Speedway Motorsports, Inc. Q1 2008 Earnings Conference Call

| About: Speedway Motorsports, (TRK)

Speedway Motorsports, Inc. (NYSE:TRK)

Q1 2008 Earnings Call

May 7, 2008 11:00 am ET

Executives

Lauri Wilks - Director Investor Relations

Humpy Wheeler - President, Chief Operating Officer

Marcus Smith - Executive Vice President Sales and Marketing

Bill Brooks - Chief Financial Officer

Analysts

Timothy Conder - Wachovia Capital Markets

Robert Simonson - William Blair & Company

Eugene Fox - Cardinal Capital

Bart Bertero - Principled Capital Management

[Chirs Sim] - Shankman

Jefferson George - The Charlotte Observer

Timothy Conder - Wachovia Capital Markets

Operator

Welcome everyone to the first quarter 2008 earnings release conference call. (Operator instructions) Ms. Wilks you may begin your conference.

Lauri Wilks

I’m glad that you’re on the call, so we can update you on our financial results and operations for the first quarter of 2008. With me I have our President and Chief Operating Officer Mr. H.A. Wheeler, our Chief Financial Officer Mr. Bill Brooks and our Executive Vice President of National Sales and Marketing Mr. Marcus Smith.

Before we get stated with the remarks, I have to give you a little Safe Harbor disclaimer, so comments on this conference call today may contain forward-looking statements, particularly statements with regard to our future operations and financial results.

You all know that there are many factors that affect our future events and trends of our business including, but not limited to consumer and corporate spending sentiment, air travel, governmental regulations, military actions, national or local catastrophic events, the success of and weather surrounding NASCAR, IRL and NHRA and other racing events, our relationship with NASCAR and other sanctioning bodies, the success of Motorsports Authentics merchandising joint venture, the success of expense reduction efforts, capital projects, expansion, economic conditions, stock repurchases, financing needs, insurance, litigation, taxes, oil and gas activities, including the possibility of discontinuing operations, geopolitical situations in foreign countries and other factors that are outside of our management control.

These factors and other factors, including those contained in our Annual Report on Form 10-K and subsequently filed Quarterly Reports on Form 10-Q; involve certain risks and uncertainties that could cause actual results or events to differ materially from the management's views expressed here today. With those opening remarks out of the way, I would like to turn the call over to Mr. H.A. Wheeler. Humpy.

H.A. Wheeler

We appreciate you join us on this first quarter results call and we did have a good first quarter, as a matter of fact we had record revenue for our company and this was very pleasing because it really demonstrated that our market remains strong despite these challenging economic times. We reiterate again that our first quarter 2008 earnings were consistent with the previous full year 2008 guidance of $2.40 to $2.50 per diluted share.

In the first quarter, we continue to see record levels of corporate marketing and other event related revenues for NASCAR events held during this period and during this period we had three major NASCAR Sprint Cup weekends. The first was in March in Las Vegas, we had excellent crowds at both the Sprint Cup race and the Nationwide event, which was held on last Saturday, we went to Atlanta following that and did not enjoy particularly good weather; as a matter of fact it snowed in Atlanta, Georgia or South Atlanta on Sunday morning before the Kobalt 500. So, we had soft attendance in Atlanta.

Things rebounded sharply at Bristol when we again hosted, sold out crowds for the 500 and we had very strong crowds for the Nation wide series on Saturday. Even though we had a little weather there on Saturday and our pole qualifying was canceled on Friday due to weather, but Sundays race was held in excellent weather at Bristol, before a sold out crowd.

Giving update on 2008 right now while we are showing flat to soft admissions down in some places, flat in others. We’ve got very, very strong corporate revenues and Marcus will talk about that in just a minute and also very stable broadcast revenues. Our TV ratings, we continue to be optimistic about them because they actually increased in the first quarter, which was a strong sign.

