ITEM 1.
FINANCIAL STATEMENTS
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
34,417
|
|
|
$
|
33,212
|
|
Receivables, net of allowance for doubtful accounts of $8,113 and $7,615 in 2014 and 2013, respectively
|
|
|
184,405
|
|
|
|
161,741
|
|
Prepaid expenses
|
|
|
62,800
|
|
|
|
42,048
|
|
Deferred income tax assets
|
|
|
9,973
|
|
|
|
10,378
|
|
Other current assets
|
|
|
40,566
|
|
|
|
34,679
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
332,161
|
|
|
|
282,058
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
3,077,518
|
|
|
|
3,036,456
|
|
Less accumulated depreciation and amortization
|
|
|
(1,981,276
|
)
|
|
|
(1,914,527
|
)
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment
|
|
|
1,096,242
|
|
|
|
1,121,929
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
1,503,664
|
|
|
|
1,503,553
|
|
Intangible assets
|
|
|
371,908
|
|
|
|
419,385
|
|
Deferred financing costs, net of accumulated amortization of $12,448 and $25,180 in 2014 and 2013, respectively
|
|
|
34,680
|
|
|
|
30,290
|
|
Other assets
|
|
|
37,815
|
|
|
|
44,403
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,376,470
|
|
|
$
|
3,401,618
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
|
$
|
18,119
|
|
|
$
|
13,341
|
|
Current maturities of long-term debt
|
|
|
15,636
|
|
|
|
55,935
|
|
Accrued expenses
|
|
|
97,130
|
|
|
|
98,924
|
|
Deferred income
|
|
|
104,357
|
|
|
|
77,153
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
235,242
|
|
|
|
245,353
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
1,912,231
|
|
|
|
1,882,867
|
|
Deferred income tax liabilities
|
|
|
117,337
|
|
|
|
119,150
|
|
Asset retirement obligation
|
|
|
202,773
|
|
|
|
200,831
|
|
Other liabilities
|
|
|
23,232
|
|
|
|
20,471
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,490,815
|
|
|
|
2,468,672
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Series AA preferred stock, par value $.001, $63.80 cumulative dividends, authorized 5,720 shares; 5,720 shares issued and outstanding
at 2014 and 2013
|
|
|
|
|
|
|
|
|
Class A preferred stock, par value $638, $63.80 cumulative dividends, 10,000 shares authorized; 0 shares issued and outstanding at
2014 and 2013
|
|
|
|
|
|
|
|
|
Class A common stock, par value $.001, 175,000,000 shares authorized, 97,938,299 and 97,426,144 shares issued at 2014 and 2013,
respectively; 80,667,369 and 80,209,509 issued and outstanding at 2014 and 2013, respectively
|
|
|
98
|
|
|
|
97
|
|
Class B common stock, par value $.001, 37,500,000 shares authorized, 14,610,365 shares issued and outstanding at 2014 and 2013
|
|
|
15
|
|
|
|
15
|
|
Additional paid-in capital
|
|
|
2,494,395
|
|
|
|
2,470,375
|
|
Accumulated comprehensive income
|
|
|
4,152
|
|
|
|
3,867
|
|
Accumulated deficit
|
|
|
(716,187
|
)
|
|
|
(647,577
|
)
|
Cost of shares held in treasury, 17,270,930 and 17,216,635 shares in 2014 and 2013, respectively
|
|
|
(896,818
|
)
|
|
|
(893,831
|
)
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
885,655
|
|
|
|
932,946
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
3,376,470
|
|
|
$
|
3,401,618
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
4
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Net revenues
|
|
$
|
330,433
|
|
|
$
|
327,744
|
|
|
$
|
615,366
|
|
|
$
|
604,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses (income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct advertising expenses (exclusive of depreciation and amortization)
|
|
|
114,277
|
|
|
|
110,723
|
|
|
|
225,785
|
|
|
|
217,242
|
|
General and administrative expenses (exclusive of depreciation and amortization)
|
|
|
56,054
|
|
|
|
55,987
|
|
|
|
113,731
|
|
|
|
119,125
|
|
Corporate expenses (exclusive of depreciation and amortization)
|
|
|
17,035
|
|
|
|
16,010
|
|
|
|
32,319
|
|
|
|
30,608
|
|
Depreciation and amortization
|
|
|
71,049
|
|
|
|
72,408
|
|
|
|
140,575
|
|
|
|
146,309
|
|
Gain on disposition of assets
|
|
|
(1,020
|
)
|
|
|
(701
|
)
|
|
|
(1,226
|
)
|
|
|
(1,307
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
257,395
|
|
|
|
254,427
|
|
|
|
511,184
|
|
|
|
511,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
73,038
|
|
|
|
73,317
|
|
|
|
104,182
|
|
|
|
92,372
|
|
Other expense (income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on extinguishment of debt
|
|
|
20,847
|
|
|
|
|
|
|
|
26,023
|
|
|
|
|
|
Other-than-temporary impairment of investment
|
|
|
|
|
|
|
|
|
|
|
4,069
|
|
|
|
|
|
Interest income
|
|
|
(43
|
)
|
|
|
(51
|
)
|
|
|
(88
|
)
|
|
|
(79
|
)
|
Interest expense
|
|
|
26,086
|
|
|
|
37,887
|
|
|
|
56,354
|
|
|
|
74,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,890
|
|
|
|
37,836
|
|
|
|
86,358
|
|
|
|
74,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
26,148
|
|
|
|
35,481
|
|
|
|
17,824
|
|
|
|
17,864
|
|
Income tax expense
|
|
|
10,726
|
|
|
|
12,359
|
|
|
|
7,239
|
|
|
|
5,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
15,422
|
|
|
|
23,122
|
|
|
|
10,585
|
|
|
|
12,859
|
|
Cash dividends declared and paid on preferred stock
|
|
|
91
|
|
|
|
91
|
|
|
|
182
|
|
|
|
182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common stock
|
|
$
|
15,331
|
|
|
$
|
23,031
|
|
|
$
|
10,403
|
|
|
$
|
12,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.16
|
|
|
$
|
0.24
|
|
|
$
|
0.11
|
|
|
$
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.16
|
|
|
$
|
0.24
|
|
|
$
|
0.11
|
|
|
$
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per share common stock
|
|
$
|
0.83
|
|
|
$
|
|
|
|
$
|
0.83
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares used in computing earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
95,174,692
|
|
|
|
94,337,967
|
|
|
|
95,041,097
|
|
|
|
94,157,464
|
|
Incremental common shares from dilutive stock options
|
|
|
415,530
|
|
|
|
475,171
|
|
|
|
423,180
|
|
|
|
436,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares diluted
|
|
|
95,590,222
|
|
|
|
94,813,138
|
|
|
|
95,464,277
|
|
|
|
94,593,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statements of Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
15,422
|
|
|
$
|
23,122
|
|
|
$
|
10,585
|
|
|
$
|
12,859
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
669
|
|
|
|
(873
|
)
|
|
|
285
|
|
|
|
(1,539
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
16,091
|
|
|
$
|
22,249
|
|
|
$
|
10,870
|
|
|
$
|
11,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
5
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Six months ended
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
10,585
|
|
|
$
|
12,859
|
|
Adjustments to reconcile net income to net cash provided by operating activities
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
140,575
|
|
|
|
146,309
|
|
Non-cash equity based compensation
|
|
|
10,513
|
|
|
|
17,195
|
|
Amortization included in interest expense
|
|
|
2,451
|
|
|
|
7,092
|
|
Gain on disposition of assets and investments
|
|
|
(1,226
|
)
|
|
|
(1,307
|
)
|
Other-than-temporary impairment of investment
|
|
|
4,069
|
|
|
|
|
|
Loss on extinguishment of debt
|
|
|
26,023
|
|
|
|
|
|
Deferred tax (benefit) expense
|
|
|
(2,215
|
)
|
|
|
3,620
|
|
Provision for doubtful accounts
|
|
|
2,750
|
|
|
|
3,101
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
(Increase) decrease in:
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(25,420
|
)
|
|
|
(18,979
|
)
|
Prepaid expenses
|
|
|
(20,941
|
)
|
|
|
(19,948
|
)
|
Other assets
|
|
|
(5,378
|
)
|
|
|
(4,062
|
)
|
Increase (decrease) in:
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
|
|
2,846
|
|
|
|
2,570
|
|
Accrued expenses
|
|
|
2,321
|
|
|
|
(2,811
|
)
|
Other liabilities
|
|
|
26,479
|
|
|
|
6,315
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
173,432
|
|
|
|
151,954
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Acquisitions
|
|
|
(9,195
|
)
|
|
|
(32,827
|
)
|
Capital expenditures
|
|
|
(54,255
|
)
|
|
|
(52,721
|
)
|
Proceeds from disposition of assets and investments
|
|
|
1,664
|
|
|
|
3,278
|
|
Payments received on notes receivable
|
|
|
4,477
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(57,309
|
)
|
|
|
(82,252
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Debt issuance costs
|
|
|
(17,081
|
)
|
|
|
(82
|
)
|
Cash used for purchase of treasury stock
|
|
|
(2,987
|
)
|
|
|
(4,200
|
)
|
Net proceeds from issuance of common stock
|
|
|
11,911
|
|
|
|
11,947
|
|
Principal payments on long term debt
|
|
|
(3,797
|
)
|
|
|
(16,294
|
)
|
Payment on revolving credit facility
|
|
|
(220,000
|
)
|
|
|
|
|
Proceeds received from revolving credit facility
|
|
|
155,000
|
|
|
|
|
|
Proceeds received from note offering
|
|
|
510,000
|
|
|
|
|
|
Payment on senior subordinated notes
|
|
|
(415,752
|
)
|
|
|
|
|
Proceeds received from senior credit facility
|
|
|
300,000
|
|
|
|
|
|
Payment on senior credit facility
|
|
|
(352,106
|
)
|
|
|
|
|
Distributions
|
|
|
(734
|
)
|
|
|
|
|
Dividends
|
|
|
(79,195
|
)
|
|
|
(182
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(114,741
|
)
|
|
|
(8,811
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes in cash and cash equivalents
|
|
|
(177
|
)
|
|
|
(922
|
)
|
Net increase in cash and cash equivalents
|
|
|
1,205
|
|
|
|
59,969
|
|
Cash and cash equivalents at beginning of period
|
|
|
33,212
|
|
|
|
58,911
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
34,417
|
|
|
$
|
118,880
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
47,570
|
|
|
$
|
67,527
|
|
|
|
|
|
|
|
|
|
|
Cash paid for foreign, state and federal income taxes
|
|
$
|
9,295
|
|
|
$
|
1,491
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
6
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In
thousands, except share and per share data)
1.
Significant Accounting Policies and Description of Business
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 2013 Combined Form 10-K. Subsequent events, if any, are evaluated through the date on which the financial statements are issued.
In April 2014, the Company received a favorable private letter ruling from the U.S. Internal Revenue Service (the IRS) regarding its plan to be
taxed as REIT. The Companys conversion to a REIT is expected to be effective as of January 1, 2014, subject to final approval by the Companys Board of Directors.
2.
Stock-Based Compensation
Equity Incentive Plan.
Lamar Advertisings 1996 Equity Incentive Plan, as amended, (the Incentive Plan) has reserved
15.5 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 and include 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. 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 51,000 shares of its Class A common stock during the six months ended June 30, 2014.
Stock Purchase Plan.
