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, 1999.
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, - 11,939,856 shares as of February 28, 1999.
Class B Common Stock, - 31,135,363 shares as of February 28, 1999.
PART I. - FINANCIAL INFORMATION
Item 1. - Financial Statements
INTERNATIONAL SPEEDWAY CORPORATION
Condensed Consolidated Balance Sheets
November 30, February 28,
1998 1999
(Unaudited)
-------------- -------------
(IN THOUSANDS)
ASSETS
Current Assets:
Cash and cash equivalents ................................... $ 38,676 24,887
Short-term investments ...................................... 54,127 87,171
Receivables, less allowances of $100 and $500, respectively . 9,445 12,960
Inventories ................................................. 953 1,736
Prepaid expenses and other current assets ................... 5,243 2,878
------------ ------------
Total Current Assets ......................................... 108,444 129,632
Property and Equipment - at cost - less accumulated
depreciation of $65,529 and $68,880, respectively ........... 225,831 241,759
Other Assets:
Equity investments .......................................... 44,087 44,650
Goodwill, less accumulated amortization of $1,386 and
$1,638, respectively ....................................... 38,927 38,675
Restricted investments (Note 2).............................. 53,500 112,713
Other ....................................................... 6,029 11,102
------------ ------------
142,543 207,140
------------ ------------
Total Assets ................................................. $476,818 $578,531
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable ............................................ $ 10,367 10,551
Income taxes payable ........................................ 5,088 11,286
Deferred income ............................................. 62,253 55,536
Current portion of long-term debt ........................... 598 685
Other current liabilities ................................... 2,648 5,457
------------ ------------
Total Current Liabilities .................................... 80,954 83,515
Long-term debt (Note 2) ...................................... 2,775 71,725
Deferred income taxes ........................................ 26,234 30,287
Commitments and Contingencies
Shareholders' Equity (Note 1)
Class A Common Stock, $.01 par value, 80,000,000 shares
authorized; 11,529,590 and 11,939,856 issued at November 30
and February 28, respectively.............................. 115 119
Class B Common Stock, $.01 par value, 40,000,000 shares
authorized; 31,573,043 and 31,135,363 issued at November 30
and February 28, respectively.............................. 316 312
Additional paid-in capital .................................. 205,089 205,851
Retained earnings ........................................... 163,201 188,344
------------ ------------
368,721 394,626
Less unearned compensation-restricted stock ................. 1,866 1,622
------------ ------------
Total Shareholders' Equity ................................... 366,855 393,004
------------ ------------
Total Liabilities and Shareholders' Equity ................... $476,818 $578,531
============ ============
See accompanying notes.
INTERNATIONAL SPEEDWAY CORPORATION
Condensed Consolidated Statements of Income
Three Months ended
February 28, February 28,
1998 1999
(Unaudited) (Unaudited)
_________________________
(In Thousands, Except
Per Share Data)
REVENUES:
Admissions, net................................. $31,889 $37,614
Motorsports related income...................... 27,165 34,444
Food, beverage and souvenir income.............. 8,966 10,834
Other income.................................... 264 344
___________ __________
68,284 83,236
EXPENSES:
Direct expenses:
Prize and point fund monies
and NASCAR sanction fees.................... 11,092 12,804
Motorsports related expenses.................. 8,154 11,080
Food, beverage and souvenir expenses.......... 4,469 5,239
General and administrative expenses............. 8,528 10,254
Depreciation and amortization .................. 3,041 3,626
___________ __________
35,284 43,003
___________ __________
Operating Income.................................. 33,000 40,233
Interest income .................................. 441 2,086
Interest expense ................................. (313) (297)
Equity in net income (loss)from equity investments (421) 25
___________ __________
Income before income taxes........................ 32,707 42,047
Income taxes...................................... 12,558 16,108
___________ __________
Net Income........................................ $20,149 $25,939
=========== ==========
Basic net income per share ....................... $ 0.53 $0.61
=========== ==========
Diluted net income per share ..................... $ 0.53 $0.60
=========== ==========
Dividends per share............................... $ -- $ --
