1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 1999.
[ ] Transition report pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934 for the transition period ___ to ___.
Commission File No. 0-28044
PENSKE MOTORSPORTS, INC.
------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 51-0369517
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
13400 OUTER DRIVE WEST, DETROIT, MICHIGAN 48239-4001
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(Address of principal executive offices) (including zip code)
313-592-8255
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
COMMON STOCK $0.01 PAR VALUE 13,831,498 SHARES
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CLASS OUTSTANDING AT MAY 14, 1999
This report contains 19 pages.
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TABLE OF CONTENTS
PAGE NO.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Independent Accountants' Report 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 9
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 16
Signature 17
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PENSKE MOTORSPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
MARCH 31, DECEMBER 31,
1999 1998
-------------------- --------------------
ASSETS (UNAUDITED)
------
CURRENT ASSETS:
Cash and cash equivalents $ 1,368 $ 1,311
Receivables 14,552 4,398
Inventories 3,217 3,085
Prepaid expenses and other assets 2,756 1,614
------------------- -------------------
TOTAL CURRENT ASSETS 21,893 10,408
PROPERTY AND EQUIPMENT, net 248,582 247,421
INVESTMENTS 13,021 12,679
GOODWILL, net 39,345 39,497
OTHER ASSETS 983 529
------------------- -------------------
TOTAL $ 323,824 $ 310,534
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $ 514 $ 512
Accounts payable 3,695 3,915
Accrued expenses 1,566 2,933
Deferred revenues, net 47,544 19,573
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TOTAL CURRENT LIABILITIES 53,319 26,933
LONG-TERM DEBT, less current portion 49,916 61,442
DEFERRED TAXES 23,763 22,413
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY: Common stock, par value $ .01 share:
Authorized 50,000,000 shares
Issued and outstanding 14,208,898
shares in 1999 and 1998 142 142
Additional paid-in-capital 159,371 159,371
Retained earnings 44,848 47,768
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204,361 207,281
Treasury stock, at cost, 353,900 shares (7,535) (7,535)
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TOTAL STOCKHOLDERS' EQUITY 196,826 199,746
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TOTAL $ 323,824 $ 310,534
=================== ===================
See accompanying notes to consolidated financial statements.
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PENSKE MOTORSPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)
THREE MONTHS ENDED MARCH 31,
-------------------------------------------------
1999 1998
--------------------- --------------------
REVENUES:
Speedway admissions $ 3,243 $ 3,238
Other speedway revenues 4,754 2,953
Merchandise, tires and accessories 4,856 3,946
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TOTAL REVENUES 12,853 10,137
EXPENSES:
Operating 7,749 6,190
Cost of sales 3,145 2,462
Depreciation and amortization 3,039 2,675
Selling, general and administrative 3,042 2,252
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OPERATING EXPENSES 16,975 13,579
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OPERATING LOSS (4,122) (3,442)
EQUITY IN INCOME OF AFFILIATES 356 512
GAIN ON SALE OF INVESTMENT 1,108
INTEREST EXPENSE (1,039) (859)
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LOSS BEFORE INCOME TAXES (4,805) (2,681)
INCOME TAX BENEFIT 1,884 1,033
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NET LOSS $ (2,921) $ (1,648)
BASIC NET LOSS PER SHARE $ (.21) $ (.12)
DILUTED NET LOSS PER SHARE $ (.21) $ (.12)
BASIC WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 13,854,998 14,208,898
DILUTED WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 13,909,117 14,216,214
See accompanying notes to consolidated financial statements
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PENSKE MOTORSPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
---------------------------------------
1999 1998
----------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,921) $ (1,648)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 3,039 2,675
Equity in income of affiliates (356) (512)
Gain on sale of investment (1,108)
Changes in assets and liabilities which provided (used) cash:
Receivables (10,154) (8,746)
Inventories, prepaid expenses and other assets (1,826) (1,351)
Accounts payable and accrued liabilities (1,586) (7,609)
Deferred taxes 1,350 2,459
Deferred revenues 27,971 20,556
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Net cash provided by operating activities 15,517 4,716
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of property and equipment, net (3,936) (8,567)
