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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1998
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 (IRS Employer
of Incorporation or Organization) Identification No.)
U.S. HIGHWAY 29 NORTH
CONCORD, NORTH CAROLINA 28026
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (704) 455-3239
-----------------------
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
$.01 Par Value Common Stock New York Stock Exchange
-----------------------
Securities registered pursuant to section 12(g) of the Act: NONE
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. [X] Yes [ ] No
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $451,188,756 based upon the closing sales price of
the registrant's Common Stock on March 26, 1999 of $36.00 per share. At March
26, 1999, 41,512,121 shares of registrant's Common Stock, $.01 par value per
share, were outstanding. Unless otherwise indicated, all other share and share
price information contained herein takes into account the effect of the two for
one stock split effected as of March 15, 1996 in the form of a 100% Common Stock
dividend payable to stockholders of record as of February 26, 1996 (the "Stock
Split").
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
FORM 10-K TABLE OF CONTENTS
PAGE
PART I
Item 1. Business............................................................................. 3
Item 2. Properties........................................................................... 10
Item 3. Legal Proceedings.................................................................... 12
Item 4. Submission of Matters to a Vote of Security Holders.................................. 13
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters............ 13
Item 6. Selected Financial Data.............................................................. 13
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation. 14
Item 7a. Quantitative and Qualitative Disclosures About Market Risk........................... 21
Item 8. Financial Statements and Supplementary Data.......................................... 21
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 21
PART III
Item 10. Directors and Executive Officers of the Registrant................................... 22
Item 11. Executive Compensation............................................................... 23
Item 12. Security Ownership of Certain Beneficial Owners and Management....................... 27
Item 13. Certain Relationships and Related Transactions....................................... 27
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..................... 29
INDEX TO FINANCIAL STATEMENTS.................................................................. F-1
SIGNATURES.....................................................................................
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements, including the Notes thereto, appearing
elsewhere herein. Statements in this Annual Report on Form 10-K that reflect
projections or expectations of future financial or economic performance of the
Company, and statements of the Company's plans and objectives for future
operations, including those contained in "Business", "Properties", "Legal
Proceedings", and "Management's Discussion and Analysis of Financial Condition
and Results of Operations", or relating to the Company's future capital
projects, hosting of races, broadcasting rights or sponsorships, are
"forward-looking" statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). 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. 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 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.
2
PART I
ITEM 1. BUSINESS
Speedway Motorsports, Inc. (the "Company"), the owner and operator of
Atlanta Motor Speedway ("AMS"), Bristol Motor Speedway ("BMS"), Lowe's Motor
Speedway at Charlotte (formerly known as Charlotte Motor Speedway) ("LMSC"), Las
Vegas Motor Speedway ("LVMS"), Sears Point Raceway ("SPR"), and Texas Motor
Speedway ("TMS"), is a leading promoter, marketer and sponsor of motorsports
activities in the United States. The Company also provides event food, beverage,
and souvenir merchandising services through its Finish Line Events ("FLE")
subsidiary, and manufactures and distributes smaller-scale, modified racing cars
and parts through its 600 Racing subsidiary. The Company currently will sponsor
17 major annual racing events in 1999 sanctioned by the National Association of
Stock Car Auto Racing, Inc. ("NASCAR"), including ten races associated with the
Winston Cup professional stock car racing circuit (the "Winston Cup") and seven
races associated with the Busch Grand National circuit. The Company will also
sponsor five Indy Racing League ("IRL") racing events, four NASCAR Craftsman
Truck Series racing events, and two major National Hot Rod Association ("NHRA")
racing events in 1999.
On December 1, 1998, the Company acquired LVMS, including certain tangible
and intangible assets, its operations, an industrial park and certain adjacent
unimproved land for approximately $215.0 million. LVMS is located in one of the
most recognized, leading markets in the United States and the world, and its
acquisition is a major strategic transaction that is expected to enhance the
Company's overall operations, as well as broadcast and sponsorship
opportunities. LVMS is a newly constructed 1.5 mile, lighted, asphalt
superspeedway, with several other on-site race tracks, and has permanent seating
capacity of approximately 107,000, including 102 luxury suites, as of December
31, 1998. The superspeedway's configuration readily allows for significant
future expansion. LVMS currently hosts several annual NASCAR-sanctioned racing
events, including a Winston Cup Series, Busch Grand National Series, Craftsman
Truck Series, two Winston West Series, and two Winston Southwest Series racing
events. Additional major events held annually include IRL, World of Outlaws,
American Motorcycle Association ("AMA"), and drag racing events, among others.
The Company was incorporated in the State of Delaware in 1994.
As of December 31, 1998, the Company's total permanent seating capacity
exceeded 665,000, the largest in the motorsports industry. Management believes
that spectator demand for its largest events exceeds existing permanent seating
capacity at each of its speedways. In 1998, the Company added more than 140,000
permanent seats, including approximately 19,000 at BMS, 12,000 at LMSC, 3,000 at
TMS, and the acquisition of LVMS. At December 31, 1998, AMS, BMS, LMSC, and TMS
had permanent seating capacity of approximately 124,000, 134,000, 147,000 and
153,000, respectively, in each case excluding infield admission, temporary seats
and general admission. Also at December 31, 1998, the Company had a total of 659
suites luxury suites, with 141 at AMS, 97 at BMS, 125 at LMSC, 102 at LVMS, and
194 at TMS. SPR currently does not have permanent seating capacity but provides
temporary seating and suites for approximately 24,000 spectators in addition to
other general admission seating arrangements along its 2.52 mile road course.
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, beverages and souvenirs during such events, from the sale of
sponsorships to companies that desire to advertise or sell their products or
services at such events, and from the licensing of television, cable network and
radio rights to broadcast such events. In 1998, the Company derived
approximately 77% of its total revenues from events sanctioned by NASCAR. The
Company has experienced substantial growth in revenues and profitability as a
result of its continued improvement, expansion and investments in facilities,
its consistent marketing and promotional efforts and the overall increase in
popularity of Winston Cup, Busch Grand National, Indy Racing League, National
Hot Rod Association and other motorsports events in the United States.
Television broadcast and naming rights values are rising. Published 1998
NASCAR Winston Cup television ratings indicated those of Speedway Motorsports
events achieved four of the top eight ratings, and were above the average for
all Winston Cup events. In February 1999, the Company achieved a motorsports
industry first by obtaining a facility naming rights agreement whereby Charlotte
Motor Speedway has been renamed Lowe's Motor Speedway for gross fees aggregating
approximately $35,000,000 over the ten year agreement term. Also, the Company
jointly announced in February 1999 it would be part of a newly formed NASCAR
television negotiating alliance. Management believes these positive developments
bode well for the Company's television contract renegotiations in 2000 and
beyond and for future naming rights possibilities.
INDUSTRY OVERVIEW
Motorsports is currently the fastest growing spectator sport in the United
States, with NASCAR the fastest growing industry segment. In 1998, NASCAR
sanctioned 93 Winston Cup, Busch Grand National and Craftsman Truck races which
were attended by approximately 9.3 million spectators. Attendance of these
NASCAR events has increased at a compound annual growth rate of 10.8% since
1994. Based on information developed independently by Goodyear Tire and Rubber,
spectator attendance at Winston Cup and Busch Grand National events increased at
compound annual growth rates of 6.5% and 12.7%, respectively, from 1994 to 1998.
Also in 1998, Indy Racing League sanctioned events were attended by
approximately 1.3 million spectators. Races are generally heavily
3
promoted, with a number of supporting events surrounding the main event, for a
total weekend experience.
In recent years, television coverage and corporate sponsorship have
increased for NASCAR-related events. All NASCAR Winston Cup and Busch Grand
National events sponsored by the Company are currently broadcast by ABC, CBS,
ESPN, TBS or TNN. Also, all Indy Racing League events sponsored by the Company
are currently broadcast. The Company has entered into television rights
contracts for all its major sanctioned events. According to NASCAR, major
national corporate sponsorship of NASCAR-sanctioned events (which currently
includes over 80 Fortune 500 companies) also has increased significantly.
Sponsors include such companies as Coca-Cola, General Motors, Cracker Barrel,
NAPA, PRIMESTAR, Save Mart, Kragen, Food City, Goody's, and RJR Nabisco. The
Company intends to increase the exposure of its current Winston Cup, Busch Grand
National, Indy Racing League and National Hot Rod Association events, add
television coverage to other speedway events, increase broadcast and sponsorship
revenues and schedule additional racing and other events at each of its speedway
facilities.
The dramatic increase in corporate interest in the sport has been driven by
the attractive advertising demographics of stock car and other motorsports
racing fans. In addition, brand loyalty (as measured by fans using sponsors'
products) is the highest of any nationally televised sport according to a study
published by Performance Research in 1997. Fueled by popular and accessible
drivers, strong fan brand loyalty, a widening demographic reach, increasing
appeal to corporate sponsors and rising broadcast revenues, industry competitors
are actively pursuing internal growth and industry consolidation. Speedway
operations generate high operating margins and are protected by high barriers to
competitive entry, including capital requirements for new speedway construction,
marketing, promotional and operational expertise, and license agreements with
NASCAR.
OPERATING STRATEGY
The Company's operating strategy is to increase revenues and profitability
through the promotion and production of racing and related events at modern
facilities, which serve to enhance customer loyalty. The Company markets its
scheduled events throughout the year both regionally and nationally via
television, radio and newspaper advertising, facility tours, satellite links for
media outlets, direct mail campaigns, pre-race promotional activities and other
innovative marketing activities. The key components of this strategy are as
follows:
COMMITMENT TO QUALITY AND CUSTOMER SATISFACTION. Upon assuming control of
LMSC in 1975, management embarked upon a series of capital improvements,
including the construction of additional permanent grandstand seating, new
luxury suites, trackside dining and entertainment facilities and a condominium
complex overlooking the track. In 1992, LMSC became the first and only
superspeedway in North America to offer nighttime racing, and now all of the
Company's speedways, except SPR, offer it. Following the purchase of AMS in
1990, the Company began to implement a similar strategy thereby constructing
additional grandstand seating, luxury suites and condominiums. The Company
continues to improve and construct new food concessions, restroom and other fan
amenities at each of its speedways to increase spectator comfort and enjoyment.
For example, BMS has relocated various souvenir, concessions and restroom
facilities to the mezzanine level, and added new permanent seating, all of which
feature new stadium-style terrace sections to increase spectator convenience and
accessibility. In 1997, LMSC opened the Diamond Tower Terrace, a
"state-of-the-art" 25,000 seat grandstand, also featuring a unique mezzanine
level concourse, which was further expanded in 1998 with the addition of 12,000
permanent seats. The Company continues to reconfigure traffic patterns,
entrances, and expand on-site roads and available parking at each of its
speedways to ease congestion caused by the increases in attendance. For example,
in 1998 SPR acquired adjoining land to provide an additional entrance and
significantly expand spectator parking areas. Also, TMS has significantly
expanded its parking areas and improved traffic control dramatically reducing
travel congestion. Finally, LVMS and TMS were designed to maximize spectator
comfort and enjoyment, and further design improvements are expected as
management acquires operating experience with these new facilities.
INNOVATIVE MARKETING AND EVENT PROMOTION. Management believes that it is
important to market the Company's scheduled events throughout the year, both
regionally and nationally. The Company markets its events by offering tours of
its facilities, providing satellite links for media outlets, conducting direct
mail campaigns and staging pre-race promotional activities such as live music,
skydivers and daredevil stunts. The Company's marketing program also includes
the solicitation of prospective event sponsors. Sponsorship provisions for a
typical NASCAR-sanctioned event include luxury suite rentals, block ticket sales
and Company-catered hospitality, as well as souvenir race program and track
signage advertising. As an example of its marketing innovations, in 1996, the
Company began offering Preferred Seat Licenses ("PSL") entitling licensees to
purchase annual TMS season-ticket packages for sanctioned racing events. Other
recent examples include the Company's announcing its facility naming rights
agreement involving Lowe's Home Improvements Warehouse in early 1999 - a first
in the motorsports industry. Another industry first was the Company's joint
venture with Turner Sports in which LMSC's October 1998 NASCAR Winston Cup race
was broadcast on pay-per-view DirectTv, as well as on TBS. Subscribers to
DirectTv received the full broadcast of the race plus continuous broadcasts from
four in-car cameras, along with constantly updated graphics of various driver,
car and race statistics.
The Company also owns The Speedway Club, an exclusive dining and
entertainment facility located on the fifth and sixth floors
4
of Smith Tower at LMSC. The Company has constructed a similar office tower
adjoining the main grandstand and overlooking turn one at TMS that houses The
Texas Motor Speedway Club. The Company is conducting a membership drive for The
Texas Motor Speedway Club, which contains a first-class, year-round
restaurant-entertainment club and a health-fitness club. The Texas Motor
Speedway Club celebrated its grand opening in March 1999. Open year-round, these
two VIP clubs are a focal point of the Company's efforts to improve the
amenities and enhance the comfort of its facilities for the benefit of
spectators.
UTILIZATION OF MEDIA. The Company currently negotiates directly with network
and cable television companies for live coverage of its NASCAR-sanctioned races.
In May 1996, AMS signed a four-year television rights agreement with ESPN for
NASCAR seasons for 1997 through 2000. Also in May 1996, BMS renegotiated a
seven-year television rights agreement with ESPN covering the April and August
NASCAR Winston Cup and related races through the NASCAR season for 2002. In May
1996, LMSC signed a three-year television rights agreement with Turner Sports,
Inc. ("TSI"), with a TSI renewal right for the fourth year. The TSI agreement
covers the May and October NASCAR and ARCA races at LMSC to be broadcast on TBS
through the NASCAR season for 2000. In 1997, LMSC entered into a five-year
television rights agreement with TNN for "The Winston" race and associated
events to be held through 2002. LVMS has a five-year television rights agreement
with ESPN covering the March NASCAR Winston Cup and related races through the
NASCAR season for 2002. In November 1996, SPR renegotiated a three-year
television rights agreement with ESPN covering its June NASCAR Winston Cup races
through the NASCAR season for 1999. In August 1996, TMS signed a four-year
television rights agreement with CBS Sports for the March races at TMS through
the NASCAR season for 2000.
The Company also broadcasts all of its NASCAR Winston Cup and Busch Grand
National Series racing events over its proprietary radio Performance Racing
Network ("PRN"), which is syndicated to more than 500 stations. PRN also
sponsors a weekly racing- oriented program throughout the NASCAR season, which
is syndicated to more than 175 stations. Management also seeks to increase the
visibility of its racing events and facilities through local and regional media
interaction. For example, each January the Company sponsors a four-day media
tour at LMSC to promote the upcoming Winston Cup season. In 1999, this event
featured Winston Cup drivers and attracted media personnel representing
television networks and stations from throughout the United States. In addition,
in early 1999, a similar media tour was staged at TMS which also featured
Winston Cup drivers and was attended by numerous media personnel from throughout
the United States. The Company is planning to carry other events at each of its
speedways over PRN in 1999.
GROWTH STRATEGY
Management believes that the Company can achieve its growth objectives by
increasing attendance and revenues at existing facilities and by expanding its
promotional and marketing expertise to take advantage of opportunities in
attractive new markets. It intends to continue implementing this growth strategy
through the following means:
EXPANSION AND IMPROVEMENT OF EXISTING FACILITIES. Management believes that
spectator demand for its largest events exceeds existing permanent seating
capacity. The Company plans to continue its expansion by adding permanent
grandstand seating and luxury suites, and making other significant renovations
and improvements at each of its speedways in 1999, as further described in
"Properties" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Capital Expenditures." The Company completed major
renovations at AMS in 1997, including reconfiguration into a "state-of-the-art"
1.54 mile, lighted, quad-oval superspeedway, adding approximately 22,000
permanent seats, including 58 new suites, and changing the start-finish line
location. AMS installed lighting for its inaugural IRL night race in August, and
now all of the Company's speedways, except SPR, offer nighttime racing. In 1998,
BMS continued its expansion by adding approximately 19,000 permanent seats,
including 42 new luxury suites, and LMSC added approximately 12,000 permanent
seats, including 12 new luxury suites. In 1998, SPR purchased adjoining land to
provide an additional entrance and further expand its parking areas to improve
traffic flow and ease congestion caused by the growth in attendance. Also in
1998, SPR was partially reconfigured into a stadium-style road course featuring
"The Chute" which provides spectators improved sight lines and expanded viewing
areas for increased spectator comfort and enjoyment. TMS opened in April 1997 as
the second-largest sports facility in the United States. Since its inaugural
Winston Cup event in 1997, TMS has significantly expanded its parking areas and
improved traffic control dramatically reducing travel congestion.
In 1999, after planning to add more than 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. In 1999, BMS is
reconstructing and expanding its dragstrip into a "state-of-the-art" dragway
with permanent grandstand seating, luxury suites, and extensive fan amenities
and facilities. Also in 1999, the Company expects to continue major renovations
at SPR, including its on-going reconfiguration into a stadium-style road racing
course, the addition of approximately 45,000 permanent seats, and further
improving and expanding concessions, restroom and other fan amenities
facilities. The Company continues to improve and expand concessions, restroom
and other fan amenities facilities at each of its speedways, as well as
reconfiguring traffic patterns, entrances, and expanding on-site roads and
available parking to ease congestion caused by the increases in attendance,
consistent with management's commitment to quality and customer satisfaction.
Management believes that the expansion and improvements will generate additional
admissions and event-related revenues.
5
MAXIMIZATION OF MEDIA EXPOSURE AND ENHANCEMENT OF BROADCAST AND SPONSORSHIP
REVENUES. NASCAR-sanctioned stock car racing is experiencing significant growth
in television viewership and spectator attendance. This growth has allowed the
Company to expand its television coverage to include more races and to negotiate
more favorable broadcast rights fees with television networks as well as to
negotiate more favorable contract terms with sponsors. Management believes that
spectator interest in stock car racing will continue to grow, thereby increasing
broadcast media and sponsors' interest in the sport. The Company intends to
increase media exposure of its current NASCAR and IRL events, to add television
coverage to other speedway events and to further increase broadcast and
sponsorship revenues. For instance, with over 30 million people visiting Las
Vegas annually, management believes the newly acquired LVMS has the potential to
significantly increase broadcasting and sponsorship revenues. Also, the
acquisition of SPR marked the Company's entry into the Northern California
television market, which is currently the 5th largest television market in the
United States.
The LVMS acquisition is a major strategic transaction for the Company. It
achieves a critical mass west of the Mississippi River that will enhance the
Company's overall operations, as well as broadcast and sponsorship
opportunities. The Company intends to capitalize on its top market entertainment
value to further grow LVMS, the sport of NASCAR and other racing series.
The Company is currently strategically positioned with speedways in six of
the premier markets in the United States, including three of the top ten
television markets. Also, the Company's NASCAR Winston Cup events in 1998
achieved four of the top eight television ratings, and rankings above the
average for all Winston Cup events. In February 1999, the Company obtained its
naming rights agreement involving Lowe's Home Improvements Warehouse - a first
in the motorsports industry, and jointly announced it would be part of a newly
formed NASCAR television negotiating alliance. Management believes these
positive developments bode well for the Company's television contract
renegotiations in 2000 and beyond and for future naming rights possibilities.
Another example of the Company being a leading promoter is its joint venture
with Turner Sports in which LMSC's October 1998 NASCAR Winston Cup race was
broadcast on pay-per-view DirectTv, as well as on TBS. Subscribers to DirectTv
received the full broadcast of the race plus continuous broadcasts from four
in-car cameras, along with constantly updated graphics of various driver, car
and race statistics.
FURTHER DEVELOPMENT OF FINISH LINE EVENTS AND LEGENDS CAR BUSINESS. In
January 1998, the Company restructured and consolidated its food, beverage and
souvenir operations into Finish Line Events, a wholly-owned subsidiary of the
Company. FLE provides event food, beverage, and souvenir merchandising services,
as well as expanded ancillary support services, to all of the Company's
facilities and other unaffiliated sports-related venues. The Company believes
this restructuring will provide better products and expanded services to its
customers, enhancing their overall entertainment experience, while allowing the
Company to achieve substantial operating efficiencies.
In 1992, the Company developed the Legends Circuit for which it manufactures
and sells cars and parts used in Legends Circuit racing events and is the
official sanctioning body. At retail prices starting at less than $12,400,
management believes that Legends Cars are economically affordable to a new group
of racing enthusiasts who previously could not race on an organized circuit.
Legends Cars are an increasingly important part of the Company's business as
revenues from this business have grown from $5.7 million in 1994 to $10.9
million in 1998. As an extension of the Legends Car concept, the Company
released in late 1997 a new smaller, lower priced "Bandolero" stock car, which
appeals largely to younger racing enthusiasts. The Company intends to further
broaden the Legends Car Circuit, increasing the number of sanctioned races and
tracks at which Legend and Bandolero Car races are held in 1999.
INCREASED DAILY USAGE OF EXISTING FACILITIES. Management constantly seeks
revenue-producing uses for the Company's speedway facilities on days not
committed to racing events. Such other uses include car and truck shows,
supercross motorcycle racing, auto fairs, driving schools, vehicle testing and
settings for television commercials, concerts, holiday season festivities, print
advertisements and motion pictures. In 1998, the Company began hosting a summer
Legend Cars series at AMS and TMS, and in 1999 is planning to begin a similar
series at LVMS and SPR. Other examples of increased usage include LMSC's hosting
of the 35th Anniversary of the Mustang celebration, and TMS's spring and fall
Autofests featuring Pate Swap Meets in 1999. The Company is also currently
attempting to schedule music concerts at certain facilities. Non-race-day track
rental revenues were $1,730,000 in 1996, $3,092,000 in 1997 and $3,919,000 in
1998.
Along with such increased daily usage of the facilities, the Company hosted
one new IRL race event at both AMS and TMS in 1998. The TMS and LMSC races were
attended by the second and third largest crowds, respectively, ever for an IRL
event, exclusive of the Indianapolis 500. In 1999, the Company is hosting five
IRL events, including LVMS. Also, the IRL season championship finale has been
moved to TMS coupled with a NASCAR Craftsman Truck Series race. With more than
twelve different track configurations at LVMS, including a 2.5 mile road course,
1/4 mile dragstrip, 1/8 mile dragstrip, 1/2 mile clay oval, 3/8 mile paved oval
and several other race courses, the Company plans to capitalize on its top
market entertainment value to further grow the speedway and other racing series,
and to promote new expanded venues.
