OREANDA-NEWS. International Speedway Corporation (NASDAQ:ISCA) (OTC:ISCB) (“ISC”) today reported financial results for its fiscal second quarter ended May 31, 2016.

"We are pleased with our results for the second quarter," stated Lesa France Kennedy, ISC Chief Executive Officer.  "Revenues increased year-over-year driven by contracted broadcast rights increases and strong corporate partnerships.  While we experienced attendance related revenue challenges at some events, we remain confident that our consumer marketing initiatives are working and positioning ISC for continued growth."

"DAYTONA Rising has been well received by industry stakeholders and is on track to meet or exceed expectations of delivering an incremental $15 million EBITDA by the end of fiscal 2016.  Last weekend we ran the Coke Zero 400 at Daytona, which realized increases in all areas of revenue and attendance, adding to the success of events held earlier this year during Speedweeks and Bikeweek.  Also, in the second quarter, we hosted the inaugural Country 500 music festival at Daytona, premiering top country music artists for an enthusiastic crowd during the three-day event."

"Construction for ONE DAYTONA has commenced with land and infrastructure improvements underway.  Cobb Theatres has gone vertical and we expect construction of the Bass Pro Shops location to commence in the near future.  We are excited about the opportunities ONE DAYTONA will bring, creating synergy with DAYTONA Rising through enhanced customer and partner experiences and leveraging our real estate on a year-round basis, while creating value for our shareholders.  We are targeting the opening of ONE DAYTONA in 2017."

"During the second quarter we completed the sale of the interest in our Staten Island property, which resulted in a gain of approximately $13.6 million and cash received of approximately $67.0 million, further strengthening ISC's financial position.  During the quarter, we also announced a 58% increase in our dividend, demonstrating our commitment to delivering shareholder value."

Second Quarter Comparison

Total revenues for the second quarter ended May 31, 2016 were approximately $167.6 million, compared to revenues of approximately $164.0 million in the second quarter of fiscal 2015.  Operating income was approximately $23.7 million during the period compared to approximately $19.2 million in the second quarter of fiscal 2015.  Quarter-over-quarter comparability was impacted by:

  • In the second quarter of fiscal 2016, we hosted an IndyCar event held at Phoenix International Raceway ("Phoenix"), for which there was no comparable event in the prior year.  Also, in the second quarter of fiscal 2015, we hosted a NASCAR Mexico series event held at Phoenix, for which there was no comparable event in fiscal 2016;
  • In the second quarter of fiscal 2016, we hosted the Country 500 music festival at Daytona, for which we earned a facility rental and certain other fees, as well as provided concession operations.  There was no comparable event in the prior year;
  • During the three months ended May 31, 2015, we had recognized non-recurring transactions of approximately $2.4 million of inventory sold to Fanatics and wholesale transactions by Motorsports Authentics ("MA"), which drove a total of $2.7 million in expense including product costs associated with these transactions and costs related to the transition of trackside merchandise operations to Fanatics, for which there was no related revenue. There were no comparable transactions in the same period of fiscal 2016;
  • During the three months ended May 31, 2015, we recognized approximately $0.4 million, or less than $0.01 per diluted share, in non-recurring, pre-opening costs that are included in general and administrative expense related to DAYTONA Rising.  There were no similar costs during the three months ended May 31, 2016;
  • During the three months ended May 31, 2015, we recognized approximately $2.1 million, or $0.03 per diluted share, of accelerated depreciation that was recorded due to shortening the service lives of certain assets associated with DAYTONA Rising and other projects. There were no similar costs during the three months ended May 31, 2016;
  • During the three months ended May 31, 2015, we recognized approximately $4.7 million, or $0.06 per diluted share, of losses primarily attributable to demolition and/or asset relocation costs in connection with DAYTONA Rising and capacity management initiatives.  There were no similar costs incurred during the three months ended May 31, 2016;
  • During the three months ended May 31, 2015, we capitalized approximately $1.3 million, or $0.02 per diluted share, of interest related to DAYTONA Rising.  There was no similar interest capitalization during the three months ended May 31, 2016; and
  • In the second quarter of fiscal 2016, we completed an assignment of all rights, title and interest in the mortgage and underlying promissory note of our Staten Island property. As a result, we recorded a gain of approximately $13.6 million, or 0.18 per diluted share, comprised of deferred gain, interest, and other consideration paid. The deferred gain of $1.9 million is included in Other operating revenue in our consolidated statement of operations, and the interest, of approximately $11.4 million, and additional consideration, of approximately $0.3 million, received is included in Other in our consolidated statement of operations (see "Capital Allocation"). There was no comparable transaction in the prior year.

