Washington, D.C. 20549
Indicate by check
mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check
mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No x
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 has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to
submit such files). Yes x No ¨
Indicate by check
mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company
or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth
company, indicate by the check mark if the registrant has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x
The aggregate market
value of common stock held by non-affiliates of the registrant was $31,762,193 as of June 30, 2019 (the last day of our most recently
completed second quarter).
As of February 20,
2020, the number of shares of each class of the registrant's common stock outstanding is as follows:
Portions of the registrant’s
Proxy Statement in connection with the Annual Meeting of Stockholders to be held April 29, 2020 are incorporated by reference into
Part III, Items 10 through 14 of this report.
Part I
References in this document
to “we,” “us” and “our” mean Dover Motorsports, Inc. and/or its wholly owned subsidiaries,
as appropriate.
Dover Motorsports,
Inc. is a public holding company that is a marketer and promoter of motorsports entertainment in the United States. Through our
subsidiaries, we own and operate Dover International Speedway® in Dover, Delaware and Nashville Superspeedway®
near Nashville, Tennessee. Our Dover facility promoted the following six events during 2019, all of which were under the auspices
of the premier sanctioning body in motorsports - the National Association for Stock Car Auto Racing (“NASCAR”):
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2 NASCAR Cup Series events (May and October);
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2 NASCAR Xfinity Series events (May and October);
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1 NASCAR Gander RV & Outdoors Truck Series event (May); and
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1 NASCAR ARCA Menards Series East event (October).
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In 2020, we are scheduled
to once again promote these six events at Dover International Speedway, with the events that were held in October 2019 to be held
in August 2020. Total revenues from these events were approximately 96% of total revenues in each of 2019, 2018, and 2017.
We have hosted the Firefly
Music Festival (“Firefly”) on our property in Dover, Delaware for eight consecutive years and it is scheduled to return
on June 18-21, 2020. The inaugural three day festival with 40 musical acts was held in July 2012 and the 2019 event was held on
June 21-23, 2019 with approximately 120 musical acts. In September 2014, Red Frog Events LLC formed RFGV Festivals LLC - a joint
venture with Goldenvoice that promotes Firefly. Goldenvoice is a company of AEG Presents, LLC, a subsidiary of Anschutz Entertainment
Group, Inc. AEG Presents, one of the world’s largest presenters of live music and entertainment events, announced on
July 18, 2018 that it had acquired the remainder of RFGV Festivals LLC from Red Frog. Our amended agreement with RFGV Festivals
grants them two 5 year options to extend our facility rental agreement through 2032 in exchange for a rental commitment to secure
our property. In addition to the facility rental fee, we also receive a percentage of the concession sales we manage
at the events.
We generate revenues
primarily from the following sources:
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rights fees obtained for television and radio broadcasts of our events;
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hospitality tent rentals and catering;
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concessions and vendor commissions for the right to sell concessions and souvenirs at our facilities;
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expo space rentals; and
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track and facility rentals and other event-related revenues.
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We
began our motorsports operations in 1969 in Dover, Delaware. Our predecessor, Dover Downs, Inc.,
was also engaged in harness horse racing operations and later ran our other gaming operations. As a result of
several restructurings, our operations were segregated into two main operating subsidiaries - Dover International
Speedway, Inc., incorporated in 1994, encompassed our motorsports operations, and Dover Downs, Inc.,
incorporated in 1967, conducted our gaming operations.
Effective March 31,
2002, we spun-off our gaming business which was then owned by our subsidiary, Dover Downs Gaming & Entertainment, Inc.
(“Gaming”). On a tax-free basis, we made a pro rata distribution of all of the capital stock of
Gaming to our stockholders. Our continuing operations subsequent to the spin-off consist solely of our motorsports
activities and property rentals.
Nashville
Superspeedway no longer promotes motorsports events and has not entered into sanction agreements with NASCAR since
2011. We lease the facility on a short term basis to third parties from time to time. On August 17, 2017, we
entered into an agreement with an entity owned by Panattoni Development Company (“buyer”) relative to the sale of
approximately 147 acres of land at a purchase price of $35,000 per acre. On March 2, 2018, we closed on the sale of the
property with proceeds, less closing costs, of $4,945,000. Net proceeds after taxes were approximately $4,150,000 resulting
in a gain of $2,512,000. On September 1, 2017, we also awarded to the buyer a three year option for 88.03 additional acres at
a purchase price of $55,000 per acre. That option agreement has been amended twice since: first, on February 9, 2018, to
extend its term and to add additional acreage; and second, on June 25, 2019, in connection with the purchaser’s
exercise of its option on two parcels, we adjusted the acreage and further extended the term of the option on a third
parcel. On July 26, 2019, the purchaser closed on the first two parcels, comprising approximately 133 acres, which
yielded to us proceeds, less closing costs, of $6,397,000. Net proceeds after taxes were approximately $5,314,000
resulting in a gain of $4,186,000. One parcel of 97.17 acres remains under the option agreement with a purchase price of
$66,685 per acre. The purchaser paid to us $500,000 for the extension of this option until March 1, 2022, and this
non-refundable payment would be credited to the purchase price at the closing of that option parcel. Assuming this
option is exercised, the remaining Nashville Superspeedway property will consist of approximately 1,000 acres. At December
31, 2019 and 2018, $21,282,000 and $23,567,000 was reported as long term assets in our consolidated balance sheets,
respectively.
On February 28, 2019,
we entered into an agreement to sell 7.63 acres of land at our Nashville facility for proceeds, less closing costs, of $267,000.
The sale closed in the first quarter of 2019 and resulted in a gain of $139,000, which we have reported as gain on sale of land
in our consolidated statement of earnings.
During September 2018,
we entered into negotiations to sell the last remaining parcel of land we owned near St. Louis. The sale resulted in a loss of
$99,000, which we reported as loss on sale of land in our consolidated statement of earnings. The sale closed in the first quarter
of 2019 with proceeds, less closing costs, of $531,000. At December 31, 2018, the fair value of the land was reported as assets
held for sale in our consolidated balance sheet.
Dover International Speedway
We have promoted NASCAR-sanctioned
racing events for 51 consecutive years at Dover International Speedway and currently promote six NASCAR-sanctioned events at the
facility annually. Two races are in the NASCAR Cup Series professional stock car racing circuit, two races are in the NASCAR Xfinity
Series racing circuit, one race is in the NASCAR Gander RV & Outdoors Truck Series racing circuit, and one race is in the NASCAR
ARCA Menards Series East racing circuit.
Each of the NASCAR
Xfinity Series events, the Gander RV & Outdoors Truck Series event and the ARCA Menards Series East event at Dover International
Speedway are conducted on the days before a NASCAR Cup Series event. Dover International Speedway is one of only eight speedways
in North America that presents two NASCAR Cup Series events and two NASCAR Xfinity Series events each year. Additionally, it is
one of only ten tracks to host three major NASCAR events at one facility on the same weekend. The spring and fall event dates have
historically allowed Dover International Speedway to hold the first and last NASCAR Cup Series events in the Maryland to Maine
region each year. In 2019, our fall event was the fourth of ten races in the “NASCAR Cup Series Playoff,” an elimination
format which determines the NASCAR Cup Series champion for the racing season. Our August 2020 NASCAR Cup Series race will be the
next to the last race before the playoff field is set.
Dover International
Speedway, widely known as the “Monster Mile®,” is a high-banked, one-mile, concrete superspeedway with
permanent grandstand seating, after our current seating capacity adjustments, of approximately 54,000. Unlike some superspeedways,
substantially all grandstand and skybox seats offer an unobstructed view of the entire track. The concrete racing surface makes
Dover International Speedway the only concrete superspeedway (one mile or greater in length) that conducts NASCAR Cup Series events.
The superspeedway facility also features the Monster Bridge®. The climate controlled bridge spans across the width
of the superspeedway at a height of 29 feet and houses 50-luxury seats, a refreshment bar and other amenities. The Monster Bridge
is the only one of its kind in the motorsports industry.
Agreements with NASCAR
Our most recent sanction
agreements with NASCAR are for a five year period (2016-2020). Pursuant to the typical sanction agreement, NASCAR grants its sanction
to a promoter, such as Dover International Speedway, to organize, promote and hold a particular competition. The promoter sells
tickets to the competition, sells or arranges for the sale of merchandise and concessions, and sells advertising, sponsorships
and hospitality services. NASCAR conducts the competition, arranges for the drivers, and has sole control over the competition,
including the right to require alterations to the promoter’s facility and the right to approve or disapprove any advertising
or sponsorship of the promoter. NASCAR also has exclusive rights to exploit live broadcast and certain broadcast and intellectual
property rights related to the competition, and exclusive rights to sponsorship and promotional rights relative to the series to
which a particular competition belongs. The promoter must pay the sanction fee and purse monies and receives a share of the live
broadcast revenue contracted for by NASCAR. The promoter is responsible for the condition of the facility, for compliance with
laws, for control of the public, for fire and medical equipment and personnel, for security, for insurance and for providing facilities
and services required by NASCAR officials and the live broadcast personnel.
Dover International
Speedway, Inc. has entered into two sanction agreements with NASCAR pursuant to which it will organize and promote two NASCAR Cup
Series events in 2016 through 2020. Our business is substantially dependent on these two agreements.
Under the terms of our
sanction agreements, NASCAR retains 10% of the gross broadcast rights fees allocated to each NASCAR-sanctioned event as a component
of its sanction fee. The remaining 90% is recorded as broadcasting 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 we record as operating expenses.
Competition
Our racing events
compete with other racing events sanctioned by various racing bodies and with other sports and recreational events scheduled on
or around the same dates. Racing events sanctioned by different organizations are often held on the same dates at different tracks.
The quality of the competition, type of racing event, caliber of the event, sight lines, ticket pricing, location and customer
conveniences and amenities, among other things, differentiate the motorsports facilities. We also compete with improving and expanding
media coverage and content by network and cable broadcasters.
Seasonality
We derive substantially
all of our total revenues from admissions, television broadcast rights and other event-related revenue attributable to two major
motorsports event weekends held in the spring and fall. As a result, our business is highly seasonal.
Employees
As of December 31, 2019,
we had approximately 54 full-time employees and 6 part-time employees. We engage temporary personnel to assist during our motorsports
racing season. We believe that we enjoy a good relationship with our employees.
Available Information
We file annual, quarterly
and current reports, information statements and other information with the United States Securities and Exchange Commission (the
“SEC”). The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at
100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxy and information statements,
and other information regarding issuers that file electronically with the SEC. The address of that site is www.sec.gov.
Internet Address
We maintain a website
where additional information concerning our business and various upcoming events can be found. The address of our Internet website
is www.dovermotorsports.com. We provide a link on our website, under Investor Relations, to our filings with the SEC, including
our annual report on Form 10-K, proxy statement, Section 16 reports, quarterly reports on Form 10-Q, current reports on Form 8-K
and all amendments to those reports.
