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 March 31, 1997
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 May 14, 1997, there were 41,309,386 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 19
SIGNATURES 20
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements.
SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
March 31,
1997 December 31,
(Unaudited) 1996
--------- ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ......................... $ 21,419 $ 22,252
Restricted cash ................................... 16,928 14,624
Trade accounts receivable ......................... 16,780 11,919
Prepaid income taxes .............................. 5,312 4,784
Inventories (Note 4) .............................. 7,466 6,218
Speedway condominiums held for sale ............... 5,051 3,535
Prepaid expenses .................................. 820 526
-------- --------
Total current assets ............................ 73,776 63,858
-------- --------
PROPERTY AND EQUIPMENT, NET (Note 5) ............... 340,816 288,361
GOODWILL AND OTHER INTANGIBLE ASSETS (Note 9) ...... 48,692 48,314
OTHER ASSETS:
Marketable equity securities ...................... 2,179 2,447
Notes receivable (Note 8) ......................... 2,749 2,148
Other assets ...................................... 4,268 4,156
-------- --------
Total other assets .............................. 9,196 8,751
-------- --------
TOTAL .......................................... $472,480 $409,284
======== ========
See notes to consolidated financial statements.
3
<PAGE>
SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
March 31,
1997 December 31,
(Unaudited) 1996
--------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 6) ....... $ 390 $ 383
Accounts payable .................................... 20,789 11,363
Deferred race event income, net ..................... 71,591 36,393
Accrued expenses and other liabilities .............. 8,658 12,075
--------- ---------
Total current liabilities ........................ 101,428 60,214
LONG-TERM DEBT (Note 6) .............................. 133,461 115,247
PAYABLE TO AFFILIATED COMPANY (Note 8) ............... 2,603 2,603
DEFERRED INCOME, NET ................................. 14,106 9,732
DEFERRED INCOME TAXES ................................ 13,076 13,742
OTHER LIABILITIES .................................... 3,446 3,011
--------- ---------
Total liabilities ................................ 268,120 204,549
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 7)................
STOCKHOLDERS' EQUITY (Note 3):
Preferred stock ..................................... -- --
Common stock, $.01 par value, shares authorized -
100,000,000, issued and outstanding - 41,305,000 .. 413 413
Additional paid-in capital .......................... 155,156 155,156
Retained earnings ................................... 49,085 49,348
Deduct:
Unrealized loss on marketable equity securities ... (294) (182)
--------- ---------
Total stockholders' equity ....................... 204,360 204,735
--------- ---------
TOTAL ............................................ $ 472,480 $ 409,284
========= =========
See notes to consolidated financial statements.
4
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SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands except per share amounts)
(Unaudited)
Three Months Ended
-----------------------
March 31, March 28,
1997 1996
-------- --------
REVENUES:
Admissions ...................................... $ 5,206 $ 4,742
Event related revenue ........................... 6,711 4,594
Other operating revenue ......................... 3,536 2,994
-------- --------
Total revenues ........................... 15,453 12,330
-------- --------
OPERATING EXPENSES:
Direct expense of events ........................ 4,707 3,704
Other direct operating expense .................. 2,056 1,894
General and administrative ...................... 7,091 4,031
Depreciation and amortization ................... 2,664 1,738
-------- --------
Total operating expenses ................. 16,518 11,367
-------- --------
OPERATING INCOME (LOSS) .......................... (1,065) 963
INTEREST INCOME (EXPENSE), NET ................... 495 (237)
OTHER INCOME (LOSS) .............................. 201 (5)
-------- --------
INCOME (LOSS) BEFORE INCOME TAXES ................ (369) 721
INCOME TAX PROVISION (BENEFIT) ................... (106) 334
-------- --------
NET INCOME (LOSS) ................................ $ (263) $ 387
======== ========
EARNINGS PER SHARE AND COMMON STOCK
EQUIVALENTS .................................... $ (0.01) $ 0.01
======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING
(Note 3) ........................................ 42,107 38,902
======== ========
See notes to consolidated financial statements.
