-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QkvIzU84E8MWHHjMndRTIc+W4DXAi/N+7ACOvsd2rpW13jNq3zGEAqt+QsgS6NPE Njs5S8QNFRuXC5WWoqUKfg== 0000925751-97-000024.txt : 19971016 0000925751-97-000024.hdr.sgml : 19971016 ACCESSION NUMBER: 0000925751-97-000024 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970831 FILED AS OF DATE: 19971015 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL SPEEDWAY CORP CENTRAL INDEX KEY: 0000051548 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-RACING, INCLUDING TRACK OPERATION [7948] IRS NUMBER: 590709342 STATE OF INCORPORATION: FL FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-02384 FILM NUMBER: 97695816 BUSINESS ADDRESS: STREET 1: 1801 W INTERNATIONAL SPEEDWAY BLVD CITY: DAYTONA BEACH STATE: FL ZIP: 32114-1243 BUSINESS PHONE: 9042542700 MAIL ADDRESS: STREET 1: 1801 WEST INTERNATIONAL SPEEDWAY CORP CITY: DAYTONA BEACH STATE: FL ZIP: 32114-1243 FORMER COMPANY: FORMER CONFORMED NAME: DAYTONA INTERNATIONAL SPEEDWAY CORP DATE OF NAME CHANGE: 19691130 FORMER COMPANY: FORMER CONFORMED NAME: FRANCE BILL RACING INC DATE OF NAME CHANGE: 19670227 10-Q 1 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 August 31, 1997. Commission file Number 0-2384 International Speedway Corporation (Exact name of registrant as specified in its charter.) Florida, U.S.A. 59-0709342 (State of other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1801 West International Speedway Boulevard, Daytona Beach, Florida 32114-1243 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (904) 254-2700 Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date: Class A Common Stock, - 5,293,551 shares as of September 29, 1997 Class B Common Stock, - 33,203,411 shares as of September 29, 1997 PART I. - FINANCIAL INFORMATION Item 1. - Financial Statements INTERNATIONAL SPEEDWAY CORPORATION Condensed Consolidated Balance Sheets
August 31, August 31, 1996 1997 (unaudited) ____________ _____________ (IN THOUSANDS) ASSETS Current Assets: Cash and cash equivalents ................................... $ 9,042 $ 28,112 Short-term investments ...................................... 8,369 6,218 Receivables, less allowances of $35 ......................... 3,455 7,215 Inventories ................................................. 1,409 896 Prepaid expenses and other current assets ................... 2,410 3,729 ____________ ____________ Total Current Assets ......................................... 24,685 46,170 Property and Equipment - at cost - less accumulated depreciation of $51,219 ($36,912 at August 31, 1996)......... 98,835 155,615 Other Assets: Equity investments (Notes 8 and 9) .......................... 27,256 45,354 Goodwill (Note 9) ........................................... 0 40,654 Cash surrender value of life insurance (Note 3).............. 1,214 2,450 Long-term investments ....................................... 500 500 Other ....................................................... 301 476 ____________ ____________ 29,271 89,434 ____________ ____________ Total Assets ................................................. $152,791 $291,219 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable ............................................ $ 3,820 $ 5,830 Income taxes payable ........................................ 57 1,163 Deferred income ............................................. 25,963 42,196 Current portion of note payable ............................. 0 11,952 Other current liabilities ................................... 1,596 1,497 ____________ ____________ Total Current Liabilities .................................... 31,436 62,638 Note payable ................................................. 0 2,039 Deferred income taxes ........................................ 14,688 18,759 Commitments and Contingencies (Note 7) Shareholders' Equity (Notes 1 and 6) Class A Common Stock, $.01 par value, 80,000,000 shares authorized; 0 and 5,233,203 issued in 1996 and 1997, respectively ........................................ 0 52 Class B Common Stock, $.01 par value, 40,000,000 shares authorized; 34,423,890 and 33,263,759 issued in 1996 and 1997, respectively .................................... 344 333 Additional paid-in capital .................................. 8,127 86,437 Retained earnings ........................................... 99,986 123,607 ____________ ____________ 108,457 210,429 Less unearned compensation-restricted stock (Note 5)......... 1,790 2,646 ____________ ____________ Total Shareholders' Equity ................................... 106,667 207,783 ____________ ____________ Total Liabilities and Shareholders' Equity ................... $152,791 $ 291,219 ============ ============
See accompanying notes and accountants' review report. INTERNATIONAL SPEEDWAY CORPORATION Condensed Consolidated Statements of Operations
Three Months ended August 31, August 31, 1996 1997 (Unaudited) (Unaudited) _________________________ (In Thousands, Except Per Share Data) REVENUES: Admissions, net.................................... $12,405 $16,337 Motorsports related income......................... 6,373 11,159 Food, beverage and souvenir income................. 3,912 5,064 Other income....................................... 319 546 ___________ __________ 23,009 33,106 EXPENSES: Direct expenses: Prize and point fund monies and NASCAR sanction fees....................... 3,708 5,718 Motorsports related expenses..................... 4,687 5,813 Food, beverage and souvenir expenses............. 2,185 2,941 General and administrative expenses................ 6,061 7,161 Depreciation....................................... 2,169 2,711 ___________ __________ 18,810 24,344 ___________ __________ Operating income..................................... 4,199 8,762 Interest income, net ................................ 118 460 Equity in net income from equity investments......... 2,425 697 ___________ __________ Income before income taxes........................... 6,742 9,919 Income taxes......................................... 1,947 3,934 ___________ __________ Net Income........................................... $ 4,795 $5,985 =========== ========== Earnings per share (Note 2).......................... $ 0.14 $0.16 =========== ========== Dividends per share.................................. $ .05 $ .06 =========== ==========
See accompanying notes and accountants' review report. INTERNATIONAL SPEEDWAY CORPORATION Condensed Consolidated Statements of Operations
Nine Months ended August 31, August 31, 1996 1997 (Unaudited) (Unaudited) _________________________ (In Thousands, Except Per Share Data) REVENUES: Admissions, net.................................... $46,514 $56,946 Motorsports related income......................... 24,404 37,033 Food, beverage and souvenir income................. 15,780 19,362 Other income....................................... 802 1,261 ___________ __________ 87,500 114,602 EXPENSES: Direct expenses: Prize and point fund monies and NASCAR sanction fees....................... 12,423 16,831 Motorsports related expenses..................... 13,570 16,520 Food, beverage and souvenir expenses............. 9,023 11,264 General and administrative expenses................ 16,664 20,097 Depreciation....................................... 5,015 6,950 ___________ __________ 56,695 71,662 ___________ __________ Operating income..................................... 30,805 42,940 Interest income, net ................................ 582 2,624 Equity in net income (loss) from equity investments.. 1,595 (95) ___________ __________ Income before income taxes........................... 32,982 45,469 Income taxes......................................... 12,281 17,523 ___________ __________ Net Income........................................... $20,701 $27,946 =========== ========== Earnings per share (Note 2).......................... $ 0.60 $ 0.73 =========== ========== Dividends per share.................................. $ .05 $ .06 =========== ==========
