Page 1 of 11
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 December 31, 1999
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
(Address of principal executive offices)
19901
(Zip Code)
(302) 674-4600
(Registrant's telephone number, including area code)
----------------------------------
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 [ X ] No [ ]
As of December 31, 1999, the number of shares of each class of
the registrant's common stock outstanding is as follows:
Common stock - 11,735,348 shares
Class A common stock - 24,166,210 shares
FORM 10-Q Page 2 of 11
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DOVER DOWNS ENTERTAINMENT, INC.
CONSOLIDATED STATEMENT OF EARNINGS
In Thousands, Except Per Share Amounts
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
1999 1998 1999 1998
Revenues:
Motorsports $ 5,042 $ 6,670 $ 33,652 $27,825
Gaming (including win) 39,501 30,981 82,192 64,480
44,543 37,651 115,844 92,305
Expenses:
Operating 34,824 28,631 81,192 63,969
Depreciation and amortization 1,973 1,832 3,938 3,628
General and administrative 2,906 2,537 6,229 5,591
39,703 33,000 91,359 73,188
Operating earnings 4,840 4,651 24,485 19,117
Interest expense, net 418 355 844 744
Earnings before income taxes 4,422 4,296 23,641 18,373
Income taxes 1,895 1,783 9,870 7,582
Net earnings $ 2,527 $ 2,513 $ 13,771 $10,791
Earnings per common share
- Basic $ .07 $ .07 $ .38 $ .30
- Diluted $ .07 $ .07 $ .38 $ .30
Average shares outstanding
- Basic 35,902 35,553 35,852 35,544
- Diluted 36,730 36,510 36,713 36,564
Dividends paid per common share $ .045 $ .045 $ .09 $ .085
The Notes to the Consolidated Financial Statements are an integral part
of these statements.
<PAGE>
FORM 10-Q Page 3 of 11
DOVER DOWNS ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEET
In Thousands, Except Share and Per Share Amounts
(Unaudited)
December 31, June 30,
ASSETS 1999 1999
Current assets:
Cash and cash equivalents $ 4,100 $ 10,847
Accounts receivable 7,267 6,706
Due from State of Delaware 6,841 2,932
Inventories 492 581
Prepaid income taxes 1,397 -
Prepaid expenses and other 3,710 4,456
Deferred income taxes 327 327
Total current assets 24,134 25,849
Property, plant and equipment, net 199,794 173,913
Other assets, net 1,401 1,453
Goodwill, net 53,398 53,997
Total assets $278,727 $255,212
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,796 $ 4,629
Purses due horsemen 7,776 3,147
Accrued liabilities 7,650 9,407
Income taxes payable - 2,726
Current portion of long-term debt 335 235
Deferred revenue 11,859 15,906
Total current liabilities 31,416 36,050
Long-term debt 53,625 36,725
Other liabilities 174 172
Deferred income taxes 10,106 9,607
Commitments (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;
75,000,000 shares authorized; issued and
outstanding: December - 11,735,348;
June - 11,403,684 1,173 1,140
Class A common stock, $.10 par value;
55,000,000 shares authorized; issued
and outstanding: December - 24,166,210;
June - 24,262,510 2,417 2,426
Additional paid-in capital 99,865 99,683
Retained earnings 79,951 69,409
Total shareholders' equity 183,406 172,658
Total liabilities and shareholders' equity $278,727 $255,212
The Notes to the Consolidated Financial Statements are an integral part
of these statements.
FORM 10-Q Page 4 of 11
DOVER DOWNS ENTERTAINMENT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
In Thousands
(Unaudited)
Six Months Ended
December 31,
1999 1998
Cash flows from operating activities:
Net earnings $13,771 $10,791
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 3,938 3,628
(Increase) decrease in assets:
Accounts receivable (561) 777
Due from State of Delaware (3,909) (4,149)
Inventories 89 124
Prepaid expenses and other 746 658
Increase (decrease) in liabilities:
Accounts payable (833) (2,895)
Purses due horsemen 4,629 3,044
Accrued liabilities (1,757) (3,174)
Current and deferred income taxes (3,624) (5,292)
Deferred revenue (4,047) (3,358)
Net cash provided by operating activities 8,442 154
Cash flows from investing activities:
Capital expenditures (29,033) (14,034)
Other (125) -
Cash acquired in business acquisition - 1,490
Net cash used in investing activities (29,158) (12,544)
Cash flows from financing activities:
Dividends paid (3,229) (3,013)
Borrowings on revolving debt, net 17,000 6,000
Repayment of long-term debt - (1,081)
Loan repayments - 165
Proceeds of stock options exercised and other 198 11
Net cash provided by financing activities 13,969 2,082
Net decrease in cash and cash equivalents (6,747) (10,308)
Cash and cash equivalents, beginning of period 10,847 18,694
Cash and cash equivalents, end of period $ 4,100 $ 8,386
Supplemental information:
Interest paid $ 409 $ 24
Income taxes paid $13,494 $13,818
Non-cash investing activities:
Stock issued for business acquisition - $80,241
The Notes to the Consolidated Financial Statements are an integral part
of these statements.
