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________________________________________________________________________________
United States
Securities and Exchange Commission
Washington, D.C. 20549
________________________________________________________________________________
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 2002
Commission file number 1-11929
------------------------------
Dover Motorsports, Inc.
(Exact name of registrant as specified in its charter)
Delaware 51-0357525
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation) Identification Number)
1131 North DuPont Highway, Dover, Delaware 19901
(Address of principal executive offices)
(302) 674-4600
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [_]
As of July 31, 2002, the number of shares of each class of the Registrant's
common stock outstanding is as follows:
Common Stock - 14,448,252 shares
Class A Common Stock - 23,615,085 shares
1
Part I - Financial Information
Item 1. Financial Statements
DOVER MOTORSPORTS, INC.
CONSOLIDATED STATEMENT OF EARNINGS
In Thousands, Except Per Share Amounts
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2002 2001 2002 2001
---- ---- ---- ----
Revenues ............................................................ $ 48,641 $ 46,506 $ 49,637 $ 47,582
Expenses:
Operating ....................................................... 28,346 24,934 30,539 26,920
Depreciation and amortization ................................... 2,372 2,600 4,729 4,642
General and administrative ...................................... 3,886 2,671 7,397 5,378
-------- -------- -------- --------
34,604 30,205 42,665 36,940
-------- -------- -------- --------
Operating earnings .................................................. 14,037 16,301 6,972 10,642
Interest income ..................................................... 25 -- 38 128
Interest expense, net ............................................... (1,138) (864) (2,035) (864)
-------- -------- -------- --------
Earnings from continuing operations before income taxes
and cumulative effect of accounting change .......................... 12,924 15,437 4,975 9,906
Income taxes ........................................................ 5,542 6,483 1,956 4,299
-------- -------- -------- --------
Earnings from continuing operations before cumulative
effect of accounting change ......................................... 7,382 8,954 3,019 5,607
Earnings from discontinued operation, net of income
taxes of $3,712 for the three months ended June 30, 2001,
and $3,542 and $7,639 for the six months ended June 30,
2002 and 2001, respectively ......................................... -- 5,414 5,168 11,143
Direct costs of spin-off, net of income tax benefit of $90 .......... -- -- (691) --
-------- -------- -------- --------
Earnings before cumulative effect of accounting change .............. 7,382 14,368 7,496 16,750
Cumulative effect of accounting change for goodwill
impairment .......................................................... -- -- (28,606) --
-------- -------- -------- --------
Net earnings (loss) ................................................. $ 7,382 $ 14,368 $(21,110) $ 16,750
======== ======== ======== ========
Earnings (loss) per common share - basic:
Continuing operations before accounting change .................. $ 0.19 $ 0.24 $ 0.08 $ 0.15
Discontinued operation .......................................... -- 0.14 0.12 0.29
Accounting change ............................................... -- -- (0.75) --
-------- -------- -------- --------
Net earnings (loss) ............................................. $ 0.19 $ 0.38 $ (0.55) $ 0.44
======== ======== ======== ========
Earnings (loss) per common share - diluted:
Continuing operations before accounting change .................. $ 0.19 $ 0.24 $ 0.08 $ 0.15
Discontinued operation .......................................... -- 0.14 0.12 0.29
Accounting change ............................................... -- -- (0.75) --
-------- -------- -------- --------
Net earnings (loss) ............................................. $ 0.19 $ 0.38 $ (0.55) $ 0.44
======== ======== ======== ========
The Notes to the Consolidated Financial Statements are an integral
part of these statements.
2
DOVER MOTORSPORTS, INC.
CONSOLIDATED BALANCE SHEET
In Thousands, Except Share and Per Share Amounts
(Unaudited)
ASSETS June 30, December 31,
Current assets: 2002 2001
---- ----
Cash and cash equivalents .............................. $ 707 $ 2,948
Accounts receivable .................................... 14,247 4,170
Inventories ............................................ 492 423
Prepaid expenses and other ............................. 4,668 3,127
Income taxes receivable ................................ 4,037 3,819
Deferred income taxes .................................. 114 120
--------- ---------
Total current assets .............................. 24,265 14,607
Property and equipment, net ................................. 243,335 245,143
Restricted cash ............................................. 1,522 3,161
Other assets, net ........................................... 1,462 1,503
Goodwill, net ............................................... 21,883 50,489
Net assets of discontinued operation ........................ -- 102,653
--------- ---------
Total assets ...................................... $ 292,467 $ 417,556
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ....................................... $ 935 $ 1,024
Accrued liabilities .................................... 6,151 3,394
Current portion of long-term debt ...................... 685 635
Notes payable to banks (Note 5) ........................ -- 110,610
Deferred revenue ....................................... 21,108 12,912
--------- ---------
Total current liabilities ......................... 28,879 128,575
Notes payable to banks (Note 5) ............................. 59,688 --
Long-term debt .............................................. 19,220 19,905
Other liabilities ........................................... 123 131
Deferred income taxes ....................................... 28,048 24,426
Commitments and contingencies (see Notes to the Consolidated
Financial Statements)
Stockholders' equity:
Preferred stock, $.10 par value; 1,000,000 shares authorized;
issued and outstanding: none ................................
Common stock, $.10 par value; 75,000,000 shares authorized;
issued and outstanding: June-14,448,252 shares;
December-14,284,252 shares .................................. 1,444 1,428
Class A common stock, $.10 par value; 55,000,000 shares
authorized; issued and outstanding: June-23,615,085 shares;
December-23,769,085 shares .................................. 2,361 2,376
Additional paid-in capital .................................. 120,204 120,080
Retained earnings ........................................... 32,500 128,425
--------- ---------
156,509 252,309
Receivable from Dover Downs Gaming & Entertainment, Inc. .... -- (7,790)
--------- ---------
Total stockholders' equity ........................ 156,509 244,519
--------- ---------
Total liabilities and stockholders' equity ........ $ 292,467 $ 417,556
========= =========
The Notes to the Consolidated Financial Statements are an integral
part of these statements.
3
DOVER MOTORSPORTS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
In Thousands
(Unaudited)
Six Months Ended June 30,
-------------------------
Cash flows from operating activities: 2002 2001
--------- ---------
Net (loss) earnings .......................................... $ (21,110) $ 16,750
Adjustments to reconcile net (loss) earnings to net
cash provided by operating activities:
Depreciation and amortization .............................. 4,729 4,642
Earnings from discontinued operation, net .................. (5,168) (11,143)
Cumulative effect of accounting change ..................... 28,606 --
(Increase) decrease in assets:
Accounts receivable ..................................... (10,077) (8,042)
Inventories ............................................. (69) (162)
Prepaid expenses and other .............................. (1,901) (349)
Increase (decrease) in liabilities:
Accounts payable ........................................ (89) (3,261)
Accrued liabilities ..................................... 2,757 2,268
Current and deferred income taxes ....................... 3,410 2,194
Deferred revenue ........................................ 8,196 6,613
--------- ---------
Net cash provided by continuing operations ...................... 9,284 9,510
--------- ---------
Cash flows from investing activities:
Capital expenditures ......................................... (2,520) (23,538)
Restricted cash .............................................. 1,639 903
Other assets ................................................. -- (95)
--------- ---------
Net cash used in investing activities of continuing operations .. (881) (22,730)
--------- ---------
Cash flows from financing activities:
Borrowings from revolving debt .............................. 96,699 176,250
Repayments of revolving debt ................................ (147,621) (151,900)
Debt paid down by Dover Downs Gaming & Entertainment, Inc. .. 45,000 --
Repayments of long-term debt ................................ (635) (585)
Repayment of shareholder loan ............................... 92 --
Proceeds from stock options exercised ....................... 33 89
Other assets and liabilities ................................ (8) (80)
Dividends paid .............................................. (2,474) (3,412)
--------- ---------
Net cash (used in) provided by financing activities of continuing
operations ...................................................... (8,914) 20,362
--------- ---------
Net cash used in discontinued operation ......................... (1,730) (5,465)
--------- ---------
Net (decrease) increase in cash and cash equivalents ............ (2,241) 1,677
Cash and cash equivalents, beginning of period .................. 2,948 408
--------- ---------
Cash and cash equivalents, end of period ........................ $ 707 $ 2,085
========= =========
Supplemental information:
Interest paid ................................................ $ 2,379 $ 1,117
========= =========
Income taxes paid ............................................ $ 1,120 $ 1,365
========= =========
The Notes to the Consolidated Financial Statements are an integral
part of these statements.
4
DOVER MOTORSPORTS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - Basis of Presentation
The accompanying consolidated financial statements have been prepared in
compliance with Rule 10-01 of Regulation S-X and accounting principles generally
accepted in the United States of America, but do not include all of the
information and disclosures required for complete financial statements. The
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the latest annual report on Form 10-K
for Dover Motorsports, Inc. (formerly Dover Downs Entertainment, Inc.) and its
wholly owned subsidiaries. In the opinion of management, these statements
include all adjustments (consisting of normal recurring adjustments) considered
necessary for a fair presentation of the results of operations, financial
position and cash flows for the interim periods presented. Operating results for
the three and six-month periods ended June 30, 2002 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2002 due to the seasonal nature of the Company's business.
