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December 15, 2005

Brian Barnhart

Robert Clarke

TIM HARMS: Good afternoon, everyone. Thanks for joining us for this special Indy Racing League teleconference. Thank you for your patience as we had some delays for a few minutes.
We have two guests with us this afternoon, Brian Barnhart, president and chief operating officer of the Indy Racing League, and Robert Clarke, president of Honda Performance Development. Gentlemen, thanks for joining us.
Brian, I'm going to go ahead and turn things over to you for a special announcement.
BRIAN BARNHART: Thanks, Tim. Good afternoon, everyone. Certainly appreciate everyone's patience as they were on hold getting the teleconference hooked up. Thank you for joining us. I'd also like to offer a special welcome to Robert Clarke for joining us here today.
Most of you probably have seen the release that we sent out earlier this afternoon. But to recap, every participant in the IndyCar Series beginning next year will be powered by Honda Racing Indy V8 engines. We've made this announcement based on Honda's renewed commitment to the IndyCar Series and also because of the decisions that were made individually by some teams in the IndyCar Series to switch over to Honda as their primary power source for next year as well. Those were the main reasons behind the change to a single engine supply beginning in 2006.
The biggest benefit to this decision is, first and foremost, cost savings to the teams. The single engine supply program will result in immediate cost reduction and savings on the teams for engine agreements in 2006. We anticipate that there will be even more cost savings on the engine supply beginning in 2007.
Since 2000 we've offered some of the most competitive racing in the world on the racetrack under an exclusive tire arrangement with Firestone. Taking our engine program to a single supplier format we believe will take the IndyCar Series to an entirely new level of competition beginning in 2006. We've been known for some of the greatest racing on the track in a competitive environment in terms of manufacturers, and now with everyone being supplied from the same single supplier in terms of their engine, we think that competition will get even closer and tighter beginning in 2006.
We truly appreciate Toyota's participation and service to the IndyCar Series. They've been great partners to us on and off the racetrack. We wish them well in the future. But we really appreciate the enthusiasm shown and the work done by Honda and HPD to ensure it has the ability to supply the entire IndyCar Series field beginning next year.
Robert Clarke and everyone at HPD in Ilmor have been true partners during this process. We certainly appreciate their enthusiasm moving forward.
With that, I'd like to hand it back to you, Tim.
TIM HARMS: Thank you, Brian. Robert, let's get some thoughts from you. Tell us about the opportunity that this change brings for HPD.
ROBERT CLARKE: Thanks, Tim, Brian. It's a pleasure to be on this conference, to join in this announcement, very important announcement for the league. This is coming on the heels of the announcement that Honda made at the Fontana event extending our commitment to the IRL through 2009. It actually falls right in line with that long-term commitment.
As Honda has consistently said, we embrace racing, particularly open-wheel racing. We want and need to race in America. As for the past three years, we will continue to utilize our ongoing involvement with the IRL to develop our people and technology and motivate and excite our associates, our dealers and our customers.
With this single supply situation, Honda is faced with a totally new set of challenges. Engine and parts supply, frankly, had to be our most immediate concern and our point of confirmation. So looking primarily at the Motegi, Indy, Watkins Glen race sequence, which is the most difficult part of the season, we have confirmed and are extremely comfortable and confident that we're able to properly service and support the entire field for the entire season.
Also assuring engine build quality, equal engine performance and, of course, maintaining Honda's reputation for outstanding customer support, were all key program features that we had to confirm, and we have done so.
To handle the work load, HPD has extended its relationship with Ilmor Engineering both in the UK and US to assist with the ongoing engine R&D, parts production, engine maintenance and trackside support. Ilmor will be an integral technical partner as they have been with us.
Honda will utilize the highly successful Honda Indy V8 engine that we've used over the last three years and has brought to us back-to-back manufacturer, driver and Rookie-of-the-Year championships. We will have some very slight modifications to that engine which will allow us to use the engine for two events between rebuilds.
Through this maintenance schedule and without competition and the spirited kind of R&D that goes along with competition, we'll be able to offer our engines at significantly reduced lease rates.
To sum it all up, Honda is looking forward to the 2006 IndyCar season and a new challenge in Honda racing history.
TIM HARMS: Thank you, Robert.
Let's go ahead and open it up for some questions for both Brian and Robert.

Q. Brian and Robert, I was wondering if all the teams are going to have the same format of relationship with Honda. The factory Honda team didn't have that relationship this season. That's how it's going to work?
ROBERT CLARKE: Yes, all teams will have exactly the same program. We've outlined a program where basically the engines will be serviced at both HPD and Ilmor. Those engines will be shipped and held as a pool of engines. The IRL will basically from a list of engines that are in the pool select engines and randomly provide them to the teams. There's no chance of any impartial treatment.

Q. What kind of reduction are we talking about? Do you have a ballpark for '06 and '07 cost-wise?
ROBERT CLARKE: Our target, and I think we'll be able to get close to them, is 103 -- 1.3 million in '06 and under 1 million in '07.
BRIAN BARNHART: Those are significant reductions in the terms of dollars. You're looking at in excess of several hundred thousand dollars off. Our lease price for 2005 was 1.8 million. We're going to be close to half a million off in 2006. As he said, our goal is to be under a million for 2007. Within the span of about 14 months, we should have reduced the cost to the teams by as much as half.

