_________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________________________________
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 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 of Incorporation) (I.R.S. Employer Identification Number)
1131 North DuPont Highway, Dover, Delaware 19901
(Address of principal executive offices)
Registrant's telephone number including area code: (302) 674-4600
Securities registered pursuant to Section 12(b) of the Act:
Title of Class Name of exchange on which registered
Common Stock, $.10 Par Value NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: NONE
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
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. /__/
The aggregate market value of the voting stock held by non-
affiliates of the registrant was $153,149,847 as of July 31, 2000.
As of July 31, 2000, the number of shares of each class of the
Registrant's common stock outstanding is as follows:
Common Stock - 13,796,500 shares
Class A Common Stock - 24,054,985 shares
The following documents are incorporated by reference:
Document Part of this form into which incorporated
Proxy Statement in connection with
Annual Meeting of Shareholders to be
held October 27, 2000 III
ITEM 1. BUSINESS.
Dover Downs, Inc. was incorporated in Delaware in 1967 and, as a result
of a corporate reorganization completed in 1996, it became a 100% owned
subsidiary of Dover Downs Entertainment, Inc. ("Dover Downs" or "the
Company").
Dover Downs is a leading promoter of motorsports events in the United
States. The Company operates five motorsports tracks (four permanent
facilities and one temporary circuit) in four states and promoted 15
major events during fiscal 2000 in the four 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).
Dover Downs also owns and operates the Dover Downs Raceway harness
racing track and an 80,000 square foot video lottery (slot) casino at
a multi-purpose gaming and entertainment complex in Dover, Delaware.
The facility is located in close proximity to the major metropolitan
areas of Philadelphia, Baltimore and Washington, D.C.
(a) Recent Developments
On March 3, 2000, the Company completed the issuance of 1,500,000
additional shares of Common Stock through a public offering resulting
in net proceeds to the Company of $19,185,000. The Company used the net
proceeds of the offering to pay down a portion of its borrowings under
its revolving line of credit facility.
In December 1999, the Company commenced construction of a luxury hotel,
which will be located adjacent to the motorsports and gaming operations
in Dover, Delaware. The hotel, which is expected to open by the end of
2001, will be constructed in two phases. The first phase will include
232 rooms, a multi-purpose ballroom/concert hall and fine dining
restaurant. Additional construction to occur during the first phase
includes renovating the enclosed harness racing grandstand, building a
central HVAC plant, and expanding the buffet in the Winners Circle
Dining Room. The second phase is expected to include an additional 250
rooms.
On November 1, 1999, the Company entered into a $125,000,000 amended
and restated revolving credit agreement with several banks. Interest
is based, at the Company's option, upon (i) LIBOR plus .75% or (ii) the
base rate (the greater of the prime rate or the federal funds rate plus
.5%) minus 1%. The agreement, which expires on November 1, 2002, is
for seasonal funding needs, capital improvements and other general
corporate purposes. The agreement contains certain restrictive
covenants and requires the Company to maintain certain financial
ratios.
On August 26, 1999, the Company broke ground on its state-of-the-art
Nashville Superspeedway complex. The new 1.33-mile superspeedway will
have an initial capacity of 50,000 seats and an infrastructure in place
for more than 150,000 seats. Additionally, the first phase of
construction will include lights at the superspeedway to allow for
nighttime racing and the foundation work for a dirt track, short track
and drag strip to be completed in future phases. The facility is
expected to open in April 2001.
In February 1999, NASCAR announced that it would retain the television,
audio and other electronic media rights for Winston Cup and Busch
Series events beginning with the 2001 race season. In November 1999,
NASCAR completed negotiations on a new six-year television rights
agreement with the NBC and Turner networks and an eight-year agreement
with Fox and its FX cable network. NASCAR has announced that the
industry-wide domestic television broadcast revenues will be
approximately $244 million for the 2001 race season and increase at an
average annual rate of approximately 17% through the 2006 race season.
During fiscal 2000, 12,500 grandstand seats were added at Dover Downs
International Speedway, increasing the total seating capacity to
approximately 135,000. Memphis Motorsports Park added approximately
6,000 permanent seats and 13 skybox suites to bring the total capacity
at that facility to approximately 26,000. Gateway International
Raceway added approximately 18,000 permanent seats to bring the total
capacity at the facility to approximately 70,000. Additionally, lights
were added to allow nighttime racing and a tunnel was constructed under
the racetrack to allow movement in and out of the infield during an
event.
The Company also expanded its casino gaming facility by 15,000 square
feet in March 2000 and concurrently increased the number of slot
machines installed to 2,000, the current number allowed by state law.
(b) Financial Information About Operating Segments.
The Company's principal operations are grouped into two segments:
motorsports and gaming. Financial information concerning these
businesses is included on pages 11 through 16 and page 39 of this
fiscal 2000 Annual Report on Form 10-K.
(c) Narrative Description of Business
Motorsports
Motorsports is one of the fastest growing and most popular spectator
sports in the United States. According to the most recent Goodyear
Racing Attendance Report, 1998 attendance at all United States
motorsports events exceeded 17 million people. According to Nielsen
Media Research, more than 258 million people tuned to NASCAR's
televised events in 1998. Management believes that the demographic
profile of this growing base of spectators and viewing audience has
considerable appeal to sponsors and advertisers, including leading
consumer product and manufacturing companies that have expanded their
participation in the motorsports industry. According to the IEG
Sponsorship Report, in 1999 corporate sponsors spent approximately
$1.23 billion on motorsports marketing programs in the United States,
and, in the year 2000, are expected to spend approximately $1.35
billion, or 23% of all sports sponsorship dollars, on motorsports
marketing programs in the United States.
Dover Downs International Speedway
Dover Downs has presented NASCAR-sanctioned racing events for 32
consecutive years at Dover Downs International Speedway and conducts
four major NASCAR-sanctioned events at the facility annually. Two
races are associated with the Winston Cup professional stock car racing
circuit and two races are associated with the Busch Series, Grand
National Division (Busch Series) racing circuit. The Company recently
has added a NASCAR Craftsman Truck Series event beginning with the
September 2000 race weekend and will become one of only three tracks to
host three major NASCAR events at one facility on the same weekend.
The Company also hosted an Indy Racing League ("IRL") event at Dover
Downs International Speedway in August 1999 and July 1998.
Each of the Busch Series events at Dover Downs International Speedway
is conducted on the day before a Winston Cup event. Dover Downs
International Speedway is one of only six speedways in the country that
presents two Winston Cup events and two Busch Series events each year.
The June and September dates have historically allowed Dover Downs
International Speedway to hold the first and last Winston Cup events in
the Maryland to Maine region each year.
Dover Downs International Speedway is a high-banked, one-mile long,
concrete superspeedway with a current seating capacity of approximately
135,000. Unlike some superspeedways, substantially all grandstand and
skybox seats offer an unobstructed view of the entire track. The
concrete racing surface makes the auto racing track the only concrete
superspeedway (one mile or greater in length) that conducts NASCAR-
sanctioned events.
Nashville Speedway USA
Nashville Speedway USA hosted its first automotive race in 1904, making
it one of the oldest tracks in the country. The facility currently
hosts events in three of NASCAR's top national series - the Busch
Series, the Craftsman Truck Series and the Slim Jim All Pro Series.
Based on attendance, the track's Saturday night NASCAR Weekly Racing
Series is regarded as one of the most successful weekly programs in the
country. The Company acquired Nashville Speedway USA on January 2,
1998.
To accommodate the demand for major motorsports in the Nashville area,
the Company is constructing a new superspeedway and motorsports complex
in Wilson County, Tennessee. The 1.33-mile superspeedway initially
will have 50,000 grandstand seats with an infrastructure in place to
expand to 150,000 seats should demand require it. The Company expects
the new Nashville Superspeedway to open during the 2001 race season
with a strong schedule of events, including the NASCAR national events
currently held at Nashville Speedway USA.
Grand Prix Association of Long Beach
For the past 26 years, the Grand Prix Association of Long Beach, Inc.
has organized and promoted the CART-sanctioned Grand Prix of Long
Beach, an annual temporary circuit professional motorsports event run
in the streets of Long Beach, California. The Grand Prix of Long Beach
has the second highest paid attendance of any Indy-style car race,
second only to the Indianapolis 500. The Grand Prix of Long Beach
weekend has attracted in excess of 200,000 spectators in each of the
past seven years and is currently broadcast to more than 125 countries
throughout the world. The Company acquired the Grand Prix Association
of Long Beach, Inc. on July 1, 1998.
Gateway International Raceway
Gateway International Raceway ("Gateway"), acquired in the Grand Prix
Association of Long Beach acquisition, has conducted NASCAR-, CART- and
NHRA-sanctioned events since its opening in May 1997. In the 2001 race
season, an IRL event will replace the CART event.