In 2009 our Board of Directors adopted a new employee stock purchase plan, the 2009 Employee Stock Purchase Plan or 2009
ESPP, which was approved by our shareholders on May 28, 2009. The 2009 ESPP reserved 588,154 shares of Class A common stock for issuance to our employees, which included 88,154 shares of Class A common stock that had been available
for issuance under our 2000 Employee Stock Purchase Plan or 2000 ESPP. The 2000 ESPP was terminated following the issuance of all shares that were subject to the offer that commenced under the 2000 ESPP on January 1, 2009 and ended
June 30, 2009. The terms of the 2009 ESPP are substantially the same as the 2000 ESPP.
The number of shares of Class A common stock available
under the 2009 ESPP was automatically increased by 80,209 shares on January 1, 2014 pursuant to the automatic increase provisions of the 2009 ESPP.
The following is a summary of 2009 ESPP share activity for the six months ended June 30, 2014:
|
|
|
|
|
|
|
Shares
|
|
Available for future purchases, January 1, 2014
|
|
|
327,689
|
|
Additional shares reserved under 2009 ESPP
|
|
|
80,209
|
|
Purchases
|
|
|
(51,045
|
)
|
|
|
|
|
|
Available for future purchases, June 30, 2014
|
|
|
356,853
|
|
|
|
|
|
|
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 2014 results. Any shares issued based on the achievement of performance goals will be issued in the first quarter of 2015. 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. For the six months ended June 30, 2014, the Company has recorded $5,341 as non-cash compensation expense related to performance-based awards. In addition, each
non-employee director automatically receives upon election or re-election a restricted stock award of our Class A common stock. The awards vest 50% on grant date and 50% on the last day of the directors one year term. The Company recorded
a $192 non-cash compensation expense related to these awards for the six months ended June 30, 2014.
7
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share data)
3.
Depreciation and Amortization
The Company includes all categories of depreciation and amortization on a separate line in its Statements of Operations and Comprehensive
Income. The amounts of depreciation and amortization expense excluded from the following operating expenses in its Statements of Operations and Comprehensive Income are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Direct advertising expenses
|
|
$
|
66,946
|
|
|
$
|
69,999
|
|
|
$
|
132,538
|
|
|
$
|
138,225
|
|
General and administrative expenses
|
|
|
1,080
|
|
|
|
894
|
|
|
|
2,101
|
|
|
|
1,770
|
|
Corporate expenses
|
|
|
3,023
|
|
|
|
1,515
|
|
|
|
5,936
|
|
|
|
6,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
71,049
|
|
|
$
|
72,408
|
|
|
$
|
140,575
|
|
|
$
|
146,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.
Goodwill and Other Intangible Assets
The following is a summary of intangible assets at June 30, 2014 and December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
June 30, 2014
|
|
|
December 31, 2013
|
|
|
|
Life
(Years)
|
|
|
Gross Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Gross Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
Customer lists and contracts
|
|
|
710
|
|
|
$
|
494,615
|
|
|
$
|
466,705
|
|
|
$
|
492,299
|
|
|
$
|
463,188
|
|
Non-competition agreements
|
|
|
315
|
|
|
|
63,943
|
|
|
|
63,061
|
|
|
|
63,933
|
|
|
|
62,914
|
|
Site locations
|
|
|
15
|
|
|
|
1,499,474
|
|
|
|
1,156,903
|
|
|
|
1,495,635
|
|
|
|
1,106,947
|
|
Other
|
|
|
515
|
|
|
|
14,008
|
|
|
|
13,463
|
|
|
|
14,008
|
|
|
|
13,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,072,040
|
|
|
$
|
1,700,132
|
|
|
$
|
2,065,875
|
|
|
$
|
1,646,490
|
|
Unamortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
$
|
1,757,200
|
|
|
$
|
253,536
|
|
|
$
|
1,757,089
|
|
|
$
|
253,536
|
|
5.
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, 2013
|
|
$
|
200,831
|
|
Additions to asset retirement obligations
|
|
|
636
|
|
Accretion expense
|
|
|
2,647
|
|
Liabilities settled
|
|
|
(1,341
|
)
|
|
|
|
|
|
Balance at June 30, 2014
|
|
$
|
202,773
|
|
|
|
|
|
|
6.
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 guarantors are in the aggregate minor.
Lamar Medias ability to make distributions to Lamar
Advertising is restricted under both the terms of the indentures relating to Lamar Medias outstanding notes and by the terms of its senior credit facility. As of June 30, 2014 and December 31, 2013, Lamar Media was permitted under
the terms of its outstanding senior subordinated and senior notes to make transfers to Lamar Advertising in the form of cash dividends, loans or advances in amounts up to $2,180,374 and $2,072,542, respectively.
8
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share data)
As of June 30, 2014, transfers to Lamar Advertising are permitted under Lamar Medias senior credit
facility and as defined therein, unless, after giving effect such distributions, (i) the total debt ratio is equal to or greater than 6.0 to 1 or (ii) the senior debt ratio is equal to or greater than 3.5 to 1. As of June 30, 2014,
the total debt ratio was less than 6.0 to 1 and Lamar Medias senior debt ratio was less than 3.50 to 1; therefore, dividends or distributions to Lamar Advertising were not subject to any additional restrictions under the senior credit
facility. In addition, as of June 30, 2014 the senior credit facility allows Lamar Media to conduct its affairs in a manner that would allow Lamar Advertising to qualify and remain qualified for taxation as a REIT, including by allowing Lamar
Media to make distributions to Lamar Advertising required for Lamar Advertising to qualify and remain qualified for taxation as a REIT, subject to certain restrictions.
7.
Earnings Per Share
The calculation of basic earnings per share excludes any dilutive effect of stock options, while diluted earnings per share includes the
dilutive effect of stock options. There were no dilutive shares excluded from this calculation resulting from their anti-dilutive effect for the three and six months ended June 30, 2014 or 2013.
8.
Long-term Debt
Long-term debt consists of the following at June 30, 2014 and December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
Senior Credit Facility
|
|
$
|
381,250
|
|
|
$
|
502,106
|
|
7 7/8% Senior Subordinated Notes
|
|
|
|
|
|
|
400,000
|
|
5 7/8% Senior Subordinated Notes
|
|
|
500,000
|
|
|
|
500,000
|
|
5% Senior Subordinated Notes
|
|
|
535,000
|
|
|
|
535,000
|
|
5 3/8% Senior Notes
|
|
|
510,000
|
|
|
|
|
|
Other notes with various rates and terms
|
|
|
1,617
|
|
|
|
1,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,927,867
|
|
|
|
1,938,802
|
|
Less current maturities
|
|
|
(15,636
|
)
|
|
|
(55,935
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt, excluding current maturities
|
|
$
|
1,912,231
|
|
|
$
|
1,882,867
|
|
|
|
|
|
|
|
|
|
|
7 7/8% Senior Subordinated Notes
On April 22, 2010, Lamar Media issued $400,000 in aggregate principal amount of 7 7/8% Senior Subordinated Notes due 2018 (the 7 7/8% Notes).
The institutional private placement resulted in net proceeds to Lamar Media of approximately $392,000.
On or after April 15, 2014, Lamar Media may
redeem the 7 7/8% Notes, in whole or part, in cash at redemption prices specified in the notes. In addition, if the Company or Lamar Media undergoes a change of control, Lamar Media may be required to make an offer to purchase each holders
notes at a price equal to 101% of the principal amount of the notes plus accrued and unpaid interest, up to but not including the repurchase date.
On
April 21, 2014, Lamar Media redeemed in full all $400,000 in aggregate principal amount of the 7 7/8% Notes. A loss of $20,847 was recorded as a result of this transaction, of which $5,095 was non-cash. No 7 7/8% Notes remained outstanding as
of June 30, 2014.
5 7/8% Senior Subordinated Notes
On February 9, 2012, Lamar Media completed an institutional private placement of $500,000 aggregate principal amount of 5 7/8% Senior Subordinated Notes,
due 2022 (the 5 7/8% Notes). The institutional private placement resulted in net proceeds to Lamar Media of approximately $489,000.
Lamar
Media may redeem up to 35% of the aggregate principal amount of the 5 7/8% Notes, at any time and from time to time, at a price equal to 105.875% of the aggregate principal amount so redeemed, plus accrued and unpaid interest thereon, with the net
cash proceeds of certain public equity offerings completed before February 1, 2015, provided that following the redemption, at least 65% of the 5 7/8% Notes that were originally issued remain outstanding. At any time prior to February 1,
2017, Lamar Media may redeem some or all of the 5 7/8% Notes at a price equal to 100% of the aggregate principal amount plus a make-whole premium.
9
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share data)
On or after February 1, 2017, Lamar Media may redeem the 5 7/8% Notes, in whole or in part, in cash at
redemption prices specified in the notes. In addition, if the Company or Lamar Media undergoes a change of control, Lamar Media may be required to make an offer to purchase each holders notes at a price equal to 101% of the principal amount of
the 5 7/8% Notes, plus accrued and unpaid interest, up to but not including the repurchase date.
5% Senior Subordinated Notes
On October 30, 2012, Lamar Media completed an institutional private placement of $535,000 aggregate principal amount of 5% Senior Subordinated Notes due
2023 (the 5% Notes). The institutional private placement resulted in net proceeds to Lamar Media of approximately $527,100.
Lamar Media may
redeem up to 35% of the aggregate principal amount of the 5% Notes, at any time and from time to time, at a price equal to 105% of the aggregate principal amount so redeemed, plus accrued and unpaid interest thereon, with the net cash proceeds of
certain public equity offerings completed before November 1, 2015, provided that following the redemption, at least 65% of the 5% Notes that were originally issued remain outstanding. At any time prior to May 1, 2018, Lamar Media may
redeem some or all of the 5% Notes at a price equal to 100% of the aggregate principal amount plus a make-whole premium. On or after May 1, 2018, Lamar Media may redeem the 5% Notes, in whole or in part, in cash at redemption prices specified
in the 5% Notes. In addition, if the Company or Lamar Media undergoes a change of control, Lamar Media may be required to make an offer to purchase each holders Notes at a price equal to 101% of the principal amount of the Notes, plus accrued
and unpaid interest, up to but not including the repurchase date.
5 3/8% Senior Notes
On January 10, 2014, Lamar Media completed an institutional private placement of $510,000 aggregate principal amount of 5 3/8% Senior Notes due 2024 (the
5 3/8% Senior Notes). The institutional private placement resulted in net proceeds to Lamar Media of approximately $502,300.
Lamar Media may
redeem up to 35% of the aggregate principal amount of the 5 3/8% Senior Notes, at any time and from time to time, at a price equal to 105 3/8% of the aggregate principal amount so redeemed, plus accrued and unpaid interest thereon, with the net cash
proceeds of certain public equity offerings completed before January 15, 2017, provided that following the redemption, at least 65% of the 5 3/8% Senior Notes that were originally issued remain outstanding and any such redemption occurs within
120 days following the closing of any such public equity offering. At any time prior to January 15, 2019, Lamar Media may redeem some or all of the 5 3/8% Senior Notes at a price equal to 100% of the aggregate principal amount, plus accrued and
unpaid interest thereon and a make-whole premium. On or after January 15, 2019, Lamar Media may redeem the 5 3/8% Senior Notes, in whole or in part, in cash at redemption prices specified in the 5 3/8% Senior Notes. In addition, if the Company
or Lamar Media undergoes a change of control, Lamar Media may be required to make an offer to purchase each holders 5 3/8% Senior Notes at a price equal to 101% of the principal amount of the 5 3/8% Senior Notes, plus accrued and unpaid
interest, up to but not including the repurchase date.
