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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 September 30, 2000
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)
-------------------------
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 September 30, 2000, the number of shares of each class
of the registrant's common stock outstanding is as follows:
Common stock - 13,951,500 shares
Class A common stock - 23,904,985 shares
FORM 10-Q Page 2 of 10
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
September 30,
2000 1999
Revenues:
Motorsports $ 33,951 $ 28,610
Gaming 45,314 42,691
79,265 71,301
Expenses:
Operating 50,955 46,368
Depreciation and amortization 2,456 1,965
General and administrative 3,377 3,323
56,788 51,656
Operating earnings 22,477 19,645
Interest expense, net 3 426
Earnings before income taxes 22,474 19,219
Income taxes 9,259 7,975
Net earnings $ 13,215 $ 11,244
Earnings per common share
Basic $ .35 $ .31
Diluted $ .35 $ .31
Average shares outstanding
Basic 37,856 35,803
Diluted 38,040 36,696
Dividends declared per common share $ .045 $ .045
The Notes to the Consolidated Financial Statements are an integral part
of these statements.
<PAGE>
FORM 10-Q Page 3 of 10
DOVER DOWNS ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEET
In Thousands, Except Share and Per Share Amounts
(Unaudited)
September 30, June 30,
ASSETS 2000 2000
Current assets:
Cash and cash equivalents $ 12,942 $ 12,413
Accounts receivable 14,723 12,700
Due from State of Delaware 8,048 3,176
Inventories 639 645
Prepaid expenses and other 4,344 4,518
Deferred income taxes 313 309
Total current assets 41,009 33,761
Property, plant and equipment, net 247,575 228,893
Other assets, net 1,434 1,453
Goodwill, net 52,307 52,671
Total assets $342,325 $316,778
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,633 $ 10,902
Purses due horsemen 7,864 2,982
Accrued liabilities 14,882 11,588
Income taxes payable 9,299 3,660
Current portion of long-term debt 585 585
Deferred revenue 6,641 17,489
Total current liabilities 44,904 47,206
Notes payable to bank 30,100 15,000
Long-term debt 20,540 20,540
Other liabilities 158 174
Deferred income taxes 17,279 16,067
Commitments and contingencies (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: September - 13,951,500;
June - 13,796,500 1,395 1,380
Class A common stock, $.10 par value;
55,000,000 shares authorized; issued
and outstanding: September - 23,904,985;
June - 24,054,985 2,390 2,405
Additional paid-in capital 119,264 119,222
Retained earnings 106,295 94,784
Total shareholders' equity 229,344 217,791
Total liabilities and shareholders' equity $342,325 $316,778
The Notes to the Consolidated Financial Statements are an integral part
of these statements.
FORM 10-Q Page 4 of 10
DOVER DOWNS ENTERTAINMENT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
In Thousands
(Unaudited)
Three Months Ended
September 30,
2000 1999
Cash flows from operating activities:
Net earnings $13,215 $11,244
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 2,456 1,965
(Increase) decrease in assets:
Accounts receivable (2,023) (333)
Due from State of Delaware (4,872) (4,708)
Inventories 6 (24)
Prepaid expenses and other 174 856
Increase (decrease) in liabilities:
Accounts payable (5,269) (48)
Purses due horsemen 4,882 4,843
Accrued liabilities 3,294 (855)
Current and deferred income taxes 6,847 6,418
Deferred revenue (10,848) (9,621)
Net cash provided by operating activities 7,862 9,737
Cash flows from investing activities:
Capital expenditures (20,754) (9,423)
Net cash used in investing activities (20,754) (9,423)
Cash flows from financing activities:
Borrowings on revolving debt, net 15,100 4,500
Dividends paid (1,704) (1,613)
Proceeds from stock options exercised
and other 25 199
Net cash provided by financing activities 13,421 3,086
Net increase in cash and cash equivalents 529 3,400
Cash and cash equivalents, beginning of period 12,413 10,847
Cash and cash equivalents, end of period $12,942 $14,247
Supplemental information:
Interest paid $ 349 $ 795
Income taxes paid $ 2,412 $ 1,557
The Notes to the Consolidated Financial Statements are an integral part
of these statements.