In the second quarter or in 2008 we’ve got two new races that are added to our SMI schedule at New Hampshire; one will be in June and the other in September. So that will effect the second and third quarters in a way that we didn’t have last year. Construction of the new driveway as Lowe’s continues to move along and a matter of fact we are little ahead of schedule and hope to be completed by late summer because our first NHRA National even is in September; it starts of on the 11.

We have also completed the first phase of modernization of Lowe’s Motor Speedway. We had an upgrade, a significant improvement of about 20,000 front-stretch seats and the fans have seen these seats and we will sit in them for the May 17 Sprint All-Star Race and the May 25, 49 running of the Coca-Cola 600, remember next year is the 50 anniversary of the cup of Lowe’s Motor Speedway and the Coca-Cola 600.

The other thing that we’re very pleased with is Motorsports Authentics. Our earnings have significantly improved over the first quarter in 2007. As I have said, continuing to talk a little bit more about the TV ratings, the first nine weeks of the season we have either been number one or number two rated sports program of the week. So, ratings are definitely headed in the right direction from last year. For instance Las Vegas achieved a 7.1 rating which was up 13% over the 6.3 rating the previous year. That was the highest rating, rated event in the history of Las Vegas.

As you know we are in the second year of a eight-year broadcast agreement between NASCAR, Fox, ABC and ESPN and The Speed Channel. Broadcasting continues to remain a significant revenue source for our core business with the new arrangement showing increased revenues of about 3% through 2014. Good thing about this is two thirds of the races that we are running right now are in the -- are network broadcasts so we are reaching a lot more households and in addition there is a huge amount of NASCAR programming as you can see throughout the weak and at non-event times.

Now the big question of course is what’s the high gas prices and the subsequent impact on those fuel prices in the grocery stores etc going to have on race tickets? It is going to have an impact. It certainly puts us in challenging times, it makes us work harder and our challenge as track operators is to keep the costs down number one, so ticket prices can remains stable and we can get people in and out of here better. Also require a significant increase in service to the fans and that means that if you call in to one our tracks, we can help customers get a hotel room, we’ll do that and really most anything else that you want.

We know the difference betweens a NASCAR race say in an NFL game or a -- and their game and this is a week and some times vacation for fans, so we’ve got to look at our businesses, that we are in the travel business and we have got to cater to the people and meet their extra needs simply other than the buying of a ticket. Camping is a huge source of -- is a huge activity for race fans. I think we probably -- almost half of the people for instance who came to Texas this year we’re in RV. So, we got to keep that up and make it easy for people to do that and also fun to do it. So these are the challenges that we got.

Now what’s going to happen if it goes to $4 a gallon or even higher; I think the strongest thing that we have going forward right now and that pain is the fact that we’ve been through this before. We have been through recessionary times, many times. Nobody likes it, but we’ve risen to the challenge every time we’ve been through one and we’ve got excellent track operators that know how to promote and know what to do when ticket sales slow down. Not saying it works all the time, but at least we get in there and we are swinging the bat.

Now the strongest thing I think that we have going for us outside of outstanding track operators is the fact that females make up almost 40% of the crowd and that’s very, very important when you have any kind of entertainment in recessionary periods, because if you get both the man and women involved in the activity, your chances of getting that ticket sold are better, but when dollars are going out of the exhaust pipe and I think the average consumer now is extremely angry about all this; therefore they become extremely sensitive and you have to placate their needs in a way that you simply didn’t have to do that, five years ago and we are tuned to that and we are not only tuned to it, but I think that we’ve got all of the people around us involved in the event; the inn keeper's, the people that run the restaurants, the various police agencies that do traffic.

I think they’re very, very much in tune with the fact that people will like what’s going on and we’re smiling broader across the landscape right now to make the fans feel more welcome and I think it’s paying off for us. Now if you look at the industry itself, NASCAR racing, we are still doing over 100,000 people every time we have event and no other sport can say that and I say strong reflection on the need for people to have only entertainment even in down times. So we’re going to keep working hard and keep trying to satisfy these fans.

