ISC reports 4th Qtr. results ISC" today reported results for the fourth quarter and full year ended November 30, 2008.
“Given the impact the economic environment had on consumers and our corporate partners in 2008, we were pleased with our overall results,” said ISC President Lesa France Kennedy. “NASCAR fans remain the most avid and brand loyal in all of sports, and continue to attend live events in huge numbers. They are attracted to a sport that provides thrilling on-track competition by teams of highly-skilled athletes, which has been a hallmark of NASCAR racing for the last 60 years and will continue into the future. This backdrop will serve us well as we operate in a continued challenging landscape during 2009.”
Ms. France Kennedy continued, “Clearly we are sensitive to the financial pressures many of our fans are experiencing. To address this, we recently reduced ticket prices on over 150,000 seats, or 15 percent of capacity, for Sprint Cup events across the Company. Additionally, we are working closely with community partners to lower the overall race weekend cost for fans, such as reducing the number of minimum night stays at local hotels.
"We have seen a strong and favorable response to our efforts, and will continue to look for opportunities to support our fans during these unprecedented times.”
Fourth Quarter Comparison Total revenues for the fourth quarter were $205.3 million, compared to revenues of $252.8 million in the prior-year period. Operating income decreased to $64.9 million during the period compared to $92.7 million in the fourth quarter of fiscal 2007.
In addition to adverse economic conditions affecting consumer and corporate spending, quarter-over quarter comparability was impacted by the NASCAR Sprint Cup and Nationwide series race weekend at Auto Club Speedway which was conducted in the third quarter of 2008 as compared to the fourth quarter of 2007.
• Accelerated depreciation of $0.5 million, or $0.01 per diluted share after tax, in the fourth quarter of 2008 for certain office and related buildings in Daytona Beach associated with the Company’s previously announced Daytona Live! project. The 2007 fourth quarter included accelerated depreciation charges of $0.5 million, or $0.01 per diluted share after tax.
• The fourth quarter of 2007 includes impairment charges of $3.9 million, or $0.05 per diluted share after tax, for costs associated with the fill removal process on the Staten Island property and the impairment of certain other long-lived assets. By comparison, the 2008 fourth quarter includes impairment charges of approximately $323,000 to remove the net book value of certain assets retired from service.
• The 2007 fourth quarter impairment of Motorsports Authentics’ (“MA”) goodwill and intangible assets as of November 30, 2007. ISC’s 50 percent portion was $34.8 million, or $0.65 per diluted share after tax.
• A 2007 fourth quarter recognition of a deferred income tax credit of $1.6 million, or $0.03 per diluted share after tax, attributable to a revision to the income-based tax system in the State of Michigan. In accordance with the enacted legislation, the credit was equal to the deferred income tax liability recognized in ISC’s 2007 third quarter results.
• The 2008 fourth quarter includes a charge to provide for working capital advances of $2.3 million, or $0.03 per diluted share after tax, associated with our joint venture project in Kansas for the development of a gaming and entertainment destination.
Net income for the fourth quarter of 2008 increased to $33.6 million, or $0.69 per diluted share, compared to net income of $22.5 million, or $0.43 per diluted share, in the prior year’s fourth quarter. Excluding discontinued operations and the aforementioned accelerated deprecation associated with the Daytona Live! project, impairment of long-lived assets and allowances against working capital advances associated with the development of a gaming and entertainment destination, non-GAAP (defined below) net income for the fourth quarter of 2008 was $35.6 million, or $0.73 per diluted share. This is compared to non-GAAP net income for the fourth quarter of 2007 of $57.6 million, or $1.11 per diluted share.
Full Year Comparison For the year ended November 30, 2008, total revenues were $787.3 million, compared to $814.2 million in 2007. Operating income for the fiscal year was $235.8 million compared to $241.7 million in the prior year.
Year-over-year comparability was impacted by:
• Accelerated depreciation charges in fiscal 2008 of $2.1 million, or $0.02 per diluted share after tax, associated with the previously discussed Daytona Live! project. Results for the year ended November 30, 2007, included accelerated depreciation charges of $14.7 million, or $0.17 per diluted share after tax.
