International Speedway Corp. Q4 2009 Earnings Call Transcript

| About: International Speedway (ISCA)

International Speedway Corp. (NASDAQ:ISCA)

Q4 2009 Earnings Call

January 28, 2010 9:00 am ET


Lesa France Kennedy - Chief Executive Officer

John Saunders - President

Dan Houser - Senior Vice President and Chief Financial Officer

Charles Talbert - Director of Investor and Corporate Communication


[Greg - East Cunning]

Joe Lackey - Wachovia

John Fox - Fenimore Asset Management

Tom Andrews - BMO Capital Markets


Good morning and welcome to the International Speedway Corporation 2009 fourth quarter and full year results conference call. During the presentation all participants will be in a listen-only mode. Afterwards you will be invited to participate any question-and-answer session. (Operator Instructions)

I would now like to turn the conference over to Charles Talbert, Director of Investor and Corporate Communication for International Speedway. Mr. Talbert, please go ahead.

Charles Talbert

Thank you, operator. Good morning, everyone and welcome to International Speedway Corporation conference call. We are here to discuss the company’s results for the fourth quarter ended November 30, 2009.

With us on this morning’s call are Lesa France Kennedy, Chief Executive Officer; John Saunders, President; and Dan Houser, Senior Vice President and Chief Financial Officer. After our formal remarks a question-and-answer period will follow. The operator will instruct you on procedures at that time.

Before we start I would like to address forward-looking statements that maybe addressed on the call. Forward-looking statements involve risks, uncertainties and assumptions. Actual future performance, outcomes and results may differ materially from those expressed in these forward-looking statements.

Please refer to the documents filed by International Speedway with the SEC, specifically the most recent reports on forms 10-K and 10-Q which identify important risk factors which could cause actual results to differ from those contained in these forward-looking statements.

So, these formalities out of the way I will turn the call over to Lesa Kennedy. Lesa?

Lesa France Kennedy

Charles thanks and good morning everyone. The fourth quarter posed as a challenging year, yet we have many accomplishments that should not be overshadowed by the economic climate and I just wanted to touch on a few of those highlights.

First of all we successfully resolved our dispute with the Internal Revenue Service which resulted in the recovery of over $110 million in deposits. Our joint venture with Penn National Gaming was awarded a casino management contact to bill and operator casino with our Kansas Speedway.

This project is a terrific opportunity to turn 100 acres of idle land at the speedway into an exciting project to grow shareholder value. In fact, just to give you an example of the cash flow contribution that we expect from the first phase of this project is approximately equal to one of our motorsports facilities.

We entered into a definitive agreement to sell our Staten Island property that once completed will net ISC an excess of $100 million and we’ve already received a non-refundable $1 million initial payment and closing on this transaction as scheduled to close by February 25, 2010, subject to certain conditions, including the buyer securing the required equity commitments to acquire the property.

The United States court of appeals has affirmed the lower court’s ruling in which it dismissed in its entirety the civil antitrust action brought by Kentucky Speedway against NASCAR. This ruling reaffirms the validity of our business model that has benefited the sports fans, business partners and other industry constituents for more than 50 years.

Lastly, we ended the year [Technical Difficulty] these past two years have witnessed some of the most challenging marketing conditions that have ever been faced by our company. Despite these economic conditions, our balance sheet remains strong, allowing us the ability to continue to grow our business. We’re all looking forward to another successful year at ISC.

With that, I’d like to thank you and I’ll turn it over to John Saunders.

John Saunders

Thank you, Lesa and good morning everyone. The fourth quarter was the busiest of the year as we hosted seven NASCAR Sprint Cup Series events, five Nationwide Series events and four Camping World Truck Series events. From a fourth quarter comparability standpoint, we had one more NASCAR Sprint Cup and Nationwide Series event than the 2008 fourth quarter.

This is a result of rescheduling auto club speedway Sprint Cup and nationwide fall race weekend from Labor Day weekend, which fell in the third quarter of ‘08 to October of 2009. We ended the year as expected posting non-GAAP earnings of $1.86 per diluted share, well within our provided guidance range.

Dan will go into greater detail on the fourth quarter results and provide 2010 full year guidance later in the call. Economic challenges contributed to the decline in most of our revenue categories in 2009. We remain hopeful that the economic recovery will take hold and we will begin to see improvements in unemployment and consumer confidence.

These two metrics, in our opinion, are highly correlated to discretionary spending. While it is doubtful that we’ll see lower unemployment levels of a few years ago anytime soon, it would be encouraging if beneficial for our sport if unemployment dropped to the seven to 9% range.

