UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 August 12, 1997, there were 41,320,831 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 24
ITEM 6. Exhibits and Reports on Form 8-K 24
SIGNATURES 25
2
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PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS.
SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
June 30,
December 31, 1997
1996 (Unaudited)
------------ -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ........................ $ 22,252 $ 32,897
Restricted cash .................................. 14,624 4,217
Trade accounts receivable ........................ 11,919 23,347
Prepaid income taxes ............................. 4,784 --
Inventories (Note 4) ............................. 6,218 8,206
Speedway condominiums held for sale.............. 3,535 11,640
Prepaid expenses ................................. 526 795
-------- --------
Total current assets ........................... 63,858 81,102
-------- --------
PROPERTY AND EQUIPMENT, NET (Note 5)............... 288,361 386,797
GOODWILL AND OTHER INTANGIBLE ASSETS (Note 9)...... 48,314 48,362
OTHER ASSETS:
Marketable equity securities ..................... 2,447 2,152
Notes receivable (Note 8)......................... 2,148 5,756
Other assets ..................................... 4,156 4,448
-------- --------
Total other assets ............................. 8,751 12,356
-------- --------
TOTAL ......................................... $409,284 $528,617
======== ========
See notes to consolidated financial statements.
3
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SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
June 30,
December 31, 1997
1996 (Unaudited)
------------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 6)..... $ 383 $ 387
Accounts payable ................................. 11,363 16,682
Deferred race event income, net .................. 36,393 29,628
Income taxes payable ............................. -- 6,966
Accrued expenses and other liabilities............ 12,075 13,640
-------- --------
Total current liabilities ..................... 60,214 67,303
LONG-TERM DEBT (Notes 6 and 12).................... 115,247 193,690
PAYABLE TO AFFILIATED COMPANY (Note 8) ............ 2,603 2,603
DEFERRED INCOME, NET .............................. 9,732 14,390
DEFERRED INCOME TAXES ............................. 13,742 13,104
OTHER LIABILITIES ................................. 3,011 3,513
-------- --------
Total liabilities ............................. 204,549 294,603
-------- --------
COMMITMENTS AND CONTINGENCIES (Notes 5, 7 and 11)..
STOCKHOLDERS' EQUITY (Note 3):
Preferred stock, $.10 par value, shares
authorized - 3,000,000 ........................ -- --
Common stock, $.01 par value, shares authorized -
200,000,000, issued and outstanding - 41,305,000
in 1996 and 41,309,000 in 1997 ................. 413 413
Additional paid-in capital ....................... 155,156 155,246
Retained earnings ................................ 49,348 78,602
Deduct:
Unrealized loss on marketable equity securities. (182) (247)
-------- --------
Total stockholders' equity .................... 204,735 234,014
-------- --------
TOTAL ......................................... $409,284 $528,617
======== ========
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
June 30,
1996 1997
--------- ----------
REVENUES:
Admissions ................................... $ 22,564 $ 51,249
Event related revenue ........................ 14,446 48,406
Other operating revenue ...................... 3,806 4,486
-------- --------
Total revenues ........................ 40,816 104,141
-------- --------
OPERATING EXPENSES:
Direct expense of events ..................... 11,429 35,186
Other direct operating expense ............... 2,439 2,794
General and administrative ................... 4,591 8,701
Depreciation and amortization ................ 2,058 4,455
Preoperating expense of new facility (Note 1). -- 1,850
-------- --------
Total operating expenses .............. 20,517 52,986
-------- --------
OPERATING INCOME .............................. 20,299 51,155
INTEREST INCOME (EXPENSE), NET................. 686 (877)
OTHER INCOME (EXPENSE)......................... 971 (179)
-------- ---------
INCOME BEFORE INCOME TAXES .................... 21,956 50,099
INCOME TAX PROVISION .......................... 8,663 20,582
-------- --------
NET INCOME .................................... $ 13,293 $ 29,517
======== ========
PRIMARY EARNINGS PER SHARE AND COMMON STOCK
EQUIVALENTS.................................. $ 0.32 $ 0.70
======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING
(Note 3)...................................... 42,106 42,080
======== ========
EARNINGS PER SHARE ASSUMING FULL DILUTION...... $ 0.30 $ 0.67
======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING
(Note 3)...................................... 44,484 44,459
======== ========
See notes to consolidated financial statements.