To take you over into the corporate area and a bright spot in what we are doing I will now turn it over to our Executive Vice President and Sales and Marketing, Mr. Marcus Smith.

Marcus Smith

As Humpy said, we do continue to see strong trends in corporate spending for 2008 and even as we look into 2009. The value proposition that we offer is still very strong and recognized as such by some of the greatest brands in the world. We are pleased that our team continues to work hard and meet and exceed the partner’s objectives and as an example, we just renewed with Pep Boy’s for our fall Sprint Cup event in Atlanta, Atlanta Motor Speedway.

As a result to that, all of our Sprint Cup event entitlements are sold for 2008 and only one is available in 2009, which is for the March Las Vegas motor speedway of that which we are bullish on. All of our nationwide series and truck events are also sold for 2008 with just a few of them covered for 2009 and feel good about the prospects for filling those as well.

All in all, the business in corporate end has been very strong and we continue to offer what corporate America seems to need and on the MotorSports Authentics again as Humpy said, the earnings has significantly improved over the first quarter 2007 and we are anticipating a much better year for 2008. Our preliminary outlook is for a breakeven year and we feel positive about the turn around there. For more details on the finances, I will turn it over to our Chief Financial Officer Brooks.

Bill Brooks

As you probably know ladies and gentlemen the results for our first quarter in March '08 are not directly comparable to the first quarter in '07 because of our January acquisition of the New Hampshire Speedway. We have included our preliminary purchase price accounting adjustments for that acquisition in the balance sheet and income statement that you see, but the final price and allocation may differ from what we've done. There were not directly comparable -- if we look at the historical results of New Hampshire for the first quarter of 2007 and combine those with the first quarter 2007 results for Speedway Motorsports, our results would have declined from $0.72 to $0.63.

So, that gives you some idea of the impact and what impact it would have in the first quarter of this year and that‘s simply because we have incurred the interest depreciation and general administrative costs, but we haven’t conducted any events. That seasonality will go in the opposite direction in the second and third quarters when we have events and then in the fourth quarter it will go back to the same probably or similar as to the first when we just have expense.

As we look through the income statement the admissions declined about $2.9 million or 5%. One of the primary factors for that was the repeal of the admissions tax in Nevada that we had to recess on our customers and that accounted for 30% or 40% of the decline. You noticed the direct expense of events also declined about 5% or about $1.3 million and that reflected the other side of the transaction and revenue was reduced and the expenses were reduced because we didn’t have to collect and pay that tax.

As Humpy mentioned, the weather was inclement in Atlanta which affected our weekend events and it accounted for about half of our year-over-year admission decline and the balance was primarily from weather related issues that occurred in Bristol when we had to cancel the Friday pole day qualifying and we had a nationwide race that was both delayed and shortened because of the rain.

So, Marcus has talked to you about the event-related revenue which is a bright spot increasing $2.3 million primarily from higher sponsorships, luxury suites, ancillary broadcast right and Las Vegas neon garage sale revenues. Both the NASCAR broadcast revenues and the purse and sanction fees increased about 2%, as we expected.

Our other operating revenue increased $2.9 million or almost 30% over the same period in 2007 and that was primarily from higher sales of non-event time sales of Motorsports merchandise and of course finally the other direct operating expense line increased about $2.1 million, up again primarily from higher cost of goods and operations associated with those higher non-event time Motorsports merchandise sales.

General administrative expenses for our quarter increased by $1.3 million over those in the first quarter of 2007, but about 60% of that was attributable to the operating cost associated with owning and operating Hampshire Motor Speedway. Depreciation and amortization like wise increased by $1.2 million from two factors, the large capital projects undertaken and placed in service during 2007 and our New Hampshire purchase in January 2008.

Interest expense increased. It almost doubled from about $4.7 million to $9.4 million compared to the first quarter of 2007 and again it’s primarily from the interest on the additional $300 million that was borrowed and used to acquire the New Hampshire speedway.

