lamr-10q_20170930.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2017

or

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                      to                     

Commission File Number 1-36756

 

Lamar Advertising Company

Commission File Number 1-12407

Lamar Media Corp.

(Exact name of registrants as specified in their charters)

 

 

Delaware

 

72-1449411

Delaware

 

72-1205791

(State or other jurisdiction of incorporation or organization)

 

(I.R.S Employer Identification No.)

 

 

 

5321 Corporate Blvd., Baton Rouge, LA

 

70808

(Address of principal executive offices)

 

(Zip Code)

Registrants’ telephone number, including area code: (225) 926-1000  

 

Indicate by check mark whether each registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether each registrant has submitted electronically and posted on their corporate web sites, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

Indicate by check mark whether Lamar Advertising Company is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

(Do not check if a smaller reporting company)

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if Lamar Advertising Company has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether Lamar Media Corp. is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

(Do not check if a smaller reporting company)

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if Lamar Media Corp. has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether Lamar Advertising Company is a shell company (as defined in Rule 12b-2 of the Exchange Act):    Yes      No  

Indicate by check mark whether Lamar Media Corp. is a shell company (as defined in Rule 12b-2 of the Exchange Act):    Yes      No  

The number of shares of Lamar Advertising Company’s Class A common stock outstanding as of November 1, 2017: 84,011,614

The number of shares of the Lamar Advertising Company’s Class B common stock outstanding as of November 1, 2017: 14,420,085

The number of shares of Lamar Media Corp. common stock outstanding as of November 1, 2017: 100

This combined Form 10-Q is separately filed by (i) Lamar Advertising Company and (ii) Lamar Media Corp. (which is a wholly owned subsidiary of Lamar Advertising Company). Lamar Media Corp. meets the conditions set forth in general instruction H(1) (a) and (b) of Form 10-Q and is, therefore, filing this form with the reduced disclosure format permitted by such instruction.

 

 

 

 


 

NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain information included in this report is forward-looking in nature within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. This report uses terminology such as “anticipates,” “believes,” “plans,” “expects,” “future,” “intends,” “may,” “will,” “should,” “estimates,” “predicts,” “potential,” “continue” and similar expressions to identify forward-looking statements. Examples of forward-looking statements in this report include statements about:

 

our future financial performance and condition;

 

our business plans, objectives, prospects, growth and operating strategies;

 

our future capital expenditures and level of acquisition activity;

 

market opportunities and competitive positions;

 

our future cash flows and expected cash requirements;

 

estimated risks;

 

our ability to maintain compliance with applicable covenants and restrictions included in Lamar Media’s senior credit facility and the indentures relating to its outstanding notes;

 

stock price;

 

estimated future dividend distributions; and

 

our ability to remain qualified as a Real Estate Investment Trust (“REIT”).

Forward-looking statements are subject to known and unknown risks, uncertainties and other important factors, including but not limited to the following, any of which may cause the actual results, performance or achievements of Lamar Advertising Company (referred to herein as the “Company” or “Lamar Advertising”) or Lamar Media Corp. (referred to herein as “Lamar Media”) to differ materially from those expressed or implied by the forward-looking statements:

 

the state of the economy and financial markets generally and their effects on the markets in which we operate and the broader demand for advertising;

 

the levels of expenditures on advertising in general and outdoor advertising in particular;

 

risks and uncertainties relating to our significant indebtedness;

 

the demand for outdoor advertising and its continued popularity as an advertising medium;

 

our need for, and ability to obtain, additional funding for acquisitions, operations and debt refinancing;

 

increased competition within the outdoor advertising industry;

 

the regulation of the outdoor advertising industry by federal, state and local governments;

 

our ability to renew expiring contracts at favorable rates;

 

the integration of businesses and assets that we acquire and our ability to recognize cost savings and operating efficiencies as a result of these acquisitions;

 

our ability to successfully implement our digital deployment strategy;

 

the market for our Class A common stock;

 

changes in accounting principles, policies or guidelines;

 

our ability to effectively mitigate the threat of and damages caused by hurricanes and other kinds of severe weather;

 

our ability to qualify as a REIT and maintain our status as a REIT; and

 

changes in tax laws applicable to REIT’s or in the interpretation of those laws.

The forward-looking statements in this report are based on our current good faith beliefs, however, actual results may differ due to inaccurate assumptions, the factors listed above or other foreseeable or unforeseeable factors. Consequently, we cannot guarantee that any of the forward-looking statements will prove to be accurate. The forward-looking statements in this report speak only as of the date of this report, and Lamar Advertising and Lamar Media expressly disclaim any obligation or undertaking to update or revise any forward-looking statement contained in this report, except as required by law.

