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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 1999.
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period ______ to ______.
Commission File No. 1-13925
CHAMPIONSHIP AUTO RACING TEAMS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 38-3389456
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(State or other jurisdiction of (IRS Employer Identification No.)
Incorporation or organization)
755 West Big Beaver Rd., Suite 800, Troy, MI 48084
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(Address of principal executive offices) (Zip Code)
(248) 362-8800
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
COMMON STOCK $0.01 PAR VALUE 15,224,041 SHARES
---------------------------- -----------------
CLASS OUTSTANDING AT MAY 1, 1999
This report contains 15 pages.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
<S> <C> <C> <C>
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS.
Consolidated Balance Sheets at March 31, 1999 and December 31, 1998 3
Consolidated Statements of Operations for the Three Months Ended
March 31, 1999 and 1998 4
Consolidated Statement of Stockholders' Equity for the Three Months
Ended March 31, 1999 5
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1999 and 1998 6
Notes to Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 10
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 15
SIGNATURES 16
</TABLE>
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CHAMPIONSHIP AUTO RACING TEAMS, INC.
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1999 AND DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 16,199 $ 15,080
Short-term investments 74,100 61,610
Accounts receivable (net of allowance for doubtful accounts
of $189 and $306 at March 31, 1999 and
December 31, 1998, respectively) 6,248 4,708
Current portion of notes receivable 824 824
Inventory 82 71
Prepaid expenses 794 331
Deferred income taxes 117 119
--------- ---------
Total current assets 98,364 82,743
NOTES RECEIVABLE 3,326 3,350
PROPERTY AND EQUIPMENT- Net 5,078 5,026
GOODWILL (net of accumulated amortization of $142 and $105
at March 31, 1999 and December 31, 1998, respectively) 5,741 5,778
OTHER ASSETS (net of accumulated amortization of $45 and
$41 at March 31, 1999 and December 31, 1998, respectively) 484 289
--------- ---------
TOTAL ASSETS $ 112,993 $ 97,186
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,339 $ 1,946
Accrued liabilities:
Race expenses and point awards 171 --
Royalties 394 1,026
Payroll 224 482
Taxes 1,057 1,733
Other 1,582 934
Unearned revenue 18,038 4,273
Current portion of long-term debt 130 130
--------- ---------
Total current liabilities 23,935 10,524
LONG-TERM DEBT 152 184
DEFERRED INCOME TAXES 296 259
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value; 5,000,000 shares authorized, none issued and
outstanding at March 31, 1999
and December 31, 1998 -- --
Common stock, $.01 par value; 50,000,000 shares
authorized, 15,224,041 and 15,171,666 shares issued and
outstanding at March 31, 1999 and December 31, 1998, respectively 152 151
Additional paid-in capital 90,706 89,771
Accumulated deficit (2,402) (4,033)
Unrealized gain on investments 154 330
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Total stockholders' equity 88,610 86,219
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 112,993 $ 97,186
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
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CHAMPIONSHIP AUTO RACING TEAMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
REVENUES:
<S> <C> <C>
Sanction fees $1,356 $ 4,992
Sponsorship revenue 4,197 3,159
Television revenue 265 602
Engine leases, rebuilds and wheel sales 522 198
Other 1,009 1,079
--------- ---------
Total revenues 7,349 10,030
EXPENSES:
Race distributions 738 1,388
Race expenses 953 832
Cost of engine rebuilds and wheel sales 181 63
Administrative and indirect expenses 3,928 3,446
Depreciation and amortization 235 141
Minority interest -- (54)
----------- ----------
Total expenses 6,035 5,816
OPERATING INCOME 1,314 4,214
Interest income (net) 1,237 267
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INCOME BEFORE INCOME TAXES 2,551 4,481
Income tax expense 912 1,618
--------- ---------
NET INCOME $1,639 $ 2,863
========== =========
EARNINGS PER SHARE:
BASIC $ 0.11 $ 0.26
========== =========
DILUTED $ 0.10 $ 0.26
========== =========
WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC 15,175 11,189
========== =========
DILUTED 15,670 11,225
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
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CHAMPIONSHIP AUTO RACING TEAMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL UNREALIZED
------------ PAID-IN ACCUMULATED GAIN (LOSS) ON STOCKHOLDERS' COMPREHENSIVE
SHARES AMOUNT CAPITAL DEFICIT INVESTMENTS EQUITY INCOME (LOSS)
------ ------ ------- ------- ----------- ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1998 15,171 $ 151 $ 89,771 $ (4,033) $ 330 $ 86,219
Net income -- -- -- 1,639 -- 1,639 $ 1,639
Comprehensive loss -- -- -- -- (176) (176) (176)
-------
$ 1,463
=======
Elimination of minority -- -- -- (8) -- (8)
interest
Exercise of options 53 1 935 -- -- 936
------ ----- -------- --------- ----- --------
BALANCES, MARCH 31, 1999 15,224 $ 152 $ 90,706 $ (2,402) $ 154 $ 88,610
====== ===== ======== ========= ===== ========
</TABLE>
See accompanying notes to consolidated financial statements.
