ITEM 1. BUSINESS
GENERAL
International Speedway Corporation (together with its wholly-owned subsidiaries, "ISC" or the "Company" unless otherwise required by the context) is a leading promoter of motorsports activities in the United States. The Company owns and/or operates four of the nation's premier superspeedways -- Daytona International Speedway in Florida ("Daytona"), home of the Daytona 500, widely recognized as the most prestigious stock car race in the world; Talladega Superspeedway in Alabama ("Talladega"), the fastest stock car track; Phoenix International Raceway in Arizona ("Phoenix"), the fastest 1-mile oval; and Darlington Raceway in South Carolina("Darlington"), the first stock car superspeedway. The Company also owns the Watkins Glen International road course in New York ("Watkins Glen") and operates Tucson Raceway Park in Arizona ("Tucson"). In addition the Company holds (i) an approximately 11% interest in Penske Motorsports, Inc. ("PMI"), which owns and operates, through its subsidiaries, Michigan International Speedway, The California Speedway near Los Angeles, The North Carolina Motor Speedway and Pennsylvania's Nazareth Speedway; (ii) an approximately 8% interest in the Grand Prix Association of Long Beach, Inc. ("Long Beach"), which owns and/or operates the Grand Prix of Long Beach, California, Gateway International Raceway, in Madison, Illinois and Memphis Motorsports Park in Millington, Tennessee; and (iii) a 40% interest in Homestead Miami Speedway, LLC ("Homestead") the operators of the Metro-Dade Homestead Motorsports Complex.
The Company currently promotes over 80 stock car, sports car, truck, motorcycle and other racing events annually, including ten National Association for Stock Car Auto Racing, Inc. ("NASCAR") Winston Cup Series races (including two special non-points events), five NASCAR Busch Series- Grand National Division races, the premier sports car endurance event in the United States (the Rolex 24 at Daytona) and a number of prestigious motorcycle races.
DEVELOPMENTS DURING FISCAL 1997
Fiscal 1997 was a year of significant developments. The Company began the year poised for growth and expansion. On November 4, 1996 the Company had sold 4,000,000 shares of its newly created Class A Common Stock in an underwritten public offering at a price to the public of $20 per share. The net proceeds to the Company from the sale of the stock were approximately $74.3 million. Approximately $7.8 million of the net proceeds of this Offering was used to repay borrowings previously incurred under one of the Company's lines of credit in September 1996. The balance of the proceeds, together with significant internally generated cash flow, were used to help finance the most significant growth and acquisition in the Company's history.
During the year significant seating capacity and suites were added at the Company's existing Daytona, Talladega and Darlington facilities and customer amenities were enhanced. The relocation of the start/finish line at Darlington was accomplished and lighting of Daytona was begun.
External expansion began on April 1, 1997, when Watkins Glen International, Inc. became a wholly-owned subsidiary as a result of the Company exercising its contractual option to acquire the 50% interest it did not already own in Watkins Glen from Corning, Inc. for approximately $3.1 million. Sole ownership of this winding 3.4 mile road course in upstate New York, affords the Company a stronger presence in an important northeastern market and a broader national presence.
Expansion continued on July 14, 1997, when Phoenix Speedway Corporation, a newly formed wholly-owned subsidiary of the Company, acquired substantially all of the assets comprising the business and motorsports complex known as "Phoenix International Raceway" from the prior owners for consideration consisting of $46.4 million cash, notes payable of $13.8 million, and related acquisition costs. This acquisition gave the Company a key western presence in one of the country's largest markets.
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 Homestead and Long Beach. In July of 1997, the Company invested $11.8 million (plus related acquisition costs) for a 40% interest in Homestead. The Company invested $3.9 million (plus related acquisition costs) in August of 1997 for a 7.2% interest in Long Beach. PMI, in which the Company holds an 11% indirect interest, also acquired interests of 40% and 7.2% in Homestead, and Long Beach, respectively. The investment in Homestead and the strategic alliances with PMI and Long Beach provide equity interests in eight other motorsports venues, solidifying the Company's national presence.
During the year the Company continued to explore new venues for motorsports in Kansas City, Kansas and the Chicagoland area.
OPERATIONS
The Company's operations consist principally of racing events at its tracks. In addition, the Company owns and operates the DAYTONA USA entertainment complex, provides catering and concession services to third parties through its wholly-owned subsidiary, Americrown Service Corporation ("Americrown"), and operates the MRN Radio network and NASCAR Truck Network.
Approximately $110 million, or 77.6%, of the Company's fiscal 1997 revenues were attributable to NASCAR-sanctioned races at the Company's facilities, including applicable admissions, luxury suite rental, sponsorship, television and radio broadcast rights, food and beverage concession and catering, souvenir, advertising and other revenues.
RACING EVENTS
The 1998 race schedule for the Company includes eight NASCAR Winston Cup Championship Series races (not including the BUD Shootout - all star event or the Gatorade 125's - qualifying races for the Daytona 500), five NASCAR Busch Series - Grand National Division races and various other races and events sanctioned by the NASCAR. In addition, the Company promotes a number of other stock car, sports car, open wheel, motorcycle and go-kart racing events, including events sanctioned by the American Historic Racing Motorcycle Association ("AHRMA"), the American Motorcyclist Association ("AMA"), the Automobile Racing Club of America ("ARCA"), the Championship Cup Series ("CCS"), the Federation Internationale de l'Automobile ("FIA"), the Federation Internationale Motocycliste ("FIM"), the International Race of Champions ("IROC"), the Indy Racing League ("IRL"), the Sports Car Club of America ("SCCA"), the Sportscar Vintage Racing Association ("SVRA"), the United States Auto Club ("USAC"), the United States Road Racing Championship ("USRRC"), and the World Karting Association ("WKA"). The 1997 racing schedule for events promoted by the Company at its wholly-owned facilities is as follows:
Racing events compete not only with other sports and other recreational events scheduled at the same dates, but with other racing events sanctioned by various racing bodies such as NASCAR, IRL, USAC, SCCA, USRRC, ARCA and others. Racing events sanctioned by different organizations are often held on the same dates at separate tracks. Management believes that the type and caliber of promoted racing events, facility location, sight lines, pricing and level of customer conveniences are the principal factors that distinguish competing motorsports facilities.
OTHER OPERATIONS
The Company operates DAYTONA USA--The Ultimate Motorsports Attraction. This motorsports-themed entertainment complex is located at Daytona. DAYTONA USA includes (i) the Velocitorium, which covers approximately 50,000 square feet, stands nearly four stories high and contains numerous highly interactive motorsports exhibits, many of which are sponsored by leading consumer brands; (ii) Western Auto's Speedway Tours, a tram tour of the Speedway's garage area, pit road and high banked track; (iii) the Richard Petty Riding Experience at Daytona; and (iv) for groups of fifteen or more, the VIP Tour, which includes a tour of the Winston Tower suites. Adjoining DAYTONA USA are (a) the Daytona Beach Area Convention and Visitors Official Welcome Center; (b) the Daytona ticket office; (c) Sega Speedway, a high tech arcade using state of the art video technology and computerized, "virtual" racing simulators; (d) Pit Shop, which sells DAYTONA USA, Daytona International Speedway, NASCAR and race team clothing, books, collectibles and other officially licensed merchandise; and (e) the Fourth Turn Grill concessions facility. Management believes that DAYTONA USA and these adjoining facilities appeal to individual tourists, tour groups, conventions and the Company's corporate sponsors.
Americrown has conducted the food, beverage and souvenir concession operations at Daytona and Talladega since September 1992 and at Darlington since 1989. Americrown is also responsible for providing catering services to corporate customers both in suites and entertainment chalets at these three superspeedway facilities.
The Company's proprietary MRN Radio network and NASCAR Truck network produce and syndicate NASCAR Winston Cup Series, NASCAR Busch Series - Grand National Division, NASCAR Craftsman Truck Series and other races promoted by the Company and others. The networks also produce daily and weekly NASCAR racing programs, as well as Ned Jarrett's "World of Racing" program. Network radio programs are currently carried by over 600 radio stations. The Company derives revenue from the sale of advertising on the networks and rights fees paid by broadcast affiliates. In addition, management believes that MRN Radio and the NASCAR Truck Network enhance the Company through increased media exposure to an expanding radio audience.
The Company from time to time uses its track facilities for car shows, auto fairs, vehicle testing and settings for television commercials, print advertisements and motion pictures. For example, Harley Davidson uses Talladega Superspeedway as a test facility for its motorcycles. The Company also operates Talladega Municipal Airport, which is located adjacent to the Talladega Superspeedway.
As of November 30, 1997, the Company had approximately 395 full-time employees. The Company also engages a significant number of temporary personnel to assist during periods of peak attendance at its events. For example, the Daytona International Speedway engages approximately 1,500 persons during Speedweeks, some of whom are volunteers.
ITEM 2.
ITEM 2. PROPERTIES
MOTORSPORTS FACILITIES
The following table sets forth the track name, location, approximate acreage and approximate track length of each of the Company's speedway facilities.
DAYTONA INTERNATIONAL SPEEDWAY. Daytona International Speedway, is located on approximately 440 acres of leased land in Daytona Beach, Florida. The Company's lease with the Daytona Beach Racing and Recreational Authority expires in 2032, including renewal options. The Company also owns approximately 15 acres of property adjacent to the Daytona International Speedway. The Daytona International Speedway is a high banked, asphalt superspeedway which also includes a 3.6 mile road course. Management believes that this superspeedway, completed in 1959, includes a number of unique features that provide a significant competitive advantage, including (i) a tri-oval design which provides optimum viewing for race fans, (ii) a twin tunnel underground entry system which offers easy access before and during events, and (iii) 31-degree banking which, when combined with the track's 2.5 mile length, permits exceptionally high lap speeds.
At November 30, 1997, Daytona International Speedway had 122,207 grandstand seats, 38 suites (including air conditioned luxury sky boxes and Winston Tower suites that include access to hospitality areas) that include a total of 2,541 additional seats, and 30 "Paddock Club" suites that provide seating for 1,500 along Daytona's Pit Road. During major events, the Company also uses a chalet village containing up to 73 hospitality tents that seat up to 9,600.
TALLADEGA SUPERSPEEDWAY. Talladega Superspeedway, which holds the record for the fastest lap speed attained in stock car racing, is a high banked, tri-oval track with an infield road course. The facility is located about 1-1/2 hours from Atlanta, Georgia and 45 minutes from Birmingham, Alabama. The track and related parking areas are located on approximately 1,365 acres owned by the Company, most of which is reserved for agricultural uses. The Company also owns an additional 115 acres of undeveloped property located immediately north of the entrance to the Talladega track. At November 30, 1997, the facility included 108,118 grandstand seats, 22 luxury suites containing an additional 1680 seats, a Paddock Club Suite for up to 240 spectators, and 71 hospitality chalets providing seating for approximately 10,000.
PHOENIX INTERNATIONAL RACEWAY. Phoenix International Raceway is a motorsports complex located just outside Phoenix, Arizona on 320 acres owned by the Company. The complex has a 1 mile oval racing surface and a 1.51 road course. There are 67,477 grandstand seats and 25 suites which accommodate 875 guests.
DARLINGTON RACEWAY. Darlington Raceway, the first superspeedway to host a NASCAR-sanctioned race, is a high banked track located on approximately 230 acres owned by the Company. The Darlington facility includes the 1.3 mile track commonly known as "too tough to tame/registered trademark/," grandstands that seat 49,883 spectators, nine luxury suites containing an additional 639 seats and 18 hospitality chalets providing seating for 3,800.
