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 September 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 November 14, 1996, there were 41,299,455 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 17
PART II - OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders 23
ITEM 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 24
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements.
SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
September 30,
1996 December 31,
(Unaudited) 1995
------------ -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ........................ $ 15,630 $ 10,132
Restricted cash .................................. 4,644 86
Trade accounts receivable ........................ 6,487 6,511
Prepaid income taxes ............................. 3,469 --
Refundable income taxes .......................... -- 727
Inventories (Note 4) ............................. 6,303 5,372
Speedway condominiums held for sale.............. 3,799 3,142
Prepaid expenses (Note 10) ....................... 908 185
--------- ---------
Total current assets ........................... 41,240 26,155
--------- ---------
PROPERTY AND EQUI MENT, NET (Note 5)............... 215,698 93,105
GOODWILL AND OTHER INTANGIBLE ASSETS (Note 9)...... 36,364 12,675
OTHER ASSETS:
Marketable equity securities ..................... 2,387 1,855
Note receivable-affiliate (Note 8)................ 684 934
Deferred financing costs ......................... 545 --
Other assets ..................................... 3,656 1,722
--------- ---------
Total other assets ............................. 7,272 4,511
--------- ---------
TOTAL ......................................... $ 300,574 $ 136,446
========= =========
See notes to consolidated financial statements.
3
<PAGE>
SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
September 30,
1996 December 31,
(Unaudited) 1995
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 6)..... $ 279 $ 348
Accounts payable ................................. 12,845 7,743
Deferred race event income, net .................. 27,559 13,345
Accrued expenses and other liabilities ........... 6,160 5,870
Due to former stockholders ....................... 640 665
--------- ---------
Total current liabilities ..................... 47,483 27,971
LONG-TERM DEBT (Note 6)............................ 41,204 1,458
PAYABLE TO AFFILIATED COMPANIES (Note 8)........... 2,603 2,603
DEFERRED MEMBERSHIP INCOME, NET ................... 1,357 1,563
DEFERRED INCOME TAXES ............................. 9,899 6,717
OTHER LIABILITIES ................................. 5,147 754
--------- ---------
Total liabilities ............................. 107,693 41,066
--------- ---------
COMMITMENTS AND CONTINGENCIES (Notes 7 and 10).....
STOCKHOLDERS' EQUITY (Note 3):
Preferred stock .................................. -- --
Common stock ..................................... 413 380
Additional paid-in capital ....................... 155,276 72,148
Retained earnings ................................ 37,308 22,944
Deduct:
Unrealized loss on marketable equity
securities .................................... (116) (92)
--------- ---------
Total stockholders' equity .................... 192,881 95,380
--------- ---------
TOTAL ......................................... $ 300,574 $ 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
------------------
September 30,
1996 1995
---- ----
REVENUES:
Admissions ............................... $ 6,296 $ 223
Event related revenue .................... 4,511 1,193
Other operating revenue .................. 2,698 2,682
-------- --------
Total revenues .................... 13,505 4,098
-------- --------
OPERATING EXPENSES:
Direct expense of events ................. 4,983 862
Other direct operating expense ........... 1,391 1,867
General and administrative ............... 4,586 3,362
Depreciation and amortization ............ 2,107 1,154
-------- --------
Total operating expenses .......... 13,067 7,245
-------- --------
OPERATING INCOME (LOSS) ................... 438 (3,147)
INTEREST INCOME, NET ...................... 369 249
OTHER INCOME .............................. 501 1,837
EQUITY IN LOSS OF NORTH WILKESBORO
SPEEDWAY ................................ (100) --
-------- --------
INCOME (LOSS) BEFORE INCOME TAXES ......... 1,208 (1,061)
INCOME TAX PROVISION (BENEFIT) ............ 523 (424)
-------- --------
NET INCOME (LOSS) ......................... $ 685 $ (637)
======== ========
NET INCOME (LOSS) PER SHARE ............... $ 0.02 $ (0.02)
======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING
(Note 2).................................. 42,130 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)
Nine Months Ended
-----------------
September 30,
1996 1995
---- ----
REVENUES:
Admissions ............................... $ 33,602 $ 18,800
Event related revenue .................... 23,551 15,641
Other operating revenue .................. 9,498 8,611
-------- --------