The auto racing facility includes a 1.25-mile oval track and road
course with current seating capacity of 70,000 and a national-caliber
drag strip capable of seating approximately 30,000 people. The
facility, which is equipped with lights for nighttime racing, is
located on approximately 416 acres of land in Madison, Illinois, five
miles from the St. Louis Arch.
Memphis Motorsports Park
Memphis Motorsports Park, also acquired in the Grand Prix Association
of Long Beach acquisition, has hosted NHRA-sanctioned events for the
past 12 years and NASCAR-sanctioned events since the completion of the
3/4-mile paved tri-oval track in June 1998. The tri-oval track was
expanded recently to bring its seating capacity to approximately 26,000
seats and to add luxury suites for the inaugural Busch Series event
held in October 1999. The Company currently is adding approximately
5,000 seats and five luxury suites for the October 2000 Busch Series
event. The drag strip hosts an NHRA national event and has a seating
capacity in excess of 25,000.
Other
In recent years, television coverage and corporate sponsorship have
increased for NASCAR-sanctioned events. The Company's NASCAR-
sanctioned events are currently televised live by TNN and the ESPN
networks to a nationwide audience and broadcast nationally to a network
of radio stations affiliated with the Motor Racing Network. The
television and radio contracts historically have been negotiated by the
Company.
In February 1999, NASCAR announced that it would retain the television,
audio and other electronic media rights for Winston Cup and Busch
Series events beginning with the 2001 race season. In November 1999,
NASCAR completed negotiations on a new six-year television rights
agreement with the NBC and Turner networks and an eight-year agreement
with Fox and its FX cable network. NASCAR has announced that the
industry-wide domestic television broadcast revenues will be
approximately $244 million for the 2001 race season and increase at an
average annual rate of approximately 17% through the 2006 racing
season.
Gaming
The Company's gaming operations are located at its flagship property in
Dover, Delaware. The Dover facility is a multi-purpose gaming and
entertainment complex housing an 80,000 square foot Las Vegas-style
casino with 2,000 video lottery (slot) machines, which is managed by
Caesars World Gaming Development Corporation ("Caesars"). Dover Downs
Raceway, a 5/8-mile harness horse racetrack with a state-of-the-art
simulcasting parlor, is located adjacent to the casino.
In fiscal 2000, approximately 96% of the Company's gaming revenue was
attributable to its video lottery (slot) machine casino.
Dover Downs Slots
The Company's video lottery (slot) machine casino opened in December
1995 with approximately 500 video lottery (slot) machines. Due to its
popularity, the video lottery (slot) machine casino has expanded three
times since its opening and the number of machines has increased
steadily to its current level of 2000. The most recent expansion of
the gaming operations was completed in March 2000.
The video lottery (slot) machines range from the increasingly popular
nickel machines to $20 machines in the newly created Premium Slots
area. Additional amenities include the Garden Cafe, which becomes a
lounge with live entertainment every evening, the all-you-can-eat
buffet in the Winners Circle Dining Room, and a 1,400-seat concert hall
featuring national recording acts.
The Delaware State Lottery Office administers and controls the video
lottery (slot) machine operations. The Company is a licensed agent
authorized to conduct video lottery operations under the Delaware State
Lottery Code and is one of only three locations permitted to do so in
the State of Delaware. Dover Downs is permitted by law to set the
payout to customers between 87% and 95%. Since the introduction of the
video lottery (slot) machine operations, the Company has maintained an
average payout of approximately 91%.
The Company has a long-term management agreement with Caesars. Under
the agreement, Caesars is the exclusive agent to supervise, manage and
operate the Company's video lottery (slot) machine casino. Caesars has
been properly licensed by the Delaware State Lottery Office to perform
these functions.
The Company also is developing a luxury hotel facility adjacent to the
Dover gaming operations to attract new patrons and lengthen the stay of
current patrons. The hotel, which is expected to open by the end of
2001, will be constructed in two phases. The first phase will include
232 rooms, a multi-purpose ballroom/concert hall and a fine dining
restaurant. Additional construction to occur during the first phase
includes renovating the enclosed harness racing grandstand, building an
HVAC power plant, and expanding the buffet in the Winners Circle Dining
Room. The second phase is expected to include an additional 250 rooms.
Dover Downs Raceway
Dover Downs Raceway has presented pari-mutuel harness racing events for
32 consecutive years. The harness horse racing track is a 5/8-mile track
and is lighted for nighttime operations. The track is located inside
the one-mile auto racing superspeedway. Live harness races conducted
at Dover Downs Raceway are simulcast to tracks and other off-track
betting locations across North America on each of the Company's more
than 120 live race dates. During fiscal 2000, the Company's races were
transmitted to more than 400 tracks and off-track betting locations.
Dover Downs Raceway has facilities for pari-mutuel wagering on both
live harness horse racing and on simulcast thoroughbred and harness
horse racing received from numerous tracks across North America.
Within the main grandstand is the simulcast parlor where patrons can
wager on harness and thoroughbred races received by satellite into
Dover Downs year round. Television monitors throughout the parlor area
provide views of all races simultaneously and the parlor's betting
windows are connected to a central computer allowing bets to be
received on all races from all tracks.
Harness racing in the State of Delaware is governed by the Delaware
Harness Racing Commission. The Company holds a license from the
Commission authorizing it to hold harness race meetings on the
Company's premises and to offer pari-mutuel wagering on live and
simulcast horse races.
Competition
Motorsports
The Company's racing events compete with other racing events sanctioned
by various racing bodies and with other sports and recreational events
scheduled on the same dates. Racing events sanctioned by different
organizations are often held on the same dates at separate 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.
The two speedways closest to Dover Downs International Speedway that
currently sponsor Winston Cup races are in Richmond, Virginia
(approximately four hours to the South) and Pocono International
Raceway in Long Pond, Pennsylvania (approximately three and one-half
hours to the North). Nazareth Speedway in Nazareth, Pennsylvania
(approximately three hours to the North) currently conducts Busch
Series, Craftsman Truck Series and CART series races.
The speedways closest to Nashville Speedway USA and the new Nashville
Superspeedway complex are the Atlanta Motor Speedway (approximately
four and one-half hours to the southeast) and Talladega Superspeedway
(approximately four and one-half hours to the south). Atlanta Motor
Speedway currently hosts two Winston Cup races, one Busch Series race
and one IRL race. Talladega Superspeedway currently hosts two Winston
Cup races and one Busch Series race.
The closest motorsports events to the Grand Prix of Long Beach event
are CART- and NASCAR-sanctioned events at the California Speedway in
Fontana, California (approximately one hour from Long Beach).
The speedway closest to Gateway International Raceway is Indianapolis
Motor Speedway (approx-imately four and one-half hours to the east),
which currently conducts one Winston Cup race and one IRL race, as well
as a recently added Formula One event. A new speedway is being
constructed near Kansas City, Kansas (approximately four and one-half
hours to the west), which is expected to be completed for the 2001 race
season. The Kansas Speedway will conduct a Craftsman Truck Series,
Busch Series, Winston Cup Series and an IRL event in its first race
season.
The speedway closest to Memphis Motorsports Park is Talladega
Superspeedway (approximately five and one-half hours to the southeast).
Based on historical data, management does not believe that any of the
competing facilities significantly impact the Company's operations,
although they may impact the Company's ability to secure additional
events in the future.
Gaming
The legalization of additional casino and other gaming venues in states
close to Delaware, particularly Maryland, Pennsylvania or New Jersey,
may have a significant impact on the Company's business. From time to
time, legislation has been introduced in these states that would
further expand gambling opportunities, including video lottery (slot)
machines at horse-tracks.
At present, video lottery (slot) machines are only permitted at two
other locations in Delaware: Delaware Park and Harrington Raceway. The
neighboring states of Pennsylvania and Maryland do not presently permit
video lottery (slot) machine operations. Pennsylvania, Maryland and
New Jersey all have state-run lotteries. Atlantic City, New Jersey is
located approximately 100 miles from Dover Downs and offers a full
range of gaming products.
Competition in horse racing is varied since racetracks in the
surrounding area differ in many respects. Some tracks only offer
thoroughbred or harness horse racing; others have both. Tracks have
live racing seasons that may or may not overlap with neighboring
tracks. Depending on the purse structure, tracks that are farther
apart may compete with each other more for quality horses than for
patrons.
Live harness racing also competes with simulcasts of thoroughbred and
harness racing. All racetracks in the region are involved with
simulcasting. In addition, a number of off-track betting parlors
compete with track simulcasting activities. With respect to the
simulcasting of the Company's live harness races to tracks and other
locations, its simulcast signals are in direct competition with live
races at the receiving track and other races being simulcast to the
receiving location.
Within the State of Delaware, Dover Downs faces little direct live
competition from the State's other two tracks. Harrington Raceway, a
south central Delaware fairgrounds track, conducts harness horse racing
periodically between May and November. There is no overlap presently
with Dover Downs' live race season. Delaware Park, a northern Delaware
track, conducts thoroughbred horse racing from April through mid-
November. Its race season only overlaps with Dover Downs' for
approximately six weeks each year.
