UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 8-K

 

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported):  February 24, 2005

 

PENN NATIONAL GAMING, INC.

(Exact name of registrant as specified in its charter)

 

Pennsylvania

0-24206

23-2234473

(State or other jurisdiction

(Commission

(IRS Employer

of incorporation)

File Number)

Identification No.)

 

 

 

825 Berkshire Blvd., Suite 200
Wyomissing Professional Center
Wyomissing, PA

19610

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code:  (610) 373-2400

 

Not applicable

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

o  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 



 

Item 7.01 Regulation FD Disclosure.

 

This Current Report on Form 8-K is being furnished to disclose the Unaudited Pro Forma Combined Financial Information attached hereto as Exhibit 99.1, prepared to give effect to the proposed acquisition by Penn National Gaming, Inc. (the “Company”) of Argosy Gaming Company (“Argosy”) previously announced on November 3, 2004, including the proposed financing therefor.  The Company will provide such Unaudited Pro Forma Combined Financial Information to potential purchasers of securities that the Company proposes to issue in a private placement.

 

Exhibit 99.1 contains forward-looking statements made by the Company within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  Some of these statements include without limitation those regarding the Company’s proposed acquisition of Argosy, the proposed financing therefor and the anticipated effects thereof.  These statements are subject to a number of risks and uncertainties that could cause the statements made to be incorrect and the actual results to differ materially. The Company describes certain of these risks and uncertainties in its filings with the Securities and Exchange Commission, including its Annual Reports on Form 10-K for the year ended December 31, 2003. Some of these risks include without limitation those relating to the ability of the Company to integrate and manage facilities it acquires, risks relating to the development and expansion of properties, risks of increased competition, risks relating to the economy and interest rates, risks relating to possible increases in our effective rate of taxation, risks associated with failure by the Company to obtain acquisition financing, and risks relating to the fact that both the Company and Argosy are heavily regulated by gaming authorities. In addition, consummation of the Company’s proposed acquisition of Argosy is subject to several conditions including the approval of various governmental entities, including certain gaming regulatory authorities to which the Company and Argosy are subject. Furthermore, the Company does not intend to update publicly any forward-looking statements except as required by law. The cautionary advice in this paragraph is permitted by the Private Securities Litigation Reform Act of 1995.

 

Item 9.01.                   Financial Statements and Exhibits.

 

(c)  Exhibits

 

Exhibit 99.1                                    Unaudited Pro Forma Combined Financial Information

 

2



 

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 hereunto duly authorized.

 

 

 

PENN NATIONAL GAMING, INC.

 

(Registrant)

 

 

 

 

By:

/s/ 

Robert S. Ippolito

 

Date: February 24, 2005

 

 

Robert S. Ippolito

 

 

 

Vice President, Secretary and Treasurer

 

3



 

EXHIBIT INDEX

 

Exhibit
No.

 

 

 

 

 

Exhibit 99.1

 

Unaudited Pro Forma Combined Financial Information

 

4


Exhibit 99.1

 

Summary Unaudited Pro Forma Combined Financial Data

 

The following table sets forth summary pro forma unaudited combined financial data as of, and for the twelve months ended, September 30, 2004. The unaudited pro forma combined balance sheet at September 30, 2004 assumes that the Transactions took place on that date. The unaudited pro forma combined statements of income give effect to the Transactions as if they had occurred on January 1, 2003. The unaudited pro forma combined financial data should be read in conjunction with the “Unaudited Pro Forma Combined Financial Statements” and the notes thereto included elsewhere in this offering memorandum.

 

We have derived the unaudited pro forma combined financial data for the twelve months ended September 30, 2004 by taking the unaudited pro forma combined financial data for the year ended December 31, 2003 and adding the unaudited pro forma combined financial data for the nine months ended September 30, 2004 and subtracting the unaudited pro forma combined financial data for the nine months ended September 30, 2003, all included in this offering memorandum under the heading “Unaudited Pro Forma Combined Financial Statements.” The pro forma information for the twelve months ended September 30, 2004 is not necessarily indicative of the pro forma results to be expected for the year ended December 31, 2004. The information presented in the unaudited pro forma combined financial statements is not necessarily indicative of our financial position or results of operations that would have occurred if the Transactions had been consummated as of January 1, 2003, nor should it be construed as being a representation of our future financial position or results of operations.