See accompanying notes and accountants' review report. International Speedway Corporation Condensed Consolidated Statements of Shareholders' Equity
CLASS A CLASS B COMMON COMMON UNEARNED STOCK STOCK ADDITIONAL COMPENSATION- TOTAL $.01 PAR $.01 PAR PAID-IN RETAINED RESTRICTED SHAREHOLDERS' VALUE VALUE CAPITAL EARNINGS STOCK EQUITY -------- --------- --------- --------- ----------- -------------- (IN THOUSANDS) BALANCE AT AUGUST 31, 1995 ............ $ -- $ 344 $ 1,853 $ 83,846 $ (796) $ 85,247 Activity 9/1/95 - 8/31/96: Net income .......................... -- -- -- 19,681 -- 19,681 Cash dividends ...................... ($.05 per share) ................... -- -- -- (1,836) -- (1,836) Restricted stock granted (Note 5) ... -- 1 1,599 -- (1,600) -- Reacquisition of previously issued common stock ....................... -- (1) (2) (1,705) -- (1,708) Amortization of unearned compensation (Note 5) ........................... -- -- -- -- 606 606 Recapitalization of equity investment -- -- 4,677 -- -- 4,677 -------- -------- -------- --------- ---------- ------------ BALANCE AT AUGUST 31, 1996 ............ -- 344 8,127 99,986 (1,790) 106,667 Activity 9/1/96 - 8/31/97: Net income - unaudited................ -- -- -- 26,079 -- 26,079 Cash dividends ($.06 per share) - unaudited........................... -- -- -- (2,310) -- (2,310) Public offering -Class A Common Stock (Notes 1 and 6) ...................... 40 -- 74,282 -- -- 74,322 Forfeiture of restricted shares - unaudited........................... -- -- (218) -- 218 -- Increase in equity investment - unaudited........................... -- -- 2,262 -- -- 2,262 Restricted stock granted - unaudited (Note 5) ........................... -- 1 1,984 -- (1,985) -- Reacquisition of previously issued common stock - unaudited............ -- -- -- (148) -- (148) Conversion of Class B Common Stock to Class A Common Stock - unaudited.... 12 (12) -- -- -- -- Amortization of unearned compensation- unaudited (Note 5) ................. -- -- -- -- 911 911 -------- -------- -------- --------- ---------- ------------ Balance at August 31, 1997 - unaudited $ 52 $ 333 $86,437 $123,607 $(2,646) $207,783 ======== ======== ======== ========= ========== ============
See accompanying notes and accountants' review report. International Speedway Corporation Condensed Consolidated Statements of Cash Flows
Nine Months ended August 31, August 31, 1996 1997 (Unaudited) (Unaudited) ______________________________ (In Thousands) OPERATING ACTIVITIES Net income...................................... $ 20,701 $ 27,946 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation................................ 5,015 6,950 Amortization of unearned compensation....... 526 789 Deferred income taxes....................... 1,948 3,325 Undistributed gain (loss) from ............. equity investments ....................... (1,557) 95 Gain on disposition of property and equipment (5) - Changes in operating assets and liabilities: Receivables................................. 201 (457) Inventories................................. (378) 455 Prepaid expenses and other current assets... (409) (1,472) Other assets................................ (133) (203) Accounts payable............................ 1,236 2,212 Income taxes payable........................ (49) 1,076 Deferred income............................. 891 (351) Other current liabilities................... 1,010 995 ______________________________ Net cash provided by operating activities....... 28,997 41,360 INVESTING ACTIVITIES Acquisition of investments.................... (70,515) (88,708) Proceeds from maturities of investments....... 72,290 158,047 Capital expenditures.......................... (26,563) (25,467) Cash surrender value of life insurance........ 15 (113) Proceeds from sale of assets.................. 13 - Acquisition of WGI interest, net of cash acquired ............................... - (996) Equity investments ........................... (312) (17,696) Acquisition of PIR, net of cash acquired ..... - (43,868) ______________________________ Net cash used in investing activities........... (25,072) (18,801) FINANCING ACTIVITIES Reacquisition of previously issued common stock (1,708) (148) Additional expense of Class A Common Stock Offering..................................... - (46) Cash dividends paid ........................... (1,836) (2,310) ______________________________ Net cash used in financing activities........... (3,544) (2,504) ______________________________ Net increase in cash and cash equivalents....... 381 20,055 Cash and cash equivalents at beginning of period 8,661 8,057 ______________________________ Cash and cash equivalents at end of period ...... $ 9,042 $28,112 ==============================
See accompanying notes and accountants' review report. International Speedway Corporation Notes to Condensed Consolidated Financial Statements August 31, 1996 and August 31, 1997 (Unaudited - See Accountants' Review Report) 1. Basis of Presentation The accompanying condensed consolidated financial statements have been prepared in compliance with Rule 10-01 of Regulation S-X and generally accepted accounting principles but do not include all of the information and disclosures required for complete financial statements. The statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's latest annual report on Form 10-K. In management's opinion, the statements include all adjustments which are necessary for a fair presentation of the results for the interim periods. All such adjustments are of a normal recurring nature. Certain reclassifications of 1996 information have been made to conform to the financial presentation at August 31, 1997. On September 5, 1996 the Company's Board of Directors approved a recapitalization of the Company which became effective on November 4, 1996, concurrently with the effectiveness of the Registration Statement filed on September 6, 1996 with the Securities and Exchange Commission in connection with the offering of 4,000,000 shares of the Company's newly authorized Class A Common Stock (discussed below). The recapitalization modified the Company's authorized capital to include one million shares of Preferred Stock, eighty million shares of Class A Common Stock and forty million shares of Class B Common Stock. Pursuant to the recapitalization, all of the Company's existing outstanding shares of Common Stock were automatically converted, on a 15-for-one basis, into the newly authorized shares of Class B Common Stock and the shares of Common Stock previously held as treasury stock were retired. Shareholders' equity and all share information and per share data have been adjusted to give effect to the recapitalization and related stock split. Effective December 1, 1996, the Company changed its fiscal year-end from August 31 to November 30. This resulted in a three-month transition period commencing September 1, 1996 and ending November 30, 1996. Because of the seasonal concentration of racing events, the results of operations for the three-month and nine-month periods ended August 31, 1996 and August 31, 1997 are not indicative of the results to be expected for the year. 2. Earnings Per Share Earnings per share has been computed on the weighted average total number of common shares outstanding during the respective periods. Weighted average shares outstanding for the three-month and nine-month periods ended August 31, 1996 were 34,423,890 and 34,455,364, respectively. Weighted average shares outstanding for the three-month and nine-month periods ended August 31, 1997 were 38,496,962 and 38,486,404, respectively. 