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 February 28, 1998.
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, - 5,540,857 shares as of March 31, 1998.
Class B Common Stock, - 32,939,540 shares as of March 31, 1998.
PART I. - FINANCIAL INFORMATION
Item 1. - Financial Statements
INTERNATIONAL SPEEDWAY CORPORATION
Condensed Consolidated Balance Sheets
November 30, February 28,
1997 1998
(Unaudited)
-------------- -------------
(IN THOUSANDS)
ASSETS
Current Assets:
Cash and cash equivalents ................................... $ 9,974 $ 16,193
Short-term investments ...................................... 23,601 35,674
Receivables, less allowances of $100 ........................ 7,425 14,703
Inventories ................................................. 866 1,410
Prepaid expenses and other current assets ................... 4,077 4,781
------------ ------------
Total Current Assets ......................................... 45,943 72,761
Property and Equipment - at cost - less accumulated
depreciation of $56,644 ($53,917 at November 30) ............ 166,078 173,814
Other Assets:
Cash surrender value of life insurance (Note 3).............. 3,590 3,640
Equity investments .......................................... 45,844 45,945
Goodwill, less accumulated amortization of $638
($382 at November 30) ...................................... 40,400 40,144
Long-term investments ....................................... 500 500
Other ....................................................... 468 562
------------ ------------
90,802 90,791
------------ ------------
Total Assets ................................................. $302,823 $ 337,366
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable ............................................ $ 6,898 $ 8,818
Income taxes payable ........................................ 7 7,726
Deferred income ............................................. 49,338 46,665
Current portion of note payable ............................. 13,295 14,613
Other current liabilities ................................... 1,381 4,068
------------ ------------
Total Current Liabilities .................................... 70,919 81,890
Notes payable ................................................ 1,007 --
Deferred income taxes ........................................ 20,990 24,801
Commitments and Contingencies
Shareholders' Equity (Note 1)
Class A Common Stock, $.01 par value, 80,000,000 shares
authorized; 5,342,042 and 5,502,762 issued at November 30
and February 28, respectively.............................. 53 55
Class B Common Stock, $.01 par value, 40,000,000 shares
authorized; 33,154,920 and 32,977,635 issued at November 30
and February 28, respectively.............................. 332 330
Additional paid-in capital .................................. 86,437 86,877
Retained earnings ........................................... 125,457 145,468
------------ ------------
212,279 232,730
Less unearned compensation-restricted stock ................. 2,372 2,055
------------ ------------
Total Shareholders' Equity ................................... 209,907 230,675
------------ ------------
Total Liabilities and Shareholders' Equity ................... $302,823 $337,366
============ ============
See accompanying notes.
INTERNATIONAL SPEEDWAY CORPORATION
Condensed Consolidated Statements of Income
Three Months ended
February 28, February 28,
1997 1998
(Unaudited) (Unaudited)
_________________________
(In Thousands, Except
Per Share Data)
REVENUES:
Admissions, net.................................... $26,360 $31,889
Motorsports related income......................... 17,209 27,165
Food, beverage and souvenir income................. 8,078 8,966
Other income....................................... 219 264
___________ __________
51,866 68,284
EXPENSES:
Direct expenses:
Prize and point fund monies
and NASCAR sanction fees....................... 6,984 11,092
Motorsports related expenses..................... 5,150 8,154
Food, beverage and souvenir expenses............. 4,510 4,469
General and administrative expenses................ 6,174 8,528
Depreciation and amortization ..................... 1,945 3,041
___________ __________
24,763 35,284
___________ __________
Operating Income..................................... 27,103 33,000
Interest income, net ................................ 992 128
Equity in net loss from equity investments........... (441) (421)
___________ __________
Income before income taxes........................... 27,654 32,707
Income taxes......................................... 10,179 12,558
___________ __________
Net Income........................................... $17,475 $20,149
=========== ==========
Basic net income per share (Note 2).................. $ 0.46 $ 0.53
=========== ==========
Diluted net income per share (Note 2) ............... $ 0.46 $ 0.53
=========== ==========
Dividends per share.................................. $ -- $ --
=========== ==========
See accompanying notes.
