Lamar Advertising Co (LAMR) 2003 Q2 法說會逐字稿

Good morning. My name is Adrianne and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Lamar Advertising second quarter operating results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. If you would like to ask a question during this time, simply press star and then the number one on your telephone keypad. If you would you like to withdraw your question, press star and then the number two on your telephone keypad.

In the course of this discussion, Lamar may make forward-looking statements regarding the company, including statements about its future financial performance. Lamar has identified important factors that can cause actual results to differ materially and those discussed on the company's report on form 10-K and 10-Q and the registration statements Lamar has filed with the SEC. Lamar refers you to those documents. Lamar's second quarter earnings release, which contains information required by the Regulation G, was furnished to the SEC on a form 8K this morning and is available on Lamar's web site www.Lamar.com.

Thank you. Mr. Kevin Reilly, you may begin your conference.

Thank you, Adrianne. I would like to welcome all of our guests and shareholders to Lamar's second quarter earnings call. As is our custom, management will make a few brief comments and then we'll open up the call for Q&A. I will start first, and then we'll turn it over to Keith Istre to walk through the numbers, our CFO, and then we'll ask Sean Reilly to give our investors some regional color regarding sales demand.

The good news is that we look forward -- as we look forward to the rest of the year, even on a slightly modest sales growth of 2% range, we feel confident that we turned the corner regarding same-store EBITDA and pro forma EBITDA. And I think it would be more constructive to wait until the next call to -- obviously on 2% sales growth, if we have turned the corner, we will start posted even to positive numbers on the EBITDA front, it means that we've been engaged in cost control, and I think it would be more constructive for our shareholders to actually review our actual achievements in detail on the -- in our third quarter's earnings call. I've always believed it's a lot more constructive to talk about what you've done than spend a lot of time about what you're going to do.

With that, I would like to turn the call over to Keith Istre to walk you through the numbers.

Okay. As you saw in our press release, as far as our net revenue for the quarter was concerned, we reported 208 million, in total consolidated revenue for the quarter. Our guidance was approximately 206 million. The additional 2 million, just to let you know came from additional acquisitions that we closed in the month of May and June that were not factored into our guidance on the last earnings call because we had acquisitions -- letters of intent, but we didn't know if all were going to close. So we did do a little bit better.

The 208, as reported, equates, as you saw in our press release to exactly even with Q2 of last year on a pro forma basis. The acquisitions that I've just referred to, in addition to adding a couple of million dollars in revenue for the quarter also added approximately $1 million in operating expenses as well. Speaking of expenses, just to kind of update you on something that happened in last year's third quarter. If you remember, in the third quarter of last year, the company took a $2.3 million charge to earnings based on a litigation matter that resulted in a punitive damage award in that amount. Since that time, post-trial developments have resulted in a court order of a new trial which has resulted in an appeal by both parties. And after consultation with our counsel, we believe that the best estimate of the company's potential liability is approximately 1.27 million with regard to this litigation.

As such, we reversed $1 million of the $2.3 million charge that we took in last year's third quarter. We reversed that in this year's second quarter, and that reversal is reflected in the corporate expense line that you see on our -- I think our last page of our -- our earnings release where you have the P&Ls and the pro forma P&Ls. So our corporate expenses have declined somewhat in the second quarter this year, over last year and that's the reason why. And that's a one-time event, and that will be the last time we we'll be fooling with that reserve.

Consolidated EBITDA was 94.2 million as reported versus 96.5 million last year. Free cash flow, we spiked up slightly about 1.8 million for the quarter which amounted to 4%. Based on our forecasts, for the full year of '03, free cash flow at year-end should show an increase over the full year of 2002, of approximately 17%. I mentioned the pro forma revenue staff as far as the pro forma EBITDA for the quarter. It was down 4.7%. Just to refresh your memory, last year, in the same-store category --pro forma category -- revenue was up 1.7%, versus even this quarter and EBITDA was even last second quarter versus 4.7% down. For those interested in our pro forma net revenue and EBITDA on a trailing basis, our pro forma net revenue for the last 12 months as of June 30th is 807 million, and pro forma EBITDA for that same trailing 12-month period is 341 million.