In addition to historical
information, this report includes forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended, relating to our financial condition, profitability, liquidity, resources, business outlook, possible acquisitions,
market forces, corporate strategies, consumer preferences, contractual commitments, legal matters, capital requirements and other
matters. Documents incorporated by reference into this report may also contain forward-looking statements. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. To comply with the terms of the safe harbor,
we note that a variety of factors could cause our actual results and experience to differ substantially from the anticipated results
or other expectations expressed in our forward-looking statements. When words and expressions such as: “believes,”
“expects,” “anticipates,” “estimates,” “plans,” “intends,” “objectives,”
“goals,” “aims,” “projects,” “forecasts,” “possible,” “seeks,”
“may,” “could,” “should,” “might,” “likely” or similar words or expressions
are used, as well as phrases such as “in our view,” “there can be no assurance” or “there is no way
to anticipate with certainty,” forward-looking statements may be involved.
In the section that
follows below, in cautionary statements made elsewhere in this report, and in other filings we have made with the SEC, we list
important factors that could cause our actual results to differ from our expectations. Our actual results could differ materially
from those anticipated in these forward-looking statements as a result of the risk factors described below and other factors set
forth in or incorporated by reference in this report.
These factors and cautionary
statements apply to all future forward-looking statements we make. Many of these factors are beyond our ability to control or predict.
Do not put undue reliance on forward-looking statements or project any future results based on such statements or on present or
prior earnings levels.
Additional information
concerning these, or other factors, which could cause the actual results to differ materially from those in our 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 Relationships With And The Success Of NASCAR Is Vital
To Our Success In Motorsports
Our continued success in motorsports is dependent upon the success of NASCAR and our ability to secure favorable contracts with
and maintain a good working relationship with them. NASCAR issues and awards sanctioned events and their issuance depends,
in large part, on maintaining good working relationships with NASCAR. By awarding a sanctioned event or a series of sanctioned
events, NASCAR does not warrant, nor are they responsible for, the financial success of any sanctioned event. Our success
is directly tied to our ability to negotiate favorable terms to our sanction agreements, including the amount of the sanction fee
and purse, and our ability to continue to derive economic benefits from such agreements, such as our share of live broadcast revenues.
Our current sanction agreements expire at the end of 2020 and we expect that future agreements will be annual agreements. NASCAR
is exploring the movement of multiple race dates and some NASCAR tracks may lose one or more sanctioned events once the current
sanction agreements expire. Any such moves would be at NASCAR’s sole discretion and based on a variety of factors, including
the desires of NASCAR’s broadcast partners, the venue’s capacity/attendance standards, venue & fan experience standards,
and centralized hospitality and promotional opportunities.
Our ability to obtain sanctioned events in the future and to negotiate favorable terms to our sanction agreements and the
success of NASCAR in attracting drivers and teams, signing series sponsors and negotiating favorable television and/or radio
broadcast rights is dependent on many factors which are largely outside of our control. As our success depends on the
terms of our sanction agreements and the success of each event or series that we are promoting, a material change in the
terms of a sanction agreement or the loss of one or more sanctioned events, a material adverse effect on NASCAR, such as a
decline in the attendance at (or the popularity of) NASCAR events, the loss or defection of top drivers, the loss of
significant series sponsors, or the failure to obtain favorable broadcast coverage or to properly advertise the event or
series could result in a reduction in our revenues from live broadcast coverage, admissions, luxury suite rentals,
sponsorships, hospitality, concessions and merchandise, which could have a material adverse effect on our business, financial
condition and results of operations.
Changes To Media Rights Revenues Could
Adversely Affect Us
Broadcast revenues
that are paid to us by NASCAR represent the largest component of our revenues and earnings and any adverse changes to such revenues
could adversely impact our results. NASCAR’s broadcast agreements have yielded us significant cash flow. In 2013, NASCAR
announced it reached a ten-year extension of its broadcast rights with FOX Sports Media Group (“FOX”). This agreement
extends through the 2024 NASCAR season and allows FOX to retain the television rights to 16 NASCAR Cup Series races, 14 NASCAR
Xfinity Series events and the entire NASCAR Gander RV & Outdoors Truck Series season. Additionally in 2013, NASCAR announced
it reached a ten-year agreement with NBC Sports Group granting exclusive rights through 2024 to 20 NASCAR Cup Series races, 19
NASCAR Xfinity Series events, select NASCAR Regional & Touring Series events and other live content which began in 2015.
Material changes in the broadcast industry or the financial value of broadcast agreements, material changes in the ratings for
NASCAR events or in the NASCAR race schedule, or material changes in the perception of fans or sponsors due to such factors could
have a material adverse effect on our revenues and financial results.
We Rely On Sponsorship Contracts To
Generate Revenues
We receive a portion
of our annual revenues from sponsorship agreements, including the sponsorship of our various events and venue, such as “title,”
“official product” and “promotional partner” sponsorships, billboards, signage and skyboxes. We are continuously
in negotiations with existing sponsors and actively seeking new sponsors as there is significant competition for sponsorships.
Some of our events may not secure a “title” sponsor every year, may not secure a sufficient number of sponsorships
on favorable terms, or may not secure sponsorships sufficiently enough in advance of an event for maximum impact. Loss of our existing
title sponsors or other major sponsorship agreements or failure to secure sponsorship agreements in the future on favorable terms
could have a material adverse effect on our business, financial condition and results of operations.
Our Motorsports Events Face Intense
Competition For Attendance, Television Viewership And Sponsorship
We compete with other
auto speedways for the patronage of motor racing spectators as well as for sponsorships. Moreover, racing events sanctioned by
different organizations are often held on the same dates at different tracks. The quality of the competition, type of racing event,
caliber of the event, sight lines, ticket pricing, location and customer conveniences and amenities, among other things, distinguish
the motorsports facilities. In addition, all of our events compete with other sports and recreational events scheduled on the same
dates. As a result, our revenues and operations are affected not only by our ability to compete in the motorsports promotion market,
but also by the availability of alternative spectator sports events, forms of entertainment, changing consumer preferences and
opportunities for corporations to acquire sponsorships.
General Market And Economic Conditions,
Including Consumer And Corporate Spending and Sentiment, Could Negatively Affect Our Financial Results
Our financial results
depend significantly upon a number of factors relating to discretionary consumer and corporate spending and sentiment, including
economic conditions affecting disposable consumer income and corporate budgets. The combination of stagnant wages, unemployed and
underemployed individuals among our fan base, escalating health care costs, rising interest rates, stock market volatility, changes
in (together with political uncertainty concerning) governmental policies relative to spending, taxation and regulation, among
other factors, can adversely affect discretionary consumer and corporate spending and sentiment.
Other factors that
can affect consumer and corporate spending and sentiment include severe weather, hurricanes, flooding, earthquakes and other
natural disasters, elevated terrorism alerts, terrorist attacks, military actions, air travel concerns, outbreaks of disease,
and geopolitical events, as well as various industry and other business conditions - including the popularity of NASCAR
events and NASCAR drivers, an aging fan base for motorsports events, and an ever increasing number of sporting and
entertainment options that compete for discretionary spending. Such factors or incidents, even if not directly impacting us,
can disrupt or otherwise adversely impact the financial results, spending sentiment and interest of our present or potential
customers and sponsors. There can be no assurance that consumer and corporate spending and sentiment will not be
further adversely impacted by current or unforeseen factors, thereby possibly having a material adverse impact on our future
operating results and growth.
The Sales Tax And Property Tax Revenues
To Service The Revenue Bonds For Infrastructure Improvements At Nashville May Be Inadequate
In September 1999, the
Sports Authority of the County of Wilson (Tennessee) issued $25,900,000 in revenue bonds to build local infrastructure improvements
which benefit Nashville Superspeedway, of which $13,400,000 was outstanding at December 31, 2019. Debt service on the bonds is
payable solely from sales taxes and incremental property taxes generated from the facility. As of December 31, 2019 and 2018, $637,000
and $1,052,000, respectively, was available in the sales and incremental property tax fund maintained by the Sports Authority to
pay the remaining principal and interest due under the bonds. During 2019, we paid $983,000 into the sales and incremental property
tax fund and $1,398,000 was deducted from the fund for debt service. These bonds are direct obligations of the Sports Authority
and therefore have historically not been required to be recorded on our consolidated balance sheet. In the event the sales taxes
and incremental property taxes (“applicable taxes”) are insufficient to cover the payment of principal and interest
on the bonds, we would become responsible for the difference. We are exposed to fluctuations in interest rates for these bonds.
In the event we were unable to make the payments, they would be made under a $13,625,000 irrevocable direct-pay letter of credit
issued by our bank group. We would be responsible to reimburse the banks for any drawings made under the letter of credit. Such
an event could have a material adverse effect on our business, financial condition and results of operations and compliance with
debt covenants.
Nashville Superspeedway
no longer promotes motorsports events and has not entered into sanction agreements with NASCAR since 2011. We lease the facility
on a short term basis to third parties from time to time. In 2011, we recorded a $2,250,000 provision for contingent obligation
reflecting the present value of the estimated portion of the revenue bonds debt service that may not be covered by the projected
sales and incremental property taxes from the facility. Due to changing interest rates and future property tax assumptions, the
provision for contingent obligation increased by $1,005,000, $424,000 and $158,000 in 2019, 2018 and 2017, respectively, and is
$3,389,000 at December 31, 2019. See NOTE 1 – Business Operations and NOTE 11 – Commitments and Contingencies of the
consolidated financial statements included elsewhere in this document for further discussion.
The Seasonality Of Our Motorsports Events
Increases The Variability Of Quarterly Earnings
Our business has been,
and is expected to remain, seasonal given that it depends on our outdoor event weekends. We derive substantially all of our total
revenues from admissions, event-related and broadcasting revenue attributable to our NASCAR-sanctioned events at Dover International
Speedway in Dover, Delaware. For 2020, three NASCAR racing events are scheduled to be held in the second quarter and three in the
third quarter. For 2019 and 2018, three NASCAR racing events were held in the second quarter and three in the fourth quarter. For
2017, three NASCAR racing events were held in the second quarter, two in the third quarter and one in the fourth quarter. As a
result, quarterly earnings will vary.
Substantially All Of Our Revenue is
Attributable to One Location
Substantially all
of our revenue comes from Dover International Speedway. Any prolonged disruption of operations at this facility due to damage or
destruction, inclement weather, natural disaster, work stoppages or other reasons could adversely affect our financial condition
and results of operations. We maintain property and business interruption insurance to protect against certain types of disruption,
but there can be no assurance that the proceeds of such insurance would be adequate to repair or rebuild our facilities or to otherwise
compensate us for lost profits.
