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_____________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________________________________
FORM 10-K
(Mark One)
/ X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1997 or
/__/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________________ to _______________
Commission file number 1-11929
DOVER DOWNS ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 51-0357525
(State of Incorporation) (I.R.S. Employer Identification Number)
1131 North DuPont Highway, Dover, Delaware 19901
(Address of principal executive offices)
Registrant's telephone number including area code (302) 674-4600
Securities registered pursuant to Section 12(b) of the Act:
Title of Class Name of exchange on which
registered
Common Stock, $.10 Par Value NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. /___/
The aggregate market value of the voting stock held by non-
affiliates of the registrant was $51,588,250 as of July 31, 1997.
As of July 31, 1997, the number of shares of each class of the
Registrant's common stock outstanding is as follows:
Commom Stock - 2,939,000 shares
Class A Common Stock - 12,286,830 shares
The following documents are incorporated by reference:
Part of this form into which
Document incorporated
Proxy Statement in connection with
Annual Meeting of Shareholders to be
held October 31, 1997 III
ITEM 1. BUSINESS
Dover Downs Entertainment, Inc. (Dover Downs or the Company) owns and
operates the Dover Downs International Speedway, the Dover Downs
Raceway and a video lottery casino at a multi-purpose gaming and
entertainment complex. The facility is located in close proximity to
the major metropolitan areas of Philadelphia, Baltimore and Washington,
D.C. on approximately 825 acres of land owned by the Company in Dover,
Delaware.
Dover Downs International Speedway offers a modern, state-of-the-art,
concrete superspeedway for top-rated NASCAR-sanctioned auto racing
events. Dover Downs Raceway offers traditional harness horse racing and
year-round satellite-linked pari-mutuel wagering on simulcast harness
and thoroughbred horse racing from regional and national tracks. The
Company also simulcasts live races at Dover Downs to tracks and other
off-track betting locations across North America. The Company expanded
into video lottery (slot) machine gaming in December of 1995. The
video lottery operations are managed by Caesars World Gaming
Development Corporation (Caesars), a wholly-owned subsidiary of Caesars
World, Inc., the casino gaming arm of ITT Corporation.
Dover Downs offers a unique gaming and entertainment experience.
Management believes it to be the only facility in the country that
combines in one location NASCAR Winston Cup/Busch Series stock car
racing, harness horse racing, pari-mutuel wagering on both live and
simulcast horse races, and video lottery (slot) machine gaming.
(a) General Development of Business
On October 3, 1996, the Company completed its initial public offering.
The Company issued 1,075,000 shares of the Company's Common Stock and
received proceeds of approximately $16,360,000, net of issuance costs
of approximately $1,913,000.
In October of 1996 the Company completed the expansion of the video
lottery casino increasing the number of video lottery (slot) machines
from 572 to 1,000, which is the maximum number permitted by law.
In November of 1996 the Company began satellite transmission of its
live harness races from Dover Downs Raceway to tracks and other off-
track betting locations across North America.
(b) Financial Information About Industry Segments.
The Company's principal operations are grouped into two segments:
motorsports and gaming. Financial information concerning these
businesses is included on pages 9 through 13 of this 1997 Annual Report
on Form 10-K.
(c) Narrative Description of Business
Motorsports
Dover Downs has presented NASCAR-sanctioned racing events for 29
consecutive years. The Company currently conducts four major NASCAR-
sanctioned events annually. Two races are associated with the Winston
Cup professional stock car racing circuit and two races are associated
with the Busch Series, Grand National Division racing circuit.
Each of the Busch Series events at the Company's tracks is conducted on
the day before a Winston Cup event. Dover Downs is one of only six
speedways in the country that presents two Winston Cup events and also
conducts two Busch Series events each year. The June and September
dates have historically allowed Dover Downs to hold the first and last
Winston Cup events in the Maryland to Maine region each year.
The auto racing track is a high-banked, one mile long, concrete
superspeedway. Current seating capacity at Dover Downs is
approximately 100,000 seats. Unlike some speedways, substantially all
grandstand seats at Dover Downs, including indoor, air-conditioned
grandstand and skybox seats, offer an unobstructed view of the entire
track. The recently completed installation of a concrete racing
surface created the only concrete superspeedway (one mile or greater in
length) that conducts NASCAR-sanctioned events.
In recent years, television coverage and corporate sponsorship have
increased for NASCAR-sanctioned events. The Company's NASCAR-
sanctioned events are currently televised live by TNN to a nationwide
audience and broadcast nationally to a network of over 450 radio
stations affiliated with the Motor Racing Network (over 250 stations
for Busch Series events).
Gaming
Dover Downs has presented harness racing events for 29 consecutive
years. On December 29, 1995, the Company introduced video lottery
(slot) machines to its entertainment mix.
Under an agreement with Caesars, a leader in the gaming industry,
Caesars supervises, manages, markets and operates the Company's video
lottery operations. The newly expanded, air-conditioned "video lottery
casino" housing the gaming operations was designed and built using
expertise from Caesars.
Dover Downs is a "Licensed Agent" authorized to conduct video lottery
operations 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 operations. Unless the Act is extended or reenacted, it
will terminate on March 15, 2000, in which event the Company will be
required to discontinue its video lottery operations. The video
lottery machines are leased by and operated under the auspices of the
Delaware State Lottery Office. In October 1996, 428 machines were
added to bring the total number of slot machines to 1,000, which is the
maximum presently permitted by law.
Dover Downs is permitted by law to set its payout to customers between
87% and 95%. Prior approval from the Director of the Delaware State
Lottery Office would be required for any payout in excess of 95%.
Since inception of its operations on December 29, 1995, Dover Downs has
maintained an average payout of 90.5%.
By law, video lottery operations in Delaware are limited to the three
locations in the State where thoroughbred horse racing or harness horse
racing was held in 1993. In addition to the Dover Downs complex in
Dover, Delaware, there are only two other locations permitted by law:
Delaware Park, a northern Delaware thoroughbred track; and Harrington
Raceway, a south central Delaware fairgrounds track. Dover Downs and
Delaware Park began video lottery operations in December 1995;
Harrington Raceway began video lottery operations in August 1996.