 

 

 

Twelve Months Ended September 30, 2004

 

 

 

Penn National
after Refinancing
Transactions and
Pocono Sale
Pro Forma
Adjustments

 

Argosy Historical

 

Pro Forma
Adjustments
for
Acquisition
Transactions

 

Combined
Pro Forma

 

 

 

(in thousands)

 

Statement of Income Data:

 

 

 

 

 

 

 

 

 

Net revenues

 

$

1,121,391

 

$

1,017,030

 

$

 

$

2,138,421

 

Income from continuing operations

 

205,474

 

204,541

 

2,251

 

412,266

 

Interest expense

 

68,695

 

69,087

 

62,494

 

200,276

 

Taxes on income

 

50,642

 

52,251

 

(24,257

)

78,636

 

Net income from continuing operations

 

87,261

 

57,317

 

(35,986

)

108,592

 

 

 

 

 

 

 

 

 

 

 

Other Financial Data:

 

 

 

 

 

 

 

 

 

Adjusted EBITDA(1)

 

273,727

 

263,584

 

 

537,311

 

Depreciation and amortization

 

65,333

 

59,043

 

(2,251

)

122,125

 

Total assets as of end of period

 

1,889,461

 

1,415,562

 

1,065,379

 

4,370,402

 

 

 

 

 

 

 

 

 

 

 


(1)  Adjusted EBITDA is reconciled to net income as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

$

273,727

 

$

263,584

 

$

 

$

537,311

 

Earnings from joint venture

 

(1,491

)

 

 

(1,491

)

Depreciation and amortization

 

(65,333

)

(59,043

)

2,251

 

(122,125

)

Loss on disposals

 

(1,429

)

 

 

(1,429

)

Income from continuing operations

 

205,474

 

204,541

 

2,251

 

412,266

 

Interest expense

 

(68,695

)

(69,087

)

(62,494

)

(200,276

)

Interest income

 

1,679

 

154

 

 

1,833

 

Earnings from joint venture

 

1,491

 

 

 

1,491

 

Other

 

(2,046

)

 

 

(2,046

)

(Loss) on early extinguishment of debt

 

 

(26,040

)

 

(26,040

)

Taxes on income

 

(50,642

)

(52,251

)

24,257

 

(78,636

)

Net income from continuing operations

 

$

87,261

 

$

57,317

 

$

(35,986

)

$

108,592

 

 

1



 

INDEX TO UNAUDITED PRO FORMA

COMBINED FINANCIAL STATEMENTS

 

Unaudited Pro Forma Combined Balance Sheet at September 30, 2004

 

Unaudited Pro Forma Combined Statement of Income for the Nine Months Ended September 30, 2003

 

Unaudited Pro Forma Combined Statement of Income for the Year Ended December 31, 2003

 

Unaudited Pro Forma Combined Statement of Income for the Nine Months Ended September 30, 2004

 

Notes to Unaudited Pro Forma Combined Financial Statements

 

 

2



 

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

 

The following unaudited pro forma combined financial statements are presented to illustrate the estimated effects of the Transactions on our historical financial position and results of operations. The following unaudited pro forma combined financial statements are based on our historical audited and unaudited financial statements and the historical audited and unaudited consolidated financial statements of Argosy Gaming Company which are available in the reports that were previously filed with the SEC. See “Where You Can Find More Information” and “Argosy Information” for additional information on where you can locate periodic reports, proxy statements and other information filed with the SEC.

 

None of Argosy’s public information is incorporated by reference herein and neither we nor the initial purchasers make any representations with respect to, or assume any responsibility for the accuracy or completeness of the information contained in, the proxy statement or any other filings by Argosy with the SEC. Neither we nor the initial purchasers have obtained any cold comfort or other support for information contained in Argosy’s public information or used in the pro forma financial information contained herein. Subject to the foregoing cautionary statements, investors are urged to review Argosy’s public filings, and any information relating to Argosy included herein, and the pro forma financial information included herein, and to consider, in any event, the potential impact of the Argosy merger and the other Acquisition Transactions described in this offering memorandum, whether or not consummated.

 

The unaudited pro forma combined balance sheet at September 30, 2004 gives effect to the Transactions as if they had occurred on that date. The unaudited pro forma combined statements of income for the year ended December 31, 2003, the nine months ended September 30, 2004 and the nine months ended September 30, 2003 give effect to the Acquisition Transactions as if they had occurred on January 1, 2003.

 

The information presented in the unaudited pro forma combined financial statements is not necessarily indicative of our financial position or results of operations that would have occurred if the Transactions had been consummated as of the dates indicated, nor should it be construed as being a representation of our future financial position or results of operations. The pro forma information for the nine months ended September 30, 2004 is not necessarily indicative of, and may be significantly different from, the pro forma results to be expected for the year ended December 31, 2004. The pro forma adjustments are based upon available information and certain assumptions that we believe are reasonable under the circumstances. These adjustments are more fully described in the notes to the unaudited pro forma combined financial statements below.

