United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2016
Commission file number 1-16791
Dover Downs Gaming & Entertainment, Inc.
(Exact name of registrant as specified in its charter)
|
Delaware |
|
51-0414140 |
|
(State or Other Jurisdiction of Incorporation) |
|
(I.R.S. Employer Identification No.) |
1131 North DuPont Highway, Dover, Delaware 19901
(Address of principal executive offices)
(302) 674-4600
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of April 25, 2016, the number of shares of each class of the registrant’s common stock outstanding is as follows:
Common Stock - 18,143,942 shares
Class A Common Stock - 14,870,673 shares
Part I — Financial Information
Item 1. Financial Statements
DOVER DOWNS GAMING & ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
In Thousands, Except Per Share Amounts
(Unaudited)
|
|
|
Three Months Ended |
| ||||
|
|
|
2016 |
|
2015 |
| ||
|
Revenues: |
|
|
|
|
| ||
|
Gaming |
|
$ |
39,358 |
|
$ |
38,776 |
|
|
Other operating |
|
5,359 |
|
5,562 |
| ||
|
|
|
44,717 |
|
44,338 |
| ||
|
Expenses: |
|
|
|
|
| ||
|
Gaming |
|
37,495 |
|
36,762 |
| ||
|
Other operating |
|
3,973 |
|
3,887 |
| ||
|
General and administrative |
|
1,328 |
|
1,496 |
| ||
|
Depreciation |
|
1,887 |
|
2,152 |
| ||
|
|
|
44,683 |
|
44,297 |
| ||
|
|
|
|
|
|
| ||
|
Operating earnings |
|
34 |
|
41 |
| ||
|
|
|
|
|
|
| ||
|
Interest expense |
|
(229 |
) |
(348 |
) | ||
|
|
|
|
|
|
| ||
|
Loss before income taxes |
|
(195 |
) |
(307 |
) | ||
|
|
|
|
|
|
| ||
|
Income tax expense |
|
(44 |
) |
(45 |
) | ||
|
|
|
|
|
|
| ||
|
Net loss |
|
(239 |
) |
(352 |
) | ||
|
|
|
|
|
|
| ||
|
Change in pension net actuarial loss and prior service cost, net of income taxes |
|
20 |
|
23 |
| ||
|
|
|
|
|
|
| ||
|
Unrealized gain on available-for-sale securities, net of income taxes |
|
2 |
|
4 |
| ||
|
|
|
|
|
|
| ||
|
Comprehensive loss |
|
$ |
(217 |
) |
$ |
(325 |
) |
|
|
|
|
|
|
| ||
|
Net loss per common share: |
|
|
|
|
| ||
|
Basic |
|
$ |
(0.01 |
) |
$ |
(0.01 |
) |
|
Diluted |
|
$ |
(0.01 |
) |
$ |
(0.01 |
) |
The Notes to the Consolidated Financial Statements are an integral part of these consolidated financial statements.
DOVER DOWNS GAMING & ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
In Thousands, Except Share and Per Share Amounts
(Unaudited)
|
|
|
March 31, |
|
December 31, |
| ||
|
|
|
2016 |
|
2015 |
| ||
|
ASSETS |
|
|
|
|
| ||
|
Current assets: |
|
|
|
|
| ||
|
Cash |
|
$ |
11,077 |
|
$ |
10,496 |
|
|
Accounts receivable |
|
3,055 |
|
2,926 |
| ||
|
Due from State of Delaware |
|
2,663 |
|
7,952 |
| ||
|
Inventories |
|
1,938 |
|
1,912 |
| ||
|
Prepaid expenses and other |
|
1,983 |
|
2,530 |
| ||
|
Receivable from Dover Motorsports, Inc. |
|
10 |
|
— |
| ||
|
Income taxes receivable |
|
225 |
|
254 |
| ||
|
Deferred income taxes |
|
1,433 |
|
1,308 |
| ||
|
Total current assets |
|
22,384 |
|
27,378 |
| ||
|
|
|
|
|
|
| ||
|
Property and equipment, net |
|
144,750 |
|
145,425 |
| ||
|
Other assets |
|
638 |
|
672 |
| ||
|
Deferred income taxes |
|
297 |
|
482 |
| ||
|
Total assets |
|
$ |
168,069 |
|
$ |
173,957 |
|
|
|
|
|
|
|
| ||
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
| ||
|
Current liabilities: |
|
|
|
|
| ||
|
Accounts payable |
|
$ |
3,875 |
|
$ |
3,380 |
|
|
Purses due horsemen |
|
2,750 |
|
7,473 |
| ||
|
Accrued liabilities |
|
7,690 |
|
8,538 |
| ||
|
Payable to Dover Motorsports, Inc. |
|
— |
|
44 |
| ||
|
Deferred revenue |
|
503 |
|
408 |
| ||
|
Revolving line of credit |
|
31,000 |
|
31,500 |
| ||
|
Total current liabilities |
|
45,818 |
|
51,343 |
| ||
|
|
|
|
|
|
| ||
|
Liability for pension benefits |
|
7,423 |
|
7,606 |
| ||
|
Total liabilities |
|
53,241 |
|
58,949 |
| ||
|
|
|
|
|
|
| ||
|
Commitments and contingencies (see Notes to the Consolidated Financial Statements) |
|
|
|
|
| ||
|
|
|
|
|
|
| ||
|
Stockholders’ equity: |
|
|
|
|
| ||
|
Preferred stock, $0.10 par value; 1,000,000 shares authorized; shares issued and outstanding: none |
|
— |
|
— |
| ||
|
Common stock, $0.10 par value; 74,000,000 shares authorized; shares issued and outstanding: 18,143,942 and 17,990,997, respectively |
|
1,814 |
|
1,799 |
| ||
|
Class A common stock, $0.10 par value; 50,000,000 shares authorized; shares issued and outstanding: 14,870,673 and 14,870,673, respectively |
|
1,487 |
|
1,487 |
| ||
|
Additional paid-in capital |
|
5,446 |
|
5,424 |
| ||
|
Retained earnings |
|
110,263 |
|
110,502 |
| ||
|
Accumulated other comprehensive loss |
|
(4,182 |
) |
(4,204 |
) | ||
|
Total stockholders’ equity |
|
114,828 |
|
115,008 |
| ||
|
Total liabilities and stockholders’ equity |
|
$ |
168,069 |
|
$ |
173,957 |
|
The Notes to the Consolidated Financial Statements are an integral part of these consolidated financial statements.
DOVER DOWNS GAMING & ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
In Thousands
(Unaudited)
|
|
|
Three Months Ended |
| ||||
|
|
|
2016 |
|
2015 |
| ||
|
Operating activities: |
|
|
|
|
| ||
|
Net loss |
|
$ |
(239 |
) |
$ |
(352 |
) |
|
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
| ||
|
Depreciation |
|
1,887 |
|
2,152 |
| ||
|
Amortization of credit facility origination fees |
|
26 |
|
27 |
| ||
|
Stock-based compensation |
|
103 |
|
105 |
| ||
|
Deferred income taxes |
|
46 |
|
(31 |
) | ||
|
Changes in assets and liabilities: |
|
|
|
|
| ||
|
Accounts receivable |
|
(129 |
) |
(616 |
) | ||
|
Due from State of Delaware |
|
5,289 |
|
4,603 |
| ||
|
Inventories |
|
(26 |
) |
140 |
| ||
|
Prepaid expenses and other |
|
559 |
|
121 |
| ||
|
Receivable from/payable to Dover Motorsports, Inc. |
|
(54 |
) |
11 |
| ||
|
Income taxes receivable |
|
28 |
|
78 |
| ||
|
Accounts payable |
|
562 |
|
(579 |
) | ||
|
Purses due horsemen |
|
(4,723 |
) |
(4,940 |
) | ||
|
Accrued liabilities |
|
(848 |
) |
2,437 |
| ||
|
Deferred revenue |
|
95 |
|
203 |
| ||
|
Liability for pension benefits |
|
(149 |
) |
(109 |
) | ||
|
Net cash provided by operating activities |
|
2,427 |
|
3,250 |
| ||
|
|
|
|
|
|
| ||
|
Investing activities: |
|
|
|
|
| ||
|
Capital expenditures |
|
(1,279 |
) |
(472 |
) | ||
|
Purchase of available-for-sale securities |
|
(1 |
) |
— |
| ||
|
Net cash used in investing activities |
|
(1,280 |
) |
(472 |
) | ||
|
|
|
|
|
|
| ||
|
Financing activities: |
|
|
|
|
| ||
|
Borrowings from revolving line of credit |
|
15,450 |
|
14,820 |
| ||
|
Repayments of revolving line of credit |
|
(15,950 |
) |
(15,830 |
) | ||
|
Repurchase of common stock |
|
(66 |
) |
(65 |
) | ||
|
Net cash used in financing activities |
|
(566 |
) |
(1,075 |
) | ||
|
|
|
|
|
|
| ||
|
Net increase in cash |
|
581 |
|
1,703 |
| ||
|
Cash, beginning of period |
|
10,496 |
|
10,079 |
| ||
|
Cash, end of period |
|
$ |
11,077 |
|
$ |
11,782 |
|
|
|
|
|
|
|
| ||
|
Supplemental information: |
|
|
|
|
| ||
|
Interest paid |
|
$ |
203 |
|
$ |
332 |
|
|
Income tax receipts |
|
$ |
31 |
|
$ |
— |
|
|
Change in accounts payable for capital expenditures |
|
$ |
(67 |
) |
$ |
— |
|
The Notes to the Consolidated Financial Statements are an integral part of these consolidated financial statements.
