Description
Filed with the SEC from Aug 09 to Aug 15:
Lamar Advertising (LAMR)
Private investment firm SPO Partners disclosed that it owns 15,717,214 shares (20%) following its sale of 3,100,000 on Aug. 7 and Aug. 8 for prices ranging from $33.15 to $34.03.
BUSINESS OVERVIEW
General
Lamar Advertising Company, referred to in this Annual Report as the “Company” or “Lamar Advertising” or “we” is one of the largest outdoor advertising companies in the United States based on number of displays and has operated under the Lamar name since 1902. We operate in a single operating and reporting segment, advertising. We sell advertising on billboards, buses, shelters, benches and logo plates. As of December 31, 2011, we owned and operated over 143,000 billboard advertising displays in 44 states, Canada and Puerto Rico, over 112,000 logo advertising displays in 21 states and the province of Ontario, Canada, and operated over 30,000 transit advertising displays in 16 states, Canada and Puerto Rico. We offer our customers a fully integrated service, satisfying all aspects of their billboard display requirements from ad copy production to placement and maintenance.
Our Business
We operate three types of outdoor advertising displays: billboards, logo signs and transit advertising displays.
Billboards. We sell most of our advertising space on two types of billboards: bulletins and posters.
•
Bulletins are generally large, illuminated advertising structures that are located on major highways and target vehicular traffic.
•
Posters are generally smaller advertising structures that are located on major traffic arteries and city streets and target vehicular and pedestrian traffic.
In addition to these traditional billboards, we also sell digital billboards, which are generally located on major traffic arteries and city streets. As of December 31, 2011, we owned and operated over 1,400 digital billboard advertising displays in 40 states, Canada and Puerto Rico.
Logo signs. We sell advertising space on logo signs located near highway exits.
•
Logo signs generally advertise nearby gas, food, camping, lodging and other attractions.
We are the largest provider of logo signs in the United States, operating 21 of the 27 privatized state logo sign contracts. As of December 31, 2011, we operated over 112,000 logo sign advertising displays in 21 states and Canada.
Transit advertising displays. We also sell advertising space on the exterior and interior of public transportation vehicles, transit shelters and benches in approximately 60 markets. As of December 31, 2011, we operated over 30,000 transit advertising displays in 16 states, Canada and Puerto Rico.
Corporate History
We have operated under the Lamar name since our founding in 1902 and have been publicly traded on NASDAQ under the symbol “LAMR” since 1996. We completed a reorganization on July 20, 1999 that created our current holding company structure. At that time, the operating company (then called Lamar Advertising Company) was renamed Lamar Media Corp., and all of the operating company’s stockholders became stockholders of a new holding company. The new holding company then took the Lamar Advertising Company name, and Lamar Media Corp. became a wholly owned subsidiary of Lamar Advertising Company.
In this Annual Report, we refer to Lamar Advertising Company and its consolidated subsidiaries, unless the context otherwise requires, as the “Company” or “we” and Lamar Advertising’s wholly owned subsidiary Lamar Media Corp. as “Lamar Media.”
Where you can find more information
We make our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports available free of charge through our website, www.lamar.com, as soon as reasonably practicable after filing them with, or furnishing them to, the Securities and Exchange Commission. Information contained on the website is not part of this Annual Report.
Operating Strategies
We strive to be a leading provider of outdoor advertising services in each of the markets that we serve, and our operating strategies for achieving that goal include:
Continuing to provide high quality local sales and service. We seek to identify and closely monitor the needs of our customers and to provide them with a full complement of high quality advertising services. Local advertising constituted approximately 78% of our net revenues for the year ended December 31, 2011, which management believes is higher than the industry average. We believe that the experience of our regional and local managers has contributed greatly to our success. For example, our regional managers have been with us for an average of 29 years. In an effort to provide high quality sales and service at the local level, we employed over 760 local account executives as of December 31, 2011. Local account executives are typically supported by additional local staff and have the ability to draw upon the resources of our central office, as well as, our offices in other markets, in the event business opportunities or customers’ needs support such an allocation of resources.
Continuing a centralized control and decentralized management structure. Our management believes that, for our particular business, centralized control and a decentralized organization provide for greater economies of scale and are more responsive to local market demands. Therefore, we maintain centralized accounting and financial control over our local operations, but our local managers are responsible for the day-to-day operations in each local market and are compensated according to that market’s financial performance.
Continuing to focus on internal growth. Within our existing markets, we seek to increase our revenue and improve cash flow by employing highly-targeted local marketing efforts to improve our display occupancy rates and by increasing advertising rates where and when demand can absorb rate increases. Our local offices spearhead this effort and respond to local customer demands quickly.
In addition, we routinely invest in upgrading our existing displays and constructing new displays. From January 1, 2000 to December 31, 2011, we invested approximately $1.35 billion in capitalized expenditures, which include improvements to our existing displays and in constructing new displays. Our regular improvement and expansion of our advertising display inventory allows us to provide high quality service to our current advertisers and to attract new advertisers.
Continuing to pursue other outdoor advertising opportunities. We plan to pursue additional logo sign contracts. Logo sign opportunities arise periodically, both from states initiating new logo sign programs and states converting from government-owned and operated programs to privately-owned and operated programs. Furthermore, we plan to pursue additional tourist oriented directional sign programs in both the United States and Canada and also other motorist information signing programs as opportunities present themselves. In addition, in an effort to maintain market share, we continue to pursue attractive transit advertising opportunities as they become available.
Reinvesting in capital expenditures including digital technology. We have historically invested in capital expenditures, however, during 2009 and 2010, we significantly reduced our capital expenditures to position the Company to manage through the economic recession. As a result of the economic recovery, the Company began to reinvest in capital expenditures during 2011. We spent approximately $107 million in total capital expenditures in fiscal 2011, of which $41.3 million was spent on digital technology. We expect our 2012 capitalized expenditures to closely approximate our spending in 2011.
COMPANY OPERATIONS
Billboard Advertising
We sell most of our advertising space on two types of billboard advertising displays: bulletins and posters. As of December 31, 2011, we owned and operated over 143,000 billboard advertising displays in 44 states, Canada and Puerto Rico. In 2011, we derived approximately 72% of our billboard advertising net revenues from bulletin sales and 28% from poster sales.
Bulletins are large, advertising structures (the most common size is fourteen feet high by forty-eight feet wide, or 672 square feet) consisting of panels on which advertising copy is displayed. We wrap advertising copy printed with computer-generated graphics on a single sheet of vinyl around the structure. To attract more attention, some of the panels may extend beyond the linear edges of the display face and may include three-dimensional embellishments. Because of their greater impact and higher cost, bulletins are usually located on major highways and target vehicular traffic. At December 31, 2011, we operated approximately 66,000 bulletin displays.
We generally sell individually-selected bulletin space to advertisers for the duration of the contract (usually one to twelve months). We also sell bulletins as part of a rotary plan under which we rotate the advertising copy from one bulletin location to another within a particular market at stated intervals (usually every sixty to ninety days) to achieve greater reach within that market.