 

Depending on when and if the Argosy merger is consummated, historical financial statements and other financial information with respect to Argosy may be required to be included in the exchange offer registration statement we have agreed to file with the SEC.  In addition, pro forma financial information for subsequent periods may be required in the registration statement. This financial information may differ significantly from the financial information included herein.

 

3



 

PENN NATIONAL GAMING INC.

UNAUDITED PRO FORMA COMBINED BALANCE SHEET AS OF SEPTEMBER 30, 2004

 

 

 

Historical
Penn National

 

Pocono Downs
Pro Forma
Adjustments

 

Penn National
after
Pocono
Downs Sale

 

Penn National
Refinancing
Transactions
Pro Forma
Adjustments

 

Penn National
after
Refinancing
Transactions
and
Pocono Sale
Pro Forma
Adjustments

 

Historical
Argosy

 

Pro Forma
Adjustments
for
Acquisition
Transactions

 

Combined
Pro Forma

 

 

 

(in thousands)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

83,200

 

$

 

$

83,200

 

$

(11,126

)(b)

$

67,329

 

$

63,829

 

$

(4,384

)(g)

$

126,774

 

 

 

 

 

 

 

 

 

(4,745

)(c)

 

 

 

 

 

 

 

 

Restricted cash

 

 

170,616

(a)

170,616

 

 

170,616

 

 

(170,616

)(g)

 

Receivables, net of allowance for doubtful debt

 

34,475

 

 

34,475

 

 

34,475

 

3,693

 

 

38,168

 

Prepaid income taxes

 

7,583

 

 

7,583

 

 

7,583

 

 

 

7,583

 

Prepaid expenses and other assets

 

18,699

 

 

18,699

 

 

18,699

 

10,665

 

 

29,364

 

Deferred income taxes

 

17,568

 

 

17,568

 

 

17,568

 

12,001

 

13,528

(e)

43,097

 

Total current assets

 

161,525

 

170,616

 

332,141

 

(15,871

)

316,270

 

90,188

 

(161,472

)

244,986

 

Net property and equipment

 

593,933

 

 

593,933

 

 

593,933

 

548,684

 

(4,187

)(f)

1,138,430

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in and advances to unconsolidated affiliate

 

15,372

 

 

15,372

 

 

15,372

 

 

 

15,372

 

Excess of cost over fair market value of net assets acquired

 

587,757

 

 

587,757

 

 

587,757

 

727,470

 

1,929,863

(g)

2,517,620

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(727,470

)(g)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management service contract

 

17,143

 

 

17,143

 

 

17,143

 

 

 

17,143

 

Deferred financing costs, net

 

24,947

 

 

24,947

 

(3,356

)(d)

26,336

 

20,230

 

(20,230

)(h)

75,211

 

 

 

 

 

 

 

 

 

4,745

(c)

 

 

 

 

48,875

(i)

 

 

Deferred income taxes

 

 

99,727

(a)

99,727

 

 

99,727

 

 

 

99,727

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other assets including intangibles

 

31,112

 

 

31,112

 

 

31,112

 

28,990

 

 

60,102

 

Assets held for sale

 

196,346

 

5,465

(a)

201,811

 

 

201,811

 

 

 

201,811

 

Total other assets

 

872,677

 

105,192

 

977,869

 

1,389

 

979,258

 

776,690

 

1,231,038

 

2,986,986

 

Total assets

 

$

1,628,135

 

$

275,808

 

$

1,903,943

 

$

(14,482

)

$

1,889,461

 

$

1,415,562

 

$

1,065,379

 

$

4,370,402

 

 

4



 

PENN NATIONAL GAMING, INC.

UNAUDITED PRO FORMA COMBINED BALANCE SHEET

AS OF SEPTEMBER 30, 2004

 

 

 

Historical
Penn National

 

Pocono Downs
Pro Forma
Adjustments

 

Penn National
after
Pocono
Downs Sale

 

Penn National
Refinancing
Transactions
Pro Forma
Adjustments

 

Penn National
after
Refinancing
Transactions
and
Pocono Sale
Pro Forma
Adjustments

 

Historical
Argosy

 

Pro
Forma
Adjustments
for
Acquisition
Transactions

 

Combined
Pro Forma

 

 

 

(in thousands)

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current maturities of long-term debt

 

$

4,906

 

$

 

$

4,906

 

$

 

$

4,906

 

$

2,526

 

$

(2,526

)(j)