[Inaudible] the good result. We had the Motorsports Authentics where we had a turn around and had a profit of above $1.6 million for the quarter ended ’08 compared to a $3.5 million loss in ’07 that was a very pleasant change. In our 10Q, which we expect to have filed hopefully by the end of the weak and possibly as early as tomorrow we always depict segment information which presented for the quarter of ’08 reflects a loss of about $2.7 million versus a loss of about 35 in the first quarter of 2007 and the bulk of that segment is comprised of oil and gas activities and oil chem research and some of our non-event motorsport sales and other ancillary business.

At this point, Stephanie I would like to commence the question-and-answer session please.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Timothy Conder - Wachovia.

Timothy Conder - Wachovia Capital Markets

On Motorsports Authentics, gentlemen could you talk about what your expectations are for the year and also in your 240 to 250 guidance as I read your press release correctly, I think you state in there that that excludes anything from Motorsports Authentics discontinued operations equity investments and so forth. So, just a little clarification on that and then markets maybe on your sponsorship renewals; can you talk about what your average escalators are on the ones that are renewing this year going forward and what that has been over the last couple of years.

Humpy Wheeler

Well, Tim we expect the Motorsports Authentics to be breakeven for the 2008 year. We hope that it will do better than that, but that is our expectation and you are correct that our estimate of 240 to 250 does not exclude some various items in particular discontinued operations and Motorsports Authentics.

Bill Brooks

Yes, Tim on the sponsorships, what we have been seeing, this year as well as in years past is that in the middle of the contract of the term and agreement, the escalators tend to be low single-digits and then when the contracts is up for renewal and it goes from one contract to the next it tends to be either from the high single-digits to low double digits and the low teens.

Timothy Conder - Wachovia Capital Markets

You are saying you are seeing an acceleration from the old contracts. From the new contracts you are seeing acceleration in the escalators or you’re able to get in the new contract.

Bill Brooks

No, I am sorry. What happens is say if we just finished up a five year deal. Within this timeframe of those five years the escalator tends to be in the low single-digits; I guess low-to-mid.

Timothy Conder - Wachovia Capital Markets

This is all on a old contract that’s just wrapping up.

Bill Brooks

Yes, so then when you renew that contract, it tends to be a step up that’s higher to adjust for what today’s prices might be as opposed to what was negotiated five years ago and then that new contract, it might be for another five year and the body of that will have those low-to-mid single-digits escalators for that five years.

Timothy Conder - Wachovia Capital Markets

So just to clarify, you are in the fifth year of an old contract in ’08 and say at the end it’s a 100 bucks for the value of that contract in the last year and in the new year that would start in ’09, it would step up the value of the ’09 of that year would be 110, 120 and then with a low-to-mid single-digit escalator thereafter, did I understand it correctly?

Bill Brooks

That’s correct.

Timothy Conder - Wachovia Capital Markets

I noticed again in your press release you did a little bit of share repurchase during the quarter. What’s going to be your ability going forward given the debt that you took on and loan convenience related to New Hamphire?

Bill Brooks

Tim, we expect to continue our share repurchase. We would like it to be more vigorous but we are confronted with the case of hard debt and high capital projects at the same time. So, we are targeting as a goal to at least buy enough shares to avoid dilution through option exercise or restricted share awards.

Operator

Your next question comes from Bob Simonson - William Blair.

Robert Simonson - William Blair & Company

Humpy, on the Las Vegas one, you didn’t say it was a sellout; was it a sellout last year?

Humpy Wheeler

It was a sellout last year. We were a little short of a sellout this year, but Bob we had -- still had a very good crowd.

Robert Simonson - William Blair & Company

Was the affect of the economy greater on concessions in food and beverage at that race than it was on admissions? And how should they get back more, once they get that?

Humpy Wheeler

Yes. That’s typical Bob. When you have a tight economy particularly over the silmanary side, that’s where you get hit. They might buy a hot dog, but they won’t buy a Hamburg and they may buy a hat, but they won’t buy a t-shirt. So, that’s where you feel it.

