UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15 (d) of the

Securities Exchange Act of 1934

Date of Report – July 26, 2007

(Date of earliest event reported)

PENN NATIONAL GAMING, INC.

(Exact name of registrant as specified in its charter)

Pennsylvania

 

0-24206

 

23-2234473

(State or other jurisdiction

 

(Commission File Number)

 

(IRS Employer

of incorporation)

 

 

 

Identification

 

 

 

 

Number)

 

 

 

 

 

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

 

19610

(Address of principal executive offices)

 

(Zip Code)

 

Area Code (610) 373-2400

(Registrant’s telephone number)

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 to Form 8-K):

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 2.02               Results of Operations and Financial Condition.

On July 26, 2007, Penn National Gaming, Inc. (the “Company”) issued a press release announcing its financial results for the three and six months ended June 30, 2007.  The full text of the press release is attached as Exhibit 99.1 and incorporated herein by reference.

The information in Item 2.02 of this Form 8-K and Exhibit 99.1 attached hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing.

Item 9.01               Financial Statements and Exhibits.

(d)           Exhibits.

Exhibit No.

 

Description

 

 

 

99.1

 

Press release, dated July 26, 2007, issued by Penn National Gaming, Inc. announcing its financial results for the three and six months ended June 30, 2007.

 

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, thereunto duly authorized.

Dated: July 30, 2007

PENN NATIONAL GAMING, INC.

 

 

 

 

 

 

 

By:

  /s/ Robert S. Ippolito

 

 

 

Robert S. Ippolito

 

 

Vice President, Secretary and Treasurer

 

3




EXHIBIT INDEX

Exhibit No.

 

Description

 

 

 

99.1

 

Press release, dated July 26, 2007, issued by Penn National Gaming, Inc. announcing its financial results for the three and six months ended June 30, 2007.

 

4



Exhibit 99.1

 

 

News Announcement

 

 

 

 

CONTACT:

William J. Clifford

 

Joseph N. Jaffoni, Richard Land

Chief Financial Officer

 

Jaffoni & Collins Incorporated

610/373-2400

 

212/835-8500 or penn@jcir.com

 

FOR IMMEDIATE RELEASE

PENN NATIONAL GAMING REPORTS

SECOND QUARTER DILUTED EPS OF $0.43

- Second Quarter EBITDA of $172.8 Million Exceeds Guidance -

- Establishes 2007 Third Quarter Guidance -

Wyomissing, Penn., (July 26, 2007) – Penn National Gaming, Inc. (PENN: Nasdaq) today reported second quarter operating results for the period ended June 30, 2007, as summarized below.

Summary of Second Quarter Results

 

 

Three Months Ended June 30,

 

(in millions, except per share data)

 

2007

 

2007
Guidance
(2)

 

2006

 

Net revenues

 

$

625.2

 

$

626.0

 

$

537.8

 

EBITDA (1)

 

172.8

 

167.9

 

155.1

 

Less depreciation and amortization, gain/loss on disposal of assets, interest expense - net, income taxes, charge for stock compensation and other expenses

 

(134.5

)

(127.7

)

(112.4

)

Net income

 

$

38.3

 

$

40.2

 

$

42.7

 

 

 

 

 

 

 

 

 

Diluted earnings per share

 

$

0.43

 

$

0.46

 

$

0.49

 

 


(1)          EBITDA is income from operations, excluding charges for stock compensation, depreciation and amortization, and gain or loss on disposal of assets, and is inclusive of earnings from joint venture.  A reconciliation of net income per accounting principles generally accepted in the United States of America (“GAAP”) to EBITDA, as well as income from operations per GAAP to EBITDA is included in the accompanying financial schedules.

(2)          The figures in this column present the guidance Penn National Gaming provided on April 26, 2007 for the quarter ended June 30, 2007.

 




Review of Second Quarter 2007 Results vs. Guidance and Second Quarter 2006 Results

 

 

Three Months Ended June 30,

 

 

 

 

 

2007
Guidance

 

 

 

 

 

2007 Actual

 

(1)

 

2006 Actual

 

Diluted earnings per share

 

$

0.43

 

$

0.46

 

$

0.49

 

Merger-related costs

 

0.03

 

 

 

Currency translation loss

 

0.03

 

 

 

Diluted earnings per share before merger-related costs and currency translation loss

 

$

0.49

 

$

0.46

 

$

0.49

 

 


(1)          The figures in this column present the guidance Penn National Gaming provided on April 26, 2007 for the quarter ended June 30, 2007.

In the three months ended June 30, 2007, the Company recorded after-tax merger-related costs of $2.2 million or $0.03 per diluted share related to the previously announced merger with certain funds managed by affiliates of Fortress Investment Group LLC and Centerbridge Partners, L.P.

In the three months ended June 30, 2007, the Company recorded a non-cash pre-tax currency translation loss of $3.8 million ($2.4 million, net of taxes, or $0.03 per diluted share) related to Canadian currency fluctuations for FIN 48 estimated tax reserves.

Commenting on the results, Peter M. Carlino, Chairman and Chief Executive Officer of Penn National Gaming said, “Penn National’s record second quarter EBITDA reflects positive operating trends at many of our existing properties — some of which are benefiting from recent capital investments, contributions from our two Gulf Coast facilities, which were closed or provided minimal EBITDA a year ago, and a partial quarter’s contribution from Zia Park Racetrack and its Black Gold Casino, which we acquired in mid-April.  The overall strength of our portfolio of regionally diversified gaming properties offset competitive pressures in Joliet, which were amplified by the incremental Illinois tax on our Chicagoland facilities, negative year-over-year comparisons in Baton Rouge, as this market continues to experience post-hurricane stabilization, the impact of increased insurance costs, expenses related to our support of local referenda in Kansas and West Virginia and costs associated with the previously announced merger with certain funds managed by affiliates of Fortress Investment Group LLC and Centerbridge Partners, L.P.

