<PAGE> 1
As filed with the Securities and Exchange Commission on April 12, 1999
Registration No. 333-_________
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
------------
CHAMPIONSHIP AUTO RACING TEAMS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 8980 38-3389456
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code Number)
</TABLE>
755 West Big Beaver Road, Suite 800
Troy, Michigan 48084
(248) 362-8800
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Andrew H. Craig
755 West Big Beaver Road, Suite 800
Troy, Michigan 48084
(248) 362-8800
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-----------------
Copies to:
Jack A. Bjerke T. Mark Kelly
Amy M. Shepherd Jeffery B. Floyd
Kegler, Brown, Hill & Ritter Co., L.P.A. Vinson & Elkins L.L.P.
65 East State Street 1001 Fannin, Suite 2300
18th Floor Houston, TX 77002
Columbus, OH 43215 (713) 758-2222
(614) 462-5400
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [ ]
If any of the only securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, please check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- ------------------------- ------------------ --------------------- ---------------------- -------------------------
Title of Each Class of Amount Proposed Maximum Proposed Maximum Amount of
Securities to be Offering Price Aggregate Registration
to be Registered Registered per Share (1) Offering Price (1) Fee
- ------------------------- ------------------ --------------------- ---------------------- -------------------------
<S> <C> <C> <C> <C> <C>
Common Stock, par value
$0.01 per share 2,146,475 (2) $28.9375 $62,113,621 $17,268
including the
associated stock
purchase rights.........
==========================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration
fee pursuant to Rule 457(a), based on the average of the high and low sale
prices for the Common Stock on the New York Stock Exchange on April 7, 1999
of $28.9375 per share.
(2) Includes 279,975 shares of common stock par value $0.01 per share
which the Underwriter has the option to purchase to cover over-allotments,
if any.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
===============================================================================
<PAGE> 2
[RED HERRING LANGUAGE]
The information in this prospectus is not complete and may be changed.
The selling stockholders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
PROSPECTUS (Not Complete)
Dated April 12, 1999
[CART LOGO]
1,866,500 SHARES OF COMMON STOCK
CHAMPIONSHIP AUTO RACING TEAMS, INC.
$ _______ PER SHARE
---------------------
We own, operate and sanction the CART Championship -- the premier open-wheel
motorsports series in North America. We are responsible for organizing,
marketing and staging each of the races in the CART Championship.
The selling stockholders identified in this prospectus are offering the shares
in a firmly underwritten offering. We will not receive any of the proceeds from
the offering by our stockholders. We have granted the underwriter an option to
purchase up to 279,975 shares of common stock from us at the Public Price less
Underwriting Discounts to cover over-allotments in the offering by our
stockholders.
<TABLE>
<CAPTION>
The Offering:
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public Price........................................................ $ $
Underwriting Discounts.............................................. $ $
Proceeds to Selling Stockholders.................................... $ $
</TABLE>
On April 8, 1999, the closing price of our common stock on
the New York Stock Exchange was $28.69 per share.
Trading Symbol:
New York Stock Exchange - MPH
---------------------
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON
PAGE 5.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
JEFFERIES & COMPANY, INC. J.C. BRADFORD & CO.
1999
<PAGE> 3
[RACE SCHEDULE GRAPHIC]
[TO COME]
4
<PAGE> 4
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this
prospectus. This summary is not complete and may not contain all of the
information that you should consider before investing in the Common Stock. You
should read the entire prospectus carefully.
OUR COMPANY
We own, operate and sanction the premier open-wheel motorsports series
in North America, the CART Championship, and are responsible for organizing,
marketing and staging each of the races in the CART Championship. With speeds of
up to 240 miles per hour, and an average margin of victory during the 1998 race
season of less than three seconds, CART open-wheel racing is the fastest form of
closed-circuit auto racing available to motorsports audiences, providing intense
excitement and competition. We also own and sanction the Indy Lights
Championship and the Atlantic Championship, both developmental series for the
CART Championship.
The 1999 CART Championship, which is sponsored by Federal Express and
is known as the FedEx Championship Series, will include 20 races staged in five
countries:
- United States
- Australia
- Brazil
- Canada
- Japan
Two new races were added in 1998, one in Motegi, Japan and one in
Houston, Texas. For the 1999 season, we added an additional series event in
Chicago, Illinois and will sanction a non-series event in Oahu, Hawaii.
The drivers and racing teams participating in CART racing events are
among the most recognized names in motorsports, with marquee drivers including:
- Michael Andretti - Dario Franchitti
- Al Unser Jr. - Adrian Fernandez
- Jimmy Vasser - Bryan Herta
- Paul Tracy - Greg Moore
The excitement and competition of CART racing also attracts well known
racing legends, business leaders and sports and entertainment personalities as
team owners, including:
- Chip Ganassi - Paul Newman
- Carl Haas - Walter Payton
- David Letterman - Roger Penske
- Bruce McCaw - Bobby Rahal
- Joe Montana
Major sponsors of the CART Championship include:
- Federal Express and PPG Industries, as the co-series sponsors
- MCI
- Budweiser
- Craftsman
- Honda
- Mercedes-Benz
- Motorola
- Parke-Davis
1
<PAGE> 5
CART events are conducted on four different types of tracks:
- superspeedways
- ovals
- temporary road courses
- permanent road courses
This requires teams and drivers to master different courses and skills to
compete for the CART Championship.
Each race weekend in the CART Championship is an "event" offering
spectators the opportunity to enjoy a CART race as well as a full weekend of
entertainment. These include additional races, practice and qualifying rounds
for all racing events, demonstrations and automotive and general entertainment
displays. Race weekends also provide corporate sponsors and other businesses the
opportunity to entertain their customers and employees through hospitality areas
and other activities.
Motorsports is among the most popular and fastest growing spectator sports
in the United States, and after soccer, is the most watched sport
internationally. CART's races were televised in more than 195 countries in 1997
with aggregate television audiences approaching 1 billion. During 1998, 2.5
million people attended CART events. Total attendance at all motorsports events
in the United States exceeded 16.8 million people in 1998. We believe the
demographic profile of our growing spectator base has considerable appeal to
track owners, sponsors, television networks and advertisers.
During the last four years, our revenues have increased from $29.7 million
in 1995 to $62.5 million in 1998. We derive our revenues from five primary
sources:
- sanctioning fees paid by track promoters
- corporate sponsorship fees
- television revenues
- engine leases and rebuilds
- royalties paid for licenses
GROWTH STRATEGY
Our growth strategy is to continue to increase revenues and net income by
expanding the worldwide audience for CART racing. We intend to capitalize on
CART's position as the premier open-wheel racing series in North America and the
thrill and excitement of the CART Championship to increase CART's brand
awareness. We believe that these factors will provide us with opportunities for
increased sanction and corporate sponsorship fees, television revenues and
royalties. To implement our strategy, we intend to:
Increase Market Penetration in the United States. We continue to develop
CART's race schedule in key markets in the United States. As part of our plan,
for the 1999 season, we added an additional series event in Chicago, Illinois
and will sanction a non-series event in Oahu, Hawaii. Because CART races take
place on super-speedways, ovals, temporary street courses and permanent road
courses, we have great flexibility in selecting future race venues.
Expand International Audience. We believe that the world market for
motorsports is predisposed to CART's style of exciting, competitive, open-wheel
racing. The CART Championship spanned five countries on four continents in 1998.
We typically receive higher sanction fees from promoters of international race
events and we continue to explore additional opportunities to export our
high-value, American racing product throughout the world. In addition, we are
seeking more international-based sponsors for the CART Championship and its race
teams.
Expand Media Exposure. We intend to expand our overall television presence
on a worldwide basis. Our acquisition of the Indy Lights Championship and
Atlantic Championship, plus the addition of a new race in Chicago, result in our
owning of over 85 hours of high quality motorsports programming. In the United
States, we will focus on improving our television ratings on both network and
cable and on developing race programming focused on attracting new audiences for
the sport. In 1999, we will broadcast a record 13 of CART's 20 races on network
television (ABC) in the United States, with the balance of the races being
televised on ESPN. We will continue to expand press coverage for all three
series, an area where we achieved substantial growth in 1998. In
2
<PAGE> 6
1999, we will re-launch our successful web site, CART.com, with a new look and
presentation that will increase the immersive experience for visitors.
Increase Licensing Opportunities. We will continue to seek out
opportunities to bring the CART brand to a broader market. We can provide "one
stop shopping" for potential licensees for our servicemarks and trademarks, as
well as participating race teams, drivers and tracks. This integrated approach
allows licensees and retailers to work with a single licensing entity rather
than negotiating in the fragmented licensing environment found in other sports.
Acquire and Develop Related Businesses and Properties. We intend to
selectively pursue opportunities to acquire and apply the CART brand name to
other race-related businesses and properties. As the first step in this
strategy, in 1998, we acquired the Indy Lights Championship and the Atlantic
Championship. We are also seeking opportunities to acquire and develop race
experience products which will provide potential and existing race fans with an
affordable and accessible opportunity to experience the sport, including
simulation or virtual reality products, indoor kart racing centers and race
schools.
THE OFFERING
The share information below excludes 1,255,375 shares of common stock
issuable upon exercise of outstanding options under our 1997 Stock Ownership
Plan and Director Stock Option Plan and options granted in connection with our
acquisition of ARS and BP. If all over-allotment shares are also sold, we would
issue 279,975 shares, so that 15,504,016 shares would be outstanding after this
offering.
<TABLE>
<CAPTION>
<S> <C>
Common stock offered by the
selling stockholders..................... 1,866,500 shares
Common stock outstanding after
the offering ............................ 15,224,041 shares
Use of proceeds................................... The Company will not receive any proceeds from the sale of
common stock by the selling stockholders, but if the
over-allotment option is exercised we will receive net
proceeds of $7,617,904, which we will use for general
corporate purposes.
</TABLE>
3
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table summarizes the consolidated financial data for our
business as of and for the three years ended December 31, 1998. This data is
derived from our consolidated financial statements which have been audited by
our independent auditors, Deloitte & Touche LLP. The summary consolidated
financial data below should be read in conjunction with "Selected Consolidated
Financial Data," our consolidated financial statements and related notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations," contained elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1996 1997 1998
---------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C>
Revenues:
Sanction fees................................. $ 21,078 $ 24,248 $ 30,444
Sponsorship revenue........................... 5,501 7,221 16,388
Television revenue............................ 4,373 5,604 5,148
Engine leases, rebuilds and wheel sales....... --- --- 2,214
U.S. 500 (1).................................. 7,054 --- ---
Other revenue................................. 3,118 4,372 8,336
----------- ----------- -----------
Total revenues........................... 41,124 41,445 62,530
Total expenses (1)(2)............................. 41,921 62,721 42,071
Operating income (loss)........................... (797) (21,276) 20,459
Interest income (net)............................. 280 329 3,198
Income (loss) before income taxes................. (517) (20,947) 23,657
Net income (loss)................................. (338) (17,524) 15,089
Net income (loss) per share - diluted............. $ (0.04) $ (1.72) $ 1.05
Weighted average common shares outstanding-diluted 9,400 10,200 14,421
OTHER DATA:
Number of races in the CART Championship.......... 16 17 19
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------
1997 1998
----------- ------------
BALANCE SHEET DATA: (IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents........................................................ $ 1,164 $ 15,080
Short-term investments........................................................... --- 61,610
Working capital (deficit)........................................................ (5,325) 72,219
Total assets..................................................................... 12,348 97,186
Total long-term debt (including current portion)................................. 444 314
Total stockholders' equity (deficit)............................................. (3,045) 86,219
</TABLE>
(1) In 1996, we staged and acted as promoter of the inaugural U.S. 500.
Revenues attributable to the U.S. 500 included sponsorship fees,
television, admissions, program sales and other revenues associated with
promoting the event. Expenses included, among other things, the race purse,
track rental, promotional and advertising costs and other expenses
necessary to promote the event. Such expenses for the year ended December
31, 1996 (including purse awards) amounted to $8,246,000. We continue to
sanction the event, but since 1996 we have not acted as the promoter.
(2) Expenses for the years ended December 31, 1996 and 1997 include certain
payments to franchise race teams, including reimbursement of travel
expenses, director fees, purse awards and other race related payments.
Effective January 1, 1998, we no longer reimburse the existing franchise
race teams for travel expenses, directors fees and race-related payments.
4
<PAGE> 8
RISK FACTORS
You should carefully consider the following factors and other
information in this prospectus before deciding to invest in shares of common
stock.
SUBSTANTIAL COMPETITION - OUR RACING EVENTS FACE INTENSE COMPETITION FOR
ATTENDANCE, TELEVISION VIEWERSHIP AND SPONSORSHIP.
Our industry is highly competitive. We cannot assure you that we will
be able to maintain or improve our market position. Our racing events compete
with other events for television viewership, attendance and sponsorship funding.
Specifically, our racing events also compete with racing events sanctioned by
other racing bodies, including:
- Formula One
- National Association of Stock Car Automobile Racing ("NASCAR")
- Indy Racing League ("IRL")
- National Hot Rod Association ("NHRA")
- Sports Car Club of America ("SCCA")
- Other racing series
In addition, our racing events compete with other sports, entertainment
and recreational events, including, but not limited to:
- Football
- Basketball
- Baseball
- Golf
RELIANCE ON PARTICIPATION BY TEAMS - OUR FUTURE SUCCESS IS DEPENDENT UPON THE
CONTINUED PARTICIPATION OF RACING TEAMS IN CART-SANCTIONED RACE EVENTS.
The teams participating in our events derive substantially all of their
funding for race operations from their sponsors. Generally, the team sponsors
measure advertising exposure to determine future sponsorship commitments. A
decrease in our attendance or television viewership could adversely affect the
level of funding by some team sponsors. If sponsorship revenues are not
available to teams, then those teams may not have the necessary funding to
participate in our events. If teams that currently participate in our events
terminate their participation, then that could adversely affect our financial
and business results.
RELIANCE ON INDUSTRY SPONSORSHIPS - A SIGNIFICANT DECLINE IN SPONSORSHIP,
PROMOTION AND ADVERTISING DOLLARS AVAILABLE TO US, OUR RACE PROMOTERS AND THE
RACING TEAMS PARTICIPATING IN OUR EVENTS IN THE FUTURE COULD ADVERSELY AFFECT
OUR FINANCIAL AND BUSINESS RESULTS.
The motorsports industry generates significant revenue each year from
the sponsorship, promotion and advertising of various companies and their
products. The revenue generated from such sponsorship, promotion and advertising
substantially depends upon the level of advertising expenditures by sponsors or
prospective sponsors. The level of advertising expenditures depends in part on
the financial condition of such companies and the availability and cost of
alternative promotional outlets. It also depends on their perception of the
benefits of using us, our events or race teams as an advertising medium.
Television viewership and spectator attendance for our events significantly
impact the advertising and promotional value to sponsors.
RELIANCE ON PARTICIPATION BY SUPPLIERS - WITHOUT THE PARTICIPATION OF SUPPLIERS
IN PROVIDING ENGINES, CHASSIS AND TIRES, WE MAY NOT BE ABLE TO CONTINUE SOME OF
OUR RACING SERIES.
Some of our racing events (Indy Lights and Atlantic) are dependent upon
the continued participation of suppliers of engines, tires and chassis to teams
competing in our events. The engines and tires for our race cars are
5
<PAGE> 9
designed specifically for our racing. We believe that the costs to some industry
suppliers are greater than the revenues generated from the sale or lease of such
products.
RELIANCE ON EVENT PROMOTERS - WE DERIVE A SUBSTANTIAL PORTION OF OUR TOTAL
REVENUES FROM SANCTION FEES THAT ARE PAID TO US BY EACH PROMOTER.
If several promoters incur financial losses or restrictions that
prohibit future events from taking place or if such promoters elect not to
promote our events in the future, we believe this could adversely affect our
financial and business results.
LIMITATIONS ON SPONSORSHIP - THE LOSS OF MOTORSPORTS INDUSTRY SPONSORSHIPS FROM
TOBACCO AND ALCOHOL COMPANIES COULD HAVE ADVERSE EFFECTS ON US.
Governmental authorities in many countries regulate advertising by
companies in the alcohol and tobacco industries. Companies involved in these
industries have been significant sponsors of race teams, racing series and
events. Recently, governmental authorities have taken steps to further restrict
sponsorship by tobacco companies. We do not derive significant sponsorship
revenue from the tobacco and alcohol industries, but many of the race teams
participating in our events derive a substantial portion of their operating
revenues from such industry sponsors. In addition, many of our race events are
sponsored in part by companies in the tobacco or alcohol industries, with such
sponsorship fees paid to the track promoters. If these race teams and track
promoters lose sponsorship fees from tobacco sponsors without locating another
sponsor, then we could lose that team as a participant or that promoter and it
could adversely affect our financial and business results.
On November 23, 1998, Phillip Morris, Brown & Williamson, Lorillard,
R.J. Reynolds and the Liggett Group entered into a settlement agreement with 46
states and the District of Columbia (collectively, the "States"). The settlement
agreement restricts tobacco product advertising and marketing within the States.
Among other restrictions, the settlement agreement:
- prohibits tobacco product brand name sponsorship of concerts,
events in which the intended audience is comprised of a
significant percentage of youth under age 18, events in which any
paid participants or contestants are youths, or any athletic
event between opposing teams in any football, basketball,
baseball, soccer or hockey league;
- bans agreement to name any stadium or arena in the name of a
tobacco product brand name;
- prohibits tobacco product brand name sponsorship of any football,
basketball, baseball, soccer or hockey league; and
- limits each participating manufacturer to one tobacco product
brand name sponsorship during any twelve-month period.
We cannot assure you that a tobacco company will choose a motorsports
event as its one annual event to sponsor. If a tobacco company does choose to do
so, the settlement agreement permits the use of a tobacco product brand name for
a race car series and a single race team within that series. If the tobacco
company is not a sponsor of the race series in which the race team is competing,
it can use the tobacco product brand name only for a single race team.
EXPANSION - WE HAVE A LIMITED ABILITY TO EXPAND OUR RACE SCHEDULE.
Our ability to continue to expand the number of races we stage each
year will require additional personnel and resolution of logistical issues such
as transportation and availability of equipment. Our ability to expand the race
schedule will also be limited by the availability of funding and equipment to
teams for participation in additional events and by the teams' willingness to
participate in an expanded schedule.
6
<PAGE> 10
INDIANAPOLIS 500 - NON-PARTICIPATION BY CART TEAMS AND DRIVERS IN THE
INDIANAPOLIS 500 COULD HAVE AN ADVERSE EFFECT.
We are unable to predict what effect the continued non-participation by
our teams at the Indianapolis 500 will have on our financial and business
results. The IRL was formed in 1995 as a rival open-wheel racing league to
compete directly with us. The IRL was founded by affiliates of the Indianapolis
Motor Speedway. Since the creation of the IRL and certain rule changes at the
Indianapolis 500, almost all of the CART teams and drivers have not competed at
the Indianapolis 500. They believed that the rule changes were adverse to the
teams participating in CART events. The 1996 rule changes included reservation
of 25 of the 33 starting positions in the Indianapolis 500 for those competing
in other IRL events. Additional rule changes for 1997 included substantial
changes to equipment specifications so that the cars competing in
CART-sanctioned events could not compete at the Indianapolis 500. The IRL
eliminated the reservation of starting positions in 1998.
