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 – February 7, 2008

(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 February 7, 2008, Penn National Gaming, Inc. (the “Company”) issued a press release announcing its financial results for the three months and year ended December 31, 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 February 7, 2008, issued by Penn National Gaming, Inc. announcing its financial results for the three months and year ended December 31, 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: February 13, 2008

 

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 February 7, 2008, issued by Penn National Gaming, Inc. announcing its financial results for the three months and year ended December 31, 2007.

 

4


 

Exhibit 99.1

 

News Announcement

 

 

CONTACT:

William J. Clifford                                                                                                                                                                                                                                                                                                   Joseph N. Jaffoni, Richard Land

Chief Financial Officer                                                                                                                                              &# 160;                                                                                                                           Jaffoni & Collins Incorporated

610/373-2400                                                                                                                                                & #160;                                                                                                                                                                          0; 212/835-8500 or penn@jcir.com

 

FOR IMMEDIATE RELEASE

 

PENN NATIONAL GAMING REPORTS

FOURTH QUARTER DILUTED EPS OF $0.36

 

- Fourth Quarter EBITDA of $154.6 Million -

 

Wyomissing, Penn., (February 7, 2008) — Penn National Gaming, Inc. (PENN: Nasdaq) today reported fourth quarter operating results for the period ended December 31, 2007, as summarized below.

 

Summary of Fourth Quarter and Full Year Results

 

 

 

Three Months Ended
December 31,

 

Twelve Months Ended
December 31,

 

(in millions, except per share data)

 

2007

 

2007 Guidance
(2)

 

2006

 

2007

 

2006

 

Net revenues

 

$

585.8

 

$

595.4

 

$

572.9

 

$

2,436.8

 

$

2,244.5

 

EBITDA (1)

 

154.6

 

157.3

 

146.4

 

672.7

 

629.2

 

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

 

(122.4

)

(121.4

)

(58.4

)

(512.6

)

(416.1

)

Net income from continuing operations

 

32.2

 

35.9

 

88.0

 

160.1

 

213.1

 

(Loss) gain on sale of discontinued operations

 

 

 

(0.7

)

 

114.0

 

Net income

 

$

32.2

 

$

35.9

 

$

87.3

 

$

160.1

 

$

327.1

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share from continuing operations

 

$

0.36

 

$

0.41

 

$

1.01

 

$

1.81

 

$

2.46

 

Diluted earnings per share from discontinued operations

 

 

 

(0.01

)

 

1.32

 

Diluted earnings per share

 

$

0.36

 

$

0.41

 

$

1.00

 

$

1.81

 

$

3.78

 

 


(1)          EBITDA is income from continuing 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.  A reconciliation of net income per accounting principles generally accepted in the United States of America (“GAAP”) to EBITDA, as well as income from continuing 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 October 25, 2007 for the quarter ended December 31, 2007.

 

-more-

 



 

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

 

 

 

Three Months Ended

 

 

 

December 31,

 

 

 

2007 Actual

 

2007 Guidance
(1)

 

2006 Actual

 

Diluted earnings per share from continuing operations

 

$

0.36

 

$

0.41

 

$

1.01

 

Hurricane

 

 

 

(0.94

)

Goodwill impairment

 

 

 

0.25

 

Currency translation loss

 

0.01

 

 

 

Diluted earnings per share from continuing operations before hurricane, goodwill impairment and currency translation loss

 

$

0.37

 

$

0.41

 

$

0.32

 

 

Review of Full Year 2007 Results vs. Guidance and Full Year 2006 Results

 

 

 

Twelve Months Ended

 

 

 

December 31,

 

 

 

2007 Actual

 

2007 Guidance
(1)

 

2006 Actual

 

Diluted earnings per share from continuing operations

 

$

1.81

 

$

1.86

 

$

2.46

 

Hurricane

 

 

 

(0.94

)

Goodwill impairment

 

 

 

0.25

 

Currency translation loss

 

0.05

 

0.04

 

 

Charge for early extinguishment of debt related to termination of senior credit facility

 

 

 

0.07

 

Diluted earnings per share from continuing operations before hurricane, goodwill impairment, currency translation loss and charge for early extinguishment of debt

 

$

1.86

 

$

1.90

 

$

1.84

 

 


(1)          The figures in this column present the guidance Penn National Gaming provided on October 25, 2007 for the three and twelve months ended December 31, 2007.