=========== ==========
Basic weighted average shares outstanding ........ 38,204,357 42,858,839
=========== ==========
Diluted weighted average shares outstanding ...... 38,361,625 42,994,673
=========== ==========
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, 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
Change 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
Activity 3/1/98 - 11/30/98 - unaudited:
Net income ........................... -- -- -- 20,043 -- 20,043
Public offering - Class A common stock 46 -- 117,654 - -- 117,700
Cash dividends paid .................. -- -- -- (2,310) -- (2,310)
Change in equity investment .......... -- -- (122) -- -- (122)
Restricted stock granted ............. -- -- 680 -- (680) --
Conversion of Class B Common Stock to
Class A Common Stock ............... 14 (14) -- -- -- --
Amortization of unearned compensation. -- -- -- -- 869 869
----- ----- --------- --------- -------- ---------
BALANCE AT NOVEMBER 30, 1998 115 316 205,089 163,201 (1,866) 366,855
Activity 12/1/98 - 2/28/99 - unaudited:
Net income ........................... -- -- -- 25,939 -- 25,939
Change in equity investment .......... -- -- (53) -- -- (53)
Reacquisition of previously issued
common stock ....................... -- -- (314) (796) -- (1,110)
Conversion of Class B Common Stock to
Class A Common Stock ............... 4 (4) -- -- -- --
Income tax benefit related to restricted
stock plan ......................... -- -- 1,129 -- -- 1,129
Amortization of unearned compensation. -- -- -- -- 244 244
----- ----- --------- --------- -------- ---------
BALANCE AT FEBRUARY 28, 1999 - unaudited $119 $312 $205,851 $188,344 $(1,622) $393,004
===== ===== ========= ========= ======== =========
See accompanying notes.
International Speedway Corporation
Condensed Consolidated Statements of Cash Flows
Three Months ended
February 28, February 28,
1998 1999
(Unaudited) (Unaudited)
______________________________
(In Thousands)
OPERATING ACTIVITIES
Net income...................................... $ 20,149 $ 25,939
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization .............. 3,041 3,626
Amortization of unearned compensation....... 207 244
Deferred income taxes....................... 4,035 4,087
Undistributed loss (gain) from equity
investments .............................. 421 (25)
Changes in operating assets and liabilities:
Receivables................................. (7,278) (3,515)
Inventories................................. (544) (783)
Prepaid expenses and other current assets... (704) 2,365
Other assets................................ (100) --
Accounts payable............................ 1,919 184
Income taxes payable........................ 7,915 7,327
Deferred income............................. (2,673) (6,717)
Other current liabilities................... 2,998 2,741
__________________________
Net cash provided by operating activities....... 29,386 35,473
INVESTING ACTIVITIES
Change in short-term investments, net ........ (12,073) (32,544)
Capital expenditures.......................... (10,514) (19,255)
Cash surrender value of life insurance........ (50) (72)
Equity investments ........................... (335) (250)
Increase in restricted investments, net ...... - (59,213)
__________________________
Net cash used in investing activities........... (22,972) (111,334)
FINANCING ACTIVITIES
Payment of long-term debt .................... -- (530)
Reacquisition of previously issued
common stock................................. (195) (1,110)
Proceeds from long-term debt, net ............ - 63,712
__________________________
Net cash (used in) provided by financing
activities .................................. (195) 62,072
__________________________
Net increase (decrease) in cash and cash
equivalents ................................. 6,219 (13,789)
Cash and cash equivalents at beginning of period 9,974 38,676
__________________________
Cash and cash equivalents at end of period ..... $ 16,193 $ 24,887
==========================
See accompanying notes.
International Speedway Corporation
Notes to Condensed Consolidated Financial Statements
November 30, 1998 and February 28, 1999
(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 latest annual report on Form 10-K for International Speedway
Corporation and its wholly-owned subsidiaries (the "Company"). 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, 1999.
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income", is effective for the Company for the three months ended
February 28, 1999. The Company has no items of other comprehensive income and
therefore no additional disclosure requirements.
Because of the seasonal concentration of racing events, the results of
operations for the three-month periods ended February 28, 1998 and 1999 are not
indicative of the results to be expected for the year.
