Filed Pursuant to Rule 424(b)(3)
Registration No. 333-230384

 

Prospectus

Lamar Media Corp.

Offer to Exchange

Up to $250,000,000

outstanding 5 3/4% Senior Notes due 2026 issued on February 1, 2019, for

a Like Principal Amount of 5 3/4% Senior Notes due 2026,

which have been registered under the Securities Act of 1933

The Exchange Offer

 

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We will exchange all outstanding notes that are validly tendered and not validly withdrawn for an equal principal amount of exchange notes that are freely tradable.

 

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You may withdraw tenders of outstanding notes at any time prior to the expiration date of the exchange offer.

 

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The exchange offer expires at 5:00 p.m., New York City time, on May 1, 2019, unless we extend the offer. We do not currently intend to extend the expiration date.

 

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The exchange of outstanding notes for exchange notes in the exchange offer generally will not be a taxable event to a holder for United States federal income tax purposes.

 

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We will not receive any proceeds from the exchange offer.

 

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The exchange offer is subject to customary conditions, including the condition that the exchange offer not violate applicable law or any applicable interpretation of the staff of the Securities and Exchange Commission.

The Exchange Notes

 

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The exchange notes are being offered in order to satisfy certain of our obligations under the registration rights agreement entered into in connection with the private offering of the outstanding notes.

 

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The terms of the exchange notes to be issued in the exchange offer are substantially identical to the terms of the outstanding notes, except that the exchange notes will be freely tradable.

 

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The exchange notes will be our unsecured senior obligations and will rank senior to all of our existing and future debt that is expressly subordinated to the exchange notes. The exchange notes will rank equally with all of our existing and future senior debt and will be effectively subordinated to all of our secured debt (to the extent of the value of the collateral securing such debt), including our senior credit facility, and structurally subordinated to all of the liabilities of our subsidiaries that do not guarantee the exchange notes.

 

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The outstanding notes are, and the exchange notes will be, unconditionally guaranteed on a joint and several basis by substantially all of our existing and future domestic subsidiaries, with certain exceptions.

 

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The exchange notes will share a single CUSIP and be fungible with the $400,000,000 in aggregate principal amount of our 5 3/4% Senior Notes due 2026 previously issued on January 28, 2016, which were exchanged pursuant to a previous exchange offer on September 1, 2016.

 

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We do not intend to apply for listing of the exchange notes on any securities exchange or to arrange for them to be quoted on any quotation system.

Broker-Dealers

 

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Each broker-dealer that receives exchange notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such exchange notes. The letter of transmittal states that by so acknowledging and delivering a prospectus, a broker-dealer will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act of 1933, as amended.

 

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This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of exchange notes received in exchange for outstanding notes where such outstanding notes were acquired by such broker-dealer as a result of market-making activities or other trading activities.

 

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We and the guarantors have agreed that, for a period of 180 days after consummation of the exchange offer, we will make this prospectus available to any broker-dealer for use in connection with any such resale. See “Plan of Distribution.”

See “Risk Factors” beginning on page 17 for a discussion of certain risks that you should consider before participating in the exchange offer.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

The date of this prospectus is April 3, 2019

TABLE OF CONTENTS

 

 

No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You should not rely on any unauthorized information or representations. This prospectus is an offer to exchange only the notes offered by this prospectus, and only under the circumstances and in those jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

 

 

Lamar Media Corp. is a Delaware corporation. Our principal executive offices are located at 5321 Corporate Blvd., Baton Rouge, LA 70808 and our telephone number at that address is (225) 926-1000. Lamar Media Corp. is a wholly owned subsidiary of Lamar Advertising Company. Our parent’s website is located at http://www.lamar.com. The information on or linked to from the website is not part of this prospectus.

In this prospectus, except as the context otherwise requires or as otherwise noted, “Lamar Media,” “we,” “us” and “our” refer to Lamar Media Corp. and its subsidiaries, except with respect to the notes, in which case such terms refer only to Lamar Media Corp. Lamar Advertising Company is referred to herein as “Lamar Advertising.”

 

 

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the Securities and Exchange Commission (the “Commission”) a registration statement on Form S-4 under the Securities Act of 1933, as amended (the “Securities Act”) with respect to the exchange notes offered hereby. As permitted by the rules and regulations of the Commission, this prospectus incorporates important information about us that is not included in or delivered with this prospectus but that is included in the registration statement. For further information with respect to us and the exchange notes offered hereby, we refer you to the registration statement, including the exhibits and schedules filed therewith.

We and our parent, Lamar Advertising, file annual, quarterly, and current reports and other information with the Commission. The Commission maintains a website on the Internet that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission, and such website is located at http://www.sec.gov.

 

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You may request a copy of these filings at no cost, by writing or calling us at the following address: 5321 Corporate Boulevard, Baton Rouge, LA 70808, Tel: (225) 926-1000, Attention: Chief Financial Officer.

To obtain timely delivery of any of these documents, you must request them no later than five business days before the date you must make your investment decision. Accordingly, if you would like to request any documents, you should do so no later than April 24, 2019 in order to receive them before the expiration of the exchange offer.

Pursuant to the indenture under which the exchange notes will be issued (and the outstanding notes and original notes were issued), we have agreed that, whether or not we are required to do so by the rules and regulations of the Commission, for so long as any of the notes remain outstanding, we (not including our subsidiaries) will furnish to the holders of the notes copies of all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if we were required to file such forms and all current reports that would be required to be filed with the Commission on Form 8-K if we were required to file such reports, in each case within the time periods specified in the Commission’s rules and regulations. In addition, following the consummation of this exchange offer, whether or not required by the rules and regulations of the Commission, we will file a copy of all such information and reports with the Commission for public availability within the time periods specified in the Commission’s rules and regulations (unless the Commission will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. See “Description of Exchange Notes—Material Covenants—Reports to Holders.”

INDUSTRY AND MARKET DATA

The market data and other statistical information used throughout this prospectus are based on independent industry publications, government publications, reports by market research firms or other published independent sources. Some data are also based on our good faith estimates, which are derived from our review of internal surveys, as well as the independent sources listed above. Although we believe these sources are reliable, we have not independently verified the information and cannot guarantee its accuracy and completeness.

 

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STATEMENTS REGARDING FORWARD-LOOKING INFORMATION

This prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These are statements that relate to future periods and include statements about:

our future financial performance and condition;

 

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

 

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our anticipated capital expenditures and level of acquisition activity;

 

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our ability to integrate acquired assets and realize operating efficiency from acquisitions;

 

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market opportunities and our competitive positions;

 

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our future cash flows and expected cash requirements;

 

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estimated risks;

 

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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; and

 

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Lamar Advertising’s ability to remain qualified as a real estate investment trust (“REIT”).

Generally, the words “may,” “will,” “should,” “anticipates,” “believes,” “expects,” “intends,” “estimates,” “projects,” “plans” and similar expressions identify forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance or achievements or industry results, to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. These risks, uncertainties and other important factors include, among others:

 

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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;

 

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

 

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risks and uncertainties relating to our significant indebtedness;

 

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

 

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

 

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increased competition within the outdoor advertising industry;

 

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

 

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our ability to renew expiring contracts at favorable rates;

 

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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;

 

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our ability to successfully implement our digital deployment strategy;

 

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changes in accounting principles, policies or guidelines;

 

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

 

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Lamar Advertising’s ability to qualify as a REIT and maintain its status as a REIT;

 

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changes in tax laws applicable to REITs or in the interpretation of those laws; and

 

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the other factors under “Risk factors”.

 

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Although we believe that the statements contained in this prospectus are based upon reasonable assumptions, we can give no assurance that our goals will be achieved. Given these uncertainties, prospective investors are cautioned not to place undue reliance on these forward-looking statements. These forward-looking statements are made as of the date of this prospectus. We assume no obligation to update or revise them or provide reasons why actual results may differ.

 

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RISK FACTORS

In deciding whether to participate in the exchange offer, you should carefully consider the risks described below, which could cause our operating results and financial condition to be materially adversely affected, as well as other information and data included in this prospectus.

Risks Related to the Exchange Offer

Holders who fail to exchange their outstanding notes will continue to be subject to restrictions on transfer and may have reduced liquidity after the exchange offer.

If you do not exchange your outstanding notes in the exchange offer, you will continue to be subject to the restrictions on transfer applicable to the outstanding notes. The restrictions on transfer of your outstanding notes arise because we issued the outstanding notes under exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws. In general, you may only offer or sell the outstanding notes if they are registered under the Securities Act and applicable state securities laws, or are offered and sold under an exemption from these requirements. We do not plan to register the outstanding notes under the Securities Act.

Furthermore, we have not conditioned the exchange offer on receipt of any minimum or maximum principal amount of outstanding notes. As outstanding notes are tendered and accepted in the exchange offer, the principal amount of remaining outstanding notes will decrease. This decrease could reduce the liquidity of the trading market for the outstanding notes. We cannot assure you of the liquidity, or even the continuation, of the trading market for the outstanding notes following the exchange offer.

For further information regarding the consequences of not tendering your outstanding notes in the exchange offer, see the discussions below under the captions “The Exchange Offer—Consequences of Failure to Properly Tender Outstanding Notes in the Exchange” and “Material United States Federal Income Tax Considerations.”

You must comply with the exchange offer procedures to receive exchange notes.

Delivery of exchange notes in exchange for outstanding notes tendered and accepted for exchange pursuant to the exchange offer will be made only after timely receipt by the exchange agent of the following:

 

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certificates for outstanding notes or a book-entry confirmation of a book-entry transfer of outstanding notes into the exchange agent’s account at DTC, New York, New York as a depository, including an agent’s message, as defined in this prospectus, if the tendering holder does not deliver a letter of transmittal;

 

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a complete and signed letter of transmittal, or facsimile copy, with any required signature guarantees, or, in the case of a book-entry transfer, an agent’s message in place of the letter of transmittal; and

 

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any other documents required by the letter of transmittal.

Therefore, holders of outstanding notes who would like to tender outstanding notes in exchange for exchange notes should be sure to allow enough time for the necessary documents to be timely received by the exchange agent. We are not required to notify you of defects or irregularities in tenders of outstanding notes for exchange. Outstanding notes that are not tendered or that are tendered but we do not accept for exchange will, following consummation of the exchange offer, continue to be subject to the existing transfer restrictions under the Securities Act and will no longer have the registration and other rights under the registration rights agreement. See “The Exchange Offer—Procedures for Tendering” and “The Exchange Offer—Consequences of Failures to Properly Tender Outstanding Notes in the Exchange.”

Some holders who exchange their outstanding notes may be deemed to be underwriters, and these holders will be required to comply with the registration and prospectus delivery requirements in connection with any resale transaction.

 

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If you exchange your outstanding notes in the exchange offer for the purpose of participating in a distribution of the exchange notes, you may be deemed to have received restricted securities. If you are deemed to have received restricted securities, you will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction.

Risks Related to the Exchange Notes

Our substantial debt may adversely affect our business, financial condition and financial results and prevent us from fulfilling our obligations under the exchange notes.

