UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 1-13582
SPEEDWAY MOTORSPORTS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 51-0363307
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
U.S. HIGHWAY 29 NORTH, CONCORD, NORTH CAROLINA 28026
(Address of principal executive offices) (Zip Code)
(704) 455-3239
(Registrant's telephone number, including area code)
----------------------------------
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
As of November 10, 1999, there were 41,619,528 shares of common stock
outstanding.
<PAGE>
INDEX TO FORM 10-Q
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements - Unaudited 3
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 18
ITEM 3. Quantitative and Qualitative Disclosures About 26
Market Risk
PART II - OTHER INFORMATION
ITEM 2. Changes in Securities and Use of Proceeds 27
ITEM 6. Exhibits and Reports on Form 8-K 27
SIGNATURES 29
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS.
SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
September 30, December 31,
1999 1998
------------ -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ......................... $ 26,584 $ 35,399
Restricted cash ................................... 839 258
Accounts and notes receivable ..................... 22,747 28,924
Prepaid income taxes .............................. -- 10,356
Inventories ....................................... 14,450 10,447
Speedway condominiums held for sale ............... 5,228 4,930
Prepaid expenses .................................. 4,864 2,026
-------- --------
Total Current Assets ............................ 74,712 92,340
-------- --------
PROPERTY AND EQUIPMENT, NET ........................ 776,851 730,686
GOODWILL AND OTHER INTANGIBLE ASSETS, NET .......... 58,817 56,903
OTHER ASSETS:
Marketable equity securities ...................... 1,915 1,439
Notes receivable .................................. 15,228 11,420
Other assets ...................................... 13,936 12,089
-------- --------
Total Other Assets .............................. 31,079 24,948
-------- --------
TOTAL ........................................... $941,459 $904,877
======== ========
See notes to consolidated financial statements.
3
<PAGE>
SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
September 30, December 31,
1999 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt ............. $ 117 $ 539
Accounts payable ................................. 9,924 6,592
Deferred race event income, net .................. 67,433 84,713
Accrued income taxes.............................. 8,566 --
Accrued interest ................................. 4,166 5,756
Accrued expenses and other liabilities............ 10,296 9,016
-------- --------
100,502 106,616
Revolving credit facility and acquisition loan ... -- 254,050
-------- --------
Total Current Liabilities ..................... 100,502 360,666
LONG-TERM DEBT .................................... 458,521 199,335
PAYABLE TO AFFILIATES ............................. 4,670 4,134
DEFERRED INCOME, NET .............................. 16,006 16,252
DEFERRED INCOME TAXES ............................. 35,374 35,208
OTHER LIABILITIES ................................. 1,461 2,162
-------- --------
Total Liabilities ............................. 616,534 617,757
-------- --------
COMMITMENTS (Notes 4 and 9)........................
STOCKHOLDERS' EQUITY:
Preferred stock, $.10 par value, shares
authorized - 3,000,000, no shares issued ........ -- --
Common stock, $.01 par value, shares authorized -
200,000,000, issued and outstanding - 41,619,000
in 1999 and 41,502,000 in 1998 .................. 416 415
Additional paid-in capital ....................... 160,129 157,216
Retained earnings ................................ 164,539 129,897
Accumulated other comprehensive loss - unrealized
loss on marketable equity securities ............ (159) (408)
-------- --------
Total Stockholders' Equity .................... 324,925 287,120
-------- --------
TOTAL ......................................... $941,459 $904,877
======== ========
See notes to consolidated financial statements.
4
<PAGE>
SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
(Unaudited)
Three Months Ended
September 30,
1999 1998
-------- ---------
REVENUES:
Admissions ................................... $19,691 $20,761
Event related revenue ........................ 17,461 16,891
Other operating revenue ...................... 11,468 4,096
------- -------
Total Revenues ............................ 48,620 41,748
------- -------
OPERATING EXPENSES:
Direct expense of events ..................... 19,636 19,369
Other direct operating expense ............... 10,955 2,878
General and administrative ................... 11,102 8,541
Depreciation and amortization ................ 7,584 5,108
------- -------
Total Operating Expenses .................. 49,277 35,896
------- -------
OPERATING INCOME (LOSS)........................ (657) 5,852
Interest expense, net ......................... (7,624) (2,871)
Other income, net ............................. 310 189
------- -------
INCOME (LOSS) BEFORE INCOME TAXES ............. (7,971) 3,170
Income tax provision (benefit)................. (3,193) 1,275
------- -------
NET INCOME (LOSS).............................. $(4,778) $ 1,895
======= =======
PER SHARE DATA:
Basic earnings (loss) per share ............. $ (0.11) $ 0.05
======= =======
Weighted average shares outstanding ........ 41,599 41,488
Diluted earnings (loss) per share ........... $ (0.11) $ 0.05
======= =======
Weighted average shares outstanding ........ 45,025 44,527
See notes to consolidated financial statements.
5
<PAGE>
SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
(Unaudited)
Nine Months Ended
September 30,
1999 1998
-------- --------
REVENUES:
Admissions ................................... $102,568 $ 82,157
Event related revenue ........................ 114,794 82,674
Other operating revenue ...................... 24,416 12,616
-------- --------
Total Revenues ............................ 241,778 177,447
-------- --------
OPERATING EXPENSES:
Direct expense of events ..................... 85,963 66,132
Other direct operating expense ............... 20,165 8,138
General and administrative ................... 33,420 25,486
Depreciation and amortization ................ 21,843 14,847
-------- --------
Total Operating Expenses .................. 161,391 114,603
-------- --------
OPERATING INCOME .............................. 80,387 62,844
Interest expense, net ......................... (20,276) (8,483)
Acquisition loan cost amortization ............ (3,398) --
Other income, net ............................. 605 1,626
-------- --------
INCOME BEFORE INCOME TAXES .................... 57,318 55,987
Income tax provision........................... 22,676 22,401
-------- --------
NET INCOME..................................... $ 34,642 $ 33,586
======== ========
PER SHARE DATA:
Basic earnings per share .................... $ 0.83 $ 0.81
======== ========
Weighted average shares outstanding ........ 41,552 41,479
Diluted earnings per share .................. $ 0.81 $ 0.79
======== ========
Weighted average shares outstanding ........ 44,963 44,599
See notes to consolidated financial statements.
