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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________________ TO ________________.
COMMISSION FILE NUMBER 1-13925
CHAMPIONSHIP AUTO RACING TEAMS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 38-3389456
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(State or other jurisdiction of (IRS Employer Identification No.)
Incorporation or organization)
755 West Big Beaver Rd., Suite 800, Troy, MI 48084
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(Address of principal executive offices) (Zip Code)
(248) 362-8800
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $.01 par value 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. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) 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 Form 10-K. [ ]
On March 20, 2001 the aggregate market value of the shares of voting stock of
Registrant held by non-affiliates was approximately $183,025,422 based on a
closing sales price on the NYSE of $15.25 per share.
At March 20, 2001, the Registrant had 15,765,467 shares of common stock
outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 2001 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission, not later
than 120 days after the close of its fiscal year, pursuant to Regulation 14A,
are incorporated by reference into Items 10, 11, 12 and 13 of Part III of this
annual report.
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FORM 10-K TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business......................................................................... 4
Item 2. Properties....................................................................... 24
Item 3. Legal Proceedings................................................................ 24
Item 4. Submission of Matters to a Vote of Security Holders.............................. 25
PART II
Item 5. Market of the Registrant's Common Equity and Related Stockholder Matters ........ 26
Item 6. Selected Consolidated Financial Data............................................. 27
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation......................................................... 29
Item 7A. Quantitative and Qualitative Disclosures About Market Risk....................... 36
Item 8. Financial Statements and Supplementary Data...................................... 36
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure......................................................... 36
PART III
Item 10. Directors and Executive Officers of the Registrant............................... 37
Item 11. Executive Compensation........................................................... 37
Item 12. Security Ownership of Certain Beneficial Owners and Management................... 37
Item 13. Certain Relationships and Related Transactions................................... 37
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.................. 38
SIGNATURES
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PART I
ITEM 1: BUSINESS
INTRODUCTION
We own, operate and sanction the premier open-wheel motorsports series in
North America-the CART FedEx Championship. We are responsible for organizing,
marketing and staging each of the races in the CART Championship. With speeds of
up to 240 miles per hour, CART open-wheel racing is the fastest form of
closed-circuit auto racing available to motorsports audiences, providing intense
excitement and competition. We also own and sanction the Indy Lights
Championship and the Atlantic Championship, both development series for the CART
Championship.
The drivers and racing teams participating in CART racing events are
among the most recognized names in motorsports, with marquee drivers including:
- Michael Andretti
- Adrian Fernandez
- Gil de Ferran
- Christian Fittipaldi
- Dario Franchitti
- Paul Tracy
- Jimmy Vasser
- Alex Zanardi
The excitement and competition of CART racing also attracts well-known
racing legends, business leaders and sports and entertainment personalities as
team owners including:
- Chip Ganassi
- Carl Haas
- David Letterman
- Bruce McCaw
- Paul Newman
- U.E. "Pat" Patrick
- Roger Penske
- Bobby Rahal
Major sponsors of the CART Championship include:
- Federal Express, Title Sponsor
- Worldcom
- Simple Green
- Honda
- Craftsman
- Motorola
- PPG
In addition, other Fortune 500 companies sponsor particular race teams and
events.
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Open-wheel racing is the oldest continually scheduled motorsports
competition in the world, tracing its history to 1904. The 2001 CART
Championship will include 21 races staged in seven countries:
- Australia
- Canada
- England
- Germany
- Japan
- Mexico
- United States
We conduct our races on four different types of tracks, requiring teams
and drivers competing for the CART Championship to employ a variety of skills to
master different courses. Each race weekend in the CART Championship is an
"event" offering spectators the opportunity to enjoy a CART race, as well as a
full weekend of motorsports related entertainment. Most of our events include
additional races, such as events in the Indy Lights Championship or the Atlantic
Championship, practice and qualifying rounds for all racing events, and
automotive and general entertainment demonstrations and displays. Race weekends
provide corporate sponsors and other businesses the opportunity to entertain
their customers and employees through hospitality areas and other activities.
We derive our revenues from four primary sources:
- sanction fees paid by track promoters
- corporate sponsorship fees
- television revenues
- engine leases and rebuilds for the Indy Lights series
Our revenues have increased during the last five years from $41.1 million
in 1996 to $75.0 million in 2000.
We were incorporated in Delaware in December 1997. Our principal
executive office is located at 755 West Big Beaver Road, Suite 800, Troy,
Michigan 48084, and our telephone number is (248) 362-8800.
RISK FACTORS
SUBSTANTIAL COMPETITION - OUR RACING EVENTS FACE INTENSE COMPETITION FOR
ATTENDANCE, TELEVISION VIEWERSHIP AND SPONSORSHIP. Our industry is highly
competitive. We cannot assure you that we will be able to maintain or improve
our market position. Our racing events compete with other events for television
viewership, attendance and sponsorship funding. Our racing events compete with
racing events sanctioned by other racing bodies, including:
- Formula One
- National Association of Stock Car Automobile Racing ("NASCAR")
- Indy Racing League ("IRL")
- National Hot Rod Association ("NHRA")
- Sports Car Club of America ("SCCA")
- Professional Sports Car Racing ("PSCR")
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In addition, our racing events compete with other sports, entertainment and
recreational events, including:
- Football
- Basketball
- Baseball
- Golf
RELIANCE ON PARTICIPATION BY TEAMS - OUR FUTURE SUCCESS IS DEPENDENT UPON
THE CONTINUED PARTICIPATION OF RACING TEAMS IN CART-SANCTIONED RACE EVENTS. If
teams that currently participate in our events terminate their participation,
then that could adversely affect our financial and business results. The teams
participating in our events derive substantially all of their funding for race
operations from their sponsors. Generally, team sponsors measure advertising
exposure to determine future sponsorship commitments. A decrease in our
attendance or television viewership could adversely affect the level of funding
by some team sponsors. If sponsorship revenues are not available to teams, then
those teams may not have the necessary funding to participate in our events. In
addition, teams may elect to participate in a competing series rather than CART.
We can not assure you that the current race teams will participate in future
events.
RELIANCE ON INDUSTRY SPONSORSHIPS - A SIGNIFICANT DECLINE IN SPONSORSHIP,
PROMOTION AND ADVERTISING DOLLARS AVAILABLE TO US, OUR RACE PROMOTERS AND THE
RACING TEAMS PARTICIPATING IN OUR EVENTS IN THE FUTURE COULD ADVERSELY AFFECT
OUR FINANCIAL AND BUSINESS RESULTS. We generate significant revenue each year
from the sponsorship, promotion and advertising of various companies and their
products. The revenue generated from such sponsorship, promotion and advertising
substantially depends upon the level of advertising expenditures by sponsors or
prospective sponsors. The level of advertising expenditures depends in part on
the financial condition of such companies and the availability and cost of
alternative promotional outlets. It also depends on their perception of the
benefits of using us, our events or race teams as an advertising medium.
Television viewership, spectator attendance and race venues for our events
significantly impact the advertising and promotional value to sponsors.
RELIANCE ON PARTICIPATION BY SUPPLIERS - WITHOUT THE PARTICIPATION OF
SUPPLIERS IN PROVIDING ENGINES, CHASSIS AND TIRES, WE MAY NOT BE ABLE TO
CONTINUE SOME OF OUR RACING SERIES. We are dependent upon the continued
participation of suppliers of engines, tires and chassis to teams competing in
our events. The engines and tires for our race cars are designed specifically
for our racing. In 2000, only one tire manufacturer supplied tires to
competitors in the CART Championship. We had four major engine manufacturers in
2000, but will only have three major engine manufacturers in 2001. We believe
that the costs to some industry suppliers are greater than the revenues
generated from the sale or lease of such products, and therefore, they must
derive advertising or technical benefits from such participation.
RELIANCE ON EVENT PROMOTERS - WE DERIVE A SUBSTANTIAL PORTION OF OUR
TOTAL REVENUES FROM SANCTION FEES WHICH ARE PAID TO US BY EACH PROMOTER. If
several promoters incur financial losses or restrictions that prohibit future
events from taking place or if such promoters elect not to promote our events in
the future, we believe this could adversely affect our financial and business
results. In February 2001, we had to cancel our 2001 race in Brazil due to the
fact that the City of Rio de Janeiro was in default of its agreement concerning
the 2001 Rio 200.
LIMITATIONS ON SPONSORSHIP - THE LOSS OF MOTORSPORTS INDUSTRY
SPONSORSHIPS FROM TOBACCO AND ALCOHOL COMPANIES COULD HAVE ADVERSE EFFECTS ON
US. Governmental authorities in many countries regulate advertising by companies
in the alcohol and tobacco industries.
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Companies involved in these industries have been significant sponsors of race
teams, racing series and events. Governmental authorities have taken steps to
further restrict sponsorship by tobacco companies. We do not derive significant
sponsorship revenue from the tobacco and alcohol industries, but many of the
race teams participating in our events derive a substantial portion of their
operating revenues from such industry sponsors. In addition, many of our race
events are sponsored in part by companies in the tobacco or alcohol industries,
with such sponsorship fees paid to the track promoters. If these race teams and
track promoters lose sponsorship fees from tobacco or alcohol industry sponsors
without locating another sponsor, then we could lose that team as a participant
or that promoter and it could adversely affect our financial and business
results.
In 1998, Phillip Morris, Brown & Williamson, Lorillard, R.J. Reynolds and
the Liggett Group entered into a settlement agreement with 46 states and the
District of Columbia (collectively, the "States"). The settlement agreement
restricts tobacco product advertising and marketing within the States. Among
other restrictions, the settlement agreement:
- prohibits tobacco product brand name sponsorship of concerts,
events in which the intended audience is comprised of a
significant percentage of youth under age 18, events in which any
paid participants or contestants are youths, or any athletic event
between opposing teams in any football, basketball, baseball,
soccer or hockey league; and
- limits each participating manufacturer to one tobacco product
brand name sponsorship during any twelve-month period.
We cannot assure you that a tobacco company will choose a motorsports
event as its one annual event to sponsor. If a tobacco company does choose to do
so, the settlement agreement permits the use of a tobacco product brand name for
a race car series and a single race team within that series. If the tobacco
company is not a sponsor of the race series in which the race team is competing,
it can use the tobacco product brand name only for a single race team.
EXPANSION - WE HAVE A LIMITED ABILITY TO EXPAND OUR RACE SCHEDULE.
Expansion of the number of races we stage each year will require additional
personnel and resolution of logistical issues such as transportation and
availability of equipment. Our ability to expand the race schedule will also be
limited by the availability of funding and equipment to teams for participation
in additional events and by the teams' willingness to participate in an expanded
schedule.
INDIANAPOLIS 500 - NON-PARTICIPATION BY CART TEAMS AND DRIVERS IN THE
INDIANAPOLIS 500 COULD HAVE AN ADVERSE EFFECT. We are unable to predict what
effect the continued non-participation by a substantial number of our teams at
the Indianapolis 500 will have on our financial and business results. The IRL
was formed in 1995 as a rival open-wheel racing league to compete directly with
us. The IRL was founded by affiliates of the Indianapolis Motor Speedway. Since
the creation of the IRL and certain rule changes at the Indianapolis 500, most
of the CART teams and drivers have not competed at the Indianapolis 500.
The Indianapolis 500 is a major racing event in the United States. It
draws substantial television viewership. For these reasons, many companies that
sponsored race teams historically regarded an involvement at the Indianapolis
500 as being an extremely important part of their sponsorship. Corporations have
spent a considerable sum of money to sponsor racing teams participating at the
Indianapolis 500 and for advertising and promotions for such sponsorship.
GROWTH STRATEGY - WE MAY NOT BE ABLE TO SUCCESSFULLY IMPLEMENT OUR GROWTH
STRATEGY. A factor in our growth strategy is to acquire and develop race-related
businesses and properties. We
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cannot assure you that we will be able to identify and acquire race-related
businesses and properties. Our ability to effectively manage our future growth
and to successfully implement this growth strategy will require us to
successfully integrate the operations of acquired businesses and properties with
our operations. We will also need to enhance our operational, financial and
management systems. In addition, we will need to successfully hire, train,
retain and motivate additional employees. If we fail to manage our growth
effectively, then this could have an adverse affect on our financial and
business results.
LIABILITY FOR RACING-RELATED INCIDENTS - WE FACE THE INHERENT RISKS AND
EXPOSURE TO CLAIMS IN THE EVENT THAT SOMEONE IS INJURED AT A CART-SANCTIONED
EVENT. Racing events can be dangerous to participants and spectators. We have
and will continue to have liability insurance to cover past and any future
racing incidents. We are also indemnified by track promoters for racing
incidents and obtain waivers from those participating in our events. To the
extent not covered by insurance, any claims and associated expenses related to
prior racing incidents could adversely affect our financial and business
results. In addition, any claims and associated expenses related to future
potential racing incidents, to the extent not covered by insurance, could
adversely affect our financial and business results.
In 1999, two of our drivers died in racing related incidents. In 2000, we were
named as defendants in lawsuits filed by representatives of each of the drivers.
Refer to Item 3: Legal Proceedings.
CONTROL - OUR DIRECTORS AND OFFICERS CONTROL THE VOTING POWER. Our
current directors and officers own approximately 25% of the outstanding shares
of common stock. As a group, along with those affiliated with our race teams,
they will control the outcome of substantially all issues submitted to our
stockholders, including the election of directors. The interests of this group
could conflict with the interests of the other stockholders.
CONFLICTS - SOME OF OUR CURRENT STOCKHOLDERS AND DIRECTORS HAVE CONFLICTS
OF INTEREST. Some of our current stockholders and most of our directors are
affiliated with a race team that participates in the CART Championship. These
factors result in an inherent conflict of interest for certain matters to be
considered by the stockholders or directors. In addition, some of our
stockholders and directors either control or are affiliated with others who
control racing venues which stage CART and other racing events. Therefore, a
conflict of interest may arise when we determine the location and dates of CART
events and the amount of sanction fees paid. Under Delaware law, all directors
owe a fiduciary duty to our stockholders.
NEW RACE VENUES - WE MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE NEW RACE
VENUES AND EXTEND OR RENEW CURRENT VENUES. The 2001 CART Championship will
include four races at new venues and three of such events will be on newly
constructed tracks. Our operational success depends upon the success of our
racing events. If these new events and new venues are not successfully
implemented, then our financial and business results could be adversely
affected. In addition, our agreements with track promoters at seven venues will
expire in 2001. We will either need to negotiate terms for renewal of contracts
for future races at these venues or find alternative venues for our races in the
future.
RENEWAL OF TELEVISION CONTRACTS - WE CAN NOT ASSURE YOU THAT AN AGREEMENT
WILL BE REACHED. Our television contract with ESPN ends in 2001. If we are
unable to negotiate a domestic and/or international television contract for
coverage of our CART Championship races in the future, our financial and
business results could be adversely affected. Although we are in discussions
with parties to provide television coverage beginning in 2002, we cannot assure
you that an agreement will be reached or the timing of any such agreement.
INTERIM RESULTS - OUR QUARTERLY RESULTS ARE SUBJECT TO FLUCTUATION AND
SEASONALITY AS A RESULT OF THE SCHEDULING OF OUR RACES. Historically, our
revenues are higher in the second and third
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quarters of the year due to the number of races that we stage in those quarters.