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CHAMPIONSHIP AUTO RACING TEAMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,639 $ 2,863
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 235 141
Deferred income taxes 39 1,669
Minority interest in loss of subsidiaries -- (54)
Changes in assets and liabilities that provided (used) cash:
Accounts receivable (1,540) (8,727)
Prepaid expenses (463) 126
Inventory (11) (31)
Other assets (193) 26
Accounts payable 393 1,725
Accrued liabilities (747) (8,093)
Unearned revenue 13,765 15,874
-------- --------
Net cash provided by operating activities 13,117 5,519
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of subsidiaries -- (7,000)
Investments (12,666) (25,043)
Notes receivable 24 --
Acquisition of property and equipment (248) (540)
Acquisition of trademark (5) --
-------- --------
Net cash used in investing activities (12,895) (32,583)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt (32) (32)
Issuance of notes receivable -- (193)
Redemption of common stock -- (151)
Issuance of common stock (net of underwriting discount and offering costs) 929 73,607
-------- --------
Net cash provided by financing activities 897 73,231
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NET INCREASE IN CASH AND
CASH EQUIVALENTS 1,119 46,167
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 15,080 1,164
-------- --------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 16,199 $ 47,331
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period for:
Income taxes $ 1,315 none
======== ========
Interest $ 7 $ 11
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
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CHAMPIONSHIP AUTO RACING TEAMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The accompanying unaudited consolidated
financial statements have been prepared by management and, in the opinion of
management, contain all adjustments, consisting of normal recurring adjustments,
necessary to present fairly the financial position of Championship Auto Racing
Teams, Inc. and subsidiaries (the "Company") as of March 31, 1999 and the
results of its operations and its cash flows for the three months ended March
31, 1999 and 1998.
The unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements included in the Company's
Form 10-K filed with the Securities and Exchange Commission.
Because of the seasonal concentration of racing events, the results of
operations for the three months ended March 31, 1999 and 1998 are not indicative
of the results to be expected for the year.
PRINCIPLES OF CONSOLIDATION. The 1998 consolidated financial statements
include the financial statements of CART, Inc. (a Michigan corporation) and its
wholly-owned subsidiary corporations CART Properties, Inc. and CART Licensed
Products, Inc. In addition, the 1998 consolidated financial statements include
the financial statements of CART Licensed Products, L.P., a 55% owned
subsidiary. As of March 13, 1998, and April 1, 1998, the consolidated unaudited
financial statements also include the financial statements of American Racing
Series, Inc. ("ARS"), a wholly-owned subsidiary and Pro-Motion Agency Ltd.
("Pro-Motion"), a wholly-owned subsidiary, respectively. Effective January 1,
1999, the Company purchased the 45% minority interest of CART Licensed Products,
L.P. All significant intercompany balances have been eliminated in consolidated.
