Add
ISCA to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| ISCA > SEC Filings for ISCA > Form 10-K on 25-Jan-2013 | All Recent SEC Filings |
25-Jan-2013
Annual Report
of this arrangement, NASCAR retains 10.0 percent of the gross broadcast rights
fees allocated to each NASCAR Sprint Cup, Nationwide and Camping World Truck
series event as a component of its sanction fees. The promoter records 90.0
percent of the gross broadcast rights fees as revenue and then records 25.0
percent of the gross broadcast rights fees as part of its awards to the
competitors. Ultimately, the promoter retains 65.0 percent of the net cash
proceeds from the gross broadcast rights fees allocated to the event.
Our revenues from marketing partnerships are paid in accordance with negotiated
contracts, with the identities of partners and the terms of sponsorship changing
from time to time. Some of our marketing partnership agreements are for multiple
facilities and/or events and include multiple specified elements, such as
tickets, hospitality chalets, suites, display space and signage for each
included event. The allocation of such marketing partnership revenues between
the multiple elements, events and facilities is based on relative selling price.
The sponsorship revenue allocated to an event is recognized when the event is
conducted.
Revenues and related costs from the sale of merchandise to retail customers,
internet sales and direct sales to dealers are recognized at the time of sale.
Business Combinations. All business combinations are accounted for under the
acquisition method. Whether net assets or common stock is acquired, fair values
are determined and assigned to the purchased assets and assumed liabilities of
the acquired entity. The excess of the cost of the acquisition over fair value
of the net assets acquired is recorded as goodwill. Business combinations
involving existing motorsports entertainment facilities commonly result in a
significant portion of the purchase price being allocated to the fair value of
the contract-based intangible asset associated with long-term relationships
manifest in the sanction agreements with sanctioning bodies, such as NASCAR and
Grand American series. The continuity of sanction agreements with these bodies
has historically enabled the facility operator to host motorsports events year
after year. While individual sanction agreements may be of terms as short as one
year, a significant portion of the purchase price in excess of the fair value of
acquired tangible assets is commonly paid to acquire anticipated future cash
flows from events promoted pursuant to these agreements which are expected to
continue for the foreseeable future and therefore, in accordance with ASC
805-50, "Business Combinations," are recorded as indefinite-lived intangible
assets recognized apart from goodwill.
Capitalization and Depreciation Policies. Property and equipment are stated at
cost. Maintenance and repairs that neither materially add to the value of the
property nor appreciably prolong its life are charged to expense as incurred.
Depreciation and amortization for financial statement purposes are provided on a
straight-line basis over the estimated useful lives of the assets. When we
construct assets, we capitalize costs of the project, including, but not limited
to, certain pre-acquisition costs, permitting costs, fees paid to architects and
contractors, certain costs of our design and construction subsidiary, property
taxes and interest.
We must make estimates and assumptions when accounting for capital expenditures.
Whether an expenditure is considered an operating expense or a capital asset is
a matter of judgment. When constructing or purchasing assets, we must determine
whether existing assets are being replaced or otherwise impaired, which also is
a matter of judgment. Our depreciation expense for financial statement purposes
is highly dependent on the assumptions we make about our assets' estimated
useful lives. We determine the estimated useful lives based upon our experience
with similar assets, industry, legal and regulatory factors, and our
expectations of the usage of the asset. Whenever events or circumstances occur
which change the estimated useful life of an asset, we account for the change
prospectively.
Interest costs associated with major development and construction projects are
capitalized as part of the cost of the project. Interest is typically
capitalized on amounts expended using the weighted-average cost of our
outstanding borrowings, since we typically do not borrow funds directly related
to a development or construction project. We capitalize interest on a project
when development or construction activities begin, and cease when such
activities are substantially complete or are suspended for more than a brief
period.
Impairment/loss on disposal of Long-lived Assets, Goodwill and Other Intangible
Assets. Our consolidated balance sheets include significant amounts of
long-lived assets, goodwill and other intangible assets which could be subject
to impairment/loss on disposal.
• In fiscal 2010, we recorded a before-tax charge of approximately $8.9
million as an impairment/loss on disposal of long-lived assets primarily
attributable to the non-cash impairment of certain costs related to the
Daytona Development Project and removal of certain other long-lived assets
located at our motorsports facilities.
• In fiscal 2011, we recorded a before-tax charge totaling approximately $4.7 million, as an impairment/loss on disposal of long-lived assets, primarily attributable to the removal of certain other long-lived assets located at our motorsports facilities.
• In fiscal 2012, we recorded a before-tax charge totaling approximately $11.1 million, as an impairment/loss on disposal of long-lived assets, primarily attributable to the removal of certain other long-lived assets located at our motorsports facilities.
