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HomeMy WebLinkAboutM-02-0718CITY OF MIAMI, FLORIDA INTER -OFFICE MEMORANDUM TO: The Honorable Manuel A. Diaz, Mayor DATE : June 18, 2002 FILE: and Commissioners SUBJECT: Discussion Item - Status of Current Raceworks, Carlos �Aa�menez'/�� LLC Agreement & MOU FROM: City Manager REFERENCES: ENCLOSURES: Please be advised that the Administration will be discussing the status of the current Revocable License Agreement and MOU with Raceworks, LLC. CAG/FKR/ds 02- 73.8 CITY OF MIAMI, FLORIDA INTER -OFFICE MEMORANDUM The Honorable Tomas Regalado, ChairmadDATE June 24, 2002 FILE and members of the Ci Commission "'JE'" Financial Advisor Report on CART REFERENCE5 enez, City Mana r ENCL0S DOES. Attached please find the requested report on the Corporate Officers of CART (Championship Auto Racing Team) provided by our financial advisor RBC Dain Rauscher. Worth of note is that the most current Securities & Exchange Commission Report (Report 10-Q) shows an operating loss and net loss for CART for 2002. In addition, please be advised in that CART is not now a owner of shares in Raceworks and in that the Administration is not presenting a new Raceworks Agreement for Commission consideration at the June 24, 2002, Commission meeting, this report is provided for your information, only. cti CAG/ KR/vm 02- 718 RBC Dain Rauscher June 21, 2002 Mr. Frank Rollason Assistant City Manager City of Miami Miami Riverside Center 444 S.W. 2nd Ave. 10th Floor Miami, FL 33130 Dear Frank, We understand the City of Miami is contemplating entering into a relationship with Championship Auto Racing Teams, Inc. (CART) to hold an "Indy-styled" race in the City. You have asked us as the City's financial advisor to provide comments on CART. As a public finance financial advisor we normally do not provide analysis on publicly traded companies. However, there is public information available regarding companies like CART and we have relied on this information in making our comments. The stock symbol for CART is MPH. MPH is traded on the New York Stock Exchange. RBC Dain Rauscher does not "cover" CART stock in the market, but we were able to get information on CART from the most recent 10-Q Report the company filed with the SEC as a publicly held company. CART's 10-Q Report discloses the company's current activities including operating revenues and expenses, information regarding litigation involving the company, information regarding operations, management's discussion of the financial condition of CART and other pertinent information about the company. The 10-Q shows an operating loss and net loss for CART for 2002. We also obtained a Stock Report from Standard and Poor's (S&P) dated June 15, 2002 which gives general information about CART. This report shows the brokerage firms providing coverage of CART, a consensus earnings forecast, earnings estimates and trends, key statistics and analysts' opinions. The S&P Report says the analysts' consensus opinion is to "sell". We were also able to get information about the Board of Directors from a service called Multex.com. This report gives a brief resume for each of the company's directors. We are enclosing the Form 10-Q the S&P Stock Report and the Multex.com Board of Directors information as part of this letter to you. While we are not in a position to comment on the viability of CART, we can say from the 10-Q and the S&P Report that the company is an operating company, but does show an operating loss for 2002. If you need a study analyzing CART as an "ongoing concern", we can approach our Corporate Finance Department about providing this service to you. Such a study normally takes several weeks. Let us know if the City needs a detailed analysis of CART or if you need additional information from us. Thank you for letting us serve you. Si cerely, Iq Nate Eckloff Managing Director cc: Scott Simpson Pete Chircutt 02- 718 Suite 2200 (303) 595-1206 RBC Dain Rauscher Inc. 1200 — 17" Street Fax (303) 595-1220 Member NYSF/SIPC Denver, CO 80202-5822 STANDARD &POOKS Saturday, June 15, 2002 PRICENOLUME TRENDS 06/14/02 Current Price (_) 8.61 40 -Day Avg. Daily Volume 161,610 Beta WA S&P 500 Composite 1007.27 S&P MidCap 400 495.54 S&P SmallCap 229.14 Championship Auto Racing Exchange: NYSE I _----SymboLMPH— BUSINESS DESCRIPTION Owns, operates and sanctions an open -wheel motorsports series known as the CART FedEx Championship. It also owns and sanctions the Indy Lights Championship and the Atlantic Championship, both development series for the CART Championship. This report is for information purposes and should not be considered a sokitation to buy or sdany �'7 2002 security. Neither S&P nor any other party guarantee its accuracy or make warranties regarding result I A DivQ�j from its usage. Redistribution is prohibited without written permission. Copyright O ision o%The McGmW-HW Compmries 02- 718 ❑ CONSENSUS EARNINGS FORECAST (06114102) ❑ ANALYSTS' OPINION "Sell" FISCAL YEAR ENDS December 31 Next Earnings Report Expected: 08/10/02 ❑ EARNINGS ESTIMATES $ TRENDS (06/14102) Current Analysts' Consensus Wall Street Percent Trailing 12 -Mos. EPS (S) Consensus Ests. P -E FY 2001 FY 2002 FY 2003 High (Actual) Deviation Ratio ■ Earnings Per Share (_) -0.06 0.06 0.20 ■ Price•Eamings Ratio NM NM 43.0 ■ Next Qtr. (Jun) EPS ($) 0.25 0.03 - May include dscnnhhued operations. 20 2002 FISCAL YEAR ENDS December 31 Next Earnings Report Expected: 08/10/02 ❑ EARNINGS ESTIMATES $ TRENDS (06/14102) Analysts' Consensus History Current Analysts' Consensus Fiscal Percent Trailing 12 -Mos. EPS (S) No. of P -E Years Average High Low Ests. Deviation Ratio 2002 0.06 0.10 0.02 3 0.04 NM 2003 0.20 0.20 0.20 1 0.00 43.0 20 2002 0.03 0.04 - 3 0.02 Analysts' Consensus History 'Consensus Breakdown As of 06/14/02 IN By National Firms = Hold ■ By Regional Firms = NF ■ By Nonbroker = NF ❑ KEY STATISTICS AT A GLANCE ■ Price Performance (06114102) 12 -Month High 17.83 12 -Month Low 8.00 % Change in Price Last 12 Mos. 46 12 Month Price Rel. to S&P 500 0.66 Value of $10,000 Invested 12131/96 - STOCK SPLITS DURING LAST FIVE YEARS: None ■ Earnings/P-E Trends Number of Analysts Percent Trailing 12 -Mos. EPS (S) Average Changes During Month Changs Estimates for fiscal 2002 5-Year P -E High May 0.06 0 0% April 0.06 1 50% March 0.04 1 -94% Febnrary 0.64 0 0% January 0.64 0 0% December 0.64 0 0% November 0.64 0 0% Estimates for fiscal 2003 May 0.20 0 0% April - - - March - - - Febnrary - - - January - - - December - - - AddLa7s or deletions to coverage may cause % charge in arwage estimates w0 -d any anayst charges 'Consensus Breakdown As of 06/14/02 IN By National Firms = Hold ■ By Regional Firms = NF ■ By Nonbroker = NF ❑ KEY STATISTICS AT A GLANCE ■ Price Performance (06114102) 12 -Month High 17.83 12 -Month Low 8.00 % Change in Price Last 12 Mos. 46 12 Month Price Rel. to S&P 500 0.66 Value of $10,000 Invested 12131/96 - STOCK SPLITS DURING LAST FIVE YEARS: None ■ Earnings/P-E Trends Actual EPS FY 2001 ($) -0.06 Trailing 12 -Mos. EPS (S) -0.11 5 -Year Earnings Growth (%) NM Current P -E -- 5-Year P -E High 29.9 5 -Year P -E Low 15.2 ■ Dividends Indicated Annual Dividend Rate ($) Nil Current Yield (%) 5 -Year Dividend Growth Rate (%) Dividends as % of 12 Month EPS ExAWkiend Date - DIVIDEND HISTORY: No cash dividends have been paid. The company intends to retain its earnings for the operation and expansion of its business and does not anticipate paying cash dividends in the foreseeable future. ■ Other Book Value Per Share ($) 7.91 Market Capitalization (Mil. $) 126 Shares outstanding (000) 14718 % Held by Institutions 37.0 Insider Sentiment NEGATIVE Earnings estimates data contained in this report provided by IJB/E/S International, Inc. 02- 718- PRICE HISTORY S ww for da r Smr aara 6 Pooes Tmndmw ANALYSTS' OPINION — " Seo" (06114102) [] COMPANIES OFFERING COVERAGE A G Edwards & Sons Inc Bear Steams 3 Co J C Bradford & Co Legg Mason Wood Walker Inc Oppenheimer 3 Co Inc The First Boston Corporation ANALYSTS' CONSENSUS OPINION The consensus opinion reflects the average bWftx disell recommendation of Wall Street analysts. it is weW*nown, however, that analysts tend to be overly buNish. To make the consensus opinion more meaningful, it has been adjusted to reduce this positive bias. First, a stack's average is computed. Then it is compared to the recommendations on all other stocks. Only companies that score high relative to all other companies merit a consensus opinion of Buy" In the graph at lett. The graph Is also important because research has shown that a rig consensus opinion Is a favorable indicator of near -tern stock performance; a declining trend is a negative signal. 02— f O By Source No. % One Throe Analysts' of of Month Moa. Non - Ratings Ratings Total Prior Prior National Regional broke Buy 0 0 0 0 0 0 0 BuYAW 0 0 1 1 0 0 0 Holo 3 100 2 2 3 0 0 Weak Hok! 0 0 0 0 0 0 0 sen 0 0 0 0 0 0 0 No Opinion 0 0 0 0 0 0 0 Total 3 100 3 3 3 0 0 Buy a 5 Wall Street Conn Wis BuyfiW a 4 Analysts' Consensus a 1 Hold a 3 Copyright © S&P 2002 Weak Hold a 2 Sell a 1 [] COMPANIES OFFERING COVERAGE A G Edwards & Sons Inc Bear Steams 3 Co J C Bradford & Co Legg Mason Wood Walker Inc Oppenheimer 3 Co Inc The First Boston Corporation ANALYSTS' CONSENSUS OPINION The consensus opinion reflects the average bWftx disell recommendation of Wall Street analysts. it is weW*nown, however, that analysts tend to be overly buNish. To make the consensus opinion more meaningful, it has been adjusted to reduce this positive bias. First, a stack's average is computed. Then it is compared to the recommendations on all other stocks. Only companies that score high relative to all other companies merit a consensus opinion of Buy" In the graph at lett. The graph Is also important because research has shown that a rig consensus opinion Is a favorable indicator of near -tern stock performance; a declining trend is a negative signal. 02— f O Yahoo! Finance - CHAMPIONSHIP AUTO FAC INU hAMS INC; - Quarterly t(eport (=LXage t or b "R%000VJqNANCEAWSearch - Finance Home - Yahool SEC Filings Enter symbol: symbol lookup NYSE: MPH Annual Reports for over 3,500 US and Canadian companies available. FREE More Info: Quote I Chart I News I Profile I Reports I Research I SEC I Msgs I Insider ( Financials Recent filings: May 11, 2001 (Qtrly Rpt) I Aug 09,2001 (Qtrly Rpt) I Nov 14,2001 (Qtrly Rpt) I May 10, 2002 (Qtrly Rpt) More filings for NDR—av—affibfi-from e etaFree Trial to gar Online Premium May 10, 2002 CHAMPIONSffiP AUTO RACING TEAMS INC (MPH) Quarterly Report (SEC form 10-Q) IT - T'S DISCUSSION -AND -ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Beginning in 2002, we are transitioning our company from a sanctioning body to a marketing services company. Historically, we have derived our revenues from three primary sources: sanction fees paid by track promoters, corporate sponsorship fees and television revenues. Starting this year, we are introducing new revenue sources to our business model. At certain tracks, we will be promoting our own events, and at others, we will be partnering with experienced promoters. We intend to use the talent and experience of our key personnel to set the standard for promotion of CART sanctioned events, and we will participate in the potential net income from such successful events. For the events we will be co -promoting, we will receive lower up -front sanction fees, but our agreements provide for us to receive a majority of any profits until the original sanction fee is received, with an equal profit sharing thereafter. We are also taking on the risk of potential losses with these co -promoted events. We have also entered into new television agreements for 2002 with Speed Channel, Fox and CBS. These arrangements will significantly increase the number of high quality CART programming hours that will 02- '718 http://biz.yahoo.com/e/l/m/mph.ht[nl 06/21/2002 Yahoo! Finance - CHAMPIUNSHIP AUTO KALANU I EAMJ INU - Quar[eriy Keporn kbr-mirage /- or Zs be available to our fans domestically. We will have six races broadcast on CBS and one race on FOX, with the balance airing on Speed Channel. We will buy the air -time and pay for production for the CBS and FOX races and receive the advertising time which we, along with our agents, will be responsible to sell. This new domestic television arrangement is different than our past television arrangement where we received a rights fee. The following discussion and analysis of the financial condition and results of operations should be read in conjunction with the unaudited consolidated financial statements of the Company, including the respective notes thereto which are included in this Form 10-0. CRITICAL ACCOUNTING POLICIES Revenue Recognition One of our most critical accounting policies is revenue recognition. We recognize our revenues as they are earned, but the determination of when they are earned depends on the source of the revenue. Our assumptions for each revenue source is outlined below. SANCTION FEE REVENUE. Generally, sanction fees are paid in advance of the race and are recorded as deferred revenue. Revenue from sanction fees is not recognized until the event is completed. Beginning in 2002, we have entered into agreements with certain promoters where a portion of the contracted sanction fee has been reduced in exchange for a percentage of the profits from the event. Profits from these events will be recognized as sanction fee revenue when the event is completed. SPONSORSHIP REVENUE. Generally, sponsorship agreements call for quarterly payments, and each payment is recorded as deferred revenue when paid. Revenue is recorded ratably over the life of the sponsorship 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. ENGINE LEASE, REBUILDS AND WHEEL SALES. Engine lease revenue, relating to our discontinued Indy Lights series, was recognized ratably over the period covered by the agreement. Engine rebuilds and wheel sales were recognized when the product is delivered to the customer. This revenue ceased at the end of the 2001 Indy Lights season. TELEVISION REVENUE. Television revenue as it relates to minimum guarantees and rights fees is recognized ratably over the race schedule. Beginning in 2002, we will sell the advertising for the shows to be aired on CBS and Fox networks. Advertising revenue will be recognized for these events when the event is completed and the advertising is aired. RACE PROMOTION REVENUE. Payments for commercial rights associated with a self -promoted event that are received prior to the event will be recorded as deferred revenue. Revenue will be recorded when the event is completed. Expenses related to these events will be recorded in race promotion expenses. OTHER REVENUES. 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. 02- '73.8 http://biz.yahoo.com/e/l/m/mph.htmi 06/21/2002 Yahoo! Finance - CHAMY1UNSHIF AU 1 U KA1.;11V1r I r✓A1v1b 11V1. - Vuanerty 01 a Impairment We are subject to impairment tests in assessing the valuation of our goodwill and long-lived assets. Goodwill represents the excess of the purchase price of American Racing Series ("ARS") and B.P. Automotive, Ltd. and Pro -Motion Agency 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. We contiraally evaluate whether events and circumstances have occurred that indicate the remaining estimated useful life of our goodwill and long-lived assets may warrant revision or that the remaining balance may noi be recoverable. When factors indicate that goodwill or long-lived assets should be evaluated for possible impairment, the Company uses an estimate of fair value based on future profitability and cash flows. During 2001, we determined that the goodwill and certain long-lived assets associated with ARS were impaired due to our strategic decision to discontinue the operations of ARS at the conclusion of the 2001 season. As a result, we recorded an impairment charge for the goodwill and long-lived assets. Litigation We are involved in litigation as a part of our normal course of business. Our litigation proceedings are included in our most recent Form 10-K, Item 3: Legal Proceedings and updated, as needed, in Part Il- Other IOther Information, Item 1: Legal Proceedings in this and subsequent Forms 10-Q. Management intends to vigorously defend against any litigation. When a complaint is filed by or against the Company that represents a material claim, we disclose the proceeding in our financial statements. When a claim against us is probable and estimable, we record the expense. When we are the party filing the claim, we do not record income until the claim for damages is received. RESULTS OF OPERATIONS Three Months Ended March 31, 2002 -Compared -to -Three Months Ended March 31, 200 REVENUES. Total revenues for the three months ended March 31, 2002 were $5.6 million, a decrease of $836,000 or 13% from the same period in the prior year. This was due to decreased sponsorship revenue, television revenue and engine leases, rebuilds and wheel sales partially offset by an increase in sanction fees and other revenue, as described below. Sanction fees for the three months ended March 31, 2002 were $2.7 million, an increase of $114,000, or 4%, from the same period in the prior year due to an annual escalation in sanction fees for our race in Monterrey, Mexico. We staged one race during the first quarter of 2002 and 2001. Sponsorship revenue for the three months ended March 31, 2002 was $2.3 million, a decrease of $674,000, or 23%, from the same period in the prior year. This decrease was primarily attributable to the loss of sponsorship income from the Indy Lights series which we discontinued at the end of the 2001 season, as well as a reduction in sponsorship fees from one of our sponsors, pursuant to a renegotiation clause in the applicable sponsorship contract. Television revenue for the three months ended March 31, 2002 was $205,000, a decrease of $54,000, or 21 %, from the same period in the prior year. This decrease was due to a loss of guaranteed income from http://biz.yahoo.com/e/i/m/mph.html 02-- 718 06/21/2002, Yahoo! rinance - L;HAMr1VN6rt1Y AU 1 V i(A1;11NU 11✓HiV1J 11V1- - k,)UarlCrly ACpuiL kJT-�-ragC 1+ ul o our former television partner, offset by revenue received from new international television distribution rights. There were no engine leases, rebuilds and wheel sales for the three months ended March 31, 2002, a decrease of $271,000 from the same period in the prior year. This decrease was due to the discontinuance of the Indy Lights Championship effective with the conclusion of the 2001 race season. Other revenue for the three months ended March 31, 2002 was $414,000, an increase of $49,000, or 13%, from the same period in the prior year. This increase was primarily attributable to an increase in commission sales from Toyota Atlantics suppliers. EXPENSES. Total expenses for the three months ended March 31, 2002 were $7.6 million, a decrease of $684,000, or 8%, from the same period in the prior year. This decrease was due to a decrease in administrative and indirect expenses, cost of engine rebuilds and wheel sales and depreciation, partially offset by an increase in race distributions and race expenses, as described below. Race distributions for the three months ended March 31, 2002 were $1.0 million, an increase of $282,000, or 38%, from the same period in the prior year. The increase was due to a $10,000 participation payment that we made to all of our teams, totaling $200,000. The increase was also due to one Toyota -Atlantic race being held in the three months ended March 31, 2002 compared to zero races being held in the same period in the prior year, partially offset by a decrease in Indy Lights race distributions due to zero races being held in the three months ended March 31, 2002 compared to one race being held in the same period in the prior year. Race expenses for the three months ended March 31, 2002 were $1.9 million, an increase of $25,000, or I%, which was similar to the same period in the prior year. There was no cost of engine rebuilds and wheel sales for the three months ended March 31, 2002, a decrease of $99,000 from the same period in the prior year. This decrease is due to the discontinuance of _--the-Indy-Lights Championship effective-with-the-conclusiomoLthe_2001 season. - Administrative and indirect expenses for the three months ended March 31, 2002 were $4.3 million, a decrease of $896,000, or 17%, from the same period in the prior year. This decrease was primarily attributable to a decrease in recruiting and strategic planning consulting expenses, as well as a severance payment to a former employee that was made in the same period in the prior year. The decrease also reflected a timing difference in our marketing expenditures in the three months ended March 31, 2002 compared to the same period in the prior year. Depreciation and amortization expense for the three months ended March 31, 2002 was $334,000, compared to depreciation and amortization expense of $402,000 for the same period in the prior year. We ceased amortizing goodwill as of January 1, 2002 in compliance with the Financial Accounting Standards Board issuance of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets." OPERATING LOSS. Operating loss for the three months ended March 31, 2002 was $2.0 million, an increase of $152,000 compared to an operating loss of $1.8 million for the same period in the prior year due to the items discussed above. 