UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended May 31, 1997.
Commission file Number 0-2384
International Speedway Corporation
(Exact name of registrant as specified in its charter.)
Florida, U.S.A. 59-0709342
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1801 West International Speedway Boulevard, Daytona Beach, Florida 32114-1243
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (904) 254-2700
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 practical date:
Class A Common Stock, - 4,840,808 shares as of June 23, 1997
Class B Common Stock, - 33,656,154 shares as of June 23, 1997
PART I. - FINANCIAL INFORMATION
Item 1. - Financial Statements
INTERNATIONAL SPEEDWAY CORPORATION
Condensed Consolidated Balance Sheets
August 31, May 31,
1996 1997
(unaudited)
------------ -------------
(IN THOUSANDS)
ASSETS
Current Assets:
Cash and cash equivalents ................................... $ 9,042 $ 9,708
Short-term investments ...................................... 8,369 84,764
Receivables, less allowances of $35 ......................... 3,455 9,071
Inventories ................................................. 1,409 1,268
Prepaid expenses and other current assets ................... 2,410 3,190
------------ ------------
Total Current Assets ......................................... 24,685 108,001
Property and Equipment - at cost - less accumulated
depreciation of $48,682 ($36,912 at August 31) .............. 98,835 130,650
Other Assets:
Cash surrender value of life insurance (Note 3).............. 1,214 2,404
Equity investment. .......................................... 27,256 25,276
Long-term investments ....................................... 500 500
Other ....................................................... 301 483
------------ ------------
29,271 28,663
------------ ------------
Total Assets ................................................. $152,791 $267,314
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable ............................................ $ 3,820 $ 6,025
Income taxes payable ........................................ 57 1,293
Deferred income ............................................. 25,963 40,006
Other current liabilities ................................... 1,596 3,590
------------ ------------
Total Current Liabilities .................................... 31,436 50,914
Deferred income taxes ........................................ 14,688 16,739
Commitments and Contingencies
Shareholders' Equity (Notes 1 and 6)
Class A Common Stock, $.01 par value, 80,000,000 shares
authorized; 0 and 4,799,788 issued at August 31
and May 31, respectively................................... 0 48
Class B Common Stock, $.01 par value, 40,000,000 shares
authorized; 34,423,890 and 33,697,174 issued at August 31
and May 31, respectively................................... 344 337
Additional paid-in capital .................................. 8,127 84,575
Retained earnings ........................................... 99,986 117,622
------------ ------------
108,457 202,582
Less unearned compensation-restricted stock (Note 5)......... 1,790 2,921
------------ ------------
Total Shareholders' Equity ................................... 106,667 199,661
------------ ------------
Total Liabilities and Shareholders' Equity ................... $152,791 $ 267,314
============ ============
See accompanying notes and accountants' review report.
INTERNATIONAL SPEEDWAY CORPORATION
Condensed Consolidated Statements of Operations
Three Months ended
May 31, May 31,
1996 1997
(Unaudited) (Unaudited)
_________________________
(In Thousands, Except
Per Share Data)
REVENUES:
Admissions, net.................................... $12,105 $14,249
Motorsports related income......................... 6,776 8,665
Food, beverage and souvenir income................. 5,008 6,220
Other income....................................... 287 496
___________ __________
24,176 29,630
EXPENSES:
Direct expenses:
Prize and point fund monies
and NASCAR sanction fees....................... 3,092 4,129
Motorsports related expenses..................... 4,964 5,557
Food, beverage and souvenir expenses............. 3,114 3,813
General and administrative expenses................ 5,298 6,762
Depreciation....................................... 1,478 2,294
___________ __________
17,946 22,555
___________ __________
Operating Income..................................... 6,230 7,075
Interest income...................................... 279 1,172
Equity in net loss from equity investments........... (138) (351)
___________ __________
Income before income taxes........................... 6,371 7,896
Income taxes......................................... 2,554 3,410
___________ __________
Net Income........................................... $ 3,817 $ 4,486
=========== ==========
Earnings per share (Note 2).......................... $ 0.11 $ 0.12
=========== ==========
Dividends per share.................................. $ .05 $ .06
=========== ==========
See accompanying notes and accountants' review report.
INTERNATIONAL SPEEDWAY CORPORATION
Condensed Consolidated Statements of Operations
Six Months ended
May 31, May 31,
1996 1997
(Unaudited) (Unaudited)
_________________________
(In Thousands, Except
Per Share Data)
REVENUES:
Admissions, net.................................... $34,109 $40,609
Motorsports related income......................... 18,031 25,874
Food, beverage and souvenir income................. 11,868 14,298
Other income....................................... 483 715
___________ __________
64,491 81,496
EXPENSES:
Direct expenses:
Prize and point fund monies
and NASCAR sanction fees....................... 8,715 11,113
Motorsports related expenses..................... 8,883 10,707
Food, beverage and souvenir expenses............. 6,838 8,323
General and administrative expenses................ 10,603 12,936
Depreciation....................................... 2,846 4,239
___________ __________
37,885 47,318
___________ __________
Operating Income..................................... 26,606 34,178
Interest income...................................... 464 2,164
Equity in net loss from equity investments........... (830) (792)
___________ __________
Income before income taxes........................... 26,240 35,550
Income taxes......................................... 10,334 13,589
___________ __________
Net Income........................................... $15,906 $21,961
=========== ==========
Earnings per share (Note 2).......................... $ 0.46 $ 0.57
=========== ==========
Dividends per share.................................. $ .05 $ .06
=========== ==========
See accompanying notes and accountants' review report.