“Early in the quarter, Argosy Casino Riverside opened its $58 million, nine-story, 258-room hotel and spa, which features expanded ballroom, function and meeting space and was completed below budget.  The complex, located a few minutes from downtown Kansas City, is ramping up and attracting corporate business and private parties.  In terms of occupancy rates, we expect to continue to see improvement, as occupancy has increased in the hotel every month since opening.  In West Virginia, we opened our latest expansion at Charles Town in the second quarter, bringing the total slot count at the property to approximately 5,000 units.  This has resulted in meaningful increases in our slot business over the weekend periods and during special events.  We expect this trend to continue in the same manner that our previous expansions at the property have driven incremental revenue.

2




“In June, citizens in Jefferson County West Virginia, voted against approving table games at Charles Town Races and Slots.  According to the West Virginia Lottery Racetrack Table Games Act, Charles Town will have to wait at least two years before it can propose another table game referendum vote. While we remain excited about the long-term growth prospects for the facility, and have continued construction of a 153-room hotel, the result of the referendum has caused us to re-evaluate our planned next phase of expansion at Charles Town and to postpone our plans for additional floor space to accommodate table games.

“In terms of new acquisitions for the Company, early in the second quarter, Penn National was delighted to add Zia Park Racetrack and its Black Gold Casino to its diverse portfolio of gaming and racing assets.  This property, with 750 slot machines, represents the Company’s fourth integrated racing and gaming facility and contributed approximately $6.5 million of EBITDA to our 2007 second quarter results.  In addition, the Company recently announced the purchase of the Sanford-Orlando Kennel Club, which is situated on 26 acres in Orlando, Florida, and offers year-round greyhound racing.  Sanford is a relatively small pari-mutuel operation, which we believe may have future opportunities for expanded gaming.  Along with the purchase, we also secured a right of first refusal to acquire the Sarasota Kennel Club.  Sarasota runs year-round greyhound meets and has a poker room.  As structured, the economics of the transaction are attractive given the upside of the opportunity and the fact that Sanford-Orlando Kennel Club is cash flow positive.  The purchase of Sanford-Orlando Kennel Club is expected to close in the 2007 fourth quarter and is subject to several conditions, including approval by Florida’s Department of Business and Professional Regulation.

“We also continue to make progress with other new growth opportunities. Notably, during the second quarter, we moved forward with our plans to develop a hotel casino resort in Cherokee County in southeastern Kansas.  In June, citizens there overwhelmingly approved a referendum to authorize gaming in the County.  In July, we appeared before the Cherokee County Commissioners to provide details of our proposed $250 million destination resort, which would include an eleven story, 250-room hotel with 13 luxury suites, 1,200 slot machines, 40 table games, a spa, fitness center, convention space and other amenities.  An endorsement of the County Commissioners is a prerequisite in submitting an application to the Kansas Lottery Commission for consideration as a Lottery Gaming Facility Manager.  On July 23, the Cherokee County Commissioners voted unanimously in favor of an Exclusive Endorsement of Penn National’s proposed project and, in a separate motion, voted unanimously to enter into a predevelopment agreement with the Company.  Accordingly, we expect to submit our completed application to the Lottery Commission by the State-imposed deadline of September 6, 2007.

“Penn National continues to benefit from the diversification afforded by our portfolio of regional gaming properties, well-planned expansion projects and select, economically sound acquisitions.  In 2008, we expect to complete three significant projects, including the Hollywood Casino racing and gaming facility at Penn National Race Course, the permanent Hollywood Slots at Bangor facility,

3




which will be called the Hollywood Slots Hotel and Raceway, and much needed additional parking at Lawrenceburg.  With the exception of the postponement of further gaming floor space expansion at Charles Town, all of the Company’s development and expansion projects remain on track with our previously disclosed timetables and budgets.

“With the guidance and support of our Board of Directors, Penn National’s management team has consistently demonstrated its commitment to generate value for our shareholders and, in June, the Company announced that it had entered into a definitive agreement to be acquired by certain funds managed by affiliates of Fortress Investment Group LLC (FIG: NYSE) and Centerbridge Partners LP whereby Penn National Gaming shareholders will receive $67.00 in cash for each outstanding Penn National share.  The Board of Directors of Penn National Gaming has determined that the merger is fair to, and in the best interests of, Penn National and its shareholders, and recommends that Penn National Gaming shareholders approve the merger.  The transaction is expected to be completed in approximately eleven to fifteen months, and is subject to shareholder and regulatory approvals, as well as satisfaction of certain customary conditions.  Penn National Gaming will file a preliminary proxy statement with the Securities and Exchange Commission shortly that will provide additional information on the transaction.  We look forward to working with Fortress and Centerbridge to ensure the ongoing competitiveness of our facilities and deliver new entertainment experiences to consumers in the markets where we have development projects, while adhering to our long-term strategies and business model.”

4




Development and Expansion Projects

The table below outlines Penn National Gaming’s current pipeline of new or expanded facilities:

 

 

 

 

 

 

Amount

 

 

 

 

 

New

 

Planned

 

Expended

 

Expected

 

 

 

Gaming

 

Total

 

through

 

Opening

 

Project/Scope

 

Positions

 

Budget

 

June 30, 2007

 

Date

 

 

 

 

 

(in millions)

 

 

 

Charles Town (WV) - Construction of 153-room hotel.

 

 

$

21

 

$

2

 

3rd Quarter 2008

 

 

 

 

 

 

 

 

 

 

 

Argosy Casino Lawrenceburg (IN) - New two-level 270,000 square foot  gaming barge, an additional 1,500 space parking garage and road and infrastructure improvements. The gaming barge will allow 4,000 positions on one level, and another 400 positions will be added to the second level, along with restaurants and other amenities on the gaming barge.

