Lamar Advertising Company — 2010 Form 10-K Summary
Business context and reporting period
Fiscal year ended December 31, 2010; the filing also reports unaudited fourth-quarter results. The combined filing covers Lamar Advertising Company and its wholly owned operating subsidiary, Lamar Media Corp. Lamar sells advertising on billboards, logo signs and transit displays, operating as one reporting segment. At year-end, it operated approximately 146,000 billboards, including 1,200 digital displays, more than 108,000 logo displays and over 30,000 transit displays.
Key financial metrics
| Metric | 2010 | 2009 |
|---|---|---|
| Net revenue | $1,092.3 million | $1,056.1 million |
| Operating income | $139.5 million; 12.8% margin | $97.6 million; 9.2% margin |
| Net loss | $40.1 million; $0.44 loss per share | $58.0 million; $0.64 loss per share |
| Operating cash flow | $322.8 million | $293.7 million |
| Capital expenditures | $43.5 million | $38.8 million |
| Cash and cash equivalents at year-end | $91.7 million | $112.3 million |
| Working capital at year-end | $155.8 million | $104.2 million |
| Total debt at year-end | $2,409.1 million | $2,674.9 million |
| Interest expense | $186.0 million | $197.0 million |
Reported revenue increased 3.4%; management attributed growth principally to improved billboard rates and occupancy, higher transit revenue and new transit contracts. On an acquisition-adjusted basis, revenue increased 3.1%. In fourth-quarter 2010, revenue was $275.7 million versus $262.3 million a year earlier; net loss applicable to common stock was $7.2 million versus $19.8 million.
Material changes versus comparable periods
- Operating income rose $41.9 million year over year, reflecting revenue growth and a $24.0 million decline in depreciation and amortization, partly offset by higher operating costs and equity compensation expense.
- Net loss narrowed by $17.9 million, but the company remained loss-making. The 2010 results included a $17.4 million debt-extinguishment loss, of which approximately $12.6 million was noncash.
- Debt declined by $265.8 million during 2010. The company refinanced its senior credit facility and issued $400 million of 7 7/8% senior subordinated notes, using the proceeds principally to repurchase its 7 1/4% notes.
- Revenue had fallen 11.9% in 2009, primarily because recession-related declines in advertising rates and occupancy hurt billboard and transit sales. The 2010 increase indicates a recovery from that lower base.
Outlook, risks and unusual items
- Management expected approximately $100 million of 2011 capital expenditures, including about $50 million for digital technology. It planned to limit acquisitions, with no material acquisition spending then planned.
- Management said available cash, revolving-credit capacity and expected operating cash flow were sufficient for operating needs through 2011; it intended to use excess cash primarily to reduce debt. On January 7, 2011, it prepaid $50 million of term borrowings.
- Year-end liquidity was reported at approximately $331.6 million: $91.7 million cash plus $239.9 million available under the revolving facility. The company reported compliance with financial covenants, but its debt agreements impose leverage and fixed-charge tests and restrict distributions and other actions.
- Debt was approximately $2.41 billion, including $808.9 million of variable-rate credit-facility debt. Management estimated that a 200-basis-point increase in the weighted average rate would have increased 2010 interest expense by approximately $19.4 million. Contractual debt maturities include approximately $1.06 billion in 2015 and $383.1 million in 2014.
- Risks include sensitivity to advertising spending and economic conditions, substantial debt and refinancing needs, competition, regulation and contract renewals. Digital billboard expansion could face tighter rules; a federal highway-safety study was expected in 2011. One of 23 logo-sign contracts was due for renewal in 2011.
- No goodwill impairment was recorded for 2010. The company disclosed $1.43 billion of goodwill, a $173.7 million asset-retirement obligation and significant operating-lease commitments. It stated that hurricane and other natural-disaster losses were not economically insured.
- The company reported no legal proceeding expected by management to have a material adverse effect. KPMG issued unqualified opinions on the financial statements and internal controls; management also concluded disclosure controls and internal control over financial reporting were effective.
Important facts for investors to verify
- Whether revenue gains from rate and occupancy improvements continued after 2010, and how much growth was organic versus acquisition-related.
- Debt covenant headroom, scheduled maturities, refinancing options and the effect of interest-rate changes on cash interest and liquidity.
- Whether the planned 2011 capital spending, particularly digital investment, generated expected returns and remained within management’s stated budget.
- Renewal outcomes for the logo-sign contract due in 2011 and any regulatory or safety restrictions affecting digital displays.
- The assumptions supporting goodwill recoverability, deferred-tax-asset realization and the estimated cost and timing of billboard-site retirement obligations.