$

18,206

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13,300

(k)

 

 

Accounts payable

 

9,061

 

 

9,061

 

 

9,061

 

14,579

 

 

23,640

 

Accrued expenses

 

44,185

 

 

44,185

 

 

44,185

 

69,439

 

7,793

(l)

121,417

 

Accrued interest

 

3,046

 

 

3,046

 

 

3,046

 

6,594

 

 

9,640

 

Accrued salaries and wages

 

26,115

 

 

26,115

 

 

26,115

 

24,323

 

 

50,438

 

Gaming, pari-mutuel, property and other taxes

 

14,489

 

 

14,489

 

 

14,489

 

20,117

 

 

34,606

 

Income taxes payable

 

25,733

 

 

25,733

 

(3,672

)(b)

20,833

 

9,762

 

 

30,595

 

 

 

 

 

 

 

 

 

(1,228

)(d)

 

 

 

 

 

 

 

 

Other current liabilities

 

10,785

 

 

10,785

 

 

 

10,785

 

 

 

10,785

 

Total current liabilities

 

138,320

 

 

138,320

 

(4,900

)

133,420

 

147,340

 

18,567

 

299,327

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long term liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt, net of current maturities

 

904,888

 

 

904,888

 

(200,000

)(d)

904,888

 

802,751

 

(802,751

)(j)

3,106,566

 

 

 

 

 

 

 

 

 

200,000

(c)

 

 

 

 

(333,300

)(j)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,534,978

(m)

 

 

Deferred income taxes

 

19,117

 

 

19,117

 

 

19,117

 

112,145

 

 

131,262

 

Liabilities held for sale

 

186,122

 

 

 

186,122

 

 

186,122

 

 

 

186,122

 

Other long-term liabilities

 

 

275,808

(a)

275,808

 

 

275,808

 

1,211

 

 

277,019

 

Total long-term liabilities

 

1,110,127

 

275,808

 

1,385,935

 

 

1,385,935

 

916,107

 

1,398,927

 

3,700,969

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

417

 

 

417

 

 

417

 

295

 

(295

)(n)

417

 

Restricted stock

 

(2,234

)

 

(2,234

)

 

(2,234

)

 

 

(2,234

)

Treasury stock

 

(2,379

)

 

(2,379

)

 

(2,379

)

 

 

(2,379

)

Additional paid-in capital

 

178,233

 

 

178,233

 

 

178,233

 

95,796

 

(95,796

)(n)

178,233

 

Retained earnings

 

202,681

 

 

202,681

 

(7,454

)(b)

193,099

 

256,024

 

193,099

 

193,099

 

 

 

 

 

 

 

 

 

(2,128

)(d)

 

 

 

 

 

 

 

 

Accumulated other comprehensive income

 

2,970

 

 

2,970

 

 

2,970

 

 

 

2,970

 

Total shareholders’ equity

 

379,688

 

 

379,688

 

(9,582

)

370,106

 

352,115

 

(352,115

)

370,106

 

Total liabilities and shareholders’ equity

 

$

1,628,135

 

$

275,808

 

$

1,903,943

 

$

(14,482

)

$

1,889,461

 

$

1,415,562

 

$

1,065,379

 

$

4,370,402

 

 

5



 

PENN NATIONAL GAMING, INC.

UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2003

 

 

 

Historical
Penn
National

 

Hollywood
Two Months

 

Shreveport

 

Hollywood
Adjustments(1)

 

Penn
National
Refinancing
Transactions
Pro Forma
Adjustments

 

Penn
National
after
Hollywood
and
Refinancing
Transactions
Pro Forma
Adjustments

 

Historical
Argosy

 

Pro Forma
Adjustments
for
Acquisition
Transactions

 

Combined
Pro Forma

 

 

 

(in thousands)

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaming

 

$

648,248

 

$

85,908

 

$

22,730

 

$

63,178

 

$

 

$

711,426

 

$

738,938

 

$

 

$

1,450,364

 

Racing

 

40,093

 

 

 

 

 

40,093

 

 

 

40,093

 

Management service fee

 

9,869

 

 

 

 

 

9,869

 

 

 

9,869

 

Food, beverage and other revenue

 

98,144

 

12,440

 

5,513

 

6,927

 

 

105,071

 

84,784

 

 

189,855

 

Gross revenues

 

796,354

 

98,348

 

28,243

 

70,105

 

 

866,459

 

823,722

 

 

1,690,181

 

Less: Promotional allowances

 

(40,746

)

(17,101

)

(5,262

)

(11,839

)

 

(52,585

)

(96,107

)

