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_____________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________________________________
FORM 10-K
(Mark One)
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended or
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from July 1, 2000 to December 31, 2000
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 $161,763,333 as of January 31, 2001.
As of January 31, 2001, the number of shares of each class of the
Registrant's common stock outstanding is as follows:
Common Stock - 14,052,092 shares
Class A Common Stock - 23,857,885 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 April 27, 2001 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" may be used herein to refer to Dover Downs Entertainment, Inc.
or to one or more of its subsidiaries.
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 16
major events during calendar year 2000 in three of the premier
sanctioning bodies in motorsports - the National Association for Stock
Car Auto Racing (NASCAR), Championship Auto Racing Teams (CART) and the
National Hot Rod Association (NHRA). The Company operates the historic
Nashville Speedway at the Tennessee State Fairgrounds and currently is
constructing a new superspeedway and motorsports complex near
Nashville, Tennessee. The Company also organizes and promotes the
Toyota Grand Prix of Long Beach in Long Beach, California, and owns and
operates Gateway International Raceway near St. Louis, Missouri and
Memphis Motorsports Park near Memphis, Tennessee.
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 January 19, 2001, the Company changed its fiscal year-end from June
30 to December 31 in order to align the Company's reporting year with
its natural operating cycle. The six-month period ended December 31,
2000 transitions the Company's reporting period to the new fiscal year-
end.
Effective January 1, 2001, the Company and Park Place Entertainment
Corporation, through its Caesars World Gaming Development Corporation
subsidiary (Caesars), amended their original casino management
agreement to decrease the percentage management fee paid to Caesars by
20% while modifying the agreement to cover all 2,000 video lottery
machines currently in operation for the remainder of the term, which
expires in December 2004.
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 in the first
quarter of 2002, 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 in adjacent
facilities during the first phase includes renovating the enclosed
harness racing grandstand, building a central HVAC plant, and expanding
the seating 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 September 30, 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, which may 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 $258 million for the 2001 race season and increase at an
average annual rate of approximately 17% through the 2006 race season.
The broadcast revenues are shared with the track operators (65%), the
race teams (25%) and NASCAR (10%). Although a three-tier structure is
in place, the track operators' amount is effectively split in
proportion to the number of Winston Cup and Busch Series races promoted
by the Company compared with the total number of Winston Cup and Busch
Series events each year.
During the year ended June 30, 2000, 12,500 grandstand seats were added
at Dover Downs International Speedway, increasing the total seating
capacity to approximately 133,000. 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. Also
at Gateway, 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 maximum number currently 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 12 through 19 and pages 42 and 43 of
this Transition Report for the period July 1, 2000 to December 31, 2000
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. It is estimated by NASCAR that attendance
at its national series events in the 1999 racing season approximated
10.5 million people. According to Nielsen Media Research,
approximately 318 million people tuned to NASCAR's televised national
series events in 2000. Twelve of the 16 major motorsports events
promoted by the Company are sanctioned by NASCAR.
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 2000 corporate
sponsors spent approximately $1.35 billion on motorsports marketing
programs in the United States, and, in the year 2001, are expected to
spend approximately $1.5 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 currently
conducts five major NASCAR-sanctioned events at the facility annually.
Two races are associated with the Winston Cup professional stock car
racing circuit, two races are associated with the Busch Series, Grand
National Division (Busch Series) racing circuit and one race is
associated with the Craftsman Truck Series racing circuit.
Each of the Busch Series events and the Craftsman Truck Series event at
Dover Downs International Speedway are conducted on the days 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. Additionally, the Company is one of
only three tracks to host three major NASCAR events at one facility on
the same weekend. 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 seating capacity for the 2001 season of
approximately 140,000. 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. During the 2000 race
season, the facility hosted 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 in April 2001 with a strong schedule of
events, including the NASCAR national events previously held at
Nashville Speedway USA, an Indy Racing Northern Light Series (IRL)
event and other regional and national touring events. Nashville
Speedway USA will continue to host the NASCAR Weekly Racing Series and
other regional touring events.
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 30,000
seats and to add five more luxury suites for the Busch Series event
held in October 2000. 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. During the 2000 race year, the
Company's NASCAR-sanctioned events were 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 had 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 $258 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. Dover Downs Raceway, a 5/8-mile harness horse racetrack with a
state-of-the-art simulcasting parlor, is located adjacent to the
casino.
