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EX-31.1 - EX-31.1 - DOVER DOWNS GAMING & ENTERTAINMENT INCa09-30833_1ex31d1.htm
EX-31.2 - EX-31.2 - DOVER DOWNS GAMING & ENTERTAINMENT INCa09-30833_1ex31d2.htm
EX-32.2 - EX-32.2 - DOVER DOWNS GAMING & ENTERTAINMENT INCa09-30833_1ex32d2.htm
EX-32.1 - EX-32.1 - DOVER DOWNS GAMING & ENTERTAINMENT INCa09-30833_1ex32d1.htm

 

 

United States

Securities and Exchange Commission

Washington, D.C.  20549
 

Form 10-Q

 

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended September 30, 2009

 

Commission file number  1-16791
 

Dover Downs Gaming & Entertainment, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

51-0414140

(State or Other Jurisdiction of Incorporation)

 

(I.R.S. Employer Identification No.)

 
1131 North DuPont Highway, Dover, Delaware  19901

(Address of principal executive offices)

 

(302) 674-4600

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

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 o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o

 

Accelerated filer x

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No x

 

As of October 30, 2009, the number of shares of each class of the registrant’s common stock outstanding is as follows:

 

Common Stock -

 

15,461,219 shares

Class A Common Stock -

 

16,603,173 shares

 

 

 



 

Part I — Financial Information

 

Item 1. Financial Statements

 

DOVER DOWNS GAMING & ENTERTAINMENT, INC.

CONSOLIDATED STATEMENTS OF EARNINGS

AND COMPREHENSIVE EARNINGS

In Thousands, Except Per Share Amounts

(Unaudited)

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2009

 

2008

 

2009

 

2008

 

Revenues:

 

 

 

 

 

 

 

 

 

Gaming

 

$

55,172

 

$

58,576

 

$

163,385

 

$

169,219

 

Other operating

 

4,642

 

5,353

 

14,039

 

14,470

 

 

 

59,814

 

63,929

 

177,424

 

183,689

 

Expenses:

 

 

 

 

 

 

 

 

 

Gaming

 

46,815

 

45,733

 

132,431

 

129,587

 

Other operating

 

3,613

 

4,281

 

10,864

 

11,762

 

General and administrative

 

1,679

 

1,572

 

5,187

 

4,932

 

Impairment charge

 

2,177

 

 

2,177

 

 

Depreciation

 

2,898

 

2,885

 

8,919

 

7,745

 

 

 

57,182

 

54,471

 

159,578

 

154,026

 

 

 

 

 

 

 

 

 

 

 

Operating earnings

 

2,632

 

9,458

 

17,846

 

29,663

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

569

 

975

 

1,834

 

2,541

 

 

 

 

 

 

 

 

 

 

 

Earnings before income taxes

 

2,063

 

8,483

 

16,012

 

27,122

 

 

 

 

 

 

 

 

 

 

 

Income taxes

 

832

 

3,487

 

6,550

 

11,107

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

1,231

 

4,996

 

9,462

 

16,015

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on interest rate swap, net of income taxes

 

(185

)

 

(118

)

 

 

 

 

 

 

 

 

 

 

 

Amortization of net actuarial loss and prior service cost included in net periodic pension benefit cost, net of income taxes

 

29

 

2

 

97

 

8

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on available-for-sale securities, net of income taxes

 

7

 

(6

)

9

 

(7

)

 

 

 

 

 

 

 

 

 

 

Reclassification adjustment for loss realized on available-for-sale securities, net of income taxes

 

17

 

 

17

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive earnings

 

$

1,099

 

$

4,992

 

$

9,467

 

$

16,016

 

 

 

 

 

 

 

 

 

 

 

Net earnings per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.04

 

$

0.16

 

$

0.30

 

$

0.50

 

Diluted

 

$

0.04

 

$

0.16

 

$

0.30

 

$

0.50

 

 

The Notes to the Consolidated Financial Statements are an integral part of these consolidated statements.

 

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DOVER DOWNS GAMING & ENTERTAINMENT, INC.

CONSOLIDATED BALANCE SHEETS

In Thousands, Except Share and Per Share Amounts

(Unaudited)

 

 

 

September 30,

 

December 31,

 

 

 

2009

 

2008

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash

 

$

17,526

 

$

17,889

 

Accounts receivable

 

2,682

 

2,661

 

Due from State of Delaware

 

12,479

 

10,870

 

Inventories

 

2,258

 

2,025

 

Prepaid expenses and other

 

2,918

 

2,029

 

Receivable from Dover Motorsports, Inc.

 

35

 

 

Prepaid income taxes

 

807

 

 

Deferred income taxes

 

1,217

 

1,317

 

Total current assets

 

39,922

 

36,791

 

 

 

 

 

 

 

Property and equipment, net

 

195,445

 

203,522

 

Other assets

 

893

 

1,019

 

Total assets

 

$

236,260

 

$

241,332

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

3,623

 

$

4,679

 

Purses due horsemen

 

11,283

 

9,395

 

Accrued liabilities

 

6,392

 

7,419

 

Payable to Dover Motorsports, Inc.

 

 

11

 

Income taxes payable

 

 

619

 

Deferred revenue

 

376

 

212

 

Total current liabilities

 

21,674

 

22,335

 

 

 

 

 

 

 

Revolving line of credit

 

98,075

 

108,325

 

Liability for pension benefits

 

6,322

 

6,099

 

Other liabilities

 

200

 

 

Deferred income taxes

 

3,730

 

3,488

 

Total liabilities

 

130,001

 

140,247

 

 

 

 

 

 

 

Commitments and contingencies (see Notes to the Consolidated Financial Statements)

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Preferred stock, $0.10 par value; 1,000,000 shares authorized; shares issued and outstanding: none

 

 

 

Common stock, $0.10 par value; 74,000,000 shares authorized; shares issued and outstanding: 15,461,219 and 15,209,544, respectively

 

1,546

 

1,521

 

Class A common stock, $0.10 par value; 50,000,000 shares authorized; shares issued and outstanding: 16,603,173 and 16,603,173, respectively

 

1,660

 

1,660

 

Additional paid-in capital

 

1,426

 

933

 

Retained earnings

 

103,914

 

99,263

 

Accumulated other comprehensive loss

 

(2,287

)

(2,292

)

Total stockholders’ equity

 

106,259

 

101,085

 

Total liabilities and stockholders’ equity

 

$

236,260

 

$

241,332

 

 

The Notes to the Consolidated Financial Statements are an integral part of these consolidated statements.

 

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DOVER DOWNS GAMING & ENTERTAINMENT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

In Thousands

(Unaudited)

 

 

 

Nine Months Ended
September 30,

 

 

 

2009

 

2008

 

Operating activities:

 

 

 

 

 

Net earnings

 

$

9,462

 

$

16,015

 

Adjustments to reconcile net earnings to net cash provided by operating activities:

 

 

 

 

 

Depreciation

 

8,919

 

7,745

 

Amortization of credit facility origination fees

 

28

 

30

 

Stock-based compensation

 

714

 

762

 

Deferred income taxes

 

70

 

(156

)

Impairment charge

 

2,177

 

 

Changes in assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(21

)

1,393

 

Due from State of Delaware

 

(1,609

)

(2,026

)

Inventories

 

(233

)

(284

)

Prepaid expenses and other

 

(746

)

(1,446

)

Receivable from/payable to Dover Motorsports, Inc.

 

(46

)

(11

)

Prepaid income taxes/income taxes payable

 

(1,294

)

(291

)

Accounts payable

 

48

 

464

 

Purses due horsemen

 

1,888

 

1,737

 

Accrued liabilities

 

(1,027

)

(1,756

)

Deferred revenue

 

164

 

282

 

Other liabilities

 

388

 

71

 

Net cash provided by operating activities

 

18,882

 

22,529

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

Capital expenditures

 

(4,123

)

(36,377

)

Proceeds from the sale of available-for-sale securities

 

102

 

 

Purchase of available-for-sale securities

 

(104

)

(100

)

Net cash used in investing activities

 

(4,125

)

(36,477

)

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

Borrowings from revolving line of credit

 

120,675

 

145,900

 

Repayments of revolving line of credit

 

(130,925

)

(130,250

)

Dividends paid

 

(4,811

)

(4,769

)

Repurchase of common stock

 

(59

)

(1,040

)

Proceeds from stock options exercised

 

 

366

 

Excess tax benefit on stock awards

 

 

25

 

Net cash (used in) provided by financing activities

 

(15,120

)

10,232

 

 

 

 

 

 

 

Net decrease in cash

 

(363

)

(3,716

)

Cash, beginning of period

 

17,889

 

22,456

 

Cash, end of period

 

$

17,526

 

$

18,740

 

 

 

 

 

 

 

Supplemental information:

 

 

 

 

 

Interest paid

 

$

2,284

 

$

2,639

 

Income taxes paid

 

$

7,775

 

$

11,531

 

Change in accounts payable for capital expenditures

 

$

(1,104

)

$

4,785

 

 

The Notes to the Consolidated Financial Statements are an integral part of these consolidated statements.