Acquisitions of equity interests in affiliates and subsidiaries (241)
Proceeds from sale of investment 5,270
----------------- ----------------
Net cash used in investing activities (3,936) (3,538)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt (11,524) (409)
----------------- ----------------
Net cash used in financing activities (11,524) (409)
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NET INCREASE IN CASH AND CASH EQUIVALENTS 57 769
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,311 249
----------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,368 $ 1,018
================= ================
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for interest $ 1,059 $ 932
Cash paid (refunded) during the period for taxes, net $ (751) $ (1,971)
See accompanying notes to consolidated financial statements
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PENSKE MOTORSPORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - FINANCIAL STATEMENTS. The consolidated financial statements include the
accounts of Penske Motorsports, Inc. (the "Company") and its wholly-owned
subsidiaries, Michigan International Speedway, Inc., Pennsylvania International
Raceway, Inc., California Speedway Corporation, North Carolina Speedway, Inc.,
Motorsports International Corp., Competition Tire West, Inc. and Competition
Tire South, Inc. The Company also owns 45% of the ownership interests of
Homestead-Miami Speedway, LLC, which is recorded using the equity method.
All material intercompany balances and transactions have been eliminated.
The financial statements have been prepared by management and, in the opinion of
management, contain all adjustments, consisting of normal recurring adjustments,
necessary to present fairly the financial position of the Company as of March
31, 1999 and December 31, 1998, and the results of operations and cash flows of
the Company for the three months ended March 31, 1999 and 1998. The consolidated
financial statements should be read in conjunction with the consolidated
financial statements included in the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission.
Because of the seasonal concentration of racing events, the results of
operations for the three months ended March 31, 1999 and 1998 are not indicative
of the results to be expected for the year.
NOTE 2 - PROPERTY AND EQUIPMENT, NET. Property and equipment consists of the
following:
MARCH 31, DECEMBER 31,
1999 1998
-------------------- -------------------
(In thousands)
Land and land improvements $ 96,641 $ 96,635
Buildings and improvements 162,253 158,644
Equipment 23,845 23,677
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282,739 278,956
Less accumulated depreciation 34,157 31,535
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$ 248,582 $ 247,421
==================== ===================
NOTE 3 - SEGMENT INFORMATION. The Company's reportable segments are business
units that offer different products and services. The Company classifies its
business interests into two fundamental areas: admissions and other
track-related activities, which consists principally of race-related revenues
and expenses from promoting motorsports events, and merchandise, tires and
accessories ("MTA"), consisting principally of the revenues and expenses from
the sale of race-related apparel, tires and accessories items.
Revenues relating to the Company's track operations totaled $8.0 million and
$6.2 million for the three months ended March 31, 1999 and 1998, respectively,
with expenses (operating, depreciation and amortization, and selling, general
and administrative) of approximately $12.0 million and $9.7 million,
respectively, for the same periods.
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Revenues for the first quarter relating to the Company's MTA business totaled
$4.9 million and $3.9 million in 1999 and 1998, respectively. The MTA business
segment had cost of sales of $3.1 million and $2.5 million, respectively, and
operating, depreciation and amortization, and selling, general and
administrative expenses of approximately $1.8 million and $1.4 million,
respectively, in the first quarter of 1999 and 1998 relating to such operations.
Substantially all of the Company's capital expenditures, property, plant and
equipment, equity investments and goodwill, as well as depreciation and
amortization expenses, are related to track operations. Substantially all of the
Company's inventory is related to its MTA businesses.
NOTE 4 - COMMITMENTS AND CONTINGENCIES. The Company is party to certain claims
and contingencies arising in the normal course of business. In the opinion of
management, the Company has meritorious defenses on all such claims, or they are
of such kind, are adequately covered by insurance, or involve such amounts, as
would not have a materially adverse effect on the financial position or results
of operations of the Company if disposed of unfavorably.