6
<PAGE>
SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated Total
Common Stock Additional Other Stock-
------------ Paid-In Retained Comprehensive holders'
Shares Amount Capital Earnings Loss Equity
---------------- ------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE - JANUARY 1, 1999 ....... 41,502 $ 415 $157,216 $129,897 $ (408) $287,120
Net income ...................... -- -- -- 34,642 -- 34,642
Exercise of stock options ....... 60 1 1,447 -- -- 1,448
Issuances of stock under employee
stock purchase plan ............ 57 -- 1,466 -- -- 1,466
Net unrealized gain on marketable
equity securities .............. -- -- -- -- 249 249
-------- -------- -------- -------- -------- --------
BALANCE - SEPTEMBER 30, 1999 .... 41,619 $ 416 $160,129 $164,539 $ (159) $324,925
======== ======== ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
7
<PAGE>
SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
-----------------
September 30,
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................... $ 34,642 $ 33,586
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ..................... 21,843 14,847
Gain on sale of marketable equity securities and
investments ...................................... (119) (150)
Amortization of acquisition loan costs ............ 3,398 --
Amortization of deferred income ................... (954) (693)
Changes in operating assets and liabilities:
Restricted cash ................................. (581) 1,508
Accounts receivable ............................. 3,902 1,496
Prepaid and accrued income taxes ................ 18,922 11,082
Inventories ..................................... (3,611) (1,736)
Condominiums held for sale ...................... (298) 14,600
Accounts payable ................................ 3,332 (10,462)
Deferred race event income ...................... (17,280) (7,357)
Accrued expenses and other liabilities .......... (560) (1,191)
Deferred income ................................. 708 2,372
Other assets and liabilities .................... (2,875) (4,505)
--------- ---------
Net cash provided by operating activities ..... 60,469 53,397
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt ................. (124,800) (18,434)
Issuance of long-term debt ........................... 128,750 35,000
Payments of debt issuance costs ...................... (6,361) --
Issuance of stock under employee stock purchase plan . 1,466 136
Exercise of common stock options ..................... 1,448 389
--------- ---------
Net cash provided by financing activities ..... 503 17,091
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................................. (66,599) (74,716)
Purchases of marketable equity securities and other
investments ......................................... (1,728) (100)
Proceeds from sales of marketable equity securities
and other investments ............................... 875 692
Distribution from equity method investee ............. -- 1,300
Increase in notes and other receivables .............. (4,627) (12,119)
Repayment of notes and other receivables ............. 2,292 9,887
--------- ---------
Net cash used by investing activities ......... (69,787) (75,056)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .. (8,815) (4,568)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ...... 35,399 28,148
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............ $ 26,584 $ 23,580
========= =========
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 by use
of such terms as "estimates", "anticipates", "believes", "approximates",
"expects", "intends", "hopes", or "projected", and variations of such words and
similar expressions. 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, in addition to the other factors noted with such forward-looking
statements, include: general economic conditions in the Company's markets,
including inflation, recession, interest rates and other economic factors;
casualty to or other disruption of the Company's facilities and equipment;
disruption of the Company's relationship with NASCAR and other sanctioning
bodies; promotional success of marketing campaigns; real estate market
conditions; and other factors that generally affect the business of sports and
recreational companies.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. 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 d/b/a Lowe's Motor Speedway at Charlotte (LMS),
Las Vegas Motor Speedway LLC (LVMS), SPR Acquisition Corp. d/b/a Sears Point
Raceway (SPR), Texas Motor Speedway, Inc. (TMS), Speedway Systems LLC d/b/a
Finish Line Events and subsidiaries (FLE), Oil-Chem Research Corp. and
subsidiary (ORC), SoldUSA, Inc., Speedway Funding Corp. and Sonoma Funding Corp.
(collectively, the Company).
See Note 1 to the December 31, 1998 Consolidated Financial Statements for
further description of the Company's business operations, properties and
scheduled events.
LVMS ACQUISITION (see Note 11) - On December 1, 1998, the Company acquired
certain tangible and intangible assets, including the real and personal property
and operations of LVMS, an industrial park and certain adjacent unimproved land
for approximately $215.0 million, consisting principally of net cash outlay of
$210.4 million and assumed associated deferred revenue. The acquisition was
financed with borrowings under the Company's revolving credit facility and
acquisition loan (see Note 5).
NAMING RIGHTS AGREEMENT - In February 1999, the Company entered into a ten
year naming rights agreement whereby Charlotte Motor Speedway has been renamed
Lowe's Motor Speedway (at Charlotte) for gross fees aggregating approximately
$35,000,000 over the agreement term. The agreement specifies, among other
things, that essentially all promotional signage, souvenirs, marketing and other
associated materials, formerly bearing Charlotte Motor Speedway insignia, be
renamed Lowe's Motor Speedway (at Charlotte). Fee revenues, net of associated
expenses, are being recognized ratably over the ten year agreement term
principally as associated NASCAR and other significant racing events are
conducted each year in the second and fourth quarters.
9
<PAGE>
OTHER - 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 is expected to include a speedway located in northwest Illinois. The
agreement grants the Company the option to purchase up to 40% equity ownership
in the facility. The option has not been exercised.
2. SIGNIFICANT ACCOUNTING POLICIES
These unaudited consolidated financial statements should be read in
conjunction with the Company's consolidated financial statements for the fiscal
year ended December 31, 1998 included in its 1998 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.
REVENUE RECOGNITION - The Company recognizes revenues and operating expenses
for all events in the calendar quarter in which conducted except for major
NASCAR racing events which occur on the last weekend of a calendar quarter. When
major NASCAR racing events occur on the last weekend of a calendar quarter, the
race event revenues and operating expenses are recognized in the current or
immediately succeeding calendar quarter that corresponds to the calendar quarter
of the prior year in which the same major NASCAR racing event was conducted. The
Company has adopted this accounting policy to help ensure comparability and
consistency between quarterly financial statements of successive years.
The Indy Racing League and NASCAR-sanctioned Craftsman Truck Series racing
events hosted at TMS in the fourth quarter of 1999 were held in the third
quarter of 1998. In addition, the IRL racing event hosted at LMS in the second
quarter of 1999 was held in the third quarter of 1998. Changes in race schedules
at the Company's speedways from time to time lessen the comparability of
operating results between quarterly financial statements of successive years.
The Busch Grand National series race at AMS, originally scheduled to be held
March 7, 1998, was rescheduled to November 7, 1998 due to poor weather
conditions. Certain advance revenues and direct expenses related to the
rescheduled Busch race were deferred as of March 31, 1998. Rescheduling did not
materially impact revenues and operating expenses as reported for the nine
months ended September 30, 1998.
SPEEDWAY CONDOMINIUMS HELD FOR SALE - The Company has constructed 46
condominiums at AMS and 76 condominiums at TMS, of which 42 and 68,
respectively, have been sold or contracted for sale as of September 30, 1999.
Speedway condominiums held for sale represent 4 condominiums at AMS and 8
condominiums at TMS which are substantially complete and are being marketed.
10
<PAGE>
MARKETABLE EQUITY SECURITIES - The Company's marketable equity securities
are classified as "available for sale" and are not bought and held principally
for the purpose of selling them in the near term. Valuation allowances for
unrealized losses of $159,000 and $408,000, net of $106,000 and $272,000 in tax
benefits, are reflected as a charge to stockholders' equity to reduce the
carrying amount of long-term marketable equity securities to market value as of
September 30, 1999 and December 31, 1998, respectively.
DEFERRED FINANCING COSTS AND ACQUISITION LOAN COST AMORTIZATION - Deferred
financing costs are included in other noncurrent assets and are amortized over
the term of the related debt. Acquisition loan cost amortization results from
financing costs incurred in obtaining an amended credit facility and acquisition
loan to fund the Company's acquisition of LVMS in December 1998 (see Note 5).
Associated deferred financing costs of $4,150,000 were amortized over the loan
term which matured May 28, 1999.
DEFERRED INCOME - Deferred income as of September 30, 1999 and December 31,
1998 consisted of the following (in thousands):
September 30, December 31,
1999 1998
---- ----
TMS Preferred Seat License fee deposits, net.......... $12,083 $12,624
Deferred gain on TMS condominium sales................ 2,957 2,817
Deferred Speedway Club membership income and other.... 966 811
------- -------
Total............................................... $16,006 $16,252
======= =======
Fees received under Preferred Seat License (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 facility upon its opening. After May 31, 1999, license agreements are
transferrable once each year subject to certain terms and conditions. PSL fee
deposits are reported net of expenses of $1,052,000 at September 30, 1999 and
December 31, 1998. Amortization income recognized in the three months ended
September 30, 1999 and 1998 was $129,000 and $125,000, and in the nine months
ended September 30, 1999 and 1998 was $724,000 and $489,000.