3. Related Party Disclosures and Transactions All of the racing events that take place during the Company's fiscal year are sanctioned by various racing organizations such as the Sports Car Club of America (SCCA), Automobile Racing Club of America (ARCA), American Motorcyclist Association (AMA), the Championship Cup Series (CCS), Professional Sports Car Racing, Inc., World Karting Association (WKA), Federation Internationale de l'Automobile (FIA), Federation Internationale Motorcycliste (FIM), and the National Association for Stock Car Auto Racing, Inc. (NASCAR). NASCAR, which sanctions some of the Company's principal racing events, is a member of the France Family Group which controls in excess of 55% of the outstanding stock of the Company and some members of which serve as directors and officers. Standard NASCAR sanction agreements require racetrack operators to pay sanction fees and prize and point fund monies for each sanctioned event conducted. The prize and point fund monies are distributed by NASCAR to participants in the events. Prize and point fund monies paid by the Company to NASCAR for disbursement to competitors totaled approximately $3.3 million and $10.4 million for the three- month and nine-month periods ended August 31, 1996, respectively, and approximately $4.8 million and $13.8 million for the three-month and nine-month periods ended August 31, 1997, respectively. In October 1995 the Company entered into collateral assignment split-dollar insurance agreements covering the lives of William C. France and James C. France and their respective spouses. Pursuant to the agreements, the Company will advance the annual premiums of approximately $1,205,000 each year for a period of eight years. Upon surrender of the policies or payment of the death benefits thereunder, the Company is entitled to repayment of an amount equal to the cumulative premiums previously paid by the Company. The Company may cause the agreements to be terminated and the policies surrendered at any time after the cash surrender value of the policies equals the cumulative premiums advanced under the agreements. During the three-month and nine-month periods ended August 31, 1996, the Company recorded a net insurance expense of approximately $200,000 and $369,000, respectively, representing the excess of the premiums paid over the increase in cash surrender value of the policies associated with these agreements. During the three-month and nine-month periods ended August 31, 1997, premiums paid were approximately equal to the increase in cash surrender value of the policies. 4. Supplemental Disclosures of Cash Flow Information Cash paid for income taxes and interest for the nine months ended August 31, 1996 and August 31, 1997 are as follows: 1996 1997 ________________________________ (Thousands of Dollars) Income taxes paid $10,416 $12,985 ================================ Interest paid $ -- $ 31 ================================ 5. Long-Term Incentive Restricted Stock On January 1, 1996 and 1997, a total of 102,075 and 98,010 restricted shares of the Company's Class B Common Stock, respectively, were awarded to certain officers and managers under the Company's Long-Term Incentive Plan. The market value of shares awarded on January 1, 1996 and 1997 amounted to approximately $1,599,000 and $1,985,000, respectively, and has been recorded as unearned compensation - restricted stock, which is shown as a separate component of shareholders' equity in the accompanying condensed consolidated balance sheets. The unearned compensation is being amortized over the vesting periods of the shares. The total expense charged against operations during the nine months ended August 31, 1996 and 1997 was approximately $526,000 and $789,000, respectively. 6. Class A Common Stock Offering On November 4, 1996 the Company sold 4,000,000 shares of its newly created Class A Common Stock in an underwritten public offering (the "Offering"). The price to the public was $20 per share. The net proceeds to the Company from the sale of the stock sold by the Company in the Offering were approximately $74.3 million, after deduction of underwriting discounts and commissions and expenses of the Offering. Approximately $7.8 million of the net proceeds of this Offering was used to repay borrowings incurred under one of the Company's lines of credit in September 1996. The Company used approximately $3.1 million of the net proceeds to acquire the 50% interest it did not already own in Watkins Glen International, Inc. ("WGI"), $43.8 million to acquire Phoenix International Raceway ("PIR") and $16.1 million for equity investments in Homestead-Miami Speedway, LLC ("HMS, LLC") and Grand Prix Association of Long Beach, Inc. ("GPLB"). The remaining net proceeds were used for working capital and other general corporate purposes, including continued improvements to and expansion of the Company's facilities and operations. Pending such uses, the Company had invested the net proceeds of the Offering in short-term interest-bearing obligations. 7. Legal Proceedings On October 21, 1996, the Company's indirect corporate subsidiary, Americrown Service Corporation ("Americrown"), was served with a Class Action Complaint filed in the Circuit Court of Talladega County, Alabama by Howard Padgett, Bill Lutz and Tommy Jones. The complaint was filed in September 1996 and alleged, among other things, that Americrown engaged in price-fixing activities in connection with the sale of racing souvenirs and merchandise at the Talladega Superspeedway. The complaint seeks at least $500 for each member of the class (persons buying racing souvenirs at Talladega Superspeedway since September 1992), but does not otherwise seek to recover compensatory or punitive damages or statutory attorneys' fees. Although Americrown attempted to remove the suit to Federal District Court, it has been remanded to the Circuit Court of Talladega County, Alabama, where discovery and the class certification process are proceeding. Americrown disputes the allegations and intends to defend the action fully and vigorously. In March 1997, two purported class action companion lawsuits were filed in the United States District Court, Northern District of Georgia, against the Company, its indirect corporate subsidiary, Americrown Service Corporation, and a number of other persons alleging, in substance, that the defendants unlawfully conspired to fix prices of souvenirs and merchandise sold to consumers in violation of federal antitrust laws. One suit was filed by Florida residents and the other suit was filed by Georgia residents. Both suits seek damages and injunctive relief on behalf of all persons who purchased souvenirs or merchandise from certain vendors at any NASCAR Winston Cup stock car race or supporting event in the United States during the period 1991 to present. The two suits have been consolidated and the court 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. 8. Equity Investments On May 19, 1997, Penske Motorsports, Inc. ("PMI") increased its ownership interest in North Carolina Motor Speedway ("NCMS") from approximately 4.5% to approximately 70% through the issuance of 906,542 shares of common stock valued at $30 per share. As a result of PMI's increased investment in NCMS, the Company recorded an increase in its equity investment in PSH Corp. of approximately $3 million and recorded a corresponding increase in deferred income taxes and additional paid in capital of approximately $1.2 million and $1.8 million, respectively. In July, 1997, the Company invested $11.8 million, plus related acquisition costs, for a 40% interest in HMS, LLC, the operators of the Metro-Dade Homestead Motorsports Complex. On August 8, 1997, the Company invested $3.9 million, plus related acquisition costs, for a 7.2% interest in GPLB, the operators of Grand Prix of Long Beach, California, Gateway International Raceway in Madison, Illinois and Memphis Motorsports Park in Millington, Tennessee. The HMS, LLC and the GPLB transactions have been accounted for using the equity method of accounting and are included in equity investments in the condensed consolidated balance sheets, along with the Company's equity investment in PSH Corp. 9. Acquisitions On April 1, 1997, the Company exercised its contractual option to acquire the 50% interest it did not already own in WGI from Corning, Inc. for approximately $3.1 million. The transaction price represented the