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, 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 August 12, 1999, there were 41,597,482 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 17
ITEM 3. Quantitative and Qualitative Disclosures About 24
Market Risk
PART II - OTHER INFORMATION
ITEM 2. Changes in Securities and Use of Proceeds 25
ITEM 4. Submission of Matters to a Vote of Security Holders 25
ITEM 6. Exhibits and Reports on Form 8-K 25
SIGNATURES 28
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS.
SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
June 30, December 31,
1999 1998
-------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ......................... $ 35,750 $ 35,399
Restricted cash ................................... 605 258
Accounts and notes receivable ..................... 26,742 28,924
Prepaid income taxes .............................. -- 10,356
Inventories ....................................... 12,002 10,447
Speedway condominiums held for sale ............... 5,533 4,930
Prepaid expenses .................................. 3,993 2,026
-------- --------
Total Current Assets ............................ 84,625 92,340
-------- --------
PROPERTY AND EQUIPMENT, NET ........................ 771,397 730,686
GOODWILL AND OTHER INTANGIBLE ASSETS, NET .......... 57,979 56,903
OTHER ASSETS:
Marketable equity securities ...................... 2,013 1,439
Notes receivable .................................. 12,610 11,420
Other assets ...................................... 14,207 12,089
-------- --------
Total Other Assets .............................. 28,830 24,948
-------- --------
TOTAL ........................................... $942,831 $904,877
======== ========
See notes to consolidated financial statements.
3
<PAGE>
SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
June 30, December 31,
1999 1998
---- ----
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt ............. $ 557 $ 539
Accounts payable ................................. 12,659 6,592
Deferred race event income, net .................. 50,892 84,713
Accrued income taxes.............................. 14,429 --
Accrued interest ................................. 7,261 5,108
Accrued expenses and other liabilities............ 11,940 9,664
-------- --------
97,738 106,616
Revolving credit facility and acquisition loan ... -- 254,050
-------- --------
Total Current Liabilities ..................... 97,738 360,666
LONG-TERM DEBT .................................... 458,786 199,335
PAYABLE TO AFFILIATES ............................. 3,992 4,134
DEFERRED INCOME, NET .............................. 15,751 16,252
DEFERRED INCOME TAXES ............................. 35,329 35,208
OTHER LIABILITIES ................................. 3,083 2,162
-------- --------
Total Liabilities ............................. 614,679 617,757
-------- --------
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 - 41,568,000
in 1999 and 41,502,000 in 1998 .................. 416 415
Additional paid-in capital ....................... 158,644 157,216
Retained earnings ................................ 169,317 129,897
Accumulated other comprehensive loss - unrealized
loss on marketable equity securities ............ (225) (408)
-------- --------
Total Stockholders' Equity .................... 328,152 287,120
-------- --------
TOTAL ......................................... $942,831 $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
June 30,
1999 1998
-------- ---------
REVENUES:
Admissions ................................... $ 63,051 $ 55,708
Event related revenue ........................ 69,377 57,314
Other operating revenue ...................... 7,626 4,717
-------- --------
Total Revenues ............................ 140,054 117,739
-------- --------
OPERATING EXPENSES:
Direct expense of events ..................... 46,558 40,810
Other direct operating expense ............... 5,683 3,038
General and administrative ................... 11,518 8,771
Depreciation and amortization ................ 7,140 4,981
-------- --------
Total Operating Expenses .................. 70,899 57,600
-------- --------
OPERATING INCOME .............................. 69,155 60,139
Interest expense, net ......................... (6,325) (2,864)
Acquisition loan cost amortization ............ (1,135) --
Other income, net ............................. 121 393
-------- --------
INCOME BEFORE INCOME TAXES .................... 61,816 57,668
Income tax provision........................... 24,404 23,054
-------- --------
NET INCOME .................................... $ 37,412 $ 34,614
======== ========
PER SHARE DATA:
Basic earnings per share .................... $ 0.90 $ 0.83
======== ========
Weighted average shares outstanding ........ 41,549 41,487
Diluted earnings per share .................. $ 0.84 $ 0.79
======== ========
Weighted average shares outstanding ........ 44,993 44,657
See notes to consolidated financial statements.