On the debt side, when you look at our balance sheet, as of June 30th, you're going to see that our total debt looks somewhat out of whack, and that's due to the new $288 million convertible note that we issued in June, whereby we escrowed the proceeds to pay off the old $288 million convertible note in July. So at the end of June, we were carrying both notes on the books, and since -- since that time, we have gone ahead and redeemed the old $288 million note issued with the new issue. Our actual debt at the end of June with new converts and without the old converts is 1 billion 813, and on a pro forma trailing basis that ratio is 5.3 to one, debt to EBITDA. If you take the converts out and you measure just the Lamar Media Company debt, it's 1 billion 525. And that's a trailing debt to EBITDA ratio of 4.47 to 1. So nothing significant has changed with respect to our debt other than we're carrying both notes at the end of the quarter.

Cap ex, as you saw, was approximately 23 million for the quarter. And let me just run through real quick -- some of you like to know how that's broken down between categories. As far as our billboards, we spent $15 million during the quarter on maintenance in addition of new structures. We spent $3 million on real estate, 1.5 million on logos, and 3 million on operating equipment. And we're right at 41 million for the year-to-date, six months June 30th.

That pretty much sums up the highlights. I will turn it back over to Kevin and move on.

Sean, would you spend a minute filling our shareholders regarding our sales picture by region?

Sure. I mean across the whole platform as Kevin mentioned, it's 2 to 2.5%, as far as the eye can see. So the total platform growth is not as strong as we would like.

There are some regional highlights. The northeast, which is our largest region is going to post 4 to 5% same-store growth and the third looks like -- and there some strength in the far west and the southwest which is in the same 3 to 5%, same-store. Particularly, Southern California, we're performing strong there with the assets we have, and we also made two extremely attractive acquisitions in the second quarter in San Bernardino, Riverside, and the early returns is that those are going to be outstanding additions to our portfolio.

In terms of the weakest region it appears to be the Gulf Coast, Louisiana, Mississippi, Alabama. Those economies seem to have gone in a little later, and are coming out a little weaker and a little later than the rest of the country. And then everywhere else it's 1 to 2%.

In terms of acquisitions, we pretty much have done our work for the year. We've close $168 million worth of [INAUDIBLE] year to date, and I don't expect much else to happen during those balances this year. So that's the report on the Outdoor side, and I'll turn it back over to you Kevin.

Adrianne, we'd like to go ahead and open up the call for Q & A at this point.

At this time, I would like to remind everyone, if would you like to ask a question, please press star and the number one on your telephone keypad. Again, in order to ask a question, press star one on your telephone keypad. We'll pause just a moment to compile the Q&A roster. Your first question comes from the line of Drew Marcus of Deutsche Banc.

Hi, this is Will Hammond, actually stepping in for Drew. A quick question. You know, since you guys did have a lot of preliminary business building, what does fourth quarter look like? Any insight whatsoever?

We don't have any specific insight other than to -- the color that we would like to leave with all of our investors on this call is that, going into the war, we weren't expecting the national business to go deep enough to help us out for the year, but our momentum in our local book was strong enough that we thought we were actually going to finish up the year in the 5% range. After the war, our local business hasn't fallen off a cliff, but it hasn't really -- the book hasn't materialized the way it was coming together in the first quarter of the year. And the national business has performed about as expected. And so that's -- that's where we are. It looks like we are in the boat with a lot of the other media platforms. We're just looking forward to '04.

Okay. Thank you.

Your next question comes from the line of Paul Sweeney of CSFB.

Thanks very much. Good morning.

First, wondered, Kevin, if you could maybe walk us through some of the metrics of occupancy and pricing posters versus bulletins in the quarter. Maybe if there was any change in Q3, specifically -- I know you guys have mentioned on the last call that poster occupancy picked up a little bit and you thought that theory would bode well for your bulletin. Did that, in fact, happen? And just kind of a second, more of a big picture question, Kevin, given that you guys have been in this business a long time: To what extent are you surprised, if at all, with, I guess, the lack of a rebound coming out of the war, or your business and maybe, you know, all local media in general, particularly relative to the performance you saw in '91. Is this unusual, and what do you think is going on?

