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EXHIBIT 99.1
Factors Affecting Future Operating Results
In this exhibit, "Xxxxx," "Xxxxx Advertising," the "Company," "we,"
"us" and "our" refer to Xxxxx Advertising Company and its consolidated
subsidiaries, except where we make it clear that we are only referring to Xxxxx
Media Corp., which is sometimes referred to herein as "Lamar Media."
OUR DEBT AGREEMENTS AND THOSE OF OUR WHOLLY-OWNED, DIRECT SUBSIDIARY
XXXXX MEDIA CORP. CONTAIN COVENANTS AND RESTRICTIONS THAT CREATE
THE POTENTIAL FOR DEFAULTS.
The terms of the indenture relating to Xxxxx Advertising's outstanding
notes, Xxxxx Media Corp.'s bank credit facility and the indentures relating to
Xxxxx Media's outstanding notes restrict, among other things, the ability of
Xxxxx Advertising and Xxxxx Media to:
o dispose of assets;
o incur or repay debt;
o create liens; and
o make investments.
Xxxxx Media's ability to make distributions to Xxxxx Advertising is
also restricted under the terms of these agreements.
Under Xxxxx 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 was 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.
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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 June 30, 2000, Xxxxx Advertising Company had
approximately $288 million of convertible notes outstanding. At June 30, 2000,
Xxxxx Media had approximately $1,553 million of debt outstanding consisting of
approximately $1 billion in bank debt, $541 million in various series of senior
subordinated notes of Xxxxx Media and $12 million in various other short-term
and long-term debt of Xxxxx Media. This debt of Lamar Advertising and Xxxxx
Media represents approximately 56% 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 Xxxxx Media's bank
credit facility which presently has a total committed amount of $1.25 billion in
term and revolving credit loans. At June 30, 2000, we had approximately $249
million available to borrow under this bank credit facility. Since our borrowing
capacity under Xxxxx 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 additional financing will be available or available on
favorable terms. We also may need the consent of the banks under Xxxxx 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 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.
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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. Some 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 that we wish to purchase.
Increased competition may lead to higher prices for outdoor advertising
companies and assets and decrease those that 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 AUGUST 7, 2000, we completed 195 transactions
involving the purchase of complementary outdoor advertising assets. We must
integrate newly 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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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. Although 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
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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 20 logo sign contracts in place at June 30, 2000, two are
subject to renewal in October 2000 and February 2001. 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. Xxxxx X.
Xxxxxx, Xx., our Chief Executive Officer, our nine 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.
