UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

LAMAR MEDIA CORP.

Delaware		0-30242		72-1449411
Delaware		1-12407		72-1205791
(States or other jurisdictions		(Commission File		(IRS Employer
of incorporation)		Numbers)		Identification Nos.)

5551 Corporate Boulevard, Baton Rouge, Louisiana 70808
(Address of principal executive offices and zip code)

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

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o		Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o		Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o		Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o		Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

Item 8.01 Other Events

     As previously disclosed in our Form 10-Q for the quarterly period ended March 31, 2009 (“First Quarter Form 10-Q”), Lamar Advertising Company (“Lamar Advertising”) adopted, effective January 1, 2009, the Financial Accounting Standards Board’s (“FASB”) Staff Position No. APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP APB 14-1”), which clarifies the accounting for convertible debt instruments that may be settled in cash (including partial cash settlement) upon conversion. FSP APB 14-1 requires issuers to account separately for the liability and equity components of certain convertible debt instruments in a manner that reflects the issuer’s nonconvertible debt borrowing rate when interest cost is recognized.

     FSP APB 14-1 requires bifurcation of a component of the debt, classification of that component in equity and the accretion of the resulting discount on the debt to be recognized as part of interest expense in our consolidated statements of operations. For more details related to the adoption of FSP APB 14-1, see Convertible Debt in footnote 8 of the Financial Statements included in Exhibit 99(c).

     We have updated the following financial information in our Annual Report on Form 10-K for the year ended December 31, 2008 (the “Form 10-K”) to present such information on a basis consistent with our First Quarter Form 10-Q:

	•		The Consolidated Financial Statements, including the notes thereto, for the years ended December 31, 2008, 2007 and 2006, as set forth in Item 8. Financial Statements of Exhibit 99(c) have been revised to reflect the adoption of FSP APB 14-1.
	•		Item 6. Selected Financial Data of Exhibit 99(a) has been revised to reflect the adoption of FSP APB 14-1, and
	•		Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of Exhibit 99(b) have also been revised solely to conform to the presentation of the reclassified consolidated results of operations.

     FSP APB 14-1 did not have an impact on Lamar Media Corp (“Lamar Media”) , therefore Lamar Media’s financial information has not been recast. However, since Lamar Media files a Combined Report with Lamar Advertising, Lamar Media’s information is included in Exhibit 99(c) and 99(b) in its original form.

     The attached information should be read together with the Form 10-K and the Registrant’s SEC filings subsequent to the Form 10-K, including its First Quarter Form 10-Q and Current Reports on Form 8-K.

Item 9.01 Financial Statements and Exhibits

(d) Exhibits

Exhibit No.		Description
23(a)		Consent of KPMG LLP
99(a)		Item 6. Selected Financial Data of Lamar Advertising Company — recast to reflect adoption of APB 14-1.
99(b)		Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of Lamar Advertising Company and Lamar Media Corp. — recast to reflect adoption of APB 14-1.
99(c)		Item 8. Financial Statements of Lamar Advertising Company and Lamar Media Corp. — recast to reflect adoption of APB 14-1.

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: July 28, 2009		LAMAR ADVERTISING COMPANY
		By:		/s/ Keith A. Istre   Keith A. Istre
				Treasurer and Chief Financial Officer

Exhibit Index

Exhibit No.		Description
23(a)		Consent of KPMG LLP
99(a)		Item 6. Selected Financial Data of Lamar Advertising Company — recast to reflect adoption of APB 14-1.
99(b)		Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of Lamar Advertising Company and Lamar Media Corp. — recast to reflect adoption of APB 14-1.
99(c)		Item 8. Financial Statements of Lamar Advertising Company and Lamar Media Corp. — recast to reflect adoption of APB 14-1.

EXHIBIT 23(a)

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors
Lamar Advertising Company:

     We consent to incorporation by reference in the registration statements (Nos. 333-89034, 333-10337, 333-79571, 333-37858, 333-34840, 333-116007, 333-116008 and 333-130267) on Form S-8, (Nos. 333-108688, 333-48288 and 333-154919) on Form S-3 and (Nos. 333-108689, 333-120937, 333-143419 and 333-48266) on Form S-4 of Lamar Advertising Company and Lamar Media Corp. of (a) our reports dated February 27, 2009, except for notes 1, 2, 8, 11, 19, 21 and 22 which are as of July 27, 2009, with respect to the consolidated balance sheets of Lamar Advertising Company and subsidiaries as of December 31, 2008 and 2007 and the related consolidated statements of operations, stockholders’ equity and comprehensive income and cash flows for each of the years in the three year period ended December 31, 2008 and the related financial statement schedule and the effectiveness of internal control over financial reporting, and (b) our reports dated February 27, 2009, with respect to the consolidated balance sheets of Lamar Media Corp. and subsidiaries as of December 31, 2008 and 2007 and the related consolidated statements of operations, stockholder’s equity and comprehensive income and cash flows for each of the years in the three year period ended December 31, 2008 and the related financial statement schedule and the effectiveness of internal control over financial reporting which reports appear in the December 31, 2008, annual report on Form 10-K of Lamar Advertising Company.

Baton Rouge, Louisiana
July 27, 2009

Exhibit 99.(a)

ITEM 6. SELECTED FINANCIAL DATA

Lamar Advertising Company

     The selected consolidated statement of operations, statement of cash flows and balance sheet data presented below are derived from the audited consolidated financial statements of the Company, which are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The data presented below should be read in conjunction with the audited consolidated financial statements, related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included herein.

		2008				2007				2006				2005				2004
		(Dollars in Thousands)
Statement of Operations Data:
Net revenues		$	1,198,419			$	1,209,555			$	1,120,091			$	1,021,656			$	883,510
Operating expenses:
Direct advertising expenses			436,556				408,397				390,561				353,139				302,157
General and administrative expenses			257,621				270,390				248,937				212,727				188,320
Depreciation and amortization			331,654				306,879				301,685				290,089				294,056
Gain on disposition of assets			(7,363	)			(3,914	)			(10,862	)			(1,119	)			(1,067	)
Total operating expenses			1,018,468				981,752				930,321				854,836				783,466
Operating income			179,951				227,803				189,770				166,820				100,044
Other expense (income):
Loss on extinguishment of debt			—				—				—				3,982				—
Gain on disposition of investment			(1,814	)			(15,448	)			—				—				—
Interest income			(1,202	)			(2,598	)			(1,311	)			(1,511	)			(495	)
Interest expense			170,352				168,601				112,955				90,671				76,079
Total other expense			167,336				150,555				111,644				93,142				75,584
Income before income taxes			12,615				77,248				78,126				73,678				24,460
Income tax expense			9,776				34,816				34,227				31,899				11,305
Net income			2,839				42,432				43,899				41,779				13,155
Preferred stock dividends			365				365				365				365				365
Net income applicable to common stock		$	2,474			$	42,067			$	43,534			$	41,414			$	12,790
Net income per share		$	0.03			$	0.43			$	0.42			$	0.39			$	0.12
Cash dividends declared per common share		$	—			$	3.25				—				—				—
Statement of Cash Flow Data:
Cash flows provided by operating activities(1)		$	346,520			$	354,469			$	364,517			$	347,257			$	323,164
Cash flows used in investing activities(1)		$	437,419			$	341,081			$	438,896			$	267,970			$	263,747
Cash flows provided by (used in) financing activities(1)		$	30,002			$	39,277			$	66,973			$	(104,069	)		$	(23,013	)
Balance Sheet Data(1)(2)
Cash and cash equivalents		$	14,139			$	76,048			$	11,796			$	19,419			$	44,201
Working capital			84,105				155,229				119,791				93,816				34,476
Total assets			4,117,025				4,081,763				3,924,228				3,741,234				3,692,282
Total debt (including current maturities)			2,814,449				2,692,667				1,990,468				1,576,326				1,659,934
Total long-term obligations			3,066,422				2,972,760				2,274,716				1,826,138				1,805,021
Stockholders’ equity			873,725				951,365				1,538,533				1,817,482				1,736,347

Exhibit 99(b)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     This report contains forward-looking statements. These statements are subject to risks and uncertainties including those described in Item 1A under the heading “Risk Factors,” and elsewhere in this report, that could cause actual results to differ materially from those projected in these forward-looking statements. The Company cautions investors not to place undue reliance on the forward-looking statements contained in this document. These statements speak only as of the date of this document, and the Company undertakes no obligation to update or revise the statements, except as may be required by law.

Lamar Advertising Company

     The following is a discussion of the consolidated financial condition and results of operations of the Company for the years ended December 31, 2008, 2007 and 2006. This discussion should be read in conjunction with the consolidated financial statements of the Company and the related notes.

OVERVIEW

     The Company’s net revenues are derived primarily from the sale of advertising on outdoor advertising displays owned and operated by the Company. The Company relies on sales of advertising space for its revenues, and its 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 the Company is able to charge for advertising on its displays and its ability to maximize advertising sales or occupancy on its displays. The severe economic downturn that accelerated in the fourth quarter of 2008 has affected the Company as well as the advertising industry. The Company had fewer customers in the fourth quarter of 2008 which resulted in lower occupancy and a reduction in sales. While the Company anticipates this will continue into 2009, we have taken steps to reduce operating and capitalized expenditures in order to offset this potential reduction in revenue.

     Since December 31, 2004, the Company has increased the number of outdoor advertising displays it operates by approximately 6% by completing strategic acquisitions of outdoor advertising assets for an aggregate purchase price of approximately $819.7 million, which included the issuance of 1,026,413 shares of Lamar Advertising Company Class A common stock valued at the time of issuance at approximately $43.3 million. The Company has financed its recent acquisitions and intends to finance its future acquisition activity from available cash, borrowings under its senior credit facility and the issuance of Class A common stock. See “Liquidity and Capital Resources” below. As a result of acquisitions, the operating performances of individual markets and of the Company as a whole are not necessarily comparable on a year-to-year basis. The acquisitions completed during the year ended December 31, 2008 had no material integration issues. Due to the current economic recession, however, the Company expects to significantly reduce its acquisition activity during 2009.