We have borrowed substantially in the past and will continue to borrow in the future. At December 31, 2018, we had approximately $2.889 billion of total debt outstanding, net of deferred financing costs, consisting of $1.280 billion in bank debt outstanding under our senior credit facility, $901.0 million in various series of senior notes, including the outstanding notes, $531.0 million of senior subordinated notes, $173.8 million under the Accounts Receivable Securitization Program and $3.5 million in other seller notes. Despite the level of debt presently outstanding, the terms of the indentures governing our senior and senior subordinated notes and the terms of our senior credit facility allow us to incur substantially more debt, including approximately $156.8 million available for borrowing as of December 31, 2018 under our revolving senior credit facility.

Our substantial debt and our use of cash flow from operations to make principal and interest payments on our debt may, among other things:

 

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make it more difficult for us to comply with the financial covenants in our senior credit facility and in its Accounts Receivable Securitization Program, which could result in a default and an acceleration of all amounts outstanding under the facility or under the Accounts Receivable Securitization Program;

 

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limit the cash flow available to fund our working capital, capital expenditures, acquisitions or other general corporate requirements;

 

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limit our ability to obtain additional financing to fund future working capital, capital expenditures or other general corporate requirements;

 

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place us at a competitive disadvantage relative to those of our competitors that have less debt;

 

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force us to seek and obtain alternate or additional sources of funding, which may be unavailable, or may be on less favorable terms, or may require us to obtain the consent of lenders under our senior credit facility or the holders of our other debt;

 

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limit our flexibility in planning for, or reacting to, changes in our business and industry; and

 

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increase our vulnerability to general adverse economic and industry conditions.

Any of these problems could adversely affect our business, financial condition and financial results.

We may be unable to generate sufficient cash flow to satisfy our significant debt service obligations, including our obligations under the exchange notes.

Our ability to generate cash flow from operations to make principal and interest payments on our debt, including the exchange notes, will depend on our future performance, which will be affected by a range of economic, competitive and business factors. We cannot control many of these factors, including general economic conditions, our tenants’ allocation of advertising expenditures among available media and the amount spent on advertising in general, and our business would be negatively impacted if the general economy were to deteriorate in the future. If our operations do not generate sufficient cash flow to satisfy our debt service obligations, we may need to borrow additional funds to make these payments or undertake alternative financing plans, such as refinancing or restructuring our debt, or reducing or delaying capital investments and acquisitions. We cannot guarantee that such additional funds or alternative financing will be available on favorable terms, if at all. Our

 

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inability to generate sufficient cash flow from operations or obtain additional funds or alternative financing on acceptable terms could have a material adverse effect on our business, financial condition and results of operations.

Restrictions in our debt agreements reduce operating flexibility and contain covenants and restrictions that create the potential for defaults, which could adversely affect our business, financial condition and financial results.

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

 

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incur or repay debt;

 

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dispose of assets;

 

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create liens;

 

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make investments;

 

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enter into affiliate transactions; and

 

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pay dividends and make inter-company distributions.

The terms of our senior credit facility and of our Accounts Receivable Securitization Program also restrict us from exceeding a secured debt ratio of 3.50 to 1.00.

Our ability to comply with the financial covenants in the senior credit facility and in the Accounts Receivable Securitization Program and the indentures governing our existing notes (and to comply with similar covenants in future agreements) and the exchange notes offered hereby depends on our operating performance, which in turn depends significantly on prevailing economic, financial and business conditions and other factors that are beyond our control. Therefore, despite our best efforts and execution of our strategic plan, we may be unable to comply with these financial covenants in the future.

We and Lamar Advertising are currently in compliance with the financial covenants in our senior credit facility and in the Accounts Receivable Securitization Program. However, if there are adverse changes in the economic environment in the future, these changes may negatively affect our financial results and, in turn, our ability to meet these financial covenant requirements. If we fail to comply with our financial covenants, we could be in default under our senior credit facility and under the Accounts Receivable Securitization Program (which could result in an event of default under the indenture governing the notes, including the exchange notes offered hereby). In the event of such a default under the senior credit facility, the lenders under the senior credit facility could accelerate all of the debt outstanding, could elect to institute foreclosure proceedings against our assets, and we could be forced into bankruptcy or liquidation. Any of these events could adversely affect our business, financial condition and financial results. In the event of such a default under the Accounts Receivable Securitization Program, the lenders under the Accounts Receivable Securitization Program could accelerate all of the debt outstanding, could elect to institute foreclosure proceedings against the assets of the Special Purpose Subsidiaries, and the Special Purpose Subsidiaries could be forced into bankruptcy or liquidation. Any of these events could adversely affect our business, financial condition and financial results.

In addition, these restrictions reduce our operating flexibility and could prevent us from exploiting investment, acquisition, marketing, or other time-sensitive business opportunities.

The exchange notes and the subsidiary guarantees will be unsecured and are effectively subordinated to all of our and our subsidiary guarantors’ secured indebtedness.

The exchange notes will not be secured. The lenders under our senior credit facility are currently secured by a pledge of the stock of all of the subsidiary guarantors, a pledge of our stock, and a substantial portion of our and

 

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the subsidiary guarantors’ other property (excluding accounts receivable balances and related assets that secure the Accounts Receivable Securitization Program).

If we or any of the subsidiary guarantors declare bankruptcy, liquidate or dissolve, or if payment under our senior credit facility or any of our other secured indebtedness is accelerated, our secured lenders would be entitled to exercise the remedies available to a secured lender under applicable law and will have a claim on those assets before the holders of the exchange notes. As a result, the exchange notes are effectively subordinated to our and our subsidiaries’ secured indebtedness to the extent of the value of the assets securing that indebtedness and the holders of the exchange notes would in all likelihood recover ratably less than the lenders of our and our subsidiaries’ secured indebtedness in the event of our bankruptcy, liquidation or dissolution. As of December 31, 2018, we had approximately $1.280 billion of secured indebtedness outstanding and $156.8 million of additional secured indebtedness was available for borrowing under our revolving senior credit facility.

Claims of noteholders will be structurally subordinate to claims of creditors of our non-guarantor subsidiaries

As of the date of this prospectus, the exchange notes will not be guaranteed by any of our foreign or less than wholly owned subsidiaries who do not guarantee our senior credit facility or by the Special Purpose Subsidiaries. Claims of holders of the exchange notes will be structurally subordinated to all of the liabilities of our subsidiaries that do not guarantee the exchange notes. In the event of a bankruptcy, liquidation or dissolution of any of the non-guarantor subsidiaries, holders of their indebtedness, their trade creditors and holders of their preferred equity will generally be entitled to payment on their claims from assets of those subsidiaries before any assets are made available for distribution to us. However, under some circumstances, the terms of the exchange notes will permit our non-guarantor subsidiaries to incur additional specified indebtedness. As of December 31, 2018, our non-guarantor subsidiaries had approximately $0.4 million in trade payables. The lenders under our Accounts Receivable Securitization Program are currently secured by the accounts receivable balances and certain related assets transferred by certain of our subsidiaries to the Special Purpose Subsidiaries pursuant to the Accounts Receivable Securitization Program. As of December 31, 2018, we had approximately $173.8 million of indebtedness outstanding under the Accounts Receivable Securitization Program.

Upon a change of control, we may not have the funds necessary to finance the change of control offer required by the indenture governing the exchange notes, which would violate the terms of the exchange notes.

Upon the occurrence of a change of control, holders of the exchange notes will have the right to require us to purchase all or any part of the exchange notes at a price equal to 101% of the principal amount, plus accrued and unpaid interest, if any, to the date of purchase. The indentures governing our other existing notes contain similar requirements. We may not have sufficient financial resources available to satisfy all of the obligations under the exchange notes in the event of a change of control. Further, we will be contractually restricted under the terms of our senior credit facility from repurchasing all of the exchange notes tendered upon a change of control. Accordingly, we may be unable to satisfy our obligations to purchase the exchange notes unless we are able to refinance or obtain waivers under our senior credit facility. Our failure to purchase the exchange notes as required under the indenture would result in a default under the indenture and a cross-default under our senior credit facility, each of which could have material adverse consequences for us and the holders of the exchange notes. In addition, each of the senior credit facility and our Accounts Receivable Securitization Program provides that a change of control is a default that permits lenders to accelerate the maturity of borrowings under it. In addition, the senior credit facility provides that a change of control is a default that permits lenders to accelerate the maturity of borrowings under it. See “Description of Exchange Notes—Material Covenants —Change of Control.”

Certain covenants contained in the indenture governing the exchange notes will not be applicable during any period in which the exchange notes are rated investment grade.

The indenture governing the exchange notes provides that certain covenants will not apply to us if the exchange notes are rated investment grade by Standard & Poor’s and Moody’s and no default has otherwise occurred and is

 

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continuing under the indenture and so long as such exchange notes retain an investment grade rating by both of these rating agencies. The covenants that would be suspended include, among others, limitations on our and our restricted subsidiaries’ ability to pay dividends, incur indebtedness, sell assets, make restricted payments and enter into certain other transactions. Any actions that we take while these covenants are not in force will not result in an event of default with respect to the exchange notes even if the exchange notes are subsequently downgraded below investment grade and such covenants are subsequently reinstated. There can be no assurance that the exchange notes will ever be rated investment grade, or that if they are rated investment grade, the exchange notes will maintain such ratings. See “Description of Exchange Notes—Material Covenants—Effectiveness of Covenants.”

Certain exceptions contained in the indenture governing the exchange notes permit Lamar Advertising to make distributions to maintain its REIT status even when Lamar Advertising could not otherwise make restricted payments under the indenture.

Under the indenture governing the exchange notes, subject to certain exceptions, we are allowed to make restricted payments only if, among other things, we have a ratio of consolidated indebtedness to EBITDA of less than 7.00 to 1.00. However, even when we do not meet such leverage ratio, subject to certain conditions, the indenture permits Lamar Advertising to declare or pay any dividend or make any distribution to its equity holders to fund a dividend or distribution so long as Lamar Advertising believes in good faith that Lamar Advertising qualifies as a REIT and the declaration or payment of any such dividend or the making of any such distribution is necessary to maintain its status as a REIT for any calendar year. For a more complete discussion of the restricted payment and debt incurrence covenants of the indenture applicable to the exchange notes, see “Description of Exchange Notes—Material Covenants—Limitation on Restricted Payments” and “—Limitation on Additional Indebtedness and Preferred Stock of Restricted Securities.”

Federal and state statutes allow courts, under specific circumstances, to void the guarantees of the exchange notes by our subsidiaries and require the holders of the exchange notes to return payments received from the subsidiary guarantors.

Under the federal bankruptcy law and comparable provisions of state fraudulent transfer laws, the subsidiary guarantees could be voided, or claims in respect of the subsidiary guarantees could be subordinated to all other debts of a subsidiary guarantor if, either, the subsidiary guarantee was incurred with the intent to hinder, delay or defraud any present or future creditors of the subsidiary guarantor or the subsidiary guarantors, at the time it incurred the indebtedness evidenced by its subsidiary guarantee, received less than reasonably equivalent value or fair consideration for the incurrence of such indebtedness and the subsidiary guarantor either:

 

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was insolvent or rendered insolvent by reason of such incurrence;

 

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was engaged in a business or transaction for which such subsidiary guarantor’s remaining assets constituted unreasonably small capital; or

 

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intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they mature.

If a subsidiary guarantee is voided, you will be unable to rely on the applicable subsidiary guarantor to satisfy your claim in the event that we fail to make one or more required payments due on the exchange notes. In addition, any payment by such subsidiary guarantor pursuant to its subsidiary guarantee could be voided and required to be returned to such subsidiary guarantor, or to a fund for the benefit of creditors of such subsidiary guarantor.