The scheduling of any race in the CART Championship can significantly affect our
quarterly results of operations when compared to a previous quarter if races are
scheduled during different quarters from year to year. You may be unable to
usefully compare our results in one quarter to our results in a prior period due
to these timing differences. This may affect your ability to analyze our results
on a quarterly basis and could also affect the market price of our stock. You
should see "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Seasonality and Quarterly Results" for a discussion of
our quarterly results.
SALES OF SHARES - SALES OF SHARES BY EXISTING STOCKHOLDERS COULD
ADVERSELY EFFECT THE MARKET PRICE OF OUR COMMON STOCK. Sales of significant
amounts of common stock in the public market by the team owners, or the
perception that such sales may occur, could cause the market price of the common
stock to drop. As of March 20, 2001, 15,765,467 shares of common stock were
outstanding.
INDUSTRY OVERVIEW
TYPES OF AUTO RACING. Auto racing consists of several distinct
categories, each with its own organizing body and racing events.
Internationally, the most recognized form of auto racing is open-wheel racing,
utilizing an aerodynamically designed chassis and technologically advanced
equipment. The most established open-wheel racing series are:
- Formula One
- CART Championship
- IRL
- Formula 3000
- Indy Lights Championship
- Atlantic Championship
- FORMULA ONE. The Formula One World Championship was founded in
1950. The Federation Internationale de L'Automobile ("FIA") sanctions
Formula One World Championship events consisting of open-wheel races on
road courses in Europe, South America, Asia, United States of America,
Canada and Australia. The 2001 season will include 17 races. The 2000
Formula One calendar included 17 events.
- CART. The CART Championship started in 1978 and is the premier
open-wheel motorsports series in North America. The CART Championship is
sanctioned by CART and will include 21 races this year. The 2000 season
included 20 races. CART events are staged on four different types of
tracks:
- superspeedways
- ovals
- temporary street courses
- permanent road courses
Superspeedways are banked ovals of two miles or more in distance. Oval
tracks are closed circuits, less than two miles in distance, which are
often "banked" at varying angles. Temporary street courses are typically
built on closed-off downtown streets of major cities, but can also be
built on airport runways or similar facilities that have a primary
purpose other than as a motorsports venue. Permanent road courses are
raceways built solely for motorsports racing and are designed with
varying turns, straight-aways and elevation changes to simulate driving
on a road.
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Racing on different types of tracks requires teams and drivers to employ
a variety of skills to master different courses to compete for the CART
Championship.
- IRL. The IRL was formed as a rival United States open-wheel
racing series, competing with CART and began racing in 1996. The IRL
sanctions its own events. The IRL's events are staged solely on oval
courses and will include 13 races this year, including the Indianapolis
500. The IRL's 2000 season consisted of 10 races, including the
Indianapolis 500.
- FORMULA 3000. The FIA sanctions the International Formula 3000
Championship. The 2001 championship season covers Europe between March
and September in a twelve race series. Success in Formula 3000 has been
the stepping stone for many drivers into Formula One.
- INDY LIGHTS CHAMPIONSHIP. We sanction the Indy Lights
Championship and have designated it as the "Official Development Series
of the CART Championship." Similar to CART, the Indy Lights Championship
is staged on four different types of tracks. The Indy Lights Championship
consisted of 12 races during the 2000 season in the United States and
Canada. In 2001, the Indy Lights Championship will be comprised of 12
races in the United States, Canada and Mexico, with nine races held in
conjunction with CART events and three races held in conjunction with IRL
events.
- ATLANTIC CHAMPIONSHIP. We also sanction the Atlantic
Championship. The Atlantic Championship is also a stepping stone to a
career in international motorsports competition. The 2000 Atlantic
Championship consisted of 12 races in the United States and Canada. The
2001 Atlantic Championship will consist of 12 races in the United States
and Canada, with 10 events held in conjunction with CART events, one race
as a support series to a Formula One race in Montreal, Canada, and
another as a stand alone race.
The largest auto racing category in the United States, in terms of
attendance, media exposure and sponsorships, is stock car racing. Stock car
racing utilizes equipment similar in appearance to standard passenger
automobiles and races are typically staged on oval courses. The most prominent
organizing body in stock car racing is NASCAR. Drag racing typically involves
short sprint races on a straight-line drag strip. The NHRA is the most prominent
organizing body in drag racing. Other, less prominent, racing segments include
various types of sports car racing and club racing.
- NASCAR. Professional stock car racing developed in the
Southeastern United States in the 1930's, and NASCAR has been influential
in the growth and development of the sport. NASCAR is the most recognized
sanctioning body of professional stock car racing in North America,
sanctioning the Winston Cup and Busch Grand National stock car race
series. The 2000 Winston Cup and Busch Grand National race series
included 37 and 32 races, respectively; all of which were held in the
United States. The 2001 Winston Cup and Busch Grand National race series
will include 39 and 33 races, respectively, all in the United States.
- OTHER SANCTIONING BODIES. Sports car races are held on road
courses and temporary street circuits throughout the United States and
are sanctioned by SCCA and PSCR. The NHRA sanctions drag races in the
United States. The Automobile Racing Club of America ("ARCA") sanctions
stock car races that are less prominent than those sanctioned by NASCAR.
Motorsports events are generally heavily promoted, with a number of
supporting events surrounding the main race event. Examples of supporting events
include:
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- qualifying trials
- secondary racing events
- driver autograph sessions
- automobile and product expositions
- catered parties
These events are all designed to maximize the spectators' entertainment
experience and enhance the value of the sponsorship experience.
PARTICIPANTS. The primary participants in motorsports are:
- spectators
- corporate sponsors
- track owners/race promoters
- drivers
- team owners
- sanctioning bodies
SPECTATORS. After soccer, motorsports is the most watched sport
worldwide. Motorsports is among the fastest growing spectator sports in the
United States. During 2000, approximately 2.6 million people attended CART
events. CART races were also televised in 208 countries in 2000.
CORPORATE SPONSORS. Corporate sponsors are drawn to motorsports by the
large number of spectators and television viewers and their attractive
demographics. Corporate sponsors are active in all phases of the industry. We
believe that the demographic profile of our growing spectator base has
considerable appeal to sponsors, track owners, television networks and
advertisers. The mean household income of our spectators is estimated to be
$61,400, compared to $47,600 for an average United States household. We believe
that the spectators are loyal to motorsports and to its corporate sponsors. In
addition to sponsoring the various racing series, corporate sponsors support
drivers and teams by funding certain costs of their operations, and race
promoters and track owners by sponsoring and promoting specific events. In
return, corporate sponsors receive advertising exposure on television and radio,
through newspapers and in printed materials. Corporate sponsors also receive
advertising, promotional and hospitality benefits at the track during the race
weekend. Finally, corporate sponsors benefit from the attractive values of the
high-speed, high technology competition that we provide. These values can be
used to add new values and points of difference to each sponsor's brands.
Companies negotiate sponsorship arrangements based on factors including a
series' or event's audience size, spectator demographics and a team's racing
success.
TRACK OWNERS/RACE PROMOTERS. Race promoters, which include track owners,
government organizations and other groups, pay a fee to have an event sanctioned
at their race venue. Race promoters are responsible for the local marketing and
promotion of the event. Their revenue sources generally include:
- admissions
- sponsorships
- corporate hospitality (suites, chalets and tents for race viewing
and other amenities)
- advertising
- concessions and souvenir sales
DRIVERS. A majority of drivers contract independently with team owners,
while select drivers may own their own teams. Principally, drivers receive
income from contracts with team owners, sponsorship fees and prize money.
Successful drivers may also receive income from personal endorsement fees, sales
of licensed merchandise and souvenir sales. The personality and
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success of a driver can be an important marketing advantage for the sanctioning
body and team owners because it can help attract audiences, corporate
sponsorships and generate sales for licensed merchandise.
TEAM OWNERS. In most instances, team owners underwrite the financial risk
of placing their teams in competition. They contract with drivers, acquire
racing vehicles and support equipment, employ pit crews and mechanics and
syndicate sponsorship of their teams. Team owners generally receive income
primarily from sponsorships and a percentage of prize money won.
SANCTIONING BODIES. Sanctioning bodies such as us sanction events at
various race venues in exchange for fees from race promoters. Sanctioning bodies
are responsible for all aspects of race management necessary to "manufacture"
the race event. They are responsible for presenting racing cars, drivers and
teams and providing race officials to ensure fair competition, as well as
providing the race and series' purses and other prize payments.
The FIA, based in Geneva, Switzerland, is the worldwide governing body
for auto racing, with "national sporting authority" members in more than 100
countries. The FIA's United States national sporting authority is the Automobile
Competition Committee of the United States ("ACCUS"). It in turn is made up of
seven member-sanctioning organizations:
- CART
- NASCAR
- United States Auto Club ("USAC")
- PSCR
- NHRA
- SCCA
- IRL
GROWTH STRATEGY
Our growth strategy is to increase revenues and net income by expanding
the worldwide audience for CART racing. We intend to build brand awareness by
capitalizing on the thrill and excitement of CART racing as well as our position
as a premier open-wheel racing series. We believe that these factors will
provide us with opportunities for increased overall:
- sanction fees
- corporate sponsorship fees
- television revenues
- royalties
We intend to implement our growth strategy by:
- INCREASING MARKET PENETRATION IN THE UNITED STATES. Our
management continues to explore additional opportunities to develop our
race schedule around other key markets in the United States. Because our
races are conducted on superspeedways, ovals, temporary street courses
and permanent road courses, we believe we have great flexibility in
selecting future race venues. In 2001, we will conduct an inaugural event
in Dallas/Fort Worth, Texas.
- EXPAND INTERNATIONAL AUDIENCE. We believe that the world market
for motorsports is predisposed to CART's style of exciting, competitive,
open-wheel racing. The CART Championship spanned five countries on four
continents in 2000, with events in the United States, Canada, Australia,
Brazil and Japan. In 2001, we will conduct new events in Mexico, Germany
and the United Kingdom. We typically receive higher sanction
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fees from the race promoters of international race events. Our management
continues to explore additional opportunities to export our high-value,
American racing product throughout the world and to include more
international-based sponsors for the CART Championship and our race
teams.
- EXPAND MEDIA EXPOSURE. We plan to expand our overall television
presence on a worldwide basis, with new races in Mexico, Germany and
England. Increasing our race schedule from 20 to 21 races in 2001 results
in our company being the rights holder for over 142 hours of high quality
motorsports programming. We intend to build the worldwide distribution
base for all three race series in the future. In the United States, we
will focus on improving our television ratings on both network and cable
and on developing race programming focused on new audiences for the
sport.
In 2001, 18 of the CART Championship 21 race schedule will be live
on Eurosport for 54 countries in Europe. We will explore additional media
opportunities in 2001. We are also expanding our radio race coverage and
will be broadcasting all 21 races in all of our North American race
markets, plus the Phoenix, Las Vegas and Indianapolis markets. In
addition, we will broadcast our "CART Hotline," a radio call-in show that
will air in the above-mentioned markets every Thursday evening during our
race season. All radio coverage will also be simulcast on CART.com.
Television and radio programming in addition to race coverage is an
important element in our strategy to increase brand awareness and educate
our fans.
We have experienced significant growth with our web site CART.com.
During 1998, we added E-Commerce and a business section to CART.com.
During 2000, our website received 9.8 million visits, up by 23% from
1999.
- ACQUIRE AND DEVELOP RELATED BUSINESSES AND PROPERTIES. We will
selectively pursue opportunities to acquire and apply our brand name to
other race-related businesses and properties. We expect to vertically
integrate certain support-racing series to develop future racing talent
in the United States. We are also seeking opportunities to acquire and
develop race experience products which will provide potential and
existing race fans with an affordable and accessible opportunity to
experience the sport. These may include opportunities such as:
- Simulation or virtual reality products
- Race schools
As the first step in this strategy, in 1998, we acquired American Racing
Series ("ARS"), which operates Indy Lights, and certain assets of BP
Automotive ("BP"), which provides certain equipment to the participants
of Indy Lights, as well as Pro-Motion Agency which operates the Atlantic
Championship series.
Recently we formed an alliance with the Skip Barber race schools to
develop race talent of the future. We will sanction the Barber Dodge Pro
Series beginning in 2001 and the series becomes the "Official Entry Level
Professional Race Series of CART." In addition, the Skip Barber Race
School, the world's biggest and best, is now the "Official Racing School
of CART."
THE CART ADVANTAGE
The drivers, cars, venues and fans provide us with a world class product
for audiences and sponsors.
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THE DRIVERS. The diversity of our drivers adds to our worldwide appeal.
In 2000, 25 of the 31 drivers who competed in at least one of our race events
were born outside of the United States. In total, these drivers represented 12
different countries. In 2000, the top 6 drivers in the CART Championship
represented 5 different countries.
THE CARS. The cars are developed by a variety of different chassis
manufacturers:
- Lola
- Reynard
These high-tech race cars are powered by state-of-the-art engines from:
- Ford
- Honda
- Ilmor
- Toyota
Beginning with the 2000 race season, all cars rode on tires provided by
Firestone.
THE VENUES. CART races are conducted on four different types of tracks:
- superspeedways
- ovals
- temporary street courses
- permanent road courses
The variety of tracks require different set-ups for chassis, engines and tires,
requiring drivers and teams to adapt to the various courses.
THE FANS. The primary means for a fan to interface with the CART
Championship is through direct attendance at events or by television viewership.
Our spectators are demographically attractive to sponsors and advertisers. They
are generally young individuals with education and income levels above the U.S.
national average. This makes sponsorship of CART, our teams and events an
attractive advertising and promotional investment. Our television audience,
while closer to the national average for household income, encompasses an
above-average proportion of adult males. This is an attractive demographic for
advertisers since this age group tends to watch less television than the average
American.
CART HISTORY
CART-style, open-wheel racing stands as the longest continually scheduled
major motorsports championship in the world, dating back to the early 1900s. The
first American automobile race took place in 1895, and the American Automobile
Association ("AAA") began sanctioning major races in 1904. The AAA sanctioned
races through the 1955 season at which time USAC became the official sanctioning
body.
In the 1970s, race team owners became increasingly concerned about
escalating costs, lack of promotional activities and concentration solely on the
Indianapolis 500. As a result, in November 1978, a group of 18 of the 21 team
owners left USAC to form CART and the CART Championship. The group included team
owners who desired greater participation in the rule-making and administrative
processes concerning open-wheel racing in the United States. In its 1979
inaugural season, CART staged 13 races, and we crowned Rick Mears as our first
champion.
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Since Mears' victory in the inaugural season, CART has had many other
memorable champions including:
- Mario Andretti
- Michael Andretti
- Gil de Ferran
- Emerson Fittipaldi
- Nigel Mansell
- Juan Montoya
- Bobby Rahal
- Johnny Rutherford
- Danny Sullivan
- Al Unser, Jr.
- Al Unser, Sr.
- Jimmy Vasser
- Jacques Villeneuve
- Alex Zanardi
Competitive, close racing is the hallmark of CART. In 2000, we had a
series-record 11 different winners, one more than the mark established just one
year earlier, and 16 different drivers finishes on the podium. Four drivers
collected their first Champ Car victories - Max Papis, Helio Castroneves,
Roberto Moreno and Christiano da Matta. The 2000 championship was one of the
most intense in CART history, as five different drivers entered the last race of
our 20 race schedule with a chance to win the championship, which ultimately
went to Gil de Ferran of Marlboro Team Penske. It was the eighth CART
championship for the Penske team, a series record.
