Lamar Advertising Company — 2012 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 31, 2012, with comparisons to 2011 and 2010. Lamar operates one advertising segment, selling space on billboards, logo signs and transit displays. At year-end it operated more than 144,000 billboard displays, including over 1,700 digital billboards, plus more than 115,000 logo displays and 34,000 transit displays. Lamar Media Corp., its wholly owned operating subsidiary, is the principal borrower.
Financial performance and position
Amounts below are for Lamar Advertising Company and are rounded to millions unless noted.
| Metric | 2012 | 2011 |
|---|---|---|
| Revenue | $1,182.9 million | $1,133.5 million |
| Operating income; operating margin | $217.7 million; 18.4% | $186.4 million; 16.4% |
| Net income applicable to common stock; diluted EPS | $9.5 million; $0.10 | $8.2 million; $0.09 |
| Cash from operating activities | $375.9 million | $318.8 million |
| Capital expenditures | $105.6 million | $107.1 million |
| Cash and cash equivalents at year-end | $58.9 million | $33.5 million |
| Total debt at year-end | $2,160.9 million | $2,158.5 million |
| Working capital | $103.8 million | $95.3 million |
Net cash from operations less capital expenditures was approximately $270.3 million in 2012. Total liquidity was approximately $301.2 million, comprising $58.9 million of cash and $242.3 million of revolver availability. Lamar reported compliance with debt covenants at year-end. Interest expense fell to $157.1 million from $171.1 million.
Material changes versus comparable periods
- Revenue grew 4.4% year over year; on the company’s acquisition-adjusted comparison, growth was 3.1%. Billboard revenue increased $39.1 million, logo revenue $3.7 million and transit revenue $6.6 million.
- Operating income increased $31.3 million. Direct advertising expenses rose more slowly than revenue, while depreciation and amortization declined modestly.
- Net income rose only slightly despite stronger operating income and lower interest expense, principally because Lamar recorded a $41.6 million loss on debt extinguishment. Approximately $23.2 million of that loss was non-cash.
- Cash from operations increased $57.1 million. Investing cash outflow rose to $303.4 million, mainly reflecting $206.1 million of cash acquisitions versus $23.5 million in 2011.
- Fourth-quarter 2012 revenue was $305.5 million versus $288.2 million in fourth-quarter 2011. Common-stock income was $7.1 million versus $6.3 million. First-quarter 2012 had a common-stock loss of $22.9 million, consistent with the company’s stated seasonal pattern.
Outlook, risks and unusual items
- Management expected 2013 capital expenditures of approximately $100 million and intended to use excess cash primarily to reduce debt. It stated that cash, revolver availability and anticipated operating cash flows were sufficient for operating needs through 2013.
- Lamar completed approximately $206 million of acquisitions in 2012, including NextMedia Outdoor for $145 million. Management said it would continue to evaluate acquisition opportunities.
- Debt refinancing included $500 million of 5⅞% senior subordinated notes due 2022 and $535 million of 5% notes due 2023. Proceeds helped refinance higher-cost notes, repay $295 million of Term B borrowings and fund NextMedia. Debt remains substantial; contractual debt principal was $394.9 million due in 2014, and long-term site and other operating lease commitments were $1.17 billion.
- Lamar was considering REIT status and had submitted a private-letter ruling request to the IRS. Any election for 2014 remained conditional on an IRS response, board approval and the company’s decision to proceed; no outcome or benefit was assured.
- Key risks include sensitivity to economic conditions and advertising budgets, significant debt and covenant restrictions, variable interest rates, competition, billboard regulation, and renewal or award of government logo-sign contracts. Three of 23 logo-sign contracts were subject to renewal in 2013.
- A January 2013 lawsuit challenged federal guidance concerning digital billboards. The company warned that additional restrictions could affect its digital inventory and expansion plans. A federal driver-safety study was under review; release timing was unknown.
- The company does not consider hurricane and other natural-disaster losses economical to insure. It uses mitigation plans, but acknowledges they may fail. Revenue is seasonal, generally weakest in the first quarter. Management said ordinary-course litigation was not expected to have a material adverse effect.
- Digital billboards represented approximately 15% of billboard advertising net revenue. Lamar spent $42.1 million on digital technology in 2012 and reported no goodwill impairment. KPMG issued unqualified audit opinions; management and the auditor concluded internal control over financial reporting was effective.
Important facts for investors to verify
- Debt maturity and refinancing exposure, especially the 2014 maturities, covenant headroom and revolver availability.
- Whether underlying revenue growth remains positive after adjusting for acquisitions, and whether operating-margin improvement is sustainable.
- NextMedia integration and acquisition returns, alongside ongoing capital expenditure and debt-reduction priorities.
- Developments in the digital-billboard lawsuit, federal safety review and related state or local regulation.
- Renewal outcomes for the three logo-sign contracts due in 2013 and the status, tax implications and expected benefits of any proposed REIT election.
- Whether deferred tax assets remain realizable and whether the company’s uninsured disaster exposure or lease commitments change materially.