The Indianapolis 500 is a major racing event in the United States. It
draws substantial television viewership. For these reasons, many companies that
sponsored race teams historically regarded an involvement at the Indianapolis
500 as being an extremely important part of their sponsorship. Corporations have
spent a considerable sum of money to sponsor racing teams participating at the
Indianapolis 500 and for advertising and promotions for such sponsorship. We do
not believe that we, or our teams, have lost significant sponsors due to
non-participation by CART teams and drivers at the Indianapolis 500.
GROWTH STRATEGY - WE MAY NOT BE ABLE TO SUCCESSFULLY IMPLEMENT OUR GROWTH
STRATEGY.
A factor in our growth strategy is to acquire and develop race related
businesses and properties. We cannot assure you that we will be able to identify
and acquire businesses and properties. Our ability to effectively manage our
future growth and to successfully implement this growth strategy will require us
to successfully integrate the operations of acquired businesses and properties
with our operations. We will also need to enhance our operational, financial and
management systems. In addition, we will need to successfully hire, train,
retain and motivate additional employees. If we fail to manage our growth
effectively, then this could have an adverse affect on our financial and
business results.
LIABILITY FOR RACING-RELATED INCIDENTS - WE FACE THE INHERENT RISKS AND EXPOSURE
TO CLAIMS IN THE EVENT THAT SOMEONE IS INJURED AT A CART-SANCTIONED EVENT.
Racing events can be dangerous to participants and spectators. During a
race at the Michigan Speedway in July 1998, a driver was involved in a racing
incident that propelled a tire and suspension parts into the grandstands. Three
spectators were killed and six other spectators reported minor injuries. No
claims have been made against CART, and we do not believe that we would be held
liable for this incident if claims were made. We cannot assure you, however,
that no claims will be made against us or, if claims are made, what the outcome
of any such claims will be.
We have and will continue to have liability insurance to cover past and
any future racing incidents. We are also indemnified by track promoters for
racing incidents and obtain waivers from those participating in our events. To
the extent not covered by insurance, any claims and associated expenses related
to prior racing incidents, including the incident at Michigan Speedway, could
adversely affect our financial and business results. In addition, any claims and
associated expenses related to future potential racing incidents, to the extent
not covered by insurance, could adversely affect our financial and business
results.
PRIOR LOSSES - PRIOR TO BECOMING A PUBLIC COMPANY, WE EXPERIENCED LOSSES FROM
OPERATIONS.
Our ability to expand our business will be adversely affected if
we are not profitable. We have previously experienced losses from our
operations. We cannot assure you that we will continue to improve our
profitability. Our historical financial data reflect net losses of $338,000
for 1996 and $17.5 million for 1997. We had total revenues of $41.1 million
in 1996 and $41.4 million in 1997. We had net income of $15.1 million for
1998, with total revenues of $62.5 million. During 1997 in preparation for
our initial public offering, we incurred expenses for payments to
franchise members totaling $19.4 million. As of January 1, 1998 the
franchise members agreed to discontinue these payments.
7
<PAGE> 11
CONTROL - OUR DIRECTORS AND OFFICERS CONTROL THE VOTING POWER.
Upon completion of the offering, our current directors and officers and
those affiliated with our race teams will own approximately 49.3% (48.4% if the
over-allotment option is exercised in full) of the outstanding shares of common
stock. As a group, they control the outcome of substantially all issues
submitted to our stockholders, including the election of directors. They will be
able to effect a change of control, merger or combination without the approval
of minority stockholders. The interests of this group could conflict with the
interests of the other stockholders.
CONFLICTS - SOME OF OUR CURRENT STOCKHOLDERS AND DIRECTORS HAVE CONFLICTS OF
INTEREST.
Some of our current stockholders and most of our directors are
affiliated with a race team that participates in the CART championship. These
factors result in an inherent conflict of interest for certain matters to be
considered by the stockholders or directors. In addition, some of our
stockholders and directors either control or are affiliated with others who
control racing venues that stage CART and other racing events. Therefore, a
conflict of interest may arise when we determine the location and dates of CART
events and the amount of sanction fees paid. Under Delaware law, the officers
and directors owe a fiduciary duty to our stockholders.
KEY PERSONNEL - WE ARE DEPENDENT ON OUR KEY PERSONNEL.
Our continued success will depend upon the availability and performance
of Messrs. Andrew Craig and Randy Dzierzawski, and the other members of our
senior management team. While we believe that our senior management team has
significant depth, if we lose key personnel or if we are unable to attract and
retain key employees in the future, then it could adversely affect our
operations and business plans. Although we have entered into employment
agreements with key executive officers, we cannot assure you that each of these
individuals will continue in his present capacity for a particular period of
time.
INTERIM RESULTS - OUR QUARTERLY RESULTS ARE SUBJECT TO FLUCTUATION AND
SEASONALITY AS A RESULT OF THE SCHEDULING OF OUR RACES.
Historically, our revenues are higher in the second and third quarters
of the year due to the number of races that we stage in those quarters. The
scheduling of any race in the CART Championship can significantly affect our
quarterly results of operations when compared to a previous quarter if such race
is scheduled during different quarters from year to year. You may be unable to
compare our results in one quarter to our results of the previous quarter due to
timing differences. This may affect your ability to analyze our results on a
quarterly basis and could also affect the market price of our stock. You should
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Seasonality and Quarterly Results" for a discussion of our
quarterly results.
SALE OF SHARES - SALES OF SHARES BY EXISTING STOCKHOLDERS COULD ADVERSELY AFFECT
THE MARKET PRICE OF OUR COMMON STOCK.
Sales of significant amounts of common stock in the public market, or
the perception that such sales may occur, could cause the market price of the
common stock to drop. After the offering, 15,224,041 shares (15,504,016 shares
if the over-allotment option is exercised in full) of common stock will be
outstanding. The shares offered hereby will be freely transferable after the
offering unless purchased by affiliates of CART, as defined in Rule 144 under
the Securities Act of 1933. In addition, a total of 5,442,163 shares are
currently freely transferable and a total of 8,355,328 shares are restricted
shares, but have been held for more than one year and may be sold pursuant to
Rule 144 under the Securities Act.
CART and certain of our directors and officers, as well as each of the
selling stockholders, have agreed with the underwriter not to dispose of any of
their common stock or securities convertible into or exchangeable for shares of
common stock during the period from the date of this prospectus continuing
through the date 180 days after the date of this prospectus except with the
prior written consent of the representatives. In addition, one additional major
stockholder has entered into a similar agreement for a 30-day period. The
agreement does not apply to sales of not more than 60,000 and 30,000 shares by
two of our officers, at any time after the 30-day period immediately after the
date of this prospectus.
8
<PAGE> 12
LACK OF DIVIDENDS - WE DO NOT INTEND TO PAY DIVIDENDS.
We do not plan to pay cash dividends. We anticipate that all of our
earnings in the near term will be used for the development and expansion of our
business. Our future dividend policy will depend on our earnings; capital
requirements; financial condition; restrictions imposed under bank facilities;
and other factors considered relevant by the Board of Directors.
TAKEOVERS - OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY DISCOURAGE AN ATTEMPT BY
OTHERS TO ACQUIRE CONTROL OF CART.
The General Corporation Law of the State of Delaware contains certain
provisions which may delay or prevent an attempt by a third party to acquire
control of CART. Our certificate of incorporation and bylaws contain provisions
that authorize the issuance of preferred stock, and establish advance notice
requirements for director nominations and actions to be taken at stockholder
meetings. These provisions could also discourage or impede a tender offer, proxy
contest or other similar transaction involving control of CART, even if viewed
favorably by stockholders. In addition, the severance provisions included in
employment agreements with certain members of management could impede an
attempted change of control of CART. We also have adopted a stockholder rights
plan which may have the effect of impeding a hostile attempt to acquire control
of CART.
9
<PAGE> 13
FORWARD-LOOKING STATEMENTS
This prospectus as well as reports, proxy statements and other
information that we have filed with the SEC, which are incorporated by reference
in this prospectus, include forward-looking statements that relate to, among
other items:
- the market for our races,
- the effect of economic conditions on our business,
- the impact of competition on our business,
- our objective to grow through strategic acquisitions,
- the popularity of racing,
- our internal growth strategy,
- our ability to manage and integrate acquired businesses,
- anticipated trends and conditions in our industry,
- our Year 2000 compliance and
- trends in our future operating performance.
We have based these forward-looking statements largely on our
expectations as well as assumptions we have made and information currently
available to our management. When used in this prospectus, the words
"anticipate," "believe," "estimate," "expect" and similar expressions, as they
relate to our company or management, are intended to identify forward-looking
statements. Forward-looking statements are subject to a number of risks and
uncertainties, some of which are beyond our control. Actual results could differ
materially from those anticipated, as a result of the factors described in "Risk
Factors" and other factors. Furthermore, in light of these risks and
uncertainties, the forward-looking events and circumstances discussed in this
prospectus might not occur.
We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
10
<PAGE> 14
USE OF PROCEEDS
We will not receive any proceeds from the sale of shares by the selling
stockholders. If the underwriter's over-allotment option is exercised in full,
we will receive net proceeds (after deducting the underwriters' discounts and
commissions and estimated offering expenses) of approximately $7,617,904 million
and the selling stockholders will receive net proceeds of approximately
$50,829,301 million.
We currently intend to use the net proceeds of this offering received
by us for general corporate purposes. Pending these uses, we expect to invest
these funds in short-term, interest-bearing, investment grade securities.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common stock is traded on the New York Stock Exchange under the
symbol "MPH." The table below sets forth the high and low closing sales prices
for our common stock reported on the NYSE.
1998: HIGH LOW
---- ---
First quarter (from initial public $19.94 $18.25
offering on March 10 )
Second quarter 21.31 16.56
Third quarter 24.44 19.19
Fourth quarter 29.63 21.00
1999:
First quarter $29.38 $25.56
Second quarter (through April 7) 30.19 28.63
As of April 8, 1999, there were 15,224,041 shares of common stock
outstanding, held of record by approximately 310 stockholders.
We intend to retain future earnings for the operation and expansion of
our business. We do not anticipate paying any cash dividends in the foreseeable
future. Any decision by the Board of Directors concerning the payment of
dividends on the common stock in the future will be dependent upon our results
of operations, financial condition, cash requirements, capital expenditure
requirements and other factors deemed relevant by the Board of Directors.
11
<PAGE> 15
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data as of and for the
three years ended December 31, 1998 are derived from our consolidated financial
statements which have been audited by our independent auditors, Deloitte &
Touche LLP. The financial statements for the two years ended December 31, 1995
are derived from our audited financial statements. The selected consolidated
financial data below should be read in combination with our consolidated
financial statements and related notes contained elsewhere in this prospectus
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1995 1996 1997 1998
--------- -------- -------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS:
<S> <C> <C> <C> <C> <C>
Revenues:
Sanction fees $ 16,299 $18,708 $21,078 $24,248 $30,444
Sponsorship revenue 4,104 4,780 5,501 7,221 16,388
Television revenue 2,343 3,177 4,373 5,604 5,148
Engine leases, rebuilds and
wheel sales -- -- -- -- 2,214
U.S. 500(1) -- -- 7,054 -- --
Other revenue 2,229 3,077 3,118 4,372 8,336
--------- -------- -------- -------- -------
Total revenues 24,975 29,742 41,124 41,445 62,530
Expenses:
Race and franchise
fund payments(2) 18,305 18,446 17,198 28,939 15,183
U.S. 500(1) -- -- 8,246 -- --
Race expenses(2) 2,621 4,612 6,055 6,970 4,818
Costs of engine rebuilds and
wheel sales -- -- -- -- 633
Administrative and indirect
expenses(2) 3,977 5,832 8,570 14,295 20,658
Compensation expense -- -- 1,167 12,200 --
Depreciation and amortization 202 306 685 549 779
Minority interest -- -- -- (232) --
--------- -------- -------- -------- -------
Total expenses 25,105 29,196 41,921 62,721 42,071
--------- -------- -------- -------- -------
Operating income (loss) (130) 546 (797) (21,276) 20,459
Interest income (net) 212 235 280 329 3,198
--------- -------- -------- -------- -------
Income (loss) before income taxes 82 781 (517) (20,947) 23,657
Income tax benefit (expense) 344 204 179 3,423 (8,568)
--------- -------- -------- -------- -------
Net income (loss) $ 426 $ 985 $ (338) $(17,524) $15,089
========= ======== ======== ======== =======
Net income (loss) per share:
Basic $ .04 $ .10 $ (.04) $ (1.72) $ 1.06
========= ======== ======== ======== =======
Diluted $ .04 $ .10 $ (.04) $ (1.72) $ 1.05
========= ======== ======== ======== =======
Weighted average common shares
outstanding:
Basic 10,200 10,200 9,400 10,200 14,190
========= ======== ======== ======== =======
Diluted 10,200 10,200 9,400 10,200 14,421
========= ======== ======== ======== =======
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents $ 1,393 $ 2,046 $ 630 $ 1,164 $15,080
Short-term investments -- -- -- -- 61,610
Working capital (deficit) (209) (1,182) (524) (5,325) 72,219
Total assets 2,974 5,613 6,600 12,348 97,186
Long-term debt (including current
portion) -- -- 574 444 314
Total stockholders' equity (deficit) (1,875) (1,250) (151) (3,045) 86,219
</TABLE>
(1) In 1996, we staged and acted as promoter of the inaugural U.S. 500.
Revenues attributable to the U.S. 500 included sponsorship fees,
television, admissions, program sales and other revenues associated with
promoting the event. Expenses included, among others, the race purse,
track rental, promotional and advertising costs and other expenses
necessary to promote the event. We continue to sanction the event, but
since 1996, we have not acted as the promoter.
(2) Expenses for the years ended December 31, 1994, 1995, 1996 and 1997
include certain payments to franchise race teams, including reimbursement
of travel expenses, directors fees, purse awards and other race related
payments. Effective January 1, 1998, we no longer reimburse the existing
franchise race teams for travel expenses, directors fees and race-related
payments.
12
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As you read the following, you should also refer to the consolidated
financial statements and related notes included elsewhere in this prospectus.
GENERAL
In December 1997, as part of our reorganization, each stockholder of
CART, Inc. exchanged their shares for stock of Championship Auto Racing Teams,
Inc. Prior to our reorganization, the franchise race teams received
reimbursement of travel expenses, directors fees and franchise payments in an
aggregate amount equal to $8.5 million and $19.4 million for the years ended
December 31, 1996 and 1997, respectively. 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.
Below are selected income and expense items for the years ended
December 31, 1996, 1997 and 1998. The percentage calculations are based on total
revenues.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997 1998
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Sanction fees $ 21,078 51.3% $ 24,248 58.5% $ 30,444 48.7%
U.S. 500(1) 7,054 17.1 -- -- -- --
Sponsorship revenue 5,501 13.4 7,221 17.4 16,388 26.2
Television revenue 4,373 10.6 5,604 13.5 5,148 8.2
Engine leases, rebuilds and wheel sales -- -- -- -- 2,214 3.6
Other revenue 3,118 7.6 4,372 10.6 8,336 13.3
-------- ----- -------- ----- -------- -----
Total revenues $ 41,124 100.0% $ 41,445 100.0% $ 62,530 100.0%
======== ===== ======== ===== ======== ======
Expenses:
Race and franchise fund
payments(2) $ 17,198 41.8% $ 28,939 69.8% $ 15,183 24.3%
U.S. 500(1) 8,246 20.1 -- -- -- --
Race expenses(2) 6,055 14.7 6,970 16.8 4,818 7.7
Cost of engine rebuilds and wheel sales -- -- -- -- 633 1.0
Compensation expense 1,167 2.8 12,200 29.4 -- --
Administrative and other
indirect expenses(2) 8,570 20.8 14,295 34.5 20,658 33.0
Depreciation and amortization 685 1.7 549 1.3 779 1.3
Minority interest in loss of
subsidiaries -- -- (232) (0.5) -- --
-------- ----- -------- ----- -------- -----
Total expenses 41,921 101.9 62,721 151.3 42,071 67.3
-------- ----- -------- ----- -------- ----
Operating income (loss) (797) (1.9) (21,276) (51.3) 20,459 32.7
Interest income (net) 280 0.7 329 0.8 3,198 5.1
-------- ----- -------- ----- -------- -----
Income (loss) before income taxes (517) (1.2) (20,947) (50.5) 23,657 37.8
Income tax benefit (expense) 179 0.4 3,423 8.3 (8,568) (13.7)
-------- ----- -------- ----- -------- -----
Net income (loss) $ (338) (0.8)% $(17,524) (42.2)% $ 15,089 24.1%
======== ===== ======== ===== ======== ====
</TABLE>
(1) Our promotion of the U.S. 500 was a one-time event, and although we
continue to sanction the event, we no longer act as the promoter.
(2) Race expenses for 1996 and 1997 include our payments to franchise teams as
explained above.
13
<PAGE> 17
REVENUES
Following is an explanation of our individual revenue items:
SANCTION FEES. We receive sanction fees from the promoters of each of the
races on the CART Championship schedule, as well as from selected races on the
Indy Lights and Atlantic schedule. The fees are based on contracts between the
promoters and CART. The contracts have terms which expire between 1999 and 2005.
Currently contracted sanction fees range from $977,500 to $4.5 million per
event.
U.S. 500. In 1996, due to the reservation of starting positions at the
Indianapolis 500 for IRL competitors, we promoted and sanctioned the inaugural
U.S. 500 at Michigan International Speedway on May 26. Because we promoted the
event, we did not receive sanction fee revenue from the event but did receive
revenue from admissions, hospitality, television, sponsorship and licensing. Our
promotion of the U.S. 500 was a one-time event, and although we continue to
sanction the event, we do not anticipate acting as the promoter of the U.S. 500
in the future.
SPONSORSHIP REVENUE. We receive corporate sponsorship revenue based on
negotiated contracts. We currently have corporate sponsorship contracts with 15
major manufacturing and consumer products companies. The remaining terms of
these contracts range from one to three years. An official corporate sponsor
receives status and recognition rights, event rights and product category
exclusivity.
TELEVISION REVENUE. Our television revenue is derived from negotiated
contracts with:
- ESPN
- ESPN International
- Fittipaldi USA (Brazil)
- Gold Coast Motor Events Co. (Australia)
- Molstar (Canada)
A guaranteed rights fee is paid to us by each broadcast partner. Based on our
contract with ESPN/ESPN International, we receive 50% of the net profits
received by ESPN for distribution of the race programs, with an escalating
minimum guarantee provision. A provision of the ESPN contract requires that at
least 50% of the CART Championship events be broadcast on a major broadcasting
network in the United States. In 1996, 1997 and 1998, all CART Championship
races were broadcast on either ABC or ESPN. In addition, CART Championship races
are re-aired on ESPN and ESPN2. ESPN2 also broadcasts CART Championship
qualifying sessions and pre-race shows.
ENGINE LEASES, REBUILDS AND WHEEL SALES. In March 1998, we purchased all of
the stock of the ARS, which operates the Indy Lights Series. ARS owns the
engines that are used in the series and leases the engines to the competitors
for the season. The teams pay us a fee to rebuild the engines. We also sell the
wheels used on the race cars. Based on the rules of the series, all teams are
required to use our engines and wheels.