Sean, I'll take the rebound question and you do -- you can do the rate and occupancy information. Since you're offsite, if you don't have the --

I've got it.

Okay. Well, Paul, I -- we been at it for a long time, but three years to sort of run an ad business where your ad revenues are virtually flat has been -- it's been unprecedented for us. And then we've gotten along the way some false positives where we really felt we were coming out of this thing and then little -- you know, little significant events, you know, national or world events take place, that sort of change the -- the picture. So we are looking forward to '04. And we still remain convinced that we're not looking at a -- a secular shift inside the media space or a total permanent change in advertiser demand. So that when things pick up, you're going to see a nice lift in the company's revenue because the first bump that we're going to get is just by selling the inventory that we normally would sell in an ordinary environment. With that, Sean, you want to talk about the rate and occupancy metrics.

Sure. The story hasn't changed very much for those of y'all that are familiar with our particular strategy. We try to hold the line on rate, and through a downturn, and suffer on the occupancy side and then when things come back, occupancy comes back faster than rate. That's been our philosophy. And with that philosophy, we've essentially been flat on rate. I'm looking at Q2, '01, '02, '03, posters and bulletins, and there's not enough of a difference in rate worthy of talking about. And then when you move over to occupancy, Q2 '02 occupancy and posters was 65%, Q2 '03, occupancy 67%. So the -- the message we've been sending out there that poster occupancy has gotten slightly better. It has.

And then on the bulletins we've had an uptick in one point: Q2 '02 was 74%, Q2 '03, 75%. You know, I'm not happy with those occupancies. I've -- you know I don't believe that's normalized, and I was certainly looking for something a little better out of it in our stronger quarters. But that's where it fell out.

In terms of customers, real bright spot has been McDonald's. People are familiar with the story there and the turnaround. They have now become our year-to-date largest customer edging out Cracker Barrel. And in Q2, they were significantly our largest customer. And then on the wireless side, our third largest customer is Nextel, and the fourth largest customer is Verizon. A lot of folks have been asking about how that's been going. And, you know, they seem to be in a pitched battle for share, and we're happy about that.

All right, thanks very much.

Your next question comes from the line of Marc Nabi of Merrill Lynch.

Thanks very much. How are you guys doing? Just a couple of questions. One relates to Keith: Can you talk a little bit about cap ex? I want to make sure, are you still assuming that your cap ex -- I think you had said would be between $60 and $65 million, number one, for the year. Number two, expenses, can we talk a little about, you know, we obviously saw this benefit of -- you said $1 million, correct?

Yes.

$1.3 million in the second quarter.

$1 million.

$1 million, excuse me in the second quarter, and what are you anticipating for expenses for the third? If I remember correctly, there was -- expenses were higher than normal last year, even absent this litigation due to something. And I want to just make sure that we're not going to see -- maybe the comparisons are easier and so that can be explained. And the third thing is, maybe either Kevin or Sean want to talk about multiples paid for and the acquisitions are over for this year, the $168 million that you've done, but what kind of acquisition multiples have been paid for the properties that you have been acquiring? Thanks very much.

Sure.

As far as the cap ex, we -- I think the number we've been shooting out was between 65 and 70, and even though the run rate appears that it would come in higher than that, I've been in touch with our corporate vice president in Pensacola who oversees all of the cap ex activity, and we spoke last week, and he tells me that he doesn't see a problem in hitting his numbers. Probably closer to the $70 million range, but he does not believe that it is accurate to double 40 and go up to 80. A lot of the cap ex that we spend, we do spend in the first half of the year, at least historically we have, because it -- it helps the top line to get these units that we budgeted for up toward the beginning of the year rather than toward the end of the year if we're going to sell them, then we'd like to get as much of a full year's revenue as we can rather than putting them up in the back half of the year, and -- and not getting much of a kick from it. So anyway, I think in talking to him and looking at his numbers, I think we'll be okay on the cap ex. Last year, of course we came in at 78 and the year before that, we were at 85. So we don't think 70s is an unreasonable number.

