December 31, 2007 | ||||||||||||||||||
Life | Gross Carrying | Accumulated | Gross Carrying | Accumulated | ||||||||||||||||
(Years) | Amount | Amortization | Amount | Amortization | ||||||||||||||||
Customer lists and contracts |
7 10 | $ | 460,749 | $ | 404,522 | $ | 453,305 | $ | 400,390 | |||||||||||
Non-competition agreements |
3 15 | 63,289 | 57,158 | 60,633 | 56,900 | |||||||||||||||
Site locations |
15 | 1,328,570 | 582,561 | 1,304,323 | 560,706 | |||||||||||||||
Other |
5 15 | 13,600 | 11,223 | 13,599 | 10,911 | |||||||||||||||
1,866,208 | 1,055,464 | 1,831,860 | 1,028,907 | |||||||||||||||||
Unamortizable Intangible Assets: |
||||||||||||||||||||
Goodwill |
$ | 1,641,047 | $ | 253,635 | $ | 1,629,875 | $ | 253,635 |
The changes in the gross carrying amount of goodwill for the three months ended March 31, 2008 are
as follows:
Balance as of December 31, 2007 |
$ | 1,629,875 | ||
Goodwill acquired during the three months ended March 31, 2008 |
11,172 | |||
Balance as of March 31, 2008 |
$ | 1,641,047 | ||
6. Asset Retirement Obligations
The Companys asset retirement obligations include the costs associated with the removal of its
structures, resurfacing of the land and retirement cost, if applicable, related to the Companys
outdoor advertising portfolio. The following table reflects information related to our asset
retirement obligations:
Balance at December 31, 2007 |
$ | 150,046 | ||
Additions to asset retirement obligations |
1,112 | |||
Accretion expense |
2,455 | |||
Liabilities settled |
(887 | ) | ||
Balance at March 31, 2008 |
$ | 152,726 | ||
7. Fair Value Hedging Interest Rate Swaps
The Company utilizes derivative instruments such as interest rate swaps for purposes of
hedging its exposure to changing interest rates. Statement of Financial Accounting Standards
(SFAS) SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended
(SFAS 133), requires that all derivative instruments subject to the requirements of the statement
be measured at fair value and recognized as assets or liabilities on the balance sheet. Upon
entering into a derivative contract, the Company may designate the derivative as either a fair
value hedge or a cash flow hedge, or decide that the contract is not a hedge, and thenceforth mark
the contract to market through earnings. The Company documents the relationship between the
derivative instrument designated as a hedge and the hedged items, as well as its objective for risk
management and strategy for use of the hedging instrument to manage the risk. Derivative
instruments designated as fair value or cash flow hedges are linked to specific assets and
liabilities or to specific firm commitments or forecasted transactions. The Company assesses at
inception, and on an ongoing basis, whether a derivative instrument used as a hedge is highly
effective in offsetting changes in the fair value or cash flows of the hedged item. A derivative
that is not a highly effective hedge does not qualify for hedge accounting. Changes in the fair
value of a qualifying fair value hedge are recorded in earnings along with the gain or loss on the
hedged item. Changes in the fair value of a qualifying cash flow hedge are recorded in other
comprehensive income, until earnings are affected by the cash flows of the hedged item. When the
cash flow of the hedged item is recognized in the statement of operations, the fair value of the
associated cash flow hedge is reclassified from other comprehensive income into earnings.
Ineffective portions of a cash flow hedging derivatives change in fair value are recognized
currently in earnings as other income (expense). If a derivative instrument no longer qualifies as
a cash flow hedge, hedge accounting is discontinued and the gain or loss that was recorded in other
comprehensive incomes is recognized over the period anticipated in the original hedge transaction.
The Company entered into two interest rate swap agreements in December 2007 that mature in December
2009. One interest rate swap converts $100,000 of variable rate debt to 3.89% fixed rate debt, the
other converts $100,000 of variable rate debt to 3.99% fixed rate debt. The derivatives were
designated as a hedge. The fair market values at March 31, 2008, and December 31, 2007 were
$(5,722) and $(179) respectively, are reflected in other liabilities and other comprehensive income
on the balance sheet.
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Table of Contents
LAMAR ADVERTISING COMPANY AND
SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
8. Summarized Financial Information of Subsidiaries
Separate financial statements of each of the Companys direct or indirect wholly owned subsidiaries
that have guaranteed Lamar Medias obligations with respect to its publicly issued notes
(collectively, the Guarantors) are not included herein because the Company has no independent
assets or operations, the guarantees are full and unconditional and joint and several and the only
subsidiaries that are not a guarantors are in the aggregate minor. Lamar Medias ability to make
distributions to Lamar Advertising is restricted under the terms of its bank credit facility and
the indentures relating to Lamar Medias outstanding notes. As of March 31, 2008 and December 31,
2007, the net assets restricted as to transfers from Lamar Media to the Company in the form of cash
dividends, loans or advances were $71,319 and $137,127, respectively.
9. Earnings Per Share
Earnings per share are computed in accordance with SFAS No. 128, Earnings Per Share. Basic
earnings per share are computed by dividing income available to common stockholders by the weighted
average number of common shares outstanding during the period. The number of dilutive shares
resulting from this calculation is 252,495 and 842,221 for the three months ended March 31, 2008
and 2007. Diluted earnings per share should also reflect the potential dilution that could occur
if the Companys convertible debt was converted to common stock. The number of potentially dilutive
shares related to the Companys convertible debt excluded from the calculation because of their
antidilutive effect is 5,879,893 and 5,611,569 for the three months ended March 31, 2008 and 2007,
respectively.