The neighboring states of Pennsylvania, Maryland and New Jersey all
have harness and thoroughbred racing and simulcasting. Dover Downs
competes with Rosecroft Raceway in Maryland, Philadelphia Park in
Pennsylvania, Garden State Park and The Meadowlands in New Jersey and
a number of other racetracks in the surrounding area. The Company also
receives simulcast harness and thoroughbred races from approximately 30
race tracks, including the tracks noted above.
In addition, the Company's gaming activities compete with other
leisure, entertainment and recreational activities.
Seasonality
The Company derives a substantial portion of its total revenues from
admissions and event-related revenue attributable to its major
motorsports events which are currently held from April through October.
As a result, the Company's business is highly seasonal. The
seasonality is offset to some degree by the Company's year-round video
lottery (slot) machine gaming operations and year-round simulcasting.
Number of Employees
At June 30, 2000, the Company had a total of 641 full-time employees
and 291 part-time employees. The Company hires temporary employees to
assist during its auto racing events and its live harness racing
season.
ITEM 2. PROPERTIES.
Dover Properties
The Company maintains its headquarters, motorsports superspeedway
(Dover Downs International Speedway), harness racing track, and video
lottery casino all on approximately 825 acres of land owned by the
Company in Dover, Delaware.
Nashville Speedway USA Properties
The current Nashville racing facility is located on 12 acres of land in
Nashville, Tennessee and is leased from the Metropolitan Board of Fair
Commissioners through fiscal 2008. Additionally, the Company has
acquired approximately 1,465 acres of land in Wilson and Rutherford
counties, Tennessee that currently is being developed into a new
superspeedway complex.
Long Beach Properties
The Company owns its office at 3000 Pacific Avenue, Long Beach,
California, which consists of approximately 82,000 square feet of land
and a building with approximately 50,000 square feet of office and
warehouse space. The Company leases a 750-square foot ticket office in
downtown Long Beach for the sale of Grand Prix of Long Beach tickets
and leases storage facilities in Long Beach for its equipment and
structures.
Gateway International Raceway Property
Gateway International Raceway is located on approximately 416 acres of
land in Madison, Illinois, five miles from the St. Louis Arch. The
Company owns approximately 123 acres and has three long-term leases
(expiring in 2011, 2026 and 2070) for an additional 259 acres, with
purchase options. The Company is also a party to a ten-year lease
(with four five-year renewals) of 20 acres for the purpose of providing
overflow parking for major events on a neighboring golf course, and a
five-year lease of approximately 14 acres for major event parking. The
Company has granted a first mortgage lien on all the real property
owned and a security interest in all property leased by the Company at
Gateway to Southwestern Illinois Development Authority (SWIDA) as
security for the repayment of principal and interest on its $21.5
million loan from SWIDA.
Memphis Motorsports Park Property
Memphis Motorsports Park is located on 374 acres of land owned by the
Company approximately ten miles northeast of downtown Memphis,
Tennessee. The facility is encumbered by a first trust deed to First
Tennessee Bank for the purpose of securing a standby letter of credit
issued by First Tennessee Bank to Gateway International Motorsports
Corporation to secure its debt service reserve fund obligation to
SWIDA.
ITEM 3. LEGAL PROCEEDINGS.
A group made up of Wilson County and Rutherford County, Tennessee
residents 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS.
The Common Stock of Dover Downs Entertainment, Inc. has traded on the
New York Stock Exchange under the symbol "DVD" since the Company's
initial public offering on October 3, 1996. There is no established
public trading market for the Company's Class A Common Stock. As of
July 31, 2000, there were 13,796,500 shares of Common Stock and
24,054,985 shares of Class A Common Stock outstanding. There were
1,127 record holders of Common Stock and 20 record holders of Class A
Common Stock at July 31, 2000.
The range of share prices for the Common Stock on the New York Stock
Exchange and per share dividends declared on Common Stock for the
fiscal years ended June 30, 2000 and 1999 are as follows:
Prices Dividends
2000 1999 2000 1999
High Low High Low
Fiscal Quarter (1)
First ... $ 17 15/16 $13 1/2 $16 9/16 $12 7/16 $.045 $.04
Second... 20 13 5/8 13 7/8 10 3/16 .045 .045
Third.... 17 13/16 11 1/16 15 1/2 12 1/4 .045 .045
Fourth... 14 11 3/16 19 7/16 14 7/8 .045 .045
(1) Prior year amounts have been adjusted to give retroactive
effect to a two-for-one stock split distributed on September
15, 1998.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
Five Year Selected Financial Data
(In Thousands, Except Per Share Data)
Year Ended June 30, 2000 1999(3) 1998 1997 1996
Revenues:
Motorsports $ 77,311 $ 68,683 $ 25,874 $ 20,516 $ 18,110
Gaming (1) 168,561 139,249 115,071 81,162 31,980
245,872 207,932 140,945 101,678 50,090
Earnings before
income taxes 54,472 45,771 37,655 28,239 15,593
Net earnings 31,925 26,891 21,913 16,472 9,196
Earnings per
common share(2)
- basic .88 .76 .72 .55 .34
- diluted .86 .74 .70 .54 .32
Dividends per
common share(2) $ .18 $ .175 $ .16 $ .08 $ -
At June 30,
Total assets $316,778 $255,212 $ 95,777 $ 71,261 $ 42,311
Long-term debt,
net of current
portion 35,540 36,625 741 760 766
Shareholders' equity $217,791 $172,658 $ 71,365 $ 54,300 $ 23,715
(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.
(2) Prior year per share amounts have been adjusted to give
retroactive effect to a two-for-one stock split distributed on
September 15, 1998.
(3) The Grand Prix Association of Long Beach, Inc. was acquired on
July 1, 1998.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
As you read the following, you also should review the consolidated
financial statements and related notes included elsewhere in this
Annual Report on Form 10-K.
Results of Operations
Fiscal Year 2000 Compared With Fiscal Year 1999
Total revenues increased by $37,940,000 to $245,872,000 as a result of
growth in both operating segments of the Company.
Gaming revenues increased by $29,312,000 or 21.1% to $168,561,000, the
result of having an average of 1,723 video lottery (slot) machines in
fiscal 2000 compared with an average of 1,191 video lottery (slot)
machines in fiscal 1999, and expanded marketing and promotional
activities related to the Company's video lottery casino.
Motorsports revenues increased by $8,628,000 or 12.6% to $77,311,000.
Approximately $2,214,000 of the revenue increase resulted from
increased attendance and $995,000 from increased ticket prices for the
NASCAR-sanctioned events at Dover Downs International Speedway. The
remainder of the increase was principally from increased broadcast
rights fees, sponsorship, concessions and marketing-related revenues at
Dover Downs International Speedway and the addition of a Busch Series
event at Memphis Motorsports Park in the second quarter of fiscal 2000.
The aforementioned increases in motorsports revenues were offset
somewhat by the rescheduling of the CART-sanctioned event at Gateway
International Raceway from May 2000 to September 2000.
Operating expenses increased by $27,340,000 reflecting the higher
revenues. Amounts retained by the State of Delaware, including amounts
collected for payment to the vendors under contract with the State who
provide the video lottery machines and associated computer systems and
gross fees to the manager who operates the video lottery (slot) machine
casino, increased by $11,074,000 in fiscal 2000. Amounts allocated
from the video lottery operation for harness horse racing purses were
$18,308,000 in fiscal 2000 compared with $15,173,000 in fiscal 1999.
Wages and related employee benefits increased by $2,751,000 in fiscal
2000.
Motorsports operating expenses increased principally due to a
$2,319,000 increase in purse and sanction fee expenses at Dover Downs
International Speedway, and from the addition of a Busch Series event
at Memphis Motorsports Park in the second quarter of fiscal 2000,
offset by the rescheduling of the CART-sanctioned event at Gateway
International Raceway.
Depreciation and amortization increased by $1,371,000 or 19.3% due to
capital expenditures related to the Company's various motorsports
facilities and the casino expansions completed in fiscal 2000 and 1999.
General and administrative expenses increased by $740,000 to
$11,953,000 from $11,213,000, primarily due to the growth at the
Company's various motorsports facilities and in its gaming business in
Dover, Delaware. As a percentage of total revenues, the Company's
general and administrative costs decreased to 4.9% from 5.4% in fiscal
1999.
Interest expense was $1,140,000 in fiscal 2000 compared to $1,352,000
in fiscal 1999. The interest expense resulted from borrowings on the
revolving credit agreement and interest expense relating to the
outstanding long-term debt, offset by the capitalization of $1,975,000
and $682,000 of interest in fiscal 2000 and 1999, respectively, related
to the construction of major facilities.
The Company's effective income tax rates for the fiscal years ended
June 30, 2000 and 1999 were 41.4% and 41.2%, respectively.
