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 March 31, 2004
Commission file number 1-11929
Dover Motorsports, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 51-0357525 | |
| (State or Other Jurisdiction of Incorporation) | (I.R.S. Employer Identification Number) |
1131 North DuPont Highway, Dover, Delaware 19901
(Address of principal executive offices)
(302) 674-4600
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
As of April 30, 2004, the number of shares of each class of the registrant’s common stock outstanding is as follows:
| Common Stock - |
16,617,898 shares | |||||
| Class A Common Stock - |
23,376,185 shares |
Part I – Financial Information
Item 1. Financial Statements
DOVER MOTORSPORTS, INC.
CONSOLIDATED STATEMENT OF EARNINGS
In Thousands, Except Per Share Amounts
(Unaudited)
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Revenues |
$ | 1,160 | $ | 3,967 | ||||
| Expenses: |
||||||||
| Operating and marketing |
2,325 | 6,470 | ||||||
| General and administrative |
3,693 | 3,611 | ||||||
| Depreciation and amortization |
2,392 | 2,626 | ||||||
| 8,410 | 12,707 | |||||||
| Operating loss |
(7,250 | ) | (8,740 | ) | ||||
| Interest income |
2 | 3 | ||||||
| Interest expense |
(1,139 | ) | (1,249 | ) | ||||
| Loss before income tax benefit |
(8,387 | ) | (9,986 | ) | ||||
| Income tax benefit |
5,201 | 4,993 | ||||||
| Net loss |
$ | (3,186 | ) | $ | (4,993 | ) | ||
| Net loss per common share: |
||||||||
| Basic |
$ | (0.08 | ) | $ | (0.13 | ) | ||
| Diluted |
$ | (0.08 | ) | $ | (0.13 | ) | ||
The Notes to the Consolidated Financial Statements are an integral part of these consolidated statements.
2
DOVER MOTORSPORTS, INC.
CONSOLIDATED BALANCE SHEET
In Thousands, Except Share and Per Share Amounts
(Unaudited)
| March 31, 2004 |
December 31, 2003 |
|||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 4,336 | $ | 3,348 | ||||
| Accounts receivable |
10,000 | 2,643 | ||||||
| Inventories |
343 | 259 | ||||||
| Prepaid expenses and other |
4,954 | 1,691 | ||||||
| Receivable from Dover Downs Gaming & Entertainment, Inc. |
— | 96 | ||||||
| Income taxes receivable |
363 | 5,819 | ||||||
| Deferred income taxes |
337 | 548 | ||||||
| Total current assets |
20,333 | 14,404 | ||||||
| Property and equipment, net |
228,031 | 229,603 | ||||||
| Restricted cash |
1,810 | 3,433 | ||||||
| Other assets, net |
1,563 | 1,434 | ||||||
| Deferred income taxes |
90 | 90 | ||||||
| Goodwill |
8,521 | 8,521 | ||||||
| Total assets |
$ | 260,348 | $ | 257,485 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 2,798 | $ | 3,333 | ||||
| Accrued liabilities |
3,377 | 4,587 | ||||||
| Payable to Dover Downs Gaming & Entertainment, Inc. |
3 | — | ||||||
| Current portion of long-term debt |
805 | 745 | ||||||
| Deferred revenue |
32,396 | 11,304 | ||||||
| Total current liabilities |
39,379 | 19,969 | ||||||
| Notes payable to banks |
35,980 | 43,045 | ||||||
| Long-term debt |
17,683 | 18,487 | ||||||
| Other liabilities |
64 | 85 | ||||||
| Deferred income taxes |
33,456 | 38,527 | ||||||
| Commitments and contingencies (see Notes to the Consolidated Financial Statements) |
||||||||
| Stockholders’ equity: |
||||||||
| Preferred stock, $0.10 par value; 1,000,000 shares authorized; issued and outstanding: none |
— | — | ||||||
| Common stock, $0.10 par value; 75,000,000 shares authorized; issued and outstanding: March 31, 2004-16,617,898 shares; December 31, 2003-16,557,898 shares |
1,662 | 1,656 | ||||||
| Class A common stock, $0.10 par value; 55,000,000 shares authorized; issued and outstanding: March 31, 2004-23,376,185 shares; December 31, 2003-23,436,185 shares |
2,338 | 2,344 | ||||||
| Additional paid-in capital |
127,783 | 127,783 | ||||||
| Retained earnings |
2,413 | 5,999 | ||||||
| Accumulated other comprehensive loss |
(410 | ) | (410 | ) | ||||
| Total stockholders’ equity |
133,786 | 137,372 | ||||||
| Total liabilities and stockholders’ equity |
$ | 260,348 | $ | 257,485 | ||||
The Notes to the Consolidated Financial Statements are an integral part of these consolidated statements.