During the six-month period ended December 31, 2000, approximately 97%
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 Premium Slots area. Additional
amenities include the Garden Cafe, which becomes a lounge with live
entertainment every evening, the Winners Circle Buffet, and a 1,400-
seat concert facility featuring national recording acts monthly.
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. Effective January 1, 2001, the Company and Caesars
amended their original casino management agreement to decrease the
percentage management fee paid to Caesars by 20% while modifying the
agreement to cover all 2,000 video lottery machines currently in
operation for the remainder of the term, which expires in December
2004.
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 in the first
quarter of 2002, 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 in adjacent
facilities during the first phase includes renovating the enclosed
harness racing grandstand, building an HVAC plant, and expanding the
seating 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 140 live race dates. The Company's races currently are
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 (approximately 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. Additionally, Chicagoland Speedway (approximately five hours
to the northeast) currently is being constructed and is expected to
open in the summer of 2001. Chicagoland Speedway will host a Winston
Cup Series, Busch Series and an IRL event in its first 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 50
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 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 December 31, 2000, the Company had a total of 656 full-time
employees and 172 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 September 2007. 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. The complex, which is scheduled to open in
April 2001, will include a 1.33-mile tri-oval track and may include a
paved short track, a dirt track and a dragstrip in future phases. The
Company has invested approximately $76,350,000 in the project as of
December 31, 2000.
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, 2025 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 approximately 350 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 is 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 January 31,
2001, there were 14,052,092 shares of Common Stock and 23,857,885 shares of Class A Common Stock
outstanding. There were 1,208 record holders of Common Stock and 21 record holders of Class A
Common Stock at January 31, 2001.
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 six-month period ended December 31, 2000 and the
fiscal years ended June 30, 2000 and 1999 are as follows:
Prices Dividends
December 31, June 30, December 31, June 30,
2000 2000 1999 2000 2000 1999
High Low High Low High Low
Fiscal Quarter
Ended September 30 $13.75 $ 9.88 $17.94 $13.50 $16.59 $12.44 $.045 $.045 $.04
Ended December 31 12.88 10.50 20.00 13.63 13.88 10.19 .045 .045 .045
Ended March 31 - - 17.81 11.06 15.50 12.25 - .045 .045
Ended June 30 - - 14.00 11.19 19.44 14.88 - .045 .045
ITEM 6. SELECTED FINANCIAL DATA.
Five Year Selected Financial Data
(In Thousands, Except Per Share Data)
Six Months Ended
December 31, Year Ended June 30,
2000 1999(4) 2000 1999(3) 1998 1997 1996
Revenues:
Motorsports $ 39,045 $ 33,652 $ 77,311 $ 68,683 $ 25,874 $ 20,516 $18,110
Gaming (1) 85,441 82,192 168,561 139,249 115,071 81,162 31,980
124,486 115,844 245,872 207,932 140,945 101,678 50,090
Earnings before
income taxes 27,434 23,641 54,472 45,771 37,655 28,239 15,593
Net earnings 15,912 13,771 31,925 26,891 21,913 16,472 9,196
Earnings per
common share(2)
- basic .42 .38 .88 .76 .72 .55 .34
- diluted .42 .38 .86 .74 .70 .54 .32
Dividends per common
share(2) $.09 $.09 $.18 $.175 $.16 $.08 $ -
At December 31, At June 30,
Total assets $362,561 $278,727 $316,778 $255,212 $ 95,777 $ 71,261 $42,311
Long-term debt,
net of current
portion 79,290 53,625 35,540 36,625 741 760 766
Shareholders'
equity $230,382 $183,406 $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.
(4) Amounts at December 31, 1999 and for the six-month period then ended are unaudited.
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
Transition Report on Form 10-K.
Results of Operations
Six Months Ended December 31, 2000 Compared With Six Months Ended
December 31, 1999
Total revenues increased by $8,642,000 to $124,486,000 as a result of
growth in both operating segments of the Company.
Gaming revenues increased by $3,249,000 or 4.0% to $85,441,000, the
result of having an average of 2,000 video lottery (slot) machines
during the six-month period ended December 31, 2000 compared with an
average of 1,555 video lottery (slot) machines during the six-month
period ended December 31, 1999, and expanded marketing and promotional
activities related to the Company's video lottery casino.