Total revenues .................... 66,651 43,052
-------- --------
OPERATING EXPENSES:
Direct expense of events ................. 20,116 11,159
Other direct operating expense ........... 5,724 5,807
General and administrative ............... 13,208 10,172
Depreciation and amortization ............ 5,904 3,484
-------- --------
Total operating expenses .......... 44,952 30,622
-------- --------
OPERATING INCOME .......................... 21,699 12,430
INTEREST INCOME (EXPENSE), NET ............ 818 (237)
OTHER INCOME .............................. 1,282 2,834
EQUITY IN INCOME OF NORTH WILKESBORO
SPEEDWAY ................................ 85 --
-------- -------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM....................... 23,884 15,027
PROVISION FOR INCOME TAXES ................ 9,520 6,011
-------- --------
INCOME BEFORE EXTRAORDINARY ITEM. ......... 14,364 9,016
EXTRAORDINARY ITEM, NET (Note 6)........... -- (133)
-------- --------
NET INCOME ................................ $ 14,364 $ 8,883
======== ========
PER SHARE DATA:
Income before extraordinary item.......... $ 0.35 $ 0.25
Extraordinary item, net .................. -- --
-------- --------
Net income ............................... $ 0.35 $ 0.25
======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING
(Note 2).................................. 41,046 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
Loss
Common Stock Additional on Marketable Total
------------ Paid-In Retained Equity Stockholders'
Shares Amount Capital Earnings Securities Equity
<S> <C> ------ ------ ------- -------- ---------- ------------
BALANCE DECEMBER 31, 1995 ............ 38,000 $ 380 $ 72,148 $22,944 $ (92) $ 95,380
Net income .......................... -- -- -- 14,364 -- 14,364
Issuance of Speedway Motorsports,
Inc. common stock................... 3,000 30 78,463 -- -- 78,493
Exercise of Speedway Motorsports,
Inc. stock options.................. 154 2 721 -- -- 723
Issuance of common stock in
conjunction with acquisition of
Oil-Chem Research Corp.............. 145 1 3,944 -- -- 3,945
Net unrealized loss on marketable
equity securities .................. -- -- -- -- (24) (24)
------ ---- -------- ------- ----- --------
BALANCE SEPTEMBER 30, 1996 (Unaudited) 41,299 $413 $155,276 $37,308 $(116) $192,881
====== ==== ======== ======= ===== ========
</TABLE>
See notes to consolidated financial statements.
7
<PAGE>
SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Nine Months Ended
-----------------
September 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES: ---- ----
Net income ........................................... $14,364 $ 8,883
Extraordinary item, net .............................. -- 133
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization...................... 5,904 3,484
Equity in income of North Wilkesboro Speedway ...... (85) --
Gain on sale of marketable equity securities and
investments ........................................ (544) (351)
Gain on sale of fixed assets ........................ -- (1,199)
Amortization of deferred membership income.......... (206) (206)
Changes in operating assets and liabilities, net
of acquired business:
Trade accounts receivable ........................ 489 (2,198)
Inventories ..................................... (904) (1,269)
Other current assets and li bilities ............. 734 2,511
Condominiumheld for sale......................... (657) (61)
Accrued interest receivable from related parties . - (37)
Deferred race event income ....................... 6,978 13,836
Other assets and liabilities ..................... 784 (654)
------ ------
Ne cash provided b operating activities........ 26,857 22,872
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt. ................ (32,848) (47,352)
Issuance of long-term debt ........................... 72,525 --
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.................................... 723 --
------ ------
Net cash provided by financing activities ...... 118,893 8,443
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................. (113,350) (20,919)
Purchases of marketable equity securities and
investments.......................................... (1,791) (7,773)
Proceeds from sales of marketable equity securities
and investments...................................... 1,762 807
Proceeds from sale of fixed assets . ................. -- 1,796
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 ............ (140,252) (26,089)
------- ------
NET INCREASE IN CASH AND ASH EQUIVALENTS.............. 5,498 15,226
8
<PAGE>
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD....... 10,132 7,046
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............. $15,630 $22,272
======= =======
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Road construction costs financed with a note
payable (Note 6).................................... $ -- $ 1,969
======= =======
See notes to consolidated financial statements.