FORM 10-Q Page 5 of 10
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 ended September 30, 2000 are not necessarily indicative of
the results that may be expected for the fiscal year ending June 30,
2001.
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
September 30,
2000 1999
Basic EPS 37,856 35,803
Effect of Options 184 893
Diluted EPS 38,040 36,696
FORM 10-Q Page 6 of 10
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
September 30,
2000 1999
Revenues:
Motorsports $33,951 $28,610
Gaming 45,314 42,691
Consolidated Revenues $79,265 $71,301
Operating Earnings:
Motorsports $13,122 $10,339
Gaming 9,355 9,306
Consolidated Operating
Earnings $22,477 $19,645
September 30, 2000 June 30, 2000
Identifiable Assets:
Motorsports $278,550 $261,989
Gaming 63,775 54,789
Consolidated Assets $342,325 $316,778
Item 2.Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations: Three Months Ended September 30, 2000 vs. Three
Months Ended September 30, 1999
Revenues increased by $7,964,000 to $79,265,000 as a result of
growth in the historical business of the Company. Gaming revenues
increased by $2,623,000 or 6.1% to $45,314,000, primarily the result of
expanding the casino facility and increasing the number of video
lottery (slot) machines from an average of 1,568 in the first quarter
of fiscal 2000 to 2,000 during the first quarter of fiscal 2001, and
also from the results of expanded marketing and promotional activities
related to the Company's video lottery casino. Motorsports revenues
increased by $5,341,000 or 18.7%. Approximately $465,000 resulted from
increased attendance, $222,000 from increased ticket prices and
$2,889,000 from increased sponsorship and broadcast revenues from the
Company's fall NASCAR weekend at Dover Downs International Speedway.
The remainder of the motorsports revenue increase is primarily from
adding a Craftsman Truck Series event to the Dover Downs' fall NASCAR
weekend and the scheduling of the Championship Auto Racing Teams (CART)
event at Gateway International Raceway in September 2000 compared with
May 1999. The aforementioned increases in motorsports revenue were
offset somewhat by the Company's decision not to promote an Indy Racing
League (IRL) event at Dover Downs International Speedway in fiscal 2001
and the scheduling of the Craftsman Truck Series event at Gateway
International Raceway in the fourth quarter of fiscal 2000 instead of
the first quarter of fiscal 2001.
FORM 10-Q Page 7 of 10
Operating expenses increased by $4,587,000 reflecting the higher
gaming and motorsports revenues. Amounts retained by the State of
Delaware, fees to the manager who operates the video lottery (slot)
machine casino, 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
$727,000 in the first quarter of fiscal 2001. Amounts allocated from
the video lottery operation for harness horse racing purses were
$4,993,000 in the first quarter of fiscal 2001 compared with $4,742,000
in the first quarter of fiscal 2000. Additional advertising,
promotional and customer complimentary costs of $1,114,000 were the
other significant operating cost increases. Motorsports operating
expenses for the first quarter of fiscal 2001 increased as compared
with the first quarter of fiscal 2000 due to the addition of a
Craftsman Truck Series event to the Dover Downs fall NASCAR weekend and
the scheduling of the CART event at Gateway International Raceway in
September 2000 compared with May 1999. The aforementioned increases in
motorsports operating expenses were offset somewhat by the Company's
decision not to promote an IRL event at Dover Downs International
Speedway in fiscal 2001 and the scheduling of the Craftsman Truck
Series event at Gateway International Raceway in the fourth quarter of
fiscal 2000 instead of the first quarter of fiscal 2001.
Depreciation and amortization expense increased by $491,000 due to
capital expenditures related to the Company's video lottery casino
expansion and motorsports facilities expansion since the first quarter
of fiscal 2000.
General and administrative expenses increased by $54,000 to
$3,377,000 from $3,323,000 in the first quarter of fiscal 2000.
Despite the increased borrowings on the revolving bank credit
agreement, interest expense decreased by $423,000 due to the
capitalization of $900,000 of interest related to the construction of
major facilities in the first quarter of fiscal 2001 compared with
$300,000 in the first quarter of fiscal 2000.