 

(148,692

)

Net revenues

 

755,608

 

81,247

 

22,981

 

58,266

 

 

813,874

 

727,615

 

 

1,541,489

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaming

 

353,753

 

55,689

 

16,700

 

38,989

 

 

392,742

 

357,321

 

 

750,063

 

Racing

 

32,093

 

 

 

 

 

32,093

 

 

 

32,093

 

Food, beverage and other expenses

 

69,475

 

3,670

 

1,843

 

1,827

 

 

71,302

 

84,258

 

 

155,560

 

Selling general and administrative

 

123,792

 

11,129

 

1,447

 

9,682

 

 

133,474

 

112,682

 

 

246,156

 

Depreciation and amortization

 

41,551

 

5,868

 

2,715

 

3,153

 

 

44,704

 

38,757

 

(314

)(t)

83,147

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,164

(u)

4,164

 

Total operating expenses

 

620,664

 

76,356

 

22,705

 

53,651

 

 

674,315

 

593,018

 

3,850

 

1,271,183

 

Loss (gain) on sale of assets held for sale

 

 

(15

)

 

(15

)

 

(15

)

 

 

(15

)

Write-down of assets

 

 

 

 

 

 

 

 

6,500

 

 

 

6,500

 

Income from continuing operations

 

134,944

 

4,906

 

276

 

4,630

 

 

139,574

 

128,097

 

(3,850

)

263,821

 

Other income (expenses)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(56,510

)

(11,359

)

(4,456

)

(6,903

)

6,375

(o)

(56,663

)

(56,990

)

(41,271

)(v)

(149,447

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,666

)(w)

 

 

 

 

 

 

 

 

 

 

 

 

731

(p)

 

 

 

 

2,240

(x)

 

 

 

 

 

 

 

 

 

 

 

 

(356

)(q)

 

 

 

 

6,903

(s)

 

 

Interest income

 

1,269

 

216

 

17

 

199

 

 

1,468

 

106

 

 

1,574

 

Earnings from joint venture

 

1,632

 

 

 

 

 

1,632

 

 

 

1,632

 

Other

 

(649

)

(300

)

 

(300

)

 

(949

)

 

 

(949

)

Loss on change in fair values of interest rate swaps

 

(527

)

 

 

 

 

(527

)

 

 

(527

)

Loss on early extinguishment of debt

 

(1,310

)

 

 

 

 

(1,310

)

 

 

(1,310

)

Total other expenses, net

 

(56,095

)

(11,443

)

(4,439

)

(7,004

)

6,750

 

(56,349

)

(56,884

)

(35,794

)

(149,027

)

Income (loss) from continuing operations before income taxes

 

78,849

 

(6,537

)

(4,163

)

(2,374

)

6,750

 

83,225

 

71,213

 

(39,644

)

114,794

 

Taxes (benefit) on income

 

29,724

 

142

 

 

142

 

2,565

(r)

32,431

 

33,114

 

(17,332

)(y)

48,213

 

Net income (loss) from continuing operations

 

$

49,125

 

$

(6,679

)

$

(4,163

)

$

(2,516

)

$

4,185

 

$

50,794

 

$

38,099

 

$

(22,312

)

$

66,581

 

 


(1)          “Hollywood Adjustments” reflects the sum of Hollywood Two Months less Shreveport discontinued operations.

 

6



 

PENN NATIONAL GAMING, INC.

UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 2003

 

 

 

Historical
Penn National

 

Hollywood
Two Months

 

Shreveport

 

Hollywood
Adjustments(1)

 

Penn National
Refinancing
Transactions
Pro Forma
Adjustments

 

Penn National
after
Hollywood
and
Refinancing
Transactions
Pro Forma
Adjustments

 

Historical
Argosy

 

Pro Forma
Adjustments
for
Acquisition
Transactions

 

Combined
Pro Forma

 

 

 

(in thousands)

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaming

 

$

871,218

 

$

85,908

 

$

22,730

 

$

63,178

 

$

 

$

934,396

 

$

970,982

 

$

 

$

1,905,378

 

Racing

 

52,075

 

 

 

 

 

52,075

 

 

 

52,075

 

Management service fee

 

13,726

 

 

 

 

 

13,726

 

 

 

13,726

 

Food, beverage and other revenue

 

131,915

 

12,440

 

5,513

 

6,927

 

 

138,842

 

113,480

 

 

252,322

 

Gross revenues

 

1,068,934

 

98,348

 

28,243

 

70,105

 

 

1,139,039

 

1,084,462

 

 

2,223,501

 

Less: Promotional allowances

 