Q. Robert, you said that the IRL will distribute engines; Honda will not distribute engines?
ROBERT CLARKE: Actual delivery will be through Honda. The selection of the engine, based on a serial number, will be through the IRL.

Q. Brian, what kind of assurances have you received that this cost-cutting measure, and I appreciate you giving details to that, will help not so much in your car count but in your team count? Your team count is lower than you'd like it.
BRIAN BARNHART: Well, I think that's probably -- I mean, the only assurance I can give you is I think the biggest hurdle to participation is cost. Anything that we can do that can have this significant of a reduction in a team's cost to participate is certainly a move in the right direction and will help encourage participation.
By reducing full-season costs by the amounts that we mentioned earlier, both in '06 and again in '07, you should remove some of the hurdles or barriers to participation in the series, as well as - and we didn't get into, we haven't finalized and pinned down exactly the costs associated with Indy-only programs yet - but I can assure you based on the direction and conversations that we've been having, there will also be a significant reduction in the cost of Indy-only programs, whether it's a full month of May program or one that takes place the second week of the month of May.
But to help, again, accommodate teams, whether it's your full-time teams running additional cars or whether it's the one-offs at Indy like we've had in the past with Sam Schmidt, Greg Beck, PDM, the cost to participate Indy-only programs will also be significantly reduced.

Q. I hate to harp on the equality point, but this year Andretti Green I believe, I realize they have the same engines as the rest of the Honda customers, but seems like they had a favored relationship with Honda through Nick Wirth. Is AGR going to continue with favored nation status or is there going to be a way to make a level playing field for everyone?
ROBERT CLARKE: It will be truly level. The chassis development program that we had through AGR has been terminated. Every team will get exactly the same product and support and service from Honda. We can guarantee that.
BRIAN BARNHART: I guess I'd like to address that from a league standpoint. As we move into a single supply scenario here, there really is no option to have anything other than a completely level playing field for all the participants.
The way we were structured in 2003 and '4 and '5, actually our agreements with the competing engine manufacturers allowed for special treatments to certain teams. They were referred to in our contract as "factory teams." In that environment where competition was being encouraged, to allow them to challenge their engineers and to be interested in the competition of engine manufacturers, we allowed for them to have different specs for the participants as they continued to develop their engines. I mean, that's not even necessary now under a single supply. Honda, HPD, Ilmor, all of them, certainly cannot do anything other than the same thing for everybody. They cannot be anything except completely impartial under single supply.
However, I think we've got tremendous opportunities from a league standpoint and from an Indianapolis 500 standpoint moving forward to challenge Robert and Honda and the engineers from HPD and Ilmor with our technical specifications. We're moving into an Ethanol blend in 2006 and complete 100% Ethanol fuel in 2007. I think there's endless challenges that we can add whether they're a single supplier or not in terms of specifications that can challenge them, whether it has to do with fuel economy, alternative power sources, engine use and reliability. There's a number of technological challenges that can be added into their performance standpoint that will challenge their engineers and keep them excited and interested to be a partner in the IndyCar Series.

Q. One of the things that's both thrilling and frightening about the IndyCar Series at the same time is how close the cars run together, especially on the mile and a half oval tracks. Is there a danger that with everyone using the same engine that it could actually literally be too close for comfort?
BRIAN BARNHART: Well, I guess that's kind of what I was laughing about when you asked somebody about the level playing field. I don't think anybody's got one more level than the one we got now.
That being said, I know we just said you allow for factory teams, but there are other rules in place that just create the close competition that we have. The difference from the front of our field to the back of our field is 3 to 4/10ths of a second, which has certainly reset the standard in terms of competition in open-wheel racing.
You're right, by doing this now, we're not going to move the bar forward for the front teams, we're just going to give better opportunities for the teams that have been struggling in the past. I mean, now everyone will have the same specification of engine.
I guess I go back to, again, one of the best things about this announcement is that it very much falls in line with some of the founding principles of Tony George when he founded the IRL and announced in 1994, our first race in January of '96. The fundamental and founding principles that Tony brought to the series, first and foremost, included cost reduction. This is certainly going to play into that. The next one was the availability of equipment. This will be now in a scenario that is much better for everyone to be guaranteed to be getting the same equipment to get on the racetrack and a chance to compete and win.
It's a dynamic world that we work in. Our sport is certainly no different than that. It was best for the league in 2003 to have multiple manufacturers involved and to have that competition. I can't thank Toyota and Chevrolet enough, along with Honda, what they brought to the table. They certainly helped bring some of the most recognized names in the sport of IndyCar racing to our series. They clearly raised the bar in terms of what we put on the racetrack with our product. The performance, and most impressively to me, the reliability that all three of those manufacturers brought to the table, the marketing off the racetrack they brought. I think it was best for our series in 2003 to go the direction we did with multiple manufacturers. As our world has changed, I think it's also best for our series to move in this direction beginning in 2006. We can't thank Honda enough for their commitment and dedication to our sport through 2009. We very much look forward to working with them to provide them as much value and as many technological challenges as we can. They're going to be great partners for us. This is what is best for our series right now.

