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CART finances reaching critical point
CART has issued another gloomy financial statement (the full statement follows), essentially admitting that the series could run out of cash before the end of the 2004 season. Yet gloomy financial statements have been CART’s standard for the better part of three years, and many have been predicting for months that the series will deplete its reserves sometimes next season. The significance of this latest offering may lie less in the “what” and more in the “why.”
Days before CART’s Vancouver race, on the occasion of the season’s halfway point, CART issued a statement to financial analysts. The release said that CART’s income for 2003 is likely to fall another $4 million to $6 million, while operating costs will increase $1 million. That would increase CART’s annual loss as much as $7 million. Moreover, the release said CART does not expect to turn a profit before 2006 at the soonest (the previous prediction was 2005). Finally, most ominously, the series officially conceded what many insiders and Wall Street analysts had predicted: “Management now expects that it will need additional capital to complete the 2004 season.”
Why now? CART’s release was not an official report required by the SEC; it was discretionary “guidance” to the financial community. Indeed, CART had suspended all guidance to analysts for months until it issued a statement in June, announcing that it had retained Bear, Stearns and Co. to seek buyers, officially initiating the long-anticipated effort to take the company private again.
The timing is interesting. The financial release came days after CART’s shareholders meeting in Indianapolis, which included a private meeting between CART management and its board of directors. The board will ultimately have to approve any buyout. While rumors of a takeover by F1 czar Bernie Ecclestone have persisted for months, it’s believed that the only potential buyers consist of a small group investors led by team owner Gerald Forsythe. Might the financial release amount to posturing in anticipation of a buyout offer to shareholders?
“There is clearly speculation that it might be a tool to drive the price down, that it will make it easier to approve a rock-bottom buyout,” said stock analyst Dennis McAlpine of McAlpine Associates LLC. “But ultimately they need more than that, which is why Bear, Stearns is involved. They would have to say ‘these are the only buyers we have come up with after a diligent search, and it’s take it or leave it.’ There will also have to be a full-disclosure statement, that puts everyone, inside and outside, on a level playing field as far as information goes.”
Moreover, as McAlpine notes, the buyout is only the price of entry. Whoever invests in CART will need to recapitalize the company substantially if it plans to stay in business. While CART has officially acknowledged that, in the absence of significant changes, it will run out of money soon, the bottom line hasn’t changed significantly. CART future, if it has one, lies in whatever becomes of the privatization effort.
Here is the statement CART released:
Championship Auto Racing Teams Updates 2003 Financial Guidance
July 22, 2003 - Championship Auto Racing Teams, Inc. (CART) (NYSE:MPH) today updated its financial guidance for 2003 and the outlook for 2004.
2003 Financial Guidance
The company is updating its financial guidance for 2003 following the conclusion of the first half of its race season. With ten of its scheduled nineteen races in the record books, four of six self-promoted events and six of its seven scheduled network races for the 2003 season completed, the company has revised its expectations based on the trends seen in several key areas.
Sanction Fees and Self-Promoted Races
The company currently expects to receive sanction fees of $24.0 to $25.0 million, down from its previous expectation of $25.0 to $26.0 million. The reduction is due to a reduced outlook for revenue sharing at its races where the sanction fee is determined by the commercial success of the race, based on race experience so far this year.
We have conducted four CART-promoted events so far in 2003: Brands Hatch, England, Eurospeedway Lausitz, Germany, Portland, Oregon and Cleveland, Ohio. Based on its experience to date and the forecast for the two remaining CART-promoted events, the company believes the losses from all its self-promoted events will be in the upper range of its previous guidance of $4.8 to $7.8 million for 2003.
Sponsorship Sales
Sponsorship sales so far this year are trending behind our previous guidance. With a soft advertising market and an economy that is struggling to recover, sponsorship sales continue to be a challenge for the company. The company is lowering its previous expectation for 2003 sponsorship sales of $7.0 to $8.0 million to $6.0 to $7.0 million.