Now, going into the 2010 season, we are still seeing challenges in consumer spending for the reasons I just mentioned, but we are encouraged by recent corporate spending trends. From a consumer standpoint, advance ticket sales remain in the range of approximately 24% and 27% off from last year in units and revenue respectively.

Now, as recent sales have been trending above last year at this time, we are optimistic that a substantial increase in ticket sales will occur in the weeks leading up to events, similar to what we experienced in 2009. Last year’s entry level ticket pricing strategy proved very successful.

In total across all of our facilities that hosted a Sprint Cup event, we lowered prices on 15% of cup capacity. We were able to sell over 95% of these tickets an encouraging sign to us that our fans, at the right price, want to attend our events, even in the toughest of times.

For all of our Sprint Cup events, we sold slightly below 80% of capacity. As a reminder, before the economic headwinds began in early 2008, we were selling in the low-to-mid 90% of capacity. We are convinced that an improving economic climate, highlighted by lower unemployment, we will be able to get back to strong attendance levels. To assist our fans going into 2010 ticket sale cycles, we have expanded our ticket pricing initiative even further.

In total, over 500,000 Sprint Cup tickets have been reduced and we will have also uncoupled tickets. We are very excited about the strategy, much of which is based on direct fan feedback. While this pricing will lower our weighted average ticket price in the mid single digits, we feel it is the appropriate strategy to maintain and drive attendance.

Attendance is directly tied to increased corporate partner spending. Corporate America wants to be front of this captive audience, so our ticket pricing initiative supports our corporate partnership sales. For our events that have gone on sale, we are seeing a decline of a little over 20% in our renewal rate. For 2009 versus 2008, our renewal rate was off at about the same percentage.

On a positive note, over the last few weeks, the ticket buying volume for the Daytona 500 has increased versus the same period last year. That’s good news. We’re looking forward to a great crowd on hand to witness the start of the 2010 NASCAR season, highlighted by the Daytona 500. It is always an exciting time of year for ISC, NASCAR and, most importantly, our fans and sponsors.

From a corporate spending perspective, we are pleased with the sales trend. The Daytona 500 is experiencing better than anticipated corporate partnership sales. Encouraging signs that corporate budgets that were on the sidelines for much of last year are beginning to loosen up.

As I stated on our last conference call, we are seeing new entrants into the sport and are also doing deals with companies that are again partnering with ISC, such as UAW and Valvoline on a renewal standpoint we have recently secured a deal with Hp Hood. We are also doing deals with new partners to our sport, such as Hershey’s milk ad we have expanded the VFWs partnership with ISC into an entitlement sponsor. The team has been very active in prospecting and their hard work is paying dividends.

Going into the 2010 season, we only have four Sprint Cup titles open, two at Phoenix, one at Darlington and Richmond, four of the Nationwide Series we have three open. Last year in a very challenging market, we secured entitlements for all Sprint Cup and Nationwide events, so we remain hopeful that we will do the same again this year.

For fiscal 2010, ISC has agreements in place for approximately 73% of its gross marketing partnership revenue target. This is compared to last year at this time and we had almost 71% of our gross margin partnership revenue target. For total sponsorship spending, our intellectual property is holding its value. Hospitality is the one area that still faces significant headwinds. We continue to focus on all areas of sponsorship and we expect we will sell deeper in the year than we have in the past. One area I was hopeful we’d have greater clarity is with Motorsports Authentics.

As you have seen in our earnings release, we have fully written down our investment in the company. This is not to say that we don’t believe there’s a chance for MA to find a resolution to disputes under its licensing agreements and their structure a profitable business model that can capitalize on its core competencies, but we do believe it’s a prudent step to take, considering the risk associated with a positive outcome.

Dan, in his prepared remarks, will address the financial implications for ISC. All constituents involved are still actively negotiating. The management team at Motorsports Authentics continues to explore business strategies in conjunction with certain motorsports industry stakeholders that allow the possibility for MA to operate profitably in the future. Everyone has invested interest in seeing a resolution to this matter.

I was hopeful that this would have been resolved before the start of the season, but it appears we are still looking for the arrangement that everyone can agree on. While we have no assurances in the resolution will be reached, we do not anticipate any interruption in its business for the Daytona 500.

On a positive note, as Lesa mentioned, our joint venture with Penn National Gaming was awarded the casino management contract for Wyandotte County, Kansas to build and operate a Hollywood branded casino at our Kansas Speedway. Subject to background investigations and licensing by the Kansas racing and gaming commission, which are expected to be completed in February of 2010, we plan to begin construction of the Hollywood themed entertainment destination facility in a second half of 2010, with the planned opening in the first quarter of 2012.