9
<PAGE>
The following Notes to Unaudited Consolidated Financial Statements and
discussion, including the discussion of Texas International Raceway and
Management's Discussion and Analysis of Financial Condition and Results of
Operations, contain estimates and forward-looking statements. Such statements
reflect management's current views, are based on certain 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 #333-13431, filed with the Securities and Exchange
Commission.
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 and November 13,
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 at one of the Company's wholly-owned subsidiaries 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 sanctioned racing event occurred at BMS on the weekend of
March 29- 31, 1996. Accordingly, the revenues and direct expenses of this race
event have been recognized in the second quarter of 1996. The last recognition
date for the first quarter of calendar year 1996 was March 28, 1996. No major
NASCAR race events were held at wholly-owned subsidiaries on the last weekend of
the calendar quarters ended June 30, 1996 and September 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
10
<PAGE>
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
International Raceway and Subsidiary (TIR), Bristol Motor Speedway, Inc. (BMS),
Oil-Chem Research Corp. and Subsidiary (ORC) and Speedway Funding Corp. (SFC)
(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 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, each 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.
TIR 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, TIR 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,
11
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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 two major
NASCAR Winston Cup events annually. Additionally, two Busch Grand National races
are held annually, each preceding a Winston Cup event (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 September 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 42,130,000 and 41,046,000
weighted average shares outstanding for the three and nine month periods ended
September 30, 1996, including 858,000 and 878,000 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
nine month periods ended September 30, 1995 after giving effect to the initial
public offering, including 400,000 common share equivalents during each period
arising from stock options.
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 September 30, 1996 and December 31, 1995 consisted of the
following components (dollars in thousands):
September 30, December 31,
1996 1995
------------- ------------
Souvenirs......................................... $ 3,144 $ 2,242
Finished vehicles, parts and accessories.......... 3,063 3,057
Food.............................................. 96 73
--------- -----------
Total $ 6,303 $ 5,372
========= ===========
12
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5. DEVELOPMENT AND CONSTRUCTION OF TIR
In 1995, the Company began constructing TIR at a 950 acre site in Fort
Worth, Texas. TIR 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 September 30, 1996, capitalized costs
associated with TIR aggregated approximately $96,975,000. Company management
currently estimates the total cost of this facility will approximate $130
million. No assurance can be given that the actual cost of constructing TIR will
approximate that estimate. Numerous factors, many of which are beyond the
Company's control, may influence the ultimate cost of TIR, 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
TIR, litigation, accidents or natural disasters affecting the construction site
and national or regional economic changes. In addition, the actual cost of TIR
could vary materially from the foregoing estimate if the Company's assumptions
about the quality of materials or workmanship required to complete TIR or the
cost of financing such construction were to change. The TIR construction is also
subject to state and local permitting processes, which if changed, could
materially affect the cost of TIR.
Company management held a press conference on July 11, 1996 in Fort Worth,
Texas to announce that TIR will host its first NASCAR Winston Cup race on April
6, 1997 preceded by a Busch Grand National race on April 5, 1996. Also, an Indy
Racing League event will be held June 7, 1997. Management is actively pursuing
the scheduling of additional motorsports racing and other events at this
facility. Also, in July 1996 TIR 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
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 additional funds for working capital purposes. The Company has a
total of $40 million in aggregate principal amount outstanding under the Credit
Facility at September 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
TIR. Although the Credit Facility is unsecured, the Company has agreed not to
pledge its assets to any third
13
<PAGE>
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 TIR, to amounts not to exceed $80 million in the
aggregate for fiscal years 1996 and 1997 and $40 million for each fiscal year
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.
Long-term debt at September 30, 1996 and December 31, 1995 also includes a
note payable for road construction costs in the amount of $1,458,000 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 September
30, 1996 is approximately $7.4 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 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 September 30, 1996 and December 31, 1995
consists of a note receivable of $684,000 and $934,000, respectively, including
accrued interest of $184,000 at September 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 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
14
<PAGE>
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 September 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.
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
------------------
September 30,
1996 1995
---- ----
Total revenues.................................... $13,505,000 $9,730,000
Net income ....................................... 685,000 516,000
Net income per share.............................. 0.02 0.01
(PRO FORMA)
Nine Months Ended
-----------------
September 30,
1996 1995
---------- --------
Total revenues.................................... $66,651,000 $54,733,000
Income before extraordinary item.................. 14,267,000 10,207,000
Net income ....................................... 14,267,000 10,074,000
Net income per share.............................. 0.35 0.28
15
<PAGE>
10. COMMITMENTS AND OTHER TRANSACTIONS
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.