 

1,600

 

$

310

 

$

81

 

Parking facility - 2nd Quarter 2008
Gaming facility - 2nd Quarter 2009

 

 

 

 

 

 

 

 

 

 

 

Hollywood Casino at Penn National Race Course (PA) - Building an integrated racing and gaming facility. Budget includes a $50 million license fee and the purchase of an initial 2,000 slot machines (with the building size sufficient to add 1,000 additional machines), a 2,500 space parking garage and several restaurants.

 

2,000

 

$

310

 

$

148

 

1st Quarter 2008

 

 

 

 

 

 

 

 

 

 

 

Hollywood Slots Hotel and Raceway (ME) - Building a permanent facility, which will include a 1,500 slot facility (1,000 slot machines at opening), a 152- room hotel, 1,500 space parking garage and several restaurants.

 

525

 

$

131

 

$

28

 

3rd Quarter 2008

 

 

5




Financial Guidance

The following table sets forth current guidance targets for continuing operations for the 2007 third quarter and full year, based on the following assumptions:

·                  Increased competition related to new facility openings in the St. Louis market in the fourth quarter of 2007;

·                  Pre-opening costs at Hollywood Casino at Penn National Race Course of $2.5 million in the third quarter and $9.8 million for full year 2007;

·                  There will be a reduction in property insurance and related costs, with an annualized benefit of $8.2 million beginning in August;

·                  The 3% tax surcharge continues to be expensed and paid into escrow at Hollywood Casino Aurora and Empress Casino Joliet;

·                  The Illinois “hold harmless” tax minimum guarantee is assumed to continue in the third and fourth quarter;

·                  Penn National Gaming is currently required by the Illinois Gaming Board to reach a definitive sales agreement for the Empress Casino Hotel by June 30, 2008.  However, the results of Empress Casino Hotel remain included in continuing operations as the Company assumes that the accounting standards for treating properties as “assets held for sale” will not be met in 2007; as such, the results from the property are included in our 2007 third quarter and full year guidance;

·                  Sanford-Orlando Kennel Club will close in the fourth quarter of 2007, with no significant financial impact;

·                  Depreciation and amortization are projected to increase in the third quarter by $6.1 million and the full year 2007 by $22.9 million over the comparable prior year periods;

·                  Full year 2007 results will reflect a pre-tax non-cash charge for stock compensation of $26.1 million ($18.9 million, net of taxes, or $0.22 per diluted share);

·                  The effective tax rate for federal, state and local income taxes for the third quarter and full year 2007 will be 45.0% and 45.5%, respectively, reflecting the impact of better operating results in jurisdictions with higher state income tax, material amounts of non-deductible lobbying expenses, non-deductible merger-related costs and FIN 48 costs;

·                  The Company will have approximately 87.9 million diluted shares outstanding as of December 31, 2007;  and,

·                  There will be no material changes in economic conditions, applicable legislation or regulation, world events, weather, or other circumstances beyond our control that may adversely affect the Company’s results of operations.

6




Financial Guidance (continued)

 

 

Three Months Ended

 

Full Year Ended

 

 

 

September 30,

 

September 30,

 

2007 Revised

 

2007 Prior

 

2006

 

(in millions, except per share data)

 

2007 Guidance

 

2006 Actual

 

Guidance

 

Guidance

 

Actual

 

Net revenues

 

$

640.6

 

$

586.1

 

$

2,473.3

 

$

2,478.0

 

$

2,244.5

 

EBITDA (1)

 

178.6

 

162.8

 

676.2

 

668.6

 

629.2

 

Less depreciation and amortization, gain/loss on disposal of assets, interest expense - net, income taxes, charge for stock compensation and other expenses

 

(131.9

)

(122.4

)

(510.1

)

(503.1

)

(469.4

)

Net income from continuing operations before merger- related costs, charge for early extinguishment of debt, hurricane and goodwill impairment

 

46.7

 

40.4

 

166.1

 

165.5

 

159.8

 

Merger-related costs

 

 

 

(2.2

)

 

 

Charge for early extinguishment of debt, net of tax

 

 

 

 

 

(6.5

)

Hurricane, net of tax

 

 

 

 

 

81.8

 

Goodwill impairment, net of tax

 

 

 

 

 

(22.0

)

Net income from continuing operations GAAP

 

$

46.7

 

$

40.4

 

$

163.9

 

$

165.5

 

$

213.1

 

Diluted earnings per share before merger-related costs, charge for early extinguishment of debt, hurricane and goodwill impairment

 

$

0.53

 

$

0.47

 

$

1.89

 

$

1.89

 

$

1.84

 

EPS impact of merger-related costs, charge for early extinguishment of debt, hurricane and goodwill impairment

 

 

 

(0.03

)

 

0.62

 

Diluted earnings per share from continuing operations

 

$

0.53

 

$

0.47

 

$

1.86

 

$

1.89

 

$

2.46

 

 


(1)          EBITDA is income from operations excluding charges for stock compensation, depreciation and amortization, gain or loss on disposal of assets, hurricane and goodwill impairment, and is inclusive of earnings from joint venture.

2006 EBITDA to 2007 EBITDA Guidance Reconciliation

 

Three Months

 

Full Year

 

 

 

Ended

 

Ended

 

(in millions)

 

September 30,

 

December 31,

 

 

 

 

 

 

 

2006 EBITDA Actual (1)

 

$

162.8

 

$

629.2

 

 

 

 

 

 

 

Existing Operations/Corporate

 

9.2

 

52.1

 

Zia Park

 

7.8

 

22.0

 

Insurance Costs

 

1.3

 

(10.7

)

Pre-Opening Expenses

 

(2.5

)

(9.8

)

Incremental Illinois 3% Tax

 

 

(6.6

)

 

 

 

 

 

 

2007 EBITDA Guidance (1)

 

$

178.6

 

$

676.2

 

 


(1)          EBITDA is income from operations excluding charges for stock compensation, depreciation and amortization, gain or loss on disposal of assets, hurricane and goodwill impairment, and is inclusive of earnings from joint venture.