Due to changes to equipment specifications, CART teams have generally not
competed in the Indianapolis 500 since 1995. In 2000, two CART Drivers
participated in the Indianapolis 500, Juan Montoya and Jimmy Vasser. Juan
Montoya won the 2000 Indianapolis 500, with teammate Jimmy Vasser finishing
seventh in the race. In 2001, we have elected not to schedule a race during the
weekend the Indianapolis 500 is run. We cannot predict the number of our race
teams that will participate in the Indianapolis 500 this year. We continue to
evaluate opportunities for an accommodation with the Indianapolis Motor
Speedway, but we can not assure you that a resolution will be reached or of the
timing of any such resolution. We are unable to predict what effect, if any, the
continued non-participation by CART teams at the Indianapolis 500 will have on
our future results.
Since 1995, we have added races in the United States in:
- Dallas/Fort Worth, Texas (in 2001)
- Fontana, California
- Houston, Texas
- Cicero, Illinois
Internationally, we added a race in Rio de Janeiro, Brazil in 1996, Motegi,
Japan in 1998, and Monterrey, Mexico; Lausitz, Germany; and Corby, England in
2001.
FRANCHISE SYSTEM AND RACE TEAMS
We have operated CART as a "franchise system" since 1984. We offered
franchises for each competing car, with owners limited to a maximum of two
franchise memberships. The number of franchises we have awarded has varied, but
we have never awarded more than 25
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franchises. To become a CART franchise member, a race team must have competed in
all CART events for the prior race year.
The participation of race teams is critical to our ongoing success. Our
franchise system is the only race governing system to offer teams direct input
into race scheduling, rules and other racing activities. We believe that the
franchise system is a significant factor in encouraging entities who are
interested in auto racing to participate in our sanctioned events.
Currently, the 24 franchise teams are permitted to designate a member to
the Franchise Board. The Franchise Board manages and oversees all racing-related
activities and makes all decisions with respect to specifications for engines
and chassis, race participation, rules and related matters.
INDY LIGHTS CHAMPIONSHIP
In 1998, we acquired 100% of the outstanding common stock of ARS and
certain other assets. ARS operates the Indy Lights Championship series and
supplies certain equipment to the participants.
CART racing team owner and founding member, U.E. "Pat" Patrick, formed
the Indy Lights Championship in 1986 as a series in which team owners could
discover and develop the next generation of CART talent. Mr. Patrick designed
Indy Lights to emphasize driver and team talent, while reducing any advantage
gained through large monetary expenditures for equipment and technology. By
restricting competition to a single chassis design, powered by identical, sealed
engines and running a single brand of tires, Indy Lights offers a series in
which costs can be carefully controlled, creating a level playing field for
drivers, team managers and engineers.
We have designated the Indy Lights Championship the "Official Development
Series of the CART Championship," and we sanction its race events. During the
2000 season, both current Indy Lights drivers and series graduates in the CART
Championship set records in each series. Six different drivers won Indy Lights
races and the championship battle was the closest in history with Townsend Bell,
Casey Mears and eventual winner Scott Dixon involved in a three-way points
battle going to the final race. In the 2000 CART Championship, Indy Lights
graduates won a record 9 of 20 races. Indy Lights graduates have now won forty
CART Championship races since 1993. Some graduates from the Indy Lights
Championship who have competed in the CART Championship include drivers:
- Helio Castroneves
- Cristiano da Matta
- Adrian Fernandez
- Bryan Herta
- Greg Moore
- Tony Kanaan
- Paul Tracy
- Andrea Ribeiro
- Oriol Servia
In 2000, two CART team owners, Bruce McCaw (PacWest Racing) and Barry Green
(Team KOOL Green), also had teams competing in the Indy Lights Championship.
Similar to the CART Championship, we stage the Indy Lights Championship
races on four different types of tracks. At certain venues, we receive a
sanction fee from the promoter for staging the Indy Lights event. We believe
that the Indy Lights Championship can create significant revenue growth for us
through:
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- packaged sponsorships with our other race series
- extending our efforts to integrate category sponsorship
- additional sanction fees for "stand alone" Indy Lights events,
both in the United States and overseas
In 2001, the Indy Lights Championship will include three races in
conjunction with IRL events at Kansas Speedway, Kansas City, Kansas; Gateway
International Speedway in Madison, Illinois; and Chicagoland Speedway in Juliet,
Illinois.
ATLANTIC CHAMPIONSHIP
In 1998, we acquired 100% of the outstanding common stock of Pro-Motion
Agency. Pro-Motion Agency operates the Atlantic Championship open-wheel series.
Atlantic's international flavor is rooted in 28 years of drivers from the
United States, Canada, Great Britain, Australia, New Zealand, Asia, Japan,
Argentina, Brazil and South Africa.
The Atlantic Championship officially began in 1974. The series has a rich
28-year history of providing one of the most recognized stepping stones to a
career in international motorsports competition. Notable racers such as Bobby
Rahal and Danny Sullivan were the stars in the late 1970's, followed by:
- Jaques Villeneuve
- Jimmy Vasser
- Michael Andretti
- Richie Hearn
- Patrick Carpentier
- Alex Barron
- Memo Gidley
- Alex Tagliani
In 1989, Toyota Motor Sales, USA joined the series as title sponsor,
creating the Toyota Atlantic Championship. With the introduction of the
race-tuned Toyota 4A-GE engine, Toyota along with their partner, TRD, USA, Inc.
set the standard for Atlantic competition worldwide. The Yokohama Tire
Corporation also joined the series in 1989 as an associate sponsor and tire
supplier to the series.
The growth of the series over the past decade and the successes of
Atlantic alumni in professional motorsports have elevated the Atlantic
Championship to the highest levels of prestige and stature within the
motorsports industry. This will only continue as on January 17, 2001, Toyota
Motor Sales USA, Inc. announced that it had extended its contract with the
Atlantic Championship for three more years carrying its support through the 2003
season. In addition, the Yokohama Tire Corporation has also extended its
sponsorship for the same period of time.
As with the Indy Lights series, at certain venues, the series receives a
sanction fee from the promoter for staging an Atlantic event. Other revenue
growth can be created through packaged sponsorships with our race series,
additional Atlantic series specific sponsorships and sanction fees.
Throughout the 2001 twelve-race season, the Atlantic drivers will contest
on a variety of courses in the United States and Canada, including 10 races with
the CART FedEx Championship, one stand alone event at the historic Grand Prix
Trois-Rivieres in Quebec, plus appearing as a support race for the F1 Canadian
Grand Prix in Montreal. As with all CART series, drivers must
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master racing on ovals, temporary street circuits, and permanent road courses.
All Atlantic races are sprint events, between 60-100 miles (100-161 km) long.
SKIP BARBER
In 2001, we entered into a multi-year agreement with Skip Barber Racing
School, Inc. ("Barber"). The purpose of the agreement is to promote racing from
the grassroots-level up and to provide several rungs to CART's ladder system,
all the way from karting through to professional racing. Together, we are
co-branding a series of scholarships totaling over one million dollars, designed
to assist talented drivers through the ranks, and we are working together to
promote drivers' careers through the professional series.
Barber organizes several amateur-level racing series, including the
Formula Dodge National Championship presented by RACER; the Skip Barber Race
Series, consisting of 4 regional racing series; and the Skip Barber Racing
School, which provides competitions in Formula Dodge cars. Barber also runs the
world renowned Skip Barber Driving School, which operates from several centers
around the United States. Each of these organizations will now become "official"
race series and schools of the CART Championship, and provide a clear path for
drivers from their first experiences in racing to the FedEx Championship Series.
Barber also organizes the Barber Dodge Pro Series, which becomes the
"official entry-level professional racing series of the CART Championship". This
series has traditionally provided drivers to the Toyota Atlantic Series and the
Dayton Indy Lights Series, and we now sanction their race events. The Barber
Dodge Pro Series races a 12-race season around the United States, including many
of our CART Championship venues.
We do not own an equity stake in Barber, and the agreement does not have
a material effect on our financial position.
SANCTION FEES
For each race in the CART Championship, we enter into a multi-year
sanction agreement with the promoter, which provides the payment of a sanction
fee to CART. For the year ended December 31, 2000, promoters paid us sanction
fees of approximately $38.9 million, an average of $1.9 million per event,
representing approximately 52% of our revenues. For the year ended December 31,
1999, promoters paid us sanction fees of approximately $35.7 million, averaging
$1.8 million per event and representing approximately 52% of our total revenues.
International events typically have higher sanction fees than events in
North America. So, as we have expanded internationally, our average sanction fee
has increased. Additionally, as we grow our sport, the opportunity to grow our
sanction fees may rise both by increases in sanction fees to reflect increased
value and by the inclusion of new international and domestic race venues. We
also believe that the popularity of the CART Championship will provide
additional domestic and international race venues willing to pay sanction fees
higher than our current average sanction fee. However, when we determine our
race venues, we consider many factors such as the market, the history, promoter
stability, racing facilities and our race mix and do not solely determine our
race venues based upon sanction fees.
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RACING EVENTS
When staging a CART event, we provide all aspects of race management
necessary to "manufacture" the race event, including the required expertise and
personnel. We provide these race management services to track promoters in
exchange for the sanction fee.
As competition, support and interest in the CART Championship have
increased, we have increased the number of events we stage each race season. The
1979 CART Championship was comprised of 13 race events. In 2000, we managed 20
races - 15 in the United States, two in Canada and one each in Australia, Brazil
and Japan. These races included:
- two superspeedway races
- seven oval races
- seven temporary road course races
- four permanent road course races
In 2000, the Indy Lights Championship was comprised of 12 races. In 2001,
the Indy Lights Championship will include 12 races, nine held in conjunction
with CART events and three held in conjunction with the IRL.
In 2000, the Atlantic Championship was comprised of 12 races. In 2001,
the Atlantic Championship will consist of 12 races, with one "stand alone" event
and one race in conjunction with a Formula One race.
In the following table, we have provided the locations and venues for the
2001 CART Championship, Indy Lights Championship and Atlantic Championship, as
well as the event dates for the 2001 seasons and a description of the racing
circuit:
CART INDY
EVENT DATES LIGHTS ATLANTIC
LOCATION 2001 RACE RACE TRACK DESCRIPTION
-------- ---- ---- ---- -----------------
Monterrey, Mexico 3/11 Yes No 2.1 mile temporary road course
Fundidora Park
Long Beach, California 4/8 Yes Yes 1.9 mile road course
Long Beach
Fort Worth, Texas 4/29 Yes No 1.5 mile oval
Texas Motor Speedway
Nazareth, Pennsylvania 5/6 No Yes 0.9 mile oval
Nazareth Speedway
Motegi, Japan 5/19 No No 1.5 mile oval
Twin Ring Motegi
West Allis, Wisconsin 6/3 Yes Yes 1.0 mile oval
The Milwaukee Mile
Detroit, Michigan 6/17 No No 2.3 mile temporary road course
The Raceway on Belle Isle
Portland, Oregon 6/24 Yes No 1.9 mile permanent road course
Portland International Raceway
Cleveland, Ohio 7/1 No Yes 2.1 mile temporary road course
Burke Lakefront Airport
Toronto, Ontario, Canada 7/15 Yes Yes 1.7 mile temporary road course
Canadian National Exhibition Place
Brooklyn, Michigan 7/22 No No 2.0 mile oval
Michigan Speedway
Cicero, Illinois 7/29 No Yes 1.0 mile oval
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Chicago Motor Speedway
Lexington, Ohio 8/12 Yes No 2.2 mile permanent road course
Mid-Ohio Sports Car Course
Elkhart Lake, Wisconsin 8/19 No Yes 4.0 mile permanent road course
Road America
Vancouver, British Columbia, Canada 9/2 No Yes 1.7 mile temporary road course
Concord Pacific Place
Lausitz, Germany 9/15 No No 2.0 mile oval
EuroSpeedway
Corby, England 9/22 No No 1.5 mile oval
Rockingham Motor Speedway
Houston, Texas 10/7 No Yes 1.5 mile temporary road course
Houston
Monterey, California 10/14 Yes Yes 2.2 mile permanent road course
Laguna Seca Raceway
Gold Coast, Queensland, Australia 10/28 No No 2.8 mile temporary road course
Surfers Paradise, Queensland
Fontana, California 11/4 Yes No 2.0 mile oval
California Speedway
Montreal, Canada (6/9) -- No Yes 2.8 mile temporary road course
Circuit Gilles-Villeneuve
Trois Rivieres, Canada (8/5) -- No Yes 1.5 mile temporary road course
Grand Prix Player's de Trois Rivieres
Kansas City, Kansas(7/8) -- Yes No 1.5 mile oval
Kansas Speedway
Madison, Illinois (8/26) -- Yes No 1.2 mile oval
Gateway International Speedway
Joliet, Illinois (9/2) -- Yes No 1.5 mile oval
Chicagoland Speedway
DRIVERS
During the 2000 season, 31 drivers competed in at least one of the CART
race events, including past champions:
- Michael Andretti
- Juan Montoya
- Jimmy Vasser
In the following table, we have provided information regarding each of the
drivers who are expected to participate in the 2001 CART Championship:
DRIVER BIRTH PLACE 2001 RACE TEAM
------ ----------- --------------
MICHAEL ANDRETTI* Bethlehem, Pennsylvania Team Motorola
Kenny Brack Arvika, Sweden Miller Team Rahal
Patrick Carpentier Ville Lasalle, Quebec, Canada Player's Forsythe Racing
Helio Castroneves Sao Paulo, Brazil Marlboro Team Penske
Cristiano da Matta Bela Horizonte, Brazil Newman/Haas Racing
GIL DE FERRAN* Paris, France Marlboro Team Penske
Scott Dixon Brisbane, Australia PacWest Racing Group
Adrian Fernandez Mexico City, Mexico Fernandez Racing
Christian Fittipaldi Sao Paulo, Brazil Newman/Haas Racing
Dario Franchitti Edinburgh, Scotland Team KOOL Green
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Luiz Garcia, Jr. Brasilia, Brazil Dale Coyne Racing
Mauricio Gugelmin Joinville, Brazil PacWest Racing Group
Bryan Herta Warren, Michigan Zakspeed/Forsythe Racing
Michel Jourdain, Jr. Mexico City, Mexico Herdez/Bettenhausen Motorsports
Bruno Junqueira Belo Horizonte, Brazil Target Chip Ganassi Racing
Tony Kanaan Salvador, Bahia, Brazil Mo Nunn Racing
Michael Krumm Reutlingen, Germany Dale Coyne Racing
Nicolas Minassian Marseille, France Target Chip Ganassi Racing
Roberto Moreno Rio de Janeiro, Brazil Patrick Racing
Shinji Nakano Toyko, Japan Fernandez Racing
Max Papis Como, Italy Miller Team Rahal
Oriol Servia Pals, Spain Sigma Autosport
Alexandre Tagliani Lachenaie, Quebec, Canada Player's Forsythe Racing
Toranasuke Takagi Shizuka, Japan Walker Racing
Paul Tracy Scarborough, Ontario, Canada Team KOOL Green
JIMMY VASSER* Canoga Park, California Patrick Racing
Max Wilson Hamburg, Germany Arciero/Brooke Racing
ALEX ZANARDI* Bologna, Italy MoNunn Racing
* Indicates past champion of the CART Championship.
