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TRK > SEC Filings for TRK > Form 10-Q on 31-Oct-2013All Recent SEC Filings

Show all filings for SPEEDWAY MOTORSPORTS INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for SPEEDWAY MOTORSPORTS INC


31-Oct-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read along with the accompanying Consolidated Financial Statements and Notes.

OVERVIEW

Our revenues and expenses are classified in the following categories because they are important to, and used by, management in assessing operations:

• Admissions - includes ticket sales for all of our events
• Event related revenue - includes amounts received from sponsorship, luxury suite rentals, event souvenir merchandise sales, commissions from food and beverage sales, advertising and other promotional revenues, radio programming, hospitality revenues, track rentals, driving school and karting revenues, camping and other non-admission access revenues, broadcasting rights other than NASCAR broadcasting revenue, and other event and speedway related revenues
• NASCAR broadcasting revenue - includes rights fees obtained for domestic television broadcasts of NASCAR-sanctioned events held at our speedways
• Other operating revenue - includes certain merchandising revenues of SMI Properties and subsidiaries; car and part sales of US Legend Cars; restaurant, catering and membership income from the Speedway Clubs at CMS and TMS; revenues of Oil-Chem, which produces an environmentally-friendly micro-lubricant®; TMS oil and gas mineral rights lease revenues; and industrial park and office rentals

Our revenue items produce different operating margins. Broadcast rights, sponsorships, ticket sales, commissions from food and beverage sales, and luxury suite and track rentals produce higher margins than merchandise sales, as well as sales of US Legend Cars, Oil-Chem, SMI Properties and subsidiaries or other operating revenues.

We classify our expenses, among other categories, as follows:

• Direct expense of events - principally includes cost of souvenir sales, non-NASCAR race purses and sanctioning fees, property and event insurance, compensation of event related employees, advertising, sales and admission taxes, cost of driving school and karting revenues, event settlement payments to non-NASCAR sanctioning bodies and outside event support services
• NASCAR purse and sanction fees - includes payments to, and portions of broadcasting revenues retained by, NASCAR for associated events held at our speedways
• Other direct operating expense - includes the cost of certain SMI Properties and subsidiaries merchandising, US Legend Cars, Speedway Clubs, Oil-Chem and industrial park and office tower rental revenues

See Note 10 to the Consolidated Financial Statements for operating and other financial information on the Company's reporting segments.

The Company promotes outdoor motorsports events and derives a substantial portion of its total revenues from admissions, event related and NASCAR broadcasting revenue. Weather conditions surrounding these events affect sales of tickets, concessions and souvenirs, among other things. Although the Company sells a substantial number of tickets well in advance of its larger events, poor weather conditions can have a negative effect on the Company's results of operations. Poor weather can affect current periods as well as successive events in future periods because consumer demand can be affected by the success or experience of past events.

Management believes that the Company's financial performance has not been materially affected by inflation.


Seasonality and Quarterly Results

In 2013, we are holding 24 major annual racing events sanctioned by NASCAR, including 13 Sprint Cup and 11 Nationwide Series racing events. We also are holding six NASCAR Camping World Truck Series, three NASCAR K&N Pro Series, four NASCAR Whelen Modified Tour, two IndyCar Series, six major NHRA, one ARCA and three WOO racing events. In 2012, we held 24 major annual racing events sanctioned by NASCAR, including 13 Sprint Cup and 11 Nationwide Series racing events. We also held eight NASCAR Camping World Truck Series, four NASCAR K&N Pro Series, four NASCAR Whelen Modified Tour, two IndyCar Series, six major NHRA, and three WOO racing events.

The Company's business has been, and is expected to remain, somewhat seasonal. The Company recognizes revenues and operating expenses for all events in the calendar quarter in which conducted. Concentration of racing events in any particular future quarter, and the growth in our operations, including speedway acquisitions, with attendant increases in overhead expenses, may tend to minimize operating income in respective future quarters. Realignment of racing events can significantly increase or decrease quarterly operating income, corresponding with the move of race dates between quarters, which can lessen the comparability of operating results between quarters of successive years and increase or decrease the seasonal nature of our motorsports business. The results of operations for the three and nine months ended September 30, 2013 and 2012 are not indicative of results that may be expected for future periods because of such seasonality.