5
<PAGE>
SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
(Unaudited)
Six Months Ended
June 30,
1999 1998
-------- ---------
REVENUES:
Admissions ................................... $ 82,877 $ 61,396
Event related revenue ........................ 97,333 65,783
Other operating revenue ...................... 12,948 8,520
-------- --------
Total Revenues ............................ 193,158 135,699
-------- --------
OPERATING EXPENSES:
Direct expense of events ..................... 66,327 46,763
Other direct operating expense ............... 9,210 5,260
General and administrative ................... 22,318 16,945
Depreciation and amortization ................ 14,259 9,739
-------- --------
Total Operating Expenses .................. 112,114 78,707
-------- --------
OPERATING INCOME .............................. 81,044 56,992
Interest expense, net ......................... (12,652) (5,612)
Acquisition loan cost amortization ............ (3,398) --
Other income, net ............................. 295 1,437
-------- --------
INCOME BEFORE INCOME TAXES .................... 65,289 52,817
Income tax provision........................... 25,869 21,126
-------- --------
NET INCOME..................................... $ 39,420 $ 31,691
======== ========
PER SHARE DATA:
Basic earnings per share .................... $ 0.95 $ 0.76
======== ========
Weighted average shares outstanding ........ 41,528 41,474
Diluted earnings per share .................. $ 0.90 $ 0.73
======== ========
Weighted average shares outstanding ........ 44,932 44,635
See notes to consolidated financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands)
(Unaudited)
Accumulated Total
Additional Other Stock-
Common Stock Paid-In Retained Comprehensive holders'
Shares Amount Capital Earnings Loss Equity
------ ------ ------- -------- ---- ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE - JANUARY 1, 1999 .............. 41,502 $415 $157,216 $129,897 $(408) $287,120
Net income.............................. -- -- -- 39,420 -- 39,420
Exercise of stock options .............. 50 1 1,018 -- -- 1,019
Issuances of stock under employee
stock purchase plan ................... 16 -- 410 -- -- 410
Net unrealized gain on marketable
equity securities ..................... -- -- -- -- 183 183
------ ---- -------- -------- ----- --------
BALANCE - JUNE 30, 1999.. .............. 41,568 $416 $158,644 $169,317 $(225) $328,152
====== ==== ======== ======== ===== ========
</TABLE>
See notes to consolidated financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
-----------------
June 30,
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income ............................................. $ 39,420 $ 31,691
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ....................... 14,259 9,739
Gain on sale of marketable equity securities and
investments ........................................ (25) (150)
Amortization of acquisition loan costs .............. 3,398 --
Amortization of deferred income ..................... (748) (432)
Changes in operating assets and liabilities:
Restricted cash ................................... (347) 1,549
Accounts receivable ............................... (34) (3,991)
Prepaid and accrued income taxes .................. 24,785 19,681
Inventories ....................................... (1,663) (1,196)
Condominiums held for sale ........................ (603) 15,054
Accounts payable .................................. 6,067 (10,659)
Deferred race event income ........................ (33,821) (8,088)
Accrued expenses and other liabilities ............ 4,429 2,012
Deferred income ................................... 247 2,099
Other assets and liabilities ...................... (613) (3,534)
--------- ---------
Net cash provided by operating activities ....... 54,751 53,775
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt ................... (124,315) (18,413)
Issuance of long-term debt ............................. 128,750 35,000
Payments of debt issuance costs ........................ (6,235) --
Issuance of stock under employee stock purchase plan ... 410 136
Exercise of common stock options ....................... 1,019 389
--------- ---------
Net cash provided (used) by financing activities (371) 17,112
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................................... (54,069) (59,635)
Purchases of marketable equity securities and other
investments ........................................... (716) (100)
Proceeds from sales of marketable equity securities
and other investments ................................. 532 692
Increase in notes and other receivables ................ (1,936) (7,883)
Repayment of notes and other receivables ............... 2,160 --
--------- ---------
Net cash used by investing activities ........... (54,029) (66,926)
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS ............... 351 3,961
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ........ 35,399 28,148
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .............. $ 35,750 $ 32,109
========= =========
</TABLE>
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 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 (LMSC), 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.
