Lamar Advertising Co (LAMR) 2004 Q3 法說會逐字稿

Good morning. My name is Kim, and I will be your conference facilitator. At this time, I would like to welcome everyone to the Lamar Advertising third quarter 2004 earnings results conference call. All lines have been placed 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, then the number 1, on your telephone keypad. If would you like to withdraw your question, press star, then the number 2, 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 could cause actual results to differ materially from those discussed on this call in the Company's reports on forms 10-K and 10-Q, the registration statements Lamar has filed with the SEC. Lamar refers you to those documents. Lamar's third quarter earnings release, which contains the information required by regulation G, was furnished to the SEC on a Form 8-K this morning and is available on Lamar's website, www.lamar.com. Thank you. I would now like to turn the call over to Kevin Reilly, Jr. You may begin.

Thank you, Kim. I want to welcome everybody this morning to the Company's Q3 call. I would like to start out by dealing with this FAS 143 issue, and I've got something I need to read real quick. Our release on our call will be different than previous earnings releases. We're going to talk about selected operating data this morning. We filed an extension to allow us to release our 10-Q no later than next Monday, and this is why you're going to receive only partial results this morning. The issue driving our delayed filing is a last-minute difference of opinion with the SEC regarding the way that we applied FAS 143, accounting for asset retirement obligations. The Company, in consultation with our auditors, has decided to comply with the SEC's position on this matter. Again, this is a FAS 143 issue. It has absolutely no affect on operations, or on the metrics that we all use to grade the performance of the Company. Just a little factoid for all of our shareholders, in any 1 given year, this asset retirement obligation -- Keith is going to go into more details. In any 1 given year, we relocate less than 2 percent of our inventory, and in most years it's 1 percent.

Just briefly on Q3, top line sales, good. Same drivers apply. Very solid local business. National business good, but not as strong as we were expecting for the second half of the year. For Q4, you will notice that our guidance is slightly dampened by the hurricane. We've lost between 1 million 2 and 1 million 4, and we think we're going to lose in revenue for Q4. In spite of that, we're still going to come in around 7 percent top line growth. Also in the CapEx side, Q3, we probably have spent $2 million on hurricane damage repair, and Q4, another 6 million. So our CapEx for the entire year will come in a little bit higher than the guidance that we provided to the marketplace. We don't see a lot of change in the local sales environment. Our book looks very solid. We do expect our national business to pick up in '05. All indications are that that business could provide a couple of points of additional juice to the Company's top line.

The general conditions of the Company, the ad environment that we're operating in, we feel very good about, even though the pie is not expanding -- the total ad pie, domestic U.S. is not expanding that dramatically. Our customers seem to be very happy with outdoor, and outdoor as a choice for their ad spend, and particularly happy with Lamar and the service that we're providing for our customers. The regulatory environment that we're operating in right now is about as calm as I've ever seen it, and we're pleased with that. The competitive landscape seems to be very good regarding price nationwide. The other 2 big companies are enjoying a good year. And it looks like they've got plenty of momentum that will carry them into '05, and that should bode well regarding pricing and competition. And then lastly, the Company's infrastructure, we've been working hard, really ever since 1999, beefing up the Company's infrastructure to make sure that we can manage the growth that we've achieved for the Company, and the growth that we expect to see over the next couple of years. So we're very pleased with our situation. Let me turn the call over to Keith Istre, so he can give you a little bit more color regarding this FAS 143 issue.

Okay. Good morning, everybody. Before I talk about that issue, let me just mention a couple of things. Obviously, we don't have much to talk about with respect to operations. There are the pro forma numbers for revenue and expenses that we can give you, and a reconciliation in the back from actual to pro forma, so you can see how we got to these numbers on the front page. Just a little color. For Q3, we had guided on the top line to approximately 228 million and we said that would result in approximate growth, pro forma of 7 percent. And as you can see, we came in at 231.6. When we gave you the 228, that was not including pending acquisitions that we had queued up, but had not closed. So if you take out roughly 2.5 million in revenue for acquisitions that we closed throughout the third quarter, then that brings you back to roughly 229. We guided, on a same-store basis, we guided to 228 and 7. So I didn't want anybody to think that the 7.4 should have been higher because we guided to 228 and actually came in at 231.6. On the expense side, we're still tracking in the 3s. Which we had -- on the direct and G&A expense side, we're still tracking in the 3s, 3.4 and that's about where had, I think, told the market we would probably be in Q3 and Q4 for the rest of the year on the last call. The consolidated expenses with overhead, although it's not on here, on a pro forma basis, is up 4 percent for the third quarter.