International Speedway Corporation
Condensed Consolidated Statements of Shareholders' Equity
CLASS A CLASS B
COMMON COMMON UNEARNED
STOCK STOCK ADDITIONAL COMPENSATION- TOTAL
$.01 PAR $.01 PAR PAID-IN RETAINED RESTRICTED SHAREHOLDERS'
VALUE VALUE CAPITAL EARNINGS STOCK EQUITY
-------- --------- --------- --------- ----------- --------------
(IN THOUSANDS)
BALANCE AT AUGUST 31, 1995 ............ $ -- $ 344 $1,853 $ 83,846 $ (796) $ 85,247
Activity 9/1/95 - 5/31/96:
Net Income - Unaudited............... -- -- -- 14,886 -- 14,886
Cash dividends declared ($.05 per
share) - unaudited.................. -- -- -- (1,836) -- (1,836)
Restricted stock granted - unaudited. -- 1 1,599 -- (1,600) --
Reacquisition of previously issued
common stock - unaudited............ -- (1) (2) (1,705) -- (1,708)
Amortization of unearned compensation
- unaudited......................... -- -- -- -- 419 419
Recapitalization of equity investment
- unaudited......................... -- -- 4,677 -- -- 4,677
-------- -------- -------- --------- ---------- ------------
BALANCE AT MAY 31, 1996 - unaudited.... -- 344 8,127 95,191 (1,977) 101,685
Activity 6/1/96 - 8/31/96:
Net income - unaudited................ -- -- -- 4,795 -- 4,795
Amortization of unearned compensation
- unaudited.......................... -- -- -- -- 187 187
-------- -------- -------- --------- ---------- ------------
BALANCE AT AUGUST 31, 1996 ............. -- 344 8,127 99,986 (1,790) 106,667
Activity 9/1/96 - 5/31/97:
Net Income - unaudited................ -- -- -- 20,094 -- 20,094
Dividends declared ($.06 per share)
- unaudited........................... -- -- -- (2,310) -- (2,310)
Public offering -Class A Common Stock. 40 -- 74,282 -- -- 74,322
Forfeiture of restricted shares -
unaudited........................... -- -- (218) -- 218 --
Increase in equity investment -
unaudited........................... -- -- 400 -- -- 400
Restricted stock granted - unaudited
Note 5.............................. -- 1 1,984 -- (1,985) --
Reacquisition of previously issued
Common Stock - unaudited............ -- -- -- (148) -- (148)
Conversion of Class B Common Stock to
Class A Common Stock - unaudited.... 8 (8) -- -- -- --
Amortization of unearned compensation-
unaudited........................... -- -- -- -- 636 636
-------- -------- -------- --------- ---------- ------------
Balance at May 31, 1997 - unaudited $ 48 $337 $84,575 $117,622 (2,921) $199,661
======== ======== ======== ========= ========== ============
See accompanying notes and accountants' review report.
International Speedway Corporation
Condensed Consolidated Statements of Cash Flows
Six Months ended
May 31, May 31,
1996 1997
(Unaudited) (Unaudited)
______________________________
(In Thousands)
OPERATING ACTIVITIES
Net income...................................... $ 15,906 $ 21,961
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation................................ 2,846 4,239
Amortization of unearned compensation....... 339 514
Deferred income taxes....................... 1,448 2,475
Undistributed loss from equity investments . 830 792
Gain on disposition of property and equipment (3) -
Changes in operating assets and liabilities:
Receivables................................. (955) (3,046)
Inventories................................. (318) 83
Prepaid expenses and other current assets... 820 (1,101)
Other assets................................ (6) (203)
Accounts payable............................ 1,724 2,407
Income taxes payable........................ 541 1,206
Deferred income............................. 2,406 1,419
Other current liabilities................... (203) 692
______________________________
Net cash provided by operating activities....... 25,375 31,438
INVESTING ACTIVITIES
Acquisition of investments.................... (49,816) (70,760)
Proceeds from maturities of investments....... 42,574 61,553
Capital expenditures.......................... (17,780) (17,976)
Cash surrender value of life insurance........ - (67)
Proceeds from sale of assets.................. 10 -
Acquisition of WGI interest, net of cash...... - (996)
Additional investment in equity investment.... - (1,348)
______________________________
Net cash used in investing activities........... (25,012) (29,594)
FINANCING ACTIVITIES
Reacquisition of previously issued
common stock................................. (1,708) (148)
Additional expense of Class A Common Stock
Offering..................................... - (45)
______________________________
Net cash used in financing activities........... (1,708) (193)
______________________________
Net (decrease) increase in cash and cash
Equivalents.................................. (1,345) 1,651
Cash and cash equivalents at beginning of period 8,661 8,057
______________________________
Cash and cash equivalents at end of period ...... $ 7,316 $ 9,708
==============================
See accompanying notes and accountants' review report.
International Speedway Corporation
Notes to Condensed Consolidated Financial Statements
August 31, 1996 and May 31, 1997
(Unaudited - See Accountants' Review Report)
1. Basis of Presentation
The accompanying condensed consolidated financial statements have been
prepared in compliance with Rule 10-01 of Regulation S-X and generally
accepted accounting principles but do not include all of the information and
disclosures required for complete financial statements. The statements should
be read in conjunction with the consolidated financial statements and notes
thereto included in the Company's latest annual report on Form 10-K. In
management's opinion, the statements include all adjustments which are
necessary for a fair presentation of the results for the interim periods. All
such adjustments are of a normal recurring nature. Certain reclassifications
have been made to conform to the financial presentation at May 31, 1997.
On September 5, 1996 the Company's Board of Directors approved a
recapitalization of the Company which became effective on November 4, 1996,
concurrently with the effectiveness of the Registration Statement filed on
September 6, 1996 with the Securities and Exchange Commission in connection
with the offering of 4,000,000 shares of the Company's newly authorized Class
A Common Stock (discussed below). The recapitalization modified the Company's
authorized capital to include one million shares of Preferred Stock, eighty
million shares of Class A Common Stock and forty million shares of Class B
Common Stock. Pursuant to the recapitalization, all of the Company's existing
outstanding shares of Common Stock were automatically converted, on a
15-for-one basis, into the newly authorized shares of Class B Common Stock
and the shares of Common Stock previously held as treasury stock were
retired. Shareholders' equity and all share information and per share data
have been adjusted to give effect to the recapitalization and related stock
split.