NOTE 5 - SUBSEQUENT EVENT. On May 10, 1999, the Company entered into a
definitive Merger Agreement among the Company, International Speedway
Corporation ("ISC") and 88 Corp., a wholly-owned subsidiary of ISC. Pursuant to
the Merger Agreement, ISC will acquire the approximately 12.2 million
outstanding common shares of the Company which it does not already own for $50
per share, subject to a collar provision. The Company's stockholders will be
able to elect to receive this consideration as either (i) $15.00 in cash and
$35.00 in Class A Common Stock of ISC or (ii) $50.00 of Class A Common Stock of
ISC. The Merger Agreement is subject to customary conditions, including the
approval of the transaction by the Company's stockholders and the approval of
the ISC stock issuance by the stockholders of ISC.
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INDEPENDENT ACCOUNTANTS' REPORT
Stockholders and Board of Directors
Penske Motorsports, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of Penske
Motorsports, Inc. and subsidiaries (the "Company") as of March 31, 1999 and the
related condensed consolidated statements of operations and cash flows for the
three month periods ended March 31, 1999 and 1998. These consolidated financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is an
expression of an opinion regarding the consolidated financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of the Company as of December 31,
1998, and the related consolidated statements of income, changes in
stockholders' equity and cash flow for the year then ended (not presented
herein); and in our report dated February 1, 1999, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
at December 31, 1998 is fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
/s/ Deloitte & Touche LLP
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Detroit, Michigan
May 13, 1999
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ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
Penske Motorsports, Inc. (the "Company") is a leading promoter and marketer of
professional motorsports in the United States. The Company owns and operates
speedways through its subsidiaries Michigan International Speedway, Inc.
("Michigan Speedway") in Brooklyn, Michigan, Pennsylvania International Raceway,
Inc. in Nazareth, Pennsylvania, California Speedway Corporation ("California
Speedway") in Fontana, California and North Carolina Speedway, Inc. ("North
Carolina Speedway") in Rockingham, North Carolina. The Company also owns 45% of
the ownership interests of Homestead-Miami Speedway, LLC ("Homestead-Miami
Speedway"), which operates Miami-Dade Homestead Motorsports Complex in
Homestead, Florida. In addition, the Company sells motorsports-related
merchandise such as apparel, souvenirs and collectibles through its subsidiary
Motorsports International Corp. ("MIC") and Goodyear brand racing tires and
accessories through its subsidiaries Competition Tire West, Inc. ("CTW") and
Competition Tire South, Inc. ("CTS") in the midwest and southeastern regions of
the United States.
The Company classifies its revenues as speedway admissions, other speedway
revenues, and merchandise, tires and accessories revenues. Speedway admissions
include ticket sales for racing events held at the Company's wholly-owned
speedways. Other speedway revenues include revenues from concession sales,
corporate hospitality and sponsorship, broadcast rights, billboard and program
advertising and other promotional activities. Speedway admissions and other
speedway revenues are generally collected in advance and recorded as deferred
revenues until the completion of the related event. Merchandise, tires and
accessories revenues include sales of motorsports-related merchandise and
revenues from showcar appearance fees by MIC and sales of racing tires and
accessories by CTW and CTS. Revenues from sales of merchandise, tires and
accessories are recorded as income at the time of the sale.
The Company classifies its expenses as operating, cost of sales, depreciation
and amortization, and selling, general and administrative expenses. Operating
expenses consist primarily of costs associated with conducting race events, such
as sanction fees and wages. Cost of sales relates entirely to sales of
merchandise, tires and accessories.
