Company Quick10K Filing
Quick10K
Dover Downs Gaming & Entertainment
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-01-24 Earnings, Exhibits
8-K 2019-01-24 Earnings, Exhibits
8-K 2018-10-25 Earnings, Regulation FD, Exhibits
8-K 2018-10-08 Enter Agreement, Exhibits
8-K 2018-09-13 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-07-26 Earnings, Regulation FD, Exhibits
8-K 2018-07-22 Enter Agreement, Regulation FD, Other Events, Exhibits
8-K 2018-04-25 Shareholder Vote
8-K 2018-01-25 Earnings, Regulation FD, Officers, Exhibits
8-K 2018-01-02 Exhibits
TWOU 2U 3,790
GLOG Gaslog 1,330
NITE Nightstar Therapeutics 853
MUX McEwen Mining 496
SPRT Support.com 41
IKNX Ikonics 16
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DDE 2018-12-31
Part I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
Part II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
Part IV
Item 15. Exhibits, Financial Statement Schedules
Note 1-Business Operations
Note 2-Going Concern
Note 3-Summary of Significant Accounting Policies
Note 4-Property and Equipment
Note 5-Accrued Liabilities
Note 6-Credit Facility
Note 7-Income Taxes
Note 8-Pension Plans
Note 9-Stockholders' Equity
Note 10-Fair Value Measurements
Note 11-Related Party Transactions
Note 12-Commitments and Contingencies
Note 13-Quarterly Results (Unaudited)
EX-21.1 a19-30050_1ex21d1.htm
EX-24.1 a19-30050_1ex24d1.htm
EX-31.1 a19-30050_1ex31d1.htm
EX-31.2 a19-30050_1ex31d2.htm
EX-32.1 a19-30050_1ex32d1.htm
EX-32.2 a19-30050_1ex32d2.htm

Dover Downs Gaming & Entertainment Earnings 2018-12-31

DDE 10K Annual Report

Balance SheetIncome StatementCash Flow

10-K 1 a19-30050_110k.htm 10-K

Table of Contents

 

 

 

United States

Securities and Exchange Commission

Washington, D.C.  20549

 

Form 10-K

 

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

 

For the fiscal year ended December 31, 2018

 

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)

 

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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o  No x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o  No x

 

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 every Interactive Data File required to be submitted 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 such files).  Yes x   No o

 

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. x

 

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

 

Large accelerated filer o  Accelerated filer o  Non-accelerated filer o  Smaller reporting company x    Emerging Growth Company o

 

If an emerging growth company, indicate by the check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

 

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

 

The aggregate market value of common stock held by non-affiliates of the registrant was $29,741,381 as of June 30, 2018 (the last day of our most recently completed second quarter).

 

As of March 13, 2019, the number of shares of each class of the registrant’s common stock outstanding is as follows:

 

Common Stock — 19,002,930 shares    Class A Common Stock — 14,419,623 shares

 

Documents Incorporated by Reference — None.

 

 

 


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Part I

 

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

 

Item 1.                                 Business

 

We are a premier gaming and entertainment resort destination whose operations consist of:

 

·                  Dover Downs Casino — a 165,000-square foot casino complex featuring popular table games, including craps, roulette and card games such as blackjack, baccarat, 3-card and pai gow poker, the latest in slot machine offerings, multi-player electronic table games, a poker room, a Race & Sports Book operation, the Dover Downs’ Fire & Ice Lounge, the Festival Buffet, Pearl Oyster Grill, Frankie’s Italian restaurant, as well as several bars, restaurants and six retail outlets;

 

·                  Dover Downs Hotel and Conference Center — a 500 room hotel with a fine dining restaurant, full-service spa/salon, 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.

 

All of our gaming operations are located at our entertainment complex in Dover, the capital of the State of Delaware.

 

On July 22, 2018, we entered into a definitive merger agreement with Twin River Worldwide Holdings, Inc. (“Twin River”) pursuant to which, at closing, we will become a wholly-owned subsidiary of Twin River.  The merger contemplates that our stockholders will exchange their stock for Twin River common shares representing 7.225% of the equity in the combined company at closing.  Common Stock and Class A Common Stock of Dover Downs will be treated equally in the merger.  The transaction is intended to qualify as a tax-free reorganization (except for cash paid in lieu of fractional shares). The merger agreement requires the approval of our stockholders and a special meeting of our stockholders is scheduled for March 26, 2019.   Closing under the merger agreement is tentatively scheduled to be on or about March 28, 2019, subject to the approval of our stockholders and other customary closing conditions.

 

On May 14, 2018, a U.S. Supreme Court decision overturned the Professional and Amateur Sports Protection Act.  As a result, on June 5, 2018 our Race & Sports Book operation began offering a full range of betting on professional and college sports, including single game wagering on a wide variety of sports, including football, baseball, basketball, boxing, mixed martial arts, hockey and soccer.

 

Dover Downs Gaming & Entertainment, Inc. is a public holding company that has two wholly owned subsidiaries: Dover Downs, Inc. and Dover Downs Gaming 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 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 publicly traded company.

 

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Dover Downs, Inc. is authorized to conduct video lottery, sports wagering, table game and internet gaming operations as one of three “Licensed Agents” under the Delaware State Lottery Code.  Licensing, administration and control of gaming operations in Delaware is under the Delaware State Lottery Office and Delaware’s Department of Safety and Homeland Security, Division of Gaming Enforcement.

 

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 gaming license, we are required to maintain our harness horse racing license.  We have received an annual license from the Commission for the past 50 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.

 

In recent years, the mid-Atlantic region has experienced a significant expansion in gaming venues and gaming offerings.  This has had a significant adverse effect on our visitation numbers, our revenues and our profitability.  Management has estimated that approximately 28% of our gaming win comes from Maryland patrons and approximately 58% of our Capital Club® member gaming win comes from out of state patrons.

 

In June 2018, after several years of effort, legislation providing relief to the State’s gaming industry was enacted.  Senate Substitute No. 1 to Senate Bill 144, which passed with broad support in both the House and Senate, was signed by the Governor on June 30, 2018.  Effective July 1, 2018, the Bill revised the State’s share of gross table game revenues from 29.4% to 15.5%; eliminated the table game license fee for each video lottery agent, provided that the agent increase certain expenditures on marketing, wages and benefits; reduced the State’s share of gross slot machine revenues by 1%, with a further 2% reduction possible, beginning July 1, 2019, for each video lottery agent, provided that the agent make certain qualified capital expenditures; and increased purses to horsemen by 0.6% (over two years).  The Bill also removed the prohibition against video lottery agents operating on Christmas or Easter.

 

Dover Downs Casino

 

Our casino opened in December 1995 with approximately 500 slot machines.  Due to its popularity, the casino has expanded six times since its opening.  The casino complex features 165,000 square-feet of space and houses approximately 2,200 slot machines,  40 table games including blackjack, craps and roulette, and 12 poker tables at December 31, 2018.  We are open for business 24 hours per day, seven days per week.  Historically, our facilities have been open every day of the year except Christmas and Easter.  In 2018, we were open on Christmas and we estimate that the facility was visited by approximately 1.8 million patrons during the year.  Beginning in 2019, our facility will be open every day of the year.

 

Our slot machines range from our popular penny machines to $100 machines in the Premium Slots area and include some of the most popular games found in the country’s major gaming jurisdictions.

 

Our Race & Sports Book operation features a full range of betting on professional and college sports, including single game wagering on a wide variety of sports, including football, baseball, basketball, boxing, mixed martial arts, hockey and soccer, and pari-mutuel wagering on live and simulcast horse races.

 

Dover Downs, Inc. is authorized to conduct video lottery, sports wagering, table game and internet gaming operations as one of three “Licensed Agents” under the Delaware State Lottery Code.  Licensing, administration and control of gaming operations in Delaware is under the Delaware State Lottery Office and Delaware’s Department of Safety and Homeland Security, Division of Gaming Enforcement.  We are required by law to set the payout on our slot machines to customers between 87% and 95%.

 

We use sophisticated database marketing to enable us to develop long-term relationships with our patrons and to target promotions to specific customer segments.  Our Capital Club®, a slots players club and tracking system, allows us to identify customers and to reward their level of play through various marketing programs.  Membership

 

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in this club currently stands at approximately 120,000 active patrons in one of three tiers — Capital Gold®, Capital Platinum® or Platinum Elite®.

 

We have implemented extensive procedures for financial and accounting controls, safekeeping and accounting of monies, and security provisions.  Security over the gaming operations involves the integration of surveillance cameras, observation and oversight by employees, security and gaming staff, and various security features built into our equipment.  The above, when combined with proper internal control procedures and daily monitoring by the Delaware State Lottery Office and Delaware’s Department of Safety and Homeland Security, Division of Gaming Enforcement, are intended to maintain the security, integrity and accountability of our gaming operations.

 

Dover Downs Hotel

 

Our luxury hotel facility, the Dover Downs Hotel and Conference Center, is the largest hotel in the State of Delaware and connects to our casino.  The facility includes 500 rooms, including eleven luxury spa suites, a multi-purpose ballroom/concert hall, a fine dining restaurant, swimming pool and a luxurious 6,000 square-foot full-service spa.  Our facility offers 41,500 square feet of multi-use event space, the most of any hotel in Delaware.  By offering a wide range of entertainment options to our patrons, including concerts featuring prominent entertainers, live boxing, gourmet dining, spa facilities, trade shows and conferences, we believe we are able to attract new patrons and lengthen the stay of current patrons and encourage visits from patrons who may have a more convenient gaming option.  In 2018, hotel occupancy averaged 83%.

 

Dover Downs Raceway

 

Dover Downs Raceway has presented pari-mutuel harness racing events for 50 consecutive years.  Live harness races are conducted at Dover Downs Raceway from November until April and are simulcast to more than 300 tracks and other off-track betting locations across North America on each of our 81 scheduled live race dates.  During our harness racing season, we have historically used the 5/8-mile harness racing track that is located on DVD’s property and is on the inside of its one-mile motorsports superspeedway.  In order to continue this historic use, DVD granted a perpetual easement to the harness track to us at the time of the spin-off.  This perpetual easement allows us to 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 easement requires that we maintain the harness track but does not require the payment of any rent.  Additional amenities include the Winners Circle® Restaurant overlooking the horse racing track.

 

Within our Race & Sports Book operation is the simulcast parlor where our patrons can wager on harness and thoroughbred races received by satellite into our facility year round from numerous tracks across North America.  Large flat screen monitors throughout the area provide views of all races simultaneously and the betting windows are connected to a central computer allowing bets to be received on all races from all tracks.

 

Harness racing in the State of Delaware is governed by the Delaware Harness Racing Commission.  We hold a license from the Harness Racing Commission authorizing us to hold harness race meetings on our premises and to offer pari-mutuel wagering on live and simulcast horse races.

 

In harness racing, competing horses are harnessed to a two-wheeled sulky, which carries the driver.  Pari-mutuel wagering is pooled betting by which the wagering public, not the track, determines the odds and the payoff.  The track retains a commission, which is a percentage of the total amount wagered, or the “handle.”  Simulcasting is the transmission of live horse racing by television, cable or satellite signal from a race track to another facility with pari-mutuel wagering being conducted at the sending track and the receiving facility and a portion of the handle being shared by the sending track and receiving facility.

 

The legislation authorizing our gaming operations under the Delaware Lottery was initially adopted in June 1994, and is referred to as the “Horse Racing Redevelopment Act.”  The Delaware General Assembly’s stated purpose in approving the legislation was to (i) provide non-state supported assistance in the form of increased economic activity and vitality for Delaware’s harness and thoroughbred horse racing industries, which activity and vitality will enable the industry to improve its facilities and breeding stock, and cause increased employment; and (ii) restrict the location of gaming operations to locations where wagering is already permitted and controls exist.  A

 

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portion of the proceeds from our gaming operations is allocated to increase the purses for harness horse races held at Dover Downs Raceway and is intended to provide increased vitality for Delaware’s horse racing industry.

 

We have an agreement with the Delaware Standardbred Owner’s Association, Inc. (“DSOA”) effective October 4, 2017 and continuing through August 31, 2020.  DSOA’s membership consists of owners, trainers and drivers of harness horses participating in harness race meetings at our facilities and elsewhere in the United States and Canada.  The DSOA has been organized and exists for the purpose of promoting the sport of harness racing; improving the lot of owners, drivers and trainers of harness racing horses participating in race meetings; establishing health, welfare and insurance programs for owners, drivers and trainers of harness racing horses; negotiating with harness racing tracks on behalf of owners, trainers, drivers and grooms of harness racing horses; and generally rendering assistance to them whenever and wherever possible.  Under the DSOA agreement, we are required to distribute as purses for races conducted at our facilities a percentage of our retained share of pari-mutuel revenues.

 

We enjoy a good relationship with representatives of DSOA and anticipate that this relationship will continue.  We believe that the DSOA agreement is typical of similar agreements in the industry.