2


 

For a further description of these and other risks and uncertainties, the Company encourages you to read carefully Item 1A to the combined Annual Report on Form 10-K for the year ended December 31, 2016 of the Company and Lamar Media (the “2016 Combined Form 10-K”), filed on February 24, 2017 and as such risk factors may be updated or supplemented, from time to time, in our combined Quarterly Reports on Form 10-Q.

 

 

3


 

CONTENTS

 

 

 

Page

PART I — FINANCIAL INFORMATION

 

5

 

 

 

ITEM 1. FINANCIAL STATEMENTS

 

5

 

 

 

Lamar Advertising Company

 

 

Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016

 

5

Condensed Consolidated Statements of Income and Comprehensive Income for the three and nine months ended September 30, 2017 and 2016

 

6

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016

 

7

Notes to Condensed Consolidated Financial Statements

 

8-15

 

 

 

Lamar Media Corp.

 

 

Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016

 

16

Condensed Consolidated Statements of Income and Comprehensive Income for the three and nine months ended September 30, 2017 and 2016

 

17

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016

 

18

Notes to Condensed Consolidated Financial Statements

 

19-27

 

 

 

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

28-43

 

 

 

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

 

44

 

 

 

ITEM 4. Controls and Procedures

 

45

 

 

 

PART II — OTHER INFORMATION

 

45

 

 

 

ITEM 1A. Risk Factors

 

45

 

 

 

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

45

 

 

 

ITEM 5. Other Information

 

45

 

 

 

ITEM 6. Exhibits

 

45-46

 

 

4


 

PART I — FINANCIAL INFORMATION

ITEM 1. — FINANCIAL STATEMENTS

LAMAR ADVERTISING COMPANY

AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

 

 

 

September 30, 2017

 

 

December 31, 2016

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

29,419

 

 

$

35,530

 

Receivables, net of allowance for doubtful accounts of $11,529 and $9,356 in 2017 and

   2016, respectively

 

 

223,088

 

 

 

189,935

 

Prepaid lease expenses

 

 

72,816

 

 

 

48,815

 

Other current assets

 

 

45,187

 

 

 

39,973

 

Total current assets

 

 

370,510

 

 

 

314,253

 

Property, plant and equipment

 

 

3,354,962

 

 

 

3,294,251

 

Less accumulated depreciation and amortization

 

 

(2,174,393

)

 

 

(2,111,536

)

Net property, plant and equipment

 

 

1,180,569

 

 

 

1,182,715

 

Goodwill

 

 

1,740,469

 

 

 

1,726,358

 

Intangible assets

 

 

668,667

 

 

 

637,153

 

Other assets

 

 

43,015

 

 

 

38,405

 

Total assets

 

$

4,003,230

 

 

$

3,898,884

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Trade accounts payable

 

$

18,054

 

 

$

17,653

 

Current maturities of long-term debt, net of deferred financing costs of $5,085 and $5,459

   in 2017 and 2016, respectively

 

 

17,415

 

 

 

33,916

 

Accrued expenses

 

 

99,548

 

 

 

134,433

 

Deferred income

 

 

103,670

 

 

 

91,322

 

Total current liabilities

 

 

238,687

 

 

 

277,324

 

Long-term debt, net of deferred financing costs of $24,888 and $23,510 in 2017 and 2016,

   respectively

 

 

2,432,014

 

 

 

2,315,267

 

Deferred income tax liabilities

 

 

326

 

 

 

279

 

Asset retirement obligation

 

 

212,141

 

 

 

210,889

 

Other liabilities

 

 

29,536

 

 

 

25,597

 

Total liabilities

 

 

2,912,704

 

 

 

2,829,356

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Series AA preferred stock, par value $.001, $63.80 cumulative dividends,

   5,720 shares authorized; 5,720 shares issued and outstanding at 2017 and 2016

 

 

 

 

 

 

Class A common stock, par value $.001, 362,500,000 shares authorized; 84,007,335 and

   83,038,831 shares issued at 2017 and 2016, respectively; 83,676,051 and 82,822,743

   issued and outstanding at 2017 and 2016, respectively

 

 

84

 

 

 

83

 

Class B common stock, par value $.001, 37,500,000 shares authorized, 14,420,085 and

   14,610,365 shares issued and outstanding at 2017 and 2016, respectively

 

 

14

 

 

 

15

 

Additional paid-in capital

 

 

1,754,892

 

 

 

1,713,312

 

Accumulated comprehensive income (loss)

 

 

1,480

 

 

 

(624

)

Accumulated deficit

 

 

(644,644

)

 

 

(630,955

)

Cost of shares held in treasury, 331,284 and 216,088 shares at 2017 and 2016,

   respectively

 