02- 718 http://biz.yahoo.com/eNm/mph.htmi 06/21/2002 Yahoo! Mnance - UHAMY1VNitiIY Au 1 U KA% -11'417 1 r_H1v1J llvl. - yuarLCrly I-,CpU1'L k3r.l rag( J 01 O INTEREST INCOME (NET). Interest income (net) for the three months ended March 31, 2002 was $1.1 million compared to interest income (net) of $2.0 million from the same period in the prior year. The decrease of $888,000 was primarily attributable to a decrease in interest rates. INCOME (LOSS) BEFORE INCOME TAXES. Loss before income taxes for the three months ended March 31, 2002 was $914,000, compared to income before income taxes of $126,000 from the same period in the prior year due to the items discussed above. INCOME TAX EXPENSE (BENEFIT). Income tax benefif for the three months ended March 31, 2002 was $320,000, compared to income tax expense of $45,000 from the same period in the prior year. NET INCOME (LOSS). Net loss for the three months ended March 31, 2002 was $594,000 compared to net income of $81,000 from the same period in the prior year due to the items discussed above. 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 races (street course, superspeedway, etc.) and the sanction fees attributed to those races will affect quarterly results. During each of the three month periods ended March 31, 2002 and 2001, CART held one race in Monterrey, Mexico. LIQUIDITY AND CAPITAL RESOURCES We have relied on the proceeds from our available cash and cash flow from operations to finance working capital, investments and capital expenditures during the past year. --We-have-a-SI-5million revolving line of credit -with -a commercial -bank. As -of March 31, 2002, there ------- was no outstanding balance under the line of credit. The 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 March 31, 2002 was $25.0 million, a net decrease of $10.9 million from December 31, 2001. This decrease was primarily the result of net cash provided by operating activities of $8.0 million, partially offset by net cash used in investing activities of $19.0 million. We anticipate capital expenditures of approximately $3.5 million during the next twelve months. We believe that existing cash, cash flow from operations and available bank borrowings will be sufficient for capital expenditures and other cash needs. We have entered into various non -cancelable leases for office space and equipment through 2010. We have implemented a stock repurchase program that was authorized by our Board of Directors in April 2001. The program allows us to repurchase up to 2,500,000 shares of our outstanding stock, of which 1,054,000 shares have been repurchased for an aggregate of $15.5 million through March 31, 2002. We did not repurchase any shares in the three months ended March 31, 2002. Repurchases under the ()2-718 http://biz.yahoo.com/e/i/m/mph.httnl 06/21/2002 Yahoo! Finance - CHAMPIONSHIP AUTO RAUINO TEAMJ INC - Quarteny xeport (�,r-L •age o or 6 program will be made at the discretion of management based upon market, business, legal, accounting and other factors. Accordingly, there is not a guarantee as to the timing or number of shares to be repurchased. Beginning in 2002, we will be co -promoting and/or self -promoting certain race events. The events' financial success will be dependent on the sale of tickets, sponsorship, hospitality, signage and other commercial rights associated with the events. For the events where we will co -promote, we have negotiated a reduction in the sanction fee payable to us, and we will share in the net income of the events. We have entered into agreements with certain of these co -promoted events whereby we have agreed to share in any losses incurred as a result of these events. For the events where we will be the promoter, we will have to increase our expenditures for promotion and may have to make some capital expenditures. We are unable to assess the financial outcome of these events. In light of current events and the overall state of the economy, we are uncertain on whether we or our teams will be able to maintain the same levels of sponsorship income that we have reported in the past or secure additional sponsorship. In addition, we are unable to determine what effect these factors will have on our new television package and our ability to sell television advertising for our races. We are also unable to assess what impact a decrease in disposable income of our fans will have on our promoters and ultimately, our races. Our new television contracts, which run through 2004, require us to purchase air -time and produce the show at our expense for the races to be broadcast on CBS and Fox. We retain the advertising revenues for these races. Our fixed costs for 2002 are estimated to be approximately $9.9 million. As we have previously reported, we are party to several lawsuits. We cannot predict the outcome of the litigation, and at this time, management is unable to estimate the impact that ultimate resolution of these matters may have on the Company's financial position or future results of operations. RELATEWP-ARTIES --- We have entered into, and we will continue to enter into, transactions with entities that are affiliated with our directors and/or 5% stockholders who are owners of our race teams. Race teams that participate in the CART Championship receive purse distributions on a per race basis and from the year end point fund which amounts have been paid based solely upon their performance in specific races. All of these payments are made to our race teams regardless of the affiliation with our directors or significant shareholders. During 2002, we also paid a participation payment to our race teams, including those affiliated with directors and/or 5% stockholders. The following table provides information with respect to payments made during the three months ended March 31, 2002 by us to race teams that are affiliated with directors and/or significant shareholders of CART: RACE TEAM/AFFILIATED DIRECTOR PURSE DISTRIBUTIONS ------------------------------------------------ Newman/Haas Racing/Carl A. Haas' $ 150,000 Team Green/Barry E. Green 94,000 Chip Ganassi Racing Teams, Inc./Chip Ganassi 27,000 Forsythe Racing, Inc./Gerald R. Forsythe 53,000 Patrick Racing, Inc./U.E. Patrick 11,000 Derrick Walker Racing, Inc./Derrick Walker 13,000 02- 718 http://biz.yahoo.com/e/i/m/mph.htni 06/21/2002 Yahoo! Finance - CHAMPIONSHIP AUTO RAC;INU I hAMS INC; - QMarterty xeport (=Urage i or zs Carl A. Haas, a director of the Company and a race team owner, is a principal owner of Carl Haas Racing Teams, Ltd. and Texaco Houston Grand Prix L.L.C., each of which have entered into Promoter Agreements with respect to CART Championship races at the Wisconsin State Park Speedway in West Allis, Wisconsin and at a temporary road course in Houston, Texas. Pursuant to the terms thereof, a CART Championship race was to be held in West Allis through 2001 and in Houston through 2003. We are currently in negotiations to finalize our agreement for 2002, with the promoter having the option to extend for 2003 and 2004, fog the race at Wisconsin State Park Speedway and believe that the terms will be substantially similar to our previous agreement. The Houston, Texas race will not be held in 2002 due to construction on the temporary circuit in downtown Housfon. The sanction fees payable to CART under these agreements have been similar to those paid by independent race promoters. Pursuant to the existing Promoter Agreement and our current discussions with respect to the 2002 race at Wisconsin State Park Speedway, entities affiliated with Mr. Haas will pay sanction fees to CART in the aggregate amount of $1.7 million (Milwaukee - in negotiation) and $2.7 million (Houston) in 2002 and 2003, respectively. In addition, we anticipate that we will pay a total of $100,000 in sales costs and $100,000 in marketing expenses in relation to our race at Wisconsin State Park Speedway during 2002. Gerald R. Forsythe, a race team owner and 5% stockholder, is a principal owner of the entities which entered into Promoter Agreements with respect to CART Championship races in Rockingham, England and in Mexico City, Mexico beginning in 2002. He is also a principal owner of Monterrey Grand Prix, S. de R.L. de C.V. which entered into a Promoter Agreement with respect to a CART Championship race in Monterrey, Mexico. Pursuant to the terms thereof, a CART Championship race will be held in Rockingham through 2006, in Mexico City through 2006 and in Monterrey through 2005. These entities affiliated with Mr. Forsythe have paid or will pay sanction fees to CART in the aggregate amount of $10.9 million for 2002, $11.2 million for 2003, $11.5 million for 2004, $11.9 million for 2005 and $9.3 million for 2006. However, we are currently negotiating an amendment relating to our race in Rockingham, England whereby we will co -promote the event, reduce the initial sanction fee and share in the percentage of profits. In addition, we have paid or anticipate that we will pay a total of $300,000in sales costs and $291,000 in marketing expenses to these entities during 2002. Mr. Forsythe is also a principal owner of the entity that holds our Mexican television rights through 2004. In return for these rights, we will receive a minimum guarantee of $300,000, $325,000 and $350,000 for each of the three years ending 2002, 2003 and 2004, respectively. In addition, we will receive 70% of the net profits until we reach $500,000, $550,000 and $600,000 for each of the three years ending 2002, 2003 and 2004, respectively. Floyd R. Ganassi Jr., a director of the Company and a race team owner, is a principal owner of Chicago Motor Speedway, LLC and has entered into a Promoter Agreement with respect to a CART Championship race at Chicago Motor Speedway in Cicero (Chicago), Illinois. Pursuant to the terms thereof, a Championship race was to be held through 2003. The Chicago Motor Speedway, LLC was to pay sanction fees to CART of $2.0 million for 2002 and $2.1 million for 2003. In 2002, the Chicago Motor Speedway, LLC announced the suspension of all race events at Chicago Motor Speedway. We then entered into an agreement with the Chicago Motor Speedway, LLC where we will rent the track for $850,000 in 2002, and we will promote the race ourselves. In addition to the payments described above, CART receives revenues from its race teams, including those affiliated with CART directors and/or 5% stockholders, for entry fees, equipment leases and other payments based solely on participation in CART events. During the three months ended March 31, 2002, race teams affiliated with CART directors and/or 5% stockholders made such payments to CART U2-- 718 http://biz.yahoo.com/e/l/m/mph.html 0.6/21/2002 Y anon! rinance - %—riAlviriViN3rur ^u i V tCtil,llvV t ntLtv10 - Vuaitciry "C;IJVit ko."%,r agc o vi o as follows: Team Green/Barry E. Green $ 115,000 Forsythe Racing, Inc./Gerald R. Forsythe 72,000 Chip Ganassi Racing Teams, Inc./Chip Ganassi 72,000 Newman/Haas Racing/Carl A. Haas 75,000 Patrick Racing, Inc./U.E. Patrick 36,000 Derrick Walker Racing, Inc./Derrick Walker 36,000 We believe that all of the transactions which we have entered info with our directors or significant shareholders are comparable to the terms that we have in the past or could in the future enter into with third parties with respect to each of these transactions. In order to avoid conflicts of interest, any of our directors who are affiliated with an entity that is entering into a transaction with us will not vote on any matter related to such transaction, and may, in certain circumstances, refrain from participating in any discussions related to such transaction. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS With the exception of historical information contained in this Form 10-Q, 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 following factors, and other factors not mentioned, could cause the forward- ooking 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 - success of television contract - renewal of sanction agreements - participation by suppliers- success-of-co--promoted-and-self-promoted races - current -uncertain economic environment and weak advertising market - impact of engine specifications Recent filings: May 11, 2001 (Qtrly Rpt) I Aug 09, 2001 (Qtrly Rpt) I Nov 14, 2001 (Qtrly Rpt) I May 10, 2002 (Qtrly Rpt) More ings or av able firom EDGAR Zh9Ee—J—(3it-a Free TiW to EDGTkR Online Premium EDGAR Online: Res earc Peop a in this company I Full text earc Copyright ® 2002 Yahoo! Inc. Ali Rights Reserved. Privacy Policy - Terms of Service Data and information are provided by EDGAR Online, Inc. for informational purposes—o—niFy and not intercede for trading purposes. Yahoo[ and EDGAR Online, Inc. shalt have no liability for the accuracy o information furnished or for delays, omissions or opinions expressed therein, or for any actions taken in reliance thereon. You may not use the information for any illegal purpose or furnish the Information to any person, firm or branch office for commercial re -use or re -sale. 02- '718 http://biz.yahoo.com/e/Um/mph.html 06/21/2002 CHAMPIONSHIP AU* IU RAUINU TEAMS INI;(rorm: IU -Q, xeceiveo: UXIU/LVUL i L:s rage t or 19 SECURITIES AND EXCHANGE COMIVIISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) (X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2002. ( ) Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period to Commission File No. 1-13925 CHAMPIONSHIP AUTO RACING TEAMS, INC. (Exact name of registrant as specified in its charter) Delaware 38-3389456 ------------------------------- --------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) Incorporation or organization) 755 West Big Beaver Rd., Suite 800, Troy, MI 48084 (Address of principal executive offices) (Zip Code) (248)362-8800 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. COMMON STOCK $0.01 PAR VALUE 14,718,134 SHARES ---------------------------- ----------------- CLASS OUTSTANDING AT MAY 1, 2002 This report contains 19 pages. 02- 718 http://eol.finsys.com/edgar cony htmY2002/05/10/0000950152-02-004001.htm1 06/21/2002 CHAMPIONSHIP AUTO RACING TEAMS INC(Form: 10-Q, Received: 05/10/2002 1 L:3 Page 2 of 19 TABLE OF CONTENTS PART I - FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS. Consolidated Balance Sheets at -March 31, 2002 and December 31, Consolidated Statements of Operations for the Three Months Ende March 31, 2002 and 2001 Consolidated Statement of Stockholders' Equity for the Three Mo Ended March 31, 2002 Consolidated Statements of Cash Flows for the Three Months Ende March 31, 2002 and 2001 Notes to Consolidated Financial Statements ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. SIGNATURES 2 CHAMPIONSHIP AUTO RACING TEAMS, INC. CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2002 AND DECEMBER 31, 2001 (DOLLARS IN THOUSANDS) ASSETS CURRENT ASSETS: Cash and cash equivalents Short-term investments Accounts receivable (net of allowance for doubtful accounts of $7,091 and $7,388, at March 31, 2002 and December 31, 2001, Current portion of notes receivable (net of allowance for doubtful http://eol.finsys.com/edgar conv htmU2002/05/10/0000950152-02-004001.html respectively) 02- 718 06/21/2002 CHAMPIONSHIP AUTO RACING TEAMS 1NC(Form: 10-Q, Received: 05/ 1 U/2002 11.:3 Page 3 of 19 notes of $123 and $123, at March 31, 2002 and December 31, 2001, respectively) Inventory Prepaid expenses Deferred income taxes Total current assets NOTES RECEIVABLE (net of allowance for doubtful notes of $96 and $96, at March 31, 2002 and December 31, 2001, PROPERTY AND EQUIPMENT- Net NON-CURRENT DEFFERED INCOME TAXES GOODWILL.(net of accumulated amortization of $133 and $133 at March 31, 2002 and December 31, 2001, respectively) OTHER ASSETS (net of accumulated amortization of $116 and $116 at March 31, 2002 and December 31, 2001, TOTAL ASSETS LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable Accrued liabilities: Race expense and point awards Royalties Payroll Taxes Other Deferred revenue Total current liabilities DEFERRED INCOME TAXES COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value; 5,000,000 shares outstanding at Mar ch_31,__2002 and December 31, 2001 Common stock, $.01 par value; 50,000,000 shares respectively) respectively) authorized, none issued and authorized, 14,718,134 and 14,718,134 shares issued and outstanding at March 31, 2002 and December 31, 2001, respectively Additional paid -in capital Retained earnings Unrealized gain on investments Total stockholders' equity TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY See accompanying notes to consolidated financial statements. 