Report of Independent Certified Public Accountants
Phoenix International Raceway, Inc.
We have audited the accompanying combined balance sheet of Phoenix
International Raceway, Inc. as of May 31, 1997, and the related combined
statements of income, shareholders' equity and cash flows for the nine months
ended May 31, 1997. 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 audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Phoenix
International Raceway, Inc. at May 31, 1997, and the combined results of their
operations and their cash flows for the nine months ended May 31, 1997, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young, LLP
Jacksonville, Florida
September 15, 1997
PHOENIX INTERNATIONAL RACEWAY, INC.
Combined Balance Sheet
May 31,
1997
____________
(In Thousands)
ASSETS
Current Assets:
Cash ........................................... $ 985
Receivables .................................... 228
Prepaid expenses and other current assets ...... 101
________
Total Current Assets ............................ 1,314
Property and Equipment - at cost - less accumulated
depreciation of $3,183,893 ..................... 7,588
Deferred income taxes ........................... 297
________
Total Assets .................................... $ 9,199
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable ............................... $ 248
Accrued property taxes ......................... 202
Deferred income ................................ 1,552
Note payable ................................... 263
Other current liabilities ...................... 24
________
Total Current Liabilities ....................... 2,289
Commitments and Contingencies
Shareholders' Equity (Notes 1 and 6)
Class A Common Stock, $1.00 par value, 2,500,000 shares
authorized; 1,000 shares issued at May 31, 1997 1
Class B Common Stock, $1.00 par value, 25,000 shares
authorized; 0 shares issued at May 31, 1997 .. --
Additional paid-in capital ..................... 44
Retained earnings .............................. 6,865
________
Total Shareholders' Equity ...................... 6,910
________
Total Liabilities and Shareholders' Equity ...... $ 9,199
========
See accompanying notes
PHOENIX INTERNATIONAL RACEWAY, INC.
Combined Statement of Income
Nine Months ended
May 31, 1997
_________________
(In Thousands)
REVENUES:
Admissions, net.................................... $5,963
Motorsports related income......................... 4,289
Food, beverage and souvenir income................. 1,409
Other income....................................... 4
______
11,665
EXPENSES:
Direct expenses:
Prize and point fund monies
and NASCAR sanction fees....................... 1,986
Motorsports related expenses..................... 3,949
Souvenir expenses................................ 223
General and administrative expenses................ 2,536
Depreciation....................................... 370
______
9,064
______
Operating income..................................... 2,601
Interest income...................................... 32
______
Income before income taxes........................... 2,633
Income taxes......................................... 711
______
Net Income........................................... $1,922
======
See accompanying notes
PHOENIX INTERNATIONAL RACEWAY, INC.
Combined Statement of Shareholders' Equity
Nine Months ended May 31, 1997
CLASS A ADDITIONAL RETAINED
COMMON PAID-IN EARNINGS
STOCK CAPITAL
$1.00 PAR
VALUE
_________ __________ _________
(In Thousands)
BALANCE AT AUGUST 31, 1996 ............ $1 $44 $6,950
Net Income .......................... -- -- 1,922
Distributions paid .................. -- -- (2,007)
_____ ____ _______
BALANCE AT MAY 31, 1997 ............... $1 $44 $6,865
===== ===== =======
See accompanying notes
PHOENIX INTERNATIONAL RACEWAY, INC.
Combined Statement of Cash Flows
Nine Months ended
May 31, 1997
_________________________
(In Thousands)
OPERATING ACTIVITIES
Net income...................................... $1,922
Adjustments to reconcile net income to
net cash used by operating activities:
Depreciation................................ 370
Deferred income taxes ...................... 711
Changes in operating assets and liabilities:
Receivables................................. 417
Prepaid expenses and other current assets... 300
Accounts payable............................ (42)
Accrued property taxes ..................... 22
Deferred income............................. (3,561)
Other current liabilities................... (245)
________
Net cash used in operating activities........... (106)
INVESTING ACTIVITIES
Purchases of property, plant and equipment .... (365)
________
Net cash used in investing activities........... (365)
FINANCING ACTIVITIES
Borrowings on line of credit .................. 750
Repayments on line of credit .................. (750)
Repayment of note payable ..................... (244)
Partnership distributions paid ................ (2,007)
________
Net cash used in financing activities........... (2,251)
Net decrease in cash ........................... (2,722)
Cash at beginning of period .................... 3,707
________
Cash at end of period .......................... $ 985
========
See accompanying notes
Phoenix International Raceway, Inc.
Notes to Combined Financial Statements
Nine Months ended May 31, 1997
NOTE 1 -- DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS: Phoenix International
Raceway, Inc. ("PIR, Inc."), Phoenix International Raceway, L.L.C. ("PIR,
LLC"), and Phoenix International Raceway Limited Partnership ("PIR LP"), which
are commonly owned, (collectively, the "Company") promotes motorsports
activities at its Phoenix International Raceway ("PIR") motorsports complex
located just outside of Phoenix, Arizona. The PIR complex has a 1 mile oval
track and a 1.51 mile road course. PIR currently hosts an annual NASCAR
Winston Cup Series and two NASCAR Craftsman Truck Series events, an Indy
Racing League (IRL) event and a number of other events. The accompanying
combined financial statements include the assets, liabilities, revenues and
expenses applicable to the operation of the PIR motorsports complex.