 

(21,300

)

 

 

(12,303

)

Stockholders’ equity

 

 

1,090,526

 

 

 

1,069,528

 

Total liabilities and stockholders’ equity

 

$

4,003,230

 

 

$

3,898,884

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

5


 

LAMAR ADVERTISING COMPANY

AND SUBSIDIARIES

Condensed Consolidated Statements of Income and Comprehensive Income

(Unaudited)

(In thousands, except share and per share data) 

 

 

 

Three months ended

September 30,

 

 

Nine months ended

September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Statements of Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues

 

$

399,345

 

 

$

387,516

 

 

$

1,142,785

 

 

$

1,113,577

 

Operating expenses (income)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct advertising expenses (exclusive of depreciation and

   amortization)

 

 

134,977

 

 

 

131,778

 

 

 

401,896

 

 

 

393,228

 

General and administrative expenses (exclusive of depreciation

   and amortization)

 

 

68,500

 

 

 

67,487

 

 

 

206,452

 

 

 

200,734

 

Corporate expenses (exclusive of depreciation and

   amortization)

 

 

15,088

 

 

 

19,359

 

 

 

48,451

 

 

 

55,432

 

Depreciation and amortization

 

 

51,796

 

 

 

49,307

 

 

 

155,003

 

 

 

152,729

 

Gain on disposition of assets

 

 

(2,734

)

 

 

(189

)

 

 

(4,377

)

 

 

(12,221

)

 

 

 

267,627

 

 

 

267,742

 

 

 

807,425

 

 

 

789,902

 

Operating income

 

 

131,718

 

 

 

119,774

 

 

 

335,360

 

 

 

323,675

 

Other expense (income)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on extinguishment of debt

 

 

 

 

 

 

 

 

71

 

 

 

3,198

 

Interest income

 

 

(2

)

 

 

(2

)

 

 

(6

)

 

 

(6

)

Interest expense

 

 

32,064

 

 

 

31,102

 

 

 

95,526

 

 

 

92,469

 

 

 

 

32,062

 

 

 

31,100

 

 

 

95,591

 

 

 

95,661

 

Income before income tax expense

 

 

99,656

 

 

 

88,674

 

 

 

239,769

 

 

 

228,014

 

Income tax expense

 

 

3,325

 

 

 

3,613

 

 

 

9,257

 

 

 

9,730

 

Net income

 

 

96,331

 

 

 

85,061

 

 

 

230,512

 

 

 

218,284

 

Cash dividends declared and paid on preferred stock

 

 

91

 

 

 

91

 

 

 

273

 

 

 

273

 

Net income applicable to common stock

 

$

96,240

 

 

$

84,970

 

 

$

230,239

 

 

$

218,011

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.98

 

 

$

0.87

 

 

$

2.35

 

 

$

2.25

 

Diluted earnings per share

 

$

0.98

 

 

$

0.87

 

 

$

2.34

 

 

$

2.23

 

Cash dividends declared per share of common stock

 

$

0.83

 

 

$

0.76

 

 

$

2.49

 

 

$

2.26

 

Weighted average common shares used in computing earnings

   per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding basic

 

 

98,044,523

 

 

 

97,254,125

 

 

 

97,855,642

 

 

 

97,056,456

 

Weighted average common shares outstanding diluted

 

 

98,490,277

 

 

 

97,881,878

 

 

 

98,340,248

 

 

 

97,631,606

 

Statements of Comprehensive Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

96,331

 

 

$

85,061

 

 

$

230,512

 

 

$

218,284

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

1,216

 

 

 

(328

)

 

 

2,104

 

 

 

1,151

 

Comprehensive income

 

$

97,547

 

 

$

84,733

 

 

$

232,616

 

 

$

219,435

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

6


 

LAMAR ADVERTISING COMPANY

AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands) 

 

 

 

Nine months ended

September 30,

 

 

 

2017

 

 

2016

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

230,512

 

 

$

218,284

 

Adjustments to reconcile net income to net cash provided by operating activities

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

155,003

 

 

 

152,729

 

Stock-based compensation

 

 

7,060

 

 

 

19,650

 

Amortization included in interest expense

 

 

3,866

 

 

 

3,993

 

Gain on disposition of assets and investments

 

 

(4,377

)

 

 

(12,221

)

Loss on extinguishment of debt

 

 

71

 

 

 

3,198

 

Deferred tax expense (benefit)

 

 

259

 

 

 

(150

)

Provision for doubtful accounts

 

 

6,009

 

 

 

5,831

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

(Increase) decrease in:

 

 

 

 

 

 

 

 

Receivables

 

 

(38,083

)