The harness horse racing track is a five-eighths mile track and is
lighted for nighttime harness horse racing. The track is located
inside the one-mile auto racing superspeedway. The configuration
offers turns with a wider than normal turning radius and 4 degree
banking. This allows trotting and pacing horses to remain in full
stride through the turns. The result has been higher than normal
speeds attained by horses in competition. With the start of the race
season beginning November 1996, live harness races conducted at Dover
Downs were simulcast to tracks and other off-track betting locations
across North America.
The Company 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.
Television monitors throughout the parlor area provide views of all
races simultaneously and the parlor's betting windows are tied into a
central computer allowing bets to be received on all races from all
tracks.
With the recent expansion of its simulcasting operations, pari-mutuel
wagering is now on a year-round basis. For the fiscal years ended June
30, 1995, 1996, and 1997, the Company had 90, 201 and 363 simulcast
racing dates, respectively.
Harness racing in the State of Delaware is governed by the Delaware
Harness Racing Commission. The Company holds a license from the
Commission by which it is authorized to hold harness race meetings on
its premises and to make, conduct and sell pools by the use of pari-
mutuel machines or totalizators. Pari-mutuel wagering refers to pooled
betting or wagering on harness horse racing by means of a totalizator.
Through pooled betting, the wagering public, not the track, determines
the odds and the payoff. The track retains a percentage of the amount
wagered. Simulcasting refers to the transmission of live horse racing
by television, cable or satellite signal from one race track to another
with pari-mutuel wagering being conducted at the sending and receiving
track and a portion of the handle being shared by the sending and
receiving tracks.
Competition
Motorsports
The Company's racing events compete with other racing events sanctioned
by various racing bodies, such as CART (Championship Auto Racing
Teams), IRL (Indy Racing League), and NHRA (National Hot Rod
Association), and with other sports and other recreational events
scheduled on the same dates. Racing events sanctioned by different
organizations are often held on the same dates at separate tracks, in
competition with the NASCAR-sanctioned event dates. In addition,
motorsports facilities compete with one another for the patronage of
motor racing spectators, and with other sports and entertainment
businesses. The quality of the competition, type of racing event,
caliber of the events, sight lines, ticket pricing, location, and
customer conveniences, among other things, distinguish the motorsports
facilities.
The two closest speedways 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 a half hours to the North). Nazareth Speedway in Nazareth,
Pennsylvania (approximately two hours to the North) currently conducts
Busch Series, NASCAR Craftsman Truck and Indy races. Based on
historical data, management does not believe that any of these
facilities significantly impact operations at Dover Downs International
Speedway. In recent years, the Company's NASCAR-sanctioned Winston Cup
events have all sold out well in advance of the race.
Gaming
The legalization of additional casino and other gaming venues in states
close to Delaware, particularly Maryland, Pennsylvania and New Jersey,
may have a material adverse effect 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.
Delaware Park and Harrington Raceway presently have in operation 1,000
and 580 machines, respectively. The neighboring states of Pennsylvania
and Maryland do not presently permit video lottery operations.
Pennsylvania, Maryland and New Jersey all have state-run lotteries.
Atlantic City, New Jersey is located approximately 100 miles from Dover
Downs and a certain amount of market overlap should be expected.
Casinos in Atlantic City offer a full range of gaming products. Dover
Downs does not expect to compete directly with Atlantic City because of
the Company's inability to offer a full range of casino gaming
products, but it does expect to capture a portion of the existing
Atlantic City slot market in the Dover area, due to the facility's
proximity, convenience and multiple attractions.
The Company also competes for attendance with a wide range of other
entertainment and recreational activities available in the region,
including professional and collegiate sporting events.
Competition in horse racing is varied since race tracks 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 race tracks 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
Company simulcasting its 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 five to 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 race tracks in the surrounding area. The Company
also receives simulcast harness and thoroughbred races from
approximately 30 race tracks, including the tracks noted above.
Seasonality
The Company derives a substantial portion of its total revenues from
admissions and event-related revenue attributable to four NASCAR-
sanctioned events which are currently held in June and September. As
a result, the Company's business has been, and is expected to remain,
highly seasonal. The seasonality was offset to some degree by the
year-round video lottery (slot) machine gaming operations and year-
round simulcasting.
At June 30, 1997, the Company had a total of 367 full-time employees
and 43 part-time employees. The Company hires temporary employees to
assist during its auto racing events and its live harness racing
season.
ITEM 2. PROPERTIES
The Company maintains its headquarters, motorsports speedway, harness
racetrack, and video lottery casino all on approximately 825 acres of
land owned by the Company in Dover, Delaware.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries is a party to any
material legal proceedings. The Company and its subsidiaries are
engaged in ordinary routine litigation incidental to the business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
None.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
The Common Stock of Dover Downs Entertainment, Inc. has traded on the
New York Stock Exchange under the symbol "DVD" since the Company's
initial public offering on October 3, 1996. There is no established
public trading market for the Company's Class A Common Stock. As of
July 31, 1997, there were 2,939,000 shares of Common Stock and
12,286,830 shares of Class A Common Stock outstanding. There were 480
record holders of Common Stock and 13 record holders of Class A Common
Stock at July 31, 1997.
For the fiscal year ended June 30, 1997, the range of share prices for
the Common Stock on the New York Stock Exchange is as follows:
1997
Fiscal Quarter High Low
First - -
Second 26 7/8 17 1/4
Third 20 1/2 16 5/8
Fourth 19 7/8 16 1/8
The Company declared a quarterly dividend of $.08 per share on all
classes of Common Stock in the third and fourth quarters of fiscal
1997.
ITEM 6. SELECTED FINANCIAL DATA
Five Year Selected Financial Data
(Dollars in thousands, except per share data)
Year Ended June 30, 1997 1996 1995 1994 1993
Revenues:
Motorsports 20,516 18,110 16,282 13,561 11,984
Gaming (1) 81,162 31,980 1,250 796 2,058
101,678 50,090 17,532 14,357 14,042
Earnings before income taxes 28,239 15,593 7,239 5,791 4,791
Net earnings 16,472 9,196 4,284 3,562 2,908
Earnings per common share 1.08 .63 .30 .26 .21
Dividends per common share .16 - - - -
At June 30, 1997 1996 1995 1994 1993
Total assets 71,261 42,311 25,422 19,776 17,208
Long-term debt,
less current portion 760 766 698 776 878
Shareholders' equity 54,300 23,715 14,225 9,923 6,361
(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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Fiscal Year 1997 Compared With Fiscal Year 1996
Revenues increased by $51,588,000 to $101,678,000 from $50,090,000 in
the prior year. The significant increase in revenues was principally
due to the introduction of video lottery (slot) machines which were in
operation for the entire fiscal year 1997 compared with six months in
fiscal 1996. Video lottery revenues also increased as a result of
expanding the casino facility and increasing the number of video
lottery (slot) machines from 572 to 1,000 in October of 1996.