3 CHAMPIONSHIP AUTO RACING TEAMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (UNAUDITED) http://eol.finsys.com/edgar conv_httnY2002/05/10/0000950152-02-004001.html 06/21/2002 CHAMPIONSHIP AUTO RACING TEAMS INC(Form: 10-Q, Received: 05/ 1 U/2UU2 11:3 Page 4 of 19 (IN THOUSANDS, EXCEPT EARNINGS PER SHARE) EARNINGS (LOSS) PER SHARE: BASIC $ (0.04) $ DILUTED $ (0.04) $ WEIGHTED AVERAGE SHARES OUTSTANDING: BASIC 14,718 DILUTED 14,718 See accompanying notes to consolidated financial statements. 4 CHAMPIONSHIP AUTO RACING TEAMS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 2002 (UNAUDITED) (DOLLARS IN THOUSANDS) 02- 718 http://eol.fimys.com/edgar conv_htmU2002/05/10/0000950152-02-004001.html 06/21/2002 2002 REVENUES: Sanction fees $ 2,704 $ Sponsorship revenue 2,280 Television revenue 205 Engine leases, rebuilds and wheel sales -- Other revenue 414 Total revenues 5,603 EXPENSES: Race distributions 1,023 Race expenses 1,851 Cost of engine rebuilds and wheel sales -- Television expense 72 Administrative and indirect expenses (includes severance expense of $0 and $386 for the three months ended March 31, 2002 and 2001, respectively) 4,324 Depreciation and amortization 334 Total expenses 7,604 OPERATING LOSS (2,001) Interest income (net) 1,087 INCOME (LOSS) BEFORE INCOME TAXES (914) Income tax expense (benefit) (320) NET INCOME (LOSS) $ (594) $ EARNINGS (LOSS) PER SHARE: BASIC $ (0.04) $ DILUTED $ (0.04) $ WEIGHTED AVERAGE SHARES OUTSTANDING: BASIC 14,718 DILUTED 14,718 See accompanying notes to consolidated financial statements. 4 CHAMPIONSHIP AUTO RACING TEAMS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 2002 (UNAUDITED) (DOLLARS IN THOUSANDS) 02- 718 http://eol.fimys.com/edgar conv_htmU2002/05/10/0000950152-02-004001.html 06/21/2002 C;HAMYIONSHIY AU I U HALANU 1 tAMJ J NL�rOrm: IU -q, tceceivea: UX IV//-UU/- i L:J rage D 01 ty BALANCES, DECEMBER 31, 2001 Net loss Unrealized loss on investments Comprehensive loss BALANCES, MARCH 31, 2002 COMMON STOCK ------------------ SHARES AMOUNT 14,718 $ 147 ADDITIONAL PAID -IN RETAINE CAPITAL EARNING $ 87,765 $ 29,02 -- (59 --------- --------- --------- -------- 14,718 $ 147 $ 87,765 $ 28,43 See accompanying notes to consolidated financial statements. 5 CHAMPIONSHIP AUTO RACING TEAMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001 (UNAUDITED) (DOLLARS IN THOUSANDS) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of investments (51,825) (12 Proceeds from sale and maturities of investments 34,064 18 Notes receivable (251) Acquisition of property and equipment (997) Proceeds from sale of property and equipment 20 02- 718 http://eol.finsys.com/edgar conv_html/2002/05/10/0000950152-02-004001.html 06/21/2002 2002 20 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (594) $ Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 334 Net loss from sale of property and equipment 14 Deferred income taxes (544) Changes in assets and liabilities that provided (used) cash: Accounts receivable (1,732) Inventory (25) Prepaid expenses 1,507 Other assets Accounts payable 1,301 Accrued liabilities (4,627) Unearned revenue 12,412 16 Deposits Net cash provided -by operating activities 8,046 14 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of investments (51,825) (12 Proceeds from sale and maturities of investments 34,064 18 Notes receivable (251) Acquisition of property and equipment (997) Proceeds from sale of property and equipment 20 02- 718 http://eol.finsys.com/edgar conv_html/2002/05/10/0000950152-02-004001.html 06/21/2002 CHAMPIONSHIP AUTO RACING TEAMS 1NC(hbrm: 1U -Q, Keceivea: U3/ IUr2UU2 I L:s rage o of 19 Acquisition of trademark -- Net cash provided by (used in) investing activities (18,989) 6 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (10,943) 20 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 35,932 19 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 24,989 $ 40 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Income taxes $ 1 $ Interest $ -- $ See accompanying notes to consolidated financial statements. 6 CHAMPIONSHIP AUTO RACING TEAMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION. The accompanying unaudited consolidated financial statements have been prepared by management and --in the opinion of management, contain all adjusEnien--is,consisting of normal recurring adjustments, necessary to.present fairly the financial position of Championship Auto Racing Teams, Inc. and subsidiaries (the "Company") as of March 31, 2002 and the results of its operations and its cash flows for the three month periods ended March 31, 2002 and 2001. The unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Company's Form 10-K filed with the Securities and Exchange Commission. Because of the seasonal concentration of racing events, the results of operations for the three month periods ended March 31, 2002 and 2001 are not indicative of the results to be expected for the year. PRINCIPLES OF CONSOLIDATION. The consolidated financial statements of the Company include the financial statements of Championship Auto Racing Teams and its wholly-owned subsidiaries - CART, Inc., American Racing Series, Inc., Pro -Motion Agency, Ltd. and CART Licensed Products, Inc. At the end of the 2001 season, the Company discontinued the operations of American Racing Series, Inc. All significant intercompany balances have been eliminated in consolidation. ACCOUNTING PRONOUNCEMENTS. In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets". This statement changes the accounting and reporting for goodwill and other 02'-- 718 http://eol.finsys.com/edgar conv_htmU2002/05/10/0000950152-02-004001.html 06/21/2002 CHAMPIONSHIP AUTO RACING TEAMS 1NC;(Form: IU -Q, Received: UJ/ IU12UV2 1 L:S rage I of 19 intangible assets. The Company adopted this statement on January 1, 2002, and goodwill will no longer be amortized; however, tests for impairment will be performed annually or when a triggering event occurs. The Company is evaluating the effect of SFAS No. 142 on the consolidated financial statements related to the impairment testing of goodwill. For the three months ended March 31, 2001, our reported net income and basic and diluted earnings per share were $81,000 and $0.01, respectively. Adjusted for the non -amortization provisions of SFAS No. 142, our reported net income and basic and diluted earnings per share would have been $96,000 (exclusive of the impairment of goodwill related to American Racing Series, Inc.) and $0.01, respectively, resulting in an increase in earnings of $15,000, or $0.00 per share for the first quarter. The after-tax impact in -2002 of the non -amortization provisions of SFAS No. 142 is expected to be $15,000 ($0.00 per share) for each of the four quarters. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long - Lived Assets." This supersedes SFAS No. 121, "Accounting for the Impairment of Long -Lived Assets to be Disposed Of." This statement retains the impairment loss recognition and measurement requirements of SFAS No. 121. In addition, it requires that one accounting model be used for long-lived assets to be disposed of by sale, and broadens the presentation of discontinued operations to include more disposal transactions. The Company adopted this statement on January 1, 2002, and there was no impact on the financial statements as of March 31, 2002. 7 RECLASSIFICATIONS. Certain reclassifications have been made to the 2001 unaudited consolidated financial statements in order for them to conform to the 2002 presentation. 2. SHORT-TERM INVESTMENTS The following is a summary of the estimated fair value of available -for -sale short-term investments by balance sheet classification: (IN THOUSANDS) COST FAIR VALUE G MARCH 31, 2002 ----------- ----------- ---- -------------- Corporate bonds $ 4,138 $'4,107 $ U.S. agencies securities 92,081 ----------- 92,352 Total short-term investments $96,219 ----------- $96,459 ---- $ (IN THOUSANDS) COST FAIR VALUE G DECEMBER 31, 2001 ----------------- ----------- ----------- ---- Corporate bonds $ 507 $ 511 U.S. agencies securities 77,951 78,943 Total short-term investments ----------- $ 78,458 ----------- $ 79,454 ---- U2- http://eol.finsys.com/edgarl conv_htmV2002/05/10/0000950152-02-004001.ht nl 06/21/2002 CHAMPIONSHIP AUTO RACING TEAMS INC(Form: 1U -Q, Received: 05/10/2UU2 11.:3 Page ZS of 19 There were no sales of investments for the three months ended March 31, 2002. Proceeds from sales of investments were approximately $1.4 million for the three months ended March 31, 2001. Contractual maturities range from less than one year to two years. The weighted average maturity of the portfolio does not exceed one year. 3. PROPERTY AND EQUIPMENT Property and equipment consists of the following at March 31, 2002 and December 31, 2001: Engines Equipment Furniture and fixtures Vehicles Other Total Less accumulated depreciation Property and equipment (net) 8 4. SEGMENT REPORTING (IN THOUSANDS) MARCH 31, DECEMBER 31, 2002 2001 --------------- $ -- ---------------- $ 2,456 5,567 4,890 413 413 3,819 3,553 218 --------------- 215 ---------------- 10, 017 (4,556) --------------- The Company has one reportable segment, racing operations. $ 5,461 11,527 (6,695) ---------------- $ 4,832 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. THREE MONTHS ENDED MARCH ----------------------=- ($ in thousands) RACING OPERATIONS OTHER* ---------------- ----------------- ------ 2002 ---- 02- '718 http://eol.finsys.com/edgar conv_html/2002/05/10/0000950152-02-004001.html 06/21/2002 CHAMPIONSHIP AUTO RACING TEAMS 1NC(Form: 1U -Q, Received: U5/iU/2UU"2 1 L:3 Page 9 of 19 Revenues $ 5,564 $ 39 Interest income (net) 1,083 4 Depreciation and amortization 315 19 Segment loss before income tax benefit (901) (13) 2001 Revenues $ 6,365 $ 74 Interest income (net) 1,970 5 Depreciation and amortization 378 24 Segment income before income taxes 105 21 *Segment is below the quantitative thresholds for determining reportable segments and commenced operations on January 1, 1997. This segment is related to the Company's licensing royalties. Reconciliations to consolidated financial statement totals are as follows: MARCH 31, DECEMBER 31, 2002 2001 ------------- ------------ Total assets for reportable segment $ 139,347 $131,901 Other assets 1,033 1,040 ------------- ------------ Total consolidated assets $ 140,380 $132,941 5. COMMITMENTS AND CONTINGENCIES LITIGATION. On September 8, 2000, a complaint for damages was filed against the Company in the -Superior Courtof-the State of California, County of Mon erey. TYus`tawsuit was filed by the heirs of- -^ - Gonzolo Rodriguez, a race car driver who 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 sought damages in an unspecified amount for negligence and wrongful death. On November 5, 2001, a release signed by Mr. Rodriguez was upheld by the Court and the causes of action for negligence dismissed based on defendants' motion for summary judgment. The remaining count in the lawsuit is for willful and/or reckless conduct. 9 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. This lawsuit was filed by the estate of Greg Moore, a race car driver who 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. A motion for summary judgement was filed by all of the defendants on March 15, 2002. 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 us against any liability for personal injuries sustained at such promoter's racing event. In addition, the Company 02- '718 http://eol.finsys.com/edgar conv_html/2002/05/10/0000950152-02-004001.html 06/21/2002 l;r1AA4r1V1VJr11r Au 1 V itA1,11V1i intuvio ir4t-krV1Ill. tV-y, I\Gt+GiVGIl. VJ/ 1V/LVVL LL. r arc 1V Vi 17 requires each promoter to carry liability insurance, naming us 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 our financial position or future results of operations. On November 8, 2001, two former team owners, DellaPenna Motorsports and Precision Preparation, Inc., filed suit against the Company in the Circuit Court for the County of Wayne, State of Michigan, each alleging damages in excess of $1.0 million for breach of contract, promissory estoppel, misrepresentation, and tortious interference with contract and business expectancy. The Company intends to vigorously defend itself in this lawsuit and does not believe the lawsuit has merit. Management does not believe that the outcome of this lawsuit will have a material adverse affect on the Company's financial position or future results of operations. On March 26, 2002, the Company filed a complaint against Joseph F. Heitzler, a director and former chairman, chief executive officer and president of the Company in U.S. District Court, Eastern District of Michigan, Southern Division. The complaint alleges that Mr. Heitzler breached his employment contract, breached his fiduciary duties and intentionally or recklessly omitted to disclose information to the Company in order to induce the continuation of Mr. Heitzler's employment agreement. The suit seeks damages of an unspecified amount. On March 28, 2002, Mr. Heitzler filed a complaint against the Company in the Superior Court of the State of California, County of Los Angeles. The suit seeks compensatory, exemplary and punitive damages in excess of $2.0 million for breach of contract, fraud, negligent misrepresentation, breach of covenant of good faith and fair dealing, declaratory relief. An amended complaint adding a count for tortious breach of contract in violation of public policy was filed on April 9, 2002. The Company intends to vigorously defend itself in this lawsuit and does not believe the lawsuit has merit. Management does not believe that the outcome of this lawsuit will have a material adverse affect on the Company's financial position or future results of operations. The Company is involved in other litigation not specifically identified above and does not believe the outcome of any of this litigation will have a material adverse affect on its financial position or future results of operation. 10 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Beginning in 2002, we are transitioning our company from a sanctioning body to a marketing services company. Historically, we have derived our revenues from three primary sources: sanction fees paid by track promoters, corporate sponsorship fees and television revenues. Starting this year, we are introducing new revenue sources to our business model. At certain tracks, we will be promoting our own events, and at others, we will be partnering with experienced promoters. We intend to use the talent and experience of our key personnel to set the standard for promotion of CART sanctioned events, and we will participate in the potential net income from such successful events. For the events we will be co -promoting, we will receive lower upfront sanction fees, but our agreements provide for us to receive a majority of any profits until the original sanction fee is received, with an equal profit sharing thereafter. We are also taking on the risk of potential losses with these co -promoted events. 02- 718 http://eol.finsys.com/edgar conv_html/2002/05/10/0000950152-02-004001.htm1 06/21/2002 CHAMPIONSHIP AUTO KACINU IhAMJ INI;(rorm: Iv -Q, xeceivea: v:)/ivwwv/- LL: rage i i of iy We have also entered into new television agreements for 2002 with Speed Channel, Fox and CBS. These arrangements will significantly increase the number of high quality CART programming hours that will be available to our fans domestically. We will have six races broadcast on CBS and one race on FOX, with the balance airing on Speed Channel. We will buy the air -time and pay for production for the CBS and FOX races and receive the advertising time which we, along with our agents, will be responsible to sell. This new domestic television arrangement is different than our past television arrangement where we received a rights fee. The following discussion and analysis of the financial condition and results of operations should be read in conjunction with the unaudited consolidated financial statements of the Company, including the respective notes thereto which are included in this Form 10-Q. CRITICAL ACCOUNTING POLICIES Revenue Recognition One of our most critical accounting policies is revenue recognition. We recognize our revenues as they are earned, but the determination of when they are earned depends on the source of the revenue. Our assumptions for each revenue source is outlined below. SANCTION FEE REVENUE. Generally, sanction fees are paid in advance of the race and are recorded as deferred revenue. Revenue from sanction fees is not recognized until the event is completed. Beginning in 2002, we have entered into agreements with certain promoters where a portion of the contracted sanction fee has been reduced in exchange for a percentage of the profits from the event. Profits from these events will be recognized as sanction fee revenue when the event is completed. SPONSORSHIP REVENUE. Generally, sponsorship agreements call for quarterly payments, and each payment is recorded as deferred revenue when paid. Revenue is recorded ratably over the life of the sponsorship 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.