WATKINS GLEN INTERNATIONAL. Watkins Glen International is a 3.4 mile road course track located on approximately 1,100 acres owned by the Company. The grandstands at Watkins Glen International seat 35,244 spectators. There are four suites seating 60 and 42 hospitality chalets providing seating for 8,186.
TUCSON RACEWAY PARK. Tucson Raceway Park includes a progressively banked, 3/8 mile paved oval track, grandstands providing seating for approximately 5,400 spectators, a luxury suite and other spectator facilities located on part of the Pima County Fairgrounds. The Company's sublease with the fairground manager expires in 2013, including renewals. The Company has no current plans to expand this facility.
OTHER FACILITIES. In addition to its motorsports facilities, the Company (i) owns concession facilities in Daytona Beach and in Talladega, (ii) leases real estate and office space in Talladega, and (iii) leases the property and premises at the Talladega Municipal Airport. The lease for the Company's Talladega business offices, located within the International Motorsports Hall of Fame, expires in 2002, including renewals. The Company's lease for the Talladega Municipal Airport expires in 2022, including renewals.
The Company owns a recently renovated 67,000 square foot building located on approximately nine acres across International Speedway Boulevard from Daytona International Speedway which serve as corporate headquarters. The Company also owns approximately 14 acres of real property, including three buildings containing an aggregate of approximately 180,000 square feet, located in close proximity to Daytona International Speedway and the Company's new corporate headquarters facility.
TRADEMARKS. The Company has various registered and common law trademark rights to "DAYTONA USA," the "Daytona 500," "Daytona International Speedway," "Talladega Superspeedway," "Darlington," "World Center of Racing" and related logos. The Company also has licenses from NASCAR, various drivers and other businesses to use names and logos for merchandising programs and product sales. Management's policy is to protect its intellectual property rights vigorously, through litigation if necessary, chiefly because of their proprietary value in merchandise and promotional sales.
ITEM 3.
ITEM 3. 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.
On October 21, 1996, the Company's indirect corporate subsidiary, Americrown Service Corporation ("Americrown"), was served with a Class Action Complaint filed in the Circuit Court of Talladega County, Alabama by Howard Padgett, Bill Lutz and Tommy Jones. The complaint was filed in September 1996 and alleged, among other things, that Americrown engaged in price-fixing activities in connection with the sale of racing souvenirs and merchandise at the Talladega Superspeedway. The complaint seeks at least $500 for each member of the putative class (persons buying racing souvenirs at Talladega Superspeedway since September 1992), but does not otherwise seek to recover compensatory or punitive damages or statutory attorneys' fees. Although Americrown attempted to remove the suit to Federal District Court, it was remanded to the Circuit Court of Talladega County, Alabama, where discovery and the class certification process are proceeding. Americrown disputes the allegations and intends to defend the action fully and vigorously.
In March 1997, two purported class action companion lawsuits were filed in the United States District Court, Northern District of Georgia, against the Company, its indirect corporate subsidiary, Americrown Service Corporation, and a number of other persons alleging, in substance, that the defendants unlawfully conspired to fix prices of souvenirs and merchandise sold to consumers in violation of federal antitrust laws. One suit was filed by Florida residents and the other suit was filed by Georgia residents. Both suits seek damages and injunctive relief on behalf of all persons who purchased souvenirs or merchandise from certain vendors at any NASCAR Winston Cup 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.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the fiscal year covered by this report to vote of security holders.
PART II ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At November 30, 1997 International Speedway Corporation had two issued classes of capital stock: Class A Common Stock, $.01 par value per share and Class B Common Stock, $.01 par value per share. The Class A Common Stock is traded on the NASDAQ National Market System under the symbol "ISCA". The Class B Common Stock is traded on NASDAQ's Over-The-Counter Bulletin Board under the symbol "ISCB" and, at the option of the holder, is convertible to Class A Common Stock at any time. As of November 30, 1997 there were a total of 2,537 record holders of both classes of stock.
Prior to November 4, 1996 the Company had only one class of capital stock - common stock, $.10 par value per share. This single class of stock was traded on NASDAQ's Over-The-Counter Bulletin Board. The symbol on the stock was ISWY. Effective with the November 4, 1996 recapitalization and related 15-1 stock split, each share of this class of stock was converted into 15 shares of the Class B Common Stock, $.01 par value per share and began trading under the symbol ISCB, still on NASDAQ's Over-The-Counter Bulletin Board. The newly created Class A Common Stock trades on the NASDAQ National Market under the symbol ISCA. The reported high and low sales prices or high and low bid information, as applicable [as adjusted for the 15-1 split] for each quarter indicated are as follows:
ISWY ISCA ISCB Quarter Ending High Low High Low High Low
November 1995 $16.666 $13.666 N/A N/A N/A N/A February 1996 $19.333 $12.333 N/A N/A N/A N/A May 1996 $23.333 $16.666 N/A N/A N/A N/A August 1996 $19.333 $16.666 N/A N/A N/A N/A November 1996 $25.000 $17.333 $22.250 $18.500 $24.000 $19.250 February 1997 N/A N/A $24.750 $19.375 $24.000 $16.500 May 1997 N/A N/A $22.500 $17.250 $21.750 $17.000 August 1997 N/A N/A $22.000 $18.625 $21.875 $18.750 November 1997 N/A N/A $22.500 $17.000 $22.625 $19.750
ISCA quotations were obtained from NASDAQ. ISWY and ISCB quotations were obtained from NASDAQ Bulletin Board and represent prices between dealers and do not include mark-up, mark-down or commission. ISWY and ISCB quotations do not necessarily represent actual transactions.
DIVIDENDS
Annual dividends of 5.33 cents per share and 6 cents per share were declared in the quarter ending in May and paid in June in fiscal years 1996 and 1997, respectively on all classes of common stock which existed at the time.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
For comparability, certain prior period results have been reclassified to conform to the presentation adopted in fiscal 1997. The following selected financial data should be read in conjunction with the Company's Consolidated Financial Statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Report.
- ---------------------- (1) The Company changed its fiscal year end to November 30 effective December 1, 1996. This resulted in a three month transition period commencing September 1, 1996 and ending November 30, 1996. The unaudited results of the twelve month period ended November 30, 1996 are presented for the purpose of comparison to the fiscal year ended November 30, 1997. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Seasonality and Quarterly Results."
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 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 the DAYTONA USA 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 and chalets), advertising revenues, royalties from licenses of the Company's trademarks and track rentals. The Company negotiates directly with television and cable networks for coverage of substantially all of its televised motorsports events. The Company's revenues from corporate sponsorships are paid in accordance with negotiated contracts, with the identities of sponsors and the terms of sponsorship changing from time to time.
"Food, beverage and souvenir income" includes revenues from concession stands, hospitality catering and direct sales of souvenirs, programs and other merchandise, as well as fees paid by third party vendors for the right to sell souvenirs and concessions at the Company's facilities.
Expenses include (i) prize and point fund monies and NASCAR sanction fees, (ii) motorsports related expenses, which include costs of competition paid to sanctioning bodies other than NASCAR, labor, advertising and other expenses associated with the Company's promotion of its racing events, and (iii) food, beverage and souvenir expenses, consisting primarily of labor and costs of goods sold.
The following table sets forth, for each of the indicated periods, certain selected income statement data as a percentage of total revenues:
The Company changed its fiscal year end to November 30 effective December 1, 1996. Management believes that, due to the continued expansion of the Company's business, a comparison of the year ended November 30, 1997 to the twelve months ended November 30, 1996 is more meaningful than a comparison of the year ended November 30, 1997 to the year ended August 31, 1996. Therefore, the discussion and analysis of results of operations for fiscal 1997 is compared to the unaudited twelve months ended November 30, 1996.
COMPARISON OF FISCAL 1997 TO THE TWELVE MONTHS ENDED NOVEMBER 30, 1996
During fiscal 1997, the Company acquired the 50% interest it did not already own in Watkins Glen International ("Watkins Glen") and acquired Phoenix International Raceway ("Phoenix") - see the discussion under the caption "Capital Expenditures". The consolidation of Watkins Glen, effective April 1, 1997, and the July 14, 1997 purchase of Phoenix resulted in the addition of numerous events to the Company's fiscal 1997 event schedule including two NASCAR Winston Cup Series events, a NASCAR Busch Series event and two NASCAR Craftsman Truck Series events. These acquisitions have resulted in significant increases in both revenues and expenses in fiscal 1997 as compared to the same period of the prior year.
Admissions revenue increased approximately $18.8 million, or 37%, during fiscal 1997 as compared to the same period of the prior year. Approximately one-third of this increase is a result of increased seating capacity and attendance at Daytona International Speedway ("Daytona"), Talladega Superspeedway ("Talladega") and Darlington Raceway ("Darlington"). Approximately one-quarter of the increase is attributable to an increase in the weighted average price of tickets sold at Daytona, Talladega and Darlington. The remainder of the increase is primarily attributable to the impact of admissions to events conducted at Watkins Glen and Phoenix.
Motorsports related income increased approximately $18.3 million, or 64.4%, during fiscal 1997 as compared to the same period of the prior year. Approximately one-half of this increase is a result of an increase in broadcast rights fees, the rentals of hospitality facilities and promotion and sponsorship fees related to events conducted at Daytona, Talladega and Darlington. The remaining increase is attributable to the events conducted at Watkins Glen and Phoenix, advertising revenue, other promotion and sponsorship fees and royalties.
Food, beverage and souvenir income increased approximately $5.7 million, or 32.1%, for fiscal 1997 as compared to the same period of the prior year. Increased attendance at events conducted at Daytona, Talladega and Darlington, and, to a lesser extent, increases in certain prices accounted for approximately one-half of the increase. The remaining increase is a result of events conducted at Watkins Glen and Phoenix and direct sales of souvenirs at the gift shop adjacent to DAYTONA USA.
Prize and point fund monies and NASCAR sanction fees increased by approximately $6.8 million, or 49.9%, during fiscal 1997 as compared to the same period of the prior year. Over one-half of this increase is due to events conducted at Watkins Glen and Phoenix. 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 sanction agreements require that a specified percentage of TV broadcast rights be paid as part of the prize money.
Motorsports related expenses increased approximately $6.7 million, or 40.8%, for fiscal 1997 as compared to the same period of the prior year. This increase is primarily attributable to operating costs related to the events held at Watkins Glen and Phoenix, increases in direct race expenses related to events conducted at Daytona, Talladega and Darlington, including increases in operating costs related to the rain out and rescheduling of Talladega's second
quarter NASCAR Winston Cup event and, to a lesser extent, the operation of DAYTONA USA. Motorsports related expenses remained relatively constant as a percentage of combined admissions and motorsports related income during both periods.
Food, beverage and souvenir expenses increased approximately $2.9 million, or 27.2%, in fiscal 1997 as compared to the same period of the prior year, primarily due to increases in personnel and product costs. Food, beverage and souvenir expenses as a percentage of food, beverage and souvenir income decreased from approximately 59.6% for the twelve months ended November 30, 1996 to 57.4% in fiscal 1997 primarily due to the use of third party vendors at the Company's Phoenix facility.
General and administrative expenses increased approximately $7.8 million, or 35.7%, during fiscal 1997 as compared to the same period of the prior year. The increases are due to the acquisition of Phoenix, the consolidation of Watkins Glen, and expenses related to the ongoing expansion of the Company's business. General and administrative expenses as a percentage of total revenue decreased from approximately 22.2% for the twelve months ended November 30, 1997 to 20.9% in fiscal 1997.