OTHER REVENUE. Other revenue includes membership and entry fees,
contingency awards money, royalties, commissions and other miscellaneous revenue
items. Membership and entry fees are payable on an annual basis by CART, Indy
Lights and Atlantic Championship competitors. In addition, we charge fees to
competitors for credentials for all team participants and driver license fees
for all drivers competing in the series. We pay contingency awards money to
competitors upon satisfaction of specific criteria. We receive royalty revenue
for the use of the CART servicemarks and trademarks on licensed merchandise that
is sold both at tracks and at off-track sites. We receive commission income from
the sale of chassis and parts to our support series teams.
EXPENSES
Following is an explanation of the expense line items. For an explanation
of certain expenses discontinued in connection with our reorganization in 1997,
you should read "Business--Franchise System and Race Teams."
14
<PAGE> 18
RACE AND FRANCHISE FUND PAYMENTS. We pay the racing teams for their
on-track performance. Race and franchise fund payments include the following for
each event:
- fixed franchise fund payment to each franchise competitor
- event purse which is paid based on finishing position
- contingency award payments
We also pay awards to the teams based on their cumulative performance for the
season, out of the year-end point fund. After our reorganization, franchise fund
payments were discontinued. 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.
U.S. 500. In addition to the race purse, expenses for the U.S. 500 in 1996
included:
- sales costs for the sale of sponsorships
- track rental expenses
- compensation expenses for contract staff
- promotional and advertising costs
- administrative expenses incurred solely with respect to the U.S.
500 event
RACE EXPENSES. We are responsible for officiating and administering all of
our events. Costs primarily include officiating fees, travel, per diem and
lodging expenses for the following officiating groups:
- safety
- technical inspection
- race officiating and rules compliance
- medical services
- timing and scoring audit
- registration
- race administration
Prior to our reorganization, each franchise race team was paid a travel fee to
attend and participate in each event. These payments were discontinued after
January 1, 1998. Overseas event organizers are responsible for costs related to
cargo, air passenger travel and lodging for our staff and race participants.
COST OF ENGINE REBUILDS AND WHEEL SALES. These costs are associated with
rebuilding the engines and the cost of the wheels used in the Indy Lights
series.
ADMINISTRATIVE AND INDIRECT EXPENSES. All operating costs not directly
incurred for a specific event, primarily wages, directors fees and other
administrative expenses, are recorded as administrative and indirect expenses.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
REVENUES. Total revenues for 1998 were $62.5 million, an increase of $21.1
million from 1997. This was due to increased sanction fees, sponsorship, engine
leases, rebuilds and wheel sales and other revenue as described below, partially
offset by a reduction in television revenue as described below.
Sanction fees for 1998 were $30.4 million, an increase of $6.2 million, or
26%, from 1997. Of this increase, $5.0 million was attributable to the addition
of new events in Motegi, Japan and Houston, Texas. The balance of the increase
resulted from annual sanction fee escalation for certain other events of $1.2
million.
15
<PAGE> 19
Sponsorship revenue for 1998 was $16.4 million, an increase of $9.2
million, or 127%, from 1997. This increase was primarily attributable to a new
sponsorship agreement entered into with Federal Express, an agreement with ISL
Worldwide that guaranteed certain sponsorship income in 1998 and the additional
sponsorship revenues attributable to the acquisition of ARS in March 1998 and
Pro-Motion in April 1998.
Television revenue for 1998 was $5.1 million, a decrease of $456,000, or
8%, from 1997. This decrease was due primarily to slightly lower revenues on the
profit sharing portion on our contract with ESPN due to having two fewer network
events in 1998.
Engine leases, rebuilds and wheel sales for 1998 were $2.2 million. There
was no corresponding revenue in the prior year as this revenue was earned by
ARS, which was acquired in March 1998.
Other revenue for 1998 was $8.3 million, an increase of $4.0 million, or
91%, from 1997. Of this increase, $2.0 million was attributable to an increase
in membership and credential income, royalties and awards money. The balance of
the increase was attributable to the acquisition of ARS in March 1998 and
Pro-Motion in April 1998.
EXPENSES. Total expenses for 1998 were $42.1 million, a decrease of $20.7
million, or 33%, from 1997. This decrease was due to lower race and franchise
fund payments, race expenses and compensation expense as described below,
partially offset by an increase in administrative and indirect expenses, and
cost of engine rebuilds and wheel sales as described below.
Race and franchise fund payments for 1998 were $15.2 million, a decrease of
$13.8 million, or 48%, from 1997. This decrease was partially due to our
reorganization that was effective January 1, 1998. In 1997, certain payments
were made to franchise members that were discontinued for the 1998 season. The
decrease was partially offset by two additional races being held in 1998 and by
race distributions related to ARS and Pro-Motion that were not included in 1997
as these companies were acquired in 1998.
Race expenses for 1998 were $4.8 million, a decrease of $2.2 million, or
31%, from 1997. This decrease was partially due to our reorganization that was
effective January 1, 1998. In 1997, certain payments were made to franchise
members that were discontinued for the 1998 season. The decrease was partially
offset by two additional races being held in 1998 and by race expenses related
to ARS and Pro-Motion that were not included in 1997 as these companies were
acquired in 1998.
Cost of engine rebuilds and wheel sales were $633,000. There was no
corresponding expense in the prior year as this expense was related to ARS,
which was acquired in March 1998.
Administrative and indirect expenses for 1998 were $20.7 million, an
increase of $6.4 million, or 45%, from 1997. This increase was primarily
attributable to additional marketing and advertising expenses, sales costs
related to sponsor sales for Federal Express and MCI, development of a creative
services department in 1998 and increased administrative expenses related to our
expanded licensed products venture. In addition, ARS and Pro-Motion
administrative expenses contributed to the increase, as there were no
corresponding expenses in the prior period since these companies were acquired
in 1998.
Compensation expense was not incurred in 1998 compared to $12.2 million
incurred in 1997. This non-cash compensation expense related to the issuance of
stock to race teams at below fair market value.
OPERATING INCOME. Operating income for 1998 was $20.5 million, an increase
of $41.7 million from 1997.
INTEREST INCOME (NET). Interest income (net) for 1998 was $3.2 million
compared to interest income (net) of $329,000 for 1997. The increase of $2.9
million 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 1998 was $23.7
million, compared to a loss before income taxes of $21.0 million for 1997.
16
<PAGE> 20
INCOME TAX EXPENSE/BENEFIT. Income tax expense for 1998 was $8.6 million,
compared to an income tax benefit of $3.4 million for 1997.
NET INCOME/LOSS. Net income for 1998 was $15.1 million compared to a net
loss of $17.5 million in 1997.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
REVENUES. Total revenues for 1997 were $41.4 million, an increase of
$321,000 from 1996. This was due to increased sanction fees and sponsorship,
television and other revenue as described below, partially offset by a reduction
in revenue of $7.1 million because we did not promote the U.S. 500 in 1997.
Sanction fees for 1997 were $24.2 million, an increase of $3.2 million, or
15%, from 1996. Of this increase, $1.9 million was attributable to the addition
of new events in Madison, Illinois near St. Louis and Fontana, California near
Los Angeles. The balance of the increase resulted from annual sanction fee
escalation for certain other events of $1.3 million.
Sponsorship revenue for 1997 was $7.2 million, an increase of $1.7 million,
or 31%, from 1996. This increase was primarily attributable to a new sponsorship
agreement entered into with MCI.
Television revenue for 1997 was $5.6 million, an increase of $1.2 million,
or 28%, from 1996. This increase was due to the increase of approximately
$500,000 in the ESPN rights fee, and an increase of $400,000 in rights fees from
Fittipaldi USA, our Brazilian television partner. There was also an increase in
the sale of commercial time for Inside CART and video footage sales of $379,000,
partially offset by a reduction in Canadian rights fees of $44,000.
Other revenue for 1997 was $4.4 million, an increase of $1.3 million, or
40%, from 1996. This increase was primarily attributable to $934,000 of
additional revenue from a CART-sanctioned support series. The balance was
attributable to royalty income from licensed merchandise sales.
EXPENSES. Total expenses for 1997 were $62.7 million, an increase of $20.7
million, or 50%, from 1996. This increase was due to higher race and franchise
fund payments, race expenses, compensation expense and administrative and
indirect expenses as described below, partially offset by a reduction in
expenses of $8.2 million because we did not act as the promoter of the U.S. 500
in 1997.
Race and franchise fund payments for 1997 were $28.9 million, an increase
of $11.7 million, or 68%, from 1996. This increase was attributable to a
one-time increase of $9.5 million in the year-end point fund in 1997, increases
in purse distributions for the additional events in Madison, Illinois and
Fontana, California of $1.8 million and additional payments related to team
travel expenses of $266,000.
Race expenses for 1997 were $7.0 million, an increase of $915,000, or 15%,
from 1996. This increase was the result of the addition of the events in
Madison, Illinois and Fontana, California.
Administrative and indirect expenses for 1997 were $14.3 million, an
increase of $5.7 million, or 67%, from 1996. Of this increase, $3.5 million was
attributable to increases in advertising, marketing and market research incurred
in connection with implementation of our growth strategy. An additional $1.3
million reflected costs associated with the implementation of the sponsorship
agreement entered into with MCI, and $1.0 million related to the establishment
of CART Licensed Products, L.P., a new partnership formed to enhance CART's
licensed product sales.
Compensation expense for 1997 was $12.2 million, an increase of $11.0
million, or 945%, from 1996. This non-cash compensation expense related to the
issuance of stock to race teams at below fair market value.
OPERATING LOSS. Operating loss for 1997 was $21.3 million, an increase of
$20.5 million from 1996.
17
<PAGE> 21
INTEREST INCOME (NET). Interest income (net) for 1997 was $329,000 compared
to interest income (net) of $280,000 for 1996.
LOSS BEFORE INCOME TAXES. Loss before income taxes for 1997 was $20.9
million, compared to loss before income taxes of $517,000 for 1996 for the
reasons cited above.
INCOME TAX BENEFIT. Income tax benefit for 1997 was $3.4 million, compared
to an income tax benefit of $179,000 for 1996 for the reasons cited above.
NET LOSS. Net loss for 1997 was $17.5 million compared to a net loss of
$338,000 in 1996 for the reasons cited above.
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. 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. We have provided
unaudited quarterly financial data for each of the four quarters of 1997 and
1998 in the following table. The information for each of these quarters is
prepared on the same basis as our consolidated financial statements and related
notes included elsewhere in this prospectus and include, in the opinion of
management, all adjustments (consisting of normal recurring adjustments)
necessary to fairly present the data for such periods. You should read this
table with "Selected Consolidated Financial Data", and the consolidated
financial statements and the related notes included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Total revenues
1997 $5,363 $18,704 $15,507 $1,871
1998 10,031 20,034 20,010 12,455
Income (loss) before taxes
1997 $1,272 $(1,695) $(17,659) $(2,865)
1998 4,481 7,800 6,277 5,099
Number of races
1997 1 8 8 0
1998 2 7 7 3
1999 1 8 9 2
</TABLE>
The revenues we receive for any race in the CART Championship can
significantly affect our quarterly results. Consequently, changes in race
schedules from year to year, with races held in different quarters, will result
in fluctuations in our quarterly results and affect comparability.
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 December 31, 1998,
the current portion of this note was $130,000, and the long-term portion was
$184,000.
18
<PAGE> 22
We also have a $1.5 million revolving line of credit with a commercial
bank. As of December 31, 1998, 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.
In March 1998, we completed our initial public offering of 5,038,000
shares of common stock. The initial offering price was $16.00 per share with
proceeds to us of approximately $75.0 million, net of underwriting discount.
In December 1997, we sold 1,399,998 shares of our stock for aggregate
proceeds of $1.8 million of which 1,200,000 shares were sold to three race teams
for $1.13 per share and 199,998 shares were sold to three race teams for $2.25
per share. In January and February 1997, we sold 1,200,000 shares of our stock
for aggregate proceeds of $840,000 ($0.70 per share). In March 1998 we rescinded
the sale of 66,666 shares of stock we issued in December 1997 for an aggregate
price of $151,000. In January 1997, we redeemed 400,000 shares of stock for
$210,000 ($0.53 per share).
Our cash balance on December 31, 1998 was $15.1 million, a net increase
of $13.9 million from December 31, 1997. This increase was primarily the result
of net cash provided by operations of $15.1 million and net financing activities
of $73.7 million, which was offset by net cash used in investing activities of
$74.9 million. Our cash balance on December 31, 1997 was $1.2 million compared
to $630,000 at December 31, 1996, a net increase of $534,000. The increase was
primarily the result of net cash provided by operations of $1.5 million and net
financing activities of $125,000, offset by net cash used in investing
activities of $1.1 million.
We anticipate capital expenditures of approximately $1.5 million during
1999. We are currently negotiating with Robert Hollander, who resigned as
president of CART Licensed Products, L.P., to purchase his 45% interest in CART
Licensed Products, L.P. 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 note receivable from
our Brazilian promoter. The note 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 substantially cover the sanction fees and the note receivable. In
addition, in February 1999, ISL Worldwide signed an agreement with the Brazilian
promoter where the two entities will be equal partners in promoting the
Brazilian 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.
YEAR 2000 COMPLIANCE
GENERAL. The Year 2000 ("Y2K") 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. Our Y2K project has six phases:
- Awareness (Phase I)
- Assessment (Phase II)
- Detailed Analysis and Planning for Upgrades and Testing (Phase III)
- System Upgrades and Testing (Phase IV)
- Implementation (Phase V)
- Post Implementation (Phase VI)
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 we will have developed fall back procedures,
and be ready to implement manual procedures for conducting company business,
record keeping,
19
<PAGE> 23
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 2000 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 are 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.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, Statement of Financial Accounting Standards ("SFAS") No.
133, "Accounting for Derivative Instruments and Hedging Activities" was issued
by the Financial Accounting Standards Board. SFAS No. 133 establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. We have not
determined the impact on our consolidated financial statements disclosure. SFAS
No. 133 is effective for fiscal years beginning after June 15, 1999.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK. Our investment policy was designed to maximize
safety and liquidity while maximizing yield within those constraints. At
December 31, 1998, our investments consisted of commercial paper, corporate
bonds, U.S. Agency issues and repurchase agreements. The weighted average
maturity of our portfolio is 192 days. Because of the relatively short-term
nature of our investments, our interest rate risk is immaterial.
20
<PAGE> 24
AUTO RACING INDUSTRY OVERVIEW
TYPES OF AUTO RACING. Auto racing consists of several distinct categories,
each with its own organizing body and racing events. Internationally, the most
recognized form of auto racing is open-wheel racing, utilizing an
aerodynamically designed chassis and technologically advanced equipment. The
most established open-wheel racing series are:
- Formula One
- CART Championship
- IRL
- Formula 3000
- Indy Lights Championship
- Atlantic Championship
- FORMULA ONE. The Formula One World Championship was founded in 1950. The
Federation Internationale de L'Automobile ("FIA") sanctions Formula One World
Championship events consisting of open-wheel races on road courses in Europe,
South America, Asia, Canada and Australia. The 1999 season will include 16
races. The 1998 Formula One calendar included 15 events in 13 different
countries.
- CART. The CART Championship started in 1978 and is the premier open-wheel
motorsports series in North America. The CART Championship is sanctioned by CART
and will include 20 races this year. The 1998 season included 19 races. CART
events are staged on four different types of tracks:
- superspeedways
- ovals
- temporary street courses
- permanent road courses
Superspeedways are banked ovals of two miles or more in distance. Oval tracks
are closed circuits, less than two miles in distance, which are often banked at
varying angles. Temporary street courses are typically built on closed-off
downtown streets of major cities, but can also be built on airport runways or
similar facilities that have a primary purpose other than as a motorsports
venue. Permanent road courses are raceways built solely for motorsports racing
and are designed with varying turns, straight-aways and elevation changes to
simulate driving on a road. Racing on different types of tracks requires teams
and drivers to employ a variety of skills to master different courses to compete
for the CART Championship.
- IRL. The IRL was formed as a rival United States open-wheel racing series,
competing with CART and began racing in 1996. The IRL sanctions its own events.
The IRL's events are staged solely on oval courses and will include 11 races
this year. The IRL's 1998 season consisted of 11 races, including the
Indianapolis 500.
- FORMULA 3000. The FIA sanctions the International Formula 3000
Championship. The championship season covers Europe between April and September
in a twelve race series. Success in Formula 3000 has been the stepping stone for
many drivers into Formula One.
- INDY LIGHTS CHAMPIONSHIP. We sanction the Indy Lights Championship and have
designated it as the "Official Development Series of the CART Championship."
Similar to CART, the Indy Lights Championship is staged on four different types
of tracks. The Indy Lights Championship consisted of 14 races during the 1998
season in the United States and Canada, with 13 events run in conjunction with
CART events and one stand alone race.
- ATLANTIC CHAMPIONSHIP. We also sanction the Atlantic Championship. The
Atlantic Championship is also a stepping stone to a career in international
motorsports competition. The 1998 Atlantic Championship consisted of 12 races in
the United States and Canada, with 10 events held in conjunction with CART
events, one race with an Indy Lights race and another race as a support series
to a Formula One race in Montreal, Canada.
The largest auto racing category in the United States, in terms of
attendance, media exposure and sponsorships, is stock car racing. Stock car
racing utilizes equipment similar in appearance to standard passenger
21
<PAGE> 25
automobiles and races are typically staged on oval courses. The most prominent
organizing body in stock car racing is NASCAR. Drag racing typically involves
short sprint races on a straight-line drag strip. The NHRA is the most prominent
organizing body in drag racing. Other, less prominent, racing segments include
various types of sports car racing and club racing.
- NASCAR. Professional stock car racing developed in the Southeastern United
States in the 1930s, and NASCAR has been influential in the growth and
development of the sport. NASCAR is the most recognized sanctioning body of
professional stock car racing in North America, supervising the Winston Cup and
Busch Grand National stock car race series. The 1998 Winston Cup and Busch Grand
National race series included 33 and 31 races, respectively; all of which were
held in the United States, with two exhibition events in Japan.
- OTHER SANCTIONING BODIES. Sports car races are held on road courses and
temporary street circuits throughout the United States and are sanctioned by
SCCA and Professional Sports Car Racing ("PSCR"). The NHRA sanctions drag races
in the United States. The Automobile Racing Club of America ("ARCA") sanctions
stock car races that are less prominent than those sanctioned by NASCAR.
Motorsports events are generally heavily promoted, with a number of
supporting events surrounding the main race event. Examples of supporting events
include:
- qualifying trials
- secondary racing events
- driver autograph sessions
- automobile and product expositions
- catered parties
These events are all designed to maximize the spectators' entertainment
experience and enhance the value of the sponsorship experience.
PARTICIPANTS. The primary participants in motorsports are:
- spectators
- corporate sponsors
- track owners/race promoters
- drivers
- team owners
- sanctioning bodies
- SPECTATORS. After soccer, motorsports is the most watched sport worldwide.
Motorsports is among the fastest growing spectator sports in the United States.
Total attendance at all motorsports events in the United States in 1998 exceeded
16.8 million people. During 1998, approximately 2.5 million people attended CART
events. CART races were also televised in 195 countries in 1997, with aggregate
television audiences approaching 1 billion viewers.
