DVD Dover Motorsports Inc

Part I – Financial Information

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The Notes to the Consolidated Financial Statements are an integral part of these consolidated financial statements.

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The Notes to the Consolidated Financial Statements are an integral part of these consolidated financial statements.

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DOVER MOTORSPORTS, INC.

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On August 17, 2017, we entered into an agreement with an entity owned by Panattoni Development Company (the “buyer”) relative to the sale of approximately 147 acres of land at our Nashville facility 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 approximately 88 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 buyer’s exercise of its option on two parcels, we adjusted the acreage and further extended the term of the option on a third parcel. The buyer 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. On July 26, 2019, the buyer closed on the sale of 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. On July 29, 2020, the buyer closed on the sale of the third parcel of approximately 97 acres at our Nashville property. Proceeds from the sale, less closing costs, were $6,460,000. Net proceeds after taxes were approximately $5,290,000 resulting in a gain of $4,843,000. The buyer’s deposit previously paid to us was credited to the purchase price. On November 5, 2020, we entered into an agreement to sell an additional 350 acres of land at our Nashville facility for $14,355,000. The buyer paid us a $500,000 non-refundable deposit which would be credited to the purchase price at the closing of the sale of that parcel. On May 26, 2021, we closed on the sale with proceeds, less closing costs, of $14,326,000. Net proceeds after taxes were approximately $12,000,000 resulting in a gain of $8,510,000. The buyer’s deposit previously paid to us was credited to the purchase price. At December 31, 2020, the carrying value of that land is classified as assets held for sale in our consolidated balance sheet. The remaining Nashville Superspeedway property consists of approximately 650 acres. None of the acreage sold extends to the land on which our superspeedway is sited.

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NOTE 3 – Summary of Significant Accounting Policies

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Property and equipment—Property and equipment is stated at cost. Depreciation is provided using the straight-line method over the asset’s estimated useful life. Accumulated depreciation was $71,898,000 and $70,374,000 as of June 30, 2021 and December 31, 2020, respectively.

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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. Sales taxes we collect concurrent with revenue-producing activities are excluded from revenue.

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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. 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. Cash received in advance from customers pertaining to specific events is deferred and recorded as a contract liability in our consolidated balance sheets until the event is held. As of June 30, 2021, $275,000 of the contract liabilities on our consolidated balance sheet relates to 2021 events and $582,000 relates to 2022 events. As of December 31, 2020, contract liabilities in our consolidated balance sheets related to 2021 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 $715,000 for the three and six-month periods ended June 30, 2021.

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The following table summarizes the liability activity related to contracts with customers for the three and six-month periods ended June 30, 2021 and 2020 (in thousands):

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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 2022 and beyond of approximately $7,901,000 as of June 30, 2021.

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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 after 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.

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Expense recognition— The cost of advertising is expensed as incurred. Advertising expenses were $582,000 and $1,016,000 and $(2,000) and $50,000 for the three and six-month periods ended June 30, 2021 and 2020, 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.

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Net earnings (loss) 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 (loss) 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):

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There were no options outstanding during the six months ended June 30, 2021 or 2020.

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Accounting for stock-based compensation—We recorded total stock-based compensation expense for our restricted stock awards of $51,000 and $175,000 and $126,000 and $218,000 as general and administrative expenses for the three and six-month periods ended June 30, 2021 and 2020, respectively. We recorded income tax benefits of $14,000 and $51,000 and $35,000 and $43,000 for the three and six-month periods ended June 30, 2021 and 2020, respectively, related to vesting of our restricted stock awards.

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Recent accounting pronouncements— In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. The adoption of this ASU did not have a material impact on our financial statement disclosures.

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In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement. This new standard makes changes to the disclosure requirements for fair value measurements to improve effectiveness of notes to the financial statements. ASU 2018-14 is effective for fiscal years beginning after December 15, 2019, and generally requires retrospective adoption. The adoption of this ASU did not have a material impact on our financial statement disclosures.

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NOTE 4 – Long-Term Debt

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At June 30, 2021, Dover Motorsports, Inc. and its wholly owned subsidiaries Dover International Speedway, Inc. and Nashville Speedway, USA, Inc., as co-borrowers, had a $25,000,000 credit agreement with a bank group. On February 25, 2021, we modified the credit agreement: (1) to extend the maturity date to September 1, 2024; (2) to reduce the total available borrowings under the facility from $30,000,000 to $25,000,000; and (3) to replace the fixed charge coverage ratio with an interest coverage ratio. Interest is based upon LIBOR plus a margin that varies between 125 and 175 basis points depending on the leverage ratio. At June 30, 2021, 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 interest 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 June 30, 2021, 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 $12,494,000 at June 30, 2021.

