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, 2000
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 14, 2000, there were 41,674,372 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 1. Legal Proceedings 25
ITEM 6. Exhibits and Reports on Form 8-K 25
SIGNATURES 26
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,
2000 1999
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ......................... $ 24,748 $ 56,270
Restricted cash ................................... 326 278
Accounts and notes receivable ..................... 25,698 28,695
Prepaid income taxes .............................. -- 4,137
Inventories ....................................... 18,675 15,287
Prepaid expenses .................................. 4,575 3,900
-------- --------
Total Current Assets ............................ 74,022 108,567
-------- --------
Property Held For Sale ............................. -- 53,254
Property and Equipment, Net ........................ 785,440 741,580
Goodwill and Other Intangible Assets, Net .......... 59,580 58,987
Other Assets:
Speedway condominiums held for sale ............... 4,726 5,359
Marketable equity securities ...................... 1,029 1,181
Notes receivable .................................. 31,144 13,018
Other assets ...................................... 13,237 14,036
-------- --------
Total Other Assets .............................. 50,136 33,594
-------- --------
TOTAL ........................................... $969,178 $995,982
======== ========
See notes to consolidated financial statements.
3
<PAGE>
SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
September 30, December 31,
2000 1999
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt ............. $ 159 $ 160
Accounts payable ................................. 10,311 17,771
Deferred race event income, net .................. 62,388 93,349
Accrued income taxes ............................. 17,743 --
Accrued interest ................................. 3,239 10,897
Accrued expenses and other liabilities............ 11,239 9,805
-------- --------
Total Current Liabilities ..................... 105,079 131,982
Long-Term Debt .................................... 418,039 458,400
Payable to Affiliates ............................. 4,014 4,320
Deferred Income, Net .............................. 14,254 15,262
Deferred Income Taxes ............................. 51,630 51,680
Other Liabilities ................................. 2,420 2,630
-------- --------
Total Liabilities ............................. 595,436 664,274
-------- --------
Commitments and Contingencies (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 - 41,674,000
in 2000 and 41,647,000 in 1999................... 417 416
Additional paid-in capital ....................... 160,558 160,225
Retained earnings ................................ 213,115 171,340
Accumulated other comprehensive loss - unrealized
loss on marketable equity securities ............ (348) (273)
-------- --------
Total Stockholders' Equity .................... 373,742 331,708
-------- --------
TOTAL ......................................... $969,178 $995,982
======== ========
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,
2000 1999
-------- --------
REVENUES:
Admissions ................................... $ 20,677 $19,691
Event related revenue ........................ 19,572 17,461
Other operating revenue ...................... 11,479 11,468
-------- -------
Total Revenues ............................ 51,728 48,620
-------- -------
OPERATING EXPENSES:
Direct expense of events ..................... 18,158 19,636
Other direct operating expense ............... 10,102 10,955
General and administrative ................... 13,210 11,102
Depreciation and amortization ................ 7,996 7,584
-------- -------
Total Operating Expenses .................. 49,466 49,277
-------- -------
OPERATING INCOME (LOSS)........................ 2,262 (657)
Interest Expense, Net ......................... (7,120) (7,624)
Concession Contract Rights Resolution.......... (3,137) --
Other Income, Net ............................. 405 310
-------- -------
LOSS BEFORE INCOME TAXES ...................... (7,590) (7,971)
Income Tax Benefit............................. (3,024) (3,193)
-------- -------
NET LOSS....................................... $ (4,566) $(4,778)
======== =======
PER SHARE DATA:
Basic Loss Per Share ........................ $ (0.11) $ (0.11)
======== =======
Weighted Average Shares Outstanding ........ 41,668 41,599
Diluted Loss Per Share ...................... $ (0.11) $ (0.11)
======== =======
Weighted Average Shares Outstanding ........ 44,725 45,025
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,
2000 1999
-------- --------
REVENUES:
Admissions ................................... $112,477 $102,568
Event related revenue ........................ 130,068 114,794
Other operating revenue ...................... 36,261 24,416
-------- --------
Total Revenues ............................ 278,806 241,778
-------- --------
OPERATING EXPENSES:
Direct expense of events ..................... 92,075 85,963
Other direct operating expense ............... 31,074 20,165
General and administrative ................... 39,463 33,420
Depreciation and amortization ................ 23,616 21,843
-------- --------
Total Operating Expenses .................. 186,228 161,391
-------- --------
OPERATING INCOME .............................. 92,578 80,387
Interest Expense, Net ......................... (20,371) (20,276)
Concession Contract Rights Resolution.......... (3,137) --
Acquisition Loan Cost Amortization............. -- (3,398)
Other Income, Net ............................. 829 605
-------- --------
INCOME BEFORE INCOME TAXES .................... 69,899 57,318
Income Tax Provision .......................... 28,124 22,676
-------- --------
NET INCOME .................................... $ 41,775 $ 34,642
======== ========
PER SHARE DATA:
Basic Earnings Per Share .................... $ 1.00 $ 0.83
======== ========
Weighted Average Shares Outstanding ........ 41,657 41,552
Diluted Earnings Per Share .................. $ 0.97 $ 0.81
======== ========
Weighted Average Shares Outstanding ........ 44,767 44,963
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>
BALANCE - JANUARY 1, 2000 .............. 41,647 $416 $160,225 $171,340 $(273) $331,708
Net income.............................. -- -- -- 41,775 -- 41,775
Exercise of stock options .............. 16 1 106 -- -- 107
Issuance of stock under employee stock
purchase plan ......................... 11 -- 227 -- -- 227
Net unrealized loss on marketable
equity securities ..................... -- -- -- -- (75) (75)
------ ---- -------- -------- ------ --------
BALANCE - SEPTEMBER 30, 2000 ........... 41,674 $417 $160,558 $213,115 $(348) $373,742
====== ==== ======== ======== ===== ========
</TABLE>
See notes to consolidated financial statements.