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 NOVEMBER 30, 1996 ........... $ 40 $344 $82,236 $ 98,119 $(1,450) $179,289
Activity 12/1/96 - 2/28/97 - unaudited:
Net Income ........................... -- -- -- 17,475 -- 17,475
Additional expense of Class A Common
Stock Offering ..................... -- -- (29) -- -- (29)
Increase in equity investment ........ -- -- 400 -- -- 400
Restricted stock granted ............. -- 1 1,984 -- (1,985) --
Reacquisition of previously issued
Common Stock ....................... -- -- -- (147) -- (147)
Conversion of Class B Common Stock to
Class A Common Stock ............... 4 (4) -- -- -- --
Amortization of unearned compensation. -- -- -- -- 240 240
-------- -------- -------- --------- ---------- ------------
Balance at February 28, 1997 - unaudited 44 341 84,591 115,447 (3,195) 197,228
Activity 3/1/97 - 11/30/97 - unaudited:
Net Income ........................... -- -- -- 12,321 -- 12,321
Cash dividends paid .................. -- -- -- (2,310) -- (2,310)
Additional expense of Class A Common
Stock Offering ..................... -- -- (17) -- -- (17)
Increase in equity investment ........ -- -- 1,863 -- -- 1,863
Reacquisition of previously issued
Common Stock ....................... -- -- -- (1) -- (1)
Conversion of Class B Common Stock to
Class A Common Stock ............... 9 (9) -- -- -- --
Amortization of unearned compensation. -- -- -- -- 823 823
-------- -------- -------- --------- ---------- ------------
Balance at November 30, 1997 53 332 86,437 125,457 (2,372) 209,907
Activity 12/1/97 - 2/28/98 - unaudited:
Net Income ........................... -- -- -- 20,149 -- 20,149
Increase in equity investment ........ -- -- 115 -- -- 115
Reacquisition of previously issued
Common Stock ....................... -- -- (57) (138) -- (195)
Conversion of Class B Common Stock to
Class A Common Stock ............... 2 (2) -- -- -- --
Forfeiture of restricted shares ...... -- -- (110) -- 110 --
Income tax benefit related to restricted
stock plan ......................... -- -- 492 -- -- 492
Amortization of unearned compensation. -- -- -- -- 207 207
-------- -------- -------- --------- ---------- ------------
Balance at February 28, 1998 - unaudited $ 55 $330 $86,877 $145,468 $(2,055) $230,675
======== ======== ======== ========= ========== ============
See accompanying notes.
International Speedway Corporation
Condensed Consolidated Statements of Cash Flows
Three Months ended
February 28, February 28,
1997 1998
(Unaudited) (Unaudited)
______________________________
(In Thousands)
OPERATING ACTIVITIES
Net income...................................... $ 17,475 $ 20,149
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization .............. 1,945 3,041
Amortization of unearned compensation....... 240 207
Deferred income taxes....................... 1,447 4,035
Undistributed loss from equity investments . 441 421
Loss on disposition of property and equipment -- 98
Changes in operating assets and liabilities:
Receivables................................. (7,031) (7,278)
Inventories................................. (343) (544)
Prepaid expenses and other current assets... (798) (704)
Other assets................................ (3) (100)
Accounts payable............................ 4,330 1,919
Income taxes payable........................ 8,008 7,915
Deferred income............................. (7,174) (2,673)
Other current liabilities................... 2,066 2,998
_____________________________
Net cash provided by operating activities....... 20,603 29,484
INVESTING ACTIVITIES
Acquisition of investments.................... (12,025) (64,983)
Proceeds from maturities of investments....... 8,646 52,910
Capital expenditures.......................... (10,328) (10,612)
Cash surrender value of life insurance........ (34) (50)
Equity investments ........................... -- (335)
______________________________
Net cash used in investing activities........... (13,741) (23,070)
FINANCING ACTIVITIES
Reacquisition of previously issued
common stock................................. (147) (195)
Additional expense of Class A Common Stock
Offering..................................... (29) --
______________________________
Net cash used in financing activities........... (176) (195)
______________________________
Net increase in cash and cash equivalents....... 6,686 6,219
Cash and cash equivalents at beginning of period 8,057 9,974
______________________________
Cash and cash equivalents at end of period ...... $ 14,743 $ 16,193
==============================
See accompanying notes.