Senior Credit Facility
On January 10, 2014, Lamar Media paid in full the outstanding balance of the term loans then outstanding under its senior credit facility. The Company
incurred a non-cash loss of $5,176 related to this transaction.
On February 3, 2014, Lamar Media entered into a Second Restatement Agreement (the
Second Restatement Agreement) with the Company, certain of Lamar Medias subsidiaries as Guarantors, JPMorgan Chase Bank, N.A., as Administrative Agent and the Lenders named therein, under which the parties agreed to amend and
restate Lamar Medias existing senior credit facility on the terms set forth in the Second Amended and Restated Credit Agreement attached as Exhibit A to the Second Restatement Agreement (such Second and Amended and Restated Credit Agreement
together with the Second Restatement Agreement being herein referred to as the senior credit facility). The senior credit facility consists of a $400,000 revolving credit facility and a $500,000 incremental facility. Lamar Media is the
borrower under the senior credit facility. We may also from time to time designate wholly-owned subsidiaries as subsidiary borrowers under the incremental loan facility. Incremental loans may be in the form of additional term loan tranches or
increases in the revolving credit facility. Our lenders have no obligation to make additional loans to us, or any designated subsidiary borrower, under the incremental facility, but may enter into such commitments in their sole discretion.
10
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share data)
On April 18, 2014, Lamar Media entered into Amendment No. 1 to the Second Amended and Restated
Credit Agreement (the Amendment) with Lamar Advertising, certain of Lamar Medias subsidiaries as Guarantors, JPMorgan Chase Bank, N.A. as Administrative Agent and the Lenders named therein under which the parties agreed to amend
Lamar Medias existing senior credit facility on the terms set forth in the Amendment. The Amendment created a new $300,000 Term A Loan facility (the Term A Loans) and certain other amendments to the senior credit agreement. The
Term A Loans are not incremental loans and do not reduce the existing $500,000 Incremental Loan facility. Lamar Media borrowed all $300,000 in Term A Loans on April 18, 2014. The net loan proceeds, together with borrowings under the revolving
portion of the senior credit facility and cash on hand, were used to fund the redemption of all $400,000 in aggregate principal amount of Lamar Medias 7 7/8% Notes due 2018 on April 21, 2014.
The Term A Loans began amortizing on June 30, 2014 in quarterly installments on each September 30, December 31, March 31, and
June 30 thereafter, as follows:
|
|
|
|
|
Principal Payment Date
|
|
Principal Amount
|
|
September 30, 2014-March 31, 2016
|
|
$
|
3,750
|
|
June 30, 2016- March 31, 2017
|
|
$
|
5,625
|
|
June 30, 2017-December 31, 2018
|
|
$
|
11,250
|
|
Term A Loan Maturity Date
|
|
$
|
168,750
|
|
The Term A Loans bear interest at rates based on the Adjusted LIBO Rate (Eurodollar Term A Loans) or the Adjusted
Base Rate (Base Rate Term A Loans), at Lamar Medias option. Eurodollar Term A Loans bear interest at a rate per annum equal to the Adjusted LIBO Rate plus 2.00% (or the Adjusted LIBO Rate plus 1.75% at any time the Total Debt
Ratio is less than or equal to 3.00 to 1). Base Rate Term A Loans bear interest at a rate per annum equal to the Adjusted Base Rate plus 1.00% (or the Adjusted Base Rate plus 0.75% at any time the Total Debt Ratio is less than or equal to 3.00
to 1). The guarantees, covenants, events of default and other terms of the senior credit facility apply to the Term A Loans.
As of June 30, 2014,
there was $85,000 outstanding under the revolving credit facility. Availability under the revolving facility is reduced by the amount of any letters of credit outstanding. Lamar Media had $6,973 letters of credit outstanding as of June 30, 2014
resulting in $308,027 of availability under its revolving facility. Revolving credit loans may be requested under the revolving credit facility at any time prior to its maturity on February 2, 2019, and bear interest, at Lamar Medias
option, at the Adjusted LIBOR Rate or the Adjusted Base Rate plus applicable margins, such margins are set at an initial rate with the possibility of a step down based on Lamar Medias ratio of debt to trailing four quarters EBITDA, as defined
in the senior credit facility.
The terms of Lamar Medias senior credit facility and the indentures relating to Lamar Medias outstanding notes
restrict, among other things, the ability of Lamar Advertising and Lamar Media to:
The senior credit facility contains provisions that would allow Lamar Media to conduct its
affairs in a manner that would allow Lamar Advertising to qualify and remain qualified as a REIT, including by allowing Lamar Media to make distributions to Lamar Advertising required for the Company to qualify and remain qualified for taxation as a
REIT, subject to certain restrictions.
Lamar Medias ability to make distributions to Lamar Advertising is also restricted under the terms of these
agreements. Under Lamar Medias senior credit facility the Company must maintain a specified senior debt ratio at all times and in addition, must satisfy a total debt ratio in order to incur debt, make distributions or make certain investments.
Lamar Advertising and Lamar Media were in compliance with all of the terms of their indentures and the applicable senior credit agreement provisions
during the periods presented.
11
LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share data)
9.
Fair Value of Financial Instruments
At June 30, 2014 and December 31, 2013, the Companys financial instruments included cash and cash equivalents, marketable
securities, accounts receivable, investments, accounts payable and borrowings. The fair values of cash and cash equivalents, accounts receivable, accounts payable and short-term borrowings and current portion of long-term debt approximated carrying
values because of the short-term nature of these instruments. Investment contracts are reported at fair values. Fair values for investments held at cost are not readily available, but are estimated to approximate fair value. The estimated fair value
of the Companys long term debt (including current maturities) was $1,982,661 which exceeded both the gross and carrying amount of $1,927,867 as of June 30, 2014. The majority of the fair value is determined using observed prices of
publicly traded debt (level 1 in the fair value hierarchy) and the remaining is valued based on quoted prices for similar debt (level 2 in the fair value hierarchy).
10.
Adjustments to Previously Reported Amounts
Immaterial Correction of an Error.
Commencing with the fourth quarter of 2013, the Company revised previously reported amounts due to
a change from recognizing revenue on a monthly basis over the term of the advertising contract to recognizing revenue on a daily basis over the term of the advertising contract. In accordance with Staff Accounting Bulletin (SAB)
No. 99,
Materiality,
and SAB No. 108,
Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements
, management evaluated the materiality of the error from qualitative
and quantitative perspectives, and concluded the error was immaterial to the current and prior periods. The correction of the immaterial error resulted in an increase (decrease) of net revenue and net income of $3,060 and $1,867 and $(3,814) and
$(2,326) for the three and six months ended June 30, 2013, respectively. The correction also resulted in an increase (decrease) of $0.02 and ($0.03) in earnings per basic and dilutive share for the three months and six months ended
June 30, 2013, respectively.
The Company revised its historical financial statements as published in our 2013 Combined 10-K for fiscal 2011 and
2012, and the three and six months ended June 30, 2013 contained therein. The Company will revise the quarter ended September 30, 2013, when its published in a future filing.
11.
New Accounting Pronouncements
On May 28, 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers
, which requires an entity to
recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard
is effective for the Company on January 1, 2017. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will
have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.
12.
Distributions
During the period ended June 30, 2014 the Company paid a cash distribution to holders of its common stock of $79,013, or $0.83 per
share, in anticipation of commencing to operate as a REIT effective January 1, 2014. As a REIT the Company must distribute to its stockholders by the end of 2014 all if its pre-REIT accumulated earnings and profits, if any. In addition, the
Company must annually distribute to its stockholders an amount equal to at least 90% of its REIT taxable income (determined before the deduction for distributed earnings and excluding any net capital gain). The amount, timing and frequency of future
distributions will be at the sole discretion of the Board of Directors and will be declared based upon various factors, a number of which may be beyond the Companys control, including financial condition and operating cash flows, the amount
required to maintain REIT status and reduce any income and excise taxes that the Company otherwise would be required to pay, limitations on distributions in our existing and future debt instruments, the Companys ability to utilize net
operating losses to offset, in whole or in part, the Companys distribution requirements, limitations on its ability to fund distributions using cash generated through its taxable REIT subsidiaries (TRSs) and other factors that the Board of
Directors may deem relevant. During the period ended June 30, 2014, the Company paid a cash dividend distribution to holders of its Series AA Preferred Stock of $182 or $31.90 per share.
13.
Information about Geographic Areas
Revenues from external customers attributable to foreign countries totaled $16,106 and $15,988 for the six months ended June 30, 2014
and 2013, respectively. Net carrying value of long lived assets located in foreign countries totaled $8,027 and $8,838 for the periods ended June 30, 2014 and December 31, 2013, respectively. All other revenues from external customers and
long lived assets relate to domestic operations.
12
LAMAR MEDIA CORP.
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
33,917
|
|
|
$
|
32,712
|
|
Receivables, net of allowance for doubtful accounts of $8,113 and $7,615 in 2014 and 2013, respectively.
|
|
|
184,405
|
|
|
|
161,741
|
|
Prepaid expenses
|
|
|
62,800
|
|
|
|
42,048
|
|
Deferred income tax assets
|
|
|
9,973
|
|
|
|
10,378
|
|
Other current assets
|
|
|
40,566
|
|
|
|
34,679
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
331,661
|
|
|
|
281,558
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
3,077,518
|
|
|
|
3,036,456
|
|
Less accumulated depreciation and amortization
|
|
|
(1,981,276
|
)
|
|
|
(1,914,527
|
)
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment
|
|
|
1,096,242
|
|
|
|
1,121,929
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
1,493,512
|
|
|
|
1,493,401
|
|
Intangible assets
|
|
|
371,440
|
|
|
|
418,919
|
|
Deferred financing costs net of accumulated amortization of $3,160 and $15,893 in 2014 and 2013, respectively
|
|
|
32,727
|
|
|
|
28,336
|
|
Other assets
|
|
|
32,530
|
|
|
|
39,118
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,358,112
|
|
|
$
|
3,383,261
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
|
$
|
18,119
|
|
|
$
|
13,341
|
|
Current maturities of long-term debt
|
|
|
15,636
|
|
|
|
55,935
|
|
Accrued expenses
|
|
|
93,461
|
|
|
|
95,632
|
|
Deferred income
|
|
|
104,357
|
|
|
|
77,153
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
231,573
|
|
|
|
242,061
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
1,912,231
|
|
|
|
1,882,867
|
|
Deferred income tax liabilities
|
|
|
150,806
|
|
|
|
152,541
|
|
Asset retirement obligation
|
|
|
202,773
|
|
|
|
200,831
|
|
Other liabilities
|
|
|
23,232
|
|
|
|
20,471
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,520,615
|
|
|
|
2,498,771
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, par value $.01, 3,000 shares authorized, 100 shares issued and outstanding at 2014 and 2013
|
|
|
|
|
|
|
|
|
Additional paid-in-capital
|
|
|
2,668,035
|
|
|
|
2,644,015
|
|
Accumulated comprehensive income
|
|
|
4,152
|
|
|
|
3,867
|
|
Accumulated deficit
|
|
|
(1,834,690
|
)
|
|
|
(1,763,392
|
)
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
837,497
|
|
|
|
884,490
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
3,358,112
|
|
|
$
|
3,383,261
|
|
|
|
|
|
|
|
|
|
|
See accompanying note to condensed consolidated financial statements.