To move over to the issue that Kevin was talking about, obviously we're not able to release our full 10-Q results today, as expected. But we will file an extension today that will allow us to file our 10-Q for the third quarter no later than next Monday. Just a standard form. It's an automatic extension. In addition to that, we will restate, as we mentioned in the press release, our 2003 full year numbers, and our Q1 and Q2 '04 10-Q numbers as soon as possible after we file the 10-Q for the third quarter next Monday. There's no deadline on the restatements, but just as soon as we finish the first priority, these will be in the next in line. To give you a little color about how this situation came about, we had received and responded to a routine comment letter in September from the SEC. We've gotten those in the past. We've had 2 full-blown reviews since we've been public by the SEC, no problem. And we expect to continue to get them in the future, because if you remember under Sarbanes-Oxley, the SEC has got to touch every public company at least once every 3 years. So this is going to be an ongoing thing. Anyway, we got the -- we got the comment letter. We responded. All of the comments that they had listed, we felt, our audit firm felt, and our SEC attorneys felt, were very benign. There was nothing malignant in there, just routine questions about how we do things, why we do things.

As of the middle of last week, based on our conversations with the SEC and the staff, along with our auditors and our attorneys, we felt we were -- we had pretty much cleared the hurdle, all the comments had been addressed and answered. As I said, we were in verbal communication with them. And then on Thursday, they asked for a follow-up conference call to the one on Wednesday, and they brought up this issue. The FAS 143 accounting for asset retirement obligations. To put, I guess, a little color on what that -- what that retirement obligation is, is companies that have operating assets on leased property, beginning in '03 and going forward, must set up a liability to account for the costs -- the future costs of removing those assets from that leased property and reclaiming the surface of the land. It really applies more to oil and gas than it would to us. I think we just kind of got caught up in the -- in the regulation. But in any case, we had a conference call Thursday. They brought this up because we, in '03, had set up this obligation, the retirement obligation, after consulting with our outside auditors and their national office in New York, covering our wooden structures only. If you will look at the '03 annual financial statement, you will see that there's a one-time charge for a change in accounting principle of approximately $11 million. We had set up a liability for the eventual takedown, if that ever happens, of those wooden structures that we have in our inventory of approximately 36 million. The SEC and the Company were at odds over the steel structures that we have, which you know, now the majority of our structures are steel and, of course, we stopped building on wood, years and years ago.

So our interpretation, when this pronouncement came out, was that the wooden structures are truly retired when they are removed from a lease. You don't take it down and move it to another location. It's basically scrap. You have somebody dismantle it, load it on a truck and haul it off, and dispose of it. With the steel structures, those can last a lifetime. When we dismantle one, we simply relocate it. We don't retire it. We move it to another location, or warehouse it until we can find a suitable location. The SEC, as I said, had determined that the steel structures should be included. We were in disagreement with that interpretation, us, the Company, and our outside auditors in their national office. We discussed it with the SEC again on Friday, and over the weekend, we decided that we were going to go ahead and comply with the SEC's interpretation. So we've been rerunning numbers, revaluing the -- or valuing the steel structures. The wooden ones, as I said we already set up for. But we revalued the steel, and we will be restating the '03 statements for that valuation. And just to give you an idea, we're looking at -- we have taken about 30 million -- 36 million -- we set up approximately 36 million in liability for the wood structures in '03. When you throw in the steel, it's an additional approximately 90 million. So when we restate, there will be a liability on the '03 books for approximately 90 plus 30 something million.

