<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number 1-13582
SPEEDWAY MOTORSPORTS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 51-0363307
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
U.S. Highway 29 North, Concord, North Carolina 28026
(Address of principal executive offices) (Zip Code)
(704) 455-3239
(Registrant's telephone number, including area code)
----------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
As of August 12, 1996, there were 41,255,455 shares of $0.01 par value common
stock outstanding.
<PAGE>
INDEX TO FORM 10-Q
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements 3
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS.
SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
June 30,
1996 December 31,
(Unaudited) 1995
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ........................ $ 59,603 $ 10,132
Restricted cash .................................. 50 86
Trade accounts receivable ........................ 8,112 6,511
Refundable income taxes .......................... -- 727
Inventories (Note 4).............................. 6,019 5,372
Speedway condominiums held for sale.............. 3,720 3,142
Prepaid expenses ................................. 408 185
--------- ---------
Total current assets ........................... 77,912 26,155
--------- ---------
PROPERTY AND EQUIPMENT, NET (Note 5)............... 173,308 93,105
GOODWILL AND OTHER INTANGIBLE ASSETS (Note 9)...... 36,660 12,675
OTHER ASSETS:
Marketable equity securities ..................... 1,589 1,855
Note receivable-affiliate (Note 8)................ 672 934
Deferred financing costs ......................... 599 --
Other assets ..................................... 3,599 1,722
--------- ---------
Total other assets ............................. 6,459 4,511
--------- ---------
TOTAL ......................................... $ 294,339 $ 136,446
========= =========
See notes to consolidated financial statements.
3
<PAGE>
SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
June 30,
1996 December 31,
(Unaudited) 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 6)..... $ 348 $ 348
Accounts payable ................................. 15,523 7,743
Deferred race event income, net .................. 20,926 13,345
Accrued expenses and other liabilities ........... 9,103 5,870
Due to former stockholders ....................... 489 665
--------- ---------
Total current liabilities ..................... 46,389 27,971
LONG-TERM DEBT (Note 6)............................ 41,287 1,458
PAYABLE TO AFFILIATED COMPANIES (Note 8)........... 2,603 2,603
DEFERRED MEMBERSHIP INCOME, NET ................... 1,426 1,563
DEFERRED INCOME TAXES ............................. 9,960 6,717
OTHER LIABILITIES ................................. 651 754
--------- ---------
Total liabilities ............................. 102,316 41,066
--------- ---------
COMMITMENTS AND CONTINGENCIES (Notes 7 and 10).....
STOCKHOLDERS' EQUITY (Note 3):
Preferred stock .................................. -- --
Common stock ..................................... 412 380
Additional paid-in capital ....................... 155,019 72,148
Retained earnings ................................ 36,624 22,944
Deduct:
Unrealized loss on marketable equity
securities .................................... (32) (92)
--------- ---------
Total stockholders' equity .................... 192,023 95,380
--------- ---------
TOTAL ......................................... $ 294,339 $ 136,446
========= =========
See notes to consolidated financial statements.
4
<PAGE>
SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars and shares in thousands except per share amounts)
(Unaudited)
Three Months Ended
June 30, June 30,
1996 1995
REVENUES:
Admissions ............................... $ 22,564 $ 14,240
Event related revenue .................... 14,446 9,991
Other operating revenue .................. 3,806 3,478
-------- --------
Total revenues .................... 40,816 27,709
-------- --------
OPERATING EXPENSES:
Direct expense of events ................. 11,429 6,583
Other direct operating expense ........... 2,439 2,287
General and administrative ............... 4,591 3,566
Depreciation and amortization ............ 2,058 1,153
-------- --------
Total operating expenses .......... 20,517 13,589
-------- --------
OPERATING INCOME .......................... 20,299 14,120
INTEREST INCOME, NET ...................... 686 269
OTHER INCOME .............................. 672 952
EQUITY IN NET INCOME OF NORTH WILKESBORO
SPEEDWAY ................................ 299 --
-------- --------
INCOME BEFORE INCOME TAXES................. 21,956 15,341
PROVISION FOR INCOME TAXES ................ 8,663 6,099
-------- --------
NET INCOME ................................ $ 13,293 $ 9,242
======== ========
NET INCOME PER SHARE ...................... $ 0.32 $ 0.24
======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING
(Note 2).................................. 42,106 38,400
======== ========
See notes to consolidated financial statements.
5
<PAGE>
SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars and shares in thousands except per share amounts)
(Unaudited)
Six Months Ended
June 30, June 30,
1996 1995
REVENUES:
Admissions ............................... $ 27,306 $ 18,577
Event related revenue .................... 19,040 14,448
Other operating revenue .................. 6,800 5,929
-------- --------
Total revenues .................... 53,146 38,954
-------- --------
OPERATING EXPENSES:
Direct expense of events ................. 15,133 10,297
Other direct operating expense ........... 4,333 3,940
General and administrative ............... 8,622 6,810
Depreciation and amortization ............ 3,796 2,330
-------- --------
Total operating expenses .......... 31,884 23,377
-------- --------
OPERATING INCOME .......................... 21,262 15,577
INTEREST INCOME (EXPENSE), NET ............ 449 (486)
OTHER INCOME .............................. 781 997
EQUITY IN NET INCOME OF NORTH WILKESBORO
SPEEDWAY ................................ 185 --
-------- --------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM....................... 22,677 16,088
PROVISION FOR INCOME TAXES ................ 8,997 6,435
-------- --------
INCOME BEFORE EXTRAORDINARY ITEM. ......... 13,680 9,653
EXTRAORDINARY ITEM, NET (Note 6)........... -- (133)
-------- --------
NET INCOME ................................ $ 13,680 $ 9,520
======== ========
PER SHARE DATA:
Income before extraordinary item.......... $ 0.34 $ 0.27
Extraordinary item, net .................. -- --
-------- --------
Net income ............................... $ 0.34 $ 0.27
======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING
(Note 2).................................. 40,490 35,689
======== ========
See notes to consolidated financial statements.
