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LAMR > SEC Filings for LAMR > Form 10-Q on 3-May-2012All Recent SEC Filings

Show all filings for LAMAR ADVERTISING CO/NEW

Form 10-Q for LAMAR ADVERTISING CO/NEW


3-May-2012

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion contains forward-looking statements. Actual results could differ materially from those anticipated by the forward-looking statements due to risks and uncertainties described in the section of this combined report on Form 10-Q entitled "Note Regarding Forward-Looking Statements" and in Item 1A to the 2011 Combined Form 10-K filed on February 27, 2012, as supplemented by those risk factors contained in our combined Quarterly Reports on Form 10-Q. You should carefully consider each of these risks and uncertainties in evaluating the Company's and Lamar Media's financial conditions and results of operations. Investors are cautioned not to place undue reliance on the forward-looking statements contained in this document. These statements speak only as of the date of this document, and the Company undertakes no obligation to update or revise the statements, except as may be required by law.

Lamar Advertising Company

The following is a discussion of the consolidated financial condition and results of operations of the Company for the three months ended March 31, 2012 and 2011. This discussion should be read in conjunction with the consolidated financial statements of the Company and the related notes.

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 $446.2 million. However, during 2009, 2010 and 2011, the Company reduced its acquisition activity significantly by completing acquisitions of outdoor advertising assets for a total purchase price of $36.6 million, which was a reduction of approximately $594.6 million over the comparable three-year period 2006, 2007 and 2008. The Company has financed its historical acquisitions and intends to finance any of its future acquisition activity from available cash, borrowings under the senior credit facility and the issuance of Class A common stock. See "Liquidity and Capital Resources" below. During the three months ended March 31, 2012, the Company completed acquisitions for a total purchase price of approximately $6.1 million in cash.

The Company's business requires expenditures for maintenance and capitalized costs associated with the construction of new billboard displays, the entrance into and renewal of logo sign and transit contracts, and the purchase of real estate and operating equipment. The following table presents a breakdown of capitalized expenditures for the three months ended March 31, 2012 and 2011:

                                                Three months ended
                                                     March 31,
                                                  (in thousands)
                                                 2012          2011
                Total capital expenditures:
                Billboard - traditional       $    5,066     $  8,681
                Billboard - digital                7,910        8,433
                Logos                              1,319        2,158
                Transit                               21          208
                Land and buildings                 1,685          599
                Operating equipment                3,746        8,734

                Total capital expenditures    $   19,747     $ 28,813

RESULTS OF OPERATIONS

Three Months ended March 31, 2012 compared to Three Months ended March 31, 2011

Net revenues increased $11.0 million or 4.3% to $266.2 million for the three months ended March 31, 2012 from $255.2 million for the same period in 2011. This increase was attributable primarily to an increase in billboard net revenues of $9.1 million, which represents an increase of 4.0% over the prior period, an increase in logo sign revenue of $1.1 million, which represents an increase of 8.1% over the prior period, and a $0.8 million increase in transit revenue, which represents an increase of 6.9% over the prior period.


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For the three months ended March 31, 2012, there was a $10.6 million increase in net revenues as compared to acquisition-adjusted net revenue for the three months ended March 31, 2011, which represents an increase of 4.1%. See "Reconciliations" below. The $10.6 million increase in revenue primarily consists of a $8.6 million increase in billboard revenue, a $1.1 million net increase in transit revenue and a $0.9 million increase in logo revenue over the acquisition-adjusted net revenue for the comparable period in 2011.

Operating expenses, exclusive of depreciation and amortization and gain on sale of assets, increased $6.8 million or 4.2% to $169.0 million for the three months ended March 31, 2012 from $162.2 million for the same period in 2011. There was a $5.9 million increase in operating expenses related to the operations of our outdoor advertising assets and a $0.9 million increase in corporate expenses.

Depreciation and amortization expense remained relatively unchanged for the three months ended March 31, 2012, as compared to the three months ended March 31, 2011.

For the three months ended March 31, 2012, gain on sale of assets decreased $5.5 million as compared to the same period in 2011, primarily due to the $5.7 million gain recognized in February 2011 related to the sale of our then existing corporate aircraft.

Due to the above factors, operating income remained relatively constant at $25.8 million for the three months ended March 31, 2012 compared to $25.6 million for the same period in 2011.

During the three months ended March 31, 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 $3.7 million from $43.6 million for the three months ended March 31, 2011, to $39.9 million for the three months ended March 31, 2012, due to the reduction in total debt outstanding in addition to a decrease in interest rates primarily resulting from the Company's recent refinancing transactions. See - "Uses of Cash - Tender Offers" for more information.