 

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DOVER DOWNS GAMING & ENTERTAINMENT, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 — Basis of Presentation

 

References in this document to “we,” “us” and “our” mean Dover Downs Gaming & Entertainment, Inc. and/or its wholly owned subsidiaries, as appropriate.

 

The accompanying consolidated financial statements have been prepared in compliance with Rule 10-01 of Regulation S-X and U.S. generally accepted accounting principles, and accordingly do not include all of the information and disclosures required for audited financial statements.  These consolidated statements should be read in conjunction with the consolidated financial statements and notes thereto included in our latest Annual Report on Form 10-K filed on March 6, 2009.  In the opinion of management, these consolidated statements include all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the results of operations, financial position and cash flows for the interim periods presented.  Operating results for the three and nine-month periods ended September 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009.

 

NOTE 2 - Business Operations

 

We are a diversified gaming and entertainment company whose operations consist of Dover Downs Slots — a 165,000-square foot video lottery casino complex featuring the latest in slot machine offerings, multi-player electronic table games and a new Race & Sports Book; the Dover Downs Hotel and Conference Center — a 500 room AAA Four Diamond hotel with conference, banquet, ballroom and concert hall facilities; and Dover Downs Raceway — a harness racing track with pari-mutuel wagering on live and simulcast horse races.  The casino facility includes the Dover Downs’ Fire & Ice Lounge, Doc Magrogan’s Oyster House, Frankie’s Italian restaurant, as well as several bars, restaurants and four retail outlets.  All of our operations are located at our entertainment complex in Dover, the capital of the State of Delaware.

 

During the third quarter of 2009, we opened our Race & Sports Book operation and Frankie’s Italian restaurant.  The Race & Sports Book features sports wagering on National Football League (“NFL”) games and pari-mutuel wagering on live and simulcast horse races.

 

Dover Downs Gaming & Entertainment, Inc. is a public holding company that has two wholly owned subsidiaries: Dover Downs, Inc. and Dover Downs Management Corp.  Dover Downs, Inc. was incorporated in 1967 and began motorsports and harness racing operations in 1969.  In June of 1994, legislation authorizing video lottery operations in the State of Delaware (the “State”) was adopted. Our video lottery (slots) casino operations began on December 29, 1995.  As a result of several restructurings, Dover Downs, Inc. became a wholly owned subsidiary of Dover Motorsports, Inc. (formerly known as Dover Downs Entertainment, Inc.) (“DVD”), and became the operating entity for all of DVD’s gaming operations.

 

Dover Downs Gaming & Entertainment, Inc. was incorporated in the State in December of 2001 as a wholly owned subsidiary of DVD.  Effective March 31, 2002, DVD completed a tax-free spin-off of its gaming operations by contributing 100% of the issued and outstanding common stock of Dover Downs, Inc. to Dover Downs Gaming & Entertainment, Inc., and subsequently distributing 100% of our issued and outstanding common stock to DVD stockholders.  Immediately following the spin-off, Dover Downs Gaming & Entertainment, Inc. became an independent public company.

 

Dover Downs, Inc. is authorized to conduct video lottery and sports wagering operations as one of three “Licensed Agents” 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.

 

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Our license from the Delaware Harness Racing Commission (the “Commission”) to hold harness race meetings on our premises and to offer pari-mutuel wagering on live and simulcast horse races must be renewed on an annual basis. In order to maintain our license to conduct video lottery and sports wagering operations, we are required to maintain our harness horse racing license.  We have received an annual license from the Commission for the past 40 consecutive years and management believes that our relationship with the Commission remains good.

 

Due to the nature of our business activities, we are subject to various federal, state and local regulations.  As part of our license arrangements, we are subject to various taxes and fees which are subject to change by the Delaware legislature.

 

NOTE 3 - Summary of Significant Accounting Policies

 

Basis of consolidation—The consolidated financial statements include the accounts of Dover Downs Gaming & Entertainment, Inc. and its wholly owned subsidiaries. Intercompany transactions and balances have been eliminated.

 

Investments—Investments, which consist of mutual funds, are classified as available-for-sale and reported at fair-value in other assets in our consolidated balance sheets.  Changes in fair value are reported in other comprehensive income (loss).  See NOTE 7 — Stockholders’ Equity and NOTE 8 — Financial Instruments for further discussion.

 

Derivative Instruments and Hedging Activities—We are subject to interest rate risk on the variable component of the interest rate under our revolving credit agreement.  Effective January 15, 2009, we entered into a $35,000,000 interest rate swap agreement.  We have designated the interest rate swap as a cash flow hedge.  Changes in the fair value of the effective portion of the interest rate swap are recognized in other comprehensive income (loss) until the hedged item is recognized in earnings.  See NOTE 5 — Credit Facility and NOTE 8 — Financial Instruments for further discussion.

 

Property and equipment—Property and equipment is stated at cost.  Depreciation is provided for financial reporting purposes using the straight-line method.  Accumulated depreciation was $73,123,000 and $64,532,000 as of September 30, 2009 and December 31, 2008, respectively.

 

We perform reviews for impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.  An impairment loss would be measured as the amount by which the carrying amount of the asset exceeds its fair value.  Generally, fair value will be determined using valuation techniques such as the present value of future cash flows.

 

Interest capitalization—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 three and nine-month periods ended September 30, 2009, no interest cost was capitalized.  During the three and nine-month periods ended September 30, 2008, we incurred $1,010,000 and $3,108,000 of interest cost, of which $35,000 and $567,000 was capitalized, respectively.

 

Income taxes—Deferred income taxes are provided on all differences between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements based upon enacted statutory tax rates in effect at the balance sheet date.  Tax years after 2005 remain open to examination for federal income tax purposes.  Tax years after 2004 remain open to examination for state income tax purposes.

 

Point loyalty program—We currently have a point loyalty program for our customers which allows them to earn points based on the volume of their gaming activity.  All reward points earned by customers are expensed in the period they are earned.  The estimated amount of points redeemable for cash is recorded as a reduction of gaming revenue and the estimated amount of points redeemable for services and merchandise is recorded as gaming expense. In determining the amount of the liability, which was $1,968,000 and $1,838,000, respectively, at September 30, 2009 and December 31, 2008, we estimate a redemption rate, a cost of rewards to be offered and the

 

6



 

mix of cash, goods and services for which reward points will be redeemed.  We use historical data to estimate those amounts.

 

Revenue and expense recognition—Gaming revenues represent (i) the net win from video lottery (slot) machine wins and losses and (ii) commissions from pari-mutuel wagering.  Other operating revenues consist of hotel rooms revenue, food and beverage sales and other miscellaneous income.  Revenues do not include the retail amount of hotel rooms, food and beverage and other miscellaneous goods and services provided without charge to customers as promotional items of $5,251,000 and $14,018,000, and $4,965,000 and $13,787,000 for the three and nine-month periods ended September 30, 2009 and 2008, respectively.  The estimated direct cost of providing these items has been charged to the casino through interdepartmental allocations and is included in gaming expenses in the consolidated statements of earnings.

 

For the video lottery operations, which account for approximately 90% of revenues for all periods presented, 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 our consolidated financial statements as gaming revenue. The Delaware State Lottery Office sweeps the win from the video lottery operations, collects the State’s share of the win and the amount due to the vendors under contract with the State who provide the video lottery (slot) machines and associated computer systems, collects the amount allocable to purses for harness horse racing and remits the remainder to us as our commission for acting as a Licensed Agent. Gaming expenses include the amounts collected by the State (i) for the State’s share of the win, (ii) for remittance to the providers of the video lottery (slot) machines and associated computer systems, and (iii) for harness horse racing purses. We recognize revenues from pari-mutuel commissions earned from live harness horse racing and importing of simulcast signals from other race tracks when the race occurs. Revenues from hotel rooms, food and beverage sales and other miscellaneous income are recognized at the time the service is provided.

 

Net earnings per common share—Basic and diluted net earnings per common share (“EPS”) are calculated in accordance with the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 260, “Earnings Per Share.”  In June 2008, the FASB issued guidance stating that nonvested share-based payment awards that include nonforfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are considered participating securities, and the two-class method of computing EPS is required for all periods presented. We adopted the provisions of ASC Topic 260 relating to the two-class method of computing EPS effective January 1, 2009.

