Page 1 of 10
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 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 December 31, 1997, the number of shares of each class of
the registrant's common stock outstanding is as follows:
Common stock - 2,998,950 shares
Class A common stock - 12,249,380 shares
FORM 10-Q Page 2 of 10
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 and six months ended December 31, 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.
C. Earnings Per Share
Pursuant to the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share," the number of weighted average
shares used in computing basic and diluted earnings per share (EPS) are
as follows (in thousands):
Three Months Ended Six Months Ended
December 31, December 31,
1997 1996 1997 1996
Basic EPS 15,248 15,101 15,243 14,565
Effect of Options 339 421 337 437
Diluted EPS 15,587 15,522 15,580 15,002
No adjustments to net income available to common shareholders were
required during the periods presented.
FORM 10-Q Page 3 of 10
DOVER DOWNS ENTERTAINMENT, INC.
CONSOLIDATED STATEMENT OF EARNINGS
Dollars in Thousands, Except Per Share Amounts
Quarter Ended Six Months Ended
December 31, December 31,
1997 1996 1997 1996
Revenues:
Motorsports $ 47 $ 55 $11,245 $ 9,472
Gaming (including win) (1) 25,915 17,191 53,538 35,000
25,962 17,246 64,783 44,472
Expenses:
Operating 20,087 13,898 43,990 30,054
Depreciation 639 512 1,256 958
General and administrative 994 694 2,061 1,477
21,720 15,104 47,307 32,489
Operating earnings 4,242 2,142 17,476 11,983
Interest (income) expense, net (173) (71) (329) 29
Earnings before income taxes 4,415 2,213 17,805 11,954
Income taxes 1,897 922 7,454 5,004
Net earnings $ 2,518 $ 1,291 $10,351 $ 6,950
Earnings per common share-Basic $ .17 $ .09 $ .68 $ .48
-Diluted $ .16 $ .08 $ .66 $ .46
Average shares outstanding (000)
- Basic 15,248 15,101 15,243 14,565
- Diluted 15,587 15,522 15,580 15,002
Dividends paid per common share $ .08 None $ .16 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 10
DOVER DOWNS ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEET
Dollars in Thousands
December 31, June 30,
1997 1997
ASSETS
Current assets:
Cash and cash equivalents $18,441 $15,503
Accounts receivable 2,924 1,613
Due from State of Delaware 4,468 1,983
Inventories 321 402
Prepaid expenses 1,092 775
Prepaid income taxes 1,831 -
Deferred income taxes 236 124
Total current assets 29,313 20,400
Property, plant and equipment, net 50,721 50,861
Total assets $80,034 $71,261
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,822 $ 1,860
Purses due horsemen 4,328 1,387
Accrued liabilities 2,947 2,280
Income taxes payable - 2,507
Current portion of long-term debt 19 19
Deferred revenue 7,235 7,542
Total current liabilities 16,351 15,595
Long-term debt 750 760
Deferred income taxes 690 606
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: December - 2,998,950;
June - 2,939,000 300 294
Class A common stock, $.10 par value;
30,000,000 shares authorized; issued
and outstanding: December - 12,249,380;
June - 12,286,830 1,225 1,229
Additional paid-in capital 21,109 21,081
Retained earnings 39,609 31,696
Total shareholders' equity 62,243 54,300
Total liabilities and shareholders' equity $80,034 $71,261
FORM 10-Q Page 5 of 10
DOVER DOWNS ENTERTAINMENT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Dollars in Thousands
Six Months Ended
December 31,
1997 1996
Cash flows from operating activities:
Net earnings $10,351 $ 6,950
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation 1,256 958
(Increase) decrease in assets:
Accounts receivable (1,311) (1,047)
Due from State of Delaware (2,485) (2,578)
Inventories 81 (25)
Prepaid expenses (317) (17)
Increase (decrease) in liabilities:
Accounts payable (38) 356
Purses due horsemen 2,941 1,901
Accrued liabilities 667 (378)
Current and deferred income taxes (4,366) (433)
Deferred revenue (307) (845)
Net cash provided by operating activities 6,472 4,842
Cash flows from investing activities:
Capital expenditures (1,116) (6,696)
Net cash used in investing activities (1,116) (6,696)
Cash flows from financing activities:
Repayments of short-term borrowing - (3,500)
Dividends paid (2,438) -
Proceeds (repayment) of long-term debt (10) 4
Proceeds of stock options exercised 30 62
Net proceeds from initial public offering - 16,389
Net cash (used in) provided by
financing activities (2,418) 12,955
Net increase in cash and cash equivalents 2,938 11,101
Cash and cash equivalents, beginning of period 15,503 3,140
Cash and cash equivalents, end of period $18,441 $14,241
Supplemental information:
Interest paid $ 31 $ 132
Income taxes paid $11,820 $ 5,437
FORM 10-Q Page 6 of 10
Item 2.Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations: Six Months Ended December 31, 1997 vs. Six
Months Ended December 31, 1996
Revenues increased by $20,311,000 to $64,783,000 primarily as a
result of expanding the casino facility and increasing the number of
video lottery (slot) machines from an average of 738 in the first six
months of fiscal 1997 to 1,000 machines during the entire first six
months of fiscal 1998. Motorsports revenues increased by $1,773,000 or
18.7%. 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
$811,000 related to sponsorship, concession and broadcast revenues.