7
<PAGE>
SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
September 30,
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................... $ 41,775 $ 34,642
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ....................... 23,616 21,843
Amortization of acquisition loan costs............... -- 3,398
Amortization of deferred income...................... (866) (954)
Changes in operating assets and liabilities:
Restricted cash.................................... (48) (581)
Accounts receivable................................ 2,675 3,902
Prepaid and accrued income taxes................... 21,880 18,922
Inventories ....................................... (3,388) (3,611)
Condominiums held for sale......................... 633 (298)
Accounts payable................................... (7,460) 3,332
Deferred race event income......................... (30,961) (17,280)
Accrued expenses and other liabilities............. (6,224) (560)
Deferred income.................................... (142) 708
Other assets and liabilities....................... (496) (2,994)
-------- --------
Net Cash Provided By Operating Activities ........ 40,994 60,469
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt.................. (40,090) (124,800)
Issuance of long-term debt............................ -- 128,750
Payment of debt issuance costs........................ -- (6,361)
Issuance of stock under employee stock purchase plan.. 227 1,466
Exercise of common stock options...................... 107 1,448
-------- --------
Net Cash Provided (Used) By Financing Activities.. (39,756) 503
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................. (65,920) (66,599)
Proceeds from sale of property held for sale.......... 40,000 --
Purchases of marketable equity securities and other
investments.......................................... (2,311) (1,728)
Proceeds from sales of marketable equity securities
and other investments................................ 21 875
Increase in notes and other receivables............... (5,757) (4,627)
Repayment of notes and other receivables.............. 1,207 2,292
-------- --------
Net Cash Used By Investing Activities............. (32,760) (69,787)
-------- --------
Net Decrease In Cash and Cash Equivalents.............. (31,522) (8,815)
Cash and Cash Equivalents At Beginning Of Period....... 56,270 35,399
-------- --------
Cash and Cash Equivalents At End Of Period............. $ 24,748 $ 26,584
======== ========
SUPPLEMENTAL INFORMATION OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Increase in notes receivable for sale of property
held for sale - LVMS Industrial Park................ $ 13,254 $ --
======== ========
</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 "forward-looking" statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Words such as "expects", "anticipates",
"approximates", "believes", "estimates", "intends", and "hopes", and variations
of such words and similar expressions are intended to identify such
forward-looking statements. 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 result in such
differences, in addition to other factors noted with such forward-looking
statements, include those discussed in Exhibit 99.1 to the Company's 1999 Annual
Report on Form 10-K.
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 a/k/a Lowe's Motor Speedway at Charlotte (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. (ORC),
Speedway Media LLC d/b/a Racing Country USA (RCU), SoldUSA, Inc., and Speedway
Funding Corp. (collectively, the Company).
See Note 1 to the December 31, 1999 Consolidated Financial Statements for
further description of the Company's business operations, properties and
scheduled events.
Current Year Acquisition - In January 2000, the Company acquired certain
tangible and intangible assets and operations of Racing Country USA, a
nationally-syndicated radio show, for $2,000,000 in cash. The acquisition was
accounted for using the purchase method, and the results of operations after
acquisition are included in the Company's consolidated statements of income.
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, 1999 included in its 1999 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 nature of the Company's motorsports business.
9
<PAGE>
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.
LVMS hosted an Indy Racing Northern Light Series racing event in the second
quarter of 2000 which, along with a NASCAR Craftsman Truck Series racing event,
was held in the third quarter of 1999. 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.
Speedway Condominiums Held for Sale - The Company has constructed 46
condominiums at AMS and 76 condominiums at TMS, of which 43 and 69,
respectively, have been sold or contracted for sale as of September 30, 2000.
Speedway condominiums held for sale represent 3 condominiums at AMS and 7
condominiums at TMS which are substantially complete and are being marketed.
Concession Contract Rights Resolution - In November 1996, the Company
acquired certain tangible and intangible assets and the operations of Sears
Point Raceway. At that time, a third party enjoyed the contract rights to
provide event food, beverage and souvenir merchandising services at SPR whose
original contract expired in 2004. Since 1998, the Company's subsidiary Finish
Line Events (FLE) has provided such services. In September 2000, the Company
reacquired such contract rights for approximately $3.1 million, including legal
and other transaction costs. Because fair value was not readily ascertainable
until reaching final agreement in September 2000, the contract rights were not
reflected in SPR's original purchase price allocation nor recorded until their
value was established. Management anticipates the present value of estimated net
future benefits under the contract rights will exceed its costs. Notwithstanding
this expected future benefit, their cost has been reflected as a current period
expense because acquisition was beyond Accounting Principles Board Opinion No.
16's one year allocation period.
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 resulted from
financing costs incurred in obtaining an amended credit facility and acquisition
loan to fund the Company's acquisition of LVMS in December 1998. Associated
deferred financing costs of $4,050,000 were amortized over the loan term which
matured May 28, 1999.
10
<PAGE>
3. INVENTORIES
Inventories as of September 30, 2000 and December 31, 1999 consisted of the
following components (in thousands):
September 30, December 31,
2000 1999
-------- --------
Souvenirs and apparel.................................. $10,940 $ 8,490
Finished vehicles, parts and accessories............... 4,895 4,310
Oil additives, food and other.......................... 2,840 2,487
------- -------
Total............................................... $18,675 $15,287
======= =======
4. PROPERTY AND EQUIPMENT AND PROPERTY HELD FOR SALE
Construction In Progress - At September 30, 2000, the Company had various
construction projects underway to increase and improve facilities for fan
amenities and make various other site improvements at each of its speedways. The
estimated aggregate cost of capital expenditures in each of 2000 and 2001 will
approximate $90,000,000.
Property Held For Sale - In January 2000, the Company sold the 1.4 million
square-foot Las Vegas Industrial Park and 280 acres of undeveloped land to Las
Vegas Industrial Park, LLC, an entity owned by the Company's Chairman and Chief
Executive Officer, for approximately $53.3 million (see Note 7). The Company
acquired the industrial park then under construction and land in connection with
its acquisition of LVMS in December 1998. Construction was completed and rental
operations commenced in 1999. The sales price was based on an independent
appraisal and approximates the Company's net carrying value as of December 31,
1999 and selling costs.
5. LONG-TERM DEBT
Bank Credit Facility -- The Company has a long-term, secured, senior
revolving credit facility with a syndicate of banks led by Bank of America, N.A.
as an agent and lender (the Credit Facility). The 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.
Interest is based, at the Company's option, upon (i) LIBOR plus .5% to 1.25% or
(ii) the greater of Bank of America's prime rate or the Federal Funds rate plus
.5%. At September 30, 2000 and December 31, 1999, the Company had $90,000,000
and $130,000,000, respectively, in outstanding borrowings under the Credit
Facility.