DOVER DOWNS GAMING & ENTERTAINMENT, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 — Basis of Presentation
References in this document to “we,” “us” and “our” mean Dover Downs Gaming & Entertainment, Inc. and/or its wholly owned subsidiaries, as appropriate.
The accompanying consolidated financial statements have been prepared in compliance with Rule 10-01 of Regulation S-X and U.S. generally accepted accounting principles, and accordingly do not include all of the information and disclosures required for audited financial statements. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our latest Annual Report on Form 10-K filed on March 4, 2016. In the opinion of management, these consolidated financial statements include all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the results of operations, financial position and cash flows for the interim periods presented. Operating results for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.
NOTE 2 - Business Operations
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, Spanish 21, 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, Doc Magrogan’s Oyster House, Frankie’s Italian restaurant, as well as several bars, restaurants and four retail outlets;
· Dover Downs Hotel and Conference Center — a 500 room AAA Four Diamond 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.
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 47 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 an unprecedented 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 30% of our gaming win comes from Maryland patrons and approximately 60% of our Capital Club® member gaming win comes from out of state patrons.
In 2013, the State enacted a bond and capital improvements bill which, among other things, created a Lottery & Gaming Study Commission responsible for examining the competitive marketplace confronting the Delaware gaming industry, including the business performance and business plans of existing lottery agents, the marketing efforts and investments made by Delaware video lottery agents, and the division of revenue from the video lottery, sports lottery, table games and internet gaming. In 2014, the Delaware legislature approved the Commission’s recommendation for the State to share certain vendor costs that the three Delaware video lottery agents pay associated with slot machines. Our video lottery vendor costs were reduced by approximately $970,000 and $950,000 during the three months ended March 31, 2016 and 2015, respectively, as a result of the cost sharing arrangement.
The Commission reconvened in September 2014 to consider previous and make further recommendations relative to the gaming industry. The Commission’s findings and recommendations were released in January 2015 and included: increasing the State’s share of vendor costs associated with slot machines; eliminating the annual table game license fee; reducing the State’s share of table game win; and providing each video lottery agent a credit of up to 5% of video lottery proceeds to be used for marketing expenditures and a credit of up to 5% of video lottery proceeds to be used for capital expenditures. Delaware State Senate Bill 30 was introduced in January 2015 in order to implement the Commission’s recommendations, but it was not released from the Senate Finance Committee for action. In January 2016, Senate Bill 183 was introduced to phase in some of the Commission’s recommendations over the next four years and to authorize internet sports betting in Delaware, but it has not been acted upon to date.
Without legislative relief, we may be unable to refinance or extend the maturity of our credit facility on favorable terms or may default on our obligations, we may be unable to allocate sufficient resources to marketing and promotions in order to compete effectively in the regional marketplace, we may be unable to allocate sufficient resources to maintaining our facility, and we may be required to take other actions in order to manage expenses - especially with respect to operations that have operated at a loss, such as table games. Such actions could adversely affect our business, financial condition, operating results and cash flow.
NOTE 3 - Summary of Significant Accounting Policies
Property and equipment—Property and equipment is stated at cost. Depreciation is provided for financial reporting purposes using the straight-line method over the asset’s estimated useful life. Accumulated depreciation was $132,129,000 and $130,869,000 as of March 31, 2016 and December 31, 2015, respectively.
We perform reviews for impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. An impairment loss would be measured as the amount by which the carrying amount of the asset exceeds its fair value. Generally, fair value will be determined using valuation techniques such as the present value of future cash flows.
Point loyalty program—We currently have a point loyalty program for our customers which allows them to earn points based on the volume of their gaming activity. All reward points earned by customers are expensed in the period they are earned. The estimated amount of points redeemable for cash is recorded as a reduction of gaming revenue and the estimated amount of points redeemable for services and merchandise is recorded as gaming expense. In determining the amount of the liability, which was $1,639,000 and $1,660,000, respectively, at March 31, 2016 and December 31, 2015, we estimate a redemption rate, a cost of rewards to be offered and the mix of cash, goods and services for which reward points will be redeemed. We use historical data to estimate those amounts.
Revenue and expense recognition—Gaming revenues represent (i) the net win from slot machine, table games, internet gaming and sports wagering and (ii) commissions from pari-mutuel wagering. Other operating revenues consist of hotel rooms revenue, food and beverage sales and other miscellaneous income. Revenues do not include the retail amount of hotel rooms, food and beverage and other miscellaneous goods and services provided without charge to customers as promotional items of $4,576,000 and $4,211,000 for the three months ended March 31, 2016 and 2015, respectively. The estimated direct cost of providing these items has been charged to the casino through interdepartmental allocations and is included in gaming expenses in the consolidated statements of operations.
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.
Advertising costs—The cost of general advertising is charged to operations as incurred. Advertising expenses were $498,000 and $526,000 for the three months ended March 31, 2016 and 2015, respectively.
Net 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 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):
|
|
|
Three Months Ended |
| ||||
|
|
|
2016 |
|
2015 |
| ||
|
Net loss per common share — basic and diluted: |
|
|
|
|
| ||
|
Net loss |
|
$ |
(239 |
) |
$ |
(352 |
) |
|
Allocation to nonvested restricted stock awards |
|
— |
|
— |
| ||
|
Net loss available to common stockholders |
|
$ |
(239 |
) |
$ |
(352 |
) |
|
|
|
|
|
|
| ||
|
Weighted-average shares outstanding — basic and diluted |
|
32,199 |
|
32,083 |
| ||
|
|
|
|
|
|
| ||
|
Net loss per common share — basic and diluted |
|
$ |
(0.01 |
) |
$ |
(0.01 |
) |
There were no options outstanding and we paid no dividends during the three months ended March 31, 2016 or 2015.
Accounting for stock-based compensation—We recorded total stock-based compensation expense for our restricted stock awards of $103,000 and $105,000 as general and administrative expenses for the three months ended March 31, 2016 and 2015, respectively. We recorded income tax expense of $77,000 and $129,000 for the three months ended March 31, 2016 and 2015, respectively, related to our restricted stock awards.
NOTE 4 — Credit Facility
At March 31, 2016, we had a $40,000,000 secured credit agreement with a bank group. The credit facility expires on September 30, 2016. Interest is based upon LIBOR plus a margin that varies between 150 and 350 basis points (200 basis points at March 31, 2016) 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. In addition, the credit agreement includes a material adverse change clause and prohibits the payment of dividends. The credit facility contains certain covenants including maximum ratio of funded debt to earnings before interest, taxes, depreciation and amortization (the “leverage ratio”), minimum consolidated tangible net worth requirement, minimum consolidated earnings before interest, taxes, depreciation and amortization requirement and a minimum fixed charge coverage ratio. Material adverse changes in our results of operations could impact our ability to satisfy these requirements. The credit facility provides for seasonal funding needs, capital improvements and other general corporate purposes. At March 31, 2016, there was $31,000,000 outstanding at a weighted average interest rate of 2.44% and $9,000,000 was available pursuant to the facility. Additionally, we were in compliance with all terms of the facility at March 31, 2016 and we expect to be in compliance with the financial covenants and all other covenants for all measurement periods through September 30, 2016, the expiration date of the facility.
The credit facility is classified as a current liability as of March 31, 2016 in our consolidated balance sheets as the facility expires on September 30, 2016. 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.
NOTE 5 — Pension Plans
We maintain a non-contributory, tax qualified defined benefit pension plan that has been frozen since July 2011. All of our full time employees were eligible to participate in this qualified pension plan. Benefits provided by our qualified pension plan were based on years of service and employees’ remuneration over their term of employment. Compensation earned by employees up to July 31, 2011 is used for purposes of calculating benefits under our pension plan with no future benefit accruals after this date. Participants as of July 31, 2011 continue to earn vesting credit with respect to their frozen accrued benefits as they continue to work. We also maintain a non-qualified, non-contributory defined benefit pension plan, the excess plan, for certain employees that has been frozen since July 2011. This excess plan provided benefits that would otherwise be provided under the qualified pension plan but for maximum benefit and compensation limits applicable under federal tax law. The cost associated with the excess plan is determined using the same actuarial methods and assumptions as those used for our qualified pension plan. The assets for the excess plan aggregate $291,000 and $287,000 as of March 31, 2016 and December 31, 2015, respectively, and are recorded in other assets in our consolidated balance sheets (see NOTE 7 — Fair Value Measurements).
The components of net periodic pension benefit for our defined benefit pension plans are as follows:
|
|
|
Three Months Ended |
| ||||
|
|
|
2016 |
|
2015 |
| ||
|
Interest cost |
|
$ |
217,000 |
|
$ |
240,000 |
|
|
Expected return on plan assets |
|
(285,000 |
) |
(290,000 |
) | ||
|
Recognized net actuarial loss |
|
34,000 |
|
37,000 |
| ||
|
|
|
$ |
(34,000 |
) |
$ |
(13,000 |
) |
We contributed $40,000 to our defined benefit pension plans during the three months ended March 31, 2016. We expect to contribute approximately $170,000 to our defined benefit pension plans during the remainder of 2016. We did not contribute to our defined benefit pension plans during the three months ended March 31, 2015.
We also maintain a non-elective, non-qualified supplemental executive retirement plan (“SERP”) which provides deferred compensation to certain highly compensated employees that approximates the value of benefits lost by the freezing of the pension plan which are not offset by our enhanced matching contribution in our 401(k) plan. The SERP is a discretionary defined contribution plan and contributions made to the SERP in any given year are not guaranteed and will be at the sole discretion of our Compensation and Stock Incentive Committee. During the three months ended March 31, 2016 and 2015, we recorded expenses of $24,000 and $30,000, respectively, related to the SERP. During the three months ended March 31, 2016 and 2015, we contributed $99,000 and $126,000 to the plan, respectively. The liability for SERP pension benefits was $22,000 and $97,000 as of March 31, 2016 and December 31, 2015, respectively.