Television Advertising Sales
We have completed six of the seven scheduled CBS network races for this year, where the rates we can charge are higher than those we can charge for cable advertising. Based on our recent experience in selling our television advertising and the fact that all but one of our remaining races will be on cable, we are reducing our previous forecasts down to $2.0 million to $3.0 million for 2003.
Operating Costs
Administrative and indirect expenses are expected to be approximately $1.0 million greater than previously anticipated due to higher than expected legal expenses and the settlement of a lawsuit. We now expect administrative and indirect expenses to be between $22.0 and $23.0 million for 2003.
Outlook for 2004 and Beyond
Due to the continuing downward trend in several of its critical revenue streams, as discussed above, and a lowering of its expectations regarding the 2004 year, management now expects that it will need to raise additional capital to complete the 2004 season. Projections beyond 2004 are, in management's view, very speculative. Currently, however, management does not expect the company to have positive cash flow from operations or earnings any earlier than 2006. As announced previously in light of the near term financial challenges facing the company we have retained the investing banking firm of Bear, Stearns & Co. Inc. to assist us in exploring financing and other strategic alternatives that may be available to CART. There cannot be any assurance that this process will result in any transaction or as to the terms and conditions of any transaction that may be proposed to or pursued by the company.
Safe Harbor Statement
Statements made in this news release that state the company's or management's beliefs or expectations and which are not historical facts or which apply prospectively are forward-looking statements. Words such as "may," "will," "expect," "believe," "anticipate," "forecast," "intend," "could," "would," "estimate," or "continue" or the negative variation thereof or comparable terminology are intended to identify forward looking statements. It is important to note that the company's actual results could differ materially from those contained or implied by such forward-looking statements. Among the risks and uncertainties to be considered include, but are not limited to, CART's new co-promoted and self-promoted events; new television and advertising arrangements; the success of races in new venues; participation by race teams; the current uncertain economic environment and weak advertising market; among others. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in the company's SEC filings made from time to time, including, but not limited to, the Form 10-Ks and subsequent 10-Qs. Copies of those filings are available from the company and the SEC
<small>[ 24-07-2003, 21:03: Message edited by: Archtur ]</small>
CART finances reaching critical point
CART has issued another gloomy financial statement (the full statement follows), essentially admitting that the series could run out of cash before the end of the 2004 season. Yet gloomy financial statements have been CART’s standard for the better part of three years, and many have been predicting for months that the series will deplete its reserves sometimes next season. The significance of this latest offering may lie less in the “what” and more in the “why.”
Days before CART’s Vancouver race, on the occasion of the season’s halfway point, CART issued a statement to financial analysts. The release said that CART’s income for 2003 is likely to fall another $4 million to $6 million, while operating costs will increase $1 million. That would increase CART’s annual loss as much as $7 million. Moreover, the release said CART does not expect to turn a profit before 2006 at the soonest (the previous prediction was 2005). Finally, most ominously, the series officially conceded what many insiders and Wall Street analysts had predicted: “Management now expects that it will need additional capital to complete the 2004 season.”
Why now? CART’s release was not an official report required by the SEC; it was discretionary “guidance” to the financial community. Indeed, CART had suspended all guidance to analysts for months until it issued a statement in June, announcing that it had retained Bear, Stearns and Co. to seek buyers, officially initiating the long-anticipated effort to take the company private again.
The timing is interesting. The financial release came days after CART’s shareholders meeting in Indianapolis, which included a private meeting between CART management and its board of directors. The board will ultimately have to approve any buyout. While rumors of a takeover by F1 czar Bernie Ecclestone have persisted for months, it’s believed that the only potential buyers consist of a small group investors led by team owner Gerald Forsythe. Might the financial release amount to posturing in anticipation of a buyout offer to shareholders?
“There is clearly speculation that it might be a tool to drive the price down, that it will make it easier to approve a rock-bottom buyout,” said stock analyst Dennis McAlpine of McAlpine Associates LLC. “But ultimately they need more than that, which is why Bear, Stearns is involved. They would have to say ‘these are the only buyers we have come up with after a diligent search, and it’s take it or leave it.’ There will also have to be a full-disclosure statement, that puts everyone, inside and outside, on a level playing field as far as information goes.”