Senior Subordinated Notes - At September 30, 2000 and December 31, 1999,
the Company had outstanding 8 1/2% senior subordinated notes in the aggregate
principal amount of $250,000,000 (the Senior Notes). The Senior Notes are
unsecured, mature in August 2007, and are redeemable at the Company's option
after August 15, 2002. Semi-annual interest payments are due February 15 and
August 15.
Convertible Subordinated Debentures - At September 30, 2000 and December
31, 1999, the Company had outstanding 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 March 31 and
September 30.
See Note 5 to the December 31, 1999 Consolidated Financial Statements for
additional discussion of the terms and conditions of the bank credit facility,
senior subordinated notes and convertible subordinated debentures.
11
<PAGE>
Interest Expense - Interest expense, net for the three months ended
September 30, 2000 and 1999 includes interest expense of $8,044,000 and
$8,232,000, and interest income of $924,000 and $608,000. The Company
capitalized interest costs of $648,000 and $745,000 during the three months
ended September 30, 2000 and 1999. The weighted-average interest rate on
borrowings under the bank revolving credit facility during the three months
ended September 30, 2000 and 1999 was 7.8% and 6.3%.
Interest expense, net for the nine months ended September 30, 2000 and 1999
includes interest expense of $23,358,000 and $22,238,000, and interest income of
$2,987,000 and $1,962,000. The Company capitalized interest costs of $2,445,000
and $3,154,000 during the nine months ended September 30, 2000 and 1999. The
weighted-average interest rate on borrowings under bank revolving credit
facilities during the nine months ended September 30, 2000 and 1999 was 7.5% and
6.3%.
6. PER SHARE DATA
The computation of diluted loss per share was anti-dilutive for the three
months ended September 30, 2000 and 1999; 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):
<TABLE>
<CAPTION>
Weighted Earnings
Net Income Average (Loss)
Three Months Ended: (Loss) Shares Per Share
------------------- ------ ------ ---------
<S> <C> <C> <C>
September 30, 2000:
Basic loss per share....................... $(4,566) 41,668 $(0.11)
Dilution adjustments:
Common stock equivalents - stock options. -- 678
5 3/4% Convertible debentures ........... 598 2,379
------- ------
Diluted loss per share..................... $(3,968) 44,725 $(0.11)
======= ======
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)
======= ======
Nine Months Ended:
------------------
September 30, 2000:
Basic earnings per share................... $41,775 41,657 $1.00
Dilution adjustments:
Common stock equivalents - stock options. -- 731
5 3/4% Convertible debentures ........... 1,737 2,379
------- ------
Diluted earnings per share................. $43,512 44,767 $0.97
======= ======
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
======= ======
</TABLE>
12
<PAGE>
7. RELATED PARTY TRANSACTIONS
Notes receivable at September 30, 2000 and December 31, 1999 include a note
receivable of $886,000 and $848,000, 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, 2001, 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 $4,508,000 at September 30, 2000 and $2,103,000
at December 31, 1999. The note bears interest at 1% over prime and is payable
upon demand. Because the Company does not anticipate repayment of the note
before September 30, 2001, the balance has been classified as a noncurrent asset
in the accompanying consolidated balance sheets.
Notes receivable at September 30, 2000 include a note receivable of
$15,082,000, including accrued interest, due from Las Vegas Industrial Park,
LLC, an entity owned by the Company's Chairman and Chief Executive Officer. In
January 2000, the Company sold the 1.4 million square-foot Las Vegas Industrial
Park and 280 acres of undeveloped land to Las Vegas Industrial Park, LLC for
approximately $53.3 million paid in cash of $40.0 million and a note receivable
of $13.3 million. The note bears interest at LIBOR plus 2.00%, is payable upon
demand, and is collateralized by the underlying sold property. Because the
Company does not anticipate repayment of the note before September 30, 2001, the
balance has been classified as a noncurrent asset in the accompanying
consolidated balance sheet.
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 $216,000 at September 30, 2000.
The amount is classified as short-term based on expected repayment date. There
were no amounts outstanding due from Sonic Financial at December 31, 1999.
Amounts payable to affiliates at September 30, 2000 and December 31, 1999
includes $2,594,000 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, 2000 and
December 31, 1999 also include $1,430,000 and $1,729,000 owed to a former LVMS
shareholder and executive officer, who is now a LVMS employee, in equal monthly
payments through December 2003 at 6.4% imputed interest.
8. STOCK OPTION PLANS
1994 Stock Option Plan - In 2000, the Company granted options to
non-executive officer employees to purchase an aggregate of 140,000 and 89,000
shares at exercise prices per share of $33.81 and $24.38, respectively, at award
dates under the 1994 Stock Option Plan.
Formula Stock Option Plan - In 2000, the Company granted options to three
13
<PAGE>
outside directors to purchase an aggregate of 60,000 shares at an exercise price
per share of $27.13 at award date under the Formula Stock Option Plan.
9. LEGAL PROCEEDINGS AND CONTINGENCIES
On May 20, 2000, near the end of a NASCAR-sanctioned event hosted at LMSC,
a portion of a pedestrian bridge leading from its track facility to a parking
area failed. In excess of 100 people were injured to varying degrees.
Preliminary investigations indicate the failure was the result of excessive
interior corrosion resulting from improperly manufactured bridge components. At
this time, all personal injury claims resulting from this incident are being
handled by the bridge's manufacturer, Tindall Corporation, and its insurer. On
May 31, 2000, the first lawsuit resulting from this incident was filed in the
Superior Court of Rowan County, North Carolina on behalf of seven plaintiffs and
is styled Kenneth Brown, Sandra Melton, Robert Melton, Jr., Robert Melton,
Cammie Yarborough, Charles Yarborough and Alexandria Yarborough v. Speedway
Motorsports, Inc. and Tindall Corporation (the "Brown Complaint"). On August 24,
2000 a second lawsuit was filed in Cabarrus County, North Carolina, entitled
Thomas A. Joyner, Jr. and Kathy B. Joyner, Individually, and as Husband and Wife
v. Speedway Motorsports, Inc. and Tindall Corporation (the "Joyner Complaint").
On October 12, 2000, the most recent lawsuit regarding this incident was filed
in Rowan County entitled Bryan Heath Baker, Susan D. Baker, John A. Hepler, III,
Tammy L. Hepler, Curtis D. Hepler and wife, Patricia B. Hepler v. Speedway
Motorsports, Inc. and Tindall Corporation (the "Baker Complaint"). All three
lawsuits seek unspecified compensatory and punitive damages. SMI has filed an
Answer to both the Brown and Joyner Complaints and is preparing an Answer to the
Baker Complaint. Preliminary discovery is underway. SMI intends to defend itself
and denies the allegations of negligence as well as related claims for punitive
damages. Management does not believe the outcome of these lawsuits or this
incident will have a material adverse affect on the Company's financial position
or future results of operations.
