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EXHIBIT 99.1
LAMAR ADVERTISING COMPANY
IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
June 30, 1998
From time to time, Lamar Advertising Company (the "Company") through
its management may make forward-looking public statements, such as statements
concerning then expected future revenues or earnings or concerning projected
plans and performance, as well as other estimates relating to future operations.
Forward-looking statements may be in reports filed under the Securities Exchange
Act of 1934, as amended, in press releases or in oral statements made with the
approval of an authorized executive officer. The words or phrases "will likely
result," "are expected to," "will continue," "is anticipated," "estimate,"
"project," or similar expressions are intended to identify "forward-looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934 and Section 27A of the Securities Act of 1933, as enacted by the Private
Securities Litigation Reform Act of 1995.
The Company wishes to caution readers not to place undue reliance on
these forward-looking statements which speak only as of the date on which they
are made. In addition, the Company wishes to advise readers that the factors
listed below, as well as other factors not currently identified by management,
could affect the Company's financial or other performance and could cause the
Company's actual results for future periods to differ materially from any
opinions or statements expressed with respect to future periods or events in any
current statement.
The Company will not undertake and specifically declines any obligation
to publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events which may cause management to re-evaluate such forward-looking
statements.
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company is hereby filing
cautionary statements identifying factors that could cause the Company's actual
results to differ materially from those projected in forward-looking statements
of the Company made by or on behalf of the Company.
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SUBSTANTIAL INDEBTEDNESS OF THE COMPANY
The Company presently has substantial indebtedness and may incur
additional indebtedness in the future. As of June 30, 1998 the Company's
indebtedness was approximately $66 million and the Company had approximately
$158 million available for borrowing under the Company's credit facility (the
"Senior Credit Facility") with a syndicate of commercial banks (excluding the
$75 million available under the facility funded at the discretion of the
lenders). Additionally, as of June 30, 1998, the Company had $3.6 million of
Class A Preferred Stock, $638 par value per share, outstanding which is entitled
to a cumulative preferential dividend of $364,903 annually. A substantial part
of the Company's cash flow from operations is dedicated to debt service and is
not available for other purposes. Further, if the Company's net cash provided by
operating activities were to decrease from present levels, the Company could
experience difficulty in meeting its debt service obligations without additional
financing. There can be no assurance that, in the event the Company were to
require additional financing, such additional financing would be available or,
if available, would be available on favorable terms. In addition, any such
additional financing may require the consent of lenders under the Senior Credit
Facility or holders of other debt of the Company. Certain of the Company's
competitors operate on a less leveraged basis and may have greater operating and
financial flexibility than the Company.
RESTRICTIVE COVENANTS IN DEBT INSTRUMENTS
The Senior Credit Facility and the Company's indentures relating to the
Company's $255 million outstanding 9 5/8% Senior Subordinated Notes due 2006 and
$200 million outstanding 8 5/8% Senior Subordinated Notes due 2007 (the
"Existing Indentures") contain covenants that restrict, among other things, the
ability of the Company to dispose of assets, incur or repay debt, create liens,
and make certain investments. In addition, the Senior Credit Facility requires
the Company to maintain specified financial ratios and levels including cash
interest coverage, fixed charge coverage, senior debt and total debt ratios. The
ability of the Company to comply with the foregoing restrictive covenants, and
any restrictive covenants contained in future agreements, will depend on its
future performance, which is subject to prevailing economic, financial and
business conditions and other factors beyond the Company's control.
FLUCTUATIONS IN ECONOMIC AND ADVERTISING TRENDS
The Company relies on sales of advertising space for its revenues, and
its operating results are therefore affected by general economic conditions, as
well as trends in the advertising industry. A reduction in advertising
expenditures available for the Company's displays could result from a general
decline in economic conditions, a decline in economic conditions in particular
markets where the Company conducts business or a reallocation of advertising
expenditures to other available media by significant users of the Company's
displays. Although the Company believes that in recent years outdoor advertising
expenditures have increased more rapidly than total U.S. advertising
expenditures, there can be no assurance that this trend will continue or that in
the future outdoor advertising expenditures will not grow more slowly than the
advertising industry as a whole.
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POTENTIAL ELIMINATION OR REDUCTION OF TOBACCO ADVERTISING
Approximately 9% of the Company's outdoor advertising net revenues and
8% of consolidated net revenues in fiscal 1997 came from the tobacco products
industry, compared to 10% of outdoor advertising net revenues for fiscal 1996,
9% for fiscal 1995, 7% for fiscal 1994 and 1993, and 12% for fiscal 1992. The
tobacco percentage for the six months ended June 1998 was approximately
9%. Manufacturers of tobacco products, principally cigarettes, were historically
major users of outdoor advertising displays. Beginning in 1992, the leading
tobacco companies substantially reduced their domestic advertising expenditures
in response to societal and governmental pressures and other factors. There can
be no assurance that the tobacco industry will not further reduce advertising
expenditures in the future either voluntarily or as a result of governmental
regulation or as to what affect any such reduction may have on the Company.