(55,936

)

(17,101

)

(5,262

)

(11,839

)

 

(67,775

)

(124,958

)

 

(192,733

)

Net revenues

 

1,012,998

 

81,247

 

22,981

 

58,266

 

 

1,071,264

 

959,504

 

 

2,030,768

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaming

 

475,407

 

55,689

 

16,700

 

38,989

 

 

514,396

 

466,897

 

 

981,293

 

Racing

 

41,752

 

 

 

 

 

 

41,752

 

 

 

41,752

 

Food, beverage and other expenses

 

92,663

 

3,670

 

1,843

 

1,827

 

 

94,490

 

111,153

 

 

205,643

 

Selling general and administrative

 

169,170

 

11,129

 

1,447

 

9,682

 

 

178,852

 

150,439

 

 

329,291

 

Depreciation and amortization

 

57,471

 

5,868

 

2,715

 

3,153

 

 

60,624

 

52,223

 

(419

)(t)

117,432

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,004

(u)

 

 

Total operating expenses

 

836,463

 

76,356

 

22,705

 

53,651

 

 

 

890,114

 

780,712

 

4,585

 

1,675,411

 

Loss (gain) on sale of assets held for sale

 

 

(15

)

 

(15

)

 

(15

)

 

 

(15

)

Write-down of assets

 

 

 

 

 

 

 

6,500

 

 

6,500

 

Income from continuing operations

 

176,535

 

4,906

 

276

 

4,630

 

 

181,165

 

172,292

 

(4,585

)

348,872

 

Other income (expenses)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(76,616

)

(11,359

)

(4,456

)

(6,903

)

8,500

(o)

(74,518

)

(75,752

)

(55,176

)(v)

(200,227

)

 

 

 

 

 

 

 

 

 

 

975

(p)

 

 

 

 

(4,888

)(w)

 

 

 

 

 

 

 

 

 

 

 

 

(474

)(q)

 

 

 

 

3,204

(x)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,903

(s)

 

 

Interest income

 

1,649

 

216

 

17

 

199

 

 

1,848

 

156

 

 

2,004

 

Earnings from joint venture

 

1,825

 

 

 

 

 

1,825

 

 

 

1,825

 

Other

 

(1,899

)

(300

)

 

(300

)

 

(2,199

)

 

 

(2,199

)

Loss on change in fair values of interest rate swaps

 

(527

)

 

 

 

 

(527

)

 

 

(527

)

Loss on early extinguishment of debt

 

(1,310

)

 

 

 

 

(1,310

)

 

 

(1,310

)

Total other expenses, net

 

(76,878

)

(11,443

)

(4,439

)

(7,004

)

9,001

 

(74,881

)

(75,596

)

(49,957

)

(200,434

)

Income (loss) from continuing operations before income taxes

 

99,657

 

(6,537

)

(4,163

)

(2,374

)

9,001

 

106,284

 

96,696

 

(54,542

)

148,438

 

Taxes (benefit) on income

 

37,463

 

142

 

 

142

 

3,420

(r)

41,025

 

44,963

 

(23,644

)(y)

62,344

 

Net income (loss) from continuing operations

 

$

62,194

 

$

(6,679

)

$

(4,163

)

$

(2,516

)

$

5,581

 

$

65,259

 

$

51,733

 

$

(30,898

)

$

86,094

 

 


(1)          “Hollywood Adjustments” reflects the sum of Hollywood Two Months less Shreveport discontinued operations.

 

7



 

PENN NATIONAL GAMING, INC.

UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2004

 

 

 

Historical
Penn National

 

Penn National
Refinancing
Transactions
Pro Forma
Adjustments

 

Penn National
after Refinancing
Transactions
Pro Forma
Adjustments

 

Historical
Argosy

 

Pro Forma
Adjustments
for
Acquisition
Transactions

 

Combined
Pro Forma

 

 

 

(in thousands)

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaming

 

$

751,165

 

$

 

$

751,165

 

$

795,424

 

$

 

$

1,546,589

 

Racing

 

38,359

 

 

38,359

 

 

 

38,359

 

Management service fee

 

11,950

 

 

11,950

 

 

 

11,950

 

Food, beverage and other revenue

 

111,935

 

 

111,935

 

95,786

 

 

207,721

 

Gross revenues

 

913,409

 

 

913,409

 

891,210

 

 

1,804,619

 

Less: Promotional allowances

 

(49,408

)

 

(49,408

)

(106,069

)

 

(155,477

)

Net revenues

 

864,001

 

 

864,001

 

785,141

 

 

1,649,142

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaming

 