International Speedway Corporation
Notes to Condensed Consolidated Financial Statements
November 30, 1997 and February 28, 1998
(Unaudited)
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 February 28, 1998.
Because of the seasonal concentration of racing events, the results of
operations for the three-month periods ended February 28, 1997 and February 28,
1998 are not indicative of the results to be expected for the year.
2. Earnings Per Share
The Company has adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share", during the three months ended February 28, 1998. This
statement requires the Company to present "Basic" and "Diluted" earnings per
share on the face of the income statement for current periods and to restate
earnings per share for prior periods. For the three months ended February 28,
1997 and February 28, 1998 earnings per share were $.46 and $.53, respectively,
for both basic and diluted earnings per share. Basic weighted average shares
outstanding for the three-month periods ended February 28, 1997 and February 28,
1998 were 38,172,705 and 38,204,357, respectively. Diluted weighted average
shares outstanding for the three-month periods ending February 28, 1997 and
February 28, 1998 were 38,299,227 and 38,361,625, respectively. The difference
between basic weighted average shares and diluted weighted average shares is
related to shares issued under the Company's Long-term Incentive Restricted
Stock Plan, using the treasury stock method as prescribed by the standard.
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 American Historic Racing
Motorcycle Association ("AHRMA"), the American Motorcyclist Association ("AMA"),
the Automobile Racing Club of America ("ARCA"), the Championship Cup Series
("CCS"), the Federation Internationale de l'Automobile ("FIA"), the Federation
Internationale Motocycliste ("FIM"), the International Race of Champions
("IROC"), the Indy Racing League ("IRL"), the Sports Car Club of America
("SCCA"), the Sportscar Vintage Racing Association ("SVRA"), the United States
Auto Club ("USAC"), the United States Road Racing Championship ("USRRC"), the
World Karting Association ("WKA"), 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 $5.6 million and $8.9 million for the three-month periods ended
February 28, 1997 and February 28, 1998, 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. The Company records a net insurance expense
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
periods ended February 28, 1997 and February 28, 1998, 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 three months ended February 28,
1997 and February 28, 1998 is as follows:
1997 1998
________________________________
(Thousands of Dollars)
Income taxes paid $619 $547
================================
Interest paid $ -- $ --
================================
5. 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
putative 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 was 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 Series 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 has established a timetable to
consider class certification. Discovery is proceeding. 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.
6. Acquisition
On July 14, 1997, Phoenix Speedway Corporation, a newly formed wholly-owned
subsidiary of the Company, acquired substantially all of the assets comprising
the business and motorsports complex known as "Phoenix International Raceway"
from Phoenix International Raceway, Inc., Phoenix International Raceway,
L.L.C. and Phoenix International Raceway Limited Partnership. The acquisition
has been accounted for under the purchase method of accounting, and accordingly,
the results of operations have been included in the Company's consolidated
statements of operations since the date of acquisition.
The following unaudited pro forma financial information presents a summary of
consolidated results of operations as if the acquisition had occurred as of
December 1, 1996 after giving effect to certain adjustments, including
depreciation, amortization of goodwill, interest income, interest expense on
acquisition debt and related income tax effects. The pro forma results have
been prepared for comparative purposes only and do not purport to be indicative
of what would have occurred had the acquisition been made on that date, nor are
they necessarily indicative of results which may occur in the future.
Proforma - unaudited
for the three months
ended February 28, 1997
________________________
[C]
Total revenues $ 54,047
Net income 16,769
Basic net income per share .44
Diluted net income per share .44
7. Subsequent Events
In March, 1998, the Company sold its entire equity interest in Grand Prix
Association of Long Beach, Inc. for $5.3 million. The Company acquired its
position in Grand Prix through a series of transactions during 1997 for a total
of $4.3 million, including acquisition costs.
In March of 1998, the Company acquired an additional 5% ownership interest in
the Metro-Dade Homestead Motorsports Complex for $2.8 million, which was
substantially financed by a 7.5% interest bearing note, payable on December 31,
2001.
