S-4 1 d704894ds4.htm FORM S-4 Form S-4
Table of Contents

As filed with the Securities and Exchange Commission on March 18, 2019

Registration No. 333-                

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Lamar Media Corp.

(Exact name of registrant as specified in its charter)

SEE TABLE OF ADDITIONAL REGISTRANTS

 

 

 

Delaware   6798   72-1205791
(State or other jurisdiction of
incorporation or organization)
 

Primary Standard Industrial

Classification Code)

  (I.R.S. Employer
Identification No.)

5321 Corporate Boulevard

Baton Rouge, Louisiana 70808

(225) 926-1000

(Address, Including ZIP Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

 

Sean E. Reilly

Chief Executive Officer

Lamar Media Corp.

5321 Corporate Boulevard

Baton Rouge, Louisiana 70808

(225) 926-1000

(Name, Address, Including ZIP Code and Telephone Number, Including Area Code, of Agent for Service)

 

 

with a copy to:

Michelle A. Earley

Locke Lord LLP

600 Congress Avenue

Suite 2200

Austin, Texas 78701

(512) 305-4700

 

 

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this registration statement becomes effective.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act .  ☐

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)  ☐

Exchange Act Rule 14d-1(d) (Cross Border Third-Party Tender Offer)  ☐

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of

Securities to be Registered

 

Amount

to be

Registered(1)

 

Proposed

Maximum

Offering Price

per Unit(1)

 

Proposed

Maximum
Aggregate

Offering Price(1)

  Amount of
Registration Fee(1)

5.750% Senior Notes due 2026

  $250,000,000   100%   $250,000,000   $30,300

Guarantees of 5.750% Senior Notes due 2026(2)

  n/a   n/a   n/a   n/a

 

 

 

(1) 

This registration fee has been calculated pursuant to Rule 457(f)(2) under the Securities Act of 1933, as amended.

(2) 

No separate consideration will be received for the guarantees, and no separate fee is payable, pursuant to Rule 457(n) under the Securities Act of 1933, as amended.

 

 

The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said section 8(a), may determine.

 

 

 


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Table of Additional Registrants(1)

 

Exact Name of Registrant as Specified in its Charter

   State or Other Jurisdiction of
Incorporation or Organization
   IRS Employer
Identification
Number
 

Arizona Logos, L.L.C.

   Arizona      27-2892296  

Colorado Logos, Inc.

   Colorado      84-1480715  

Delaware Logos, L.L.C.

   Delaware      51-0392715  

Douglas Outdoor Advertising of GA., Inc.

   Georgia      58-1836737  

Fairway CCO Indiana, LLC

   Delaware      37-1930378  

Fairway Media Group, LLC

   Delaware      61-1689000  

Fairway Outdoor Advertising, LLC

   Delaware      27-1024919  

Fairway Outdoor Funding, LLC

   Delaware      32-0391426  

Fairway Outdoor Funding Holdings, LLC

   Delaware      80-0860317  

Florida Logos, LLC

   Florida      65-0671887  

FMG Outdoor Holdings, LLC

   Delaware      47-2472019  

FMO Real Estate, LLC

   Delaware      27-1226238  

Georgia Logos, L.L.C.

   Georgia      72-1469485  

Interstate Logos, L.L.C.

   Louisiana      72-1490893  

Interstate Logos TRS, LLC

   Delaware      35-2608807  

Kansas Logos, Inc.

   Kansas      48-1187701  

Kentucky Logos, LLC

   Kentucky      62-1839054  

Lamar Advantage GP Company, LLC

   Delaware      72-1490891  

Lamar Advantage Holding Company

   Delaware      76-0619569  

Lamar Advantage LP Company, LLC

   Delaware      76-0637519  

Lamar Advantage Outdoor Company, L.P.

   Delaware      74-2841299  

Lamar Advertising of Colorado Springs, L.L.C.

   Colorado      72-0931093  

Lamar Advertising of Louisiana, L.L.C.

   Louisiana      72-1462297  

Lamar Advertising of Michigan, Inc.

   Michigan      38-3376495  

Lamar Advertising of Penn, LLC

   Delaware      72-1462301  

Lamar Advertising of South Dakota, L.L.C.

   South Dakota      46-0446615  

Lamar Advertising of Youngstown, Inc.

   Delaware      23-2669670  

Lamar Advertising Southwest, Inc.

   Nevada      85-0113644  

Lamar Air, L.L.C.

   Louisiana      72-1277136  

Lamar Airport Advertising Company

   Nevada      88-0237057  

Lamar Central Outdoor, LLC

   Delaware      20-2471691  

Lamar Electrical, Inc.

   Louisiana      72-1392115  

Lamar-Fairway Blocker 1, Inc.

   Delaware      47-2485214  

Lamar-Fairway Blocker 2, Inc.

   Delaware      47-2547019  

Lamar Florida, L.L.C.

   Florida      72-1467178  

Lamar Investments, LLC

   Delaware      46-4289458  

Lamar Obie Company, LLC

   Delaware      33-1109314  

Lamar OCI North, L.L.C.

   Delaware      38-2885263  

Lamar OCI South Corporation

   Mississippi      64-0520092  

Lamar Ohio Outdoor Holding Corp.

   Ohio      34-1597561  

Lamar Pensacola Transit, Inc.

   Florida      59-3391978  

Lamar Service Company, LLC

   Delaware      46-4284332  

Lamar Tennessee, L.L.C.

   Tennessee      72-1309007  

Lamar Texas Limited Partnership

   Texas      72-1309005  

Lamar Transit, LLC

   Delaware      46-4242858  

Lamar TRS Holdings, LLC

   Delaware      46-4248386  

Louisiana Interstate Logos, L.L.C.

   Louisiana      26-3654514  

Magic Media, Inc.

   Delaware      20-0768190  

Magic Media Real Estate, LLC

   Delaware      20-0768149  


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Exact Name of Registrant as Specified in its Charter

   State or Other Jurisdiction of
Incorporation or Organization
   IRS Employer
Identification
Number
 

Maine Logos, L.L.C.

   Maine      72-1492985  

MCC Outdoor, LLC

   Georgia      26-0274450  

Michigan Logos, Inc.

   Michigan      38-3071362  

Minnesota Logos, Inc.

   Minnesota      41-1800355  

Mississippi Logos, L.L.C.

   Mississippi      72-1469487  

Missouri Logos, LLC

   Missouri      72-1485587  

Montana Logos, LLC

   Montana      45-3444460  

Nebraska Logos, Inc.

   Nebraska      72-1137877  

Nevada Logos, Inc.

   Nevada      88-0373108  

New Hampshire Logos, L.L.C.

   New Hampshire      83-2411570  

New Jersey Logos, L.L.C.

   New Jersey      72-1469048  

New Mexico Logos, Inc.

   New Mexico      85-0446801  

Ohio Logos, Inc.

   Ohio      72-1148212  

Oklahoma Logos, L.L.C.

   Oklahoma      72-1469103  

Olympus Media/Indiana, LLC

   Delaware      20-4368933  

Outdoor Marketing Systems, L.L.C.

   Pennsylvania      N/A  

Outdoor Promotions West, LLC

   Delaware      22-3598746  

South Carolina Logos, Inc.

   South Carolina      58-2152628  

Tennessee Logos, Inc.

   Tennessee      62-1649765  

The Lamar Company, L.L.C.

   Louisiana      72-1462298  

TLC Farms, L.L.C.

   Louisiana      20-0634874  

TLC Properties II, LLC

   Texas      72-1336624  

TLC Properties, Inc.

   Louisiana      72-0640751  

TLC Properties, L.L.C.

   Louisiana      72-1417495  

Triumph Outdoor Holdings, LLC

   Delaware      13-3990438  

Triumph Outdoor Rhode Island, LLC

   Delaware      05-0500914  

Utah Logos, Inc.

   Utah      72-1148211  

Virginia Logos, LLC

   Virginia      62-1839208  

Washington Logos, L.L.C.

   Washington      73-1648809  

Wisconsin Logos, LLC

   Wisconsin      45-1837323  

 

(1)

The outstanding notes are, and the exchange notes will be, unconditionally guaranteed by the additional registrants listed above, each of which is a direct or indirect, wholly owned subsidiary of Lamar Media Corp. The address and telephone number for each of the additional registrants is 5321 Corporate Boulevard, Baton Rouge, Louisiana 70808 and (225) 926-1000. The primary standard industrial classification code number for each of the additional registrants is 7311.


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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION DATED MARCH 18, 2019

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

 

   

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.

 

   

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

 

   

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

 

   

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.

 

   

We will not receive any proceeds from the exchange offer.

 

   

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

 

   

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.

 

   

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.

 

   

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.

 

   

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.

 

   

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.

 

   

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

 

   

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.

 

   

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.

 

   

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                 , 2019


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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                 , 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;

 

   

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

 

   

our anticipated capital expenditures and level of acquisition activity;

 

   

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

 

   

market opportunities and our competitive positions;

 

   

our future cash flows and expected cash requirements;

 

   

estimated risks;

 

   

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

 

   

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:

 

   

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

 

   

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

 

   

risks and uncertainties relating to our significant indebtedness;

 

   

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

 

   

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

 

   

increased competition within the outdoor advertising industry;

 

   

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

 

   

our ability to renew expiring contracts at favorable rates;

 

   

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

 

   

our ability to successfully implement our digital deployment strategy;

 

   

changes in accounting principles, policies or guidelines;

 

   

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

 

   

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

 

   

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

 

   

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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PROSPECTUS SUMMARY

This summary highlights the information contained elsewhere in this prospectus. Because this is only a summary, it does not contain all of the information that may be important to you. For a more complete understanding of this exchange offer, we encourage you to read this entire prospectus. You should read the following summary together with the more detailed information and consolidated financial statements and the notes to those statements included in this prospectus. Unless otherwise indicated, financial information included in this prospectus is presented on a historical basis.

Lamar Media Corp.

We are one of the largest outdoor advertising companies in the United States based on number of displays and have operated under the Lamar name since 1902. We operate in a single operating and reporting segment, advertising. We lease space for advertising on billboards, buses, shelters, benches, logo plates and in airport terminals. We offer our tenants a fully integrated service, satisfying all aspects of their billboard display requirements from ad copy production to placement and maintenance.

We operate three types of outdoor advertising displays: billboards, logo signs and transit advertising displays.

Billboards. As of December 31, 2018, we owned and operated approximately 156,900 billboard advertising displays in 45 states and Canada. We lease most of our advertising space on two types of billboards: bulletins and posters.

 

   

Bulletins are generally large, illuminated advertising structures that are located on major highways and target vehicular traffic.

 

   

Posters are generally smaller advertising structures that are located on major traffic arteries and city streets and target vehicular and pedestrian traffic.

In addition to these traditional billboards, we also lease advertising space on digital billboards, which are generally located on major traffic arteries and city streets. As of December 31, 2018, we owned and operated over 3,100 digital billboard advertising displays in 43 states and Canada.

Logo signs. We lease advertising space on logo signs located near highway exits.

 

   

Logo signs generally advertise nearby gas, food, camping, lodging and other attractions.

We are the largest provider of logo signs in the United States, operating 23 of the 25 privatized state logo sign contracts. As of December 31, 2018, we operated approximately 149,000 logo sign advertising displays in 23 states and Canada.

Transit advertising displays. We also lease advertising space on the exterior and interior of public transportation vehicles, in airport terminals, and on transit shelters and benches in over 80 markets. As of December 31, 2018, we operated over 53,300 transit advertising displays in 22 states and Canada.

Operating strategies

We strive to be a leading provider of outdoor advertising services in each of the markets that we serve, and our operating strategies for achieving that goal include:

Continuing to provide high quality local sales and service. We seek to identify and closely monitor the needs of our tenants and to provide them with a full complement of high quality advertising services. Local advertising



 

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constituted approximately 76% of our net revenues for the year ended December 31, 2018, which management believes is higher than the industry average. We believe that the experience of our regional, territory and local managers has contributed greatly to our success. For example, our regional managers have been with us for an average of 33 years. In an effort to provide high quality sales and service at the local level, we employed over 1,050 local account executives as of December 31, 2018. Local account executives are typically supported by additional local staff and have the ability to draw upon the resources of our central office, as well as our offices in other markets, in the event business opportunities or tenants’ needs support such an allocation of resources.

Continuing a centralized control and decentralized management structure. Our management believes that, for our particular business, centralized control and a decentralized organization provide for greater economies of scale and are more responsive to local market demands. Therefore, we maintain centralized accounting and financial control over our local operations, but our local managers are responsible for the day-to-day operations in each local market and are compensated according to that market’s financial performance.

Continuing to focus on internal growth. Within our existing markets we seek to increase our revenue and improve cash flow by employing highly-targeted local marketing efforts to improve our display occupancy rates and by increasing advertising rates where and when demand can absorb rate increases. Our local offices spearhead this effort and respond to local tenant demands quickly.

In addition, we routinely invest in upgrading our existing displays and constructing new displays. Since January 1, 2008, we invested approximately $1.2 billion in capitalized expenditures, which include improvements to our existing real estate portfolio and the construction of new locations. Our regular improvement and expansion of our advertising display inventory allows us to provide high quality service to our current tenants and to attract new tenants.

Continuing to pursue other outdoor advertising opportunities. We plan to renew existing logo sign contracts and pursue additional logo sign contracts. Logo sign opportunities arise periodically, both from states initiating new logo sign programs and states converting from government-owned and operated programs to privately-owned and operated programs. Furthermore, we plan to pursue additional tourist oriented directional sign programs in both the United States and Canada and also other motorist information signing programs as opportunities present themselves. In addition, in an effort to maintain market share, we continue to pursue attractive transit advertising opportunities as they become available.

Reinvesting in capital expenditures including digital technology. We have a history of investing in capital expenditures, particularly in our digital platform. We invested approximately $117.6 million in total capital expenditures in fiscal 2018, of which approximately $45.9 million was spent on digital technology. We expect our 2019 capitalized expenditures to closely approximate our spending in 2018.

Recent developments

Incremental amendment to senior credit facility

On January 17, 2019, we entered into an incremental amendment to our existing senior credit facility to include $100.0 million in additional revolving commitments, thereby increasing our total borrowing capacity under the revolving portion of our senior credit facility to $550.0 million (the “Incremental Amendment”). See “Description of certain indebtedness—Incremental Amendment”.

Financial Statements pursuant to Rule 3-14 of Regulation S-X

On March 1, 2019, we filed a Current Report on Form 8-K/A to provide financial statements required pursuant to Rule 3-14 of Regulation S-X with respect to the transactions under the Equity Purchase Agreement (the “Equity



 

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Purchase Agreement”) dated December 21, 2018, between us, FMG Outdoor Holdings, LLC (“Fairway” or “Fairway Outdoor Advertising”), GTCR/FMG Blocker Corp. (the “GTCR Blocker”), NCP Fairway, Inc. (the “NCP Blocker” and, together with GTCR Blocker, the “Blockers”), each of the selling members identified therein (together with the Blockers, the “Sellers”), and GTCR Partners XI/B LP, as representative for the Sellers. Pursuant to the Equity Purchase Agreement, we acquired certain assets of Fairway in five U.S. markets for a combined purchase price of $418.5 million.

Organization

The following summary organization chart sets forth the basic corporate structure of Lamar.

 

 

LOGO

 

*

All of our domestic subsidiaries (except Lamar QRS Receivables, LLC and Lamar TRS Receivables, LLC (the “Special Purpose Subsidiaries”) and subsidiaries that are not wholly owned) will unconditionally guarantee the notes.

Our History

Lamar Media Corp. has been in operation since 1902. We completed a reorganization on July 20, 1999 to create our current holding company structure. At that time, Lamar Advertising Company was renamed Lamar Media Corp. and all its stockholders became stockholders in a new holding company. The new holding company then took the Lamar Advertising Company name and Lamar Media Corp. became a wholly owned subsidiary of Lamar Advertising Company.

During 2014, we completed a reorganization in order for Lamar Advertising to qualify as a REIT for U.S. federal income tax purposes. As part of the plan to reorganize our business operations so that Lamar Advertising could elect to qualify as a REIT for the taxable year ended December 31, 2014, Lamar Advertising completed a merger with its predecessor that was approved by its stockholders on November 17, 2014. At the time of the merger, the surviving corporation took the Lamar Advertising Company name. We hold and operate certain assets through one or more taxable REIT subsidiaries (“TRSs”). The non-REIT qualified businesses that we hold through TRSs include most of our transit and foreign operations.

We may, from time to time, change the election of previously designated TRSs to be treated as qualified REIT subsidiaries or other disregarded entities (“QRSs”), and may reorganize and transfer certain assets or operations from our TRSs to other subsidiaries, including QRSs.



 

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Summary of the Exchange Offer

In this prospectus, the term “outstanding notes” refers to the outstanding $250,000,000 5 3/4% Senior Notes due 2026 issued on February 1, 2019; the term “exchange notes” refers to the 5 3/4% Senior Notes due 2026 registered under the Securities Act to be exchanged for the outstanding notes; “original notes” refers to the 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; and the term “notes” refers to the outstanding notes, the exchange notes and the original notes.

 

General

In connection with the private offering, we entered into a registration rights agreement with the initial purchasers of the outstanding notes in which we agreed, among other things, to deliver this prospectus to you and to use our reasonable best efforts to complete an exchange offer for the outstanding notes.

 

Exchange Offer

We are offering to exchange $250,000,000 principal amount of exchange notes, which have been registered under the Securities Act, for $250,000,000 principal amount of outstanding notes.

 

  The outstanding notes may be exchanged only in denominations of $2,000 and integral multiples of $1,000.

 

Resale of the Exchange Notes

Based on the position of the staff of the Division of Corporation Finance of the Commission in certain interpretive letters issued to third parties in other transactions, we believe that the exchange notes acquired in this exchange offer may be freely traded without compliance with the provisions of the Securities Act, if:

 

   

you are acquiring the exchange notes in the ordinary course of your business,

 

   

you have not engaged in, do not intend to engage in, and have no arrangement or understanding with any person to participate in, a distribution of the exchange notes, and

 

   

you are not our affiliate as defined in Rule 405 of the Securities Act.

 

  If you fail to satisfy any of these conditions, you must comply with the registration and prospectus delivery requirements of the Securities Act in connection with the resale of the exchange notes.

 

  Broker-dealers that acquired outstanding notes directly from us, but not as a result of market-making activities or other trading activities, must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a resale of the exchange notes. See “Plan of Distribution.”

 

 

Each broker-dealer that receives exchange notes for its own account pursuant to the exchange offer in exchange for outstanding notes that it acquired as a result of market-making or other trading activities must deliver a prospectus in connection with any resale of the



 

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exchange notes and provide us with a signed acknowledgement of this obligation.

 

Expiration Date

This exchange offer will expire at 5:00 p.m., New York City time, on                 , 2019, unless we extend the offer.

 

Conditions to the Exchange Offer

The exchange offer is subject to limited, customary conditions, which we may waive.

 

Procedures for Tendering Outstanding Notes

If you wish to accept the exchange offer, you must deliver to the exchange agent, before the expiration of the exchange offer:

 

   

either a completed and signed letter of transmittal or, for outstanding notes tendered electronically, an agent’s message from The Depository Trust Company (“DTC”), Euroclear or Clearstream stating that the tendering participant agrees to be bound by the letter of transmittal and the terms of the exchange offer,

 

   

your outstanding notes, either by tendering them in physical form or by timely confirmation of book-entry transfer through DTC, Euroclear or Clearstream, and

 

   

all other documents required by the letter of transmittal.