Posters are smaller advertising structures (the most common size is eleven feet high by twenty-three feet wide, or 250 square feet; we also operate junior posters, which are five feet high by eleven feet wide, or 55 square feet). Poster panels utilize a single flexible sheet of polyethylene material that inserts into the face of the panel. Posters are concentrated on major traffic arteries and target vehicular traffic, and junior posters are concentrated on city streets and target hard-to-reach pedestrian traffic and nearby residents. At December 31, 2011, we operated approximately 77,000 poster displays.
We generally sell poster space for thirty- and sixty-day periods in packages called “showings,” which comprise a given number of displays in a specified market area. We place and spread out the displays making up a showing in well-traveled areas to reach a wide audience in the particular market.
In addition to the traditional displays described above, we also sell digital billboards. Digital billboards are large electronic light emitting diode (LED) displays (the most common sizes are fourteen feet high by forty feet wide, or 560 square feet; ten and a half feet high by thirty six feet wide, or 378 square feet; and ten feet high by twenty-one feet wide, or 210 square feet) that are generally located on major traffic arteries and city streets. Digital billboards are capable of generating over one billion colors and vary in brightness based on ambient conditions. They display completely digital advertising copy from various advertisers in a slide show fashion, rotating each advertisement approximately every 6 to 8 seconds. At December 31, 2011, we operated over 1,400 digital billboards in various markets, which represents approximately 14% of billboard revenue.
We own the physical structures on which the advertising copy is displayed. We build the structures on locations we either own or lease. In each local office one employee typically performs site leasing activities for the markets served by that office. See Item 2. — “Properties.”
In the majority of our markets, our local production staffs perform the full range of activities required to create and install billboard advertising displays. Production work includes creating the advertising copy design and layout, coordinating its printing and installing the designs on the displays. We provide our production services to local advertisers and to advertisers that are not represented by advertising agencies, as most national advertisers represented by advertising agencies use preprinted designs that require only our installation. Our talented design staff uses state-of-the-art technology to prepare creative, eye-catching displays for our customers. We can also help with the strategic placement of advertisements throughout an advertiser’s market by using software that allows us to analyze the target audience and its demographics. Our artists also assist in developing marketing presentations, demonstrations and strategies to attract new customers.
Transit Advertising
We entered into the transit advertising business in 1993 as a way to complement our existing business and maintain market share in certain markets. We provide transit advertising displays on bus shelters, benches and buses in approximately 60 transit markets, and our production staff provides a full range of creative and installation services to our transit advertising customers. As of December 31, 2011, we operated over 30,000 transit advertising displays in 16 states, Canada and Puerto Rico.
Municipalities usually award new transit advertising contracts and renew expiring transit advertising contracts through an open bidding process. In bidding for new and renewal contracts, we compete against national outdoor advertising providers and local, on-premise sign providers and sign construction companies. Transit advertising operators incur significant start-up costs to build and install the advertising structures (such as transit shelters) upon being awarded contracts.
In marketing transit advertising displays to advertisers, we compete with other forms of out-of-home advertising and other media. When selecting the media and provider through which to advertise, advertisers consider a number of factors and advertising providers which are described in the section entitled — “Competition” below.
COMPETITION
Although the outdoor advertising industry has encountered a wave of consolidation, the industry remains fragmented. The industry is comprised of several large outdoor advertising and media companies with operations in multiple markets, as well as smaller, local companies operating a limited number of structures in one or a few local markets.
Although we primarily focus on small to mid-size markets where we can attain a strong market share, in each of our markets, we compete against other providers of outdoor advertising and other types of media, including:
•
Larger outdoor advertising providers, such as (i) Clear Channel Outdoor Holdings, Inc., which operates billboards, street furniture displays, transit displays and other out-of-home advertising displays in North America and worldwide and (ii) CBS Outdoor, a division of CBS Corporation, which operates traditional outdoor, street furniture and transit advertising properties in North America and worldwide. Clear Channel Outdoor and CBS Outdoor each have corporate relationships with large media conglomerates and may have greater total resources, product offerings and opportunities for cross-selling than we do.
•
Other forms of media, such as broadcast and cable television, radio, print media, direct mail marketing, telephone directories and the Internet.
•
An increasing variety of out-of-home advertising media, such as advertising displays in shopping centers, malls, airports, stadiums, movie theaters and supermarkets and advertising displays on taxis, trains and buses.
In selecting the form of media through which to advertise, advertisers evaluate their ability to target audiences having a specific demographic profile, lifestyle, brand or media consumption or purchasing behavior or audiences located in, or traveling through, a particular geography. Advertisers also compare the relative costs of available media, evaluating the number of impressions (potential viewings), exposure (the opportunity for advertising to be seen) and circulation (traffic volume in a market), as well as potential effectiveness, quality of related services (such as advertising copy design and layout) and customer service. In competing with other media, we believe that outdoor advertising is relatively more cost-efficient than other media, allowing advertisers to reach broader audiences and target specific geographic areas or demographics groups within markets.
We believe that our strong emphasis on sales and customer service and our position as a major provider of advertising services in each of our primary markets enables us to compete effectively with the other outdoor advertising companies, as well as with other media, within those markets.
REGULATION
Outdoor advertising is subject to governmental regulation at the federal, state and local levels. Regulations generally restrict the size, spacing, lighting and other aspects of advertising structures and pose a significant barrier to entry and expansion in many markets.
Federal law, principally the Highway Beautification Act of 1965 (the “HBA”), regulates outdoor advertising on Federal — Aid Primary, Interstate and National Highway Systems roads. The HBA requires states to “effectively control” outdoor advertising along these roads, and mandates a state compliance program and state standards regarding size, spacing and lighting. The HBA requires any state or political subdivision that compels the removal of a lawful billboard along a Federal — Aid Primary or Interstate highway to pay just compensation to the billboard owner.
All states have passed billboard control statutes and regulations at least as restrictive as the federal requirements, including laws requiring the removal of illegal signs at the owner’s expense (and without compensation from the state). Although we believe that the number of our billboards that may be subject to removal as illegal is immaterial, and no state in which we operate has banned billboards entirely, from time to time governments have required us to remove signs and billboards legally erected in accordance with federal, state and local permit requirements and laws. Municipal and county governments generally also have sign controls as part of their zoning laws and building codes. We contest laws and regulations that we believe unlawfully restrict our constitutional or other legal rights and may adversely impact the growth of our outdoor advertising business.
Using federal funding for transportation enhancement programs, state governments have purchased and removed billboards for beautification, and may do so again in the future. Under the power of eminent domain, state or municipal governments have laid claim to property and forced the removal of billboards. Under a concept called amortization by which a governmental body asserts that a billboard operator has earned compensation by continued operation over time, local governments have attempted to force removal of legal but nonconforming billboards (i.e., billboards that conformed with applicable zoning regulations when built but which do not conform to current zoning regulations). Although the legality of amortization is questionable, it has been upheld in some instances. Often, municipal and county governments also have sign controls as part of their zoning laws, with some local governments prohibiting construction of new billboards or allowing new construction only to replace existing structures. Although we have generally been able to obtain satisfactory compensation for those of our billboards purchased or removed as a result of governmental action, there is no assurance that this will continue to be the case in the future.