     Growth of the Company’s 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:

		2008				2007				2006
		(In thousands)
Billboard — Traditional		$	58,064			$	68,664			$	75,501
Billboard — Digital			103,701				92,093				81,270
Logos			7,606				10,190				8,978
Transit			1,018				2,047				1,119
Land and buildings			11,240				31,463				34,384
PP&E			16,441				16,077				22,098
Total capital expenditures		$	198,070			$	220,534			$	223,350

     We expect our capital expenditures to be approximately $35 million in 2009.

RESULTS OF OPERATIONS

     The following table presents certain items in the Consolidated Statements of Operations as a percentage of net revenues for the years ended December 31, 2008, 2007 and 2006:

		Year Ended December 31,
		2008				2007				2006
Net revenues			100.0	%			100.0	%			100.0	%
Operating expenses:
Direct advertising expenses			36.4				33.8				34.9
General and administrative expenses			17.3				17.4				17.7
Corporate expenses			4.2				4.9				4.5
Depreciation and amortization			27.7				25.4				26.9
Operating income			15.0				18.8				16.9
Interest expense			14.2				13.9				10.1
Net income			0.2				3.5				3.9

Year ended December 31, 2008 compared to Year ended December 31, 2007

     Net revenues decreased $11.1 million or 0.9% to $1.20 billion for the year ended December 31, 2008 from $1.21 billion for the same period in 2007. This decrease was attributable primarily to a decrease in billboard net revenues of $9.7 million or 0.9% over the prior period and a $1.7 million decrease in logo sign revenue over the prior period due to contracts lost in the fourth quarter of 2008.

     The decrease in billboard net revenue of $9.7 million was a result of decreased occupancy due to a reduction in advertising spending resulting from the deterioration in economic conditions which accelerated in the fourth quarter of 2008. The $1.7 million decrease in logo revenue was a result of internal growth of approximately $1.7 million was offset by a decrease of $3.4 million of revenue due to the loss of various logo contracts.

     Net revenues for the year ended December 31, 2008, as compared to acquisition-adjusted net revenue for the year ended December 31, 2007, decreased $39.6 million or 3.2% primarily as a result of the reduction in occupancy primarily in the fourth quarter of 2008 as discussed above. See “Reconciliations” below.

     Operating expenses, exclusive of depreciation and amortization and gain on sale of assets, increased $15.4 million or 2.3% to $694.2 million for the year ended December 31, 2008 from $678.8 million for the same period in 2007. There was an $18.5 million decrease in non-cash compensation expense related to performance based compensation, offset by a $30.9 million increase in operating expenses related to the operations of acquired outdoor advertising assets and increases in the cost of operating the Company’s core assets and a $3.0 million increase in corporate expenses.

     Depreciation and amortization expense increased $24.8 million for the year ended December 31, 2008 as compared to the year ended December 31, 2007. The increase is primarily a result of capital expenditures of $103.7 million related to digital billboards which are depreciated using a shorter expected life than the traditional billboards.

     Due to the above factors, operating income decreased $47.8 million to $180.0 million for year ended December 31, 2008 compared to $227.8 million for the same period in 2007.

     The Company recognized a $1.8 million return on investment compared to a $15.4 million gain as a result of the sale of a private company recognized in the first quarter of 2007, which represents a decrease of 88.3% over the prior period.

     Interest expense increased $1.8 million from $168.6 million for the year ended December 31, 2007 to $170.4 million for the year ended December 31, 2008 due to a decrease in interest rates on variable-rate debt offset by increased debt balances.

     The decrease in operating income, the decrease in gain on disposition of investment, and the increase in interest expense described above resulted in a $64.6 million decrease in income before income taxes. This decrease in income resulted in a decrease in the income tax expense of $25.0 million for the year ended December 31, 2008 over the same period in 2007. The effective tax rate for the year ended December 31, 2008 was 77.5%, which is greater than the statutory rates due to permanent differences resulting from non-deductible expenses.

     As a result of the above factors, the Company recognized net income for the year ended December 31, 2008 of $2.8 million, as compared to net income of $42.4 million for the same period in 2007.

Reconciliations:

     Because acquisitions occurring after December 31, 2006 (the “acquired assets”) have contributed to our net revenue results for the periods presented, we provide 2007 acquisition-adjusted net revenue, which adjusts our 2007 net revenue by adding to it the net revenue generated by the acquired assets prior to our acquisition of them for the same time frame that those assets were owned in 2008. We provide this information as a supplement to net revenues to enable investors to compare periods in 2008 and 2007 on a more consistent basis without the effects of acquisitions. Management uses this comparison to assess how well our core assets are performing.

     Acquisition-adjusted net revenue is not determined in accordance with generally accepted accounting principles (GAAP). For this adjustment, we measure the amount of pre-acquisition revenue generated by the acquired assets during the period in 2007 that corresponds with the actual period we have owned the acquired assets in 2008 (to the extent within the period to which this report relates). We refer to this adjustment as “acquisition net revenue.”

     Reconciliations of 2007 reported net revenue to 2007 acquisition-adjusted net revenue as well as a comparison of 2007 acquisition-adjusted net revenue to 2008 net revenue are provided below:

Comparison of 2008 Net Revenue to 2007 Acquisition-Adjusted Net Revenue

		Year Ended December 31,
		2008				2007
		(In thousands)
Reported net revenue		$	1,198,419			$	1,209,555
Acquisition net revenue			—				28,473
Adjusted totals		$	1,198,419			$	1,238,028

Year ended December 31, 2007 compared to Year ended December 31, 2006

     Net revenues increased $89.5 million or 8.0% to $1.21 billion for the year ended December 31, 2007 from $1.12 billion for the same period in 2006. This increase was attributable primarily to an increase in billboard net revenues of $88.1 million or 8.7% over the prior period, with no net change in logo sign revenue or transit revenue over the prior period due to contracts lost during the year.

     The increase in billboard net revenue of $88.1 million was generated by acquisition activity of approximately $13.4 million and internal growth of approximately $74.7 million, while the internal growth across various markets within the logo sign programs of approximately $3.8 million, was offset by a decrease of $4.0 million of revenue due to the loss of the Company’s Texas logo contract. The transit revenue internal growth of approximately $3.2 million was offset by a decrease of $3.6 million of revenue due to the loss of various transit contracts.

     Net revenues for the year ended December 31, 2007, as compared to acquisition-adjusted net revenue for the year ended December 31, 2006, increased $82.5 million or 7.3% as a result of net revenue internal growth. See “Reconciliations” below.

     Operating expenses, exclusive of depreciation and amortization and gain on sale of assets, increased $39.3 million or 6.1% to $678.8 million for the year ended December 31, 2007 from $639.5 million for the same period in 2006. There was a $30.5 million increase as a result of additional operating expenses related to the operations of acquired outdoor advertising assets and increases in costs in operating the Company’s core assets and a $8.8 million increase in corporate expenses.

     Depreciation and amortization expense increased $5.2 million for the year ended December 31, 2007 as compared to the year ended December 31, 2006. The increase is a result of increased capital expenditures in 2007, including $92.1 million related to digital billboards.

     Due to the above factors, operating income increased $38.0 million to $227.8 million for year ended December 31, 2007 compared to $189.8 million for the same period in 2006.

     During the first quarter of 2007, the Company recognized a $15.4 million gain as a result of the sale of a private company in which the Company had an ownership interest.

     Interest expense increased $55.6 million from $113.0 million for the year ended December 31, 2006 to $168.6 million for the year ended December 31, 2007 due to increased debt balances as well as increase in interest rates on variable-rate debt.

     The increase in operating income and the gain on disposition of investment offset by the increase in interest expense described above resulted in a $0.9 million decrease in income before income taxes. There was an increase in the income tax expense of $0.6 million for the year ended December 31, 2007 over the same period in 2006. The effective tax rate for the year ended December 31, 2007 was 45.1%, which is greater than the statutory rates due to permanent differences resulting from non-deductible expenses.

     As a result of the above factors, the Company recognized net income for the year ended December 31, 2007 of $42.4 million, as compared to net income of $43.9 million for the same period in 2006.

Reconciliations:

     Because acquisitions occurring after December 31, 2005 (the “acquired assets”) have contributed to our net revenue results for the periods presented, we provide 2006 acquisition-adjusted net revenue, which adjusts our 2006 net revenue by adding to it the net revenue generated by the acquired assets prior to our acquisition of them for the same time frame that those assets were owned in 2007. We provide this information as a supplement to net revenues to enable investors to compare periods in 2007 and 2006 on a more consistent basis without the effects of acquisitions. Management uses this comparison to assess how well our core assets are performing.

     Acquisition-adjusted net revenue is not determined in accordance with generally accepted accounting principles (GAAP). For this adjustment, we measure the amount of pre-acquisition revenue generated by the acquired assets during the period in 2006 that corresponds with the actual period we have owned the acquired assets in 2007 (to the extent within the period to which this report relates). We refer to this adjustment as “acquisition net revenue.”

     Reconciliations of 2006 reported net revenue to 2006 acquisition-adjusted net revenue as well as a comparison of 2006 acquisition-adjusted net revenue to 2007 net revenue are provided below:

Comparison of 2007 Net Revenue to 2006 Acquisition-Adjusted Net Revenue

		Year Ended December 31,
		2007				2006
		(In thousands)
Reported net revenue		$	1,209,555			$	1,120,091
Acquisition net revenue			—				6,915
Adjusted totals		$	1,209,555			$	1,127,006

LIQUIDITY AND CAPITAL RESOURCES

Overview

     Recently, worldwide capital and credit markets have seen unprecedented volatility. We are closely monitoring the potential impact of these market conditions on our liquidity. We have historically refinanced our existing debt obligations with the issuance of new debt. The current lending environment, however, may negatively impact our ability to issue additional debt on terms that are acceptable to us, if at all, and may require us to accept terms that are significantly less favorable than our existing debt, approximately $663.6 million of which is due to mature in the next three years.