 

  If you hold outstanding notes through DTC, Euroclear or Clearstream, you must comply with their standard procedures for electronic tenders, by which you will agree to be bound by the letter of transmittal.

 

  By signing, or by agreeing to be bound by, the letter of transmittal, you will be representing to us that:

 

   

you will be acquiring the exchange notes in the ordinary course of your business,

 

   

you have no arrangement or understanding with any person to participate in the distribution of the exchange notes, and

 

   

you are not our affiliate as defined under Rule 405 of the Securities Act.

 

  See “The Exchange Offer—Procedures for Tendering.”

 

Guaranteed Delivery Procedures for Tendering Outstanding Notes

If you cannot meet the expiration deadline or you cannot deliver your outstanding notes, the letter of transmittal or any other documentation to comply with the applicable procedures under DTC, Euroclear or Clearstream standard operating procedures for electronic tenders in a timely fashion, you may tender your notes according to the guaranteed delivery procedures set forth under “The Exchange Offer—Guaranteed Delivery Procedures.”


 

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Special Procedures for Beneficial Holders

If you beneficially own outstanding notes that are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and you wish to tender in the exchange offer, you should contact that registered holder promptly and instruct that person to tender on your behalf. If you wish to tender in the exchange offer on your own behalf, you must, prior to completing and executing the letter of transmittal and delivering your outstanding notes, either arrange to have the outstanding notes registered in your name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time.

 

Acceptance of Outstanding Notes and Delivery of Exchange Notes

We will accept any outstanding notes that are properly tendered for exchange before 5:00 p.m., New York City time, on the day this exchange offer expires. The exchange notes will be delivered promptly after expiration of this exchange offer.

 

Exchange Date

We will notify the exchange agent of the date of acceptance of the outstanding notes for exchange.

 

Withdrawal Rights

If you tender your outstanding notes for exchange in this exchange offer and later wish to withdraw them, you may do so at any time before 5:00 p.m., New York City time, on the day this exchange offer expires.

 

Consequences if You Do Not Exchange Your Outstanding Notes

Outstanding notes that are not tendered in the exchange offer or are not accepted for exchange will continue to bear legends restricting their transfer. You will not be able to sell the outstanding notes unless:

 

   

an exemption from the requirements of the Securities Act is available to you,

 

   

we register the resale of outstanding notes under the Securities Act, or

 

   

the transaction requires neither an exemption from nor registration under the requirements of the Securities Act.

 

  After the completion of the exchange offer, we will no longer have any obligation to register the outstanding notes, except in limited circumstances.

 

Accrued Interest on the Outstanding Notes

Any interest that has accrued on an outstanding note before its exchange in this exchange offer will be payable on the exchange note on the first interest payment date after the completion of this exchange offer.


 

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United States Federal Income Tax Considerations

The exchange of the outstanding notes for the exchange notes generally will not be a taxable event for United States federal income tax purposes. See “Material United States Federal Income Tax Considerations.”

 

Exchange Agent

The Bank of New York Mellon Trust Company, N.A. is serving as the exchange agent. Its address and telephone number are provided in this prospectus under the heading “The Exchange Offer—Exchange Agent.”

 

Use of Proceeds

We will not receive any cash proceeds from this exchange offer. See “Use of Proceeds.”

 

Registration Rights Agreement

When we issued the outstanding notes on February 1, 2019, we and the guarantors entered into a registration rights agreement with the initial purchasers of the outstanding notes. Under the terms of the registration rights agreement, we agreed to use our reasonable best efforts to cause to become effective a registration statement with respect to an offer to exchange the outstanding notes for other freely tradable notes issued by us and that are registered with the Commission and that have substantially identical terms as the outstanding notes. If we fail to effect the exchange offer, we will use our reasonable best efforts to file and cause to become effective a shelf registration statement related to resales of the outstanding notes. We will be obligated to pay additional interest on the outstanding notes if we do not complete the exchange offer by October 29, 2019, or, if required, the shelf registration statement is not declared effective by October 29, 2019. See “Registration Rights Agreement.”

 

Accounting Treatment

We will not recognize any gain or loss for accounting purposes upon the completion of the exchange offer in accordance with generally accepted accounting principles. See “The Exchange Offer—Accounting Treatment.”


 

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Summary of the Terms of the Exchange Notes

The exchange notes will be identical to the outstanding notes except that:

 

   

the exchange notes will be registered under the Securities Act and therefore will not bear legends restricting their transfer; and

 

   

specified rights under the registration rights agreement, including the provisions providing for registration rights and the payment of additional interest in specified circumstances, will be limited or eliminated.

The exchange notes will evidence the same debt as the outstanding notes and the same indenture will govern both the outstanding notes and the exchange notes. The exchange notes will be identical to the original notes, except for the issue price. For a more complete understanding of the exchange notes, please refer to the section of this prospectus entitled “Description of Exchange Notes.”

 

Issuer

Lamar Media Corp.

 

Securities Offered

$250,000,000 principal amount of 5 3/4% Senior Notes due 2026

 

Maturity Date

February 1, 2026

 

Interest Rate

5.75% per year

 

Interest Payment Date

February 1 and August 1 of each year, beginning on August 1, 2019. Interest will accrue from February 1, 2019.

 

Guarantees

Substantially all of our existing domestic subsidiaries, except the Special Purpose Subsidiaries and subsidiaries that are not wholly-owned, and certain of our future domestic subsidiaries will unconditionally guarantee the notes.

 

Ranking

The exchange notes will be our general unsecured obligations, and will rank senior to all of our existing and future debt that is expressly subordinated to the exchange notes, including our 5% Senior Subordinated Notes due 2023. The exchange notes will rank equally with all of our existing and future senior debt, including our 5 3/8% Senior Notes due 2024 and the original notes, 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 our Accounts Receivables Securitization Program, and structurally subordinated to all of the liabilities of any of our subsidiaries that do not guarantee the notes (including, without limitation, the liabilities of the Special Purpose Subsidiaries under the Accounts Receivable Securitization Program).

 

  The guarantees will be generally unsecured obligations of the subsidiary guarantors and will rank senior to all their existing and future debt that is expressly subordinated to the guarantees. The guarantees will rank equally with all existing and future senior debt of such subsidiary guarantors and will be effectively subordinated to all of such subsidiary guarantors’ secured debt (to the extent of the collateral securing such debt), including their guarantees of our senior credit facility.


 

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  As of December 31, 2018, the exchange notes and the subsidiary guarantees would have been effectively subordinated to approximately $1.280 billion in secured debt, excluding approximately $156.8 million of additional borrowing capacity under our senior credit facility, would have ranked senior to $531.0 million of senior subordinated notes and would have ranked equally with $901.0 million of senior notes, including the original notes. As of December 31, 2018, our non-guarantor subsidiaries had approximately $0.4 million in trade payables and $173.8 million of borrowings under our Accounts Receivable Securitization Program.

 

Optional Redemption

We may redeem some or all of the exchange notes at any time on or after February 1, 2021. We may also redeem some or all of the exchange notes before February 1, 2021 at a redemption price of 100% of the principal amount, plus accrued, unpaid, and special interest, if any, to the redemption date, plus a “make-whole” premium. The redemption prices are described under “Description of Exchange Notes—Optional Redemption.”

 

Change of Control and Asset Sales

If we or Lamar Advertising experience specific kinds of changes of control or we sell assets under certain circumstances, we will be required to make an offer to purchase the notes at the prices listed in “Description of Exchange Notes—Material Covenants—Change of Control” and “Description of Exchange Notes—Material Covenants—Limitations on Certain Asset Sales.” We may not have sufficient funds available at the time of any change of control to effect the purchase.

 

Material Covenants

The indenture restricts our ability and the ability of our restricted subsidiaries to, among other things:

 

   

incur additional debt and issue preferred stock;

 

   

make certain distributions, investments and other restricted payments;

 

   

create certain liens;

 

   

enter into transactions with affiliates;

 

   

agree to any restrictions on the ability of restricted subsidiaries to make payments to us;

 

   

merge, consolidate or sell substantially all of our assets; and

 

   

sell assets.

 

  These covenants are subject to important exceptions and qualifications, and certain of these covenants will not be applicable during any period of time if the exchange notes have an investment grade rating. See “Description of Exchange Notes” in this prospectus.

Risk Factors

See “Risk Factors” for a discussion of certain factors that you should carefully consider before participating in the exchange offer.



 

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Summary Consolidated Historical Financial Data

The following table contains our summary 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 “Selected Historical Consolidated Financial Data” and “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

     230,800       242,182       269,423       276,229       289,428  

Corporate expenses

     68,733       71,426       75,994       61,962       82,497  

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  

Interest expense, net

     105,152       98,399       123,682       128,390       129,198  

Other-than-temporary impairment of investment

     4,069       —         —         —         —    

Loss on debt extinguishment

     26,023       —         3,198       71       15,429  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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 financial data (unaudited):

          

Adjusted EBITDA(1)

   $ 558,378     $ 591,918     $ 657,840     $ 671,788     $ 722,892  

Adjusted EBITDA margin(2)

     43     44     44     44     44

Ratio of Adjusted EBITDA to interest expense, net(3)

     5.3x       6.0x       5.3x       5.2x       5.6x  

Ratio of total debt to Adjusted EBITDA(4)

     3.4x       3.2x       3.6x       3.8x       4.0x  

Capital expenditures

   $ 107,573     $ 110,425     $ 107,612     $ 109,329     $ 117,638  

 

     As of December 31,  

(dollars in thousands)

   2014      2015      2016      2017      2018  

Balance sheet data(5):

              

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)

Adjusted EBITDA is defined as net income before stock-based compensation, interest expense (income), income tax expense (benefit), depreciation and amortization, gain or loss on disposition of assets and investments and (gain) loss on extinguishment of debt and investments. Adjusted EBITDA represents a



 

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  measure that we believe is customarily used by investors and analysts to evaluate the financial performance of companies in the media industry. Our management also believes that Adjusted EBITDA is useful in evaluating our core operating results. However, Adjusted EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States and should not be considered an alternative to operating income or net income as an indicator of our operating performance or to net cash provided by operating activities as a measure of our liquidity. Because Adjusted EBITDA is not calculated identically by all companies, the presentation in this offering memorandum may not be comparable to those disclosed by other companies. In addition, the definition of Adjusted EBITDA differs from the definition of EBITDA applicable to the covenants for the notes.

Below is a table that reconciles net income to Adjusted EBITDA:

 

     Year ended December 31,  

(dollars in thousands)

   2014     2015     2016     2017     2018  

Statement of operations data:

          

Net income

   $ 287,035     $ 262,903     $ 299,181     $ 318,058     $ 305,631  

Stock-based compensation

     24,120       25,890       28,560       9,599       29,443  

Depreciation and amortization

     258,435       191,433       204,958       211,104       225,261  

(Gain) loss on disposition of assets and investments

     (3,192     (8,765     (15,095     (4,664     7,233  

Interest expense, net

     105,152       98,399       123,682       128,390       129,198  

Other than temporary impairment of investment

     4,069       —         —         —         —    

Loss on debt extinguishment

     26,023       —         3,198       71       15,429  

Income tax expense (benefit)

     (143,264     22,058       13,356       9,230       10,697  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA (unaudited)

   $ 558,378     $ 591,918     $ 657,840     $ 671,788     $ 722,892  

 

(2)

Adjusted EBITDA margin is defined as Adjusted EBITDA divided by net revenues.

(3)

Ratio of Adjusted EBITDA to interest expense is defined as Adjusted EBITDA divided by net interest expense.

(4)

Ratio of total debt to Adjusted EBITDA is defined as total debt divided by Adjusted EBITDA.

(5)

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



 

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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:

 

   

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;

 

   

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

 

   

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:

 

   

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;

 

   

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

 

   

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

 

   

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

 

   

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;

 

   

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

 

   

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:

 

   

incur or repay debt;

 

   

dispose of assets;

 

   

create liens;

 

   

make investments;

 

   

enter into affiliate transactions; and

 

   

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:

 

   

was insolvent or rendered insolvent by reason of such incurrence;

 

   

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

 

   

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:

 

   

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

 

   

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:

 

   

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

 

   

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:

 

   

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

 

   

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;

 

   

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;

 

   

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

 

   

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;

 

   

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

 

   

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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financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate our estimates and judgments, including those related to intangible assets, goodwill impairment and asset retirement obligations. We base our estimates on historical and anticipated results and trends and on various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events and, where applicable, established valuation techniques. These estimates form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results may differ from our estimates. We believe that the following significant accounting policies and assumptions may involve a higher degree of judgment and complexity than others.

Intangible Assets. We had significant intangible assets recorded on our balance sheet. Intangible assets primarily represent site locations of $806.0 million and customer relationships of $95.4 million associated with our acquisitions. The fair values of intangible assets recorded are determined using discounted cash flow models that require management to make assumptions related to future operating results, including projecting net revenue growth discounted using current cost of capital rates, of each acquisition and the anticipated future economic environment. If actual results differ from management’s assumptions, an impairment of these intangibles may exist and a charge to income would be made in the period such impairment is determined. Historically no impairment charge has been required with respect to our intangible assets.

Goodwill Impairment. We have a significant amount of goodwill on our consolidated balance sheet and must perform an impairment test of goodwill annually or on a more frequent basis if events and circumstances indicate that the asset might be impaired. We have identified two reporting units (Logo operations and Billboard operations) in accordance with Accounting Standards Codification (“ASC”) 350 and no changes have been made to our reporting units from the prior period.

In our annual or interim measurement for impairment of goodwill, we conduct a qualitative assessment by examining relevant events and circumstances that could have a negative impact on our goodwill, which include macroeconomic conditions, industry and market conditions, cost factors, overall financial performance, reporting unit dispositions and acquisitions, our market capitalization and other relevant events specific to us. If, after assessing the totality of events or circumstances described above, we determine that it is more likely than not that the fair value of either of our reporting units is less than its carrying amount, we will perform a quantitative impairment test. If impairment is indicated as a result of the quantitative impairment test, a goodwill impairment charge would be recorded to write the goodwill down to its implied fair value. Based on the goodwill impairment analysis performed on December 31, 2018, we determined that the fair value of each reporting unit exceeded the carrying value and no impairment charge was recorded.

Asset Retirement Obligations. We had an asset retirement obligation of $223.0 million as of December 31, 2018. This liability relates to our obligation upon the termination or non-renewal of a lease to dismantle and remove our billboard structures from the leased land and to reclaim the site to its original condition. We record the present value of obligations associated with the retirement of tangible long-lived assets in the period in which they are incurred. The liability is capitalized as part of the related long-lived asset’s carrying amount. Over time, accretion of the liability is recognized as an operating expense and the capitalized cost is depreciated over the expected useful life of the related asset. In calculating the liability, we calculate the present value of the estimated cost to dismantle using an average cost to dismantle, adjusted for inflation and market risk.

This calculation includes 100% of our billboard structures on leased land (which currently consist of approximately 74,500 structures). We use a 15-year retirement period based on historical operating experience in our core markets, including the actual time that billboard structures have been located on leased land in such markets and the actual length of the leases in the core markets, which includes the initial term of the lease, plus consideration of any renewal period. Historical third-party cost information is used to estimate the cost of dismantling of the structures and the reclamation of the site. The interest rate used to calculate the present value of such costs over the retirement period is based on our historical credit-adjusted risk free rate.

 

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Acquisitions. We account for transactions that meet the definition of a business and group asset purchases as acquisitions. For transactions that meet the definition of a business combination, we allocate the purchase price, including any contingent consideration, to the assets acquired and the liabilities assumed at their estimated fair values as of the date of the acquisition with any excess of the purchase price paid over the estimated fair value of net assets acquired recorded as goodwill. For transactions that meet the definition of asset group purchases, we allocate the purchase price to the assets acquired and the liabilities assumed at their estimated fair values as of the date of the acquisition. If a transaction is determined to be a group of assets, any direct acquisition costs are capitalized. Transaction costs for transactions determined to be a business combination are expensed as incurred.

The fair value of the assets acquired and liabilities assumed is typically determined by using either estimates of replacement costs or discounted cash flow valuation methods. When determining the fair value of tangible assets acquired, we must estimate the cost to replace the asset with a new asset, adjusted for an estimated reduction in fair value due to age of the asset, and the economic useful life. When determining the fair value of intangible assets acquired, we must estimate the applicable discount rate and the timing and amount of future cash flows. The determination of the final purchase price and the acquisition-date fair value of identifiable assets acquired and liabilities assumed may extend over more than one period and result in adjustments to the preliminary estimate recognized in the prior period financial statements.

Accounting Standards and Regulatory Update

Revenue. In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09 (Codified as ASC 606), Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU replaced most existing revenue recognition guidance in U.S. GAAP when it became effective. In August 2015, the FASB issued ASU No. 2015-14 deferring the effective date from January 1, 2017 to January 1, 2018, while allowing for early adoption as of January 1, 2017. The standard permits the use of either the retrospective or cumulative effect transition method. We adopted the provisions of ASC 606 on January 1, 2018 using the cumulative effect transition method. We did not have an adjustment to our opening balance of retained earnings for the adoption of this update.

Leases. In February 2016, the FASB established Topic 842, Leases, by issuing Accounting Standards Update (ASU) No. 2016-02, which requires lessees to recognize leases on the balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. The new standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

The new standard was effective for us on January 1, 2019, with early adoption permitted. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. If an entity chooses the second option, the transition requirements for existing leases also apply to leases entered into between the date of initial application and the effective date. The entity must also recast its comparative period financial statements and provide the disclosures required by the new standard for the comparative periods. We adopted the new standard on January 1, 2019 and used the effective date as our date of initial application. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019.

The new standard provides a number of optional practical expedients in transition. We expect to elect the ‘package of practical expedients’, which permits us not to reassess under the new standard our prior conclusions

 

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about lease identification, lease classification and initial direct costs. We also expect to elect the use of hindsight and the practical expedient pertaining to land easements. We expect to elect all of the new standard’s available transition practical expedients.

We expect that this standard will have a material effect on our financial statements. While we continue to assess all of the effects of adoption, we currently believe the most significant effects relate to (1) the recognition of new ROU assets and lease liabilities on our balance sheet for our billboard, logo, building and vehicle operating leases; (2) reclassification within our balance sheet of current asset prepaid operating lease balances to be a reduction of our lease liabilities and; (3) providing significant new disclosures about our leasing activities.

On adoption, we currently expect to recognize additional operating liabilities exceeding $1.1 billion, with corresponding ROU assets of the same amount based on the present value of the remaining minimum rental payments under current leasing standards for our existing operating leases.

The new standard also provides practical expedients for a company’s ongoing accounting. We currently expect to elect the short-term lease recognition exemption for our vehicle leases. This means, for those leases that qualify, we will not recognize ROU assets or lease liabilities. This includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition.

Other recently released pronouncements. In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation: Improvements to Employee Share-Based Payment Accounting. The update is designed to simplify accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The update is effective for annual periods beginning January 1, 2017 with early adoption permitted. The adoption of this update did not have a material impact on our consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows—Classification of Certain Cash Receipts and Cash Payments. The update clarifies how certain cash receipts and cash payments are presented in the statement of cash flows. The update is effective for annual periods beginning January 1, 2018 with early adoption permitted. We adopted the update for the period ended December 31, 2016. The update did not have a material impact on our consolidated statement of cash flows.

