out in front of motorsports...
TRANSCRIPT
Driven by a Dream
He was able to break ground with the help of investors, and in 1959,
that dream became a reality with the opening of Daytona International
Speedway. Much has changed since then.
In fiscal 2007, we celebrated the 49th running of The Great American
Race, the Daytona 500. For nearly half a century, we have promoted
racing on the high banks of Daytona International Speedway. Since the
first green flag in 1959, our Company has embarked on a long and
successful path of growth to become a leader in motorsports entertainment.
Complementing the vision of Big Bill was the steady hand of his wife,
Anne B. France, who ensured the company remained on solid financial
footing. Both Big Bill and Anne established the foundation upon which the
following generations of the France family would build the great American
success story. Beginning with a dream of a single superspeedway
in Florida, ISC has evolved into a preeminent leader in motorsports
entertainment with 13 major motorsports facilities in key markets across the
country. The company also boasts significant breadth of assets to provide
fans and corporate partners with a positive experience, and keep them
returning year after year.
INTERNATIONAL SPEEDWAY CORPORATION 1
In 1957, “Big” Bill France’s innovative vision of a superspeedway capable of hosting the country’s most premier auto races began to take shape.
Letter to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Management’s Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . 42
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . 46
Reports of Independent Registered Public Accounting Firm . . . . . . . . . . . 68
Report of Management on Internal Control
Over Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Market Price of and Dividends on Registrant’s Common Equity
and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . 71
Other Corporate Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Board of Directors . . . . . . . . . . . . . . . . . . . . . . . Inside Back Cover
Table of Contents
Driven by a Dream
He was able to break ground with the help of investors, and in 1959,
that dream became a reality with the opening of Daytona International
Speedway. Much has changed since then.
In fiscal 2007, we celebrated the 49th running of The Great American
Race, the Daytona 500. For nearly half a century, we have promoted
racing on the high banks of Daytona International Speedway. Since the
first green flag in 1959, our Company has embarked on a long and
successful path of growth to become a leader in motorsports entertainment.
Complementing the vision of Big Bill was the steady hand of his wife,
Anne B. France, who ensured the company remained on solid financial
footing. Both Big Bill and Anne established the foundation upon which the
following generations of the France family would build the great American
success story. Beginning with a dream of a single superspeedway
in Florida, ISC has evolved into a preeminent leader in motorsports
entertainment with 13 major motorsports facilities in key markets across the
country. The company also boasts significant breadth of assets to provide
fans and corporate partners with a positive experience, and keep them
returning year after year.
INTERNATIONALSPEEDWAYCORPORATION 1
In 1957, “Big” Bill France’s innovative vision of a superspeedway capable of hosting the country’s most premier auto races began to take shape.
2 | 3 INTERNATIONALSPEEDWAYCORPORATION
William C. France,ChairmanoftheBoardLesa France Kennedy,PresidentJames C. France,ChiefExecutiveOfficer
of NEXTEL Cup sell-outs, demonstrating the broad
popularity of that facility. Other significant highlights
for the year included the earliest sell-out in Darlington
Raceway’s history, which is even more compelling
given the addition of 3,000 grandstand seats for
the 2006 race weekend. In addition, Talladega
Superspeedway hosted a thrilling inaugural NASCAR
Craftsman Truck race on its newly-paved racing
surface, and recorded 63 lead changes among 23
drivers before a near-capacity crowd for the NEXTEL
Cup UAW-Ford 500. Finally, the NEXTEL Cup Ford
400 at Homestead-Miami Speedway sold out nearly
five months in advance. More than 4,000 temporary
seats were added to the facility to help meet demand,
and this additional capacity was also sold. We
expect the solid momentum in consumer demand to
continue into 2007.
In certain markets in 2006, however, regional
economic conditions and weather impacted
short-term results. For example, economic weakness
in Michigan affected Michigan International
Speedway’s events. In addition, challenging weather
trends in recent years impacted Daytona International
Speedway’s summer NEXTEL Cup event weekend
in 2006. We are addressing these issues through
more aggressive consumer marketing to new and
former customers, expanding our marketing reach to
a broader footprint, and continuing to improve the fan
experience at these facilities.
The record results were driven by double-digit increases
in television broadcast rights revenue and corporate
spending for our events, providing further evidence that
ISC is the partner of choice for corporate sponsors.
Also fueling the full year financial results of 2006 was
solid consumer demand for our major races.
From an industry perspective, 2006 was another
strong year for NASCAR racing and we believe
the stage is set for continued future success. While
television results for the NASCAR NEXTEL Cup and
Busch series experienced some softness, it is important
to note that 2006 television results for the NEXTEL Cup
are comparable to 2004, and the Busch Series posted
a 13 percent increase over 2004. The sport remains a
very strong television property and is well positioned
to reach new heights in the coming years. Moreover,
several new developments expected to occur in 2007
will further propel fan and media awareness, including
new television partners such as ABC/ESPN, the entry
of Toyota into the NEXTEL Cup and Busch series, the
introduction of the Car of Tomorrow, the return of top
tier NASCAR racing to Canada, and an expanded
field for the Chase for the NASCAR NEXTEL Cup to
twelve drivers. We remain very bullish for the future of
NASCAR racing in North America.
The 2006 race season kicked off with a highly
successful Speedweeks, featuring the earliest sell-out
for the Daytona 500 in several years. Richmond
International Raceway continued its long track-record
Dear ISC Shareholder,Fiscal 2006 marked a year of significant accomplishments for International Speedway Corporation (“ISC” or the “Company”). We once again posted record full-year financial results, highlighted by an eight percent growth in revenue.
The weekend will feature exciting on-track competition
from the NASCAR Busch Series and Grand-Am Rolex
Sports Car Series presented by Crown Royal Special
Reserve. Montreal has a long and rich racing tradition
and is a key market for major motorsports. We are
very excited to partner with such a proven operator as
GMI, who also successfully promotes the Canadian
Formula One event, and look forward to a long and
fruitful relationship.
Later in 2006, we announced an agreement to
acquire an additional 37.5 percent of Raceway
Associates LLC, owner and operator of Chicagoland
Speedway and Route 66 Raceway, from Indianapolis
Motor Speedway Corp. ISC also initiated its call rights
to acquire the remaining minority stake and take full
ownership of both facilities. Chicagoland Speedway is
a highly attractive asset and will effectively complement
our portfolio of premier motorsports facilities. We
expect to build upon the prior successes of the facility
to enhance the fan experience through prudent
investments, and drive incremental value by leveraging
our corporate relationships.
The Company continued to make progress on its
development efforts in Washington state in fiscal 2006.
ISC representatives met with local and state elected
ISC continued to successfully grow its corporate
sponsorship and hospitality revenue in 2006. The
Company capitalized on major multi-year partnerships
with well known brands such as Anheuser-Busch, Bank
of America and Crown Royal, to name a few. Industry
research shows that the average NASCAR fan is three
times more likely to purchase or try sponsors’ goods
and services than a non-fan. Even more compelling,
race-attending NASCAR fans are twice as likely as
average fans to purchase or try sponsors’ goods and
services. Our nationwide portfolio of premier facilities,
hosting events in nearly every month of the racing
season, provides sponsors with year-long visibility and
access to the “sweet spot” of the NASCAR fan base.
In addition, we incorporate our integrated media
properties, such as MRN Radio, NEXTEL Vision, ISC
Publications and RacingOne.com/RacingUno.com, to
allow our partners to effectively reach consumers with
targeted marketing communications.
During 2006, we continued to position the company
for future growth by capitalizing on several external
opportunities. First, ISC announced its initial entry into
the international market by partnering with Groupe
Motorisé International to host and promote an event
weekend in Montreal, Quebec, beginning in 2007.
4 | 5 INTERNATIONALSPEEDWAYCORPORATION
consumer and corporate marketing initiatives to
generate long-term revenue growth. In addition, we
will continue our strategy of prudent capital investments
in our existing facilities to further enhance the guest
experience and generate incremental revenue for
the Company. For fiscal 2007, we have announced
significant club and seat additions at Richmond, and
seat enhancements and new specialty vehicle parking
areas at Michigan International Speedway.
Lastly, we will continue to explore external growth
opportunities that complement our business and help
drive additional shareholder value. In addition to our
external development efforts, we look forward to a
successful coming year with Motorsports Authentics,
our licensing and merchandising joint venture with
Speedway Motorsports. We expect the joint venture to
become profitable in 2007 and positively contribute to
our full year results.
From an industry perspective, in addition to the
entry of Toyota into NEXTEL Cup and Busch racing and
introduction of NASCAR’s Car of Tomorrow, the 2007
race season marks the beginning of NASCAR’s eight
year domestic broadcast rights agreement with FOX,
ABC/ESPN and TNT. These significant $4.5 billion
relationships represent a 40 percent increase in the
average annual rights fees, providing long-term revenue
and cash flow visibility. More importantly, 2007 marks
the return of ABC/ESPN to NASCAR racing. ESPN
helped propel the sport into the mainstream throughout
the 1980s and 1990s, and we believe its return will
further establish the sport as an American phenomenon.
We anticipate another strong year for ISC as
we continue to execute our proven business plan to
enhance long-term shareholder value.
officials, and generated significant grassroots support
for the proposed motorsports and multi-use recreational
facility in Kitsap County. Most recently, Washington
State Lt. Governor Brad Owen, a strong supporter of
the project, requested legislation that was introduced
into the 2007 session. We look forward to successfully
proceeding through the hearings and receiving
approval later this year.
In addition to our efforts in the Pacific Northwest,
we recently announced our intention to evaluate the
possibility of a public-private partnership to develop
a motorsports entertainment facility in the Denver
metropolitan area. As a top-20 media market and
home to a significant number of fans, we view the
greater Denver region as a logical location for the sport
to expand, and we look forward to working closely with
the local communities over the coming months.
In New York, while we are disappointed that we
could not proceed with our speedway development
effort on Staten Island, we remain committed to
developing a speedway in the metropolitan New
York area. We believe a premier facility in the nation’s
number one media market, as well as NASCAR’s
second largest television viewing market, is a significant
long-term opportunity for the Company. Therefore, we
will continue our efforts to identify a suitable location
for a future development in the region. Concurrently,
we expect to continue to conduct fill work on our
676 acres on Staten Island, as we explore the best
alternative strategy for the acreage including selling a
portion or all of the property, or potentially developing
the acreage with a third party.
Looking ahead, ISC remains well positioned to
leverage its core assets to help drive the future success
of major motorsports. We have implemented strategic
Thank you for your continued support and we’ll see you at the races!
2007 marks the beginning of NASCAR’s new
combined eight-year domestic television broadcast
rights agreements with FOX, TNT, and ABC/ESPN.
These important $4.5 billion agreements will further
establish NASCAR racing in the American sports
mainstream. From a track operator perspective, the
new agreement provides significant cash flow visibility
and represents a 40 percent increase over the
average annual rights fee of the prior agreements.
At the industry level, the new agreements will help
further drive the sport’s popularity and expand its
reach to new fans across the country.
Strong Industry Momentum2006 was a successful year from an industry perspective and the sport’s momentum remains strong. Looking ahead to 2007, several upcoming developments are expected to help further raise NASCAR racing’s profile to fans and media.
6 | 7 INTERNATIONALSPEEDWAYCORPORATION
sports, ESPN will support its role through increased
racing-themed programming throughout the week and
broader coverage in its weekly news programming. In
addition, ESPN2 will broadcast substantially all of the
NASCAR Busch Series, providing that growing series
with the continuity and promotional support that will
allow it to flourish.
Other significant developments include NASCAR’s
introduction of the Car of Tomorrow at 16 NASCAR
NEXTEL Cup Series events beginning in 2007, as well
as the return of top tier NASCAR racing to Canada.
The Car of Tomorrow is designed to provide the
most technologically advanced safety enhancements
for competitors. Driver safety is in the forefront of
NASCAR’s initiatives, and the Car of Tomorrow is
the culmination of years of research. In addition, the
Car of Tomorrow is designed to enhance competition
by enabling more passing and side-by-side racing.
Also, the new vehicles are designed in a manner that
will ultimately result in cost efficiencies for race teams,
allowing more teams to effectively compete at the
highest level of motorsports.
Daytona International Speedway is the home of “The Great American Race”—the Daytona 500—NASCAR’s biggest, richest and most
prestigious race in America and NASCAR’s Pepsi 400—the Mid-Summer Spectacular under the lights. Daytona boasts the most diverse schedule
of racing on the globe—from stock cars, sports cars, go karts and motorcycles—earning it the title of “World Center of Racing.”
FOX and TNT have been strong supporters of
NASCAR racing since 2001, and both have played a
major role in the sports’ meteoric climb in popularity.
We expect to see ongoing broadcast innovation
in their coverage as they continue to air NASCAR
racing events.
Even more notable for 2007 is the return of ESPN
to the sport, which it helped build throughout the
1980s and 1990s. Toward the close of the 2006
season, there was a marked increase in coverage
of NASCAR racing on ESPN, including special,
racing-themed programming. It is expected that, as
the network has done with the NFL and other major
The 2007 staging of the NASCAR Busch Series in
Montreal marks the return of top division NASCAR
competition to Canada. This is an important part of
NASCAR’s initiative to grow awareness throughout
North America and further integrates NASCAR into
the Canadian motorsports landscape.
Lastly, several new entries into the sport will surely
have an immediate positive impact on its profile.
First, Toyota will make its debut in the NASCAR
NEXTEL Cup and Busch series in 2007. Toyota
Racing Development has a long history of successfully
competing among the world’s top tiers of motorsports,
having recently completed its third year competing
in the NASCAR Craftsman Truck Series by
collecting 12 wins, 15 pole positions and the series
8 | 9 INTERNATIONALSPEEDWAYCORPORATION
Located just 45 miles east of downtown Los Angeles, California Speedway hosts two NASCAR NEXTEL Cup events annually and offers the ultimate fan experience with the new, multi-million dollar Opportunity, California FanZone featuring the Apex restaurant by Wolfgang Puck, the Impulse retail store, an entertainment stage and the Motorola Town Center.
championship with Todd Bodine. Toyota will bring that
expertise and track-record to the most popular form of
motorsports in the U.S. Toyota has aligned itself with
some popular drivers and teams in the NEXTEL Cup
and Busch series, and will support its role through
significant promotion and advertising, further raising
awareness among fans and media.
In addition, several well-known drivers from other
major racing series will now compete at the highest
level of stock car racing, including Formula One star
and former Indy 500 Champion Juan Pablo Montoya
and former open wheel star A. J. Almendinger. These
drivers have a significant fan following, and their
progress will be closely watched over the coming year.
Corporate sponsorship and hospitality revenues
achieved a double-digit increase in 2006, driven by
major multi-year partnerships with such well known
names as Anheuser-Busch, Bank of America, Crown
Royal, Elizabeth Arden and Tissot.
ISC has become the partner of choice for corporate
sponsors looking to enter or further capitalize on the
business-building opportunities and properties in the
motorsports industry. We deliver premier facilities and
events all year long, from the season-opening Daytona
500 to season finale Ford 400 at Homestead-Miami
Speedway. We host more than half of the NASCAR
NEXTEL Cup schedule, including five of the ten races
in the NEXTEL Cup Chase for the Championship. ISC
also boasts a nationwide reach, providing partners
Continued Strength in Corporate MarketingCorporate sponsorship and hospitality are expected to be among our fastest growing revenue streams over the next few years.We intend to continue maximizing these revenues by leveraging our assets, facilities, media properties, business operations and intellectual property to further drive corporate sales.
10 | 11 INTERNATIONALSPEEDWAYCORPORATION
In six short years of existence, this state-of-the-art facility is already home to some of the most exciting moments in motorsports history. Chicagoland Speedway continues to transform into a place where the energy is powerful and the power is unforgettable—fueling the ride of a lifetime.
sponsorship and hospitality revenue by providing
customized marketing platforms designed to meet the
objectives of our individual marketing partners. Official
status relationships will remain as an area of significant
growth in the coming years. In 2006, approximately
50 percent of our total gross sponsorship revenue was
driven from multi-year official status agreements, and
this is expected to continue growing as businesses
look to establish a broader presence in the industry.
In addition, we will continue to identify and leverage
marketing opportunities across our physical assets,
including newly renovated or constructed amenities, to
provide innovative and unique marketing platforms, such
as the Opportunity, California FanZone at California
Speedway and the NEXTEL FanZone at Daytona.
with access to 13 major facilities across the country,
including five of the top 11 media markets. In fact,
80 percent of the U.S. population resides within a
400-mile radius of our facilities.
In addition to events and facilities, ISC possesses
significant breadth of assets including various media
assets, intellectual property and operational support
services to deliver a full suite of turn-key solutions for
fully-integrated media and marketing platforms. We
help our partners effectively reach potential consumers
and generate tangible returns on their investment.
Also, our assets afford us the flexibility to tailor
sponsorship programs for any size company, from
regional businesses to Fortune 500 corporations.
For 2007 and beyond, we will continue to grow
In addition to identifying new areas for promotion,
we place significant resources in working closely with
our existing partners. Our partnership management
group is a leader in the industry. They not only provide
the critical account support necessary to maintain good
client relationships, but they also provide significant
strategic value by identifying potential opportunities
for more effective promotion to better meet our clients’
objectives. Partnership management representatives are
integral members of our partners’ marketing teams, and
we will continue to build upon their success.
As mentioned earlier, ISC possesses significant media
properties including MRN Radio, ISC Publications,
NEXTEL Vision, RacingOne.com/RacingUno.com
and others. Collectively, these properties can be
incorporated into sponsor relationships to provide
targeted advertising and marketing communications
leading up to and during an event. Sponsors can
leverage these assets to complement their position
through production services, media activation and
promotion. Over the past few years, we have taken
12 | 13 INTERNATIONALSPEEDWAYCORPORATION
Having sold out 30 (and counting) consecutive NASCAR NEXTEL Cup Series races, Richmond International Raceway—America’s Premier Short Track—is perhaps the most universally loved track among fans, drivers, team owners and the media. Richmond is the only track to hold all of its major events “under the lights.”
a more integrated solutions approach to consolidate
and continue to build our media channels and
syndication of content to further expand the sport’s
reach, while building various ISC brands and those of
our partners.
Corporate sponsors view ISC as an efficient and
effective marketing tool for their business. Boasting
the largest base of corporate marketing partners in
the sport, we also facilitate business to business and
cross promotional opportunities between partners to
maximize the reach and efficiency of their programs.
First, we are employing traditional brand
management techniques across all our speedway
properties and businesses. Each of our facilities
is unique geographically as well as in the style of
racing, its placement on the race schedule, and
whether it is a night or day race. They deliver a
one-of-a-kind experience for guests and competitors,
We expect this momentum to continue into fiscal
2007 and beyond, as the sport enters new markets
and attracts additional fans.
As the fan base continues to grow, its needs and
expectations become more diversified. Therefore, we
continually invest capital and resources to meet these
changing expectations. We want guests to have a
positive and memorable experience from the moment
they purchase their ticket to the time they return home.
Doing so will increase renewals, help drive advanced
sales and increase attendance-related revenue for our
non-sold-out events. As such, we have implemented
innovative and integrated consumer marketing
strategies that span several results-oriented initiatives.
Innovative Consumer MarketingRace fans are the foundation of our business. Consumer demand remained strong during fiscal 2006, beginning with the earliest sell-out of the Daytona 500 in several years and ending with a five-month advanced sell-out for the Ford 400 NASCAR NEXTEL Cup Series finale at Homestead-Miami Speedway.
14 | 15 INTERNATIONALSPEEDWAYCORPORATION
Over the last several years, we have made
significant investments in proprietary technology
designed to improve consumer communication and
interaction, and enhance the sales process. These
investments have generated solid results. For example,
our contact center and internet ticket sales account for
nearly half of all ticket sales for 2006, compared to
only 25 percent in 2003, the first year the call center
was placed in service. In addition, during the past
year we implemented new technologies, including
speech recognition capabilities and targeted out-
bound calling featuring the voice of popular drivers,
which have resulted in up- and cross-sell opportunities.
Looking ahead, we will continue to maximize the
utilization of our existing assets and technology, while
continuing to solicit consumer feedback and conduct
market research to further understand and meet the
needs of fans.
and we expect to leverage that uniqueness to build
a connection with fans and further drive consumer
demand. In addition, we will continue to incorporate
our collective media properties to help further
establish a sense of community within our fan base.
These media channels and their content provide
consumers with easily accessible, up-to-date facility
and event information as well as the latest news and
developments in the sport.
Since 1969, Talladega Superspeedway has set the standard among race fans as the destination that delivers entertainment value rivaled by none, on and off the track. Thousands of loyal fans return each year to witness the most competitive racing on the NASCAR circuit.
In addition, multi-cultural marketing initiatives are
critical for us to gain a greater share of the rapidly
growing segments of our fan base. ISC facilities are
located in or near key markets such as Los Angeles,
Miami, Phoenix, Chicago and Washington, D.C.,
and we have initiated programs to reach out to
diverse race fans in these communities. Our efforts
complement NASCAR’s Drive for Diversity initiatives,
helping bring the sport of NASCAR racing to a
broader audience and to ultimately have its fan base
more closely resemble the overall U.S. population.
We also continue to leverage cross-promotional
programs and opportunities with our marketing
partners to reach consumers through non-traditional
channels. In 2006, we partnered with UPS for a ticket
promotion to five ISC facilities, which was sent to their
employee base of more than 340,000 people. Over
the coming year we will partner with such well-known
brands as AAA, Checkers/Rally’s, and Pepsi for
promotional programs designed to reach a broader
universe of consumers and build event awareness.
16 | 17 INTERNATIONALSPEEDWAYCORPORATION
Ongoing investment of capital into our existing
facilities to enhance fan amenities is critical to
meeting the needs of our guests, and also generates
incremental revenue growth. Projects for 2006
included renovated suites and seats at Phoenix
International Raceway, with a very successful high-end
club that caters to fans desiring a more exclusive
and premium race experience. We also redesigned
the midway area at California Speedway, called
Opportunity, California FanZone, which includes
a high-end bistro, Apex by Wolfgang Puck. Fan
response was overwhelmingly positive, as guests
enjoyed the celebrity chef’s signature cuisine. Lastly,
we constructed additional grandstand seating at
Darlington Raceway, including better sight lines
and more comfortable seats. The facility posted
its earliest sell-out in history including the
increased capacity.
The spectacle of an event at Michigan International Speedway creates indelible
images and memories that will last a lifetime. Located in the automotive manufacturing capital of the world, Michigan embodies
America’s love for cars, speed, and competition.
For the coming year, we are building a new
grandstand and club seat section at Richmond
International Raceway that will result in a net addition
of nearly 5,000 seats. Construction is also currently
underway at Michigan International Speedway to
improve seating and add a new specialty vehicle
parking area near pit road, and at California
Speedway to improve sight lines of the back stretch
for race fans.
In addition to facility upgrades, we continue to
improve the experience for fans departing our events.
We have partnered with Gameday Management,
a national transportation specialist, and with local
transportation officials to improve ingress and egress
at a number of our facilities around the country.
In 2006, travel time for fans exiting our NASCAR
NEXTEL Cup event in Michigan decreased nearly
30 percent from the facility’s June event. In addition,
at California Speedway’s SONY HD 500,
post-race traffic cleared and returned to normal in
just slightly over two hours, significantly quicker than
prior events. We continue to work more closely with
our local communities and external resources to
explore additional opportunities to enhance the
fan experience.
The NASCAR NEXTEL Cup Series will enter its 20th year of navigating the tricky backstretch dogleg of Phoenix
International Raceway in 2007. Since 1988, drivers have called the one-mile oval in the desert a great track for the challenge it presents to all cars that take the green flag.
Indianapolis Motor Speedway Corp. and exercising
its option to call the minority partners’ 25 percent
share. Located in the nation’s third largest media
market, Chicagoland Speedway will make a significant
immediate and long-term contribution to our portfolio.
We believe there are potential opportunities for
increased revenue through the addition of enhanced
fan amenities, club seating, fan zones, and other unique
experiences. Also, as has occurred with other facilities,
we will leverage our relationships with corporate
partners to drive incremental value to that facility.
Our development efforts continue to make progress
in the state of Washington. During the past year we
have conducted outreach to build awareness and
generate support both at the state and local levels.
These efforts have generated significant results as over
350 local business and 50 community organizations
have endorsed the project. In addition, we boast a
database of over 35,000 resident supporters in favor
In 2006, ISC entered into a limited partnership
with Groupe Motorisé International to market and
host certain events at the Circuit Gilles Villeneuve
in Montreal, Quebec, beginning in 2007. The race
weekend is scheduled for early August 2007 and
includes the NASCAR Busch Series and the Grand-Am
Rolex Sports Car Series Presented by Crown Royal.
With nearly six million adult NASCAR fans throughout
Canada, this opportunity complements our strategy
of positioning our events in key markets. In addition,
we are very proud to have partnered with such an
experienced promoter as GMI. They have successfully
hosted many racing events over the years, and have
owned the exclusive promotion rights to the Formula
One Canadian Grand Prix since 1996.
In February 2007, ISC closed on the purchase
of Raceway Associates LLC, owner and operator of
Chicagoland Speedway and Route 66 Raceway, by
purchasing an additional 37.5 percent interest from
Expanding the Fan BaseNew market penetration further expands the sport’s following and creates opportunities for future growth.
18 | 19 INTERNATIONALSPEEDWAYCORPORATION
further discussion with the various local communities
concerning this important opportunity during the
coming year.
We continue our search for a potential speedway
development site in the metropolitan New York City
area. While we were disappointed we could not
proceed with the Staten Island location, we continue
to believe that a premier motorsports facility in the
nation’s top media market is an important strategic and
operational opportunity for ISC.
Fill work on the 676 acres the Company owns on
Staten Island will continue through 2008 and we
have begun to research and develop market demand
studies to assist in our evaluation of various alternative
strategies. These alternatives include selling the property
in whole or in parts, or potentially developing the
property with a third party for a non-speedway use.
As the property is the largest tract of undeveloped
acreage in the five boroughs of New York City, we
believe the property will be attractive to a number of
developers and users in the market.
Located in the heartland of the country, Kansas Speedway has become a fan
favorite for outstanding competition and a fan-friendly atmosphere. On a NASCAR
NEXTEL Cup Series weekend, Kansas Speedway is the fourth largest city in the
state of Kansas.
With its friendly staff and South Florida’s sunny weather, Homestead-Miami Speedway is the perfect destination for fast-paced fun. Excitement begins at Homestead-Miami each year with the first race of the IndyCar Series season and culminates with the season finales for all three national NASCAR series.
of a motorsports and multi-use recreational facility
in Kitsap County, Washington. The necessary
legislation to create the financing vehicle has been
introduced into the state legislature as a request bill
from Lt. Governor Brad Owen. We look forward to
successfully completing the legislative process with an
eye toward racing in 2011.
In addition, we are evaluating two separate sites for
the development of a motorsports entertainment facility
near Denver International Airport. Many racing fans live
in metropolitan Denver, and its media market rank of
18th largest in the country makes it attractive to potential
corporate partners. Similar to our effort in the Pacific
Northwest, we believe a public-private partnership will
result in a win-win for all involved, and look forward to
Several ISC subsidiaries were primarily established
to enhance the fan experience during racing events.
However, as these business units have evolved and
grown, so have the potential opportunities to drive
additional revenue and earnings growth for ISC. In
addition, the Company possesses significant assets,
which can be leveraged to drive additional value for
shareholders and contribute to our overall success.
MRN Radio had another successful year in 2006.
The country’s largest independent sports radio
network continued to expand its presence and bring
motorsports to new fans throughout the country. As part
of its agreement to become the Official Satellite Radio
of NASCAR beginning in 2007, Sirius Satellite Radio
has partnered with MRN Radio for race content and
production services. In addition, MRN Radio signed a
major five year agreement with ESPN Deportes Radio
Growth of Ancillary BusinessesWe continue to leverage our core expertise and significant assets to capitalize on additional growth opportunities for the Company.
20 | 21 INTERNATIONALSPEEDWAYCORPORATION
for the production of certain programming beginning
in the 2007 race season. This groundbreaking
partnership complements our multi-cultural marketing
initiatives by expanding NASCAR racing’s reach into
the U.S. Hispanic community.
Americrown, our catering, concessions and
merchandising subsidiary, continues to contribute to the
overall success of the Company. This was particularly
true in 2006 as a result of Americrown’s initiatives to
streamline operations, thereby increasing revenues and
lowering costs. The subsidiary will continue to explore
opportunities to leverage its existing assets to drive
revenue and profitability. Americrown remains focused
on providing fans with the highest quality products,
both in concessions and merchandise, in a fan-friendly
shopping environment. In addition, Americrown is
committed to providing top-notch quality catering
service and offering a flexible and high-end line of
cuisine options for our club level and luxury suite guests.
The overall fan experience is paramount to our success,
and Americrown is a key contributor to that goal.
Martinsville Speedway celebrates its 60th anniversary this season, but the years haven’t slowed the track that brings new meaning to
“contact sports.” It remains one of the toughest tracks for drivers to navigate, making it a fan
favorite year after year.
2006 marked an important first year for Motorsports
Authentics, our 50/50 joint venture with Speedway
Motorsports, as the company made significant progress
in its strategy to create an environment that drives future
profitability. Moving forward, Motorsports Authentics
plans to further improve and expand distribution
channels and enhance its product offering, including
more differentiated lines of merchandise to increase
consumer appeal. We believe significant opportunities
exist in licensed merchandise and apparel sales for
NASCAR racing, and expect Motorsports Authentics to
be a long-term contributor to ISC’s bottom line.
22 | 23 INTERNATIONALSPEEDWAYCORPORATION
Watkins Glen International, considered
‘The Soul of American Road Racing’, is a
permanent road course that hosted the United
States Grand Prix from 1961-1980 and for the 21st year continues to
host the NASCAR NEXTEL Cup Series each August.
Finally, we continue to evaluate opportunities to
maximize the value of our significant land assets. In
Daytona Beach, we are pursuing a potential mixed-
use development on the approximately 71 acres
we currently own across from Daytona International
Speedway. In addition to replacing our corporate
headquarters, we believe an entertainment and
destination-style development will successfully
complement the speedway and offer visitors a unique
and exciting experience unlike any in the area. We
will also continue to acquire land in and around our
facilities to capitalize on future capital projects such as
facility expansion or amenity enhancements.
2007 will mark NASCAR’s 58th consecutive year of competition at the legendary Darlington Raceway, best-known for her unique configuration. A last-minute change during the construction process resulted in a track that is egg-shaped rather than oval, eventually giving birth to her famous nickname—the track “Too Tough To Tame.”
Seattle
New York City
The Company continues to have a strong financial
position and enjoys significant visibility of its future
operating results. We will continue to evaluate our
capital allocation strategy and, as appropriate, return
capital to shareholders. Combined with the successful
execution of our sound business plan, we believe
this strategy reflects a balanced approach that will
enhance shareholder value and further position the
Company for long-term success.
Looking toward the future, we will continue to build
upon those same principles to maximize revenue
from our existing businesses, while leveraging our
expertise to identify additional growth opportunities.
We continue to be bullish on the future of major
motorsports in North America, particularly NASCAR
racing, and we are uniquely positioned to help
the industry move forward and capitalize on its
continued success.