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 and
Daytona USA, including track tours and the Velocitorium. 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, hospitality rentals (including luxury
suites and chalets), advertising revenues, royalties from licenses of the
Company's trademarks, 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
February 28, February 28,
1997 1998
(Unaudited) (Unaudited)
_______________________
Revenues:
Admissions, net.................................... 50.8% 46.7%
Motorsports related income......................... 33.2 39.8
Food, beverage and souvenir income................. 15.6 13.1
Other income....................................... .4 .4
___________ ___________
Total revenues .................................. 100.0% 100.0%
Expenses:
Direct expenses:
Prize and point fund monies
and NASCAR sanction fees....................... 13.4 16.2
Motorsports related expenses..................... 9.9 11.9
Food, beverage and souvenir expenses............. 8.7 6.6
General and administrative expenses................ 12.0 12.5
Depreciation and amortization ..................... 3.8 4.5
__________ ___________
Total expenses .................................. 47.8 51.7
___________ ___________
Operating income..................................... 52.2 48.3
Interest income, net ................................ 1.9 .2
Equity in net loss from equity investments........... (.8) (.6)
___________ ___________
Income before income taxes........................... 53.3 47.9
Income tax expense................................... 19.6 18.4
___________ ___________
Net income........................................... 33.7% 29.5%
During fiscal 1997 the Company acquired the 50% it did not already own in
Watkins Glen International ("Watkins Glen") and acquired Phoenix International
Raceway ("Phoenix"). The consolidation of Watkins Glen, effective April 1, 1997,
and the July 14, 1997 purchase of Phoenix resulted in increases in revenues and
expenses in fiscal 1998, as compared to periods prior to their acquisition in
fiscal 1997.
Admissions revenue increased approximately $5.5 million, or 21%, for the three
months ended February 28, 1998 as compared to the three months ended February
28, 1997. Most of this increase was related to the Speedweeks events held at
Daytona International Speedway ("Daytona"). Approximately two thirds of the
Speedweeks increase was attributable to increased seating capacity and
attendance, with the remaining portion of this increase resulting from an
increase in the weighted average price of tickets sold. The remaining increase
was primarily attributable to events conducted at Phoenix.
Motorsports related income increased approximately $10 million, or 57.9%, during
the three months ended February 28, 1998 as compared to the three months ended
February 28, 1997. Approximately two thirds of this increase was a result of
increased TV broadcast rights fees for the Speedweeks events at Daytona.
Increases in sponsorship fees, luxury suite and hospitality rentals and
advertising revenues for Speedweeks and, to a lesser extent, Phoenix, accounted
for the remainder of this increase.
Food, beverage and souvenir income increased approximately $900,000, or 11%,
during the three months ended February 28, 1998 as compared to the three months
ended February 28, 1997. Increased attendance and, to a lesser extent,
increases in certain prices at Daytona's Speedweeks events accounted for more
than one-half of the increase. The remaining increase was primarily
attributable to increased sales of souvenirs at the gift shop adjacent to
DAYTONA USA and the events conducted at Phoenix.
Prize and point fund monies and NASCAR sanction fees increased by approximately
$4.1 million, or 58.8%, during the three months ended February 28, 1998 as
compared to the three months ended February 28, 1997. Approximately 80% of this
increase was due to increases in the prize and point fund monies paid by NASCAR
to participants in the Speedweeks events. This increase was primarily
attributable to the increases in the Company's TV broadcast rights fees as
standard NASCAR sanctioning agreements require that a specified percentage of TV
broadcast rights fees be paid as part of prize money.
Motorsports related expenses increased approximately $3.0 million, or 58.3%,
during the three months ended February 28, 1998 as compared to the three months
ended February 28, 1997. Approximately two thirds of this increase related to
an increase in salaries, advertising and other increased operating costs for the
Speedweeks events held at Daytona. The operating costs of Phoenix and to a
lesser extent, Watkins Glen account for the remaining increase. Motorsports
related expenses as a percentage of combined admissions and motorsports related
revenue increased approximately 2% in the three months ended February 28, 1998
as compared to the three months ended February 28, 1997. This decreased margin
was primarily attributable to the lower margin on events conducted at Phoenix
during the first quarter, as compared to the Company's Speedweeks events.