5
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SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands except per share amounts)
(Unaudited)
Six Months Ended
June 30,
1996 1997
-------- ----------
REVENUES:
Admissions ................................... $ 27,306 $ 56,455
Event related revenue ........................ 19,040 55,117
Other operating revenue ...................... 6,800 8,022
-------- --------
Total revenues ........................ 53,146 119,594
-------- --------
OPERATING EXPENSES:
Direct expense of events ..................... 15,133 39,893
Other direct operating expense ............... 4,333 4,850
General and administrative ................... 8,622 15,792
Depreciation and amortization ................ 3,796 7,119
Preoperating expense of new facility (Note 1). -- 1,850
-------- --------
Total operating expenses .............. 31,884 69,504
-------- --------
OPERATING INCOME .............................. 21,262 50,090
INTEREST INCOME (EXPENSE), NET................. 449 (382)
OTHER INCOME .................................. 966 22
-------- --------
INCOME BEFORE INCOME TAXES .................... 22,677 49,730
INCOME TAX PROVISION .......................... 8,997 20,476
-------- --------
NET INCOME .................................... $ 13,680 $ 29,254
======== ========
PRIMARY EARNINGS PER SHARE AND COMMON STOCK
EQUIVALENTS................................... $ 0.34 $ 0.69
======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING
(Note 3)...................................... 40,490 42,093
======== ========
EARNINGS PER SHARE ASSUMING FULL DILUTION...... $ 0.32 $ 0.67
======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING
(Note 3)...................................... 42,869 44,472
======== ========
See notes to consolidated financial statements.
6
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SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars and shares in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Unrealized
Loss
Additional on Marketable Total
Common Stock Paid-In Retained Equity Stockholders'
Shares Amount Capital Earnings Securities Equity
<S> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1996 ............ 41,305 $ 413 $155,156 $49,348 $(182) $204,735
Net income .......................... -- -- -- 29,254 -- 29,254
Issuances of stock under employee
stock purchase plan (Note 10)....... 4 -- 90 -- -- 90
Net unrealized loss on marketable
equity securities .................. -- -- -- -- (65) (65)
------ ---- -------- ------- ----- --------
BALANCE JUNE 30, 1997 (Unaudited)..... 41,309 $413 $155,246 $78,602 $(247) $234,014
====== ==== ======== ======= ===== ========
See notes to consolidated financial statements.
7
<PAGE>
SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Six Months Ended
June 30,
1996 1997
-------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................... $13,680 $ 29,254
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization...................... 3,796 7,119
Equity in operations of equity method investee...... (185) 210
Gain on sale of marketable equity securities and
investments ........................................ (531) (61)
Amortization of deferred income..................... (137) (270)
Changes in operating assets and liabilities:
Restricted cash ........................... ........ -- 10,407
Trade accounts receivable .......................... (1,136) (7,123)
Inventories ....................................... (620) (1,988)
Other current assets and liabilities ............... 2,279 (269)
Condominiums held for sale.............. ........... (578) (8,105)
Prepaid and accrued income taxes .................. -- 11,750
Accounts payable................................ ... 7,780 5,319
Deferred race event income. ........................ 345 (6,765)
Accrued expenses and other liabilities......... .... 3,233 1,565
Deferred income .................................... -- 4,928
Other assets and liabilities ....................... (3,137) (892)
--------- --------
Net cash provided by operating activities......... 24,789 45,079
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt.................. (32,671) (184)
Issuance of long-term debt............................ 72,500 78,000
Issuance of common stock to public.................... 78,354 --
Issuance of stock under employee stock purchase plan.. -- 90
Exercise of stock options............................. 465 --
------- --------
Net cash provided by financing activities ........ 118,648 77,906
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................. (69,102) (104,671)
Purchases of marketable equity securities and
investments.......................................... (606) (412)
Proceeds from sales of marketable equity securities
and investments...................................... 1,507 656
Purchase of Bristol Motor Speedway.................... (27,176) --
Purchase of Oil-Chem Research Corp.................... (514) --
Increase in notes and accounts receivable............. -- (7,299)
Repayments from (loans to) related parties ........... 287 (614)
------- --------
Net cash used in investing activities ............ (93,966) (112,340)
------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS.............. 49,471 10,645
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD....... 10,132 22,252
------- --------
ASH AND CASH EQUIVALENTS AT END OF PERIOD............. $59,603 $ 32,897
======= ========
See notes to consolidated financial statements.
8
<PAGE>
The following Notes to Unaudited Consolidated Financial Statements 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 consolidated financial statements of 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 quarters ended
June 30, 1997, March 31, 1997, or June 30, 1996. As such, the three and six
months ended June 30, 1997 and 1996 reporting periods are comparable.