 

Our restricted stock awards include nonforfeitable rights to dividends with respect to nonvested shares. The nonvested shares of our restricted stock grants are considered participating securities and must be included in our computation of EPS. Accordingly, we have computed EPS to include the impact of outstanding nonvested shares of restricted stock in the calculation of basic EPS effective as of the first quarter of 2009 and have adjusted prior period EPS retrospectively for the inclusion of such outstanding nonvested restricted shares. The adoption of the provisions of ASC Topic 260 relating to the two-class method of computing EPS did not change our basic or diluted EPS for the three-month period ended September 30, 2008.  The adoption of the provisions of ASC Topic 260 relating to the two-class method of computing EPS reduced our basic and diluted EPS by $0.01 for the nine-month period ended September 30, 2008.

 

7



 

The following table sets forth the computation of basic and diluted EPS (in thousands, except per share amounts):

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2009

 

2008

 

2009

 

2008

 

Net earnings per common share — basic:

 

 

 

 

 

 

 

 

 

Net earnings

 

$

1,231

 

$

4,996

 

$

9,462

 

$

16,015

 

Net earnings allocated to nonvested restricted stock awards

 

28

 

59

 

169

 

189

 

Net earnings available to common stockholders

 

$

1,203

 

$

4,937

 

$

9,293

 

$

15,826

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares outstanding

 

31,496

 

31,443

 

31,491

 

31,434

 

 

 

 

 

 

 

 

 

 

 

Net earnings per common share — basic

 

$

0.04

 

$

0.16

 

$

0.30

 

$

0.50

 

 

 

 

 

 

 

 

 

 

 

Net earnings per common share — diluted:

 

 

 

 

 

 

 

 

 

Net earnings

 

$

1,231

 

$

4,996

 

$

9,462

 

$

16,015

 

Net earnings allocated to nonvested restricted stock awards

 

28

 

59

 

169

 

189

 

Net earnings available to common stockholders

 

$

1,203

 

$

4,937

 

$

9,293

 

$

15,826

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares outstanding

 

31,496

 

31,443

 

31,491

 

31,434

 

Dilutive stock options

 

 

73

 

 

122

 

Weighted-average shares and dilutive shares outstanding

 

31,496

 

31,516

 

31,491

 

31,556

 

 

 

 

 

 

 

 

 

 

 

Net earnings per common share — diluted

 

$

0.04

 

$

0.16

 

$

0.30

 

$

0.50

 

 

For the three and nine-month periods ended September 30, 2009, options to purchase 634,526 shares of common stock were outstanding but not included in the computation of diluted EPS because they would have been anti-dilutive.  For the three and nine-month periods ended September 30, 2008, options to purchase 259,000 and 86,000 shares of common stock, respectively, were outstanding but not included in the computation of diluted EPS because they would have been anti-dilutive.

 

Accounting for stock-based compensation—We recorded total stock-based compensation expense for our restricted stock awards and stock options of $236,000 and $714,000, and $235,000 and $762,000 as general and administrative expenses for the three and nine-month periods ended September 30, 2009 and 2008, respectively.  We recorded income tax benefits of $96,000 and $290,000, and $80,000 and $240,000 for the three and nine-month periods ended September 30, 2009 and 2008, respectively, related to our restricted stock awards.

 

Use of estimates—The preparation of the accompanying consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions about future events.  These estimates and the underlying assumptions affect the reported amounts of assets and liabilities, disclosures about contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions are based on management’s best estimates and judgment.  Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances.  We adjust such estimates and assumptions when facts and circumstances dictate.  Illiquid credit markets, volatile equity markets and declines in consumer spending have combined to increase the uncertainty inherent in such estimates and assumptions.  As future events and their effects cannot be determined with precision, actual results could differ from these estimates.  Changes in those estimates resulting from continuing changes in the economic environment will be reflected in the consolidated financial statements in future periods.

 

Subsequent events—For the three and nine months ended September 30, 2009, we evaluated, for potential recognition and disclosure, events that occurred prior to the filing of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 on November 6, 2009.

 

8



 

Recent accounting pronouncements—In June 2009, the FASB issued guidance now codified as FASB ASC Topic 105, “Generally Accepted Accounting Principles,” as the single source of authoritative nongovernmental U.S. generally accepted accounting principles (“GAAP”).  ASC Topic 105 does not change current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by providing all authoritative literature related to a particular topic in one place. All existing accounting standard documents will be superseded and all other accounting literature not included in the FASB ASC will be considered non-authoritative.  These provisions of ASC Topic 105 are effective for interim and annual periods ending after September 15, 2009 and, accordingly, are effective for the current fiscal reporting period. The adoption of this pronouncement did not have an impact on our financial condition or results of operations, but did impact our financial reporting process by eliminating all references to pre-codification standards. On the effective date of this Statement, the ASC superseded all then-existing non-SEC accounting and reporting standards, and all other non-grandfathered non-SEC accounting literature not included in the ASC became non-authoritative.

 

In June 2009, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 166, Accounting for Transfers of Financial Assets, an amendment to SFAS No. 140 (note that this standard has not yet been codified under ASC Topic 105). The new standard eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets, and requires additional disclosures in order to enhance information reported to users of financial statements by providing greater transparency about transfers of financial assets, including securitization transactions, and an entity’s continuing involvement in and exposure to the risks related to transferred financial assets. SFAS No. 166 is effective for fiscal years beginning after November 15, 2009.  We will adopt SFAS No. 166 in 2010 and do not expect that it will have an impact on our consolidated financial statements.

 

NOTE 4 — Impairment Charge

 

We had previously completed architectural and engineering work related to a Phase 7 casino expansion that would have included, among other things, a new sports book facility and a parking garage.  Given the recent decision by the US Court of Appeals for the Third Circuit to limit the extent of sports wagering in Delaware and the higher gaming tax rates that were recently legislated, we decided not to proceed with this project.   During the third quarter of 2009, we wrote off $2,177,000 of capitalized costs related to these expansion projects.

 

NOTE 5 — Credit Facility

 

We have a credit facility with Wilmington Trust Company that expires on April 17, 2012.  At September 30, 2009, the maximum borrowing limit under the facility was $125,000,000 which reduces to $100,000,000 on January 1, 2010, to $85,000,000 on January 1, 2011 and to $75,000,000 on January 1, 2012.  Interest is based, at our option, upon LIBOR plus a margin that varies between 75 and 125 basis points (125 basis points at September 30, 2009) depending on the ratio of funded debt to earnings before interest, taxes, depreciation and amortization (the “leverage ratio”) or the base rate (the greater of the prime rate or the federal funds rate plus 0.5%) less a margin that varies between 50 and 100 basis points (50 basis points at September 30, 2009) depending on the leverage ratio.  The credit facility has minimum net worth, interest coverage and maximum leverage requirements.  Material adverse changes in our results of operations could impact our ability to satisfy these requirements.  In addition, the credit agreement also includes a material adverse change clause.  The facility is for seasonal funding needs, capital improvements and other general corporate purposes.  At September 30, 2009, we were in compliance with all terms of the facility and there was $98,075,000 outstanding at a weighted average interest rate of 1.59%.  At September 30, 2009, $26,925,000 was available pursuant to the facility.

 

Effective January 15, 2009, we entered into an interest rate swap agreement that effectively converts $35,000,000 of our variable-rate debt to a fixed-rate basis, thereby hedging against the impact of potential interest rate changes on future interest expense.  The agreement terminates on April 17, 2012.  Pursuant to this agreement, we pay a fixed interest rate of 1.74%, plus a margin that varies between 75 and 125 basis points depending on our leverage ratio (125 basis points at September 30, 2009).  In return, the issuing lender refunds to us the variable-rate interest paid to the bank group under our revolving credit agreement on the same notional principal amount, excluding the margin.

 

9



 

NOTE 6 — Pension Plans

 

We maintain a non-contributory, tax qualified defined benefit pension plan. All of our full time employees are eligible to participate in this qualified pension plan.  Benefits provided by our qualified pension plan are based on years of service and employees’ remuneration over their term of employment.  We also maintain a non-qualified, non-contributory defined benefit pension plan for certain employees.  This excess plan provides benefits that would otherwise be provided under the qualified pension plan but for maximum benefit and compensation limits applicable under federal tax law.  The cost associated with the excess plan is determined using the same actuarial methods and assumptions as those used for our qualified pension plan.

 

The components of net periodic pension cost are as follows:

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2009

 

2008

 

2009

 

2008

 

Service cost

 

$

345,000

 

$

317,000

 

$

1,073,000

 

$

960,000

 

Interest cost

 

168,000

 

143,000

 

518,000

 

441,000

 

Expected return on plan assets

 

(125,000

)

(149,000

)

(375,000

)

(452,000

)

Recognized net actuarial loss

 

48,000

 

1,000

 

158,000

 

6,000

 

Amortization of prior service cost

 

2,000

 

2,000

 

6,000

 

7,000

 

 

 

$

438,000

 

$

314,000

 

$

1,380,000

 

$

962,000

 

 

We contributed $325,000 and $1,000,000, and $200,000 and $1,000,000 to our pension plans during the three and nine-month periods ended September 30, 2009 and 2008, respectively.  We expect to contribute approximately $1,300,000 to our pension plans in 2009.