While food, beverage and souvenir income increased, food, beverage and souvenir
expenses decreased approximately $50,000, or 1%, during the three months ended
February 28, 1998 as compared to the three months ended February 28, 1997. These
expenses as a percentage of food, beverage and souvenir revenue decreased
approximately 6% in the current year as compared to the same period of the prior
year. This improvement was attributable to the discontinuation of certain lower
margin activities at facilities not operated by the Company, an increase in
margins on souvenir merchandise sales and fees from third party vendors at
Phoenix for which there are no associated costs.
General and administrative expenses increased approximately $2.4 million, or
38.1% , during the three months ended February 28, 1998 as compared to the three
months ended February 28, 1997. General and administrative expenses at Phoenix
and Watkins Glen accounted for approximately half of this increase. Excluding
the effects of Watkins Glen and Phoenix in the current year, general and
administrative expenses remained relatively constant as a percentage of total
revenues for the three months ended February 28, 1998 as compared to the same
period of the prior year.
The Company's depreciation and amortization expense increased approximately $1.1
million, or 56.3%, during the three months ended February 28, 1998 as compared
to the three months ended February 28, 1997. More than half of this increase
was attributable to Phoenix and Watkins Glen, including the amortization of
goodwill related to the Phoenix acquisition. The remaining increase was
attributable to the ongoing expansion of the Company's facilities.
The approximately $850,000 decrease in the Company's net interest income is the
combined effect of the use of the lower average investment balances due to the
use of proceeds from the November 1996 Class A Common Stock Offering, and
interest expense in the current year related to the note payable associated with
the Phoenix acquisition.
Equity in net loss from equity investments for the three months ended February
28, 1998, represents the Company's pro rata share of the current losses from its
11% indirect investment in Penske Motorsports, Inc. ("PMI"), its 40% investment
in Homestead-Miami Speedway, LLC ("Homestead") and its 7% investment in Grand
Prix Association of Long Beach ("Long Beach"). The comparable period of the
prior year included the Company's equity in net losses from PMI and the
Company's 50% interest in Watkins Glen. In March of 1998, the Company purchased
an additional 5% interest in Homestead for $2.8 million, which was substantially
financed through a 7.5% interest bearing note, payable in December of 2001, and
sold its entire interest in Long Beach for $5.3 million.
As a result of the foregoing, the Company's net income increased approximately
$2.7 million, or 15.3%, for the three months ended February 28, 1998 as compared
to the same period of the prior year.
Liquidity and Capital Resources
General
The Company has historically generated sufficient cash flow from operations to
fund its working capital needs and capital expenditures at existing facilities,
as well as to pay annual cash dividends. At February 28, 1998, the Company had
a working capital deficit of $9.1 million, compared to a working capital deficit
of $25 million at November 30, 1997. See "Future Liquidity".
The Company also has a $10 million line of credit with a financial institution
which expires in March of 1999. There were no borrowings under the Company's
credit facility at February 28, 1998.
Cash Flows
Net cash provided by operating activities was approximately $29.5 million for
the three months ended February 28, 1998, as compared to $20.6 million for the
three months ended February 28, 1997. The difference between the Company's net
income of $20.1 million and the $29.5 million of operating cash flow was
primarily attributable to a $7.9 million increase in income taxes payable, a
$4.9 million increase in accounts payable and other current liabilities, a $4
million increase in deferred income taxes and depreciation and amortization of
$3.0 million, partially offset by an increase in accounts receivable of $7.3
million, a decrease in deferred revenue of $2.7 million and an increase in
prepaids, inventory and other current assets of $1.2 million.
Net cash used in investing activities was $23.1 million for the three months
ended February 28, 1998, compared to $13.7 million for the three months ended
February 28, 1997. The Company's use of cash for investing activities for the
three months ended February 28, 1998, reflects $10.6 million in capital
expenditures and $12.1 million of net acquisitions of short-term investments.
See "Capital Expenditures".
Capital Expenditures
Capital expenditures totaled $10.6 million for the three months ended February
28, 1998, compared to $10.3 million for the three months ended February 28,
1997. Capital expenditures during the three months ended February 28, 1998
related primarily to increased seating capacity at Daytona, Darlington Raceway
and Talladega Superspeedway, and the addition of luxury suites and track
lighting at Daytona.