Poised for Successful Future ISC’s outstanding track record of growth has resulted from successful execution of our sound business plan, which was built upon strong fundamentals and financial acumen.
24 | 25 INTERNATIONALSPEEDWAYCORPORATION
Denver
External Expansion Opportunities
(1) ReflectstheaccountingfordiscontinuedoperationsofNorthCarolinaSpeedway(“NorthCarolina”),whichwassoldonJuly1,2004,andNazarethSpeedway(“Nazareth”)whichiscurrentlyheldforsale.Thelossfromdiscontinuedoperationsinfiscal2002includestheadoptionofStatementofFinancialAccountingStandard(“SFAS”)No.142,whichresultedinanon-cashafter-taxchargeofapproximately$64.0million.Thelossfromdiscontinuedoperationsinfiscal2004includesthenon-cashafter-taximpairmentofNazareth’slong-livedassetsofapproximately$8.6million.Thediscontinuedoperationsinfiscal2005includesthesubsequentnon-cashafter-taxwrite-upofcertaingrandstandassetsatNazareth,whichwererelocatedtoandusedatDarlingtonRaceway(“Darlington”)infiscal2006,ofapproximately$471,000.
(2) ReflectstheadoptionofSFASNo.142,whichresultedinanon-cashafter-taxchargeofapproximately$453.2millioninthefirstquarteroffiscal2002.Includedinthischargeisapproximately$3.4millionassociatedwithourequityinvestmentinRacewayAssociates,LLC(“RacewayAssociates”).
FortheYearEndedNovember30, 2002 2003 2004 2005 2006 (InThousands,ExceptPerShareData)
SelectedFinancialDataThefollowingtablesetsforthourselectedfinancialdataasofandforeachofthelastfivefiscalyearsintheperiodendedNovember30,2006.Youshouldreadtheselectedfinancialdatasetforthbelowinconjunctionwith“Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations”andourconsolidatedfinancialstatementsandtheaccompanyingnotesincludedelsewhereinthisreport.
IncomeStatementData: Revenues: Admissions,net $ 205,754 $ 203,699 $ 222,545 $ 234,768 $ 235,251 Motorsportsrelated 241,666 265,209 334,943 408,514 466,095 Food,beverageandmerchandise 69,516 74,075 83,236 87,269 87,288 Other 7,230 6,072 7,124 9,578 9,735 Totalrevenues 524,166 549,055 647,848 740,129 798,369 Expenses: Direct: PrizeandpointfundmoniesandNASCARsanctionfees 87,388 96,882 119,322 136,816 151,203 Motorsportsrelated 94,375 97,771 113,073 134,395 144,445 Food,beverageandmerchandise 37,614 41,467 52,285 56,773 53,141 Generalandadministrative 76,266 82,403 90,307 95,987 106,497 Depreciationandamortization 38,184 40,860 44,443 50,893 56,833 Impairmentoflong-livedassets - - - - 87,084 Homestead-MiamiSpeedwaytrackreconfiguration - 2,829 - - - Totalexpenses 333,827 362,212 419,430 474,864 599,203 Operatingincome 190,339 186,843 228,418 265,265 199,166 Interestincome 1,187 1,789 4,053 4,860 5,312 Interestexpense (24,276) (23,179) (21,723) (12,693) (12,349) Equityinnetincomefromequityinvestments 1,907 2,553 2,754 3,516 318 Lossonearlyredemptionofdebt - - (4,988) - -
Incomefromcontinuingoperationsbeforeincometaxes andcumulativeeffectofaccountingchange 169,157 168,006 208,514 260,948 192,447 Incometaxes 65,945 66,041 82,218 101,876 75,467
Incomefromcontinuingoperationsbefore cumulativeeffectofaccountingchange 103,212 101,965 126,296 159,072 116,980 (Loss)incomefromdiscontinuedoperations(1) (60,962) 3,483 (6,315) 289 (176) Gainonsaleofdiscontinuedoperations - - 36,337 - - Cumulativeeffectofaccountingchange(2) (453,228) - - - - Net(loss)income $ (410,978) $ 105,448 $ 156,318 $ 159,361 $ 116,804
BasicEarningspershare: Incomefromcontinuingoperationsbefore cumulativeeffectofaccountingchange $ 1.95 $ 1.92 $ 2.38 $ 2.99 $ 2.20 (Loss)incomefromdiscontinuedoperations(1) (1.15) 0.07 (0.12) 0.01 - Gainonsaleofdiscontinuedoperations - - 0.68 - - Cumulativeeffectofaccountingchange(2) (8.55) - - - - Net(loss)income $ (7.75) $ 1.99 $ 2.94 $ 3.00 $ 2.20Dilutedearningspershare: Incomefromcontinuingoperationsbefore cumulativeeffectofaccountingchange $ 1.94 $ 1.92 $ 2.37 $ 2.99 $ 2.20 (Loss)incomefromdiscontinuedoperations(1) (1.14) 0.06 (0.11) - (0.01) Gainonsaleofdiscontinuedoperations - - 0.68 - - Cumulativeeffectofaccountingchange(2) (8.54) - - - - Net(loss)income $ (7.74) $ 1.98 $ 2.94 $ 2.99 $ 2.19 Dividendspershare $ 0.06 $ 0.06 $ 0.06 $ 0.06 $ 0.08 Weightedaveragesharesoutstanding: Basic 53,036,552 53,057,077 53,084,437 53,128,533 53,166,458 Diluted 53,101,535 53,133,282 53,182,776 53,240,183 53,270,623BalanceSheetData(atendofperiod): Cashandcashequivalents $ 109,263 $ 223,973 $ 160,978 $ 130,758 $ 59,681 Workingcapital(deficit) 12,100 (104,761) 149,879 14,887 7,298 Totalassets 1,155,971 1,303,792 1,619,510 1,797,069 1,922,059 Long-termdebt 309,606 75,168 369,315 368,387 367,324 Totaldebt 315,381 308,131 376,820 369,022 368,094 Totalshareholders’equity 622,325 726,465 881,738 1,039,955 1,155,115
Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations
26 | 27 INTERNATIONALSPEEDWAYCORPORATION
GeneralThegeneralnatureofourbusinessisamotorsportsthemedamusemententerprise;furnishingamusementtothepublicintheformofmotorsportsthemedentertainment.Wederiverevenuesprimarilyfrom(i)admissionstomotorsportseventsandmotorsportsthemedamusementactivitiesheldatourfacilities,(ii)revenuegeneratedinconjunctionwithorasaresultofmotorsportseventsandmotorsportsthemedamusementactivitiesconductedatourfacilities,and(iii)catering,concessionandmerchandisingservicesduringorasaresultoftheseeventsandamusementactivities.
“Admissions,net”revenueincludesticketsalesforallofourracingevents,activitiesatDAYTONAUSAandothermotorsportsactivitiesandamusements,netofanyapplicabletaxes.
“Motorsportsrelated”revenueprimarilyincludestelevision,radioandancillaryrightsfees,marketingpartnershipfees,hospitalityrentals(includingluxurysuites,chaletsandthehospitalityportionofclubseating),advertising,trackrentalsandroyaltiesfromlicensesofourtrademarks.
“Food,beverageandmerchandise”revenueincludesrevenuesfromconcessionstands,directsalesofsouvenirs,hospitalitycatering,programsandothermerchandiseandfeespaidbythirdpartyvendorsfortherighttooccupyspacetosellsouvenirsandconcessionsatourfacilities.
Directexpensesinclude(i)prizeandpointfundmoniesandNASCARsanctionfees,(ii)motorsportsrelatedexpenses,whichincludelabor,advertising,costsofcompetitionpaidtosanctioningbodiesotherthanNASCARandotherexpensesassociatedwiththepromotionofallofourmotorsportseventsandactivities,and(iii)food,beverageandmerchandiseexpenses,consistingprimarilyoflaborandcostsofgoodssold.
CriticalAccountingPoliciesandEstimatesThepreparationoffinancialstatementsinconformitywithaccountingprinciplesgenerallyacceptedintheUnitedStatesrequiresmanagementtomakeestimatesandassumptionsthataffectthereportedamountsofassetsandliabilities,disclosureofcontingentassetsandliabilitiesatthedateofthefinancialstatementsandthereportedamountsofrevenuesandexpensesduringthereportingperiod.Whileourestimatesandassumptionsarebasedonconditionsexistingatandtrendsleadinguptothetimetheestimatesandassumptionsaremade,actualresultscoulddiffermateriallyfromthoseestimatesandassumptions.Wecontinuallyreviewouraccountingpolicies,howtheyareappliedandhowtheyarereportedanddisclosedinthefinancialstatements.
Thefollowingisasummaryofourcriticalaccountingpoliciesandestimatesandhowtheyareappliedinthepreparationofthefinancialstatements.
Basis of Presentation and Consolidation.Weconsolidateallentitieswecontrolbyownershipofamajorityvotinginterest.Also,ifweeverhavevariableinterestentitiesforwhichwearetheprimarybeneficiary,wewillconsolidatethoseentities.Wedonotcurrentlyhavevariableinterestentitiesforwhichwearetheprimarybeneficiary.Ourjudgmentindeterminingifwearetheprimarybeneficiaryofavariableinterestentityincludesassessingourlevelofinvolvementinestablishingtheentity,determiningwhetherweprovidemorethanhalfofanymanagement,operationalorfinancialsupporttotheentity,anddeterminingifweabsorbthemajorityof
theentity’sexpectedlossesorreturns.
Weapplytheequitymethodofaccountingforourinvestmentsinjointventuresandotherinvesteeswheneverwecanexertsignificantinfluenceontheinvesteebutdonothaveeffectivecontrolovertheinvestee.Ourconsolidatednetincomeincludesourshareofthenetearningsorlossesfromtheseinvestees.Ourjudgmentregardingthelevelofinfluenceovereachequitymethodinvesteeincludesconsideringfactorssuchasourownershipinterest,boardrepresentationandpolicy-makingdecisions.Weperiodicallyevaluatetheseequityinvestmentsforpotentialimpairmentwhereadeclineinvalueisdeterminedtobeotherthantemporary.
Weusethecostmethodtoaccountforinvestmentsinentitiesthatwedonotcontrolandforwhichwedonothavetheabilitytoexercisesignificantinfluenceoveroperatingandfinancialpolicies.Weeliminateallsignificantintercompanytransactionsfromfinancialresults.
Revenue Recognition.Advanceticketsalesandevent-relatedrevenuesforfutureeventsaredeferreduntilearned,whichisgenerallyoncetheeventsareconducted.Therecognitionofevent-relatedexpensesismatchedwiththerecognitionofevent-relatedrevenues.
NASCARcontractsdirectlywithcertainnetworkprovidersfortelevisionrightstotheentireNASCARNEXTELCupandNASCARBuschseriesschedules.EventpromotersshareinthetelevisionrightsfeesinaccordancewiththeprovisionofthesanctionagreementforeachNASCARNEXTELCupandNASCARBuschseriesevent.Underthetermsofthisarrangement,NASCARretains10.0percentofthegrossbroadcastrightsfeesallocatedtoeachNASCARNEXTELCuporNASCARBuschserieseventasacomponentofitssanctionfeesandremitstheremaining90.0percenttotheeventpromoter.Theeventpromoterpays25.0percentofthegrossbroadcastrightsfeesallocatedtotheeventaspartofawardstothecompetitors.
Ourrevenuesfrommarketingpartnershipsarepaidinaccordancewithnegotiatedcontracts,withtheidentitiesofpartnersandthetermsofsponsorshipchangingfromtimetotime.Someofourmarketingpartnershipagreementsareformultiplefacilitiesand/oreventsandincludemultiplespecifiedelements,suchastickets,hospitalitychalets,suites,displayspaceandsignageforeachincludedevent.Theallocationofsuchmarketingpartnershiprevenuesbetweenthemultipleelements,eventsandfacilitiesisbasedonrelativefairvalue.Thesponsorshiprevenueallocatedtoaneventisrecognizedwhentheeventisconducted.
Revenuesandrelatedcostsfromthesaleofmerchandisetoretailcustomers,internetsalesanddirectsalestodealersarerecognizedatthetimeofsale.
Accounts Receivable.Weregularlyreviewthecollectibilityofouraccountsreceivable.Anallowancefordoubtfulaccountsisestimatedbasedonhistoricalexperienceofwrite-offsandfutureexpectationsofconditionsthatmightimpactthecollectibilityofaccounts.
Business Combinations.Allbusinesscombinationsareaccountedforunderthepurchasemethod.Whethernetassetsorcommonstockisacquired,fairvaluesaredeterminedandassignedtothepurchasedassetsandassumedliabilitiesoftheacquiredentity.Theexcessofthecostoftheacquisitionoverfairvalueofthenetassetsacquired(includingrecognizedintangibles)isrecordedasgoodwill.Businesscombinationsinvolvingexistingmotorsports
entertainmentfacilitiescommonlyresultinasignificantportionofthepurchasepricebeingallocatedtothefairvalueofthecontract-basedintangibleassetassociatedwithlong-termrelationshipsmanifestinthesanctionagreementswithsanctioningbodies,suchasNASCAR,GrandAmericanRoadRacingAssociation(“GrandAmerican”)and/orIndyRacingLeague(“IRL”).Thecontinuityofsanctionagreementswiththesebodieshashistoricallyenabledthefacilityoperatortohostmotorsportseventsyearafteryear.Whileindividualsanctionagreementsmaybeoftermsasshortasoneyear,asignificantportionofthepurchasepriceinexcessofthefairvalueofacquiredtangibleassetsiscommonlypaidtoacquireanticipatedfuturecashflowsfromeventspromotedpursuanttotheseagreementswhichareexpectedtocontinuefortheforeseeablefutureandtherefore,inaccordancewithSFASNo.141,arerecordedasindefinite-livedintangibleassetsrecognizedapartfromgoodwill.
Capitalization and Depreciation Policies.Propertyandequipmentarestatedatcost.Maintenanceandrepairsthatneithermateriallyaddtothevalueofthepropertynorappreciablyprolongitslifearechargedtoexpenseasincurred.Depreciationandamortizationforfinancialstatementpurposesareprovidedonastraight-linebasisovertheestimatedusefullivesoftheassets.Whenweconstructassets,wecapitalizecostsoftheproject,including,butnotlimitedto,certainpreacquisitioncosts,permittingcosts,feespaidtoarchitectsandcontractors,certaincostsofourdesignandconstructionsubsidiary,propertytaxesandinterest.
Wemustmakeestimatesandassumptionswhenaccountingforcapitalexpenditures.Whetheranexpenditureisconsideredanoperatingexpenseoracapitalassetisamatterofjudgment.Whenconstructingorpurchasingassets,wemustdeterminewhetherexistingassetsarebeingreplacedorotherwiseimpaired,whichalsoisamatterofjudgment.Ourdepreciationexpenseforfinancialstatementpurposesishighlydependentontheassumptionswemakeaboutourassets’estimatedusefullives.Wedeterminetheestimatedusefullivesbaseduponourexperiencewithsimilarassets,industry,legalandregulatoryfactors,andourexpectationsoftheusageoftheasset.Whenevereventsorcircumstancesoccurwhichchangetheestimatedusefullifeofanasset,weaccountforthechangeprospectively.
Interestcostsassociatedwithmajordevelopmentandconstructionprojectsarecapitalizedaspartofthecostoftheproject.Interestistypicallycapitalizedonamountsexpendedusingtheweighted-averagecostofouroutstandingborrowings,sincewetypicallydonotborrowfundsdirectlyrelatedtoadevelopmentorconstructionproject.Wecapitalizeinterestonaprojectwhendevelopmentorconstructionactivitiesbeginandceasewhensuchactivitiesaresubstantiallycompleteoraresuspendedformorethanabriefperiod.
Impairment of Long-lived Assets, Goodwill and Other Intangible Assets.Ourconsolidatedbalancesheetsincludesignificantamountsoflong-livedassets,goodwillandotherintangibleassets.Ourintangibleassetsarecomprisedofassetshavingfiniteusefullives,whichareamortizedoverthatperiod,andgoodwillandothernon-amortizableintangibleassetswithindefiniteusefullives.Currentaccountingstandardsrequiretestingtheseassetsforimpairment,eitherupontheoccurrenceofanimpairmentindicatororannually,basedonassumptionsregardingourfuturebusinessoutlook.Whilewecontinuetoreviewandanalyzemanyfactorsthatcanimpactourbusinessprospectsin
thefuture,ouranalysesaresubjectiveandarebasedonconditionsexistingatandtrendsleadinguptothetimetheestimatesandassumptionsaremade.Actualresultscoulddiffermateriallyfromtheseestimatesandassumptions.Ourjudgmentswithregardtoourfuturebusinessprospectscouldimpactwhetherornotanimpairmentisdeemedtohaveoccurred,aswellasthetimingoftherecognitionofsuchanimpairmentcharge.Ourequitymethodinvesteesalsoperformsuchtestsforimpairmentoflong-livedassets,goodwillandotherintangibleassets.
Self-Insurance Reserves.Weuseacombinationofinsuranceandself-insuranceforanumberofrisksincludinggeneralliability,workers’compensation,vehicleliabilityandemployee-relatedhealthcarebenefits.Liabilitiesassociatedwiththerisksthatweretainareestimatedbyconsideringvarioushistoricaltrendsandforward-lookingassumptionsrelatedtocosts,claimcountsandpayments.Theestimatedaccrualsfortheseliabilitiescouldbesignificantlyaffectediffutureoccurrencesandclaimsdifferfromtheseassumptionsandhistoricaltrends.
Income Taxes.Thetaxlawrequiresthatcertainitemsbeincludedinourtaxreturnatdifferenttimesthanwhentheseitemsarereflectedinourconsolidatedfinancialstatements.Someofthesedifferencesarepermanent,suchasexpensesnotdeductibleonourtaxreturn.However,somedifferencesreverseovertime,suchasdepreciationexpense,andthesetemporarydifferencescreatedeferredtaxassetsandliabilities.Ourestimatesofdeferredincometaxesandthesignificantitemsgivingrisetodeferredtaxassetsandliabilitiesreflectourassessmentofactualfuturetaxestobepaidonitemsreflectedinourfinancialstatements,givingconsiderationtobothtimingandprobabilityofrealization.Actualincometaxescouldvarysignificantlyfromtheseestimatesduetofuturechangesinincometaxlaworchangesoradjustmentsresultingfromfinalreviewofourtaxreturnsbytaxingauthorities,whichcouldalsoadverselyimpactourcashflow.
Intheordinarycourseofbusiness,therearemanytransactionsandcalculationswheretheultimatetaxoutcomeisuncertain.Thecalculationoftaxliabilitiesinvolvesdealingwithuncertaintiesintheapplicationofcomplextaxlaws.Werecognizeprobableliabilitiesfortaxauditissues,includinginterestandpenalties,basedonanestimateoftheultimateresolutionofwhether,andtheextenttowhich,additionaltaxeswillbedue.Althoughwebelievetheestimatesarereasonable,noassurancecanbegiventhatthefinaloutcomeofthesematterswillnotbedifferentthanwhatisreflectedinthehistoricalincometaxprovisionsandaccruals.Suchdifferencescouldhaveanimpactontheincometaxprovisionandoperatingresultsintheperiodinwhichsuchdeterminationismade.
Contingent Liabilities.Ourdeterminationofthetreatmentofcontingentliabilitiesinthefinancialstatementsisbasedonourviewoftheexpectedoutcomeoftheapplicablecontingency.Intheordinarycourseofbusinessweconsultwithlegalcounselonmattersrelatedtolitigationandotherexpertsbothwithinandoutsideourcompany.Weaccruealiabilityifthelikelihoodofanadverseoutcomeisprobableandtheamountoflossisreasonablyestimable.Wedisclosethematterbutdonotaccruealiabilityifeitherthelikelihoodofanadverseoutcomeisonlyreasonablypossibleoranestimateoflossisnotdeterminable.Legalandothercostsincurredinconjunctionwithlosscontingenciesareexpensedasincurred.
28 | 29 INTERNATIONALSPEEDWAYCORPORATION
AcquisitionandDivestituresMartinsville Speedway and North Carolina Speedway
OnJuly13,2004,weacquiredtheassetsofMartinsvilleSpeedway(“Martinsville”),andassumedtheoperationsaswellascertainliabilitiesofMartinsvilleforapproximately$194.8million,includingacquisitioncosts.Martinsvillewasprivatelyowned,withcertainmembersoftheFranceFamilyGroup,whichcontrolsinexcessof60.0percentofthecombinedvotinginterestofISC,owning50.0percentofMartinsville.Theacquisitionwasfundedby$100.4millioninproceedsfromthesaleoftheassetsofNorthCarolinaandapproximately$94.4millionincash.Martinsville’soperationsareincludedinourconsolidatedoperationssubsequenttothedateofacquisition.
AsrequiredbythesettlementagreementintheFerko/Vaughnlitigation(“SettlementAgreement”)datedApril8,2004,ourNorthCarolinaSpeedway,Inc.subsidiaryenteredintoanAssetPurchaseAgreementwithSpeedwayMotorsports,Incorporated(“SMI”)forthesaleofthetangibleandintangibleassetsandoperationsofNorthCarolina.UnderthetermsoftheSettlementAgreement,SMI’ssubsidiarypurchasedNorthCarolina’sassetsandassumeditsoperationsforapproximately$100.4millionincash.ThesaleofNorthCarolina’sassetsclosedonJuly1,2004,andwerecordedanafter-taxgaininourthirdquarteroffiscal2004ofapproximately$36.3million.
Forallperiodspresented,theresultsofoperationsofNorthCarolina,includingthegainonsale,arepresentedasdiscontinuedoperations.
Nazareth Speedway
AfterthecompletionofNazareth’sfiscal2004eventswesuspendedindefinitelyitsmajormotorsportseventoperations.TheNASCARBuschSeriesandIRLIndyCarSeriesevents,thenconductedatNazareth,wererealignedtoothermotorsportsentertainmentfacilitieswithinourportfolio.
InJanuary2006,weenteredintoanagreementwithNZSW,LLC(“NZSW”)forthesaleof158acres,onwhichNazarethSpeedwayislocated,forapproximately$18.8million.Underthetermsofthecontractthesaletransactionisexpectedtocloseduringfiscal2007.Uponclosingthetransaction,weexpecttorecordanafter-taxgainfromdiscontinuedoperationsofapproximately$6.0to$7.0million,or$0.11to$0.13perdilutedshare.
Forallperiodspresented,theresultsofoperationsofNazaretharepresentedasdiscontinuedoperations.
Pikes Peak International Raceway
OnOctober7,2005,weacquiredtheassetsandassumedcertainliabilitiesofPikesPeakInternationalRaceway(“PikesPeak”)forapproximately$12.0million.Subsequenttothepurchase,theNASCARBuschSeriesevent,thenconductedatPikesPeak,wasrealignedtoanothermotorsportsentertainmentfacilitywithinourportfolioforthefiscal2006racingseasonandwesuspendedindefinitelymajormotorsportseventoperationsatthefacilityonOctober31,2005.WeintendtorelocatecertainPikesPeakfixedassetstootherfacilitieswithinourportfolio.Theseassetsincludegrandstandseatingandotherstructuresthatcanbeutilizedforfuturespeedwayexpansionprojects.WearecurrentlypursuingthesaleofthelandonwhichPikesPeakislocated.
Raceway Associates
AtNovember30,2006,weindirectlyowned37.5percentofRacewayAssociates,whichownsChicagolandSpeedway(“Chicagoland”)andRoute66Raceway,bothofwhicharelocatedinJoliet,Illinois.Route66RacewayhostseventsincludingNationalHotRodAssociationPOWERadedragracingseriesevents,dirtovalracingandconcertsandhasgrandstandsthatseatapproximately30,000spectators.Chicagolandisa1.5-milemoderatelybanked,asphalt,ovalsuperspeedway.Themotorsportsentertainmentfacilityhasgrandstands,whichseatapproximately75,000spectators,and24luxurysuitescontainingapproximately1,000additionalseats.ChicagolandpromotesaNASCARNEXTELCupSeries,NASCARBuschSeries,IRLIndyCarSeriesandAutomobileRacingClubofAmericaRE/MAXSeriesevent.
InNovember2006,weannouncedthat,throughawholly-ownedsubsidiary,wehadenteredintoapurchaseagreementwithIndianapolisMotorSpeedwayCorporation(“IMS”)toindirectlyacquireanadditional37.5percentinterestinRacewayAssociates.Asaresultofthetransaction,wewillown100.0percentofMotorsportsAlliance,LLC(“MotorsportsAlliance”),whichowns75.0percentofRacewayAssociates.ConcurrentwiththeIMStransaction,wealsoexercisedourrighttopurchasetheminoritypartners’remaining25.0percentinterestinRacewayAssociatespursuanttothe1999RacewayAssociatesformationagreement.
AlltheabovetransactionsclosedonFebruary2,2007,foratotalpurchasepriceofapproximately$102.4million.Thesetransactionswillbeaccountedforasabusinesscombination.
WebelievethatChicagolandSpeedwayandRoute66areuniquelyattractiveassetswell-positionedinthenation’sthirdlargestmediamarket.Theregionboastsastrongmotorsportsfanbase,demonstratedbysixconsecutiveyearsofseasonticketsell-outsatChicagolandSpeedwaysinceopeningin2001.WebelieveouractiverepresentationonRacewayAssociates’managementcommitteesince2001andextensiveknowledgeofthemotorsportsbusinesswillhelpensureaseamlessintegrationintoISC.
ImpairmentofLong-LivedAssetsDuringfiscal1999,weannouncedourintentiontosearchforasiteforamajormotorsportsentertainmentfacilityintheNewYorkmetropolitanarea(see“FutureLiquidity”).ThedecisiontodiscontinueourspeedwaydevelopmenteffortsonStatenIsland,inourfiscal2006fourthquarter,resultedinanon-cash,pre-taxchargeinourresultsofapproximately$84.7million,or$1.01perdilutedshareafter-tax.AccountingprinciplesgenerallyacceptedintheUnitedStatesrequirethatthepropertybevaluedatitscurrentfairvalue,whichisestimatedbyanindependentappraisalatapproximately$65.0million.Priortothewrite-off,wehadcapitalizedspendingofapproximately$150.0millionthroughNovember30,2006,including:(1)$123.0millionforlandandrelatedimprovements,(2)$11.0millionforcostsrelatedsolelytothedevelopmentofthespeedway,and(3)$16.0millionforcapitalizedinterestandpropertytaxes.Thevalueofthepropertyisexpectedtobeinexcessof$100.0milliononceitisfilledandreadyforsale.
EquityandOtherInvestmentsMotorsports Authentics
OnAugust30,2005,wepartneredwithSMIina50/50jointventure,SMISC,LLC(“SMISC”),which,throughawholly-ownedsubsidiary
MotorsportsAuthentics,LLC,conductsbusinessunderthenameMotorsportsAuthentics.MotorsportsAuthenticsoperatesasanindependentcompanywithusandSMIasequalowners.AlsoonAugust30,2005,weannouncedthatSMISChadenteredintoadefinitiveagreementdatedAugust29,2005,topurchasethestockofActionPerformanceCompanies,Inc.(“Action”).Theacquisitionwasstructuredasamergerofawholly-ownedsubsidiaryofMotorsportsAuthentics,LLCintoAction.
TheacquisitionofActionwascompletedonDecember9,2005,whichresultedinaninvestmentofapproximately$124.6millionandwascombinedwiththenetassetsandmerchandisingoperationsofTeamCaliber,whichMotorsportsAuthenticsacquiredonSeptember8,2005.Asaresultoftheseacquisitions,MotorsportsAuthenticsisnowaleaderindesign,promotion,marketinganddistributionofmotorsportslicensedmerchandise.MotorsportsAuthenticshaslicensesforexclusiveandnon-exclusivedistributionwithteamscompetinginNASCARandothermajormotorsportsseries.Itsproductsincludeabroadrangeofmotorsports-relateddie-castreplicacollectibles,apparel,giftsandothermemorabilia,whicharemarketedthroughacombinationofmassretail,domesticwholesale,trackside,internationalandcollector’sclubdistributionchannels.
Proximities, Inc.
Weacquiredanapproximately24.5percentinterestinProximities,Inc.(“Proximities”)inNovember2004throughthepurchaseofProximities’SeriesBPreferredStockforapproximately$2.0million.ProximitiesisdevelopingproductswhicharetobemarketedassecureRadioFrequencyIdentificationcashlesspayment,accesscontrolandageverificationsystems.ProximitiesisavariableinterestentityasdeterminedinaccordancewithFASBInterpretationNo.46,“ConsolidationofVariableInterestEntities.”WedonotconsolidatetheoperationsofProximitiesaswearenottheprimarybeneficiary.ThemaximumexposuretolossasaresultofourinvolvementwithProximitiesatNovember30,2006isapproximately$243,000.
LimitedPartnershipAgreementInOctober2006weenteredintoalimitedpartnershipagreementwithGroupMotoriséInternational(“GMI”)toorganize,promoteandholdcertainracingeventsatCircuitGillesVilleneuve,includingaNASCARBuschSeriesandGrandAmericanRolexSportsCarSeriespresentedbyCrownRoyalSpecialReserveraceweekendinthethirdquarteroffiscal2007.CircuitGillesVilleneuveisaroadcourselocatedinMontréal,Quebec,atwhichGMIcurrentlypromotesasuccessfulF1CanadianGrandPrixevent.Theagreementisnotexpectedtohaveamaterialeffectonourfinancialconditionorresultsofoperationsinfiscal2007.
FutureTrendsinOperatingResultsOursuccesshasbeen,andisexpectedtoremain,dependentonmaintaininggoodworkingrelationshipswiththeorganizationsthatsanctioneventsatourfacilities,particularlywithNASCAR,whosesanctionedeventsatourwholly-ownedfacilitiesaccountedforapproximately87.6percentofourrevenuesinfiscal2006.InJanuary2003,NASCARannounceditwouldentertainanddiscussproposalsfromtrackoperatorsregardingpotentialrealignmentofNASCARNEXTELCupSeriesdatestomoregeographicallydiverseandpotentiallymoredesirablemarketswheretheremaybegreaterdemand,resultinginanopportunityforincreasedrevenuestothetrackoperators.
NASCARapprovedrealignmentsofcertainNASCARNEXTELCupandothereventsatourfacilitiesforthe2004,2005and2006seasons.Webelievethattherealignmentshaveprovided,andwillcontinuetoprovide,additionalnetpositiverevenueandearningsaswellasfurtherenhancethesport’sexposureinhighlydesirablemarkets,whichwebelievebenefitsthesport’sfans,teams,sponsorsandtelevisionbroadcastpartnersaswellaspromoters.NASCARhasindicatedthatitisopentodiscussionregardingadditionaldaterealignments.Webelievewearewellpositionedtocapitalizeonthesefutureopportunities.
Fiscal2006wasourlastyearunderNASCAR’smulti-yearconsolidatedtelevisionbroadcastrightsagreementswithNBCSports,TurnerSports,FOXandFX.TheseagreementscoverthedomesticbroadcastofNASCAR’sNEXTELCupandBuschseriesracingseasonsfrom2001through2006.Undertheseagreements,televisionrightsfeesincreasedapproximately15.7percentfortheindustryinfiscal2006.TelevisionbroadcastandancillaryrightsfeesfromcontinuingoperationsreceivedfromNASCARfortheNASCARNEXTELCupandNASCARBuschserieseventsconductedatourwholly-ownedfacilitiesforfiscal2006,2005and2004wereapproximately$273.4million,$235.9millionand$188.9million,respectively.