The initial phase of the project includes a 100,000 square foot casino gaming floor with approximately 2300 slot machines and 86 game tables, a high energy bar and dining an entertainment options and as projected to cost approximately $385 million. The joint venture anticipates partially funding the first phase of the development with a minimum equity contribution of $50 million from each partner in mid 2010. In addition, the joint venture currently plans to pursue financing of approximately $140 million, preferably on a project secured non-recourse basis.

Land that we already own is assumed to be valued at approximately $100 million post licensing and leased gaming equipment of $45 million would complete the financing of the project’s first phase. The full budget of all potential phases, including expanded gaming space, a spa, convention center and entertainment retail district would depend on market demand as projected at over $800 million, it would be financed by the joint venture.

As Lesa mentioned, the Staten Island transaction is scheduled to close by February 25, of 2010. However, the closing is subject to certain conditions, including the buyer securing the required equity commitments to acquire the property, and the buyer performing its obligations under the agreement. That performance maybe affected by its failure to obtain resolution of certain issues related to the fill permitting process. The failure to meet these conditions could delay the closing or result in the termination of the agreement, so more to come on this.

Before I turn it over to Dan, I would like to address television ratings. For the Sprint Cup series an average of 6.5 million viewers tuned in, making it the number two regularly seasoned sport on television. However, last year, household viewership for NASCAR Sprint Cup and Nationwide series were down 7% and 11% respectively.

Ratings will fluctuate on an annual basis. They were up in 2008 and down last year. We certainly do not want to see ratings go down, but we believe NASCAR has responded appropriately. From a media group standpoint they are working closely with their partners to drive growth and deliver better content for the fans.

I’d like to point out that there are more media companies in the sport than ever before and as the media landscape changes through renovation, we expect to see NASCAR at the forefront of the industry. NASCAR is also looked to competition changes such as the double file restart that they implemented last year and has been received favorably, and makes for compelling racing.

Also, we believe the broadcasters moved to a consistent start times has the potential to help television ratings since most races will have a 1 pm start time. This reduces the confusion to the television audience on when these events begin. Very similar to the NFL, we all know that most of their games begin at 1 O’clock and 4 O’clock.

We are also excited to see 14 of the final 17 NASCAR Sprint Cup races being broadcast on ESPN. ESPN subscriber base is nearly 100 million and the network has the proven ability to attract a younger male audience. We expect this will be better, provide better consistency, exposure and promotion for the sport.

Lastly, NASCAR just announced that they’re switching from a wing to spoiler on the cars, which will return to a more traditional Stock-Car look and NASCAR is relaxing some on-track rules, putting the racing back in the drivers’ hands in 2010. Both of these initiatives are directly from feedback from the fans. We are all listening to the fans.

Now with that, I’d like to turn the call over to Dan Houser for the financial review. Dan

Dan Houser

Thanks, John. Good morning, everyone. Our fourth quarter results were inline with our expectations. However, year-over-year comparability is impacted by the continued adverse economic trends, which increasingly contributed to the decrease in attendance related as well as corporate partner revenues.

Our fiscal four quarter 2009 comparability was also impacted by these additional factors. First, the timing of Auto Club’s fall Sprint Cup and Nationwide race weekend, which were held in our fourth quarter in 2009 versus being held in the third quarter of 2008.

Also, the IndyCar and Grand-Am Rolex Sports Car series weekend held at Homestead-Miami Speedway in the second quarter of 2008 was held in our fiscal fourth quarter 2009. These scheduled shifts are offset by the timing of the IRL weekend at Chicagoland Speedway, which was held in the third quarter of 2009 versus being held in the fourth quarter of 2008.

We also recorded accelerate depreciation of $500,000 or $0.01 per share after tax. In the fourth quarter of 2008 for certain office and related buildings removed from service in Daytona Beach associated with our previously announced Daytona development project.

The 2009 fiscal fourth quarter, we recognized non-cash impairments of long-lived assets totaling approximately $2.9 million or $0.04 per share after tax, primarily attributable to the remaining net book the value of fixed asset disposals resulting from facility enhancements.

A significant portion of this is related to Daytona’s new 136,000 square foot interactive fan area outside Turn 3, which necessary at the removal of some of the Superstretch grandstands. By comparison, the 2008 fiscal fourth quarter included non-cash impairments of approximately $323,000.

During the 2009 fiscal fourth quarter, we amortized approximately $4.3 million or $0.05 per diluted share after tax related to our interest rate swap. This amortization was recorded interest expense in the consolidated statement of operations. The 2008 fiscal 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 casino joint venture project in Kansas.

