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, 2005
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 29, 2005, the number of shares of each class of the registrant’s common stock outstanding is as follows:
| Common Stock - | 17,061,426 shares | |
| Class A Common Stock - | 23,240,185 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, |
||||||||
| 2005 |
2004 |
|||||||
| Revenues: |
||||||||
| Admissions |
$ | 1,203 | $ | 88 | ||||
| Event-related |
1,107 | 538 | ||||||
| Broadcasting |
631 | — | ||||||
| Other |
608 | 534 | ||||||
| 3,549 | 1,160 | |||||||
| Expenses: |
||||||||
| Operating and marketing |
4,746 | 2,325 | ||||||
| General and administrative |
3,533 | 3,693 | ||||||
| Depreciation and amortization |
2,426 | 2,392 | ||||||
| 10,705 | 8,410 | |||||||
| Operating loss |
(7,156 | ) | (7,250 | ) | ||||
| Interest income |
4 | 2 | ||||||
| Interest expense |
(936 | ) | (1,139 | ) | ||||
| Loss before income tax benefit |
(8,088 | ) | (8,387 | ) | ||||
| Income tax benefit |
4,206 | 5,201 | ||||||
| Net loss |
$ | (3,882 | ) | $ | (3,186 | ) | ||
| Net loss per common share: |
||||||||
| Basic |
$ | (0.10 | ) | $ | (0.08 | ) | ||
| Diluted |
$ | (0.10 | ) | $ | (0.08 | ) | ||
The Notes to the Consolidated Financial Statements are an integral part of these consolidated statements.
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DOVER MOTORSPORTS, INC.
CONSOLIDATED BALANCE SHEET
In Thousands, Except Share and Per Share Amounts
(Unaudited)
| March 31, 2005 |
December 31, 2004 |
|||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 499 | $ | 134 | ||||
| Accounts receivable |
11,952 | 3,894 | ||||||
| Inventories |
302 | 223 | ||||||
| Prepaid expenses and other |
5,768 | 2,727 | ||||||
| Income taxes receivable |
38 | — | ||||||
| Deferred income taxes |
781 | 781 | ||||||
| Total current assets |
19,340 | 7,759 | ||||||
| Property and equipment, net |
228,555 | 224,973 | ||||||
| Restricted cash |
1,925 | 3,571 | ||||||
| Other assets, net |
1,349 | 1,385 | ||||||
| Deferred income taxes |
46 | 46 | ||||||
| Goodwill |
8,521 | 8,521 | ||||||
| Total assets |
$ | 259,736 | $ | 246,255 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 950 | $ | 1,947 | ||||
| Accrued liabilities |
4,508 | 5,550 | ||||||
| Payable to Dover Downs Gaming & Entertainment, Inc. |
17 | 2 | ||||||
| Income taxes payable |
— | 324 | ||||||
| Current portion of long-term debt |
875 | 805 | ||||||
| Deferred revenue |
33,401 | 11,663 | ||||||
| Total current liabilities |
39,751 | 20,291 | ||||||
| Notes payable to banks |
30,000 | 27,000 | ||||||
| Long-term debt |
16,809 | 17,684 | ||||||
| Other liabilities |
42 | 64 | ||||||
| Deferred income taxes |
38,906 | 42,750 | ||||||
| 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, 2005-17,061,426 shares; December 31, 2004-16,946,426 shares |
1,706 | 1,695 | ||||||
| Class A common stock, $0.10 par value; 55,000,000 shares authorized; issued and outstanding: March 31, 2005-23,240,185 shares; December 31, 2004-23,240,185 shares |
2,324 | 2,324 | ||||||
| Additional paid-in capital |
129,201 | 128,542 | ||||||
| Retained earnings |
2,549 | 6,834 | ||||||
| Accumulated other comprehensive loss |
(527 | ) | (527 | ) | ||||
| Deferred compensation |
(1,025 | ) | (402 | ) | ||||
| Total stockholders’ equity |
134,228 | 138,466 | ||||||
| Total liabilities and stockholders’ equity |
$ | 259,736 | $ | 246,255 | ||||
The Notes to the Consolidated Financial Statements are an integral part of these consolidated statements.