DEFERRED INCOME - Deferred income includes Texas Motor Speedway (TMS)
Preferred Seat License (PSL) fee deposits of $8,402,000 and $13,206,000, net of
expenses of $843,000 and $970,000, at December 31, 1996 and June 30, 1997,
respectively. See Note 2 to the December 31, 1996 Consolidated Financial
Statements for discussion of terms and conditions of the PSL's. Fees received
under PSL agreements were deferred prior to TMS hosting its first Winston Cup
race on April 6, 1997. The Company began amortizing net PSL fee revenues into
income over the estimated useful life of TMS's speedway facility upon its
9
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opening. Amortization income recognized in the three months ended June 30,
1997 was $133,000.
PREOPERATING EXPENSE OF NEW FACILITY -- Preoperating expenses consist of
non-recurring and non-event related costs to develop, organize and open the
Company's new superspeedway facility, Texas Motor Speedway (TMS), which hosted
its first racing event on April 6, 1997.
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.
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).
AMS owns and operates a 1.5-mile oval, asphalt speedway located on
approximately 870 acres in Hampton, Georgia. Two major National Association of
Stock Car Auto Racing (NASCAR) Winston Cup events are held annually, one in
March and one in November. Additionally, a Busch Grand National race and two
Automobile Racing Club of America (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 over-looking 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).
CMS owns and operates a 1.5-mile quad-oval, asphalt speedway located in
Concord, North Carolina. CMS stages three major NASCAR Winston Cup events
annually, two in May and one in October. Additionally, two Busch Grand National
and two ARCA races are held annually, each preceding a Winston Cup event. In
1997, CMS hosted an International Race of Champions (IROC) race and an Indy
Racing League (IRL) racing event. All of these events are sanctioned by NASCAR,
IROC, IRL or ARCA. The Charlotte facility also includes a 2.25-mile road course,
a one-quarter mile asphalt oval track, a
10
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one-fifth mile asphalt oval track and a one-fifth mile dirt oval track, all of
which hold race events throughout the year. In addition, CMS has constructed 52
condominiums overlooking the main speedway, all of which have been sold.
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.
SPR, located on approximately 800 acres in Sonoma, California, owns and
operates a 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 Notes 6 and 9).
TMS, located on 950 acres in Fort Worth, Texas, is a 1.5-mile, lighted,
banked, asphalt quad-oval superspeedway. TMS construction was substantially
complete at March 31, 1997 with TMS hosting its first major NASCAR Winston Cup
race on April 6, 1997 preceded by a Busch Grand National race (see Note 5). In
June 1997, TMS also hosted a NASCAR-sanctioned Craftsman Truck Series event, an
IRL racing event, and two music concerts. 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, 70 of
which have been contracted for sale.
600 Racing, Inc., a wholly-owned subsidiary of CMS, developed, operates and
is the official sanctioning body of the Legends Circuit. 600 Racing also
manufactures and sells 5/8-scale cars (Legends Cars) modeled after older- style
coupes and sedans. In 1997, 600 Racing released a new line of smaller- scale
cars (the Bandolero). Revenue is principally derived from the sale of vehicles
and vehicle parts.
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. (NCMS) in 1995
(see Note 11). 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.
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.
11
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3. CAPITAL STRUCTURE, PUBLIC OFFERING OF COMMON STOCK AND PER SHARE DATA
INCREASE IN AUTHORIZED SHARES OF COMMON STOCK - On April 29, 1997, the
Company's Board of Directors and stockholders approved an increase in the
authorized common stock of SMI from 100,000,000 to 200,000,000 shares.
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.
PUBLIC OFFERING 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. Net proceeds after offering expenses were
$78,354,000.
PER SHARE DATA - For the three and six month periods ended June 30, 1997,
per share amounts reflect the 42,080,000 and 42,093,000 weighted average shares
outstanding, including 774,000 and 788,000 common share equivalents arising from
stock options, during each respective period. For the three and six month
periods ended June 30, 1996, per share amounts reflect the 42,106,000 and
40,490,000 weighted average shares outstanding, including 874,000 common share
equivalents arising from stock options, during each respective period.
Fully diluted earnings per share reflect the potential conversion of the
subordinated convertible debentures offered in October 1996 (see Note 6) as if
fully converted on January 1, 1996, and the related interest expense on such
debt not recorded in 1997 or 1996.