Net income for the second quarter was approximately $21.9 million, or $0.47 per diluted share, compared to net income of approximately $13.4 million, or $0.29 per diluted share, in the prior year period.  Excluding non-recurring, pre-opening costs associated with DAYTONA Rising, accelerated depreciation, losses associated with the retirements of certain other long-lived assets, DAYTONA Rising project capitalized interest, gain on sale of our Staten Island property, and net gain on sale of certain assets, non-GAAP net income, as defined below, was $13.4 million, or $0.29 per diluted share, and $16.5 million, or $0.35 per diluted share, for the second quarter of fiscal 2016 and 2015, respectively (see "GAAP to Non-GAAP Reconciliation").

Year-to-Date Comparison

Total revenues for the six months ended May 31, 2016 were approximately $310.2 million, compared to revenues of approximately $300.6 million for the same period in fiscal 2015.  Operating income was approximately $54.8 million for the six months ended May 31, 2016 compared to approximately $40.8 million for the same period in fiscal 2015.  Year-over-year comparability was impacted by:

  • Year-over-year increases in operating revenues and expenses are significantly driven by the completion of the DAYTONA Rising project prior to the first quarter of fiscal 2016 events at Daytona International Speedway;
  • In the second quarter of fiscal 2016, we hosted an IndyCar event held at Phoenix, for which there was no comparable event in the prior year.  In the second quarter of fiscal 2015, we hosted a NASCAR Mexico series event held at Phoenix, for which there was no comparable event in fiscal 2016:
  • In the second quarter of fiscal 2016, we hosted the Country 500 music festival at Daytona, for which we earned a facility rental and certain other fees, as well as provided concession operations.  There was no comparable event in the prior year;
  • For the six months ended May 31, 2015, we had recognized non-recurring transactions of approximately $6.1 million of inventory sold to Fanatics and $4.2 million of wholesale transactions by Motorsports Authentics ("MA"), which drove a total of $11.0 million in expense including product costs associated with these transactions, costs related to the transition of trackside merchandise operations to Fanatics, as well as partial period operating expenses incurred prior to the transition of Americrown and MA merchandise operations, for which there was no related revenue. There were no comparable transactions in the same period of fiscal 2016;
  • During the six months ended May 31, 2016 we recognized approximately $0.8 million, or $0.01 per diluted share, in non-recurring, pre-opening costs that are included in general and administrative expense related to DAYTONA Rising, all of which were incurred in the first quarter of fiscal 2016. During the six months ended May 31, 2015, we recognized approximately $0.7 million, or $0.01 per diluted share, of similar costs;
  • During the six months ended May 31, 2015, we recognized approximately $6.0 million, or $0.08 per diluted share, of accelerated depreciation that was recorded due to shortening the service lives of certain assets associated with DAYTONA Rising and other projects. There were no similar costs during the six months ended May 31, 2016;
  • During the six months ended May 31, 2016, we recognized approximately $0.9 million, or $0.01 per diluted share, of losses primarily attributable to demolition and/or asset relocation costs in connection with capacity management initiatives and facility capital improvements. During the six months ended May 31, 2015, we recognized approximately $6.3 million, or $0.08 per diluted share, of similar losses in connection with DAYTONA Rising and capacity management initiatives;
  • During the six months ended May 31, 2016, we capitalized approximately $0.6 million, or $0.01 per diluted share, of interest related to DAYTONA Rising, all of which was incurred in the first quarter of fiscal 2016. During the six months ended May 31, 2015, we recognized approximately $3.9 million, or $0.05 per diluted share, of similar interest capitalization; and
  • In the second quarter of fiscal 2016, we completed an assignment of all rights, title and interest in the mortgage and underlying promissory note of our Staten Island property. As a result, we recorded a gain of approximately $13.6 million, or 0.18 per diluted share, comprised of deferred gain, interest, and other consideration paid. The deferred gain of $1.9 million is included in Other operating revenue in our consolidated statement of operations, and the interest, of approximately $11.4 million, and additional consideration, of approximately $0.3 million, received is included in Other in our consolidated statement of operations. There was no comparable transaction in the prior year.

Net income for the six months ended May 31, 2016 was approximately $41.7 million, or $0.90 per diluted share, compared to net income of approximately $28.3 million, or $0.61 per diluted share, in the prior year period.  Excluding non-recurring, pre-opening costs associated with DAYTONA Rising, accelerated depreciation, losses associated with the retirements of certain other long-lived assets, DAYTONA Rising project capitalized interest, gain on sale of Staten Island, and net gain on sale of certain assets, non-GAAP net income as defined below was $33.9 million, or $0.73 per diluted share, and $33.4 million, or $0.72 per diluted share for the six months ended May 31, 2016 and May 31, 2015, respectively (see "GAAP to Non-GAAP Reconciliation").