In addition, the original -- on the 2003 statements, there was an $11 million one-time charge to the change in accounting principle for compliance with this rule. When you see the restated '03, there will be an additional 30 million added to that 11 that applies to the steel structures. Depreciation will also be affected, as you saw in the press release. And we've given you the numbers for '03 to show you the magnitude. And then, of course '04, it should be similar, as well, to the '03s on the depreciation and amortization. So that's kind of it in a nutshell. And, again, it was a matter of interpretation. In our lease agreements with our land owners, it says that the only liability we have is to reclaim the surface of the leased property when we leave it. That means it costs between 100 and $200 to fill up the hole after we take our sign out. What we're having to record now for the steel structures, as well as the wood, which we were accounting for with respect to the wood before, but now we're accounting for the steel, is the entire dismantlement cost, not just the reclamation of the surface of the property. I guess if there is any positive to it, this of course, has no effect on our operational performance of the Company from revenue on down to EBITDA. Obviously it will affect operating income, and net income lost, but I think most folks focus on the operating data, and that's what -- what's really most important to us and to you. So, you know, we're sorry if this comes as a surprise. It was a surprise to us as well. We felt pretty good about our interpretation. It was just a disagreement and we felt it would be imprudent to go through the appeals process and try to fight this. So that's it.

Let me go ahead and turn the call over to Sean to just sort of touch on some of the operating metrics of the business, and then we'll open up the call for Q&A.

Thanks, Kevin. As was mentioned, we're real happy with the performance of the Company in Q3. Happy with the way Q4 is shaping up. Addressing quickly the hurricane, our folks have been working real hard in Florida, crews are busy, as we speak. People are putting in overtime, and I want to commend everybody that's on the Lamar team, that's listening in, in Florida. It's been a tough few months and you guys have really done a great job, and I want you to know it's very much appreciated. As Kevin mentioned, our capital expenditures for the year would have come in, in the mid-70s as per guidance. With the hurricane, CapEx for the year is going to come in at somewhere around 83, 84 million. The news on national sales is pretty good when you start looking at momentum. Year-to-date, the national sales book is up 5 percent. October was up 7 percent. So we are seeing some good momentum on the national sales front, particularly in the categories of auto, wireless, and insurance. For the top 5 advertisers, it's the usual suspects, McDonald's, Crackle Barrel, Verizon, Nextel, with 1 pleasant surprise. Milk has come in very heavy, and is now our number 5 advertiser.

In terms of acquisitions, it's been a pretty busy year, and I think a very good one. Year-to-date we've closed 61 transactions. Total purchase price of approximately 135 million. And we feel real good about the assets that we have acquired, the vast majority of which are fold-in, extremely predictable bulletins that are going to be highly accretive. On the acquisition front, we obviously announced that we'll be buying Obie Media. That transaction is anticipated to close January 15th. And we're really pleased with the way that integration is going. I hope there's some folks from the Obie team listening in. We've been very pleased with the reception we've gotten from them. The momentum that they have in their business and the people that are going to make a contribution to Lamar going forward. The numbers on that transaction, as we have discussed before, are fairly simple. Obie had -- has approximately 8.1, 8.2 million in traditional billboards. Those billboards are predominantly in the Northwest. They fold in nicely to our existing operations, and it appears that operating those assets at something north of a 50 percent margin is a very attainable goal and we feel good about that. On the transit side, we will be acquiring approximately 40 million in transit billing. We are pleased with the momentum they have on that side of their business. We feel it's very attainable to get about a 10 percent margin on that business. So we expect about a $4 million cash flow goal coming out of that part of the Obie business. We are actually in the transit business now. This is not a totally new departure for us. We operate buses in Denver, and we operate shelters in about 40 markets. Lamar's experience in that business, we'll probably close out this year doing something around 10 million on the top, and about a 1.5 million on the cash flow line. So we're comfortable operating those businesses and we're looking forward to the contribution that the Obie team will make in '05.

And then very quickly we get questions on the progress of our digital deployment. And that -- the news on that front, I think is very encouraging. As many of you know, we've rolled out a poster product in Pittsburgh. And in October, those 10 posters billed $135,000, which is -- exceeded our goals. Prior to converting those to digital format, those 10 posters may have billed 8 to $10,000 a month. So you can see just a tremendous incremental increase in converting to digital. So far, in our digital deployments, we've spent 5 to $6 million in capital -- CapEx. Based on October's results, both on the bulletins and on the posters, we're at a run rate of about a $3 million cash flow contribution annually from those assets. So you can see that it's an outstanding investment. So with that, I'll turn it back over to Kevin, and we'll open up for questions.

Kim, we'd like to go ahead and open up the call for questions.