• 2008 impairment charges of $2.2 million, or $0.03 per diluted share after tax, associated with the previously discussed fill removal costs on Staten Island and net book value of certain assets retired from service. Results for the year ended November 30, 2007, included an impairment charge of $13.1 million, or $0.16 per diluted share after tax related to the Company’s decision to discontinue speedway development efforts in Kitsap County, Washington, and to a lesser extent, estimated costs for fill removal on the Company’s Staten Island property.
• The aforementioned 2007 fourth quarter impairments combined with the 2007 third quarter write-down by MA of certain inventory and related assets, which was included in ISC’s equity losses totaled $47.2 million, or $0.88 per diluted share after tax.
• The recognition of a tax benefit of $3.5 million, or $0.07 per diluted share after tax, associated with certain restructuring initiatives in the third quarter of 2008.
• A 2008 first quarter non-cash charge of $3.8 million, or $0.08 per diluted share after tax, to correct the carrying value of certain other assets as of November 30, 2007.
• The aforementioned 2008 fourth quarter costs of $2.3 million, or $0.03 per diluted share after tax, associated with the pursuit of a casino management contract at Wyandotte County, Kansas.
Net income for the year ended November 30, 2008, was $134.6 million, or $2.71 per diluted share, compared to $86.2 million, or $1.64 per diluted share in 2007. Excluding discontinued operations and the aforementioned accelerated depreciation, impairment of long-lived assets, the recognition of a tax benefit, the correction of certain other assets’ carrying value amounts, and allowances against working capital advances associated with the development of a gaming and entertainment destination, non-GAAP net income for the year ended November 30, 2008, was $139.1 million, or $2.80 per diluted share. This is compared to non-GAAP net income for the 2007 fiscal year end of $150.0 million, or $2.85 per diluted share.
GAAP to Non-GAAP Reconciliation The following financial information is presented below using other than U.S. generally accepted accounting principles ("non-GAAP"), and is reconciled to comparable information presented using GAAP. Non- GAAP net income and diluted earnings per share below are derived by adjusting amounts determined in accordance with GAAP for certain items presented in the accompanying selected operating statement data, net of taxes.
The 2007 adjustments relate to accelerated depreciation of certain office and related building structures in Daytona Beach; impairment of long-lived assets primarily related to ISC’s decision to discontinue speedway development efforts in Kitsap County, Washington, and, to a lesser extent, fill removal costs related to the Company’s Staten Island property; increased deferred income tax expense related to the change in Michigan state tax laws; and, the impairment of goodwill and intangible assets and write-down of certain inventory and related assets at MA.
The adjustments for 2008 relate to accelerated depreciation of certain office and related buildings in Daytona Beach; the impairment of long-lived assets associated with the fill removal process of the Staten Island property and the net book value of certain assets retired from service; a tax benefit associated with certain restructuring initiatives; a non-cash charge to correct the carrying value of certain other assets; and, an allowance against working capital advances associated with our joint venture project in Kansas for the development of a gaming and entertainment destination.
The Company believes such non-GAAP information is useful and meaningful to investors, and is used by investors and ISC to assess core operations. This non-GAAP financial information may not be comparable to similarly titled measures used by other entities and should not be considered as an alternative to operating income, net income or diluted earnings per share, which are determined in accordance with GAAP.
The 2008 NASCAR season ended on a historic note, with Jimmie Johnson capturing his third consecutive NASCAR Sprint Cup Championship, a feat that hasn’t been accomplished in 30 years.
In the first quarter, ISC will host four major motorsports event weekends, which includes four NASCAR Sprint Cup events; two NASCAR Nationwide events; two NASCAR Camping World Truck events (previously entitled the NASCAR Craftsman Truck series); one Grand-Am series event; and one ARCA RE/MAX series event.