NASCARhasenteredintonewcombinedeight-yearagreementswithFOX,ABC/ESPN,TNTandSPEEDbeginningin2007forthedomesticbroadcastandrelatedrightsforitsNEXTELCup,BuschandCraftsmanTruckseries.Theagreementsareexpectedtototalapproximately$4.5billionovertheeightyearperiodfrom2007through2014.Thisresultsinanapproximate$560.0milliongrossaverageannualrightsfeefortheindustry,amorethan40.0percentincreaseoverthecurrentcontractaverageof$400.0millionannually.Theindustryrightsfeesareexpectedtoapproximate$505.0millionfor2007,withincreases,onaverage,ofapproximatelythreepercentperyearthroughthe2014season.Theannualincreaseisexpectedtovarybetweentwoandfourpercentperyearovertheperiod.Whilethe2007rightsfeeswillbelessthanthe2006rightsfeesofapproximately$576.0million,inouropinionthisshouldnotovershadowthestrategicimportanceandexpectedlong-termbenefitsofthenewcontracts.Overthepastseveralyears,therehasbeenashiftofmajorsportsprogrammingfromnetworktocable.Thecablebroadcasterscansupportahigherinvestmentthroughsubscriberfeesnotavailabletonetworks,whichhasresultedinincreasedrightsfeesforthesesportsproperties.Cable,however,reachesfarfewerhouseholdsthannetworkbroadcasts.WeviewNASCAR’sdecisiontokeepapproximatelytwo-thirdsofitseventscheduleonnetworktelevisionasimportanttothesport’sfuturegrowth.Thestructureshouldcontinuetodriveincreasedfanandmediaawarenessforallthreeracingseries,whichwillhelpfuelourlong-termattendanceandcorporate-relatedrevenues.Wealsowelcomethechancetore-establishthesport’sbroadcastrelationshipwithESPN,whichwebelievewillresultinfurtherexposureforNASCARracing.First,webelievetheNASCARBuschSerieswillsignificantlybenefitfromtheimprovedcontinuityofitsseason-longpresenceonESPN.Inaddition,webelievethesportasawholewillbenefitfromtheincreasedancillaryprogrammingandnightlyandweeklyNASCAR-brandedprogrammingandpromotions,similartowhatESPNdoeswiththeothermajorsports.Themostsignificantbenefitofthenewcontractsisthesubstantialincreaseinearningsandcashflowvisibilityfortheentireindustryoverthecontractperiod.
30 | 31 INTERNATIONALSPEEDWAYCORPORATION
AsmediarightsrevenuesfluctuatesodothevariablecoststiedtothepercentageofbroadcastrightsfeesrequiredtobepaidtocompetitorsaspartofNASCARNEXTELCup,BuschandCraftsmanTruckseriessanctionagreements.NASCARprizeandpointfundmonies,aswellassanctionfees(“NASCARdirectexpenses”),areoutlinedinthesanctionagreementforeacheventandarenegotiatedinadvanceofanevent.Aspreviouslydiscussed,includedintheseNASCARdirectexpensesare25.0percentofthegrossdomestictelevisionbroadcastrightsfeesallocatedtoourNASCARNEXTELCup,BuschandCraftsmanTruckserieseventsaspartofprizeandpointfundmoney.TheseannuallynegotiatedcontractualamountspaidtoNASCARcontributetothesupportandgrowthofthesportofNASCARstockcarracingthroughpaymentstotheteamsandsanctionfeespaidtoNASCAR.Assuch,wedonotexpectthesecoststodecreaseinthefutureasapercentageofadmissionsandmotorsportsrelatedincome.Weanticipateanyoperatingmarginimprovementtocomeprimarilyfromeconomiesofscaleandcontrollingcostsinareassuchasmotorsportsrelatedandgeneralandadministrativeexpenses.
Economicconditionsmayimpactourabilitytosecurerevenuesfromcorporatemarketingpartnerships.However,webelievethatourpresenceinkeymarketsandimpressiveportfolioofeventsarebeneficialaswecontinuetopursuerenewalandexpansionofexistingmarketingpartnershipsandestablishnewcorporatemarketingpartners.Webelievethatrevenuesfromourcorporatemarketingpartnershipswillcontinuetogrowoverthelongterm.
Animportantcomponentofouroperatingstrategyhasbeenourlong-standingpracticeoffocusingcloselyonsupplyanddemandregardingadditionalcapacityatourfacilities.Wecontinuallyevaluatethedemandforourmostpopularracingeventsinordertoaddcapacitythatwebelievewillprovideanacceptablerateofreturnoninvestedcapital.Throughprudentexpansion,weattempttokeepdemandatahigherlevelthansupply,whichstimulatesticketrenewalsandadvancesales.Advanceticketsalesresultinearliercashflowandreducethepotentialnegativeimpactofactualandforecastedinclementweatheronticketsales.Whilewewilljoinwithsponsorstoofferpromotionstogenerateadditionalticketsales,weavoidrewardinglast-minuteticketbuyersbydiscountingtickets.Webelieveitismoreimportanttoencourageadvanceticketsalesandmaintainpriceintegritytoachievelong-termgrowththantocaptureshort-termincrementalrevenue.Werecognizethatanumberoffactorsrelatingtodiscretionaryconsumerspending,includingeconomicconditionsaffectingdisposableconsumerincomesuchasemploymentandotherlifestyleandbusinessconditions,cannegativelyimpactattendanceatourevents.Accordingly,wehaveinstitutedonlymodestincreasesinourweightedaverageticketpricesforfiscal2007.Inaddition,wearelimitingtheexpansionofourfacilitiesinfiscal2007toprojectsatourRichmondInternationalRaceway(“Richmond”)whichwillbecompletedintimeforitsNASCARNEXTELCupandBuschseriesspringevents.Richmondwillberemovingapproximately2,900obstructedviewgrandstandseatsfromTurns3and4andareaddingapproximately7,800grandstandseatsinanew,state-of-the-art,18-storystructurelocatedinTurn1.Thenew,three-tieredgrandstandwillalsoincludea700-person,members-onlyClubforindividualfanslookingtoenjoyaraceweekendinstyleorbusinessesseekingtoentertainclients.TheClubwillalsoserveasauniquesiteforspecialeventsonnon-raceweekendsthroughouttheyear.Wewill
continuetoevaluateexpansionopportunities,aswellasthepricingandpackagingofourticketsandotherproducts,onanongoingbasis.Overthelongterm,weplantocontinuetoexpandcapacityatourspeedways.
Sincewecompetewithnewerentertainmentvenuesforpatronsandsponsors,wewillcontinuetoevaluateopportunitiestoenhanceourfacilities,therebyproducingadditionalrevenuegeneratingopportunitiesforusandimprovingtheexperienceforourguests.OnemajorexampleoftheseeffortsistheinfieldrenovationatDaytonaInternationalSpeedway(“Daytona”)thatwascompletedforthestartofthe2005racingseason.Theinfieldrenovationfeaturesnumerousfanamenitiesanduniquerevenuegeneratingopportunities,includinggaragewalk-throughareas,additionalmerchandiseandconcessionsvendingareas,waterfrontluxuryrecreationalvehicleparkingareas,alargetunneltoaccommodateteamhaulersandguestrecreationalvehiclesinandoutoftheinfieldandotherspecialamenitiessuchastheinfield’ssignaturestructure,theDaytona500Club.ThefanandguestresponsetoourrenovationeffortsatDaytonahasbeenoverwhelminglypositiveandhasresultedinincrementaldirectand,webelieve,indirectrevenuegeneration.Anotherexampleofoureffortstoenhancethefanexperienceincludesthefiscal2005renovationofMichiganInternationalSpeedway’s(“Michigan”)frontstretch,includingnewticketgates,newvendoranddisplayareas,andseveralnewconcessionstands,aswellastheadditionofclubseatsandluxurysuites.Forfiscal2006,wecompletedadditionalrenovationprojectsatCaliforniaSpeedway(“California”)andTalladegaSuperspeedway(“Talladega”).AtCalifornia,werenovatedandexpandedthefacility’sfrontmidwayarea.Thenewplazafeaturesafull-serviceoutdoorcaféwithcuisinebycelebritychefWolfgangPuck,inadditiontoatowncenter,retailstoreandconcertstage.Otherhighlightsincludeshadefeatures,modifiedentrygates,expandedhospitalityareas,radiobroadcastlocations,giantvideowalls,leisureareasandgrassandwateraccents.Thisprojectwasthedirectresultoffanfeedback,andfurtherdemonstratesourcommitmenttoprovidingapremiumentertainmentenvironmentforourguests.WealsorepavedTalladega’s2.6mileovalintimeforthatfacility’sfallNASCARNEXTELCupweekend.Talladega’sracingsurfacehadnotbeenrepavedsince1979,andwebelievethenewlypavedracingsurfaceenhancedthethrillingon-trackcompetition.
DaytonaInternationalSpeedway LeaseExtensionOnMarch29,2006,DaytonaamendeditsleaseagreementwiththeDaytonaBeachRacingandRecreationalFacilitiesDistrict(the“District”).TheamendedleaseextendstherelationshipbetweenDaytonaandtheDistrictthroughNovember7,2054.
Thenewleaserequiredaninitialannualpayment,excludingapplicablesalestaxes,of$500,000andincludesscheduledrentincreaseseveryfiveyears.AccountingprinciplesgenerallyacceptedintheUnitedStatesrequirethetotalleasecostovertherevisedleasetermtoberecognizedonastraight-linebasis.Asaresult,thisleaseexpenseinfiscal2006,includingsalestaxes,totaledapproximately$500,000.Forfiscalyears2007through2054,weanticipatethisleaseexpense,includingsalestaxes,toapproximate$800,000peryear.
Thefollowingtablesetsforth,foreachoftheindicatedperiods,certainselectedstatementofoperationsdataasapercentageoftotalrevenues:
Revenues: Admissions,net 34.4% 31.7% 29.5% Motorsportsrelated 51.7 55.2 58.4 Food,beverageandmerchandise 12.8 11.8 10.9 Other 1.1 1.3 1.2 Totalrevenues 100.0 100.0 100.0Expenses: Direct: PrizeandpointfundmoniesandNASCARsanctionfees 18.4 18.5 18.9 Motorsportsrelated 17.4 18.1 18.1 Food,beverageandmerchandise 8.1 7.7 6.7 Generalandadministrative 13.9 13.0 13.4 Depreciationandamortization 6.9 6.9 7.1 Impairmentoflong-livedassets - - 10.9 Totalexpenses 64.7 64.2 75.1Operatingincome 35.3 35.8 24.9Interestexpense,net (2.7) (1.0) (0.9)Equityinnetincomefromequityinvestments 0.4 0.5 0.1Lossonearlyredemptionofdebt (0.8) - -Incomefromcontinuingoperationsbeforeincometaxes 32.2 35.3 24.1Incometaxes 12.7 13.8 9.5Incomefromcontinuingoperations 19.5 21.5 14.6(Loss)incomefromdiscontinuedoperations (1.0) - -Gainonsaleofdiscontinuedoperations 5.6 - - Netincome 24.1% 21.5% 14.6%
FortheYearEndedNovember30, 2004 2005 2006
CurrentLitigationFromtimetotime,weareapartytoroutinelitigationincidentaltoourbusiness.Wedonotbelievethattheresolutionofanyorallofsuchlitigationwillhaveamaterialadverseeffectonourfinancialconditionorresultsofoperations.
Inadditiontosuchroutinelitigationincidenttoourbusiness,weareapartytothelitigationdescribedbelow.
InJuly2005,KentuckySpeedway,LLCfiledacivilactionintheEasternDistrictofKentuckyagainstNASCARandusallegingthat“NASCARandISChaveacted,andcontinuetoact,individuallyandincombinationandcollusionwitheachotherandothercompaniesthatcontrolmotorsportsentertainmentfacilitieshostingNASCARNEXTELCupSeries,toillegallyrestricttheawardof…NASCARNEXTELCupSeries[races].”ThecomplaintseeksdamagesandaninjunctionrequiringNASCARtoestablishacompetitivebiddingprocessforNEXTELCupeventsandprohibitingfurtherviolationsoftheantitrustlaws.Otherthansomevaguelyconclusoryallegations,thecomplaintfailstospecifyanyconductbyInternationalSpeedwayCorporation(“ISC”)otherthanconductingandgrowingitsmotorsportsentertainmentbusinessforthebenefitofitsshareholders.Webelievetheallegationstobewithoutmeritandintendtodefendourselfvigorously.Wehaveretainedcounselandarepursuingdefensestothesuitwhilemaintainingpotentialcounterclaimremediesavailabletoustorecoverthedamagescausedbythefilingofthesuit.ThecourthasestablishedaFebruary1,2007,deadlineforthecompletionofpre-trialdiscoveryfactualmatterswhichistobefollowedbydiscoveryofexpertopinionmatters.Based
uponthecurrenttimelineatrialonthemeritsofthecaseisscheduledfornoearlierthanFall2007.Whileitisprematuretoquantifyeitherthelikelihoodorthepotentialmagnitudeofanadversedecision,thefeesandexpensesassociatedwiththedefenseofthissuitarenotcoveredbyinsuranceandcouldadverselyimpactourfinancialconditionorresultsofoperationsandcashflows,evenifweultimatelyprevail.Further,thetimedevotedtothismatterbymanagementandthepossibleimpactoflitigationonbusinessnegotiationsoccurringpriortoresolutionofthismattercouldalsoadverselyimpactourfinancialconditionorresultsofoperationsandcashflows.Finally,evenifthedirecteffectoftheresolutionofthiscasedoesnotresultinamaterialadverseimpactonus,itispossiblethattheresolutionofthiscasecouldresultinindustrywidechangesinthewayraceschedulesaredeterminedbysanctioningbodies,whichcouldindirectlyhaveamaterialadverseimpactonus.
Postponementand/orCancellationof MajorMotorsportsEventsThepostponementorcancellationofoneormoremajormotorsportseventscouldadverselyimpactourfutureoperatingresults.Apostponementorcancellationcouldbecausedbyanumberoffactors,including,butnotlimitedto,inclementweather,awidespreadoutbreakofasevereepidemiologicalcrisis,ageneralpostponementorcancellationofallmajorsportingeventsinthiscountry(asoccurredfollowingtheSeptember11,2001terroristattacks),aterroristattackatanymassgatheringorfearofsuchanattack,conditionsresultingfromthewarinIraqorotheractsorprospectsofwar.
32 | 33 INTERNATIONALSPEEDWAYCORPORATION
ComparisonofFiscal2006toFiscal2005Thecomparisonoffiscal2006tofiscal2005isimpactedbythe followingfactors:
• IRLeventswereconductedatCaliforniaandPhoenixInternationalRaceway(“Phoenix”)duringfiscal2005whilenocorrespondingeventswereconductedinfiscal2006;
• ANASCARBuschserieseventwasconductedatMartinsvilleinfiscal2006whilenocorrespondingeventwasconductedbyusinfiscal2005;
• ANASCARCraftsmanTruckserieseventwasrealignedfromRichmondinfiscal2005toTalladegainfiscal2006resultinginasignificantattendanceincreasefortheevent;and
• Infiscal2005,wereachedsettlementwiththeCARTLiquidationTrustthatallowedaclaiminourfavorofapproximately$1.8millionintheChampionshipAutoRacingTeams(“CART”)bankruptcy.
Admissionsrevenueincreasedapproximately$483,000,or0.2percent,infiscal2006comparedtofiscal2005.IncreasedadmissionsrevenueresultedfromanincreaseintheweightedaveragepriceofticketssoldforthemajorityofoureventsandincreasesinattendanceforeventsatHomestead-MiamiSpeedway(“Miami”),Darlington,TalladegaandcertainNASCAReventsconductedduringSpeedweeksatDaytonasupportingoursoldoutDaytona500arelargelyoffsetbythepreviouslydiscussedabsenceofIRLeventsinthefiscal2006eventschedulesforCaliforniaandPhoenixaswellasdecreasedattendanceforthePepsi400weekendatDaytonaandeventsatMichigan.
Motorsportsrelatedrevenueincreasedapproximately$57.6million,or14.1percent,infiscal2006comparedtofiscal2005.TheincreaseisprimarilyduetotelevisionbroadcastrightsfeesforourNASCARNEXTELCupandBuschserieseventsand,toalesserextent,increasedsponsorship,hospitality,advertisingandotherracerelatedrevenues.Theseincreasesarepartiallyoffsetbythenetdecreaseinrevenuesfromnon-comparableeventsandactivitiesdescribedabove.
Food,beverageandmerchandiserevenueinfiscal2006isconsistentwithfiscal2005.Increasesincateringandconcessionsrevenuesforfiscal2006arelargelyoffsetbyanetdecreaseinrevenuesfromnon-comparableeventsandactivitiesdescribedabove.
PrizeandpointfundmoniesandNASCARsanctionfeesincreasedapproximately$14.4million,or10.5percent,infiscal2006,ascomparedtofiscal2005.TheincreaseisprimarilyattributabletotheincreaseintelevisionbroadcastrightsfeesforcomparableNASCARNEXTELCupandBuschserieseventsheldatourfacilitiesasstandardNASCARsanctioningagreementsrequirethataspecifiedpercentageoftelevisionbroadcastrightsfeesbepaidtocompetitors.TheadditionoftheNASCARBuschSerieseventatMartinsvilleinfiscal2006alsocontributedtothecurrentyearincrease.
Motorsportsrelatedexpensesincreasedapproximately$10.1million,or7.5percent,infiscal2006comparedtofiscal2005.Theincreaseisprimarilyrelatedtoincreasedoperatingexpensesforcomparableevents,MRN
operatingexpensessupportingadditionalrevenuegrowth,certainconsumermarketingandsalesinitiatives,andanetincreaseinavarietyofothercosts.TheseincreasesarepartiallyoffsetbyeventexpensesrelatedtothePhoenixandCaliforniaIRLeventsthatwereheldin2005,butnotin2006,andothernon-comparableeventsandactivitiesyearoveryear.Motorsportsrelatedexpensesasapercentageofcombinedadmissionsandmotorsportsrelatedrevenuedecreasedfromapproximately20.9percentinfiscal2005toapproximately20.6percentforfiscal2006.Thedecreaseisprimarilyattributabletoincreasedtelevisionbroadcastrightsfeespartiallyoffsetbythepreviouslydiscussedexpenseincreases.
Food,beverageandmerchandiseexpensedecreased$3.6million,or6.4percent,duringfiscal2006ascomparedtofiscal2005.Thedecreaseisprimarilyattributabletomarginimprovementoncertaincateringandconcessionsales,operationalcostcontainment,variablecostsassociatedwithdecreasedattendanceatcertainevents,adecreaseinmerchandiseinventorywrite-downsin2006ascomparedto2005andinventorydonatedtohurricanereliefeffortsin2005.Food,beverageandmerchandiseexpenseasapercentageoffood,beverageandmerchandiserevenuedecreasedfromapproximately65.1percentinfiscal2005toapproximately60.9percentfor2006.Thisdecreaseisattributabletothepreviouslydiscussedmarginimprovementandcostcontainment.
Generalandadministrativeexpensesincreasedapproximately$10.5million,or10.9percent,duringfiscal2006ascomparedtofiscal2005.Theseincreasesareprimarilyrelatedtolegalfees,certainexpensespaidinconnectionwithourdevelopmentofacommercialmixed-useentertainmentandshoppingcomplexinDaytonaBeach,Florida,andanetincreaseincertaincostsrelatedtothegrowthofourcorebusiness,partiallyoffsetbycertainstatetaxesandnon-recurringchargesintheprioryear.Thecomparisonoffiscal2006tofiscal2005generalandadministrativeexpensesisalsoimpactedbythefiscal2005recoveryof$1.8millionofpreviouslyrecordedbaddebtexpenserelatedtoourclaimagainstCART(seethediscussionofgeneralandadministrativeexpensesunder“ComparisonofFiscal2005toFiscal2004”).Generalandadministrativeexpensesasapercentageoftotalrevenuesincreasedslightlyfromapproximately13.0percentinfiscal2005to13.3percentforfiscal2006primarilyduetothepreviouslynotednetincreaseingeneralandadministrativeexpenseslargelyoffsetbytheincreaseintelevisionbroadcastrightsfees.
Depreciationandamortizationexpenseincreasedapproximately$5.9million,or11.7percent,duringfiscal2006ascomparedtofiscal2005.Theincreasewasprimarilyattributabletocertainretailtechnologyprojects,theMiamiandPhoenixsuiteandgrandstandadditions,theMichiganandDaytonarenovations,andavarietyofotherongoingcapitalimprovements.
WerecentlyannouncedourintentiontodiscontinueourspeedwaydevelopmenteffortsonStatenIslandwhichresultedinanon-cash,pre-taxchargefortheimpairmentoflong-livedassetsofapproximately$84.7million,or$1.01perdilutedshare,inthefourthquarteroffiscal2006(see“FutureLiquidity”).Toamuchlesserextent,certainotherassetimpairmentsalsocontributedtothecharge.
Interestincomeincreasedbyapproximately$452,000,or9.3percent,duringfiscal2006ascomparedtofiscal2005.Theincreasewasprimarilyduetohigheryieldonshort-terminvestmentsinthecurrentperiodspartiallyoffsetbyloweroutstandingcashandshortterminvestmentbalances.
Interestexpensedecreasedapproximately$344,000,or2.7percent,duringfiscal2006comparedtofiscal2005.Thedecreaseisprimarilyduetoanincreaseincapitalizedinterest,primarilyrelatedtoland,landimprovementanddevelopmentcostsfortheStatenIslandprojectand,toalesserextent,certainotherconstructionprojectsaswellaslowerfeesrelatedtoournewcreditfacility.
Equityinnetincomefromequityinvestmentsrepresentsourproratashareofthecurrentincomeandlossesfromour37.5percentequityinvestmentinRacewayAssociatesandour50.0percentequityinvestmentinSMISC.RacewayAssociatesownsandoperatesChicagolandSpeedwayandRoute66raceway.SMISCownsandoperateMotorsportsAuthentics,whichisaleaderindesign,promotion,marketing,anddistributionofmotorsportslicensedmerchandise.
Oureffectivetaxrateincreasedfrom39.0percentto39.2percentduringfiscal2006comparedtofiscal2005.Thisincreaseisprimarilyaresultofcertainstatetaximplicationsrelatingtotheaforementionedimpairmentoflong-livedassets.Theincreaseispartiallyoffsetbyonetimebenefitsrelatingtodiscreteitemsinthesecondfiscalquarterof2006,includingtheimplementationofcertainrestructuringinitiatives,thefinalizationofcertainstatetaxmattersanddepositsmadeduringfiscal2005and2006withtheInternalRevenueService(the“Service”)tostoptheaccrualofinterestoncontesteditemsinourongoingfederaltaxexamination.See“FutureLiquidity”forfurtherdiscussionregardingtheexaminationofourfederalincometaxreturns.
Asaresultoftheforegoing,ourincomefromcontinuingoperationsdecreasedfromapproximately$159.1milliontoapproximately$117.0million,or26.5percent,duringfiscal2006,ascomparedtothesameperiodoftheprioryear.
TheoperationsofNazaretharepresentedasdiscontinuedoperations,netoftax,forallperiodspresentedinaccordancewithSFASNo.144.Infiscal2005,discontinuedoperationsincludea$471,000after-taxnon-cashgainrelatedtothedecisionmadeinthefourthquartertorelocateandusecertaingrandstandassetsfromNazarethtoDarlington,whichhadpreviouslybeenwrittenoff.
Asaresultoftheforegoing,ournetincomedecreasedapproximately$42.6million,or$0.80perdilutedshare,forfiscal2006comparedtofiscal2005.
ComparisonofFiscal2005toFiscal2004Thecomparisonoffiscal2005tofiscal2004isimpactedbythe followingfactors:
• InJuly2004,weacquiredtheassetsandassumedtheoperationsandcertainliabilitiesofMartinsville.Thetimingoftheacquisitioninfiscal2004resultedinanincrementalNASCARNEXTELCupandCraftsmanTruckserieseventduringfiscal2005;
• Duringfiscal2004,wesoldtheassetsandoperationsofNorthCarolinaandmadeadecisiontopursuethesaleofNazarethduetotherealignmentofNazareth’seventstoourWatkinsGlenfacilitystartingwiththe2005eventseason.Accordingly,theresultsofoperationsforNorthCarolinaandNazaretharerecordedasdiscontinuedoperationsforallperiodspresentedinaccordancewithSFASNo.144“AccountingfortheImpairmentorDisposalofLong-LivedAssets”.WatkinsGlenhostedaNASCARBuschSerieseventandanIRLeventincludedinourcontinuingoperationsduringfiscalyear2005,whilethecorrespondingeventsheldatNazarethduringthepriorfiscalyeararerecordedaspartofdiscontinuedoperations;
• AspartofNASCAR’sfiscal2005eventdaterealignments,aNASCARNEXTELCupandBuschseriesweekendhistoricallyhostedbyDarlingtonwasrealignedtoPhoenix;
• SpeedweeksatDaytonawashighlightedbythedebutofthefacility’spreviouslydiscussednewlyrenovatedinfield;
• Infiscal2005,wereachedsettlementwiththeCARTLiquidationTrustthatallowedaclaiminourfavorof$1.8millionintheCARTbankruptcy;and
• Infiscal2004,werefinancedouroutstanding$225.0millionseniornotesoriginallydueinOctober2004andpaidaredemptionpremiumonthepreviouslyoutstandingseniornotes.
Admissionsrevenueincreasedapproximately$12.2million,or5.5percent,infiscal2005comparedtofiscal2004.Theincreaseisprimarilydueto:
• ThepreviouslydiscussedtimingoftheacquisitionofMartinsville;
• RealignmentofeventstoWatkinsGlen;
• ThenetimpactoftherealignmentofeventstoPhoenixfromDarlington;
• IncreasedattendancefortheNASCAReventsconductedduringSpeedweeksatDaytonasupportingoursoldoutDaytona500;
• ReschedulingoftheNASCARCraftsmanTruckSerieseventatMichiganfromtheIRLweekendinfiscal2004totheJuneNASCARNEXTELCupweekendinfiscal2005,resultinginincreasedattendanceandweightedaverageticketprice;and
• IncreasedattendancefortheremainingDarlingtonNASCARweekend.
TheseincreasesarepartiallyoffsetbycertainadmissionsdecreasesincludingattendancefortheCaliforniaNASCARNEXTELCupandBuschserieseventsconductedinthefirstquarteroffiscal2005.
Motorsportsrelatedrevenueincreasedapproximately$73.6million,or22.0percent,infiscal2005comparedtofiscal2004.Theincreaseisprimarilyduetoincreasedtelevisionbroadcastrightsfees,sponsorship,hospitalityandotherracerelatedrevenuesforcomparableNASCARNEXTELCupweekendshostedatourfacilitiesaswellthetimingoftheacquisitionofMartinsvilleandtherealignmentofeventstoWatkinsGlen.ThenetimpactofrealignmentofeventstoPhoenixfromDarlingtonalsocontributedtothecurrentyearincrease.
34 | 35 INTERNATIONALSPEEDWAYCORPORATION
Food,beverageandmerchandiserevenueincreasedapproximately$4.0million,or4.8percent,infiscal2005comparedtofiscal2004.Theincreaseisprimarilyduetocatering,merchandiseandconcessionoperationsforcomparableNASCARNEXTELCupweekends,thenetimpactofrealignmentofeventstoPhoenixfromDarlington,thetimingoftheacquisitionofMartinsvilleandhigherrevenuesresultingfromincreasedattendance,hospitalityunitsandadditionalpointsofsaleinthenewlyrenovatedinfieldforeventsduringSpeedweeksatDaytona.TheseincreasesarepartiallyoffsetbydecreasesprimarilyrelatedtoourAmericrownsubsidiaryperformingservicesatnon-ISCvenuesinfiscal2004.
PrizeandpointfundmoniesandNASCARsanctionfeesincreasedapproximately$17.5million,or14.7percent,infiscal2005,ascomparedtofiscal2004.TheincreaseisprimarilyattributabletotheincreaseintelevisionbroadcastrightsfeesforcomparableNASCARNEXTELCupandBuschserieseventsheldatourfacilitiesasstandardNASCARsanctioningagreementsrequirethataspecifiedpercentageoftelevisionbroadcastrightsfeesbepaidtocompetitors.ThepreviouslydiscussedrealignmentoftheNASCARBuschSerieseventtoWatkinsGlenalsocontributedtotheincrease,aswellasthetimingoftheacquisitionofMartinsville.
Motorsportsrelatedexpensesincreasedapproximately$21.3million,or18.9percent,infiscal2005comparedtofiscal2004.Theincreaseisprimarilyrelatedtoincreasedoperatingexpensesforcomparableeventsduringtheperiods,includingoperatingexpensesassociatedwiththepreviouslydiscussedDaytonainfieldrenovation,certainstrategicconsumerandcorporatemarketinginitiativesandservicesdonatedtohurricanereliefefforts.Increasesduringfiscal2005alsoincludedtherealignmentofeventstoWatkinsGlen,thenetimpactofrealignmentofeventstoPhoenixfromDarlingtonandthetimingoftheacquisitionofMartinsville.Motorsportsrelatedexpensesasapercentageofcombinedadmissionsandmotorsportsrelatedrevenueincreasedtoapproximately20.9percentforfiscal2005,ascomparedto20.3percentforfiscal2004,primarilyduetothepreviouslydiscussedexpensesaswellastheexpensesandthesanctionfeefortherealignedWatkinsGlenIRLevent.TheseincreasesarepartiallyoffsetbyincreasedrevenuesfromthetelevisionbroadcastrightsfeesandthetimingoftheMartinsvilleacquisition.
Food,beverageandmerchandiseexpenseincreased$4.5million,or8.6percent,duringfiscal2005ascomparedtofiscal2004.Theincreaseisprimarilyattributabletoeventrelatedcosts,includingincreasesassociatedwiththeadditionaleventsatMartinsvilleandtherealignmentofeventstoPhoenixfromDarlington,certainmerchandiseinventorywritedownsandinventorydonatedtohurricanereliefefforts.Theseincreasesarepartiallyoffsetbyservicesatnon-ISCvenuesinfiscal2004.Food,beverageandmerchandiseexpenseasapercentageoffood,beveragemerchandiserevenueincreasedtoapproximately65.1percentforfiscal2005ascomparedto62.8percentforfiscal2004.Theincreasesareprimarilyrelatedtopreviouslydiscussedinventorywritedowns,increasedoperatingandsellingcostsassociatedwithanexpandedmerchandisingstrategyimplementedinlate-fiscal2004anddonatedmerchandise.Alsocontributingtotheincreaseforfiscal2005isthelowermarginupscalecateringcuisineofferedinthenewNEXTELFANZONEandDaytona500Clubduring
Speedweeks.TheseincreasesarepartiallyoffsetbyourAmericrownsubsidiaryperforminglowermarginservicesatnon-ISCvenuesinfiscalyear2004andtherealignmentofeventstoPhoenixfromDarlington.