Finally, during the 2009 fiscal fourth quarter, the $15.5 million or $0.35 per diluted share after tax equity and net loss from equity investments represents our portion of the result of the 50% indirect interest in Motorsports Authentics and this includes a non-cash impairment charge of approximately $13.7 million or $0.28 per diluted share. As John mentioned, this charge takes our investment balance to zero. Our portion of Motorsports Authentics net income for the 2008 fourth quarter included equity and net loss from equity investments was approximately $3.4 million or $0.07 per diluted share.

Now to look at the income statement line items. Admissions revenue for the fourth quarter decreased to $51.6 million primarily due to lower attendance driven largely by the previously discussed economic conditions combined with the decrease in our weighted average ticket prices as a result of our value pricing strategies.

The weighed average ticket price for our Sprint Cup events held in the fourth quarter decreased approximately 7%. For the full year, our weighted average ticket prices down 3%. The increase in motorsports related revenue to $130.8 million was primarily driven by the timing of the fall events at auto club speedway and the increase in television broadcast rights for our comparable NASCAR series events.

For the fourth quarter, ISC’s domestic television broadcast and ancillary rights were $79.5 million with $77.5 million associated with domestic broadcast contracts and $2 million of ancillary rights. For the full year, ISC’s domestic television broadcast and ancillary rights were $262.3 million with $255.5 million associated with the domestic broadcast contract and $6.8 million of ancillary rights.

The decrease in food beverage and merchandise revenue to $17 million for the 2009 fourth quarter was primarily attributed to the lower attendance and lower per capita sales for concessions and merchandise, driven by the economic conditions, as well as catering revenues resulting from a decrease in corporate spending. The increase in NASCAR direct expenses to $52.2 million was primarily attributable to the timing of the fall events at auto club speedway, as well as higher television broadcast rights fees, a percentage of which are paid as part of prize money.

Motorsports related expenses decreased to $39.6 million, primarily attributable to lower promotional advertising and other race related expenses during the period, resulting from our focus cost containment initiatives. Food beverage and merchandise expenses decreased to $11.6 million for the quarter, due to the variable cost associated with previously discussed attendance decreases in corporate sales.

General and administrative expenses increased to $26.8 million for the quarter, primarily because of the recovery on a certain non-income taxes if 2008, which resulted in a one-time credit to G&A expenses. Otherwise there was a net increase to G&A expenses during the quarter. Depreciation and amortization for the fourth quarter was essentially flat compare to the 2008 fourth quarter.

The $2.9 million non-cash impairment of long live assets charges is substantially related to the fixed asset disposals associated with the previously mentioned enhancements at Daytona. The decrease in interest income to $149,000 is primarily due to lower interest rates on cash balances.

Interest expenses for the quarter increased to approximately $7.9 million primarily due to the amortization of our interest rate swap, as well as lower capitalized interest. The net loss from equity investments relates to our 50% interest in motorsports authentic. In fiscal 2009, Ma’s management and ownership considered multiple approaches to optimize performance in Ma’s various distribution channels.

As the challenges were assessed it became apparent that there was significant risk in future business initiatives in mass apparel, memorabilia and other yet to be developed products. These initiatives had previously been deemed achievable and were included in projections that supported the carrying value of inventory, goodwill and other intangible assets on Ma’s balance sheets.

This analysis, combined with a long term macroeconomic outlook that is believed to be less robust than previously expected, triggered ISC’s review and subsequent $55.6 million or $1.14 per diluted share after tax, non-cash impairment of its investment in Ma’s and our second fiscal quarter.

However, Ma’s review of its goodwill and intangible assets for impairment was not completed until fiscal year end. Factors considered in the review by Ma’s management and an independent appraisal firm included the fact that while Ma’s is now in the process of renegotiating its agreements with NASCAR team licenses, many of which are in default due to Ma failure to pay the unearned portion certain guarantee loyalty, there is no certainty that these license will agree to revision our current license contract terms or continue to grant Ma’s licensing rights under accessible terms in the future.

The fact that financial projections, assuming no such contract revisions indicated significant losses at the EBITDA level from fiscal 2010 through 2012. Absent negotiation of such current license agreement terms, Ma has exposure to a material amount of future guaranteed royalty payments that, in a worst case scenario, could be asserted as immediately due.

The results of Ma’s impairment review included in its audited financial statement led us to further impair our investment in Ma to zero, resulting in an additional non-cash charge of $13.7 million, or $0.28 per diluted share after tax in our fourth quarter. As a result of taking the equity investment to zero, we will no longer record equity in any future losses at Ma and will not record equity income until the investment balance would again rise above zero.