Our Insurance May Not Be Adequate To
Cover Catastrophic Incidents
We maintain insurance
policies that provide coverage within limits that are sufficient, in the opinion of management, to protect us from material financial
loss incurred in the ordinary course of business. We also purchase special event insurance for motorsports events to protect against
race-related liability. However, there can be no assurance that this insurance will be adequate at all times and in all circumstances.
If we are held liable for damages beyond the scope of our insurance coverage, including punitive damages, our business, financial
condition and results of operations could be materially and adversely affected.
In addition, sanctioning
bodies could impose more stringent rules and regulations for safety, security and operational activities. Such regulations have
included, for example, the installation of new retaining walls at our facilities, which have increased our capital expenditures,
and increased security procedures which have increased our operational expenses.
Bad Weather Can Have An Adverse Financial
Impact On Our Motorsports Events
We sponsor and promote
outdoor motorsports events. Weather conditions, or even the forecast of poor weather, can affect sales of tickets, concessions
and merchandise at these events. Although we sell many tickets well in advance of the outdoor events and these tickets are issued
on a non-refundable basis, poor weather may adversely affect additional ticket sales and concessions and merchandise sales, which
could have an adverse effect on our business, financial condition and results of operations.
We do not currently
maintain weather-related insurance for major events. Due to the importance of clear visibility and safe driving conditions to motorsports
racing events, outdoor racing events may be significantly affected by weather patterns and seasonal weather changes. Any unanticipated
weather changes could impact our ability to stage events. This could have a material adverse effect on our business, financial
condition and results of operations.
Postponement And/Or Cancellation Of
Major Events Could Adversely Affect Us
If one of our events
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, concessions and merchandise at the rescheduled event. If
an event is cancelled, we could incur the expenses associated with preparing to conduct the event as well as lose the revenues,
including live broadcast revenues associated with the event.
If a cancelled event
is part of a NASCAR 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 broadcast
revenues greater than the amount scheduled to be paid to the promoter of the cancelled event.
Due To Our Concentrated Stock Ownership,
Stockholders May Have No Effective Voice In Our Management
We have elected to be
treated as a “controlled corporation” as defined by New York Stock Exchange (“NYSE”) Rule 303A. We are
a controlled corporation because a single person, Henry B. Tippie, the Chairman of our Board of Directors, controls in excess of
fifty percent of our voting power. This means that he has the ability to determine the outcome of the election of directors at
our annual meetings and to determine the outcome of many significant corporate transactions, many of which only require the approval
of a majority of our voting power. Such a concentration of voting power could also have the effect of delaying or preventing a
third party from acquiring us at a premium. In addition, as a controlled corporation, we are not required to comply with certain
NYSE rules.
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 which possesses unique and extensive industry knowledge
and experience. Our inability to retain and attract key employees in the future could have a negative effect on our operations
and business plans.
We Are Subject To Changing Governmental
Regulations And Legal Standards That Could Increase Our Expenses
Our motorsports facilities
are on large expanses of property which we own. Laws and regulations governing the use and development of real estate may delay
or complicate any improvements we choose to make and/or increase the costs of any improvements or our costs of operating.
If it is determined
that damage to persons or property or contamination of the environment has been caused or exacerbated by the operation or 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.
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.
In addition certain laws and regulations, including the Americans with Disabilities Act and the Occupational Safety and Health
Act are constantly evolving. Changes in the provisions or application of federal, state or local environmental, land use or other
laws, regulations or requirements to our facilities or operations, or the discovery of previously unknown conditions, could require
us to make additional material expenditures to remediate or attain compliance.
Regulations governing
the use and development of real estate may prevent us from acquiring or developing facilities, substantially delay or complicate
the process of improving facilities, and/or increase the costs of any of such activities.
We undertake no obligation
to publicly update or revise any forward-looking statements as a result of future developments, events or conditions. New risk
factors emerge from time to time and it is not possible for us to predict all such risk factors, nor can we assess the impact of
all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to
differ significantly from those forecast in any forward-looking statements. Given these risks and uncertainties, stockholders should
not overly rely or attach undue weight to our forward-looking statements as an indication of our actual future results.
Item 1B.
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Unresolved Staff Comments
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We have not received
any written comments that were issued within 180 days before December 31, 2019, the end of the fiscal year covered by this report,
from the SEC staff regarding our periodic or current reports under the Securities Exchange Act of 1934 that remain unresolved.
Dover International Speedway
Dover International
Speedway is located in Dover, Delaware, on approximately 770 acres of land we own. Prior to the spin-off of Gaming from our company
in 2002, both companies shared certain real property in Dover, Delaware. At the time of the spin-off, some of this real property
was transferred to Gaming to ensure that the real property holdings of each company were aligned with its past uses and future
business needs. During its harness racing season, Gaming has historically used the 5/8-mile harness racing track that is located
on our property and is on the inside of our one-mile motorsports superspeedway. In order to continue this historic use, we granted
a perpetual easement to the harness track to Gaming at the time of the spin-off. This perpetual easement allows Gaming to have
exclusive use of the harness track during the period beginning November 1 of each year and ending April 30 of the following year,
together with set up and tear down rights for the two weeks before and after such period. The easement requires that Gaming maintain
the harness track but does not require the payment of any rent.
Various easements and
agreements relative to access, utilities and parking have also been entered into between us and Gaming relative to our respective
Dover, Delaware facilities. We pay rent to Gaming for the lease of our principal executive office space.
Nashville Superspeedway
Nashville Superspeedway
is located on approximately 1,100 acres of land we own in Wilson County and Rutherford County, Tennessee. The facility is approximately
35 miles from downtown Nashville.
Intellectual Property
We have various registered
and common law trademark rights, including, but not limited to, “Dover,” “Dover Motorsports,” “Dover
International Speedway,” “Nashville Speedway,” “Nashville Superspeedway,” “Monster Mile,”
“Miles the Monster,” “Velocity,” “Monster Bridge,” “The Most Exciting Seat in Sports!,”
“Concrete Monster,” and “Take a Kid to the Races.” We also have limited rights to use the names
and logos of NASCAR, various sponsors, drivers and other businesses in connection with promoting our events and
certain merchandising programs. Due to the value of our intellectual property rights for promotional purposes, it is
our intention to vigorously protect these rights, through litigation, if necessary.
|
Item 3.
|
Legal Proceedings
|
We are a party to
ordinary routine litigation incidental to our business. Management does not believe that the resolution of any of these matters
is likely to have a material adverse effect on our results of operations, financial condition or cash flows.
|
Item 4.
|
Mine Safety Disclosures
|
Not applicable.
Executive Officers Of The Registrant
See Part III, Item 10
of this Annual Report on Form 10-K for information about our executive officers.
The Notes to the Consolidated Financial
Statements are an integral part of these consolidated statements.
The Notes to the Consolidated Financial
Statements are an integral part of these consolidated statements.
The Notes to the Consolidated Financial
Statements are an integral part of these consolidated statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – Business Operations
References in this document
to “we,” “us” and “our” mean Dover Motorsports, Inc. and/or its wholly owned subsidiaries,
as appropriate.
Dover Motorsports,
Inc. is a public holding company that is a marketer and promoter of motorsports entertainment in the United States. Through our
subsidiaries, we own and operate Dover International Speedway® in Dover, Delaware and Nashville Superspeedway®
near Nashville, Tennessee. Our Dover facility promoted the following six events during 2019, all of which were under the auspices
of the premier sanctioning body in motorsports - the National Association for Stock Car Auto Racing (“NASCAR”):
|
·
|
2 NASCAR Cup Series events (May and October);
|
|
·
|
2 NASCAR Xfinity Series events (May and October);
|
|
·
|
1 NASCAR Gander RV & Outdoors Truck Series event (May); and
|
|
·
|
1 NASCAR ARCA Menards Series East event (October).
|
In 2020, we are scheduled
to once again promote these six events at Dover International Speedway, with the events that were held in October 2019 to be held
in August 2020. Total revenues from these events were approximately 96% of total revenues in each of 2019, 2018 and 2017.
We have hosted the Firefly
Music Festival (“Firefly”) on our property in Dover, Delaware for eight consecutive years and it is scheduled to return
on June 18-21, 2020. The inaugural three day festival with 40 musical acts was held in July 2012 and the 2019 event was held on
June 21-23, 2019 with approximately 120 musical acts. In September 2014, Red Frog Events LLC formed RFGV Festivals LLC - a joint
venture with Goldenvoice that promotes Firefly. Goldenvoice is a company of AEG Presents, LLC, a subsidiary of Anschutz Entertainment
Group, Inc. AEG Presents, one of the world’s largest presenters of live music and entertainment events, announced on
July 18, 2018 that it had acquired the remainder of RFGV Festivals LLC from Red Frog. Our amended agreement with RFGV Festivals
grants them two 5 year options to extend our facility rental agreement through 2032 in exchange for a rental commitment to secure
our property. In addition to the facility rental fee, we also receive a percentage of the concession sales we manage
at the events.
Nashville
Superspeedway no longer promotes motorsports events and has not entered into sanction agreements with NASCAR since
2011. We lease the facility on a short term basis to third parties from time to time. On August 17, 2017, we
entered into an agreement with an entity owned by Panattoni Development Company (“buyer”) relative to the sale of
approximately 147 acres of land at a purchase price of $35,000 per acre. On March 2, 2018, we closed on the sale of the
property with proceeds, less closing costs, of $4,945,000. Net proceeds after taxes were approximately $4,150,000 resulting
in a gain of $2,512,000. On September 1, 2017, we also awarded to the buyer a three year option for 88.03 additional acres at
a purchase price of $55,000 per acre. That option agreement has been amended twice since: first, on February 9, 2018, to
extend its term and to add additional acreage; and second, on June 25, 2019, in connection with the purchaser’s
exercise of its option on two parcels, we adjusted the acreage and further extended the term of the option on a third
parcel. On July 26, 2019, the purchaser closed on the first two parcels, comprising approximately 133 acres, which
yielded to us proceeds, less closing costs, of $6,397,000. Net proceeds after taxes were approximately $5,314,000
resulting in a gain of $4,186,000. One parcel of 97.17 acres remains under the option agreement with a purchase price of
$66,685 per acre. The purchaser paid to us $500,000 for the extension of this option until March 1, 2022, and this
non-refundable payment would be credited to the purchase price at the closing of that option parcel. Assuming this
option is exercised, the remaining Nashville Superspeedway property will consist of approximately 1,000 acres. At December
31, 2019 and 2018, $21,282,000 and $23,567,000 was reported as long term assets in our consolidated balance sheets,
respectively.
On February 28, 2019,
we entered into an agreement to sell 7.63 acres of land at our Nashville facility for proceeds, less closing costs, of $267,000.