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NOTE 5 – Pension Plans

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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 similar actuarial methods as those used for our qualified pension plan. The assets for the excess plan aggregate $1,410,000 and $1,322,000 as of June 30, 2021 and December 31, 2020, respectively, and are recorded in other assets in our consolidated balance sheets (see NOTE 7 – Fair Value Measurements).

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The components of net periodic pension benefit for our defined benefit pension plans are as follows:

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The net periodic pension benefit is included in other income, net in our consolidated statements of operations and comprehensive income (loss).

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We have no minimum required pension contributions for 2021.

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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 the three and six-month periods ended June 30, 2021 and 2020, we recorded expenses of $25,000 and $50,000 and $30,000 and $60,000, respectively, related to the SERP. During the three and six-month periods ended June 30, 2021 and 2020, we contributed $0 and $88,000 and $0 and $120,000 to the plan, respectively. The liability for SERP pension benefits was $50,000 and $88,000 as of June 30, 2021 and December 31, 2020, 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 $43,000 and $78,000 and $29,000 and $65,000 in the three and six-month periods ended June 30, 2021 and 2020, respectively.

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Changes in the components of stockholders’ equity for the three and six-month periods ending June 30, 2020 are as follows (in thousands):

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As of June 30, 2021 and December 31, 2020, accumulated other comprehensive loss, net of income taxes, consists of the following:

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As of June 30, 2020 and December 31, 2019, accumulated other comprehensive loss, net of income taxes, consists of the following:

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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. We made no purchases during the first six months of 2021 or 2020. At June 30, 2021, we had remaining repurchase authority of 384,809 shares.

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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. We granted 141,000 and 158,000 stock awards under this plan during the six months ended June 30, 2021 and 2020, respectively. As of June 30, 2021, there were 1,051,000 shares available for granting options or stock awards.

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During the six months ended June 30, 2021 and 2020, we purchased and retired 51,791 and 50,572 shares of our outstanding common stock at an average purchase price of $2.27 and $1.86 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.

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NOTE 7 – Fair Value Measurements

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Our financial instruments are classified and disclosed in one of the following three categories:

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Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

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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;

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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).

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The following table summarizes the valuation of our financial instrument pricing levels as of June 30, 2021 and December 31, 2020:

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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 three and six-month periods ended June 30, 2021 and 2020, respectively, are as follows:

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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.

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NOTE 8 – Related Party Transactions

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Effective March 28, 2019, Dover Downs Gaming & Entertainment, Inc. (“Gaming”), a company previously related through common ownership, became part of Twin River Worldwide Holdings, Inc. as a result of a merger and therefore was no longer related through common ownership.

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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 was 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.

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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.

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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.

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NOTE 9 – Commitments and Contingencies

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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 $12,300,000 was outstanding at June 30, 2021. Annual principal payments on these bonds range from $1,100,000 in September 2021 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 $12,506,000 irrevocable direct-pay letter of credit issued by our bank group. We are exposed to fluctuations in interest rates for these bonds.

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As of June 30, 2021 and December 31, 2020, $1,077,000 and $217,000, 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 2020, we paid $945,000 into the sales and incremental property tax fund and $1,365,000 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.

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Prior to our recent decision to reopen Nashville Superspeedway in 2021,we had not promoted motorsports events at that facility since 2011. 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 higher than anticipated sales taxes available for debt service, the contingent obligation decreased (increased) by $500,000 and $534,000, and $353,000 and ($16,000) in the three and six-month periods ended June 30, 2021 and 2020, respectively, and is $2,684,000 at June 30, 2021. See NOTE 2 – Business Operations.

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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.

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NOTE 10 – Income Taxes

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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 carryforwards (expiring through 2032). At June 30, 2021, we have available state net operating loss carryforwards of $25,977,000. As of each reporting date, management considers and evaluates evidence, both positive and negative, that could impact management’s view with regard to future realization of deferred tax assets. Valuation allowances which reserve a portion of the state net operating loss carryforwards, net of federal tax benefit, decreased in the second quarter of 2021 and 2020 by $363,000 and $1,240,000, respectively; from reassessing the realizability of the deferred tax assets for projected future taxable income related to the reopening of Nashville Superspeedway and reversals of deferred tax liabilities.

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