Amounts are in thousands, except per share data, which is shown net of income taxes, (unaudited):

  Three Months Ended May 31, 2015
  Income
Before Taxes		 Income Tax
Effect		 Net Income Earnings Per
Share
GAAP $ 21,769   $ 8,414   $ 13,355   $ 0.29  
Adjustments:        
DAYTONA Rising project 375   147   228   0.00  
Accelerated depreciation 2,083   826   1,257   0.03  
Losses on retirements of long-lived assets 4,682   1,838   2,844   0.06  
DAYTONA Rising project capitalized interest (1,287 ) (510 ) (777 ) (0.02 )
Net gain on sale of certain assets (627 ) (246 ) (381 ) (0.01 )
Non-GAAP $ 26,995   $ 10,469   $ 16,526   $ 0.35  
         
  Three Months Ended May 31, 2016
  Income
Before Taxes		 Income Tax
Effect		 Net Income Earnings Per
Share
GAAP $ 36,156   $ 14,258   $ 21,898   $ 0.47  
Adjustments:        
Losses on retirements of long-lived assets 10   4   6   0.00  
Gain on sale of Staten Island (13,631 ) (5,262 ) (8,369 ) (0.18 )
Net gain on sale of certain assets (213 ) (82 ) (131 ) 0.00  
Non-GAAP $ 22,322   $ 8,918   $ 13,404   $ 0.29  
         
  Six Months Ended May 31, 2015
  Income
Before Taxes		 Income Tax
Effect		 Net Income Earnings Per
Share
GAAP $ 45,181   $ 16,873   $ 28,308   $ 0.61  
Adjustments:        
DAYTONA Rising project 677   265   412   0.01  
Accelerated depreciation 5,971   2,342   3,629   0.08  
Losses on retirements of long-lived assets 6,261   2,454   3,807   0.08  
DAYTONA Rising project capitalized interest (3,862 ) (1,514 ) (2,348 ) (0.05 )
Net gain on sale of certain assets (653 ) (256 ) (397 ) (0.01 )
Non-GAAP $ 53,575   $ 20,164   $ 33,411   $ 0.72  
         
  Six Months Ended May 31, 2016
  Income
Before Taxes		 Income Tax
Effect		 Net Income Earnings Per
Share
GAAP $ 68,297   $ 26,568   $ 41,729   $ 0.90  
Adjustments:        
DAYTONA Rising project 787   304   483   0.01  
Losses on retirements of long-lived assets 930   360   570   0.01  
DAYTONA Rising project capitalized interest (627 ) (242 ) (385 ) (0.01 )
Gain on sale of Staten Island (13,631 ) (5,262 ) (8,369 ) (0.18 )
Net gain on sale of certain assets (277 ) (107 ) (170 ) 0.00  
Non-GAAP $ 55,479   $ 21,621   $ 33,858   $ 0.73  
 

Corporate Sales

NASCAR is a powerful brand with a loyal fan base that we believe is aware of, appreciates and supports corporate participation to a greater extent than fans of any other sports property. The combination of brand power and fan loyalty provides an attractive platform for robust corporate partnerships. The number of FORTUNE 500 companies invested in NASCAR remains higher than any other sport. More than one-in-four FORTUNE 500 companies, and one-in-two FORTUNE 100 companies, use NASCAR as part of their marketing strategy and the trend is increasing. The number of FORTUNE 500 companies investing in NASCAR increased 7.0 percent in fiscal 2015 versus the prior year; and is a 20.0 percent improvement versus fiscal 2008.

For fiscal 2016, we have agreements in place for approximately 96.0 percent of our gross marketing partnership revenue target, which is projected to increase approximately 11.0 percent compared to fiscal 2015, primarily related to DAYTONA Rising.  We have one of our available 20 NASCAR Sprint Cup Series event entitlements either open or not announced and two of our 14 NASCAR Xfinity Series event entitlements either open or not announced.  This is compared to last year at this time when we had approximately 97.0 percent of our gross marketing partnership revenue target sold and had entitlements for one NASCAR Sprint Cup entitlement either open or not announced.  With the vast majority of our event entitlements secured, we can focus more resources on official status categories, which will better position us to meet our gross marketing partnership revenue target for fiscal 2016. 