 

Licensing and Regulation by Gaming and Other Authorities

 

General

 

We are subject to extensive federal, state and local regulations related to our operations, particularly our video lottery, sports wagering, table game and internet gaming operations, live harness racing and pari-mutuel wagering.  These operations are contingent upon continued government approval of such operations as forms of legalized gaming and could be subjected at any time to additional or more restrictive regulations.  The following is a brief outline of some of the more significant regulations affecting our gaming operations and not intended as a recitation of all regulations applicable to our business.

 

Delaware law regulates the percentage of commission we are entitled to receive from our gaming activities, which comprises a significant portion of our overall revenues.  Our licenses to conduct video lottery, sports wagering and table game operations, harness horse races and pari-mutuel wagering could be modified or repealed at any time and we could be required to terminate our gaming operations.

 

Video Lottery, Sports Wagering, Table Game and Internet Gaming Operations

 

General.  Video lottery, sports wagering, table game and internet gaming operations are by statute operated and administered by the Director of the Delaware State Lottery Office (the “Lottery Director”) and Delaware’s Department of Safety and Homeland Security, Division of Gaming Enforcement.  We are a Licensed Agent authorized to conduct these activities under the Delaware State Lottery Code.

 

The Lottery Director has discretion to adopt such rules and regulations as the Lottery Director deems necessary or desirable for the efficient and economical operation and administration of the lottery, including (i) type and number of games permitted, (ii) pricing of games, (iii) numbers and sizes of prizes, (iv) manner of payment, (v) value of bills, coins or tokens needed to play, (vi) requirements for licensing agents and service providers, (vii) standards for advertising, marketing and promotional materials used by Licensed Agents, (viii) procedures for accounting and reporting, (ix) registration, kind, type, number and location of  machines or equipment on a Licensed Agent’s premises, (x) security arrangements for the gaming systems, and (xi) reporting and auditing of financial information of Licensed Agents.

 

Licensing Requirements.  We were granted a gaming license on December 13, 1995.  Initially, the license was for video lottery operations but it now extends to our sports wagering, table game and internet gaming operations.  Delaware gaming licenses do not have an expiration date.

 

There are continuing licensure requirements for all officers, directors, key employees and persons who own directly or indirectly 10% or more of a Licensed Agent, which licensure requirements shall include the satisfaction of such security, fitness and background standards as the Lottery Director may deem necessary relating to competence, honesty and integrity, such that a person’s reputation, habits and associations do not pose a threat to the

 

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public interest of the State or to the reputation of or effective regulation and control of the lottery; it being specifically understood that any person convicted of any felony, a crime involving gambling, or a crime of moral turpitude within 10 years prior to applying for a license or at any time thereafter shall be deemed unfit.

 

There are similar licensure requirements for providers of equipment and certain companies that seek to provide services to a Licensed Agent.

 

Revocation, Suspension or Modification of License.  The Lottery Director may revoke or suspend the license of a Licensed Agent, such as ours, for “cause.”  “Cause” is broadly defined and could potentially include falsifying any application for license or report required by the rules and regulations, the failure to report any information required by the rules and regulations, the material violation of any rules and regulations promulgated by the Lottery Director or any conduct by the licensee which undermines the public confidence in the lottery or serves the interest of organized gambling or crime and criminals in any manner.  A license may be revoked for an unintentional violation of any federal, state or local law, rule or regulation provided that the violation is not cured within a reasonable time as determined by the Lottery Director.  A hearing officer’s decision revoking or suspending the license shall be appealable to the Delaware Superior Court under the provisions of the Administrative Procedures Act.  All existing or new officers, directors, key employees and owners of a Licensed Agent are subject to background investigation.  Failure to satisfy the background investigation may constitute cause for suspension or revocation of the License.

 

Ownership Changes.  Under Delaware law, a change of ownership of a Licensed Agent will automatically terminate its license 90 days after the change of ownership occurs, unless the Lottery Director determines after application to issue a new license to the new owners.  Change of ownership may occur if any new individual or entity acquires, directly or indirectly, 10% or more of the Licensed Agent or if more than 20% of the legal or beneficial interest in the Licensed Agent is transferred, whether by direct or indirect means.  The Lottery Director may require extensive background investigations of any new owner acquiring a 10% or greater interest in a Licensed Agent, including criminal background checks.  Accordingly, we have a restrictive legend on our shares of common stock which require that (a) any holders of common stock found to be disqualified or unsuitable or not possessing the qualifications required by any appropriate gaming authority could be required to dispose of such stock and (b) any holder of common stock intending to acquire 10% or more of our outstanding common stock must first obtain prior written approval from the Delaware State Lottery Office.

 

Harness Racing Events.  In order to maintain our gaming license with the Delaware Lottery, we are required to maintain our license for harness horse racing with the Harness Racing Commission and must conduct a minimum of 80 live race days each racing season, subject to the availability of racing stock.

 

Control Over Equipment and Technology.  We do not own or lease the slot machines, betting terminals, 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 slot machines and computer systems and we are not a party to those negotiations.  The State purchases or leases all equipment and the Lottery Director licenses all technology providers and we share in the expense.  Similarly, but at no expense to us, the Lottery Director enters into contracts directly with internet service 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.

 

Harness Racing and Pari-Mutuel Wagering

 

Licensing Requirements.  Harness racing in the State of Delaware is governed by the Delaware Harness Racing Commission.  We hold a license from the Commission by which we are authorized to hold harness race meetings on our premises and to make, conduct and sell pools by the use of pari-mutuel machines or totalizators.  The license must be renewed on an annual basis.  The Commission may reject an application for a license for any cause which it deems sufficient and the action of the Commission is final.  The Commission may also suspend or revoke a license which it has issued and its action in that respect is final, subject to review, upon questions of law only, by the Superior Court of the County within which the license was granted.  The action of the Commission stands unless and until reversed by the Court.  We have received an annual license from the Commission for the past 49 consecutive years and management believes that our relationship with the Commission remains good.  However, there can be no assurances that we will continue to be licensed by the Commission in the future.

 

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Under the law, the Commission has broad powers of supervision and regulation.  The Commission may prescribe rules, regulations and conditions under which all harness racing and betting pools shall be conducted; may regulate the performance of any service or the sale of any article on the premises of a licensee; may compel the production of books and documents of a licensee and require that books and records be kept in such manner as the Commission may prescribe; may visit, investigate and place accountants or other persons as it deems necessary, at the expense of a licensee, in the office, track or place of business of a licensee; may summon witnesses and administer oaths; and may require the removal of any employee or official employed by a licensee.  All proposed extensions, additions or improvements to the property of a licensee are subject to the approval of the Commission.

 

The Commission is required to inspect a licensee’s racing plant not less than five days prior to a race meeting and may withdraw the license for the meeting if the racing plant is found to be unsafe for animals or persons or is not rendered safe prior to the opening of the meeting.  A licensee must deposit with the Commission, ten days before a race meeting, a policy of insurance against personal injury liability in an amount to be approved by the Commission.

 

USTA.  Any license granted by the Commission may also be subject to such reasonable rules and regulations as may be prescribed from time to time by the United States Trotting Association (“USTA”).  The USTA sets various rules relating to the conduct of harness racing.  According to its Articles of Incorporation, the purposes of the USTA shall include the improvement of the breed of trotting and pacing horses, the establishment of rules regulating standards and the registration of such horses thereunder, the advancement and promotion of the interest of harness racing in the United States, the investigation, ascertainment and registration of the pedigrees of such horses, the regulation and government of the conduct of the sport of harness racing, the establishment of rules for the conduct thereof, not inconsistent with the laws of the various states, and the sanctioning of the holding of exhibitions of such horses and meetings for the racing thereof, the issuance of licenses to qualified persons to officiate at harness race meetings and exhibitions, the issuance of licenses to the owners of horses permitting the exhibition and racing of such horses and the qualification thereof, the issuance of licenses to drivers of horses participating in such races or exhibitions, and providing for the enforcement of the rules promulgated by the USTA, and providing for the fixing of penalties, fines, and the suspension or expulsion from membership, or privileges or for any other misconduct detrimental to the sport.

 

Gaming Taxes and Fees

 

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 gaming operations and the State’s share of our gaming win has been increased several times.  In addition, 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.

 

Compliance with Other Laws

 

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.  Laws and regulations governing the use and development of real estate may delay or complicate any improvements we choose to make and/or increase the costs of any improvements or our costs of operating.

 

The Internal Revenue Service (“IRS”) requires operators of casinos located in the United States to file information returns for United States citizens, including names and addresses of winners, for all winnings in excess of stipulated amounts.  The IRS also requires operators to withhold taxes on certain winnings.

 

Regulations adopted by the Financial Crimes Enforcement Network of the Treasury Department (“FinCEN”) require us to report currency transactions in excess of stipulated amounts occurring within a gaming day, including identification of the patron by name and social security number.  FinCEN has also established regulations that require us to file suspicious activity reports on all transactions that we know, suspect, or have reason to suspect fall

 

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into specific categories that are deemed to be suspicious.  We believe our programs meet the requirements of the applicable regulations.

 

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 the gaming industry and our company.  Furthermore, noncompliance with one or more of these laws and regulation could result in the imposition of substantial penalties against us.

 

Competition

 

The gaming industry in the United States is intensely competitive and features many participants, including riverboat casinos, dockside casinos, land-based casinos and racinos, slot and poker machines, whether or not located in casinos, native American gaming, pari-mutuel wagering on live and simulcast horse racing, off-track betting, state run lotteries, internet gambling and other forms of gambling.  Gaming competition is particularly intense in each of these sectors.

 

We compete in local and regional markets with casinos, horse tracks and racinos, off-track betting parlors, state run lotteries, internet gambling and other forms of gaming.  In a broader sense, our gaming operations face competition from all manner of leisure and entertainment activities, including shopping, collegiate and professional athletic events, television and movies, concerts and travel.  Many of our gaming competitors are in jurisdictions with a closer proximity to large population bases and with a lower tax burden.  As gambling opportunities in the region continue to proliferate, there can be no assurance that we will maintain our state or regional market share or be able to compete effectively with our competitors and this could adversely affect our business, financial condition and overall profitability.

 

The introduction or expansion of gaming in neighboring jurisdictions, particularly Maryland, Virginia, West Virginia, Washington, D.C., Pennsylvania or New Jersey, the proliferation of internet gaming or the legalization of additional gaming venues in Delaware, could have a material adverse effect on our cash flows and results of operations.  Delaware is surrounded by jurisdictions which permit slot machines and table games, such as Pennsylvania, New Jersey, Maryland and West Virginia.

 

In recent years, the mid-Atlantic region has experienced a significant expansion in gaming venues and gaming offerings.  This has had a significant adverse effect on our visitation numbers, our revenues and our profitability.  Management has estimated that approximately 28% of our gaming win comes from Maryland patrons and approximately 58% of our Capital Club® member gaming win comes from out of state patrons.

 

All states in our geographic region have state-run lotteries.  State run lotteries are no longer prohibited by federal law from offering lottery products or other gaming opportunities over the internet or through mobile applications if permitted by state law.

 

Several states have passed legislation authorizing internet gaming and other states are pursuing or exploring the legalization of internet gaming in various forms — from fantasy sports to state run lotteries to privately run casino games, including online poker.  States are aggressively seeking new revenue streams through gaming.

 

Competition in horse racing is varied since racetracks in the surrounding area differ in many respects.  Some tracks only offer thoroughbred or harness horse racing; others have both.  Tracks have live racing seasons that may or may not overlap with neighboring tracks.  Depending on the purse structure, tracks that are farther apart may compete with each other more for quality horses than for patrons.

 

Live harness racing also competes with simulcasts of thoroughbred and harness racing.  All racetracks in the region are involved with simulcasting.  In addition, a number of off-track betting parlors compete with track simulcasting activities.  With respect to the simulcasting of our live harness races to tracks and other locations, our simulcast signals are in direct competition with live races at the receiving track and other races being simulcast to the receiving location.

 

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Within the State of Delaware, we face 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 April and October.  Delaware Park, a northern Delaware track, conducts thoroughbred horse racing from May through mid-October.  There is no overlap presently with our live race season from Harrington or Delaware Park.

 

We compete with harness and thoroughbred racing and simulcasting facilities in the neighboring states of Pennsylvania, Maryland and New Jersey.  We also receive simulcast harness and thoroughbred races from approximately 80 race tracks.

 

Competition for our hotel varies and consists of local and regional competition.  With respect to hotel accommodations only, we compete with a variety of nearby hotels in the Dover area; however, none of these offer the luxury accommodations and amenities that we offer.  With respect to trade shows, conferences, concerts and hotel room packages tied to these events or tied to our casino and other gaming offerings, we compete at a regional level with the other gaming operations referred to above and with convention centers and larger hotels in major cities such as Philadelphia, Washington, D.C., Baltimore and Wilmington.

 

In addition, our activities compete with other leisure, entertainment and recreational activities.

 

Mission and Strategy

 

We offer a unique gaming and entertainment experience and make available to our patrons a number of different options: slot machine gaming, table game wagering, sports wagering, live harness horse racing, luxury hotel accommodations, fine dining, full service spa, national recording and entertainment acts, night club, retail shopping, trade shows and conferences, and simulcasting of thoroughbred and harness horse races from across North America.  Our mission is simple: to provide all of our customers a premier gaming and entertainment experience with a focus on unparalleled customer service.  We foster customer loyalty by following this mission, focus on our most valuable customers, improve the quality of our gaming positions, enhance our gaming products with additional entertainment offerings and create an exciting gaming environment while focusing on areas that we believe will increase our revenue and profitability.