10. New Accounting Pronouncements
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities (SFAS 161). SFAS 161 amends SFAS 133 requiring enhanced disclosures about an entitys
derivative and hedging activities thereby improving the transparency of financial reporting. SFAS
161s disclosures provide additional information on how and why derivative instruments are being
used. This statement is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008, with early application encouraged. We are currently
evaluating the impact of adopting SFAS 161 on our consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interest in Consolidated Financial
Statements an amendment of ARB No. 51 (SFAS 160). SFAS 160 requires that ownership interest in
subsidiaries held by parties other than the parent, and the amount of consolidated net income, be
clearly identified, labeled, and presented in the consolidated financial statements. It also
requires once a subsidiary is deconsolidated, any retained noncontrolling equity investment in the
former subsidiary be initially measured at fair value. Sufficient disclosures are required to
clearly identify and distinguish between the interests of the parent and the interest of the
noncontrolling owners. It is effective for our fiscal year beginning January 1, 2009 and requires
retroactive adoption of the presentation and disclosure requirements for existing minority
interest. All other requirements shall be applied prospectively. We are currently evaluating the
impact of adopting SFAS 160 on our consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141R, Business Combinations (SFAS 141R). SFAS 141R
amends SFAS 141 and provides revised guidance for recognizing and measuring identifiable assets and
goodwill acquired, liabilities assumed, and any noncontrolling interest in the acquired business.
It also provides disclosure requirements to enable users of the financial statements to evaluate
the nature and financial effects of the business combination. It is effective for our fiscal year
beginning January 1, 2009 and will be applied prospectively. We are currently evaluating the
impact of adopting SFAS 141R on our consolidated financial statements.
In December 2007, the FASB ratified the consensus of Emerging Issues Task Force (EITF) Issue No.
07-1, Accounting for Collaborative Arrangements (EITF 07-1). EITF 07-1 applies to participants
in collaborative arrangements that are conducted without the creation of a separate legal entity
for the arrangement. EITF 07-1 is effective for our fiscal year beginning January 1, 2009 and the
effects of applying the consensus should be reported as a change in accounting principle through
retrospective application to all prior periods presented for all arrangements in place at the
effective date unless it is impracticable. We are currently evaluating the impact of adopting EITF
07-1 on our consolidated financial statements.
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LAMAR MEDIA CORP.
AND SUBSIDIARIES
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(IN THOUSANDS, EXCEPT SHARE DATA)
March 31, | December 31, | |||||||
2008 | 2007 | |||||||
(Unaudited) | ||||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 18,861 | $ | 76,048 | ||||
Receivables, net of allowance for doubtful
accounts of $8,154 and $6,740 in 2008 and 2007,
respectively |
147,820 | 147,301 | ||||||
Prepaid expenses |
60,094 | 40,657 | ||||||
Deferred income tax assets |
8,227 | 17,616 | ||||||
Other current assets |
22,483 | 23,014 | ||||||
Total current assets |
257,485 | 304,636 | ||||||
Property, plant and equipment |
2,756,288 | 2,686,116 | ||||||
Less accumulated depreciation and amortization |
(1,207,020 | ) | (1,169,152 | ) | ||||
Net property, plant and equipment |
1,549,268 | 1,516,964 | ||||||
Goodwill |
1,377,270 | 1,366,098 | ||||||
Intangible assets |
810,000 | 802,338 | ||||||
Deferred financing costs net of accumulated
amortization of $20,050 and $19,093 in 2008 and
2007, respectively |
21,323 | 22,123 | ||||||
Other assets |
42,058 | 41,070 | ||||||
Total assets |
$ | 4,057,404 | $ | 4,053,229 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Trade accounts payable |
$ | 21,140 | $ | 19,569 | ||||
Current maturities of long-term debt |
32,017 | 31,742 | ||||||
Accrued expenses |
46,665 | 76,283 | ||||||
Deferred income |
26,837 | 30,657 | ||||||
Total current liabilities |
126,659 | 158,251 | ||||||
Long-term debt |
2,781,466 | 2,694,028 | ||||||
Deferred income tax liabilities |
147,875 | 149,942 | ||||||
Asset retirement obligation |
152,726 | 150,046 | ||||||
Other liabilities |
21,358 | 14,874 | ||||||
Total liabilities |
3,230,084 | 3,167,141 | ||||||
Stockholders equity: |
||||||||
Common stock, par value $.01, 3,000 shares
authorized, 100 shares issued and outstanding at
2008 and 2007 |
| | ||||||
Additional paid-in-capital |
2,492,880 | 2,492,880 | ||||||
Accumulated comprehensive income |
4,885 | 9,286 | ||||||
Accumulated deficit |
(1,670,445 | ) | (1,616,078 | ) | ||||
Total stockholders equity |
827,320 | 886,088 | ||||||
Total liabilities and stockholders equity |
$ | 4,057,404 | $ | 4,053,229 | ||||
See accompanying note to condensed consolidated financial statements.
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LAMAR MEDIA CORP.
AND SUBSIDIARIES
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
(UNAUDITED)
(IN THOUSANDS)
Three months ended | ||||||||
March 31, | ||||||||
2008 | 2007 | |||||||
Net revenues |
$ | 282,776 | $ | 275,185 | ||||
Operating expenses (income) |
||||||||
Direct advertising expenses (exclusive of depreciation and amortization) |
104,787 | 100,783 | ||||||
General and administrative expenses (exclusive of depreciation and amortization) |
51,987 | 55,302 | ||||||
Corporate expenses (exclusive of depreciation and amortization) |
13,042 | 14,457 | ||||||
Depreciation and amortization |
77,693 | 73,318 | ||||||
Gain on disposition of assets |
(943 | ) | (312 | ) | ||||
246,566 | 243,548 | |||||||
Operating income |
36,210 | 31,637 | ||||||
Other expense (income) |
||||||||
Gain on disposition of/return on investment |
(1,533 | ) | (15,448 | ) | ||||
Interest income |
(449 | ) | (493 | ) | ||||
Interest expense |
40,620 | 31,554 | ||||||
38,638 | 15,613 | |||||||
(Loss) income before income tax (benefit) expense |
(2,428 | ) | 16,024 | |||||
Income tax (benefit) expense |
(1,065 | ) | 7,164 | |||||
Net (loss) income |
$ | (1,363 | ) | $ | 8,860 | |||
See accompanying note to condensed consolidated financial statements.