2. Long-Term Debt
Long-term debt consists of the following (in thousands):
November 30 February 28
1998 1999
_____________________________________
TIF bonds, net of discount of $1,705 $ 0 $69,635
Notes payable 3,373 2,775
_______ ________
3,373 72,410
Less current portion 598 685
________ ________
$2,775 $71,725
======== ========
The note payable at February 28, 1999 for approximately $2.8 million bears
interest at 7.5% and is payable on December 31, 2001. Scheduled principal
payments on the TIF bonds for the five fiscal years following 1998 are as
follows:
(In Thousands)
1999 $ 685
2000 155
2001 165
2002 175
2003 275
Thereafter 69,885
_______
71,340
Discount 1,705
_______
$69,635
=======
In January 1999, the Unified Government of Wyandotte County/Kansas City,
Kansas, issued approximately $71.3 million in taxable special obligation
revenue ("TIF") bonds and approximately $24.3 million in sales tax special
obligation revenue ("STAR") bonds, in connection with the financing of phase I
construction of the speedway in Kansas. The net proceeds were deposited into
trust accounts. The STAR bonds will be retired with state and local taxes
generated within the project's boundaries. The TIF bonds are a liability of
the Company and are comprised of a $26.1 million, 6.15% term bond due December
1, 2017 and a $49.7 million, 6.75% term bond due December 1, 2027. Principal
(mandatory redemption) payments on the TIF bonds are payable by the Company on
October 1 of each year beginning in 1999. Semi-annual interest on the TIF
bonds is payable on each April 1 and October 1, beginning on April 1, 1999.
Simultaneous with the issuance of the STAR and TIF bonds in January 1999, the
Company deposited into a trust account the unexpended portion of its $77.9
million equity commitment to the Kansas project. Prior to the issuance of the
STAR and TIF bonds, the Company had spent approximately $29.9 million related
to the construction of the speedway in Kansas.
The TIF bond proceeds and the Company's equity contribution remaining in the
trust accounts are classified as restricted investments on the Company's
balance sheet.
The Company has granted a mortgage and security interest in the Kansas project
for its TIF bond debt service obligations.
Total interest incurred by the Company was approximately $313,000 and $572,000,
for the three months ended February 28, 1998 and 1999, respectively. Total
interest capitalized for the three months ended February 28, 1999 was
approximately $275,000.
Financing costs associated with the TIF bonds of approximately $5.9 million
have been deferred and are included in other assets. These costs are being
amortized on a straight-line basis over the life of the TIF bonds.
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"), Historic Sportscar Racing
("HSR"), the International Race of Champions ("IROC"), the Indy Racing League
("IRL"), the National Association for Stock Car Auto Racing, Inc. ("NASCAR"),
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"), and the World Karting Association ("WKA").
NASCAR, which sanctions some of the Company's principal racing events, is a
member of the France Family Group which controls in excess of 60% of the
combined voting power 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 $8.9 million and $10.2 million for the three-month periods ended
February 28, 1998 and February 28, 1999, respectively.
4. Supplemental Disclosures of Cash Flow Information
Cash paid for income taxes and interest for the three months ended February 28,
1998 and 1999 is as follows:
1998 1999
________________________________
(Thousands of Dollars)
Income taxes paid $547 $4,687
================================
Interest paid $ -- $ 123
================================
5. Legal Proceedings
The Company's indirect corporate subsidiary, Americrown Service Corporation
("Americrown"), is the sole defendant in a class action proceeding in the
Circuit Court of Talladega County, Alabama which was filed in October 1996.
The plaintiffs allege, 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 suit seeks to recover at least
$500 for each member of the class but does not otherwise seek to recover
compensatory or punitive damages or statutory attorneys' fees. A class
consisting of persons who purchased racing souvenirs at Talladega Superspeedway
since September 1992 was certified on July 30, 1998 by the court. Americrown
has moved for reconsideration and intends to appeal the ruling to the Alabama
Supreme Court. 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, Americrown, 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 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 class
certification. Discovery has been concluded. 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
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 and
motorsports activities held at its 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 and activities.
"Admissions" revenue includes ticket sales from all of the Company's events and
DAYTONA USA's Track Tours and Velocitorium. Admissions revenue for racing
events is recorded upon completion of the related motorsports event.