Set forth below is certain comparative summary information with respect to the Company's scheduled major (Sprint Cup and Nationwide Series) NASCAR-sanctioned racing events for 2013 and 2012.

Number of scheduled major NASCAR-sanctioned events

                  2013                2012
1st Quarter              4                 4
2nd Quarter              8                 8
3rd Quarter              8                 8
4th Quarter              4                 4
Total                   24                24

NEAR-TERM OPERATING FACTORS

There are many factors that affect our growth potential, future operations and financial results, including the following operating factors that are discussed below or elsewhere as indicated.

Significant items discussed elsewhere in indicated sections of this report:

?First quarter 2013 issuance of "additional" 6 ¾% Senior Notes and Credit Facility amendment, and second quarter 2013 redemption of 8¾% Senior Notes (discussed below in "Liquidity" and Note 5 to the Consolidated Financial Statements)
?Reduced interest costs anticipated from 2013 financing transactions and sizable long-term debt repayments in 2012 (discussed below in "Liquidity") ?Continued reduction in capital expenditures anticipated for 2013 (discussed below in "Capital Expenditures")
?Existing and new expanded multi-year, multi-platform NASCAR Broadcasting Rights Agreements (discussed below in "Liquidity") ?Quarterly cash dividends on common stock (discussed below in "Dividends")

General Factors and Current Operating Trends-Our year-to-date results for the 2013 race season reflect decreases in admissions and certain marketing, promotional and other event related revenue categories, and higher track rental revenues, on a year-over-year comparable event basis. Management believes many of our revenue categories continue to be negatively impacted by weak consumer and corporate spending, including high unemployment, high fuel, food and health-care costs, difficult housing markets and other economic factors. The strength and duration of recovery in the US economy currently remains uncertain. Possible changes in governmental taxing, regulatory, spending and other policy could significantly impact consumer spending, economic recovery and our future results. Government responses and actions may or may not successfully restore long-term stability to the consumer and credit markets and improve economic conditions. Record state and federal budgetary deficits could result in government responses such as higher consumer and corporate income or other tax rates. Governmental spending deficits could lead to higher interest rates and continued difficult borrowing conditions for consumers and corporate customers. Whether or when these difficult conditions might further improve cannot be determined at this time.


Management also believes admissions were negatively impacted by poor weather surrounding certain second quarter 2013 racing events, including the NASCAR Sprint Cup race at SR and rain delayed, shortened and rescheduled NASCAR Sprint Cup and Nationwide races held at CMS and KyS. In the first half of 2013, there was record rainfall in many parts of the East Coast of the United States. Although we sell many tickets in advance of our events, poor weather conditions can have a material effect on our results of operations. Poor weather leading up to, or forecast for a weekend that surrounds, a race can negatively impact our advance sales and walk-up admissions and food, beverage and souvenir sales. Poor weather can affect current periods as well as successive events in future periods because consumer demand can be affected by the success or experience of past events. When events are rescheduled or postponed because of weather, we typically incur additional operating expenses, as well as generate lower admissions, food, beverage and souvenir revenues.

Our speedway facilities are generally located near highly populated cities and hold motorsports events typically attended by large numbers of fans. Incidents such as the recent bombings in Boston can affect public concerns regarding large gatherings of people, including travel to large populated venues or locations. These or other unforeseen factors, particularly additional incidents, could have a significant negative impact on attendance and other event related spending by individuals or corporate fans and customers who have or might have planned to attend one or more of our racing events. See our "Risk Factors" in our 2012 Annual Report for additional information on ongoing weak economic conditions, financial market disruptions and geopolitical risks.

Ongoing Expanded Marketing and Promotional Efforts-For our 2013 events, similar to 2012, management has maintained many reduced ticket prices, and continues to offer extended payment terms to many ticket buyers (although generally not beyond when events are held) to help foster fan support and offset the ongoing impact of these adverse economic and market conditions. Many of our fans are purchasing tickets closer to event dates. We have increased promotional campaigns to incentivize earlier ticket purchasing and season ticket package renewal. SMI's seasonal and event based business model results in relatively long revenue cycles because many tickets and event related revenues are sold in advance. As such, it may take relatively longer for SMI's results to again reflect sales growth as economic conditions improve. While lower ticket prices and extended payment terms can affect operating margins and lengthen cash flow cycles as compared to historical levels, management believes these are prudent measures in the current operating environment.