Effective December 1, 1996, the Company changed its fiscal year-end
from August 31 to November 30. This resulted in a three-month transition
period commencing September 1, 1996 and ending November 30, 1996.
Because of the seasonal concentration of racing events, the results of
operations for the three-month and six-month periods ended May 31, 1996 and May
31, 1997 are not indicative of the results to be expected for the year.
2. Earnings Per Share
Earnings per share has been computed on the weighted average total number of
common shares outstanding during the respective periods. Weighted average shares
outstanding for the three-month and six-month periods ended May 31, 1996 were
34,479,810 and 34,471,187, respectively. Weighted average shares outstanding
for the three-month and six-month periods ended May 31, 1997 were 38,496,962 and
38,491,066, respectively
3. Related Party Disclosures and Transactions
All of the racing events that take place during the Company's fiscal year are
sanctioned by various racing organizations such as the Sports Car Club of
America (SCCA), Automobile Racing Club of America (ARCA), American Motorcyclist
Association (AMA), the Championship Cup Series (CCS), Professional Sports Car
Racing, Inc., World Karting Association (WKA), Federation Internationale de
l'Automobile (FIA), Federation Internationale Motorcycliste (FIM), and the
National Association for Stock Car Auto Racing, Inc. (NASCAR). NASCAR, which
sanctions some of the Company's principal racing events, is a member of the
France Family Group which controls in excess of 55% of the outstanding stock of
the Company and some members of which serve as directors and officers. Standard
NASCAR sanction agreements require racetrack operators to pay sanction fees and
prize and point fund monies for each sanctioned event conducted. The prize and
point fund monies are distributed by NASCAR to participants in the events.
Prize and point fund monies paid by the Company to NASCAR for disbursement to
competitors totaled approximately $2.4 million and $7.1 million for the three-
month and six-month periods ended May 31, 1996, respectively, and approximately
$3.4 million and $9.0 million for the three-month and six-month periods ended
May 31, 1997, respectively.
In October 1995 the Company entered into collateral assignment split-dollar
insurance agreements covering the lives of William C. France and James C.
France and their respective spouses. Pursuant to the agreements, the Company
will advance the annual premiums of approximately $1,205,000 each year for a
period of eight years. Upon surrender of the policies or payment of the death
benefits thereunder, the Company is entitled to repayment of an amount equal
to the cumulative premiums previously paid by the Company. The Company may
cause the agreements to be terminated and the policies surrendered at any time
after the cash surrender value of the policies equals the cumulative premiums
advanced under the agreements. During the three-month and six-month periods
ended May 31, 1996, the Company recorded a net insurance expense of
approximately $163,000 and $169,000, respectively, representing the excess of
the premiums paid over the increase in cash surrender value of the policies
associated with these agreements. During the three-month and six-month periods
ended May 31, 1997, premiums paid were approximately equal to the increase in
cash surrender value of the policies.
4. Supplemental Disclosures of Cash Flow Information
Cash paid for income taxes and interest for the six months ended May 31, 1996
and May 31, 1997 are as follows:
1996 1997
________________________________
(Thousands of Dollars)
Income taxes paid $ 8,000 $ 9,840
================================
Interest paid $ -- $ --
================================
5. Long-Term Incentive Restricted Stock
On January 1, 1996 and 1997, a total of 102,075 and 98,010 restricted shares of
the Company's Class B Common Stock, respectively, were awarded to certain
officers and managers under the Company's Long Term Incentive Plan. The market
value of shares awarded on January 1, 1996 and 1997 amounted to approximately
$1,599,000 and $1,985,000, respectively, and has been recorded as unearned
compensation - restricted stock, which is shown as a separate component of
shareholders' equity in the accompanying condensed consolidated balance sheets.
The unearned compensation is being amortized over the vesting periods of the
shares. The total expense charged against operations during the six months
ended May 31, 1996 and May 31, 1997 was approximately $339,000 and $514,000,
respectively.
6. Class A Common Stock Offering
On November 4, 1996 the Company sold 4,000,000 shares of its newly created Class
A Common Stock in an underwritten public offering (the "Offering"). The price
to the public was $20 per share. The net proceeds to the Company from the sale
of the stock sold by the Company in the Offering were approximately $74.3
million, after deduction of underwriting discounts and commissions and expenses
of the Offering. Approximately $7.8 million of the net proceeds of this
Offering was used to repay borrowings incurred under one of the Company's lines
of credit in September 1996. The Company used approximately $3.1 million of the
net proceeds on April 1, 1997 to acquire the 50% interest the Company did not
already own in Watkins Glen International, Inc. ("WGI"). The remaining net
proceeds will be used for working capital and other general corporate purposes,
including continued improvements to and expansion of the Company's facilities
and operations. Pending such uses, the Company has invested the net proceeds of
the Offering in short-term interest-bearing obligations, the carrying value of
which approximates their fair value at May 31, 1997.
7. Legal Proceedings
On October 21, 1996, the Company's indirect corporate subsidiary, Americrown
Service Corporation ("Americrown"), was served with a Class Action Complaint
filed in the Circuit Court of Talladega County, Alabama by Howard Padgett, Bill
Lutz and Tommy Jones. The complaint was filed in September 1996 and alleged,
among other things, that Americrown engaged in price-fixing activities in
connection with the sale of racing souvenirs and merchandise at the Talladega
Superspeedway. The complaint seeks at least $500 for each member of the class
(persons buying racing souvenirs at Talladega Superspeedway since September
1992), but does not otherwise seek to recover compensatory or punitive damages
or statutory attorneys' fees. Although Americrown attempted to remove the suit
to Federal District Court, it has been remanded to the Circuit Court of
Talladega County, Alabama, where discovery and the class certification process
are proceeding. Americrown disputes the allegations and intends to defend the
action fully and vigorously.