On August 23, 2000, a shareholder derivative complaint was filed against
Speedway Motorsports, Inc. ("SMI") and its directors in Delaware Chancery Court
for New Castle County. The complaint, styled Crandon Capital Partners v. O.
Bruton Smith, H.A. "Humpy" Wheeler, William R. Brooks, Edwin R. Clark, William
P. Benton, Mark M. Gambill, Jack L. Kemp and Speedway Motorsports, Inc. (the
"Crandon Complaint"), alleges that in February 2000, SMI sold the Las Vegas
Industrial Park - R&D Industrial Campus and approximately 300 acres of
undeveloped adjacent land to O. Bruton Smith, SMI's Chief Executive Officer,
Chairman and majority stockholder, at less than these properties' fair market
value, which transaction allegedly constituted a breach of fiduciary duties and
corporate waste. Plaintiffs are seeking, on behalf of SMI, unspecified damages,
SMI's establishment of a system of internal controls and procedures, rescission
of the transaction with Mr. Smith or, alternatively, unspecified rescissory
damages from Mr. Smith, and plaintiff's costs and attorney fees. On September
13, 2000, a second complaint, styled Kathy Mayo v. O. Bruton Smith, H.A. "Humpy"
Wheeler, William R. Brooks, Mark M. Gambill, Jack L. Kemp and Speedway
Motorsports, Inc., was filed raising the same allegations and seeking the same
relief as the Crandon Complaint. The Delaware court has consolidated the two
cases. SMI believes that the consolidated complaints have no basis and will
defend the action vigorously.
14
<PAGE>
10. CONDENSED NON-GUARANTOR FINANCIAL INFORMATION
The Company's Credit Facility and Senior Subordinated Notes are joint
and severally guaranteed by all of the Company's wholly-owned subsidiaries
except for certain minor wholly-owned subsidiaries. The following table presents
condensed consolidating financial information of the Company's guarantor and
non-guarantor subsidiaries as of September 30, 2000 and December 31, 1999 and
for the three and nine months ended September 30, 2000 and 1999 (in thousands):
CONDENSED CONSOLIDATING BALANCE SHEET AS OF SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
Parent Combined Combined Non-
Only Guarantors Guarantors Eliminations Consolidated
------- ----------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Current assets.......................... $ 9,437 $ 57,016 $7,569 $ -- $74,022
Property held for sale and property and
equipment, net........................ 9,772 772,535 3,133 -- 785,440
Goodwill and other intangibles.......... 5,090 49,726 4,764 -- 59,580
Other assets............................ 26,015 24,608 35 -- 50,136
Advances to and investments in
subsidiaries........................... 583,522 (220,375) (14,211) (348,936) 0
Total assets............................ 633,836 682,988 1,290 (348,936) 969,178
======== ======== ======= ========= ========
Current liabilities..................... 30,969 69,892 1,265 2,953 105,079
Long-term debt.......................... 416,892 315 985 (153) 418,039
Other liabilities....................... 37,649 34,707 (27) (11) 72,318
Total liabilities....................... 485,510 104,914 2,223 2,789 595,436
Total stockholder's equity.............. $148,326 $578,074 $ (933) $(351,725) $373,742
</TABLE>
CONDENSED CONSOLIDATING BALANCE SHEET AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
Parent Combined Combined Non-
Only Guarantors Guarantors Eliminations Consolidated
------- ----------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Current assets.......................... $ 43,350 $ 61,986 $5,751 $2,520 $108,567
Property held for sale and property and
equipment, net........................ 9,340 782,392 3,102 -- 794,834
Goodwill and other intangibles.......... 5,181 48,925 4,881 -- 58,987
Other assets............................ 24,252 9,312 30 -- 33,594
Advances to and investments in
subsidiaries.......................... 550,493 (189,902) (13,720) (346,871) 0
Total assets............................ 632,616 712,713 44 (349,391) $995,982
======== ======== ======= ========= =========
Current liabilities..................... 13,681 116,930 961 410 131,982
Long-term debt.......................... 457,208 404 941 (153) 458,400
Other liabilities....................... 37,650 36,272 (19) (11) 73,892
Total liabilities....................... 508,539 153,606 1,883 246 664,274
Total stockholder's equity.............. $124,077 $559,107 $(1,839) $(349,637) $331,708
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
Parent Combined Combined Non-
Only Guarantors Guarantors Consolidated
--------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
Total revenues.......................... $270 $47,009 $4,449 $51,728
Total expenses.......................... 969 42,939 5,558 49,466
Operating income (loss)................. (699) 4,070 (1,109) 2,262
Interest and other expense, net......... (3,060) (7,146) 354 (9,852)
Net income (loss).......................$(2,267) $(1,846) $ (453) $(4,566)
====== ======= ======= =======
</TABLE>
15
<PAGE>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Parent Combined Combined Non-
Only Guarantors Guarantors Consolidated
------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Total revenues.......................... $1 $45,194 $3,425 $48,620
Total expenses.......................... (981) 45,074 5,184 49,277
Operating income (loss)................. 982 120 (1,759) (657)
Interest and other expense, net......... 1,236 (8,389) (161) (7,314)
Net income (loss)....................... $1,335 $(4,961) $(1,152) $(4,778)
====== ======= ======= =======
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
Parent Combined Combined Non-
Only Guarantors Guarantors Consolidated
------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Total revenues.......................... $409 $265,333 $13,064 $278,806
Total expenses.......................... 3,178 166,997 16,053 186,228
Operating income (loss)................. (2,769) 98,336 (2,989) 92,578
Interest and other expense, net......... (3,123) (20,422) 866 (22,679)
Net income (loss).......................$(3,699) $46,748 $(1,274) $41,775
======= ======= ======= ========
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Parent Combined Combined Non-
Only Guarantors Guarantors Consolidated
------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Total revenues.......................... $ 1 $237,539 $4,208 $241,778
Total expenses.......................... (1,267) 153,656 6,468 161,391
Operating income (loss)................. (1,266) 83,913 (2,260) 80,387
Interest and other expense, net......... 967 (23,644) (392) (23,069)
Net income (loss)....................... $ 72 $36,161 $(1,591) $34,642
====== ======= ======= =======
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
Parent Combined Combined Non-
Only Guarantors Guarantors Consolidated
------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
Net cash provided by operations......... $10,318 $30,417 $259 $40,994
Net cash used by financing
activities............................ (39,756) -- -- (39,756)
Net cash used by investing
activities ........................... (5,010) (27,400) (350) (32,760)
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Parent Combined Combined Non-
Only Guarantors Guarantors Consolidated
-------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
Net cash provided by operations......... $ 6,953 $50,262 $3,254 $60,469
Net cash provided by financing
activities............................ 503 -- -- 503
Net cash provided (used) by investing
activities ........................... (2,702) 22,127 (2,049) (69,787)
</TABLE>
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 Motor Speedway Club, dining and
entertainment facilities located at the respective speedways, and from Legends
Car operations of 600 Racing, Inc., a wholly-owned subsidiary of LMSC. The
Company also derives additional revenue from Motorsports By Mail LLC (MBM), a
wholesale and retail distributor of racing and other sports related souvenir
merchandise and apparel; from Oil-Chem, which produces environmentally friendly
motor oil additives; from Racing Country USA, a nationally syndicated radio
show; from SoldUSA, an internet auction and e-commerce company under
development; and from Wild Man Industries (WMI), a screen printing and
embroidery manufacturer and distributor of wholesale and retail apparel. MBM is
a wholly-owned subsidiary of FLE, and WMI is a division of FLE.