"Motorsports related income" primarily includes television and radio broadcast
rights fees, promotion and sponsorship fees, hospitality rentals (including
luxury suites, chalets and the hospitality portion of club seating),
advertising revenues, royalties from licenses of the Company's trademarks, and
track rentals. The Company currently negotiates directly with television and
cable networks for coverage of substantially all of its televised motorsports
events. NASCAR has announced it will retain these rights and negotiate
television contracts as they expire, beginning in the year 2000. The Company
expects that the percentage of television broadcast rights fees that the
Company currently retains from each contract will be the same under the future
arrangement. 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,
1998 1999
(Unaudited) (Unaudited)
_______________________
Revenues:
Admissions, net.................................... 46.7% 45.2%
Motorsports related income......................... 39.8 41.4
Food, beverage and souvenir income................. 13.1 13.0
Other income....................................... .4 .4
___________ ___________
Total revenues .................................. 100.0% 100.0%
Expenses:
Direct expenses:
Prize and point fund monies
and NASCAR sanction fees....................... 16.2 15.4
Motorsports related expenses..................... 11.9 13.3
Food, beverage and souvenir expenses............. 6.6 6.3
General and administrative expenses................ 12.5 12.3
Depreciation and amortization ..................... 4.5 4.4
__________ ___________
Total expenses .................................. 51.7 51.7
___________ ___________
Operating income..................................... 48.3 48.3
Interest income ..................................... .6 2.5
Interest expense .................................... (.4) (.3)
Equity in net loss from equity investments........... (.6) --
___________ ___________
Income before income taxes........................... 47.9 50.5
Income tax expense................................... 18.4 19.3
___________ ___________
Net income........................................... 29.5% 31.2%
Comparison of the Three Months Ended February 28, 1999 to the Three Months
Ended February 28, 1998
Admissions revenue increased approximately $5.7 million, or 18.0%, for the
three months ended February 28, 1999, as compared to three months ended
February 28, 1998. This increase was related to the increase in the weighted
average price of tickets sold as well as increased seating capacity and
attendance at the Speedweeks events held at Daytona International Speedway
("Daytona").
Motorsports related income increased approximately $7.3 million, or 26.8%, for
the three months ended February 28, 1999 as compared to the three months ended
February 28, 1998. Approximately three-quarters of this increase was
attributable to increased television broadcast rights fees and expanded luxury
suite and hospitality facilities for the Speedweeks events at Daytona. The
remaining increase was primarily attributable to increased sponsorship fees and
royalty revenue.
Food, beverage and souvenir income increased approximately $1.9 million, or
20.8%, for the three months ended February 28, 1999 as compared to the three
months ended February 28, 1998. Catering revenues from expanded luxury suite
and hospitality facilities at Daytona's Speedweeks events represented over
three-quarters of the increase. The remaining increase was primarily
attributable to increased attendance and, to a lesser extent, increases in
certain prices at the Speedweeks events.
Prize and point fund monies and NASCAR sanction fees increased by approximately
$1.7 million, or 15.4%, for the three months ended February 28, 1999 as
compared to the three months ended February 28, 1998. Approximately three-
quarters of this increase was due to increased prize and point fund monies paid
by NASCAR to participants in the Speedweeks events. This increase was
primarily attributable to the increased television broadcast rights fees
because standard NASCAR sanctioning agreements require that a specified
percentage of television broadcast rights fees be paid as part of the prize
money.
Motorsports related expenses increased approximately $2.9 million, or 35.9%,
for the three months ended February 28, 1999 as compared to the three months
ended February 28, 1998. The increase was primarily attributable to personnel
costs, hospitality services and supplies and, to a lesser extent, a variety of
other fan amenities and operating expenses. Motorsports related expenses as a
percentage of combined admissions and motorsports related income increased from
approximately 13.8% for the three months ended February 28, 1998 to 15.4% for
the three months ended February 28, 1999, primarily due to the margins
associated with certain hospitality packages introduced during Speedweeks of
1999.