7




PENN NATIONAL GAMING, INC. AND SUBSIDIARIES

Property Information - Operations

(in thousands) (unaudited)

 

 

NET REVENUES

 

EBITDA (1)

 

 

 

Three Months Ended June 30,

 

Three Months Ended June 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

Charles Town Entertainment Complex

 

$

129,140

 

$

122,452

 

$

37,767

 

$

35,405

 

Argosy Casino Lawrenceburg

 

121,236

 

114,994

 

40,820

 

37,982

 

Hollywood Casino Aurora

 

64,052

 

60,703

 

20,593

 

20,120

 

Empress Casino Hotel

 

58,493

 

59,736

 

14,132

 

17,263

 

Argosy Casino Riverside

 

43,117

 

37,607

 

14,072

 

12,443

 

Hollywood Casino Baton Rouge

 

34,041

 

35,447

 

14,347

 

15,533

 

Argosy Casino Alton

 

30,366

 

28,205

 

8,627

 

7,692

 

Hollywood Casino Tunica

 

26,375

 

26,899

 

6,217

 

6,974

 

Hollywood Casino Bay St. Louis (2)

 

25,466

 

(22

)

5,222

 

 

Argosy Casino Sioux City

 

13,835

 

13,196

 

4,671

 

4,251

 

Boomtown Biloxi (2)

 

22,671

 

1,010

 

7,265

 

262

 

Hollywood Slots at Bangor

 

11,985

 

10,104

 

3,622

 

2,784

 

Bullwhackers

 

7,483

 

7,036

 

976

 

916

 

Zia Park (3)

 

16,913

 

 

6,490

 

 

Casino Rama management service contract

 

4,341

 

4,921

 

3,984

 

4,564

 

Pennsylvania Racing Operations

 

13,530

 

13,073

 

79

 

553

 

Raceway Park

 

2,200

 

2,412

 

(195

)

(87

)

Earnings from Pennwood Racing, Inc.

 

 

 

325

 

574

 

Corporate overhead

 

 

 

(16,256

)

(12,095

)

Total

 

$

625,244

 

$

537,773

 

$

172,758

 

$

155,134

 

 

 

 

NET REVENUES

 

EBITDA (1)

 

 

 

Six Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

Charles Town Entertainment Complex

 

$

248,736

 

$

239,370

 

$

74,552

 

$

69,554

 

Argosy Casino Lawrenceburg

 

243,094

 

235,157

 

82,526

 

78,741

 

Hollywood Casino Aurora

 

128,552

 

122,453

 

41,264

 

41,519

 

Empress Casino Hotel

 

118,106

 

120,052

 

27,378

 

34,784

 

Argosy Casino Riverside

 

84,832

 

76,602

 

27,138

 

25,601

 

Hollywood Casino Baton Rouge

 

68,922

 

78,567

 

28,978

 

36,602

 

Argosy Casino Alton

 

61,229

 

57,724

 

17,417

 

15,875

 

Hollywood Casino Tunica

 

52,971

 

55,057

 

13,025

 

14,900

 

Hollywood Casino Bay St. Louis (2)

 

48,950

 

 

9,648

 

 

Argosy Casino Sioux City

 

27,952

 

27,247

 

9,300

 

8,969

 

Boomtown Biloxi (2)

 

46,738

 

1,010

 

15,347

 

262

 

Hollywood Slots at Bangor

 

22,961

 

18,814

 

6,731

 

4,978

 

Bullwhackers

 

14,614

 

13,622

 

1,761

 

1,542

 

Zia Park (3)

 

16,913

 

 

6,490

 

 

Casino Rama management service contract

 

7,815

 

9,308

 

7,172

 

8,632

 

Pennsylvania Racing Operations

 

25,384

 

26,160

 

(349

)

1,470

 

Raceway Park

 

3,733

 

4,432

 

(373

)

(66

)

Earnings from Pennwood Racing, Inc.

 

 

 

365

 

987

 

Corporate overhead

 

 

 

(27,913

)

(24,401

)

Total

 

$

1,221,502

 

$

1,085,575

 

$

340,457

 

$

319,949

 

 

8





(1)          EBITDA is income from operations excluding charges for stock compensation, depreciation and amortization, and gain or loss on disposal of assets, and is inclusive of earnings from joint venture.  A reconciliation of net income per accounting principles generally accepted in the United States of America (“GAAP”) to EBITDA, as well as income from operations per GAAP to EBITDA is included in the accompanying financial schedules.

(2)        Hollywood Casino Bay St. Louis and Boomtown Biloxi were closed effective August 28, 2005 due to hurricane damage.  Boomtown Biloxi reopened on June 29, 2006 and Hollywood Casino Bay St. Louis reopened on August 31, 2006.

(3)          Reflects results since the April 16, 2007 acquisition effective date.

9




Reconciliation of EBITDA to Net Income (GAAP)

PENN NATIONAL GAMING, INC. AND SUBSIDIARIES

 (in thousands) (unaudited)

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

EBITDA

 

$

172,758

 

$

155,134

 

$

340,457

 

$

319,949

 

Earnings from joint venture

 

(325

)

(574

)

(365

)

(987

)

Depreciation and amortization

 

(37,622

)

(27,728

)

(72,980

)

(57,446

)

Charge for stock compensation

 

(6,256

)

(5,493

)

(12,854

)

(10,404

)

Gain (loss) on disposals

 

(135

)

498

 

(1,058

)

(374

)

Income from operations

 

$

128,420

 

$

121,837

 

$

253,200

 

$

250,738

 

Interest expense

 

(51,302

)

(47,766

)

(99,649

)

(96,195

)

Interest income

 

1,289

 

867

 

2,165

 

1,770

 

