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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended May 31, 2002

INTERNATIONAL SPEEDWAY CORPORATION

(Exact name of registrant as specified in its charter)

Registrant's telephone number, including area code: (386) 254-2700

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ]

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date:

Class A Common Stock – 25,152,870 shares as of June 30, 2002.

Class B Common Stock – 28,033,807 shares as of June 30, 2002.

PART I.           FINANCIAL INFORMATION
ITEM 1.            FINANCIAL STATEMENTS

See accompanying notes.

See accompanying notes.

See accompanying notes.

See accompanying notes.

See accompanying notes.

See accompanying notes.

International Speedway Corporation
Notes to Condensed Consolidated Financial Statements
November 30, 2001 and May 31, 2002
(Unaudited)

1.              Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in compliance with Rule 10-01 of Regulation S-X and generally accepted accounting principles but do not include all of the information and disclosures required for complete financial statements. The statements should be read in conjunction with the consolidated financial statements and notes thereto included in the latest annual report on Form 10-K for International Speedway Corporation and its wholly-owned subsidiaries (the "Company"). In management's opinion, the statements include all adjustments which are necessary for a fair presentation of the results for the interim periods. All such adjustments are of a normal recurring nature. Certain reclassifications have been made to conform to the financial presentation at May 31, 2002.

Because of the seasonal concentration of racing events, the results of operations for the three- and six-month periods ended May 31, 2001 and 2002 are not indicative of the results to be expected for the year.

In August 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long Lived Assets”.  Consistent with prior guidance SFAS No. 144 continues to require a three-step approach for recognizing and measuring the impairment of assets to be held and used.  Assets to be sold must be stated at the lower of the asset’s carrying amount or fair value and depreciation is no longer recognized.  SFAS No. 144 is effective for fiscal years beginning after December 15, 2001.  The adoption of SFAS No. 144 is not expected to have a material impact on the Company’s financial position or results of operations.

2.              Accounting Change

The Company elected to early adopt SFAS No. 142, “Goodwill and Other Intangible Assets” in the first quarter of 2002.  Accordingly, the Company will not record amortization expense of approximately $18.4 million in fiscal 2002 based on the level of goodwill as of November 30, 2001.  In addition, based on an independent appraisal firm’s valuation of the reporting unit level fair value using discounted cash flows, which reflect changes in certain assumptions since the date of the acquisitions, and the identification of qualifying intangibles, the Company recorded a non-cash after tax charge of $513.8 million as a cumulative effect of accounting change for the write-off of goodwill in the first quarter of 2002.  The Company evaluated its long-lived assets, including goodwill, at November 30, 2001 using estimated undiscounted cash flows in accordance with SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of” and this analysis did not result in an impairment.

The write-off of goodwill results from the use of discounted cash flows in assessment of fair value for each reporting unit as required by SFAS No. 142 and the fact that certain acquired intangible assets were not reclassified and accounted for apart from goodwill upon transition to SFAS No. 142.  In addition, FASB Staff Announcement Topic No. D-100 states that the transition provisions do not allow entities to “carve-out” from goodwill any intangible assets not identified and measured at fair value in the initial rendering of a business combination and subsequently accounted for separately from goodwill.  At the date of the acquisitions, the Company recognized its relationships with multiple sanctioning bodies, including NASCAR, CART and IRL evidenced by the sanction agreement assets, and goodwill as a single asset labeled “Goodwill”.  The Company amortized the combined assets over their estimated useful lives of 40 years.  According to SFAS No. 142, the goodwill impairment loss is measured as the excess of the carrying amount of goodwill (which included the carrying amount of the acquired intangible assets) over the implied fair value of goodwill (which excludes the fair value of the acquired intangible assets).  Thus, the measured goodwill impairment loss was substantially larger than it would have been had the acquired intangible assets been initially recognized apart from goodwill.  If the Company were to acquire additional motorsports facilities in the future, any sanction agreement assets existing at the date of the acquisition would be recorded as an intangible asset separate from goodwill.

Raceway Associates, LLC (“Raceway Associates”), which owns and operates Chicagoland Speedway and Route 66 Raceway and in which the Company holds a 37.5% indirect equity interest, also elected to early adopt SFAS No. 142.  As a result, starting in fiscal 2002 Raceway Associates will not record amortization expense related to goodwill.  In 2002 the Company’s proportionate share of their goodwill amortization would have totaled approximately $92,000 based on Raceway Associates’ goodwill recorded at November 30, 2001.  During the second quarter of fiscal 2002 Raceway Associates completed the valuation of its Route 66 Raceway reporting unit using discounted cash flows, which reflect changes in certain assumptions since the date of Raceway Associates’ formation, that indicated impairment of the goodwill associated with Route 66 Raceway.  The Company’s proportionate share of Raceway Associates’ cumulative effect of accounting change related to the write-off of goodwill totaled approximately $3.4 million.  In accordance with SFAS No. 3 “Reporting Accounting Changes in Interim Financial Statements” the Company has recognized this impairment in the first quarter of 2002.

A reconciliation of net income (loss) and earnings per share, adjusted to exclude amortization expense, net of tax, for the period prior to adoption and the cumulative effect of accounting change recognized in the current period, is as follows (in thousands):

3.              Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except share amounts):

During the periods presented shares that could potentially dilute future earnings per share were not included in the computation of diluted earnings per share as to do so would have been anti-dilutive.  These shares totaled approximately 17,219 and 14,125 during the three- and six-month periods ended May 31, 2001, respectively, and approximately 29,104 and 25,650 for the three- and six-month periods ended May 31, 2002, respectively.

4.              Long-Term Debt

Long-term debt consists of the following (in thousands):

The Company’s $225 million principal amount of unsecured senior notes (“Senior Notes”) bear interest at 7.875% and rank equally with all of the Company’s other senior unsecured and unsubordinated indebtedness. The Senior Notes require semi-annual interest payments through maturity on October 15, 2004. The Senior Notes may be redeemed in whole or in part, at the option of the Company, at any time or from time to time at a redemption price as defined in the indenture. The Company’s subsidiaries are guarantors of the Senior Notes (See Note 9). The Senior Notes also contain various restrictive covenants.  In December 2001, the Company entered into an interest rate swap agreement to manage interest rate risk exposure on $100 million of the $225 million principal amount of Senior Notes.  Under this agreement, the Company receives fixed rate amounts in exchange for floating rate interest payments over the life of the agreement without an exchange of the underlying principal amount.  The interest rate swap effectively modifies the Company’s exposure to interest risk by converting $100 million of the 7.875% fixed-rate Senior Notes to a floating rate based on six-month LIBOR in arrears plus a spread.  The agreement is deemed to be a perfectly effective fair value hedge and therefore qualifies for the “shortcut” method of accounting under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities.  As a result, no ineffectiveness is expected to be recognized in the Company’s earnings associated with the interest rate swap agreement.

The Company's $250 million revolving credit facility ("Credit Facility") matures on March 31, 2004, and accrues interest at LIBOR plus 50 -100 basis points, based on certain financial criteria.  At May 31, 2002, the Company did not have any borrowings outstanding under the Credit Facility.  The Credit Facility contains various restrictive covenants.

The Company’s Miami subsidiary has a $20 million credit facility (“Miami Credit Facility”) and a $19 million term loan (“Term Loan”). The Miami Credit Facility and Term Loan are guaranteed by the Company and have the same interest terms and restrictive covenants as the Company’s Credit Facility. The Miami Credit Facility will be automatically reduced to $15 million on December 31, 2002 and will mature on December 31, 2004.  At May 31, 2002, the Company’s Miami subsidiary had borrowings of $20.0 million under the Miami Credit Facility.  The Term Loan is payable in annual installments which range from $5.5 million to $7.0 million. The Company’s Miami subsidiary has an interest rate swap agreement that effectively fixes the floating rate on the outstanding balance under the Term Loan at 5.6% plus 50 –100 basis points, based on certain financial criteria, for the remainder of the loan period.