411,814

 

 

411,814

 

371,446

 

 

783,260

 

Racing

 

30,047

 

 

30,047

 

 

 

30,047

 

Food, beverage and other expenses

 

73,155

 

 

73,155

 

86,673

 

 

159,828

 

Selling general and administrative

 

134,364

 

 

134,364

 

124,254

 

 

258,618

 

Depreciation and amortization

 

49,413

 

 

49,413

 

45,577

 

(314

)(t)

94,676

 

 

 

 

 

 

 

 

 

 

 

(2,672

)(u)

(2,672

)

Total operating expenses

 

698,793

 

 

698,793

 

627,950

 

(2,986

)

1,323,757

 

Loss (gain) on sale of assets held for sale

 

1,325

 

 

1,325

 

(3,155

)

 

 

(1,830

)

Write-down of assets

 

 

 

 

 

 

 

 

Income from continuing operations

 

163,883

 

 

163,883

 

160,346

 

2,986

 

327,215

 

Other income (expenses)

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(57,590

)

6,375

(o)

(50,840

)

(50,325

)

(47,545

)(v)

(149,496

)

 

 

 

 

731

(p)

 

 

 

 

(3,666

)(w)

 

 

 

 

 

 

(356

)(q)

 

 

 

 

2,880

(x)

 

 

Interest income

 

1,299

 

 

1,299

 

104

 

 

1,403

 

Earnings from joint venture

 

1,298

 

 

1,298

 

 

 

1,298

 

Other

 

(796

)

 

(796

)

 

 

(796

)

Loss on change in fair values of interest rate swaps

 

 

 

 

 

 

 

Loss on early extinguishment of debt

 

 

 

 

(26,040

)

 

(26,040

)

Total other expenses, net

 

(55,789

)

6,750

 

(49,039

)

(76,261

)

(48,331

)

(173,631

)

Income from continuing operations before income taxes and discontinued operations

 

108,094

 

6,750

 

114,844

 

84,085

 

(45,345

)

153,584

 

Taxes (benefit) on income

 

39,550

 

2,498

(r)

42,048

 

40,402

 

(17,945

)(y)

64,505

 

Net income from continuing operations

 

$

68,544

 

$

4,252

 

$

72,796

 

$

43,683

 

$

(27,400

)

$

89,079

 

 

8



 

PENN NATIONAL GAMING, INC.

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

 

1.             Argosy Merger

 

On November 3, 2004, we announced that our and Argosy Gaming Company’s (“Argosy”) boards of directors unanimously approved a definitive merger agreement (the “Merger Agreement”) under which we will acquire all of the outstanding shares of Argosy for an all-cash price of $47.00 per share. The transaction is valued at approximately $2.2 billion, including approximately $805 million of long-term debt of Argosy and its subsidiaries. On January 20, 2005, Argosy’s stockholders approved the Merger Agreement. The Argosy merger is subject to approval by each of our and Argosy’s respective state regulatory bodies, and to certain other necessary regulatory approvals and other customary closing conditions contained in the Merger Agreement.

 

The estimated aggregate purchase price to be paid in the merger is as follows (in thousands):

 

Cash consideration for shares of Argosy’s common stock(1)

 

$

1,410,552

 

Estimated merger costs (excluding financing costs related to new debt)

 

125,274

 

Net aggregate estimated merger consideration

 

1,535,826

 

Argosy’s debt to be refinanced by Penn National

 

805,277

 

Estimated aggregate purchase price

 

$

2,341,103

 

 


(1)          Calculated based on a $47.00 price per share for 29.5 million shares of common stock and 1.4 million outstanding stock options at a weighted average exercise price of $29.20 per share.

 

The allocation of the estimated aggregate purchase price, which is subject to change based on a final valuation of the assets acquired and liabilities assumed as of the closing date of the merger, is as follows (in thousands):

 

Current assets

 

$

90,188

 

Property and equipment

 

544,497

 

Goodwill

 

1,929,863

 

Other assets

 

28,990

 

Restructuring cost (liability)

 

(7,793

)

Assumed liabilities (excluding long-term debt)

 

(258,170

)

Deferred tax effect of purchase price allocation

 

13,528

 

 

 

$

2,341,103

 

 

The allocation of the estimated aggregate purchase price is preliminary. The final determination of the purchase price allocation will be based on the fair values of assets acquired and the fair values of liabilities assumed as of the closing date of the Argosy merger. The excess of the purchase price over the fair values of assets acquired and liabilities assumed is allocated to goodwill. The purchase price allocation will remain preliminary until we obtain a third party valuation of significant identifiable intangible assets acquired and determine the fair value of other assets and liabilities acquired. The final determination of the purchase price will be completed as soon as practicable after the closing date of the Argosy merger. The final amounts allocated to assets acquired and liabilities assumed could differ significantly from the amounts presented in the unaudited pro forma combined financial statements, thereby resulting in a potential income statement impact for the amortization of other indentifiable intangible assets or fixed asset adjustments.