The sale closed in the first quarter of 2019 and resulted in a gain of $139,000, which we have reported as gain on sale of land
in our consolidated statement of earnings.
During September 2018,
we entered into negotiations to sell the last remaining parcel of land we owned near St. Louis. The sale resulted in a loss of
$99,000, which we reported as loss on sale of land in our consolidated statement of earnings. The sale closed in the first quarter
of 2019 with proceeds, less closing costs, of $531,000. At December 31, 2018, the fair value of the land was reported as assets
held for sale in our consolidated balance sheet.
NOTE 2 – Summary of Significant
Accounting Policies
Basis of consolidation
and presentation—The accompanying consolidated financial statements include the accounts of Dover Motorsports, Inc. and
our wholly owned subsidiaries. Intercompany transactions and balances have been eliminated.
Investments—Investments,
which consist of mutual funds, are reported at fair-value in other assets in our consolidated balance sheets. Prior to 2018, changes
in fair value were reported in other comprehensive income (loss). Upon adopting Accounting Standards Update (“ASU”)
No. 2016-01 on January 1, 2018, changes in fair value are reported in other income. See NOTE 7 – Pension Plans, NOTE 8 –
Stockholders’ Equity and NOTE 9 – Fair Value Measurements for further discussion.
Accounts receivable—Accounts
receivable are stated at their estimated collectible amount and do not bear interest.
Inventories—Inventories
of items for resale are stated at the lower of cost or net realizable value with cost being determined on the first-in, first-out
basis.
Prepaid expenses
and other - Prepaid expenses and other current assets consist primarily of amounts paid for expenses expected to be recognized
within a year, and include the following at December 31:
|
|
2019
|
|
|
2018
|
|
Insurance
|
|
$
|
692,000
|
|
|
$
|
554,000
|
|
Property taxes
|
|
|
322,000
|
|
|
|
296,000
|
|
Other
|
|
|
172,000
|
|
|
|
205,000
|
|
|
|
$
|
1,186,000
|
|
|
$
|
1,055,000
|
|
Property and equipment—Property
and equipment is stated at cost. Depreciation is provided using the straight-line method over the following estimated useful
lives:
Facilities
|
10-40 years
|
Furniture, fixtures and equipment
|
3-10 years
|
Impairment of long-lived
assets—Long-lived assets are assessed for impairment whenever events or changes in circumstances indicate that the carrying
value may not be recoverable. An impairment loss is measured as the amount by which the carrying amount of the asset exceeds its
fair value. Generally, fair value is determined using valuation techniques such as the comparable sales approach based on either
independent third party appraisals or pending/completed sales transactions.
Leases—Effective
January 1, 2019, we account for leases under Accounting Standards Codification 842, Leases. Under this guidance, arrangements
meeting the definition of a lease are recorded on the consolidated balance sheet as both a right of use asset and lease liability,
calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or our incremental borrowing
rate.
During the second
quarter of 2019, we entered into certain operating leases with 36 month terms. At December 31, 2019, our consolidated balance
sheet included a right of use asset of $188,000, a long-term lease liability of $112,000, and a short-term lease liability, which
is included in accrued liabilities, of $76,000.
Income taxes—Deferred
income taxes are provided on all differences between the tax basis of assets and liabilities and their reported amounts in the
consolidated financial statements based upon enacted statutory tax rates in effect at the balance sheet date. We record a valuation
allowance to reduce our deferred tax assets when uncertainty regarding their realizability exists. In assessing the realizability
of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income
during periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred
tax liabilities, projected future taxable income and tax planning strategies in making this assessment. We recognize the effect
of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are
measured at the largest amount that has a greater than 50% likelihood of being realized. Changes in recognition or measurement
are reflected in the period in which the change in judgment occurs. As of December 31, 2019, our valuation allowance on state net
operating loss carry-forwards net of federal income taxes was $2,462,000, which decreased by $4,543,000 in 2019, primarily from
the expiration of certain of these net operating loss carry-forwards. These state net operating losses are related to our Nashville
facility that has not produced taxable income from operations and no longer hosts events. As such, the valuation allowances fully
reserve the state net operating loss carryforwards, net of federal tax benefit.
Revenue recognition—We
classify our revenues as admissions, event-related, broadcasting and other. “Admissions” revenue includes ticket sales
for our events. “Event-related” revenue includes amounts received from sponsorship fees; luxury suite rentals; hospitality
tent rentals and catering; concessions and vendor commissions for the right to sell concessions and souvenirs at our events; sales
of programs; track rentals; broadcasting rights other than domestic television broadcasting revenue, and other event-related revenues.
Additionally, event-related revenue includes amounts received for the use of our property and a portion of the concession sales
we manage from the Firefly Music Festival. “Broadcasting” revenue includes rights fees obtained for domestic television
broadcasts of events held at our speedway.
All of our revenues
are based on contracts with customers and, with the exception of certain track rentals, relate to two NASCAR event weekends and
the Firefly Music Festival held at our Dover facility. Our contracts are typically for specific events or a racing season. We have
several multi-year sponsorship contracts for our racing events and our contract with the promoter of the Firefly Music Festival
is multi-year. Revenues pertaining to specific events are deferred and recorded as contract liabilities in our consolidated balance
sheet until the event is held. As of December 31, 2019, contract liabilities in our consolidated balance sheet relate to 2020 events.
As of December 31, 2018, contract liabilities in our consolidated balances sheets related to 2019 events. Concession and souvenir
revenues are recorded at the time of sale. Revenues and related expenses from barter transactions in which we provide sponsorship
packages in exchange for goods or services are recorded at fair value. Barter transactions accounted for $538,000, $685,000, and
$612,000 of total revenues for the years ended December 31, 2019, 2018 and 2017, respectively.
The following table
summarizes the liability activity related to contracts with customers for the years ended December 31:
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Balance, beginning of year
|
|
$
|
1,140
|
|
|
$
|
1,249
|
|
|
$
|
1,355
|
|
Reductions from beginning balance
|
|
|
(1,140
|
)
|
|
|
(1,249
|
)
|
|
|
(1,355
|
)
|
Additional liabilities recorded during the year
|
|
|
8,811
|
|
|
|
9,941
|
|
|
|
11,650
|
|
Reduction of additional liabilities recorded during
the year, not from beginning balance
|
|
|
(7,835
|
)
|
|
|
(8,801
|
)
|
|
|
(10,401
|
)
|
Balance, end of year
|
|
$
|
976
|
|
|
$
|
1,140
|
|
|
$
|
1,249
|
|
We have contracted
future revenues representing unsatisfied performance obligations. These contracts contain initial terms typically ranging from one to three years,
with some for longer periods, excluding renewal options. We have excluded unsatisfied performance obligations for future NASCAR
broadcasting revenue with contract terms through 2024. We anticipate recognizing unsatisfied performance obligations
for the calendar year ending 2020 and beyond of approximately $4,300,000 at December 31, 2019.
Under the terms of our
sanction agreements with NASCAR, we receive a portion of the broadcast revenue NASCAR negotiates with various television networks.
NASCAR typically remits payment to us for the broadcast revenue within 30 days of the event being held. NASCAR retains 10% of the
gross broadcast rights fees allocated to each NASCAR-sanctioned event as a component of its sanction fee. The remaining 90% is
recorded 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 we record as operating expenses.
Expense recognition—The
cost of advertising is expensed as incurred. Advertising expenses were $1,000,000, $1,205,000, and $1,195,000 in 2019, 2018 and
2017, respectively. Certain direct expenses pertaining to specific events, including prize and point fund monies and sanction fees
paid to NASCAR, and other expenses associated with our racing events are deferred until the event is held, at which point they
are expensed. As a result of adopting Financial Accounting Standards Board (“FASB”) ASU No. 2014-09, Revenue from
Contracts with Customers, during the year ended December 31, 2018 certain expenses previously deferred until an event occurred
are now expensed as incurred.
Net earnings per
common share—Nonvested share-based payment awards that include rights to dividends or dividend equivalents, whether paid
or unpaid, are considered participating securities, and the two-class method of computing basic and diluted net earnings per common
share (“EPS”) is applied for all periods presented. The following table sets forth the computation of EPS (in thousands,
except per share amounts):
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Net earnings per common share – basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
5,500
|
|
|
$
|
6,889
|
|
|
$
|
8,426
|
|
Allocation to nonvested restricted stock awards
|
|
|
(87
|
)
|
|
|
(111
|
)
|
|
|
(133
|
)
|
Net earnings available to common stockholders
|
|
$
|
5,413
|
|
|
$
|
6,778
|
|
|
$
|
8,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding
|
|
|
35,946
|
|
|
|
36,130
|
|
|
|
36,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per common share – basic and diluted
|
|
$
|
0.15
|
|
|
$
|
0.19
|
|
|
$
|
0.23
|
|
There were no options
outstanding during 2019, 2018 or 2017.
Accounting for stock-based
compensation—We recorded total stock-based compensation expense for our restricted stock awards of $294,000, $302,000,
and $364,000 as general and administrative expenses for the years ended December 31, 2019, 2018 and 2017, respectively. We recorded
income tax benefits of $71,000, $83,000, and $167,000 for the years ended December 31, 2019, 2018 and 2017, respectively, related
to vesting of our restricted stock awards.
Use of estimates—The
preparation of the accompanying consolidated financial statements in conformity with accounting principles generally accepted in
the United States of America requires management to make estimates and assumptions about future events. These estimates and the
underlying assumptions affect the reported amounts of assets and liabilities, disclosures about contingent assets and liabilities
at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.
These estimates and assumptions are based on our best estimates and judgment. We evaluate our estimates and assumptions on an ongoing
basis using historical experience and other factors, including the current economic environment, which we believe to be reasonable
under the circumstances. We adjust such estimates and assumptions when facts and circumstances dictate. Volatility in credit and
equity markets and declines in consumer spending have combined to increase the uncertainty inherent in such estimates and assumptions.
As future events and their effects cannot be determined with precision, actual results could differ from these estimates. Changes
in those estimates resulting from continuing changes in the economic environment will be reflected in the consolidated financial
statements in future periods.
Recent accounting
pronouncements—In August 2018, the FASB issued ASU No. 2018-14, Compensation—Retirement Benefits—Defined
Benefit Plans—General. This new standard makes changes to the disclosure requirements for sponsors of defined benefit
pension and/or other postretirement benefit plans to improve effectiveness of notes to the financial statements. ASU 2018-14 is
effective for fiscal years ending after December 15, 2020, and requires retrospective adoption. Early adoption is permitted. We
are currently analyzing the impact of this ASU and we do not expect it to have a significant impact on our financial statement
disclosures.