Beyond the investment in Ma, ISC has exposure to a guarantee liability to one NASCAR team license store which is limited to $11.5 million in a worse case. While we believe it is possible that some obligation under this guarantee may occur in the future, the amount we ultimately pay cannot be estimated at this time. In any event, we do not believe that the ultimate financial outcome will have a material impact on our financial position or results of operations.

Ma continues to explore business strategies in conjunction with certain motorsports industry stakeholders that allow the possibility for Ma to operate profitably in the future. As with any business in this adverse economic environment, management most finds the optimal business model for long term viability.

In addition to revisiting its business vision, Ma is also undertaking certain initiatives to improve inventory controls and buying cycles, as well as implementing changes to make Ma a more efficiently operated and profitable company. We believe a revised Ma business vision, which must include successful resolution of current license agreement terms and favorable licensed terms in the future, along with focus on core competency streamlined operations, reduce operating costs and inventory risk are necessary for Ma to survive as a profitable operation in the future.

Should their negotiations of the license agreements on terms that allow Ma reasonable future opportunities to operate profitably not be successful, should management decide to allow license defaults to remain uncured or should licensors not grant extending cure periods and exercise their rights under the agreements, Ma’s ability to continue operating could be severely impacted.

If such efforts are not sufficient or timely, Ma could ultimately pursue bankruptcy. Our effective tax rate for this fourth quarter increased to 66.9%. The increase is substantially a result of the tax agreement of the losses incurred through Ma. Excluding the loss on the equity investment, our effective tax rate for the fourth quarter 2009 would have been 38.9%.

Income from continuing operations for the three months ended November 30, 2009 was $9 million or $0.19 per diluted share on approximately $48.6 million shares outstanding. However when you exclude equity and net loss from equity investments, impairment of long lived assets and amortization of the interest rate swap, we posted earnings of $30.6 million or $0.63 per diluted share for the 2009 fourth quarter. As described in the release, this is compared to non-GAAP net income for the 2008 fourth quarter of $39 million or $0.80 per diluted share.

I will take a look at the balance sheet. At November 30, our combined cash and short term investments totaled $158.8 million. Current deferred income was $64 million and shareholders equity was $1.1 billion. At the end of the quarter, total debt was approximately $347 million including $150 million in senior notes, $75 million in borrowing on our revolving credit facility.

$65 million in tip bonds associated with Kansas, $51 million for a loan to construct our headquarters building, and $6 million in debt associated with Chicago Land and Route 66. We expect to have the revolver borrowings paid down this year substantially by the time the revolver goes current in June 2010.

This plan assumes there are performance maintains within our 2010 guidance. Further deterioration of operating results could lead to a reevaluation of our strategy. Of note is there are deferred income is down approximately $40 million year-over-year. This is primarily related to ticket sales and the steady trend of our customers to purchase tickets closer to the event weekend.

During the fourth quarter, we purchased approximately 72,000 shares of our Class A stock for $1.9 million, bringing the total number of shares purchased from December 2006 through November 2009 to approximately 4.9 million shares.

We currently have approximately $37 million in remaining capacity on our $250 million authorization. While we continue to consider our share repurchase program an important component of our long term capital allocation strategy, ISC, like most of the 500 largest U.S. non-financial companies, is currently maintaining strong cash reserves and expects to maintain this position awaiting a sustained return to the robust operating cash flows we enjoyed prior to the economic downturn.

At year end, our cash and short term investment balances were approximately 8.3% of total assets, consistent with other large non-financial companies. As it relates to capital spending for the year, capital expenditures totaled approximately $113.7 million, compared to approximately $107 million per fiscal 2008.

Capital expenditures included approximately $32.0 million related to construction of the new headquarters building in Daytona Beach, which is funded from long term restricted cash and investments provided by the headquarters financing and approximately $11.3 million related to other aspects of our Daytona development project, the Staten Island property and Stock-Car Montreal.

The balance for the period relates to spending at our tracks including grandstand seating enhancements at Michigan, Daytona, Talladega and a variety of other improvements under renovations at our facilities. At November 30, 2009, we had approximately $76.7 million in capital projects currently approved. We expect our total fiscal 2010 capital expenditures at our existing facilities to be approximately $60 million to $80 million, depending on the timing of certain projects.

In terms of our 2010 financial outlook, our 2010 events schedule will be similar to 2009. The press release details the major events by series and quarter, from an earnings perspective the fourth quarter will be our most significant, followed by the first, third and second quarter. Considering sustained high unemployment figures and the impact of advanced admission trends, we anticipate 2010 total revenues will be down in the low single digits year-over-year. That translates into a range of between $660 million and $680 million.

