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EXHIBIT 99.1
FACTORS AFFECTING FUTURE OPERATING RESULTS
LAMAR MEDIA CORP.'S DEBT AGREEMENTS CONTAIN COVENANTS AND RESTRICTIONS THAT
CREATE THE POTENTIAL FOR DEFAULTS
The terms of Lamar Media's bank credit facility and the indentures
relating to Lamar Media's outstanding notes restrict, among other things, Lamar
Media's ability to:
o make distributions to Lamar Advertising Company;
o dispose of assets;
o incur or repay debt;
o create liens; and
o make investments.
Under Lamar Media's bank credit facility we must maintain specified
financial ratios and levels including:
o interest coverage;
o fixed charge coverage;
o senior debt ratios; and
o total debt ratios.
If we fail to comply with these tests, the lenders have the right to cause
all amounts outstanding under the bank credit facility to become immediately
due. If this were to occur and the lenders decide to exercise their right to
accelerate the indebtedness, it would create serious financial problems for us.
Our ability to comply with these restrictions, and any similar restrictions in
future agreements, depends on our operating performance. Because our
performance is subject to prevailing economic, financial and business
conditions and other factors that are beyond our control, we may be unable to
comply with these restrictions in the future.
BECAUSE LAMAR ADVERTISING AND ITS SUBSIDIARIES HAVE SIGNIFICANT FIXED PAYMENTS
ON THEIR DEBT, WE MAY LACK SUFFICIENT CASH FLOW TO OPERATE OUR BUSINESS AS WE
HAVE IN THE PAST AND MAY NEED TO BORROW MONEY IN THE FUTURE TO MAKE THESE
PAYMENTS AND OPERATE OUR BUSINESS
Lamar Advertising and its subsidiaries have borrowed substantial amounts
of money in the past and may borrow more money in the future. Lamar Advertising
recently completed an offering of $250 million of convertible notes. At
June 30, 1999, Lamar Media had approximately $894 million of debt outstanding
consisting of approximately $307 million in bank debt, $558 million in various
series of senior subordinated notes and $29 million in various other short-term
and long-term debt of Lamar Media.
If we complete the pending Chancellor Outdoor acquisition, we will incur
additional debt. Assuming that the Chancellor Outdoor acquisition had taken
place prior to June 30, 1999, at that time Lamar Media would have had
approximately $1.6 billion of debt outstanding, consisting of approximately $1
billion in bank debt, $558 million in various series of senior subordinated
notes and $29 million in various other short-term and long-term debt of Lamar
Media. This debt would have represented approximately 55% of our total
capitalization after giving effect to the pending Chancellor Outdoor
acquisition, the Lamar Advertising convertible notes offering and the
application of the net proceeds from the convertible notes offering.
A large part of our cash flow from operations must be used to make
principal and interest payments on our debt. If our operations make less money
in the future, we may need to borrow to make these payments. In addition, we
finance most of our acquisitions through borrowings under Lamar Media's
existing bank credit facility which presently has a total committed amount of
$500 million in term and revolving credit loans. As of June 30, 1999, we only
had approximately $192 million available to borrow under this bank credit
facility. Since our borrowing capacity under Lamar Media's bank credit facility
is limited, we may not be able to continue to finance future acquisitions at
our historical rate with borrowings under this bank credit facility. Lamar
Media has obtained a commitment from its lenders to replace its existing bank
credit facility with a new bank credit facility with a maximum borrowing
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capacity of up to $1 billion. We cannot guarantee that Lamar Media will enter
into the new bank credit facility for the full commitment amount or at all. We
may need to borrow additional amounts or seek other sources of financing to
fund future acquisitions. We cannot guarantee that such additional financing
will be available or available on favorable terms. We also may need the consent
of the banks under Lamar Media's bank credit facility, or the holders of other
indebtedness, to borrow additional money.