We have also introduced and intend to expand the deployment of digital billboards that display static digital advertising copy from various advertisers that change every 6 to 8 seconds. We have encountered some existing regulations that restrict or prohibit these types of digital displays but it has not yet materially impacted our digital deployment. Since digital billboards have only recently been developed and introduced into the market on a large scale, existing regulations that currently do not apply to them by their terms could be revised to impose greater restrictions. These regulations may impose greater restrictions on digital billboards due to alleged concerns over aesthetics or driver safety.
In addition, due to their recent development, relatively few large scale studies have been conducted regarding driver safety issues, if any, related to digital billboards. The U.S. Department of Transportation Federal Highway Administration is currently conducting a study on whether the presence of digital billboards along roadways is associated with a reduction of driver safety for the public. We understand that this study is currently under internal review and the date of its public release is unknown. If the results of this study include adverse findings, it may result in regulations at the federal or state level that impose greater restrictions on digital billboards.
EMPLOYEES
We employed approximately 3,000 people as of December 31, 2011. Approximately 190 employees were engaged in overall management and general administration at our management headquarters in Baton Rouge, Louisiana, and the remainder, including over 760 local account executives, were employed in our operating offices.
Fifteen of our local offices employ billposters and construction personnel who are covered by collective bargaining agreements. We believe that our relationship with our employees, including our 114 unionized employees, is good, and we have never experienced a strike or work stoppage.
INFLATION
In the last three years, inflation has not had a significant impact on us.
SEASONALITY
Our revenues and operating results are subject to seasonality. Typically, we experience our strongest financial performance in the summer and fall, and our weakest financial performance in the first quarter of the calendar year, partly because retailers cut back their advertising spending immediately following the holiday shopping season. We expect this trend to continue in the future. Because a significant portion of our expenses is fixed, a reduction in revenues in any quarter is likely to result in a period-to-period decline in operating performance and net earnings.
CEO BACKGROUND
Kevin P. Reilly, Jr.
Age: 57 1984
Kevin P. Reilly, Jr. has served as our President since February 1989 and as one of our directors since February 1984. Mr. Reilly also served as our Chief Executive Officer from February 1989 until February 2011. Prior to becoming President and Chief Executive Officer, Mr. Reilly served as the President of our Outdoor Division from 1984 to 1989. Mr. Reilly, our employee since 1978, has also served as General Manager of our Baton Rouge Region and Vice President and General Manager of the Louisiana Region.
Kevin Reilly, with over 30 years of experience at Lamar and 23 years as our President, has unparalleled knowledge of our business and operating history. As our President Mr. Reilly is directly involved with the management of the company on a daily basis and has front-line exposure to the challenges that we face and opportunities that we are presented. He is also the managing general partner of our controlling stockholder, the Reilly Family Limited Partnership. The RFLP and members of the Reilly family are permitted holders of our Class B Common Stock, which was put in place in connection with our initial public offering in 1996 to provide for continuity of control over the company and entitles its holders to ten votes per share. Board representation by members of the Reilly family, which has ties to the Lamar family dating back to 1958, also serves to preserve the principles that Lamar was founded upon.
Anna Reilly
Age: 48 2001
Anna Reilly serves on the Board of Directors of the Bethesda Center for the Homeless, the Asset Development Committee of the Winston Salem Foundation, as well as on the Board of Visitors for Duke University’s Sanford School of Public Policy. From 1995 until 2000, Ms. Reilly owned and operated Lula’s Cafe, a restaurant in South Bend, Indiana, and she served on the Board of Directors of St. Joseph Capital Bank, a public company that is now part of Old Nations Bank, from 2001 to 2006. While in Indiana she also served as a trustee of the Stanley Clark School and as a Director of the Community Foundation of St. Joseph County. Prior to living and raising her family in Indiana, Ms. Reilly worked for the Corporation for National Service and the Ashoka Foundation in Washington, D.C.
Anna Reilly is a general partner of our controlling stockholder, the RFLP, and brings knowledge of our business and operations to the Board. The RFLP and members of the Reilly family are permitted holders of our Class B Common Stock, which was put in place in connection with our initial public offering in 1996 to provide for continuity of control over the company and entitles its holders to ten votes per share. In addition, board representation by members of the Reilly family, which has ties to the Lamar family dating back to 1958, also serves to preserve the principles that Lamar was founded upon. Ms. Reilly’s background and continued commitment to civic service also provide us with a valuable perspective into local issues, which is important to us due to our focus on local advertising.
Wendell Reilly
Age: 54 2005
Wendell Reilly has been the Managing Partner of Grapevine Partners LLC since 2000, and in 2009, he joined Peachtree Equity Partners II as a General Partner. Mr. Reilly currently serves as Chairman of Berman Capital Advisors and on the board of Brown and Brown, Inc. and on the investment committee of the Community Foundation for Greater Atlanta. He also serves as a Trustee of Emory University and The Paideia School in Atlanta. He previously served as the Company’s Chief Financial Officer from 1985 to 1989 and director from 1999 to 2001. Mr. Reilly also served as CFO of Haas Publishing Companies from 1989 to 1994, CEO of Grapevine Communications, a group of 7 network-affiliated TV stations, from 1996 to 2000 and CEO of SignPost Networks from 2003 to 2010.
Wendell Reilly, with over 25 years of private equity, entrepreneurial and executive management experience in media and communications, has extensive expertise of our industry from both inside and outside Lamar. He also brings valuable insight into the issues facing our management through his experience as a founder and principal in other media companies. Mr. Reilly is also a general partner of our controlling stockholder, the Reilly Family Limited Partnership. The RFLP and members of the Reilly family are permitted holders of our Class B Common Stock, which was put in place in connection with our initial public offering in 1996 to provide continuity of control over the company and entitles its holders to ten votes per share. In addition, board representation by members of the Reilly family, which has ties to the Lamar family dating back to 1958, also serves to preserve the principles that Lamar was founded upon.
Stephen P. Mumblow
Age: 56 2008
Stephen P. Mumblow is the President of Manhan Media, Inc., the owner and operator of WWHO-TV in Columbus, Ohio and an investor in other media concerns. Until January 2002, Mr. Mumblow was the President and a Director of Communications Corporation of America, a television and radio broadcasting company, having joined that company in 1998. Mr. Mumblow was a Managing Director of Chase Securities, Inc., an investment banking firm, from March 1988 to August 1998. Prior to that, he was a Vice President of Michigan Energy Resources Company, an intrastate natural gas utility company and cable television and broadcasting concern, and Citibank, N.A., a commercial bank. Mr. Mumblow served on the Board of the Journal Register Company until May
Mr. Mumblow brings to the Board experience in advertising and marketing trends based upon his ownership of Manhan Media. He also has extensive banking expertise, including with respect to the financing of a wide range of media enterprises and merger and acquisition activity within the media industry. He has also gained valuable expertise both operating and serving on the boards in the television, radio and newspaper industries that provides insight into the Company’s competitive and strategic landscape. His financial acumen and experience, including qualification as an Audit Committee Financial Expert, provides our Board valuable skills and a strong background in financial reporting and balance sheet management.