The Company's depreciation and amortization expense increased approximately $2.5 million, or 34.5%, during fiscal 1997 as compared to the same period of the prior year, primarily as a result of DAYTONA USA, the ongoing expansion of the Company's motorsports facilities and amortization of goodwill related to the acquisition of Phoenix. This increase was partially mitigated by an approximately $1 million decrease in depreciation associated with 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 conducted at the beginning of the current fiscal year.
The approximately $1.8 million increase in the Company's net interest income during fiscal 1997 as compared to the same period of the prior year, is attributable primarily to the investment of proceeds, pending their usage, 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 equity investments and the amortization of the Company's investment in excess of its share of the investee's underlying net assets, accounted for using the equity method of accounting. In fiscal 1997 this included the Company's 11% indirect interest in Penske Motorsports, Inc. ("PMI"), its 40% investment in Homestead-Miami Speedway, LLC ("Homestead") from July of 1997, its approximately 7% investment in the Grand Prix Association of Long Beach, Inc. ("Long Beach") from August of 1997, and its 50% investment in Watkins Glen through March 31, 1997. The approximately $900,000, or 71.6% decrease in equity in net income from equity investments during fiscal 1997, as compared to the same period of the prior year, is due to the changes in the Company's equity investments and the timing of those changes.
As a result of the foregoing, the Company's net income increased approximately $11 million, or 58.2%, during fiscal 1997 as compared to the same period of the prior year.
COMPARISON OF FISCAL 1996 TO FISCAL 1995
Admissions revenue increased approximately $6.9 million, or 15.9%, from fiscal 1995 to fiscal 1996. Approximately three-quarters of this increase was attributable to an increase in the Company's weighted average price of tickets sold. This increase was the result of general price increases and additional sales of premium seats. Increased attendance at the Company's racing events and admissions to DAYTONA USA accounted for the remainder of the increase.
Motorsports related income increased approximately $3.4 million, or 14.1%, from fiscal 1995 to fiscal 1996. This increase is attributed to increases in broadcast rights fees, promotion and sponsorship fees and hospitality rentals, partially offset by a decrease in royalties from the Company's trademark license to a single licensee.
Food, beverage and souvenir income increased approximately $3.1 million, or 21.2%, from fiscal 1995 to fiscal 1996. Over one-half of this increase was attributable to expanded food and beverage services at outdoor sporting events unrelated to the motorsports events promoted by the Company. The remainder of the increase was primarily attributable to increased attendance at the Company's racing events and, to a lesser extent, price increases.
Prize and point fund monies and NASCAR sanction fees increased approximately $2.1 million, or 17.8%, from fiscal 1995 to fiscal 1996. Approximately three-quarters of this increase was due to increases in the prize and point fund monies paid by NASCAR to participants in the Company's motorsports events. This increase was primarily attributable to increases in the Company's broadcast revenues as standard NASCAR sanctioning agreements require that a specified percentage of broadcast revenues be paid as prize money.
Motorsports related expenses increased approximately $3.7 million, or 32.2%, from fiscal 1995 to fiscal 1996, reflecting increased labor, advertising and other costs associated with the promotion of the Company's racing events. Motorsports related expenses as a percentage of combined admissions and motorsports related income increased from approximately 17.2% in fiscal 1995 to approximately 19.8% in fiscal 1996, which management attributes primarily to pre-opening expenses associated with DAYTONA USA, which was open for only two months in fiscal 1996, as well as the impact of inclement weather on the results from the Company's 1996 motorcycle week events.
Food, beverage and souvenir expenses increased approximately $2.2 million, or 26.8%, from fiscal 1995 to 1996, reflecting increases in labor, product costs and other expense items attributable to the Company's expanded concessions and catering operations. Food, beverage and souvenir expenses as a percentage of food, beverage and souvenir income increased from approximately 56.1% in fiscal 1995 to 58.7% in fiscal 1996, reflecting the lower margins associated with the expansion of concession and catering operations to third party events.
General and administrative expenses increased approximately $2.7 million, or 15.0%, from fiscal 1995 to fiscal 1996. The increase was primarily due to increases in life insurance, travel expenses, wages and other compensation, and professional fees, as well as a wide variety of other expense items associated with the ongoing expansion of the Company's business. General and administrative expenses as a percentage of total revenues decreased from approximately 22.2% in fiscal 1995 to 21.8% in fiscal 1996.
The Company's depreciation expense increased approximately $1.5 million, or 31.3%, primarily as a result of the ongoing expansion of the Company's motorsports facilities and the opening of DAYTONA USA in July 1996.
The approximately $550,000 decrease in the Company's net interest income was primarily attributable to lower average investment balances resulting from the funding of construction of DAYTONA USA, the Company's indirect investment in PMI and a variety of facility expansion and improvement projects.
The approximately $1.2 million increase in net income from equity investments was attributable to the Company's indirect investment in PMI and, to a lesser extent, an increase in Watkins Glen net income.
As a result of the foregoing, the Company's net income increased $1.3 million, or 7.2%, from $18.4 million in fiscal 1995 to $19.7 million in fiscal 1996.
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 November 30, 1997, the Company had a working capital deficit of $25 million, compared to working capital of $52.9 million at November 30, 1996, which is primarily attributable to the funding of the Company's purchase of Phoenix International Raceway and its investments in Homestead and Long Beach 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 March 1999. There were no borrowings under the Company's credit facility at November 30, 1997.
CASH FLOWS
Net cash provided by operating activities was approximately $54.9 million for fiscal 1997. The difference between the Company's fiscal 1997 net income of $29.8 million and the $54.9 million of operating cash flow was primarily attributable to $10 million in depreciation and amortization, a $6.8 million increase in deferred income, a $4.4 million increase in deferred income taxes, a combined increase of $4.5 million in accounts payable and other current liabilities and $1 million in amortization of deferred compensation, partially offset by a combined increase of $1.4 million in receivables and prepaid expenses and other current assets.
Net cash used in investing activities was $50.5 million for fiscal 1997. The Company's use of cash for investing activities for fiscal 1997 reflects $43.9 million for the purchase of Phoenix, $38.6 million in capital expenditures, $16.2 million for the Company's investments in Homestead and Long Beach, a $1.5 million investment in the stock of PMI and $1 million, net of cash acquired, for the Company's acquisition of the 50% interest in Watkins Glen that it did not already own, partially offset by net proceeds from maturities of investments of $52 million. See "Capital Expenditures".
Net cash used in financing activities was approximately $2.5 million for fiscal 1997. The use of cash in financing activities during fiscal 1997 is primarily attributable to $2.3 million in cash dividends. The cash provided by financing activities for the twelve months ended November 30, 1996 included the proceeds of the November 1996 Class A Common Stock offering.
CAPITAL EXPENDITURES
Capital expenditures totaled $38.6 million for fiscal 1997 compared to $41.4 million for the same period of the prior year. Capital expenditures during fiscal 1997 related primarily to additions to spectator capacity at Daytona, Talladega and Darlington, the addition of track lighting at Daytona and renovation of the Company's new corporate headquarters.
The Company expects to make approximately $55.3 million of additional capital expenditures for approved projects within the next 24 months to increase seating capacity, to construct luxury suites, to complete track lighting at Daytona and for a number of other improvements 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 Homestead and Long Beach. In July of 1997, the Company invested $11.8 million, plus related acquisition costs, for a 40% interest in Homestead, the operator of the Metro-Dade Homestead Motorsports Complex. The Company invested $3.9 million, plus related acquisition costs, in August of 1997 for an approximately 7% interest in Long Beach, the operator 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 approximately 7% in Homestead and Long Beach, respectively. The Company's investment in Homestead represents a portion of the security in support of this investee's credit facility.
The Homestead and Long Beach 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 1998, as well as the Company's planned capital expenditures described above.
The Company is currently pursuing the development of new facilities in several major markets. In December 1997, the Company announced that it reached an agreement with the Unified Government of Wyandotte County/Kansas City, Kansas for the construction of a 1.5-mile oval motor speedway in western Kansas City, Kansas. Assuming certain conditions precedent are met, the Company expects to commit approximately $55.6 million in mid-1998 for its portion of project costs associated with the initial phase of the project. The Company is currently negotiating a credit facility to finance these anticipated project costs.
The Company also believes that it will be able to obtain financing to fund the acquisition, development and/or construction of additional motorsports facilities, if necessary, should the Company implement this element of its growth strategy. However, there can be no assurance that adequate debt or equity financing will be available on satisfactory terms. [see FACTORS THAT MAY AFFECT OPERATING RESULTS and UNCERTAIN PROSPECTS OF NEW MOTORSPORTS FACILITIES]
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 race events. For example, the Darlington Southern 500 is traditionally held on the Sunday preceding Labor Day. Accordingly, the revenue and expenses for that race and/or certain of its supporting events may be recognized in either the fiscal quarter ending August 31 or the fiscal quarter ending November 30. 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. This resulted in a three-month transition period commencing September 1, 1996 and ending November 30, 1996.
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. In fiscal 1997 the Company had net income for the quarter ended November 30, primarily due to the acquisition of Phoenix, which resulted in the addition of a NASCAR Winston Cup Series event in the quarter ending November 30, and the date change for the Company's Talladega DieHard 500 race, which moved the event from the quarter ended August 31 to the quarter ended November 30.
The following table presents certain unaudited financial data for each fiscal quarter of fiscal 1996 and fiscal 1997 and for the transition quarter ended November 30, 1996 (in thousands, except per share amounts):
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 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.
IMPACT OF THE YEAR 2000
The Year 2000 issue is the result of computer programs and other business systems being written using two digits rather than four to represent the year. Many of the Company's time sensitive applications and business systems may recognize a date using "00" as the year 1900 rather than the year 2000, which could result in system failure or disruption of operations. The Year 2000 problem will impact the Company and its business partners.
An assessment of the Year 2000 exposure has been made by the Company and the plans to resolve the related issues are being implemented. Most major systems have already been updated or replaced with applications that are year 2000 compliant in the normal course of business. The Company believes it will be able to achieve Year 2000 compliance by the end of fiscal 1998.
The Company has also developed a plan of communication with significant business partners to ensure that the Company's operations are not disrupted through these relationships and that the Year 2000 issues are resolved timely.
The Company believes that it will satisfactorily resolve all significant Year 2000 problems and that the related costs will not be material. Estimates of Year 2000 related costs are based on numerous assumptions, including the continued availability of certain resources, the ability to correct all relevant applications and third party modification plans. There is no guarantee that the estimates will be achieved and actual costs could differ materially from those anticipated.
DEPENDENCY UPON NASCAR
The Company's success has been and will primarily remain dependent upon maintaining a good working relationship with NASCAR, the sanctioning body for the NASCAR Winston Cup Series, NASCAR Busch Series, and certain other races promoted by the Company. The Company has sanctioning agreements to promote and market eight NASCAR Winston Cup Series Championship races, five NASCAR Busch Series races and a number of other NASCAR races for the 1998 racing season. Each NASCAR event sanctioning agreement is awarded on an annual basis. In the fiscal years 1996 and 1997, NASCAR-sanctioned races at the Company's facilities accounted for approximately 78.3% and 77.6%, respectively, of the Company's total revenues. Although William C. France and James C. France presently control both the Company and NASCAR, and management believes that the Company will continue to maintain an excellent relationship with NASCAR for the foreseeable future, NASCAR is under no obligation to continue to enter into sanctioning agreements with the Company to promote any event. Failure to obtain a sanctioning agreement for a major NASCAR event would have a material adverse effect on the Company's financial condition and results of operations. Moreover, although the Company is engaged in the development of additional motorsports facilities, there can be no assurance that NASCAR will enter into sanctioning agreements with the Company to promote races at such facilities.