6
<PAGE>
SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars and shares in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
Additional on Marketable Total
Common Stock Paid-In Retained Equity Stockholders'
Shares Amount Capital Earnings Securities Equity
<S> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1995 ............ 38,000 $ 380 $ 72,148 $22,944 $ (92) $ 95,380
Net income .......................... -- -- -- 13,680 -- 13,680
Issuance of Speedway Motorsports,
Inc. common stock................... 3,000 30 78,463 -- -- 78,493
Exercise of Speedway Motorsports,
Inc. stock options.................. 110 1 464 -- -- 465
Issuance of common stock in
conjunction with acquisition of
Oil-Chem Research Corp.............. 145 1 3,944 -- -- 3,945
Net unrealized gain on marketable
equity securities .................. -- -- -- -- 60 60
------ ---- -------- ------- ----- --------
BALANCE JUNE 30, 1996 (Unaudited)..... 41,255 $412 $155,019 $36,624 $ (32) $192,023
====== ==== ======== ======= ===== ========
</TABLE>
See notes to consolidated financial statements.
7
<PAGE>
SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30, June 30,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................. $ 13,680 $ 9,520
Extraordinary item, net ................................ -- 133
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ..................... 3,796 2,330
Equity in net income of North Wilkesboro Speedway . (185) --
Gain on sale of marketable equity securities and
investments ..................................... (531) (252)
Amortization of deferred membership income ........ (137) (138)
Changes in operating assets and liabilities,net of
of acquired business:
Trade accounts receivable ...................... (1,136) (3,226)
Inventories .................................... (620) (810)
Other current assets and liabilities ........... 14,955 5,595
Condominiums held for sale ........ ............. (578) (335)
Accrued interest receivable from related parties (25) (25)
Deferred race event income ..................... 345 4,916
Other assets and liabilities ................... (3,806) (558)
-------- --------
Net cash provided by operating activities ..... 25,758 17,150
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt ................... (32,671) (47,261)
Issuance of long-term debt ............................. 72,500 --
Advances from related parties .......................... -- 2
Issuance of common stock to public ..................... 78,493 65,793
Issuance of common stock in connection with stock
options exercised ..................................... 465 --
-------- --------
Net cash provided by financing activities .... 118,787 18,534
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................................... (69,102) (6,175)
Purchases of marketable equity securities and
investments ........................................... (606) (6,209)
Proceeds from sales of marketable equity securities
and investments ....................................... 1,507 130
Purchase of Bristol Motor Speedway ..................... (26,646) --
Purchase of Oil-Chem Research Corp. .................... (514) --
Repayments from related parties ........................ 287 --
-------- --------
Net cash used in investing activities ........ (95,074) (12,254)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS ............... 49,471 23,430
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ........ 10,132 7,046
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .............. $ 59,603 $ 30,476
======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Road construction costs financed with a note
payable (Note 6) ..................................... $ -- $ 2,016
======== ========
</TABLE>
See notes to consolidated financial statements.
8
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
These unaudited consolidated financial statements should be read in
conjunction with the financial statements for Speedway Motorsports, Inc. for the
fiscal year ended December 31, 1995 included in the Company's 1995 Annual Report
on Form 10-K or the Company's Prospectus dated March 27, 1996.
In management's opinion, these unaudited consolidated financial statements
contain all adjustments necessary for their fair presentation at interim
periods. All such adjustments are of a normal recurring nature.
The results of operations for interim periods are not necessarily
indicative of operating results that may be expected for the entire year due to
the seasonal aspect of event revenues.
The Company recognizes revenues and operating expenses for all events in
the calendar quarter in which the events are conducted except when a major
NASCAR race event occurs on the last weekend of a calendar quarter ended March
31, June 30, or September 30 in which case the race event revenues and operating
expenses are recognized consistently in the immediately succeeding calendar
quarter. The Company has adopted this accounting policy to help ensure
comparability between quarterly financial statements.
A major NASCAR race event occurred at BMS on the weekend of March 29-31,
1996. Accordingly, the operating results of this race event are reflected in the
second quarter of 1996. The cutoff date for the first quarter of calendar year
1996 was March 28, 1996. No major NASCAR race events were held on the last
weekend of the calendar quarter ended June 30, 1996.
IMPACT OF NEW ACCOUNTING STANDARD - In October 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation," which was effective
for all companies beginning January 1, 1996. SFAS No. 123 requires expanded
disclosures of stock-based compensation arrangements with employees and
encourages (but does not require) compensation cost to be measured based on the
fair value of the equity instrument awarded. Companies are permitted, however,
to continue to apply APB Opinion No. 25, which recognizes compensation cost
based on the intrinsic value of the equity instrument awarded. The Company will
continue to apply APB Opinion No. 25 to its stock-based compensation awards to
employees and will disclose the required pro forma effect on net income and
earnings per share on an annual basis.