1999
John Maxwell Hamilton
Age: 65
John Maxwell Hamilton is Executive Vice-Chancellor & Provost of Louisiana State University, a position he assumed in 2010. He served as Dean of the Manship School of Mass Communications of Louisiana State University from 1994 to 2010 and director of the school from 1992 to 1994. In addition to working in the United States and abroad as a journalist, Mr. Hamilton served on the staff of the World Bank, the United States House of Representatives Subcommittee on Economic Policy and Trade, and the United States Agency for International Development.
With over fifteen years of professional service as a leader of one of the largest university communications programs in the country, Mr. Hamilton provides knowledge, leadership and a unique perspective on our industry that is vital to our Board of Directors. The communications department that Mr. Hamilton headed has been a leader in thinking about the future of mass media, which is important to us because of our focus on the future of advertising.
Thomas V. Reifenheiser
Age: 76
Thomas V. Reifenheiser was a Managing Director and Group Executive for the Global Media and Telecom Group of Chase Securities Inc., an investment banking firm, from 1995 to 2000. He joined Chase in 1963 and was the Global Media and Telecom Group Executive since 1977. He is a member of the Board of Directors of Cablevision Systems Corporation, and he has served as a director of Mediacom Communications Corporation, F+W Publications Inc. and Citadel Broadcasting Corporation.
Mr. Reifenheiser possesses expertise in the finance and banking sector with a specialization in the media industry. His extensive experience serving on corporate boards makes him an invaluable resource on matters of corporate governance, executive compensation, effective board oversight and strategic planning. Mr. Reifenhesier’s vast experience in the broadcasting and publishing industries provides strategic perspective and insight into our industry. His service on our Board also provides us with additional financial expertise.
2000
John E. Koerner, III
Age: 69
John E. Koerner III has been the managing member of Koerner Capital, LLC, a private investment company, or the President of its predecessor, Koerner Capital Corporation since 1995. From 1976 to 1995, Mr. Koerner was President and co-owner of Barq’s, Inc. and its subsidiary, The Delaware Punch Company. Mr. Koerner is a member of a number of civic boards including The Nature Conservancy of Louisiana and the World War II Museum. He served as Chairman of the New Orleans Regional Chamber of Commerce for 1995, was a past Co-Chairman of Metrovision, and was the 2002 - 2003 Chairman of the New Orleans Business Council. He serves on a number of business boards including Legg Mason, Inc., IBERIABANK Corporation, St. Charles Pharmaceuticals, Mumboe, Inc., Geocent, LLC and Selltis, LLC.
Mr. Koerner has extensive experience in corporate finance, the management of capital intensive organizations, and capital markets. Through his service on other boards, Mr. Koerner also has experience with a broad range of corporate governance matters. Mr. Koerner’s background and civic board service also provide us with a valuable link to our community, which is important to us because of our focus on local advertising.
MANAGEMENT DISCUSSION FROM LATEST 10K
OVERVIEW
The Company’s net revenues are derived primarily from the sale of advertising on outdoor advertising displays owned and operated by the Company. The Company relies on sales of advertising space for its revenues. Revenue growth is based on many factors that include the Company’s ability to increase occupancy of its existing advertising displays; raise advertising rates; and acquire new advertising displays and its operating results are therefore affected by general economic conditions, as well as trends in the advertising industry. Advertising spending is particularly sensitive to changes in general economic conditions, which affect the rates that the Company is able to charge for advertising on its displays and its ability to maximize advertising sales or occupancy on its displays.
Historically, the Company has increased the number of outdoor advertising displays it operates by completing strategic acquisitions of outdoor advertising assets. Since December 31, 2006, the Company completed acquisitions for an aggregate purchase price of approximately $440.1 million. However, during 2009 and 2010, the Company reduced its acquisition activity significantly by completing acquisitions of outdoor advertising assets for a total purchase price of $11.2 million, which was a reduction of approximately $392 million over the comparable two-year period ended 2008 and 2007. During the year ended 2011, the Company increased its spending on acquisitions slightly by completing 22 acquisitions for a cash purchase price of approximately $23.5 million. The Company has financed its historical acquisitions and intends to finance any of its future acquisition activity from available cash, borrowings under its senior credit facility and the issuance of Class A common stock. See “Liquidity and Capital Resources” below.
Year ended December 31, 2011 compared to Year ended December 31, 2010
Net revenues increased $41.2 million or 3.8% to $1.13 billion for the year ended December 31, 2011 from $1.09 billion for the same period in 2010. This increase was attributable primarily to an increase in billboard net revenues of $31.0 million, or 3.1%, over the prior period, a $2.4 million increase in transit revenue, or 4.2%, over the prior period and a $7.9 million increase in logo revenue, or 15.9%, over the prior period.
Of the $31.0 million increase in billboard net revenue $8.2 million was generated by adding approximately 240 new digital display panels and approximately $22.8 million was a result of increased rate and occupancy, over the comparable period in 2010. The $7.9 million increase in logo revenue consists of a $4.0 million increase due to changes in logo contracts and an increase in internal growth of $3.9 million.
Net revenues for the year ended December 31, 2011, as compared to acquisition-adjusted net revenue for the year ended December 31, 2010, increased $36.4 million or 3.3% primarily as a result of increased rate and occupancy, as compared to the same period in 2010. See “Reconciliations” below.
Operating expenses, exclusive of depreciation and amortization and gain on sale of assets, increased $13.0 million, or 2.0%, to $658.0 million for the year ended December 31, 2011 from $645.0 million for the same period in 2010. There was a $6.2 million decrease in non-cash compensation expense related to equity based compensation, offset by a $16.2 million increase in operating expenses related to the cost of operating the Company’s core assets and a $3.0 million increase in corporate expenses.
Depreciation and amortization expense decreased $13.1 million for the year ended December 31, 2011 as compared to the year ended December 31, 2010. The decrease is primarily a result of the reduction in the number of non performing structures dismantled during 2011 as compared to the same period in 2010.
Due to the above factors, operating income increased $46.9 million to $186.4 million for year ended December 31, 2011 compared to $139.5 million for the same period in 2010.
Interest expense decreased $14.9 million from $186.0 million for the year ended December 31, 2010 to $171.1 million for the year ended December 31, 2011 primarily resulting from the reduction in total debt outstanding as well as a decrease in interest rates resulting from the refinancing of the Company’s senior credit facility during 2010.
During the period ended December 31, 2011, the Company repurchased an aggregate principal amount of $47,900 of its outstanding 6 5/8% Senior Subordinated Notes due 2015, 6 5/8% Senior Subordinated Notes due 2015—Series B and 6 5/8% Senior Subordinated Notes due 2015—Series C (collectively, the “6 5/8% Notes”). The Company repurchased the 6 5/8% Notes at an average price of 98.5% of the original amount of the notes through open-market transactions. As a result of the repurchases, the Company recorded a $0.7 million loss on early extinguishment of debt for the year ended December 31, 2011 of which approximately $1.4 million was a non-cash expense related to the previously capitalized unamortized debt issuance fees and discounts. During the comparable period in 2010, the Company recognized a $17.4 million loss on the early extinguishment of debt resulting from its 2010 refinancing transactions. Approximately $12.6 million of the 2010 loss is a non-cash expense attributable to the write off of unamortized debt issuance fees related to the tender offer to repurchase Lamar Media’s 7 1/4% Notes and refinancing of its senior credit facility. The remaining $4.8 million represented the net cash loss related to the tender offer and extinguishment of the 7 1/4% Notes.