In February 2016, the
FASB issued ASU No. 2016-02, Leases (Topic 842), which requires that lessees recognize assets and liabilities for leases
with lease terms greater than twelve months in the statement of financial position and also requires improved disclosures to help
users of financial statements better understand the amount, timing and uncertainty of cash flows arising from leases. The update
is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within those fiscal years.
The ASU requires a transition adoption election using either 1) a modified retrospective approach with periods prior to the adoption
date being recast or 2) a prospective adoption approach with a cumulative-effect adjustment recognized to the opening balance of
retained earnings on the adoption date with prior periods not recast. We adopted the standard in the first quarter of 2019
using the prospective adoption approach and electing the practical expedient to not recognize lease assets and liabilities for
leases with terms of twelve months or less. The adoption of this ASU did not have a material impact on our consolidated financial
statements.
In January 2016, the
FASB issued ASU No. 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets
and Financial Liabilities, which enhances the reporting model for financial instruments to provide users of financial
statements with more decision-useful information. The standard addresses certain aspects of recognition, measurement,
presentation, and disclosure of financial instruments. Some of the amendments include the following: 1) Require
certain equity investments to be measured at fair value with changes in fair value recognized in net income; 2) Simplify the impairment
assessment of equity investment’s without readily determinable fair values by requiring a qualitative assessment to identify
impairment; 3) Require public business entities to use exit price notion when measuring fair value of financial instruments for
disclosure purposes; 4) Require an entity to present separately in other comprehensive income the portion of the total change in
the fair value of a liability resulting in a change in the instrument-specific credit risk when the entity has elected to measure
the liability at fair value; among others. The update is effective for fiscal years beginning after December 15, 2017,
including interim periods within those fiscal years. We adopted this standard effective January 1, 2018. In accordance
with the standard, we reclassified $73,000, net of income taxes, of unrealized gains from accumulated other comprehensive loss
to accumulated deficit as of January 1, 2018. See NOTE 8 – Stockholders’ Equity. Additionally, changes in fair value
of equity investments are now included in other income in our consolidated statements of earnings. See NOTE 9 – Fair Value
Measurements.
In May 2014, the FASB
issued ASU No. 2014-09, Revenue from Contracts with Customers, which supersedes nearly all existing revenue recognition
guidance under accounting principles generally accepted in the United States of America. The
FASB issued several amendments to the standard, including clarification on accounting for and identifying performance obligations.
The standard can be applied using the full retrospective method or retrospectively with the cumulative effect of initially applying
the guidance recognized at the date of initial application. The new standard requires a company to recognize revenue when
it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for
those goods or services.
Additionally, the guidance
requires improved disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty
of revenue and cash flows arising from contracts with customers. The update is effective for fiscal years beginning after December
15, 2017, including interim periods within those fiscal years. We
adopted this standard effective January 1, 2018 using the retrospective with cumulative effect method. We reviewed our sponsorship
agreements, sanctioning agreements and other contracts, as well as our accounting for certain costs associated with our events.
The adoption of the new revenue standard did not have a material impact on our revenues, results of operations or financial position.
However, we expanded certain disclosures as required. See Revenue recognition above.
NOTE
3 – Property and Equipment
Property and equipment
consists of the following as of December 31:
|
|
2019
|
|
|
2018
|
|
Land
|
|
$
|
15,286,000
|
|
|
$
|
15,286,000
|
|
Facilities
|
|
|
92,811,000
|
|
|
|
86,725,000
|
|
Furniture, fixtures and equipment
|
|
|
9,087,000
|
|
|
|
8,893,000
|
|
Construction in progress
|
|
|
163,000
|
|
|
|
275,000
|
|
|
|
|
117,347,000
|
|
|
|
111,179,000
|
|
Less accumulated depreciation
|
|
|
(67,272,000
|
)
|
|
|
(63,042,000
|
)
|
|
|
$
|
50,075,000
|
|
|
$
|
48,137,000
|
|
In the third quarter
of 2019, management approved plans to remove certain grandstand seating following the completion of our 2019 race season.
As a result, we adjusted the service lives of those assets to properly reflect their shortened estimated useful life. We
recorded accelerated depreciation expense of $1,172,000 in 2019 related to these assets. We incurred costs of $1,170,000
in 2019 to remove seating which is included in costs to remove long-lived assets in our consolidated statement of earnings.
We expect to incur costs of approximately $300,000 during the first quarter of 2020 to complete the removal of these assets. Approximately
$731,000 of the total project cost has been paid as of December 31, 2019.
In September 2018,
we entered into negotiations to sell a parcel of land we own near St. Louis. The sale closed in January 2019 with proceeds, less
closing costs, of $531,000. As a result, we recorded a loss of $99,000 on sale of land in our consolidated statements of earnings
for 2018. At December 31, 2018, $531,000 representing the fair value of the land is reported as assets held for sale in our consolidated
balance sheet.
In the fourth quarter
of 2017, we made the decision to not complete certain facility improvements. Costs previously capitalized of $186,000 were charged
to depreciation expense in 2017.
In the fourth
quarter of 2016, we began removing certain grandstand seating that had been taken out of service and written-off in 2015. We incurred
costs of $286,000 in the first quarter of 2017 to remove the seating which is included in costs to remove long-lived assets in
our consolidated statement of earnings.
NOTE
4 – Accrued Liabilities
Accrued liabilities
consist of the following as of December 31:
|
|
2019
|
|
|
2018
|
|
Payroll and related items
|
|
$
|
434,000
|
|
|
$
|
383,000
|
|
Real estate taxes
|
|
|
943,000
|
|
|
|
962,000
|
|
Pension
|
|
|
1,305,000
|
|
|
|
1,146,000
|
|
Grandstand removal cost
|
|
|
439,000
|
|
|
|
—
|
|
Other
|
|
|
589,000
|
|
|
|
592,000
|
|
|
|
$
|
3,710,000
|
|
|
$
|
3,083,000
|
|
NOTE
5 – Long-Term Debt
At December 31, 2019,
Dover Motorsports, Inc. and its wholly owned subsidiaries Dover International Speedway, Inc. and Nashville Speedway, USA, Inc.,
as co-borrowers had a $30,000,000 credit agreement with a bank group. On September 24, 2019, we modified the credit agreement
to: extend the maturity date to January 1, 2022; and reduce the total available borrowings under the facility from $35,000,000
to $30,000,000. Interest is based upon LIBOR plus a margin that varies between 125 and 175 basis points depending on the
leverage ratio. At December 31, 2019, there were no borrowings outstanding under the credit facility. The credit facility contains
certain covenants including maximum funded debt to earnings before interest, taxes, depreciation and amortization (“leverage
ratio”) and a minimum fixed charge coverage ratio. Material adverse changes in our results of operations could impact our
ability to maintain financial ratios necessary to satisfy these requirements. In addition, the credit agreement includes a material
adverse change clause. The credit facility also provides that if we default under any other loan agreement that would be a default
under this facility. At December 31, 2019, we were in compliance with the terms of the credit facility. The credit facility provides
for seasonal funding needs, capital improvements, letter of credit requirements and other general corporate purposes. After consideration
of stand-by letters of credit outstanding, the remaining maximum borrowings available pursuant to the credit facility were $16,375,000
at December 31, 2019. We expect to be in compliance with the financial covenants, and all other covenants, for all measurement
periods during the next twelve months.
NOTE 6 – Income Taxes
The current and deferred
income tax (expense) benefit is as follows:
|
|
Years ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Current:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(1,251,000
|
)
|
|
$
|
(2,461,000
|
)
|
|
$
|
(1,835,000
|
)
|
State
|
|
|
(122,000
|
)
|
|
|
(683,000
|
)
|
|
|
(562,000
|
)
|
|
|
|
(1,373,000
|
)
|
|
|
(3,144,000
|
)
|
|
|
(2,397,000
|
)
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(219,000
|
)
|
|
|
929,000
|
|
|
|
4,353,000
|
|
State
|
|
|
(194,000
|
)
|
|
|
37,000
|
|
|
|
(67,000
|
)
|
|
|
|
(413,000
|
)
|
|
|
966,000
|
|
|
|
4,286,000
|
|
Total income tax (expense) benefit
|
|
$
|
(1,786,000
|
)
|
|
$
|
(2,178,000
|
)
|
|
$
|
1,889,000
|
|
A reconciliation of
the effective income tax rate with the applicable statutory federal income tax rate is as follows:
|
|
Years ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Federal tax at statutory rate
|
|
|
21.0
|
%
|
|
|
21.0
|
%
|
|
|
35.0
|
%
|
State taxes, net of federal benefit
|
|
|
65.8
|
%
|
|
|
19.8
|
%
|
|
|
8.8
|
%
|
Valuation allowance
|
|
|
(62.4
|
)%
|
|
|
(14.2
|
)%
|
|
|
(2.5
|
)%
|
Tax Cuts and Jobs Act
|
|
|
—
|
|
|
|
—
|
|
|
|
(69.3
|
)%
|
Other
|
|
|
0.1
|
%
|
|
|
(2.6
|
)%
|
|
|
(0.9
|
)%
|
Effective income tax rate
|
|
|
24.5
|
%
|
|
|
24.0
|
%
|
|
|
(28.9
|
)%
|
Deferred income tax
assets and liabilities are comprised of the following as of December 31:
|
|
2019
|
|
|
2018
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
Accruals not currently deductible for income taxes
|
|
$
|
1,905,000
|
|
|
$
|
1,524,000
|
|
Net operating loss carry-forwards
|
|
|
2,989,000
|
|
|
|
7,602,000
|
|
Total deferred income tax assets
|
|
|
4,894,000
|
|
|
|
9,126,000
|
|
Valuation allowance
|
|
|
(2,462,000
|
)
|
|
|
(7,005,000
|
)
|
Net deferred income tax assets
|
|
|
2,432,000
|
|
|
|
2,121,000
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
(11,108,000
|
)
|
|
|
(10,492,000
|
)
|
Total deferred income tax liabilities
|
|
|
(11,108,000
|
)
|
|
|
(10,492,000
|
)
|
Net deferred income tax liability
|
|
$
|
(8,676,000
|
)
|
|
$
|
(8,371,000
|
)
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the consolidated balance sheets:
|
|
|
|
|
|
|
|
|
Noncurrent deferred income tax liabilities
|
|
$
|
(8,676,000
|
)
|
|
$
|
(8,371,000
|
)
|
Deferred income taxes
relate to the temporary differences between financial accounting income and taxable income and are primarily attributable to differences
between the book and tax basis of property and equipment and net operating loss carry-forwards (expiring through 2032). At December
31, 2019, we have available state net operating loss carryforwards of $58,204,000. Valuation allowances which fully reserve the
state net operating loss carryforwards, net of federal tax benefit, decreased in 2019, 2018, and 2017 by $4,543,000, $1,286,000,
and $163,000, respectively.