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

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

 

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In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808). The update is to clarify when certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 and when the collaborative arrangement participant is a customer in the context of a unit of account. The update also adds unit-of-account guidance in Topic 808 and requires that a collaborative arrangement participant that is not directly related to sales to a third party, and is presenting the transaction together with revenue recognized under Topic 606 is precluded if the collaborative arrangement participant is not a customer. The update is effective for annual and interim fiscal periods beginning after December 15, 2019 with early adoption permitted. We do not believe this update will have a material effect on our consolidated financial statements.

Quantitative and Qualitative Disclosures About Market Risk

We are exposed to interest rate risk in connection with variable rate debt instruments that we have issued. The information below summarizes our interest rate risk associated with our principal variable rate debt instruments outstanding at December 31, 2018, and should be read in conjunction with Note 9 of the Notes to Lamar Advertising’s Consolidated Financial Statements.

We have variable-rate debt outstanding under our senior credit facility and our Accounts Receivable Securitization Program. Because interest rates may increase or decrease at any time, we are exposed to market risk as a result of the impact that changes in interest rates may have on the applicable borrowings outstanding. Increases in the interest rates applicable to these borrowings would result in increased interest expense and a reduction in our net income.

At December 31, 2018 there was approximately $1.45 billion of indebtedness outstanding under the senior credit facility and Accounts Receivable Securitization Program, or approximately 54.1% of our outstanding long-term debt on that date, bearing interest at variable rates. The aggregate interest expense for 2018 with respect to borrowings under the senior credit facility and the Accounts Receivable Securitization Program was $40.9 million, and the weighted average interest rate applicable to these borrowings during 2018 was 3.8%. Assuming that the weighted average interest rate was 200 basis points higher (that is 5.8% rather than 3.8%), then our 2018 interest expense would have increased by approximately $20.8 million for the year ended December 31, 2018.

We have attempted to mitigate the interest rate risk resulting from our variable interest rate long-term debt instruments by issuing fixed rate long-term debt instruments and maintaining a balance over time between the amount of our variable rate and fixed rate indebtedness. In addition, we have the capability under our senior credit facility to fix the interest rates applicable to our borrowings at an amount equal to Adjusted LIBO Rate or Adjusted Base Rate plus the applicable margin for periods of up to twelve months (in certain cases with the consent of the lenders), which would allow us to mitigate the impact of short-term fluctuations in market interest rates. In the event of an increase in interest rates, we may take further actions to mitigate our exposure. We cannot guarantee, however, that the actions that we may take to mitigate this risk will be feasible or that, if these actions are taken, they will be effective.

 

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BUSINESS

General

We are one of the largest outdoor advertising companies in the United States based on number of displays and have operated under the Lamar name since 1902. We operate in a single operating and reporting segment, advertising. We lease space for advertising on billboards, buses, shelters, benches, logo plates and in airport terminals. We offer our customers a fully integrated service, satisfying all aspects of their billboard display requirements from ad copy production to placement and maintenance.

Our Business

We operate three types of outdoor advertising displays: billboards, logo signs and transit advertising displays.

Billboards. As of December 31, 2018, we owned and operated approximately 156,900 billboard advertising displays in 45 states and Canada. We lease most of our advertising space on two types of billboards: bulletins and posters.

 

   

Bulletins are generally large, illuminated advertising structures that are located on major highways and target vehicular traffic.

 

   

Posters are generally smaller advertising structures that are located on major traffic arteries and city streets and target vehicular and pedestrian traffic.

In addition to traditional billboards, we also lease space on digital billboards, which are generally located on major traffic arteries and city streets. As of December 31, 2018, we owned and operated over 3,100 digital billboard advertising displays in 43 states and Canada.

Logo signs. We lease advertising space on logo signs located near highway exits.

 

   

Logo signs generally advertise nearby gas, food, camping, lodging and other attractions.

We are the largest provider of logo signs in the United States, operating 23 of the 25 privatized state logo sign contracts. As of December 31, 2018, we operated approximately 149,000 logo sign advertising displays in 23 states and Canada.

Transit advertising displays. We also lease advertising space on the exterior and interior of public transportation vehicles, in airport terminals, and on transit shelters and benches in over 80 markets. As of December 31, 2018, we operated over 53,300 transit advertising displays in 22 states and Canada.

Corporate History

We have operated under the Lamar name since our founding in 1902 and have been publicly traded on NASDAQ under the symbol “LAMR” since 1996. We completed a reorganization on July 20, 1999 that created a holding company structure. At that time, the operating company (then called Lamar Advertising Company) was renamed Lamar Media Corp., and all of the operating company’s stockholders became stockholders of a new holding company. The new holding company then took the Lamar Advertising Company name, and Lamar Media Corp. became a wholly owned subsidiary of Lamar Advertising Company.

During 2014, we completed a reorganization in order for Lamar Advertising to qualify as a REIT for federal income tax purposes. As part of the plan to reorganize our business operations so that Lamar Advertising could elect to qualify as a REIT for the taxable year ended December 31, 2014, Lamar Advertising completed a merger with its predecessor that was approved by its stockholders on November 17, 2014. At the time of the merger each outstanding share of Lamar Advertising’s predecessor’s Class A common stock, Class B common stock and

 

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Series AA preferred stock was converted into the right to receive an equal number of shares of Class A common stock, Class B common stock and Series AA preferred stock of the surviving corporation, respectively. Accordingly, references herein to Lamar Advertising’s Class A common stock, Class B common stock and Series AA preferred stock refer to Lamar Advertising’s capital stock and the capital stock of Lamar Advertising’s predecessor, as applicable. We hold and operate certain assets through one or more TRSs. The non-REIT qualified businesses that we hold through TRSs include most of our transit and foreign operations.

We may, from time to time, change the election of previously designated TRSs to be treated as QRSs or other disregarded entities, and may reorganize and transfer certain assets or operations from our TRSs to other subsidiaries, including QRSs.

Operating Strategies

We strive to be a leading provider of outdoor advertising services in each of the markets that we serve, and our operating strategies for achieving that goal include:

Continuing to provide high quality local sales and service. We seek to identify and closely monitor the needs of our tenants and to provide them with a full complement of high quality advertising services. Local advertising constituted approximately 76% of our net revenues for the year ended December 31, 2018, which management believes is higher than the industry average. We believe that the experience of our regional, territory and local managers has contributed greatly to our success. For example, our regional managers have been with us for an average of 33 years. In an effort to provide high quality sales and service at the local level, we employed over 1,050 local account executives as of December 31, 2018. Local account executives are typically supported by additional local staff and have the ability to draw upon the resources of our central office, as well as our offices in other markets, in the event business opportunities or customers’ needs support such an allocation of resources.

Continuing a centralized control and decentralized management structure. Our management believes that, for our particular business, centralized control and a decentralized organization provide for greater economies of scale and are more responsive to local market demands. Therefore, we maintain centralized accounting and financial control over our local operations, but our local managers are responsible for the day-to-day operations in each local market and are compensated according to that market’s financial performance.

Continuing to focus on internal growth. Within our existing markets we seek to increase our revenue and improve cash flow by employing highly-targeted local marketing efforts to improve our display occupancy rates and by increasing advertising rates where and when demand can absorb rate increases. Our local offices spearhead this effort and respond to local customer demands quickly.

In addition, we routinely invest in upgrading our existing displays and constructing new displays. Since January 1, 2008, we invested approximately $1.2 billion in capitalized expenditures, which include improvements to our existing real estate portfolio and the construction of new locations. Our regular improvement and expansion of our advertising display inventory allows us to provide high quality service to our current tenants and to attract new tenants.

Continuing to pursue other outdoor advertising opportunities. We plan to renew existing logo sign contracts and pursue additional logo sign contracts. Logo sign opportunities arise periodically, both from states initiating new logo sign programs and states converting from government-owned and operated programs to privately-owned and operated programs. Furthermore, we plan to pursue additional tourist oriented directional sign programs in both the United States and Canada and also other motorist information signing programs as opportunities present themselves. In addition, in an effort to maintain market share, we continue to pursue attractive transit advertising opportunities as they become available.

Reinvesting in capital expenditures including digital technology. We have a history of investing in capital expenditures, particularly in our digital platform. We spent approximately $117.6 million in total capital

 

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expenditures in fiscal 2018, of which approximately $45.9 million was spent on digital technology. We expect our 2019 capitalized expenditures to closely approximate our spending in 2018.

Capital Allocation Strategy

The objective of Lamar Advertising’s capital allocation strategy is to simultaneously increase adjusted funds from operations and its return on invested capital. To maintain its REIT status Lamar Advertising is required to distribute to its stockholders annually an amount equal to at least 90% of its REIT taxable income, excluding net capital gains. After complying with Lamar Advertising’s REIT distribution requirements, we plan to continue to allocate our available capital among investment alternatives that meet our return on investment criteria. During 2018, we generated $564.8 million of cash from operating activities, which was used to fund capital expenditures, dividends to Lamar Advertising’s shareholders and partially fund acquisitions.

 

   

Capital expenditures program. We will continue to reinvest in our existing assets and expand our outdoor advertising display portfolio through new construction. This includes maintenance and growth capital expenditures 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.

 

   

Acquisitions. We will seek to pursue strategic acquisitions of outdoor advertising businesses and assets. This includes acquisitions in our existing markets and in new markets where we can meet our return on investment criteria. When evaluating investments in new markets, our return on investment criteria reflects the additional risks inherent to the particular geographic area.

Company Operations

Billboard Advertising

We lease most of our advertising space on two types of billboard advertising displays: bulletins and posters. As of December 31, 2018, we owned and operated approximately 156,900 billboard advertising displays in 45 states and Canada. In 2018, we derived approximately 75% of our billboard advertising net revenues from bulletin rentals and 25% from poster rentals.

Bulletins are large, advertising structures (the most common size is fourteen feet high by forty-eight feet wide, or 672 square feet) consisting of panels on which advertising copy is displayed. We wrap advertising copy printed with computer-generated graphics on a single sheet of vinyl around the structure. To attract more attention, some of the panels may extend beyond the linear edges of the display face and may include three-dimensional embellishments. Because of their greater impact and higher cost, bulletins are usually located on major highways and target vehicular traffic. At December 31, 2018, we operated approximately 75,180 bulletin displays.

We generally lease individually-selected bulletin space to advertisers for the duration of the contract (ranging from 4 to 52 weeks). We also lease bulletins as part of a rotary plan under which we rotate the advertising copy from one bulletin location to another within a particular market at stated intervals (usually every sixty to ninety days) to achieve greater reach within that market.

Posters are smaller advertising structures (the most common size is eleven feet high by twenty-three feet wide, or 250 square feet; we also operate junior posters, which are five feet high by eleven feet wide, or 55 square feet). Poster panels utilize a single flexible sheet of polyethylene material that inserts onto the face of the panel. Posters are concentrated on major traffic arteries and target vehicular traffic, and junior posters are concentrated on city streets and target hard-to-reach pedestrian traffic and nearby residents. At December 31, 2018, we operated approximately 81,720 poster displays.

We generally lease poster space for 4 to 26 weeks; determined by the advertiser’s campaign needs. Posters are sold in packages of Target Rating Point (“TRP”) levels, which determine the percentage of a target audience an advertiser needs to reach. A package may include a combination of poster locations in order to meet reach and frequency campaign goals.

 

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In addition to the traditional static displays, we also rent digital billboards. Digital billboards are large electronic light emitting diode (“LED”) displays (the most common sizes are fourteen feet high by forty-eight feet wide, or 672 square feet; ten and a half feet high by thirty six feet wide, or 378 square feet; and ten feet high by twenty-one feet wide, or 210 square feet) that are generally located on major traffic arteries and city streets. Digital billboards are capable of generating over one billion colors and vary in brightness based on ambient conditions. They display completely digital advertising copy from various advertisers in a slide show fashion, rotating each advertisement approximately every 6 to 8 seconds. At December 31, 2018, our inventory included over 3,100 digital display billboards in various markets. These 3,100 digital billboards generated approximately 24% of billboard advertising net revenue.

We own the physical structures on which the advertising copy is displayed. We build the structures on locations we either own or lease. In each local office, one employee typically performs site leasing activities for the markets served by that office.

In the majority of our markets, our local production staffs perform the full range of activities required to create and install billboard advertising displays. Production work includes creating the advertising copy design and layout, coordinating its printing and installing the designs on the displays. Our talented design staff uses state-of-the-art technology to prepare creative, eye-catching displays for our tenants. We can also help with the strategic placement of advertisements throughout an advertiser’s market by using software that allows us to analyze the target audience and its demographics. Our artists also assist in developing marketing presentations, demonstrations and strategies to attract new tenant advertisers.

In marketing billboard displays to advertisers, we compete with other forms of out-of-home advertising and other media. When selecting the media and provider through which to advertise, advertisers consider a number of factors and advertising providers, which are described in the section entitled — “Competition” below.

Logo Sign Advertising

We entered the logo sign advertising business in 1988 and have become the largest provider of logo sign services in the United States, operating 23 of the 25 privatized state logo contracts. We erect logo signs, which generally advertise nearby gas, food, camping, lodging and other attractions, and directional signs, which direct vehicle traffic to nearby services and tourist attractions, near highway exits. As of December 31, 2018, we operated approximately 45,360 logo sign structures containing approximately 149,000 logo advertising displays in the United States and Canada.

We operate the logo sign contracts in the province of Ontario, Canada and in the following states:

 

Colorado    Georgia    Louisiana    Mississippi    Nebraska    Ohio    Utah
Delaware    Kansas    Michigan    Missouri(1)    Nevada    Oklahoma    Virginia
Florida    Kentucky    Minnesota    Montana    New Jersey    South Carolina    Wisconsin
            New Mexico    Tennessee   

 

(1)

The logo sign contract in Missouri is operated by a 66 2/3% owned partnership.

We also operate the tourist oriented directional signing (“TODS”) programs for the states of Colorado, Kansas, Kentucky, Louisiana, Michigan, Missouri, Montana, Nebraska, Nevada, New Jersey, Ohio, South Carolina, Utah, Virginia and the province of Ontario, Canada.

Our logo and TODS operations are decentralized. Generally, each office is staffed with an experienced local general manager, local sales and office staff and a local signing sub-contractor. This decentralization allows the management staff of Interstate Logos, L.L.C. (the subsidiary that operates all of the logo and directional sign-related businesses) to travel extensively to the various operations and serve in a technical and management advisory capacity and monitor regulatory and contract compliance. We also run a silk screening operation in Baton Rouge, Louisiana and a display construction company in Atlanta, Georgia.

 

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State logo sign contracts represent the exclusive right to erect and operate logo signs within a state for a period of time. The terms of the contracts vary, but generally range from five to ten years, with additional renewal terms. Each logo sign contract generally allows the state to terminate the contract prior to its expiration and, in most cases, with compensation for the termination to be paid to us. When a logo sign contract expires, we transfer ownership of the advertising structures to the state. Depending on the contract, we may or may not be entitled to compensation at that time. Of our 24 logo sign contracts in place, in the United States and Canada, at December 31, 2018, six are subject to renewal or expiration in 2019.

States usually award new logo sign contracts and renew expiring logo sign contracts through an open proposal process. In bidding for new and renewal contracts, we compete against other logo sign providers, as well as local companies based in the state soliciting proposals.

In marketing logo signs to advertisers, we compete with other forms of out-of-home advertising and other media. When selecting the media and provider through which to advertise, advertisers consider a number of factors and advertising providers which are described in the section entitled — “Competition” below.

Transit Advertising

We entered into the transit advertising business in 1993 as a way to complement our existing business and maintain market share in certain markets. Transit contracts are generally with the local municipalities and airport authorities and allow us the exclusive right to rent advertising space to customers, in airports and on buses, benches or shelters. The terms of the contracts vary but generally range between 3-15 years, many with renewable options for contract extension. We rent transit advertising displays in airport terminals and on bus shelters, benches and buses in over 80 transit markets, and our production staff provides a full range of creative and installation services to our transit advertising tenants. As of December 31, 2018, we operated over 53,300 transit advertising displays in 22 states and Canada.

Municipalities usually award new transit advertising contracts and renew expiring transit advertising contracts through an open bidding process. In bidding for new and renewal contracts, we compete against national outdoor advertising providers and local, on-premise sign providers and sign construction companies. Transit advertising operators incur significant start-up costs to build and install the advertising structures (such as transit shelters) upon being awarded contracts.

In marketing transit advertising displays to advertisers, we compete with other forms of out-of-home advertising and other media. When selecting the media and provider through which to advertise, advertisers consider a number of factors and advertising providers which are described in the section entitled — “Competition” below.

Competition

Although the outdoor advertising industry has encountered a wave of consolidation, the industry remains fragmented. The industry is comprised of several large outdoor advertising and media companies with operations in multiple markets, as well as smaller, local companies operating a limited number of structures in one or a few local markets.

Although we primarily focus on small to mid-size markets where we can attain a strong market share, in each of our markets, we compete against other providers of outdoor advertising and other types of media, including:

 

   

Larger outdoor advertising providers, such as (i) Clear Channel Outdoor Holdings, Inc., which operates billboards, street furniture displays, transit displays and other out-of-home advertising displays and (ii) Outfront Media, Inc. (formerly CBS Outdoor), which operates traditional outdoor, street furniture and transit advertising properties. Clear Channel Outdoor and Outfront Media each have corporate relationships with large media conglomerates and may have greater total resources, product offerings and opportunities for cross-selling than we do.

 

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Broadcast and cable television, radio, print media, direct mail marketing, the internet, social media and applications used in conjunction with wireless devices.

 

   

An increasing variety of out-of-home advertising media, such as advertising displays in shopping centers, malls, airports, stadiums, movie theaters, supermarkets and advertising displays on taxis, trains and buses.

In selecting the form of media through which to advertise, advertisers evaluate their ability to target audiences having a specific demographic profile, lifestyle, brand or media consumption or purchasing behavior or audiences located in, or traveling through, a particular geography. Advertisers also compare the relative costs of available media, evaluating the number of impressions (potential viewings), exposure (the opportunity for advertising to be seen) and circulation (traffic volume in a market), as well as potential effectiveness, quality of related services (such as advertising copy design and layout) and customer service. In competing with other media, we believe that outdoor advertising is relatively more cost-efficient than other media, allowing advertisers to reach broader audiences and target specific geographic areas or demographic groups within markets.

We believe that our strong emphasis on sales and customer service and our position as a major provider of advertising services in each of our primary markets enables us to compete effectively with the other outdoor advertising companies, as well as with other media, within those markets.

 

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Geographic Diversification

Our advertising displays are geographically diversified across the United States and Canada. The following table sets forth information regarding the geographic diversification of our advertising displays, which are listed in order of contributions to total revenue. Markets with less than 1% of total displays are grouped in the category “all other United States and Puerto Rico”.