 

We use a sophisticated database marketing program to enable us to develop long-term relationships with our patrons and to target promotions to specific customer segments.  Our Capital Club, a players club and tracking system, allows us to identify customers and to reward their level of play through various marketing programs.  Membership in this club currently stands at approximately 120,000 active patrons.  We attempt to increase attendance at both our casino and hotel through effective promotional use of our database and by making improvements to our facilities and gaming offerings based on what we learn from our Capital Club members.  For example, we continually add the most popular machines, have added live table games and sports betting, as well as multi-player electronic table games and other amenities requested by our customers.  We began offering internet gaming in 2013.

 

Our luxury hotel facility, the Dover Downs Hotel, connects to our casino and is the only casino hotel in the State.  By offering a wide range of entertainment options to our patrons, including concerts featuring prominent entertainers, live boxing, gourmet dining, spa amenities, trade shows and conferences, we believe we are able to attract new patrons and lengthen the stay of current patrons.

 

Seasonality

 

Our quarterly operating results are affected by weather and the general economic conditions in the United States.  Additionally, given our high level of fixed operating costs, fluctuations in our business volume can lead to variations in quarterly operating results.  The results for any quarter are not necessarily indicative of results to be expected in any future period.

 

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Employees

 

As of December 31, 2018, we had 1,388 employees, of which 906 were full-time.  We engage temporary personnel to assist during our live harness racing season.  None of our employees are party to a collective bargaining agreement and we believe that our relationship with our employees is good.

 

Available Information

 

We file annual, quarterly and current reports, information statements and other information with the United States Securities and Exchange Commission (the “SEC”).  The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.  The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.  The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.  The address of that site is www.sec.gov.

 

Internet Address

 

We maintain a website where additional information concerning our business and various upcoming events can be found.  The address of our Internet website is www.doverdowns.com.  We provide a link on our website, under Investor Relations, to our filings with the SEC, including our annual report on Form 10-K, proxy statement, Section 16 reports, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports.

 

Item 1A.                        Risk Factors

 

Not applicable.

 

Item 1B.                        Unresolved Staff Comments

 

We have not received any written comments that were issued within 180 days before December 31, 2018, the end of the fiscal year covered by this report, from the SEC staff regarding our periodic or current reports under the Securities Exchange Act of 1934 that remain unresolved.

 

Item 2.                                 Properties

 

We own our principal executive office located in Dover, Delaware and the Dover Downs Hotel & Casino.  The casino is a 165,000-square foot complex featuring popular table games, including craps, roulette and card games such as blackjack, baccarat, 3-card and pai gow poker, the latest in slot machine offerings, multi-player electronic table games, a poker room, and our Race & Sports Book operation.  The hotel is a 500 room hotel with conference, banquet, ballroom and concert hall facilities.  We have a perpetual easement to Dover Downs Raceway — our harness racing track.  Our casino offers pari-mutuel wagering on live racing from this raceway and simulcast horse races.  The casino facility includes the Dover Downs’ Fire & Ice Lounge, the Festival Buffet, Pearl Oyster Grill, Frankie’s Italian restaurant, as well as several bars, restaurants and six retail outlets, all of which are located at our entertainment complex situated on approximately 69 acres of owned land.

 

Prior to our spin-off from DVD in 2002, both companies shared certain real property in Dover, Delaware.  At the time of the spin-off, some of this real property was transferred to us to ensure that the real property holdings of each company was aligned with its past uses and future business needs.  During our harness racing season, we have historically used the 5/8-mile harness racing track that is located on DVD’s property and is on the inside of its one-mile motorsports superspeedway.  In order to continue this historic use, DVD granted a perpetual easement to the harness track to us at the time of the spin-off.  This perpetual easement allows us to 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 easement requires that we maintain the harness track but does not require the payment of any rent.

 

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Various easements and agreements relative to access, utilities and parking have also been entered into between us and DVD relative to our respective Dover, Delaware facilities.  DVD pays rent to us for the lease of its principal executive office space.  We also allow DVD to use our indoor grandstands in connection with DVD’s two annual motorsports weekends.  We do not assess rent for this nominal use and may discontinue the use at our discretion.

 

Intellectual Property

 

We have various registered and common law trademark rights, including, but not limited to, “Dover Downs Gaming & Entertainment,” “Dover Downs,” “Dover Downs Hotel & Casino,” “Capital Club,” “Capital Gold,” “Capital Platinum,” “Capital Elite,” “Delaware Poker Championship,” “Come Play!,” “UnREEL,” “Wonder Spin,” “Sweet Perks,” “Gazebo Bar,” “Winners Circle,” “Michele’s” and “Rollins Center.”  We also have limited rights to use the names and logos of other businesses in connection with promoting our facilities and special events at those facilities.  Due to the value of our intellectual property rights for promotional purposes, it is our intention to vigorously protect these rights, through litigation, if necessary.

 

Item 3.                                 Legal Proceedings

 

Securities class action lawsuits: Tammy Raul v. Dover Downs Gaming & Entertainment, Inc. et al., filed in The United States District Court for the Southern District of New York (case No. 1:18-cv-11506-NRB).   Finley v. Dover Downs Gaming & Entertainment, Inc. et al., filed in The United States District Court for the Southern District of New York (case No.1:18-cv-12111).

 

Two similar putative class action lawsuits have been filed against us and all of our directors.  The plaintiffs seek class certification on behalf of our public stockholders and allege violations of federal securities laws in connection with our proposed merger with Twin River Worldwide Holdings, Inc. Both cases were filed in December of 2018 on the basis of our preliminary proxy filing with the Securities and Exchange Commission which described the merger.  Among other things, plaintiffs sought to direct us to amend our proxy statement to enhance our disclosure, sought unspecified damages, and sought the award of attorneys’ fees and costs. We have amended our proxy disclosure, primarily in response to SEC comments, and believe the plaintiffs have no further suggested revisions to our disclosure at this time, although they still intend to pursue damages, attorneys’ fees and costs.  We believe the allegations in these cases lack merit.

 

We are also 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 us. However, we cannot predict with any certainty the final outcome of these proceedings, and there can be no assurance that their ultimate resolution will not have a material adverse effect on our consolidated financial position, results of operations, or cash flows.

 

Item 4.                                 Mine Safety Disclosures

 

Not applicable.

 

Executive Officers Of The Registrant

 

See Part III, Item 10 of this Annual Report on Form 10-K for information about our executive officers.

 

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Part II

 

Item 5.                                 Market For Registrant’s Common Equity, Related Stockholder Matters And Issuer Purchases Of Equity Securities

 

Our common stock is listed on the New York Stock Exchange under the ticker symbol “DDE.”  Our Class A common stock is not publicly traded but is freely convertible on a one-for-one basis into common stock at any time at the option of the holder thereof.  As of March 13, 2019, there were 19,002,930 shares of common stock and 14,419,623 shares of Class A common stock outstanding.  There were 503 holders of record for common stock and 8 holders of record for Class A common stock.

 

The high and low sales prices for our common stock on the New York Stock Exchange and the dividends declared per share for the years ended December 31, 2018 and 2017 are detailed in the following table.

 

Quarter Ended:

 

High 

 

Low  

 

Dividends
Declared

 

December 31, 2018

 

$

2.83

 

$

2.01

 

$

 

September 30, 2018

 

$

3.49

 

$

1.78

 

$

 

June 30, 2018

 

$

2.40

 

$

1.25

 

$

 

March 31, 2018

 

$

1.79

 

$

0.96

 

$

 

 

 

 

 

 

 

 

 

December 31, 2017

 

$

1.07

 

$

0.92

 

$

 

September 30, 2017

 

$

1.18

 

$

0.95

 

$

 

June 30, 2017

 

$

1.18

 

$

1.01

 

$

 

March 31, 2017

 

$

1.17

 

$

1.01

 

$

 

 

On January 23, 2013, our Board of Directors suspended the quarterly dividend.  In addition, our credit facility prohibits the payment of dividends.

 

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 2018.  At December 31, 2018, we had remaining repurchase authority of 1,653,333 shares.  At present we are not permitted to make such purchases under our credit facility.

 

Item 6.           Selected Financial Data

 

Not applicable.

 

Item 7.                                 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 premier gaming and entertainment resort destination whose operations consist of:

 

·                  Dover Downs Casino — a 165,000-square foot casino complex featuring popular table games, including craps, roulette and card games such as blackjack, baccarat, 3-card and pai gow poker, the latest in slot machine offerings, multi-player electronic table games, a poker room, a Race & Sports Book operation, the Dover Downs’ Fire & Ice Lounge, the Festival Buffet, Pearl Oyster Grill, Frankie’s Italian restaurant, as well as several bars, restaurants and six retail outlets;

 

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·                  Dover Downs Hotel and Conference Center — a 500 room hotel with a fine dining restaurant, full-service spa/salon, 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.

 

All of our gaming operations are located at our entertainment complex in Dover, the capital of the State of Delaware.

 

On July 22, 2018, we entered into a definitive merger agreement with Twin River Worldwide Holdings, Inc. (“Twin River”) pursuant to which, at closing, we will become a wholly-owned subsidiary of Twin River.  The merger contemplates that our stockholders will exchange their stock for Twin River common shares representing 7.225% of the equity in the combined company at closing.  Common Stock and Class A Common Stock of Dover Downs will be treated equally in the merger.  The transaction is intended to qualify as a tax-free reorganization (except for cash paid in lieu of fractional shares). The merger agreement requires the approval of our stockholders and a special meeting of our stockholders is scheduled for March 26, 2019.   Closing under the merger agreement is tentatively scheduled to be on or about March 28, 2019, subject to the approval of our stockholders and other customary closing conditions.

 

Approximately 80% of our revenue is gaming revenue.  Several factors contribute to the 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 and table games available,

·                  The quality of the physical property,

·                  Other amenities offered on site,

·                  Customer service levels,

·                  Marketing programs, and

·                  General economic conditions.

 

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 2010 United States Census, approximately 36.8 million people live within 150 miles of our complex.  There are significant barriers to entry related to the gaming business in Delaware.  By law, currently only the three existing horse racing facilities in the State are allowed to have a video lottery gaming license.  In recent years, additional gaming venues have opened in Maryland and Pennsylvania.  These venues are having a significant adverse effect on our visitation numbers, our revenues and our profitability.  Our property is similar to properties found in the country’s largest gaming markets.  Our luxury hotel is the only casino-hotel in Delaware, providing a strong marketing tool, especially to higher-end players.  We also utilize our state-of-the-art slot marketing system to allow for more efficient marketing programs and the highest levels of customer service.  Our facility offers approximately 41,500 square feet of multi-use event space — the most space of any hotel in Delaware.

 

Because all of our gaming 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 a premier gaming and entertainment resort 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 win from slot machine, table games, internet gaming and sports wagering and (ii) commissions from pari-mutuel wagering.  Other operating revenues consist of hotel room sales, food and beverage sales and other miscellaneous income and include actual amounts paid for such services, the value of loyalty points redeemed for such services, and the portion of gaming win allocated to complimentary goods and services.

 

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For the casino 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 casino operations, collects the State’s share of the win and the amount due to the vendors under contract with the State who provide the 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 slot machines and associated computer systems, and (iii) for harness horse racing purses.  We recognize revenues from sports wagering commissions when the event occurs.  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.  Amounts received in advance for hotel rooms, convention bookings and advance ticket sales are recorded as deferred revenue until the services are provided to the customer, at which point revenue is recognized.

 

Year Ended December 31, 2018 vs. Year Ended December 31, 2017

 

Gaming revenues increased by $1,936,000, or 1.4%, to $140,620,000 in 2018 primarily as a result of higher slot machine play and increased revenues from table games and sports wagering.  Partially offsetting these increases was a decline in horse racing commissions and an increase in complimentary items provided to customers.

 

Other operating revenues were $39,311,000 in 2018 as compared to $37,744,000 in 2017.  Rooms revenue increased $344,000 to $10,859,000 in 2018 from $10,515,000 in 2017 due to higher tour & travel and convention sales.  Food and beverage revenues increased $1,329,000 to $22,942,000 in 2018 from $21,613,000 in 2017 due primarily to the opening of our new Pearl Oyster Grill and higher sales in our Garden Café, Frankie’s Italian restaurant, Festival Buffet, and most of our other food and beverage outlets.

 

Gaming expenses remained consistent at $133,967,000 in 2018 as compared to $133,921,000 in 2017.  Increases from the higher sports betting revenues and higher maintenance and miscellaneous operating costs were offset by a decrease in the state’s share of table game win.

 

Other operating expenses increased to $30,414,000 in 2018 from $28,944,000 in 2017, primarily as a result of increased food and beverage expenses as a result of the higher revenues, increased payroll and benefit costs, and the opening of our new Pearl Oyster Grill.

 

General and administrative expenses remained consistent at $5,324,000 in 2018 as compared to $5,321,000 in 2017.