References in this document to "we," "our," "us," "DVD" or "the Company"
mean Dover Motorsports, Inc. and its wholly owned subsidiaries.
NOTE 2 - Business Operations
Dover Motorsports, Inc. is a leading promoter of motorsports events in the
United States. Its motorsports subsidiaries operate seven motorsports tracks
(four permanent facilities and three temporary circuits) in six states and are
scheduled to promote 18 major events during 2002 under the auspices of four of
the premier sanctioning bodies in motorsports - the National Association for
Stock Car Auto Racing (NASCAR), Championship Auto Racing Teams (CART), the Indy
Racing League (IRL) and the National Hot Rod Association (NHRA). The Company
owns and operates Dover International Speedway in Dover, Delaware; Nashville
Superspeedway near Nashville, Tennessee; Gateway International Raceway near St.
Louis, Missouri; and Memphis Motorsports Park near Memphis, Tennessee. The
Company also organizes and promotes the Toyota Grand Prix of Long Beach in
California, the Grand Prix of Denver in Colorado, beginning with the inaugural
event scheduled for September 2002, and the Grand Prix of St. Petersburg in
Florida, beginning with the inaugural event scheduled for February 2003.
The Company's tax-free spin-off of Dover Downs, Inc., its gaming business,
was effective March 31, 2002. The Company changed its name to Dover Motorsports,
Inc. and will focus on the fixed facility and temporary circuit motorsports
operations. To accomplish the spin-off, the Company contributed 100 percent of
the issued and outstanding common stock of Dover Downs, Inc. to Dover Downs
Gaming & Entertainment, Inc. (Gaming & Entertainment), a newly formed wholly
owned subsidiary of the Company. On the effective date of the spin-off, the
Company distributed all of the capital stock of Gaming & Entertainment to the
Company's stockholders on a pro-rata basis. Holders of the Company's common
stock or Class A common stock received 0.7 shares of Gaming & Entertainment
common stock or Class A common stock for each share of the Company's common
stock or Class A common stock owned at the close of business on March 18, 2002,
the record date for the spin-off. Each share of common stock or Class A common
stock distributed was accompanied by one stock purchase right. Accordingly, the
operations of this business have been reflected as a discontinued operation in
the accompanying consolidated financial statements. No gain or loss was
recognized as a result of the spin-off due to the pro-rata nature of the
distribution. The Company's continuing operations subsequent to the spin-off
consist solely of its motorsports activities. Based on an Internal Revenue
Service Private Letter ruling, the spin-off is tax-free to the Company and its
stockholders, except for cash received for any fractional shares. Immediately
following the spin-off, the Company owned no shares of Gaming & Entertainment,
and Gaming & Entertainment became an independent public company. A total of
9,998,976 shares of Gaming & Entertainment common stock and 16,638,359 shares of
Gaming & Entertainment Class A common stock were distributed in connection with
the spin-off. Also as part of the spin-off, a $9.5 million receivable from
Gaming & Entertainment was cancelled. See NOTE 4 - Discontinued Operation for
further discussion.
5
NOTE 3 - Summary of Significant Accounting Policies
Revenue and expense recognition-Revenues, including admissions,
broadcasting rights, sponsorships, concessions, luxury suite rentals, and
souvenir sales and vendor commissions, and certain direct expenses pertaining to
specific events are deferred until the event is held. Deferred expenses
primarily include race purses and sanctioning fees remitted to NASCAR or other
sanctioning bodies.
Earnings per share-Basic and diluted earnings per share (EPS) are
calculated using the following number of weighted average shares:
Three Months Ended June 30, Six Months Ended June 30,
------------------------------ -------------------------------
2002 2001 2002 2001
------------- -------------- ------------- -------------
Basic EPS 38,059,000 37,940,000 38,056,000 37,925,000
Effect of options 515,000 324,000 411,000 285,000
------------- -------------- ------------- -------------
Diluted EPS 38,574,000 38,264,000 38,467,000 38,210,000
============= ============== ============= =============
Property and equipment-Interest is capitalized in connection with the
construction of major facilities. The capitalized interest is amortized over the
estimated useful life of the asset to which it relates. During the three and
six-month periods ended June 30, 2002, the Company incurred $1,138,000 and
$2,035,000 of interest cost, respectively, none of which was capitalized. During
the three months ended June 30, 2001, the Company incurred $1,115,000 of
interest cost, $251,000 of which was capitalized. During the six months ended
June 30, 2001, the Company incurred $2,395,000 of interest cost, of which
$1,531,000 was capitalized.
Use of estimates-The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Segment information-The Company accounts for its operating segment in
accordance with FASB Statement No. 131, Disclosures About Segments of an
Enterprise and Related Information. Statement No. 131 provides guidelines for
public companies in determining operating segments based on those used for
internal reporting to management. Based on these guidelines, the Company reports
information under a single motorsports segment.
Reclassifications-Certain reclassifications have been made to the prior
year financial statements to conform to the current year presentation. These
reclassifications had no effect on net earnings.
Recent accounting pronouncements-In June 2001, the FASB issued Statement
No. 142, Goodwill and Other Intangible Assets. Statement No. 142 requires that
goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead be tested for impairment at least annually in accordance
with the provisions of Statement No. 142. The Company adopted the provisions of
Statement No. 142 effective January 1, 2002, at which time the Company ceased to
record amortization expense related to its goodwill. The adoption of Statement
No. 142 resulted in a $363,000 reduction in amortization expense in the three
months ended June 30, 2002 as compared to the three months ended June 30, 2001,
and a $727,000 reduction in amortization expense in the six months ended June
30, 2002 as compared to the six months ended June 30, 2001. To comply with the
transitional provisions of Statement No. 142, we have determined our reporting
units and assigned goodwill and other net assets to those reporting units.
Goodwill attributable to each of our reporting units at January 1, 2002 was
tested for impairment by comparing the fair value of each reporting unit with
its carrying value. Fair value was primarily determined through the use of a
discounted cash flow methodology by an independent appraisal. To the extent fair
value was determined to be less than the carrying value, fair value was then
allocated to identifiable tangible and intangible assets resulting in an implied
valuation of the goodwill associated with the reporting unit. Based on this
analysis of goodwill, the Company recorded a non-cash charge of $28,606,000
associated with the goodwill of Grand Prix Association of Long Beach, Inc.
(Grand Prix), a wholly owned subsidiary, as a cumulative effect of an accounting
change for the write-off of goodwill in the first six months of 2002. Goodwill
associated with Grand Prix, which was acquired through a tax-free merger, is not
deductible for income tax purposes and represents a permanent
6
difference for which no current or deferred income tax liabilities are recorded.
As such, no income tax benefit was recognized from the impairment write-off.
The following schedules reconcile net earnings (loss) and earnings (loss)
per share adjusted to exclude after-tax amortization expense for the period
prior to adoption of Statement No. 142, and the cumulative effect of the
accounting change recognized in the current year (in thousands, except per share
amounts):
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Net earnings (loss) $ 7,382 $ 14,368 $ (21,110) $ 16,750
Earnings from discontinued operation and
direct costs of spin-off, net of income taxes - (5,414) (4,477) (11,143)
----------- ----------- ----------- -----------
Earnings (loss) from continuing operations 7,382 8,954 (25,587) 5,607
Amortization expense, net of
income tax benefit of $16 for the three
months ended June 30, 2001 and $33
for the six months ended June 30, 2001 - 347 - 694
Cumulative effect of accounting
change - - 28,606 -
----------- ----------- ----------- -----------
Adjusted net earnings from continuing
operations $ 7,382 $ 9,301 $ 3,019 $ 6,301
=========== =========== =========== ===========
Earnings Per Common Share - Basic:
----------------------------------
Net earnings (loss) $ 0.19 $ 0.38 (0.55) $ 0.44
Earnings from discontinued operation - (0.14) (0.12) (0.29)
----------- ----------- ----------- -----------
Earnings (loss) from continuing operations 0.19 0.24 (0.67) 0.15
Amortization expense, net of income tax benefit - 0.01 - 0.02
Cumulative effect of accounting
change - - 0.75 -
----------- ----------- ----------- -----------
Adjusted net earnings per share
from continuing operations $ 0.19 $ 0.25 $ 0.08 $ 0.17
=========== =========== =========== ===========
Earnings Per Common Share - Diluted:
------------------------------------
Net earnings (loss) $ 0.19 $ 0.38 $ (0.55) $ 0.44
Earnings from discontinued operation - (0.14) (0.12) (0.29)
----------- ----------- ----------- -----------
Earnings (loss) from continuing operations 0.19 0.24 (0.67) 0.15
Amortization expense, net of income tax benefit - 0.01 - 0.02
Cumulative effect of accounting
change - - 0.75 -
----------- ----------- ----------- -----------
Adjusted net earnings per share
from continuing operations $ 0.19 $ 0.25 $ 0.08 $ 0.17
=========== =========== =========== ===========
In June 2001, the FASB issued Statement No. 143, Accounting for Asset
Retirement Obligations, which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. The standard applies to legal obligations
associated with the retirement of long-lived assets that result from the
acquisition, construction, development and (or) normal use of the asset.