5
<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> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1996 ............... 41,305 $413 $155,156 $ 49,348 $(182) $ 204,735
Net loss ............................... -- -- -- (263) -- (263)
Net unrealized loss on marketable
equity securities ..................... -- -- -- -- (112) (112)
------ ---- -------- -------- ----- ---------
BALANCE MARCH 31, 1997 (Unaudited) ...... 41,305 $413 $155,156 $ 49,085 $(294) $ 204,360
====== ==== ======== ======== ===== =========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended
--------------------
March 31, March 28,
1997 1996
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ....................................... $ (263) $ 387
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization ........................ 2,664 1,738
Equity in operations of equity method investee ....... 105 114
Gain on sale of marketable equity securities and
investments ........................................ (44) (10)
Amortization of deferred membership income ........... (69) (69)
Changes in operating assets and liabilities:
Restricted cash .................................... (2,304) --
Trade accounts receivable .......................... (4,861) 340
Inventories ........................................ (1,248) (694)
Other current assets and liabilities ............... (822) 2,393
Condominiums held for sale ......................... (1,516) (150)
Accounts payable ................................... 9,426 3,758
Deferred race event income ......................... 35,198 9,456
Accrued expenses and other liabilities ............. (3,417) 39
Deferred income .................................... 4,443 --
Other assets and liabilities ....................... (895) (2,027)
-------- --------
Net cash provided by operating activities ........ 36,397 15,221
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt .................... (85) (32,671)
Issuance of long-term debt .............................. 18,000 72,500
-------- --------
Net cash provided by financing activities ........ 17,915 39,829
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures .................................... (54,663) (19,469)
Purchases of marketable equity securities and
investments ............................................ (412) (60)
Proceeds from sales of marketable equity securities
and investments ........................................ 531 241
Purchase of Bristol Motor Speedway ...................... -- (27,176)
Repayments from (loans to) related parties .............. (601) 287
-------- --------
Net cash used in investing activities ............ (55,145) (46,177)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ..... (833) 8,927
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ......... 22,252 10,132
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............... 21,419 19,059
======== ========
7
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The following Notes to Unaudited Consolidated Financial Statements and
discussion, including the discussion of Texas Motor Speedway and Management's
Discussion and Analysis of Financial Condition and Results of Operations,
contain estimates and forward-looking statements as indicated herein by use of
such terms as "estimated", "anticipates", "approximate" or "projected". Such
statements reflect management's current views, are based on certain assumptions
and are subject to risks and uncertainties. No assurance can be given that
actual results or events will not differ materially from those projected,
estimated, assumed or anticipated in any such forward-looking statements.
Important factors that could cause actual results to differ from those projected
or estimated are discussed herein.
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, 1996 included in the Company's 1996 Annual Report
on Form 10-K.
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 racing 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 Bristol Motor Speedway
on the weekend of March 29-31, 1996. In accordance with the Company's accounting
policy, the revenues and direct expenses of this racing event were 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 racing events were held
at wholly-owned subsidiaries on the last weekend of the calendar quarter ended
March 31, 1997. As such, the three months ended March 31, 1997 and March 28,
1996 are comparable.
Impact Of New Accounting Standards -- In February 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings per Share". SFAS No. 128 specifies the computation,
presentation and disclosure requirements for earnings per share and is effective
for interim and annual periods ending after December 17, 1997. Under SFAS No.
128, the Company will compute and disclose both basic and diluted earnings per
share. Its adoption is not expected to significantly effect the Company's
computation, presentation and disclosure under current accounting standards.
8
<PAGE>
Reclassification - Certain accounts in 1996 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, Atlanta Motor
Speedway, Inc. (AMS), Bristol Motor Speedway, Inc. (BMS), Charlotte Motor
Speedway, Inc. and subsidiaries (CMS), Sears Point Raceway (SPR), Texas Motor
Speedway (TMS), Oil-Chem Research Corp. and subsidiary (ORC), Speedway Funding
Corp. and Sonoma Funding Corp. (collectively, the Company).
CMS owns and operates a 1.5-mile quad-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 1997, CMS will host 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 hold race events 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 have
been sold.
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. Also, 600 Racing is developing a new line
of smaller-scale cars (the Bandolero) to be offered for sale in 1997. Revenue is
derived from the sale of vehicles and vehicle parts.