stock's book value at December 31, 1996. The Company's option to purchase Corning's interest for its book value was part of a shareholder agreement between the two companies in place since 1988. The Company's equity in WGI's net loss through March 31, 1997 is included in equity in net income from equity investments at August 31, 1997. The acquisition of the additional 50% interest was accounted for under the purchase method. Subsequent to the acquisition on April 1, 1997, WGI is accounted for on a consolidated basis. On July 14, 1997, Phoenix Speedway Corporation ("PSC"), 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 for consideration consisting of $46.4 million cash, notes payable and other liabilities totaling $13.8 million, and related acquisition costs. PIR promotes motorsports activities at its motorsports complex located outside of Phoenix, Arizona. The PIR complex has a 1 mile oval track and a 1.51 mile road course. PIR currently hosts an annual NASCAR Winston Cup Series and two NASCAR Craftsman Truck Series events, an Indy Racing League event and a number of other events. The PIR acquisition has been accounted for under the purchase method of accounting, and accordingly, the results of operations have been included in the Company's condensed consolidated statements of operations since the date of acquisition. The purchase price was allocated to the assets and liabilities acquired based on estimated fair values at the acquisition date. The excess of the purchase price over the fair value of the net assets acquired was approximately $40.8 million and has been recorded as goodwill, which is being amortized on a straight line basis over 40 years. The following unaudited pro forma financial information presents a summary of consolidated results of operations as if the PIR transaction had occurred as of December 1, 1995 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. (PRO FORMA) (Unaudited) Nine Months Ended August 31, 1996 1997 ____ ____ In Thousands Total revenues $92,212 $119,363 Net income 18,935 25,635 Net income per share $ .55 $ .67 Because of the seasonal concentration of racing events, in particular the NASCAR Winston Cup event which was held in October 1996 and will be held in November 1997, the pro forma results of operations for the nine months ended August 31, 1996 and 1997 are not indicative of the results to be expected for the year. 10. New Accounting Pronouncements The Financial Accounting Standards Board has issued three new accounting Standards which apply to the Company. Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings Per Share" is effective for financial statements issued for periods ending after December 15, 1997. This statement requires companies to present earnings per share on the face of the income statement in two categories called "Basic" and "Diluted" and requires restatement of all periods presented. The Company will adopt SFAS 128 during the first quarter of 1998. Management believes the impact on earnings per share will not be material. In June 1997, SFAS No. 130, "Reporting Comprehensive Income" was issued. SFAS No. 130 establishes standards for the reporting and display of comprehensive income and its components in a full set of general-purpose financial statements and is effective for fiscal years beginning after December 15, 1997. The Company will adopt SFAS No. 130 in fiscal year 1999. SFAS No. 130 expands or modifies disclosures and, accordingly, will have no impact on the Company's reported financial position, results of operations or cash flows. In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" was issued. SFAS No. 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and reporting selected information about operating segments in interim financial reports and is effective for fiscal years beginning after December 15, 1997. The Company has not yet determined the effect of SFAS No. 131 on its financial statement disclosures. PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations General The Company derives revenues primarily from (i) admissions to racing events held at its motorsports facilities, (ii) revenue generated in conjunction with or as a result of motorsports events conducted at the Company's facilities, and (iii) catering, concession and souvenir sales made during or as a result of such events. "Admissions" revenue includes ticket sales from all of the Company's events, track tours and, since July 1996, admissions to the DAYTONA USA 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, advertising revenues, royalties from licenses of the Company's trademarks, hospitality rentals (including luxury suites and chalets) and track rentals. The Company negotiates directly with television and cable networks for coverage of substantially all of its televised motorsports events. The Company's revenues from corporate sponsorships are paid in accordance with negotiated contracts, with the identities of sponsors and the terms of sponsorship changing from time to time. "Food, beverage and souvenir income" includes revenues from concession stands, hospitality catering and direct sales of souvenirs, programs and other merchandise, as well as fees paid by third party vendors for the right to sell souvenirs and concessions at the Company's facilities. Expenses include (i) prize and point fund monies and NASCAR sanction fees, (ii) motorsports related expenses, which include costs of competition paid to sanctioning bodies other than NASCAR, labor, advertising and other expenses associated with the Company's promotion of its racing events, and (iii) food, beverage and souvenir expenses, consisting primarily of labor and costs of goods sold. The following table sets forth, for each of the indicated periods, certain selected income statement data as a percentage of total revenues:
Three Months ended Nine Months Ended August 31, August 31, 1996 1997 1996 1997 (Unaudited) (Unaudited) (Unaudited) (Unaudited) _________________________ _________________________ Revenues: Admissions, net............................. 53.9% 49.4% 53.2% 49.7% Motorsports related income.................. 27.7 33.7 27.9 32.3 Food, beverage and souvenir income.......... 17.0 15.3 18.0 16.9 Other income................................ 1.4 1.6 .9 1.1 ________ ________ ________ _______ Total revenues ........................... 100.0% 100.0% 100.0% 100.0% Expenses: Direct expenses: Prize and point fund monies and NASCAR sanction fees................ 16.1 17.3 14.2 14.7 Motorsports related expenses.............. 20.4 17.5 15.5 14.4 Food, beverage and souvenir expenses...... 9.5 8.9 10.3 9.8 General and administrative expenses......... 26.3 21.6 19.1 17.5 Depreciation................................ 9.4 8.2 5.7 6.1 ________ ________ ________ _______ Total expenses ........................... 81.7 73.5 64.8 62.5 ________ ________ ________ _______ Operating income.............................. 18.3 26.5 35.2 37.5 Interest income, net ......................... .5 1.4 .7 2.3 Equity in net income (loss) from equity investments................................. 10.5 2.1 1.8 (.1) ________ ________ ________ _______ Income before income taxes.................... 29.3 30.0 37.7 39.7 Income tax expense............................ 8.5 11.9 14.0 15.3 ________ ________ ________ _______ Net income.................................... 20.8% 18.1% 23.7% 24.4%