4. INVENTORIES
Inventories as of December 31, 1996 and June 30, 1997 consisted of the
following components (dollars in thousands):
December 31, June 30,
1996 1997
Souvenirs.......................................... $ 2,359 $ 3,952
Finished vehicles, parts and accessories........... 3,753 4,099
Food and other.................................... 106 155
--------- -------
Total $ 6,218 $ 8,206
========= =======
5. PROPERTY AND EQUIPMENT - 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.
CONSTRUCTION IN PROGRESS - At June 30, 1997, the Company has various
construction projects underway to increase and improve grandstand seating
capacity, suites, facilities for fan amenities, and make various other site
improvements at AMS, BMS, CMS and SPR. In addition, AMS is converting its
speedway to a quad-oval configuration and changing the start-finish line
location in conjunction with the other improvements.
12
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The estimated aggregate cost of capital expenditures in 1997, inclusive of
TMS, will approximate $148,000,000.
6. LONG-TERM DEBT
BANK CREDIT FACILITY (SEE NOTE 12) - 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. At June 30, 1997, the Company has a total of $100 million in outstanding
borrowings under the Credit Facility. As further described in Note 12, this
Credit Facility was replaced and retired on August 4, 1997. The Credit Facility
was previously scheduled to mature in 1999.
CONVERTIBLE SUBORDINATED DEBENTURES - In October 1996, the Company issued 5
3/4% convertible subordinated debentures in the aggregate principal amount of
$74 million. 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 payments are due semi-annually on March 31
and September 30. 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 with 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 $13.45 million 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 June 30,
1997 is approximately $7,700,000. 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),
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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 the 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, financial
condition or cash flows.
8. RELATED PARTY TRANSACTIONS
Notes receivable at June 30, 1997 and December 31, 1996 include a note
receivable of $722,000 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 June 30, 1998, the balance has been classified as a noncurrent
asset in the accompanying consolidated balance sheets.
Notes receivable also include a note receivable from the Company's Chairman
and Chief Executive Officer for $1,720,000 at June 30, 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 June
30, 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
statements 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
14
<PAGE>
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
June 30,
1996 1997
----------- ---------
Total revenues.............................. $46,506,000 $104,141,000
Net income ................................. 14,065,000 29,517,000
Net income per share........................ $0.33 $0.70
(PRO FORMA)
Six Months Ended
June 30,
1996 1997
----------- ---------
Total revenues.............................. $58,370,000 $119,594,000
Net income ................................. 13,952,000 29,254,000
Net income per share........................ $0.34 $0.69
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 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 options 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.
11. COMMITMENT
NORTH CAROLINA MOTOR SPEEDWAY - The Company submitted a merger proposal in
April 1997 to the Board of Directors of North Carolina Motor Speedway, Inc.
(NCMS). The merger proposal contemplates the purchase of all outstanding NCMS
capital stock for an aggregate of approximately $72 million in cash or SMI
common stock at the election of each NCMS stockholder. On July 7, 1997, the
Company's merger proposal was recommended by a Special Committee of the NCMS
board of directors for approval by the NCMS board. On August 5, 1997, the NCMS
Board of Directors, however, rejected the Company's proposal. Subsequently,
Bruton Smith, the Company's Chairman and Chief Executive Officers, filed a civil
complaint against the directors of NCMS in his individual capacity as a NCMS
shareholder (see Note 2) alleging, among other things, breach of director
duties.
15
<PAGE>
12. SUBSEQUENT EVENTS
SENIOR SUBORDINATED NOTES - On August 4, 1997, the Company completed a
private placement of 8 1/2% senior subordinated notes (the Senior Notes) in the
aggregate principal amount of $125,000,000. The Senior Notes are unsecured,
mature in August 2007, and are redeemable at the Company's option after August
15, 2002. Interest payments are due semi-annually on February 15 and August 15
commencing February 15, 1998. The Senior Notes are subordinated to all present
and future senior secured indebtedness of the Company, including the 1997 Credit
Facility described below, and are guaranteed by the Company's existing and
future subsidiaries other than Oil- Chem. Redemption prices in fiscal year
periods ending August 15 are 104.25% in 2002, 102.83% in 2003, 101.42% in 2004
and 100% in 2005 and thereafter. The Company intends to file a registration
statement to register these notes during the third quarter of 1997. Net proceeds
after commissions and discounts were $121,548,000 which will be used to retire
and repay then outstanding borrowings under the Credit Facility (see Note 6),
fund construction costs and for working capital needs of the Company.
The Indenture governing the Senior Notes contains certain specified
restrictive and required financial covenants. The Company has agreed not to
pledge its assets to any third party except under certain limited circumstances.