The measures of insolvency for purposes of these fraudulent transfer laws will vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred. Generally, however, a subsidiary guarantor would be considered insolvent if:

 

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the sum of its debts, including contingent liabilities, were greater than the fair saleable value of all of its assets;

 

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the present fair saleable value of its assets were less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or

 

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it could not pay its debts as they become due.

On the basis of historical financial information, recent operating history and other factors, we and each subsidiary guarantor believe that, after giving effect to the indebtedness incurred in connection with this offering, no subsidiary guarantor will be insolvent, will have unreasonably small capital for the business in which it is engaged or will have incurred debts beyond its ability to pay such debts as they mature. There can be no assurance, however, as to what standard a court would apply in making such determinations or that a court would agree with our or the subsidiary guarantors’ conclusions in this regard.

Risks Related to Our Business and Operations

Our revenues are sensitive to the state of the economy and the financial markets generally and other external events beyond our control.

We rent advertising space on outdoor structures to generate revenues. Advertising spending is particularly sensitive to changes in economic conditions.

Additionally, the occurrence of any of the following external events could further depress our revenues:

 

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a widespread reallocation of advertising expenditures to other available media by significant renters of our displays; and

 

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a decline in the amount spent on advertising in general or outdoor advertising in particular.

Our growth through acquisitions may be difficult, which could adversely affect our future financial performance. In addition, if we are unable to successfully integrate any completed acquisitions, our financial performance would also be adversely affected.

We have historically grown through acquisitions. During the year ended December 31, 2018, we completed acquisitions for a total cash purchase price of approximately $477.4 million. We intend to continue to evaluate strategic acquisition opportunities as they arise.

The future success of our acquisition strategy could be adversely affected by many factors, including the following:

 

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the pool of suitable acquisition candidates is dwindling, and we may have a more difficult time negotiating acquisitions on favorable terms;

 

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we may face increased competition for acquisition candidates from other outdoor advertising companies, some of which have greater financial resources than we do, which may result in higher prices for those businesses and assets;

 

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we may not have access to the capital needed to finance potential acquisitions and may be unable to obtain any required consents from our current lenders to obtain alternate financing;

 

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Lamar Advertising’s compliance with REIT requirements may hinder our ability to make certain investments and may limit our acquisition opportunities;

 

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we may be unable to integrate acquired businesses and assets effectively with our existing operations and systems as a result of unforeseen difficulties that could divert significant time, attention and effort from management that could otherwise be directed at developing existing business;

 

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we may be unable to retain key personnel of acquired businesses;

 

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we may not realize the benefits and cost savings anticipated in our acquisitions; and

 

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as the industry consolidates further, larger mergers and acquisitions may face substantial scrutiny under antitrust laws.

These obstacles to our opportunistic acquisition strategy may have an adverse effect on our future financial results

We could suffer losses due to asset impairment charges for goodwill and other intangible assets.

We tested goodwill for impairment on December 31, 2018. Based on our review at December 31, 2018, no impairment charge was required. We continue to assess whether factors or indicators become apparent that would require an interim impairment test between our annual impairment test dates. For instance, if our market capitalization is below our equity book value for a period of time without recovery, we believe there is a strong presumption that would indicate a triggering event has occurred and it is more likely than not that the fair value of one or both of our reporting units are below their carrying amount. This would require us to test the reporting units for impairment of goodwill. If this presumption cannot be overcome, a reporting unit could be impaired under ASC 350 “Goodwill and Other Intangible Assets” and a non-cash charge would be required. Any such charge could have a material adverse effect on our net earnings.

We face competition from larger and more diversified outdoor advertisers and other forms of advertising that could hurt our performance.

While we enjoy a significant market share in many of our small and medium-sized markets, we face competition from other outdoor advertisers and other media in all of our markets. Although we are one of the largest companies focusing exclusively on outdoor advertising in a relatively fragmented industry, we compete against larger companies with diversified operations, such as television, radio and other broadcast media. These diversified competitors have the advantage of cross-selling complementary advertising products to advertisers.

We also compete against an increasing variety of out-of-home advertising media, such as advertising displays in shopping centers, malls, airports, stadiums, movie theaters and supermarkets, and on taxis, trains and buses. To a lesser extent, we also face competition from other forms of media, including radio, newspapers, direct mail advertising, telephone directories and the Internet. The industry competes for advertising revenue along the following dimensions: exposure (the number of “impressions” an advertisement makes), advertising rates (generally measured in cost-per-thousand impressions), ability to target specific demographic groups or geographies, effectiveness, quality of related services (such as advertising copy design and layout) and customer service. We may be unable to compete successfully along these dimensions in the future, and the competitive pressures that we face could adversely affect our profitability or financial performance.

Federal, state and local regulation impact our operations, financial condition and financial results.

Outdoor advertising is subject to governmental regulation at the federal, state and local levels. Regulations generally restrict the size, spacing, lighting and other aspects of advertising structures and pose a significant barrier to entry and expansion in many markets.

Federal law, principally the Highway Beautification Act of 1965, or the HBA, regulates outdoor advertising on Federal—Aid Primary, Interstate and National Highway Systems roads. The HBA requires states, through the adoption of individual Federal/State Agreements, to “effectively control” outdoor advertising along these roads, and mandates a state compliance program and state standards regarding size, spacing and lighting. These state standards, or their local and municipal equivalents, may be modified over time in response to legal challenges or otherwise, which may have an adverse effect on our business. The HBA requires any state or political subdivision that compels the removal of a lawful billboard along a Federal—Aid Primary or Interstate highway to pay just compensation to the billboard owner.

 

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All states have passed billboard control statutes and regulations at least as restrictive as the federal requirements, including laws requiring the removal of illegal signs at the owner’s expense (and without compensation from the state). Although we believe that the number of our billboards that may be subject to removal as illegal is immaterial, and no state in which we operate has banned billboards entirely, from time to time governments have required us to remove signs and billboards legally erected in accordance with federal, state and local permit requirements and laws. Municipal and county governments generally also have sign controls as part of their zoning laws and building codes. We contest laws and regulations that we believe unlawfully restrict our constitutional or other legal rights and may adversely impact the growth of our outdoor advertising business.

Using federal funding for transportation enhancement programs, state governments have purchased and removed billboards for beautification, and may do so again in the future. Under the power of eminent domain, state or municipal governments have laid claim to property and forced the removal of billboards. Under a concept called amortization by which a governmental body asserts that a billboard operator has earned compensation by continued operation over time, local governments have attempted to force removal of legal but nonconforming billboards (i.e., billboards that conformed to applicable zoning regulations when built but which do not conform to current zoning regulations). Although the legality of amortization is questionable, it has been upheld in some instances. Often, municipal and county governments also have sign controls as part of their zoning laws, with some local governments prohibiting construction of new billboards or allowing new construction only to replace existing structures. Although we have generally been able to obtain satisfactory compensation for those of our billboards purchased or removed as a result of governmental action, there is no assurance that this will continue to be the case in the future.

We have also introduced and intend to expand the deployment of digital billboards that display static digital advertising copy from various advertisers that change every 6 to 8 seconds. We have encountered some existing regulations that restrict or prohibit these types of digital displays but it has not yet materially impacted our digital deployment. Since digital billboards have been developed and introduced relatively recently into the market on a large scale, however, existing regulations that currently do not apply to them by their terms could be revised or new regulations could be enacted to impose greater restrictions. These regulations may impose greater restrictions on digital billboards due to alleged concerns over aesthetics or driver safety.

Relatively few large scale studies have been conducted to date regarding driver safety issues, if any, related to digital billboards. On December 30, 2013, the results of a study conducted by the U.S. Department of Transportation and the Federal Highway Administration that looked at the effect of digital billboards and conventional billboards on driver visual behavior were issued. The conclusions of the report indicated that the presence of digital billboards did not appear to be related to a decrease in looking toward the road ahead and were generally within acceptable thresholds. The report cautioned, however, that it adds to the knowledge base but does not present definitive answers to the research questions investigated. Accordingly, the results of this or other studies may result in regulations at the federal or state level that impose greater restrictions on digital billboards. Any new restrictions on digital billboards could have a material adverse effect on both our existing inventory of digital billboards and our plans to expand our digital deployment, which could have a material adverse effect on our business, results of operations and financial condition.

Our logo sign contracts are subject to state award and renewal.

In 2018, we generated approximately 5% of our revenues from state-awarded logo sign contracts. In bidding for these contracts, we compete against other national logo sign providers, as well as numerous smaller, local logo sign providers. A logo sign provider incurs significant start-up costs upon being awarded a new contract. These contracts generally have a term of five to ten years, with additional renewal periods. Some states reserve the right to terminate a contract early, and most contracts require the state to pay compensation to the logo sign provider for early termination. At the end of the contract term, the logo sign provider transfers ownership of the logo sign structures to the state. Depending on the contract, the logo provider may or may not be entitled to compensation for the structures at the end of the contract term.

 

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Of our 24 logo sign contracts in place at December 31, 2018, six are subject to renewal or expiration in 2019. We may be unable to renew these expiring contracts. We may also lose the bidding on new contracts.

We are a wholly owned subsidiary of Lamar Advertising, which is controlled by significant stockholders who have the power to determine the outcome of all matters submitted to Lamar Advertising’s stockholders for approval and whose interests may be different than yours.

As of December 31, 2018, members of the Reilly family, including Kevin P. Reilly, Jr., Lamar Advertising’s Chairman and President, and Sean E. Reilly, Lamar Advertising’s and our Chief Executive Officer, and their affiliates, owned in the aggregate approximately 15% of Lamar Advertising’s common stock, assuming the conversion of all Class B common stock to Class A common stock. As of that date, their combined holdings represented approximately 63% of the voting power of Lamar Advertising’s outstanding capital stock, which would give the Reilly family and their affiliates the power to:

 

•

elect Lamar Advertising’s entire board of directors;

 

•

control Lamar Advertising’s management and policies; and

 

•

determine the outcome of any corporate transaction or other matter requiring the approval of Lamar Advertising’s stockholders, including charter amendments, mergers, consolidations, financings and asset sales.

The Reilly family may have interests that are different than yours in making these decisions.

If our contingency plans relating to hurricanes and other natural disasters fail, the resulting losses could hurt our business.

We have determined that it is uneconomical to insure against losses resulting from hurricanes and other natural disasters. Although we have developed contingency plans designed to mitigate the threat posed by hurricanes and other forms of inclement weather to our real estate portfolio (e.g., removing advertising faces at the onset of a storm, when possible, which better permits the structures to withstand high winds during the storm), these plans could fail and significant losses could result.

If our parent, Lamar Advertising, fails to remain qualified as a REIT, both Lamar Advertising and Lamar Media would be taxed as regular C corporations and would not be able to deduct distributions to the stockholders of Lamar Advertising when computing their taxable income.

Our parent, Lamar Advertising, elected to qualify as a REIT for U.S. federal income tax purposes starting with its taxable year ended December 31, 2014 and for each subsequent taxable year thereafter. REIT qualification involves the application of highly technical and complex provisions of the U.S. Internal Revenue Code of 1986, as amended (the “Code”) to Lamar Advertising’s assets and operations as well as various factual determinations concerning matters and circumstances not entirely within its control. There are limited judicial or administrative interpretations of these provisions. Although Lamar Advertising plans to operate in a manner consistent with the REIT qualification rules, we cannot assure you that it will so qualify or remain so qualified.    Lamar Media is treated as a qualified REIT subsidiary of Lamar Advertising that is disregarded as separate from its parent REIT for U.S. federal income tax purposes.