External Growth, Financing-Related and Other Initiatives

Capital Allocation

We have established a long-term capital allocation plan to ensure we generate sufficient cash flow from operations to fund our working capital needs, capital expenditures at existing facilities, return of capital through payments of an annual cash dividend, and repurchase of our shares under our Stock Purchase Plan.  In addition, we have used the proceeds from offerings of our Class A Common Stock, the net proceeds from the issuance of long-term debt, borrowings under our credit facilities, and state and local mechanisms to fund acquisitions and development projects.

The current capital allocation plan contemplates the following:

  • Capital expenditures remaining under the existing $600.0 million capital expenditure plan adopted by our Board of Directors in June 2013, total approximately $170.0 million for fiscal 2016 and 2017, consisting of remaining payments to contractors for the completion of DAYTONA Rising and certain planned capital projects at our remaining 12 motorsports facilities (see "Capital Expenditures").  A capital expenditure plan for our existing facilities covering years subsequent to 2017 is being developed over the next 9 months as a component of our comprehensive capital allocation program covering future years;
  • Additional capital expenditures related to phase one of the ONE DAYTONA project will be approximately $120.0 million to $150.0 million in fiscal 2016 through 2017.  Sources of funds will include, in addition to between $90.0 million to $100.0 million ultimately financed with borrowings, the public incentives discussed below and land to be contributed to the project.  Additional guidance will be provided as costs and returns for the first phase of the project are finalized; and
  • Returning capital to shareholders is an important component of the overall capital allocation strategy.  In February 2016, we announced we amended the price parameters of our share repurchase program with intention to make up to $37.0 million in open market repurchases of ISCA shares through fiscal year end November 30, 2016.  The Company has authorized its agent to purchase shares under revised parameters, which encompass price, corporate and regulatory requirements, capital availability and other market conditions.  The objective of the revised parameters is to buy back shares on an opportunistic, but consistent, basis in fiscal 2016.  Through May 31, 2016, we have purchased 757,671 shares on the open market for a total of $25.9 million.

Additionally, on April 13, 2016, the ISC Board of Directors approved an annual dividend of $0.41 per share, for a total payout of $18.9 million, paid on June 30, 2016 to common stockholders of record as of May 31, 2016.  The dividend approved for fiscal 2016 is an increase of approximately 58.0% over the dividend paid in fiscal 2015 of $0.26 per share. At this time, we are targeting a total payout of approximately $56.0 million in fiscal 2016 through a combination of share repurchases and dividends.

The objective for the future is to deliver a sustainable return of capital program through a balance of dividend yield and share repurchases.  We will review our return of capital programs and make adjustments, if necessary, on a quarterly basis.

In addition to sources of working capital and available borrowings, our ability to execute our capital allocation plans are supported by the following:

  • Federal tax legislation passed in December 2015 provides for extension of 7-year depreciation for tax purposes on certain assets placed in service during fiscal 2015 through 2016, and bonus depreciation on capital expenditures placed in service fiscal 2015 through 2019.  While the tax legislation does not impact our overall tax liability, it does impact the timing of the annual payment of cash taxes.  Cash taxes paid for federal and state taxes in fiscal 2015 was approximately $45.0 million. As a result of this legislation, which was passed subsequent to our fiscal 2015 year-end, but retroactive for all assets placed in service during 2015, we received a tax refund of approximately $47.0 million in fiscal 2016 related to overpayment of estimated taxes in prior years, primarily attributable to depreciation for assets placed in service related to DAYTONA Rising. Cash tax payments for fiscal 2016 are currently estimated to be between $30.0 million and $35.0 million. Cash tax payments for fiscal 2017 are currently estimated to be between $55.0 million to $60.0 million; and
  • In March 2016, we completed an assignment of all rights, title and interest in the mortgage and underlying promissory note to an affiliate of Matrix Development Group, a New York/New Jersey area developer, and received the remaining principal balance of $66.4 million, plus additional consideration of approximately $0.3 million.  We have no further commitments or contingencies related to the property or its sale. As a result, in the second quarter of fiscal 2016, we recorded a gain of approximately $13.6 million. The deferred gain of $1.9 million is included in Other operating revenue in our consolidated statement of operations, and the interest, and additional consideration, received is included in Other in our consolidated statement of operations.

The aforementioned represents certain components of our capital allocation plan for fiscal 2016.  This capital allocation plan is reviewed annually, or more frequently, if necessary, based on changes in business conditions.

Capital Expenditures

An important strategy for our future growth will come from investing in our major motorsports facilities to enhance the live event experience and better enable us to effectively compete with other entertainment venues for consumer and corporate spending. To better meet our customers' expectations, we are committed to improving the guest experience at our facilities through on-going capital improvements that position us for long-term growth.