 

In the three months ended December 31, 2007, the Company recorded a non-cash pre-tax currency translation loss of $0.9 million ($0.5 million, net of taxes, or $0.01 per diluted share) related to Canadian currency fluctuations for FIN 48 estimated tax reserves.

 

In the three months ended December 31, 2006, the Company’s financial results benefited from a settlement agreement with its property and business interruption insurance providers for a total of $225 million for Hurricane Katrina-related losses at its Hollywood Casino Bay St. Louis and Boomtown Biloxi facilities, as well as minor proceeds related to its National Flood Insurance coverage and auto insurance claims.  Reflecting the settlement agreement, the Company recorded a pre-tax gain of $128.3 million ($81.8 million, net of taxes, or $0.94 per diluted share) in the three months ended December 31, 2006.  In addition, as a result of the increased asset values resulting from the reconstruction at Hollywood Casino Bay St. Louis, the Company determined that all of the goodwill associated with the original purchase of the property was impaired.  Accordingly, the Company recorded a pre-tax charge of $34.5 million ($22.0 million, net of taxes, or $0.25 per diluted share) in the three months ended December 31, 2006.

 

Commenting on the results, Peter M. Carlino, Chairman and Chief Executive Officer of Penn National Gaming said, “Our fourth quarter performance was relatively strong, considering the impact of weather in December at our five largest properties.  In total, these facilities had 29 property days impacted by snow in the 2007 fourth quarter, versus 3 in the same period in 2006.  In addition to the impact of weather, fourth quarter EBITDA was marginally below our guidance as overall revenue growth was impacted by continued competitive pressures at our Joliet facility and a pronounced decline at our Biloxi property related to ongoing post-hurricane market stabilization.

 

2



 

“We also recorded a $2.5 million pre-opening charge at Penn National for Pennsylvania Gaming Control Board start-up fees in the fourth quarter which was not anticipated in our guidance.  This charge was partially offset by the timing of other pre-opening expenses, amounting to approximately $1.0 million, which were anticipated to occur in the quarter but were not recognized, improved property margins related to the Illinois tax rollbacks and property insurance cost reductions.

 

“During the quarter, we continued to execute on our long-term strategy for growth through the development and expansion of gaming facilities and the effective integration of acquired assets.  In addition to completing the Sanford-Orlando Kennel Club transaction, during the quarter we also filed a license application with the Kansas Lottery Commission to be considered as a Lottery Gaming Facility Manager for a proposed $365 million Hollywood Casino Resort in Sumner County, Kansas.  Following a highly competitive review process, Penn National received the unanimous endorsement of the Sumner County Commissioners for its proposed destination resort in Wellington, Kansas.  As such, Penn National secured one of two endorsements from the Sumner County Commissioners, which is a prerequisite in negotiating for, and ultimately securing, a state lottery gaming facility management contract.

 

“As proposed, Hollywood Casino Resort — Wellington would be a 450,000 square foot state-of-the-art facility featuring a 350 room resort hotel with luxury suites, spa and fitness center, and a 70,000 square foot gaming floor with 1,500 slot machines and 40 table games; capable of quick expansion to 2,000 slots.  In addition, the casino will feature Hollywood-themed memorabilia, a variety of culinary options, a sports bar, retail center, and a 1,750-seat entertainment and convention center.  The facility is master-planned for up to $200 million in additional investment and expansion, including mixed use and retail space, an executive golf course and another first-class hotel, bringing the total project to an estimated cost of $565 million.

 

“Penn National also has a lottery gaming facility management application pending with the State Lottery Commission for its proposed Hollywood Casino Resort in Cherokee County, Kansas where we’ve secured an exclusive endorsement and have entered into a pre-development agreement with our host community.  Our interest in developing two resorts in Southern Kansas stems from our strategy to create critical mass along the southern Kansas border and to create exciting entertainment destinations capable of competing against the ongoing proliferation of Oklahoma tribal gaming.  Overall, we are confident that our long-term track record of developing a broad range of successful regional casino entertainment facilities, which create jobs, tax revenues and other sustainable economic benefits, will be important considerations as this process advances in Kansas.