DEPENDENCE ON KEY PERSONNEL
The Company's continued success will depend upon the availability and performance of its senior management team, particularly William C. France, the Company's Chairman of the Board and Chief Executive Officer, James C. France, its President and Chief Operating Officer, and Lesa D. Kennedy, its Executive Vice President, 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 1.5% of the Company's total revenues in both fiscal 1996 and 1997. In addition, the tobacco and alcoholic beverage industries provide financial support to the motorsports industry through, among other things, their purchase of advertising time, their sponsorship of racing teams and their sponsorship of racing series such as the NASCAR Winston Cup Series and the NASCAR Busch Series.
COMPETITION
The Company's racing events face competition from other spectator-oriented sporting events and other leisure and recreational activities. As a result, the Company's revenues will be affected by the general popularity of motorsports, the availability of alternative forms of recreation and changing consumer preferences. The Company's racing events also compete with other racing events sanctioned by various racing bodies such as NASCAR, Championship Auto Racing Teams, Inc. ("CART"), the United States Auto Club ("USAC"), the National Hot Rod Association ("NHRA"), the Sports Car Club of America ("SCCA"), United States Road Racing Championship ("USRRC"), the Automobile Racing Club of America ("ARCA") and others. Management believes that the primary elements of competition in attracting motorsports spectators and corporate sponsors to a racing event and facility are the type and caliber of promoted racing events, facility location, sight lines, pricing and customer amenities that contribute to a total entertainment experience. Many sports and entertainment businesses have resources that exceed those of the Company.
IMPACT OF CONSUMER SPENDING ON RESULTS
The success of the Company's operations depends to a significant extent upon a number of factors relating to discretionary consumer spending, including economic conditions affecting disposable consumer income such as employment, business conditions, interest rates and taxation. These factors can impact both attendance at the Company's events and the financial results of the motorsports industry's principal sponsors. There can be no assurance that future consumer spending will not be adversely affected by economic conditions, thereby impacting the Company's growth, revenue and profitability.
UNCERTAIN PROSPECTS OF NEW MOTORSPORTS FACILITIES
The Company is engaged in the development of new motorsports facilities. The Company's ability to implement successfully this element of its growth strategy will depend on a number of factors, including (i) the Company's ability to obtain one or more additional sanctioning agreements to promote NASCAR Winston Cup Series, NASCAR Busch Series or other major events at these new facilities, (ii) the cooperation of local government officials, (iii) the Company's capital resources and the availability of debt or equity financing on satisfactory terms, (iv) the Company's ability to control construction and operating costs, and (v) the Company's ability to hire and retain qualified personnel. The Company's inability to implement its expansion plans for any reason would adversely affect its business prospects. In addition, expenses associated with developing, constructing and opening a new facility may have a negative effect on the Company's financial condition and results of operations in one or more future reporting periods. The cost of any such transaction will depend on a number of factors, including the facility's location, the extent of the Company's ownership interest and the degree of any municipal or other public support. Moreover, although management believes that it will be able to obtain financing, if necessary, to fund the acquisition, development and/or construction of additional motorsports facilities should the Company implement this element of its growth strategy, there can be no assurance that adequate debt or equity financing will be available on satisfactory terms.
FINANCIAL IMPACT OF BAD WEATHER
The Company promotes outdoor motorsports events. Weather conditions affect sales of, among other things, tickets, concessions and souvenirs at these events. Although the Company sells tickets well in advance of its most popular events, poor weather conditions could have a material adverse effect on the Company's results of operations, particularly any interruption of the Company's February "Speedweeks" events.
LIABILITY FOR PERSONAL INJURIES
Motorsports can be dangerous to participants and to spectators. The Company maintains insurance policies that provide coverage within limits that management believes should generally be sufficient to protect the Company from material financial loss due to liability for personal injuries sustained by persons on the Company's premises in the ordinary course of Company business. Nevertheless, there can be no assurance that such insurance will be adequate or available at all times and in all circumstances. The Company's financial condition and results of operations would be adversely affected to the extent claims and associated expenses exceed insurance recoveries.
ENVIRONMENTAL AND ZONING MATTERS
Management believes that the Company's operations are in substantial compliance with all applicable federal, state and local environmental laws and regulations. Nonetheless, if damage to persons or property or contamination of the environment is determined to have been caused or exacerbated by the conduct of the Company's business or by pollutants, substances, contaminants or wastes used, generated or disposed of by the Company, or which may be found 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.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders International Speedway Corporation
We have audited the accompanying consolidated balance sheets of International Speedway Corporation and subsidiaries as of November 30, 1996 and 1997, and the related consolidated statements of income, shareholders' equity and cash flows for the years ended August 31, 1995 and 1996, the three month period ended November 30, 1996, and the year ended November 30, 1997. Our audits also included the financial statement schedule listed in the index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of International Speedway Corporation and subsidiaries at November 30, 1996 and 1997, and the consolidated results of their operations and their cash flows for the years ended August 31, 1995 and 1996, the three month period ended November 30, 1996 and the year ended November 30, 1997, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
Ernst & Young LLP
Jacksonville, Florida January 22, 1998
INTERNATIONAL SPEEDWAY CORPORATION CONSOLIDATED BALANCE SHEETS
See accompanying notes.
INTERNATIONAL SPEEDWAY CORPORATION CONSOLIDATED STATEMENTS OF INCOME
See accompanying notes.
INTERNATIONAL SPEEDWAY CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
See accompanying notes.
INTERNATIONAL SPEEDWAY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
See accompanying notes.
INTERNATIONAL SPEEDWAY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS: International Speedway Corporation and its wholly-owned subsidiaries (the "Company") is a leading promoter of motorsports activities in the United States. The Company owns and operates five premier motorsports facilities --Daytona International Speedway, a 2.5 mile, tri-oval track located in Daytona Beach, Florida; Talladega Superspeedway, a 2.6 mile, tri-oval track located in Talladega, Alabama; Phoenix International Raceway ("Phoenix"), a one mile oval track located outside of Phoenix, Arizona (See Note 3); Darlington Raceway, a 1.3 mile track located in Darlington, South Carolina; and Watkins Glen International ("Watkins Glen"), a 3.4 mile road course located in Watkins Glen, New York (See Note 3). The Company also operates Tucson Raceway Park in Pima County Arizona.
At these facilities the Company currently promotes over 80 stock car, sports car, truck, motorcycle and other racing events annually, including eight NASCAR Winston Cup Series races, five NASCAR Busch Series - Grand National Division races, three NASCAR Craftsman Truck Series races, and a number of prestigious sports car and motorcycle races.
The Company also has investments in other motorsports entertainment companies. The Company holds an 11% indirect interest in Penske Motorsports, Inc. ("PMI"), which owns and operates Michigan International Speedway, Pennsylvania's Nazareth Speedway, the California Speedway, and the North Carolina Motor Speedway. The Company also holds a 40% interest in Homestead- Miami Speedway, LLC ("Homestead"), the operator of the Metro-Dade Homestead Motorsports Complex, and an approximately 7% interest in Grand Prix Association of Long Beach ("Long Beach"), the operator of Grand Prix of Long Beach, California, Gateway International Raceway in Madison, Illinois and Memphis Motorsports Park in Millington, Tennessee.
The Company owns and operates DAYTONA USA--The Ultimate Motorsports Attraction, a motorsports theme-entertainment complex that includes interactive media, theaters, historical memorabilia and exhibits.
Americrown Service Corporation ("Americrown"), one of the Company's wholly-owned subsidiaries, conducts the food, beverage and souvenir concession operations at the Daytona, Talladega and Darlington facilities. Americrown is also responsible for providing catering services to corporate customers both in suites and entertainment chalets at these facilities and at unaffiliated sporting events.
The Company's proprietary MRN radio network and NASCAR Truck Network produces and syndicates NASCAR Winston Cup Series, NASCAR Busch Series - Grand National Division, NASCAR Craftsman Truck Series and other races promoted by the Company and others. MRN Radio also produces daily and weekly NASCAR racing programs.
INTERNATIONAL SPEEDWAY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
BASIS OF PRESENTATION: On September 5, 1996 the Company's Board of Directors approved a recapitalization of the Company which became effective 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.
SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION: The accompanying consolidated financial statements include the accounts of International Speedway Corporation and its wholly-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS: For purposes of reporting cash flows, cash and cash equivalents include cash on hand, bank demand deposit accounts, repurchase agreements and money market accounts at investment firms. Cash and cash equivalents exclude certificates of deposit, obligations of U.S. Government Agencies, U.S. Treasury Notes and U.S. Treasury Bills, regardless of original maturity.
INVESTMENTS (NOTE 4): The Company accounts for investments in accordance with Statement of Financial Accounting Standard (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities".
The Company determines the appropriate classification of investments at the time of purchase and reevaluates such designation as of each balance sheet date. Debt securities are classified as held-to-maturity based on the Company's positive intent and ability to hold the securities to maturity. These securities are stated at cost. Interest and dividends are included in interest income.
Short-term investments consist of certificates of deposit and securities held-to-maturity which are due in one year or less. Certificates of deposit are readily convertible to cash and are stated at cost.
Long-term investments consist of securities held-to-maturity which are due after one year and are stated at cost.
INTERNATIONAL SPEEDWAY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
INVENTORIES: Inventories of items for resale are stated at the lower of cost, determined on the first-in, first-out basis, or market.
PROPERTY AND EQUIPMENT: Property and equipment, including improvements to existing facilities, are stated at cost. Depreciation is provided for financial reporting purposes using either the straight-line or accelerated methods over estimated useful lives as follows:
Buildings, grandstands and tracks .... 5-34 years Furniture and equipment ............... 3-20 years
EQUITY INVESTMENTS (NOTE 2): Equity investments at November 30, 1996, represent a 50% ownership interest in Watkins Glen and a 20% ownership interest in PSH Corp (resulting in an approximately 11% indirect interest in PMI). At November 30, 1997, equity investments represent a 40% interest in Homestead, an approximately 7% interest in Long Beach and a 20% ownership interest in PSH Corp. These investments are accounted for using the equity method of accounting. The Company's equity in the net income from equity investments is recorded as income with a corresponding increase in the investment. Dividends received and amortization of the Company's investment in excess of its pro rata share of the underlying assets reduce the investment. The Company's investment in excess of its pro rata share of the underlying assets is amortized by the straight-line method over 20 years. The Company recognizes the effects of transactions involving the sale or distribution by an equity investee of its common stock as capital transactions.
GOODWILL: Goodwill resulting from acquisitions is being amortized by the straight-line method over 40 years. Recoverability of intangibles is assessed using estimated undiscounted cash flows of related operations.
FAIR VALUE OF FINANCIAL INSTRUMENTS: The Company's financial instruments consist of cash, short- and long-term investments, accounts receivable and accounts payable. The carrying value of these financial instruments approximates their fair value at November 30, 1997.
INCOME TAXES (NOTE 5): Income taxes have been provided using the liability method in accordance with SFAS No. 109, "Accounting for Income Taxes". Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
ADMISSION INCOME: Admission income and all race-related revenue is earned upon completion of an event and is stated net of admission and sales taxes collected. Refundable advance ticket sales and all race-related revenue on future events are deferred until earned.
INTERNATIONAL SPEEDWAY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
ADVERTISING EXPENSE: Advertising costs are expensed as incurred or, as in the case of race-related advertising, upon the completion of the event. Advertising expense was approximately $1.3 million, $1.7 million, $290,000 and $2.4 million for the years ended August 31, 1995 and 1996, the three months ended November 30, 1996 and the year ended November 30, 1997, respectively.