Motorsports revenues increased by $2,406,000 or 13.3%. Approximately
$999,000 of the total motorsports revenue increase resulted from
increased attendance and $663,000 resulted from increased ticket
prices. The remainder of the revenue increase of $744,000 was
principally due to increased marketing and sponsorship revenues.
Operating expenses increased by $37,860,000 of which $34,695,000 was
due to the video lottery (slot) machines in operation for the entire
fiscal year 1997 compared with six months in fiscal 1996. Payments to
the State of Delaware, fees to the manager who operates the video
lottery (slot) machine operation, and payments to the vendors who
provide the video lottery (slot) machines were $32,674,000 in fiscal
1997 and $12,188,000 in fiscal 1996. Amounts allocated from the video
lottery operation for harness horse racing purses were $9,157,000 in
fiscal 1997 and $3,550,000 in fiscal 1996. Wages and benefits for
employees of the video lottery (slot) machine operation were $4,035,000
in fiscal 1997 and $2,277,000 in fiscal 1996. Advertising, promotional
and customer complimentary costs of $4,251,000 and costs associated
with casino food and beverage sales of $1,923,000 were the other
significant operating costs of the video lottery (slot) machine
operations.
For the horse racing and simulcasting operations, wage and benefit cost
increases of $467,000, simulcasting cost increases of $537,000 and
purse increases of $155,000 (exclusive of the $9,157,000 of harness
horse racing purses allocated from video lottery operations in fiscal
1997) accounted for the most significant operating cost increases. The
cost increases were primarily the result of increasing the number of
live harness racing days to 97 from 67 in 1996 and from increasing the
number of simulcasting days to 363 from 201 in 1996.
Motorsports' operating expenses increased principally due to a $394,000
increase in purse obligation expenses. Sanction fees increased by
$80,000 and advertising increased by $145,000 during the 1997 fiscal
year.
Depreciation increased by $615,000 or 41.9% to $2,084,000 from
$1,469,000 as a result of a full year of depreciation expense related
to the Company's video lottery casino being recognized in 1997 compared
with six months of depreciation in 1996. Capital expenditures for the
expansion of the Company's motorsports facilities also contributed to
the increase in depreciation.
General and administrative expenses increased by $992,000 to $3,065,000
from $2,073,000. Wage and benefit costs increased by $363,000 and
contracted services increased by $205,000, principally due to the
Company's expansion of video lottery (slot) machine and simulcasting
operations.
The Company's effective income tax rates for fiscal 1997 and fiscal
1996 were 41.7% and 41.0%, respectively.
Net earnings increased by $7,276,000 due to the inclusion of video
lottery (slot) machine operations for the entire fiscal year 1997
compared with six months in fiscal 1996 and also due to higher
attendance and related revenues at the Company's NASCAR-sanctioned
events in September 1996 and June 1997.
Fiscal Year 1996 Compared With Fiscal Year 1995
Revenues increased by $32,558,000 to $50,090,000 from $17,532,000 in
the prior year. The significant increase in revenues was principally
due to the introduction of video lottery (slot) machine operations in
late December 1995. Fiscal year 1996 revenues include six months of
video lottery revenues of $28,818,000 compared with none in fiscal
1995. Motorsports revenues increased by $1,828,000 or 11.2%.
Approximately $1,028,000 of the total motorsports revenue increase
resulted from increased attendance and $345,000 resulted from increased
ticket prices. The remainder of the revenue increase of $455,000 was
principally due to increased marketing and sponsorship revenues.
Operating expenses increased by $23,302,000 of which $20,952,000 was
due to the introduction of video lottery (slot) machine operations.
Payments to the State of Delaware, fees to the manager who operates the
video lottery (slot) machine operation, and payments to the vendors who
provide the video lottery machines were $12,188,000 in fiscal 1996 and
none in fiscal 1995. Amounts allocated from the video lottery operation
for harness horse racing purses were $3,550,000 in fiscal 1996 and none
in fiscal 1995. Wages and benefits of newly hired employees for the
video lottery (slot) machine operation were $2,277,000. Advertising,
promotional and customer complimentary costs of $636,000, costs
associated with casino food and beverage sales of $611,000 and building
service costs of $229,000 were some of the other significant operating
costs of the video lottery (slot) machine operations.
For the horse racing and simulcasting operations, increased purses of
$451,000 (exclusive of the $3,550,000 of harness horse racing purses
allocated from video lottery operations), higher wage and benefit costs
of $444,000 and increased simulcasting costs of $285,000 accounted for
the most significant operating cost increases.
Motorsports' operating expenses increased principally due to a $505,000
increase in purse obligation expenses. Sanction fees increased by
$91,000 and wages and related benefits increased by $66,000 during the
1996 fiscal year.
Depreciation increased by $426,000 or 40.8% to $1,469,000 from
$1,043,000 due to the capital expenditures related to the Company's
newly constructed video lottery casino and to the further expansion of
its motorsports facilities.
General and administrative expenses increased by $368,000 to $2,073,000
from $1,705,000. Wage and benefit costs increased by $616,000
principally due to the Company's introduction of video lottery (slot)
machine operations and expansion of simulcasting operations.
The Company's effective income tax rates for fiscal 1996 and fiscal
1995 were 41.0% and 40.8%, respectively.
Net earnings increased by $4,912,000 due to the inclusion of video
lottery (slot) machine operations for six months in fiscal 1996 and
also due to higher attendance and related revenues at the Company's
NASCAR-sanctioned events in September 1995 and June 1996.