(OPERATOR INSTRUCTIONS) Paul Sweeney, CSFB.

2 questions. First, just on the national, you guys touched on a little bit. I guess you might have been a little bit soft here in the second half of the year, but perhaps picking up in October. I was wondering if there was anything you could identify that accounted for any softness, and then driving the outlook into '05. And second, just to get any update, Kevin, on kind of your Nielsen and Arbitron (indiscernible) in terms of (inaudible) -- ?

All right. We had a tough time hearing you, Paul. But I think I got the national question, and the Arbitron. There were just 2 questions, right?

That's right.

Okay. I'm going to -- I will let Sean do the national, and I will do the Arbitron. Arbitron has completed Chicago. They have not released their results yet. But they are involved in, I think some preliminary marketing of their results to the large agency buying and planning community. And we're -- what we hear from Arbitron -- I mean not Arbitron, Nielsen is that they are getting a good reception. Where our Company is regarding Nielsen is, you know, it's a difficult spot. We do think that where the industries that have confluence of events here, where audience measurement is going to be -- in conjunction with industry consolidation, and in conjunction with media fragmentation with the other platforms, it's a wonderful opportunity for to us attract more business. It's just a question of how much are we going to pay for this audience measurement. Right now, there's a very high correlation between government census data and the Nielsen Chicago test. 80 percent correlation. And the government census data is free. So, you know, we've got to figure out a way to push this audience measurement information through the distribution chain, and so it benefits all of us, without having to pay an arm and a leg for it. Go ahead, Sean, do you want to talk about national?

Yeah, let me hit it real quick. Because I think what Kevin was referring to in a little disappointment on the national side, was year-to-date we are up 5 percent. And if you look at our total book being up, give or take 7 this year so far, national has lagged local. What we are seeing, however, is really good momentum building. As I mentioned, October was up 7 percent. You know, as regards '05, all the renewals are in with our big accounts, and that exercise was a very good one for us. And the chatter out there is high singles on national business for Lamar being up in '05. So, you know, is that 7, or is it 10? It's hard to say at this juncture, but the chatter is extremely good and the categories are good, strong, advertising categories. Auto, wireless, and increasingly insurance. We just are finalizing a real nice buy from Progressive, for example.

Well, I was thinking a little bit more aggressive than that, Paul. You know, to get a couple of points of juice, the national business -- is 15 percent of our book, or 20 percent of our book. It's got to be up more like 20 percent, and that was sort of my expectations going into '04. I really thought that we were going to knock the cover off the ball, for lots of different reasons. One, is we had a national election going on. So there were a lot of customers being crowded out of prime time in certain toss-up states. And we also just had an exceptional amount of griping. I remember Martin Sorel (ph) spent a lot of time talking about how he was complaining about the up front TV. And so I just thought there was going to be a significant amount of business that was going to migrate our way in '04. And I'm kind of -- I'm kind of surprised, really, that it's lagging local. But it looks like in '05, we're going to -- we're building up some -- a nice head of steam.

Drew Marcus, Deutsche Securities.

2 questions. One question is with regard to thinking about growth for next year. You're presumably you're approaching 80 percent utilization on the bulletins and the 70s, the low 70s on posters. I guess when you think about next year, if you have less unit growth, do you think you will be able to push price increases through to get good top line growth? Obviously, I was very encouraged by the comments you just made about the national renewals. And the second question is, you know, Keith as you were going through, as you said, the logic on this accounting restatement, it -- it made more sense what you guys were doing than maybe the way you are going to be doing it. So if you are reusing a steel structure that you -- you have retired, is that then going to cause, like a gain as you get kind of a contra-liability, as you are using something that was written off?

It will cause a paper gain, that's correct. The way we have to value both of these assets, wood or steel, is what is the fair market value for a third party to come and dismantle them and take them off the property. And so, therefore, the actual cost, which we do most of that ourselves with our own crews, is less than that. But the pronouncement specifically states it must be third-party and arm's length as to how you value it. So there will be a book gain, in gain or loss on disposal of assets.

I guess then that gain will flow through to, like, another income, it will be a below the line sort of gain. Yes, well, it will be below EBITDA, yes. But it will be in operating income. It'll be another -- . Okay.

Yes.