 

“Reflecting the Company’s emphasis on attracting and developing premier management talent, we recently named Tim Wilmott, a proven gaming industry executive who most recently served as Chief Operating Officer of Harrah’s Entertainment, Inc., to the position of President and Chief Operating Officer.  Tim brings to Penn National established management skills, an extensive industry record of success and innovation, and an in-depth knowledge of many of the markets where Penn National operates.  Tim’s background also includes the successful management of a growing property portfolio, and we are confident that his leadership, experience and relationships will be of great value to Penn National given our history and current pipeline of expansion projects.

 

3



 

“During the quarter, we made further progress with our strategies to generate growth both from existing facilities and through new development.  We are on schedule to complete four significant projects in 2008, including the Hollywood Casino at Penn National Race Course, significant additional parking capacity at Lawrenceburg, the Hollywood Slots Hotel and Raceway permanent facility in Bangor and the 153-room hotel at Charles Town.

 

“After years of planning and development, the soft opening of Hollywood Casino at Penn National Race Course is scheduled for February 12, with an official grand opening party planned for March 1. True to our word, we invested heavily in reinventing and refurbishing our namesake property, and, in addition to the $50 million license fee, we invested $260 million in this state-of-the-art integrated racing and gaming facility.  On the site that once housed the four-story grandstand, we’ve created a spectacular casino and five-story racing facility that we believe will quickly emerge as one of central Pennsylvania’s signature attractions, featuring entertainment and exciting live racing.

 

“While we’ve previously highlighted the facility’s significant features and amenities including the initial 2,000 slot machines, 700,000 square-foot, five story garage, and a Hollywood design and theme which will make visitors believe they are on site at a Hollywood movie set, we’ll also open the Hollywood Memories museum, which will showcase an extensive collection of memorabilia.  Hollywood Casino’s slots will include the latest video favorites from major equipment suppliers and we already have on site capacity for 3,000 machines, with additions coming based on demand.   Multiple dining options, sports bars, simulcast theaters, spectator boxes and other design elements add to the comfort and excitement of this facility.

 

“Reflecting our commitment to the communities in which we operate, we also applied an environmentally friendly approach to the design and construction of this facility that included significant capital investment in a waste water treatment plant that allows reclaimed water to be used in lavatories and to water the dirt and turf racing surfaces and landscaping throughout the property.  I couldn’t be more proud or excited about the completed project, the committed employees who made it happen and the facility’s potential to impress patrons and generate solid returns on invested capital.

 

“As indicated when we established guidance for 2007, we anticipated a transition year as we expected to largely operate our existing base of properties while allocating resources to our diversified, staggered development pipeline.  With the imminent grand opening of Hollywood Casino at Penn National Race Course and continued progress with our development and expansion activities in other jurisdictions, proven local property management and the recent appointment of Tim Wilmott, we are upbeat about Penn National’s near- and long-term financial prospects and ability to deliver quality entertainment to customers. We expect these projects to begin making financial contributions in 2008 and to benefit results over the coming years.”

 

4



 

Financial Guidance

Following shareholder approval of the Company’s agreement with Fortress Investment Group LLC and Centerbridge Partners, L.P., Penn National Gaming has elected to discontinue providing financial guidance.

 

The Transaction

On June 15, 2007, Penn National Gaming 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)  (“Fortress”) and Centerbridge Partners, L.P.  (“Centerbridge”).  Under the terms of the merger agreement, if the merger is completed by June 15, 2008, the Company’s shareholders will be entitled to receive $67.00 in cash, without interest, for each share of Company common stock they own.  If the merger is not completed by June 15, 2008, the $67.00 per share merger consideration will be increased $0.0149 per day.

 

At a special meeting of shareholders held on December 12, 2007, Penn National Gaming shareholders approved the merger agreement, with 81.6% of the Company’s outstanding shares voting and 99.3% of those shares voting in favor of the transaction.

 

Penn National Gaming is seeking to complete the merger late in the second quarter of 2008.  The timing of the closing is subject to obtaining certain regulatory approvals and satisfying other customary closing conditions.  As previously reported, the Company believes that the appropriate affiliates of Fortress and Centerbridge complied with their respective obligation to file all requisite initial applications and documents by August 15, 2007, which was the deadline for such filings in the merger agreement.  In November 2007, the Ohio Racing Commission approved the merger, subject to delivery of several additional documents.  In December 2007, representatives from Fortress and Centerbridge appeared for their first hearing in front of the Illinois Gaming Board.  Also, in December 2007, the applicable waiting period under the Hart-Scott-Rodino Act expired without Fortress, Centerbridge or the Company having received a second request for information.  On February 6, 2008, the New Jersey Racing Commission approved the merger, subject to several customary conditions including final approval of the meeting’s minutes by the Attorney General of New Jersey.