Motorsports revenues increased by $5,393,000 or 16.0% to $39,045,000.
Approximately $465,000 of the revenue increase resulted from increased
attendance, $222,000 from increased ticket prices and $2,889,000 from
increased sponsorship and broadcast revenues from the NASCAR-sanctioned
events at Dover Downs International Speedway. The remainder of the
motorsports revenue increase is primarily from adding a Craftsman Truck
Series event to the Dover Downs fall NASCAR weekend and the scheduling
of the Championship Auto Racing Teams (CART) event at Gateway
International Raceway in September 2000 compared with May 1999. The
aforementioned increases in motorsports revenues were offset somewhat
by the Company's decision not to promote an Indy Northern Light Series
(IRL) event at Dover Downs International Speedway during the six-month
period ended December 31, 2000, and the scheduling of the Craftsman
Truck Series event at Gateway International Raceway in May 2000 instead
of September 2000.
Operating expenses increased by $4,161,000 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 $134,000 during the six months ended December 31,
2000. Amounts allocated from the video lottery operation for harness
horse racing purses were $9,321,000 during the six months ended
December 31, 2000 compared with $9,036,000 during the six months ended
December 31, 1999. Wages and related employee benefits increased by
$997,000 during the six months ended December 31, 2000 due to the
opening of the Phase IV casino expansion. Additional advertising,
promotional and customer complimentary costs of $2,264,000 were the
other significant operating cost increases. The aforementioned
increases in gaming operating expenses were offset by the recognition
of a one-time net gain of $2,475,000 that resulted from amending the
casino management agreement with Caesars for the remaining term of the
agreement to decrease the percentage management fee paid to Caesars by
20%. In prior years and during the six months ended December 31, 2000,
the Company accrued amounts that Caesars claimed were due as a result
of casino expansions, but which the Company disputed. As a result of
the amendment to the management agreement, the Company and Caesars
settled the dispute and the reversal of a portion of the aforementioned
accrued amounts resulted in the one-time net gain.
Motorsports operating expenses increased principally due to the
addition of a Craftsman Truck Series event to the Dover Downs fall
NASCAR weekend, the scheduling of the CART event at Gateway
International Raceway in September 2000 compared with May 1999 and pre-
opening expenses attributable to Nashville Superspeedway. The
aforementioned increases in motorsports operating expenses were offset
somewhat by the Company's decision not to promote an IRL event at Dover
Downs International Speedway during the six-month period ended December
31, 2000 and the scheduling of the Craftsman Truck Series event at
Gateway International Raceway in May 2000 instead of September 2000.
Depreciation and amortization increased by $1,100,000 or 27.9% due to
capital expenditures related to the Company's various motorsports
facilities and the Phase IV casino expansion completed during the six-
month period ended December 31, 2000 and the year ended June 30, 2000.
General and administrative expenses increased by $423,000 to $6,652,000
from $6,229,000 primarily due to expenses of approximately $500,000
attributable to Nashville Superspeedway pre-opening costs, Dover Downs
Hotel and Conference Center pre-opening costs and a legal settlement.
Interest expense was $9,000 during the six-month period ended December
31, 2000 compared with $844,000 during the six-month period ended
December 31, 1999. The interest expense resulted from borrowings on the
revolving credit agreement and other outstanding long-term debt, offset
by the capitalization of $2,090,000 and $699,000 of interest during the
six-month periods ended December 31, 2000 and 1999, respectively,
related to the construction of major facilities.
The Company's effective income tax rates for the six-month periods
ended December 31, 2000 and 1999 were 42.0% and 41.7%, respectively.
Net earnings increased by $2,141,000 primarily due to the increased
play in the casino, the one-time net gain related to the amended
management agreement with Caesars, 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 scheduling of the CART-sanctioned event
at Gateway International Raceway.
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 six months ended December 31, 2000
and 1999, and the fiscal years ended June 30, 2000, 1999 and 1998 was
$13,394,000, $8,442,000, $51,314,000, $34,963,000 and $28,991,000,
respectively. The increase for the six months ended December 31, 2000
as compared with the six months ended December 31, 1999 was due
primarily to the Company's increased net earnings before interest,
taxes, depreciation and amortization and the timing of cash receipts
from customers, offset by the decrease in accrued liabilities related
to the amendment of the Caesars management agreement.