AMS owns and operates a 1.5-mile oval, asphalt speedway located on 870
acres in Hampton, Georgia. Two major 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 has constructed
46 condominiums overlooking the Atlanta speedway and is in the process of
selling the ten remaining condominiums.
BMS owns and operates a one-half mile lighted, 36-degree banked concrete
oval speedway, and a one-quarter mile lighted dragstrip, located on
approximately 530 acres 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. On January 22, 1996, the
Company acquired 100% of the outstanding capital stock of BMS for $27,176,000,
including direct acquisition costs of $146,000 (see Note 9).
SPR, located on approximately 800 acres in Sonoma, California, owns and
operates a
9
<PAGE>
2.52-mile, twelve-turn road course, a one-quarter mile dragstrip, and an 157,000
square foot industrial park. SPR currently sponsors one major NASCAR-sanctioned
Winston Cup racing event annually. Additional events held annually include a
NASCAR sanctioned Craftsman Truck Series, a NHRA Winston Drag Racing Series, as
well as American Motorcycle Association and Sports Car Club of America (SCCA)
racing events. The racetrack is also rented throughout the year by various
organizations, including the SCCA, major automobile manufacturers, and other car
clubs. On November 18, 1996, the Company acquired certain assets and the
operations of Sears Point Raceway (see Note 9).
TMS was established on February 13, 1995 for the purpose of constructing
and operating a 1.5-mile, banked, asphalt quad-oval superspeedway located on 950
acres in Fort Worth, Texas (see Note 5). TMS hosted its first major 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 TMS. Other events will be announced as they are scheduled.
In July 1996, TMS began construction of 76 condominiums above turn-two
overlooking the speedway, 72 of which have been contracted for sale.
ORC produces an environmentally friendly motor oil additive that the
Company intends to promote in conjunction with its speedways. On April 16, 1996,
the Company acquired 100% of the outstanding capital stock of ORC for $4,459,000
in Company stock and cash.
The Company's Chairman and CEO purchased approximately 24% of the
outstanding common stock of North Carolina Motor Speedway, Inc. in 1995. The
Chairman has offered to sell this stock to the Company at his cost. The Company
has declined to purchase the shares to date but may elect to do so in the
future. The Company submitted a merger proposal in April 1997 to the Board of
Directors of North Carolina Motor Speedway, Inc. for its consideration.
In October 1996, the Company signed a joint management and development
agreement with Quad-Cities International Raceway Park. The Company will serve in
an advisory capacity for the development of a multi-use facility, which includes
a speedway located in northwest Illinois. The agreement also grants the Company
the option to purchase up to 40% equity ownership in the facility. The option
has not been exercised.
3. CAPITAL STRUCTURE AND PER SHARE DATA
Stock Split - 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.
Per Share Data - The per share amounts reflect the 42,107,000 and
38,902,000 weighted average shares outstanding, including 802,000 and 902,000
common share equivalents arising from stock options, for the three month periods
ended March 31, 1997 and March 28, 1996, respectively.
10
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Had the October 1996 offering of the subordinated convertible debentures
(see Note 6) been fully converted on January 1, 1996, and related interest
expense on such debt not recorded in 1997 or 1996, there would have been no
effect on earnings per share as reported for the three months ended March 31,
1997 or March 28, 1996. For the three months ended March 31, 1997, primary
earnings per share and common stock equivalents were ($.01) and earnings per
share assuming full dilution were ($.01).
4. INVENTORIES
Inventories as of March 31, 1997 and December 31, 1996 consisted of the
following components (dollars in thousands):
March 31, December 31,
1997 1996
------ ------
Souvenirs .......................................... $2,958 $2,359
Finished vehicles, parts and accessories ........... 4,400 3,753
Food and other ..................................... 108 106
------ ------
Total ........................................... $7,466 $6,218
====== ======
5. CONSTRUCTION IN PROGRESS
Texas Motor Speedway - In 1995, the Company began constructing TMS, a
1.5-mile, banked, asphalt quad-oval superspeedway, on a 950 acre site in Fort
Worth, Texas. Construction was substantially complete at March 31, 1997 with TMS
hosting its first major NASCAR Winston Cup race on April 6, 1997.