Earnings from joint venture

 

325

 

574

 

365

 

987

 

Other

 

(5,476

)

184

 

(5,704

)

74

 

Charge for early extinguishment of debt

 

 

 

 

(10,022

)

Taxes on income

 

(34,957

)

(33,001

)

(69,137

)

(62,674

)

Net income

 

$

38,299

 

$

42,695

 

$

81,240

 

$

84,678

 

 

10




Reconciliation of Income from Operations (GAAP) to EBITDA

PENN NATIONAL GAMING, INC. AND SUBSIDIARIES

Property Information Including Corporate Overhead

(in thousands) (unaudited)

Three Months Ended June 30, 2007

 

 

 

 

 

 

 

 

 

 

Earnings

 

 

 

 

 

Income

 

Charge for

 

Depreciation

 

(Gain)/loss

 

from

 

 

 

 

 

from

 

stock

 

and

 

on disposal of

 

joint

 

 

 

 

 

operations

 

compensation

 

amortization

 

assets

 

venture

 

EBITDA

 

Charles Town Entertainment Complex

 

$

31,295

 

$

 

$

6,472

 

$

 

$

 

$

37,767

 

Argosy Casino Lawrenceburg

 

36,549

 

 

4,292

 

(21

)

 

40,820

 

Hollywood Casino Aurora

 

18,409

 

 

2,184

 

 

 

20,593

 

Empress Casino Hotel

 

11,083

 

 

3,049

 

 

 

14,132

 

Argosy Casino Riverside

 

10,388

 

 

3,684

 

 

 

14,072

 

Hollywood Casino Baton Rouge

 

12,164

 

 

2,120

 

63

 

 

14,347

 

Argosy Casino Alton

 

6,538

 

 

2,089

 

 

 

8,627

 

Hollywood Casino Tunica

 

4,363

 

 

1,868

 

(14

)

 

6,217

 

Hollywood Casino Bay St. Louis (1)

 

2,024

 

 

3,198

 

 

 

5,222

 

Argosy Casino Sioux City

 

3,556

 

 

1,115

 

 

 

4,671

 

Boomtown Biloxi (1)

 

4,570

 

 

2,722

 

(27

)

 

7,265

 

Hollywood Slots at Bangor

 

2,556

 

 

1,066

 

 

 

3,622

 

Bullwhackers

 

448

 

 

528

 

 

 

976

 

Zia Park (2)

 

5,460

 

 

1,030

 

 

 

6,490

 

Casino Rama management service contract

 

3,984

 

 

 

 

 

3,984

 

Pennsylvania Racing Operations

 

(357

)

 

408

 

28

 

 

79

 

Raceway Park

 

(274

)

 

79

 

 

 

(195

)

Earnings from Pennwood Racing, Inc.

 

 

 

 

 

325

 

325

 

Corporate overhead

 

(24,336

)

6,256

 

1,718

 

106

 

 

(16,256

)

Total

 

$

128,420

 

$

6,256

 

$

37,622

 

$

135

 

$

325

 

$

172,758

 

 

Three Months Ended June 30, 2006

 

 

 

 

 

 

 

 

 

 

Earnings

 

 

 

 

 

Income

 

Charge for

 

Depreciation

 

(Gain)/loss

 

from

 

 

 

 

 

from

 

stock

 

and

 

on disposal of

 

joint

 

 

 

 

 

operations

 

compensation

 

amortization

 

assets

 

venture

 

EBITDA

 

Charles Town Entertainment Complex

 

$

30,894

 

$

 

$

4,871

 

$

(360

)

$

 

$

35,405

 

Argosy Casino Lawrenceburg

 

33,724

 

 

4,256

 

2

 

 

37,982

 

Hollywood Casino Aurora

 

18,029

 

 

2,259

 

(168

)

 

20,120

 

Empress Casino Hotel

 

14,478

 

 

2,794

 

(9

)

 

17,263

 

Argosy Casino Riverside

 

9,686

 

 

2,759

 

(2

)

 

12,443

 

Hollywood Casino Baton Rouge

 

13,455

 

 

2,067

 

11

 

 

15,533

 

Argosy Casino Alton

 

5,464

 

 

2,228

 

 

 

7,692

 

Hollywood Casino Tunica

 

5,198

 

 

1,775

 

1

 

 

6,974

 

Hollywood Casino Bay St. Louis (1)

 

(218

)

 

197

 

21

 

 

 

Argosy Casino Sioux City

 

3,161

 

 

1,090

 

 

 

4,251

 

Boomtown Biloxi (1)

 

262

 

 

 

 

 

262

 

Hollywood Slots at Bangor

 

1,797

 

 

987

 

 

 

2,784

 

Bullwhackers

 

386

 

 

524

 

6

 

 

916

 

Casino Rama management service contract

 

4,564

 

 

 

 

 

4,564

 

Pennsylvania Racing Operations

 

204

 

 

349

 

 

 

553

 

Raceway Park

 

(200

)

 

113

 

 

 

(87

)

Earnings from Pennwood Racing, Inc.

 

 

 

 

 

574

 

574

 

Corporate overhead

 

(19,047

)

5,493

 

1,459

 

 

 

(12,095

)

Total

 

$

121,837

 

$

5,493

 

$

27,728

 

$

(498

)

$

574

 

$

155,134

 

 


(1)          Income from operations and EBITDA for the three months ended June 30, 2006 reflects the closure of Hollywood Casino Bay St. Louis and Boomtown Biloxi, which incurred extensive hurricane damage in August 2005.  Boomtown Biloxi reopened on June 29, 2006 and Hollywood Casino Bay St. Louis reopened on August 31, 2006.

(2)          Reflects results since the April 16, 2007 acquisition effective date.