The passage of the
Tax Cuts and Jobs Act in December of 2017 lowered our federal income tax rate to 21% beginning in 2018 requiring us to revalue
our net deferred federal tax liabilities at December 31, 2017. This resulted in a $4,531,000 decrease in our net deferred income
tax liabilities, with a corresponding deferred income tax benefit.
We recognize interest
expense and penalties on uncertain income tax positions as a component of interest expense. No interest expense or penalties were
recorded for uncertain income tax matters in 2019, 2018 or 2017. As of December 31, 2019 and 2018, we had no liabilities for uncertain
income tax matters.
We file income tax returns
with the Internal Revenue Service and the states in which we conduct business. We have identified the U.S. federal and state of
Delaware as our major tax jurisdictions. As of December 31, 2019, tax years after 2015 remain open to examination for federal and
Delaware income tax purposes.
NOTE 7 – Pension Plans
We maintain a non-contributory
tax qualified defined benefit pension plan that has been frozen since July 2011. All of our full time employees were eligible to
participate in the qualified plan. Benefits provided by our qualified pension plan were based on years of service and employees'
remuneration over their employment period. Compensation earned by employees up to July 31, 2011 is used for purposes of calculating
benefits under our pension plan with no future benefit accruals after this date. We also maintain a non-qualified, non-contributory
defined benefit pension plan, the excess plan, for certain employees that has been frozen since July 2011. This excess plan provided
benefits that would otherwise be provided under the qualified pension plan but for maximum benefit and compensation limits applicable
under federal tax law. The cost associated with the excess plan is determined using the same actuarial methods and assumptions
as those used for our qualified pension plan. The assets for the excess plan aggregate $1,182,000 and $995,000 as of December 31,
2019 and 2018, respectively, and are recorded in other assets in our consolidated balance sheets (see NOTE 9 – Fair Value
Measurements).
The following table
sets forth the defined benefit plans’ funded status and amounts recognized in our consolidated balance sheets as of December
31:
|
|
2019
|
|
|
2018
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
13,359,000
|
|
|
$
|
14,268,000
|
|
Interest cost
|
|
|
516,000
|
|
|
|
463,000
|
|
Actuarial loss (gain)
|
|
|
1,998,000
|
|
|
|
(976,000
|
)
|
Benefits paid
|
|
|
(418,000
|
)
|
|
|
(396,000
|
)
|
Benefit obligation at end of year
|
|
|
15,455,000
|
|
|
|
13,359,000
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
|
11,440,000
|
|
|
|
10,299,000
|
|
Actual gain (loss) on plan assets
|
|
|
2,108,000
|
|
|
|
(216,000
|
)
|
Employer contribution
|
|
|
-----
|
|
|
|
1,750,000
|
|
Benefits paid
|
|
|
(418,000
|
)
|
|
|
(396,000
|
)
|
Other
|
|
|
4,000
|
|
|
|
3,000
|
|
Fair value of plan assets at end of year
|
|
|
13,134,000
|
|
|
|
11,440,000
|
|
|
|
|
|
|
|
|
|
|
Unfunded status
|
|
$
|
(2,321,000
|
)
|
|
$
|
(1,919,000
|
)
|
The following table
presents the amounts recognized in our consolidated balance sheets as of December 31:
|
|
2019
|
|
|
2018
|
|
Accrued liabilities
|
|
$
|
(1,305,000
|
)
|
|
$
|
(1,146,000
|
)
|
Liability for pension benefits
|
|
|
(1,016,000
|
)
|
|
|
(773,000
|
)
|
|
|
$
|
(2,321,000
|
)
|
|
$
|
(1,919,000
|
)
|
Amounts recognized
in accumulated other comprehensive loss that have not yet been recognized as components of net periodic benefit at December 31
are as follows:
|
|
2019
|
|
|
2018
|
|
Net actuarial loss, pre-tax
|
|
$
|
6,176,000
|
|
|
$
|
5,708,000
|
|
The components of
net periodic pension benefit for our defined benefit pension plans for the years ended December 31, 2019, 2018 and 2017 are as
follows:
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Interest cost
|
|
$
|
516,000
|
|
|
$
|
463,000
|
|
|
$
|
468,000
|
|
Expected return on plan assets
|
|
|
(727,000
|
)
|
|
|
(699,000
|
)
|
|
|
(644,000
|
)
|
Recognized net actuarial loss
|
|
|
149,000
|
|
|
|
151,000
|
|
|
|
143,000
|
|
|
|
$
|
(62,000
|
)
|
|
$
|
(85,000
|
)
|
|
$
|
(33,000
|
)
|
The net periodic pension
benefit is included in other income in our consolidated statements of earnings and comprehensive income.
For the year ending
December 31, 2020, we expect to recognize the following amount as a component of net periodic benefit which is included in accumulated
other comprehensive loss as of December 31, 2019:
The principal assumptions
used to determine the net periodic pension benefit for the years ended December 31, 2019, 2018 and 2017, and the actuarial value
of the benefit obligation at December 31, 2019 and 2018 (the measurement dates) for our pension plans are as follows:
|
|
Net Periodic Pension Cost
|
|
|
Benefit Obligation
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2019
|
|
|
2018
|
|
Weighted-average discount rate
|
|
|
4.4
|
%
|
|
|
3.8
|
%
|
|
|
4.2
|
%
|
|
|
3.4
|
%
|
|
|
4.4
|
%
|
Weighted-average rate of compensation increase
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Expected long-term rate of return on plan assets
|
|
|
6.5
|
%
|
|
|
6.5
|
%
|
|
|
8.0
|
%
|
|
|
n/a
|
|
|
|
n/a
|
|
We use the spot rate
approach to determine the benefit obligation and the subsequent years’ interest cost component of the net periodic pension
benefit. This method uses individual spot rates along the yield curve that correspond with the timing of each benefit payment and
will provide a more precise measurement of the interest cost by improving the correlation between projected benefit cash flows
and the corresponding spot yield curve rates.
For 2019, we assumed
a long-term rate of return on plan assets of 6.5%. In developing the expected long-term rate of return assumption, we reviewed
asset class return expectations and long-term inflation assumptions and considered our historical compounded return, which was
consistent with our long-term rate of return assumption.
In determining the 2018
pension liability, we used the Society of Actuaries' ("SOA") RP-2014 mortality tables and the MP-2018 mortality improvement
tables, which along with a higher discount rate, resulted in a decrease in our benefit obligation and accumulated other comprehensive
loss at December 31, 2018. For 2019, we adopted the Society of Actuaries' ("SOA") Pri-2012 mortality tables and
the MP-2019 mortality improvement tables, which along with a lower discount rate, resulted in an increase in our benefit obligation
and accumulated other comprehensive loss at December 31, 2019.
Historically,
our investment goals were to achieve a combination of moderate growth of capital and income with moderate risk.
Acceptable investment vehicles included mutual funds, exchange-traded funds (ETFs), limited partnerships, and individual
securities. Our target allocations for plan assets were 60% equities and 40% fixed income. Of the equity portion, 50% were
invested in passively managed securities using ETFs and the other 50% were invested in actively managed investment vehicles.
We addressed diversification by investing in mutual funds and ETFs which held large, mid and small capitalization U.S.
stocks, international (non-U.S.) equity, REITS, and real assets (consisting of inflation-linked bonds, real estate and
natural resources). A sufficient percentage of investments were readily marketable in order to be sold to fund benefit
payment obligations as they became payable. Beginning in 2018, our investment strategy changed to a liability driven
investment policy. Our asset management decisions are largely determined by the sum of current and future liabilities of our
pension plan. Our liability driven investment strategies involve hedging, in whole or in part, the plan’s exposure to
changes in interest rates and inflation. Our liability driven investments consist of exchange traded mutual funds that may
have underlying investments in hedge funds that are comprised of bonds, swaps and other derivatives that over time seeks to
achieve a return that matches or exceeds the growth in projected pension plan liabilities and duration. Our target
allocations for plan assets are 20% equities and 80% liability hedges.
The fair values of our
pension assets as of December 31, 2019 by asset category are as follows (refer to NOTE 9 – Fair Value Measurements for a
description of Level 1, Level 2 and Level 3 categories):
Asset Category
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Mutual funds/ETFs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity-large cap
|
|
$
|
995,000
|
|
|
$
|
995,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Equity-mid cap
|
|
|
502,000
|
|
|
|
502,000
|
|
|
|
—
|
|
|
|
—
|
|
Equity-small cap
|
|
|
560,000
|
|
|
|
560,000
|
|
|
|
—
|
|
|
|
—
|
|
Equity-international
|
|
|
667,000
|
|
|
|
667,000
|
|
|
|
—
|
|
|
|
—
|
|
Fixed income
|
|
|
10,358,000
|
|
|
|
10,358,000
|
|
|
|
—
|
|
|
|
—
|
|
Money market
|
|
|
52,000
|
|
|
|
52,000
|
|
|
|
—
|
|
|
|
—
|
|
Total mutual funds/ETFs
|
|
$
|
13,134,000
|
|
|
$
|
13,134,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The fair values of our
pension assets as of December 31, 2018 by asset category are as follows (refer to NOTE 9 – Fair Value Measurements for a
description of Level 1, Level 2 and Level 3 categories):
Asset Category
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Mutual funds/ETFs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity-large cap
|
|
$
|
770,000
|
|
|
$
|
770,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Equity-mid cap
|
|
|
374,000
|
|
|
|
374,000
|
|
|
|
—
|
|
|
|
—
|
|
Equity-small cap
|
|
|
453,000
|
|
|
|
453,000
|
|
|
|
—
|
|
|
|
—
|
|
Equity-international
|
|
|
560,000
|
|
|
|
560,000
|
|
|
|
—
|
|
|
|
—
|
|
Fixed income
|
|
|
8,798,000
|
|
|
|
8,798,000
|
|
|
|
—
|
|
|
|
—
|
|
Money market
|
|
|
485,000
|
|
|
|
485,000
|
|
|
|
—
|
|
|
|
—
|
|
Total mutual funds/ETFs
|
|
$
|
11,440,000
|
|
|
$
|
11,440,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
We have no minimum required
pension contributions for 2020, but will consider making additional contributions.