RECLASSIFICATIONS - Certain accounts in 1995 were reclassified to conform
to current year presentation.
2. DESCRIPTION OF BUSINESS
The consolidated financial statements include the accounts of Speedway
Motorsports, Inc. (SMI), and its wholly-owned subsidiaries, Charlotte Motor
Speedway, Inc. and Subsidiaries (CMS), Atlanta Motor Speedway, Inc. (AMS), Texas
Motor Speedway, Inc. (TMS), Bristol Motor Speedway, Inc. (BMS), Oil-Chem
Research Corp. and Subsidiary (ORC) and Speedway Funding Corp. (collectively,
the Company). In March 1995, CMS and AMS became wholly-owned subsidiaries of
SMI. Sonic Financial Corporation (Sonic) and other shareholders of CMS and AMS
became shareholders of SMI in a corporate restructuring (Restructuring) prior to
the initial public offering of common stock by SMI in 1995.
CMS owns and operates a 1.5-mile oval, asphalt speedway located in
Concord, North Carolina. CMS stages three major National Association of Stock
Car Auto Racing (NASCAR) Winston Cup events annually, two in May and one in
October. Additionally, two Busch Grand National and two Automobile Racing Club
of America (ARCA) races are
9
<PAGE>
held annually, each preceding a Winston Cup event. In 1996, CMS also hosted an
International Race of Champions (IROC) race. All of these events are sanctioned
by NASCAR, IROC or ARCA. The Charlotte facility also includes a 2.25-mile road
course, a one-quarter mile asphalt oval track, a one-fifth mile asphalt oval
track and a one-fifth mile dirt oval track, all of which have races run on them
throughout the year.
CMS also owns an office and entertainment complex which overlooks the main
speedway. A wholly-owned subsidiary, The Speedway Club, Inc. (Speedway Club),
derives rental, catering and dining revenues from the complex. Additionally, CMS
has constructed 52 condominiums overlooking the main speedway, all of which had
been sold by the end of 1994.
CMS, through its wholly-owned subsidiary, 600 Racing, Inc., is also
engaged in the development and sale of 5/8-scale cars (Legends Cars) modeled
after older-style coupes and sedans. Revenue is derived from the sale of
vehicles and vehicle parts.
AMS owns and operates a 1.5-mile oval, asphalt speedway located in
Hampton, Georgia. Two NASCAR Winston Cup events are held annually, one in March
and one in November. Additionally, a Busch Grand National race and two ARCA
races are also held annually, generally preceding a Winston Cup event. All of
these events are sanctioned by NASCAR or ARCA. AMS is in the process of selling
the twelve remaining condominiums, which overlook the Atlanta speedway.
TMS was established on February 13, 1995 for the purpose of constructing
and operating a 1.5-mile oval, asphalt speedway in Fort Worth, Texas (see Note
5). In July 1996, TMS announced that it would conduct a NASCAR Winston Cup event
in April 1997 preceded by a Busch Grand National race. Other events will be
announced as they are scheduled.
In addition, the Company has a 50% ownership interest in North Wilkesboro
Speedway, Inc. (NWS), a privately-held speedway located in northwestern North
Carolina.
On January 22, 1996, the Company acquired 100% of the outstanding capital
stock of BMS. BMS owns and operates a one-half mile lighted, 36-degree banked
concrete oval speedway in Bristol, Tennessee. BMS currently sponsors four major
NASCAR-sanctioned racing events annually, including two Winston Cup and two
Busch Grand National events (see Note 9).
On February 9, 1996, the Company's Board of Directors approved a two for
one stock split for each share of the Company's common stock. This stock split
became effective March 15, 1996 in the form of a 100% common stock dividend paid
to stockholders of record on February 26, 1996. All shares and per share
information in the accompanying consolidated financial statements take into
account this stock split.
On April 16, 1996 the Company acquired, through merger, 100% of the
outstanding capital stock of ORC for $4,459,000 in Company stock and cash. ORC
produces an environmentally friendly motor oil additive that the Company hopes
to promote in conjunction with its speedways. The results of operations of this
acquired business from the acquisition date through June 30, 1996 and for the
corresponding prior year period on a pro forma basis were insignificant.
PER SHARE DATA - Per share amounts in the accompanying consolidated
financial statements have been prepared to reflect the 42,106,000 and 40,490,000
weighted average shares outstanding for the three and six month periods ended
June 30, 1996, including 874,000 common share equivalents during each period
arising from stock options. The per share amounts reflect the 38,400,000 and
35,689,000 weighted average shares outstanding for the three and six month
periods ended June 30, 1995 after giving effect to the initial public offering,
including 400,000 common share equivalents during each period arising from stock
options.
10
<PAGE>
3. PUBLIC OFFERINGS OF COMMON STOCK
The Company completed an offering of common stock on April 1, 1996 by
issuing 3,000,000 shares of common stock at a price of $27.625 per share. The
net proceeds after offering expenses were $78,493,000.
The Company also completed an initial public offering of common stock on
March 3, 1995 by issuing 8,000,000 shares of common stock at an initial price of
$9 per share. The net proceeds after offering expenses were $65,793,000.