     In light of the worsening economic climate in the fourth quarter of 2008 that has continued in 2009 we are taking certain steps to reduce our overall operating expenses. These steps include reducing operating expenses and non-essential capital expenditures and significantly reducing acquisition activity. As part of the overall reductions in operating expenses, the company reduced its workforce from approximately 3,500 to 3,200, which represents a 10% decrease.

     The Company has historically satisfied its working capital requirements with cash from operations and borrowings under its senior credit facility. The Company’s wholly owned subsidiary, Lamar Media Corp., is the borrower under the senior credit facility and maintains all corporate cash balances. Any cash requirements of Lamar Advertising, therefore, must be funded by distributions from Lamar Media. The Company’s acquisitions have been financed primarily with funds borrowed under the senior credit facility and issuance of its Class A common stock and debt securities. If an acquisition is made by one of the Company’s subsidiaries using the Company’s Class A common stock, a permanent contribution of additional paid-in-capital of Class A common stock is distributed to that subsidiary.

Sources of Cash

     Total Liquidity at December 31, 2008. As of December 31, 2008 we had approximately $263.8 million of total liquidity, which is comprised of approximately $14.1 million in cash and cash equivalents and the ability to draw approximately $249.7 million under our revolving senior credit facility.

     Cash Generated by Operations. For the years ended December 31, 2008, 2007, and 2006 our cash provided by operating activities was $346.5 million, $354.5 million and $364.5 million, respectively. While our net income was approximately $2.8 million for the year ended December 31, 2008, the Company generated cash from operating activities of $346.5 million during 2008 primarily due to adjustments needed to reconcile net income to cash provided by operating activities, which primarily includes depreciation and amortization of $331.7 million. We generated cash flows from operations during 2008 in excess of our cash needs for operations and capital expenditures as described herein. We used the excess cash generated principally for acquisitions and stock repurchases. See “— Cash Flows” for more information.

     Credit Facilities. As of December 31, 2008 we had approximately $249.7 million of unused capacity under the revolving credit facility included in our senior credit facility. The senior credit facility was refinanced on September 30, 2005 and is comprised of a $400.0 million revolving senior credit facility and a $400.0 million term facility. The senior credit facility also includes a $500.0 million incremental facility, which permits Lamar Media to request that its lenders enter into commitments to make additional term loans, up to a maximum aggregate amount of $500.0 million.

     On February 8, 2006, Lamar Media entered into a Series A Incremental Loan Agreement and obtained commitments from its lenders for a term loan of $37.0 million, which was funded on February 27, 2006. The available uncommitted incremental loan facility was thereby reduced to $463.0 million.

     On October 5, 2006, we entered into a Series B Incremental Loan Agreement and borrowed an additional $150.0 million under the incremental portion of our bank credit facility. In conjunction with the Series B Incremental Loan Agreement, we also entered into an amendment to our bank credit facility to restore the amount of the incremental loan facility to $500.0 million (which under its old terms would have been reduced by the Series B Incremental Loan and had been reduced by the earlier Series A Incremental Loan described above). The lenders have no obligation to make additional term loans to Lamar Media under the incremental facility, but may enter into such commitments in their sole discretion.

     On December 21, 2006, one of our wholly-owned subsidiaries, Lamar Transit Advertising Canada Ltd., entered into a Series C Incremental Loan Agreement and obtained commitments from its lenders for a term loan of $20.0 million. The available uncommitted incremental loan facility was thereby reduced to $480.0 million.

     On January 17, 2007, Lamar Media entered into a Series D Incremental Loan Agreement and obtained commitments from its lenders for a term loan of $7.0 million, which was funded on January 17, 2007. On March 28, 2007, Lamar Media entered into Series E and Series F Incremental Loan Agreements and obtained commitments from their lenders for term loans of $250.0 million and $325.0 million, respectively, which were both funded on March 28, 2007. In addition, the $500.0 million incremental facility, which had previously been reduced by the aggregate amount of the Series C and Series D Incremental Loans and would have been reduced by the Series E and Series F Incremental Loans, was restored to $500.0 million. The lenders have no obligation to make additional term loans to Lamar Media under the incremental facility, but may enter into such commitments in their sole discretion.

Proceeds from the Sale of Debt and Equity Securities.

     On August 17, 2006, Lamar Media Corp. issued $216.0 million 6 5/8% Senior Subordinated Notes due 2015 — Series B. These notes are unsecured senior subordinated obligations and will be subordinated to all of Lamar Media’s existing and future senior debt, rank equally with all of Lamar Media’s existing and future senior subordinated debt and rank senior to all of our existing and any future subordinated debt of Lamar Media. These notes are redeemable at the company’s option anytime on or after August 15, 2010. Lamar Media may also redeem up to 35% of the aggregate principle amount of the notes using the proceeds from certain public equity offerings completed before August 15, 2008. The net proceeds from this issuance were used to reduce borrowings under Lamar Media’s bank credit facility and repurchase the Company’s Class A common stock pursuant to its repurchase plan.

     On May 31, 2007, the Company commenced an offer to exchange all of its outstanding 2 7/8% Convertible Notes due 2010 (the “outstanding notes”), for an equal amount of newly issued 2 7/8% Convertible Notes due 2010—Series B (“the new notes”) and cash. The new notes are a separate series of debt securities. The purpose of the exchange offer was to exchange outstanding notes for new notes with certain different terms, including the type of consideration the Company may use to pay holders who convert their notes.

Among their features, the new notes are convertible into Class A common stock, cash or a combination thereof, at the Company’s option, subject to certain conditions, while the outstanding notes are convertible solely into the Company’s Class A common stock. This exchange was completed on July 3, 2007, when the Company accepted for exchange $287.2 million aggregate principal amount of outstanding notes, representing approximately 99.9 percent of the total outstanding notes with approximately $0.3 million aggregate principal amount remaining of outstanding notes.

     On October 11, 2007, Lamar Media Corp. completed an institutional private placement of $275 million aggregate principal amount of 6 5/8% Senior Subordinated Notes due 2015—Series C. These notes are unsecured senior subordinated obligations and will be subordinated to all of Lamar Media’s existing and future senior debt, rank equally with all of Lamar Media’s existing and future senior subordinated debt and rank senior to all of the existing and any future subordinated debt of Lamar Media. These notes are redeemable at the company’s option anytime on or after August 15, 2010. Lamar Media may also redeem up to 35% of the aggregate principle amount of the notes using the proceeds from certain public equity offerings completed before August 15, 2008. A portion of the $256.7 million net proceeds from the offering of the Notes was used to repay a portion of the amounts outstanding under Lamar Media’s senior revolving credit facility.

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 the Company conducts its business and overall spending on advertising by advertisers. During the fourth quarter of 2008, the Company experienced a decline in sales as a result of the overall decline in advertising spending resulting from the economic recession. If this trend continues, the Company’s internally generated cash will also decline. The Company has taken steps to reduce its overall expenses which should partially offset the anticipated decline in revenue.

     Credit Facilities and Other Debt Securities. Lamar must comply with certain covenants and restrictions related to its credit facilities and its outstanding debt securities.

     Restrictions Under Debt Securities. Lamar must comply with certain covenants and restrictions related to its credit facilities and its outstanding debt securities. Currently Lamar Media has outstanding approximately $385.0 million 7 1/4% Senior Subordinated Notes due 2013 issued in December 2002 and June 2003 (the “7 1/4% Notes”), $400.0 million 6 5/8% Senior Subordinated Notes due 2015 issued August 2005, $216.0 million 6 5/8% Senior Subordinated Notes due 2015 — Series B issued in August 2006 and $275.0 million 6 5/8% Senior Subordinated Notes due 2015 — Series C issued in October 2007 (collectively, the “6 5/8% Notes”). The indentures relating to Lamar Media’s outstanding notes restrict its ability to incur indebtedness but permit the incurrence of indebtedness (including indebtedness under its 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 total consolidated debt to trailing four fiscal quarter EBITDA (as defined in the indentures)) would be less than (a) 6.5 to 1, pursuant to the 7 1/4% Notes indenture, and (b) 7.0 to 1, pursuant to the 6 5/8% Notes indentures (“Permitted Indebtedness Tests”).

     In addition to debt incurred under the provisions described in the preceding sentence, the indentures relating to Lamar Media’s outstanding notes permit Lamar Media to incur indebtedness pursuant to the following baskets:

	•		up to $1.3 billion of indebtedness under its senior credit facility;
	•		currently outstanding indebtedness or debt incurred to refinance outstanding debt;
	•		inter-company debt between Lamar Media and its subsidiaries or between 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 $20 million or 5% of Lamar Media’s net tangible assets; and
	•		additional debt not to exceed $40 million.

     These baskets are in addition to and do not place a limit on the amount of debt that Lamar can incur under the Permitted Indebtedness Tests described above. The Company can incur indebtedness under its senior credit facility to the extent of its $1.3 billion senior credit facility indebtedness basket without regard to any other restrictions and further can incur an unlimited amount of indebtedness under its senior credit facility so long as it complies with the Permitted Indebtedness Tests. At December 31, 2008, the Company had an aggregate outstanding balance under its senior credit facility of $1.3 billion and was in compliance with the Permitted Indebtedness Tests.

     Restrictions under Credit Facility. Lamar Media is required to comply with certain covenants and restrictions under its senior credit agreement. If the Company fails to comply with these tests, the long term debt payments may be accelerated. At December 31, 2008 and currently, Lamar Media is in compliance with all such tests.

     Lamar Media must be in compliance with the following financial ratios under its senior credit facility:

	•		a total debt ratio, defined as total consolidated debt to EBITDA, as defined below, for the most recent four fiscal quarters, of not greater than 6.00 to 1.
	•		a fixed charges coverage ratio, defined as EBITDA, as defined below, for the most recent four fiscal quarters to the sum of (1) the total payments of principal and interest on debt for such period, plus (2) capital expenditures made during such period, plus (3) income and franchise tax payments made during such period, plus (4) dividends, of greater than 1.05 to 1.