The Company expects to make approximately $55.7 million of additional capital
expenditures for approved projects at existing facilities within the next 24
months to increase seating capacity, to construct luxury suites, to complete
track lighting at Daytona and for a number of other improvements.
Future Liquidity
The Company believes that funds generated from operations, along with funds
available under the existing line of credit, if necessary, will be sufficient to
satisfy the Company's working capital requirements, as well as the Company's
planned capital expenditures described above, through at least fiscal 1998.
The Company is currently pursuing the development of new facilities in several
major markets. In December of 1997, the Company announced that it reached an
agreement with the Unified Government of Wyandotte County/Kansas City, Kansas
for the construction of a 1.5-mile oval motor speedway in western Kansas City,
Kansas. Assuming certain conditions precedent are met, the Company expects to
commit approximately $55.6 million in mid-1998 for its portion of project costs
associated with the initial phase of the project. The Company is currently
negotiating a credit facility to finance these anticipated project costs.
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
Due to the seasonal fluctuation of the Company's business, federal estimated tax
deposits historically have not been required until the second quarter of the
fiscal year. As a result, income taxes payable at February 28, 1998 have
increased since November 30, 1997. The deferred income tax liability increased
from November 30, 1997 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.
Impact of the Year 2000
The Year 2000 issue is the result of computer programs and other
business systems being written using two digits rather than four to represent
the year. Many of the Company's time sensitive applications and business
systems may recognize a date using "00" as the year 1900 rather than the year
2000, which could result in system failure or disruption of operations. The
Year 2000 problem will impact the Company and its business partners.
An assessment of the Year 2000 exposure has been made by the Company and
the plans to resolve the related issues are being implemented. Most major
systems have already been updated or replaced with applications that are Year
2000 compliant in the normal course of business. The Company believes it will
be able to achieve Year 2000 compliance by the end of fiscal 1998.
The Company has also developed a plan of communication with significant
business partners to ensure that the Company's operations are not disrupted
through these relationships and that the Year 2000 issues are resolved timely.
The Company believes that it will satisfactorily resolve all significant
Year 2000 problems and that the related costs will not be material. Estimates
of Year 2000 related costs are based on numerous assumptions, including the
continued availability of certain resources, the ability to correct all
relevant applications and third party modification plans. There is no
guarantee that the estimates will be achieved and actual costs could differ
materially from those anticipated.
Dependency Upon NASCAR
The Company's success has been and will primarily remain dependent upon
maintaining a good working relationship with NASCAR, the sanctioning body for
the NASCAR Winston Cup Series, NASCAR Busch Series, and certain other races
promoted by the Company. The Company has sanctioning agreements to promote and
market eight NASCAR Winston Cup Series Championship races, five NASCAR Busch
Series races and a number of other NASCAR races for the 1998 racing season.
Each NASCAR event sanctioning agreement is awarded on an annual basis. In the
fiscal years 1996 and 1997, NASCAR-sanctioned races at the Company's
facilities accounted for approximately 78.3% and 77.6%, 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 is engaged in the development 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 had reached a widely publicized settlement of
pending liability lawsuits which would have had an effect similar to the pending
FDA regulations. This proposed settlement required legislative approval and
enabling legislation which was not ultimately obtained in a form satisfactory to
the tobacco industry, which has recently announced it is withdrawing from the
proposed settlement. At this point, the final outcome of the challenges to the
FDA regulations or the implementation of the previously proposed settlement is
very 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 1.5% of the Company's
total revenues in both fiscal 1996 and 1997. 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 the
NASCAR Winston Cup Series and the NASCAR 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"), United States
Road Racing Championship ("USRRC"), 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 amenities 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 future 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 is engaged in the 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 Series, 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.
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 in 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 in "Part II - Other Information".
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. In addition, management is presently unable to predict or quantify the
outcome of these matters. Accordingly, 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 achieved its
highest net income in the fiscal quarter ending February 28.
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 is 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
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 April 14, 1998 /s/ James C. France
_____________________________________
James C. France, President
Date April 14, 1998 /s/ Susan G. Schandel
_____________________________________
Susan G. Schandel,
Chief Financial Officer