CORPORATE SPONSORS
We receive sponsorship revenues pursuant to sponsorship contracts. In
exchange for sponsorship revenues, we provide our sponsors the opportunity to
receive brand and product exposure. For the year ended December 31, 2000, we
received sponsorship revenues of approximately $21.1 million, representing
approximately 28% of our total revenues. For the year ended December 31, 1999,
we received sponsorship revenues of approximately $19.2 million, representing
approximately 28% of our total revenues.
We believe that as we expand the audience for our events, we will see a
corresponding increase in sponsorship opportunities and sponsorship revenues. In
addition, we have taken a different approach to selling sponsorship from other
motorsports organizations by integrating the rights of the sanctioning body and
the race tracks. This approach provides series-wide exclusivity and a
centralized sponsorship program which increases the value and appeal of the
sponsorship opportunity. MCI was the first such integrated sponsor, becoming the
Official Communications Company in 1997. Federal Express also became an
integrated sponsor as our official co-series sponsor in 1998.
Beginning with the 1998 race season, Federal Express became the co-series
sponsor of the CART Championship, which has been officially designated the
"FedEx Championship Series." Under our agreement, Federal Express acquired a
comprehensive range of marketing benefits, as well as opportunities to supply
services to CART, our teams and our race promoters. A significant feature of
this sponsorship arrangement is the combination of the marketing rights of both
CART and our race promoters to provide an exclusive sponsorship involvement
through the entire CART Championship.
In 1998, we entered into a nine-year agreement with ISL Worldwide
("ISL"). Under the agreement, we appointed ISL as our exclusive worldwide
marketing agent for the sale of all sponsorship. As of February 2001, ISL is no
longer our marketing agent. We are now handling our sponsorship program
in-house.
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We have listed below some of our most significant sponsors for the 2001
CART Championship:
YEARS AS
SPONSOR OFFICIAL DESIGNATION SPONSOR
------- -------------------- --------
Federal Express Official Series Sponsor 3
Worldcom Official Communications Company 4
Craftsman Tools Official Hand Tools 6
Featherlite Trailers and
Vantare Coach Official Trailer and Coach 6
Ford SVO Technology Official Safety Technology Provider 4
Holmatro Official Rescue Tool 9
Honda Motorcycles Official Motorcycle 5
Honda Power Equipment Official Power Equipment 5
K&K Insurance Official Insurance Provider 7
Motorola Official Communications Hardware 2
PPG Industries Official Automotive Paint and Refinishing
Supplier 21
Racing Radios Official Two-Way Radio 11
Simple Green Official Cleaner and Degreaser/Primary Sponsor of
CART Safety Team 1
Toyota Trucks Official Truck 5
In addition to the sponsors listed above, we have entered into various
sponsorship agreements with other companies, which supply us with products and
services. Official sponsors of the CART Championship pay money and provide
products and services to us in return for being designated as an official
sponsor. The payment obligations, as well as the amount of advertising exposure
and other benefits, vary significantly among sponsors based on the negotiated
terms of each sponsorship agreement. No sponsorship agreement provided more than
10% of our revenues during 2000, 1999 or 1998.
ATTENDANCE, VIEWERSHIP AND BROADCAST RIGHTS
ATTENDANCE. CART spectator attendance has grown dramatically in the
1990's, with more than a 50% increase from 1990 to 1998, based upon figures
compiled by Goodyear Tire & Rubber Co. Race Reports. However, at the end of the
1998 season, Goodyear ceased compiling attendance figures. The only other known
third-party source for this data is Joyce Julius and Associates who publishes
Sponsors Report. According to this report, a total of 2.6 million spectators
attended our races in 2000, an increase of 3.8% over their reported 1999
cumulative attendance figure of 2.5 million.
VIEWERSHIP. In addition to the spectators at our race events, millions of
people around the world watch CART racing on television. According to the
Nielsen Season Summary for 2000, an aggregate of 21.9 million gross United
States viewers were delivered for the CART races. Total viewership for all
races, re-airs and support programming in 2000 was 36.3 million viewers. Our
races are televised in 208 countries and territories through terrestrial and
satellite broadcasts. Based upon the latest independent study conducted by
Sponsorship Research International, the 1998 CART Championship had a cumulative
worldwide viewership of 987 million.
BROADCAST RIGHTS. In 1994, we entered into a long-term agreement with
ESPN, which was amended in 1996 to extend through 2001. Under the agreement,
ESPN provides broadcast coverage of each CART Championship race. In 2000, eight
races were broadcast on network television. Our agreement with ESPN states that
we receive 50% of the net profits received by ESPN for distribution of the race
programs, with an escalating minimum guarantee provision.
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We retained the television rights for Brazil, Canada and Australia and
entered into exclusive agreements with:
- Fittipaldi U.S.A., Inc. to provide television broadcasts in Brazil
of our race events through the 2006 race season
- Molstar for the distribution of television broadcasts in Canada
through the 2001 race season
- Gold Coast Motor Events for the distribution of television
broadcasts in Australia through the 2000 race season
None of these three agreements represent a material amount of revenue for us.
We are currently in discussions regarding our domestic and international
television rights for 2002 and beyond; however we cannot assure you that a new
agreement will be reached.
COMPETITION
Our racing events compete not only with other sports and recreational
events scheduled on the same dates, but also with racing events sanctioned by
various other racing bodies such as the:
- FIA
- NASCAR
- IRL
- USAC
- NHRA
- SCCA
- PSCR
- ARCA
Racing events sanctioned by other organizations are often held on the same dates
as CART events, at separate tracks, and compete for corporate sponsorship,
attendance as well as television viewership. In addition, we compete with other
racing bodies to sanction racing events at various motorsports facilities. We
believe that our events are distinguished from the racing events staged by other
racing bodies by:
- the quality of the competition
- caliber of the events
- drivers and team owners participating in CART
- speed of the cars
We receive numerous requests to sanction racing events at venues throughout the
world. However, we can not assure you that we will maintain or improve our
position in light of such competition.
EMPLOYEES
As of December 31, 2000, we had 83 full-time business associates and a
roster of approximately 203 people who serve as race officials. We also had
numerous volunteers that worked at one or more CART events. None of our business
associates are represented by a labor union. We believe that we enjoy a good
relationship with our business associates.
PATENTS AND TRADEMARKS
We have various registered and common law trademark rights to "CART" and
related logos. We have licenses from various drivers, teams, tracks and industry
sponsors to use names
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and logos for merchandising programs and product sales. Our policy is to
vigorously protect our intellectual property rights to maintain our proprietary
value in merchandise and promotional sales.
ITEM 2: PROPERTIES
We lease our buildings in Troy, Michigan and Highland Park, Illinois. We
do not own any real property. Our leases are through the following dates:
- Michigan, January 31, 2002
- Michigan, May 31, 2002
- Illinois, May 31, 2001
Our lease payments have no material effect on our consolidated financial
statements. We believe the leased space is adequate for our present needs.
ITEM 3: LEGAL PROCEEDINGS
On September 8, 2000, a complaint for damages was filed against the
Company in the Superior Court of the State of California, County of Monterey,
under the caption RUBEN JORGE RODRIGUEZ SALIDIAS, LEGAL HEIR TO GONZOLO
RODRIGUEZ; LILLIAN BONGOL - RODRIQUEZ, LEGAL HEIR TO GONZOLO RODRIGUEZ,
PLAINTIFF(S), VS. SPORTS CAR RACING ASSOCIATION OF MONTEREY PENINSULA (SCRAMP);
CHAMPIONSHIP AUTO RACING TEAM [SIC] (CART); ET AL., DEFENDANT(S), Case No. M
50527. This lawsuit was filed by the heirs of Gonzolo Rodriguez, a race car
driver that died on September 11, 1999 while driving his race car at the Laguna
Seca Raceway in a practice session for the CART race event. The suit seeks
damages in an unspecified amount for negligence and wrongful death.
On October 30, 2000, a complaint for damages was filed against the
Company in the Superior Court of the State of California, County of San
Bernardino, under the caption JEANNIE L. REEVES, AS SPECIAL ADMINISTRATOR OF THE
ESTATE OF GREGORY WILLIAM MOORE AND RICHARD OAUL MOORE, INDIVIDUALLY,
PLAINTIFFS, VS. INTERNATIONAL SPEEDWAY CORPORATION, INC., CHAMPIONSHIP AUTO
RACING TEAMS, INC., CALIFORNIA SPEEDWAY CORPORATION ALSO D.B.A. PENSKE
CALIFORNIA SPEEDWAY, PENSKE MOTORSPORTS, INC. ALSO D.B.A. PENSKE SPEEDWAYS,
FINK, ROBERTS & PETRIE, INC. AND DONNA MAE MOORE, ET AL., DEFENDANTS, Case No.
SCVSS 71858. This lawsuit was filed by the estate of Greg Moore, a race car
driver that died on October 31, 1999 while driving his race car at the
California Speedway during the CART race event. The suit seeks actual and
punitive damages from the Company in an unspecified amount for breach of duty,
wanton and reckless misconduct, breach of implied contract, battery, wrongful
death and negligent infliction of emotional distress.
We intend to vigorously defend ourselves in each of these lawsuits, and
we do not believe that we are liable for either of these incidents. We require
each promoter to indemnify us against any liability for personal injuries
sustained at such promoter's racing event. In addition, we require each promoter
to carry liability insurance, naming us as a named insured. We also maintain
liability insurance to cover racing incidents. Management does not believe that
the outcome of these lawsuits will have a material adverse affect on our
financial position or future results of operations.
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On February 28, 2001, we filed a lawsuit against ISL Marketing AG in the
Circuit Court for the County of Oakland, State of Michigan under the caption
CHAMPIONSHIP AUTO RACING TEAMS, INC. VS. ISL MARKETING AG, Case No. 01029906-CK.
The lawsuit alleges fraudulent inducement, breach of agreement and failure to
pay more than $6 million dollars due to our company.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Our common stock is authorized for trading on the New York Stock Exchange
under the trading symbol "MPH". As of March 20, 2001, we had 15,765,467 shares
of common stock outstanding and approximately 401 record holders of our common
stock.
In the following table we have provided the high and low closing sales
price for our common stock, as reported by the NYSE for each calendar quarter of
2000 and 1999.
QUARTER ENDED HIGH LOW
--------------------------------------------------------------------------------
2000
First Quarter $22.56 $18.25
Second Quarter 27.00 18.50
Third Quarter 28.00 22.56
Fourth Quarter 25.13 19.19
1999
First Quarter $29.38 $25.56
Second Quarter 35.19 27.44
Third Quarter 33.94 26.00
Fourth Quarter 25.75 19.25
--------------------------------------------------------------------------------
We have not declared or paid any dividends on our common stock to date,
and we do not intend to pay dividends in the foreseeable future.
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ITEM 6: SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data as of and for the five
years ended December 31, 2000 are derived from our audited consolidated
financial statements. The selected consolidated financial data below should be
read in combination with our consolidated financial statements and related notes
contained elsewhere in this document and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
YEAR ENDED DECEMBER 31,
-----------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS:
Revenues:
Sanction fees $38,902 $35,689 $30,444 $24,248 $21,078
U.S. 500(1) -- -- -- -- 7,054
Sponsorship revenue 21,063 19,150 16,388 7,221 5,501
Television revenue 5,501 5,018 5,148 5,604 4,373
Engine leases, rebuilds and
wheel sales 2,122 2,054 2,214 -- --
Other revenue 7,460 6,865 8,336 4,372 3,118
------- ------- ------- -------- -------
Total revenues 75,048 68,776 62,530 41,445 41,124
Expenses:
Race and franchise fund distributions(2) 15,370 15,334 15,183 28,939 17,198
U.S. 500(1) -- -- -- -- 8,246
Race expenses(2) 9,869 6,670 4,818 6,970 6,055
Costs of engine rebuilds and
wheel sales 652 610 633 -- --
Administrative and indirect
expenses(2) 22,517 20,646 20,658 14,295 8,570
Bad debt (4) 6,320 -- -- -- --
Compensation expense(3) -- -- -- 12,200 1,167
Severance expense (5) 2,758 -- -- -- --
Depreciation and amortization 1,352 1,048 779 549 685
Minority interest -- -- -- (232) --
------- ------- ------- -------- -------
Total expenses 58,838 44,308 42,071 62,721 41,921
------- ------- ------- -------- -------
Operating income (loss) 16,210 24,468 20,459 (21,276) (797)
Interest income (net) 7,463 5,255 3,198 329 280
------- ------- ------- -------- -------
Income (loss) before income taxes 23,673 29,723 23,657 (20,947) (517)
Income tax benefit (expense) (8,520) (10,865) (8,568) 3,423 179
------- ------- ------- -------- -------
Net income (loss) $15,153 $18,858 $15,089 $(17,524) $ (338)
======= ======= ======= ======== ========
Net income (loss) per share:
Basic $ .97 $ 1.22 $ 1.06 $ (1.72) $ (.04)
======= ======= ======= ======== ========
Diluted $ .97 $ 1.19 $ 1.05 $ (1.72) $ (.04)
======= ======= ======= ======== ========
Weighted average shares outstanding:
Basic 15,624 15,427 14,190 10,200 9,400
======= ======= ======= ======== ========
Diluted 15,657 15,908 14,421 10,200 9,400
======= ======= ======= ======== ========
BALANCE SHEET DATA:
Cash and cash equivalents $19,504 $7,216 $15,080 $1,164 $630
Short-term investments 98,206 91,758 61,610 -- --
Working capital (deficit) 119,953 99,480 72,219 (5,325) (524)
Total assets 144,101 124,887 97,186 12,348 6,600
Long-term debt (including
current portion) -- -- 314 444 574
Total stockholders' equity (deficit) 133,894 114,330 86,219 (3,045) (151)
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(1) In 1996, we staged and acted as promoter of the inaugural U.S. 500.
Revenues attributable to the U.S. 500 included sponsorship fees,
television, admissions, program sales and other revenues associated with
promoting the event. Expenses included, among others, the race purse,
track rental, promotional and advertising costs and other expenses
necessary to promote the event. We continue to sanction the event, but
since 1996 we have not acted as the promoter.
(2) Expenses for the years ended December 31, 1997 and 1996 include certain
payments to franchise race teams, including reimbursement of travel
expenses, director fees, purse awards and other race related payments.
(3) Total expenses for the years ended December 31, 1997 and 1996 include
compensation expense of $12,200,000 and $1,167,000 which relates to the
issuance of Common Stock to franchise members below its fair value on the
date the Common Stock became eligible for purchase. You should read
"Management's Discussion and Analysis of Financial Condition and Results
of Operations," for a discussion of this compensation expense.
(4) Bad debt expense relates to a charge associated with our sponsorship
agreement with ISL Marketing AG, which was payable in January 2001. You
should read "Management's Discussion and Analysis of Financial Condition
and Results of Operations," for a discussion of this bad debt expense.
(5) Severance expense relates to an agreement with our former CEO who
announced his resignation in June 2000.
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ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
As you read the following, you should also refer to the consolidated
financial statements and related notes as well as Item 6, "Selected Consolidated
Financial Data."
GENERAL
Below are selected income and expense items for the years ended December
31, 2000, 1999 and 1998. The percentage calculations are based on total
revenues.