We maintain a defined contribution 401(k) plan which permits participation by substantially all employees. Our matching contributions to the 401(k) plan were $202,000 and $230,000 for the three months ended March 31, 2016 and 2015, respectively.
NOTE 6 — Stockholders’ Equity
Changes in the components of stockholders’ equity are as follows (in thousands, except per share amounts):
|
|
|
Common |
|
Class A |
|
Additional |
|
Retained |
|
Accumulated |
| |||||
|
Balance at December 31, 2015 |
|
$ |
1,799 |
|
$ |
1,487 |
|
$ |
5,424 |
|
$ |
110,502 |
|
$ |
(4,204 |
) |
|
Net loss |
|
— |
|
— |
|
— |
|
(239 |
) |
— |
| |||||
|
Issuance of nonvested stock awards, net of forfeitures |
|
22 |
|
— |
|
(22 |
) |
— |
|
— |
| |||||
|
Stock-based compensation |
|
— |
|
— |
|
103 |
|
— |
|
— |
| |||||
|
Change in net actuarial loss and prior service cost, net of income tax expense of $14 |
|
— |
|
— |
|
— |
|
— |
|
20 |
| |||||
|
Unrealized gain on available-for-sale securities, net of income tax expense of $1 |
|
— |
|
— |
|
— |
|
— |
|
2 |
| |||||
|
Repurchase and retirement of common stock |
|
(7 |
) |
— |
|
(59 |
) |
— |
|
— |
| |||||
|
Balance at March 31, 2016 |
|
$ |
1,814 |
|
$ |
1,487 |
|
$ |
5,446 |
|
$ |
110,263 |
|
$ |
(4,182 |
) |
As of March 31, 2016 and December 31, 2015, accumulated other comprehensive loss consists of the following:
|
|
|
March 31, 2016 |
|
December 31, 2015 |
| ||
|
Net actuarial loss and prior service cost not yet recognized in net periodic benefit cost, net of income tax benefit of $2,805,000 and $2,819,000, respectively |
|
$ |
(4,209,000 |
) |
$ |
(4,229,000 |
) |
|
Accumulated unrealized gain on available- for-sale securities, net of income tax expense of $19,000 and $18,000, respectively |
|
27 ,000 |
|
25,000 |
| ||
|
Accumulated other comprehensive loss |
|
$ |
(4,182,000 |
) |
$ |
(4,204,000 |
) |
On January 23, 2013, our Board of Directors suspended the quarterly dividend. In addition, our credit facility prohibits the payment of dividends. See NOTE 4 — Credit Facility.
On October 23, 2002, our Board of Directors authorized the repurchase of up to 3,000,000 shares of our outstanding common stock. The purchases may be made in the open market or in privately negotiated transactions as conditions warrant. The repurchase authorization has no expiration date, does not obligate us to acquire any specific number of shares and may be suspended at any time. No purchases of our equity securities were made pursuant to this authorization during the first three months of 2016 or 2015. At March 31, 2016, we had remaining repurchase authority of 1,653,333 shares. At present we are not permitted to make such purchases under our credit facility.
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. Under the plan, nonvested restricted stock vests an aggregate of twenty percent each year beginning on the second anniversary date of the grant. The aggregate market value of the nonvested restricted stock at the date of issuance is being amortized on a straight-line basis over the six-year period. We granted 220,500 and 227,000 stock awards under this plan during the three months ended March 31, 2016 and 2015, respectively. As of March 31, 2016, there were 1,258,465 shares available for granting options or stock awards.
During the three months ended March 31, 2016 and 2015, we purchased and retired 67,555 and 73,453 shares of our outstanding common stock for $66,000 and $65,000, respectively. These purchases were made from employees in connection with the vesting of restricted stock awards under our stock incentive plan and were not pursuant to the aforementioned repurchase authorization. Since the vesting of a restricted stock award is a taxable event to our employees for which income tax withholding is required, the plan allows employees to surrender to us some of the shares that would otherwise have vested in satisfaction of their tax liability. The surrender of these shares is treated by us as a purchase of the shares.
NOTE 7 — Fair Value Measurements
Our financial instruments are classified and disclosed in one of the following three categories:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability;
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
The following table summarizes the valuation of our financial instrument pricing levels as of March 31, 2016 and December 31, 2015:
|
|
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
| ||||
|
March 31, 2016 |
|
|
|
|
|
|
|
|
| ||||
|
Available-for-sale securities |
|
$ |
291,000 |
|
$ |
291,000 |
|
$ |
— |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
December 31, 2015 |
|
|
|
|
|
|
|
|
| ||||
|
Available-for-sale securities |
|
$ |
287,000 |
|
$ |
287,000 |
|
$ |
— |
|
$ |
— |
|
Our investments in available-for-sale securities consist of mutual funds. These investments are included in other assets on our consolidated balance sheets.
The carrying amounts of other financial instruments reported in our consolidated balance sheets for current assets and current liabilities approximates their fair values because of the short maturity of these instruments.
At March 31, 2016 and December 31, 2015, there was $31,000,000 and $31,500,000, respectively, outstanding under our revolving credit agreement. The borrowings under our revolving credit agreement bear interest at the variable rate described in NOTE 4 — Credit Facility and therefore we believe approximate fair value.
NOTE 8 - Related Party Transactions
During the three months ended March 31, 2016 and 2015, we allocated costs of $475,000 and $445,000, respectively to Dover Motorsports, Inc. (“DVD”), a company related through common ownership, for certain administrative and operating services, including leased space. DVD allocated certain administrative and operating service costs of $83,000 and $87,000, respectively, to us for the three months ended March 31, 2016 and 2015. The allocations were based on an analysis of each company’s share of the costs. Additionally, DVD invoiced us $36,000 during the three months ended March 31, 2015 for tickets to DVD’s 2015 spring NASCAR event weekend at Dover International Speedway. As of March 31, 2016 and December 31, 2015, our consolidated balance sheets included a $10,000 receivable from and a $44,000 payable to DVD for the aforementioned items. These items were settled in April 2016 and January of 2016, respectively. The net costs incurred by each company for these services are not necessarily indicative of the costs that would have been incurred if the companies had been unrelated entities and/or had otherwise independently managed these functions; however, management believes that these costs are reasonable.
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.
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.
Henry B. Tippie, Chairman of our Board of Directors, controls in excess of fifty percent of our voting power. Mr. Tippie’s voting control emanates from his direct and indirect holdings of common stock and Class A common stock, from his status as trustee of the RMT Trust, our largest stockholder, and from certain shares as to which he has voting rights pursuant to a voting agreement with R. Randall Rollins, one of our directors. This means that Mr. Tippie has the ability to determine the outcome of our election of directors and to determine the outcome of many significant corporate transactions, many of which only require the approval of a majority of our voting power.
Patrick J. Bagley, Timothy R. Horne, Denis McGlynn, Jeffrey W. Rollins, R. Randall Rollins, Richard K. Struthers and Henry B. Tippie are all Directors of ours and DVD. Denis McGlynn is the President and Chief Executive Officer of both companies, Klaus M. Belohoubek is the Senior Vice President — General Counsel and Secretary of both companies and Timothy R. Horne is the Senior Vice President — Finance and Chief Financial Officer of both companies. Mr. Tippie controls in excess of fifty percent of the voting power of DVD.
NOTE 9 — Commitments and Contingencies
We are a party to ordinary routine litigation incidental to our business. Management does not believe that the resolution of any of these matters is likely to have a material adverse effect on our results of operations, financial position or cash flows.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion is based upon and should be read together with the consolidated financial statements and notes thereto included elsewhere in this document.
Dover Downs Gaming & Entertainment, Inc. is a 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, Spanish 21, 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, Doc Magrogan’s Oyster House, Frankie’s Italian restaurant, as well as several bars, restaurants and four retail outlets;
· Dover Downs Hotel and Conference Center — a 500 room AAA Four Diamond 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.
Approximately 88% 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 and more are expected to open. 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 slot marketing system to allow for more efficient marketing programs and the highest levels of customer service. Our facility offers approximately 35,000 square feet of conference 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 the region’s premier gaming destination and building and rewarding customer loyalty through innovative marketing efforts, unparalleled customer service and a variety of amenities.
Results of Operations
Three Months Ended March 31, 2016 vs. Three Months Ended March 31, 2015
Gaming revenues increased by $582,000, or 1.5%, to $39,358,000 in the first quarter of 2016 primarily as a result of a higher table game hold percentage and smaller increases in other gaming revenues.
Other operating revenues were $5,359,000 in the first quarter of 2016 as compared to $5,562,000 in the first quarter of 2015. Rooms revenue decreased $299,000 to $936,000 in the first quarter of 2016 as compared to $1,235,000 in the first quarter of 2015 due primarily to lower convention sales. Food and beverage revenues decreased $175,000 to $3,359,000 in the first quarter of 2016 from $3,534,000 in the first quarter of 2015 due primarily to lower banquet sales and lower revenues in other food and beverage outlets, partially offset by higher sales in our Festival Buffet and the opening of a new food and beverage outlet in the fourth quarter of 2015. During the second quarter of 2015, we terminated and settled a lease related to retail space at our facility and subsequently began operating the five existing retail outlets. As a result, we recognized increased revenues of $167,000 in the first quarter of 2016. Other operating revenues do not include the retail amount of promotional allowances which are provided to customers on a complimentary basis of $4,576,000 and $4,211,000 in the first quarter of 2016 and 2015, respectively.