— --- 11 ENGINE LEASE, REBUILDS AND WHEEL SALES. Engine lease revenue, relating to our discontinued Indy Lights series, was recognized ratably over the period covered by the agreement. Engine rebuilds and wheel sales were recognized when the product is delivered to the customer. This revenue ceased at the end of the 2001 Indy Lights season. TELEVISION REVENUE. Television revenue as it relates to minimum guarantees and rights fees is recognized ratably over the race schedule. Beginning in 2002, we will sell the advertising for the shows to be aired on CBS and Fox networks. Advertising revenue will be recognized for these events when the event is completed and the advertising is aired. RACE PROMOTION REVENUE. Payments for commercial rights associated with a self -promoted event that are received prior to the event will be recorded as deferred revenue. Revenue will be recorded when the event is completed. Expenses related to these events will be recorded in race promotion expenses. OTHER REVENUES. Other revenues include membership and entry fees, contingency awards money and royalty income. Membership and entry fees and contingency award money are recognized ratably http://eol.finsys.com/edgar conv_html/2002/05/10/0000950152-02-004001.htm1 06/21/2002 CHAMPIONSHIP AUTO RACING TEAMS INC(I+orm: 1U -Q, Kecervea: UJ/iwzu l LL: rage u of 19 over the race schedule. Royalty income is recognized as the related product sales occur or on a monthly basis based on a minimum guarantee. Impairment We are subject to impairment tests in assessing the valuation of our goodwill and long-lived assets. Goodwill represents the excess of the purchase price of American Racing Series ("ARS") and B.P. Automotive, Ltd. and Pro -Motion Agency 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. We continually evaluate whether events and circumstances have occurred that indicate the remaining estimated useful life of our goodwill and long-lived assets may warrant revision or that the remaining balance may not be recoverable. When factors indicate that goodwill or long-lived assets should be evaluated for possible impairment, the Company uses an estimate of fair value based on future profitability and cash flows. During 2001, we determined that the goodwill and certain long-lived assets associated with ARS were impaired due to our strategic decision to discontinue the operations of ARS at the conclusion of the 2001 season. As a result, we recorded an impairment charge for the goodwill and long-lived assets. Litigation We are involved in litigation as a part of our normal course of business. Our litigation proceedings are included in our most recent Form 10-K, Item 3: Legal Proceedings and updated, as needed, in Part II -Other Information, Item 1: Legal Proceedings in this and subsequent Forms 10-Q. Management intends to vigorously defend against any litigation. When a complaint is filed by or against the Company that represents a material claim, we disclose the proceeding in our financial statements. When a claim against us is probable and estimable, we record the expense. When we are the party filing the claim, we do not record income until the claim for damages is received. RESULTS OF OPERATIONS Three Months Ended March 31, 2002 Compared to Three Months Ended March 31, 2001 REVENUES. Total revenues for the three months ended March 31, 2002 were $5.6 million, a decrease of $836,000 or 13% from the same period in the prior year. This was due to decreased sponsorship revenue, 12 television revenue and engine leases, rebuilds and wheel sales partially offset by an increase in sanction fees and other revenue, as described below. Sanction fees for the three months ended March 31, 2002 were $2.7 million, an increase of $114,000, or 4%, from the same period in the prior year due to an annual escalation in sanction fees for our race in Monterrey, Mexico. We staged one race during the first quarter of 2002 and 2001. Sponsorship revenue for the three months ended March 31, 2002 was $2.3 million, a decrease of $674,000, or 23%, from the same period in the prior year. This decrease was primarily attributable to the loss of sponsorship income from the Indy Lights series which we discontinued at the end of the 2001 02- '718 http://eol.finsys.com/edgar_conv htmY2002/05/10/0000950152-02-004()Ol.htmI 06/21/2002 CHAMPIONSHIP AU IU KAUINU ItAMJ INI:(ronnn: IV -ll, Mecelveu: uJ/ iv/GVVL LL: rage i.3 ui I season, as well as a reduction in sponsorship fees from one of our sponsors, pursuant to a renegotiation clause in the applicable sponsorship contract. Television revenue for the three months ended March 31, 2002 was $205,000, a decrease of $54,000, or 21 %, from the same period in the prior year. This decrease was due to a loss of guaranteed income from our former television partner, offset by revenue received from new international television distribution rights . There were no engine leases, rebuilds and wheel sales for the three months ended March 31, 2002, a decrease of $271,000 from the same period in the prior year. This decrease was due to the discontinuance of the Indy Lights Championship effective with the conclusion of the 2001 race season. Other revenue for the three months ended March 31, 2002 was $414,000, an increase of $49,000, or 13%, from the same period in the prior year. This increase was primarily attributable to an increase in commission sales from Toyota Atlantics suppliers. EXPENSES. Total expenses for the three months ended March 31, 2002 were $7.6 million, a decrease of $684,000, or 8%, from the same period in the prior year. This decrease was due to a decrease in administrative and indirect expenses, cost of engine rebuilds and wheel sales and depreciation, partially offset by an increase in race distributions and race expenses, as described below. Race distributions for the three months ended March 31, 2002 were $1.0 million, an increase of $282,000, or 38%, from the same period in the prior year. The increase was due to a $10,000 participation payment that we made to all of our teams, totaling $200,000. The increase was also due to one Toyota -Atlantic race being held in the three months ended March 31, 2002 compared to zero races being held in the same period in the prior year, partially offset by a decrease in Indy Lights race distributions due to zero races being held in the three months ended March 31, 2002 compared to one race being held in the same period in the prior year. --Race-expenses for the three months ended_March-3_1r2002_were$1.9 million, an increase of $25,000ror__ 1 %, which was similar to the same period in the prior year. There was no cost of engine rebuilds and wheel sales for the three months ended March 31, 2002, a decrease of $99,000 from the same period in the prior year. This decrease is due to the discontinuance of the Indy Lights Championship effective with the conclusion of the 2001 season. Administrative and indirect expenses for the three months ended March 31, 2002 were $4.3 million, a decrease of $896,000, or 17%, from the same period in the prior year. This decrease was primarily attributable to a decrease in recruiting and strategic planning consulting expenses, as well as a severance payment to a former employee that was made in the same period in the prior year. The decrease also reflected a timing difference in our marketing expenditures in the three months ended March 31, 2002 compared to the same period in the prior year. Depreciation and amortization expense for the three months ended March 31, 2002 was $334,000, compared to depreciation and amortization expense of $402,000 for the same period in the prior year. We 13 ceased amortizing goodwill as of January 1, 2002 in compliance with the Financial Accounting 02- 71& http://eol.finsys.com/edgar conv_html/2002/05/10/0000950152-02-004001.html 06/21/2002 CHAMPIONSHIP AUTO 1ZACINCT TEAMS 1NC(Porm: to -Q, xeceivea: wv iu/zuv,/, LL: rage 14 01 19 Standards Board issuance or Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets." OPERATING LOSS. Operating loss for the three months ended March 31, 2002 was $2.0 million, an increase of $152,000 compared to an operating loss of $1.8 million for the same period in the prior year due to the items discussed above. INTEREST INCOME (NET). Interest income (net) for the three months ended March 31, 2002 was $1.1 million compared to interest income (net) of $2.0 million from the same period in the prior year. The decrease of $888,000 was primarily attributable to a decrease in interest rates. INCOME (LOSS) BEFORE INCOME TAXES. Loss before income taxes for the three months ended March 31, 2002 was $914,000, compared to income before income taxes of $126,000 from the same period in the prior year due to the items discussed above. INCOME TAX EXPENSE (BENEFIT). Income tax benefit for the three months ended March 31, 2002 was $320,000, compared to income tax expense of $45,000 from the same period in the prior year. NET INCOME (LOSS). Net loss for the three months ended March 31, 2002 was $594,000 compared to net income of $81,000 from the same period in the prior year due to the items discussed above. 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 races (street course, superspeedway, etc.) and the sanction fees attributed to those races will affect quarterly results. During each of the three month periods ended March 31, 2002 and 2001, CART held one race in Monterrey, Mexico. LIQUIDITY -AND -CAPITAL RESOURCES - - - — --- We have relied on the proceeds from our available cash and cash flow from operations to finance working capital, investments. and capital expenditures during the past year. We have a $1.5 million revolving line of credit with a commercial bank. As of March 31, 2002, there was no outstanding balance under the line of credit. The 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 March 31, 2002 was $25.0 million, a net decrease of $10.9 million from December 31, 2001. This decrease was primarily the result of net cash provided by operating activities of $8.0 million, partially offset by net cash used in investing activities of $19.0 million. We anticipate capital expenditures of approximately $3.5 million during the next twelve months. We believe that existing cash, cash flow from operations and available bank borrowings will be sufficient for capital expenditures and other cash needs. We have entered into various non -cancelable leases for office space and equipment through 2010. We have implemented a stock repurchase program that was authorized by our Board of Directors in http://eol.finsys.com/edgar conv_htmU2002/05/10/0000950152-02-004001.html 0 %6/21 2002 CHAMPIONSHIP AU l'O KAU1Nli IEAMJ 1NU(rorm: iu-l), xecP1vea: uJ/!u1zvvz LL: irage 1J UI iY April 2001. The program allows us to repurchase up to 2,500,000 shares of our outstanding stock, of which 1,054,000 shares have been repurchased for an aggregate of $15.5 million through March 31, 2002. 14 We did not repurchase any shares in the three months ended March 31, 2002. Repurchases under the program will be made at the discretion of management based upon market, business, legal, accounting and other factors. Accordingly, there is not a guarantee as to the timing or number of shares to be repurchased. Beginning in 2002, we will be co -promoting and/or self -promoting certain race events. The events' financial success will be dependent on the sale of tickets, sponsorship, hospitality, signage and other commercial rights associated with the events. For the events where we will co -promote, we have negotiated a reduction in the sanction fee payable to us, and we will share in the net income of the events. We have entered into agreements with certain of these co -promoted events whereby we have agreed to share in any losses incurred as a result of these events. For the events where we will be the promoter, we will have to increase our expenditures for promotion and may have to make some capital expenditures. We are unable to assess the financial outcome of these events. In light of current events and the overall state of the economy, we are uncertain on whether we or our teams will be able to maintain the same levels of sponsorship income that we have reported in the past or secure additional sponsorship. In addition, we are unable to determine what effect these factors will have on our new television package and our ability to sell television advertising for our races. We are also unable to assess what impact a decrease in disposable income of our fans will have on our promoters and ultimately, our races. Our new television contracts, which run through 2004, require us to purchase air -time and produce the show at our expense for the races to be broadcast on CBS and Fox. We retain the advertising revenues for theseraces. fixed costs for 2002 are estimated to be apprroximately_$9.9 million. As we have previously reported, we are party to several lawsuits. We cannot predict the outcome of the litigation, and at this time, management is unable to estimate the impact that ultimate resolution of these matters may have on the Company's financial position or future results of operations. RELATED PARTIES We have entered into, and we will continue to enter into, transactions with entities that are affiliated with our directors and/or 5% stockholders who are owners of our race teams. Race teams that participate in the CART Championship receive purse distributions on a per race basis and from the year end point fund which amounts have been paid based solely upon their performance in specific races. All of these payments are made to our race teams regardless of the affiliation with our directors or significant shareholders. During 2002, we also paid a participation payment to our race teams, including those affiliated with directors and/or 5% stockholders. The following table provides information with respect to payments made during the three months ended March 31, 2002 by us to race teams that are affiliated with directors and/or significant shareholders of CART: RACE TEAM/AFFILIATED DIRECTOR PURSE DISTRIBUTION ----------------------------- ------------- ---- Newman/Haas Racing/Carl A. Haas $ 150,000 02— 748 http://eol.finsys.com/edgar conv_html/2002/05/10/0000950152-02-004001.htm1 06/21/2002 CHAMPIONSHIP AU O RAC INU ItAMJ 1NL(rorm: iu-ll, xecPivea: uZ)i iuizuuZ LL: rage 100I iy Team Green/Barry E. Green Chip Ganassi Racing Team6, Inc./Chip Ganassi Forsythe Racing, Inc./Gerald R. Forsythe Patrick Racing, Inc./U.E. Patrick Derrick Walker Racing, Inc./Derrick Walker 94,000 27,000 53,000 11,000 13,000 Carl A. Haas, a director of the Company and a race team owner, is a principal owner of Carl Haas Racing Teams, Ltd. and Texaco Houston Grand Prix L.L.C, each of which have entered into Promoter Agreements with respect to CART Championship races at the Wisconsin State Park Speedway in West Allis, Wisconsin and at a temporary road course in Houston, Texas. Pursuant to the terms thereof, a CART Championship race was to be held in West Allis through 2001 and in Houston through 2003. We are currently in negotiations to finalize our agreement for 2002, with the promoter having the option to extend for 2003 and 2004, for the race at Wisconsin State Park Speedway and believe that the terms will be substantially similar to our previous agreement. The Houston, Texas race will not be held in 2002 due to construction on the temporary circuit in downtown Houston. The sanction fees payable to CART under these agreements have been similar to those paid by independent race promoters. Pursuant to the existing Promoter Agreement and our current discussions with respect to the 2002 race at Wisconsin State Park Speedway, entities affiliated with Mr. Haas will pay sanction fees to CART in the aggregate amount of $1.7 million (Milwaukee - in negotiation) and $2.7 million (Houston) in 2002 and 2003, respectively. In addition, we anticipate that we will pay a total of $100,000 in sales costs and $100,000 in marketing expenses in relation to our race at Wisconsin State Park Speedway during 2002. Gerald R. Forsythe, a race team owner and 5% stockholder, is a principal owner of the entities which entered into Promoter Agreements with respect to CART Championship races in Rockingham, England and in Mexico City, Mexico beginning in 2002. He is also a principal owner of Monterrey Grand Prix, S. de R.L. de C.V. which entered into a Promoter Agreement with respect to a CART Championship race in Monterrey, Mexico. Pursuant to the terms thereof, a CART I Championship race will be held in Rockingham through 2006, in Mexico City through 2006 and in Monterrey through 2005. These entities affiliated with Mr. Forsythe have paid or will pay sanction fees to CART in the aggregate amount of $10.9 million for 2002, $11.2 million for 2003, $11.5 million for 2004, $11.9 million for 2005 and $9.3 million for 2006. However, we are currently negotiating an amendment relating to our race in Rockingham, England whereby we will co -promote the event, reduce the initial sanction fee and share in the percentage of profits. In addition, we have paid or anticipate that we will pay a total of $300,000 in sales costs and $291,000 in marketing expenses to these entities. during 2002. Mr. Forsythe is also a principal owner of the entity that holds our Mexican television rights through 2004. In return for these rights, we will receive a minimum guarantee of $300,000, $325,000 and $350,000 for each of the three years ending 2002, 2003 and 2004, respectively. In addition, we will receive 70% of the net profits until we reach $500,000, $550,000 and $600,000 for each of the three years ending 2002, 2003 and 2004, respectively. Floyd R. Ganassi Jr., a director of the Company and a race team owner, is a principal owner of Chicago Motor Speedway, LLC and has entered into a Promoter Agreement with respect to a CART Championship race at Chicago Motor Speedway in Cicero (Chicago), Illinois. Pursuant to the terms thereof, a Championship race was to be held through 2003. The Chicago Motor Speedway, LLC was to pay sanction fees to CART of $2.0 million for 2002 and $2.1 million for 2003. In 2002, the Chicago 02- 7 18 http://eol.finsys.com/edgar conv_html/2002/05/10/0000950152-02-004001.html 06/21/2002 CHAMPIONSHIP AUTO RACINU TEAMS INI;(Porm: 1u -t,1, xecelvea: uJiiu/LUVL LL: rage i i or iy Motor Speedway, LLC announced the suspension of all race events at Chicago Motor Speedway. We then entered into an agreement with the Chicago Moto Speedway, LLC where we will rent the track for $850,000 in 2002, and we will promote the race ourselves. In addition to the payments described above, CART receives revenues from its race teams, including those affiliated with CART directors and/or 5% stockholders, for entry fees, equipment leases and other payments based solely on participation in CART events. During the three months ended March 31, 2002, race teams affiliated with CART directors and/or 5% stockholders made such payments to CART as follows: Team Green/Barry E. Green $ 115,000 Forsythe Racing, Inc./Gerald R. Forsythe 72,000 Chip Ganassi Racing Teams, Inc./Chip Ganassi 72,000 Newman/Haas Racing/Carl A. Haas 75,000 Patrick Racing, Inc./U.E. Patrick 36,000 Derrick Walker Racing, Inc./Derrick Walker 36,000 We believe that all of the transactions which we have entered into with our directors or significant shareholders are comparable to the terms that we have in the past or could in the future enter into with third parties with respect to each of these transactions. In order to avoid conflicts of interest, any of our directors who are affiliated with an entity that is entering into a transaction with us will not vote on any matter related to such 16 transaction, and may, in certain circumstances, refrain from participating in any discussions related to such transaction. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS With the exception of historical information contained in this Form 10-Q, 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 following 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 - success of television contract - renewal of sanction agreements - participation by suppliers - success of co -promoted and self -promoted races - current uncertain economic environment and weak advertising market - impact of engine specifications ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS INTEREST RATE RISK. Our investment policy was designed to maximize safety and liquidity while maximizing yield within those constraints. At March 31, 2002, our investments consisted of corporate bonds, U.S. Agency issues, letters of credit, and money market funds. The weighted average maturity of Q2- '7 1S http://eol.finsys.com/edgar conv_htmU2002/05/10/0000950152-02-004001.htm1 06/21/2002 CHAMPIONSHIP AUI'O RACINU lEAMS INU(rorm: iv -y, KecP+vea: UXIVILvuIL LL: rage is or 1y our portfolio is 287 days. Because of the relatively short-term nature of our investments, our interest rate risk is immaterial. 