EARNINGS PER SHARE: Earnings per share have been computed on the weighted average total number of common shares outstanding during the respective periods. Weighted average shares outstanding for the years ended August 31, 1995 and 1996, and the year ended November 30, 1997 were 34,378,830, 34,440,525 and 38,488,767 shares, respectively. Weighted average shares outstanding for the three month period ended November 30, 1996 were 35,610,510.
USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS: In 1997, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of". SFAS 121 requires recognition of impairment of long-lived assets in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to such assets. The adoption of SFAS No. 121 had no impact on the Company's financial position or results of operations.
The Company accounts for its long-term incentive restricted stock plan in accordance with provisions of Accounting Principles Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees". In 1995, SFAS No. 123, "Accounting for Stock Based Compensation" was issued. SFAS No. 123 provides an alternative to APB 25 and is effective for the Company in fiscal year 1997. The Company has elected to continue to account for its long-term incentive plan in accordance with the provisions of APB 25. See Note 11.
In February 1997, SFAS No. 128, "Earnings Per Share", was issued and 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 No. 128 during the first quarter of 1998. Management believes the impact on earnings per share will not be material.
INTERNATIONAL SPEEDWAY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
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 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.
COMPARABILITY: For comparability, certain 1995 and 1996 amounts have been reclassified where appropriate to conform with the presentation adopted in 1997.
NOTE 2--EQUITY INVESTMENTS
Equity investments includes the following:
On December 13, 1996, PMI acquired property adjacent to the California Speedway for $13.4 million, which was paid with cash of $5 million and the issuance of 254,298 shares of common stock. As a result of the increase in PMI's equity, the Company recorded an increase in its equity investment in PSH Corp. of approximately $650,000 and recorded a corresponding increase in deferred income taxes and additional paid-in capital of approximately $250,000 and $400,000, respectively.
INTERNATIONAL SPEEDWAY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- EQUITY INVESTMENTS - (CONTINUED)
On May 19, 1997, PMI increased its ownership interest in North Carolina Motor Speedway ("NCMS") 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 its 40% interest in Homestead.
On August 8, 1997, the Company invested $3.9 million, plus related acquisition costs, for an approximately 7% interest in Long Beach. The Company's investment exceeded its share of the underlying net assets by approximately $1.9 million. The excess is being amortized into expense by decreasing the equity in income of equity investments using the straight-line method over twenty years.
The Company's investment in excess of its share of underlying net assets in equity investments net of amortization amounted to $7.3 million and $8.8 million in 1996 and 1997, respectively. Amortization of the excess over the Company's share of the underlying net assets for the year ended August 31, 1996, the three month period ended November 30, 1996 and the year ended November 30, 1997 was approximately $288,000, $96,000 and $416,000, respectively.
The Company's share of undistributed equity in the earnings from equity investments included in retained earnings at November 30, 1996 and 1997 was approximately $3,002,000 and $3,784,000, respectively.
Summarized financial information for the Company's affiliated companies accounted for by the equity method (PSH Corp. and Watkins Glen as of August 31 and November 30, 1996, PSH Corp., Homestead and Long Beach as of November 30, 1997) is as follows (in thousands):
INTERNATIONAL SPEEDWAY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- ACQUISITIONS
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.
The Company's equity in Watkins Glen's net loss through March 31, 1997 is included in equity in net income from equity investments at November 30, 1997. The acquisition of the additional 50% interest was accounted for under the purchase method. Subsequent to the acquisition on April 1, 1997, Watkins Glen International is accounted for on a consolidated basis.
On July 14, 1997, Phoenix Speedway Corporation, a newly formed wholly-owned subsidiary of the Company, acquired substantially all of the assets comprising the business and motorsports complex known as "Phoenix International Raceway" from Phoenix International Raceway, Inc., Phoenix International Raceway, L.L.C. and Phoenix International Raceway Limited Partnership for consideration consisting of $46.4 million in cash, notes payable of $13.8 million, and related acquisition costs. Interest is being accrued on the note payable to the former principal and shareholder at an annual rate of 9%.
The Phoenix acquisition has been accounted for under the purchase method of accounting, and accordingly, the results of operations have been included in the Company's consolidated statements of operations since the date of acquisition. The 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 amount amortized for the year ended November 30, 1997 was approximately $382,000.
The following unaudited pro forma financial information presents a summary of consolidated results of operations as if the Phoenix transaction had occurred as of September 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.
INTERNATIONAL SPEEDWAY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- ACQUISITIONS - (CONTINUED)
NOTE 4 -- INVESTMENTS
The following is a summary of short-term and long-term Investments:
INTERNATIONAL SPEEDWAY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- INVESTMENTS - (CONTINUED)
The cost and market values of held-to-maturity securities include accrued investment income of approximately $81,000 and $12,000 at November 30, 1996 and 1997, respectively.
The cost and estimated market value of the held-to-maturity securities at November 30, 1997, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because the issuers of certain securities have the right to prepay obligations.
NOVEMBER 30, 1997 ------------------------- ESTIMATED COST MARKET VALUE --------- --------------- (IN THOUSANDS) HELD-TO-MATURITY SECURITIES Due in one year or less ................ $ 12,393 $ 12,429 Due after one year through three years 500 498 --------- --------- $ 12,893 $ 12,927 ========== =========
NOTE 5 -- FEDERAL AND STATE INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Substantially all of the deferred tax liability results from the excess of tax accelerated depreciation over depreciation for financial reporting purposes and from different bases in the equity investments for tax and financial reporting purposes.
Significant components of the provision for income taxes are as follows:
INTERNATIONAL SPEEDWAY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- FEDERAL AND STATE INCOME TAXES - (CONTINUED)
The reconciliation of income tax computed at the federal statutory tax rates to income tax expense is as follows:
NOTE 6--LINES OF CREDIT
The Company has a $10 million line of credit with a financial institution which expires in March 1999. There were no borrowings under the Company's credit facility at November 30, 1997.
NOTE 7 -- CAPITAL STOCK
The Company's authorized capital includes 80 million shares of Class A Common Stock, par value $.01 ("Class A Common Stock"), 40 million shares of Class B Common Stock, par value $.01 ("Class B Common Stock"), and one million shares of Preferred Stock, par value $.01 (the "Preferred Stock"). The shares of Class A Common Stock and Class B Common Stock are identical in all respects, except for voting rights and certain dividend and conversion rights as described below. Each share of Class A Common Stock entitles the holder to one-fifth (1/5) vote on each matter submitted to a vote of the Company's shareholders and each share of Class B Common Stock entitles the holder to one (1) vote on each such matter, in each case including the election of directors. Holders of Class A Common Stock and Class B Common Stock are entitled to receive dividends at the same rate if and when declared by the Board of Directors out of funds legally available therefrom, subject to the dividend and liquidation rights of any Preferred Stock that may be issued and outstanding. Class A Common Stock has no conversion rights. Class B Common Stock is convertible into Class A Common Stock, in whole or in part, at any time at the option of the holder on the basis of one share of Class A Common Stock for each share of Class B Common Stock converted. Each share of Class B Common Stock will also automatically convert into one share of Class A Common Stock if, on the record date of any meeting of the shareholders, the number of shares of Class B Common Stock then outstanding is less than 10% of the aggregate number of shares of Class A Common Stock and Class B Common Stock then outstanding.
INTERNATIONAL SPEEDWAY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- CAPITAL STOCK - (CONTINUED)
The Board of Directors of the Company is authorized, without further shareholder action, to divide any or all shares of the authorized Preferred Stock into series and fix and determine the designations, preferences and relative rights and qualifications, limitations, or restrictions thereon of any series so established, including voting powers, dividend rights, liquidation preferences, redemption rights and conversion privileges. The Board of Directors has not authorized any series of Preferred Stock, and there are no plans, agreements or understandings for the authorization or issuance of any shares of Preferred Stock.
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., $43.9 million to acquire Phoenix International Raceway and $16.2 million for equity investments in Homestead- Miami Speedway, LLC and Grand Prix Association of Long Beach, Inc. 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.
No shares of Preferred Stock are outstanding. See also Note 1--Basis of Presentation.
NOTE 8 -- COMMITMENTS AND CONTINGENCIES
A. In 1985, International Speedway Corporation ("ISC") established a salary incentive plan designed to qualify under Section 401(k) of the Internal Revenue Code. Employees of ISC and certain participating subsidiaries who have completed 1,000 hours and 12 months continuous service are eligible to participate in the plan. Matching contributions are made to a savings trust (subject to certain limits) concurrent with employees' contributions. The level of the matching contribution depends upon the amount of the employee contribution. Employees become 100% vested upon entrance to the plan.
The contribution expense for the plan was approximately $228,000, $307,000, $85,000 and $376,000 for the years ended August 31, 1995 and 1996, for the three month period ended November 30, 1996 and the year ended November 30, 1997, respectively.
B. The estimated cost to complete construction in progress at November 30, 1997, is approximately $55.3 million.
INTERNATIONAL SPEEDWAY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- COMMITMENTS AND CONTINGENCIES - (CONTINUED)
C. On October 21, 1996, Americrown was served with a Class Action Complaint filed in the Circuit Court of Talladega County, Alabama by Howard Padgett, Bill Lutz and Tommy Jones. The complaint was filed in September 1996 and alleged, among other things, that Americrown engaged in price-fixing activities in connection with the sale of racing souvenirs and merchandise at the Talladega Superspeedway. The complaint seeks at least $500 for each member of the putative class (persons buying racing souvenirs at Talladega Superspeedway since September 1992), but does not otherwise seek to recover compensatory or punitive damages or statutory attorneys' fees. Although Americrown attempted to remove the suit to Federal District Court, it was remanded to the Circuit Court of Talladega County, Alabama, where discovery and the class certification process are proceeding. Americrown disputes the allegations and intends to defend the action fully and vigorously.
In March 1997, two purported class action companion lawsuits were filed in the United States District Court, Northern District of Georgia, against the Company, 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 Series stock car race or supporting event in the United States during the period 1991 to present. The two suits have been consolidated and the court has established a timetable to consider class certification. Discovery is proceeding. The Company and Americrown dispute the allegations and intend to defend the actions fully and vigorously.
Management is presently unable to predict or quantify the outcome of these matters.
NOTE 9 -- RELATED PARTY DISCLOSURES AND TRANSACTIONS
All of the racing events that take place during the Company's fiscal year are sanctioned by various racing organizations such as the American Historic Racing Motorcycle Association (AHRMA), the American Motorcyclist Association (AMA), the Automobile Racing Club of America (ARCA), the Championship Cup Series (CCS), the Federation Internationale de l'Automobile (FIA), the Federation Internationale Motocycliste (FIM), the International Race of Champions (IROC), the Indy Racing League (IRL), the 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 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
INTERNATIONAL SPEEDWAY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- RELATED PARTY DISCLOSURES AND TRANSACTIONS - (CONTINUED)
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 $10.1, $11.6 and $17.0 million for the years ended August 31, 1995, 1996 and November 30, 1997, respectively. For the three month period ended November 30, 1996, monies paid by the Company to NASCAR for disbursements to competitors totaled approximately $1.1 million.
In October 1995, the Company entered into collateral assignment split-dollar insurance agreements covering the lives of William C. France and James C. France and their respective spouses. Pursuant to the agreements, the Company will advance the annual premiums of approximately $1,205,000 each year for a period of eight years. Upon surrender of the policies or payment of the death benefits thereunder, the Company is entitled to repayment of an amount equal to the cumulative premiums previously paid by the Company. The Company may cause the agreements to be terminated and the policies surrendered at any time after the cash surrender value of the policies equals the cumulative premiums advanced under the agreements. The Company recorded a net insurance expense of approximately $450,000 and $38,000, representing the excess of the premiums paid over the increase in cash surrender value of the policies associated with these agreements for the year ended August 31, 1996, and the three months ended November 30, 1996, respectively. During the year ended November 30, 1997, premiums paid were approximately equal to the increase in the cash surrender value of the policies.