The increase in operating income and decrease in interest expense and loss on extinguishment of debt resulted in a $78.7 million increase in net income before income taxes. The increase in net income for the period resulted in an increase in income tax expense as compared to the same period during 2010. The effective tax rate for the year ended December 31, 2011 was 43.6%, which is higher than the statutory rate due to permanent differences resulting from non-deductible compensation expense related to stock options in accordance with ASC 718 and other non-deductible expenses and amortization.
As a result of the above factors, the Company recognized net income for the year ended December 31, 2011 of $8.6 million, as compared to a net loss of $40.1 million for the same period in 2010.
Reconciliations:
Because acquisitions occurring after December 31, 2009 (the “acquired assets”) have contributed to our net revenue results for the periods presented, we provide 2010 acquisition-adjusted net revenue, which adjusts our 2010 net revenue by adding to it the net revenue generated by the acquired assets prior to our acquisition of these assets for the same time frame that those assets were owned in 2011. We provide this information as a supplement to net revenues to enable investors to compare periods in 2011 and 2010 on a more consistent basis without the effects of acquisitions. Management uses this comparison to assess how well our core assets are performing.
Acquisition-adjusted net revenue is not determined in accordance with generally accepted accounting principles (GAAP). For this adjustment, we measure the amount of pre-acquisition revenue generated by the acquired assets during the period in 2010 that corresponds with the actual period we have owned the acquired assets in 2011 (to the extent within the period to which this report relates). We refer to this adjustment as “acquisition net revenue.”
ear ended December 31, 2010 compared to Year ended December 31, 2009
Net revenues increased $36.2 million or 3.4% to $1.09 billion for the year ended December 31, 2010 from $1.06 billion for the same period in 2009. This increase was attributable primarily to an increase in billboard net revenues of $26.0 million, or 2.7%, over the prior period, a $7.6 million increase in transit revenue, or 15.0%, over the prior period and a $2.6 million increase in logo revenue, or 5.6%, over the prior period.
The increase in billboard net revenue of $26.0 million was a result of increased rate and occupancy, over the comparable period in 2009. The $7.6 million increase in transit revenue consists of a $2.7 million increase due to new transit contracts and an increase in internal growth of $4.9 million.
Net revenues for the year ended December 31, 2010, as compared to acquisition-adjusted net revenue for the year ended December 31, 2009, increased $32.8 million or 3.1% primarily as a result of increased rate and occupancy, as compared to the same period in 2009. See “Reconciliations” below.
Operating expenses, exclusive of depreciation and amortization and gain on sale of assets, increased $17.8 million, or 2.8%, to $644.9 million for the year ended December 31, 2010 from $627.1 million for the same period in 2009. There was a $5.4 million increase in non-cash compensation expense related to equity based compensation, as well as an $11.0 million increase in operating expenses related to the cost of operating the Company’s core assets and a $1.4 million increase in corporate expenses.
Depreciation and amortization expense decreased $24.0 million for the year ended December 31, 2010 as compared to the year ended December 31, 2009. The decrease is primarily a result of the reduction in the number of non performing structures dismantled during 2010 as compared to the same period in 2009.
Due to the above factors, operating income increased $41.9 million to $139.5 million for year ended December 31, 2010 compared to $97.6 million for the same period in 2009.
Interest expense decreased $11.0 million from $197.0 million for the year ended December 31, 2009 to $186.0 million for the year ended December 31, 2010 primarily resulting from debt refinancing efforts during 2010, as well as the reduction in amortized debt issuance fees during 2010 due to the early extinguishment of debt.
During the year ended December 31, 2010, the Company recognized a $17.4 million loss on the early extinguishment of debt resulting from its refinancing transactions. Approximately $12.6 million is a non-cash expense attributable to the write off of unamortized debt issuance fees related to the tender offer to repurchase Lamar Media’s 7 1/4% Notes and the refinancing of its senior credit facility. The remaining $4.8 million represents the net cash loss related to the tender offer and extinguishment of the 7 1/4% Notes.
The increase in operating income and decrease in interest expense offset by the increase in the loss on extinguishment of debt resulted in a $30.6 million decrease in loss before income taxes. The decrease in net loss for the period resulted in a decrease in income tax benefit as compared to the same period during 2009. The effective tax rate for the year ended December 31, 2010 was 36.9%, which is higher than the statutory rate due to permanent differences resulting from non-deductible compensation expense related to stock options in accordance with ASC 718 and other non-deductible expenses and amortization.
As a result of the above factors, the Company recognized a net loss for the year ended December 31, 2010 of $40.1 million, as compared to a net loss of $58.0 million for the same period in 2009.
Reconciliations:
Because acquisitions occurring after December 31, 2008 (the “acquired assets”) have contributed to our net revenue results for the periods presented, we provide 2009 acquisition-adjusted net revenue, which adjusts our 2009 net revenue by adding to it the net revenue generated by the acquired assets prior to our acquisition of these assets for the same time frame that those assets were owned in 2010. We provide this information as a supplement to net revenues to enable investors to compare periods in 2010 and 2009 on a more consistent basis without the effects of acquisitions. Management uses this comparison to assess how well our core assets are performing.
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 acquired assets during the period in 2009 that corresponds with the actual period we have owned the acquired assets in 2010 (to the extent within the period to which this report relates). We refer to this adjustment as “acquisition net revenue.”
LIQUIDITY AND CAPITAL RESOURCES
Overview
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 principal 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.
Sources of Cash
Total Liquidity at December 31, 2011. As of December 31, 2011 we had approximately $274.1 million of total liquidity, which is comprised of approximately $33.5 million in cash and cash equivalents and approximately $240.6 million of availability under the revolving portion of our senior credit facility. We are currently in compliance with all applicable restrictive covenants under the senior credit facility and we would remain in compliance after giving effect to borrowing the full amount available to us under the revolving portion of the senior credit facility.
During 2012, the Company intends to use excess cash on hand primarily to reduce outstanding indebtedness under the senior credit facility.
Cash Generated by Operations. For the years ended December 31, 2011, 2010, and 2009 our cash provided by operating activities was $318.8 million, $322.8 million and $293.7 million, respectively. While our net income was approximately $8.6 million for the year ended December 31, 2011, the Company generated cash from operating activities of $318.8 million during 2011 primarily due to adjustments needed to reconcile net income to cash provided by operating activities, which includes depreciation and amortization of $299.6 million. We generated cash flows from operations during 2011 in excess of our cash needs for operations and capital expenditures as described herein. We used the excess cash generated principally to reduce our outstanding indebtedness. See — “Cash Flows” for more information.
