Three months ended           Nine months ended
                                         September 30,               September 30,
                                        (in thousands)              (in thousands)
                                       2008          2007         2008          2007
      Total capital expenditures:
      Billboard - traditional       $    9,669     $ 17,581     $  49,459     $  54,674
      Billboard - digital               34,928       35,382        84,964        76,171
      Logos                              1,365        2,772         4,481         7,571
      Transit                              261          517           609         1,103
      Land and buildings                 1,790        3,614         7,946        22,424
      Operating equipment                3,620        3,574        11,787        11,502

      Total capital expenditures    $   51,633     $ 63,440     $ 159,246     $ 173,445

RESULTS OF OPERATIONS
Nine Months ended September 30, 2008 compared to Nine Months ended September 30, 2007
Net revenues increased $14.4 million or 1.6% to $919.1 million for the nine months ended September 30, 2008 from $904.7 million for the same period in 2007. This increase was attributable primarily to an increase in billboard net revenues of $13.7 million or 1.7% over the prior period, a decrease in logo sign revenue of $1.1 million, which represents a decrease of 13.1% over the prior period, and a $1.9 million increase in transit revenue over the prior period, which represents an increase of 4.2% over the prior period. The increase in billboard net revenue of $13.7 million was generated by acquisition activity of approximately $18.4 million offset by a decrease in internal growth of approximately $4.7 million, while the increase in transit revenue of approximately $1.9 million was due

to acquisition activity of approximately $1.1 million, internal growth of approximately $5.0 million offset by the loss of approximately $4.2 million of revenue due to the loss of various transit contracts. The decrease in logo sign revenue of $1.1 million was a result of internal growth across various markets within the logo sign programs of $1.4 million, which was offset by the loss of $2.5 million of revenue due to the loss of the Company's Ohio Logo contract during the quarter ended June 30, 2008. In July 2008, the Ohio Logo contract was awarded once again to the Company.
Net revenues for the nine months ended September 30, 2008, as compared to acquisition-adjusted net revenue for the nine months ended September 30, 2007, decreased $2.8 million or 0.3% 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 $19.5 million or 3.8% to $529.3 million for the nine months ended September 30, 2008 from $509.8 million for the same period in 2007. There was a $22.2 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 offset by a $2.7 million decrease in corporate expenses. The decrease in corporate expenses is primarily a result of a decrease in non-cash compensation expense related to stock and option awards in the amount of $7.2 million, offset by general increases in corporate overhead as well as the settlement of certain employment related claims.
Depreciation and amortization expense increased $16.7 million for the nine months ended September 30, 2008 as compared to the nine months ended September 30, 2007, due to the increase in capital expenditures related to digital displays that have shorter depreciable lives.
Due to the above factors, operating income decreased $20.3 million to $156.2 million for the nine months ended September 30, 2008 compared to $176.5 million for the same period in 2007.
The Company recognized a $1.8 million return on an 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 increased $1.9 million from $117.7 million for the nine months ended September 30, 2007 to $119.6 million for the nine months ended September 30, 2008, due to an increase in total indebtedness.
The decrease in operating income, increase in interest expense, and decrease in the gain on disposition of investments resulted in a $35.9 million decrease in income before income taxes. This decrease in income resulted in a decrease in income tax expense of $10.7 million for the nine months ended September 30, 2008 over the same period in 2007. The effective tax rate for the nine months ended September 30, 2008 was 58.0%, which is greater than the statutory rates due to permanent differences resulting from non-deductible compensation expense related to stock options in accordance with SFAS 123(R) and other non-deductible expenses. In addition, our effective tax rate is higher due to limitations on our ability to utilize foreign tax credits on our foreign service income. As a result of the above factors, the Company recognized net income for the nine months ended September 30, 2008 of $16.6 million, as compared to net income of $41.7 million for the same period in 2007.
In February 2007, the Company's board of directors declared a special cash dividend of $3.25 per share of Common Stock. The aggregate dividend of $318.3 million was paid on March 30, 2007 to stockholders of record on March 22, 2007. Lamar had approximately 82.5 million shares of Class A Common Stock and 15.4 million 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 on the record date.
Three Months ended September 30, 2008 compared to Three Months ended September 30, 2007
Net revenues decreased $1.8 million or 0.6% to $312.5 million for the three months ended September 30, 2008 from $314.3 million for the same period in 2007. This decrease was attributable primarily to a decrease in billboard net revenues of $1.2 million or 0.4% over the prior period, a decrease of $0.4 million in logo sign revenue or a 3.5% decrease over the prior period and a $0.1 million decrease in transit revenue over the prior period, which represents a 0.5% decrease.
The decrease in billboard net revenue of $1.2 million was a result of a decrease in internal growth of approximately $14.4 million offset by acquisition activity of approximately $13.2 million, while the decrease in transit revenue of approximately $0.1 million was due to acquisition activity of approximately $0.1 million, internal growth of approximately $1.4 million offset by the loss of approximately $1.6 million in revenue due to the loss of various transit contracts. The decrease in logo sign revenue of $0.4 million was generated by internal growth across various markets within the logo sign programs of $0.5 million, offset by the loss of the Ohio Logo program of $0.9 million, which was subsequently re-awarded in 2008.