Pursuant to the Asset Purchase Agreement dated July 14, 1997, between the
Company and Phoenix Speedway Corporation (PSC), a wholly-owned subsidiary of
International Speedway Corporation, the Company sold substantially all of the
assets comprising the business and motorsports complex of PIR to PSC for
consideration consisting of $46.4 million cash and notes payable and other
liabilities of $13.8 million.
PRINCIPLES OF COMBINATION: The accompanying combined financial statements
include the accounts of PIR, Inc., PIR, LLC, and PIR LP. All material
intercompany accounts and transactions have been eliminated in combination.
CASH: For purposes of reporting cash flows, cash includes cash on hand
and bank demand deposit accounts.
PROPERTY AND EQUIPMENT: Property and equipment, including improvements to
existing facilities, are stated at cost. Depreciation is provided for
financial reporting purposes using either the straight-line or accelerated
methods over estimated useful lives as follows:
Buildings, grandstands and tracks .............5-34 years
Furniture and equipment .......................3-20 years
Leasehold improvements ........................8-15 years
Automobiles ...................................3-7 years
FAIR VALUE OF FINANCIAL INSTRUMENTS: The Company's financial instruments
consist of cash, accounts receivable, accounts payable and a note payable.
The carrying value of these financial instruments approximates their fair
value at May 31, 1997.
INCOME TAXES: PIR LP, operates as a limited partnership and PIR, LLC
operates as a limited liability company. Under the provisions of a limited
partnership and a limited liability company, these entities do not pay
corporate income taxes on their taxable income. Instead, the equity owners
include their share of the earnings from these entities in their individual
tax returns.
PIR, Inc. operates as a C corporation. Income taxes have been provided
for PIR, Inc. using the liability method in accordance with SFAS No. 109,
"Accounting for Income Taxes". Under this method, deferred tax assets and
liabilities are determined based on the differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
ADMISSION INCOME: Admission income and all race-related revenue is earned
upon completion of an event and is stated net of admission and sales taxes
collected. Refundable advance ticket sales and all race-related revenue on
future events are deferred until earned.
ADVERTISING EXPENSES: Advertising costs are expended as incurred.
Advertising expenses amounted to $402,000 for the nine months ended May 31,
1997.
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
during the reporting period. Actual results could differ from those
estimates.
NOTE 2 -- PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
Land and leasehold improvements $1,262,521
Buildings, grandstands and tracks 8,788,224
Furniture and equipment 418,862
Automobiles 244,704
Construction in progress 57,438
__________
10,771,749
Less accumulated depreciation (3,183,893)
__________
$7,587,856
==========
NOTE 3 -- FEDERAL AND STATE INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Substantially all of the deferred tax asset results from the differences
between tax and financial reporting purposes for revenue recognition of
deferred income.
Significant components of the provision for income taxes for the nine
months ended May 31, 1997, are as follows:
Current tax expense:
Federal .................. $ --
State .................... --
Deferred tax expense
Federal .................. 428,465
State .................... 282,504
__________
PROVISION FOR INCOME TAXES $ 710,969
==========
The difference between income tax expense (27.0%) and the amount of
income tax based on the statutory tax rate (34.0%) is primarily due to state
taxes, net of federal benefit (7.7%) and the losses of PIR LP and income of
PIR, LLC (-16.1%). As indicated in Note 1, the financial statements include
the results of operations of PIR, LLC and PIR LP, but the Company does not pay
corporate income taxes on their taxable income or receive a benefit from their
tax losses.
NOTE 4 --NOTE PAYABLE
In November 1993, the Company issued a note payable to a bank to finance
certain grandstand seating. The principal amount borrowed was $1,184,499,
with principal and interest payments of $111,030 in May and November of each
year and principal and interest payments of $55,514 in February of each year.
Principal and interest payments are payable through May 1, 1998, bear interest
at 7.35%, and are collateralized by certain grandstand seating. As of May 31,
1997, the balance of the note payable was $262,851.
NOTE 5 -- LINE OF CREDIT
The Company has a line of credit with a financial institution totaling $1
million, with an interest rate of prime plus 1.5% which expires in January,
1998. As of May 31, 1997 the line of credit was unused.
NOTE 6 -- SHAREHOLDERS' EQUITY
PIR, Inc.'s authorized capital includes 2,500,000 shares of Class A
Common Stock, par value $1.00 ("Class A Common Stock") and 25,000 shares of
Class B Common Stock, par value $1.00 ("Class B Common Stock"). The shares of
Class A Common Stock and Class B Common Stock are identical in all respects,
except that the holders of Class B Common Stock have no power to vote the
stock for any purpose and are not entitled to notice of any meetings of
shareholders. The holders of Class A Common Stock have one vote per share on
any matter submitted for consent of shareholders. As of May 31, 1997, there
were 1,000 shares of Class A Common Stock issued and no shares of Class B
Common Stock issued.
NOTE 7 -- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest and income taxes for the nine months ended May 31,
1997 was $67,514 and $30,180, respectively.