Credit Facilities . On February 9, 2012, Lamar Media entered into a restatement agreement with respect to its existing senior credit facility in order to fund a new $100 million Term loan A facility and to make certain covenant changes to the senior credit facility, which was entered into on April 28, 2010, as amended on June 11, 2010, November 18, 2010 and February 9, 2012 (the “Senior Credit Facility”), for which JPMorgan Chase Bank, N.A. serves as administrative agent. The Senior Credit Facility consists of a $250 million revolving credit facility, a $270 million term loan A-1 facility, a $30 million term loan A-2 facility, a $100 million term loan A-3 facility, a $575 million term loan B facility and a $300 million incremental facility, which may be increased by up to an additional $200 million, based upon our satisfaction of a senior debt ratio test (as described below), of less than or equal to 3.25 to 1. Lamar Media is the borrower under the Senior Credit Facility, except with respect to the $30 million term loan A-2 facility for which Lamar Media’s wholly-owned subsidiary, Lamar Advertising of Puerto Rico, Inc. is the borrower. We may also from time to time designate additional wholly-owned subsidiaries as subsidiary borrowers under the incremental loan facility that can borrow up to $110 million of the incremental facility. Incremental loans may be in the form of additional term loan tranches or increases in the revolving credit facility. Our lenders have no obligation to make additional loans to us, or any designated subsidiary borrower, under the incremental facility, but may enter into such commitments in their sole discretion.
As of December 31, 2011, Lamar Media had approximately $240.6 million of unused capacity under the revolving credit facility included in the Senior Credit Facility and the aggregate balance outstanding under the Senior Credit Facility was $595.5 million.
Note Offerings. On February 9, 2012, Lamar Media completed an institutional private placement of $500 million aggregate principal amount of 5 7/8% Senior Subordinated Notes, due 2022. The institutional private placement resulted in net proceeds to Lamar Media of approximately $489 million. The Company used the proceeds of this offering, after the payment of fees and expenses together with approximately $99 million of net proceeds from its term loan A-3 facility to repurchase $583.1 million of its outstanding 6 5/8% Notes, as described below under the heading “ — Uses of Cash — Tender Offers”.
On April 22, 2010, Lamar Media completed an institutional private placement of $400 million aggregate principal amount of 7 7/8% Senior Subordinated Notes due 2018 the (“7 7/8% Notes”). The institutional private placement resulted in net proceeds to Lamar Media of approximately $392 million. The Company used the proceeds of the offering, after the payment of fees and expenses, to repurchase all of its outstanding 7 1/4% Senior Subordinated Notes due 2013 (the “7 1/4% Notes”), as described below under the heading “— Uses of Cash — Tender Offers”.
On March 27, 2009, Lamar Media completed an institutional private placement of $350 million in aggregate principal amount (approximately $314.9 million in gross proceeds) of 9 3/4% Senior Notes due 2014 (the “9 3/4% Senior Notes”). The 9 3/4% Senior Notes are unsecured obligations that rank senior to all of Lamar Media’s existing and future debt that is expressly subordinated in right of payment to the senior notes, including Lamar Media’s 5 7/8% Senior Subordinated Notes due 2022, 7 1/4% Senior Subordinated Notes due 2013 (all of which were repurchased in 2010) and 6 5/8% Notes ($582.9 million of which were repurchased in February 2012). The senior notes rank equally with all of Lamar Media’s existing and future liabilities that are not so subordinated and are effectively subordinated to all of its secured debt (to the extent of the value of the collateral securing such debt), including the Senior Credit Facility, and structurally subordinated to all of the liabilities of any of Lamar Media’s subsidiaries that do not guarantee the senior notes. Lamar Media distributed the proceeds of the offering, after the payment of fees and expenses, to Lamar Advertising to repurchase $284.1 million in principal amount of 2 7/8% Convertible Notes due 2010 — Series B and to fund repayment of the remaining convertible notes at maturity on December 31, 2010.
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 the Senior Credit Facility and its outstanding debt securities.
MANAGEMENT DISCUSSION FOR LATEST QUARTER
OVERVIEW
The Company’s net revenues are derived primarily from the sale of advertising on outdoor advertising displays owned and operated by the Company. The Company relies on sales of advertising space for its revenues. Revenue growth is based on many factors that include the Company’s ability to increase occupancy of its existing advertising displays; raise advertising rates; and acquire new advertising displays. The Company’s operating results are therefore, affected by general economic conditions, as well as trends in the advertising industry. Advertising spending is particularly sensitive to changes in general economic conditions which affect the rates the Company is able to charge for advertising on its displays and its ability to maximize advertising sales or occupancy on its displays.
Historically, the Company made strategic acquisitions of outdoor advertising assets to increase the number of outdoor advertising displays it operates in existing and new markets. While the Company has significantly reduced its acquisition activity over the last three years, it will continue to evaluate and pursue strategic acquisition opportunities as they arise. The Company has financed its historical acquisitions and intends to finance any future acquisition activity from available cash, borrowings under its senior credit facility or the issuance of debt or equity securities. See “Liquidity and Capital Resources” below. During the seven months ended July 31, 2012, the Company completed acquisitions for a total purchase price of approximately $50 million in cash.
RESULTS OF OPERATIONS
Six Months ended June 30, 2012 compared to Six Months ended June 30, 2011
Net revenues increased $22.6 million or 4.1% to $571.1 million for the six months ended June 30, 2012 from $548.5 million for the same period in 2011. This increase was attributable primarily to an increase in billboard net revenues of $18.0 million or 3.7% over the prior period, an increase in logo sign revenue of $2.1 million, which represents an increase of 7.4% over the prior period, and a $2.4 million increase in transit revenue, which represents an increase of 8.8% over the prior period.
For the six months ended June 30, 2012, there was a $21.2 million increase in net revenues as compared to acquisition-adjusted net revenue for the six months ended June 30, 2011. The $21.2 million increase in revenue primarily consists of a $16.8 million increase in billboard revenue, a $1.6 million increase in logo revenue and a $2.7 million increase in transit revenue over the acquisition-adjusted net revenue for the comparable period in 2011. This increase in revenue represents an increase of 3.8% over the comparable period in 2011. See “Reconciliations” below.
Operating expenses, exclusive of depreciation and amortization and gain on sale of assets, increased $15.5 million or 4.8% to $340.1 million for the six months ended June 30, 2012 from $324.6 million for the same period in 2011. There was an $11.4 million increase in operating expenses related to the operations of our outdoor advertising assets and a $4.1 million increase in corporate expenses. The $4.1 million increase in corporate expenses includes an approximately $2.0 million increase in non-cash compensation expense primarily related to performance-based stock awards as compared to the same period in 2011.
Depreciation and amortization expense remained relatively unchanged for the six months ended June 30, 2012 as compared to the six months ended June 30, 2011.
For the six months ended June 30, 2012, gain on sale of assets decreased $2.8 million as compared to the six months ended June 30, 2011, primarily due to the $5.7 million gain recognized in 2011 related to the sale of our then existing corporate aircraft.
Due to the above factors, operating income increased $5.3 million to $90.3 million for the six months ended June 30, 2012 compared to $85.0 million for the same period in 2011.