Net revenues for the three months ended September 30, 2008, as compared to acquisition-adjusted net revenue for the three months ended September 30, 2007, decreased $12.6 million or 3.9% 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 $9.3 million or 5.5% to $179.4 million for the three months ended September 30, 2008 from $170.1 million for the same period in 2007. There was a $11.4 million increase as a result of additional operating expenses related to the operations of acquired outdoor advertising assets and increases in costs in operating the Company's core assets and a $2.1 million decrease in corporate expenses. The decrease in corporate overhead is a result of a decrease in non-cash compensation expense resulting from stock and option awards in the amount of $3.2 million.
Depreciation and amortization expense increased $6.1 million for the three months ended September 30, 2008 as compared to the three months ended September 30, 2007 due to increased capital expenditures, particularly digital displays.
Due to the above factors, operating income decreased $16.9 million to $53.5 million for three months ended September 30, 2008 compared to $70.4 million for the same period in 2007.
Interest expense decreased $2.9 million from $42.5 million for the three months ended September 30, 2007 to $39.6 million for the three months ended September 30, 2008, due to a decrease in interest rates which was partially offset by an increase in total indebtedness.
The decrease in operating income was offset by the decrease in interest expense described above resulting in a $13.7 million decrease in income before income taxes. The effective tax rate for the three months ended September 30, 2008 was 74.1% resulting in income tax expense of $10.7 million as compared to $13.7 million for the same period in 2007. The effective tax rate is greater than the statutory rates due to permanent differences resulting from non-deductible compensation expense related to stock options in accordance with SFAS 123(R) and other non-deductible expenses.
As a result of the above factors, the Company's net income for the three months ended September 30, 2008 is $3.8 million which is a $10.8 million decrease over 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 for the three and nine months ended September 30, 2007 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 the three and nine months ended September 30, 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 we are performing within our existing assets. Acquisition-adjusted net revenue is not determined in accordance with GAAP. For this adjustment, we measure the amount of pre-acquisition revenue generated by the assets during the period in 2007 that corresponds with the actual period we have owned the 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 for each of the three and nine month periods ended September 30, as well as a comparison of 2007 acquisition-adjusted net revenue to 2008 reported net revenue for each of the three and nine month periods ended September 30, are provided below:
Reconciliation of Reported Net Revenue to Acquisition-Adjusted Net Revenue

                                       Three months ended       Nine months ended
                                       September 30, 2007      September 30, 2007
                                         (in thousands)          (in thousands)
   Reported net revenue               $            314,253     $           904,663
   Acquisition net revenue                          10,872                  17,225

   Acquisition-adjusted net revenue   $            325,125     $           921,888

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

                                    Three months ended           Nine months ended
                                       September 30,               September 30,
                                    2008          2007          2008          2007
                                      (in thousands)              (in thousands)
        Reported net revenue      $ 312,516     $ 314,253     $ 919,111     $ 904,663
        Acquisition net revenue           -        10,872             -        17,225