In January 1999, the Unified Government of Wyandotte County/Kansas City, Kansas ("Unified Government"), issued approximately $71.3 million in taxable special obligation revenue ("TIF") bonds in connection with the financing of construction of Kansas Speedway. The TIF bonds are comprised of a $21.6 million, 6.15% term bond due December 1, 2017 and a $49.7 million, 6.75% term bond due December 1, 2027. The TIF bonds are repaid by the Unified Government with payments made in lieu of property taxes (“Funding Commitment”) by the Company’s wholly-owned subsidiary, Kansas Speedway Corporation (“KSC”). Principal (mandatory redemption) payments per the Funding Commitment are payable by KSC on October 1 of each year. The semi-annual interest component of the Funding Commitment is payable on April 1 and October 1 of each year. KSC granted a mortgage and security interest in the Kansas project for its Funding Commitment obligation. The bond financing documents contain various restrictive covenants.   The Company has agreed to guarantee KSC’s Funding Commitment until certain financial conditions have been met.

Total interest incurred by the Company was approximately $5.3 million and $6.1 million for the three months ended May 31, 2001 and 2002, respectively, and $11.6 million and $12.5 million for the six months ended May 31, 2001 and 2002, respectively.  Total interest capitalized for the three months ended May 31, 2001 and 2002, was approximately $3.4 million and $67,000, respectively, and $6.5 million and $190,000 for the six months ended May 31, 2001 and 2002, respectively. 

Financing costs of approximately $8.4 million, net of accumulated amortization, have been deferred and are included in other assets at May 31, 2002.  These costs are being amortized on an effective yield method over the life of the related financing.

5.             Related Party Disclosures and Transactions

7.              Legal Proceedings

On February 26, 2002 the Company received service of an amended complaint filed in the United States District Court for the Eastern District of Texas on February 21, 2002 styled Francis Ferko, as Shareholder of Speedway Motorsports, Inc. vs. National Association of Stock Car Racing, Inc., International Speedway Corporation, and Speedway Motorsports, Inc.  The overall gist of the suit is that Texas Motor Speedway should have a second Winston Cup date annually and that NASCAR should be required by the court to grant Texas Motor Speedway a second Winston Cup date annually.  The portion of this suit that is brought against the Company alleges that it conspired with NASCAR and members of the France Family to “refuse to offer a new Winston Cup race date to any non-ISC owned track whenever ISC has desired to host an additional Winston Cup race.”  The suit seeks unspecified monetary damages from the Company which are claimed to have resulted to Speedway Motorsports from the alleged conspiracy as well as treble damages under the anti-trust laws.  The Company believes the suit to be without merit and intends to vigorously pursue the defense of the matter.

8.              Segment Reporting

The following tables provide segment reporting of the Company for the three- and six-month periods ended May 31, 2001 and 2002 (in thousands):

Intersegment revenues were approximately $1.8 million and $1.9 million for the three months ended May 31, 2001and 2002, respectively and $4.3 million and $4.6 million for the six months ended May 31, 2001 and 2002, respectively. 

As a result of the Company’s and its equity investee’s adoption of SFAS No. 142, the motorsports events segment recorded a non-cash after tax charge of $517.2 million as a cumulative effect of accounting change for the write-off of goodwill in the first quarter of 2002.

9.             Condensed Consolidating Financial Statements

All of our subsidiaries have, jointly and severally, fully and unconditionally guaranteed, to each holder of Senior Notes and the trustee under the Indenture for the Senior Notes, the full and prompt performance of our obligations under the indenture and the Senior Notes, including the payment of principal of (or premium, if any, on) and interest on the Senior Notes, on an equal and ratable basis.

The subsidiary guarantees are unsecured obligations of each subsidiary guarantor and rank equally in right of payment with all senior indebtedness of that subsidiary guarantor and senior in right of payment to all subordinated indebtedness of that subsidiary guarantor.  The subsidiary guarantees are effectively subordinated to any secured indebtedness of the subsidiary guarantor with respect to the assets securing the indebtedness.

The following tables present the required condensed consolidating financial information for the Company and its subsidiary guarantors and non-guarantors.  In October 2001, certain non-guarantor subsidiaries became guarantor subsidiaries of the Company.  As a result, the results of operations and cash flows of the Company in relation to its wholly-owned guarantor and non-guarantor subsidiaries are not comparable on a period-to-period basis.

Included are condensed consolidating balance sheets as of November 30, 2001 and May 31, 2002, the condensed consolidating statements of income for the three- and six-month periods ended May 31, 2001 and 2002 and the condensed consolidating statements of cash flows for the six-month periods ended May 31, 2001 and 2002 of: (a) the Parent; (b) the guarantor subsidiaries; (c) the non-guarantor subsidiaries; (d) elimination entries necessary to consolidate Parent with guarantor and non-guarantor subsidiaries; and (e) the Company on a consolidated basis (in thousands).

PART I.       FINANCIAL INFORMATION

ITEM 2.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

General

We derive revenues primarily from (i) admissions to racing events and motorsports activities held at our facilities, (ii) revenue generated in conjunction with or as a result of motorsports events conducted at our facilities, and (iii) catering, concession and merchandising services during or as a result of these events and activities.

"Admissions" revenue includes ticket sales for all of our racing events and activities at DAYTONA USA.

"Motorsports related income" primarily includes television, radio and ancillary rights fees, promotion and sponsorship fees, hospitality rentals (including luxury suites, chalets and the hospitality portion of club seating), advertising revenues, royalties from licenses of our trademarks and track rentals.  Commencing in 2001, NASCAR contracted directly with certain network providers for television rights to the entire NASCAR Winston Cup and Busch Grand National Series schedules.  NASCAR’s current broadcast contracts with NBC Sports and Turner Sports extend through 2006 and through 2008 with FOX and its FX cable network.  Event promoters share in the television rights fees in accordance with the provision of the sanction agreements for each NASCAR Winston Cup and Busch Grand National Series event.  Currently, the radio rights to the NASCAR events at our facilities are negotiated by us, and we retain 100% of the revenues.  Our revenues from corporate sponsorships are paid in accordance with negotiated contracts, with the identities of sponsors and the terms of sponsorship changing from time to time.

"Food, beverage and merchandise income" includes revenues from concession stands, hospitality catering, direct sales of souvenirs, programs and other merchandise and fees paid by third party vendors for the right to occupy space to sell souvenirs and concessions at our facilities.

“Direct expenses” include (i) prize and point fund monies and NASCAR sanction fees, (ii) motorsports related expenses, which include costs of competition paid to sanctioning bodies other than NASCAR, labor, advertising and other expenses associated with the promotion of our racing events, and (iii) food, beverage and merchandise expenses, consisting primarily of labor and costs of goods sold.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management continually reviews its accounting policies, how they are applied and how they are reported and disclosed in the financial statements.  The following is a summary of our more significant accounting policies and how they are applied in the preparation of the financial statements.

Advance tickets sales and event-related revenues for future events are deferred until earned.  The recognition of event-related expenses is matched with the recognition of event-related revenues.  Revenues and related expenses from the sale of merchandise to retail customers, catalog and internet sales and direct sales to dealers are recognized at the time of sale.  We believe that our revenue recognition policies follow guidance issued by the Securities and Exchange Commission in Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements.”