The Company's effective income tax rates for the three-month periods
ended September 30, 2000 and 1999 were 41.2% and 41.5%, respectively.
Net earnings increased by $1,971,000, primarily as a result of
higher attendance and related revenues for the fall NASCAR event at
Dover Downs International Speedway, and the scheduling of the CART
Series event at Gateway International Raceway.
Liquidity and Capital Resources
Cash flows from operations for the three months ended September 30,
2000 and 1999 were $7,862,000 and $9,737,000, respectively. The reasons
for the decrease in operating cash flows were primarily the timing of
the receipt of broadcast revenues and the timing of construction-
related payments, offset by the increase in earnings before
depreciation and amortization.
FORM 10-Q Page 8 of 10
Capital expenditures for the three months ended September 30, 2000
were $20,754,000. Approximately $2,827,000 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 $1,386,000 to the
construction of a hotel in Dover, Delaware, and approximately
$16,024,000 for construction costs related to the Nashville
Superspeedway complex. The remainder of the expenditures were for
other equipment and improvements at the Company's facilities.
Management believes that the cash flows from operations and funds
expected to be available under the Company's bank credit facility will
satisfy the Company's cash requirements for the remainder of fiscal
2001.
Recent Accounting Pronouncements
The Company does not expect the adoption of recently issued
accounting pronouncements to have a significant impact on its results
of operations, financial position or cash flows.
Year 2000 Issues
As of the filing date of this Form 10-Q, the Company's business
operations have not been materially impacted by Year 2000 ("Y2K")
matters. The Company will continue to monitor its operations for
possible Y2K information technology programming issues.
Forward-Looking Statements
The Company may make certain forward-looking statements in this Form
10-Q within the meaning of Section 21E of the Securities Exchange Act
of 1934, as amended, relating to the Company's 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, the Company
notes that a variety of factors could cause the Company's actual
results and experience to differ substantially from the anticipated
results or other expectations expressed in the Company's
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 Form 10-Q, as well as
statements containing phrases such as "in the Company's 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 in all of these instances.
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 the Company's forward-looking statements, including the following
factors: the Company's growth strategies; the Company's development
and potential acquisition of new facilities; anticipated trends in the
FORM 10-Q Page 9 of 10
motorsports and gaming industries; patron demographics; the Company's
ability to enter into additional contracts with sponsors, broadcast
media and race event sanctioning bodies; the Company's relationships
with sponsors; general market and economic conditions; the Company's
ability to finance future business requirements; the availability of
adequate levels of insurance; the ability to successfully integrate
acquired companies and businesses; management retention and
development; changes in Federal, state, and local laws and regulations,
including environmental and gaming license legislation and regulations;
the affect of weather conditions on outdoor event attendance; as well
as the risks, uncertainties and other factors described from time to
time in the Company's SEC filings and reports.
The Company undertakes 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 the Company to predict all such risk factors, nor
can the Company assess the impact of all such risk factors on its
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,
investors should not overly rely or attach undue weight to the
Company's forward-looking statements as an indication of its actual
future results.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The carrying values of the Company's long-term debt approximates its
fair value at September 30, 2000 and 1999. The Company is exposed to
market risks related to fluctuations in interest rates for its variable
rate borrowings of $30,100,000 at September 30, 2000 under its
revolving credit facility. A change in interest rates of one percent
on the balance outstanding at September 30, 2000 would cause a change
in total annual interest costs of $301,000.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
A group 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
new Nashville Superspeedway complex will be situated. The litigation,
if successful, would prevent, or at least significantly postpone, the
development of the facility. Management believes the rezoning was done
properly and is vigorously contesting the litigation. On May 30, 2000,
the Chancery Court ruled in favor of the Company's position on a motion
for summary judgment. That ruling has been appealed by the plaintiffs
to the Court of Appeals for the State of Tennessee. Based on the
advice of counsel, management continues to believe that the litigation
is unlikely to succeed on its merits.
The Company is also 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 negative
effect on the Company's financial condition or profitability.
FORM 10-Q Page 10 of 10
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
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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: October 27, 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 and
Chief Financial Officer
(Principal Financial and Accounting Officer)