In March 1997, two purported class action companion lawsuits were filed in the
United States District Court, Northern District of Georgia, against the Company,
its indirect corporate subsidiary, Americrown Service Corporation, and a number
of other persons alleging, in substance, that the defendants unlawfully
conspired to fix prices of souvenirs and merchandise sold to consumers in
violation of federal antitrust laws. One suit was filed by Florida residents
and the other suit was filed by Georgia residents. Both suits seek damages and
injunctive relief on behalf of all persons who purchased souvenirs or
merchandise from certain vendors at any NASCAR Winston Cup stock car race or
supporting event in the United States during the period 1991 to present. The
two suits have been consolidated and the court is considering establishment of a
class certification timetable. The Company and Americrown dispute the
allegations and intend to defend the actions fully and vigorously.
Management is presently unable to predict or quantify the outcome of these
matters.
8. Acquisition of Interest in WGI
On April 1, 1997, the Company exercised its contractual option to acquire the
50% interest it did not already own in WGI from Corning, Inc. for approximately
$3.1 million. The transaction price represented the stock's book value at
December 31, 1996. The Company's option to purchase Corning's interest for its
book value is part of a shareholder agreement between the two companies in place
since 1988.
The Company's equity in WGI's net loss through March 31, 1997 is included in
equity in net loss from equity investments at May 31, 1997. The acquisition of
the additional 50% interest is accounted for under the purchase method.
Subsequent to the acquisition on April 1, 1997, WGI is accounted for on a
consolidated basis.
9. New Accounting Pronouncements
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards (SFAS) No. 128 "Earnings Per Share". This statement is
effective for financial statements issued for periods ending after December 15,
1997. This statement requires companies to present earnings per share on the
face of the income statement in two categories called "Basic" and "Diluted" and
requires restatement of all periods presented. The Company will adopt SFAS 128
during the first quarter of 1998.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
General
The Company derives revenues primarily from (i) admissions to racing events held
at its motorsports facilities, (ii) revenue generated in conjunction with or as
a result of motorsports events conducted at the Company's facilities, and (iii)
catering, concession and souvenir sales made during or as a result of such
events.
"Admissions" revenue includes ticket sales from all of the Company's events,
track tours and, since July 1996, DAYTONA USA. Admissions revenue for racing
events is recorded upon completion of the related motorsports event.
"Motorsports related income" includes television and radio broadcast rights
fees, promotion and sponsorship fees, advertising revenues, royalties from
licenses of the Company's trademarks, hospitality rentals (including luxury
suites and chalets) and track rentals. The Company negotiates directly with
television and cable networks for coverage of substantially all of its televised
motorsports events. The Company's revenues from corporate sponsorships are paid
in accordance with negotiated contracts, with the identities of sponsors and the
terms of sponsorship changing from time to time.
"Food, beverage and souvenir income" includes revenues from concession stands,
hospitality catering and direct sales of souvenirs, programs and other
merchandise, as well as fees paid by third party vendors for the right to sell
souvenirs and concessions at the Company's facilities.
Expenses include (i) prize and point fund monies and NASCAR sanction fees, (ii)
motorsports related expenses, which include costs of competition paid to
sanctioning bodies other than NASCAR, labor, advertising and other expenses
associated with the Company's promotion of its racing events, and (iii) food,
beverage and souvenir expenses, consisting primarily of labor and costs of goods
sold.
The following table sets forth, for each of the indicated periods, certain
selected income statement data as a percentage of total revenues:
Three Months ended Six Months Ended
May 31, May 31,
1996 1997 1996 1997
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
_________________________ _________________________
Revenues:
Admissions, net............................. 50.1% 48.1% 52.9% 49.8%
Motorsports related income.................. 28.0 29.2 28.0 31.8
Food, beverage and souvenir income.......... 20.7 21.0 18.4 17.5
Other income................................ 1.2 1.7 .7 .9
________ ________ ________ _______
Total revenues ........................... 100.0% 100.0% 100.0% 100.0%
Expenses:
Direct expenses:
Prize and point fund monies
and NASCAR sanction fees................ 12.8 13.9 13.5 13.6
Motorsports related expenses.............. 20.5 18.8 13.8 13.1
Food, beverage and souvenir expenses...... 12.9 12.9 10.6 10.2
General and administrative expenses......... 21.9 22.8 16.4 15.9
Depreciation................................ 6.1 7.7 4.4 5.2
________ ________ ________ _______
Total expenses ........................... 74.2 76.1 58.7 58.0
________ ________ ________ _______
Operating income.............................. 25.8 23.9 41.3 42.0
Interest income, net ......................... 1.2 4.0 .7 2.7
Equity in net loss from equity investments.... ( .6) (1.2) (1.3) (1.0)
________ ________ ________ _______
Income before income taxes.................... 26.4 26.7 40.7 43.7
Income tax expense............................ 10.6 11.5 16.0 16.7
________ ________ ________ _______
Net income.................................... 15.8% 15.2% 24.7% 27.0%
Admissions revenue increased approximately $2.1 million, or 17.7%, for the three
months ended May 31, 1997 as compared to the three months ended May 31, 1996.
Increased seating capacity and an increase in the weighted average price of
tickets sold for the NASCAR Winston Cup and NASCAR Busch Series events conducted
during the second quarter at the Company's Darlington and Talladega facilities
combined with increased attendance and increases in certain ticket prices at the
motorcycle events conducted at the Company's Daytona facility in March 1997
accounted for over 70% of the increase. DAYTONA USA accounted for the remainder
of the increase.
Admissions revenue increased approximately $6.5 million, or 19.1%, for the six
months ended May 31, 1997 as compared to the same period of the prior year.
Increased seating capacity and attendance and an increase in weighted average
price of tickets sold for the February 1997 NASCAR Winston Cup and NASCAR Busch
Series events conducted at the Company's Daytona facility accounted for over 50%
of the increase, while DAYTONA USA accounted for approximately 24% of the
increase. The remainder of the increase in admissions income is attributable to
the second quarter events as discussed above.