     As defined under Lamar Media’s senior credit facility, EBITDA is, for any period, operating income for Lamar Media and its restricted subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP) for such period (calculated before taxes, interest expense, interest in respect of mirror loan indebtedness, depreciation, amortization and any other non-cash income or charges accrued for such period and (except to the extent received or paid in cash by 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 whereby insurance or other proceeds are received and certain dispositions not in the ordinary course. Any dividend payment made by Lamar Media or any of its restricted subsidiaries to Lamar Advertising Company during any period to enable Lamar Advertising Company to pay certain qualified expenses on behalf of Lamar Media and its subsidiaries shall be treated as operating expenses of Lamar Media for the purposes of calculating EBITDA for such period if and to the extent such operating expenses would be deducted in the calculations of EBITDA if funded directly by Lamar Media or any restricted subsidiary. EBITDA under the senior credit facility is also adjusted to reflect certain acquisitions or dispositions as if such acquisitions or dispositions were made on the first day of such period.

     The Company believes that its current level of cash on hand, availability under its senior credit facility and future cash flows from operations are sufficient to meet its operating needs through fiscal 2009. All debt obligations are on the Company’s balance sheet.

Uses of Cash

     Capital Expenditures. Capital expenditures excluding acquisitions were approximately $198.1 million for the year ended December 31, 2008. We anticipate our 2009 total capital expenditures to be approximately $35 million.

     Acquisitions. During the year ended December 31, 2008, the Company financed its acquisition activity of approximately $250.0 million with borrowings under Lamar Media’s revolving credit facility and cash on hand. In light of the current economic recession, the Company plans to significantly reduce it acquisition activity during 2009 with no material spending currently planned for acquisitions.

     Stock Repurchase Program. In November 2005, the Company announced that its Board of Directors authorized the repurchase of up to $250.0 million of the Company’s Class A common stock. The Company completed this repurchase plan in July 2006, repurchasing approximately 4.9 million shares of its Class A common stock.

     In August 2006, the Company announced a second repurchase plan of up to $250.0 million of the Company’s Class A common stock, which was completed in July 2007. The Company’s Board of Directors adopted a third $500 million repurchase plan in February 2007, which expired on February 22, 2009. During the twelve months ended December 31, 2008 and December 31, 2007, the Company purchased approximately 2.6 million shares and 6.7 million shares of its Class A common stock for an aggregate purchase price of approximately $90.5 million and $383.6 million, respectively. Shares repurchased under the plan were made on the open market or in privately negotiated transactions. The timing and amount of the shares repurchased were determined by Lamar’s management based on its evaluation of market conditions and other factors. All repurchased shares are available for future use for general corporate and other purposes.

     Special Cash Dividend. In February, 2007, the Company’s board of directors declared a special divided of $3.25 per share of Common Stock. The dividend of $318.3 million in aggregate amount was paid on March 30, 2007 to stockholders of record on March 22, 2007. Lamar had 82,541,461 shares of Class A Common Stock and 15,397,865 shares of Class B Common Stock, which is convertible into Class A Common Stock on a one-for-one-basis at the option of its holder, outstanding as of March 22, 2007.

     Debt Service and Contractual Obligations. As of December 31, 2008, we had outstanding debt of approximately $2.8 billion, which includes a mirror note issued to the Company in an aggregate amount of $287.5 million, which is equal to the amount of the Company’s aggregate outstanding convertible notes. In the future, Lamar Media has principal reduction obligations and revolver commitment reductions under its bank credit agreement. In addition it has fixed commercial commitments. These commitments are detailed as follows:

						Payments Due by Period
						Less Than												After
Contractual Obligations		Total				1 Year				1 - 3 Years				4 - 5 Years				5 Years
		(In millions)
Long-Term Debt		$	2,814.4			$	58.8			$	582.8			$	995.6			$	1,177.2
Interest obligations on long term debt(1)			668.5				113.5				243.0				205.0				107.0
Billboard site and other operating leases			1,282.6				155.9				255.8				196.9				674.0
Total payments due		$	4,765.5			$	328.2			$	1,081.6			$	1,397.5			$	1,958.2

						Amount of Expiration Per Period
		Total Amount				Less Than 1												After
Other Commercial Commitments		Committed				Year				1 - 3 Years				4 - 5 Years				5 Years
		(In millions)
Revolving Bank Facility(2)		$	400.0			$	—			$	—			$	400.0			$	—
Standby Letters of Credit(3)		$	10.3			$	5.2			$	5.1			$	—			$	—

Cash Flows

     The Company’s cash flows provided by operating activities decreased by $7.9 million for the year ended December 31, 2008 due to a decrease in net income of $39.6 million as described in “Results of Operations”, offset by an increase in adjustments to reconcile net income to cash provided by operating activities of $45.7 million primarily due to an increase in depreciation and amortization of $24.8 million, and an increase in deferred tax expense of $16.6 million. In addition, as compared to the same period in 2007, there were decreases in the change in prepaid expenses of $4.8 million, in accrued expenses of $22.1 million and in the change in other liabilities of $2.8 million, offset by an increase in the change in other assets of $16.1 million.

     Cash flows used in investing activities increased $96.3 million from $341.1 million in 2007 to $437.4 million in 2008 primarily due to an increase in cash used in acquisition activity by the Company in 2008 of $96.4 million.

     Cash flows provided by financing activities was $30.0 million for the year ended December 31, 2008 primarily due to $140.0 million in proceeds from notes payable resulting from borrowings under the senior credit facility and $13.3 million in net proceeds from issuance of common stock and tax deductions from options exercised, offset by cash used for purchase of treasury shares of $93.4 million and $29.4 million in principle payments on long term debt.

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 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 long-lived asset recovery, intangible assets, goodwill impairment, deferred taxes, asset retirement obligations and allowance for doubtful accounts. 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.

     Long-Lived Asset Recovery. Long-lived assets, consisting primarily of property, plant and equipment and intangibles comprise a significant portion of the Company’s total assets. Property, plant and equipment of $1.6 billion and intangible assets of $773.8 million are reviewed for impairment whenever events or changes in circumstances have indicated that their carrying amounts may not be recoverable. Recoverability of assets is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by that asset before interest expense. These undiscounted cash flow projections are based on management assumptions surrounding future operating results and the anticipated future economic environment. If actual results differ from management’s assumptions, an impairment of these intangible assets may exist and a charge to income would be made in the period such impairment is determined. Based on the Company’s analysis as of December 31, 2008, no such impairment charge was required by the Company.

     Intangible Assets. The Company has significant intangible assets recorded on its balance sheet. Intangible assets primarily represent site locations of $717.9 million and customer relationships of $49.4 million associated with the Company’s 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 the Company’s intangible assets.

     Goodwill Impairment. The Company has a significant amount of goodwill on its 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. The first step of the impairment test requires management to determine the implied fair value of its reporting units and compare it to its book value (including goodwill). To the extent the book value of a reporting unit exceeds the fair value of the reporting unit, the Company would be required to perform the second step of the impairment test, as this is an indicator that the reporting unit may be impaired. Impairment testing involves various estimates and assumptions, which could vary, and an analysis of relevant market data and market capitalization.

We have identified two reporting units (Logo operations and Billboard operations) in accordance with SFAS 142. No changes have been made to our reporting units from the prior period. The reporting units and their carrying amounts of goodwill as of December 31, 2008 and 2007 are as follows:

		Carrying Value of Goodwill
		(in thousands)
		December 31, 2008				December 31, 2007
Billboard operations			1,415,435				1,375,279
Logo operations			961				961

We believe there are numerous facts and circumstances that need to be considered when estimating the reasonableness of the reporting unit’s estimated fair value, especially in this period of unprecedented economic uncertainty. In conducting our impairment test, we assessed the reasonableness of the reporting unit’s estimated fair value based on both market capitalization and discounted future cash flows. The discounted cash flow analysis incorporated various growth rate assumptions and discounting based on a present value factor.

Consideration of market capitalization

The Company first considered its market capitalization as of its annual impairment testing date of December 31. The market capitalization of its Class A common stock as of December 31, 2008 was $1.2 billion compared to stockholders’ equity of $860.3 million as of that date, resulting in an excess of approximately $340.2 million. The Company considers market capitalization over book value a strong indicator that no impairment of goodwill exists as of the measurement date of December 31, 2008. The following table presents the market capitalization and aggregate book value of the reporting units as of December 31, 2008:

						Market
		Equity Book Value				Capitalization(1)
		(in thousands)
Aggregate Values as of December 31, 2008			860,251				1,200,541

Calculations of Fair Value using Discounted Cash Flow Analysis

We also estimate fair value using a discounted cash flow analysis that compares the estimated future cash flows of each reporting unit to the book value of the reporting unit.

The discount rate and projected revenue and EBITDA (earnings before interest, tax, depreciation and amortization) growth rates are significant assumptions utilized in our calculation of the present value of cash flows used to estimate fair value of the reporting units. These assumptions could be adversely impacted by certain risks including deterioration in industry and economic conditions.

Our discount rate assumption is based on our cost of capital which we determine annually based on our estimated costs of debt and equity relative to our capital structure. As of December 31, 2008 our weighted average cost of capital (WACC) was approximately 10%, which is slightly higher than our historical rate due to increased market risk given the current economic conditions. Based on our analysis, our WACC must exceed 11.4% before the second step of the impairment test would be required.