On October 1, 1996, the Company completed a private placement of 5 3/4%
convertible subordinated debentures in the aggregate principal amount of
$70,000,000. On October 4, 1996, the Company filed a registration statement to
register these debentures and the underlying equity securities. On October 15,
1996, the initial purchasers exercised an option to purchase additional
convertible subordinated debentures in the principal amount of $4,000,000. The
net proceeds after commissions and discounts were $72,150,000. The debentures
are due in 2003, are convertible into common stock of the Company at the
holder's option after December 1, 1996 at $31.11 per share until maturity, and
are redeemable at the Company's option after September 29, 2000. This offering
of convertible subordinated debentures will be recorded in the fourth quarter of
fiscal year 1996. The proceeds of this offering will be used to repay
outstanding borrowings under the Credit Facility, fund construction costs of TIR
and for working capital needs of the Company. As of September 30, 1996, the
Company has incurred costs associated with this debenture offering which have
been deferred at September 30, 1996 and are included in the accompanying
consolidated balance sheets in current assets.
On October 24, 1996, the Company entered into an agreement with
Sears Point Raceway (SPR) to purchase certain tangible and intangible assets
for $2 million and to execute a long-term lease for real property (the
SPR Lease). The SPR Lease requires a $3.0 million security deposit to be
paid by the Company. SPR, which occupies approximately 800 acres in Sonoma,
California, is a two-mile road course. The agreement provides for a closing
date of November 18, 1996. The Company has the option to purchase the real
property for $38.1 million during an option period commencing after three years,
subject to acceleration at the election of the seller (the purchase price for
such option to be credited against the purchase price for the real property).
The agreement also provides for the Company to loan approximately $14 million
to the seller to cover the sellers's outstanding obligations on the real
property. Such amount will be secured by a mortgage on the real property
and outstanding principal amounts under this loan will be credited
against the amount due from the Company upon exercise of its real property
option. SPR currently sponsors three NASCAR sanctioned racing events,
including a Winston Cup, Busch Grand National and Craftsman Truck Series
event. In addition, SPR holds National Hot Rod Association and various
other racing events during the year. The SPR Lease may be reflected on the
Company's Fiancial Statements as a capital lease obligation in the amount of
$38.1 million, which shall be Senior Indebtedness with respect to the
Debentures.
16
<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).
Overview
The Company derives revenues principally from the sale of tickets to
automobile races and other events 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 TIR 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.
17
<PAGE>
CHANGES IN RESULTS OF OPERATIONS
Three Months Ended September 30, 1996 Compared To The Three Months Ended
September 30, 1995
Total Revenues. Total revenues for the three months ended September 30,
1996 increased by $9.4 million, or 229.6%, to $13.5 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 September 30, 1996 increased by $6.1 million, or
2,723.4%, over admissions for the same year earlier period. This increase was
due primarily to the acquisition of BMS in January 1996, which hosted NASCAR
sanctioned racing events during the current quarter. Event related revenue for
the three months ended September 30, 1996 increased by $3.3 million, or 278.1%,
over such revenue for the same year earlier period. This increase was primarily
due to the acquisition of BMS.
Direct Expense of Events. Direct expense of events for the three months
ended September 30, 1996 increased by $4.1 million, or 478.0%, over such expense
for the same year earlier period. Such increase was due primarily to the
acquisition of BMS which hosted NASCAR sanctioned racing events during the
quarter.
Other Direct Operating Expense. Other direct operating expense for the
three months ended September 30, 1996 decreased by $476,000, or 25.5%, over such
expense for the same year earlier period. The decrease primarily occurred due to
the change in sales mix to higher margin part sales for Legends Cars compared to
the same year earlier period.
General and Administrative. As a percentage of total revenues, general
and administrative expense decreased from 82.0% for the three months ended
September 30, 1995 to 34.0% for the three months ended September 30, 1996.
General and administrative expense for the three months ended September 30, 1996
increased by $1.2 million, or 36.4%, over such expense for the same year earlier
period. The changes were due primarily to the acquisition of BMS in the first
quarter of 1996 which hosted NASCAR sanctioned racing events during the current
quarter, the associated general and administrative expenses incurred at BMS, and
to a lesser extent an increase in total compensation costs.