13
LAMAR MEDIA CORP.
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Net revenues
|
|
$
|
330,433
|
|
|
$
|
327,744
|
|
|
$
|
615,366
|
|
|
$
|
604,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses (income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct advertising expenses (exclusive of depreciation and amortization)
|
|
|
114,277
|
|
|
|
110,723
|
|
|
|
225,785
|
|
|
|
217,242
|
|
General and administrative expenses (exclusive of depreciation and amortization)
|
|
|
56,054
|
|
|
|
55,987
|
|
|
|
113,731
|
|
|
|
119,125
|
|
Corporate expenses (exclusive of depreciation and amortization)
|
|
|
16,942
|
|
|
|
15,922
|
|
|
|
32,124
|
|
|
|
30,427
|
|
Depreciation and amortization
|
|
|
71,049
|
|
|
|
72,408
|
|
|
|
140,575
|
|
|
|
146,309
|
|
Gain on disposition of assets
|
|
|
(1,020
|
)
|
|
|
(701
|
)
|
|
|
(1,226
|
)
|
|
|
(1,307
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
257,302
|
|
|
|
254,339
|
|
|
|
510,989
|
|
|
|
511,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
73,131
|
|
|
|
73,405
|
|
|
|
104,377
|
|
|
|
92,553
|
|
Other expense (income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on extinguishment of debt
|
|
|
20,847
|
|
|
|
|
|
|
|
26,023
|
|
|
|
|
|
Other-than-temporary impairment of investment
|
|
|
|
|
|
|
|
|
|
|
4,069
|
|
|
|
|
|
Interest income
|
|
|
(43
|
)
|
|
|
(51
|
)
|
|
|
(88
|
)
|
|
|
(79
|
)
|
Interest expense
|
|
|
26,086
|
|
|
|
37,887
|
|
|
|
56,354
|
|
|
|
74,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,890
|
|
|
|
37,836
|
|
|
|
86,358
|
|
|
|
74,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
26,241
|
|
|
|
35,569
|
|
|
|
18,019
|
|
|
|
18,045
|
|
Income tax expense
|
|
|
10,761
|
|
|
|
12,391
|
|
|
|
7,317
|
|
|
|
5,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
15,480
|
|
|
$
|
23,178
|
|
|
$
|
10,702
|
|
|
$
|
12,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statements of Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
15,480
|
|
|
$
|
23,178
|
|
|
$
|
10,702
|
|
|
$
|
12,966
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
669
|
|
|
|
(873
|
)
|
|
|
285
|
|
|
|
(1,539
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
16,149
|
|
|
$
|
22,305
|
|
|
$
|
10,987
|
|
|
$
|
11,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying note to condensed consolidated financial statements.
14
LAMAR MEDIA CORP.
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Six months ended
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
10,702
|
|
|
$
|
12,966
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
140,575
|
|
|
|
146,309
|
|
Non-cash equity based compensation
|
|
|
10,513
|
|
|
|
17,195
|
|
Amortization included in interest expense
|
|
|
2,451
|
|
|
|
7,092
|
|
Gain on disposition of assets and investments
|
|
|
(1,226
|
)
|
|
|
(1,307
|
)
|
Other-than-temporary impairment of investment
|
|
|
4,069
|
|
|
|
|
|
Loss on extinguishment of debt
|
|
|
26,023
|
|
|
|
|
|
Deferred tax (benefit) expense
|
|
|
(2,137
|
)
|
|
|
3,694
|
|
Provision for doubtful accounts
|
|
|
2,750
|
|
|
|
3,101
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
(Increase) decrease in:
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(25,420
|
)
|
|
|
(18,979
|
)
|
Prepaid expenses
|
|
|
(20,941
|
)
|
|
|
(19,948
|
)
|
Other assets
|
|
|
(5,378
|
)
|
|
|
(4,062
|
)
|
Increase (decrease) in:
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
|
|
2,846
|
|
|
|
2,570
|
|
Accrued expenses
|
|
|
2,321
|
|
|
|
(2,811
|
)
|
Other liabilities
|
|
|
13,993
|
|
|
|
(7,201
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
161,141
|
|
|
|
138,619
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Acquisitions
|
|
|
(9,195
|
)
|
|
|
(32,827
|
)
|
Capital expenditures
|
|
|
(54,255
|
)
|
|
|
(52,721
|
)
|
Proceeds from disposition of assets and investments
|
|
|
1,664
|
|
|
|
3,278
|
|
Payment received on notes receivable
|
|
|
4,477
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(57,309
|
)
|
|
|
(82,252
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Principal payments on long-term debt
|
|
|
(3,797
|
)
|
|
|
(16,294
|
)
|
Payment on revolving credit facility
|
|
|
(220,000
|
)
|
|
|
|
|
Proceeds received from revolving credit facility
|
|
|
155,000
|
|
|
|
|
|
Payment on senior subordinated notes
|
|
|
(415,752
|
)
|
|
|
|
|
Proceeds received from note offering
|
|
|
510,000
|
|
|
|
|
|
Proceeds received from senior credit facility
|
|
|
300,000
|
|
|
|
|
|
Payment on senior credit facility
|
|
|
(352,106
|
)
|
|
|
|
|
Debt issuance costs
|
|
|
(17,081
|
)
|
|
|
(82
|
)
|
Distributions
|
|
|
(734
|
)
|
|
|
|
|
Contributions from parent
|
|
|
24,020
|
|
|
|
25,100
|
|
Dividend to parent
|
|
|
(82,000
|
)
|
|
|
(4,200
|
)
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(102,450
|
)
|
|
|
4,524
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes in cash and cash equivalents
|
|
|
(177
|
)
|
|
|
(922
|
)
|
Net increase in cash and cash equivalents
|
|
|
1,205
|
|
|
|
59,969
|
|
Cash and cash equivalents at beginning of period
|
|
|
32,712
|
|
|
|
58,411
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
33,917
|
|
|
$
|
118,380
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
47,570
|
|
|
$
|
67,527
|
|
|
|
|
|
|
|
|
|
|
Cash paid for foreign, state and federal income taxes
|
|
$
|
9,295
|
|
|
$
|
1,491
|
|
|
|
|
|
|
|
|
|
|
See accompanying note to condensed consolidated financial statements.
15
LAMAR MEDIA CORP.
AND SUBSIDIARIES
Note to Condensed Consolidated Financial Statements
(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 2013 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, 8, 9, 10, 11 and 13 to the condensed consolidated financial statements of Lamar Advertising included elsewhere in this report is substantially equivalent to that required for the condensed
consolidated financial statements of Lamar Media. Earnings per share data is not provided for Lamar Media, as it is a wholly owned subsidiary of the Company.
16
ITEM 2.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
This
report 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 Forward-Looking Statements and in Item 1A to the 2013 Combined Form 10-K filed on February 27, 2014
,
as supplemented by
any
risk factors contained in our combined Quarterly Reports on
Form 10-Q. 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.
Adjustment to Previously Reported Amounts
Immaterial Correction of an Error.
During the fourth quarter of 2013, the Company identified an error in its revenue recognition. The Company determined
that its policy of recognizing revenue on a monthly basis was in error and that revenue should be recognized on a daily basis over the term of the advertising contract. The result of the error was an immaterial understatement of deferred income
liability and net revenue as of and for the year ended December 31, 2013. In accordance with SAB No. 99,
Materiality,
and SAB No. 108,
Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements
, management evaluated the materiality of the error from both qualitative and quantitative perspectives, and concluded the error was immaterial to the current and prior periods.
Consequently, the Company revised its historical financial statements for three and six months ended June 30, 2013 herein, and will revise each quarter
within fiscal 2013, when published in future filings. For more information see Note (1) (c) of the Notes to Consolidated Financial Statements included in our 2013 Combined 10K, filed on February 27, 2014.
Lamar Advertising Company
The following is a
discussion of the consolidated financial condition and results of operations of the Company for the three and six months ended June 30, 2014 and 2013. This discussion should be read in conjunction with the consolidated financial statements of
the Company and the related notes thereto.
OVERVIEW
The Companys net revenues are derived primarily from the rental of advertising space on outdoor advertising displays owned and operated by the Company.
Revenue growth is based on many factors that include the Companys ability to increase occupancy of its existing advertising displays; raise advertising rates; and acquire new advertising displays 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 that the Company is able to charge for
advertising on its displays and its ability to maximize advertising sales or occupancy on its displays.
Historically, the Company made strategic
acquisitions of outdoor advertising assets to increase the number of outdoor advertising displays it operates in existing and new markets. The Company continues to evaluate and pursue strategic acquisition opportunities as they arise. The Company
has financed its historical acquisitions and intends to finance any future acquisition activity from available cash, borrowings under its senior credit facility or the issuance of debt or equity securities. See Liquidity and Capital
Resources below. During the six months ended June 30, 2014, the Company completed acquisitions for a total cash purchase price of approximately $9.2 million.
The Companys business requires expenditures for maintenance and capitalized costs associated with the construction of new billboard displays, the
entrance into and renewal of logo sign and transit contracts, and the purchase of real estate and operating equipment.
17
The following table presents a breakdown of capitalized expenditures for the three and six months ended
June 30, 2014 and 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
(in thousands)
|
|
|
Six months ended
June 30,
(in thousands)
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Total capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Billboard traditional
|
|
$
|
6,584
|
|
|
$
|
6,258
|
|
|
$
|
11,202
|
|
|
$
|
12,476
|
|
Billboard digital
|
|
|
18,060
|
|
|
|
11,980
|
|
|
|
27,858
|
|
|
|
23,603
|
|
Logos
|
|
|
2,002
|
|
|
|
2,244
|
|
|
|
3,870
|
|
|
|
4,107
|
|
Transit
|
|
|
178
|
|
|
|
8
|
|
|
|
268
|
|
|
|
28
|
|
Land and buildings
|
|
|
2,401
|
|
|
|
2,824
|
|
|
|
5,702
|
|
|
|
5,608
|
|
Operating equipment
|
|
|
2,632
|
|
|
|
3,619
|
|
|
|
5,355
|
|
|
|
6,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
|
|
$
|
31,857
|
|
|
$
|
26,933
|
|
|
$
|
54,255
|
|
|
$
|
52,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP Financial Measures
Included in our analysis of our results of operations are discussions regarding earnings before interest, taxes, depreciation and amortization (Adjusted
EBITDA), Funds From Operations (FFO), as defined by the National Association of Real Estate Investment Trusts, Adjusted Funds From Operations (AFFO) and acquisition-adjusted net revenue.
We define Adjusted EBITDA as net income before income tax expense (benefit), interest expense (income), gain (loss) on extinguishment of debt and investments,
stock-based compensation, depreciation and amortization and gain or loss on disposition of assets and investments.
FFO is defined as net income before
gains or losses from the sale or disposal of real estate assets and investments and real estate related depreciation and amortization and including adjustments to eliminate non-controlling interest.
We define AFFO as FFO before (i) straight-line revenue and expense; (ii) stock-based compensation expense; (iii) non-cash tax expense
(benefit); (iv) non-real estate related depreciation and amortization; (v) amortization of deferred financing and debt issuance costs, (vi) loss on extinguishment of debt; (vii) non-recurring infrequent or unusual losses (gains);
(viii) less maintenance capital expenditures; and an adjustment for non-controlling interest.