As of November 30, 2012, goodwill and other intangible assets and property and
equipment accounts for approximately $1.7 billion, or 85.5 percent of our total
assets. We account for our goodwill and other intangible assets in accordance
with ASC 350 and for our long-lived assets in accordance with ASC 360.
We follow applicable authoritative guidance on accounting for goodwill and other
intangible assets which specifies, among other things, non-amortization of
goodwill and other intangible assets with indefinite useful lives and requires
testing for possible impairment, either upon the occurrence of an impairment
indicator or at least annually. We complete our annual testing in our fiscal
fourth quarter, based on assumptions regarding our future business outlook and
expected future discounted cash flows attributable to such assets (using the
fair value assessment provision of applicable authoritative guidance), supported
by quoted market prices or comparable transactions where available or
applicable.
While we continue to review and analyze many factors that can impact our
business prospects in the future (as further described in "Risk Factors"), our
analysis is subjective and is based on conditions existing at, and trends
leading up to, the time the estimates and assumptions are made. Different
conditions or assumptions, or changes in cash flows or profitability, if
significant, could have a material adverse effect on the outcome of the
impairment evaluation and our future condition or results of operations. Despite
the current adverse economic trends, the decline in consumer confidence and the
rise in unemployment, which have contributed to the decrease in attendance
related as well as corporate partner revenues for certain of our motorsports
entertainment events since fiscal 2008, we believe there has been no significant
change in the long-term fundamentals of our ongoing motorsports event business.
We believe our present operational and cash flow outlook further support our
conclusion.
In connection with our fiscal 2012 assessment of goodwill and intangible assets
for possible impairment we used the methodology described above. We believe our
methods used to determine fair value and evaluate possible impairment were
appropriate, relevant, and represent methods customarily available and used for
such purposes. Our latest annual assessment of goodwill and other intangible
assets in the fourth quarter of fiscal 2012 indicated there had been no
impairment and the fair value substantially exceeded the carrying value for the
respective reporting units, except for one reporting unit. The estimated fair
value for this one reporting unit, which has goodwill of less than $20.0
million, exceeded the carrying value by less than 5 percent as determined using
our internal discounted cash flow methodology. We believe the most recent
comparable market transactions would support a substantially higher valuation.
In addition, our growth strategy includes investing in certain joint venture
opportunities. In these equity investments we exert significant influence on the
investee but do not have effective control over the investee, which adds an
additional element of risk that can adversely impact our financial position and
results of operations. The carrying value of our equity investments was $146.4
million at November 30, 2012.
Income Taxes. The tax law requires that certain items be included in our tax
return at different times than when these items are reflected in our
consolidated financial statements. Some of these differences are permanent, such
as expenses not deductible on our tax return. However, some differences reverse
over time, such as depreciation expense, and these temporary differences create
deferred tax assets and liabilities. Our estimates of deferred income taxes and
the significant items giving rise to deferred tax assets and liabilities reflect
our assessment of actual future taxes to be paid on items reflected in our
financial statements, giving consideration to both timing and probability of
realization. Actual income taxes could vary significantly from these estimates
due to future changes in income tax law or changes or adjustments resulting from
final review of our tax returns by taxing authorities, which could also
adversely impact our cash flow.
In the ordinary course of business, there are many transactions and calculations
where the ultimate tax outcome is uncertain. Accruals for uncertain tax
positions are provided for in accordance with the requirements of ASC 740,
"Income Taxes." Under this guidance, we may recognize the tax benefit from an
uncertain tax position only if it is more likely than not that the tax position
will be sustained on examination by the taxing authorities, based on the
technical merits of the position. The tax benefits recognized in the financial
statements from such a position should be measured based on the largest benefit
that has a greater than 50.0 percent likelihood of being realized upon the
ultimate settlement. This interpretation also provides guidance on
de-recognition of income tax assets and liabilities, classification of current
and deferred income tax assets and liabilities, accounting for interest and
penalties associated with tax positions, and income tax disclosures. Judgment is
required in assessing the future tax consequences of events that have been
recognized in our financial statements or tax returns. Although we believe the
estimates are reasonable, no assurance can be given that the final outcome of
these matters will not be different than what is reflected in the historical
income tax provisions and accruals. Such differences could have a material
impact on the income tax provision and operating results in the period in which
such determination is made.
Contingent Liabilities. Our determination of the treatment of contingent
liabilities in the financial statements is based on our view of the expected
outcome of the applicable contingency. In the ordinary course of business, we
consult with legal counsel on matters related to litigation and other experts
both within and outside our Company. We accrue a liability if the likelihood of
an adverse outcome is probable and the amount of loss is reasonably estimable.