Certain condominium sales contracts, aggregating approximately $17,600,000
as of September 30, 1999, provide buyers the right to require the Company to
repurchase real estate within three years from the purchase date. Gain
recognition has been deferred until the buyer's right expires. Management
believes the likelihood of buyers exercising such rights, in amounts that at any
one time or in the aggregate would be significant, is remote.
RECLASSIFICATIONS - Certain prior year accounts were reclassified to
conform with current year presentation.
3. INVENTORIES
Inventories as of September 30, 1999 and December 31, 1998 consist of the
following components (in thousands):
September 30, December 31,
1999 1998
------- -------
Souvenirs and apparel............................. $ 8,280 $ 5,023
Finished vehicles, parts and accessories.......... 4,322 4,409
11
<PAGE>
Oil additives, food and other..................... 1,848 1,015
------- -------
Total.......................................... $14,450 $10,447
======= =======
4. PROPERTY AND EQUIPMENT
CONSTRUCTION IN PROGRESS - As of September 30, 1999, the Company had
various construction projects underway to increase and improve grandstand
seating capacity, luxury suites, facilities for fan amenities, and make various
other site improvements at each of its speedways.
As of September 30, 1999, construction of LVMS's 1.4 million square foot
industrial park was nearing completion and rental operations of completed
building space commenced in the first half of 1999. The industrial park is being
leased under triple net operating leases. Also, construction of an office and
entertainment complex overlooking TMS, similar to The Smith Tower and Speedway
Club at LMS, was nearing completion. TMS derives rental, catering, dining and
dues revenues from the dining-entertainment and health-fitness club complex, The
Texas Motor Speedway Club, which opened March 26, 1999.
5. LONG-TERM DEBT
ACQUISITION LOAN - On November 23, 1998, the Company's former credit
facility was amended and restated in connection with the Company's December 1998
acquisition of LVMS. The amended credit facility and acquisition loan (the
Acquisition Loan) increased the Company's overall borrowing limit from
$175,000,000 to $270,000,000 to fund the LVMS acquisition. The Acquisition Loan
was retired and repaid on May 28, 1999 concurrently with the issuance of senior
subordinated notes and bank credit facility replacement as described below. At
December 31, 1998, the Company had $254,050,000 in outstanding borrowings under
the Acquisition Loan.
While the retirement and repayment did not result in the use of
significant working capital, the outstanding borrowings of $254,050,000 have
been classified as a current liability in the accompanying December 31, 1998
balance sheet in accordance with generally accepted accounting principles.
BANK CREDIT FACILITY REPLACEMENT - On May 28, 1999, the Company obtained a
long-term, secured, senior revolving credit facility with a syndicate of banks
led by NationsBank, N.A. as an agent and lender (the 1999 Credit Facility). The
1999 Credit Facility has an overall borrowing limit of $250,000,000, with a
sub-limit of $10,000,000 for standby letters of credit, matures in May 2004, and
is secured by a pledge of the capital stock and other equity interests of all
material Company subsidiaries. Also, the Company agreed not to pledge its assets
to any third party. The 1999 Credit Facility was used to fully repay and retire
then outstanding borrowings under the Acquisition Loan after reduction for the
application of proceeds from the 1999 Senior Notes offering, and for working
capital and general corporate purposes. See Note 5 to the December 31, 1998
Consolidated Financial Statements for discussion of the terms and conditions of
the former credit facility.
At September 30, 1999, the Company had $130,000,000 in outstanding
borrowings under the 1999 Credit Facility. Interest is 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 Funds rate plus .5%. The margin
12
<PAGE>
applicable to LIBOR borrowings will be adjusted periodically based upon certain
ratios of funded debt to earnings before interest, taxes, depreciation and
amortization (EBITDA). In addition, among other items, the Company is required
to meet certain financial covenants, including specified levels of net worth and
ratios of (i) debt to EBITDA and (ii) earnings before interest and taxes (EBIT)
to interest expense. The 1999 Credit Facility also contains certain limitations
on cash expenditures to acquire additional motor speedways without the consent
of the lenders, and limit the Company's consolidated capital expenditures to
amounts not to exceed $125 million annually and $500 million in the aggregate
over the loan term. The Company also has agreed to certain other limitations or
prohibitions concerning the incurrence of other indebtedness, transactions with
affiliates, guaranties, asset sales, investments, dividends, distributions and
redemptions.
SENIOR SUBORDINATED NOTES - On May 11, 1999, the Company completed a
private placement of 8 1/2% senior subordinated notes (the 1999 Senior Notes) in
the aggregate principal amount of $125,000,000. The Company filed a registration
statement to register these notes in June 1999. Net proceeds, after issuance at
103% of face value, commissions and discounts, approximated $125,737,000 and
were used to repay a portion of the outstanding borrowings under the Acquisition
Loan. In August 1997, the Company issued 8 1/2% senior subordinated notes in the
aggregate principal amount of $125,000,000. The 1999 Senior Notes and those
issued in 1997 (the Senior Notes) are substantially identical and are governed
by substantially similar Indentures. 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. The Senior
Notes are subordinated to all present and future senior secured indebtedness of
the Company. 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 Indentures governing the Senior Notes contain 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 Indentures and 1999 Credit Facility agreements contain
cross-default provisions.
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 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 are issuable (see Note 6).
Semi-annual interest payments are due on March 31 and September 30.
INTEREST EXPENSE - Interest expense, net for the three months ended
September 30, 1999 and 1998 includes interest expense of $8,232,000 and
$3,605,000, and interest income of $608,000 and $734,000. The Company
capitalized interest costs of $745,000 and $771,000 during the three months
ended September 30, 1999 and 1998.
13
<PAGE>
Interest expense, net for the nine months ended September 30, 1999 and 1998
includes interest expense of $22,238,000 and $10,432,000, and interest income of
$1,962,000 and $1,949,000. The Company capitalized interest costs of $3,154,000
and $2,418,000 during the nine months ended September 30, 1999 and 1998. The
weighted-average interest rate on borrowings under bank revolving credit
facilities during the three and nine months ended September 30, 1999 and 1998
was 6.3%.
6. PER SHARE DATA
The computation of diluted loss per share was anti-dilutive for the three
months ended September 30, 1999 and 1998; therefore, reported basic and diluted
per share amounts are the same.
Diluted earnings per share assumes conversion of the convertible debentures
into common stock and elimination of associated interest expense, net of taxes,
on such debt (see Note 5). The following schedule reconciles basic and diluted
earnings per share(dollars and shares in thousands):
Weighted Earnings
Net Income Average (Loss)
THREE MONTHS ENDED: (Loss) Shares Per Share
- ------------------- ------ ------ ---------
September 30, 1999:
Basic loss per share........................ $(4,778) 41,599 $(0.11)
Dilution adjustments:
Common stock equivalents - stock options. -- 1,047
5 3/4% Convertible debentures ........... 584 2,379
------- ------
Diluted loss per share...................... $(4,194) 45,025 $(0.11)
======= ======
September 30, 1998:
Basic earnings per share.................... $1,895 41,488 $0.05
Dilution adjustments:
Common stock equivalents - stock options. -- 660
5 3/4% Convertible debentures ........... 523 2,379
------- ------
Diluted earnings per share.................. $2,418 44,527 $0.05
======= ======
NINE MONTHS ENDED:
September 30, 1999:
Basic earnings per share.................... $34,642 41,552 $0.83
Dilution adjustments:
Common stock equivalents - stock options. -- 1,032
5 3/4% Convertible debentures ........... 1,671 2,379
------- ------
Diluted earnings per share.................. $36,313 44,963 $0.81
======= ======
September 30, 1998:
Basic earnings per share.................... $33,586 41,479 $0.81
Dilution adjustments:
Common stock equivalents - stock options. -- 741
5 3/4% Convertible debentures ........... 1,551 2,379
------- -----
Diluted earnings per share.................. $35,137 44,599 $0.79
======= ======
7. RELATED PARTY TRANSACTIONS
Notes receivable at September 30, 1999 and December 31, 1998 include a note
receivable of $835,000 and $798,000, 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 September 30, 2000, the balance has been classified as a
noncurrent asset in the accompanying consolidated
14
<PAGE>
balance sheets.