A major NASCAR sanctioned racing event occurred at BMS on the weekends of
April 9-11, 1999 and March 27-29, 1998. A major NASCAR sanctioned racing event
occurred at TMS on the weekends of March 26-28, 1999 and April 3-5, 1998. Also,
a major NASCAR sanctioned racing event occurred at SPR on the weekends of June
26-27, 1999 and June 27-28, 1998. Accordingly, the revenues and direct expenses
of these race events are recognized in the second quarter of both calendar
years, and the reporting periods are comparable.
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 six months
ended June 30, 1998.
SPEEDWAY CONDOMINIUMS HELD FOR SALE - The Company has constructed 46
condominiums at AMS and 76 condominiums at TMS, of which 42 and 67,
respectively, have been sold or contracted for sale as of June 30, 1999.
Speedway condominiums held for sale represent 4 condominiums at AMS and 9
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 $225,000 and $408,000, net of $151,000 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
June 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 June 30, 1999 and December 31, 1998
consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---- ----
<S> <C> <C>
TMS Preferred Seat License fee deposits, net............. $12,138 $12,624
Deferred gain on TMS condominium sales................... 2,957 2,817
Deferred LMSC Speedway Club membership income and other.. 656 811
------- -------
Total.................................................. $15,751 $16,252
======= =======
</TABLE>
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 June 30, 1999 and
December 31, 1998. Amortization income recognized in the three months ended June
30, 1999 and 1998 was $533,000 and $238,000, and in the six months ended June
30, 1999 and 1998 was $595,000 and $364,000.
Certain condominium sales contracts, aggregating approximately $17,600,000
as of June 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 June 30, 1999 and December 31, 1998 consist of the
following components (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------- --------
<S> <C> <C>
Souvenirs and apparel................................... $ 6,571 $ 5,023
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Finished vehicles, parts and accessories................ 3,918 4,409
Oil additives, food and other........................... 1,513 1,015
------- -------
Total................................................ $12,002 $10,447
======= =======
</TABLE>
4. PROPERTY AND EQUIPMENT
CONSTRUCTION IN PROGRESS - As of June 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. For example, BMS is reconstructing
and expanding its dragstrip with permanent grandstand seating, luxury suites,
and extensive fan amenities and facilities. Construction was substantially
completed before the hosting of BMS's inaugural NHRA-sanctioned Winston Showdown
in July 1999.
As of June 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. Also, construction of an
office and entertainment complex overlooking TMS, similar to The Smith Tower and
Speedway Club at LMSC, 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 as described below. At December 31, 1998, the Company had
$254,050,000 in outstanding borrowings under the Acquisition Loan. Interest was
based, at the Company's option, upon (i) LIBOR plus 1.125% or (ii) the greater
of NationsBank's prime rate or the Federal funds rate plus .5%.
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 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 offering, and for working capital and general corporate
purposes. See Note 5 to the December 31, 1998 Consolidated Financial Statements
for discussion of
12
<PAGE>
the terms and conditions of the former credit facility.
At June 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 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 the same Indenture. 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 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 Indenture 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.
13
<PAGE>
INTEREST EXPENSE - Interest expense, net for the three months ended June
30, 1999 and 1998 includes interest expense of $6,969,000 and $3,419,000, and
interest income of $644,000 and $555,000. The Company capitalized interest costs
of $1,466,000 and $742,000 during the three months ended June 30, 1999 and 1998.
Interest expense, net for the six months ended June 30, 1999 and 1998
includes interest expense of $14,006,000 and $6,827,000, and interest income of
$1,354,000 and $1,215,000. The Company capitalized interest costs of $2,409,000
and $1,647,000 during the six months ended June 30, 1999 and 1998. The
weighted-average interest rate on borrowings under bank revolving credit
facilities during the three and six months ended June 30, 1999 was 6.2% and
6.3%, and the three and six months ended June 30, 1998 was 6.3%.