Much of the success of the sport of NASCAR racing has long been attributed to the enduring and unsurpassed loyalty of our fans and customer base. While those long-time fans are more important to us than ever, we recognize the importance of capturing the next generation of race fans as the average age of the general population and our traditional fan base increases. We believe that a portion of the decline in attendance over the past few years can be attributed to that changing demographic. We are, therefore, increasingly investing in new marketing approaches and technology to foster attendance by families, particularly those with younger children and teenagers. We are increasingly investing in social media advertising, web-based applications and interactive digital systems to enhance pre-race and during-the-race entertainment experiences that appeal to our younger demographic markets. Other marketing and promotional efforts include:

? offering and expanding our family-friendly and first-time fan programs to help educate and engage new fans
? ongoing efforts to shorten travel times ? working with local and regional lodging proprietors to lower prices and reduce or eliminate minimum stay requirements ? programs to honor and reward long-time fans and continued patronage ? new, lower children ticket pricing and rainout policies for various ticket holders
? code of conduct text response systems, similar to other major sports venues

We plan to install distributed antenna systems (DAS) at each of our speedways in the near future. This leading-edge technology would provide our race fans and corporate customers with significantly improved wireless performance and connectivity options and the latest in digital applications while attending our events. These systems, similar to technology other major sport venues are deploying, would also provide infrastructure for expanding Wi-Fi coverage and applications. In early 2014, TMS plans to finish installation of the world's largest high-definition video board. This leading-edge technology significantly enhances the entertainment experience of fans at their events, and provides expanded promotional opportunities. As another example in a long line of industry firsts, along with CMS, SMI facilities will have the two largest video boards in motorsports.


Our Long-term, Multi-year Contracted Revenues are Significant-Many of our future revenues are already contracted under existing and new eight-year NASCAR television broadcast agreements and sponsorship, corporate marketing and other long-term contracts for multiple years beyond 2013. Most of our NASCAR Sprint Cup, Nationwide and Camping World Truck Series event sponsorships for the 2014 racing season, and many for years beyond 2014, are already sold. We also have significant contracted revenues under long-term operating leases for various office, warehouse and industrial park space, track rentals and driving school activities with entities largely involved in motorsports. We believe that substantial revenue generated under such long-term contracts helps significantly solidify our financial strength, earnings and cash flows and stabilize our financial resilience and profitability during difficult economic conditions.

Ongoing Improvements in Our Sport-Similar to past years, NASCAR as a sanctioning body continues to make refinements to racing rules, championship points formats, technical changes and other adjustments to enhance on-track racing competition and excitement and generate additional fan interest. In 2013, car manufacturers Chevrolet, Toyota, and Ford have brought brand identity back to "stock car" racing with the introduction of re-styled Sprint Cup cars. This new major car change, referred to as the next generation Sprint Cup car or "Gen-6" program, reflects NASCAR's efforts to restore manufacturer brand identity and improve on-track racing competition. NASCAR has implemented several competition changes for the 2013 season, including a new qualifying format for the Sprint Cup Series that places a greater emphasis on speed and increased competition. NASCAR also changed the maximum starting field for the Nationwide Series from 43 to 40 race cars, and track testing for the Sprint Cup, Nationwide and Camping World Truck Series, in ongoing efforts to enhance on-track racing competition. Also, female race driver Danica Patrick now competes in the Sprint Cup and Nationwide Series, representing one of the many sizeable and largely untapped demographics in NASCAR racing.

In recent years, NASCAR introduced electronic fuel injection for the Sprint Cup Series and implemented competition rules designed to restore "pack racing" at restrictor plate speedways. Other refinements have included "double-file restarts", more consistent race start times, new qualifying procedures, multiple attempts at finishing races under the "green flag" and relaxing on-track rules and regulations. NASCAR has simplified the Sprint Cup Series points system and introduced "wild card" eligibility to the Chase for the Sprint Cup to place greater emphasis on winning races. NASCAR also changed the rules of participation so that racecar drivers can now compete for championship points in only one of NASCAR's Sprint Cup, Nationwide or Camping World Truck Series. These changes give additional points and benefits for winning races and are intended to make racing more competitive during the entire season.