FORM 10-Q Page 5 of 11
DOVER DOWNS ENTERTAINMENT, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Basis of Presentation
The accompanying unaudited consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and
generally accepted accounting principles, but do not include all of the
information and footnotes 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 Downs Entertainment, Inc. and its wholly
owned subsidiaries (the "Company"). In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation of results of operations, financial
position and cash flows have been included. Operating results for the
three months and six months ended December 31, 1999 are not necessarily
indicative of the results that may be expected for the fiscal year
ending June 30, 2000.
Revenue Recognition
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.
Earnings Per Share
Pursuant to the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share," the number of weighted average
shares used in computing basic and diluted earnings per share (EPS) are
as follows (in thousands):
Three Months Ended Six Months Ended
December 31, December 31,
1999 1998 1999 1998
Basic EPS 35,902 35,553 35,852 35,544
Effect of Options 828 957 861 1,020
Diluted EPS 36,730 36,510 36,713 36,564
No adjustments to net income available to common shareholders were
required during the periods presented.
<PAGE>
FORM 10-Q Page 6 of 11
Business Segment Information
The Company has two reportable segments, motorsports and gaming.
The business is operated and defined based on the products and services
provided by these segments. Certain operations within the motorsports
segment have been aggregated for purposes of the following disclosures
(in thousands):
Three Months Ended Six Months Ended
December 31, December 31,
1999 1998 1999 1998
Revenues:
Motorsports $ 5,042 $ 6,670 $ 33,652 $27,825
Gaming 39,501 30,981 82,192 64,480
Consolidated Revenues $44,543 $37,651 $115,844 $92,305
Operating Earnings (Loss):
Motorsports $(3,478) $(1,950) $ 6,861 $ 5,278
Gaming 8,318 6,601 17,624 13,839
Consolidated Operating
Earnings $ 4,840 $ 4,651 $ 24,485 $19,117
December 31, 1999 June 30, 1999
Identifiable Assets:
Motorsports $227,184 $209,540
Gaming 51,543 45,672
Consolidated Assets $278,727 $255,212
Item 2.Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations: Three Months Ended December 31, 1999 vs. Three
Months Ended December 31, 1998
Revenues increased by $6,892,000 to $44,543,000 as a result of
growth in the historical business of the Company. Gaming revenues
increased by $8,520,000 or 27.5% to $39,501,000, primarily the result
of expanding the casino facility and restaurant space and increasing
the number of video lottery (slot) machines from an average of 1,094 in
the second quarter of fiscal 1999 to 1,542 during the second quarter of
fiscal 2000, and also from the results of expanded marketing and
promotional activities related to the Company's video lottery casino.
Motorsports revenues decreased by $1,628,000 or 24.4%, due primarily to
the scheduling of the Busch Grand National Division event at Gateway
International Raceway in the first quarter of fiscal 2000 compared with
the second quarter of fiscal 1999. The aforementioned decrease in
motorsports revenues was offset somewhat by the addition of a Busch
Grand National Division event at Memphis Motorsports Park in the second
quarter of fiscal 2000.
FORM 10-Q Page 7 of 11
Operating expenses increased by $6,193,000 reflecting the higher
gaming revenues. 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 increased by $3,339,000 in the
second quarter of fiscal 2000. Amounts allocated from the video
lottery operation for harness horse racing purses were $4,294,000 in
the second quarter of fiscal 2000 compared with $3,369,000 in the
second quarter of fiscal 1999.
Motorsports operating expenses for the second quarter of fiscal 2000
remained consistent with the second quarter of fiscal 1999.
Depreciation and amortization increased by $141,000 due to capital
expenditures related to the Company's video lottery casino and
motorsports facilities expansion during the third and fourth quarters
of last fiscal year.
General and administrative expenses increased by $369,000 to
$2,906,000 from $2,537,000 in the second quarter of 1999 due to an
increase in wages and related employee benefits.
The Company's effective income tax rates for the three-month periods
ended December 31, 1999 and 1998 were 42.9% and 41.5%, respectively.
Net earnings increased by $14,000 as a result of increased play in
the casino and the addition of a Busch Grand National Division event at
Memphis Motorsports Park, offset by the rescheduling of the Busch Grand
National Division event at Gateway International Raceway.