The Company classifies its revenues as admissions, event related revenue
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 rights fees. "Other
operating revenue" includes the two Speedway Clubs, Legends Car, industrial park
rental, MBM, 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, Oil-Chem sales or other operating
revenues.
The Company classifies its expenses to include direct expense of events and
other direct operating expense, among other things. "Direct expense of events"
principally consists of race purses, sanctioning fees, cost of food, beverage
and souvenir sales, compensation of certain employees and advertising. "Other
direct operating expense" includes the cost of Speedway Club revenues, Legends
Car sales, and industrial park rentals, MBM, 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 larger events, poor weather conditions can have an effect on the Company's
results of operations.
Significant growth in the Company's revenues will depend on consistent
investment in facilities. 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 1999, the Company derived a substantial portion of its total revenues
from admissions and event related revenue attributable to 17 major annual
NASCAR-sanctioned racing events, five Indy Racing Northern Light Series (IRL)
racing events, four NASCAR Craftsman Truck Series racing events, two major NHRA
racing events, and two World of Outlaws Series (WOO) racing events. In 2000, the
Company
17
<PAGE>
currently will sponsor 17 major annual racing events sanctioned by NASCAR,
including ten Winston Cup and seven Busch Grand National Series racing events.
The Company will also sponsor four IRL racing events, two NASCAR Craftsman Truck
Series racing events, three major NHRA racing events, and seven WOO racing
events in 2000. As a result, the Company's business has been, and is expected to
remain, highly seasonal.
In 1999 and 1998, the Company's second and fourth quarters accounted for
68% and 74%, respectively, of its total annual revenues and 80% 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. 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, racing schedules may be changed from time to time and can lessen the
comparability of operating results between quarters of successive years and
increase or decrease the seasonal nature of the Company's motorsports business.
The results of operations for the three and nine months ended September 30,
2000 and 1999 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 2000 and 1999:
Number of scheduled major
NASCAR-sanctioned events
------------------------
2000 1999
---- ----
1st Quarter....................... 4 4
2nd Quarter....................... 8 8
3rd Quarter....................... 2 2
4th Quarter....................... 3 3
-- --
Total........................... 17 17
== ==
RESULTS OF OPERATIONS
LVMS hosted an Indy Racing Northern Light Series racing event in the second
quarter of 2000 which, along with a NASCAR Craftsman Truck Series racing event,
was held in the third quarter of 1999. In the third quarter of 2000, AMS hosted
an IRL racing event under a restructured sanctioning agreement whereby net event
results are included in event related revenue. In the third quarter of 1999,
revenues and expenses associated with the IRL event are included in admissions
and event related revenues and direct expense of events.
In the second quarter of 2000, LVMS hosted an inaugural NHRA-sanctioned
Nationals racing event, and BMS, LMSC and TMS hosted inaugural World of Outlaws
and Hav-A-Tampa Dirt Late Model Series racing events.
Three Months Ended September 30, 2000 Compared To Three Months Ended September
30, 1999
Total Revenues. Total revenues for the three months ended September 30,
2000 increased by $3.1 million, or 6.4%, to $51.7 million, over such revenues
for the same period in 1999. This improvement was due to increases in all
revenue items, particularly admissions and event related revenue.
Admissions. Admissions for the three months ended September 30, 2000
increased by $986,000, or 5.0%, over such revenue for the same period in 1999.
This increase was due primarily to continued growth in NASCAR-sanctioned racing
18
<PAGE>
events held at BMS during the current period. The growth in admissions at
NASCAR-sanctioned racing events reflects the continued increases in attendance
and ticket prices at BMS. The overall increase was partially offset by an IRL
racing event hosted at LVMS in the second quarter of 2000 which, along with a
NASCAR Craftsman Truck racing event, was held in the third quarter of 1999.
Event Related Revenue. Event related revenue for the three months ended
September 30, 2000 increased by $2.1 million, or 12.1%, over such revenue for
the same period in 1999. This increase was due to increases in broadcast rights
and sponsorship fees, and to growth in attendance, including related increases
in concessions and souvenir sales, for NASCAR-sanctioned racing events at BMS.
The overall increase was partially offset by the IRL racing event at LVMS in the
second quarter of 2000 which, along with a NASCAR Craftsman Truck racing event,
was held in the third quarter of 1999.
Other Operating Revenue. Other operating revenue for the three months ended
September 30, 2000 increased by $11,000, or 0.1%, over such revenue for the same
period in 1999. This increase was due primarily to growth in revenues of
Oil-Chem associated with the commencement of media and other promotional
campaigns. The overall increase was offset by decreased Legends Car revenues, in
connection with the delayed release of a new "Thunder Roadster" line of entry
level stock car. The overall increase was also offset by revenues derived in the
third quarter of 1999 from the Las Vegas Industrial Park which was sold in
January 2000.