Depreciation and Amortization. Depreciation and amortization expense
for the three months ended September 30, 1996 increased by $953,000, or 82.6%,
over such expense for the same year earlier period. This increase was due to
additions to property and equipment at CMS and AMS and from the property and
equipment and goodwill and other intangible assets related to the acquisition of
BMS.
Operating Income. Operating income for the three month period ended
September 30, 1996 increased by $3.6 million 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
September 30, 1996 increased by $120,000, or 48.2%, compared to the three month
period ending September 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 September 30, 1996 as compared to the same year
earlier period.
18
<PAGE>
Other Income. Other income for the three months ended September 30,
1996 decreased by $1.3 million from such income for the three month period
ending September 30, 1995. This decrease was primarily due to decreased gains on
sale of CMS land held for resale.
Equity in Loss of North Wilkesboro Speedway. In the three month period
ended September 30, 1996, the Company recognized a loss from the operations of
its 50% investment in NWS equal to $100,000, net of tax benefit. The recognition
of income from NASCAR sanctioned racing events which were held on the last
weekend of the current quarter were deferred, consistent with the prior year.
Provision for Income Taxes. The Company's effective income tax rate for
the three month period ended September 30, 1996, excluding the loss in NWS, was
40%, compared to an effective tax rate for the period ended September 30, 1995
of 40.0%.
Net Income. Net income for the three months ended September 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 NASCAR sanctioned racing events in the three
month period ended September 30, 1996.
Nine Months Ended September 30, 1996 Compared To The Nine Months Ended
September 30, 1995
Total Revenues. Total revenues for the nine months ended September 30,
1996 increased by $23.6 million, or 54.8%, to $66.7 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 nine months ended September 30, 1996 increased by $14.8 million, or
78.7%, 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 first and third quarters, and to growth in admissions to NASCAR-sanctioned
racing events. Event related revenue for the nine months ended September 30,
1996 increased by $7.9 million, or 50.6%, 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 nine months ended September 30, 1996 increased by $887,000, or 10.3%,
over such revenue for the same year earlier period. Legends Car revenues
accounted for the substantial portion of this increase.
Direct Expense of Events. Direct expense of events for the nine months
ended September 30, 1996 increased by $8.9 million, or 80.3%, 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
nine months ended September 30, 1996 decreased by $83,000, or 1.4%, over such
expense for the same year earlier period. The decrease primarily occurred due to
the change in sales mix to higher margin part sales for Legend Cars compared to
the same year earlier period.
General and Administrative. As a percentage of total revenues, general and
administrative expense decreased from 23.6% for the nine months ended September
19
<PAGE>
30, 1995 to 19.8% for the nine months ended September 30, 1996. General and
administrative expense for the nine months ended September 30, 1996 increased by
$3.0 million, or 29.8%, 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 nine months ended September 30, 1996 increased by $2.4 million, or
69.5%, over such expense for the same year earlier period. This increase was due
to additions to property and equipment at CMS and AMS and from the property and
equipment and goodwill and other intangible assets related to the acquisition of
BMS.
Operating Income. Operating income for the nine month period ended
September 30, 1996 increased by $9.3 million, or 74.6%, 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 nine month
period ended September 30, 1996 was $818,000, compared to interest expense, net
for the nine month period ended September 30, 1995 of $237,000. This change was
due to higher levels of cash invested, from the public stock offering that
occurred on April 1, 1996, in the nine months ended September 30, 1996 as
compared to the same year earlier period.
Other Income. Other income for the nine months ended September 30, 1996
decreased by $1.6 million from such income for the nine month period ending
September 30, 1995. This change was due to decreased sales of AMS condominiums
and sales of CMS land held for resale.
Equity in Income of North Wilkesboro Speedway. In the nine month period
ended September 30, 1996, the Company recognized income from the operations of
its 50% investment in NWS of $85,000, net of taxes. The income from NASCAR
sanctioned racing events which were held on the last weekend of the current
quarter has been deferred to the fourth quarter consistent with the prior year.
Provision for Income Taxes. The Company's effective income tax rate for
the nine month period ended September 30, 1996, excluding the income in NWS, was
40%, compared to an effective tax rate for the period ended September 30, 1995
of 40.0%.