If, in any taxable year, Lamar Advertising fails to qualify for taxation as a REIT, and is not entitled to relief under the Code:

 

•

it will not be allowed a deduction for distributions to its stockholders in computing its taxable income;

 

•

it and its subsidiaries, including Lamar Media, will be subject to applicable federal and state income tax, including any applicable state-level alternative minimum tax, on its taxable income at regular corporate rates; and

 

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•

it would be disqualified from REIT tax treatment for the four taxable years following the year during which it was so disqualified.

Any such corporate tax liability could be substantial and would reduce the amount of cash available for required distributions to Lamar Advertising’s stockholders, may require Lamar Advertising to borrow funds (under Lamar Media’s senior credit facility or otherwise) or liquidate some investments to pay any such additional tax liability which may impact Lamar Media’s ability to service debt, including the exchange notes offered hereby. This adverse impact could last for five or more years because, unless it is entitled to relief under certain statutory provisions, it will be taxable as a corporation, beginning in the year in which the failure occurs, and it will not be allowed to re-elect to be taxed as a REIT for the following four years.

Even if it qualifies as a REIT, certain of Lamar Advertising’s and its subsidiaries’ business activities, including those of Lamar Media, will be subject to U.S. and foreign taxes, which will continue to reduce its cash flows, and it will have potential deferred and contingent tax liabilities.

Even if it qualifies as a REIT, Lamar Advertising may be subject to certain U.S. federal, state and local taxes and foreign taxes on its income and assets, including any applicable state-level alternative minimum taxes, taxes on any undistributed income, and state, local or foreign income, franchise, property and transfer taxes. In addition, Lamar Advertising could in certain circumstances be required to pay an excise or penalty tax, which could be significant in amount, in order to utilize one or more relief provisions under the Code to maintain qualification for taxation as a REIT which may impact Lamar Media’s ability to service debt, including the exchange notes offered hereby.

In order to maintain its qualification as a REIT, Lamar Advertising holds certain of its non-qualifying REIT assets and receives certain non-qualifying items of income through one or more TRSs. These non-qualifying REIT assets consist principally of our advertising services business and transit advertising business. Those TRS assets and operations will continue to be subject, as applicable, to U.S. federal and state corporate income taxes. Furthermore, our assets and operations outside the United States are subject to foreign taxes in the jurisdictions in which those assets and operations are located. In addition, we may incur a 100% excise tax on transactions with a TRS if they are not conducted on an arm’s-length basis. Any of these taxes would decrease Lamar Media’s and Lamar Advertising’s earnings and the cash available for payments on the notes.

Lamar Advertising was subject to a U.S. federal income tax at the highest regular corporate rate (currently 21%) on all or a portion of the gain recognized from a sale of assets occurring within five years after the effective date of its REIT conversion, to the extent of the built-in gain based on the fair market value of those assets held by Lamar Advertising on the effective date of REIT conversion in excess of its then tax basis in those assets. Such five-year period has expired with respect to the Company but certain tax years for which this rule applied remain open such that additional taxes could be assessed with respect to sales in those tax years. The same rules apply to any assets it acquires from a “C” corporation in a carry-over basis transaction with built-in gain at the time of the acquisition by it. Gain from a sale of an asset occurring after the specified period ends will not be subject to this corporate level tax.

In addition, the Internal Revenue Service (“IRS”) and any state or local tax authority may successfully assert liabilities against Lamar Advertising for corporate income taxes for taxable years of Lamar Advertising prior to the effective time of the REIT election, in which case it will owe these taxes (the maximum federal corporate tax rate for tax years beginning prior to January 1, 2018 was 35%) plus applicable interest and penalties, if any. Moreover, any increase in taxable income for these pre-REIT periods will likely result in an increase in any non-REIT accumulated earnings and profits which could cause Lamar Advertising to pay taxable distributions to its stockholders after the relevant determination.

 

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Failure to make sufficient distributions would jeopardize Lamar Advertising’s qualification as a REIT and/or would subject it to U.S. federal income and excise taxes.

As a REIT, Lamar Advertising is required to distribute to its stockholders with respect to each taxable year at least 90% of its REIT taxable income (excluding net capital gains and net of any available net operating loss carry forwards) in order to qualify as a REIT, and 100% of its REIT taxable income (excluding capital gains and net of any available net operating loss carry forwards) in order to avoid U.S. federal income and excise taxes. For these purposes, Lamar Advertising’s subsidiaries that are not TRSs, including Lamar Media, will be treated as part of the REIT and therefore Lamar Advertising also will be required to distribute out their taxable income.

Because the REIT distribution requirements will prevent us from retaining earnings, we may be required to refinance debt, including the exchange notes offered hereby, at maturity with additional debt or equity, which may not be available on acceptable terms, or at all.

Covenants specified in our existing and future debt instruments may limit Lamar Advertising’s ability to make required REIT distributions.

Our senior credit facility and the indentures relating to our outstanding notes and the exchange notes being offered hereby contain certain covenants that could limit Lamar Advertising’s distributions to its stockholders. If these limits prevent Lamar Advertising from satisfying its REIT distribution requirements, it could fail to qualify for taxation as a REIT. If these limits do not jeopardize Lamar Advertising’s qualification for taxation as a REIT but do nevertheless prevent it from distributing 100% of its REIT taxable income, it will be subject to U.S. federal corporate income tax, and potentially a nondeductible excise tax, on the retained amounts.

Lamar Advertising and its subsidiaries may be required to borrow funds, sell assets, or raise equity to satisfy its REIT distribution requirements or maintain the asset tests.

In order to meet the REIT distribution requirements and maintain its qualification and taxation as a REIT and avoid corporate income taxes, Lamar Advertising and/or its subsidiaries, including Lamar Media, may need to borrow funds, sell assets or raise equity, even if the then prevailing market conditions are not favorable for these borrowings, sales or offerings. Any insufficiency of its cash flows to cover Lamar Advertising’s REIT distribution requirements could adversely impact its ability to raise short- and long-term debt, to sell assets, or to offer equity securities in order to fund distributions required to maintain its qualification and taxation as a REIT and avoid corporate income taxes. Furthermore, the REIT distribution requirements may increase the financing Lamar Advertising needs to fund capital expenditures, future growth and expansion initiatives. This would increase its total leverage.

In addition, if Lamar Advertising fails to comply with certain asset tests at the end of any calendar quarter, it must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing its REIT qualification. As a result, it may be required to liquidate otherwise attractive investments. These actions may reduce its income and amounts available for distribution to its stockholders.

Complying with REIT requirements may cause Lamar Advertising and its subsidiaries (other than TRSs) to forego otherwise attractive opportunities.

To qualify as a REIT for U.S. federal income tax purposes, Lamar Advertising must continually satisfy tests concerning, among other things, the sources of its income, the nature and diversification of its assets, the amounts it distributes to its stockholders and the ownership of Lamar Advertising common stock. For these purposes, Lamar Advertising is treated as owning the assets of and receiving or accruing the income of Lamar Media and its subsidiaries (other than TRSs). Thus, compliance with these tests will require Lamar Advertising and its subsidiaries (including Lamar Media) to refrain from certain activities and may hinder their ability to make certain attractive investments, including investments in the businesses to be conducted by TRSs, and to that extent limit their opportunities. Furthermore, acquisition opportunities in domestic and international markets may be adversely affected if Lamar Advertising needs or requires the target company to comply with some REIT requirements prior to closing.

 

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Changes to the Code, such as the Tax Cuts and Jobs Act, could have a negative effect on Lamar Advertising and its subsidiaries including Lamar’s ability to deduct the full amount of its significant interest expense.

On December 22, 2017, President Trump signed into law H.R. 1, informally titled the Tax Cuts and Jobs Act (the “TCJA”). The TCJA makes major changes to the Code, including a number of provisions of the Code that affect the taxation of REITs and their stockholders. Among the changes made by the TCJA are permanently reducing the generally applicable corporate tax rate, generally reducing the tax rate applicable to individuals and other non-corporate taxpayers for tax years beginning after December 31, 2017 and before January 1, 2026, eliminating or modifying certain previously allowed deductions (including substantially limiting interest deductibility and, for individuals, the deduction for non-business state and local taxes). The TCJA also imposes new limitations on the deduction of net operating losses, which may result in Lamar Advertising having to make additional distributions in order to comply with REIT distribution requirements or avoid taxes on retained income and gains. The effect of the significant changes made by the TCJA is highly uncertain, and administrative guidance will be required in order to fully evaluate the effect of many provisions. The effect of any technical corrections with respect to the TCJA could have an adverse effect on us, Lamar Advertising, its subsidiaries and holders of our notes.

Additionally, the TCJA may potentially limit Lamar Advertising’s ability to deduct the full amount of its interest expense. For taxable years beginning after December 31, 2017, interest deductions for businesses with average annual gross receipts of over $25 million are capped at 30% of the business’ “adjusted taxable income” plus business interest income pursuant to the TCJA. In calculating “adjusted taxable income” for these purposes, for taxable years beginning after December 31, 2017 and before January 1, 2022, this is computed without regard to deductions allowable for depreciation, amortization, or depletion (EBITDA). For taxable years beginning after December 31, 2021, “adjusted taxable income” is calculated by taking deductions allowable for depreciation, amortization, or depletion into account (EBIT). This limitation, however, does not apply to an “electing real property trade or business.” As a REIT, Lamar Advertising would generally constitute a real property trade or businesses, and thus would retain the ability to fully deduct interest expenses if it makes such an election. However, an entity making such an election must use a longer depreciation cost recovery period for its property. Lamar Advertising has not made such an election at this time but may do so in the future.

Further legislative changes or other actions affecting REITs could have a negative effect on Lamar Advertising and its subsidiaries, including Lamar Media.

At any time, the U.S. federal income tax laws governing REITs or the administrative and judicial interpretations of those laws may be amended or interpreted in a different manner. Federal and state tax laws are constantly under review by persons involved in the legislative process, the IRS, the U.S. Department of the Treasury, and state taxing authorities. Additional changes to the tax laws, regulations and administrative and judicial interpretations, which may have retroactive application, could adversely affect Lamar Advertising and its subsidiaries. We cannot predict with certainty whether, when, in what forms, or with what effective dates, the tax laws, regulations and administrative and judicial interpretations applicable to Lamar Advertising may be changed. Accordingly, we cannot assure you that any such change will not significantly affect Lamar Advertising’s ability to qualify for taxation as a REIT or the federal income tax consequences to it of such qualification.

The ability of the board of directors of Lamar Advertising to revoke its REIT election, without stockholder approval, may cause adverse consequences to its stockholders.

The Lamar Advertising charter provides that the board of directors may revoke or otherwise terminate the REIT election, without the approval of its stockholders, if the board determines that it is no longer in Lamar Advertising’s best interest to continue to qualify as a REIT. If Lamar Advertising ceases to be a REIT, it and certain of its subsidiaries, including Lamar Media, will be subject to U.S. federal income tax at regular corporate rates and state and local corporate taxes.