In June 1997 several of the major tobacco companies in the United
States and numerous state attorneys general reached agreement on a proposed
settlement of litigation between such parties. The terms of this proposed
settlement include a ban on all outdoor advertising of tobacco products
commencing nine months after finalization of the settlement. The settlement,
however, is subject to numerous conditions, the most notable of which is the
enactment of legislation by the federal government. Such legislation is still
pending before Congress. At this time, it is uncertain when a definitive
settlement will be reached, if at all, or what the terms of any such settlement
will be. An elimination or reduction in billboard advertising by the tobacco
industry could cause an immediate reduction in the Company's outdoor advertising
revenues and may simultaneously increase the Company's available inventory. An
increase in available inventory could result in the Company reducing its rates
or limiting its ability to raise rates for some period of time. If the tobacco
litigation settlement were to be finalized in its current form and if the
Company were unable to replace revenues from tobacco advertising with revenues
from other sources, such settlement could have a material adverse effect on the
Company's results of operations. While the Company believes that it would be
able to replace a substantial portion of revenues from tobacco advertising that
would be eliminated due to such a settlement with revenues from other sources,
any replacement of tobacco advertising may take time and require a reduction in
advertising rates.
In addition, the states of Florida, Mississippi, Texas and Minnesota
have entered into separate settlements of litigation with the tobacco industry.
None of these settlements is conditioned on federal government approval. The
Florida and Mississippi settlements provided for the elimination of all outdoor
advertising of tobacco products by February 1998 in such states and at such time
all of the Company's tobacco billboards and advertising was removed. The Texas
settlement requires the elimination of all outdoor advertising of tobacco
products by June 1998 and the Minnesota settlement requires the elimination of
all outdoor advertising of tobacco products by November 1998. At December 31,
1997, the Company operated approximately 4,249 outdoor advertising displays in
seven markets in Florida and approximately $1.8 million of its approximately
$19.2 million in net revenues in Florida during 1997 were attributable to
tobacco advertising. At December 31, 1997, the Company operated approximately
2,532 outdoor advertising displays in three markets in Mississippi and
approximately $0.8 million of its
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approximately $10.6 million in net revenues in Mississippi during 1997 were
attributable to tobacco advertising. At December 31, 1997, the Company operated
approximately 3,300 outdoor advertising displays in six markets in Texas and
approximately $0.8 million of its approximate $11.0 million in net revenues in
Texas during 1997. Although the Company does not operate any outdoor advertising
displays for tobacco products in Minnesota, the size and scope of the Minnesota
settlement, including the ban on tobacco outdoor advertising, may foreshadow
similar settlements of tobacco-related claims and litigation which may also
adversely affect outdoor advertising revenues.
REGULATION OF OUTDOOR ADVERTISING
The outdoor advertising business is subject to regulation by federal,
state and local governments. Federal law requires states, as a condition to
federal highway assistance, to restrict billboards on federally-aided primary
and interstate highways to commercial and industrial areas and imposes certain
additional size, spacing and other limitations on billboards. Some states have
adopted standards more restrictive than the federal requirements. Local
governments generally control billboards as part of their zoning regulations,
and some local governments prohibit construction of new billboards and
reconstruction of substantially damaged billboards or allow new construction
only to replace existing structures. In addition, some jurisdictions (including
certain of those within the Company's markets) have adopted amortization
ordinances under which owners and operators of outdoor advertising displays are
required to remove existing structures at some future date, often without
condemnation proceeds being available. Federal and corresponding state outdoor
advertising statutes require payment of compensation for removal by governmental
order in some circumstances. Ordinances requiring the removal of a billboard
without compensation, whether through amortization or otherwise, have been
challenged in various state and federal courts on both statutory and
constitutional grounds, with conflicting results. Although the Company has been
successful in the past in negotiating acceptable arrangements in circumstances
in which its displays have been subject to removal or amortization, there can be
no assurance that the Company will be successful in the future and what effect,
if any, such regulations may have on the Company's operations. In addition, the
Company is unable to predict what additional regulation may be imposed on
outdoor advertising in the future. Legislation regulating the content of
billboard advertisements has been introduced in Congress from time to time in
the past, although no laws which, in the opinion of management, would materially
and adversely affect the Company's business have been enacted to date. Changes
in laws and regulations affecting outdoor advertising at any level of government
may have a material adverse effect on the Company's results of operations. See
"--Potential Elimination or Reduction of Tobacco Advertising" for a discussion
of recent developments concerning tobacco advertising.