As far as the expenses, we did have some unusual items that we've contended with, insurance items, things of that nature over the past 12 months, the past four quarters. Just the health insurance alone, I'm sure everybody is tired of hearing that, but the health insurance alone cost us an extra percent a quarter and for the year, the past 12 months. Our plan year runs from July 1 to June 30, so we are on our new plan, and, hopefully, that will help to tilt our expenses more towards our -- the low end of our normal range than the high end. I think probably a reasonable assumption for expenses in Q3 -- you know -- we normally -- our history is normally between 3 and 5%, and, you know, I think we'll probably be somewhere in the midpoint of that range. We were at 5% for Q2, as you saw on our reconciliation, and we were basically at 5% for Q1 as well. So I'm hoping that some of these -- these differences in comparisons going forward will help to tilt that number down towards the lower end of that range.

Sean, do you want to --

Sure.

Talk about the multiples paid?

Sure. We had -- of the 168 million in deals, about 100 were extremely attractive bulletin plants in the southwest. And these are extremely attractive assets that we certainly weren't going to steal from anybody. I'm highly confident, though, that we'll bring them in somewhere between 10 and 11 times forward cash flow. On two of them in Southern California, the sellers wanted to take our stock, and we actually put out $50 million worth of our stock in those two transactions. So those were, you know, again, high spot, very valuable assets. Hopefully brought in between 10 and 11 times forward. The 60 some odd million left over were onesy, twosies, where hopefully the pricing is going to be better than that, somewhere between eight and nine times forward. And I think that's fairly highly predictable. To give you a sense of the number of transactions, we did 54 transactions in the first half of the year and then Q3 to date, and, again, only three of them were large transactions totaling 100, and the rest were onesy and twosy fill-ins.

We have one question, maybe can we talk a little bit about bifurcation that's occurring between Clear Channel and Vicinity? I know they had easy comps from a year ago. It seems like their revenue, their top line is doing a lot better. Whether it's their large market profile, I'm trying to get a better sense of the bifurcation that's occurring in top line growth between yourself and the other two players.

Yeah, if I had to guess, it's -- it's easy comps in the national business. Since they dominate the top 25 markets in the U.S., and in good times, the national advertisers will buy 50 markets deep, in moderate times they will scale it back to 25, 30 markets deep, and so I think they are getting the benefit of the -- especially the first half of the year, there was a little spike in national business compared to the previous year. And I think in the outdoor space and they got most of that benefit. So those would be the two components: easy comps and national business.

And once again what's your breakdown again of national, local.

-- 85% local, 15% national.

Okay, thanks very much.

Your next question comes from the line of Gordon Hodge of Thomas Weisel.

Good morning. I was wondering, Kevin or Sean, if you could talk about some of the categories that did well. You highlighted wireless a little bit but I know hotel/motel as a category was kind of tough. I wonder if you're seeing a pickup there, and if there's any other that you would like to highlight. Thanks.

Well, it's the same story, unfortunately. It's basically hotel/motel. I mean, across virtually every region, that's the tune they are singing which is -- it's travel is still weak out there, and the roadside businesses are still struggling. You know, I'm looking at hotel/motel having ticked down in June to 8%. That's the lowest I've ever seen it in my experience with the company. It's not 8% year to date, it's still 9% year-to-date, but June to date, and that's probably not a good indicator there.

What is kind of interesting, in Florida, our business is -- we've been characterized as not bad, and they've got a huge hotel/motel component. And, of course, it's the summertime which is not their peak season right now. And the next several months they are probably going to post some decent numbers. I don't know if that's a leading indicator or not, but it is an interesting factoid.

Pretty competitive down there in Florida. But I'm curious with gas prices coming down whether you're getting any sense that that business might -- you know the travel might pick up or maybe too early to say.

Not showing up in the motel numbers.

Okay. Thanks.

Your next question comes from the line of Jason Helfstein of CIBC World Markets.

Thanks. Can you give us an idea of, perhaps, where you guys are booked relative to your budget and, perhaps, how that compares at this point looking into the third quarter, versus where you were when you did your first quarter call? Thanks.