THE BUSINESS OF LAMAR ADVERTISING AND ITS SUBSIDIARIES COULD BE HURT BY CHANGES
IN ECONOMIC AND ADVERTISING TRENDS
We sell advertising space to generate revenues. A decrease in demand for
advertising space could adversely affect our business. General economic
conditions and trends in the advertising industry affect the amount of
advertising space purchased. A reduction in money spent on our displays could
result from:
o a general decline in economic conditions;
o a decline in economic conditions in particular markets where we
conduct business;
o a reallocation of advertising expenditures to other available media by
significant users of our displays; or
o a decline in the amount spent on advertising in general.
THE OPERATIONS OF LAMAR ADVERTISING AND ITS SUBSIDIARIES ARE IMPACTED BY THE
REGULATION OF OUTDOOR ADVERTISING
Our operations are significantly impacted by federal, state and local
government regulation of the outdoor advertising business.
The federal government conditions federal highway assistance on states
imposing location restrictions on the placement of billboards on primary and
interstate highways. Federal laws also impose 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. Some local governments have enacted
ordinances which require removal of billboards by a future date. Others
prohibit the construction of new billboards and the reconstruction of
significantly damaged billboards, or allow new construction only to replace
existing structures.
Local laws which mandate removal of billboards at a future date often do
not provide for payment to the owner for the loss of structures that are
required to be removed. Certain federal and state laws require payment of
compensation in such circumstances. Local laws that require the removal of a
billboard without compensation have been challenged in state and federal courts
with conflicting results. Accordingly, we may not be successful in negotiating
acceptable arrangements when our displays have been subject to removal under
these types of local laws.
Additional regulations 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. Additional regulations or
changes in the current laws regulating and affecting outdoor advertising at the
federal, state or local level may have a material adverse effect on our results
of operations.
THE CONTINUED GROWTH OF LAMAR ADVERTISING AND ITS SUBSIDIARIES THROUGH
ACQUISITIONS MAY BECOME MORE DIFFICULT AND INVOLVES COSTS AND UNCERTAINTIES
We have substantially increased our inventory of advertising displays
through acquisitions. Our operating strategy involves making purchases in
markets where we currently compete as well as in new markets. However, the
following factors may affect our ability to continue to pursue this strategy
effectively.
o The outdoor advertising market has been consolidating, and this may
adversely affect our ability to find suitable candidates for purchase.
o We are also likely to face increased competition from other outdoor
advertising companies for the companies or assets we wish to purchase.
Increased competition may lead to higher prices for outdoor
advertising companies and assets and decrease those we are able to
purchase.
o We do not know if we will have sufficient capital resources to make
purchases, obtain any required consents from our lenders, or
find acquisition opportunities with acceptable terms.
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o From January 1, 1997 to July 22, 1999, we completed 96 transactions
involving the purchase of complementary outdoor advertising assets,
the most significant of which was the acquisition on October 1, 1998
of Outdoor Communications, Inc. for $385 million. We currently have
pending an acquisition of Chancellor Outdoor for a purchase price
consisting of $700 million in cash and a fixed amount of 26,227,273
shares of Class A common stock of Lamar Advertising, which if
completed, will be by far our largest acquisition to date. We must
integrate these acquired assets and businesses into our existing
operations. This process of integration may result in unforeseen
difficulties and could require significant time and attention from our
management that would otherwise be directed at developing our existing
business. Further, we cannot be certain that the benefits and cost
savings that we anticipate from these purchases will develop.
IF WE COMPLETE THE CHANCELLOR OUTDOOR ACQUISITION, WE WILL SIGNIFICANTLY EXPAND
OUR OPERATIONS IN MAJOR MARKETS WHERE WE CANNOT BE SURE OUR BUSINESS STRATEGY
WILL CONTINUE TO BE SUCCESSFUL
If we complete our acquisition of Chancellor Outdoor, we will
significantly expand our operations in major markets. Because we have
historically focused on middle markets and have not had substantial operations
in major markets to date, we cannot guarantee that we will be able to replicate
the success that we have achieved with our business strategy in middle markets.