- CORPORATE SPONSORS. Corporate sponsors are drawn to motorsports by the
large number of spectators and television viewers and their attractive
demographics. Corporate sponsors are active in all phases of the industry. We
believe that the demographic profile of our growing spectator base has
considerable appeal to sponsors, track owners, television networks and
advertisers. The mean household income of our spectators is estimated to be
$55,600, compared to $47,000 for an average United States household. We believe
that the spectators are loyal to motorsports and to its corporate sponsors. In
addition to sponsoring the various racing series, corporate sponsors support
drivers and teams by funding certain costs of their operations, and race
promoters and track owners by sponsoring and promoting specific events. In
return, corporate sponsors receive advertising exposure on television and radio,
through newspapers and in printed materials. Corporate sponsors also receive
advertising, promotional and hospitality benefits at the track during the race
weekend. Finally, corporate sponsors benefit from the attractive values of the
high-speed, high technology competition that we provide. These values can be
used to add new values and points of difference to each sponsor's brands.
Companies negotiate sponsorship arrangements based on factors including a
series' or event's audience size, spectator demographics and a team's racing
success.
22
<PAGE> 26
- TRACK OWNERS/RACE PROMOTERS. Race promoters, which include track owners,
government organizations and other groups, pay a fee to have an event sanctioned
at their race venue. Race promoters are responsible for the local marketing and
promotion of the event. Their revenue sources generally include:
- admissions
- sponsorships
- corporate hospitality (suites, chalets and tents for race viewing
and other amenities)
- advertising
- concessions and souvenir sales
- DRIVERS. A majority of drivers contract independently with team owners,
while select drivers own their own teams. Principally, drivers receive income
from contracts with team owners, sponsorship fees and prize money. Successful
drivers may also receive income from personal endorsement fees, sales of
licensed merchandise and souvenir sales. The personality and success of a driver
can be an important marketing advantage for the sanctioning body and team
owners, because it can help attract audiences, corporate sponsorships and
generate sales for licensed merchandise.
- TEAM OWNERS. In most instances, team owners underwrite the financial risk
of placing their teams in competition. They contract with drivers, acquire
racing vehicles and support equipment, employ pit crews and mechanics and
syndicate sponsorship of their teams. Team owners generally receive income
primarily from sponsorships and a percentage of prize money won.
- SANCTIONING BODIES. Sanctioning bodies such as us sanction events at
various race venues in exchange for fees from race promoters. Sanctioning bodies
are responsible for all aspects of race management necessary to "manufacture"
the race event. They are responsible for presenting racing cars, drivers and
teams and providing race officials to ensure fair competition, as well as
providing the race and series' purses and other prize payments.
The FIA, based in Paris, France, is the worldwide governing body for
auto racing, with "national sporting authority" members in more than 100
countries. The FIA's United States national sporting authority is the Automobile
Competition Committee of the United States (ACCUS). It in turn is made up of
seven member sanctioning organizations:
- CART
- NASCAR
- United States Auto Club ("USAC")
- PSCR
- NHRA
- SCCA
- IRL
23
<PAGE> 27
BUSINESS
INTRODUCTION
We own, operate and sanction the premier open-wheel motorsports series
in North America, the CART Championship, and are responsible for organizing,
marketing and staging each of the races in the CART Championship. With speeds of
up to 240 miles per hour, and an average margin of victory during the 1998 race
season of less than three seconds, CART open-wheel racing is the fastest form of
closed-circuit auto racing available to motorsports audiences, providing intense
excitement and competition. We also own and sanction the Indy Lights
Championship and the Atlantic Championship, both development series for the CART
Championship.
The drivers and racing teams participating in CART racing events are
among the most recognized names in motorsports, with marquee drivers including:
- Michael Andretti - Dario Franchitti
- Al Unser Jr. - Adrian Fernandez
- Jimmy Vasser - Bryan Herta
- Paul Tracy - Greg Moore
The excitement and competition of CART racing also attracts well known
racing legends, business leaders and sports and entertainment personalities as
team owners, including:
- Chip Ganassi - Paul Newman
- Carl Haas - Walter Payton
- David Letterman - Roger Penske
- Bruce McCaw - Bobby Rahal
- Joe Montana
Major sponsors of the CART Championship include:
- Federal Express and PPG Industries, as the co-series sponsors
- MCI
- Budweiser
- Craftsman
- Honda
- Mercedes-Benz
- Motorola
- Parke-Davis
Open-wheel racing is the oldest continually scheduled motorsports
competition in the world, tracing its history to 1904. The 1999 CART
Championship, which is sponsored by Federal Express and is known as the Fed Ex
Championship Series, will include 20 races staged in five countries--the United
States, Australia, Brazil, Canada, and Japan. Two new races were added in 1998,
one in Motegi, Japan and one in Houston, Texas. For the 1999 season, we added an
additional series event in Chicago, Illinois and will sanction a non-series
event in Oahu, Hawaii. CART events are conducted on four different types of
tracks--superspeedways, ovals, temporary road courses and permanent road
courses. This requires teams and drivers to master different courses and skills
to compete for the CART Championship. Each race weekend in the CART Championship
is an "event" offering spectators the opportunity to enjoy a CART race as well
as a full weekend of entertainment. These include additional races, practice and
qualifying rounds for all racing events, demonstrations and automotive and
general entertainment displays. Race weekends also provide corporate sponsors
and other businesses the opportunity to entertain their customers and employees
through hospitality areas and other activities.
Motorsports is among the most popular and fastest growing spectator
sports in the United States, and after soccer, is the most watched sport
internationally. CART's races were televised in more than 195 countries in 1997
with aggregate television audiences approaching 1 billion. During 1998, 2.5
million people attended CART events. Total attendance at all motorsports events
in the United States exceeded 16.8 million people in 1998. We believe the
demographic profile of our growing spectator base has considerable appeal to
track owners, sponsors, television
24
<PAGE> 28
networks and advertisers. The mean annual family income of CART spectators has
been estimated to be $55,600, as compared to $47,000 for an average United
States household.
During the last four years, our revenues have increased from $29.7 million
in 1995 to $62.5 million in 1998. We derive our revenues from five primary
sources:
- sanctioning fees paid by track promoters
- corporate sponsorship fees
- television revenues
- engine leases and rebuilds
- royalties paid for licenses
We were incorporated in Delaware in December 1997. Our principal
executive office is located at 755 West Big Beaver Road, Suite 800, Troy,
Michigan 48084, and our telephone number is (248) 362-8800.
GROWTH STRATEGY
Our growth strategy is to increase revenues and net income by expanding
the worldwide audience for CART racing. We intend to build brand awareness by
capitalizing on the thrill and excitement of CART racing as well as our position
as a premier open-wheel racing series. We believe that these factors will
provide us with opportunities for increased overall:
- sanction fees
- corporate sponsorship fees
- television revenues
- royalties
We intend to implement our growth strategy by:
- INCREASING MARKET PENETRATION IN THE UNITED STATES. We
will continue to develop our race schedule in key markets in the United
States. As part of our plan, we will sanction a race in Chicago,
Illinois during the 1999 season. Because our races are conducted on
superspeedways, ovals, temporary street courses and permanent road
courses, we believe we have great flexibility in selecting future race
venues.
- EXPAND INTERNATIONAL AUDIENCE. We believe that the world
market for motorsports is predisposed to CART's style of exciting,
competitive, open-wheel racing. The CART Championship spanned five
countries in four continents in 1998, with events in the United States,
Canada, Australia, Brazil and Japan. We typically receive higher
sanction fees from the race promoters of international race events. Our
management continues to explore additional opportunities to export our
high-value, American racing product throughout the world and to include
more international-based sponsors for the CART Championship and our
race teams.
- EXPAND MEDIA EXPOSURE. We plan to expand our overall
television presence on a worldwide basis. The acquisition of Indy
Lights and the Atlantics series, plus the addition of a new race in
Chicago, results in our company being the rights owner for over 85
hours of high quality motorsports programming. We intend to build the
worldwide distribution base for all three race series in the future. In
the United States, we will focus on improving our television ratings on
both network and cable and on developing race programming focused on
new audiences for the sport.
We will continue to expand press coverage for all three
series -- an area where we achieved substantial growth in 1998.
During 1998, we added E-Commerce and a business section to our
successful web site, CART.com and in 1999 we re-launched the entire
site with a new look and presentation that increases the immersive
experience for visitors.
25
<PAGE> 29
- INCREASE LICENSING OPPORTUNITIES. We will continue to
seek out opportunities to bring our brand to a broader market. We can
provide "one stop shopping" for potential licensees for our
servicemarks and trademarks, as well as for participating race teams,
drivers and tracks. This integrated approach allows licensees and
retailers to work with a single licensing entity rather than
negotiating with the fragmented licensing environment found in other
sports.
- ACQUIRE AND DEVELOP RELATED BUSINESSES AND PROPERTIES. We
will selectively pursue opportunities to acquire and apply our brand
name to other race-related businesses and properties. We expect to
vertically integrate certain support-racing series to develop future
racing talent in the United States. We are also seeking opportunities
to acquire and develop race experience products which will provide
potential and existing race fans with an affordable and accessible
opportunity to experience the sport. These may include opportunities
such as:
- Simulation or virtual reality products
- Indoor kart racing centers
- Race schools
As the first step in this strategy, in 1998 we acquired American Racing
Series ("ARS"), which operates Indy Lights, and BP Automotive ("BP"),
which provides certain equipment to the participants of Indy Lights, as
well as Pro-Motion Agency which operates the Atlantic Championship
series.
THE CART ADVANTAGE
The drivers, cars, venues and fans provide us with a world class
product for audiences and sponsors.
THE DRIVERS. The diversity of our drivers adds to our worldwide appeal.
In 1998, 24 of the 34 drivers who competed in at least one of our race events
were born outside of the United States. In total, these drivers represented 11
different countries.
THE CARS. The cars are developed by a variety of different chassis
manufacturers:
- Reynard
- Swift
- Eagle
- Lola
- Penske
These high-tech race cars are powered by state-of-the-art engines from:
- Mercedes-Benz
- Honda
- Ford
- Toyota
The cars ride on tires provided by Firestone and Goodyear.
THE VENUES. CART races are conducted on four different types of tracks:
- superspeedways
- ovals
- temporary street courses
- permanent road courses
26
<PAGE> 30
The variety of tracks require different set-ups for chassis, engines and tires,
requiring drivers and teams to adapt to the various courses.
THE FANS. The primary means for a fan to interface with the CART
Championship is through direct attendance at events or by television viewership.
Our spectators are demographically attractive to sponsors and advertisers. They
are generally young individuals with education and income levels above the U.S.
national average. This makes sponsorship of CART, our teams and events an
attractive advertising and promotional investment. Our television audience,
while closer to the national average for household income, encompasses an above
average proportion of males in the 25 to 54 age group. This is an attractive
demographic for advertisers since this age group tends to watch less television
than the average American. In the United States, CART's television ratings have
declined in recent years and mirror the overall decline in television ratings
for sports events in the United States. A positive factor going forward in 1999
is that CART will broadcast a record 13 of its 20 races via network television.
The balance of the races can be viewed on ESPN.
CART HISTORY
CART-style, open-wheel racing stands as the longest continually
scheduled major motorsports championship in the world, dating back to the early
1900s. The first American automobile race took place in 1895, and the American
Automobile Association ("AAA") began sanctioning major races in 1904. The AAA
sanctioned races through the 1955 season at which time USAC became the official
sanctioning body.
In the 1970s, race team owners became increasingly concerned about
escalating costs, lack of promotional activities and concentration solely on the
Indianapolis 500. As a result, in November 1978, a group of 18 of the 21 team
owners left USAC to form CART and the CART Championship. The group included
teams owners who desired greater participation in the rule-making and
administrative processes concerning open-wheel racing in the United States. In
its 1979 inaugural season, CART staged 13 races. PPG Industries became the title
sponsor of our Championship late in that inaugural year, and we crowned Rick
Mears as our first champion.
Since Mears' victory in the inaugural season, CART has had many other
notable champions including:
- Al Unser, Sr. - Michael Andretti
- Johnny Rutherford - Bobby Rahal
- Mario Andretti - Nigel Mansell
- Danny Sullivan - Jacques Villeneuve
- Emerson Fittipaldi - Jimmy Vasser
- Al Unser, Jr. - Alex Zanardi
Competitive, close racing is the hallmark of CART. In 1991, we had six
different winners in the first six races. In 1993, we had six different race
winners and 13 different podium finishers. The 1994 through 1998 race seasons
were equally competitive. In 1998, we had seven different winners, including
first-time victories in the CART Championship for Dario Franchitti and Bryan
Herta.
Due to starting position reservations and changes to equipment
specifications, CART teams have generally not competed in the Indianapolis 500
since 1995. Although the IRL removed starting position reservations after the
1997 Indianapolis 500, CART teams generally do not participate in the
Indianapolis 500. We continue to evaluate opportunities for an accommodation
with the Indianapolis Motor Speedway, but we can not assure you that a
resolution will be reached or of the timing of any such resolution. We are
unable to predict what effect, if any, the continued non-participation by CART
teams at the Indianapolis 500 will have on our future results.
Since 1995, we have added races in the United States in:
- Homestead, Florida
- Madison, Illinois
- Fontana, California
- Houston, Texas
27
<PAGE> 31
Internationally, we added a race in Rio de Janeiro, Brazil in 1996 and Motegi,
Japan in 1998. We have scheduled a new race in Chicago, Illinois for 1999.
In 1999, our races will serve the important United States markets of:
- Miami
- St. Louis
- Los Angeles
- Houston
- Chicago
In addition, a non-championship series event has been added in 1999.
The Hawaiian Super Prix will be held on the island of Oahu in November 1999. The
Hawaiian Super Prix, a non-Championship series event, will feature the largest
single-day payout in the history of motorsports, $10 million, with $5 million
going to the winner. The top 12 finishers in the CART Championship, as well as
four additional entrants to be selected by the promoter, will compete for this
record payout. ShowTime will provide television coverage on a pay-per-view basis
in the United States.
FRANCHISE SYSTEM AND RACE TEAMS
We have operated CART as a "franchise system" since 1984. We offered
franchises for each competing car, with owners limited to a maximum of two
franchise memberships. The number of franchises we have awarded has varied, but
we have never awarded more than 25 franchises. To become a CART franchise
member, a race team must have competed in all CART Championship Series events
for the prior race year and be one of the 24 highest placed teams, based on
points received from competition.
The participation of race teams is critical to our ongoing success. Our
franchise system is the only race governing system to offer teams direct input
into race scheduling, rules and other racing activities. We believe that the
franchise system is a significant factor in encouraging entities who are
interested in auto racing to participate in our sanctioned events.
Prior to our becoming a public company, CART, Inc. was managed by a
board of directors composed of race team participants. We refer to this as the
franchise board. Each franchise owner was entitled to designate a member to the
franchise board. In addition, we paid certain benefits to franchise owners,
including reimbursement of travel expenses on a per race basis, directors fees
and other race-related expenses. The franchise and the stock were not
transferable without the approval of the franchise board and were subject to
redemption.
Following our initial public offering, we have continued the franchise
system but without awarding any additional equity ownership in CART. Rather, the
24 race teams which have met participation requirements and have the highest
total of points from the prior season are permitted to designate a member to the
franchise board. The franchise board manages and oversees all racing-related
activities and makes all decisions with respect to specifications for engines
and chassis, race and venue participation, rules and related matters.
INDY LIGHTS CHAMPIONSHIP
On March 13, 1998, we acquired 100% of the outstanding common stock of
ARS and certain assets of BP. ARS operates the Indy Lights Championship series
and BP supplies certain equipment to the participants.
CART racing team owner and founding member, U.E. "Pat" Patrick, formed
the Indy Lights Championship in 1986 as a series in which team owners could
discover and develop the next generation of CART talent. Mr. Patrick designed
Indy Lights to emphasize driver and team talent, while reducing any advantage
gained through large monetary expenditures for equipment and technology. By
restricting competition to a single chassis design, powered by identical, sealed
engines and running a single brand of tires, Indy Lights offers a series in
which costs can be carefully controlled, creating a level playing field for
drivers, team managers and engineers.
28
<PAGE> 32
We have designated the Indy Lights Championship the "Official
Development Series of the CART Championship," and we sanction its race events.
During the 1998 season, a record nine different drivers, representing seven
different race teams and six different countries, won races, making 1998 one of
the most competitive seasons in the series' history. During 1998, the series had
a total of 32 drivers, representing 13 countries, competing in at least one race
in the Indy Lights Championship. Graduates from the Indy Lights Championship who
are competing in the CART Championship include drivers:
- Paul Tracy - Helio Castro-Neves
- Bryan Herta - Cristiano da Matta
- Greg Moore - Naoki Hattori
- Adrian Fernandez - Shigeaki Hattori
- Tony Kanaan - Luiz Garcia, Jr.
In 1998, four CART team owners, Steve Horne (Tasman Motorsports Group), Bruce
McCaw (PacWest Racing), Barry Green (Team KOOL Green) and Bobby Rahal (Team
Rahal), also had teams competing in the Indy Lights Championship.
Similar to the CART Championship, we stage the Indy Lights Championship
races on four different types of tracks. At certain venues we receive a sanction
fee from the promoter for staging the Indy Lights event. We believe that the
Indy Lights Championship can create significant revenue growth for us through:
- packaged sponsorships with our other race series
- extending our efforts to integrate category sponsorship
- additional sanction fees for "stand alone" Indy Lights events,
both in the United States and overseas
With the growth and popularity of the series, we believe that Indy Lights will
play a significant role in our future revenue growth.
ATLANTIC CHAMPIONSHIP
On April 10, 1998, we acquired 100% of the outstanding common stock of
Pro-Motion Agency. Pro-Motion Agency operates the Atlantic Championship
open-wheel series, a support series to CART.
The Atlantic Championship has a rich history of providing a stepping
stone to a career in international motorsports competition. Graduates from the
Atlantic Championship and its predecessors include drivers:
- Bobby Rahal
- Jimmy Vasser
- Michael Andretti
- Richie Hearn
- Patrick Carpentier
- Alex Barron
In 1989, Toyota Motor Sales, USA joined the series as title sponsor,
creating the Toyota Atlantic Championship. With the introduction of the
race-tuned Toyota 4A-GE engine, Toyota along with their partner, TRD, USA, Inc.
set the standard for Atlantic competition worldwide. The Yokohama Tire
Corporation also joined the series in 1989 as an associate sponsor and tire
supplier to the series. In 1997, KOOL entered the series as co-title sponsor
with Toyota.
SANCTION FEES
For each race in the CART Championship, we enter into a multi-year
sanction agreement with the promoter, which provides for payment of a sanction
fee to CART. For the year ended December 31, 1997, promoters paid us sanction
fees of approximately $24.2 million, averaging $1.4 million per event and
representing approximately 59% of our total revenues. For the year ended
December 31, 1998, promoters paid us sanction fees of
29
<PAGE> 33
approximately $30.4 million, an average of $1.6 million per event, representing
approximately 49% of our revenues.