11




Reconciliation of Income from Operations (GAAP) to EBITDA

PENN NATIONAL GAMING, INC. AND SUBSIDIARIES

Property Information Including Corporate Overhead

(in thousands) (unaudited)

Six Months Ended June 30, 2007

 

 

Income

 

 

 

 

 

 

 

Earnings

 

 

 

 

 

from

 

Charge for

 

Depreciation

 

(Gain)/loss

 

from

 

 

 

 

 

continuing

 

stock

 

and

 

on disposal of

 

joint

 

 

 

 

 

operations

 

compensation

 

amortization

 

assets

 

venture

 

EBITDA

 

Charles Town Entertainment Complex

 

$

62,018

 

$

 

$

12,534

 

$

 

$

 

$

74,552

 

Argosy Casino Lawrenceburg

 

73,963

 

 

8,584

 

(21

)

 

82,526

 

Hollywood Casino Aurora

 

36,741

 

 

4,523

 

 

 

41,264

 

Empress Casino Hotel

 

21,684

 

 

6,081

 

(387

)

 

27,378

 

Argosy Casino Riverside

 

20,395

 

 

6,817

 

(74

)

 

27,138

 

Hollywood Casino Baton Rouge

 

24,751

 

 

4,176

 

51

 

 

28,978

 

Argosy Casino Alton

 

13,294

 

 

4,122

 

1

 

 

17,417

 

Hollywood Casino Tunica

 

9,367

 

 

3,692

 

(34

)

 

13,025

 

Hollywood Casino Bay St. Louis (1)

 

3,263

 

 

6,348

 

37

 

 

9,648

 

Argosy Casino Sioux City

 

7,078

 

 

2,222

 

 

 

9,300

 

Boomtown Biloxi (1)

 

10,128

 

 

5,246

 

(27

)

 

15,347

 

Hollywood Slots at Bangor

 

4,614

 

 

2,117

 

 

 

6,731

 

Bullwhackers

 

584

 

 

1,159

 

18

 

 

1,761

 

Zia Park (2)

 

5,460

 

 

1,030

 

 

 

6,490

 

Casino Rama management service contract

 

7,172

 

 

 

 

 

7,172

 

Pennsylvania Racing Operations

 

(2,472

)

 

775

 

1,348

 

 

(349

)

Raceway Park

 

(521

)

 

150

 

(2

)

 

(373

)

Earnings from Pennwood Racing, Inc.

 

 

 

 

 

365

 

365

 

Corporate overhead

 

(44,319

)

12,854

 

3,404

 

148

 

 

(27,913

)

Total

 

$

253,200

 

$

12,854

 

$

72,980

 

$

1,058

 

$

365

 

$

340,457

 

 

Six Months Ended June 30, 2006

 

 

Income

 

 

 

 

 

 

 

Earnings

 

 

 

 

 

from

 

Charge for

 

Depreciation

 

(Gain)/loss

 

from

 

 

 

 

 

continuing

 

stock

 

and

 

on disposal of

 

joint

 

 

 

 

 

operations

 

compensation

 

amortization

 

assets

 

venture

 

EBITDA

 

Charles Town Entertainment Complex

 

$

60,384

 

$

 

$

9,528

 

$

(358

)

$

 

$

69,554

 

Argosy Casino Lawrenceburg

 

69,870

 

 

8,891

 

(20

)

 

78,741

 

Hollywood Casino Aurora

 

37,244

 

 

4,443

 

(168

)

 

41,519

 

Empress Casino Hotel

 

27,877

 

 

6,907

 

 

 

34,784

 

Argosy Casino Riverside

 

19,920

 

 

5,646

 

35

 

 

25,601

 

Hollywood Casino Baton Rouge

 

31,572

 

 

4,177

 

853

 

 

36,602

 

Argosy Casino Alton

 

10,905

 

 

4,970

 

 

 

15,875

 

Hollywood Casino Tunica

 

11,029

 

 

3,869

 

2

 

 

14,900

 

Hollywood Casino Bay St. Louis (1)

 

(374

)

 

353

 

21

 

 

 

Argosy Casino Sioux City

 

6,988

 

 

1,978

 

3

 

 

8,969

 

Boomtown Biloxi (1)

 

262

 

 

 

 

 

262

 

Hollywood Slots at Bangor

 

3,130

 

 

1,848

 

 

 

4,978

 

Bullwhackers

 

492

 

 

1,044

 

6

 

 

1,542

 

Casino Rama management service contract

 

8,632

 

 

 

 

 

8,632

 

Pennsylvania Racing Operations

 

849

 

 

621

 

 

 

1,470

 

Raceway Park

 

(179

)

 

113

 

 

 

(66

)

Earnings from Pennwood Racing, Inc.

 

 

 

 

 

987

 

987

 

Corporate overhead

 

(37,863

)

10,404

 

3,058

 

 

 

(24,401

)

Total

 

$

250,738

 

$

10,404

 

$

57,446

 

$

374

 

$

987

 

$

319,949

 

 


(1)          Income from operations and EBITDA for the six months ended June 30, 2006 reflects the closure of Hollywood Casino Bay St. Louis and Boomtown Biloxi, which incurred extensive hurricane damage in August 2005.  Boomtown Biloxi reopened on June 29, 2006 and Hollywood Casino Bay St. Louis reopened on August 31, 2006.

(2)          Reflects results since the April 16, 2007 acquisition effective date.