The timing of events at the Company's facilities historically has been generally consistent from year-to-year with the exception of the Labor Day events at Darlington Raceway ("Darlington"). In the current year, however, schedule changes at Talladega Superspeedway ("Talladega") and the acquisition of Watkins Glen International ("Watkins Glen" or "WGI") also resulted in changes in certain events conducted at the Company's facilities during the third fiscal quarter. Darlington's Labor Day weekend schedule consists of a NASCAR Busch Series event on Saturday and a NASCAR Winston Cup Series event on Sunday. These events generally occur in September, however, from time-to-time, one or both of these events may occur in August. In the current year, both Darlington Labor Day Weekend events were held in August, while in the prior year, the NASCAR Busch series event was conducted in August, and the NASCAR Winston Cup Series event was held in September. In the current year, scheduling changes related to certain events conducted at Talladega Superspeedway shifted events between the second, third and fourth quarters. In 1997, an ARCA event and a NASCAR Winston Cup event traditionally run in the second and third fiscal quarters, respectively, were moved to the fourth fiscal quarter, and a NASCAR Busch Series event traditionally run in the third fiscal quarter was moved to the second fiscal quarter. The increased ownership of Watkins Glen International ("Watkins Glen") and related consolidation effective April 1, 1997 as discussed below under the caption "Capital Expenditures" also resulted in additional events being conducted in the third fiscal quarter of the current year as compared to the prior year. The net impact of these schedule changes, combined with increased attendance and an increase in the weighted average price of tickets sold at the NASCAR Winston Cup event held at Daytona International Speedway ("Daytona") during the third quarter, accounted for substantially all of the $3.9 million, or 31.7%, increase in admissions revenue for the three months ended August 31, 1997 as compared to the three months ended August 31, 1996. Admissions revenue increased approximately $10.4 million, or 22.4%, for the nine months ended August 31, 1997 as compared to the same period of the prior year. Increased seating capacity, attendance, and an increase in the weighted average price of tickets sold for the February, March and May 1997 NASCAR events conducted at Daytona, Darlington and Talladega, respectively, as well as increased attendance and increases in certain ticket prices at the March 1997 motorcycle events conducted at Daytona, accounted for approximately half of the increase. The remainder of the increase is attributable to the net impact of the timing of events, as discussed above. Motorsports related income increased approximately $4.8 million, or 75.1%, during the three months ended August 31, 1997 as compared to the three months ended August 31, 1996. The increase in motorsports related income is primarily due to the net impact of the timing of events, as discussed above, hospitality rentals related to the third quarter NASCAR Winston Cup event held at Daytona, sponsorship fees related to DAYTONA USA and, to a lesser extent, advertising and royalty revenue. Motorsports related income increased approximately $12.6 million, or 51.7% for the nine months ended August 31, 1997 as compared to the same period of the prior year. The combined effect of the net impact of the timing of events, as discussed above, and increases in TV and radio broadcast rights, promotion and sponsorship fees, rentals of hospitality facilities and advertising related to the February 1997 events conducted at Daytona accounted for approximately two thirds of the increase. The remaining increase resulted primarily from increased advertising revenue, promotion and sponsorship fees from DAYTONA USA and royalties. Food, beverage and souvenir income increased approximately $1.2 million, or 29.4%, for the quarter ended August 31, 1997 as compared to the same period of the prior year. Increases due to third quarter events conducted at Watkins Glen, the timing of the Labor Day NASCAR Winston Cup event held at Darlington and increased attendance at the July 1997 event conducted at Daytona were partially offset by the move of the NASCAR Winston Cup event at Talladega. Food, beverage and souvenir income increased approximately $3.6 million, or 22.7%, for the nine months ended August 31, 1997 as compared to the same period of the prior year. The net impact of the timing of events, as discussed above, increased attendance at the February 1997 events conducted at Daytona, increased attendance due to the rain out and rescheduling of the second quarter NASCAR Winston Cup event conducted at Talladega and, to a lesser extent, increases in certain prices accounted for over two-thirds of the increase. The remaining increase resulted primarily from direct sales of souvenirs at the gift shop at DAYTONA USA. Prize and point fund monies and NASCAR sanction fees increased by approximately $2 million, or 54.2%, during the quarter ended August 31, 1997 as compared to the same period of the prior year. This increase is primarily attributable to the net impact of third quarter events conducted at Watkins Glen, Darlington and Talladega. Prize and point fund monies and NASCAR sanction fees increased by approximately $4.4 million, or 35.5%, for the nine months ended August 31, 1997 as compared to the same period of the prior year. Over half of this increase is due to the net impact of third quarter events conducted at Watkins Glen, Darlington and Talladega. The remaining increase is primarily the result of increases in the prize and point fund monies paid by NASCAR to participants in the Company's events. This increase is primarily attributable to increases in the Company's TV broadcast rights as standard NASCAR sanctioning agreements require that a specified percentage of TV broadcast rights be paid as part of prize money. Motorsports related expenses increased approximately $1.1 million, or 24%, during the three months ended August 31, 1997 as compared to the three months ended May 31, 1996. This increase is attributable to direct race expenses related to the third quarter events conducted at Watkins Glen, the timing of Labor Day events at Darlington and increases in direct race expenses related to the July 1997 NASCAR Winston Cup event at Daytona, partially offset by the timing of the NASCAR Winston Cup event at Talladega. Motorsports related expenses increased approximately $3 million, or 21.7%, for the nine months ended August 31, 1997 as compared to the same period of the prior year. This increase is primarily attributable to operating costs related to the third quarter events held at Watkins Glen, increases in direct race expenses related to the February events conducted at Daytona, increases in operating costs related to the rainout and rescheduling of Talladega's second quarter NASCAR Winston Cup event and, to a lesser extent, the operation of DAYTONA USA. As food, beverage and souvenir income increases, the Company experiences a corresponding increase in related expenses. Food, beverage and souvenir expenses remained relatively constant as a percentage of food, beverage and souvenir income during the three and nine months ended August 31, 1997 with increases of approximately $750,000, or 34.6%, and $2.2 million, or 24.8%, respectively. General and administrative expenses increased approximately $1.1 million, or 18.1%, and $3.4 million, or 20.6%, during the three months and nine months ended August 31, 1997, respectively, as compared to the same periods of the prior year. The increases are due to the acquisition of Phoenix International Raceway ("PIR"), the consolidation of Watkins Glen and compensation, professional fees and a wide variety of other expenses related to the ongoing expansion of the Company's business. These increases were partially offset by the timing of certain incentive compensation which resulted in a decrease in general and administrative expenses as a percentage of total revenue during these periods. The Company's depreciation expense increased approximately $550,000, or 25%, and $1.9 million, or 38.6%, during the three-month and nine-month periods ended August 31, 1997 as compared to the same periods of the prior year, primarily as a result of DAYTONA USA, the ongoing expansion of the Company's motorsports facilities and, during the third quarter, amortization of goodwill related to the acquisition of Phoenix International Raceway. This increase was partially mitigated by the