Income before Extraordinary Item. Income before extraordinary item for
the nine month period ended September 30, 1996 increased by $5.3 million, or
59.3%, 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 nine months
ended September 30, 1995, as an extraordinary item. There were no similar
charges for the nine months ending September 30, 1996.
Net Income. Net income for the nine months ended September 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 two NASCAR sanctioned racing events in the nine
month period ended
20
<PAGE>
September 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 nine month periods ended
September 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
nine months ended September 30, 1996 as demonstrated in this table (dollars in
thousands):
September 30, December 31,
1996 1995 Increase
--------- ------------ ---------
Cash and cash equivalents $ 15,630 $10,132 $ 5,498
Working capital (deficit) (6,243) (1,816) 4,427
Long-term debt, including
current portion 41,483 1,806 39,677
Stockholders' equity 192,881 95,380 93,080
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 nine months ended
September 30, 1996. Net income amounted to $14.4 million and net cash
generated by operations amounted to $26.9 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
21
<PAGE>
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 TIR. While management is unable at this time to determine the
total cost of construction, it currently estimates that total construction costs
at TIR will approximate $130 million (See Note 5).
During 1996, the Company began a major renovation and expansion of 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 TIR, will approximate $40 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 equity and debt offerings, 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 TIR, 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.
22
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders held on May 8, 1996, William R. Brooks
and Mark M. Gambill were elected directors by the stockholders. Directors whose
terms of office continued after the meeting were O. Bruton Smith, H.A. "Humpy"
Wheeler, Edwin R. Clark and William P. Benton. In addition to election of two
directors, the stockholders ratified the selection of Deloitte & Touche LLP as
principal independent auditors of the Company and approved the Company's 1996
Formula Stock Option Plan, the 1996 Employee Stock Purchase Plan and an
amendment to the Certificate of Incorporation of the Company to increase the
authorized common stock of the Company to 100,000,000 shares. Following is a
summary of the voting:
Votes Votes
Votes For Against Abstained Unvoted
--------- ------- --------- -------
Election of William
R. Brooks ................ 38,095,846 0 71,454 2,932,700
Election of Mark M.
Gambill .................. 38,095,846 0 71,454 2,932,700
Ratification of Deloitte
& Touche LLP as independent
auditors of the Company .. 38,163,478 1,406 2,416 2,932,700
Approval of the 1996
Formula Stock Option
Plan ..................... 37,969,244 185,858 12,198 2,932,700
Approval of the 1996
Employee Stock Purchase
Plan ..................... 38,152,255 10,131 4,914 2,932,700
Approval of Amendment to
the Certificate of Incorp-
oration of the Company ... 38,065,656 96,324 5,320 2,932,700
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial data schedule for the nine month period ended September
30, 1996.
(b) The following was reported on Form 8-K in the fiscal quarter covered by
this Form 10-Q:
(i) Form 8-K dated September 9, 1996, reporting a Press Release
that announces a proposed private offering of up to $77 million of convertible
subordinated debentures.
23
<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: November 14, 1996 By: /s/ O. Bruton Smith
----------------- ----------------------
O. Bruton Smith
Chairman and Chief Executive Officer
Date: November 14, 1996 By: /s/ William R. Brooks
----------------- ------------------------
William R. Brooks
Vice President, Chief Financial
Officer, Treasurer and Director
24
<PAGE>
INDEX TO EXHIBITS TO
QUARTERLY REPORT ON FORM 10-Q FOR
SPEEDWAY MOTORSPORTS, INC.
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
27 Financial data schedule for the nine month
period ended September 30, 1996.
25
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE FINANCIAL STATEMENTS OF SPEEDWAY MOTORSPORTS, INC. FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 15,630
<SECURITIES> 2,387
<RECEIVABLES> 6,487
<ALLOWANCES> 0
<INVENTORY> 6,303
<CURRENT-ASSETS> 41,240
<PP&E> 263,968
<DEPRECIATION> 48,270
<TOTAL-ASSETS> 300,574
<CURRENT-LIABILITIES> 47,483
<BONDS> 0
0
0
<COMMON> 413
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<TOTAL-LIABILITY-AND-EQUITY> 300,574
<SALES> 9,498
<TOTAL-REVENUES> 66,651
<CGS> 5,724
<TOTAL-COSTS> 44,952
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> (818)
<INCOME-PRETAX> 23,884
<INCOME-TAX> 9,520
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