Direct Expense of Events. Direct expense of events for the three months
ended September 30, 2000 decreased by $1.5 million, or 7.5%, over such expense
for the same period in 1999. This decrease was due to hosting an IRL racing
event at LVMS in the second quarter of 2000 which, along with a NASCAR Craftsman
Truck racing event, was held in the third quarter of 1999. The decrease also
reflects the restructured IRL racing event at AMS whereby net event results are
included in event related revenue.
The overall decreases were offset by increased operating costs associated
with the growth in attendance, including related increases in concessions and
souvenir sales, and to a lesser extent, higher race purses and sanctioning fees
required for NASCAR-sanctioned racing events held at BMS.
As a percentage of admissions and event related revenues combined, direct
expense of events for the three months ended September 30, 2000 was 45.1%
compared to 52.9% for the same period in 1999. Such decrease reflects LVMS's IRL
racing event hosted in the second quarter of 2000 which, along with a NASCAR
Craftsman Truck racing event, was held in the third quarter of 1999. The
decrease also reflects the restructured IRL racing event at AMS. Proportionately
higher operating expenses are associated with hosting IRL 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, 2000 decreased by $853,000, or 7.8%, over such
expense for the same period in 1999. The decrease was due to reduced expenses
associated with commencement of Oil-Chem's media and other promotional
campaigns, and decreased Legends Car sales in the current period as compared to
the same period in 1999.
General and Administrative. General and administrative expense for the
three months ended September 30, 2000 increased by $2.1 million, or 19.0%, over
such expense for the same period in 1999. This increase was attributable to
increases in operating costs associated with the growth and expansion at the
Company's speedways and operations. As a percentage of total revenues, general
and administrative expense for the three months ended September 30, 2000 and
1999 was 25.5% and 22.8%.
Depreciation and Amortization. Depreciation and amortization expense for
the three months ended September 30, 2000 increased by $412,000, or 5.4%, over
such expense for the same period in 1999. This increase results primarily from
additions to property and equipment at the Company's speedways. The overall
increase was
19
<PAGE>
offset by depreciation in the same period of 1999 on certain LVMS property which
was sold in January 2000.
Operating Income (Loss). Operating income for the three months ended
September 30, 2000 was $2.3 million compared to an operating loss of $657,000
for the same period of 1999. This change was due to the factors discussed above.
Interest Expense, Net. Interest expense, net for the three months ended
September 30, 2000 was $7.1 million compared to $7.6 million for the same period
in 1999. The decrease was due primarily to higher interest income earned on
notes receivable and a reduction in outstanding borrowings under the Credit
Facility during the current period. Those items were partially offset by higher
interest rates on the revolving Credit Facility during the current period.
Concession Contract Rights Resolution - Concession contract rights
resolution of $3.1 million for the three months ended September 30, 2000
represents costs to reacquire the contract rights to provide event food,
beverage and souvenir merchandising services at SPR from a previous provider
whose original contract term expired in 2004, including legal and other
transaction costs. The present value of estimated net future benefits to
operations under the contract rights is anticipated to exceed its costs.
Notwithstanding this expected future benefit, their cost has been reflected as a
current period expense because acquisition was beyond Accounting Principles
Board Opinion No. 16's one year allocation period.
Other Income. Other income for the three months ended September 30, 2000
increased by $95,000 over such income for the same period in 1999. The increase
was due to a combination of individually insignificant items.
Income Tax Benefit. The Company's effective income tax rate for the three
months ended September 30, 2000 and 1999 was 40%.
Net Loss. Net loss for the three months ended September 30, 2000 decreased
by $212,000 to $4.6 million compared to $4.8 million for the same period in
1999. This change was due to the factors discussed above.
Nine Months Ended September 30, 2000 Compared To Nine Months Ended September 30,
1999
Total Revenues. Total revenues for the nine months ended September 30, 2000
increased by $37.0 million, or 15.3%, to $278.8 million, over such revenues for
the same period in 1999. This improvement was due to increases in all revenue
items.
Admissions. Admissions for the nine months ended September 30, 2000
increased by $9.9 million, or 9.7%, over such revenue for the same period in
1999. This increase was due to growth in NASCAR-sanctioned racing events, and to
hosting inaugural WOO and HAT racing events at BMS, LMSC, and TMS, in the
current period. The growth in admissions at NASCAR-sanctioned racing events
reflects the continued increases in attendance and additions to seating
capacity, and to a lesser extent, increases in ticket prices.
Event Related Revenue. Event related revenue for the nine months ended
September 30, 2000 increased by $15.3 million, or 13.3%, over such revenue for
the same period in 1999. This increase was due primarily to increases in
broadcast rights and sponsorship fees for NASCAR-sanctioned racing events. The
increase also reflects hosting a new NHRA-sanctioned Nationals racing event at
LVMS, and new WOO and HAT racing events at BMS, LMSC, and TMS, and the growth in
attendance, including related increases in concessions and souvenir sales.
Other Operating Revenue. Other operating revenue for the nine months ended
September 30, 2000 increased by $11.8 million, or 48.5%, over such revenue for
the same period in 1999. This increase was due primarily to growth in revenues
of Oil-Chem associated with the commencement of media and other promotional
campaigns. The
20
<PAGE>
increase was also attributable to revenues derived from apparel and other
merchandise sold through outside venues, including MBM acquired in July 1999,
the LMSC Speedway Club, and the TMS Speedway Club opened March 26, 1999.
The overall increase was partially offset by decreased Legends Car sales,
in connection with the delayed release of a new "Thunder Roadster" line of entry
level stock car. The overall increase was also offset by revenues derived from
the Las Vegas Industrial Park which was sold in January 2000.
Direct Expense of Events. Direct expense of events for the nine months
ended September 30, 2000 increased by $6.1 million, or 7.1%, over such expense
for the same period in 1999. This increase was due to higher race purses and
sanctioning fees required for NASCAR-sanctioned racing events held during the
current period. The increase also reflects hosting a new NHRA racing event at
LVMS, and hosting new WOO and HAT racing events at BMS, LMSC, and TMS, and the
increased operating costs associated with the growth in attendance, including
related increases in concessions and souvenir sales. The overall increases were
partially offset by the restructured IRL racing event at AMS whereby net event
results are included in event related revenue. As a percentage of admissions and
event related revenues combined, direct expense of events for the nine months
ended September 30, 2000 was 38.0% compared to 39.5% for the same period in
1999.