 

    Percentage of Revenues for the year ended,
December 31, 2018
    Number of Displays for the year ended,
December 31, 2018
 

Market

  Static
Billboard
Displays
    Digital
Billboard
Displays
    Transit
Displays
    Logo
Displays
   

Total

Displays

    Static
Billboard
Displays
    Digital
Billboard
Displays
    Transit
Displays
    Logo
Displays
    Total
Displays
    Percentage
of Total
Displays
 

Las Vegas, NV

    1.6%       2.5%       13.4%       —         2.7%       851       61       1,558       —         2,470       0.7

New York, NY

    3.4%       1.6%       —         —         2.5%       1,088       33       —         —         1,121       0.3

Pittsburgh, PA

    2.3%       3.9%       1.1%       —         2.4%       3,038       56       745       —         3,839       1.1

Seattle, WA

    2.3%       1.3%       2.1%       —         1.9%       1,776       18       2,194       —         3,988       1.1

Cleveland, OH

    1.7%       2.9%       1.9%       —         1.9%       2,412       58       2,643       —         5,113       1.4

Gary, IN

    1.7%       2.8%       —         —         1.7%       1,705       112       —         —         1,817       0.5

San Bernardino, CA

    1.7%       2.0%       1.3%       —         1.6%       806       27       1,264       —         2,097       0.6

Dallas, TX

    1.9%       0.8%       1.7%       —         1.6%       1,403       21       459       —         1,883       0.5

Vancouver, Canada

    —         —         17.0%       —         1.5%       —         —         6,109       —         6,109       1.7

Nashville, TN

    1.4%       2.2%       —         —         1.4%       1,771       57       —         —         1,828       0.5

Atlanta, GA

    1.2%       2.5%       —         —         1.3%       782       56       —         —         838       0.2

Hartford, CT

    1.2%       2.4%       0.1%       —         1.3%       935       49       100       —         1,084       0.3

Richmond, VA

    1.4%       1.8%       —         —         1.3%       1,330       37       —         —         1,367       0.4

Oklahoma City, OK

    1.5%       1.4%       —         —         1.2%       2,249       30       —         —         2,279       0.6

Knoxville, TN

    1.6%       0.6%       —         —         1.2%       2,244       30       —         —         2,274       0.6

Phoenix, AZ

    0.2%       2.6%       5.3%       —         1.2%       138       45       3,481       —         3,664       1.0

Birmingham, AL

    1.3%       1.2%       0.3%       —         1.2%       1,610       28       318       —         1,956       0.6

Cincinnati, OH

    1.1%       2.0%       —         —         1.1%       1,190       32       —         —         1,222       0.4

Reading, PA

    1.1%       1.9%       —         —         1.1%       1,231       99       —         —         1,330       0.4

Austin, TX

    1.5%       0.4%       —         —         1.1%       969       5       —         —         974       0.3

Baton Rouge, LA

    1.3%       1.2%       —         —         1.1%       1,490       37       —         —         1,527       0.4

Providence, RI

    1.0%       1.8%       —         —         1.1%       593       31       —         —         624       0.2

Columbus, OH

    1.1%       1.6%       —         —         1.0%       1,794       53       —         —         1,847       0.5

Buffalo, NY

    0.9%       1.2%       2.7%         1.0%       947       27       1,594       —         2,568       0.7

Albany, NY

    0.9%       0.9%       2.2%       —         1.0%       1,090       18       1,297       —         2,405       0.7

All US Logo Programs

    —         —         —         92.6%       5.2%       —         —         —         144,116       144,116       40.1

All Other United States and Puerto Rico (1)

    64.6%       56.5%       41.3%       —         57.2%       120,130       2,169       27,163       —         149,462       41.6

All Other Canada

    0.1%       —         9.6%       7.4%       1.2%       136       2       4,405       4,793       9,336       2.6

Total

    100.0%       100.0%       100.0%       100.0%       100.0%       153,708       3,191       53,330       148,909       359,138       100.0

Total Revenue (in millions)

  $ 1,076.3     $ 336.7     $ 129.8     $ 84.4     $ 1,627.2              

 

(1)

Includes Puerto Rico advertising revenue recognized prior to the displays being sold on April 16, 2018.

Taxable REIT Subsidiaries

We hold and operate certain of our assets that cannot be held and operated directly by a REIT through taxable REIT subsidiaries, or TRSs. A TRS is a subsidiary of a REIT that pays corporate taxes on its taxable income. The assets held in our TRSs primarily consist of our transit advertising business, advertising services business and our foreign operations. Our 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 will continue to be subject to foreign taxes in the jurisdictions in which those assets and operations are located. Net income from our TRSs will either be retained by our TRSs and used to fund their operations, or distributed to us, where it will be reinvested in our business or be available for distribution to Lamar Advertising’s stockholders. As of December 31, 2018, the annual revenue generated by our TRSs in the aggregate was approximately $288 million.

 

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Advertising Tenants

Our tenant base is diverse. The table below sets forth the ten industries from which we derived most of our billboard advertising revenues for the year ended December 31, 2018, as well as the percentage of billboard advertising revenues attributable to the advertisers in those industries. The individual advertisers in these industries accounted for approximately 75% of our billboard advertising net revenues in the year ended December 31, 2018. No individual tenant accounted for more than 2.0% of our billboard advertising net revenues in that period.

 

Categories

   Percentage
of Net

Billboard
Advertising
Revenues
 

Service

     13

Restaurants

     11

Health Care

     10

Retailers

     10

Amusement—Entertainment/Sports

     7

Automotive

     5

Gaming

     5

Education

     4

Financial—Banks, Credit Unions

     4

Insurance

     3

Real Estate

     3
  

 

 

 
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Regulation

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 (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.

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

 

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continued operation over time, local governments have attempted to force removal of legal but nonconforming billboards (i.e., billboards that conformed with 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 continue 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, 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 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.

Legal Proceedings

From time to time, we are involved in litigation in the ordinary course of business, including disputes involving advertising contracts, site leases, employment claims and construction matters. We are also involved in routine administrative and judicial proceedings regarding billboard permits, fees and compensation for condemnations. We are not a party to any lawsuit or proceeding which, in the opinion of management, is likely to have a material adverse effect on us.

Real Estate Portfolio

Our management headquarters is located in Baton Rouge, Louisiana. We also own 128 local operating facilities with front office administration and sales office space connected to back-shop poster and bulletin production space. In addition, we lease an additional 134 operating facilities at an aggregate lease expense for 2018 of approximately $7.7 million.

We own over 7,600 parcels of property beneath our advertising displays. As of December 31, 2018, we leased over 73,300 outdoor sites, accounting for an annualized lease expense of approximately $267.4 million. This amount represented approximately 19% of billboard advertising net revenues for that period. These leases are for varying terms ranging from month-to-month to a term of over ten years, and many provide us with renewal options. Our lease agreements generally permit us to use the land for the construction, repair and relocation of outdoor advertising displays, including all rights necessary to access and maintain the site. Approximately 67% of our leases will expire or be subject to renewal in the next 5 years, 20% will expire or be subject to renewal in 6 to 10 years and 13% thereafter. There is no significant concentration of displays under any one lease or subject to

 

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negotiation with any one landlord. An important part of our management activity is to manage our lease portfolio and negotiate suitable lease renewals and extensions.

The following table illustrates the number of leased and owned sites by state as of December 31, 2018, which is sorted from greatest to least in number and percentage of leased sites. States in which we lease less than 2% of our portfolio are grouped in the category “All Other States”.

 

State

   # of billboard leased sites      % of total     # of owned billboard sites      % of total  

Texas

     5,925        8.1     642        8.5

Pennsylvania

     5,096        6.9     1,511        19.8

Ohio

     4,549        6.2     370        4.8

California

     4,530        6.2     132        1.7

North Carolina

     4,278        5.8     142        1.9

Tennessee

     3,319        4.5     265        3.5

Louisiana

     3,111        4.2     461        6.0

Alabama

     3,018        4.1     407        5.3

Georgia

     2,775        3.8     197        2.6

Wisconsin

     2,774        3.8     278        3.7

Florida

     2,600        3.5     351        4.6

South Carolina

     2,552        3.5     70        0.9

New York

     2,295        3.1     185        2.4

Missouri

     2,180        3.0     237        3.1

Michigan

     2,030        2.8     216        2.8

Mississippi

     1,952        2.7     330        4.3

Indiana

     1,869        2.5     248        3.2

Oklahoma

     1,738        2.4     117        1.5

Virginia

     1,660        2.3     166        2.2

All Other States

     15,096        20.6     1,312        17.2
  

 

 

    

 

 

   

 

 

    

 

 

 
     73,347        100.0     7,637        100.0

Contract Expirations

We derive revenues primarily from renting advertising space to customers on our advertising displays. Our contracts with customers generally cover periods ranging from one week to one year and are generally billed every four weeks. Since contract terms are short-term in nature, we do not consider revenues by year of contract expiration to be meaningful.

Employees

We employed approximately 3,600 people as of December 31, 2018. Approximately 260 employees were engaged in overall management and general administration at our management headquarters in Baton Rouge, Louisiana, and the remainder, including over 1,050 local account executives were employed in our operating offices.

Fifteen of our local offices employ billposters and construction personnel who are covered by collective bargaining agreements. We believe that our relationship with our employees, including our 115 unionized employees, is good, and we have never experienced a strike or work stoppage.

Inflation

In the last three years, inflation has not had a significant impact on us.

 

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Seasonality

Our revenues and operating results are subject to seasonality. Typically, we experience our strongest financial performance in the summer and fall, and our weakest financial performance in the first quarter of the calendar year, partly because retailers cut back their advertising spending immediately following the holiday shopping season. We expect this trend to continue in the future. Because a significant portion of our expenses is fixed, a reduction in revenues in any quarter is likely to result in a period-to-period decline in operating performance and net earnings.

 

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POLICIES WITH RESPECT TO CERTAIN ACTIVITIES

The following is a discussion of our policies with respect to distributions, investments, financing, lending and certain other activities of Lamar Advertising and Lamar Media. These policies have been determined and will be periodically hereafter amended, in a manner consistent with legal and contractual requirements, by the board of directors of Lamar Advertising without notice to, or a vote of, the stockholders of Lamar Advertising.

Investment Policies

Investments in Real Estate or Interests in Real Estate

We hold and operate substantially all of our domestic billboard advertising display business and logo sign advertising business directly and indirectly through non-TRS subsidiaries, and we hold substantially all of our domestic transit advertising business and our advertising services business, as currently structured and operated, and our operations in Canada and Puerto Rico through TRSs. Our investment objective is to seek the highest risk adjusted returns on invested capital for our stockholders by simultaneously increasing recurring free cash flow per share and our return on invested capital. To achieve this, we expect that we will continue to deploy our capital through our annual capital expenditure program and strategic acquisitions, subject to available funds and market conditions.

 

   

Annual capital expenditures program. We will continue to reinvest in our existing assets and expand our existing outdoor advertising display portfolio. This includes capital expenditures associated with 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.

 

   

Acquisitions. We will seek to pursue strategic acquisitions of outdoor advertising businesses and assets. This includes acquisitions in our existing markets and in new markets where we can meet our return on investment criteria. When evaluating investments in new markets, our return on investment criteria reflects the additional risks inherent to the particular geographic area.

Subject to certain asset tests that Lamar Advertising must satisfy to continue to qualify as a REIT, there are currently no limitations on (a) the percentage of our assets that may be invested in any one property, venture or type of security, (b) the number of properties in which we may invest, or (c) the concentration of investments in a single geographic region. The board of directors of Lamar Advertising may establish limitations, and other policies, as it deems appropriate from time to time.

Investments in Securities of or Interests in Persons Primarily Engaged in Real Estate Activities and Other Issuers

Generally speaking, we do not expect to engage in any significant investment activities with other entities, although we may consider joint venture investments with other investors. We may also invest in the securities of other issuers in connection with acquisitions of indirect interests in properties (normally general or limited partnership interests in special purpose partnerships owning properties). We may in the future acquire some, all or substantially all of the securities or assets of other REITs or similar entities where that investment would be consistent with our investment policies and the REIT qualification requirements. There are no limitations on the amount or percentage of our total assets that may be invested in any one issuer, other than those imposed by the gross income and asset tests that Lamar Advertising must satisfy to continue to qualify as a REIT. However, we do not currently anticipate investing in other issuers of securities for the purpose of exercising control or acquiring any investments primarily for sale in the ordinary course of business or holding any investments with a view to making short-term profits from their sale, but we may engage in these activities in the future.

We do not intend that our investments in securities will require us to register as an “investment company” under the Investment Company Act of 1940, as amended, and we intend to divest securities before any registration would be required. We do not intend to engage in trading, underwriting, agency distribution or sales of securities of other issuers.

 

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Investments in Other Securities

We may in the future invest in additional securities such as bonds, preferred stock and common stock. We have no present intention to make any such investments, except as described above, or investments in cash equivalents in the ordinary course of business. Future investment activities in additional securities will not be limited to any specific percentage of our assets or to any specific type of securities or industry group.

Investments in Mortgages

We have not invested in, nor do we have any present intention to invest in, real estate mortgages, although we are not prohibited from doing so.

Dispositions

Subject to REIT qualification rules, we may dispose of some of our assets if, based upon management’s periodic review of our business, the board of directors of Lamar Advertising determines that such action would be in the best interests of Lamar Advertising and its stockholders.

Financing Policy

Our financing policies will largely depend on the nature and timeline of our investment opportunities and the prevailing economic and market conditions. If the board of directors of Lamar Advertising determines that additional funding is desirable, we may raise funds through the following means:

 

   

debt financings, including but not limited to, accessing U.S. debt capital markets and drawing from the revolving portion of our senior credit facility;

 

   

equity offerings of securities; and

 

   

any combination of the above methods.

We intend to retain the maximum possible cash flow to fund our investments, subject to provisions in the Code requiring distribution of REIT taxable income to maintain Lamar Advertising’s REIT status, and to minimize our income and excise tax liabilities. Further, as of December 31, 2018, we had approximately $178.3 million of total liquidity, which is comprised of approximately $21.5 million in cash and cash equivalents and approximately $156.8 million of availability under the revolving portion of our senior credit facility. We intend to utilize our cash on hand and availability under the revolving portion of our senior credit facility to fund future discretionary investments.

We expect our primary source of external funding will continue to be the debt capital markets. Currently we have outstanding $535 million 5% Senior Subordinated Notes issued in October 2012, $510 million 5 3/8% Senior Notes issued in January 2014, and $650 million in 5 3/4% Senior Notes due 2026, consisting of $400 million in original notes issued in January 2016 and $250 million in outstanding notes issued in February 2019.

We do not have a formal policy limiting the amount of indebtedness that we may incur, but we are subject to certain restrictions in our indentures and senior credit facility with regard to permitted indebtedness. In the future, we may seek to extend, expand, reduce or renew our senior credit facility, obtain new credit facilities or lines of credit, or issue new unsecured or secured debt that may contain limitations on indebtedness. We will consider a number of factors when evaluating our level of indebtedness and when making decisions regarding the incurrence of indebtedness, including overall prudence, the purchase price of assets to be acquired with debt financing, the estimated market value of our assets upon refinancing, our ability to generate cash flow to cover our expected debt service and restrictions under our existing debt arrangements. For additional information, see the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

 

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Equity Capital Policies

Subject to applicable law and the requirements for listed companies on the NASDAQ, the board of directors of Lamar Advertising may also authorize, without the approval of its stockholders, the obtaining of additional capital through the issuance of equity securities. Pursuant to Lamar Advertising’s charter, Lamar Advertising has authority to issue up to 362.5 million shares of Class A common stock, 37.5 million shares of Class B common stock and 100 million shares of undesignated preferred stock, of which 5,720 shares are designated Series AA preferred stock. Under Delaware law, the affirmative vote of the holders of a majority of the outstanding shares of any class of common stock is required to approve any amendment to the certificate of incorporation that would increase or decrease the par value of that class, or modify or change the powers, preferences or special rights of the shares of any class so as to affect that class adversely. Lamar Advertising’s charter, however, allows for amendments to increase or decrease the number of authorized shares of Class A common stock or Class B common stock without a separate vote of either class.

Existing stockholders will have no preemptive right to additional shares issued in any offering, and any offering might cause a dilution of investment. Lamar Advertising may in the future seek to offer equity securities as a source of discretionary investment funding when (a) it is a requirement of a seller, (b) the size of a strategic transaction would increase Lamar Advertising’s leverage beyond what the board of directors or management believes to be appropriate, or (c) it is otherwise determined appropriate by the board of directors.

The board of directors of Lamar Advertising may authorize the issuance of shares of preferred stock with terms and conditions that could have the effect of delaying, deterring or preventing a transaction or a change in control in Lamar Advertising that might involve a premium price for holders of shares of Lamar Advertising’s common stock or otherwise might be in their best interests. Additionally, shares of Lamar Advertising’s preferred stock could have distribution, voting, liquidation and other rights and preferences that are senior to those of shares of Lamar Advertising’s common stock.

Lamar Advertising may, under certain circumstances, purchase shares of its common stock in the open market or in private transactions with its stockholders, if those purchases are approved by its board of directors or a committee thereof. The board of directors of Lamar Advertising has no present intention of causing Lamar Advertising to repurchase any shares, and any action would only be taken in conformity with applicable federal and state laws and the applicable requirements for Lamar Advertising to continue to qualify as a REIT.

Lending Policy

We expect that we will continue to make loans to our operating subsidiaries to the extent to which they require additional financing to fund growth through their discretionary capital programs and acquisitions.

Reports to Stockholders

Lamar Advertising makes available to its stockholders its annual reports, including its audited financial statements. Lamar Advertising is subject to the information reporting provisions of the Exchange Act, which require it to file annual and periodic reports, proxy statements and other information, including audited financial statements, with the SEC.

Other Activities

At all times, we intend to operate and to invest so as to comply with the Code requirements related to Lamar Advertising’s continued REIT qualification unless, due to changing circumstances or changes to the Code or Treasury regulations, the board of directors of Lamar Advertising determines that it is no longer in the best interests of Lamar Advertising and its stockholders to qualify as a REIT.

 

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MANAGEMENT

Our directors serve until the next annual meeting of stockholders and until their successors are elected and qualified. Our officers serve until the board meeting immediately following the next annual meeting of stockholders and until their successors are elected and qualified.

The following table sets forth the name, position and, as of December 31, 2018, age of each of our directors and executive officers.

 

Name

   Age     

Title

Kevin P. Reilly, Jr.

     64      President and Director

Sean E. Reilly

     57      Chief Executive Officer and Director

Keith A. Istre

     66      Treasurer, Chief Financial Officer and Director

Charles Brent McCoy

     67      Director

Kevin P. Reilly, Jr. has served as our President since July 1999 and as President of Lamar Advertising since February 1989. Mr. Reilly also served as our Chief Executive Officer from July 1999 to February 2011 and as Chief Executive Officer of Lamar Advertising from February 1989 to February 2011. He has served as our director since July 1999 and as a director of Lamar Advertising since February 1984. Mr. Reilly served as the President of Lamar Advertising’s Outdoor Division from 1984 to 1989. Mr. Reilly, an employee since 1978, has also served as General Manager of the Baton Rouge Region and Vice President and General Manager of the Louisiana Region. Mr. Reilly received a B.A. from Harvard University in 1977. Kevin Reilly has unparalleled knowledge of our business and operating history, is directly involved with the management of the company on a daily basis and has front-line exposure to the challenges that we face and opportunities that we are presented.

Sean E. Reilly has served as our Chief Executive Officer and as Chief Executive Officer of Lamar Advertising since February 2011. Prior to becoming Chief Executive Officer, Mr. Reilly served as our Chief Operating Officer and as Chief Operating Officer and President of Lamar Advertising’s Outdoor Division from November 2001 to February 2011. Mr. Reilly also held the position of Vice President of Mergers and Acquisitions. He began working with Lamar Advertising as Vice President of Mergers and Acquisitions in 1987 and served in that capacity until 1994. Mr. Reilly has served as our director since July 1999, and he also served as a director of Lamar Advertising from 1989 to 1996 and from 1999 until 2003. Mr. Reilly was the Chief Executive Officer of Wireless One, Inc., a wireless cable television company, from 1994 to 1997, after which he rejoined Lamar Advertising. Mr. Reilly received a B.A. from Harvard University in 1984 and a J.D. from Harvard Law School in 1989. Sean Reilly provides the board with valuable media industry experience from both inside and outside the company.