12




PENN NATIONAL GAMING, INC. AND SUBSIDIARIES

Consolidated Statements of Income
(in thousands, except per share data) (unaudited)

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

Gaming

 

$

570,281

 

$

490,804

 

$

1,119,374

 

$

994,254

 

Management service fee

 

4,341

 

4,921

 

7,815

 

9,308

 

Food, beverage and other

 

82,894

 

66,052

 

156,664

 

132,187

 

 

 

 

 

 

 

 

 

 

 

Gross revenues

 

657,516

 

561,777

 

1,283,853

 

1,135,749

 

Less promotional allowances

 

(32,272

)

(24,004

)

(62,351

)

(50,174

)

Net revenues

 

625,244

 

537,773

 

1,221,502

 

1,085,575

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

Gaming

 

297,086

 

254,638

 

581,377

 

510,223

 

Food, beverage and other

 

63,123

 

54,980

 

121,453

 

108,652

 

General and administrative

 

98,993

 

78,590

 

192,492

 

158,516

 

Depreciation and amortization

 

37,622

 

27,728

 

72,980

 

57,446

 

Total operating expenses

 

496,824

 

415,936

 

968,302

 

834,837

 

Income from operations

 

128,420

 

121,837

 

253,200

 

250,738

 

 

 

 

 

 

 

 

 

 

 

Other income (expenses)

 

 

 

 

 

 

 

 

 

Interest expense

 

(51,302

)

(47,766

)

(99,649

)

(96,195

)

Interest income

 

1,289

 

867

 

2,165

 

1,770

 

Earnings from joint venture

 

325

 

574

 

365

 

987

 

Other

 

(5,476

)

184

 

(5,704

)

74

 

Loss on early extinguishment of debt

 

 

 

 

(10,022

)

Total other expenses

 

(55,164

)

(46,141

)

(102,823

)

(103,386

)

 

 

 

 

 

 

 

 

 

 

Income from operations before income taxes

 

73,256

 

75,696

 

150,377

 

147,352

 

Taxes on income

 

34,957

 

33,001

 

69,137

 

62,674

 

Net income

 

$

38,299

 

$

42,695

 

$

81,240

 

$

84,678

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.45

 

$

0.51

 

$

0.96

 

$

1.01

 

Diluted earnings per share

 

$

0.43

 

$

0.49

 

$

0.93

 

$

0.98

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

85,176

 

84,333

 

85,034

 

83,991

 

Diluted

 

88,069

 

86,729

 

87,784

 

86,435

 

 

13




Zia Park - Results for the Three and Six Months Ended June 30, 2007 and 2006

On April 16, 2007, pursuant to the Asset Purchase Agreement dated November 7, 2006 among Zia Partners, LLC (“Zia”), Zia Park LLC (the “Buyer”), one of Penn National Gaming’s wholly-owned subsidiaries, and (solely with respect to specified sections thereof which relate to our guarantee of the Buyer’s payment and performance) Penn National Gaming, the Buyer completed the acquisition of the Black Gold Casino and Zia Park Racetrack and all related assets of Zia (“Zia Park”) for a purchase price of $200 million in cash, subject to a working capital adjustment and certain other adjustments, as well as the assumption of specified liabilities of Zia.

The tables below summarize the operating performance of Zia Park during the three and six month periods ended June 30, 2007 and 2006.  Although Penn National Gaming did not own Zia Park during the entire three and six month periods ended June 30, 2007 and 2006, the Company believes that this data is useful to investors in considering the value this transaction brings to Penn National.

 

 

NET REVENUES (1)

 

EBITDA (1) (2)

 

 

 

(in thousands)

 

(in thousands)

 

 

 

For the Period April 16-

 

Three Months Ended

 

For the Period April 16-

 

Three Months Ended

 

 

 

June 30, 2007

 

June 30, 2006

 

June 30, 2007

 

June 30, 2006

 

Zia Park

 

$

16,913

 

$

16,776

 

$

6,490

 

$

6,351

 

 

 

 

 

NET REVENUES (1)

 

EBITDA (1) (2)

 

 

 

(in thousands)

 

(in thousands)

 

 

 

For the Period April 16-

 

Six Months Ended

 

For the Period April 16-

 

Six Months Ended

 

 

 

June 30, 2007

 

June 30, 2006

 

June 30, 2007

 

June 30, 2006

 

Zia Park

 

$

16,913

 

$

34,254

 

$

6,490

 

$

12,929

 

 


(1)          2007 net revenues and EBITDA reflects results since the April 16, 2007 acquisition effective date, while 2006 net revenues and EBITDA reflects results for the entire three and six month periods ended June 30, 2006.

(2)          EBITDA is income from operations, excluding charges for stock compensation, depreciation and amortization, and gain or loss on disposal of assets, and is inclusive of earnings from joint venture.  A reconciliation of net income per accounting principles generally accepted in the United States of America (“GAAP”) to EBITDA, as well as income from operations per GAAP to EBITDA is included in the accompanying financial schedules.

14




ZIA PARK

Property Information

(in thousands) (unaudited)

Three Months Ended June 30, 2006

Reconciliation of Income from Operations (GAAP) to Adjusted EBITDA

 

Income

 

Depreciation

 

 

 

 

 

from

 

and

 

 

 

 

 

operations

 

amortization

 

EBITDA (1)

 

Zia Park

 

$

5,535

 

$

816

 

6,351

 

 

ZIA PARK

Property Information

(in thousands) (unaudited)

Six Months Ended June 30, 2006

Reconciliation of Income from Operations (GAAP) to Adjusted EBITDA

 

Income

 

Depreciation

 

 

 

 

 

from

 

and

 

 

 

 

 

operations

 

amortization

 

EBITDA (1)

 

Zia Park

 

$

11,257

 

$

1,672

 

12,929

 

 


(1)          EBITDA is income from operations, excluding charges for stock compensation, depreciation and amortization, and gain or loss on disposal of assets, and is inclusive of earnings from joint venture.  A reconciliation of net income per accounting principles generally accepted in the United States of America (“GAAP”) to EBITDA, as well as income from operations per GAAP to EBITDA is included in the accompanying financial schedules.