 

Merger costs relate to legal, accounting and investment banking expenses incurred in connection with the aforementioned merger with Twin River Worldwide Holdings, Inc.

 

Depreciation expense increased to $8,231,000 in 2018 from $8,168,000 in 2017 as a result of capital spending.

 

Interest expense was $790,000 in 2018 as compared to $840,000 in 2017.  In 2018, lower outstanding borrowings were partially offset by slightly higher interest rates.

 

Earnings (loss) before income taxes were $417,000 in 2018 as compared to ($619,000) in 2017.  Excluding the merger costs in 2018, our adjusted earnings (loss) before income taxes were $1,507,000 in 2018 as compared to ($619,000) in 2017.

 

 

 

2018

 

2017

 

Earnings (loss) before income taxes

 

$

417,000

 

$

(619,000

)

Merger costs

 

1,090,000

 

 

Adjusted earnings (loss) before income taxes

 

$

1,507,000

 

$

(619,000

)

 

Our effective income tax rate was 92.8% in 2018 as compared to (84.5%) in 2017.  The 2018 rate resulted from the small pretax loss being impacted by merger costs which are non-deductible for income tax purposes.  The 2017 rate was impacted by the passage of the Tax Cuts and Jobs Act in December which lowered our federal income tax rate to 21% beginning in 2018.  This required us to revalue our net deferred federal tax assets at December 31, 2017.  The

 

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2018 and 2017 rates were impacted by the income tax effects derived from the vesting of restricted stock awards during the first quarter of 2018 and 2017.

 

Net earnings (loss) were $30,000 in 2018 as compared to ($1,142,000) in 2017.  Excluding the merger costs and the impact of the Tax Cuts and Jobs Act, our adjusted net earnings (loss) were $1,120,000 in 2018 as compared to ($480,000) in 2017.

 

 

 

2018

 

2017

 

Net earnings (loss)

 

$

30,000

 

$

(1,142,000

)

Merger costs

 

1,090,000

 

 

Impact of the Tax Cuts and Jobs Act

 

 

662,000

 

Adjusted net earnings (loss)

 

$

1,120,000

 

$

(480,000

)

 

The above financial information is presented using other than generally accepted accounting principles (“non-GAAP”) and is reconciled to comparable information presented using GAAP.  Non-GAAP adjusted earnings (loss) before income taxes is derived by adjusting amounts determined in accordance with GAAP for the merger costs.  Non-GAAP adjusted net earnings (loss) is derived by adjusting amounts determined in accordance with GAAP for the merger costs and the impact of the Tax Cuts and Jobs Act.  We believe such non-GAAP information is useful and meaningful to investors, and is used by investors and us to assess core operations.  This non-GAAP financial information may not be comparable to similarly titled measures used by other entities and should not be considered as an alternative to net earnings (loss) which is determined in accordance with GAAP.

 

Year Ended December 31, 2017 vs. Year Ended December 31, 2016

 

Gaming revenues decreased by $4,558,000, or 3.2%, to $138,684,000 in 2017 primarily as a result of lower slot machine play, and to a lesser extent a decline in horse racing commissions and a lower table game hold percentage.  Partially offsetting these decreases was an increase in revenues from sports wagering.  We believe that our revenues continue to be negatively impacted from the overall increased competition in regional gaming markets.

 

Other operating revenues were $37,744,000 in 2017 as compared to $38,537,000 in 2016.  Rooms revenue decreased $317,000 to $10,515,000 in 2017 from $10,832,000 in 2016 due primarily to lower transient and convention sales, partially offset by higher tour & travel sales.  Food and beverage revenues decreased $329,000 to $21,613,000 in 2017 from $21,942,000 in 2016 due primarily to lower banquet sales.  Lower concert revenues in 2017 as compared to 2016 also contributed to the decrease in other operating revenues.

 

Gaming expenses decreased by $3,474,000, or 2.5%, primarily as a result of the lower gaming revenues.

 

Other operating expenses decreased to $28,944,000 in 2017 from $29,033,000 in 2016, primarily as a result of lower employee wages and benefit costs, partially offset by increased food costs.

 

General and administrative expenses decreased to $5,321,000 in 2017 from $5,509,000 in 2016 primarily as a result of lower wages and benefit costs.

 

Depreciation expense increased to $8,168,000 in 2017 from $7,743,000 in 2016 as a result of capital spending in 2017 and 2016.

 

Interest expense decreased by $23,000 primarily due to lower outstanding borrowings in 2017, partially offset by slightly higher interest rates.

 

Our effective income tax rate was (84.5%) in 2017 as compared to 44.7% in 2016.  The 2017 rate was impacted by the passage of the Tax Cuts and Jobs Act in December which lowered our federal income tax rate to 21% beginning in 2018.  This required us to revalue our net deferred federal tax assets at December 31, 2017.

 

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Net (loss) earnings were ($1,142,000) in 2017 as compared to $758,000 in 2016.  Excluding the impact of the Tax Cuts and Jobs Act, our adjusted net (loss) earnings were ($480,000) in 2017 as compared to $786,000 in 2016.

 

 

 

2017

 

2016

 

Net (loss) earnings

 

$

(1,142,000

)

$

758,000

 

Impact of the Tax Cuts and Jobs Act

 

662,000

 

 

Adjusted net (loss) earnings

 

$

(480,000

)

$

758,000

 

 

The above financial information is presented using other than generally accepted accounting principles (“non-GAAP”) and is reconciled to comparable information presented using GAAP.  Non-GAAP adjusted net (loss) earnings is derived by adjusting amounts determined in accordance with GAAP for the impact of the Tax Cuts and Jobs Act.  We believe such non-GAAP information is useful and meaningful to investors, and is used by investors and us to assess core operations.  This non-GAAP financial information may not be comparable to similarly titled measures used by other entities and should not be considered as an alternative to net (loss) earnings which is determined in accordance with GAAP.

 

Liquidity and Capital Resources

 

Net cash provided by operating activities was $9,995,000 in 2018 compared to $6,700,000 in 2017.  The increase was primarily due to the higher earnings before depreciation, the timing of payments to the Delaware State Lottery Office for its portion of the slot win, and the timing of payments to vendors.

 

Net cash used in investing activities was $4,838,000 in 2018 compared to $2,204,000 in 2017 and was primarily related to capital improvements in both periods.  Capital expenditures in 2018 related primarily to hotel room renovations, facility upgrades, equipment purchases, information systems upgrades, and construction and equipment associated with our new Pearl Oyster Grill.  Capital expenditures in 2017 related primarily to hotel room renovations, facility and equipment and information systems upgrades.

 

Net cash used in financing activities was $5,007,000 in 2018 compared to $5,459,000 in 2017.  During 2018, we had net repayments of $4,900,000 on our credit facility compared to $5,350,000 during 2017.  We repurchased and retired $74,000 of our outstanding common stock during each of 2018 and 2017.  These purchases were made from employees in connection with the vesting of restricted stock awards under our stock incentive plan.  As a result of amending our credit agreement in 2018 and 2017, we paid $33,000 and $35,000 in bank fees, respectively.

 

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 2018 or 2017.  At December 31, 2018, we had remaining repurchase authority of 1,653,333 shares. At present we are not permitted to make such purchases under our credit facility.

 

Based on current business conditions, we expect to make capital expenditures of approximately $4,000,000 - $5,000,000 during 2019.  Additionally, we expect to contribute approximately $460,000 to our defined benefit pension plans in 2019.

 

On September 13, 2018, we modified our $32,500,000 credit agreement with our bank group.  The credit facility was modified to extend the maturity date to September 30, 2019.  Interest is based upon LIBOR plus a margin that varies between 150 and 350 basis points (175 basis points at December 31, 2018) depending on the leverage ratio.  The credit facility is secured by a mortgage on and security interest in all real and personal property owned by our wholly owned subsidiary Dover Downs, Inc.  The credit facility contains certain covenants including maximum ratio of funded debt to earnings before interest, taxes, depreciation and amortization (the “leverage ratio”), and a minimum fixed charge coverage ratio.  Material adverse changes in our results of operations could impact our ability to satisfy these requirements.  In addition, the credit agreement includes a material adverse change clause and prohibits the payment of dividends.  The credit facility provides for seasonal funding needs, capital improvements and other general corporate purposes.  At December 31, 2018, there was $15,000,000 outstanding at an interest rate of 4.25% and $17,500,000 was available pursuant to the facility.  Additionally, we were in compliance with all terms of the

 

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facility at December 31, 2018 and we expect to be in compliance with the financial covenants, and all other covenants, for all measurement periods through September 30, 2019, the expiration date of the facility.

 

The credit facility is classified as a current liability as of December 31, 2018 in our consolidated balance sheets as the facility expires on September 30, 2019.  Our pending merger with Twin River is expected to close prior to this time and the facility would accelerate upon this change of control.  If this does not occur, we will seek to refinance or extend the maturity of this obligation prior to its expiration date; however, there is no assurance that we will be able to execute this refinancing or extension or, if we are able to refinance or extend this obligation, that the terms of such refinancing or extension would be as favorable as the terms of our existing credit facility.  These factors raise substantial doubt about our ability to continue as a going concern.  The accompanying financial statements have been prepared assuming that we will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty.

 

While we believe 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 for the foreseeable future, we will need to refinance or extend the maturity of our outstanding credit facility prior to its expiration on September 30, 2019.

 

In recent years, the mid-Atlantic region has experienced a significant expansion in gaming venues and gaming offerings.  These new venues — including several in Maryland — have had a significant adverse effect on our visitation numbers, our revenues and our profitability. Management has estimated that approximately 28% of our gaming win comes from Maryland patrons and approximately 58% of our Capital Club® member gaming win comes from out-of-state patrons.

 

The Delaware legislature has worked with the gaming industry in recent years to increase the State’s gaming offerings, but it has done so while steadily increasing the State’s share of the industry’s gaming revenues and adding to various costs that the industry incurs to do business.  In July 2008, the State’s share of our gaming revenues was increased.  In May 2009, an additional and significant increase in the State’s share of our gaming revenues was legislated in connection with the reintroduction of limited sports betting in the State.  This was the fifth increase in the State’s share of gaming revenues.  In January 2010, the State authorized table games, but imposed a license fee and a high tax rate on table game revenues.  During this period, our revenues declined and our ability to compete with the growing number of competitors in the mid-Atlantic region was impeded.  In recognition of the State’s high gaming tax burden and its effect on the industry, legislators have attempted several times since 2011 to reduce this tax burden in an effort to stabilize the industry, preserve jobs and protect the State’s revenue stream.

 

In June 2012, the State enacted the Delaware Gaming Competitiveness Act of 2012 (the “Act”), under which Delaware’s video lottery agents are authorized to offer, through their websites, internet versions of their table games (including poker and bingo) and video lottery offerings.  All games remain under the control and operation of the Delaware Lottery.  Revenues from the internet versions of table games and video lottery games are distributed generally pursuant to the formula currently applicable to those games physically located within our casino, with the exception that internet service provider costs are deducted first, and the Delaware Lottery retains the first $3.75 million of state-wide net proceeds.  We began offering internet gaming in 2013; to date operating results from internet gaming have not been material.  Internet lottery games are, at least initially, offered solely to persons located within the State of Delaware.  This territorial limitation would not apply to gaming pursuant to an interstate compact, such as the compact between Delaware, New Jersey and Nevada for poker.  Internet gaming participation is limited to persons who meet the age requirements for equivalent non-internet games.

 

In June 2018, after several years of effort, legislation providing relief to the State’s gaming industry was enacted.  Senate Substitute No. 1 to Senate Bill 144, which passed with broad support in both the House and Senate, was signed by the Governor on June 30, 2018.  Effective July 1, 2018, the Bill revises the State’s share of gross table game revenues from 29.4% to 15.5%; eliminates the table game license fee for each video lottery agent, provided that the agent increase certain expenditures on marketing, wages and benefits; reduces the State’s share of gross slot machine revenues by 1%, with a further 2% reduction possible, beginning July 1, 2019, for each video lottery agent, provided that the agent make certain qualified capital expenditures; and increases purses to horsemen by 0.6% (over two years).  The Bill also removes the prohibition against video lottery agents operating on Christmas or Easter.

 

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Contractual Obligations

 

At December 31, 2018, we had the following contractual obligations:

 

 

 

 

 

Payments Due by Period

 

 

 

Total

 

2019

 

2020 — 2021

 

2022 — 2023

 

Thereafter

 

Revolving line of credit(a)

 

$

15,000,000

 

$

15,000,000

 

$

 

$

 

$

 

Estimated interest payments on revolving line of credit(b)

 

478,000

 

478,000

 

 

 

 

Defined benefit pension plan contributions

 

460,000

 

460,000

 

 

 

 

 

 

$

15,938,000

 

$

15,938,000

 

$

 

$

 

$

 

 


(a) Our current credit facility expires on September 30, 2019.

 

(b) The future interest payments on our revolving credit agreement were estimated using the current outstanding principal as of December 31, 2018 and current interest rates through the expiration date.