Poe & Brown, Inc., the servicing agent for the split-dollar insurance agreements, received a commission from an insurance company for its participation in the transactions. J. Hyatt Brown, President and Chief Executive Officer of Poe & Brown, Inc., is a Director of the Company.
NOTE 10 -- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for income taxes and interest for respective periods is summarized as follows:
(IN THOUSANDS) THREE MONTHS YEARS ENDED ENDED YEAR ENDED AUGUST 31, NOVEMBER 30, NOVEMBER 30, 1995 1996 1996 1997 ---- ---- ---- ---- INCOME TAXES PAID $9,806 $10,763 $ 185 $13,652 ======= ======== ====== ======= INTEREST PAID $ -- $ -- $ 69 $ 31 ======= ======== ====== =======
See Note 2 for discussion of non-cash equity investment transactions.
INTERNATIONAL SPEEDWAY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 -- LONG-TERM INCENTIVE RESTRICTED STOCK PLAN
In November 1993, the Company's Board of Directors and a majority of the Company shareholders approved a Long-term Incentive Restricted Stock Plan (the "Plan") for certain officers and managers of the Company. Under the Plan, up to 750,000 shares of the Company's Class B Common Stock were authorized to be granted as restricted stock at no cost to Plan participants. Shares awarded under the Plan vest at the rate of 50% of each award on the third anniversary of the award date and the remaining 50% on the fifth anniversary of the award date. Shares awarded under the Plan generally are subject to forfeiture in the event of termination of employment prior to the vesting dates. The Plan participants own the shares and may vote and receive dividends, but are subject to restrictions under the Plan. Restrictions include the prohibition of the sale or transfer of the shares during the period prior to vesting of the shares. The Company also has a right of first refusal to purchase any shares of stock issued under the Plan which are offered for sale.
On January 1, 1995, 1996 and 1997, a total of 70,410, 102,075 and 98,010 restricted shares of the Company's Class B Common Stock, respectively, were awarded to certain officers and managers. The market value of shares on January 1, 1995, 1996 and 1997 amounted to approximately $489,000, $1,600,000, 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 consolidated balance sheets. The unearned compensation is being amortized over the vesting periods of the shares. The total expense charged against operations during the years ended August 31, 1995, and 1996, for the three month period ended November 30, 1996 and the year ended November 30, 1997 was approximately $318,000, $606,000, $122,000 and $1,063,000, respectively. In accordance with APB 25, the Company will recognize a compensation charge over the vesting periods equal to the fair market value of these shares on the date awarded. The SFAS No. 123 expense is equal to the APB 25 expense.
In September 1996, the Company and the Board of Directors adopted a new Long-term Incentive Plan (the "1996 Plan") for certain employees and consultants of the Company. Under the 1996 Plan up to 1,000,000 shares of Class A Common Stock may be granted as stock options (incentive and nonstatutory), stock appreciation rights (SARS) and restricted stock. No grants have been made under the 1996 Plan.
INTERNATIONAL SPEEDWAY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 -- CHANGE IN FISCAL YEAR END
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. Consequently, the consolidated audited financial statements contain information as of and for the three months ended November 30, 1996. The following supplemental unaudited consolidated statement of operations and unaudited consolidated statement of cash flows for the three months ended November 30, 1995 are presented for comparative purposes only and were presented in the Transition Form 10-Q filed for the period ended November 30, 1996.
Consolidated Statement of Operations Three Months Ended November 30, 1995 (Unaudited) (In Thousands, Except Per Share Amounts) ---------------------------------------- Revenues $ 8,542 Expenses 10,016 ------------- Operating loss (1,474) Interest income (net) 290 Equity in net loss from equity investments (154) ------------- Loss before income taxes 1,338) Income tax benefit (318) ------------- Net loss $(1,020) ============= Loss per share ($0.03) =============
Weighted average number of common shares outstanding 34,395,975
INTERNATIONAL SPEEDWAY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 -- CHANGE IN FISCAL YEAR END -(CONTINUED)
Consolidated Statement of Cash Flows Three Months Ended November 30, 1995 (Unaudited) ------------------- (In Thousands)
Net cash provided by operating activities $ 3,673
Investing Activities Proceeds from maturities of investments (net) 21,053 Capital expenditures (8,229) Investment in PSH Corp. (14,975) Other investing activities (732) ------------- Net cash used in investing activities (2,883) Net cash provided by financing activities -- ------------- Net increase in cash and cash equivalents 790 Cash and cash equivalents at beginning of period 7,871 ------------- Cash and cash equivalents at end of period $ 8,661 =============
INTERNATIONAL SPEEDWAY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 -- QUARTERLY DATA (UNAUDITED)
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. For example, the Darlington Southern 500 is traditionally held on the Sunday preceding Labor Day. Accordingly, the revenue and expenses for that race and/or certain of its supporting events may be recognized in either the fiscal quarter ending August 31 or the fiscal quarter ending November 30. 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. This resulted in a three-month transition period commencing September 1, 1996 and ending November 30, 1996.
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. In fiscal 1997, the Company had net income for the quarter ended November 30. This was primarily due to the acquisition of Phoenix, which resulted in the addition of a NASCAR Winston Cup Series event in the quarter ending November 30, and the date change for the Company's DieHard 500 race, which moved the event from the quarter ended August 31 to the quarter ended November 30.
The following table presents certain unaudited financial data for each fiscal quarter of fiscal 1996 and fiscal 1997 and for the transition quarter ended November 30, 1996 (in thousands, except per share amounts):
International Speedway Corporation
Schedule II Valuation and Qualifying Accounts
Additions Balance Charged to Balance Beginning Costs and Deductions at End Description of Period Expenses (A) Period _____________________________________________ (Thousands of Dollars)
For the year ended November 30, 1997
Allowance for doubtful accounts $ 35 $ 170 $ 105 $ 100
For the three months ended November 30, 1996
Allowance for doubtful accounts $ 35 $ (2) $ (2) $ 35
For the year ended August 31, 1996
Allowance for doubtful accounts $ 35 $ 52 $ 52 $ 35
For the year ended August 31, 1995
Allowance for doubtful accounts $ 35 $ 62 $ 62 $ 35
(A) Uncollectible accounts written off, net of recoveries.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None. PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of the Company are as follows:
The Company's Articles provide that the Board of Directors be divided into three classes, with regular three year staggered terms. Messrs. William C. France, Combs, Foster, Harris and Root will hold office until the annual meeting of shareholders to be held in 1998, Messrs. James C. France, Cooper, Brian Z. France, Mason and Reuss will hold office until the annual meeting of shareholders to be held in 1999, and Ms. Kennedy and Messrs. Brown, Dyson, Rensi and Staed will hold office until the annual meeting of shareholders to be held in 2000.
William C. France and James C. France are brothers. Lesa D. Kennedy and Brian Z. France are the children of William C. France. There are no other family relationships among the Company's executive officers and directors.
Mr. William C. France, a director since 1958, has served as Chairman of the Board of the Company since 1987 and as Chief Executive Officer since 1981. Mr. France also serves as a director of Penske Motorsports.
Mr. James C. France, a director since 1970, has served as President and Chief Operating Officer of the Company since 1987.
Ms. Lesa D. Kennedy, a director since 1984, was appointed Executive Vice President of the Company in January 1996. Ms. Kennedy served as the Company's Secretary from 1987 until January 1996 and served as its Treasurer from 1989 until January 1996.
Mr. H. Lee Combs, a director since 1987, was appointed the Company's Senior Vice President-Operations in January 1996. Mr. Combs served as a Vice President and the Company's Chief Financial Officer from 1987 until such time. He also serves as a director of Penske Motorsports and Grand Prix Association of Long Beach, Inc.
Mr. Robert E. Smith has served as Vice President--Corporate Administration of the Company for more than five years.
Ms. Susan G. Schandel was appointed the Company's Treasurer and Chief Financial Officer in January 1996. From November 1992 until such time, Ms. Schandel served as the Company's Controller.
Mr. Gregory J. Sullivan, appointed the Company's Vice President-Marketing in November 1994, joined the Company in September 1994. Prior to joining the Company, Mr. Sullivan was employed by Kraft Foods (a division of Phillip Morris) for more than five years, where he most recently served as Director of Marketing Services for Kraft's Maxwell House division.
Mr. John E. Graham, Jr., appointed as a Vice President in November 1994, joined the Company as President of Daytona International Speedway in September 1994. Prior to joining the Company, Mr. Graham was employed by First Union National Bank of Florida for more than five years, where he most recently served as President of First Union National Bank of Volusia and Flagler Counties.
Mr. W. Grant Lynch, Jr. has served as a Vice President and as President of Talladega Superspeedway since joining the Company in November 1993. Prior to such time, Mr. Lynch was employed by R.J. Reynolds Tobacco Company, Sports Marketing Division, where from 1990 until 1993 he served as Senior Operations and Public Relations Manager for the Winston Cup Racing Program.
Mr. James H. Hunter has served as a Vice President and as President of Darlington Raceway since joining the Company in November 1993. Prior to joining the Company, Mr. Hunter served as NASCAR's Vice President of Administration and Marketing for more than five years.
Mr. John R. Saunders has served as a Vice President since 1997 and has been President of Watkins Glen International since 1983.
Mr. W. Garrett Crotty has served as Secretary and General Counsel since 1996. Prior to that time he had been in the private practice of law for more than five years.
Mr. J. Hyatt Brown, a director since 1987, serves as the President and Chief Executive Officer of Poe & Brown, Inc. and has been in the insurance business with Brown & Brown, Inc., its predecessor, since 1959. Mr. Brown also serves as a director of Rock Tenn Co, SunTrust Banks, Inc., BellSouth Corporation, and FPL Group, Inc.
Mr. John R. Cooper, a director since 1987, served as Vice President - Corporate Development of the Company from December 1987 until July 1994. Since January 1996, Mr. Cooper has served as a special project facilitator for the Company.
Mr. Robert R. Dyson, a director since January 1997, has served as Chairman and Chief Executive Officer of the Dyson-Kissner-Moran Corporation (DKM) since November 1992.
Mr. James H. Foster, a director since 1968, served as the Company's Senior Vice President - Special Projects from January 1994 until his retirement in 1997. Mr. Foster served as President of Daytona International Speedway from 1988 until 1994.
Mr. Brian Z. France, a director since 1994, has served as NASCAR's Vice President of Marketing and Corporate Communications since December 1992 and as the Company's Manager--Group Projects since February 1994. From 1983 until such time, Mr. France served in a number of other capacities with NASCAR, including Winston Racing Series Administrative Assistant and National Tour Director.
Mr. Christy F. Harris, a director since 1984, has been engaged in the private practice of business and commercial law with Harris, Midyette, Geary, Darby, & Morrell, P.A. for more than twenty years.
Mr. Raymond K. Mason, Jr., a director since 1981, has served as Chairman and President of American Banks of Florida, Inc., Jacksonville, Florida, since 1978.
Mr. Lloyd E. Reuss, a director since January 1996, served as President of General Motors Corporation from 1990 until his retirement in January 1993. Mr. Reuss also serves as a director of Handleman Co., Detroit Mortgage and Realty, Co. and United States Sugar Company.
Mr. Edward H. Rensi, a director since January 1997, is an executive consultant with McDonald's Corporation. He served as President and Chief Executive Officer of McDonald's USA from 1991 until 1997. He is a Director of McDonald's Corporation and Snap-On Incorporated.