Liquidity and Capital Resources
Cash flow from operations for the three years ended June 30, 1997, 1996
and 1995 was $18,600,000, $15,317,000 and $4,802,000, respectively. The
significant increase from fiscal 1995 to fiscal 1996 reflected the
Company's higher net earnings and increased non-cash charges, as well
as deferred revenue, which is cash received in advance for
NASCAR-sanctioned event tickets. Deferred revenue amounted to
$7,542,000 and $6,003,000 at June 30, 1997 and 1996, respectively.
The Company has an annually renewable, $20,000,000 committed revolving
line of credit from a bank to provide seasonal funding needs and to
finance capital improvements. The Company was in compliance with all
terms of the facility and there were no amounts outstanding at June 30,
1997.
Capital expenditures for the year ended June 30, 1997 were $16,841,000.
Purchases of land for $1,060,000 were completed to provide for
additional parking and other future expansion. Construction of the
17,000 square foot casino facility expansion for $5,124,000 and
construction of additional permanent grandstand seating and luxury
suites for motorsports events of approximately $8,061,000 represented
the more significant capital projects in fiscal 1997. The capital
expenditures were financed with the proceeds from the initial public
offering and cash from operations.
Capital expenditures were $18,936,000 in fiscal 1996 compared with
$6,166,000 in fiscal 1995. Construction of the Company's video lottery
gaming facility was begun in fiscal 1995 with $1,790,000 expended
during the year. The higher level of capital spending in fiscal 1996
compared with fiscal 1995 also reflected the construction of additional
grandstand seating, new skyboxes, the acquisition and improvement of
land, the resurfacing of the auto race track, and improvements to the
horse racing facilities.
In fiscal 1998, the Company expects to make capital expenditures of
approximately $12,500,000 which will include additional permanent
grandstand and skybox seating and renovations to the existing harness
racing grandstand. The Company anticipates that cash from operations
and funds expected to be available under its bank credit facility will
satisfy the Company's cash requirements in fiscal 1998.
Impact of Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 128,
Earnings Per Share. This statement, which is effective in fiscal 1998,
simplifies the standards for computing earnings per share ("EPS") by
replacing the presentation of primary EPS with a presentation of basic
EPS. The Company has determined that SFAS 128 will not have a material
effect on its financial statements.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
Income. This statement requires that comprehensive income be reported
in a financial statement that is displayed with the same prominence as
other financial statements. The Company plans to adopt this standard on
July 1, 1998, as required. The adoption of this standard will not
impact results of operations or financial condition.
In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments
of an Enterprise and Related Information. This statement established
standards for reporting information about operating segments and
related disclosures about products and services, geographic areas and
major customers. The Company plans to adopt this standard on July 1,
1998, as required. The adoption of this standard will not impact
results of operations or financial condition.
Forward Looking Statements
Matters discussed in this annual report on Form 10-K contain estimates
and forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities and Exchange
Act of 1934, including statements regarding the Company's expectations,
hopes, intentions, beliefs or strategies regarding the future. All
forward looking statements included in this document are based on
information available to the Company on the date hereof, and the
Company assumes no obligation to update any such forward looking
statements. It is important to note that the Company's actual results
could differ materially from those in such forward looking statements.
Among the factors that could cause results to differ materially are
weather, the Company's relationship with NASCAR, the motorsports
sanctioning body, changes in state and local laws and regulations, the
ability to keep purses at a competitive level and the ability to
increase on-track and simulcast handle.
ITEM 8.. . FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of the Company and the
Independent Auditors' Reports included in this report are shown on the
Index to the Consolidated Financial Statements on page 19.
ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
In June 1996, the Board of Directors of the Company engaged KPMG Peat
Marwick LLP as its outside auditors and notified Siegfried Schieffer &
Seitz that the Company elected not to engage that firm to perform the
1996 audit. The reports of Siegfried Schieffer & Seitz on the
Company's financial statements for 1994 and 1995 contained no
disclaimers, adverse opinions, or qualifications or modifications as to
uncertainty, audit scope or accounting principles. During the period
of those audits and through the Company's decision in June 1996 to
change auditors, there were no disagreements between the Company and
Siegfried Schieffer & Seitz.
ITEM 10. . DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Except as presented below, the information called for by this Item 10
is incorporated by reference from the Company's Proxy Statement to be
filed pursuant to Regulation 14A for the Annual Meeting of Shareholders
to be held on October 31, 1997.
Executive Officers of the Registrant. As of June 30, 1997, the
Executive Officers of the registrant were:
Name Position Age Term of Office
Robert M. Comollo Treasurer and Secretary 49 11/81 to date
Timothy R. Horne Vice President-Finance 31 11/96 to date
Michael B. Kinnard Vice President-General Counsel 39 6/94 to date
Denis McGlynn President and 51 11/79 to date
Chief Executive Officer
John W. Rollins, Sr. Chairman of the Board 81 10/96 to date
Eugene W. Weaver Senior Vice President- 64 10/96 to date
Administration
Vice President-Finance 1970 to 10/96
Robert M. Comollo has been employed by the Company for 17 years, of
which 16 years have been in the capacity of Treasurer and Secretary.
Timothy R. Horne became Vice President-Finance in November of 1996.
From 1988 until 1996, Mr. Horne was employed by KPMG Peat Marwick LLP,
where he most recently served as an assurance senior manager.
Michael B. Kinnard has been Vice President-General Counsel to the
Company since 1995. Mr. Kinnard also serves as Vice President-General
Counsel and Secretary to Matlack Systems, Inc. and Vice President-
General Counsel and Secretary to Rollins Truck Leasing Corp. Prior to
1995, Mr. Kinnard was a partner in the law firm of Baker, Worthington,
Crossley, Stansberry & Woolf (now known as Baker, Donelson, Bearman &
Caldwell).
ITEM 11. EXECUTIVE COMPENSATION.
The information called for by this Item 11 is incorporated by reference
from the Company's Proxy Statement to be filed pursuant to Regulation
14A for the Annual Meeting of Shareholders to be held on October 31,
1997.
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 filed pursuant to Regulation 14A for
the Annual Meeting of Shareholders to be held on October 31, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During the year ended June 30, 1997, the following officers and/or
directors of the Company were also officers and/or directors of Rollins
Truck Leasing Corp.; Patrick J. Bagley, Michael B. Kinnard, John W.