Other Direct Operating Expense. Other direct operating expense for the nine
months ended September 30, 2000 increased by $10.9 million, or 54.1%, over such
expense for the same period in 1999. This increase is due primarily to expenses
associated with commencement of Oil-Chem's media and other promotional
campaigns. The increase includes expenses associated with other operating
revenues derived from apparel and other merchandise sold through outside venues
including MBM, and with the increase in Oil-Chem, LMSC Speedway Club, and TMS
Speedway Club revenues. The overall increase was partially offset by decreased
Legends Car sales.
General and Administrative. General and administrative expense for the nine
months ended September 30, 2000 increased by $6.0 million, or 18.1%, over such
expense for the same period in 1999. The increase was attributable to increases
in operating costs associated with the growth and expansion at the Company's
speedways. The increase also reflects the operating costs associated with The
Texas Motor Speedway Club which opened in March 1999. As a percentage of total
revenues, general and administrative expense for the nine months ended September
30, 2000 and 1999 was 14.2% and 13.8%.
Depreciation and Amortization. Depreciation and amortization expense for
the nine months ended September 30, 2000 increased by $1.8 million, or 8.1%,
over such expense for the same period in 1999. This increase was primarily due
to additions to property and equipment at the Company's speedways. The overall
increase was offset by depreciation in the same period of 1999 on certain LVMS
property which was sold in January 2000.
Operating Income. Operating income for the nine months ended September 30,
2000 increased by $12.2 million, or 15.2%, to $92.6 million, over such income
for the same period in 1999. This increase was due to the factors discussed
above.
Interest Expense, Net. Interest expense, net for the nine months ended
September 30, 2000 was $20.4 million compared to $20.3 million for the same
period in 1999. The increase is due to higher interest rates on the revolving
Credit Facility and the Senior Subordinated Notes issued in May 1999. Those
increases were offset by higher interest income earned on notes receivable and a
reduction in outstanding borrowings under the Credit Facility during the current
period.
Concession Contract Rights Resolution - Concession contract rights
resolution of $3.1 million for the nine months ended September 30, 2000
represents costs to reacquire the contract rights to provide event food,
beverage and souvenir merchandising services at SPR from a previous provider
whose original contract term
21
<PAGE>
expired in 2004, including legal and other transaction costs. The present value
of estimated net future benefits to operations under the contract rights is
anticipated to exceed its costs. Notwithstanding this expected future benefit,
their cost has been reflected as a current period expense because acquisition
was beyond Accounting Principles Board Opinion No. 16's one year allocation
period.
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, 2000
increased by $224,000, or 37.0%, over such income for the same period in 1999.
This increase results primarily from larger gains recognized on sales of TMS
condominiums and marketable equity securities and other investments in the nine
months ended September 30, 2000 compared to the same period in 1999.
Income Tax Provision. The Company's effective income tax rate for nine
months ended September 30, 2000 and 1999 was 40%.
Net Income. Net income for the nine months ended September 30, 2000
increased by $7.1 million, or 21.0%, to $41.8 million, over such income for the
same period in 1999. 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 2000 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,
2000 resulted primarily from: (1) net cash generated by operations amounting to
$41.0 million, (2) capital expenditures amounting to $65.9 million, and (3)
reducing outstanding borrowings under the Credit Facility by $40.0 million with
proceeds from the sale of the LVMS Industrial Park. At September 30, 2000, the
Company had $90.0 million in outstanding borrowings under the $250.0 million
Credit Facility.
Management anticipates that cash from operations and funds available
through the Credit Facility will be sufficient to meet the Company's operating
needs into 2001, 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. The Company
may, from time to time, redeem or retire convertible subordinated debentures and
other debt, and purchase its other securities, depending on liquidity,
prevailing market conditions, as well as such factors as permissibility under
the Credit Facility, the Senior Subordinated Notes, and as the Board of
Directors, in its sole discretion, may consider relevant. 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 revenue. Currently, a number of significant capital
projects are underway.
22
<PAGE>
In 2000, AMS continued improving and expanding its on-site roads and
available parking and made other site improvements. In 2000, BMS added
approximately 13,000 permanent seats, further expanded concessions, restroom and
other fan amenities, and made other site improvements. LMSC added approximately
13,000 permanent seats, again featuring stadium-style terrace seating, and
further expanded concessions, restroom and other fan amenities, and made other
site improvements. Also, LMSC and TMS completed construction of 4/10-mile,
modern, lighted, dirt track facilities. LVMS added approximately 8,000 permanent
seats, further expanded concessions, restroom and other fan amenities, and made
other site improvements. LVMS also reconstructed and expanded one of its
dragstrips into a "state-of-the-art" dragway with permanent grandstand seating,
luxury suites, and extensive fan amenities and facilities. Subject to
governmental approval, SPR plans to continue improving and expanding its on-site
roads and available parking, reconfiguring traffic patterns and entrances to
ease congestion and improve traffic flow, as well as make other site
improvements. Pending governmental approvals, in 2000 or 2001, the Company
expects to begin major renovations at SPR, including its ongoing reconfiguration
into a "stadium-style" road racing course, the addition of up to 35,000
grandstand bleacher seats, and improving and expanding concessions, restroom and
other fan amenities facilities. TMS plans to continue improving and expanding
its on-site roads and available parking and making other site improvements. In
2000, after adding approximately 34,000 permanent seats, exclusive of SPR, the
Company's total permanent seating capacity will approximate 713,000 and the
total number of luxury suites will be approximately 663.
The estimated aggregate cost of capital expenditures in each of 2000 and
2001 will approximate $90 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, actual costs could vary materially from
Company estimates if Company 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 in the
foreseeable future. Any decision concerning the payment of dividends on the
Common Stock will depend upon the results of operations, financial condition and
capital expenditure plans of the Company, as well as such factors as
permissibility under the Credit Facility, the Senior Subordinated Notes and as
the Board of Directors, in its sole discretion, may consider relevant. The
Credit Facility and Senior Subordinated Notes preclude the payment of any
dividends.
Impact of New Accounting Standards
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101 "Revenue Recognition in Financial
Statements" which summarizes certain of the staff's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
SAB No. 101, as amended, where applicable, provides for restatement of prior
financial statements or reporting a change in accounting principle no later than
the fourth quarter of
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fiscal years beginning after December 15, 1999. The Company has assessed its
revenue recognition policies for Speedway Club membership fees, and expects to
report a change in accounting principle under SAB No. 101 in the fourth quarter
of 2000. However, the change is not expected to materially impact the Company's
financial position or future results of operations.