RECLASSIFICATIONS. Certain reclassifications have been made to the 1998
unaudited consolidated financial statements in order for them to conform to the
1999 presentation.
2. ACQUISITIONS - PRO FORMA RESULTS
The following unaudited pro forma summary for the three months ended
March 31, 1998 assume the acquisitions of ARS and Pro-Motion occurred as of
January 1, 1998.
<TABLE>
<CAPTION>
1998
(IN THOUSANDS,
EXCEPT EARNINGS PER SHARE)
--------------------------------------------------------------
<S> <C>
Revenues $11,364
Net income 3,104
Earnings per share:
Basic $ .27
=======
Diluted $ .27
=======
</TABLE>
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3. SHORT-TERM INVESTMENTS
The following is a summary of the estimated fair value of available for
sale short-term investments by balance sheet classification:
<TABLE>
<CAPTION>
GROSS UNREALIZED
MARCH 31, 1999 ----------------
(IN THOUSANDS) COST FAIR VALUE GAIN LOSS
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Certificate of deposit $ 2,000 $ 2,000 $ -- $ --
Commercial paper 28,396 28,540 144 --
U.S. agencies securities 23,025 23,005 -- (20)
Corporate bonds 14,151 14,174 23 --
Municipal bonds 6,375 6,381 7 --
------- ------- ---- ----
Total short-term investments $73,947 $74,100 $174 $(20)
======= ======= ==== ====
</TABLE>
Contractual maturities range from less than one year to two years. The
weighted average maturity of the portfolio does not exceed one year.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1998
and March 31, 1999:
<TABLE>
<CAPTION>
(IN THOUSANDS)
MARCH 31, DECEMBER 31,
1999 1998
--------------- --------------
<S> <C> <C>
Engines $ 2,296 $ 2,296
Equipment 2,536 2,381
Furniture and fixtures 365 359
Vehicles 2,053 1,959
Other 108 121
--------------- --------------
Total 7,358 7,116
Less accumulated depreciation (2,280) (2,090)
--------------- --------------
Property and equipment (net) $ 5,078 $ 5,026
=============== ==============
</TABLE>
5. SEGMENT REPORTING
The Company has one reportable segment, racing operations.
This reportable segment encompasses all the business operations of organizing,
marketing and staging all of our open-wheel racing events.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company's long-lived assets are
substantially used in the racing operations
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segment in the United States. The Company evaluates performances based on income
before income taxes.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
($ in thousands) RACING OPERATIONS OTHER* TOTALS
- ---------------- ----------------- ------ ------
<S> <C> <C> <C>
1999
- ----
Revenues $7,057 $ 292 $ 7,349
Interest income (expense) (net) 1,238 (1) 1,237
Depreciation and amortization 222 13 235
Segment loss before income taxes 2,556 (5) 2,551
1998
- ----
Revenues 9,851 179 10,030
Interest income (expense) (net) 268 (1) 267
Depreciation and amortization 135 6 141
Segment income before income taxes 4,599 (118) 4,481
</TABLE>
*Segment is below the quantitative thresholds for determining reportable
segments and commenced operations on January 1, 1997. This segment is related to
the Company's licensing royalties.
Reconciliations to consolidated financial statement totals are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
---------- --------
<S> <C> <C>
Total assets for reportable segment $ 112,586 $ 97,554
Other assets 407 632
--------- --------
Total consolidated assets $ 112,993 $ 98,176
========= ========
Total liabilities for reportable segment $ 23,958 $ 24,148
Other liabilities 425 767
--------- --------
Total consolidated liabilities $ 24,383 $ 24,915
========= ========
</TABLE>
6. SUBSEQUENT EVENTS
In May 1999, the Company completed the registered public offering of
1,816,500 shares of common stock that was sold by certain selling shareholders.
In addition, 272,475 shares of common stock were sold by the Company for $28.00
per share (less underwriting discounts and commissions and offering expenses)
upon exercise of the underwriters' over-allotment option.