 

Related Party Transactions

 

See NOTE 11 — 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 3 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

 

On June 15, 2011, we decided to freeze participation and benefit accruals under our defined benefit pension plans.  The freeze was effective July 31, 2011.  The benefits provided by our defined benefit pension plans are based on years of service and employee’s remuneration through July 31, 2011.  Accrued pension costs are developed using actuarial principles and assumptions which consider a number of factors, including estimates for the discount rate, expected long-term rate of return on assets and mortality.  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 full description of recent accounting pronouncements that affect us.

 

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Factors That May Affect Operating Results; Forward-Looking Statements

 

This report and the documents incorporated by reference may contain forward-looking statements.  In Item 1A of this report, we disclose the important factors that could cause our actual results to differ from our expectations.

 

Item 7A.        Quantitative And Qualitative Disclosure About Market Risk

 

Not applicable.

 

Item 8.           Financial Statements And Supplementary Data

 

Our consolidated financial statements and the Report of Independent Registered Public Accounting Firm included in this report are shown on the Index to Consolidated Financial Statements on page 27.

 

Item 9.                                 Changes In And Disagreements With Accountants On Accounting And Financial Disclosure

 

None.

 

Item 9A.        Controls and Procedures

 

Our management is responsible for the preparation, integrity and objectivity of the consolidated financial statements and other financial information included in this Form 10-K.  The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles and reflect the effects of certain estimates and judgments made by management.

 

Our management also is responsible for establishing and maintaining a system of internal controls designed to provide reasonable assurance that assets are safeguarded and transactions are properly recorded and executed in accordance with management’s authorization.  The system is regularly monitored by direct management review and by internal auditors who conduct an extensive program of audits throughout our organization.  The Director of Internal Audit reports directly to the Audit Committee of our Board of Directors.  We have confidence in our financial reporting, the underlying system of internal controls, and our people, who are objective in their responsibilities and operate under our Code of Business Conduct and with the highest level of ethical standards. These standards are a key element of our control system.

 

The Audit Committee of our Board of Directors, which is comprised entirely of independent directors, has direct and private access to and meets regularly with management, our internal auditors and our independent registered public accounting firm to review accounting, reporting, auditing and internal control matters.

 

Management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our internal controls will prevent or detect all errors and all fraud.  A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.  Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.  Also, any evaluation of the effectiveness of controls in future periods are subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedure may deteriorate.

 

(a)   Evaluation of Disclosure Controls and Procedures

 

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

 

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Based on their evaluation as of December 31, 2018, 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 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.

 

(b)   Management’s Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting.  We conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2018.

 

This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to the rules of the SEC that permit us to provide only management’s report in this annual report.

 

(c)   Changes in Internal Control Over Financial Reporting

 

There have been no changes in our internal control over financial reporting during the fiscal quarter ended December 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.  During the year ended December 31, 2018, we implemented controls to ensure we had adequately evaluated our contracts with customers and properly assessed the impact of Accounting Standards Update 2014-09, Revenue from Contracts with Customers, on our financial statements.  There were no significant changes to our internal control over financial reporting due to the adoption of the new standard.

 

Item 9B.        Other Information

 

None.

 

Part III

 

Item 10.         Directors, Executive Officers And Corporate Governance

 

Except as presented below, biographical information relating to our directors and executive officers, information regarding our audit committee financial experts and information on Section 16(a) Beneficial Ownership Reporting Compliance called for by this Item 10 will be completed by amendment.

 

We have a Code of Business Conduct applicable to all of our employees, including our Chief Executive Officer and Chief Financial Officer.  We also have a Code of Business Conduct and Ethics for Directors and Executive Officers and Related Party Transactions Policy applicable to all directors and executive officers.  Copies of these Codes and other corporate governance documents are available on our website at www.doverdowns.com under the heading Investor Relations.  We will post on our website any amendments to, or waivers from, these Codes as required by law.

 

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Executive Officers of the Registrant.  As of December 31, 2018, our executive officers were:

 

Name

 

Position

 

Age

 

Term of Office

Denis McGlynn

 

President and Chief Executive Officer

 

72

 

11/79 to date

 

 

 

 

 

 

 

Edward J. Sutor

 

Executive Vice President and Chief Operating Officer

 

68

 

3/99 to date

 

 

 

 

 

 

 

Timothy R. Horne

 

Sr. Vice President-Finance, Treasurer and Chief Financial Officer

 

52

 

11/96 to date

 

 

 

 

 

 

 

Klaus M. Belohoubek

 

Sr.Vice President-General Counsel and Secretary

 

59

 

7/99 to date

 

Our Chairman of the Board, Henry B. Tippie, is a non-employee director and, therefore, not an executive officer.  Mr. Tippie has served as Chairman of the Board since our spin-off from DVD in 2002.  Mr. Tippie also serves as Chairman of the Board to DVD as a non-employee director.

 

Denis McGlynn has served as our President and Chief Executive Officer for 39 years.  Mr. McGlynn also serves as President and Chief Executive Officer to DVD.

 

Edward J. Sutor has been Executive Vice President and Chief Operating Officer since 1999.  Previously, Mr. Sutor served as Senior Vice President of Finance at Caesars Atlantic City from 1983 until 1999.

 

Timothy R. Horne has been Sr. Vice President-Finance, Treasurer and Chief Financial Officer since November 1996.  Mr. Horne also serves as Sr. Vice President-Finance and Chief Financial Officer to DVD.

 

Klaus M. Belohoubek has been Sr. Vice President-General Counsel and Secretary since 1999 and has provided us legal representation in various capacities since 1990.  Mr. Belohoubek also serves as Sr. Vice President-General Counsel and Secretary to DVD.

 

Item 11.         Executive Compensation

 

To be completed by amendment.

 

Item 12.                          Security Ownership Of Certain Beneficial Owners And Management And Related Stockholder Matters

 

To be completed by amendment.

 

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Equity Compensation Plan Information

 

We have a stock incentive plan which provides for the grant of up to 2,000,000 shares of common stock to our officers and key employees through stock options and/or awards valued in whole or in part by reference to our common stock, such as nonvested restricted stock awards.  Refer to NOTE 9 — Stockholders’ Equity to our consolidated financial statements included elsewhere in this document for further discussion.  Securities authorized for issuance under equity compensation plans at December 31, 2018 are as follows:

 

Plan Category

 

Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights

 

Weighted-average
exercise price of
outstanding
options, warrants
and rights

 

Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))

 

 

 

(a)

 

(b)

 

(c)

 

Equity compensation plans approved by security holders

 

 

$

 

911,278

 

 

 

 

 

 

 

 

 

Equity compensation plans not approved by security holders

 

 

 

 

Total

 

 

$

 

911,278

 

 

Item 13.         Certain Relationships And Related Transactions, And Director Independence

 

To be completed by amendment.

 

Item 14.         Principal Accounting Fees And Services

 

KPMG LLP served as our independent registered public accounting firm for the fiscal years ended December 31, 2018 and 2017.

 

During the fiscal years ended December 31, 2018 and 2017, KPMG LLP’s services rendered to us primarily consisted of auditing our consolidated financial statements, as well as performing reviews of our quarterly financial statements.

 

AUDIT AND NON-AUDIT FEES

 

The following table sets forth fees for services KPMG LLP provided during fiscal years 2018 and 2017:

 

 

 

2018

 

2017

 

Audit fees

 

$

457,500

 

$

365,000

 

Tax fees

 

30,000

 

 

 

 

$

487,500

 

$

365,000

 

 

The Audit Committee has determined that the provision of non-audit services by KPMG LLP is compatible with maintaining KPMG LLP’s independence.  In accordance with its charter, the Audit Committee approves in advance all audit and non-audit services to be provided by KPMG LLP.  In other cases, the Chairman of the Audit Committee has the delegated authority from the Audit Committee to pre-approve certain additional services, and such pre-approvals are communicated to the full Audit Committee at its next meeting.  All audit and non-audit fees were approved in accordance with these procedures.  Audit related fees refers to procedures in connection with the adoption of Accounting Standards Codification 606, including retrospective restatement of the 2017 and 2016 financial statements, and work in connection with reviewing our joint proxy statement/prospectus with Twin River.  Tax fees refers to an ongoing analysis of potential Internal Revenue Code sections 280G and

 

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4999 tax implications of change of control payments under certain executive non-competition agreements triggered by our impending merger with Twin River.

 

Part IV

 

Item 15.         Exhibits, Financial Statement Schedules

 

(a)(1)

 

Financial Statements — See accompanying Index to Consolidated Financial Statements on page 27.

 

 

 

(2)

 

Financial Statement Schedules — None.

 

 

 

(3)

 

Exhibits:

 

 

 

2.1

 

Amended and Restated Agreement Regarding Distribution and Plan of Reorganization, dated as of February 15, 2002, by and between Dover Motorsports, Inc. (formerly known as Dover Downs Entertainment, Inc.) and Dover Downs Gaming & Entertainment, Inc. (incorporated herein by reference to Exhibit 2.1 to the Form 10 filed on February 26, 2002, which was declared effective on March 7, 2002).

 

 

 

2.2

 

Transaction Agreement, dated as of July 22, 2018, by and among Dover Downs Gaming & Entertainment, Inc., Twin River Worldwide Holdings, Inc. and Double Acquisition Corp. (incorporated herein by reference to Exhibit 2.1 to the Form 8-K dated July 22, 2018).

 

 

 

3.1

 

Certificate of Incorporation of Dover Downs Gaming & Entertainment, Inc. (incorporated herein by reference to Exhibit 3.1 to the Form 10 filed on November 21, 2001, which was declared effective on March 7, 2002).

 

 

 

3.2

 

Amended and Restated By-laws of Dover Downs Gaming & Entertainment, Inc. dated March 1, 2017 (incorporated herein by reference to Exhibit 3.2 to the Form 10-K filed on March 1, 2017).

 

 

 

4.1

 

Form of Common Stock Certificate of Dover Downs Gaming & Entertainment, Inc. (incorporated herein by reference to Exhibit 4.1 to the Form 10 filed on November 21, 2001, which was declared effective on March 7, 2002).

 

 

 

4.2

 

Rights Agreement dated as of January 1, 2012 between Dover Downs Gaming & Entertainment, Inc. and Mellon Investor Services, as Rights Agent (incorporated herein by reference to Exhibit 4.1 to the Form 8-A filed on December 30, 2011).

 

 

 

10.1

 

Transition Support Services Agreement, dated as of January 15, 2002, by and between Dover Motorsports, Inc. (formerly known as Dover Downs Entertainment, Inc.) and Dover Downs Gaming & Entertainment, Inc. (incorporated herein by reference to Exhibit 10.3 to the Form 10 filed on January 16, 2002, which was declared effective on March 7, 2002).

 

 

 

10.2

 

Real Property Agreement dated as of January 15, 2002, by and between Dover Motorsports, Inc. (formerly known as Dover Downs Entertainment, Inc.) and Dover Downs Gaming & Entertainment, Inc. (incorporated herein by reference to Exhibit 10.5 to the Form 10 filed on January 16, 2002, which was declared effective on March 7, 2002).

 

 

 

10.3

 

Agreement between Dover Downs, Inc. and Delaware Standardbred Owners Association, Inc. effective October 4, 2017 (incorporated herein by reference to Exhibit 10.3 to the Form 10-K filed on March 1, 2018).

 

 

 

10.4

 

Credit Agreement between Dover Downs Gaming and Entertainment, Inc. and RBS Citizens, N.A., as agent, dated as of June 17, 2011 (incorporated herein by reference to Exhibit 10.1 to the Form 8-K filed on June 23, 2011).

 

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10.5

 

Amendment to Credit Agreement between Dover Downs Gaming and Entertainment, Inc. and RBS Citizens, N.A., as agent, dated as of March 12, 2013 (incorporated herein by reference to Exhibit 10.7 to the Form 10-K filed on March 15, 2013).

 

 

 

10.6

 

Modification and Reaffirmation Agreement between Dover Downs Gaming and Entertainment, Inc. and Citizens Bank, National Association, as agent, dated as of June 12, 2014 (incorporated herein by reference to Exhibit 10.1 to the Form 8-K filed on June 13, 2014).

 

 

 

10.7

 

Modification and Reaffirmation Agreement between Dover Downs Gaming and Entertainment, Inc., Dover Downs, Inc. and Dover Downs Gaming and Management Corp. and Citizens Bank, National Association, as agent, dated as of August 14, 2014 (incorporated herein by reference to Exhibit 10.1 to the Form 8-K filed on August 14, 2014).

 

 

 

10.8

 

Modification and Reaffirmation Agreement between Dover Downs Gaming and Entertainment, Inc., Dover Downs, Inc. and Dover Downs Gaming and Management Corp. and Citizens Bank, National Association, as agent, dated as of September 14, 2015 (incorporated herein by reference to Exhibit 10.1 to the Form 8-K filed on September 17, 2015).

 

 

 

10.9

 

Modification and Reaffirmation Agreement between Dover Downs Gaming and Entertainment, Inc., Dover Downs, Inc. and Dover Downs Gaming and Management Corp. and Citizens Bank, National Association, as agent, dated as of September 1, 2016 (incorporated herein by reference to Exhibit 10.1 to the Form 8-K filed on September 1, 2016).