Achieving our goals in major markets will depend to a great extent on our
ability to attract and retain national advertising customers. Our success to
date has been built in large measure on our ability to attract and retain local
advertising customers. Approximately 81% of our net advertising revenues for
calendar 1998 derived from local advertising. We cannot be sure that the
strategies that have worked well with local advertising customers will work
with national advertisers.
In addition, expanding our operations in major markets will put us in
increased competition with larger competitors with more diversified media
operations who may have a more established market presence and greater
financial resources then we do. We may also face more intense competition from
other forms of outdoor advertising and other media in major markets than we do
in middle markets.
IF WE DO NOT COMPLETE THE CHANCELLOR OUTDOOR ACQUISITION, WE MAY NOT BE ABLE TO
ACHIEVE THE GROWTH THAT WE ANTICIPATE IF THE ACQUISITION IS COMPLETED
For the Chancellor Outdoor acquisition to be completed, numerous closing
conditions must be satisfied. Many of these closing conditions, including
clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and
financing contingencies, are beyond our control. Accordingly, we may not be
able to complete the acquisition. Even if we complete the Chancellor Outdoor
acquisition, the projected growth we anticipate could be reduced if we were
required to divest significant assets to obtain clearance under the HSR Act.
The Chancellor Outdoor acquisition offers projected benefits that we may
not be able to achieve through other means. As consolidation continues to
accelerate in the outdoor advertising industry, there are fewer opportunities
to acquire outdoor advertising assets on the scale of the Chancellor Outdoor
acquisition. Consequently, we may not be able to acquire the quantity or
quality of outdoor advertising assets afforded by the Chancellor Outdoor
acquisition in a series of smaller acquisitions.
THE BAN ON TOBACCO ADVERTISING HAS ELIMINATED A TRADITIONALLY SIGNIFICANT
SOURCE OF OUR REVENUES AND WE MAY NOT BE ABLE TO CONTINUE TO REPLACE THESE LOST
REVENUES THROUGH OTHER SOURCES
We have removed all of our outdoor advertising of tobacco products in
connection with settlements the states reached with the U.S. tobacco companies.
The revenues from tobacco advertising as a percentage of billboard advertising
net revenues was 9% in 1997 and 8% in 1998.
The ban on outdoor advertising of tobacco products in the settlement
increased our available inventory. To date, we have been successful in
replacing the tobacco advertising removed with substitute advertising at
comparable rates. We cannot be sure, however, that we will continue to be able
to do so in the future. If we are unable to continue to replace tobacco
advertising, the resulting increase in available inventory could cause us to
reduce our rates or limit our ability to raise rates. In addition, we cannot
guarantee that substitute
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advertisers will pay rates as favorable to us as those paid by tobacco
advertisers.
WE FACE COMPETITION FROM LARGER AND MORE DIVERSIFIED OUTDOOR ADVERTISERS AND
OTHER FORMS OF ADVERTISING THAT COULD HURT OUR PERFORMANCE
We cannot be sure that in the future we will compete successfully against
the current and future sources of outdoor advertising competition and
competition from other media. The competitive pressure that we face could
adversely affect our profitability or financial performance. Even though we
would be the largest company focusing exclusively on outdoor advertising if we
complete our pending acquisition of Chancellor Outdoor, we face competition
from larger companies with more diversified operations which also include radio
and other broadcast media. We also face competition from other forms of media,
including television, radio, newspapers and direct mail advertising. We must
also compete with an increasing variety of other out-of-home advertising media
that include advertising displays in shopping centers, malls, airports,
stadiums, movie theaters and supermarkets, and on taxis, trains and buses.
In our logo sign business, we currently face competition for state-awarded
service contracts from two other logo sign providers as well as local
companies. Initially, we compete for state-awarded service contracts as they
are privatized. Because these contracts expire after a limited time, we must
compete to keep our existing contracts each time they are up for renewal.