Now we’ll discuss the specific line items for 2010. Given the 2010 economic outlook, we currently anticipate mid-to-high-single digit decreases in 2010 admissions revenues as compared to 2009. The revenue we recognize from television ancillary media rights for NASCAR’s top three racing series, which is included in motorsports related revenue, will increase approximately 2.5% to between $268 million and $270 million. While the domestic broadcast rights fees are contracted to increase almost 3%, we anticipate ancillary media rights to be down slightly.

The remaining motorsports related revenue, which is primarily comprised of sponsorship, hospitality and other revenues, is expected to be down in the mid single digits on a percentage basis year-over-year. Sponsorship is expected to be flat to down in the mid single digits. Hospitality, where we expect continued challenges is expected down in the high single digits to low teens.

The remaining revenue, which consists of parking and camping revenues, track rentals licensing fees, as well as other items is expected to be down in the low to mid single digits. As John mentioned, we are seeing encouraging signs of increased interest and activity from our corporate partners that is generating new partnerships and expanding existing partnerships.

Looking at full year food, beverage and merchandise revenue, we expect a low to mid single digit year-over-year percentage decrease, dependent on admissions, trends and corporate spending for catering. We expect NASCAR direct expenses, which includes prize money, Point Fund, sanction fees for our NASCAR events to be approximately 26% of combined admissions income and motorsports related revenue for fiscal 2010, which is consistent with our 2009 margin.

This line item includes both television related Prize & Point Fund Money and non-television related Prize Money, Point Fund Money and sanction fees for our NASCAR events. As a reminder, NASCAR sanction agreements require that operators contribute to competitors as part of Prize & Point Fund Money amount equal to 25% of the gross television broadcast revenue for each sanctioned event.

While the Point Fund Money relate to television is increasing approximately 3%, we’re pleased the non-television related moneys have decreased year-over-year, allowing us to keep the margin flat. We have actively managed our controllable expenses with ongoing cost containment initiatives. Over the past two years, we’ve removed approximately $25 million in mostly fixed costs from the business. That annual amount, which we have committed to sustain, is equal to the expected cash flow contribution from our Kansas Casino.

We will continue to explore ways to take additional costs out of the business, but we need to balance any cost cutting initiative in relation to our commitment to the quality of the fan experience. We will not risk a detrimental affect on ticket renewals and customer retention, which will drive up our future cost of customer acquisition.

We expect full year motorsports related expenses to range between 24% and 25% of combined admissions income and motorsports related revenue for fiscal 2010, which is consistent with our 2009 margin. We currently anticipate 2010 full year food, beverage and merchandise expenses to range between 69% and 70% of food, beverage and merchandise revenue, also consistent with 2009 margins.

We expect 2010 G&A expense to be approximately 15% to 16% of total revenues, which is comparable to 2009. We’ve been aggressively reducing these costs and remain focused on spending only in areas that directly contribute to the successful execution of our long term strategic plan. We currently expect our full year EBITDA margin to range between 33% and 34% of total revenues.

We anticipate depreciation in amortization expense in 2010 will range from $74 million to $76 million driven by capital expenditures at our existing facilities. We expect our full year operating margin for 2010 to be between 21% and 22% of total revenues. Looking below operating income, we currently expect interest income to range from $900,000 to $1.5 million and interest companies between $15 million and $16 million for 2010. This is exclusive of the interest rate swap amortization.

Continuing down the income statement, we expect our effective tax rate for 2010 to be approximately 38% to 39% for the full year. Based on all the above assumptions, we expect 2010 full year non-GAAP earnings of between $1.60 and $1.80 per diluted share after tax.

As previously noted, by taking the equity investment of Motorsports Authentics to zero, we will no longer record any future losses at MA and we’ll not record equity income until the investment balance would again rise above zero. Also our 2010 guidance will exclude any future charges for impairment of long life assets, which could be recorded as part of capital improvements resulting in the removal of assets not fully depreciated.

Gain or loss on the sale of our Staten Island property or any unanticipated further impairment of the property any income statement impact related to the Kansas Casino develop%, amortization related to our interest rate swap recorded in interest expense or any cost related to contingent liabilities. While this range is below our 2009 results, I want to assure you that our business remains strong.

We believe once the economic situation improves, that we have the ability to grow our revenues overtime back to historical levels. Further, we have removed approximately $25 million in mostly fixed costs from the business, which is sustainable on an annual basis. That means dropping the revenue recovery largely to the bottom line.

The number one priority of the management team here at ISC is capitalizing on this highly anticipated resurgence of consumer and corporate spending, which coupled with sustainable cost reductions, position us to deliver increased earnings and strong operating margins in the future.