Generalandadministrativeexpensesincreasedapproximately$5.7million,or6.3percent,duringfiscal2005ascomparedtofiscal2004.Theincreasesareprimarilyrelatedtoanetincreaseincertaincostsrelatedtothegrowthofourcorebusiness,expensesassociatedwiththetimingoftheacquisitionofMartinsville,hurricanerepaircostsassociatedwithstormsinlatefiscal2004andanon-cashchargeassociatedwithcertainassetreplacementsatRichmond.TheseincreasesarepartiallyoffsetbytherecoveryofaportionofthepreviouslyrecordedbaddebtexpenserelatedtoourclaimagainstCART,non-cashchargesassociatedwiththenetbookvalueofcertainundepreciatedassetsremovedduringtherenovationofDaytona’sinfieldandMichigan’sfrontstretchduringfiscal2004,andadecreaseinprofessionalfeesandstrategicdevelopmentexpenses.Duringfiscal2005,wereachedsettlementwiththeCARTLiquidationTrustthatallowedaclaiminourfavorof$1.8millionintheCARTbankruptcy.TheclaimwasbasedonthefailuretoreturnthesanctionfeepaidtoCART,lessallowableexpenses,forthe2003eventscheduledinCaliforniathatwascanceledbecauseofthestateofemergencyduetowildfiresinSouthernCaliforniaatthetime.TheU.S.BankruptcyCourt,SouthernDistrictofIndiana,approvedthegoodfaithsettlementatahearinginMay,andwerecoveredthefull$1.8millionoftheallowedclaim.Accordingly,werecordedthe$1.8millionrecoveryasareductionofbaddebtexpenseduringfiscal2005.Generalandadministrativeexpensesasapercentageoftotalrevenuesdecreasedfromapproximately13.9percentto13.0percentprimarilyduetoincreasedtelevisionbroadcastrevenues,therecoveryintheCARTsettlement,decreasesinprofessionalandstrategicdevelopmentexpenses,increasesinrevenuesforSpeedweeksatDaytonaandthepreviouslydiscussedincrementalMartinsvilleevents.Thedecreasesarepartiallyoffsetbypreviouslynotednetincreasesingeneralandadministrativeexpenses.
Depreciationandamortizationexpenseincreasedapproximately$6.5million,or14.5percent,duringfiscal2005ascomparedtofiscal2004.TheincreasewasprimarilyattributabletotheDaytonainfieldrenovationproject,certainretailtechnologyprojects,theMichiganfrontstretchreconfigurationproject,theacquisitionofMartinsville,andotherongoingcapitalspending.
Interestincomeincreasedbyapproximately$807,000,or19.9percent,duringfiscal2005ascomparedtofiscal2004.Theseincreaseswereprimarilyduetohigheryieldonshort-terminvestmentsinthecurrentperiodspartiallyoffsetbyloweroutstandingcashandshortterminvestmentbalances.
Interestexpensedecreasedapproximately$9.0million,or41.6percent,duringfiscal2005comparedtofiscal2004.Anincreaseincapitalizedinterest,primarilyrelatedtolandpurchasedfortheproposedconstructionofaspeedwayinStatenIsland,NewYorkand,toalesserextent,certainotherconstructionprojectscontributedtothedecreaseininterestexpense.Alsocontributingtothedecreaseinfiscal2005isourMay28,2004,refinancingof$225.0million7.9percentseniornotesissuedinOctober1999anddueOctober15,2004,(“1999SeniorNotes”)with$150.0million4.2percentseniornotesdue2009,and$150.0million5.4percentseniornotesdue
2014(collectivelythe“2004SeniorNotes”)issuedonApril23,2004.Toalesserextent,theincrementalinterestonthe1999SeniorNotesfromApril23,2004toMay28,2004,contributedtolowerinterestexpenseinfiscal2005.
Equityinnetincomefromequityinvestmentsrepresentsourproratashareofthecurrentincomefromour37.5percentequityinvestmentinRacewayAssociatesandour50.0percentequityinvestmentinMotorsportsAuthentics.RacewayAssociatesownsandoperatesChicagolandSpeedwayandRoute66Raceway.MotorsportsAuthenticsistheleaderindesign,promotion,marketinganddistributionofmotorsportslicensedmerchandise.
Oureffectivetaxratedecreasedfrom39.4percentto39.0percentduringfiscal2005comparedtofiscal2004.Thisdecreaseisprimarilyaresultofdepositsmadeduringfiscal2005withtheServicetostoptheaccrualofinterestoncontesteditemsinourongoingfederaltaxexaminationcombinedwiththeincreaseinpretaxincomeinfiscal2005comparedtofiscal2004.See“FutureLiquidity”forfurtherdiscussionregardingtheexaminationofourfederalincometaxreturns.
Asaresultoftheforegoing,ourincomefromcontinuingoperationsincreasedfromapproximately$126.3milliontoapproximately$159.1million,or26.0percent,duringfiscal2005,ascomparedtothesameperiodoftheprioryear.
TheoperationsofNorthCarolinaandNazaretharepresentedasdiscontinuedoperations,netoftax,forallperiodspresentedinaccordancewithSFASNo.144.Thefiscal2004periodsincludeanapproximately$36.3millionafter-taxgainrelatedtothesaleofNorthCarolina’sassets.Alsoincludedinfiscal2004isan$8.6millionafter-tax,non-cashchargeforimpairmentoflong-livedassetsrelatedtotherealignmentoftheNASCARandIRLraceeventdatesfromNazarethtootherfacilitieswithinourportfoliobeginninginfiscal2005.Infiscal2005,discontinuedoperationsincludea$471,000after-taxnon-cashgainrelatedtothedecisionmadeinthefourthquartertorelocateandusecertaingrandstandassetsfromNazarethtoDarlington,whichhadpreviouslybeenwrittenoff.
Asaresultoftheforegoing,ournetincomeincreasedapproximately$3.0million,or$0.05perdilutedshare,forfiscal2005comparedtofiscal2004.
LiquidityandCapitalResourcesGeneral
Wehavehistoricallygeneratedsufficientcashflowfromoperationstofundourworkingcapitalneedsandcapitalexpendituresatexistingfacilities,aswellastopayanannualcashdividend.Inaddition,wehaveusedtheproceedsfromofferingsofourClassACommonStock,thenetproceedsfromtheissuanceoflong-termdebt,borrowingsunderourcreditfacilitiesandstateandlocalmechanismstofundacquisitionsanddevelopmentprojects.AtNovember30,2006,wehadcash,cashequivalentsandshort-terminvestmentstotalingapproximately$137.7million,$300.0millionprincipalamountofseniornotesoutstandingandadebtservicefundingcommitmentofapproximately$68.4millionprincipalamountrelatedtothetaxablespecialobligationrevenue(“TIF”)bondsissuedbytheUnifiedGovernmentofWyandotteCounty/KansasCity,Kansas(“UnifiedGovernment”).
Wehadworkingcapitalofapproximately$7.3millionatNovember30,2006,comparedto$14.9millionatNovember30,2005.
Ourliquidityisprimarilygeneratedfromourongoingmotorsportsoperations,andweexpectourstrongoperatingcashflowtocontinueinthefuture.Inaddition,asofNovember30,2006,wehaveapproximately$300.0millionavailabletodrawuponunderourrevolvingcreditfacility,ifneeded.See“FutureLiquidity”foradditionaldisclosuresrelatingtoourcreditfacilityandcertainrisksthatmayaffectourneartermoperatingresultsandliquidity.
CashFlows
Netcashprovidedbyoperatingactivitieswasapproximately$241.4millionforfiscal2006,comparedtoapproximately$146.8millionforfiscal2005.Thedifferencebetweenournetincomeofapproximately$116.8millionandtheapproximately$241.4millionofoperatingcashflowwasprimarilyattributableto:
• impairmentsonlong-livedassetsofapproximately$87.1million;• depreciationandamortizationexpenseofapproximately$56.8million;• stock-basedcompensationofapproximately$2.7million;and• anincreaseinincometaxespayableofapproximately$2.6million;
ThesedifferenceswerepartiallyoffsetbydepositswiththeInternalRevenueServiceofapproximately$13.9million,anincreaseinaccountsreceivableofapproximately$7.1millionanddeferredincometaxesofapproximately$4.2million.
Netcashusedininvestingactivitieswasapproximately$307.1millionforfiscal2006,comparedtoapproximately$166.2millionforfiscal2005.Ouruseofcashforinvestingactivitiesreflectspurchasesofshort-terminvestmentsofapproximately$150.7million,approximately$124.6millionforourequityinvestmentinSMISCinconnectionwithitsacquisitionofAction,approximately$110.4millionincapitalexpendituresandapproximately$3.0millioninadvancestoaffiliates.Thisuseofcashispartiallyoffsetbyapproximately$80.9millioninproceedsfromthesaleofshort-terminvestments.
Netcashusedinfinancingactivitieswasapproximately$5.4millionforfiscal2006,comparedtoapproximately$10.8millionforfiscal2005.Cashusedinfinancingactivitiesconsistsprimarilyofcashdividendspaidtotalingapproximately$4.3million.Wealsoborrowedandrepaidapproximately$80.0millionunderourcreditfacilityduringthisperiod.
CapitalExpenditures
Capitalexpenditurestotaledapproximately$110.4millionforfiscal2006,comparedtoapproximately$248.9millionforfiscal2005.Thecapitalexpendituresforfiscal2006,consistedprimarilyofseat,suiteandclubadditionsatPhoenix,seatadditionsatDarlington,capitalexpendituresrelatedtothepotentialmajorspeedwaydevelopmentintheNewYorkCityBoroughofStatenIsland(see“FutureLiquidity”),repavingofTalladega’sracingsurfaceandtherenovationandexpansionofCalifornia’sMidwayarea.Theremainingcapitalexpenditureswererelatedtoavarietyofotherimprovementsandrenovationstoourfacilities.
36 | 37 INTERNATIONALSPEEDWAYCORPORATION
AtNovember30,2006,wehaveapproximately$62.5millionincapitalprojectscurrentlyapprovedforourexistingfacilities.Theseprojectsincludetheacquisitionoflandandlandimprovementsatvariousfacilitiesforexpansionofparking,campingcapacityandotheruses,seatandclubadditionsatRichmondandavarietyofotherimprovementsandrenovationstoourfacilitiesthatenableustoeffectivelycompetewithothersportsvenuesforconsumerandcorporatespending.
Asaresultofthesecurrentlyapprovedprojectsandestimatedadditionalapprovalsinfiscal2007,weexpectourtotalfiscal2007capitalexpendituresatourexistingfacilitieswillbeapproximately$80.0millionto$90.0million,dependingonthetimingofcertainprojects.
Wereviewthecapitalexpenditureprogramperiodicallyandmodifyitasrequiredtomeetcurrentbusinessneeds.
FutureLiquidityLong-TermObligationsandCommitments
OnApril23,2004,wecompletedanofferingof$300.0millionprincipalamountofunsecuredseniornotesinaprivateplacement.OnSeptember27,2004,wecompletedanoffertoexchangetheseniornotesforregisteredseniornoteswithsubstantiallyidenticalterms(“2004SeniorNotes”).AtNovember30,2006,outstanding2004SeniorNotestotaledapproximately$300.8million,netofunamortizeddiscountsandpremium,whichiscomprisedof$150.0millionprincipalamountunsecuredseniornotes,whichbearinterestat4.2percentandaredueApril2009,and$150.0millionprincipalamountunsecuredseniornotes,whichbearinterestat5.4percentandaredueApril2014.The2004SeniorNotesrequiresemi-annualinterestpaymentsonApril15andOctober15throughtheirmaturity.The2004SeniorNotesmayberedeemedinwholeorinpart,atouroption,atanytimeorfromtimetotimeatredemptionpricesasdefinedintheindenture.Oursubsidiariesareguarantorsofthe2004SeniorNotes.
InJanuary1999,theUnifiedGovernmentissuedapproximately$71.3millioninTIFbondsinconnectionwiththefinancingofconstructionofKansasSpeedway.AtNovember30,2006,outstandingTIFbondstotaledapproximately$67.3million,netoftheunamortizeddiscount,whichiscomprisedofa$18.7millionprincipalamount,6.2percenttermbonddueDecember1,2017anda$49.7millionprincipalamount,6.8percenttermbonddueDecember1,2027.TheTIFbondsarerepaidbytheUnifiedGovernmentwithpaymentsmadeinlieuofpropertytaxes(“FundingCommitment”)byourwholly-ownedsubsidiary,KansasSpeedwayCorporation.Principal(mandatoryredemption)paymentspertheFundingCommitmentarepayablebyKansasSpeedwayCorporationonOctober1ofeachyear.Thesemi-annualinterestcomponentoftheFundingCommitmentispayableonApril1andOctober1ofeachyear.KansasSpeedway
CorporationgrantedamortgageandsecurityinterestintheKansasprojectforitsFundingCommitmentobligation.
InOctober2002,theUnifiedGovernmentissuedsubordinatesalestaxspecialobligationrevenuebonds(“2002STARBonds”)totalingapproximately$6.3milliontoreimburseusforcertainconstructionalreadycompletedonthesecondphaseoftheKansasSpeedwayprojectandtofundcertainadditionalconstruction.The2002STARBonds,whichrequireannualdebtservicepaymentsandaredueDecember1,2022,willberetiredwithstateandlocaltaxesgeneratedwithintheKansasSpeedway’sboundariesandarenotourobligation.KansasSpeedwayCorporationhasagreedtoguaranteethepaymentofprincipal,anyrequiredpremiumandinterestonthe2002STARBonds.AtNovember30,2006,theUnifiedGovernmenthadapproximately$4.3millionin2002STARBondsoutstanding.Underakeepwellagreement,wehaveagreedtoprovidefinancialassistancetoKansasSpeedwayCorporation,ifnecessary,tosupportitsguaranteeofthe2002STARBonds.
OnJune16,2006,weenteredintoa$300.0millionrevolvingcreditfacility(“2006CreditFacility”).The2006CreditFacilitycontainsafeaturethatallowsustoincreasethecreditfacilitytoatotalof$500.0million,subjecttocertainconditions.Uponexecutionofthe2006CreditFacility,weterminatedourthenexisting$300.0millioncreditfacility.The2006CreditFacilityisscheduledtomatureinJune2011,andaccruesinterestatLIBORplus30.0-80.0basispoints,basedonourhighestdebtratingasdeterminedbyspecifiedratingagencies.AtNovember30,2006,wedidnothaveanyborrowingsoutstandingundertheCreditFacility.
WeareamemberofMotorsportsAlliance(owned50.0percentbyusand50.0percentbyIMS),whichowns75.0percentofRacewayAssociates.RacewayAssociatesownsandoperatesChicagolandSpeedwayandRoute66Raceway.RacewayAssociateshasatermloanarrangement,whichrequiresquarterlyprincipalandinterestpaymentsandmaturesNovember15,2012,anda$15.0millionsecuredrevolvingcreditfacility,whichmaturesinSeptember2008.AtNovember30,2006,RacewayAssociateshadapproximately$28.4millionoutstandingunderitstermloanandnoborrowingsoutstandingunderitsexistingcreditfacility.Underakeepwellagreement,themembersofMotorsportsAlliancehaveagreedtoprovidefinancialassistancetoRacewayAssociates,ifnecessary,onaproratabasistosupportperformanceunderitstermloanandcreditfacility.
WehaveguaranteedminimumroyaltypaymentsundercertainagreementsthroughDecember2015,witharemainingmaximumexposureatNovember30,2006,ofapproximately$12.5million.
AtNovember30,2006wehadcontractualcashobligationstorepaydebtandtomakepaymentsunderoperatingagreements,leasesandcommercialcommitmentsintheformofguaranteesandunusedlinesofcredit.
Raceway Associates Acquistion
InNovember2006,weannouncedthat,throughawholly-ownedsubsidiary,wehadenteredintoapurchaseagreementwithIMStoindirectlyacquireanadditional37.5percentinterestinRacewayAssociates.Asaresultofthetransactionwewillown100.0percentofMotorsportsAlliance,whichowns75.0percentofRacewayAssociates.ConcurrentwiththeIMStransaction,wealsoexercisedourrighttopurchasetheminoritypartners’remaining25.0percentinterestinRacewayAssociatespursuanttothe1999RacewayAssociatesformationagreement.
AlloftheabovetransactionsclosedonFebruary2,2007,foratotalpurchasepriceofapproximately$102.4millionwhichwaspaidutilizingexistingcashonhandandapproximately$62.0millioninborrowingsonour2006CreditFacility.Inconnectionwiththesetransactions,weacquiredRacewayAssociatesnetassets,includingapproximately$39.7millioninthirdpartydebt.Thesetransactionswillbeaccountedforasabusinesscombination.
Northwest US Speedway Development
InlightofNASCAR’spubliclyannouncedpositionregardingadditionalpotentialrealignmentoftheNASCARNEXTELCupSeriesschedule,we
alsobelievetherearepotentialdevelopmentopportunitiesinothernew,underservedmarketsacrossthecountry.Assuch,wehavebeenandareexploringopportunitiesforpublic/privatepartnershipstargetedtodeveloponeormoremotorsportsentertainmentfacilitiesinnewmarkets,includingtheNorthwestUS.InJune2005,weannouncedwehadidentifiedapreferredsiteforthedevelopmentofamotorsportsentertainmentfacilityinKitsapCounty,Washington,approximately20milesoutsideofSeattle,Washington,thecountry’s13thlargestmediamarket.Wehavesecuredanoptiontopurchaseapproximately950acresforthepotentialfuturehomeofaprofessionalmotorsportsandentertainmentandfamilyrecreationfacilityincludingaclosed-coursespeedway,grandstandsandotherseatingwithcapacityforatleast83,000attendees,whichcouldopenin2011.Weareconductingongoingprojectduediligencetoreviewenvironmentalimpactsincludingtraffic,noise,airquality,andothers,ifany.
StatelegislationisrequiredtocreateaPublicSpeedwayAuthority(“PSA”)andauthorizetheissuanceofgeneralobligationbondstohelpfinancetheproject.ThesebondswouldberepaidthroughasalestaxcreditissuedbythestatetothePSA,andfromalocaltaxonthefacility.Thelegislationwouldrequireustoinvestaminimumofapproximately$180.0millionintheproject,amongotherobligations.Weexpecttointroducetherequired
Paymentsdueundertheselong-termobligationsareasfollowsasofNovember30,2006(inthousands):
Long-termdebt $368,355 $ 770 $ 151,990 $ 2,675 $ 212,920Motorsportsentertainmentfacilityoperatingagreement 38,100 2,220 4,440 4,440 27,000Otheroperatingleases 47,233 3,945 4,453 2,465 36,370
TotalContractualCashObligations $453,688 $ 6,935 $160,883 $ 9,580 $ 276,290
ObligationsDuebyPeriod LessThan After Total OneYear 2-3Years 4-5Years 5Years
CommercialcommitmentexpirationsareasfollowsasofNovember30,2006(inthousands):
Guarantees $ 16,770 $ 515 $ 905 $ 595 $ 14,755Keepwellagreements 14,200 2,400 4,800 4,800 2,200Unusedcreditfacilities 302,082 2,082 - 300,000 -
TotalCommercialCommitments $333,052 $ 4,997 $ 5,705 $305,395 $ 16,955
CommitmentExpirationbyPeriod LessThan After Total OneYear 2-3Years 4-5Years 5Years
38 | 39 INTERNATIONALSPEEDWAYCORPORATION
legislationintothe2007SessionoftheWashingtonLegislatureinhopesofsuccessfullycompletingthisstageoftheprocess.Whileweremainoptimisticaboutourabilitytoconstructamotorsportsandmulti-userecreationalfacilityinthisregionofthecountry,itistooearlytotellifthenecessarypublicparticipationwillmaterializeorifitwillbesufficienttoallowforthedevelopmentofsuchafacility.
New York Metropolitan Speedway Development
Duringfiscal1999,weannouncedourintentiontosearchforasiteforamajormotorsportsentertainmentfacilityintheNewYorkmetropolitanarea.Oureffortsincludedtheevaluationofmanydifferentlocations.Mostrecently,weidentifiedacombinationoflandparcelsintheNewYorkCityboroughofStatenIslandaggregatingapproximately676acresthatwetargetedforthedevelopmentofamajormotorsportsentertainmentandretaildevelopmentproject.Ourmajority-ownedsubsidiary,380Development,LLC(“380Development”),purchasedthetotal676acresforapproximately$110.4millioninearlyfiscal2005.
InDecember2006,weannouncedourdecisiontodiscontinuepursuitofaspeedwaydevelopmentonStatenIsland.Thedecisionwasdrivenbyavarietyoffactors,including:(1)theinabilitytosecurethecriticallocalpoliticalsupportthatisnecessarytosecuretherequiredland-usechangeapprovalsforaspeedwaydevelopment;(2)evenifwehadsecuredthenecessarypoliticalsupport,itbecameapparentthatwewouldhavebeenfacedwithunacceptableapprovalrequirements,includingoperationalrestrictionsthatwouldhavemadethefacilitydifficulttooperateandasignificantchallengetomarket;and(3)theincreasedriskthattheseunacceptableapprovalrequirementscouldresultinhigherconstructionspendingandannualoperatingcosts,whichwouldhaveasignificantnegativeimpactonthefinancialmodelforthespeedwaydevelopment.
OuroperatinganddevelopmentagreementswithTheRelatedCompanieshavebeenterminated,thenotepayabletousfromRelatedwhichwassecuredbyapledgeofRelated’s12.4percentproportionateminorityinterestin380Developmenthasbeencancelledandtheminorityinterestsurrenderedtous.
ThedecisiontodiscontinueourspeedwaydevelopmenteffortsonStatenIsland,inourfiscal2006fourthquarter,resultedinanon-cash,pre-taxchargeinourresultsofapproximately$84.7million,or$1.01perdilutedshareafter-tax.AccountingrulesgenerallyacceptedintheUSrequirethatthepropertybevaluedatitscurrentfairvalue,whichisestimatedbyanindependentappraisalatapproximately$65.0million.Priortothewrite-off,wehadcapitalizedspendingofapproximately$150.0millionthroughNovember30,2006,including:(1)$123.0millionforlandandrelatedimprovements,(2)$11.0millionforcostsrelatedsolelytothedevelopmentofthespeedway,and(3)$16.0millionforcapitalizedinterestandpropertytaxes.Thevalueofthepropertyisexpectedtobeinexcessof$100.0milliononceitisfilledandreadyforsale.InSeptember2006,asaresultofcommunicationsfromtheNewYorkStateDepartmentofEnvironmental
Conservation(“DEC”)andtheNewYorkCityDepartmentofSanitation(“DOS”),whichprovideoversightforthefilloperationsatthesite,weceasedfilloperationswhileweaddresscertainissuestheyraised.Wecontinuetoworkwiththeseagenciestoresolvetheseissuesandanticipatebeingabletoresumefilloperationsinthecomingmonths.
WehavebeguntoresearchanddevelopmarketdemandstudiestoassistintheevaluationofvariousalternativestrategiesfortheStatenIslandacreage,includingpotentiallysellingthepropertyinwholeorinparts,ordevelopingthepropertywithathirdpartyforsomeotheruse.GiventhatthepropertyisthelargestundevelopedacreageoflandinthefiveboroughsofNewYorkCity,webelieveitwillbeattractivetoawiderangeofdevelopersandusers.Thesiteiscurrentlyzonedas-of-rightforindustrialuseandcouldprovideeaseofaccessthroughadeep-waterdocklocatedonsite.Also,thepropertycanbeeasilyaccessedfromthelocalhighwaysystem.
AlthoughwearedisappointedthatourspeedwaydevelopmenteffortswereunsuccessfulonStatenIsland,weremaincommittedtopursuingthedevelopmentofamotorsportsentertainmentfacilityintheregion.DuetotheconsiderableinterestinandsupportforNASCARracinginthemetroNewYorkmarket,webelieveapremiermotorsportsentertainmentfacilitywillhaveasignificantpositiveimpactonthearea’seconomyandprovetobealong-termcommunityasset.
Joint Venture Development
InMay2005,weannouncedwearepursuingajointventureforthedevelopmentofacommercialmixed-useentertainmentshoppingcenterprojectonapproximately71acreswecurrentlyown.LocateddirectlyacrossInternationalSpeedwayBoulevard(U.S.Highway92)fromourDaytonamotorsportsentertainmentfacility,theacreagecurrentlyincludesseveralofficebuildingsthathouseourcorporateheadquartersandcertainrelatedoperationsofoursandNASCAR.Thetotalproject,whichwillbedevelopedbyusandthejointventure,isanticipatedtobecomprisedofretail,entertainment,officeandresidentialcomponentsdesignedtocomplementsurroundingcommercialdevelopments.Wearecurrentlynegotiatingajointventureagreementwithadeveloperandarealsocompletingourdetailedfeasibilitystudyinwhichanumberofkeyissueswillbeaddressed.Providedweareabletoenterintoanagreementwiththisdeveloperandtheresultsofthefeasibilitystudyarefavorableandappropriateleasingconsiderationsareattained,weexpecttomoveforwardwiththeprojectwithinthenextthreemonths.Ifweproceedwiththeprojectitisexpectedthatcertainofourexistingcorporateheadquarterofficesandotherbuildings,whicharenotcurrentlyfullydepreciated,willberazedduringthenext6to24monthsresultinginayettobedetermined,non-cashchargetoearnings.
Internal Revenue Service Examination
TheServiceiscurrentlyperformingaperiodicexaminationofourfederalincometaxreturnsfortheyearsendedNovember30,1999through2005andhaschallengedthetaxdepreciationtreatmentofasignificantportionofourmotorsportsentertainmentfacilityassets.ThroughNovember30,2006,
wehavereceivedreportsfromtheServicerequestingdownwardadjustmentstoourtaxdepreciationexpenseforthefiscalyearsendedNovember30,1999through2004,whichcouldpotentiallyresultinthereclassificationofapproximately$94.5millionofincometaxesfromdeferredtocurrent.Includingrelatedinterest,thecombinedafter-taxcashflowimpactoftheserequestedadjustmentsisapproximately$110.8million.Inordertopreventincurringadditionalinterest,wehavedepositedapproximately$110.8million,withtheService.InDecember2006,wereceivedareportfromtheServicewithrespecttoourfiscalyearendedNovember30,2005,whichcouldpotentiallyresultinthethereclassificationofapproximately$6.6millionofincometaxesfromdeferredtocurrent.Accordingly,inordertopreventincurringadditionalinterest,wedepositedanadditional$7.1millionwiththeServiceinJanuary2007.AdditionaladjustmentstoourtaxdepreciationexpenseareexpectedtoberequestedlaterbytheServiceforthefiscalyearendedNovember30,2006.Includingrelatedinterest,weestimatethecombinedafter-taxcashflowimpactoftheadditionalfederaltaxadjustmentsforfiscal2006,andrelatedstatetaxrevisionsforallperiods,torangebetween$30.0millionand$40.0millionatNovember30,2006.Ourdepositsarenotapaymentoftax,andwewillreceiveaccruedinterestonanyofthesefundsultimatelyreturnedtous.AtNovember30,2006,theapproximately$110.8millionofpreviouslydiscusseddepositswiththeServiceareclassifiedaslong-termassetsinourconsolidatedfinancialstatements.Webelievethatourapplicationofthefederalincometaxregulationsinquestion,whichhavebeenappliedconsistentlysincebeingadoptedin1986andhavebeensubjectedtopreviousIRSaudits,isappropriate,andweintendtovigorouslydefendthemeritsofourposition.OncecommencedbytheService,theadministrativeappealsprocessisexpectedtotakesixtofifteenmonthstocomplete.Ifourappealisnotresolvedsatisfactorily,wewillevaluateallofouroptions,includinglitigation.ItisimportanttonotetheFederalAmericanJobsCreationActof2004legislation,whichwaseffectiveonOctober23,2004,providesownersofmotorsportsentertainmentfacilityassetsaseven-yearrecoveryperiodfortaxdepreciationpurposes.ThemotorsportsprovisionappliesprospectivelyfromthedateofenactmentthroughJanuary1,2008.Weandothersintheindustryarepursuingaseven-yearprospectivetaxdepreciationprovision.InaccordancewithSFASNo.109“AccountingforIncomeTaxes,”wehaveaccruedadeferredtaxliabilitybasedonthedifferencesbetweenourfinancialreportingandtaxbasesofsuchassetsinourconsolidatedbalancesheetasofNovember30,2006.Whileanadverseresolutionofthesematterscouldresultinamaterialnegativeimpactoncashflow,includingpaymentoftaxesfromamountscurrentlyondepositwiththeService,webelievethatwehaveprovidedadequatereservesrelatedtothesemattersincludinginterestchargesthroughNovember30,2006totalingapproximately$12.6million,and,asaresult,donotexpectthatsuchanoutcomewouldhaveamaterialadverseeffectonresultsofoperations.
Future Cash Flows
Ourcashflowfromoperationsconsistsprimarilyofticket,hospitality,merchandise,cateringandconcessionsalesandcontractedrevenuesarisingfromtelevisionbroadcastrightsandmarketingpartnerships.Webelievethat
cashflowsfromoperations,alongwithexistingcash,cashequivalents,short-terminvestmentsandavailableborrowingsunderour2006CreditFacility,willbesufficienttofund:
• operationsandapprovedcapitalprojectsatexistingfacilitiesfortheforeseeablefuture;
• paymentsrequiredinconnectionwiththepurchaseofadditionalinterestsinRacewayAssociates;
• paymentsrequiredinconnectionwiththefundingoftheUnifiedGovernment’sdebtservicerequirementsrelatedtotheTIFbonds;
• paymentsrelatedtoourexistingdebtservicecommitments;
• anypotentialpaymentsassociatedwithourkeepwellagreements;
• anypaymentoftaxthatmayultimatelyoccurasaresultoftheexaminationbytheService;and
• thefeesandexpensesincurredinconnectionwiththecurrentlegalproceedingdiscussedin“FutureTrendsinOperatingResults.”
Weintendtopursuefurtherdevelopmentand/oracquisitionopportunities(includingthepossibledevelopmentofnewmotorsportsentertainmentfacilities,suchastheNewYorkmetropolitanarea,theNorthwestUSandotherareas),thetiming,sizeandsuccess,aswellasassociatedpotentialcapitalcommitments,ofwhichareunknownatthistime.Accordingly,amaterialaccelerationofourgrowthstrategycouldrequireustoobtainadditionalcapitalthroughdebtand/orequityfinancings.Althoughtherecanbenoassurance,webelievethatadequatedebtandequityfinancingwillbeavailableonsatisfactoryterms.
Whileweexpectourstrongoperatingcashflowtocontinueinthefuture,ourfinancialresultsdependsignificantlyonanumberoffactorsrelatingtoconsumerandcorporatespending,includingeconomicconditionsaffectingmarketingdollarsavailablefromthemotorsportsindustry’sprincipalsponsors.Consumerandcorporatespendingcouldbeadverselyaffectedbyeconomic,securityandotherlifestyleconditionsresultinginlowerthanexpectedfutureoperatingcashflows.GeneraleconomicconditionsweresignificantlyandnegativelyimpactedbytheSeptember11,2001terroristattacksandthewarinIraqandcouldbesimilarlyaffectedbyanyfutureattacksorfearofsuchattacks,orbyconditionsresultingfromotheractsorprospectsofwar.Anyfutureattacksorwarsorrelatedthreatscouldalsoincreaseourexpensesrelatedtoinsurance,securityorotherrelatedmatters.Also,ourfinancialresultscouldbeadverselyimpactedbyawidespreadoutbreakofasevereepidemiologicalcrisis.Theitemsdiscussedabovecouldhaveasingularorcompoundedmaterialadverseaffectonourfinancialsuccessandfuturecashflow.