Acquisition-adjusted net revenue adjusts our 2013 net
revenue for the three and six months ended June 30, 2013, by adding to it the net revenue generated by the acquired assets prior to our acquisition of these assets for the same time frame that those assets were owned in the three and six months
ended June 30, 2014. In calculating acquisition-adjusted revenue, therefore, we include revenue generated by assets that we did not own in the 2013 period but acquired in the 2014 period. We refer to the amount of pre-acquisition revenue
generated by the acquired assets during the period in 2013 that corresponds with the 2014 period in which we owned the assets (to the extent within the period to which this report relates) as acquisition net revenue. In addition, we also
adjust the 2013 period to reflect assets that have been divested since the 2013 period and, therefore, no revenue derived from those assets is reflected in the 2014 period.
Adjusted EBITDA, FFO, AFFO and acquisition-adjusted net revenue are not intended to replace net income or any other performance measures determined in
accordance with GAAP. Neither FFO nor AFFO represent cash flows from operating activities in accordance with GAAP and, therefore, these measures should not be considered indicative of cash flows from operating activities as a measure of liquidity or
of funds available to fund our cash needs, including our ability to make cash distributions. Rather, Adjusted EBITDA, FFO, AFFO and acquisition-adjusted net revenue are presented as we believe each is a useful indicator of our current operating
performance. We believe that these metrics are useful to an investor in evaluating our operating performance because (1) each is a key measure used by our management team for purposes of decision making and for evaluating the performance of our
operating segments; (2) Adjusted EBITDA is a component of the calculation used by our lenders to determine compliance with certain debt covenants; (3) Adjusted EBITDA is widely used in the industry to measure operating performance as
depreciation and amortization may vary significantly among companies depending upon accounting methods and useful lives, particularly where acquisitions and non-operating factors are involved; (4) acquisition-adjusted net revenue is a
supplement to net revenue to enable investors to compare periods in 2014 and 2013 on a more consistent basis without the effects of acquisitions and divestures, which reflects our core performance of the same assets over the comparable periods;
(5) Adjusted EBITDA, FFO and AFFO each provides investors with a meaningful measure for evaluating our period-to-period operating performance by eliminating items that are not operational in nature; and (6) each provides investors with a
measure for comparing our results of operations to those of other companies.
Our measurement of Adjusted EBITDA, FFO, AFFO and acquisition-adjusted net
revenue may not, however, be fully comparable to similarly titled measures used by other companies. Reconciliations of Adjusted EBITDA, FFO, AFFO and acquisition-adjusted net revenue to net income, the most directly comparable GAAP measure, have
been included herein.
18
RESULTS OF OPERATIONS
Six Months ended June 30, 2014 compared to Six Months ended June 30, 2013
Net revenues increased $11.1 million or 1.8% to $615.4 million for the six months ended June 30, 2014 from $604.3 million for the same period in 2013.
This increase was attributable primarily to an increase in billboard net revenues of $9.4 million, which represents an increase of 1.7% over the prior period, an increase in logo sign revenue of $1.3 million, which represents an increase of 3.9%
over the prior period, and a $0.4 million increase in transit revenue, which represents an increase of 1.2% over the prior period.
For the six months
ended June 30, 2014, there was a $3.7 million increase in net revenues as compared to acquisition-adjusted net revenue for the six months ended June 30, 2014, which represents an increase of 0.6%. See Reconciliations below. The
$3.7 million increase in revenue primarily consists of a $3.0 million increase in billboard revenue, a $0.5 million net decrease in transit revenue and a $1.2 million increase in logo revenue over the acquisition-adjusted net revenue for the
comparable period in 2013.
Total operating expenses, exclusive of depreciation and amortization and gain on sale of assets, increased $4.9 million for
the six months ended June 30, 2014 over same period in 2013. The $4.9 million increase over the prior year is comprised of a $6.7 million decrease in non-cash stock based compensation expense offset by an increase in direct and general and
administrative expenses related to the operations of our outdoor advertising assets of $10.4 million and corporate expense increases of $1.2 million of which $0.5 million was directly related to the Companys conversion to real estate
investment trust status.
Depreciation and amortization expense decreased $5.7 million, or 3.9% for the six months ended June 30, 2014, as compared
to the six months ended June 30, 2013.
Due to the above factors, operating income increased by $11.8 million, or 12.8%, to $104.2 million for the
six months ended June 30, 2014 as compared to $92.4 million for the same period in 2013.
During the six months ended June 30, 2014, the Company
recognized a loss on debt extinguishment of $26.0 million related to the redemption of Lamar Medias 7 7/8% Senior Subordinated Notes due 2018 and the amendment of its senior credit facility. Approximately $10.3 million was a non-cash expense
attributable to the write off of unamortized debt issuance fees associated with the then existing senior credit facility and the 7 7/8% Notes.
Interest
expense decreased $18.2 million from $74.6 million for the six months ended June 30, 2013, to $56.4 million for the six months ended June 30, 2014, primarily resulting from the Companys refinancing transactions during 2013 and 2014.
The increase in operating income and decrease in interest expense, offset by the increases in other-than-temporary impairment of investment and loss on
debt extinguishment resulted in net income before taxes remaining relatively constant. Income tax expense increased $2.2 million, primarily resulting from a increase in the effective tax rate which was largely due to changes in tax rates in Puerto
Rico. For the six months ended June 30, 2014, the Companys net income decreased to $10.6 million as compared to $12.9 million for the same period in 2013.
Reconciliations:
Because acquisitions occurring after
December 31, 2012 (the acquired assets) have contributed to our net revenue results for the periods presented, we provide 2013 acquisition-adjusted net revenue, which adjusts our 2013 net revenue for the six months ended
June 30, 2013 by adding or subtracting to it the net revenue generated by the acquired or divested assets prior to our acquisition or divestiture of these assets for the same time frame that those assets were owned in the six months ended
June 30, 2014.
Reconciliations of 2013 reported net revenue to 2013 acquisition-adjusted net revenue for the six months ended June 30, as well
as a comparison of 2013 acquisition-adjusted net revenue to 2014 reported net revenue for the six months ended June 30, are provided below:
Reconciliation of Reported Net Revenue to Acquisition-Adjusted Net Revenue
|
|
|
|
|
|
|
Six months ended
June 30, 2013
|
|
|
|
(in thousands)
|
|
Reported net revenue
|
|
$
|
604,349
|
|
Acquisition net revenue
|
|
|
7,360
|
|
|
|
|
|
|
Acquisition-adjusted net revenue
|
|
$
|
611,709
|
|
|
|
|
|
|
Comparison of 2014 Reported Net Revenue to 2013 Acquisition-Adjusted Net Revenue
|
|
|
|
|
|
|
|
|
|
|
Six months ended
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(in thousands)
|
|
Reported net revenue
|
|
$
|
615,366
|
|
|
$
|
604,349
|
|
Acquisition net revenue
|
|
|
|
|
|
|
7,360
|
|
|
|
|
|
|
|
|
|
|
Adjusted totals
|
|
$
|
615,366
|
|
|
$
|
611,709
|
|
|
|
|
|
|
|
|
|
|
19
Key Performance Indicators
Our management reviews our performance by focusing on the indicators described below.
Several of our key performance indicators are not prepared in conformity with Generally Accepted Accounting Principles in the United States of America
(GAAP). We believe these non-GAAP performance indicators are meaningful supplemental measures of our operating performance and should not be considered in isolation of, or as a substitute for, their most directly comparable GAAP
financial measures.
Net Income/Adjusted EBITDA
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
Amount of
Increase
|
|
|
Percent
Increase
|
|
|
|
2014
|
|
|
2013
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
Net income
|
|
$
|
10,585
|
|
|
$
|
12,859
|
|
|
$
|
(2,274
|
)
|
|
|
(17.7
|
)%
|
Income tax expense (benefit)
|
|
|
7,239
|
|
|
|
5,005
|
|
|
|
2,234
|
|
|
|
|
|
Loss on other than temporary impairment of investment
|
|
|
4,069
|
|
|
|
|
|
|
|
4,069
|
|
|
|
|
|
Loss on debt extinguishment
|
|
|
26,023
|
|
|
|
|
|
|
|
26,023
|
|
|
|
|
|
Interest expense (income)
|
|
|
56,266
|
|
|
|
74,508
|
|
|
|
(18,242
|
)
|
|
|
|
|
Gain on disposition of assets
|
|
|
(1,226
|
)
|
|
|
(1,307
|
)
|
|
|
81
|
|
|
|
|
|
Depreciation and amortization
|
|
|
140,575
|
|
|
|
146,309
|
|
|
|
(5,734
|
)
|
|
|
|
|
Stock-based compensation expense
|
|
|
10,513
|
|
|
|
17,195
|
|
|
|
(6,682
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
254,044
|
|
|
$
|
254,569
|
|
|
$
|
(525
|
)
|
|
|
(0.2
|
)%
|
Adjusted EBITDA for the six months ended June 30, 2014 decreased 0.2% to $254.0 million. Adjusted EBITDA decline was
primarily attributable to the increase in our gross margin (net revenue less direct advertising expense) of $2.5 million, and was partially offset by an increase in general administrative and corporate expenses of $3.0 million, excluding the impact
of stock-based compensation expense.
Net Income/FFO/AFFO
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
Amount of
Increase
|
|
|
Percent
Increase
|
|
|
|
2014
|
|
|
2013
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
Net income
|
|
$
|
10,585
|
|
|
$
|
12,859
|
|
|
$
|
(2,274
|
)
|
|
|
(17.7
|
)%
|
Depreciation and amortization related to real estate
|
|
|
132,071
|
|
|
|
138,070
|
|
|
|
(5,999
|
)
|
|
|
|
|
Gain from sale or disposal of real estate
|
|
|
(595
|
)
|
|
|
(1,276
|
)
|
|
|
681
|
|
|
|
|
|
Adjustments for unconsolidated affiliates and non-controlling interest
|
|
|
299
|
|
|
|
544
|
|
|
|
(245
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFO
|
|
$
|
142,360
|
|
|
$
|
150,197
|
|
|
$
|
(7,837
|
)
|
|
|
(5.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Straight line expense
|
|
|
(228
|
)
|
|
|
(321
|
)
|
|
|
93
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
10,513
|
|
|
|
17,195
|
|
|
|
(6,682
|
)
|
|
|
|
|
Non-cash portion of tax provision
|
|
|
3,025
|
|
|
|
3,620
|
|
|
|
(595
|
)
|
|
|
|
|
Non-real estate related depreciation and amortization
|
|
|
8,504
|
|
|
|
8,239
|
|
|
|
265
|
|
|
|
|
|
Amortization of deferred financing costs
|
|
|
2,451
|
|
|
|
7,092
|
|
|
|
(4,641
|
)
|
|
|
|
|
Loss on other than temporary impairment of investment
|
|
|
4,069
|
|
|
|
|
|
|
|
4,069
|
|
|
|
|
|
Loss on extinguishment of debt
|
|
|
26,023
|
|
|
|
|
|
|
|
26,023
|
|
|
|
|
|
Capital expenditures maintenance
|
|
|
(34,697
|
)
|
|
|
(35,567
|
)
|
|
|
870
|
|
|
|
|
|
Adjustments for unconsolidated affiliates and non-controlling interest
|
|
|
(299
|
)
|
|
|
(544
|
)
|
|
|
245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFFO
|
|
$
|
161,721
|
|
|
$
|
149,911
|
|
|
$
|
11,810
|
|
|
|
7.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFO for the six months ended June 30, 2014 was $142.4 million as compared to FFO of $150.2 million for the same period in
2013. AFFO for the six months ended June 30, 2014 increased 7.9% to $161.7 million as compared to $149.9 million for the same period in 2013. AFFO growth was primarily attributable to the increase in our operating margin (net revenue less
direct advertising expense) and decrease in interest expense, partially offset by increases in general and administrative expenses and corporate expenses.