YEAR ENDED DECEMBER 31,
-----------------------
2000 1999 1998
---- ---- ----
(DOLLARS IN THOUSANDS)
Revenues:
Sanction fees $ 38,902 51.8% $ 35,689 51.9% $ 30,444 48.7%
Sponsorship revenue 21,063 28.1 19,150 27.8 16,388 26.2
Television revenue 5,501 7.3 5,018 7.3 5,148 8.2
Engine leases, rebuilds and wheel sales 2,122 2.8 2,054 3.0 2,214 3.6
Other revenue 7,460 10.0 6,865 10.0 8,336 13.3
-------- ----- -------- ----- --------- ------
Total revenues $ 75,048 100.0% $ 68,776 100.0% $ 62,530 100.0%
======== ===== ======== ===== ======== =====
Expenses:
Race distributions $ 15,370 20.5% $ 15,334 22.3% $ 15,183 24.3%
Race expenses 9,869 13.1 6,670 9.7 4,818 7.7
Cost of engine rebuilds and wheel sales 652 0.9 610 0.9 633 1.0
Administrative and other
indirect expenses 22,517 30.0 20,646 30.0 20,658 33.0
Bad debt 6,320 8.4 -- -- -- --
Severance expense 2,758 3.7 -- -- -- --
Depreciation and amortization 1,352 1.8 1,048 1.5 779 1.3
-------- ----- -------- ----- --------- ------
Total expenses 58,838 78.4 44,308 64.4 42,071 67.3
-------- ----- -------- ----- --------- ------
Operating income 16,210 21.6 24,468 35.6 20,459 32.7
Interest income (net) 7,463 10.0 5,255 7.6 3,198 5.1
-------- ----- -------- ----- --------- ------
Income before income taxes 23,673 31.6 29,723 43.2 23,657 37.8
Income tax expense (8,520) (11.4) (10,865) (15.8) (8,568) (13.7)
-------- ----- -------- ----- --------- ------
Net income $ 15,153 20.2% $ 18,858 27.4% $ 15,089 24.1%
======== ===== ======== ===== ======== =====
REVENUES
Following is an explanation of our individual revenue items:
SANCTION FEES. We receive sanction fees from the promoters of each of the
races on the CART Championship schedule, as well as from selected races on the
Indy Lights and Atlantics schedule. The fees are based on contracts between the
promoters and CART. The contracts have terms which expire between 2002 and 2006.
Currently contracted sanction fees range from $1.0 million to $4.5 million per
event.
SPONSORSHIP REVENUE. We receive corporate sponsorship revenue based on
negotiated contracts. We currently have corporate sponsorship contracts with 22
major manufacturing and consumer products companies. The remaining terms of
these contracts range from one to three years. An official corporate sponsor
receives status and recognition rights, event rights and product category
exclusivity.
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TELEVISION REVENUE. Our television revenue is derived from negotiated
contracts with:
- ESPN
- ESPN International
- Fittipaldi USA (Brazil)
- Gold Coast Motor Events Co. (Australia)
- Molstar (Canada)
A guaranteed rights fee is paid to us by each broadcast partner. Based on our
contract with ESPN/ESPN International, we receive 50% of the net profits
received by ESPN for distribution of the race programs, with an escalating
minimum guarantee provision. A provision of the ESPN contract requires that at
least 50% of the CART Championship events be broadcast on a major broadcasting
network in the United States. In 2000, 1999 and 1998, all CART Championship
races were broadcast on either ABC or ESPN. In addition, CART Championship races
are re-aired on ESPN and ESPN2. ESPN2 also broadcasts CART Championship
qualifying sessions and pre-race shows. In addition, we have received
advertising revenue from "Inside CART," our race magazine television show, and
from video footage sales.
We are currently in discussions regarding our domestic and international
television rights for 2002 and beyond; however we cannot assure you that a new
agreement will be reached.
ENGINE LEASES, REBUILDS AND WHEEL SALES. ARS, which operates the Indy
Lights Series, owns the engines that are used in the series and leases the
engines to the competitors for the season. The teams pay us a fee to rebuild the
engines. We also sell the wheels used on the race cars. Based on the rules of
the series, all teams are required to use our engines and wheels.
OTHER REVENUE. Other revenue includes membership and entry fees,
contingency awards money, royalties, commissions and other miscellaneous revenue
items. Membership and entry fees are payable on an annual basis by CART, Indy
Lights and Atlantics Championship competitors. In addition, we charge fees to
competitors for credentials for all team participants and driver license fees
for all drivers competing in the series. We receive royalty revenue for the use
of the CART servicemarks and trademarks on licensed merchandise that is sold
both at tracks and at off-track sites. We receive commission income from the
sale of chassis and parts to our support series teams.
EXPENSES
Following is an explanation of the expense line items.
RACE DISTRIBUTIONS. We pay the racing teams for their on-track
performance. Race distributions include the following for each event:
- event purse which is paid based on finishing position
- contingency award payments
- year-end point fund
We pay awards to the teams, based on their cumulative performance for the
season, out of the year-end point fund.
RACE EXPENSES. We are responsible for officiating and administering all
of our events. Costs primarily include officiating fees, travel, per diem and
lodging expenses for the following officiating groups:
- medical services
- race administration
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- race officiating and rules compliance
- registration
- safety
- technical inspection
- timing and scoring
Overseas event organizers are responsible for costs related to cargo, air
passenger travel and lodging for our staff and race participants.
COST OF ENGINE REBUILDS AND WHEEL SALES. These costs are associated with
rebuilding the engines and the cost of the wheels used in the Indy Lights
series.
ADMINISTRATIVE AND INDIRECT EXPENSES. All operating costs not directly
incurred for a specific event, primarily wages, Board of Directors fees and
other administrative expenses, are recorded as administrative and indirect
expenses.
RESULTS OF OPERATIONS
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
REVENUES. Total revenues for 2000 were $75.0 million, an increase of $6.3
million, or 9%, from 1999. This was due to increased sanction fees, sponsorship
revenue, television revenue, engine leases, rebuilds and wheel sales and other
revenue as described below.
Sanction fees for 2000 were $38.9 million, an increase of $3.2 million,
or 9%, from 1999. This increase was due to annual sanction fee escalations.
Sponsorship revenue for 2000 was $21.1 million, an increase of $1.9
million, or 10%, from 1999. This increase was primarily attributable to an
annual escalation of our agreement with ISL Worldwide that guaranteed certain
sponsorship income in 2000. Refer to bad debt explanation for an expense related
to this revenue.
Television revenue for 2000 was $5.5 million, an increase of $483,000, or
10%, from 1999. This increase was due primarily to advertising revenue from our
TV Magazine show "Inside CART", and from increased guarantees from our ESPN and
Brazil contracts.
Engine leases, rebuilds and wheel sales for 2000 was $2.1 million, an
increase of $68,000, or 3%, from 1999. This increase was due to having more
engine rebuilds and wheel sales compared to the same period in the prior year.
Other revenue for 2000 was $7.5 million, an increase of $595,000, or 9%,
from 1999. This increase was partially attributable to a $1.4 million (net of
expenses) settlement with Frontier Insurance Company, related to litigation
concerning the performance bond issued for the Hawaiian Super Prix, partially
offset by a decrease in royalty revenue and membership fees.
EXPENSES. Total expenses for 2000 were $58.8 million, an increase of
$14.5 million, or 33%, from 1999. This increase was due to higher race payments,
race expenses, cost of engine rebuilds and wheel sales, administrative and
indirect expenses, bad debt expense, compensation expense and depreciation and
amortization as described below.
Race distributions for 2000 were $15.4 million, an increase of $36,000,
which was comparable to the prior year.
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Race expenses for 2000 were $9.9 million, an increase of $3.2 million, or
48%, from 1999. This increase is partially due to the addition of two new
departments, Timing and Scoring and Pace Car, and new programs and personnel in
the Electronics, Logistics and Safety departments.
Cost of engine rebuilds and wheel sales were $652,000, an increase of
$42,000, or 7%, from 1999. The increase was due to having more engine rebuilds
and part sales in 2000 when compared to 1999.
Administrative and indirect expenses for 2000 were $22.5 million, an
increase of $1.9 million, or 9% from 1999. The increase was primarily
attributable to an increased investment in Public Relations and Marketing and
Advertising expenditures. In 2000, the marketing initiatives focused on all CART
markets throughout the year; during 1999, the marketing initiatives focused on
specific race events.
Bad debt for 2000 was $6.3 million. The expense resulted from the
uncertainty of collectability of guaranteed minimum sponsorship revenues from
ISL Marketing AG (ISL) for 2000, which was payable in January 2001. In 1998, ISL
signed a nine (9) year contract to become our exclusive marketing agent for
solicitation of sponsorship agreements. The contract guaranteed a minimum amount
of sponsorship revenue for each year of the agreement. Following discussions
with ISL, we determined that ISL does not intend to fulfill its commitment with
respect to the remaining years of the agreement under its original terms and
collectability of the guarantee for 2000 is uncertain. There was no related
expense in 1999.
Severance expense for 2000 was $2.8 million. This non-recurring expense
relates to payments made under a severance agreement with the former
President/CEO who resigned June 17, 2000.
Depreciation and amortization for 2000 was $1.4 million, compared to
depreciation and amortization of $1.0 million for 1999.
OPERATING INCOME. Operating income for 2000 was $16.2 million, compared
to operating income of $24.5 million for 1999.
INTEREST INCOME (NET). Interest income (net) for 2000 was $7.5 million,
compared to interest income (net) of $5.3 million for 1999. The increase of $2.2
million was primarily attributable to interest earned on higher invested
balances, the secondary offering in May 1999 and proceeds from additional
operating income.
INCOME BEFORE INCOME TAXES. Income before income taxes for 2000 was $23.7
million, compared to income before income taxes of $29.7 million for 1999.
INCOME TAX EXPENSE. Income tax expense for 2000 was $8.5 million, a
decrease of $2.3 million when compared to 1999. The effective tax rate for 2000
was comparable to that in 1999.
NET INCOME. Net income for 2000 was $15.2 million, compared to net income
of $18.9 million in 1999.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
REVENUES. Total revenues for 1999 were $68.8 million, an increase of $6.2
million, or 10%, from 1998. This was due to increased sanction fees and
sponsorship fees, partially offset by a reduction in television revenue, engine
leases, rebuilds and wheel sales and other revenue as described below.
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Sanction fees for 1999 were $35.7 million, an increase of $5.2 million,
or 17%, from 1998. This increase was attributable to the addition of a new event
in Cicero, Illinois, as well as annual sanction fee escalations for certain
other events.
Sponsorship revenue for 1999 was $19.2 million, an increase of $2.8
million, or 17%, from 1998. This increase was primarily attributable to an
annual escalation of our agreement with ISL Worldwide that guaranteed certain
sponsorship income in 1999. New sponsors in 1999 included Motorola, Parke-Davis,
Automobile Magazine, Sears Mechanical and Computer Associates.
Television revenue for 1999 was $5.0 million, a decrease of $130,000, or
3%, from 1998. This decrease was due primarily to slightly lower revenues on the
profit sharing portion of our contract with ESPN.
Engine leases, rebuilds and wheel sales for 1999 was $2.1 million, a
decrease of $160,000, or 7%, from 1998. This decrease was due to having fewer
Indy Lights entries in 1999, due to increased competition with other race series
both domestically and internationally. This decrease was also attributed to two
fewer Indy Lights races in 1999 compared to 1998.
Other revenue for 1999 was $6.9 million, a decrease of $1.5 million, or
18%, from 1998. This decrease was partially attributable to a decrease in
membership and credential income, royalties and awards money. The decrease was
also attributed to a one time insurance settlement of $400,000 received in 1998.
EXPENSES. Total expenses for 1999 were $44.3 million, an increase of $2.2
million, or 5%, from 1998. This increase was due to higher race payments and
race expenses as described below.
Race payments for 1999 were $15.3 million, an increase of $151,000, or
1%, from 1998. This increase was due to one additional CART race and two fewer
races for Indy Lights and Atlantics when comparing 1999 to 1998.
Race expenses for 1999 were $6.7 million, an increase of $1.9 million, or
38%, from 1998. This increase is partially due to one additional CART race and
the addition of a new department, Race Operations. The increase was also due to
new programs and personnel in the Electronics, Logistics and Safety departments.
Cost of engine rebuilds and wheel sales were $610,000, a decrease of
$23,000, or 4%, from 1998. The decrease was due to having fewer Indy Lights
entries as noted above. This decrease was also attributed to two fewer Indy
Lights races in 1999 compared to 1998.
Administrative and indirect expenses for 1999 were $20.6 million, a
decrease of $12,000 from 1998.
Depreciation and amortization for 1999 was $1.0 million, compared to
depreciation and amortization of $779,000 for 1998.
OPERATING INCOME. Operating income for 1999 was $24.5 million, compared
to operating income of $20.5 million for 1998.
INTEREST INCOME (NET). Interest income (net) for 1999 was $5.3 million,
compared to interest income (net) of $3.2 million for 1998. The increase of $2.1
million was primarily attributable to interest earned on the invested proceeds
from the initial public offering, additional operating income and proceeds from
the secondary offering in May 1999.
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INCOME BEFORE INCOME TAXES. Income before income taxes for 1999 was $29.7
million, compared to income before taxes of $23.7 million for 1998.
INCOME TAX EXPENSE. Income tax expense for 1999 was $10.9 million,
compared to income tax expense of $8.6 million for 1998. The effective tax rate
for 1999 was comparable to that in 1998.
NET INCOME. Net income for 1999 was $18.9 million, compared to net income
of $15.1 million in 1998.
SEASONALITY AND QUARTERLY RESULTS
A substantial portion of our total revenues during the race season is
expected to remain seasonal, based on our race schedule. Our quarterly results
vary based on the number of races held during the quarter. In addition, the mix
between the type of race (street course, superspeedway, etc.) and the sanction
fees attributed to those races will affect quarterly results. Consequently,
changes in race schedules from year to year, with races held in different
quarters, will result in fluctuations in our quarterly results and affect
comparability. We have provided unaudited quarterly financial data for each of
the four quarters of 1999 and 2000 in the following table. The information for
each of these quarters is prepared on the same basis as our consolidated
financial statements and related notes included elsewhere in this document and
include, in the opinion of management, all adjustments (consisting of normal
recurring adjustments) necessary to fairly present the data for such periods.
You should read this table with "Selected Consolidated Financial Data", and the
consolidated financial statements and the related notes included elsewhere in
this document.
QUARTER ENDED
-------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- ------- --------- -------
(DOLLARS IN THOUSANDS)
Total revenues
2000 $7,848 $24,902 $27,756 $14,542
1999 $7,349 $25,473 $24,915 $11,039
Income (loss) before taxes
2000 $3,145 $ 9,512 $12,199 $(1,183)*
1999 $2,551 $11,708 $10,501 $ 4,963
Number of races
2001 1 7 9 4
2000 1 7 9 3
1999 1 8 9 2
*We recorded a bad debt expense of $6.3 million related to a charge associated
with our sponsorship agreement with ISL.
LIQUIDITY AND CAPITAL RESOURCES
We have relied on the proceeds from our initial public offering, our
secondary offering and cash flow from operations, to finance working capital,
investments and capital expenditures during the past year.
Our bank borrowing with a commercial bank consists of a $1.5 million
revolving line of credit. As of December 31, 2000, there was no outstanding
balance under the line of credit. The
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line of credit contains no significant covenants or restrictions. Advances on
the line of credit are payable on demand and bear interest at the bank's prime
rate. The line is secured by our deposits with the bank.
Our cash balance on December 31, 2000 was $19.5 million, a net increase
if $12.3 million from December 31, 1999. The increase was primarily the result
of net cash provided by operating activities of $16.9 million and net financing
activities of $3.5 million which was partially offset by net cash used in
investing activities of $8.1 million.
