Lamar (LAMR)

Headquartered in Baton Rouge, Louisiana, Lamar Advertising Company (LAMR) is one of the largest owners and operators of outdoor advertising structures in the U.S. The company offers three types of outdoor advertising displays: 1) billboards, 2) logo signs, and 3) transit advertising displays.

The company's primary business is local billboard and poster advertising. Lamar offers its billboard advertising customers a fully integrated service covering a wide range of billboard display requirements, from ad copy production to the placement and maintenance of advertising displays. The company holds a leading position in providing billboard structures (600 square feet), which are located along major highways and advertising spaces on signs near highway exits, for gas, food, camping, lodging, and other attractions in the U.S. Lamar owns the majority of its billboard structures and either owns or leases the space on which the structures are located. The company also offers smaller poster displays (300 square feet), which are located in major auto or pedestrian traffic areas. Posters are easier to maintain and are sold on a rotating basis between locations for periods of 90 to 120 days. The company s billboard advertising revenue is split 70/30 between billboards and posters, respectively. In terms of categories by business for 2007, retailers were 11% of the total business, restaurants 9%, automotive 9%, real estate 8%, hospitals and Medicare 7%, gaming, service, and telecommunications 6%, hotels 5%, and Entertainment and amusement 5%. In 2007, the company s top 10 customers included Mc Donald s (largest customer), followed by AT&T, Cracker Barrel, State Farm, Holiday Inn, Verizon, cingular, Dodge, and Coors.

In transit advertising displays, the company sells advertising space on the exterior and interior of public transportation vehicles, transit shelters, and benches. Transit advertising contracts are generally awarded by municipalities and the contracts are renewed through an open bidding process.

Lamar has grown its localized billboard advertising businesses through a combination of organic growth and strategic acquisitions. Between January 1, 2004 and December 31, 2006, the company has spent over $611 million to complete over 230 strategic acquisitions, which have expanded the number of its outdoor advertising structures by an estimated 5%. In 2005, the company closed 73 transactions worth $190 million, and in 2006, the company spent $227.6 million in acquisitions. In 2007, the company made 72 acquisitions for $153.6 million. In the first quarter of 2008, the company completed 22 acquisitions for a total cost of $68 million. Management plans to spend approximately $250 million on acquisitions in 2008. The company also has invested nearly $500 million over the past eight years to improve existing displays and construct new advertising structures. The company's internal and external investment activities have allowed it to capture a considerable share of localized outdoor advertising markets, which account for more than 80% of its annualized net revenue. Given the company's large and growing national presence, there is additional upside going forward as the company builds up its national sales presence and expands relationships with larger, national advertisers. Management plans to pursue tourist-oriented directional signs and other motorist information signing programs in both the Untied States and Canada.

While the company has traditionally been a leading provider of localized billboard advertising, Lamar also has a large and growing presence in the transit-related advertising market. Prior to the acquisition of Obie Media Corporation, Lamar operated over 9,500 transit-related advertising displays in or on public transportation vehicles and stations in 34 transit markets. Obie Media Corporation, which was acquired by Lamar in January 2005, has exclusive agreements with an additional 38 transit districts in the U.S. and Canada to operate transit advertising displays (Obie also owns and operates over 1,100 billboards and posters throughout the Western U.S.). Lamar now has 719 digital units (394 bulletin boards and 325 posters) in air in 121 markets. Lamar can support the growth of Obie's transit-related advertising business through the substantial operating cash flow of its localized billboard advertising business and meaningfully increase the EBITDA margin of the acquired business.

Lamar's cash flow allows management to enhance shareholders' value through share repurchases. In 2007, the company generated $354 million in cash flow from operations compared to $365 million in 2006. In February 2007, the Board authorized a follow-on $500 million stock repurchase program to the $250 million buy-back plan announced in August 2006. Also in February 2007, the Board declared a special dividend of $3.25 per share, which was paid on March 30, 2007. During 2007, the company repurchased approximately 6.7 million shares for a total cost of approximately $383.6 million. During the first quarter of 2008, the company repurchased 1,459,156 shares at a cost of approximately $50.1 million. As of March 31, 2008, the company has $167 million remaining under the current authorization.

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