The increase in operating income and the decrease in interest expense, offset by the loss in debt extinguishment, resulted in a $26.1 million increase in net loss before income taxes. This increase in loss resulted in an increase in income tax benefit of $16.5 million for the three months ended March 31, 2012 over the same period in 2011. The effective tax rate for the three months ended March 31, 2012 was 48.2%, which is greater than the statutory rates 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 three months ended March 31, 2012 of $22.8 million, as compared to a net loss of $13.2 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 months ended March 31, 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 months ended March 31, 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 core 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."


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Reconciliations of 2011 reported net revenue to 2011 acquisition-adjusted net revenue for the three months ended March 31, as well as a comparison of 2011 acquisition-adjusted net revenue to 2012 reported net revenue for the three months ended March 31, are provided below:

Reconciliation of Reported Net Revenue to Acquisition-Adjusted Net Revenue



                                                 Three months ended
                                                  March  31, 2011
                                                   (in thousands)
             Reported net revenue               $            255,202
             Acquisition net revenue                             469

             Acquisition-adjusted net revenue   $            255,671

Comparison of 2012 Reported Net Revenue to 2011 Acquisition-Adjusted Net Revenue



                                              Three months ended
                                                   March 31,
                                              2012          2011
                                                (in thousands)
                  Reported net revenue      $ 266,238     $ 255,202
                  Acquisition net revenue          -            469

                  Adjusted totals           $ 266,238     $ 255,671

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 March 31, 2012. As of March 31, 2012 we had approximately $277.5 million of total liquidity, which is comprised of approximately $35.9 million in cash and cash equivalents and the ability to draw approximately $241.6 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 three months ended March 31, 2012 and 2011 our cash provided by operating activities was $36.7 million and $25.8 million, respectively. While our net loss was approximately $22.8 million for the three months ended March 31, 2012, we generated cash from operating activities of $36.7 million during that same period, primarily due to adjustments needed to reconcile net loss to cash provided by operating activities of $87.8 million, which primarily consisted of depreciation and amortization of $72.4 and loss on debt extinguishment of $30.0 million, partially offset by the recognition of deferred tax benefits of $21.7 million. In addition, there was an increase in working capital of $28.3 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.


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As of March 31, 2012, Lamar Media had approximately $241.6 million of unused capacity under the revolving credit facility included in the senior credit facility. As of March 31, 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.

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 the senior credit facility allowable under the 6 5/8% Notes indenture, up to $1.4 billion of indebtedness under the senior credit facility allowable under the 9 3/4% Notes indenture and $1.5 billion of indebtedness under the senior credit facility allowable under the 7 7/8% Notes and 5 7/8% Notes indentures;

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 $50 million or 5% of Lamar Media's net tangible assets; and

additional debt not to exceed $50 million ($75 million under the 7 7/8% Notes and 5 7/8% Notes indentures).

Restrictions under Senior Credit Facility. Lamar Media is required to comply with certain covenants and restrictions under the senior credit facility. If the Company fails to comply with these tests, the long term debt payments may be accelerated. At March 31, 2012 and currently, Lamar Media was in compliance with all such tests. We must be in compliance with the following financial ratios under our senior credit facility:

a total holdings debt ratio, defined as total consolidated debt of Lamar Advertising Company and its restricted subsidiaries as of any date to EBITDA, as defined below, for the most recent four fiscal quarters then ended as set forth below:

       Period                                                    Ratio
       March 31, 2012 through and including March 30, 2013     6.25 to 1.00
       From and after March 31, 2013                           6.00 to 1.00


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a senior debt ratio, defined as total consolidated senior debt of Lamar Media and its restricted subsidiaries to EBITDA, as defined below, for the most recent four fiscal quarters then ended of less than or equal to 3.25 to 1.00 and

a fixed charges coverage ratio, defined as the ratio of 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.

The definition of "EBITDA" under the senior credit facility is as follows:
"EBITDA" means, for any period, operating income for the Company and its restricted subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP) for such period (calculated before taxes, interest expense, depreciation, amortization and any other non-cash income or charges accrued for such period, one-time cash restructuring and cash severance changes in the fiscal year ending December 31, 2009 of up to $2,500,000 aggregate amount, charges and expenses in connection with the credit facility transactions and the repurchase or redemption of our 7 1/4% Notes and (except to the extent received or paid in cash by us or any of our 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. For purposes of calculating EBITDA, the effect on such calculation of any adjustments required under Statement of Accounting Standards No. 141R is excluded.