6. PER SHARE DATA
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):
<TABLE>
<CAPTION>
Weighted
Net Average Earnings
THREE MONTHS ENDED: Income Shares Per Share
- ------------------- ------ ------ ---------
June 30, 1999:
<S> <C> <C> <C>
Basic earnings per share................... $37,412 41,549 $0.90
Dilution adjustments:
Common stock equivalents - stock options. -- 1,065
5 3/4% Convertible debentures ........... 524 2,379
------- ------
Diluted earnings per share................. $37,936 44,993 $0.84
======= ======
June 30, 1998:
Basic earnings per share................... $34,614 41,487 $0.83
Dilution adjustments:
Common stock equivalents - stock options. -- 791
5 3/4% Convertible debentures ........... 516 2,379
------- ------
Diluted earnings per share................. $35,130 44,657 $0.79
======= ======
SIX MONTHS ENDED:
June 30, 1999:
Basic earnings per share................... $39,420 41,528 $0.95
Dilution adjustments:
Common stock equivalents - stock options. -- 1,025
5 3/4% Convertible debentures ........... 1,087 2,379
------- ------
Diluted earnings per share................. $40,507 44,932 $0.90
======= ======
June 30, 1998:
Basic earnings per share................... $31,691 41,474 $0.76
Dilution adjustments:
Common stock equivalents - stock options. -- 782
5 3/4% Convertible debentures ........... 1,028 2,379
------- -----
Diluted earnings per share................. $32,719 44,635 $0.73
======= ======
</TABLE>
7. RELATED PARTY TRANSACTIONS
Notes receivable at June 30, 1999 and December 31, 1998 include a note
receivable of $823,000 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
14
<PAGE>
anticipate repayment of the note before June 30, 2000, 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 $1,568,000 at June 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
June 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 $303,000 at June 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 June 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 June 30, 1999 and December 31,
1998 also include $1,400,000 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
LMSC cancelled its May 1, 1999 IRL event after three spectators were killed
and eight others injured when debris from an on-track accident at LMSC entered a
grandstand during the race. The Company continues to investigate this incident.
The Company is offering 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. The lawsuit seeks unspecified compensatory
and punitive damages arising from the incident that resulted in fatal injury to
Dexter Mobley, Sr. SMI has not yet filed an answer to the lawsuit but intends to
defend itself against the
15
<PAGE>
lawsuit's allegations. 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 and for the three months ended June 30, 1999 and 1998 (in
thousands):
<TABLE>
<CAPTION>
June 30
---------------------
1999 1998
--------- ----------
<S> <C> <C>
Current assets........................................... $19,096 $23,272
Noncurrent assets, including investment in and advances
to subsidiaries, net.................................... 817,980 523,062
Total Assets............................................. 837,076 546,334
Current liabilities...................................... 30,219 31,516
Noncurrent liabilities................................. 478,705 238,512
Total Liabilities........................................ 508,924 270,028
Total Stockholders' Equity............................... $328,152 $276,306
Three Months Ended June 30:
---------------------------
1999 1998
-------- ---------
Total revenues........................................... $869 $577
Total expenses........................................... (2,734) (1,385)
Loss from continuing operations.......................... (1,865) (808)
Loss before equity in subsidiaries....................... (1,119) (485)
Net income............................................... $37,412 $34,614
</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 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 Six Months Ended
------------------ ----------------
June 30, 1998 June 30, 1998
------------- -------------
Total revenues.............................. $119,307 $162,205
Net income.................................. 31,372 33,610
Basic earnings per share ................... $0.76 $0.81
Diluted earnings per share ................. $0.71 $0.76
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 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 LMSC and the Texas Speedway Club, dining and
entertainment facilities located at the respective speedways, Legends Car
operations, from Oil-Chem, which produces environmentally friendly motor oil
additives, 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 LMSC, the Texas Speedway Club,
Legends Car, industrial park rental, WMI 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 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 LMSC, the
Texas Speedway Club, Legends Car sales, and industrial park rentals, WMI and
Oil-Chem 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.
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
17
<PAGE>
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 will be 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 dates at the Company's various facilities 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 six months ended June 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 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 six months ended June 30, 1998.