20
RESULTS OF OPERATIONS
Three Months ended June 30, 2014 compared to Three Months ended June 30, 2013
Net revenues increased $2.7 million or 0.8% to $330.4 million for the three months ended June 30, 2014 from $327.7 million for the same period in 2013.
This increase was attributable primarily to an increase in billboard net revenues of $2.1 million, which represents an increase of 0.7% over the prior period, an increase in logo sign revenue of $0.7 million, which represents an increase of 4.4%
over the prior period, and a $0.1 million decrease in transit revenue, which represents a decrease of 0.9% over the prior period.
For the three months
ended June 30, 2014, there was a $0.7 million decrease in net revenues as compared to acquisition-adjusted net revenue for the three months ended June 30, 2013, which represents a decrease of 0.2%. See Reconciliations below.
The $0.7 million decrease in revenue primarily consists of a $0.7 million decrease in billboard revenue, a $0.6 million net decrease in transit revenue and a $0.6 million increase in logo revenue over the acquisition-adjusted net revenue for the
comparable period in 2013.
Total operating expenses, exclusive of depreciation and amortization and gain on sale of assets, increased $4.6 million for
the three months ended June 30, 2014 over same period in 2013. The $4.6 million increase over the prior year is comprised of an increase in direct and general and administrative expenses related to the operations of our outdoor advertising
assets of $3.6 million and corporate expense increases $1.0 million.
Depreciation and amortization expense decreased $1.4 million, or 1.9% for the three
months ended June 30, 2014, as compared to the three months ended June 30, 2013.
Due to the above factors, operating income remained relatively
constant at $73.0 million for the three months ended June 30, 2014 compared to $73.3 million for the same period in 2013.
During the three months
ended June 30, 2014, the Company recognized a $20.8 million loss related to the redemption of Lamar Medias 7 7/8% Senior Subordinated Notes due 2018. Approximately $5.1 million was a non-cash expense attributable to the write off of
unamortized debt issuance fees associated with the Notes.
Interest expense decreased $11.8 million from $37.9 million for the three months ended
June 30, 2013, to $26.1 million for the three months ended June 30, 2014, primarily resulting from the Companys refinancing transactions during 2013 and 2014.
While operating income remained relatively the same, the decrease in interest expense, offset by the increase in loss on debt extinguishment resulted in a
$9.3 million decrease in net income before income taxes. This decrease in income resulted in a decrease in income taxes of $1.6 million for the three months ended June 30, 2014 over the same period in 2013 primarily due to a change in the tax
rates in Puerto Rico in 2013. The effective tax rate for the three months ended June 30, 2014 was 41.0%, which is higher than the statutory rate due to permanent differences resulting from non-deductible compensation expense related to stock
options in accordance with ASC 718 and other non-deductible expenses and amortization.
As a result of the above factors, the Company recognized net
income for the three months ended June 30, 2014 of $15.4 million, as compared to net income of $23.1 million for the same period in 2013.
Reconciliations:
Because acquisitions occurring after
December 31, 2012 (the acquired assets) have contributed to our net revenue results for the periods presented, we provide 2013 acquisition-adjusted net revenue, which adjusts our 2013 net revenue for the three months ended
June 30, 2013 by adding or subtracting to it the net revenue generated by the acquired or divested assets prior to our acquisition or divestiture of these assets for the same time frame that those assets were owned in the three months ended
June 30, 2014.
Reconciliations of 2013 reported net revenue to 2013 acquisition-adjusted net revenue for the three months ended June 30, as
well as a comparison of 2013 acquisition-adjusted net revenue to 2014 reported net revenue for the three months ended June 30, are provided below:
Reconciliation of Reported Net Revenue to Acquisition-Adjusted Net Revenue
|
|
|
|
|
|
|
Three months ended
June 30, 2013
|
|
|
|
(in thousands)
|
|
Reported net revenue
|
|
$
|
327,744
|
|
Acquisition net revenue
|
|
|
3,403
|
|
|
|
|
|
|
Acquisition-adjusted net revenue
|
|
$
|
331,147
|
|
|
|
|
|
|
21
Comparison of 2014 Reported Net Revenue to 2013 Acquisition-Adjusted Net Revenue
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(in thousands)
|
|
Reported net revenue
|
|
$
|
330,433
|
|
|
$
|
327,744
|
|
Acquisition net revenue
|
|
|
|
|
|
|
3,403
|
|
|
|
|
|
|
|
|
|
|
Adjusted totals
|
|
$
|
330,433
|
|
|
$
|
331,147
|
|
|
|
|
|
|
|
|
|
|
Key Performance Indicators
Our management reviews our performance by focusing on the indicators described below.
Several of our key performance indicators are not prepared in conformity with Generally Accepted Accounting Principles in the United States of America
(GAAP). We believe these non-GAAP performance indicators are meaningful supplemental measures of our operating performance and should not be considered in isolation of, or as a substitute for, their most directly comparable GAAP
financial measures.
Net Income/Adjusted EBITDA
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Amount of
Increase
|
|
|
Percent
Increase
|
|
|
|
2014
|
|
|
2013
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
Net income
|
|
$
|
15,422
|
|
|
$
|
23,122
|
|
|
$
|
(7,700
|
)
|
|
|
(33.3
|
)%
|
Income tax expense (benefit)
|
|
|
10,726
|
|
|
|
12,359
|
|
|
|
(1,633
|
)
|
|
|
|
|
Loss on debt extinguishment
|
|
|
20,847
|
|
|
|
|
|
|
|
20,847
|
|
|
|
|
|
Interest expense (income)
|
|
|
26,043
|
|
|
|
37,836
|
|
|
|
(11,793
|
)
|
|
|
|
|
Gain on disposition of assets
|
|
|
(1,020
|
)
|
|
|
(701
|
)
|
|
|
(319
|
)
|
|
|
|
|
Depreciation and amortization
|
|
|
71,049
|
|
|
|
72,408
|
|
|
|
(1,359
|
)
|
|
|
|
|
Stock-based compensation expense
|
|
|
6,601
|
|
|
|
6,422
|
|
|
|
179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
149,668
|
|
|
$
|
151,446
|
|
|
$
|
(1,778
|
)
|
|
|
(1.2
|
)%
|
Adjusted EBITDA for the three months ended June 30, 2014 decreased 1.2% to $149.7 million. Adjusted EBITDA decline of
$1.8 million was primarily attributable to the decrease in our gross margin (net revenue less direct advertising expense) of $0.9 million and increases in general administrative and corporate expenses of $0.9 million, excluding the impact of
stock-based compensation expense.
Net Income/FFO/AFFO
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Amount of
Increase
|
|
|
Percent
Increase
|
|
|
|
2014
|
|
|
2013
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
Net income
|
|
$
|
15,422
|
|
|
$
|
23,122
|
|
|
$
|
(7,700
|
)
|
|
|
(33.3
|
)%
|
Depreciation and amortization related to real estate
|
|
|
66,896
|
|
|
|
68,188
|
|
|
|
(1,292
|
)
|
|
|
|
|
Gain from sale or disposal of real estate
|
|
|
(571
|
)
|
|
|
(758
|
)
|
|
|
187
|
|
|
|
|
|
Adjustments for unconsolidated affiliates and non-controlling interest
|
|
|
222
|
|
|
|
323
|
|
|
|
(101
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFO
|
|
$
|
81,969
|
|
|
$
|
90,875
|
|
|
$
|
(8,906
|
)
|
|
|
(9.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Straight line expense
|
|
|
(176
|
)
|
|
|
(185
|
)
|
|
|
9
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
6,601
|
|
|
|
6,422
|
|
|
|
179
|
|
|
|
|
|
Non-cash portion of tax provision
|
|
|
8,390
|
|
|
|
11,387
|
|
|
|
(2,997
|
)
|
|
|
|
|
Non-real estate related depreciation and amortization
|
|
|
4,153
|
|
|
|
4,220
|
|
|
|
(67
|
)
|
|
|
|
|
Amortization of deferred financing costs
|
|
|
1,168
|
|
|
|
4,186
|
|
|
|
(3,018
|
)
|
|
|
|
|
Loss on extinguishment of debt
|
|
|
20,847
|
|
|
|
|
|
|
|
20,847
|
|
|
|
|
|
Capital expenditures maintenance
|
|
|
(19,823
|
)
|
|
|
(16,861
|
)
|
|
|
(2,962
|
)
|
|
|
|
|
Adjustments for unconsolidated affiliates and non-controlling interest
|
|
|
(222
|
)
|
|
|
(323
|
)
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFFO
|
|
$
|
102,907
|
|
|
$
|
99,721
|
|
|
$
|
3,186
|
|
|
|
3.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
FFO for the three months ended June 30, 2014 was $82.0 million as compared to FFO of $90.9 million for the
same period in 2013. AFFO for the three months ended June 30, 2014 increased 3.2% to $102.9 million as compared to $99.7 million for the same period in 2013. AFFO increase was primarily attributable to the decrease in our interest expense,
offset by a decrease in our operating margin and increases in general administrative expenses, corporate expenses and maintenance capital expenditures.
LIQUIDITY AND CAPITAL RESOURCES
Overview
The Company has historically satisfied its working capital requirements with cash from operations and borrowings under the senior credit facility.
The Companys wholly owned subsidiary, Lamar Media, is the borrower under the senior credit facility and maintains all corporate operating cash balances. Any cash requirements of the Company, therefore, must be funded by distributions from
Lamar Media.
Sources of Cash
Total
Liquidity at June 30, 2014.
As of June 30, 2014, we had approximately $342.4 million of total liquidity, which is comprised of approximately $34.4 million in cash and cash equivalents and approximately $308.0 million of availability
under the revolving portion of Lamar Medias senior credit facility. We are currently in compliance with the maintenance covenant included in the senior credit facility and we would remain in compliance after giving effect to borrowing the full
amount available to us under the revolving portion of the senior credit facility.
Cash Generated by Operations
. For the six months ended
June 30, 2014 and 2013 our cash provided by operating activities was $173.4 million and $152.0 million, respectively. While our net income was approximately $10.6 million for the six months ended June 30, 2014, we generated cash from
operating activities of $173.4 million primarily due to adjustments needed to reconcile net income to cash provided by operating activities of $182.9 million, which primarily consisted of depreciation and amortization of $140.6 million, loss on
extinguishment of debt and other-than-temporary-impairment of investments of $30.1 million and non-cash equity based compensation of $10.5 million. In addition, there was an increase in working capital of $20.1 million. We expect to generate cash
flows from operations during 2014 in excess of our cash needs for operations and capital expenditures as described herein.
Note Offerings.
On
January 10, 2014, Lamar Media completed an institutional private placement of $510 million aggregate principal amount of its 5 3/8% Senior Notes due 2024. The institutional private placement resulted in net proceeds to Lamar Media, after
payment of fees and expenses, of approximately $502.3 million. Lamar Media used the proceeds of this offering to repay $502.1 million of indebtedness, including all outstanding term loans, outstanding under its senior credit facility.