Other Construction In Progress - Also included in construction in progress
at March 31, 1997 are costs incurred to increase and improve grandstand seating
capacity, suites and facilities for fan amenities at AMS, BMS, CMS and SPR. In
addition, AMS is converting its speedway to a quad-oval configuration in
conjunction with the other improvements.
The estimated aggregate cost of capital expenditures in 1997, inclusive of
TMS, will approximate $140,000,000.
6. LONG-TERM DEBT
Bank Credit Facility - In March 1996, the Company obtained from
NationsBank, N.A. (Carolinas) an unsecured, long-term working capital and letter
of credit facility (the "Credit Facility") with an overall borrowing limit of
$110 million and a sub-limit of $7 million for standby letters of credit. The
Credit Facility matures in 1999 unless extended annually thereafter for two
additional years at the option of the lenders. At March 31, 1997, the Company
has a total of $40 million in outstanding borrowings under the Credit Facility.
See Note 7 to the December 31, 1996 Consolidated Financial Statements for
discussion of additional terms and restrictive loan covenants of the Credit
Facility.
Convertible Subordinated Debentures - In October 1996, the Company issued
5 3/4% convertible subordinated debentures in the aggregate principal amount of
$74,000,000. The debentures are unsecured, mature on September 30, 2003, are
convertible into Common Stock at the holder's option after November 30, 1996 at
$31.11 per share until maturity, and are redeemable at the Company's option
after September 29, 2000. In conversion, 2,378,565 shares of common stock would
be issuable (see Note 3). Interest
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payments are due semi-annually on March 31 and September 30 commencing March 31,
1997. See Note 7 to the December 31, 1996 Consolidated Financial Statements for
discussion of additional terms and conditions of the debentures.
Capital Lease Obligation And Purchase Option (Sears Point Raceway) - In
connection with the SPR asset acquisition by SMI on November 18, 1996, the
Company executed a 14 year capital lease with the seller for all of the real
property of the SPR complex. SMI has the option to purchase the real property
for $38.1 million during a six-month option period commencing November 1, 1999,
subject to acceleration at the election of the seller after March 31, 1997 and
through December 31, 1999 (the Purchase Option). SMI paid $3.5 million for the
Purchase Option and $3.0 million as a lease security deposit, and loaned the
seller approximately $13.45 million under a 4% promissory note receivable in
connection the acquisition, with such amounts to be credited against the
purchase price of the real property upon exercise of the Purchase Option. In
management's opinion, it is probable that the Purchase Option will be exercised.
Because a legal right of offset exists under the lease obligation and note
receivable agreements, and because it is probable offset will occur upon
exercise of the Purchase Option, the note receivable of $13,453,000 has been
netted against the capital lease obligation in the accompanying consolidated
balance sheets. See Note 7 to the December 31, 1996 Consolidated Financial
Statements for discussion of additional terms and conditions of the capital
lease obligation and Purchase Option.
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 March
31, 1997 is approximately $7,600,000. 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 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. 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 with appeals
division of the IRS; as of this date, no resolution of this matter has been
obtained. However, the Company anticipates resolution of this matter during
1997. 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 at March 31, 1997 and December 31, 1996 include a note
receivable of $709,000 and $697,000, respectively, due from a partnership in
which the Company's Chairman and Chief Executive Officer is a partner. The note
bears interest at 1% over prime, is collateralized by certain partnership land
and is payable on demand. Because the Company does not anticipate repayment of
the note before March 31, 1998, the balance has been classified as a noncurrent
asset in the accompanying
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consolidated balance sheets.
Notes receivable also include a note receivable from the Company's
Chairman and Chief Executive Officer for $1,720,000 at March 31, 1997 and
$1,131,000 at December 31, 1996. The principal balance of the note represents
premiums paid by the Company under a split-dollar life insurance trust
arrangement on behalf of the Chairman, in excess of cash surrender value. The
note bears interest at 1% over prime.