We review the valuation of our accounts receivable on a monthly basis.  The allowance for doubtful accounts is estimated based on historical experience of write-offs and future expectations of conditions that might impact the collectibility of accounts.

Our consolidated balance sheets include significant amounts of long lived assets and goodwill.  Current accounting standards require testing these assets for impairment based on assumptions regarding our future business outlook.  While we continue to review and analyze many factors that can impact our business prospects in the future, our analyses are subjective and are based on conditions existing at and trends leading up to the time the assumptions are made.  Actual results could differ materially from these assumptions.  Our judgments with regard to our future business prospects could impact whether or not an impairment is deemed to have occurred, as well as the timing of the recognition of such an impairment charge.

We use a combination of insurance and self-insurance for a number of risks including general liability, workers’ compensation, vehicle liability and employee-related health care benefits.  Liabilities associated with the risks that we retain are estimated by considering various historical trends and forward looking assumptions.  The estimated accruals for these liabilities could be significantly affected if future occurrences and claims differ from these assumptions and historical trends.

We utilize derivative instruments in the form of interest rate swaps to assist in managing our interest rate risk.  We do not enter into any derivative instruments for trading purposes.  All of our derivative instruments qualify for the use of the “short-cut” method of accounting to assess hedge effectiveness in accordance with SFAS No. 133, as amended, and are recognized in our consolidated balance sheet at their fair value.  The fair value of our derivative investments are based on quoted market prices at the date of measurement.

Our estimates of deferred income taxes and the significant items giving rise to deferred tax 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.

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/or outside our Company.  We accrue a liability if the likelihood of an adverse outcome is probable of occurrence and the amount is estimable.  We disclose the matter if either the likelihood of an adverse outcome is only reasonably possible or an estimate is not determinable.

Future Trends in Operating Results

An important component of our operating strategy has been our long-standing practice of focusing closely on supply and demand regarding additional capacity at our facilities.  We continually evaluate the demand for our most popular racing events in order to ensure that additional capacity provides an acceptable rate of return on invested capital.  Through prudent expansion, we have historically been able to keep demand at a higher level than supply, which stimulates ticket renewals and advance sales.  This results in earlier cash flow and reduces the potential negative impact of actual and forecasted inclement weather on ticket sales.  While we will join with sponsors and offer promotions to generate additional ticket sales, we avoid rewarding last-minute ticket buyers by discounting tickets.  We believe it is more important to encourage advance ticket sales and maintain price integrity to achieve long-term growth than to recognize short-term incremental revenue.  Based on the current state of the economy and our desire to keep demand at a higher level than supply, we do not anticipate adding to our grandstand seating capacity during 2002 and have instituted only modest increases in the weighted average ticket prices for our 2002 events.  We will continue to annually evaluate expansion opportunities, as well as the pricing of our tickets and other products.  Over the long term, we plan to continue to expand capacity at our speedways.

Fiscal 2001 was our first year under NASCAR’s multi-year consolidated television broadcast rights agreements with NBC Sports, Turner Sports, FOX and its FX cable network.  These agreements cover the domestic broadcast of NASCAR’s entire Winston Cup and Busch Grand National racing seasons from 2001 through 2006.  As a result, our television broadcast and ancillary rights revenues increased approximately 84% in fiscal 2001 as compared to fiscal 2000.  We expect media rights revenues, as well as variable costs related to the percentage of broadcast rights fees required to be paid to competitors as part of NASCAR Winston Cup and Busch Grand National sanction agreements, to continue to increase based on NASCAR’s announcement that the annual increase in the domestic television rights fees will range between 15% and 21% from 2001 through 2006, with an average increase of 17%.  The increase for fiscal 2002 is approximately 15%.

Current economic conditions may make it more difficult in the short term to increase our revenues from corporate marketing partnerships than it has been in recent years.  However, we believe that our presence in key markets and impressive portfolio of events are beneficial as we continue to pursue existing and new corporate marketing partners.  We believe that revenues from our corporate marketing partnerships will continue to grow over the long term.

Our success has been, and is expected to remain, dependent on maintaining good working relationships with the organizations that sanction events at our facilities, particularly with NASCAR, whose sanctioned events at our wholly-owned facilities accounted for approximately 82% of our revenues in fiscal 2001.  Further, our future operating results could be adversely impacted by the postponement and/or cancellation of a major motorsports event due to a number of factors, including inclement weather specific to our events or a general postponement and/or cancellation of all major sporting events in this country as occurred following the September 11, 2001 terrorist attacks.

Accounting Change

We elected to early adopt Statement of Financial Accounting Standard (“SFAS”) No. 142, “Goodwill and Other Intangible Assets” in the first quarter of 2002.  Accordingly, we will not record amortization expense of approximately $18.4 million, on a pre-tax basis, in fiscal 2002 based on the level of goodwill as of November 30, 2001.  The majority of our goodwill associated with our acquisition of Penske Motorsports, Inc. in fiscal 1999 was not deductible for tax purposes and, as a result of the discontinuance of the related amortization, our estimated effective tax rate has decreased to 38.6% in fiscal 2002.

Based on an independent appraisal firm’s valuation of the reporting unit level fair value using discounted cash flows, which reflect changes in certain assumptions since the date of the acquisitions, and the identification of qualifying intangibles, upon adoption of SFAS No. 142 in the first quarter of 2002 we recorded a non-cash after tax charge of $513.8 million as a cumulative effect of accounting change for the write-off of goodwill.  We evaluated our long-lived assets, including goodwill, at November 30, 2001 using estimated undiscounted cash flows in accordance with SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of”, and this analysis did not result in an impairment.  The write-off of goodwill results from the use of discounted cash flows in assessment of fair value for each reporting unit as required by SFAS No. 142 and the fact that certain acquired intangible assets were not reclassified and accounted for apart from goodwill upon transition to SFAS No. 142.  In addition, FASB Staff Announcement Topic No. D-100 states that the transition provisions do not allow entities to “carve-out” from goodwill any intangible assets not identified and measured at fair value in the initial rendering of a business combination and subsequently accounted for separately from goodwill.  At the date of the acquisitions, we recognized our relationships with multiple sanctioning bodies, including NASCAR, Championship Auto Racing Teams and Indy Racing League evidenced by the sanction agreement assets, and goodwill as a single asset labeled “Goodwill”.  We amortized the combined assets over their estimated useful lives of 40 years.  According to SFAS No. 142, the goodwill impairment loss is measured as the excess of the carrying amount of goodwill (which included the carrying amount of the acquired intangible assets) over the implied fair value of goodwill (which excludes the fair value of the acquired intangible assets).  Thus, the measured goodwill impairment loss was substantially larger than it would have been had the acquired intangible assets been initially recognized apart from goodwill.

Raceway Associates, LLC (“Raceway Associates”), which owns and operates Chicagoland Speedway and Route 66 Raceway and in which we hold a 37.5% indirect equity interest, also elected to early adopt SFAS No. 142.  As a result, starting in fiscal 2002 Raceway Associates will not record amortization expense related to goodwill.  Our proportionate share of their goodwill amortization that would have been recorded in fiscal 2002 totals approximately $92,000 based on Raceway Associates’ goodwill recorded at November 30, 2001.  During the second quarter of fiscal 2002 Raceway Associates completed the valuation of its Route 66 Raceway reporting unit using discounted cash flows, which reflect changes in certain assumptions since the date of Raceway Associates’ formation, that indicated impairment of the goodwill associated with Route 66 Raceway .  Our proportionate share of Raceway Associates’ cumulative effect of accounting change related to the write-off of goodwill totaled approximately $3.4 million.  In accordance with SFAS No. 3 “Reporting Accounting Changes in Interim Financial Statements” we have recognized this impairment in the first quarter of 2002.