Operating expenses increased by $13,936,000 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 $8,281,000 in the
first six months of fiscal 1998. Amounts allocated from the video
lottery operation for harness horse racing purses were $6,015,000 in
the first six months of fiscal 1998 compared with $4,027,000 in the
first six months of fiscal 1997. Advertising, promotional and customer
complimentary cost increases of $1,155,000 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 $298,000 or 31.1% due to capital
expenditures related to the Company's video lottery casino and
motorsports facilities expansion.
General and administrative expenses increased by $584,000 to
$2,061,000 from $1,477,000 in the first six months 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 rate for the six-month period
ended December 31, 1997 and 1996 was 41.9%.
Net earnings increased by $3,401,000 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.
Results of Operations: Quarter Ended December 31, 1997 vs. Quarter
Ended December 31, 1996
Revenues increased by $8,716,000 to $25,962,000 primarily as a
result of expanding the casino facility and increasing the number of
video lottery (slot) machines from an average of 917 in the second
quarter of fiscal 1997 to 1,000 machines during the entire second
FORM 10-Q Page 7 of 10
quarter of fiscal 1998. Harness horse racing revenues increased by
$277,000 as a result of a 78.7% increase in average handle from
exporting live harness horse races to other tracks and off-track
betting facilities.
Operating expenses increased by $6,189,000 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 $3,748,000 in the
second quarter of fiscal 1998. Amounts allocated from the video
lottery operation for harness horse racing purses were $2,882,000 in
the second quarter of fiscal 1998 compared with $1,957,000 in the
second quarter of fiscal 1997. Advertising, promotional and customer
complimentary cost increases of $574,000 were the other significant
operating cost increases.
Depreciation increased by $127,000 or 24.8% due to capital
expenditures related to the Company's video lottery casino and
motorsports facilities expansion.
General and administrative expenses increased by $300,000 to
$994,000 from $694,000 in the second 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 second quarter of
fiscal 1998 and fiscal 1997 were 43.0% and 41.7%, respectively.
Net earnings increased by $1,227,000 primarily due to the expansion
of video lottery (slot) machine operations in the second quarter of
fiscal 1997.
Liquidity and Capital Resources
Cash flows from operations for the six months ended December 31,
1997 and 1996 were $6,472,000 and $4,842,000, respectively. The reason
for the increase in cash flows was primarily the increased net
earnings, offset in part by the timing of certain income tax and other
payments.
Capital expenditures for the first six months of fiscal 1998 were
$1,116,000 and related primarily to the expansion of and improvements
to the auto racing facility.
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 December
31, 1997.
On October 3, 1996, the Company issued 1,075,000 shares of common
stock at $17.00 per share. The Company used the proceeds to pay down
the Company's revolving credit facility and financed capital
expenditures with the remaining proceeds.
FORM 10-Q Page 8 of 10
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.
Forward-Looking Statements
The Company may make forward-looking statements relating to
anticipated financial performance, business prospects, acquisitions or
divestitures, market forces, commitments and other matters. The
Private Securities Litigation Reform Act of 1995 provides a safe harbor
for forward-looking statements. In order to comply with the terms of
the safe harbor, the Company notes that a variety of factors could
cause the Company's actual results and experience to differ materially
from the anticipated results or other expectations expressed in the
Company's forward-looking statements. Forward-looking statements
typically contain words such as "anticipates", "believes", "estimates",
"expects", "forecasts", "predicts", or "projects", or variations of
these words, suggesting that future outcomes are uncertain.
Various risks and uncertainties may affect the operations,
performance, development and results of the Company's business and
could cause future outcomes to differ materially from those set forth
in forward-looking statements, including the following factors: the
weather, the Company's relationship with NASCAR, the motorsports
sanctioning body, changes in state and local laws and regulations, the
ability to keep purses at a competitive level and the ability to
increase on-track and simulcast handle as well as the risks,
uncertainties and other factors described from time to time in the
Company's SEC filings and reports.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
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
The following is a consolidated statement of operations for the
twelve months ended December 31, 1997. This earnings statement for the
twelve months ended December 31, 1997 covers a period of twelve months
beginning after the effective date of the Company's Registration
FORM 10-Q Page 9 of 10
Statement (File No. 333-8147) for its initial public offering, and is
made available to security holders pursuant to Section 11(a) of the
Securities Act of 1993 and Rule 158 thereunder.
DOVER DOWNS ENTERTAINMENT, INC.
CONSOLIDATED STATEMENT OF EARNINGS
Dollars in Thousands, Except Per Share Amounts
Twelve Months Ended
12/31/97
Revenues:
Motorsports $ 22,289
Gaming (including win) 99,700
121,989
Expenses:
Operating 82,495
Depreciation 2,382
General and administrative 3,649
88,526
Operating earnings 33,463
Interest income 627
Earnings before income taxes 34,090
Income taxes 14,217
Net earnings $ 19,873
Earnings per common share - Basic $ 1.30
- Diluted $ 1.27
Dividends paid per common share $ .32
FORM 10-Q Page 10 of 10
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: February 6, 1998 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)