Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2012

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

NOTE 3 — Summary of Significant Accounting Policies

Basis of consolidation and presentation—The accompanying consolidated financial statements include the accounts of Dover Motorsports, Inc. and our wholly owned subsidiaries.  Intercompany transactions and balances have been eliminated.

Investments—Investments, which consist of mutual funds, are classified as available-for-sale and reported at fair-value in other assets in our consolidated balance sheets. Changes in fair value are reported in other comprehensive earnings (loss).  See NOTE 7 — Stockholders’ Equity and NOTE 8 — Fair Value Measurements for further discussion.

Property and equipment—Property and equipment is stated at cost.  Depreciation is provided for financial reporting purposes using the straight-line method.  Accumulated depreciation was $43,724,000 and $42,076,000 as of June 30, 2012 and December 31, 2011, respectively.

Impairment of long-lived assets—Long-lived assets are assessed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.  An impairment loss is measured as the amount by which the carrying amount of the asset exceeds its fair value.  Generally, fair value is determined using valuation techniques such as the comparable sales approach.  Historically the impairment assessment for track facilities has also considered the cost approach valuation technique, which gives specific consideration to the value of the land plus contributory value to the improvements.

Income taxes—Deferred income taxes are provided on all differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements based upon enacted statutory tax rates in effect at the balance sheet date.  We record a valuation allowance to reduce our deferred tax assets when uncertainty regarding their realizability exists.  In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.  The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible.  Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.  We recognize the effect of income tax positions only if those positions are more likely than not of being sustained.  Recognized income tax positions are measured at the largest amount that has a greater than 50% likelihood of being realized.  Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

We file income tax returns with the Internal Revenue Service and the states in which we conduct business.  We have identified the U.S. federal and state of Delaware as our major tax jurisdictions.  As of June 30, 2012, tax years after 2007 remain open to examination for federal and Delaware income tax purposes

Revenue recognition—We classify our revenues as admissions, event-related, broadcasting and other.  “Admissions” revenue includes ticket sales for all of our events.  “Event-related” revenue includes amounts received from sponsorship fees; luxury suite rentals; hospitality tent rentals and catering; concessions and souvenir sales and vendor commissions for the right to sell concessions and souvenirs at our facilities; sales of programs; track rentals and other event-related revenues.  “Broadcasting” revenue includes rights fees obtained for television and radio broadcasts of events held at our speedways and any ancillary media rights fees.

Revenues pertaining to specific events are deferred until the event is held.  Concession and souvenir revenues are recorded at the time of sale.  Revenues and related expenses from barter transactions in which we receive advertising or other goods or services in exchange for sponsorships of motorsports events are recorded at fair value.  Barter transactions accounted for $222,000 and $305,000 of total revenues for the three and six-month periods ended June 30, 2012 and 2011, respectively.

Under the terms of our sanction agreements, NASCAR retains 10% of the gross broadcast rights fees allocated to each NASCAR-sanctioned event as a component of its sanction fee.  The remaining 90% is recorded as revenue.  The event promoter is required to pay 25% of the gross broadcast rights fees to the event as part of the awards to the competitors, which we record as operating expenses.

We were responsible for collecting sales taxes from our customers on certain revenue generating activities at our Nashville facility and remitting these taxes to the appropriate governmental taxing authority.  We included sales taxes in admissions and event-related revenues in our consolidated statements of operations with an equal amount in operating and marketing expenses.  There were no sales taxes included in revenues or expenses for the six months ended June 30, 2012.   Sales taxes included in revenues and expenses for the three and six-month periods ended June 30, 2011 were $65,000.

Expense recognition—Certain direct expenses pertaining to specific events, including prize and point fund monies and sanction fees paid to various sanctioning bodies, including NASCAR, marketing and other expenses associated with the promotion of our racing events are deferred until the event is held, at which point they are expensed.

The cost of non-event related advertising, promotion and marketing programs is expensed as incurred.  Advertising expenses were $572,000 and $817,000 for the three and six-month periods ended June 30, 2012 and 2011, respectively.

Net earnings per common share—Nonvested share-based payment awards that include rights to dividends or dividend equivalents, whether paid or unpaid, are considered participating securities, and the two-class method of computing basic and diluted net earnings per common share (“EPS”) is applied for all periods presented.  The following table sets forth the computation of EPS (in thousands, except per share amounts):

	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
Net earnings per common share — basic:
Net earnings	$	5,018	$	3,901	$	2,395	$	335
Allocation to nonvested restricted stock awards	80		67		38		5
Net earnings available to common stockholders	$	4,938	$	3,834	$	2,357	$	330
Weighted-average shares outstanding	36,300		36,195		36,299		36,194
Net earnings per common share — basic:
Continuing operations	$	0.14	$	0.11	$	0.06	$	0.01
Discontinued operation	—		—		—		—
Net earnings	$	0.14	$	0.11	$	0.06	$	0.01
Net earnings per common share — diluted:
Net earnings	$	5,018	$	3,901	$	2,395	$	335
Allocation to nonvested restricted stock awards	80		67		38		5
Net earnings available to common stockholders	$	4,938	$	3,834	$	2,357	$	330
Weighted-average shares outstanding	36,300		36,195		36,299		36,194
Dilutive stock options	—		—		—		—
Weighted-average shares and dilutive shares outstanding	36,300		36,195		36,299		36,194
Net earnings per common share — diluted:
Continuing operations	$	0.14	$	0.11	$	0.06	$	0.01
Discontinued operation	—		—		—		—
Net earnings	$	0.14	$	0.11	$	0.06	$	0.01

For the three and six-month periods ended June 30, 2011, weighted-average options to purchase 0 and 2,000 shares of common stock, respectively, were outstanding but not included in the computation of diluted EPS because they would have been anti-dilutive.  There were no options outstanding during the six months ended June 30, 2012.

Accounting for stock-based compensation—We recorded total stock-based compensation expense for our restricted stock awards of $78,000 and $169,000, and $86,000 and $230,000 as general and administrative expenses for the three and six-month periods ended June 30, 2012 and 2011, respectively.  We recorded income tax benefit (expense) of $32,000 and ($63,000), and $35,000 and ($40,000) for the three and six-month periods ended June 30, 2012 and 2011, respectively, related to our restricted stock awards.

Use of estimates—The preparation of the accompanying consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions about future events.  These estimates and the underlying assumptions affect the reported amounts of assets and liabilities, disclosures about contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  These estimates and assumptions are based on our best estimates and judgment.  We evaluate our estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which we believe to be reasonable under the circumstances.  We adjust such estimates and assumptions when facts and circumstances dictate.  Illiquid credit markets, volatile equity markets and declines in consumer spending have combined to increase the uncertainty inherent in such estimates and assumptions.  As future events and their effects cannot be determined with precision, actual results could differ from these estimates.  Changes in those estimates resulting from continuing changes in the economic environment will be reflected in the consolidated financial statements in future periods.