Capital expenditures for the six-month period ended December 31, 2000
were $55,724,000. Approximately $5,622,000 related to the expansion
of, and improvements to, the Dover, Gateway and Memphis racing
facilities, approximately $5,375,000 to the construction of the luxury
hotel in Dover, Delaware, and approximately $37,167,000 for the
construction of the Nashville Superspeedway complex. The remainder of
the expenditures were for land and other vehicles, equipment and
improvements at the Company's facilities.
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
equipment 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 cost of the
first phase of the project, which, in addition to the first 232 rooms
of the hotel structure, will include renovating the enclosed harness
racing grandstand, constructing a central HVAC plant and expanding the
seating 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 $76,350,000 in the project as of
December 31, 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
1.26 shares 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. At December 31,
2000, the Company was in compliance with all terms of the facility and
there was $58,750,000 outstanding. Under the terms of the credit
facility, $37,242,000 of additional borrowings were available to the
Company at December 31, 2000.
Recent Accounting Pronouncements
In December 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" (SAB 101), which provides guidance on the recognition,
presentation and disclosure of revenue in financial statements filed
with the SEC. SAB 101 outlines the basic criteria that must be met to
recognize revenue and provides guidance for disclosures related to
revenue recognition policies. The Company adopted SAB 101 during the
six-month period ended December 31, 2000. The adoption of SAB 101 did
not have a significant impact on the Company's results of operations,
financial position or cash flows.
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.
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 December 31, 2000 and June 30, 2000 and 1999. The
Company is exposed to market risks related to fluctuations in interest
rates for its variable rate borrowings of $58,750,000 at December 31,
2000 under its revolving credit facility. A change in interest rates
of one percent on the balance outstanding at December 31, 2000 would
cause a change in total annual interest costs of $588,000.
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 25.
ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None.
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 April 27, 2001.
Executive Officers of the Registrant. As of December 31, 2000, the
Executive Officers of the registrant were:
Term of
Name Position Age Office
Klaus M. Belohoubek Vice President-General 41 7/99 to date
Counsel and Secretary
Robert M. Comollo Treasurer 53 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 74 4/00 to date
Vice Chairman of the Board 6/96 to 4/00
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 has served as Vice President-General Counsel and
Secretary to Rollins Truck Leasing Corp.
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 April 27,
2001.
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 April 27,
2001.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During the six-month period ended December 31, 2000, the following
officers and/or directors of the Company were also officers and/or
directors of Rollins Truck Leasing Corp. and Matlack Systems, Inc.;
Patrick J. Bagley, Klaus M. Belohoubek, John W. Rollins, Jr. and Henry
B. Tippie. The Estate of John W. Rollins owns directly and of record
12.35% and 11.39% of the outstanding shares of common stock of Rollins
Truck Leasing Corp. and Matlack Systems, Inc., respectively, at
December 31, 2000. Henry B. Tippie is the Executor of the Estate of
John W. Rollins. The description of transactions between the Company
and Rollins Truck Leasing Corp. appears under the caption "Related
Party Transactions" on page 42 of this Transition 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 25.
(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, as filed with the Company's Annual
Report on Form 10-K dated August 23, 2000, is incorporated
herein by reference.
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 First Amendment to Project Consulting and Management
Agreement between Dover Downs, Inc. and Caesars World Gaming
Development Corporation dated October 25, 1996.
10.5 Second Amendment to Project Consulting and Management
Agreement between Dover Downs, Inc. and Caesars World Gaming
Development Corporation dated December 29, 2000.
10.6 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.
10.7 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 the Six-Month Transition Period
ended December 31, 2000
(b) Reports on Form 8-K
A Form 8-K was filed by the Company on January 19, 2001 to announce a
change in the Company's fiscal year-end from June 30 to December 31.
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: February 27, 2001 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 February 27, 2001
Timothy R. Horne and Chief Financial Officer
/s/ Henry B. Tippie Chairman of the Board February 27, 2001
Henry B. Tippie
/s/ John W. Rollins, Jr. Director February 27, 2001
John W. Rollins, Jr.