The Company also has agreed to certain other limitations or prohibitions
concerning the incurrence of other indebtedness, capital stock, guaranties,
asset sales, investments, cash dividends to shareholders, distributions and
redemptions. The Senior Notes and 1997 Credit Facility agreements contain cross
default provisions.
BANK CREDIT FACILITY REPLACEMENT - On August 4, 1997, the Company obtained
from NationsBank a long-term, unsecured, senior revolving credit facility (the
1997 Credit Facility) with an overall borrowing limit of $175,000,000 and a
sub-limit of $10,000,000 for standby letters of credit. The 1997 Credit Facility
agreement replaces the former Credit Facility (see Note 6), which was repaid and
retired with proceeds from the Senior Notes.
Interest will be based, at the Company's option, upon (i) LIBOR plus .5% to
1.125% or (ii) the greater of NationsBank's prime rate or the Federal fund rate
plus .5%. The margin applicable to LIBOR borrowings will be adjusted
periodically based upon certain ratios of funded debt to earnings before
interest, taxes, depreciation and amortization (EBITDA). The 1997 Credit
Facility will mature in August 2002 and is guaranteed by the Company's
subsidiaries. Although the 1997 Credit Facility is unsecured, the Company has
agreed not to pledge its assets to any third party. In addition, among other
items, the Company must meet certain financial covenants, including specified
levels of net worth and ratios of (i) debt to capitalization, (ii) debt to
EBITDA, and (iii) earnings before interest and taxes (EBIT) to interest expense.
The 1997 Credit Facility also contains certain limitations on cash expenditures
to acquire additional motor speedways without the consent of the lenders, and
limits the Company's consolidated capital expenditures to amounts not to exceed
$125 million annually and $300 million in the aggregate over the loan term. The
Company also agreed to certain other limitations or prohibitions concerning the
incurrence of other indebtedness, transactions with affiliates, guaranties,
asset sales, investments, cash dividends to shareholders, distributions and
redemptions.
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 each of its speedway facilities, from
the sale of food, beverages and souvenirs 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 operations.
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 completed 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
The Company derived a substantial portion of its 1996 total revenues from
17
<PAGE>
admissions and event-related revenue attributable to twelve major NASCAR-
sanctioned races which are held in March, May, August, October and November. In
1997, the Company is hosting fifteen major NASCAR-sanctioned races, including a
major racing event at each of 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 and six months ended June 30, 1997
and 1996 are not indicative of the results that may be expected for the entire
year because of the seasonality discussed above.
Set forth below is certain comparative summary information with respect to
the Company's scheduled major NASCAR-sanctioned racing events for 1997 and 1996:
NUMBER OF SCHEDULED MAJOR
NASCAR-SANCTIONED EVENTS
1997 1996
1st Quarter....................... 2 2
2nd Quarter....................... 8 5
3rd Quarter....................... 2 2
4th Quarter....................... 3 3
-- --
Total........................... 15 12
== ==
CHANGES IN RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
Total Revenues. Total revenues for the three months ended June 30, 1997
increased by $63.3 million, or 155.1%, to $104.1 million, over such revenues for
the same year earlier period. This improvement was due to increases in all
revenue items, particularly admissions and event related revenues.
Admissions for the three months ended June 30, 1997 increased by $28.7
million or 127.1%, over admissions for the same year earlier period. This
increase was due primarily to hosting major NASCAR Winston Cup series racing
events at each of the Company's new speedways, TMS and SPR, to hosting a
NASCAR Craftsman Truck Series and an IRL racing event at TMS, and to growth
in NASCAR sanctioned racing events held at BMS and CMS during the current
quarter. The growth in admissions reflects the continued increases in
attendance, additions to permanent seating capacity and, to a lesser extent,
ticket prices.
Event related revenue for the three months ended June 30, 1997 increased
by $34.0 million, or 235.1%, over such revenue for the same year earlier
period. The increase was due primarily to hosting major NASCAR Winston Cup
series racing events at the Company's new speedways, TMS and SPR, to hosting
NASCAR Craftsman Truck Series and IRL racing events at TMS, and to the
growth in attendance, including related increases in concessions and
souvenir sales, at BMS and CMS.
18
<PAGE>
Other operating revenue for the three months ended June 30, 1997 increased
by $680,000, or 17.9%, over such revenue for the same year earlier period.
This increase was primarily attributable to operating revenues derived from
rental revenues of SPR, which was acquired in November 1996, and to an
increase in Legend Car revenues.