We develop our revenue and EBITDA growth rates during our annual budget process, which we complete in December of each fiscal year. We consider our historical performance and current market trends in the markets in which we operate. The following table describes the growth rates used in our analysis, which indicated no impairment charge was required, compared to our recent historical rates achieved:

Compound Annual Growth Rates (CAGR)

		Revenue								EBITDA
						5 year								5 year
		Historical*				projected rate				Historical*				projected rate
Billboard operations			7.9	%			2.5	%			6.9	%			3.5	%
Logo operations			4.5	%			3.0	%			2.0	%			1.5	%

Our December 31, 2008 discounted cash flow analysis does not indicate the need for step two of the impairment test unless the Compound Annual Growth Rate (CAGR), calculated using projections over the next 5 years, for revenue declines to less than (1.5%) for our billboard operations and less than (12.5%) for our logo operations, and the CAGR for EBITDA declines to less than (0.6%) for our billboard operations and less than (14.2%) for our logo operations. Assumptions used in our impairment test, such as forecasted growth rates and our cost of capital, are based on the best available market information and are consistent with our internal forecast and operating plans. In addition, our forecasts were based on the current economic recession continuing through the fist two quarters of 2010. A prolonged recession or changes in our forecasts could change our conclusion regarding an impairment of goodwill and potentially result in a non-cash impairment loss in a future period. In addition, these assumptions could be adversely impacted by certain risks discussed in “Risk Factors” in Item 1A of this report. For additional information about goodwill, see Note 3 to the Consolidated Financial Statements. The following table presents the aggregate fair value of our reporting units and aggregate book value of the reporting units as of December 31, 2008:

		Equity Book Value				Fair Value (1)
		(in thousands)
Aggregate Values as of December 31, 2008			860,251				1,940,030

Based upon the Company’s annual review as of December 31, 2008, using both the market capitalization approach and discounted cash flow analysis, there was no indication of a potential impairment and, therefore, the second step of the impairment test was not required and no impairment charge was necessary.

     Deferred Taxes. As of December 31, 2008, the Company determined that its deferred tax assets of $169.3 million, a component of which is the Company’s operating loss carry forward, net of existing valuation allowances, are fully realizable due to the existence of certain deferred tax liabilities of approximately $295.0 million that are anticipated to reverse during the carry forward period. The Company bases this determination by projecting taxable income over the relevant period. Should the Company determine that it would not be able to realize all or part of its net deferred tax assets in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made. For a more detailed description, see Note 11 of the Notes to the Consolidated Financial Statements.

     Asset Retirement Obligations. The Company had an asset retirement obligation of $160.7 million as of December 31, 2008 as a result of its adoption of SFAS No. 143, “Accounting for Asset Retirement Obligations,” on January 1, 2003. This liability relates to the Company’s obligation upon the termination or non-renewal of a lease to dismantle and remove its billboard structures from the leased land and to reclaim the site to its original condition. The Company records 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, the Company calculates 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 the Company’s billboard structures on leased land (which currently consist of approximately 80,000 structures). The Company uses a 15-year retirement period based on historical operating experience in its 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 any renewal period. Historical third-party cost information is used with respect to the 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 credit rates historically available to the Company.

     Stock-based Compensation. Effective January 1, 2006, we adopted SFAS No. 123(R) “Share-Based Payments” (“SFAS No. 123(R)”), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including stock options, employee stock purchases under the Employee Stock Purchase Plan, restricted stock and performance shares, under the modified prospective transition method. Share-based compensation expense is based on the value of the portion of share-based payment awards that is ultimately expected to vest. SFAS No. 123(R) requires the use of a valuation model to calculate the fair value of share-based awards. The Company has elected to use the Black-Scholes option-pricing model. The Black-Scholes option-pricing model incorporates various assumptions, including volatility, expected life and interest rates. The expected life is based on the observed and expected time to post-vesting exercise and forfeitures of stock options by our employees. Upon the adoption of SFAS No. 123(R), we used a combination of historical and implied volatility, or blended volatility, in deriving the expected volatility assumption as allowed under SFAS No. 123(R) and Staff Accounting Bulletin No. 107. The risk-free interest rate assumption is based upon observed interest rates appropriate for the term of our stock options. The dividend yield assumption is based on our history and expectation of dividend payouts. SFAS No. 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on our historical experience. If factors change and we employ different assumptions in the application of SFAS No. 123(R) in future periods, the compensation expense that we record under SFAS No. 123(R) may differ significantly from what we have recorded in the current period. During 2008, we recorded $8.0 million as compensation expense related to stock options and employee stock purchases. We evaluate and adjust our assumptions on an annual basis. See Note 14 “Stock Compensation Plans” of the Notes to Consolidated Financial Statements for further discussion.

     Allowance for Doubtful Accounts. The Company maintains allowances for doubtful accounts based on the payment patterns of its customers. Management analyzes historical results, the economic environment, changes in the credit worthiness of its customers, and other relevant factors in determining the adequacy of the Company’s allowance. Bad debt expense was $14.4 million, $7.2 million and $6.3 million or approximately 1.2%, 0.6% and 0.6% of net revenue for the years ended December 31, 2008, 2007, and 2006, respectively. If the current economic recession is prolonged or increases in severity, the inability of customers to pay may occur and the allowance for doubtful accounts may need to be increased, which will result in additional bad debt expense in future years.

Lamar Media Corp.

     The following is a discussion of the consolidated financial condition and results of operations of Lamar Media for the years ended December 31, 2008, 2007 and 2006. This discussion should be read in conjunction with the consolidated financial statements of Lamar Media and the related notes.

RESULTS OF OPERATIONS

     The following table presents certain items in the Consolidated Statements of Operations as a percentage of net revenues for the years ended December 31, 2008, 2007 and 2006:

		Year Ended December 31,
		2008				2007				2006
Net revenues			100.0	%			100.0	%			100.0	%
Operating expenses:
Direct advertising expenses			36.4				33.8				34.9
General and administrative expenses			17.3				17.4				17.7
Corporate expenses			4.1				4.9				4.4
Depreciation and amortization			27.7				25.4				26.9
Operating income			15.1				18.9				17.0
Interest expense			13.2				13.3				9.9
Net income			0.9				3.9				4.0

Year ended December 31, 2008 compared to Year ended December 31, 2007

     Net revenues decreased $11.1 million or 0.9% to $1.20 billion for the year ended December 31, 2008 from $1.21 billion for the same period in 2007. This decrease was attributable primarily to a decrease in billboard net revenues of $9.7 million or 0.9% over the prior period and a $1.7 million decrease in logo sign revenue over the prior period due to contracts lost in the fourth quarter of 2008.

     The decrease in billboard net revenue of $9.7 million was a result of decreased occupancy due to a reduction in advertising spending based on the deterioration of the economy which accelerated in the fourth quarter of 2008. The $1.7 million decrease in logo revenue was a result of internal growth of approximately $1.7 million was offset by a decrease of $3.4 million of revenue due to the loss of various logo contracts.

     Net revenues for the year ended December 31, 2008, as compared to acquisition-adjusted net revenue for the year ended December 31, 2007, decreased $39.6 million or 3.2% primarily as a result of the reduction in occupancy as discussed above. See “Reconciliations” below.

     Operating expenses, exclusive of depreciation and amortization and gain on sale of assets, increased $15.1 million or 2.2% to $693.3 million for the year ended December 31, 2008 from $678.2 million for the same period in 2007. There was an $18.5 million decrease in non-cash compensation expense related to performance based compensation, offset by a $30.9 million increase in operating expenses related to the operations of acquired outdoor advertising assets and increases in costs in operating the Company’s core assets and a $2.7 million increase in corporate expenses.

     Depreciation and amortization expense increased $24.8 million for the year ended December 31, 2008 as compared to the year ended December 31, 2007. The increase is a result of capital expenditures in 2008 including $103.7 million related to digital billboards which are depreciated using a shorter expected life than traditional billboards.

     Due to the above factors, operating income decreased $47.5 million to $180.9 million for year ended December 31, 2008 compared to $228.4 million for the same period in 2007.

     Lamar Media recognized a $1.8 million return on investment compared to a $15.4 million gain as a result of the sale of a private company recognized in the first quarter 2007, which represents a decrease of 88.3% over the prior period.

     Interest expense decreased $3.3 million from $161.2 million for the year ended December 31, 2007 to $157.9 million for the year ended December 31, 2008 due to a decrease in interest rates on variable-rate debt offset by an increased debt balance.

     The decrease in operating income and the decrease in gain on disposition of investment offset by the decrease in interest expense resulted in a $59.2 million decrease in income before income taxes. This decrease in income resulted in a decrease in the income tax expense of $23.3 million for the year ended December 31, 2008 over the same period in 2007. The effective tax rate for the year ended December 31, 2008 was 57.5%, which is greater than the statutory rates due to permanent differences resulting from non-deductible expenses.

     As a result of the above factors, Lamar Media recognized net income for the year ended December 31, 2008 of $11.0 million, as compared to net income of $47.0 million for the same period in 2007.

Reconciliations:

     Because acquisitions occurring after December 31, 2006 (the “acquired assets”) have contributed to our net revenue results for the periods presented, we provide 2007 acquisition-adjusted net revenue, which adjusts our 2007 net revenue by adding to it the net revenue generated by the acquired assets prior to our acquisition of them for the same time frame that those assets were owned in 2008. We provide this information as a supplement to net revenues to enable investors to compare periods in 2008 and 2007 on a more consistent basis without the effects of acquisitions. Management uses this comparison to assess how well our core assets are performing.

     Acquisition-adjusted net revenue is not determined in accordance with generally accepted accounting principles (GAAP). For this adjustment, we measure the amount of pre-acquisition revenue generated by the acquired assets during the period in 2007 that corresponds with the actual period we have owned the acquired assets in 2008 (to the extent within the period to which this report relates). We refer to this adjustment as “acquisition net revenue.”

     Reconciliations of 2007 reported net revenue to 2007 acquisition-adjusted net revenue as well as a comparison of 2007 acquisition-adjusted net revenue to 2008 net revenue are provided below:

Comparison of 2008 Net Revenue to 2007 Acquisition-Adjusted Net Revenue

		Year Ended December 31,
		2008				2007
		(In thousands)
Reported net revenue		$	1,198,419			$	1,209,555
Acquisition net revenue			—				28,473
Adjusted totals		$	1,198,419			$	1,238,028

Year ended December 31, 2007 compared to Year ended December 31, 2006

     Net revenues increased $89.5 million or 8.0% to $1.21 billion for the year ended December 31, 2007 from $1.12 billion for the same period in 2006. This increase was attributable primarily to an increase in billboard net revenues of $88.1 million or 8.7% over the prior period, with no change in logo sign revenue or transit revenue over the prior period due to contracts lost during the year.