International events typically have higher sanction fees than events in
North America. So, as we have expanded internationally, our average sanction fee
has increased. Additionally, as we grow our sport, the opportunity to grow our
sanction fees may rise both by increases in sanction fees to reflect increased
value and by the inclusion of new international and domestic race venues. We
also believe that the popularity of the CART Championship will provide
additional domestic and international race venues willing to pay sanction fees
higher than our current average sanction fee.
RACING EVENTS
When staging a CART event, we provide all aspects of race management
necessary to "manufacture" the race event, including the required expertise and
personnel. We provide these race management services to track promoters in
exchange for the sanction fee.
As competition, support and interest in the CART Championship have
increased, we have increased the number of events we stage each race season. The
1979 CART Championship was comprised of 13 race events. In 1998, we managed 19
races - 14 in the United States, two in Canada and one each in Australia, Brazil
and Japan. These races included:
- two superspeedway races
- six oval races
- seven temporary street course races
- four permanent road course races
The 1999 CART Championship will be comprised of 20 races in five different
countries. In 1999, we will stage a new race in Chicago, Illinois on a one-mile
oval at the Chicago Motor Speedway.
In 1998, the Indy Lights Championship was comprised of 14 races. Of the
14 races, 13 were held in conjunction with CART events, and one race was a
"stand alone" event. In 1999, the Indy Lights Championship will include 12
races, all held in conjunction with CART events.
In 1998, the Atlantic Championship was comprised of 13 races. Of the 13
races, 11 were held in conjunction with CART events and two were "stand alone"
events. In 1999, the Atlantic Championship will consist of 12 races, two of
which will be "stand alone" events.
In the following table, we have provided the locations and venues for
the 1999 CART Championship, Indy Lights Championship and Atlantic Championship,
as well as the event dates for the 1999 seasons and a description of the racing
circuit:
<TABLE>
<CAPTION>
CART INDY
EVENT DATES LIGHTS ATLANTIC
LOCATION 1999 RACE RACE TRACK DESCRIPTION
-------- ---- ---- ---- -----------------
<S> <C> <C>
Homestead, Florida 3/21 Yes No 1.5 mile oval
Metro-Dade Homestead Motorsports Complex
Motegi, Japan 4/10 No No 1.5 mile oval
Twin Ring
Long Beach, California 4/18 Yes Yes 1.6 mile temporary street course
Long Beach
Nazareth, Pennsylvania 5/2 Yes Yes 1.0 mile tri-oval
Nazareth Speedway
Rio de Janeiro, Brazil 5/15 No No 1.8 mile oval
Emerson Fittipaldi Speedway at
Nelson Piquet International Raceway
</TABLE>
30
<PAGE> 34
<TABLE>
<S> <C> <C> <C> <C>
Madison, Illinois 5/29 No Yes 1.3 mile banked oval
Gateway International Raceway
West Allis, Wisconsin 6/6 Yes Yes 1.0 mile oval
The Milwaukee Mile
Portland, Oregon 6/20 Yes No 2.0 mile permanent road course
Portland International Raceway
Cleveland, Ohio 6/27 Yes No 2.4 mile temporary street course
Burke Lakefront Airport
Elkhart, Wisconsin 7/11 No Yes 4.0 mile permanent road course
Road America
Toronto, Ontario, Canada 7/18 Yes No 1.8 mile temporary street course
Toronto
Brooklyn, Michigan 7/25 Yes No 2.0 mile tri-oval superspeedway
Michigan International Speedway
Detroit, Michigan 8/8 Yes No 2.1 mile temporary street course
The Raceway on Belle Isle
Lexington, Ohio 8/15 No Yes 2.3 permanent road course
Mid-Ohio Sports Car Course
Chicago, Illinois (1) 8/22 Yes Yes 1.0 mile oval
Chicago Motor Speedway
Vancouver, British Columbia, Canada 9/5 No Yes 1.7 mile temporary street course
Vancouver
Monterey, California 9/12 Yes Yes 2.2 mile permanent road course
Laguna Seca Raceway
Houston, Texas 9/26 No Yes 1.7 mile temporary street course
Houston
Gold Coast, Queensland, Australia 10/17 No No 2.8 mile temporary street course
Surfers Paradise, Queensland
Fontana, California 10/31 Yes No 2.0 mile banked oval superspeedway
California Speedway
Montreal, Quebec, Canada (6/12/99) -- -- Yes 2.7 mile temporary street course
Gilles-Villeneuve Circuit
Trois-Rivieres, Quebec, Canada (8/1/99) -- -- Yes 2.1 mile temporary street course
Trois-Rivieres
</TABLE>
(1) Added to race schedule for 1999.
A post-season invitational event will be held in Hawaii on November
13, 1999. The Hawaiian Super Prix is not part of the CART Championship series.
By invitation of the race promoter, the event is open to the top 12 finishers of
the CART Championship, as well as 4 additional drivers to be selected by the
promoter. The Hawaiian Super Prix will be held at Barbers Point Airport, outside
of Honolulu, on the island of Oahu.
DRIVERS
During the 1998 season, 34 drivers competed in at least one of the CART
race events, including past champions:
- Michael Andretti
- Bobby Rahal
- Al Unser, Jr.
- Jimmy Vasser
- Alex Zanardi
31
<PAGE> 35
In the following table, we have provided information regarding each of
the drivers who are expected to participate in the 1999 CART Championship:
<TABLE>
<CAPTION>
DRIVER BIRTH PLACE 1999 RACE TEAM
------ ----------- --------------
<S> <C> <C>
MICHAEL ANDRETTI(*) Bethlehem, Pennsylvania Newman/Haas Racing
Alex Barron San Diego, California All American Racers
Mark Blundell Barnet, Hertfordshire, England PacWest Racing Group
Raul Roesel Curitiba, Brazil Team KOOL Green
Patrick Carpentier Ville Lasalle, Quebec, Canada Player's Forsythe Racing
Helio Castro-Neves Sao Paulo, Brazil Hogan Racing
Cristiano da Matta Bela Harizonte, Brazil Arciero-Wells Racing
Gil de Ferran Paris, France Walker Racing
Adrian Fernandez Mexico City, Mexico Patrick Racing
Christian Fittipaldi Sao Paulo, Brazil Newman/Haas Racing
Dario Franchitti Edinburgh, Scotland Team KOOL Green
Luiz Garcia, Jr. Brazilia, Brazil Payton/Coyne Racing
Robby Gordon Cerritos, California Team Gordon
Mauricio Gugelmin Joinville, Brazil PacWest Racing Group
Naoki Hattori Mie Presecture, Japan Walker Racing
Shigeaki Hattori Okayma, Japan Bettenhausen Motorsports
Richie Hearn Glendale, California Della Penna Motorsports
Bryan Herta Warren, Michigan Team Rahal
PJ Jones Torrance, California Patrick Racing
Michel Jourdain, Jr. Mexico City, Mexico Payton/Coyne Racing
Tony Kanaan Salvador, Bahia, Brazil Forsythe Championship Racing
Tarso Marques Curitiba, Brazil Marlboro Team Penske
Hidishi Matsuda Kochi-ken, Japan Della Penna Motorsports
Juan Montoya Bogota, Columbia Target/Chip Ganassi Racing
Greg Moore British Columbia, Canada Player's Forsythe Racing
Max Papis Como, Italy Team Rahal
Scott Pruett Sacramento, California Arciero-Wells Racing
Andre Ribeiro Sao Paulo, Brazil Marlboro Team Penske
Paul Tracy Scarborough, Ontario, Canada Team KOOL Green
AL UNSER JR.(*) Albuquerque, New Mexico Marlboro Team Penske
JIMMY VASSER(*) Canoga Park, California Target/Chip Ganassi Racing
Dennis Vitolo Massapequa, New York Payton/Coyne Racing
</TABLE>
* Indicates past champion of the CART Championship.
CORPORATE SPONSORS
We receive sponsorship revenues under sponsorship contracts. In
exchange for sponsorship revenues, we provide our sponsors the opportunity to
receive brand and product exposure. For the year ended December 31, 1997, we
received sponsorship revenues of approximately $7.2 million, representing
approximately 17% of our total revenues. For the year ended December 31, 1998,
we received sponsorship revenues of approximately $16.4 million, representing
approximately 26% of our total revenues.
We believe that as we expand the audience for our events, we will see a
corresponding increase in sponsorship opportunities and sponsorship revenues. In
addition, we have taken a different approach to selling sponsorship from other
motorsports organizations by integrating the rights of the sanctioning body and
the race tracks. This approach provides series-wide exclusivity and a
centralized sponsorship program which increases the value and appeal of the
sponsorship opportunity. MCI was the first such integrated sponsor, becoming the
Official Communications Company in 1997. Federal Express also became an
integrated sponsor as our official co-series sponsor in 1998.
32
<PAGE> 36
Beginning with the 1998 race season, Federal Express became the
co-series sponsor of the CART Championship, which has been officially designated
the "FedEx Championship Series." Under our agreement, Federal Express acquired a
comprehensive range of marketing benefits, as well as opportunities to supply
services to CART, our teams and our race promoters. A significant feature of
this sponsorship arrangement is the combination of the marketing rights of both
CART and our race promoters to provide an exclusive sponsorship involvement
through the entire CART Championship. PPG Industries, our long-time title
sponsor, continues to be involved as a co-series sponsor of the series and
continues to be the name sponsor of the CART Championship winner's trophy--the
"PPG Cup." PPG also continues with its successful pace car program at each race
event.
In June 1998, we entered into a nine-year agreement with ISL Worldwide.
Under the agreement, we appointed ISL as our exclusive worldwide marketing agent
for the sale of all sponsorships of our open wheel racing series, including:
- the CART Championship
- the Indy Lights Championship
- the Atlantic Championship
We have listed below some of our most significant sponsors for the 1999
CART Championship:
<TABLE>
<CAPTION>
YEARS AS
SPONSOR OFFICIAL DESIGNATION SPONSOR
------- -------------------- -------
<S> <C> <C>
Federal Express Official Co-Series Sponsor 1
PPG Industries Official Co-Series Sponsor 19
MCI Telecommunications Official Communications Company 2
Budweiser Official Beer 4
Featherlite Trailers and
Vantare Coach Official Trailer and Coach 4
Ford SVO Technology Official Safety Technology Provider 2
Holmatro Official Rescue Tool 7
Honda Motorcycles Official Motorcycle 3
Honda Power Equipment Official Power Equipment 3
K&K Insurance Official Insurance Provider 5
Mercedes-Benz Official Car 4
Racing Radios Official Two-Way Radio 9
Omega Official Watch and Timekeeper 2
Toyota Trucks Official Truck 3
The Valvoline Company Official Fuel and Oil 19
Sears Craftsman Tools Official Hand Tools 4
Sears Diehard Official Battery New
Motorola Official Communication Hardware New
Parke-Davis (Lipitor) Official Cholesterol Reducer New
</TABLE>
In addition to the sponsors listed above, we have entered into various
sponsorship agreements with other companies which supply us with products and
services. Official sponsors of the CART Championship pay money and provide
products and services to us in return for being designated as an official
sponsor. The payment obligations, as well as the amount of advertising exposure
and other benefits, vary significantly among sponsors based on the negotiated
terms of each sponsorship agreement. No sponsorship agreement provided more than
10% of our revenues during 1996, 1997 or 1998.
ATTENDANCE, VIEWERSHIP AND BROADCAST RIGHTS
ATTENDANCE. CART spectator attendance has grown dramatically in the
1990s, with more than a 40% increase from 1991 to 1998, based upon figures
compiled by Goodyear Tire & Rubber Co. Race Reports. Average attendance per
event declined in 1998 due in large part to the number of races effected by
adverse weather conditions. In the following table, we have provided attendance
information for CART events, based upon the Goodyear Race Reports. The figures
do not include attendance at the Indianapolis 500, which was not a
CART-sanctioned event.
33
<PAGE> 37
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Attendance
at CART Events 1,803,601 1,890,327 1,964,180 2,015,417 2,259,751 2,366,440 2,491,050 2,529,995
Number of Race Events 16 15 15 15 16 16 17 19
Average Attendance
per Event 112,725 126,022 130,945 134,361 141,234 147,902 146,532 133,158
Total Attendance
Percentage Change 0.1% 4.8% 3.9% 2.6% 12.1% 4.7% 5.3% 1.6%
</TABLE>
VIEWERSHIP. In addition to the spectators at our race events, millions
of people around the world watch CART racing on television. According to the
Nielsen Season Summary for 1998, an aggregate of 23.9 million gross United
States households were delivered for the CART races, with gross United States
viewership of approximately 31.5 million. Our races are televised in 195
countries and territories through terrestrial and satellite broadcasts, in 19
languages. Based upon an independent study conducted by Sponsorship Research
International, the 1997 CART Championship had an average of 58 million viewers
per race with cumulative worldwide viewership of 981.8 million.
BROADCAST RIGHTS. In 1994, we entered into a long-term agreement with
ESPN, which was amended in 1996 to extend through 2001. Under the agreement,
ESPN provides broadcast coverage of each CART Championship race, with at least
50% of the races each year to be broadcast on one of the three major broadcast
networks - ABC, CBS or NBC. In 1999, a record 13 races will be broadcast on
network television. Our agreement with ESPN states that we receive 50% of the
net profits received by ESPN for distribution of the race programs, with an
escalating minimum guarantee provision.
We retained the television rights for Brazil, Canada and Australia. We
entered into exclusive agreements with:
- Fittipaldi U.S.A., Inc. to provide television broadcasts in
Brazil of the CART Championship Series race events through the
2002 race season
- Molstar for the distribution of television broadcasts in Canada
through the 2001 race season
- Gold Coast Motor Events for the distribution of television
broadcasts in Australia through the 2000 race season
None of these three agreements represent a material amount of revenue for us.
CART LICENSED PRODUCTS
As a part of our initiative to increase CART's brand awareness and
increase licensing opportunities, we formed CART Licensed Products, L.P. ("CLP")
in 1996. CLP is a Georgia limited partnership. We own a 55% interest in CLP. The
remaining 45% interest is owned by Top Gear, Inc., a company owned by Mr. Robert
E. Hollander, who until January 1999 was president of CLP. We have a right to
acquire Top Gear's ownership interest and are currently negotiating with Mr.
Hollander to do so.
CLP pays approximately 60% of the royalties it receives to the owners
of the licensed property, including CART. The remaining 40% of revenues are used
to fund the operations of CLP.
CLP has executed licensing agreements with 36 companies including:
- Action Performance
- Microsoft
- Sony
- Sega
- Antigua
34
<PAGE> 38
- Warner Brothers
- VIA Marketing
None of the licensing agreements are material to our financial results.
COMPETITION
Our racing events compete not only with other sports and recreational
events scheduled on the same dates, but also with racing events sanctioned by
various other racing bodies such as the:
- FIA - NHRA
- NASCAR - SCCA
- IRL - PSCR
- USAC - ARCA
Racing events sanctioned by other organizations are often held on the same dates
as CART events, at separate tracks, and compete for corporate sponsorship and
spectators as well as television viewership. In addition, we compete with other
racing bodies to sanction racing events at various motorsports facilities. We
believe that our events are distinguished from the racing events staged by other
racing bodies by:
- the quality of the competition
- caliber of the events
- drivers and team owners participating in CART
- speed of the cars
We receive numerous requests to sanction racing events at venues throughout the
world. However, we can not assure you that we will maintain or improve our
position in light of such competition.
PROPERTIES
We lease our buildings in Troy, Michigan; Atlanta, Georgia; and
Highland Park, Illinois. We do not own any real property. Our leases are through
the following dates:
- Michigan, May 31, 2002
- Georgia, December 31, 2002
- Illinois, May 31, 2000
Our lease payments have no material effect on our consolidated
financial statements. We believe the leased space is adequate for our present
needs.
35
<PAGE> 39
PRINCIPAL STOCKHOLDERS
The following table contains information, as of April 5, 1999,
concerning the beneficial ownership of the common stock by (1) each director,
(2) each of the named officers, and (3) all directors and executive officers as
a group. For purposes of this table, direct ownership of shares is noted with a
"d", indirect ownership is noted with an "i" and vested options (stock options
that may be exercised as of June 5, 1999) are noted with a "vo".
<TABLE>
<CAPTION>
Shares Beneficially Number of Shares Beneficially
Owned Shares Owned
Name (1) Prior to Offering Being Offered After Offering
-------- --------------------- ------------- --------------
Number Percent (2) Number Percent(2)
------ ----------- ------ ----------
<S> <C> <C> <C> <C> <C>
Andrew H. Craig............ 1,800(d) 1.3% 0 1,800(d) 1.3%
200,000(vo) 200,000(vo)
Gerald R. Forsythe (3)..... 400,000(i) 2.6% 0 400,000(i) 2.6%
Chip Ganassi (4)........... 720,000(i) 4.7% 0 720,000(i) 4.7%
Carl A. Haas (5)........... 800,500(i) 5.3% 0 800,500(i) 5.3%
James F. Hardymon.......... 10,000(vo) * 0 10,000(vo) *
Bruce R. McCaw (6)......... 800,000(i) 5.3% 0 800,000(i) 5.3%
Don Ohlmeyer, Jr........... 10,000(vo) * 0 10,000(vo) *
U.E. Patrick (7)........... 100(d) 5.3% (7) 100(d) 2.7%
800,000(i) 400,000(i)
7,585(vo) 7,585(vo)
Robert W. Rahal (8)........ 800,000(i) 5.3% (8) 720,000(i) 4.7%
Derrick Walker (9)......... 360,000(i) 2.4% (9) 210,000(i) 1.4%
Randy K. Dzierzawski....... 5,000(d) * 0 5,000(d) *
100,000(vo) 100,000(vo)
Carl Cohen................. 100(d) * 0 100(d) *
Roger Bailey............... 1,000(d) * 0 1,000(d) *
29,450(vo) 29,450(vo)
Robert Hollander........... 0 -- 0 0 --
All current directors and 8,000(d) 32.4% (10) 8,000(d) 28.3%
executive officers as a 4,680,500(i) 4,050,500(i)
group (13) persons......... 357,035(vo) 357,035(vo)
</TABLE>
*Less than 1%.
(1) Unless otherwise noted, each person or entity has sole investing and voting
power with respect to the shares indicated.
(2) Percent is based on 15,224,041 shares outstanding on April 5, 1999.
(3) The shares are held of record by Forsythe Racing, Inc.
36
<PAGE> 40
(4) The shares are held of record by Chip Ganassi Racing Teams, Inc. The
address for Chip Ganassi Racing Teams, Inc. and Mr. Ganassi is 3821
Industrial Boulevard, Indianapolis, Indiana 46254.
(5) The shares are held of record by Newman/Haas Racing. The address for
Newman/Haas Racing and Mr. Haas is 500 Tower Parkway, Lincolnshire,
Illinois 60069.
(6) The shares are held of record by PacWest Racing Group. The address for
PacWest Racing Group and Mr. McCaw is 4601 Methanol Lane, Indianapolis,
Indiana 46268.
(7) The shares are held of record by Patrick Racing, Inc. The address for
Patrick Racing, Inc. and Mr. Patrick is 8431 Georgetown Road, Indianapolis,
Indiana 46268. Of these shares, Patrick Racing, Inc. is selling 400,000
shares in this offering. See "Selling Stockholders" below.
(8) The shares are held of record by Team Rahal, Inc. The address for Team
Rahal, Inc. and Mr. Rahal is 4601 Lyman Drive, Hilliard, Ohio 43026. Of
these shares, Team Rahal, Inc. is selling 80,000 shares in this offering.