4. INVENTORIES
Inventories as of June 30, 1996 and December 31, 1995 consisted of the
following components (dollars in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
<S> <C> <C>
Souvenirs............................................... $ 2,362 $ 2,242
Finished vehicles, parts and accessories................ 3,576 3,057
Food................................................... 81 73
--------- -----------
Total $ 6,019 $ 5,372
========= ===========
</TABLE>
5. DEVELOPMENT AND CONSTRUCTION OF TMS
In 1995, the Company began constructing TMS at a 950 acre site in Fort
Worth, Texas. TMS will be a 1.5-mile, banked asphalt oval superspeedway. Land
and land improvements and construction in progress at December 31, 1995 included
approximately $13,200,000 representing costs incurred through that date related
to the new track facility. As of June 30, 1996, capitalized costs associated
with TMS aggregated approximately $67,742,000. Company management currently
estimates the total cost of this facility to range from $100 million to $110
million. No assurance can be given that the actual cost of constructing TMS will
remain within this estimate. Numerous factors, many of which are beyond the
Company's control, may influence the ultimate cost of TMS, including undetected
soil or land conditions, additional land acquisition costs, increases in the
cost of construction materials and labor, unforeseen changes in the design of
TMS, litigation, accidents or natural disasters affecting the construction site
and national or regional economic changes. In addition, the actual cost of TMS
could vary materially from the foregoing estimate if the Company's assumptions
about the quality of materials or workmanship required to complete TMS or the
cost of financing such construction were to change. The TMS construction is also
subject to state and local permitting processes, which if changed, could
materially affect the cost of TMS. A lawsuit recently filed by adjacent
landowners in response to the construction of TMS and the annexation of their
land by the City of Fort Worth is not expected by management to have a material
impact on the cost of TMS.
Company management held a press conference on July 11, 1996 in Fort Worth,
Texas to announce that TMS will host its first NASCAR Winston Cup race on April
6, 1997 preceded by a Busch Grand National race. Management is actively pursuing
the scheduling of additional motorsports racing and other events at this
facility. Also, in July 1996 TMS conducted a ceremonial groundbreaking for 58
condominiums to be built above turn-two overlooking the speedway.
6. LONG-TERM DEBT AND EXTRAORDINARY ITEM
In conjunction with its January 1996 acquisition of BMS, the Company
obtained from Nationsbank an unsecured, short-term line of credit in an
aggregate principal amount of up to $50,000,000 (the "90-Day Facility"). In
early 1996, the Company borrowed $32,688,000 under the 90-Day Facility, which
amount was used to fund the purchase price for the common stock of BMS and the
working capital needs of the Company.
In March 1996, the Company subsequently consummated longer term financing
through a credit facility ("the Credit Facility"), retired the 90-Day Facility
and borrowed
11
<PAGE>
additional funds for working capital purposes. The Company has a total of $40
million in aggregate principal amount outstanding under the Credit Facility at
June 30, 1996. The Credit Facility is an unsecured working capital and letter of
credit arrangement provided by a syndicate of banks led by Nationsbank.
The Credit Facility has an overall borrowing limit of $110,000,000 with a
sub-limit of $7,000,000 for standby letters of credit. The Credit Facility will
mature in three years unless extended annually thereafter for two additional
years at the option of the lenders. Draws are permitted under the Credit
Facility for the following purposes: (i) refinancing outstanding borrowings,
including the 90-Day Facility, (ii) financing seasonal working capital needs,
(iii) financing general corporate purposes, including the costs of constructing
TMS. Although the Credit Facility is unsecured, the Company has agreed not to
pledge its assets to any third party. In addition, the Company has made certain
financial covenants, including specified levels of net worth and ratios of (i)
debt to equity, (ii) debt to earnings before interest, taxes, depreciation and
amortization (EBITDA), and (iii) earnings before interest and taxes (EBIT) to
interest expense. The Credit Facility also prohibits the Company from making
cash expenditures in excess of $10 million in the aggregate to acquire
additional motor speedways, without the consent of the lenders, and limits its
consolidated capital expenditures, exclusive of expenditures on TMS, to amounts
not to exceed $20 million in fiscal year 1996, $40 million in fiscal year 1997
and $20 million in fiscal year 1998 and thereafter. The Company also agreed to
certain other limitations or prohibitions concerning the incurrence of other
indebtedness, guaranties, asset sales, investments, cash dividends,
distributions and redemptions. The Credit Facility permits additional
indebtedness, within certain parameters, including through a sale-leaseback
transaction, for the permanent financing of TMS.
Long-term debt at June 30, 1996 and December 31, 1995 also includes a note
payable for road construction costs in the amount of $1,635,000 and $1,806,000,
respectively.
Long-term debt as of December 31, 1994 of $47,261,000 included various
notes payable to NationsBank totaling $46,588,000. On March 3, 1995, these loans
were repaid using the proceeds from the initial public offering. Accordingly,
the unamortized debt issuance costs of $133,000, net of tax, related to these
notes were expensed in the three month period ended March 31, 1995.