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LAMAR MEDIA CORP.
AND SUBSIDIARIES
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
(UNAUDITED)
(IN THOUSANDS)
Three months ended | ||||||||
March 31, | ||||||||
2008 | 2007 | |||||||
Cash flows from operating activities: |
||||||||
Net (loss) income |
$ | (1,363 | ) | $ | 8,860 | |||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
77,693 | 73,318 | ||||||
Non-cash equity based compensation |
1,410 | 9,447 | ||||||
Amortization included in interest expense |
1,097 | 799 | ||||||
Gain on disposition of/return on assets and investments |
(2,476 | ) | (15,760 | ) | ||||
Deferred tax (benefit) expense |
(1,686 | ) | 3,749 | |||||
Provision for doubtful accounts |
2,459 | 1,148 | ||||||
Changes in operating assets and liabilities: |
||||||||
(Increase) decrease in: |
||||||||
Receivables |
(2,665 | ) | 1,033 | |||||
Prepaid expenses |
(19,571 | ) | (18,858 | ) | ||||
Other assets |
(1,612 | ) | (5,910 | ) | ||||
Increase (decrease) in: |
||||||||
Trade accounts payable |
1,571 | 4,327 | ||||||
Accrued expenses |
(24,375 | ) | (26,710 | ) | ||||
Other liabilities |
(5,253 | ) | 9,609 | |||||
Net cash provided by operating activities |
25,229 | 45,052 | ||||||
Cash flows from investing activities: |
||||||||
Acquisitions |
(68,006 | ) | (60,067 | ) | ||||
Capital expenditures |
(50,245 | ) | (50,064 | ) | ||||
Proceeds from disposition of assets |
4,883 | 19,857 | ||||||
Payment received on notes receivable |
76 | 9,056 | ||||||
Net cash used in investing activities |
(113,292 | ) | (81,218 | ) | ||||
Cash flows from financing activities: |
||||||||
Principle payments long-term debt |
(7,288 | ) | (27 | ) | ||||
Debt issuance costs |
(168 | ) | (2,107 | ) | ||||
Net increase in long-term debt |
95,000 | 482,000 | ||||||
Dividend to parent |
(53,004 | ) | (455,233 | ) | ||||
Net cash provided by financing activities |
34,540 | 24,633 | ||||||
Effect of exchange rate changes in cash and cash equivalents |
(3,664 | ) | 16 | |||||
Net decrease in cash and cash equivalents |
(57,187 | ) | (11,517 | ) | ||||
Cash and cash equivalents at beginning of period |
76,048 | 11,796 | ||||||
Cash and cash equivalents at end of period |
$ | 18,861 | $ | 279 | ||||
Supplemental disclosures of cash flow information: |
||||||||
Cash paid for interest |
$ | 54,463 | $ | 50,262 | ||||
Cash paid for foreign, state and federal income taxes |
$ | 994 | $ | 1,627 | ||||
Parent company stock issued related to acquisitions |
$ | | $ | | ||||
See accompanying note to condensed consolidated financial statements.
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LAMAR MEDIA CORP.
AND SUBSIDIARIES
AND SUBSIDIARIES
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
1. Significant Accounting Policies
The information included in the foregoing interim condensed consolidated financial statements is
unaudited. In the opinion of management all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of Lamar Medias 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 interim condensed consolidated financial statements should be read in conjunction with
Lamar Medias consolidated financial statements and the notes thereto included in the 2007 Combined
Form 10-K.
Certain notes are not provided for the accompanying condensed consolidated financial statements as
the information in notes 1, 2, 3, 4, 5, 6, 7, 8, and 10 to the condensed consolidated financial
statements of the Company included elsewhere in this report is substantially equivalent to that
required for the condensed consolidated financial statements of Lamar Media Corp. Earnings per
share data is not provided for Lamar Media, as it is a wholly owned subsidiary of the Company.
14
Table of Contents
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion contains forward-looking statements. Actual results could differ materially from those anticipated by the forward-looking
statements due to risks and uncertainties described in the section of this combined report on Form 10-Q entitled
Note Regarding ForwardLooking Statements and in Item 1A to the 2007 Combined Form 10-K. You should carefully
consider each of these risks and uncertainties in evaluating the Companys and Lamar Medias financial conditions and results of operations.
Investors are cautioned not to place undue reliance on the forward-looking statements contained in this document. These statements speak only as
of the date of this document, and the Company undertakes no obligation to update or revise the statements, except as may be required by law.
This discussion contains forward-looking statements. Actual results could differ materially from those anticipated by the forward-looking statements due to risks and uncertainties described in the section of this combined report on Form 10-Q entitled Note Regarding ForwardLooking Statements and in Item 1A to the 2007 Combined Form 10-K. You should carefully consider each of these risks and uncertainties in evaluating the Companys and Lamar Medias financial conditions and results of operations. Investors are cautioned not to place undue reliance on the forward-looking statements contained in this document. These statements speak only as of the date of this document, and the Company undertakes no obligation to update or revise the statements, except as may be required by law. |
Lamar Advertising Company
The following is a discussion of the consolidated financial condition and results of operations of
the Company for the three months ended March 31, 2008 and 2007. This discussion should be read in
conjunction with the consolidated financial statements of the Company and the related notes.
OVERVIEW
The Companys net revenues are derived primarily from the sale of advertising on outdoor
advertising displays owned and operated by the Company. 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. Advertising spending is particularly
sensitive to changes in general economic conditions which affect the rates the Company is able to
charge for advertising on its displays and its ability to maximize occupancy on its displays.