Net earnings increased by $5,034,000, primarily due to the increased
play in the casino, higher attendance and related revenues as well as
an increase in the broadcast rights fees for the NASCAR-sanctioned
motorsports events presented at Dover Downs International Speedway and
the addition of a Busch Series event at Memphis Motorsports Park,
offset by the rescheduling of the CART-sanctioned event at Gateway
International Raceway from May 2000 to September 2000.
Fiscal Year 1999 Compared With Fiscal Year 1998
Revenues increased by $66,987,000 to $207,932,000 as a result of growth
in the historical business of the Company and the acquisition of Grand
Prix Association of Long Beach, Inc. ("Grand Prix") on July 1, 1998.
Gaming revenues increased by $24,178,000 or 21.0% to $139,249,000, the
result of having an average of 1,191 video lottery (slot) machines in
fiscal 1999 compared with an average of 1,000 video lottery (slot)
machines in fiscal 1998, and expanded marketing and promotional
activities related to the Company's video lottery casino.
Motorsports revenues increased by $42,809,000 or 165.5% to $68,683,000.
Approximately $2,432,000 of the revenue increase resulted from
increased attendance, $637,000 from increased ticket prices and
$1,598,000 from adding an IRL event at Dover Downs International
Speedway. Approximately $2,309,000 of the increase resulted from the
inclusion of the operating results of Nashville Speedway USA in the
consolidated results of Dover Downs Entertainment, Inc. for twelve
months in fiscal 1999 as compared to six months in fiscal 1998, and
$32,837,000 from the acquisition of Grand Prix Association of Long
Beach. The remainder of the increase was from increased sponsorship,
concessions and marketing-related revenues at Dover Downs International
Speedway.
Operating expenses increased by $45,623,000 reflecting the higher
revenues. Amounts retained by the State of Delaware, including amounts
collected for payment to the vendors under contract with the State who
provide the video lottery machines and associated computer systems and
fees to the manager who operates the video lottery (slot) machine
casino, increased by $9,004,000 in fiscal 1999. Amounts allocated from
the video lottery operation for harness horse racing purses were
$15,173,000 in fiscal 1999 compared with $12,721,000 in fiscal 1998.
Additional advertising, promotional and customer complimentary costs of
$2,557,000 were the other significant gaming-related operating cost
increases.
Motorsports operating expenses increased principally due to a
$1,139,000 increase in purse and sanction fee expenses and $1,666,000
from adding an IRL event at Dover Downs International Speedway, and
$1,533,000 from the inclusion of the operating results of Nashville
Speedway USA in the consolidated results of Dover Downs Entertainment,
Inc. for twelve months in fiscal 1999 as compared to six months in
fiscal 1998. The remainder of the increase is primarily the result of
the acquisition of Grand Prix Association of Long Beach.
Depreciation and amortization increased by $4,391,000 due to capital
expenditures related to the Company's motorsports facilities and fiscal
1999 casino expansion and the depreciation of facilities and
amortization of goodwill related to the acquisition of Grand Prix
Association of Long Beach.
General and administrative expenses increased by $6,803,000 to
$11,213,000 from $4,410,000, $6,341,000 of which is the result of the
acquisition of Grand Prix Association of Long Beach.
Interest expense was $1,352,000 in fiscal 1999 compared to $702,000 of
interest income in fiscal 1998. The interest expense resulted from
increased borrowings on the revolving credit agreement and interest
expense relating to the outstanding long-term debt, offset by the
capitalization of $682,000 of interest in fiscal 1999 related to the
construction of major facilities. No interest cost was capitalized in
fiscal 1998.
The Company's effective income tax rates for the fiscal years ended
June 30, 1999 and 1998 were 41.2% and 41.8%, respectively.
Net earnings increased by $4,978,000 due to the expansion of the video
lottery (slot) machine operations, increased marketing efforts in the
casino, higher attendance and the growth in the number of motorsports
events presented by the Company, offset by increased interest and
amortization expense from the Grand Prix Association of Long Beach
acquisition.
Liquidity and Capital Resources
Cash flow from operations for the fiscal years ended June 30, 2000,
1999 and 1998 was $51,314,000, $34,963,000 and $28,991,000,
respectively. The increase in fiscal 2000 was due primarily to the
Company's increased net earnings before depreciation and amortization
and the timing of certain income tax payments and construction-related
payables.
Capital expenditures for the year ended June 30, 2000 were $61,906,000.
Approximately $21,660,000 related to the expansion of, and improvements
to, the Dover, Gateway and Memphis racing facilities, approximately
$7,743,000 to the expansion of the casino facility and related
furniture, fixtures and equipment, approximately $3,571,000 to the
construction of the luxury hotel in Dover, Delaware and approximately
$27,489,000 for the construction of the Nashville Superspeedway
complex. The remainder of the expenditures were for land and other
eqiupment and improvements at the Company's facilities.
Capital expenditures for the year ended June 30, 1999 were $50,707,000.
Approximately $17,600,000 related to the expansion of, and improvements
to, the Dover Downs and Gateway racing facilities, approximately
$14,500,000 to the expansion of the casino facility in Dover, Delaware
and approximately $11,694,000 for the construction of the proposed
Nashville Superspeedway complex. The remainder of the expenditures
were for land and other equipment and improvements at the Company's
facilities.
Capital expenditures for the year ended June 30, 1998 were $7,504,000
and related primarily to the expansion of, and improvements to, the
Dover Downs racing facility as well as expansion of the administrative
facilities.
On March 3, 2000, Dover Downs completed the issuance of 1,500,000
additional shares of Common Stock through a public offering resulting
in net proceeds to the Company of $19,185,000. The Company used the net
proceeds of the offering to pay down a portion of its borrowings under
its revolving line of credit facility.
In December 1999, the Company commenced construction on a 10-story,
482-room luxury hotel in Dover, Delaware. The current construction
plans consist of two phases and include a multi-purpose
ballroom/concert hall and a fine-dining restaurant. The Company has
not entered into any material commitments related to the project as of
June 30, 2000. The cost of the first phase of the project, which, in
addition to the hotel structure, will include renovating the enclosed
harness racing grandstand, constructing a central HVAC plant and
expanding the buffet in the Winners Circle Dining Room, is estimated to
be approximately $70,000,000.
On August 26, 1999, the Company's wholly owned subsidiary, Nashville
Speedway USA, Inc., began construction of the new Nashville
Superspeedway complex in Wilson County, Tennessee. The complex will
include a 1.33-mile tri-oval track and may include a paved short track,
a dirt track and a drag strip in future phases. The aggregate cost of
acquiring the land and developing Phase I of the complex is estimated
to be approximately $122,000,000. Of the total, the State of Tennessee
will fund approximately $15,300,000 for the construction of an
interchange and an access road near the complex. 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 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. Interest only payments are required until
September 1, 2002 and will be made from a capitalized interest fund
established from bond proceeds. After the opening of the Nashville
Superspeedway complex, the bonds will be payable solely from sales and
incremental property taxes ("the taxes") generated from that 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 by several banks. The Company has agreed to reimburse
the banks for amounts paid by them under the letter of credit. The
Company has invested approximately $39,183,000 in the project as of
June 30, 2000.
Effective January 2, 1998, the Company acquired all of the outstanding
common stock of Nashville Speedway USA, Inc. for $3,000,000 in cash
from available funds.
The Company and Grand Prix entered into an Agreement and Plan of Merger
pursuant to which Grand Prix became a wholly owned subsidiary of the
Company. The merger, which closed on July 1, 1998, was structured as
a tax-free exchange whereby each shareholder of Grand Prix received .63
shares (1.26 shares after the stock split) of common stock of Dover
Downs for each share of common stock of Grand Prix owned by such
shareholder.
The Company purchased 680,000 shares of common stock of Grand Prix from
two non-management shareholders in March of 1998 for $10,540,000.
The Company has a $125,000,000 long-term, revolving line of credit from
several banks to provide seasonal funding needs, to finance capital
improvements and for other general corporate purposes. The Company was
in compliance with all terms of the facility and there was $15,000,000
outstanding at June 30, 2000.
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-K, 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-K 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-K, 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
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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The carrying values of the Company's long-term debt approximates its
fair value at June 30, 2000 and 1999. The Company is exposed to market
risks related to fluctuations in interest rates for its variable rate
borrowings of $15,000,000 at June 30, 2000 under its revolving credit
facility. A change in interest rates of one percent on the balance
outstanding at June 30, 2000 would cause a change in total annual
interest costs of $150,000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of the Company and the
Independent Auditors' Report included in this report are shown on the
Index to Consolidated Financial Statements on page 23.
ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None.
<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Except as presented below, the information called for by this Item 10
is incorporated by reference from the Company's Proxy Statement to be
filed pursuant to Regulation 14A for the Annual Meeting of Shareholders
to be held on October 27, 2000.