Results of Operations: Six Months Ended December 31, 1999 vs. Six
Months Ended December 31, 1998
Revenues increased by $23,539,000 to $115,844,000 for the six months
ended December 31, 1999. Gaming revenues increased by $17,712,000 or
27.5%, the result of having an average of 1,555 machines in the first
six months of fiscal 2000 compared with an average of 1,066 machines in
the first six months of fiscal 1999, and also from the results of
expanded marketing and promotional activities related to the Company's
video lottery casino. Motorsports revenues increased by $5,827,000 to
$33,652,000. Approximately $1,280,000 of the increase resulted from
increased attendance, $573,000 from increased ticket prices, and
$3,021,000 from increased sponsorship, concession and broadcast
revenues for the Company's fall NASCAR weekend at Dover Downs
International Speedway. The remainder of the revenue increase is
primarily due to the addition of a Busch Grand National Division event
at Memphis Motorsports Park and an increase in admissions revenues for
the Busch Grand National Division event at Gateway International
Raceway. The aforementioned increases in motorsports revenues were
offset somewhat by a decrease in revenues related to the Indy Racing
League event at Dover Downs International Speedway in the first fiscal
quarter.
FORM 10-Q Page 8 of 11
Operating expenses increased by $17,223,000 reflecting the higher
revenues. 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 increased by $7,226,000 in the
first six months of fiscal 2000. Amounts allocated from the video
lottery operation for harness horse racing purses were $9,036,000 in
the first six months of fiscal 2000 compared with $7,094,000 in the
first six months of fiscal 1999.
Motorsports operating expenses increased primarily due to a
$1,069,000 increase in the purse obligation expenses related to the
Fall NASCAR weekend at Dover Downs International Speedway and the
addition of a Busch Grand National Division event at Memphis
Motorsports Park in October 1999.
Depreciation and amortization increased by $310,000 due to capital
expenditures related to the Company's video lottery casino and
motorsports facilities expansion during the third and fourth quarters
of last fiscal year.
General and administrative expenses increased by $638,000 to
$6,229,000 from $5,591,000 in the first six months of 1999 due to an
increase in wages and related employee benefits.
The Company's effective income tax rates for the six-month periods
ended December 31, 1999 and 1998 were 41.8% and 41.3%, respectively.
Net earnings increased by $2,980,000 as a result of increased play
in the casino, higher attendance and related revenues as well as an
increase in the broadcast rights fees for the fall race at Dover Downs
International Speedway, and the addition of a Busch Grand National
Division event at Memphis Motorsports Park in the second quarter of
fiscal 2000.
Liquidity and Capital Resources
Cash flows from operations for the six months ended December 31,
1999 and 1998 were $8,442,000 and $154,000, respectively. The reason
for the increase in operating cash flows was primarily the increase in
earnings before depreciation and amortization and the timing of
payments for harness horse racing purses, construction-related payables
and certain tax payments.
Capital expenditures for the six months ended December 31, 1999 were
$29,033,000. Approximately $11,342,000 related to the expansion of and
improvements to the auto racing facilities in Dover, Delaware;
Millington, Tennessee (near Memphis, Tennessee); and Madison, Illinois
(near St. Louis, Missouri), approximately $5,472,000 to the expansion
of the casino facility and construction of a hotel in Dover, Delaware,
and approximately $11,493,000 for the acquisition of land and other
construction costs related to the Nashville Superspeedway Complex.
FORM 10-Q Page 9 of 11
On November 1, 1999, the Company closed on a $125,000,000 amended
and restated revolving line of credit agreement with several banks.
The terms of the new agreement are essentially the same as those
contained in the previous agreement. There was $32,500,000 outstanding
under the credit facility at December 31, 1999. During the first six
months of fiscal 2000, the Company capitalized $699,000 of interest
cost related to the construction of major facilities. The capitalized
interest is amortized over the estimated useful life of the asset to
which it relates.
In September of 1999, the Sports Authority of the County of Wilson,
Tennessee issued its Variable Rate Tax Exempt Infrastructure Revenue
Bonds, Series 1999 (the "Bonds") in the aggregate amount of
$25,900,000. The proceeds will be 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 is developing through its wholly
owned subsidiary, 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. Subsequent to the
opening of the Superspeedway Complex, the Bonds will be payable solely
from certain sales and incremental property taxes generated from the
Superspeedway Complex (the "Revenues"). In the event the Revenues 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 (the "Banks") pursuant to a
Reimbursement and Security Agreement between Dover Downs Entertainment,
Inc. (the "Company") and the Banks whereby the Company has agreed to
reimburse the Banks for drawings made under the letter of credit.
Management believes that cash flows from operations and funds
expected to be available under its bank credit facility will satisfy
the Company's cash requirements for the remainder of fiscal 2000.