3
DOVER MOTORSPORTS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
In Thousands
(Unaudited)
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Operating activities: |
||||||||
| Net loss |
$ | (3,186 | ) | $ | (4,993 | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
2,392 | 2,626 | ||||||
| Amortization and write-off of credit facility fees |
98 | 220 | ||||||
| Deferred income taxes |
(4,840 | ) | 873 | |||||
| Changes in assets and liabilities: |
||||||||
| Accounts receivable |
(7,357 | ) | (6,294 | ) | ||||
| Inventories |
(84 | ) | (203 | ) | ||||
| Prepaid expenses and other |
(3,193 | ) | (567 | ) | ||||
| Income taxes receivable |
5,436 | 521 | ||||||
| Accounts payable |
(535 | ) | 1,975 | |||||
| Accrued liabilities |
(1,210 | ) | (1,186 | ) | ||||
| Payable to/receivable from Dover Downs Gaming & Entertainment, Inc. |
99 | 697 | ||||||
| Deferred revenue |
21,092 | 19,150 | ||||||
| Net cash provided by operating activities |
8,712 | 12,819 | ||||||
| Investing activities: |
||||||||
| Capital expenditures |
(799 | ) | (1,823 | ) | ||||
| Restricted cash |
1,623 | 1,767 | ||||||
| Net cash provided by (used in) investing activities |
824 | (56 | ) | |||||
| Financing activities: |
||||||||
| Borrowings from revolving debt agreement |
4,420 | 5,950 | ||||||
| Repayments on revolving debt agreement |
(11,485 | ) | (15,695 | ) | ||||
| Repayments of long-term debt |
(744 | ) | (684 | ) | ||||
| Proceeds from stock options exercised |
— | 90 | ||||||
| Other liabilities |
(21 | ) | — | |||||
| Credit facility origination and amendment fees |
(318 | ) | (245 | ) | ||||
| Dividends paid |
(400 | ) | (398 | ) | ||||
| Net cash used in financing activities |
(8,548 | ) | (10,982 | ) | ||||
| Net increase in cash and cash equivalents |
988 | 1,781 | ||||||
| Cash and cash equivalents, beginning of period |
3,348 | 1,485 | ||||||
| Cash and cash equivalents, end of period |
$ | 4,336 | $ | 3,266 | ||||
| Supplemental information: |
||||||||
| Interest paid |
$ | 1,399 | $ | 1,581 | ||||
| Income taxes paid, net of (refunds) |
$ | (5,797 | ) | $ | (7,075 | ) | ||
The Notes to the Consolidated Financial Statements are an integral part of these consolidated statements.
4
DOVER MOTORSPORTS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – Basis of Presentation
References in this document to “the Company,” “DVD,” “we,” “us” and “our” mean Dover Motorsports, Inc. and its wholly owned subsidiaries.
The accompanying consolidated financial statements have been prepared in compliance with Rule 10-01 of Regulation S-X and accounting principles generally accepted in the United States of America, but do not include all of the information and disclosures required for audited financial statements. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s latest Annual Report on Form 10-K filed on March 10, 2004. In the opinion of management, these statements include all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the results of operations, financial position and cash flows for the interim periods presented. Operating results for the three-month period ended March 31, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004 due to the seasonal nature of the Company’s business.
NOTE 2 – Business Operations
Dover Motorsports, Inc. is a leading marketer and promoter of motorsports entertainment in the United States. Its motorsports subsidiaries operate five motorsports tracks (four permanent facilities and one temporary circuit) in four states and are scheduled to promote 16 major events during 2004 under the auspices of four of the premier sanctioning bodies in motorsports - the National Association for Stock Car Auto Racing (“NASCAR”), the Indy Racing League (“IRL”), Championship Auto Racing Teams (“CART”) and the National Hot Rod Association (“NHRA”). The Company owns and operates Dover International Speedway in Dover, Delaware; Nashville Superspeedway near Nashville, Tennessee; Gateway International Raceway near St. Louis, Missouri; and Memphis Motorsports Park near Memphis, Tennessee. The Company also organizes and promotes the Toyota Grand Prix of Long Beach in California.
On March 25, 2004, the Company announced that its wholly owned subsidiary, Grand Prix Association of Long Beach, Inc. (“Grand Prix”), reached an agreement with Open Wheel Racing Series, LLC (“OWRS”), the successor to CART, Inc. and owner of the Champ Car World Series, to transfer to OWRS certain assets and rights that Grand Prix had relative to the organization and promotion of the Grand Prix of Denver, subject to certain conditions and approvals. Grand Prix had a multi-year agreement with the City of Denver pursuant to which it was entitled to stage an annual auto racing event in and around the PepsiCenter in Denver. Grand Prix assigned to OWRS its rights in its agreement with the city, subject to the consent of the city.