Executive Officers of the Registrant. As of June 30, 2000, the
Executive Officers of the registrant were:
Name Position Age Term of Office
Klaus M. Belohoubek Vice President-
General Counsel 40 7/99 to date
and Secretary
Robert M. Comollo Treasurer 52 11/81 to date
Timothy R. Horne Vice President-Finance and 34 11/96 to date
Chief Financial Officer
Denis McGlynn President and 54 11/79 to date
Chief Executive Officer
Edward J. Sutor Executive Vice President 50 3/99 to date
Henry B. Tippie Chairman of the Board 73 4/00 to date
Klaus M. Belohoubek has been Vice President-General Counsel and
Secretary since 1999 and has represented the Company in various
capacities since 1990, most recently as Assistant General Counsel. Mr.
Belohoubek also serves as Vice President-General Counsel and Secretary
to Rollins Truck Leasing Corp. and Matlack Systems, Inc.
Robert M. Comollo has been employed by the Company for 20 years, of
which 19 years have been in the capacity of Treasurer.
Timothy R. Horne became Vice President-Finance and Chief Financial
Officer in November of 1996. From 1988 until 1996, Mr. Horne was
employed by KPMG LLP, where he most recently served as an assurance
senior manager.
Edward J. Sutor became Executive Vice President in March of 1999. From
1983 until 1999, Mr. Sutor served as Senior Vice President of Finance
at Caesars Atlantic City.
ITEM 11. EXECUTIVE COMPENSATION.
The information called for by this Item 11 is incorporated by reference
from the Company's Proxy Statement to be filed pursuant to Regulation
14A for the Annual Meeting of Shareholders to be held on October 27,
2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information called for by this Item 12 is incorporated by reference
from the Company's Proxy Statement to be filed pursuant to Regulation
14A for the Annual Meeting of Shareholders to be held on October 27,
2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During the year ended June 30, 2000, the following officers and/or
directors of the Company were also officers and/or directors of Rollins
Truck Leasing Corp.; Patrick J. Bagley, Klaus M. Belohoubek, John W.
Rollins, John W. Rollins, Jr. and Henry B. Tippie. The following
officers and/or directors of the Company were also officers and/or
directors of Matlack Systems, Inc.; Patrick J. Bagley, Klaus M.
Belohoubek, John W. Rollins, John W. Rollins, Jr. and Henry B. Tippie.
The Estate of John W. Rollins owns directly and of record 12.3% and
11.4% of the outstanding shares of common stock of Rollins Truck
Leasing Corp. and Matlack Systems, Inc., respectively, at June 30,
2000. The description of transactions between the Company and Rollins
Truck Leasing Corp. appears under the caption "Related Party
Transactions" on page 38 of this 2000 Annual Report on Form 10-K.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K.
(a)(1) Financial Statements - See accompanying Index to Consolidated
Financial Statements on page 23.
(2) Financial Statement Schedules - None.
(3) Exhibits:
2.1 Share Exchange Agreement and Plan of Reorganization dated
June 14, 1996 between Dover Downs Entertainment, Inc., Dover
Downs, Inc., Dover Downs International Speedway, Inc. and
the shareholders of Dover Downs, Inc. as filed with the
Company's Registration Statement Number 333-8147 on Form S-1
dated July 15, 1996, which was declared effective on October
3, 1996, is incorporated herein by reference.
2.2 Agreement and Plan of Merger, dated as of March 26, 1998, by
and among Dover Downs Entertainment, Inc. FOG Acquisition
Corp., and Grand Prix Association of Long Beach as filed
with the Company's Registration Statement Number 333-53077
on Form S-4 on May 19, 1998, is incorporated herein by
reference.
3.1 Restated Certificate of Incorporation of Dover Downs
Entertainment, Inc., dated March 10, 2000 as filed with the
Company's Quarterly Report on Form 10-Q dated April 28,
2000, is incorporated herein by reference.
3.2 Amended and Restated Bylaws of Dover Downs Entertainment,
Inc. dated July 17, 2000.
4.1 Rights Agreement dated as of June 14, 1996 between Dover
Downs Entertainment, Inc. and ChaseMellon Shareholder
Services, L.L.C. as filed with the Company's Registration
Statement Number 333-8147 on Form S-1 dated July 15, 1996,
which was declared effective on October 3, 1996, is
incorporated herein by reference.
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 dated November 5, 1999, is
incorporated herein by reference.
10.2 Reimbursement and Security Agreement Between Dover Downs
Entertainment, Inc., Nashville Speedway USA, Inc. and PNC
Bank, Delaware dated as of September 1, 1999 as filed with
the Company's Quarterly Report on Form 10-Q dated November
5, 1999, is incorporated herein by reference.
10.3 Project Consulting and Management Agreement between Dover
Downs, Inc. and Caesars World Gaming Development Corporation
dated May 10, 1995 as filed with the Company's Registration
Statement Number 333-8147 on Form S-1 dated July 15, 1996,
which was declared effective on October 3, 1996, is
incorporated herein by reference.
10.4 Dover Downs Entertainment, Inc. 1996 Stock Option Plan as
filed with the Company's Registration Statement Number 333-
8147 on Form S-1 dated July 15, 1996, which was declared
effective on October 3, 1996, is incorporated herein by
reference.
10.5 Dover Downs Entertainment, Inc. 1991 Stock Option Plan as
filed with the Company's Registration Statement Number 333-
8147 on Form S-1 dated July 15, 1996, which was declared
effective on October 3, 1996, is incorporated herein by
reference.
21.1 Subsidiaries
23.1 Consent of Independent Accountants
27 Financial Data Schedule for current Fiscal Year ended June
30, 2000
(b) Reports on Form 8-K
A Form 8-K was filed by the Company on May 2, 2000 to announce the
election of Henry B. Tippie to the position of Chairman of the Board.
Mr. Tippie, formerly Vice Chairman of the Board, succeeds John W.
Rollins, Sr., who passed away April 4, 2000.
A Form 8-K was filed by the Company on April 13, 2000 to disclose a
change in control of the Company as a result of the passing of John W.
Rollins, Sr., the Company's founder and Chairman. All shares of Class
A Common Stock previously owned by Mr. Rollins are now part of his
estate pending their distribution under the Last Will and Testament of
Mr. Rollins. Mr. Henry B. Tippie, Chairman of the Board of the
Company, who, as executor of Mr. Rollins' estate, now controls in
excess of 50% of the total voting power of the Company.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 23, 2000 DOVER DOWNS ENTERTAINMENT, INC.
Registrant
BY: /s/ Denis McGlynn
Denis McGlynn
President and Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated:
/s/ Timothy R. Horne Vice President-Finance August 23, 2000
Timothy R. Horne and Chief Financial
Officer
/s/ Henry B. Tippie Chairman of the Board August 23, 2000
Henry B. Tippie
/s/ John W. Rollins, Jr. Director August 23, 2000
John W. Rollins, Jr.
/s/ Patrick J. Bagley Director August 23, 2000
Patrick J. Bagley
/s/ Jeffrey W. Rollins Director August 23, 2000
Jeffrey W. Rollins
/s/ Melvin Joseph Director August 23, 2000
Melvin Joseph
/s/ R. Randall Rollins Director August 23, 2000
R. Randall Rollins
/s/ Christopher R. Pook Director August 23, 2000
Christopher R. Pook
/s/ Eugene W. Weaver Director August 23, 2000
Eugene W. Weaver
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page(s)
Independent Auditors' Report on
Consolidated Financial Statements 24
Consolidated Statement of Earnings for the years
ended June 30, 2000, 1999 and 1998 25
Consolidated Balance Sheet at June 30, 2000 and 1999 26
Consolidated Statement of Cash Flows for the years
ended June 30, 2000, 1999 and 1998 28
Notes to the Consolidated Financial Statements 30-41
<PAGE>
Independent Auditors' Report
The Shareholders and Board of Directors,
Dover Downs Entertainment, Inc.:
We have audited the accompanying consolidated balance sheets of Dover
Downs Entertainment, Inc. and subsidiaries as of June 30, 2000 and
1999, and the related consolidated statements of earnings and cash
flows for each of the years in the three-year period ended June 30,
2000. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that
we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Dover Downs Entertainment, Inc. and subsidiaries as of June 30, 2000
and 1999, and the results of their operations and their cash flows for
each of the years in the three-year period ended June 30, 2000, in
conformity with accounting principles generally accepted in the United
States of America.