Year 2000 Issues
Aware that the Year 2000 (Y2K) information technology programming
issue could have a significant potential impact on its future
operations and financial reporting, the Company began its assessment
and remediation processes in 1998 regarding its primary financial and
operating systems. The Company's assessment activities included (1)
identifying all software and operating systems - both information
technology (IT) systems and non-IT systems with embedded technology -
which are critical to operations and/or financial reporting, (2)
testing of such software and systems for Y2K compliance, (3) obtaining
assurances from the Company's vendors, and (4) assigning a manager for
Y2K compliance and establishing a readiness reporting process to ensure
that top management was aware of each area and step completed in order
for the Company to become fully Y2K compliant.
As of the filing date of this Form 10-Q, the Company's business
operations have not been materially impacted by Year 2000 matters.
FORM 10-Q Page 10 of 11
Forward-Looking Statements
The Company may make forward-looking statements relating to
anticipated financial performance, business prospects, acquisitions or
divestitures, new products, market forces, commitments and other
matters. The Private Securities Litigation Reform Act of 1995 provides
a safe harbor for forward-looking statements. In order to comply with
the terms of the safe harbor, the Company notes that a variety of
factors could cause the Company's actual results and experience to
differ materially from the anticipated results or other expectations
expressed in the Company's forward-looking statements. Forward-looking
statements typically contain such words as "anticipates," "believes,"
"estimates," "expects," "forecasts," "predicts," or "projects," or
variations of these words, suggesting that future outcomes are
uncertain.
Various risks and uncertainties may affect the operation,
performance, development and results of the Company's business and
could cause future outcomes to differ materially from those set forth
in forward-looking statements, including the following factors:
general economic conditions, the Company's ability to finance its
future business requirements through outside sources or internally
generated funds, the availability of adequate levels of insurance,
success or timing of completion of ongoing or anticipated capital or
maintenance projects, the ability to successfully integrate recently
acquired companies, management retention and development, changes in
Federal, State, and local laws and regulations, including environmental
regulations, weather, relationships with sponsors, broadcast media and
sanctioning bodies as well as the risks, uncertainties and other
factors described from time to time in the Company's SEC filings and
reports.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
A group purportedly made up of Wilson County and Rutherford County,
Tennessee residents has filed a complaint in the Chancery Court for
Wilson County, Tennessee contesting the rezoning of the land upon which
the Nashville Superspeedway complex will be situated. The litigation,
if successful, would prevent, or at least significantly postpone, the
development of the facility. The Company believes the rezoning was
done properly and is vigorously contesting the litigation. Based on
the advice of counsel, management believes that the litigation is
unlikely to succeed on its merits.
The Company is involved in other litigation incidental to the
ordinary operation of its business. Management is of the opinion,
based on the advice of counsel, that the litigation in which the
Company is involved will not have a material effect upon its results of
operations or financial condition.
Item 2. Changes in Securities and Use of Proceeds
None.
FORM 10-Q Page 11 of 11
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held on October 29,
1999. With regard to Proposal No. 1 of the NOTICE OF ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON OCTOBER 29, 1999 to elect three Class III
Directors to the Board of Directors, John W. Rollins, Denis McGlynn and
Jeffrey W. Rollins were elected. At the meeting, 254,956,528,
254,960,594 and 254,956,872 affirmative votes were cast for John W.
Rollins, Denis McGlynn and Jeffrey W. Rollins, respectively, and
28,517, 24,451 and 28,173 votes were withheld from John W. Rollins,
Denis McGlynn and Jeffrey W. Rollins, respectively.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.1 - Amended and Restated Credit Agreement Among Dover
Downs Entertainment, Inc., the Several Banks and
Other Financial Institutions Party Thereto and PNC
Bank, Delaware as Agent Dated as of November 1,
1999, as filed with the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30,
1999, is incorporated herein by reference.
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None.
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: January 28, 2000 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
Chief Financial Officer
(Principal Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DOVER
DOWNS ENTERTAINMENT, INC. CONSOLIDATED STATEMENT OF EARNINGS FOR THE SIX MONTHS
ENDED DECEMBER 31, 1999, AND THE DOVER DOWNS ENTERTAINMENT, INC. CONSOLIDATED
BALANCE SHEET AS OF DECEMBER 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 4,100
<SECURITIES> 0
<RECEIVABLES> 14,108
<ALLOWANCES> 0
<INVENTORY> 492
<CURRENT-ASSETS> 24,134
<PP&E> 226,968
<DEPRECIATION> 27,174
<TOTAL-ASSETS> 278,727
<CURRENT-LIABILITIES> 31,416
<BONDS> 53,625
0
0
<COMMON> 3,590
<OTHER-SE> 179,816
<TOTAL-LIABILITY-AND-EQUITY> 278,727
<SALES> 115,844
<TOTAL-REVENUES> 115,844
<CGS> 0
<TOTAL-COSTS> 85,130
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 844
<INCOME-PRETAX> 23,641
<INCOME-TAX> 9,870
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<NET-INCOME> 13,771
<EPS-BASIC> .38
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