ACQUISITION AND DEVELOPMENT OF ADDITIONAL MOTORSPORTS FACILITIES. The
Company also considers growth by acquisition and development of motorsports
facilities as appropriate opportunities arise. The Company acquired Bristol
Motor Speedway in January
6
1996, Sears Point Raceway in November 1996, and Las Vegas Motor Speedway in
December 1998. In 1997, the Company completed construction of Texas Motor
Speedway. The Company continuously seeks to locate, acquire, develop and operate
venues which the Company feels are underdeveloped or underutilized and to
capitalize on markets where the pricing of sponsorships and television rights
are considerably more lucrative.
OPERATIONS
The Company's operations consist principally of racing and related events.
The Company also sells Legends and Bandolero Cars and is the official
sanctioning body for the Legends and Bandolero Car Racing Circuits. Its other
activities are ancillary to its core business of racing.
RACING AND RELATED EVENTS
NASCAR-sanctioned races are held annually at each of the Company's
speedways. The following are summaries of racing events scheduled in 1999 at
each Company speedway. Management is actively pursuing the scheduling of
additional motorsports racing and other events.
AMS. In March 1999, AMS conducted the Cracker Barrel Old Country Store 500
Winston Cup race and the Yellow Freight 300 Busch Grand National race. AMS is
scheduled to hold the last Winston Cup race of the season, as well as several
other races and events. Its NASCAR-sanctioned racing schedule is as follows:
DATE EVENT CIRCUIT
- ---- ----- -------
March 13 "Yellow Freight 300" Busch Grand National
March 14 "Cracker Barrel Old Country Store 500" Winston Cup
November 21 "NAPA 500" Winston Cup
In 1999, AMS is also scheduled to sponsor an IRL event and two ARCA races.
BMS. In 1999, BMS is scheduled to hold two Winston Cup races and two Busch Grand
National races, as well as several other races and events. Its NASCAR-sanctioned
racing schedule is as follows:
DATE EVENT CIRCUIT
- ---- ----- -------
April 10 "Moore's Snack Food 250" Busch Grand National
April 11 "Food City 500" Winston Cup
August 27 "Food City 250" Busch Grand National
August 28 "Goody's Headache Powder 500" Winston Cup
In 1999, BMS is also scheduled to sponsor a NASCAR Craftsman Truck Series
event and the NHRA's "The Winston No-Bull Showdown" all-star race.
LMSC. In 1999, LMSC is scheduled to hold three Winston Cup races and two Busch
Grand National races, as well as several other races and events. Its
NASCAR-sanctioned racing schedule is as follows:
DATE EVENT CIRCUIT
- ---- ----- -------
May 22 "The Winston" Winston Cup (all-star race)
May 29 "CARQUEST Auto Parts 300" Busch Grand National
May 30 "Coca-Cola 600" Winston Cup
October 9 "All Pro Auto Parts Bumper to Bumper 300" Busch Grand National
October 10 "UAW-GM Quality 500" Winston Cup
In 1999, LMSC is also scheduled to sponsor an IRL event and two ARCA races.
LVMS. In March 1999, LVMS conducted the Las Vegas 400 Winston Cup race and the
Sam's Town 300 Busch Grand National race, among others. Its NASCAR-sanctioned
racing schedule is as follows:
DATE EVENT CIRCUIT
- ---- ----- -------
March 6 "Sam's Town 300" Busch Grand National
March 7 "Las Vegas 400" Winston Cup
7
In 1999, LVMS is also scheduled to sponsor one NASCAR Craftsman Truck Series
event, one IRL event, two NASCAR Winston West and two Winston Southwest Series
events, and various AMA, NHRA, World of Outlaws and other events.
SPR. In 1999, SPR is scheduled to hold one Winston Cup race, as well as several
other races and events. Its NASCAR-sanctioned racing schedule is as follows:
DATE EVENT CIRCUIT
- ---- ----- -------
June 27 "Save Mart / Kragen 350" Winston Cup
In 1999, SPR is also scheduled to sponsor a NHRA Nationals event, a NASCAR
Winston Southwest Series event, and various AMA, Sports Car Club of America and
other racing events.
TMS. In 1999, TMS is currently scheduled to hold one Winston Cup race and one
Busch Grand National race, as well as several other races and events. Its
NASCAR-sanctioned racing schedule is as follows:
DATE EVENT CIRCUIT
- ---- ----- -------
March 27 "Coca-Cola 300" Busch Grand National
March 28 "PRIMESTAR 500" Winston Cup
In 1999, TMS is also scheduled to sponsor two NASCAR Craftsman Truck Series
events and two IRL events.
The following table shows selected revenues for the years ended December 31,
1996, 1997 and 1998. All amounts for 1996, 1997 and 1998 exclude information for
LVMS before the December 1, 1998 acquisition.
1996 1997 1998
---- ---- ----
(IN THOUSANDS)
Admissions.................................... $ 52,451 $ 94,032 $107,601
Sponsorship revenue........................... 6,989 14,646 18,346
Broadcast revenue............................. 5,299 17,947 20,014
Other......................................... 37,374 65,501 83,835
------ ------ ------
Total....................................... $102,113 $192,126 $229,796
======== ======== ========
ADMISSIONS. Grandstand ticket prices at the Company's NASCAR-sanctioned
events in 1999 range from $15.00 to $130.00. In general, the Company is raising
ticket prices as the cost of living increases.
SPONSORSHIP REVENUE. The Company's revenue from corporate sponsorships is
paid in accordance with negotiated contracts. The identities of sponsors and the
terms of sponsorship change from time to time. The Company currently has
sponsorship contracts with such major manufacturing and consumer products
companies as Coca-Cola, General Motors, Miller Brewing Company, Anheuser-Busch,
NAPA, Cracker Barrel, PRIMESTAR, Goody's, Save Mart, Kragen, Chevrolet and Ford.
Some contracts allow the sponsor to name a particular racing event, as in the
"Coca-Cola 600" and the "UAW-GM Quality 500." Other consideration ranges from
"Official Car" designation (as with Ford at AMS, and Chevrolet at BMS, LMSC,
LVMS, SPR and TMS) to exclusive advertising and promotional rights in the
sponsor's product category (as with Anheuser-Busch at AMS, BMS, LVMS and TMS,
Coors also at TMS, and Miller at LMSC). Also, the Company obtained a naming
rights agreement in early 1999 renaming Charlotte Motor Speedway as Lowe's Motor
Speedway at Charlotte. None of the Company's event sponsors accounted for as
much as 5% of total revenues in 1998.
BROADCAST REVENUE. The Company has negotiated contracts with television
networks and stations for the broadcast coverage of all of its NASCAR-sanctioned
events. The Company has contracts with ABC, CBS, ESPN, TBS and TNN covering
events at AMS, BMS, LMSC, SPR and TMS. The Company also broadcasts all of its
NASCAR Winston Cup and Busch Grand National Series races over its proprietary
Performance Racing Network ("PRN"), which is syndicated to more than 500
stations. PRN also sponsors a weekly racing-oriented program throughout the
NASCAR season, which is syndicated to more than 175 stations. The Company
derives revenue from the sale of commercial time on PRN. None of the Company's
broadcast contracts accounted for as much as 5% of total revenues in 1998.
OTHER REVENUE. The Company derives other revenue from the sale of souvenirs
and concessions, from fees paid for catering "hospitality" receptions and
private parties at its speedways and from parking. Also, as of December 31,
1998, the Company's speedway facilities include a total of approximately 659
luxury suites available for leasing to corporate sponsors or others at current
1999 annual rates ranging from $20,000 to $100,000. LMSC has also constructed 40
open-air boxes, each containing 32 seats, which are currently available for
renting by corporate sponsors or others at annual rates of up to $37,000. The
Company's tracks and related facilities often are leased to others for use in
driving schools, testing, research and development of race cars and racing
products, use as settings for commercials and motion pictures, and other outdoor
events. The Company also derives other revenue from the sale of Legend and
8
Bandolero cars and parts, and industrial park rental revenues.
QUAD-CITIES INTERNATIONAL RACEWAY PARK. In October 1996, the Company signed
a joint management and development agreement with Quad-Cities International
Raceway Park. The Company will serve in an advisory capacity for the development
of a multi-use facility, which includes a speedway in northwest Illinois. The
agreement also grants the Company the option to purchase up to 40% equity
ownership in the facility. The option has not been exercised.
600 RACING AND THE LEGENDS CARS CIRCUIT
Introduced by the Company in 1992, Legends Cars are 5/8-scale versions of
the modified cars driven by legendary early NASCAR racers. Designed primarily to
race on "short" tracks of 3/8-mile or less, they are currently available in
eight body styles modeled after classic sedans and coupes. Legends Circuit races
are sanctioned by the Company's subsidiary, 600 Racing, and continue to be the
fastest growing short track racing division in motorsports. More than 1,500
sanctioned races were held nationwide in 1998, and 600 Racing is now the third
largest short track sanctioning body in terms of membership behind NASCAR and
IMSA. Since 1995, Legends Cars have been manufactured by 600 Racing at a leased
92,000-square-foot facility located approximately two miles from LMSC.
Management believes that the Legends Car is one of only a few complete race
cars manufactured in the United States for a retail price of less than $12,400.
At these retail prices, management believes that Legends Cars are economically
affordable to a new group of racing enthusiasts who otherwise could not race on
an organized circuit. Legends Cars are not designed for general road use. Cars
and parts are currently marketed and sold through approximately 45 distributors
doing business throughout the United States, Canada, and Europe.
In late 1997, 600 Racing released a new "Bandolero" line of smaller,
lower-priced, entry level stock cars, which is expected to appeal to younger
racing enthusiasts. The Company further broadened the Legends Car Circuit in
1998, increasing the number of sanctioned races and tracks at which Legend and
Bandolero Car races are held. In 1998, 600 Racing also began conducting
sanctioned Legend and Bandolero Car races at AMS and TMS, as well as again at
LMSC, and in 1999, plans to begin at both SPR and LVMS.
OTHER ACTIVITIES
The Company also owns Smith Tower, a seven-story, 135,000 square foot
building adjoining the main grandstand and overlooking the principal track at
LMSC. Smith Tower houses the Speedway Club, the corporate offices of LMSC and
office space leased to others. The Speedway Club is an exclusive dining and
entertainment facility located on the fifth and sixth floors of Smith Tower. The
Company has constructed a similar office tower adjoining the main grandstand and
overlooking the track at TMS. This TMS tower houses The Texas Motor Speedway
Club and corporate offices. The Company is currently conducting a membership
drive for The Texas Motor Speedway Club, which contains a first class, year
round dining-entertainment club and a health-fitness club. The Texas Motor
Speedway Club opened in March 1999. Open year-round, these two VIP clubs are a
focal point of the Company's efforts to improve the amenities and enhance the
comfort of its facilities for the benefit of spectators.
The Company has built 46 trackside condominiums at AMS of which 41 were sold
as of December 31, 1998. Also, the Company completed construction of 76
condominiums at TMS above turn two of the speedway, 66 of have been sold or
contracted for sale as of December 31, 1998. The Company has built and sold 40
trackside condominiums at LMSC in the 1980's and another 12 units at LMSC from
1991 to 1994. Some are used by team owners and drivers, which is believed to
enhance their commercial appeal.
COMPETITION
The Company is the leading motorsports promoter in the local and regional
markets served by AMS, BMS, LMSC, LVMS, SPR and TMS, and competes regionally and
nationally with other speedway owners to sponsor events, especially NASCAR, IRL
and NHRA sanctioned events. The Company also must compete for spectator interest
with all forms of professional and amateur spring, summer and fall sports
conducted in and near Atlanta, Bristol, Charlotte, Las Vegas, Fort Worth, and
Sonoma. The Company also competes for attendance with a wide range of other
available entertainment and recreational activities.
EMPLOYEES
As of December 31, 1998, the Company had approximately 860 full-time
employees and 110 part-time employees. The Company hires temporary employees to
assist during periods of peak attendance at its events. None of the Company's
employees are represented by a labor union. Management believes that the Company
enjoys a good relationship with its employees.
ENVIRONMENTAL MATTERS
9
Solid waste landfilling has occurred on and around the Company's property at
LMSC for many years. Landfilling of general categories of municipal solid waste
on the LMSC property ceased in 1992. However, there are two landfills currently
operating at LMSC that are permitted to receive inert debris and waste from land
clearing activities ("LCID" landfills). Two other LCID landfills on the LMSC
property were closed in 1994. LMSC intends to allow similar LCID landfills to be
operated on the LMSC property in the future. LMSC also leases a portion of its
property to a subsidiary of Browning-Ferris Industries, Inc. ("BFI") for use as
a construction and demolition debris landfill (a "C&D" landfill), which can
receive solid waste resulting solely from construction, remodeling, repair or
demolition operations on pavement, buildings or other structures, but cannot
receive inert debris, land-clearing debris or yard debris. In addition, the BFI
subsidiary owns and operates an active solid waste landfill adjacent to LMSC.
Management believes that the active solid waste landfill was constructed in such
a manner as to minimize the risk of contamination to surrounding property.
Portions of the inactive solid waste landfill areas on the LMSC property are
subject to a groundwater monitoring program and data are submitted to the North
Carolina Department of Environment, and Natural Resources ("DENR"). DENR has
noted that data from certain groundwater sampling events have indicated levels
of certain regulated compounds that exceed acceptable trigger levels and organic
compounds that exceed regulatory groundwater standards. DENR has not acted to
require any remedial action by the Company at this time with respect to this
situation. In the future, DENR could possibly require the Company to take
certain actions with respect to this situation that could result in material
costs being incurred by the Company.
Management believes that the Company's operations, including the landfills
on its property, are in substantial compliance with all applicable federal,
state and local environmental laws and regulations. Nonetheless, if damage to
persons or property or contamination of the environment is determined to have
been caused by the conduct of the Company's business or by pollutants,
substances, contaminants or wastes used, generated or disposed of by the
Company, or which may be found on the property of the Company, the Company may
be held liable for such damage and may be required to pay the cost of
investigation or remediation, or both, of such contamination or damage caused
thereby. The amount of such liability, as to which the Company is self-insured,
could be material. Changes in federal, state or local laws, regulations or
requirements, or the discovery of previously unknown conditions, could require
additional expenditures by the Company.
PATENTS AND TRADEMARKS
The Company has trademark rights in "Atlanta Motor Speedway" and "Charlotte
Motor Speedway." It also has trademark rights concerning its Legends Cars, "600
Racing" and its corporate logos. Trademark and service mark registrations are
pending with respect to "Speedway Motorsports," "Bristol Motor Speedway," "Sears
Point Raceway" and "Texas Motor Speedway." The Company also has two patent
applications pending with respect to its Legends Car technology. Management's
policy is to protect its intellectual property rights zealously, including
through litigation, to protect their proprietary value in souvenir sales and
market recognition.
ITEM 2. PROPERTIES
The Company's principal executive offices are located at U.S. Highway 29
North, Concord, North Carolina, 28026, and its telephone number is (704)
455-3239. A description of each Company speedway follows:
ATLANTA MOTOR SPEEDWAY. AMS is located on 870 acres of Company-owned land in
Hampton, Georgia, approximately 30 miles south of downtown Atlanta. Built in
1960, today it is a modern, attractive facility. In 1996, the Company completed
17 new suites at AMS, reconfigured AMS's main entrances and expanded on-site
roads to ease congestion caused by the increases in attendance. In November
1997, the Company completed major renovations at AMS, including its
reconfiguration into a "state-of-the-art" 1.54 mile, lighted, quad-oval
superspeedway, the addition of approximately 22,000 permanent seats, including
58 new suites, and changing the start-finish line location. Other significant
improvements in 1997 included new scoreboards, new garage areas, and new infield
media and press box centers. Lighting was installed for its inaugural IRL night
race in August 1998. At December 31, 1998, AMS had permanent seating capacity of
approximately 124,000, including 141 new luxury suites. In 1999, AMS plans to
improve and expand its on-site roads and available parking, as well as
reconfiguring traffic patterns and entrances, to ease congestion and improve
traffic flow. AMS has constructed 46 condominiums overlooking the Atlanta
speedway and is in the process of selling the four remaining condominiums.
BRISTOL MOTOR SPEEDWAY. In January 1996, the Company acquired 100% of the
capital stock of BMS. BMS is located on approximately 550 acres in Bristol,
Tennessee and is a one-half mile, lighted, 36-degree banked concrete oval. BMS
also owns and operates a one-quarter mile lighted dragstrip. BMS is one of the
most popular facilities in the Winston Cup circuit among race fans due to its 36
degree banked turns and lighted nighttime races. Management believes that
spectator demand for its Winston Cup events at BMS exceeds existing permanent
seating capacity. In 1996, BMS added approximately 6,000 permanent grandstand
seats and relocated various souvenir, concessions and restroom facilities to the
mezzanine level to increase spectator convenience and accessibility. In 1997,
BMS added approximately 39,000 permanent grandstand seats and constructed 55 new
suites for a net increase
10
of 31. In 1998, BMS added approximately 19,000 permanent grandstand seats,
including 42 new luxury suites, again featuring a new stadium-style terrace
section and mezzanine level facilities for enhanced spectator convenience and
assessibility, and made other site improvements. At December 31, 1998, BMS had
permanent seating capacity of approximately 134,000, including 97 luxury suites.
In 1999, BMS is reconstructing and expanding its dragstrip into a
"state-of-the-art" dragway with permanent grandstand seating, luxury suites, and
extensive fan amenities and facilities. Construction of the Bristol Dragway is
expected to be completed in 1999, and its inaugural National Hot Rod Association
(NHRA) sanctioned Winston Showdown will be hosted in July 1999. Bristol Dragway
will also host regional and weekly drag racing events, as well as various auto
shows.
LOWE'S MOTOR SPEEDWAY (FORMERLY KNOWN AS CHARLOTTE MOTOR SPEEDWAY). LMSC is
located in Concord, North Carolina, approximately 12 miles northeast of uptown
Charlotte. On Winston Cup race days it uses more than 1,000 acres of land, some
of which is leased from others. LMSC was among the first superspeedways built
and today is a modern, attractive facility. The principal track is a 1.5-mile
banked asphalt quad-oval facility in excellent condition, having been repaved in
1994, and was the first superspeedway in North America lighted for nighttime
racing. LMSC also has three lighted "short" tracks (a 1/5-mile asphalt oval, a
1/4-mile asphalt oval and a 1/5-mile dirt oval), as well as a 2.25-mile asphalt
road course. The Company has consistently improved and increased spectator
seating arrangements at LMSC. In 1997, LMSC added a "state-of-the-art" 25,000
seat grandstand, featuring a unique mezzanine level concourse and 26 new suites,
among other site improvements. In 1998, LMSC added approximately 12,000
permanent seats, including 12 new luxury suites, again featuring a new
stadium-style terrace section and mezzanine level facilities for enhanced
spectator convenience and assessibility. LMSC also further expanded parking
areas to accommodate the increases in attendance and to ease congestion. At
December 31, 1998, LMSC had permanent seating capacity of approximately 147,000,
including 125 luxury suites. In 1999, LMSC plans to add approximately 10,000
permanent seats, further expand concessions, restroom and other fan amenities,
and make other site improvements.
LAS VEGAS MOTOR SPEEDWAY. LVMS, located on approximately 1,300 acres in Las
Vegas, Nevada, is a 1.5 mile, lighted, asphalt superspeedway, and includes
several other on-site race tracks and a 1.4 million square foot on-site
industrial park. The other race tracks include a 1/4 mile dragstrip, 1/8 mile
dragstrip, 2.5 mile road course, 1/2 mile clay oval, 3/8 mile paved oval,
motocross and other off-road race courses. Construction of LVMS was
substantially completed in 1997 and its first major NASCAR Winston Cup Series
race was held in March 1998. As of December 31, 1998, construction of the 1.4
million square foot industrial park was nearing completion and is expected to
commence operations in early 1999. The industrial park is expected to be leased
under triple net operating leases primarily to businesses and individuals
involved in racing and related industries. At December 31, 1998, LVMS had
permanent seating capacity of approximately 107,000, including 102 luxury
suites. In 1999, LVMS plans to add approximately 15,000 permanent seats, expand
concessions, restroom and other fan amenities facilities, and make other site
improvements.
SEARS POINT RACEWAY. SPR, located on approximately 1,500 acres in Sonoma,
California, consists of a 2.52-mile, twelve-turn road course, a one-quarter mile
dragstrip, and a 157,000 square foot industrial park. SPR currently does not
have permanent seating capacity but provides temporary seating and suites for
approximately 24,000 spectators in addition to other general admission seating
arrangements along its 2.52 mile road course. In 1997, SPR made various parking,
road improvements and grading changes to improve spectator sight lines, and to
increase and improve seating and facilities for spectator and media amenities.
In 1998, SPR acquired adjoining land to provide an additional entrance and
expanded spectator parking areas to accommodate the increases in attendance and
to ease congestion. Also in 1998, SPR was partially reconfigured into a
stadium-style road course featuring "The Chute" which provides spectators with
improved sight lines and expanded viewing areas. Pending governmental approvals,
in 1999, the Company expects to begin major renovations at SPR, including its
on-going reconfiguration into a "stadium-style" road racing course, the addition
of approximately 45,000 permanent seats, and improving and expanding
concessions, restroom and other fan amenities facilities.
TEXAS MOTOR SPEEDWAY. TMS, located on approximately 1,360 acres in Fort
Worth, Texas, is a 1.5-mile, lighted, banked, asphalt quad-oval superspeedway
with a permanent seating capacity of approximately 153,000, including 194
suites, and 76 condominiums. TMS, the second-largest sports facility in the
United States in terms of permanent seating capacity, hosted its first major
NASCAR Winston Cup race on April 6, 1997, preceded by a Busch Grand National
race. TMS was designed to maximize spectator comfort and enjoyment, and further
design improvements are expected at TMS as management acquires operating
experience with this new facility. The TMS facilities are subject to a lease
transaction with the Fort Worth Sports Authority as of December 31, 1998. See
Note 2 to the Consolidated Financial Statements for information on the terms and
conditions of the lease transaction. In addition to adding approximately 3,000
permanent seats, among other site improvements, TMS significantly expanded its
parking areas and improved traffic control dramatically reducing travel
congestion.