Food, beverage and souvenir expenses increased approximately $770,000, or
17.2%, for the three months ended February 28, 1999 as compared to the three
months ended February 28, 1998. These increased expenses were primarily
related to increased product and personnel costs. Food, beverage and souvenir
expenses as a percentage of food, beverage and souvenir income decreased from
49.8% to 48.4% for the three months ended February 28, 1998 as compared to the
three months ended February 28, 1999. This decrease was primarily related to
certain economies of scale for catering operations in the first quarter of 1999
as compared to the same period in fiscal 1998.
General and administrative expenses increased approximately $1.7 million, or
20.2%, for the three months ended February 28, 1999 as compared to the three
months ended February 28, 1998. The increase in expenses was primarily
attributable to personnel costs and a variety of other expenses, including a
bad debt reserve primarily related to a single customer. General and
administrative expenses as a percentage of total revenues for the three months
ended February 28, 1999 was relatively consistent with the three months ended
February 28, 1999.
Depreciation and amortization expense increased approximately $585,000, or
19.2%, for the three months ended February 28, 1999 as compared to the three
months ended February 28, 1998 as a result of the ongoing expansion of the
Company's facilities.
Interest income for the three months ended February 28, 1999, increased
approximately $1.6 million, or 373.0 %, as compared to the three months ended
February 28, 1998. This increase was primarily due to the investment of the
proceeds of the Class A Common Stock Offering in July 1998, including the
Company's investments restricted to the funding of the speedway in Kansas, and,
to a lesser extent, investment of the proceeds from the sale of taxable special
obligation revenue ("TIF") bonds issued in January 1999 by the Unified
Government of Wyandotte County/Kansas City, Kansas to partially fund the Kansas
project (See "Future Liquidity").
Interest expense was relatively consistent between the three months ended
February 28, 1999 and the three months ended February 28, 1998. Interest
expense in fiscal 1999 was primarily attributable to the interest on the TIF
bonds, net of capitalized interest, while interest expense in fiscal 1998 was
related to the note payable associated with the acquisition of Phoenix.
Equity in net income (loss) from equity investments represents the Company's
pro rata share of the current income and losses from its equity investments and
the amortization of the Company's investment in excess of its share of the
investee's underlying net assets. During the three months ended February 28,
1999 this included the Company's approximately 12% indirect investment in
Penske Motorsports, Inc. ("PMI"), its 45% investment in Homestead-Miami
Speedway, LLC ("Miami") and its 50% investment in Motorsports Alliance, LLC,
which is pursuing development of a major motorsports facility in the Chicago
area (See "Future Liquidity"). For the three months ended February 28, 1998
this included the Company's approximately 11% indirect investment in PMI, its
40% investment in Miami and its 7% investment in Grand Prix Association of Long
Beach, which was sold in March of 1998.
As a result of the foregoing, the Company's net income increased approximately
$5.8 million, or 28.7%, for the three months ended February 28, 1999 as
compared to the three months ended February 28, 1998.
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 an annual cash dividend. At February 28, 1999, the Company
had working capital of $46.1 million, compared to working capital of $27.5
million at November 30, 1998. There were no borrowings under the Company's
credit facility at February 28, 1999. See "Future Liquidity".
Cash Flows
Net cash provided by operating activities was approximately $35.5 million for
the three months ended February 28, 1999. The difference between the Company's
net income of $25.9 million and the $35.5 million of operating cash flow was
primarily attributable to a $7.3 million increase in income taxes payable, an
increase in deferred income taxes of $4.1 million, depreciation and
amortization of $3.6 million, an increase in other current liabilities of $2.7
million, and a decrease in prepaids and other current assets of $2.4 million,
partially offset by a decrease in deferred income of $6.7 million and an
increase in receivables of $3.5 million.
Net cash used in investing activities was $111.3 million for the three months
ended February 28, 1999. The Company's use of cash for investing activities
reflects the $59.2 million net increase in restricted investments for the
project in Kansas as well as the net acquisition of $32.5 million of short-term
investments and $19.3 million in capital expenditures. See "Capital
Expenditures".
Net cash provided by financing activities of $62.1 million for the three months
ended February 28, 1999, is related primarily to the net proceeds from the
issuance of the TIF bonds. See "Future Liquidity".