In June 2013, our board of directors endorsed a capital allocation plan for fiscal 2013 through fiscal 2017 to not exceed $600.0 million in capital expenditures over that period.  The five-year capital expenditure plan encompasses all capital expenditures, excluding capitalized interest, for ISC's 13 major motorsports facilities, including approximately $400.0 million for DAYTONA Rising.

Capital expenditures for projects at existing facilities, including those related to DAYTONA Rising, were approximately $81.8 million for the six months ended May 31, 2016.  In comparison, we spent approximately $75.9 million on capital expenditures for projects at our existing facilities for the same period in fiscal 2015. Remaining capital expenditures associated with the $600.0 million capital expenditure plan will total approximately $88.2 million for the remainder of fiscal 2016 and 2017.

DAYTONA Rising: Reimagining an American Icon

DAYTONA Rising is the redevelopment of the frontstretch at Daytona, ISC's 58-year-old flagship motorsports facility, to enhance the event experience for our fans, marketing partners, broadcasters and the motorsports industry.

On May 9, 2016, we announced Axalta as the fifth Founding Partner at Daytona International Speedway's new motorsports stadium. The multi-year agreement (beginning in fiscal 2017) will provide Axalta with naming rights for the Center injector as well as branding rights within specific areas of the “World Center of Racing” zone, the central "neighborhood" overlooking the famed start/finish line inside the new stadium. The "World Center of Racing" zone is roughly the area of two football fields and celebrates the history and legacy of racing at Daytona while featuring retail and dining areas, dozens of video screens and open sight-line views of the racetrack. Axalta will join Toyota, Florida Hospital, Chevrolet and Sunoco as Founding Partners.

By providing our fans with a better experience as well as an expansive platform for our marketing partners, including an elevated hospitality experience, DAYTONA Rising is expected to provide an immediate incremental lift in Daytona's revenues of approximately $20.0 million, and an earnings before interest, taxes, depreciation and amortization ("EBITDA”) lift of approximately $15.0 million, approximately $2.1 million of which was recognized in fiscal 2015, with a mid-single-digit growth rate. We also currently anticipate the project to be accretive to our net income per share within three years of completion. While these forward-looking amounts are management’s projections and we believe they are reasonable, our actual results may vary from these estimates due to unanticipated changes in projected attendance, lower than expected ticket prices, and/or lower than forecasted corporate sponsorships. We do not know whether these expectations will ultimately prove correct and actual revenues and operating results may differ materially from these estimates.

Despite not anticipating the need for additional long-term debt to conclude funding on this project, accounting rules dictated that we capitalize a portion of the interest on existing outstanding debt during the construction period. We recorded approximately $14.6 million of capitalized interest from fiscal 2013 through the opening of the facility in fiscal 2016.

Total spending incurred for DAYTONA Rising was approximately $10.8 million and $42.8 million, during the three and six months ended May 31, 2016, respectively. Since inception of the project, we have spent approximately $375.6 million and have approximately $24.4 million remaining to be spent. As part of DAYTONA Rising, we have identified existing assets that were expected to be impacted by the redevelopment and that those assets required accelerated depreciation or losses on asset retirements. During the six months ended May 31, 2016, there were no significant losses on disposal of assets and no accelerated depreciation recorded, with a total of approximately $45.4 million recognized since the inception of the project.

In addition, our depreciation expense related directly to DAYTONA Rising increased incrementally by approximately $11.9 million in fiscal 2015, and is expected to increase by an additional $15.0 million to $16.0 million in fiscal 2016. The incremental increase in depreciation expense for fiscal 2015 is based on the timing of opening approximately 40.0 percent of the new stadium for Budweiser Speedweeks 2015 and an additional approximate 10.0 percent of the new stadium for the 2015 Coke Zero 400.

As a result, our total depreciation expense for fiscal 2016 is estimated to be between approximately $100.0 million and $105.0 million annually, in fiscal 2016, and then decreasing, due to lower capital spending, to approximately $85.0 million to $95.0 million beginning in fiscal 2019.

In June 2014, House Bill 7095 was signed in Florida creating the Florida Sports Development Program, establishing a process for distributing state tax revenue for the construction or improvement of professional sports facilities. The DAYTONA Rising project was among the eligible applicants to receive sales tax incentives based on the project’s capital investment and amount of sales tax generated by the facility. In 2014 and 2015, we filed applications and received approvals from the state's Department of Economic Opportunity. Allocation of funds for the approved applications was not considered during the 2015 or 2016 sessions of the Florida Legislature.

ONE DAYTONA

Since June 2013, we have pursued development of ONE DAYTONA, the proposed premier mixed use and entertainment destination across from Daytona International Speedway.