Revenues for the three months ended March 31, 1999 were $12.9 million, an
increase of $2.7 million, or 26.8%, compared to 1998. This increase resulted
primarily from increased television, hospitality and sponsorship revenues at the
February NASCAR Winston Cup Series event at North Carolina Speedway and
increased merchandise, tires and accessories revenues. The Company recorded a
net loss of $2.9 million, or $.21 per share, for the three months ended March
31, 1999, compared to a net loss of $1.6 million, or $.12 per share, for the
three months ended March 31, 1998. Included in the net loss in 1998 was a
pre-tax gain of $1.1 million from the sale of the Company's investment in Grand
Prix Association of Long Beach, Inc. In addition, the increase in revenues
described above was offset by increased expenses of $3.4 million, a decrease in
the equity in income of affiliates of $.2 million and higher interest expense
of $.2 million.
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On May 10, 1999, the Company entered into a definitive Merger Agreement among
the Company, International Speedway Corporation ("ISC") and 88 Corp., a
wholly-owned subsidiary of ISC. Pursuant to the Merger Agreement, ISC will
acquire the approximately 12.2 million outstanding common shares of the Company
which it does not already own for $50 per share, subject to a collar provision.
The Company's stockholders will be able to elect to receive this consideration
as either (i) $15.00 in cash and $35.00 in Class A Common Stock of ISC or (ii)
$50.00 of Class A Common Stock of ISC. The Merger Agreement is subject to
customary conditions, including the approval of the transaction by the Company's
stockholders and the approval of the ISC stock issuance by the stockholders of
ISC.
RESULTS OF OPERATIONS
The percentage relationships between revenues and other elements of the
Company's Consolidated Statements of Operations for the three months ended
March 31, 1999 and 1998 are as follows:
1999 1998
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REVENUES:
Speedway admissions 25.2% 31.9%
Other speedway revenues 37.0 29.1
Merchandise, tires and accessories 37.8 39.0
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TOTAL REVENUES 100.0 100.0
EXPENSES:
Operating 60.3 61.1
Cost of sales 24.5 24.3
Depreciation and amortization 23.6 26.4
Selling, general and administrative 23.7 22.2
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TOTAL EXPENSES 132.1 134.0
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OPERATING LOSS (32.1%) (34.0%)
=========== ==========
SEASONALITY AND QUARTERLY RESULTS
The Company's weekend events usually include one premier Sunday event, such as a
NASCAR Winston Cup Series or CART FedEx Championship Series event, coupled with
a Saturday supporting event. The Company believes that combining races creates a
more attractive weekend racing experience than an isolated race event.
Prior to 1997, the Company's weekend events were held between April and August.
As a result, the Company's business was highly seasonal. During 1997 and 1998,
the Company added first and fourth quarter events through the addition of
California Speedway, which commenced operations in June 1997, and North Carolina
Speedway, which was acquired in 1997. In addition, Homestead-Miami Speedway
annually hosts a CART FedEx Championship Series event in the first quarter and
will host a NASCAR Winston Cup Series event in the fourth quarter beginning in
1999. These additional events will help reduce the impact of seasonality on the
Company's results of operations.
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Set forth below is summary information with respect to the Company's operations.
The number of event weekends includes those hosted at the Company's wholly-owned
speedways. In addition to these events, Homestead-Miami Speedway hosted one
event weekend in the first quarter of 1999, five event weekends during 1998 and
one event weekend in 1997 after the Company made its initial investment.
($ IN THOUSANDS) 1999 1998 1997
--------- ----------------------------------------- ------------------------------------------
FIRST FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
----- ----- ------ ----- ------ ----- ------ ----- ------
REVENUES $12,853 $10,137 $46,087 $35,218 $25,416 $ 5,375 $46,296 $43,974 $14,171
NET INCOME (LOSS) (2,921) (1,648) 10,892 3,510 3,833 (1,511) 10,929 8,845 (1,818)
NUMBER OF EVENT
WEEKENDS 1 1 4 4 2 - 5 3 2
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
Revenues - Revenues for the three months ended March 31, 1999 were $12.9
million, an increase of $2.7 million, or 26.8%, compared to the first quarter of
1998, reflecting an increase in other speedway revenues of $1.8 million and
higher revenues from merchandise, tires and accessories sales of $.9 million.