 

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USE OF PROCEEDS

The exchange offer is intended to satisfy our obligations under the registration rights agreement. See “Registration Rights Agreement.” We will not receive any cash proceeds from the issuance of the exchange notes pursuant to the exchange offer. In consideration for issuing the exchange notes as contemplated in this prospectus, we will receive in exchange a like principal amount of outstanding notes. The form and terms of the exchange notes are identical in all respects to the form and terms of the outstanding notes, except the offer and exchange of the exchange notes have been registered under the Securities Act and the exchange notes will not have restrictions on transfer, registration rights or provisions for additional cash interest. The outstanding notes surrendered in exchange for the exchange notes will be retired and canceled and cannot be reissued. Accordingly, issuance of the exchange notes will not result in any change in our capitalization.

On February 1, 2019, we received approximately $251.5 million of net proceeds from our sale of the outstanding notes, after deducting the initial purchasers’ discount and other offering expenses. We used the net proceeds of the offering to repay a portion of the borrowings outstanding under our revolving credit facility.

 

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CAPITALIZATION

The following table sets forth our capitalization at December 31, 2018. On February 1, 2019, we received approximately $251.5 million of net proceeds from our sale of the outstanding notes, after deducting the initial purchasers’ discount and other offering expenses. We used the net proceeds of the offering to repay a portion of the borrowings outstanding under our revolving credit facility. You should read this table in conjunction with the information under the headings “Use of Proceeds” and “Summary Historical Consolidated Financial Data,” “Selected Historical Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements, including the notes thereto, which are included in this prospectus.

 

		As of December 31, 2018
(dollars in thousands)
Cash and cash equivalents		$	20,994
Current maturities of long-term debt(1)			204,120
Long-term debt, less current maturities:
Senior credit facility(1)		$	1,248,174
5 3/4% Senior Notes due 2026(2)			395,794
5% Senior Subordinated Notes due 2023			531,763
5 3/8% Senior Notes due 2024			506,498
Other long-term debt			2,339
Total long-term debt, less current maturities		$	2,684,568
Total stockholder’s equity		$	1,120,196
Total capitalization		$	4,008,884

 

(1)	Actual amounts (including deferred financing costs and current maturities) include $1.28 billion outstanding under our senior credit facility. Additional borrowing capacity under our revolving senior credit facility was $156.8 million.

(2)	On February 1, 2019, we issued the outstanding notes in an additional aggregate principal amount of $250.0 million. Any outstanding notes tendered for exchange in this offer will be retired and canceled and will not be reissued.

 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The following table contains our selected historical consolidated information and other operating data for the five years ended December 31, 2014, 2015, 2016, 2017 and 2018. We have prepared this information from audited financial statements for the years ended December 31, 2014 through December 31, 2018. This information is only a summary. You should read it in conjunction with our historical financial statements and related notes included in this prospectus, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

		Year ended December 31,
(dollars in thousands)		2014				2015				2016				2017				2018
Statement of operations data:
Net revenues		$	1,287,060			$	1,353,396			$	1,500,294			$	1,541,260			$	1,627,222
Operating expenses:
Direct advertising expenses			453,269				473,760				525,597				540,880				561,848
General and administrative expenses			299,533				313,608				345,417				338,191				371,925
Depreciation and amortization			258,435				191,433				204,958				211,104				225,261
(Gain) loss on disposition of assets			(3,192	)			(8,765	)			(15,095	)			(4,664	)			7,233
Total operating expenses			1,008,045				970,036				1,060,877				1,085,511				1,166,267
Operating income			279,015				383,360				439,417				455,749				460,955
Other expense (income):
Loss on debt extinguishment			26,023				—				3,198				71				15,429
Other-than-temporary impairment of investment			4,069				—				—				—				—
Interest income			(102	)			(34	)			(6	)			(6	)			(534	)
Interest expense			105,254				98,433				123,688				128,396				129,732
Total other expense			135,244				98,399				126,880				128,461				144,627
Income before income taxes			143,771				284,961				312,537				327,288				316,328
Income tax expense (benefit)			(143,264	)			22,058				13,356				9,230				10,697
Net income		$	287,035			$	262,903			$	299,181			$	318,058			$	305,631
Other data (as of end of period) (Unaudited):
Total billboard displays			144,157				143,732				148,828				149,827				156,899
Total logo displays			131,779				134,172				143,722				145,061				148,909
Total transit displays			41,661				42,073				40,973				53,312				53,330
Balance sheet data(1):
Cash and cash equivalents		$	25,535			$	21,827			$	35,030			$	114,971			$	20,994
Working capital			51,086				48,882				39,691				98,033				(86,699	)
Total assets			3,300,460				3,347,340				3,882,480				4,197,942				4,527,886
Long term debt (including current maturities)			1,899,895				1,893,404				2,349,183				2,556,690				2,888,688
Stockholder’s equity			966,891				1,007,181				1,056,386				1,091,098				1,120,196

 

(1)	Certain balance sheet reclassifications were made in order to be comparable to the current year presentation.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Our net revenues are derived primarily from the rental of advertising space on outdoor advertising displays that we own and operate. Revenue growth is based on many factors that include our ability to increase occupancy of our existing advertising displays; raise advertising rates; and acquire new advertising displays and our 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 we are able to charge for advertising on our displays and our ability to maximize advertising sales or occupancy on our displays.

Historically, we have made strategic acquisitions of outdoor advertising assets to increase the number of outdoor advertising displays that we operate in existing and new markets. We continue to evaluate and pursue strategic acquisition opportunities as they arise. We have financed our historical acquisitions and intend to finance any future acquisition activity from available cash, borrowings under our senior credit facility or the issuance of debt or equity securities. See “Liquidity and Capital Resources-Sources of Cash,” for more information. During the year ended December 31, 2018, Lamar Advertising completed acquisitions for a total cash purchase price of approximately $477.4 million. See “Uses of Cash-Acquisitions,” for more information.

Our 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. The following table presents a breakdown of capitalized expenditures for the past three years:

 

		2018				2017				2016
		(In thousands)
Billboard—Traditional		$	37,905			$	36,015			$	48,009
Billboard—Digital			45,938				40,218				33,181
Logos			11,438				9,614				7,781
Transit			5,364				2,863				700
Land and buildings			8,420				13,690				10,295
PP&E			8,573				6,929				7,646
Total capital expenditures		$	117,638			$	109,329			$	107,612

We expect our 2019 capital expenditures to approximate our 2018 spending.

Non-GAAP Financial Measures

Our management reviews our performance by focusing on several key performance indicators not prepared in conformity with Generally Accepted Accounting Principles in the United States (“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.

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.

 

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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 (ix) an adjustment for non-controlling interest.

Acquisition-adjusted net revenue adjusts our net revenue for the prior period by adding to it the net revenue generated by the acquired assets before our acquisition of these assets for the same time frame that those assets were owned in the current period. In calculating acquisition-adjusted revenue, therefore, we include revenue generated by assets that we did not own in the period but acquired in the current period. We refer to the amount of pre-acquisition revenue generated by the acquired assets during the prior period that corresponds with the current 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 prior period to subtract revenue generated by the assets that have been divested since the prior period and, therefore, no revenue derived from those assets is reflected in the current 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 our core operating results; (2) 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; (3) acquisition-adjusted net revenue is a supplement to net revenue to enable investors to compare period over period results on a more consistent basis without the effects of acquisitions and divestures, which reflects our core performance and organic growth (if any) during the period in which the assets were owned and managed by us; (4) 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 (5) 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.

Results of Operations

The following is a discussion of the consolidated financial condition and results of operations of Lamar Media for the years ended December 31, 2018, 2017 and 2016. This discussion should be read in conjunction with the consolidated financial statements of Lamar Media and the related notes.

 

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The following table presents certain items in the Consolidated Statements of Income as a percentage of net revenues for the years ended December 31, 2018, 2017 and 2016:

 

		Year Ended December 31,
		2018				2017				2016
Net revenues			100.0	%			100.0	%			100.0	%
Operating expenses:
Direct advertising expenses			34.5	%			35.1	%			35.0	%
General and administrative expenses			17.8	%			17.9	%			18.0	%
Corporate expenses			5.1	%			4.0	%			5.1	%
Depreciation and amortization			13.8	%			13.7	%			13.7	%
Operating income			28.3	%			29.6	%			29.3	%
Loss on extinguishment of debt			0.9	%			0.0	%			0.2	%
Interest expense			8.0	%			8.3	%			8.2	%
Income tax expense			0.7	%			0.6	%			0.9	%
Net income			18.8	%			20.6	%			19.9	%

Year ended December 31, 2018 compared to Year ended December 31, 2017

Net revenues increased $86.0 million or 5.6% to $1.627 billion for the year ended December 31, 2018 from $1.541 billion for the same period in 2017. This increase was attributable primarily to an increase in billboard net revenues of $72.6 million or 5.4% over the prior period, which is primarily related to the integration of outdoor assets acquired during 2017 and 2018, and the addition of over 250 digital displays during the year ended December 31, 2018. In addition, logo sign revenue increased $1.5 million, which represents an increase of 1.8% over the prior period. Transit revenue increased $11.9 million, which represents an increase of 10.1% over the prior period, primarily due to several new transit and airport markets acquired in 2017 and 2018.

Net revenues for the year ended December 31, 2018, as compared to acquisition-adjusted net revenues for the comparable period in 2017, increased $53.1 million, or 3.4%. The $53.1 million increase in revenue primarily consisted of a $45.1 million increase in billboard revenue primarily due to increases in digital and political revenue, a $1.1 million increase in logo revenue and a $6.8 million increase in transit revenue over the acquisition-adjusted net revenue for the comparable period in 2017. See “Reconciliations” below.

Total operating expenses, exclusive of depreciation and amortization and loss (gain) on disposition of assets, increased $54.7 million, or 6.2% to $933.8 million for the year ended December 31, 2018 from $879.1 million in the same period in 2017. The $54.7 million increase over the prior year is comprised of a $19.8 million increase in stock-based compensation expense and a $34.9 million increase in total direct, general and administrative and corporate expenses (excluding stock-based compensation) primarily related to the operations of our outdoor advertising assets.

Depreciation and amortization expense increased $14.2 million to $225.3 million for the year ended December 31, 2018 as compared to $211.1 million for the same period in 2017, primarily related to the addition of approximately $774.7 million of assets acquired through acquisitions during fiscal years 2017 and 2018.

For the year ended December 31, 2018, Lamar Media recognized a loss on disposition of assets of $7.2 million primarily related to the $7.8 million loss recognized on the sale of its Puerto Rico assets which closed on April 16, 2018.

Due primarily to the above factors, operating income increased $5.2 million to $461.0 million for the year ended December 31, 2018 compared to $455.7 million for the same period in 2017.

During the year ended December 31, 2018, Lamar Media recorded a $15.4 million loss on debt extinguishment related to the prepayment of its 5 7/8% Senior Subordinated Notes due 2022. The $15.4 million loss is comprised

 

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of a cash redemption premium of $9.8 million and a non-cash write off of unamortized deferred financing costs of approximately $5.6 million. See “Uses of Cash” for more information.

Interest expense increased $1.3 million for the year ended December 31, 2018 to $129.7 million as compared to $128.4 million for the year ended December 31, 2017. The increase in interest expense is primarily related to the increased debt outstanding as compared to the same period in 2017.

The increase in operating income offset by the increases in loss on extinguishment of debt and interest expense over the comparable period in 2017, resulted in a $11.0 million decrease in net income before income taxes. Lamar Media recognized $10.7 million in income tax expense for the year ended December 31, 2018. The effective tax rate for the year ended December 31, 2018 is approximately 3.4%, which differs from the federal statutory rate primarily due to our qualification for taxation as a REIT and adjustments for foreign items.