IF OUR CONTINGENCY PLANS RELATING TO HURRICANES FAIL, THE RESULTING LOSSES
COULD HURT OUR BUSINESS
Although we have developed contingency plans designed to deal with the
threat posed to our advertising structures by hurricanes, we cannot guarantee
that these plans will work. If these plans fail, significant losses could
result.
A significant portion of our structures is 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, we have incurred
significant losses due to severe storms. These losses resulted from structural
damage, overtime compensation, loss of billboards that could not be replaced
under applicable laws and reduced occupancy because billboards were out of
service.
We have determined that it is not economical to obtain insurance against
losses from hurricanes and other storms. Instead, we have developed contingency
plans to deal with the threat of hurricanes. For example, we attempt to remove
the advertising faces on billboards at the onset of a storm, when possible,
which permits the structures to better withstand high winds during a storm. We
then replace these advertising faces after the storm has passed. However, these
plans may not be effective in the future and, if they are not, significant
losses may result.
OUR LOGO SIGN CONTRACTS ARE SUBJECT TO STATE AWARD AND RENEWAL
A growing portion of our revenues and operating income come from our
state-awarded service contracts for logo signs. We cannot predict what
remaining states, if any, will start logo sign programs or convert state-run
logo sign programs to privately operated programs. We compete with many other
parties for new state-awarded service contracts for logo signs. Even when we
are awarded a contract, the award may be challenged under state contract
bidding requirements. If an award is challenged, we may incur delays and
litigation costs.
Generally, state-awarded logo sign contracts have a term, including
renewal options, of ten to twenty years. States may terminate a contract early,
but in most cases must pay compensation to the logo sign provider for early
termination. Typically, at the end of the term of the contract, ownership of
the structures is transferred to the state without compensation to the logo
sign provider. Of our current logo sign contracts, one is due to terminate in
September 1999 and three are subject to renewal in May, June and October 2000.
We cannot guarantee that we will be able to obtain new logo sign contracts or
renew our existing contracts. In addition, after we receive a new state-awarded
logo contract, we generally incur significant start-up costs. We cannot
guarantee that we will continue to have access to the capital necessary to
finance those costs.
OUR OPERATIONS COULD BE AFFECTED BY THE LOSS OF KEY EXECUTIVES
Our success depends to a significant extent upon the continued services of
our executive officers and other key management and sales personnel. Kevin P.
Reilly, Jr., Lamar Advertising's Chief Executive Officer, our six regional
managers and the manager of our logo sign business, in particular, are
essential to our continued success. Although we have designed
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our incentive and compensation programs to retain key employees, we have no
employment contracts with any of our employees and none of our executive
officers have signed non-compete agreements. We do not maintain key man
insurance on our executives. If any of our executive officers or other key
management and sales personnel stopped working with us in the future, it could
have an adverse effect on our business.
WE COULD EXPERIENCE SYSTEM FAILURES AND DISRUPTIONS OF OUR OPERATIONS AS A
RESULT OF THE YEAR 2000 DATE RECOGNITION PROBLEM
The year 2000 date recognition problem could cause our computer systems to
fail, resulting in miscalculations and incorrect data. Computer systems which
may be affected by this year 2000 problem include computer systems embedded in
production equipment; displays containing computer systems; business data
processing systems; production, management and planning systems; and personal
computers. Consequently, the year 2000 problem could disrupt our daily
commercial activities if we do not take the steps necessary to address it
effectively. In addition, we cannot assure you that our customers, suppliers
and other third parties that we deal with are or will be year 2000 compliant in
a timely manner. Interruptions in the services provided to us or in the
purchases made by these third parties could also disrupt our operations.
Parties affected by a disruption in our operations and services could make
claims or bring lawsuits against us. Depending upon the extent and duration of
any disruptions caused by the year 2000 problem and the specific services
affected, these disruptions could have an adverse affect on our business.
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