Other speedway revenues increased primarily from higher revenues from
hospitality, sponsorship and television rights at the February NASCAR Winston
Cup event at North Carolina Speedway. The increase in sales of merchandise,
tires and accessories revenues reflects increased sales of merchandise and
collectibles, primarily from the addition of trackside sales at North Carolina
Speedway, and increased sales of tires and accessories, primarily at tracks in
the southeastern market.
Operating Expenses - Operating expenses increased from $6.2 million for the
three months ended March 31, 1998 to $7.7 million in 1999, primarily reflecting
increased sanction fees and other expenses at North Carolina Speedway for the
February event weekend, as well as from increased expenses at MIC from the
addition of trackside sales at North Carolina Speedway and increases in
operating expenses at the other speedways.
Cost of Sales - Cost of sales for the three months ended March 31, 1999 was $3.1
million, or 64.8% of merchandise, tires and accessories revenues, compared to
$2.5 million, or 62.4% of those same revenues, for the corresponding period of
1998. The increase in cost of sales of $.6 million reflects the increase in
sales of merchandise, tires and accessories.
Depreciation and Amortization - Depreciation and amortization expense increased
from $2.7 million for the three months ended March 31, 1998 to $3.0 million in
the first quarter of 1999 due to capital expenditures during 1998, consisting
primarily of additional seating at California Speedway, Michigan Speedway and
North Carolina Speedway.
Selling, General and Administrative - Selling, general and administrative
expenses of $3.0 million for the three months ended March 31, 1999 increased $.7
million from $2.3 million in 1998, reflecting increased costs for the February
event at North Carolina Speedway and expenses associated with sales of
merchandise, tires and accessories.
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Operating Loss - The operating loss was $4.1 million for the three months ended
March 31, 1999, an increase of $.7 million over the operating loss of $3.4
million for the first quarter of 1998 as a result of the increased expenses
discussed above, net of increases in revenues.
Equity in Income of Affiliates - The equity in income of affiliates decreased
from $512,000 in the first quarter of 1998 to $356,000 in 1999 due to decreased
earnings at Homestead-Miami Speedway.
Gain on Sale of Investment - The gain on sale of investment in 1998 resulted
from the sale of the Company's investment in Grand Prix Association of Long
Beach, Inc.
Interest - Interest expense increased from $.9 million for the three months
ended March 31, 1998 to $1.0 million in 1999 due to increased borrowings on the
Company's line of credit.
Net Loss - The net loss of $2.9 million, or $.21 per share, for the three months
ended March 31, 1999, compared to a net loss of $1.6 million, or $.12 per share,
for the three months ended March 31, 1998. The increase in the net loss resulted
from the increased operating loss of $.7 million, the decrease in the equity in
income of affiliates, higher interest expense and the impact of the 1998 gain on
sale of investment of $1.1 million.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has relied on cash flows from operating activities
supplemented, as necessary, by bank borrowings to finance working capital,
investments and capital expenditures.
The Company has a $100 million unsecured revolving line of credit that matures
in the year 2002. Borrowings under this agreement bear interest at LIBOR-based
rates and at the prime borrowing rate. As of March 31, 1999, the Company had
available credit under this agreement of $54.2 million. The outstanding debt of
$45.8 million resulted from expenditures for the completion of construction at
California Speedway and other capital expenditures, the investment in
Homestead-Miami Speedway, the acquisition of North Carolina Speedway and to
repurchase shares of the Company's stock. The remaining line of credit is
available for general working capital needs and other capital expenditures. The
Company is in compliance with all covenants in the loan agreement, and
management believes the Company would continue to be in compliance with all
material financial covenants in the loan agreement if the entire amount of
available credit was outstanding.
The Company expects total capital expenditures for 1999 to be approximately $31
million, consisting primarily of additional seating and suites and other
facility upgrades at its speedways.