But keep in mind, Drew, that activity is so minuscule in a given year. That's what's made this thing so frustrating for me from an operating point of view. I mean, this is Sean talking now. It truly is a fiction. I guess I'm venting a little bit.

Let me hit the occupancy and rate question. Because the news there is as it has been throughout the year. Which is things are getting stronger. In Q3 '04, the occupancy on posters was 71 percent, and the occupancy on bulletins was 80 percent, compared to last year's Q3 '03 posters 67, and bulletins 77. So we are enjoying some nice gains there. And then on the rate side, Q3 '04 poster rate was 426 a panel, and average rate on bulletins was $1,061 for Q3 '04, as compared to Q3 '03, posters 416, and bulletins 1,006. So, you know, all of that bodes well going into '05.

You should be able to ( inaudible ) push rate as you get closer to sold out.

I think we're seeing that. I really do.

Jim Boyle, Wachovia Securities.

How was the tone of your regional managers conference call, and are most of them tracking to merely meet or exceed budgets at this point? And would you characterize the budgets next year as aggressive?

Hey, Jim. Sean. We are not going to -- we're not going to set the budgets until early January. So what -- all I have now is chatter, and all of the chatter is good. You know, as regards '04, and going into '05, I'm not hearing from a single regional manager that they are seeing a discernible slowdown anywhere. In fact, you know, some of them are down right giddy as to how good business is out there. So I don't have a budget to describe to you yet for '05 as to whether it's aggressive or not. Traditionally, we budget to beat GDP. We will budget that way in '05. We budgeted that way this year. And they've all done that. So, you know, we feel -- we feel good.

And how would you characterize the sell out enter in the months in, let's say the autumn, compared to the summer?

You're talking about book-to-budget? Book-to-goal?

Yes, book-to-goal.

It's kind of misleading, because our fourth quarter budgets were not as aggressive as our summer budgets. So we're actually, October and November were very good months for us.

Yeah, I mean, Jim, it gets -- at this late stage, it gets to be kind of a useless number, to quote book-to-goal. Because the numbers are going to be, you know, 98.5 percent book-to-goal, and in '03, at the same time, we were 95.3 percent book-to-goal. You know, I don't know what you can glean from that, but that's what the numbers are. We're really down into the -- to the short strokes on finishing up the year strongly.

And you said the annual contracts, most of the large ones are in.

Yes.

Roughly what were they renewed at? 4, 5, 6 percent higher?

Yes. I mean, those are -- those are good numbers. You know we've got some -- we've got some folks out there that we -- some smaller folks that we still have to talk to. But, yes, those are good numbers.

Laraine Mancini, Merrill Lynch.

2 quick questions. For fourth quarter, it looks like given your EBITDA growth guidance, that perhaps there's some less leverage in the model in that quarter. Can you talk a little bit about what the expenses are that's causing that. And then second, when you're doing your annual contracts for 2005, are you seeing new business come in that you think -- that you sense could maybe in advance of the national rating system? People trying to lock up some good locations and maybe get better rates before the ratings are really available?

On the -- let me quickly hit that -- that renewal question. We are seeing new customers. I think that probably the best example of a big buy from someone who is a little bit new to us, is Progressive. It is a nice piece of business. And, you know, it's a category that we don't mention a whole lot, the insurance category. And, you know, my take on guidance for Q4 on the bottom line, is but for the hurricane, it would have been, you know, a double-digit number that you would be looking at. There are some extraordinary expenses. It's not material, but we do have a lot of overtime related to hurricane activity that's fallen in this quarter. You know, again, I don't -- I don't think it's a leverage issue or a fundamental model issue. I think it's cleaning up after the hurricane.

But the rebuilds are all in CapEx. It's just the labor to put them up that's falling in operating expense, kind of thing?

Well, keep in mind, not only do we have to rebuild, we also have to operate our business. And so our crews are stretched extremely thin right now. And we have crews, you know, from other regions helping, and so that puts pressure on other markets that have to sub out ops, instead of relying on their own crews. So, again, it's not a material number. But I would say pretty confidently but for the hurricane, that guidance on the EBITDA would be double-digits.

So we can anticipate after 4Q to start seeing the margin expansion, maybe not to the level we saw in 1Q through 3Q, which was pretty large. But we would start seeing some more margin expansion again?

It all depends on top line growth.