See "Selling Stockholders" below.
(9) The shares are held of record by Derrick Walker Racing, Inc. Of these
shares, Derrick Walker Racing, Inc. is selling 150,000 shares in this
offering. See "Selling Stockholders" below.
(10) An aggregate of 620,000 shares beneficially owned by Messrs. Patrick, Rahal
and Walker are being sold in this offering. See "Selling Stockholders"
below.
SELLING STOCKHOLDERS
The following table contains information as of April 5, 1999 concerning
the beneficial ownership of common stock by the selling stockholders in this
offering. Each of the selling stockholders is a racing team that participates in
CART-sanctioned races. The percentages are based on 15,224,041 shares
outstanding on April 5, 1999 and assumes no exercise of the underwriter's option
to purchase additional shares.
<TABLE>
<CAPTION>
Shares Beneficially Number of Shares Beneficially
Owned Shares Owned
Name Prior to Offering Being Offered After Offering
---- ----------------- ------------- --------------
Number Percent Number Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
All American Racers, Inc. 420,000 2.8% 100,000 320,000 2.1%
DellaPenna Motorsports, Inc. 360,000 2.4% 100,000 260,000 1.7%
Penske Racing, Inc. 800,000 5.3% 700,000 100,000 *
Team Green, Inc. 360,000 2.4% 256,500 103,500 *
Patrick Racing, Inc. 800,000 5.3% 400,000 400,000 2.6%
Dale Coyne Racing 720,000 4.7% 80,000 640,000 4.2%
Team Rahal, Inc. 800,000 5.3% 80,000 720,000 4.7%
Derrick Walker Racing, Inc. 360,000 2.4% 150,000 210,000 1.4%
</TABLE>
- --------------------------
* Less than 1%.
37
<PAGE> 41
UNDERWRITING
CART, the selling stockholders and the underwriters for the offering
named below have entered into an underwriting agreement with respect to the
common stock offered hereby. Subject to certain conditions, each underwriter has
severally agreed to purchase the number of shares of common stock indicated in
the following table. Jefferies & Company, Inc. and J.C. Bradford & Co., L.L.C.
are the representatives of the underwriters.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
<S> <C>
Jefferies & Company, Inc......................................................
J.C. Bradford & Co., L.L.C....................................................
-------------------------
Total................................................................ 1,866,500
</TABLE>
If the underwriters sell more shares than the total number set forth in
the table above, the underwriters have an option to buy up to 279,975 additional
shares of common stock from CART to cover such sales. They may exercise that
option for 30 days. If any shares are purchased pursuant to this option, the
underwriter will severally purchase shares in approximately the same proportion
as set forth in the table above.
The following table shows the per share and total underwriting
discounts and commissions to be paid to the underwriters by CART and by the
selling stockholders. Such amounts are shown assuming both no exercise and full
exercise of the underwriters' option to purchase additional shares.
<TABLE>
<CAPTION>
PAID BY PAID BY
CART SELLING STOCKHOLDERS
---- --------------------
NO EXERCISE FULL EXERCISE NO EXERCISE FULL EXERCISE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Per Share............................... $ $ $ $
Total................................... $ $ $ $
</TABLE>
Shares of common stock sold by the underwriter to the public will
initially be offered at the initial public offering price set forth on the cover
of this prospectus. Any shares of common stock sold by the underwriter to
securities dealers may be sold at a discount from the initial public offering
price of up to $ per share. Any such securities dealers may resell any shares
purchased from the underwriter to certain other brokers or dealers at a discount
of up to $ per share from the initial public offering price. If all the shares
of common stock are not sold at the initial offering price, the underwriter may
change the offering price and the other selling terms.
CART and certain of our directors and officers, as well as each of the
selling stockholders, have agreed with the underwriter not to dispose of any of
their common stock or securities convertible into or exchangeable for shares of
common stock during the period from the date of this prospectus continuing
through the date 180 days after the date of this prospectus except with the
prior written consent of Jefferies & Company, Inc. In addition, one additional
major stockholder has agreed to a 30-day period. The agreement does not apply to
sales by two of our officers of not more than 60,000 and 30,000 shares of their
common stock, respectively, at any time after the 30-day period immediately
after the date of this prospectus.
In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares of common stock that they are required to purchase in the
offering. Stabilizing transactions consist of certain bids or purchases made for
the purpose of preventing or retarding a decline in the market price of the
common stock while the offering is in progress.
The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriter a portion of the underwriting
discount received by it because the representatives have repurchased shares of
common stock sold by or for the account of such underwriter in stabilizing or
short covering transactions.
The activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist
38
<PAGE> 42
in the open market. If these activities are commenced, they may be discontinued
by the underwriters at any time. These transactions may be effected on The New
York Stock Exchange, in the over-the-counter market or otherwise.
CART and the selling stockholders have agreed to indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.
CART estimates that the expenses of the offering to be paid by us,
excluding underwriting discounts, will be approximately $33,036 and the expenses
payable by the selling stockholders will be approximately $176,964.
LEGAL MATTERS
Certain legal matters related to this offering will be passed upon for
CART and the selling stockholders by Kegler, Brown, Hill & Ritter Co., L.P.A.,
Columbus, Ohio. Certain legal matters related to this offering will be passed
upon for the underwriters by Vinson & Elkins L.L.P., Houston, Texas.
EXPERTS
The consolidated financial statements as of December 31, 1998 and 1997
and for the three-year period ended December 31, 1998, included in this
prospectus and the related financial statement schedule included elsewhere in
the registration statement, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein and elsewhere
in the registration statement, and have been included herein in reliance upon
the reports of such firm given upon their authority as experts in accounting and
auditing.
39
<PAGE> 43
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the SEC.
You may read and copy any document we file at the SEC's public reference rooms
in Washington, D.C., New York, New York and Chicago, Illinois. Please call the
SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our
SEC filings are also available from the SEC's website at http://www.sec.gov. In
addition, our common stock is traded on the New York Stock Exchange. As a
result, you can also read documents we file at the offices of the New York Stock
Exchange at 11 Wall Street, New York, New York 10005.
The SEC allows us to incorporate by reference the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings we
will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 on or (1) after the date of the filing of this
registration statement and prior to its effectiveness or (2) after the date of
this prospectus and prior to the termination of the offering made hereby:
- our annual report on Form 10-K for the year ended December 31, 1998;
- the description of the common stock contained in our Registration
Statement on Form 8-A filed pursuant to Section 12 of the Exchange
Act and all amendments thereto and reports filed for the purpose of
updating such description.
You may request a copy of these filings, at no cost, by writing or
telephoning Randy Dzierzawski, our Executive Vice President and Chief Financial
Officer, at the following address:
Championship Auto Racing Teams, Inc.
755 West Big Beaver Road, Suite 800
Troy, Michigan 48084
This prospectus is part of a registration statement on Form S-3 we
filed with the SEC. You should rely only on the information provided in this
prospectus and any prospectus supplement and in our filings with the SEC that
are incorporated in this prospectus. We have authorized no one to provide you
with different information. We are not making an offer of these securities in
any state where the offer is not permitted. You should not assume that the
information in this prospectus is accurate as of any date other than the date on
the front of the prospectus.
This prospectus contains summaries of certain agreements entered into
by CART which have been filed as exhibits to the Registration Statement or
incorporated by reference in this prospectus. Such summaries do not purport to
be complete and are subject to, and are qualified in their entirety by reference
to, such exhibits. You should refer to each such exhibit for a complete
description of the matter involved.
40
<PAGE> 44
CHAMPIONSHIP AUTO RACING TEAMS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CHAMPIONSHIP AUTO RACING TEAMS, INC.
Independent Auditors' Report..............................................................................F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998..............................................F-3
Consolidated Statements of Operations for the Years Ended December 31, 1996, 1997 and 1998................F-4
Consolidated Statements of Stockholders' Equity (Deficit) for
the Years Ended December 31, 1996, 1997 and 1998......................................................F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1997 and 1998................F-6
Notes to Consolidated Financial Statements................................................................F-8
</TABLE>
F-1
<PAGE> 45
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Championship Auto Racing Teams, Inc.:
We have audited the accompanying consolidated balance sheets of
Championship Auto Racing Teams, Inc. (the "Company") at December 31, 1997
and 1998, and the related consolidated statements of operations,
stockholders' equity (deficit), and cash flows for each of the three years
in the period ended December 31, 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the consolidated financial position of the Company at
December 31, 1997 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
- -------------------------
Deloitte & Touche LLP
Detroit, Michigan
February 5, 1999
F-2
<PAGE> 46
CHAMPIONSHIP AUTO RACING TEAMS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1997 1998
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,164 $ 15,080
Short-term investments -- 61,610
Accounts receivable (net of allowance for doubtful accounts of $306
in 1998. No allowance for doubtful accounts deemed necessary in
1997) 3,156 4,708
Current portion of notes receivable -- 824
Inventory -- 71
Prepaid expenses 751 331
Deferred income taxes 4,683 119
-------- ---------
Total current assets 9,754 82,743
NOTES RECEIVABLE 49 3,350
PROPERTY AND EQUIPMENT- Net 2,236 5,026
GOODWILL (net of accumulated amortization of $105 in 1998) -- 5,883
OTHER ASSETS (net of accumulated amortization of $24 and $41 in 1997 and 309 184
-------- ---------
1998, respectively)
TOTAL ASSETS $ 12,348 $ 97,186
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,890 $ 1,946
Accrued liabilities:
Race expenses and point awards 9,500 --
Royalties 264 1,026
Payroll 431 482
Taxes 491 1,733
Other 21 934
Unearned revenue 2,352 4,273
Current portion of long-term debt 130 130
-------- ---------
Total current liabilities 15,079 10,524
LONG-TERM DEBT 314 184
DEFERRED INCOME TAXES -- 259
COMMITMENTS AND CONTINGENCIES (Note 10) -- --
MINORITY INTEREST -- --
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred Stock, $.01 par value; 5,000,000 shares authorized, none -- --
issued and outstanding at December 31, 1997 and 1998
Common stock, $.01 par value; 50,000,000 shares authorized,
10,199,998 and 15,171,666 shares issued and outstanding at
December 31, 1997 and 1998, respectively 102 151
Additional paid-in capital 15,975 89,771
Accumulated deficit (19,122) (4,033)
Unrealized gain on investments -- 330
-------- ---------
Total stockholders' equity (deficit) (3,045) 86,219
-------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 12,348 $ 97,186
======== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 47
CHAMPIONSHIP AUTO RACING TEAMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
REVENUES:
Sanction fees $ 21,078 $ 24,248 $ 30,444
U.S. 500 7,054 -- --
Sponsorship revenue 5,501 7,221 16,388
Television revenue 4,373 5,604 5,148
Engine leases, rebuilds and wheel sales -- -- 2,214
Other revenue 3,118 4,372 8,336
-------- -------- --------
Total revenues 41,124 41,445 62,530
EXPENSES:
Race and franchise fund payments 17,198 28,939 15,183
U.S. 500 8,246 -- --
Race expenses 6,055 6,970 4,818
Cost of engine rebuilds and wheel sales -- -- 633
Administrative and indirect expenses 8,570 14,295 20,658
Compensation expense 1,167 12,200 --
Depreciation and amortization 685 549 779
Minority interest in loss of subsidiaries -- (232) --
-------- -------- --------
Total expenses 41,921 62,721 42,071
-------- -------- --------
OPERATING INCOME (LOSS) (797) (21,276) 20,459
Interest income (net) 280 329 3,198
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES (517) (20,947) 23,657
INCOME TAX BENEFIT (EXPENSE) 179 3,423 (8,568)
-------- -------- --------
NET INCOME (LOSS) $ (338) $(17,524) $ 15,089
======== ======== ========
EARNINGS (LOSS) PER SHARE:
BASIC $ (.04) $ (1.72) $ 1.06
======== ======== ========
DILUTED $ (.04) $ (1.72) $ 1.05
======== ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC 9,400 10,200 14,190
======== ======== ========
DILUTED 9,400 10,200 14,421
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 48
CHAMPIONSHIP AUTO RACING TEAMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Common Stock Additional Unrealized
------------ Paid-in Accumulated Gain on Stockholders' Comprehensive
Shares Amount Capital Deficit Investments Equity(Deficit) Income
------ ------ ------- ------- ----------- --------------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, JANUARY 1, 1996 8,800 $ 88 $ (78) $ (1,260) -- $ (1,250)
Net loss and comprehensive loss -- -- -- (338) -- (338) $ (338)
========
Compensation expense -- -- 1,167 -- -- 1,167
Stock redemption and
repayment of note receivable (2,000) (20) (340) -- -- (360)
Stock issuance 1,200 12 618 -- -- 630
-------- -------- -------- -------- -------- --------
BALANCES, DECEMBER 31, 1996 8,000 80 1,367 (1,598) -- (151)
Net loss and comprehensive loss -- -- -- (17,524) -- (17,524) $(17,524)
========
Compensation expense -- -- 12,200 -- -- 12,200
Stock redemption (400) (4) (206) -- -- (210)
Stock issuance 2,600 26 2,614 -- -- 2,640
-------- -------- -------- -------- -------- --------
BALANCES, DECEMBER 31, 1997 10,200 102 15,975 (19,122) -- (3,045)
Net income -- -- -- 15,089 -- 15,089 $ 15,089
Unrealized gain on investments -- -- -- -- $ 330 330 330
========
Comprehensive income $ 15,419
========
Stock redemption (67) (1) (150) -- -- (151)
Stock issuance 5,038 50 73,372 -- -- 73,422
Issuance of options -- -- 574 -- -- 574
-------- -------- -------- -------- -------- --------
BALANCES, DECEMBER 31, 1998 15,171 $ 151 $ 89,771 $ (4,033) $ 330 $ 86,219
======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 49
CHAMPIONSHIP AUTO RACING TEAMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (338) $(17,524) $ 15,089
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 685 549 779
Compensation expense 1,167 12,200 --
Net loss (gain) from sale of property and equipment (133) 160 92
Write-off of trademark 88 -- --
Deferred income taxes (226) (3,629) 4,823
Minority interest in loss of subsidiaries -- (232) --
Changes in assets and liabilities that provided (used) cash:
Accounts receivable (1,481) (854) (1,552)
Prepaid expense (302) (328) (420)
Inventory 37 16 (71)
Other assets (70) (23) 24
Accounts payable 134 959 56
Accrued liabilities 65 10,192 (6,532)
Unearned revenue (253) 21 1,921
-------- -------- --------
Net cash provided by (used in) operating activities (627) 1,507 15,049
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of subsidiaries -- -- (5,881)
Investments -- -- (61,280)
Notes receivable -- (49) (4,125)
Acquisition of property and equipment (1,094) (999) (3,602)
Proceeds from sale of property and equipment 194 13 62
Acquisition of trademark (101) (63) (22)
-------- -------- --------
Net cash used in investing activities (1,001) (1,098) (74,848)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 650 -- --
Payments on long-term debt (76) (130) (130)
Redemption of common stock (360) (210) (151)
Issuance of common stock (net of underwriting discount and
offering costs) 630 2,640 73,996
Proceeds from membership deposit 360 360 --
Payments on membership deposits -- (1,320) --
Payments on franchise fund liability (600) (1,440) --
Capital contributions to subsidiaries by minority stockholder -- 225 --
Payments on line of credit (392) -- --
-------- -------- --------
Net cash provided by financing activities 212 125 73,715
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,416) 534 13,916
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,046 630 1,164
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 630 $ 164 $ 15,080
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes $ 23 $ 15 $ 2,350
======== ======== ========
Interest $ 50 $ 43 $ 31
======== ======== ========
</TABLE>
F-6
<PAGE> 50
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES--During
1996, 1997 and 1998, the Company received property and equipment worth
approximately $75,000, $79,000 and $69,000, respectively, in exchange for
sponsorship privileges to the providers. In 1996, the Company redeemed 800,000
shares of common stock for $600,000 (including $240,000 representing a refund of
membership deposits or franchise fund liability), which was used to offset a
note receivable from a stockholder. During 1998, the acquisition price of ARS
included 100,000 options granted to the sellers. The value of these options on
the date of grant was $574,000. The amount to be received by the Company for the
options will be approximately $504,000 (see Note 2). During 1998, the Company
recorded $496,000 as goodwill related to the additional purchase price of ARS
(see Note 2).
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE> 51
CHAMPIONSHIP AUTO RACING TEAMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION. CART, Inc., ("CART") (a Michigan Corporation) was
organized as a not-for-profit corporation in 1978, with its main purpose being
to promote the sport of automobile racing, primarily open-wheel type racing
cars. As of January 1, 1992, the entity became a profit corporation and
continued to use the CART name.
In December 1997, Championship Auto Racing Teams, Inc., a Delaware
corporation was formed to serve as a holding company for CART and its
subsidiaries (the "Reorganization"). Each outstanding share of common stock of
CART was acquired in exchange for 400,000 shares of common stock of the Company.
References to the "Company" mean Championship Auto Racing Teams, Inc. and its
subsidiaries.
PRINCIPLES OF CONSOLIDATION. The 1997 and 1998 consolidated financial
statements include the financial statements of the Company, CART and its
wholly-owned subsidiary corporations CART Properties, Inc. and CART Licensed
Products, Inc. In addition, the 1997 and 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 financial
statements also include the financial statements of American Racing Series, Inc.
("ARS") and Pro-Motion Agency Ltd. ("Pro-Motion"), respectively, wholly-owned
subsidiaries of the Company (see Note 2). All significant intercompany balances
have been eliminated in consolidation.
OPERATIONS. The Company is the sanctioning body responsible for
organizing, marketing and staging each of the racing events for the open-wheeled
motorsports series -- the CART Championship. The Company stages events at four
different types of tracks, including superspeedways, ovals, temporary road
courses and permanent road courses, each of which require different skills and
disciplines from the drivers and teams.
Substantially all of the Company's revenue is derived from sanction
fees, sponsorship revenues, television revenues and licensing royalties, each of
which is dependent upon continued fan support and interest in CART race events.
Sanction fee revenues are fees paid to the Company by track promoters to
sanction a CART event at the race venue, and to provide the necessary race
management. The Company receives sponsorship revenues from companies who desire
to receive brand and product exposure in connection with CART races. Pursuant to
broadcast agreements, the Company generates revenues for the right to broadcast
the races, with revenues based upon viewership with a minimum guarantee. The
Company receives revenue from engine leases and rebuilds and wheel sales from
teams racing in the PPG-Dayton Indy Lights Championship ("Indy Lights"). The
Company also receives revenues from royalty fees paid for licenses to use
servicemarks of the Company, various drivers, teams, tracks and industry
sponsors for merchandising programs and product sales.
INVENTORY. Inventory consists of wheels, parts and merchandise, which
are stated at the lower of cost or market on a first-in, first-out basis.
PROPERTY AND EQUIPMENT. Property and equipment are stated at cost and
are depreciated using the straight-line and accelerated methods over their
estimated useful lives which range from 3 to 20 years. Leasehold improvements
are amortized over the life of the related leases.