Since December 31, 2004, the Company has completed strategic acquisitions of outdoor advertising
assets and site easements for an aggregate purchase price of approximately $637.8 million, which
includes the issuance of 1,026,413 shares of Lamar Advertising Company Class A common stock valued
at the time of issuance at approximately $43.3 million. The Company has financed its recent
acquisitions and intends to finance its future acquisition activity from available cash, borrowings
under its bank credit agreement and the issuance of Class A common stock. See Liquidity and
Capital Resources below. As a result of acquisitions, the operating performances of individual
markets and of the Company as a whole are not necessarily comparable on a year-to-year basis. The
Company expects to continue to pursue acquisitions that complement the Companys business.
Growth of the Companys business requires expenditures for maintenance and capitalized costs
associated with the construction of new billboard displays, the replacement of damaged billboard
displays, the entrance into and renewal of logo sign and transit contracts, and the purchase of
real estate and operating equipment. The following table presents a breakdown of capitalized
expenditures for the three months ended March 31, 2008 and 2007:
Three months ended | ||||||||
March 31, | ||||||||
(in thousands) | ||||||||
2008 | 2007 | |||||||
Total capital expenditures: |
||||||||
Billboard traditional |
$ | 18,452 | $ | 20,525 | ||||
Billboard digital |
25,242 | 15,786 | ||||||
Logos |
1,654 | 1,774 | ||||||
Transit |
90 | 439 | ||||||
Land and buildings |
983 | 9,100 | ||||||
Operating equipment |
3,824 | 2,440 | ||||||
Total capital expenditures |
$ | 50,245 | $ | 50,064 | ||||
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RESULTS OF OPERATIONS
Three Months ended March 31, 2008 compared to Three Months ended March 31, 2007
Net revenues increased $7.6 million or 2.8% to $282.8 million for the three months ended March 31,
2008 from $275.2 million for the same period in 2007. This increase was attributable primarily to
an increase in billboard net revenues of $6.9 million or 2.8% over the prior period, an increase in
logo sign revenue of $0.1 million, which represents an increase of 1.2% over the prior period, and
a $0.5 million increase in transit revenue over the prior period, which represents an increase of
3.6% over the prior period.
The increase in billboard net revenue of $6.9 million was generated by acquisition activity of
approximately $2.5 million and internal growth of approximately $4.4 million, while the increase in
logo sign revenue of $0.1 million was generated by internal growth across various markets within
the logo sign programs. The increase in transit revenue of approximately $0.5 million was due to
internal growth of approximately $1.8 million offset by the loss of approximately $1.3 million of
revenue due to the loss of various transit contracts.
Net revenues for the three months ended March 31, 2008 as compared to acquisition-adjusted net
revenue for the three months ended March 31, 2008 increased $6.3 million or 2.3% as a result of
net revenue internal growth. See Reconciliations below.
Operating expenses, exclusive of depreciation and amortization and gain on sale of assets,
decreased $0.7 million or 0.4% to $170.0 million for the three months ended March 31, 2008 from
$170.7 million for the same period in 2007. There was a $0.7 million increase as a result of
additional operating expenses related to the operations of acquired outdoor advertising assets and
increases in costs in operating the Companys core assets and a $1.4 million decrease in corporate
expenses. The decrease in corporate expenses is primarily a result of the decrease in expenses
related to non-cash compensation which was $0.4 million for the three months ended March
31, 2008 compared to $3.0 million for the same period in 2007.
Depreciation and amortization expense increased $4.4 million for the three months ended March 31,
2008, as compared to the three months ended March 31, 2007, primarily due to the increase in
capital expenditures related to digital displays that have shorter depreciable lives.
Due to the above factors, operating income increased $4.6 million to $36.1 million for three months
ended March 31, 2008 compared to $31.5 million for the same period in 2007.
In the first quarter of 2008, the Company recognized a $1.5 million return on an investment
compared to a $15.4 million gain on the sale of investments recognized in the first quarter of
2007, which represents a decrease of 90.3% over the prior period.
Interest expense increased $9.0 million from $31.8 million for the three months ended March 31,
2007 to $40.8 million for the three months ended March 31, 2008 due to an increase in total
indebtedness.
The increase in operating income, offset by the increase in interest expense and decrease in the
gain on disposition of/return on investments described above, resulted in a $18.3 million decrease
in income before income taxes. This decrease in income resulted in a decrease in income tax expense
of $8.0 million for the three months ended March 31, 2008 over the same period in 2007. The
effective tax rate for the three months ended March 31, 2008 was 43.8%, which is greater than the
statutory rates due to permanent differences resulting from non deductible compensation expense
related to stock options in accordance with SFAS 123(R) and other non-deductible expenses and
amortization. In addition, our effective tax rate is higher due to limitations on our ability to
utilize foreign tax credits on our foreign service income.
As a result of the above factors, the Company recognized a net loss for the three months ended
March 31, 2008 of $1.5 million, as compared to net income of $8.8 million for the same period in
2007.
In February 2007, the Companys board of directors declared a special cash dividend of $3.25 per
share of Common Stock. The aggregate dividend of $318.3 million was paid on March 30, 2007 to
stockholders of record on March 22, 2007. Lamar had approximately 82.5 million shares of Class A
Common Stock and 15.4 million shares of Class B Common Stock, which is convertible into Class A
Common Stock on a one-for-one basis at the option of its holder, outstanding on the record date.
16
Table of Contents
Reconciliations:
Because acquisitions occurring after December 31, 2006 (the acquired assets) have contributed to
our net revenue results for the periods presented, we provide 2007 acquisition-adjusted net
revenue, which adjusts our 2007 net revenue for the three months ended March 31, 2007 by adding to
it the net revenue generated by the acquired assets prior to our acquisition of them for the same
time frame that those assets were owned in the three months ended March 31, 2008. We provide this
information as a supplement to net revenues to enable investors to compare periods in 2008 and 2007
on a more consistent basis without the effects of acquisitions. Management uses this comparison to
assess how well we are performing within our existing assets.