Amounts payable to affiliated company of approximately $2,603,000 at March
31, 1997 and December 31, 1996 represents acquisition and other expenses paid on
behalf of AMS by Sonic Financial Corporation in prior years. Of such amounts,
approximately $1.8 million bears interest at 3.83% per annum. The remainder of
the amount bears interest at 1% over prime. The entire account balance is
classified as long-term based on expected repayment dates.
9. BRISTOL MOTOR SPEEDWAY AND SEARS POINT RACEWAY ACQUISITIONS
As further described in Notes 1 and 17 of the December 31, 1996
Consolidated Financial Statements, the Company acquired Bristol Motor Speedway
on January 22, 1996 and Sears Point Raceway on November 18, 1996. The
acquisitions have been accounted for using the purchase method, and the results
of their operations after the acquisition dates are included in the Company's
consolidated statement of income. The purchase price has been allocated to the
assets and liabilities acquired at their appraised or estimated fair values at
acquisition date. In the near future, the Company plans to obtain an independent
appraisal of the fair value of other SPR net assets acquired, including
identifiable intangibles, if any. Based on current information, the Company's
management does not expect the final allocation of the SPR purchase price to
materially differ from that used in the accompanying consolidated balance
sheets.
The following unaudited pro forma financial information presents a summary
of consolidated results of operations as if the transactions had occurred as of
January 1, 1996 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 acquisitions been made on that date, nor are they necessarily indicative
of results which may occur in the future.
(PRO FORMA)
Three Months Ended
--------------------------
March 31, March 28,
1997 1996
----------- -----------
Total revenues.............................. $15,453,000 $13,664,000
Net income (loss)........................... (263,000) (297,000)
Net income (loss) per share................. ($0.01) ($0.01)
10. EMPLOYEE STOCK PURCHASE PLAN
Effective January 1, 1997, the Company's Board of Directors adopted the
SMI Employee Stock Purchase Plan to provide employees the opportunity to acquire
stock ownership. An aggregate total of 200,000 shares of common stock have been
reserved for purchase under the new plan. Each January 1, eligible employees
electing to
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participate will be granted an option to purchase shares of common stock. Prior
to each January 1, the Compensation Committee of the Board of Directors
determines the number of shares available for purchase under each option, with
the same number of shares to be available under each option granted on the same
grant date. No participant can be granted options to purchase more than 500
shares in each calendar year, nor which would allow an employee to purchase
stock under this or all other employee stock purchase plans in excess of $25,000
of fair market value at the grant date in each calendar year. The stock purchase
price is 90% of the lesser of fair market value at grant date or exercise date.
Options granted may be exercised once at the end of each calendar quarter, and
will be automatically exercised to the extent of each participant's
contributions. Options granted that are unexercised will expire at the end of
each calendar year.
14
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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 its speedway facilities, from food and
beverage 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 from Legends Car sales since 1991.
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 food and beverage and
souvenir sales, luxury suite rentals, sponsorship fees and broadcast right fees.
"Other operating revenue" includes the Speedway Club, Legends Car, SPR
industrial park rental and Oil-Chem 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 the cost of the Speedway Club and Legends Car sales,
SPR industrial park rentals and Oil-Chem revenues.
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, CMS and SPR, the construction of TMS was substantially complete with
the hosting of its first major NASCAR Winston Cup race on April 6, 1997.
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.
Seasonality and Quarterly Results
15
<PAGE>
The Company derived a substantial portion of its 1996 total revenues from
admissions and event-related revenue attributable to twelve NASCAR-sanctioned
races which are held in March, May, August, October and November. In 1997, the
Company is holding fifteen NASCAR-sanctioned races, including a major racing
event at its new speedways, TMS and SPR, in April and May, respectively. As a
result, the Company's business has been, and is expected to remain, seasonal. In
1995 and 1996, the Company's second and fourth quarters accounted for
approximately 80% and 75% of its total annual revenues, and approximately 106%
and 96%, respectively, of its total annual operating income. The Company
sometimes produces minimal operating income or operating losses during its first
and third quarters, when it sponsors only one NASCAR weekend, including Winston
Cup and Busch Grand National races, each quarter.
The results of operations for the three months ended March 31, 1997 and
March 28, 1996 are not indicative of the results that may be expected for the
entire year because of the seasonality discussed above.