Motorsports related income increased approximately $1.9 million, or 27.9%,
during the three months ended May 31, 1997 as compared to the three months ended
May 31, 1996. The increase is primarily attributable to an increase in
royalties from the special promotion and distribution of SEGA's DAYTONA USA
games, promotion and sponsorship fees related to DAYTONA USA, and increases in
promotion and sponsorship fees and hospitality rentals related to the second
quarter events conducted at the Company's Darlington and Talladega facilities.
Motorsports related income increased approximately $7.8 million, or 43.5%,
during the six months ended May 31, 1997 as compared to the same period of the
prior year. Increases in TV and radio broadcast rights, promotion and
sponsorship fees, rentals of hospitality facilities and advertising related to
the February 1997 events conducted at Daytona International Speedway accounted
for approximately two-thirds of the increase. The remaining increase resulted
primarily from sponsorship fees related to DAYTONA USA, TV and radio broadcast
rights and promotion and sponsorship fees related to the second quarter events
and royalties as described above.
Food, beverage and souvenir income increased approximately $1.2 million, or
24.2%, during the three months ended May 31, 1997 as compared to the three
months ended May 31, 1996. Inclement weather on the day of the NASCAR Winston
Cup event conducted at Talladega Superspeedway in late April 1997 resulted in
the event being rescheduled to May 1997. Increased attendance, primarily due to
the multiple event dates and, to a lesser extent, increased seating capacity
accounted for over half of the increase in food, beverage and souvenir income.
The remaining increase resulted primarily from direct sales of souvenirs at the
gift shop at DAYTONA USA.
Food, beverage and souvenir income increased approximately $2.4 million, or
20.5%, during the six months ended May 31, 1997 as compared to the same period
of the prior year. Increased attendance at the February 1997 events conducted
at the Company's Daytona facility, increased attendance due to the rain out and
rescheduling of the second quarter NASCAR Winston Cup event conducted at the
Company's Talladega facility and, to a lesser extent, increases in certain
prices accounted for approximately 55% of the increase. The remaining increase
resulted primarily from direct sales of souvenirs at the gift shop at DAYTONA
USA.
Prize and point fund monies and NASCAR sanction fees increased by approximately
$1 million, or 33.5%, during the three months ended May 31, 1997 as compared to
the same period of the prior year. This increase is primarily attributable to
the timing of Talladega's annual NASCAR Busch Series event conducted in July in
1996 and April in 1997.
Prize and point fund monies and NASCAR sanction fees increased by approximately
$2.4 million, or 27.5%, during the six months ended May 31, 1997 as compared to
the same period of the prior year. Approximately 74% of this increase was due
to increases in the prize and point fund monies paid by NASCAR to participants
in the Company's motorsports events during the six months ended May 31, 1997.
This increase is primarily attributable to increases in the Company's TV
broadcast rights as standard NASCAR sanctioning agreements require that a
specified percentage of TV broadcast rights be paid as part of prize money and,
to a lesser extent, the timing of Talladega's annual NASCAR Busch Series event
conducted in July in 1996 and April in 1997.
Motorsports related expenses increased approximately $600,000, or 11.9%, during
the three months ended May 31, 1997 as compared to the three months ended May
31, 1996. The increase resulted primarily from increased operating costs
related to the rescheduling of the second quarter NASCAR Winston Cup event
conducted at the Company's Talladega facility and the operation of DAYTONA USA,
partially offset by the absence of prize and point fund monies and sanction fees
due to the schedule change of Talladega's annual ARCA event from April in 1996
to October in 1997.
Motorsports related expenses increased approximately $1.8 million, or 20.5%,
during the six months ended May 31, 1997 as compared to the same period of the
prior year. Increases in labor, advertising and other costs related to the
February events conducted at Daytona International Speedway accounted for
approximately one half of the increase. The remaining increase resulted
primarily from increased operating costs related to the rescheduling of
Talladega's second quarter NASCAR Winston Cup event and the operation of DAYTONA
USA.
As food, beverage and souvenir income increases, the Company experiences a
corresponding increase in related expenses. Food, beverage and souvenir expense
increased approximately $700,000, or 22.4%, and $1.5 million, or 21.7%, during
the three months and six months ended May 31, 1997, respectively, as compared to
the same periods of the prior year. The incremental increase in product costs
at margins consistent with the same periods of the prior year accounted for over
72% and 60% of the increase during the three-month and six-month periods,
respectively. The remaining increases are due primarily to personnel related
expenses.
General and administrative expenses increased approximately $1.5 million, or
27.6%, and $2.3 million, or 22%, during the three months and six months ended
May 31, 1997, respectively, as compared to the same periods of the prior year.
The increases are due to wages and other compensation, professional fees and a
wide variety of other expenses. General and administrative expenses remained
relatively constant as a percentage of total revenue during the three-month and
six-month periods ended May 31, 1997 and May 31, 1996.
The Company's depreciation expense increased approximately $800,000, or 55.2%,
and $1.4 million, or 49%, during the three-month and six-month periods ended May
31, 1997 as compared to the same periods of the prior year, primarily as a
result of the new DAYTONA USA facility and the ongoing expansion of the
Company's motorsports facilities. This increase was mitigated by the
lengthening of the estimated service lives of grandstands and other significant
assets as a result of Management's review of actual service lives of these types
of assets at the beginning of the current fiscal year.
The approximately $900,000 and $1.7 million increase in the Company's net
interest income during the three months and six months ended May 31, 1997,
respectively, as compared to the same periods of the prior year is attributable
primarily to the investment of cash from operations and proceeds from the
November 1996 Class A Common Stock offering.
Equity in net loss from equity investments represents the Company's prorata
share of the current losses from its 50% investment in Watkins Glen
International (WGI), through March 31, 1997, and its 20% investment in PSH Corp.
which are accounted for using the equity method of accounting. Subsequent to
the Company's April 1, 1997 acquisition of the 50% interest in WGI that it did
not already own, WGI is accounted for on a consolidated basis.