RecentAccountingPronouncementsInDecember2004theFASBissuedrevisedSFASNo.123(R),“Share-BasedPayment.”SFASNo.123(R)setsaccountingrequirementsfor“share-based”compensationtoemployeesandrequirescompaniestorecognizeintheincomestatementthegrant-datefairvalueofstockoptionsandother
40 | 41 INTERNATIONALSPEEDWAYCORPORATION
Thefollowingtablepresentscertainunauditedfinancialdataforeachquarteroffiscal2005and2006(inthousands,exceptpershareamounts):
Totalrevenue $179,432 $157,447 $166,519 $236,730Operatingincome 71,847 46,866 56,019 90,533Incomefromcontinuingoperations 41,118 26,540 36,804 54,612Netincome 41,065 26,501 36,752 55,044Basicearningspershare 0.77 0.50 0.69 1.04Dilutedearningspershare 0.77 0.50 0.69 1.03
FiscalQuarterEnded February28, May31, August31, November30, 2005 2005 2005 2005
Totalrevenue $193,934 $172,083 $178,892 $253,460Operatingincome 78,463 52,176 51,808 16,719Incomefromcontinuingoperations 44,131 30,727 34,299 7,823Netincome 44,053 30,687 34,272 7,792Basicearningspershare 0.83 0.58 0.64 0.15Dilutedearningspershare 0.83 0.58 0.64 0.15
FiscalQuarterEnded February28, May31, August31, November30, 2006 2006 2006 2006
equity-basedcompensation.SFASNo.123(R)iseffectiveinannualperiodsbeginningafterJune15,2005.WeadoptedSFASNo.123(R)inthefirstquarteroffiscal2006,usingthemodified-prospective-transitionmethodandcurrentlydisclosetheproformaeffectonnetincomeandearningspershareofthefairvaluerecognitionprovisionsofSFASNo.123(R)forperiodspriortoadoption.OuradoptionofSFASNo.123(R)didnothaveamaterialimpactonourfinancialposition,resultsofoperationsorcashflows.
InJune2006theFASBissuedInterpretationNo.48,“AccountingforUncertaintyinIncomeTaxes”,whichclarifiestheaccountingforuncertaintyinincometaxesrecognizedinanenterprise’sfinancialstatementsinaccordancewithSFASNo.109,“AccountingforIncomeTaxes.”Theinterpretationprescribesarecognitionthresholdandmeasurementattributeforthefinancialstatementrecognitionandmeasurementofataxpositiontakenorexpectedtobetakeninataxreturn.Thisinterpretationalsoprovidesguidanceonderecognition,classification,interestandpenalties,accountingininterimperiods,disclosure,andtransition.ThisinterpretationiseffectiveforfiscalyearsbeginningafterDecember15,2006.Wearecurrentlyevaluatingthepotentialimpactthattheadoptionofthisinterpretationwillhaveonitsfinancialpositionandresultsofoperations.
InJune2006theEmergingIssuesTaskForce(“EITF”)reachedaconsensusonIssueNo.06-03,“HowTaxesCollectedfromCustomersandRemittedtoGovernmentalAuthoritiesShouldBePresentedintheIncomeStatement.”EITFNo.06-03addressestheaccountingforexternallyimposedtaxesonrevenue-producingtransactionsthattakeplacebetweenaselleranditscustomer,including,butnotlimitedtosales,use,valueadded,andcertainexcisetaxes.EITFNo.06-03alsoprovidesguidanceonthedisclosureofanentity’saccountingpoliciesforpresentingsuchtaxesonagrossornetbasisandtheamountofsuchtaxesreportedonagrossbasis.EITFNo.06-03is
effectiveforinterimandfiscalyearsbeginningafterDecember15,2006.WearecurrentlyevaluatingthepotentialeffectthattheadoptionofthisEITFwillhaveonourfinancialstatements.
InSeptember2006theFASBissuedSFASNo.157,“FairValueMeasurements”whichestablishesaframeworkformeasuringfairvalueingenerallyacceptedaccountingprinciples(“GAAP”),andexpandsdisclosuresaboutfairvaluemeasurements.SFASNo157appliesunderotheraccountingpronouncementsthatrequireorpermitfairvaluemeasurementsand,accordingly,SFASNo.157doesnotrequireanynewfairvaluemeasurements.SFASNo.157iseffectiveforfinancialstatementsissuedforfiscalyearsbeginningafterNovember15,2007,andinterimperiodswithinthosefiscalyears.Wearecurrentlyevaluatingthepotentialimpactthattheadoptionofthisstatementwillhaveonourfinancialpositionandresultsofoperations.
Ourquarterlyresultsaresubjecttoseasonalityandvariability
WederivemostofourincomefromalimitednumberofNASCAR-sanctionedraces.Asaresult,ourbusinesshasbeen,andisexpectedtoremain,highlyseasonalbasedonthetimingofmajorracingevents.Forexample,oneofourNASCARNEXTELCupSeriesracesistraditionallyheldontheSundayprecedingLaborDay.Accordingly,therevenuesandexpensesforthatraceand/ortherelatedsupportingeventsmayberecognizedineitherthefiscalquarterendingAugust31orthefiscalquarterendingNovember30.
FutureschedulechangesasdeterminedbyNASCARorothersanctioningbodies,aswellastheacquisitionofadditional,ordivestitureofexisting,motorsportsentertainmentfacilitiescouldimpactthetimingofourmajoreventsincomparisontopriororfutureperiods.
QuantitativeandQualitativeDisclosuresAboutMarketRiskWeareexposedtomarketriskfromchangesininterestratesinthenormalcourseofbusiness.OurinterestincomeandexpensearemostsensitivetochangesinthegenerallevelofU.S.interestratesandtheLIBORrate.Inordertomanagethisexposure,weuseacombinationofdebtinstruments,includingtheuseofderivativesintheformofinterestrateswapagreements.Wedonotenterintoanyderivativesfortradingpurposes.
Theobjectiveofourassetmanagementactivitiesistoprovideanadequatelevelofinterestincomeandliquiditytofundoperationsandcapitalexpansion,whileminimizingmarketrisk.Weutilizeovernightsweepaccountsandshort-terminvestmentstominimizetheinterestraterisk.Wedonotbelievethatourinterestrateriskrelatedtoourcashequivalentsandshort-terminvestmentsismaterialduetothenatureoftheinvestments.
Ourobjectiveinmanagingourinterestrateriskonourdebtistomaintainabalanceoffixedandvariableratedebtthatwilllowerouroverallborrowingcostswithinreasonableriskparameters.Interestrateswapsareusedfromtimetotimetoconvertaportionofourdebtportfoliofromavariableratetoafixedrateorfromafixedratetoavariablerate.
Thefollowinganalysisprovidesquantitativeinformationregardingourexposuretointerestraterisk.Weutilizevaluationmodelstoevaluatethesensitivityofthefairvalueoffinancialinstrumentswithexposuretomarketriskthatassumeinstantaneous,parallelshiftsininterestrateyieldcurves.Therearecertainlimitationsinherentinthesensitivityanalysespresented,primarilyduetotheassumptionthatinterestrateschangeinstantaneously.Inaddition,theanalysesareunabletoreflectthecomplexmarketreactionsthatnormallywouldarisefromthemarketshiftsmodeled.
AsdescribedinNote7totheconsolidatedfinancialstatements,wehavevariousdebtinstrumentsthatareissuedatfixedrates.Thesefinancialinstruments,whichhaveafixedrateofinterest,areexposedtofluctuationsinfairvalueresultingfromchangesinmarketinterestrates.Thefairvaluesoflong-termdebtarebasedonquotedmarketpricesatthedateofmeasurement.Ourcreditfacilitiesapproximatefairvalueastheybearinterestratesthatapproximatemarket.AtNovember30,2006,wedidnothaveanyvariabledebtoutstanding;therefore,ahypotheticalincreaseininterestratesby1.0percentwouldnotresultinanincreaseinourinterestexpense.AtNovember30,2006,thefairvalueofourtotallong-termdebtasdeterminedbyquotesfromfinancialinstitutionswasapproximately$370.5million.Thepotentialdecreaseinfairvalueresultingfromahypothetical10.0percentshift
ininterestrateswouldbeapproximately$8.6millionatNovember30,2006.
Fromtimetotimeweutilizederivativeinvestmentsintheformofinterestrateswapstomanagethefixedandfloatinginterestratemixofourtotaldebtportfolioandrelatedoverallcostofborrowing.Thenotionalamount,interestpaymentandmaturitydatesoftheswapsmatchthetermsofthedebttheyareintendedtomodify.AtNovember30,2006wedidnothaveanyinterestrateswapagreementsinplace.
Creditriskarisesfromthepossibleinabilityofcounterpartiestomeetthetermsoftheircontractsonanetbasis.However,weminimizesuchriskexposuresfortheseinstrumentsbylimitingcounterpartiestolargebanksandfinancialinstitutionsthatmeetestablishedcreditguidelines.Wedonotexpecttoincuranylossesasaresultofcounterpartydefault.
FactorsThatMayAffectOperatingResultsThisreportmaycontainforward-lookingstatementswithinthemeaningofSection27AoftheSecuritiesActof1933,asamended,andSection21EoftheSecuritiesExchangeActof1934,asamended.Youcanidentifyaforward-lookingstatementbyouruseofthewords“anticipate,”“estimate,”“expect,”“may,”“believe,”“objective,”“projection,”“forecast,”“goal,”andsimilarexpressions.Theseforward-lookingstatementsincludeourstatementsregardingthetimingoffutureevents,ouranticipatedfutureoperationsandouranticipatedfuturefinancialpositionandcashrequirements.Althoughwebelievethattheexpectationsreflectedinourforward-lookingstatementsarereasonable,wedonotknowwhetherourexpectationswillprovecorrect.WedisclosetheimportantfactorsthatcouldcauseouractualresultstodifferfromourexpectationsincautionarystatementsmadeinthisreportandinotherfilingswehavemadewiththeSecuritiesandExchangeCommission.Allsubsequentwrittenandoralforward-lookingstatementsattributabletousortopersonsactingonourbehalfareexpresslyqualifiedintheirentiretybythesecautionarystatements.Ouractualresultscoulddiffermateriallyfromthoseanticipatedintheseforward-lookingstatementsasaresultoftheriskfactorsdescribedinfilingswiththeSecuritiesandExchangeCommission.
Manyofthesefactorsarebeyondourabilitytocontrolorpredict.Wecautionyounottoputunduerelianceonforward-lookingstatementsortoprojectanyfutureresultsbasedonsuchstatementsoronpresentorpriorearningslevels.Additionalinformationconcerningthese,orotherfactors,whichcouldcausetheactualresultstodiffermateriallyfromthoseintheforward-lookingstatementsiscontainedfromtimetotimeinourotherSECfilings.Copiesofthosefilingsareavailablefromusand/ortheSEC.
42 | 43 INTERNATIONALSPEEDWAYCORPORATION
ConsolidatedBalanceSheets
November30, 2005 2006 (InThousands)
ASSETS CurrentAssets: Cashandcashequivalents $ 130,758 $ 59,681 Short-terminvestments 8,200 78,000 Receivables,lessallowanceof$1,500in2005and$1,000in2006 45,557 52,699 Inventories 6,528 3,976 Deferredincometaxes - 995 Prepaidexpensesandothercurrentassets 6,335 8,251TotalCurrentAssets 197,378 203,602 PropertyandEquipment,net 1,178,682 1,157,313
OtherAssets: Equityinvestments 51,160 175,915 Intangibleassets,net 149,464 149,314 Goodwill 99,507 99,507 DepositswithInternalRevenueService 96,913 110,813 Other 23,965 25,595 421,009 561,144 TotalAssets $ 1,797,069 $ 1,922,059
LIABILITIESANDSHAREHOLDERS’EQUITY CurrentLiabilities: Currentportionoflong-termdebt $ 635 $ 770 Accountspayable 19,274 29,577 Deferredincome 123,870 124,254 Incometaxespayable 20,067 22,477 Othercurrentliabilities 18,645 19,226TotalCurrentLiabilities 182,491 196,304 Long-TermDebt 368,387 367,324DeferredIncomeTaxes 194,825 191,642Long-TermDeferredIncome 11,342 10,808OtherLong-TermLiabilities 69 866CommitmentsandContingencies - -Shareholders’Equity: ClassACommonStock,$.01parvalue,80,000,000sharesauthorized; 29,394,344and31,078,307issuedandoutstandingin2005and2006,respectively 295 311 ClassBCommonStock,$.01parvalue,40,000,000sharesauthorized; 23,928,058and22,100,263issuedandoutstandingin2005and2006,respectively 239 221 Additionalpaid-incapital 699,879 698,396 Retainedearnings 343,766 456,187 1,044,179 1,155,115 Lessunearnedcompensation-restrictedstock 4,224 -TotalShareholders’Equity 1,039,955 1,155,115 TotalLiabilitiesandShareholders’Equity $ 1,797,069 $ 1,922,059
Seeaccompanyingnotes
ConsolidatedStatementsofOperations
REVENUES Admissions,net $ 222,545 $ 234,768 $ 235,251 Motorsportsrelated 334,943 408,514 466,095 Food,beverageandmerchandise 83,236 87,269 87,288 Other 7,124 9,578 9,735 647,848 740,129 798,369
EXPENSES Direct: PrizeandpointfundmoniesandNASCARsanctionfees 119,322 136,816 151,203 Motorsportsrelated 113,073 134,395 144,445 Food,beverageandmerchandise 52,285 56,773 53,141 Generalandadministrative 90,307 95,987 106,497 Depreciationandamortization 44,443 50,893 56,833 Impairmentoflong-livedassets - - 87,084 419,430 474,864 599,203 Operatingincome 228,418 265,265 199,166Interestincome 4,053 4,860 5,312Interestexpense (21,723) (12,693) (12,349)Equityinnetincomefromequityinvestments 2,754 3,516 318Lossonearlyredemptionofdebt (4,988) - - Incomefromcontinuingoperationsbeforeincometaxes 208,514 260,948 192,447Incometaxes 82,218 101,876 75,467Incomefromcontinuingoperations 126,296 159,072 116,980(Loss)incomefromdiscontinuedoperations,netofincometaxesof($3.7)million, $0and($268),respectively (6,315) 289 (176)Gainonsaleofdiscontinuedoperations,netofincometaxesof$27.6million 36,337 - - Netincome $ 156,318 $ 159,361 $ 116,804 Basicearningspershare: Incomefromcontinuingoperations $ 2.38 $ 2.99 $ 2.20 (Loss)incomefromdiscontinuedoperations (0.12) 0.01 - Gainonsaleofdiscontinuedoperations 0.68 - - Netincome $ 2.94 $ 3.00 $ 2.20 Dilutedearningspershare: Incomefromcontinuingoperations $ 2.37 $ 2.99 $ 2.20 (Loss)incomefromdiscontinuedoperations (0.11) - (0.01) Gainonsaleofdiscontinuedoperations 0.68 - - Netincome $ 2.94 $ 2.99 $ 2.19
Dividendspershare $ 0.06 $ 0.06 $ 0.08Basicweightedaveragesharesoutstanding 53,084,437 53,128,533 53,166,458Dilutedweightedaveragesharesoutstanding 53,182,776 53,240,183 53,270,623
YearEndedNovember30, 2004 2005 2006 (InThousands,ExceptPerShareAmounts)
Seeaccompanyingnotes
44 | 45 INTERNATIONALSPEEDWAYCORPORATION
ConsolidatedStatementsofChangesinShareholders’Equity
BalanceatNovember30,2003 $ 283 $ 249 $694,719 $ 34,602 $ (333) $ (3,055) $726,465 Comprehensiveincome Netincome - - - 156,318 - - 156,318 Interestrateswap - - - - 311 - 311 Totalcomprehensiveincome 156,629 Cashdividends($.06pershare) - - - (3,196) - - (3,196) Exerciseofstockoptions - - 442 - - - 442 Restrictedstockgrant 1 - 2,022 - - (2,023) - Reacquisitionofpreviouslyissued commonstock - - (361) (35) - - (396) ConversionofClassBCommonStock toClassACommonStock 5 (5) - - - - - Incometaxbenefitrelatedtorestricted stockplan - - 60 - - - 60 Amortizationofunearnedcompensation - - - - - 1,734 1,734 BalanceatNovember30,2004 289 244 696,882 187,689 (22) (3,344) 881,738 Comprehensiveincome Netincome - - - 159,361 - - 159,361 Interestrateswap - - - - 22 - 22 Totalcomprehensiveincome 159,383 Cashdividends($.06pershare) - - - (3,199) - - (3,199) Exerciseofstockoptions - - 444 - - - 444 Restrictedstockgrant 1 - 2,906 - - (2,907) - Reacquisitionofpreviouslyissued commonstock - - (426) (85) - - (511) ConversionofClassBCommonStock toClassACommonStock 5 (5) - - - - - Forfeituresofrestrictedshares - - (74) - - 46 (28) Incometaxbenefitrelatedtorestricted stockplan - - 147 - - - 147 Amortizationofunearnedcompensation - - - - - 1,981 1,981 BalanceatNovember30,2005 295 239 699,879 343,766 - (4,224) 1,039,955 Comprehensiveincome Netincome - - - 116,804 - - 116,804 Cashdividends($.08pershare) - - - (4,270) - - (4,270) Exerciseofstockoptions - - 189 - - - 189 Statement123(R)transitionimpacton restrictedstockplan (3) - (4,221) - - 4,224 - Reacquisitionofpreviouslyissued commonstock - - (347) (113) - - (460) ConversionofClassBCommonStock toClassACommonStock 18 (18) - - - - - Awardofsharesgrantedunderlong-term stockincentiveplan 1 - (1) - - - - Incometaxbenefitrelatedtostock-based compensation - - 197 - - - 197 Stock-basedcompensation - - 2,700 - - - 2,700 BalanceatNovember30,2006 $ 311 $ 221 $698,396 $ 456,187 $ - $ - $1,155,115
ClassA ClassB Accumulated Common Common Other Unearned Stock Stock Additional Comprehensive Compensation- Total $.01Par $.01Par Paid-in Retained (Loss) Restricted Shareholders’ Value Value Capital Earnings Income Stock Equity (InThousands)
Seeaccompanyingnotes
ConsolidatedStatementsofCashFlows
OPERATINGACTIVITIES Netincome $ 156,318 $ 159,361 $ 116,804 Adjustmentstoreconcilenetincometonetcashprovidedby operatingactivities: Depreciationandamortization 44,443 50,893 56,833 Discontinuedoperationsdepreciation 1,244 - - Stock-basedcompensation 1,734 1,953 2,700 Amortizationoffinancingcosts 250 569 538 Deferredincometaxes 52,146 29,208 (4,178) Incomefromequityinvestments (2,754) (3,516) (318) Impairmentoflong-livedassets 13,217 - 87,084 Gainonsaleofdiscontinuedoperations (63,926) - - Lossonearlyredemptionofdebt 4,988 - - Excesstaxbenefitsrelatingtostock-basedcompensation - - (185) Other,net 1,028 (248) 23 Changesinoperatingassetsandliabilities Receivables,net (10,959) 7,304 (7,142) Inventories,prepaidexpensesandotherassets (2,569) (644) 336 DepositswithInternalRevenueService - (96,913) (13,900) Accountspayableandotherliabilities 9,215 (5,359) 345 Deferredincome 3,187 9,191 (150) Incometaxes 18,424 (5,027) 2,607 Netcashprovidedbyoperatingactivities 225,986 146,772 241,397 INVESTINGACTIVITIES Capitalexpenditures (135,218) (248,850) (110,374) Proceedsfromassetdisposals 86 31 182 Acquisitionofbusinesses (195,325) (12,660) - Proceedsfromsaleofdiscontinuedoperations 100,391 - - Purchaseofequityinvestments (2,008) (11,642) (124,565) Proceedsfromshort-terminvestments 147,650 430,950 80,855 Purchasesofshort-terminvestments (262,450) (324,150) (150,655) Proceedsfromaffiliate - 487 128 Advancetoaffiliate - - (3,000) Other,net (1,442) (377) 314 Netcashusedininvestingactivities (348,316) (166,211) (307,115) FINANCINGACTIVITIES Proceedsundercreditfacility - - 80,000 Paymentsundercreditfacility - - (80,000) Proceedsfromlong-termdebt 299,570 - - Paymentoflong-termdebt (231,890) (7,505) (635) Paymentoflong-termdebtredemptionpremium (5,340) - - Deferredfinancingfees (2,626) (10) (368) Proceedsfrominterestrateswap 2,771 - - Cashdividendspaid (3,196) (3,199) (4,270) Reacquisitionofpreviouslyissuedcommonstock (396) (511) (460) ExerciseofClassAcommonstockoptions 442 444 189 Excesstaxbenefitsrelatingtostock-basedcompensation - - 185 Netcashprovidedby(usedin)financingactivities 59,335 (10,781) (5,359) Netdecreaseincashandcashequivalents (62,995) (30,220) (71,077)Cashandcashequivalentsatbeginningofyear 223,973 160,978 130,758 Cashandcashequivalentsatendofyear $ 160,978 $ 130,758 $ 59,681
YearEndedNovember30, 2004 2005 2006 (InThousands)
Seeaccompanyingnotes
46 | 47 INTERNATIONALSPEEDWAYCORPORATION
Inaddition,RacewayAssociates,LLC(“RacewayAssociates”),inwhichtheCompanyholdsa37.5percentindirectequityinterest,ownsandoperatesChicagolandSpeedwayandRoute66Raceway,twonationallyrecognizedmajormotorsportsentertainmentfacilitiesinJoliet,Illinois.
In2006,thesemotorsportsentertainmentfacilitiespromotedwellover100stockcar,openwheel,sportscar,truck,motorcycleandotherracingevents,including:
• 21NationalAssociationforStockCarAutoRacing(“NASCAR”)NEXTELCupSeriesevents;
• 16NASCARBuschSeriesevents;
• nineNASCARCraftsmanTrucksSeriesevents;
• sixIndyRacingLeague(“IRL”)IndyCarSeriesevents;
• oneNationalHotRodAssociation(“NHRA”)POWERadedragracingevents;
• thepremiersportscarenduranceeventintheUnitedStates(theRolex24atDaytonasanctionedbytheGrandAmericanRoadRacingAssociation(“GrandAmerican”);and
• anumberofotherprestigiousstockcar,sportscar,openwheelandmotorcycleevents.
ThegeneralnatureoftheCompany’sbusinessisamotorsportsthemedamusemententerprise,furnishingamusementtothepublicintheformofmotorsportsthemedentertainment.TheCompany’smotorsportseventoperationsconsistprincipallyofracingeventsatthesemajormotorsportsentertainmentfacilities,which,intotal,currentlyhavemorethanonemilliongrandstandseats.TheCompanyalsoconducts,eitherthroughoperationsoftheparticularfacilityorthroughcertainwholly-ownedsubsidiariesoperatingunderthename“Americrown,”souvenirmerchandisingoperations,foodandbeverageconcessionoperationsandcateringservices,bothinsuitesandchalets,forcustomersatitsmotorsportsentertainmentfacilities.TheCompanyalsomarketsanddistributesmotorsports-relatedmerchandisesuchasapparel,
souvenirsandcollectiblestoretailcustomers,throughitsRacingOne.cominternetsiteanddirectlytodealers.
MRNRadio,theCompany’sproprietaryradionetwork,producesandsyndicatestoradiostationstheNASCARNEXTELCup,BuschandCraftsmanTruckseriesracesandcertainotherracesconductedattheCompany’smotorsportsentertainmentfacilities,aswellassomeracesfrommotorsportsentertainmentfacilitiestheCompanydoesnotown.Inaddition,MRNRadioprovidesproductionservicesforNEXTELVision,thetracksidelargescreenvideodisplayunits,atallNASCARNEXTELCupSerieseventweekendsexceptatIndianapolisMotorSpeedway,whichisatracknotownedbytheCompany.MRNRadioalsoproducesandsyndicatesdailyandweeklyNASCARracing-themedprograms.
TheCompanyownsandoperatesDAYTONAUSA-TheUltimateMotorsportsAttraction,amotorsports-themedentertainmentcomplexandtheOfficialAttractionofNASCARthatincludesinteractivemedia,theaters,historicalmemorabiliaandexhibits,tours,aswellasridinganddrivingexperiencesofDaytonaInternationalSpeedway.
SIGNIFICANTACCOUNTINGPOLICIES:
PRINCIPLESOFCONSOLIDATION:TheaccompanyingconsolidatedfinancialstatementsincludetheaccountsofInternationalSpeedwayCorporationanditswholly-ownedsubsidiaries.Allmaterialintercompanyaccountsandtransactionshavebeeneliminatedinconsolidation.
CASHANDCASHEQUIVALENTSANDSHORTTERMINVESTMENTS:Forpurposesofreportingcashflows,cashandcashequivalentsincludecashonhand,bankdemanddepositaccountsandovernightsweepaccountsusedintheCompany’scashmanagementprogram.Allhighlyliquidinvestmentswithstatedmaturitiesofthreemonthsorlessfromthedateofpurchaseareclassifiedascashequivalents.
TheCompanymaintaineditscashandcashequivalentsprimarilywithtwofinancialinstitutionsatNovember30,2006.TheCompanybelievesthatit
NotestoConsolidatedFinancialStatements,November30,2006
NOTE1-DESCRIPTIONOFBUSINESSANDSUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES
DESCRIPTIONOFBUSINESS:InternationalSpeedwayCorporation,includingitswhollyownedsubsidiaries(collectivelythe“Company”),isaleadingpromoterofmotorsportsentertainmentactivitiesintheUnitedStates.AsofNovember30,2006,theCompanyownedand/oroperatedelevenofthenation’smajormotorsportsentertainmentfacilitiesasfollows:
TrackName Location TrackLength
DaytonaInternationalSpeedway DaytonaBeach,Florida 2.5Miles
TalladegaSuperspeedway Talladega,Alabama 2.6Miles
MichiganInternationalSpeedway Brooklyn,Michigan 2.0Miles
RichmondInternationalRaceway Richmond,Virginia 0.8Miles
CaliforniaSpeedway Fontana,California 2.0Miles
KansasSpeedway KansasCity,Kansas 1.5Miles
PhoenixInternationalRaceway Phoenix,Arizona 1.0Mile
Homestead-MiamiSpeedway Homestead,Florida 1.5Miles
MartinsvilleSpeedway Martinsville,Virginia 0.5Miles
DarlingtonRaceway Darlington,SouthCarolina 1.3Miles
WatkinsGlenInternational WatkinsGlen,NewYork 3.4Miles
isnotexposedtoanysignificantcreditriskonitscashbalancesduetothestrengthofthefinancialinstitutions.
TheCompany’sshort-terminvestmentsconsistprimarilyofhighlyliquid,variablerateinstruments,whichhavestatedmaturitiesofgreaterthanthreemonthsandhavebeenclassifiedasavailable-for-sale.TheCompanyhasdeterminedthatitsinvestmentsecuritiesareavailableandintendedforuseincurrentoperationsand,accordingly,hasclassifiedsuchinvestmentsecuritiesascurrentassets.
RECEIVABLES:Receivablesarestatedattheirestimatedcollectibleamounts.Theallowancefordoubtfulaccountsisestimatedbasedonhistoricalexperienceofwriteoffsandfutureexpectationsofconditionsthatmightimpactthecollectibilityofaccounts.
INVENTORIES:Inventories,consistingoffinishedgoods,arestatedatthelowerofcost,determinedonthefirstin,firstoutbasis,ormarket.
PROPERTYANDEQUIPMENT:Propertyandequipment,includingimprovementstoexistingfacilities,arestatedatcost.Depreciationisprovidedforfinancialreportingpurposesusingthestraightlinemethodovertheestimatedusefullivesasfollows:
Buildings,grandstandsandmotorsports entertainmentfacilities 10-30years
Furnitureandequipment 3-8years
Thecarryingvaluesofpropertyandequipmentareevaluatedforimpairmentupontheoccurrenceofanimpairmentindicatorbaseduponexpectedfutureundiscountedcashflows.Ifeventsorcircumstancesindicatethatthecarryingvalueofanassetmaynotberecoverable,animpairmentlosswouldberecognizedequaltothedifferencebetweenthecarryingvalueoftheassetanditsfairvalue.
EQUITYINVESTMENTS:TheCompany’sinvestmentsinjointventuresandotherinvesteeswhereitcanexertsignificantinfluenceontheinvestee,butdoesnothaveeffectivecontrolovertheinvestee,areaccountedforusingtheequitymethodofaccounting.TheCompany’sequityinthenetincome(loss)fromequitymethodinvestmentsisrecordedasincome(loss)withacorrespondingincrease(decrease)intheinvestment.Dividendsreceivedreducetheinvestment.TheCompanyrecognizestheeffectsoftransactionsinvolvingthesaleordistributionbyanequityinvesteeofitscommonstockascapitaltransactions.
EquitymethodinvestmentsconsistoftheCompany’sinterestsinMotorsportsAlliance,LLC(“MotorsportsAlliance”)andSMISC,LLC(“SMISC”).
MotorsportsAlliance(owned50.0percentbytheCompanyand50.0percentbyIndianapolisMotorSpeedwayLLC),ownsa75.0percentinterestinRacewayAssociates.RacewayAssociatesownsandoperatesChicagolandSpeedwayandRoute66Raceway.SeeSubsequentEventNote17.
OnAugust30,2005,theCompanypartneredwithSpeedwayMotorsportsIncorporated(“SMI”)ina50/50jointventure,SMISC,LLC(“SMISC”),which,throughawholly-ownedsubsidiaryMotorsportsAuthentics,LLC,conductsbusinessunderthenameMotorsportsAuthentics.Motorsports
AuthenticsoperatesasanindependentcompanywiththeCompanyandSMIasequalowners.AlsoonAugust30,2005,theCompanyannouncedthatSMISChadenteredintoadefinitiveagreementdatedAugust29,2005,topurchasethestockofActionPerformanceCompanies,Inc.(“Action”).OnDecember9,2005,SMISCpurchasedthestockofAction,whichwasstructuredasamergerofawholly-ownedsubsidiaryofMotorsportsAuthentics,LLCintoAction.
TheacquisitionofActionresultedinaninvestmentofapproximately$124.6millionandwascombinedwiththenetassetsandmerchandisingoperationsofTeamCaliber,whichMotorsportsAuthenticsacquiredonSeptember8,2005.Asaresultoftheseacquisitions,MotorsportsAuthenticsisnowaleaderindesign,promotion,marketinganddistributionofmotorsportslicensedmerchandise.MotorsportsAuthenticshaslicensesforexclusiveandnon-exclusivedistributionwithteamscompetinginNASCARandothermajormotorsportsseries.Itsproductsincludeabroadrangeofmotorsports-relateddie-castreplicacollectibles,apparel,giftsandothermemorabilia,whicharemarketedthroughacombinationofmassretail,domesticwholesale,trackside,internationalandcollector’sclubdistributionchannels.