In addition, TMS has constructed an office tower adjoining the main
grandstand and overlooking the speedway, similar to The Speedway Club at LMSC.
This TMS tower houses The Texas Motor Speedway Club and corporate offices. The
Company is currently conducting a membership drive for The Texas Motor Speedway
Club which opened in March 1999.
11
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to ordinary routine litigation incidental to its
business. Management does not believe that the resolution of any or all of such
litigation is likely to have a material adverse effect on the Company's
financial condition or results of operations.
On April 23, 1996, the Northwest Independent School District (the "Texas
School District"), within whose borders TMS is located, filed a complaint
against TMS, among others, in a case styled Northwest Independent School
District v. City of Fort Worth, FW Sports Authority, Inc., the Governor of
Texas, the Comptroller of Public Accounts of Texas, the Attorney General and
Texas Motor Speedway, Inc. (the "School District Litigation"). The School
District Litigation was filed in State District Court of Travis County, Texas
seeking a judgement that the statutory basis for any claimed tax exemption for
TMS is unconstitutional under the Texas Constitution and that TMS will be
required to pay ad valorem taxes on the TMS facility. The Texas School District
has the power to levy ad valorem taxes against TMS if the TMS facility is not
exempt property. All defendants successfully moved for dismissal on the grounds
that the School District Litigation had been improperly brought in Travis
County, Texas, rather than in the county in which TMS is located, as provided in
Texas statutory procedural rules for challenging claims of ad valorem tax
exemptions. In June 1997, the Texas Court of Appeals, an intermediate appellate
court in Austin, Texas denied the Texas School District's appeal and sustained
the dismissal by the state district court. Subsequently, the Texas School
District filed an administrative protest with the Denton County, Texas Tax
Appraisal District, which substantially realleges the allegations expressed
originally in the School District Litigation and challenges the tax exempt
status of the TMS facility. By order entered on June 19, 1997, the Denton
County, Texas Tax Appraisal District confirmed the tax exempt status of the TMS
properties. The Texas School District appealed that order in state district
court. The case remains in its discovery phase. The Company has vigorously
defended, and will continue to defend, the tax exempt status of TMS. At this
pretrial stage in the proceeding, management is unable to quantify with any
certainty the tax effect on the Company of any outcome in this matter.
On December 18, 1996, TMS conveyed its facility properties to the FW Sports
Authority, a non-profit corporate instrumentality of the City of Fort Worth,
Texas, for a specified amount payable over 30 years from incremental tax funds
collected on non-exempt properties located within the boundaries of a
reinvestment zone established by the City. TMS simultaneously entered into a
lease with the FW Sports Authority ("TMS Lease") with an option to repurchase
the properties under specified conditions. The TMS Lease is a "triple-net" lease
and TMS is, therefore, required to pay all costs of maintenance, upkeep and
insurance relating to the TMS facility and is entitled to receive all revenues
therefrom. Because the properties are owned by a public instrumentality and are
to be used for public recreational purposes, the TMS facility properties are
listed as exempt from ad valorem taxes on the property tax rolls of the Tarrant
and Denton County Tax Appraisal Districts. Like other publicly owned
professional sports facilities, significant ad valorem tax savings are expected
over the next 30 years. Should the Texas School District successfully challenge
the ad valorem tax exemption, the TMS Lease provides that all taxes levied on
the TMS facility properties, including any claims for back taxes, are payable by
TMS and the Company. A bill was recently introduced in the Texas Legislature
seeking to prohibit non-profit corporate instrumentalities, like the FW Sports
Authority, from owning and leasing sports and recreational facilities unless the
voters of the sponsoring City have affirmatively voted for certain sales taxes.
The Company intends to vigorously oppose the passage of this bill and to make
all legal challenges to the bill should it become law. No assurance can be given
that the Company will be successful in protecting the tax exempt status of the
TMS facility. If the TMS facility loses its tax exempt status, the TMS Lease
provides TMS with a purchase option that is immediately exercisable provided
that TMS continues to operate the speedway as a motorsports facility for 15
years.
12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1998, no matters were submitted to a vote of
security holders.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The common stock of SMI, $.01 per share par value (the "Common Stock"), is
traded on the New York Stock Exchange ("NYSE") under the symbol "TRK." The
Common Stock has traded on the NYSE since the Company's initial public offering
(the "IPO") in February 1995. As of March 26, 1999, giving effect to the Stock
Split, 41,512,121 shares of Common Stock were outstanding and there were
approximately 3,027 record holders of Common Stock.
On February 9, 1996, SMI's Board of Directors approved the two for one Stock
Split effected as of March 15, 1996 in the form of a 100% Common Stock dividend
payable to stockholders of record as of February 26, 1996.
At the 1998 annual meeting on May 5, 1998, the Company's stockholders
approved amendments increasing the number of shares of common stock issuable
under each stock option plan as follows: from 2,000,000 to 3,000,000 shares
under the 1994 Stock Option Plan; from 400,000 to 800,000 shares under the
Formula Stock Option Plan; and from 200,000 to 400,000 shares under the Employee
Stock Purchase Plan. The amendments allow future grants to key employees,
independent directors and other eligible employees.
The Company intends to retain future earnings to provide funds for the
operation and expansion of its business. As a holding company, the Company will
depend on dividends and other payments from each of its speedways and its other
subsidiaries to pay cash dividends to stockholders, as well as to meet debt
service and operating expense requirements.
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 other factors as the Board of
Directors, in its sole discretion, may consider relevant. Furthermore, the
Credit Facility (as described in "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Dividends", and in Note 5 to the Consolidated Financial
Statements) includes covenants which preclude the payment of dividends.
The following table sets forth the high and low closing sales prices for the
Company's Common Stock, as reported by the NYSE Composite Tape for each calendar
quarter during the periods indicated.
1998 HIGH LOW
---- ----- ---
First Quarter............................................ $27.875 $23.063
Second Quarter........................................... 29.188 23.188
Third Quarter............................................ 26.000 16.250
Fourth Quarter........................................... 29.563 16.313
1997
----
First Quarter............................................ 25.125 19.250
Second Quarter........................................... 24.125 20.750
Third Quarter............................................ 24.563 20.688
Fourth Quarter........................................... 24.813 21.750
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data for the five years ended December 31,
1998 have been derived from audited financial statements. The financial
statements for each of the three years ended December 31, 1998 were audited by
Deloitte & Touche LLP, independent auditors, and these financial statements and
auditors' report are contained elsewhere herein. All of the data set forth below
are qualified by this reference to, and should be read in conjunction with, the
Company's Consolidated Financial Statements (including the Notes thereto), and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere herein.
YEAR ENDED DECEMBER 31:
-----------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA(1)
Revenues:
Admissions....................................... $31,523 $36,569 $52,451 $94,032 $107,601
Event-related revenue............................ 24,814 27,783 36,414 83,177 105,459
Other operating revenue.......................... 8,200 11,221 13,248 14,917 16,736
----- ------ ------ ------ ------
Total revenues................................. 64,537 75,573 102,113 192,126 229,796
------ ------ ------- ------- -------
Operating Expenses:
13
Direct expense of events......................... 18,327 19,999 30,173 65,347 83,046
Other direct operating expense................... 6,110 7,611 8,005 9,181 10,975
General and administrative....................... 11,812 13,381 16,995 31,623 34,279
Non-cash stock compensation(2)................... 3,000 -- -- -- --
Depreciation and amortization.................... 4,500 4,893 7,598 15,742 21,701
Preoperating expense of new facility(3).......... -- -- -- 1,850 --
-- -- -- ----- --
Total operating expenses......................... 43,749 45,884 62,771 123,743 150,001
------ ------ ------ ------- -------
Operating income................................... 20,788 29,689 39,342 68,383 79,795
Interest income (expense), net..................... (3,855) (24) 1,316 (5,313) (12,228)
Bridge loan cost amortization (4).................. -- -- -- -- (752)
Other income....................................... 1,592 3,625 2,399 991 3,202
----- ----- ----- --- -----
Income from continuing operations before income taxes 18,525 33,290 43,057 64,061 70,017
Provision for income taxes......................... 8,055 13,700 16,652 25,883 27,646
----- ------ ------ ------ ------
Income from continuing operations.................. 10,470 19,590 26,405 38,178 42,371
Discontinued operations............................ (294) -- -- -- --
---- -- -- -- --
Income before extraordinary item................... 10,176 19,590 26,405 38,178 42,371
Extraordinary item, net............................ -- (133) -- -- --
-- ---- -- -- --
Net income......................................... $10,176 $19,457 $26,405 $38,178 $42,371
======= ======= ======= ======= =======
Income from continuing operations applicable to
Common Stock(5)................................... $7,464 $19,590 $26,405 $38,178 $42,371
====== ======= ======= ======= =======
Income per share from continuing operations
applicable to Common Stock - basic (6)............ $0.25 $0.53 $0.65 $0.92 $1.02
===== ===== ===== ===== =====
Weighted average shares outstanding - basic (6).... 30,000 36,663 40,476 41,338 41,482
====== ====== ====== ====== ======
Income per share from continuing operations
applicable to Common Stock - diluted (6).......... $0.25 $0.52 $0.64 $0.89 $1.00
===== ===== ===== ===== =====
Weighted average shares outstanding - diluted (6).. 30,400 37,275 41,911 44,491 44,611
====== ====== ====== ====== ======
BALANCE SHEET DATA(1)
Total assets....................................... $93,453 $136,446 $409,284 $597,168 $904,877
Long-term debt, including current maturities:
Loans payable to NationsBank and other (7)....... 47,261 1,806 23,465 1,433 254,714
Senior subordinated notes ....................... -- -- -- 124,674 124,708
Convertible subordinated debentures.............. -- -- 74,000 74,000 74,000
Capital lease obligation......................... -- -- 18,165 19,433 502
Stockholders' equity............................... $19,232 $95,380 $204,735 $244,114 $287,120
(1) These data for 1994 and 1995 include AMS and LMSC; for 1996 include BMS
acquired in January 1996 and SPR acquired in November 1996; for 1997 include TMS
which hosted it first racing event on April 6, 1997; and for 1998 include LVMS
acquired in December 1998. See Note 1 to the Consolidated Financial Statements.
(2) On December 21, 1994, the Company granted options to nine employees to
purchase an aggregate of 800,000 shares of Common Stock at an exercise price of
$3.75 per share. As a result, the Company recorded a non-cash stock compensation
charge of $3.0 million (before tax) in December 1994, which represents the
difference between managements' estimate of the fair value of the Common Stock
at the date of grant, after considering the then proposed initial public
offering of the Company's stock, and the exercise price of the options granted.
(3) Preoperating expenses consist of non-recurring and non-event related costs
to develop, organize and open TMS, which hosted its first racing event on April
6, 1997.
(4) Bridge loan cost amortization results from financing costs incurred amending
the Company's bank credit facility and bridge loan to fund the December 1, 1998
acquisition of LVMS. See Note 5 to the Consolidated Financial Statements.
Associated deferred financing costs of $4,050,000 are being amortized over the
loan term which matures May 18, 1999.
(5) The data for 1994 represents reported income from continuing operations less
accretion in the estimated redemption value of certain warrants to purchase AMS
stock. On December 16, 1994, AMS redeemed such warrants from NationsBank, N.A.
(Carolinas).
(6) The 1994 income per share from continuing operations applicable to common
stock has been prepared on a pro forma basis to reflect the 30,000,000 common
shares outstanding after giving effect to a restructuring whereby AMS and LMSC
became wholly-owned subsidiaries of SMI. Income per share from continuing
operations applicable to common stock represents basic and diluted earnings per
share. See Note 6 to the Consolidated Financial Statements.
(7) Other notes payable principally represents a road construction loan of
$1,465,000, $983,000 and $647,000 outstanding as of December 31, 1996, 1997 and
1998, respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of the results of operations and
financial condition as of December 31, 1998 should be read in conjunction with
the Consolidated Financial Statements (including the Notes thereto) appearing
elsewhere herein.
14
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, a dining and entertainment facility at LMSC, Legends Car
operations, and from Oil-Chem, a wholly-owned subsidiary, that produces an
environmentally friendly motor oil additive that the Company intends to promote
in conjunction with its speedways.
The Company classifies its revenues as admissions, event-related revenues
and other operating revenue. "Admissions" includes ticket sales for all of the
Company's events. "Event related revenues" includes food, beverage and souvenir
sales, luxury suite rentals, sponsorship fees and broadcast right fees. "Other
operating revenue" includes the Speedway Club, Legends Car, industrial park
rental 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 souvenir sales,
compensation of certain employees and advertising. "Other direct operating
expense" includes the cost of the Speedway Club and Legends Car sales, and
industrial park rentals 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 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.
RESULTS OF OPERATIONS
In 1998, the Company began operating certain food and beverage concession
activities through its wholly-owned subsidiary Finish Line Events, which
previously had been procured from a third party. As a result, revenues and
expenses associated with such concession activities for the year ended December
31, 1998 are included in event related revenues, direct expense of events and
general and administrative expense. For the years ended December 31, 1996 and
1997, the Company's operating profits from such activities under its arrangement
with the outside vendor were reported as event related revenue.
The table below shows the relationship of income and expense items relative
to total revenue for the years ended December 31, 1996, 1997 and 1998.
PERCENTAGE OF TOTAL REVENUE
FOR YEAR ENDED DECEMBER 31:
----------------------------
1996 1997 1998
---- ---- ----
Revenues:
Admissions............................. 51.4% 48.9% 46.8%
Event-related revenue.................. 35.6 43.3 45.9
Other operating revenue................ 13.0 7.8 7.3
---- --- ---
Total revenues......................... 100.0% 100.0% 100.0%
----- ----- -----
Operating Expenses:
Direct expense of events............... 29.6 34.0 36.1
Other direct operating expense......... 7.8 4.8 4.8
General and administrative............. 16.6 16.4 14.9
Depreciation and amortization.......... 7.5 8.2 9.5
Preoperating expense of new facility -- 1.0 --
-- --- --
Total operating expenses............... 61.5 64.4 65.3
---- ---- ----
Operating income......................... 38.5 35.6 34.7
Interest income (expense), net........... 1.3 (2.7) (5.3)
Other income, net........................ 2.4 .5 1.0
Income tax provision..................... (16.3) (13.5) (12.0)
----- -----
Net income............................... 25.9% 19.9% 18.4%
==== ==== ====
15
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
TOTAL REVENUES for 1998 increased by $37.7 million, or 19.6%, to $229.8
million, over such revenues for 1997. This improvement was attributable to
increases in all revenue items, particularly admissions and event related
revenues.
ADMISSIONS for 1998 increased by $13.6 million, or 14.4%, over admissions
for 1997. This increase was due primarily to growth in NASCAR sanctioned racing
events, and to hosting new IRL racing events at AMS and TMS during the current
period. The growth in admissions reflects the continued increases in attendance,
additions to permanent seating capacity, and increases in ticket prices.
EVENT RELATED REVENUE for 1998 increased by $22.3 million, or 26.8%, over
such revenue for 1997. This increase was due to the growth in attendance,
including related increases in concessions and souvenir sales, to hosting new
IRL racing events at AMS and TMS, and to increases in broadcast rights and
sponsorship fees. The increase also reflects that the Company now operates
certain food and beverage concession activities previously procured from a third
party.
OTHER OPERATING REVENUE for 1998 increased by $1.8 million, or 12.2%, over
such revenue for 1997. This increase was primarily attributable to an increase
in Legend Car revenues of 600 Racing.
DIRECT EXPENSE OF EVENTS for 1998 increased by $17.7 million, or 27.1%, over
such expense for 1997. This increase was due to hosting new IRL events at AMS
and TMS, to increased operating costs associated with the growth in attendance
and seating capacity, including related increases in concessions and souvenir
sales, and to higher sanctioning fees and race purses required for
NASCAR-sanctioned racing events held during the current year. This increase also
reflects that the Company now operates certain food and beverage concession
activities previously procured from a third party.
As a percentage of admissions and event related revenues combined, direct
expense of events for 1998 was 39.0% compared to 36.9% for 1997. Such increase,
which was anticipated, results primarily from proportionately higher operating
expenses associated with hosting IRL racing events relative to operating margins
historically achieved with NASCAR sanctioned events. The increase also results
because operating profits from certain food and beverage concession activities
previously procured from a third party were reported as event related revenue in
1997.
OTHER DIRECT OPERATING EXPENSE for 1998 increased by $1.8 million, or 19.5%,
over such expense for 1997. The increase includes expenses associated with the
increase in other operating revenues derived from Legend Cars.
GENERAL AND ADMINISTRATIVE EXPENSE. As a percentage of total revenues,
general and administrative expense decreased from 16.5% for 1997 to 14.9% for
1998. This improvement reflects continuing scale efficiencies associated with
revenue increases outpacing increases in general and administrative expenses.
General and administrative expense for 1998 increased by $2.7 million, or 8.4%,
over such expense for 1997. The increase reflects costs associated with the
Company now operating certain food and beverage concession activities previously
procured from a third party. Increases in operating costs associated with the
growth and expansion at the Company's speedways, and to a lesser extent, the
LVMS acquisition in December 1998, also contributed to this increase.
DEPRECIATION AND AMORTIZATION EXPENSE for 1998 increased by $6.0 million, or
37.9%, over such expense for 1997. This increase was due to property and
equipment of TMS placed into service upon hosting of its first racing event in
April 1997, and to additions to property and equipment at AMS, BMS and LMSC. The
increase was also due, to a lesser extent, the LVMS acquisition in December
1998.
PREOPERATING EXPENSE OF NEW FACILITY for 1997 of $1.85 million consist of
non-recurring and non-event related costs to develop, organize and open TMS.
OPERATING INCOME for 1998 increased $11.4 million, or 16.7%, over such
income for 1997. This increase was due to the factors discussed above.
INTEREST EXPENSE, NET for 1998 was $12.2 million compared to $5.3 million
for 1997. This increase was due to higher average borrowings outstanding in
1998, including additional borrowings to fund the LVMS acquisition, as compared
to 1997. The change also reflects lower capitalized interest costs of $3.8
million during 1998 as compared to $5.8 million in 1997. The lower capitalized
interest results from property and equipment of TMS being placed into service
upon its opening in April 1997, and reduced capital expenditures for
construction projects in 1998 as compared to 1997.
BRIDGE LOAN COST AMORTIZATION for 1998 of $752,000 represents financing
costs incurred in obtaining an amended bank credit facility and bridge loan to
fund the LVMS acquisition. Associated deferred financing costs of $4,050,000 are
being amortized over the loan term which matures May 18, 1999.
16
OTHER INCOME, NET for 1998 increased by $2.2 million over such income for
1997. This increase resulted from gains on sales of fifteen TMS condominiums
during 1998. No sales of TMS condominiums were recognized in 1997. The increase
also reflects a gain on exercise of the SPR purchase option.
INCOME TAX PROVISION. The Company's effective income tax rate for 1998 and
1997 was approximately 40%.
NET INCOME for 1998 increased by $4.2 million, or 11.0%, over such income
for 1997. This increase was due to the factors discussed above.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
TOTAL REVENUES for 1997 increased by $90.0 million, or 88.2%, to $192.1
million, over such revenues for 1996. This improvement was attributable to
increases in all revenue items, particularly admissions and event related
revenues.
ADMISSIONS for 1997 increased by $41.6 million, or 79.3%, over admissions
for 1996. This increase was due primarily to hosting major NASCAR Winston Cup
series racing events at each of the Company's then new speedways, TMS and SPR,
to hosting IRL racing events at LMSC and TMS, to hosting a NASCAR Craftsman
Truck Series racing event at TMS, and to growth in NASCAR sanctioned racing
events held at AMS, BMS, and LMSC during the current year. The growth in
admissions reflects the continued increases in attendance, additions to
permanent seating capacity and, to a lesser extent, ticket prices.
EVENT RELATED REVENUE for 1997 increased by $46.8 million, or 128.4%, over
such revenue for 1996. The increase was due primarily to hosting major NASCAR
Winston Cup series racing events at the Company's then new speedways, TMS and
SPR, to hosting IRL racing events at LMSC and TMS, to hosting a NASCAR Craftsman
Truck Series racing event at TMS, to the growth in attendance, including related
increases in concessions and souvenir sales, and to increases in broadcast
rights and sponsorship fees.
OTHER OPERATING REVENUE for 1997 increased by $1.7 million, or 12.6%, over
such revenue for 1996. This increase was primarily attributable to operating
revenues derived from Oil-Chem, and to rental revenues from SPR, which were
acquired in April and November 1996, respectively, and to an increase in
Speedway Club revenues.
DIRECT EXPENSE OF EVENTS for 1997 increased by $35.2 million, or 116.6%,
over such expense for 1996. This increase was due primarily to hosting major
NASCAR Winston Cup series racing events at TMS and SPR, IRL racing events at
LMSC and TMS, and a NASCAR Craftsman Truck Series racing event at TMS, to higher
operating costs associated with the growth in attendance and seating capacity at
AMS, BMS and LMSC, and to increases in the size of race purses and sanctioning
fees required for NASCAR sanctioned racing events held during the current year.
As a percentage of admissions and event related revenues combined, direct
expense of events for 1997 was 36.9% compared to 34.0% for 1996. Such increase
results primarily from proportionately higher operating expenses associated with
TMS's inaugural race weekend, the inaugural IRL racing events at LMSC and TMS,
and at SPR, relative to operating margins historically achieved at the Company's
other speedways.
OTHER DIRECT OPERATING EXPENSE for 1997 increased by $1.2 million, or 14.7%,
over such expense for 1996. The increase occurred primarily due to the expenses
associated with the increase in other operating revenues derived from SPR,
Oil-Chem, and the Speedway Club.