lengthening of the estimated service lives of grandstands and other significant assets as a result of Management's review of actual service lives of these types of assets at the beginning of the current fiscal year. The approximately $350,000 and $2.2 million increase in the Company's net interest income during the three months and nine months ended August 31, 1997, respectively, as compared to the same periods of the prior year is attributable primarily to the investment of proceeds from the November 1996 Class A Common Stock offering. Equity in net income from equity investments represents the Company's prorata share of the current income and losses from its 50% investment in Watkins Glen through March 31, 1997, its 40% investment in Homestead-Miami Speedway, LLC ("HMS, LLC"), its 7% investment in the Grand Prix Association of Long Beach, Inc. ("GPLB") and its 20% investment in PSH Corp. which are accounted for using the equity method of accounting. Subsequent to the Company's April 1, 1997 acquisition of the 50% interest in WGI that it did not already own, WGI is accounted for on a consolidated basis. As a result of the foregoing, the Company's net income increased approximately $1.2 million, or 24.8%, and $7.2 million, or 35%, during the three months and nine months ended August 31, 1997, respectively, as compared to the same periods of the prior year. Liquidity and Capital Resources General The Company has historically generated sufficient cash flow from operations to fund its working capital needs and capital expenditures at existing facilities, as well as to pay annual cash dividends. At August 31, 1997, the Company had a working capital deficit of $16.5 million, compared to a working capital deficit of $6.7 million at August 31, 1996, which is primarily attributable to the funding of the Company's purchase of Phoenix International Raceway and its investments in HMS, LLC and GPLB as described below under the caption "Capital Expenditures". The Company also has a $10 million line of credit with a financial institution which expires in December 1997. There were no borrowings under the Company's credit facility at August 31, 1997. Cash Flows Net cash provided by operating activities was approximately $41.4 million for the nine months ended August 31, 1997, as compared to $29.0 million for the nine months ended August 31, 1996. The difference between the Company's August 31, 1997 net income of $27.9 million and the $41.4 million of operating cash flow was primarily attributable to a combined increase of $4.3 million in accounts payable, income taxes payable and other current liabilities, $7 million in depreciation, and a $3.3 million increase in deferred income taxes, partially offset by a $1.5 million increase in prepaid expenses and other current assets. Net cash used in investing activities was $18.8 million for the nine months ended August 31, 1997, compared to $25 million for the nine months ended August 31, 1996. The Company's use of cash for investing activities for the nine months ended August 31, 1997 reflects $43.8 million for the purchase of PIR, $25.5 million in capital expenditures, $16.1 million for the Company's investments in HMS, LLC and GPLB, a $1.5 million investment in the stock of Penske Motorsports, Inc. (PMI) and $1 million, net of cash acquired, for the Company's acquisition of the 50% interest in WGI that it did not already own, partially offset by net proceeds from maturities of investments of $69.3 million. See "Capital Expenditures". Net cash used in financing activities was approximately $2.5 million for the nine months ended August 31, 1997, compared to the nine months ended August 31, 1996. The use of cash in financing activities for the nine months ended August 31, 1997 is primarily attributable to $2.3 million in cash dividends. Capital Expenditures Capital expenditures totaled $25.5 million for the nine months ended August 31, 1997, compared to $26.6 million for the nine months ended August 31, 1996. Capital expenditures during the nine months ended August 31, 1997 related primarily to additions to spectator capacity at Daytona, Talladega and Darlington and renovation of the Company's new corporate headquarters. The Company expects to make approximately $38.7 million of additional capital expenditures for approved projects within the next 24 months to increase seating capacity at its superspeedways, to construct luxury suites and to add track lighting at Daytona and for a number of other improvements to the Company's motorsports facilities. On April 1, 1997, the Company exercised its contractual option to acquire the 50% interest it did not already own in Watkins Glen from Corning, Inc. for approximately $3.1 million. The transaction price represented the stock's book value at December 31, 1996. The Company's option to purchase Corning's interest for its book value was part of a shareholder agreement between the two companies in place since 1988. During the third quarter, the Company established its presence in South Florida, as well as on the West Coast and in Midwestern markets through investments in HMS, LLC and GPLB. In July of 1997, the Company invested $11.8 million for a 40% interest in HMS, LLC, the operators of the Metro-Dade Homestead Motorsports Complex. The Company invested $3.9 million in August of 1997 for a 7.2% interest in GPLB, the operators of Grand Prix of Long Beach, California, Gateway International Raceway in Madison, Illinois and Memphis Motorsports Park in Millington, Tennessee. PMI, in which the Company holds an 11% indirect interest, also acquired interests of 40% and 7.2% in HMS, LLC and GPLB, respectively. The HMS, LLC and GPLB transactions have been accounted for using the equity method of accounting and are included in equity investments along with the Company's investment in PSH Corp. 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 through at least fiscal 1997, as well as the Company's planned capital expenditures described above. The Company also believes that it will be able to obtain financing to fund the acquisition, development and/or construction of additional motorsports facilities, if necessary, should the Company implement this element of its growth strategy. However, there can be no assurance that adequate debt or equity financing will be available on satisfactory terms. Income Taxes The change in income taxes payable at August 31, 1997, as compared to August 31, 1996, is due to the seasonal nature of the Company's business and the timing and amount of estimated tax deposits. The deferred income tax liability increased from August 31, 1996 primarily as a result of differences between financial and tax accounting treatments relating to depreciation expense and different bases in the equity investments for tax and financial reporting purposes. Inflation Management does not believe that inflation has had a material impact on operating costs and earnings of the Company. Factors That May Affect Operating Results Statements contained in this Report that state the Company's or Management's anticipations, beliefs, expectations, hopes, intentions, predictions and/or strategies which are not purely historical fact or which apply prospectively are "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21 of the Securities Exchange Act of 1934. All forward- looking statements contained in this document are based on information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward-looking statements. It is important to note that the Company's actual results could differ materially from those contained or projected in, or even implied by, such forward-looking statements. Some of the factors that could cause the actual results to differ materially are set forth below. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained from time to time in the Company's SEC filings. Copies of those filings are available from the Company and/or the SEC. Seasonality and Variability of Quarterly Results The Company derives most of its income from event admissions and related revenue from a limited number of NASCAR-sanctioned races. As a result, the Company's business has been, and is expected to remain, highly seasonal based on the timing of major race events. Historically, the Company has incurred net losses in the fiscal quarter ending November 30, and achieved its highest net income in the fiscal quarter ending February 28. The timing of major events from year-to-year, for example, or the move of a date from one quarter to another, may impact these historical trends. Partly in response to this seasonality and the desire to better conform to the traditional racing season, the Company changed its fiscal year-end from August 31 to November 30 effective December 1, 1996. 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 NASCAR Winston Cup, 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 1997 racing season. Each NASCAR event sanctioning agreement is awarded on an annual basis. In the fiscal years 1995 and 1996, NASCAR-sanctioned races at the Company's facilities accounted for approximately 79.5% and 78.3%, respectively, of the Company's total revenues. Although William C. France and James C. France presently control both the Company and NASCAR, and management believes that the Company will continue to maintain an excellent relationship with NASCAR for the foreseeable future, NASCAR is under no obligation to continue to enter into sanctioning agreements with the Company to promote any event. Failure to obtain a sanctioning agreement for a major NASCAR event would have a material adverse effect on the Company's financial condition and results of operations. Moreover, although the Company's general growth strategy includes the possible development and/or acquisition of additional motorsports facilities, there can be no assurance that NASCAR will enter into sanctioning agreements with the Company to promote races at such facilities. Dependence on Key Personnel The Company's continued success will depend upon the availability and performance of its senior management team, particularly William C. France, the Company's Chairman of the Board and Chief Executive Officer, James C. France, its President and Chief Operating Officer, and Lesa D. Kennedy, its Executive Vice President (collectively the "France Family Executives"), each of whom possesses unique and extensive industry knowledge and experience. While the Company believes that its senior management team has significant depth, the loss of any of the Company's key personnel or its inability to attract and retain key employees in the future could have a material adverse effect on the Company's operations and business plans. Industry Sponsorships And Government Regulation The motorsports industry and the Company generate significant recurring revenue from the promotion, sponsorship and advertising of various companies and their products. Government regulation can adversely impact the availability to motorsports of this promotion, sponsorship and advertising revenue. Advertising by the tobacco and alcoholic beverage industries is generally subject to greater governmental regulation than advertising by other sponsors of the Company's events. In August 1996, the U.S. Food and Drug Administration (the "FDA") issued regulations concerning advertising and sales of cigarettes and smokeless tobacco to minors which would, in part, restrict tobacco industry sponsorship of all sporting events, including motorsports, effective August 1998. The FDA regulations prohibit the present practice of tobacco product brand name sponsorship of, or identification with, motorsports events, entries and teams. If these rules become effective, no assurance can be given that suitable alternative sponsors for the events, entries and teams could be located. Management is aware of pending legal challenges, as well as legislative initiatives, which could change or prevent the scheduled implementation of these regulations. The tobacco industry has reached a widely publicized settlement of pending liability lawsuits which would have an effect similar to the pending FDA regulations. This proposed settlement would require legislative approval and enabling legislation. However, the final outcome of the challenges to the FDA regulations or the implementation of the proposed settlement is uncertain, and the ultimate impact on the motorsports industry and the Company, if any, is unclear. The Company is not aware of any proposed governmental regulation which would materially limit the availability to motorsports of promotion, sponsorship or advertising revenue from the alcoholic beverage industry. Advertising and sponsorship revenue from the tobacco and alcoholic beverage industries accounted for approximately 1.6% and 1.5% of the Company's total revenues in fiscal 1995 and 1996, respectively. In addition, the tobacco and alcoholic beverage industries provide financial support to the motorsports industry through, among other things, their purchase of advertising time, their sponsorship of racing teams and their sponsorship of racing series such as NASCAR's Winston Cup and NASCAR's Busch Series. Competition The Company's racing events face competition from other spectator-oriented sporting events and other leisure and recreational activities. As a result, the Company's revenues will be affected by the general popularity of motorsports, the availability of alternative forms of recreation and changing consumer preferences. The Company's racing events also compete with other racing events sanctioned by various racing bodies such as NASCAR, Championship Auto Racing Teams, Inc. ("CART"), the United States Auto Club ("USAC"), the National Hot Rod Association ("NHRA"), the Sports Car Club of America ("SCCA"), Professional Sports Car Racing, Inc., the Automobile Racing Club of America ("ARCA") and others. Management believes that the primary elements of competition in attracting motorsports spectators and corporate sponsors to a racing event and facility are the type and caliber of promoted racing events, facility location, sight lines, pricing and customer conveniences that contribute to a total entertainment experience. Many sports and entertainment businesses have resources that exceed those of the Company. Impact of Consumer Spending on Results The success of the Company's operations depends to a significant extent upon a number of factors relating to discretionary consumer spending, including economic conditions affecting disposable consumer income such as employment, business conditions, interest rates and taxation. These factors can impact both attendance at the Company's events and the financial results of the motorsports industry's principal sponsors. There can be no assurance that consumer spending will not be adversely affected by economic conditions, thereby impacting the Company's growth, revenue and profitability. Uncertain Prospects of New Motorsports Facilities The Company's growth strategy includes the potential acquisition and/or development of new motorsports facilities. The Company's ability to implement successfully this element of its growth strategy will depend on a number of factors, including (i) the Company's ability to obtain one or more additional sanctioning agreements to promote NASCAR Winston Cup, NASCAR Busch Series or other major events at these new facilities, (ii) the cooperation of local government officials, (iii) the Company's capital resources and the availability of debt or equity financing on satisfactory terms, (iv) the Company's ability to control construction and operating costs, and (v) the Company's ability to hire and retain qualified personnel. The Company's inability to implement its expansion plans for any reason would adversely affect its business prospects. In addition, expenses associated with developing, constructing and opening a new facility may have a negative effect on the Company's financial condition and results of operations in one or more future reporting periods. The cost of any such