Rollins, John W. Rollins, Jr. and Henry B. Tippie. The following
officers and/or directors of the Company were also officers and/or
directors of Matlack Systems, Inc.; Patrick J. Bagley, Michael B.
Kinnard, John W. Rollins, John W. Rollins, Jr. and Henry B. Tippie.
John W. Rollins owns directly and of record 11.6% and 11.5% of the
outstanding shares of common stock of Rollins Truck Leasing Corp. and
Matlack Systems, Inc., respectively, at June 30, 1997. The description
of transactions between the Company and Rollins Truck Leasing Corp.
appears under the caption "Transactions with Related Parties" on page
___ of this 1997 Annual Report on Form 10-K.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K.
(a) Financial Statements, Financial Statement Schedules and Exhibits
(1) Financial Statements - See accompanying Index to
Consolidated Financial Statements on page 19.
(2) Financial Statement Schedules - None.
(3) Exhibits:
Exhibit
No.
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.
3.1 Certificate of Incorporation of Dover Downs Entertainment,
Inc., amended June 14, 1996, and further amended on June 28,
1996 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.
3.2 Amended and Restated Bylaws of Dover Downs Entertainment,
Inc.
4.2 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 Credit Agreement between PNC Bank and Dover Downs
Entertainment, Inc. dated January 31, 1997
10.2 Dover Downs Entertainment, Inc. $20 Million Dollar Committed
Line of Credit Note in favor of PNC Bank dated January 31,
1997
10.5 Guaranty and Suretyship Agreement dated July 31, 1996 in
favor of PNC Bank 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 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.(1)
10.9 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.
10.10 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.
10.11 NASCAR Sanction Application and Agreement Form, NASCAR Busch
Series, Grand National Division, with Dover Downs
International Speedway, Inc. dated December 17, 1996.
10.12 NASCAR Sanction Application and Agreement Form, NASCAR
Winston Cup Series, with Dover Downs International Speedway,
Inc. dated December 17, 1996.
21.1 Subsidiaries
27 Financial Data Schedule
__________________________
(1) Portions of this exhibit have been deleted pursuant to the
Company's request for confidential treatment pursuant to Rule
406 promulgated under the Securities Act of 1993.
(b) Reports on Form 8-K
A Form 8-K was filed by Dover Downs Entertainment, Inc. on July 17,
1997 to disclose that the Company had changed its fiscal year from July
31 to June 30.
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: September 5, 1997 DOVER DOWNS ENTERTAINMENT, INC.
Registrant
BY:_____________________________________
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:
________________________ Vice President-Finance _______________
Timothy R. Horne
________________________ Chairman of the Board _______________
John W. Rollins
_______________________ Vice Chairman of the Board ______________
Henry B. Tippie
_______________________ Senior Vice President- ______________
Eugene W. Weaver Administration and Director
_______________________ Director ______________
John W. Rollins, Jr.
_______________________ Director ______________
Patrick J. Bagley
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: September 5, 1997 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 September 5, 1997
Timothy R. Horne
/s/ John W. Rollins Chairman of the Board September 5, 1997
John W. Rollins
/s/ Henry B. Tippie Vice Chairman of the Board September 5, 1997
Henry B. Tippie
/s/ Eugene W. Weaver Senior Vice President- September 5, 1997
Eugene W. Weaver Administration and Director
/s/ John W. Rollins, Jr. Director September 5, 1997
John W. Rollins, Jr.
/s/ Patrick J. Bagley Director September 5, 1997
Patrick J. Bagley
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page(s)
Independent Auditors' Reports on Financial Statements 20 & 21
Consolidated Statement of Earnings for the years
ended June 30, 1997, 1996 and 1995 22
Consolidated Balance Sheet at June 30, 1997, 1996
and 1995 23
Consolidated Statement of Cash Flows for the years
ended June 30, 1997, 1996 and 1995 25-26
Notes to Consolidated Financial Statements 27-35
The Board of Directors and Shareholders of
Dover Downs Entertainment, Inc.
We have audited the accompanying consolidated statements of earnings
and cash flows of Dover Downs Entertainment, Inc. and its subsidiaries
for the year ended June 30, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the results of operations and cash
flows of Dover Downs Entertainment, Inc. and its subsidiaries for the
year ended June 30, 1995 in conformity with generally accepted
accounting principles.
Siegfried Schieffer & Seitz
Wilmington, DE
August 18, 1997
The Board of Directors and Shareholders
of Dover Downs Entertainment, Inc.:
We have audited the accompanying consolidated balance sheet of Dover
Downs Entertainment, Inc. and subsidiaries as of June 30, 1997 and
1996, and the related consolidated statements of earnings and of cash
flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Dover Downs Entertainment, Inc. and subsidiaries as of June 30, 1997
and 1996 and the results of their operations and their cash flows for
the two years then ended, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
July 18, 1997
CONSOLIDATED STATEMENT OF EARNINGS
Year ended June 30,
1997 1996 1995
Revenues:
Motorsports $ 20,516,000 $18,110,000 $16,282,000
Gaming 81,162,000 31,980,000 1,250,000
Total revenues 101,678,000 50,090,000 17,532,000
Expenses:
Operating 68,559,000 30,699,000 7,397,000
Depreciation 2,084,000 1,469,000 1,043,000
General and administrative 3,065,000 2,073,000 1,705,000
73,708,000 34,241,000 10,145,000
Operating earnings 27,970,000 15,849,000 7,387,000
Interest (income) expense (269,000) 256,000 148,000
Earnings before income
taxes 28,239,000 15,593,000 7,239,000
Income taxes 11,767,000 6,397,000 2,955,000
Net earnings $ 16,472,000 $ 9,196,000 $ 4,284,000
Earnings per common share $ 1.08 $ .63 $ .30
Weighted average common
shares and common share
equivalents outstanding 15,275,000 14,511,000 14,511,000
The Notes to the Consolidated Financial Statements are an integral part
of these statements.