In April 1999, the Company entered into a letter agreement with Robert
Hollander, who resigned as president of CART Licensed Products, L.P., and his
company to purchase the remaining 45% interest in CART Licensed Products, L.P.
for $900,000.
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ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The following discussion and analysis of the financial condition and
results of operations should be read in conjunction with the consolidated
financial statements of the Company, including the respective notes thereto
which are included in this Form 10-Q.
THE REORGANIZATION
In December 1997, as part of our reorganization, each stockholder of
CART, Inc. exchanged their shares for stock of the Company. Prior to our
reorganization, the franchise race teams received reimbursement of travel
expenses, directors fees and franchise payments. The franchise teams signed an
agreement on December 19, 1997 to discontinue these payments after January 1,
1998. The agreement will expire in December 2000. This agreement is a related
party transaction because each franchise team owns shares of our stock. We do
not intend to resume making such payments to franchise race teams unless we
receive additional revenue that was not contracted for at the end of 1997.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998
REVENUES. Total revenues for the three months ended March 31, 1999 were
$7.3 million, a decrease of $2.7 million from the same period in the prior year.
This was due to decreased sanction fees, television revenue and other revenue,
partially offset by an increase in sponsorship and engine leases, rebuilds and
wheel sales as described below.
Sanction fees for the three months ended March 31, 1999 were $1.4
million, a decrease of $3.6 million, or 73%, from the same period in the prior
year. We staged two races during the first quarter of 1998, and we only held one
race during the first quarter of 1999.
Sponsorship revenue for the three months ended March 31, 1999 was $4.2
million, an increase of $1.0 million, or 33%, from the same period in the prior
year. This increase was primarily attributable to a new sponsorship agreement we
entered into with ISL Worldwide and the additional sponsorship revenues we
received that were attributable to the acquisition of ARS in March 1998 and
Pro-Motion in April 1998. Under the new ISL sponsorship agreement, ISL has
guaranteed certain sponsorship income in 1999.
Television revenue for the three months ended March 31, 1999 was
$265,000, a decrease of $337,000, or 56%, from the same period in the prior
year. This decrease was due primarily to having one race event in the period
ending March 31, 1999 and two race events in the same period in the prior year.
Engine leases, rebuilds and wheel sales for the three months ended
March 31, 1999 was $522,000, an increase of $324,000 from the same period in the
prior year. This increase was due to ARS being acquired in March 1998 and
therefore, we included only a portion of ARS' first quarter revenues in our
financial statements for the prior period total.
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Other revenue for the three months ended March 31, 1999 was $1.0
million, a decrease of $70,000, or 7%, from the same period in the prior year.
This decrease was attributable to a decrease in membership and credential income
due to having one race for the three months ended March 31, 1999 compared to two
races in the same period in the prior year, partially offset by an increase in
royalty income and income from Pro-Motion Agency which was acquired April 1,
1998.
EXPENSES. Total expenses for the three months ended March 31, 1999 were
$6.0 million, an increase of $219,000, or 4%, from the same period in the prior
year. This increase was due to an increase in race expenses, administrative and
indirect expenses and cost of engine rebuilds and wheel sales, partially offset
by a decrease in race distributions as described below.
Race distributions for the three months ended March 31, 1999 were
$738,000, a decrease of $650,000, or 47%, from the same period in the prior
year. The decrease was due to one race being held in the three months ended
March 31, 1999 compared to two races being held in the same period in the prior
year.
Race expenses for the three months ended March 31, 1999 were $953,000,
an increase of $121,000, or 15%, from the same period in the prior year. The
increase was due to our addition of two new departments, race operations and
electronics, during the second and fourth quarters of 1998, respectively and the
addition of ARS and Pro-Motion Agency, partially offset by one race being held
in the three months ended March 31,1999 compared to two races being held in the
same period of the prior year.
Cost of engine rebuilds and wheel sales for the three months ended
March 31, 1999 were $181,000, an increase of $118,000 or 187% from the same
period in the prior year. This increase is due to ARS being acquired in March
1998 and only a portion of the expense was reported in the same period in the
prior year.