Mark Bacurin, Robert W Baird.

Keith, I was hoping, could you give us the Q4 '03 EBITDA number, off which that 9 percent growth guidance is based?

Q4 '03, EBITDA?

Yes, you said up 9 percent guidance on a pro forma basis.

I think that was 2.7. Am I right? EBITDA? No, Q4 was 5. It was almost 5 percent. I'm thinking of Q3. What was it 4.7? Have you got your cheat sheet? Hang on, Mark. EBITDA in the fourth quarter was 5.2 pro forma, and 2.7 in revenue. So it was basically 3 and 5.

Great. And then given some of the damage that the hurricane -- given that the hurricanes did on some of your signs in Florida. Are there insurance claims that you will also be able to recognize in Q4 that will help offset some of that incremental cost, to rebuild?

No, we self-insure. To give you sort of a -- a 30-year snapshot of how we feel about this event. We self-insure, and it's been since 1979 that we have had hurricane damage that was in excess of what our quoted deductible would be, if we insured. Most of the policies we get quotes on, the premiums are extremely high and the deductible is about $1 million. It's been since hurricane Frederick hit the Alabama Gulf Coast that we've had damage in excess of $1 million. I mean this was truly a 100 year event. It was devastating to have that many category 3 hurricanes hit the same place. It was kind of stunning. But be that as it may, when you run the numbers, you would reach the same conclusion, that it makes sense for us to self-insure for these events.

Okay. Great. And then Keith, just to understand, I guess the ramifications going forward of these accounting adjustments. As you bring these steel structures back into service, you're saying that;s going to be a net adjustment at the D&A expense level? So our D&A number I guess is going to bounce around, based on when these things are retired and then put back into service?

Not necessarily. Because what we are doing, is we are setting up a one-time charge. We did set up a one-time asset and liability account for compliance with this rule. We will expand that to include the steel structures. It's a one-time charge in this asset account, this liability account. Now going forward, as we build new structures, which we build not very many new ones, as you know, we're restricted due to regulations. We would have to set up the same type of reserves but, I mean, it's minuscule. It's not even a rounding error. Because we don't really build many new ones in a year. So it's really not going to be that difficult, Mark, to peg D&A, and I can give you guys guidance on that.

Jason Helfstein, CIBC World Markets.

2 questions. The first, is this increase in D&A going to be tax deductible? So, is the joke that this actually helps defer taxes out even longer?

No, its not. It's just a deferred tax item. Its an accounting issue.

Okay. And then just the second, any reason to think why next year wouldn't be a normal acquisition year, with 125 to 150 million in acquisitions next year, based on what you see now in your pipeline?

Yes, I think it's going to be very much. You know keep in mind, we've got a 60 some odd million dollar head start given that we'll close Obie in January. So, yes, I think the year finishes out very much like this year.

And then just, Kevin, any more discussion between the 3 of you guys, meaning Clear Channel and Viacom, as to any further swaps?

No.

Bishop Cheen, Wachovia.

A couple of questions. On the 135 million 61 deals, I believe you said year-to-date acquisitions, meaning up through November, and not September, that's one question. Secondly, if you can tell us that 135 million, kind of the mix between cash and stock.

Sure. That was actually through October 31.

Okay.

And the consideration was 4.3 million in stock and 130.6 million in cash.

Right, and then what kind of economics did that buy revenue and cash flow? And I know you try and buy them to improve upon them, but coming in initially, what did it buy?

I feel about, you know, the matrix we always talk about. Our stated goal is to do a pro forma exercise on how we will perform with the inventory, make sure that our purchase price is no more than 10 times our forward expectation. We're in, I believe, an updraft in terms of the business cycle. So it's easier to attain that, when you're preparing a conservative pro forma and business is better than you think. It is harder to attain that when you're in a down draft and you don't quite get to where you want to be with acquired inventory. I would argue in the business cycle we're in an uptick and we're going to do better than our stated goal.

Right. Okay. 2 other questions. The cash balance at September 30, and also (indiscernible) break out the converts, you know, separately, if you would.

The cash balance was about 12 million on hand at the end of September. And on the debt, at the media level without the converts, its about slightly north of 3.5 times (indiscernible) EBITDA.

So in dollars, what is the amount?