 

 

(39,072

)

Prepaid lease expenses

 

 

(23,281

)

 

 

(21,700

)

Other assets

 

 

(4,334

)

 

 

5,923

 

Increase (decrease) in:

 

 

 

 

 

 

 

 

Trade accounts payable

 

 

401

 

 

 

(761

)

Accrued expenses

 

 

(21,768

)

 

 

(5,623

)

Other liabilities

 

 

9,300

 

 

 

7,745

 

Net cash provided by operating activities

 

 

320,638

 

 

 

337,826

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Acquisitions

 

 

(119,936

)

 

 

(526,029

)

Capital expenditures

 

 

(74,446

)

 

 

(78,825

)

Proceeds from disposition of assets and investments

 

 

3,340

 

 

 

7,753

 

Decrease in notes receivable

 

 

13

 

 

 

16

 

Net cash used in investing activities

 

 

(191,029

)

 

 

(597,085

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Cash used for purchase of treasury stock

 

 

(8,997

)

 

 

(6,204

)

Net proceeds from issuance of common stock

 

 

19,817

 

 

 

18,278

 

Principal payments on long-term debt

 

 

(11,250

)

 

 

(15,015

)

Payment on revolving credit facility

 

 

(407,000

)

 

 

(302,000

)

Proceeds received from revolving credit facility

 

 

317,000

 

 

 

408,000

 

Proceeds received from note offering

 

 

 

 

 

400,000

 

Payment on senior credit facility term loans

 

 

(247,500

)

 

 

(300,000

)

Proceeds received from senior credit facility term loans

 

 

450,000

 

 

 

300,000

 

Debt issuance costs

 

 

(4,941

)

 

 

(9,391

)

Distributions to non-controlling interest

 

 

(415

)

 

 

(315

)

Dividends/distributions

 

 

(244,201

)

 

 

(219,857

)

Net cash (used in) provided by financing activities

 

 

(137,487

)

 

 

273,496

 

Effect of exchange rate changes in cash and cash equivalents

 

 

1,767

 

 

 

915

 

Net (decrease) increase in cash and cash equivalents

 

 

(6,111

)

 

 

15,152

 

Cash and cash equivalents at beginning of period

 

 

35,530

 

 

 

22,327

 

Cash and cash equivalents at end of period

 

$

29,419

 

 

$

37,479

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

104,966

 

 

$

91,952

 

Cash paid for foreign, state and federal income taxes

 

$

9,969

 

 

$

11,023

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

7


 

LAMAR ADVERTISING COMPANY

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share data)

 

 

1. Significant Accounting Policies

The information included in the foregoing interim condensed consolidated financial statements is unaudited. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the Company’s financial position and results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the entire year. These interim condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and the notes thereto included in the 2016 Combined Form 10-K. Subsequent events, if any, are evaluated through the date on which the financial statements are issued.

 

 

2. Stock-Based Compensation

Equity Incentive Plan. Lamar Advertising’s 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 87,500 shares of its Class A common stock during the nine months ended September 30, 2017. At September 30, 2017 a total of 1,174,906 shares were available for future grant.

Stock Purchase Plan. Lamar Advertising’s 2009 Employee Stock Purchase Plan or 2009 ESPP was approved by our shareholders on May 28, 2009.  The number of shares of Class A common stock available under the 2009 ESPP was automatically increased by 82,823 shares on January 1, 2017 pursuant to the automatic increase provisions of the 2009 ESPP.

The following is a summary of 2009 ESPP share activity for the nine months ended September 30, 2017: 

 

 

 

Shares

 

Available for future purchases, January 1, 2017

 

 

250,573

 

Additional shares reserved under 2009 ESPP

 

 

82,823

 

Purchases

 

 

(84,005

)

Available for future purchases, September 30, 2017

 

 

249,391

 

 

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 Company’s Compensation Committee based on our 2017 results. Any shares issued based on the achievement of performance goals will be issued in the first quarter of 2018. 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 nine months ended September 30, 2017, the Company has recorded $3,837 as stock-based 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 $326 stock-based compensation expense related to these awards for the nine months ended September 30, 2017.

 

3. Acquisitions

During the nine months ended September 30, 2017, the Company completed several acquisitions of outdoor advertising assets for a total purchase price of $122,815, of which $119,936 was in cash and $2,879 was in non-cash consideration consisting principally of exchanges of outdoor advertising assets. As a result of these acquisitions, a gain of $2,389 was recorded during the nine months ended September 30, 2017 related to the transactions that involved the exchange of outdoor advertising assets.