15




Reconciliation of Non-GAAP Measures to GAAP

EBITDA, or earnings before interest, taxes, charges for stock compensation, depreciation and amortization, and gain or loss on disposal of assets, and inclusive of earnings from joint venture, is not a measure of performance or liquidity calculated in accordance with accounting principles generally accepted in the United States of America (“GAAP”).  EBITDA information is presented as a supplemental disclosure, as management believes that it is a widely used measure of performance in the gaming industry.  In addition, management uses EBITDA as the primary measure of the operating performance of its properties, including the evaluation of operating personnel.  EBITDA should not be construed as an alternative to operating income, as an indicator of the Company’s operating performance, as an alternative to cash flows from operating activities, as a measure of liquidity, or as any other measure of performance determined in accordance with GAAP.  The Company has significant uses of cash flows, including capital expenditures, interest payments, taxes and debt principal repayments, which are not reflected in EBITDA.  It should also be noted that other gaming companies that report EBITDA information may calculate EBITDA in a different manner than the Company.  Diluted earnings per share before merger-related costs and currency translation loss is presented solely as a supplemental disclosure, as management believes that it is a principal basis for the valuation of gaming companies, as this measure is considered by many to be a better indicator of the Company’s operating results than diluted net income per share per GAAP.  A reconciliation of the Company’s EBITDA to net income per GAAP, as well as the Company’s EBITDA to income from operations per GAAP, is included in the accompanying financial schedules.

A reconciliation of each property’s EBITDA to income from operations is included in the financial schedules herein.  On a property level, EBITDA is reconciled to income from operations per GAAP, rather than net income per GAAP due to, among other things, the impracticability of allocating interest expense, interest income, income taxes and certain other items to the Company’s various properties on a property-by-property basis.  Management believes that this presentation is more meaningful to investors in evaluating the performance of the Company’s individual properties and is consistent with the reporting of other gaming companies.

About Penn National Gaming

Penn National Gaming owns and operates gaming and racing facilities with a focus on slot machine entertainment.  The Company presently operates eighteen facilities in fourteen jurisdictions including Colorado, Illinois, Indiana, Iowa, Louisiana, Maine, Mississippi, Missouri, New Jersey, New Mexico, Ohio, Pennsylvania, West Virginia, and Ontario.  In aggregate, Penn National’s operated facilities feature nearly 23,000 slot machines, over 400 table games, approximately 1,731 hotel rooms and approximately 808,000 square feet of gaming floor space.  Penn National Gaming recently announced plans to acquire the Sanford-Orlando Kennel Club in Longwood, Florida.

Penn National Gaming has elected to not conduct a conference call or webcast in connection with the release of its 2007 second quarter results.  On June 15, 2007, the Company announced that it had entered into a definitive agreement to be acquired by certain funds managed by affiliates of

16




Fortress Investment Group LLC (FIG: NYSE) and Centerbridge Partners LP whereby Penn National Gaming shareholders will receive $67.00 in cash for each outstanding Penn National Gaming share.  In connection with the proposed merger, Penn National Gaming expects to file a preliminary proxy statement with the Securities and Exchange Commission shortly that will provide additional information on the transaction.

About the Transaction

In connection with the proposed merger, Penn National Gaming will be filing documents including a proxy statement with the Securities and Exchange Commission (the “SEC”).  INVESTORS AND SECURITY HOLDERS ARE STRONGLY ADVISED TO READ THE PROXY STATEMENT WHEN IT BECOMES AVAILABLE, BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION.  Investors and security holders may obtain a free copy of the proxy statement (when available) and other documents filed by Penn National Gaming, Inc. at the SEC’s Web site at http://www.sec.gov.  The proxy statement and such other documents may also be obtained for free by directing such request to Penn National Gaming, Inc. Investor Relations, 825 Berkshire Boulevard, Wyomissing, PA  19610 or on the Company’s website at www.pngaming.com.  Penn National Gaming and its directors, executive officers and certain other members of its management and employees may be deemed to be participants in the solicitation of proxies from its shareholders in connection with the proposed merger.  Information regarding the interests Penn National Gaming’s participants in the solicitation will be included in the proxy statement relating to the proposed merger when it becomes available.

Forward-looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Actual results may vary materially from expectations.  Penn describes certain of these risks and uncertainties in its filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2006.  Meaningful factors which could cause actual results to differ from expectations described in this press release include, but are not limited to, the passage of state, federal or local legislation that would expand, restrict, further tax or prevent gaming operations in or adjacent to the jurisdictions in which we do business; increases in our effective rate of taxation at any of our properties or at the corporate level; the activities of our competitors; successful completion of the various capital projects at our gaming and pari-mutuel facilities; the existence of attractive acquisition candidates, the costs and risks involved in the pursuit of those acquisitions and our ability to integrate those acquisitions; our ability to maintain regulatory approvals for our existing businesses and to receive regulatory approvals for new businesses; our dependence on key personnel; the risks involved in divesting the Empress Casino Hotel in Joliet, Illinois, pursuant to an agreement with the Illinois Gaming Board, including without limitation receiving an acceptable purchase price; the availability and cost of financing; the maintenance of agreements with our horsemen, pari-mutuel clerks and other organized labor groups; the impact of terrorism and other international hostilities; the occurrence of any event, change or other circumstances that could give rise to the termination of the agreement with Fortress and Centerbridge; the outcome of any legal proceedings that may be instituted against the Company related to the proposed agreement; the inability to complete the transaction due to the failure to obtain shareholder approval for the merger or the failure to satisfy other conditions to completion of the merger, including the receipt of all regulatory approvals related to the merger; risks that the proposal transaction disrupts current plans and operations and the potential difficulties in key employee retention as a result of the transaction; the effects of local and national economic, credit and capital market conditions on the economy in general, and on the gaming and lodging industries in particular; construction factors, including delays, increased costs for labor and materials, Fortress and Centerbridge’s access to available and reasonable financing on a timely basis; changes in laws, including increased tax rates, regulations or accounting standards, third-party relations and approvals, and decisions of courts, regulators and governmental bodies; litigation outcomes and judicial actions, including gaming legislative action, referenda and taxation.  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.

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