Sean, do you -- are you going to take that one, or do you want to us take that?

I'm scrolling up to it but why don't you hit it, Keith.

Okay. On the -- if you look at -- let's take Hostess, for example, this is as of June 25th, -- Teresa, this is for the full fiscal year or is this -- this is as of June 25th for the whole year?

Correct.

Yeah. For 2003, for the whole year, which means six months actual, six months bookings in hand right now, we're at 74% of our total internal goal. Last year -- now this is on posters -- last year we were at 77% of goal, and in '01 we were at 67%. Now, the goal for '03 internally was a lot more aggressive than it was for '02. In '02 we ended up the year at about 2% top line growth, pro forma, and that's about what our budget was. Obviously, we asked our guys to come in internally with much more aggressive goals for '03 on the poster and the bulletin side. On the bulletin side, for '03, six months actual and six months booked, we've achieved 86% of our internal goals. For '02 last year, same time frame, we were at 86% of goal as well on the bulletins, and in '01 we were at 83%. So that's -- that's kind of how it stacks up year-over-year.

And just two other questions. What was the goal in the bulletins last year?

I don't have that specifically, Jason. We just -- we just asked for a number that we think is reasonable. When we meet with our regional managers, we tell them what our expectations are and ask them what their expectations, and we try to come to some meeting of the minds. We don't do it by individual category. We do it in total. And in total it was in the 2 to 3% range, Jason.

In 2002 it was 2.5%, and in this year our internal goal was about 4.5%. And it doesn't look like we're going to get there.

Just follow up, I think what I'm just trying to get at, I guess on the last conference call, I thought you were a little more bullish, and I don't know if you can just talk about maybe your sentiment in this call versus where your sentiment was last call. I guess it felt like you were a little more bullish last call. I mean, perhaps, it's frustrating that this recovery is taking so long, but some color there.

Well actually, Jason, we were more bullish in the first call, the first quarter call, and then we -- our book didn't really materialize, so we didn't -- I think on the call we actually had very conservative guidance because at that point, we knew that the book hadn't really materialized. So going into the beginning of the year, we were pretty optimistic, and the only body language that we -- I think we had in the first call was -- I mean, the last call, was that we were still hopeful that we could come on strong enough in the back half of the year to achieve about a 5% same-store growth. But because May was such a bust for us, we -- we guided very conservatively and we, at that point, we were, you know, worried about how our book was coming together vis-a-vis a 5% same-store growth goal. And, you know, now that we're half of way through the year and we can see where our book is for the rest of the year, we're -- we just don't think that we're going to come on strong enough to -- to turn in those kinds of numbers for a full year basis.

And the conference call that you are having with your regional managers and so forth, they kind of -- they've seen the level of advertiser interest basically, you know, for the September, October period, and that's built into your comments.

Yeah, Sean, used the words 2.5% for as far as the eye can see, and that was kind of the tone of the conversation that they had yesterday.

Thank you. That's all I've got.

Your next question comes from the line of Jim Boyle of Wachovia.

Good morning. Is there any difference between how your larger advertisers, versus your smaller advertisers, as they renew both posters and bulletin contracts?

Sean, I will try that one, and you kind of fill in.

Sure.

You're looking for the way they behave? Jim? You're --. Adrianne, can he answer me? Is that what he is looking for? How they behave related to renewals?

Mr. Boyle, your line is open.

Yes, is there a difference between the large and the small advertisers on renewals?

Yeah, I would say that the smaller advertisers on the renewals are a little more casual and -- because we have a local one-on-one relationship with our customers, we may not get the renewal contracts in as early as we do on the -- on the national customers. The national customers have a lot of infrastructure. They've got a lot of paperwork. They like to push. And they like to get out ahead and put together their total budgets for their customers and get that information back to the customers before they finalize their contracts. So we have a lot of lead time, and there's a lot of predictability in the national business. On the local side -- predictability is not the right word, but we do have a lot of lead time. The local side, we're a little bit more formal, and in some cases, we renew the contracts verbally and actually get the documentation in, in the same month of the -- of the renewal. And I would also say that our local customers -- this is not true across the board, because over the last three years I think all of our customers have been extremely rate sensitive, but probably our local customers are a little more rate sensitive than the national customers at this point.