Seasonality and Quarterly Results

We derive most of our income from a limited number of NASCAR-sanctioned races.  As a result, our business has been, and is expected to remain, highly seasonal based on the timing of major racing events.  For example, one of our NASCAR Winston Cup races is traditionally held on the Sunday preceding Labor Day.  Accordingly, the revenues and expenses for that race and/or the related supporting events may be recognized in either the fiscal quarter ending August 31 or the fiscal quarter ending November 30.  Further, schedule changes as determined by NASCAR or other sanctioning bodies as well as the acquisition of additional, or divestiture of existing, motorsports facilities could impact the timing of our major events in comparison to prior or future periods.

In the third quarter of fiscal 2001, we completed the development of and commenced racing operations at the wholly-owned Kansas Speedway and the Chicagoland Speedway, in which we have a 37.5% interest.  Both facilities hosted inaugural schedules featuring major NASCAR, Indy Racing League and Automobile Racing Club of America events.  Due to the fact that both facilities opened in mid-2001, they were only depreciated for half of the year in fiscal 2001, while they will be depreciated for a full year in fiscal 2002.  In addition, certain operating and general expenses that were only incurred for a partial year in fiscal 2001 will be incurred by these facilities for a full year in fiscal 2002.  Further, while we capitalized approximately $6.3 million in interest for the Kansas and Chicagoland projects through their completion in mid-2001, we do not anticipate that a significant amount of our interest expense will be capitalized in fiscal 2002.  While we expect that the fiscal 2002 results for Kansas Speedway and Chicagoland Speedway will improve over the fiscal 2001 results as adjusted for depreciation and interest expense on a pro forma basis, we expect the actual results reported will decline, impacting both expenses from Kansas Speedway and our pro rata share of the income from our investment in Raceway Associates, which owns and operates Chicagoland Speedway.

During our second quarter, inaugural Indy Racing League, American Motorcyclist Association and Grand American Road Racing Association events were conducted at California Speedway (“California”).  As well in the second quarter of 2002, Nazareth Raceway (“Nazareth”), whose open wheel event had historically been sanctioned by Championship Auto Racing Teams, hosted its inaugural Indy Racing League event.  In addition to these schedule changes, our quarterly results are impacted by the timing of the following events:

·         The NASCAR Craftsman Truck event held at Homestead-Miami Speedway (“Miami”) in our second quarter of fiscal 2001 will be held in our fourth quarter in fiscal 2002.

·         Watkins Glen International’s sports car event sanctioned by Grand American Road Racing Association, which was held in our second quarter of fiscal 2001, will be held in our third quarter in fiscal 2002.

·         We discontinued our operations of Tucson Raceway in November 2001, the periods subsequent to this do not include the operating results of that short track facility.

These schedule changes and other items discussed above impact the comparability of the reported amounts for the three- and six-month periods of fiscal 2002 as compared to the same periods of the prior year.  In addition, because of the seasonal concentration of racing events, the results of operations for the three- and six-month periods ended May 31, 2001 and 2002 are not indicative of the results to be expected for the year.

Comparison of the Results for the Three and Six Months Ended May 31, 2002 to the Results for the Three and Six Months Ended May 31, 2001.

The following table sets forth, for each of the indicated periods, certain selected income statement data as a percentage of total revenues:

Admissions revenue increased to $45.2 million from $44.7 million, or 1.1%, for the three months ended May 31, 2002, as compared to the three months ended May 31, 2001.  The increase was attributable to the inaugural events conducted at California as well as an increase in the weighted average price of tickets sold for the NASCAR weekend conducted at California.  To a lesser extent, increased attendance at certain events conducted at Talladega Superspeedway (“Talladega”) and Richmond International Raceway (“Richmond”) contributed to the increase.  These increases were partially offset by decreased admissions as a result of other previously discussed schedule changes.

Admissions revenue decreased to $94.1 million from $94.6 million, or 0.6%, for the six months ended May 31, 2002, as compared to the six months ended May 31, 2001.  The decrease is primarily attributable to attendance at certain support events preceding the sold-out Daytona 500 conducted at Daytona International Speedway (“Daytona”) and, to a lesser extent, schedule changes and events conducted at North Carolina Speedway (“North Carolina”).  These decreases were partially offset by increased attendance as a result of the inaugural events conducted at California as well as an increase in the weighted average price of tickets sold at certain other events conducted at Daytona, California and North Carolina.

Motorsports related income increased approximately $3.0 million, or 5.8%, for the three months ended May 31, 2002, as compared to the three months ended May 31, 2001.  The increase is primarily attributable to increased television broadcast rights fees for NASCAR Winston Cup and NASCAR Busch Grand National events conducted during the period and, to a lesser extent, promotional and sponsorship revenues, suites and hospitality and other race related revenues for the inaugural events conducted at California as well as events conducted at Richmond.  These increases were partially offset by decreases as a result of other previously discussed schedule changes.

 Motorsports related income increased approximately $8.8 million, or 8.3%, for the six months ended May 31, 2002, as compared to the six months ended May 31, 2001.  Over three-quarters of the increase is attributable to increased television broadcast rights fees for NASCAR Winston Cup and NASCAR Busch Grand National events conducted during the period.  The remaining increase is primarily attributable to increased promotional and sponsorship revenue for events conducted at Daytona, California, North Carolina and Richmond.  These increases were partially offset by decreases in hospitality for events conducted at Daytona and decreases related to certain previously discussed schedule changes.

Food, beverage and merchandise income increased approximately $892,000, or 6.5%, and $1.3 million, or 4.4%, for the three months and six months ended May 31, 2002, respectively, as compared to the same periods of the prior year.  These increases were primarily attributable to increased food, beverage and merchandise sales at events conducted during the periods, including the inaugural events conducted at California.  These increases were partially offset by a decrease in catering operations in the first quarter of fiscal 2002 due to lower hospitality sales for events conducted at Daytona, certain previously discussed schedule changes and a decrease in non-event related merchandise sales.

Prize and point fund monies and NASCAR sanction fees increased approximately $1.4 million, or 7.1%, and $3.4 million, or 8.6%, for the three months and six months ended May 31, 2002, respectively, as compared to the same periods of the prior year.  Over three-quarters of this increase was due to increases in prize and point fund monies paid by NASCAR to participants in events conducted during the periods.  These increases were primarily attributable to the increased television broadcast rights fees for the NASCAR Winston Cup and NASCAR Busch Grand National events conducted during the periods, as standard NASCAR sanctioning agreements require that a specified percentage of broadcast rights fees be paid to competitors.  These increases are partially offset by the timing of the NASCAR Craftsman Truck event at Miami in fiscal 2002.

Motorsports related expenses increased approximately $2.0 million, or 8.2%, and $3.1 million, or 7.5%, for the three months and six months ended May 31, 2002, respectively, as compared to the same periods of the prior year.  The increase was primarily attributable to sanction fees and other direct operating costs attributable to the inaugural events conducted at California and, to a lesser extent, direct operating costs, including increased security measures, attributable to other events conducted during the periods.  These increases were partially offset by the other previously discussed schedule changes.  Motorsports related expenses as a percentage of combined admissions and motorsports related income increased to approximately 26.7% and 21.3% for the three months and six months ended May 31, 2002, respectively, as compared to 25.6% and 20.6% for the same periods in the prior year.  This increase is primarily attributable to non-NASCAR sanctioned, inaugural events conducted at California and, to a lesser extent, increased event related costs at other facilities during the periods.  Partially offsetting these increases were increased television broadcast rights fees, lower sanction fees for the open wheel event at Nazareth and decreases due to other schedule changes.

