Page 1 of 8
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
/___/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-11929
DOVER DOWNS ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 51-0357525
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1131 North DuPont Highway, Dover, Delaware 19901
(Address of principal executive offices) (Zip Code)
(302) 674-4600
(Registrant's telephone number, including area code)
(Former name of registrant)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Sections 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
As of September 30, 1997, the number of shares of each class
of the registrant's common stock outstanding is as follows:
Common stock - 2,979,000 shares
Class A common stock - 12,269,330 shares
FORM 10-Q Page 2 of 8
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
A. Basis of Preparation
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with the instructions to
Form 10-Q and do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the
quarter ended September 30, 1997 are not necessarily indicative of the
results that may be expected for the year ending June 30, 1998.
B. Business Operations
For the video lottery operations, the difference between the
amount wagered by bettors and the amount paid out to bettors is
referred to as the win. The win is included in the amount recorded in
the Company's financial statements as gaming revenue. The Delaware
State Lottery Office sweeps the winnings from the video lottery
operations, collects the State's share of the winnings and the amount
due to the vendors under contract with the State who provide the video
lottery machines and associated computer systems, collects the amount
allocable to purses for harness horse racing and remits the remainder
to the Company as its commission for acting as a Licensed Agent.
Operating expenses include the amounts collected by the State (i) for
the State's share of the winnings, (ii) for remittance to the providers
of the video lottery machines and associated computer systems, and
(iii) for harness horse racing purses.
FORM 10-Q Page 3 of 8
DOVER DOWNS ENTERTAINMENT, INC.
CONSOLIDATED STATEMENT OF EARNINGS
Dollars in Thousands, Except Per Share Amounts
Quarter Ended
September 30,
1997 1996
Revenues:
Motorsports $11,198 $ 9,417
Gaming (including win) (1) 27,623 17,809
38,821 27,226
Expenses:
Operating 23,903 16,156
Depreciation 617 446
General and administrative 1,067 783
25,587 17,385
Operating earnings 13,234 9,841
Interest (income) expense (156) 100
Earnings before income taxes 13,390 9,741
Income taxes 5,557 4,082
Net earnings $ 7,833 $ 5,659
Earnings per common share $ .50 $ .39
Weighted average common shares
and common share equivalents
outstanding (000) 15,573 14,475
Dividends paid per common share .08 None
(1) Gaming revenues from the Company's video lottery (slot)
machine gaming operations include the total win from such
operations. The Delaware State Lottery Office collects the
win and remits a portion thereof to the Company as its
commission for acting as a Licensed Agent. The difference
between total win and the amount remitted to the Company is
reflected in Operating Expenses.
FORM 10-Q Page 4 of 8
DOVER DOWNS ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEET
Dollars in Thousands
September 30, June 30,
1997 1997
ASSETS
Current assets:
Cash and cash equivalents $20,702 $15,503
Accounts receivable 2,746 1,613
Due from State of Delaware 5,166 1,983
Inventories 379 402
Prepaid expenses 761 775
Deferred income taxes 124 124
Total current assets 29,878 20,400
Property, plant and equipment, net 50,947 50,861
Total assets $80,825 $71,261
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,661 $ 1,860
Purses due horsemen 4,615 1,387
Accrued liabilities 3,991 2,280
Income taxes payable 4,101 2,507
Current portion of long-term debt 19 19
Deferred revenue 3,067 7,542
Total current liabilities 18,454 15,595
Long-term debt 755 760
Deferred income taxes 670 606
Commitments and contingent liabilities
See Part II Legal Proceedings
Shareholders' equity:
Preferred stock, $.10 par value;
1,000,000 shares authorized; issued
and outstanding: none
Common stock, $.10 par value;
35,000,000 shares authorized; issued
and outstanding: September - 2,979,000;
June - 2,939,000 298 294
Class A common stock, $.10 par value;
30,000,000 shares authorized; issued
and outstanding: September - 12,269,330;
June - 12,286,830 1,227 1,229
Additional paid-in capital 21,109 21,081
Retained earnings 38,312 31,696
Total shareholders' equity 60,946 54,300
Total liabilities and shareholders' equity $80,825 $71,261
FORM 10-Q Page 5 of 8
DOVER DOWNS ENTERTAINMENT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Dollars in Thousands
Quarter Ended
September 30,
1997 1996
Cash flows provided by operating activities:
Net earnings $ 7,833 $ 5,659
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation 617 446
(Increase) decrease in assets:
Accounts receivable (1,133) (129)
Due from State of Delaware (3,183) (2,476)
Inventories 23 26
Prepaid expenses 14 (75)
Increase (decrease) in liabilities:
Accounts payable 801 437