Acquisition-adjusted net revenue is not determined in accordance with GAAP. For this adjustment, we
measure the amount of pre-acquisition revenue generated by the assets during the period in 2007
that corresponds with the actual period we have owned the assets in 2008 (to the extent within the
period to which this report relates). We refer to this adjustment as acquisition net revenue.
Reconciliations of 2007 reported net revenue to 2007 acquisition-adjusted net revenue for the three
months ended March 31, as well as a comparison of 2007 acquisition-adjusted net revenue to 2008
reported net revenue for the three months ended March 31, are provided below:
Reconciliation of Reported Net Revenue to Acquisition-Adjusted Net Revenue
Three months ended | ||||
March 31, 2007 | ||||
(in thousands) | ||||
Reported net revenue |
$ | 275,185 | ||
Acquisition net revenue |
1,249 | |||
Acquisition-adjusted net revenue |
$ | 276,434 | ||
Comparison of 2008 Reported Net Revenue to 2007 Acquisition-Adjusted Net Revenue
Three months ended | ||||||||
March 31, | ||||||||
2008 | 2007 | |||||||
(in thousands) | ||||||||
Reported net revenue |
$ | 282,776 | $ | 275,185 | ||||
Acquisition net revenue |
| 1,249 | ||||||
Adjusted totals |
$ | 282,776 | $ | 276,434 | ||||
LIQUIDITY AND CAPITAL RESOURCES
Overview
The Company has historically satisfied its working capital requirements with cash from operations
and borrowings under its bank credit facility. The Companys wholly owned subsidiary, Lamar Media
Corp., is the borrower under the bank credit facility and maintains all corporate cash balances.
Any cash requirements of the Company, therefore, must be funded by distributions from Lamar Media.
The Companys acquisitions have been financed primarily with funds borrowed under the bank credit
facility and issuance of its Class A common stock and debt securities. If an acquisition is made by
one of the Companys subsidiaries using the Companys Class A common stock, a permanent
contribution of additional paid-in-capital of Class A common stock is distributed to that
subsidiary.
Sources of Cash
Total Liquidity at March 31, 2008. As of March 31, 2008 we had approximately $313.1 million of
total liquidity, which is comprised of approximately $18.9 million in cash and cash equivalents and
the ability to draw approximately $294.2 million under our revolving bank credit facility.
Cash Generated by Operations. For the three months ended March 31, 2008 and 2007 our cash provided
by operating activities was $22.4 million and $33.4 million, respectively. While our net loss was
approximately $1.5 million for the three months ended March 31, 2008, we generated cash from
operating activities of $22.4 million during that same period, primarily due to non-cash
adjustments needed to reconcile net (loss) income to cash provided by operating activities of $78.5
million, which primarily consisted of depreciation and amortization of $77.7 million. This was
offset by a decrease in working capital of $54.6 million. We expect to generate cash flows from
operations during 2008 in excess of our cash needs for operations and capital expenditures as
described herein. We expect to use the excess cash generated principally for acquisitions and to
fund repurchases under our stock repurchase program. See Cash Flows for more information.
17
Table of Contents
Credit Facilities. As of March 31, 2008, Lamar Media had approximately $294.2 million of unused
capacity under the revolving credit facility included in its bank credit facility. The bank credit
facility was refinanced on September 30, 2005 and is comprised of a $400.0 million revolving bank
credit facility and a $400.0 million term facility. We have also
borrowed $789.0 million in term loans as a
result of incremental borrowings (Series A through Series F) during 2006 and 2007 under the
incremental facility included in our bank credit facility. In addition to those incremental
borrowings, the existing incremental facility permits Lamar Media to request that its lenders enter
into commitments to make additional term loans, up to a maximum aggregate amount of $500.0 million.
The lenders have no obligation to make additional term loans to Lamar Media under the incremental
facility, but may enter into such commitments in their sole discretion. The aggregate balance
outstanding under our bank credit facility March 31, 2008 was $1.27 billion.
Factors Affecting Sources of Liquidity
Internally Generated Funds. The key factors affecting internally generated cash flow are
general economic conditions, specific economic conditions in the markets where the Company conducts
its business and overall spending on advertising by advertisers.
Credit Facilities and Other Debt Securities. Lamar must comply with certain covenants and
restrictions related to its credit facilities and its outstanding debt securities.
Restrictions Under Debt Securities. Currently Lamar Media has outstanding $385.0 million 7
1/4% Senior Subordinated Notes due 2013 issued in December 2002 and June 2003, (the 71/4% Notes),
$400.0 million 6 5/8% Senior Subordinated Notes due 2015 issued August 2005, $216 million 6 5/8%
Senior Subordinated Notes due 2015 Series B issued in August 2006 and $275 million 6 5/8%
Senior Subordinated Notes due 2015 Series-C issued in October 2007 (collectively, the 6 5/8%
Notes). The indentures relating to Lamar Medias outstanding notes restrict its ability to incur
indebtedness but permit the incurrence of indebtedness (including indebtedness under its senior
credit facility), (i) if no default or event of default would result from such incurrence and (ii)
if after giving effect to any such incurrence, the leverage ratio (defined as total consolidated
debt to trailing four fiscal quarter EBITDA (as defined in the indentures)) would be less than (a)
6.5 to 1 pursuant to the 7 1/4% Notes indenture, and (b) 7.0 to 1, pursuant to the 6 5/8% Notes
indentures. In addition to debt incurred under the provisions described in the preceding sentence,
the indentures relating to Lamar Medias outstanding notes permit Lamar Media to incur indebtedness
pursuant to the following baskets:
| up to $1.3 billion of indebtedness under its senior credit facility; | ||
| currently outstanding indebtedness or debt incurred to refinance outstanding debt; | ||
| inter-company debt between Lamar Media and its subsidiaries or between subsidiaries; | ||
| certain purchase money indebtedness and capitalized lease obligations to acquire or lease property in the ordinary course of business that cannot exceed the greater of $20 million or 5% of Lamar Medias net tangible assets; and | ||
| additional debt not to exceed $40 million. |
Restrictions
Under Credit Facility. Lamar Media is required to comply with certain
covenants and restrictions under its bank credit agreement. If the Company fails to comply with
these tests, the long term debt payments may be accelerated. At March 31, 2008 and currently Lamar
Media is in compliance with all such tests.