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ACQUISITION AND GROWTH STRATEGY RISKS
The Company's growth has been enhanced materially by strategic
acquisitions that have substantially increased the Company's inventory of
advertising displays. One element of the Company's operating strategy is to make
strategic acquisitions in markets in which it currently competes as well as in
new markets. While the Company believes that the outdoor advertising industry is
highly fragmented and that significant acquisition opportunities are available,
the market has been consolidating and there can be no assurance that suitable
acquisition candidates can continue to be found. In addition, the Company is
likely to face increased competition from other outdoor advertising companies
for available acquisition opportunities. Also, if the prices sought by sellers
of outdoor advertising displays continue to rise, as management believes may
happen, the Company may find fewer acceptable acquisition opportunities. There
can be no assurance that the Company will have sufficient capital resources to
complete acquisitions or be able to obtain any required consents of its bank
lenders or that acquisitions can be completed on terms acceptable to the
Company.
During 1997, the Company completed the acquisition of 24 complementary
businesses. The process of integrating these businesses into the Company's
operations may result in unforeseen operating difficulties and could require
significant management attention that would otherwise be available for the
development of the Company's existing business. Moreover, there can be no
assurance that the Company will realize anticipated benefits and cost savings or
that any future acquisitions will be consummated.
COMPETITION
In addition to competition from other forms of media, including
television, radio, newspapers and direct mail advertising, the Company faces
competition in its markets from other outdoor advertising companies, some of
which may be larger and better capitalized than the Company. The Company also
competes with a wide variety of other out-of-home advertising media, the range
and diversity of which have increased substantially over the past several years
to include advertising displays in shopping centers, malls, airports, stadiums,
movie theaters and supermarkets, and on taxis, trains and buses. The Company
believes that its local orientation, including the maintenance of local offices,
has enabled it to compete successfully in its markets to date. However, there
can be no assurance that the Company will be able to continue to compete
successfully against current and future sources of outdoor advertising
competition and competition from other media or that the competitive pressures
faced by the Company will not adversely affect its profitability or financial
performance. In its logo sign business, the Company currently faces competition
for state franchises from two other logo sign providers as well as local
companies. Competition from these sources is encountered both when a franchise
is first privatized and upon renewal thereafter.
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POTENTIAL LOSSES FROM HURRICANES
A significant portion of the Company's structures are located in the
mid-Atlantic and Gulf Coast regions of the United States. These areas are highly
susceptible to hurricanes during the late summer and early fall. In the past,
severe storms have caused the Company to incur material losses resulting from
structural damage, overtime compensation, loss of billboards that could not
legally be replaced and reduced occupancy because billboards are out of service.
The Company has determined that it is not economical to obtain insurance against
losses from hurricanes and other storms. The Company has developed contingency
plans to deal with the threat of hurricanes, including plans for early removal
of advertising faces to permit the structures to better withstand high winds and
the replacement of such faces after storms have passed. As a result of these
contingency plans, the Company has experienced lower levels of losses from
recent storms and hurricanes. Structural damage attributable to Hurricane Andrew
in 1992 was less than $500,000, and the Company suffered no significant
structural damage due to hurricanes in 1996 or 1997. There can be no assurance
that the Company's contingency plans will be effective.
RISKS IN OBTAINING AND RETAINING LOGO SIGN FRANCHISES
Logo sign franchises represent a growing portion of the Company's
revenues and operating income. The Company cannot predict the number of
remaining states, if any, that will initiate logo sign programs or convert
state-run logo sign programs to privately operated programs. Competition for new
state logo sign franchises is intense and, even after a favorable award,
franchises may be subject to challenge under state contract bidding
requirements, resulting in delays and litigation costs. In addition, state logo
sign franchises are generally, with renewal options, ten to twenty-year
franchises subject to earlier termination by the state, in most cases upon
payment of compensation. Typically, at the end of the term of the franchise,
ownership of the structures is transferred to the state without compensation to
the Company. Although none of the Company's logo sign franchises is due to
terminate in the next two years, three are subject to renewal during that
period. There can be no assurance that the Company will be successful in
obtaining new logo sign franchises or renewing existing franchises. Furthermore,
following the receipt by the Company of a new state logo sign franchise, the
Company generally incurs significant start-up capital expenditures and there can
be no assurance that the Company will continue to have access to capital to fund
such expenditures.
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RELIANCE ON KEY EXECUTIVES
The Company's success depends to a significant extent upon the
continued services of its executive officers and other key management and sales
personnel, in particular Kevin P. Reilly, Jr., the Company's Chief Executive
Officer, the Company's six regional managers and the manager of its logo sign
business. Although the Company believes it has incentive and compensation
programs designed to retain key employees, the Company has no employment
contracts with any of its employees, and none of its executive officers are
bound by non-compete agreements. The Company does not maintain key man insurance
on its executives. The unavailability of the continuing services of any of its
executive officers and other key management and sales personnel could have an
adverse effect on the Company's business.
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