Statement No. 143 requires that the fair value of a liability for an asset
retirement obligation be recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. The fair value of the liability
is added to the carrying amount of the associated asset and this additional
carrying amount is depreciated over the life of the asset. The liability is
accreted at the end of each period through charges to operating expense. If the
obligation is settled for other than the carrying amount of the liability, a
gain or loss on settlement would be recognized.
7
We are required and plan to adopt the provisions of Statement No. 143 in
2003. To accomplish this, we must identify all legal obligations for asset
retirement obligations, if any, and determine the fair value of these
obligations on the date of adoption. We have not yet completed our analysis of
the impact of adoption of this standard.
In August 2001, the FASB issued Standard No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
While Statement No. 144 supersedes FASB Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, it
retains many of the fundamental provisions of that Statement. Statement No. 144
also supersedes the accounting and reporting provisions of APB Opinion No. 30,
Reporting the Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions, for the disposal of a segment of a business. However,
it retains the requirement in Opinion No. 30 to report separately discontinued
operations and extends that reporting to a component of an entity that either
has been disposed of (by sale, abandonment, or in a distribution to owners) or
is classified as held for sale. We adopted the provisions of Statement No. 144
effective January 1, 2002. The adoption of Statement No. 144 did not have a
significant impact on our results of operations, financial position or cash
flows since the spin-off transaction was governed by the prior rules of APB
Opinion No. 30.
On April 30, 2002, the FASB issued Statement No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. The Statement updates, clarifies and simplifies existing accounting
pronouncements. Statement No. 145 rescinds Statement No. 4, Reporting Gains and
Losses from Extinguishment of Debt, which required all gains and losses from
extinguishment of debt to be aggregated and, if material, classified as an
extraordinary item, net of related income tax effect. As a result, the criteria
in APB Opinion 30 will now be used to classify those gains and losses. Statement
No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements,
amended Statement No. 4, and is no longer necessary because Statement 4 has been
rescinded. Statement No. 145 amends Statement No. 13, Accounting for Leases, to
require that certain lease modifications that have economic effects similar to
sale-leaseback transactions be accounted for in the same manner as
sale-leaseback transactions. Certain provisions of Statement No. 145 are
effective for fiscal years beginning after May 15, 2002, while other provisions
are effective for transactions occurring after May 15, 2002. The adoption of
Statement No. 145 is not expected to have a significant impact on our results of
operations, financial position or cash flows.
In June 2002, the FASB issued Statement No. 146, Accounting for Costs
Associated with Exit or Disposal Activities, which requires that a liability for
a cost associated with an exit or disposal activity be recognized when the
liability is incurred and nullifies EITF 94-3. The Company plans to adopt
Statement No. 146 in January 2003. Management believes that the adoption of this
statement will not have a material effect on the Company's future results of
operations.
NOTE 4 - Discontinued Operation
The Company's former gaming segment has been accounted for as a
discontinued operation and, accordingly, the accompanying consolidated financial
statements have been reclassified to report separately the net assets and
operating results of this discontinued operation. The historical financial
statements also include an allocation of interest expense of $332,000 for the
three months ended June 30, 2001, and $351,000 and $684,000 for the six months
ended June 30, 2002 and 2001, respectively, which has been allocated based upon
each company's earnings before interest, taxes, depreciation and amortization,
income tax payments and capital expenditures. Management believes this is a
reasonable method of allocating interest expense.
8
A summary of the net assets of this discontinued operation is as follows
(the March 31, 2002 amounts are immediately prior to the spin-off):
March 31, December 31,
2002 2001
------------- -------------
Current assets $ 18,657,000 $ 24,485,000
Property and equipment, net 115,971,000 106,772,000
Current liabilities (25,819,000) (27,658,000)
Deferred income taxes (988,000) (946,000)
------------- -------------
Net assets of discontinued operation $ 107,821,000 $ 102,653,000
============= =============
A summary of the operating results of this discontinued operation which are
included in the net earnings (loss) of DVD is as follows (the Company's tax-free
spin-off of its gaming business was effective March 31, 2002, therefore there
were no earnings from discontinued operation in the second quarter of 2002):
Three Months
Ended June 30, Six Months Ended June 30,
-----------------------------
2001 2002 2001
------------- ------------------------------
Revenues $ 44,687,000 $ 49,780,000 $ 89,595,000
Operating earnings 9,122,000 8,710,000 18,910,000
Earnings before income taxes 9,126,000 8,710,000 18,782,000
Income taxes 3,712,000 3,542,000 7,639,000
Net earnings $ 5,414,000 $ 5,168,000 $ 11,143,000
In conjunction with the spin-off, the Company and Gaming & Entertainment
have entered into various agreements that address the allocation of assets and
liabilities between the two companies and that define the companies'
relationship after the separation. These are the Agreement Regarding
Distribution and Plan of Reorganization, the Real Property Agreement, the
Employee Benefits Agreement, the Transition Support Services Agreement, and the
Tax Sharing Agreement.
The Plan of Reorganization sets forth the principal corporate transactions
required to effect the separation of the gaming business from the motorsports
business, the continuation of the gaming business following such separation,
including the allocation between the Company and Gaming & Entertainment of
certain assets and liabilities, and the distribution of shares of Gaming &
Entertainment common stock and Class A common stock. After the spin-off, all
assets and liabilities relating to the gaming business are owned and assumed by
Gaming & Entertainment or its subsidiaries, and all assets and liabilities
relating to the motorsports business are owned and assumed by the Company or its
subsidiaries.
The Real Property Agreement governs certain real property transfers, leases
and easements affecting our Dover, Delaware facility.
The Employee Benefits Agreement provides for the transition from employee
benefits under plans or programs sponsored by the Company to those sponsored by
Gaming & Entertainment. In connection with the spin-off and pursuant to the
terms of the Employee Benefits Agreement, the Company will transfer to Gaming &
Entertainment the assets and liabilities associated with the Company's defined
benefit pension plan and the 401(k) plan currently sponsored by the Company with
respect to employees who become employees of Gaming & Entertainment (or remain
employed by Dover Downs, Inc.) after the spin-off.
The Transition Support Services Agreement provides for each of the Company
and Gaming & Entertainment to provide each other with certain administrative and
operational services. The party receiving the services will be required to pay
for them within 30 business days after receipt of an invoice at rates agreed
upon by the Company and Gaming & Entertainment. Each party will provide these
services until terminated by the party receiving the service or by the party
providing the service after the expiration of a one year transition period.
9
The Tax Sharing Agreement provides for, among other things, the treatment
of income tax matters for periods beginning before and including the date of the
spin-off and any taxes resulting from transactions effected in connection with
the spin-off. With respect to any period ending on or before the spin-off or any
tax period in which the spin-off occurs, the Company:
.. continues to be the sole and exclusive agent for Gaming & Entertainment in
all matters relating to the income, franchise, property, sales and use tax
liabilities of Gaming & Entertainment;
.. subject to Gaming & Entertainment's obligation to pay for items relating to
its gaming business, bears any costs relating to tax audits, including tax
assessments and any related interest and penalties and any legal,
litigation, accounting or consulting expenses;
.. continues to have the sole and exclusive responsibility for the preparation
and filing of combined federal and combined state income tax returns; and
.. subject to the right and authority of Gaming & Entertainment to direct the
Company in the defense or prosecution of the portion of a tax contest
directly and exclusively related to any Gaming & Entertainment tax
adjustment, generally has the powers, in the Company's sole discretion, to
contest or compromise any claim or refund on Gaming & Entertainment's
behalf.