CONSOLIDATED BALANCE SHEET
June 30,
1997 1996
ASSETS
Current assets:
Cash and cash equivalents $15,503,000 $ 3,140,000
Accounts receivable 1,613,000 1,221,000
Due from State of Delaware 1,983,000 901,000
Inventories 402,000 356,000
Prepaid expenses 775,000 533,000
Deferred income taxes 124,000 56,000
Total current assets 20,400,000 6,207,000
Property, plant and equipment, at cost
Land 10,563,000 9,481,000
Casino facility 11,566,000 6,442,000
Racing facility 38,546,000 28,872,000
Machinery and equipment 5,357,000 4,101,000
Furniture and fixtures 573,000 413,000
Construction in progress 83,000 538,000
66,688,000 49,847,000
Less accumulated depreciation (15,827,000) (13,743,000)
50,861,000 36,104,000
Total assets $71,261,000 $42,311,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to bank $ - $ 3,500,000
Accounts payable 1,860,000 1,189,000
Purses due horsemen 1,387,000 1,436,000
Accrued liabilities 2,280,000 2,368,000
Income taxes payable 2,507,000 2,836,000
Current portion of long-term debt 19,000 22,000
Deferred revenue 7,542,000 6,003,000
Total current liabilities 15,595,000 17,354,000
Long-term debt 760,000 766,000
Deferred income taxes 606,000 476,000
Commitments (see Notes to the
Consolidated Financial Statements)
Shareholders' equity:
Preferred stock, $.10 par value;
1,000,000 shares authorized;
issued and outstanding: none
Common stock, $.10 par value;
35,000,000 shares authorized; issued and
outstanding: 1997-2,939,000; 1996-none 294,000 -
Class A common stock, $.10 par value;
30,000,000 shares authorized; issued and
outstanding: 1997-12,286,830 shares;
1996-13,925,830 shares 1,229,000 1,393,000
Additional paid-in capital 21,081,000 4,669,000
Retained earnings 31,696,000 17,653,000
Total shareholders' equity 54,300,000 23,715,000
Total liabilities and shareholders'
equity $71,261,000 $42,311,000
The Notes to the Consolidated Financial Statements are an integral
part of these statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
Years ended June 30,
1997 1996 1995
Cash flows from operating
activities:
Net earnings $16,472,000 $ 9,196,000 $4,284,000
Adjustments to reconcile
net earnings to net cash
provided by operating
activities:
Depreciation 2,084,000 1,469,000 1,043,000
Loss on disposition of
property - - 135,000
(Increase) decrease in assets:
Accounts receivable (392,000) 48,000 (418,000)
Due from affiliate - 333,000 44,000
Due from State of Delaware (1,082,000) (901,000) -
Inventories (46,000) (250,000) 17,000
Prepaid expenses (242,000) (39,000) (205,000)
Increase (decrease) in
liabilities:
Accounts payable 671,000 152,000 (542,000)
Purses due horsemen (49,000) 1,436,000 -
Accrued liabilities (88,000) 1,497,000 (668,000)
Current and deferred
income taxes (267,000) 1,927,000 (146,000)
Deferred revenue 1,539,000 449,000 1,258,000
Net cash provided by
operating activities 18,600,000 15,317,000 4,802,000
Cash flows from investing
activities:
Sale of short-term
investments - 3,200,000 3,038,000
Capital expenditures (16,841,000) (18,936,000) (6,166,000)
Net cash used in investing
activities (16,841,000) (15,736,000) (3,128,000)
Cash flows from financing
activities:
Short-term borrowings
(repayments) (3,500,000) 3,500,000 -
Repayment of long-term debt (9,000) (786,000) (77,000)
Repayment to shareholder _ (200,000) (1,016,000)
Net proceeds from initial
public offering 16,360,000 - -
Dividends paid (2,429,000) - -
Proceeds from stock options
exercised, including
related tax benefit 182,000 294,000 18,000
Net cash provided by
(used in) financing
activities 10,604,000 2,808,000 (1,075,000)
Net increase in cash and
cash equivalents 12,363,000 2,389,000 599,000
Cash and cash equivalents,
beginning of year 3,140,000 751,000 152,000
Cash and cash equivalents,
end of year $15,503,000 $ 3,140,000 $ 751,000
Supplemental disclosures of
cash flow information:
Interest paid $ 168,000 $ 373,000 $1,173,000
Income taxes paid $12,034,000 $ 4,413,000 $3,113,000
Non-cash investing and
financing activities:
Land acquired $ 1,300,000
Cash paid (500,000)
Mortgage incurred $ 800,000
The Notes to the Consolidated Financial Statements are an integral
part of these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1-Business Operations
Dover Downs Entertainment, Inc. (the Company or Dover Downs) owns and
operates the Dover Downs International Speedway and the Dover Downs
Raceway at a multi-purpose gaming and entertainment complex located on
approximately 825 acres owned by the Company in Dover, Delaware. The
Company hosts a variety of NASCAR-sanctioned events and harness horse
racing events throughout the year. With expanded facilities completed
at the end of 1995, the Company is now open 363 days per year both for
video lottery (slot) machine gaming and for pari-mutuel wagering on
simulcast harness and thoroughbred horse races across the country.
Video lottery (slot) machine gaming began on December 29, 1995 pursuant
to video lottery legislation enacted in the State of Delaware.
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 operations. Unless the Act is extended or reenacted,
it will terminate on March 15, 2000, in which event the Company will be
required to discontinue its video lottery operations. In addition,
under the Act, no payments can be made to Dover Downs beyond December
29, 1998 unless new legislation is enacted, in which event the Company
would be required to discontinue its video lottery operations. The
video lottery operations account for a significant portion of the
Company's revenues and operating earnings.
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.
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-Reorganization
On June 14, 1996, Dover Downs Entertainment, Inc. effected a tax-free
restructuring pursuant to which all former shareholders of Dover Downs,
Inc. exchanged each share of common stock held in Dover Downs, Inc. for
4,500 shares of Class A Common Stock of the Company. As a result of
this share exchange, Dover Downs, Inc. became a wholly-owned subsidiary
of the Company and the former shareholders of Dover Downs, Inc.
acquired an equal percentage of the equity of the Company. As part of
the restructuring, the Company acquired by dividend from Dover Downs,
Inc. all of the outstanding capital stock of Dover Downs International
Speedway, Inc. (which was not operational), and the motorsports
operation of Dover Downs, Inc. was transferred to Dover Downs
International Speedway, Inc. Additionally, in June 1996, the Company
formed Dover Downs Properties, Inc. for the initial purpose of holding
some or all of the real estate of the Company. This reorganization has
been accounted for on an as if pooled basis.