Robert Simonson - William Blair & Company

And the other race, the Atlanta disappointing one because of the weather. I mean have you contemplated or petitioned to try to move that race to a different date. It seems like either the spring or the fall one gets nailed by some inclement weather almost every year.

Humpy Wheeler

Yes ultimately it would be wonderful to have both the Atlanta race as maybe at the start and end of the summer and have it at night when you have got -- you don’t have to -- you are not in the equinox changes. Right now, what we are working on very hard is to try to move that October race to a more favorable weekend and also the -- really need -- the deal there would be to have it at Labor Day weekend and we haven’t got any confirmation on that, but we are continuing to work on it.

Robert Simonson - William Blair & Company

It was some like 100 degrees and late for the last one, so maybe…

Humpy Wheeler

Yes, we think it would be a good trade for them and so, it -- but Labor Day, it was a traditional race weekend at Darlington for years and it was a kind of Southern tradition and it’s not there anymore as we know, so that moved to California. So, moving it back to the south would be a good thing and Atlanta would certainly be a great track to do it in. If you arrange it on Saturday night then you have Sunday and Monday to get people home, so -- but the ball is kind of an ISC scored on that and we hope they will see the value of the trade.

Robert Simonson - William Blair & Company

And Bill, your interest expense was $7.5 million in the first quarter, just as kind of a guideline if you multiply that times four it’s $30 million; is that a reasonable number for the full-year.

William Brooks

Well, I was thinking it was $9.5 for the first quarter, but if you annualize that Bob.

Robert Simonson - William Blair & Company

Yes, sir. So it report four times the current quarter.

William Brooks

Unless we have some huge increase in LIBOR rates that looks to be a reasonable assumption.

Robert Simonson - William Blair & Company

And can you give some guidance on CapEx or reiterate guidance for CapEx and depreciation for this year?

William Brooks

Yes, I think first one, depreciation that once again for annualized debt; 11, 8 in depreciation for the quarter, that’s probably a good indicator for the year. As far as CapEx we expect it will run about $70 million to $80 million for the year.

Robert Simonson - William Blair & Company

Okay and is there any New Hampshire in that number?

William Brooks

Small amounts; we’re assessing what we can do there and we’re challenged a little bit because there is a very short period of good weather until the first event, then a short period would be between first and second and then another short period between the second event and the inclement weather again. So, we are just learning; we are not use to dealing with that and we are just trying to figure out what to do and how to best improve that facility.

Robert Simonson - William Blair & Company

And also Bill on the petroleum trading, can you talk a little bit about its status and what you would like its status to be?

Humpy Wheeler

Well Bob as we mentioned last time there are just two add specs to it; one, is the interest that we have in last year where we are either extracting petroleum or prospecting for it and the other is the more problematic area where we had losses and some buying and selling of petroleum and that part we are not doing any longer. The part that relates to those Russian properties, it still has some work to be done. We hope that at sometime it will be in a good position to be sold and we will do fine on it, but we are continuing to asses that and see if it will become discontinued operation

Robert Simonson - William Blair & Company

Marcus, you talked about strong sponsorship growth; can you give kind of a bigger than a bread box smaller than a -- what’s that number for the quarter and for your expectations for the year?

Marcus Smith

Well, I think if you look at a 2008, Bill gave you some numbers of where we grew compared to last year and each year we seem to, like I said; do good job, renew the people we have and bring in some new folks, so we're excited that the new drag strip is very exciting for local and regional and national companies that are coming on Board and jumping on that with us and which also has been good for other drag strips around the country. The racing as a whole, NASCAR racing is still very viable place for companies to put their dollars not only their advertising and marketing dollars, but their entertainment dollars and so it's up to us to do a good job and to make sure they have a great time and come back.