NOTE 5 - Indebtedness
Long-term debt is as follows:
June 30, December 31,
2002 2001
------------- -------------
Notes payable to banks $ 59,688,000 $ 110,610,000
SWIDA loan 19,905,000 20,540,000
------------- -------------
79,593,000 131,150,000
Less: current portion (685,000) (111,245,000)
------------- -------------
$ 78,908,000 $ 19,905,000
============= =============
The Company entered into a new $105,000,000 unsecured credit facility on
February 20, 2002 that expires on February 19, 2005. This new facility replaced
the prior $150,000,000 facilities on its April 1, 2002 effective date. The new
$105,000,000 credit facility does not include Dover Downs, Inc., as it was
spun-off effective March 31, 2002. $45 million of the amount outstanding under
the previous DVD credit facilities was paid down on April 1, 2002 through a new
$55 million credit facility which has been established by Gaming &
Entertainment. Interest is based, at the Company's option, upon LIBOR or the
base rate (the greater of the prime rate or the federal funds rate plus .5%),
plus a margin determined by the Company's leverage ratio. The credit facility
contains certain covenants including; minimum net worth, fixed charge coverage
and maximum leverage ratio requirements. The Company was not in compliance with
the leverage ratio covenant at June 30, 2002, but on July 29, 2002 the Company
and the banks entered into an amendment that revised this covenant effective as
of June 29, 2002. As a result of the amendment, the Company is now in compliance
with the leverage ratio covenant. The Company expects to be in compliance with
the covenants at the next measurement date. Material adverse changes in the
Company's results of operation would impact our ability to maintain financial
ratios necessary to satisfy these requirements. The facility is for seasonal
funding needs, capital improvements and other general corporate purposes, and is
guaranteed by all of the Company's subsidiaries. At June 30, 2002, there was
$59,688,000 outstanding under the facility at a weighted average interest rate
of 4.69%.
A subsidiary of the Company entered into an agreement (the "SWIDA loan")
with Southwestern Illinois Development Authority ("SWIDA") to receive the
proceeds from the "Taxable Sports Facility Revenue Bonds, Series 1996 (Gateway
International Motorsports Corporation Project)", a Municipal Bond Offering, in
the aggregate principal amount of $21,500,000, of which $19,905,000 is
outstanding at June 30, 2002. The offering of the bonds closed on June 21, 1996.
The repayment terms and debt service reserve requirements of the bonds issued in
the Municipal Bond Offering correspond to the terms of the SWIDA loan. SWIDA
loaned all of the proceeds from the Municipal Bond Offering to the Company's
subsidiary for the purpose of the redevelopment, construction and expansion of
Gateway International Raceway, and the proceeds of the SWIDA loan were
irrevocably committed to complete construction of
10
Gateway International Raceway, to fund interest, to create a debt service
reserve fund and to pay for the cost of issuance of the bonds. The Company has
established certain restricted cash funds to meet debt service as required by
the SWIDA loan, which are held by the trustee (BNY Trust Company of Missouri).
At June 30, 2002, $1,522,000 of the Company's cash balance is restricted by the
SWIDA loan and is appropriately classified as a non-current asset in the
accompanying consolidated balance sheet. A standby letter of credit for
$2,502,000, which is secured by a Trust Deed on the Company's facilities in
Memphis, Tennessee, also was obtained to satisfy debt service reserve fund
obligations. The SWIDA loan is secured by a first mortgage lien on all the real
property owned and a security interest in all property leased by the Company's
subsidiary at Gateway International Raceway. Also, the SWIDA loan is
unconditionally guaranteed by Grand Prix. The SWIDA loan bears interest at
varying rates ranging from 8.35% to 9.25% with an effective rate of
approximately 9.1%. The structure of the bonds permits amortization from
February 1997 through February 2017 with debt service beginning in 2000
following interest only payments from February 1997 through August 1999. In
addition, a portion of the property taxes to be paid by the Company (if any) to
the City of Madison Tax Incremental Fund have been pledged to the annual
retirement of debt and payment of interest.
NOTE 6 - Stockholders' Equity
Changes in the components of stockholders' equity are as follows (in
thousands):
Class A Additional
Common Common Paid-in Retained
Stock Stock Capital Earnings
----------- ----------- ----------- ----------
Balance at December 31, 2001 $ 1,428 $ 2,376 $ 120,080 $ 128,425
Net earnings (loss) - - - (21,110)
Repayment of shareholder loan - - 92 -
Proceeds from stock options exercised 1 - 32 -
Dividends paid - - - (2,474)
Conversion of Class A to common 15 (15) - -
Cancellation of receivable
from Gaming & Entertainment - - - (9,520)
Debt paid down by Gaming &
Entertainment on April 1, 2002 - - - 45,000
Spin-off transaction - - - (107,821)
----------- ----------- ----------- ----------
Balance at June 30, 2002 $ 1,444 $ 2,361 $ 120,204 $ 32,500
=========== =========== =========== ==========
The Company has a stock option plan pursuant to which the Company's Board
of Directors may grant stock options to officers and key employees at not less
than 100% of the fair market value at the date of the grant. The stock options
have eight-year terms and generally vest equally over a period of six years from
the date of grant.
Historically, certain Gaming & Entertainment employees participated in the
DVD stock option plan. In conjunction with the spin-off, Gaming & Entertainment
adopted a stock option plan for its employees. Following the spin-off, grants to
purchase 125,000 shares of common stock under the DVD plan held by Gaming &
Entertainment employees were cancelled and replaced with Gaming & Entertainment
stock option grants.
NOTE 7 - Related Party Transactions
During the six months ended June 30, 2002 and 2001, Gaming & Entertainment
allocated corporate costs of $429,000 and $1,040,000, respectively, to the
Company. The allocation was based on both an allocation to the business that
directly incurred the costs and an analysis of each company's share of the
costs. 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 separate, independent entities and had otherwise managed
these functions; however, management believes that these allocations are
reasonable.
At June 30, 2002, Gaming & Entertainment owed the Company $2.7 million for
its portion of the Company's consolidated federal income tax liability for 2002.
This receivable is included in the income taxes receivable balance reported on
the June 30, 2002 balance sheet and is expected to be received by September 15,
2002.
11
Use by Gaming & Entertainment of the Company's 5/8-mile harness racing
track is under an easement granted by the Company which does not require the
payment of any rent. Under the terms of the easement Gaming & Entertainment has
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 harness
track is located on property owned by the Company and is on the inside of its
one-mile motorsports speedway. Gaming & Entertainment's indoor grandstands are
used by the Company free of charge in connection with its motorsports events.
The Company also leases its principal executive office space from Gaming &
Entertainment. Various easements and agreements relative to access, utilities
and parking have also been entered into between the Company and Gaming &
Entertainment.
In conjunction with the spin-off, the Company and Gaming & Entertainment
entered into various agreements that address the allocation of assets and
liabilities between the two companies and that define the companies'
relationship after the separation. The Transition Support Services Agreement
provides for each of the Company and Gaming & Entertainment to provide each
other with certain administrative and operational services subsequent to the
spin-off. The Tax Sharing Agreement provides for, among other things, the
treatment of income tax matters for periods beginning before and including the
date of the spin-off and any taxes resulting from transactions effected in
connection with the spin-off. Refer to NOTE 4 - Discontinued Operation for
further discussion.
NOTE 8 - Commitments and Contingencies
In September 1999, the Sports Authority of the County of Wilson, Tennessee
issued its Variable Rate Tax Exempt Infrastructure Revenue Bonds, Series 1999,
in the amount of $25,900,000. The proceeds were used to acquire, construct and
develop certain public infrastructure improvements in Wilson County, Tennessee,
which will be beneficial to the operation of the superspeedway complex the
Company constructed through Nashville Speedway, USA. Interest only payments are
required until September 1, 2002 and will be made from a capitalized interest
fund established from bond proceeds. When the capitalized interest fund is
depleted, which is estimated to be September 1, 2002, the debt service on the
bonds will be payable solely from sales and incremental property taxes (the
taxes) generated from the facility. If the taxes are insufficient to cover the
payment of principal and interest on the bonds, payments will be made under a
$26,326,000 letter of credit issued on behalf of the Company by several banks
and the bonds would become a liability of the Company.
The Company received a notice of proposed tax adjustment for the years 1997
through 2000 related to a state sales and use tax audit. The Company is
vigorously contesting the notice. Final proposed adjustments have not been
received for these years. Management believes that the ultimate outcome of the
audit will not have a material adverse impact on the Company's results of
operations, financial position or cash flows.
On April 4, 2002, the Illinois Supreme Court reversed its earlier decision
of April 19, 2001 and ruled that Southwestern Illinois Development Authority
("SWIDA") exceeded its constitutional authority in its acquisition of certain
property which it subsequently conveyed to the Company's subsidiary, Gateway
International Motorsports Corp. ("Gateway"). The 148.5 acre tract of land at
issue was acquired by SWIDA in a quick take eminent domain proceeding and then
conveyed to Gateway in 1998 for $900,000 in connection with Gateway's desire to
expand its parking facilities. The circuit court of St. Clair County originally
ruled that SWIDA had properly exercised its authority to take the land. This
decision was then reversed by an appellate court. In 2001, the Illinois Supreme
Court reversed the appellate court's decision and found that the taking was
proper. The Court has now reversed that decision and Gateway is pursuing an
appeal to the United States Supreme Court. If the United States Supreme Court
does not choose to hear the case or if Gateway is unsuccessful on appeal, it
will (a) be required to find other property or alternate means to meet its
parking needs, (b) have the $900,000 purchase price refunded, and (c) need to
expense approximately $350,000 of legal and engineering costs associated with
the purchase. In addition, the former landowner has indicated that it intends to
make a claim for attorney's fees alleged to approximate $900,000. The Company
believes that it has viable defenses to and would vigorously contest any such
claim.