Daytona International Speedway opened the 2009 race season with its annual lineup of events known as DIRECTV Speedweeks, which combines the best sports car, stock car and truck racing in the world. DIRECTV Speedweeks’ first event was the 47th running of the Grand-Am Rolex 24 at Daytona. The event ended with the closest margin of victory in the history of the Rolex 24 with the No. 58 Brumos Racing Porsche Riley winning by 0.167 seconds. DIRECTV Speedweeks concludes on February 15, with the 51st running of the Daytona 500, the most prestigious motorsports race in North America.
ISC was successful in securing significant corporate partnerships during 2008. Most notably, the Company secured a multi-year, multi-million dollar naming rights agreement with the Auto Club of Southern California. In addition, ISC has been successful, in light of the current economy, in brining new sponsors into the sport, such as ServiceMaster Clean and NextEra Energy Resources. Also, ISC secured title sponsors for all of its major events in 2008 and has agreements in place for almost 80 percent of its 2009 events.
External Growth and Related Initiatives MA, the Company’s motorsports-related merchandise 50/50 joint venture with Speedway Motorsports, contributed $1.6 million to equity income for the year. This is a significant turnaround from 2007, when MA posted a non-GAAP operating loss of $19.6 million, and ISC recorded a $9.8 million equity loss to reflect its 50 percent portion.
As previously announced in September, Kansas Entertainment, LLC (“KE”), ISC’s 50/50 joint venture with The Cordish Company (“Cordish”), was awarded the casino management contract for Wyandotte County, Kansas, by the Kansas Lottery Gaming Facility Review Board. However, on December 5, 2008, KE withdrew its proposed Hard Rock Hotel & Casino at Kansas Speedway application for Lottery Gaming Facility Manager for the Northeast Kansas gaming zone due to the uncertainty in the global financial markets and the expected inability to finance the project at reasonable rates.
The State of Kansas has reopened the bidding process for the casino management contract and KE expects to resubmit a proposal to include a phased approach for the non-gaming amenities. In addition, KE’s proposal will include a commitment to petition NASCAR to realign a second date to Kansas from one of ISC’s existing facilities as well as build a state-of-the-art road course in the infield at Kansas Speedway.
Daytona Live!, a mixed-use entertainment destination development that ISC is also pursuing in a 50/50 joint venture with Cordish, is moving forward. The eight-story office building that will serve as ISC, NASCAR and Grand-Am’s corporate headquarters is currently under construction with completion expected late in the fourth quarter of 2009. The retail, dining, and entertainment component of Daytona Live is being actively marketed by Cordish. Cobb Theaters has already announced its intention to anchor the complex with a state of the art, 65,000 square foot theater. Cordish is having productive conversations with other potential tenants.
The Company is also having productive conversations concerning a settlement with the Internal Revenue Service and the sale of its 676 acre parcel on Staten Island and remains hopeful that a transaction will occur in 2009.
Share Repurchase Program In the 2008 fourth quarter, ISC purchased approximately 182,000 shares of its Class A Common Stock for $7.5 million. From initiation of the program in December 2006 through November 30, 2008, the Company purchased a total of 4.7 million shares for $208.0 million, leaving $42.0 million in remaining capacity on its $250 million authorization as of November 30, 2008.
ISC ceased repurchasing shares in September 2008 as a result of the turbulent credit markets and its desire to conserve cash given its $150 million in Senior Notes due this April. Once the Company is able to refinance at an acceptable rate, it expects to resume the repurchase program as it is viewed as a critical component in the Company’s long-term capital allocation strategy designed to build shareholder value.
Ms. France Kennedy concluded, “Although these are challenging times, we are fortunate to be aligned with a leading sports property that is healthy and supported by tens of millions of passionate fans. The NASCAR Sprint Cup series remains the largest spectator sport in the country and the second most watched on television.
This provides an excellent backdrop as we move through the coming year.
“More importantly, ISC remains a dynamic company uniquely positioned to prosper well into the future as our business model is supported by a solid foundation of contracted revenues. Combined with prudent cost containment measures and a well-planned capital allocation strategy, we expect to continue to generate substantial cash flow that can be reinvested in value-added opportunities, including returning cash to our shareholders.”