We disclose the matter but do not accrue a liability if the likelihood of an
adverse outcome is reasonably possible and an estimate of loss is not
determinable. Legal and other costs incurred in conjunction with loss
contingencies are expensed as incurred.
Equity and Other Investments
Hollywood Casino at Kansas Speedway
In February 2012, Kansas Entertainment 50/50 joint venture of Penn, a subsidiary
of Penn National Gaming, Inc. and Kansas Speedway Development Corporation
("KSDC"), a wholly owned indirect subsidiary of ISC, opened the Hollywood-themed
and branded destination entertainment facility, overlooking turn two of Kansas
Speedway. Penn is the managing member of Kansas Entertainment and is responsible
for the development and operation of the casino.
The Hollywood Casino at Kansas Speedway features a 95,000 square foot casino
with 2,000 slot machines and 52 table games (including 12 poker tables), a 1,253
space parking structure as well as a sports-themed bar, dining and entertainment
options. Kansas Entertainment funded the development with equity contributions
from each partner. KSDC and Penn shared equally in the cost of developing and
constructing the facility. Our share of capitalized development costs for the
project, excluding our contribution of land, was approximately $145.0 million.
Through November 30, 2012, we have funded approximately $134.3 million of these
capitalized development costs as well as certain working capital needs of the
project prior to opening. Cash flow from the casino's operations has been used
to fund the remaining development costs. During our fiscal 2012 fourth quarter,
we received approximately $8.5 million of distributions of cash flows from the
casino's operations. In addition, in December 2012, we received a distribution
of cash flows from the casino's operations of approximately $4.5 million.
We have accounted for Kansas Entertainment as an equity investment in our
financial statements as of November 30, 2012. Start up and related costs through
opening were expensed through equity in net loss from equity investments. Our
50.0 percent portion of Kansas Entertainment's net loss was approximately $1.9
million and $4.2 million for fiscal years 2010 and 2011, respectively, and net
income of approximately $2.8 million for fiscal year 2012, and is included in
equity in net (loss) income from equity investments in our consolidated
statements of operations.
Staten Island Property
Our wholly owned indirect subsidiary, 380 Development, owns a total of 676 acres
located in the New York City borough of Staten Island. We are currently in
exclusive negotiations with an interested buyer for 380 Development. The timing
of any closing is uncertain and we cannot assure that one will occur as a result
of these exclusive negotiations.
Motorsports Authentics
We are a partner with Speedway Motorsports, Inc. in a 50/50 joint venture,
SMISC, LLC, which, through its wholly owned subsidiary MA. MA designs, promotes,
markets and distributes motorsports licensed merchandise. Our investment in MA
was previously reduced to zero and we did not recognize any net income or loss
from operations of MA during fiscal years 2010 , 2011, and 2012, respectively.
As of November 30, 2012, we had a guaranty exposure to one NASCAR team licensor
of approximately $1.2 million. The guaranty exposure was satisfied upon MA
making its final payment to the NASCAR team licensor on December 30, 2012.
Senior Notes
At November 30, 2011 we had registered senior notes (the "5.40 percent Senior
Notes") totaling approximately $87.0 million, net of unamortized discounts,
which bore interest at 5.40 percent and were due April 2014. In March 2012, we
utilized additional borrowings under our revolving credit facility to redeem and
retire all outstanding $87.0 million principal amount of the 5.40 percent Senior
Notes, including the payment of a tender premium of approximately $9.0 million
and accrued interest. The net tender premium, associated unamortized net
deferred financing costs and unamortized original issuance discount were
recorded as loss on early redemption of debt totaling approximately $9.1
million.
In September 2012, we completed an offering of approximately $100.0 million
principal amount of senior unsecured notes in a private placement ("3.95 percent
Senior Notes"). The 3.95 percent Senior Notes bear interest at 3.95 percent and
are due January 2024. The 3.95 percent Senior Notes require semi-annual interest
payments on September 13 and February 13 through their maturity. The 3.95
percent Senior Notes may be redeemed in whole or in part, at our option, at any
time or from time to time at redemption prices as defined in the indenture.
Certain of our wholly owned domestic subsidiaries are guarantors of the 3.95
percent Senior Notes. The 3.95 percent Senior Notes also contain various
restrictive covenants. The deferred financing fees associated with the 3.95
percent Senior Notes are treated as additional interest expense and are being
amortized over the life of the 3.95 percent Senior Notes on a straight-line
method, which approximates the effective yield method. The funds
received were used to pay down $100.0 million of the outstanding balance on our
then existing $300.0 million revolving credit facility.