Oh, well, it would be -- what is it, a billion 4? It's about 1 billion 4, Bishop.

1.4 plus -- (multiple speakers) ?

Yes, the others (multiple speakers).

-- of the holding? And then to -- January 15th is when final closing on Obie, and any final cash consideration there?

Yes, that's the projected closing date, January 15th. The contract calls for an average closing price of Lamar's shares, divided into a fixed number. That fixed number is about 43 million.

Okay. That's what I was looking for. It is a fixed number.

It is a fixed number. It doesn't float. Correct.

Michael Russell, Morgan Stanley.

Most of the questions operationally have been answered, but I'm going to go back to the ARO. I was wondering, I was a little confused about where the depreciation looks like it might come out, say, for 2005. Because depreciation seems to be a little bit higher if we compare the high end of your range, but there was a $6 million shift from amortization to interest.

Yes, that's correct.

Could you just give us an idea, are we looking at a number that's going to be maybe 3 percent higher than we thought before, or more towards 5 percent higher? In other words, is 290 the right run rate, or should we make it like, 296? I'm just trying to -- ?

It shouldn't change much, Mike. In fact, in the press release, if you look at 2004, it says adjustments will be made proportionately for '04. We gave the '03 to give you a sense of the magnitude and to let you know that '04 would be basically the same magnitude, or the same additional changeover. I don't -- there's nothing that comes to mind at present, that would radically change D&A in '05. You know we'll have a better handle on it going forward when we give guidance next year, but I think it's going to be pretty close to '04.

And when you did it January 1st, you also put additions to PP&E. Do you have some guidance as to -- rough idea of what you will be adding to PP&E?

In terms of dollars spent?

Yes.

It's normally between 5 and 7 million a year. 5, $6 million -- .

No, I'm -- from the accounting treatment. From the ARO.

Oh, what is that 55 million? Okay. It looks like about 55.5 million.

Okay. And that's in addition to the 23 million that you've already done.

Yes.

And then what was the discount rate that you assumed in establishing the liability?

It was 5, 5 percent.

Barton Crockett, JP Morgan.

I wanted to follow up a little bit on the comments about national advertising, how it, you know, for the first part of this year came a little bit lower than what you were hoping coming into it, Keith. I was wondering what -- what took it down below what you were expecting, do you think? And is there any risk that that could come back to 2005, and make things a little bit lighter, you know versus the early view at this point? And then the second question is on the Nielsen data. I was just wondering if you could talk conceptually. If the Nielsen data is so close to the census data, which is already being used in advertising pitches, in your opinion is it reasonable to assume that there would be much incremental advertising driven by that incremental 20 percent, you know, improvement in the data there? If I could just get your thoughts on. Thank you.

Yes, I made that comment because of the cost. That -- the census data is not integrated into the planners' modules at this point. So they still, to this day, are not convinced -- you can't just -- you can't walk into a planner's office and say, because the billboard is in this zip code, that person is likely to see the billboard. Even though there is an 80 percent correlation between the Nielsen and the census data. So the -- who's in the car has not, by our industry, has not been addressed. And that's what planners want. They want to know who is in the car.

Okay. So even if it's only 20 percent better, they're not going to go there until they get Nielsen data, basically.

Right, right. Nielsen gets you there. The intuitive leap that just because they live in the zip code, that they are likely to see the billboard, you just can't -- they won't -- they don't buy it.

Okay.

So, you know, Nielsen is important. I'm just pointing out that if there's an 80 percent correlation, you know, how much are you going to have to pay for the stuff.

Okay.

The national business, we didn't -- we're just wondering why our -- the growth in national business is less than the growth in local business. Because it seems like all the stars are aligned for a tremendous surge in national business. Remember, it's only -- it's about 15, 18 percent of what we do. But we just, you know, have been saying this since the beginning of this year. And, you know, we want to see -- we're starting to see a little bit, but we want to see a real -- some real movement on that front. So there wasn't -- we didn't start out with this huge book, and then have the book dwindle. We just started out with big expectations that haven't been met until later on this year.

Okay. So the view for next year is more what you are seeing in the book, versus what you were describing before was your expectation.