8


LAMAR ADVERTISING COMPANY

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share data)

 

Each of these acquisitions was accounted for under the acquisition method of accounting, and, accordingly, the accompanying consolidated financial statements include the results of operations of each acquired entity from the date of acquisition. The acquisition costs have been allocated to assets acquired and liabilities assumed based on preliminary fair market value estimates at the dates of acquisition. The allocations are pending final determination of the fair value of certain assets and liabilities. The following is a summary of the preliminary allocation of the acquisition costs in the above transactions.

 

 

 

Total

 

Property, plant and equipment

 

$

14,305

 

Goodwill

 

 

13,925

 

Site locations

 

 

82,262

 

Non-competition agreements

 

 

325

 

Customer lists and contracts

 

 

10,224

 

Acquisition costs

 

 

194

 

Current assets

 

 

2,465

 

Current liabilities

 

 

(510

)

Other liabilities

 

 

(375

)

 

 

$

122,815

 

 

 

4. Depreciation and Amortization

The Company includes all categories of depreciation and amortization on a separate line in its Statements of Income and Comprehensive Income. The amounts of depreciation and amortization expense excluded from the following operating expenses in its Statements of Income and Comprehensive Income are: 

 

 

 

Three months ended

September 30,

 

 

Nine months ended

September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Direct advertising expenses

 

$

47,168

 

 

$

46,163

 

 

$

144,171

 

 

$

142,228

 

General and administrative expenses

 

 

955

 

 

 

900

 

 

 

2,857

 

 

 

2,683

 

Corporate expenses

 

 

3,673

 

 

 

2,244

 

 

 

7,975

 

 

 

7,818

 

 

 

$

51,796

 

 

$

49,307

 

 

$

155,003

 

 

$

152,729

 

 

 

5. Goodwill and Other Intangible Assets

The following is a summary of intangible assets at September 30, 2017 and December 31, 2016:  

 

 

 

Estimated

 

 

September 30, 2017

 

 

December 31, 2016

 

 

 

Life

(Years)

 

 

Gross Carrying

Amount

 

 

Accumulated

Amortization

 

 

Gross Carrying

Amount

 

 

Accumulated

Amortization

 

Amortizable intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Customer lists and contracts

 

7—10

 

 

$

570,073

 

 

$

501,556

 

 

$

559,513

 

 

$

490,514

 

   Non-competition agreements

 

3—15

 

 

 

64,976

 

 

 

63,861

 

 

 

64,646

 

 

 

63,692

 

   Site locations

 

 

15

 

 

 

1,937,725

 

 

 

1,354,594

 

 

 

1,885,554

 

 

 

1,318,976

 

   Other

 

2—15

 

 

 

45,406

 

 

 

29,502

 

 

 

14,174

 

 

 

13,552

 

 

 

 

 

 

 

$

2,618,180

 

 

$

1,949,513

 

 

$

2,523,887

 

 

$

1,886,734

 

Unamortizable intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Goodwill

 

 

 

 

 

$

1,994,005

 

 

$

253,536

 

 

$

1,979,894

 

 

$

253,536

 

 

 

9


LAMAR ADVERTISING COMPANY

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share data)

 

6. Asset Retirement Obligations

The Company’s 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 Company’s outdoor advertising portfolio. The following table reflects information related to our asset retirement obligations:

 

Balance at December 31, 2016

 

$

210,889

 

Additions to asset retirement obligations

 

 

1,103

 

Accretion expense

 

 

3,182

 

Liabilities settled

 

 

(3,033

)

Balance at September 30, 2017

 

$

212,141

 

 

 

7. Distribution Restrictions

Lamar Media’s ability to make distributions to Lamar Advertising is restricted under both the terms of the indentures relating to Lamar Media’s outstanding notes and by the terms of its senior credit facility. As of September 30, 2017 and December 31, 2016, 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 $2,834,543 and $2,702,633, respectively.

As of September 30, 2017, Lamar Media’s senior credit facility allows it to make transfers to Lamar Advertising in any taxable year up to the amount of Lamar Advertising’s taxable income (without any deduction for dividends paid). In addition, as of September 30, 2017, transfers to Lamar Advertising are permitted under Lamar Media’s senior credit facility and as defined therein up to the available cumulative credit, as long as no default has occurred and is continuing and, after giving effect to such distributions, (i) the total debt ratio less than 6.5 to 1 and (ii) the secured debt ratio does not exceed 3.0 to 1. As of September 30, 2017, the total debt ratio was less than 6.5 to 1 and Lamar Media’s secured debt ratio was less than 3.0 to 1, and the available cumulative credit was $1,666,430.

 

 

8. 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 nine months ended September 30, 2017 or 2016.