Keith A. Istre has served as our Chief Financial Officer since July 1999 and as Lamar Advertising’s Chief Financial Officer since February 1989. He has served as our director since July 1999 and served as a director of Lamar Advertising from February 1989 to May 2003. Mr. Istre joined Lamar Advertising as Controller in 1978 and became Treasurer in 1985. Prior to joining Lamar Advertising, Mr. Istre was employed by a public accounting firm in Baton Rouge from 1975 to 1978. Mr. Istre graduated from the University of Southwestern Louisiana in 1974 with a degree in Accounting. Keith Istre brings extensive financial experience and a deep knowledge of our business and operating history to the board.

Charles Brent McCoy has served as Executive Vice President of Business Development of Lamar Advertising since May 2004. Mr. McCoy has served as our director since January 2009. He currently serves on several other boards, including Blue Cross Blue Shield of Louisiana and the Baton Rouge Advisory Board of Iberia Bank. Mr. McCoy received a B.A. from Emory University in 1973 and an M.B.A. from Stanford University in 1976. Charles Brent McCoy brings extensive experience in business and the banking sector to the board.

Family Relationships

Kevin P. Reilly, Jr., our Chairman and President, and Sean E. Reilly, our Chief Executive Officer, are siblings.

 

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EXECUTIVE COMPENSATION

The following discussion and tables set forth certain compensation information for our Chief Executive Officer and each of our other executive officers for their positions with Lamar Advertising. We do not pay any additional compensation for their positions with us.

Compensation Discussion and Analysis

Lamar Advertising’s Compensation Committee has responsibility for establishing, implementing and maintaining the compensation program for Lamar Advertising’s executive officers. For the year ended December 31, 2018, Lamar Advertising’s executive officers consisted of its Chairman of the Board and President, Chief Executive Officer and Chief Financial Officer, who are also referred to herein as the “named executive officers.” This Compensation Discussion and Analysis sets forth the objectives and material elements of the compensation paid to the named executive officers for fiscal 2018.

Executive Compensation Philosophy

The primary objective of Lamar Advertising’s executive compensation program is to retain and reward executive officers who contribute to its long-term success. We believe this requires a competitive compensation structure both as compared to similarly situated companies in the media industry and other companies that are our peers in terms of annual revenues. Additionally, we seek to align a significant portion of executive officer compensation to the achievement of specified Lamar Advertising performance goals. Incentive cash bonuses are included to drive executive performance by having pay at risk so that a significant portion of potential cash compensation is tied to goal achievement. We also include performance-based equity grants as a significant component of prospective executive compensation so that the value of a portion of executive compensation is tied directly to the performance of Lamar Advertising’s Class A common stock. In addition, discretionary bonuses may be made to executive officers based upon accomplishments outside the scope of the performance metrics used in Lamar Advertising’s incentive programs.

Use of Compensation Consultants and Peer Group Data

Lamar Advertising’s Compensation Committee did not consult with any compensation consultants in conjunction with its executive officer compensation determinations for fiscal 2018. The Compensation Committee did not set executive officer compensation to a specific percentile of the range of total compensation represented by a specified peer group when making its executive compensation determinations for fiscal 2018.

Material Elements of Executive Officer Compensation

The key elements of compensation for Lamar Advertising’s executive officers are base salaries, performance-based cash incentive awards and performance-based equity awards. Executives may also participate, on the same terms as all other employees, in a 401(k) retirement savings plan and health and welfare benefits.

Base Salary. Lamar Advertising pays a base salary to each of the named executive officers. The objective of base salary is to provide a fixed component of cash compensation to the executive that reflects the level of responsibility associated with the executive’s position and is competitive with the base compensation the executive could earn in a similar position at comparable companies. Base salary for Lamar Advertising’s named executive officers is reviewed annually in light of market compensation, tenure, individual performance, Lamar Advertising’s performance and other subjective considerations. Typically, Lamar Advertising’s Chairman of the Board and President makes recommendations to the Compensation Committee with regard to base salary for the executive officers that he believes are justified in light of these considerations.

 

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In March 2018, the Compensation Committee reviewed current base salaries in conjunction with Lamar Advertising’s Chairman of the Board and President. The Compensation Committee reviewed the roles and responsibilities of each executive officer and determined that no changes were warranted.

Performance-Based Incentive Compensation. Lamar Advertising’s incentive compensation program consists of two types of awards that are granted under Lamar Advertising’s 1996 Equity Incentive Plan, as amended: (i) a performance-based incentive cash bonus and (ii) a performance-based incentive equity award. This compensation program was designed by the Compensation Committee to link a significant portion of overall executive officer compensation to the achievement of enumerated performance targets. By including a fixed share equity award as a significant portion of executive compensation, the aggregate value of each executive officer’s compensation is dependent on the performance of Lamar Advertising’s Class A common stock.

Incentive Cash Bonus. The Compensation Committee sets target amounts for incentive cash bonuses for each of the named executive officers with corresponding performance goals. The Compensation Committee reviews those target amounts annually based the executive’s roles and responsibilities, Lamar Advertising’s performance, and the current economic environment. The Compensation Committee determined that the 2018 target incentive cash bonus of the Chairman of the Board and President, the Chief Executive Officer, and the Chief Financial Officer, would remain unchanged at $250,000, $400,000, and $300,000, respectively. The Compensation Committee then approved the performance goals for 2018 pursuant to which any payout of incentive cash bonus awards would be based. The Compensation Committee also continued its practice of providing the possibility of higher payouts that provide incentives for superior performance above the 100% targeted levels of achievement, which can result in an incentive cash bonus in an amount that is up to 200% of the target amount.

When setting the performance goals for the executive officers’ incentive cash bonuses for fiscal 2018, the Compensation Committee met with management to review current operating budgets and financial projections along with any current initiatives that could impact Lamar Advertising’s anticipated 2018 results. The Compensation Committee determined that Lamar Advertising’s pro forma net revenue growth and pro forma earnings before interest, taxes, depreciation and amortization and adjusted for gain or loss on disposition of assets and investments (referred to herein as “EBITDA”) growth continue to be the appropriate measures on which to base incentive compensation as these measures are the primary measures used by both management and the investor community to evaluate Lamar Advertising’s performance.

The Compensation Committee’s goal when determining the specific performance thresholds is to set target (100%) goal achievement at a challenging but achievable level based on the 2018 operating budget in order to provide appropriate incentives for management in the context of the current fiscal year’s projected results and current business plan. To align Lamar Advertising’s performance and the level of award achievement, the Compensation Committee maintained a 65% threshold for minimum achievement of both cash incentive and equity incentive awards. The 2018 performance goals for incentive cash bonuses were based on achievement of pro forma revenue growth and pro forma EBITDA growth for fiscal 2018 over fiscal 2017 with 50% of the total bonus amount tied to each metric. Tables setting forth the actual performance thresholds for fiscal 2018 are set forth below.

Following this review, the Compensation Committee certified that (i) Lamar Advertising’s pro forma net revenue growth resulted in attainment of 100% of each executive officer’s target cash incentive bonus for fiscal 2018 based on revenue, and (ii) the Lamar Advertising’s pro forma EBITDA growth resulted in attainment of 175% of each executive officer’s target cash incentive bonus for fiscal 2018 based on EBITDA. The total 2018 cash

 

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incentive bonus for each executive is set forth below and is reflected in the Non-Equity Incentive Plan Compensation column of the 2018 Summary Compensation Table.

Incentive Cash Bonus

 

     2018 Awards  
     Portion (50%) Based
on Pro Forma Net
Revenue Growth ($)
     Portion (50%) Based
on Pro Forma
EBITDA Growth ($)
     Total ($)  

Kevin P. Reilly, Jr.
Chairman of the Board and President

   $ 125,000      $ 218,750      $ 343,750  
  

 

 

    

 

 

    

 

 

 

Sean E. Reilly
Chief Executive Officer

   $ 200,000      $ 350,000      $ 550,000  
  

 

 

    

 

 

    

 

 

 

Keith A. Istre
Chief Financial Officer and Treasurer

   $ 150,000      $ 262,500      $ 412,500  
  

 

 

    

 

 

    

 

 

 

Incentive Equity Awards. The Compensation Committee also determined the target amount of incentive equity awards for each of the named executive officers at its March 2018 meeting. These target equity award amounts were set at 44,000 shares of Class A common stock for both Kevin P. Reilly, Jr. and Sean E. Reilly, which amounts have remained unchanged since 2006. Keith A. Istre’s target equity incentive award of 34,000 shares of Class A common stock was also held constant. The Compensation Committee reaffirmed its belief that fixed share amounts provided appropriate incentives and alignment with interests of stockholders.

Under the terms of Lamar Advertising’s incentive equity award program, no shares of stock are issued unless and until the relevant performance goals have been met and certified by the Compensation Committee. Any earned shares are issued as soon as practicable following such certification and are fully vested at the time of issuance. The Compensation Committee feels that the use of stock awards as a part of its compensation program aligns executive compensation to the creation of stockholder value but not to such an extent that it would create incentives for executives to focus solely on short-term stock appreciation to the exclusion of long-term strategy.

The pro forma revenue growth and pro forma EBITDA growth metrics for fiscal 2018 over fiscal 2017 used in the context of the incentive cash awards were used to determine the achievement of incentive equity awards. Unlike incentive cash awards, there is no opportunity to achieve greater than 100% of the target equity awards.

On that basis, (i) Lamar Advertising’s pro forma net revenue growth resulted in attainment of 100% of each executive officer’s target incentive equity incentive equity award for 2018 based on revenue and (ii) Lamar Advertising’s pro forma EBITDA growth resulted in attainment of 100% of each executive officer’s target incentive equity award for 2018 based on EBITDA. The total 2018 incentive equity awards earned by each executive is set forth below and reflected in the Stock Awards column of the 2018 Summary Compensation

 

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Table (see footnote 1 to the 2018 Summary Compensation Table, which describes the assumptions underlying the calculation of the aggregate grant date fair value of these awards).

Incentive Equity Awards

 

     2018 Awards  
     Portion (50%)
Based on Pro
Forma Net
Revenue Growth
(#)
     Portion (50%)
Based on
Pro Forma
EBITDA Growth
(#)
     Total Shares
Class A
Common Stock
(#)
 

Kevin P. Reilly, Jr.
Chairman of the Board and President

     22,000        22,000        44,000  
  

 

 

    

 

 

    

 

 

 

Sean E. Reilly
Chief Executive Officer

     22,000        22,000        44,000  
  

 

 

    

 

 

    

 

 

 

Keith A. Istre
Chief Financial Officer and Treasurer

     17,000        17,000        34,000  
  

 

 

    

 

 

    

 

 

 

The tables that follow set forth the level of pro forma net revenue and pro forma EBITDA growth required for fiscal 2018 over fiscal 2017 to achieve the stated percentage of target incentive awards for Lamar Advertising’s named executive officers, as set by the Compensation Committee in March 2018. These goals relate to achievement of both incentive cash and incentive equity awards, except that equity awards cannot exceed their target amount irrespective of goal achievement in excess of the 100% level.

2018 POTENTIAL INCENTIVE AWARDS

Pro Forma Net Revenue Growth(1) – 50%

 

Incentive Cash Bonus

 

Pro Forma Net Revenue Growth

   Percentage of
Target
Bonus Earned
 

Less than 1.3%

     0

At least 1.3% but less than 1.4%

     65

At least 1.4% but less than 1.5%

     70

At least 1.5% but less than 1.6%

     75

At least 1.6% but less than 1.7%

     80

At least 1.7% but less than 1.8%

     85

At least 1.8% but less than 1.9%

     90

At least 1.9% but less than 2.0%

     95

At least 2.0% but less than 4.0%

     100 %* 

At least 4.0% but less than 4.5%

     125

At least 4.5% but less than 5.0%

     150

At least 5.0% but less than 5.5%

     175

At least 5.5% or greater

     200

Incentive Equity Award

 

Pro Forma Net Revenue Growth

   Percentage of
Target
Bonus Earned
 

Less than 1.3%

     0

At least 1.3% but less than 1.4%

     65

At least 1.4% but less than 1.5%

     70

At least 1.5% but less than 1.6%

     75

At least 1.6% but less than 1.7%

     80

At least 1.7% but less than 1.8%

     85

At least 1.8% but less than 1.9%

     90

At least 1.9% but less than 2.0%

     95

At least 2.0% or greater

     100 %* 
 

 

*

Denotes goal achieved for 2018 as certified by the Compensation Committee.

(1)

Pro forma net revenue growth is based on Lamar Advertising’s net revenue growth in 2018 over 2017 based on actual 2018 net revenue versus 2017 net revenue, as adjusted to reflect acquisitions and divestitures for the same time frame as actually owned in 2018.

 

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2018 POTENTIAL INCENTIVE AWARDS

Pro Forma EBITDA Growth(1) – 50%

 

Incentive Cash Bonus

 

Pro Forma EBITDA Growth

   Percentage of
Target
Bonus Earned
 

Less than 0.9%

     0

At least 0.9% but less than 1.0%

     65

At least 1.0% but less than 1.1%

     70

At least 1.1% but less than 1.2%

     75

At least 1.2% but less than 1.3%

     80

At least 1.3% but less than 1.4%

     85

At least 1.4% but less than 1.5%

     90

At least 1.5% but less than 1.6%

     95

At least 1.6% but less than 4.0%

     100

At least 4.0% but less than 4.5%

     125

At least 4.5% but less than 5.0%

     150

At least 5.0% but less than 5.5%

     175 %* 

At least 5.5% or greater

     200

Incentive Equity Award

 

Pro Forma EBITDA Growth

   Percentage of
Target
Bonus Earned
 

Less than 0.9%

     0

At least 0.9% but less than 1.0%

     65

At least 1.0% but less than 1.1%

     70

At least 1.1% but less than 1.2%

     75

At least 1.2% but less than 1.3%

     80

At least 1.3% but less than 1.4%

     85

At least 1.4% but less than 1.5%

     90

At least 1.5% but less than 1.6%

     95

At least 1.6% or greater

     100 %* 
 

 

*

Denotes goal achieved for 2018 as certified by the Compensation Committee.

(1)

Pro forma EBITDA growth is calculated in the same manner as pro forma net revenue growth with adjustments being made in the 2017 period to reflect acquisitions and divestitures for the same time frame as actually owned in 2018 and is also adjusted, solely with respect to calculation of incentive cash bonuses, to eliminate any expense in the period related to executive bonuses.

Consideration of Prior Stockholder Advisory Vote on Executive Compensation

At Lamar Advertising’s 2017 Annual Meeting of Stockholders, more than 96% of shares present at the meeting for purposes of the proposal were voted to approve, on an advisory basis, the compensation of Lamar Advertising’s named executive officers as disclosed in the proxy statement for that meeting, thus ratifying Lamar Advertising’s compensation philosophy and approach. Lamar Advertising’s board of directors and the Compensation Committee considered this overwhelming support, as well as Lamar Advertising’s past operating performance, in making the determination that the fundamental characteristics of its executive compensation program should remain. The next advisory stockholder vote on executive compensation is scheduled to be held at Lamar Advertising’s 2020 Annual Meeting of Stockholders.

Other Compensation Components

Discretionary Equity Awards. Lamar Advertising’s incentive compensation program permits the Compensation Committee to grant discretionary equity awards under Lamar Advertising’s 1996 Equity Incentive Plan, as amended, that are not subject to achievement of performance criteria. The Compensation Committee approved discretionary grants of 11,333 shares to Mr. Istre and 14,667 shares to each of Mr. Sean E. Reilly and Mr. Kevin P. Reilly, Jr. in recognition of their contributions to Lamar Advertising in 2017. See footnote 5 of the 2018 Summary Compensation Table herein for additional information regarding the discretionary equity awards.

Perquisites. Lamar Advertising provides certain perquisites to its executive officers, including use of Lamar Advertising’s aircraft and a company car. Its executive officers are entitled to use the Lamar Advertising aircraft, including for personal travel. These perquisites provide flexibility to the executives and increase travel efficiencies, allowing more productive use of executive time. More detail on these perquisites and other perquisites provided to Lamar Advertising’s executive officers may be found in the 2018 Summary Compensation Table.

 

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Deferred Compensation. Lamar Advertising has a deferred compensation plan for certain officers. Under this plan, officers who meet certain years of service and other criteria are eligible to receive company contributions into their accounts in the Lamar Deferred Compensation Plan. Officers do not have the option of deferring any portion of their earned cash compensation through additional voluntary contributions to the plan.

The deferred compensation plan is not funded by Lamar Advertising, and participants have an unsecured contractual commitment from Lamar Advertising to pay the amounts due under the deferred compensation plan. When payments under the plan are due, the funds are distributed from Lamar Advertising’s general assets. Lamar Advertising does not offer preferential earnings on deferred compensation. Deferred compensation is intended as a long-term savings vehicle for its officers in light of the fact that Lamar Advertising does not offer any traditional pension or defined benefit plan. The Compensation Committee does not consider deferred compensation accounts when setting executive pay levels, since this represents compensation that has previously been earned and individual accounts are a function of personal investment choices and market-based earnings.

Tax Implications

The Compensation Committee awards compensation to its executive officers as it deems appropriate to meet its overall compensation objectives, even though it may not be fully deductible for the purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). In general, Section 162(m), prevents publicly held corporations from deducting, for federal income tax purposes, compensation paid in excess of $1,000,000 to certain executives. Historically, this deduction limitation did not apply, however, to compensation that constitutes “qualified performance-based compensation” within the meaning of Section 162(m) of the Code and the regulations promulgated thereunder.

For taxable years beginning after December 31, 2017, the exemption from Section 162(m)’s deduction limit for performance-based compensation has been repealed by the TCJA, such that compensation paid to its named executive officers that is in excess of $1,000,000 will not be deductible by Lamar Advertising unless it qualifies for transition relief applicable to certain arrangements in place as of November 2, 2017 and not modified thereafter. Subject to the overall compensation objectives of Lamar Advertising, the Compensation Committee intends to administer any awards granted prior to November 2, 2017 which qualify as “performance-based compensation” under § 162(m) of the Code, as amended by the Act, in accordance with the transition rules applicable to binding contracts in effect on November 2, 2017.

Payments Upon Termination or Change–in–Control

Neither we nor Lamar Advertising have employment agreements or other agreements with any of our executive officers that entitle them to payments upon termination or in the event of a change-in-control.

Compensation Policies and Practices as they Relate to Risk Management

Lamar Advertising’s management has reviewed its compensation policies and practices in conjunction with the Compensation Committee to determine if these policies and practices create risks that are reasonably likely to have a material adverse effect on Lamar Advertising. Lamar Advertising’s basic compensation structure, as described above, includes base salaries, incentive cash bonuses and, for officers of Lamar Advertising (including certain non-executive officers), incentive equity compensation that primarily consists of annual performance-based equity awards. In light of this review of the compensation structure and its mix of both fixed and variable compensation, Lamar Advertising concluded that there are no risks arising from its compensation policies and practices for its employees that are reasonably likely to have a material adverse effect on Lamar Advertising.

 

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2018 Summary Compensation Table

The following table sets forth certain compensation information for Lamar Advertising’s named executive officers. The table reflects each officer’s position as of December 31, 2018.