Notes receivable also include a note receivable from the Company's Chairman
and Chief Executive Officer for $1,571,000 at September 30, 1999 and $842,000 at
December 31, 1998. 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. Because the Company does not anticipate repayment of the note before
September 30, 2000, the balance has been classified as a noncurrent asset in the
accompanying consolidated balance sheets.
From time to time, the Company paid certain expenses and made cash advances
for various corporate purposes on behalf of Sonic Financial Corp. (Sonic
Financial), an affiliate of the Company through common ownership. The Company
had a net receivable from Sonic Financial for $184,000 at September 30, 1999 and
$1,040,000 at December 31, 1998. The amounts are classified as short-term based
on expected repayment dates.
Amounts payable to affiliates at September 30, 1999 and December 31, 1998
includes $2,592,000 for acquisition and other expenses paid on behalf of AMS by
Sonic Financial prior to 1996. Of this amount, approximately $1,800,000 bears
interest at 3.83% per annum. The remainder of the amount bears interest at 1%
over prime. The entire amount is classified as long-term based on expected
repayment dates. Amounts payable to affiliates at September 30, 1999 and
December 31, 1998 also include $1,329,000 and $1,542,000 owed to a former LVMS
shareholder and executive officer, who is now a LVMS officer and employee, in
equal monthly payments through December 2003 at 6.4% imputed interest.
8. STOCK OPTION PLANS
1994 STOCK OPTION PLAN - In 1999, the Company granted options to
non-executive officer employees to purchase an aggregate of 285,000 shares at an
exercise price per share of $41.13 at award date under the 1994 Stock Option
Plan.
FORMULA STOCK OPTION PLAN - In 1999, the Company granted options to three
outside directors to purchase an aggregate of 55,000 shares at an exercise price
per share of $27.88 at award date under the Formula Stock Option Plan.
9. CONTINGENCIES
LMS cancelled its May 1, 1999 IRL event after three spectators were killed
and eight others injured when debris from an on-track accident at LMS entered a
grandstand during the race. The Company offered refunds to paid ticket holders
for the IRL event through July 31, 1999, and has recovered certain associated
race purse and sanction fees. On May 28, 1999, a wrongful death lawsuit was
filed against the Company, IRL, and certain others by Laurie Ann Mobley Helton,
as administratrix of the Estate of Dexter Barry Mobley, Sr. On August 26, 1999,
wrongful death lawsuits were filed against these same entities by Angela Patton
as administratrix of the Estate of Jeffrey Alan Patton, and Roger Dale Pyatte
and Vickie Jean Pyatte as co-administrators of the Estate of Randy Dale Pyatte.
The lawsuits seek unspecified compensatory and punitive damages arising from the
incident that resulted in fatal injury to Dexter Mobley, Sr., Jeffrey Alan
Patton and
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<PAGE>
Roger Dale Pyatte. SMI has filed answers in all three pending actions and fully
intends to defend itself against the allegations in these lawsuits. It is
possible additional lawsuits may be filed against the Company, although none
have been filed to date. The Company is presently unable to determine whether
this incident will result in additional claims by injured parties or their
representatives or other liabilities that may have a material adverse effect on
the Company.
10. SUMMARIZED PARENT COMPANY ONLY FINANCIAL INFORMATION
The following table presents summarized parent company only financial
information as of September 30, 1999 and December 31, 1998 and for the three and
nine months ended September 30, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, December 31,
1999 1998
---- ----
Current assets........................................... $ 13,263 $ 37,908
Noncurrent assets, including investment in and advances
to subsidiaries, net................................... 811,592 732,404
Total Assets............................................. 824,857 770,312
Current liabilities...................................... 21,332 9,147
Noncurrent liabilities................................... 478,600 474,045
Total Liabilities ....................................... 499,932 483,192
Total Stockholders' Equity............................... $324,925 $287,120
Three Months Ended
September 30:
-------------
1999 1998
---- ----
Total revenues .......................................... $ 747 $ 794
Total expenses........................................... (470) (1,117)
Income (loss) from continuing operations................. 277 (323)
Net income (loss) before equity in subsidiaries.......... 166 (194)
Net income (loss)........................................ $(4,778) $ 1,895
Nine Months Ended
September 30:
-------------
1999 1998
---- ----
Total revenues .......................................... $ 2,452 $ 2,064
Total expenses........................................... (5,939) (3,761)
Loss from continuing operations.......................... (3,487) (1,697)
Net loss before equity in subsidiaries................... (2,092) (1,019)
Net income .............................................. $34,642 $33,586
</TABLE>
11. LAS VEGAS MOTOR SPEEDWAY ACQUISITION
As further described in Note 1, the Company acquired Las Vegas Motor
Speedway on December 1, 1998. The LVMS acquisition was accounted for using the
purchase method in accordance with APB No. 16. The results of operations after
the acquisition date are included in the Company's consolidated statements of
income. The purchase price has been allocated to assets and liabilities acquired
at their estimated fair market values at acquisition date. The Company obtained
an independent appraisal of the LVMS property and equipment acquired, the fair
values of which have been used in the accompanying financial statements. In the
near future, the Company plans to obtain an independent appraisal of the fair
value of other LVMS net assets acquired, including identifiable intangibles, if
any. Accordingly, the purchase price allocation is preliminary. However, based
on current
16
<PAGE>
information, Company management does not expect the final allocation of the
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 LVMS acquisition had occurred as
of January 1, 1998, after giving effect to certain adjustments, including
amortization of goodwill, interest expense on acquisition debt and related
income tax effects. The pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of what would have occurred
had the acquisition been made on that date, nor are they necessarily indicative
of results which may occur in the future.
Pro forma
(in thousands,except
per share amounts)
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, 1998
-------------------------------------
Total revenues......................... $43,505 $205,710
Net income (loss)...................... (1,234) 32,376
Basic earnings (loss) per share ....... ($0.03) $0.78
Diluted earnings (loss) per share ..... ($0.03) $0.76
17
<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 its speedway facilities, from the sale
of food, beverage 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 derives additional revenue
from The Speedway Club at LMS and the Texas Motor Speedway Club, dining and
entertainment facilities located at the respective speedways, Legends Car
operations, from Oil-Chem, which produces environmentally friendly motor oil
additives, from SoldUSA, an internet auction and e-commerce company under
development, and from Wild Man Industries (WMI), a wholly-owned subsidiary of
FLE, that is a screen printing and embroidery manufacturer and distributor of
wholesale and retail apparel.
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 revenue" includes food, beverage and souvenir
sales, luxury suite rentals, sponsorship fees and broadcast right fees. "Other
operating revenue" includes the Speedway Club at LMS, the Texas Motor Speedway
Club, Legends Car, industrial park rental, Oil-Chem, SoldUSA and WMI 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 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 food, beverage
and souvenir sales, compensation of certain employees and advertising. "Other
direct operating expense" includes the cost of the Speedway Club at LMS, the
Texas Motor Speedway Club, Legends Car sales, and industrial park rentals,
Oil-Chem, SoldUSA and WMI revenues.