17 CHAMPIONSHIP AUTO RACING TEAMS, INC. PART H - OTHER INFORMATION Item 1. Legal Proceedings On March 26, 2002, the Company filed a complaint against Joseph F. Heitzler, a director and former chairman, chief executive officer and president of the Company in U.S. District Court, Eastern District of Michigan, Southern Division, case number 0271143. The complaint alleges that Mr. Heitzler breached his employment contract, breached his fiduciary duties and intentionally or recklessly omitted to disclose information to the Company in order to induce the continuation of Mr. Heitzler's employment agreement. The suit seeks damages of an unspecified amount. On March 28, 2002, Mr. Heitzler filed a complaint against the Company in the superior Court of the State of California, County of Los Angeles, case number BC270846. The suit seeks compensatory, exemplary and punitive damages in excess of $2.0 million for breach of contract, fraud, negligent misrepresentation, breach of covenant of good faith and fair dealing, declaratory relief. An amended complaint adding a count for tortious breach of contract in violation of public policy was filed on April 9, 2002. The Company intends to vigorously defend itself in this lawsuit and does not believe the lawsuit has merit. Management does not believe that the outcome of this lawsuit will have a material adverse affect on the Company's financial position or future results of operations. Item 6. Exhibits and Reports on Form 8-K (a) -Exhibits. We were not required to ile.any-additionaLexhibits for the three months ended March_31,_ 2002. (b) Reports on Form 8-K. We were not required to file a form 8-K during the three months ended March 31, 2002. 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CHAMPIONSHIP AUTO RACING TEAMS, INC. Date: May 7, 2002 By: /s/ Thomas L. Carter Thomas L. Carter Chief Financial Officer 02- 718 http://eol.finsys.com/edgar conv_htr U2002/05/10/0000950152-02-004001.html 06/21/2002 CHAMPIONSHIP AUTO KACINU IhAMS INLA OM to -t,), xecetvea: u:)iivi/.vvz LL: rdgC IY VI IY End of Filing 19 WQARpo ® 2002 1 EDGAR Online. Inc. 02' 71S http://eol.finsys.com/edgar conv_hhnU2002/05/10/0000950152-02-004001.htm] 06/21/2002 Oviregastor. Officers & Directors: Biography Championship Auto Racing (NYSE) Sector: Services Industry: Recreational Activities As of: May 22, 2002 Pook, Christopher R., (61) Mr. Pook has served as President and CEO of the Company since December 2001. Prior to joining the Company, Mr. Pook served as President of the Grand Prix Association of Long Beach, Inc:, a subsidiary of Dover Downs, Entertainment, Inc. In 1973, Mr. Pook conceived the idea of running a world-class automobile race through the city streets of Long Beach, and his dream became a reality when the initial event, a Formula 5000 event, was staged in September 1975. Thereafter, the Long Beach Grand Prix became a Formula One race and "The Toyota Grand Prix of Long Beach' evolved into an annual event on the World Championship Grand Prix circuit. Following the 1983 event, Mr. Pook made a decision to change the format of the Long Beach Grand Prix from Formula One to CART Champ Cars. In 1996, the Grand Prix Association of Long Beach, Inc., with Mr. Pook as President and Chief Executive Officer, -completed -an -initial -public offering of stock, and also- acquired -tracks-__ in cquired_tracks — in St. Louis and Memphis. In 1998, this company was purchased by Dover Downs Entertainment, Inc. Mr. Pook has served as a member of the Board of Directors of Dover Downs Entertainment, Inc. since 1998. Carter, Thomas L., (46) Thomas L. Carter was elected Chief Financial Officer in October 2000 and was first named Vice President of Finance and Administration of CART, Inc. in March 1998 after serving as Director of Finance since February 1997. From 1995 to 1996, Mr. Carter was employed by Rehman Robinson as a senior tax manager. From 1990 to 1995, Mr. Carter was employed by Deloitte & Touche as a senior tax consultant. From 1973 to 1989, Mr. Carter worked in various positions with the Michigan Department of Treasury. Mr. Carter is a certified public accountant. O'Connor, Vicki, (56) Vicki O'Connor is the founder, and has served as President, of Pro -Motion Agency, Ltd., which has administered the Atlantic Championship Series since 1985. From 1983 through 1984, Pro -Motion also organized the Pro Sports 2000 Series. 02- 718 Mills, Michael J., (49) Michael J. Mills was appointed general corporate counsel and corporate secretary to CART, Inc. in 1990. Mr. Mills was elected Secretary in 1997. From 1978 to 1989, Mr. Mills served as CART's associate counsel. In addition to his positions with CART, Mr. Mills currently serves in an "of counsel" position with the law firm of Monaghan, LoPrete, McDonald, Yakima & Grenke. From 1989 to 1996, Mr. Mills was the managing partner of Tripp and Mills. Prior to that time, he was a partner with Frasco, Hackett & Mills. Mr. Mills' law practice focuses on corporate and pension law, business and commercial transactions, labor/management relations and general litigation. Fusek, Steve, (39) Steve Fusek was named Vice President of Marketing of CART, Inc. in December 2001. From May 1996 through September 2001, Mr. Fusek served as Vice President of Business Operations for PacWest Racing Group, responsible for accounting, marketing, contracts, hospitality and graphics. Prior to assuming that position, Mr. Fusek served in various capacities with PacWest Racing Group from 1994, including Team Coordinator and Business Manager. During 1992 and 1993, Mr. Fusek was team coordinator and had team operations responsibilities with Walker Racing. Lopes, John,_ (40) John Lopes was elected Vice President of Racing Operations in September 2001. Mr. Lopes graduated in 1985 from the U.S. Military Academy at WestPoint, New York with concentrations in both engineering and international security. He served over five years as an air/cavalry aviation officer and served as an aviation headquarters commander in the seventh infantry division and during Operation Just Cause in the Republic of Panama. Mr. Lopes began his career in motor sports in 1990 while attending Duke University School of law where he graduated with a juris-doctorate in 1993. While in law school, Mr. Lopes also worked full-time on public relations and marketing-projects-irrNASCAR with all levels -------- including Winston Cup. From 1993 to 1998, Mr. Lopes practiced law in Dallas, Texas with the law firm of Gardere and Wynne, extending his motor sports participation by representing drivers, teams and sponsors in the stockcar industry. He worked with large privately held businesses as well as professional athletes and the NBA's Dallas Mavericks. From 1998 to September 2001, Mr. Lopes served as General Manager of TeamXtreme Racing in the Indy Racing League. Mayer, Timothy A., (36) Timothy A. Mayer was named Vice President of Promoter Operations in January 2002. Prior to this, he served as Senior Vice President of Racing Operations of CART, Inc. from December 1998. Previously he was President of G3 Communications, Inc., a motorsports consulting and operations firm. G3 helped organize the Rio400 in Brazil. Mr. Mayer was General Manager of G3 in 1998 and assisted with logistics for other international events. Mr. Mayer was also the Executive Producer for SBT Brazilian Television's coverage of the FedEx Championship Series, Indy Lights and the Toyota Atlantic Series. Mr. Mayer has produced the television coverage for Brazilian television of these series from 1993 to 1998. Previously Mr. Mayer was in charge of Special Projects for Fittipaldi USA, and Sports World Communications. 02- 718 Saal, Adam, (38) Adam Saal joined CART as the Vice President of Communications in January 2002, as part of the management restructuring initiated by President and CEO Christopher R. Pook. The appointment marks the second time Mr. Saal has held the top communications and public relations position at CART, previously heading the department in 1995 through 1996. A career motorsports professional, Mr. Saal began with the Baiber Saab Pro Series (now Barber Dodge Pro Series) in 1988 as a public relations account executive. Later that year, Mr. Saal joined the International Motor Sports Association (IMSA) as director of communications, his first management position. In 1991, Mr. Saal joined Mr. Pook at the Grand Prix Association of Long Beach as that company's vice president of communications. In that capacity, Saal ran all of the media, public relations and communications projects related to the annual Toyota Grand Prix of Long Beach and other company projects. In December 1994, Saal joined CART for the first time as Director of Public Relations and stayed with the organization through December 1996 before leaving to start his own communications and public relations company, Saal L.L.C., which served as the primary and exclusive public relations and communications agency for the former CART series, the Dayton Indy Lights Championship from January 1997 through November 2001. Schneider..Deborah M., (40 Deborah M. Schneider became Chief Legal Officer of CART, Inc. in May 2000. From August 1991 to May 2000, Ms. Schneider was a partner with the law firm of Warner, Norcross & Judd. From July 1996 to August 1999, Ms. Schneider was a partner with the law firm of Adkison, Need, Green, Allen & Schneider. From 1985 to 1996, Ms. Schneider worked with the law firm of Howard & Howard, becoming a partner in 1991. Shanaman. Rena. (50) Rena Shanaman is serving in a new role beginning in January 2002, as Vice President of — ---Joint- VentumPromoter Relations, She was first -named Vim President -of -Client Relations for CART, Inc. in July 1996 after serving: as the General Manager of CART's inaugural U.S. 500 on a contractual basis. Ms. Shanaman has been involved in motorsports for more than 16 years, including the Detroit Grand Prix, Molson Indy Vancouver and the Ardvederci, Mario tour for racing legend Mario Andretti. Grosfeld. James, (64) Mr. Grosfeld is a private investor. From November 1993 until November 1994, Mr. Grosfeld served as Chairman of the Board of Copart, Inc. Mr. Grosfeld is a director of Copart, Inc., a public company which provides salvage vehicle auction services in the United States. Mr. Grosfeld is also a director of Blackrock Inc., a public diversified investment management company. Haas. Carl A.. (72 Since 1960, Mr. Haas has served as Chief Executive Officer of Carl A. Haas Auto Imports, a company specializing in the distribution of race cars and parts. Since 1982, Mr. Haas has also served as the Managing Partner of Newman Haas Racing. Since 1992, he has served as President of Carl A. Haas Racing Teams, Ltd. and, since 1996, as the Managing Member of Texaco Grand Prix of Houston, LLC. Both Carl A. Haas Racing Teams, Ltd. and Texaco Grand Prix of Houston, LLC are race promotion organizations. In addition, Mr. Haas also holds nnsitionc with variniic rmmnaniR.q. inrlijrlinn. hilt not limitwrl tn. Carl A. Haag 02-- 718 holds positions with various companies, including, but not limited to, Carl A. Haas Enterprises, Inc., Team Haas USA Ltd., Road America, SCCA Pro Racing, Inc. and Milwaukee Mile, Inc., all of which are racing related businesses. Hardvmon. James F., (67 Mr. Hardymon retired as Chairman and Chief Executive Officer of Textron, Inc. in January 1999. Textron, Inc. is a public company, supplying aerospace and industrial components. He joined Textron in 1989 as President and Chief Operating Officer, became Chief Executive Officer in 1992, assumed the additional title of Chairman in 1993 and relinquished the title of President in 1994. Prior to joining Textron, Mr. Hardymon was President, Chief Operating Officer and a director of Emerson Electric Co., a global manufacturer of electrical and electronic products and systems. Mr. Hardymon is a director of Air Products and Chemicals, Inc., Schneider Electric SA, Lexmark International, Inc., Circuit City Stores, Inc. and American Standard Companies, Inc. Henderson, James A., (67) Mr. Henderson was elected Chairman of the Board of Cummins Engine Company, Inc. in 1995 after serving as Chief Executive Officer since 1994 and its President since 1977. Mr. Henderson retired from Cummins in December 1999. He received a Bachelor of Arts degree from Princeton University in 1956, served in the U.S. Navy and received an M.B.A. from Harvard in 1963. He joined Cummins in 1964 as Assistant to the Chairman and in 1965 was elected Vice President -- Management Development. After serving as Vice President - Personnel and Vice President -Operations, Mr. Henderson was elected Executive Vice President in 1971. He was also Chief Operating Officer from 1975 to 1994. He serves as a director of SBC Communications, Inc., International Paper Company, Landmark Communications, Inc., Ryerson Tull, Inc., Rohm and Haas Company, and Nanophase Technologies Corporation. Patrick, U. E., (73) Mr. Patrick was a founding member of CART in November 1978 and served as its first President and Chief Executive Officer. Mr. Patrick has been involved in racing since 1967 and has been a car owner since 1970, with three Indianapolis 500 wins and the CART World Series Championship in 1989. Mr. Patrick currently serves as President of Patrick Racing, Inc. He holds the position of Chairman of the Board of Patrick Exploration, Inc., an oil and gas exploration company, and is an investor in several businesses. Tucker, Frederick T., (61 Mr. Tucker served as Deputy to the Chief Executive Office of Motorola, Inc. from October 2000 until his retirement in February 2001. From January 2000 to October 2000, Mr. Tucker was President, Semiconductor Products Sector, and Deputy to the Chief Executive Officer of Motorola, Inc. After joining Motorola in 1965, Mr. Tucker served in a number of senior management positions, including President and General Manager of the Automotive, Component, Computer and Energy Sector. Prior to that, Mr. Tucker served as Executive Vice President and General Manager of the Automotive and Industrial Electronics Group and Corporate Vice President and General manager of Motorola's Bipolar Analog IC Division in Arizona, a manufacturer of semiconductor products. Mr. Tucker has served as a trustee of RochesRochester Institute of Technology since 1986. 02- 71 Walker, Derrick. (55) Mr. Walker is currently the President and owner of Walker Racing, LLC, which was formed in 1990. In 1988, he joi:.ed Al Holbert's Porsche Indy car project and assumacontrol of the program upon the death of Al Holbert. From 1980 to 1988, he was responsible for Penske Racing, Inc.'s Indy car program. 02- 718 CITY OF MIAMI, FLORIDA INTER -OFFICE MEMORANDUM Honorable Tomas Regalado, Chairman and Members of the City Commission enez City Mana GATE : JUN 2 1 M FIE SUBJECT : CART Corporate Officers REFERENCES ENCLOSURES As requested by the City Commission at the June 13th Commission Meeting, attached please find a preliminary report on the Corporate Officers of Championship Auto Racing Team (CART) as pulled from the internet along with their latest Security and Exchange Commission Form 10-Q Report. Be advised that we presently have our Financial Advisors, Dain Rascher, performing an official inquiry on behalf of the City and will have that for you Monday morning. In addition, also find attached a letter to Raceworks from legal counsel for Habria Shrugged, LLC, stating that Habria Shrugged has transferred their Conversion Right connected with their loan to Raceworks to Championship Auto Racing Team (CART). CAG/FKR/sg c: Alejandro Vilarello, City Attorney Frank K. Rollason, Assistant City Manager 02- 718 06/21 'P 10:08 N0.542 02 ant By: HP LaserJet 3100; 9734723543; Jun 02 5:50PM; P694 1/2 June 18, 2002 Mr. Pater Yenowitch, Esq. Racvwvrks, LLC 600 Uckell Avenue, Suite 550 Miami, Florida 33131 Re: Habrin Shrugged, LLC with Raceworks, LLC Dear Mr. Yanowitch: Arrmm AL taw "0 Moll= Avem T.vny Pint lea New lwk. xr. taou TrJr.ph9nv; (112)%21.44k Poadm1W (117) 5I1.4431 1 mik �aruaNdiet00110rnl.ccpt Habria Shmgged, LLC ("Habrie') bay been asked to comm its mlatlonship to Raaeworks, LLC ("Rtceworks") and the motor racing evens to take place annuaUy in the streets of Miami, Florida (the "Miami Race'l. As counsel to Habria, the undersigned confirms the following outstanding arrangements: 1. Habris has loaned money to Racewodu for the purposes of mskiag capital improvements to the proposed circuit and other nic;essary expenditures to operate the Miami Race. The loan is evidenced by a promissory note (the "Note'; 2. The Note may, at tha option of the holder, be converted into equity membership indorsers in and to RaFeworks (the "Conversion Right"); 3. Habria has not exercised the Conversion Right; 4. H4 Wn, by separate agr4mment with Championship Auto Raking Teems ("CART'), has t ivni 'erred the Conversion Right to CART. Should you have any fvrdw questions, please call. Thank you. Aferge Cacoulidis, Fsq. Counsel to Habria Sluugged, LLC 02- '718 fUWW 1U9W cb Jane It 2002 C=VWAon right lamer O-2-licers & Directors: Biogirar_y for MPH &om. Multex.corn Welcome Yahool.Finance User Stocks Funds Company/Fund MPH Quote Advanced Search MorgaaStanley Stacks Headlines Company Information Quote/Chart Analyst Research Snapshot Report Real Time Quote Chart News Slg, Developments Highlights Report Performance Report Earnings Estimates Ratio Comparison Insider Trading Instit. Ownership Business Description Company Overview Officers & plrednrs Individuals *Biography Options Compensation Income Stmt Balance Sheet Cash Flow Analyst Research Screening Tools Ask the Analyst What's Hot Investing Strategies Industry Focus The Internet Analyst The Telecomm Analyst Education Funds 06/17 14:33 N0.465 03 Page t of 4 Personal Finance JJhwme login 42)register 'help 0010yi:d Quote, MPH 8.610 +0.510 (6.30%) 16!os championship Auto Racing (NYSE) Sector: Services Industry; Recreational Activities OYFlcerea pireetors Slogrephy Free Quarterly Report 0 VectorVest Report As of: May 22, 2002 ValuEngine Analysis for MPH Free real-time quotes? Login/Reglster. rj refresh Sponsored by: Free Insurance Quote * education 0glossary JL printable Pock, Christopher Mr. Pock has served as President and CEO of the Company since December 2001. Prior to joining the Company, Mr. Pock served as President of the Grand Prix Association of Long Beach, Inc., a subsidiary of Dover Downs, Entertainment, Inc. in 1973, Mr. Pock conceived the idea of running a world-class automobile race through the city streets of Long Beach, and his dream became a reality when the initial event, a Formula 5000 event, was staged in September 1975. Thereafter, the Long Beach Grand Prix became a Formula One race and "The Toyota Grand Prix of Long Beach" evolved Into an annual event on the World Championship Grand Prix circuit. Following the 1983 event, Mr. Pock made a decision to change the format of the Long Beach Grand Prix from Formula One to CART Champ Cars. In 1996, the Grand Prix Association of Long Beach, Inc., with Mr. Pock as President and Chief Executive Officer, completed an initial public offering of stock, and also acquired tracks in St. Louis and Memphis. In 1998, this company was purchased by Dover Downs Entertainment, Inc. Mr. Pock has served as a member of the Board of Directors of Dover Downs Entertainment, Inc. since 1998. Carter, Thomas L., (46) Thomas L. Carter was