We have crafted a strategy that will create synergy with DAYTONA Rising, enhance customer and partner experiences, monetize real estate on International Speedway Blvd and leverage our real estate on a year-round basis.

ONE DAYTONA phase one boasts approximately 300,000 square feet of premier retail, dining and entertainment district, two hotels including a Marriott Autograph Collection property, The DAYTONA, and a Fairfield Inn and Suites, along with a residential community. A Community Development District ("CDD") has been established for the purpose of installing and maintaining public infrastructure at ONE DAYTONA.

Bass Pro Shops, America's most popular outdoor store, and Cobb Theatres, the highly respected Southeastern-based exhibitor, have executed leases to anchor ONE DAYTONA. We are in active discussions with other potential tenants for ONE DAYTONA and have recently announced leases with P.F. Chang's, Hy’s Toggery, It’s Sugar, Tervis, Jeremiah’s Italian Ice, Venetian Nails, Kilwins Confections, and Guitar Center. Additional leases will be announced in the near future.

Shaner Hotels and Prime Hospitality Group ("PHG") have been selected as hotel partners. They have executed a franchise agreement with Marriott International for an exclusive 145-room full service Autograph Collection hotel at ONE DAYTONA that will be known as The Daytona. They have also decided to move forward with their option to build a Fairfield Inn & Suites by Marriott as a flag for their approximately 105-room selected service hotel within ONE DAYTONA.  As part of the partnership agreement, our portion of equity will be limited to our land contribution and we will share in the profits from the joint ventures.

PHG has been selected as the partner for ONE DAYTONA’s residential development.  Following an extensive request for proposal process, ONE DAYTONA chose the Florida developer based on their command of market demographics, development experience and expert property management systems. PHG is proceeding with the development in ONE DAYTONA for an approximately 276 luxury apartment rental units that will add additional critical mass to the overall ONE DAYTONA campus. Similar to the hotel partnership, our portion of equity will be limited to our land contribution and we will share in the profits from the joint venture.

The CDD is a local, special purpose government framework authorized by Chapter 190 of the Florida Statutes for managing and financing infrastructure to support community development. The CDD has negotiated agreements with the City of Daytona Beach and Volusia County for a total of $40.0 million in incentives to finance a portion of the estimated $53.0 million in infrastructure required to move forward with the ONE DAYTONA project. We are currently proceeding with the leasing phase of the project while simultaneously completing the various necessary requirements for the CDD to access the incentives.

We have commenced site work on the property and began vertical construction on the Cobb Theatres, while preparations for additional vertical construction is under way. We are targeting the opening of ONE DAYTONA in 2017. Any future phases will be subject to prudent business considerations.

We estimate the total cost for developing phase one to be between approximately $120.0 million and $150.0 million. Sources of funds will include, in addition to $90.0 million to $100.0 million ultimately financed with borrowings, the public incentives discussed above and land to be contributed to the project.

Hollywood Casino at Kansas Speedway

Kansas Entertainment, LLC, (“Kansas Entertainment”) a 50/50 joint venture of Penn Hollywood Kansas, Inc. (“Penn”), a subsidiary of Penn National Gaming, Inc. and Kansas Speedway Development Corporation (“KSDC”), a wholly owned indirect subsidiary of ISC, operates the Hollywood-themed casino and branded destination entertainment facility, overlooking turn two at Kansas Speedway. Penn is the managing member of Kansas Entertainment and is responsible for the operations of the casino.

We have accounted for Kansas Entertainment as an equity investment in the consolidated financial statements as of May 31, 2015 and 2016. The Company's 50.0 percent portion of Kansas Entertainment’s net income, which is before income taxes as the joint venture is a disregarded entity for income tax purposes, was approximately $4.5 million and $4.2 million for the three months ended May 31, 2015 and 2016, respectively, and approximately $7.7 million and $8.1 million for the six months ended May 31, 2015 and 2016, respectively, and is included in income from equity investments in the consolidated statements of operations.

Pre-tax distributions from Kansas Entertainment for the six months ended May 31, 2016, totaling approximately $10.4 million, consist of approximately $8.7 million received as a distribution from its profits, included in net cash provided by operating activities on the Company's consolidated statement of cash flows, with the remaining approximately $1.6 million received, recognized as a return of capital from investing activities on the Company's consolidated statement of cash flows. Pre-tax distributions from Kansas Entertainment for the six months ended May 31, 2015, totaling $13.5 million, consisted of approximately $8.3 million received as a distribution from its profits, included in net cash provided by operating activities on the Company's consolidated statement of cash flows, with the remaining approximate $5.2 million received, recognized as a return of capital from investing activities on the Company's consolidated statement of cash flows.