GENERAL AND ADMINISTRATIVE EXPENSE. As a percentage of total revenues,
general and administrative expense decreased from 16.6% for 1996 to 16.4% for
1997. This improvement reflects continuing scale efficiencies associated with
revenue increases outpacing increases in general and administrative expenses.
General and administrative expense for 1997 increased by $14.6 million, or
86.1%, over such expense for 1996. The increase was due primarily to general and
administrative expenses incurred during 1997 by Oil-Chem and SPR, acquired in
April 1996 and November 1996, respectively, and at TMS, and to increases in
operating costs associated with the growth and expansion at AMS, BMS and LMSC.
DEPRECIATION AND AMORTIZATION EXPENSE for 1997 increased by $8.1 million, or
107.2%, over such expense for 1996. This increase was due to property and
equipment of TMS placed into service upon hosting of its first racing event in
April 1997, to additions to property and equipment at AMS, BMS and LMSC, and
from the property and equipment and goodwill and other intangible assets related
to the acquisitions of SPR in 1996.
PREOPERATING EXPENSE OF NEW FACILITY for 1997 of $1.85 million consist of
non-recurring and non-event related costs to develop, organize and open TMS.
OPERATING INCOME for the year ended December 31, 1997 increased by $29.0
million, or 73.8%, over such income for 1996.
17
This increase was due to the factors discussed above.
INTEREST INCOME (EXPENSE), NET for 1997 was $5.3 million, compared to
interest income, net for 1996 of $1.3 million. This change was due to higher
levels of average outstanding borrowings for construction funding during 1997 as
compared to 1996. The change also reflects the capitalizing of $5.8 million in
interest costs incurred during 1997 on TMS and other construction projects
compared to $2.8 million for 1996.
OTHER INCOME for 1997 decreased by $1.4 million over such income for 1996.
This decrease was primarily due to fewer gains recognized on sales of marketable
equity securities during 1997 as compared to 1996. In addition, the decrease
reflects recognition of the Company's loss in equity method investee of $97,000
in 1997 as compared to equity income of $371,000 for 1996.
PROVISION FOR INCOME TAXES. The Company's effective income tax rate was
approximately 40% for 1997 and 39% for 1996.
NET INCOME for 1997 increased by $11.8 million, or 44.6%, compared to 1996.
This increase was due to the factors discussed above.
SEASONALITY AND QUARTERLY RESULTS
The Company has derived a substantial portion of its 1998 total revenues
from admissions and event-related revenue attributable to 15 major
NASCAR-sanctioned races, four IRL races, three NASCAR Craftsman Truck Series and
one National Hot Rod Association Nationals racing events. 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.
In 1997 and 1998, the Company's second and fourth quarters accounted for 78%
and 74%, respectively, of its total annual revenues and 100% and 97%,
respectively, of its total annual operating income. The Company sometimes
produces minimal operating income or losses during its first and third quarters
when it hosts only one major NASCAR race weekend. In 1999, the Company's
operating results for the first and thirds 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.
(IN THOUSANDS, EXCEPT NASCAR-SANCTIONED EVENTS AND PER SHARE AMOUNTS)
1997 (UNAUDITED) 1998 (UNAUDITED)
1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER TOTAL QUARTER QUARTER QUARTER QUARTER TOTAL
Total revenues............ $15,453 $104,141 $26,384 $46,148 $192,126 $17,960 $117,739 $41,748 $52,349 $229,796
Operating income (loss)... (1,065) 51,155 768 17,525 68,383 (3,147) 60,139 5,852 16,951 79,795
Net income (loss) ........ (263) 29,517 (981) 9,905 38,178 (2,923) 34,614 1,895 8,785 42,371
NASCAR-sanctioned events. . 2 8 2 3 15 1 8 2 4 15
Basic earnings (loss) per share. ($0.01) $0.71 ($0.02) $0.24 $0.92 ($0.07) $0.83 $0.05 $0.21 $1.02
Diluted earnings (loss) per share.($0.01) $0.67 ($0.02) $0.23 $0.89 ($0.07) $0.79 $0.05 $0.21 $1.00
Where computations are anti-dilutive, reported basic and diluted per share
amounts are the same. As such, individual quarterly per share amounts may not be
additive. The Busch Grand National series race at AMS, originally scheduled to
be held in March 1998, was rescheduled to November 1998 due to poor weather
conditions. Rescheduling did not materially impact revenues and operating
expenses as reported for the first and fourth quarters of 1998.
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 1998 for the acquisition of LVMS in December 1998, for improvements and
expansion at BMS, LMSC and TMS, and the exercise of the SPR purchase option on
February 17, 1998 as further described below. Significant changes in the
Company's financial condition and liquidity during 1998 resulted primarily from:
(1) net cash generated by operations amounting to $86.4 million; (2) capital
expenditures amounting to $98.6 million; and (3) net borrowings of $235.7
million, including amendment of the Company's bank credit facility to fund the
December 1998 acquisition of LVMS costing approximately $215.0 million as
further described below.
AMENDED BANK CREDIT FACILITY AND BRIDGE LOAN. On November 23, 1998, the
Company's Credit Facility dated as of August 4,
18
1997 was amended and restated in connection with the December 1, 1998
acquisition of LVMS. The amended Credit Facility and Bridge Loan (the Bridge
Loan) increased the Company's overall borrowing limit from $175,000,000 to
$270,000,000 to fund the LVMS acquisition and maintain a revolving credit
facility for working capital needs and general corporate purposes. The Bridge
Loan matures on May 18, 1999. At December 31, 1998, the Company had $254,050,000
in outstanding borrowings under the Bridge Loan. Interest, standby letters of
credit terms and restrictive and required financial covenants are generally
similar to those prior to amendment. The Bridge Loan was obtained from
NationsBank N.A., and is an unsecured, senior revolving credit facility and term
loan with a $10,000,000 borrowing sub-limit for standby letters of credit.
Interest is based, at the Company's option, upon (i) LIBOR plus 1.125% or (ii)
the greater of NationsBank's prime rate or the Federal fund rate plus .5%.
Because the Bridge Loan matures May 18, 1999, replacement debt and equity
offering alternatives are being evaluated by the Company. The Company presently
intends to refinance its revolving credit facility with a syndicated bank group
including NationsBank as an agent and lender. While the Company does not believe
that the Bridge Loan's maturity will result in the use of significant working
capital, the amount outstanding has been classified as a current liability in
the accompanying Consolidated December 31, 1998 Balance Sheet in accordance with
generally accepted accounting principles. In conjunction with seeking
replacement financing, the Company also intends to retain a revolving credit
facility with sufficient overall borrowing limits for working capital needs and
general corporate purposes. See Note 5 to the Consolidated Financial Statements
for discussion of additional terms and restrictive covenants of the Bridge Loan.
Management anticipates that cash from operations, and funds available
through Bridge Loan replacement debt and equity offering alternatives, including
retention of a revolving 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.
EXERCISE OF SPR PURCHASE OPTION. On February 17, 1998, the real estate
purchase option on SPR was consummated for $18,100,000 net cash outlay, thereby
transferring ownership of the SPR complex to the Company and eliminating its
capital lease obligation. The purchase transaction was funded with borrowings
from the Company's credit facility.
ACQUISITION OF LVMS. 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 $215,000,000, consisting principally of net cash outlay of
$210,400,000 and assumed associated deferred revenue. The acquisition was
financed through borrowings under the Bridge Loan.
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.
In 1998, AMS installed lighting for its inaugural IRL night race in August.
In 1998, BMS added approximately 19,000 permanent grandstand seats, including 42
new luxury suites, featuring a new stadium-style terrace section and mezzanine
level facilities, and made other site improvements. LMSC added approximately
12,000 permanent seats, including 12 new luxury suites, also featuring a
stadium- style terrace section and mezzanine level facilities. Also in 1998,
LMSC and SPR further expanded their parking areas, and SPR acquired adjoining
land to provide an additional entrance, to accommodate the increases in
attendance and to ease congestion, and made other site improvements. SPR also
was partially reconfigured into a stadium-style road course featuring "The
Chute" which provides spectators improved sight lines and expanded viewing
areas. In 1998, TMS significantly expanded its parking areas and improved
traffic control dramatically reducing travel congestion and added approximately
3,000 permanent seats, among making other site improvements.
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 is expected to
be completed in 1999. LMSC plans to add approximately 10,000 permanent seats,
further expand concessions, restroom and other fan amenities facilities, and
make 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. SPR plans to further expand and
improve seating and viewing areas to increase spectator comfort and enjoyment.
Also in 1999, pending governmental approvals, the Company
19
expects to begin major renovations at SPR, including its on-going
reconfiguration into a "stadium-style" road racing course, the addition of
approximately 45,000 permanent seats, and improving and expanding concessions,
restroom and other fan amenities facilities. Construction of the Texas Motor
Speedway Club and corporate offices was substantially completed with their
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 $60 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 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 Bridge Loan, the Senior Subordinated Notes and as the Board of
Directors, in its sole discretion, may consider relevant. The Bridge Loan and
Senior Subordinated Notes preclude the payment of any dividends.
IMPACT OF NEW ACCOUNTING STANDARDS
The Company adopted SFAS No. 130 "Reporting Comprehensive Income" in 1998.
SFAS No. 130 specifies that components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. Because the Company does not have material items of other
comprehensive income, adoption did not result in presentation or financial
statements significantly different from that under previous accounting
standards.
The Company also adopted SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information" in 1998. SFAS No. 131 establishes standards
for reporting selected information about operating segments determined using
quantitative thresholds and a "management approach", which reflects how the
chief operating decision maker evaluates segment performance and allocates
resources. The combined operations of the Company's speedways comprise one
operating segment, and encompasses all admissions and event related revenues and
associated expenses. Other Company operations presently are not considered
significant relative to those of the speedways. As such, adoption had no effect
on the Company's financial statements or disclosures.
AUTOMATED SYSTEMS AND THE YEAR 2000
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 presently 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 as 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.
20
ENVIRONMENTAL MATTERS
The Company's property at LMSC includes areas that were used as solid waste
landfills for many years. Landfilling of general categories of municipal solid
waste on the LMSC property ceased in 1992. There are two landfills currently
operating at LMSC, however, that are permitted to receive inert debris and waste
from land clearing activities ("LCID" landfills). Two other LCID landfills on
the LMSC property were closed in 1994. LMSC intends to allow similar LCID
landfills to be operated on the LMSC property in the future. LMSC also leases
certain LMSC property to a BFI subsidiary for use as C&D landfill, which can
receive solid waste resulting solely from construction, remodeling, repair or
demolition operations on pavement, buildings or other structures, but cannot
receive inert debris, land-clearing debris or yard debris. In addition, the BFI
subsidiary owns and operates an active solid waste landfill adjacent to LMSC.
Management believes that the active solid waste landfill was constructed in such
a manner as to minimize the risk of contamination to surrounding property.
Management also believes that the Company's operations, including the landfills
and facilities on its property, are in substantial compliance with all
applicable federal, state and local environmental laws and regulations.
Management is not aware of any situations related to landfill operations which
it expects would materially adversely affect the Company's financial position or
future results of operations.
ITEM 7A. 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 and bridge loan
borrowings which are sensitive to changes in interest rates. The
weighted-average interest rate on borrowings under the credit facility and
bridge loan in 1998 was 6.4% and the total outstanding balance was $254,050,000
as of December 31, 1998. A change in interest rates of one percent on this
balance would cause a change in interest expense of approximately $2.5 million.
The Company's senior subordinated notes payable and convertible subordinated
debentures are fixed interest rate debt obligations. See Note 5 to the
Consolidated Financial Statements for information on the terms and conditions,
including redemption and conversion features, of the Company's debt obligations.
The carrying values of short and long-term debt approximate their fair value as
of December 31, 1998. The table below presents the principle balances
outstanding, maturity dates, and interest rates as of December 31, 1998 (dollars
in thousands):
Principle Maturity
Interest Balance Date
---------------------------------------
Revolving credit facility and bridge loan Variable $254,050 May 1999
Senior subordinated notes Fixed - 8.5% 124,674 August 2007
Convertible subordinated debentures Fixed - 5.75% 74,000 September 2003
EQUITY PRICE RISK. The Company has marketable equity securities, all
classified as "available for sale", with an aggregate cost of $2,119,000 and
fair market value of $1,439,000 as of December 31, 1998 and such investments are
subject to price risk. The Company attempts to minimize price risk generally
through portfolio diversification.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements which appears on page F-1 herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors of SMI are elected at the Annual Meetings of stockholders of SMI
to serve staggered terms of three years and until their successors are elected
and qualified. The Board of Directors currently consists of six directors. The
terms of Messrs. Brooks and Gambill expire at the 1999 Annual Meeting; the terms
of Messrs. Wheeler and Clark expire at the 2000 Annual Meeting; and the terms of
Messrs. Smith and Benton expire at the 2001 Annual Meeting. Messrs. Brooks and
Gambill are standing for reelection at the 1999 Annual Meeting. Officers are
elected by the Board of Directors to hold office until the first meeting of the
Board of Directors following the next Annual Meeting of stockholders and until
their successors are elected and qualified. The directors and executive officers
of the Company are as follows:
NAME AGE PRINCIPAL POSITION(S) WITH THE COMPANY
- ---- --- --------- ----------- ---- --- -------
O. Bruton Smith.............. 72 Chief Executive Officer and Chairman
H.A. "Humpy" Wheeler......... 60 President, Chief Operating Officer and
Director of SMI; President and General Manager
of LMSC
William R. Brooks............ 49 Vice President, Treasurer, Chief Financial
Officer and Director
Edwin R. Clark............... 44 Executive Vice President and Director of SMI;
President and General Manager of AMS
William P. Benton............ 75 Director
Mark M. Gambill.............. 48 Director
The name, age, present principal occupation or employment and the material
occupations, positions, offices or employments for the past five years of each
SMI director and director-nominee are set forth below.
O. BRUTON SMITH, 72, has been Chief Executive Officer and a director of
Charlotte Motor Speedway, Inc. ("LMSC"), a wholly-owned subsidiary of SMI, since
1975. He was a founder of LMSC in 1959 and was an executive officer and director
of LMSC until 1961, when it entered reorganization proceedings under the
bankruptcy laws. Mr. Smith became Chairman and Chief Executive Officer,
President and a director of AMS upon acquiring it in 1990. He became Chief
Executive Officer of SMI upon its organization in December 1994 and became the
Chairman and CEO of BMS upon its acquisition in January 1996, SPR upon its
acquisition in November 1996, and TMS in 1995. Mr. Smith became the President of
LVMS upon its acquisition on December 1, 1998. Mr. Smith also is the Chairman,
Chief Executive Officer, a director and controlling stockholder of Sonic
Automotive, Inc. ("SAI"), (NYSE: symbol SAH), and serves as the president and a
director of each of SAI's operating subsidiaries. SAI is believed to be one of
the ten largest automobile retail dealership groups in the United States and is
engaged in the acquisition and operation of automobile dealerships principally
in the southeastern United States. Mr. Smith has entered into an employment
agreement with SAI pursuant to which he has agreed to devote 50% of his business
time to the affairs of SAI. Mr. Smith also owns and operates Sonic Financial
Corporation ("Sonic Financial"), among other private businesses.
H.A. "HUMPY" WHEELER, 60, was hired by LMSC in 1975 and has been a director
and General Manager of LMSC since 1976. Mr. Wheeler was named President of LMSC
in 1980 and became a director of AMS upon its acquisition in 1990. He became
President, Chief Operating Officer and a director of SMI upon its organization
in December 1994. Mr. Wheeler has been a Vice President and a director of BMS
and SPR since their acquisition in 1996, and of TMS since its formation in 1995.
Mr. Wheeler also became Vice President of LVMS upon its acquisition on December
1, 1998.
WILLIAM R. BROOKS, 49, joined Sonic Financial from PricewaterhouseCoopers in
1983. Mr. Brooks has been Vice President of LMSC for more than five years and
has been Vice President and a director of AMS, BMS and SPR since their
acquisition, and TMS since its formation. Mr. Brooks became Vice President of
LVMS upon its acquisition on December 1, 1998. Mr. Brooks has been Vice
President, Treasurer, Chief Financial Officer and a director of SMI since its
organization in December 1994 and has been the President and a director of
Speedway Funding Corp., the Company's financing subsidiary, since 1995. Mr.
Brooks has also served as a director of SAI since its formation in 1997 and
served as its Chief Financial Officer from February to April 1997.
EDWIN R. CLARK, 44, became Vice President and General Manager of AMS in 1992
and was promoted to President and General Manager of AMS in 1995. Prior to that
appointment, he had been LMSC' Vice President of Events since 1981. Mr. Clark
became Executive Vice President of SMI upon its organization in December 1994
and became a director of SMI in 1995.
22
WILLIAM P. BENTON, 75, became a director of SMI in 1995. Since January 1997,
Mr. Benton has been the Executive Director of Ogilvy & Mather, a world-wide
advertising agency. He is also a consultant to the Chairman and Chief Executive
Officers of TI Group and Allied Holdings, Inc. Prior to his appointment at
Ogilvy & Mather, Mr. Benton served as Vice Chairman of Wells, Rich, Greene/BDDP
Inc., an advertising agency with offices in New York and Detroit. Mr. Benton
retired from Ford Motor Company as its Vice President of Marketing Worldwide in
1984 after a 37-year career with that company. In addition, Mr. Benton serves as
a director of SAI.
MARK M. GAMBILL, 48, became a director of SMI in 1995. Mr. Gambill has been
employed continuously since 1972 by First Union Capital Markets and its
predecessor entities. First Union Capital Markets is an investment banking firm
headquartered in Richmond, Virginia, and is a wholly-owned subsidiary of First
Union Corporation. In 1996, he was named President of First Union Capital
Markets. Previously, Mr. Gambill acted as head of the Capital Markets division,
including Corporate and Public Finance, Taxable Fixed Income, Municipal Sales
and Trading, Equity Sales, Trading and Research. Mr. Gambill has served on the
Board of Directors of First Union Capital Markets since 1983.
COMMITTEES OF THE BOARD OF DIRECTORS
There are two standing committees of the Board of Directors of SMI, the
Audit Committee and the Compensation Committee. The Audit Committee currently
consists of Messrs. Benton and Gambill. The Compensation Committee is comprised
of Messrs. Benton, Gambill and Smith. Set forth below is a summary of the
principal functions of each committee and the number of meetings held during
1998.
AUDIT COMMITTEE. The Audit Committee, which held two meetings in 1998,
recommends the appointment of the Company's independent auditors, determines the
scope of the annual audit to be made, reviews the conclusions of the auditors
and reports the findings and recommendations thereof to the Board of Directors,
reviews with the Company's auditors the adequacy of the Company's system of
internal control and procedures and the role of management in connection
therewith, reviews transactions between the Company and its officers, directors
and principal stockholders, and performs such other functions and exercises such
other powers as the Board of Directors from time to time may determine.
COMPENSATION COMMITTEE. The Compensation Committee, which held four meetings
in 1998, administers compensation and employee benefit plans, annually reviews
and determines executive officer compensation, including annual salaries, bonus
performance goals, bonus plan allocations, stock option grants and other
benefits, direct and indirect, of all executive officers and other senior
officers. The Compensation Committee administers the SMI 1994 Stock Option Plan
and the Employee Stock Purchase Plan, and periodically reviews the Company's
executive compensation programs and takes action to modify programs that yield
payments or benefits not closely related to Company or executive performance.
The policy of the Compensation Committee's program for executive officers is to
link pay to business strategy and performance in a manner which is effective in
attracting, retaining and rewarding key executives while also providing
performance incentives and awarding equity-based compensation to align the
long-term interests of executive officers with those of Company stockholders.
The Compensation Committee's objective is to offer salaries and incentive
performance pay opportunities that are competitive in the marketplace.
The Company currently has no standing nominating committee.
During 1998, there were four meetings of the Board of Directors of SMI, with
each director attending at least seventy-five percent of the meetings (and, as
applicable, committees thereof).
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.
To the Company's knowledge, based solely on review of reports furnished to
it, all Section 16 (a) filing requirements applicable to its executive officers,
directors and more than 10% beneficial owners were complied with, except that
Messrs. Benton and Gambill each inadvertently filed late a report on Form 5
showing the 1998 issuance of options to acquire 20,000 shares each of Common
Stock pursuant to the Formula Stock Option Plan.
ITEM 11. EXECUTIVE COMPENSATION
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
1998 OFFICER COMPENSATION PROGRAM
The 1998 executive officer compensation program of the Company had three
primary components: (i) base salary, (ii) short-term incentives under the
Company's executive bonus plan, and (iii) long-term incentives which consisted
solely of stock option grants made
23
under the 1994 Stock Option Plan (for officers other than the Chief Executive
Officer). Executive officers (including the Chief Executive Officer) were also
eligible in 1998 to participate in various benefits plans similar to those
provided to other employees. Such benefits plans are intended to provide a
safety net of coverage against various events, such as death, disability and
retirement.
Base salaries (including that of the Chief Executive Officer) were
established on the basis of non-quantitative factors such as positions of
responsibility and authority, years of service and annual performance
evaluations. They were targeted to be competitive principally in relation to
other motorsports racing companies (such as some of those included in the Peer
Group Index in the performance graph elsewhere herein), although the
Compensation Committee also considered the base salaries of certain other
amusement, sports and recreation companies not included in the Peer Group Index
because the Compensation Committee considered those to be relatively comparable
industries.
The Company's executive bonus plan established a potential bonus pool for
the payment of year-end bonuses to Company officers and other key personnel
based on 1998 performance and operating results. Under this plan, aggressive
revenue and profit target levels were established by the Compensation Committee
as incentives for superior individual, group and Company performance. Each
executive officer was eligible to receive a discretionary bonus based upon
individually established subjective performance goals. The Compensation
Committee approved cash incentive bonuses in amounts ranging from 0.43% to 1.37%
of the Company's 1998 operating income.
Awards of stock options under SMI's 1994 Stock Option Plan are based on a
number of factors in the discretion of the Compensation Committee, including
various subjective factors primarily relating to the responsibilities of the
individual officers for and contribution to the Company's operating results (in
relation to the Company's other optionees), their expected future contributions
and the levels of stock options currently held by the executive officers
individually and in the aggregate. Stock option awards to executive officers
have been at then-current market prices in order to align a portion of an
executive's net worth with the returns to the Company's stockholders. For
details concerning the grant of options to the executive officers named in the
Summary Compensation Table below, see "Fiscal Year-End Option Values."