 

 

 

10.10

 

Modification and Reaffirmation Agreement between Dover Downs Gaming and Entertainment, Inc., Dover Downs, Inc. and Dover Downs Gaming and Management Corp. and Citizens Bank, National Association, as agent, dated as of July 25, 2017 (incorporated herein by reference to Exhibit 10.1 to the Form 8-K filed on July 26, 2017).

 

 

 

10.11

 

Modification and Reaffirmation Agreement between Dover Downs Gaming and Entertainment, Inc., Dover Downs, Inc. and Dover Downs Gaming and Management Corp. and Citizens Bank, National Association, as agent, dated as of September 13, 2018 (incorporated herein by reference to Exhibit 10.1 to the Form 8-K filed on September 14, 2018).

 

 

 

10.12

 

Amended and Restated Employment and Non-Compete Agreement between Dover Downs Gaming & Entertainment, Inc. and Denis McGlynn dated February 13, 2006 (incorporated herein by reference to Exhibit 10.1 to the Form 8-K filed on February 17, 2006).

 

 

 

10.13

 

Amended and Restated Employment and Non-Compete Agreement between Dover Downs Gaming & Entertainment, Inc. and Edward J. Sutor dated February 13, 2006 (incorporated herein by reference to Exhibit 10.2 to the Form 8-K filed on February 17, 2006).

 

 

 

10.14

 

Amended and Restated Employment and Non-Compete Agreement between Dover Downs Gaming & Entertainment, Inc. and Timothy R. Horne dated February 13, 2006 (incorporated herein by reference to Exhibit 10.3 to the Form 8-K filed on February 17, 2006).

 

 

 

10.15

 

Amended and Restated Employment and Non-Compete Agreement between Dover Downs Gaming & Entertainment, Inc. and Klaus M. Belohoubek dated February 13, 2006 (incorporated herein by reference to Exhibit 10.4 to the Form 8-K filed on February 17, 2006).

 

 

 

10.16

 

Amendment to certain agreements between Dover Downs Gaming & Entertainment, Inc. and selected executives and directors (incorporated herein by reference to Exhibit 10.1 to the Form 10-Q filed on November 3, 2008).

 

 

 

10.17

 

Amendment to certain agreements between Dover Downs Gaming & Entertainment, Inc. and certain executives dated June 15, 2011 (incorporated herein by reference to Exhibit 2.1 to the Form 8-K dated June 15, 2011).

 

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10.18

 

Non-Compete Agreement between Dover Downs Gaming & Entertainment, Inc. and Henry B. Tippie dated June 16, 2004 (incorporated herein by reference to Exhibit 10.7 to the Form 10-Q filed on August 6, 2004).

 

 

 

10.19

 

Dover Downs Gaming & Entertainment, Inc. 2012 Stock Incentive Plan (incorporated herein by reference to Exhibit A to our Proxy Statement filed on March 30, 2012).

 

 

 

10.20

 

Form of Restricted Stock Grant Agreement Used With Dover Downs Gaming & Entertainment, Inc. 2012 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.1 to the Form 10-Q dated May 1, 2014).

 

 

 

10.21

 

Dover Downs Gaming & Entertainment, Inc. Supplemental Executive Retirement Savings Plan Dated November 9, 2012 (incorporated herein by reference to Exhibit 10.1 to the Form 10-Q filed on November 9, 2012).

 

 

 

21.1

 

List of Subsidiaries of Dover Downs Gaming & Entertainment, Inc.

 

 

 

24.1

 

Powers of Attorney for Directors

 

 

 

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

 

 

 

99.1

 

Information Statement dated as of March 7, 2002 (incorporated herein by reference to Exhibit 99.1 to the Form 10 filed on March 7, 2002).

 

 

 

99.2

 

Audit Committee Charter of Dover Downs Gaming & Entertainment, Inc. (incorporated herein by reference to Exhibit A to our Proxy Statement filed on March 30, 2010).

 

 

 

101

 

The following materials from the Dover Downs Gaming & Entertainment, Inc. annual report on Form 10-K for the year ended December 31, 2018, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of (Loss) Earnings and Comprehensive (Loss) Income for the years ended December 31, 2018, 2017 and 2016; (ii) Consolidated Balance Sheets as of December 31, 2018 and 2017; (iii) Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016; and (iv)  Notes to the Consolidated Financial Statements.

 

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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:

March 21, 2019

 

Dover Downs Gaming & 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/ Denis McGlynn

 

President and Chief Executive Officer and Director

(Principal Executive Officer)

 

March 21, 2019

Denis McGlynn

 

 

 

 

 

 

 

 

 

 

 

 

/s/ Timothy R. Horne

 

Sr. Vice President — Finance, Treasurer, Chief Financial Officer and Director

(Principal Financial and Accounting Officer)

 

March 21, 2019

Timothy R. Horne

 

 

 

 

 

 

 

 

The Directors of the registrant (listed below) executed a power of attorney appointing Denis McGlynn and Timothy R. Horne their attorneys-in-fact, empowering either of them to sign this report, or any amendments, on their behalf.

 

/s/ Henry B. Tippie

 

Chairman of the Board

 

March 21, 2019

Henry B. Tippie

 

 

 

 

 

 

 

 

 

/s/ Patrick J. Bagley

 

Director and Chairman of the Audit Committee

 

March 21, 2019

Patrick J. Bagley

 

 

 

 

 

 

 

 

/s/ Jeffrey W. Rollins

 

Director

 

March 21, 2019

Jeffrey W. Rollins

 

 

 

 

 

 

 

 

 

/s/ R. Randall Rollins

 

Director

 

March 21, 2019

R. Randall Rollins

 

 

 

 

 

 

 

 

 

/s/ Denis McGlynn

 

As Attorney-in-Fact and Director

 

March 21, 2019

Denis McGlynn

 

 

 

 

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Report of Independent Registered Public Accounting Firm

 

To the Stockholders and Board of Directors
Dover Downs Gaming & Entertainment, Inc.:

 

Opinion on the Consolidated Financial Statements

 

We have audited the accompanying consolidated balance sheets of Dover Downs Gaming & Entertainment, Inc. and subsidiaries (the Company) as of December 31, 2018 and 2017, the related consolidated statements of (loss) earnings and comprehensive (loss) income and cash flows for each of the years in the three-year period ended December 31, 2018, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.

 

Going Concern

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company’s credit facility expires on September 30, 2019 and at present no agreement has been reached to refinance the debt, which raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Change in Accounting Principle

 

As discussed in Note 3 to the consolidated financial statements, the Company has adopted Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers, as of January 1, 2018, using the full retrospective method, and Accounting Standards Update No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (Topic 715) as of January 1, 2018, which requires retrospective adoption.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

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Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ KPMG LLP

 

We have served as the Company’s auditor since 2002.

 

Philadelphia, Pennsylvania
March 21, 2019

 

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DOVER DOWNS GAMING & ENTERTAINMENT, INC.

 

CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)

AND COMPREHENSIVE (LOSS) INCOME

(in thousands, except per share data)

 

 

 

Years ended December 31,

 

 

 

2018

 

2017

 

2016

 

Revenues:

 

 

 

 

 

 

 

Gaming

 

$

140,620

 

$

138,684

 

$

143,242

 

Other operating

 

39,311

 

37,744

 

38,537

 

 

 

179,931

 

176,428

 

181,779

 

Expenses:

 

 

 

 

 

 

 

Gaming

 

133,967

 

133,921

 

137,395

 

Other operating

 

30,414

 

28,944

 

29,033

 

General and administrative

 

5,324

 

5,321

 

5,509

 

Merger costs

 

1,090

 

 

 

Depreciation

 

8,231

 

8,168

 

7,743

 

 

 

179,026

 

176,354

 

179,680

 

 

 

 

 

 

 

 

 

Operating earnings

 

905

 

74

 

2,099

 

 

 

 

 

 

 

 

 

Interest expense

 

(790

)

(840

)

(863

)

Other income

 

302

 

147

 

134

 

 

 

 

 

 

 

 

 

Earnings (loss) before income taxes

 

417

 

(619

)

1,370

 

 

 

 

 

 

 

 

 

Income tax expense

 

(387

)

(523

)

(612

)

 

 

 

 

 

 

 

 

Net earnings (loss)

 

30

 

(1,142

)

758

 

 

 

 

 

 

 

 

 

Change in pension net actuarial loss and prior service cost, net of income taxes

 

(160

)

(109

)

(395

)

 

 

 

 

 

 

 

 

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

 

 

6

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive (loss) income

 

$

(130

)

$

(1,245

)

$

366

 

 

 

 

 

 

 

 

 

Net earnings (loss) per common share (Note 3):

 

 

 

 

 

 

 

Basic

 

$

 

$

 (0.04

)

$

 0.02

 

Diluted

 

$

 

$

(0.04

)

$

0.02

 

 

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 data)

 

 

 

December 31,

 

 

 

2018

 

2017

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash

 

$

10,864

 

$

10,714

 

Accounts receivable

 

4,297

 

3,557

 

Due from State of Delaware

 

7,498

 

5,720

 

Inventories

 

1,975

 

1,928

 

Prepaid expenses and other

 

2,810

 

2,840

 

Receivable from Dover Motorsports, Inc.

 

9

 

7

 

Income taxes receivable

 

116

 

318

 

Total current assets

 

27,569

 

25,084

 

 

 

 

 

 

 

Property and equipment, net

 

131,322

 

134,527

 

Other assets

 

368

 

564

 

Deferred income taxes

 

1,456

 

1,786

 

Total assets

 

$

160,715

 

$

161,961

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

2,865

 

$

2,571

 

Purses due horsemen

 

7,533

 

5,814

 

Accrued liabilities

 

9,888

 

8,111

 

Deferred credits

 

76

 

49

 

Contract liabilities

 

4,126

 

3,724

 

Revolving line of credit

 

15,000

 

19,900

 

Total current liabilities

 

39,488

 

40,169

 

 

 

 

 

 

 

Liability for pension benefits

 

6,883

 

7,483

 

Total liabilities

 

46,371

 

47,652

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Preferred stock, $.10 par value; 1,000,000 shares authorized; shares issued and outstanding: none

 

 

 

Common stock, $.10 par value; 74,000,000 shares authorized; shares issued and outstanding: 18,413,587 and 18,272,809, respectively

 

1,841

 

1,827

 

Class A common stock, $.10 par value; 50,000,000 shares authorized; shares issued and outstanding: 14,869,623 and 14,869,623, respectively

 

1,487

 

1,487

 

Additional paid-in capital

 

6,028

 

5,877

 

Retained earnings

 

109,881

 

109,817

 

Accumulated other comprehensive loss

 

(4,893

)

(4,699

)

Total stockholders’ equity

 

114,344

 

114,309

 

Total liabilities and stockholders’ equity

 

$

160,715

 

$

161,961

 

 

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)

 

 

 

Years ended December 31,

 

 

 

2018

 

2017

 

2016

 

Operating activities:

 

 

 

 

 

 

 

Net earnings (loss)

 

$

30

 

$

(1,142

)

$

758

 

Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation

 

8,231

 

8,168

 

7,743

 

Amortization of credit facility origination fees

 

41

 

57

 

89

 

Stock-based compensation

 

239

 

295

 

326

 

Deferred income taxes

 

394

 

519

 

(56

)

Losses on equity investments

 

30

 

 

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

(740

)

(50

)

(581

)

Due from State of Delaware

 

(1,778

)

1,565

 

667

 

Inventories

 

(47

)

(18

)

2

 

Prepaid expenses and other

 

20

 

(446

)

204

 

Receivable from/payable to Dover Motorsports, Inc.

 

(2

)

 

(51

)

Income taxes receivable

 

200

 

(96

)

99

 

Accounts payable

 

274

 

23

 

100

 

Purses due horsemen

 

1,719

 

(1,835

)

176

 

Accrued liabilities

 

1,781

 

(127

)

1,182

 

Deferred credits

 

27

 

(37

)

(51

)

Contract liabilities

 

402

 

261

 

93

 

Liability for pension benefits

 

(826

)

(437

)

(345

)

Net cash provided by operating activities

 

9,995

 

6,700

 

10,355

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

Capital expenditures

 

(4,826

)

(2,193

)

(2,812

)

Purchase of available-for-sale securities

 

(41

)

(59

)

(55

)

Proceeds from the sale of available-for-sale securities

 

29

 

48

 

49

 

Net cash used in investing activities

 

(4,838

)

(2,204

)

(2,818

)

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

Borrowings from revolving line of credit

 

41,290

 

69,280

 

46,850

 

Repayments of revolving line of credit

 

(46,190

)

(74,630

)

(53,100

)

Repurchase of common stock

 

(74

)

(74

)

(66

)

Credit facility fees

 

(33

)

(35

)

(40

)

Net cash used in financing activities

 

(5,007

)

(5,459

)

(6,356

)

 

 

 

 

 

 

 

 

Net increase (decrease) in cash

 

150

 

(963

)

1,181

 

Cash, beginning of year

 

10,714

 

11,677

 

10,496

 

Cash, end of year

 

$

10,864

 

$

10,714

 

$

11,677

 

 

 

 

 

 

 

 

 

Supplemental information:

 

 

 

 

 

 

 

Interest paid

 

$

755

 

$

780

 

$

778

 

Income tax payments, net of refunds received

 

$

(207

)

$

101

 

$

569

 

Change in accounts payable for capital expenditures

 

$

20

 

$

(212

)

$

220

 

 

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

 

NOTE 1—Business Operations

 

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

 

We are a premier gaming and entertainment resort destination whose operations consist of:

 

·                  Dover Downs Casino — a 165,000-square foot casino complex featuring popular table games, including craps, roulette and card games such as blackjack, baccarat, 3-card and pai gow poker, the latest in slot machine offerings, multi-player electronic table games, a poker room, a Race & Sports Book operation, the Dover Downs’ Fire & Ice Lounge, the Festival Buffet, Pearl Oyster Grill, Frankie’s Italian restaurant, as well as several bars, restaurants and six retail outlets;

 

·                  Dover Downs Hotel and Conference Center — a 500 room hotel with a fine dining restaurant, full-service spa/salon, 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.