Estimated future benefit
payments are as follows:
2020
|
|
$
|
1,832,000
|
|
2021
|
|
$
|
587,000
|
|
2022
|
|
$
|
589,000
|
|
2023
|
|
$
|
648,000
|
|
2024
|
|
$
|
652,000
|
|
2025-2029
|
|
$
|
3,520,000
|
|
We also maintain a
non-elective, non-qualified supplemental executive retirement plan (“SERP”) which provides deferred compensation to
certain highly compensated employees that approximates the value of benefits lost by the freezing of the pension plan which are
not offset by our enhanced matching contributions in our 401(k) plan. The SERP is a discretionary defined contribution
plan and contributions made to the SERP in any given year are not guaranteed and will be at the sole discretion of our Compensation
and Stock Incentive Committee. In 2019, 2018 and 2017, we recorded expenses of $120,000, $112,000, and $80,000, respectively, related
to the SERP. During 2019, 2018 and 2017, we contributed $108,000, $85,000, and $96,000 to the plan, respectively. The liability
for SERP pension benefits was $120,000 and $108,000 as of December 31, 2019 and 2018, respectively, and is included in accrued
liabilities in our consolidated balance sheets.
We maintain a defined
contribution 401(k) plan that permits participation by substantially all employees. Our matching contributions to the 401(k) plan
were $118,000, $129,000, and $123,000 in 2019, 2018 and 2017, respectively.
NOTE 8 – Stockholders’
Equity
Changes in the components
of stockholders’ equity are as follows (in thousands, except per share amounts):
|
|
Common
Stock
|
|
|
Class
A
Common
Stock
|
|
|
Additional
Paid-in
Capital
|
|
|
Accumulated
Deficit
|
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Balance at December 31, 2016
|
|
$
|
1,828
|
|
|
$
|
1,851
|
|
|
$
|
101,858
|
|
|
$
|
(48,340
|
)
|
|
$
|
(3,392
|
)
|
Net earnings
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,426
|
|
|
|
—
|
|
Dividends paid, $0.08 per share
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,944
|
)
|
|
|
—
|
|
Issuance of restricted stock awards, net of forfeitures
|
|
|
15
|
|
|
|
—
|
|
|
|
(15
|
)
|
|
|
—
|
|
|
|
—
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
364
|
|
|
|
—
|
|
|
|
—
|
|
Repurchase and retirement of common stock
|
|
|
(18
|
)
|
|
|
—
|
|
|
|
(363
|
)
|
|
|
—
|
|
|
|
—
|
|
Unrealized gain on available-for-sale securities,
net of income tax expense of $15
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
22
|
|
Change in net actuarial loss and prior service
cost, net of income tax benefit of $48
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(70
|
)
|
Balance at December 31, 2017
|
|
|
1,825
|
|
|
|
1,851
|
|
|
|
101,844
|
|
|
|
(42,858
|
)
|
|
|
(3,440
|
)
|
Adoption of ASU 2016-01 (see NOTE 2)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
73
|
|
|
|
(73
|
)
|
Net earnings
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,889
|
|
|
|
—
|
|
Dividends paid, $0.08 per share
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,930
|
)
|
|
|
—
|
|
Issuance of restricted stock awards, net of forfeitures
|
|
|
15
|
|
|
|
—
|
|
|
|
(15
|
)
|
|
|
—
|
|
|
|
—
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
302
|
|
|
|
—
|
|
|
|
—
|
|
Repurchase and retirement of common stock
|
|
|
(35
|
)
|
|
|
—
|
|
|
|
(715
|
)
|
|
|
—
|
|
|
|
—
|
|
Change in net actuarial loss and prior service
cost, net of income tax expense of $60
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
155
|
|
Balance at December 31, 2018
|
|
|
1,805
|
|
|
|
1,851
|
|
|
|
101,416
|
|
|
|
(38,826
|
)
|
|
|
(3,358
|
)
|
Net earnings
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,500
|
|
|
|
—
|
|
Dividends paid, $0.10 per share
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,642
|
)
|
|
|
—
|
|
Issuance of restricted stock awards, net of forfeitures
|
|
|
14
|
|
|
|
—
|
|
|
|
(14
|
)
|
|
|
—
|
|
|
|
—
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
294
|
|
|
|
—
|
|
|
|
—
|
|
Repurchase and retirement of common stock
|
|
|
(37
|
)
|
|
|
—
|
|
|
|
(702
|
)
|
|
|
—
|
|
|
|
—
|
|
Change in net actuarial loss and prior service
cost, net of income tax benefit of $135
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(333
|
)
|
Balance of December 31, 2019
|
|
$
|
1,782
|
|
|
$
|
1,851
|
|
|
$
|
100,994
|
|
|
$
|
(36,968
|
)
|
|
$
|
(3,691
|
)
|
As of December 31, 2019
and 2018, accumulated other comprehensive loss, net of income taxes, consists of the following:
|
|
2019
|
|
|
2018
|
|
Net actuarial loss and prior service cost not yet recognized in net periodic benefit cost, net of income tax benefit of $2,485,000, and $2,350,000, respectively
|
|
$
|
(3,691,000
|
)
|
|
$
|
(3,358,000
|
)
|
Holders of common
stock have one vote per share and holders of Class A common stock have ten votes per share. There is no cumulative voting. Shares
of Class A common stock are convertible at any time into shares of common stock on a share for share basis at the option of the
holder thereof. Dividends on Class A common stock cannot exceed dividends on common stock on a per share basis. Dividends on common
stock may be paid at a higher rate than dividends on Class A common stock. The terms and conditions of each issue of preferred
stock are determined by our Board of Directors. No preferred shares have been issued.
Effective
June 14, 2016, we adopted a stockholder rights plan. The rights are attached to and trade in tandem with our common stock.
The rights, unless earlier redeemed by our board of directors, will detach and trade separately from our common stock only
upon the occurrence of certain events such as the unsolicited acquisition by a third party of beneficial ownership of 10% or
more of our outstanding combined common stock and Class A common stock or the announcement by a third party of the intent to
commence a tender or exchange offer for 10% or more of our outstanding combined common stock and Class A common stock. After
the rights have detached, the holders of such rights would generally have the ability to purchase such number of either
shares of our common stock or stock of an acquirer of our company having a market value equal to twice the exercise price of
the right being exercised, thereby causing substantial dilution to a person or group of persons attempting to acquire control
of our company. The rights may serve as a significant deterrent to unsolicited attempts to acquire control of us, including
transactions involving a premium to the market price of our stock. The rights expire on June 13, 2026, unless earlier
redeemed.
On July 28, 2004,
our Board of Directors authorized the repurchase of up to 2,000,000 shares of our outstanding common stock. The purchases may be
made in the open market or in privately negotiated transactions as conditions warrant. The repurchase authorization has no expiration
date, does not obligate us to acquire any specific number of shares and may be suspended at any time. During the years ended December
31, 2019, 2018 and 2017, we purchased and retired 315,840, 308,928, and 130,741 shares of our outstanding common stock at an average
purchase price of $1.99, $2.08 and $2.07 per share, respectively, not including nominal brokerage commissions. At December 31,
2019, we had remaining repurchase authority of 384,809 shares.
During the years ended
December 31, 2019, 2018 and 2017, we purchased and retired 48,457, 47,236, and 46,179 shares of our outstanding common stock at
an average purchase price of $1.99, $2.00 and $2.27 per share, respectively. These purchases were made from employees in connection
with the vesting of restricted stock awards under our Stock Incentive Plan and were not pursuant to the aforementioned repurchase
authorization. Since the vesting of a restricted stock award is a taxable event to our employees for which income tax withholding
is required, the plan allows employees to surrender to us some of the shares that would otherwise have transferred to the employee
in satisfaction of their tax liability. The surrender of these shares is treated by us as a purchase of the shares.
We have a stock
incentive plan, adopted in 2014, which provides for the grant of up to 2,000,000 shares of common stock to our officers and key
employees through stock options and/or awards valued in whole or in part by reference to our common stock, such as nonvested restricted
stock awards. Under the plan, nonvested restricted stock vests an aggregate of twenty percent each year beginning on the second
anniversary date of the grant. The aggregate market value of the nonvested restricted stock at the date of issuance is being amortized
on a straight-line basis over the six-year period. As of December 31, 2019, there were 1,265,000 shares available for granting
options or stock awards.
Nonvested restricted
stock activity for the year ended December 31, 2019 was as follows:
|
|
Number of
Shares
|
|
|
Weighted
Average
Grant Date
Fair
Value
|
|
Nonvested at December 31, 2018
|
|
|
592,800
|
|
|
$
|
2.24
|
|
Granted
|
|
|
143,000
|
|
|
$
|
1.99
|
|
Vested
|
|
|
(145,000
|
)
|
|
$
|
2.26
|
|
Forfeited
|
|
|
(16,000
|
)
|
|
$
|
2.17
|
|
Nonvested at December 31, 2019
|
|
|
574,800
|
|
|
$
|
2.17
|
|
The aggregate market
value of the nonvested restricted stock at the date of issuance is being amortized on a straight-line basis over the six-year service
period or the service period remaining until normal retirement age, if shorter. The total fair value of shares vested during the
years ended December 31, 2019, 2018 and 2017 based on the weighted average grant date fair value was $328,000, $288,000, and $267,000,
respectively. The grant-date fair value per share of nonvested restricted stock awards granted during the years ended December
31, 2019, 2018 and 2017 was $1.99, $2.00, and $2.27, respectively. We recorded compensation expense of $294,000, $302,000, and
$364,000 related to restricted stock awards for the years ended December 31, 2019, 2018 and 2017, respectively. As of December
31, 2019, there was $646,000 of total unrecognized compensation cost related to nonvested restricted stock awards granted to employees
under our stock incentive plan. That cost is expected to be recognized over a weighted-average period of 3.6 years.
NOTE 9 – Fair Value Measurements
Our financial instruments
are classified and disclosed in one of the following three categories:
Level
1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or
liabilities;
Level
2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially
the full term of the asset or liability;
Level
3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable
(i.e., supported by little or no market activity).
The following table
summarizes the valuation of our financial instrument pricing levels as of December 31, 2019 and 2018:
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity investments
|
|
$
|
1,182,000
|
|
|
$
|
1,182,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity investments
|
|
$
|
995,000
|
|
|
$
|
995,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Our equity investments
consist of mutual funds. These investments are included in other assets in our consolidated balance sheets. Gains and losses on
our equity investments for the year ended December 31, 2019 are as follows:
Net gains recognized during the period on equity investments
|
|
$
|
162,000
|
|
Less: net gains recognized during the period on equity investments sold during the period
|
|
|
—
|
|
Unrealized gains recognized during the period on equity investments still held at period end
|
|
$
|
162,000
|
|
The carrying amounts
of other financial instruments reported in our consolidated balance sheets for current assets and current liabilities approximate
their fair values because of the short maturity of these instruments.
There were no borrowings
outstanding under our credit facility at December 31, 2019 or 2018. Borrowings under our revolving credit agreement bear interest
at the variable rate described in NOTE 5 – Long-Term Debt and therefore we believe would approximate fair value.