KPMG LLP
Philadelphia, Pennsylvania
July 20, 2000
<PAGE>
CONSOLIDATED STATEMENT OF EARNINGS
(In thousands, except per share data)
Year ended June 30,
2000 1999 1998
Revenues:
Motorsports $ 77,311 $ 68,683 $ 25,874
Gaming 168,561 139,249 115,071
245,872 207,932 140,945
Expenses:
Operating 169,838 142,498 96,875
Depreciation and amortization 8,469 7,098 2,707
General and administrative 11,953 11,213 4,410
190,260 160,809 103,992
Operating earnings 55,612 47,123 36,953
Interest expense (income), net 1,140 1,352 (702)
Earnings before income taxes 54,472 45,771 37,655
Income taxes 22,547 18,880 15,742
Net earnings $ 31,925 $ 26,891 $ 21,913
Earnings per common share:
Basic $ .88 $ .76 $ .72
Diluted $ .86 $ .74 $ .70
Average shares outstanding:
Basic 36,482 35,566 30,492
Diluted 37,326 36,585 31,206
The Notes to the Consolidated Financial Statements are an integral part
of these statements.
CONSOLIDATED BALANCE SHEET
(In thousands, except share and per share data) June 30,
2000 1999
ASSETS
Current assets:
Cash and cash equivalents $ 12,413 $ 10,847
Accounts receivable 12,700 6,706
Due from State of Delaware 3,176 2,932
Inventories 645 581
Prepaid expenses and other 4,518 4,456
Deferred income taxes 309 327
Total current assets 33,761 25,849
Property, plant and equipment, at cost:
Land 28,816 26,739
Casino facility 27,692 22,921
Racing facilities 153,480 128,802
Furniture, fixtures and equipment 17,831 11,570
Construction in progress 31,329 7,902
259,148 197,934
Less accumulated depreciation (30,255) (24,021)
228,893 173,913
Other assets, net 1,453 1,453
Goodwill, net 52,671 53,997
Total assets $316,778 $255,212
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10,902 $ 4,629
Purses due horsemen 2,982 3,147
Accrued liabilities 11,588 9,407
Income taxes payable 3,660 2,726
Current portion of long-term debt 585 335
Deferred revenue 17,489 15,906
Total current liabilities 47,206 36,150
Notes payable to bank 15,000 15,500
Long-term debt 20,540 21,125
Other liabilities 174 172
Deferred income taxes 16,067 9,607
Commitments (see Notes to the
Consolidated Financial Statements)
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:
2000-13,796,500 shares;
1999-11,403,684 shares 1,380 1,140
Class A common stock, $.10 par value;
55,000,000 shares authorized;
issued and outstanding:
2000-24,054,985 shares;
1999-24,262,510 shares 2,405 2,426
Additional paid-in capital 119,222 99,683
Retained earnings 94,784 69,409
Total shareholders' equity 217,791 172,658
Total liabilities and
shareholders' equity $316,778 $255,212
The Notes to the Consolidated Financial Statements are an integral part
of these statements.
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
Years ended June 30,
2000 1999 1998
Cash flows from operating activities:
Net earnings $ 31,925 $ 26,891 $ 21,913
Adjustments to reconcile net earnings
to net cash provided by
operating activities:
Depreciation and amortization 8,469 7,098 2,707
Loss on disposition of property - - 3
(Increase) decrease in assets,
net of effect of acquisition:
Accounts receivable (5,994) (1,645) (1,180)
Due from State of Delaware (244) (833) (116)
Inventories (64) (22) 92
Prepaid expenses and other (62) (2,044) (1,539)
Increase (decrease) in liabilities,
net of effect of acquisition:
Accounts payable 6,273 (450) 335
Purses due horsemen (165) 1,262 498
Accrued liabilities 2,181 464 2,719
Current and deferred income taxes 7,412 1,387 1,346
Deferred revenue 1,583 2,855 2,213
Net cash provided by
operating activities 51,314 34,963 28,991
Cash flows from investing activities:
Investment in Grand Prix Association
of Long Beach - - (10,540)
Acquisition of business,
net of cash acquired - - (2,889)
Capital expenditures (61,906) (50,707) (7,504)
Cash acquired in business acquisition - 1,490 -
Other (125) - -
Net cash used in
investing activities (62,031) (49,217) (20,933)
Cash flows from financing activities:
(Repayments) borrowings on
revolving debt (500) 13,161 -
Repayment of long-term debt (335) (760) (19)
Loan repayments - 207 -
Net proceeds from public offering 19,185 - -
Dividends paid (6,550) (6,213) (4,878)
Proceeds from stock options exercised,
including related tax benefit 573 167 30
Other assets (90) (155) -
Net cash provided by (used in)
financing activities 12,283 6,407 (4,867)
Net increase (decrease) in cash
and cash equivalents 1,566 (7,847) 3,191
Cash and cash equivalents,
beginning of year 10,847 18,694 15,503
Cash and cash equivalents, end of year $ 12,413 $ 10,847 $ 18,694
Supplemental information:
Interest paid $ 2,195 $ 1,793 $ 61
Income taxes paid $ 17,087 $ 18,231 $ 14,395
Non-cash investing and
financing activities:
Land acquired $ - $ 4,707 $ -
Cash paid - (3,054) -
Land traded $ - $ 1,653 $ -
Stock issued in connection
with acquisition $ - $ 80,241 $ -
The Notes to the Consolidated Financial Statements are an integral part
of these statements.
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Business Operations
Dover Downs Entertainment, Inc. (Dover Downs or the Company) is a
leading promoter of motorsports events in the United States. The
Company operates five motorsports tracks (four permanent facilities and
one temporary circuit) in four states and promoted 15 major events
during fiscal 2000 in the four 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).
Dover Downs also owns and operates the Dover Downs Raceway harness
racing track and an 80,000 square foot video lottery (slot) casino at
a multi-purpose gaming and entertainment complex in Dover, Delaware.
The facility is located in close proximity to the major metropolitan
areas of Philadelphia, Baltimore and Washington, D.C.
Dover Downs, Inc. is authorized to conduct video lottery operations as
a "Licensed Agent" under the Delaware State Lottery Code. Pursuant to
Delaware's Horse Racing Redevelopment Act, enacted in 1994, the
Delaware State Lottery Office administers and controls the operation of
the video lottery.
The Company's license from the Delaware Harness Racing Commission must
be renewed on an annual basis. In order to maintain its license to
conduct video lottery operations, the Company is required to maintain
its harness horse racing license.
Due to the nature of the Company's business activities, it is subject
to various federal, state and local regulations.
NOTE 2 - Acquisition
On July 1, 1998, the Company completed its acquisition of Grand Prix
Association of Long Beach (Grand Prix) through the merger of a wholly
owned subsidiary of the Company with and into Grand Prix with Grand
Prix surviving as a wholly owned subsidiary of the Company. Grand Prix
developed and operates the Grand Prix of Long Beach, an annual
temporary circuit event which has been run in the streets of Long
Beach, California for 26 years, and owns permanent motorsports
facilities in Madison, Illinois (near St. Louis, Missouri) and in
Millington, Tennessee (near Memphis, Tennessee). The purchase price
was comprised of the conversion of the outstanding Grand Prix common
stock into 2,518,229 shares (5,036,458 shares after the stock split) of
the Company's stock and assumption by the Company of the outstanding
stock options of Grand Prix. On March 27, 1998, the Company acquired
680,000 shares of Grand Prix common stock at $15.50 per share in cash
pursuant to two separate stock purchase agreements, at which time the
Company owned approximately 14.6 % of the outstanding Grand Prix common
stock. The cost of these purchases was recorded as a long-term
investment at June 30, 1998. The acquisition qualified as a tax free
exchange and was accounted for using the purchase method of accounting
for business combinations. The excess of the purchase price over fair
market value of the underlying assets of $52,551,000 is being amortized
on a straight-line basis over 40 years.
The following summarized unaudited pro-forma statement of earnings
information gives effect to the Grand Prix transaction as though it had
occurred on July 1, 1997, after giving effect to certain adjustments,
primarily the amortization of goodwill and additional depreciation
expense. The pro-forma financial information, which is for
informational purposes only, is based upon certain assumptions and
estimates and does not necessarily reflect the results that would have
occurred had the transaction taken place at the beginning of the period
presented, nor are they necessarily indicative of future consolidated
results (in thousands, except per share data).
For the year ended
June 30, 1998
Revenues $170,972
Net earnings $ 19,974
Earnings per diluted share $ .55
NOTE 3 - Summary of Significant Accounting Policies
Consolidation-The consolidated financial statements include the
accounts of all subsidiaries. Intercompany transactions and balances
among these subsidiaries have been eliminated.
Revenue and expense recognition-Tickets to motorsports races are sold
and certain expenses are incurred in advance of the race date. Such
advance sales and corresponding expenses are recorded as deferred
revenue and prepaid expenses, respectively, until the race is held.
Gaming revenues represent the net win from video lottery (slot) machine
wins and losses, commissions from pari-mutuel wagering and other
miscellaneous gaming-related income.
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.
Advertising costs-The costs of general advertising, promotion and
marketing programs are charged to operations as incurred.