Gaming expenses increased by $733,000, or 2.0%, as a result of the higher gaming revenues, increased marketing and higher employee benefit costs.
Other operating expenses increased to $3,973,000 in the first quarter of 2016 from $3,887,000 in the first quarter of 2015 due primarily to expenses related to the retail operations we began to operate in the second quarter of 2015.
General and administrative expenses decreased $168,000 to $1,328,000 in the first quarter of 2016 as compared to $1,496,000 in the first quarter of 2015 due primarily to employee separation costs and higher legal fees incurred in the first quarter of 2015.
Depreciation expense decreased to $1,887,000 in the first quarter of 2016 from $2,152,000 in the first quarter of 2015 as a result of certain assets becoming fully depreciated.
Interest expense decreased by $119,000 primarily due to lower outstanding borrowings and a lower average interest rate in the first quarter of 2016.
Our effective income tax rate was 22.6% in the first quarter of 2016 as compared to 14.7% in the first quarter of 2015. The rates were impacted by the non-deductible portion of the restricted stock awards that vested during the first quarter of 2016 and 2015, and also our lower pre-tax loss in 2016.
Liquidity and Capital Resources
Net cash provided by operating activities was $2,427,000 in the first three months of 2016 compared to $3,250,000 in the first three months of 2015. The decrease was primarily due to the timing of payments to the Delaware State Lottery Office for its portion of the slot win.
Net cash used in investing activities was $1,280,000 in the first three months of 2016 compared to $472,000 in the first three months of 2015 and was primarily related to capital improvements in both periods. Capital expenditures in the first three months of 2016 and 2015 related primarily to information systems and facility and equipment upgrades.
Net cash used in financing activities was $566,000 in the first three months of 2016 compared to $1,075,000 in the first three months of 2015. During the first quarter of 2016, we had net repayments of $500,000 on our credit facility compared to $1,010,000 during the first quarter of 2015. We repurchased and retired $66,000 and $65,000 of our outstanding common stock during the first quarter of 2016 and 2015, respectively. These purchases were made from employees in connection with the vesting of restricted stock awards under our stock incentive plan.
On October 23, 2002, our Board of Directors authorized the repurchase of up to 3,000,000 shares of our outstanding common stock. The purchases may be made in the open market or in privately negotiated transactions as conditions warrant. The repurchase authorization has no expiration date, does not obligate us to acquire any specific number of shares and may be suspended at any time. No purchases of our equity securities were made pursuant to this authorization during the first quarter of 2016 or 2015. At March 31, 2016, 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 $2,000,000 - $2,500,000 during the remainder of 2016. Additionally, we expect to contribute approximately $170,000 to our defined benefit pension plans during the remainder of 2016.
At March 31, 2016, we had a $40,000,000 secured credit agreement with a bank group. The credit facility expires on September 30, 2016. Interest is based upon LIBOR plus a margin that varies between 150 and 350 basis points (200 basis points at March 31, 2016) 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. In addition, the credit agreement includes a material adverse change clause and prohibits the payment of dividends. The credit facility contains certain covenants including maximum ratio of funded debt to earnings before interest, taxes, depreciation and amortization (the “leverage ratio”), minimum consolidated tangible net worth requirement, minimum consolidated earnings before interest, taxes, depreciation and amortization requirement and a minimum fixed charge coverage ratio. Material adverse changes in our results of operations could impact our ability to satisfy these requirements. The credit facility provides for seasonal funding needs, capital improvements and other general corporate purposes. At March 31, 2016, there was $31,000,000 outstanding at a weighted average interest rate of 2.44% and $9,000,000 was available pursuant to the facility. Additionally, we were in compliance with all terms of the facility at March 31, 2016 and we expect to be in compliance with the financial covenants and all other covenants for all measurement periods through September 30, 2016, the expiration date of the facility.
The credit facility is classified as a current liability as of March 31, 2016 in our consolidated balance sheets as the facility expires on September 30, 2016. 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, 2016.
In recent years, the mid-Atlantic region has experienced an unprecedented expansion in gaming venues and gaming offerings. These new venues — particularly a large casino at Arundel Mills Mall in Maryland which opened in June 2012 with slot machines and subsequently added table games in April 2013 — have had a significant adverse effect on our visitation numbers, our revenues and our profitability. Management has estimated that approximately 30% of our gaming win comes from Maryland patrons and approximately 60% 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, the legislature has 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 the fourth quarter of 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 one announced in February 2014 between Delaware and Nevada. Internet gaming participation is limited to persons who meet the age requirements for equivalent non-internet games. The Act also eliminated the gaming license fee and restructured the table game license fee currently paid by video lottery agents to incentivize agents to make capital expenditures, spend on marketing and promotions, and make debt service payments.
In 2013, the State enacted a bond and capital improvements bill which, among other things, created a Lottery & Gaming Study Commission responsible for examining the competitive marketplace confronting the Delaware gaming industry, including the business performance and business plans of existing lottery agents, the marketing efforts and investments made by Delaware video lottery agents, and the division of revenue from the video lottery, sports lottery, table games and internet gaming. In 2014, the Delaware legislature approved the Commission’s recommendation for the State to share certain vendor costs that the three Delaware video lottery agents pay associated with slot machines. Our video lottery vendor costs were reduced by approximately $970,000 and $950,000 during the three months ended March 31, 2016 and 2015, respectively, as a result of the cost sharing arrangement.
The Commission reconvened in September 2014 to consider previous and make further recommendations relative to the gaming industry. The Commission’s findings and recommendations were released in January 2015 and included: increasing the State’s share of vendor costs associated with slot machines; eliminating the annual table game license fee; reducing the State’s share of table game win; and providing each video lottery agent a credit of up to 5% of video lottery proceeds to be used for marketing expenditures and a credit of up to 5% of video lottery proceeds to be used for capital expenditures. Delaware State Senate Bill 30 was introduced in January 2015 in order to implement the Commission’s recommendations, but it was not released from the Senate Finance Committee for action. In January 2016, Senate Bill 183 was introduced to phase in some of the Commission’s recommendations over the next four years and to authorize internet sports betting in Delaware, but it has not been acted upon to date.
Without legislative relief, we may be unable to refinance or extend the maturity of our credit facility on favorable terms or may default on our obligations, we may be unable to allocate sufficient resources to marketing and promotions in order to compete effectively in the regional marketplace, we may be unable to allocate sufficient resources to maintaining our facility, and we may be required to take other actions in order to manage expenses - especially with respect to operations that have operated at a loss, such as table games. Such actions could adversely affect our business, financial condition, operating results and cash flow.
Contractual Obligations
At March 31, 2016, we had the following contractual obligations:
|
|
|
|
|
Payments Due by Period |
| |||||||||||
|
|
|
Total |
|
2016 |
|
2017 – 2018 |
|
2019 – 2020 |
|
Thereafter |
| |||||
|
Revolving line of credit(a) |
|
$ |
31,000,000 |
|
$ |
31,000,000 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
|
Estimated interest payments on revolving line of credit(b) |
|
378,000 |
|
378,000 |
|
— |
|
— |
|
— |
| |||||
|
Defined benefit pension plan contributions |
|
170,000 |
|
170,000 |
|
— |
|
— |
|
— |
| |||||
|
|
|
$ |
31,548,000 |
|
$ |
31,548,000 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
(a) Our current credit facility expires on September 30, 2016.
(b) The future interest payments on our revolving credit agreement were estimated using the current outstanding principal as of March 31, 2016 and current interest rates through the expiration date.
Related Party Transactions
See NOTE 8 — Related Party Transactions to our consolidated financial statements included elsewhere in this document for a full description of related party transactions.
Critical Accounting Policies
For a summary of our critical accounting policies and the means by which we develop estimates thereon, see “Part II - Item 7. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations” in our 2015 Annual Report on Form 10-K. There have been no material changes to our critical accounting policies from those included in our 2015 Annual Report on Form 10-K.
Recent Accounting Pronouncements
There have been no new accounting pronouncements made effective during the three months ended March 31, 2016, or that are not yet effective, that have significance, or potential significance, to our consolidated financial statements.
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 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We have established disclosure controls and procedures to ensure that material information relating to us, including our consolidated subsidiaries, is made known to the officers who certify our financial reports and to other members of senior management and the Board of Directors.
Based on their evaluation as of March 31, 2016, 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.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during the fiscal quarter ended March 31, 2016 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
Part II — Other Information
Item 1. Legal Proceedings
We are a party to ordinary routine litigation incidental to our business. Management does not believe that the resolution of any of these matters is likely to have a material adverse effect on our results of operations, financial condition or cash flows.
Item 1A. Risk Factors
In addition to historical information, this report includes forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, relating to our financial condition, profitability, liquidity, resources, business outlook, possible acquisitions, market forces, corporate strategies, consumer preferences, contractual commitments, legal matters, capital requirements and other matters. Documents incorporated by reference into this report may also contain forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. To comply with the terms of the safe harbor, we note that a variety of factors could cause our actual results and experience to differ substantially from the anticipated results or other expectations expressed in our forward-looking statements. When words and expressions such as: “believes,” “expects,” “anticipates,” “estimates,” “plans,” “intends,” “objectives,” “goals,” “aims,” “projects,” “forecasts,” “possible,” “seeks,” “may,” “could,” “should,” “might,” “likely” or similar words or expressions are used, as well as phrases such as “in our view,” “there can be no assurance” or “there is no way to anticipate with certainty,” forward-looking statements may be involved.
In the section that follows below, in cautionary statements made elsewhere in this report, and in other filings we have made with the SEC, we list important factors that could cause our actual results to differ from our expectations. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of the risk factors described below and other factors set forth in or incorporated by reference in this report.