 

NOTE 7 — Stockholders’ Equity

 

Changes in the components of stockholders’ equity are as follows (in thousands, except per share amounts):

        

 

 

Common
Stock

 

Class A
Common
Stock

 

Additional
Paid-in
Capital

 

Retained
Earnings

 

Accumulated
Other
Comprehensive
Loss

 

Balance at December 31, 2008

 

$

1,521

 

$

1,660

 

$

933

 

$

99,263

 

$

(2,292

)

Net earnings

 

 

 

 

9,462

 

 

Dividends paid, $0.15 per share

 

 

 

 

(4,811

)

 

Issuance of nonvested stock awards, net of forfeitures

 

27

 

 

(27

)

 

 

Stock-based compensation

 

 

 

714

 

 

 

Tax shortfall from stock awards

 

 

 

(137

)

 

 

Unrealized loss on interest rate swap, net of income tax benefit of $82

 

 

 

 

 

(118

)

Amortization of net actuarial loss and prior service cost included in net periodic pension benefit cost, net of income tax expense of $67

 

 

 

 

 

97

 

Unrealized gain on available-for-sale securities, net of income tax expense of $6

 

 

 

 

 

9

 

Reclassification adjustment for loss realized on available-for-sale securities, net of income tax benefit of $11

 

 

 

 

 

17

 

Repurchase and retirement of common stock

 

(2

)

 

(57

)

 

 

Balance at September 30, 2009

 

$

1,546

 

$

1,660

 

$

1,426

 

$

103,914

 

$

(2,287

)

 

On October 28, 2009, our Board of Directors declared a quarterly cash dividend on both classes of common stock of $.05 per share.  The dividend is payable on December 10, 2009 to stockholders of record at the close of business on November 10, 2009.

 

10



 

On October 23, 2002, our Board of Directors authorized the repurchase of up to 3,000,000 shares of our outstanding common stock.  The purchases may be made in the open market or in privately negotiated transactions as conditions warrant.  The repurchase authorization has no expiration date, does not obligate us to acquire any specific number of shares and may be suspended at any time.  No purchases of our equity securities were made pursuant to this authorization during the nine months ended September 30, 2009.  During the nine months ended September 30, 2008, we purchased and retired 98,500 shares of our outstanding common stock pursuant to this plan at an average purchase price of $9.09 per share, not including nominal brokerage commissions.  At September 30, 2009, we had remaining repurchase authority of 1,653,333 shares.

 

During the nine-month periods ended September 30, 2009 and 2008, we purchased and retired 15,325 and 13,881 shares of our outstanding common stock for $59,000 and $139,000, respectively.  These purchases were made from employees in connection with the vesting of restricted stock awards under our stock incentive plan and were not pursuant to the aforementioned repurchase authorization.  Since the vesting of a restricted stock award is a taxable event to our employees for which income tax withholding is required, the plan allows employees to surrender to us some of the shares that would otherwise have vested in satisfaction of their tax liability.  The surrender of these shares is treated by us as a purchase of the shares.

 

As of September 30, 2009 and December 31, 2008, accumulated other comprehensive loss consists of the following:

 

 

 

September 30, 2009

 

December 31, 2008

 

Net actuarial loss and prior service cost not yet recognized in net periodic benefit cost, net of income tax benefit of $1,490,000 and $1,557,000, respectively

 

$

(2,176,000

)

$

(2,273,000

)

Unrealized loss on interest rate swap, net of income tax benefit of $82,000

 

(118,000

)

 

Accumulated unrealized gain (loss) on available-for-sale securities, net of income tax (expense) benefit of ($5,000) and $12,000, respectively

 

7,000

 

(19,000

)

Accumulated other comprehensive loss

 

$

(2,287,000

)

$

(2,292,000

)

 

NOTE 8 — Financial Instruments

 

Our financial instruments are classified and disclosed in one of the following three categories:

 

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

 

Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability;

 

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

 

The following table summarizes the valuation of our financial instrument pricing levels as of September 30, 2009:

 

 

 

Total

 

Level 1

 

Level 2

 

Level 3

 

Available-for-sale securities

 

$

121,000

 

$

121,000

 

$

 

$

 

Interest rate swap

 

(200,000

)

 

(200,000

)

 

 

Our investments in available-for-sale securities are recorded at fair value based on quoted market prices.  These investments are included in other non-current assets on our consolidated balance sheets.

 

At September 30, 2009, there was $98,075,000 outstanding under our revolving credit agreement.  The borrowings under our revolving credit agreement bear interest at the variable rate described in NOTE 5 — Credit Facility and therefore approximate fair value.  We are subject to interest rate risk on the variable component of the

 

11



 

interest rate. Our risk management objective is to lock in the interest cash outflows on a portion of our debt.  As a result, as described in NOTE 5 — Credit Facility, we entered into an interest rate swap agreement effectively converting a portion of the outstanding borrowings under the revolving credit agreement to a fixed-rate, thereby hedging against the impact of potential interest rate changes on future interest expense.  At September 30, 2009, the interest rate swap had a negative fair value of $200,000 which is recorded in other liabilities.  The fair value of the interest rate swap was based on quotes from the issuer of the swap and represents the estimated amounts that we would expect to pay to terminate the swap.  We recognized $118,000, net of income taxes, in unrealized losses on our interest rate swap for the nine months ended September 30, 2009.

 

The carrying amounts of other financial instruments reported in the balance sheet for current assets and current liabilities approximates their fair values because of the short maturity of these instruments.

 

NOTE 9 - Related Party Transactions

 

During the three and nine-month periods ended September 30, 2009 and 2008, we allocated costs of $513,000 and $1,501,000, and $541,000 and $1,598,000, respectively, to DVD, a company related through common ownership, for certain administrative and operating services.  Additionally, DVD allocated costs of $47,000 and $180,000, and $109,000 and $181,000 to us for the three and nine-month periods ended September 30, 2009 and 2008, respectively.  The allocations were based on an analysis of each company’s share of the costs.  In connection with DVD’s 2009 and 2008 NASCAR event weekends at Dover International Speedway, we provided certain services for which DVD was invoiced $509,000 and $1,000,000, and $603,000 and $1,237,000, during the three and nine-month periods ended September 30, 2009 and 2008, respectively.  Additionally, DVD invoiced us $163,000 and $375,000, and $157,000 and $433,000 in the three and nine-month periods ended September 30, 2009 and 2008, respectively, for our rental of a skybox suite, tickets and other services during DVD’s 2009 and 2008 NASCAR event weekends at Dover International Speedway.  As of September 30, 2009 and December 31, 2008, our consolidated balance sheets include a $35,000 receivable from and $11,000 payable to DVD, respectively, for the aforementioned items.  We settled these items in October 2009 and January 2009, respectively.  The net costs incurred by each company for these services are not necessarily indicative of the costs that would have been incurred if the companies had been unrelated entities and/or had otherwise independently managed these functions; however, management believes that these costs are reasonable.

 

Our use of DVD’s 5/8-mile harness racing track is pursuant to an easement granted to us by DVD which does not require the payment of any rent. Under the terms of the easement, we have exclusive use of the harness track during the period beginning November 1 of each year and ending April 30 of the following year, together with set up and tear down rights for the two weeks before and after such period.  The harness track is located on property owned by DVD and is on the inside of DVD’s motorsports superspeedway.  Our indoor grandstands are used by DVD at no charge in connection with its major motorsports events. DVD also leases its principal office space from us.  Various easements and agreements relative to access, utilities and parking have also been entered into between DVD and us relative to our respective Dover, Delaware facilities.

 

Henry B. Tippie, Chairman of our Board of Directors, controls in excess of fifty percent of our voting power.  Mr. Tippie’s voting control emanates from his direct and indirect holdings of common stock and Class A common stock, from his status as trustee of the RMT Trust, our largest stockholder, and from certain shares as to which he has voting rights pursuant to a voting agreement with R. Randall Rollins, one of our directors.  This means that Mr. Tippie has the ability to determine the outcome of our election of directors and to determine the outcome of many significant corporate transactions, many of which only require the approval of a majority of our voting power.

 

Patrick J. Bagley, Kenneth K. Chalmers, Denis McGlynn, Jeffrey W. Rollins, John W. Rollins, Jr., R. Randall Rollins and Henry B. Tippie are all Directors of ours and DVD. Denis McGlynn is the President and Chief Executive Officer of both companies, Klaus M. Belohoubek is the Senior Vice President — General Counsel and Secretary of both companies and Timothy R. Horne is the Senior Vice President — Finance and Chief Financial Officer of both companies.  Mr. Tippie controls in excess of fifty percent of the voting power of DVD.