The Company is from time to time a party to ordinary routine litigation
incidental to its business. Management does not believe that the resolution of
any of these matters is likely to have a serious adverse effect on our results
of operations, financial condition or cash flows.
12
Item 2. Management's Discussion And Analysis Of Financial Condition And Results
Of Operations
The following discussion is based upon and should be read in conjunction
with the consolidated financial statements and related notes included elsewhere
in this Quarterly Report on Form 10-Q.
On July 25, 2001, the Board of Directors of the Company resolved to pursue
the separation of its gaming and motorsports business segments into two publicly
owned companies. On March 31, 2002, the tax-free spin-off of Dover Downs, Inc.,
its gaming business, became effective. Accordingly, the operations of this
business have been reflected as a discontinued operation and excluded from the
accompanying consolidated financial statements and our discussions herein.
Results of Operations
Three Months Ended June 30, 2002 vs. Three Months Ended June 30, 2001
Revenues increased by $2,135,000, or 4.6%, to $48,641,000, primarily the
result of increased admissions and other event related revenue at Dover
International Speedway's spring NASCAR weekend and the addition of a second
Busch Series event at Nashville Superspeedway. The aforementioned increases in
revenues were offset by a decline in admission revenues at the Company's Grand
Prix of Long Beach and Nashville April Busch Series events.
Operating expenses increased by $3,412,000, or 13.7%, in the second quarter
of 2002 compared with the second quarter of 2001, primarily due to increased
purse and sanction fee expenses related to Dover International Speedway's spring
NASCAR weekend and the addition of a second Busch Series event at Nashville
Superspeedway.
Depreciation and amortization expense decreased by $228,000 primarily due
to the adoption of Statement of Financial Accounting Standards No. 142 which
reduced the Company's amortization expense by $363,000 in the second quarter of
2002 as compared to the second quarter of 2001. The decrease in amortization
expense was offset by an increase in depreciation expense related to the
addition of grandstand seats at Dover International Speedway in June 2001.
General and administrative expenses increased by $1,215,000 to $3,886,000
from $2,671,000 in the second quarter of 2001, primarily due to an increase in
wages and related employee benefits, insurance, taxes, and pre-opening expenses
related to the inaugural Grand Prix of Denver event scheduled for September 2002
and the inaugural Grand Prix of St. Petersburg event scheduled for February
2003.
Net interest expense increased by $249,000 primarily the result of the
Company capitalizing $251,000 of interest related to the construction of major
facilities in the second quarter of 2001. No interest was capitalized in the
second quarter of 2002. Capitalization of interest on Nashville Superspeedway
ceased when the facility opened in April 2001.
The Company's effective income tax rates for the three months ended June
30, 2002 and 2001 were 42.9% and 42.0%, respectively. The increase resulted
primarily from the limitation of state net operating losses for the Company's
Grand Prix subsidiary located in California.
Earnings from continuing operations decreased by $1,572,000, primarily the
result of lower admission revenues at the Company's Grand Prix of Long Beach and
Nashville April Busch Series events, increased purse and sanction fee expenses
related to Dover International Speedway's spring NASCAR weekend and the addition
of a second Busch Series event at Nashville Superspeedway, increased general and
administrative expenses due to an increase in wages and related employee
benefits, insurance, taxes, and pre-opening expenses related to the inaugural
Grand Prix of Denver and the inaugural Grand Prix of St. Petersburg, and
increased interest expense due to the opening of Nashville Superspeedway in
April 2001 at which point capitalization of interest on construction of the
Superspeedway ceased. The aforementioned decreases in earnings from continuing
operations were offset by an increase in revenues primarily the result of
increased admissions and other event related revenue at Dover International
Speedway's spring NASCAR weekend and the addition of a second Busch Series event
at Nashville Superspeedway, and a decrease in depreciation and amortization
expense primarily due to the adoption of Statement of Financial Accounting
Standards No. 142.
13
The Company's tax-free spin-off of its gaming business was effective March
31, 2002, therefore there were no earnings from discontinued operation in the
second quarter of 2002 as compared with the second quarter of 2001.
Six Months Ended June 30, 2002 vs. Six Months Ended June 30, 2001
Revenues increased by $2,055,000, or 4.3%, to $49,637,000, primarily the
result of increased admissions and other event related revenue at Dover
International Speedway's spring NASCAR weekend and the addition of a second
Busch Series event at Nashville Superspeedway. The aforementioned increases in
revenues were offset by a decline in admission revenues at the Company's Grand
Prix of Long Beach and Nashville April Busch Series events.
Operating expenses increased by $3,619,000, or 13.4%, in the first six
months of 2002 compared with the first six months of 2001, primarily due to
increased purse and sanction fee expenses related to Dover International
Speedway's spring NASCAR weekend, the opening of Nashville Superspeedway in
April 2001 and the addition of a second Busch Series event at Nashville
Superspeedway in 2002.
Depreciation and amortization expense increased by $87,000 primarily due to
the opening of Nashville Superspeedway in April 2001 and the addition of
grandstand seats at Dover International Speedway in June 2001. The
aforementioned increase was offset by the adoption of Statement of Financial
Accounting Standards No. 142 which reduced the Company's amortization expense by
$727,000 in the first six months of 2002 as compared to the first six months of
2001.
General and administrative expenses increased by $2,019,000 to $7,397,000
from $5,378,000 in the first six months of 2001, primarily due to the opening of
Nashville Superspeedway in April 2001 and an increase in wages and related
employee benefits, insurance, taxes, and pre-opening expenses related to the
inaugural Grand Prix of Denver event scheduled for September 2002 and the
inaugural Grand Prix of St. Petersburg event scheduled for February 2003.
Net interest expense increased by $1,261,000 primarily the result of the
Company capitalizing $1,531,000 of interest related to the construction of major
facilities in the first six months of 2001. No interest was capitalized in the
first six months of 2002. Capitalization of interest on Nashville Superspeedway
ceased when the facility opened in April 2001.
The Company's effective income tax rates for the six months ended June 30,
2002 and 2001 were 39.3% and 43.4%, respectively. The decrease resulted
primarily from the classification of direct costs of the spin-off as part of the
discontinued operation and the non-deductibility of some of these costs for tax
purposes.
Earnings from continuing operations before cumulative effect of accounting
change decreased by $2,588,000, primarily the result of lower admission revenues
at the Company's Grand Prix of Long Beach and Nashville April Busch Series
events, increased purse and sanction fee expenses related to Dover International
Speedway's spring NASCAR weekend, the opening of Nashville Superspeedway in
April 2001 and the addition of a second Busch Series event at Nashville
Superspeedway, increased general and administrative expenses due to the opening
of Nashville Superspeedway and an increase in wages and related employee
benefits, insurance, taxes, and pre-opening expenses related to the inaugural
Grand Prix of Denver and the inaugural Grand Prix of St. Petersburg, and
increased interest expense due to the opening of Nashville Superspeedway at
which point capitalization of interest on construction of the Superspeedway
ceased. The aforementioned decreases in earnings from continuing operations were
offset by an increase in revenues primarily the result of increased admissions
and other event related revenue at Dover International Speedway's spring NASCAR
weekend and the addition of a second Busch Series event at Nashville
Superspeedway.
Earnings from discontinued operation (net of income taxes) were $4,477,000
in the first six months of 2002 compared to $11,143,000 in the first six months
of 2001. The Company's tax-free spin-off of its gaming business became effective
March 31, 2002 and as a result, earnings from discontinued operation were no
longer recognized by the Company subsequent to that date.
14
The Company recorded a non-cash charge of $28,606,000 as a cumulative
effect of an accounting change for the write-off of goodwill associated with the
Grand Prix Association of Long Beach, Inc. (Grand Prix), a wholly owned
subsidiary, in the first six months of 2002. The charge resulted from the
adoption of FASB Statement No. 142, Goodwill and Other Intangible Assets, which
requires that goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead be tested for impairment at least annually for
impairment. Goodwill associated with Grand Prix, which was acquired through a
tax-free merger, is not deductible for income tax purposes and represents a
permanent difference for which no current or deferred income tax liabilities are
recorded. As such, no income tax benefit was recognized from the impairment
write-off.