Direct Expense of Events. Direct expense of events for the three months
ended June 30, 1997 increased by $23.8 million, or 207.9%, over such expense for
the same year earlier period. This increase was due primarily to hosting major
NASCAR Winston Cup series racing events at TMS and SPR, to hosting NASCAR
Craftsman Truck Series and IRL racing events at TMS, to higher operating costs
associated with the growth in attendance and seating capacity at BMS and CMS,
and to increases in the size of race purses required for NASCAR sanctioned
racing events held during the current quarter. As a percentage of admissions and
event related revenues combined, direct expense of events for the three months
ended June 30, 1997 was 35.3% compared to 30.9% for the same year earlier
period. Such increase, which was expected, results primarily from
proportionately higher operating expenses associated with TMS's inaugural race
weekend, and at SPR, relative to operating margins historically achieved at the
Company's other speedways.
Other Direct Operating Expense. Other direct operating expense for the three
months ended June 30, 1997 increased by $355,000, or 14.6%, over such expense
for the same year earlier period. The increase occurred primarily due to the
expenses associated with the increase in other operating revenues derived from
SPR and Legend Cars.
General and Administrative. As a percentage of total revenues, general and
administrative expense decreased from 11.2% for the three months ended June 30,
1996 to 8.4% for the three months ended June 30, 1997. This improvement reflects
continuing scale efficiencies associated with revenue increases outpacing
increases in general and administrative expenses. General and administrative
expense for the three months ended June 30, 1997 increased by $4.1 million, or
89.5%, over such expense for the same year earlier period. The increase was due
primarily to general and administrative expenses incurred during the three
months ended June 30, 1997 by SPR, acquired in November 1996, and at TMS.
Depreciation and Amortization. Depreciation and amortization expense for the
three months ended June 30, 1997 increased by $2.4 million or 116.5%, over such
expense for the same year earlier period. This increase was due to property and
equipment of TMS placed into service upon hosting of its first racing event in
April 1997, 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 acquisition of SPR.
Preoperating Expense Of New Facility. Preoperating expenses for the three
months ended June 30, 1997 of $1.85 million consist of non-recurring and non-
event related costs to develop, organize and open TMS.
Operating Income. Operating income for the three month period ended June 30,
1997 increased by $30.9 million, or 152.0%, over such income for the same year
earlier period. This increase was due to the factors discussed above.
Interest Income (Expense), Net. Interest expense, net for the three months
ended June 30, 1997 was $877,000, compared to interest income, net for the
19
<PAGE>
three months ended June 30, 1996 of $686,000. This change was due to higher
average borrowings for construction funding and lower levels of cash invested in
the three months ended June 30, 1997 as compared to the same year earlier
period. The change was also due to capitalizing interest costs of $1.4 million
in the three months ended June 30, 1997 compared to $546,000 in the three months
ended June 30, 1996.
Other Income (Expense). Other expense for the three months ended June 30,
1997 was $179,000, compared to other income of $971,000 for the same year
earlier period. This change was due to fewer gains recognized on sales of
marketable equity securities during the three months ended June 30, 1997
compared to the same year earlier period. In addition, the decrease reflects
recognition of the Company's loss in equity method investee of $105,000 in the
three months ended June 30, 1997 compared to equity income of $299,000 in the
three months ended June 30, 1996. The decrease also reflects the expensing of
unamortized debt issuance costs of $242,000 in connection with replacing the
bank Credit Facility.
Income Tax Provision. The Company's effective income tax rate for the three
months ended June 30, 1997 and 1996 was 41% and 40%, respectively.
Net Income. Net income for the three months ended June 30, 1997 increased by
$16.2 million, or 122.0%, compared to the three months ended June 30, 1996. This
increase was due to the factors discussed above.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Total Revenues. Total revenues for the six months ended June 30, 1997
increased by $66.4 million, or 125.0%, to $119.6 million, over such revenues for
the same year earlier period. This improvement was due to increases in all
revenue items, particularly admissions and event related revenues.
Admissions for the six months ended June 30, 1997 increased by $29.1
million, or 106.7%, over admissions for the same year earlier period. This
increase was due primarily to hosting major NASCAR Winston Cup series racing
events at each of the Company's new speedways, TMS and SPR, to hosting a
NASCAR Craftsman Truck Series and an IRL racing event at TMS, and to growth
in NASCAR sanctioned racing events held at AMS, BMS, and CMS during the
current period. The growth in admissions reflects the continued increases in
attendance, additions to permanent seating capacity and, to a lesser extent,
ticket prices.