Lamar Media must be in compliance with the following financial ratios under its senior credit
facility:
| a total debt ratio, defined as total consolidated debt to EBITDA, (as defined below), for the most recent four fiscal quarters, of not greater than 6.0 to 1. | ||
| a fixed charges coverage ratio, defined as EBITDA, (as defined below), for the most recent four fiscal quarters to the sum of (1) the total payments of principal and interest on debt for such period, plus (2) capital expenditures made during such period, plus (3) income and franchise tax payments made during such period, plus (4) dividends, of greater than 1.05 to 1. |
As defined under Lamar Medias senior credit facility, EBITDA is, for any period, operating
income for Lamar Media and its restricted subsidiaries (determined on a consolidated basis without
duplication in accordance with GAAP) for such period (calculated before taxes, interest expense,
interest in respect of mirror loan indebtedness, depreciation, amortization and any other non-cash
income or charges accrued for such period and (except to the extent received or paid in cash by
Lamar Media or any of its restricted subsidiaries) income or loss attributable to equity in
affiliates for such period) excluding any extraordinary and unusual gains or losses during such
period and excluding the proceeds of any casualty events whereby insurance or other proceeds are
received and certain dispositions not in the ordinary course. Any dividend payment made by Lamar
Media or any of its restricted subsidiaries to Lamar Advertising Company during any period to
enable Lamar Advertising Company to pay certain qualified expenses on behalf of Lamar Media and its
subsidiaries shall be treated as operating expenses of Lamar Media for the purposes of calculating
EBITDA for such period if and to the extent such operating expenses would be deducted in the
calculation of EBITDA if funded directly by Lamar Media or any restricted subsidiary. EBITDA under
the bank credit agreement is also adjusted to reflect certain acquisitions or dispositions as if
such acquisitions or dispositions were made on the first day of such period.
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The Company believes that its current level of cash on hand, availability under its bank credit
agreement and future cash flows from operations are sufficient to meet its operating needs through
the year 2008. All debt obligations are reflected on the Companys balance sheet.
Uses of Cash
Capital Expenditures. Capital expenditures excluding acquisitions were approximately $50.2 million
for the three months ended March 31, 2008, which is relatively constant as compared to the prior
period. We anticipate our 2008 total capital expenditures to be approximately $200 million.
Acquisitions. During the three months ended March 31, 2008, the Company financed its acquisition
activity of approximately $68.0 million with borrowings under Lamar Medias revolving credit
facility and cash on hand. In 2008, we expect to spend approximately $250.0 million on
acquisitions of outdoor advertising assets and site easements, which we may finance through
borrowings, cash on hand, the issuance of Class A common stock, or some combination of the
foregoing, depending on market conditions. We plan on continuing to invest in both capital
expenditures and acquisitions that can provide high returns in light of existing market conditions.
Stock Repurchase Program. At January 1, 2008, the Company had approximately $217.2 million of
repurchase capacity remaining under a repurchase plan adopted in February 2007 of up to $500.0
million of the Companys Class A common stock over a period not to exceed 24 months. During the
three months ended March 31, 2008, the Company purchased approximately 1,459,156 shares for an
aggregate purchase price of approximately $50.1 million. The share repurchases under the plan may
be made on the open market or in privately negotiated transactions. The timing and amount of any
shares repurchased is determined by Lamars management based on its evaluation of market conditions
and other factors. The repurchase program may be suspended or discontinued at any time. Any
repurchased shares will be available for future use for general corporate and other purposes.
Special Cash Dividend. In February 2007, the Companys board of directors declared a special cash
dividend of $3.25 per share of Common Stock that was paid on March 30, 2007 to stockholders of
record on March 22, 2007. Lamar had approximately 82.5 million shares of Class A Common Stock and
15.4 million shares of Class B Common Stock, which is convertible into Class A Common Stock on a
one-for-one basis at the option of its holder, outstanding as of the record date resulting in an
aggregate dividend payment of $318.3 million.
Lamar Media Corp.
The following is a discussion of the consolidated financial condition and results of operations of
Lamar Media for the three months ended March 31, 2008 and 2007. This discussion should be read in
conjunction with the consolidated financial statements of Lamar Media and the related notes.
RESULTS OF OPERATIONS
Three Months ended March 31, 2008 compared to Three Months ended March 31, 2007
Net revenues increased $7.6 million or 2.8% to $282.8 million for the three months ended March 31,
2008 from $275.2 million for the same period in 2007. This increase was attributable primarily to
an increase in billboard net revenues of $6.9 million or 2.8% over the prior period, an increase in
logo sign revenue of $0.1 million, which represents an increase of 1.2% over the prior period, and
a $0.5 million increase in transit revenue over the prior period, which represents an increase of
3.6% over the prior period.
The increase in billboard net revenue of $6.9 million was generated by acquisition activity of
approximately $2.5 million and internal growth of approximately $4.4 million, while the increase in
logo sign revenue of $0.1 million was generated by internal growth across various markets within
the logo sign programs. The increase in transit revenue of approximately $0.5 million was due to
internal growth of approximately $1.8 million offset by the loss of approximately $1.3 million of
revenue due to the loss of various transit contracts.