 

 

9. Long-term Debt

Long-term debt consists of the following at September 30, 2017 and December 31, 2016:  

 

 

 

September 30, 2017

 

 

 

Debt

 

 

Deferred

financing costs

 

 

Debt, net of

deferred

financing costs

 

Senior Credit Facility

 

$

534,375

 

 

$

8,133

 

 

$

526,242

 

5 7/8% Senior Subordinated Notes

 

 

500,000

 

 

 

6,162

 

 

 

493,838

 

5% Senior Subordinated Notes

 

 

535,000

 

 

 

5,127

 

 

 

529,873

 

5 3/8% Senior Notes

 

 

510,000

 

 

 

5,155

 

 

 

504,845

 

5 3/4% Senior Notes

 

 

400,000

 

 

 

5,396

 

 

 

394,604

 

Other notes with various rates and terms

 

 

27

 

 

 

 

 

 

27

 

 

 

 

2,479,402

 

 

 

29,973

 

 

 

2,449,429

 

Less current maturities

 

 

(22,500

)

 

 

(5,085

)

 

 

(17,415

)

Long-term debt, excluding current maturities

 

$

2,456,902

 

 

$

24,888

 

 

$

2,432,014

 

10


LAMAR ADVERTISING COMPANY

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share data)

 

 

 

 

December 31, 2016

 

 

 

Debt

 

 

Deferred

financing costs

 

 

Debt, net of

deferred

financing costs

 

Senior Credit Facility

 

$

433,125

 

 

$

4,769

 

 

$

428,356

 

5 7/8% Senior Subordinated Notes

 

 

500,000

 

 

 

7,071

 

 

 

492,929

 

5% Senior Subordinated Notes

 

 

535,000

 

 

 

5,709

 

 

 

529,291

 

5 3/8% Senior Notes

 

 

510,000

 

 

 

5,662

 

 

 

504,338

 

5 3/4% Senior Notes

 

 

400,000

 

 

 

5,758

 

 

 

394,242

 

Other notes with various rates and terms

 

 

27

 

 

 

 

 

 

27

 

 

 

 

2,378,152

 

 

 

28,969

 

 

 

2,349,183

 

Less current maturities

 

 

(39,375

)

 

 

(5,459

)

 

 

(33,916

)

Long-term debt, excluding current maturities

 

$

2,338,777

 

 

$

23,510

 

 

$

2,315,267

 

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.

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 5 7/8% 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 holder’s 5 7/8% 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.

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 accrued and unpaid interest thereon, 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 holder’s 5% Notes at a price equal to 101% of the principal amount of the 5% 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% Notes”). The institutional private placement resulted in net proceeds to Lamar Media of approximately $502,300.

At any time prior to January 15, 2019, Lamar Media may redeem some or all of the 5 3/8% Notes at a price equal to 100% of the aggregate principal amount, plus accrued and unpaid interest thereon plus a make-whole premium. On or after January 15, 2019, Lamar Media may redeem the 5 3/8% Notes, in whole or in part, in cash at redemption prices specified in the 5 3/8% 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 holder’s 5 3/8% Notes at a price equal to 101% of the principal amount of the 5 3/8% Notes, plus accrued and unpaid interest, up to but not including the repurchase date.

11


LAMAR ADVERTISING COMPANY

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share data)

 

5 3/4% Senior Notes

On January 28, 2016, Lamar Media completed an institutional private placement of $400,000 aggregate principal amount of 5 3/4% Senior Notes due 2026 (the “5 3/4% Notes”). The institutional private placement resulted in net proceeds to Lamar Media of approximately $394,500.

Lamar Media may redeem up to 35% of the aggregate principal amount of the 5 3/4% Notes, at any time and from time to time, at a price equal to 105.750% 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, 2019, provided that following the redemption, at least 65% of the 5 3/4% 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 February 1, 2021, Lamar Media may redeem some or all of the 5 3/4% Notes at a price equal to 100% of the aggregate principal amount, plus accrued and unpaid interest thereon plus a make-whole premium. On or after February 1, 2021, Lamar Media may redeem the 5 3/4% Notes, in whole or in part, in cash at redemption prices specified in the 5 3/4% 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 holder’s 5 3/4% Notes at a price equal to 101% of the principal amount of the 5 3/4% Notes, plus accrued and unpaid interest, up to but not including the repurchase date.

Senior Credit Facility

On May 15, 2017, Lamar Media entered into a Third Restatement Agreement (“Restatement Agreement”) to its Second Amended and Restated Credit Agreement (“existing senior credit facility”) dated as of February 3, 2014 with the Company, certain of Lamar Media’s subsidiaries as guarantors, JPMorgan Chase Bank, N.A. as administrative agent and the lenders party thereto, under which the parties agreed to amend and restate Lamar Media’s existing senior credit facility.  