Correct, yes. The book is looking really strong. One thing to keep in mind is on the national front we -- we're going to have some easy comps, particularly next second quarter. Because in '03, we had a huge surge from McDonald's that all fell in the second quarter of '03. So cycling through that, you know, it looks like at least as regards that particular quarter, we've got -- we've got an easy comp on the national front.

We're about, almost an hour into this call. Why don't we just go ahead and just take 2 more, and then wrap it up.

Bill Meyers, Lehman Brothers.

Keith, I think you partly addressed this before. But, again, the pro forma base that we should be using for the fourth quarter of last year for revenues and cash flow, I think you gave us growth rates, but if there was an actual base of dollars that we can look at. And then just as a related question, in terms of sort of target margins. When would you expect to kind of get back to the 48 percent level that you were running at just a couple of years ago? As you kind of look out over, you know, expected top line growth?

Bill, we can't give you EBITDA. But I mean if you do the math on where we're guiding and those percentages, you know, you come up with round numbers, 209ish on revenue. Pro forma. The margin expansion, if the Company continues to grow at roughly 7 percent top line, and expenses take the midrange of 4, then you would be looking at probably a couple of years out. If you run the model at those levels, based on what we've -- the numbers that we've got to date, you will get to that -- to that number.

Harry DeMott, Gothic Capital Management.

A quick question for you. You guys obviously have gotten into the trans businesses as you said in Denver, have you gotten into it through Obie. You know, Viacom has mentioned that they might want to be getting out of some of their contracts and certainly it seemed to show they are bidding less. Is this an area that you would target for sort of, you know, future growth, and who else is out there that you see really competing with you in this sector?

Yes, let me speak to that. This is Sean. You know, as we look at the transit business, and we've had experience, again with 2 products. One, being bus wraps and one being bus shelters. The businesses are similar, in terms of their operational characteristics. But in terms of their financial characteristics, they're a little different. Shelters require a lot of CapEx, so it tends to be a -- in addition to being a low margin business, something that you operate between 10 and 15 percent operating margins, it also tends to be a low ROI business because of the CapEx. Bus wraps on the other hand, require no CapEx. So we're comfortable with the business model, again where you're operating in a lower margin environment than our core business, something between 10 and 15 percent. But because you have no CapEx, your ROIs can be attractive. As we look at the landscape of that industry, it went through an irrational period in the '90s and 2000s, where people were making irresponsible bids to municipal franchises. And that's what's got a lot of companies in trouble. It appears to us that that business is getting more rational, that more -- that the bids are more responsible when contracts come up for renewal. It's our intent to focus on markets below the top 10-ish, around in that area. So, you know, I don't think you are going to see, for example -- Lamar is not going to play in the New York City street furniture bid that's up right now.

Yep.

We are not going to do that. We do think there's some running room in markets, you know, maybe, 7, 8, and below, where we're seeing, again, a different playing field and a different environment going forward.

Do you think that you would, in any way, I guess, get involved in markets where you don't have other outdoor franchises?

Well, it's -- one other reason we did this, is it has become clear to us that to acquire traditional outdoor, we are going to have to be talking to companies that have both traditional outdoor and transit. So it was important for us to understand this business and know how to run them. I think if our transit team, which is going to be based in Eugene, Oregon, and is going to have Obie veterans involved in it, if they can make the case that a free standing transit operation makes money for the Company, and we don't necessarily have traditional outdoor there, then we're going to give them a shot. But, again, we're going to be very careful to bid responsibly and, you know, approach this business with the attitude that if you don't get a contract, it's not the end of the world.

It's portfolio management, Harry, you've just got a portfolio of these contracts and you've got to be willing to walk away from them. Because there is no CapEx involved, and so there's a tendency to bid these things up to the point -- to the choking point.

Right. I assume you you use the same ROI, you know, hurdles with these as you use with anything else?

Actually, to tell you the truth, we're a little, at this juncture, we're a little more rigid with the transit business, because the risk profile is slightly greater, when it comes to this form of advertising. I mean, you are talking about the margins here, but -- or, you know when you are modeling. But, you know, have you to use a slightly higher discount rate on these types of contracts, because it is not as predictable as a bulletin on the highway.

Kim, this concludes our call. I want to thank everybody for tuning in, and we look forward to next quarter's earnings call. Thank you very much.

This does conclude today's Lamar Advertising third quarter 2004 earnings results conference call. You may now disconnect.