 

Name and Principal Position

  Year     Salary
($)
    Bonus
($)
    Stock
Awards
($)(1)
    Option
Awards
($)(1)
    Non-Equity
Incentive Plan
Compensation
($)(2)
    All Other
Compensation
($)(3)(4)
    Total
($)
 

Kevin P. Reilly, Jr.

Chairman of the Board and President

    2018       100,000       —         3,864,836 (5)       —         343,750       243,622 (6)       4,552,208  
    2017       100,000       —         3,331,680 (7)       —         —         280,243       3,711,923  
    2016       100,000       —         2,636,040 (8)       —         250,000       128,374       3,114,414  

Sean E. Reilly

Chief Executive Officer

    2018       700,000       —         3,864,836 (5)       —         550,000       444,274 (6)       5,559,110  
    2017       700,000       —         3,331,680 (7)       —         —         385,119       4,416,799  
    2016       700,000       —         2,636,040 (8)       —         400,000       434,211       4,170,251  

Keith A. Istre

Chief Financial
Officer and Treasurer

    2018       500,000       —         3,047,169 (5)       —         412,500       52,500       4,012,169  
    2017       500,000       —         2,574,480 (7)       —         —         52,500       3,126,980  
    2016       500,000       —         2,036,940 (8)       —         300,000       52,500       2,889,440  

 

(1)

Reflects the aggregate grant date fair value recognized for financial statement reporting purposes in accordance with ASC Topic 718. With respect to performance-based stock awards, the grant date fair value is calculated assuming the probable outcome of achievement, which on the grant date was expected to be 100% of the target equity incentive award amount, rather than the value of the actual award earned on the date when issued to the officer. For the assumptions underlying the valuation of these awards see Note 15 to the Consolidated Financial Statements included in Lamar Advertising’s Annual Report on Form 10-K/A for the fiscal year ended December 31, 2018, filed with the SEC on February 26, 2019. With respect to discretionary stock grants, the grant date fair value is calculated as of the date of grant.

(2)

Amounts shown in the “Non-Equity Incentive Plan Compensation” column reflect the incentive cash awards granted at the beginning of each year, earned based on performance during that fiscal year and paid in the following fiscal year. The 2018 awards are described in further detail under the headings “Performance-Based Incentive Compensation” and “Incentive Cash Bonus” in the Compensation Discussion and Analysis and are also reflected in the table “Grants of Plan-Based Awards in Fiscal Year 2018” under the column “Estimated Future Payouts Under Non-Equity Incentive Plan Awards.”

(3)

Includes $120,234, $202,893, and $51,879 for Mr. Kevin P. Reilly, Jr. and $338,437, $323,903, and $375,894 for Mr. Sean E. Reilly for the personal use of company aircraft in 2018, 2017 and 2016, respectively, as further described below. The amounts included in the “All Other Compensation” column also include the following perquisites provided to the named executive officers (except as otherwise indicated), which are valued at Lamar Advertising’s incremental cost, none of which individually exceeded $25,000: (a) personal use of a company car, (b) company-paid health insurance premiums and medical reimbursements, (c) personal use of a company-owned recreational facility by Mr. Sean E. Reilly and Mr. Kevin P. Reilly, Jr. and (d) company-paid premiums for term life insurance for Mr. Kevin P. Reilly, Jr. Executives also have access to a country club at which the company has a membership, but each executive pays all fees related to such personal use, resulting in no additional incremental cost to the company.

Lamar Advertising’s incremental cost for personal use of the corporate aircraft is based on the incremental cost to the company calculated based on the variable costs, related to the number of flight hours used, including fuel costs, landing/ramp fees, trip-related maintenance, crew travel expenses, supplies and catering, aircraft accrual expenses per hour of flight, any customs and foreign permit or similar fees. Lamar Advertising’s fixed costs that do not change based on usage, such as pilot salaries and the cost of maintenance not related to trips are excluded. The incremental cost to the company for personal use of a company car is calculated as a portion of the annual lease, mileage and fuel attributable to the personal use.

 

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(4)

Also includes employer contributions under Lamar Advertising’s deferred compensation plan of $50,000 for each of Mr. Kevin P. Reilly, Jr., Mr. Sean E. Reilly and Mr. Istre for 2018, 2017 and 2016.

(5)

Consists of performance-based stock awards in respect of 2018 performance and discretionary stock awards in respect of 2017 performance made in 2018. The ASC Topic 718 value of the performance-based stock awards was $2,878,040 for each of Mr. Kevin P. Reilly, Jr. and Mr. Sean E. Reilly and $2,223,940 for Mr. Istre. They each earned 100% of their performance-based stock awards based on achievement of performance goals for fiscal 2018, which awards were certified as earned by the Compensation Committee and issued on February 18, 2019. Additionally, on February 26, 2018, the Compensation Committee approved discretionary stock grants to each of Mr. Kevin P. Reilly, Jr., Mr. Sean E. Reilly and Mr. Istre for their 2017 contributions. The discretionary grant to Mr. Istre was made on February 26, 2018, and the ASC Topic 718 value of the discretionary shares awarded to Mr. Istre was $823,229. The discretionary grants to Mr. Kevin P. Reilly, Jr. and Mr. Sean E. Reilly were made on March 9, 2018, after the receipt of necessary approvals under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the ASC Topic 718 value of the discretionary shares awarded to each of Mr. Kevin P. Reilly, Jr. and Mr. Sean E. Reilly was $986,796.

(6)

Includes the payment of filing fees of $45,000 on behalf of each of Mr. Kevin P. Reilly, Jr. and Mr. Sean E. Reilly in connection with filings made under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (“HSR Act”). The Compensation Committee reviewed the legal requirements under the HSR Act and the triggering events for the filing requirement as a result of incentive equity awards granted to such executive officers. Based on this review, the Compensation Committee approved the payment by Lamar Advertising of the HSR Act filing fees otherwise payable by the executive officers. The Compensation Committee determined that these payments were appropriate because of the unavailability of an HSR Act exemption for receipt of stock by executive officers and because the filing obligation arose as a direct result of Mr. Kevin P. Reilly, Jr. and Mr. Sean E. Reilly serving as officers of Lamar Advertising. The Compensation Committee further noted that the filing requirement was triggered by the cumulative holdings of the executive officers that were received over a long period of time during which they have made substantial contributions to Lamar Advertising and its growth. Mr. Kevin P. Reilly, Jr. and Mr. Sean E. Reilly each was responsible for taxes due as a result of Lamar Advertising paying the filing fees and they were not provided a tax gross-up payment related to the imputed compensation associated with this payment on their behalf.

(7)

No shares were earned based on achievement of performance goals for fiscal 2017 for each of Mr. Kevin P. Reilly, Jr., Mr. Sean E. Reilly and Mr. Istre.

(8)

The ASC Topic 718 value of the shares actually earned based on achievement of performance goals for fiscal 2016, which awards were certified as earned by the Compensation Committee and issued on February 20, 2017, was $3,436,400 for each of Mr. Kevin P. Reilly, Jr. and Mr. Sean E. Reilly and $2,655,400 for Mr. Istre.

Grants of Plan-Based Awards in Fiscal Year 2018

The following table sets forth certain compensation information for Lamar Advertising’s Chief Executive Officer and each of Lamar Advertising’s other executive officers (which are Lamar Media’s only executive officers).

 

Name

  Grant Date   Estimated Future Payouts Under
Non-Equity Incentive Plan
Awards(1)
    Estimated Future Payouts
Under Equity Incentive Plan
Awards(2)
    All other
stock
awards:
Number of
shares of
stock or
units
(#)
    Grant
Date Fair
Value of
Stock and
Option
Awards
($)(4)
 
  Threshold
($)
    Target
($)
    Maximum
($)
    Threshold
(#)
    Target
(#)
    Maximum
(#)
 

Kevin P. Reilly, Jr.

  3/9/2018     —         —         —         —         —         —         14,667       986,796  
  3/19/2018     162,500       250,000       500,000       28,600       44,000       44,000       —         2,878,040  

Sean E. Reilly

  3/9/2018     —         —         —         —         —         —         14,667       986,796  
  3/19/2018     260,000       400,000       800,000       28,600       44,000       44,000       —         2,878,040  

Keith A. Istre

  2/26/2018     —         —         —         —         —         —         11,333       823,229  
  3/19/2018     195,000       300,000       600,000       22,100       34,000       34,000       —         2,223,940  

 

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(1)

Represents the possible cash bonus granted under Lamar Advertising’s 1996 Equity Incentive Plan that could be earned by achieving defined performance goals. Threshold amount assumes minimum attainment of both EBITDA and revenue levels to receive payment.

(2)

These awards constitute possible shares of Lamar Advertising’s Class A common stock issuable upon achievement of defined performance goals under Lamar Advertising’s 1996 Equity Incentive Plan, as amended. Threshold amount assumes minimum attainment of both EBITDA and revenue levels to receive payment.

(3)

These awards constitute discretionary shares of Lamar Advertising’s Class A common stock issued under Lamar Advertising’s 1996 Equity Incentive Plan, as amended.

(4)

Reflects the aggregate grant date fair value in accordance with ASC Topic 718 assuming the probable outcome of achievement, which for performance stock awards on the grant date was expected to be 100% of the target equity incentive award amount, rather than the value of the actual award earned on the date when issued to the officer. For the assumptions underlying the valuation of these awards see Note 15 to the Consolidated Financial Statements included in Lamar Advertising’s Annual Report on Form 10-K/A for the fiscal year ended December 31, 2018, filed with the SEC on February 26, 2019.

Outstanding Equity Awards at Fiscal Year-End 2018

The following table sets forth certain compensation information for Lamar Advertising’s Chief Executive Officer and each of Lamar Advertising’s other executive officers (which are Lamar Media’s only executive officers).

 

     Option Awards  

Name

   Number of Securities
Underlying
Unexercised Options
(#) Exercisable
    Number of Securities
Underlying
Unexercised Options
(#) Unexercisable
    Option
Exercise
Price
($)
     Option
Expiration
Date
 

Kevin P. Reilly, Jr.

     100,000 (1)       0 (1)       42.21        1/24/2023  

Sean E. Reilly

     100,000 (1)       0 (1)       42.21        1/24/2023  

Keith A. Istre

     4,209 (1)       0 (1)       42.21        1/24/2023  

 

(1)

Granted on January 24, 2013. 20% of the award vested immediately upon grant, and an additional 20% vested on the next four anniversaries of the grant date.

Option Exercises and Stock Vested in Fiscal Year 2018

The following table sets forth certain compensation information for Lamar Advertising’s Chief Executive Officer and each of Lamar Advertising’s other executive officers (which are Lamar Media’s only executive officers).

 

     Option Awards      Stock Awards  

Name

   Number
of Shares

Acquired
on
Exercise
(#)
     Value Realized
on

Exercise ($)(1)
     Number of Shares
Acquired on
Vesting (#)
     Value Realized on
Vesting ($)
 

Kevin P. Reilly, Jr.

     —          —          —          —    

Sean E. Reilly

     —          —          —          —    

Keith A. Istre

     45,791        1,278,479.27        —          —    

 

(1)

Calculated as the product of (a) the number of shares of Lamar Advertising’s Class A common stock for which the stock options were exercised and (b) the excess of the closing price of the Class A common stock on the NASDAQ Global Select Market on the date of the exercise over the applicable exercise price per share of the stock options.

 

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Non-Qualified Deferred Compensation for Fiscal Year 2018

The following table sets forth certain compensation information for Lamar Advertising’s Chief Executive Officer and each of Lamar Advertising’s other executive officers (which are Lamar Media’s only executive officers).

 

Name

   Registrant
Contributions
in Last FY ($)(1)
     Aggregate
Earnings
(Loss)
in Last FY ($)(2)
     Aggregate
Balance at
Last FYE ($)(3)
 

Kevin P. Reilly, Jr.

     50,000        (479,439.03      5,260,796.41  

Sean E. Reilly

     50,000        (97,419.85      1,447,670.78  

Keith A. Istre

     50,000        (33,664.00      1,004,735.88  

 

(1)

Amounts in this column are included in the “All Other Compensation” column in the 2018 Summary Compensation Table.

(2)

Amounts in this column are not included in the 2018 Summary Compensation Table because they were not preferential or above market.

(3)

This column includes amounts in each named executive officer’s total deferred compensation account as of the last day of fiscal 2018, which includes (i) the following total previous contributions: Mr. Kevin P. Reilly, Jr., $1,011,500; Mr. Sean E. Reilly, $715,000; and Mr. Keith A. Istre, $661,500; and (ii) aggregate earnings on all previously contributed amounts. This column does not include contributions for each officer for the 2018 FY, which were made in January 2019 and reported in the first column.

Lamar Advertising sponsors a deferred compensation plan for the benefit of certain of its board-elected officers who meet specific age, years of service and other criteria. Officers that have attained the age of 30, have a minimum of 10 years of service and satisfy additional eligibility guidelines are eligible for annual company contributions to the plan, depending on the employee’s length of service. Lamar Advertising’s contributions to the plan are maintained in a rabbi trust. Upon termination, death or disability, participating employees are eligible to receive an amount equal to the fair market value of the assets in the employee’s deferred compensation account either in a lump sum distribution or in twenty percent installments over a five-year period.

Pay Ratio

Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Commission adopted a rule requiring public companies to annually disclose the pay ratio between their median employee’s annual total compensation and the total compensation of the principal executive officer. Lamar Advertising’s principal executive officer is Mr. Sean E. Reilly, its Chief Executive Officer.

For 2018:

 

   

the annual total compensation of the median of all Lamar Advertising employees (other than its Chief Executive Officer) was $57,499.

 

   

the annual total compensation of Lamar Advertising’s Chief Executive Officer, as reported in the Summary Compensation Table, was $5,559,110.

Based on this information, for 2018 the ratio of the annual total compensation of Lamar Advertising’s Chief Executive Officer to the annual total compensation of its median employee, as required to be reported pursuant to Item 402 of Regulation S-K, was 96.7:1.

The annual total compensation of Lamar Advertising’s Chief Executive Officer as reported above is the amount reported in the Summary Compensation Table. As detailed in footnote 1 to the Summary Compensation Table, this amount includes the aggregate grant date fair value of a performance-based stock award assuming the probable outcome of achievement of performance targets, but does not reflect the actual performance-based stock award earned by Lamar Advertising’s Chief Executive Officer.

 

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The median employee was identified using a listing of all employees as of December 31, 2018, and calculating the median amount of total 2018 compensation as it would be reported based on the IRS instructions for Box 5, Medicare wages and tips. Actual amounts reported on Box 5 for 2018 were used for all employees who were employed throughout the entire year. We further annualized pay for those individuals not employed for a full year in 2018. Once we identified our median employee, we calculated such employee’s annual total compensation for 2018 in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K.

This pay ratio is a reasonable estimate calculated in a manner consistent with Commission rules based on Lamar Advertising’s payroll and employment records and the methodology described above. The Commission rules for identifying the median compensated employee and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their compensation practices. As such, the pay ratio reported by other companies may not be comparable to the pay ratio reported above, as other companies may have different employment and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios.

Director Compensation in Fiscal Year 2018

All of our directors are employees and receive no additional compensation for their services as directors.

 

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EQUITY COMPENSATION PLAN INFORMATION

The following table provides information as of December 31, 2018, with respect to shares of Lamar Advertising’s Class A common stock that may be issued under its existing compensation plans.

 

Plan Category

  (a) Number of
securities to be issued
upon exercise of
outstanding options,
warrants and rights
    (b) Weighted-average
exercise price of
outstanding options,
warrants and rights
    (c) Number of securities
remaining available for
future issuance under
equity compensation
plans
(excluding securities
reflected in column (a))
 

Equity compensation plans approved by security holders(1)

    1,123,209 (2)     $ 49.65 3)       1,158,459 (4)(5)  

Equity compensation plans not approved by security holders

    n/a       n/a       n/a  
 

 

 

   

 

 

   

 

 

 

Total

    1,123,209     $ 49.65       1,158,459  
 

 

 

   

 

 

   

 

 

 

 

(1)

Consists of Lamar Advertising’s 1996 Equity Incentive Plan, as amended and 2009 Employee Stock Purchase Plan, as amended.

(2)

Includes shares issuable upon achievement of outstanding performance-based awards under Lamar Advertising’s 1996 Equity Incentive Plan, as amended. Does not include purchase rights accruing under Lamar Advertising’s 2009 Employee Stock Purchase Plan, as amended, because the purchase price (and therefore the number of shares to be purchased) will not be determined until the end of the purchase period.

(3)

Does not take into account shares issuable upon achievement of outstanding performance-based awards, which will be issued for no consideration.

(4)

Includes shares available for future issuance under Lamar Advertising’s 2009 Employee Stock Purchase Plan, as amended. Under the evergreen formula of this plan, on the first day of each fiscal year beginning with 2010, the aggregate number of shares that may be purchased through the exercise of rights granted under the plan is increased by the lesser of (a) 500,000 shares, (b) one-tenth of one percent of the total number of shares of Lamar Advertising’s Class A common stock outstanding on the last day of the preceding fiscal year, and (c) a lesser amount determined by the board of directors. On January 1, 2019, 85,162 shares of Lamar Advertising’s Class A common stock were added to the 2009 Employee Stock Purchase Plan pursuant to the evergreen formula.

(5)

In addition to stock option awards, the 1996 Equity Incentive Plan, as currently in effect, provides for the issuance of restricted stock, unrestricted stock and stock appreciation rights.

 

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PRINCIPAL STOCKHOLDERS

We are a wholly owned subsidiary of Lamar Advertising Company, which owns all 100 shares of our outstanding common stock.

Lamar Advertising Company Common Stock

The following table sets forth certain information known to us as of March 11, 2019 with respect to the shares of Lamar Advertising’s Class A common stock and Class B common stock beneficially owned as of that date by: (i) each of Lamar Advertising’s directors; (ii) each of Lamar Advertising’s executive officers named in the 2018 Summary Compensation Table; (iii) all of Lamar Advertising’s directors and executive officers as a group; and (iv) each person known by Lamar Advertising to beneficially own more than 5% of its Class A common stock or Class B common stock. Lamar Advertising’s Class B common stock is convertible into Class A common stock on a one-for-one basis. Except as otherwise indicated, we believe each beneficial owner named below has sole voting and sole investment power with respect to all shares beneficially owned by that holder. Percentage calculations of beneficial ownership are based on 85,474,616 shares of Class A common stock and 14,420,085 shares of Class B common stock outstanding on March 11, 2019.

 

Beneficial Owner

   Title of Class      No. of Shares
Owned
    Percent of
Class
 

Directors and Executive Officers

       

Kevin P. Reilly, Jr.

     Class A        384,238 (1)       *  
     Class B(2)        11,362,250 (3)(4)       78.79 %(5) 

Sean E. Reilly

     Class A        0       *  
     Class B(2)        10,557,835 (4)(7)       73.22 %(8) 

Anna Reilly

     Class A        153,303 (9)       *  
     Class B(2)        10,000,000 (4)(10)       69.35 %(11) 

Wendell Reilly

     Class A        11,473 (12)       *  
     Class B(2)        9,500,000 (4)(13)       65.88 %(14) 

Keith A. Istre

     Class A        135,185       *  

Stephen P. Mumblow

     Class A        8,136 (15)       *  

Thomas V. Reifenheiser

     Class A        48,708 (16)       *  

John E. Koerner, III

     Class A        33,472 (17)       *  

Marshall Loeb

     Class A        810       *  

All Current Directors and Executive Officers as a Group (9 Persons)

     Class A & B        15,195,410 (18)       15.21 %(19) 

Five Percent Stockholders

       

The Reilly Family Limited Partnership

     Class B(2)        9,000,000       62.41 %(20) 

The Vanguard Group

100 Vanguard Blvd.
Malvern, PA 19355

     Class A        12,485,873 (21)       14.61

BlackRock, Inc.

