Page 1 of 8
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1996
OR
/___/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-11929
DOVER DOWNS ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 51-0357525
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1131 North DuPont Highway, Dover, Delaware 19901
(Address of principal executive offices) (Zip Code)
(302) 674-4600
(Registrant's telephone number, including area code)
(Former name of registrant)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Sections 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 No X
As of October 31, 1996, the number of shares of each class of
the registrant's common stock outstanding is as follows:
Common stock - 2,875,000 shares
Class A common stock - 12,260,830 shares
<PAGE>
FORM 10-Q Page 2 of 8
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
A. Basis of Preparation
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with the instructions to
Form 10-Q and do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the
quarter ended October 31, 1996 are not necessarily indicative of the
results that may be expected for the year ending July 31, 1997.
B. Business Operations
For the video lottery operations, the difference between the
amount wagered by bettors and the amount paid out to bettors is
referred to as the win. The win is included in the amount recorded in
the Company's financial statements as gaming revenue. The Delaware
State Lottery Office sweeps the winnings from the video lottery
operations, collects the State's share of the winnings and the amount
due to the vendors under contract with the State who provide the video
lottery machines and associated computer systems, collects the amount
allocable to purses for harness horse racing and remits the remainder
to the Company as its commission for acting as a Licensed Agent.
Operating expenses include the amounts collected by the State (i) for
the State's share of the winnings, (ii) for remittance to the providers
of the video lottery machines and associated computer systems, and
(iii) for harness horse racing purses.
<PAGE>
FORM 10-Q Page 3 of 8
DOVER DOWNS ENTERTAINMENT, INC.
CONSOLIDATED STATEMENT OF EARNINGS
Dollars in Thousands, Except Per Share Amounts
Quarter Ended
October 31,
1996 1995
Revenues:
Motorsports $ 9,386 $ 8,479
Gaming (including win) (1) 16,818 66
26,204 8,545
Expenses:
Operating 15,866 3,103
Depreciation 459 299
General and administrative 750 399
17,075 3,801
Operating earnings 9,129 4,744
Interest expense 83 13
Earnings before income taxes 9,046 4,731
Income taxes 3,759 1,922
Net earnings $ 5,287 $ 2,809
Earnings per common share $ .36 $ .19
Weighted average common shares
and common share equivalents
outstanding (000) 14,810 14,511
Dividends paid per common share None None
(1) Gaming revenues from the Company's video lottery (slot)
machine gaming operations include the total win from such
operations. The Delaware State Lottery Office collects the
win and remits a portion thereof to the Company as its
commission for acting as a Licensed Agent. The difference
between total win and the amount remitted to the Company is
reflected in Operating Expenses.
<PAGE>
FORM 10-Q Page 4 of 8
DOVER DOWNS ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEET
Dollars in Thousands
October 31, July 31,
1996 1996
ASSETS
Current assets:
Cash and cash equivalents $13,964 $ 3,461
Accounts receivable 573 1,023
Due from State of Delaware 3,959 1,573
Inventories 343 380
Prepaid expenses 618 647
Deferred income taxes 31 59
Total current assets 19,488 7,143
Property, plant and equipment, net 41,585 36,466
Total assets $61,073 $43,609
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to bank $ - $ 3,500
Accounts payable 1,313 823
Purses due horsemen 4,287 2,254
Accrued liabilities 1,399 2,119
Income taxes payable 2,963 2,445
Current portion of long-term debt 22 22
Deferred revenue 3,495 6,738
Total current liabilities 13,479 17,901
Long-term debt 766 774
Deferred income taxes 526 487
Commitments and contingent liabilities
See Part II Legal Proceedings
Shareholders' equity:
Preferred stock, $.10 par value;
1,000,000 shares authorized; issued
and outstanding: none
Common stock, $.10 par value;
35,000,000 shares authorized; issued
and outstanding: October - 2,875,000;
July - none 287 -
Class A common stock, $.10 par value;
30,000,000 shares authorized; issued
and outstanding: October - 12,260,830;
July - 14,015,830 1,226 1,402
Additional paid-in capital 21,158 4,701
Retained earnings 23,631 18,344
Total shareholders' equity 46,302 24,447
Total liabilities and shareholders' equity $61,073 $43,609
FORM 10-Q Page 5 of 8
DOVER DOWNS ENTERTAINMENT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Dollars in Thousands
Quarter Ended
October 31,
1996 1995
Cash flows provided by operating activities:
Net earnings $ 5,287 $ 2,809
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation 459 299
(Increase) decrease in assets:
Accounts receivable 450 102
Due from affiliate - 362
Due from State of Delaware (2,386) -
Inventories 37 (5)
Prepaid expenses 29 (548)
Increase (decrease) in liabilities:
Accounts payable 490 1,645
Purses due horsemen 2,033 -
Accrued liabilities (720) (1,672)
Current and deferred income taxes 585 1,007
Deferred revenue (3,243) (2,684)
Net cash provided by operating activities 3,021 1,315
Cash flows from investing activities:
Sale of short-term investments - 3,300
Capital expenditures (5,578) (4,109)
Net cash used in investing activities (5,578) (809)
Cash flows from financing activities:
Short-term borrowings (repayments) (3,500) 500
Proceeds (repayment) of long-term debt (8) 121
Repayment to shareholder - (193)
Net proceeds from initial public offering 16,547 -
Proceeds of stock options exercised 21 -
Net cash provided by financing activities 13,060 428
Net increase in cash and cash equivalents 10,503 934
Cash and cash equivalents, beginning of period 3,461 98
Cash and cash equivalents, end of period $13,964 $ 1,032
Supplemental information:
Interest paid $ 116 $ 16
Income taxes paid $ 3,174 $ 916
FORM 10-Q Page 6 of 8
Item 2.Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations: Quarter Ended October 31, 1996 vs. Quarter
Ended October 31, 1995
Revenues increased by $17,659,000 to $26,204,000 primarily as a
result of the introduction of video lottery (slot) machine operations
during the second quarter of fiscal 1996. Motorsports revenues
increased by $907,000 or 10.7%. Approximately $441,000 of the total
motorsports revenue increase resulted from increased attendance and
$291,000 from increased ticket prices. The remainder of the
motorsports revenue increase of $175,000 related to sponsorship,
concession and broadcast revenues. Harness horse racing revenues
increased by $506,000 as a result of having 92 days of simulcast
operations in the first quarter of fiscal 1997 as compared with 11 days
in the first quarter of fiscal 1996.