Earnings per share-The number of weighted average shares used in
computing basic and diluted earnings per share (EPS) are as follows (in
thousands):
2000 1999 1998
Basic EPS 36,482 35,566 30,492
Effect of options 844 1,019 714
Diluted EPS 37,326 36,585 31,206
Cash and cash equivalents-The Company considers as cash equivalents all
highly liquid investments with an original maturity of three months or
less.
Inventories-Inventories, primarily food, beverage and souvenir items,
are stated at the lower of cost or market with cost being determined on
the first-in, first-out (FIFO) basis.
Property, plant and equipment-Property, plant and equipment is stated
at cost. Book depreciation is computed on a straight-line basis over
the following estimated useful lives:
Racing and casino facilities 10 - 40 years
Furniture, fixtures and equipment 5 - 10 years
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. In fiscal 2000 and 1999,
$1,975,000 and $682,000, respectively, of interest cost was
capitalized. No interest was capitalized in fiscal 1998.
Goodwill-Goodwill represents the excess of the purchase price over the
fair value of net assets acquired and is being amortized using the
straight-line method principally over a period of 40 years. At June
30, 1999, accumulated amortization was $2,974,000 and $1,522,000,
respectively. The Company evaluates any possible impairment of
goodwill using estimates of undiscounted future cash flows.
Income taxes-Deferred income taxes are provided in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes" on all differences between the tax
bases of assets and liabilities and their reported amounts in the
financial statements based upon enacted statutory tax rates in effect
at the balance sheet date.
Use of estimates-The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities, and 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.
Fair value of financial instruments-The carrying amount reported in the
balance sheet for current assets and current liabilities approximates
their fair value because of the short maturity of these instruments.
The carrying value of long-term debt at June 30, 2000 approximates its
fair value based on interest rates available on similar borrowings.
Accounting for stock options-The Company adopted the provisions of SFAS
No. 123, "Accounting for Stock-Based Compensation", on July 1, 1996.
SFAS No. 123 defines a fair-value based method of accounting for
stock-based compensation plans, however, it allows the continued use of
the intrinsic value method under Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees". The Company
has elected to continue to use the intrinsic value method.
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.
Reclassifications-Certain prior year amounts have been reclassified to
conform to current year presentation. These changes had no impact on
previously reported results of operations or shareholders' equity.
NOTE 4 - Indebtedness
Long-term debt is as follows (in thousands):
June 30,
2000 1999
Notes payable to bank $15,000 $15,500
SWIDA loan for Gateway redevelopment 21,125 21,460
36,125 36,960
Less: current portion (585) (335)
$35,540 $36,625
On November 1, 1999, the Company entered into a $125,000,000 amended
and restated, revolving credit agreement with several banks. Interest
is based, at the Company's option, upon (i) LIBOR plus .75% or (ii) the
base rate (the greater of the prime rate or the federal funds rate plus
.5%) minus 1%. The agreement, which expires on November 1, 2002, is
for seasonal funding needs, capital improvements and other general
corporate purposes. The Company was in compliance with all terms of
the facility and there was $15,000,000 outstanding at June 30, 2000 at
a weighted average interest rate of 7.3%.
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. 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, 2000, $803,000 of the Company's cash balance is restricted
by the SWIDA loan. A standby letter of credit for $2,502,000 also was
obtained to secure debt service. 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. 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.
The scheduled maturities of long-term debt outstanding at June 30, 2000
are as follows: 2001-$585,000; 2002-$635,000; 2003-$15,685,000; 2004-
$745,000; 2005-$805,000; and thereafter-$17,670,000.
NOTE 5 - Income Taxes
The current and deferred income tax provisions (benefits) are as
follows (in thousands):
Years ended June 30,
2000 1999 1998
Current:
Federal $11,354 $13,277 $12,544
State 4,715 3,929 3,296
16,069 17,206 15,840
Deferred:
Federal 6,338 1,599 (78)
State 140 75 (20)
6,478 1,674 (98)
Total income taxes $22,547 $18,880 $15,742
Deferred income taxes relate to the temporary differences between
financial accounting income and taxable income and are primarily
attributable to differences between the book and tax basis of property,
plant and equipment and net operating loss carryforwards (expiring
2016-2018). The Company believes that it is more likely than not that
the deferred tax assets will be realized based upon reversals of
existing taxable temporary differences and future income.
A reconciliation of the effective income tax rate with the applicable
statutory federal income tax rate is as follows:
Years ended June 30,
2000 1999 1998
Federal tax at statutory rate 35.0% 35.0% 35.0%
State taxes, net of federal benefit 5.8% 5.7% 5.7%
Other .6% .5% 1.1%
Effective income tax rate 41.4% 41.2% 41.8%
NOTE 6 - Pension Plan
Benefits provided by the Dover Downs Entertainment, Inc. Pension Plan
are based on years of service and employees' remuneration over their
employment with the Company. Pension costs are funded in accordance
with the provisions of the Internal Revenue Code.
The following table sets forth the plan's funded status and amounts
recognized in the Company's consolidated balance sheet (in thousands):
June 30,
2000 1999
Change in benefit obligation:
Benefit obligation at beginning of year $1,425 $ 925
Service cost 363 306
Interest cost 120 79
Amendments - 122
Actuarial loss 89 26
Benefits paid (33) (33)
Benefit obligation at end of year 1,964 1,425
Change in plan assets:
Fair value of plan assets at beginning of year 1,314 688
Actual return on plan assets 224 273
Employer contribution 483 386
Benefits paid (33) (33)
Fair value of plan assets at end of year 1,988 1,314
Funded status 24 (111)
Unrecognized net gain (82) (74)
Unrecognized prior service cost 263 277
Prepaid pension cost $ 205 $ 92
At June 30, 2000, the assets of the plan were invested 67% in equity
funds, 19% in intermediate bond funds and the balance in other
short-term interest-bearing accounts. The discount rate in 2000 and
1999 was 8.0%. The assumed rate of compensation increase was 5% in
both years. The expected long-term rate of return on assets was 9% for
2000 and 1999.
The components of net periodic pension cost are as follows (in
thousands):
Years ended June 30,
2000 1999 1998
Service cost $ 363 $ 306 $ 132
Interest cost 120 79 53
Return on plan assets (224) (273) (104)
Net amortization 12 13 32
Deferral of net gain 97 201 63
$ 368 $ 326 $ 176
The Company also maintains a nonqualified, noncontributory defined
benefit pension plan for certain employees to restore pension benefits
reduced by federal income tax regulations. The cost associated with the
plan is determined using the same actuarial methods and assumptions as
those used for the Company's qualified pension plan.
The Company also maintains a defined contribution 401(k) plan which
permits participation by substantially all employees.
NOTE 7 - Shareholders' Equity
Changes in the components of shareholders' equity are as follows (in
thousands, except per share data):
$.10 Par
$.10 Par Value
Value Class A Additional
Common Common Paid-in Retained
Stock Stock Capital Earnings
Balance at June 30, 1997 $ 294 $1,229 $ 21,081 $31,696
Net earnings 21,913
Dividends on common stock,
$.16 per share (4,878)
Exercise of stock options 2 28
Conversion of Class A shares 6 (6)
Balance at June 30, 1998 300 1,225 21,109 48,731
Net earnings 26,891
Dividends on common stock,
$.175 per share (6,213)
Exercise of stock options 4 8 155
Grand Prix acquisition 252 80,196
Two-for-one split 556 1,221 (1,777)
Conversion of Class A shares 28 (28)
Balance at June 30, 1999 1,140 2,426 99,683 69,409
Net earnings 31,925
Issuance of common stock, net 150 19,035
Dividends on common stock,
$.18 per share (6,550)
Exercise of stock options 11 58 504
Conversion of Class A shares 79 (79)
Balance at June 30, 2000 $1,380 $2,405 $119,222 $94,784
Holders of Common Stock have one vote per share and holders of Class A
Common Stock have ten votes per share. Shares of Class A Common Stock
are convertible at any time into shares of Common Stock on a share for
share basis at the option of the holder thereof. Dividends on Class A
Common Stock cannot exceed dividends on Common Stock on a per share
basis. Dividends on Common Stock may be paid at a higher rate than
dividends on Class A Common Stock. The terms and conditions of each
issue of Preferred Stock are determined by the Board of Directors. No
Preferred shares have been issued.
The Company has adopted a Rights Plan with respect to its Common Stock
and Class A Common Stock which includes the distribution of Rights to
holders of such stock. The Rights entitle the holder, upon the
occurrence of certain events, to purchase additional stock of the
Company. The Rights are exercisable if a person, company or group
acquires 10% or more of the outstanding combined equity of Common Stock
and Class A Common Stock or engages in a tender offer. The Company is
entitled to redeem each Right for $.005.
On March 3, 2000, Dover Downs completed the issuance of 1,500,000
additional shares of Common Stock through a public offering resulting
in net proceeds to the Company of $19,185,000. The Company used the
net proceeds of the offering to pay down a portion of its borrowings
under its revolving line of credit facility.