Excess Cash Flow Payments. Lamar Media may be required to make certain mandatory prepayments on loans outstanding under the senior credit facility that would be applied first to any outstanding term loans, commencing with the year ended December 31, 2010. These payments, if any, are determined annually and are calculated based on a percentage of Consolidated Excess Cash Flow (as defined in the senior credit facility) at the end of each fiscal year. The percentage of Consolidated Excess Cash Flow that must be applied to repay outstanding loans was set at 50% for the fiscal year ended December 31, 2010. For fiscal years ending or after December 31, 2012, this percentage is subject to reduction to 0% if the total holdings debt ratio, as described above, is less than or equal to 5.00 to 1.00 as of the last day of such fiscal year. At December 31, 2011, the Company was not required to make a mandatory prepayment since there was a consolidated cash flow deficit, in accordance with the calculation as defined in the senior credit facility and the total holdings debt ratio was less than 5.00 to 1.00.

The Company believes that its current level of cash on hand, availability under the senior credit facility and future cash flows from operations are sufficient to meet its operating needs through fiscal 2012. All debt obligations are reflected on the Company's balance sheet.

Uses of Cash

Capital Expenditures. Capital expenditures excluding acquisitions were approximately $19.7 million for the three months ended March 31, 2012. We anticipate our 2012 total capital expenditures will be approximately $100 million.

Acquisitions. During the three months ended March 31, 2012, the Company financed its acquisition activity of $6.1 million with cash on hand. In light of the current economic environment, the Company plans to continue to limit acquisition activity during 2012 with no material spending currently planned for acquisitions.

Tender Offers. On January 26, 2012, Lamar Media commenced a tender offer to purchase for cash, up to $700 million in aggregate principal amount of its outstanding 6 5/8% Notes. On February 9, 2012, Lamar Media accepted tenders for approximately $483.7 million in aggregate principal amount of the 6 5/8% Notes, out of approximately $582.9 million tendered, in connection with the early settlement date of the tender offer. On February 27, 2012, Lamar Media accepted tenders for approximately $99.2 million previously tendered and not accepted for payment and an additional $0.2 million tendered following the early settlement date. The holders of the notes tendered on or before midnight on February 8, 2012 received a total consideration of $1,025.83 per $1,000 principal amount of the notes tendered; holders of notes tendered after such date received a total consideration of $1,005.83 per $1,000 principal amount of the notes tendered. The total cash payment to purchase the tendered 6 5/8% Notes on February 9, 2012, including accrued interest up to but excluding February 9, 2012 was approximately $511.6 million and the total cash payment to purchase the tendered notes on February 27, 2012, including accrued interest up to but excluding February 27, 2012 was approximately $102.3 million, resulting in an aggregate payment in respect of the 6 5/8% Notes tender offer of approximately $613.9 million.


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Lamar Media Corp.

The following is a discussion of the consolidated financial condition and results of operations of Lamar Media for the three months ended March 31, 2012 and 2011. This discussion should be read in conjunction with the consolidated financial statements of Lamar Media and the related note.

RESULTS OF OPERATIONS

Three Months ended March 31, 2012 compared to Three Months ended March 31, 2011

Net revenues increased $11.0 million or 4.3% to $266.2 million for the three months ended March 31, 2012 from $255.2 million for the same period in 2011. This increase was attributable primarily to an increase in billboard net revenues of $9.1 million, which represents an increase of 4.0% over the prior period, an increase in logo sign revenue of $1.1 million, which represents an increase of 8.1% over the prior period, and a $0.8 million increase in transit revenue, which represents an increase of 6.9% over the prior period.

For the three months ended March 31, 2012, there was a $10.6 million increase in net revenues as compared to acquisition-adjusted net revenue for the three months ended March 31, 2011, which represents an increase of 4.1%. See "Reconciliations" below. The $10.6 million increase in revenue primarily consists of an $8.6 million increase in billboard revenue, a $1.1 million net increase in transit revenue and a $0.9 million increase in logo revenue over the acquisition-adjusted net revenue for the comparable period in 2011.

Operating expenses, exclusive of depreciation and amortization and gain on sale of assets, increased $6.8 million or 4.2% to $168.9 million for the three months ended March 31, 2012 from $162.1 million for the same period in 2011. There was a $5.9 million increase in operating expenses related to the operations of our outdoor advertising assets and a $0.9 million increase in corporate expenses.

Depreciation and amortization expense remained relatively unchanged for the three months ended March 31, 2012, as compared to the three months ended March 31, 2011.

For the three months ended March 31, 2012, gain on sale of assets decreased $5.5 million as compared to the same period in 2011, primarily due to the $5.7 million gain recognized in February 2011 related to the sale of our then existing corporate aircraft.

Due to the above factors, operating income remained relatively constant at $25.9 million for the three months ended March 31, 2012 compared to $25.7 million for the same period in 2011.

During the three months ended March 31, 2012, we recognized a $30.0 million loss on debt extinguishment related to the settlement of the tender offer for our 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 $3.7 million from $43.6 million for the three months ended March 31, 2011, to $39.9 million for the three months ended March 31, 2012, due to the reduction in total debt outstanding in addition to a decrease in interest rates primarily resulting from Lamar Media's recent refinancing . . .

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