For fiscal 2016, cash distributions from the casino joint venture are estimated between $27.0 million to $28.0 million.

Fiscal 2016 Financial Outlook

ISC’s reported quarterly and year to date earnings are presented under GAAP.  In an effort to enhance the comparability and understandability of our forward looking financial guidance, we adjust for certain non-recurring items that will be included in our future GAAP reporting to provide information that we believe best represents our expectations for our core business performance.

For fiscal 2016, our non-GAAP guidance excludes:

  • any non-recurring pre-opening income statement impact attributable to the completion of the DAYTONA Rising project, including non-capitalized costs and losses associated with retirements of certain other long-lived assets, partially offset by capitalized interest expense;
  • potential non-recurring and non-capitalized costs or charges that could be recognized related to our ONE DAYTONA development;
  • start up and/or financing costs should our Hollywood Casino at Kansas Speedway joint venture pursue construction of an adjacent hotel;
  • any costs or income related to legal settlements;
  • the gain on the sale of our Staten Island property;
  • gain or loss on sale of other assets;
  • accelerated depreciation and future loss on retirements, mostly non-cash, or relocation of certain long-lived assets, which could be recorded as part of capital improvements other than DAYTONA Rising resulting in removal of assets prior to the end of their actual useful life.

ISC is narrowing its previously announced 2016 full year non-GAAP guidance to the following:

  • Revenue: $658.0 million to $665.0 million
  • EBITDA margin: 32.1% to 32.6%
  • Operating margin: 16.3% to 17.0%
  • Effective tax rate:  38.5% to 39.0%
  • Diluted earnings per share: $1.45 to $1.55

The Company's guidance for EBITDA is to range between $211.0 million to $217.0 million.  Incremental to ISC's EBITDA estimate are pre-tax cash distributions from its equity investment in the Hollywood Casino, estimated to range between $27.0 million to $28.0 million.  With the completion of DAYTONA Rising in the first quarter of 2016, the Company will recognize less capitalized interest in subsequent quarters; as a result, interest expense is expected to range between $15.0 million to $15.5 million on a non-GAAP basis.

Contributing significantly to the growth in fiscal 2016 are contracted revenues associated with the industry's 10-year broadcast agreement and elements of DAYTONA Rising, which were largely recognized in the first quarter.  Event schedules and results for fiscal third through fourth quarters are expected to be comparable to fiscal 2015.

In closing, Ms. France Kennedy stated, "We maintain a solid financial position, developed over many years, that affords us the ability to follow our disciplined capital allocation strategy and maintain our leadership position in the motorsports industry.  Building on this foundation we will continue to execute our five year, $600 million capital allocation plan through fiscal 2017.  For the future, we are well positioned to balance the strategic capital needs of our business with returning capital to our shareholders."

(Tables Follow) 

Consolidated Statements of Operations
(In Thousands, Except Share and Per Share Amounts)
 
    Three Months Ended   Six Months Ended
    May 31, 2015   May 31, 2016   May 31, 2015   May 31, 2016
    (Unaudited)
REVENUES:                
Admissions, net   $ 33,260     $ 30,473     $ 63,804     $ 62,328  
Motorsports and other event related   115,084     121,002     202,515     219,725  
Food, beverage and merchandise   11,574     10,289     26,309     18,605  
Other   4,092     5,797     7,934     9,533  
    164,010     167,561     300,562     310,191  
EXPENSES:                
Direct:                
NASCAR event management fees   44,902     46,484     72,198     74,564  
Motorsports and other event related   34,090     36,067     57,588     60,947  
Food, beverage and merchandise   8,962     7,559     21,405     13,805  
General and administrative   27,400     27,776     53,536     54,068  
Depreciation and amortization   24,757     25,986     48,766     51,032  
Losses on asset retirements   4,682     10     6,261     930  
    144,793     143,882     259,754     255,346  
Operating income   19,217     23,679     40,808     54,845  
Interest income   25     56     44     86  
Interest expense   (2,602 )   (3,684 )   (4,070 )   (6,773 )
Equity in net income from equity investments   4,502     4,169     7,746     8,139  
Other   627     11,936     653     12,000  
Income before income taxes   21,769     36,156     45,181     68,297  
Income taxes   8,414     14,258     16,873     26,568  
Net income   $ 13,355     $ 21,898     $ 28,308     $ 41,729  
                 
Dividends per share   $ 0.26     $ 0.41     $ 0.26     $ 0.41  
Earnings per share:                
Basic and diluted   $ 0.29     $ 0.47     $ 0.61     $ 0.90  
                 