These factors and cautionary statements apply to all future forward-looking statements we make. Many of these factors are beyond our ability to control or predict. Do not put undue reliance on forward-looking statements or project any future results based on such statements or on present or prior earnings levels.
Additional information concerning these, or other factors, which could cause the actual results to differ materially from those in our forward-looking statements is contained from time to time in our other SEC filings. Copies of those filings are available from us and/or the SEC.
We Have a Significant Amount of Indebtedness
As of March 31, 2016, we had total outstanding long-term debt of $31,000,000 under our credit facility. The facility is classified as a current liability as of March 31, 2016 in our consolidated balance sheets as the facility expires on September 30, 2016. 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. This indebtedness and any future increases in our outstanding borrowings or decreases in our results of operations could:
· make it more difficult for us to satisfy our debt obligations;
· increase our vulnerability to general adverse economic and industry conditions or a downturn in our business;
· increase our costs or create difficulties in refinancing or replacing our outstanding obligations;
· require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, dividends and other general corporate purposes;
· limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
· subject us to the risks that interest rates and our interest expense will increase; and
· place us at a competitive disadvantage compared to competitors that have less relative debt.
In addition, our credit facility contains financial ratios that we are required to meet and other restrictive covenants that, among other things, limit or restrict our ability to borrow additional funds, make acquisitions, create liens on our properties and make investments. Our ability to meet these financial ratios and covenants can be affected by events beyond our control, and there can be no assurance that we will meet them. If there were an event of default under our credit facility, the lenders could elect to declare all amounts outstanding to be immediately due and payable.
In recent years, additional gaming venues have had a significant adverse effect on our visitation numbers, our revenues and our profitability.
Our Gaming Activities Compete Directly With Other Gaming Facilities And Other Entertainment Businesses
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 an unprecedented expansion in gaming venues and gaming offerings and many analysts believe that the market is showing signs of saturation, in part due to the fact that new gaming venues often result in a substantial loss of business to existing locations. This has had a significant adverse effect on our visitation numbers, our revenues and our profitability. Management has estimated that approximately 30% of our gaming win comes from Maryland patrons and approximately 60% 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.
Delaware, Nevada and New Jersey have passed legislation authorizing internet gaming and other states are pursuing or exploring the legalization of internet gaming in various forms — from state run lotteries to privately run casino games, including online poker. States are aggressively seeking new revenue streams through gaming. New Jersey is also pursuing sports betting despite a federal law that prohibits it from doing so.
All Of Our Facilities Are In One Location
Our gaming facilities are located adjacent to one another at a single location in Dover, Delaware. Any prolonged disruption of operations at these facilities due to damage or destruction, inclement weather, natural disaster, work stoppages or other reasons could adversely affect our financial condition and results of operations. We maintain property and business interruption insurance to protect against certain types of disruption, but there can be no assurance that the proceeds of such insurance would be adequate to repair or rebuild our facilities or to otherwise compensate us for lost profits.
The Revocation, Suspension Or Modification Of Our Gaming Licenses Would Adversely Affect Our Gaming Business
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 gaming license has no expiration date and does not need to be renewed annually. However, to maintain our gaming license, we must remain licensed for harness horse racing by the Delaware Harness Racing Commission and conduct at least 80 live race days each racing season, subject to the availability of harness race horses. Our license from the Racing Commission must be renewed on an annual basis. The Racing Commission has broad discretion to reject any application for a license or suspend or revoke a license once it is issued. The Director of the Delaware State Lottery Office has broad discretion to revoke, suspend or modify the terms of our gaming license. Any modification or termination of existing licensing regulations or any revocation, suspension or modification of our licenses could adversely affect our business, financial condition and overall profitability.
Our Gaming Activities Are Subject To Extensive Government Regulation And Any Additional Government Regulation Or Taxation Of Gaming Activities Could Substantially Reduce Our Revenue Or Profit
We believe that the prospect of significant additional tax revenue is one of the primary reasons why jurisdictions have legalized gaming. As a result, gaming operators are typically subject to significant taxes and fees in addition to normal federal and state corporate income taxes. These taxes and fees are subject to increase at any time. We pay substantial taxes and fees with respect to our operations and 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.
Slot machine gaming, table games, sports betting, internet gaming, harness horse racing and pari-mutuel wagering are subject to extensive government regulation. Delaware law regulates the win we are entitled to retain and the percentage of commission we are entitled to receive from our gaming revenues, which comprises a significant portion of our overall revenues. The State granted us a license to conduct our gaming operations and a license to conduct harness horse races and pari-mutuel wagering. The laws under which these licenses are granted could be modified or repealed at any time and we could be required to terminate our gaming operations. If we are required to terminate our gaming operations or if the amount of the commission we receive from the State for conducting our gaming operations is decreased, our business operations and overall profitability would be significantly impaired.
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, the legislature has 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.
Without legislative relief, we may be unable to refinance or extend the maturity of our credit facility on favorable terms or may default on our obligations, we may be unable to allocate sufficient resources to marketing and promotions in order to compete effectively in the regional marketplace, we may be unable to allocate sufficient resources to maintaining our facility, and we may be required to take other actions in order to manage expenses - especially with respect to operations that have operated at a loss, such as table games. Such actions could adversely affect our business, financial condition, operating results and cash flow.
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. There have been discussions in Congress to regulate various forms of internet gaming and it is possible that new federal laws may preempt state laws relative to the regulation or taxation of internet gaming. Internet gaming may even be proscribed entirely by federal law much as sports betting is proscribed by federal law in all but four states.
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.
If it is determined that damage to persons or property or contamination of the environment has been caused or exacerbated by the operation or conduct of our business or by pollutants, substances, contaminants or wastes used, generated or disposed of by us, or if pollutants, substances, contaminants or wastes are found on our property, we may be held liable for such damage and may be required to pay the cost of investigation and/or remediation of such contamination or any related damage.
Laws and regulations are always subject to change, can be interpreted differently in the future, and new laws and regulations may be enacted which could adversely affect the tax, regulatory, operational or other aspects of our gaming operations. Furthermore, noncompliance with one or more of these laws and regulations could result in the imposition of substantial penalties against us or adversely affect our gaming license.
We Do Not Own Or Lease Our Slot Machines And Related Technology
We do not own or lease the slot machines or computer systems used by the State in connection with our video lottery gaming 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 contracts directly with service providers for internet gaming. 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.
Due to Our Concentrated Stock Ownership, Stockholders May Have No Effective Voice In Our Management
We have elected to be treated as a “controlled corporation” as defined by New York Stock Exchange Rule 303A. We are a controlled corporation because a single person, Henry B. Tippie, the Chairman of our Board of Directors, controls in excess of fifty percent of our voting power. This means that he has the ability to determine the outcome of the election of directors at our annual meetings and to determine the outcome of many significant corporate transactions, many of which only require the approval of a majority of our voting power. Such a concentration of voting power could also have the effect of delaying or preventing a third party from acquiring us at a premium. In addition, as a controlled corporation, we are not required to comply with certain New York Stock Exchange rules.
Our Success Depends on the Availability and Performance of Key Personnel
Our continued success depends upon the availability and performance of our senior management team which possesses unique and extensive industry knowledge and experience. Our inability to retain and attract key employees in the future could have a negative effect on our operations and business plans.
We undertake no obligation to publicly update or revise any forward-looking statements as a result of future developments, events or conditions. New risk factors emerge from time to time and it is not possible for us to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ significantly from those forecast in any forward-looking statements. Given these risks and uncertainties, stockholders should not overly rely or attach undue weight to our forward-looking statements as an indication of our actual future results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On October 23, 2002, our Board of Directors authorized the repurchase of up to 3,000,000 shares of our outstanding common stock. The purchases may be made in the open market or in privately negotiated transactions as conditions warrant. The repurchase authorization has no expiration date, does not obligate us to acquire any specific number of shares and may be suspended at any time. No purchases of our equity securities were made pursuant to this authorization during the first quarter of 2016. At March 31, 2016, 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 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Sec. 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Sec. 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101 The following materials from the Dover Downs Gaming & Entertainment, Inc. quarterly report on Form 10-Q for the quarter ended March 31, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2016 and 2015; (ii) Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015; (iii) Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015; and (iv) Notes to the Consolidated Financial Statements.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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DATED: |
May 2, 2016 |
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Dover Downs Gaming & Entertainment, Inc. |
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Registrant | |
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/s/ Denis McGlynn | |
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Denis McGlynn | |
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President, Chief Executive Officer | |
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and Director | |
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(Principal Executive Officer) | |
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/s/ Timothy R. Horne | |
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Timothy R. Horne | |
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Senior Vice President-Finance, | |
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Treasurer, Chief Financial Officer | |
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and Director | |
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(Principal Financial and Accounting Officer) | |
Exhibit 31.1
Certification
I, Denis McGlynn, President, Chief Executive Officer and Director of Dover Downs Gaming & Entertainment, Inc. (the “registrant”), certify that:
1. I have reviewed this quarterly report on Form 10-Q of the registrant;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the Audit Committee of the registrant’s Board of Directors:
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 2, 2016
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/s/ Denis McGlynn |
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Denis McGlynn |
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President, Chief Executive Officer and Director |
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Exhibit 31.2
Certification
I, Timothy R. Horne, Senior Vice President-Finance, Treasurer and Chief Financial Officer of Dover Downs Gaming & Entertainment, Inc. (the “registrant”), certify that:
1. I have reviewed this quarterly report on Form 10-Q of the registrant;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the Audit Committee of the registrant’s Board of Directors:
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 2, 2016
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/s/ Timothy R. Horne |
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Timothy R. Horne |
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Senior Vice President-Finance, Treasurer, Chief Financial Officer and Director | |
Exhibit 32.1
Dover Downs Gaming & Entertainment, Inc.