Administrative and indirect expenses for the three months ended March
31, 1999 were $3.9 million, an increase of $482,000, or 14%, from the same
period in the prior year. This increase was primary attributed to the addition
of ARS and Pro-Motion administrative expenses since these companies were
acquired in March and April 1998, respectively.
OPERATING INCOME. Operating income for the three months ended March 31,
1999 was $1.3 million, a decrease of $2.9 million from the same period in the
prior year.
INTEREST INCOME (NET). Interest income (net) for the three months ended
March 31, 1999 was $1.2 million compared to interest income (net) of $267,000
from the same period in the prior year. The increase of $970,000 was primarily
attributable to interest earned on the invested proceeds from the initial public
offering that occurred in March 1998.
INCOME BEFORE INCOME TAXES. Income before income taxes for the three
months ended March 31, 1999 was $2.6 million, compared to income before income
taxes of $4.5 million from the same period in the prior year.
INCOME TAX EXPENSE. Income tax expense for the three months ended March
31, 1999 was $912,000, compared to an income tax expense of $1.6 million from
the same period in the prior year.
NET INCOME/LOSS. Net income for the three months ended March 31, 1999
was $1.6 million compared to net income of $2.9 million from the same period in
the prior year.
SEASONALITY AND QUARTERLY RESULTS
A substantial portion of our total revenues during the race season is
expected to remain seasonal, based on our race schedule. Our quarterly results
vary based on the number of races held during the quarter. During the three
months ended March 31, 1999, we held one race in Homestead, Florida. During the
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three months ended March 31, 1998, we held two races - one in Homestead, Florida
and one in Motegi, Japan. In addition, the mix between the type of race (street
course, superspeedway, etc.) and the sanction fees attributed to those races
will affect quarterly results.
LIQUIDITY AND CAPITAL RESOURCES
We have relied on the proceeds from our initial public offering and
cash flow from operations, supplemented by bank borrowings, to finance working
capital, investments and capital expenditures during the past year.
Our bank borrowing with a commercial bank consists of a fixed rate
installment note incurred in connection with the acquisition of a mobile medical
unit that we transport to each North American race. The note bears interest at
the rate of 8.25% per annum and matures on May 1, 2001. The note is secured by
our mobile medical unit. Interest is payable monthly. As of March 31, 1999, the
current portion of this note was $130,000, and the long-term portion was
$152,000.
We also have a $1.5 million revolving line of credit with a commercial
bank. As of March 31, 1999, there was no outstanding balance under the line of
credit. The line of credit contains no significant covenants or restrictions.
Advances on the line of credit are payable on demand and bear interest at the
bank's prime rate. The line is secured by our deposits with the bank.
Our cash balance on March 31, 1999 was $16.2 million, a net increase of
$1.1 million from December 31, 1998. This increase was primarily the result of
net cash provided by operations of $13.1 million and net financing activities of
$897,000, which was offset by net cash used in investing activities of $12.9
million.
We anticipate capital expenditures of approximately $1.5 million during
the next twelve months. In April 1999, the Company entered into a letter
agreement with Robert Hollander, who resigned as president of CART Licensed
Products, L.P., and his company to purchase the remaining 45% interest in CART
Licensed Products, L.P. for $900,000. We believe that existing cash, short-term
investments, cash flow from operations and available bank borrowings will be
sufficient for capital expenditures and other cash needs.
The economic crisis in Brazil provides some uncertainty in terms of
collectability of future sanction fees and payments of the receivable from our
Brazilian promoter. The receivable is to be repaid in five equal installments
over the life of the sanction agreement with a stated 5% per annum interest
rate. Letters of credit to be issued annually by the City of Rio De Janeiro will
substantially cover the sanction fees and the receivable. In addition, in
February 1999, ISL Worldwide signed an agreement with the Brazil promoter where
the two entities will be equal partners in promoting the Brazil event for the
next four years beginning in 1999. We received the initial sanction fee payment
for 1999 and the letter of credit for the 1999 event has been issued.