Credit Facilities
. On February 3, 2014, Lamar Media entered into the Second Restatement Agreement with the Company, certain of Lamar Medias
subsidiaries as Guarantors, the lenders named therein and JPMorgan Chase Bank, N.A., as administrative agent, under which the parties agreed to amend and restate Lamar Medias existing senior credit facility on the terms set forth in the second
amended and restated credit agreement included in the Second Restatement Agreement. The senior credit agreement was entered into on April 28, 2010, amended and restated on February 9, 2012 and further amended and restated on
February 3, 2014 and is referred to herein as the senior credit facility. Among other things, the second amendment and restatement of the credit agreement increased the revolving credit facility by $150 million and extended its
maturity date to February 2, 2019. The senior credit facility currently consists of a $400 million revolving credit facility and a $500 million incremental facility. Lamar Media is the borrower under the senior credit facility and may also from
time to time designate wholly-owned subsidiaries as subsidiary borrowers under the incremental loan facility. Incremental loans may be in the form of additional term loan tranches or increases in the revolving credit facility. Our lenders have no
obligation to make additional loans to us, or any designated subsidiary borrower, under the incremental facility, but may enter into such commitments in their sole discretion.
On April 18, 2014, Lamar Media entered into Amendment No. 1 to the Second Amended and Restated Credit Agreement (the Amendment) with
Lamar Advertising, certain of Lamar Medias subsidiaries as Guarantors, JPMorgan Chase Bank, N.A. as Administrative Agent and the Lenders named therein under which the parties agreed to amend Lamar Medias existing senior credit facility
on the terms set forth in the Amendment. The Amendment created a new $300 million Term A Loan facility (the Term A Loans) and certain other amendments to the senior credit agreement. The Term A Loans are not incremental loans and do not
reduce the existing $500 million Incremental Loan facility. Lamar Media borrowed all $300 million in Term A Loans on April 18, 2014. The net loan proceeds, together with borrowings under the revolving portion of the senior credit facility and
cash on hand, were used to fund the redemption of all $400 million in aggregate principal amount of Lamar Medias 7 7/8% Senior Subordinated Notes due 2018 on April 21, 2014.
23
The Term A Loans mature on February 2, 2019 and began amortizing on June 30, 2014 in quarterly
installments paid on such date and on each September 30, December 31, March 31 and June 30 thereafter, as follows:
|
|
|
|
|
Principal Payment Date
|
|
Principal Amount
|
|
September 30, 2014-March 31, 2016
|
|
$
|
3,750,000
|
|
June 30, 2016- March 31, 2017
|
|
$
|
5,625,000
|
|
June 30, 2017-December 31, 2018
|
|
$
|
11,250,000
|
|
Term A Loan Maturity Date
|
|
$
|
168,750,000
|
|
The Term A Loans bears interest at rates based on the Adjusted LIBO Rate (Eurodollar Term A Loans) or the Adjusted
Base Rate (Base Rate Term A Loans), at Lamar Medias option. Eurodollar Term A Loans shall bear interest at a rate per annum equal to the Adjusted LIBO Rate plus 2.00% (or the Adjusted LIBO Rate plus 1.75% at any time the Total
Debt Ratio is less than or equal to 3.00 to 1). Base Rate Term A Loans shall bear interest at a rate per annum equal to the Adjusted Base Rate plus 1.00% (or the Adjusted Base Rate plus 0.75% at any time the Total Debt Ratio is less than or
equal to 3.00 to 1). The guarantees, covenants, events of default and other terms of the Second Amended and Restated Credit Agreement apply to the Term A Loans.
As of June 30, 2014, Lamar Media had approximately $308.0 million of availability under the revolving credit facility included in the senior credit
facility and approximately $7 million in letters of credit outstanding. As of June 30, 2014, Lamar Media had $296.3 million outstanding in Term A Loans and $85 million outstanding under the revolving credit facility.
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 the senior credit facility and its outstanding debt securities.
Restrictions
Under Debt Securities.
Lamar must comply with certain covenants and restrictions related to its outstanding debt securities. Currently Lamar Media has outstanding $500 million 5 7/8% Senior Subordinated Notes issued in February 2012 (the 5
7/8% Senior Subordinated Notes), $535 million 5% Senior Subordinated Notes issued in October 2012 (the 5% Senior Subordinated Notes) and $510 million 5 3/8% Senior Notes issued in January 2014 (the 5 3/8% Senior Notes).
The indentures relating to Lamar Medias outstanding notes restrict its ability to incur additional indebtedness but permit the incurrence of
indebtedness (including indebtedness under the 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 the sum
of (x) total consolidated debt plus (y) the aggregate liquidation preference of any preferred stock of Lamar Medias restricted subsidiaries to trailing four fiscal quarter EBITDA (as defined in the indentures)) would be less than 7.0
to 1. Currently, Lamar Media is not in default under the indentures of any of its outstanding notes and, therefore, would be permitted to incur additional indebtedness subject to the foregoing provision.
In addition to debt incurred under the provisions described in the preceding paragraph, the indentures relating to Lamar Medias outstanding notes permit
Lamar Media to incur indebtedness pursuant to the following baskets:
|
|
|
up to $1.5 billion of indebtedness under the senior credit facility;
|
|
|
|
indebtedness outstanding on the date of the indentures or debt incurred to refinance outstanding debt;
|
|
|
|
inter-company debt between Lamar Media and its restricted subsidiaries or between restricted 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 $50 million or 5% of Lamar Medias net
tangible assets; and
|
|
|
|
additional debt not to exceed $75 million.
|
Restrictions under Senior Credit Facility.
Lamar Media is
required to comply with certain covenants and restrictions under the senior credit facility. If the Company fails to comply with these tests, the lenders under the senior credit facility will be entitled to exercise certain remedies, including the
termination of the lending commitments and the acceleration of the debt payments under the senior credit facility. At December 31, 2013, and currently, we were in compliance with all such tests under the senior credit facility.
Lamar Media must maintain a senior debt ratio, defined as total consolidated debt (other than subordinated indebtedness) of Lamar Advertising and its
restricted subsidiaries, minus the lesser of (x) $100 million and (y) the aggregate amount of unrestricted cash and cash equivalents of Lamar Advertising and its restricted subsidiaries to EBITDA, as defined below, for the period of four
consecutive fiscal quarters then ended, of less than or equal to 3.5 to 1.0.
24
Lamar Media is also restricted from incurring additional indebtedness under certain circumstances unless, after
giving to the incurrence of such indebtedness, it is in compliance with the senior debt ratio covenant and its total debt ratio, defined as (a) total consolidated debt of Lamar Advertising and its restricted subsidiaries as of any date minus
the lesser of (i) $100 million and (ii) the aggregate amount of unrestricted cash and cash equivalents of Lamar Advertising and its restricted subsidiaries to (b) EBITDA, as defined below, for the most recent four fiscal quarters then
ended is less than 6.0 to 1.0.
Under the senior credit facility EBITDA means, for any period, operating income for the Company and its
restricted subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP) for such period (calculated before (i) taxes, (ii) interest expense, (iii) depreciation, (iv) amortization, (v) any
other non-cash income or charges accrued for such period, (vi) charges and expenses in connection with the credit facility transactions, (vii) costs and expenses of Lamar Advertising associated with the REIT conversion, provided that the
aggregate amount of costs and expenses that may be added back pursuant to this clause (vii) shall not exceed $10 million in the aggregate and (viii) the amount of cost savings, operating expense reductions and other operating improvements
or synergies projected by the Lamar Media in good faith to be realized as a result of any acquisition, investment, merger, amalgamation or disposition within 12 months of any such acquisition, investment, merger, amalgamation or disposition, net of
the amount of actual benefits realized during such period from such action: provided, (a) the aggregate amount for all such cost savings, operating expense reductions and other operating improvements or synergies shall not exceed an amount
equal to 15% of EBITDA for the applicable four quarter period and (b) any such adjustment to EBITDA may only take into account cost savings, operating expense reductions and other operating improvements synergies that are (I) directly
attributable to such acquisition, investment, merger, amalgamation or disposition, (II) expected to have a continuing impact on the Lamar Media and its restricted subsidiaries and (III) factually supportable, in each case all as certified by the
chief financial officer of the Lamar Media on behalf of the Lamar Media, and (ix) any loss or gain relating to amounts paid or earned in cash prior to the stated settlement date of any swap agreement that has been reflected in operating income
for such period) and (except to the extent received or paid in cash by the Company and 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. For purposes of calculating EBITDA, the effect on such calculation of any adjustments required under Statement
of Financial Accounting Standards No. 141R is excluded.
Excess Cash Flow Payments.
The requirement to make certain mandatory prepayments on
loans outstanding under the senior credit facility under certain circumstances was eliminated in conjunction with the second amendment and restatement of the senior credit agreement in February 2014.
The Company believes that its current level of cash on hand, availability under the senior credit facility and future cash flows from operations are
sufficient to meet its operating needs through fiscal 2014. All debt obligations are reflected on the Companys balance sheet.
Uses of Cash
Capital Expenditures.
Capital expenditures excluding acquisitions were approximately $54.3 million for the six months ended June 30,
2014. We anticipate our 2014 total capital expenditures will be approximately $100 million.
Acquisitions.
During the six months ended
June 30, 2014, the Company financed its acquisition activity of $9.2 million with cash on hand.
Note Redemption.
On April 21, 2014,
Lamar Media redeemed in full all $400 million of its 7 7/8% Senior Subordinated Notes due 2018 at a redemption price equal to 103.938% of aggregate principal amount of outstanding notes, plus accrued and unpaid interest to, but not including the
redemption date for a total redemption price of $416.3 million. Lamar Media used cash on hand and borrowings under its senior credit facility to fund the redemption.
Dividends
During the period ended June 30, 2014 the
Company paid a cash distribution to its common stockholders of approximately $79.0 million or $0.83 per share common stock, in anticipation of commencing to operate as a REIT effective January 1, 2014. As a REIT the Company must distribute to
its stockholders by the end of 2014 all if its pre-REIT accumulated earnings and profits, if any. In addition, the company must annually distribute to its stockholders an amount equal to at least 90% of its REIT taxable income (determined before the
deduction for distributed earnings and excluding any net capital gain). The amount, timing and frequency of future distributions will be at the sole discretion of the Board of Directors and will be declared based upon various factors, a number of
which may be beyond the Companys control, including financial condition and operating cash flows, the amount required to maintain REIT status and reduce any income and excise taxes that the Company otherwise would be required to pay,
limitations on distributions in our existing and future debt instruments, the Companys ability to utilize net operating losses to offset, in whole or in part, the Companys distribution requirements, limitations on its ability to fund
distributions using cash generated through its TRSs and other factors that the Board of Directors may deem relevant.
25
Off Balance Sheet Arrangements
The Company has no off-balance sheet arrangements with the exception of operating leases.
Commitments and Contingencies
In our Annual
Report on Form 10-K for the year ended December 31, 2013, Part II, Item 7, Managements Discussion and Analysis of Financial Conditions and Results of Operations, under the heading Debt Service and Contractual Obligations,
we described our commitments and contingencies. There were no material changes in our commitments and contingencies during the three and six months ended June 30, 2014.
REIT Election
On April 23, 2014, the Company
received its requested private letter ruling from the IRS regarding certain matters relevant to its intended election to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the Code). As previously announced, the
Company intends to make an election under §1033(g)(3) of the Code to treat its outdoor advertising displays as real property for tax purposes. The private letter ruling confirms, among other matters, that the Companys income from renting
space on such outdoor advertising displays qualifies as rents from real property for REIT purposes.