And of the new business coming in recently, is it coming from the larger advertisers or the smaller advertisers, and would it seem to be an advertiser is moving dollars down from more expensive media, or is an advertiser hoping the economy gets better and so let's invest a few more dollars?

Sean, do you want to take a stab at that.

Well, it's -- it's hard looking at -- at aggregate data to hit that one with too much specificity, but when I look at the category, and who they are, you know, I think that we're seeing a pop out of McDonald's in their use of outdoor, and I think that's -- I think they're feeling real good about their outdoor, the way it performed for them in the first half and their plans for the future. Restaurant did tick up a point in our categories in June from 12 to 13%, and that is almost exclusively McDonald's, and this is not your local directional McDonald's, this is national, McGriddle and the new products they are rolling out, you know, with Paul Newman and salad and the like. So, you know, just sort of anecdotally, Jim, the only way I can answer it is, I do believe that at least as regards our largest customer today, they're happy with Outdoor and I don't know whether they are shifting it, but I do know that they are very happy with their experience with us.

Okay. In the past you said larger competitors had dropped rates, and last week one of the larger groups said it's high single digit growth was due to rates not occupancy. Does that mean rates are getting back to before or -- and might this better rate behavior by competitors start to trickle down into midmarkets soon?

Well, one thing to keep in mind is in our smaller and midmarkets, we never were safe with rate cutting because of our market shares. And it's -- and in the larger markets, it's kind of a -- depends on which market you're in. I'll just highlight two. In Atlanta, because we didn't do -- chase the national business -- we sold strictly locally, we were actually the rate leader through this down cycle. And so whatever is going on with national business placed in Atlanta, it's not going to have an effect on our book because we're still getting a good $750 a bulletin better than the other guys selling locally. Now, that's not the same story in Chicago. In Chicago, we have had rate firm up because of what's going on in the national level. To the extent Chicago is illustrative of their experience and places like New York and LA where we aren't, I would say that's the case, yeah. That they're holding the line on rate and increasing their rate integrity, has helped us in -- at least in Chicago. But when you take our whole platform, you know, the impact of that is not going to be huge. Does that answer the question?

Yes, thank you.

Your next question comes from the line of Larry Haverty of State Street Research.

Hi, Kevin. A couple of quick ones. One specific comments on what you see happening in Las Vegas. You have a presence there, and that might be somewhat interesting. And two, in your California business, do you expect any upturn from this recall election that's taking place, tightening of inventory, et cetera?

Yeah, we've had Schwarzenegger and a bunch of call-girls and all the other no-names that have entered into the race talking about buying billboards to increase their name ID. No, I don't think we're going to get any of the politics. You know, in politics, for offices of that magnitude, you need electronic media to say -- to get your message across and say bad things about the other guy and respond to the bad things that the other people are saying about you, and billboards really are not conducive to that. Billboards are great for council seats and dog catcher and the kind of annual elections that you have in -- at the municipal level.

Why don't I hit the --

Las Vegas? Yeah that's good. Let me hit the tone of business because Vegas has come back and it's come back pretty strong. Regional manager yesterday on our bring down call basically said that he thinks that Vegas for the year is going to hit their budget, and their budget was pegged at 6% ahead of last year. Did I just get cut off ?

No, you're on.

Okay. So Vegas does seem to be back. Anecdotally, the planes are full. If you try to catch a flight into Vegas, you're going to have to book it early. And I think the same can be said of Southern California, not driven by politics but driven by the strength of the economy in San Bernardino, Riverside, Palm Springs, and San Diego.

What about oriental traffic? Is that back in Las Vegas, Sean?

You know, not as strong as it would like -- everybody would like for it to be, but Japan Airlines, I believe, just went in with a -- a new flight, regular daily flight. So, you know, I think in general Vegas is -- is on the front end of at least their recovery.

Thanks a lot.

Your next question comes from the line of Bill Burns of Johnson & Wright.

Oh, hi. Quick question for Sean. Sean, have you seen any opportunity to buy or swap boards with the other two major players?

