1
Exhibit 99.1
FACTORS AFFECTING FUTURE OPERATING RESULTS
OUR 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 our outstanding notes restrict, among other things, Lamar Media's
ability to:
o make distributions to Lamar Advertising;
o dispose of assets;
o incur or repay debt;
o create liens; and
o make investments.
Under our 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, we 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 and $24 million in various other short-term and long-term debt. In
addition, the Company had 287.5 million in long-term notes payable to Lamar
Advertising Company. The total debt of the Company at September 30, 1999 was
$1,598 million which represented approximately 53% of our total capitalization.
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 our 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 our 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 our 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 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.
2
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 Lamar
Advertising Company 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.
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
The 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
3
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.
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
4
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 and the Chief Executive Officer of
Lamar Advertising Company, 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.