Mr. Chapman Root, II, a director since 1992, has served as President of the Root Company, a private investment company, since 1989. Mr. Root also serves as a director of First Financial Corp. and Terre Haute First National Bank.
Mr. Thomas W. Staed, a director since 1987, has served as President of Oceans Eleven Resorts, Inc., a hotel/motel business, for more than five years.
DIRECTOR COMPENSATION
The Company pays each non-employee director a monthly retainer of $500, a $1,000 fee for each meeting of the Board of Directors attended and a $500 fee for each Board committee meeting attended. The aggregate retainers and fees paid to directors with respect to fiscal 1997 services totaled $115,500. The Company also reimburses directors for all expenses incurred in connection with their activities as directors.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of Forms 3, 4 and 5 and amendments thereto, and written representations furnished to the Company, W. Garrett Crotty has been identified as failing to file on a timely basis reports required by section 16(a) of the Exchange Act during the fiscal year ended November 30, 1997. Mr. Crotty had one transaction which should have been reported on Form 4 which was reported late on Form 5.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid by the Company, for services rendered during the last three fiscal years, to the Company's Chief Executive Officer and the Company's other four most highly compensated executive officers during fiscal 1997 (collectively the "Named Officers").
SUMMARY COMPENSATION TABLE
- --------------------- (1) Reflects the aggregate market value of shares awarded under the Company's 1994 Long-Term Incentive Plan (calculated as of the date of the award). The indicated awards were made in January with respect to services rendered in the prior fiscal year. See Note 11 of Notes to the Company's Consolidated Financial Statements.
(2) The compensation reported in this column consists of (i) payments for insurance, including premium payments and related expense for split-dollar and other life insurance, accidental death and dismemberment insurance and group health insurance, (ii) medical expense reimbursements, and (iii) contributions to the Company's 401(k) plan. The amounts applicable to each Named Officer for each category for fiscal 1997 are as follows: William C. France ($768,351, $1,000 and $0, respectively); James C. France ($466,500, $1,675 and $6,400, respectively); Lesa D. Kennedy ($1,955, $0 and $6,400, respectively); H. Lee Combs ($1,955, $4,018 and $6,400, respectively); and John E. Graham ($1,955, $2,366 and $6,400, respectively). Pursuant to the Company's split-dollar life insurance arrangements, the premiums will be repaid to the Company in future periods. See Note 9 of Notes to the Company's Consolidated Financial Statements.
COMMITTEE REPORT ON EXECUTIVE OFFICER COMPENSATION
The Company's Executive Officer Compensation is overseen by the Compensation Committee of the Board of Directors which is composed entirely of independent directors.
PHILOSOPHY AND POLICIES. Executive Officer Compensation is structured and administered to offer competitive compensation based on the Executive Officer's contribution and personal performance in support of the Company's strategic plan and business mission.
In 1989, based upon recommendation of the Compensation Committee, the Company retained TPF&C to perform a salary study to determine benchmark salary ranges. TPF&C made recommendations to the Company concerning salary ranges and a bonus structure. The recommendations were followed in establishing the corporate compensation plan which is reviewed and reevaluated every year. As part of the overall compensation plan the Company's Executive Officers are grouped in structured pay grades based upon job responsibility and description. Each grade has an established range for annual salary. The salary ranges for each grade were originally established based upon the TPF&C salary study and have been reevaluated and adjusted annually by the Compensation Committee based upon changes in market conditions and Company performance factors.
CORPORATE PERFORMANCE MEASURES USED TO DETERMINE EXECUTIVE OFFICER COMPENSATION.
Based on Company performance (determined subjectively by the Committee in accordance with the sound business judgment of its members after consideration of earnings per share, revenue growth and established salary ranges, the Committee established a total pool of dollars which was used to provide for increases in annual salary compensation to all employees including the Executive Officers other than the Chairman/CEO and President/COO. The Compensation Committee recommended a proposed salary for the Chairman/CEO and President/COO to the entire Board of Directors (other than the Chairman/CEO and President/COO) which approved the salaries as recommended.
SALARY COMPENSATION. All other Executive Officers' annual salaries were set by the Chairman/CEO and President/COO who were given the authority to set all salaries other than their own so long as (1) the total pool of available dollars allocated for annual salary compensation for Executive Officers was not exceeded and (2) provided each Executive Officer's annual salary was within the established range for the salary grade. In setting Executive Officer salaries the Chairman/CEO and President/COO considered (1) Company performance as measured against management goals approved by the Board of Directors, (2) personal performance in support of Company goals as measured by annual evaluation criteria, and (3) intangible factors and criteria such as payments by competitors for similar positions although no particular weighting of the factors or formula was used.
In recommending the annual salaries of the Chairman/CEO and President/COO, the Committee considered similar criteria as well as the Committee members' assessment of the Company's financial size and condition.
INCENTIVE COMPENSATION. The Company has an Annual Incentive Compensation Plan for Management in which the Executive Officers participate. As a result Executive Officer Compensation is significantly at risk. Incentive compensation for Executive Officers can be as high as 29% of total annual compensation.
Each Executive Officer is assigned a target bonus opportunity based on corporate and personal goals for the year. The actual bonus for each Executive Officer will range from 0% to 125% of the target depending upon results of corporate and personal performance during the year. The current corporate financial measurements are earnings per share and revenue growth. These may vary from year to year as established by the Compensation Committee. Personal performance factors are based on individual (functional) objectives and are tailored for each Executive Officer. A portion of each Executive Officer's incentive award will be based upon the Chairman/CEO and President/COO's discretionary judgment of the individual's overall performance during the plan year.
The incentive compensation for the Chairman/CEO and President/COO is, again, proposed by the Compensation Committee and presented to the full Board of Directors for ratification.
LONG TERM INCENTIVE PLAN COMPENSATION
1994 LONG-TERM INCENTIVE PLAN. In 1993, based upon recommendation of the Compensation Committee, the Company retained the HayGroup to assist in the design of a long term incentive compensation plan for specified key employees, which is known as the "International Speedway Corporation 1994 Long-Term Incentive Plan" (the "1994 Plan"). The 1994 Plan was recommended by the Compensation Committee of the Board of Directors, unanimously approved by all outside directors and ratified by the entire Board of Directors on November 17, 1993. It was approved by the written consent of the holders of a majority of the outstanding shares of the Company on the same date. The purpose of the 1994 Plan was to attract and retain qualified and competent executives by providing significant opportunities for capital accumulation and to enhance the growth and profitability of International Speedway Corporation (the "Company") by focusing on long-term goals and creation of increases in shareholder value. The 1994 Plan set aside restricted stock in the amount of 50,000 old pre 15-1 split shares of common stock for its implementation, which were converted, on the 15-1 basis, into 750,000 shares of Class B Common Stock. Awards of restricted shares of stock were assigned to officers and key employees who were capable of having a significant impact on the performance of the Company. The amount of shares for each initial participant was based primarily on an analysis and recommendations by compensation specialists of the HayGroup. Awards were granted based upon Company performance in fiscal years 1994, 1995 and 1996. The ability to issue additional shares under the 1994 Plan expired after the grants based on fiscal 1996 results. The restricted shares were granted to participants each year based upon the Company's performance as measured against annual financial goals established in advance by the Board of Directors. Several aspects of the 1994 Plan and its implementation are subject to the discretion of the Compensation Committee.
The shares which were granted under the 1994 Plan are initially restricted and do not immediately vest to the participant, but, instead carry a continued employment restriction of 3 years on 50% of the grant and 5 years on the other 50% of the grant. If employment ends prior to the expiration of the vesting period for reasons acceptable to the Compensation Committee (death, disability, retirement, etc.) the Company may determine to vest all or a portion of the unvested and unearned restricted shares. Termination of employment for any other reason will result in forfeiture of all unvested and unearned shares.
Prior to vesting the participant may vote the shares and receive dividends on the restricted shares as granted. Prior to vesting the certificates for the restricted shares are held in escrow by the Company. After vesting the certificates for the restricted shares will be delivered to the participant. The Company has the right of first refusal to buy any stock issued (and vested) under the 1994 Plan which any participant wishes to sell.
1996 LONG-TERM INCENTIVE PLAN
The Company's 1996 Long-term Incentive Plan (the "1996 Plan") was adopted by the Board of Directors in September 1996. The purpose of the 1996 Plan is to attract and retain key employees and consultants of the Company, to provide an incentive for them to achieve long-range performance goals, and to enable them to participate in the long-term growth of the Company.
The 1996 Plan authorizes the grant of stock options (incentive and nonstatutory), stock appreciation rights ("SARs") and restricted stock to employees and consultants of the Company capable of contributing to the Company's performance. The Company has reserved an aggregate of 1,000,000 shares (subject to adjustment for stock splits and similar capital changes) of Class A Common Stock for grants under the 1996 Plan. Incentive Stock Options may be granted only to employees eligible to receive them under the Internal Revenue Code of 1996, as amended.
The Board of Directors has appointed the Compensation Committee (the "Committee") to administer the 1996 Plan. Awards under the 1996 Plan will contain such terms and conditions consistent with the 1996 Plan as the Committee in its discretion approves.
The Committee has discretion to administer the 1996 Plan in the manner which it determines, from time to time, is in the best interest of the Company. For example, the Committee will fix the terms of stock options, SARs and restricted stock grants and determine whether, in the case of options and SARs, they may be exercised immediately or at a later date or dates. Awards may also be granted subject to conditions relating to continued employment and restrictions on transfer. In addition, the Committee may provide, at the time an award is made or at any time thereafter, for the acceleration of a participant's rights or cash settlement upon a change in control of the Company. The terms and conditions of awards need not be the same for each participant. The foregoing examples illustrate, but do not limit, the manner in which the Committee may exercise its authority in administering the 1996 Plan. In addition, all questions of interpretation of the 1996 Plan will be determined by the Committee.
The first awards under the 1996 Plan will be made in April 1998, based upon fiscal 1997 results. The amount of the awards are based upon the Company's performance as measured against annual financial goals established in advance by the Board of Directors. These awards will be restricted shares of Class A Common Stock and will be initially restricted and will not immediately vest to the participant, but, instead carry a continued employment restriction of 3 years on 50% of the grant and 5 years on the other 50% of the grant. If employment ends prior to the expiration of the vesting period for reasons acceptable to the Compensation Committee (death, disability, retirement, etc.) the Company may determine to vest all or a portion of the unvested and unearned restricted shares. Termination of employment for any other reason will result in forfeiture of all unvested and unearned shares.
Prior to vesting the participant may vote the shares and receive dividends on the restricted shares as granted. Prior to vesting the certificates for the restricted shares will be held in escrow by the Company. After vesting the certificates for the restricted shares will be delivered to the participant. The Company has the right of first refusal to buy any stock issued (and vested) under the 1996 Plan which any participant wishes to sell.
COLLATERAL ASSIGNMENT SPLIT-DOLLAR INSURANCE
In October 1995, based upon evaluation and recommendation of the Compensation Committee, the Company entered into collateral assignment split- dollar insurance agreements covering the lives of the Chairman/CEO, the President/COO and their respective spouses. Pursuant to the agreements, the Company will advance 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 the repayment of an amount equal to the cumulative premiums paid by the Company. Although Securities and Exchange Commission (SEC) rules require disclosure of the entire premium advanced by the Company in the Summary Compensation Table, the Compensation Committee determined the compensation aspect of the plan was actually less than the total premium because of the repayment requirement and represented reasonable and appropriate compensation to the covered executives, when considered in light of their total compensation package.