Food, beverage and merchandise expense increased approximately $362,000, or 4.8%, for the three months ended May 31, 2002, as compared to the three months ended May 31, 2001.  The increase is primarily attributable to product and other costs associated with increased sales at events conducted during the period, including the inaugural events conducted at California.  These increases were partially offset by other previously discussed schedule changes and a decrease in non-event related merchandise sales.  Food, beverage and merchandise expenses as a percentage of food, beverage and merchandise income decreased to approximately 53.8% for the three months ended May 31, 2002, as compared to 54.6% for the same period in the prior year.  This decrease is primarily attributable a shift in the merchandising product mix.

Food, beverage and merchandise expense increased approximately $926,000, or 6.0%, for the six months ended May 31, 2002, as compared to the six months ended May 31, 2001.  The increase is attributable to product and other costs associated with increased sales during events conducted during the period, including the inaugural events conducted at California.  In addition, the establishment of a mid-western hub of operations to support services to our Michigan, Phoenix, California, Kansas and Chicago facilities subsequent to the first quarter in fiscal 2001 contributed to the increase.  These increases were partially offset by other previously discussed schedule changes.  Food, beverage and merchandise expenses as a percentage of food, beverage and merchandise income increased to approximately 53.9% for the six months ended May 31, 2002, as compared to 53.1% for the same period in the prior year.  This increase is attributable to incremental operating expenses resulting from the aforementioned expansion of our food, beverage and merchandising operations in the mid-west and other product and operating costs for events conducted during the period.

General and administrative expenses increased approximately $119,000, or 0.6%, and decreased approximately $161,000, or 0.4%, for the three months and six months ended May 31, 2002, respectively, as compared to the same periods of the prior year.  The slight increase during the three-month period is attributable to costs associated with our ongoing business which are partially offset by costs incurred during the prior year period for which there are no comparable costs in the current year.  The decrease during the six-month period is primarily attributable to certain costs incurred during the prior period for which there were no comparable costs in the current period which more than offset increases in costs associated with our ongoing business in the current period.  General and administrative expenses as a percentage of total revenues decreased to 16.7% and 16.0% for the three months and six months ended May 31, 2002, respectively, as compared to 17.3% and 16.7% for the same periods in the prior year.  This decrease is primarily a result of our revenue growth combined with controlling growth in general and administrative expenses.

Depreciation and amortization expense decreased approximately $2.3 million, or 18.5%, and $5.4 million, or 21.1%, for the three months and six months ended May 31, 2002, respectively, as compared to the same periods of the prior year.  These decreases are attributable to our adoption of SFAS No. 142 on December 1, 2001, and the related discontinuance of goodwill amortization.  During the three months and six months ended May 31, 2001 we recorded goodwill amortization of approximately $4.6 million and $9.2 million, respectively, before tax, or $0.08 and $0.15, repectively, per diluted share after tax.  This decrease is partially offset by depreciation related to Kansas Speedway in the current periods, as depreciation on Kansas Speedway did not begin until it commenced operations in the third quarter of fiscal 2001.

Interest income decreased by approximately $649,000, or 65.6%, and $1.6 million, or 71.8%, for the three months and six months ended May 31, 2002, respectively, as compared to the same periods of the prior year.  This decrease is primarily due to lower interest rates in the current year.

Interest expense increased by approximately $759,000, or 14.2%, and $907,000, or 7.8%, for the three months and six months ended May 31, 2002, respectively, as compared to the same periods of the prior year.  This increase is attributable to interest capitalized in the prior year on the Kansas and Chicagoland speedway developments.  Significantly offsetting this increase was a decrease in the interest expense attributable to lower interest rates and a lower average balance on our credit facilities in the current year.

Equity in net loss from equity investments represents our pro rata share of the current losses from our 37.5% equity investment in Raceway Associates.  Raceway Associates owns and operates Chicagoland Speedway and Route 66 Raceway.  The increased loss is attributable to certain operating, interest and depreciation expenses during the current period as Chicagoland Speedway did not commence operations until the third quarter of fiscal 2001.

The decrease in our effective income tax rate for the three months and six months ended May 31, 2002, as compared to the same periods of the prior year, is primarily due to the adoption of SFAS 142 effective December 1, 2001 which requires that we no longer amortize goodwill into earnings.  The majority of our goodwill associated with the Penkse Motorsports, Inc. acquisition in fiscal 1999 was not deductible for tax purposes and therefore created a higher effective tax rate in prior periods.

As a result of the foregoing, our income before cumulative effect of accounting change increased approximately $1.1 million and $3.7 million for the three months and six months ended May 31, 2002, respectively, as compared to the same periods of the prior year.

The cumulative effect of accounting change recognized in the first quarter of fiscal 2002 consists of the non-cash after-tax charges associated with our write-off of goodwill, as well as the write-off of goodwill by Raceway Associates, upon adoption of SFAS No. 142 on December 1, 2001.

Liquidity and Capital Resources

General

We have historically generated sufficient cash flow from operations to fund our working capital needs and capital expenditures at existing facilities, as well as to pay an annual cash dividend. In addition, we have used the proceeds from offerings of our Class A Common Stock, the net proceeds from the issuance of unsecured senior notes (“Senior Notes”), borrowings under our credit facilities and state and local mechanisms to fund acquisitions and development projects. At May 31, 2002 we had $225 million principal amount of Senior Notes outstanding, total borrowings of approximately $39.0 million under our credit facilities and term loan arrangements, and a debt service funding commitment of approximately $68.9 million, net of discount, related to the taxable special obligation revenue (“TIF”) bonds issued by the Unified Government of Wyandotte County/Kansas City, Kansas (“Unified Government”). We had working capital deficits of approximately $56.8 million and $28.5 million at May 31, 2002 and November 30, 2001, respectively.

Cash Flows

Net cash provided by operating activities was approximately $115.1 million for the six months ended May 31, 2002, compared to approximately $93.1 million for the six months ended May 31, 2001.  The difference between our net loss of approximately $477.5 million and the $115.1 million of operating cash flow was primarily attributable to:

·         the cumulative effect of accounting change of $517.2 million;

·         an increase in deferred income of $57.1 million;

·         depreciation and amortization of $20.2 million;

·         deferred income taxes of $11.1 million;

·         an increase in income taxes payable of $5.8 million; and

·         an undistributed loss from equity investments of $3.3 million,

These differences are partially offset by an increase in receivables of $11.9 million, a decrease in accounts payable and other current liabilities of $7.5 million and an increase in inventories, prepaid expenses and other current assets of $4.4 million.

Net cash used in investing activities was approximately $21.6 million for the six months ended May 31, 2002, compared to approximately $40.8 million for the six months ended May 31, 2001. Our use of cash for investing activities reflects $23.0 million in capital expenditures partially offset by a $1.3 million decrease in restricted investments related to the development of Kansas Speedway.

Net cash used in financing activities was approximately $79.9 million for the six months ended May 31, 2002, compared to approximately $51.9 million for the six months ended May 31, 2001. Our use of cash for financing activities reflects payments under credit facilities of $70.0 million, $9.1 million in payments of long-term debt and $831,000 used to reacquire previously issued common stock.

Capital Expenditures

Capital expenditures totaled approximately $23.0 million for the six months ended May 31, 2002, compared to $59.7 million for the six months ended May 31, 2001. Capital expenditures during the six months ended May 31, 2002 related to purchases of land and other land improvements for the expansion of parking capacity and other uses, enhancements to DAYTONA USA and a variety of additional improvements.