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 in part on
consistent investment in facilities. The Company has several capital projects
underway at each of its speedways.
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
In 1998, the Company derived a substantial portion of its total revenues
from admissions and event related revenue attributable to 15 major
NASCAR-sanctioned races, four IRL races, three NASCAR Craftsman Truck Series
races and one National Hot Rod Association Nationals racing event. In 1999, the
Company currently will host 17 major NASCAR-sanctioned races, five IRL races,
four NASCAR Craftsman Truck Series and two major National Hot Rod Association
racing events. As a result, the Company's business has been, and is expected to
remain, highly seasonal.
18
<PAGE>
In 1997 and 1998, the Company's second and fourth quarters accounted for
78% and 74%, respectively, of its total annual revenues and 100% and 97%,
respectively, of its total annual operating income. The Company sometimes
produces minimal operating income or losses during its third quarter when it
hosts only one major NASCAR race weekend. In 1999, the Company's operating
results for the first and third quarters were significantly impacted by the
additional scheduled racing events at LVMS. The concentration of racing events
in the second quarter, and the growth in the Company's operations with attendant
increases in overhead expenses, will tend to increase operating losses or
minimize operating income in future first and third quarters.
Also, race schedules at the Company's speedways may be changed from time to
time, lessening the comparability of the financial results of quarters between
years and increasing or decreasing the seasonal nature of the Company's
business.
The results of operations for the three and nine months ended September 30,
1999 and 1998 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 1998 and 1999:
NUMBER OF SCHEDULED MAJOR
NASCAR-SANCTIONED EVENTS
1999 1998
---- ----
1st Quarter....................... 4 1(*)
2nd Quarter....................... 8 8
3rd Quarter....................... 2 2
4th Quarter....................... 3 4(*)
-- --
Total........................... 17 15
== ==
(*) Reflects rescheduling of the Busch Grand National series race at AMS from
March to November 1998 due to poor weather conditions.
RESULTS OF OPERATIONS
The Indy Racing League and NASCAR-sanctioned Craftsman Truck Series racing
events hosted at TMS in the fourth quarter of 1999 were held in the third
quarter of 1998. In addition, the IRL racing event hosted at LMS in the second
quarter of 1999 was held in the third quarter of 1998.
The NASCAR sanctioned Busch Grand National series race at AMS, originally
scheduled to be held March 7, 1998, was rescheduled to November 7, 1998 due to
poor weather conditions. Rescheduling did not materially impact revenues and
operating expenses as reported for the nine months ended September 30, 1998.
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1998
TOTAL REVENUES. Total revenues for the three months ended September 30,
1999 increased by $6.9 million, or 16.5%, to $48.6 million, over such revenues
for the same period in 1998. This improvement was due particularly to increases
in event related and other operating revenues.
ADMISSIONS. Admissions for the three months ended September 30, 1999
decreased by $1.1 million, or 5.2%, from admissions for the same period in 1998.
The decrease resulted primarily from hosting IRL and NASCAR-sanctioned Craftsman
Truck Series racing events at TMS in the fourth quarter of 1999 which were held
in the third quarter of 1998, and an IRL racing event at LMS in the second
quarter of 1999 which was held in the third quarter of 1998. Operating results
are impacted more by the combined events at TMS than LVMS. The decrease is also
due, to a lesser extent, to
19
<PAGE>
lower attendance at the IRL racing event held at AMS in the current quarter.
The overall decrease was offset by continued growth in NASCAR-sanctioned
racing events held at BMS during the current quarter. The growth in admissions
at NASCAR-sanctioned racing events reflects the continued increases in
attendance and in ticket prices. The overall decrease was also offset by hosting
IRL and NASCAR racing events at LVMS, which was acquired in December 1998, and
an inaugural NHRA-sanctioned racing event at BMS, in the current quarter.
EVENT RELATED REVENUE. Event related revenue for the three months ended
September 30, 1999 increased by $570,000, or 3.4%, over such revenue for the
same period in 1998. The increase was due to hosting IRL and NASCAR Craftsman
Truck Series racing events at the Company's newly acquired LVMS and a new NHRA
racing event at BMS. The increase was also due to growth in attendance,
including related increases in concessions and souvenir sales, and to increases
in sponsorship fees and broadcast rights for NASCAR-sanctioned racing events at
BMS.
Those increases were offset by hosting IRL and NASCAR racing events at TMS
in the fourth quarter of 1999 which were held in the third quarter of 1998, and
an IRL racing event at LMS in the second quarter of 1999 which was held in the
third quarter of 1998.
OTHER OPERATING REVENUE. Other operating revenue for the three months ended
September 30, 1999 increased by $7.4 million, or 180.0%, over such revenue for
the same period in 1998. This increase was primarily due to growth in revenues
of Oil-Chem associated with commencement of media and other promotional
campaigns. The increase was also due to revenues derived from the Texas Motor
Speedway Club opened March 26, 1999, and from apparel and other merchandise sold
through outside venues.
DIRECT EXPENSE OF EVENTS. Direct expense of events for the three months
ended September 30, 1999 increased by $267,000, or 1.4%, over such expense for
the same period in 1998. The increase was due to hosting a new NHRA racing event
at BMS, and to IRL and NASCAR Craftsman Truck Series racing events at the
Company's newly acquired LVMS. The increase was also due higher race purses and
sanctioning fees required for NASCAR-sanctioned racing events held at BMS, and
to increased operating costs associated with the growth in attendance, including
related increases in concessions and souvenir sales. Operating expenses
associated with newly acquired speedways or inaugural events are typically
higher than historical events or operations.
Those overall increases were offset by hosting IRL and NASCAR racing events
at TMS in the fourth quarter of 1999 which were held in the third quarter of
1998, and an IRL racing event at LMS in the second quarter of 1999 which was
held in the third quarter of 1998.
As a percentage of admissions and event related revenues combined, direct
expense of events for the three months ended September 30, 1999 was 52.9%
compared to 51.4% for the same period in 1998. Such increase results primarily
from proportionately higher operating expenses associated with hosting IRL and
NHRA racing events relative to operating margins historically achieved with
NASCAR-sanctioned events.
OTHER DIRECT OPERATING EXPENSE. Other direct operating expense for the
three months ended September 30, 1999 increased by $8.1 million, or 280.6%, over
such expense for the same period in 1998. This increase includes expenses
associated with commencement of Oil-Chem's media and other promotional
campaigns. The increase also includes expenses associated with other operating
revenues derived from the Texas Motor Speedway Club, apparel and other
merchandise sold through outside venues, and with the increase in Oil-Chem
revenues.
GENERAL AND ADMINISTRATIVE. General and administrative expense for the
three months ended September 30, 1999 increased by $2.6 million, or 30.0%, over
such expense for the same period in 1998. The increase was primarily
attributable to
20
<PAGE>
costs associated with the Company's newly acquired LVMS, and to increases in
operating costs associated with the growth and expansion at the Company's other
speedways and operations.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense for
the three months ended September 30, 1999 increased by $2.5 million, or 48.5%,
over such expense for the same period in 1998. This increase was primarily due
to property and equipment and intangible assets related to the LVMS acquisition,
and to additions to property and equipment at the Company's other speedways.
OPERATING INCOME (LOSS). Operating loss for the three months ended
September 30, 1999 was $657,000 compared to operating income of $5.9 million for
the same period in 1998. This change occurred because of the factors discussed
above.