Liquidity and Capital Resources
Net cash provided by continuing operations was $9,284,000 for the six
months ended June 30, 2002 compared to $9,510,000 for the six months ended June
30, 2001. The decrease in 2002 as compared to 2001 was primarily due to a
reduction in earnings from continuing operations before cumulative effect of
accounting change and depreciation and amortization expense from $10,249,000 in
2001 to $7,748,000 in 2002, the timing of receipts from customers, and an
increase in prepaid insurance and other expenses that are incurred directly by
the Company subsequent to the spin-off. The aforementioned decreases in net cash
provided by continuing operations were offset by the timing of construction
related payments, the timing of certain income tax payments and an increase in
deferred revenue related to the inaugural Grand Prix of Denver event.
Net cash used in investing activities was $881,000 for the six months ended
June 30, 2002 compared to $22,730,000 for the six months ended June 30, 2001.
The decrease in 2002 was primarily due to the completion of Nashville
Superspeedway in April 2001.
Net cash used in financing activities was $8,914,000 for the six months
ended June 30, 2002 as compared to net cash provided by financing activities of
$20,362,000 for the six months ended June 30, 2001. The change from 2002 to 2001
was primarily due to reduced borrowings under our revolving credit agreement
since the majority of the 2001 borrowings were for construction of the Nashville
Superspeedway.
The Company entered into a new $105,000,000 unsecured credit facility on
February 20, 2002 that expires on February 19, 2005. This new facility replaced
the prior $150,000,000 facilities on its April 1, 2002 effective date. The new
$105,000,000 credit facility does not include Dover Downs, Inc., as it was
spun-off effective March 31, 2002. $45 million of the amount outstanding under
the previous DVD credit facilities was paid down on April 1, 2002 through a new
$55 million credit facility which has been established by Gaming &
Entertainment. Interest is based, at the Company's option, upon LIBOR or the
base rate (the greater of the prime rate or the federal funds rate plus .5%) ,
plus a margin determined by the Company's leverage ratio. The credit facility
contains certain covenants including; minimum net worth, fixed charge coverage
and maximum leverage ratio requirements. The Company was not in compliance with
the leverage ratio covenant at June 30, 2002, but on July 29, 2002 the Company
and the banks entered into an amendment that revised this covenant effective
June 29, 2002. As a result of the amendment, the Company is now in compliance
with the leverage ratio covenant. The Company expects to be in compliance with
the covenants at the next measurement date. Material adverse changes in the
Company's results of operation would impact our ability to maintain financial
ratios necessary to satisfy these requirements. The facility is for seasonal
funding needs, capital improvements and other general corporate purposes, and is
guaranteed by all of the Company's subsidiaries. At June 30, 2002, there was
$59,688,000 outstanding under the facility at a weighted average interest rate
of 4.69%.
We expect to make capital expenditures of approximately $6 million during
the second half of 2002. These projects primarily relate to improvements
necessary to promote our inaugural Grand Prix of Denver and Grand Prix of St.
Petersburg events, as well as, various improvements at our fixed facilities. The
Company expects that its net cash flows from operating activities and funds
available from its credit facility will be sufficient to provide for its working
capital needs and capital spending requirements in calendar 2002, as well as any
cash dividends the board of directors may declare. If there are no significant
additions to our race schedule, our future capital expenditure requirements
should be significantly less than in 2001. As a result, we would expect cash
flows from operating activities and funds available from our credit facility to
also provide for long-term liquidity.
15
Related Party Transactions
During the six months ended June 30, 2002 and 2001, Gaming & Entertainment
allocated corporate costs of $429,000 and $1,040,000, respectively, to the
Company. The allocation was based on both an allocation to the business that
directly incurred the costs and an analysis of each company's share of the
costs. 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 separate, independent entities and had otherwise managed
these functions; however, management believes that these allocations are
reasonable.
At June 30, 2002, Gaming & Entertainment owed the Company $2.7 million for
its portion of the consolidated federal income tax liability for 2002. This
receivable is included in the income taxes receivable balance reported on the
June 30, 2002 balance sheet and is expected to be received by September 15,
2002.
Use by Gaming & Entertainment of our 5/8-mile harness racing track is under
an easement granted by us which does not require the payment of any rent. Under
the terms of the easement Gaming & Entertainment has 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 harness track is located on
property owned by us and is on the inside of our one-mile motorsports speedway.
Gaming & Entertainment's indoor grandstands are used by us free of charge in
connection with our motorsports events. We also lease our principal executive
office space from Gaming & Entertainment. Various easements and agreements
relative to access, utilities and parking have also been entered into between
the Company and Gaming & Entertainment.
In conjunction with the spin-off, the Company and Gaming & Entertainment
entered into various agreements that address the allocation of assets and
liabilities between the two companies and that define the companies'
relationship after the separation. The Transition Support Services Agreement
provides for each of the Company and Gaming & Entertainment to provide each
other with certain administrative and operational services subsequent to the
spin-off. The Tax Sharing Agreement provides for, among other things, the
treatment of income tax matters for periods beginning before and including the
date of the spin-off and any taxes resulting from transactions effected in
connection with the spin-off. Refer to NOTE 4 - Discontinued Operation for
further discussion.
Contractual Obligations
The Company has issued a standby letter of credit to guarantee Variable
Rate Tax Exempt Infrastructure Revenue Bonds, Series 1999, issued by the Sports
Authority of Wilson, Tennessee in the amount of $25,900,000. The proceeds from
the bonds were used to acquire, construct and develop certain public
infrastructure improvements in Wilson County, Tennessee. Interest only payments
are required until September 1, 2002, and will be made from a capitalized
interest fund established from the bond proceeds. The principal payments range
from $400,000 in September 2002 to $1,600,000 in 2029. When the capitalized
interest fund is depleted, which is estimated to be September 1, 2002, the debt
service on the bonds will be payable solely from sales and incremental property
taxes generated from the facility. If the taxes are insufficient to cover the
payment of principal and interest on the bonds, payments will be made pursuant
to the aforementioned letter of credit. The Company believes that the sales and
incremental property taxes generated from the facility will satisfy the debt
service requirements of the bonds. However, if the debt service is not satisfied
from the aforementioned sources, the bonds would become a liability of the
Company. If we fail to maintain the letter of credit which secures the bonds or
we allow an uncured default to exist under our reimbursement agreement relative
to the letter of credit, the bonds would be immediately redeemable.
The Company has entered into several sanctioning agreements to conduct
motorsports events at its various venues. The Company has held NASCAR-sanctioned
events for 33 consecutive years and its subsidiary, Grand Prix Association of
Long Beach, has operated the Grand Prix of Long Beach for 28 consecutive years.
Nonrenewal or termination of a sanctioning body event license could have a
material adverse effect on the Company's financial condition and results of
operations.
16
A subsidiary of the Company entered into an agreement (the "SWIDA loan")
with Southwestern Illinois Development Authority ("SWIDA") to receive the
proceeds from the "Taxable Sports Facility Revenue Bonds, Series 1996 (Gateway
International Motorsports Corporation Project)", a Municipal Bond Offering, in
the aggregate principal amount of $21,500,000, of which $19,905,000 is
outstanding on June 30, 2002. The offering of the bonds closed on June 21, 1996.
The repayment terms and debt service reserve requirements of the bonds issued in
the Municipal Bond Offering correspond to the terms of the SWIDA loan. SWIDA
loaned all of the proceeds from the Municipal Bond Offering to the Company's
subsidiary for the purpose of the redevelopment, construction and expansion of
Gateway International Raceway, and the proceeds of the SWIDA loan were
irrevocably committed to complete construction of Gateway International Raceway,
to fund interest, to create a debt service reserve fund and to pay for the cost
of issuance of the bonds. The Company has established certain restricted cash
funds to meet debt service as required by the SWIDA loan, which are held by the
trustee (BNY Trust Company of Missouri). At June 30, 2002, $1,522,000 of the
Company's cash balance is restricted by the SWIDA loan and is appropriately
classified as a non-current asset in the accompanying consolidated balance
sheet. A standby letter of credit for $2,502,000, which is secured by a Trust
Deed on the Company's facilities in Memphis, Tennessee, also was obtained to
satisfy debt service reserve fund obligations. The SWIDA loan is secured by a
first mortgage lien on all the real property owned and a security interest in
all property leased by the Company's subsidiary at Gateway International
Raceway. Also, the SWIDA loan is unconditionally guaranteed by Grand Prix
Association of Long Beach, Inc., a wholly owned subsidiary of the Company. The
SWIDA loan bears interest at varying rates ranging from 8.35% to 9.25% with an
effective rate of approximately 9.1%. The structure of the bonds permits
amortization from February 1997 through February 2017 with debt service
beginning in 2000 following interest only payments from February 1997 through
August 1999. In addition, a portion of the property taxes to be paid by the
Company (if any) to the City of Madison Tax Incremental Fund have been pledged
to the annual retirement of debt and payment of interest.
Critical Accounting Policies
The accounting policies described below are those the Company considers
critical in preparing its consolidated financial statements. These policies
include significant estimates made by management using information available at
the time the estimates are made. However, as described below, these estimates
could change materially if different information or assumptions were used. The
descriptions below are summarized and have been simplified for clarity.