Certification Pursuant to 18 U.S.C. Sec. 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Dover Downs Gaming & Entertainment, Inc., a Delaware corporation (the “Company”), on Form 10-Q for the period ended March 31, 2016 as filed with the Securities and Exchange Commission (the “Report”), I, Denis McGlynn, President, Chief Executive Officer and Director of the Company, certify, pursuant to 18 U.S.C. sec. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: May 2, 2016
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/s/ Denis McGlynn |
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Denis McGlynn |
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President, Chief Executive |
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Officer and Director |
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This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Exhibit 32.2
Dover Downs Gaming & Entertainment, Inc.
Certification Pursuant to 18 U.S.C. Sec. 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Dover Downs Gaming & Entertainment, Inc., a Delaware corporation (the “Company”), on Form 10-Q for the period ended March 31, 2016 as filed with the Securities and Exchange Commission (the “Report”), I, Timothy R. Horne, Senior Vice President-Finance, Treasurer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. sec. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: May 2, 2016
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/s/ Timothy R. Horne |
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Timothy R. Horne |
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Senior Vice President-Finance, |
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Treasurer, Chief Financial Officer |
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and Director |
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This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Document and Entity Information - shares |
3 Months Ended | |
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Mar. 31, 2016 |
Apr. 25, 2016 |
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| Entity Registrant Name | DOVER DOWNS GAMING & ENTERTAINMENT INC | |
| Entity Central Index Key | 0001162556 | |
| Document Type | 10-Q | |
| Document Period End Date | Mar. 31, 2016 | |
| Amendment Flag | false | |
| Current Fiscal Year End Date | --12-31 | |
| Entity Current Reporting Status | Yes | |
| Entity Filer Category | Smaller Reporting Company | |
| Document Fiscal Year Focus | 2016 | |
| Document Fiscal Period Focus | Q1 | |
| Common stock. | ||
| Entity Common Stock, Shares Outstanding | 18,143,942 | |
| Class A common stock | ||
| Entity Common Stock, Shares Outstanding | 14,870,673 |
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) AND COMPREHENSIVE INCOME (LOSS) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
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| Revenues: | ||
| Gaming | $ 39,358 | $ 38,776 |
| Other operating | 5,359 | 5,562 |
| Total revenues | 44,717 | 44,338 |
| Expenses: | ||
| Gaming | 37,495 | 36,762 |
| Other operating | 3,973 | 3,887 |
| General and administrative | 1,328 | 1,496 |
| Depreciation | 1,887 | 2,152 |
| Total expenses | 44,683 | 44,297 |
| Operating earnings | 34 | 41 |
| Interest expense | (229) | (348) |
| Loss before income taxes | (195) | (307) |
| Income tax expense | (44) | (45) |
| Net loss | (239) | (352) |
| Change in pension net actuarial loss and prior service cost, net of income taxes | 20 | 23 |
| Unrealized gain on available-for-sale securities, net of income taxes | 2 | 4 |
| Comprehensive loss | $ (217) | $ (325) |
| Net loss per common share: | ||
| Basic (in dollars per share) | $ (0.01) | $ (0.01) |
| Diluted (in dollars per share) | $ (0.01) | $ (0.01) |
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares |
Mar. 31, 2016 |
Dec. 31, 2015 |
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| Preferred stock, par value (in dollars per share) | $ 0.10 | $ 0.10 |
| Preferred stock, shares authorized | 1,000,000 | 1,000,000 |
| Preferred stock, shares issued | 0 | 0 |
| Preferred stock, shares outstanding | 0 | 0 |
| Common stock. | ||
| Common stock, par value (in dollars per share) | $ 0.10 | $ 0.10 |
| Common stock, shares authorized | 74,000,000 | 74,000,000 |
| Common stock, shares issued | 18,143,942 | 17,990,997 |
| Common stock, shares outstanding | 18,143,942 | 17,990,997 |
| Class A common stock | ||
| Common stock, par value (in dollars per share) | $ 0.10 | $ 0.10 |
| Common stock, shares authorized | 50,000,000 | 50,000,000 |
| Common stock, shares issued | 14,870,673 | 14,870,673 |
| Common stock, shares outstanding | 14,870,673 | 14,870,673 |
Basis of Presentation |
3 Months Ended |
|---|---|
Mar. 31, 2016 | |
| Basis of Presentation | |
| Basis of Presentation |
NOTE 1 — Basis of Presentation
References in this document to “we,” “us” and “our” mean Dover Downs Gaming & Entertainment, Inc. and/or its wholly owned subsidiaries, as appropriate.
The accompanying consolidated financial statements have been prepared in compliance with Rule 10-01 of Regulation S-X and U.S. generally accepted accounting principles, and accordingly do not include all of the information and disclosures required for audited financial statements. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our latest Annual Report on Form 10-K filed on March 4, 2016. In the opinion of management, these consolidated financial statements include all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the results of operations, financial position and cash flows for the interim periods presented. Operating results for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.
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Business Operations |
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| Business Operations |
NOTE 2 - Business Operations
We are a premier gaming and entertainment resort destination whose operations consist of:
All of our gaming operations are located at our entertainment complex in Dover, the capital of the State of Delaware.
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 47 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 an unprecedented 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 30% of our gaming win comes from Maryland patrons and approximately 60% of our Capital Club® member gaming win comes from out of state patrons.
In 2013, the State enacted a bond and capital improvements bill which, among other things, created a Lottery & Gaming Study Commission responsible for examining the competitive marketplace confronting the Delaware gaming industry, including the business performance and business plans of existing lottery agents, the marketing efforts and investments made by Delaware video lottery agents, and the division of revenue from the video lottery, sports lottery, table games and internet gaming. In 2014, the Delaware legislature approved the Commission’s recommendation for the State to share certain vendor costs that the three Delaware video lottery agents pay associated with slot machines. Our video lottery vendor costs were reduced by approximately $970,000 and $950,000 during the three months ended March 31, 2016 and 2015, respectively, as a result of the cost sharing arrangement.
The Commission reconvened in September 2014 to consider previous and make further recommendations relative to the gaming industry. The Commission’s findings and recommendations were released in January 2015 and included: increasing the State’s share of vendor costs associated with slot machines; eliminating the annual table game license fee; reducing the State’s share of table game win; and providing each video lottery agent a credit of up to 5% of video lottery proceeds to be used for marketing expenditures and a credit of up to 5% of video lottery proceeds to be used for capital expenditures. Delaware State Senate Bill 30 was introduced in January 2015 in order to implement the Commission’s recommendations, but it was not released from the Senate Finance Committee for action. In January 2016, Senate Bill 183 was introduced to phase in some of the Commission’s recommendations over the next four years and to authorize internet sports betting in Delaware, but it has not been acted upon to date.
Without legislative relief, we may be unable to refinance or extend the maturity of our credit facility on favorable terms or may default on our obligations, we may be unable to allocate sufficient resources to marketing and promotions in order to compete effectively in the regional marketplace, we may be unable to allocate sufficient resources to maintaining our facility, and we may be required to take other actions in order to manage expenses - especially with respect to operations that have operated at a loss, such as table games. Such actions could adversely affect our business, financial condition, operating results and cash flow.
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Summary of Significant Accounting Policies |
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| Summary of Significant Accounting Policies | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Significant Accounting Policies |
NOTE 3 - Summary of Significant Accounting Policies
Property and equipment—Property and equipment is stated at cost. Depreciation is provided for financial reporting purposes using the straight-line method over the asset’s estimated useful life. Accumulated depreciation was $132,129,000 and $130,869,000 as of March 31, 2016 and December 31, 2015, respectively.
We perform reviews for impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. An impairment loss would be measured as the amount by which the carrying amount of the asset exceeds its fair value. Generally, fair value will be determined using valuation techniques such as the present value of future cash flows.
Point loyalty program—We currently have a point loyalty program for our customers which allows them to earn points based on the volume of their gaming activity. All reward points earned by customers are expensed in the period they are earned. The estimated amount of points redeemable for cash is recorded as a reduction of gaming revenue and the estimated amount of points redeemable for services and merchandise is recorded as gaming expense. In determining the amount of the liability, which was $1,639,000 and $1,660,000, respectively, at March 31, 2016 and December 31, 2015, we estimate a redemption rate, a cost of rewards to be offered and the mix of cash, goods and services for which reward points will be redeemed. We use historical data to estimate those amounts.
Revenue and expense recognition—Gaming revenues represent (i) the net win from slot machine, table games, internet gaming and sports wagering and (ii) commissions from pari-mutuel wagering. Other operating revenues consist of hotel rooms revenue, food and beverage sales and other miscellaneous income. Revenues do not include the retail amount of hotel rooms, food and beverage and other miscellaneous goods and services provided without charge to customers as promotional items of $4,576,000 and $4,211,000 for the three months ended March 31, 2016 and 2015, respectively. The estimated direct cost of providing these items has been charged to the casino through interdepartmental allocations and is included in gaming expenses in the consolidated statements of operations.
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.
Advertising costs—The cost of general advertising is charged to operations as incurred. Advertising expenses were $498,000 and $526,000 for the three months ended March 31, 2016 and 2015, respectively.
Net 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 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):
There were no options outstanding and we paid no dividends during the three months ended March 31, 2016 or 2015.
Accounting for stock-based compensation—We recorded total stock-based compensation expense for our restricted stock awards of $103,000 and $105,000 as general and administrative expenses for the three months ended March 31, 2016 and 2015, respectively. We recorded income tax expense of $77,000 and $129,000 for the three months ended March 31, 2016 and 2015, respectively, related to our restricted stock awards.