     The increase in billboard net revenue of $88.1 million was generated by acquisition activity of approximately $13.4 million and internal growth of approximately $74.7 million, while the internal growth across various markets within the logo sign programs of approximately $3.8 million, was offset by a decrease of $4.0 million of revenue due to the loss of the Company’s Texas logo contract. The transit revenue internal growth of approximately $3.2 million was offset by a decrease of $3.6 million of revenue due to the loss of various transit contracts.

     Net revenues for the year ended December 31, 2007, as compared to acquisition-adjusted net revenue for the year ended December 31, 2006, increased $82.5 million or 7.3% as a result of net revenue internal growth. See “Reconciliations” below.

     Operating expenses, exclusive of depreciation and amortization and gain on sale of assets, increased $39.7 million or 6.2% to $678.2 million for the year ended December 31, 2007 from $638.5 million for the same period in 2006. There was a $30.4 million increase as a result of additional operating expenses related to the operations of acquired outdoor advertising assets and increases in costs in operating Lamar Media’s core assets and a $9.3 million increase in corporate expenses.

     Depreciation and amortization expense increased $5.2 million for the year ended December 31, 2007 as compared to the year ended December 31, 2006. The increase is a result of increased capital expenditures in 2007, including $92.1 million related to digital billboards.

     Due to the above factors, operating income increased $37.6 million to $228.4 million for year ended December 31, 2007 compared to $190.8 million for the same period in 2006.

     During the first quarter of 2007, the Company recognized a $15.4 million gain as a result of the sale of a private company in which the Company had an ownership interest.

     Interest expense increased $50.1 million from $111.1 million for the year ended December 31, 2006 to $161.2 million for the year ended December 31, 2007 due to increased debt balances as well as increase in interest rates on variable-rate debt.

     The increase in operating income and the gain on disposition of investment offset by the increase in interest expense described above resulted in a $4.2 million increase in income before income taxes. This increase in income resulted in an increase in the income tax expense of $2.4 million for the year ended December 31, 2007 over the same period in 2006. The effective tax rate for the year ended December 31, 2007 was 44.8%, which is greater than the statutory rates due to permanent differences resulting from non-deductible expenses.

     As a result of the above factors, Lamar Media recognized net income for the year ended December 31, 2007 of $47.0 million, as compared to net income of $45.2 million for the same period in 2006.

Reconciliations:

     Because acquisitions occurring after December 31, 2005 (the “acquired assets”) have contributed to our net revenue results for the periods presented, we provide 2006 acquisition-adjusted net revenue, which adjusts our 2006 net revenue by adding to it the net revenue generated by the acquired assets prior to our acquisition of them for the same time frame that those assets were owned in 2007. We provide this information as a supplement to net revenues to enable investors to compare periods in 2007 and 2006 on a more consistent basis without the effects of acquisitions. Management uses this comparison to assess how well our core assets are performing.

     Acquisition-adjusted net revenue is not determined in accordance with generally accepted accounting principles (GAAP). For this adjustment, we measure the amount of pre-acquisition revenue generated by the acquired assets during the period in 2006 that corresponds with the actual period we have owned the acquired assets in 2007 (to the extent within the period to which this report relates). We refer to this adjustment as “acquisition net revenue.”

     Reconciliations of 2006 reported net revenue to 2006 acquisition-adjusted net revenue as well as a comparison of 2006 acquisition-adjusted net revenue to 2007 net revenue are provided below:

Comparison of 2007 Net Revenue to 2006 Acquisition-Adjusted Net Revenue

		Year Ended December 31,
		2007				2006
		(In thousands)
Reported net revenue		$	1,209,555			$	1,120,091
Acquisition net revenue			—				6,915
Adjusted totals		$	1,209,555			$	1,127,006

ITEM 8. FINANCIAL STATEMENTS (following on next page)

Exhibit 99(c)

LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES

Management’s Report on Internal Control over Financial Reporting			17
Report of Independent Registered Public Accounting Firm — Internal Control over Financial Reporting			18
Report of Independent Registered Public Accounting Firm — Consolidated Financial Statements			19
Consolidated Balance Sheets as of December 31, 2008 and 2007			20
Consolidated Statements of Operations for the years ended December 31, 2008, 2007 and 2006			21
Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Deficit) for the years ended December 31, 2008, 2007 and 2006			22
Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006			23
Notes to Consolidated Financial Statements			24-45
Schedule 2 — Valuation and Qualifying Accounts for the years ended December 31, 2008, 2007 and 2006			46

Management’s Report on Internal Control Over Financial Reporting

     The management of Lamar Advertising Company is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act.

     Lamar Advertising’s management assessed the effectiveness of Lamar Advertising’s internal control over financial reporting as of December 31, 2008. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on this assessment, Lamar Advertising’s management has concluded that, as of December 31, 2008, Lamar Advertising’s internal control over financial reporting is effective based on those criteria.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Lamar Advertising Company:

     We have audited Lamar Advertising Company’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Lamar Advertising Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

     We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

     A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

     Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

     In our opinion, Lamar Advertising Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

     We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Lamar Advertising Company and subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of operations, stockholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2008, and the financial statement schedule, and our report dated February 27, 2009 expressed an unqualified opinion on those consolidated financial statements and schedule.

Baton Rouge, Louisiana
February 27, 2009

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Lamar Advertising Company:

     We have audited the accompanying consolidated balance sheets of Lamar Advertising Company and subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of operations, stockholders’ equity and comprehensive income (deficit), and cash flows for each of the years in the three-year period ended December 31, 2008. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

     We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Lamar Advertising Company and subsidiaries as of December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

     We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Lamar Advertising Company’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 27, 2009, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

     As discussed in Note 8 to the consolidated financial statements, the accompanying consolidated financial statements have been retrospectively adjusted for the adoption of FASB Staff Position APB 14-1, “Accounting for Convertible Debt Instruments that may be settled in Cash upon Conversion (Including Partial Cash Settlement)”.

Baton Rouge, Louisiana
February 27, 2009, except for Notes 1, 2, 8, 11,
     19, 21 and 22 which are as of July 27, 2009

LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES

Consolidated Balance Sheets
December 31, 2008 and 2007
(In thousands, except share and per share data)

		2008				2007
ASSETS
Current assets:
Cash and cash equivalents		$	14,139			$	76,048
Receivables, net of allowance for doubtful accounts of $10,000 and $6,740 in 2008 and 2007			155,043				147,301
Prepaid expenses			44,377				40,657
Deferred income tax assets (note 11)			8,949				19,857
Other current assets			38,475				29,004
Total current assets			260,983				312,867
Property, plant and equipment (note 4)			2,900,970				2,686,116
Less accumulated depreciation and amortization			(1,305,937	)			(1,169,152	)
Net property, plant and equipment			1,595,033				1,516,964
Goodwill (note 5)			1,416,396				1,376,240
Intangible assets, net (note 5)			773,764				802,953
Deferred financing costs net of accumulated amortization of $36,670 and $31,731 at 2008 and 2007, respectively			24,372				29,164
Other assets			46,477				43,575
Total assets		$	4,117,025			$	4,081,763
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable		$	15,108			$	19,569
Current maturities of long-term debt (note 8)			58,751				31,742
Accrued expenses (note 7)			72,407				75,670
Deferred income			30,612				30,657
Total current liabilities			176,878				157,638
Long-term debt (note 8)			2,755,698				2,660,925
Deferred income tax liabilities (note 11)			134,647				148,863
Asset retirement obligation (note 9)			160,723				150,046
Other liabilities			15,354				12,926
Total liabilities			3,243,300				3,130,398
Stockholders’ equity (note 13):
Series AA preferred stock, par value $.001, $63.80 cumulative dividends, authorized 5,720 shares; 5,720 shares issued and outstanding at 2008 and 2007			—				—
Class A preferred stock, par value $638, $63.80 cumulative dividends, 10,000 shares authorized, 0 shares issued and outstanding at 2008 and 2007			—				—
Class A common stock, par value $.001, 175,000,000 shares authorized, 93,339,895 and 92,525,349 shares issued and 76,401,592 and 78,216,053 outstanding at 2008 and 2007, respectively			93				93
Class B common stock, par value $.001, 37,500,000 shares authorized, 15,172,865 shares and 15,372,865 shares are issued and outstanding at 2008 and 2007, respectively			15				15
Additional paid-in-capital			2,347,854				2,323,253
Accumulated comprehensive (deficit) income			(2,039	)			9,286
Accumulated deficit			(588,834	)			(591,308	)
Cost of shares held in treasury, 16,938,303 shares and 14,309,296 shares in 2008 and 2007, respectively			(883,364	)			(789,974	)
Stockholders’ equity			873,725				951,365
Total liabilities and stockholders’ equity		$	4,117,025			$	4,081,763

See accompanying notes to consolidated financial statements.

LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES

Consolidated Statements of Operations
Years Ended December 31, 2008, 2007 and 2006
(In thousands, except share and per share data)

		2008				2007				2006
Net revenues		$	1,198,419			$	1,209,555			$	1,120,091
Operating expenses (income):
Direct advertising expenses (exclusive of depreciation and amortization)			436,556				408,397				390,561
General and administrative expenses (exclusive of depreciation and amortization)			207,321				210,793				198,187
Corporate expenses (exclusive of depreciation and amortization)			50,300				59,597				50,750
Depreciation and amortization (Note 10)			331,654				306,879				301,685
Gain on disposition of assets			(7,363	)			(3,914	)			(10,862	)
			1,018,468				981,752				930,321
Operating income			179,951				227,803				189,770
Other expense (income):
Gain on disposition of investment			(1,814	)			(15,448	)			—
Interest income			(1,202	)			(2,598	)			(1,311	)
Interest expense			170,352				168,601				112,955
			167,336				150,555				111,644
Income before income tax expense			12,615				77,248				78,126
Income tax expense (note 11)			9,776				34,816				34,227
Net income			2,839				42,432				43,899
Preferred stock dividends			365				365				365
Net income applicable to common stock		$	2,474			$	42,067			$	43,534
Earnings per share:
Basic earnings per share		$	0.03			$	0.43			$	0.42
Diluted earnings per share		$	0.03			$	0.43			$	0.42
Cash dividends declared per share of common stock		$	—			$	3.25			$	—
Weighted average common shares outstanding			92,125,660				96,779,009				102,720,744
Incremental common shares from dilutive stock options			181,180				774,898				774,778
Incremental common shares from convertible debt			—				—				—
Weighted average common shares assuming dilution			92,306,840				97,553,907				103,495,522

See accompanying notes to consolidated financial statements.

LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Deficit)
Years Ended December 31, 2008, 2007 and 2006
(In thousands, except share per share data)

																										Accumulated
		Series AA				Class A				Class A				Class B								Add’l				Comprehensive
		PREF				PREF				CMN				CMN				Treasury				Paid in				Income				Accumulated
		Stock				Stock				Stock				Stock				Stock				Capital				(Deficit)				Deficit				Total
Balance, December 31, 2005		$	—				—				90				16				(25,522	)			2,196,691				—				(353,793	)			1,817,482
Cumulative effect due to adoption of SAB 108			—				—				—				—				—				—				—				(4,813	)			(4,813	)
Non-cash compensation			—				—								—				—				17,906				—				—				17,906
Exercise of 1,033,596 shares of stock options			—				—				1				—				—				32,806				—				—				32,807
Issuance of 78,889 shares of common stock through employee purchase plan			—				—				—				—				—				3,313				—				—				3,313
Conversion of 274,662 shares of Class B common stock to Class A common stock			—				—				1				(1	)			—				—				—				—				—
Purchase of 6,915,980 shares of treasury stock			—				—				—				—				(373,949	)			—				—				—				(373,949	)
Comprehensive income:
Foreign currency translation			—				—				—				—				—				—				2,253				—				2,253
Net income			—				—				—				—				—				—								43,899				43,899
Comprehensive income			—				—				—				—				—				—				—				—				46,152
Dividends ($63.80 per preferred share)			—				—				—				—				—				—				—				(365	)			(365	)
Balance, December 31, 2006		$	—				—				92				15				(399,471	)			2,250,716				2,253				(315,072	)			1,538,533
Non-cash compensation			—				—								—				—				27,488				—				—				27,488
Exercise of 311,045 shares of stock options			—				—				1				—				—				10,605				—				—				10,606
Issuance of shares of common stock through employee purchase plan			—				—				—				—				—				3,603				—				—				3,603
Dividends to Common Shareholders			—				—				—				—				—				—				—				(318,303	)			(318,303	)
Tax Deduction related to options exercised			—				—				—				—				—				6,698				—				—				6,698
Purchase of 6,848,546 shares of treasury stock			—				—				—				—				(390,503	)			—				—				—				(390,503	)
Bifurcation of 2 7/8% convertible notes			—				—				—				—				—				24,143				—				—				24,143
Comprehensive income:
Foreign currency translation			—				—				—				—				—				—				7,212				—				7,212
Change in unrealized loss on hedging transaction			—				—				—				—				—				—				(179	)			—				(179	)
Net income			—				—				—				—				—				—								42,432				42,432
Comprehensive income			—				—				—				—				—				—				—				—				49,465
Dividends ($63.80 per preferred share)			—				—				—				—				—				—				—				(365	)			(365	)
Balance, December 31, 2007		$	—				—				93				15				(789,974	)			2,323,253				9,286				(591,308	)			951,365
Non-cash compensation			—				—				—				—				—				9,005				—				—				9,005
Exercise of 246,489 shares of stock options			—				—				—				—				—				7,802				—				—				7,802
Issuance of shares of common stock through employee purchase plan			—				—				—				—				—				3,379				—				—				3,379
Conversion of 200,000 shares of Class B common stock to Class A common stock			—				—				—				—				—				—				—				—				—
Tax Deduction related to options exercised			—				—				—				—				—				4,415				—				—				4,415
Purchase of 2,629,007 shares of treasury stock			—				—				—				—				(93,390	)			—				—				—				(93,390	)
Comprehensive income (deficit):
Foreign currency translation			—				—				—				—				—				—				(7,690	)			—				(7,690	)
Change in unrealized loss on hedging transaction, net of tax $2,398			—				—				—				—				—				—				(3,635	)			—				(3,635	)
Net income			—				—				—				—				—				—								2,839				2,839
Comprehensive deficit			—				—				—				—				—				—				—				—				(8,486	)
Dividends ($63.80 per preferred share)			—				—				—				—				—				—				—				(365	)			(365	)
Balance, December 31, 2008		$	—				—				93				15				(883,364	)			2,347,854				(2,039	)			(588,834	)			873,725

See accompanying notes to consolidated financial statements.

LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES

Consolidated Statements of Cash Flows
Years Ended December 31, 2008, 2007 and 2006
(In thousands)

		2008				2007				2006
Cash flows from operating activities:
Net income		$	2,839			$	42,432			$	43,899
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			331,654				306,879				301,685
Non-cash compensation			9,005				27,488				17,906
Amortization included in interest expense			16,137				10,741				4,793
Gain on disposition of assets and investments			(9,177	)			(19,362	)			(10,862	)
Deferred income tax expenses			20,365				3,762				6,364
Provision for doubtful accounts			14,365				7,166				6,287
Changes in operating assets and liabilities:
(Increase) decrease in:
Receivables			(11,013	)			(10,859	)			(17,583	)
Prepaid expenses			599				(4,159	)			(4,780	)
Other assets			2,012				(14,133	)			2,145
Increase (decrease) in:
Trade accounts payable			(4,452	)			5,367				837
Accrued expenses			(22,380	)			(243	)			11,004
Other liabilities			(3,434	)			(610	)			2,822
Cash flows provided by operating activities			346,520				354,469				364,517
Cash flows from investing activities:
Capital expenditures			(198,070	)			(220,534	)			(223,350	)
Acquisitions			(249,951	)			(153,593	)			(227,649	)
Decrease (increase) in notes receivable			267				9,420				(1,331	)
Proceeds from disposition of assets			10,335				23,626				13,434
Cash flows used in investing activities			(437,419	)			(341,081	)			(438,896	)
Cash flows from financing activities:
Net proceeds from issuance of common stock			11,182				14,208				35,236
Tax deduction from options exercised			2,156				6,698				—
Cash used for purchase of treasury shares			(93,390	)			(390,503	)			(373,949	)
Principle payments on long-term debt			(29,412	)			(107,585	)			(2,303	)
Debt issuance costs			(169	)			(7,760	)			(4,328	)
Net proceeds from note offerings and new notes payable			140,000				842,887				412,682
Dividends			(365	)			(318,668	)			(365	)
Cash flows provided by financing activities			30,002				39,277				66,973
Effect of exchange rate changes in cash and cash equivalents			(1,012	)			11,587				(217	)
Net increase (decrease) in cash and cash equivalents			(61,909	)			64,252				(7,623	)
Cash and cash equivalents at beginning of period			76,048				11,796				19,419
Cash and cash equivalents at end of period		$	14,139			$	76,048			$	11,796
Supplemental disclosures of cash flow information:
Cash paid for interest		$	149,417			$	157,549			$	97,711
Cash paid for state and federal income taxes		$	3,933			$	34,249			$	28,471

See accompanying notes to consolidated financial statements.

LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES

Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)

(1) Significant Accounting Policies

(a) Nature of Business

     Lamar Advertising Company (the Company) is engaged in the outdoor advertising business operating approximately 159,000 billboard advertising displays in 44 states, Canada and Puerto Rico. The Company’s operating strategy is to be the leading provider of outdoor advertising services in the markets it serves.

     In addition, the Company operates a logo sign business in 19 states throughout the United States and the province of Ontario, Canada and a transit advertising business in 66 markets. Logo signs are erected pursuant to state-awarded service contracts on public rights-of-way near highway exits and deliver brand name information on available gas, food, lodging and camping services. Included in the Company’s logo sign business are tourism signing contracts. The Company provides transit advertising on bus shelters, benches and buses in the markets it serves.

     The severe economic downturn that accelerated in the fourth quarter of 2008 has affected the Company as well as the advertising industry. The Company had fewer customers in the fourth quarter of 2008 which resulted in lower occupancy and a reduction in sales. While the Company anticipates this will continue into 2009, we have taken steps to reduce operating and capitalized expenditures in order to offset this potential reduction in revenue.

(b) Principles of Consolidation

     The accompanying consolidated financial statements include Lamar Advertising Company, its wholly owned subsidiary, Lamar Media Corp. (Lamar Media), and its majority-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

     Based upon definitions contained within SFAS No. 131 “Disclosures about Segments of an Enterprise and Related Information,” an operating segment is a component of an enterprise:

	§		that engages in business activities from which it may earn revenues and incur expenses;
	§		whose operating results are regularly reviewed by the enterprise’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance; and
	§		for which discrete financial information is available.

     We define the term ‘chief operating decision maker’ to be our executive management group, which consist of our Chief Executive Officer, Chief Operating Officer and Chief Financial Officer. Currently, all operations are reviewed on a consolidated basis for budget and business plan performance by our executive management group. Additionally, operational performance at the end of each reporting period is viewed in the aggregate by our management group. Any decisions related to changes in invested capital, personnel, operational improvement or training, or to allocate other company resources are made based on the combined results.

     We operate in a single operating and reporting segment, advertising. We sell advertising on billboards, buses, shelters and benches and logo plates.