As a result of the above factors, Lamar Media recognized net income for the year ended December 31, 2018 of $305.6 million, as compared to net income of $318.1 million for the same period in 2017.

Reconciliations:

Because acquisitions occurring after December 31, 2016 have contributed to our net revenue results for the periods presented, we provide 2017 acquisition-adjusted net revenue, which adjusts our 2017 net revenue for the year ended December 31, 2017 by adding to or subtracting from 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 year ended December 31, 2018.

Reconciliations of 2017 reported net revenue to 2017 acquisition-adjusted net revenue for the year ended December 31, 2017 as well as a comparison of 2017 acquisition-adjusted net revenue to 2018 reported net revenue for the year ended December 31, 2018, are provided below:

Reconciliation and Comparison of Reported Net Revenue to Acquisition-Adjusted Net Revenue

 

		Year ended December 31,
		2018				2017
		(in thousands)
Reported net revenue		$	1,627,222			$	1,541,260
Acquisition net revenue			—				32,898
Adjusted totals		$	1,627,222			$	1,574,158

Key Performance Indicators

Net Income/Adjusted EBITDA

(in thousands)

 

		Year Ended December 31,								Amount of Increase (Decrease)				Percent Increase (Decrease)
		2018				2017
Net income		$	305,631			$	318,058			$	(12,427	)			(3.9	)%
Income tax expense			10,697				9,230				1,467
Loss on extinguishment of debt			15,429				71				15,358
Interest expense, net			129,198				128,390				808
Loss (gain) on disposition of assets			7,233				(4,664	)			11,897
Depreciation and amortization			225,261				211,104				14,157
Stock-based compensation expense			29,443				9,599				19,844
Adjusted EBITDA		$	722,892			$	671,788			$	51,104				7.6	%

 

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Adjusted EBITDA for the year ended December 31, 2018 increased 7.6% to $722.9 million. The increase in Adjusted EBITDA was primarily attributable to the increase in our gross margin (net revenue less direct advertising expense, exclusive of depreciation and amortization) of $65.0 million, and was partially offset by an increase in general and administrative and corporate expenses of $13.9 million, excluding the impact of stock-based compensation expense.

Net Income/FFO/AFFO

(in thousands)

 

		Year Ended December 31,								Amount of Increase (Decrease)				Percent Increase (Decrease)
		2018				2017
Net income		$	305,631			$	318,058			$	(12,427	)			(3.9	)%
Depreciation and amortization related to real estate			212,457				198,630				13,827
Loss (gain) from disposition of real estate assets and investments			8,689				(4,185	)			12,874
Adjustments for unconsolidated affiliates and non-controlling interest			648				839				(191	)
FFO		$	527,425			$	513,342			$	14,083				2.7	%
Straight-line income			(2,036	)			(754	)			(1,282	)
Stock-based compensation expense			29,443				9,599				19,844
Non-cash portion of tax provision			660				804				(144	)
Non-real estate related depreciation and amortization			12,804				12,474				330
Amortization of deferred financing costs			4,920				5,120				(200	)
Loss on extinguishment of debt			15,429				71				15,358
Capital expenditures—maintenance			(43,108	)			(43,119	)			11
Adjustments for unconsolidated affiliates and non-controlling interest			(648	)			(839	)			191
AFFO		$	544,889			$	496,698			$	48,191				9.7	%

FFO for the year ended December 31, 2018 was $527.4 million as compared to FFO of $513.3 million for the same period in 2017. AFFO for the year ended December 31, 2018 increased 9.7% to $544.9 million as compared to $496.7 million for the same period in 2017. AFFO growth was primarily attributable to the increase in our gross margin (net revenue less direct advertising expense, exclusive of depreciation and amortization), offset by increases in general and administrative and corporate expenses (excluding the effect of stock based compensation expense).

Year ended December 31, 2017 compared to Year ended December 31, 2016

Net revenues increased $41.0 million or 2.7% to $1.541 billion for the year ended December 31, 2017 from $1.500 billion for the same period in 2016. This increase was attributable primarily to an increase in billboard net revenues of $28.6 million or 2.2% over the prior period, which is primarily related to the integration of outdoor assets acquired during 2016 and 2017, and the addition of approximately 275 digital displays during the year ended December 31, 2017. In addition, logo sign revenue increased $2.4 million, which represents an increase of 3.0% over the prior period. Transit revenue increased $10.0 million, which represents an increase of 9.3% over the prior period, primarily due to several new transit and airport markets acquired in 2017.

Net revenues for the year ended December 31, 2017, as compared to acquisition-adjusted net revenues for the comparable period in 2016, increased $15.5 million, or 1.0%. The $15.5 million increase in revenue primarily

 

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consisted of an $8.3 million increase in billboard revenue, a $3.1 million increase in logo revenue and a $4.1 million increase in transit revenue over the acquisition-adjusted net revenue for the comparable period in 2016. See “Reconciliations” below.

Total operating expenses, exclusive of depreciation and amortization and gain on sale of assets, increased $8.1 million or 0.9% to $879.1 million for the year ended December 31, 2017. The $8.1 million increase over the prior year is comprised of a $22.1 million increase in operating expenses related to the operations of our outdoor advertising assets, partially offset by a decrease in corporate expenses of $14.0 million primarily due to a reduction in stock-based compensation of $15.1 million over the same period in 2016.

Depreciation and amortization expense increased $6.1 million for the year ended December 31, 2017 as compared to the year ended December 31, 2016, primarily due to depreciation and amortization on the assets acquired during 2016 and 2017.

Gain on disposition of assets for the year ended December 31, 2017 decreased $10.4 million over the same period in 2016. The $10.4 million decrease is comprised of a $6.6 million decrease in non-cash gains recognized for acquisition swap transactions in 2017 as compared to the same period in 2016, approximately $1.0 million of losses in Puerto Rico related to hurricane Maria in the fourth quarter of 2017 and a $2.8 million decrease in gains related to various transactions of inventory sold during the year ended December 31, 2017 as compared to the same period in 2016.

Due primarily to the above factors, operating income increased $16.3 million to $455.7 million for the year ended December 31, 2017 compared to $439.4 million for the same period in 2016.

During the year ended December 31, 2017, Lamar Media recognized a $0.1 million loss on extinguishment of debt related to the amendment of its senior credit facility as compared to a $3.2 million loss on debt extinguishment recognized in 2016 related to the prepayment of its Term A-1 loan under the senior credit facility.

Interest expense increased approximately $4.7 million from $123.7 million for the year ended December 31, 2016 to $128.4 million for the year ended December 31, 2017, primarily resulting from an increase in debt outstanding due to the refinancing of Lamar Media’s senior credit facility in 2017. See —“Uses of Cash” for more information.

The increase in operating income and decrease in loss on extinguishment of debt, offset by the increase in interest expense over the comparable period in 2016, resulted in a $14.8 million increase in net income before income taxes. Lamar Media recognized $9.2 million in income tax expense for the year ended December 31, 2017. The effective tax rate for the year ended December 31, 2017 is approximately 2.8%, which differs from the federal statutory rate primarily due to our qualification for taxation as a REIT and adjustments for foreign items.

As a result of the above factors, Lamar Media recognized net income for the year ended December 31, 2017 of $318.1 million, as compared to net income of $299.2 million for the same period in 2016.

Reconciliations:

Because acquisitions occurring after December 31, 2015 have contributed to our net revenue results for the periods presented, we provide 2016 acquisition-adjusted net revenue, which adjusts our 2016 net revenue for the year ended December 31, 2016 by adding to or subtracting from 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 year ended December 31, 2017.

 

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Reconciliations of 2016 reported net revenue to 2016 acquisition-adjusted net revenue for the year ended December 31, 2016 as well as a comparison of 2016 acquisition-adjusted net revenue to 2017 reported net revenue for the year ended December 31, 2017, are provided below:

Reconciliation and Comparison of Reported Net Revenue to Acquisition-Adjusted Net Revenue

 

		Year ended December 31,
		2017				2016
		(in thousands)
Reported net revenue		$	1,541,260			$	1,500,294
Acquisition net revenue			—				25,424
Adjusted totals		$	1,541,260			$	1,525,718

Key Performance Indicators

Net Income/Adjusted EBITDA

(in thousands)

 

		Year Ended December 31,								Amount of Increase (Decrease)				Percent Increase (Decrease)
		2017				2016
Net income		$	318,058			$	299,181			$	18,877				6.3	%
Income tax expense			9,230				13,356				(4,126	)
Loss on extinguishment of debt			71				3,198				(3,127	)
Interest expense (income), net			128,390				123,682				4,708
Gain on disposition of assets			(4,664	)			(15,095	)			10,431
Depreciation and amortization			211,104				204,958				6,146
Stock-based compensation expense			9,599				28,560				(18,961	)
Adjusted EBITDA		$	671,788			$	657,840			$	13,948				2.1	%

Adjusted EBITDA for the year ended December 31, 2017 increased 2.1% to $671.8 million. The increase in Adjusted EBITDA was primarily attributable to the increase in our gross margin (net revenue less direct advertising expense, exclusive of depreciation and amortization) of $25.7 million, and was partially offset by an increase in general and administrative and corporate expenses of $11.7 million, excluding the impact of stock-based compensation expense.

 

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Net Income/FFO/AFFO

(in thousands)

 

		Year Ended December 31,								Amount of Increase (Decrease)				Percent Increase (Decrease)
		2017				2016
Net income		$	318,058			$	299,181			$	18,877				6.3	%
Depreciation and amortization related to real estate			198,630				190,964				7,666
Gain from disposition of real estate assets and investments			(4,185	)			(14,789	)			10,604
Adjustments for unconsolidated affiliates and non-controlling interest			839				605				234
FFO		$	513,342			$	475,961			$	37,381				7.9	%
Straight-line (income) expense			(754	)			255				(1,009	)
Stock-based compensation expense			9,599				28,560				(18,961	)
Non-cash portion of tax provision			804				(343	)			1,147
Non-real estate related depreciation and amortization			12,474				13,994				(1,520	)
Amortization of deferred financing costs			5,120				5,333				(213	)
Loss on extinguishment of debt			71				3,198				(3,127	)
Capital expenditures—maintenance			(43,119	)			(37,090	)			(6,029	)
Adjustments for unconsolidated affiliates and non-controlling interest			(839	)			(605	)			(234	)
AFFO		$	496,698			$	489,263			$	7,435				1.5	%

FFO for the year ended December 31, 2017 was $513.3 million as compared to FFO of $476.0 million for the same period in 2016. AFFO for the year ended December 31, 2017 increased 1.5% to $496.7 million as compared to $489.3 million for the same period in 2016. AFFO growth was primarily attributable to the increase in our gross margin (net revenue less direct advertising expense, exclusive of depreciation and amortization), offset by increases in general and administrative expenses and corporate expenses (excluding the effect of stock-based compensation expense) and capitalized expenditures related to maintenance.

Liquidity and Capital Resources

Overview

We have historically satisfied our working capital requirements with cash from operations and borrowings under our senior credit facility. We are the borrower under the senior credit facility and maintain all corporate cash balances. Any cash requirements of Lamar Advertising, therefore, must be funded by distributions from us.