7. INCOME TAXES
On September 9, 1993, the Internal Revenue Service (IRS) asserted that
AMS, as the successor in interest to BND,Inc. (BND), is liable for additional
income taxes, penalties and interest. The total assessment for taxes, penalties
and interest (net of tax benefit for deductibility of interest) through December
31, 1995 was approximately $7,000,000. This deficiency allegedly relates to
BND's income tax returns for the years ended November 30, 1988 and October 31,
1990. The IRS alleges that, during the acquisition of AMS by Mr. Smith in
October 1990, BND's merger into Atlanta International Raceway, Inc., the
predecessor of AMS (AIR), resulted in a taxable gain to BND equal to the excess
of liabilities assumed by AIR over the adjusted basis of assets transferred to
AIR. Moreover, this taxable gain allegedly eliminates a net operating loss
carryback to the tax return filed for the year ended November 30, 1988. On
November 30, 1993, AMS filed a protest contesting the assessment. Management
intends to continue contesting the allegations of a deficiency and has not
provided for this contingency in the accompanying consolidated financial
statements. There can be no assurance, however, that the ultimate resolution of
this proceeding will not have a material adverse effect on the Company's future
results of operations or financial condition.
8. RELATED PARTY TRANSACTIONS
Notes receivable-affiliate at June 30, 1996 and December 31, 1995 consists
of a note receivable of $672,000 and $934,000, respectively, including accrued
interest of $172,000 at June 30, 1996 and $434,000 at December 31, 1995, from a
partnership in which the Company's Chairman and Chief Executive Officer and the
Company's Chief
12
<PAGE>
Operating Officer are partners. The note due from the partnership to CMS is
collateralized by certain land owned by the partnership and is payable on
demand. Because CMS does not anticipate any additional repayment of this note
prior to June 30, 1997, the entire balance has been classified as a noncurrent
asset in the accompanying consolidated financial statements.
Amounts payable to affiliated companies at June 30, 1996 and December 31,
1995 of $2,603,000 represents acquisition and other expenses paid on behalf of
AMS by Sonic during recent years. Of such amount, approximately $1.8 million is
evidenced by a demand note bearing interest at 3.83% per annum. The remainder of
the amount bears interest at prime plus 1%. The entire account balance is
classified as long-term based on expected repayment dates.
9. PURCHASE OF BRISTOL MOTOR SPEEDWAY
The total purchase price of the capital stock of BMS was $26,646,000,
including $146,000 of direct acquisition costs. The acquisition has been
accounted for using the purchase method. In accordance with Accounting
Principles Board Opinion No. 16, the purchase price has been allocated to the
assets and liabilities acquired at their estimated fair market values at
acquisition date. Allocation of the purchase price resulted in goodwill of
approximately $19,669,000, which is being amortized over 40 years. The Company
is in the process of obtaining an independent appraisal or valuation of the fair
value of identifiable intangibles acquired, if any. Based on current
information, the Company's management does not expect the final allocation of
the purchase price to be materially different from that used herein.
In accordance with the Company's accounting policy for establishing the
cut-off date for quarterly financial reporting purposes, the revenues and direct
expenses of the BMS NASCAR race events held on the weekend of March 29-31, 1996
have been recognized in the second quarter of fiscal 1996.
The following unaudited pro forma financial data have been prepared giving
effect to the acquisition of BMS as if the transaction had taken place as of
January 1, 1995 after giving effect to certain adjustments, including
amortization of goodwill, interest expense on acquisition debt and related
income tax effects. The pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of what would have occurred
had the acquisition been made on that date, nor are they necessarily indicative
of results which may occur in the future.
(PRO FORMA)
Three Months Ended
June 30, June 30,
1996 1995
Total revenues.................................... $40,816,000 $33,754,000
Net income ....................................... 13,293,000 10,347,000
Net income per share.............................. 0.32 0.27
(PRO FORMA)
Six Months Ended
June 30, June 30,
1996 1995
Total revenues.................................... $53,146,000 $45,003,000
Income before extraordinary item.................. 13,539,000 9,691,000
Net income ....................................... 13,539,000 9,558,000
Net income per share.............................. 0.33 0.27
13
<PAGE>
10. COMMITMENTS
The Company's Chairman and CEO purchased approximately 24% of the
outstanding common stock of North Carolina Motor Speedway, Inc. during 1995. The
Chairman has offered to sell this stock to the Company at his cost. The Company
has declined to purchase Mr. Smith's shares to date but may elect to do so in
the future. The Company has offered to buy the remaining equity interest in
North Carolina Motor Speedway, Inc.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion and analysis should be read in
conjunction with the Consolidated Financial Statements (including the Notes
thereto). Such statements reflect management's current views, are based on
many assumptions and are subject to risks and uncertainties. See the discussion
under the caption "Risk Factors" in the Company's prospectus contained in a
registration statement on Form S-3, Registration #333-1856, filed with the
Securities and Exchange Commission.
OVERVIEW
The Company derives revenues principally from the sale of tickets
to car races held at AMS, BMS and CMS, from food and beverage concession sales
and souvenir sales made during such events, from the sale of sponsorships to
companies that desire to advertise or sell their products or services at such
events and from the licensing of television, cable network and radio rights to
broadcast such events. The Company has derived additional revenue in recent
years from the Speedway Club, a dining and entertainment facility at CMS, and,
since 1991, from Legends Car sales.
The Company classifies its revenues as admissions, event-related
revenues and other operating revenue. "Admissions" includes ticket sales for all
of the Company's events. "Event-related revenues" includes concession and
souvenir sales, luxury suite rentals, sponsorship fees and broadcast right fees.