Q. Robert, have you kind of decided in your new facility there at HPD how many engines you're going to be able to maintain and what percentage will go to Ilmor?
ROBERT CLARKE: We're currently kind of sorting it out with Ilmor. There's been a series of meetings - more to follow. But basically looking at the resources that we have, both human and facility, actual product in the system, we'll basically divy up the work load that best suits both organizations' capacity.

Q. Are you going to have to add more memory to your computers to keep track of all these parts?
ROBERT CLARKE: Actually, I think Honda's approach to racing has been it's all about winning and being our absolute best. Moving in this new direction kind of offers Honda some new challenges which I think will actually improve the company long-term because it will cause us to be even more accurate in our scheduling, our tracking, the way we build the engines and such. I think those skills that come from doing that will help us long-term. I look forward to that actually.

Q. Is it possible that one day an AGR car is going to have an HPD engine, the next one is going to be an Ilmor, that's going to constantly change randomly?
BRIAN BARNHART: Absolutely. As Robert explained, the engines will be rebuilt between the HPD and Ilmor facilities. HPD has had a great relationship with Ilmor. That's going to continue for years to come. They will basically build a pool of engines. The distribution of engines will be at league discretion to make sure and maintain impartiality on our engine supplier's part.

Q. You mentioned going two races for an engine. What is the mileage we're looking at for an engine?
ROBERT CLARKE: We're look -- we've kind of looked at the schedule and tried to determine the worst case. It seems to be around 1100 miles.

Q. The worst case between rebuilt is 1100?

Q. It could be done earlier than that based on the schedule?
ROBERT CLARKE: Oh, sure, yeah. The critical part, of course, is getting the engines back so they can be serviced again and back out to the teams. It might be that engines, depending on the race sequence, may not be required to go a full 1100 miles. We might pull them out at 890 miles or something like that to get them back and service them.

Q. Do you feel there's sufficient restrictions to eliminate a team from trying to do any of their own development work on the matters?
ROBERT CLARKE: Absolutely. The engines cannot be opened up or touched, put on a dyno or anything like that. There will be a very strict language in the lease agreement, as there currently is, but it will become even more strict as far as putting any kind of strange fluids or oils in the engine. It will be very tightly controlled.

Q. Brian, anything added to the IRL rules that would prohibit it just in case somebody finds a loophole?
BRIAN BARNHART: Certainly. As part of our agreement with Honda moving forward, the language will be very strict in terms of what can and can't be done. Certainly prevention, as Robert said, with regards to additives, whether it's in fuels or oils or anything along those lines, we will just go down and make sure that these things are sealed and bulletproof as possible. It becomes something -- looking back at it, they don't have a lot of capability of working on them at the racetracks themselves to begin with. The biggest difference is now all engines are going to be rebuilt by Ilmor and HPD. You won't have anybody rebuilding their own engines or doing anything away from the racetrack back at the race shop and coming with it. Once they're assembled, put together and in the cars, there's really not a lot you can do, other than as he mentioned, additives into the fuel or oils. We'll have very strong language preventing any alterations of the specifications of the engines whatsoever.

Q. You've spoken of a level playing field. You've spoken about the fact that you have a spec tire, a spec engine. With Panoz putting together a Champ Car chassis for 2007, is there any rush to see them to the door or do you want them to continue in 2006?
BRIAN BARNHART: Absolutely no rush to see them to the door. We have agreements in place with Panoz and Dallara for 2006. They are both important and great chassis suppliers to our series. We very much need them and want them to remain competitive and in the series. They both have won poles, they've both won races. Clearly we have more participants that are using the Dallara chassis at this time.
I think one of the best places we look at it is Indianapolis. Those two cars at Indy, where we have the least amount of restrictions on our chassis in terms of performance. We had both cars lead lap and pass under green conditions for the lead in the last 10 laps of last year's Indianapolis 500. I don't think we can get the chassis any closer in terms of performance. There are just so many tied-down and locked-down areas. There's not a lot of money being spent on chassis development. We're very comfortable and happy moving forward in the same situation that we currently have for our chassis.

Q. Are you hoping to keep Panoz in the fold after 2006?
BRIAN BARNHART: Well, we haven't announced what we're going to do with our chassis officially. I would anticipate probably a continuation of these same chassis moving forward in 2007. If that's the case, there would be no reason to change. We need manufacturers. We need suppliers. We want to make sure we keep equipment capable of being put on the racetrack to run. We don't want to prohibit people from participation. We want to encourage their participation. When we've got two cars as equal as we have in performance as we have right now, we want to keep them on the racetrack. We want both manufacturers to continue in the long-term.
TIM HARMS: Gentlemen, that's all the questions we have this afternoon. Thank you for taking the time to join us. Happy holidays to everyone.

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