A lack of competitiveness in Sprint Cup Series races, the closeness of the championship points race, racecar driver popularity, and the success of NASCAR racing in general, in any particular racing season, can also significantly impact our operating results. These and similar factors can affect attendance at NASCAR Sprint Cup and Nationwide racing events, as well as corporate marketing interest, that can significantly impact our operating results. However, management believes our strong operating cash flow will continue, and that ticket demand and corporate marketing and promotional spending will increase as the economy improves. The demand and appeal for motorsports entertainment in our markets has remained relatively strong even in challenging circumstances. Our corporate and other customers are increasingly involved in diversified non-motorsports industries, demonstrating the high marketing value of financial involvement and sponsorship in NASCAR and other motorsports racing. We believe expanding marketing demographics, the intensifying media coverage, as well as the industry's ongoing focus on enhancing NASCAR racing competition, provide us and NASCAR with many long-term marketing and future growth opportunities. See "Risk Factors" in our 2012 Annual Report for additional information on the impact that competition, popularity and sanctioning body and other changes can have on our operating results.

Revised 2013 Earnings Guidance-In connection with our third quarter 2013 earnings release, management revised its previous full year 2013 guidance for income from continuing operations to $0.80-$0.90 per diluted share (from $0.90-$1.10), excluding special charges and non-recurring items. The revision and range of earnings guidance reflects the continuing negative impact of difficult and uncertain economic conditions, including high unemployment and consumer costs. Higher fuel, health-care and food costs and unemployment, among other items, could significantly impact our future results.


RESULTS OF OPERATIONS

Management believes the comparative financial information below helps in understanding and comparing our results of operations. As further described above in "Near-Term Operating Factors", management believes admissions, many event related revenue categories and other operating revenues continue to be negatively impacted by ongoing weak economic conditions, including high unemployment and high fuel, food and health-care costs. Management also believes admissions were negatively impacted by poor weather surrounding certain second quarter 2013 racing events, including the NASCAR Sprint Cup race at SR and rain delayed, shortened and rescheduled NASCAR Sprint Cup and Nationwide races held at CMS and KyS.

The more significant racing schedule changes for the nine months ended September 30, 2013 as compared to 2012 include (2013 Race Date Realignments):

• AMS held one NASCAR Camping World Truck Series racing event in the third quarter 2012 that was not held in 2013
• KyS held one Automobile Racing Club of America racing event in the third quarter 2013 that was not held in 2012, and one NASCAR Camping World Truck Series racing event in the third quarter 2012 that was not held in 2013

Non-GAAP Financial Information and Reconciliation -Income from continuing operations, and diluted earnings per share from continuing operations as adjusted and set forth below are non-GAAP (other than generally accepted accounting principles) financial measures presented as supplemental disclosures to net income (loss), diluted earnings (loss) per share, income (loss) from continuing operations, and diluted earnings (loss) per share from continuing operations. Non-GAAP income and diluted earnings per share from continuing operations below are derived by adjusting GAAP basis amounts as presented below. The following schedule separately presents individual corresponding GAAP amounts and adjustments net of taxes, and reconciles non-GAAP financial measures below to their most directly comparable information presented using GAAP. See Notes 2, 4, 5 and 11 to the Consolidated Financial Statements for additional information on the non-recurring income tax benefits, 2013 impairment of goodwill, 2013 loss on early debt redemption and refinancing and discontinued operations, respectively.

Management believes such non-GAAP information is useful and meaningful to investors because it identifies and separately adjusts for transactions that are not reflective of ongoing operating results, and helps in understanding, using and comparing our results of operations for the periods presented. Management uses the non-GAAP information to assess our operations for the periods presented, analyze performance trends and make decisions regarding future operations because it believes this separate and adjusted information better reflects ongoing operating results. This non-GAAP financial information is not intended to be considered independent of or a substitute for results prepared in accordance with GAAP. This non-GAAP financial information may not be comparable to similarly titled measures used by other entities and should not be considered as alternatives to net income (loss), diluted earnings (loss) per share, or income (loss) and diluted earnings (loss) per share from continuing operations, determined in accordance with GAAP. Individual quarterly amounts may not be additive due to rounding.