As a result of the foregoing, the Company's net income increased approximately
$670,000, or 17.5%, and $6.1 million, or 38.1%, during the three months and six
months ended May 31, 1997, respectively, as compared to the same periods of the
prior year.
Liquidity and Capital Resources
General
The Company has historically generated sufficient cash flow from operations to
fund its capital expenditures, investments and working capital needs, as well as
to pay annual cash dividends. At May 31, 1997, the Company had working capital
of $57.1 million, compared to a working capital deficit of $6.7 million at
August 31, 1996, which is primarily attributable to the November 4, 1996
offering of 4 million shares of the Company's newly authorized Class A Common
Stock. The Company expects to experience a decrease in working capital as it
utilizes the net proceeds of the Offering for capital projects as described
below under the caption "Capital Expenditures", and other general corporate
purposes.
The Company also has two lines of credit with financial institutions totaling
$18 million. The $8.0 million line of credit expires in September 1997, and the
$10 million line expires in December 1997. There were no borrowings under the
credit facilities during the quarter ended May 31, 1997.
Cash Flows
Net cash provided by operating activities was approximately $31.4 million for
the six months ended May 31, 1997, as compared to $25.4 million for the six
months ended May 31, 1996. The difference between the Company's May 31, 1997
net income of $22 million and the $31.4 million of operating cash flow was
primarily attributable to a combined increase of $4.3 million in accounts
payable, income taxes payable and other current liabilities, $4.2 million in
depreciation, a $2.5 million increase in deferred income taxes and a $1.4
million increase in deferred revenue, partially offset by a $3 million increase
in receivables and a $1.1 million increase in prepaid expenses and other current
assets.
Net cash used in investing activities was $29.6 million for the six months ended
May 31, 1997, compared to $25 million for the six months ended May 31, 1996.
The Company's use of cash for investing activities for the six months ended May
31, 1997 reflects $18 million in capital expenditures, $9.2 million of net
acquisitions of short-term investments, a $1.3 million investment in the stock
of Penske Motorsports, Inc. (PMI) and $1 million, net of cash acquired, for the
Company's acquisition of the 50% interest in WGI that it did not already own.
See "Capital Expenditures".
Capital Expenditures
Capital expenditures totaled $18 million for the six months ended May 31, 1997,
compared to $17.8 million for the six months ended May 31, 1996. Capital
expenditures during the six months ended May 31, 1997 related primarily to
additions to spectator capacity at the Company's Daytona, Talladega and
Darlington facilities and renovation of the Company's new corporate
headquarters.
On April 1, 1997, the Company exercised its contractual option to acquire the
50% interest it did not already own in WGI from Corning, Inc. for approximately
$3.1 million. The transaction price represented the stock's book value at
December 31, 1996. The Company's option to purchase Corning's interest for its
book value was part of a shareholder agreement between the two companies in
place since 1988.
The Company expects to make approximately $48.2 million of additional capital
expenditures for approved projects within the next 24 months to increase seating
capacity at each of its superspeedways, to construct luxury suites at its
Daytona facility and for a number of other improvements to the Company's
motorsports facilities.
Future Liquidity
The Company believes that the remaining $44.8 million in net proceeds of the
Class A Common Stock offering together with funds generated from operations will
be sufficient to satisfy the Company's working capital requirements through at
least fiscal 1997, as well as the Company's planned capital expenditures
described above.
The Company also believes that it will be able to obtain financing to fund the
acquisition, development and/or construction of additional motorsports
facilities, if necessary, should the Company implement this element of its
growth strategy. However, there can be no assurance that adequate debt or
equity financing will be available on satisfactory terms.
Income Taxes
The change in income taxes payable at May 31, 1997, as compared to August 31 and
May 31, 1996, is due to the seasonal nature of the Company's business and the
timing of estimated tax deposits.
The deferred income tax liability increased from August 31, 1996 primarily as a
result of differences between financial and tax accounting treatments relating
to depreciation expense and different bases in the equity investments for tax
and financial reporting purposes.
Inflation
Management does not believe that inflation has had a material impact on
operating costs and earnings of the Company.
Factors That May Affect Operating Results
Statements contained in this Report that state the Company's or Management's
anticipations, beliefs, expectations, hopes, intentions, predictions and/or
strategies which are not purely historical fact or which apply prospectively are
"forward-looking" statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21 of the Securities Exchange Act of 1934. All forward-
looking statements contained in this document are based on information available
to the Company on the date hereof, and the Company assumes no obligation to
update any such forward-looking statements. It is important to note that the
Company's actual results could differ materially from those contained or
projected in, or even implied by, such forward-looking statements. Some of the
factors that could cause the actual results to differ materially are set forth
below. Additional information concerning factors that could cause actual
results to differ materially from those in the forward-looking statements is
contained from time to time in the Company's SEC filings. Copies of those
filings are available from the Company and/or the SEC.
Dependency Upon NASCAR
The Company's success has been and will remain dependent upon maintaining a
good working relationship with NASCAR, the sanctioning body for NASCAR Winston
Cup, NASCAR Busch Series, and certain other races promoted by the Company. The
Company has sanctioning agreements to promote and market seven NASCAR Winston
Cup races, five NASCAR Busch Series races and a number of other NASCAR races for
the 1997 racing season. Each NASCAR event sanctioning agreement is awarded on
an annual basis. In the fiscal years ended August 31, 1995 and 1996,
NASCAR-sanctioned races at the Company's facilities accounted for approximately
79.5% and 78.3%, respectively, of the Company's total revenues. Although William
C. France and James C. France presently control both the Company and NASCAR, and
management believes that the Company will continue to maintain an excellent
relationship with NASCAR for the foreseeable future, NASCAR is under no
obligation to continue to enter into sanctioning agreements with the Company to
promote any event. Failure to obtain a sanctioning agreement for a major NASCAR
event would have a material adverse effect on the Company's financial condition
and results of operations. Moreover, although the Company's general growth
strategy includes the possible development and/or acquisition of additional
motorsports facilities, there can be no assurance that NASCAR will enter into
sanctioning agreements with the Company to promote races at such facilities.