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Credit Facility |
3 Months Ended |
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Mar. 31, 2016 | |
| Credit Facility | |
| Credit Facility |
NOTE 4 — Credit Facility
At March 31, 2016, we had a $40,000,000 secured credit agreement with a bank group. The credit facility expires on September 30, 2016. Interest is based upon LIBOR plus a margin that varies between 150 and 350 basis points (200 basis points at March 31, 2016) 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. In addition, the credit agreement includes a material adverse change clause and prohibits the payment of dividends. The credit facility contains certain covenants including maximum ratio of funded debt to earnings before interest, taxes, depreciation and amortization (the “leverage ratio”), minimum consolidated tangible net worth requirement, minimum consolidated earnings before interest, taxes, depreciation and amortization requirement and a minimum fixed charge coverage ratio. Material adverse changes in our results of operations could impact our ability to satisfy these requirements. The credit facility provides for seasonal funding needs, capital improvements and other general corporate purposes. At March 31, 2016, there was $31,000,000 outstanding at a weighted average interest rate of 2.44% and $9,000,000 was available pursuant to the facility. Additionally, we were in compliance with all terms of the facility at March 31, 2016 and we expect to be in compliance with the financial covenants and all other covenants for all measurement periods through September 30, 2016, the expiration date of the facility.
The credit facility is classified as a current liability as of March 31, 2016 in our consolidated balance sheets as the facility expires on September 30, 2016. 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.
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Pension Plans |
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| Pension Plans |
NOTE 5 — Pension Plans
We maintain a non-contributory, tax qualified defined benefit pension plan that has been frozen since July 2011. All of our full time employees were eligible to participate in this qualified pension plan. Benefits provided by our qualified pension plan were based on years of service and employees’ remuneration over their term of employment. Compensation earned by employees up to July 31, 2011 is used for purposes of calculating benefits under our pension plan with no future benefit accruals after this date. Participants as of July 31, 2011 continue to earn vesting credit with respect to their frozen accrued benefits as they continue to work. We also maintain a non-qualified, non-contributory defined benefit pension plan, the excess plan, for certain employees that has been frozen since July 2011. This excess plan provided benefits that would otherwise be provided under the qualified pension plan but for maximum benefit and compensation limits applicable under federal tax law. The cost associated with the excess plan is determined using the same actuarial methods and assumptions as those used for our qualified pension plan. The assets for the excess plan aggregate $291,000 and $287,000 as of March 31, 2016 and December 31, 2015, respectively, and are recorded in other assets in our consolidated balance sheets (see NOTE 7 — Fair Value Measurements).
The components of net periodic pension benefit for our defined benefit pension plans are as follows:
We contributed $40,000 to our defined benefit pension plans during the three months ended March 31, 2016. We expect to contribute approximately $170,000 to our defined benefit pension plans during the remainder of 2016. We did not contribute to our defined benefit pension plans during the three months ended March 31, 2015.
We also maintain a non-elective, non-qualified supplemental executive retirement plan (“SERP”) which provides deferred compensation to certain highly compensated employees that approximates the value of benefits lost by the freezing of the pension plan which are not offset by our enhanced matching contribution in our 401(k) plan. The SERP is a discretionary defined contribution plan and contributions made to the SERP in any given year are not guaranteed and will be at the sole discretion of our Compensation and Stock Incentive Committee. During the three months ended March 31, 2016 and 2015, we recorded expenses of $24,000 and $30,000, respectively, related to the SERP. During the three months ended March 31, 2016 and 2015, we contributed $99,000 and $126,000 to the plan, respectively. The liability for SERP pension benefits was $22,000 and $97,000 as of March 31, 2016 and December 31, 2015, respectively.
We maintain a defined contribution 401(k) plan which permits participation by substantially all employees. Our matching contributions to the 401(k) plan were $202,000 and $230,000 for the three months ended March 31, 2016 and 2015, respectively.
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Stockholders' Equity |
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| Stockholders' Equity |
NOTE 6 — Stockholders’ Equity
Changes in the components of stockholders’ equity are as follows (in thousands, except per share amounts):
As of March 31, 2016 and December 31, 2015, accumulated other comprehensive loss consists of the following:
On January 23, 2013, our Board of Directors suspended the quarterly dividend. In addition, our credit facility prohibits the payment of dividends. See NOTE 4 — Credit Facility.
On October 23, 2002, our Board of Directors authorized the repurchase of up to 3,000,000 shares of our outstanding common stock. The purchases may be made in the open market or in privately negotiated transactions as conditions warrant. The repurchase authorization has no expiration date, does not obligate us to acquire any specific number of shares and may be suspended at any time. No purchases of our equity securities were made pursuant to this authorization during the first three months of 2016 or 2015. At March 31, 2016, we had remaining repurchase authority of 1,653,333 shares. At present we are not permitted to make such purchases under our credit facility.
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. Under the plan, nonvested restricted stock vests an aggregate of twenty percent each year beginning on the second anniversary date of the grant. The aggregate market value of the nonvested restricted stock at the date of issuance is being amortized on a straight-line basis over the six-year period. We granted 220,500 and 227,000 stock awards under this plan during the three months ended March 31, 2016 and 2015, respectively. As of March 31, 2016, there were 1,258,465 shares available for granting options or stock awards.
During the three months ended March 31, 2016 and 2015, we purchased and retired 67,555 and 73,453 shares of our outstanding common stock for $66,000 and $65,000, respectively. These purchases were made from employees in connection with the vesting of restricted stock awards under our stock incentive plan and were not pursuant to the aforementioned repurchase authorization. Since the vesting of a restricted stock award is a taxable event to our employees for which income tax withholding is required, the plan allows employees to surrender to us some of the shares that would otherwise have vested in satisfaction of their tax liability. The surrender of these shares is treated by us as a purchase of the shares.
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Fair Value Measurements |
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Mar. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Fair Value Measurements |
NOTE 7 — Fair Value Measurements
Our financial instruments are classified and disclosed in one of the following three categories:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability;
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
The following table summarizes the valuation of our financial instrument pricing levels as of March 31, 2016 and December 31, 2015:
Our investments in available-for-sale securities consist of mutual funds. These investments are included in other assets on our consolidated balance sheets.
The carrying amounts of other financial instruments reported in our consolidated balance sheets for current assets and current liabilities approximates their fair values because of the short maturity of these instruments.
At March 31, 2016 and December 31, 2015, there was $31,000,000 and $31,500,000, respectively, outstanding under our revolving credit agreement. The borrowings under our revolving credit agreement bear interest at the variable rate described in NOTE 4 — Credit Facility and therefore we believe approximate fair value.
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Related Party Transactions |
3 Months Ended |
|---|---|
Mar. 31, 2016 | |
| Related Party Transactions | |
| Related Party Transactions |
NOTE 8 - Related Party Transactions
During the three months ended March 31, 2016 and 2015, we allocated costs of $475,000 and $445,000, respectively to Dover Motorsports, Inc. (“DVD”), a company related through common ownership, for certain administrative and operating services, including leased space. DVD allocated certain administrative and operating service costs of $83,000 and $87,000, respectively, to us for the three months ended March 31, 2016 and 2015. The allocations were based on an analysis of each company’s share of the costs. Additionally, DVD invoiced us $36,000 during the three months ended March 31, 2015 for tickets to DVD’s 2015 spring NASCAR event weekend at Dover International Speedway. As of March 31, 2016 and December 31, 2015, our consolidated balance sheets included a $10,000 receivable from and a $44,000 payable to DVD for the aforementioned items. These items were settled in April 2016 and January of 2016, respectively. The net costs incurred by each company for these services are not necessarily indicative of the costs that would have been incurred if the companies had been unrelated entities and/or had otherwise independently managed these functions; however, management believes that these costs are reasonable.
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.
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.
Henry B. Tippie, Chairman of our Board of Directors, controls in excess of fifty percent of our voting power. Mr. Tippie’s voting control emanates from his direct and indirect holdings of common stock and Class A common stock, from his status as trustee of the RMT Trust, our largest stockholder, and from certain shares as to which he has voting rights pursuant to a voting agreement with R. Randall Rollins, one of our directors. This means that Mr. Tippie has the ability to determine the outcome of our election of directors and to determine the outcome of many significant corporate transactions, many of which only require the approval of a majority of our voting power.
Patrick J. Bagley, Timothy R. Horne, Denis McGlynn, Jeffrey W. Rollins, R. Randall Rollins, Richard K. Struthers and Henry B. Tippie are all Directors of ours and DVD. Denis McGlynn is the President and Chief Executive Officer of both companies, Klaus M. Belohoubek is the Senior Vice President — General Counsel and Secretary of both companies and Timothy R. Horne is the Senior Vice President — Finance and Chief Financial Officer of both companies. Mr. Tippie controls in excess of fifty percent of the voting power of DVD.
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Commitments and Contingencies |
3 Months Ended |
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Mar. 31, 2016 | |
| Commitments and Contingencies | |
| Commitments and Contingencies |
NOTE 9 — Commitments and Contingencies
We are a party to ordinary routine litigation incidental to our business. Management does not believe that the resolution of any of these matters is likely to have a material adverse effect on our results of operations, financial position or cash flows.
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Summary of Significant Accounting Policies (Policies) |
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| Property and equipment |
Property and equipment—Property and equipment is stated at cost. Depreciation is provided for financial reporting purposes using the straight-line method over the asset’s estimated useful life. Accumulated depreciation was $132,129,000 and $130,869,000 as of March 31, 2016 and December 31, 2015, respectively.