                                               Three Months Ended             Nine Months Ended
                                                  September 30:                 September 30:
                                               2013            2012          2013          2012
                                                  (in thousands, except per share amounts)
Consolidated net income (loss) using
GAAP                                       $     12,294      $  10,967     $ (56,885 )   $  37,771
Loss from discontinued operation                     68             78           130           117
Consolidated income (loss) from
continuing operations                            12,362         11,045       (56,755 )      37,888
Impairment of goodwill                                -              -        86,696             -
Loss on early debt redemption and
refinancing                                           -              -        11,619             -
Non-recurring benefits of state income
tax restructuring and tax law changes            (1,664 )            -        (5,720 )           -
Non-GAAP consolidated income from
continuing operations                      $     10,698      $  11,045     $  35,840     $  37,888

Consolidated diluted earnings (loss) per
share using GAAP                           $       0.30      $    0.26     $   (1.37 )   $    0.91
Loss from discontinued operation                   0.00           0.00          0.00          0.00
Consolidated diluted earnings (loss) per
share from continuing operations                   0.30           0.27         (1.37 )        0.91
Impairment of goodwill                                -              -          2.09             -
Loss on early debt redemption and
refinancing                                           -              -          0.28             -
Non-recurring benefits of state income
tax restructuring and tax law changes             (0.04 )            -         (0.14 )           -
Non-GAAP diluted earnings per share from
continuing operations                      $       0.26      $    0.27     $    0.86     $    0.91


Three Months Ended September 30, 2013 Compared To Three Months Ended September 30, 2012

Total Revenues for the three months ended September 30, 2013 decreased by $4.8 million, or 3.3%, from such revenues for the same period last year due to the factors discussed below.

Admissions for the three months ended September 30, 2013 decreased by $3.2 million, or 9.0%, from such revenue for the same period last year. This decrease is due primarily to lower overall admissions at NASCAR-sanctioned racing events on a comparable year-over-year event basis. The decrease also reflects, to a much smaller degree, the 2013 Race Date Realignments.

Event Related Revenue for the three months ended September 30, 2013 decreased by $2.6 million, or 6.5%, from such revenue for the same period last year. This decrease is due primarily to declines in almost all categories of event related revenues associated with NASCAR-sanctioned racing events on a comparable year-over-year event basis. The overall decrease was partially offset by higher track rental revenues at certain Company speedways in the current period.

NASCAR Broadcasting Revenue for the three months ended September 30, 2013 increased by $1.8 million, or 3.0%, over such revenue for the same period last year. This increase is due to higher annual contractual broadcast rights fees for NASCAR-sanctioned racing events held in the current period.

Other Operating Revenue for the three months ended September 30, 2013 decreased by $670,000, or 9.5%, from such revenue for the same period last year. This decrease is due primarily to lower Legend Cars and other non-event merchandising revenues, and a combination of individually insignificant items, in the current period as compared to the same period last year.

Direct Expense of Events for the three months ended September 30, 2013 decreased by $925,000, or 2.6%, from such expense for the same period last year. This decrease reflects lower advertising and a combination of individually insignificant items in the current period. Admissions and event related revenues directly impact many event expenses such as sales and admission taxes, costs of merchandise sales, credit card processing fees, sales commissions and certain other operating costs.

NASCAR Purse and Sanction Fees for the three months ended September 30, 2013 decreased by $160,000, or 0.4%, from such expense for the same period last year. This decrease reflects the 2013 Race Date Realignments (on a combined basis), which was partially offset by higher annual contractual race purses and sanctioning fees for NASCAR-sanctioned racing events held in the current period as compared to the same period last year.

Other Direct Operating Expense for the three months ended September 30, 2013 decreased by $573,000, or 12.3%, from such expense for the same period last year. This decrease is due primarily to lower operating costs associated with Legend Cars and other non-event merchandising revenues in the current period as compared to the same period last year.

General and Administrative Expense for the three months ended September 30, 2013 increased by $115,000, or 0.5%, over such expense for the same period last year. This increase reflects wage cost inflation and a combination of individually insignificant items in the current period.

Depreciation and Amortization Expense for the three months ended September 30, 2013 decreased by $326,000, or 2.3%, from such expense for the same period last year. This decrease reflects that certain assets are now fully depreciated and a combination of individually insignificant items in the current period.

Interest Expense, Net for the three months ended September 30, 2013 was $5.9 million compared to $10.3 million for the same period last year. This change reflects redemption of higher interest rate 2016 Senior Notes with lower interest rate Credit Facility borrowings as further described in Note 5 to the Consolidated Financial Statements, and lower total outstanding debt and lower interest on Credit Facility borrowings in the current period. The decrease was . . .

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