transaction will depend on a number of factors, including the facility's location, the extent of the Company's ownership interest and the degree of any municipal or other public support. Moreover, although management believes that it will be able to obtain financing, if necessary, to fund the acquisition, development and/or construction of additional motorsports facilities should the Company implement this element of its growth strategy, there can be no assurance that adequate debt or equity financing will be available on satisfactory terms. Financial Impact of Bad Weather The Company promotes outdoor motorsports events. Weather conditions affect sales of, among other things, tickets, concessions and souvenirs at these events. Although the Company sells tickets well in advance of its most popular events, poor weather conditions could have a material adverse effect on the Company's results of operations, particularly any interruption of the Company's February "Speedweeks" events. For example, bad weather required the rescheduling of certain racing events during the Company's 1996 March Motorcycle Week at Daytona, resulting in reduced revenues and increased expenses. Liability for Personal Injuries Motorsports can be dangerous to participants and to spectators. The Company maintains insurance policies that provide coverage within limits that management believes should generally be sufficient to protect the Company from material financial loss due to liability for personal injuries sustained by persons on the Company's premises in the ordinary course of Company business. Nevertheless, there can be no assurance that such insurance will be adequate or available at all times and in all circumstances. The Company's financial condition and results of operations would be adversely affected to the extent claims and associated expenses exceed insurance recoveries. Environmental and Zoning Matters Management believes that the Company's operations are in substantial compliance with all applicable federal, state and local environmental laws and regulations. Nonetheless, if damage to persons or property or contamination of the environment is determined to have been caused or exacerbated by the conduct of the Company's business or by pollutants, substances, contaminants or wastes used, generated or disposed of by the Company, or which may be found on the property of the Company, the Company may be held liable for such damage and may be required to pay the cost of investigation and/or remediation of such contamination or any related damage. The amount of such liability as to which the Company is self-insured could be material. State and local laws relating to the protection of the environment also include noise abatement laws that may be applicable to the Company's racing events. Changes in the provisions or application of federal, state or local environmental laws, regulations or requirements, or the discovery of theretofore unknown conditions, could also require additional material expenditures by the Company. In addition, the development of new motorsports facilities (and, to a lesser extent, the expansion of existing facilities) requires compliance with applicable federal, state and local land use planning, zoning and environmental regulations. Regulations governing the use and development of real estate may prevent the Company from acquiring or developing prime locations for motorsports facilities, substantially delay or complicate the process of improving existing facilities, and/or materially increase the costs of any of such activities. Legal Proceedings The Company and its indirect subsidiary, Americrown Service Corporation, are parties to certain legal proceedings described 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. 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. Review Report of Independent Certified Public Accountants The Board of Directors International Speedway Corporation We have reviewed the accompanying condensed consolidated balance sheet of International Speedway Corporation as of August 31, 1997, and the related condensed consolidated statements of operations, shareholders' equity and cash flows for the three-month and nine-month periods ended August 31, 1997 and August 31, 1996. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, which will be performed for the full year with the objective of expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of International Speedway Corporation as of August 31, 1996, and the related consolidated statements of income, shareholders' equity and cash flows for the year then ended (not presented separately herein) and in our report dated September 27, 1996, except as to the fifth paragraph of Note 1, as to which the date is October 31, 1996, and as to Note 8D, as to which the date is October 21, 1996, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of August 31, 1996, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ Ernst & Young LLP Jacksonville, Florida October 7, 1997 PART II - OTHER INFORMATION Item 1. Legal Proceedings On October 21, 1996, the Company's indirect corporate subsidiary, Americrown Service Corporation ("Americrown"), was served with a Class Action Complaint filed in the Circuit Court of Talladega County, Alabama by Howard Padgett, Bill Lutz and Tommy Jones. The complaint was filed in September 1996 and alleged, among other things, that Americrown engaged in price-fixing activities in connection with the sale of racing souvenirs and merchandise at the Talladega Superspeedway. The complaint seeks at least $500 for each member of the class (persons buying racing souvenirs at Talladega Superspeedway since September 1992), but does not otherwise seek to recover compensatory or punitive damages or statutory attorneys' fees. Although Americrown attempted to remove the suit to Federal District Court, it has been remanded to the Circuit Court of Talladega County, Alabama, where discovery and the class certification process are proceeding. Americrown disputes the allegations and intends to defend the action fully and vigorously. In March 1997, two purported class action companion lawsuits were filed in the United States District Court, Northern District of Georgia, against the Company, its indirect corporate subsidiary, Americrown Service Corporation, and a number of other persons alleging, in substance, that the defendants unlawfully conspired to fix prices of souvenirs and merchandise sold to consumers in violation of federal antitrust laws. One suit was filed by Florida residents and the other suit was filed by Georgia residents. Both suits seek damages and injunctive relief on behalf of all persons who purchased souvenirs or merchandise from certain vendors at any NASCAR Winston Cup stock car race or supporting event in the United States during the period 1991 to present. The two suits have been consolidated and the court 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. Item 6. Exhibits and Reports on Form 8-K a. Exhibits I. (27) - Article 5 Fin. Data Schedule for 3rd 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 October 14, 1997 /s/ James C. France _____________________________________ James C. France, President Date October 14, 1997 /s/ Susan G. Schandel _____________________________________ Susan G. Schandel, Chief Financial Officer EX-27 2 ARTICLE 5 FIN. DATA SCHEDULE FOR 3RD QTR 10-Q
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ACCOMPANYING CONDENSED CONSOLIDATED BALANCE SHEET OF INTERNATIONAL SPEEDWAY CORPORATION AS OF AUGUST 31, 1997, AND THE RELATED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS, SHAREHOLDERS' EQUITY AND CASH FLOWS FOR THE NINE-MONTH PERIOD ENDED AUGUST 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 Nov-30-1997 Dec-01-1996 Aug-31-1997 9-MOS 28,112 6,218 7,250 35 896 46,170 206,834 51,219 291,219 62,638 0 0 0 385 207,398 291,219 113,341 114,602 44,615 44,615 27,047 0 198 45,469 17,523 27,946 0 0 0 27,946 .73 .73
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