Based on capital projects currently approved we expect to make capital expenditures totaling approximately $37.0 million for approved projects at our facilities which are expected to be completed within the next 24 months.  These projects include acquisition of land for expansion of parking capacity and other uses and a variety of additional improvements.  We review the capital expenditure program periodically and modify it as required to meet current business needs.

Future Liquidity

Our $250 million senior revolving credit facility ("Credit Facility") matures on March 31, 2004, and accrues interest at LIBOR plus 50 -100 basis points, based on certain financial criteria. At May 31, 2002, we did not have any borrowings outstanding under the Credit Facility. 

Our Miami subsidiary has a $20 million credit facility (“Miami Credit Facility”) and a $19 million term loan (“Term Loan”). The Miami Credit Facility and Term Loan are guaranteed by us and have the same interest terms and restrictive covenants as our Credit Facility. The Miami Credit Facility will be automatically reduced to $15 million on December 31, 2002 and will mature on December 31, 2004. At May 31, 2002, our Miami subsidiary had borrowings of $20 million under the Miami Credit Facility. The Term Loan is payable in annual installments which range from $5.5 million to $7.0 million.  Our Miami subsidiary has an interest rate swap agreement that effectively fixes the floating rate on the outstanding balance under the Term Loan at 5.60% plus 50-100 basis points, based on certain consolidated financial criteria, for the remainder of the loan period.

Our $225 million principal amount of unsecured Senior Notes bears interest at 7.875% and ranks equally with all of our other senior unsecured and unsubordinated indebtedness.  The Senior Notes require semi-annual interest payments through maturity on October 15, 2004.  The Senior Notes may be redeemed in whole or in part, at our option, at any time or from time to time at a redemption price as defined in the indenture.  In December 2001, we entered into an interest rate swap agreement to manage interest rate risk exposure on $100 million of the $225 million principal amount of Senior Notes.  Under this agreement, we receive fixed rate amounts in exchange for floating rate interest payments over the life of the agreement without an exchange of the underlying principal amount.  The interest rate swap effectively modifies our exposure to interest risk by converting $100 million of the 7.875% fixed-rate Senior Notes to a floating rate based on six-month LIBOR in arrears plus a spread.  The agreement is deemed to be a perfectly effective fair value hedge and therefore qualifies for the “shortcut” method of accounting under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities.  As a result, no ineffectiveness is expected to be recognized in our earnings associated with the interest rate swap agreement.

In January 1999, the Unified Government issued approximately $71.3 million in TIF bonds in connection with the financing of construction of Kansas Speedway.  The TIF bonds are comprised of a $21.6 million, 6.15% term bond due December 1, 2017 and a $49.7 million, 6.75% term bond due December 1, 2027. The TIF bonds are repaid by the Unified Government, with payments made in lieu of property taxes (“Funding Commitment”) by our wholly-owned subsidiary, Kansas Speedway Corporation.  Principal (mandatory redemption) payments per the Funding Commitment are payable by Kansas Speedway Corporation on October 1 of each year.  The semi-annual interest component of the Funding Commitment is payable on April 1 and October 1 of each year.  Kansas Speedway Corporation granted a mortgage and security interest in the Kansas project for its Funding Commitment obligation.  We have agreed to guarantee Kansas Speedway Corporation’s Funding Commitment until certain financial conditions have been met.

We are a member of Motorsports Alliance, LLC (“Motorsports Alliance”) (owned 50% by the Company and 50% by Indianapolis Motor Speedway Corp.) which owns 75% of Raceway Associates.  Raceway Associates owns Route 66 Raceway and also owns 930 adjacent acres on which it developed Chicagoland Speedway.  The financing of the Chicagoland Speedway development includes approximately $50 million in borrowings by Raceway Associates. The members of Motorsports Alliance agreed to guarantee up to $50 million in borrowings by Raceway Associates on a pro rata basis until such time as the operations of Raceway Associates meet certain financial criteria. At May 31, 2002, Raceway Associates has borrowed approximately $49.9 million for the Chicagoland Speedway construction under its construction and term loan arrangement discussed above, which is currently guaranteed by the members of the Motorsports Alliance.

During fiscal 1999, we announced our intention to search for a site for a major motorsports facility in the New York metropolitan area. In January 2000, we announced that, through a wholly-owned subsidiary, we had entered into an exclusive agreement with the New Jersey Sports and Exposition Authority to conduct a feasibility study on the development of a motorsports facility at the Meadowlands Sports Complex in New Jersey.  The original agreement for the feasibility study was extended and now will expire in October 2002.  The Meadowlands Sports Complex, located five miles west of the Lincoln Tunnel, is the site of Giants Stadium, Continental Airlines Arena and Meadowlands Racetrack and is the home of professional sports franchises, horse racing, college athletics, concerts and family shows. We have not yet determined the feasibility of the Meadowlands (or any other) site, formulated an estimate of the costs to construct a major motorsports facility in the New York metropolitan area, or established a timetable for completion, or even commencement, of such a project.

Our cash flow from operations consists primarily of ticket, catering and concession sales and contracted revenues arising from television broadcast rights and marketing partnerships. While we expect our strong operating cash flow to continue in the future, our financial success depends significantly on a number of factors relating to consumer and corporate spending, including economic conditions affecting disposable consumer income and corporate budgets such as employment, business conditions, interest rates and taxation rates.  These factors can impact both attendance at our events and advertising and marketing dollars available from the motorsports industry’s principal sponsors.  In addition, consumer and corporate spending could be adversely affected by economic, security and other lifestyle conditions, resulting in lower than expected future operating cash flows.  General economic conditions were significantly and negatively impacted by the September 11, 2001, terrorist attacks and could be similarly affected by any future attacks or fear of such attacks or acts of war.  While a weakened economic and business climate, as well as consumer uncertainty created by such a climate, could adversely affect our financial success, we believe that cash flows from operations, along with existing cash and available borrowings under our credit facilities, will be sufficient to fund:

• operations and approved capital projects at existing facilities for the foreseeable future;
• payments required in connection with the funding of the Unified Government’s debt service requirements related to the TIF bonds; and
• payments related to our existing debt service commitments.

We intend to pursue further development and/or acquisition opportunities (including the possible development of new motorsports facilities in the New York metropolitan area and Denver) the timing, size and success, as well as associated potential capital commitments of which, are unknown at this time.  Accordingly, a material acceleration in our growth strategy could require us to obtain additional capital through debt and/or equity financings.  Although there can be no assurance, we believe that adequate debt and equity financing will be available on satisfactory terms.

Inflation

We do not believe that inflation has had a material impact on our operating costs and earnings.

Factors That May Affect Operating Results

This report and the documents incorporated by reference may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  You can identify a forward-looking statement by our use of the words “anticipate,” “estimate,” “expect,” “may,” “believe,” “objective,” “projection,” “forecast,” “goal,” and similar expressions.  These forward-looking statements include our statements regarding the timing of future events, our anticipated future operations and our anticipated future financial position and cash requirements.  Although we believe that the expectations reflected in our forward-looking statements are reasonable, we do not know whether our expectations will prove correct.  We disclose the important factors that could cause our actual results to differ from our expectations in cautionary statements made in this report and in other filings we have made with the Securities and Exchange Commission.  All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by these cautionary statements.  Our actual results could differ materially from those anticipated in these forward-looking statements as a result of the risk factors described in this report and other factors set forth in or incorporated by reference in this report. 

