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EXHIBIT 99.1
FACTORS AFFECTING FUTURE OPERATING RESULTS
OUR DEBT AGREEMENTS AND THOSE OF LAMAR MEDIA
CONTAIN COVENANTS AND RESTRICTIONS THAT CREATE THE
POTENTIAL FOR DEFAULTS
The terms of the indenture relating to Lamar Advertising's outstanding
notes, Lamar Media's bank credit facility and the indentures relating to Lamar
Media's outstanding notes restrict, among other things, the ability of Lamar
Advertising and Lamar Media to:
o dispose of assets;
o incur or repay debt;
o create liens; and
o make investments.
Lamar Media's ability to make distributions to Lamar Advertising is
also restricted under the terms of these agreements.
Under Lamar Media's bank credit facility we must maintain specified
financial ratios and levels including:
o interest coverage;
o fixed charges ratio;
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 WE HAVE SIGNIFICANT FIXED PAYMENTS ON OUR
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
We have borrowed substantial amounts of money in the past and may borrow
more money in the future. At September 30, 1999, Lamar Advertising Company had
approximately $288 million of convertible notes outstanding. At September 30,
1999, Lamar Media had approximately $1,310 million of debt outstanding to third
parties consisting of approximately $757 million in bank debt, $529 million in
various series of senior subordinated notes of Lamar Media and $24 million in
various other short-term and long-term debt of Lamar Media. The debt of Lamar
Advertising and Lamar Media totaling $1,598 million represents approximately 53%
of the Company's total capitalization. In addition, Lamar Media had $287.5
million in long-term notes payable to Lamar Advertising Company at September 30,
1999.
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 bank
credit facility which presently has a total committed amount of $1 billion in
term and revolving credit loans. At September 30, 1999, we had approximately
$243 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. 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.
OUR BUSINESS 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
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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.
OUR OPERATIONS 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.
OUR CONTINUED GROWTH 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.
o From January 1, 1997 to September 30, 1999, we completed 142 transactions
involving the purchase of complementary outdoor advertising assets,
including the acquisition on September 15, 1999 of Chancellor Media Outdoor
Corporation for a purchase price consisting of $700 million in cash and a
fixed amount of 26,227,273 shares of our Class A common stock and the
acquisition on October 1, 1998 of Outdoor Communications, Inc. for $385
million. We must integrate these and other 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.
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DUE TO THE CHANCELLOR OUTDOOR ACQUISITION, WE
HAVE SIGNIFICANTLY EXPANDED OUR OPERATIONS IN
MAJOR MARKETS WHERE WE CANNOT BE SURE OUR
BUSINESS STRATEGY WILL CONTINUE TO BE SUCCESSFUL
Our acquisition of Chancellor Outdoor has significantly expanded 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 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.
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.
Our tobacco revenues as a percentage of consolidated net revenues were 7% for
the twelve months ended December 31, 1998 and 3% for the nine months ended
September 30, 1999.
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 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, as a
result of the Chancellor Outdoor acquisition, we are the largest company
focusing exclusively on outdoor advertising, 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.
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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, 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., our Chief Executive Officer, our regional managers and the manager
of our logo sign business, in particular, are essential to our continued
success. Although we have designed 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. The Company has conducted an assessment of its software and related
systems and believes they are year 2000 compliant. The Company's year 2000
effort also included communication with significant third party vendors and
customers to determine the extent to which the Company's systems are vulnerable
to those parties' failure to reach year 2000 compliance. The Company 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 or that the Company's
systems will be unaffected. 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.