During the six months ended June 30, 2012, the Company recognized a $30.0 million loss on debt extinguishment related to the settlement of the tender offer for Lamar Media’s 6 5/8% Notes. Approximately $14.4 million of the loss is a non-cash expense attributable to the write off of unamortized debt issuance fees and unamortized discounts associated with the tendered notes. See – “Uses of Cash – Tender Offers” for more information.
Interest expense decreased approximately $8.4 million from $86.9 million for the six months ended June 30, 2011 to $78.5 million for the six months ended June 30, 2012, due to the reduction in total debt outstanding as well as a decrease in interest rates resulting from the Company’s recent refinancing transactions. See – “Uses of Cash-Tender Offers” for more information.
The increase in operating income, decrease in interest expense and the loss on extinguishment of debt during the six months ended June 30, 2012 resulted in a $16.3 million increase in net loss before income taxes. The increase in net loss before income tax expense resulted in an increase in income tax benefit of $9.2 million as compared to the six months ended June 30, 2011. The effective tax rate for the six months ended June 30, 2012 was 51.0%, which is greater than statutory rates due to permanent differences resulting from non-deductible expenses and amortization, primarily non-deductible compensation expense related to stock based compensation calculated in accordance with ASC 718.
As a result of the above factors, the Company recognized a net loss for the six months ended June 30, 2012 of $8.9 million, as compared to a net loss of $1.8 million for the same period in 2011.
Three Months ended June 30, 2012 compared to Three Months ended June 30, 2011
Net revenues increased $11.6 million or 3.9% to $304.9 million for the three months ended June 30, 2012 from $293.3 million for the same period in 2011. This increase was attributable primarily to an increase in billboard net revenues of $8.9 million or 3.4% over the prior period, an increase in logo revenue of $1.0 million or 6.8% over the prior period and a $1.6 million increase in transit revenue, which represents an increase of 10.3% over the prior period.
For the three months ended June 30, 2012, there was a $10.6 million increase in net revenues as compared to acquisition-adjusted net revenue for the three months ended June 30, 2011. The $10.6 million increase in revenue primarily consists of an $8.3 million increase in billboard revenue, a $0.7 million increase in logo revenue and a $1.6 million increase in transit revenue over the acquisition-adjusted net revenue for the comparable periods in 2011. This increase in revenue represents an increase of 3.6% over the comparable period in 2011. See “Reconciliations” below.
Operating expenses, exclusive of depreciation and amortization and gain on sale of assets, increased $8.6 million or 5.3% to $171.0 million for the three months ended June 30, 2012 from $162.4 million for the same period in 2011. There was a $5.6 million increase in operating expenses related to the operations of our outdoor advertising assets and a $3.2 million increase in corporate expenses. The $3.2 million increase in corporate expenses includes an approximately $1.5 million increase in non-cash compensation related to performance-based stock awards, as compared to the same period in 2011.
Depreciation and amortization expense remained relatively unchanged for three months ended June 30, 2012, as compared to the three months ended June 30, 2011.
Due to the above factors, operating income increased $5.1 million to $64.5 million for the three months ended June 30, 2012 compared to $59.4 million for the same period in 2011.
Interest expense decreased $4.7 million from $43.3 million for the three months ended June 30, 2011, to $38.6 million for the three months ended June 30, 2012, primarily due to a reduction in overall indebtedness over the comparable period in 2011.
The increase in operating income and decrease in interest expense described above resulted in a $9.7 million increase in net income before income taxes. This increase in net income resulted in an increase in income tax expense of $7.2 million for the three months ended June 30, 2012 over the same period in 2011. The effective tax rate for the three months ended June 30, 2012 was 46.2%, which is greater than statutory rates due to non-deductible expenses and amortization, primarily related to stock-based compensation calculated in accordance with ACS 718.
As a result of the above factors, the Company recognized net income for the three months ended June 30, 2012 of $13.9 million, as compared to net income of $11.4 million for the same period in 2011.
Reconciliations:
Because acquisitions occurring after December 31, 2010 (the “acquired assets”) have contributed to our net revenue results for the periods presented, we provide 2011 acquisition-adjusted net revenue, which adjusts our 2011 net revenue for the three and six months ended June 30, 2011 by adding to it the net revenue generated by the acquired assets prior to our acquisition of these assets for the same time frame that those assets were owned in the three and six months ended June 30, 2012. We provide this information as a supplement to net revenues to enable investors to compare periods in 2012 and 2011 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 acquired assets during the period in 2011 that corresponds with the actual period we have owned the assets in 2012 (to the extent within the period to which this report relates). We refer to this adjustment as “acquisition net revenue.”
LIQUIDITY AND CAPITAL RESOURCES
Overview
The Company has historically satisfied its working capital requirements with cash from operations and borrowings under the senior credit facility. The Company’s wholly owned subsidiary, Lamar Media Corp., is the principal borrower under the senior credit facility and maintains all corporate operating cash balances. Any cash requirements of the Company, therefore, must be funded by distributions from Lamar Media.
Sources of Cash
Total Liquidity at June 30, 2012. As of June 30, 2012 we had approximately $340.6 million of total liquidity, which is comprised of approximately $98.9 million in cash and cash equivalents and the ability to draw approximately $241.7 million under the revolving portion of Lamar Media’s senior credit facility. We are currently in compliance with all applicable restrictive covenants under the senior credit facility and we would remain in compliance after giving effect to borrowing the full amount available to us under the revolving portion of the senior credit facility.
Cash Generated by Operations . For the six months ended June 30, 2012 and 2011 our cash provided by operating activities was $134.0 million and $110.4 million, respectively. While our net loss was approximately $8.9 million for the six months ended June 30, 2012, we generated cash from operating activities of $134.0 million during that same period, primarily due to adjustments needed to reconcile net loss to cash provided by operating activities of $179.3 million, which primarily consisted of depreciation and amortization of $145.4 million and loss on debt extinguishment of $30.0 million, partially offset by the recognition of deferred tax benefits of $10.0 million. In addition, there was an increase in working capital of $36.4 million. We expect to generate cash flows from operations during 2012 in excess of our cash needs for operations and capital expenditures as described herein. We expect to use this excess cash principally to reduce outstanding indebtedness.
Credit Facilities . On February 9, 2012, Lamar Media entered into a restatement agreement with respect to its existing senior credit facility in order to fund a new $100 million Term loan A facility and to make certain covenant changes to the senior credit facility, which was entered into on April 28, 2010, as amended on June 11, 2010, November 18, 2010 and February 9, 2012 (the “senior credit facility”), for which JPMorgan Chase Bank, N.A. serves as administrative agent. The senior credit facility consists of a $250 million revolving credit facility, a $270 million term loan A-1 facility, a $30 million term loan A-2 facility, a $100 million term loan A-3 facility, a $575 million term loan B facility and a $300 million incremental facility, which may be increased by up to an additional $200 million, based upon our satisfaction of a senior debt ratio test (as described below), of less than or equal to 3.25 to 1. Lamar Media is the borrower under the senior credit facility, except with respect to the $30 million term loan A-2 facility for which Lamar Media’s wholly-owned subsidiary, Lamar Advertising of Puerto Rico, Inc. is the borrower. We may also from time to time designate additional wholly-owned subsidiaries as subsidiary borrowers under the incremental loan facility that can borrow up to $110 million of the incremental facility. Incremental loans may be in the form of additional term loan tranches or increases in the revolving credit facility. Our lenders have no obligation to make additional loans to us, or any designated subsidiary borrower, under the incremental facility, but may enter into such commitments in their sole discretion.