 

12



 

NOTE 10 — Commitments and Contingencies

 

We are a party to ordinary routine litigation incidental to our business.  Management does not believe that the resolution of any of these matters is likely to have a material adverse effect on our results of operations, financial position or cash flows.

 

We have employment, severance and noncompete agreements with certain of our officers and directors under which certain change of control, severance and noncompete payments and benefits might become payable in the event of a change in our control, defined to include a tender offer or the closing of a merger or similar corporate transactions.  In the event of such a change in our control and the subsequent termination of employment of all employees covered under these agreements, we estimate that the maximum contingent liability would range from $9,100,000 to $10,200,000 depending on the tax treatment of the payments.

 

To the extent that any of the potential payments or benefits due under the agreements constitute an excess “parachute payment” under the Internal Revenue Code and result in the imposition of an excise tax, each agreement requires that we pay the amount of such excise tax plus any additional amounts necessary to place the officer or director in the same after-tax position as he would have been had no excise tax been imposed. We estimate that the tax gross ups that could be paid under the agreements in the event the agreements were triggered due to a change of control could be between $1,100,000 and $2,200,000 and these amounts have been included in the maximum contingent liability disclosed above. This maximum tax gross up assumes that none of the payments made after the hypothetical change in control would be characterized as reasonable compensation for services rendered. Each agreement with an executive officer provides that fifty percent of the monthly amount paid during the term is paid in consideration of the executive officer’s non-compete covenants. The exclusion of these amounts would reduce the calculated amount of excess parachute payments subject to tax. We are unable to conclude whether the Internal Revenue Service would characterize all or some of these non-compete payments as reasonable compensation for services rendered.

 

Item 2.                                   Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion is based upon and should be read together with the consolidated financial statements and notes thereto included elsewhere in this document.

 

Dover Downs Gaming & Entertainment, Inc. is a diversified gaming and entertainment company whose operations consist of Dover Downs Slots — a 165,000-square foot video lottery casino complex featuring the latest in slot machine offerings, multi-player electronic table games and a new Race & Sports Book; the Dover Downs Hotel and Conference Center — a 500 room AAA Four Diamond hotel with conference, banquet, ballroom and concert hall facilities; and Dover Downs Raceway — a harness racing track with pari-mutuel wagering on live and simulcast horse races.  The casino facility includes the Dover Downs’ Fire & Ice Lounge, Doc Magrogan’s Oyster House, Frankie’s Italian restaurant, as well as several bars, restaurants and four retail outlets.

 

Approximately 90% of our revenue is derived from video lottery (slot) machine win.  Several factors contribute to the video lottery (slot) machine win for any gaming company, including, but not limited to:

 

·                  Proximity to major population bases,

·                  Competition in the market,

·                  The quantity and types of slot machines available,

·                  The quality of the physical property,

·                  Other amenities offered on site,

·                  Customer service levels,

·                  Marketing programs, and

·                  General economic conditions.

 

13



 

We believe that we hold a strong position in each of these areas.  Our entertainment complex is located in Dover, the capital of the State of Delaware. We draw patrons from several major metropolitan areas. Philadelphia, Baltimore and Washington, D.C. are all within a two hour drive. According to the 2000 United States Census, approximately 32.8 million people live within 150 miles of our complex.  There are significant barriers to entry related to the gaming business in Delaware.  By law, only three existing horse racing facilities in the State are allowed to have a gaming license.  Our property is similar to properties found in the country’s largest gaming markets.  Our recently expanded luxury hotel is the only casino-hotel in Delaware, providing a strong marketing tool, especially to higher-end players.  We also utilize our slot marketing system to allow for the most efficient marketing programs and the highest levels of customer service.

 

Because all of our operations are located at one facility, we face the risk of increased competition from the legalization of new or additional gaming venues.  We have therefore focused on creating the region’s premier gaming destination and building and rewarding customer loyalty through innovative marketing efforts, unparalleled customer service and a variety of amenities.

 

Results of Operations

 

Gaming revenues represent (i) the net win from video lottery (slot) machine wins and losses and (ii) commissions from pari-mutuel wagering.  Other operating revenues consist of hotel rooms revenue, food and beverage sales and other miscellaneous income.  Revenues do not include the retail amount of hotel rooms, food and beverage and other miscellaneous goods and services provided without charge to customers as promotional items. The estimated direct cost of providing these items has been charged to the casino through interdepartmental allocations and is included in gaming expenses in the consolidated statement of 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 our consolidated financial statements as gaming revenue. The Delaware State Lottery Office sweeps the win from the video lottery operations, collects the State’s share of the win and the amount due to the vendors under contract with the State who provide the video lottery (slot) machines and associated computer systems, collects the amount allocable to purses for harness horse racing and remits the remainder to us as our commission for acting as a Licensed Agent. Gaming expenses include the amounts collected by the State (i) for the State’s share of the win, (ii) for remittance to the providers of the video lottery (slot) machines and associated computer systems, and (iii) for harness horse racing purses. We recognize revenues from pari-mutuel commissions earned from live harness horse racing and importing of simulcast signals from other race tracks when the race occurs. Revenues from hotel rooms, food and beverage sales and other miscellaneous income are recognized at the time the service is provided.

 

Three Months Ended September 30, 2009 vs. Three Months Ended September 30, 2008

 

Gaming revenues decreased by $3,404,000, or 5.8%, to $55,172,000 in the third quarter of 2009 primarily as a result of decreased play in our casino.  We believe that the decrease in casino play can be attributed to the general downturn in economic conditions and the related impact on consumer spending.  We believe that the decrease would have been more significant but for the opening of our Phase VI casino expansion in the third quarter of 2008, the opening of our hotel expansion during the latter part of 2007, targeted marketing efforts using our player database and our efforts to provide our customers with enhanced casino products and other amenities.  Our average number of machines was 3,027 in the third quarter of 2009 as compared to 3,115 in the third quarter of 2008.

 

Other operating revenues were $4,642,000 in the third quarter of 2009 as compared to $5,353,000 in the third quarter of 2008.  Net food and beverage revenues decreased $246,000 to $2,957,000 from $3,203,000 in the third quarter of 2008 due primarily to lower banquet sales.  These decreases were partially offset by the opening of our Race & Sports Book restaurant and Frankie’s Italian restaurant in September 2009.  Cash rooms revenue decreased $226,000 in the third quarter of 2009 mainly due to us providing more rooms free of charge to our customers as well as lower convention and transient sales.  All other operating revenues decreased $239,000 primarily as a result of a decrease in revenues from our hotel retail shop since we no longer operate this outlet ourselves and have rented the space to a third party.  Other operating revenues do not include the retail amount of promotional allowances which are provided to customers on a complimentary basis of $5,251,000 and $4,965,000 in the third quarter of 2009 and 2008, respectively.

 

14



 

Gaming expenses increased by $1,082,000, or 2.4%, primarily as a result of increased gaming taxes and slot machine fees that resulted from legislation passed in May of 2009 that became effective on May 28, 2009.  The impact of this legislation resulted in an increase in our gaming taxes and slot machine fees of approximately $3,600,000 in the third quarter of 2009.  Partially offsetting these increases were decreases in our gaming taxes due to the lower gaming revenues.

 

Other operating expenses decreased by $668,000, or 15.6%.  Expenses related to our food and beverage operations were lower primarily from the lower revenues.  Additionally, we experienced lower expenses as a result of promoting fewer concerts in 2009.

 

General and administrative expenses increased to $1,679,000 in the third quarter of 2009 as compared to $1,572,000 in the third quarter of 2008, primarily due to increased pension costs.

 

Impairment charges during the third quarter of 2009 related to the write off of $2,177,000 of capitalized costs that were for future expansion projects that we will no longer pursue.

 

Depreciation expense remained consistent between the third quarter of 2009 and the third quarter of 2008 at $2,898,000 and $2,885,000, respectively.

 

Interest expense decreased to $569,000 in the third quarter of 2009 as compared to $975,000 in the third quarter of 2008.  Our interest expense decreased due to a lower average interest rate on our credit facility as well as lower average outstanding borrowings on our credit facility.

 

Our effective income tax rate was 40.3% and 41.1% for the three months ended September 30, 2009 and 2008, respectively.

 

Nine Months Ended September 30, 2009 vs. Nine Months Ended September 30, 2008

 

Gaming revenues decreased by $5,834,000, or 3.4%, to $163,385,000 in the first nine months of 2009 primarily as a result of decreased play in our casino.  We believe that the decrease in casino play can be attributed to the general downturn in economic conditions and the related impact on consumer spending.  We believe that the decrease would have been more significant but for the opening of our Phase VI casino expansion in the third quarter of 2008, the opening of our hotel expansion during the latter part of 2007, targeted marketing efforts using our player database and our efforts to provide our customers with enhanced casino products and other amenities.  Our average number of machines increased to 3,045 in the first nine months of 2009 from 2,813 in the first nine months of 2008 due to our Phase VI casino expansion.  As a result of our hotel expansion, our average number of available rooms increased 6.6% compared with the first nine months of 2008.