NOTE 3 – Summary of Significant Accounting Policies
Basis of consolidation and presentation—The accompanying consolidated financial statements include the accounts of DVD and its wholly owned subsidiaries. Intercompany transactions and balances have been eliminated.
Revenue recognition—Revenues pertaining to specific events, including admissions to racing events and motorsports activities held at our facilities; television, radio and ancillary rights fees; sponsorship fees; luxury suite rentals; hospitality catering and commissions paid by third-party vendors for the right to sell concessions at our facilities; and sales of programs and vendor commissions for the right to sell souvenirs at our facilities are deferred until the event is held. Concession revenue from concession stand sales and sales of souvenirs are recorded at the time of sale. Revenues and related expenses from barter transactions in which the Company receives advertising or other goods or services in exchange for sponsorships of motorsports events are recorded at fair value in accordance with Emerging Issues Task Force (“EITF”) Issue No. 99-17, Accounting for Advertising Barter Transactions.
5
Barter transactions accounted for $451,000 of total revenues for the three months ended March 31, 2003. There were no barter transactions recorded as revenues for the three months ended March 31, 2004.
We derive a substantial portion of our motorsports revenues from admissions and event-related revenue attributable to six NASCAR-sanctioned events at Dover, Delaware which are currently held in June and September.
Under the terms of the Company’s sanction agreements, NASCAR retains 10% of the gross broadcast rights fees allocated to each NASCAR NEXTEL Cup Series (f/k/a Winston Cup) or Busch Series event as a component of its sanction fees and remits the remaining 90% to the event promoter which the Company records as revenue. The event promoter is required to pay 25% of the gross broadcast rights fees to the event as part of the awards to the competitors which the Company records as operating expenses.
Expense recognition—Certain direct expenses pertaining to specific events, including prize and point fund monies and sanction fees paid to various sanctioning bodies, including NASCAR, advertising and other expenses associated with the promotion of our racing events are deferred until the event is held, at which point they are expensed.
The cost of non-event related advertising, promotion and marketing programs are expensed as incurred.
Advertising expenses were $11,000 and $756,000, for the three months ended March 31, 2004 and 2003, respectively.
Earnings per share—Basic and diluted earnings per share (“EPS”) are calculated in accordance with Financial Accounting Standards Board (“FASB”) Statement No. 128, Earnings Per Share. Weighted average shares used in computing basic and diluted EPS are as follows:
| Three months ended March 31, | ||||
| 2004 |
2003 | |||
| Basic EPS |
39,994,000 | 39,734,000 | ||
| Effect of dilutive options |
— | — | ||
| Diluted EPS |
39,994,000 | 39,734,000 | ||
For the three months ended March 31, 2004 and 2003, options to purchase 1,429,560 and 1,605,302 shares of common stock, respectively, were outstanding, but were not included in the computation of diluted EPS because the Company had a net loss and all outstanding options would have been anti-dilutive.
Accounting for stock options—The Company accounts for stock options in accordance with FASB Statement No. 123, Accounting for Stock-Based Compensation, as amended by FASB Statement No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure – an Amendment of FASB Statement No. 123. Statement No. 123 defines a fair-value based method of accounting for stock-based compensation plans; however, it allows the continued use of the intrinsic value method under Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. The Company has elected to continue to use the intrinsic value method and based on this method, did not record any stock-based compensation expense during the three-month periods ended March 31, 2004 and 2003.
6
The following table illustrates the effect on net loss and net loss per common share if the Company had applied the fair-value recognition provisions of Statement No. 123 to stock-based employee compensation:
| Three months ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Net loss, as reported |
$ | (3,186,000 | ) | $ | (4,993,000 | ) | ||
| Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards |
(162,000 | ) | (174,000 | ) | ||||
| Pro forma net loss |
$ | (3,348,000 | ) | $ | (5,167,000 | ) | ||
| Net loss per common share: |
||||||||
| Basic – as reported |
$ | (0.08 | ) | $ | (0.13 | ) | ||
| Basic – pro forma |
$ | (0.08 | ) | $ | (0.13 | ) | ||
| Diluted – as reported |
$ | (0.08 | ) | $ | (0.13 | ) | ||
| Diluted – pro forma |
$ | (0.08 | ) | $ | (0.13 | ) | ||
Use of estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Reclassifications—Certain reclassifications have been made to the prior period consolidated financial statements to conform to the current period presentation. These reclassifications had no effect on net loss.
NOTE 4 – Indebtedness
Long-term debt consists of the following:
| March 31, 2004 |
December 31, 2003 |
|||||||
| Notes payable to banks |
$ | 35,980,000 | $ | 43,045,000 | ||||
| SWIDA bonds |
18,488,000 | 19,232,000 | ||||||
| 54,468,000 | 62,277,000 | |||||||
| Less current portion |
(805,000 | ) | (745,000 | ) | ||||