Lamar Advertising Company — FY2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011; the filing also provides unaudited fourth-quarter results. Lamar Advertising is the public holding company; its wholly owned subsidiary, Lamar Media, is the principal operating and borrowing entity. The business sells billboard, logo-sign and transit advertising in the U.S., Canada and Puerto Rico.
Financial performance and position
| Metric | FY2011 | FY2010 |
|---|---|---|
| Net revenue | $1,133.5 million | $1,092.3 million |
| Operating income | $186.4 million; 16.4% margin | $139.5 million; 12.8% margin |
| Interest expense | $171.1 million | $186.0 million |
| Net income (loss) | $8.6 million; $0.09 per share | $(40.1) million; $(0.44) per share |
| Cash from operations | $318.8 million | $322.8 million |
| Capital expenditures | $107.1 million | $43.5 million |
| Cash and cash equivalents, year-end | $33.5 million | $91.7 million |
| Working capital, year-end | $95.3 million | $155.8 million |
| Total debt, year-end | $2,158.5 million | $2,409.1 million |
- Revenue grew 3.8%. Billboard revenue rose $31.0 million, including $8.2 million from about 240 added digital panels and $22.8 million from higher rates and occupancy. Transit revenue increased $2.4 million; logo revenue increased $7.9 million.
- Operating income improved by $46.9 million as revenue increased, depreciation and amortization declined, and operating costs grew more slowly than revenue. Interest expense fell $14.9 million, primarily due to lower debt and refinancing-related rate reductions.
- Net income turned positive from losses in both 2010 and 2009. The 2011 effective tax rate was 43.6%; the filing cites nondeductible expenses and compensation, a $4.0 million deferred tax benefit from designating Canadian earnings as permanently reinvested, and a $1.7 million noncash charge from a Puerto Rico tax-rate change.
- Operating cash flow remained strong but declined $4.0 million. Investing cash use increased with the recovery in capital spending and acquisitions; the company used financing cash primarily to repay credit-facility borrowings and repurchase notes.
- Year-end liquidity was approximately $274.1 million: $33.5 million in cash plus $240.6 million available under the revolving facility. The company reported compliance with its debt covenants.
- Debt included $595.5 million under the senior credit facility, $331.6 million of 9.75% senior notes, and approximately $1.23 billion of senior subordinated notes. Contractual debt maturities were concentrated in 2014–2016, particularly 2015.
Fourth-quarter results
Unaudited Q4 2011 revenue was $288.2 million, compared with $275.7 million in Q4 2010. Net income applicable to common stock was $6.3 million, versus a $7.2 million loss. The filing notes that results are seasonal, with the first quarter typically weakest and summer and fall strongest.
Material changes, outlook and risks
- Capital expenditures rose to $107.1 million in 2011 from $43.5 million in 2010, including $41.3 million for digital technology. Management expected approximately $100 million of capital expenditures in 2012 and planned to limit acquisitions, with no material acquisition spending then planned.
- During 2011, the company reduced debt by about $250.6 million, including $213 million of scheduled and optional senior-facility repayments and $47.9 million of open-market repurchases of 6.625% notes.
- Post-year-end financing: In February 2012, Lamar Media issued $500 million of 5.875% senior subordinated notes due 2022 and established a $100 million term loan A facility. Together, proceeds were used to repurchase approximately $583 million principal amount of 6.625% notes due 2015. The amended credit facility also included covenant changes.
- Management stated that cash, revolver availability and future operating cash flows were sufficient for operating needs through 2012; excess cash was expected to be directed primarily to reducing senior-facility debt.
- Key risks include substantial debt and restrictive covenants, sensitivity of advertising spending to economic conditions, competition from other media, regulation of billboards and potential new restrictions on digital displays, and renewal or award risk for government logo-sign contracts. Two logo-sign contracts were due for renewal in 2012.
- The company does not consider hurricane and other natural-disaster insurance economical; contingency plans may fail. Outdoor site leases and billboard removal obligations are also material: the asset retirement obligation was $180.7 million, and scheduled operating-lease payments totaled $1,090.4 million.
- The Reilly family held approximately 66% of voting power at year-end. Management reported no material litigation expected to adversely affect the company. Goodwill testing found no impairment; the annual test relied on market capitalization and discounted cash-flow assumptions.
KPMG issued unqualified opinions on the financial statements and internal controls; management and the auditor concluded internal control over financial reporting was effective as of December 31, 2011.
Important facts for investors to verify
- Whether rate and occupancy growth continued, and how much subsequent revenue growth came from digital inventory versus pricing and occupancy.
- The post-February 2012 debt balance, refinancing effects, maturity schedule and remaining covenant headroom after the note repurchase and credit-facility amendment.
- Actual 2012 capital expenditures versus the approximately $100 million plan, and whether cash generation supports further debt reduction.
- Renewal outcomes for the two logo-sign contracts due in 2012 and any changes in regulation or safety findings affecting digital billboards.
- Progress against the assumptions supporting goodwill and deferred-tax-asset recoverability, particularly if operating forecasts or market capitalization weaken.