/s/ Patrick J. Bagley Director February 27, 2001
Patrick J. Bagley
/s/ Jeffrey W. Rollins Director February 27, 2001
Jeffrey W. Rollins
/s/ Melvin Joseph Director February 27, 2001
Melvin Joseph
/s/ R. Randall Rollins Director February 27, 2001
R. Randall Rollins
/s/ Christopher R. Pook Director February 27, 2001
Christopher R. Pook
/s/ Eugene W. Weaver Director February 27, 2001
Eugene W. Weaver
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page(s)
Independent Auditors' Report on
Consolidated Financial Statements 26
Consolidated Statement of Earnings for the
six-months ended December 31, 2000 and
the years ended June 30, 2000, 1999 and 1998 27
Consolidated Balance Sheet at December 31, 2000,
June 30, 2000 and June 30, 1999 28-29
Consolidated Statement of Cash Flows for the
six-months ended December 31, 2000 and the
years ended June 30, 2000, 1999 and 1998 30-31
Notes to the Consolidated Financial Statements 32-44
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 December 31, 2000,
June 30, 2000 and 1999, and the related consolidated statements of
earnings and cash flows for the six-months ended December 31, 2000 and
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 December 31,
2000, June 30, 2000 and 1999, and the results of their operations and
their cash flows for the six-months ended December 31, 2000 and 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
January 19, 2001
CONSOLIDATED STATEMENT OF EARNINGS
(In thousands except per share amounts)
Six months ended
December 31, Year ended June 30,
2000 2000 1999 1998
Revenues:
Motorsports $ 39,045 $ 77,311 $ 68,683 $ 25,874
Gaming 85,441 168,561 139,249 115,071
124,486 245,872 207,932 140,945
Expenses:
Operating 85,353 169,838 142,498 96,875
Depreciation and
amortization 5,038 8,469 7,098 2,707
General and
administrative 6,652 11,953 11,213 4,410
97,043 190,260 160,809 103,992
Operating earnings 27,443 55,612 47,123 36,953
Interest expense (income),
net 9 1,140 1,352 (702)
Earnings before income
taxes 27,434 54,472 45,771 37,655
Income taxes 11,522 22,547 18,880 15,742
Net earnings $ 15,912 $ 31,925 $ 26,891 $ 21,913
Earnings per common share:
Basic $ .42 $ .88 $ .76 $ .72
Diluted $ .42 $ .86 $ .74 $ .70
Average shares outstanding:
Basic 37,872 36,482 35,566 30,492
Diluted 38,080 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 amounts)
December 31, June 30,
2000 2000 1999
ASSETS
Current assets:
Cash and cash equivalents $ 10,494 $ 12,413 $ 10,847
Accounts receivable 5,765 12,700 6,706
Due from State of Delaware 7,308 3,176 2,932
Inventories 662 645 581
Prepaid expenses and other 4,289 4,518 4,456
Deferred income taxes 340 309 327
Total current assets 28,858 33,761 25,849
Property, plant and equipment, at cost:
Land 28,832 28,816 26,739
Casino facility 27,916 27,692 22,921
Racing facilities 159,266 153,480 128,802
Furniture, fixtures and equipment 25,165 17,831 11,570
Construction in progress 73,666 31,329 7,902
314,845 259,148 197,934
Less accumulated depreciation (34,500) (30,255) (24,021)
280,345 228,893 173,913
Other assets, net 1,415 1,453 1,453
Goodwill, net 51,943 52,671 53,997
Total assets $362,561 $316,778 $255,212
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,987 $ 10,902 $ 4,629
Purses due horsemen 6,258 2,982 3,147
Accrued liabilities 5,618 11,588 9,407
Income taxes payable 1,096 3,660 2,726
Current portion of long-term debt 585 585 335
Deferred revenue 13,917 17,489 15,906
Total current liabilities 34,461 47,206 36,150
Notes payable to bank 58,750 15,000 15,500
Long-term debt 20,540 20,540 21,125
Other liabilities 156 174 172
Deferred income taxes 18,272 16,067 9,607
Commitments and contingencies
(see Notes to the Consolidated
Financial Statements)
Shareholders' equity:
Preferred stock, $.10 par value;
1 shares authorized;
issued and outstanding: none
Common stock, $.10 par value;
75 shares authorized;
issued and outstanding:
December 2000-14,052,092 shares;
June 2000-13,796,500 shares;
June 1999-11,403,684 shares 1,405 1,380 1,140
Class A common stock, $.10 par value;
55 shares authorized;