Dependence on Key Personnel
The Company's continued success will depend upon the availability and
performance of its senior management team, particularly William C. France, the
Company's Chairman of the Board and Chief Executive Officer, James C. France,
its President and Chief Operating Officer, and Lesa D. Kennedy, its Executive
Vice President (collectively the "France Family Executives"), each of whom
possesses unique and extensive industry knowledge and experience. While the
Company believes that its senior management team has significant depth, the loss
of any of the Company's key personnel or its inability to attract and retain key
employees in the future could have a material adverse effect on the Company's
operations and business plans.
Industry Sponsorships And Government Regulation
The motorsports industry and the Company generate significant recurring
revenue from the promotion, sponsorship and advertising of various companies and
their products. Government regulation can adversely impact the availability to
motorsports of this promotion, sponsorship and advertising revenue. Advertising
by the tobacco and alcoholic beverage industries is generally subject to greater
governmental regulation than advertising by other sponsors of the Company's
events. In August 1996, the U.S. Food and Drug Administration (the "FDA") issued
regulations concerning advertising and sales of cigarettes and smokeless tobacco
to minors which would, in part, restrict tobacco industry sponsorship of all
sporting events, including motorsports, effective August 1998. The FDA
regulations prohibit the present practice of tobacco product brand name
sponsorship of, or identification with, motorsports events, entries and teams.
If these rules become effective, no assurance can be given that suitable
alternative sponsors for the events, entries and teams could be located.
Management is aware of pending legal challenges, as well as legislative
initiatives, which could change or prevent the scheduled implementation of these
regulations. The tobacco industry has purportedly reached a widely publicized
settlement of pending liability lawsuits which would have an effect similar to
the pending FDA regulations. This proposed settlement would require legislative
approval and enabling legislation. However, the final outcome of the challenges
to the FDA regulations or the implementation of the proposed settlement is
uncertain, and the ultimate impact on the motorsports industry and the Company,
if any, is unclear. The Company is not aware of any proposed governmental
regulation which would materially limit the availability to motorsports of
promotion, sponsorship or advertising revenue from the alcoholic beverage
industry. Advertising and sponsorship revenue from the tobacco and alcoholic
beverage industries accounted for approximately 1.6% and 1.5% of the Company's
total revenues in fiscal 1995 and 1996, respectively. In addition, the tobacco
and alcoholic beverage industries provide financial support to the motorsports
industry through, among other things, their purchase of advertising time, their
sponsorship of racing teams and their sponsorship of racing series such as
NASCAR's Winston Cup and NASCAR's Busch Series.
Competition
The Company's racing events face competition from other spectator-oriented
sporting events and other leisure and recreational activities. As a result, the
Company's revenues will be affected by the general popularity of motorsports,
the availability of alternative forms of recreation and changing consumer
preferences. The Company's racing events also compete with other racing events
sanctioned by various racing bodies such as NASCAR, Championship Auto Racing
Teams, Inc. ("CART"), the United States Auto Club ("USAC"), the National Hot Rod
Association ("NHRA"), the Sports Car Club of America ("SCCA"), Professional
Sports Car Racing, Inc., the Automobile Racing Club of America ("ARCA") and
others. Management believes that the primary elements of competition in
attracting motorsports spectators and corporate sponsors to a racing event and
facility are the type and caliber of promoted racing events, facility location,
sight lines, pricing and customer conveniences that contribute to a total
entertainment experience. Many sports and entertainment businesses have
resources that exceed those of the Company.
Impact of Consumer Spending on Results
The success of the Company's operations depends to a significant extent upon a
number of factors relating to discretionary consumer spending, including
economic conditions affecting disposable consumer income such as employment,
business conditions, interest rates and taxation. These factors can impact both
attendance at the Company's events and the financial results of the motorsports
industry's principal sponsors. There can be no assurance that consumer spending
will not be adversely affected by economic conditions, thereby impacting the
Company's growth, revenue and profitability.
Uncertain Prospects of New Motorsports Facilities
The Company's growth strategy includes the potential acquisition and/or
development of new motorsports facilities. The Company's ability to implement
successfully this element of its growth strategy will depend on a number of
factors, including (i) the Company's ability to obtain one or more additional
sanctioning agreements to promote NASCAR Winston Cup, NASCAR Busch Series or
other major events at these new facilities, (ii) the cooperation of local
government officials, (iii) the Company's capital resources and the availability
of debt or equity financing on satisfactory terms, (iv) the Company's ability to
control construction and operating costs, and (v) the Company's ability to hire
and retain qualified personnel. The Company's inability to implement its
expansion plans for any reason would adversely affect its business prospects. In
addition, expenses associated with developing, constructing and opening a new
facility may have a negative effect on the Company's financial condition and
results of operations in one or more future reporting periods. The cost of any
such transaction will depend on a number of factors, including the facility's
location, the extent of the Company's ownership interest and the degree of any
municipal or other public support. Moreover, although management believes that
it will be able to obtain financing if necessary to fund the acquisition,
development and/or construction of additional motorsports facilities should the
Company implement this element of its growth strategy, there can be no assurance
that adequate debt or equity financing will be available on satisfactory terms.
Financial Impact of Bad Weather
The Company promotes outdoor motorsports events. Weather conditions affect
sales of, among other things, tickets, concessions and souvenirs at these
events. Although the Company sells tickets well in advance of its most popular
events, poor weather conditions could have a material adverse effect on the
Company's results of operations, particularly any interruption of the Company's
February "Speedweeks" events. For example, bad weather required the rescheduling
of certain racing events during the Company's 1996 March Motorcycle Week at
Daytona, resulting in reduced revenues and increased expenses.