TheCompany’sshareofundistributedequityintheearningsfromequityinvestmentsincludedinretainedearningsatNovember30,2005and2006wasapproximately$8.9millionand$9.0million,respectively.
OTHERINVESTMENTS:OtherinvestmentsconsistoftheCompany’sinvestmentinProximities,Inc.(“Proximities”).ThisinvestmentisaccountedforunderStatementofFinancialAccountingStandard(“SFAS”)No.115“AccountingforCertainInvestmentsinDebtandEquitySecurities.”
Proximitiesisdevelopingproductswhicharetobemarketedassecureradiofrequencyidentification(“RFID”)cashlesspayment,accesscontrolandageverificationsystems.ProximitiesisavariableinterestentityasdeterminedinaccordancewithFinancialAccountingStandardsBoard“FASB”InterpretationNo.46,“ConsolidationofVariableInterestEntities.”TheCompanydoesnotconsolidatetheoperationsofProximitiesasitisnottheprimarybeneficiary.TheCompany’smaximumexposuretolossasaresultofitsinvolvementwithProximitiesatNovember30,2006totaledapproximately$243,000.
GOODWILLANDINTANGIBLEASSETS:TheCompany’sgoodwillandotherintangibleassetsareevaluatedforimpairment,eitherupontheoccurrenceofanimpairmentindicatororannually,initsfiscalfourthquarter,basedonassumptionsregardingtheCompany’sfuturebusinessoutlookandexpectedfuturediscountedcashflowsatthereportingunitlevel.
DEFERREDFINANCINGFEES:Deferredfinancingfeesareamortizedoverthetermoftherelateddebtandareincludedinothernon-currentassets.
DERIVATIVEFINANCIALINSTRUMENTS:FromtimetotimetheCompanyutilizesderivativeinstrumentsintheformofinterestrateswapstoassistinmanagingitsinterestraterisk.TheCompanydoesnotenterintoanyinterestrateswapderivativeinstrumentsfortradingpurposes.WhiletheCompanyisnotcurrentlyutilizinginterestrateswapderivativeinstruments,allhistoricallyhavequalifiedfortheuseofthe“short-cut”methodofaccountingtoassesshedgeeffectivenessinaccordancewithSFASNo.133“AccountingforDerivativeInstrumentsandHedgingActivities,”asamended,andwere
NOTE1-DESCRIPTIONOFBUSINESSANDSUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES(continued)
48 | 49 INTERNATIONALSPEEDWAYCORPORATION
recognizedinitsconsolidatedbalancesheetattheirfairvalue.Thedifferentialpaidorreceivedoninterestrateswapagreementsisrecognizedasanadjustmenttointerestexpense.Thechangeinthefairvalueoftheinterestrateswap,whichisestablishedasaneffectivehedge,isincludedinothercomprehensiveincome.
INCOMETAXES:Incometaxeshavebeenprovidedusingtheliabilitymethod.UnderthismethodtheCompany’sestimatesofdeferredincometaxesandthesignificantitemsgivingrisetodeferredtaxassetsandliabilitiesreflectitsassessmentofactualfuturetaxestobepaidonitemsreflectedinitsfinancialstatements,givingconsiderationtobothtimingandprobabilityofrealization.
TheCompanyestablishestaxreservesrelatedtocertainmatters,includingpenaltiesandinterest,intheperiodwhenitisdeterminedthatitisprobablethatadditionaltaxes,penaltiesandinterestwillbepaid,andtheamountisreasonablyestimable.Suchtaxreservesareadjusted,asneeded,inlightofchangingcircumstances,suchasstatuteoflimitationsexpirationsandotherdevelopmentsrelatingtouncertaintaxpositionsandcurrenttaxitemsunderexamination,appealorlitigation.
REVENUERECOGNITION:Advanceticketsalesandevent-relatedrevenuesforfutureeventsaredeferreduntilearned,whichisgenerallyoncetheeventsareconducted.Therecognitionofevent-relatedexpensesismatchedwiththerecognitionofevent-relatedrevenues.Revenuesandrelatedexpensesfromthesaleofmerchandisetoretailcustomers,internetsalesanddirectsalestodealersarerecognizedatthetimeofthesale.
KansasSpeedwayCorporation(“KSC”)offersPreferredAccessSpeedwaySeating(“PASS”)agreements,whichgivepurchaserstheexclusiverightandobligationtopurchaseKSCseason-ticketpackagesforcertainsanctionedracingeventsannuallythroughfiscalyear2030,underspecifiedtermsandconditions.Amongtheconditions,licenseesarerequiredtopurchaseallseason-ticketpackageswhenandasofferedeachyear.PASSagreementsautomaticallyterminatewithoutrefundshouldownersnotpurchaseanyofferedseasontickets.
NetfeesreceivedunderPASSagreementsaredeferredandareamortizedintoincomeoverthetermoftheagreementswhichexpireinfiscal2030.Long-termdeferredincomeunderthePASSagreementstotalsapproximately$10.5millionand$10.2millionatNovember30,2005and2006,respectively.
ADVERTISINGEXPENSE:Advertisingcostsareexpensedasincurredor,asinthecaseofracerelatedadvertising,uponthecompletionoftheevent.Race-relatedadvertisingincludedinprepaidexpensesandothercurrentassetsatNovember30,2005and2006wasapproximately$920,000and$868,000,respectively.Advertisingexpensefromcontinuingoperationswasapproximately$12.1million,$14.7millionand$17.2millionfortheyearsendedNovember30,2004,2005and2006,respectively.
LOSSCONTINGENCIES:Legalandothercostsincurredinconjunctionwithlosscontingenciesareexpensedasincurred.
USEOFESTIMATES:ThepreparationoffinancialstatementsinconformitywithU.S.generallyacceptedaccountingprinciplesrequiresmanagementtomakeestimatesandassumptionsthataffectthereportedamountsofassetsandliabilities,disclosureofcontingentassetsandliabilitiesatthedateofthefinancialstatementsandthereportedamountsofrevenuesandexpenses
duringthereportingperiod.Actualresultscoulddifferfromthoseestimates.
NEWACCOUNTINGPRONOUNCEMENTS:InDecember2004theFinancialAccountingStandardsBoardissuedrevisedStatementofFinancialAccountingStandard(“SFAS”)No.123(R),“Share-BasedPayment.”SFASNo.123(R)setsaccountingrequirementsfor“share-based”compensationtoemployeesandrequirescompaniestorecognizeintheincomestatementthegrant-datefairvalueofstockoptionsandotherequity-basedcompensation.SFASNo.123(R)iseffectiveinannualperiodsbeginningafterJune15,2005.TheCompanyadoptedSFASNo.123(R)inthefirstquarterof2006usingthemodified-prospective-transitionmethodandcurrentlydisclosestheproformaeffectonnetincomeandearningspershareofthefairvaluerecognitionprovisionsofSFASNo.123(R)forperiodspriortoadoption.TheCompany’sadoptionofSFASNo.123(R)didnothaveamaterialimpactonitsfinancialposition,resultsofoperationsorcashflows.SeeNote13forfurtherinformationandtherequireddisclosuresunderSFASNo.123(R).
InJune2006theFASBissuedInterpretationNo.48,“AccountingforUncertaintyinIncomeTaxes”,whichclarifiestheaccountingforuncertaintyinincometaxesrecognizedinanenterprise’sfinancialstatementsinaccordancewithSFASNo.109,“AccountingforIncomeTaxes.”Theinterpretationprescribesarecognitionthresholdandmeasurementattributeforthefinancialstatementrecognitionandmeasurementofataxpositiontakenorexpectedtobetakeninataxreturn.Thisinterpretationalsoprovidesguidanceonderecognition,classification,interestandpenalties,accountingininterimperiods,disclosure,andtransition.ThisinterpretationiseffectiveforfiscalyearsbeginningafterDecember15,2006.TheCompanyiscurrentlyevaluatingthepotentialimpactthattheadoptionofthisinterpretationwillhaveonitsfinancialpositionandresultsofoperations.
InJune2006theEmergingIssuesTaskForce(“EITF”)reachedaconsensusonIssueNo.06-03,“HowTaxesCollectedfromCustomersandRemittedtoGovernmentalAuthoritiesShouldBePresentedintheIncomeStatement.”EITFNo.06-03addressestheaccountingforexternallyimposedtaxesonrevenue-producingtransactionsthattakeplacebetweenaselleranditscustomer,including,butnotlimitedtosales,use,valueadded,andcertainexcisetaxes.EITFNo.06-03alsoprovidesguidanceonthedisclosureofanentity’saccountingpoliciesforpresentingsuchtaxesonagrossornetbasisandtheamountofsuchtaxesreportedonagrossbasis.EITFNo.06-03iseffectiveforinterimandfiscalyearsbeginningafterDecember15,2006.TheCompanyiscurrentlyevaluatingthepotentialeffectthattheadoptionofthisEITFwillhaveonitsfinancialstatements.
InSeptember2006theFASBissuedSFASNo.157,“FairValueMeasurements”whichestablishesaframeworkformeasuringfairvalueingenerallyacceptedaccountingprinciples(“GAAP”),andexpandsdisclosuresaboutfairvaluemeasurements.SFASNo157appliesunderotheraccountingpronouncementsthatrequireorpermitfairvaluemeasurementsand,accordingly,SFASNo.157doesnotrequireanynewfairvaluemeasurements.SFASNo.157iseffectiveforfinancialstatementsissuedforfiscalyearsbeginningafterNovember15,2007,andinterimperiodswithinthosefiscalyears.TheCompanyiscurrentlyevaluatingthepotentialimpactthattheadoptionofthisstatementwillhaveonitsfinancialpositionandresultsofoperations.
NotestoConsolidatedFinancialStatements,November30,2006
NOTE1-DESCRIPTIONOFBUSINESSANDSUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES(continued)
NOTE2-EARNINGSPERSHARE
Basicanddiluted: Incomefromcontinuingoperations $ 126,296 $ 159,072 $ 116,980 (Loss)incomefromdiscontinuedoperations (6,315) 289 (176) Gainonsaleofdiscontinuedoperations 36,337 - - Netincome $ 156,318 $ 159,361 $ 116,804 Basicearningspersharedenominator: Weightedaveragesharesoutstanding 53,084,437 53,128,533 53,166,458 Basicearningspershare: Incomefromcontinuingoperations $ 2.38 $ 2.99 $ 2.20 (Loss)incomefromdiscontinuedoperations (0.12) 0.01 Gainonsaleofdiscontinuedoperations 0.68 - - Netincome $ 2.94 $ 3.00 $ 2.20 Dilutedearningspersharedenominator: Weightedaveragesharesoutstanding 53,084,437 53,128,533 53,166,458 Commonstockoptions 12,123 21,293 14,943 Contingentlyissuableshares 86,216 90,357 89,222 Dilutedweightedaveragesharesoutstanding 53,182,776 53,240,183 53,270,623 Dilutedearningspershare: Incomefromcontinuingoperations $ 2.37 $ 2.99 $ 2.20 (Loss)incomefromdiscontinuedoperations (0.11) - (0.01) Gainonsaleofdiscontinuedoperations 0.68 - - Netincome $ 2.94 $ 2.99 $ 2.19 Anti-dilutivesharesexcludedinthecomputation ofdilutedearningspershare 817 7,274 49,068
2004 2005 2006
ThefollowingtablesetsforththecomputationofbasicanddilutedearningspersharefortheyearsendedNovember30,(inthousands,exceptpershareamounts):
50 | 51 INTERNATIONALSPEEDWAYCORPORATION
Martinsville Speedway
OnJuly13,2004,theCompanyacquiredtheassetsofMartinsvilleSpeedway(“Martinsville”),andassumedtheoperationsaswellascertainliabilitiesofMartinsvilleforapproximately$194.8million,includingacquisitioncosts.Martinsvillewasprivatelyowned,withcertainmembersoftheFranceFamilyGroup,whichcontrolsinexcessof60.0percentofthecombinedvotinginterestoftheCompany,owning50.0percentofMartinsville.Theacquisitionwasfundedby$100.4millioninproceedsfromthesaleoftheassetsofNorthCarolinaSpeedway(“NorthCarolina”)(seeNote4)andapproximately$94.4millionincash.Martinsville’soperationsareincludedintheCompany’sconsolidatedoperationssubsequenttothedateofacquisition.
ThepurchasepricefortheMartinsvilleacquisitionwasallocatedtotheassetsacquiredandliabilitiesassumedbasedupontheirfairmarketvaluesattheacquisitiondate,asdeterminedbyanindependentappraisal.Includedinthisacquisitionwerecertainindefinite-livedintangibleassetsattributabletotheNASCARsanctionagreementsinplaceatthetimeofacquisitionandgoodwill.TheCompanybelievesthatthesesanctionagreementsandtheassociatedcashflowswillcontinuefortheforeseeablefutureandtherefore,inaccordancewithSFASNo.141and142,theirvaluehasbeeclassifiedasindefinite-livedintangibleassetsrecognizedapartfromgoodwill.TheintangibleassetsandgoodwillareincludedintheMotorsportsEventsegment.Allofthegoodwillattributabletotheacquisitionisexpectedtobedeductibleforincometaxpurposes.Asthisacquisitionisnotconsidered
significant,proformafinancialinformationisnotpresented.Thepurchasepriceallocationtothesignificantassetsacquiredisasfollows(inthousands):
Propertyandequipment $ 34,278NASCAR-sanctionagreements 148,000Goodwill 12,614
Pikes Peak International Raceway
OnOctober7,2005,theCompanyacquiredtheassetsandassumedcertainliabilitiesofPikesPeakInternationalRaceway(“PikesPeak”)forapproximately$12.0million.ThepurchasepriceforthePikesPeakacquisitionwasallocatedtotheassetsacquiredbasedupontheirfairmarketvaluesattheacquisitiondateincluding,landofapproximately$6.1millionandfixedassetsofapproximately$5.9million.Asthisacquisitionisnotconsideredsignificant,proformafinancialinformationisnotpresented.
Subsequenttothepurchase,theNASCARBuschSeriesevent,thenconductedatPikesPeak,wasrealignedtoanothermotorsportsentertainmentfacilitywithinitsportfolioforthefiscal2006racingseasonandtheCompanysuspendedindefinitelymajormotorsportseventoperationsatthefacilityonOctober31,2005.TheCompanyintendstorelocatecertainPikesPeakfixedassetstootherfacilitieswithinitsportfolio.Theseassetsincludegrandstandseatingandotherstructuresthatcanbeutilizedforfuturespeedwayexpansionprojects.TheCompanyiscurrentlypursingthesaleofthelandonwhichPikesPeakislocated.
NotestoConsolidatedFinancialStatements,November30,2006
NOTE3-ACQUISITIONOFBUSINESSES
NorthCarolinaSpeedway
AsrequiredbythesettlementagreementintheFerko/Vaughnlitigation(“SettlementAgreement”)datedApril8,2004,theCompany’sNorthCarolinaSpeedway,Inc.subsidiaryenteredintoanAssetPurchaseAgreementwithSMIforthesaleofthetangibleandintangibleassetsandoperationsofNorthCarolina.UnderthetermsoftheSettlementAgreement,SMI’ssubsidiarypurchasedNorthCarolina’sassetsandassumeditsoperationsforapproximately$100.4millionincash.ThesaleofNorthCarolina’sassetsclosedonJuly1,2004andtheCompanyrecordedanafter-taxgaininthethirdquarteroffiscal2004ofapproximately$36.3million.
NazarethSpeedway
AfterthecompletionofNazarethSpeedway’s(“Nazareth”)fiscal2004events,theCompanysuspendedindefinitelymajormotorsportseventoperationsatthefacility.TheNASCARBuschSeriesandIRLIndyCarSeriesevents,thenconductedatNazareth,wererealignedtoothermotorsportsentertainmentfacilitieswithinitsportfolio.
AsaresultofthesechangesinNazareth’soperations,animpairmentanalysiswasperformedinaccordancewithSFASNo.142,whichresultedinthe
identificationandmeasurementofanimpairmentlossofapproximately$13.2million,or$0.16perdilutedshareinthefiscalquarterendedMay31,2004.Inthefourthquarteroffiscal2005,theCompanyidentifiedcertaingrandstandassetswhichwerepreviouslyfullyimpaired,thatitrelocatedtoitsDarlingtonRacewayfacilityinfiscal2006.TheassetsthatwererelocatedtoDarlingtonwereadjustedtotheirnetbookvalueduringthefourthquarteroffiscal2005,resultinginanafter-taxwrite-upofapproximately$471,000,or$0.01perdilutedshare.
InJanuary2006,theCompanyenteredintoanagreementwithNZSW,LLCforthesaleof158acres,onwhichNazarethSpeedwayislocated,forapproximately$18.8million.Underthetermsofthecontractthesaletransactionisexpectedtocloseduringfiscal2007.Uponclosingthetransaction,theCompanyexpectstorecordanafter-taxgainfromdiscontinuedoperationsofapproximately$6.0to$7.0million,or$0.11to$0.13perdilutedshare.
TheoperationsofNorthCarolinaandNazarethwereincludedintheMotorsportsEventsegment.InaccordancewithSFASNo.144theresultsofoperationsofNorthCarolinaandNazareth,includingthegainonsaleofNorthCarolinaandtheimpairmentlossandsubsequentwrite-upofcertain
NOTE4-DISCONTINUEDOPERATIONSANDIMPAIRMENTOFLONG-LIVEDASSETS
grandstandassetsatNazareth,arepresentedasdiscontinuedoperationsinallperiodspresented.DuringtheyearendedNovember30,2004,totalrevenuesrecognizedbyNorthCarolinaandNazarethwereapproximately$17.0million.TherewerenorevenuesrecognizedbyNazarethfortheyearsendedNovember30,2005and2006.Pre-tax(loss)incomeduringtheyearsendedNovember30,2004,2005and2006wasapproximately($10.0)million,$289,000and($444,000),respectively.Nazareth’sassetsheldforsaleincludedinpropertyandequipment,netofaccumulateddepreciation,totaledapproximately$6.8millionatNovember30,2005and2006.Unlessindicatedotherwise,alldisclosuresinthenotestotheconsolidatedfinancialstatementsrelatetocontinuingoperations.
NewYorkMetropolitanSpeedwayDevelopment
Duringfiscal1999,theCompanyannounceditsintentiontosearchforasiteforamajormotorsportsentertainmentfacilityintheNewYorkmetropolitanarea.TheCompany’seffortsincludedtheevaluationofmanydifferentlocations.Mostrecently,theCompanyidentifiedacombinationoflandparcelsintheNewYorkCityboroughofStatenIslandaggregatingapproximately676acresthatittargetedforthedevelopmentofamajormotorsportsentertainmentandretaildevelopmentproject.TheCompany’smajority-ownedsubsidiary,380Development,LLC(“380Development”),purchasedthetotal676acresforapproximately$110.4millioninearlyfiscal2005.
InDecember2006,theCompanyannounceditsdecisiontodiscontinuepursuitofaspeedwaydevelopmentonStatenIsland.Thedecisionwasdrivenbyavarietyoffactors,including:(1)theinabilitytosecurethecriticallocalpoliticalsupportthatisnecessarytosecuretherequiredland-usechangeapprovalsforaspeedwaydevelopment;(2)evenifithadsecuredthenecessarypoliticalsupport,itbecameapparentthatitwouldhavebeenfacedwithunacceptableapprovalrequirements,includingoperationalrestrictionsthatwouldhavemadethefacilitydifficulttooperate
andasignificantchallengetomarket;and(3)theincreasedriskthattheseunacceptableapprovalrequirementscouldresultinhigherconstructionspendingandannualoperatingcosts,whichwouldhaveasignificantnegativeimpactonthefinancialmodelforthespeedwaydevelopment.
TheoperatinganddevelopmentagreementsbetweentheCompanyandTheRelatedCompanies(“Related”)havebeenterminated,thenotepayabletoTheCompanyfromRelatedwhichwassecuredbyapledgeofRelated’s12.4percentproportionateminorityinterestin380DevelopmenthasbeencancelledandtheminorityinterestsurrenderedtotheCompany.
ThedecisiontodiscontinueourspeedwaydevelopmenteffortsonStatenIsland,inthefourthquarteroffiscal2006,resultedinanon-cash,pre-taxchargeintheCompany’sresultsofapproximately$84.7million,or$1.01perdilutedshareafter-tax,whichisincludeintheMotorsportsEventsegment.U.S.generallyacceptedaccountingprinciplesrequirethatthepropertybevaluedatitscurrentfairvalue,whichisestimatedbyanindependentappraisalatapproximately$65.0million.Priortothewrite-off,theCompanyhadcapitalizedspendingofapproximately$150.0millionthroughNovember30,2006,including:(1)$123.0millionforlandandrelatedimprovements,(2)$11.0millionforcostsrelatedsolelytothedevelopmentofthespeedway,and(3)$16.0millionforcapitalizedinterestandpropertytaxes.
TheCompanyhasbeguntoresearchanddevelopmarketdemandstudiestoassistintheevaluationofvariousalternativestrategiesfortheStatenIslandacreage,includingpotentiallysellingthepropertyinwholeorinparts,ordevelopingthepropertywithathirdpartyforsomeotheruse.GiventhatthepropertyisthelargestundevelopedacreageoflandinthefiveboroughsofNewYorkCity,theCompanybelievesitwillbeattractivetoawiderangeofdevelopersandusers.Thesiteiscurrentlyzonedas-of-rightforindustrialuseandcouldprovideeaseofaccessthroughadeep-waterdocklocatedonsite.Also,thepropertycanbeeasilyaccessedfromthelocalhighwaysystem.
NOTE4-DISCONTINUEDOPERATIONSANDIMPAIRMENTOFLONG-LIVEDASSETS(continued)
NOTE5-PROPERTYANDEQUIPMENT
PropertyandequipmentconsistsofthefollowingasofNovember30(inthousands):
2005 2006
Landandleaseholdimprovements $ 284,051 $ 289,731Buildings,grandstandsandmotorsportsentertainmentfacilities 915,425 981,023Furnitureandequipment 130,408 141,134Constructioninprogress 164,111 116,644 1,493,995 1,528,532Lessaccumulateddepreciation 315,313 371,219 $ 1,178,682 $ 1,157,313
Depreciationexpensefromcontinuingoperationswasapproximately$44.4million,$50.7millionand$56.7millionfortheyearsendedNovember30,2004,2005and2006,respectively.
52 | 53 INTERNATIONALSPEEDWAYCORPORATION
NotestoConsolidatedFinancialStatements,November30,2006
NOTE6-GOODWILLANDINTANGIBLEASSETS
ThegrosscarryingvalueandaccumulatedamortizationofthemajorclassesofintangibleassetsrelatingtotheMotorsportsEventsegmentasofNovember30areasfollows(inthousands):
Amortizedintangibleassets: Customerdatabase $ 500 $ 100 $ 400 Food,beverageandmerchandisecontracts 276 142 134Totalamortizedintangibleassets 776 242 534Non-amortizedintangibleassets: NASCAR-sanctionagreements 148,000 - 148,000 Other 930 - 930Totalnon-amortizedintangibleassets 148,930 - 148,930Totalintangibleassets $ 149,706 $ 242 $149,464
2005 GrossCarrying Accumulated NetCarrying Amount Amortization Amount
Amortizedintangibleassets: Customerdatabase $ 500 $ 200 $ 300 Food,beverageandmerchandisecontracts 276 185 91Totalamortizedintangibleassets 776 385 391Non-amortizedintangibleassets: NASCAR-sanctionagreements 148,000 - 148,000 Other 923 - 923Totalnon-amortizedintangibleassets 148,923 - 148,923Totalintangibleassets $ 149,699 $ 385 $ 149,314
2006 GrossCarrying Accumulated NetCarrying Amount Amortization Amount
ThefollowingtablepresentscurrentandexpectedamortizationexpenseoftheexistingintangibleassetsasofNovember30,foreachofthefollowingperiods(inthousands):
Amortizationexpensefortheyearended November30,2006 $ 143
Estimatedamortizationexpensefortheyearending November30: 2007 143 2008 143 2009 101 2010 1 2011 1
TherewerenochangesinthecarryingvalueofgoodwillduringtheyearendedNovember30,2006.
Long-termdebtconsistsofthefollowingasofNovember30(inthousands):
NOTE7-LONG-TERMDEBT
2005 2006
4.2percentSeniorNotesdue2009 $ 151,297 $ 150,9155.4percentSeniorNotesdue2014 149,905 149,917TIFbonddebtservicefundingcommitment 67,820 67,262 369,022 368,094Less:currentportion 635 770 $ 368,387 $ 367,324
ScheduleofPayments(inthousands)FortheyearendingNovember30: 2007 $ 770 2008 915 2009 151,075 2010 1,245 2011 1,430 Thereafter 212,920 368,355Netpremium (261) Total $ 368,094
OnApril23,2004,theCompanycompletedanofferingof$300.0millionprincipalamountofunsecuredseniornotesinaprivateplacement.OnSeptember27,2004,theCompanycompletedanoffertoexchangetheseunsecuredseniornotesforregisteredseniornoteswithsubstantiallyidenticalterms(“2004SeniorNotes”).AtNovember30,2006,outstanding2004SeniorNotestotaledapproximately$300.8million,netofunamortizeddiscountsandpremium,whichiscomprisedof$150.0millionprincipalamountunsecuredseniornotes,whichbearinterestat4.2percentandaredueApril2009(“4.2percentSeniorNotes”),and$150.0millionprincipalamountunsecuredseniornotes,whichbearinterestat5.4percentandaredueApril2014.The2004SeniorNotesrequiresemi-annualinterestpaymentsonApril15andOctober15throughtheirmaturity.The2004SeniorNotesmayberedeemedinwholeorinpart,attheoptionoftheCompany,atanytimeorfromtimetotimeatredemptionpricesasdefinedintheindenture.TheCompany’ssubsidiariesareguarantorsofthe2004SeniorNotes.The2004SeniorNotesalsocontainvariousrestrictivecovenants.Totalgrossproceedsfromthesaleofthe2004SeniorNoteswere$300.0million,netofdiscountsofapproximately$431,000andapproximately$2.6millionofdeferredfinancingfees.Thedeferredfinancingfeesarebeingtreatedasadditionalinterestexpenseandamortizedoverthelifeofthe2004SeniorNotesonastraight-linemethod,whichapproximatestheeffectiveyieldmethod.InMarch2004,theCompanyenteredintointerest
rateswapagreementstoeffectivelylockintheinterestrateonapproximately$150.0millionofthe4.2percentSeniorNotes.TheCompanyterminatedtheseinterestrateswapagreementsonApril23,2004,andreceivedapproximately$2.2million,whichisbeingamortizedoverthelifeofthe4.2percentSeniorNotes.
InJanuary1999,theUnifiedGovernmentofWyandotteCounty/KansasCity,Kansas(“UnifiedGovernment”),issuedapproximately$71.3millionintaxablespecialobligationrevenue(“TIF”)bondsinconnectionwiththefinancingofconstructionofKansasSpeedway.AtNovember30,2006,outstandingTIFbondstotaledapproximately$67.3million,netoftheunamortizeddiscount,whichiscomprisedofa$18.7millionprincipalamount,6.2percenttermbonddueDecember1,2017and$49.7millionprincipalamount,6.8percenttermbonddueDecember1,2027.TheTIFbondsarerepaidbytheUnifiedGovernmentwithpaymentsmadeinlieuofpropertytaxes(“FundingCommitment”)bytheCompany’swholly-ownedsubsidiary,KansasSpeedwayCorporation(“KSC”).Principal(mandatoryredemption)paymentspertheFundingCommitmentarepayablebyKSConOctober1ofeachyear.Thesemi-annualinterestcomponentoftheFundingCommitmentispayableonApril1andOctober1ofeachyear.KSCgrantedamortgageandsecurityinterestintheKansasprojectforitsFundingCommitmentobligation.Thebondfinancingdocumentscontainvariousrestrictivecovenants.
54 | 55 INTERNATIONALSPEEDWAYCORPORATION
OnJune16,2006,theCompanyenteredintoa$300.0millionrevolvingcreditfacility(“2006CreditFacility”).The2006CreditFacilitycontainsafeaturethatallowstheCompanytoincreasethecreditfacilitytoatotalof$500.0million,subjecttocertainconditions.Uponexecutionofthe2006CreditFacility,theCompanyterminateditsthenexisting$300.0millioncreditfacility.The2006CreditFacilityisscheduledtomatureinJune2011,andaccruesinterestatLIBORplus30.0-80.0basispoints,basedontheCompany’shighestdebtratingasdeterminedbyspecifiedratingagencies.The2006CreditFacilitycontainsvariousrestrictivecovenants.AtNovember30,2006,theCompanydidnothaveanyborrowingsoutstandingunderthe2006CreditFacility.
TotalinterestexpensefromcontinuingoperationsincurredbytheCompanywasapproximately$21.7million,$12.7millionand$12.3millionfortheyearsendedNovember30,2004,2005and2006,respectively.TotalinterestcapitalizedfortheyearsendedNovember30,2004,2005and2006wasapproximately$1.6million,$7.6millionand$8.4million,respectively.
Financingcostsofapproximately$6.9millionand$6.5million,netofaccumulatedamortization,havebeendeferredandareincludedinotherassetsatNovember30,2005and2006,respectively.Thesecostsarebeingamortizedonastraightlinemethod,whichapproximatestheeffectiveyieldmethod,overthelifeoftherelatedfinancing.
NotestoConsolidatedFinancialStatements,November30,2006
NOTE7-LONG-TERMDEBT(continued)
Deferredincometaxesreflectthenettaxeffectsoftemporarydifferencesbetweenthecarryingamountsofassetsandliabilitiesforfinancialreportingpurposesandtheamountsusedforincometaxpurposes.
SignificantcomponentsoftheprovisionforincometaxesfromcontinuingoperationsfortheyearsendedNovember30,areasfollows(inthousands):
NOTE8-FEDERALANDSTATEINCOMETAXES
Currenttaxexpense: Federal $ 46,839 $ 64,832 $ 73,890 State 6,311 8,091 6,061Deferredtaxexpense(benefit): Federal 26,327 26,122 (5,799) State 2,741 2,831 1,315 Provisionforincometaxes $ 82,218 $ 101,876 $ 75,467
2004 2005 2006
ThereconciliationofincometaxexpensecomputedatthefederalstatutorytaxratestoincometaxexpensefromcontinuingoperationsfortheyearsendedNovember30,isasfollows(percentofpre-taxincome):
Incometaxcomputedatfederalstatutoryrates 35.0% 35.0% 35.0%Stateincometaxes,netoffederaltaxbenefit 3.4 3.2 3.1Other,net 1.0 0.8 1.1 39.4% 39.0% 39.2%
2004 2005 2006
TheCompanyhasrecordeddeferredtaxassetsrelatedtovariousstatenetoperatinglosscarryforwardstotalingapproximately$88.4million,thatexpireinvaryingamountsbeginninginfiscal2020.Thevaluationallowanceincreasedbyapproximately$3.7millionduringthefiscalyearendedNovember30,2006,andisattributabletotheimpairmentoflong-livedassets.Thevaluationallowancehasbeenprovidedduetotheuncertainty
regardingtherealizabilityofstatedeferredtaxassetsassociatedwiththeimpairedlong-livedassets.InevaluatingtheCompany’sabilitytorecoveritsdeferredincometaxassetsitconsidersallavailablepositiveandnegativeevidence,includingoperatingresults,ongoingtaxplanningandforecastsoffuturetaxableincomeonajurisdictionbyjurisdictionbasis.