issued and outstanding:
December 2000-23,857,885 shares;
June 2000-24,054,985 shares;
June 1999-24,262,510 shares 2,385 2,405 2,426
Additional paid-in capital 119,303 119,222 99,683
Retained earnings 107,289 94,784 69,409
Total shareholders' equity 230,382 217,791 172,658
Total liabilities and
shareholders' equity $362,561 $316,778 $255,212
The Notes to the Consolidated Financial Statements are an integral
part of these statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
Six months ended
December 31, Years ended June 30,
2000 2000 1999 1998
Cash flows from operating
activities:
Net earnings $15,912 $31,925 $26,891 $21,913
Adjustments to reconcile
net earnings to net cash
provided by operating
activities:
Depreciation and amortization 5,038 8,469 7,098 2,707
Loss on disposition of property - - - 3
(Increase) decrease in assets,
net of effect of acquisition:
Accounts receivable 6,935 (5,994) (1,645) (1,180)
Due from State of Delaware (4,132) (244) (833) (116)
Inventories (17) (64) (22) 92
Prepaid expenses and other 229 (62) (2,044) (1,539)
Increase (decrease) in
liabilities, net of effect
of acquisition:
Accounts payable (3,915) 6,273 (450) 335
Purses due horsemen 3,276 (165) 1,262 498
Accrued liabilities (5,970) 2,181 464 2,719
Current and deferred
income taxes (390) 7,412 1,387 1,346
Deferred revenue (3,572) 1,583 2,855 2,213
Net cash provided by
operating activities 13,394 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 (55,724) (61,906) (50,707) (7,504)
Cash acquired in business
acquisition - - 1,490 -
Other - (125) - -
Net cash used in investing
activities (55,724) (62,031) (49,217) (20,933)
Cash flows from financing
activities:
Borrowings (repayments) of
revolving debt 43,750 (500) 13,161 -
Repayment of long-term debt - (335) (760) (19)
Loan repayments - - 207 -
Net proceeds from public
offering - 19,185 - -
Dividends paid (3,407) (6,550) (6,213) (4,878)
Proceeds from stock options
exercised 86 573 167 30
Other assets and liabilities (18) (90) (155) -
Net cash provided by (used in)
financing activities 40,411 12,283 6,407 (4,867)
Net (decrease) increase in cash
and cash equivalents (1,919) 1,566 (7,847) 3,191
Cash and cash equivalents,
beginning of period 12,413 10,847 18,694 15,503
Cash and cash equivalents,
end of period $10,494 $12,413 $10,847 $18,694
Supplemental information:
Interest paid $ 38 $ 220 $ 1,111 $ 61
Income taxes paid $11,913 $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.
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 16 major events
during the calendar 2000 race season in three of the premier
sanctioning bodies in motorsports - the National Association for Stock
Car Auto Racing (NASCAR), Championship Auto Racing Teams (CART) and the
National Hot Rod Association (NHRA). The Company operates the historic
Nashville Speedway at the Tennessee State Fairgrounds and currently is
constructing a new superspeedway and motorsports complex near
Nashville, Tennessee; organizes and promotes the Toyota Grand Prix of
Long Beach in Long Beach, California; and owns and operates Gateway
International Raceway near St. Louis, Missouri and Memphis Motorsports
Park near Memphis, Tennessee.
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 5,036,458 shares 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.
For the year ended
June 30, 1998
Revenues $170,972,000
Net earnings $ 19,974,000
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):
December June
2000 2000 1999 1998
Basic EPS 37,872 36,482 35,566 30,492
Effect of options 208 844 1,019 714
Diluted EPS 38,080 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. During the six-month
period ended December 31, 2000, $2,090,000 of interest cost was
capitalized. During the years ended June 30, 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
December 31, 2000 and June 30, 2000 and 1999, accumulated amortization
was $3,702,000, $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, 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 December 31, 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.