 

In connection with the proposed merger, Penn National Gaming filed a definitive proxy statement and other documents with the Securities and Exchange Commission that include additional information on the transaction (see About the Transaction at the end of this news announcement).

 

5



 

PENN NATIONAL GAMING, INC. AND SUBSIDIARIES

Property Information — Continuing Operations

(in thousands)
(unaudited)

 

 

NET REVENUES

 

EBITDA (1)

 

 

 

Three Months Ended December 31,

 

Three Months Ended December 31,

 

 

 

2007

 

2006

 

2007

 

2006

 

Charles Town Entertainment Complex

 

$

118,688

 

$

118,854

 

$

36,513

 

$

36,453

 

Argosy Casino Lawrenceburg

 

113,848

 

118,683

 

35,895

 

38,033

 

Hollywood Casino Aurora

 

59,570

 

61,241

 

19,837

 

18,573

 

Empress Casino Hotel

 

51,762

 

58,939

 

12,142

 

12,176

 

Argosy Casino Riverside

 

44,595

 

38,840

 

14,765

 

12,412

 

Hollywood Casino Baton Rouge

 

32,746

 

32,101

 

13,260

 

11,351

 

Argosy Casino Alton

 

27,887

 

28,380

 

8,650

 

6,952

 

Hollywood Casino Tunica

 

24,507

 

24,206

 

6,576

 

5,395

 

Hollywood Casino Bay St. Louis

 

23,127

 

21,417

 

3,680

 

2,614

 

Argosy Casino Sioux City

 

12,961

 

13,343

 

4,056

 

4,385

 

Boomtown Biloxi

 

18,560

 

22,484

 

3,639

 

5,691

 

Hollywood Slots at Bangor

 

11,054

 

10,870

 

3,089

 

3,089

 

Bullwhackers

 

6,382

 

6,287

 

813

 

697

 

Black Gold Casino at Zia Park (2)

 

21,292

 

 

6,382

 

 

Casino Rama management service contract

 

4,241

 

4,019

 

3,916

 

3,667

 

Pennsylvania Racing Operations

 

11,289

 

11,452

 

(5,176

)

(307

)

Raceway Park

 

1,964

 

1,745

 

(97

)

(166

)

Sanford Orlando Kennel Club (3)

 

1,368

 

 

37

 

 

Earnings from Pennwood Racing, Inc.

 

 

 

(342

)

(110

)

Corporate overhead

 

 

 

(13,001

)

(14,464

)

Total

 

$

585,841

 

$

572,861

 

$

154,634

 

$

146,441

 

 

 

 

NET REVENUES

 

EBITDA (1)

 

 

 

Twelve Months Ended December 31,

 

Twelve Months Ended December 31,

 

 

 

2007

 

2006

 

2007

 

2006

 

Charles Town Entertainment Complex

 

$

500,800

 

$

485,197

 

151,361

 

$

143,634

 

Argosy Casino Lawrenceburg

 

478,719

 

474,046

 

159,803

 

156,626

 

Hollywood Casino Aurora

 

251,877

 

245,475

 

82,405

 

79,056

 

Empress Casino Hotel

 

225,794

 

238,843

 

50,675

 

60,744

 

Argosy Casino Riverside

 

174,426

 

153,441

 

56,713

 

49,512

 

Hollywood Casino Baton Rouge

 

135,869

 

144,001

 

56,100

 

61,843

 

Argosy Casino Alton

 

119,166

 

115,194

 

37,625

 

30,465

 

Hollywood Casino Tunica

 

103,858

 

106,352

 

27,148

 

26,892

 

Hollywood Casino Bay St. Louis (4)

 

96,622

 

32,184

 

17,954

 

5,770

 

Argosy Casino Sioux City

 

54,417

 

53,909

 

17,762

 

17,569

 

Boomtown Biloxi (4)

 

86,159

 

51,421

 

24,035

 

18,409

 

Hollywood Slots at Bangor

 

46,689

 

40,871

 

13,737

 

11,258

 

Bullwhackers

 

28,882

 

26,812

 

3,350

 

3,161

 

Black Gold Casino at Zia Park (2)

 

58,572

 

 

20,203

 

 

Casino Rama management service contract

 

17,273

 

18,146

 

15,899

 

16,765

 

Pennsylvania Racing Operations

 

48,488

 

50,303

 

(6,538

)

1,958

 

Raceway Park

 

7,814

 

8,352

 

(803

)

(395

)

Sanford Orlando Kennel Club (3)

 

1,368

 

 

37

 

 

Earnings from Pennwood Racing, Inc.