INTEREST EXPENSE, NET. Interest expense, net for the three months ended
September 30, 1999 was $7.6 million compared to $2.9 million for the same period
in 1998. This increase was due primarily to higher average borrowings
outstanding during the current quarter as compared to the same period in 1998.
The increase reflects additional borrowings to fund the LVMS acquisition.
OTHER INCOME. Other income for the three months ended September 30, 1999
increased by $121,000 over such income for the same period in 1998. This
increase was due primarily to larger gains recognized on sales of marketable
equity securities in the three months ended September 30, 1999 compared to the
same period in 1998.
INCOME TAX PROVISION (BENEFIT). The Company's effective income tax rate for
the three months ended September 30, 1999 and 1998 was 40%.
NET INCOME (LOSS). Net loss for the three months ended September 30, 1999
was $4.8 million compared to net income of $1.9 million for the same period in
1998. This change occurred because of the factors discussed above.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1998
TOTAL REVENUES. Total revenues for the nine months ended September 30, 1999
increased by $64.3 million, or 36.3%, to $241.8 million, over such revenues for
the same period in 1998. This improvement was due to increases in all revenue
items, particularly admissions and event related revenue.
ADMISSIONS. Admissions for the nine months ended September 30, 1999
increased by $20.4 million, or 24.8%, over admissions for the same period in
1998. This increase was primarily due to hosting NASCAR-sanctioned and IRL
racing events at newly acquired LVMS, and to continued growth in
NASCAR-sanctioned racing events held at the Company's other speedways during the
current period. The growth in admissions reflects the continued increases in
attendance and in ticket prices, and additions to permanent seating capacity.
The increase was also due, to a lesser extent, to hosting a new NHRA racing
event at BMS in the current period. The overall increase was offset by hosting
IRL and NASCAR Craftsman Truck Series racing events at TMS in the fourth quarter
of 1999 which were held in the third quarter of 1998.
EVENT RELATED REVENUE. Event related revenue for the nine months ended
September 30, 1999 increased by $32.1 million, or 38.9%, over such revenue for
the same period in 1998. This increase was primarily due to hosting
NASCAR-sanctioned and IRL racing events at the Company's newly acquired LVMS.
The increase also results from increases in sponsorship fees and broadcast
rights, and to growth in attendance, including related increases in concessions
and souvenir sales, for NASCAR-sanctioned racing events. The overall increase
was offset by hosting IRL and NASCAR Craftsman Truck Series racing events at TMS
in the fourth quarter of 1999 which were held in the third quarter of 1998.
21
<PAGE>
OTHER OPERATING REVENUE. Other operating revenue for the nine months ended
September 30, 1999 increased by $11.8 million, or 93.5%, over such revenue for
the same period in 1998. This increase was due to growth in revenues of Oil-Chem
associated with commencement of media and other promotional campaigns. The
increase was also attributable to revenues derived from the Texas Motor Speedway
Club opened March 26, 1999, and from apparel and other merchandise sold through
outside venues.
DIRECT EXPENSE OF EVENTS. Direct expense of events for the nine months
ended September 30, 1999 increased by $19.8 million, or 30.0%, over such expense
for the same period in 1998. This increase was due primarily to hosting
NASCAR-sanctioned and IRL racing events at the Company's newly acquired LVMS.
The increase also was due to higher race purses and sanctioning fees required
for NASCAR-sanctioned racing events held during the current period, and to
increased operating costs associated with the growth in attendance, including
related increases in concessions and souvenir sales. The increase was also due
to hosting a new NHRA racing event at BMS in the current period. Operating
expenses associated with inaugural events or newly acquired speedways are
typically higher than historical events or operations.
OTHER DIRECT OPERATING EXPENSE. Other direct operating expense for the nine
months ended September 30, 1999 increased by $12.0 million, or 147.8%, over such
expense for the same period in 1998. This increase includes expenses associated
with commencement of Oil-Chem's media and other promotional campaigns. The
increase also includes expenses associated with other operating revenues derived
from the Texas Motor Speedway Club, apparel and other merchandise sold through
outside venues, and with the increase in Oil-Chem revenues.
GENERAL AND ADMINISTRATIVE. General and administrative expense for the nine
months ended September 30, 1999 increased by $7.9 million, or 31.1%, over such
expense for the same period in 1998. The increase was primarily attributable to
costs associated with the Company's newly acquired LVMS, and to increases in
operating costs associated with the growth and expansion at the Company's other
speedways and operations.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense for
the nine months ended September 30, 1999 increased by $7.0 million, or 47.1%,
over such expense for the same period in 1998. This increase was primarily due
to property and equipment and intangible assets related to the LVMS acquisition,
and to additions to property and equipment at the Company's other speedways.
OPERATING INCOME. Operating income for the nine months ended September 30,
1999 increased by $17.5 million, or 27.9%, over such income for the same period
in 1998. This increase was due to the factors discussed above.
INTEREST EXPENSE, NET. Interest expense, net for the nine months ended
September 30, 1999 was $20.3 million compared to $8.5 million for the same
period in 1998. This increase was due primarily to higher average borrowings
outstanding during the nine months ended September 30, 1999 as compared to the
same period in 1998. The increase reflects additional borrowings to fund the
LVMS acquisition.
ACQUISITION LOAN COST AMORTIZATION. Acquisition loan cost amortization of
$3.4 million for the nine months ended September 30, 1999 represents financing
costs incurred in obtaining the Acquisition Loan to fund the LVMS acquisition.
Associated deferred financing costs of $4.1 million were amortized over the loan
term which matured May 28, 1999.
OTHER INCOME. Other income for the nine months ended September 30, 1999
decreased by $1.0 million over such income for the same period in 1998. This
decrease results primarily from gains on sales of thirteen TMS condominiums in
the nine months ended September 30, 1998. The gain on sale of one TMS
condominium was recognized in the nine months ended September 30, 1999.
INCOME TAX PROVISION. The Company's effective income tax rate for the nine
months
22
<PAGE>
ended September 30, 1999 and 1998 was 40%.
NET INCOME. Net income for the nine months ended September 30, 1999
increased by $1.1 million, or 3.1%, over such income for the same period in
1998. This increase was due to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically met its working capital and capital
expenditure requirements through a combination of cash flow from operations,
bank borrowings and other debt and equity offerings. The Company expended
significant amounts of cash in the first nine months of 1999 for improvements
and expansion at its speedway facilities. Significant changes in the Company's
financial condition and liquidity during the nine months ended September 30,
1999 resulted primarily from: (1) net cash generated by operations amounting to
$60.5 million and (2) capital expenditures amounting to $66.6 million. As of
September 30, 1999, the Company had $130.0 million in outstanding borrowings
under the 1999 Credit Facility.
SENIOR SUBORDINATED NOTES - On May 11, 1999, the Company completed a
private placement of 8 1/2% senior subordinated notes in the aggregate principal
amount of $125,000,000 (the 1999 Senior Notes). The 1999 Senior Notes are
unsecured, mature in August 2007, and are redeemable at the Company's option
after August 15, 2002 at varying redemption prices. Interest payments are due
semi-annually on February 15 and August 15. Net proceeds, after issuance at 103%
of face value, commissions and discounts, were approximately $125,737,000 which
were used to repay a portion of the outstanding borrowings under the Acquisition
Loan. The Indenture governing the 1999 Senior Notes contains certain specified
restrictive and required financial covenants.