 

All of our gaming operations are located at our entertainment complex in Dover, the capital of the State of Delaware.

 

On July 22, 2018, we entered into a definitive merger agreement with Twin River Worldwide Holdings, Inc. (“Twin River”) pursuant to which, at closing, we will become a wholly-owned subsidiary of Twin River.  The merger contemplates that our stockholders will exchange their stock for Twin River common shares representing 7.225% of the equity in the combined company at closing.  Common Stock and Class A Common Stock of Dover Downs will be treated equally in the merger.  The transaction is intended to qualify as a tax-free reorganization (except for cash paid in lieu of fractional shares). The merger agreement requires the approval of our stockholders and a special meeting of our stockholders is scheduled for March 26, 2019.   Closing under the merger agreement is tentatively scheduled to be on or about March 28, 2019, subject to the approval of our stockholders and other customary closing conditions.

 

On May 14, 2018, a U.S. Supreme Court decision overturned the Professional and Amateur Sports Protection Act.  As a result, on June 5, 2018 our Race & Sports Book operation began offering a full range of betting on professional and college sports, including single game wagering on a wide variety of sports, including football, baseball, basketball, boxing, mixed martial arts, hockey and soccer.

 

Dover Downs Gaming & Entertainment, Inc. is a public holding company that has two wholly owned subsidiaries: Dover Downs, Inc. and Dover Downs Gaming 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 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 publicly traded company.

 

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Dover Downs, Inc. is authorized to conduct video lottery, sports wagering, table game and internet gaming operations as one of three “Licensed Agents” under the Delaware State Lottery Code.  Licensing, administration and control of gaming operations in Delaware is under the Delaware State Lottery Office and Delaware’s Department of Safety and Homeland Security, Division of Gaming Enforcement.

 

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 gaming license, we are required to maintain our harness horse racing license.  We have received an annual license from the Commission for the past 50 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.

 

In recent years, the mid-Atlantic region has experienced a significant expansion in gaming venues and gaming offerings.  This has had a significant adverse effect on our visitation numbers, our revenues and our profitability.  Management has estimated that approximately 28% of our gaming win comes from Maryland patrons and approximately 58% of our Capital Club® member gaming win comes from out of state patrons.

 

In June 2018, after several years of effort, legislation providing relief to the State’s gaming industry was enacted.  Senate Substitute No. 1 to Senate Bill 144, which passed with broad support in both the House and Senate, was signed by the Governor on June 30, 2018.  Effective July 1, 2018, the Bill revised the State’s share of gross table game revenues from 29.4% to 15.5%; eliminated the table game license fee for each video lottery agent, provided that the agent increase certain expenditures on marketing, wages and benefits; reduced the State’s share of gross slot machine revenues by 1%, with a further 2% reduction possible, beginning July 1, 2019, for each video lottery agent, provided that the agent make certain qualified capital expenditures; and increased purses to horsemen by 0.6% (over two years).  The Bill also removed the prohibition against video lottery agents operating on Christmas or Easter.

 

NOTE 2—Going Concern

 

At December 31, 2018, we had a credit agreement with a bank group (see NOTE 6 — Credit Facility). The maximum borrowing limit under the facility was $35,000,000 as of December 31, 2018 and the facility expires September 30, 2019.  At December 31, 2018, there was $15,000,000 outstanding under the facility.  The credit facility is classified as a current liability as of December 31, 2018 in our consolidated balance sheets as the facility expires on September 30, 2019.  Our pending merger with Twin River is expected to close prior to this time and the facility would accelerate upon this change of control.  If this does not occur, we will seek to refinance or extend the maturity of this obligation prior to its expiration date; however, there is no assurance that we will be able to execute this refinancing or extension or, if we are able to refinance or extend this obligation, that the terms of such refinancing or extension would be as favorable as the terms of our existing credit facility.  These factors raise substantial doubt about our ability to continue as a going concern.  The accompanying financial statements have been prepared assuming that we will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty.  The report from our independent registered public accountants, KPMG LLP, dated March 21, 2019, includes an explanatory paragraph related to our ability to continue as a going concern.

 

NOTE 3—Summary of Significant Accounting Policies

 

Basis of consolidation and presentation—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.

 

Accounts receivable—Accounts receivable are stated at their estimated collectible amount and primarily consist of casino, hotel and other receivables which arise in the normal course of business.  We issue credit in the form of “markers” to approved casino customers who are investigated as to their credit worthiness.

 

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Investments—Investments, which consist of mutual funds, are reported at fair-value in other assets in our consolidated balance sheets.  Prior to 2018, changes in fair value were reported in other comprehensive (loss) income.  Upon adopting Accounting Standards Update (“ASU”) No. 2016-01 on January 1, 2018, changes in fair value are reported in other income.  See NOTE 9 — Stockholders’ Equity and NOTE 10 — Fair Value Measurements for further discussion.

 

Inventories—Inventories consisting primarily of food, beverage and operating supplies are stated at the lower of cost or net realizable value with cost being determined on the first-in, first-out basis.

 

Property and equipment—Property and equipment is stated at cost.  Depreciation is provided using the straight-line method over the following estimated useful lives:

 

Facilities

 

10-40 years

Furniture, fixtures and equipment

 

3-10 years

 

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.

 

Income taxes—Deferred income taxes are provided on all differences between the tax basis 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 2014 remain open to examination for federal and state income tax purposes.

 

We recognize interest expense and penalties on uncertain income tax positions as a component of interest expense.  No interest expense or penalties were recorded for uncertain income tax matters in 2018, 2017 or 2016.  As of December 31, 2018 and 2017, we had no liabilities for uncertain income tax matters.

 

Revenue and expense recognition—Our revenue contracts with customers consist of gaming wagers, hotel room sales, food and beverage sales, and miscellaneous other transactions.  Gaming revenues represent (i) the win from slot machine, table games, internet gaming and sports wagering and (ii) commissions from pari-mutuel wagering.  The difference between the amount wagered by bettors and the amount paid out to bettors is referred to as the win.  The Delaware State Lottery Office sweeps the win from the casino operations, collects the State’s share of the win and the amount due to the vendors under contract with the State who provide the 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 slot machines and associated computer systems, and (iii) for harness horse racing purses.  We recognize revenues from sports wagering commissions, and pari-mutuel commissions earned from live harness horse racing and importing of simulcast signals from other race tracks when the event occurs.

 

For casino wager contracts that include complimentary goods and services provided by us to gaming patrons on a discretionary basis to incentivize gaming, we allocate a portion of the win to the complimentary goods or services delivered based upon the estimated standalone selling price.

 

For casino wager contracts that include incentives earned by customers under our loyalty programs, we allocate a portion of win based upon the estimated standalone selling price of such incentive. This allocation is deferred and recognized as revenue when the customer redeems the incentive. When redeemed, revenue is recognized in the department that provides the goods or service.  After allocating revenue to other goods and services provided as part of casino wager contracts, we record the residual amount to casino revenue.

 

Revenues from hotel room sales, food and beverage sales and other miscellaneous sources are recognized at the time the service is provided and include actual amounts paid for such services, the value of loyalty points redeemed for such services, and the portion of gaming win allocated to complimentary goods and services.  Amounts received

 

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in advance for hotel rooms, convention bookings and advance ticket sales are recorded as contract liabilities until the services are provided to the customer, at which point revenue is recognized.

 

Our revenues disaggregated by type are as follows (in thousands):

 

 

 

Years Ended December 31,

 

 

 

2018

 

2017

 

2016

 

Gaming

 

$

140,620

 

$

138,684

 

$

143,242

 

 

 

 

 

 

 

 

 

Other operating:

 

 

 

 

 

 

 

Rooms

 

10,859

 

10,515

 

10,832

 

Food and beverage

 

22,942

 

21,613

 

21,942

 

Other

 

5,510

 

5,616

 

5,763

 

 

 

39,311

 

37,744

 

38,537

 

 

 

 

 

 

 

 

 

Total revenues

 

$

179,931

 

$

176,428

 

$

181,779

 

 

We currently have a point loyalty program for our customers which allows them to earn points based on the volume of their gaming activity.  Prior to the adoption of ASU 2014-09, Revenue from Contracts with Customers, the estimated amount of points redeemable for cash was recorded as a reduction of gaming revenue and the estimated cost of points redeemable for services and merchandise was recorded as gaming expense.  Our liability for unredeemed points was based on the estimated costs of services or merchandise to be provided and estimated redemption rates.  Under the new standard effective January 1, 2018, points awarded under our point loyalty program are considered a material right given to customers based on their gaming play and are accounted for as a separate performance obligation.  The new standard requires us to allocate revenues associated with the customers’ gaming activity between gaming revenue and the value of the points earned after factoring in the likelihood of redemption.  As a result, gaming revenues are reduced with a corresponding increase to other operating revenues or our point liability.  The value of the unredeemed points is now determined based on the estimated standalone selling price of the points earned.  The revenue associated with the points earned is recognized in the period in which they are redeemed.  As a result of applying the new standard, our point liability increased and our retained earnings balance decreased by $499,000 ($301,000 after income taxes) at December 31, 2015.  See NOTE 9 — Stockholders’ Equity.  Additionally, we have recast the 2017 and 2016 consolidated statements of (loss) earnings which resulted in additional loss of $12,000 ($74,000 after income taxes) and additional earnings of $48,000 ($28,000 after income taxes), respectively.

 

We have the following receivables related to contracts with customers; marker balances and other amounts due from gaming activities, billings for banquets and conventions, amounts due for hotel stays, and amounts due from exporting our live harness racing signals to other race tracks.  As of December 31, 2018 and 2017, our contract receivables were $1,440,000 and $1,537,000, respectively.  We have the following liabilities related to contracts with customers; liabilities for our point loyalty program, deposits made in advance for goods and services yet to be provided, and unpaid wagers.  All of our contract liabilities are short term in nature.  Loyalty points earned by customers are typically redeemed within one year from when they are earned and expire if a customer’s account is inactive for  twelve months; therefore, the majority of points outstanding at the end of a period will either be redeemed or expire within the next year.  Additionally, our liability for unredeemed points does not change significantly from period to period.  During the years ended December 31, 2018, 2017 and 2016, we recognized approximately $2,982,000, $2,996,000 and $3,030,000 of revenues related to loyalty point redemptions and our liability at December 31, 2018 was $2,342,000.  Advance deposits are typically for future banquet events and to reserve hotel rooms.  These deposits are usually received weeks or months in advance of the event or hotel stay.  Unpaid wagers not claimed within twelve months by the customer who earned them are escheated to the state.

 

Prior to the adoption of ASU 2014-09, other operating revenues did not include the retail amount of hotel rooms, food and beverage and other miscellaneous goods and services provided on a complimentary basis or through our point loyalty program to customers as promotional items.  The estimated direct cost of providing these items was charged to the casino through interdepartmental allocations and included in gaming marketing expenses.  The new standard requires the complimentary items to be considered a separate performance obligation, which requires us to allocate a portion of revenue from a gaming transaction to other operating revenue based on the

 

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estimated standalone selling prices of the promotional items provided.  For example, when a casino customer is given a complimentary room, we are now required to allocate a portion of the casino revenue earned from the customer to rooms revenue based on the estimated standalone selling price of the room.  The estimated standalone selling price of hotel rooms is determined based on observable prices.  The standalone selling price of food and beverage, and other miscellaneous goods and services is determined based upon the actual retail prices charged customers for those items.  Revenue is recognized in the period the goods or service is provided.  As a result of applying the new standard, gaming revenues and expenses decreased significantly and other operating revenues and expenses increased.

 

Gaming revenues allocated to rooms, food and beverage, and other revenues were as follows (in thousands):

 

 

 

Years Ended December 31,

 

 

 

2018

 

2017

 

2016

 

Rooms

 

$

4,930

 

$

4,932

 

$

4,989

 

Food and beverage

 

7,931

 

7,367

 

7,436

 

Other

 

1,123

 

1,230

 

1,147

 

 

 

$

13,984

 

$

13,529

 

$

13,572

 

 

Advertising costs—Advertising costs are charged to operations as incurred.  Advertising expenses were $2,039,000, $2,034,000 and $2,161,000 in 2018, 2017 and 2016, respectively.