 

Other operating revenues were $14,039,000 in the first nine months of 2009 as compared to $14,470,000 in the first nine months of 2008.  Net food and beverage revenues decreased $452,000 to $8,925,000 from $9,377,000 in the first nine months of 2008 due primarily to lower banquet sales, and lower revenues in our fine dining restaurant and our deli, partially offset by the opening of the Dover Downs’ Fire & Ice Lounge and our Sweet Perks Too coffee shop in July 2008, and to a lesser extent by the opening of our Race & Sports Book restaurant and Frankie’s Italian restaurant in September 2009.  Cash rooms revenue increased $112,000 in the first nine months of 2009 primarily due to the hotel expansion.  All other operating revenues decreased $91,000.  Other operating revenues do not include the retail amount of promotional allowances which are provided to customers on a complimentary basis of $14,018,000 and $13,787,000 in the first nine months of 2009 and 2008, respectively.

 

Gaming expenses increased by $2,844,000, or 2.2%, primarily as a result of increased gaming taxes and slot machine fees that resulted from legislation passed in June of 2008 that became effective on July 1, 2008, and from legislation passed in May of 2009 that became effective on May 28, 2009.  The impact of this legislation resulted in an increase in our gaming taxes and slot machine fees of approximately $6,400,000 for the first nine months of 2009.  Partially offsetting these increases were decreases in our gaming taxes due to the lower gaming revenues.

 

15



 

Other operating expenses decreased by $898,000, or 7.6%.  Expenses related to our food and beverage operations were lower primarily from the lower revenues.  Additionally, we instituted cost cutting measures that allowed us to improve our profit margin on our other operations.  These decreased expenses were partially offset by expenses related to our new Race & Sports Book restaurant and Frankie’s Italian restaurant in September 2009.  Additionally, we experienced lower expenses as a result of promoting fewer concerts in 2009.

 

General and administrative expenses increased to $5,187,000 in the first nine months of 2009 as compared to $4,932,000 in the first nine months of 2008, primarily due to increased pension costs and the expensing of a $100,000 loan to UG Entertainment LLC related to the Underground Atlanta project.

 

Impairment charges during the first nine months of 2009 related to the write off of $2,177,000 of capitalized costs that were for future expansion projects that we will no longer pursue.

 

Depreciation expense was $8,919,000 in the first nine months of 2009 as compared to $7,745,000 in the first nine months of 2008.  The increase resulted primarily from the opening of our Phase VI casino expansion during the third quarter of 2008.

 

Interest expense decreased by $707,000 due to a lower average interest rate on our credit facility as well as lower average outstanding borrowings on our credit facility.  We capitalized interest of $567,000 in the first nine months of 2008 related to our hotel and casino expansions.  No interest was capitalized in the first nine months of 2009.

 

Our effective income tax rate was 40.9% and 41.0% for the nine months ended September 30, 2009 and 2008, respectively.

 

Liquidity and Capital Resources

 

Net cash provided by operating activities was $18,882,000 for the nine months ended September 30, 2009 compared to $22,529,000 for the nine months ended September 30, 2008.  The decrease was primarily due to lower earnings excluding the non-cash impairment charge.

 

Net cash used in investing activities was $4,125,000 for the nine months ended September 30, 2009 compared to $36,477,000 for the nine months ended September 30, 2008 and was related to capital improvements.  Capital expenditures for the first nine months of 2009 related primarily to final payments made for our Phase VI casino expansion and our new Race & Sports Book operation.  Capital expenditures for the first nine months of 2008 also related primarily to the Phase VI casino expansion, as well as the completion of our hotel expansion.

 

Net cash used in financing activities was $15,120,000 for the nine months ended September 30, 2009 compared to net cash provided by financing activities of $10,232,000 for the nine months ended September 30, 2008.  During the first nine months of 2009, we repaid $10,250,000 of our credit facility.  During the first nine months of 2008, we borrowed an additional $15,650,000 under our credit facility. We repurchased and retired $59,000 of our outstanding common stock during the first nine months of 2009 compared to $1,040,000 during the first nine months of 2008.  We paid $4,811,000 and $4,769,000 in cash dividends during the first nine months of 2009 and 2008, respectively.

 

On October 28, 2009, our Board of Directors declared a quarterly cash dividend on both classes of common stock of $0.05 per share.  The dividend is payable on December 10, 2009 to shareholders of record at the close of business on November 10, 2009.

 

On October 23, 2002, our Board of Directors authorized the repurchase of up to 3,000,000 shares of our outstanding common stock.  The purchases may be made in the open market or in privately negotiated transactions as conditions warrant.  The repurchase authorization has no expiration date, does not obligate us to acquire any specific number of shares and may be suspended at any time.  No purchases of our equity securities were made pursuant to this authorization during the nine months ended September 30, 2009.  During the nine months ended September 30, 2008, we purchased and retired 98,500 shares of our outstanding common stock pursuant to this plan at an average purchase price of $9.09 per share, not including nominal brokerage commissions.  At September 30, 2009, we had remaining repurchase authority of 1,653,333 shares.

 

16



 

Based on current business conditions, we expect to make additional capital expenditures of approximately $600,000 during 2009, primarily for renovations to our existing casino facility, casino equipment and improvements in our food and beverage departments, and final payments for our new race and sports book operation.  Additionally, we expect to contribute approximately $1,300,000 to our pension plans in 2009, of which $1,000,000 was contributed in the first nine months of 2009.

 

We have a credit facility with Wilmington Trust Company that expires on April 17, 2012.  At September 30, 2009, the maximum borrowing limit under the facility was $125,000,000 which reduces to $100,000,000 on January 1, 2010, to $85,000,000 on January 1, 2011 and to $75,000,000 on January 1, 2012.  Interest is based, at our option, upon LIBOR plus a margin that varies between 75 and 125 basis points (125 basis points at September 30, 2009) depending on the ratio of funded debt to earnings before interest, taxes, depreciation and amortization (the “leverage ratio”) or the base rate (the greater of the prime rate or the federal funds rate plus 0.5%) less a margin that varies between 50 and 100 basis points (50 basis points at September 30, 2009) depending on the leverage ratio.  The credit facility has minimum net worth, interest coverage and maximum leverage requirements.  Material adverse changes in our results of operations could impact our ability to satisfy these requirements.  In addition, the credit agreement also includes a material adverse change clause.  The facility is for seasonal funding needs, capital improvements and other general corporate purposes.  At September 30, 2009, we were in compliance with all terms of the facility and there was $98,075,000 outstanding at a weighted average interest rate of 1.59%.  At September 30, 2009, $26,925,000 was available pursuant to the facility.

 

Effective January 15, 2009, we entered into an interest rate swap agreement that effectively converts $35,000,000 of our variable-rate debt to a fixed-rate basis, thereby hedging against the impact of potential interest rate changes.  The agreement terminates on April 17, 2012.  Pursuant to this agreement, we pay a fixed interest rate of 1.74%, plus a margin that varies between 75 and 125 basis points depending on our leverage ratio (125 basis points at September 30, 2009).  In return, the issuing lender refunds to us the variable-rate interest paid to the bank group under our revolving credit agreement on the same notional principal amount, excluding the margin.

 

Effective July 1, 2008, the State enacted legislation that (1) increases the existing surcharge on the portion of slot win that we retain, (2) requires that we pay the costs of all franchise games which were previously shared with the State, and (3) requires that we pay an additional annual amount to a certain horse racing industry organization previously funded by the State.  That legislation also allows us to operate all day on Sundays and eliminates the prior legislatively imposed limit on our use of free promotional slot play.  In May of 2009, the State enacted legislation, which became effective May 28, 2009, that further increases the gaming taxes paid to the State on the portion of slot win that we retain.   The impact of these changes and the additional machine fees were approximately $6,400,000 for the nine months ended September 30, 2009.  Additionally, in connection with the latest tax increases, Delaware has reintroduced sports betting and established a task force to make recommendations for table games.  “Head to head” sports wagering (or wagering on the outcome of a single sporting event), such as is offered in Las Vegas, is the most popular form of sports wagering — but it is not presently permitted in Delaware.   A recent decision by the United States Court of Appeals for the Third Circuit ruled that under federal law sports betting operations in Delaware must be limited to parlay bets on NFL games.  The State of Delaware may still appeal this decision to the United States Supreme Court but has not indicated that it intends to do so.  Further legislation relative to table games will be required in order to establish licensing fees and the allocation of table game proceeds.  The Delaware legislature is out of session for the remainder of this calendar year.  We are unable to predict whether increased revenues from additional gaming opportunities (and associated incremental slot play) will offset the recent tax increases.