Stock Purchase Plan
An important component of our capital allocation strategy is returning capital
to shareholders. We have solid operating margins that generate substantial
operating cash flow. Using these internally generated proceeds, we have returned
a significant amount of capital to shareholders primarily through our share
repurchase program.
We have a share repurchase program ("Stock Purchase Plan") under which we are
authorized to purchase up to $330.0 million of our outstanding Class A common
shares. The timing and amount of any shares repurchased under the Stock Purchase
Plan will depend on a variety of factors, including price, corporate and
regulatory requirements, capital availability and other market conditions. The
Stock Purchase Plan may be suspended or discontinued at any time without prior
notice. No shares have been or will be knowingly purchased from Company insiders
or their affiliates.
Since inception of the Plan through November 30, 2012, we have purchased
7,063,962 shares of our Class A common shares, for a total of approximately
$268.3 million. Included in these totals are the purchases of 307,886, 1,435,811
and 405,538 shares of the Company's Class A common shares at an average cost of
approximately $26.27, $25.87 and $25.40 per share (including commissions), for a
total of approximately $8.1 million, $37.1 million and $10.3 million, during the
fiscal years ended November 30, 2010, 2011, and 2012, respectively. Transactions
occur in open market purchases and pursuant to a trading plan under Rule 10b5-1.
At November 30, 2012, we had approximately $61.7 million remaining repurchase
authority under the current Stock Purchase Plan.
Income Taxes
The de-recognition of potential interest and penalties associated with certain
state settlements as well as certain state credits accrued are the principal
causes of the decreased effective income tax rate for the fiscal year ended
November 30, 2010. The effective income tax rate for fiscal year ended November
30, 2011 approximated the statutory income tax rate. The reduction in the
valuation allowance associated with the wind-up of certain Canadian business
operations is the principal cause of the decreased effective income tax rate for
the year ended November 30, 2012.
As a result of the above items, our effective income tax rate decreased from the
statutory income rate to approximately 27.0 percent and 36.7 percent for the
fiscal year ended November 30, 2010 and 2012, respectively.
Current Litigation
From time to time, we are a party to routine litigation incidental to our
business. We do not believe that the resolution of any or all of such litigation
will have a material adverse effect on our financial condition or results of
operations.
Future Trends in Operating Results
Our results of operations are sensitive to changes in economic conditions,
including those affecting disposable consumer income and corporate budgets such
as employment levels, business conditions, interest rates and taxation rates,
impact our ability to sell tickets to our events and to secure corporate
marketing partnerships. The unprecedented adverse economic trends, which
significantly impacted consumer confidence, have affected the frequency with
which our guests attended our major motorsports entertainment events. We
mitigated the decline in certain revenue categories with cost containment
initiatives. The majority of the cost containment initiatives undertaken are
sustainable. Beginning in 2012, we re-instituted merit pay increases to more
normalized levels. We do not have further significant incremental costs that can
be eliminated without materially altering how we operate our business.
The economy, while showing signs of improvement, remains fragile. Consumer
confidence has rebounded but remains tenuous given current market conditions
such as job and income growth, and recent political events. Absent sustained
improvement in consumer confidence that includes an increase in discretionary
spending, we expect certain adverse trends to persist in 2013, which will impact
our business, especially attendance-related and corporate partner revenues.
Admissions
Achieving event sellouts and creating excess demand are crucial to the optimal
performance of our major motorsports facilities that host NASCAR Sprint Cup
Series events. An important component of our operating strategy has been our
long-standing practice of focusing on supply and demand when evaluating ticket
pricing and adjusting capacity at our facilities. By effectively managing ticket
prices and seating capacity, we have historically shown the ability to stimulate
ticket renewals and advance ticket sales.
Advance ticket sales result in earlier cash flow and reduce the potential
negative impact of actual, as well as forecasted, inclement weather. With any
ticketing initiative, we first examine our ticket pricing structure at each of
our major motorsports entertainment facilities to ensure prices are on target
with market demand. When deemed necessary, we will adjust ticket pricing. We
believe our ticket pricing is consistent with current demand, providing
attractive price points for all income levels.
It is important that we maintain the integrity of our ticket pricing model by
rewarding our customers who purchase tickets during the renewal period. We do
not adjust pricing downward inside of the sales cycle to avoid rewarding
last-minute ticket buyers by discounting tickets. Further, we closely monitor
and manage the availability of promotional tickets. All of these factors have a
detrimental effect on our ticket pricing model and long-term value of our
business. We believe it is more important to encourage advance ticket sales and
maintain price integrity to achieve long-term growth than to capture short-term
incremental revenue. We continue to implement innovative accelerated ticket
. . .
|
|