We anticipate capital expenditures of approximately $2.5 million during
2001. We believe that existing cash, cash flow from operations and available
bank borrowings will be sufficient for capital expenditures and other cash
needs. In addition, we may incur additional expenditures to increase our
marketing budget, and expand our TV relationships or otherwise to increase the
visibility and appeal of our products.
Subsequent to year end, we canceled the 2001 race in Brazil due to
default of our agreement by the City of Rio de Janerio. The note receivable from
our Brazilian promoter was to be repaid in equal annual installments over the
life of the sanction agreement. Due to the uncertainty of future races in
Brazil, a letter of credit was received from the Brazilian promoter to secure
payment of the remaining balance of the note receivable by May 15, 2001.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued by the FASB. SFAS No. 133 establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. We have
determined that the impact on our consolidated financial statement disclosure is
immaterial. SFAS No. 133 is effective January 1, 2001.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
With the exception of historical information contained in this Form 10-K,
certain matters discussed are forward-looking statements. These forward-looking
statements involve risks that could cause the actual results and plans for the
future to differ from these forward-looking statements. The factors listed in
Item 1: Business - Risk Factors, and other factors not mentioned, could cause
the forward-looking statements to differ from actual results and plans:
- competition in the sports and entertainment industry
- participation by race teams
- continued industry sponsorship
- regulation of tobacco and alcohol advertising and sponsorship
- competition by the IRL
- liability for personal injuries
- negotiation of television contract
- renewal of sanction agreements
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ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
INTEREST RATE RISK. Our investment policy was designed to maximize safety
and liquidity while maximizing yield within those constraints. At December 31,
2000, our investments consisted of corporate bonds, U.S. Agency issues, and
repurchase agreements. The weighted average maturity of our portfolio is 263
days.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our consolidated financial statements and related notes are included in Item 14
of this document.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
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PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this Item will be contained in our definitive Proxy
Statement for our 2001 Annual Meeting of Stockholders to be filed on or before
April 30, 2001, and such information is incorporated herein by reference.
ITEM 11: EXECUTIVE COMPENSATION
Information required by this Item will be contained in our definitive Proxy
Statement for our 2001 Annual Meeting of Stockholders to be filed on or before
April 30, 2001, and such information is incorporated herein by reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information required by this Item will be contained in our definitive Proxy
Statement for our 2001 Annual Meeting of Stockholders to be filed on or before
April 30, 2001, and such information is incorporated herein by reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item will be contained in our definitive Proxy
Statement for our 2001 Annual Meeting of Stockholders to be filed on or before
April 30, 2001, and such information is incorporated herein by reference.
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PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) List of Documents Filed as Part of this Report:
(1) Consolidated Financial Statements start on page F-1
(2) Financial Statement Schedule
Schedule II Valuation and Qualifying Accounts is on page S-1
(3) Exhibits
3.1 Certificate of Incorporation of the Company filed December 8,
1997 (1)
3.2 Bylaws of the Company (1)
10.1 1997 Stock Option Plan (1) (Exhibit 10.1)
10.2 Director Stock Option Plan (1) (Exhibit 10.2)
10.5 Form of Promoter Agreement (1)
10.6 Promoter Agreement with Wisconsin State Park Speedway related
to West Allis, Wisconsin dated June 5, 1996 (1)
10.7 Promoter Agreement with Texaco Houston Grand Prix L.L.C.
related to Houston, Texas dated July 28, 1997 (1)
10.11 Form of Sponsorship Agreement (1)
10.15 Promoter Agreement with Ganassi Group, L.L.C. related to
Chicago, Illinois dated April 7, 1998 (2)
10.16A Marketing Representation Agreement with ISL Marketing AG dated
June 24, 1998 (6)
10.17 Final Agreements for ARS Stock Purchase and BP Asset Purchase
dated March 13, 1998 (3)
10.19 Promoter Agreement with Monterrey Grand Prix related to
Monterrey, Mexico dated March 30, 2000 (5)
10.20 Promoter Agreement with Rockingham Motor Speedway related to
Rockingham, England dated July 3, 2000
23.1 Consent of Deloitte & Touche LLP dated March 20, 2000 for Form
S-8 Registration Statement filed on March 23, 1999. (4)
(b) Reports on Form 8-K
A current report on Form 8-K was filed on October 6, 2000, reporting
the resignation of the Company's Chief Financial Officer.
(1) Incorporated by reference to exhibit filed as part of our Registration
Statement on Form S-1 (Registration No. 333-43141)
(2) Incorporated by reference to exhibit filed with our Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998.
(3) Incorporated by reference to exhibit filed with our Annual Report on
Form 10-K for the year ended December 31, 1998.
(4) Incorporated by reference to exhibit filed with our Annual Report on
Form 10-K for the year ended December 31, 1999.
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(5) Incorporated by reference to exhibit filed with our Quarterly Report on
Form 10-Q for the quarter ended June 30, 2000.
(6) Incorporated by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K/A-1, filed on March 13, 2001.
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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.
DATED: March 27, 2001 CHAMPIONSHIP AUTO RACING TEAMS, INC.
------------------------------------
Registrant
By: /s/ Joseph F. Heitzler
--------------------------------
Joseph F. Heitzler
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
/s/ Joseph F. Heitzler Chief Executive Officer March 27, 2001
----------------------------------------- and Director
Joseph F. Heitzler
/s/ Thomas L. Carter Chief Financial and March 27, 2001
----------------------------------------- Accounting Officer
Thomas L. Carter
/s/ Gerald Forsythe Director March 27, 2001
-----------------------------------------
Gerald Forsythe
/s/ Floyd R. Ganassi, Jr. Director March 27, 2001
-----------------------------------------
Floyd R. Ganassi, Jr.
/s/ Barry Green Director March 27, 2001
-----------------------------------------
Barry Green
/s/ Carl A. Haas Director March 27, 2001
-----------------------------------------
Carl A. Haas
/s/ James F. Hardymon Director March 27, 2001
-----------------------------------------
James F. Hardymon
/s/ James Henderson Director March 27, 2001
-----------------------------------------
James Henderson
/s/ U. E. Patrick Director March 27, 2001
-----------------------------------------
U. E. Patrick
/s/ Robert W. Rahal Director March 27, 2001
-----------------------------------------
Robert W. Rahal
/s/ Bert C. Roberts, Jr. Director March 27, 2001
-----------------------------------------
Bert C. Roberts, Jr.
40
41
/s/ Fred T. Tucker Director March 27, 2001
-----------------------------------------
Fred T. Tucker
/s/ Derrick Walker Director March 27, 2001
-----------------------------------------
Derrick Walker
41
42
CHAMPIONSHIP AUTO RACING TEAMS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
CHAMPIONSHIP AUTO RACING TEAMS, INC.
Independent Auditors' Report......................................... F-2
Consolidated Balance Sheets as of December 31, 2000 and 1999......... F-3
Consolidated Statements of Income for the Years
Ended December 31, 2000, 1999 and 1998............................ F-4
Consolidated Statements of Stockholders' Equity (Deficit) for
the Years Ended December 31, 2000, 1999 and 1998.................. F-5
Consolidated Statements of Cash Flows for the Years
Ended December 31, 2000, 1999 and 1998............................ F-6
Notes to Consolidated Financial Statements........................... F-7
F-1
43
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Championship Auto Racing Teams, Inc.:
We have audited the accompanying consolidated balance sheets of
Championship Auto Racing Teams, Inc. (the "Company") at December 31, 2000 and
1999, and the related consolidated statements of income, stockholders' equity
(deficit), and cash flows for each of the three years in the period ended
December 31, 2000. Our audits also included the financial statement schedule
listed in the Index at Item 14. These consolidated financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of the Company at
December 31, 2000 and 1999, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
/s/ Deloitte & Touche LLP
-------------------------
Detroit, Michigan
February 23, 2001
F-2
44
CHAMPIONSHIP AUTO RACING TEAMS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
DECEMBER 31,
------------
2000 1999
---- ----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 19,504 $ 7,216
Short-term investments 98,206 91,758
Accounts receivable (net of allowance for doubtful accounts
of $6,539 and $250 in 2000 and 1999, respectively) 5,578 8,780
Current portion of notes receivable 2,535 819
Inventory 151 311
Prepaid expenses 567 262
Deferred income taxes 2,485 114
--------- ---------
Total current assets 129,026 109,260
NOTES RECEIVABLE 147 2,485
PROPERTY AND EQUIPMENT- Net 7,327 5,228
GOODWILL (net of accumulated amortization of $493 and $299
in 2000 and 1999, respectively) 7,248 7,442
OTHER ASSETS (net of accumulated amortization
of $88 and $62 in 2000 and 1999, respectively) 353 472
--------- ---------
TOTAL ASSETS $ 144,101 $ 124,887
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,975 $ 2,131
Accrued liabilities:
Royalties 162 949
Payroll 1,571 660
Taxes 819 358
Other 1,316 801
Unearned revenue 2,452 4,881
Deposits 778 --
--------- ---------
Total current liabilities 9,073 9,780
DEFERRED INCOME TAXES 1,134 777
COMMITMENTS AND CONTINGENCIES (Note 10) -- --
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value; 5,000,000 shares
authorized, none issued and outstanding at
December 31, 2000 and 1999 -- --
Common stock, $.01 par value; 50,000,000 shares
authorized, 15,765,467 and 15,586,568 shares issued
and outstanding at December 31, 2000 and 1999, respectively 158 156
Additional paid-in capital 103,130 99,671
Retained earnings 29,978 14,825
Unrealized gain (loss) on investments 628 (322)
--------- ---------
Total stockholders' equity 133,894 114,330
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 144,101 $ 124,887
========= =========
See accompanying notes to consolidated financial statements.
F-3
45
CHAMPIONSHIP AUTO RACING TEAMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
YEAR ENDED DECEMBER 31,
-----------------------
2000 1999 1998
---- ---- ----
REVENUES:
Sanction fees $ 38,902 $ 35,689 $ 30,444
Sponsorship revenue 21,063 19,150 16,388
Television revenue 5,501 5,018 5,148
Engine leases, rebuilds and wheel sales 2,122 2,054 2,214
Other revenue 7,460 6,865 8,336
-------- -------- --------
Total revenues 75,048 68,776 62,530
EXPENSES:
Race distributions 15,370 15,334 15,183
Race expenses 9,869 6,670 4,818
Cost of engine rebuilds and wheel sales 652 610 633
Administrative and indirect expenses 22,517 20,646 20,658
Bad debt (Note 12) 6,320 -- --
Severance expense (Note 13) 2,758 -- --
Depreciation and amortization 1,352 1,048 779
-------- -------- --------
Total expenses 58,838 44,308 42,071
-------- -------- --------
OPERATING INCOME 16,210 24,468 20,459
Interest income (net) 7,463 5,255 3,198
-------- -------- --------
INCOME BEFORE INCOME TAXES 23,673 29,723 23,657
INCOME TAX EXPENSE (8,520) (10,865) (8,568)
-------- -------- --------
NET INCOME $ 15,153 $ 18,858 $ 15,089
======== ======== ========
EARNINGS PER SHARE:
BASIC $ .97 $ 1.22 $ 1.06
======== ======== ========
DILUTED $ .97 $ 1.19 $ 1.05
======== ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC 15,624 15,427 14,190
======== ======== ========
DILUTED 15,657 15,908 14,421
======== ======== ========
See accompanying notes to consolidated financial statements.
F-4
46
CHAMPIONSHIP AUTO RACING TEAMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
COMMON STOCK ADDITIONAL RETAINED UNREALIZED STOCKHOLDERS'
------------ PAID-IN EARNINGS GAIN (LOSS) ON EQUITY COMPREHENSIVE
SHARES AMOUNT CAPITAL (DEFICIT) INVESTMENTS (DEFICIT) INCOME
------ ------ ----------- ---------- -------------- ----------- -------------
BALANCES, JANUARY 1, 1998 10,200 $ 102 $ 15,975 $ (19,122) $ -- $ (3,045)
Net income -- -- -- 15,089 -- 15,089 $ 15,089
Unrealized gain on investments -- -- -- -- 330 330 330
--------
Comprehensive income -- -- -- -- -- -- $ 15,419
========
Stock redemption (67) (1) (150) -- -- (151)
Stock issuance 5,038 50 73,372 -- -- 73,422
Issuance of options -- -- 574 -- -- 574
------ ----- --------- --------- ------ ----------
BALANCES, DECEMBER 31, 1998 15,171 151 89,771 (4,033) 330 86,219
Net income -- -- -- 18,858 -- 18,858 $ 18,858
Unrealized loss on investments -- -- -- -- (652) (652) (652)
--------
Comprehensive income -- -- -- -- -- -- $ 18,206
========
Stock issuance 272 3 7,264 -- -- 7,267
Exercise of options 143 2 2,636 -- -- 2,638
------ ----- --------- --------- ------ ---------
BALANCES, DECEMBER 31, 1999 15,586 156 99,671 14,825 (322) 114,330
Net income -- -- -- 15,153 -- 15,153 $ 15,153
Unrealized gain on investments -- -- -- -- 950 950 950
--------
Comprehensive income -- -- -- -- -- -- $ 16,103
========
Exercise of options 179 2 3,459 -- -- 3,461
------- ----- --------- --------- ------ ---------
BALANCES, DECEMBER 31, 2000 15,765 $ 158 $ 103,130 $ 29,978 $ 628 $ 133,894
======= ===== ========= ========= ====== =========
See accompanying notes to consolidated financial statements.
F-5
47
CHAMPIONSHIP AUTO RACING TEAMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31,
-----------------------
2000 1999 1998
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 15,153 $ 18,858 $ 15,089
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,352 1,048 779
Bad debt 6,320 -- --
In-kind revenue (1,084) (2) (69)
Net loss (gain) from sale of property and
equipment (29) 1 92
Deferred income taxes (2,014) 523 4,823
Changes in assets and liabilities that
provided (used) cash:
Accounts receivable (3,118) (4,072) (1,552)
Inventory 160 (240) (71)
Prepaid expenses (305) 69 420
Other assets 117 (160) 24
Accounts payable (156) 185 56
Accrued liabilities 1,100 (1,407) (6,532)
Unearned revenue (2,429) 608 1,921
Deposits 778 -- --
-------- -------- --------
Net cash provided by operating activities 15,845 15,411 14,980
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of subsidiaries -- (1,858) (5,881)
Purchase of investments (90,255) (41,181) (61,280)
Proceeds from sale of investments 84,757 10,381 --
Notes receivable 622 870 (4,125)
Acquisition of property and equipment (2,353) (1,035) (3,533)
Proceeds from sale of property and equipment 235 -- 62
Acquisition of trademark (24) (43) (22)
-------- -------- --------
Net cash used in investing activities (7,018) (32,866) (74,779)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt -- (314) (130)
Redemption of common stock -- -- (151)
Issuance of common stock (net of underwriting discount
and offering costs) 3,461 9,905 73,996
-------- -------- --------
Net cash provided by financing activities 3,461 9,591 73,715
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 12,288 (7,864) 13,916
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 7,216 15,080 1,164
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 19,504 $ 7,216 $ 15,080
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the year for:
Income taxes $ 8,934 $ 11,046 $ 2,350
======== ======== ========
Interest $ -- $ 24 $ 31
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES--During
2000, 1999 and 1998, the Company received property and equipment worth
approximately $1.1 million, $2,000 and $69,000 respectively, in exchange for
sponsorship privileges to the providers. During 1998, the Company recorded
$496,000 as goodwill related to the additional purchase price of ARS (see Note
2). During 1998, the acquisition price of ARS included 100,000 options granted
to the sellers. The value of these options on the date of grant was $574,000. In
1999, the amount received by the Company for the options was approximately
$504,000 (see Note 2).