Humpy Wheeler

No problem; the thing is that we haven’t done this good a job of articulating it and it’s probably my fault. Marcus and his group have done a really excellent job of brining new categories or enhanced partnership opportunities with the existing partners, so some of the growth is predicated by that. Even though we have a contract with the partner, we might do something different. As an example just coming up the road today you see there is a huge new sign that we have developed with Coca-Cola and it's an extra revenue for us; it’s an extra advertising for them. We hope we are going to at least have the increase that we did last year and I think we were up with high single-digits in sponsorships and hopefully we will see that throughout the calendar year.

Robert Simonson - William Blair & Company

In your press release it talked about reported first quarter revenues etc, etc and said however we have decided to implement certain cost reduction efforts to mitigate the ongoing effects of escalating gas prices and other economic matters. Can you kind of elaborate what that’s about?

Bill Brooks

Yes, sir. As Humpy mentioned, we have had some impact on admissions and on souvenir and concession sales from distractions that our consumers are under today and just fearing that those might continue, we are attempting to bring in some of our controllable expenses in the amounts of the low single digits and that’s what we are attempting to do with our managers and they are very supportive and hopefully that would mitigate any shortfall that we might have in some of those other arenas.

Robert Simonson - William Blair & Company

Now is that more in the G&A line or up in the direct expense line?

Bill Brooks

Its both lines, its both.

Humpy Wheeler

Yes, it’s across the board, Bob. The big thing that we are trying to do also is keep ticket prices inline, because the people are looking for bargains and we don’t want to get to the discount ticket business. We have found out that packages work real well when you combine races, but the significant boost in ticket prices right now would not be met well by the consumer, so we need to do everything we can to keep them in line.

Operator

Your next question comes from Eugene Fox - Cardinal Capital.

Eugene Fox - Cardinal Capital

For some reason your TV money increased to 2% in the first quarter versus I believe a contractual 3% historically it’s always been straight lined, is there any reason for that?

Bill Brooks

I don’t think so. The first increase on this contract from 2008 over to 2007 is probably a little less than what the others are in the outlying years because this is a back loaded contract, so I think that’s what we are seeing here and I expect it to persist throughout the year. I think its going to be in a 2% range for the year.

Eugene Fox - Cardinal Capital

Okay, so I should model at 2% for the whole year Bill?

Bill Brooks

Yes.

Eugene Fox - Cardinal Capital

And then going forward, how should I think about that.

Bill Brooks

It would be at least 3% in the subsequent years.

Eugene Fox - Cardinal Capital

Okay, in terms of the expense reduction, is there a way to quantify the aggregate dollars you are talking about because you referenced it more in single digits and I presume that’s sort of a percent of controllable expenses, how should we think about it in terms of dollars?

Bill Brooks

That is a very good question and we are trying to ring somewhere between three -- say $2 million to $4 million per tax out of the cost if we can do that. If we can do more without harming our activity and our customer’s experience, we can do that.

Eugene Fox - Cardinal Capital

Bill in your prepared remarks, you referenced a $0.63 number if you just put together New Hampshire and Europe 2007 results and I am not sure how to interpret that, but I guess the question I was trying to answer, is it fair to say there was about $0.08 of dilution from the acquisition in the first quarter related to interest expense and incremental depreciation, have you done that math?

Bill Brooks

It is probably somewhat higher than that and the reason I gave you the results from the combination of the first quarters to 2007 is that’s the disclosure they were required to make in the 10Q versus trying to extract the results from the current year, which I think is more useful but that’s not what we are required to do, but I believe that the impact in earnings per share is very similar; in other words the change in 2007 would be very similar to what we would experience in 2008 if the New Hampshire transaction had not occurred.

Eugene Fox - Cardinal Capital

Bill, you referenced the $2.7 million number for sort of an aggregate loss for the non motor sports activity as per the Q. How much of that would be oil and gas, if you either have that or could estimate it?

Bill Brooks

I don’t have it, but off the top of my head I would say that probably 60%, 70% would be that.