NOTE8-FEDERALANDSTATEINCOMETAXES(continued)
Thecomponentsofthenetdeferredtaxassets(liabilities)atNovember30areasfollows(inthousands):
2005 2006
Impairedlong-livedassets $ - $ 34,683Amortizationanddepreciation 27,014 21,038Deferredrevenues 4,173 4,076Deferredexpenses 2,663 2,765Losscarryforwards 2,422 2,919Compensationrelated 2,004 2,147Accruals 1,584 1,599Other 103 114
Deferredtaxassets 39,963 69,341Valuationallowance - (3,677)
Deferredtaxassets,netofvaluationallowance 39,963 65,664
Amortizationanddepreciation (224,471) (244,194)Equityinvestment (9,895) (11,786)Other (422) (331)
Deferredtaxliabilities (234,788) (256,311)
Netdeferredtaxliabilities $ (194,825) $ (190,647)
Deferredtaxassets-current $ - $ 995Deferredtaxliabilities-noncurrent (194,825) (191,642) Netdeferredtaxliabilities $ (194,825) $ (190,647)
56 | 57 INTERNATIONALSPEEDWAYCORPORATION
NotestoConsolidatedFinancialStatements,November30,2006
NOTE9-CAPITALSTOCK
TheCompany’sauthorizedcapitalincludes80.0millionsharesofClassACommonStock,parvalue$.01(“ClassACommonStock”),40.0millionsharesofClassBCommonStock,parvalue$.01(“ClassBCommonStock”),and1.0millionsharesofPreferredStock,parvalue$.01(“PreferredStock”).ThesharesofClassACommonStockandClassBCommonStockareidenticalinallrespects,exceptforvotingrightsandcertaindividendandconversionrightsasdescribedbelow.EachshareofClassACommonStockentitlestheholdertoonefifth(1/5)voteoneachmattersubmittedtoavoteoftheCompany’sshareholdersandeachshareofClassBCommonStockentitlestheholdertoone(1)voteoneachsuchmatter,ineachcaseincludingtheelectionofdirectors.HoldersofClassACommonStockandClassBCommonStockareentitledtoreceivedividendsatthesamerateifandwhendeclaredbytheBoardofDirectorsoutoffundslegallyavailabletherefrom,subjecttothedividendandliquidationrightsofanyPreferredStockthatmaybeissuedandoutstanding.ClassACommonStockhasnoconversionrights.ClassBCommonStockisconvertibleintoClassACommonStock,inwholeorinpart,
atanytimeattheoptionoftheholderonthebasisofoneshareofClassACommonStockforeachshareofClassBCommonStockconverted.EachshareofClassBCommonStockwillalsoautomaticallyconvertintooneshareofClassACommonStockif,ontherecorddateofanymeetingoftheshareholders,thenumberofsharesofClassBCommonStockthenoutstandingislessthan10.0percentoftheaggregatenumberofsharesofClassACommonStockandClassBCommonStockthenoutstanding.
TheBoardofDirectorsoftheCompanyisauthorized,withoutfurthershareholderaction,todivideanyorallsharesoftheauthorizedPreferredStockintoseriesandfixanddeterminethedesignations,preferencesandrelativerightsandqualifications,limitations,orrestrictionsthereonofanyseriessoestablished,includingvotingpowers,dividendrights,liquidationpreferences,redemptionrightsandconversionprivileges.NosharesofPreferredStockareoutstanding.TheBoardofDirectorshasnotauthorizedanyseriesofPreferredStock,andtherearenoplans,agreementsorunderstandingsfortheauthorizationorissuanceofanysharesofPreferredStock.
InternationalSpeedwayCorporationhasasalaryincentiveplan(the“ISCPlan”)designedtoqualifyunderSection401(k)oftheInternalRevenueCode.EmployeesofInternationalSpeedwayCorporationandcertainparticipatingsubsidiarieswhohavecompletedonemonthofcontinuousserviceareeligibletoparticipateintheISCPlan.Aftertwelvemonthsofcontinuousservice,matchingcontributionsaremadetoasavingstrust(subjecttocertainlimits)concurrentwithemployees’contributions.Thelevelofthematchingcontributiondependsupontheamountoftheemployeecontribution.Employeesbecome100percentvesteduponentrancetotheISCPlan.ThecontributionexpensefromcontinuingoperationsfortheISCPlanwasapproximately$1.3million,$1.4millionand$1.5million,fortheyearsendedNovember30,2004,2005,and2006,respectively.
TheestimatedcosttocompleteapprovedprojectsandcurrentconstructioninprogressatNovember30,2006attheCompany’sexistingfacilitiesisapproximately$62.5million.
InOctober2002,theUnifiedGovernmentissuedsubordinatesalestaxspecialobligationrevenuebonds(“2002STARBonds”)totalingapproximately$6.3milliontoreimbursetheCompanyforcertainconstructionalreadycompletedonthesecondphaseoftheKansasSpeedwayprojectandtofundcertainadditionalconstruction.The2002STARBonds,whichrequireannualdebtservicepaymentsandaredueDecember1,2022,willberetiredwithstateandlocaltaxesgeneratedwithinthespeedway’sboundariesandarenottheCompany’sobligation.KSChasagreedto
guaranteethepaymentofprincipal,anyrequiredpremiumandinterestonthe2002STARBonds.AtNovember30,2006,theUnifiedGovernmenthadapproximately$4.3millionoutstandingon2002STARBonds.Underakeepwellagreement,theCompanyhasagreedtoprovidefinancialassistancetoKSC,ifnecessary,tosupportKSC’sguaranteeofthe2002STARBonds.
TheCompanyisamemberofMotorsportsAlliance(owned50.0percentbytheCompanyand50.0percentbyIndianapolisMotorSpeedwayLLC(“IMS”)),whichowns75.0percentofRacewayAssociates.RacewayAssociatesownsandoperatesChicagolandSpeedwayandRoute66Raceway.RacewayAssociateshasatermloanarrangement,whichrequiresquarterlyprincipalandinterestpaymentsandmaturesNovember15,2012,anda$15.0millionsecuredrevolvingcreditfacility,whichmaturesinSeptember2008.AtNovember30,2006,RacewayAssociateshadapproximately$28.4millionoutstandingunderitstermloanandnoborrowingsoutstandingunderitsthenexistingcreditfacility.Underakeepwellagreement,themembersofMotorsportsAlliancehaveagreedtoprovidefinancialassistancetoRacewayAssociates,ifnecessary,onaproratabasistosupportitsperformanceunderitstermloanandcreditfacility.
TheCompanyhasguaranteedminimumroyaltypaymentsundercertainagreementsthroughDecember2015,witharemainingmaximumexposureatNovember30,2006,ofapproximately$12.5million.
NOTE10-COMMITMENTSANDCONTINGENCIES
TheCompanyoperatesMiamiunderanoperatingagreementwhichexpiresDecember31,2032,andprovidesforsubsequentrenewaltermsthroughDecember31,2075.TheCompanyalsohasvariousoperatingleasesforofficespaceandequipment.ThefutureminimumpaymentsundertheoperatingagreementandleasesutilizedbytheCompanyhavinginitialorremainingnoncancellabletermsinexcessofoneyearatNovember30,2006,areasfollows(inthousands):
Operating OperatingFortheyearendingNovember30: Agreement Leases
2007 $ 2,220 $ 3,945
2008 2,220 2,763
2009 2,220 1,690
2010 2,220 1,319
2011 2,220 1,146
Thereafter 27,000 36,370
Total $ 38,100 $ 47,233
NOTE10-COMMITMENTSANDCONTINGENCIES(continued)
Totalexpensesincurredfromcontinuingoperationsunderthetrackoperatingagreement,theseoperatingleasesandallotherrentalsduringtheyearsendedNovember30,2004,2005and2006were$14.9million,$19.0millionand$22.0million,respectively.
InconnectionwiththeCompany’sautomobileandworkers’compensationinsurancecoveragesandcertainconstructioncontracts,theCompanyhasstandbyletterofcreditagreementsinfavorofthirdpartiestotaling$2.1millionatNovember30,2006.AtNovember30,2006,therewerenoamountsdrawnonthestandbylettersofcredit.
TheInternalRevenueService(the“Service”)iscurrentlyperformingaperiodicexaminationoftheCompany’sfederalincometaxreturnsfortheyearsendedNovember30,1999through2005andhaschallengedthetaxdepreciationtreatmentofasignificantportionofitsmotorsportsentertainmentfacilityassets.ThroughNovember30,2006,theCompanyhasreceivedreportsfromtheServicerequestingdownwardadjustmentstoitstaxdepreciationexpenseforthefiscalyearsendedNovember30,1999through2004,whichcouldpotentiallyresultinthereclassificationofapproximately$94.5millionofincometaxesfromdeferredtocurrent.Includingrelatedinterest,thecombinedafter-taxcashflowimpactoftheserequestedadjustmentsisapproximately$110.8million.Inordertoprevent
incurringadditionalinterest,theCompanydepositedapproximately$110.8millionwiththeService.InDecember2006,theCompanyreceivedareportfromtheServicewithrespecttoourfiscalyearendedNovember30,2005,whichcouldpotentiallyresultinthereclassificationofapproximately$6.6millionofincometaxesfromdeferredtocurrent.Accordingly,inordertopreventincurringadditionalinterest,theCompanydepositedanadditional$7.1millionwiththeServiceinJanuary2007.AdditionaladjustmentstotheCompany’staxdepreciationexpenseareexpectedtoberequestedlaterbytheServiceforfiscalyearendedNovember30,2006.Includingrelatedinterest,theCompanyestimatesthecombinedafter-taxcashflowimpactoftheadditionalfederaltaxadjustmentsexpectedforfiscal2006,andrelatedstatetaxrevisionsforallperiods,torangebetween$30.0millionand$40.0millionatNovember30,2006.TheCompany’sdepositsarenotapaymentoftax,anditwillreceiveaccruedinterestonanyofthesefundsultimatelyreturnedtoit.AtNovember30,2006,theapproximately$110.8millionofdepositswiththeServiceareclassifiedaslong-termassetsintheCompany’sconsolidatedfinancialstatements.TheCompanybelievesthatitsapplicationofthefederalincometaxregulationsinquestion,whichhavebeenappliedconsistentlysincebeingadoptedin1986andhavebeensubjectedtopreviousIRSaudits,isappropriate,anditintendstovigorouslydefendthemeritsofitsposition.OncecommencedbytheService,theadministrative
58 | 59 INTERNATIONALSPEEDWAYCORPORATION
NotestoConsolidatedFinancialStatements,November30,2006
NOTE10-COMMITMENTSANDCONTINGENCIES(continued)
appealsprocessisexpectedtotakesixtofifteenmonthstocomplete.IftheCompany’sappealisnotresolvedsatisfactorily,itwillevaluateallofitsoptions,includinglitigation.InaccordancewithSFASNo.109“AccountingforIncomeTaxes,”theCompanyhasaccruedadeferredtaxliabilitybasedonthedifferencesbetweenitsfinancialreportingandtaxbasesofsuchassetsinitsconsolidatedbalancesheetasofNovember30,2006.Whileanadverseresolutionofthesematterscouldresultinamaterialnegativeimpactoncashflow,includingpaymentoftaxesfromamountscurrentlyondepositwiththeService,theCompanybelievesthatithasprovidedadequatereservesrelatedtothesemattersincludinginterestchargesthroughNovember30,2006,totalingapproximately$12.6million,and,asaresult,doesnotexpectthatsuchanoutcomewouldhaveamaterialadverseeffectonresultsofoperations.
CurrentLitigation
TheCompanyisfromtimetotimeapartytoroutinelitigationincidentaltoitsbusiness.ManagementdoesnotbelievethattheresolutionofanyorallofsuchlitigationwillhaveamaterialadverseeffectontheCompany’sfinancialconditionorresultsofoperations.
Inadditiontosuchroutinelitigationincidenttoitsbusiness,theCompanyisapartytolitigationdescribedbelow.
OnJuly13,2005,KentuckySpeedway,LLCfiledacivilactionintheEasternDistrictofKentuckyagainstNASCARandtheCompanyallegingthat“NASCARandISChaveacted,andcontinuetoact,individuallyandincombinationandcollusionwitheachotherandothercompaniesthatcontrolmotorsportsentertainmentfacilitieshostingNASCARNEXTELCupSeries,toillegallyrestricttheawardof…NASCARNEXTELCup
Series[races].”ThecomplaintseeksdamagesandaninjunctionrequiringNASCARtoestablishacompetitivebiddingprocessforNEXTELCupeventsandprohibitingfurtherviolationsoftheantitrustlaws.Otherthansomevaguelyconclusoryallegations,thecomplaintfailstospecifyanyconductbyInternationalSpeedwayCorporation(“ISC”)otherthanconductingandgrowingitsmotorsportsentertainmentbusinessforthebenefitofitsshareholders.TheCompanybelievestheallegationstobewithoutmeritandintendstodefenditselfvigorously.TheCompanyhasretainedcounselandispursuingdefensestothesuitwhilemaintainingpotentialcounterclaimremediesavailabletoittorecoverthedamagescausedbythefilingofthesuit.ThecourthasestablishedaFebruary1,2007,deadlineforthecompletionofpre-trialdiscoveryfactualmatterswhichistobefollowedbydiscoveryofexpertopinionmatters.BaseduponthecurrenttimelineatrialonthemeritsofthecaseisscheduledfornoearlierthanFall2007.Whileitisprematuretoquantifyeitherthelikelihoodorthepotentialmagnitudeofanadversedecision,thefeesandexpensesassociatedwiththedefenseofthissuitarenotcoveredbyinsuranceandcouldadverselyimpacttheCompany’sfinancialconditionorresultsofoperationsandcashflows,eveniftheCompanyultimatelyprevails.Further,thetimedevotedtothismatterbymanagementandthepossibleimpactoflitigationonbusinessnegotiationsoccurringpriortoresolutionofthismattercouldalsoadverselyimpactourfinancialconditionorresultsofoperationsandcashflows.Finally,evenifthedirecteffectoftheresolutionofthiscasedoesnotresultinamaterialadverseimpactonus,itispossiblethattheresolutionofthiscasecouldresultinindustrywidechangesinthewayraceschedulesaredeterminedbysanctioningbodies,whichcouldindirectlyhaveamaterialadverseimpactontheCompany.
AlloftheracingeventsthattakeplaceduringtheCompany’sfiscalyeararesanctionedbyvariousracingorganizationssuchastheAmericanHistoricRacingMotorcycleAssociation,theAmericanMotorcyclistAssociation,theAutomobileRacingClubofAmerica,theAmericanSportbikeRacingAssociation-ChampionshipCupSeries,GrandAmerican,HistoricSportscarRacing,theInternationalRaceofChampions,IRL,NASCAR,NHRA,thePorscheClubofAmerica,theSportsCarClubofAmerica,theSportscarVintageRacingAssociation,theUnitedStatesAutoClubandtheWorldKartingAssociation.NASCAR,whichsanctionssomeoftheCompany’sprincipalracingevents,isamemberoftheFranceFamilyGroupwhichcontrolsinexcessof60.0percentofthecombinedvotingpoweroftheoutstandingstockoftheCompany,andsomemembersofwhichserveasdirectorsandofficersoftheCompany.StandardNASCARsanction
agreementsrequireracetrackoperatorstopaysanctionfeesandprizeandpointfundmoniesforeachsanctionedeventconducted.TheprizeandpointfundmoniesaredistributedbyNASCARtoparticipantsintheevents.PrizeandpointfundmoniespaidbytheCompanytoNASCARfromcontinuingoperationsfordisbursementtocompetitors,whichareexclusiveofNASCARsanctionfees,totaledapproximately$102.5million,$118.5millionand$131.3millionfortheyearsendedNovember30,2004,2005and2006,respectively.PrizeandpointfundmoniespaidbytheCompanytoNASCARfordisbursementtocompetitorsforeventsatNorthCarolinaandNazarethincludedindiscontinuedoperationstotaledapproximately$5.4millionfortheyearendedNovember30,2004.TherewerenoprizeandpointfundmoniespaidtoNASCARrelatedtodiscontinuedoperationsfortheyearsendedNovember30,2005and2006,respectively.
NOTE11-RELATEDPARTYDISCLOSURESANDTRANSACTIONS
Undercurrentagreements,NASCARcontractsdirectlywithcertainnetworkprovidersfortelevisionrightstotheentireNASCARNEXTELCupandBuschseriesschedules.EventpromotersshareinthetelevisionrightsfeesinaccordancewiththeprovisionofthesanctionagreementforeachNASCARNEXTELCupandBuschseriesevent.Underthetermsofthisarrangement,NASCARretains10.0percentofthegrossbroadcastrightsfeesallocatedtoeachNASCARNEXTELCuporBuschserieseventasacomponentofitssanctionfeesandremitstheremaining90.0percenttotheeventpromoter.Theeventpromoterpays25.0percentofthegrossbroadcastrightsfeesallocatedtotheeventaspartofthepreviouslydiscussedprizemoneypaidtoNASCARfordisbursementtocompetitors.TheCompany’stelevisionbroadcastandancillaryrightsfeesfromcontinuingoperationsreceivedfromNASCARfortheNASCARNEXTELCupandBuschserieseventsconductedatitswholly-ownedfacilitieswere$188.9million,$235.9millionand$273.4millioninfiscalyears2004,2005and2006,respectively.TelevisionbroadcastandancillaryrightsfeesreceivedfromNASCARfortheNASCARNEXTELCupandBuschserieseventsheldatNorthCarolinaandtheNASCARBuschSerieseventheldatNazarethandincludedindiscontinuedoperationstotaledapproximately$9.3millionfortheyearendedNovember30,2004.TherewerenotelevisionbroadcastandancillaryrightsfeesreceivedfromNASCARrelatedtodiscontinuedoperationsduringtheyearsendedNovember30,2005and2006,respectively.
Inaddition,NASCARandtheCompanyshareavarietyofexpensesintheordinarycourseofbusiness.NASCARpaysrent,aswellasarelatedmaintenancefee(allocatedbasedonsquarefootage),totheCompanyforofficespaceintheCompany’scorporateofficecomplexinDaytonaBeach,Florida.TheCompanypaidrenttoNASCARforofficespaceinLosAngeles,CaliforniabeginningOctober2005.Theserentsarebaseduponestimatedfairmarketleaseratesforcomparablefacilities.NASCARpaystheCompanyforradio,programandstrategicinitiativeadvertising,hospitalityandsuiterentals,variousticketsandcredentials,cateringservices,participationinaNASCARracingeventbanquet,andtrackandotherequipmentrentalsbasedonsimilarpricespaidbyunrelated,thirdpartypurchasersofsimilaritems.TheCompanypaysNASCARforcertainadvertising,participationinNASCARracingseriesbanquets,theuseofNASCARtrademarksandintellectualimagesandproductionspaceforNEXTELVisionbasedonsimilarpricespaidbyunrelated,thirdpartypurchasersofsimilaritems.TheCompany’spaymentstoNASCARforMRNRadio’sbroadcastrightstoNASCARCraftsmanTruckracesrepresentsanagreed-uponpercentageoftheCompany’sadvertisingrevenuesattributabletosuchracebroadcasts.Infiscal2005and2006NASCARisreimbursingtheCompanyforthebuyoutoftheremainingrightsassociatedwithacertainsponsorship
agreement.NASCARalsoreimbursestheCompanyfor50.0percentofthecompensationpaidtocertainpersonnelworkingintheCompany’slegal,riskmanagementandtransportationdepartments,aswellas50.0percentofthecompensationexpenseassociatedwithcertainreceptionists.TheCompanyreimbursesNASCARfor50.0percentofthecompensationpaidtocertainpersonnelworkinginNASCAR’slegaldepartment.NASCAR’sreimbursementforuseoftheCompany’smailroom,janitorialservices,securityservices,catering,graphicarts,photoandpublishingservices,telephonesystemandtheCompany’sreimbursementofNASCARforuseofcorporateaircraft,isbasedonactualusageoranallocationoftotalactualusage.TheaggregateamountreceivedfromNASCARbytheCompanyforsharedexpenses,netofamountspaidbytheCompanyforsharedexpenses,totaledapproximately$2.8million,$3.6millionand$3.6millionduringfiscal2004,2005and2006,respectively.
GrandAmericansanctionsvariouseventsatcertainoftheCompany’sfacilities.WhilecertainofficersanddirectorsoftheCompanyareequityinvestorsinGrandAmerican,noofficerordirectorhasmorethana10.0percentequityinterest.Inaddition,certainofficersanddirectorsoftheCompany,representinganon-controllinginterest,serveonGrandAmerican’sBoardofManagers.StandardGrandAmericansanctionagreementsrequireracetrackoperatorstopaysanctionfeesandprizeandpointfundmoniesforeachsanctionedeventconducted.TheprizeandpointfundmoniesaredistributedbyGrandAmericantoparticipantsintheevents.SanctionfeespaidbytheCompanytoGrandAmericantotaledapproximately$924,000,$1.1millionand$1.2millionfortheyearsendedNovember30,2004,2005and2006,respectively.
Inaddition,GrandAmericanandtheCompanyshareavarietyofexpensesintheordinarycourseofbusiness.GrandAmericanpaysrenttotheCompanyforofficespaceintheCompany’scorporateofficecomplexinDaytonaBeach,Florida.Theserentsarebaseduponestimatedfairmarketleaseratesforcomparablefacilities.GrandAmericanpurchasesvariousadvertising,cateringservices,suitesandhospitalityandtrackandequipmentrentalsfromtheCompanybasedonsimilarpricespaidbyunrelated,thirdpartypurchasersofsimilaritems.TheCompanypaysGrandAmericanfortheuseofGrandAmerican’strademarksbasedonsimilarpricespaidbyunrelated,thirdpartypurchasersofsimilaritems.GrandAmerican’sreimbursementforuseoftheCompany’smailroom,telephonesystem,security,graphicarts,photoandpublishingservicesisbasedonactualusageoranallocationoftotalactualusage.TheaggregateamountreceivedfromGrandAmericanbytheCompanyforsharedexpenses,netofamountspaidbytheCompanyforsharedexpenses,totaledapproximately$226,000,$223,000and$510,000duringfiscal2004,2005and2006,respectively.
NOTE11-RELATEDPARTYDISCLOSURESANDTRANSACTIONS(continued)
60 | 61 INTERNATIONALSPEEDWAYCORPORATION
NotestoConsolidatedFinancialStatements,November30,2006
TheCompanystrivestoensure,andmanagementbelievesthat,thetermsoftheCompany’stransactionswithNASCARandGrandAmericanarenolessfavorabletotheCompanythancouldbeobtainedinarms-lengthnegotiations.
CertainmembersoftheFranceFamilyGrouppaidtheCompanyfortheutilizationofsecurityservices,eventplanning,eventtickets,purchaseofcateringservices,maintenanceservices,andcertainequipment.Duringthelastquarteroffiscal2004andalloffiscal2005,theCompanyprovidedpublishinganddistributionservicesforGameChangeMarketing,LLC,andinfiscal2004ticketstoBrandSenseMarketing,whicharecompaniesownedbyaFranceFamilyGroupmemberandleasedcertainparcelsoflandfromWCFandJCF,LLC,whichisownedbyFranceFamilyGroupmembers.ThelandparcelsareusedprimarilyforparkingduringtheeventsheldatMartinsvilleSpeedway.Theamountspaidfortheseitemswerebasedonactualcostsincurred,similarpricespaidbyunrelatedthirdpartypurchasersofsimilaritemsorestimatedfairmarketvalues.TheaggregateamountreceivedbytheCompanyfortheseitems,netofamountspaid,totaledapproximately$266,000,$3.3millionand$2.4millionduringfiscal2004,2005and2006,respectively.
TheCompanyhascollateralassignmentsplitdollarinsuranceagreementscoveringthelivesofWilliamC.FranceandJamesC.Franceandtheirrespectivespouses.Uponsurrenderofthepoliciesorpaymentofthedeathbenefitsthereunder,theCompanyisentitledtorepaymentofanamountequaltothecumulativepremiumspreviouslypaidbytheCompany.TheCompanymaycausetheagreementstobeterminatedandthepoliciessurrenderedatanytimeafterthecashsurrendervalueofthepoliciesequalsthecumulativepremiumsadvancedundertheagreements.TheCompanyrecordedtheinsuranceexpensenetoftheincreaseincashsurrendervalueofthepoliciesassociatedwiththeseagreements.
Crotty&Bartlett,P.A.,alawfirmcontrolledbysiblingsofW.GarrettCrotty,oneoftheCompany’sexecutiveofficers,leasedofficespacelocatedintheCompany’scorporateofficecomplexinDaytonaBeach,Florida.TheCompanyengagesCrotty&Bartlettforcertainlegalandconsultingservices.TheaggregateamountpaidtoCrotty&BartlettbytheCompanyforlegalandconsultingservices,netofamountsreceivedbytheCompanyforleasedofficespace,totaledapproximately$119,000,$180,000and$150,000duringfiscal2004,2005and2006,respectively.
J.HyattBrown,oneoftheCompany’sdirectors,servesasPresidentandChiefExecutiveOfficerofBrown&Brown,Inc.(“Brown&Brown”).Brown&BrownhasreceivedcommissionsforservingastheCompany’sinsurancebrokerforseveraloftheCompany’sinsurancepolicies,includingtheCompany’spropertyandcasualtypolicy,certainemployeebenefitprogramsandthesplit-dollararrangementsestablishedforthebenefitofWilliamC.France,JamesC.Franceandtheirrespectivespouses.Theaggregatecommissions
receivedbyBrown&BrowninconnectionwiththeCompany’spolicieswereapproximately$390,000,$507,000and$565,000,duringfiscal2004,2005and2006,respectively.
Kinsey,VincentPyle,L.C.,alawfirmwhichChristyF.Harris,oneoftheCompany’sdirectors,joinedinfiscal2004,providedlegalservicestotheCompanyduringfiscal2004,2005and2006.TheCompanypaidapproximately$301,000,$359,000and$169,000fortheseservicesinfiscal2004,2005and2006,whichwerechargedtotheCompanyonthesamebasisasthoseprovidedotherclients.
Mr.GregoryW.Penske,oneoftheCompany’sdirectors,isalsoanofficeranddirectorofPenskePerformance,Inc.andotherPenskeCorporationaffiliates,aswellasthesonofRogerS.Penske.RogerS.PenskebeneficiallyownsamajorityofthevotingstockofandcontrolsPenskeCorporationanditsaffiliates.TheCompanyrentedPenskeCorporationanditsaffiliatescertainfacilitiesforadrivingschoolandsoldhospitalitysuiteoccupancyandrelatedservices,merchandiseandaccessoriestoPenskeCorporation,itsaffiliatesandotherrelatedcompanies.Inaspecialpromotionalarrangementdesignedtogrowdemandwhilemaintainingpriceintegrity,theCompanysoldapproximately8,000ticketsforcertaineventsduringfiscal2004and2005atdiscountsgreaterthanthoseaffordedanyotherticketpurchasertoPenskeAutomotiveGroup,oneofthelargestautomobileretailersinSouthernCalifornia,whicheffecteddistributionofthosetickets.PenskeTruckLeasingrentedcertainvehiclesandsoldrelatedsuppliesandservicestotheCompany.Also,theCompanypaidPenskeCorporationfortheuseofcertaintrademarks.Infiscal2004,2005and2006,theaggregateamountreceivedfromPenskeCorporation,itsaffiliatesandotherrelatedcompanies,netofamountspaidbytheCompany,totaledapproximately$2.4million,$1.5millionand$1.9million,respectively,fortheaforementionedgoodsandservices.
RacewayAssociatesisowned75.0percentbyMotorsportsAllianceand25.0percentbytheformerownersoftheRoute66Raceway,LLC.EdwardH.Rensi,adirectoroftheCompany,soldhisapproximately1.3percentownershipinterestinRacewayAssociatestounrelatedthirdpartiesinfiscal2005.TheCompanyownsanindirectequityinvestmentinChicagolandSpeedwaythroughtheCompany’sequityinvestmentinMotorsportsAlliance.TheCompanypaysChicagolandSpeedwayfeestosellmerchandiseandprogramsonitspropertyandconductradiobroadcastsofitsevents.ChicagolandpaystheCompanyforthepurchaseofprogramsandforcostsrelatedtotheuseoftheCompany’sjetdryersandothereventsupportatitsevents.ThenetamountspaidbytheCompanywereapproximately$621,000,$572,000and$636,000,duringfiscal2004,2005and2006,respectively.
NOTE11-RELATEDPARTYDISCLOSURESANDTRANSACTIONS(continued)
CashpaidforincometaxesandinterestfortheyearsendedNovember30,issummarizedasfollows(inthousands):
NOTE12-SUPPLEMENTALDISCLOSURESOFCASHFLOWINFORMATION
Incometaxespaid $ 35,962 $ 84,093 $ 79,228 Interestpaid $ 23,414 $ 19,679 $ 20,380
2004 2005 2006
TheCompany’s1996Long-TermStockIncentivePlan(the“1996Plan”)authorizedthegrantofstockoptions(incentiveandnonqualified),stockappreciationrightsandrestrictedstock.TheCompanyreservedanaggregateof1,000,000shares(subjecttoadjustmentforstocksplitsandsimilarcapitalchanges)oftheCompany’sClassACommonStockforgrantsunderthe1996Plan.The1996PlanterminatedinSeptember2006.Allunvestedstockoptionsandrestrictedstockgrantedpriortotheterminationwillcontinuetovestandwillcontinuetobeexercisableinaccordancewiththeiroriginalterms.
InApril,2006,theCompany’sshareholders’approvedthe2006Long-TermIncentivePlan(the“2006Plan”)whichauthorizesthegrantofstockoptions(incentiveandnon-qualified),stockappreciationrights,restrictedandunrestrictedstock,cashawardsandPerformanceUnits(asdefinedinthe2006Plan)toemployees,consultantsandadvisorsoftheCompanycapableofcontributingtotheCompany’sperformance.TheCompanyhasreservedanaggregateof1,000,000shares(subjecttoadjustmentforstocksplitsandsimilarcapitalchanges)oftheCompany’sClassACommonStockforgrantsunderthe2006Plan.IncentiveStockOptionsmaybegrantedonlytoemployeeseligibletoreceivethemundertheInternalRevenueCodeof1996,asamended.The2006PlanapprovedbytheshareholdersappointstheCompensationCommittee(the“Committee”)toadministerthe2006Plan.Awardsunderthe2006Planwillcontainsuchtermsandconditionsnotinconsistentwiththe2006PlanastheCommitteeinitsdiscretionapproves.TheCommitteehasdiscretiontoadministerthe2006Planinthemannerwhichitdetermines,fromtimetotime,isinthebestinterestoftheCompany.
Therehavebeennoawardsgrantedunderthe2006Plan.