Event related revenue for the six months ended June 30, 1997 increased by
$36.1 million, or 189.5%, over such revenue for the same year earlier
period. The increase was due primarily to hosting major NASCAR Winston Cup
series racing events at the Company's new speedways, TMS and SPR, to hosting
a NASCAR Craftsman Truck Series and an IRL racing event at TMS, to the
growth in attendance, including related increases in concessions and
souvenir sales, and to increases in broadcast rights and sponsorship fees.
Other operating revenue for the six months ended June 30, 1997 increased
by $1.2 million, or 18.0%, over such revenue for the same year earlier
period. This increase was primarily attributable to operating revenues
derived from Oil-Chem, and to rental revenues from SPR, which were acquired
in April and November 1996, respectively, and to an increase in Legend Car
revenues.
20
<PAGE>
Direct Expense of Events. Direct expense of events for the six months ended
June 30, 1997 increased by $24.8 million, or 163.6%, over such expense for the
same year earlier period. This increase was due primarily to hosting major
NASCAR Winston Cup series racing events at TMS and SPR, to hosting NASCAR
Craftsman Truck Series and IRL racing events at TMS, to higher operating costs
associated with the growth in attendance and seating capacity at BMS and CMS,
and to increases in the size of race purses required for NASCAR sanctioned
racing events held during the current period. As a percentage of admissions and
event related revenues combined, direct expense of events for the six months
ended June 30, 1997 was 35.8% compared to 32.7% for the same year earlier
period. Such increase, which was expected, results primarily from
proportionately higher operating expenses associated with TMS's inaugural race
weekend, and at SPR, relative to operating margins historically achieved at the
Company's other speedways.
Other Direct Operating Expense. Other direct operating expense for the six
months ended June 30, 1997 increased by $517,000, or 11.9%, over such expense
for the same year earlier period. The increase occurred primarily due to the
expenses associated with the increase in other operating revenues derived from
SPR, Oil-Chem and Legend Cars.
General and Administrative. As a percentage of total revenues, general and
administrative expense decreased from 16.2% for the six months ended June 30,
1996 to 13.2% for the six months ended June 30, 1997. This improvement reflects
continuing scale efficiencies associated with revenue increases outpacing
increases in general and administrative expenses. General and administrative
expense for the six months ended June 30, 1997 increased by $7.2 million, or
83.2%, over such expense for the same year earlier period. The increase was due
primarily to general and administrative expenses incurred during the six months
ended June 30, 1997 by Oil-Chem and SPR, acquired in April 1996 and November
1996, respectively, and at TMS.
Depreciation and Amortization. Depreciation and amortization expense for the
six months ended June 30, 1997 increased by $3.3 million, or 87.5%, over such
expense for the same year earlier period. This increase was due to property and
equipment of TMS placed into service upon hosting of its first racing event in
April 1997, 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.
Preoperating Expense Of New Facility. Preoperating expenses for the six
months ended June 30, 1997 of $1.85 million consist of non-recurring and non-
event related costs to develop, organize and open TMS.
Operating Income. Operating income for the six month period ended June 30,
1997 increased by $28.8 million, or 135.6%, over such income for the same year
earlier period. This increase was due to the factors discussed above.
Interest Income (Expense), Net. Interest expense, net for the six months
ended June 30, 1997 was $382,000, compared to interest income, net for the six
months ended June 30, 1996 of $449,000. This change was due to higher average
borrowings for construction funding and lower levels of cash invested during the
six months ended June 30, 1997 as compared to the same year earlier period. The
change also reflects the capitalizing of $3.5 million in interest costs incurred
during the six months ended June 30, 1997 on TMS and other construction projects
compared to $546,000 for the same year earlier
21
<PAGE>
period.
Other Income. Other income for the six months ended June 30, 1997 decreased
by $944,000 over such income for the same year earlier period. This decrease was
primarily due to fewer gains recognized on sales of marketable equity securities
during the six months ended June 30, 1997 compared to the same year earlier
period. In addition, the decrease reflects recognition of the Company's loss in
equity method investee of $210,000 in the six months ended June 30, 1997
compared to equity income of $185,000 for the same year earlier period. The
decrease also reflects the expensing of unamortized debt issuance costs of
$242,000 in connection with replacing the bank Credit Facility.
Income Tax Provision. The Company's effective income tax rate for the six
months ended June 30, 1997 and 1996 was 41% and 40%, respectively.
Net Income. Net income for the six months ended June 30, 1997 increased by
$15.6 million, or 113.8%, compared to the six months ended June 30, 1996.