CHAIRMAN/CEO COMPENSATION BASES. The Compensation Committee determined a 15% increase in Chairman/CEO compensation was appropriate in light of the continued growth in earnings per share in 1996.
Thomas W. Staed Chapman J. Root, II Lloyd E. Reuss
PERFORMANCE GRAPH
The rules of the Securities and Exchange Commission ("SEC") require the Company to provide a line graph covering at least the last five fiscal years and comparing the yearly percentage change in the Company's total shareholder return on common stock with the cumulative total return of a broad equity index assuming reinvestment of dividends and the cumulative total return, assuming reinvestment of dividends, of a published industry or line-of-business index; peer issuers selected in good faith; or issuers with similar market capitalization. The graph below compares the cumulative total five year return of the Company's common stock (upon the assumption that an original $100 investment was made in pre-split common stock which automatically converted to Class B Common Stock on November 4, 1996) with that of the index of all NASDAQ stocks and with the 40 NASDAQ issues listed in SIC codes 7900-7999, which encompasses service businesses in the amusement, sports and recreation industry, which includes indoor operations which are not subject to the impact of weather on operations and pari-mutual and other wagering operations. The Company conducts large outdoor sporting and entertainment events which are subject to the impact of weather, and is not involved in pari-mutual or other wagering. The stock price shown has been estimated from the high and low prices for each quarter for which the close is not available. Because of the unique nature of the Company's business and the fact that only short-term public information is available concerning a limited number of companies involved in the same line of business, and no public information is available concerning other companies in that line of business, the Company does not believe that the information presented below is meaningful.
COMPARISON OF FIVE YEAR CUMULATIVE RETURN AMONG INTERNATIONAL SPEEDWAY CORP., NASDAQ Market Index and NASDAQ SIC 7900 Index [The line graph on the information statement furnished to shareholders depicts the plotting of the following information.]
Measurement Period ISC NASDAQ NASDAQ (Fiscal Year Covered) Market SIC 7900 Index Index
Measurement Pt - 11/30/92 $100.00 $100.00 $100.00
FYE* 11/30/93 $131.84 $115.80 $184.90 FYE* 11/30/94 $135.59 $116.00 $110.60 FYE* 11/30/95 $324.64 $165.40 $ 89.30 FYE* 11/30/96 $406.87 $202.60 $ 79.80 FYE 11/30/97 $418.11 $252.30 $ 97.90
* Adjusted to reflect current fiscal year end for comparability purposes.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of January 8, 1998 with respect to the beneficial ownership of the Company's outstanding Class B Common Stock by (i) each person known by the Company to be the beneficial owner of more than 5% of the Class B Common Stock, (ii) each director or Named Officer of the Company who beneficially owns any Class B Common Stock, and (iii) all directors and executive officers of the Company as a group. As described in the notes to the table, voting and/or investment power with respect to certain shares of Common Stock is shared by the named individuals. Consequently, such shares may be shown as beneficially owned by more than one person.
- --------------------- * Less than 1%.
(1) Unless otherwise indicated the address of each of the beneficial owners identified is c/o the Company, 1801 West International Speedway Boulevard, Daytona Beach, Florida 32114. (2) Unless otherwise indicated, each person has sole voting and investment power with respect to all such shares. (3) Reflects the aggregate of 7,600 Class A and 20,312,861 Class B shares indicated in the table as beneficially owned by James C. France, William C. France, Lesa D. Kennedy and Brian Z. France, as well as 4,500 Class A and 845,220 Class B shares held of record by the adult children of James C. France. See footnotes (4), (5) and (7).
(4) Includes (i) 1,500 Class A and 304,725 Class B shares held of record by Sharon M. France, his spouse, (ii) 9,115,125 Class B shares held of record by Western Opportunity Limited Partnership ("Western Opportunity"), (iii) 3,763,750 Class B shares held of record by Carl Investment Limited Partnership ("Carl"), and (iv) 1,874,465 Class B shares held of record by White River Investment Limited Partnership ("White River"). James C. France is the sole shareholder and director of (x) Principal Investment Company, one of the two general partners of Western Opportunity, (y) Quaternary Investment Company, the general partner of Carl, and (z) Secondary Investment Company, one of the two general partners of White River. Also see footnote (5). Does not include an aggregate of 4,500 Class A and 845,220 Class B shares held of record by the adult children of James C. France. (5) Includes (i) 600 Class A and 304,725 Class B shares held of record by Betty Jane France, his spouse, (ii) 9,115,125 Class B shares held of record by Western Opportunity, (iii) 3,763,750 Class B shares held of record by Polk City Limited Partnership ("Polk City"), and (iv) 1,874,465 Class B shares held of record by White River. William C. France is the sole shareholder and director of each of (x) Sierra Central Corp., one of the two general partners of Western Opportunity, (y) Boone County Corporation, the general partner of Polk City, and (z) Cen Rock Corp., one of the two general partners of White River. Also see footnote (4). Does not include the aggregate of 3,000 Class A and 645,095 Class B shares shown in the table as beneficially owned by Lesa D. Kennedy and Brian Z. France, adult children of William C. France. (6) Mr. Farley's address is 655 Third Avenue, Suite 2520, New York, New York 10017. The shares shown include 383,000 Class A shares held by Labrador Partners, L.P. and 51,100 Class A shares held by Farley Capital L.P. (7) Includes (i) 1,500 Class A and 17,295 Class B shares held of record by Ms. Kennedy as custodian for her minor son, Benjamin, and (iii) 15,750 Class B shares held of record as joint tenants with Bruce S. Kennedy, her spouse. (8) This owner's address is 655 Third Avenue, Suite 2520, New York, New York 10017. (9) Includes 150,000 Class B shares owned by American Banks of Florida, Inc. (Mr. Mason serves as President and a director of, and has an 18% interest in, this entity), as to which Mr. Mason disclaims beneficial ownership. (10) This owner's address is 865 S. Figueroa St., Los Angeles, CA 90017. (11) Includes (i) 75,000 Class B shares held of record by Mr. Foster as trustee, and (ii) 65,000 Class B shares held of record by Barbara S. Foster, his spouse, as trustee, as to which Mr. Foster disclaims beneficial ownership. (12) Owned jointly with Barbara Staed, his spouse. (13) Includes 5,000 Class A shares held in the Robert R. Dyson 1987 Family Trust. (14) Includes 795 Class B shares held of record as joint tenants with his spouse. (15) Held of record as joint tenants with Cynthia R. Brown, his spouse. (16) Includes 100 Class B shares held by Mr. Crotty as Trustee for his son and 1,500 shares held by Bellows Falls Investment, Inc. (17) Includes (i) 500 Class A shares held by M. Dale Harris, his spouse, (ii) 1,500 Class A shares held by Mr. Harris as trustee of The Harris, Midyette, Geary, Darby, & Morrell, P.A. Profit Sharing Plan and Trust, (iii) 100 Class A shares held by Mr. Harris as Trustee of the Harris Children's Trust as to which Mr. Harris disclaims beneficial ownership. (18) See footnotes (4),(5), (7), (9) and (11) through (17).
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
NASCAR, which sanctions most of the Company's major racing events, is controlled by William C. France and James C. France. Standard NASCAR sanction agreements require racetrack operators to pay various monies to NASCAR for each sanction event conducted. Included are sanction fees and prize and point fund monies. The prize and point fund monies are distributed by NASCAR to participants in the events. The aggregate NASCAR sanction fees and prize and point fund monies paid by the Company with respect to fiscal 1995, 1996 and 1997 were $11.8 million, $13.9 million, and $20.6 million, respectively.
In addition, NASCAR and the Company share a variety of expenses in the ordinary course of business. NASCAR pays rent to the Company for office space based upon estimated fair market lease rates for comparable facilities. NASCAR also reimburses the Company for 50% of the compensation paid to personnel working in the Company's legal and risk management departments, as well as 50% of the compensation expense associated with receptionists and the Company's archive departments. The Company's payments to NASCAR for MRN Radio's broadcast rights to Craftsman Truck Series races represents an agreed-upon percentage of the Company's advertising revenues attributable to such race broadcasts. NASCAR's reimbursement for use of the Company's mail room, graphics and publications departments, and the Company's reimbursement of NASCAR for use of corporate aircraft, is based on actual usage. The aggregate amount paid by the Company to NASCAR for shared expenses, net of the amounts received from NASCAR for shared expenses, totaled approximately $71,000, $359,000, and $720,000 during fiscal 1995, 1996 and 1997, respectively. 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 could be obtained in arms'-length negotiations.
J. Hyatt Brown, a director of the Company, serves as President and Chief Executive Officer of Poe & Brown, Inc. ("Poe"). Poe has received commissions for serving as the Company's insurance broker for several of the Company's insurance policies, including its property and casualty policy, certain employee benefit programs and the split-dollar arrangements established for the benefit of William C. France, James C. France and their respective spouses. The aggregate commissions received by Poe in connection with Company policies were approximately $80,000, $294,000 and $166,000 during fiscal 1995, 1996 and 1997, respectively.
All of these transactions, payments and exchanges are considered normal in the ordinary course of business. Transactions, payments and exchanges similar to all of the above are planned during the Company's current fiscal year.
PART IV ITEM 14.
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as a part of this report
1. Consolidated Financial Statements listed below:
Consolidated Balance Sheets - November 30, 1996 and 1997
Consolidated Statements of Income - Years ended August 31, 1995 and 1996, three months ended November 30, 1996 and year ended November 30, 1997
Consolidated Statements of Shareholders' Equity - Years ended August 31, 1995 and 1996, three months ended November 30, 1996 and year ended November 30, 1997
Consolidated Statements of Cash Flows - Years ended August 31, 1995 and 1996, three months ended November 30, 1996 and year ended November 30, 1997
Notes to Consolidated Financial Statements
2. Consolidated Financial Statement Schedules listed below:
II - Valuation and qualifying accounts
All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the financial statements and notes thereto.
3. Exhibits:
Exhibit Number Description of Exhibit Filing Status
1. (3)(i) - Articles of Incorporation filed herewith 2. (3)(ii) - By-Laws filed herewith 3. (10) - Daytona Property Lease filed herewith 4. (10) - 1994 Long-Term Incentive Plan* filed herewith 5. (10) - 1996 Long-Term Incentive Plan* filed herewith 6. (10) - Split-Dollar Agreement (WCF)* filed herewith 7. (10) - Split-Dollar Agreement (JCF)* filed herewith 8. (22) - Subsidiaries of the Registrant filed herewith 9. (27) - Financial Data Schedule filed herewith
* Compensatory Plan required to be filed as an exhibit pursuant to Item 14(c).
(b) Reports on Form 8-K During the fourth quarter of the period covered by this report the Company filed no reports on Form 8-K.
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
INTERNATIONAL SPEEDWAY CORPORATION
DATE: February 18, 1998 /s/ William C. France William C. France, Chairman, Chief Executive Officer & Director
DATE: February 18, 1998 /s/ Susan G. Schandel Susan G. Schandel Chief Financial Officer
DATE: February 18, 1998 /s/ James C. France James C. France Director
DATE: February 18, 1998 /s/ Lesa D. Kennedy Lesa D. Kennedy Director
DATE: February 18, 1998 /s/ H. Lee Combs H. Lee Combs Director
DATE: February 18, 1998 /s/ James H. Foster James H. Foster Director
DATE: February 18, 1998 /s/ J. Hyatt Brown J. Hyatt Brown Director
DATE: February 18, 1998 /s/ Brian Z. France Brian Z. France Director
DATE: February 18, 1998 /s/ Raymond K. Mason, Jr. Raymond K. Mason, Jr. Director
DATE: February 18, 1998 /s/ Daniel W. Houser Daniel W. Houser Controller