As noted above, the Company's compensation policy is primarily based upon
the practice of pay-for-performance. Section 162(m) of the Internal Revenue Code
imposes a limitation on the deductibility of nonperformance-based compensation
in excess of $1 million paid to named executive officers. The 1994 Stock Option
Plan was created with the intention that all compensation attributable to stock
option exercises should qualify as deductible performance-based compensation.
The Compensation Committee currently believes that, generally, the Company
should be able to continue to manage its executive compensation program to
preserve federal income tax deductions.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Compensation Committee's members other than Mr. Smith annually review
and approve the compensation of Mr. Smith, the Company's Chief Executive
Officer. Mr. Smith also participates in the executive bonus plan, with his bonus
tied to corporate revenue and profit goals. His maximum possible bonus is 2.5%
of the Company's 1998 operating income. The Compensation Committee believes that
Mr. Smith is paid a reasonable salary. Mr. Smith is the only employee of the
Company not eligible for stock options. Since he is a significant stockholder,
his rewards as Chief Executive Officer reflect increases in value enjoyed by all
other stockholders.
COMPENSATION COMMITTEE
William P. Benton, Chairman
Mark M. Gambill
O. Bruton Smith
COMPENSATION OF OFFICERS
The following table sets forth compensation paid by or on behalf of the
Company to its Chief Executive Officer and other executive officers for services
rendered during fiscal years ended December 31, 1998, 1997 and 1996:
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
AWARDS
NUMBER OF
ANNUAL COMPENSATION (1) SHARES
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING ALL OTHER
24
POSITION YEAR SALARY BONUS (2) COMPENSATION OPTIONS (3) COMPENSATION (4)
-------- ---- ------ ----- --- ------------ ------- --- ------------ ---
O. Bruton Smith 1998 $350,000 $1,092,000 $103,256(5) -- -0-
Chairman and Chief 1997 350,000 1,039,000 108,313(5) -- -0-
Executive Officer of SMI 1996 350,000 975,000 99,288(5) -- -0-
H.A. "Humpy" Wheeler 1998 250,000 764,000 (6) -- $2,600
President and Chief 1997 250,000 727,000 (6) -- 2,600
Operating Officer of SMI; 1996 250,000 685,000 (6) -- 2,500
President and General
Manager of LMSC
William R. Brooks 1998 175,000 340,000 (6) -- 2,600
Vice President, Treasurer 1997 175,000 294,000 (6) -- 2,600
and Chief Financial Officer of SMI 1996 175,000 273,000 (6) 100,000 2,500
Edwin R. Clark 1998 102,500 150,000 (6) -- 2,600
Executive Vice President 1997 102,500 309,600 (6) -- 2,600
of SMI; President and 1996 102,500 205,600 (6) -- 2,500
General Manager of AMS
(1) Does not include the dollar value of perquisites and other personal
benefits.
(2) The amounts shown are cash bonuses earned in the specified year and paid in
the first quarter of the following year. (3) The 1994 Stock Option Plan was
adopted in December 1994. The number of shares underlying options is, in the
case of each
executive officer, the sum of shares available upon exercise of incentive
stock options and non-statutory stock options, giving effect to the Stock
Split. No options were granted to executive officers in 1998 or 1997.
(4) Includes Company match to 401(k) plan.
(5) Amount represents share of split-dollar insurance premium treated as
compensation to Mr. Smith. See "Smith Life Insurance Arrangements." Mr.
Smith also received certain perquisites and other personal benefits totaling
not more than $50,000.
(6) The aggregate amount of perquisites and other personal benefits received did
not exceed the lesser of $50,000 or 10% of the total annual salary and bonus
reported for such executive officer.
FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning outstanding options to
purchase Common Stock held by executive officers at December 31, 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
SHARES ACQUIRED ON VALUE REALIZED ON
OPTIONS EXERCISED OPTIONS EXERCISED
NAME IN 1998 IN 1998
- ---- -- ---- -- ----
H.A. "Humpy" Wheeler................. 4,196 $95,000
William R. Brooks.................... -- --
Edwin R. Clark....................... -- --
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED OPTIONS VALUE OF UNEXERCISED
AT FISCAL YEAR-END (#) IN-THE-MONEY OPTIONS AT
-- ------ -------- --- FISCAL YEAR-END ($)(1)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ------------------------- -------------------------
H.A. "Humpy" Wheeler................. 581,174/0 $13,931,000/0
William R. Brooks.................... 240,000/0 3,700,000/0
Edwin R. Clark....................... 80,000/0 1,770,000/0
(1) Year-end value is based on the December 31, 1998 closing sales price for the
Company's Common Stock of $28.50 per share, less the applicable aggregate
option exercise price(s) of in-the-money options, multiplied by the number
of unexercised in-the-money options which are exercisable and unexercisable,
respectively.
STOCK OPTION PLANS
The Company currently has in place two stock options plans with respect to
the Common Stock: (i) its 1994 Stock Option Plan (the "1994 Stock Option Plan"),
and (ii) its Formula Stock Option Plan (the "Formula Option Plan"). The 1994
Stock Option Plan provides for the granting of options for up to an aggregate of
3,000,000 shares of Common Stock. Options indicated above as
25
held by executive officers at December 31, 1998 were granted pursuant to the
1994 Stock Option Plan. The Formula Option Plan was adopted by the Board of
Directors as of January 1, 1996, for the benefit of the Company's outside
directors, which was approved by SMI's stockholders at their 1996 annual
meeting. It provides for the issuance of up to 800,000 shares of Common Stock.
The Company granted options to purchase 20,000 shares in each of 1996 through
1998, to each of Messrs. Benton and Gambill under the Formula Option Plan.
Effective January 4, 1999, the Company granted options to purchase an additional
20,000 shares, to each of Messrs. Benton and Gambill under the Formula Option
Plan. Effective January 1, 1997, the Company's Board of Directors and
stockholders adopted the SMI Employee Stock Purchase Plan. The SMI Employee
Stock Purchase Plan was adopted to provide employees the opportunity to acquire
stock ownership. An aggregate total of 400,000 shares of common stock have been
reserved for purchase under the plan. See Note 11 to the Consolidated Financial
Statements for additional information on stock options and the stock plans.
SMITH LIFE INSURANCE ARRANGEMENTS
In 1995, the Compensation Committee (excluding Mr. Smith) approved the
establishment of a "split-dollar" life insurance plan for the benefit of Mr.
Smith. Pursuant to such plan, the Company entered into split-dollar insurance
agreements whereby split- dollar life insurance policies in the total face
amount of $17,167,000 (individually, a "Policy" or together the "Policies")
would be purchased and held in trust for the benefit of Mr. Smith's lineal
descendants. The Company has agreed to pay the annual (or shorter period)
premium payments on the Policies.
Upon payment of the death benefit or upon the surrender of a Policy for its
cash value, the Company will receive an amount equal to the Company's
Split-Dollar Interest. The Company's Split-Dollar Interest equals, in the case
of the payment of the death benefit, the cumulative payments made by the Company
towards the premiums under a Policy less any portion of such payments charged as
compensation to Mr. Smith (the "Reimbursable Payment"). The Company's
Split-Dollar Interest equals, in the case of surrender of a Policy for its cash
value, the lesser of (i) the net cash value of such Policy and (ii) the
Reimbursable Payment.
In the event a Policy is surrendered or terminated prior to his death, Mr.
Smith has agreed to reimburse the Company for the positive amount, if any, by
which the Reimbursable Payment exceeds the net cash value of such Policy. Mr.
Smith's promise is evidenced by a promissory note in favor of the Company, which
note includes a limited guaranty by Sonic Financial whereby it will permit
amounts owed by Mr. Smith to the Company to be offset by amounts owed to Sonic
Financial by AMS.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Benton, Gambill and Smith served on the Company's Compensation
Committee during 1998. Mr. Smith serves as the Chief Executive Officer of the
Company. Mark M. Gambill is the President of First Union Capital Markets, the
investment banking firm which acted as a lead underwriter in the Company's
initial public offering in February 1995, the Company's additional equity
offering in March 1996, and the Company's offering of 5 3/4% convertible
subordinated debentures in October 1996, and co-managed the Company's offering
of 8 1/2% senior subordinated notes in August 1997.
The Company pays the annual (or shorter period) premiums on split-dollar
life insurance policies for the benefit of Mr. Smith. See "Smith Life Insurance
Arrangements."
Mr. Smith is the only officer of SMI to have served on the compensation
committee of another entity during 1998. He served as a member of the Board of
Directors and the Compensation Committee for SAI during 1998. Mr. Smith received
aggregate salary and other annual compensation of $737,500 from SAI during 1998.
DIRECTOR COMPENSATION
Members of the Board of Directors who are not employees of the Company each
received in 1998 an option to purchase 20,000 shares of the Company's common
stock at $24.8125 for services as directors. The Company also reimburses all
directors for their expenses incurred in connection with their activities as
directors of SMI. Directors who are also employees receive no additional
compensation for serving on the Board of Directors. For additional information
concerning the Formula Option Plan for SMI's outside directors, see the
Company's December 31, 1998 Audited Consolidated Financial Statements.
STOCKHOLDER RETURN PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative stockholder return
on the Company's Common Stock against the cumulative total return of each of the
Standard & Poor's 500 Stock Index, the Russell 2000 Stock Index, and a Peer
Group Index for the period commencing February 24, 1995 and ending December 31,
1998. The Russell 2000 Index was included in 1998 because management believes,
as a small-cap index, it more closely represents companies with market
capitalization similar to the Company's than the Standard & Poor's Stock 500
Index. The companies used in the Peer Group Index in 1995 consist of Churchill
Downs
26
Incorporated, International Speedway Corporation, and Walt Disney Co.; in 1996
also include Penske Motorsports and Dover International Raceway; in 1997 also
include Grand Prix of Long Beach; and in 1998 also include Action Performance,
which are all publicly traded companies known by the Company to be involved in
the amusement, sports and recreation industries. Churchill Downs Incorporated,
Gaylord Entertainment Company, Hollywood Park, Inc., International Family
Entertainment, which is no longer a publicly traded company, and Grand Prix of
Long Beach, which was acquired by Dover International Raceway, are no longer
included in the Peer Group Index. The graph assumes that $100 was invested on
February 24, 1995 in each of the Company's Common Stock, the Standard & Poor's
500 Stock Index, the Russell 2000 Stock Index, and the Peer Group Index
companies, and that all dividends were reinvested.
Graph appears below:
Speedway Motorsports Inc. New Peer Group S&P 500 Composite Index Old Peer Group Russell 2000 Index
24-Feb-95 $100 $100 $100 $100 $100
30-Jun-95 $115 $111 $115 $105 $115
31-Dec-95 $159 $124 $129 $112 $111
30-Jun-96 $272 $120 $142 $120 $119
31-Dec-96 $223 $133 $159 $132 $132
30-Jun-97 $230 $154 $192 $155 $152
31-Dec-97 $263 $198 $212 $188 $171
30-Jun-98 $271 $202 $248 $200 $179
31-Dec-98 $302 $176 $268 $174 $165
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding ownership of
SMI's Common Stock as of March 8, 1999, by (i) each person or entity known to
SMI and its subsidiaries who beneficially owns five percent or more of the
Common Stock, (ii) each director and nominee to the Board of Directors of SMI,
(iii) each executive officer of SMI (including the Chief Executive Officer), and
(iv) all directors and executive officers of SMI as a group. Except as otherwise
indicated below, each of the persons named in the table has sole voting and
investment power with respect to the securities beneficially owned by him or it
as set forth opposite his or its name.
AMOUNT & NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT
- ---------- ----- ---------- --------- -------
O. Bruton Smith (1)(2)................................................ 29,000,000 67.3%
Sonic Financial Corporation (2)....................................... 23,700,000 55.0
H.A. "Humpy" Wheeler (3)(8)........................................... 591,600 1.4
William R. Brooks (4)(8).............................................. 241,000 *
Edwin R. Clark (5)(8)................................................. 85,300 *
William P. Benton (6)(8).............................................. 60,000 *
Mark M. Gambill (7)(8)................................................ 84,200 *
All directors and executive officers as a group (six persons) (1)..... 30,062,100 69.7
- ----------
* Less than one percent
(1) The shares of Common Stock shown as owned by such person or group include,
without limitation, all of the shares shown as owned by Sonic Financial
elsewhere in the table. Mr. Smith owns the substantial majority of the
common stock of Sonic Financial.
(2) The address of such person is P.O. Box 18747, Charlotte, North Carolina
28218.
(3) All the shares shown as owned by Mr. Wheeler, other than 10,400 shares owned
by him directly, underlie options granted by the Company.
(4) All the shares shown as owned by Mr. Brooks, other than 1,000 shares owned
by him directly, underlie options granted by the Company.
(5) All the shares shown as owned by Mr. Clark, other than 5,300 shares owned by
him directly, underlie options granted by the Company.
(6) All the shares shown as owned by Mr. Benton underlie options granted by the
Company.
(7) All the shares shown as owned by Mr. Gambill, other than 4,200 shares owned
by him directly, underlie options granted by the Company.
(8) All such options are currently exercisable. For additional information
concerning options granted to executive officers, see "Item 11 -- Executive
Compensation."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
LMSC holds a note from a partnership in which the Company's Chief Executive
Officer is a partner. The outstanding balance due thereunder was $798,000 at
December 31, 1998, including accrued interest. The note due from such
partnership is collateralized by certain land owned by the partnership and is
payable on demand. The note bears interest at 1% over prime.
Sonic Financial, an affiliate of the Company through common ownership, has
made several loans and cash advances to AMS prior to 1996. Such loans and
advances stood at approximately $2.6 million at December 31, 1998. Of such
amount, approximately $1.8 million bears interest at 3.83% per annum. The
remainder of the amount bears interest at 1% over prime.
From time to time during 1998, the Company paid certain expenses and made
cash advances for various corporate purposes
27
on behalf of Sonic Financial. At December 31, 1998, the Company had a net
receivable from Sonic Financial of approximately $1,040,000.
Prior to the completion of SMI's initial public offering, LMSC joined with
Sonic Financial in filing consolidated federal income tax returns for several
years. It did so for the period of 1995 ending with the restructuring
consummated prior to the completion of the initial public offering. Under
applicable federal tax law, each corporation included in Sonic Financial's
consolidated return is jointly and severally liable for any resultant tax. Under
a tax allocation agreement dated January 27, 1995, however, LMSC agreed to pay
Sonic Financial, in the event that additional federal income tax is determined
to be due, an amount equal to LMSC' separate federal income tax liability
computed for all periods in which LMSC and Sonic Financial have been members of
Sonic Financial's consolidated group. Also pursuant to such agreement, Sonic
Financial agreed to indemnify LMSC for any additional amount determined to be
due from Sonic Financial's consolidated group in excess of the federal income
tax liability of LMSC for such periods. The tax allocation agreement establishes
procedures with respect to tax adjustments, tax claims, tax refunds, tax credits
and other tax attributes relating to periods ending prior to the time that LMSC
left Sonic Financial's consolidated group. Pursuant to such agreement, amounts
payable by LMSC for tax adjustments, if any, shall in no event exceed the sum of
$1.8 million plus the amount of any tax adjustments for which LMSC may receive
future tax benefits.
At December 31, 1998, the Company had a note receivable from the Company's
Chairman and Chief Executive Officer for approximately $842,000, including
accrued interest. The principal balance of the note represents premiums paid by
the Company under the split-dollar life insurance trust arrangement on behalf of
the Chairman, in excess of cash surrender value, see "Smith Life Insurance
Arrangements." The note bears interest at 1% over prime.
At December 31, 1998, the Company owed $1,542,000 to a former shareholder of
LVMS who is now a LVMS officer and employee. The amount is due in equal monthly
payments through December 2003 at 6.4% imputed interest.
For information concerning certain transactions in which Messrs. Smith and
Gambill have an interest, see "Compensation Committee Interlocks and Insider
Participation."
28
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The exhibits and other documents filed as a part of this Annual Report on
Form 10-K, including those exhibits which are incorporated by reference herein
are:
(a) (1) Financial Statements:
See the Index to Financial Statements which appears on page F-1 hereof.
(2) Financial Statement Schedules:
None.
(3) Exhibits:
Exhibits required in connection with this Annual Report on Form 10-K are
listed below. Certain exhibits, indicated by an asterisk, are hereby
incorporated by reference to other documents on file with the Securities and
Exchange Commission with which they are physically filed, to be a part hereof as
of their respective dates.
EXHIBIT INDEX
EXHIBIT
NUMBER
DESCRIPTION
*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 on Form S-4 (File
No. 333-35091) of the Company (the "September 1997 Form S-4")).
*4.1 Form of Stock Certificate (incorporated by reference to Exhibit 4.1 to 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).
*10.1 Letter of Credit issued by NationsBank of North Carolina, N.A. in favor of
Charlotte Motor Speedway, Inc. for the benefit of the North Carolina
Department of Transportation for $1,902,600, dated March 14, 1994
(incorporated by reference to Exhibit 10.9 to the Form S-1).
29
*10.2 Reimbursement Agreement by and between Charlotte Motor Speedway, Inc. and
NationsBank of North Carolina, N.A., dated as of March 11, 1994
(incorporated by reference to Exhibit 10.11 to the Form S-1).
*10.3 Project Agreement by and among The Department of Transportation, an agency
of the State of North Carolina, Interstate Combined Ventures and Charlotte
Motor Speedway, Inc., dated as of December 6, 1993 (incorporated by
reference to Exhibit 10.12 to the Form S-1).
*10.4 Deed of Trust by and among Terry L. Faulkenburg and Danny Ray Safrit, as
Trustees of West Cabarrus Church, Charlotte Motor Speedway, Inc. and Alan
G. Dexter, Trustee, dated as of September 29, 1994 (incorporated by
reference to Exhibit 10.38 to the Form S-1).
*10.5 Balance of Purchase Money Promissory Note in the amount of $720,000, made
by Charlotte Motor Speedway, Inc. in favor of West Cabarrus Church, dated
as of September 29, 1994 (incorporated by reference to Exhibit 10.39 to
the Form S-1).
*10.6 Agreement for Purchase and Sale of an Option in Real Property by and
between West Cabarrus Church and Charlotte Motor Speedway, Inc., dated as
of July 26, 1994 (incorporated by reference to Exhibit 10.40 to the Form
S-1).
*10.7 Deferred Compensation Plan and Agreement by and between Atlanta Motor
Speedway, Inc. and Edwin R. Clark, dated as of January 22, 1993
(incorporated by reference to Exhibit 10.43 to the Form S-1).
*10.8 Deferred Compensation Plan and Agreement by and between Charlotte Motor
Speedway, Inc. and H.A. "Humpy" Wheeler (incorporated by reference to
Exhibit 10.44 to the Form S-1).
*10.9 Speedway Motorsports, Inc. 1994 Stock Option Plan (incorporated by
reference to Exhibit 10.45 to the Form S-1).
*10.10 Speedway Motorsports, Inc. Formula Stock Option Plan (incorporated by
reference to Exhibit 10.13 to the Annual Report on Form 10-K of the
Company for the year ended December 31, 1995 (the "1995 Form 10-K").
*10.11 Speedway Motorsports, Inc. Employee Stock Option Plan amended and
restated as of July 1, 1996 (incorporated by reference to Exhibit 4.1 to
the Registration Statement on Form S-8 (File No. 333-17687) of the
Company).
*10.12 Amended and Restated Agreement by and among Charlotte Motor Speedway,
Inc., Sonic Financial Corporation, Town and Country Ford, Inc., O. Bruton
Smith, SMDA Properties and Chartown, dated February 10, 1995
(incorporated by reference to Exhibit 10.50 to the Form S-1).
*10.13 Promissory Note made by Atlanta Motor Speedway, Inc. in favor of Sonic
Financial Corporation in the amount of $1,708,767, dated as of
December 31, 1993 (incorporated by reference to Exhibit 10.51 to
Form S-1).
*10.14 Non-Negotiable Promissory Note dated April 24, 1995 by O. Bruton Smith in
favor of the Company (incorporated by reference to Exhibit 10.20 to the
1995 Form 10-K).
*10.15 Asset Purchase Agreement dated October 24, 1996 between the Company, as
buyer, and Sears Point Raceway (incorporated by reference to Exhibit 99.1
to the Current Report on Form 8-K of the Company filed as of December 4,
1996 (the "SPR Form 8-K")).
*10.16 Master Ground Lease dated November 18, 1996 by and between Brenda Raceway
Corporation and the Company (incorporated by reference to Exhibit 99.2 to
the SPR Form 8-K).
*10.17 Deed of Trust, Security Agreement and Fixture Filing with Assignment of
Rents and Agreements dated as of November 18, 1996 by Brenda Raceway
Corporation to First American Title Insurance Company for the benefit of
Sonoma Funding Corporation (incorporated by reference to Exhibit 99.3 to
the SPR Form 8-K).
30
*10.18 Promissory Note secured by Deed of Trust dated November 18, 1996 by
Brenda Raceway Corporation in favor of Sonoma Funding Corporation
(incorporated by reference to Exhibit 99.4 to the SPR Form 8-K).
*10.19 Purchase Contract dated December 18, 1996 between Texas Motor Speedway,
Inc., as seller, and FW Sports Authority, Inc., as purchaser
(incorporated by reference to Exhibit 10.23 to the Annual Report on Form
10-K of the Company for the year ended December 31, 1996 (the "1996
Form 10-K").
*10.20 Lease Agreement dated as of December 18, 1996 between FW Sports
Authority, Inc., as lessor, and Texas Motor Speedway, Inc., as lessee
(incorporated by reference to Exhibit 10.24 to the 1996 Form 10-K).
*10.21 Guaranty Agreement dated as of December 18, 1996 among the Company, the
City of Fort Worth, Texas and FW Sports Authority, Inc. (incorporated by
reference to Exhibit 10.25 to the 1996 Form 10-K).