In May 1999, we completed the registered public offering of 1,816,500
shares of common stock that was sold by certain selling shareholders. In
addition, 272,475 shares of common stock were sold upon exercise of the
underwriters' over-allotment option. We received net proceeds (after deducting
the underwriters' discount and commissions and estimated offering expenses) of
approximately $7.2 million. We currently intend to use the net proceeds from
this offering for general corporate purposes. Pending these uses, we expect to
invest these funds in short-term, interest bearing, investment grade securities.
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YEAR 2000 COMPLIANCE
GENERAL. The Year 2000 compliance issue is primarily the result of
computer programs using a two-digit format, as opposed to four digits, to
indicate the year. Such computer systems will be unable to interpret dates
beyond the year 1999, which could cause a system failure or other computer
errors, leading to a disruption in the operation of such systems.
PROJECT. Our Y2K project covers both traditional computer systems and
infrastructure and computer-based hardware, such as fax machines, postage
machines and phone systems. The Y2K project has six phases:
o Awareness
o Assessment
o Detailed Analysis and Planning for Upgrades and Testing
o System Upgrades and Testing
o Implementation
o Post Implementation
Phases I, II and III have been completed. Phases IV and V are currently in
process and are approximately 50% complete. The Post Implementation Phase
includes our contingency plan where users will have developed fall back
procedures, and be ready to implement manual procedures for conducting company
business, record keeping, follow-up data entry and system recovery in the event
of system failure. The entire Y2K project is scheduled to be complete by June
30, 1999.
RISKS. Based on our assessment of our major information technology
systems, we expect that all necessary modifications and/or replacements will be
completed in a timely manner to ensure that all systems are Y2K compliant.
However, if we fail to be in compliance, we do not currently anticipate any
material disruption in our operations. We believe that the worse case scenario
would be for our financial operations to maintain its current level of
performance and customer service. Additional administrative expense could be
incurred if automated functions would need to be performed manually. We do not
believe race operations would be subject to material adverse effects from the
Y2K problem. Our race season does not start until approximately two months after
the 1999 year-end, and we anticipate that any unforeseen Y2K problems that are
encountered would be resolved during this period. In addition, manual back-up
systems for timing and scoring and other important race operation functions are
already in place as part of our normal contingency planning.
INTERFACES WITH THIRD PARTIES. Our Y2K project also considers the
readiness of significant vendors and suppliers. We do not have any suppliers or
vendors that are material to our operations as a whole. We are in the process of
contacting our vendors and suppliers concerning their Y2K compliance.
COSTS. Our total costs relating to Y2K compliance is expected to be
approximately $35,000 to $50,000 and will be funded through our normal operating
budget. Such cost estimates are based upon presently available information and
may change as we continue with our Y2K project. Currently, we have incurred
approximately $20,000 in expenses related to the Y2K project.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
With the exception of historical information contained in this Form
10-K, certain matters discussed are forward-looking statements. These
forward-looking statements involve risks that could cause the actual results and
plans for the future to differ from these forward-looking statements. The
following factors, and other factors not mentioned, could cause the
forward-looking statements to differ from actual results and plans:
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o competition in the sports and entertainment industry
o participation by race teams
o continued industry sponsorship
o regulation of tobacco and alcohol advertising and sponsorship
o competition by the Indy Racing League
o liability for personal injuries
o Y2K compliance
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CHAMPIONSHIP AUTO RACING TEAMS, INC.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
The following exhibits are filed herewith.
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
-------------- ----------------------
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
We were not required to file a Form 8-K during the three
months ended March 31, 1999.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHAMPIONSHIP AUTO RACING TEAMS, INC.
Date: 5/14/99 By:/s/ Randy K. Dzierzawski
------------------------- ------------------------------
Randy K. Dzierzawski
Chief Financial Officer
16
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