Lamar Media’s Third Amended and Restated Credit Agreement dated as of May 15, 2017 (as amended, the “senior credit facility”) consists of (i) a new $450,000 senior secured revolving credit facility which will mature on May 15, 2022, (ii) a new $450,000 Term A loan facility (the “Term A loans”)  which will mature on May 15, 2022, and (iii) an incremental facility pursuant to which Lamar Media may incur additional term loan tranches or increase its revolving credit facility subject to pro forma compliance with the secured debt ratio financial maintenance covenant described below.

Under the senior credit facility Lamar Media borrowed all $450,000 in Term A loans on May 15, 2017.  The net proceeds, together with borrowing under the revolving portion of senior credit facility and cash on hand, were used to repay all outstanding amounts under the existing senior credit facility, and all revolving commitments under that facility were terminated.

The Term A Loans began amortizing on September 30, 2017 in quarterly installments on each December 31, March 31, June 30 and September 30 thereafter. The remaining quarterly installments scheduled to be paid are as follows: 

 

Principal Payment Date

 

Principal Amount

 

December 31, 2017-June 30, 2019

 

$

5,625.0

 

September 30, 2019-June 30, 2020

 

$

8,437.5

 

September 30, 2020-March 31, 2022

 

$

16,875.0

 

Term A Loan Maturity Date

 

$

253,125.0

 

 

For each borrowing of Term A loans or revolving credit loans, Lamar Media can elect whether such loans bear interest at (i) the Adjusted Base Rate plus (a) 0.75%, or (b) 0.50% at any time that the total debt ratio is less than 3.25 to 1 as of the last day of the most recently ended fiscal quarter for which Lamar Media has delivered financial statements, or (ii) the Adjusted LIBO Rate plus (a) 1.75%, or (b) 1.50% at any time that the total debt ratio is less than 3.25 to 1 as of the last day of the most recently ended fiscal quarter for which Lamar Media has delivered financial statements. The guarantees, covenants, events of default and other terms of the senior credit facility apply to the Term A loans and revolving credit facility.

 

12


LAMAR ADVERTISING COMPANY

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share data)

 

As of September 30, 2017, there was $90,000 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 $13,091 in letters of credit outstanding as of September 30, 2017 resulting in $346,909 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 May 15, 2022.

The terms of Lamar Media’s senior credit facility and the indentures relating to Lamar Media’s outstanding notes restrict, among other things, the ability of Lamar Advertising and Lamar Media to:

 

dispose of assets;

 

incur or repay debt;

 

create liens;

 

make investments; and

 

pay dividends.

The senior credit facility contains provisions that allow Lamar Media to conduct its affairs in a manner that allows 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 Media’s ability to make distributions to Lamar Advertising is also restricted under the terms of these agreements. Under Lamar Media’s 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 senior credit facility provisions during the periods presented.

 

 

10. Fair Value of Financial Instruments

At September 30, 2017 and December 31, 2016, the Company’s 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 Company’s long-term debt (including current maturities) was $2,578,645 which exceeded the carrying amount of $2,479,402 as of September 30, 2017. 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).

 

 

11. New Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update (“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. Generally Accepted Accounting Principles (“GAAP”) when it becomes effective. In August 2015, the FASB issued ASU No. 2015-14 deferring the effective date from January 1, 2017 to January 1, 2018, while allowing for early adoption as of January 1, 2017. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is in the final stages of its review of contracts and we do not expect any material impact on our consolidated financial statements for the adoption of ASU No. 2014-09. We currently believe the only contracts with customers which will be accounted for under ASU No. 2014-09 are our Transit advertising contracts and production services. We have preliminarily determined to adopt the provisions of ASU No. 2014-09 using the cumulative effect transition method with an adjustment to the opening balance of retained earnings of the annual reporting period that includes the date of initial application.

13


LAMAR ADVERTISING COMPANY

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share data)

 

In November 2015, the FASB issued ASU No. 2015-17 Income taxes – Balance Sheet Classification of Deferred Taxes. The amendments in this update require deferred tax liabilities and assets be classified as noncurrent in the balance sheet. The amendments are effective for annual and interim periods beginning after December 15, 2016, with early adoption permitted as of the beginning of an interim or annual reporting period. The Company adopted the update in ASU No. 2015-17 as of January 1, 2017. The Company’s 2016 consolidated balance sheet has been adjusted to reflect retrospective adoption of the update and the impact was not considered material.