Liability for Personal Injuries
Motorsports can be dangerous to participants and to spectators. The Company
maintains insurance policies that provide coverage within limits that management
believes should generally be sufficient to protect the Company from material
financial loss due to liability for personal injuries sustained by persons on
the Company's premises in the ordinary course of Company business. Nevertheless,
there can be no assurance that such insurance will be adequate or available at
all times and in all circumstances. The Company's financial condition and
results of operations would be adversely affected to the extent claims and
associated expenses exceed insurance recoveries.
Environmental and Zoning Matters
Management believes that the Company's operations are in substantial
compliance with all applicable federal, state and local environmental laws and
regulations. Nonetheless, if damage to persons or property or contamination of
the environment is determined to have been caused or exacerbated by the conduct
of the Company's business or by pollutants, substances, contaminants or wastes
used, generated or disposed of by the Company, or which may be found on the
property of the Company, the Company may be held liable for such damage and may
be required to pay the cost of investigation and/or remediation of such
contamination or any related damage. The amount of such liability as to which
the Company is self-insured could be material. State and local laws relating to
the protection of the environment also include noise abatement laws that may be
applicable to the Company's racing events. Changes in the provisions or
application of federal, state or local environmental laws, regulations or
requirements, or the discovery of theretofore unknown conditions, could also
require additional material expenditures by the Company.
In addition, the development of new motorsports facilities (and, to a lesser
extent, the expansion of existing facilities) requires compliance with
applicable federal, state and local land use planning, zoning and environmental
regulations. Regulations governing the use and development of real estate may
prevent the Company from acquiring or developing prime locations for motorsports
facilities, substantially delay or complicate the process of improving existing
facilities, and/or materially increase the costs of any of such activities.
Legal Proceedings
The Company and its indirect subsidiary, Americrown Service Corporation, are
parties to certain Legal Proceedings (described below). While the Company and
Americrown dispute the allegations and intend to defend the actions fully and
vigorously, the cost of defending the suits is not insured. Management is
presently unable to predict or quantify the outcome of these matters.
But, there can be no assurance the defense of the suits, or a possible adverse
resolution, will not require material expenditures by the Company.
Seasonality and Variability of Quarterly Results
The Company derives most of its income from event admissions and related
revenue from a limited number of NASCAR-sanctioned races. As a result, the
Company's business has been, and is expected to remain, highly seasonal based on
the timing of major race events. Historically, the Company has incurred net
losses in the fiscal quarter ending November 30, and achieved its highest net
income in the fiscal quarter ending February 28. Partly in response to this
seasonality and the desire to better conform to the traditional racing season,
the Company changed its fiscal year-end from August 31 to November 30
effective December 1, 1996.
Review Report of Independent Certified Public Accountants
The Board of Directors
International Speedway Corporation
We have reviewed the accompanying condensed consolidated balance sheet of
International Speedway Corporation as of May 31, 1997, and the related
condensed consolidated statements of operations, shareholders' equity and cash
flows for the three-month and six-month periods ended May 31, 1997 and May 31,
1996. These financial statements are the responsibility of the Company's
management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, which
will be performed for the full year with the objective of expressing an
opinion regarding the financial statements taken as a whole. Accordingly, we
do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial
statements referred to above for them to be in conformity with generally
accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of International Speedway
Corporation as of August 31, 1996, and the related consolidated statements of
income, shareholders' equity and cash flows for the year then ended (not
presented separately herein) and in our report dated September 27, 1996, except
as to the fifth paragraph of Note 1, as to which the date is October 31, 1996,
and as to Note 8D, as to which the date is October 21, 1996, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated balance
sheet as of August 31, 1996, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
/s/ Ernst & Young LLP
Jacksonville, Florida
July 7, 1997
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On October 21, 1996, the Company's indirect corporate subsidiary, Americrown
Service Corporation ("Americrown"), was served with a Class Action Complaint
filed in the Circuit Court of Talladega County, Alabama by Howard Padgett, Bill
Lutz and Tommy Jones. The complaint was filed in September 1996 and alleged,
among other things, that Americrown engaged in price-fixing activities in
connection with the sale of racing souvenirs and merchandise at the Talladega
Superspeedway. The complaint seeks at least $500 for each member of the class
(persons buying racing souvenirs at Talladega Superspeedway since September
1992), but does not otherwise seek to recover compensatory or punitive damages
or statutory attorneys' fees. Although Americrown attempted to remove the suit
to Federal District Court, it has been remanded to the Circuit Court of
Talladega County, Alabama, where discovery and the class certification process
are proceeding. Americrown disputes the allegations and intends to defend the
action fully and vigorously.
In March 1997, two purported class action companion lawsuits were filed in the
United States District Court, Northern District of Georgia, against the Company,
its indirect corporate subsidiary, Americrown Service Corporation, and a number
of other persons alleging, in substance, that the defendants unlawfully
conspired to fix prices of souvenirs and merchandise sold to consumers in
violation of federal antitrust laws. One suit was filed by Florida residents
and the other suit was filed by Georgia residents. Both suits seek damages and
injunctive relief on behalf of all persons who purchased souvenirs or
merchandise from certain vendors at any NASCAR Winston Cup stock car race or
supporting event in the United States during the period 1991 to present. The
two suits have been consolidated and the court is considering establishment of a
class certification timetable. The Company and Americrown dispute the
allegations and intend to defend the actions fully and vigorously.
Management is presently unable to predict or quantify the outcome of these
matters.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
I. (27) - Article 5 Fin. Data Schedule for 1st Qtr 10-Q
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.
INTERNATIONAL SPEEDWAY CORPORATION
(Registrant)
Date July 10, 1997 /s/ James C. France
_____________________________________
James C. France, President
Date July 10, 1997 /s/ Susan G. Schandel
_____________________________________
Susan G. Schandel,
Chief Financial Officer