REVENUE RECOGNITION. Recognition of revenue from race sanction
agreements is deferred until the event occurs. Sponsorship revenue and engine
lease revenue are recognized on a monthly basis. Television revenue is
recognized ratably over the race schedule. Engine rebuilds and wheel sales are
recognized as earned. Other revenues include membership and entry fees,
contingency awards money and royalty income and are recognized ratably over the
race schedule.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents include
investments with original maturities of three months or less at the date of
original acquisition.
F-8
<PAGE> 52
SHORT-TERM INVESTMENTS. The Company's short-term investments are
categorized as available-for-sale, as defined by Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities". Unrealized holding gains and losses are reflected
as a net amount in a separate component of stockholders' equity until realized.
For the purpose of computing realized gains and losses, cost is identified on a
specific identification basis.
GOODWILL. Goodwill represents the excess of the purchase price of ARS
and B.P. Automotive, Ltd. ("BP") and Pro-Motion (see Note 2) over the fair value
of the net tangible and identifiable intangible assets of these acquisitions.
Goodwill is stated at cost and is amortized on a straight-line basis over 40
years.
MANAGEMENT ESTIMATES. The preparation of the consolidated financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
December 31, 1997 and 1998, and the reported amounts of revenues and expenses
during the periods presented. The actual outcome of the estimates could differ
from the estimates made in the preparation of the consolidated financial
statements.
ACCOUNTING PRONOUNCEMENTS. In 1998, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income." Unrealized gain on investments is the
Company's only component of other comprehensive income.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued by the Financial Accounting Standards Board. SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. The Company has not determined the impact
on its consolidated financial statement disclosure. SFAS No. 133 is effective
for fiscal years beginning after June 15, 1999.
RECLASSIFICATIONS. Certain reclassifications have been made to the 1996
and 1997 consolidated financial statements in order for them to conform to the
1998 presentation.
2. INITIAL PUBLIC OFFERING AND ACQUISITIONS
INITIAL PUBLIC OFFERING. In March 1998, the Company completed its
initial public offering ("IPO") of 5,038,000 shares of common stock. The IPO
provided proceeds of $75.0 million, net of underwriting discounts, to the
Company. A portion of the net proceeds from the IPO were used to acquire ARS and
BP for $10 million (see "Acquisition of ARS and BP"); and to pay accrued point
awards to franchise race teams aggregating $9.5 million. The remaining net
proceeds will be used for working capital and general corporate purposes,
including the expansion of the Company's business through the acquisition or
development of race related businesses and properties.
ACQUISITION OF ARS AND BP. On March 13, 1998, the Company acquired 100%
of the outstanding common stock of ARS and certain assets of BP, an entity
previously owned by a director, race team owner and stockholder. ARS operates
Indy Lights, a support series to CART. BP supplies certain equipment to Indy
Lights competitors and earns commission income on the sale of chassis and spare
parts to the teams. At closing of the acquisition, the Company paid $7 million
in cash and issued options to the sellers to purchase 100,000 shares of the
Company's common stock at an exercise price of $16.00 per share which vests one
year from closing if certain performance criteria are met for 1998. In the event
that ARS did not meet their performance criteria for 1998, they had the option
to make up the shortfall to receive the options and elected to do so. The fair
value of the options at the date of grant was approximately $574,000. The
sellers are expected to pay the shortfall amount of approximately $504,000 to
receive the options.
In addition, the Company will pay an additional purchase price of up to
$3 million, in three equal payments, upon satisfaction by ARS of certain
performance criteria during 1998-2000. In the event that ARS does not meet its
performance criteria in a given year, the additional payment will be reduced one
dollar for every dollar that ARS is short of the performance criteria. However,
if ARS exceeds its performance in a following year, it can make up the shortfall
from the prior year. Based on 1998 performance criteria, the Company owes the
former shareholders of ARS a total of approximately $496,000 for 1998. The
excess of the initial purchase price of $7 million, plus any additional purchase
price payments, over the net book value of the net assets acquired has been
allocated to the tangible and intangible assets based on the Company's estimate
of the fair market value of the net assets acquired. The operating
F-9
<PAGE> 53
results of ARS and BP have been included in the Company's consolidated financial
statements since the date of acquisition.
ACQUISITION OF PRO-MOTION. On April 10, 1998, the Company acquired 100%
of the outstanding common stock of Pro-Motion, an entity previously owned by a
director, race team owner and stockholder, for $534,000 in cash. Pro-Motion
operates the KOOL/Toyota Atlantic Championship open-wheel series, a support
series to CART. The excess of the initial purchase price over the net book value
of the net assets acquired has been allocated to the tangible and intangible
assets based on the Company's estimate of the fair market value of the net
assets acquired. The operating results of Pro-Motion have been included in the
Company's consolidated financial statements since the date of acquisition.
PRO FORMA RESULTS. The following unaudited pro forma summary for the
year ended December 31, 1997 and 1998 assume the acquisitions of ARS, BP and
Pro-Motion occurred as of January 1, 1997 and 1998.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1998
---- ----
(IN THOUSANDS, EXCEPT EARNINGS
PER SHARE)
-----------------------------------------------------------------------
<S> <C> <C>
Revenues $ 49,628 $ 63,863
Net income (loss) (3,999) 15,196
Earnings per share:
Basic $ (.38) $ 1.06
============ ===========
Diluted $ (.38) $ 1.05
============ ===========
</TABLE>
Pro forma adjustments of $19.4 million ($12.6 million net of tax) for
1997 have also been made to reduce certain benefits paid to franchise members,
including the reimbursement of travel expenses for $2.2 million, director's fees
for $214,000 and other race related payments for $17 million in connection with
the Company's reorganization, effective January 1, 1998 (see Note 15).
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
DECEMBER 31, 1998 -------------------------
(IN THOUSANDS) COST FAIR VALUE GAIN LOSS
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial paper $33,168 $33,487 $319 $ -
U.S. agencies securities 20,034 20,047 13 -
Corporate bonds 8,078 8,076 - 2
----------- -------------- --------- ----------
Total short-term investments $61,280 $61,610 $332 $ 2
=========== ============== ========= ==========
</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. NOTE RECEIVABLE
In May 1998, the Company entered into an agreement with a promoter
whereby the Company provided financing for certain expenses associated with a
CART sanctioned event in Brazil. The original amount of the note receivable of
$4.1 million related to costs incurred by the Company during the 1998 event and
will be repaid in five equal annual installments of $824,000 over the life of
the sanction agreement through the year 2003. The receivable has a stated 5% per
annum interest rate and approximately $1.0 million of the receivable plus the
annual sanction fee will be substantially secured each year by a separate letter
of credit issued annually by the City of Rio de
F-10
<PAGE> 54
Janeiro, Brazil. The letter of credit relating to the 1999 event has been
issued. Based on estimated market discount rates, the carrying value of this
receivable approximates its fair value.
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
(IN THOUSANDS)
-----------------------------------
1997 1998
--------------- ---------------
<S> <C> <C>
Engines $ - $ 2,296
Equipment 1,570 2,381
Furniture and fixtures 329 359
Vehicles 1,616 1,959
Other 228 121
--------------- ---------------
Total 3,743 7,116
Less accumulated depreciation (1,507) (2,090)
--------------- ---------------
Property and equipment (net) $ 2,236 $ 5,026
=============== ===============
</TABLE>
During 1997 and 1998, the Company received vehicles worth approximately
$79,000 and $69,000, respectively, in exchange for sponsorship privileges to the
providers.
6. OPERATING LEASES
The Company has entered into various non-cancelable operating leases
for office space and equipment which expire through 2003. Total rent expense was
approximately $194,000, $345,000 and $421,000 for 1996, 1997 and 1998,
respectively.
Approximate future minimum lease payments under noncancelable operating
leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31: (IN THOUSANDS)
<S> <C>
1999 $ 443
2000 440
2001 352
2002 118
2003 2
--------------
Total $ 1,355
==============
</TABLE>
7. INCOME TAXES
Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and tax basis of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized.
Realization of the Company's deferred tax assets is dependent on
generating sufficient taxable income. Although realization is not assured,
management believes it is more likely than not that all of the deferred tax
assets will be realized.
The tax effects of temporary differences giving rise to deferred tax
assets and liabilities at December 31 are as follows:
F-11
<PAGE> 55
<TABLE>
<CAPTION>
1997 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ -- $ 114
Accrued race expense and points award 3,446 --
Net operating loss carryforwards 1,186 --
Alternative minimum tax credit carryforwards 44 --
Pension liability 8 --
State taxes (22) 5
Other 21 --
------- -------
Total 4,683 119
Current portion 4,683 119
------- -------
Non-current portion $ -- $ --
======= =======
Deferred tax liabilities:
Basis difference in fixed assets $ -- $ (195)
------- -------
Amortization of goodwill -- (64)
------- -------
Total -- (259)
Current portion -- --
Non-current portion $ -- $ (259)
======= =======
</TABLE>
The provision (credit) for income taxes consists of the following at December
31:
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current $ 25 $ 158 $ 3,745
Deferred (credit) (204) (3,581) 4,823
------- ------- -------
Total $ (179) $(3,423) $ 8,568
======= ======= =======
</TABLE>
The reconciliation of income tax expense (benefit) computed at the U.S.
federal statutory tax rate to the Company's effective income tax rate is as
follows:
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Tax at U.S. federal statutory rate (34.0)% (34.0)% 34.0%
State income tax -- -- 1.9
Meals and entertainment 6.5 0.1 0.3
Compensation expense -- 17.3 --
Other (7.1) 0.2 --
-------- -------- --------
Total (34.6)% (16.4)% 36.2%
======== ======== ========
</TABLE>
Additional compensation expense recorded for consolidated financial
statement purposes in connection with common stock issued to race teams in
December 1997, exceeded the Company's deductible amount for federal income tax
purposes.
8. EMPLOYEE BENEFIT PLANS
During 1991, the Company indicated its intent to terminate its defined
benefit pension plan. The plan assets were frozen and remained in trust until
September 30, 1998, at which time the assets were distributed to the
participants of the plan. There was no liability at December 31, 1998. The
Company incurred no additional expense as a result of the termination.
F-12
<PAGE> 56
In addition, the Company began a 401(k) savings plan (the "plan") in
1991. Contributions to the plan are in the form of employee salary deferral,
subject to discretionary employer matching contributions. The Company's
contributions to the plan were approximately $25,000, $50,000 and $81,000 in
1996, 1997 and 1998, respectively.
9. DEBT
At December 31, 1997 and 1998, the Company had an unused bank line of
credit of $1.5 million. There were no amounts outstanding at December 31, 1997
and 1998. Advances on the line of credit are payable on demand, with interest at
the bank's prime rate. The line of credit is secured by the Company's deposits
with the bank.
At December 31, 1998, the Company has a five-year note payable to a
bank with an original face value of $650,000, with interest at 8.25%; payable in
monthly installments of $11,000, plus interest through May 2001. The note
payable is secured by the Company's mobile medical unit. The carrying amount of
the note payable approximates its fair value. Future payments under the above
agreement are as follows:
(IN THOUSANDS)
--------------
1999 $ 130
2000 130
2001 54
-----
Total 314
Less current portion 130
-----
Long-term portion $ 184
=====
10. COMMITMENTS AND CONTINGENCIES
REVENUE AGREEMENTS. The Company has entered into promoter, sponsorship
and television agreements that extend through various dates, with the longest
date expiring in the 2007 racing season. Under the promoter agreements, the
Company is obligated to sanction CART Championship racing events and provide
related race management functions. Under the sponsorship agreements, the Company
grants certain corporations official sponsorship status. In return the
corporations receive recognition and status rights, event rights and product
category exclusivity rights. Television agreements with various broadcast
companies include production, sales and worldwide distribution of the Company's
events.
INSURANCE. The Company is self-insured for the deductible amount
($50,000) on an insurance policy which provides accident medical expense
benefits for participants of CART sanctioned races. Losses above the deductible
amount are covered by the insurance policy.
EMPLOYMENT AGREEMENTS. The Company has employment agreements with
several of its officers. The employment agreements expire at various dates
through December 2001. Certain of the employment agreements provide for a
multiple of the individual's base salary in the event there is a termination of
their employment as a result of a change in control in the Company.
LITIGATION. In January 1996, a lawsuit was filed against the Company by
one of its stockholders and a related company. The lawsuit alleged antitrust and
anti-competitive violations as well as damage of reputation. In December 1996,
the Company settled the lawsuit and other related litigation. Included in the
settlement amount was the redemption of common stock and related Franchise Fund
Liability. Expenses incurred in 1996 and included in administrative and indirect
expenses include approximately $1,734,000 related to litigation expense and the
settlement of lawsuits.
During a CART race at the Michigan Speedway in July 1998, a race car
was involved in a racing incident that propelled a tire and suspension parts
into the grandstands. Three spectators were killed and six other people reported
minor injuries. No claims have been made against the Company, and the Company
does not believe that it is liable for this incident. The Company requires each
promoter to indemnify the Company against any liability for personal injuries
sustained at such promoter's racing event. In addition, the Company requires
each promoter to
F-13
<PAGE> 57
carry a minimum of $10.0 million ($20.0 million in 1999) in liability insurance,
naming the Company as a named insured. The Company also maintains a $15.0
million umbrella policy.
11. STOCK OPTION PLAN
In December 1997, the Board of Directors of the Company (the "Board")
authorized, and the stockholders of the Company approved, a stock incentive plan
for executive and key management employees of the Company and its subsidiaries,
including a limited number of outside consultants and advisors, effective as of
the completion of the initial public offering ("IPO") (the "Stock Option Plan").
Under the Stock Option Plan, key employees, outside consultants and advisors
(the "Participants") of the Company and its subsidiaries (as defined in the
Stock Option Plan) may receive awards of stock options (both Nonqualified
Options and Incentive Options, as defined in the Stock Option Plan). A maximum
of 2,000,000 shares of common stock are subject to the Stock Option Plan.
Options granted vest pro-rata over a three-year period. No stock option is
exercisable after ten years from the date of the grant, subject to certain
conditions and limitations. The purpose of the Stock Option Plan is to provide
the Participants (including officers and directors who are also key employees)
of the Company and its subsidiaries with an increased incentive to make
significant contributions to the long-term performance and growth of the Company
and its subsidiaries. Concurrent with the IPO, an aggregate 1,088,100 options to
acquire common stock were granted under the Stock Option Plan at the initial
offering price of $16.00 per share. In March 1999, 100,250 options were granted
to employees under the Stock Option Plan at an exercise price of $27.50 per
share.
In addition, in December 1997, the Board and the stockholders of the
Company approved a Director Option Plan permitting the granting of non-qualified
stock options ("Director NQSOs") for up to 100,000 shares of common stock to
directors of the Company who are neither employees of the Company nor affiliates
of a race team which participates in CART race events (an "Independent
Director"). Each person who is first elected or appointed to serve as an
Independent Director of the Company is automatically granted an option to
purchase 10,000 shares of Company common stock. In addition, each individual who
is re-elected as an Independent Director is automatically granted an option to
purchase 5,000 shares of Company common stock each year on the date of the
annual meeting of stockholders. Each of the options automatically granted upon
election, appointment or re-election as an Independent Director are exercisable
at a price equal to the fair market value of the common stock on the date of
grant. In addition, each Independent Director may elect to receive stock options
in lieu of any director's fees payable to such individuals.
All Director NQSOs are immediately exercisable upon grant. The exercise
price for all options may be paid in cash, shares of common stock of the Company
or other property. If an Independent Director dies or becomes ineligible to
participate in the Director Option Plan due to disability, his Director NQSOs
expire on the first anniversary of such event. If an Independent Director
retires with the consent of the Company, his Director NQSOs expire 90 days after
his retirement. In no event may a Director NQSO be exercised more than ten years
from the date of grant. As of December 31, 1998, there were 10,000 Director
NQSOs issued and outstanding. In January 1999, an additional 10,000 Director
NQSOs were issued and outstanding.
In addition to the plans described above, 100,000 stock options were
issued in connection with the acquisition of ARS and BP (see Note 2).
The following table summarizes information about stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED
NUMBER OF REMAINING AVERAGE
SHARES LIFE EXERCISE PRICE
--------- --------- --------------
<S> <C> <C> <C>
Options outstanding December 31, 1997 -- -- $ --
Granted 1,198,100 4.2 16.02
Exercised -- -- --
Forfeited 600 -- 16.02
--------- ----- -------
Options outstanding December 31, 1998 1,197,500 4.2 $ 16.02
========= ===== =======
(10,000 are exercisable)
</TABLE>
F-14
<PAGE> 58
The weighted average per share fair value of options granted at market
value was $5.74 in 1998.
At December 31, 1998, an additional 1,002,500 shares were reserved for
issuance under all Company plans.
SFAS No. 123 "Accounting for Stock Based Compensation" requires the
recognition of compensation expense for equity investments that are issued for
consideration other than employee services based upon the fair value of the
common stock issued. The fair value of the Company's Common Stock has been
measured on the date new Franchise Members become eligible to acquire such
stock. Compensation expense of $1.2 million and $12.2 million has been recorded
for the years ended 1996 and 1997 respectively, related to certain shares that
became eligible for purchase based upon eligibility requirements met during 1996
and 1997.
As permitted by SFAS No. 123, the Company has chosen to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB No. 25") in accounting for its stock options granted to employees and
directors. Under APB No. 25, the Company does not recognize compensation expense
on the issuance of its stock options because the option terms are fixed and the
exercise price equals the market price of the underlying stock on the grant
date.
However, as required by SFAS No. 123, the Company has calculated pro forma
information as if it had determined compensation cost based on the fair value at
the grant date for its stock options granted to employees and directors. In
accordance with SFAS No. 123, the fair value of option grants is estimated on
the date of grant using the Black-Scholes option-pricing model for pro forma
purposes with the following assumptions used for all grants: expected volatility
30%, expected dividend yield of 0%, risk free interest rate of 5%, and an
expected life of 5 years. Had the Company determined compensation cost based on
the fair value at the grant date for its stock under SFAS No. 123, net earnings
and diluted earnings per share would have been reduced to the pro forma amounts
indicated below:
(IN THOUSANDS,
EXCEPT EARNINGS PER SHARE)
NET EARNINGS 1998
------------ -----
As reported $15,089
=======
Pro forma $14,054
=======
DILUTED EARNINGS PER SHARE
As reported $ 1.05
=======
Pro forma $ .97
=======
12. COMMON STOCK
During 1996, the Company redeemed 2,000,000 shares of common stock for $1.4
million (including $480,000 representing a refund of Membership Deposits or
Franchise Fund Liability), and sold 1,200,000 shares of common stock for
$990,000 (including $360,000 representing Membership Deposits). A total of
800,000 of the shares of common stock were redeemed for $600,000 (including
$240,000 representing a refund of Membership Deposits or Franchise Fund
Liability), which was used to offset a note receivable from a stockholder as of
December 31, 1995.
In January 1997, the Company redeemed 400,000 shares of common stock for
$330,000 (including $120,000 representing a refund of Membership Deposits or
Franchise Fund Liability). In January and February 1997, the Company issued
1,200,000 shares of common stock for $1.2 million (including $360,000
representing Membership Deposits). In December 1997, the Company issued
1,400,000 shares for $1.8 million.
In March 1998, at the request of a race team owner, the Company rescinded
the sale of an aggregate of 66,666 shares of common stock it issued in December
1997 at a total price of $151,000.