elected Chief Financial Officer in October 2000 and was first named Vice President of Finance and Administration of CART, Inc. In March 1998 after serving as Director of Finance since February 1997. From 1995 to 1996, Mr: Carter was employed by Rehman Robinson as a senior tax manager. From 1990 to 1995, Mr. Carter was employed by Deloitte & Touche as a senior tax consultant. From 1973 to 1989, Mr. Carter worked in various positions with the Michigan Department of Treasury. Mr. Carter is a certified public accountant. O'Connor, Vicki, 56) Vicki O'Connor Is the founder, and has served as President, of Pro -Motion Agency, Ltd., which has administered the Atlantic Championship Series since 1965. From 1983 through 1984, Pro -Motion also organized the Pro Sports 2000 Series. Mills, Michael J., (49� 2 — 71-8 Michael J. Mills was appointed general corporate counsel and corporate secretary to CART, Inc. In 1990. Mr, Mills was elected Secretary in 1997. From 1978 to 1989, Mr. Mills served as CARTS associate counsel. In addition to his positions with CART, Mr. 06/17 1 14:34 N0.465 04 Offi.cers & Directors: Biograr,.iy for MPH froze. Multcx.com Page 2 of 4 Personal Finance Mills currently serves in an "of counsel"position with the law firm of Monsghan, Yakima & 1989 to LoPrete, McDonald, Grenke. From 1996, Mr. Mills was the Live Events managin partner of Tripp and Mills. Prior to that time, he was a partner with Fresco, Hackett 9 ills. Mr. Mills law focuses on corporate and law, business $7 Trades practice pension and commercial transactions, labor/management relations and general ifigation. :,t Scotttrade (],0c here.. 1 -or uifa' Fusek Steve, (392 Steve Fusek was named Vice President of Marketing of CART, Inc. in December 2001. Receive From May 1996 through September 2001, Mr. Fusek served as Vice President of ken Fisher's FREE Business Operations for PacWest Racing Group,, responsible for accounting, Quarterly Report—marketing, contracts, hospitality and graphics. nor to assuming that position, Mr, in with PacWest Racing Group from 1994, including No O bligption! Fusek served various capacities Team Coordinator and Business Manager, During 1992 and 1993, Mr. Fusek was team ��bli for ionnro. coordinator and had team operations responsibilities with Walker Racing. Lopes, John, (a, Click here to download Market6rowser AAeft- se.witb. 1�ultex Download our Media Kit John Lopes was elected Vice President of Racing Operations in September 2001. Mr. Lopes graduated in 1985 from the U.S. Military Academy at WestPoint, New York with concentrations In both engineering and intemational security. He served over five years as an air/cavalry aviation officer and served as an aviation headquarters commander in the seventh Infantry division and during Operation Just Cause in the Republic of Panama. Mr. Lopes began his career in motor sports In 1990 while attending Duke University School of law where he graduated with a juris-doctorate in 1993. While In law school, Mr. Lopes also worked full-time on public relations and marketing projects in NASCAR with all levels including Winston Cup. From 1993 to 1998, Mr. Lopes practiced law in Dallas, Texas with the law firm of Gardere and Wynne, extending his motor sports participation by representing drivers, teams and sponsors in the stockcar industry. He worked with large privately held businesses as well as professional athletes and the NBA's Dallas Mavericks. From 1998 to September 2001, Mr. Lopes served as General Manager of TeemXtreme Racing In the Indy Racing League. Mayor, Timothy A., (36) Timothy A. Mayer was named Vice President of Promoter Operations in January 2002. Prior to this, he served as Senior Vice President of Racing Operations of CART, Inc. from December 1998. Previously he was President of G3 Communications, Inc„ a motorsports consulting and operations firm. G3 helped organize the Rio400 in Brazil. Mr. Mayer was General Manager of G3 in 1998 and assisted with logistics for other intemational events. Mr. Mayer was also the Executive Producer for SBT Brazilian Television's coverage of the FedEx Championship Series, Indy Lights and the Toyota Atlantic Series. Mr. Mayer has produced the television coverage for Brazilian television of these series from 1993 to 1998. Previously Mr. Mayer was in charge of Special Projects for Fittipaldi USA, and Sports World Communications. Saal, Adam, (18). Adam Seal joined CART as the Vice President of Communications In January 2002, as part of the management restructuring initiated by President and CEO Christopher R. Pook, The appointment marks the second time Mr. Seal has held the top communications and public relations position at CART, previously heading the department in 1995 through 1996. A career motorsports professional, Mr. Seal began with the Barber Saab Pro Series (now Barber Dodge Pro Series) in 1988 as a public relations account executive. Later that year, Mr. Seal joined the intemational Motor Sports Association (IMSA) as director of communications, his first management position. In 1991, Mr. Saal joined Mr. Pook at the Grand Prix Association of Long Beach as that company's vice president of communications, In that capacity, Seal ran all of the media, public relations and communications projects related to the annual Toyota Grand Prix of Long Beach and other company projects. In December 1994, Seal joined CART for the first time as Director of Public Relations and stayed with the organization through December 1996 before leaving to start his own communications and public relations company, Seal L.L.C., which served as the primary and exclusive public relations and communications agency for the former CART series, the Dayton Indy Lights Championship from January 1997 through November 2001. Schneider, Debora -h1 -M., -14q1 Deborah M. Schneider became Chief Legal Officer of CART, Inc. in May 2000. From August 1991 to May 2000, Ms, Schneider was a partner with the law firm of Warner, 02- 7 06/17 14:34 N0.465 05 Officers & Directors: Biogr-,ay for MPH. from. M.ultex.com Page 3 of 4 Norcross & Judd. From July 1995 to August 1999, Ms, Schneider was a partner with the law firm of Adklson, Need, Green, Allen & Schneider. From 1985 to 1996, Ms. Schneider worked with the law firm of Howard & Howard, becoming a partner in 1991. Shanaman, Rena, Rena Shanaman is serving in a new role beginning in January 2002, as Vice President of Joint Venture Promoter Relations, She was first named Vice President of Client Relations for CART, Inc. in July 1996 after serving as the General Manager of CARTs inaugural U.S. 500 on a contractual basis. Nils. Shanaman has been involved in motorsports for more than 16 years, including the Detroit Grand Prix, Molson Indy Vancouver and the Ardvederci, Mario tour for racing legend Mario Andretti, Grosfeld, James, (664). Mr. Grosfeld Is a private investor. From November 1993 until November 1994, Mr. Grosfeld served as Chairman of the Board of Copart, Inc. Mr. Grosfeld is a director of Copart, Inc., a public company which provides salvage vehicle auction services in the United States. Mr. Grosfeld is also a director of Blackrock Inc., a public diversified investment management company. Haas Cart A., (72) Since 1960, Mr. Haas has served as Chief Executive Officer of Carl A. Haas Auto Imports, a company specializing in the distribution of race cars and parts. Since 1982, Mr. Haas has also served as the Managing Partner of Newman Haas Racing. Since 1992, he has served as President of Carl A. Haas Racing Teams, Ltd. and, since 1996, as the Managing Member of Texaco Grand Prix of Houston, LI_C, Both Carl A. Haas Racing Teams, Ltd. and Texaco Grand Prix of Houston, LLC are race promotion organizations. In addition, Mr. Haas also holds positions with various companies, including, but not limited to, Carl A. Haas Enterprises, Inc., Team Haas USA Ltd., Road America, SCCA Pro Racing, Inc. and Milwaukee Mile, Inc., all of which are racing related businesses. Hardymon, James F., (67) Mr. Hardymon retired as Chairman and Chief Executive Officer of Textron, Inc. in January 1999. Textron, Inc. Is a public company, supplying aerospace and industrial components. He joined Textron in 1989 as President and Chief Operating Officer, became Chief Executive Officer in 1992, assumed the additional title of Chairman in 1993 and relinquished the title of President in 1994. Prior to joining Textron, Mr, Hardymon was President, Chief Operating Officer and a director of Emerson Electric Co., a global manufacturer of electrical and electronic products and systems. Mr. Hardymon is a director of Air Products and Chemicals, Inc., Schneider Electric $A, Lexmark International, Inc., Circuit City Stores, Inc. and American Standard Companies, Inc. Henderson, James A.,_ 67 Mr. Henderson was elected Chairman of the Board of Cummins Engine Company, Inc. in 1995 after serving as Chief Executive Officer since 1994 and its President since 1977. Mr. Henderson retired from Cummins in December 1999. He received a Bachelor of Arts degree from Princeton University in 1956, served In the U.S. Navy and received an M.B.A. from Harvard in 1963. He joined Cummins in 1964 as Assistant to the Chairman and in 1965 was elected Vice President Management Development, After serving as Vice President - Personnel and Vice President -Operations, Mr. Henderson was elected Executive Vice President in 1971. He was also Chief Operating Officer from 1975 to 1994. He serves as a director of SBC Communications, Inc., International Paper Company, Landmark Communications, Inc., Ryerson Tull, Inc., Rohm and Haas Company, and Nenophase Technologies Corporation. Patrick, U,...E.,. _(73) Mr. Patrick was a founding member of CART In November 1978 and served as its first President and Chief Executive Officer. Mr. Patrick has been involved in racing since 1967 and has been a car owner since 1970, with three Indianapolis 500 wins and the CART World Series Championship in 1989. Mr. Patrick currently serves as President of Patrick Racing, Inc. He holds the position of Chairman of the Board of Patrick Exploration, Inc., an oil and gas exploration company, and is an Investor in several businesses. Tucker, Frederick T„ (61) 06/17 14:35 N0.465 06 Officers & Directors: BiogrL. .y for MPH from Multex.com Page 4 of 4 Mr. Tucker served as Deputy to the Chief Executive Office of Motorola, Inc. from October 2000 until his retirement In February 2001. From January 2000 to October 2000, Mr. Tucker was President, Semiconductor Products Sector, and Deputy to the Chief Executive Officer of Motorola, Inc. After joining Motorola In 1965, Mr. Tucker served in a number of senior management positions, including President and General Manager of the Automotive, Component, Computer and Energy Sector. Prior to that, Mr. Tucker served as Executive Vice President and General Manager of the Automotive and Industrial Electronics Group and Corporate Vice President and General manager of Motorola's Bipolar Analog IC Division In Arizona, a manufacturer of semiconductor products. Mr. Tucker has served as a trustee of RochesRochester Institute of Technology since 1986. Walker. Derrick, (55) Mr. Walker is currently the President and owner of Walker Racing, LLC, which was formed in 1990. In 1988, he joined Al Holbert's Porsche Indy car project and assumed control of the program upon the death of Al Holbert. From 1980 to 1988, he was responsible for Penske Racing, Inc.'s Indy car program. Fundamental Data provided by: Click on the logo above to loam more about licensing Market Guide content. < Company Overview I Income Stmt > rnclividuals, Biography, Options , Compensation A7iwhox � 'J:c SFr ,V For technical support e-mail us at jpytee.kof.fjejpArr u x. For general site feedback email us at Ira�.s�tlal sedbecls,�mu!>�x To advertise on our site email us at fdl 7afp2j1)jjftX.c Please read the Leoal Dlcclosure & Dlsclalmer and the v EFLVILY—Uicy. &)2002 Multex.com, Inc. All rights reserved. 02- 718 Page 1 of 20 <DOCUMENT> <TYPE>10-Q <SEQUENCE>l <FILENAME>194340ae10-q.txt <DESCRIPTION>CHAMPIONSHIP AUTO RACING FORM 10-Q <TEXT> <PAGE> SECURITIES AND EXCHANGE"COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) (X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2002. ( ) Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period to Commission File No. 1-13925 CHAMPIONSHIP AUTO RACING TEAMS, INC. ------------------------------------ (Exact name of registrant as specified in its charter) Delaware 38-3389456 ------------------------------- --------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) Incorporation or organization) 755 West Big Beaver Rd., Suite 800, Troy, MI 48084 -------------------------------------------------- (Address of principal executive offices) (Zip Code) (248) 362 -8800 -------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. COMMON STOCK $0.01 PAR VALUE ---------------------------- CLASS 14,718,134 SHARES ----------------- OUTSTANDING AT MAY 1, 2002 This report contains 19 pages. 02- '718 http://www.sec.gov/Archives/edgarldataII051825/000095015202004001/194340aelO-q.txt 6/19/02 <PAGE> <TABLE> <S> PART I Page 2 of 20 TABLE OF CONTENTS - FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS. Consolidated Balance Sheets at March 31, 2002 and December 31 Consolidated Statements of Operations for the Three Months En March 31, 2002 and 2001 Consolidated Statement of Stockholders' Equity for the Three Ended March 31, 2002 Consolidated Statements of Cash Flows for the Three Months En March 31, 2002 and 2001 Notes to Consolidated Financial Statements ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. SIGNATURES </TABLE> 2 <PAGE> CHAMPIONSHIP AUTO RACING TEAMS, INC. CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2002 AND DECEMBER 31, 2001 (DOLLARS IN THOUSANDS) <TABLE> <CAPTION> 02- 718 http://www.see.gov/Archives/edgarldata/1051825/000095015202004001/194340ae10-q.txt 6/19/02 Page 3 of 20 <S> ASSETS CURRENT ASSETS: Cash and cash equivalents Short-term investments Accounts receivable (net of allowance for doubtful accounts of $7,091 and $7,388, at March 31, 2002 and December 31, 2001, respectively Current portion of notes receivable (net of allowance for doubtful notes of $123 and $123, at March 31, 2002•and-December 31, 2001, respectivel Inventory Prepaid expenses Deferred income taxes Total current assets NOTES RECEIVABLE (net of allowance for doubtful notes of $96 and $96, at March 31, 2002 and December 31, 2001, respectively) PROPERTY AND EQUIPMENT- Net NON-CURRENT DEFFERED INCOME TAXES GOODWILL (net of accumulated amortization of $133 and $133 at March 31, 2002 and December 31, 2001, respectively) OTHER ASSETS (net of accumulated amortization of $116 and $116 at March 31, 2002 and December 31, 2001, respectively) TOTAL ASSETS LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable Accrued liabilities: Race expense and point awards Royalties Payroll Taxes Other Deferred revenue Total current liabilities DEFERRED INCOME TAXES COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value; 5,000,000 shares authorized, none issued and outstanding at March 31, 2002 and December 31, 2001 Common stock, $.01 par value; 50, 000, 000 shares authorized, 14,718,134 and 14,718,134 shares issued and outstanding at March 31, 2002 and December 31, 2001, respectively Additional paid -in capital Retained earnings Unrealized gain on investments Total stockholders' equity TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY </TABLE> See accompanying notes to consolidated financial statements. 3 02- (18 http://www.sec.gov/Archives/edgarldatall05l825/000095015202004001/194340ae10-q.txt 6/19/02 <PAGE> CHAMPIONSHIP AUTO RACING TEAMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (UNAUDITED) (IN THOUSANDS, EXCEPT EARNINGS PER SHARE) <TABLE> <CAPTION> <S> REVENUES: Sanction fees Sponsorship revenue Television revenue Engine leases, rebuilds and wheel sales Other revenue Total revenues EXPENSES: Race distributions Race expenses Cost of engine rebuilds and wheel sales Television expense Administrative and indirect expenses (includes severance expense of $0 and $386 for the three months ended March 31, 2002 and 2001, respectively) Depreciation and amortization Total expenses OPERATING LOSS Interest income (net) INCOME (LOSS) BEFORE INCOME TAXES Income tax expense (benefit) NET INCOME (LOSS) EARNINGS (LOSS) PER SHARE: BASIC DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING: BASIC DILUTED </TABLE> See accompanying notes to consolidated financial statements. Page 4 of 20 2002 <C> $ 2,70 2,28 20 41 G .1 1,02 1,85 7 4,32 33 7,60 (2,00 1,08 (91 (32 $ (59 14,71 14,71 02- "718 http://www.sec.gov/Archives/edgarldata/1051825/000095015202004001/194340ae10-q.txt 6/19/02 4 <PAGE> CHAMPIONSHIP AUTO RACING TEAMS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 2002 (UNAUDITED) (DOLLARS IN THOUSANDS) <TABLE> <CAPTION> <S> BALANCES, DECEMBER 31, 2001 Net loss Unrealized loss on investments Comprehensive loss BALANCES, MARCH 31, 2002 </TABLE> COMMON STOCK ------------------ SHARES AMOUNT <C> <C> 14,718 $ 147 --------- --------- 14,718 $ 147 See accompanying notes to consolidated financial statements. <PAGE> 5 CHAMPIONSHIP AUTO RACING TEAMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Page 5 of 20 ADDITIONAL PAID -IN RETAI CAPITAL EARNI <C> <C> $ 87,765 $ 29, --------- ------ $ 87,765 $ 28, FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001 (UNAUDITED) (DOLLARS IN THOUSANDS) <TABLE> <CAPTION> 2002 <S> <C> <C CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (594) $ Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 334 Q 02- 0 http://www.see.gov/Archives/edgar/data/1051825/000095015202004001/194340ae10-q.txt 6/19/02 Page 6 of 20 Net loss from sale of property and equipment 14 Deferred income taxes (544) Changes in assets and liabilities that provided (used) cash: Accounts receivable (1,732) Inventory (25) Prepaid expenses 1,507 Other assets -- Accounts payable 1,301 Accrued liabilities (4,627) Unearned revenue 12,412 Deposits -- Net cash provided by operating activities 8,046 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of investments (51,825) Proceeds from sale and maturities of investments 34,064 Notes receivable (251) Acquisition of property and equipment (997) Proceeds from sale of property and equipment 20 Acquisition of trademark -- Net cash provided by (used in) investing activities (18,989) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (10,943) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 35,932 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 24,989 $ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Income taxes $ 1 $ Interest $ $ </TABLE> See accompanying notes to consolidated financial statements. <PAGE> 0 CHAMPIONSHIP AUTO RACING TEAMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION. The accompanying unaudited consolidated 02- "41 http://www.sec.gov/Archives/edgar/data/1051825/000095015202004001/194340ae10-q.txt 6/19/02 Page 7 of 20 financial statements have been prepared by management and, in the opinion of management, contain all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial position of Championship Auto Racing Teams, Inc. and subsidiaries (the "Company") as of March 31, 2002 and the results of its operations and its cash flows for the three month periods ended March 31, 2002 and 2001. The unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Company's Form 10-K filed with the Securities and Exchange'Co'mmission. Because of the seasonal concentration of racing events, the results of operations for the three month periods ended March 31, 2002 and 2001 are not indicative of the results to be expected for the year. PRINCIPLES OF CONSOLIDATION. The consolidated financial statements of the Company include the financial statements of Championship Auto Racing Teams and its wholly-owned subsidiaries - CART, Inc., American Racing Series, Inc., Pro -Motion Agency, Ltd. and CART Licensed Products, Inc. At the end of the 2001 season, the Company discontinued the operations of American Racing Series, Inc. All significant intercompany balances have been eliminated in consolidation. ACCOUNTING PRONOUNCEMENTS. In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets". This statement changes the accounting and reporting for goodwill and other intangible assets. The Company adopted this statement on January 1, 2002, and goodwill will no longer be amortized; however, tests for impairment will be performed annually or when a triggering event occurs. The Company is evaluating the effect of SFAS No. 142 on the consolidated financial statements related to the impairment testing of goodwill. For the three months ended March 31, 2001, our reported net income and basic and diluted earnings per share were $81,000 and $0.01, respectively. Adjusted for the non -amortization provisions of SFAS No. 142, our reported net income and basic and diluted earnings per share would have been $96,000 (exclusive of the impairment of goodwill related to American Racing Series, Inc.) and $0.01, respectively, resulting in an increase in earnings of $15,000, or $0.00 per share for the first quarter. The after-tax impact in 2002 of the non -amortization provisions of SFAS No. 142 is expected to be $15,000 ($0.00 per share) for each of the four quarters. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long -Lived Assets." This supersedes SFAS No. 121, "Accounting for the Impairment of Long -Lived Assets to be Disposed Of." This statement retains the impairment loss recognition and measurement requirements of SFAS No. 121. In addition, it requires that one accounting model be used for long-lived assets to be disposed of by sale, and broadens the presentation of discontinued operations to include more disposal transactions. The Company adopted this statement on January 1, 2002, and there was no impact on the financial statements as of March 31, 2002. 7 <PAGE> RECLASSIFICATIONS. Certain reclassifications have been made to the 2001 unaudited consolidated financial statements in order for them to conform to the 2002 presentation. 2. SHORT-TERM INVESTMENTS The following is a summary of the estimated fair value of available -for -sale short-term investments by balance sheet classification: <TABLE> 02— 718 18 http://www.sec.gov/Archives/edgarldata/1051825/000095015202004001/194340aelO-q.txt 6/19/02 <CAPTION> (IN THOUSANDS) <S> MARCH 31, 2002 -------------- Corporate bonds U.S. agencies securities Total short-term investments </TABLE> <TABLE> <CAPTION> (IN THOUSANDS) DECEMBER 31, 2001 ----------------- <S> Corporate bonds U.S. agencies securities Total short-term investments </TABLE> Page 8 of 20 COST FAIR VALUE ----------- ----------- <C> <C> $ 4,138 $ 4,107 92,081 92,352 ----------- ----------- $96, 219 $96,459 COST FAIR VALUE ----------- ----------- <C> $ 507 77,951 $ 78,458 <C> $ 511 78, 943 $ 79,454 There were no sales of investments for the three months ended March 31, 2002. Proceeds from sales of investments were approximately $1.4 million for the three months ended March 31, 2001. Contractual maturities range from less than one year to two years. The weighted average maturity of the portfolio does not exceed one year. 3. PROPERTY AND EQUIPMENT Property and equipment consists of the following at March 31, 2002 and December 31, 2001: <TABLE> <CAPTION> <S> Engines Equipment Furniture and fixtures Vehicles Other Total Less accumulated depreciation Property and equipment (net) (IN THOUSANDS) MARCH 31, DECEMBER 31 2002 2001 --------------- -------------- <C> <C> $ -- $ 2,456 5,567 4,890 413 413 3,819 3,553 218 215 --------------- -------------- 10,017 (4,556) --------------- $ 5,461 11,527 (6,695) -------------- $ 4,832 02-- '716 http://www.sec.gov/Archives/edgar/data/1051825/000095015202004001/194340ae10-q.txt 6/19/02 </TABLE> Page 9 of 20 0 <PAGE> 4. 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. <TABLE> <CAPTION> ($ in thousands) ---------------- <S> 2002 Revenues Interest income (net) Depreciation and amortization Segment loss before income tax benefit Revenues Interest income (net) Depreciation and amortization Segment income before income taxes </TABLE> THREE MONTHS ENDED MAR ---------------------- RACING OPERATIONS OTHER* ----------------- ------ <C> <C> $ 5,564 $ 39 1,083 4 315 19 (901) (13) $ 6,365 $ 74 1,970 5 378 24 105 21 *Segment is below the quantitative thresholds for determining reportable segments and commenced operations on January 1, 1997. This segment is related to the Company's licensing royalties. Reconciliations to consolidated financial statement totals are as follows: <TABLE> <CAPTION> MARCH 31, DECEM 2002 2 ------------- ----- <S> <C> <C Total assets for reportable segment $ 139,347 $1 Other assets 1,033 ------------- ----- Total consolidated assets $ 140,380 $1 02- http://www.sec.gov/Archives/edgar/data/1051825/000095015202004001/194340ae10-q.txt 6/19/02 Page 10 of 20 </TABLE> 5. COMMITMENTS AND CONTINGENCIES LITIGATION. 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. This lawsuit was filed by the heirs of Gonzolo Rodriguez, a race car driver who 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 sought damages in an unspecified amount for negligence• and- wrongful death. On November 5, 2001, a release signed by Mr. Rodriguez was upheld by the Court and the causes of action for negligence dismissed based on defendants' motion for summary judgment. The remaining count in the lawsuit is for willful and/or reckless conduct. 0 <PAGE> 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. This lawsuit was filed by the estate of Greg Moore, a race car driver who 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. A motion for summary judgement was filed by all of the defendants on March 15, 2002. 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 us 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 us 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 our financial position or future results of operations. On November 8, 2001, two former team owners, DellaPenna Motorsports and Precision Preparation, Inc., filed suit against the Company in the Circuit Court for the County of Wayne, State of Michigan, each alleging damages in excess of $1.0 million for breach of contract, promissory estoppel, misrepresentation, and tortious interference with contract and business expectancy. The Company intends to vigorously defend itself in this lawsuit and does not believe the lawsuit has merit. Management does not believe that the outcome of this lawsuit will have a material adverse affect on the Company's financial position or future results of operations. On March 26, 2002, the Company filed a complaint against Joseph F. Heitzler, a director and former chairman, chief executive officer and president of the Company in U.S. District Court, Eastern District of Michigan, Southern Division. The complaint alleges that Mr. Heitzler breached his employment contract, breached his fiduciary duties and intentionally or recklessly omitted to disclose information to the Company in order to induce the continuation of Mr. Heitzler's employment agreement. The suit seeks damages of an unspecified amount. On March 28, 2002, Mr. Heitzler filed a complaint against the Company in the Superior Court of the State of California, County of Los Angeles. The suit seeks compensatory, exemplary and punitive damages in excess of $2.0 million for breach of contract, fraud, negligent misrepresentation, breach of covenant of good faith and fair dealing, declaratory relief. An amended complaint adding a count for tortious breach of contract in violation of public policy was filed on April 9, 2002. The Company intends to vigorously defend itself in this lawsuit and does not believe the lawsuit has merit. Management does not believe that the 02- 718 http://www.sec.gov/Archives/edgar/data/1051825/000095015202004001/194340ae10-q.txt 6/19/02 Page 11 of 20 outcome of this lawsuit will have a material adverse affect on the Company's financial position or future results of operations. The Company is involved in other litigation not specifically identified above and does not believe the outcome of any of this litigation will have a material adverse affect on its financial position or future results of operation. 10 <PAGE> ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Beginning in 2002, we are transitioning our company from a sanctioning body to a marketing services company. Historically, we have derived our revenues from three primary sources: sanction fees paid by track promoters, corporate sponsorship fees and television revenues. Starting this year, we are introducing new revenue sources to our business model. At certain tracks, we will be promoting our own events, and at others, we will be partnering with experienced promoters. We intend to use the talent and experience of our key personnel to set the standard for promotion of CART sanctioned events, and we will participate in the potential net income from such successful events. For the events we will be co -promoting, we will receive lower up -front sanction fees, but our agreements provide for us to receive a majority of any profits until the original sanction fee is received, with an equal profit sharing thereafter. We are also taking on the risk of potential losses with these co -promoted events. We have also entered into new television agreements for 2002 with Speed Channel, Fox and CBS. These arrangements will significantly increase the number of high quality CART programming hours that will be available to our fans domestically. We will have six races broadcast on CBS and one race on FOX, with the balance airing on Speed Channel. We will buy the air -time and pay for production for the CBS and FOX races and receive the advertising time which we, along with our agents, will be responsible to sell. This new domestic television arrangement is different than our past television arrangement where we received a rights fee. The following discussion and analysis of the financial condition and results of operations should be read in conjunction with the unaudited consolidated financial statements of the Company, including the respective notes thereto which are included in this Form 10-Q. CRITICAL ACCOUNTING POLICIES Revenue Recognition One of our most critical accounting policies is revenue recognition. We recognize our revenues as they are earned, but the determination of when they are earned depends on the source of the revenue. Our assumptions for each revenue source is outlined below. SANCTION FEE REVENUE. Generally, sanction fees are paid in advance of 02- http://www.sec.gov/Archives/edgar/data/ I 051825/000095015202004001/194340ae I O-q.txt 6/19/02 Page 12 of 20 the race and are recorded as deferred revenue. Revenue from sanction fees is not recognized until the event is completed. Beginning in 2002, we have entered into agreements with certain promoters where a portion of the contracted sanction fee has been reduced in exchange for a percentage of the profits from the event. Profits from these events will be recognized as sanction fee revenue when the event is completed. SPONSORSHIP REVENUE. Generally, sponsorship agreements call for quarterly payments, and each payment is recorded as deferred revenue when paid. Revenue is recorded ratably over the life of the sponsorship 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. 11 <PAGE> ENGINE LEASE, REBUILDS AND WHEEL SALES. Engine lease revenue, relating to our discontinued Indy Lights series, was recognized ratably over the period covered by the agreement. Engine rebuilds and wheel sales were recognized when the product is delivered to the customer. This revenue ceased at the end of the 2001 Indy Lights season. TELEVISION REVENUE. Television revenue as it relates to minimum guarantees and rights fees is recognized ratably over the race schedule. Beginning in 2002, we will sell the advertising for the shows to be aired on CBS and Fox networks. Advertising revenue will be recognized for these events when the event is completed and the advertising is aired. RACE PROMOTION REVENUE. Payments for commercial rights associated with a self -promoted event that are received prior to the event will be recorded as deferred revenue. Revenue will be recorded when the event is completed. Expenses related to these events will be recorded in race promotion expenses. OTHER REVENUES. 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. Impairment We are subject to impairment tests in assessing the valuation of our goodwill and long-lived assets. Goodwill represents the excess of the purchase price of American Racing Series ("ARS") and B.P. Automotive, Ltd. and Pro -Motion Agency 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. We continually evaluate whether events and circumstances have occurred that indicate the remaining estimated useful life of our goodwill and long-lived assets may warrant revision or that the remaining balance may not be recoverable. When factors indicate that goodwill or long-lived assets should be evaluated for possible impairment, the Company uses an estimate of fair value based on future profitability and cash flows. During 2001, we determined that the goodwill and certain long-lived assets associated with ARS were impaired due to our strategic decision to discontinue the operations of ARS at the conclusion of the 2001 season. As a result, we recorded an impairment charge for the goodwill and long-lived assets. Litigation We are involved in litigation as a part of our normal course of business. Our litigation proceedings are included in our most recent Form 10-K, (` "7 1 6 http://www.sec.gov/Archives/edgar/data/1051825/000095015202004001/194340ae10-q.txi 2 6/19/02 Page 13 of 20 Item 3: Legal Proceedings and updated, as needed, in Part II -Other Information, Item 1: Legal Proceedings in this and subsequent Forms 10-Q. Management intends to vigorously defend against any litigation. When a complaint is filed by or against the Company that represents a material claim, we disclose the proceeding in our financial statements. When a claim against us is probable and estimable, we record the expense. When we are the party filing the claim, we do not record income until the claim for damages is received. RESULTS OF OPERATIONS Three Months Ended March 31, 2002 Compared to Three Months Ended March 31, 2001 REVENUES. Total revenues for the three months ended March 31, 2002 were $5.6 million, a decrease of $836,000 or 13% from the same period in the prior year. This was due to decreased sponsorship revenue, 12 <PAGE> television revenue and engine leases, rebuilds and wheel sales partially offset by an increase in sanction fees and other revenue, as described below. Sanction fees for the three months ended March 31, 2002 were $2.7 million, an increase of $114,000, or 4%, from the same period in the prior year due to an annual escalation in sanction fees for our race in Monterrey, Mexico. We staged one race during the first quarter of 2002 and 2001. Sponsorship revenue for the three months ended March 31, 2002 was $2.3 million, a decrease of $674,000, or 23%, from the same period in the prior year. This decrease was primarily attributable to the loss of sponsorship income from the Indy Lights series which we discontinued at the end of the 2001 season, as well as a reduction in sponsorship fees from one of our sponsors, pursuant to a renegotiation clause in the applicable sponsorship contract. Television revenue for the three months ended March 31, 2002 was $205,000, a decrease of $54,000, or 21%, from the same period in the prior year. This decrease was due to a loss of guaranteed income from our former television partner, offset by revenue received from new international television distribution rights. There were no engine leases, rebuilds and wheel sales for the three months ended March 31, 2002, a decrease of $271,000 from the same period in the prior year. This decrease was due to the discontinuance of the Indy Lights Championship effective with the conclusion of the 2001 race season. Other revenue for the three months ended March 31, 2002 was $414,000, an increase of $49,000, or 13%, from the same period in the prior year. This increase was primarily attributable to an increase in commission sales from Toyota Atlantics suppliers. EXPENSES. Total expenses for the three months ended March 31, 2002 were $7.6 million, a decrease of $684,000, or 8%, from the same period in the prior year. This decrease was due to a decrease in administrative and indirect expenses, cost of engine rebuilds and wheel sales and depreciation, partially offset by an increase in race distributions and race expenses, as described below. Race distributions for the three months ended March 31, 2002 were $1.0 million, an increase of $282,000, or 38%, from the same period in the prior year. The increase was due to a $10,000 participation payment that we made to all of our teams, totaling $200,000. The increase was also due to one 02- '718 http://www.sec.gov/Archives/edgar/data/1051825/000095015202004001/19434OaelO-q.txt 6/19/02 Page 14 of 20 Toyota -Atlantic race being held in the three months ended March 31, 2002 compared to zero races being held in the same period in the prior year, partially offset by a decrease in Indy Lights race distributions due to zero races being held in the three months ended March 31, 2002 compared to one race being held in the same period in the prior year. Race expenses for the three months ended March 31, 2002 were $1.9 million, an increase of $25,000, or 1%, which was similar to the same period in the prior year. There was no cost of engine rebuilds and wheel sales for the three months ended March 31, 2002, a decrease of $99,000 from the same period in the prior year. This decrease is due to the discontinuance of the Indy Lights Championship effective with the conclusion of the 2001 season. Administrative and indirect expenses for the three months ended March 31, 2002 were $4.3 million, a decrease of $896,000, or 17%, from the same period in the prior year. This decrease was primarily attributable to a decrease in recruiting and strategic planning consulting expenses, as well as a severance payment to a former employee that was made in the same period in the prior year. The decrease also reflected a timing difference in our marketing expenditures in the three months ended March 31, 2002 compared to the same period in the prior year. Depreciation and amortization expense for the three months ended March 31, 2002 was $334,000, compared to depreciation and amortization expense of $402,000 for the same period in the prior year. We 13 <PAGE> ceased amortizing goodwill as of January 1, 2002 in compliance with the Financial Accounting Standards Board issuance of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets." OPERATING LOSS. Operating loss for the three months ended March 31, 2002 was $2.0 million, an increase of $152,000 compared to an operating loss of $1.8 million for the same period in the prior year due to the items discussed above. INTEREST INCOME (NET). Interest income (net) for the three months ended March 31, 2002 was $1.1 million compared to interest income (net) of $2.0 million from the same period in the prior year. The decrease of $888,000 was primarily attributable to a decrease in interest rates. INCOME (LOSS) BEFORE INCOME TAXES. Loss before income taxes for the three months ended March 31, 2002 was $914,000, compared to income before income taxes of $126,000 from the same period in the prior year due to the items discussed above. INCOME TAX EXPENSE (BENEFIT). Income tax benefit for the three months ended March 31, 2002 was $320,000, compared to income tax expense of $45,000 from the same period in the prior year. NET INCOME (LOSS). Net loss for the three months ended March 31, 2002 was $594,000 compared to net income of $81,000 from the same period in the prior year due to the items discussed above. 