*10.22 Credit Agreement dated as of March 7, 1996 among the Company and Speedway
Funding Corp., as borrowers, and the lenders named therein, including
NationsBank, N.A. as agent for the lenders and a lender (incorporated by
reference to Exhibit 99.2 to the Registration Statement on Form S-3 (File
No. 333-1856) of the Company (the "March 1996 Form S-3").
*10.23 First Amendment to the Credit Agreement dated as of September 24, 1996
among the Company and Speedway Funding Corp., as borrowers, and the
lenders named therein, including NationsBank, N.A. as agent for the
lenders and a lender (incorporated by reference to Exhibit 99.3 to the
November 1996 Form S-3).
*10.24 Second Amendment to Credit Agreement dated June 30, 1997 among the
Company and Speedway Funding Corp., as borrowers, and the lenders named
therein, including NationsBank, N.A. as agent for the lenders and a
lender (incorporated by reference to Exhibit 10.32 to the September 1997
Form S-4).
*10.25 Promissory Note dated June 30, 1997 among the Company and Speedway
Funding Corp. as borrowers, and NationsBank, N.A. as lender (incorporated
by reference to Exhibit 10.33 to the September 1997 Form S-4).
*10.26 Guaranty Agreement dated as of June 30, 1997 among Atlanta Motor
Speedway, Inc., Charlotte Motor Speedway, Inc., Texas Motor Speedway,
Inc., 600 Racing, Inc., Bristol Motor Speedway, Inc. and SPR Acquisition
Corporation, as guarantors, and NationsBank, N.A. (incorporated by
reference to Exhibit 10.34 to the September 1997 Form S-4).
*10.27 Amended and Restated Credit Agreement dated as of August 4, 1997 among
the Company and Speedway Funding Corp., as borrowers, 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 September 1997
Form S-4).
*10.28 Registration Rights Agreement dated as of August 4, 1997 among the
Company, NationsBanc Capital Markets, Inc., Wheat, First Securities, Inc.
and J.C. Bradford & Co. (incorporated by reference to Exhibit 4.3 to the
September 1997 Form S-4).
*10.29 Purchase Agreement dated as of August 4, 1997 among the Company,
NationsBanc Capital Markets, Inc., Wheat, First Securities, Inc. and J.C.
Bradford & Co. (incorporated by reference to Exhibit 10.35 to the
September 1997 Form S-4).
*10.30 Asset Purchase Agreement and Escrow Instructions dated November 17, 1998
between Speedway Motorsports, Inc., as buyer, and Las Vegas Motor
Speedway, Inc., as seller (incorporated by reference to Exhibit 99.1 to
the Company's current Report on Form 8-K filed as of December 15, 1998
("the LVMS Form 8-K").
*10.31 First Amendment to Amended and Restated Credit Agreement dated as of
November 18, 1998 among
31
Speedway Motorsports, Inc. and Speedway Funding Corp., as
borrowers, certain subsidiaries of Speedwa y Motorsports,
Inc., as guarantors, and NationsBank, N.A., as the lender
(incorporated by reference to Exhibit 99.2 to the LVMS
Form 8-K).
*10.32 Second Amended and Restated Credit Agreement dated as of
November 23, 1998 among Speedway Motorsports, Inc. and
Speedway Funding Corp., as borrowers, certain subsidiaries
of Speedway Motorsp orts, Inc., as guarantors, and
NationsBank, N.A., as agent for the lenders and a lender
(incorporated by reference to Exhibit 99.3 to the LVMS
Form 8-K).
21.1 Subsidiaries of the Company (incorporated by reference to
Exhibit 21.1 to the 1998 Form 10-K).
23.0 Independent Auditors' Consent for Registration Statements
No. 33-99942, No. 333-17687, and No. 333-49027 of Speedway
Motorsports, Inc. on Forms S-8.
27.0 Financial Data Schedule for the Year Ended December 31,
1998.
- -----------
* Previously filed.
(b) Reports on Form 8-K
The Company filed the LVMS Form 8-K dated December 15, 1998 relating to the
business acquisition of Las Vegas Motor Speedway, Inc. by Speedway Motorsports,
Inc. The Company filed a report on Form 8-K/A dated February 12, 1999 containing
the required audited financial statements and unaudited pro forma financial
information referenced previously in the LVMS Form 8-K.
32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Charlotte,
State of North Carolina, on the 26th day of March, 1999.
SPEEDWAY MOTORSPORTS, INC.
By: /s/ O. BRUTON SMITH
O. Bruton Smith
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, the report
has been signed below by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATES
/s/ O. BRUTON SMITH Chief Executive Officer (principal executive March 26, 1999
O. Bruton Smith officer) and Chairman
/s/ H.A. "HUMPY" WHEELER President, Chief Operating Officer March 26, 1999
H.A. "Humpy" Wheeler and Director
/s/ WILLIAM R. BROOKS Vice President, Treasurer, Chief Financial March 26, 1999
William R. Brooks Officer (principal financial officer and
accounting officer) and Director
/s/ EDWIN R. CLARK Executive Vice President and Director March 26, 1999
Edwin R. Clark
/s/ WILLIAM P. BENTON Director March 26, 1999
William P. Benton
/s/ MARK M. GAMBILL Director March 26, 1999
Mark M. Gambill
EXHIBIT INDEX
EXHIBIT
NUMBER
DESCRIPTION
*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 on Form S-4 (File
No. 333-35091) of the Company (the "September 1997 Form S-4")).
*4.1 Form of Stock Certificate (incorporated by reference to Exhibit 4.1 to the
Form S-1).
33
*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).
*10.1 Letter of Credit issued by NationsBank of North Carolina, N.A. in favor of
Charlotte Motor Speedway, Inc. for the benefit of the North Carolina
Department of Transportation for $1,902,600, dated March 14, 1994
incorporated by reference to Exhibit 10.9 to the Form S-1).
*10.2 Reimbursement Agreement by and between Charlotte Motor Speedway, Inc. and
NationsBank of North Carolina, N.A., dated as of March 11, 1994
(incorporated by reference to Exhibit 10.11 to the Form S-1).
*10.3 Project Agreement by and among The Department of Transportation, an agency
of the State of North Carolina, Interstate Combined Ventures and Charlotte
Motor Speedway, Inc., dated as of December 6, 1993 (incorporated by
reference to Exhibit 10.12 to the Form S-1).
*10.4 Deed of Trust by and among Terry L. Faulkenburg and Danny Ray Safrit, as
Trustees of West Cabarrus Church, Charlotte Motor Speedway, Inc. and Alan
G. Dexter, Trustee, dated as of September 29, 1994 (incorporated by
reference to Exhibit 10.38 to the Form S-1).
*10.5 Balance of Purchase Money Promissory Note in the amount of $720,000, made
by Charlotte Motor Speedway, Inc. in favor of West Cabarrus Church, dated
as of September 29, 1994 (incorporated by reference to Exhibit 10.39 to
the Form S-1).
*10.6 Agreement for Purchase and Sale of an Option in Real Property by and
between West Cabarrus Church and Charlotte Motor Speedway, Inc., dated as
of July 26, 1994 (incorporated by reference to Exhibit 10.40 to the Form
S-1).
*10.7 Deferred Compensation Plan and Agreement by and between Atlanta Motor
Speedway, Inc. and Edwin R. Clark, dated as of January 22, 1993
(incorporated by reference to Exhibit 10.43 to the Form S-1).
*10.8 Deferred Compensation Plan and Agreement by and between Charlotte Motor
Speedway, Inc. and H.A. "Humpy" Wheeler (incorporated by reference to
Exhibit 10.44 to the Form S-1).
*10.9 Speedway Motorsports, Inc. 1994 Stock Option Plan (incorporated by
reference to Exhibit 10.45 to the Form S-1).
*10.10 Speedway Motorsports, Inc. Formula Stock Option Plan (incorporated by
reference to Exhibit 10.13 to the Annual Report on Form 10-K of the
Company for the year ended December 31, 1995 (the "1995 Form 10-K")).
*10.11 Speedway Motorsports, Inc. Employee Stock Option Plan amended and
restated as of July 1, 1996 (incorporated by reference to Exhibit 4.1 to
the Registration Statement on Form S-8 (File No. 333-17687) of the
Company).
*10.12 Amended and Restated Agreement by and among Charlotte Motor Speedway,
Inc., Sonic Financial Corporation, Town and Country Ford, Inc., O. Bruton
Smith, SMDA Properties and Chartown, dated February 10, 1995
(incorporated by reference to Exhibit 10.50 to the Form S-1).
*10.13 Promissory Note made by Atlanta Motor Speedway, Inc. in favor of Sonic
Financial Corporation
34
in the amount of $1,708,767, dated as of December 31, 1993 (incorporated
by reference to Exhibit 10.51 to Form S-1).
*10.14 Non-Negotiable Promissory Note dated April 24, 1995 by O. Bruton Smith in
favor of the Company (incorporated by reference to Exhibit 10.20 to the
1995 Form 10-K).
*10.15 Asset Purchase Agreement dated October 24, 1996 between the Company, as
buyer, and Sears Point Raceway (incorporated by reference to Exhibit 99.1
to the Current Report on Form 8-K of the Company filed as of December 4,
1996 (the "SPR Form 8-K")).
*10.16 Master Ground Lease dated November 18, 1996 by and between Brenda Raceway
Corporation and the Company (incorporated by reference to Exhibit 99.2 to
the SPR Form 8-K).
*10.17 Deed of Trust, Security Agreement and Fixture Filing with Assignment of
Rents and Agreements dated as of November 18, 1996 by Brenda Raceway
Corporation to First American Title Insurance Company for the benefit of
Sonoma Funding Corporation (incorporated by reference to Exhibit 99.3 to
the SPR Form 8-K).
*10.18 Promissory Note secured by Deed of Trust dated November 18, 1996 by
Brenda Raceway Corporation in favor of Sonoma Funding Corporation
(incorporated by reference to Exhibit 99.4 to the SPR Form 8-K).
*10.19 Purchase Contract dated December 18, 1996 between Texas Motor Speedway,
Inc., as seller, and FW Sports Authority, Inc., as purchaser
(incorporated by reference to Exhibit 10.23 to the Annual Report on Form
10-K of the Company for the year ended December 31, 1996 (the "1996 Form
10-K").
*10.20 Lease Agreement dated as of December 18, 1996 between FW Sports
Authority, Inc., as lessor, and Texas Motor Speedway, Inc., as lessee
(incorporated by reference to Exhibit 10.24 to the 1996 Form 10-K).
*10.21 Guaranty Agreement dated as of December 18, 1996 among the Company, the
City of Fort Worth, Texas and FW Sports Authority, Inc. (incorporated by
reference to Exhibit 10.25 to the 1996 Form 10-K).
*10.22 Credit Agreement dated as of March 7, 1996 among the Company and Speedway
Funding Corp., as borrowers, and the lenders named therein, including
NationsBank, N.A. as agent for the lenders and a lender (incorporated by
reference to Exhibit 99.2 to the Registration Statement on Form S-3 (File
No. 333-1856) of the Company (the "March 1996 Form S-3")).
*10.23 First Amendment to the Credit Agreement dated as of September 24, 1996
among the Company and Speedway Funding Corp., as borrowers, and the
lenders named therein, including NationsBank, N.A. as agent for the
lenders and a lender (incorporated by reference to Exhibit 99.3 to the
November 1996 Form S-3).
*10.24 Second Amendment to Credit Agreement dated June 30, 1997 among the
Company and Speedway Funding Corp., as borrowers, and the lenders named
therein, including NationsBank, N.A. as agent for the lenders and a
lender (incorporated by reference to Exhibit 10.32 to the September 1997
Form S-4).
*10.25 Promissory Note dated June 30, 1997 among the Company and Speedway
Funding Corp. as borrowers, and NationsBank, N.A. as lender (incorporated
by reference to Exhibit 10.33 to the September 1997 Form S-4).
*10.26 Guaranty Agreement dated as of June 30, 1997 among Atlanta Motor
Speedway, Inc., Charlotte Motor Speedway, Inc., Texas Motor Speedway,
Inc., 600 Racing, Inc., Bristol Motor Speedway, Inc. and SPR Acquisition
Corporation, as guarantors, and NationsBank, N.A. (incorporated by
reference to Exhibit 10.34 to the September 1997 Form S-4).
*10.27 Amended and Restated Credit Agreement dated as of August 4, 1997 among
the Company and
35
Speedway Funding Corp., as borrowers, 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 September 1997
Form S-4).
*10.28 Registration Rights Agreement dated as of August 4, 1997 among the
Company, NationsBanc Capital Markets, Inc., Wheat, First Securities, Inc.
and J.C. Bradford & Co. (incorporated by reference to Exhibit 4.3 to the
September 1997 Form S-4).
*10.29 Purchase Agreement dated as of August 4, 1997 among the Company,
NationsBanc Capital Markets, Inc., Wheat, First Securities, Inc. and J.C.
Bradford & Co. (incorporated by reference to Exhibit 10.35 to the
September 1997 Form S-4).
*10.30 Asset Purchase Agreement and Escrow Instructions dated November 17, 1998
between Speedway Motorsports, Inc., as buyer, and Las Vegas Motor
Speedway, Inc., as seller (incorporated by reference to Exhibit 99.1 to
the Company's current Report on Form 8-K filed as of December 15, 1998
("the LVMS Form 8-K").
*10.31 First Amendment to Amended and Restated Credit Agreement dated as of
November 18, 1998 among Speedway Motorsports, Inc. and Speedway Funding
Corp., as borrowers, certain subsidiaries of Speedway Motorsports, Inc.,
as guarantors, and NationsBank, N.A., as the lender (incorporated by
reference to Exhibit 99.2 to the LVMS Form 8-K).
*10.32 Second Amended and Restated Credit Agreement dated as of November 23,
1998 among Speedway Motorsports, Inc. and Speedway Funding Corp., as
borrowers, certain subsidiaries of Speedway Motorsports, Inc., as
guarantors, and NationsBank, N.A., as agent for the lenders and a lender
(incorporated by reference to Exhibit 99.3 to the LVMS Form 8-K).
21.1 Subsidiaries of the Company (incorporated by reference to Exhibit 21.1 to
the 1998 Form 10-K).
23.0 Independent Auditors' Consent for Registration Statements No. 33-99942,
No. 333-17687, and No. 333-49027 of Speedway Motorsports, Inc. on Forms
S-8.
27.0 Financial Data Schedule for the Year Ended December 31, 1998.
- -----------
* Previously filed.
36
SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
-----
INDEPENDENT AUDITORS' REPORT ............................................................. F-2
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets at December 31, 1997 and 1998. .............................. F-3
Consolidated Statements of Income for the Years Ended December 31, 1996, 1997 and 1998 .. F-5
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1996, F-6
1997 and 1998
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1997 and F-7
1998
Notes to Consolidated Financial Statements .............................................. F-8
F-1
INDEPENDENT AUDITORS' REPORT
BOARD OF DIRECTORS
SPEEDWAY MOTORSPORTS, INC.
CHARLOTTE, NORTH CAROLINA
We have audited the accompanying consolidated balance sheets of Speedway
Motorsports, Inc. and subsidiaries (the Company) as of December 31, 1997 and
1998, and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of December 31, 1997 and 1998, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
February 23, 1999
F-2
SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
1997 1998
---------- -----------
(DOLLARS IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................. $ 28,148 $ 35,399
Restricted cash (Note 2) .................................. 2,775 258
Accounts and notes receivable (Notes 2 and 8) ............. 24,452 28,924
Prepaid income taxes ...................................... 4,649 10,356
Inventories (Note 3) ...................................... 8,900 10,447
Speedway condominiums held for sale (Note 2) .............. 22,908 4,930
Prepaid expenses .......................................... 768 2,026
-------- --------
Total current assets. ................................... 92,600 92,340
-------- --------
PROPERTY AND EQUIPMENT, NET (Notes 2 and 4) ................ 436,547 730,686
GOODWILL AND OTHER INTANGIBLE ASSETS, NET (Note 2) ......... 51,300 56,903
OTHER ASSETS:
Marketable equity securities (Note 2) ..................... 1,609 1,439
Notes receivable (Note 8) ................................. 5,498 11,420
Other assets (Note 2) ..................................... 9,614 12,089
-------- --------
Total other assets ...................................... 16,721 24,948
-------- --------
TOTAL ................................................... $597,168 $904,877
======== ========
See notes to consolidated financial statements.
F-3
SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 31, 1997 AND 1998
1997 1998
----------- ------------
(DOLLARS IN THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 5) .......................................... $ 375 $ 539
Accounts payable ....................................................................... 21,927 6,592
Deferred race event income, net (Note 2) ............................................... 58,433 84,713
Accrued expenses and other liabilities ................................................. 13,853 14,772
-------- --------
94,588 106,616
Revolving credit facility and bridge loan (Notes 2 and 5) .............................. -- 254,050
-------- --------
Total current liabilities ............................................................. 94,588 360,666
LONG-TERM DEBT (Note 5) .................................................................. 219,135 199,335
PAYABLE TO AFFILIATES (Note 8) ........................................................... 2,603 4,134
DEFERRED INCOME, NET (Note 2) ............................................................ 13,900 16,252
DEFERRED INCOME TAXES (Note 7) ........................................................... 18,795 35,208
OTHER LIABILITIES ........................................................................ 4,033 2,162
-------- --------
Total liabilities 353,054 617,757
-------- --------
COMMITMENTS AND CONTINGENCIES (Notes 4 and 9)
STOCKHOLDERS' EQUITY (Notes 2, 6 and 11):
Preferred stock, $.10 par value, 3,000,000 shares authorized, no shares issued ......... -- --
Common stock, $.01 par value, 200,000,000 shares authorized, 41,433,000 and 41,502,000
shares issued and outstanding in 1997 and 1998 ........................................ 414 415
Additional paid-in capital ............................................................. 156,477 157,216
Retained earnings ...................................................................... 87,526 129,897
Accumulated other comprehensive loss -- unrealized loss on marketable equity securities (303) (408)
-------- --------
Total stockholders' equity ............................................................ 244,114 287,120
-------- --------
TOTAL ................................................................................. $597,168 $904,877
======== ========
See notes to consolidated financial statements.
F-4
SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
1996 1997 1998
------------ ------------ -----------
(IN THOUSANDS EXCEPT PER SHARE
AMOUNTS)
REVENUES (Note 2):
Admissions ........................................ $ 52,451 $ 94,032 $ 107,601
Event related revenue ............................. 36,414 83,177 105,459
Other operating revenue ........................... 13,248 14,917 16,736
--------- --------- ---------
Total revenues .................................. 102,113 192,126 229,796
--------- --------- ---------
OPERATING EXPENSES:
Direct expense of events .......................... 30,173 65,347 83,046
Other direct operating expense .................... 8,005 9,181 10,975
General and administrative ........................ 16,995 31,623 34,279
Depreciation and amortization ..................... 7,598 15,742 21,701
Preoperating expense of new facility (Note 2) ..... -- 1,850 --
--------- --------- ---------
Total operating expenses ........................ 62,771 123,743 150,001
--------- --------- ---------
OPERATING INCOME ................................... 39,342 68,383 79,795
Interest income (expense), net (Notes 5 and 8) ..... 1,316 (5,313) (12,228)
Bridge loan cost amortization (Note 2) ............. -- -- (752)
Other income, net (Note 10) ........................ 2,399 991 3,202
--------- --------- ---------
INCOME BEFORE INCOME TAXES ......................... 43,057 64,061 70,017
Provision for income taxes (Note 7) ................ (16,652) (25,883) (27,646)
--------- --------- ---------
NET INCOME ......................................... $ 26,405 $ 38,178 $ 42,371
========= ========= =========
PER SHARE DATA (Note 6):
Basic earnings per share .......................... $ 0.65 $ 0.92 $ 1.02
Weighted average shares outstanding ............. 40,476 41,338 41,482
Diluted earnings per share ........................ $ 0.64 $ 0.89 $ 1.00
Weighted average shares outstanding ............. 41,911 44,491 44,611
See notes to consolidated financial statements.
F-5
SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
ACCUMULATED TOTAL
COMMON STOCK ADDITIONAL OTHER STOCK-
----------------- PAID-IN RETAINED COMPREHENSIVE HOLDERS'
SHARES AMOUNT CAPITAL EARNINGS LOSS EQUITY
-------- -------- ------------ ------------ --------------- -----------
(IN THOUSANDS)
BALANCE, JANUARY 1, 1996 ..................... 38,000 $380 $ 72,148 $ 22,943 $ (92) $ 95,379
Net income ................................. -- -- -- 26,405 -- 26,405
Issuance of common stock (Note 9) .......... 3,000 30 78,324 -- -- 78,354
Issuance of common stock in business
acquisition (Note 1) ...................... 146 1 3,944 -- -- 3,945
Exercise of stock options (Note 11) ........ 159 2 740 -- -- 742
Net unrealized loss on marketable equity
securities ................................ -- -- -- -- (90) (90)
------ ---- -------- -------- ------ --------
BALANCE, DECEMBER 31, 1996 ................... 41,305 413 155,156 49,348 (182) 204,735
Net income ................................. -- -- -- 38,178 -- 38,178
Issuance of stock under employee stock
purchase plan (Note 11) ................... 25 -- 375 -- -- 375
Exercise of stock options (Note 11) ........ 103 1 946 -- -- 947
Net unrealized loss on marketable equity
securities ................................ -- -- -- -- (121) (121)
------ ---- -------- -------- ------ --------
BALANCE, DECEMBER 31, 1997 ................... 41,433 414 156,477 87,526 (303) 244,114
Net income ................................. -- -- -- 42,371 -- 42,371
Issuance of stock under employee stock
purchase plan (Note 11) ................... 16 -- 340 -- -- 340
Exercise of stock options (Note 11) ........ 53 1 399 -- -- 400
Net unrealized loss on marketable equity
securities ................................ -- -- -- -- (105) (105)
------ ---- -------- -------- ------ --------
BALANCE, DECEMBER 31, 1998 ................... 41,502 $415 $157,216 $129,897 $ (408) $287,120
====== ==== ======== ======== ====== ========
See notes to consolidated financial statements.