Goodwill
The Company has made acquisitions in the past that included goodwill. Under
accounting principles generally accepted in the United States of America in
effect through December 31, 2001, these assets were amortized over their
estimated useful lives, and were tested periodically to determine if they were
recoverable from operating earnings on an undiscounted basis over their useful
lives.
Effective January 1, 2002, goodwill is no longer amortized but is subject
to an annual (or under certain circumstances more frequent) impairment test
based on its estimated fair value. Estimated fair value is typically less than
values based on undiscounted operating earnings because fair value estimates
include a discount factor in valuing future cash flows. We completed our
analysis of impairment of our goodwill as a result of adopting Statement No. 142
during the second quarter of 2002 and recorded a non-cash charge of $28,606,000.
There are many assumptions and estimates underlying the determination of our
impairment loss. Another estimate using different, but still reasonable,
assumptions could produce a significantly different result. Therefore,
additional impairment losses could be recorded in the future.
Accrued Pension Cost
The benefits provided by the Company's pension plans are based on years of
service and employee's remuneration over their employment with the Company. The
Company establishes accrued pension costs in accordance with the provisions of
Statement No. 87, Employers' Accounting for Pensions. Accrued pension costs are
developed using actuarial principles and assumptions which consider a number of
factors, including estimates for discount rate, assumed rate of compensation
increase, and expected long-term rate of return on assets. Changes in these
estimates would impact the amounts that the Company records in its consolidated
financial statements.
17
Recent Accounting Pronouncements
In June 2001, the FASB issued Statement No. 142, Goodwill and Other
Intangible Assets. Statement No. 142 requires that goodwill and intangible
assets with indefinite useful lives no longer be amortized, but instead be
tested for impairment at least annually in accordance with the provisions of
Statement No. 142. The Company adopted the provisions of Statement No. 142
effective January 1, 2002, at which time the Company ceased to record
amortization expense related to its goodwill. The adoption of Statement No. 142
resulted in a $363,000 reduction in amortization expense in the three months
ended June 30, 2002 as compared to the three months ended June 30, 2001, and a
$727,000 reduction in amortization expense in the six months ended June 30, 2002
as compared to the six months ended June 30, 2001. To comply with the
transitional provisions of Statement No. 142, we have determined our reporting
units and assigned goodwill and other net assets to those reporting units.
Goodwill attributable to each of our reporting units at January 1, 2002 was
tested for impairment by comparing the fair value of each reporting unit with
its carrying value. Fair value was primarily determined through the use of a
discounted cash flow methodology by an independent appraisal. To the extent fair
value was determined to be less than the carrying value, fair value was then
allocated to identifiable tangible and intangible assets resulting in an implied
valuation of the goodwill associated with the reporting unit. Based on this
analysis of goodwill, the Company recorded a non-cash charge of $28,606,000
associated with the goodwill of Grand Prix as a cumulative effect of an
accounting change for the write-off of goodwill in the first six months of 2002.
Goodwill associated with Grand Prix, which was acquired through a tax-free
merger, is not deductible for income tax purposes and represents a permanent
difference for which no current or deferred income tax liabilities are recorded.
As such, no income tax benefit was recognized from the impairment write-off.
In June 2001, the FASB issued Statement No. 143, Accounting for Asset
Retirement Obligations, which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. The standard applies to legal obligations
associated with the retirement of long-lived assets that result from the
acquisition, construction, development and (or) normal use of the asset.
Statement No. 143 requires that the fair value of a liability for an asset
retirement obligation be recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. The fair value of the liability
is added to the carrying amount of the associated asset and this additional
carrying amount is depreciated over the life of the asset. The liability is
accreted at the end of each period through charges to operating expense. If the
obligation is settled for other than the carrying amount of the liability, a
gain or loss on settlement would be recognized.
We are required and plan to adopt the provisions of Statement No. 143 in
2003. To accomplish this, we must identify all legal obligations for asset
retirement obligations, if any, and determine the fair value of these
obligations on the date of adoption. We have not yet completed our analysis of
the impact of adoption of this standard.
In August 2001, the FASB issued Standard No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
While Statement No. 144 supersedes FASB Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, it
retains many of the fundamental provisions of that Statement. Statement No. 144
also supersedes the accounting and reporting provisions of APB Opinion No. 30,
Reporting the Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions, for the disposal of a segment of a business. However,
it retains the requirement in Opinion No. 30 to report separately discontinued
operations and extends that reporting to a component of an entity that either
has been disposed of (by sale, abandonment, or in a distribution to owners) or
is classified as held for sale. We adopted the provisions of Statement No. 144
effective January 1, 2002. The adoption of Statement No. 144 did not have a
significant impact on our results of operations, financial position or cash
flows since the spin-off transaction was governed by the prior rules of APB
Opinion No. 30.
On April 30, 2002, the FASB issued Statement No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. The Statement updates, clarifies and simplifies existing accounting
pronouncements. Statement No. 145 rescinds Statement No. 4, Reporting Gains and
Losses from Extinguishment of Debt, which required all gains and losses from
extinguishment of debt to be aggregated and, if material, classified as an
extraordinary item, net of related income tax effect. As a result, the criteria
in Opinion 30 will now be used to classify those gains and losses. Statement No.
64, Extinguishments of Debt Made to Satisfy
18
Sinking-Fund Requirements, amended Statement No. 4, and is no longer necessary
because Statement 4 has been rescinded. Statement No. 145 amends Statement No.
13, Accounting for Leases, to require that certain lease modifications that have
economic effects similar to sale-leaseback transactions be accounted for in the
same manner as sale-leaseback transactions. Certain provisions of Statement No.
145 are effective for fiscal years beginning after May 15, 2002, while other
provisions are effective for transactions occurring after May 15, 2002. The
adoption of Statement No. 145 is not expected to have a significant impact on
our results of operations, financial position or cash flows.
In June 2002, the FASB issued Statement No. 146, Accounting for Costs
Associated with Exit or Disposal Activities, which requires that a liability for
a cost associated with an exit or disposal activity be recognized when the
liability is incurred and nullifies EITF 94-3. The Company plans to adopt
Statement No. 146 in January 2003. Management believes that the adoption of this
statement will not have a material effect on the Company's future results of
operations.
Factors That May Affect Operating Results; Forward-Looking Statements
In addition to historical information, this Quarterly Report on Form 10-Q
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, proposed
acquisitions, market forces, corporate strategies, consumer preferences,
contractual commitments, legal matters, capital requirements and other matters.
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," "enable," or similar words or
expressions are used in this document, as well as statements containing phrases
such as "in our view," "there can be no assurance," "although no assurance can
be given," or "there is no way to anticipate with certainty," forward-looking
statements are being made.
Various risks and uncertainties may affect the operation, performance,
development and results of our business and could cause future outcomes to
differ materially from those set forth in our forward-looking statements,
including the following factors:
.. success of or changes in our growth strategies;
.. our development and potential acquisition of new facilities;
.. anticipated trends in the motorsports industry;
.. patron demographics;
.. our ability to enter into additional contracts with sponsors, broadcast
media and race event sanctioning bodies;
.. our relationships with sponsors;
.. general market and economic conditions, including consumer and corporate
spending sentiment;
.. our ability to finance future business requirements;
.. the availability of adequate levels of insurance;
.. our ability to successfully integrate acquired companies and businesses;
.. management retention and development;
19
.. changes in Federal, state, and local laws and regulations, including
environmental regulations;
.. the effect of weather conditions on outdoor event attendance;
.. military or other government actions;
.. availability of air travel; and
.. national or local catastrophic events.
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.
Our Relationship With Sanctioning Bodies Is Vital To Our Success In Motorsports
Our continued success in motorsports is dependent upon keeping a good
working relationship with the governing bodies of motorsports that sanction
national racing events. These governing bodies include NASCAR, CART, IRL and
NHRA. The governing bodies regularly issue and award sanctioned events and their
issuance depends, in large part, on maintaining good working relationships with
the sanctioning bodies. Many events are sanctioned on an annual basis. By
awarding a sanctioned event or a series of sanctioned events, the sanctioning
bodies do not warrant, either expressly or by implication, nor are they
responsible for, the financial success of any sanctioned event. Moreover, no
existing sanction agreement, unless expressly provided for in the agreement, can
be construed to require the sanctioning body to enter into a sanction agreement
or to issue a sanction for any other event in the future. Our inability to
obtain additional sanctioned events in the future and to maintain sanction
agreements at current levels would likely result in lower than anticipated
revenues from admissions, sponsorships, hospitality, concessions, and
merchandise, which could have a material adverse effect on our business,
financial condition and results of operations.
We Rely On Sponsorship Contracts To Generate Revenues
We receive a substantial portion of our annual revenues from sponsorship
agreements, including the sponsorship of our various events, our permanent
venues, "official product" sponsorships, billboards, signage and skyboxes. Loss
of our title sponsors or other major sponsorship agreements or failure to secure
such sponsorship agreements in the future could have a material adverse effect
on our business, financial condition and results of operations.