Sources of Cash

Total Liquidity at December 31, 2018. As of December 31, 2018 we had approximately $177.8 million of total liquidity, which is comprised of approximately $21.0 million in cash and cash equivalents and approximately $156.8 million of availability under the revolving portion of our 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.

 

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Cash Generated by Operations. For the years ended December 31, 2018, 2017 and 2016 our cash provided by operating activities was $537.1 million, $484.2 million and $495.3 million, respectively. The increase in cash provided by operating activities for the year ended December 31, 2018 over the same period in 2017 relates to an increase in revenues offset by increases in operating expenses (excluding depreciation and amortization) and a net decrease in operating assets and liabilities. We generated cash flows from operations during 2018 in excess of our cash needs for operations and capital expenditures as described herein. We used the excess cash generated principally to pay dividends and fund our acquisitions. See — “Cash Flows” for more information.

Accounts Receivable Securitization Program. On December 18, 2018, we entered into the Accounts Receivable Securitization Program. The Accounts Receivable Securitization Program provides up to $175.0 million in borrowing capacity, plus an accordion feature that would permit the borrowing capacity to be increased by up to $125.0 million. Borrowing capacity under the Accounts Receivable Securitization Program is limited to the availability of eligible accounts receivable collateralizing the borrowings under the agreements governing the Accounts Receivable Securitization Program. In connection with the Accounts Receivable Securitization Program, Lamar Media and certain of its subsidiaries (such subsidiaries, the “Subsidiary Originators”) sell and/ or contribute their existing and future accounts receivable and certain related assets to one of two special purpose subsidiaries, Lamar QRS Receivables, LLC (the “QRS SPV”) and Lamar TRS Receivables, LLC (the “TRS SPV” and together with the QRS SPV the “Special Purpose Subsidiaries”), each of which is a wholly-owned subsidiary of Lamar Media. Existing and future accounts receivable relating to Lamar Media and its qualified REIT subsidiaries will be sold and/ or contributed to the QRS SPV and existing and future accounts receivable relating to Lamar Media’s taxable REIT subsidiaries will be sold and/ or contributed to the TRS SPV. Each of the Special Purpose Subsidiaries has granted the lenders party to the Accounts Receivable Securitization Program a security interest in all of its assets, which consist of the accounts receivable and related assets sold or contributed to them, as described above, in order to secure the obligations of the Special Purpose Subsidiaries under the agreements governing the Accounts Receivable Securitization Program. Pursuant to the Accounts Receivable Securitization Program, Lamar Media has agreed to service the accounts receivable on behalf of the two Special Purpose Subsidiaries for a fee. Lamar Media has also agreed to guaranty its performance in its capacity as servicer and originator, as well as the performance of the Subsidiary Originators, of their obligations under the agreements governing the Account Receivable Securitization Program. None of Lamar Media, the Subsidiary Originators or the Special Purpose Subsidiaries guarantees the collectability of the receivables under the Accounts Receivable Securitization Program. In addition, each of the Special Purpose Subsidiaries is a separate legal entity with its own separate creditors who will be entitled to access the assets of such Special Purpose Subsidiary before the assets become available to Lamar Media. Accordingly, the assets of the Special Purpose Subsidiaries are not available to pay creditors of Lamar Media or any of its subsidiaries, although collections from receivables in excess of the amounts required to repay the lenders and the other creditors of the Special Purpose Subsidiaries may be remitted to Lamar Media.

As of December 31, 2018, there were $175.0 million of outstanding aggregate borrowings under the Accounts Receivable Securitization Program at a borrowing rate of approximately 3.4%.

“At-the-Market” Offering Program. On May 1, 2018, Lamar Advertising entered into an equity distribution agreement (the “Sales Agreement”) with J.P. Morgan Securities LLC, Wells Fargo Securities LLC and SunTrust Robinson Humphrey, Inc. as our sales agents (each a “Sales Agent”, and collectively, the “Sales Agents”). Under the terms of the Sales Agreement, Lamar Advertising may, from time to time, issue and sell shares of its Class A common stock, par value $.001 per share, having an aggregate offering price of up to $400.0 million through the Sales Agents as either agents or principals. Sales of its Class A common stock, if any, may be made in negotiated transactions or transactions that are deemed to be “at-the-market offerings” as defined in Rule 415 under the Securities Act of 1933, as amended, including sales made directly on or through the Nasdaq Global Select Market and any other existing trading market for the Class A common stock, or sales made to or through a market maker other than on an exchange. Lamar Advertising has no obligation to sell any of the Class A common stock under the Sales Agreement and may at any time suspend solicitations and offers under the Sales Agreement. Lamar Advertising intends to use the net proceeds, if any, from the sale of the Class A common

 

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stock pursuant to the Sales Agreement for general corporate purposes, which may include the repayment, refinancing, redemption or repurchase of existing indebtedness, working capital, capital expenditures, acquisition of outdoor advertising assets and businesses and other related investments. During the quarter and year ended December 31, 2018, Lamar Advertising received gross proceeds of approximately $27.5 million and $42.8 million, resulting in net proceeds of approximately $27.0 million and $42.1 million, in exchange for issuing 362,726 and 576,002 shares of its Class A common stock under this program, respectively. During the quarter and year ended December 31, 2018, the aggregate commissions paid to the sales agent was approximately $0.4 and $0.6 million, respectively.

Shelf Registration Statement. On August 6, 2018, Lamar Advertising filed an automatically effective shelf registration statement (No. 333-226614) that registered the offer and sale of an indeterminate amount of additional shares of its Class A common stock. On August 23, 2018, Lamar Advertising filed a prospectus supplement to the shelf registration statement relating to the offer and resale of 163,137 shares of Class A common stock previously issued in connection with an acquisition. Lamar Advertising may issue additional shares under the shelf registration statement in the future in connection with future acquisitions or for other general corporate purposes.

Sale of Puerto Rico Operations. On April 16, 2018, we sold substantially all of our operating assets in Puerto Rico to B-Billboard BB LLC and B-Billboard BG LLC which resulted in a loss on disposition of assets of approximately $7.8 million.

Credit Facilities. On May 15, 2017, Lamar Media entered into a Third Restatement Agreement (“Restatement Agreement”) with Lamar Advertising, 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. The Restatement Agreement amended and restated the Second Amended and Restated Credit Agreement dated as of February 3, 2014, as amended, which consisted of a $400.0 million revolving credit facility and a $300.0 million Term A loan facility.

Lamar Media’s Third Amended and Restated Credit Agreement dated as of May 15, 2017 (as amended, the “senior credit facility”) originally consisted of (i) a new $450.0 million senior secured revolving credit facility which will mature on May 15, 2022 (the “revolving credit facility”), (ii) a new $450.0 million Term A loan facility (the “Term A loans”) which will mature on May 15, 2022, and (iii) an incremental facility (the “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 under “Restrictions under Senior Credit Facility.” Lamar Media borrowed all $450.0 million in Term A loans on May 15, 2017. The Term A loans began amortizing on September 30, 2017 in quarterly installments, as set forth therein, with the remainder payable at maturity. The net proceeds from the Term A loans, together with borrowing under the revolving portion of senior credit facility and cash on hand, were used to repay all outstanding amounts under the Second Amended and Restated Credit Agreement, and all revolving commitments under that facility were terminated.

On March 16, 2018, Lamar Media entered into Amendment No. 1 to the Third Amended and Restated Credit Agreement dated May 15, 2017, with Lamar Advertising, certain of Lamar Media’s subsidiaries as Guarantors, JPMorgan Chase Bank, N.A. as administrative agent and the lenders named therein, under which the parties agreed to amend the existing senior credit facility to establish a new $600.0 million Term B Loan Facility, which will mature on March 16, 2025. The Term B loan began amortizing on June 30, 2018 in equal quarterly installments of $1.5 million with the remainder payable at maturity. Lamar Media borrowed the full amount of the Term B loan on March 16, 2018. The proceeds from the Term B loan, together with available cash on hand were used to redeem in full Lamar Media’s 5 7/8% Senior Subordinated Notes due 2022. See Uses of Cash for more information.

As of December 31, 2018, the senior credit facility consisted of (i) the revolving credit facility, (ii) the Term A loans, (iii) the Term B loans and (iv) the Incremental Facility. As of December 31, 2018, the aggregate balance

 

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outstanding under the senior credit facility was $1.28 billion, consisting of $413.7 million outstanding in Term A loans, $589.2 million in Term B loans and $276.7 million of revolving credit loans under the revolving credit facility. In addition, at December 31, 2018, Lamar Media had approximately $156.8 million of unused capacity under the revolving credit facility.

On January 17, 2019, Lamar Media entered into an incremental amendment to the senior credit facility to include $100.0 million in additional revolving commitments, thereby increasing the total borrowing capacity under the revolving credit facility to $550.0 million.

Note Offerings. On February 1, 2019, Lamar Media issued $250.0 million in aggregate principle amount of 5 3/4% Senior Notes due 2026 through an institutional private placement (the “outstanding notes”). The outstanding notes were issued as additional notes to the existing $400.0 million aggregate principal amount of 5 3/4% Senior Notes due 2026 that Lamar Media issued on January 28, 2016 (the “original notes”). Other than with respect to the date of issuance, issue price and CUSIP number, the outstanding notes have the same terms as the original notes. Once the outstanding notes are registered under the Securities Act and exchanged for the exchange notes or become freely tradable under Rule 144, the exchange notes and the original notes will share a single CUSIP number and thereafter be fungible. The net proceeds after underwriting fees and expenses, was approximately $251.5 million and were used to repay a portion of the borrowings outstanding under the revolving credit facility.

On January 28, 2016, Lamar Media completed an institutional private placement of $400.0 million aggregate principal amount of the original notes. The institutional private placement resulted in net proceeds to Lamar Media, after payment of fees and expenses of approximately $394.5 million. Lamar Media used the proceeds of this offering to repay the $300.0 million Term A-1 loan, which it borrowed on January 7, 2016 in order to fund the acquisition of certain assets of Clear Channel Outdoor Holdings, Inc., and repay a portion of the borrowing outstanding under its revolving credit facility. On September 1, 2016, Lamar Media completed an exchange offer for all of its then outstanding 5 3/4% Senior Notes, which were not registered under the Securities Act of 1933, as amended, for an equal principal amount of newly issued 5 3/4% Senior Notes that were so registered. Lamar Media did not receive any proceeds from the exchange offer.

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 we conduct our business and overall spending on advertising by advertisers.

Credit Facilities and Other Debt Securities. We must comply with certain covenants and restrictions related to our senior credit facility, our outstanding debt securities and our Accounts Receivable Securitization Program.

Restrictions under Debt Securities. We must comply with certain covenants and restrictions related to our outstanding debt securities. As of December 31, 2018, Lamar Media had outstanding $535 million 5% Senior Subordinated Notes issued in October 2012 (the “5% Senior Subordinated Notes”), $510 million 5 3/8% Senior Notes issued in January 2014 (the “5 3/8% Senior Notes”) and the $400 million 5 3/4% Senior Notes issued in January 2016 (the “original notes”). Lamar Media issued an additional $250 million of 5 3/4% Senior Notes on February 1, 2019 (the “outstanding notes”).

The indentures relating to Lamar Media’s 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 Media’s 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

 

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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 Media’s 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 Media’s 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 Lamar Advertising or Lamar Media 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, 2018, and currently, we were in compliance with all such tests under the senior credit facility.