Well, we've been doing that really over the past three years. You know, we periodically do swap inventory that either is difficult for us to service, because it's far away from one of our profit centers and service centers or, you know, isn't in the right place for us, and they have inventory that might be in a better location. So, yeah, we periodically do some swaps and, you know, it's good for both sides there. They tend to be operational in nature. You know it's not something that is going to tremendously move the needle, but it's something that makes good business sense, and as people that are on top of our business, you would want us to do it.

Thanks, Sean.

Mm-hmm.

Your next question comes from the line of Brent Jordan of Wachovia.

Yeah, just one question. You guys still have $100 million of the bonds, would it be your preference to stick those out with free cash flow or do you have a plan in place for those?

Yes that's what we're going to do.

Okay.

It may be accommodation of free cash flow and some draws on our working capital line, but we'd like to call them before the end of the year.

Before the end of the year. Okay. Great. And on the $168 million in acquisitions, you said that about 50 of the 100 out west were done with stock. The other 68 million, has any of that been paid for in stock.

I don't have it broken out precisely by transaction. A couple of the little ones were negligible amounts of stock.

Okay.

But of the total purchase price, $168 million, 50 -- approximately 50 was stocks.

Okay. Great. Thank you.

Your next question comes from the line of Michael Russell of Morgan Stanley.

Thanks, Keith. You had mentioned health expenses, the insurance was about $1 million or 1% of revenues, I think is what I understood. Where does that go? Is it forward expenses or operating expenses?

You're talking about the -- the what?

Healthcare.

Oh, healthcare, no, that's all in operating. Majority of that is in operating expenses.

And what percent of revenues or --

It was -- actually it was 1% of our expenses. Our expenses last year totaled about 400 million. Our expenses this year will be 400 and some change, and, you know, our healthcare costs went up $4 million over the last 12 months from July 1, of '02 to June 30th of '03. So at 400 million a year, that's 1% a year in an expense uptick and at roughly 100 and some change a quarter with $1 million a quarter more in the healthcare expense, then that takes a point a quarter off of the table as well.

Okay so the fact that operating expenses have been about 5% growth in the first half, that would lead you to believe that 4% is kind of --

Yeah, that's correct. That's correct.

And on the corporate expense side, it seems that if we add back the millions of 5.4, and [INAUDIBLE] million dollar run rate, is that the right number for third quarter and should we expect to see it spike up in the fourth quarter?

Well, let me tell you, Mike, now that you bring it up, the third quarter will be somewhat upside down as well, because, remember, in the third quarter of last year, as I mentioned, we took a $2.3 million charge to the corporate expense line for that judgment. So what you are going to see is corporate expenses in the third quarter where we reported 8 plus million, versus 6 plus million in Q3 of '03. So, you know, I think corporate expenses will probably be about 5%. I think that's, you know, a fair run rate, but, again, you are going to have to factor that 2.3 million out to get to the more apples to apples comparison. And, you know, a lot of times on the corporate side, that's where all the adjustments for reserves go. And let me just give you an example. I think it was in the fourth quarter of last year. We had a guy in Panama City, one of our construction guys, and he was hanging off a 50-foot structure, and he didn't strap his safety equipment on. And he fell about 40 feet off of that board on to the ground. And he's going to be okay. He didn't kill himself, but he splattered himself pretty good. And he -- he'll walk again, but it's going to take a long time, and it's going to take a lot of therapy and a lot of hospital time, a lot of surgeries. So in the fourth quarter of last year, we had to book $650,000 in additional workman's comp reserves because that guy didn't put on his damn safety gear, and he fell and cost us at least -- it's going to cost us at least $650,000 to get him back walking again. So we take that into our corporate overhead -- our corporate expense line -- because that's where we have our -- our reserves for all of those types of accidents, claims, liabilities, et cetera. So, you know, if you looked at corporate expense last fourth quarter, it might seem totally out of whack, but, again, for the whole year, it always seems to even out into that same 3 to 5% levels. So, you know, I think 5% is probably a fair number.