The following table
summarizes the valuation of our pricing levels for non-financial assets that are measured at fair value on a non-recurring basis
as of December 31, 2018:
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets held for sale
|
|
$
|
531,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
531,000
|
|
Fair value of the
long-lived assets held for sale was determined using a valuation methodology which gave specific consideration to the value of
the owned real estate.
NOTE 10 – Related Party Transactions
During the years ended
December 31, 2019, 2018 and 2017, Dover Downs Gaming & Entertainment, Inc. (“Gaming”), a company previously related
through common ownership, allocated costs of $430,000, $1,775,000 and $1,862,000, respectively, to us for certain administrative
and operating services, including leased space. We allocated certain administrative and operating service costs of $110,000,
$189,000 and $187,000, respectively, to Gaming for the years ended December 31, 2019, 2018 and 2017. The allocations were
based on an analysis of each company’s share of the costs. In connection with our NASCAR event weekends at Dover International
Speedway, Gaming provided certain services, primarily catering, for which we were invoiced $847,000 and $903,000 during the years
ended December 31, 2018 and 2017, respectively. Additionally, we invoiced Gaming $15,000, and $211,000 and $224,000, respectively,
during 2019, 2018 and 2017, respectively, for tickets, our commission for suite catering and other services to the NASCAR events.
As of December 31, 2018, our consolidated balance sheet included a $9,000 payable to Gaming for the aforementioned items.
We settled these items in January of 2019. Effective March 28, 2019, Gaming became part of Twin River Worldwide Holdings,
Inc. as a result of a merger, and therefore, was no longer related through common ownership. Accordingly, the amounts reflected
above for the year ended December 31, 2019 are only through March 28, 2019. The net costs incurred by each company for these services
are not necessarily indicative of the costs that would have been incurred if the companies had been unrelated entities and/or had
otherwise independently managed these functions; however, management believes that these costs are reasonable.
Prior to the spin-off of Gaming from our company in 2002, both companies shared certain real property in Dover, Delaware.
At the time of the spin-off, some of this real property was transferred to Gaming to ensure that the real property holdings of
each company were aligned with its past uses and future business needs. During its harness racing season, Gaming has historically
used the 5/8-mile harness racing track that is located on our property and is on the inside of our one-mile motorsports superspeedway.
In order to continue this historic use, we granted a perpetual easement to the harness track to Gaming at the time of the spin-off.
This perpetual easement allows Gaming to have exclusive use of the harness track during the period beginning November 1 of each
year and ending April 30 of the following year, together with set up and tear down rights for the two weeks before and after such
period. The easement requires that Gaming maintain the harness track but does not require the payment of any rent.
Various easements and agreements relative to access, utilities and parking have also been entered into between us and Gaming relative
to our respective Dover, Delaware facilities. We pay rent to Gaming for the lease of our principal executive office space.
Henry B. Tippie, Chairman of our Board of Directors, controls in excess of fifty percent of our voting power. Mr. Tippie's
voting control emanates from his direct and indirect holdings of common stock and Class A common stock and from his status as a
trustee of the RMT Trust, our largest stockholder. This means that Mr. Tippie has the ability to determine the outcome of
the election of directors and to determine the outcome of many significant corporate transactions, many of which only require the
approval of a majority of our voting power.
NOTE 11 – Commitments and Contingencies
We lease equipment with
leases expiring at various dates through 2022. Total rental expense charged to operations amounted to $47,000, $67,000, and $67,000
for the years ended December 31, 2019, 2018 and 2017, respectively.
In September 1999,
the Sports Authority of the County of Wilson (Tennessee) issued $25,900,000 in Variable Rate Tax Exempt Infrastructure Revenue
Bonds, Series 1999, to acquire, construct and develop certain public infrastructure improvements which benefit Nashville Superspeedway,
of which $13,400,000 was outstanding at December 31, 2019. Annual principal payments on these bonds range from $1,000,000 in September
2019 to $1,600,000 in 2029 and are payable solely from sales taxes and incremental property taxes generated from the facility.
These bonds are direct obligations of the Sports Authority and therefore have historically not been required to be recorded on
our consolidated balance sheet. If the sales taxes and incremental property taxes (“applicable taxes”) are insufficient
for the payment of principal and interest on the bonds, we would become responsible for the difference. In the event we were unable
to make the payments, they would be made pursuant to a $13,625,000 irrevocable direct-pay letter of credit issued by our bank group.
We are exposed to fluctuations in interest rates for these bonds.
As of December 31, 2019
and 2018, $637,000 and $1,052,000, respectively, was available in the sales and incremental property tax fund maintained by the
Sports Authority to pay the remaining principal and interest due under the bonds. During 2019, we paid $983,000 into the sales
and incremental property tax fund and $1,398,000 was deducted from the fund for debt service. If we fail to maintain the letter
of credit that secures the bonds or we allow an uncured event of default to exist under our reimbursement agreement relative to
the letter of credit, the bonds would be immediately redeemable.
Nashville
Superspeedway no longer promotes motorsports events and has not entered into sanction agreements with NASCAR since 2011. We lease
the facility on a short term basis to third parties from time to time. In 2011, we recorded a $2,250,000 provision for contingent
obligation reflecting the present value of the estimated portion of the revenue bonds debt service that may not be covered by the
projected sales and incremental property taxes from the facility. Due to changing interest rates and future property tax assumptions,
a provision to increase the contingent obligation was recorded in the amount of $1,005,000, $424,000, and $158,000 in 2019, 2018
and 2017, respectively, and the contingent obligation is $3,389,000 at December 31, 2019. An increase in the bonds’ interest
rates would result in an increase in the portion of debt service not covered by applicable taxes and therefore an increase in our
liability.
We have employment,
severance and noncompete agreements with certain of our officers and directors under which certain change of control, severance
and noncompete payments and benefits might become payable in the event of a change in our control, defined to include a tender
offer or the closing of a merger or similar corporate transactions. In the event of such a change in control and the subsequent
termination of employment of all employees covered under these agreements, we estimate that the maximum contingent liability would
range from $8,100,000 to $9,900,000 depending on the tax treatment of the payments.
To the extent that any
of the potential payments or benefits due under the agreements constitute an excess “parachute payment” under the Internal
Revenue Code and result in the imposition of an excise tax, each agreement requires that we pay the amount of such excise tax plus
any additional amounts necessary to place the officer or director in the same after-tax position as he would have been had no excise
tax been imposed. We estimate that the tax gross ups that could be paid under the agreements in the event the agreements were triggered
due to a change of control could be between $1,300,000 and $3,100,000 and these amounts have been included in the maximum
contingent liability disclosed above. This maximum tax gross up figure assumes that none of the payments made after the hypothetical
change in control would be characterized as reasonable compensation for services rendered. Each agreement with an executive officer
provides that fifty percent of the monthly amount paid during the term is paid in consideration of the executive officer’s
non-compete covenants. The exclusion of these amounts would reduce the calculated amount of excess parachute payments subject to
tax. We are unable to conclude whether the Internal Revenue Service would characterize all or some of these non-compete payments
as reasonable compensation for services rendered.
We are also a party
to ordinary routine litigation incidental to our business. Management does not believe that the resolution of any of these matters
is likely to have a material adverse effect on our results of operations, financial position or cash flows.
NOTE 12 – Quarterly Results
(unaudited)
|
|
March 31(a)
|
|
|
June 30
|
|
|
September 30(b)
|
|
|
December 31(c)
|
|
Year Ended December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
129,000
|
|
|
$
|
24,838,000
|
|
|
$
|
202,000
|
|
|
$
|
20,794,000
|
|
Operating (loss) earnings
|
|
$
|
(3,496,000
|
)
|
|
$
|
7,634,000
|
|
|
$
|
(516,000
|
)
|
|
$
|
4,378,000
|
|
Net (loss) earnings
|
|
$
|
(2,490,000
|
)
|
|
$
|
5,501,000
|
|
|
$
|
(414,000
|
)
|
|
$
|
2,903,000
|
|
Net (loss) earnings per share – basic and diluted
|
|
$
|
(0.07
|
)
|
|
$
|
0.15
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.08
|
|
Year Ended December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
226,000
|
|
|
$
|
25,812,000
|
|
|
$
|
227,000
|
|
|
$
|
20,751,000
|
|
Operating (loss) earnings
|
|
$
|
(1,246,000
|
)
|
|
$
|
8,954,000
|
|
|
$
|
(4,062,000
|
)
|
|
$
|
5,911,000
|
|
Net (loss) earnings
|
|
$
|
(992,000
|
)
|
|
$
|
6,508,000
|
|
|
$
|
(2,699,000
|
)
|
|
$
|
4,072,000
|
|
Net (loss) earnings per share – basic and diluted
|
|
$
|
(0.03
|
)
|
|
$
|
0.18
|
|
|
$
|
(0.07
|
)
|
|
$
|
0.11
|
|
|
(a)
|
In the first quarter of 2019, we closed on the sale of land at our Nashville Superspeedway facility
resulting in a gain of $139,000 ($110,000 after income taxes). See Note 1 – Business Operations.
|
In the
first quarter of 2018, we closed on the sale of land at our Nashville Superspeedway facility resulting in a gain of $2,512,000
($1,984,000 after income taxes). See NOTE 1 – Business Operations.
|
(b)
|
In the third quarter of 2019, we closed on the sale of land at our Nashville Superspeedway facility
resulting in a gain of $4,186,000 ($3,307,000 after income taxes). See NOTE 1 – Business Operations.
|
During
the third quarter of 2019, we made the decision to remove certain grandstand seating at our Dover International Speedway facility
at the end of the 2019 race season. As a result, we shortened the service lives of these assets which results in accelerated depreciation
of $879,000 ($634,000 after income taxes) in the third quarter. See NOTE 3 – Property and Equipment.
In the
third quarter of 2018, we entered into negotiations to sell a parcel of land we own near St. Louis. As a result, we recorded a
loss of $99,000 ($76,000 after income taxes) on sale of land. See NOTE 1 – Business Operations.
|
(c)
|
During the third quarter of 2019, we made the decision to remove certain grandstand seating at
our Dover International Speedway facility at the end of the 2019 race season. As a result, we shortened the service lives of these
assets which results in accelerated depreciation of $293,000 ($211,000 after income taxes) in the fourth quarter. See NOTE 3 –
Property and Equipment.
|
Related to the decision to remove grandstand seats
at Dover International Speedway, we incurred $1,170,000 ($844,000 after income taxes) of costs to remove these assets in the fourth
quarter of 2019. See NOTE 3 – Property and Equipment.
Per share data amounts
for the quarters have each been calculated separately. Accordingly, quarterly amounts may not add to the annual amounts due to
differences in the weighted-average common shares outstanding during each period.
Our operations are seasonal
in nature. In 2019 and 2018, three NASCAR racing events were held in the second quarter and three in the fourth quarter.