All common share and per share amounts have been restated to give
effect to the reorganization assuming the transaction had occurred on
June 30, 1994. Results of operations for all prior years were not
affected by the reorganization.
On July 14, 1997, the Company changed its fiscal year-end from July 31
to June 30 and has restated the results for the three years ended June
30, 1997. Certain amounts in the 1996 and 1995 consolidated financial
statements have been reclassified to conform to the 1997 presentation.
The change in year-end did not have a significant effect upon
previously reported earnings.
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 and commissions from pari-mutuel wagering. Payments to
the State of Delaware pursuant to the lottery legislation are reported
in operating expenses.
Advertising costs-Subsequent to the opening of the Company's casino
facility in December of 1995, all advertising costs are expensed as
incurred.
Earnings per share-Earnings per common share are computed assuming the
conversion of all potentially dilutive outstanding stock options, using
the treasury stock method.
Cash and cash equivalents-The Company considers as cash equivalents all
highly liquid investments with an original maturity of three months or
less.
Pre-opening costs-The Company deferred costs in the amount of $760,000
associated with the opening of its new casino facility in fiscal 1996.
Such costs were principally related to the wages and fringe benefits of
newly hired personnel during a training period prior to opening, casino
management and consulting fees, advertising and promotional expenses
and supply items. All such costs were amortized during the period from
the casino's opening on December 29, 1995 through July 31, 1996 in
order to match such costs with associated gaming revenues. Pre-opening
costs deferred at June 30, 1996 were $108,000.
Inventories-Inventories, primarily items held for sale at concession
and novelty stands, 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. Depreciation is computed on a straight-line basis over the
following estimated useful lives:
Racing and casino facilities 10 - 40 years
Machinery and equipment 5 - 10 years
Furniture and fixtures 5 years
Income taxes-Deferred income taxes are provided in accordance with the
provisions of Statement of Financial Accounting Standards No. 109 (SFAS
109), "Accounting for Income Taxes" on all differences between the tax
bases of assets and liabilities and their reported amounts in the
financial statements based upon enacted statutory tax rates in effect
at the balance sheet date.
Use of estimates-The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities, and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Fair Values of Financial Instruments-The carrying amount reported in
the balance sheet for current assets and current liabilities
approximates their fair value at June 30, 1997.
Recently Adopted Accounting Standards-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 Opinion, No. 25, Accounting for Stock Issued to Employees. The
Company has elected to continue to use the intrinsic value method.
NOTE 4-Indebtedness
The Company has an annually renewable, $20,000,000 committed revolving
line of credit from a bank to satisfy seasonal funding needs and to
finance capital improvements. The Company must pay an annual commitment
fee of 7.5 basis points on the average unused portion of the commitment
and interest monthly on amounts outstanding at the bank's prime minus
three-quarters of one percent. There were no amounts outstanding at
June 30, 1997.
Long-term debt consists of an 8% mortgage note payable in quarterly
principal and interest installments through January 2006, and
collateralized by land with a carrying value of $1,300,000. The
mortgage note matures as follows: 1998-$19,000; 1999-$20,000;
2000-$22,000; 2001-$24,000; 2002-$26,000; and thereafter $668,000.
NOTE 5-Income Taxes
The current and deferred income tax provisions are as follows:
Years ended June 30,
1997 1996 1995
Current:
Federal $ 9,207,000 $4,971,000 $2,306,000
State 2,498,000 1,329,000 631,000
11,705,000 6,300,000 2,937,000
Deferred:
Federal 49,000 81,000 14,000
State 13,000 16,000 4,000
62,000 97,000 18,000
Total income taxes $11,767,000 $6,397,000 $2,955,000
Deferred income taxes relate to the temporary differences between
financial accounting income and taxable income and are primarily
attributable to depreciation using different methods for tax purposes.
A reconciliation of the effective income tax rate with the applicable
statutory federal income tax rate is as follows:
Years ended June 30,
1997 1996 1995
Federal tax at statutory rate 35.0% 35.0% 34.0%
State taxes, net of
federal benefit 5.7% 5.7% 5.7%
Other 1.0% .3% 1.1%
Effective income tax rate 41.7% 41.0% 40.8%
NOTE 6-Pension Plan
Prior to August 1, 1996, the Company participated in a multiple
employer defined-benefit pension plan covering substantially all
full-time employees. On August 1, 1996, the Dover Downs Entertainment,
Inc. Pension Plan was established and the related assets were
transferred from the multiple employer pension plan to the new Dover
Downs Entertainment, Inc. Trust.
The provisions of the Dover Downs Entertainment, Inc. Pension Plan are
identical to those of the aforementioned multiple employer
defined-benefit pension plan. Plan benefits 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 at June 30,
1997:
Actuarial present value of accumulated benefit obligation:
Vested $ 289,254
Non-vested 41,570
$ 330,824
Projected benefit obligation $ 530,761
Plan assets at market value 463,844
Funded status (66,917)
Unrecognized net gain (35,760)
Unrecognized prior service cost 205,442
Prepaid pension cost $ 102,765
At June 30, 1997, the assets of the plan were invested 81% in equity
securities, 18% in fixed income securities and the balance in other
short-term interest-bearing accounts. The discount rate and the assumed
rate of compensation increase were 8% and 5%, respectively. The
expected long-term rate of return on assets was 9% for 1997.
The components of net periodic pension cost for 1997 are as follows:
Service cost $ 61,129
Interest cost 32,087
Return on plan assets (68,385)
Net amortization 16,416
Deferral of net gain 35,760
$ 77,007
Net periodic pension costs for 1996 and 1995 were $24,000 and $32,000,
respectively.