 

9



 

2.             Pro Forma Adjustments

 

The unaudited pro forma combined financial statements give effect to the following adjustments:

 

(a)                                  To record the impact from the Pocono Sale which closed on January 25, 2005 to reflect the receipt of net cash proceeds, pre-paid taxes and the potential liability for post-closing termination rights.

 

(b)                                 To reflect the payment of the call premium on the 111/8% notes, and the related income tax benefits.

 

(c)                                  To reflect the issuance of new debt to finance the call of the 111/8% notes and the transaction costs related to the issuance of the new debt.

 

(d)                                 To reflect the retirement of the 111/8% notes and write-off of deferred financing costs upon exercise of the call option on the 111/8% notes. An effective tax rate of 37% was used to calculate the adjustment to taxes payable.

 

(e)                                  To reflect additional deferred taxes related to the proposed acqusition of Argosy.

 

(f)                                    To write down Argosy corporate office assets to a preliminary fair market value as estimated by Penn National.

 

(g)                                 To reflect the excess of acquisition costs over the preliminary estimated fair value of net assets acquired in the acquisition and write-off of Argosy historical goodwill.

 

(h)                                 To reflect the write-off of deferred financing costs as a result of the refinancing of the debt of Argosy.

 

(i)                                     To reflect the deferred financing costs incurred in connection with the issuance of debt to finance the purchase of Argosy and the refinancing of Penn National’s existing senior secured credit facility.

 

(j)                                     To eliminate Argosy’s current portion of debt and long term debt as a result of the proposed refinancing of the debt.

 

(k)                                  To adjust the long-term debt relating to Penn National’s existing senior secured credit facility which with the new senior secured credit facilities to be entered into in conjunction with the purchase of Argosy.

 

(l)                                     To reflect a restructuring charge of $7.8 million resulting from Argosy acquisition in which the corporate office will be shut down and certain employees will be terminated.

 

(m)                               To reflect the issuance of new debt to finance the Argosy acquisition, including related transaction costs of $67.3 million.

 

(n)                                 To eliminate the historical equity of Argosy.

 

(o)                                 To adjust the interest expense on the call of the 111/8% notes, and the issuance of the notes offered hereby.

 

(p)                                 To write-off the amortization of deferred financing costs for the 111/8% notes.

 

(q)                                 To reflect deferred financing costs relating to the notes offered hereby.

 

(r)                                    To reflect a combined United States Federal and state effective tax rate on items (o) through (q) of 38% for the nine months ending September 30, 2003 and the year ending December 31, 2003 and 37% for the nine months ending September 30, 2004 on the pro forma pre-tax income.

 

10



 

(s)                                  To eliminate the interest expense associated with the purchase of Hollywood Casino Corporation in 2003.

 

(t)                                    To eliminate depreciation of the assets written down to fair market value in item (f).

 

(u)                                 To adjust depreciation and amortization as a result of the purchase of Argosy.

 

(v)                                 To reflect pro forma interest expense resulting from the issuance of debt and refinancing of debt related to the Argosy merger. For purposes of the pro forma calculation, approximately $805.0 million of Argosy historical debt is eliminated, and it has been assumed that we will borrow approximately $2.535 billion of new debt, after applying $175.0 million of cash and restricted cash on hand, as part of the refinancing and funding of the Argosy acquisition, resulting in incremental interest expense of approximately $41.3 million for the nine months ended September 30, 2003, $55.2 million for the year ended December 31, 2003 and $47.5 million for the nine months ended September 30, 2004, assuming a blended effective interest rate of approximately 5.94%. A 0.125% change in estimated interest rate may affect pro forma interest expense by $2.377 million for the nine months ended September 30, 2003, $3.169 million for the twelve months of 2003 and $2.377 million for the nine months ended September 30, 2004.

 

(w)                               To recognize the deferred financing amortization of fees relating to the new senior secured credit facilities used to purchase Argosy and refinance our existing senior secured credit facility.

 

(x)                                   To eliminate amortization of deferred financing fees relating to our existing senior secured credit facility.

 

(y)                                 To reflect a combined United States Federal and state effective tax rate of 42% on the pro forma pre-tax income of the combined company.

 

11