Okay. And just to be clear, the $8.2 million spike was in the fourth quarter of last year, so --

No, no. The $2.3 million spike -- or the $2.3 million charge, for that -- that award -- that jury award was in the third quarter of last year. So when you see our third quarter numbers, it will look like our corporate expenses have gone down dramatically over the last third quarter but, again, it's kind of an illusion.

Okay. So not -- and then on the capital expenditures for 2004, what's an appropriate run rate or how should we think about that? It seems like there's going to be an acceleration in the second half based on what you said. Historically, the pattern does seem to be loaded over the first half. Maybe you could give us an idea of what the correct run rate or how you think about cap ex going forward, 2004 and beyond.

Mike, we don't -- we're not going to tackle that until we tackle our '04 budget, and it's going to be dependent on how fast we deploy these digital units, which you see a little spike in cap ex, hopefully, you will see a spike in revenue associated with that additional increase in expenditures. But I've always maintained that our normal cap ex -- and we're still spending money fixing up some of the boys that we've acquired. I've always maintained that on the billboard side, our normal cap ex is about 5% of net revenue. So, you know, I don't think that you're going to see -- I think what you're sort of hinting at is that, you know, we will ratchet back the cap ex for this year and it will all be dumped in in '04. No, I think you're going to see actually the '04 cap ex come down over '03. So if we come in at -- we were shooting between 65 and 70, if we come in at 70, '04 cap ex is going to be between the 60, 65 range, depending on this digital deployment issue.

Excluding digital deployment, 60 to 65 for '04, is that what you did before being billed for acquisitions?

Right. That's just sort of a quick number.

Okay. Thanks very much.

Your next question comes from the line of Amy Rudeman of Shenkman Capital.

My question has been answered, thanks.

As a reminder, in order to ask a question, please press star one on your telephone keypad. Your next question comes from the line of Jacelyn Jemar of Trifon Capital.

Hi. Could you tell us how much your sales would have varied had McDonald's not become a much larger customer?

Well, they always were -- they were -- last year they were our second largest customer. So they just moved from two to one. So they've always been a huge customer. If McDonald's had gone away -- well, it's -- it's nominal because our largest customer is no more than $8 million a year. Is that right?

Six million a year.

Last year our largest customer, Cracker Barrel, spent $6 million with us.

Right.

This year even with McDonald's big buy, they're still going to be less than 1% of our total book. And it is a difficult question to answer, even on the -- the space they took up because they booked it so far in advance. They booked it six months in advance, so if you ask our local general manager, had McDonald's not been there, he'll tell you -- he or she would say I would have sold it to someone else.

On the digital deployment, can you tell us if you are seeing the returns and [INAUDIBLE]?

Sure, I -- I'm very encouraged. I mean last year on this same call, we probably described our digital deployment as a BETA. We're clearly out of BETA now. We're putting them up in every market where we can get regulatory approval as fast as we can. Unfortunately, that process of getting regulatory approval is a little cumbersome and has slowed us down a little bit, but we just went up three weeks ago in Kansas City. We're highly confident that the monthly revenue run rate there is going to be between 35 and 40,000 a month, which mirrors, approximately, how we're doing in Cincinnati and Pittsburgh. So, you know, the news there is good in the sense that we feel like it's a great product and have great advertiser acceptance. It's a little frustrating that we have to jump through so many regulatory hoops at the local level to get them up.

Great. Thank you.

Your next question comes from the line of James Marsh with SG Cowen.

Yeah, hi, Keith, just a quick housekeeping item here. I wonder if you could give us the historical pro forma revenue and EBITDA numbers by quarter for 2002.

For 2002, by quarter. I tell you what, all I've got is Q2 -- Q3 '02 here with me. And on pro forma basis for Q3 '02, revenue was about 207, 207.5. On a pro forma basis, EBITDA was about 91, 92.

Great. Thank you.

Okay.

At this time, there are no further questions. Do you have any closing remarks?

Adrianne, thank you. And I want to thank all of our shareholders and guests for listening to our call, and we look forward to our third quarter call. And with that, I would like to go ahead and end the call.

This concludes today's Lamar Advertising second quarter operating results conference call.