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
TOTAL REVENUES. Total revenues for the three months ended June 30, 1999
increased by $22.3 million, or 19.0%, to $140.1 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 three months ended June 30, 1999 increased
by $7.3 million, or 13.2%, over admissions for the same period in 1998. This
increase was due primarily to growth in NASCAR-sanctioned racing events held at
BMS, LMSC, SPR and TMS during the current quarter. The growth in admissions
reflects the continued increases in attendance and in ticket prices, and
additions to permanent seating capacity.
EVENT RELATED REVENUE. Event related revenue for the three months ended
June 30, 1999 increased by $12.1 million, or 21.0%, over such revenue for the
same period in 1998. This increase was due to increases in sponsorship fees and
broadcast rights, and to the growth in attendance, including related increases
in concessions and souvenir sales.
OTHER OPERATING REVENUE. Other operating revenue for the three months ended
June 30, 1999 increased by $2.9 million, or 61.7%, over such revenue for the
same period
18
<PAGE>
in 1998. This increase was primarily attributable to revenues derived from the
Texas Speedway Club which opened March 26, 1999, WMI and to an increase in
Oil-Chem revenues.
DIRECT EXPENSE OF EVENTS. Direct expense of events for the three months
ended June 30, 1999 increased by $5.7 million, or 14.1%, over such expense for
the same period in 1998. This increase was due to higher race purses and
sanctioning fees required for NASCAR-sanctioned racing events held during the
current quarter, and to increased operating costs associated with the growth in
attendance, including related increases in concessions and souvenir sales.
OTHER DIRECT OPERATING EXPENSE. Other direct operating expense for the
three months ended June 30, 1999 increased by $2.6 million, or 87.1%, over such
expense for the same period in 1998. The increase includes expenses associated
with other operating revenues derived from the Texas Speedway Club, WMI and with
the increase in Oil-Chem revenues.
GENERAL AND ADMINISTRATIVE. General and administrative expense for the
three months ended June 30, 1999 increased by $2.7 million, or 31.3%, over such
expense for the same period in 1998. The increase was primarily attributable to
costs associated with the Company's newly acquired LVMS. The increase also was
due to increases in operating costs associated with the growth and expansion at
the Company's other speedways.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense for
the three months ended June 30, 1999 increased by $2.2 million, or 43.3%, 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.
The increase also was due to additions to property and equipment at the
Company's other speedways.
OPERATING INCOME. Operating income for the three months ended June 30, 1999
increased by $9.0 million, or 15.0%, 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 three months ended
June 30, 1999 was $6.3 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.
ACQUISITION LOAN COST AMORTIZATION. Acquisition loan cost amortization of
$1.1 million for the three months ended June 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 three months ended June 30, 1999
decreased by $272,000 over such income for the same period in 1998. This
decrease results primarily from gains on sales of three TMS condominiums in the
three months ended June 30, 1998. No gains on sales of TMS condominiums were
recognized in the three months ended June 30, 1999.
INCOME TAX PROVISION. The Company's effective income tax rate for the three
months ended June 30, 1999 and 1998 was 40%.
NET INCOME. Net income for the three months ended June 30, 1999 increased
by $2.8 million, or 8.1%, over such income for the same period in 1998. This
increase was due to the factors discussed above.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
TOTAL REVENUES. Total revenues for the six months ended June 30, 1999
increased
19
<PAGE>
by $57.5 million, or 42.3%, to $193.2 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 six months ended June 30, 1999 increased by
$21.5 million, or 35.0%, over admissions for the same period in 1998. This
increase was primarily due to hosting new NASCAR-sanctioned racing events at
LVMS, which was acquired in December 1998. The increase also was due to growth
in NASCAR-sanctioned racing events held during the current period. The growth in
admissions reflects the continued increases in attendance and in ticket prices,
and additions to permanent seating capacity.
EVENT RELATED REVENUE. Event related revenue for the six months ended June
30, 1999 increased by $31.6 million, or 48.0%, over such revenue for the same
period in 1998. This increase was due to hosting NASCAR-sanctioned racing events
at the Company's newly acquired LVMS. The increase also was due to increases in
sponsorship fees and broadcast rights, and to growth in attendance, including
related increases in concessions and souvenir sales.