(c) Property, Plant and Equipment

     Property, plant and equipment are stated at cost. Depreciation is calculated using accelerated and straight-line methods over the estimated useful lives of the assets.

(d) Goodwill and Intangible Assets

     Under Statement of Financial Accounting Standards (SFAS) No. 142, (SFAS No. 142) Goodwill and Other Intangibles goodwill is subject to an annual impairment test. The Company designated December 31 as the date of its annual goodwill impairment test. Impairment testing involves various estimates and assumptions, which could vary, and an analysis of relevant market data and market capitalization. The Company’s stock price has declined over the past year and macroeconomic conditions have also declined. If industry and economic conditions continue to deteriorate, the Company may be required to assess goodwill impairment before the next annual test, which could result in impairment charges.

LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)

     In accordance with the standard, the Company is required to identify its reporting units and determine the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units. The Company is required to determine the fair value of each reporting unit and compare it to the carrying amount of the reporting unit. To the extent the carrying amount of a reporting unit exceeds the fair value of the reporting unit, the Company would be required to perform the second step of the impairment test, as this is an indication that the reporting unit goodwill may be impaired. The fair value of each reporting unit exceeded its carrying amount at its annual impairment test dates on December 31, 2008 and December 31, 2007 therefore the Company was not required to recognize an impairment loss.

     Intangible assets, consisting primarily of site locations, customer lists and contracts, and non-competition agreements are amortized using the straight-line method over the assets estimated useful lives, generally from 3 to 15 years.

(e) Impairment of Long-Lived Assets

     Long-lived assets, such as property, plant and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset before interest expense. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet.

(f) Deferred Income

     Deferred income consists principally of advertising revenue invoiced in advance and gains resulting from the sale of certain assets to related parties. Deferred advertising revenue is recognized in income as services are provided over the term of the contract. Deferred gains are recognized in income in the consolidated financial statements at the time the assets are sold to an unrelated party or otherwise disposed of.

(g) Revenue Recognition

     The Company recognizes outdoor advertising revenue, net of agency commissions, if any, on an accrual basis ratably over the term of the contracts, as services are provided. Production revenue and the related expense for the advertising copy are recognized upon completion of the sale.

     The Company engages in barter transactions where the Company trades advertising space for goods and services. The Company recognizes revenues and expenses from barter transactions at fair value which is determined based on the Company’s own historical practice of receiving cash for similar advertising space from buyers unrelated to the party in the barter transaction. The amount of revenue and expense recognized for advertising barter transactions is as follows:

		2008				2007				2006
Net revenues		$	5,531			$	5,369			$	5,461
Direct advertising expenses		$	2,996			$	2,820			$	2,802
General and administrative expenses		$	2,643			$	2,546			$	2,645

(h) Income Taxes

     The Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)

(i) Earnings Per Share

     Earnings per share are computed in accordance with SFAS No. 128, “Earnings Per Share.” The calculation of basic earnings per share excludes any dilutive effect of stock options and convertible debt, while diluted earnings per share includes the dilutive effect of stock options and convertible debt. The number of potentially dilutive shares excluded from the calculation because of their anti-dilutive effect are 5,879,893 for the year ended December 31, 2008, 5,813,730 for the year ended December 31, 2007 and 5,581,755 for the year ended December 31, 2006.

(j) Stock Based Compensation

     Effective January 1, 2006, we adopted the provisions of Statement of Financial Accounting Standards No. 123(R), Share-Based Payment, and related interpretations, or SFAS 123(R), to account for stock-based compensation using the modified prospective transition method. SFAS 123(R) supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, or APB No. 25, and revises guidance in SFAS 123, Accounting for Stock-Based Compensation. Among other things, SFAS 123(R) requires that compensation expense be recognized in the financial statements for share-based awards based on the grant date fair value of those awards. The modified prospective transition method applies to (a) unvested stock options under our 1996 Equity Incentive Plan (1996 Plan) at December 31, 2005 and issuances under our Employee Stock Purchase Plan (ESPP) outstanding based on the grant date fair value estimated in accordance with the pro forma provisions of SFAS 123, and (b) any new share-based awards granted subsequent to December 31, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123(R). Additionally, stock-based compensation expense includes an estimate for pre-vesting forfeitures and is recognized over the requisite service periods of the awards on a straight-line basis, which is generally commensurate with the vesting term. Non-cash compensation expense recognized during the years ended December 31, 2008, 2007, and 2006 were $9,005, $27,488 and $17,906. The $9,005 expensed at year ended December 31, 2008 consists of (i) $8,027 resulting from the Company’s expensing of options under SFAS 123R, (ii) $683 related to stock grants, made under the Company’s performance-based stock incentive program in 2008 (iii) $295 related to stock awards to directors. See Note 14 for information on the assumptions we used to calculate the fair value of stock-based compensation.

(k) Cash and Cash Equivalents

     The Company considers all highly-liquid investments with original maturities of three months or less to be cash equivalents.

(l) Foreign Currency Translation

     Local currencies generally are considered the functional currencies outside the United States. Assets and liabilities for operations in local-currency environments are translated at year-end exchange rates. Income and expense items are translated at average rates of exchange prevailing during the year. Cumulative translation adjustments are recorded as a component of accumulated other comprehensive income (loss) in stockholders’ equity.

(m) Reclassification of Prior Year Amounts

     Certain amounts in the prior years’ consolidated financial statements have been reclassified to conform to the current year presentation. These reclassifications had no effect on previously reported net income (loss).

     Certain balances in the accompanying consolidated financial statements and their notes have been reclassified to give retrospective presentation for the effect of adopting Financial Accounting Standards Board’s (“FASB”) Staff Position No. APB-14-1, “Accounting for Convertible Debt Instruments That May Be settled in Cash upon Conversion (Including Partial Cash Settlement)”.

(n) Asset Retirement Obligations

     Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations” (SFAS 143) SFAS 143 requires companies to record the present value of obligations associated with the retirement of tangible long-lived assets in the period in which it is 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. The Company’s asset retirement obligations relate primarily to the dismantlement, removal, site reclamation and similar activities of its properties.

LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)

(o) Use of Estimates

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

(p) Comprehensive Income

     Total comprehensive income and the components of accumulated other comprehensive income (loss) are presented in the Consolidated Statement of Changes in Stockholders’ Equity and Comprehensive Income. Accumulated other comprehensive income (loss) is composed of foreign currency translation effects and unrealized gains and losses on cash flow hedging instruments.

(q)Fair Value Hedging — Interest Rate Swaps

     The Company utilizes derivatives instruments such as interest rate swaps for purposes of hedging its exposure to changing interest rates. Statement of Financial Accounting Standards (“SFAS”) SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended (“SFAS 133”), requires that all derivative instruments subject to the requirements of the statement be measured at fair value and recognized as assets or liabilities on the balance sheet. Upon entering into a derivative contract, the Company may designate the derivative as either a fair value hedge or a cash flow hedge, or decide that the contract is not a hedge, and thenceforth mark the contract to market through earnings. The Company documents the relationship between the derivative instrument designated as a hedge and the hedged items, as well as its objective for risk management and strategy for use of the hedging instrument to manage the risk. Derivative instruments designated as fair value or cash flow hedges are linked to specific assets and liabilities or to specific firm commitments or forecasted transactions. The Company assesses at inception, and on an ongoing basis, whether a derivative instrument used as a hedge is highly effective in offsetting changes in the fair value or cash flows of the hedged item. A derivative that is not a highly effective hedge does not qualify for hedge accounting. Changes in the fair value of a qualifying fair value hedge are recorded in earnings along with the gain or loss on the hedged item. Changes in the fair value of a qualifying cash flow hedge are recorded in other comprehensive income, until earnings are affected by the cash flows of the hedged item. When the cash flow of the hedged item is recognized in the statement of operations, the fair value of the associated cash flow hedge is reclassified from other comprehensive income into earnings.

     Ineffective portions of a cash flow hedging derivative’s change in fair value are recognized currently in earnings as other income (expense). If a derivative instrument no longer qualifies as a cash flow hedge, hedge accounting is discontinued and the gain or loss that was recorded in other comprehensive incomes is recognized currently in income.

     The Company entered into two interest rate swap agreements, one on December 6, 2007 that matures in December 2009, which converts $100,000 of variable rate debt to 3.89% fixed rate debt and another entered into on December 31, 2007 that matures on December 31, 2009 which converts $100,000 of variable rate debt to a 3.995% fixed rate debt. The derivatives were designated as cash flow hedges. The fair market value at December 31, 2008, and December 31, 2007 were $(6,212) and $(179) respectively and is reflected in other liabilities and other comprehensive (deficit) income on the balance sheet.

(r) Recently Adopted Accounting Pronouncements

     On January 1, 2008, we adopted the provisions of FASB SFAS 157, “Fair Value Measurements” which defines fair value, establishes a framework for measuring fair value under U.S. GAAP, and expands disclosures about fair value measurements. In accordance with FASB Staff Position 157-2, “Effective Date of FASB Statement No. 157” (FSP 157-2), we elected to defer the adoption of the provisions of SFAS 157 for our non-financial assets and non-financial liabilities. Such assets and liabilities, which include our property, plant and equipment (net), goodwill, intangible assets (net), and asset retirement obligation will be subject to the provisions of SFAS 157 on January 1, 2009. We are currently assessing the potential impact that the adoption of SFAS 157 for our non-financial assets may have on our Consolidated Financial Statements. For additional information, see Note 19 — Fair Value Measurements.

LAMAR ADVERTISING COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)

(2) Acquisitions

Year Ended December 31, 2008

     During the twelve months ended December 31, 2008, the Company completed several acquisitions of outdoor advertising assets for a total purchase price of approximately $249,951 in cash.

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

		Total
Current assets		$	16,999
Property, plant and equipment			98,673
Goodwill			40,781
Site locations			67,018
Non-competition agreements			2,792
Customer lists and contracts			12,354
Other assets			26,786
Current liabilities			(7,689	)
Long term liabilities			(7,763	)
		$	249,951