Capital Expenditures
Capital expenditures totaled approximately $19.3 million for the three months
ended February 28, 1999 as compared to $10.5 for the three months ended
February 28, 1998. Approximately sixty percent of the capital expenditures
were for existing facilities. These expenditures were related to increased
seating capacity at Daytona and Talladega Superspeedway as well as a variety of
other improvements to the Company's existing facilities. The remaining capital
expenditures were primarily related to the construction of the speedway in
Kansas.
The Company expects to make approximately $27.8 million of additional capital
expenditures for approved projects at existing facilities within the next 24
months to increase grandstand seating capacity and for a number of other
improvements to the Company's motorsports facilities. In addition the Company
will continue to make capital expenditures related to the construction of the
Kansas facility, which will be funded from restricted investments, as discussed
below.
Future Liquidity
In 1998, the Company entered into a five-year, unsecured, $100 million
revolving line of credit (the "Credit Facility"). Borrowings under the Credit
Facility will bear interest at the applicable LIBOR rate plus 40-80 basis
points depending on certain financial criteria. The Credit Facility includes
customary representations and warranties, covenants, defaults and conditions.
The Credit Facility is intended to be used for short-term working capital and
to finance the development and/or acquisition of additional motorsports
facilities. There were no borrowings under the Credit Facility at February 28,
1999.
The financing for the first phase of the development of the Kansas facility,
which is currently estimated to cost approximately $224 million, is
substantially completed. In January 1999, the Unified Government of Wyandotte
County/Kansas City, Kansas, issued approximately $71.3 million in TIF bonds and
approximately $24.3 million in sales tax special obligation revenue ("STAR")
bonds. The STAR bonds will be retired with state and local taxes generated
within the project's boundaries. The TIF bonds will be serviced through
payments by the Company escalating from an annual rate of approximately $4.8
million to $7.7 million, including interest at 6.15% to 6.75%. In addition the
Company has committed equity of approximately $77.9 million of which $24.4 was
funded during fiscal 1998, with the remaining $53.5 million funded in the
first quarter of fiscal 1999. The net TIF and STAR bond proceeds and the
Company's equity contribution were deposited into trustee administered accounts
for the benefit of the construction of the Kansas facility which will be owned
and operated by the Company. At February 28, 1999, the Company's $112.7
million of restricted investments includes the funds remaining from the
Company's equity contribution and the TIF bond proceeds.
The Motorsports Alliance, LLC (owned 50% by the Company and 50% by Indianapolis
Motor Speedway) and Route 66, LLC are currently pursuing the development of a
motorsports facility in the Chicago area. In January 1999, the Motorsports
Alliance announced that the City of Joliet, Illinois had approved plans to
build a 1.5-mile oval motor speedway on land contiguous to the existing Route
66 Raceway. The aggregate cost of acquiring the approximately 930 acres and
developing the facility (which will initially accommodate approximately 75,000
spectators) is estimated to be $100 million. The Company is currently
conducting due diligence on the proposed site with plans to break ground later
this year.
In March 1999, the Company announced that it had entered into a development
agreement with The Trump Organization, a major real estate developer, to
identify and develop a site for a major motorsports facility in the metro New
York City area, which includes New York, New Jersey and Connecticut.
The Company believes that cash flow from operations, along with the remaining
net proceeds of the July 1998 Class A Common Stock Offering and available
borrowings under the Credit Facility, will be sufficient to fund i) the
Company's operations and approved capital projects at existing facilities for
the foreseeable future, ii) debt service requirements of the TIF bonds
described above prior to commencement of racing at the speedway in Kansas, and
iii) the Company's expected funding requirements for the proposed Chicago
project. In addition, the Company intends to pursue further developments
and/or acquisition opportunities (including the possible development of a new
motorsports facility in the metro New York City area) the timing, size and
success as well as associated potential capital commitments of which are
unpredictable. Accordingly, a material acceleration in the Company's growth
strategy could require the Company to obtain additional capital through debt
and/or equity financings. Although there can be no assurance, management
believes that adequate debt or equity financing would be available on
satisfactory terms.