Eugene Fox - Cardinal Capital

And is it fair to say Bill that we will probably continue to experience that until these properties get up and running and we can do something with them?

Bill Brooks

Yes that’s a fair assessment

Operator

Your next question comes from Bart Bertero - Principled Capital Management

Bart Bertero - Principled Capital Management

In prior recessions what was the percent decrease in attendance from peak to trough?

Bill Brooks

It was pretty similar to what we are seeing right now. It was primarily flat depending on how far back you want to go if we -- I think we were probably hit the hardest when people could not get gas back in the early 70s, back in the late 70s, early 80s. The good thing about what's happening now is people get the supplies there and people aren't concerned about getting gas; it's just quite high. So this has been a sport where we have seen continued acceleration of fan interest and ticket sales, but when you get into recessionary periods, you just tend to get flat; you don’t have significant dips in attendance. It’s just flat or slightly below that.

Bart Bertero - Principled Capital Management

I understand that obviously tracks have changed and you’ve added seats and so the total numbers of expense are obviously different, but comparing to prior economic down turns, if you are selling out the given track, during the slowdown, does it go to 90% up there and then does it go to 98, just a sort of a rough idea?

Bill Brooks

I think Bart you hit the nail on the head; it’s probably between 95% and 98%. In some of the times the dollars turn out to be a little better than the actual headcount, as an example people will cut back on coming to a poll day at a nation wide race, but they will still come on Sunday, so they won’t buy a season ticket or a ticket package, but they will buy the Sunday ticket and relatively speaking that can be more profitable for that Sunday event than if they had bought a three day pass. So on numbers of people probably 95% to 98%.

Humpy Wheeler

And speaking of that, it’s just like Las Vegas this year. We said we didn’t sell out but if you look at the year before, we had added temporary seats and we don’t have those temporary seats this year. So, our attendance really stayed about the same, not quite what we had, but you have to factor into lot of things. The other thing that we are getting into right now is looking down the road is fans are pressing hard for better, wider seats and these are your premium seats that are or what I call our 50 yard line which is the start / finish line and I think what we are going to start seeing is we are going to see a lessening of seats in those areas, but I think that is one area where we will be able to go up some what on ticket prices, because those hard core race fans that sit in those prime seating areas say, “we don’t mind paying a little bit more, give us some more room and give us some more comfort” because the old days, we go back to the 60s now when we squeezed people into 18 inch seats; they are long gone, people don’t want to sit in 18 inch seats anymore. It’s not that they have grown; I think it’s just the movie theatres have died. If you look at movie theatres, they have always lead the way in entertainment and they want you to feel like you are in the living room. So, I think the trends are going to continue that way. I think that will happen in most tracks that as we see -- although some of our tracks that were built more recently like -- or remodeled like Las Vegas to Texas, they have got wider seats to start of with than we built back in those days, so some of that’s already been done.

Bart Bertero - Principled Capital Management

Okay, thank you and second question relates to Motorsports Authentics. Could you give some longer term potential; perhaps a year or two from that once the turnaround is complete. What is the revenue and margin potential for that business?

Bill Brooks

The opportunity is significant and when we first went into the opportunity we still see the same potential today that the NASCAR sport is number one in attendance, number two in television but when it comes to license merchandise the company -- the sport overall is in the last place when it comes to licensed merchandise sales. So there is a tremendous opportunity there. There is no mandatory line for NASCAR outside of the die-cast that we make with our brands in Motorsports Authentics and I think it is a significant expansion opportunity there. The apparel lines for the company and for the sports are very limited now compared to other sports and other license properties. So, when things are properly done we think there is still significant opportunity and significant upside and the margins of that business, everything above and a certain level become incrementally more profitable. So, that’s the challenge for our team over the last -- to grow those sales and the launch the new products.

Humpy Wheeler

We hope to see revenues that would be similar to what this first quarter is and for it to grow on that basis and then for perhaps one or two years with margin expansion and if we could see that, that would be a good result as opposed to having constant margin and rapidly increasing sales which might not be sustainable.