Fiscal year-On January 19, 2001, the Company changed its fiscal year-
end from June 30 to December 31. The six-month period ended December
31, 2000 transitions the Company's reporting period to the new fiscal
year-end. Summarized statement of earnings information is as follows
(in thousands except per share amounts):
Six months ended Year ended
December 31, December 31,
Unaudited Unaudited Unaudited
2000 1999 2000 1999
Revenues $124,486 $115,844 $254,514 $231,471
Operating earnings 27,443 24,485 58,570 52,491
Income taxes 11,522 9,870 24,199 21,168
Net earnings $ 15,912 $ 13,771 $ 34,066 $ 29,871
Earnings per share:
Basic $ .42 $ .38 $ .91 $ .84
Diluted $ .42 $ .38 $ .90 $ .82
NOTE 4 - Indebtedness
Long-term debt is as follows (in thousands):
December 31, June 30,
2000 2000 1999
Notes payable to bank $58,750 $ 15,000 $15,500
SWIDA loan 21,125 21,125 21,460
79,875 36,125 36,960
Less: current portion (585) (585) (335)
$79,290 $ 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 September 30, 2002, is
for seasonal funding needs, capital improvements and other general
corporate purposes. At December 31, 2000, the Company was in
compliance with all terms of the facility and there was $58,750,000
outstanding at a weighted average interest rate of 7.6%. Under the
terms of the credit facility, $37,242,000 of additional borrowings were
available to the Company at December 31, 2000.
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 December 31, 2000, $979,000 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 and payment of interest.
The scheduled maturities of long-term debt outstanding at December 31,
2000 are as follows: 2001-$585,000; 2002-$59,385,000; 2003-$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):
Six months ended
December 31, Years ended June 30,
2000 2000 1999 1998
Current:
Federal $ 6,702 $11,354 $13,277 $12,544
State 2,646 4,715 3,929 3,296
9,348 16,069 17,206 15,840
Deferred:
Federal 2,179 6,338 1,599 (78)
State (5) 140 75 (20)
2,174 6,478 1,674 (98)
Total income taxes $11,522 $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:
Six months ended
December 31, Years ended June 30,
2000 2000 1999 1998
Federal tax at statutory
rate 35.0% 35.0% 35.0% 35.0%
State taxes, net of
federal benefit 6.2% 5.8% 5.7% 5.7%
Other .8% .6% .5% 1.1%
Effective income tax rate 42.0% 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):
December 31, June 30,
2000 2000 1999
Change in benefit obligation:
Benefit obligation at
beginning of period $1,964 $1,425 $ 925
Service cost 215 363 306
Interest cost 80 120 79
Amendments - - 122
Actuarial loss 307 89 26
Benefits paid (10) (33) (33)
Benefit obligation at end of period 2,556 1,964 1,425
Change in plan assets:
Fair value of plan assets at
beginning of period 1,988 1,314 688
Actual (loss)/return on plan assets (534) 224 273
Employer contribution - 483 386
Benefits paid (10) (33) (33)
Fair value of plan assets at
end of period 1,444 1,988 1,314
Funded status (1,112) 24 (111)
Unrecognized net loss/(gain) 846 (82) (74)
Unrecognized prior service cost 277 263 277
Prepaid pension cost $ 11 $ 205 $ 92
At December 31, 2000, the assets of the plan were invested 67% in
equity funds and 33% in intermediate bond funds. The discount rate for
the six months ended December 31, 2000 was 7.5% and for the years ended
June 30, 2000 and 1999 was 8.0%. The assumed rate of compensation
increase was 5% and the expected long-term rate of return on assets was
9% for all periods presented.
The components of net periodic pension cost are as follows (in
thousands):
Six months ended
December 31, Years ended June 30,
2000 2000 1999 1998
Service cost $215 $363 $306 $132
Interest cost 80 120 79 53
Expected return on plan assets (87) (127) (72) (41)
Net amortization 6 12 13 32
$214 $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
amounts):
$.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
Net earnings (six months) 15,912
Dividends on common stock,
$.09 per share (3,407)
Exercise of stock options 5 81
Conversion of Class A shares 20 (20)
Balance at December 31, 2000 $1,405 $2,385 $119,303 $107,289
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
December 31, 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:
December, June,
2000 2000 1999 1998
Risk-free interest rate 5.75% 6% 6% 5.3%
Volatility 46% 47% 25% 26%
Expected dividend yield 1.27% 1.35% 1.02% 1.80%
Expected life (in years) 6.5 6.5 6.5 6.5
The weighted-average fair value of options granted during the six-month
period ended December 31, 2000, and the years ended June 30, 2000, 1999
and 1998 was $5.37, $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
the six-month period ended December 31, 2000 and in fiscal 2000, and
$.01 per share in fiscal 1999 and 1998.