Our balance sheet, as Lesa mentioned is sound with manageable debt maturities, which provide significant financial flexibility. Due to the strategy, our liquidity position is solid and our cost of borrowings remains relatively low. This affords us the flexibility to capitalize on significant long term growth opportunities as they arise such as the Kansas casino.

Our conservative approach to capital allocation served us well over the past two years, while the economy has been mired in recession. While we expect to return more capital to our shareholders through share repurchases in the future, we’re mindful that it is important to maintain a prudent financial discipline. We believe our business trends will improve as consumer confidence returns, but it is important to keep robust cash reserves on hand while we work to stabilize and grow core operations.

With that, I’ll turn it back over to the operator for the Q-and-A portion of the call.

Question-and-Answer Session


(Operator Instructions) Your first question comes from [Greg – East Cunning].

Greg – East Cunning

I am actually on behalf of Greg. Just wanted to get a sense of what comparable attendance growth was in the quarter and how did that trend as the quarter progressed?

Lesa France Kennedy

We had some shifts in some events there which, to a large extent, kind of cancelled themselves out that IRL event at Chicagoland, because it has been included in the season ticket, ends up being a pretty large event, as far as attendance, but we’ve kind of seen the same trends in attendance truth the year. It’s been in the units and revenue in the mid teens to high teens.

A little bit more severe in some of the worst impact in markets in the fourth quarter we had an event at California, we had one in Phoenix. Those are well known to be some of the tougher areas, but we are still continuing to see a pickup in sales closer to the events and certainly experiencing that now with the Daytona 500.

Greg – East Cunning

Then just one more quick one, outside Daytona and Kansas, what other tracks do you see opportunities to open up some entertainment destinations?

Lesa France Kennedy

At this point, what we’re focused on is our core operations. Certainly, we have talked about in the past monetizing the vast real estate holdings we have at many of these facilities. With the idea of driving destination events, but right at the very moment, we’re focused more on the core, more on the consumer and we’ll return to some of those longer term strategies as the economy improves.

You’re right, Daytona, is clearly a destination event. In fact, for the 500 more people come from out of State than in State. Kansas, with the opportunity there with the casino, certainly will become a destination event. We’ve already seen Phoenix become a destination event. So the portfolio has got those opportunities in it, but right now we’re focused on regaining the core operations, the revenues and earnings that are contained therein.


Your next question comes from Joe Lackey - Wachovia.

Joe Lackey - Wachovia

You said there were four Sprint Cup events and three Nationwide events for the title sponsorship still available. How did that compare with last year at this time?

Lesa France Kennedy

It’s almost exactly the same and as I said if my remarks, we’re very hopeful that they will get sold

Joe Lackey - Wachovia

Then, you mentioned, I didn’t catch this, the percentage in your earlier comments, but you normally say what percentage of your budget for corporate sponsorships is filled at this point versus last year at the same time. What is that currently trending?

Lesa France Kennedy

Where we are right now of our target, our 2010 target is 73% versus at this time last year 71%. As I also mentioned, there’s increased activity coming from the corporate sector, which is very encouraging for us. As I said, we’re very hopeful these entitlements will all get sold

Joe Lackey - Wachovia

How much lower is the 2010 target versus the 2009 target?

Lesa France Kennedy

Low single digits

Joe Lackey - Wachovia

Sounds like you may have had a slight delay in the Staten Island closing. What’s going on with that? I can’t recall the details specifically and is there any sort of recourse at the counter party is unable to close on that property?

Lesa France Kennedy

First of all, we’ve already received I think $1 million in non-refundable deposit as part of that agreement. The risk associated with closing is really in two areas. One is the buyer being able to put together its financial structure. The second is meeting the requirements of the fill required for the property.

That’s a discussion going on with the DEC in the State of New York. I will say though at this point, there hasn’t been a delay. We still have it there. We just felt it was important to put it out there, that there’s some risk in a delay, or even potential termination, but we wanted to make sure we were clear on that

Joe Lackey - Wachovia

Where there other bidders for the property, should that risk come to fruition to fall back on?

Lesa France Kennedy

At this time, there’s a number of people that have inquired about the property. I can’t say that, who is bidding and who’s not, but there is interest

Joe Lackey - Wachovia

Then last question. Is there any sort of timeframe, I guess on the whole MA situation? Is there like a hard deadline where those contracts need to be renewed or is it an on going sort of situation?

Lesa France Kennedy

I think in my view, time is of the essence. There’s an element of urgency here. The longer this goes on, the more uncomfortable people become that something can get done. As I mentioned, there are a number of stakeholders at the table, and so getting everybody on the same page is complex, but I would expect that we would have some resolution sometime here in the next three to six months.