Inflation
Management does not believe that inflation has had a material impact on
operating costs and earnings of the Company.
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 time sensitive applications and business systems of the Company and
its business partners 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 related to information technology
systems has been made and the plans to resolve the related issues are being
implemented. Most major information technology 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 readiness with regard to information technology systems during fiscal
1999.
The Company suspects that some of its non-information technology systems, such
as exhibit controllers, elevators, heating and air-conditioning systems, etc.,
with date sensitive software and embedded microprocessors may be affected, and
evaluation is underway. Preliminary estimates of the costs of correcting or
replacing critical non-information technology systems indicate that these costs
will not be material to the Company.
The Company has also developed and implemented a plan of communication with
significant business partners to identify and minimize disruptions to the
Company's operations resulting from the Year 2000 issue. There can be no
certainty that the computer programs and business systems of third parties on
which the Company relies will not have an adverse effect on the Company's
operations. However, because of the nature of its business, the Company
believes at this time that a failure of the Company's vendors, sponsors or
customers to resolve issues involving the Year 2000 problem will not be
material to the Company.
The Company anticipates completing substantially all of its Year 2000
preparation during fiscal 1999. In the event the Company falls behind on its
timetable for achieving Year 2000 compliance, additional internal resources
will be focused on completing critical projects and developing contingency
plans. The Company at this time believes that it will satisfactorily resolve
all significant Year 2000 problems. Preliminary estimates of costs to correct
the identified potential problems related to the Year 2000 indicate that these
costs will not exceed $500,000. Estimates of Year 2000 related costs are based
on numerous assumptions, including the continued availability of certain
resources, the ability to correct all relevant information and non-information
technology systems and third party modification plans. There is no guarantee
that the estimates will be achieved and actual costs could differ materially
from those anticipated.
Factors That May Affect Operating Results
Statements contained in this document 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 these, or
other, factors which could cause actual results to differ materially from those
in the forward-looking statements is contained from time to time in the
Company's other 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's
Winston Cup Series, the Busch Series - Grand National Division and certain
other races promoted by the Company. The Company has sanctioning agreements to
promote and market eight NASCAR Winston Cup Series championship point races,
two NASCAR Winston Cup Series non-championship point races, five NASCAR Busch
Series - Grand National Division 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 fiscal 1998, NASCAR-sanctioned races at the Company's
facilities accounted for approximately 79% 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.
Uncertain Prospects of New Motorsports Facilities
The Company's growth strategy includes the potential acquisition and/or
development of new motorsports facilities, including the proposed Kansas
International Speedway, the proposed motorsports facility near Chicago,
Illinois. and the possible development of a motorsports facility
near New York City. 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 - Grand National
Division or other major events at these new facilities, (ii) the cooperation of
local government officials, (iii) the Company's capital resources, (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 could 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 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.
Industry Sponsorships and Government Regulation
The motorsports industry generates significant recurring revenue from the
promotion, sponsorship and advertising of various companies and their products.
Actual or proposed 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 Corporations's events. Since August of 1996 there have been several
thus far unsuccessful governmental attempts to impose restrictions on the
advertising and promotion of cigarettes and smokeless tobacco, including
sponsorship of motorsports activities. These regulatory efforts if
successfully implemented would have prohibited the present practice of tobacco
brand name sponsorship of, or identification with, motorsports events, entries
and teams. At this point the ultimate outcome of these or future government
regulatory and legislative efforts to regulate the advertising and promotion of
cigarettes and smokeless tobacco is uncertain and the impact, if any, on the
motorsports industry is unclear. Recently major United States companies
engaged in the manufacture of cigarettes and smokeless tobacco (collectively
the "tobacco industry") entered into various agreements with the Attorneys
General of all 50 states to settle certain state initiated litigation against
the tobacco industry. These settlement agreements will, among other things,
place limits upon the sponsorship of motorsports activities by the tobacco
industry. The actual impact of these settlement agreements upon the Company's
future revenues has not yet been determined. Even more recently the executive
branch of the United States government has publicly stated its intention to
initiate certain litigation against the tobacco industry which would be similar
to that initiated by the states which was recently settled. The exact
parameters of the proposed litigation and the impact, if any, of this proposed
litigation upon the Company's future revenues is presently 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. The combined
advertising and sponsorship revenue from the tobacco and alcoholic beverage
industries accounted for approximately 1.5% and 1.6% of the Company's total
revenues in fiscal 1997 and fiscal 1998, 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 Series and Busch Series - Grand National Division.