Option activity was as follows:
December 31, June 30,
2000 2000 1999 1998
Number of options:
Outstanding at
beginning of period 1,154,522 1,642,406 1,035,528 945,528
Granted 60,000 218,000 734,562 135,000
Exercised (58,492) (680,884) (127,684) (45,000)
Expired - (25,000) - -
Outstanding at
end of period 1,156,030 1,154,522 1,642,406 1,035,528
At period end:
Options available
for grant 126,910 186,910 404,910 1,139,472
Options exercisable 562,998 563,243 932,545 262,000
Weighted Average
Exercise Price:
Options granted $11.18 $11.48 $4.66 $11.58
Options exercised $ 1.52 $ .83 $1.32 $ .67
Options outstanding $ 8.19 $ 7.70 $4.38 $ 3.38
Options exercisable $ 4.56 $ 3.63 $1.59 $ 1.78
At December 31, 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 six-month period ended December 31, 2000 and the years ended
June 30, 2000, 1999 and 1998, the Company purchased certain paving,
site work and construction services involving total payments of
$187,000, $432,000, $432,000 and $375,000 from a company wholly owned
by an employee/director. Additionally, the Company purchased an
aircraft from a company wholly owned by the aforementioned
employee/director for $6,029,000. The Company purchased administrative
services from Rollins Truck Leasing Corp. and affiliated companies
during the six-month period ended December 31, 2000 and the years ended
June 30, 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 $253,000, $457,000, $380,000
and $283,000, 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 December 31, 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
Six Months Ended December 31, 2000
Revenue $ 39,045 $ 85,441 $124,486
Operating earnings 8,810 18,633 27,443
Identifiable assets at period-end 296,937 65,624 362,561
Capital expenditures 49,179 6,545 55,724
Depreciation and amortization 4,001 1,037 5,038
Interest expense $ 9 $ - $ 9
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 September 30, 2007, or earlier on
September 30, 2002 at the Company's option. Total rental expense
charged to the Company is a function of the profitability of the
Nashville operation conducted at the fairgrounds. There was no rent
expense for the six-month period ended December 31, 2000. For the years
ended June 30, 2000 and 1999 and the six-month period ended June 30,
1998, $46,000, $210,000 and $66,000, respectively, was charged to rent
expense.
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 $122,000 for the six-month period ended December 31, 2000,
and $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:
2001 $ 231,000
2002 218,000
2003 218,000
2004 218,000
2005 218,000
Thereafter 4,473,000
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). 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. Effective January 1, 2001,
the Company and Caesars amended the casino management agreement to
decrease the percentage management fee paid to Caesars by 20% while
modifying the agreement to cover all 2,000 video lottery machines
currently in operation for the remainder of the term that expires
December 2004. In prior years and during the six months ended December
31, 2000, the Company accrued amounts that Caesars claimed were due as
a result of casino expansions, but which the Company disputed. As a
result of the amendment to the management agreement, the Company and
Caesars settled the dispute, and the Company recognized a one-time net
gain of $2,475,000 in December 2000. Caesars' performance-based fees
were $2,468,000 for the six months ended December 31, 2000, $6,383,000
in fiscal 2000, $6,983,000 in fiscal 1999 and $7,094,000 in fiscal
1998. Amounts owed to Caesars at December 31, 2000, and June 30, 2000
and 1999 totaled $1,111,000, $365,000 and $1,147,000, respectively, and
are included in accrued liabilities.
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
Six Months Ended December 31, 2000
Revenues $79,265 $45,221 $ - $ -
Gross profit 25,854 8,241 - -
Net earnings 13,215 2,697 - -
Earnings per common
share (diluted) $ .35 $ .07 $ - $ -
Year Ended 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
Year Ended June 30, 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
Exhibit 21.1
DOVER DOWNS ENTERTAINMENT, INC.
Subsidiaries of Registrant at December 31, 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
Gateway International Services Corporation
Memphis International Motorsports Corporation
Motorsports Services Corporation of Memphis
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 January 19, 2001 relating to the consolidated
balance sheets of Dover Downs Entertainment, Inc. and subsidiaries as
of December 31, 2000 and June 30, 2000 and 1999, and the related
consolidated statements of earnings and cash flows for the six-months
ended December 31, 2000 and each of the years in the three-year period
ended June 30, 2000, which report appears in the December 31, 2000
transition report on Form 10-K of Dover Downs Entertainment, Inc.
KPMG LLP
Philadelphia, Pennsylvania
February 27, 2001