The Company will adopt Statement of Financial Accounting Standards (SFAS)
No. 133 "Accounting for Derivative Instruments and Hedging Activities" as of
January 1, 2001. SFAS No. 133 established accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires, among other things,
that an entity recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. Because the Company
does not have any derivative instruments, adoption is expected to have no effect
on the Company's financial statements or disclosures.
Sale of Las Vegas Industrial Park
In January 2000, the Company sold the Las Vegas Industrial Park and 280
acres of undeveloped land to Las Vegas Industrial Park, LLC, an entity owned by
the Company's Chairman and Chief Executive Officer, for approximately $53.3
million paid in cash of $40.0 million and a note receivable of $13.3 million.
The sales price was based on an independent appraisal and approximates the
Company's net carrying value as of December 31, 1999 and selling costs.
Near-term Operating Trends
There are many factors that affect the Company's growth potential, future
operations and financial results. Fiscal 2001 will be the Company's first year
under the multi-year consolidated domestic television broadcast rights agreement
for NASCAR Winston Cup and Busch Grand National Series events. This new
agreement is expected to provide the Company with significant future increases
in contracted broadcasting revenues. Although management believes ticket demand
should continue to grow, ticket and concession price increases will likely level
off at least for 2001.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk. The Company's financial instruments with market risk
exposure consist only of bank revolving credit facility borrowings which are
sensitive to changes in interest rates. A change in interest rates of one
percent on the balance outstanding at September 30, 2000 would cause a change in
annual interest expense of approximately $900,000. The Company's senior
subordinated notes payable and convertible subordinated debentures are fixed
interest rate debt obligations.
Equity Price Risk. The Company has marketable equity securities, all
classified as "available for sale." Such investments are subject to price risk,
which the Company attempts to minimize generally through portfolio
diversification.
As of and during the nine months ended September 30, 2000, borrowings under
the bank revolving credit facility decreased $40.0 million to $90.0 million. See
Note 5 to the accompanying September 30, 2000 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, 2000.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On May 20, 2000, near the end of a NASCAR-sanctioned event hosted at LMSC,
a portion of a pedestrian bridge leading from its track facility to a parking
area failed. In excess of 100 people were injured to varying degrees.
Preliminary investigations indicate the failure was the result of excessive
interior corrosion resulting from improperly manufactured bridge components. At
this time, all personal injury claims resulting from this incident are being
handled by the bridge's manufacturer, Tindall Corporation, and its insurer. On
May 31, 2000, the first lawsuit resulting from this incident was filed in the
Superior Court of Rowan County, North Carolina on behalf of seven plaintiffs and
is styled Kenneth Brown, Sandra Melton, Robert Melton, Jr., Robert Melton,
Cammie Yarborough, Charles Yarborough and Alexandria Yarborough v. Speedway
Motorsports, Inc. and Tindall Corporation (the "Brown Complaint"). On August 24,
2000 a second lawsuit was filed in Cabarrus County, North Carolina, entitled
Thomas A. Joyner, Jr. and Kathy B. Joyner, Individually, and as Husband and Wife
v. Speedway Motorsports, Inc. and Tindall Corporation (the "Joyner Complaint").
On October 12, 2000, the most recent lawsuit regarding this incident was filed
in Rowan County entitled Bryan Heath Baker, Susan D. Baker, John A. Hepler, III,
Tammy L. Hepler, Curtis D. Hepler and wife, Patricia B. Hepler v. Speedway
Motorsports, Inc. and Tindall Corporation (the "Baker Complaint"). All three
lawsuits seek unspecified compensatory and punitive damages. SMI has filed an
Answer to both the Brown and Joyner Complaints and is preparing an Answer to the
Baker Complaint. Preliminary discovery is underway. SMI intends to defend itself
and denies the allegations of negligence as well as related claims for punitive
damages. Management does not believe the outcome of these lawsuits or this
incident will have a material adverse affect on the Company's financial position
or future results of operations.
On August 23, 2000, a shareholder derivative complaint was filed against
Speedway Motorsports, Inc. ("SMI") and its directors in Delaware Chancery Court
for New Castle County. The complaint, styled Crandon Capital Partners v. O.
Bruton Smith, H.A. "Humpy" Wheeler, William R. Brooks, Edwin R. Clark, William
P. Benton, Mark M. Gambill, Jack L. Kemp and Speedway Motorsports, Inc. (the
"Crandon Complaint"), alleges that in February 2000, SMI sold the Las Vegas
Industrial Park - R&D Industrial Campus and approximately 300 acres of
undeveloped adjacent land to O. Bruton Smith, SMI's Chief Executive Officer,
Chairman and majority stockholder, at less than these properties' fair market
value, which transaction allegedly constituted a breach of fiduciary duties and
corporate waste. Plaintiffs are seeking, on behalf of SMI, unspecified damages,
SMI's establishment of a system of internal controls and procedures, rescission
of the transaction with Mr. Smith or, alternatively, unspecified rescissory
damages from Mr. Smith, and plaintiff's costs and attorney fees. On September
13, 2000, a second complaint, styled Kathy Mayo v. O. Bruton Smith, H.A. "Humpy"
Wheeler, William R. Brooks, Mark M. Gambill, Jack L. Kemp and Speedway
Motorsports, Inc., was filed raising the same allegations and seeking the same
relief as the Crandon Complaint. The Delaware court has consolidated the two
cases. SMI believes that the consolidated complaints have no basis and will
defend the action vigorously.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27.0 Financial data schedule for the nine month period ended September 30,
2000.
(b) No reports were filed on Form 8-K during the fiscal quarter covered by
this Form 10-Q.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPEEDWAY MOTORSPORTS, INC.
(Registrant)
Date: November 14, 2000 By: /s/ O. Bruton Smith
------------------- ---------------------------
O. Bruton Smith
Chairman and Chief Executive Officer
Date: November 14, 2000 By: /s/ William R. Brooks
------------------- ---------------------------
William R. Brooks
Vice President, Chief Financial
Officer, Treasurer and Director
(principal financial and accounting officer)
26
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INDEX TO EXHIBITS TO
QUARTERLY REPORT ON FORM 10-Q FOR
SPEEDWAY MOTORSPORTS, INC.
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------
27.0 Financial data schedule for the nine month period ended September 30,
2000.
27