PriortoDecember1,2005theCompanyaccountedforthe1996PlanundertherecognitionandmeasurementprinciplesofAccountingPrinciplesBoard(“APB”)OpinionNo.25,“AccountingforStockIssuedtoEmployees,”andrelatedinterpretationsaspermittedbySFASNo.123,“AccountingforStock-BasedCompensation.”TheCompanyrecognizedstock-basedcompensationcostonitsrestrictedsharesawardedontheacceleratedmethodovertheirvestingperiodsequaltothefairmarketvalueofthesesharesonthedateofaward.Nostock-basedemployeecompensationcostwasreflectedintheConsolidatedStatementofOperationsrelatingtostockoptionsforthefiscalyearsendedNovember30,2004and2005,asalloptionsgrantedunderthe1996Planhadanexercisepriceequaltothemarketvalueoftheunderlyingcommonstockonthedateofgrant.
EffectiveDecember1,2005,theCompanyadoptedthefairvaluerecognitionprovisionsofSFASNo.123(R),“Share-BasedPayment,”usingthemodified-prospective-transitionmethodandaccordinglypriorperiodshavenotbeenrestatedtoreflecttheimpactofSFAS123(R).Underthattransitionmethod,compensationcostrecognizedduringthefiscalyearendedNovember30,2006includes:(a)compensationcostforallshare-basedpaymentsgrantedpriorto,butnotyetvestedasofDecember1,2005,basedonthegrantdatefairvalueestimatedinaccordancewiththeoriginalprovisionsofSFASNo.123,and(b)compensationcostforallshare-basedpaymentsgrantedsubsequenttoDecember1,2005,basedonthegrant-datefairvalueestimatedinaccordancewiththeprovisionsofSFASNo.123(R).Stock-basedcompensationexpenseforthefiscalyearended
NOTE13-LONG-TERMSTOCKINCENTIVEPLAN
NotestoConsolidatedFinancialStatements,November30,2006
62 | 63 INTERNATIONALSPEEDWAYCORPORATION
ThefollowingtableillustratestheeffectonnetincomeandearningspershareiftheCompanyhadappliedthefairvaluerecognitionprovisionsof SFASNo.123(R)tostock-basedemployeecompensationaftergivingconsiderationtopotentialforfeituresfortheyearsendedNovember30.Forpurposesofthisproformadisclosure,thefairvalueoftheoptionsisestimatedusingaBlack-Scholes-Mertonoption-pricingformulaandamortizedtoexpenseovertheoptions’vestingperiods(inthousands,exceptpershareamounts):
2004 2005
Netincome,asreported $ 156,318 $ 159,361
Add:Stock-basedemployeecompensationexpenseincludedinreportednetincome, netofrelatedtaxeffects 1,051 1,190Deduct:Stock-basedemployeecompensationexpensedeterminedunder fairvaluebasedmethodforallawards,netofrelatedtaxeffects (1,242) (1,380) Proformanetincome $ 156,127 $ 159,171
Earningspershare: Basic-asreported $ 2.94 $ 3.00 Basic-proforma $ 2.94 $ 3.00 Diluted-asreported $ 2.94 $ 2.99 Diluted-proforma $ 2.94 $ 2.99
NOTE13-LONG-TERMSTOCKINCENTIVEPLAN(continued)
November30,2006,totaledapproximately$2.7million.Stock-basedcompensationexpenseforthefiscalyearsendedNovember30,2004and2005,totaledapproximately$1.7millionand$2.0million,respectively,undertheintrinsicvaluemethodinaccordancewithAPBNo.25.
AsaresultofadoptingSFASNo.123(R)onDecember1,2005,theCompany’sincomebeforeincometaxesandnetincomeareapproximately$459,000and$283,000lower,respectively,forthefiscalyearendedNovember30,2006,thanifithadcontinuedtoaccountforshare-basedcompensationunderAPBOpinionNo.25.BasicanddilutedearningspershareforthefiscalyearendedNovember30,2006are$0.01lower,respectively,thaniftheCompanyhadcontinuedtoaccountforshare-basedcompensationunderAPBNo.25.
PriortotheadoptionofSFASNo.123(R),theCompanypresentedalltaxbenefitsofdeductionsresultingfromthevestingofrestrictedstockawardsandexerciseofstockoptionsasoperatingcashflowsintheStatementofCashFlows.SFASNo.123(R)requiresthecashflowsresultingfromthetaxbenefitsfromtaxdeductionsinexcessofthecompensationcostrecognizedforrestrictedstockawardsandoptions(“excesstaxbenefits”)tobeclassifiedasfinancingcashflows.The$185,000excesstaxbenefitsrelatingtostock-basedcompensationclassifiedasafinancingcashinflowwouldhavebeenclassifiedasanoperatingcashinflowpriortotheadoptionofSFASNo.123(R).
NOTE13-LONG-TERMSTOCKINCENTIVEPLAN(continued)
AsummaryofthestatusoftheCompany’srestrictedstockasofNovember30,2006,andchangesduringthefiscalyearendedNovember30,2006,ispresentedbelow:
RestrictedStockAwards
Restrictedstockawardedunderthe1996Plangenerallyissubjecttoforfeitureintheeventofterminationofemploymentpriortovestingdates.Priortovesting,the1996Planparticipantsownthesharesandmayvoteandreceivedividends,butaresubjecttocertainrestrictions.Restrictionsincludetheprohibitionofthesaleortransferofthesharesduringtheperiodpriortovestingoftheshares.TheCompanyalsohastherightoffirstrefusaltopurchaseanysharesofstockissuedunderthe1996Planwhichareofferedforsalesubsequenttovesting.TheCompanyrecordsstock-basedcompensationcostonitsrestrictedsharesawardedontheacceleratedmethodovertherequisiteserviceperiod.
RestrictedstockoftheCompany’sClassACommonStockawardedunderthe1996Plangenerallyvestattherateof50.0percentofeachawardonthethirdanniversaryoftheawarddateandtheremaining50.0percentonthefifthanniversaryoftheawarddate.
ThefairvalueofnonvestedrestrictedstockisdeterminedbasedontheopeningtradingpriceoftheCompany’sClassACommonStockonthegrantdate.TheCompanygranted47,832,53,599and60,015sharesofrestrictedstockawardsoftheCompany’sClassACommonStockduringthefiscalyearsendedNovember30,2004,2005and2006,respectively,tocertainofficersandmanagersunderthe1996Plan.Theweightedaveragegrantdatefairvalueoftheserestrictedstockawardswas$42.28,$54.23and$50.90pershare,respectively.
UnvestedatNovember30,2005 178,566 $45.2 Granted 60,015 50.9 Vested (39,104) 38.6 Forfeited (4,997) 48.5 UnvestedatNovember30,2006 194,480 $48.2 2.9 $10,080
Weighted- Weighted- Average Average Aggregate Grant-Date Remaining Intrinsic Restricted FairValue Contractual Value Shares (PerShare) Term(Years) (InThousands)
AsofNovember30,2006,therewasapproximately$4.8millionoftotalunrecognizedcompensationcostrelatedtounvestedrestrictedstockawardsgrantedunderthe1996Plan.Thiscostisexpectedtoberecognizedoveraweighted-averageperiodof2.9years.ThetotalfairvalueofrestrictedstockawardsvestedduringthefiscalyearsendedNovember30,2004,2005and2006,wasapproximately$1.4million,$2.3millionand$2.0million,respectively.
NonqualifiedandIncentiveStockOptions
Aportionofeachnon-employeedirector’scompensationfortheirserviceasadirectoristhroughawardsofoptionstoacquiresharesoftheCompany’sClassACommonStockunderthe1996Plan.Theseoptionsbecomeexercisableoneyearafterthedateofgrantandexpireonthetenthanniversaryofthedateofgrant.TheCompanyalsograntsoptionstocertainnon-officermanagerstopurchasetheCompany’sClassACommonStockunderthe1996Plan.Theseoptionsgenerallyvestoveratwoandone-
halfyearperiodandexpireonthetenthanniversaryofthedateofgrant.TheCompanyrecordsstock-basedcompensationcostonitsstockoptionsawardedonthestraight-linemethodovertherequisiteserviceperiod.
ThefairvalueofeachoptiongrantedisestimatedonthegrantdateusingtheBlack-Scholes-Mertonoption-pricingvaluationmodelthatusestheassumptionsnotedinthefollowingtable.ExpectedvolatilitiesarebasedonimpliedvolatilitiesfromhistoricalvolatilityoftheCompany’sstockandotherfactors.TheCompanyuseshistoricaldatatoestimateoptionexercisesandemployeeterminationswithinthevaluationmodel.Separategroupsofemployeesthathavesimilarhistoricalexercisebehaviorareconsideredseparatelyforvaluationpurposes.Theexpectedtermofoptionsgrantedisestimatedbasedonhistoricalexercisebehaviorandrepresentstheperiodoftimethatoptionsgrantedareexpectedtobeoutstanding.Therisk-freerateforperiodswithinthecontractuallifeoftheoptionisbasedontheU.S.Treasuryyieldcurveineffectatthetimeofgrant.
64 | 65 INTERNATIONALSPEEDWAYCORPORATION
NotestoConsolidatedFinancialStatements,November30,2006
NOTE13-LONG-TERMSTOCKINCENTIVEPLAN(continued)
Expectedvolatility 30.4% 25.3% 24.8%-32.8%Weightedaveragevolatility 30.4% 25.3% 27.3%Expecteddividends 0.14% 0.11% 0.16%Expectedterm(inyears) 5.0 5.0 5.1-6.8Risk-freerate 3.2%-3.9% 3.2% 5.0%-5.1%
2004 2005 2006
Asummaryofoptionactivityunderthe1996PlanasofNovember30,2006,andchangesduringtheyearthenendedispresentedbelow:
OutstandingatNovember30,2005 126,622 $46.3 Granted 33,417 46.4 Exercised (4,666) 40.4 Forfeited (12,334) 46.9 OutstandingatNovember30,2006 143,039 $46.4 7.2 $901 Vestedandexpectedtovestat November30,2006 141,161 $46.4 7.2 $893 ExercisableatNovember30,2006 98,950 $45.3 6.2 $719
Weighted- Average Aggregate Weighted- Remaining Intrinsic Average Contractual Value Options Shares ExercisePrice Term(Years) (InThousands)
Theweightedaveragegrant-datefairvalueofoptionsgrantedduringthefiscalyearsendedNovember30,2004,2005and2006was$14.3,$16.2and$16.6,respectively.ThetotalintrinsicvalueofoptionsexercisedduringthefiscalyearsendedNovember30,2004,2005and2006wasapproximately$158,000,$181,000and$39,000,respectively.Theactualtaxbenefitrealizedforthetaxdeductionsfromexerciseofthestockoptions
totaledapproximately$62,000,$70,000and$15,000forthefiscalyearsendedNovember30,2004,2005and2006,respectively.
AsofNovember30,2006,therewasapproximately$455,000oftotalunrecognizedcompensationcostrelatedtounvestedstockoptionsgrantedunderthe1996Plan.Thatcostisexpectedtoberecognizedoveraweighted-averageperiodof1.1years.
Thecarryingvaluesofcashandcashequivalents,accountsreceivable,short-terminvestments,accountspayable,andaccruedliabilitiesapproximatefairvalueduetotheshort-termmaturitiesoftheseassetsandliabilities.
Fairvaluesoflong-termdebtandinterestrateswapsarebasedonquotedmarketpricesatthedateofmeasurement.TheCompany’screditfacilities
approximatefairvalueastheybearinterestratesthatapproximatemarket.AtNovember30,2006,thefairvalueoftheremaininglong-termdebt,whichincludesthe2004SeniorNotesandTIFbondFundingCommitment,asdeterminedbyquotesfromfinancialinstitutions,was$370.5millioncomparedtothecarryingamountof$368.1million.
NOTE14-FINANCIALINSTRUMENTS
TheCompanyderivesmostofitsincomefromalimitednumberofNASCAR-sanctionedraces.Asaresult,theCompany’sbusinesshasbeen,andisexpectedtoremain,highlyseasonalbasedonthetimingofmajorevents.Forexample,oneoftheCompany’sNASCARNEXTELCupSeriesevents
istraditionallyheldontheSundayprecedingLaborDay.Accordingly,therevenueandexpensesforthatraceand/ortherelatedsupportingeventsmayberecognizedineitherthefiscalquarterendingAugust31orthefiscalquarterendingNovember30.
NOTE15-QUARTERLYDATA(UNAUDITED)
Thefollowingtablepresentscertainunauditedfinancialdataforeachquarteroffiscal2005and2006(inthousands,exceptpershareamounts):
Totalrevenue $179,432 $ 157,447 $ 166,519 $236,730Operatingincome 71,847 46,866 56,019 90,533Incomefromcontinuingoperations 41,118 26,540 36,804 54,612Netincome 41,065 26,501 36,752 55,044Basicearningspershare 0.77 0.50 0.69 1.04Dilutedearningspershare 0.77 0.50 0.69 1.03
FiscalQuarterEnded February28, May31, August31, November30, 2005 2005 2005 2005
Totalrevenue $193,934 $172,083 $ 178,892 $253,460Operatingincome 78,463 52,176 51,808 16,719Incomefromcontinuingoperations 44,131 30,727 34,299 7,823Netincome 44,053 30,687 34,272 7,792Basicearningspershare 0.83 0.58 0.64 0.15Dilutedearningspershare 0.83 0.58 0.64 0.15
FiscalQuarterEnded February28, May31, August31, November30, 2006 2006 2006 2006(1)
(1)Thefourthquarteroffiscal2006includestheimpairmentoflong-livedassetstotalingapproximately$87.1million,or$1.04perbasicanddilutedshareafter-tax.
66 | 67 INTERNATIONALSPEEDWAYCORPORATION
NotestoConsolidatedFinancialStatements,November30,2006
NOTE16-SEGMENTREPORTING
ThegeneralnatureoftheCompany’sbusinessisamotorsportsthemedamusemententerprise,furnishingamusementtothepublicintheformofmotorsportsthemedentertainment.TheCompany’smotorsportseventoperationsconsistprincipallyofracingeventsatitsmajormotorsportsentertainmentfacilities.TheCompany’sremainingbusinessunits,whicharecomprisedoftheradionetworkproductionandsyndicationofnumerousracingeventsandprograms,theoperationofamotorsports-themedamusementandentertainmentcomplex,certainsouvenirmerchandising
operationsnotassociatedwiththepromotionofmotorsportseventsattheCompany’sfacilities,constructionmanagementservices,leasingoperations,financingandlicensingoperationsandagriculturaloperationsareincludedinthe“AllOther”segment.TheCompanyevaluatesfinancialperformanceofthebusinessunitsonoperatingprofitafterallocationofcorporategeneralandadministrative(“G&A”)expenses.CorporateG&Aexpensesareallocatedtobusinessunitsbasedoneachbusinessunit’snetrevenuestototalnetrevenues.
Theaccountingpoliciesofthesegmentsarethesameasthosedescribedinthesummaryofsignificantaccountingpolicies.Intersegmentsalesareaccountedforatpricescomparabletounaffiliatedcustomers.Intersegmentrevenueswereapproximately$9.0million,$12.2millionand$8.5millionfortheyearsendedNovember30,2004,2005,and2006,respectively(inthousands).
Revenues $ 609,086 $ 47,774 $ 656,860Depreciationandamortization 38,788 5,655 44,443Operatingincome 217,067 11,351 228,418Capitalexpenditures 113,098 22,120 135,218Totalassets 1,343,303 276,207 1,619,510Equityinvestments 36,489 - 36,489
ForTheYearEndedNovember30,2004 Motorsports All Event Other Total
Revenues $ 702,870 $ 49,455 $ 752,325Depreciationandamortization 43,971 6,922 50,893Operatingincome 255,459 9,806 265,265Capitalexpenditures 222,736 26,114 248,850Totalassets 1,538,614 258,455 1,797,069Equityinvestments 51,160 - 51,160
ForTheYearEndedNovember30,2005 Motorsports All Event Other Total
Revenues $ 758,263 $ 48,577 $ 806,840Depreciationandamortization 49,295 7,538 56,833Operatingincome 188,133 11,033 199,166Capitalexpenditures 96,635 13,739 110,374Totalassets 1,627,129 294,930 1,922,059Equityinvestments 175,915 - 175,915
ForTheYearEndedNovember30,2006 Motorsports All Event Other Total
NOTE17-SUBSEQUENTEVENT-PURCHASEOFRACEWAYASSOCIATES
InNovember2006,theCompanyannouncedthat,throughawholly-ownedsubsidiary,ithadenteredintoapurchaseagreementwithIMStoindirectlyacquireanadditional37.5percentinterestinRacewayAssociates.Asaresultofthetransaction,theCompanywillown100.0percentofMotorsportsAlliance,whichowns75.0percentofRacewayAssociates.ConcurrentwiththeIMStransaction,theCompanyalsoexerciseditsrighttopurchasetheminoritypartners’remaining25.0percentinterestinRacewayAssociatespursuanttothe1999RacewayAssociatesformationagreement.
AlltheabovetransactionsclosedonFebruary2,2007,foratotalpurchasepriceofapproximately$102.4millionwhichwaspaidforutilizingexistingcashonhandandapproximately$62.0millioninborrowingsontheCompany’s2006CreditFacility.Inconnectionwiththesetransactions,theCompanyacquiredRacewayAssociatesnetassets,includingapproximately$39.7millioninthirdpartydebt.Thesetransactionswillbeaccountedforasabusinesscombination.
TheCompanybelievesthatChicagolandSpeedwayandRoute66areuniquelyattractiveassetswell-positionedinthenation’sthirdlargestmediamarket.Theregionboastsastrongmotorsportsfanbase,demonstratedbysixconsecutiveyearsofseasonticketsell-outsatChicagolandSpeedwaysinceopeningin2001.TheCompanybelievesitsactiverepresentationonRacewayAssociates’managementcommitteesince2001andextensiveknowledgeofthemotorsportsbusinesswillhelpensureaseamlessintegrationintoISC.
ThepurchasepricefortheRacewayAssociatesacquisitionwillbeallocatedtotheassetsacquiredandliabilitiesassumedbasedontheirfairmarketvaluesattheacquisitiondate.Includedinthisacquisitionarecertainindefinite-livedintangibleassetsattributabletotheNASCARsanctionagreementsinplaceatthetimeofacquisitionandgoodwill.TheCompanywillengageanindependentappraisalfirmtoassistinthedeterminationofthefairmarketvalueofsuchassetsandliabilities.
68 | 69 INTERNATIONALSPEEDWAYCORPORATION
TheBoardofDirectorsandShareholdersInternationalSpeedwayCorporation
WehaveauditedtheaccompanyingconsolidatedbalancesheetsofInternationalSpeedwayCorporationandsubsidiariesasofNovember30,2005and2006,andtherelatedconsolidatedstatementsofoperations,shareholders’equityandcashflowsforeachofthethreeyearsintheperiodendedNovember30,2006.ThesefinancialstatementsaretheresponsibilityoftheCompany’smanagement.Ourresponsibilityistoexpressanopiniononthesefinancialstatementsbasedonouraudits.
WeconductedourauditsinaccordancewiththestandardsofthePublicCompanyAccountingOversightBoard(UnitedStates).Thosestandardsrequirethatweplanandperformtheaudittoobtainreasonableassuranceaboutwhetherthefinancialstatementsarefreeofmaterialmisstatement.Anauditincludesexamining,onatestbasis,evidencesupportingtheamountsanddisclosuresinthefinancialstatements.Anauditalsoincludesassessingtheaccountingprinciplesusedandsignificantestimatesmadebymanagement,aswellasevaluatingtheoverallfinancialstatementpresentation.Webelievethatourauditsprovideareasonablebasisforouropinion.
Inouropinion,theconsolidatedfinancialstatementsreferredtoabovepresentfairly,inallmaterialrespects,theconsolidatedfinancialpositionofInternationalSpeedwayCorporationandsubsidiariesatNovember30,2005and2006,andtheconsolidatedresultsoftheiroperationsandtheircashflowsforeachofthethreeyearsintheperiodendedNovember30,2006,inconformitywithU.S.generallyacceptedaccountingprinciples.
Wealsohaveaudited,inaccordancewiththestandardsofthePublicCompanyAccountingOversightBoard(UnitedStates),theeffectivenessofInternationalSpeedwayCorporation’sinternalcontroloverfinancialreportingasofNovember30,2006,basedoncriteriaestablishedinInternalControl—IntegratedFrameworkissuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommissionandourreportdatedFebruary6,2007,expressedanunqualifiedopinionthereon.
CertifiedPublicAccountants
Jacksonville,FloridaFebruary6,2007
ReportofIndependentRegisteredPublicAccountingFirm
TheBoardofDirectorsandShareholdersInternationalSpeedwayCorporation
Wehaveauditedmanagement’sassessment,includedintheaccompanyingReportofManagementonInternalControlOverFinancialReporting,thatInternationalSpeedwayCorporationmaintainedeffectiveinternalcontroloverfinancialreportingasofNovember30,2006,basedoncriteriaestablishedinInternalControl—IntegratedFrameworkissuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommission(theCOSOcriteria).InternationalSpeedwayCorporation’smanagementisresponsibleformaintainingeffectiveinternalcontroloverfinancialreportingandforitsassessmentoftheeffectivenessofinternalcontroloverfinancialreporting.Ourresponsibilityistoexpressanopiniononmanagement’sassessmentandanopinionontheeffectivenessofthecompany’sinternalcontroloverfinancialreportingbasedonouraudit.
WeconductedourauditinaccordancewiththestandardsofthePublicCompanyAccountingOversightBoard(UnitedStates).Thosestandardsrequirethatweplanandperformtheaudittoobtainreasonableassuranceaboutwhethereffectiveinternalcontroloverfinancialreportingwasmaintainedinallmaterialrespects.Ourauditincludedobtaininganunderstandingofinternalcontroloverfinancialreporting,evaluatingmanagement’sassessment,testingandevaluatingthedesignandoperatingeffectivenessofinternalcontrol,andperformingsuchotherproceduresasweconsiderednecessaryinthecircumstances.Webelievethatourauditprovidesareasonablebasisforouropinion.
Acompany’sinternalcontroloverfinancialreportingisaprocessdesignedtoprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithgenerallyacceptedaccountingprinciples.Acompany’sinternalcontroloverfinancialreportingincludesthosepoliciesandproceduresthat(1)pertaintothemaintenanceofrecordsthat,inreasonabledetail,accuratelyandfairlyreflectthetransactionsanddispositionsoftheassetsofthecompany;(2)providereasonableassurancethattransactionsarerecordedasnecessarytopermitpreparationoffinancialstatementsinaccordancewithgenerallyacceptedaccountingprinciples,andthatreceiptsandexpendituresofthecompanyarebeingmadeonlyinaccordancewithauthorizationsofmanagementanddirectorsofthecompany;and(3)providereasonableassuranceregardingpreventionortimelydetectionofunauthorizedacquisition,use,ordispositionofthecompany’sassetsthatcouldhaveamaterialeffectonthefinancialstatements.
Becauseofitsinherentlimitations,internalcontroloverfinancialreportingmaynotpreventordetectmisstatements.Also,projectionsofanyevaluationofeffectivenesstofutureperiodsaresubjecttotheriskthatcontrolsmaybecomeinadequatebecauseofchangesinconditions,orthatthedegreeofcompliancewiththepoliciesorproceduresmaydeteriorate.
Inouropinion,management’sassessmentthatInternationalSpeedwayCorporationmaintainedeffectiveinternalcontroloverfinancialreportingasofNovember30,2006,isfairlystated,inallmaterialrespects,basedontheCOSOcriteria.Also,inouropinion,InternationalSpeedwayCorporationmaintained,inallmaterialrespects,effectiveinternalcontroloverfinancialreportingasofNovember30,2006,basedontheCOSOcriteria.
Wealsohaveaudited,inaccordancewiththestandardsofthePublicCompanyAccountingOversightBoard(UnitedStates),theconsolidatedbalancesheetsofInternationalSpeedwayCorporationandsubsidiariesasofNovember30,2005and2006,andtherelatedconsolidatedstatementsofoperations,shareholders’equityandcashflowsforeachofthethreeyearsintheperiodendedNovember30,2006,andourreportdatedFebruary6,2007,expressedanunqualifiedopinionthereon.
CertifiedPublicAccountants
Jacksonville,FloridaFebruary6,2007
ReportofIndependentRegisteredPublicAccountingFirm
70 | 71 INTERNATIONALSPEEDWAYCORPORATION
February6,2007
We,asmembersofmanagementofInternationalSpeedwayCorporation,areresponsibleforestablishingandmaintainingadequateinternalcontroloverfinancialreporting,assuchtermisdefinedinExchangeActRules13a-15(f).Internalcontroloverfinancialreportingisaprocessdesignedtoprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithgenerallyacceptedaccountingprinciples.Internalcontroloverfinancialreportingincludesthosepoliciesandproceduresthat(1)pertaintothemaintenanceofrecordsthat,inreasonabledetail,accuratelyandfairlyreflectthetransactionsanddispositionsofourassets;(2)providereasonableassurancethattransactionsarerecordedasnecessarytopermitpreparationoffinancialstatementsinaccordancewithgenerallyacceptedaccountingprinciples,andthatourreceiptsandexpendituresarebeingmadeonlyinaccordancewithauthorizationsofourmanagementanddirectors;and(3)providereasonableassuranceregardingpreventionortimelydetectionofunauthorizedacquisition,use,ordispositionofourassetsthatcouldhaveamaterialeffectonthefinancialstatements.
Becauseofitsinherentlimitations,ourdisclosurecontrolsandproceduresmaynotpreventordetectmisstatements.Acontrolsystem,nomatterhowwellconceivedandoperated,canprovideonlyreasonable,notabsolute,assurancethattheobjectivesofthecontrolsystemaremet.Becauseoftheinherentlimitationsinallcontrolsystems,noevaluationofcontrolscanprovideabsoluteassurancethatallcontrolissuesandinstancesoffraud,ifany,havebeendetected.Also,projectionsofanyevaluationofeffectivenesstofutureperiodsaresubjecttotheriskthatcontrolsmaybecomeinadequatebecauseofchangesinconditions,orthatthedegreeofcompliancewiththepoliciesandproceduresmaydeteriorate.
We,underthesupervisionofandwiththeparticipationofourmanagement,includingtheChiefExecutiveOfficer,ChiefFinancialOfficerandChiefAccountingOfficer,assessedtheCompany’sinternalcontroloverfinancialreportingasofNovember30,2006,basedoncriteriaforeffectiveinternalcontroloverfinancialreportingdescribedin“InternalControl—IntegratedFramework”issuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommission.Basedonthisassessment,weconcludedthatwemaintainedeffectiveinternalcontroloverfinancialreportingasofNovember30,2006,basedonthespecifiedcriteria.
Management’sassessmentoftheeffectivenessofourinternalcontroloverfinancialreportinghasbeenauditedbyErnst&YoungLLP,anindependentregisteredpublicaccountingfirm,asstatedintheirreportwhichisincludedherein.
ReportofManagementonInternalControlOverFinancialReporting
AtNovember30,2006,InternationalSpeedwayCorporationhadtwoissuedclassesofcapitalstock:classAcommonstock,$.01parvaluepershare,andclassBcommonstock,$.01parvaluepershare.TheclassAcommonstockistradedontheNASDAQNationalMarketSystemunderthesymbol“ISCA.”TheclassBcommonstockistradedontheOver-The-Counter
BulletinBoardunderthesymbol“ISCB.OB”and,attheoptionoftheholder,isconvertibletoclassAcommonstockatanytime.AsofNovember30,2006,therewereapproximately2,662recordholdersofclassAcommonstockandapproximately506recordholdersofclassBcommonstock.
MarketPriceofandDividendsonRegistrant’sCommonEquityandRelatedStockholderMatters
Thereportedhighandlowsalespricesorhighandlowbidinformation,asapplicable,foreachquarterindicatedareasfollows:
Fiscal2005: FirstQuarter $56.50 $48.80 $56.00 $49.00 SecondQuarter 60.59 51.50 58.50 51.50 ThirdQuarter 60.15 53.60 59.25 53.50 FourthQuarter 56.35 50.45 55.00 50.00 Fiscal2006: FirstQuarter 55.00 43.60 54.50 42.94 SecondQuarter 51.86 47.25 51.15 47.35 ThirdQuarter 48.85 43.48 48.75 43.34 FourthQuarter 54.33 47.85 54.25 47.88
ISCA ISCB.OB(1) High Low High Low
(1)ISCBquotationswereobtainedfromtheOTCBulletinBoardandrepresentpricesbetweendealersanddonotincludemarkup,markdownorcommission.Suchquotationsdonotnecessarilyrepresentactualtransactions.
Dividends
AnnualdividendsweredeclaredinthequarterendedinMayandpaidinJuneinfiscalyears2002through2005of$0.06pershareand$0.08pershareinfiscal2006onallcommonstockthatwasissuedatthetime.
72 INTERNATIONALSPEEDWAYCORPORATION
Investor Inquiries and 10-K
For more information about International Speedway Corporation, contact:
Corporate & Investor CommunicationsInternational Speedway CorporationPost Office Box 2801Daytona Beach, Florida • 32120-2801
Phone: (386) 947-6465www.iscmotorsports.com
Corporate Address
International Speedway Corporation Post Office Box 2801 • Daytona Beach, Florida • 32120-2801
Transfer Agent and RegistrarComputershareP.O. Box 43078Providence, RI • 02940-3078Phone: (800) 568-3476
Independent Auditors for 2006Ernst & Young LLP • Jacksonville, Florida
John R. SaundersExecutive Vice President and Chief Operating Officer
H. Lee CombsSenior Vice President–Corporate Development
W. Garrett CrottySenior Vice President, Secretary and General Counsel
Susan G. SchandelSenior Vice President, Chief Financial Officer and Treasurer
John E. Graham, Jr.Vice President, Business Affairs
Daniel W. HouserVice President, Controller, Chief Accounting Officer and Assistant Treasurer
W. Grant Lynch, Jr.Vice President of International Speedway Corporation,President of Talladega Superspeedway, LLC
Glenn R. PadgettVice President, Chief Counsel–Operations, Assistant Secretary and Chief Compliance Officer
Roger R. VanDerSnickVice President, Chief Marketing Officer
Brian K. WilsonVice President, Corporate Development
Daryl Q. WolfeVice President, Sales and Media
OTHER CORPORATE OFFICERS
Board of Directors
William C. FranceChairman of the Board
International Speedway Corporation
James C. FranceVice Chairman of the Board and Chief Executive Officer
International Speedway Corporation
Lesa France KennedyPresident
International Speedway Corporation
Larry Aiello, Jr.1
President and Chief Executive OfficerCorning Cable Systems
J. Hyatt Brown1
Chairman and Chief Executive OfficerBrown & Brown, Inc.
John R. Cooper2
Retired as Vice PresidentInternational Speedway Corporation
Brian Z. FranceChairman and Chief Executive Officer
NASCAR, Inc.
William P. Graves1
President and Chief Executive OfficerAmerican Trucking Associations
Christy F. HarrisAttorney in private practice of business and commercial law
Raymond K. Mason, Jr.1
Chairman and PresidentCenterbank of Jacksonville, N.A.
Gregory W. Penske1
PresidentPenske Automotive Group, Inc.
Edward H. Rensi1Retired as President andChief Executive Officer
McDonald’s USAChairman and Chief Executive Officer
Team Rensi Motorsports
Lloyd E. Reuss1
Retired as President General Motors Corporation
Thomas W. Staed1
ChairmanStaed Family Associates, Ltd.
1 Independent Board Member 2 Advisory Board Member