In August 1997, the Company issued 8 1/2% senior subordinated notes due
2007 (the 1997 Senior Notes) in the aggregate principal of $125,000,000. In July
1999, the 1999 Senior Notes and all but $125,000 in aggregate principal amount
of the 1997 Senior Notes were exchanged, pursuant to the Company's registration
statement, for the Company's registered 8 1/2% senior subordinated notes due
2007 (the Senior Notes) in the aggregate principal amount of $249,875,000. The
Senior Notes are substantially identical to the 1999 Senior Notes and the 1997
Senior Notes. The Senior Notes and the remaining outstanding 1997 Senior Notes
rank equally as to payment and are governed by separate but substantially
similar indentures.
BANK CREDIT FACILITY REPLACEMENT - On May 28, 1999, the Company obtained a
long-term, secured, senior revolving credit facility with a syndicate of banks
led by NationsBank, N.A. as an agent and lender (the 1999 Credit Facility). The
1999 Credit Facility has an overall borrowing limit of $250,000,000, with a
sub-limit of $10,000,000 for standby letters of credit, matures in May 2004, and
is secured by a pledge of the capital stock of all material Company subsidiaries
and of Company interests in limited liability partnerships and corporations.
Also, the Company agreed not to pledge its assets to any third party. The 1999
Credit Facility was used to fully repay and retire then outstanding borrowings
under the Acquisition Loan after reduction for the application of proceeds from
the 1999 Senior Notes, and for working capital and general corporate purposes.
Interest is 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). In addition, among
other items, the 1999 Credit Facility requires the Company to meet certain
financial covenants and contain certain limitations on cash expenditures to
acquire additional motor speedways without the consent of the lenders.
Management anticipates that cash from operations, and funds available
through the 1999 Credit Facility, will be sufficient to meet the Company's
operating needs
23
<PAGE>
through 1999, including planned capital expenditures at its speedway facilities.
Based upon anticipated future growth and financing requirements, 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 generally 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.
CAPITAL EXPENDITURES
Significant growth in the Company's revenues depends, in large part, on
consistent investment in facilities. Therefore, the Company expects to continue
to make substantial capital improvements in its facilities to meet increasing
demand and to increase revenues. Currently, a number of significant capital
projects are underway.
In 1999, AMS plans to continue improving and expanding its on-site roads
and available parking, as well as reconfiguring traffic patterns and entrances,
to ease congestion and improve traffic flow. BMS reconstructed and expanded its
dragstrip with permanent grandstand seating, luxury suites, and extensive fan
amenities and facilities all of which was substantially completed in July 1999.
LMS added approximately 10,000 permanent seats and further expanded concessions,
restroom and other fan amenities facilities, and made other site improvements.
In 1999, LVMS plans to add approximately 10,000 permanent seats, expand
concessions, restroom and other fan amenities facilities, and make other site
improvements. In 2000 or 2001, pending governmental approvals, the Company
expects to begin major renovations at SPR, including its on-going
reconfiguration into a "stadium-style" road racing course, the addition of up to
45,000 permanent seats, and improving and expanding concessions, restroom and
other fan amenities facilities. Construction of the Texas Motor Speedway Club
was substantially completed with its opening in March 1999. In 1999, after
adding approximately 25,000 permanent seats, exclusive of SPR, the Company's
total permanent seating capacity will exceed 690,000 and the total number of
luxury suites will be approximately 659.
The estimated aggregate cost of capital expenditures in 1999 will
approximate $85 million. Numerous factors, many of which are beyond the
Company's control, may influence the ultimate costs and timing of various
capital improvements at the Company's facilities, including undetected soil or
land conditions, additional land acquisition costs, increases in the cost of
construction materials and labor, unforeseen changes in the design, litigation,
accidents or natural disasters affecting the construction site and national or
regional economic changes. In addition, the actual cost could vary materially
from the Company's estimates if the Company's assumptions about the quality of
materials or workmanship required or the cost of financing such construction
were to change. Construction is also subject to state and local permitting
processes, which if changed, could materially affect the ultimate cost.
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
acquisition and construction of new speedway facilities, the expansion and
development of its existing Legends Cars and Oil-Chem products and markets and
the expansion into complementary businesses.
DIVIDENDS
The Company does not anticipate paying any cash dividends on its common
stock in the foreseeable future. The Company intends to retain its earnings to
provide funds for operations, capital expenditures and expansion. Any decision
concerning the payment of dividends on the common stock will depend upon the
results of operations,
24
<PAGE>
financial condition and capital expenditure plans of the Company, as well as
such factors as permissibility under the 1999 Credit Facility and the 1999
Senior Notes, and as the Board of Directors, in its sole discretion, may
consider relevant. The 1999 Credit Facility and the Senior Notes presently
preclude the payment of any dividends by the Company.
YEAR 2000 COMPLIANCE
The ability of automated systems to recognize the date change from December
31, 1999 to January 1, 2000 is commonly referred to as the Year 2000 matter. The
Company has assessed the potential impact of the Year 2000 matter on its
operations based on current and foreseeable computer and other automated system
applications, including those of its significant third party vendors, suppliers
and customers. The nature of the Company's business does not require significant
reliance on automated systems applications except for its ticketing systems,
which are believed to be compliant. For critical systems, contingency plans may
include utilizing alternative processing methods and manual processes, among
others.
Should Year 2000 problems arise, management believes interruption to
Company operations would be limited principally to delays in capital projects
during the first two months of 2000. Also, management is not aware of any
significant potential Year 2000 problems or risks involving third parties based
on the nature of the Company's relationships with third parties such as NASCAR
and other sanctioning bodies, network and cable television companies, major
sponsors, and financial services companies. Management believes that any
potential adverse consequences or risk of financial loss from Year 2000 issues
are substantially mitigated because the Company's first significant racing
event, as presently scheduled, does not occur until March 2000. Although Year
2000 problems could cause temporary minor inconveniences, the Company and third
parties likely would have over two months to resolve any significant Year 2000
matters that might arise.
While no assurances can be given, the Company's assessment has determined
that the potential consequences of Year 2000 problems, if any, would not
materially adversely impact its business, or cause the Company to incur
potential liabilities to third parties if its systems were not Year 2000
compliant. The costs associated with modifying its computer software and other
automated systems for Year 2000 matters has not been, and is not expected to be,
significant. The aggregate incremental costs associated with the Company's Year
2000 compliance are expected to be less than $100,000. In addition, management
is not aware of any Year 2000 issues which would materially adversely affect the
Company's financial condition, liquidity or future results of operations.
MAY 1999 IRL RACE EVENT CANCELLED AFTER ACCIDENT
LMS cancelled its May 1, 1999 IRL event after three spectators were killed
and eight others injured when debris from an on-track accident at LMS entered a
grandstand during the race. The Company offered refunds to paid ticket holders
for the IRL event through July 31, 1999, and has recovered certain associated
race purse and sanction fees. On May 28, 1999, a wrongful death lawsuit was
filed against the Company, IRL, and certain others by Laurie Ann Mobley Helton,
as administratrix of the Estate of Dexter Barry Mobley, Sr. On August 26, 1999,
wrongful death lawsuits were filed against these same entities by Angela Patton
as administratrix of the Estate of Jeffrey Alan Patton, and Roger Dale Pyatte
and Vickie Jean Pyatte as co-administrators of the Estate of Randy Dale Pyatte.
The lawsuits seek unspecified compensatory and punitive damages arising from the
incident that resulted in fatal injury to Dexter Mobley, Sr., Jeffrey Alan
Patton and Roger Dale Pyatte. SMI has filed answers in all three pending actions
and fully intends to defend itself against the allegations in these lawsuits. It
is possible additional lawsuits may be filed against the Company, although none
have been filed to date. The Company is presently unable to determine whether
this incident will result in additional claims by injured parties or their
representatives or other liabilities that may have a material adverse effect on
the Company.