Your next question comes from John Fox - Fenimore Asset Management.

John Fox - Fenimore Asset Management

I had two questions. One is, on attendance, do you have the number of people that attended events, physical count for the year?

Lesa France Kennedy

Yes, I think we do. Charles says we have got that here

John Fox - Fenimore Asset Management

Maybe while Charles is looking for that, another question. In the CapEx guidance, you said existing facilities. So is there any additional CapEx for the Daytona project or for the Casino in the fiscal year?

Lesa France Kennedy

Well, there’s nothing for the Casino mentioned in that number. That will be at the joint venture level. So, we won’t record those capital expenditures on our books. We’ve got some land purchases that wouldn’t be included in that $60 million to $80 million and that’s really, I think, about it that with land outside of that guidance.

Not anything that we’re anticipating that would be a significant as the office building was this year. There is, John, about I think $10 million or $11 million at fiscal year end left in those restricted investments. So you’ll see that spend this year in the finish out of the office building

John Fox - Fenimore Asset Management

That’s offset by assets that you have?

Lesa France Kennedy

Yes, yes

John Fox - Fenimore Asset Management

The Casino joint venture, has that been fully funded at this point? Would there be any cash requirements for that this year?

Lesa France Kennedy

Yes, there would be as John said in his comments, that probably mid year there’ll be a $50 million probably I call that a minimum cash equity contribution from each of the partners. Other than that, it’s our intention to pursue financing at the joint venture level, preferably on a non-recourse basis.

Now that’s not necessarily the easiest thing to come by currently for Greenfield gaming projects. It’s less of a hurdle when you’ve got a project that’s up and running with prudent EBITDA, but we’ve had some good discussions with some interested banking partners on both the ISC and partner side and optimistic there; back on your question about the attendance. In ‘09, it was $3.1 million versus ‘08 was $3.7 million


Your final question comes from Tom Andrews - BMO Capital Markets

Tom Andrews - BMO Capital Markets

Can you talk a little bit more about attendance trends, how you’ve seen that kind of shape up geographically? Where was it less worse, and where was it maybe worse than you expected? Also pricing for in a similar vain and then on the value pricing plan that you have for the year, is that going to be spread out, more or less evenly across your events or is that going to be targeted towards the events that are maybe struggling a little bit more?

Lesa France Kennedy

Well, your first question on just trends overall, what’s clearly happened in this economic environment is the selling cycle has shortened up. As I mentioned in my script, we’re not seeing the level of renewals that we had in the past. People aren’t buying as far out. They’re buying closer to the event, where they have clarity on their personal situation, whether it’s jobs or income. Again, we’re seeing a run up in front of the event that’s fairly impressive.

Particularly for the Daytona 500, as I said, the run up is greater, a greater rate than what we saw last year. So that wholesales cycle is changing on us, and we don’t see that coming back until you see some improvements on some of those consumer metrics that we talked about. On pricing, I think it’s fairly the level of repricing will vary by markets. For example: Michigan, where not just their unemployment, but their under underemployment number is now 20%. They’ve been a little bit more aggressive in taking price down.

So it’s varying by markets, but I can tell you that the overall for the company, the overall weighted average ticket price for cup will come down about 5.5%, 5.6% as a result of this program, but, again, this is what we’re hearing from the fans are also seeing new fans come in as a result of this pricing and we’re selling 95% plus of these reprice tickets and we think it’s important to get people back into the facilities and in front of, large television audience and it’s something that drives our partnership sales. So I forgot the other part of your question.

Tom Andrews - BMO Capital Markets

I was just asking, are you the special ticket pricing plan that you’re going to pursue this year, is that going to be spread out across your tracks or targeted at the tracks that might be struggling a little bit more?

Lesa France Kennedy

It’s spread out across, but as I said, the amount that they’ve been repriced on a percentage basis will vary from track-to-track based on market conditions. So, all facilities are participating in that effort.


I’m showing no further questions or comments at this time. Any closing remarks, sir?

John Saunders

Yes. I’d just like to wrap it up. Again, we’re very encouraged by what we’re seeing here prior to the Daytona 500. We continue to experience the headwinds driven by unemployment and consumer confidence, but as Dan pointed out, management is focused on execution of strategic initiatives and we’re very well positioned to capture revenue and earnings when we do get an up tick in these metrics. So, want to thank everybody for joining us on the call and we’ll see you on the second quarter call. Thank you very much.


Thank you. For joining today’s conference call. You may now disconnect.

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