 

Net earnings (loss) per common share—Nonvested share-based payment awards that include rights to dividends or dividend equivalents, whether paid or unpaid, are considered participating securities, and the two-class method of computing basic and diluted net earnings (loss) per common share (“EPS”)  is applied for all periods presented.  The following table sets forth the computation of EPS (in thousands, except per share amounts):

 

 

 

2018

 

2017

 

2016

 

Net earnings (loss) per common share — basic and diluted:

 

 

 

 

 

 

 

Net earnings (loss)

 

$

30

 

$

(1,142

)

$

758

 

Allocation to nonvested restricted stock awards

 

(1

)

 

(20

)

Net earnings (loss) available to common stockholders

 

$

29

 

$

(1,142

)

$

738

 

 

 

 

 

 

 

 

 

Weighted-average shares outstanding

 

32,446

 

32,321

 

32,201

 

 

 

 

 

 

 

 

 

Net earnings (loss) per common share — basic and diluted

 

$

 

$

(0.04

)

$

0.02

 

 

There were no options outstanding and we paid no dividends during 2018, 2017 or 2016.

 

Accounting for stock-based compensation—We recorded total stock-based compensation expense for our restricted stock awards of $239,000, $295,000 and $326,000 as general and administrative expenses for the years ended December 31, 2018, 2017 and 2016, respectively.  We recorded income tax benefit of $39,000, $48,000 and $14,000 for the years ended December 31, 2018, 2017 and 2016, respectively, related to vesting of 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 our best estimates and judgment.  We evaluate our estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which we believe to be reasonable under the circumstances.  We adjust such estimates and assumptions when facts and circumstances dictate.  Volatility in credit and 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.

 

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Segment information—We account for operating segments based on those used for internal reporting to management.  We report information under a single gaming and entertainment segment.

 

Recent accounting pronouncements—In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General.  This new standard makes changes to the disclosure requirements for sponsors of defined benefit pension and/or other postretirement benefit plans to improve effectiveness of notes to the financial statements.  ASU 2018-14 is effective for fiscal years ending after December 15, 2020, and requires retrospective adoption.  Early adoption is permitted.  We are currently analyzing the impact of this ASU and we do not expect it to have a significant impact on our financial statement disclosures.

 

In February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which provides the option to reclassify certain income tax effects related to the Tax Cuts and Jobs Act passed in December of 2017 between accumulated other comprehensive income and retained earnings and also requires additional disclosures.  The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted.  Adoption of this ASU is to be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the tax laws or rates were recognized.  We are currently analyzing the impact of this ASU and, at this time, we have not yet determined whether we will elect to make this optional reclassification.

 

In March 2017, the FASB issued ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (Topic 715).  ASU 2017-07 provides guidance on the presentation of the service cost component and the other components of net period pension cost in the consolidated statements of earnings (loss).  The standard is effective for annual and interim reporting periods beginning after December 15, 2017 and requires retrospective adoption.  We adopted this ASU effective January 1, 2018, which resulted in a reclassification of $147,000 and $134,000 of pension benefit from general and administrative expenses to other income in our consolidated statements of (loss) earnings for the years ended December 31, 2017 and 2016, respectively.

 

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments, which provides guidance on how certain cash receipts and cash payments are presented and classified in the statement of cash flows.  The update is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  We adopted this ASU in the first quarter of 2018.  The adoption of this ASU did not have an impact on our consolidated financial statements.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires that lessees recognize assets and liabilities for leases with lease terms greater than twelve months in the statement of financial position and also requires improved disclosures to help users of financial statements better understand the amount, timing and uncertainty of cash flows arising from leases.  The update is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within those fiscal years.  Early adoption is permitted.  The ASU requires a transition adoption election using either 1) a modified retrospective approach with periods prior to the adoption date being recast or 2) a prospective adoption approach with a cumulative-effect adjustment recognized to the opening balance of retained earnings on the adoption date with prior periods not recast.  We anticipate adopting this standard in the first quarter of 2019 using the prospective adoption approach and electing the practical expedients allowed under the standard.  We are currently analyzing the impact of this ASU and, at this time, we are unable to determine the impact of the new standard on our consolidated financial statements.

 

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which enhances the reporting model for financial instruments to provide users of financial statements with more decision-useful information.  The standard addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments.  Some of the amendments include the following:  1) Require certain equity investments to be measured at fair value with changes in fair value recognized in net income; 2) Simplify the impairment assessment of equity investment’s without readily determinable fair values by requiring a qualitative assessment to identify impairment; 3) Require

 

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public business entities to use exit price notion when measuring fair value of financial instruments for disclosure purposes; 4) Require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting in a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value; among others.  The update is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  We adopted this standard effective January 1, 2018.  In accordance with the standard, we reclassified $34,000, net of income taxes, of unrealized gains from accumulated other comprehensive loss to retained earnings as of January 1, 2018.  See NOTE 9 — Stockholders’ Equity.  Additionally, changes in fair value of equity investments will be included in other income in our consolidated statements of (loss) earnings starting in 2018.  See NOTE 10 — Fair Value Measurements.

 

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which supersedes nearly all existing revenue recognition guidance under accounting principles generally accepted in the United States of America.  The FASB has issued several amendments to the standard, including clarification on accounting for and identifying performance obligations.  The standard can be applied using the full retrospective method or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application.      The new standard requires a company to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services.  Additionally, the guidance requires improved disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.  The update is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  We adopted this standard effective January 1, 2018 using the full retrospective method.  See Revenue and expense recognition above for further discussion.

 

The effect of the changes made to our consolidated statement of operations for the year ended December 31, 2017 for the adoption of ASU 2014-09 and ASU 2017-07, was as follows (in thousands):

 

 

 

As Originally
Reported

 

Adjustments
Due to
ASU 2014-09

 

Adjustments
Due to
ASU 2017-07

 

Revised

 

Revenues

 

 

 

 

 

 

 

 

 

Gaming

 

$

152,534

 

(13,850

)

 

$

138,684

 

Other operating

 

24,390

 

13,354

 

 

37,744

 

 

 

176,924

 

(496

)

 

176,428

 

Expenses

 

 

 

 

 

 

 

 

 

Gaming

 

146,209

 

(12,288

)

 

133,921

 

Other operating

 

17,140

 

11,804

 

 

28,944

 

General and administrative

 

5,174

 

 

147

 

5,321

 

Depreciation

 

8,168

 

 

 

8,168

 

 

 

176,691

 

(484

)

147

 

176,354

 

 

 

 

 

 

 

 

 

 

 

Operating earnings

 

233

 

(12

)

(147

)

74

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(840

)

 

 

(840

)

Other income

 

 

 

147

 

147

 

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

(607

)

(12

)

 

(619

)

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

(461

)

(62

)

 

(523

)

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(1,068

)

(74

)

 

$

(1,142

)

 

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The cumulative effect of the changes made to our December 31, 2017 consolidated balance sheet for the adoption of ASU 2014-09 was as follows (in thousands):

 

 

 

As Originally
Reported

 

Adjustments
Due to
ASU 2014-09

 

Revised

 

Assets

 

 

 

 

 

 

 

Deferred income taxes

 

$

1,630

 

$

156

 

$

1,786

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Accounts payable

 

3,769

 

(1,198

)

2,571

 

Accrued liabilities

 

9,811

 

(1,700

)

8,111

 

Deferred credits

 

316

 

(267

)

49

 

Contract liabilities

 

 

3,724

 

3,724

 

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

Retained earnings

 

110,220

 

(403

)

109,817

 

 

The effect of the changes made to our consolidated statement of cash flows for the year ended December 31, 2017 for the adoption of ASU 2014-09, was as follows (in thousands):

 

 

 

As Originally
Reported

 

Adjustments
Due to
ASU 2014-09

 

Revised

 

Net loss

 

$

(1,068

)

$

(74

)

$

(1,142

)

Deferred income taxes

 

457

 

62

 

519

 

Accounts payable

 

232

 

(209

)

23

 

Accrued liabilities

 

(79

)

(48

)

(127

)

Deferred credits

 

(45

)

8

 

(37

)

Contract liabilities

 

 

261

 

261

 

 

The effect of the changes made to our consolidated statement of earnings for the year ended December 31, 2016 for the adoption of ASU 2014-09 and ASU 2017-07, was as follows (in thousands):

 

 

 

As Originally
Reported

 

Adjustments
Due to
ASU 2014-09

 

Adjustments
Due to
ASU 2017-07

 

Revised

 

Revenues

 

 

 

 

 

 

 

 

 

Gaming

 

$

157,226

 

(13,984

)

 

$

143,242

 

Other operating

 

25,066

 

13,471

 

 

38,537

 

 

 

182,292

 

(513

)

 

181,779

 

Expenses

 

 

 

 

 

 

 

 

 

Gaming

 

149,577

 

(12,182

)

 

137,395

 

Other operating

 

17,316

 

11,717

 

 

29,033

 

General and administrative

 

5,375

 

 

134

 

5,509

 

Depreciation

 

7,743

 

 

 

7,743

 

 

 

180,011

 

(465

)

134

 

179,680

 

 

 

 

 

 

 

 

 

 

 

Operating earnings

 

2,281

 

(48

)

(134

)

2,099

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(863

)

 

 

(863

)

Other income

 

 

 

134

 

134

 

 

 

 

 

 

 

 

 

 

 

Earnings before income taxes

 

1,418

 

(48

)

 

1,370

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

(632

)

20

 

 

(612

)

 

 

 

 

 

 

 

 

 

 

Net earnings

 

$

786

 

(28

)

 

$

758

 

 

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The cumulative effect of the changes made to our December 31, 2016 consolidated balance sheet for the adoption of ASU 2014-09 was as follows (in thousands):

 

 

 

As Originally
Reported

 

Adjustments
Due to
ASU 2014-09

 

Revised

 

Assets

 

 

 

 

 

 

 

Deferred income taxes

 

$

2,020

 

$

218

 

$

2,238

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Accounts payable

 

3,749

 

(989

)

2,760

 

Accrued liabilities

 

9,854

 

(1,652

)

8,202

 

Deferred credits

 

361

 

(275

)

86

 

Contract liabilities

 

 

3,463

 

3,463

 

Liability for pension benefits

 

7,775

 

 

7,775

 

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

Retained earnings

 

111,288

 

(329

)

110,959

 

 

The effect of the changes made to our consolidated statement of cash flows for the year ended December 31, 2016 for the adoption of ASU 2014-09, was as follows (in thousands):

 

 

 

As Originally
Reported

 

Adjustments
Due to
ASU 2014-09

 

Revised

 

Net earnings

 

$

786

 

$

(28

)

$

758

 

Deferred income taxes

 

(36

)

(20

)

(56

)

Accounts payable

 

149

 

(49

)

100

 

Accrued liabilities

 

1,174

 

8

 

1,182

 

Deferred credits

 

(47

)

(4

)

(51

)

Contract liabilities

 

 

93

 

93

 

 

The cumulative effect of the changes made to our January 1, 2016 consolidated balance sheet for the adoption of ASU 2014-09 was as follows (in thousands):

 

 

 

As Originally
Reported

 

Adjustments
Due to
ASU 2014-09

 

Revised

 

Assets

 

 

 

 

 

 

 

Deferred income taxes

 

$

482

 

$

198

 

$

680

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Accounts payable

 

3,380

 

(940

)

2,440

 

Accrued liabilities

 

8,635

 

(1,660

)

6,975

 

Deferred credits

 

408

 

(271

)

137

 

Contract liabilities

 

 

3,370

 

3,370

 

Liability for pension benefits

 

7,509

 

 

7,509

 

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

Retained earnings

 

110,502

 

(301

)

110,201

 

 

Reclassifications—Certain amounts in the prior year financial statements have been reclassified to conform to the current-year presentation. The impact of the reclassifications made to prior year amounts are not material and did not affect net earnings.

 

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NOTE 4—Property and Equipment

 

Property and equipment consists of the following as of December 31:

 

 

 

2018

 

2017

 

Land

 

$

785,000

 

$

785,000

 

Casino facility

 

77,027,000

 

77,027,000

 

Hotel facility

 

114,505,000

 

113,763,000

 

Harness racing facilities

 

10,983,000

 

10,982,000

 

General facilities

 

17,431,000

 

16,935,000

 

Furniture, fixtures and equipment

 

61,874,000

 

58,960,000

 

Construction in progress

 

688,000

 

222,000

 

 

 

283,293,000

 

278,674,000

 

Less accumulated depreciation

 

(151,971,000

)

(144,147,000

)

 

 

$

131,322,000

 

$

134,527,000

 

 

NOTE 5—Accrued Liabilities

 

Accrued liabilities consist of the following as of December 31:

 

 

 

2018

 

2017

 

Payroll and related items

 

$

2,488,000

 

$

2,558,000

 

Win due to Delaware State Lottery Office

 

4,822,000

 

3,688,000

 

Other

 

2,578,000

 

1,865,000

 

 

 

$

9,888,000

 

$

8,111,000

 

 

NOTE 6—Credit Facility

 

On September 13, 2018, we modified our $32,500,000 credit agreement with our bank group.