55 East 52nd Street
New York, NY 10055

     Class A        8,390,109 (22)       9.82

Janus Henderson Group plc

201 Bishopsgate EC2M 3AE
London, United Kingdom

     Class A        8,072,425 (23)       9.44

 

*

Less than 1%.

(1)

Includes 100,000 shares subject to stock options exercisable within 60 days of March 11, 2019.

 

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(2)

Upon the sale of any shares of Class B common stock to a person other than to a Permitted Transferee, such shares will automatically convert into shares of Class A common stock. Permitted Transferees include (i) a descendant of Kevin P. Reilly, Sr.; (ii) a spouse or surviving spouse (even if remarried) of any individual named or described in (i) above; (iii) any estate, trust, guardianship, custodianship, curatorship or other fiduciary arrangement for the primary benefit of any one or more of the individuals named or described in (i) and (ii) above; and (iv) any corporation, partnership, limited liability company or other business organization controlled by and substantially all of the interests in which are owned, directly or indirectly, by any one or more of the individuals and entities named or described in (i), (ii), and (iii) above. Except for voting rights, the Class A common stock and Class B common stock are substantially identical. The holders of Class A common stock and Class B common stock vote together as a single class (except as may otherwise be required by Delaware law), with the holders of Class A common stock entitled to one vote per share and the holders of Class B common stock entitled to ten votes per share on all matters on which the holders of common stock are entitled to vote.

(3)

Includes 566,211 shares held by Ninemile, L.L.C., of which Kevin P. Reilly, Jr. is the managing member, all of which are pledged as collateral for a loan. Kevin P. Reilly, Jr. has sole voting power over the shares held by Ninemile, L.L.C. but dispositions of the shares require the approval of 66% of the outstanding membership interests. Kevin P. Reilly, Jr. disclaims beneficial ownership in the shares held by Ninemile, L.L.C., except to the extent of his pecuniary interest therein.

(4)

Includes 9,000,000 shares held by the Reilly Family Limited Partnership (the “RFLP”), of which Kevin P. Reilly, Jr. is the managing general partner, 500,000 shares of which are pledged as collateral for a loan. Kevin P. Reilly, Jr.’s three siblings, Anna Reilly (a director of Lamar Advertising), Sean E. Reilly (Lamar Advertising’s Chief Executive Officer) and Wendell Reilly (a director of Lamar Advertising) are the other general partners of the RFLP. The managing general partner has sole voting power over the shares held by the RFLP but dispositions of the shares require the approval of 50% of the general partnership interests of the RFLP. Anna Reilly, Sean E. Reilly, and Wendell Reilly disclaim beneficial ownership in the shares held by the RFLP, except to the extent of their pecuniary interest therein.

(5)

Represents 11.37% of the Class A common stock if all shares of Class B common stock are converted into Class A common stock.

(6)

Includes 757,375 shares held by Jennifer and Sean Reilly Family, LLC.

(7)

Represents 10.57% of the Class A common stock if all shares of Class B common stock are converted into Class A common stock.

(8)

Includes 143,303 shares owned jointly by Anna Reilly and her spouse and 10,000 shares subject to stock options exercisable within 60 days of March 11, 2019.

(9)

Includes 1,000,000 shares owned jointly by Ms. Reilly and her spouse.

(10)

Represents 10.01% of the Class A common stock if all shares of Class B common stock are converted into Class A common stock.

(11)

Includes 5,000 shares held by his spouse and 4,000 shares subject to stock options exercisable within 60 days of March 11, 2019. Also includes 2,473 shares that are pledged as collateral for a loan.

(12)

Includes 500,000 shares pledged as collateral for a loan.

(13)

Represents 9.51% of the Class A common stock if all shares of Class B common stock are converted into Class A common stock.

(14)

Includes 7,584 shares held in a brokerage margin account. The margin balance outstanding, if any, pursuant to such account may vary from time to time.

(15)

Includes 23,200 shares of Class A common stock subject to stock options exercisable within 60 days of March 11, 2019.

(16)

Includes 20,000 shares of Class A common stock subject to stock options exercisable within 60 days of March 11, 2019.

(17)

See Notes 1, 3, 4, 8, 9, 11, 12, 14, 15 and 16.

(19)

Assumes the conversion of all shares of Class B common stock into shares of Class A common stock.

(20)

Represents 9.01% of the Class A common stock if all shares of Class B common stock are converted into Class A common stock.

 

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(21)

As reported in the Schedule 13G/A filed on February 11, 2019 with the SEC for the year ended December 31, 2018, The Vanguard Group (“Vanguard”) has sole voting power with respect to 45,967 shares, shared voting power with respect to 9,385 shares, sole dispositive power with respect to 12,438,698 shares and shared dispositive power with respect to 47,175. Includes 37,790 shares beneficially owned by Vanguard’s wholly-owned subsidiary Vanguard Fiduciary Trust Company (“VFTC”) as a result of VFTC’s serving as investment manager of collective trust accounts and 17,562 shares beneficially owned by Vanguard’s wholly-owned subsidiary Vanguard Investments Australia, Ltd. (“VIA”) as a result of VIA’s serving as investment manager of Australian investment offerings.

(22)

As reported in the Schedule 13G/A filed on February 6, 2019 with the SEC for the year ended December 31, 2018, BlackRock, Inc. has sole voting power with respect to 8,015,293 shares and sole dispositive power with respect to 8,390,109 shares.

(23)

As reported in the Schedule 13G filed on February 12, 2019 with the SEC for the year ended December 31, 2018, Janus Henderson Group plc (“Janus Henderson”) has an ownership stake in certain asset management entities, which furnish investment advice to various fund, individual and/or institutional clients (“Managed Portfolios”), including Janus Capital Management LLC (“Janus Capital”). Janus Henderson has shared voting and dispositive power with respect to all such shares.

Preferred Stock

Lamar Advertising also has outstanding 5,719.49 shares of Series AA preferred stock. Holders of Series AA preferred stock are entitled to one vote per share. The Series AA preferred stock is held as follows: 3,134.8 shares (54.8%) by the RFLP, of which Kevin P. Reilly, Jr. is the managing general partner and Anna Reilly, Sean E. Reilly, and Wendell Reilly are the general partners; 1,500 shares (26.2%) by Charles W. Lamar III; 784.69 shares (13.7%) by Mary Lee Lamar Dixon; and 300 shares (5.3%) by the Josephine P. Lamar Test. Trust #1. The aggregate outstanding Series AA preferred stock represents less than 1% of the capital stock of Lamar Advertising.

 

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Related Person Transactions

Ross L. Reilly is the son of Kevin P. Reilly, Jr., Lamar Advertising’s Chairman of the board of directors and President, and the nephew of Sean E. Reilly, Lamar Advertising’s Chief Executive Officer, and Lamar Advertising’s directors Wendell Reilly and Anna Reilly. Ross is employed as a General Manager of the Company. In connection with his employment during 2018, Ross’ aggregate compensation, including his base salary and bonus, did not exceed $120,000. He is also eligible to participate in customary employee benefit programs for his position.

Policy on Related Person Transactions

Related persons include any of Lamar Advertising’s directors or executive officers, certain of Lamar Advertising’s stockholders and their immediate family members. A conflict of interest may occur when an individual’s private interest interferes, or appears to interfere, in any way with the interests of Lamar Advertising. Lamar Advertising’s Code of Business Conduct and Ethics requires all directors, officers and employees to disclose to management any situations that may be, or appear to be, a conflict of interest. Once management receives notice of a conflict of interest, they will review and investigate the relevant facts and will then generally consult with Lamar Advertising’s General Counsel and the Audit Committee as appropriate.

Under Lamar Advertising’s Audit Committee’s charter, the Audit Committee is responsible for reviewing and pre-approving any related party transactions. Copies of Lamar Advertising’s Code of Business Conduct and Ethics and of Lamar Advertising’s Audit Committee charter are available on its website at www.lamar.com.

In addition to the reporting requirements under the Code of Business Conduct and Ethics, each year Lamar Advertising’s directors and executive officers complete questionnaires identifying any transactions with Lamar Advertising in which the executive officers or directors or any immediate family members have an interest. Any such transactions or other related party transactions are reviewed and brought to the attention of the Audit Committee as appropriate.

Compensation Committee Interlocks and Insider Participation

The Compensation Committee of Lamar Advertising currently consists of Thomas V. Reifenheiser (Chairman), John E. Koerner, III, and Stephen P. Mumblow. None of Lamar Advertising’s executive officers serves as a member of the board of directors or compensation committee of any other company that has one or more executive officers serving as a member of Lamar Advertising’s board of directors or Compensation Committee.

 

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THE EXCHANGE OFFER

Purpose and Effect of Exchange Offer

We sold the outstanding notes on February 1, 2019 in an unregistered private placement to certain initial purchasers. As part of that offering, we entered into a registration rights agreement with the initial purchasers. Under the registration rights agreement, we agreed to file the registration statement, of which this prospectus forms a part, to offer to exchange the outstanding notes for exchange notes in an offering registered under the Securities Act. This exchange offering satisfies that obligation. We also agreed to perform other obligations under that registration rights agreement. See “Registration Rights Agreement.”

By participating in the exchange offer, holders of outstanding notes will receive exchange notes that are freely tradable and not subject to restrictions on transfer, subject to the exceptions described under “—Resale of Exchange Notes” immediately below. In addition, holders of exchange notes generally will not be entitled to additional interest.

Resale of Exchange Notes

We believe that the exchange notes issued in exchange for the outstanding notes may be offered for resale, resold and otherwise transferred by any new noteholder without compliance with the registration and prospectus delivery provisions of the Securities Act if the conditions set forth below are met. We base this belief solely on interpretations of the federal securities laws by the staff of the Division of Corporation Finance of the Commission set forth in several no-action letters issued to third parties unrelated to us. A no-action letter is a letter from the staff of the Division of Corporation Finance of the Commission responding to a request for the staff’s views as to whether it would recommend any enforcement action to the Division of Enforcement of the Commission with respect to certain actions being proposed by the party submitting the request. We have not obtained, and do not intend to obtain, our own no-action letter from the Commission regarding the resale of the exchange notes. Instead, holders will be relying on the no-action letters that the Commission has issued to third parties in circumstances that we believe are similar to ours. Based on these no-action letters, the following conditions must be met:

 

   

the holder must acquire the exchange notes in the ordinary course of its business;

 

   

the holder must have no arrangements or understanding with any person to participate in the distribution of the exchange notes within the meaning of the Securities Act; and

 

   

the holder must not be our “affiliate,” as that term is defined in Rule 405 of the Securities Act.

Each holder of outstanding notes that wishes to exchange outstanding notes for exchange notes in the exchange offer must represent to us that it satisfies all of the above listed conditions. Any holder who tenders in the exchange offer who does not satisfy all of the above listed conditions:

 

   

cannot rely on the position of the Commission set forth in the no-action letters referred to above; and

 

   

must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a resale of the exchange notes.

The Commission considers broker-dealers that acquired outstanding notes directly from us, but not as a result of market-making activities or other trading activities, to be making a distribution of the exchange notes if they participate in the exchange offer. Consequently, these holders must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a resale of the exchange notes.

Each broker-dealer that receives exchange notes for its own account in exchange for outstanding notes acquired by that broker-dealer as a result of market-making activities or other trading activities must deliver a prospectus in connection with a resale of the exchange notes and provide us with a signed acknowledgement of this

 

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obligation. A broker-dealer may use this prospectus, as amended or supplemented from time to time, in connection with resales of exchange notes received in exchange for outstanding notes where the broker-dealer acquired the outstanding notes as a result of market-making activities or other trading activities. The letter of transmittal states that by acknowledging and delivering a prospectus, a broker-dealer will not be considered to admit that it is an “underwriter” within the meaning of the Securities Act. We have agreed that for a period of 180 days after the expiration date of the exchange offer, we will make this prospectus available to broker-dealers for use in connection with any resale of the exchange notes.

Except as described in the prior paragraph, holders may not use this prospectus for an offer to resell, a resale or other retransfer of exchange notes. We are not making this exchange offer to, nor will we accept tenders for exchange from, holders of outstanding notes in any jurisdiction in which the exchange offer or the acceptance of it would not be in compliance with the securities or blue sky laws of that jurisdiction.

Terms of the Exchange

Upon the terms and subject to the conditions set forth in this prospectus and the accompanying letter of transmittal, which we refer to together in this prospectus as the “exchange offer,” we will accept any and all outstanding notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on the expiration date. We will issue, on or promptly after the expiration date, an aggregate principal amount of up to $250 million of exchange notes for a like principal amount of outstanding notes tendered and accepted in connection with the exchange offer. Holders may tender some or all of their outstanding notes in connection with the exchange offer, but only in denominations of $2,000 and integral multiples of $1,000. The exchange offer is not conditioned upon any minimum amount of outstanding notes being tendered for exchange.

The terms of the exchange notes are identical in all material respects to the terms of the outstanding notes, except that:

 

   

we have registered the exchange notes under the Securities Act and therefore these notes will not bear legends restricting their transfer; and

 

   

specified rights under the registration rights agreement, including the provisions providing for payment of additional interest in specified circumstances relating to the exchange offer, will be limited or eliminated.

The exchange notes will evidence the same debt as the outstanding notes. The exchange notes will be issued under the same indenture and entitled to the same benefits under that indenture as the outstanding notes being exchanged. As of the date of this prospectus, $250 million in aggregate principal amount of the outstanding notes were outstanding. Outstanding notes accepted for exchange will be retired and cancelled and will not be reissued.

In connection with the issuance of the outstanding notes, we arranged for the outstanding notes originally purchased by qualified institutional buyers to be issued and transferable in book-entry form through the facilities of DTC, acting as depositary. Except as described under “–Book-Entry Transfer,” we will issue the exchange notes in the form of a global note registered in the name of DTC or its nominee, and each beneficial owner’s interest in it will be transferable in book-entry form through DTC.

Holders of outstanding notes do not have any appraisal or dissenters’ rights in connection with the exchange offer. We intend to conduct the exchange offer in accordance with the applicable requirements of the Exchange Act and the rules and regulations of the Commission.

We will be considered to have accepted validly tendered outstanding notes if and when we have given oral or written notice to that effect to the exchange agent. The exchange agent will act as agent for the tendering holders for the purposes of receiving the exchange notes from us.

 

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If we do not accept any tendered outstanding notes for exchange because of an invalid tender, the occurrence of the other events described in this prospectus or otherwise, we will return these outstanding notes, without expense, to the tendering holder as quickly as possible after the expiration date of the exchange offer.

Holders who tender outstanding notes will not be required to pay brokerage commissions or fees or, subject to the instructions in the letter of transmittal, transfer taxes on exchange of outstanding notes in connection with the exchange offer. We will pay all charges and expenses, other than the applicable taxes described under “—Fees and Expenses” in connection with the exchange offer.

If we successfully complete the exchange offer, any outstanding notes which holders do not tender or which we do not accept in the exchange offer will remain outstanding and continue to accrue interest. The holders of outstanding notes after the exchange offer in general will not have further rights under the registration rights agreement, including registration rights and any rights to additional interest. Holders wishing to transfer the outstanding notes would have to rely on exemptions from the registration requirements of the Securities Act.

Expiration Date; Extensions; Amendments

The expiration date for the exchange offer is 5:00 p.m., New York City time, on                 , 2019. We may extend this expiration date in our sole discretion, but in no event to a date later than                 , 2019, unless otherwise required by applicable law. If we so extend the expiration date, the term “expiration date” shall mean the latest date and time to which we extend the exchange offer.

We reserve the right, in our sole discretion:

 

   

to delay accepting any outstanding notes, for example, in order to allow for the confirmation of tendered notes or for the rectification of any irregularity or defect in the tender of outstanding notes;

 

   

to extend the exchange offer;

 

   

to terminate the exchange offer if, in our sole judgment, any of the conditions described below shall not have been satisfied; or

 

   

to amend the terms of the exchange offer in any manner.

We will give notice by press release or other written public announcement of any delay, extension or termination to the exchange agent. In addition, we will give, as promptly as practicable, oral or written notice regarding any delay in acceptance, extension or termination of the offer to the registered holders of outstanding notes. If we amend the exchange offer in a manner that we determine to constitute a material change, or if we waive a material condition, we will promptly disclose the amendment or waiver in a manner reasonably calculated to notify the holders of outstanding notes of the amendment or waiver, and extend the offer as required by law to cause the exchange offer to remain open for at least five business days following such notice.

Without limiting the manner in which we may choose to make public announcements of any delay in acceptance, extension, termination, amendment or waiver regarding the exchange offer, we shall have no obligation to publish, advertise, or otherwise communicate any public announcement, other than by making a timely release to a financial news service.

Interest on the Exchange Notes

Interest on the exchange notes will accrue at the rate of 5.750% per annum on the principal amount, payable semiannually on February 1 and August 1, beginning August 1, 2019. Interest on the exchange notes will accrue from the date of issuance of the outstanding notes or the date of the last periodic payment of interest on such outstanding notes, whichever is later.

 

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Conditions to the Exchange Offer

Despite any other term of the exchange offer, we will not be required to accept for exchange, or exchange notes for, any outstanding notes and we may terminate the exchange offer as provided in this prospectus, if:

 

   

the exchange offer, or the making of any exchange by a holder, violates, in our good faith determination, any applicable law, rule or regulation or any applicable interpretation of the staff of the Commission;

 

   

any action or proceeding shall have been instituted or threatened with respect to the exchange offer which, in our reasonable judgment, would impair our ability to proceed with the exchange offer; or

 

   

we have not obtained any governmental approval which we, in our sole discretion, exercised reasonably, consider necessary for the completion of the exchange offer as contemplated by this prospectus.

The conditions listed above are for our sole benefit. We may assert them regardless of the circumstances giving rise to any of these conditions or waive them in our sole discretion in whole or in part. A failure on our part to exercise any of our rights under any of the conditions shall not constitute a waiver of that right, and that right shall be considered an ongoing right which we may assert at any time prior to the expiration of the exchange offer. All such conditions, other than those subject to governmental approval, will be satisfied or waived prior to the expiration of the exchange offer.

If we determine in our sole discretion, exercised reasonably, that any of the events listed above has occurred, we may, subject to applicable law:

 

   

refuse to accept any outstanding notes and return all tendered outstanding notes to the tendering holders;

 

   

extend the exchange offer and retain all outstanding notes tendered before the expiration of the exchange offer, subject, however, to the rights of holders to withdraw these outstanding notes; or

 

   

waive unsatisfied conditions relating to the exchange offer and accept all properly tendered outstanding notes that have not been withdrawn.

Any determination by us concerning the above events will be final and binding.

In addition, we reserve the right in our sole discretion, exercised reasonably, to:

 

   

purchase or make offers for any outstanding notes that remain outstanding subsequent to the expiration date; and

 

   

to the extent permitted by applicable law, purchase outstanding notes in the open market, in privately negotiated transactions or otherwise.

The terms of any purchases or offers may differ from the terms of the exchange offer. Those purchases may require the consent of the lenders under our senior credit facility.