Legal Proceedings
The Company and its indirect subsidiary, Americrown Service Corporation, are
parties to certain legal proceedings alleging price-fixing activities in
connection with the sale of racing souvenirs and merchandise as described in
"Part II - Other Information". While the Company and Americrown dispute the
allegations and intend to defend the actions fully and vigorously, neither the
cost of defending the suits nor the potential damages or other remedies for
which the Company and Americrown might be liable is 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.
Potential Conflicts of Interest
William C. France and James C. France beneficially own all of NASCAR's
capital stock, and each of the France Family Executives, the Company's Vice
President--Administration, the Company's General Counsel and certain other
non-officer employees (collectively the "Shared Employees") devote portions of
their time to NASCAR's affairs. Each of the Shared Employees devotes
substantial time to the Company's affairs and all of the Company's other
executive officers are available to the Company on a full-time basis. In
addition, the Company strives to ensure, and management believes, that the
terms of the Company's transactions with NASCAR are no less favorable to the
Company than those which could be obtained in arms'-length negotiations.
Nevertheless, certain potential conflicts of interest between the Company and
NASCAR exist with respect to, among other things, (i) the terms of any
sanctioning agreements that may be awarded to the Company by NASCAR, (ii) the
amount of time devoted by the Shared Employees and certain other Company
employees to NASCAR's affairs, and (iii) the amounts charged or paid to NASCAR
for office rental, transportation costs, shared executives, administrative
expenses and similar items.
Competition
The Company's racing events face competition from other spectator-oriented
sporting events and other leisure and recreational activities, including
professional football, basketball and baseball. 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"), Indy Racing League ("IRL"), the United States Auto Club
("USAC"), the National Hot Rod Association ("NHRA"), the Sports Car Club of
America ("SCCA"), the 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
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.
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.
Other Regulatory 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.
Seasonality and 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 events. For example, one of Darlington Raceway's
Winston Cup Series events is traditionally held on the Sunday preceding Labor
Day. Accordingly, the revenue and expenses for that race and/or the related
supporting events may be recognized in either the fiscal quarter ending August
31 or the fiscal quarter ending November 30. Further, in July 1998 the Company
announced the postponement of the NASCAR Winston Cup Series Pepsi 400 at
Daytona from July 4, 1998 to October 17, 1998 as a result of the nationally
publicized forest fire emergency throughout the state of Florida. The
rescheduling of the Pepsi 400 at Daytona resulted in event-related revenues and
expenses being recognized in the quarter ending November 30, 1998 while
corresponding revenues and expenses were recognized in the quarter ended August
31 in fiscal 1997. Accordingly, the Company's results of operations are not
necessarily comparable on a period-to-period basis.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is from time to time a party to routine litigation incidental to
its business. Management does not believe that the resolution of any or all of
such litigation is likely to have a material adverse effect on the Company's
financial condition or results of operations. In addition to such routine
litigation incident to its business the Company faces exposure from other legal
proceedings as described below.
The Company's indirect corporate subsidiary, Americrown Service Corporation
("Americrown"), is the sole defendant in a class action proceeding in the
Circuit Court of Talladega County, Alabama which was filed in October 1996.
The plaintiffs allege, 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 suit seeks to recover at least
$500 for each member of the class but does not otherwise seek to recover
compensatory or punitive damages or statutory attorneys' fees. A class
consisting of persons who purchased racing souvenirs at Talladega Superspeedway
since September 1992 was certified on July 30, 1998 by the court. Americrown
has moved for reconsideration and intends to appeal the ruling to the Alabama
Supreme Court. 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, Americrown, 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 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 class
certification. Discovery has been concluded. 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 12, 1999 /s/ James C. France
_____________________________________
James C. France, President
Date April 12, 1999 /s/ Susan G. Schandel
_____________________________________
Susan G. Schandel,
Chief Financial Officer