Moreover, as McAlpine notes, the buyout is only the price of entry. Whoever invests in CART will need to recapitalize the company substantially if it plans to stay in business. While CART has officially acknowledged that, in the absence of significant changes, it will run out of money soon, the bottom line hasn’t changed significantly. CART future, if it has one, lies in whatever becomes of the privatization effort.
Here is the statement CART released:
Championship Auto Racing Teams Updates 2003 Financial Guidance
July 22, 2003 - Championship Auto Racing Teams, Inc. (CART) (NYSE:MPH) today updated its financial guidance for 2003 and the outlook for 2004.
2003 Financial Guidance
The company is updating its financial guidance for 2003 following the conclusion of the first half of its race season. With ten of its scheduled nineteen races in the record books, four of six self-promoted events and six of its seven scheduled network races for the 2003 season completed, the company has revised its expectations based on the trends seen in several key areas.
Sanction Fees and Self-Promoted Races
The company currently expects to receive sanction fees of $24.0 to $25.0 million, down from its previous expectation of $25.0 to $26.0 million. The reduction is due to a reduced outlook for revenue sharing at its races where the sanction fee is determined by the commercial success of the race, based on race experience so far this year.
We have conducted four CART-promoted events so far in 2003: Brands Hatch, England, Eurospeedway Lausitz, Germany, Portland, Oregon and Cleveland, Ohio. Based on its experience to date and the forecast for the two remaining CART-promoted events, the company believes the losses from all its self-promoted events will be in the upper range of its previous guidance of $4.8 to $7.8 million for 2003.
Sponsorship Sales
Sponsorship sales so far this year are trending behind our previous guidance. With a soft advertising market and an economy that is struggling to recover, sponsorship sales continue to be a challenge for the company. The company is lowering its previous expectation for 2003 sponsorship sales of $7.0 to $8.0 million to $6.0 to $7.0 million.
Television Advertising Sales
We have completed six of the seven scheduled CBS network races for this year, where the rates we can charge are higher than those we can charge for cable advertising. Based on our recent experience in selling our television advertising and the fact that all but one of our remaining races will be on cable, we are reducing our previous forecasts down to $2.0 million to $3.0 million for 2003.
Operating Costs
Administrative and indirect expenses are expected to be approximately $1.0 million greater than previously anticipated due to higher than expected legal expenses and the settlement of a lawsuit. We now expect administrative and indirect expenses to be between $22.0 and $23.0 million for 2003.
Outlook for 2004 and Beyond
Due to the continuing downward trend in several of its critical revenue streams, as discussed above, and a lowering of its expectations regarding the 2004 year, management now expects that it will need to raise additional capital to complete the 2004 season. Projections beyond 2004 are, in management's view, very speculative. Currently, however, management does not expect the company to have positive cash flow from operations or earnings any earlier than 2006. As announced previously in light of the near term financial challenges facing the company we have retained the investing banking firm of Bear, Stearns & Co. Inc. to assist us in exploring financing and other strategic alternatives that may be available to CART. There cannot be any assurance that this process will result in any transaction or as to the terms and conditions of any transaction that may be proposed to or pursued by the company.
Safe Harbor Statement
Statements made in this news release that state the company's or management's beliefs or expectations and which are not historical facts or which apply prospectively are forward-looking statements. Words such as "may," "will," "expect," "believe," "anticipate," "forecast," "intend," "could," "would," "estimate," or "continue" or the negative variation thereof or comparable terminology are intended to identify forward looking statements. It is important to note that the company's actual results could differ materially from those contained or implied by such forward-looking statements. Among the risks and uncertainties to be considered include, but are not limited to, CART's new co-promoted and self-promoted events; new television and advertising arrangements; the success of races in new venues; participation by race teams; the current uncertain economic environment and weak advertising market; among others. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in the company's SEC filings made from time to time, including, but not limited to, the Form 10-Ks and subsequent 10-Qs. Copies of those filings are available from the company and the SEC
<small>[ 24-07-2003, 21:03: Message edited by: Archtur ]</small>