"Other operating revenue" includes the Speedway Club and Legends Car revenues.
The Company classifies its expenses to include direct expense of
events and other direct operating expense, among other things. "Direct expense
of events" principally consists of race purses, sanctioning fees, cost of
souvenir sales, compensation of certain employees and advertising. "Other direct
operating expense" includes cost of the Speedway Club and Legends Car sales.
The Company's revenue items produce different operating margins.
Sponsorships, broadcast rights, ticket sales and luxury suite rentals produce
higher margins than concessions and souvenir sales, as well as Legends Car
sales.
The Company sponsors and promotes outdoor motorsports events.
Weather conditions affect sales of tickets, concessions and souvenirs, among
other things at these events. Although the Company sells tickets well in advance
of its events, poor weather conditions can have an effect on the Company's
results of operations.
Significant growth in the Company's revenues will depend on
consistent investment in facilities. In addition to several capital projects
underway at AMS, BMS and CMS, the Company has also begun construction of a
superspeedway in Fort Worth, Texas. The Company's investment in TMS will be
substantial.
The Company does not believe that its financial performance has
been materially affected by inflation. The Company has been able to mitigate the
effects of inflation by increasing prices.
15
<PAGE>
CHANGES IN RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1995
TOTAL REVENUES. Total revenues for the three months ended June
30, 1996 increased by $13.1 million, or 47.3%, to $40.8 million, over such
revenues for the same year earlier period. This improvement was due to increases
in all revenue items, particularly admissions and event related revenue.
Admissions for the three months ended June 30, 1996 increased by $8.3 million,
or 58.5%, over admissions for the same year earlier period. This increase was
due primarily to the acquisition of BMS in January 1996, which hosted race
events in the current quarter, and to growth in admissions to NASCAR-sanctioned
racing events at the Company's historical operations. Event related revenue for
the three months ended June 30, 1996 increased by $4.5 million, or 44.6%, over
such revenue for the same year earlier period. This increase was due to the
acquisition of BMS and to increased rental revenue at CMS from newly constructed
VIP suites. Other operating revenue for the three months ended June 30, 1996
increased by $328,000, or 9.4%, over such revenue for the same year earlier
period. Legends Car sales accounted for the substantial portion of this
increase.
DIRECT EXPENSE OF EVENTS. Direct expense of events for the three
months ended June 30, 1996 increased by $4.8 million, or 73.6%, over such
expense for the same year earlier period. Such increase was due primarily to the
acquisition of BMS and to increased operating costs associated with increased
seating capacity at CMS events.
OTHER DIRECT OPERATING EXPENSE. Other direct operating expense
for the three months ended June 30, 1996 increased by $152,000, or 6.6%, over
such expense for the same year earlier period. The increase was primarily
attributable to the increase in Legends Car sales (see above).
GENERAL AND ADMINISTRATIVE. As a percentage of total revenues,
general and administrative expense decreased from 12.9% for the three months
ended June 30, 1995 to 11.2% for the three months ended June 30, 1996. General
and administrative expense for the three months ended June 30, 1996 increased by
$1.0 million, or 28.7%, over such expense for the same year earlier period. This
change was due primarily to general and administrative expenses incurred at BMS
which was acquired in the first quarter of 1996, and to a lesser extent an
increase in the average compensation of employees.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization
expense for the three months ended June 30, 1996 increased by $905,000, or
78.5%, over such expense for the same year earlier period. This increase was due
to additions to property and equipment at CMS and AMS and the acquisition of
BMS.
OPERATING INCOME. Operating income for the three month period
ended June 30, 1996 increased by $6.2 million, or 43.8%, over such income for
the same year earlier period. This increase was due to the factors discussed
above.
INTEREST INCOME, NET. Interest income, net for the three months
ended June 30, 1996 increased by $417,000, or 155.0%, compared to the three
month period ending June 30, 1995. This increase was due to higher levels of
average cash invested, from the public stock offering that occurred on April 1,
1996, in the three months ended June 30, 1996 as compared to the same year
earlier period.
OTHER INCOME. Other income for the three months ended June 30,
1996 decreased by $280,000 from such income for the three month period ending
June 30, 1995. This decrease was due to decreased gains on sale of AMS
condominiums.
EQUITY IN NET INCOME OF NORTH WILKESBORO SPEEDWAY. In the three
month period ended June 30, 1996, the Company recognized equity income in the
operations of its 50% investment in NWS equal to $299,000. This income was a
result of NWS conducting race events during the three month period ended June
30, 1996. In the three month
16
<PAGE>
period ended June 30, 1995 there was no similar income, since the Company
acquired the equity interest in NWS in late June 1995.
PROVISION FOR INCOME TAXES. The Company's effective income tax
rate for the three month period ended June 30, 1996 was 39.5%, compared to an
effective tax rate for the period ended June 30, 1995 of 39.8%.