The Company is considering the development of a new speedway near Denver,
Colorado, and will continue to pursue other growth opportunities, including
acquisition and development, in other markets. Future acquisitions or
development will be funded through available credit under existing debt
facilities and, if necessary, under other financing arrangements through the
capital or financial markets, depending on market conditions. The Company
believes that it has the ability to obtain funds through these markets, however,
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there can be no assurance that adequate debt or equity financing will be
available on satisfactory terms.
The Company believes it has sufficient resources from cash flows from operating
activities and, if necessary, from additional borrowings under its line of
credit to satisfy ongoing cash requirements for the next twelve months.
In September 1998, the Company announced plans to repurchase, from time to time,
up to $10 million of the Company's common stock in open market transactions,
depending on market conditions. As of March 31, 1999, the Company had
repurchased 353,900 shares at prices ranging from $19.875 to $23.25 per share.
In addition, during April, 1999, the Company acquired 23,500 shares at an
average cost of $36.18 per share.
For the three months ended March 31, 1999, the Company generated $15.5 million
in cash flows from operating activities, an increase of $10.8 million from 1998
primarily reflecting an increase in deferred revenues from advance ticket sales.
During the three months ended March 31, 1999, the Company used $3.9 million for
investing activities, consisting primarily of capital expenditures at the
Company's speedways, and $11.5 million in financing activities, reflecting
payments of the Company's line of credit.
YEAR 2000
The Year 2000 problem arose because many existing computer programs do not
properly recognize a year that begins with "20" instead of the familiar "19". If
not corrected, many computer applications could fail or create erroneous
results. The Company has recognized the need to ensure that its computer
operations and operating systems will not be materially adversely affected by
the Year 2000 problem. To that end, the Company has assessed how it may be
impacted by the Year 2000 problem and management has determined that the
consequences of the Company's Year 2000 issues should not have a material
adverse affect on the Company's business, results of operations or financial
position. The Company's major computer systems have already been updated or
replaced with applications that are Year 2000 compliant in the normal course of
business pursuant to existing service agreements and without incremental cost.
The Company has implemented a plan of communication with significant business
partners to ensure that the Company's operations are not disrupted through such
relationships and that any Year 2000 issues are resolved in a timely manner.
Because of the nature of the Company's business, however, the Company believes
that failure of the Company's vendors, sponsors or customers to resolve issues
involving the Year 2000 problem will not materially affect the Company's
business, results of operations or financial position.
The Company believes that some of its non-information technology systems, such
as elevators and heating and air conditioning systems, with date-sensitive
software and embedded microprocessors may be affected by the Year 2000 problem.
Management is currently evaluating these systems. Although the Company has not
yet been able to complete its estimate of the costs of correcting or replacing
such systems, it does not expect such costs to be material. The Company does not
believe that the failure of its non-information technology systems will
materially affect the Company's business, results of operations or financial
position.
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The Company believes that it will satisfactorily resolve issues affecting its
operations as a result of the Year 2000 problem in 1999. The Company also
believes that the related costs of compliance will not be material.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Except for the historical information contained herein, certain matters
discussed in this report are forward-looking statements which involve risks and
uncertainties including, but not limited to, the Company's ability to maintain
good working relationships with the sanctioning bodies for its events, the
ability of the Company to cost-effectively and timely correct all relevant and
material applications addressing the Year 2000 problem and their impact on the
Company's financial position or results of operations and the accuracy of the
Company's assumption that failure of third party vendors, sponsors and customers
to correct any Year 2000 problems will not be material to the Company's
financial position or results of operations, as well as other risks and
uncertainties affecting the Company's operations, such as competition,
environmental, industry sponsorships, governmental regulation, dependence on key
personnel, the Company's ability to control construction and operational costs,
the impact of bad weather at the Company's events and those other factors
discussed in the Company's filings with the Securities and Exchange Commission.