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DOVER MOTORSPORTS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
In Thousands
(Unaudited)
| Three Months Ended March 31, |
||||||||
| 2005 |
2004 |
|||||||
| Operating activities: |
||||||||
| Net loss |
$ | (3,882 | ) | $ | (3,186 | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
2,426 | 2,392 | ||||||
| Amortization of credit facility fees |
36 | 98 | ||||||
| Amortization of deferred compensation |
47 | — | ||||||
| Deferred income taxes |
(3,844 | ) | (4,840 | ) | ||||
| Changes in assets and liabilities: |
||||||||
| Accounts receivable |
(8,058 | ) | (7,357 | ) | ||||
| Inventories |
(79 | ) | (84 | ) | ||||
| Prepaid expenses and other |
(2,957 | ) | (3,193 | ) | ||||
| Income taxes receivable/payable |
(362 | ) | 5,436 | |||||
| Accounts payable |
(997 | ) | (535 | ) | ||||
| Accrued liabilities |
(1,042 | ) | (1,210 | ) | ||||
| Payable to/receivable from Dover Downs Gaming & Entertainment, Inc. |
15 | 99 | ||||||
| Deferred revenue |
21,738 | 21,092 | ||||||
| Other liabilities |
(22 | ) | (21 | ) | ||||
| Net cash provided by operating activities |
3,019 | 8,691 | ||||||
| Investing activities: |
||||||||
| Capital expenditures |
(5,987 | ) | (799 | ) | ||||
| Restricted cash |
1,646 | 1,623 | ||||||
| Net cash (used in) provided by investing activities |
(4,341 | ) | 824 | |||||
| Financing activities: |
||||||||
| Borrowings from notes payable to banks |
8,400 | 4,420 | ||||||
| Repayments on notes payable to banks |
(5,400 | ) | (11,485 | ) | ||||
| Repayments of long-term debt |
(805 | ) | (744 | ) | ||||
| Credit facility origination and amendment fees |
(105 | ) | (318 | ) | ||||
| Dividends paid |
(403 | ) | (400 | ) | ||||
| Net cash provided by (used in) financing activities |
1,687 | (8,527 | ) | |||||
| Net increase in cash and cash equivalents |
365 | 988 | ||||||
| Cash and cash equivalents, beginning of period |
134 | 3,348 | ||||||
| Cash and cash equivalents, end of period |
$ | 499 | $ | 4,336 | ||||
| Supplemental information: |
||||||||
| Interest paid |
$ | 1,329 | $ | 1,399 | ||||
| Income tax refunds, net of payments |
$ | — | $ | (5,797 | ) | |||
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 U.S. generally accepted accounting principles, 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 11, 2005. 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 months ended March 31, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005 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 2005 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”), the National Hot Rod Association (“NHRA”) and the Champ Car World Series (“CCWS”). 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 in Memphis, Tennessee. The Company also organizes and promotes the Toyota Grand Prix of Long Beach in California.
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.
Property and equipment—Property and equipment is stated at cost. Depreciation is provided for financial reporting purposes using the straight-line method. Accumulated depreciation was $58,418,000 and $56,606,000 as of March 31, 2005 and December 31, 2004, respectively.
Revenue recognition—The Company classifies its revenues as admissions, event-related revenue, broadcasting revenue and other revenue. “Admissions” includes ticket sales for all Company events. “Event-related” revenue includes amounts received from sponsorship fees; luxury suite rentals; hospitality tent rentals and catering; concessions and souvenir sales and vendor commissions for the right to sell concessions and souvenirs at our facilities; sales of programs; track rentals and other event-related revenues. “Broadcasting” revenue includes rights fees obtained for television and radio broadcasts of events held at the Company’s speedways and ancillary rights fees. “Other” revenue includes revenues from the Company’s grandstand rental business and other miscellaneous revenues.
Revenues pertaining to specific events 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
5
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. Barter transactions accounted for $99,000 of total revenues for the three months ended March 31, 2005. 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 or NASCAR 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 $258,000 and $11,000 for the three months ended March 31, 2005 and 2004, 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, | ||||
| 2005 |
2004 | |||
| Basic EPS |
40,078,000 | 39,994,000 | ||
| Effect of dilutive securities |
— | — | ||
| Diluted EPS |
40,078,000 | 39,994,000 | ||
Dilutive securities include stock options and unvested restricted stock awards.
For the three months ended March 31, 2005 and 2004, options to purchase 1,179,801 and 1,429,560 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. In addition, as a result of the net loss for the three months ended March 31, 2005, 224,000 shares of unvested restricted stock awards were not included in the computation of diluted EPS as they would also have been anti-dilutive. There were no outstanding unvested restricted stock awards during the three months ended March 31, 2004.
Accounting for stock-based compensation—The Company has a stock incentive plan which provides for the grant of stock options and/or restricted stock to officers and key employees. 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 related to its stock options during the three months ended March 31, 2005 and 2004. The Company’s restricted stock vests based on continued employment with the Company. Restricted stock awards result in compensation expense as discussed in NOTE 6 – Stockholders’ Equity.
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, |
||||||||
| 2005 |
2004 |
|||||||
| Net loss, as reported |
$ | (3,882,000 | ) | $ | (3,186,000 | ) | ||
| Add: Stock-based employee compensation expense included in reported net loss, net of related tax effects |
47,000 | — | ||||||
| Deduct: Total stock-based employee compensation expense determined under fair-value based method for all awards, net of related tax effects |
(180,000 | ) | (162,000 | ) | ||||
| Pro forma net loss |
$ | (4,015,000 | ) | $ | (3,348,000 | ) | ||
| Net loss per common share: |
||||||||
| Basic – as reported |
$ | (0.10 | ) | $ | (0.08 | ) | ||
| Basic – pro forma |
$ | (0.10 | ) | $ | (0.08 | ) | ||
| Diluted – as reported |
$ | (0.10 | ) | $ | (0.08 | ) | ||
| Diluted – pro forma |
$ | (0.10 | ) | $ | (0.08 | ) | ||
Use of estimates—The preparation of financial statements in conformity with U.S. generally accepted a