NET INCOME. Net income for the three months ended June 30, 1996,
when compared to the same period in the prior year, reflects improved earnings
in the Company's historical operations and an increase in income, due to the
newly acquired BMS which hosted race events in the three month period ended June
30, 1996.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1995
TOTAL REVENUES. Total revenues for the six months ended June 30,
1996 increased by $14.2 million, or 36.4%, to $53.1 million, over such revenues
for the same year earlier period. This improvement was due to increases in all
revenue items, particularly admissions and event related revenues. Admissions
for the six months ended June 30, 1996 increased by $8.7 million, or 47.0%, over
admissions for the same year earlier period. This increase was due primarily to
the acquisition of BMS in January 1996, which hosted race events in the current
quarter, and to growth in admissions to NASCAR-sanctioned racing events. Event
related revenue for the six months ended June 30, 1996 increased by $4.6
million, or 31.8%, over such revenue for the same year earlier period. This
increase was due to the acquisition of BMS and to increased rental revenue at
CMS from newly constructed VIP suites. Other operating revenue for the six
months ended June 30, 1996 increased by $871,000, or 14.7%, over such revenue
for the same year earlier period. Legends Car sales accounted for the
substantial portion of this increase.
DIRECT EXPENSE OF EVENTS. Direct expense of events for the six
months ended June 30, 1996 increased by $4.8 million, or 47.0%, over such
expense for the same year earlier period. Such increase was due primarily to the
acquisition of BMS and increased operating costs associated with increased
seating capacity at CMS.
OTHER DIRECT OPERATING EXPENSE. Other direct operating expense
for the six months ended June 30, 1996 increased by $393,000, or 10.0%, over
such expense for the same year earlier period. The increase was primarily
attributable to the increase in Legends Car sales (see above).
GENERAL AND ADMINISTRATIVE. As a percentage of total revenues,
general and administrative expense decreased from 17.5% for the six months ended
June 30, 1995 to 16.2% for the six months ended June 30, 1996. General and
administrative expense for the six months ended June 30, 1996 increased by $1.8
million, or 26.6%, over such expense for the same year earlier period. This
change was due primarily to general and administrative expenses incurred at BMS
which was acquired in the first quarter of 1996, and to a lesser extent an
increase in the average compensation of employees.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization
expense for the six months ended June 30, 1996 increased by $1.5 million, or
62.9%, over such expense for the same year earlier period. This increase was due
to additions to property and equipment at CMS and AMS and the acquisition of
BMS.
OPERATING INCOME. Operating income for the six month period ended
June 30, 1996 increased by $5.7 million, or 36.5%, over such income for the same
year earlier period. This increase was due to the factors discussed above.
INTEREST INCOME (EXPENSE), NET. Interest income, net for the six
month period ended June 30, 1996 was $449,000, compared to interest expense, net
for the six month period ended June 30, 1995 of $486,000. This change was due to
higher levels of cash invested, from the public stock offering that occurred on
April 1, 1996, in the six months ended June 30, 1996 as compared to the same
year earlier period.
OTHER INCOME. Other income for the six months ended June 30, 1996
decreased by
17
<PAGE>
$216,000 from such income for the six month period ending June 30, 1995. This
decrease was due to decreased gains on sale of AMS condominiums.
EQUITY IN NET INCOME OF NORTH WILKESBORO SPEEDWAY. In the six
month period ended June 30, 1996, the Company recognized equity income in the
operations of its 50% investment in NWS equal to $185,000. This income was a
result of NWS conducting race events during the six month period ended June 30,
1996. In the six month period ended June 30, 1995 there was no similar income,
since the Company acquired the equity interest in NWS in late June 1995.
PROVISION FOR INCOME TAXES. The Company's effective income tax
rate for the six month period ended June 30, 1996 was 39.7%, compared to an
effective tax rate for the period ended June 30, 1995 of 40.0%.
INCOME BEFORE EXTRAORDINARY ITEM. Income before extraordinary
item for the six month period ended June 30, 1996 increased by $4.0 million, or
41.7%, over such income for the same year earlier period, due to the factors
discussed above.
EXTRAORDINARY ITEM, NET. Upon repaying the long-term debt,
related net debt issuance costs previously amortized were written off in the six
months ended June 30, 1995, as an extraordinary item. There were no similar
charges for the six months ending June 30, 1996.
NET INCOME. Net income for the six months ended June 30, 1996,
when compared to the same period in the prior year, reflects improved earnings
in the Company's historical operations, and an increase in income due to the
newly acquired BMS which hosted race events in the three month period ended June
30, 1996.
SEASONALITY AND QUARTERLY RESULTS
The Company derives a substantial portion of its total revenues
from admissions and event-related revenue attributable to twelve
NASCAR-sanctioned races which are held in March, May, August, October and
November. During 1994 and 1995, the Company's second and fourth quarters
accounted, on average, for approximately 80% of the Company's total annual
revenues and approximately 106% of its total annual operating income. As a
result, the Company's business has been, and is expected to remain, highly
seasonal.
The results of operations for the three and six month periods
ended June 30, 1996 and 1995 are not indicative of the results that may be
expected for the entire year because of the seasonality discussed above.
CHANGES IN FINANCIAL CONDITION AND LIQUIDITY
The Company's financial condition and liquidity strengthened
during the six months ended June 30, 1996 as demonstrated in this table (dollars
in thousands):
June 30, December 31,
1996 1995 Increase
--------- ------------ ---------
Cash and cash equivalents $ 59,603 $10,132 $ 49,471
Working capital (deficit) 31,523 (1,816) 33,339
Long-term debt, including
current portion 41,635 1,806 39,829
Stockholders' equity 192,023 95,380 96,643
These significant financial condition and liquidity improvements
resulted principally from three factors:
1. In April 1996, the Company received net cash proceeds of approximately $78.5
million from the sale of 3,000,000 shares of common stock in a public
stock offering.