On July 31, 1998, the Board of Directors authorized a two-for-one stock
split to be distributed September 15, 1998. All share and per share
information included in the accompanying consolidated financial
statements and notes thereto have been adjusted to give retroactive
effect to this stock split.
The Company has two stock option plans 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. Options granted under the 1991 Stock Option Plan are
exercisable for Class A Common Stock while options granted under the
1996 Stock Option Plan are exercisable for Common Stock. There are no
options outstanding pursuant to the 1991 Stock Option Plan as of June
30, 2000, and the Plan has been amended so that no additional options
may be granted thereunder. The 1996 stock options have eight-year terms
and generally vest equally over a period of six years from the date of
grant. The Company applies APB Opinion No. 25 and related
interpretations in accounting for its stock option plans. Accordingly,
no compensation cost has been recognized for its stock option plans.
For disclosure purposes, the Company determined compensation cost for
its stock options based upon the fair value at the grant date using the
Black Scholes option-pricing model with the following assumptions:
2000 1999 1998
Risk-free interest rate 6% 6% 5.3%
Volatility 47% 25% 26%
Expected dividend yield 1.35% 1.02% 1.80%
Expected life (in years) 6.5 6.5 6.5
The weighted-average fair values of options granted in fiscal 2000,
1999 and 1998 was $5.58, $4.73 and $6.88, respectively.
Had compensation cost been recognized in accordance with SFAS No. 123,
the Company's diluted earnings per share disclosed in the accompanying
financial statements would be reduced by less than $.02 per share in
fiscal 2000 and $.01 per share in 1999 and 1998.
Option activity was as follows:
June 30,
2000 1999 1998
Number of options:
Outstanding at beginning of year 1,642,406 1,035,528 945,528
Granted 218,000 734,562 135,000
Exercised (680,884) (127,684) (45,000)
Expired (25,000) - -
Outstanding at June 30 1,154,522 1,642,406 1,035,528
At June 30:
Options available for grant 186,910 404,910 1,139,472
Options exercisable 563,243 932,545 262,000
Weighted Average Exercise Price:
Options granted $ 11.48 $ 4.66 $ 11.58
Options exercised $ .83 $ 1.32 $ .67
Options outstanding $ 7.70 $ 4.38 $ 3.38
Options exercisable $ 3.63 $ 1.59 $ 1.78
At June 30, 2000, the range of exercise prices of outstanding options
was $.87-$16.19.
Included in the 734,562 options and the weighted average exercise price
for options granted in 1999 are 512,062 options relating to the Grand
Prix Association of Long Beach acquisition. The Grand Prix options
were converted into Dover Downs options at an exercise price of $.87
per share.
NOTE 8 - Related Party Transactions
During the years ended June 30, 2000, 1999 and 1998, the Company
purchased certain paving, site work and construction services involving
total payments of $432,000, $432,000 and $375,000 from a company
wholly-owned by an employee/director. The Company purchased
administrative services from Rollins Truck Leasing Corp. and affiliated
companies in 2000, 1999 and 1998. The total cost of these services,
which have been included in general and administrative expenses in the
Consolidated Statement of Earnings, was $457,000, $380,000 and $283,000
in 2000, 1999 and 1998, respectively.
At the date of the acquisition of Grand Prix Association of Long Beach,
$299,000 was due to Grand Prix from certain shareholders/officers for
outstanding loans made for the purpose of purchasing Grand Prix common
stock. As of June 30, 2000, $92,000 was outstanding from a current
director of the Company.
In the opinion of management of the Company, the foregoing transactions
were effected at rates which approximate those which the Company would
have realized or incurred had such transactions been effected with
independent third parties.
NOTE 9 - 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):
Motorsports Gaming Consolidated
Year ended June 30, 2000
Revenue $ 77,311 $ 168,561 $ 245,872
Operating earnings 20,078 35,534 55,612
Identifiable assets at year-end 261,989 54,789 316,778
Capital expenditures 50,592 11,314 61,906
Depreciation and amortization 6,671 1,798 8,469
Interest expense $ 924 $ 216 $ 1,140
Year ended June 30, 1999
Revenue $ 68,683 $ 139,249 $ 207,932
Operating earnings 17,197 29,926 47,123
Identifiable assets at year-end 209,540 45,672 255,212
Capital expenditures 36,209 14,498 50,707
Depreciation and amortization 5,829 1,269 7,098
Interest expense $ 1,267 $ 85 $ 1,352
Year ended June 30, 1998
Revenue $ 25,874 $ 115,071 $ 140,945
Operating earnings 12,506 24,447 36,953
Identifiable assets at year-end 57,739 38,038 95,777
Capital expenditures 6,085 1,419 7,504
Depreciation and amortization $ 1,237 $ 1,470 $ 2,707
NOTE 10 - Commitments
The Company leases the racetrack at the Tennessee State Fairgrounds
pursuant to a lease expiring in fiscal 2008. Total rental expense
charged to the Company is a function of the profitability of the
Nashville operation and was $46,000 and $210,000 for the years ended
June 30, 2000 and 1999, respectively, and $66,000 for the six months
ended June 30, 1998.
The Company leases certain property at the Madison, Illinois facility
with leases expiring at various dates through 2070. The leases are
subject to annual adjustments based on increases in the consumer price
index. Total rental payments charged to operations for these leases
amounted to $236,000 and $222,000 for the years ended June 30, 2000 and
1999, respectively. The minimum lease payments due under these leases
are as follows (in thousands):
2001 $ 231
2002 218
2003 218
2004 218
2005 218
Thereafter 4,473
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 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 100%-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. After
the opening of the Nashville Superspeedway complex, the bonds will be
payable solely from sales and incremental property taxes ("the taxes")
generated from that 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 by several banks. The
Company has agreed to reimburse the banks for amounts paid by them
under the letter of credit.
In May 1995, Dover Downs, Inc., a subsidiary of the Company, entered
into a long-term management agreement with Caesars World Gaming
Development Corporation (Caesars). The initial term of the agreement
expired in December 1998 and Caesars exercised the first of two
additional three-year renewal options which Dover Downs may void if
certain financial results are not achieved. Caesars acts as the
exclusive agent to supervise, market, manage and operate the Company's
video lottery casino. Caesars has been properly licensed by the
Delaware State Lottery Office to perform these functions. Caesars'
performance-based fees for such services were $6,383,000 in fiscal
2000, $6,983,000 in fiscal 1999 and $7,094,000 in fiscal 1998. Amounts
owed to Caesars at June 30, 2000 and 1999 totaled $365,000 and
$1,147,000, respectively, and are included in accrued liabilities. The
Company also has accrued additional amounts which Caesars claims are
due as a result of the recent casino expansions.
The Company has entered into several sanctioning agreements to conduct
motorsports events at its various venues. The Company has held
NASCAR-sanctioned events for 32 consecutive years and its subsidiary,
Grand Prix Association of Long Beach, has operated the Grand Prix of
Long Beach for 26 consecutive years. Nonrenewal of a NASCAR event
license or the CART agreement for the Long Beach event would have a
material adverse effect on the Company's financial condition and
results of operations.
NOTE 11 - Quarterly Results - in thousands, except per share data
(unaudited)
September 30 December 31 March 31 June 30
2000
Revenues $71,301 $44,543 $43,789 $86,239
Gross profit 22,968 7,746 7,451 29,400
Net earnings 11,244 2,527 2,331 15,823
Earnings per
common share (diluted) $ .31 $ .07 $ .06 $ .42
1999
Revenues $54,654 $37,651 $36,676 $78,951
Gross profit 17,520 7,188 6,851 26,777
Net earnings 8,278 2,513 2,207 13,893
Earnings per
common share (diluted) $ .23 $ .07 $ .06 $ .38
<PAGE>
Exhibit 21.1
DOVER DOWNS ENTERTAINMENT, INC.
Subsidiaries of Registrant at June 30, 2000
Dover Downs, Inc.
Dover Downs International Speedway, Inc.
Dover Downs Properties, Inc.
Nashville Speedway USA, Inc.
Grand Prix Association of Long Beach, Inc.
Gateway International Motorsports Corporation, Inc.
Gateway International Services Corporation, Inc.
Memphis International Motorsports Corporation, Inc.
Motorsports Services Corporation of Memphis, Inc.
Exhibit 23.1
The Board of Directors and Shareholders
Dover Downs Entertainment, Inc.
We consent to the incorporation by reference in the registration
statement (No. 333-8147) on Form S-8 of Dover Downs Entertainment, Inc.
of our report dated July 20, 2000 relating to the consolidated balance
sheets of Dover Downs Entertainment, Inc. and subsidiaries as of June
30, 2000 and 1999, and the related consolidated statements of earnings
and cash flows for each of the years in the three-year period ended
June 30, 2000, which report appears in the June 30, 2000 annual report
on Form 10-K of Dover Downs Entertainment, Inc.
KPMG LLP
Philadelphia, Pennsylvania
August 21, 2000