F-6
SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
1996 1997 1998
------------ ------------ ------------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................................................. $ 26,405 $ 38,178 $ 42,371
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ......................................................... 7,598 15,742 21,701
Gain on sale of marketable equity securities and investments .......................... (698) (241) (150)
Amortization of bridge loan costs ..................................................... -- -- 752
Amortization of deferred income ....................................................... (275) (662) (891)
Deferred income tax provision ......................................................... 3,890 5,053 16,256
Changes in operating assets and liabilities, net of effects of business acquisitions:
Restricted cash ..................................................................... (14,538) 11,849 2,517
Accounts receivable ................................................................. (4,569) (4,245) (7,262)
Prepaid and accrued income taxes .................................................... (4,057) 135 (5,707)
Inventories ......................................................................... (819) (2,682) (1,384)
Condominiums held for sale .......................................................... (393) (19,373) 17,978
Accounts payable .................................................................... (4,917) 10,564 (15,335)
Deferred race event income .......................................................... 15,812 22,040 16,258
Accrued expenses and other liabilities .............................................. 3,179 3,720 672
Deferred income ..................................................................... 8,444 4,830 3,243
Other assets and liabilities ........................................................ 2,322 (3,859) (4,623)
---------- ---------- ----------
Net cash provided by operating activities .......................................... 37,384 81,049 86,396
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under long-term debt and bridge loan ........................................ 146,525 203,073 254,253
Principal payments on long-term debt ................................................... (50,866) (100,475) (18,565)
Payments of debt issuance costs ........................................................ (2,894) (6,429) (4,053)
Issuance of stock under employee stock purchase plan ................................... -- 375 340
Exercise of common stock options ....................................................... 742 947 400
Issuance of common stock to public ..................................................... 78,354 -- --
---------- ---------- ----------
Net cash provided by financing activities .......................................... 171,861 97,491 232,375
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................................................................... (147,741) (162,011) (98,574)
Purchase of Bristol Motor Speedway ..................................................... (27,176) -- --
Purchase of Oil-Chem Research Corp ..................................................... (514) -- --
Purchase of Sears Point Raceway ........................................................ (8,487) -- --
Purchase of Las Vegas Motor Speedway ................................................... -- -- (210,400)
Purchase of marketable equity securities and other investments ......................... (2,135) (412) (933)
Proceeds from sales of marketable equity securities and investments .................... 2,094 1,417 692
Distribution from equity method investee ............................................... -- -- 1,300
---------- ---------- ----------
Increase in notes and other receivables ................................................ (13,166) (11,638) (13,394)
Repayment of notes and other receivables ............................................... -- -- 9,789
---------- ---------- ----------
Net cash used in investing activities .............................................. (197,125) (172,644) (311,520)
---------- ---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS ............................................... 12,120 5,896 7,251
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR .......................................... 10,132 22,252 28,148
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR ................................................ $ 22,252 $ 28,148 $ 35,399
========== ========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest, net of amounts capitalized ..................................... -- $ 5,232 $ 14,951
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES (Note 5):
Capital lease obligation incurred for Sears Point Raceway facility ..................... $ 31,618
Net liabilities assumed and incurred in Las Vegas Motor Speedway acquisition ........... $ 8,783
See notes to consolidated financial statements.
F-7
SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
BASIS OF PRESENTATION -- 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
(FLE), Oil-Chem Research Corp. and subsidiary (ORC), Speedway Screen Printing
LLC d/b/a Wild Man Industries (WMI), Speedway Funding Corp. and Sonoma Funding
Corp. (collectively, the Company).
CURRENT YEAR BUSINESS ACQUISITIONS (see Description of Business and Note
13) -- 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 bridge loan (see
Note 5).
On October 2, 1998, the Company acquired certain tangible and intangible
assets and the operations of WMI for $510,000 in cash and notes payable.
DESCRIPTION OF BUSINESS -- AMS owns and operates a 1.54-mile lighted,
quad-oval, asphalt superspeedway located on approximately 870 acres in Hampton,
Georgia. Two major National Association of Stock Car Auto Racing (NASCAR)
Winston Cup events are held annually, one in March and one in November.
Additionally, a Busch Grand National race and two Automobile Racing Club of
America (ARCA) races are also held annually, each preceding a Winston Cup
event. AMS also hosts an annual Indy Racing League (IRL) racing event. All of
these events are sanctioned by NASCAR, IRL or ARCA. AMS has constructed 46
condominiums overlooking the Atlanta speedway and is in the process of selling
the 4 remaining condominiums.
BMS owns and operates a one-half mile lighted, 36-degree banked concrete
oval speedway, and a one-quarter mile lighted dragstrip, located on
approximately 550 acres in Bristol, Tennessee. BMS currently holds two major
NASCAR-sanctioned Winston Cup events annually. Additionally, two
NASCAR-sanctioned Busch Grand National races are held annually, each preceding
a Winston Cup event. In January 1996, the Company acquired 100% of the
outstanding capital stock of Bristol Motor Speedway, formerly known as National
Raceways, Inc., for $27,176,000. As part of the acquisition, the Company
obtained a right of first refusal to acquire certain adjacent land used for
camping and parking for race events.
BMS is reconstructing and expanding its dragstrip into a
"state-of-the-art" dragway with permanent grandstand seating, luxury suites,
and extensive fan amenities and facilities. Construction of the Bristol Dragway
is expected to be completed in 1999, and its inaugural National Hot Rod
Association (NHRA) sanctioned Winston Showdown will be hosted in July 1999.
Bristol Dragway will also host NHRA and other bracket racing events, as well as
various auto shows.
LMSC owns and operates a 1.5-mile lighted quad-oval, asphalt superspeedway
located in Concord, North Carolina. LMSC stages three major NASCAR Winston Cup
events annually, two in May and one in October. Additionally, two Busch Grand
National and two ARCA races are held annually, each preceding a Winston Cup
event. LMSC also hosts an IRL racing event annually. All of these events are
sanctioned by NASCAR, IRL or ARCA. The Charlotte facility also includes a
2.25-mile road course, a one-quarter mile asphalt oval track, a one-fifth mile
asphalt oval track and a one-fifth mile dirt oval track, all of which hold race
events throughout the year. In addition, LMSC has constructed 52 condominiums
overlooking the main speedway, all of which have been sold.
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,
will be recognized ratably over the ten year agreement term.
LMSC also owns an office and entertainment complex which overlooks the
main speedway. A wholly-owned subsidiary, The Speedway Club, Inc. (Speedway
Club), derives rental, catering and dining revenues from the complex.
F-8
SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS -- (Continued)
LVMS owns and operates a 1.5 mile, lighted, asphalt superspeedway, several
other on-site race tracks and a 1.4 million square foot on-site industrial
park, located on approximately 1,300 acres in Las Vegas, Nevada. LVMS currently
hosts several annual NASCAR-sanctioned racing events, including a Winston Cup
Series, Busch Grand National Series, Craftsman Truck Series, two Winston West
Series, and two Winston Southwest Series racing events. Additional major events
held annually include IRL, World of Outlaws, American Motorcycle Association
(AMA), and drag racing events, among others. The racetrack is also rented
throughout the year for non-racing activities such as driving schools and
automobile testing.
Construction of LVMS was substantially completed in 1997 and its first
major NASCAR Winston Cup race was held in March 1998. As of December 31, 1998,
construction of the 1.4 million square foot industrial park was nearing
completion and is expected to commence operations in the first half of 1999
(see Note 4). The industrial park is expected to be leased under triple net
operating leases primarily to businesses and individuals involved in racing and
related industries.
SPR, located on approximately 1,500 acres in Sonoma, California, owns and
operates a 2.52-mile, twelve-turn road course, a one-quarter mile dragstrip,
and an 157,000 square foot industrial park. SPR currently holds one major
NASCAR-sanctioned Winston Cup racing event annually. Additional events held
annually include a NASCAR-sanctioned Winston Southwest Series, NHRA Winston
Drag Racing Series National, as well as AMA and Sports Car Club of America
(SCCA), racing events. The racetrack is also rented throughout the year by
various organizations, including the SCCA, driving schools, major automobile
manufacturers, and other car clubs.
On November 18, 1996, the Company acquired certain tangible and intangible
assets and the operations of Sears Point Raceway for approximately $2,000,000
in cash, and executed a long-term lease, including a purchase option, for the
racetrack facilities and real property. On February 17, 1998, as further
described in Note 5, the purchase option was exercised for $18,100,000, net
cash outlay, thereby transferring ownership of the racetrack facilities and
real property to the Company and eliminating its capital lease obligation.
TMS, located on approximately 1,360 acres in Fort Worth, Texas, is a
1.5-mile lighted, banked, asphalt quad-oval superspeedway. Construction of TMS
was completed at March 31, 1997 with TMS hosting its first major NASCAR Winston
Cup race on April 6, 1997. TMS currently hosts one major NASCAR Winston Cup
event, preceded by a Busch Grand National racing event. In 1999, TMS is also
hosting two NASCAR-sanctioned Craftsman Truck Series and two IRL racing events.
In 1998, TMS completed construction of 76 condominiums above turn two
overlooking the speedway, 66 of which have been sold or contracted for sale as
of December 31, 1998 (see Note 2).
TMS also is constructing an office and entertainment complex which
overlooks the main speedway. Construction is expected to be completed in 1999,
and TMS plans to derive rental, catering and dining revenues from the dining-
entertainment and health-fitness club complex.
FLE provides event food, beverage, and souvenir merchandising services at
each of the Company's speedways and to other third party sports-oriented venues
(see Note 2).
ORC produces an environmentally friendly motor oil additive that the
Company intends to promote in conjunction with its speedways (see Note 2). On
April 16, 1996, the Company acquired 100% of the outstanding capital stock of
ORC for $4,459,000 in Company stock and cash.
WMI, a wholly-owned subsidiary of FLE, is a screen printing and embroidery
manufacturer and distributor of wholesale and retail apparel.
600 RACING, INC., a wholly-owned subsidiary of LMSC, developed, operates
and is the official sanctioning body of the Legends Racing Circuit. 600 Racing
also manufactures and sells 5/8-scale cars (Legends Cars) modeled after
older-style coupes and sedans. In 1997, 600 Racing released a new line of
smaller-scale cars (the Bandolero). Revenue is principally derived from the
sale of vehicles and vehicle parts.
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 includes a speedway located in northwest Illinois. The agreement also
grants the Company the option to purchase up to 40% equity ownership in the
facility. The option has not been exercised.
F-9
SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION -- All significant intercompany accounts and
transactions have been eliminated in consolidation.
REVENUE RECOGNITION -- Admissions revenue consists of ticket sales. Event
related revenues consist of amounts received from sponsorships, broadcasting
rights, concessions, luxury suite rentals, commissions and souvenir sales.
Other operating revenue consists of Legends Car sales, Speedway Club restaurant
and catering revenues, Speedway Club membership income, industrial park
rentals, Oil-Chem and WMI revenues.
The Company recognizes admissions and other event related revenues when
the events are held. Advance revenues and certain related direct expenses
pertaining to a specific event are deferred until such time as the event is
held. Deferred expenses primarily include race purses and sanctioning fees
remitted to NASCAR or other sanctioning bodies.
Deferred race event income relates to scheduled events to be held in the
upcoming year. If circumstances prevent a race from being held at any time
during the racing season, all advance revenue must be refunded and all direct
event expenses deferred would be recognized immediately except for race purses
which would be refundable from NASCAR, IRL or other sanctioning bodies.
CASH AND CASH EQUIVALENTS -- The Company classifies as cash equivalents
all highly liquid investments with original maturities of three months or less.
Cash equivalents principally consist of commercial paper and United States
Treasury securities.
RESTRICTED CASH -- Restricted cash consists principally of customer
deposits received on speedway condominiums under construction and held for sale
of $2,671,000 and $223,000 at December 31, 1997 and 1998. Condominium deposits
are held in escrow accounts until sales are closed.
ACCOUNTS AND NOTES RECEIVABLE -- Accounts receivable are reported net of
allowance for doubtful accounts of $553,000 and $291,000 at December 31, 1997
and 1998. Short term notes receivable amounted to $593,000 and $4,222,000 at
December 31, 1997 and 1998. Bad debt expense amounted to $97,000 in 1996,
$392,000 in 1997 and $29,000 in 1998, and allowance for doubtful accounts
reductions for actual write-offs and recoveries of specific accounts receivable
amounted to $82,000 in 1996, $0 in 1997 and $291,000 in 1998.
INVENTORIES -- Inventories consist of souvenirs, finished vehicles, parts
and accessories, and food costs determined on a first-in, first-out basis, and
apparel and oil additive costs determined on a average current cost basis, all
of which are stated at the lower of cost or market.
SPEEDWAY CONDOMINIUMS HELD FOR SALE -- The Company has constructed 46
condominiums at AMS and 76 condominiums at TMS, of which 41 and 66,
respectively, have been sold or contracted for sale as of December 31, 1998.
Speedway condominiums held for sale represent 5 condominiums at AMS and 10
condominiums at TMS which are substantially complete and are in the process of
being sold.
PROPERTY AND EQUIPMENT -- Property and equipment are recorded at cost less
accumulated depreciation. Depreciation is computed using the straight-line
method over the estimated useful lives of the respective assets. Expenditures
for repairs and maintenance are charged to expense when incurred. Construction
in progress includes all direct costs and capitalized interest on fixed assets
under construction. Management periodically evaluates long-lived assets for
possible impairment based on expected future undiscounted operating cash flows
attributable to such assets.
In the fourth quarter ended December 31, 1997, the Company revised the
estimated useful lives of certain property and equipment based on new
information obtained from a third party review of applicable lives for these
assets. Management believes the revised lives are more appropriate and result
in better estimates of depreciation. The revised lives decreased depreciation
expense $735,000, and increased net income $441,000, or approximately $.01 per
share, for the year ended December 31, 1997 compared to using former lives.
In connection with the development and completed construction of TMS in
1997, the Company entered into arrangements with the FW Sports Authority, a
non-profit corporate instrumentality of the City of Fort Worth, Texas, whereby
the Company conveyed the speedway facility, excluding its on-site condominiums
and office and entertainment complex, to the
F-10
SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
sports authority and is leasing the facility back over a 30-year period.
Because of the Company's responsibilities under these arrangements, the
speedway facility and related liabilities are included in the accompanying
consolidated balance sheets.
GOODWILL AND OTHER INTANGIBLE ASSETS -- Goodwill and other intangible
assets represent the excess of business acquisition costs over the fair value
of the net assets acquired and are being amortized on a straight-line basis
principally over 40 years. Goodwill and other intangible assets are reported
net of accumulated amortization of $2,837,000 and $4,063,000 at December 31,
1997 and 1998. Management periodically evaluates the recoverability of goodwill
and other intangible assets based on expected future profitability and
undiscounted operating cash flows of acquired businesses.
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. Accordingly, these securities
are reported at fair value, with unrealized gains and losses, net of tax,
excluded from earnings and reported as a separate component of stockholders'
equity. Management intends to hold these securities through at least fiscal
1999, and accordingly, they are reflected as non-current assets. Realized gains
and losses on sales of marketable equity securities are determined using the
specific identification method.
Valuation allowances for unrealized losses of $303,000 and $408,000, net
of $219,000 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 December 31, 1997 and 1998,
respectively. Net realized gains on sales of marketable equity securities were
$698,000 in 1996, $241,000 in 1997 and $150,000 in 1998.
DEFERRED FINANCING COSTS AND BRIDGE LOAN COST AMORTIZATION -- Deferred
financing costs are included in other noncurrent assets and are amortized over
the term of the related debt. Bridge loan cost amortization results from
financing costs incurred in obtaining an amended credit facility and bridge
loan to fund the Company's December 1, 1998 acquisition of LVMS (see Note 5).
Associated deferred financing costs of $4,050,000 are being amortized over the
loan term which matures May 18, 1999. Deferred financing costs are reported net
of accumulated amortization of $700,000 and $2,458,000 at December 31, 1997 and
1998.
DEFERRED INCOME -- Deferred income as of December 31, 1997 and 1998
consisted of the following (dollars in thousands):
1997 1998
---------- ----------
TMS Preferred Seat License fee deposits, net . $12,862 $12,624
Deferred gain on TMS condominium sales. ...... -- 2,817
Deferred LMSC Speedway Club membership income 1,014 739
Other ........................................ 24 72
------- -------
Total ....................................... $13,900 $16,252
======= =======
In 1996, TMS began offering Preferred Seat License agreements whereby
licensees are entitled to purchase annual TMS season-ticket packages for
sanctioned racing events under specified terms and conditions. Among other
items, licensees are required to purchase all season-ticket packages when and
as offered each year. License agreements automatically terminate without refund
should licensees not purchase any offered ticket. Also, licensees are not
entitled to refunds for postponements or cancellation of events due to weather
or certain other conditions. After May 31, 1999, license agreements are
transferrable once each year subject to certain terms and conditions. TMS
Preferred Seat License fee deposits are reported net of expenses of $1,036,000
and $1,052,000 at December 31, 1997 and 1998.
Fees received under PSL agreements were deferred prior to TMS hosting its
first Winston Cup race on April 6, 1997. The Company began amortizing net PSL
fee revenues into income over the estimated useful life of TMS's facility upon
its opening. Amortization income recognized in 1997 was $387,000 and in 1998
was $616,000.
The Speedway Club at LMSC has sold lifetime memberships which entitle
individual members to certain private dining and racing event seating
privileges. Net revenues from lifetime membership fees are being amortized into
income over 25 years. In each of the three years ended December 31, 1998,
lifetime membership income of $275,000 was recognized.
F-11
SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
The Speedway Club also offers executive memberships, which entitle members to
certain dining privileges and require a monthly assessment. Monthly executive
membership fees are recognized as income when billed.
Certain condominium sales contracts, aggregating approximately $17,300,000
as of December 31, 1998, 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.
ADVERTISING EXPENSES -- Advertising costs other than for direct-response
advertising are expensed as incurred and are included principally in direct
expense of events. Advertising expenses amounted to $2,154,000 in 1996,
$5,205,000 in 1997, and $7,626,000 in 1998. Prepaid expense at December 31,
1998 includes $1,240,000 of deferred direct-response advertising costs related
to future media promotion of certain ORC products. These deferred costs will be
amortized over the estimated period of future benefits commencing when primary
media promotion begins.
PREOPERATING EXPENSE OF NEW FACILITY -- Preoperating expenses consist of
non-recurring and non-event related costs to develop, organize and open Texas
Motor Speedway, which hosted its first racing event on April 6, 1997.
INCOME TAXES -- The Company recognizes deferred tax assets and liabilities
for the future income tax effect of temporary differences between financial and
income tax bases of assets and liabilities assuming they will be realized and
settled at the amounts reported in the financial statements.
STOCK-BASED COMPENSATION -- The Company continues to apply Accounting
Principles Board (APB) Opinion No. 25, which recognizes compensation cost based
on the intrinsic value of the equity instrument awarded as permitted under
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation." The pro forma effect on net income and earnings per
share under the provisions of SFAS No. 123 is disclosed in Note 11.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- The Company's financial instruments
consist of cash, accounts and notes receivable, accounts payable and short and
long-term debt. The carrying value of these financial instruments approximate
their fair value at December 31, 1997 and 1998.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses. Actual
future results could differ from those estimates.
IMPACT OF NEW ACCOUNTING STANDARDS -- The Company adopted SFAS No. 130
"Reporting Comprehensive Income" in 1998. SFAS No. 130 specifies that
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. Because the
Company does not have material items of other comprehensive income, adoption
did not result in presentation or financial statements significantly different
from that under previous accounting standards.
The Company also adopted SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information" in 1998. SFAS No. 131 establishes standards
for reporting selected information about operating segments determined using
quantitative thresholds and a "management approach", which reflects how the
chief operating decision maker evaluates segment performance and allocates
resources. The combined operations of the Company's speedways comprise one
operating segment, and encompasses all admissions and event related revenues
and associated expenses. Other Company operations presently are not considered
significant relative to those of the speedways. As such, adoption had no effect
on the Company's financial statements or disclosures.
RECLASSIFICATIONS -- Certain prior year accounts were reclassified to
conform with current year presentation.
PRESENTATION -- In 1998, the Company began operating certain food and
beverage concession activities through FLE which previously had been procured
from a third party. As a result, revenues and expenses associated with such
concession activities in 1998 are included in event related revenues, direct
expense of events and general and administrative expense.
F-12
SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
In 1996 and 1997, the Company's operating profits from such activities under
its arrangement with the outside vendor were reported as event related revenue.
3. INVENTORIES
Inventories as of December 31, 1997 and 1998 consisted of the following
components (dollars in thousands):
1997 1998
--------- ---------
Souvenirs and apparel ......................... $3,839 $ 5,023
Finished vehicles, parts and accessories. ..... 4,907 4,409
Oil additives, food and other. ................ 154 1,015
------ -------
Total ....................................... $8,900 $10,447
====== =======
4. PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1997 and 1998 is summarized as
follows (dollars in thousands):
ESTIMATED
USEFUL LIVES 1997 1998
-------------- ----------- -----------
Land and land improvements ....... 5-25 $ 88,019 $ 200,193
Racetracks and grandstands ....... 5-45 214,998 298,701
Buildings and luxury suites. ..... 5-40 140,785 182,426
Machinery and equipment. ......... 3-20 15,321 32,302
Furniture and fixtures ........... 5-20 10,878 11,390
Autos and trucks ................. 3-10 2,747 3,651
Construction in progress ......... 25,303 83,081
--------- ---------
Total .......................... 498,051 811,744
Less accumulated depreciation .. (61,504) (81,058)
--------- ---------
Net ................................... $ 436,547 $ 730,686
========= =========
CONSTRUCTION IN PROGRESS -- At December 31, 1998, 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 is expected to be
completed in 1999, with its inaugural NHRA-sanctioned Winston Showdown hosted
in July 1999. In addition, construction of a 1.4 million square foot industrial
park and a dragstrip on-site at LVMS was nearing completion as of December 31,
1998, and commencement of operations is expected in early 1999. The estimated
aggregate cost of capital expenditures in 1999 will approximate $60,000,000.