Net revenues for the three months ended March 31, 2008 as compared to acquisition-adjusted net
revenue for the three months ended March 31, 2008 increased $6.3 million or 2.3% as a result of net
revenue internal growth. See Reconciliations below.
Operating expenses, exclusive of depreciation and amortization and gain on sale of assets,
decreased $0.7 million or 0.4% to $169.8 million for the three months ended March 31, 2008 from
$170.5 million for the same period in 2007. There was a $0.7 million increase as a result of
additional operating expenses related to the operations of acquired outdoor advertising assets and
increases in costs in operating the Companys core assets and a $1.4 million decrease in corporate
expenses. The decrease in corporate expenses is primarily a result of the decrease in expenses
related to non-cash compensation which was $0.4 million for the three months ended March
31, 2008 compared to $3.0 million for the same period in 2007.
Depreciation and amortization expense increased $4.4 million for the three months ended March 31, 2008, as compared to the three months ended March 31, 2007, primarily due to the increase in capital expenditures, particularly in digital displays.
Depreciation and amortization expense increased $4.4 million for the three months ended March 31, 2008, as compared to the three months ended March 31, 2007, primarily due to the increase in capital expenditures, particularly in digital displays.
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Due to the above factors, operating income increased $4.6 million to $36.2 million for three months
ended March 31, 2008 compared to $31.6 million for the same period in 2007.
In the first quarter of 2008, the Company recognized a $1.5 million return on an investment
compared to a $15.4 million gain on the sale of investments recognized in the first quarter of
2007, which represents a decrease of 90.3% over the prior period.
Interest expense increased $9.0 million from $31.6 million for the three months ended March 31,
2007 to $40.6 million for the three months ended March 31, 2008 due to an increase in total
indebtedness.
The increase in operating income, offset by the increase in interest expense and decrease in the
gain on disposition of investments described above, resulted in a $18.5 million decrease in income
before income taxes. This decrease in income resulted in a decrease in income tax expense of $8.2
million for the three months ended March 31, 2008 over the same period in 2007. The effective tax
rate for the three months ended March 31, 2008 was 43.9%, which is greater than the statutory rates
due to permanent differences resulting from non deductible compensation expense related to stock
options in accordance with SFAS 123(R) and other non-deductible expenses and amortization. In
addition, our effective tax rate is higher due to limitations on our ability to utilize foreign tax
credits on our foreign service income.
As a result of the above factors, Lamar Media recognized a net loss for the three months ended
March 31, 2008 of $1.4 million, as compared to net income of $8.9 million for the same period in
2007.
Reconciliations:
Because acquisitions occurring after December 31, 2006 (the acquired assets) have contributed to
our net revenue results for the periods presented, we provide 2007 acquisition-adjusted net
revenue, which adjusts our 2007 net revenue for the three ended March 31, 2007 by adding to it the
net revenue generated by the acquired assets prior to our acquisition of them for the same time
frame that those assets were owned in the three months ended March 31, 2008. We provide this
information as a supplement to net revenues to enable investors to compare periods in 2008 and 2007
on a more consistent basis without the effects of acquisitions. Management uses this comparison to
assess how well we are performing within our existing assets.
Acquisition-adjusted net revenue is not determined in accordance with GAAP. For this adjustment, we
measure the amount of pre-acquisition revenue generated by the assets during the period in 2007
that corresponds with the actual period we have owned the assets in 2008 (to the extent within the
period to which this report relates). We refer to this adjustment as acquisition net revenue.
Reconciliations of 2007 reported net revenue to 2007 acquisition-adjusted net revenue for the three
months ended March 31, as well as a comparison of 2007 acquisition-adjusted net revenue to 2008
reported net revenue for the three months ended March 31, are provided below:
Reconciliation of Reported Net Revenue to Acquisition-Adjusted Net Revenue
Three months ended | ||||
March 31, 2007 | ||||
(in thousands) | ||||
Reported net revenue |
$ | 275,185 | ||
Acquisition net revenue |
1,249 | |||
Acquisition-adjusted net revenue |
$ | 276,434 | ||
Comparison of 2008 Reported Net Revenue to 2007 Acquisition-Adjusted Net Revenue
Three months ended | ||||||||
March 31, | ||||||||
2008 | 2007 | |||||||
(in thousands) | ||||||||
Reported net revenue |
$ | 282,776 | $ | 275,185 | ||||
Acquisition net revenue |
| 1,249 | ||||||
Adjusted totals |
$ | 282,776 | $ | 276,434 | ||||
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Lamar Advertising Company and Lamar Media Corp.
The Company is exposed to interest rate risk in connection with variable rate debt instruments
issued by its wholly owned subsidiary Lamar Media. The information below summarizes the Companys
interest rate risk associated with its principal variable rate debt instruments outstanding at
March 31, 2008 and should be read in conjunction with Note 8 of the Notes to the Companys
Consolidated Financial Statements in the 2007 Combined Form 10-K.
Loans under Lamar Medias bank credit agreement bear interest at variable rates equal to the
JPMorgan Chase Prime Rate or LIBOR plus the applicable margin. Because the JPMorgan Chase Prime
Rate or LIBOR may increase or decrease at any time, the Company is exposed to market risk as a
result of the impact that changes in these base rates may have on the interest rate applicable to
borrowings under the bank credit agreement. Increases in the interest rates applicable to
borrowings under the bank credit agreement would result in increased interest expense and a
reduction in the Companys net income.
At March 31, 2008 there was approximately $1.27 billion of aggregate indebtedness outstanding under
the bank credit agreement, or approximately 45.6% of the Companys outstanding long-term debt on
that date, bearing interest at variable rates. The aggregate interest expense for the three months
ended March 31, 2008 with respect to borrowings under the bank credit agreement was $15.4 million,
and the weighted average interest rate applicable to borrowings under this credit facility during
the three months ended March 31, 2008 was 4.1%. Assuming that the weighted average interest rate
was 200-basis points higher (that is 6.1% rather than 4.1%), then the Companys three months ended
March 31, 2008 interest expense would have been approximately $6.9 million higher resulting in a
$3.9 million increase in the Companys three months ended March 31, 2008 net loss.