Operating expenses increased by $12,763,000 of which $11,239,000
was due to the introduction of video lottery (slot) machine operations.
Amounts retained by the State of Delaware, fees to the manager who
operates the video lottery (slot) machine operation, and the amount
collected by the State of Delaware for payment to the vendors under
contract with the State who provide the video lottery machines and
associated computer systems were $6,816,000 in the first quarter of
fiscal 1997 and none in the first quarter of 1996. Amounts allocated
from the video lottery operation for harness horse racing purses were
$1,941,000 in the first quarter of fiscal 1997 and none in the first
quarter of fiscal 1996. Wages and benefits of newly hired employees
for the video lottery (slot) machine operation were $1,046,000.
Advertising, promotional and customer complimentary costs of $923,000
and costs associated with casino food and beverage sales of $171,000
were the other significant operating costs of the video lottery (slot)
machine operations.
For the harness horse racing and simulcasting operations,
increased wages and benefits of newly hired people of $229,000 and
increased simulcast costs of $266,000 accounted for the most
significant operating cost increases.
Motorsports operating expenses increased primarily due to a
$245,000 increase in purse obligation expenses and related sanction
fees and a $72,000 increase in advertising expenses.
Depreciation increased by $160,000 or 53.5% due to capital
expenditures related to the Company's video lottery casino and
motorsports facilities expansion.
General and administrative expenses increased by $351,000 to
$750,000 from $399,000 in the first quarter of 1996 primarily as a
result of increased wages and benefits related to the video lottery
operations.
FORM 10-Q Page 7 of 8
The Company's effective income tax rates for the first quarter of
fiscal 1997 and fiscal 1996 were 41.6% and 40.6%, respectively.
Net earnings increased by $2,478,000 due to the video lottery
(slot) machine operations in the first quarter of fiscal 1997 that did
not exist in the first quarter of fiscal 1996 and also due to higher
attendance and related revenues at the Company's NASCAR-sanctioned
events in September 1996 as compared with September 1995.
Liquidity and Capital Resources
Cash flows from operations for the quarters ended October 31, 1996
and 1995 were $3,021,000 and $1,315,000, respectively. The significant
increase in fiscal 1997 is primarily the result of higher net earnings.
Capital expenditures for the quarter ended October 31, 1996 were
$5,578,000 and related primarily to the expansion of the video lottery
(slot) facility. The Company expects to make additional capital
expenditures of approximately $10,000,000 in fiscal 1997 primarily for
additional permanent grandstand and skybox seating.
The Company has a credit facility with three lines of credit
aggregating $15,000,000 from PNC Bank to provide seasonal funding needs
and to finance capital improvements and working capital requirements.
Under the credit facility, the Company is not permitted to pay any
dividends in excess of its net earnings for the preceding year.
On October 3, 1996, the Company issued 1,075,000 shares of common
stock at $17.00 per share. The Company used $3,500,000 of the proceeds
to pay down the Company's revolving credit facility. Management
expects to use the remaining proceeds from the public offering for
capital expenditures and general corporate purposes.
Management believes that the net proceeds of the public offering
together with cash flows from operations and funds available under its
bank credit facility will satisfy the Company's cash requirements for
fiscal 1997.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are various claims and legal actions pending against the
Company. In the opinion of management, based on the advice of counsel,
it is only remotely likely that the ultimate resolution of these claims
and actions will be material.
FORM 10-Q Page 8 of 8
Item 2. Changes in Securities
Dover Downs Entertainment, Inc. sold 1,075,000 shares of common
stock in an initial public offering at $17.00 per share. A Form S-1
Registration Statement, as amended, was filed with the Securities and
Exchange Commission and became effective on October 3, 1996.
Pursuant to the terms of the credit facility with PNC Bank, the
Company is not permitted to declare or pay any dividends in excess of
its net earnings for the preceding year.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27 - Financial Data Schedule
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.
DATE: December 4, 1996 Dover Downs Entertainment, Inc.
(Registrant)
/s/ Denis McGlynn
Denis McGlynn
President and Chief Executive Officer
/s/ Timothy R. Horne
Timothy R. Horne
Vice President-Finance
(Principal Financial and
Accounting Officer)
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