Increased Government Regulation Of Sponsors And Restrictions On Advertising
Could Substantially Reduce Our Advertising Revenue
We receive a significant portion of our revenue from sponsorship and
advertising by various companies. Tobacco and liquor companies have
traditionally sponsored motorsports events. In June 1997, major tobacco
companies entered into an agreement with federal negotiators and various states
attorneys general whereby the tobacco companies agreed to give up certain
advertising and promotional activity in exchange for liability limits in pending
and future lawsuits. New laws or settlements could have a material adverse
effect on the tobacco and liquor industry motorsports sponsorship and
advertising expenditures. Government regulations and restrictions on advertising
by tobacco companies, liquor companies and other potential sponsors could
adversely impact revenues as well as the revenues of the motorsports industry as
a whole. While we believe that the popularity of motorsports would allow us to
secure alternate sponsors, there is no assurance that alternate sponsors could
be obtained.
20
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 promotions and 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,
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 and
changing consumer preferences.
Our Street Races Depend On City Permits And Good Relationships With City
Officials And Others
In order to conduct the Grand Prix of Long Beach, we must obtain an annual
permit from the City of Long Beach to hold the race on city streets. Although
Grand Prix has operated a racing event on the streets of Long Beach for
twenty-eight years, there can be no assurance that this event will continue to
be held or be successful. Similarly, the Grand Prix events we have planned for
Denver, Colorado and St. Petersburg, Florida require that we obtain a variety of
licenses and permits. Our agreements with the cities of Denver and St.
Petersburg extend though 2008 and 2007, respectively. Our ability to conduct
street races requires that we maintain excellent relationships with the host
city and its officials. Furthermore, a portion of the Grand Prix of Denver will
be run on property leased to us by the Pepsi Center. Therefore, we must maintain
an excellent relationship with management of the Pepsi Center.
Grand Prix's Ability To Meet Payment Obligations Under A Loan Agreement With An
Illinois Government Agency Depends On Revenues From Gateway
In order to finance the redevelopment of Gateway International Raceway,
Grand Prix entered into a loan agreement with the Southwest Illinois Development
Authority, which agreed to fund a loan to Grand Prix by issuing municipal bonds
in the aggregate principal amount of $21,500,000. The bonds are unconditionally
guaranteed by Grand Prix. Grand Prix issued a 20-year $21,500,000 promissory
note to SWIDA which bears interest at an effective rate of approximately 9.1%
per annum. Payments on the SWIDA loan are intended to be made primarily from the
revenues from the operations of Gateway. Although Grand Prix is current on its
obligation and expects to meet its future debt payment obligations out of the
revenues from Gateway, and although Grand Prix will receive certain assistance
from the City of Madison, Illinois in the form of a tax increment finance fund
which should assist it in meeting its debt burdens, there can be no assurance
that earnings from the future operations of Gateway will be sufficient to meet
Grand Prix's debt service obligations. A default under the SWIDA loan could have
a material adverse effect on our business, financial condition and results of
operations.
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 Wilson County, Tennessee issued
$25,900,000 in revenue bonds to build local infrastructure improvements which
will benefit the operation of Nashville Superspeedway. Interest only payments
are required until September 1, 2002 and will be made from a capitalized
interest fund established from bond proceeds. When the capitalized interest fund
is depleted, which is estimated to be September 1, 2002, the debt service on the
bonds will be payable solely from sales and incremental property taxes generated
from the facility. In the event the taxes are insufficient to cover the payment
of principal and interest on the bonds, payments will be made under a
$26,326,000 irrevocable direct-pay letter of credit issued by several banks
pursuant to a reimbursement and security agreement under which we have agreed to
reimburse the banks for 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.
21
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 events for a substantial portion of revenues. We derive a
substantial portion of our motorsports revenues from admissions and
event-related revenue attributable to six NASCAR-sanctioned events at Dover,
Delaware which are currently held in June and September. This has been offset to
some degree by our other motorsports events, but quarterly earnings will vary.
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.
Bad Weather Can Have An Adverse Financial Impact On Our Motorsports Events
We sponsor and promote outdoor motorsports events. Weather conditions
affect sales of tickets, concessions and souvenirs, among other things 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 conditions may
adversely affect additional ticket sales, and concessions and souvenir 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.
Our Goodwill May Become Further Impaired In The Future And Require A Write Down
To Comply With Accounting Standards
In June 2001, the FASB issued Statement No. 142, Goodwill and Other
Intangible Assets. Statement No. 142 requires that goodwill and intangible
assets with indefinite useful lives no longer be amortized, but instead be
tested for impairment at least annually in accordance with the provisions of
Statement No. 142. We adopted the provisions of Statement No. 142 effective
January 1, 2002 and as a result recorded a non-cash charge of $28,606,000
associated with the goodwill of Grand Prix as a cumulative effect of accounting
change in the first six months of 2002. Even after this charge, approximately
$21,883,000, or 7.5%, of our total assets as of June 30, 2002, consists of
goodwill. If in the future the application of the test for impairment of
goodwill results in a reduction in the carrying value of the goodwill, we will
be required to record the amount of the reduction in goodwill as a non-cash
charge against operating earnings which would also reduce our stockholders'
equity.
Item 3. Quantitative And Qualitative Disclosure About Market Risk
The carrying values of DVD's long-term debt approximates its fair value at
June 30, 2002 and December 31, 2001. DVD is exposed to market risks related to
fluctuations in interest rates for its variable rate borrowings of $59,688,000
at June 30, 2002 under its revolving credit facilities. A change in interest
rates of one percent on the balance outstanding at June 30, 2002 would cause a
change in total annual interest costs of $597,000.
In September 1999, the Sports Authority of the County of Wilson,
Tennessee issued its Variable Rate Tax Exempt Infrastructure Revenue Bonds,
Series 1999, in the amount of $25,900,000. DVD is exposed to market risks
related to fluctuations in interest rates for these bonds. A significant change
in interest rates could result in the Company being responsible for debt service
payments not covered by the capitalized interest fund or the sales and
incremental property taxes generated from the facility.
22
Part II - Other Information
Item 1. 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 serious negative effect on our results of operations, financial
condition or cash flows.
Item 2. Changes In Securities And Use Of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission Of Matters To A Vote Of Security Holders
At the Annual Meeting of Stockholders held on May 22, 2002, Denis McGlynn and
Jeffrey W. Rollins were re-elected as directors by the Company's stockholders.
Directors whose terms of office continued after the meeting were Henry B.
Tippie, Denis McGlynn, Patrick J. Bagley, Melvin Joseph, Jeffrey W. Rollins,
John W. Rollins, Jr., R. Randall Rollins and Eugene W. Weaver. In addition to
the election of two directors, the stockholders gave the Board of Directors
discretionary authority to effect a reverse stock split in a ratio of one for
two.
Votes Votes Shares
Votes For Against Abstained Not Voted
----------- -------- --------- ---------
Election of Denis McGlynn .............................. 245,963,659 - 2,991,409 3,020,034
Election of Jeffrey W. Rollins ......................... 248,798,009 - 157,059 3,020,034
Authorization for Board of Directors to effect a reverse
stock split in a ratio of one for two .................. 248,471,570 443,414 40,084 3,020,034
Item 5. Other Information
None.
Item 6. Exhibits And Reports On Form 8-K
(a) Exhibits
3.1 Amended and Restated By-laws of Dover Motorsports, Inc. dated April 1,
2002 as filed with the Company's Quarterly Report on Form 10-Q dated
May 10, 2002, is incorporated herein by reference.
10.1 First Amendment to Credit Agreement among Dover Downs Entertainment,
Inc. and PNC Bank, National Association, as agent, dated as of March
31, 2002.
10.2 Second Amendment to Credit Agreement among Dover Motorsports, Inc. and
PNC Bank, National Association, as agent, dated as of July 29, 2002.
99.1 Certification of Periodic Financial Reports
23
(b) Reports on Form 8-K
The Company filed a Form 8-K on April 1, 2002 announcing that the spin-off
of Dover Downs, Inc., the gaming business of DVD, to the Company's stockholders
was effective.
The Company filed a Form 8-K on May 10, 2002 announcing the election of
Patrick J. Bagley to the position of Vice President - Finance and the
appointment of Kenneth K. Chalmers to the Company's Board of Directors and his
appointment as chairman of the Company's audit committee.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DATED: August 7, 2002 Dover Motorsports, Inc.
-----------------------
Registrant
/s/ Denis McGlynn
---------------------------
Denis McGlynn
President and Chief Executive Officer
and Director
/s/ Patrick J. Bagley
---------------------------
Patrick J. Bagley
Vice President-Finance and
Chief Financial Officer
24