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PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS:
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On August 5, 1997, O. Bruton Smith, a shareholder of North Carolina
Speedway and the majority shareholder and chairman of Speedway Motorsports,
Inc., filed a lawsuit in North Carolina Superior Court, Mecklenburg County,
against North Carolina Speedway, PMI, Penske Acquisition, Inc. (a wholly owned
subsidiary of PMI), PSH Corp., a shareholder of PMI, and Walter P. Czarnecki,
Richard J. Peters, Robert H Kurnick, Jr., Carrie B. DeWitt, Nancy DeWitt
Daugherty and Jo DeWitt Wilson, each a director of North Carolina Speedway,
seeking to enjoin the consummation of the merger of North Carolina Speedway with
and into Penske Acquisition, Inc., a wholly-owned subsidiary of PMI (the
"Merger"). Ms. DeWitt Wilson and Messrs. Czarnecki and Peters are directors of
PMI and Mr. Kurnick is an executive officer of PMI. PMI and the other defendants
in the lawsuit filed a motion to dismiss Mr. Smith's lawsuit, and Mr. Smith
filed a motion to obtain a preliminary injunction to prohibit the Merger. On
September 15, 1997, Mr. Smith filed a motion to add 12 other shareholders of
North Carolina Speedway as additional plaintiffs. In his lawsuit, Mr. Smith
alleged that Ms. Carrie DeWitt, as a majority shareholder, owed a duty to the
minority shareholders of North Carolina Speedway to sell her shares of common
stock of North Carolina Speedway in a transaction that would result in the
minority shareholders receiving the "highest price" for their shares and that
she breached this duty by selling her shares to PMI. In addition, Mr. Smith
alleged that the defendant directors breached their fiduciary duties to North
Carolina Speedway and its shareholders by approving the proposed Merger with
PMI. Finally, Mr. Smith alleged that PMI's negotiation and purchase of Ms.
DeWitt's common stock in North Carolina Speedway and the negotiation and
execution of the Merger Agreement constituted an unfair and deceptive trade
practice under North Carolina law.
On November 12, 1997, the defendant's Motion to Dismiss Mr. Smith's
lawsuit was granted, and Mr. Smith's Motion for a preliminary injunction to
enjoin the Merger was denied. Mr. Smith then petitioned the North Carolina Court
of Appeals to stay the Merger pending his appeal. The Appeals Court denied Mr.
Smith's stay, and the Merger was completed on December 2, 1997. Mr. Smith then
appealed the dismissal and the denial of the preliminary injunction to the North
Carolina Court of Appeals. In January 1999, the Appeals Court affirmed the trial
court's motion to dismiss and denial of a preliminary injunction. Mr. Smith
petitioned the North Carolina Supreme Court for a review of the Appeals Court's
decision and his petition for review was denied by the North Carolina Supreme
Court in March 1999.
In March 1999, Doris Shuman filed a lawsuit against the Company and
Michigan Speedway in Circuit Court for Lenawee County, State of Michigan and
seeks damages for injuries allegedly received in connection with the accident
which occurred during the July 26, 1998 U.S. 500 CART Championship Series race.
The Company denies the allegations and will vigorously defend itself.
The Company, including Michigan Speedway, maintains insurance against
liability for personal injuries sustained by spectators on the speedway
premises, which the Company believes should be sufficient to protect the Company
from any material liability resulting from the incident which occurred during
the July U.S. 500 race.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
EXHIBIT NUMBER AND DESCRIPTION PAGE NUMBER
------------------------------ -----------
(a) 15.1 Letter RE: unaudited interim financial
information.
27 Financial Data Schedules
(b) The Company was not required to file a Form 8-K during the three months
ended March 31, 1999.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PENSKE MOTORSPORTS, INC.
Date: May 17, 1999 By: /s/ James H. Harris
-----------------------------------
Its: Senior Vice President and Treasurer
(Principal Financial Officer)
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Exhibit Index
-------------
Exhibit No.
- -----------
15.1 Letter RE: unaudited interim financial information.
27 Financial Data Schedules
The Company was not required to file a Form 8-K during the three
months ended March 31, 1999.
18