F-13
SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. AMENDED BANK CREDIT FACILITY AND BRIDGE LOAN AND LONG-TERM DEBT
Revolving credit facility and bridge loan borrowings and long-term debt as
of December 31, 1997 and 1998 consist of the following (dollars in thousands):
1997 1998
------------ -------------
Revolving credit facility and bridge loan $ -- $ 254,050
Senior subordinated notes ............... 124,674 124,708
Convertible subordinated debentures ..... 74,000 74,000
Capital lease obligation ................ 19,433 --
Other notes payable ..................... 1,403 1,166
-------- ----------
Total .................................. 219,510 453,924
Less current maturities .......................... (375) (539)
Less revolving credit facility and bridge loan
borrowings maturing May 1999 ..................... -- (254,050)
-------- ----------
$219,135 $ 199,335
======== ==========
AMENDED BANK CREDIT FACILITY AND BRIDGE LOAN -- On November 23, 1998, the
Company's Credit Facility dated as of August 4, 1997 was amended and restated
in connection with the Company's December 1, 1998 acquisition of LVMS. The
amended Credit Facility and Bridge Loan (the Bridge Loan) increased the
Company's overall borrowing limit from $175,000,000 to $270,000,000 to fund the
LVMS acquisition and maintain a revolving credit facility for working capital
needs and general corporate purposes. The Bridge Loan matures on May 18, 1999.
At December 31, 1998, the Company has $254,050,000 in outstanding borrowings
under the Bridge Loan. Interest, standby letters of credit terms and
restrictive and required financial covenants are generally similar to those
prior to amendment. The Bridge Loan was obtained from NationsBank N.A., and is
an unsecured, senior revolving credit facility and term loan with a $10,000,000
borrowing sub-limit for standby letters of credit. Associated deferred
financing costs incurred in obtaining the bridge loan amounted to approximately
$4,050,000 and are being amortized over the loan term through May 18, 1999 (see
Note 2).
Because the Bridge Loan matures May 18, 1999, replacement debt and equity
offering alternatives are being evaluated by the Company. While the Company
does not believe maturity will 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. In conjunction with
seeking replacement financing, the Company also intends to retain a revolving
credit facility with sufficient overall borrowing limits for working capital
needs and general corporate purposes.
Interest is based, at the Company's option, upon (i) LIBOR plus 1.125% or
(ii) the greater of NationsBank's prime rate or the Federal fund rate plus .5%.
Although the Bridge Loan is unsecured, the Company has agreed not to pledge its
assets to any third party. In addition, among other items, the Company must
meet certain financial covenants, including specified levels of net worth and
ratios of (i) debt to capitalization, (ii) debt to earnings before interest,
taxes, depreciation and amortization (EBITDA), and (iii) earnings before
interest and taxes (EBIT) to interest expense. The Bridge Loan also contains
certain limitations on cash expenditures to acquire additional motor speedways
without the consent of the lenders, and limits the Company's consolidated
capital expenditures to amounts not to exceed $125 million annually, beginning
for fiscal 1998, and $325 million in the aggregate over the loan term. The
Company also agreed to certain other limitations or prohibitions concerning the
incurrence of other indebtedness, transactions with affiliates, guarantees,
asset sales, investments, cash dividends to shareholders, distributions and
redemptions. The weighted-average interest rate on borrowings under the Credit
Facility and Bridge Loan in 1998 was 6.4%.
SENIOR SUBORDINATED NOTES -- In August 1997, the Company completed a
private placement of 8 1/2% senior subordinated notes (the Senior Notes) in the
aggregate principal amount of $125,000,000. The Senior Notes are unsecured,
mature in August 2007, and are redeemable at the Company's option after August
15, 2002. Interest payments are due semi-annually on February 15 and August 15.
The Senior Notes are subordinated to all present and future senior secured
indebtedness of the Company, including the Bridge Loan. Redemption prices in
fiscal year periods ending August 15 are 104.25% in 2002,
F-14
SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. AMENDED BANK CREDIT FACILITY AND BRIDGE LOAN AND LONG-TERM
DEBT -- (Continued)
102.83% in 2003, 101.42% in 2004 and 100% in 2005 and thereafter. The Company
filed a registration statement to register these notes on September 8, 1997.
Net proceeds after commissions and discounts, including issuance discount of
$340,000, amounted to $121,548,000 and were used to retire and repay then
outstanding borrowings under the former credit facility, fund construction
costs and for working capital needs of the Company.
The Indenture governing the Senior Notes contains certain specified
restrictive and required financial covenants. The Company has agreed not to
pledge its assets to any third party except under certain limited
circumstances. The Company also has agreed to certain other limitations or
prohibitions concerning the incurrence of other indebtedness, capital stock,
guaranties, asset sales, investments, cash dividends to shareholders,
distributions and redemptions. The Indenture and Bridge Loan agreements contain
cross-default provisions.
CONVERTIBLE SUBORDINATED DEBENTURES -- In October 1996, the Company
completed a private placement of 5 3/4% convertible subordinated debentures in
the aggregate principal amount of $74,000,000. On October 4, 1996, the Company
filed a registration statement to register these debentures and the underlying
equity securities. Net proceeds after commissions and discounts were
$72,150,000. The debentures are unsecured, mature on September 30, 2003, are
convertible into Company common stock at the holder's option after December 1,
1996 at $31.11 per share until maturity, and are redeemable at the Company's
option after September 29, 2000. Interest payments are due semi-annually on
March 31 and September 30. The debentures are subordinated to all present and
future secured indebtedness of the Company, including the Bridge Loan.
Redemption prices in fiscal year periods ending September 30 are 102.46% in
2000, 101.64% in 2001 and 100.82% in 2002. After September 30, 2002, the
debentures are redeemable at par. In conversion, 2,378,565 shares of common
stock would be issuable (see Note 6). The proceeds of this offering were used
to repay outstanding borrowings under the Company's former bank credit
facility, fund construction costs of TMS and for working capital needs of the
Company.
CAPITAL LEASE OBLIGATION AND EXERCISE OF PURCHASE OPTION (SEARS POINT
RACEWAY) -- In connection with its SPR asset acquisition on November 18, 1996
(see Note 1), the Company executed a fourteen year capital lease, including a
purchase option, with the seller for all real property of the SPR complex. On
February 17, 1998, the purchase transaction was consummated for $18,100,000 net
cash, thereby transferring ownership of the SPR racetrack facilities and real
property to the Company and eliminating its capital lease obligation. The
purchase transaction was funded with borrowings under the Company's former
credit facility, and has been reflected in the accompanying December 31, 1998
consolidated financial statements.
The purchase option, consisting of the Company's right to purchase the
real property for $38,100,000, subject to seller acceleration, was initially
acquired for a $3,500,000 payment. This payment, a security deposit of
$3,000,000 paid at lease inception, and a promissory note receivable of
$13,453,000 due from the seller, were credited against the purchase price.
Because a legal right of offset existed under the lease obligation and note
receivable agreements prior to exercise, the note receivable was netted against
the capital lease obligation in the accompanying December 31, 1997 consolidated
balance sheet.
OTHER NOTES PAYABLE -- Other notes payable includes a note arrangement the
Company entered into in 1995 to pay a portion of the costs to construct an
improved access road to LMSC from Interstate 85. The note payable bears
interest at 8% and is collateralized by a bank letter of credit from
NationsBank.
F-15
SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. AMENDED BANK CREDIT FACILITY AND BRIDGE LOAN AND LONG-TERM
DEBT -- (Continued)
Annual maturities of debt at December 31, 1998 are as follows (dollars in
thousands):
1999 .................................... $ 539
2000 .................................... 347
2001 .................................... 125
2002 .................................... 116
2003 .................................... 74,039
Thereafter .............................. 124,708
--------
Total ................................... 199,874
Revolving credit facility and bridge loan
maturing May 1999 ....................... 254,050
--------
$453,924
========
Interest income (expense), net includes interest expense of $693,000 in
1996, $7,745,000 in 1997, and $15,258,000 in 1998; and includes interest income
of $2,009,000 in 1996, $2,432,000 in 1997, and $3,030,000 in 1998. The Company
capitalized interest costs of $2,834,000 in 1996, $5,768,000 in 1997, and
$3,846,000 in 1998.
6. CAPITAL STRUCTURE, PUBLIC OFFERING OF COMMON STOCK AND PER SHARE DATA
PREFERRED STOCK -- At December 31, 1998, SMI has authorized 3,000,000
shares of preferred stock with a par value of $.10 per share. Shares of
preferred stock may be issued in one or more series with rights and
restrictions as may be determined by the Company's Board of Directors. No
preferred shares were issued and outstanding at December 31, 1997 or 1998.
STOCK SPLIT -- On February 9, 1996, the Company's Board of Directors
approved a two for one stock split for each share of the Company's common
stock. The stock split was effective March 15, 1996 in the form of a 100%
common stock dividend payable to stockholders of record as of February 26,
1996. All share and per share information in the accompanying consolidated
financial statements take into account this stock split.
PUBLIC OFFERING OF COMMON STOCK -- The Company completed its second
offering of common stock on April 1, 1996 by issuing 3,000,000 shares of common
stock at a price of $27.625 per share. Net proceeds after offering expenses
were $78,354,000 with such proceeds used to pay construction costs of TMS and
for other general corporate purposes.
PER SHARE DATA -- Diluted earnings per share assumes conversion of the
convertible debentures into common stock based on the weighted average of
issuable shares from the date of debt issuance, and elimination of 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):
F-16
SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. CAPITAL STRUCTURE, PUBLIC OFFERING OF COMMON STOCK AND PER SHARE
DATA -- (Continued)
WEIGHTED
NET AVERAGE EARNINGS
YEAR ENDED: INCOME SHARES PER SHARE
- ------------------------------------------------------ ---------- --------- ----------
December 31, 1996:
Basic earnings per share ........................... $26,405 40,476 $ 0.65
Dilution adjustments:
Common stock equivalents -- stock options ......... -- 825
5 3/4% Convertible debentures ..................... 210 610
------- ------
Diluted earnings per share ......................... $26,615 41,911 $ 0.64
======= ======
December 31, 1997:
Basic earnings per share ........................... $38,178 41,338 $ 0.92
Dilution adjustments:
Common stock equivalents -- stock options ......... -- 774
5 3/4% Convertible debentures ..................... 1,237 2,379
------- ------
Diluted earnings per share ......................... $39,415 44,491 $ 0.89
======= ======
December 31, 1998:
Basic earnings per share ........................... $42,371 41,482 $ 1.02
Dilution adjustments:
Common stock equivalents -- stock options ......... -- 750
5 3/4% Convertible debentures ..................... 2,108 2,379
------- ------
Diluted earnings per share ......................... $44,479 44,611 $ 1.00
======= ======
7. INCOME TAXES
The components of the provision for income taxes are as follows (dollars
in thousands):
1996 1997 1998
---------- ---------- ----------
Current ........... $12,762 $20,830 $11,390
Deferred .......... 3,890 5,053 16,256
------- ------- -------
Total ............. $16,652 $25,883 $27,646
======= ======= =======
The reconciliation of the statutory federal income tax rate and the
effective income tax rate is as follows:
1996 1997 1998
-------- -------- --------
Statutory federal tax rate .......................... 35% 35% 35%
State and local income taxes, net of federal income
tax effect ............................................ 4 4 4
Other, net .......................................... -- 1 --
-- -- --
Total ................................................. 39% 40% 39%
== == ==
F-17
SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES -- (Continued)
The tax effect of temporary differences resulting in deferred income taxes
are as follows (dollars in thousands):
1996 1997 1998
---------- ---------- ------------
Deferred tax liabilities:
Property and equipment .................. $ 14,958 $ 25,627 $ 49,493
Expenses deducted for tax purposes and other 755 582 1,520
-------- -------- ---------
Subtotal ............................... 15,713 26,209 51,013
-------- -------- ---------
Deferred tax assets:
Income previously recognized for tax purposes (520) (406) (808)
Stock option compensation expense ....... (1,095) (1,054) (1,020)
PSL and other deferred income recognized for tax
purposes ............................... -- (5,028) (5,075)
Alternative minimum tax credit .......... -- -- (6,898)
Other ................................... (356) (926) (2,004)
-------- -------- ---------
Subtotal ............................... (1,971) (7,414) (15,805)
-------- -------- ---------
Total net deferred tax liability .......... $ 13,742 $ 18,795 $ 35,208
======== ======== =========
The Company made income tax payments during 1996, 1997 and 1998 totaling
approximately $17,402,000, $27,329,000 and $16,328,000, respectively. No
valuation allowance against deferred tax assets has been recorded for any year
presented.
On October 31, 1997, the Company reached a final settlement with the
Internal Revenue Service (IRS) involving AMS, as the successor in interest to
BND, Inc. (BND), for deficient income taxes and interest related to BND's
income tax returns for certain years. The IRS had alleged that, during the
acquisition of AMS in 1990, BND's merger into AMS resulted in a taxable gain to
BND, and eliminated a net operating loss carryback to the tax return filed for
1988. The settlement included taxes payable of approximately $2,900,000 plus
interest which have been reflected as an increase to goodwill arising from the
AMS acquisition and a charge to previously established accruals, respectively.
8. RELATED PARTY TRANSACTIONS
Notes receivable at December 31, 1997 and 1998 include $747,000 and
$798,000, respectively, due from a partnership in which the Company's Chairman
and Chief Executive Officer is a partner. The note bears interest at 1% over
prime, is collateralized by certain partnership land and is payable on demand.
Because the Company does not anticipate repayment of the note during 1999, the
balance has been classified as a noncurrent asset in the accompanying 1998
balance sheet.
Notes receivable also include a note receivable from the Company's
Chairman and Chief Executive Officer for $1,876,000 at December 31, 1997 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 during 1999, the balance has been classified as a
noncurrent asset in the accompanying 1998 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. At
December 31, 1997 and 1998, accounts receivable include approximately
$3,875,000 and $1,040,000 net due from Sonic Financial. The amounts are
classified as short-term based on expected repayment dates.
Interest income of $130,000 in 1996, $166,000 in 1997, and $115,000 in
1998 was earned on amounts due from related parties.
Amounts payable to affiliates at December 31, 1997 and 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
prime plus 1%. The entire amount is classified as long-term based on expected
repayment dates. Interest expense incurred on this obligation was $141,000 in
1996, $144,000 in 1997 and
F-18
SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. RELATED PARTY TRANSACTIONS -- (Continued)
$143,000 in 1998. Amounts payable to affiliates at December 31, 1998 also
include $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.
9. CONTINGENCIES
The Company is involved in various lawsuits and disputes which arose in
the ordinary course of business. In management's opinion, the outcome of these
matters will not have a material impact on the Company's financial condition or
future results of operations. The Company's property at LMSC includes areas
that were used as solid waste landfills for many years. Landfilling of general
categories of municipal solid waste on the LMSC property ceased in 1992, but
LMSC currently allows certain property to be used for land clearing and inert
debris landfilling and for construction and demolition debris landfilling.
Management believes that the Company's operations, including the landfills on
its property, are in compliance with all applicable federal, state and local
environmental laws and regulations. Company management is not aware of any
situation related to landfill operations which would adversely affect the
Company's financial position or future results of operations.
10. OTHER INCOME
Other income, net for the years ended December 31, 1996, 1997 and 1998
consists of the following (dollars in thousands):
1996 1997 1998
-------- -------- ---------
Gain on sale of speedway condominiums .. $ 163 $ 142 $1,032
Equity in operations of equity investee 371 (97) 26
Other income ........................... 1,865 946 2,144
------ ----- ------
$2,399 $ 991 $3,202
====== ===== ======
Other income in 1996 consists primarily of gains on sales of land and
marketable equity securities, and landfill fees; in 1997 consists primarily of
gains on sales of marketable equity securities and landfill fees; and in 1998
consists primarily of December gain on exercise of SPR purchase option and on
sales of marketable equity securities and landfill fees.
11. STOCK OPTION PLANS
1994 STOCK OPTION PLAN -- The Board of Directors and stockholders of SMI
adopted the Company's 1994 Stock Option Plan in order to attract and retain key
personnel. Under the stock option plan, options to purchase up to an aggregate
of 3,000,000 shares of common stock may be granted to directors, officers and
key employees of SMI and its subsidiaries. All options to purchase shares under
this plan expire ten years from grant date. Such options provide for the
purchase of common stock at a price as determined by the Compensation Committee
of the Board of Directors. The exercise price of all stock options granted in
1996 through 1998 was the fair or trading value of the Company's common stock
at grant date. Other option information regarding the 1994 Stock Option Plan
for 1996 through 1998 is summarized as follows:
F-19
SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. STOCK OPTION PLANS -- (Continued)
WEIGHTED
EXERCISE AVERAGE
SHARES IN PRICE EXERCISE
THOUSANDS PER SHARE PRICE
----------- ----------------- -----------
Outstanding, January 1, 1996 .. 1,220 $ 3.75-$15.38 $ 6.00
Granted ....................... 280 23.00 23.00
Exercised ..................... (159) 3.75-15.38 4.67
Cancelled ..................... (17) 15.38 15.38
----- --------------- --------
Outstanding, December 31, 1996 1,324 3.75-23.00 9.64
Granted ....................... 90 23.50 23.50
Exercised ..................... (83) 3.75-9.00 7.73
----- --------------- --------
Outstanding, December 31, 1997 1,331 3.75-23.50 10.40
Granted ....................... 200 25.63 25.63
Exercised ..................... (53) 3.75-9.00 7.71
----- --------------- --------
Outstanding, December 31, 1998 1,478 $ 3.75-$25.63 $ 12.56
===== =============== ========
Of the options outstanding as of December 31, 1998, 1,438,000 are
currently exercisable at a weighted average exercise price of $12.27 per share.
The weighted average remaining contractual life of the options outstanding at
December 31, 1998 is 7.06 years.
FORMULA STOCK OPTION PLAN -- The Company's Board of Directors and
stockholders adopted the Formula Stock Option Plan for the benefit of the
Company's outside directors. The plan authorizes options to purchase up to an
aggregate of 800,000 shares of common stock. Under the plan, before February 1
of each year, each outside director is awarded an option to purchase 20,000
shares of common stock at an exercise price equal to the fair market value per
share at award date.
In each year of 1996 through 1998, the Company granted options to purchase
20,000 common shares to each of the Company's two outside directors at exercise
prices per share at award dates of $14.94, $20.63 and $24.81, respectively.
Options on 20,000 shares granted in 1996 were exercised in 1997. No stock
options under this plan were exercised in 1996 or 1998. The outstanding options
for 100,000 shares at December 31, 1998 have a weighted average exercise price
of $21.16 per share, with a weighted average remaining contractual life of 8.20
years. Effective January 4, 1999, the Company granted options to purchase an
additional 20,000 shares to each of the two outside directors at an exercise
price per share of $27.88 at award date.
STOCK-BASED COMPENSATION INFORMATION -- As discussed in Note 2, the
Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting
for Stock-Based Compensation". The Company granted 320,000, 130,000 and 240,000
options in 1996, 1997 and 1998 with weighted average grant-date fair values of
$7.16, $7.18 and $7.91, respectively, under both stock option plans. No
compensation cost has been recognized for the stock option plans. Had
compensation cost for the stock options been determined based on the fair value
method as prescribed by SFAS No. 123, the Company's pro forma net income and
basic and diluted earnings per share would have been $25,036,000 or $0.62 and
$0.60 per share for 1996, $37,704,000 or $0.91 and $0.88 per share for 1997,
and $41,223,000 or $0.99 and $0.97 per share for 1998.
The fair value of each option grant is estimated on the grant date using
the Black-Scholes option-pricing model with the following assumptions: expected
volatility of 37.3% in 1996, 37.1% in 1997, and 37.8% in 1998; risk-free
interest rates of 5.7% in 1996, 5.9% in 1997, and 4.6% in 1998; and expected
lives of 3.1 years in 1996, 3.0 years in 1997, and 3.0 years in 1998. The model
reflects that no dividends were declared in 1996 through 1998.
EMPLOYEE STOCK PURCHASE PLAN -- The Company's Board of Directors and
stockholders adopted the SMI Employee Stock Purchase Plan to provide employees
the opportunity to acquire stock ownership. An aggregate total of 400,000
shares of common stock have been reserved for purchase under the plan. Each
January 1, eligible employees electing to participate will be granted an option
to purchase shares of common stock. Prior to each January 1, the Compensation
Committee of the Board of Directors determines the number of shares available
for purchase under each option, with the same number of shares to be available
under each option granted on the same grant date. No participant can be granted
options to purchase more than 500 shares in each calendar year, nor which would
allow an employee to purchase stock under this or all other
F-20
SPEEDWAY MOTORSPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. STOCK OPTION PLANS -- (Continued)
employee stock purchase plans in excess of $25,000 of fair market value at the
grant date in each calendar year. Participating employees designate a limited
percentage of their annual compensation or may directly contribute an amount
for deferral as contributions to the Plan. The stock purchase price is 90% of
the lesser of fair market value at grant date or exercise date. Options granted
may be exercised once at the end of each calendar quarter, and will be
automatically exercised to the extent of each participant's contributions.
Options granted that are unexercised expire at the end of each calendar year.
In 1997 and 1998, employees purchased approximately 25,000 and 16,000
shares granted under the Plan on January 1, 1997 and 1998 at an average
purchase price of $18.56 and $21.79 per share, respectively.
12. EMPLOYEE BENEFIT PLAN
The Speedway Motorsports, Inc. 401(k) Plan and Trust is available to all
employees of the Company meeting certain eligibility requirements. The Plan
allows participants to elect contributions of up to 15% of their annual
compensation within certain prescribed limits, of which the Company will match
25% of the first 4% of employee contributions. Participants are fully vested in
Company matching contributions after five years. The Company's contributions to
the Plan were $35,000 in 1996, $81,000 in 1997, and $151,000 in 1998.
13. 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 Accounting Principles Board Opinion ("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 December
31, 1998 balance sheet.
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, 1997, 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)
YEAR ENDED
DECEMBER 31,
---------------------------
1997 1998
------------- -------------
Total revenues .............. $ 206,304 $ 264,583
Net income .................. 26,551 40,672
========= =========
Basic earnings per share .... $ 0.64 $ 0.98
========= =========
Diluted earnings per share .. $ 0.62 $ 0.96
========= =========
F-21