2. The Company achieved record operating results during the six months ended
June
18
<PAGE>
30, 1996. Net income amounted to $13.7 million and net cash generated by
operations amounted to $25.8 million.
3. The Company received $40 million from long-term borrowings under the new
bank Credit Facility.
The Company expects to continue to generate positive cash flows
from its existing speedway operations. Even though the Company has experienced
improvement in its financial condition, liquidity and credit availability, such
resources, as well as possibly others, will be needed to fund the Company's
continued growth.
The Company does not anticipate paying any cash dividends in the
foreseeable future. Any decision concerning the payment of dividends on the
Common Stock will depend upon the results of operations, financial condition and
capital expenditure plans of the Company, as well as such other factors as the
Board of Directors, in its sole discretion, may consider relevant.
CAPITAL EXPENDITURES
Significant growth in the Company's revenues depends, in a large
part, on consistent investment in facilities. Therefore, the Company expects to
continue to make substantial capital expenditures. A variety of major capital
projects are underway, the most significant of which is the acquisition and
construction of TMS. While management is unable at this time to determine the
total cost of construction, it currently estimates that total construction costs
at TMS will approximate $100 million to $110 million (see Note 5).
To date in 1996 the Company has constructed approximately 4,000
grandstand seats at BMS, and is constructing another 4,000 grandstand seats at
BMS. The Company is also in the process of acquiring additional land for parking
and camping at BMS. In 1996, the Company also intends to complete 16 suites at
AMS as well as complete other facility improvement projects. The estimated
aggregate cost of capital expenditures, exclusive of TMS, is expected to be $20
million.
In addition to expansion and improvements of its existing
speedway facilities and business operations, the Company is continually
evaluating new opportunities that will add value for the Company's stockholders,
including the expansion and development of its existing Legends Cars products
and markets and the expansion into complementary businesses.
In summary, Company management anticipates that the net proceeds
of the 1996 public offering, together with cash from operations and funds
available through the Credit Facility, will sustain the Company's operating
needs, including planned capital expenditures at AMS, BMS, CMS and TMS, through
1996 and into 1997. Based upon the anticipated future growth and financing
requirements of the Company, management expects that the Company will, from time
to time, engage in additional financings of a character and in amounts to be
determined.
IRS AUDIT
On September 9, 1993, the IRS asserted that AMS, as the successor
in interest to BND, Inc. ("BND"), is liable for additional income taxes,
penalties and interest. The total assessment including taxes, penalties and
interest (net of tax benefit for deductibility of interest) through December 31,
1995 is approximately $7 million. This deficiency allegedly relates to BND's
income tax returns for the years ended November 30, 1988 and October 31, 1990.
The IRS alleges that, during the acquisition of AMS by the Company's Chairman
and Chief Executive Officer in October 1990, BND's merger into Atlanta
International Raceway, Inc., the predecessor of AMS ("AIR"), resulted in a
taxable gain to BND equal to the excess of liabilities assumed by AIR over the
adjusted basis of assets transferred to AIR. Moreover, this taxable gain
allegedly eliminates a net operating loss carryback to the tax return filed for
the year ended November 30, 1988. On November 30, 1993, AMS filed a protest
contesting the assessment. Management intends to continue contesting the
19
<PAGE>
allegations of a deficiency. There can be no assurance, however, that the
ultimate resolution of this proceeding will not have a material adverse effect
on the Company's results of operations or financial condition.
20
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Financial data schedule for the six month period ended June
30, 1996.
(b) No reports on Form 8-K were filed during the fiscal quarter covered by
this report on Form 10-Q.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPEEDWAY MOTORSPORTS, INC.
(REGISTRANT)
Date: August 12, 1996 By: /s/ O. Bruton Smith
--------------- ----------------------
O. Bruton Smith
Chairman and Chief Executive Officer
Date: August 12, 1996 By: /s/ William R. Brooks
--------------- ------------------------
William R. Brooks
Vice President, Chief Financial
Officer, Treasurer and Director
22
<PAGE>
INDEX TO EXHIBITS TO
QUARTERLY REPORT ON FORM 10-Q FOR
SPEEDWAY MOTORSPORTS, INC.
FOR THE QUARTER ENDED JUNE 30, 1996
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
27 Financial data schedule for the six month
period ended June 30, 1996.
23
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SPEEDWAY MOTORSPOTS, INC. FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 59,603
<SECURITIES> 1,589
<RECEIVABLES> 9,643
<ALLOWANCES> 0
<INVENTORY> 6,019
<CURRENT-ASSETS> 79,443
<PP&E> 219,731
<DEPRECIATION> 46,423
<TOTAL-ASSETS> 294,339
<CURRENT-LIABILITIES> 46,389
<BONDS> 0
0
0
<COMMON> 412
<OTHER-SE> 191,611
<TOTAL-LIABILITY-AND-EQUITY> 294,339
<SALES> 6,800
<TOTAL-REVENUES> 53,146
<CGS> 4,333
<TOTAL-COSTS> 31,884
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (449)
<INCOME-PRETAX> 22,677
<INCOME-TAX> 8,997
<INCOME-CONTINUING> 13,680
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,680
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.34
</TABLE>