Many of these factors are beyond our ability to control or predict.  We caution you not to put undue reliance on forward-looking statements or to project any future results based on such statements or on present or prior earnings levels.  Some of the factors that could cause the actual results to differ materially are set forth below. Additional information concerning these, or other factors which could cause the actual results to differ materially from those in the forward-looking statements is contained from time to time in our other SEC filings.  Copies of those filings are available from us and/or the SEC.

Our success depends on our relationships with motorsports sanctioning bodies, particularly NASCAR.

Our success has been, and is expected to remain, dependent on maintaining good working relationships with the organizations that sanction the races we promote at our facilities, particularly NASCAR, the sanctioning body for the NASCAR Winston Cup, NASCAR Busch Grand National and the NASCAR Craftsman Truck events.  NASCAR-sanctioned races conducted by our wholly-owned subsidiaries accounted for approximately 82% of our total revenues in fiscal 2001. 

Each NASCAR sanctioning agreement is awarded on an annual basis.  NASCAR is not required to continue to enter into, renew or extend sanctioning agreements with us to conduct any event.  Moreover, although our general growth strategy includes the possible development and/or acquisition of additional motorsports facilities, it cannot be assured that any sanctioning body, including NASCAR, will enter into sanctioning agreements with us to conduct races at any of our newly developed or acquired facilities.  Failure to obtain a sanctioning agreement for a major NASCAR event could negatively affect us.  Similarly, NASCAR is not obligated to modify its race schedules to allow us to schedule our races more efficiently.  By sanctioning an event, NASCAR neither warrants, expressly or by implication, nor takes responsibility for, the success, financial or otherwise, of the sanctioned event or the number or identity of vehicles or competitors participating in the event.

Bad weather could adversely affect us.

We promote outdoor motorsports events.  Weather conditions affect sales of, among other things, tickets, food, drinks and merchandise at these events.  Poor weather conditions could have a negative effect on us.

Postponement and/or cancellation of major motorsports events could adversely affect us.

If an event scheduled for one of our facilities is postponed because of weather or other reasons such as, for example, the general postponement of all major sporting events in this country following the September 11, 2001, terrorism attacks, we could incur increased expenses associated with conducting the rescheduled event, as well as possible decreased revenues from tickets, food, drinks and merchandise at the rescheduled event.  If such an event is cancelled, we would incur the expenses associated with preparing to conduct the event as well as losing the revenues, including live broadcast revenues, associated with the event, to the extent such losses were not covered by insurance.

If a cancelled event is part of the NASCAR Winston Cup Series or NASCAR Busch Grand National Series, we could experience a reduction in the amount of money received from television revenues for all of our NASCAR-sanctioned events in the series that experienced the cancellation.  This would occur if, as a result of the cancellation, and without regard to whether the cancelled event was scheduled for one of our facilities, NASCAR experienced a reduction in television revenues greater than the amount scheduled to be paid to the promoter of the cancelled event.

Our financial results depend significantly on consumer and corporate spending.

Our financial success depends significantly upon a number of factors relating to discretionary consumer and corporate spending, including economic conditions affecting disposable consumer income and corporate budgets such as:

·         employment;

·         business conditions;

·         interest rates; and

·         taxation rates.

These factors can impact both attendance at our events and advertising and marketing dollars available from the motorsports industry’s principal sponsors.  There can be no assurance that consumer and corporate spending will not be affected adversely by economic and other lifestyle conditions, thereby impacting our growth, revenue and profitability.  General economic conditions were significantly and negatively impacted by the September 11, 2001, terrorist attacks and could be similarly affected by any future attacks.  A weakened economic and business climate, as well as consumer uncertainty created by such a climate, could adversely affect our financial success.

Certain of our senior executives may have potential conflicts of interest.

William C. France, our Chairman of the Board and Chief Executive Officer, and James C. France, our President, Chief Operating Officer and one of our directors, control NASCAR.  Lesa D. Kennedy, our Executive Vice President and one of our directors, is also a Vice President of NASCAR. Each of them, as well as our general counsel, spends part of his or her time on NASCAR’s business.  Each of these individuals spends substantial time on our business and all of our other executive officers are available to us on a substantially full-time basis.  Because of these relationships, certain potential conflicts of interest between us and NASCAR exist with respect to, among other things:

·         the terms of any sanctioning agreements that may be awarded to us by NASCAR;

·         the amount of time the employees mentioned above and certain other of our employees devote to NASCAR’s affairs; and

·         the amounts charged or paid to NASCAR for office rental, transportation costs, shared executives, administrative expenses and similar items.

Our success depends on the availability and performance of key personnel.

Our continued success depends upon the availability and performance of our senior management team, particularly William C. France, James C. France and Lesa D. Kennedy.  Each of these individuals possesses unique and extensive industry knowledge and experience.  While we believe that our senior management team has significant depth, the loss of any of the individuals mentioned above, or our inability to retain and attract key employees in the future, could have a negative effect on our operations and business plans.

We are controlled by the France family.

The France family members, together, beneficially own approximately 39.5% of our capital stock and approximately 63.4% of the combined voting power of both classes of our common stock.  Accordingly, if members of the France family vote their shares of common stock in the same manner, they can (without the approval of our other shareholders) elect our entire Board of Directors and determine the outcome of various matters submitted to shareholders for approval, including fundamental corporate transactions.  If holders of class B common stock other than the France family elect to convert their beneficially owned shares of class B common stock into shares of class A common stock and members of the France family do not convert their shares, the relative voting power of the France family will increase.  Voting control by the France family may discourage certain types of transactions involving an actual or potential change in control of us, including transactions in which the holders of class A common stock might receive a premium for their shares over prevailing market prices.

We have a material amount of goodwill which, if it becomes further impaired and we are required to write it down to comply with accounting standards, would adversely affect our financial results.

On December 1, 2001, we and our equity investee, Raceway Associates, adopted SFAS No. 142, “Goodwill and Other Intangible Assets.”  Under SFAS 142, goodwill and other intangible assets with indefinite useful lives are no longer amortized to earnings but are reviewed at least annually for impairment at the reporting unit level.  Goodwill is the amount by which the costs of an acquisition accounted for using the purchase method exceeds the fair market value of the net assets acquired and is shown as an asset on our balance sheet.  We recorded a non-cash after-tax charge of approximately $517.2 million, including approximately $3.4 million associated with our equity investment in Raceway Associates, as a cumulative effect of accounting change in the first quarter of fiscal 2002.  Even after this charge, approximately $92.5 million, or 8.1%, of our total assets as of May 31, 2002, is still represented as goodwill.  If in the future the application of the annual test for impairment of goodwill results in a reduction in the carrying value of the goodwill, we will be required to take the amount of the reduction in goodwill as a non-cash charge against operating income, which would also reduce shareholders’ equity. 

Our indebtedness could adversely affect our financial condition.

We have a significant amount of indebtedness.  As of and for the six months ended May 31, 2002:

·         our total debt outstanding was approximately $333.7 million;

·         our interest expense was approximately $12.5 million; and

·         our total shareholders’ equity was approximately $555.1 million.

As of June 30, 2002, we had approximately $250 million of current availability for borrowings under our senior revolving credit facility.  This credit facility contains various restrictive covenants.  While we believe cash flow from our operations will be sufficient to fund payments required to service our outstanding debt, there can be no assurance that we will always be able to meet such debt service obligations.  Should we pursue further development and/or acquisition opportunities, the timing, size and success, as well as associated potential capital commitments of which are unknown at this time, we may need to raise additional capital through debt and/or equity financings.  There can be no assurance that adequate debt and equity financing will be available on satisfactory terms.  Any such failure to service our debt or inability to obtain further financing could have a negative effect on our business and operations.