This increase 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. The Company has
expended significant amounts of cash in 1996 and in the first half of 1997 for
the construction of TMS, the acquisitions of BMS and SPR, and the improvement
and expansion of AMS, BMS, and CMS. The Company's financial condition and
liquidity changed during the six months ended June 30, 1997 principally due to
(1) net cash generated by operations for the six months ended June 30, 1997
amounting to $45.1 million; (2) the Company increasing its net long-term
borrowings under the Credit Facility by $78 million during the first and second
quarters; and (3) the use of such funds for capital expenditures during the
first and second quarters amounting to $105.0 million.
Company management anticipates that cash from operations and funds available
through the 1997 Credit Facility and from the issuance of $125 million in senior
subordinated notes, will sustain the Company's operating needs, including
planned capital expenditures at its speedway facilities into 1998. 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,
could 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
22
<PAGE>
permissibility under the 1997 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 58 new suites, add
approximately 22,000 permanent 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 31 net new suites, add approximately 39,000
permanent seats, and make other site improvements. In 1997, at CMS, the Company
expects to complete 26 new suites, add approximately 25,000 permanent seats, and
make other site improvements. In 1997, at SPR, the Company expects to complete
parking, road improvements, and grading to improve spectator sight lines, and to
increase and improve seating and amenity facilities for spectators and members
of the media. TMS has approximately 150,000 permanent seats and 194 suites. In
1997, after adding more than 236,000 seats, including the opening of TMS,
permanent seating capacity at all of the Company's speedways will exceed
520,000.
The estimated aggregate cost of capital expenditures in 1997, inclusive of
TMS, will approximate $148 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.
23
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders held on April 29, 1997, H. A.
Wheeler and Edwin R. Clark were elected directors by the stockholders.
Directors whose terms of office continued after the meeting were O. Bruton
Smith, William R. Brooks, Mark M. Gambill 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 an amendment to the Certificate of Incorporation of the Company to
increase the authorized common stock of the Company to 200,000,000 shares.
Following is a summary of the voting:
Votes
Votes For Against Abstained Unvoted
Election of H. A. Wheeler.. 37,359,895 0 2,306 3,942,254
Election of Edwin R. Clark. 37,359,895 0 2,306 3,942,254
Ratification of Deloitte
& Touche LLP as independent
auditors of the Company ... 37,358,256 2,367 1,578 3,942,254
Approval of Amendment to
the Certificate of Incorp-
oration of the Company .... 36,068,098 1,290,335 3,768 3,942,254
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27. Financial data schedule for the six month period ended June 30, 1997.
(b) The following was reported on Form 8-K during the fiscal quarter covered
by this Form 10-Q:
(i) Form 8-K dated June 27, 1997, reporting a Press Release that announces
a proposed private offering of $125 million of senior subordinated notes.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPEEDWAY MOTORSPORTS, INC.
(REGISTRANT)
Date: August 12, 1997 By: /s/ O. Bruton Smith
--------------- -----------------------
O. Bruton Smith
Chairman and Chief Executive Officer
Date: August 12, 1997 By: /s/ William R. Brooks
--------------- -------------------------
William R. Brooks
Vice President, Chief Financial
Officer, Treasurer and Director
25
<PAGE>
INDEX TO EXHIBITS TO
QUARTERLY REPORT ON FORM 10-Q FOR
SPEEDWAY MOTORSPORTS, INC.
FOR THE QUARTER ENDED JUNE 30, 1997
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
27 Financial data schedule for the six month
period ended June 30, 1997.
26
<PAGE>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SPEEDWAY MOTORSPORTS, INC. FOR THE SIX MONTHS ENDED JUNE
30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE ON SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 37,114
<SECURITIES> 2,152
<RECEIVABLES> 29,103
<ALLOWANCES> 0
<INVENTORY> 8,206
<CURRENT-ASSETS> 81,102
<PP&E> 386,797
<DEPRECIATION> 56,358
<TOTAL-ASSETS> 528,617
<CURRENT-LIABILITIES> 67,303
<BONDS> 0
0
0
<COMMON> 413
<OTHER-SE> 233,601
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<CGS> 4,850
<TOTAL-COSTS> 69,504
<OTHER-EXPENSES> (22)
<LOSS-PROVISION> 0
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<INCOME-PRETAX> 49,730
<INCOME-TAX> 20,476
<INCOME-CONTINUING> 29,254
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<CHANGES> 0
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<EPS-PRIMARY> .69
<EPS-DILUTED> .67
</TABLE>