The Company has attempted to mitigate the interest rate risk resulting from its variable interest
rate long-term debt instruments by issuing fixed rate, long-term debt instruments and maintaining a
balance over time between the amount of the Companys variable rate and fixed rate indebtedness. In
addition, the Company has the capability under the bank credit agreement to fix the interest rates
applicable to its borrowings at an amount equal to LIBOR plus the applicable margin for periods of
up to twelve months, (in certain cases, with the consent of the lenders) which would allow the
Company to mitigate the impact of short-term fluctuations in market interest rates. From time to
time, the Company has utilized and expects to continue to utilize derivative financial instruments
with respect to a portion of its interest rate risks to achieve a more predictable cash flow by
reducing its exposure to interest rate fluctuations. These transactions generally are interest
rate and swap agreements and are entered into with major financial institutions. In the event of
an increase in interest rates, the Company may take further actions to mitigate its exposure. The
Company cannot guarantee, however, that the actions that it may take to mitigate this risk will be
feasible or if these actions are taken, that they will be effective.
ITEM 4. CONTROLS AND PROCEDURES
a) Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures.
The Companys and Lamar Medias management, with the participation of the principal executive
officer and principal financial officer of the Company and Lamar Media, have evaluated the
effectiveness of the design and operation of the Companys and Lamar Medias disclosure controls
and procedures ((as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended (the Exchange Act)) as of the end of the period covered by this quarterly report.
Based on this evaluation, the principal executive officer and principal financial officer of the
Company and Lamar Media concluded that these disclosure controls and procedures are effective and
designed to ensure that the information required to be disclosed in the Companys and Lamar Medias
reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported within the requisite time periods.
b) Changes in Internal Control Over Financial Reporting.
There was no change in the internal control over financial reporting (as defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act) of the Company and Lamar Media identified in connection with
the evaluation of the Companys and Lamar Medias internal control performed during the last fiscal
quarter that has materially affected, or is reasonably likely to materially affect, the Companys
and Lamar Medias internal control over financial reporting.
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PART II OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
On February 22, 2007, the Board of Directors approved a stock repurchase program of up to $500.0
million of the Companys Class A common stock over a period not to exceed 24 months. The Companys
management determines the timing and amount of stock repurchases based on market conditions and
other factors, and may terminate the program at any time before it expires.
The following table describes the Companys repurchases of its registered Class A Common Stock
during the quarter ended March 31, 2008, all of which occurred pursuant to the stock repurchase
program described above:
Approximate | ||||||||||||||||
Total No. | Dollar Value of | |||||||||||||||
of Shares Purchased | Shares that May | |||||||||||||||
Total No. | Avg. Price | as Part of | Yet Be Purchased | |||||||||||||
of Shares | Paid | Publicly Announced | Under the | |||||||||||||
Period | Purchased | per Share | Plans or Programs | Plans or Programs | ||||||||||||
January 1 through January 31, 2008 |
| | | $ | 217,183,025 | |||||||||||
February 1 through February 29, 2008 |
| | | $ | 217,183,025 | |||||||||||
March 1 through March 31, 2008 |
1,459,156 | $ | 34.37 | 1,459,156 | $ | 167,035,999 |
ITEM 6. EXHIBITS
The Exhibits filed as part of this report are listed on the Exhibit Index immediately following the
signature page hereto, which Exhibit Index is incorporated herein by reference.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
LAMAR ADVERTISING COMPANY |
||||
DATED: May 7, 2008 | BY: | /s/ Keith A. Istre | ||
Chief Financial and Accounting Officer and Treasurer | ||||
LAMAR MEDIA CORP. |
||||
DATED: May 7, 2008 | BY: | /s/ Keith A. Istre | ||
Chief Financial and Accounting Officer and Treasurer | ||||
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INDEX TO EXHIBITS
EXHIBIT | ||
NUMBER | DESCRIPTION | |
3.1
|
Restated Certificate of Incorporation of the Company. Previously filed as Exhibit 3.1 to the
Companys Annual Report on Form 10-K (File No. 0-30242) filed on February 22, 2006 and incorporated herein by reference. |
|
3.2
|
Amended and Restated Certificate of Incorporation of Lamar Media. Previously filed as Exhibit 3.2 to the Companys Quarterly Report on Form 10-Q for the period ended March 31, 2007 (File No. 0-30242) filed on May 10, 2007, and incorporated herein by reference. | |
3.3
|
Amended and Restated Bylaws of the Company. Previously filed as Exhibit 3.1 to the Companys Current Report on Form 8-K (File No. 0-30242) filed on August 27, 2007 and incorporated herein by reference. | |
3.4
|
Amended and Restated Bylaws of Lamar Media. Previously filed as Exhibit 3.1 to Lamar Medias Quarterly Report on Form 10-Q for the period ended September 30, 1999 (File No. 1-12407) filed on November 12, 1999 and incorporated herein by reference. | |
10.1
|
Summary of Compensatory Arrangements. Previously filed on the Companys Current Report on Form 8-K (File No. 0-30242) filed on March 26, 2008 and incorporated herein by reference. | |
12.1
|
Statement regarding computation of earnings to fixed charges for the Company. Filed herewith. | |
12.2
|
Statement regarding computation of earnings to fixed charges for Lamar Media. Filed herewith. | |
31.1
|
Certification of the Chief Executive Officer of Lamar Advertising Company and Lamar Media pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith. | |
31.2
|
Certification of the Chief Financial Officer of Lamar Advertising Company and Lamar Media pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith. | |
32.1
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith. |
24