        Adjusted totals           $ 312,516     $ 325,125     $ 919,111     $ 921,888

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. To date, these market conditions have not had any material adverse impact on our liquidity. Based on information available to us, all of the lenders under our senior credit facility are able to fulfill their funding commitments, as of our filing date. In the current financial market environment, however, there can be no assurance that the lenders under our senior credit facility will continue to be able to fulfill their funding obligations.
We are also closely monitoring the potential impact of changes in the operating conditions of our customers on our operating results. To date, changes in the operating conditions of our customers have not had a material adverse impact on our operating results. In light of the worsening economic climate, however, we are taking certain steps to reduce our overall operating expenses. These steps include reducing operating expenses and non-essential capital expenditures and limiting acquisition activity.
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 the Company, 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 September 30, 2008. As of September 30, 2008 we had approximately $221.2 million of total liquidity, which is comprised of approximately $21.5 million in cash and cash equivalents and the ability to draw approximately $199.7 million under our revolving bank credit facility. Cash Generated by Operations. For the nine months ended September 30, 2008 and 2007 our cash provided by operating activities was $237.7 million and $245.6 million, respectively. While our net income was $16.6 million for the nine months ended September 30, 2008, we generated cash from operating activities of $237.7 million during that same period, primarily due to non-cash adjustments needed to reconcile net income to cash provided by operating activities of $271.2 million, which primarily consisted of depreciation and amortization of $237.5 million. This was offset by an increase in working capital of $50.1 million. We expect to generate cash flows from operations during 2008 in excess of our cash needs for operations and capital expenditures as described herein.
Credit Facilities. As of September 30, 2008, Lamar Media had approximately $199.7 million of unused capacity under the revolving credit facility included in its senior credit facility. The senior credit facility was refinanced on September 30, 2005 and is comprised of a $400.0 million revolving bank credit facility and a $400.0 million term facility. We have also borrowed $789.0 million in term loans as a result of incremental borrowing (Series A through Series F) during 2006 and 2007 under the incremental facility included in our senior credit facility. In addition to those incremental borrowings, the existing incremental facility 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. 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. The aggregate balance outstanding under our senior credit facility as of September 30, 2008, was $1.4 billion. 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.
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 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 September 30, 2008, the Company had an aggregate outstanding balance under its senior credit facility of $1.4 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 bank credit agreement. If the Company fails to comply with these tests, the long term debt payments may be accelerated. At September 30, 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 the year 2008. All debt obligations are reflected on the Company's balance sheet. Uses of Cash
Capital Expenditures. Capital expenditures excluding acquisitions were approximately $159.2 million for the nine months ended September 30, 2008 which is a decrease of approximately $14.2 million as compared to the prior period. We anticipate our 2008 total capital expenditures to be approximately $200 million. In addition, the Company intends to reduce significantly capital expenditures for the year ended December 31, 2009.

Acquisitions. During the nine months ended September 30, 2008, the Company financed its acquisition activity of approximately $225.9 million with borrowings under Lamar Media's revolving credit facility and cash on hand. We expect to spend approximately $250 million on acquisitions of outdoor advertising assets and site easements in 2008, which we may finance through borrowings, cash on hand, the issuance of Class A common stock, or some combination of the foregoing, depending on market conditions. In light of existing market conditions, the Company plans to significantly reduce acquisition activity during 2009.
Stock Repurchase Program. At January 1, 2008, the Company had approximately $217.2 million of repurchase capacity remaining under a repurchase plan adopted in February 2007, which authorized aggregate repurchases of up to $500.0 million of the Company's Class A common stock over a period not to exceed 24 months. During the nine months ended September 30, 2008, the Company purchased approximately 2,562,832 shares for an aggregate purchase price of approximately $90.5 million. We did not make any share repurchases in the quarter ended September 30, 2008. The share repurchases under the plan may be made on the open market or in privately negotiated transactions. The timing and amount of any shares repurchased is determined by Lamar's management based on its evaluation of market conditions and other factors. The repurchase program may be suspended or discontinued at any time. Any repurchased shares will be available for future use for general corporate and other purposes. Lamar Media Corp.
The following is a discussion of the consolidated financial condition and results of operations of Lamar Media for the nine months and three months ended . . .