Lamar Media must maintain a secured debt ratio, defined as total consolidated secured debt of Lamar Advertising, Lamar Media and its restricted subsidiaries (other than the Special Purpose Subsidiaries), minus the lesser of (x) $150 million and (y) the aggregate amount of unrestricted cash and cash equivalents of Lamar Advertising, Lamar Media 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.

Lamar Media is restricted from incurring additional indebtedness subject to exceptions, one of which is that it may incur additional indebtedness not exceeding the greater of $250.0 million and 6% of its total assets.

Lamar Media is also restricted from incurring additional unsecured senior indebtedness under certain circumstances unless, after giving effect to the incurrence of such indebtedness, it is in compliance with the secured debt ratio covenant and its senior debt ratio, defined as (a) total consolidated debt (excluding subordinated debt) of Lamar Advertising, Lamar Media and its restricted subsidiaries (other than the Special Purpose Subsidiaries) as of any date minus the lesser of (i) $150 million and (ii) the aggregate amount of unrestricted cash and cash equivalents of Lamar Advertising, Lamar Media and its restricted subsidiaries (other than the Special Purpose Subsidiaries) to (b) EBITDA, as defined below, for the most recent four fiscal quarters then ended is less than 4.5 to 1.0.

Lamar Media is also restricted from incurring additional subordinated indebtedness under certain circumstances unless, after giving effect to the incurrence of such indebtedness, it is in compliance with the secured debt ratio covenant and its total debt ratio, defined as (a) total consolidated debt (including subordinated debt) of Lamar Advertising, Lamar Media and its restricted subsidiaries as of any date minus the lesser of (i) $150 million and (ii) the aggregate amount of unrestricted cash and cash equivalents of Lamar Advertising, Lamar Media and its restricted subsidiaries (other than the Special Purpose Subsidiaries) to (b) EBITDA, as defined below, for the most recent four fiscal quarters then ended, is less than 6.5 to 1.0.

Under the senior credit facility, “EBITDA” means, for any period, operating income for Lamar Advertising, Lamar Media and its restricted subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP) for such period (calculated (A) before (i) taxes, (ii) interest expense, (iii) depreciation,

 

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(iv) amortization, (v) any other non-cash income or charges accrued for such period, (vi) charges and expenses in connection with the senior credit facility, any actual or proposed acquisition, disposition or investment (excluding, in each case, purchases and sales of advertising space and operating assets in the ordinary course of business) and any actual or proposed offering of securities, incurrence or repayment of indebtedness (or amendment to any agreement relating to indebtedness), including any refinancing thereof, or recapitalization and (vii) 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 (B) after giving effect to the amount of cost savings, operating expense reductions and other operating improvements or synergies projected by Lamar Media in good faith to be realized as a result of any acquisition, investment, merger, amalgamation or disposition within 18 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 will 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 or synergies that are (I) directly attributable to such acquisition, investment, merger, amalgamation or disposition, (II) expected to have a continuing impact on Lamar Media and its restricted subsidiaries and (III) factually supportable, in each case all as certified by the chief financial officer of Lamar Media) on behalf of Lamar Media, and excluding (except to the extent received or paid in cash by Lamar Advertising, Lamar Media or any of its restricted subsidiaries income or loss attributable to equity in affiliates for such period), excluding any extraordinary and unusual gains or losses during such period, and excluding the proceeds of any casualty events and dispositions. For purposes hereof, the effect thereon of any adjustments required under Statement of Financial Accounting Standards No. 141R shall be excluded. If during any period for which EBITDA is being determined, Lamar Media has consummated any acquisition or disposition, EBITDA will be determined on a pro forma basis as if such acquisition or disposition had been made or consummated on the first day of such period.

We believe that our current level of cash on hand, availability under our senior credit facility and future cash flows from operations are sufficient to meet our operating needs through fiscal 2019. All debt obligations are reflected on our balance sheet.

Restrictions under Accounts Receivable Securitization Program. The agreements governing the Account Receivable Securitization Program contain customary representations and warranties, affirmative and negative covenants, and termination event provisions, including but not limited to those providing for the acceleration of amounts owed under the Accounts Receivable Securitization Program if, among other things, the Special Purpose Subsidiaries fail to make payments when due, Lamar Media, the Subsidiary Originators or the Special Purpose Subsidiaries become insolvent or subject to bankruptcy proceedings or certain judicial judgments, breach certain representations and warranties or covenants or default under other material indebtedness, a change of control occurs, or if Lamar Media fails to maintain the maximum secured debt ratio of 3.50 to 1.00 required under Lamar Media’s senior credit facility.

Uses of Cash

Capital Expenditures. Capital expenditures excluding acquisitions were approximately $117.6 million for the year ended December 31, 2018. We anticipate our 2019 total capital expenditures will closely approximate our 2018 spending.

Acquisitions. During the year ended December 31, 2018, we completed over 30 acquisitions for a total purchase price of approximately $489.7 million, which included the acquisition of more than 9,300 billboard displays across various markets. The acquisitions occurring during the year ended December 31, 2018 were financed using available cash on hand, borrowings under our revolving credit facility, borrowings under our Accounts Receivable Securitization Program and the issuance of 163,137 share of Class A common stock of Lamar Advertising.

 

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Note Redemption. On March 19, 2018, we used proceeds from the Term B loan, together with cash on hand, to redeem in full all $500.0 million in aggregate principal amount of Lamar Media’s 5 7/8% Senior Subordinated Notes due 2022 and repay a portion of the borrowings outstanding under Lamar Media’s revolving credit facility. The notes were redeemed at a redemption price equal to 101.958% of the aggregate principal amount of the outstanding notes, plus accrued and unpaid interest up to the redemption date. We recorded a loss on debt extinguishment of $15.4 million related to this redemption which is comprised of a $9.8 million prepayment penalty and a $5.6 million non-cash write off of unamortized deferred financing costs. See Sources of Cash-Credit Facility for more information.

Term Loans. The Term A loans mature on May 15, 2022 and the Term B loans mature on March 16, 2025. The remaining quarterly installments scheduled to be paid on each March 31, June 30, September 30 and December 31 are as follows:

 

Principal Payment Date		Term A				Term B
March 31, 2019-June 30, 2019		$	5,625			$	1,500
September 30, 2019-June 30, 2020		$	8,438			$	1,500
September 30, 2020-March 31, 2022		$	16,875			$	1,500
Term A Loan Maturity May 15, 2022		$	253,125			$	—
June 30, 2022-December 31, 2024		$	—			$	1,500
Term B Loan Maturity March 16, 2025		$	—			$	559,500

The Term Loans bear interest at rates based on the Adjusted LIBO Rate (“Eurodollar term loans”) or the Adjusted Base Rate (“Base Rate term loans”), at Lamar Media’s option. Eurodollar term loans bear interest at a rate per annum equal to the Adjusted LIBO Rate plus 1.75%; (or the Adjusted LIBO Rate plus 1.50% at any time the Total Debt Ratio is less than or equal to 3.25 to 1 for Term A loans only). Base Rate term loans bear interest at a rate per annum equal to the Adjusted Base Rate plus 0.75% (or the Adjusted Base Rate plus 0.50% at any time the Total Debt Ratio is less than or equal to 3.25 to 1 for Term A loans only). The revolving credit facility bears interest at rates based on the Adjusted LIBO Rate (“Eurodollar revolving loans”) or the Adjusted Base Rate (“Base Rate revolving loans”), at Lamar Media’s option. Eurodollar revolving loans bear interest at a rate per annum equal to the Adjusted LIBO Rate plus 2.25% (or the Adjusted LIBO Rate plus 2.00% at any time the Total Debt Ratio is less than or equal to 4.25 to 1; 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 revolving loans bear interest at a rate per annum equal to the Adjusted Base Rate plus 1.25% (or the Adjusted Base Rate plus 1.0% at any time the total debt ratio is less than or equal to 4.25 to 1, 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 and B loans and revolving credit facility.

Dividends. During the year ended December 31, 2018, Lamar Advertising declared distributions of $361.1 million or $3.65 per share of common stock. Lamar Advertising paid distributions of $442.6 million during the year ended December 31, 2018, which includes the January 2, 2018 distribution declared in November 2017.

During the year ended December 31, 2017, Lamar Advertising declared distributions of $325.5 million or $3.32 per share of common stock, including paid distributions of $243.9 million or $2.49 per share of common stock. On January 2, 2018, Lamar Advertising paid its quarterly distribution declared on November 28, 2017 of $0.83 per share to its stockholders of record of its Class A common stock and Class B common stock on December 18, 2017, for approximately $81.5 million.

As a REIT, Lamar Advertising 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 Lamar

 

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Advertising’s control, including financial condition and operating cash flows, the amount required to maintain REIT status and reduce any income and excise taxes that Lamar Advertising otherwise would be required to pay, limitations on distributions in our existing and future debt instruments, Lamar Advertising’s ability to utilize net operating losses to offset, in whole or in part, Lamar Advertising’s 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.

Debt Service and Contractual Obligations. As of December 31, 2018, we had outstanding debt of approximately $2.889 billion. In the future, Lamar Media has principal reduction obligations and revolver commitment reductions under the senior credit facility. In addition, it has fixed commercial commitments. These commitments are detailed on a contractual basis as follows:

 

						Payments Due by Period
Contractual Obligations		Total				Less Than 1 Year				1—3 Years				3—5 Years				After 5 Years
		(In millions)
Long-Term Debt		$	2,888.7			$	29.1			$	294.8			$	1,090.6			$	1,474.2
Interest obligations on long term debt(1)			720.3				146.5				286.6				205.1				82.1
Billboard site and other operating leases			1,711.8				260.4				361.8				270.6				819.0
Total payments due		$	5,320.8			$	436.0			$	943.2			$	1,566.3			$	2,375.3

 

(1)	Interest rates on our variable rate instruments are assuming rates at the December 2018 levels.

 

						Amount of Expiration Per Period
Other Commercial Commitments		Total Amount Committed				Less Than 1 Year				1—3 Years				3—5 Years				After 5 Years
		(In millions)
Revolving Bank Facility(2)		$	450.0			$	—			$	—			$	450.0			$	—
Standby Letters of Credit(3)		$	13.2			$	12.7			$	0.5			$	—			$	—

 

(2)	Lamar Media had $280.0 million outstanding under the revolving facility at December 31, 2018.

(3)	The standby letters of credit are issued under Lamar Media’s revolving credit facility and reduce the availability of the facility by the same amount.

Cash Flows

Our cash flows provided by operating activities increased by $52.8 million for the year ended December 31, 2018, primarily resulting from an increase in revenues of approximately $86.0 million and a decrease in operating net assets of $2.3 million, offset by increases in operating expenses (excluding stock-based compensation) of approximately $34.9 million, as compared to the comparable period in 2017.

Cash flows used in investing activities increased $184.0 million from $400.1 million in 2017 to $584.1 million in 2018 primarily due to an increase in acquisition activity of $180.1 million, as compared to the same period in 2017.

Our cash flows used in financing activities was $45.8 million for the year ended December 31, 2018 as compared $5.9 million in 2017. This increase in cash used in financing activities of $39.9 million for the year ended December 31, 2018 is primarily due to increases in proceeds from financing transactions during the year, offset by increases in cash paid for dividends and distributions over the comparable period in 2017.

Critical Accounting Estimates

Our discussion and analysis of our results of operations and liquidity and capital resources are based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these

 

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