CHANGES IN RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 Compared To Three Months Ended March 28, 1996
Total Revenues. Total revenues for the three months ended March 31, 1997
increased by $3.1 million, or 25.3%, to $15.5 million, over such revenues for
the same year earlier period. This improvement was due to increases in all
revenue items, particularly event related revenue. Admissions for the three
months ended March 31, 1997 increased by $464,000, or 9.8%, over admissions for
the same year earlier period. This increase was due primarily to growth in
NASCAR sanctioned racing events held during the current quarter. The growth in
admissions reflects the continued increases in attendance and ticket prices.
Event related revenue for the three months ended March 31, 1997 increased by
$2.1 million, or 46.1%, over such revenue for the same year earlier period. The
increase was due primarily to increases in broadcast rights and sponsorship fees
and to the growth in attendance, including related increases in concessions and
souvenir sales. Other operating revenue for the three months ended March 31,
1997 increased by $542,000, or 18.1%, over such revenue for the same year
earlier period. This increase was primarily attributable to operating revenues
derived from Oil-Chem Research Corp. and subsidiary (Oil-Chem), and to rental
revenues from SPR, which were acquired in April and November 1996, respectively.
Direct Expense of Events. Direct expense of events for the three months
ended March 31, 1997 increased by $1.0 million, or 27.1%, over such expense for
the same year earlier period. Such increase was due primarily to higher
operating costs associated with the growth in attendance and to increases in the
size of race purses required for NASCAR sanctioned racing events held during the
current quarter.
Other Direct Operating Expense. Other direct operating expense for the
three months ended March 31, 1997 increased by $162,000, or 8.6%, over such
expense for the same year earlier period. The increase occurred primarily due to
the expenses associated with other operating revenues derived from SPR and
Oil-Chem.
General and Administrative. General and administrative expense for the
three months ended March 31, 1997 increased by $3.1 million, or 75.9%, over such
expense for the same year earlier period. The increase was due primarily to
general and
16
<PAGE>
administrative expenses incurred during the three months ended March 31, 1997 by
Oil-Chem and SPR acquired in April and November 1996, respectively, and at TMS.
Depreciation and Amortization. Depreciation and amortization expense for
the three months ended March 31, 1997 increased by $926,000, or 53.3%, over such
expense for the same year earlier period. This increase was due to additions to
property and equipment at AMS, BMS and CMS and from the property and equipment
and goodwill and other intangible assets related to the acquisitions of BMS and
SPR.
Operating Income (Loss). Operating income for the three month period ended
March 31, 1997 decreased by $2.0 million from such income for the same year
earlier period. This decrease was due to the factors discussed above.
Interest Income, Net. Interest income, net for the three months ended
March 31, 1997 was $495,000, compared to interest expense, net for the three
month period ending March 28, 1996 of $237,000. This change was due to higher
levels of cash invested in the three months ended March 31, 1997 as compared to
the same year earlier period. The change was also due to capitalizing $2.1
million in interest costs incurred during the three months ended March 31, 1997
on TMS and other construction projects. Interest costs capitalized in the three
month period ending March 28, 1996 were insignificant.
Other Income. Other income for the three months ended March 31, 1997
increased by $196,000 over such income for the same year earlier period. This
increase was primarily due to gains recognized on sales of marketable equity
securities and from sale of an AMS condominium held for sale during the three
month ended March 31, 1997. No such gains were recognized in the three months
ended March 28, 1996.
Income Tax Provision (Benefit). The Company's effective income tax rate
for the three months ended March 31, 1997 and March 28, 1996, excluding the loss
in equity method investee, was 40%.
Net Income (Loss). Net income for the three months ended March 31, 1997
decreased by $650,000 compared to the three months ended March 28, 1996. This
decrease was due to the factors discussed above.
CHANGES IN FINANCIAL CONDITION AND LIQUIDITY
The Company has historically met its working capital and capital
expenditure requirements through a combination of cash flow from operations,
borrowings, particularly bank loans, and other debt and equity offerings.