See accompanying notes to consolidated financial statements.
F-6
48
CHAMPIONSHIP AUTO RACING TEAMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION. CART, Inc., ("CART") (a Michigan corporation) was organized
as a not-for-profit corporation in 1978, with its main purpose being to promote
the sport of automobile racing, primarily open-wheel type racing cars. As of
January 1, 1992, the entity became a for-profit corporation and continued to use
the CART name.
In December 1997, Championship Auto Racing Teams, Inc., (a Delaware
corporation) was formed to serve as a holding company for CART and its
subsidiaries (the "Reorganization"). Each outstanding share of common stock of
CART was acquired in exchange for 400,000 shares of common stock of the Company.
References to the "Company" mean Championship Auto Racing Teams, Inc. and its
subsidiaries.
PRINCIPLES OF CONSOLIDATION. The consolidated statement of income
includes the operations of the Company, CART and its wholly-owned subsidiary
corporations CART Properties, Inc. and CART Licensed Products, Inc. In addition,
the 1998 consolidated statements of income includes the financial statements of
CART Licensed Products, L.P., a 55% owned subsidiary. As of March 13, 1998 and
April 1, 1998, the consolidated statement of income also includes the operations
of American Racing Series, Inc. ("ARS") and Pro-Motion Agency Ltd.
("Pro-Motion"), respectively, wholly-owned subsidiaries of the Company (see Note
2). Effective January 1, 1999, the Company purchased the 45% minority interest
of CART Licensed Products, L.P. for $900,000. The partnership was terminated and
the assets of the partnership were rolled up in CART Licensed Products, Inc. All
significant intercompany balances have been eliminated in consolidation.
OPERATIONS. The Company is the sanctioning body responsible for
organizing, marketing and staging each of the racing events for the open-wheeled
motorsports series -- the CART Championship. The Company stages events at four
different types of tracks, including superspeedways, ovals, temporary road
courses and permanent road courses, each of which require different skills and
disciplines from the drivers and teams.
Substantially all of the Company's revenue is derived from sanction fees,
sponsorship revenues, television revenues, engine leases, rebuilds and wheels
sales and licensing royalties, each of which is dependent upon continued fan
support and interest in CART race events. Sanction fee revenues are fees paid to
the Company by track promoters to sanction a CART event at the race venue and to
provide the necessary race management. The Company receives sponsorship revenues
from companies who desire to receive brand and product exposure in connection
with CART races. Pursuant to broadcast agreements, the Company generates
revenues for the right to broadcast the races, with revenues based upon
viewership with a minimum guarantee. The Company receives revenue from engine
leases and rebuilds and wheel sales from teams racing in the Indy Lights
Championship ("Indy Lights"). The Company also receives revenues from royalty
fees paid for licenses to use servicemarks of the
F-7
49
Company, various drivers, teams, tracks and industry sponsors for merchandising
programs and product sales.
INVENTORY. Inventory consists of wheels, parts and merchandise, which are
stated at the lower of cost or market on a first-in, first-out basis.
PROPERTY AND EQUIPMENT. Property and equipment are stated at cost and are
depreciated using the straight-line and accelerated methods over their estimated
useful lives which range from 3 to 20 years. Leasehold improvements are
amortized over the life of the related leases.
REVENUE RECOGNITION. Recognition of revenue from race sanction agreements
is deferred until the event occurs. Sponsorship revenue and engine lease revenue
are recognized ratably over the period covered by the agreement. Non-cash
sponsorship revenue, such as vehicles or equipment received in exchange for
sponsorship privileges to the providers, is recognized when it is received.
Television revenue is recognized ratably over the race schedule. Engine rebuilds
and wheel sales are recognized when the product is delivered to the customer.
Other revenues include membership and entry fees, contingency awards money and
royalty income. Membership and entry fees and contingency award money are
recognized ratably over the race schedule. Royalty income is recognized as the
related product sales occur or on a monthly basis based on a minimum guarantee.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents include investments
with original maturities of three months or less at the date of original
acquisition.
SHORT-TERM INVESTMENTS. The Company's short-term investments are
categorized as available-for-sale, as defined by Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities". Unrealized holding gains and losses are reflected
as a net amount in a separate component of stockholders' equity until realized.
For the purpose of computing realized gains and losses, cost is identified on a
specific identification basis.
GOODWILL. Goodwill represents the excess of the purchase price of ARS and
B.P. Automotive, Ltd. ("BP") and Pro-Motion (see Note 2) over the fair value of
the net tangible and identifiable intangible assets of these acquisitions. Also
included in goodwill is the purchase of the 45% minority interest of CART
Licensed Products, L.P.. Goodwill is stated at cost and is amortized on a
straight-line basis over 40 years. The Company assesses goodwill for impairment
under Financial Accounting Standards Board's (FASB) Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assests to be Disposed Of." Under those rules, goodwill associated
with assets acquired in a purchase business combination is included in
impairment evaluations when events or circumstances exist that indicate the
carrying amount of those assets may not be recoverable. No reduction of goodwill
for impairment was necessary in 2000 or in previous years.
MANAGEMENT ESTIMATES. The preparation of the consolidated 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 and disclosure of contingent assets and liabilities at
December 31, 2000 and 1999, and the reported amounts of revenues and expenses
during the periods presented. The actual outcome of the estimates could differ
from the estimates made in the preparation of the consolidated financial
statements.
F-8
50
ACCOUNTING PRONOUNCEMENTS. SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", is effective for all fiscal years beginning
after June 15, 2000. SFAS 133, as amended, establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities. Under SFAS 133, certain
contracts that were not formerly considered derivatives may now meet the
definition of a derivative. The Company will adopt SFAS 133 effective January 1,
2001. Management does not expect the adoption of SFAS 133 to have a significant
impact on the financial position, results of operations, or cash flows of the
Company.
RECLASSIFICATIONS. Certain reclassifications have been made to the 1999
and 1998 consolidated financial statements in order for them to conform to the
2000 presentation.
2. PUBLIC OFFERINGS AND ACQUISITIONS
INITIAL PUBLIC OFFERING. In March 1998, the Company completed its initial
public offering ("IPO") of 5,038,000 shares of common stock. The IPO provided
proceeds of $75.0 million, net of underwriting discounts, to the Company. A
portion of the net proceeds from the IPO were used to acquire ARS and BP for $10
million (see "Acquisition of ARS and BP"); and to pay accrued point awards to
franchise race teams aggregating $9.5 million. The remaining net proceeds are to
be used for working capital and general corporate purposes, including the
expansion of the Company's business through the acquisition or development of
race related businesses and properties.
SECONDARY OFFERING. In May 1999, the Company completed the registered
public offering of 1,816,500 shares of common stock that was sold by certain
selling shareholders. In addition, upon exercise of the underwriters'
over-allotment option, 272,475 shares of common stock were sold by the Company
for $28.00 per share with net proceeds of approximately $7.2 million (less
underwriting discounts and commissions and offering expenses).
ACQUISITION OF ARS AND BP. On March 13, 1998, the Company acquired 100%
of the outstanding common stock of ARS and certain assets of BP, an entity
previously owned by a director, race team owner and stockholder. ARS operates
Indy Lights, a support series to CART. BP supplies certain equipment to Indy
Lights competitors and earns commission income on the sale of chassis and spare
parts to the teams. At closing of the acquisition, the Company paid $7 million
in cash and issued options to the sellers to purchase 100,000 shares of the
Company's common stock at an exercise price of $16.00 per share which would vest
one year from closing if certain performance criteria were met for 1998. The
sellers had the option to make up the shortfall on the 1998 performance criteria
to receive the options and elected to do so. The fair value of the options at
the date of grant was approximately $574,000. The sellers paid the shortfall
amount of approximately $504,000 to receive the options.
In addition, the Company will pay an additional purchase price of up to
$3 million, in three equal payments, upon satisfaction by ARS of certain
performance criteria during 1998-2000. In the event that ARS does not meet its
performance criteria in a given year, the additional payment will be reduced one
dollar for every dollar that ARS is short of the performance criteria. However,
if ARS exceeds its performance in a following year, it can make up the shortfall
from the prior year. Based on 2000, 1999 and 1998 performance criteria, the
Company paid the former shareholders of ARS a total of approximately $0, $0 and
$1.0 million for 2000, 1999 and 1998, respectively. The excess of the initial
F-9
51
purchase price of $7 million, plus any additional purchase price payments, over
the net book value of the net assets acquired has been allocated to the tangible
and intangible assets based on the Company's estimate of the fair market value
of the net assets acquired. The operating results of ARS and BP have been
included in the Company's consolidated financial statements since the date of
acquisition.
ACQUISITION OF PRO-MOTION. On April 10, 1998, the Company acquired 100%
of the outstanding common stock of Pro-Motion, an entity previously owned by a
director, race team owner and stockholder, for $534,000 in cash. Pro-Motion
operates the Atlantic Championship open-wheel series, a support series to CART.
The excess of the initial purchase price over the net book value of the net
assets acquired has been allocated to the tangible and intangible assets based
on the Company's estimate of the fair market value of the net assets acquired.
The operating results of Pro-Motion have been included in the Company's
consolidated financial statements since the date of acquisition.
PRO FORMA RESULTS. The following unaudited pro forma summary for the year
ended December 31, 1998 assume the acquisitions of ARS, BP and Pro-Motion
occurred as of January 1, 1998.
YEAR ENDED
DECEMBER 31, 1998
(IN THOUSANDS,
EXCEPT EARNINGS PER SHARE)
-----------------------------------------
Revenues $ 63,863
Net income 15,196
Earnings per share:
Basic $ 1.06
========
Diluted $ 1.05
========
3. SHORT-TERM INVESTMENTS
The following is a summary of the estimated fair value of
available-for-sale short-term investments by balance sheet classification at
December 31:
GROSS UNREALIZED
------------------------
(IN THOUSANDS) COST FAIR VALUE GAIN LOSS
---------- ---------- ---------- ----------
2000
----
Corporate bonds $ 1,502 $1,507 $ 5 $ --
U.S. agencies securities 96,076 96,699 623 --
---------- ---------- ---------- ----------
Total short-term investments $97,578 $98,206 $ 628 $ --
========== ========== ========== ==========
1999
----
Commercial paper $ 35,936 $ 35,941 $ 5 $ --
Municipal bonds 21,598 21,494 -- 104
Corporate bonds 19,047 18,891 -- 156
U.S. agencies securities 11,500 11,432 -- 68
Certificate of Deposit 3,999 4,000 1 --
---------- -- ---------- -- ---------- -- ----------
Total short-term investments $ 92,080 $ 91,758 $ 6 $ 328
========== ========== ========== ==========
F-10
52
Proceeds from sales of investments were approximately $95.1 million and
$10.4 million in 2000 and 1999, respectively. In 2000 and 1999, gross gains and
losses on such sales were not significant.
Contractual maturities range from less than one year to two years. The
weighted average maturity of the portfolio does not exceed one year.
4. NOTE RECEIVABLE
In May 1998, the Company entered into an agreement with a promoter
whereby the Company provided financing for certain expenses associated with a
CART sanctioned event in Brazil. The original amount of the note receivable of
$4.1 million related to costs incurred by the Company during the 1998 event was
to be repaid in five equal annual installments of $819,000 over the life of the
sanction agreement through the year 2003. Subsequent to December 31, 2000, the
Company canceled the 2001 race in Brazil due to the default by the City of Rio
de Janeiro in its agreement with the Company. The note receivable from the
Brazilian promoter was to be repaid in equal annual installments over the life
of the sanction agreement. Due to the uncertainty of future races in Brazil, a
letter of credit was received from the Brazilian promoter to secure payment of
the remaining balance of the note receivable by May 15, 2001.
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
(IN THOUSANDS)
2000 1999
---------------- ---------------
Engines $ 2,397 $ 2,296
Equipment 4,448 3,037
Furniture and fixtures 405 396
Vehicles 3,562 2,240
Other 230 181
---------------- ---------------
Total 11,042 8,150
Less accumulated depreciation (3,715) (2,922)
---------------- ---------------
Property and equipment (net) $ 7,327 $ 5,228
================ ===============
During 2000 and 1999, the Company received vehicles worth approximately
$1.1 million and $2,000, respectively, in exchange for sponsorship privileges to
the providers. The revenues associated with these vehicles are included in
sponsorship revenue and other revenue.
6. OPERATING LEASES
The Company has entered into various non-cancelable operating leases
for office space and equipment which expire through 2005. Total rent expense for
these operating leases was approximately $649,000, $483,000 and $431,000 for
2000, 1999 and 1998, respectively.
F-11
53
Approximate future minimum lease payments under noncancelable operating
leases are as follows:
(IN THOUSANDS)
Year ending December 31:
2001 $ 456
2002 162
2003 11
2004 6
2005 5
------
Total $ 640
======
7. INCOME TAXES
Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and tax basis of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized.
Realization of the Company's deferred tax assets is dependent on
generating sufficient taxable income. Although realization is not assured,
management believes it is more likely than not that all of the deferred tax
assets will be realized.
The tax effects of temporary differences giving rise to deferred tax
assets and liabilities at December 31 are as follows:
2000 1999
---- ----
(IN THOUSANDS)
Deferred tax assets (liabilities):
Allowance for doubtful accounts $ 2,457 $ 95
Net capital loss carryforwards 66
State taxes (38) 19
------- -------
Total 2,485 114
Current portion 2,485 114
------- -------
Non-current portion $ -- $ --
======= =======
Deferred tax liabilities:
Basis difference in fixed assets $ (842) $ (607)
Amortization of goodwill (292) (170)
------- -------
Total (1,134) (777)
Current portion -- --
------- -------
Non-current portion $(1,134) $ (777)
======= =======
F-12
54
The provision for income taxes consists of the following at December 31:
2000 1999 1998
------ ------ ------
(IN THOUSANDS)
Current $ 10,534 $ 10,342 $ 3,745
Deferred (2,014) 523 4,823
-------- -------- --------
Total $ 8,520 $ 10,865 $ 8,568
======== ======== ========
The reconciliation of income tax expense computed at the U.S. federal statutory
tax rate to the Company's effective income tax rate is as follows:
2000 1999 1998
------ ------ ------
Tax at U.S. federal statutory rate 35.0% 35.0% 34.0%
State income tax 1.9 1.9 1.9
Meals and entertainment 0.5 0.3 0.3
Tax exempt interest (1.2) (0.7) --
Other (0.2) 0.1 --
------ ------ ------
Total 36.0% 36.6% 36.2%
====== ====== ======
8. EMPLOYEE BENEFIT PLANS
In 1991, the Company began a 401(k) savings plan (the "plan").
Contributions to the plan are in the form of employee salary deferral, subject
to discretionary employer-matching contributions. The Company's contributions to
the plan were approximately $95,000, $90,000 and $81,000 in 2000, 1999 and 1998,
respectively.
9. DEBT
At December 31, 2000 and 1999, the Company had an unused bank line of
credit of $1.5 million. There were no amounts outstanding at December 31, 2000
and 1999. Advances on the line of credit are payable on demand, with interest at
the bank's prime rate. The line of credit is secured by the Company's deposits
with the bank.