In February 2016, the FASB issued ASU No. 2016-02, Leases.  The update is to increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing key information about lease arrangements.  The amendments in this update are effective beginning January 1, 2019 with retrospective application. The Company is in the process of assessing the impact ASU No. 2016-02 will have on our consolidated financial statements.  The Company expects the primary impact to our consolidated financial statements will be the recognition, on a discounted basis, of our minimum commitments under non-cancelable operating leases on our consolidated balance sheets, resulting in the recording of right of use assets and lease obligations.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments. The update clarifies how certain cash receipts and cash payments are presented in the statement of cash flows.  The update is effective for annual periods beginning January 1, 2018 with early adoption permitted. The Company adopted the update in ASU No. 2016-15 as of January 1, 2017.  The adoption of this update did not have a material impact on the consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations: Clarifying the definition of a business.  The update clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions of assets or businesses.  The update is effective for annual periods beginning after December 15, 2017, including interim periods within those periods.  Early adoption is allowed for transactions which the acquisition date occurs before the issuance date or effective date of the amendments, only when the transaction has not been reported in financial statements that have been issued or made available for issuance. The Company adopted the update in ASU 2017-01 for transactions which occurred on or after October 1, 2016. The adoption of this update did not have a material impact on the consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and other (Topic 350): Simplifying the test for goodwill impairment. The update simplifies how a company completes its goodwill impairment test by eliminating the two-step process, which requires determining the fair value of assets acquired or liabilities assumed in a business combination. The update requires completing the goodwill impairment test by comparing the difference between the reporting unit’s carrying value and fair value.  Goodwill charges, if any, would be determined by reducing the goodwill balance by the excess of the reporting unit’s carrying value over its fair value.  The update is effective for annual and interim fiscal periods beginning after December 15, 2019, with early adoption permitted for interim or annual goodwill impairment tests performed on or after January 1, 2017.  The Company plans to early adopt this update for its December 31, 2017 goodwill impairment test.

 

12. Dividends/Distributions

During the three months ended September 30, 2017 and September 30, 2016, the Company declared and paid cash distributions of its REIT taxable income in an aggregate amount of $81,408 or $0.83 per share and $73,938 or $0.76 per share, respectively. During the nine months ended September 30, 2017 and September 30, 2016, the Company declared and paid cash distributions of its REIT taxable income in an aggregate amount of $243,928 or $2.49 per share and $219,584 or $2.26 per share, respectively. 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 Company’s 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 Company’s ability to utilize net operating losses to offset, in whole or in part, the Company’s 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 three months ended September 30, 2017 and September 30, 2016, the Company paid cash dividend distributions to holders of its Series AA Preferred Stock in an aggregate amount of $91 or $15.95 per share. During the nine months ended September 30, 2017 and September 30, 2016, the Company paid cash dividend distributions to holders of its Series AA Preferred Stock in an aggregate amount of $273 or $47.85 per share.

14


LAMAR ADVERTISING COMPANY

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share data)

 

 

 

13. Information about Geographic Areas

Revenues from external customers attributable to foreign countries totaled $24,335 and $24,076 for the nine months ended September 30, 2017 and 2016, respectively. Net carrying value of long lived assets located in foreign countries totaled $4,121 and $4,893 as of September 30, 2017 and December 31, 2016, respectively. All other revenues from external customers and long lived assets relate to domestic operations.

 

 

15


 

LAMAR MEDIA CORP.

AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands, except share data)

 

 

 

September 30, 2017

 

 

December 31, 2016

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

28,919

 

 

$

35,030

 

Receivables, net of allowance for doubtful accounts of $11,529 and $9,356 in 2017

   and 2016, respectively

 

 

223,088

 

 

 

189,935

 

Prepaid lease expenses

 

 

72,816

 

 

 

48,815

 

Other current assets

 

 

45,187

 

 

 

39,973

 

Total current assets

 

 

370,010

 

 

 

313,753

 

Property, plant and equipment

 

 

3,354,962

 

 

 

3,294,251

 

Less accumulated depreciation and amortization

 

 

(2,174,393

)

 

 

(2,111,536

)

Net property, plant and equipment

 

 

1,180,569

 

 

 

1,182,715

 

Goodwill

 

 

1,730,318

 

 

 

1,716,207

 

Intangible assets

 

 

668,197

 

 

 

636,685

 

Other assets

 

 

37,731

 

 

 

33,120

 

Total assets

 

$

3,986,825

 

 

$

3,882,480

 

LIABILITIES AND STOCKHOLDER’S EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Trade accounts payable

 

$

18,054

 

 

$

17,653

 

Current maturities of long-term debt, net of deferred financing costs of $5,085 and

   $5,459 in 2017 and 2016, respectively

 

 

17,415

 

 

 

33,916

 

Accrued expenses

 

 

95,715

 

 

 

131,171

 

Deferred income