As of June 30, 2012, Lamar Media had approximately $241.7 million of unused capacity under the revolving credit facility included in the senior credit facility. As of June 30, 2012, the aggregate balance outstanding under the senior credit facility was $695.5 million.
Note Offerings. On February 9, 2012, Lamar Media completed an institutional private placement of $500 million aggregate principal amount of 5 7/8% Senior Subordinated Notes, due 2022. The institutional private placement resulted in net proceeds to Lamar Media of approximately $489 million. The Company used the proceeds of this offering, after the payment of fees and expenses together with approximately $99 million of net proceeds from its term loan A-3 facility to repurchase $583.1 million of its outstanding 6 5/8% Notes, as described below under the heading “ — Uses of Cash — Tender Offers”.
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 the senior credit facility and its outstanding debt securities.
Restrictions Under Debt Securities. Lamar must comply with certain covenants and restrictions related to its outstanding debt securities. Currently Lamar Media has outstanding approximately $122.8 million 6 5/8% Senior Subordinated Notes due 2015 issued August 2005, $36.1 million 6 5/8% Senior Subordinated Notes due 2015 — Series B issued in August 2006 and $101.1 million 6 5/8% Senior Subordinated Notes due 2015 — Series C issued in October 2007 (collectively, the “6 5/8% Notes”), $350 million 9 3/4% Senior Notes due 2014 issued in March 2009 (the “9 3/4% Notes”), $400 million 7 7/8% Senior Subordinated Notes due 2018 (the “7 7/8% Notes”) and $500 million 5 7/8% Senior Subordinated Notes due 2022 (the “5 7/8% Notes”). The indentures relating to Lamar Media’s outstanding notes restrict its ability to incur additional indebtedness but permit the incurrence of indebtedness (including indebtedness under the 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 9 3/4% Notes indenture, and (b) 7.0 to 1, pursuant to the 6 5/8% Notes, 7 7/8% Notes and 5 7/8% Notes indentures.
CONF CALL
Kevin Reilly - Chairman and President
Thank you, Jeff. I want to welcome all our shareholders and friends for our Q2 call. As it is our custom, I'll make a few comments and then turn the call over to Sean and Keith, for some color. I guess the first item to cover is the REIT concept. As the company continues to generate more cash flow, than it needs we’re obligated to explore different ways to return capital to our share holders and the REIT construct is one possible avenue.
We intend to seek a private letter ruling, we hope that the time frame on that would be a Q1 host 2013 event and was thinking that if everything goes right we would make the election in January 1, 2014.
The PLR seeks to answer a lot of questions, and since we’re in the middle of the year process, its not that we don’t want to be forward coming, it’s just we don’t have the answers to those questions. So as you think about what assets are admissible and what asset are not, we just don’t simply – recently don’t have the answers to those questions at this time. So you won’t get them.
With that, I’d like to go head and turn the call over to Keith to walk us through that.
Keith Istre - Chief Financial Officer, Treasurer
Just to zip through the press release, real quick on the pro forma results. As you noted, the pro forma revenue came in at 3.6% that was slightly ahead our guidance of 3%, that was a total increase of about $10.5 million.
Consolidated expenses were 3.6%. I had on the last call mentioned that we thought that it would come in around 4%, so we were slightly under on that metric.
Let me point out on the corporate overhead, you may have noticed that those expenses were up about 16% for the quarter and that’s a blip not a trend. We had some difficult comps to contend with in the second quarter of last year when we saw that we were not going to hit our incentive bonus performance goals.
We reduced the bonus accruals in the second quarter at corporate to the tune of about 800,000. So that’s 800000 less in experiences last second quarter that we don’t have, that we do have in the second quarter. So I think you’ll see that flatten out.
On a consolidated expense basis, for the third quarter we think that the expense will come in somewhere in the 2% range, which going forward was up for this year at about as what we guided to at the beginning of the year.
One other quick note you saw that we had called approximately 123 million of senior subordinated high yield notes due 2015. Several people called and I’d liked to know how that redemption was going to be structured. And as of right now we anticipate having approximately $90 million in cash on hand at the end of August when these notes are due and we will draw the remainder from our banks revolving credit facility to take those out and that will leave about $137 million of that issue still outstanding that we would like to address before the end of this year.
With that Sean?
Sean Reilly - Chief Executive Officer
Sure, thank you. Let me walk though some of the specifics that typical color on the call and you will open it up for questions. First account of digital units and this is going to be as of yesterday, sort of call and this will include the 30 digital bulleting phases that we purchased in Phoenix during the course of the last quarter. So as of today we have 1564 digital units in the air, 852 bulletin and 712 were posters and again that includes the recent acquisition in Phoenix which by the way we feel very good about it. If you look at the performance of our digital platform, our large amount of digital platform has been our best performer, markets that we're current markets that we are currently in such as Chicago, Atlanta, and the like doing very well. It's clear that we're building something of interest in national advertisers and national digital book with us almost 20% in the second quarter. So we feel good about that.
On the slightly negative front, our same board digital went flat for Q2 and this basically tells us that, moreover the last 18 months in the space of a challenging macro environment we've added a tremendous amount of capacity. We still feel very confident in our digital roll out. However we maybe a little more selective over the course of this year with those roll out and we kind of stay with macro-environment will be.
On rate and occupancy, both posters and bulletins, occupancy was up 1%, Q2 2012 73% for posters, Q2 2012 78% for bulletins that compares to 72% and 77% respectively for Q2 of last year.
On rate we're still in macro environment that’s conducive to driving rate. Essentially rates were flat for both categories for the second quarter. For posters, $453 average rate per poster last quarter, compared to $437 average rate per poster in Q2 of 2011. Average rate for bulletins Q2 2012 $1,116 versus $1112 Q2 last year. So you can see the environment we’re trying to sell into and again it’s not conducive to driving rate.
On local versus national, local is slightly stronger and steadier than national and it has been all year except for digital. As I mentioned, national digital has been – probably good pro forma.
On verticals, the story is very similar to what you tended to here with essentially two things of note. In general, our top 10 categories are very healthy, top 10 categories were about 5% in Q2. Well, there was weakness; it was in wireless, which was disappointing in Q2. But again, if you add up all the top 10s, very healthy. Automotive for Q2 was up 3.5%. We’re seeing good patients and good improvement in automotive for Q3. We think it’s going to end up Q3 in sort of low double-digit, up for the third. And that by the way includes a very impressive buy from General Motors on our digital platform. For the first time, General Motors National came in and bought our whole digital platform around the Olympics that was a good new story for what's going on with digital.
So with that, let's go ahead and open it up for questions.
|
|
Fund Letters