10. COMMITMENTS AND CONTINGENCIES
REVENUE AGREEMENTS. The Company has entered into promoter, sponsorship
and television agreements that extend through various dates, with the longest
date expiring in the 2006 racing season. Under the promoter agreements, the
Company is obligated to sanction CART Championship racing events and provide
related race management functions. Under the sponsorship agreements, the Company
grants certain corporations official sponsorship status. In return the
corporations receive recognition and status rights, event rights and product
category exclusivity rights. Television agreements with various broadcast
companies include production, sales and worldwide distribution of the Company's
events.
F-13
55
INSURANCE. The Company is self-insured for the deductible amount
($50,000) on an insurance policy which provides accident medical expense
benefits for participants of CART sanctioned races. Losses above the deductible
amount are covered by the insurance policy.
EMPLOYMENT AGREEMENTS. The Company has employment agreements with
several of its officers. The employment agreements expire at various dates
through November 2004. Certain of the employment agreements provide for a
multiple of the individual's base salary in the event there is a termination of
their employment as a result of a change in control in the Company.
LITIGATION. On September 8, 2000, a complaint for damages was filed
against the Company by the heirs of Gonzolo Rodriguez, a race car driver that
died on September 11, 1999 while driving his race car at the Laguna Seca Raceway
in a practice session for the CART race event. The suit seeks damages in an
unspecified amount for negligence and wrongful death.
On October 30, 2000, a complaint for damages was filed against the
Company by the estate of Greg Moore, a race car driver that died on October 31,
1999 while driving his race car at the California Speedway during the CART race
event. The suit seeks actual and punitive damages from the Company in an
unspecified amount for breach of duty, wanton and reckless misconduct, breach of
implied contract, battery, wrongful death and negligent infliction of emotional
distress.
The Company intends to vigorously defend itself in each of these
lawsuits and does not believe that it is liable for either of these incidents.
The Company requires each promoter to indemnify the Company against any
liability for personal injuries sustained at such promoter's racing event. In
addition, the Company requires each promoter to carry liability insurance,
naming the Company as a named insured. The Company also maintains liability
insurance to cover racing incidents. Management does not believe that the
outcome of these lawsuits will have a material adverse affect on the Company's
financial position or future results of operations.
On February 28, 2001, the Company filed a lawsuit against ISL Marketing
AG in the Circuit Court for the County of Oakland, State of Michigan. The
lawsuit alleges fraudulent inducement, breach of agreement and failure to pay
more than $6 million dollars due the Company.
11. STOCK OPTION PLAN
In December 1997, the Board of Directors of the Company (the "Board")
authorized, and the stockholders of the Company approved, a stock incentive plan
for executive and key management employees of the Company and its subsidiaries,
including a limited number of outside consultants and advisors, effective as of
the completion of the initial public offering ("IPO") (the "Stock Option Plan").
Under the Stock Option Plan, key employees, outside consultants and advisors
(the "Participants") of the Company and its subsidiaries (as defined in the
Stock Option Plan) may receive awards of stock options (both Nonqualified
Options and Incentive Options, as defined in the Stock Option Plan). A maximum
of 2,000,000 shares of common stock are subject to the Stock Option Plan.
Options granted vest pro-rata over a three-year period. No stock option is
exercisable after ten years from the date of the grant, subject to certain
conditions and limitations. The purpose of the Stock Option Plan is to provide
the Participants (including officers and directors who are also key employees)
of the Company and its subsidiaries with an increased incentive to make
significant contributions to the long-term performance and growth of the Company
and its subsidiaries.
F-14
56
In addition, in December 1997, the Board and the stockholders of the
Company approved a Director Option Plan permitting the granting of non-qualified
stock options ("Director NQSOs") for up to 100,000 shares of common stock to
directors of the Company who are neither employees of the Company nor affiliates
of a race team which participates in CART race events (an "Independent
Director"). Each person who is first elected or appointed to serve as an
Independent Director of the Company is automatically granted an option to
purchase 10,000 shares of Company common stock. In addition, each individual who
is re-elected as an Independent Director is automatically granted an option to
purchase 5,000 shares of Company common stock each year on the date of the
annual meeting of stockholders. Each of the options automatically granted upon
election, appointment or re-election as an Independent Director are exercisable
at a price equal to the fair market value of the common stock on the date of
grant. In addition, each Independent Director may elect to receive stock options
in lieu of any director's fees payable to such individuals.
All Director NQSOs are immediately exercisable upon grant. The exercise
price for all options may be paid in cash, shares of common stock of the Company
or other property. If an Independent Director dies or becomes ineligible to
participate in the Director Option Plan due to disability, his Director NQSOs
expire on the first anniversary of such event. If an Independent Director
retires with the consent of the Company, his Director NQSOs expire 90 days after
his retirement. In no event may a Director NQSO be exercised more than ten years
from the date of grant. As of December 31, 2000 and 1999, there were 87,500 and
37,500, respectively, Director NQSOs issued and outstanding.
In addition to the plans described above, 100,000 stock options were
issued in connection with the acquisition of ARS and BP (see Note 2).
The following table summarizes information about stock options during
2000, 1999 and 1998 as follows:
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER OF REMAINING EXERCISE FAIR
SHARES LIFE PRICE VALUE
-----------------------------------------------
Options outstanding December 31, 1997 -- -- -- --
Granted 1,203,100 4.2 $16.03 $ 5.74
Exercised -- -- -- --
Forfeited (600) -- 16.00 --
-----------------------------------------------
Options outstanding December 31, 1998 1,202,500 4.2 16.03 --
(15,000 are exercisable)
Granted 122,750 5.1 27.90 10.99
Exercised (142,427) -- 16.00 --
Forfeited (16,535) -- 22.26 --
-----------------------------------------------
Options outstanding December 31, 1999 1,166,288 3.4 $17.20 --
(357,559 are exercisable)
Granted 439,650 9.6 21.28 10.70
Exercised (178,899) -- 16.00 --
Forfeited* (721,550) -- 16.26 --
-----------------------------------------------
Options outstanding December 31, 2000 705,489 7.6 $20.99
===================================
* 600,000 options were forfeited in exchange for a severance payment
made to the Company's former CEO.
F-15
57
The weighted average price of exercisable options at December 31, 2000
was $22.02. Options outstanding at December 31, 2000 have a range in exercise
price from $16.00 to $28.94.
At December 31, 2000, 1999 and 1998, an additional 1,223,185, 891,285
and 1,002,500, respectively, shares were reserved for issuance under all Company
plans.
As permitted by SFAS No. 123, the Company has chosen to follow
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB No. 25") in accounting for its stock options granted to
employees and directors. Under APB No. 25, the Company does not recognize
compensation expense on the issuance of its stock options because the option
terms are fixed, and the exercise price equals the market price of the
underlying stock on the grant date.
However, as required by SFAS No. 123, the Company has calculated pro
forma information as if it had determined compensation cost based on the fair
value at the grant date for its stock options granted to employees and
directors. In accordance with SFAS No.123, the fair value of option grants is
estimated on the date of grant using the Black-Scholes option-pricing model for
pro forma purposes with the following assumptions used for all grants: expected
volatility 27%, expected dividend yield of 0%, risk-free interest rate of 5%,
and an expected life of 10 years. Had the Company determined compensation cost
based on the fair value at the grant date for its stock under SFAS No.123, net
earnings and diluted earnings per share would have been reduced to the pro forma
amounts indicated below:
(IN THOUSANDS,
EXCEPT EARNINGS PER SHARE)
NET EARNINGS 2000 1999
------------ --------------- -------------
As reported $15,153 $18,858
======= =======
Pro forma $14,433 $17,142
======= =======
DILUTED EARNINGS PER SHARE
As reported $ .97 $ 1.19
======= =======
Pro forma $ .92 $ 1.08
======= =======
12. BAD DEBT
Bad debt expense of $6.3 million relates to a charge associated with the
Company's sponsorship agreement with ISL Marketing AG ("ISL") for 2000, which
was payable in January 2001. In 1998, ISL signed a nine (9) year contract to
become the Company's exclusive marketing agent for solicitation of sponsorship
agreements. The contract guaranteed the Company a minimum amount of sponsorship
revenue for each year of the agreement. Following discussions with ISL, it has
been determined that ISL does not intend to fulfill its commitment with respect
to the remaining years of the agreement under its original terms and
collectability of the guarantee for 2000 is uncertain.
13. SEVERANCE EXPENSE
In June 2000, the Company's President/CEO announced his resignation. The former
President/CEO entered into a severance agreement where the Company recorded a
one-time severance payment of $2.8 million ($1.8 million net of tax). As a
result of the resignation, a total of 600,000 stock options were forfeited under
the Company's stock option plan.
F-16
58
14. SEGMENT REPORTING
The Company has one reportable segment, racing operations.
This reportable segment encompasses all the business operations of
organizing, marketing and staging all of our open-wheel racing events.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company's long lived assets are
substantially used in the racing operations segment in the United States. The
Company evaluates performances based on income before income taxes.
YEAR ENDED DECEMBER 31,
-----------------------
(In Thousands) RACING OPERATIONS OTHER* TOTALS
--------------
2000
----
Revenues $74,425 $ 623 $75,048
Interest income (net) 7,447 16 7,463
Depreciation and amortization 1,250 102 1,352
Segment income (loss) before income taxes 24,135 (462) 23,673
1999
----
Revenues $67,195 $ 1,581 $68,776
Interest income (expense) (net) 5,289 (34) 5,255
Depreciation and amortization 960 88 1,048
Segment income before income taxes 29,544 179 29,723
1998
----
Revenues $61,056 $ 1,474 $62,530
Interest income (expense) (net) 3,234 (36) 3,198
Depreciation and amortization 750 29 779
Segment income before income taxes 23,657 -- 23,657
*Segment is below the quantitative thresholds for determining reportable
segments. This segment is related to the Company's licensing royalties.
Reconciliations to consolidated financial statement totals at December
31 are as follows:
(In Thousands)
--------------
2000 1999
------------- ------------
Total assets for reportable segment $ 143,095 $ 122,700
Other assets 1,006 2,187
------------- ------------
Total consolidated assets $ 144,101 $ 124,887
============= ============
Total liabilities for reportable segment $ 9,910 $ 9,374
Other liabilities 297 1,183
------------- ------------
Total consolidated liabilities $ 10,207 $ 10,557
============= ============
F-17
59
Domestic and foreign revenues, which are allocated to each country
based on sanction fees, sponsorship revenues and television revenues, for each
of the three years ended December 31 were as follows:
(In Thousands)
------------
2000 1999 1998
----------- ------------ -----------
United States $53,261 $48,518 $42,105
Canada 7,618 7,037 7,828
Other foreign countries 14,169 13,221 12,597
----------- ------------ -----------
Total $75,048 $68,776 $62,530
=========== ============ ===========
15 EARNINGS PER SHARE
Basic earnings per share ("EPS") excludes dilution and is computed by
dividing earnings available to common shareholders by the weighted average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution of securities that could share in the earnings. Shares
contingently issuable relate to shares that would have been outstanding under
certain stock option plans (see Note 11) upon the assumed exercise of dilutive
stock options.
YEAR ENDED DECEMBER 31,
2000 1999 1998
---- ----- ----
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
Net income $ 15,153 $ 18,858 $ 15,089
============ ============== ============
Basic EPS:
Weighted average common shares outstanding 15,624 15,427 14,190
============ ============== ============
Net earnings per common share, basic $ .97 $ 1.22 $ 1.06
============ ============== ============
Diluted EPS:
Weighted average common shares outstanding 15,624 15,427 14,190
Shares contingently issuable 33 481 231
------------ -------------- ------------
Shares applicable to diluted earnings 15,657 15,908 14,421
============ ============== ============
Net earnings per common share, diluted $ .97 $ 1.19 $ 1.05
============ ============== ============
16. RELATED PARTY TRANSACTIONS
The Company receives sanction fees from promoters affiliated with
certain of its directors. Total sanction fee revenue related to these entities
for 2000, 1999 and 1998 was approximately $6.4 million, $5.6 million and $8.1
million, respectively. No sanction fees from a single related entity provided
more than 10% of the Company's revenues in 2000, 1999, and 1998.
The Company rented track facilities from promoters affiliated with
certain of its directors. Total track rental expense related to these entities
for 2000, 1999, and 1998 was approximately $28,000, $20,000 and $62,000
respectively.
At December 31, 2000 and 1999, the Company has accounts receivable of
approximately $1.0 million and $324,000, respectively, due from related parties
affiliated with certain of its directors.
F-18
60
The Company receives entry fees and other race-related income to
participate in the CART Championship from teams affiliated with certain
directors. Such fees received from these certain related parties amounted to
$1.4 million, $1.2 million and $1.3 million in 2000, 1999, and 1998,
respectively.
The Company disburses purse winnings and awards to teams affiliated
with certain of its directors. Total purse winnings and awards related to these
entities for 2000, 1999 and 1998 were $10.1 million, $9.8 million and $10.8
million, respectively.
The Company paid for at-track rights to promoters affiliated with
certain of its directors in order to satisfy contractual obligations with
certain sponsors. Total at-track rights related to these entities for 2000,
1999, and 1998 were $800,000, $800,000 and $1.2 million, respectively.
The Company records royalty expense paid to teams and promoters
affiliated with certain of its directors. Total royalties for these entities for
2000, 1999, and 1998 were $69,000, $378,000 and $552,000, respectively.
At December 31, 2000 and 1999, the Company has accounts payable and
royalties payable of approximately $237,000 and $569,000, respectively, due to
related parties affiliated with certain directors.
An officer of the Company is a principal in a law firm which
received fees for legal services provided to the Company. Such fees amounted to
approximately $172,000, $126,000 and $127,000 in 2000, 1999 and 1998,
respectively.
17. SUMMARIZED QUARTERLY DATA (UNAUDITED)
Following is a summary of the quarterly results of operations for the years
ended December 31, 2000 and 1999.
$ in thousands, except per share amounts First Second Third Fourth Total
----------------------------------------------------------------------------------------------------------
2000
----
Total revenues $7,848 $24,902 $27,756 $14,542 $75,048
Operating income (loss) 1,650 7,714 10,211 (3,365) 16,210
Net income (loss) 2,013 6,124 7,770 (754)* 15,153
Basic earnings (loss) per share .13 .39 .50 (.05) .97
Diluted earnings (loss) per share .13 .39 .50 (.05) .97
1999
----
Total revenues $7,349 $25,473 $24,915 $11,039 $68,776
Operating income 1,314 10,328 9,131 3,695 24,468
Net income 1,639 7,466 6,564 3,189 18,858
Basic earnings per share .11 .49 .42 .21 1.22
Diluted earnings per share .10 .47 .41 .20 1.19
* The Company recorded a bad debt expense of $6.3 million related to a charge
associated with our sponsorship agreement with ISL. (See Note 12)
F-19
61
SCHEDULE II
CHAMPIONSHIP AUTO RACING TEAMS, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS)
CHARGED BALANCE
BEGINNING TO COSTS DEDUCTIONS AT END OF
DESCRIPTION OF PERIOD AND EXPENSES (1) OF PERIOD
------------------------------------------- ------------ ------------ ----------- -----------
Allowance for doubtful accounts
(deducted from accounts receivable):
Year Ended December 31, 2000... $ 250 $ 6,546 $ 257 $6,539
Year Ended December 31, 1999... 306 90 146 250
Year Ended December 31, 1998... -- 436 130 306
(1) Accounts deemed to be uncollectible.
S-1