Purses due horsemen 3,228 2,222
Accrued liabilities 1,711 (229)
Current and deferred income taxes 1,658 3,147
Deferred revenue (4,475) (3,348)
Net cash provided by operating activities 7,094 5,680
Cash flows from investing activities:
Capital expenditures (703) (4,123)
Net cash used in investing activities (703) (4,123)
Cash flows from financing activities:
Dividends paid (1,217) -
Proceeds (repayment) of long-term debt (5) 4
Proceeds of stock options exercised 30 62
Net cash provided by financing activities (1,192) 66
Net increase in cash and cash equivalents 5,199 1,623
Cash and cash equivalents, beginning of period 15,503 3,140
Cash and cash equivalents, end of period $20,702 $ 4,763
Supplemental information:
Interest paid $ 16 $ 86
Income taxes paid $ 3,899 $ 935
FORM 10-Q Page 6 of 8
Item 2.Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations: Quarter Ended September 30, 1997 vs. Quarter
Ended September 30, 1996
Revenues increased by $11,595,000 to $38,821,000 primarily as a
result of expanding the casino facility and increasing the number of
video lottery (slot) machines from an average of 560 in the first
quarter of fiscal 1997 to 1,000 machines during the entire first
quarter of fiscal 1998. Motorsports revenues increased by $1,781,000
or 18.9%. Approximately $812,000 of the total motorsports revenue
increase resulted from increased attendance and $150,000 from increased
ticket prices. The remainder of the motorsports revenue increase of
$819,000 related to sponsorship, concession and broadcast revenues.
Operating expenses increased by $7,747,000 reflecting the higher
revenues. Amounts retained by the State of Delaware, fees to the
manager who operates the video lottery (slot) machine operation, and
the amount collected by the State of Delaware for payment to the
vendors under contract with the State who provide the video lottery
machines and associated computer systems increased by $4,533,000 in the
first quarter of fiscal 1998. Amounts allocated from the video lottery
operation for harness horse racing purses were $3,133,000 in the first
quarter of fiscal 1998 compared with $2,070,000 in the first quarter of
fiscal 1997. Advertising, promotional and customer complimentary cost
increases of $581,000 were the other significant operating cost
increases.
Motorsports operating expenses increased primarily due to a
$101,000 increase in purse obligation expenses and related sanction
fees.
Depreciation increased by $171,000 or 38.3% due to capital
expenditures related to the Company's video lottery casino and
motorsports facilities expansion.
General and administrative expenses increased by $284,000 to
$1,067,000 from $783,000 in the first quarter of 1997 primarily as a
result of increased wages and benefits related to the video lottery
operations and the general expansion of the Company's business.
The Company's effective income tax rates for the first quarter of
fiscal 1998 and fiscal 1997 were 41.5% and 41.9%, respectively.
Net earnings increased by $2,174,000 due to the expansion of video
lottery (slot) machine operations in the second quarter of fiscal 1997
and higher attendance and related revenues at the Company's NASCAR-
sanctioned events in September 1997 as compared with September 1996.
FORM 10-Q Page 7 of 8
Liquidity and Capital Resources
Cash flows from operations for the quarters ended September 30,
1997 and 1996 were $7,094,000 and $5,680,000, respectively. The
significant increase in fiscal 1998 is primarily the result of higher
net earnings.
Capital expenditures for the quarter ended September 30, 1997 were
$703,000 and related primarily to expansion of and improvements to the
auto racing facility. The prior year's capital expenditures of
$4,123,000 related primarily to the expansion of the video lottery
(slot) facility. The Company expects to make capital expenditures of
approximately $12,500,000 in fiscal 1998 primarily for additional
permanent grandstand seating and other land improvements.
The Company has a $20,000,000 committed revolving line of credit
to provide seasonal funding needs and to finance capital improvements.
There were no amounts outstanding under the credit facility at
September 30, 1997.
Management believes that cash flows from operations and funds
available under its bank credit facility will satisfy the Company's
cash requirements for fiscal 1998.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Neither the Company nor any of its subsidiaries is a party to any
material legal proceedings. The Company and its subsidiaries are
engaged in ordinary routine litigation incidental to the business.
Item 2. Changes in Securities
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.
FORM 10-Q Page 8 of 8
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27 - Financial Data Schedule
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
DATE: October 27, 1997 Dover Downs Entertainment, Inc.
(Registrant)
/s/ Denis McGlynn
Denis McGlynn
President and Chief Executive Officer
/s/ Timothy R. Horne
Timothy R. Horne
Vice President-Finance
(Principal Financial and
Accounting Officer)