Government regulation may adversely affect the availability of sponsorships and advertising.

The motorsports industry generates significant recurring revenue from the promotion, sponsorship and advertising of various companies and their products.  Actual or proposed government regulation can impact negatively the availability to the motorsports industry of this promotion, sponsorship and advertising revenue.  Advertising by the tobacco and alcoholic beverage industries generally is subject to greater governmental regulation than advertising by other sponsors of our events.  In the past few years there were several unsuccessful regulatory attempts to impose restrictions on the advertising and promotion of cigarettes and smokeless tobacco, including sponsorship of motorsports activities.  If successfully implemented, these regulatory efforts would have prohibited the present practice of tobacco brand name sponsorship of, or identification with, motorsports events, entries and teams.  At this point, the ultimate outcome of these or future government regulatory and legislative efforts to regulate the advertising and promotion of cigarettes and smokeless tobacco is uncertain and the impact, if any, on the motorsports industry or us is unclear.

In 1999, major United States companies in the tobacco industry entered into various agreements with the Attorneys General of all 50 states to settle certain state-initiated litigation against the tobacco industry.  The settlement agreements place various limits on the sponsorship of sports, including motorsports, by the tobacco industry.  Among other things, a tobacco manufacturer is limited to a single brand name sponsorship (such as the “NASCAR Winston Cup Series”) in any twelve-month period and is prohibited from entering into any agreement for naming a stadium or arena using the brand name of a tobacco product.  The ultimate effect of these settlement agreements upon us has not been determined.  We are unaware of any proposed governmental regulation that would materially limit the availability to motorsports of promotion, sponsorship or advertising revenue from the alcoholic beverage industry.  The combined advertising and sponsorship revenue from the tobacco and alcoholic beverage industries accounted for approximately 1.3% of our total revenues in fiscal 2001.  In addition, the tobacco and alcoholic beverage industries provide financial support to the motorsports industry through, among other things, their purchase of advertising time, their sponsorship of racing teams and their sponsorship of racing series such as the NASCAR Winston Cup and NASCAR Busch Series.  Implementation of further restrictions on the advertising or promotion of tobacco or alcoholic beverage products could adversely affect us.

We may be held liable for personal injuries.

Motorsports can be dangerous to participants and spectators.  We maintain insurance policies that provide coverage within limits that we believe should generally be sufficient to protect us from a large financial loss due to liability for personal injuries sustained by persons on our property in the ordinary course of our business.  There can be no assurance, however, that the insurance will be adequate or available at all times and in all circumstances.  Our financial condition and results of operations could be affected negatively to the extent claims and expenses in connection with these injuries are greater than insurance recoveries.

We operate in a highly competitive environment.

As an entertainment company, our racing events face competition from other spectator-oriented sporting events and other leisure, entertainment and recreational activities, including professional football, basketball and baseball.  As a result, our revenues are affected by the general popularity of motorsports, the availability of alternative forms of recreation and changing consumer preferences.  Our racing events also compete with other racing events sanctioned by various racing bodies such as NASCAR, IRL, CART, United States Auto Club, National Hot Rod Association, Sports Car Club of America, Grand American Road Racing Association, the Automobile Racing Club of America and others.  For example, a promoter is planning to conduct a sports car race in 2002 on a temporary street course in downtown Miami, Florida that will be close in time and geography to events conducted at our motorsports facility in the Miami area. We believe that the primary elements of competition in attracting motorsports spectators and corporate sponsors to a racing event and facility are the type and caliber of promoted racing events, facility location, sight lines, pricing and customer conveniences that contribute to a total entertainment experience.  Many sports and entertainment businesses have resources that exceed ours.

We may be unable to acquire or develop new motorsports facilities.

Our ability to acquire or develop motorsports facilities depends on a number of factors, including but not limited to:

·         our ability to obtain additional sanctioning agreements to promote NASCAR Winston Cup, NASCAR Busch Series, or other major events at any new facilities;

·         the cooperation of local government officials;

·         our capital resources;

·         our ability to control construction and operating costs; and

·         our ability to hire and retain qualified personnel.

Developing new motorsports facilities is expensive.

Expenses associated with developing, constructing and opening a new facility may negatively affect our financial condition and results of operations in one or more future reporting periods.  The cost of any new facility transaction will depend on a number of factors, including but not limited to:

·         the facility’s location;

·         the extent of our ownership interest in the facility; and

·         the degree of any municipal or other public support.

Although we believe that we will be able to obtain financing to fund the acquisition, development and/or construction of additional motorsports facilities, we cannot be sure that adequate debt or equity financing will be available on satisfactory terms.

We are subject to environmental and land use laws.

We believe that our operations are in material compliance with all applicable federal, state and local environmental laws and regulations.  Nonetheless, if it is determined that damage to persons or property or contamination of the environment has been caused or exacerbated by the conduct of our business or by pollutants, substances, contaminants or wastes used, generated or disposed of by us, or if pollutants, substances, contaminants or wastes are found on property currently or previously owned or operated by us, we may be held liable for such damage and may be required to pay the cost of investigation and/or remediation of such contamination or any related damage.  The amount of such liability as to which we are self-insured could be material.  State and local laws relating to the protection of the environment also can include noise abatement laws that may be applicable to our racing events. Changes in the provisions or application of federal, state or local environmental laws, regulations or requirements, or the discovery of previously unknown conditions, also could require us to make additional material expenditures.

Our development of new motorsports facilities (and, to a lesser extent, the expansion of existing facilities) requires compliance with applicable federal, state and local land use planning, zoning and environmental regulations.  Regulations governing the use and development of real estate may prevent us from acquiring or developing prime locations for motorsports facilities, substantially delay or complicate the process of improving existing facilities, and/or increase the costs of any of such activities.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
                 MARKET RISK.

During the six months ended May 31, 2002 there have been no material changes in our market risk exposures.

PART II - OTHER INFORMATION

Item 1.             Legal Proceedings

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 is likely to have a material adverse effect on our financial condition or results of operations.

On February 26, 2002 we received service of an amended complaint filed in the United States District Court for the Eastern District of Texas on February 21, 2002 styled Francis Ferko, as Shareholder of Speedway Motorsports, Inc. vs. National Association of Stock Car Racing, Inc., International Speedway Corporation, and Speedway Motorsports, Inc.  The overall gist of the suit is that Texas Motor Speedway should have a second Winston Cup date annually and that NASCAR should be required by the court to grant Texas Motor Speedway a second Winston Cup date annually.  The portion of this suit that is brought against us alleges that we conspired with NASCAR and members of the France Family to “refuse to offer a new Winston Cup race date to any non-ISC owned track whenever ISC has desired to host an additional Winston Cup race.”  The suit seeks unspecified monetary damages from ISC which are claimed to have resulted to Speedway Motorsports from the alleged conspiracy as well as treble damages under the anti-trust laws.  We believe the suit to be without merit and intend to vigorously pursue the defense of the matter.

Item 6.                        Exhibits and Reports on Form 8-K

(a)           Exhibits:

                (b)            Reports on Form 8-K

On April 4, 2002, we filed a report on  Form 8-K which reported under Item 5. the issuance of a press release which reported earnings for the three-months and first quarter ended February 28, 2002.

On June 24, 2002, we filed a report on Form 8-K which reported under Item 5. the issuance of a press release which reaffirmed  the Company’s previously issued guidance for the second quarter 2002.

On July 10, 2002, we filed a report on Form 8-K which reported under Item 5. the issuance of a press release which reported earnings for the six-months and second quarter ended May 31, 2002.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.