We perform reviews for impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. An impairment loss would be measured as the amount by which the carrying amount of the asset exceeds its fair value. Generally, fair value will be determined using valuation techniques such as the present value of future cash flows.
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| Point loyalty program |
Point loyalty program—We currently have a point loyalty program for our customers which allows them to earn points based on the volume of their gaming activity. All reward points earned by customers are expensed in the period they are earned. The estimated amount of points redeemable for cash is recorded as a reduction of gaming revenue and the estimated amount of points redeemable for services and merchandise is recorded as gaming expense. In determining the amount of the liability, which was $1,639,000 and $1,660,000, respectively, at March 31, 2016 and December 31, 2015, we estimate a redemption rate, a cost of rewards to be offered and the mix of cash, goods and services for which reward points will be redeemed. We use historical data to estimate those amounts.
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| Revenue and expense recognition |
Revenue and expense recognition—Gaming revenues represent (i) the net win from slot machine, table games, internet gaming and sports wagering and (ii) commissions from pari-mutuel wagering. Other operating revenues consist of hotel rooms revenue, food and beverage sales and other miscellaneous income. Revenues do not include the retail amount of hotel rooms, food and beverage and other miscellaneous goods and services provided without charge to customers as promotional items of $4,576,000 and $4,211,000 for the three months ended March 31, 2016 and 2015, respectively. The estimated direct cost of providing these items has been charged to the casino through interdepartmental allocations and is included in gaming expenses in the consolidated statements of operations.
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.
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| Advertising costs |
Advertising costs—The cost of general advertising is charged to operations as incurred. Advertising expenses were $498,000 and $526,000 for the three months ended March 31, 2016 and 2015, respectively.
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| Net loss per common share |
Net 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 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):
There were no options outstanding and we paid no dividends during the three months ended March 31, 2016 or 2015.
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| Accounting for stock-based compensation |
Accounting for stock-based compensation—We recorded total stock-based compensation expense for our restricted stock awards of $103,000 and $105,000 as general and administrative expenses for the three months ended March 31, 2016 and 2015, respectively. We recorded income tax expense of $77,000 and $129,000 for the three months ended March 31, 2016 and 2015, respectively, related to our restricted stock awards.
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Summary of Significant Accounting Policies (Tables) |
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| Schedule of computation of basic and diluted EPS |
The following table sets forth the computation of EPS (in thousands, except per share amounts):
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Pension Plans (Tables) |
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| Schedule of components of net periodic pension income |
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Stockholders' Equity (Tables) |
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| Stockholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of changes in the components of stockholders' equity |
Changes in the components of stockholders’ equity are as follows (in thousands, except per share amounts):
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| Schedule of accumulated other comprehensive loss |
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Fair Value Measurements (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Measurements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of valuation of financial instrument |
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Business Operations (Details) |
3 Months Ended | ||
|---|---|---|---|
|
Mar. 31, 2016
USD ($)
ft²
room
item
|
Mar. 31, 2015
USD ($)
|
Mar. 31, 2014
item
|
|
| Business Operations | |||
| Area of casino (in square feet) | ft² | 165,000 | ||
| Number of retail outlets | 4 | ||
| Number of rooms in AAA Four Diamond hotel | room | 500 | ||
| Number of Licensed Agents under Delaware State Lottery Code | 3 | 3 | |
| Number of consecutive years for which annual license has been received from the Harness Racing Commission | 47 years | ||
| Business operations | |||
| Amount of video lottery vendor costs reduced | $ | $ 970,000 | $ 950,000 | |
| Gaming win | Geographic concentration risk | Maryland patrons | |||
| Business operations | |||
| Estimated percentage of gaming win attributable to patrons | 30.00% | ||
| Capital Club member gaming win | Geographic concentration risk | Out of state patrons | |||
| Business operations | |||
| Estimated percentage of gaming win attributable to patrons | 60.00% | ||
Summary of Significant Accounting Policies (Details) - USD ($) |
3 Months Ended | ||
|---|---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
Dec. 31, 2015 |
|
| Property and equipment | |||
| Accumulated depreciation | $ 132,129,000 | $ 130,869,000 | |
| Point loyalty program | |||
| Point loyalty program | 1,639,000 | $ 1,660,000 | |
| Revenue and expense recognition | |||
| Goods and services provided without charge to customers as promotional items | 4,576,000 | $ 4,211,000 | |
| Advertising costs | |||
| Advertising expenses | $ 498,000 | $ 526,000 | |
Summary of Significant Accounting Policies (Details 2) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
| Net earnings (loss) per common share - basic and diluted: | ||
| Net loss | $ (239,000) | $ (352,000) |
| Net loss available to common stockholders | $ (239,000) | $ (352,000) |
| Weighted-average shares outstanding - basic and diluted | 32,199,000 | 32,083,000 |
| Net loss per common share - basic and diluted | $ (0.01) | $ (0.01) |
| Anti-dilutive securities not included in the computation of diluted EPS (in shares) | 0 | 0 |
| Dividends paid | $ 0 | $ 0 |
| Accounting for stock-based compensation | ||
| Stock-based compensation expense for restricted stock awards | 103,000 | 105,000 |
| Income tax expense related to restricted stock awards | $ 77,000 | $ 129,000 |
Credit Facility (Details) - Credit facility. - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2016 |
Dec. 31, 2015 |
|
| Credit Facility | ||
| Maximum borrowing capacity | $ 40,000,000 | |
| Variable interest rate base | LIBOR | |
| Percentage points added to the reference rate | 2.00% | |
| Outstanding borrowings | $ 31,000,000 | $ 31,500,000 |
| Weighted average interest rate on the amount outstanding (as a percent) | 2.44% | |
| Amount available for borrowing pursuant to the facility | $ 9,000,000 | |
| Minimum | ||
| Credit Facility | ||
| Percentage points added to the reference rate | 1.50% | |
| Maximum | ||
| Credit Facility | ||
| Percentage points added to the reference rate | 3.50% |
Pension Plans (Details) - USD ($) |
Mar. 31, 2016 |
Dec. 31, 2015 |
|---|---|---|
| Excess plan | ||
| Pension Plans | ||
| Fair values of pension assets | $ 291,000 | $ 287,000 |
Pension Plans (Details 2) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
| Change in plan assets: | ||
| Expected contributions in current fiscal year | $ 170,000 | |
| Components of net periodic pension cost | ||
| Interest cost | 217,000 | $ 240,000 |
| Expected return on plan assets | (285,000) | (290,000) |
| Recognized net actuarial loss | 34,000 | 37,000 |
| Total net periodic pension cost | (34,000) | $ (13,000) |
| Employer contribution | $ 40,000 | |
Pension Plans (Details 3) - USD ($) |
3 Months Ended | ||
|---|---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
Dec. 31, 2015 |
|
| Excess plan | |||
| Defined contribution plan disclosures | |||
| Expense recorded | $ 24,000 | $ 30,000 | |
| Employer contributions | 99,000 | 126,000 | |
| Liability for SERP benefits | 22,000 | $ 97,000 | |
| Defined contribution 401 (k) plan) | |||
| Defined contribution plan disclosures | |||
| Expense recorded | $ 202,000 | $ 230,000 | |
Stockholders' Equity (Details 2) - USD ($) |
Mar. 31, 2016 |
Dec. 31, 2015 |
|---|---|---|
| Accumulated other comprehensive loss | ||
| Net actuarial loss and prior service cost not yet recognized in net periodic benefit cost, net of income tax benefit of $000 and $2,819,000, respectively | $ (4,209,000) | $ (4,229,000) |
| Accumulated unrealized gain on available- for-sale securities, net of income tax expense of $000 and $18,000, respectively | 27,000 | 25,000 |
| Accumulated other comprehensive loss | (4,182,000) | (4,204,000) |
| Income tax benefit of net actuarial loss and prior service cost not yet recognized in net periodic benefit cost | 2,805,000 | 2,819,000 |
| Income tax expense of accumulated unrealized gain on available-for-sale securities | $ 19,000 | $ 18,000 |
Stockholders' Equity (Details 3) - USD ($) |
3 Months Ended | ||
|---|---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
Oct. 23, 2002 |
|
| Number of shares of outstanding common stock authorized to be repurchased | 3,000,000 | ||
| Purchases made pursuant to repurchase authorization (in shares) | 0 | 0 | |
| Number of remaining shares of common stock authorized to be repurchased | 1,653,333 | ||
| Number of common stock shares purchased and retired | 67,555 | 73,453 | |
| Amount of common stock purchased and retired | $ 66,000 | $ 65,000 | |
Stockholders' Equity (Details 4) - shares |
3 Months Ended | |
|---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
| Stockholders' Equity | ||
| Common stock shares reserved for issuance under the 2012 Stock Incentive Plan | 2,000,000 | |
| Shares granted under the 2012 Stock Incentive Plan | 220,500 | 227,000 |
| Shares available for granting options or stock awards | 1,258,465 | |
| Nonvested restricted stock | ||
| Stockholders' Equity | ||
| Vesting percentage on each anniversary of the grant date | 20.00% | |
| Service period to amortize aggregate market value of the nonvested restricted stock | 6 years | |
Fair Value Measurements (Details) - USD ($) |
Mar. 31, 2016 |
Dec. 31, 2015 |
|---|---|---|
| Fair Value Measurements | ||
| Available-for-sale securities | $ 291,000 | $ 287,000 |
| Credit facility. | ||
| Fair Value Measurements | ||
| Amount outstanding under revolving credit agreement | 31,000,000 | 31,500,000 |
| Level 1 | ||
| Fair Value Measurements | ||
| Available-for-sale securities | $ 291,000 | $ 287,000 |
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