Procedures for Tendering

Except in limited circumstances, only a Euroclear participant, Clearstream participant or DTC participant listed on a DTC securities position listing with respect to the outstanding notes may tender outstanding notes in the exchange offer. To tender outstanding notes in the exchange offer:

 

   

holders of outstanding notes that are DTC participants may follow the procedures for book-entry transfer as set forth under “—Book-Entry Transfer” and in the letter of transmittal; or

 

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Euroclear participants and Clearstream participants on behalf of the beneficial owners of outstanding notes are required to use book-entry transfer pursuant to the standard operating procedures of Euroclear or Clearstream. These procedures include the transmission of a computer-generated message to Euroclear or Clearstream in lieu of a letter of transmittal. See the description of “agent’s message” under “—Book-Entry Transfer.”

In addition, you must comply with one of the following:

 

   

the exchange agent must receive, before expiration of the exchange offer, a timely confirmation of book-entry transfer of outstanding notes into the exchange agent’s account at DTC, Euroclear or Clearstream according to their respective standard operating procedures for electronic tenders and a properly transmitted agent’s message as described below; or

 

   

the exchange agent must receive any corresponding certificate or certificates representing outstanding notes along with the letter of transmittal; or

 

   

the holder must comply with the guaranteed delivery procedures described below.

The tender by a holder of outstanding notes will constitute an agreement between the holder and us in accordance with the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal. If less than all the outstanding notes held by a holder are tendered, the tendering holder should fill in the amount of outstanding notes being tendered in the specified box on the letter of transmittal. The entire amount of outstanding notes delivered or transferred to the exchange agent will be deemed to have been tendered unless otherwise indicated.

The method of delivery of outstanding notes, the letter of transmittal and all other required documents or transmission of an agent’s message, as described under “—Book-Entry Transfer,” to the exchange agent is at the election and risk of the holder. Instead of delivery by mail, we recommend that holders use an overnight or hand delivery service. In all cases, sufficient time should be allowed to assure timely delivery to the exchange agent prior to the expiration of the exchange offer. No letter of transmittal or outstanding notes should be sent to us, DTC, Euroclear or Clearstream. Delivery of documents to DTC, Euroclear or Clearstream in accordance with their respective procedures will not constitute delivery to the exchange agent.

Any beneficial holder whose outstanding notes are registered in the name of his or its broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered holder promptly and instruct it to tender on the beneficial holder’s behalf. If any beneficial holder wishes to tender on its own behalf, it must, prior to completing and executing the letter of transmittal and delivering its outstanding notes, either:

 

   

make appropriate arrangements to register ownership of the outstanding notes in its name; or

 

   

obtain a properly completed bond power from the registered holder.

The transfer of record ownership may take considerable time and may not be completed prior to the expiration date.

Signatures on a letter of transmittal or a notice of withdrawal, as described in “Withdrawal of Tenders,” must be guaranteed by a member firm of a registered national securities exchange or of the Financial Industry Regulatory Authority, Inc., a commercial bank or trust company having an office or correspondent in the United States or an “eligible guarantor institution,” within the meaning of Rule 17Ad-15 under the Exchange Act, which we refer to in this prospectus as an “eligible institution,” unless the outstanding notes are tendered:

 

   

by a registered holder who has not completed the box entitled “Special Issuance Instructions” or “Special Delivery Instructions” on the letter of transmittal; or

 

   

for the account of an eligible institution.

 

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If the letter of transmittal is signed by a person other than the registered holder of any outstanding notes listed therein, the outstanding notes must be endorsed or accompanied by appropriate bond powers which authorize the person to tender the outstanding notes on behalf of the registered holder, in either case signed as the name of the registered holder or holders appears on the outstanding notes. If the letter of transmittal or any outstanding notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, those persons should so indicate when signing and, unless waived by us, evidence satisfactory to us of their authority to so act must be submitted with the letter of transmittal.

We will determine in our sole discretion, exercised reasonably, all questions as to the validity, form, eligibility, including time of receipt, and acceptance and withdrawal of tendered outstanding notes. We reserve the absolute right to reasonably reject any and all outstanding notes not properly tendered or any outstanding notes whose acceptance by us would, in the opinion of our counsel, be unlawful. We also reserve the right to waive any defects or irregularities as to any particular outstanding notes. Our interpretation of the form and procedures for tendering outstanding notes in the exchange offer, including the instructions in the letter of transmittal, will be final and binding on all parties. Unless waived, holders must cure any defects or irregularities in connection with tenders of outstanding notes within a period we will determine. Although we intend to request the exchange agent to notify holders of defects or irregularities relating to tenders of outstanding notes, neither we, the exchange agent nor any other person will have any duty or incur any liability for failure to give this notification. We will not consider tenders of outstanding notes to have been made until these defects or irregularities have been cured or waived. The exchange agent will return any outstanding notes that are not properly tendered and as to which the defects or irregularities have not been cured or waived to the tendering holders, unless otherwise provided in the letter of transmittal, promptly following the expiration date.

In addition, we reserve the right, as set forth under “—Conditions to the Exchange Offer,” to terminate the exchange offer.

By tendering, each holder represents to us, among other things, that:

 

   

the holder acquired exchange notes pursuant to the exchange offer in the ordinary course of its business;

 

   

the holder has no arrangement or understanding with any person to participate in the distribution of the exchange notes within the meaning of the Securities Act; and

 

   

the holder is not our “affiliate,” as defined in Rule 405 under the Securities Act.

If the holder is a broker-dealer that will receive exchange notes for its own account in exchange for outstanding notes acquired by the broker-dealer as a result of market-making activities or other trading activities, the holder must acknowledge that it will deliver a prospectus in connection with any resale of the exchange notes.

Book-Entry Transfer

We understand that the exchange agent will make a request promptly after the date of this prospectus to establish accounts with respect to the outstanding notes at DTC for the purpose of facilitating the exchange offer. Any financial institution that is a participant in DTC’s system may make book-entry delivery of outstanding notes by causing DTC to transfer the outstanding notes into the exchange agent’s DTC account in accordance with DTC’s Automated Tender Offer Program procedures for the transfer. Any participant in Euroclear or Clearstream may make book-entry delivery of outstanding notes by causing Euroclear or Clearstream to transfer the outstanding notes into the exchange agent’s account in accordance with established Euroclear or Clearstream procedures for transfer. The exchange of exchange notes for tendered outstanding notes will only be made after a timely confirmation of a book-entry transfer of the outstanding notes into the exchange agent’s account and timely receipt by the exchange agent of an agent’s message.

 

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The term “agent’s message” means a message, transmitted by DTC, Euroclear or Clearstream, and received by the exchange agent and forming part of the confirmation of a book-entry transfer, which states that DTC, Euroclear or Clearstream has received an express acknowledgment from a participant tendering outstanding notes that the participant has received an appropriate letter of transmittal and agrees to be bound by the terms of the letter of transmittal, and that we may enforce the agreement against the participant. Delivery of an agent’s message will also constitute an acknowledgment from the tendering DTC, Euroclear or Clearstream participant that the representations contained in the letter of transmittal and described under “—Resale of Exchange Notes” are true and correct.

Guaranteed Delivery Procedures

The following guaranteed delivery procedures are intended for holders who wish to tender their outstanding notes but:

 

   

their outstanding notes are not immediately available;

 

   

the holders cannot deliver their outstanding notes, the letter of transmittal, or any other required documents to the exchange agent prior to the expiration date; or

 

   

the holders cannot complete the procedure under the respective DTC, Euroclear or Clearstream standard operating procedures for electronic tenders before expiration of the exchange offer.

The conditions that must be met to tender outstanding notes through the guaranteed delivery procedures are as follows:

 

   

the tender must be made through an eligible institution;

 

   

before expiration of the exchange offer, the exchange agent must receive from the eligible institution either a properly completed and duly executed notice of guaranteed delivery in the form accompanying this prospectus, by facsimile transmission, mail or hand delivery, or a properly transmitted agent’s message in lieu of notice of guaranteed delivery:

 

   

setting forth the name and address of the holder, the certificate number or numbers of the outstanding notes tendered and the principal amount of outstanding notes tendered;

 

   

stating that the tender offer is being made by guaranteed delivery;

 

   

guaranteeing that, within three New York Stock Exchange trading days after expiration of the exchange offer, the letter of transmittal, or facsimile of the letter of transmittal, together with the outstanding notes tendered or a book-entry confirmation, and any other documents required by the letter of transmittal will be deposited by the eligible institution with the exchange agent; and

 

   

the exchange agent must receive the properly completed and executed letter of transmittal, or facsimile of the letter of transmittal, as well as all tendered outstanding notes in proper form for transfer or a book-entry confirmation, and any other documents required by the letter of transmittal, within three New York Stock Exchange trading days after expiration of the exchange offer; and

 

   

upon request to the exchange agent, a notice of guaranteed delivery will be sent to holders who wish to tender their outstanding notes according to the guaranteed delivery procedures set forth above.

Withdrawal of Tenders

Your tender of outstanding notes pursuant to the exchange offer is irrevocable except as otherwise provided in this section. You may withdraw tenders of outstanding notes at any time prior to 5:00 p.m., New York City time, on the expiration date.

 

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For a withdrawal to be effective:

 

   

the exchange agent must receive a written notice, which may be by facsimile transmission or letter, of withdrawal at the address set forth below under “Exchange Agent,” or

 

   

for DTC, Euroclear or Clearstream participants, holders must comply with their respective standard operating procedures for electronic tenders and the exchange agent must receive an electronic notice of withdrawal from DTC, Euroclear or Clearstream.

Any notice of withdrawal must:

 

   

specify the name of the person who tendered the outstanding notes to be withdrawn;

 

   

identify the outstanding notes to be withdrawn, including the certificate number or numbers and principal amount of the outstanding notes to be withdrawn;

 

   

include a statement that the person is withdrawing his election to have such outstanding notes exchanged;

 

   

be signed by the person who tendered the outstanding notes in the same manner as the original signature on the letter of transmittal, including any required signature guarantees; and

 

   

specify the name in which the outstanding notes are to be re-registered, if different from that of the withdrawing holder.

If outstanding notes have been tendered pursuant to the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at DTC, Euroclear or Clearstream to be credited with the withdrawn outstanding notes and otherwise comply with the procedures of the applicable facility. We will determine in our sole discretion, exercised reasonably, all questions as to the validity, form and eligibility, including time of receipt, for the withdrawal notices, and our determination will be final and binding on all parties. Any outstanding notes so withdrawn will be deemed not to have been validly tendered for purposes of the exchange offer and no exchange notes will be issued with respect to them unless the outstanding notes so withdrawn are validly retendered. Any outstanding notes which have been tendered but which are not accepted for exchange will be returned to the holder without cost to the holder promptly after withdrawal, rejection of tender or termination of the exchange offer. Properly withdrawn outstanding notes may be re-tendered by following the procedures described under “—Procedures for Tendering” at any time prior to the expiration date.

Fees and Expenses

We will not make any payments to brokers, dealers or other persons soliciting acceptances of the exchange offer. We will, however, pay the exchange agent reasonable and customary fees for its services and its related reasonable out-of-pocket expenses, including accounting and legal fees. We may also pay brokerage houses and other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding copies of this prospectus, letters of transmittal and related documents to the beneficial owners of the outstanding notes and in handling or forwarding tenders for exchange.

Holders who tender their outstanding notes for exchange will not be obligated to pay any transfer taxes. If, however:

 

   

exchange notes are to be delivered to, or issued in the name of, any person other than the registered holder of the outstanding notes tendered; or

 

   

tendered outstanding notes are registered in the name of any person other than the person signing the letter of transmittal; or

 

   

a transfer tax is imposed for any reason other than the exchange of outstanding notes in connection with the exchange offer;

 

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then the tendering holder must pay the amount of any transfer taxes due, whether imposed on the registered holder or any other persons. If the tendering holder does not submit satisfactory evidence of payment of these taxes or exemption from them with the letter of transmittal, the amount of these transfer taxes will be billed directly to the tendering holder.

Accounting Treatment

The exchange notes will be recorded at the same carrying value as the outstanding notes as reflected in our accounting records on the date of the exchange. Accordingly, we will not recognize any gain or loss for accounting purposes upon the completion of the exchange offer.

Consequences of Failures to Properly Tender Outstanding Notes in the Exchange

We will issue the exchange notes in exchange for outstanding notes under the exchange offer only after timely receipt by the exchange agent of the outstanding notes, a properly completed and duly executed letter of transmittal and all other required documents. Therefore, holders of the outstanding notes desiring to tender outstanding notes in exchange for exchange notes should allow sufficient time to ensure timely delivery. We are under no duty to give notification of defects or irregularities of tenders of outstanding notes for exchange. Outstanding notes that are not tendered or that are tendered but not accepted by us will, following completion of the exchange offer, continue to be subject to the existing restrictions upon transfer under the Securities Act. If we successfully complete the exchange offer, specified rights under the registration rights agreement, including registration rights and any right to additional interest, will be either limited or eliminated.

Participation in the exchange offer is voluntary. In the event the exchange offer is completed, we will not be required to register the remaining outstanding notes. Remaining outstanding notes will continue to be subject to the following restrictions on transfer:

 

   

holders may resell outstanding notes only if we register the outstanding notes under the Securities Act, if an exemption from registration is available, or if the transaction requires neither registration under nor an exemption from the requirements of the Securities Act; and

 

   

the remaining outstanding notes will bear a legend restricting transfer in the absence of registration or an exemption.

We do not currently anticipate that we will register any remaining outstanding notes under the Securities Act. To the extent that outstanding notes are tendered and accepted in connection with the exchange offer, any trading market for remaining outstanding notes could be adversely affected.

 

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DESCRIPTION OF MATERIAL INDEBTEDNESS

The following is a description of our material indebtedness, other than the outstanding notes. The terms of the outstanding notes are substantially identical to the terms of the exchange notes. See “Description of Exchange Notes.” The following summaries are qualified in their entirety by reference to the credit and security agreements and indentures to which each summary relates, which are included or incorporated by reference into the registration statement of which this prospectus is a part.

Senior Credit Facility

As of December 31, 2018, our senior credit facility consisted of (i) a $450.0 million senior secured revolving credit facility which will mature on May 15, 2022, (ii) a $450.0 million Term A loan facility which will mature on May 15, 2022 (the “Term A loans”), (iii) a $600.0 million Term B loan facility which will mature on March 16, 2025 (the “Term B loans” and together with the Term A loans, the “Term loans”), and (iv) an incremental facility pursuant to which we may incur additional term loan tranches or increase our revolving credit facility subject to pro forma compliance with the secured debt ratio financial maintenance covenant described below. Lamar Media is the borrower under the senior credit facility and may also from time to time designate wholly owned subsidiaries as subsidiary borrowers under the incremental facility. Loans under the incremental facility may be in the form of additional term loan tranches or increases in the revolving credit facility. Our lenders have no obligation to make additional loans to us, or any designated subsidiary borrower, under the incremental facility, but may enter into such commitments in their sole discretion.

Our senior credit facility was entered into pursuant to a third restatement agreement dated May 15, 2017 (as amended, the “senior credit facility”), for which JPMorgan Chase Bank, N.A. serves as administrative agent. The senior credit facility was further amended by Amendment No. 1 dated March 16, 2018, which established the Term B loans, and Amendment No. 2 dated December 6, 2018, which made certain amendments to permit the Accounts Receivable Securitization Program.

Under the senior credit facility, we borrowed all $450.0 million in Term A loans on May 15, 2017. The net proceeds from the Term A loans, together with borrowing under the revolving portion of our senior credit facility and cash on hand, were used to repay all outstanding amounts under the then-existing senior credit facility, and all revolving commitments under that facility were terminated. We borrowed all $600.0 million in Term B loans on March 16, 2018. The net proceeds from the Term B loans, together with available cash on hand, were used to redeem in full Lamar Media’s 57/8% Senior Subordinated Notes due 2022.

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

Amortization

The Term A loans mature on May 15, 2022 and the Term B loans mature on March 16, 2025. Prior to final maturity, the Term A loans have scheduled quarterly amortization payments equal to 5% per annum of the original principal amount and the Term B loans have scheduled quarterly amortization payments equal to 1% per annum of the original principal amount.

Interest

The loans bear interest at rates based on the Adjusted LIBO Rate (“Eurodollar loans”) or the Adjusted Base Rate (“Base Rate loans”), at Lamar Media’s option.

 

   

Eurodollar loans bear interest at a rate per annum equal to the Adjusted LIBO Rate plus 1.75% (or, solely in the case of Term A loans and revolving loans, the Adjusted LIBO Rate plus 1.50% at any time the Total Debt Ratio (as defined below) is less than or equal to 3.25 to 1.00).

 

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Base Rate loans bear interest at a rate per annum equal to the Adjusted Base Rate plus 0.75% (or, solely in the case of Term A loans and revolving loans, the Adjusted Base Rate plus 0.50% at any time the Total Debt Ratio is less than or equal to 3.25 to 1.00).

Total Debt Ratio is defined as total debt of Lamar Advertising and its restricted subsidiaries (other than Special Purpose Subsidiaries), minus the lesser of (x) $150 million and (y) the aggregate amount of unrestricted cash and cash equivalents of Lamar Advertising and its restricted subsidiaries (other than Special Purpose Subsidiaries) to EBITDA, as defined under “—Covenants” below, for the period of four consecutive fiscal quarters then ended.

Based on our trailing total leverage ratio at December 31, 2018, the spread applicable to borrowings under the revolving credit facility is 1.0% for Base Rate revolving loans and 2.0% for Eurodollar revolving loans and under the Term A loans and Term B loans is 0.75% for Base Rate term loans and 1.75% for Eurodollar term loans.

Guarantees; security

Our obligations under our senior credit facility are guaranteed by Lamar Advertising and all of our domestic restricted subsidiaries, other than the Special Purpose Subsidiaries. Such obligations and guarantees are secured by a pledge of all of our capital stock, all of the capital stock of our domestic restricted subsidiaries, and 65% of the capital stock of our first-tier foreign subsidiaries, as well as a security interest in all of our assets and those of our domestic restricted subsidiaries (other than accounts receivable and certain related assets which secure our Accounts Receivable Securitization Program).

Covenants

Under the terms of the senior credit facility, we and our restricted subsidiaries are not permitted to incur any additional indebtedness at any one time outstanding in excess of the greater of (A) $250.0 million and (B) 6% of the total assets of Lamar Media and its subsidiaries on a consolidated basis, except:

 

   

indebtedness created by the senior credit facility;

 

   

qualified debt securities so long as on a pro forma basis Lamar Advertising’s total debt to EBITDA ratio is less than 6.50 to 1.00;

 

   

existing indebtedness or, so long as no default would result therefrom, any extension, renewal, refunding or replacement of any existing indebtedness or indebtedness incurred by the issuance of notes as referred to in the paragraph above;

 

   

indebtedness in respect of secured or unsecured notes issued by us to extend, renew, refund or refinancing existing first lien indebtedness so long as no default would result from the issuance and the terms of the notes comply with certain conditions;

 

   

indebtedness under the Accounts Receivable Securitization Program and similar financing arrangements at any one time outstanding of up to the greater of $300.0 million and 8% of the total assets of Lamar Media Corp. and its subsidiaries on a consolidated basis; and

 

   

indebtedness of ours to any wholly owned subsidiary and of any wholly owned subsidiary to us.

The senior credit facility also places certain restrictions upon our, and our restricted subsidiaries’, ability to, among other things:

 

   

incur liens or guarantee obligations;

 

   

pay dividends and make other distributions including distributions to Lamar Advertising;

 

   

make investments and enter into joint ventures or hedging agreements;