Lamar restatement, filing delay sends convert lower; School Specialty plummets on earnings

By Sara Rosenberg

New York, Nov. 9 - Although the market didn't seem to have that much direction Tuesday, some names stood out, including Lamar Advertising Co. whose convertible lost some ground in trading on news of a restatement and filing delay, School Specialty Inc. whose earnings disappointed as well and XL Capital Ltd. on a potential redemption.

Lamar Advertising's 2 7/8% convertible was off about a point with closing quotes of 108 bid, 108½ offered versus a stock price of $41.17 as the company announced it was restating results and extending the filing deadline for its form 10-Q, according to a market source. The stock was down by $1.14 on the day.

The company is in the process of restating its audited consolidated financial statements for the year ended Dec. 31, 2003 and its unaudited condensed consolidated financial statements for quarters ended March 31 and June 30. This restatement is a result of Lamar's decision to include steel outdoor advertising structures in its asset retirement obligation calculation in addition to non-steel structures, a company news release said.

For fiscal year 2003, the company expects restated depreciation and amortization expense to be approximately $284 to $290 million compared to the previously reported $282.3 million, restated operating income of approximately $57 to $65 million compared to the previously reported $65.1 million and a restated net loss of $81 to $84 million compared to the previously reported $46.9 million.

Lamar also announced that because of the restatement, it will not file its 10-Q until Nov. 15, at which time it will report full operating results for the third quarter.

However, the company did reveal that revenue for the third quarter was $231.6 million versus $211.7 million for the third quarter of 2003.

Also, the company announced guidance for the fourth quarter that included net revenue of approximately $221 to $223 million and EBITDA on a pro forma basis of approximately 9% over the same period in 2003.

Lamar is a Baton Rouge, La., outdoor advertising company.

School Specialty lower

School Specialty's 3¾% convertible fell off more than 10 points by midday and then regained a little bit of ground by the close, ending the day 9.25 points lower at 116.82 bid, 117.82 offered, according to a trader. The stock closed at $37.11, down $5.29 on the day.

A different market source saw the paper trading at 113½ versus a stock price of $37 in the afternoon as the company reported earnings and lowered guidance. The convertible was quoted at 124 versus a stock price of $32.5 at the close Monday.

For the second quarter, diluted earnings per share adjusted for restructuring charges was $1.39, missing analyst estimates of $1.50. Non-adjusted earnings per share for the quarter was $1.30 as compared to $1.31 last year.

Revenues were $361.5 million compared to $335.1 million in the second quarter last year and operating income was $55.4 million compared to $54 million last year.

For fiscal 2005, the company estimates revenues of $980 million to $1 billion and diluted earnings per share of $2.25 to $2.35 before restructuring and bond charges of $0.09 per diluted share. Analyst estimates for fiscal 2005 were $2.41 per share.

School Specialty is a Greenville, Wis. provider of products and services for schools.

XL active

XL Capital's 0% convertible was very active during market hours as investors - based on information from the three rating agencies - are now expecting the issue to be fully redeemed with proceeds from a two-tranche $650 million notes offering.

In a late afternoon filing with the Securities and Exchange Commission, XL confirmed that the rating agency reports that it does intend to redeem the convertibles with the note proceeds.

The 0% closed at 64.92 bid, 64.97 offered, according to one trader. A second trader had the closing price at 64.94 bid, 65.06 offered, up 0.15 on the day.

The stock closed at $73.83, up $0.71.

XL Capital is a Hamilton, Bermuda-based provider of insurance and reinsurance coverages and financial products.

Spacehab tries to build momentum on numbers

Spacehab Inc.'s 8% convertible saw some interest on Tuesday as the company reported strong first quarter earnings that included net income of $7 million, or $0.55 per share, on revenue of $13 million compared with last year's quarter net income of $0.67 million, or $0.05 per share, on revenue of $18.9 million.

"We're trying to trade it," a market source told Prospect News.

"It's a small issue. It's so illiquid that it's hard to say what the market was yesterday or even if there was a market yesterday. It's quoted all over the place. I'd say it's 72 bid, 80 offered," the source said around noon.

"There are some legal implications involved. They lost a big module when the space shuttle crashed two years ago. They went to NASA and said they were owed $87 million for the loss and NASA gave them $8 million. So they're arguing about the rest of the money. But it seems to be moving in the right direction," the source added.

The stock closed at $2.52, up $1.13 on the day.

Spacehab is a Webster, Tex., developer, owner and operator of pressurized space habitat modules.

GenCorp to price next Wednesday

On the primary front, news surfaced that GenCorp Inc. will price its $50 million convertible subordinated debentures due 2024 after the close Nov. 17 via sole lead bookrunner Wachovia, according to a market source. JPMorgan will be acting as an agent on the deal.

There is no price talk available on the Rule 144A deal as of yet, the source added.

The convertibles will have hard call protection for seven years and then three years of provisional call protection at 140%. There are puts in years seven, 10 and 15.

A $25 million greenshoe is available.

Proceeds will be used to repurchase part of the company's 5¾% convertible subordinated notes. Any remaining proceeds will be used to repay or repurchase other outstanding indebtedness.

GenCorp is a Rancho Cordova, Calif., technology-based manufacturer with positions in the aerospace and defense, and real estate industries.

NCI after close

NCI Building Systems Inc. is scheduled to price its $150 million senior subordinated notes due Nov. 15, 2024 after the close Tuesday. The deal is talked to yield 1.375% to 1.875% with an initial conversion premium of 35% to 40%, according to a market source.

Wachovia Securities and UBS Investment Bank are bookrunners on the Rule 144A deal that is scheduled to price after the close Tuesday.

A $30 million greenshoe is available.

There is five years of hard call protection payable in cash and puts payable in cash in years five, 10 and 15.

Proceeds will be used to finance future and pending acquisitions, including approximately $17 million to pay the cash portion of the purchase price for Heritage Building Systems, Inc. and Steelbuilding.com. If NCI does not apply the proceeds towards the purchase price of an acquisition or acquisitions within 12 months, the remaining proceeds will be used towards the repayment of the outstanding balance on the company's senior term loan.

NCI is a Houston manufacturer of metal products for the building industry.

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