On May 21, 2014, the Companys Board of
Directors authorized the commencement of the steps necessary to reorganize Lamar Advertising to position itself to elect taxation as a REIT for federal income tax purposes no earlier than January 1, 2014. In connection with this reorganization,
we propose to merge with and into Lamar Advertising REIT Company (Lamar REIT), a newly formed, wholly owned subsidiary of Lamar Advertising, at which time the separate existence of Lamar Advertising will cease and Lamar REIT will be the
surviving entity of the merger. Upon the effectiveness of the merger, Lamar REIT will change its name to Lamar Advertising Company and will continue the business and assume the obligations of Lamar Advertising.
The merger will facilitate our compliance with REIT tax rules by ensuring the effective adoption by Lamar REIT of a certificate of incorporation that
implements share ownership and transfer restrictions that are intended to facilitate compliance with certain REIT rules related to share ownership. Lamar REIT filed a proxy statement/prospectus on Form S-4 with the Securities and Exchange Commission
on June 27, 2014, which describes the merger and REIT election. Lamar Advertising expects to hold a special meeting of stockholders in the fourth quarter of 2014 for the purpose of voting on that proposed merger. We continue to anticipate
electing REIT status for the taxable year beginning January 1, 2014, subject to final approval of the Companys Board of Directors. Although the Company has received its requested private letter ruling from the IRS, this does not guarantee
that the Company will succeed in qualifying as a REIT and there is no certainty as to the timing of a REIT election. The Company may not ultimately pursue a conversion to a REIT, and it can provide no assurance that a REIT conversion, if completed,
will be successfully implemented or achieve the intended benefits.
If the Company converts to a REIT, it will be required to distribute to its
stockholders with respect to each taxable year at least 90% of its taxable income (net of any available net operating loss carry forwards) in order to qualify as a REIT, and 100% of its taxable income (net of any available net operating loss carry
forwards) in order to avoid U.S. federal income and excise taxes. The Company commenced regular distributions in the second quarter of 2014. The amount, timing and frequency of any future distributions, however, will be at the sole discretion of the
Companys Board of Directors and will be declared based upon various factors, including our financial condition and operating cash flows, the amount required to maintain REIT status and reduce any income and excise taxes that we otherwise would
be required to pay, limitations on distributions in our existing and future debt instruments, our ability to utilize NOLs to offset our distribution requirements and other factors that our Board of Directors may deem relevant.
Lamar Media Corp.
The following is a discussion
of the consolidated financial condition and results of operations of Lamar Media for the three and six months ended June 30, 2014 and 2013. This discussion should be read in conjunction with the consolidated financial statements of Lamar Media
and the related notes thereto.
RESULTS OF OPERATIONS
Six Months ended June 30, 2014 compared to Six Months ended June 30, 2013
Net revenues increased $11.1 million or 1.8% to $615.4 million for the six months ended June 30, 2014 from $604.3 million for the same period in 2013.
This increase was attributable primarily to an increase in billboard net revenues of $9.4 million, which represents an increase of 1.7% over the prior period, an increase in logo sign revenue of $1.3 million, which represents an increase of 3.9%
over the prior period, and a $0.4 million increase in transit revenue, which represents an increase of 1.2% over the prior period.
26
For the six months ended June 30, 2014, there was a $3.7 million increase in net revenues as compared to
acquisition-adjusted net revenue for the six months ended June 30, 2014, which represents an increase of 0.6%. See Reconciliations below. The $3.7 million increase in revenue primarily consists of a $3.0 million increase in
billboard revenue, a $0.5 million net decrease in transit revenue and a $1.2 million increase in logo revenue over the acquisition-adjusted net revenue for the comparable period in 2013.
Total operating expenses, exclusive of depreciation and amortization and gain on sale of assets, increased $4.8 million for the six months ended June 30,
2014 over same period in 2013. The $4.8 million increase over the prior year is comprised of a $6.7 million decrease in non-cash compensation expense offset by an increase in direct and general and administrative expenses related to the operations
of our outdoor advertising assets of $10.4 million and corporate expense increases $1.1 million of which $0.5 million was directly related to the Companys conversion to real estate investment trust status.
Depreciation and amortization expense decreased $5.7 million, or 3.9% for the six months ended June 30, 2014, as compared to the six months ended
June 30, 2013.
Due to the above factors, operating income increased to $104.4 million, or 12.8% for the six months ended June 30, 2014 compared
to $92.6 million for the same period in 2013.
During the first half of 2014, Lamar Media recognized a loss on debt extinguishment of $26.0 million
related to the redemption of our 7 7/8% Senior Subordinated Notes and the amendment of its senior credit facility. Approximately $10.3 million was a non-cash expense attributable to the write off of unamortized debt issuance fees associated with the
then existing senior credit facility and the 7 7/8% Notes.
Interest expense decreased $18.2 million from $74.6 million for the six months ended
June 30, 2013, to $56.4 million for the six months ended June 30, 2014, primarily resulting from Lamar Medias refinancing transactions during 2013 and 2014.
The increase in operating income and decrease in interest expense, offset by the increases in other-than-temporary impairment of investment and loss on debt
extinguishment resulted in net income before taxes remaining relatively constant. Income tax expense increased $2.2 million, primarily resulting from a increase in the effective tax rate which was largely due to changes in tax rates in Puerto Rico.
For the six months ended June 30, 2014, Lamar Medias net income decreased to $10.7 million as compared to $13.0 million for the same period in 2013.
Reconciliations:
Because acquisitions occurring after
December 31, 2012 (the acquired assets) have contributed to our net revenue results for the periods presented, we provide 2013 acquisition-adjusted net revenue, which adjusts our 2013 net revenue for the six months ended
June 30, 2013 by adding or subtracting to it the net revenue generated by the acquired or divested assets prior to our acquisition or divestiture of these assets for the same time frame that those assets were owned in the six months ended
June 30, 2014.
Reconciliations of 2013 reported net revenue to 2013 acquisition-adjusted net revenue for the six months ended June 30, as well
as a comparison of 2013 acquisition-adjusted net revenue to 2014 reported net revenue for the six months ended June 30, are provided below:
Reconciliation of Reported Net Revenue to Acquisition-Adjusted Net Revenue
|
|
|
|
|
|
|
Six months ended
June 30, 2013
|
|
|
|
(in thousands)
|
|
Reported net revenue
|
|
$
|
604,349
|
|
Acquisition net revenue
|
|
|
7,360
|
|
|
|
|
|
|
Acquisition-adjusted net revenue
|
|
$
|
611,709
|
|
|
|
|
|
|
Comparison of 2014 Reported Net Revenue to 2013 Acquisition-Adjusted Net Revenue
|
|
|
|
|
|
|
|
|
|
|
Six months ended
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(in thousands)
|
|
Reported net revenue
|
|
$
|
615,366
|
|
|
$
|
604,349
|
|
Acquisition net revenue
|
|
|
|
|
|
|
7,360
|
|
|
|
|
|
|
|
|
|
|
Adjusted totals
|
|
$
|
615,366
|
|
|
$
|
611,709
|
|
|
|
|
|
|
|
|
|
|
RESULTS OF OPERATIONS
Three Months ended June 30, 2014 compared to Three Months ended June 30, 2013
Net revenues increased $2.7 million or 0.8% to $330.4 million for the three months ended June 30, 2014 from $327.7 million for the same period in 2013.
This increase was attributable primarily to an increase in billboard net revenues of $2.1 million, which represents an increase of 0.7% over the prior period, an increase in logo sign revenue of $0.7 million, which represents an increase of 4.4%
over the prior period, and a $0.1 million decrease in transit revenue, which represents a decrease of 0.9% over the prior period.
27
For the three months ended June 30, 2014, there was a $0.7 million decrease in net revenues as compared to
acquisition-adjusted net revenue for the three months ended June 30, 2013, which represents a decrease of 0.2%. See Reconciliations below. The $0.7 million decrease in revenue primarily consists of a $0.7 million decrease in
billboard revenue, a $0.6 million net decrease in transit revenue and a $0.6 million increase in logo revenue over the acquisition-adjusted net revenue for the comparable period in 2013.
Total operating expenses, exclusive of depreciation and amortization and gain on sale of assets, increased $4.6 million for the three months ended
June 30, 2014 over same period in 2013. The $4.6 million increase over the prior year is comprised of an increase in general administrative and direct expenses related to the operations of our outdoor advertising assets of $3.6 million and
corporate expense increases $1.0 million.
Depreciation and amortization expense decreased $1.4 million, or 1.9% for the three months ended June 30,
2014, as compared to the three months ended June 30, 2013.
Due to the above factors, operating income remained relatively constant at $73.1 million
for the three months ended June 30, 2014 compared to $73.4 million for the same period in 2013.
During the second quarter of 2014, Lamar Media
recognized a $20.8 million loss related to the redemption of our 7 7/8% Senior Subordinated Notes. Approximately $5.1 million was a non-cash expense attributable to the write off of unamortized debt issuance fees associated with the notes.
Interest expense decreased $11.8 million from $37.9 million for the three months ended June 30, 2013, to $26.1 million for the three months ended
June 30, 2014, primarily resulting from Lamar Medias refinancing transactions during 2013 and 2014.
While operating income remained relatively
the same, the decrease in interest expense, offset by the increase in loss on debt extinguishment resulted in a $9.3 million decrease in net income before income taxes. This decrease in income resulted in a decrease in income taxes of $1.6 million
for the three months ended June 30, 2014 over the same period in 2013 primarily due to a change in the tax rates in Puerto Rico in 2013. The effective tax rate for the three months ended June 30, 2014 was 41.0%, which is higher than the
statutory rate due to permanent differences resulting from non-deductible compensation expense related to stock options in accordance with ASC 718 and other non-deductible expenses and amortization.
As a result of the above factors, Lamar Media recognized net income for the three months ended June 30, 2014 of $15.5 million, as compared to net income
of $23.2 million for the same period in 2013.
Reconciliations:
Because acquisitions occurring after December 31, 2012 (the acquired assets) have contributed to our net revenue results for the periods
presented, we provide 2013 acquisition-adjusted net revenue, which adjusts our 2013 net revenue for the three and six months ended June 30, 2013 by adding or subtracting to it the net revenue generated by the acquired or divested assets prior
to our acquisition or divestiture of these assets for the same time frame that those assets were owned in the three and six months ended June 30, 2014.
Reconciliations of 2013 reported net revenue to 2013 acquisition-adjusted net revenue for the three months ended June 30, as well as a comparison of 2013
acquisition-adjusted net revenue to 2014 reported net revenue for the three months ended June 30, are provided below:
Reconciliation of Reported
Net Revenue to Acquisition-Adjusted Net Revenue
|
|
|
|
|
|
|
Three months ended
June 30, 2013
|
|
|
|
(in thousands)
|
|
Reported net revenue
|
|
$
|
327,744
|
|
Acquisition net revenue
|
|
|
3,403
|
|
|
|
|
|
|
Acquisition-adjusted net revenue
|
|
$
|
331,147
|
|
|
|
|
|
|
Comparison of 2014 Reported Net Revenue to 2013 Acquisition-Adjusted Net Revenue
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(in thousands)
|
|
Reported net revenue
|
|
$
|
330,433
|
|
|
$
|
327,744
|
|
Acquisition net revenue
|
|
|
|
|
|
|
3,403
|
|
|
|
|
|
|
|
|
|
|
Adjusted totals
|
|
$
|
330,433
|
|
|
$
|
331,147
|
|
|
|
|
|
|
|
|
|
|
28