25
<PAGE>
OTHER SIGNIFICANT FACTORS ARISING IN QUARTER ENDED SEPTEMBER 30, 1999
The financial results for three months ended September 30, 1999 and 1998
are not readily comparable because of the acquisition of LVMS in December 1998
and changes in the Company's 1999 racing schedule from last year. The IRL and
NASCAR Craftsman Truck Series racing events hosted at TMS in the fourth quarter
of 1999 were held in the third quarter of 1998. Also, the IRL racing event
hosted at LMS in the second quarter of 1999 was held in the third quarter of
1998. Changes in racing schedules can lessen the comparability of operating
results between quarterly financial statements of successive years.
The operating results for the three months ended September 30, 1999 were
negatively impacted by less than expected attendance and event related revenues
for IRL racing events at AMS and LVMS, less than expected attendance and
increased direct event expenses due to poor weather conditions at BMS's
inaugural NHRA event, continued carrying costs of LVMS's Industrial Park, and
expenses for media and other promotional campaigns of Oil-Chem. Management is
taking corrective actions to lessen the risk of financial exposure from IRL and
NHRA events by renegotiating its agreements with those sanctioning bodies and
restructuring the events to improve their profitability. Management believes the
profitability of LVMS's Industrial Park will improve as the facility continues
to lease up and as area real estate markets develop. In addition, Oil-Chem
expects to commence retail sales of its principal product line in early fiscal
2000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of and during the nine months ended September 30, 1999, borrowings
under bank revolving credit facilities decreased $124.1 million to $130.0
million, and senior subordinated 8 1/2% fixed interest rate debt increased
$128.8 million to $253.4 million. See Note 5 to the accompanying September 30,
1999 financial statements for additional information on the terms and conditions
of the Company's debt obligations. There have been no other significant changes
in the Company's interest rate risk or equity price risk as of and during the
nine months ended September 30, 1999.
26
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS
On July 16, 1999, the Company completed an offer to exchange $250.0 million
in aggregate principal amount of its publicly-registered 8 1/2% Senior
Subordinated Notes, Series D (the Series D Notes) for its outstanding $125.0
million in aggregate principal of publicly-registered 8 1/2% Senior Subordinated
Notes, Series B (the Series B Notes)and its outstanding $125.0 million in
aggregate principal of unregistered 8 1/2% Senior Subordinated Notes, Series C
(the Series C Notes). Holders of $124.9 million of Series B Notes and all
holders of Series C Notes tendered their notes for exchange to Series D Notes.
The Series C Notes and D Notes are governed by an Indenture dated May 11,
1999 (the 1999 Indenture). The terms of the 1999 Indenture are substantially
identical to the Series B Notes Indenture dated August 4, 1997 (the 1997
Indenture). In exchange of Series B Notes for Series D Notes, prior Series B
Notes that were tendered in the exchange offer are now governed by the 1999
Indenture. The remaining $125,000 of Series B Notes remain governed by the 1997
Indenture.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
*3.1 Certificate of Incorporation of the Company (incorporated by reference
to Exhibit 3.1 to the Registration Statement on Form S-1 (File No.
33-87740) of the Company (the "Form S-1")).
*3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the
Form S-1).
*3.3 Amendment to Certificate of Incorporation of the Company (incorporated
by reference to Exhibit 3.3 to the Registration Statement on Form S-3
(File No. 333-13431) of the Company (the "November 1996 Form S-3")).
*3.4 Amendment to Certificate of Incorporation of the Company (incorporated
by reference to Exhibit 3.4 to the Registration Statement of Form S-4
(File No. 333-35091) of the Company (the "September 1997 Form S-4")).
*4.1 Form of Stock Certificate (incorporated by reference to Exhibit 4.1 of
the Form S-1).
*4.2 Indenture dated as of September 1, 1996 between the Company and First
Union National Bank of North Carolina, as Trustee (the "First Union
Indenture") (incorporated by reference to Exhibit 4.1 to the November
1996 Form S-3).
*4.3 Form of 5 3/4% Convertible Subordinated Debenture due 2003 (included in
the First Union Indenture).
*4.4 Indenture dated as of August 4, 1997 between the Company and First
Trust National Association, as Trustee (the "First Trust Indenture")
(incorporated by reference to Exhibit 4.1 to the September 1997 Form
S-4).
*4.5 Form of 8 1/2% Senior Subordinated Notes due 2007 (included in
27
<PAGE>
the First Trust Indenture).
*4.6 First Supplemental Indenture to the First Trust Indenture, dated as of
April 1, 1999 (incorporated by reference to Exhibit 4.6 to the
Registration Statement on Form S-3 (File No. 333-80021) of the Company
(the "June 1999 Form S-4").
*4.7 Second Supplemental Indenture to the First Trust Indenture, dated as of
June 1, 1999 (incorporated by reference to Exhibit 4.7 to the June 1999
Form S-4).
*4.8 Indenture dated as of May 11, 1999 between the Company, the Guarantors
named therein and US Bank Trust National Association, as Trustee (the
"US Bank Trust Indenture") (incorporated by reference to Exhibit 4.8 to
the June 1999 Form S-4).
*4.9 Form of 8 1/2% Senior Subordinated Notes Due 2007 (included in the US
Bank Trust Indenture).
*4.10 First Supplemental Indenture to the US Bank Trust Indenture, dated as
of June 1, 1999 (incorporated by reference to Exhibit 4.10 to the June
1999 Form S-4).
27.0 Financial data schedule for the nine month period ended September 30,
1999.
(b) No reports were filed on Form 8-K during the fiscal quarter covered by
this Form 10-Q.
28
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPEEDWAY MOTORSPORTS, INC.
(REGISTRANT)
Date: November 10, 1999 By: /s/ O. Bruton Smith
-------------------- ---------------------------
O. Bruton Smith
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Date: November 10, 1999 By: /s/ William R. Brooks
-------------------- ---------------------------
William R. Brooks
VICE PRESIDENT, CHIEF FINANCIAL
OFFICER, TREASURER AND DIRECTOR
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
29
<PAGE>
INDEX TO EXHIBITS TO
QUARTERLY REPORT ON FORM 10-Q FOR
SPEEDWAY MOTORSPORTS, INC.
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
27.0 Financial data schedule for the nine month period ended September 30,
1999.
30
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Speedway Motorsports, Inc. for the nine months ended
September 30, 1999 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000934648
<NAME> SPEEDWAY MOTORSPORTS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 27,423
<SECURITIES> 1,915
<RECEIVABLES> 37,975
<ALLOWANCES> 314
<INVENTORY> 14,450
<CURRENT-ASSETS> 74,712
<PP&E> 776,851
<DEPRECIATION> 101,626
<TOTAL-ASSETS> 941,459
<CURRENT-LIABILITIES> 100,502
<BONDS> 458,521
0
0
<COMMON> 416
<OTHER-SE> 324,509
<TOTAL-LIABILITY-AND-EQUITY> 941,459
<SALES> 24,416
<TOTAL-REVENUES> 241,778
<CGS> 20,165
<TOTAL-COSTS> 161,391
<OTHER-EXPENSES> (605)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,276
<INCOME-PRETAX> 57,318
<INCOME-TAX> 22,676
<INCOME-CONTINUING> 34,642
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,642
<EPS-BASIC> 0.83
<EPS-DILUTED> 0.81
</TABLE>