F-15
<PAGE> 59
13. 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 segment in the United
States. The Company evaluates performances based on income before income taxes.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
(IN THOUSANDS) Racing Operations Other* Totals
- -------------- ----------------- ------ ------
1996
- ----
<S> <C> <C> <C>
Revenues $ 41,124 $ -- $ 41,124
Interest income (net) 280 -- 280
Depreciation and amortization 685 -- 685
Segment loss before income taxes (517) -- (517)
1997
- ----
Revenues $ 40,867 $ 578 $ 41,445
Interest income (expense) (net) 331 (2) 329
Depreciation and amortization 531 18 549
Segment loss before income taxes (20,432) (515) (20,947)
1998
- ----
Revenues $ 61,056 $1,474 $ 62,530
Interest income (expense) (net) 3,234 (36) 3,198
Depreciation and amortization 750 29 779
Segment income before income taxes 23,657 -- 23,657
</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 at December 31 are as
follows:
(IN THOUSANDS)
--------------
1997 1998
--------------- ------------
Total assets for reportable segment $ 11,599 $ 95,851
Other assets 749 1,335
--------------- ------------
Total consolidated assets $ 12,348 $ 97,186
=============== ============
Total liabilities for reportable segment $ 14,996 $ 9,617
Other liabilities 397 1,350
--------------- ------------
Total consolidated liabilities $ 15,393 $ 10,967
=============== ============
Domestic and foreign revenues, which are allocated to each country based on
sanction fees, sponsorship revenues and television revenues, for each of the
three years ended December 31 were as follows:
F-16
<PAGE> 60
(IN THOUSANDS)
--------------
----------- ------------ -----------
1996 1997 1998
----------- ------------ -----------
United States $ 30,355 $ 28,888 $ 42,105
Canada 4,499 5,336 7,828
Other foreign countries 6,270 7,221 12,597
----------- ------------ -----------
Total $ 41,124 $ 41,445 $ 62,530
=========== ============ ===========
14. EARNINGS (LOSS) PER SHARE
Basic earnings per share ("EPS") excludes dilution and is computed by
dividing earnings available to common stockholders by the weighted average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution of securities that could share in the earnings. Shares
contingently issuable relate to shares that would have been outstanding under
certain stock option plans (see Note 11) upon the assumed exercise of dilutive
stock options.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1997 1998
---- ---- ----
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<S> <C> <C> <C>
Net income (loss) $ (338) $ (17,524) $ 15,089
============ ============== ============
Basic EPS:
Weighted average common shares outstanding 9,400 10,200 14,190
============ ============== ============
Net earnings (loss) per common share, basic $ (.04) $ (1.72) $ 1.06
============ ============== ============
Diluted EPS:
Weighted average common shares outstanding 9,400 10,200 14,190
Shares contingently issuable -- -- 231
------------ -------------- ------------
Shares applicable to diluted earnings 9,400 10,200 14,421
============ ============== ============
Net earnings (loss) per common share, diluted $ (.04) $ (1.72) $ 1.05
============ ============== ============
</TABLE>
15. RELATED PARTY TRANSACTIONS
The Company receives sanction fees from seven related parties. Total
sanction fee revenue related to these entities for 1996, 1997 and 1998 was
approximately $3.9 million, $5.2 million and $8.1 million, respectively. No
sanction fees from a single related entity provided more than 10% of the
Company's revenues in 1996, 1997 and 1998.
The Company rented track facilities from a related party. Total track
rental expense related to this entity for 1996, 1997 and 1998 was approximately
$1.2 million, $0 and $62,000, respectively.
At December 31, 1997 and 1998, the Company has accounts receivable of
approximately $190,000 and $1.7 million, respectively, due from related parties.
The Company receives entry fees and other race-related income to
participate in the CART Championship from certain related parties. Such fees
received from certain franchise members amounted to $80,000, $150,000 and $1.3
million in 1996, 1997 and 1998, respectively.
The Company disburses purse winnings and awards to nine related
parties. Total purse winnings related to these entities for 1996, 1997 and 1998
were $10.8 million, $9.0 million and $10.8 million, respectively.
The Company paid for at-track rights to six related parties in order to
satisfy contractual obligations with certain sponsors. Total at-track rights
related to these entities for 1996, 1997 and 1998 were $0, $500,000 and $1.2
million, respectively.
F-17
<PAGE> 61
The Company paid royalties to nine related parties. Total royalties
paid to these entities for 1996, 1997 and 1998 were $0, $173,000 and $495,000,
respectively.
At December 31, 1997 and 1998, the Company has accounts payable and
royalties payable of approximately $6.6 million and $306,000, respectively, due
to related parties.
An officer of the Company is a principal in a law firm which received
fees for legal services provided to the Company. Such fees amounted to
approximately $129,000, $133,000 and $127,000 in 1996, 1997 and 1998,
respectively.
In connection with the Reorganization, effective January 1, 1998, the
Company and the existing franchise race teams entered into an agreement on
December 19, 1997 whereby reimbursements for travel expenses, directors fees and
race-related payments were discontinued. These payments approximated $8.5
million and $19.4 million for the years 1996 and 1997, respectively. Such
agreement expires in December 2000. Because each franchise member is also a
stockholder of the Company, the agreement constitutes a related party
transaction.
16. SUBSEQUENT EVENTS (UNAUDITED)
Effective December 31, 1998, the president of CART Licensed Products,
L.P. resigned from his position. The Company is negotiating to purchase his 45
percent interest in CART Licensed Products, L.P.
F-18
<PAGE> 62
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR
TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT RELY ON ANY
UNAUTHORIZED INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS IS AN OFFER TO SELL
ONLY THE COMMON STOCK OFFERED HEREBY, BUT ONLY UNDER CIRCUMSTANCES AND IN
JURISDICTIONS WHERE IT IS LAWFUL TO DO SO. THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS CURRENT ONLY AS OF ITS DATE.
- -------------------------------------------------------------------------------
1,866,500 SHARES
[LOGO]
CHAMPIONSHIP AUTO
RACING TEAMS, INC.
COMMON STOCK
PROSPECTUS
JEFFERIES & COMPANY, INC.
J.C. BRADFORD & CO.
1999
TABLE OF CONTENTS
Page
----
Prospectus Summary.................................. 1
Risk Factors........................................ 5
Forward-Looking Statements.......................... 10
Use of Proceeds..................................... 11
Price Range of Common Stock and Dividend Policy..... 11
Selected Consolidated Financial and Operating Data.. 12
Management's Discussion and Analysis of Financial 13
Condition and Results of Operations.............
Auto Racing Industry Overview....................... 21
Business............................................ 24
Principal Stockholders.............................. 36
Selling Stockholders................................ 37
Underwriting........................................ 38
Legal Matters....................................... 39
Experts............................................. 39
Where You Can Find More Information................. 40
Index to Financial Statements....................... F-1
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE> 63
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following is an estimated statement of expenses payable in
connection with the issuance and sale of the securities being registered, other
than underwriting discounts and commissions:
Securities and Exchange Commission Registration Fee $ 17,268
National Association of Securities Dealers, Inc. Fee $ 6,000
Accounting Fees and Expenses $ 25,000
Printing Expenses $ 70,000
Blue Sky Filing Fees $ 5,000
Legal Fees and Expenses $ 80,000
Miscellaneous $ 6,732
---------
TOTAL $ 210,000
==========
Item 14. Indemnification of Directors and Officers.
Under provisions of the Certificate of Incorporation and By-laws of the
Company, each person who is or was a director or officer of the Company shall be
indemnified by the Company as a matter of right to the full extent permitted by
law. The effects of the Certificate of Incorporation, By-laws and General
Corporation Law of Delaware may be summarized as follows:
(a) Under Delaware law, to the extent that such a person is successful
on the merits in defense of a suit or proceeding brought against him by
reason of the fact that he is a director or officer of the Company, he
shall be indemnified against expenses (including attorneys' fees)
reasonably incurred in connection with such action.
(b) If unsuccessful in defense of a third-party civil suit or a
criminal suit, or if such suit is settled, such person shall be
indemnified under such law against both (1) expenses (including
attorneys' fees) and (2) judgments, fines and amounts paid in
settlement if he acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the
Company, and with respect to any criminal action, had no reason to
believe his conduct was unlawful.
(c) If unsuccessful in a defense of a suit brought by or in the right
of the Company, or if such suit is settled, such a person shall be
indemnified under such law only against expenses (including attorneys'
fees) incurred in the defense or settlement of such suit if he acted in
good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the Company except that if such a
person is adjudged to be liable in a suit in the performance of his
duty to the Company, he cannot be made whole even for expenses unless
the court determines that he is fairly and reasonably entitled to
indemnify for such expenses.
(d) The Company may not indemnify a person in respect of a proceeding
described in (b) or (c) above unless it is determined that
indemnification is permissible because the person has met the
prescribed standard of conduct by any one of the following: (i) the
Board of Directors, by a majority vote of a quorum consisting of
directors not at the time parties to the proceeding, (ii) if a quorum
of directors not parties to the proceeding cannot be obtained, or, if
obtainable but the quorum so directs, by independent legal counsel
selected by the Board of Directors or the committee thereof, or (iii)
by the stockholders.
II-1
<PAGE> 64
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
1.1 Form of Underwriting Agreement*
3.1 Certificate of Incorporation of the Company filed December 8, 1997**
3.2 Bylaws of the Company**
4.1 Form of Common Stock Certificate **
5.1 Form of Opinion of Kegler, Brown, Hill & Ritter Co., L.P.A.
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Kegler, Brown, Hill & Ritter Co., L.P.A.
24.1 Powers of Attorney (contained in the Signature Section of the Original
Registration Statement)
27.1 Financial Data Schedule
- ---------------------------------
* To be filed by amendment.
** Incorporated by reference to exhibits to our Registration Statement on Form
S-1 (Registration No. 333-43141)
(b) Financial Statement Schedule
Item 17. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(i) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form
of prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus
filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of
this registration statement as of the time it was declared
effective.
(ii) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing
of the Registrant's annual report pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d)
of the Securities Exchange Act of 1934) that is incorporated by
reference in this Registration Statement shall be deemed to be a new
Registration Statement relating to the securities offered herein and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in such Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer, or controlling person in
connection with the securities being registered hereby, the Registrant
will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-2
<PAGE> 65
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant, Championship Auto Racing Teams, Inc., a corporation organized
and existing under the laws of the State of Delaware, certifies that it has
reasonable grounds to believe that it meets all of the requirements for filing
on Form S-3 and has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 9th day of April,
1999.
CHAMPIONSHIP AUTO RACING TEAMS, INC.
By: s/ Andrew H. Craig
-------------------------------------------
Andrew H. Craig, Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS: That the undersigned hereby appoints
Andrew H. Craig, Randy K. Dzierzawski, Jack A. Bjerke and Amy M. Shepherd, and
any of them, any of whom may act without the joinder of the others, as his true
and lawful attorney-in-fact, with full power of substitution and resubstitution,
for him, and in his stead, in his capacity as an officer or director, or both,
of Championship Auto Racing Teams, Inc., a Delaware corporation, to sign a
registration statement on Form S-3 or other form registering under the
Securities Act of 1933, as amended, its shares of common stock and any and all
amendments thereto, including post-effective amendments to the registration
statement, and to file the same, with all exhibits thereto and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or their
substitute or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed on April 8, 1999 by the following
persons in the capacities indicated:
SIGNATURE TITLE
- --------- -----
/s/ Andrew H. Craig Chief Executive Officer, Director
- ------------------------
Andrew H. Craig
/s/ Randy K. Dzierzawski Chief Financial and Accounting Officer
- ------------------------
Randy K. Dzierzawski
/s/ Gerald Forsythe Director
- ------------------------
Gerald Forsythe
/s/ Floyd R. Ganassi, Jr. Director
- ------------------------
Floyd R. Ganassi, Jr.
/s/ Carl A. Haas Director
- ------------------------
Carl A. Haas
/s/ James F. Hardymon Director
- ------------------------
James F. Hardymon
/s/ Bruce R. McCaw Director
- -----------------------
Bruce R. McCaw
II-3
<PAGE> 66
/s/ Don Ohlmeyer, Jr. Director
- -----------------------
Don Ohlmeyer, Jr.
/s/ U.E. Patrick Director
- -----------------------
U.E. Patrick
/s/ Robert W. Rahal Director
- -----------------------
Robert W. Rahal
/s/ Derrick Walker Director
- -----------------------
Derrick Walker
II-4
<PAGE> 67
SCHEDULE II
CHAMPIONSHIP AUTO RACING TEAMS, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996.
(IN THOUSANDS)
<TABLE>
<CAPTION>
CHARGED BALANCE
BEGINNING TO COSTS AT END OF
DESCRIPTION OF PERIOD AND EXPENSES DEDUCTIONS (1) PERIOD
- ----------- --------- ------------ -------------- ------
Allowance for doubtful
accounts (deducted from
accounts receivable):
<S> <C> <C> <C> <C>
Year Ended December 31, 1998....... $ -- $ 436 $ 130 $ 306
Year Ended December 31, 1997....... -- -- -- --
Year Ended December 31, 1996....... -- -- -- --
- -------------------
(1) Accounts deemed to be uncollectible.
</TABLE>
II-5
<PAGE> 1
KEGLER, BROWN, HILL & RITTER
A LEGAL PROFESSIONAL ASSOCIATION
<TABLE>
<S> <C> <C> <C> <C>
DONALD A. ANTRIM RONALD L. MASON ATTORNEYS AND COUNSELORS AT LAW PAUL V. DANIELSON OF COUNSEL
JACK A. BJERKE LARRY J. McCLATCHEY CAPITOL SQUARE STEPHEN D. DUNSON
JOHN P. BRODY PAUL D. RITTER, JR. SUITE 1800 LORIANN E. FUHRER JOHN C. DEAL
WILLIAM J. BROWN O. JUDSON SCHEAF, III 65 EAST STATE STREET GREG R. GRABOVAC JAMES R. ELEY
STEPHEN E. CHAPPELEAR RICHARD W. SCHUERMANN, JR. COLUMBUS, OHIO 43215-4294 LAURA L. GRIBBIN JOHN L. GRAY
ROBERT G. COHEN ROBERT G. SCHULER TELEPHONE: (614) 462-5400 ERIKA L. HAUPT THOMAS D. KITCH
LAWRENCE F. FEHELEY AMY M. SHEPHERD FACSIMILE: (614) 464-2634 TODD M. KEGLER ROBERT D. MAROTTA
DONALD W. GREGORY S. MARTIJN STEGER WWW.KBHR.COM LYNDA G. LOOMIS TED M. MCKINNISS*
ALLEN L. HANDLAN ROGER P. SUGARMAN ---------- JOHN LOWE IV S. NOEL MELVIN
EDWARD C. HERTENSTEIN KEVIN L. SYKES DAVID M. McCARTY S. MICHAEL MILLER
PAUL R. HESS JOHN R. THOMAS THOMAS M. L. METZGER JOSEPH M. MILLIOUS
THOMAS W. HILL TIMOTHY T. TULLIS PATRICK M. O'NEILL LEIGH A. REARDON
DANIEL G. HILSON MELVIN D. WEINSTEIN MARK R. REITZ GEOFFREY STERN
GENE W. HOLLIKER R. DOUGLAS WRIGHTSEL BRAD A. SPRAYBERRY ----------
CHARLES J. KEGLER MICHAEL E. ZATEZALO T. A. WARD II
R. KEVIN KERNS CHRISTOPHER J. WEBER JOHN B. TINGLEY
ANTHONY C. WHITE - RETIRED
NICHOLAS E. WILKES CHALMERS P. WYLIE
SHAWNELL WILLIAMS 1920-1998
ASHLEY L. WILSON ----------
*RESIDENT IN
MARION OFFICE
</TABLE>
[FORM OF LEGAL OPINION]
April ___, 1999
Championship Auto Racing Teams, Inc.
755 West Big Beaver Road
Suite 800
Troy, MI 48084
Dear Sirs:
In connection with the registration of 2,146,475 shares of common
stock, par value $.01 per share (the "Common Stock") of Championship Auto Racing
Teams, Inc., a Delaware corporation (the "Company") with the Securities and
Exchange Commission on a registration statement on Form S-3 (the "Registration
Statement"), relating to the sale of up to 1,866,500 shares of Common Stock by
the selling stockholders and up to 279,975 shares of Common Stock by the Company
pursuant to the over-allotment option granted to the underwriters, we have
examined such documents, records and matters of law as we have considered
relevant. Based upon such examination, it is our opinion that the shares of
Common Stock that have been registered and will be sold on behalf of the selling
stockholders have been validly issued, are fully paid and non-assessable.
Further, it is our opinion that the shares of Common Stock that may be issued by
the Company pursuant to the Registration Statement, when issued and paid for in
accordance with the Registration Statement and pursuant to the terms of the
underwriting agreement, will be validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the Registration Statement
and the prospectus forming a part of the Registration Statement.
Very truly yours,
KEGLER, BROWN, HILL & RITTER CO., L.P.A.
By:
----------------------------------
Amy M. Shepherd, Vice President
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
To the Board of Directors and Stockholders of Championship Auto Racing Teams,
Inc. Troy, Michigan
We consent to the use in this Registration Statement relating to 2,146,475
shares of Common Stock of Championship Auto Racing Teams, Inc. (the "Company")
on Form S-3 of our report dated February 5, 1999, appearing in the Prospectus,
which is a part of this Registration Statement, and to the references to us
under the headings "Summary Consolidated Financial Data," "Selected Consolidated
Financial Data" and "Experts" in such Prospectus.
Our audits of the consolidated financial statements referred to in our
aforementioned report also included the financial statement schedule of
Championship Auto Racing Teams, Inc., listed in Item 16. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ Deloitte & Touche LLP
Detroit, Michigan
April 9, 1999
<PAGE> 1
CONSENT OF
KEGLER, BROWN, HILL & RITTER CO., L.P.A.
Championship Auto Racing Teams, Inc.
755 West Big Beaver Road
Suite 800
Troy, MI 48084
Dear Sirs:
This consent is hereby provided in connection with the Registration
Statement on Form S-3 to be filed by Championship Auto Racing Teams, Inc. with
the Securities and Exchange Commission. We hereby consent to the use of our name
in the Registration Statement and the prospectus forming a part of such
Registration Statement.
Very truly yours,
KEGLER, BROWN, HILL & RITTER CO., L.P.A.
By: /s/ Amy M. Shepherd
------------------------------------
Amy M. Shepherd, Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 15,080
<SECURITIES> 61,610
<RECEIVABLES> 9,188
<ALLOWANCES> 306
<INVENTORY> 71
<CURRENT-ASSETS> 82,743
<PP&E> 7,116
<DEPRECIATION> 2,090
<TOTAL-ASSETS> 97,186
<CURRENT-LIABILITIES> 10,524
<BONDS> 0
<COMMON> 151
0
0
<OTHER-SE> 86,068
<TOTAL-LIABILITY-AND-EQUITY> 97,186
<SALES> 0
<TOTAL-REVENUES> 62,530
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 41,685
<LOSS-PROVISION> 355
<INTEREST-EXPENSE> 31
<INCOME-PRETAX> 23,657
<INCOME-TAX> 8,568
<INCOME-CONTINUING> 15,089
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,089
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 1.05
</TABLE>