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:
$.10 Par
$.10 Par Value
Value Class A Additional
Common Common Paid-in Retained
Stock Stock Capital Earnings
Balance at
June 30, 1994 $ - $1,371,000 $ 4,379,000 $ 4,173,000
Net earnings 4,284,000
Issuance of
common stock 1,000 17,000
Balance at
June 30, 1995 - 1,372,000 4,396,000 8,457,000
Net earnings 9,196,000
Exercise of
stock options 21,000 171,000
Tax benefit
related to stock
option plans 102,000
Balance at
June 30, 1996 - 1,393,000 4,669,000 17,653,000
Net earnings 16,472,000
Issuance of
common
stock, net 288,000 (180,000) 16,252,000
Dividends on
common stock,
$.16 per share (2,429,000)
Exercise of
stock options 22,000 160,000
Conversion of
Class A shares 6,000 (6,000)
Balance at
June 30, 1997 $ 294,000 $1,229,000 $21,081,000 $31,696,000
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 Rights Plans with respect to its Common Stock
and Class A Common Stock which include 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 one cent.
On October 3, 1996, the Company completed its initial public offering.
The Company issued 1,075,000 shares of the Company's Common Stock and
received proceeds of approximately $16,360,000, net of issuance costs
of approximately $1,913,000.
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. The 1991 Stock
Option Plan has been amended so that no additional options may be
granted thereunder. The 1991 and 1996 stock options have 7 and 8 year
terms, respectively, and generally vest equally over a period of 5 and
6 years from the date of grant, respectively. In all other material
respects, the 1991 Stock Option Plan is structured the same as the 1996
Stock Option Plan. 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:
expected dividend yield - .46%, risk-free interest rate - 5.3%, an
expected life of six years and volatility of 26%. Had compensation cost
been recognized in accordance with SFAS No. 123, the Company's earnings
per share disclosed in the basic financial statements would be reduced
by less than $.01 per share in 1997 and 1996.
Option activity is as follows:
June 30
1997 1996 1995
Number of options:
Outstanding at beginning
of year 585,000 787,500 225,000
Granted 112,764 - 562,500
Exercised (225,000) (202,500) -
Outstanding at June 30 472,764 585,000 787,500
At June 30:
Options available for grant 637,236 750,000 -
Options exercisable 22,500 90,000 135,000
Weighted Average
Exercise Price
Options granted $17.13 - $1.33
Options exercised $ .81 $ .95 -
Options outstanding $ 5.10 $1.13 $1.08
Options exercisable $ 1.33 $ .46 $ .46
NOTE 8-Related Party Transactions
In prior years, management services were provided to a company
principally-owned by the majority shareholder. Management fees for the
years ended June 30, 1995 and 1996 were $176,000 and
$122,000,respectively. At June 30, 1995 accounts receivable due from
related party were $333,000 related to such services. There was no
balance due the Company at June 30, 1996 or 1997 as the management
service agreement was cancelled. In June 1996, the Company acquired for
cash several tracts of undeveloped land comprising a total of 206 acres
for $6,200,000 from a company wholly-owned by the majority shareholder.
The purchase price was determined on the basis of an independent
appraisal performed in 1996. During the year ended June 30, 1997 and
1996, the Company purchased certain paving, site work and construction
services involving total payments of $584,000 and $586,000 from a
company wholly-owned by an employee/director. The Company purchased
administrative services from Rollins Truck Leasing Corp. and affiliated
companies in 1997 and 1996. The total cost of these services, which
have been included in general and administrative expenses in the
Consolidated Statement of Earnings, was $178,000 and $36,000 in 1997
and 1996, respectively.
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's operations are in motorsports and gaming. Revenues,
operating earnings, identifiable assets, capital expenditures and
depreciation pertaining to these business segments are presented below:
Motorsports Gaming Consolidated
Year ended June 30, 1997
Revenue $20,516,000 $81,162,000 $101,678,000
Operating earnings 11,079,000 16,891,000 27,970,000
Identifiable assets
at year-end 34,801,000 36,460,000 71,261,000
Capital expenditure 9,496,000 7,345,000 16,841,000
Depreciation $ 981,000 $ 1,103,000 $ 2,084,000
Year ended June 30, 1996
Revenue $18,110,000 $31,980,000 $ 50,090,000
Operating earnings 10,040,000 5,809,000 15,849,000
Identifiable assets
at year-end 26,489,000 15,822,000 42,311,000
Capital expenditures 10,119,000 8,817,000 18,936,000
Depreciation $ 952,000 $ 517,000 $ 1,469,000
Year ended June 30, 1995
Revenue $16,282,000 $ 1,250,000 $ 17,532,000
Operating earnings (loss) 8,372,000 (985,000) 7,387,000
Identifiable assets
at year-end 17,109,000 6,363,000 23,472,000
Capital expenditures 5,749,000 417,000 6,166,000
Depreciation $ 712,000 $ 331,000 $ 1,043,000
NOTE 10-Commitments
In May 1995, Dover Downs, Inc., a subsidiary of the Company, entered
into a long-term management agreement with Caesars World Gaming
Development Corporation (Caesars). The initial term of the agreement
expires in December 1998 and Caesars has two additional three-year
renewal options which Dover Downs may void if certain financial results
are not achieved. Caesars acts as the exclusive agent to supervise,
market, manage and operate the Company's video lottery operations.
Caesars has been properly licensed by the Delaware State Lottery Office
to perform these functions. Caesars' performance-based fee for such
services was $5,184,908 in fiscal 1997 and $2,260,909 in fiscal 1996.
Amounts due to Caesars at June 30, 1997 and 1996 totaled $431,464 and
$401,117, respectively and are included in accrued liabilities.
The Company currently holds licenses to conduct four NASCAR-sanctioned
events in 1997 (two of which were held in June 1997 and two of which
will be held in September 1997). NASCAR sanctions are issued on an
annual basis and require the payment of sanction fees, prize money and
point funds to NASCAR. The Company has held NASCAR-sanctioned events
for 29 consecutive years. Nonrenewal of a NASCAR event license would
have a material adverse effect on the Company's financial condition and
results of operations.
NOTE 11-Quarterly Results (unaudited)
September 30 December 31 March 31 June 30
1997
Revenues $27,226 $17,246 $21,684 $35,522
Gross profit 10,624 2,836 4,548 13,027
Net earnings 5,659 1,291 2,322 7,200
Earnings per
common share $ .39 $ .08 $ .15 $ .46
1996
Revenues $ 8,632 $ 980 $14,482 $25,996
Gross profit (loss) 5,165 (488) 3,339 9,906
Net earnings (loss) 2,913 (644) 1,682 5,245
Earnings (loss) per
common share $ .20 $ (.04) $ .11 $ .36