OTHER OPERATING REVENUE. Other operating revenue for the six months ended
June 30, 1999 increased by $4.4 million, or 52.0%, over such revenue for the
same period in 1998. This increase was primarily attributable to revenues
derived from the Texas Speedway Club opened March 26, 1999, WMI and to an
increase in Oil-Chem revenues.
DIRECT EXPENSE OF EVENTS. Direct expense of events for the six months ended
June 30, 1999 increased by $19.6 million, or 41.8%, over such expense for the
same period in 1998. This increase was due primarily to hosting
NASCAR-sanctioned 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.
OTHER DIRECT OPERATING EXPENSE. Other direct operating expense for the six
months ended June 30, 1999 increased by $3.9 million, or 75.1%, over such
expense for the same period in 1998. The increase includes expenses associated
with other operating revenues derived from the Texas Speedway Club, WMI and with
the increase in Oil-Chem revenues.
GENERAL AND ADMINISTRATIVE. General and administrative expense for the six
months ended June 30, 1999 increased by $5.4 million, or 31.7%, over such
expense for the same period in 1998. The increase was primarily attributable to
costs associated with the Company's newly acquired LVMS. The increase also was
due to increases in operating costs associated with the growth and expansion at
the Company's other speedways.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense for
the six months ended June 30, 1999 increased by $4.5 million, or 46.4%, 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.
The increase also was due to additions to property and equipment at the
Company's other speedways.
OPERATING INCOME. Operating income for the six months ended June 30, 1999
increased by $24.1 million, or 42.2%, 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 six months ended June
30, 1999 was $12.7 million compared to $5.6 million for the same period in 1998.
This increase was due primarily to higher average borrowings outstanding during
the six months ended June 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
20
<PAGE>
million for the six months ended June 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 six months ended June 30, 1999 decreased
by $1.1 million over such income for the same period in 1998. This decrease
results primarily from gains on sales of eleven TMS condominiums in the six
months ended June 30, 1998. No gains on sales of TMS condominiums were
recognized in the six months ended June 30, 1999.
INCOME TAX PROVISION. The Company's effective income tax rate for the six
months ended June 30, 1999 and 1998 was 40%.
NET INCOME. Net income for the six months ended June 30, 1999 increased by
$7.7 million, or 24.4%, 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 quarter of 1999 for improvements and
expansion at its speedway facilities. Significant changes in the Company's
financial condition and liquidity during the six months ended June 30, 1999
resulted primarily from: (1) net cash generated by operations amounting to $54.8
million and (2) capital expenditures amounting to $54.1 million. As of June 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 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 commencing August 15, 1999. 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, 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.
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.
21
<PAGE>
Management anticipates that cash from operations, and funds available
through the 1999 Senior Notes and 1999 Credit Facility, will be sufficient to
meet the Company's operating needs 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 is reconstructing and expanding
its dragstrip with permanent grandstand seating, luxury suites, and extensive
fan amenities and facilities. Construction of the Bristol Dragway was
substantially completed in July 1999. LMSC 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 15,000 permanent seats, expand concessions, restroom and other fan
amenities facilities, and make other site improvements. In 1999 or 2000, 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 $75 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
22
<PAGE>
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, 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
LMSC cancelled its May 1, 1999 IRL event after three spectators were killed
and eight others injured when debris from an on-track accident at LMSC entered a
grandstand during the race. The Company continues to investigate this incident.
The Company is offering 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. The lawsuit seeks unspecified compensatory
and punitive damages arising from the incident that resulted in fatal injury to
Dexter Mobley, Sr. SMI has not yet filed an answer to the lawsuit but intends to
defend itself against the lawsuit's allegations. 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.
23
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of and during the six months ended June 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 June 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 six
months ended June 30, 1999.
24
<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 have 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 are now governed by the 1999 Indenture.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders held on May 5, 1999, William R. Brooks
and Mark M. Gambill were elected directors by the Company's stockholders.
Directors whose terms of office continued after the meeting were O. Bruton
Smith, H.A. Wheeler, William P. Benton, and Edwin R. Clark. In addition to
election of two directors, the stockholders ratified the selection of Deloitte &
Touche LLP as the principal auditors of the Company.