Although the Company has expended significant amounts of cash in 1996 and in the
first quarter of 1997 for the construction of TMS, the acquisitions of BMS and
SPR, and the improvement and expansion and AMS, BMS, and CMS, the Company's
financial condition and liquidity during the three months ended March 31, 1997
remained relatively comparable with that at December 31, 1996. This comparable
financial condition and liquidity was principally due to (1) net cash generated
by operations for the three months ended March 31, 1997 amounted to $36.4
million; (2) the Company increased its net long-term borrowings under the Credit
Facility by $18 million during the current quarter; and (3) and capital
expenditures during the current quarter amounted to $54.7 million.
17
<PAGE>
Company management anticipates that cash from operations and funds
available through the Credit Facility, will sustain the Company's operating
needs, including planned capital expenditures at its speedway facilities 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 financing of a character and in amounts to be determined. While the
Company expects to continue to generate positive cash flows from its existing
speedway operations, and 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, including the continued
expansion and improvement of its speedway facilities.
Dividends
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 factors as
permissibility under the Credit Facility and 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. Construction of TMS was substantially completed upon hosting its
first major NASCAR Winston Cup race on April 6, 1997.
In 1997, at AMS, the Company expects to complete 56 new suites, add
approximately 19,000 permanent grandstand seats, and is converting AMS to a
quad-oval configuration, including changing the start-finish line location. In
1997, at BMS, the Company expects to complete 55 new suites, add approximately
53,000 permanent grandstand seats, and make other site improvements. In 1997, at
CMS, the Company expects to complete 26 new suites, add approximately 15,000
permanent grandstand seats, and make other site improvements. In 1997, at SPR,
the Company expects to complete parking, road improvements, and grading to
improve spectator site lines, and to increase and improve seating and facilities
for spectator and media amenities. TMS has approximately 150,000 permanent
grandstand seats, 200 suites and 76 condominiums upon completion. In 1997, after
adding more than 226,000 seats, including the opening of TMS, permanent
grandstand seating capacity at all of the Company's speedways will exceed
500,000.
The estimated aggregate cost of capital expenditures in 1997, inclusive of
TMS, will approximate $140 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 and Oil-Chem products and
markets and the expansion into complementary businesses.
18
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27. Financial data schedule for the three month period ended March 31, 1997.
(b) The Company filed a report on Form 8-K/A dated February 3, 1997
containing the required audited financial statements and unaudited pro forma
financial information as referenced in the Company's report on Form 8-K (the
"Initial Form 8-K Report") filed on November 18, 1996 related to the business
combination of Speedway Motorsports, Inc. and Sears Point Raceway.
19
<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: May 14, 1997 By: /s/ O. Bruton Smith
----------------------------------
O. Bruton Smith
Chairman and Chief Executive Officer
Date: May 14, 1997 By: /s/ William R. Brooks
----------------------------------
William R. Brooks
Vice President, Chief Financial
Officer, Treasurer and Director
20
<PAGE>
INDEX TO EXHIBITS TO
QUARTERLY REPORT ON FORM 10-Q FOR
SPEEDWAY MOTORSPORTS, INC.
FOR THE QUARTER ENDED MARCH 31, 1997
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------
27 Financial data schedule for the three month
period ended March 31, 1997.
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the financial statements of Speedway Motorsports, Inc. for the three
months ended March 31, 1997 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> dec-31-1997
<PERIOD-START> jan-1-1997
<PERIOD-END> mar-31-1997
<CASH> 38,347
<SECURITIES> 2,179
<RECEIVABLES> 19,529
<ALLOWANCES> 0
<INVENTORY> 7,466
<CURRENT-ASSETS> 73,776
<PP&E> 340,816
<DEPRECIATION> 52,184
<TOTAL-ASSETS> 472,480
<CURRENT-LIABILITIES> 101,428
<BONDS> 0
0
0
<COMMON> 413
<OTHER-SE> 203,947
<TOTAL-LIABILITY-AND-EQUITY> 472,480
<SALES> 3,536
<TOTAL-REVENUES> 15,453
<CGS> 2,056
<TOTAL-COSTS> 16,518
<OTHER-EXPENSES> (201)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (495)
<INCOME-PRETAX> (369)
<INCOME-TAX> (106)
<INCOME-CONTINUING> (263)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (263)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