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 02- 718 http://www.sec.gov/Archives/edgar/data/1051825/000095015202004001/194340ae10-q.txt 6/19/02 Page 15 of 20 vary based on the number of races held during the quarter. In addition, the mix between the type of races (street course, superspeedway, etc.) and the sanction fees attributed to those races will affect quarterly results. During each of the three month periods ended March 31, 2002 and 2001, CART held one race in Monterrey, Mexico. LIQUIDITY AND CAPITAL RESOURCES We have relied on the proceeds from ,our available cash and cash flow from operations to finance working capital, investments and capital expenditures during the past year. We have a $1.5 million revolving line of credit with a commercial bank. As of March 31, 2002, there was no outstanding balance under the line of credit. The 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 March 31, 2002 was $25.0 million, a net decrease of $10.9 million from December 31, 2001. This decrease was primarily the result of net cash provided by operating activities of $8.0 million, partially offset by net cash used in investing activities of $19.0 million. We anticipate capital expenditures of approximately $3.5 million during the next twelve months. We believe that existing cash, cash flow from operations and available bank borrowings will be sufficient for capital expenditures and other cash needs. We have entered into various non -cancelable leases for office space and equipment through 2010. We have implemented a stock repurchase program that was authorized by our Board of Directors in April 2001. The program allows us to repurchase up to 2,500,000 shares of our outstanding stock, of which 1,054,000 shares have been repurchased for an aggregate of $15.5 million through March 31, 2002. 14 <PAGE> We did not repurchase any shares in the three months ended March 31, 2002. Repurchases under the program will be made at the discretion of management based upon market, business, legal, accounting and other factors. Accordingly, there is not a guarantee as to the timing or number of shares to be repurchased. Beginning in 2002, we will be co -promoting and/or self -promoting certain race events. The events' financial success will be dependent on the sale of tickets, sponsorship, hospitality, signage and other commercial rights associated with the events. For the events where we will co -promote, we have negotiated a reduction in the sanction fee payable to us, and we will share in the net income of the events. We have entered into agreements with certain of these co -promoted events whereby we have agreed to share in any losses incurred as a result of these events. For the events where we will be the promoter, we will have to increase our expenditures for promotion and may have to make some capital expenditures. We are unable to assess the financial outcome of these events. In light of current events and the overall state of the economy, we are uncertain on whether we or our teams will be able to maintain the same levels of sponsorship income that we have reported in the past or secure additional sponsorship. In addition, we are unable to determine what effect these factors will have on our new television package and our ability to sell television advertising for our races. We are also unable to assess what impact a decrease 02- '71U http://www.sec.gov/Archives/edgar/data/1051825/000095015202004001/194340aelO-q.txt 6/19/02 Page 16 of 20 in disposable income of our fans will have on our promoters and ultimately, our races. Our new television contracts, which run through 2004, require us to purchase air -time and produce the show at our expense for the races to be broadcast on CBS and Fox. We retain the advertising revenues for these races. Our fixed costs for 2002 are estimated to be approximately $9.9 million. As we have previously reported, we are party to several lawsuits. We cannot predict the outcome of the litigation,, and at this time, management is unable to estimate the impact that ultimate resolution of these matters may have on the Company's financial position or future results of operations. RELATED PARTIES We have entered into, and we will continue to enter into, transactions with entities that are affiliated with our directors and/or 5% stockholders who are owners of our race teams. Race teams that participate in the CART Championship receive purse distributions on a per race basis and from the year end point fund which amounts have been paid based solely upon their performance in specific races. All of these payments are made to our race teams regardless of the affiliation with our directors or significant shareholders. During 2002, we also paid a participation payment to our race teams, including those affiliated with directors and/or 5% stockholders. The following table provides information with respect to payments made during the three months ended March 31, 2002 by us to race teams that are affiliated with directors and/or significant shareholders of CART: <TABLE> <CAPTION> RACE TEAM/AFFILIATED DIRECTOR PURSE DISTRIBUTI ---------------- ----------------------------- <S> <C> Newman/Haas Racing/Carl A. Haas $ 150,000 Team Green/Barry E. Green 94,000 Chip Ganassi Racing Teams, Inc./Chip Ganassi 27,000 Forsythe Racing, Inc./Gerald R. Forsythe 53,000 Patrick Racing, Inc./U.E. Patrick 11,000 Derrick Walker Racing, Inc./Derrick Walker 13,000 </TABLE> Carl A. Haas, a director of the Company and a race team owner, is a principal owner of Carl Haas Racing Teams, Ltd. and Texaco Houston Grand Prix L.L.C., each of which have entered into Promoter Agreements with respect to CART Championship races at the Wisconsin State Park Speedway in West Allis, Wisconsin and at a temporary road course in Houston, Texas. Pursuant to the terms thereof, a CART Championship race was to be held in West Allis through 2001 and in Houston through 2003. We are currently in negotiations to finalize our agreement for 2002, with the promoter having the option to extend for 2003 and 2004, for the race at Wisconsin State Park Speedway and believe that the terms will be substantially similar to our previous agreement. The Houston, Texas race will not be held in 2002 due to construction on the temporary circuit in downtown Houston. The sanction fees payable to CART under these agreements have been similar to those paid by independent race promoters. Pursuant to the existing Promoter Agreement and our current discussions with respect to the 2002 race at Wisconsin State Park Speedway, entities affiliated with Mr. Haas will pay sanction fees to CART in the aggregate amount of $1.7 million (Milwaukee - in negotiation) and $2.7 million (Houston) in 2002 and 2003, respectively. In addition, we anticipate that we will pay a total of $100,000 in sales costs and $100,000 in marketing expenses in relation to our race at Wisconsin State Park Speedway during 2002. 02- 7C. http://www.sec.gov/Archives/edgar/data/1051825/000095015202004001/194340aelO-q.txt 6/19/02 Page 17 of 20 Gerald R. Forsythe, a race team owner and 5% stockholder, is a principal owner of the entities which entered into Promoter Agreements with respect to CART Championship races in Rockingham, England and in Mexico City, Mexico beginning in 2002. He is also a principal owner of Monterrey Grand Prix, S. de R.L. de C.V. which entered into a Promoter Agreement with respect to a CART Championship race in Monterrey, Mexico. Pursuant to the terms thereof, a CART 15 <PAGE> Championship race will be held in Rockingham through 2006, in Mexico City through 2006 and in Monterrey through 2005. These entities. affiliated with Mr. Forsythe have paid or will pay sanction fees to CART in the aggregate amount of $10.9 million for 2002, $11.2 million for 2003, $11.5 million for 2004, $11.9 million for 2005 and $9.3 million for 2006. However, we are currently negotiating an amendment relating to our race in Rockingham, England whereby we will co -promote the event, reduce the initial sanction fee and share in the percentage of profits. In addition, we have paid or anticipate that we will pay a total of $300,000 in sales costs and $291,000 in marketing expenses to these entities during 2002. Mr. Forsythe is also a principal owner of the entity that holds our Mexican television rights through 2004. In return for these rights, we will receive a minimum guarantee of $300,000, $325,000 and $350,000 for each of the three years ending 2002, 2003 and 2004, respectively. In addition, we will receive 70% of the net profits until we reach $500,000, $550,000 and $600,000 for each of the three years ending 2002, 2003 and 2004, respectively. Floyd R. Ganassi Jr., a director of the Company and a race team owner, is a principal owner of Chicago Motor Speedway, LLC and has entered into a Promoter Agreement with respect to a CART Championship race at Chicago Motor Speedway in Cicero (Chicago), Illinois. Pursuant to the terms thereof, a Championship race was to be held through 2003. The Chicago Motor Speedway, LLC was to pay sanction fees to CART of $2.0 million for 2002 and $2.1 million for 2003. In 2002, the Chicago Motor Speedway, LLC announced the suspension of all race events at Chicago Motor Speedway. We then entered into an agreement with the Chicago Motor Speedway, LLC where we will rent the track for $850,000 in 2002, and we will promote the race ourselves. In addition to the payments described above, CART receives revenues from its race teams, including those affiliated with CART directors and/or 5% stockholders, for entry fees, equipment leases and other payments based solely on participation in CART events. During the three months ended March 31, 2002, race teams affiliated with CART directors and/or 5% stockholders made such payments to CART as follows: Team Green/Barry E. Green $ 115,000 Forsythe Racing, Inc./Gerald R. Forsythe 72,000 Chip Ganassi Racing Teams, Inc./Chip Ganassi 72,000 Newman/Haas Racing/Carl A. Haas 75,000 Patrick Racing, Inc./U.E. Patrick 36,000 Derrick Walker Racing, Inc./Derrick Walker 36,000 We believe that all of the transactions which we have entered into with our directors or significant shareholders are comparable to the terms that we have in the past or could in the future enter into with third parties with respect to each of these transactions. In order to avoid conflicts of interest, any of our directors who are affiliated with an entity that is entering into a transaction with us will not vote on any matter related to such 16 02- "71_Q http://www.sec.gov/Archives/edgar/data/1051825/000095015202004001/194340ae10-q.txt 6/19/02 Page 18 of 20 <PAGE> transaction, and may, in certain circumstances, refrain from participating in any discussions related to such transaction. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS With the exception of historical information contained in this Form 10-Q, 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 following 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 - success of television contract - renewal of sanction agreements - participation by suppliers - success of co -promoted and self -promoted races - current uncertain economic environment and weak advertising market - impact of engine specifications ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS INTEREST RATE RISK. Our investment policy was designed to maximize safety and liquidity while maximizing yield within those constraints. At March 31, 2002, our investments consisted of corporate bonds, U.S. Agency issues, letters of credit, and money market funds. The weighted average maturity of our portfolio is 287 days. Because of the relatively short-term nature of our investments, our interest rate risk is immaterial. <PAGE> 17 CHAMPIONSHIP AUTO RACING TEAMS, INC. PART II - OTHER INFORMATION Item 1. Legal Proceedings On March 26, 2002, the Company filed a complaint against Joseph F. Heitzler, a director and former chairman, chief executive officer and president of the Company in U.S. District Court, Eastern District of Michigan, Southern Division, case number 0271143. The complaint alleges that Mr. 02- ( ry1 8 http://www.sec.gov/Archives/edgar/data/1051825/000095015202004001/194340aelO-q.txt 6/19/02 Page 19 of 20 Heitzler breached his employment contract, breached his fiduciary duties and intentionally or recklessly omitted to disclose information to the Company in order to induce the continuation of Mr. Heitzler's employment agreement. The suit seeks damages of an unspecified amount. On March 28, 2002, Mr. Heitzler filed a complaint against the Company in the superior Court of the State of California, County of Los Angeles, case number BC270846. The suit seeks compensatory, exemplary and punitive damages in excess of $2.0 million for breach of contract, fraud, negligent; misrepresentation, breach of covenant of good faith and fair dealing, declaratory relief. An amended complaint adding a count for tortious breach of contract in violation of public policy was filed on April 9, 2002. The Company intends to vigorously defend itself in this lawsuit and does not believe the lawsuit has merit. Management does not believe that the outcome of this lawsuit will have a material adverse affect on the Company's financial position or future results of operations. Item 6. Exhibits and Reports on Form 8-K. <PAGE> (a) Exhibits. We were not required to file any additional exhibits for the three months ended March 31, 2002. (b) Reports on Form 8-K. We were not required to file a form 8-K during the three months ended March 31, 2002. 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CHAMPIONSHIP AUTO RACING TEAMS, INC. Date: May 7, 2002 By: /s/ Thomas L. Carter ------------------------- ------------------------------ Thomas L. Carter Chief Financial Officer 19 02- '71 http://www.sec.gov/Archives/edgar/data/1051825/000095015202004001/194340ae10-q.txt 6/19/02 </TEXT> </DOCUMENT> Page 20 of 20 http://www.sec.gov/Archives/edgarldata/1051825/000095015202004001/194340aelO-q.txt 6/19/02 CITY OF MIAMI CITY ATTORNEY'S OFFICE MEMORA TO: Carlos A. Gimenez, City ager FROM: Alejandro Vilarello, C' ey DATE: June 24, 2002 RE: Your request for al a opinion: Whether the sale of shares of a corporation holding a non -assignable license constitutes assignment. MIA No. 02-013 (Our File No. A02-459) You have requested a legal opinion on substantially the following question: DOES THE SALE OR TRANSFER OF SHARES OF A CORPORATION HOLDING A NON -ASSIGNABLE LICENSE CONSTITUTE AN ASSIGNMENT? ANSWER The answer to your query is in the negative. The sale of shares (or other similar evidence of ownership of a company) does not constitute an assignment of licenses or other agreements held by that fictional entity. ANAT .VCTC There is no dispute that even where licenses are construed as "personal" and "non - assignable" they may be held by a corporate entity. See e.g. Lane & Bodley Co. v. Locke, 14 S. Ct. 78, 79 (1893). Transfer of total control of a corporation does not affect its status separate from its shareholders. See Id. at 79 (corporation taken over by a liquidator which created a successor corporation was entitled to maintain a non -assignable personal license). While no Florida cases have directly addressed this issue, a Federal Court has construed Florida law as consistent with the above Supreme Court precedent. Winchester Const. Co. v. Miller Bd. of Education, 821 F. Supp. 697 (M.D. Ga. 1993). In Winchester, the District Court analyzed the rights of successor corporations under Florida law. Id. at 701. The Court found that a transfer of control of a corporation in a merger would not constitute an assignment and would not violate a non -assignment provision in a contract entered into by the acquired corporation. Id. The issue has been most directly addressed by the United States Court of Appeals for the Seventh Circuit. See e.R. Baxter Healthcare Corporation v. O. R. Concepts, Inc., 69 F. 3d 785 (7`h Cir. 1995). In Baxter, the Court of Appeals construing Illinois law found that the sale of a manufacturer's stock to a distributor's competitor was not an assignment of the manufacturer's interest in a distribution agreement and thus did not violate a non -assignment clause therein. Id. 02- 718 MIA No. 02-013 June 24, 2002 Request for Legal Opinion Page 2 at 788. Numerous citations in Baxter at page 788 emphasize this proposition and the underpinnings of it. Basically, Baxter and its referenced authority find that "the most fundamental characteristic of a corporate entity [is] its independence." Id. This principle is well-founded in Florida law, as well. The ownership of a corporation does not affect that corporation's identity as a distinct legal entity. St. Petersburg Sheraton Corp. v. Stuart, 242 So. 2d 185, 190 (Fla. 2d DCA 1970). This year the United States Court of Appeals for the Fourth Circuit, while analyzing an agreement governed by Virginia law, cited Baxter as support for the proposition that "mere transfer of ownership of ... stock ... did not constitute an assignment." Hess Energy, Inc. v. Lighting Oil Co., Inc., 276 F.3d 646, 650 (4`h Cir. 2002). CONCLUSION The above authorities indicate that the sale or transfer of shares of a corporation holding a non -assignable license does not constitute an assignment. PREPARED BY: 1 .Aul, 0 Henry J.efeld Assistant City Attorney AV/HJH/ir REVIEWED BY: Joel Edward Maxwell ,Peputy City Attorney c: Mayor and Members of the City Commission MIA -02-013 02- ( 1 8