 

We expect that our net cash flows from operating activities and funds available from our credit facility will be sufficient to provide for our working capital needs and capital spending requirements at least through the next twelve months, as well as any cash dividends our Board of Directors may declare.  We expect cash flows from operating activities and funds available from our credit facility to also provide for long-term liquidity.

 

17



 

Contractual Obligations

 

At September 30, 2009, we had the following contractual obligations:

 

 

 

 

 

Payments Due by Period

 

 

 

Total

 

2009

 

2010 – 2011

 

2012 – 2013

 

Thereafter

 

Revolving line of credit

 

$

98,075,000

 

$

 

$

13,075,000

 

$

85,000,000

 

$

 

Estimated interest payments on revolving line of credit(a)

 

4,971,000

 

521,000

 

3,953,000

 

497,000

 

 

Pension contributions(b)

 

300,000

 

300,000

 

 

 

 

 

 

$

103,346,000

 

$

821,000

 

$

17,028,000

 

$

85,497,000

 

$

 

 


(a) The future interest payments on our revolving credit agreement were estimated using the current outstanding principal or the maximum borrowing limit as of September 30, 2009, as applicable.  For $35,000,000 of our outstanding borrowings, we used the fixed interest rate per the interest rate swap agreement.  For the remaining $63,075,000 of our outstanding borrowings, we used our interest rates as of September 30, 2009.

 

(b) We expect to contribute approximately $1,300,000 to our pension plans for 2009, of which $1,000,000 was contributed in the first nine months of 2009.  For years subsequent to 2009, we are unable to estimate what our pension contributions will be.

 

Related Party Transactions

 

See NOTE 9 — Related Party Transactions to our consolidated financial statements included elsewhere in this document for a full description of related party transactions.

 

Critical Accounting Policies

 

The accounting policies described below are those considered critical by us in preparing our consolidated financial statements and/or include significant estimates made by management using information available at the time the estimates are made.  As described below, these estimates could change materially if different information or assumptions were used.

 

Property and Equipment

 

Property and equipment are recorded at cost. Depreciation is provided for financial reporting purposes using the straight-line method over estimated useful lives ranging from 5 to 10 years for furniture, fixtures and equipment and up to 40 years for facilities.  These estimates require assumptions that are believed to be reasonable.  We perform reviews for impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.  An impairment loss would be measured as the amount by which the carrying amount of the asset exceeds its fair value.  Generally, fair value will be determined using valuation techniques such as the present value of future cash flows.

 

Accrued Pension Cost

 

The benefits provided by our defined-benefit pension plans are based on years of service and employee’s remuneration over their employment with us.  Accrued pension costs are developed using actuarial principles and assumptions which consider a number of factors, including estimates for the discount rate, assumed rate of compensation increase, and expected long-term rate of return on assets.  Changes in these estimates would impact the amounts that we record in our consolidated financial statements and our funding contributions to the plans.

 

Recent Accounting Pronouncements

 

See NOTE 3—Summary of Significant Accounting Policies to our consolidated financial statements included elsewhere in this document for a description of recent accounting pronouncements including the expected dates of adoption and effects on results of operations, financial condition and cash flows.

 

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Factors That May Affect Operating Results; Forward-Looking Statements

 

In addition to historical information, this Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, relating to our financial condition, profitability, liquidity, resources, business outlook, proposed acquisitions, market forces, corporate strategies, consumer preferences, contractual commitments, legal matters, capital requirements and other matters.  Documents incorporated by reference into this Annual Report may also contain forward-looking statements. 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, we note that a variety of factors could cause our actual results and experience to differ substantially from the anticipated results or other expectations expressed in our 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 document, as well as statements containing phrases such as “in our 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 our business and could cause future outcomes to differ materially from those set forth in our forward-looking statements, including the following factors:

 

·                  general market and economic conditions, including consumer and corporate spending sentiment;

 

·                  success of any expansion to or renovation of our existing facilities or changes in our growth strategies;

 

·                  expansion of gaming in Delaware and neighboring jurisdictions;

 

·                  trends and uncertainties in the gaming industry;

 

·                  patron demographics;

 

·                  our ability to finance future business requirements;

 

·                  our ability to effectively compete in the marketplace;

 

·                  the availability of adequate levels of insurance;

 

·                  our development and potential acquisition of new facilities;

 

·                  our ability to successfully integrate acquired companies and businesses;

 

·                  management retention and development;

 

·                  changes in Federal, state, and local laws and regulations, including environmental, gaming license and tax legislation;

 

·                  the effect of weather conditions or travel on attendance at our facilities;

 

·                  military or other government actions; and

 

·                  national or local catastrophic events.

 

The above risks and uncertainties and the cautionary statements below should be considered in connection with any future forward-looking statements we make. We undertake 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 us to predict all such risk factors, nor can we assess the impact of all such risk factors on our

 

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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, stockholders should not overly rely or attach undue weight to our forward-looking statements as an indication of our actual future results.

 

Our Gaming Activities Compete Directly With Other Gaming Facilities And Other Entertainment Businesses

 

We compete in local and regional markets with horse tracks, off-track betting parlors, state run lotteries, casinos and other gaming facilities.  We cannot be certain that we will maintain our market share or compete more effectively with our competitors.  The introduction or expansion of gaming in neighboring jurisdictions, particularly Maryland, Virginia, West Virginia, Washington, D.C., Pennsylvania or New Jersey, or the legalization of additional gaming venues in Delaware, could have a material adverse effect on our cash flows and results of operations.  From time to time legislation is proposed for adoption in these jurisdictions which if enacted, would further expand state gambling and wagering opportunities, including video lottery (slot) machines at racetracks. Enactment of such legislation could increase our competition and could adversely affect our business, financial condition and overall profitability.  The Maryland Legislature passed legislation in 2008 that will permit up to 15,000 slot machines in five different specific locations throughout Maryland.  The establishment of gaming locations in Maryland remains subject to local zoning prohibitions and may face further opposition.  As the number of machines and the specific locations of the gaming establishments are set by Maryland’s Constitution, any changes to the number of machines or the locations would require amendment to their Constitution.   It is difficult for us to predict what types of gaming establishments may ultimately be built in Maryland or when they are likely to become operational.  Management has estimated that approximately 41% of our total slot win comes from Maryland patrons.  Approximately 70% of our Capital Club® member slot win comes from out of state patrons.  In July 2004, Pennsylvania adopted legislation which authorizes up to 61,000 slot machines at various existing and proposed venues throughout the state.  It is difficult for us to predict the effect that such legislation will ultimately have on us, but several facilities in Pennsylvania began operations by the end of 2006.  Management has estimated that slot win from Pennsylvania patrons currently represents approximately 4% of our total slot win, which is the same as the prior year.  Pursuant to legislation passed in May 2009, Delaware is studying whether additional gaming facilities should be licensed in the State and a number of new venues have been proposed by persons seeking to expand gaming in the State.  We are not able to predict the likelihood of additional gaming venues becoming licensed in Delaware but the addition of more gaming venues could adversely affect our business, financial condition and overall profitability.

 

All Of Our Facilities Are In One Location

 

Our facilities are located adjacent to one another at a single location in Dover, Delaware. Any prolonged disruption of operations at these facilities due to damage or destruction or other reasons could adversely affect our financial condition and results of operations. We maintain property and business interruption insurance to protect against such types of disruption, but there can be no assurance that the proceeds of such insurance would be adequate to repair or rebuild our facilities or to compensate us for lost profits.

 

The Revocation, Suspension Or Modification Of Our Gaming Licenses Would Adversely Affect Our Gaming Business

 

The Delaware State Lottery Office and the Delaware Harness Racing Commission regulate our gaming operations. Our license from the Commission must be renewed on an annual basis. To keep our license for video lottery (slot) machine gaming, we must remain licensed for harness horse racing by the Commission and conduct at least 80 live race days each racing season, subject to the availability of harness race horses. The Commission has broad discretion to reject any application for a license or suspend or revoke a license once it is issued. The Director of the Delaware State Lottery Office (the “Lottery Director”) has broad discretion to revoke, suspend or modify the terms of a video lottery license. Any modification or termination of existing licensing regulations or any revocation, suspension or modification of our licenses could adversely affect our business, financial condition and overall profitability.

 

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Our Gaming Activities Are Subject To Extensive Government Regulation. The Legality of our Gaming Activities May be Subject to Challenge. Additional Government Regulation Or Taxation Of Gaming Activities Could Substantially Reduce Our Revenue Or Profit

 

Video lottery (slot) machine gaming, sports betting, harness horse racing and pari-mutuel wagering are subject to extensive government regulation. Delaware law regulates the win we are entitled to retain and the percentage of commission we are entitled to receive from our gaming revenues, which comprises a significant portion of our overall revenues. The State granted us a license to conduct video lottery (slot) machine and sports betting operations and a license to conduct harness horse races and pari-mutuel wagering. The laws under which these licenses are granted could be modified or repealed at any time and we could be required to terminate our gaming operations. If we are required to terminate our gaming operations or if the amount of the commission we receive from the State for conducting our gaming operations is decreased, our business operations and overall profitability would be significantly impaired.