<TABLE>
<CAPTION>
Votes Votes
Votes For Against Abstained Unvoted
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Election of William R. Brooks.... 39,224,169 0 39,910 2,247,544
Election of Mark M. Gambill...... 39,223,269 0 40,810 2,247,544
Ratification of Deloitte & Touche
LLP as principal auditors....... 39,245,160 6,773 12,146 2,247,544
</TABLE>
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
25
<PAGE>
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 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).
*10.1 Naming Rights Agreement dated as of February 9, 1999 by and between
Speedway Motorsports, Inc., Charlotte Motor Speedway, Inc., Lowe's Home
Centers, Inc., Lowe's HIW, Inc., and Sterling Advertising Ltd.
*10.2 Registration Rights Agreement dated as of May 11, 1999 among the
Company, NationsBank Montgomery Securities LLC, First Union Capital
Markets Corp. and JC Bradford & Co., LLC (incorporated by reference to
Exhibit 10.34 to the June 1999 Form S-4).
*10.3 Purchase Agreement dated as of May 4, 1999 among the Company,
NationsBank Montgomery Securities LLC, First Union Capital Markets
Corp. and JC Bradford & Co., LLC (incorporated by reference to Exhibit
10.35 to the June 1999 Form S-4).
*10.4 Credit Agreement dated as of May 28, 1999 (the "Credit Agreement")
among the Company and Speedway Funding Corp., as
26
<PAGE>
borrowers, certain subsidiaries of the Company, as guarantors, and the
lenders named therein, including NationsBank, N.A., as agent for the
lenders and a lender (incorporated by reference to Exhibit 10.36 to the
June 1999 Form S-4).
*10.5 Pledge Agreement dated as of May 28, 1999 among the Company and the
subsidiaries of the Company that are guarantors under the Credit
Agreement, as pledgors, and, NationsBank, N.A., as agent for the
lenders under the Credit Agreement (incorporated by reference to
Exhibit 10.37 to the June 1999 Form S-4).
27.0 Financial data schedule for the six month period ended June 30, 1999.
- --------
* Previously filed
(b) On April 30, 1999, the Company filed a report on Form 8-K dated April
29, 1999, pursuant to Item 5 of such form, announcing the Company's proposed
private placement of approximately $75 million, with the option to increase to
$125 million, of Senior Subordinated Notes due 2007.
On June 3, 1999, the Company filed a report of Form 8-K dated June 2, 1999,
pursuant to Item 5 of such form, announcing that the Company had closed on a
$250 million Senior Secured Revolving Credit Facility with a group of financial
institutions led by Bank of America.
27
<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, 1999 By: /s/ O. Bruton Smith
-------------------- ---------------------------
O. Bruton Smith
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Date: August 12, 1999 By: /s/ William R. Brooks
-------------------- ---------------------------
William R. Brooks
VICE PRESIDENT, CHIEF FINANCIAL
OFFICER, TREASURER AND DIRECTOR
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
28
<PAGE>
INDEX TO EXHIBITS TO
QUARTERLY REPORT ON FORM 10-Q FOR
SPEEDWAY MOTORSPORTS, INC.
FOR THE QUARTER ENDED JUNE 30, 1999
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
27.0 Financial data schedule for the six month period ended June 30, 1999.
29
<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, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 36,355
<SECURITIES> 2,013
<RECEIVABLES> 39,352
<ALLOWANCES> 343
<INVENTORY> 12,002
<CURRENT-ASSETS> 84,625
<PP&E> 771,397
<DEPRECIATION> 94,457
<TOTAL-ASSETS> 942,831
<CURRENT-LIABILITIES> 97,738
<BONDS> 458,786
0
0
<COMMON> 416
<OTHER-SE> 327,736
<TOTAL-LIABILITY-AND-EQUITY> 942,831
<SALES> 12,948
<TOTAL-REVENUES> 193,158
<CGS> 9,210
<TOTAL-COSTS> 112,114
<OTHER-EXPENSES> 3,103
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,652
<INCOME-PRETAX> 65,289
<INCOME-TAX> 25,869
<INCOME-CONTINUING> 39,420
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,420
<EPS-BASIC> 0.95
<EPS-DILUTED> 0.90
</TABLE>