Basic weighted average shares outstanding   46,603,052     46,231,560     46,593,547     46,424,992  
                 
Diluted weighted average shares outstanding   46,618,333     46,246,727     46,607,669     46,439,802  
                 
Comprehensive income   $ 13,520     $ 22,065     $ 28,637     $ 42,061  

 

Consolidated Balance Sheets
(In Thousands, Except Share and Per Share Amounts)
 
    November 30, 2015   May 31, 2015   May 31, 2016
    (Unaudited)
ASSETS            
Current Assets:            
Cash and cash equivalents   $ 160,548     $ 183,458     $ 303,978  
Receivables, less allowance   42,112     49,364     41,150  
Inventories   1,639     2,173     1,788  
Income taxes receivable   572     12,919     —  
Deferred income taxes   —     2,789     —  
Prepaid expenses and other current assets   60,673     72,526     16,981  
Total Current Assets   265,544     323,229     363,897  
             
Property and Equipment, net   1,448,964     1,412,121     1,455,945  
Other Assets:            
Equity investments   103,249     115,486     101,038  
Intangible assets, net   178,626     178,625     178,627  
Goodwill   118,791     118,791     118,791  
Other   4,489     7,485     4,422  
    405,155     420,387     402,878  
Total Assets   $ 2,119,663     $ 2,155,737     $ 2,222,720  
LIABILITIES AND SHAREHOLDERS’ EQUITY            
Current Liabilities:            
Current portion of long-term debt   $ 3,074     $ 3,294     $ 3,102  
Accounts payable   56,968     39,202     30,810  
Deferred income   38,243     85,080     93,650  
Income taxes payable   —     —     2,654  
Other current liabilities   20,344     30,210     37,082  
Total Current Liabilities   118,629     157,786     167,298  
             
Long-Term Debt   262,762     267,924     262,514  
Deferred Income Taxes   336,232     357,490     392,833  
Long-Term Deferred Income   6,969     7,407     6,372  
Other Long-Term Liabilities   1,856     2,064     2,246  
Commitments and Contingencies   —     —     —  
Shareholders’ Equity:            
Class A Common Stock, $.01 par value, 80,000,000 shares authorized   263     264     256  
Class B Common Stock, $.01 par value, 40,000,000 shares authorized   199     199     199  
Additional paid-in capital   449,136     447,641     442,754  
Retained earnings   946,940     918,614     951,239  
Accumulated other comprehensive loss   (3,323 )   (3,652 )   (2,991 )
Total Shareholders’ Equity   1,393,215     1,363,066     1,391,457  
Total Liabilities and Shareholders’ Equity   $ 2,119,663     $ 2,155,737     $ 2,222,720  

 

Consolidated Statements of Cash Flows
(In Thousands)
 
    Six Months Ended
    May 31, 2015   May 31, 2016
    (Unaudited)
OPERATING ACTIVITIES        
Net income   $ 28,308     $ 41,729  
Adjustments to reconcile net income to net cash provided by operating activities:        
Gain on sale of Staten Island property   —     (13,631 )
Depreciation and amortization   48,766     51,032  
Stock-based compensation   1,438     1,532  
Amortization of financing costs   889     887  
Interest and other consideration received on Staten Island note receivable   2,324     1,162  
Deferred income taxes   3,003     56,392  
Income from equity investments   (7,746 )   (8,139 )
Distribution from equity investee   8,321     8,714  
Loss on retirements of long-lived assets, non-cash   379     896  
Other, net   (644 )   (227 )
Changes in operating assets and liabilities:        
Receivables, net   (21,766 )   962  
Inventories, prepaid expenses and other assets   (5,701 )   (10,846 )
Accounts payable and other liabilities   (3,558 )   (5,218 )
Deferred income   49,896     54,810  
Income taxes   (7,049 )   3,190  
Net cash provided by operating activities   96,860     183,245  
INVESTING ACTIVITIES        
Capital expenditures   (75,928 )   (81,778 )
Distribution from equity investee   5,179     1,636  
Proceeds from sale of Staten Island property   —     66,728  
Proceeds from sale of assets   —     472  
Other, net   43     (2 )
Net cash used in investing activities   (70,706 )   (12,944 )
FINANCING ACTIVITIES        
Payment of long-term debt   (560 )   (418 )
Reacquisition of previously issued common stock   (983 )   (26,453 )
Net cash used in financing activities   (1,543 )   (26,871 )
Net increase in cash and cash equivalents   24,611     143,430  
Cash and cash equivalents at beginning of period   158,847     160,548  
Cash and cash equivalents at end of period   $ 183,458     $ 303,978