Bart Bertero - Principled Capital Management

How big into Q1; how big of a portion of sales in Motorsports Authentics was related to Dale Junior?

Humpy Wheeler

Dale Junior, anytime one of your top drivers changes colors or numbers you are going to have a sizable jump in that, so there is a significant amount attributed to Dale Junior. He -- changing from 8 to 88 and changing its sponsor from Budweiser to Anthem National Guard is a tremendous fan base and a lot of fans want to wear those new colors. So I am not quite sure if we have a percentage to give.

Bill Brooks

I don’t know offhand Bart what the percentage is but it's probably north of 25%, but less than a half so that that would be my estimate.

Operator

Our next question comes from the line of [Chirs Sim] with Shankman.

Chirs Sim – Shankman

I was just wondering if you guys give a CapEx number for Q1.

Bill Brooks

We have not Chris, but it was approximately $14 million for the quarter.

Operator

Our next question comes from the line of Jefferson George with The Charlotte Observer.

Jefferson George - The Charlotte Observer

Gentlemen just a follow-up on the question of cutting some of these -- reigning in your controllable expenses; is there any other detail that you can provide on that. I know Humpy said that was across the board but I mean what are some examples of controllable expenses that you all think you could reign in?

Humpy Wheeler

Jeff yes, we have commenced -- most of our major rates is -- you got between 4,000 and 7,000 people working on the weekends and so over a period of time that tends to get bloated and you start looking at every part or every stub or everything that you got right there that you can work on; you start looking at what you are paying for toilet paper and see if you can get that down a nickel a roll; all of those. It's just a lot little things, it’s no big thing. We can't lower the purse, it's already been established or they sanctioned these and the property taxes you can’t lower, but it's a lot of little things and it gets involved, it's gets the managers involved in the detail of what they are doing, who they are hiring, particularly the part time aspect and also and in some cases working on the many, many, many thousands of vendors that we have throughout the company that do everything from running televisions to supply us with printing and other things. So, it's just as all of those things, it's not one significant thing. It’s just conglomerate of smaller items.

Operator

Our next question is a follow up from Tim Conder with Wachovia.

Timothy Conder - Wachovia Capital Markets

In your press release you state the sort of that abbreviated balance sheet data there and for December 31, you have your total debt of about $428 million and then you have a revolving credit facility of roughly $98. The revolver didn’t appear in your 10-K filing, is that included in that $428 number or if you could just sort of help us out with that there and then looking Bill for your tax rate, I just wanted to revisit what's your expectations are for the year there and I was thinking in response to the previous question you stated that your depreciation and amortization for the year would be in $48 million to $50 million range is that correct?

Bill Brooks

Tim, let's start out with this selected balance sheet data. That’s really just certain data point; it's not all of the items on there and the senior support made a debt, it’s about $300 million both at the end of the calendar year and the end of the quarter. The revolver was approximately $100 million at the end of the calendar year for a total of about $430; revolver was about $400 at the end of the first quarter for a total of about $730. In regard to the tax rate that is always problematic when you conduct a new business in another state and when you have another entity where there are large balance sheet differences in the book basis of the assets and the tax basis of the assets which unfortunately affects the rate. We had thought that it would be between 38% and 39% and our thinking now is that it's perhaps a little bit higher and it will be about 39.3% for the year.

Timothy Conder - Wachovia Capital Markets

The depreciation and amortization?

Bill Brooks

We have about $11.8 million for the first quarter and I think we annualize that, that’s a fair approximation for the calendar year.

Timothy Conder - Wachovia Capital Markets

That will go up about $4 million on a year-over-year basis in this state?

Bill Brooks

That’s approximately correct.

Operator

There are no further questions at this time.

Lauri Wilks

Thank you all for joining us on the call. We are glad we could discuss our operations and our financial results and we look forward to talking to you at the end of the second quarter. Thanks and everybody have a great day.

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