 

We believe that the prospect of significant additional tax revenue is one of the primary reasons why jurisdictions have legalized gaming. As a result, gaming operators are typically subject to significant taxes and fees in addition to normal federal and state corporate income taxes. These taxes and fees are subject to increase at any time. We pay substantial taxes and fees with respect to our operations and would likely incur similar burdens in any other jurisdiction in which we may conduct gaming operations in the future. Any material increase in taxes or fees, or the adoption of additional taxes or fees, may have a material adverse effect on our future financial results.

 

Delaware’s tax rate ranks among the highest in the nation for gaming operators.  When faced with budget shortfalls, the State legislature has increased the tax rate in recent years, most recently in May 2009.  Gaming operators in high tax jurisdictions are at a disadvantage when competing against operators in low tax jurisdictions since attracting and retaining patrons depends on how much the operator can invest in its facility and what kind of amenities and promotions it can offer.  The latest tax increases have already adversely affected our staffing levels and results of operations.

 

In connection with the latest tax increases, Delaware has reintroduced sports betting and established a task force to make recommendations for table games.  “Head to head” sports wagering (or wagering on the outcome of a single sporting event), such as is offered in Las Vegas, is the most popular form of sports wagering — but it is not presently permitted in Delaware.   A recent decision by the United States Court of Appeals for the Third Circuit ruled that under federal law sports betting operations in Delaware must be limited to parlay bets on NFL games.  The State of Delaware may still appeal this decision to the United States Supreme Court but has not indicated that it intends to do so.  Further legislation relative to table games will be required in order to establish licensing fees and the allocation of table game proceeds.  The Delaware legislature is out of session for the remainder of this calendar year.  We are unable to predict whether increased revenues from additional gaming opportunities (and associated incremental slot play) will offset the recent tax increases.

 

We are subject to various federal, state and local laws and regulations in addition to gaming regulations. These laws and regulations include, but are not limited to, restrictions and conditions concerning alcoholic beverages, environmental matters, employees, currency transactions, taxation, zoning and building codes, and marketing and advertising. Such laws and regulations are always subject to change, can be interpreted differently in the future, and new laws and regulations may be enacted which could adversely affect the tax, regulatory, operational or other aspects of our gaming operations. Furthermore, noncompliance with one or more of these laws and regulations could result in the imposition of substantial penalties against us.

 

We Do Not Own Or Lease Our Gaming Machines And Related Technology

 

We do not own or lease the machines or computer systems used by the State in connection with our video lottery gaming and sports betting operations.  The Lottery Director enters into contracts directly with the providers of the machines and computer systems. The State purchases or leases all equipment and the Lottery Director licenses all technology providers. Our operations could be disrupted if a licensed technology provider violates its agreement with the State or ceases to be licensed for any reason. Such an event would be outside of our control and could adversely affect our gaming revenues.

 

21



 

Due to Our Concentrated Stock Ownership, Stockholders May Have No Effective Voice In Our Management

 

We have elected to be treated as a “controlled corporation” as defined by New York Stock Exchange Rule 303A.  We are a controlled corporation because a single person, Henry B. Tippie, the Chairman of our Board of Directors, controls in excess of fifty percent of our voting power. This means that he has the ability to determine the outcome of the election of directors at our annual meetings and to determine the outcome of many significant corporate transactions, many of which only require the approval of a majority of our voting power. Such a concentration of voting power could also have the effect of delaying or preventing a third party from acquiring us at a premium.  In addition, as a controlled corporation, we are not required to comply with certain New York Stock Exchange rules.

 

Item 3.                                   Quantitative and Qualitative Disclosures About Market Risk

 

We are exposed to financial market risk resulting from changes in interest rates.  We do not engage in speculative or leveraged transactions, nor hold or issue financial instruments for trading purposes.

 

At September 30, 2009, we have marketable securities of $121,000.  These securities, which consist of mutual funds, are classified as available-for-sale and reported at fair-value in our consolidated balance sheet.  Fair-value is determined based on the current market values.

 

At September 30, 2009, there was $98,075,000 outstanding under our revolving credit agreement.  The credit agreement bears interest at our option, upon LIBOR plus a margin that varies between 75 and 125 basis points (125 basis points at September 30, 2009) depending on the ratio of funded debt to earnings before interest, taxes, depreciation and amortization (the “leverage ratio”) or the base rate (the greater of the prime rate or the federal funds rate plus 0.5%) less a margin that varies between 50 and 100 basis points (50 basis points at September 30, 2009) depending on the leverage ratio.  Therefore, we are subject to interest rate risk on the variable component of the interest rate.  Historically, we managed our mix of fixed and variable rate debt by structuring the terms of our debt agreements.  Effective January 15, 2009, we entered into an interest rate swap agreement that effectively converts $35,000,000 of our variable-rate debt to a fixed-rate basis, thereby hedging against the impact of potential interest rate changes on future interest expense.  Pursuant to this agreement, we pay a fixed interest rate of 1.74%, plus a margin that varies between 75 and 125 basis points depending on our leverage ratio (125 basis points at September 30, 2009).  In return, the issuing lender refunds to us the variable-rate interest paid to the bank group under our revolving credit agreement on the same notional principal amount, excluding the margin.  The agreement terminates on April 17, 2012.  As of September 30, 2009, the interest rate swap had a negative fair value of $200,000.  An increase in interest rates of one percent would result in the interest rate swap having a fair value of approximately $650,000 at September 30, 2009.  A decrease in interest rates of one percent would result in the interest rate swap having a negative fair value of approximately $1,073,000 at September 30, 2009. A change in interest rates will have no impact on the interest expense associated with the $35,000,000 of borrowings under the revolving credit agreement that are subject to the interest rate swap agreement.  A change in interest rates of one percent on the outstanding borrowings under the revolving credit agreement at September 30, 2009 not subject to the interest rate swap would cause a change in total annual interest costs of $631,000.  The borrowings under our revolving credit agreement bear interest at the variable rate described above and therefore approximate fair value at September 30, 2009.

 

Item 4.                                   Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

We have established disclosure controls and procedures to ensure that material information relating to us, including our consolidated subsidiaries, is made known to the officers who certify our financial reports and to other members of senior management and the Board of Directors.

 

Based on their evaluation as of September 30, 2009, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective to ensure that the information we are required to disclose in the

 

22



 

reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

 

Changes in Internal Control Over Financial Reporting

 

There have been no changes in our internal control over financial reporting during the fiscal quarter ended September 30, 2009 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

 

Part II — Other Information
 

Item 1.                                   Legal Proceedings

 

We are a party to ordinary routine litigation incidental to our business.  Management does not believe that the resolution of any of these matters is likely to have a material adverse effect on our results of operations, financial condition or cash flows.

 

Item 1A.                          Risk Factors

 

Disclosure regarding the most significant factors that may adversely affect our business, operations, industry or financial position or our future financial performance is set forth under the section entitled, Factors That May Affect Operating Results; Forward-Looking Statements, beginning on page 19.

 

Item 2.                                   Unregistered Sales of Equity Securities and Use of Proceeds

 

On October 23, 2002, our Board of Directors authorized the repurchase of up to 3,000,000 shares of our outstanding common stock.  The purchases may be made in the open market or in privately negotiated transactions as conditions warrant.  The repurchase authorization has no expiration date, does not obligate us to acquire any specific number of shares and may be suspended at any time.  No purchases of our equity securities were made pursuant to this authorization during the nine months ended September 30, 2009.  At September 30, 2009, we had remaining repurchase authority of 1,653,333 shares.

 

Item 3.                                   Defaults Upon Senior Securities

 

None.

 

Item 4.                                   Submission of Matters to a Vote of Security Holders

 

None.

 

Item 5.                                   Other Information

 

None.

 

Item 6.                                   Exhibits

 

31.1               Certification of Chief Executive Officer pursuant to Rule 13a-14(a)

 

31.2               Certification of Chief Financial Officer pursuant to Rule 13a-14(a)

 

32.1               Certification of Chief Executive Officer Pursuant to 18 U.S.C. Sec. 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

32.2               Certification of Chief Financial Officer Pursuant to 18 U.S.C. Sec. 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

23



 

Signatures

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

DATED:

November 6, 2009

 

Dover Downs Gaming & Entertainment, Inc.

 

Registrant

 

 

 

 

 

/s/ Denis McGlynn

 

Denis McGlynn

 

President, Chief Executive Officer

 

and Director

 

 

 

 

 

/s/ Timothy R. Horne

 

Timothy R. Horne

 

Senior Vice President-Finance,

 

Treasurer and

 

Chief Financial Officer

 

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