 

 

 

(99

)

(788

)

Corporate overhead

 

 

 

(54,640

)

(53,254

)

Total

 

$

2,436,793

 

$

2,244,547

 

$

672,727

 

$

629,225

 

 

6



 


(1)          EBITDA is income from continuing 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.  A reconciliation of net income per accounting principles generally accepted in the United States of America (“GAAP”) to EBITDA, as well as income from continuing operations per GAAP to EBITDA is included in the accompanying financial schedules.

 

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

 

(3)          Reflects results since the October 17, 2007 acquisition effective date.

 

(4)          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.

 

7



 

Reconciliation of EBITDA to Net Income (GAAP)

 

PENN NATIONAL GAMING, INC. AND SUBSIDIARIES

 (in thousands) (unaudited)

 

 

 

Three Months Ended

 

Twelve Months Ended

 

 

 

December 31,

 

December 31,

 

 

 

2007

 

2006

 

2007

 

2006

 

EBITDA

 

$

154,634

 

$

146,441

 

$

672,727

 

$

629,225

 

Loss from joint venture

 

342

 

110

 

99

 

788

 

Depreciation and amortization

 

(37,694

)

(35,309

)

(147,915

)

(123,951

)

Charge for stock compensation

 

(6,281

)

(5,331

)

(25,465

)

(20,566

)

Settlement costs and hurricane

 

 

128,253

 

 

128,253

 

Goodwill impairment

 

 

(34,522

)

 

(34,522

)

Loss on disposals

 

(271

)

(594

)

(1,637

)

(1,386

)

Income from continuing operations

 

$

110,730

 

$

199,048

 

$

497,809

 

$

577,841

 

Interest expense

 

(48,207

)

(50,401

)

(198,059

)

(196,328

)

Interest income

 

831

 

873

 

4,016

 

3,525

 

Loss from joint venture

 

(342

)

(110

)

(99

)

(788

)

Other

 

(3,086

)

(3,777

)

(11,427

)

(4,296

)

Charge for early extinguishment of debt

 

 

 

 

(10,022

)

Taxes on income

 

(27,703

)

(57,630

)

(132,187

)

(156,852

)

Net income from continuing operations

 

$

32,223

 

$

88,003

 

$

160,053

 

$

213,080

 

(Loss) gain on sale of discontinued operations

 

 

(653

)

 

114,008

 

Net income

 

$

32,223

 

$

87,350

 

$

160,053

 

$

327,088

 

 

8



 

Reconciliation of Income from Continuing Operations (GAAP) to EBITDA

 

PENN NATIONAL GAMING, INC. AND SUBSIDIARIES

Property Information Including Corporate Overhead

(in thousands) (unaudited)

 

Three Months Ended December 31, 2007

 

 

 

Income
from
continuing
operations

 

Charge for stock compensation

 

Depreciation
and
amortization

 

(Gain)/loss
on disposal of
assets

 

Loss
from
joint
venture

 

EBITDA

 

Charles Town Entertainment Complex

 

$

31,030

 

$

 

$

5,796

 

$

(313

)

$

 

$

36,513

 

Argosy Casino Lawrenceburg

 

31,657

 

 

4,306

 

(68

)

 

35,895

 

Hollywood Casino Aurora

 

17,843

 

 

1,994

 

 

 

19,837

 

Empress Casino Hotel

 

9,037

 

 

3,107

 

(2

)

 

12,142

 

Argosy Casino Riverside

 

10,943

 

 

3,792

 

30

 

 

14,765

 

Hollywood Casino Baton Rouge

 

10,971

 

 

2,144

 

145

 

 

13,260

 

Argosy Casino Alton

 

6,856

 

 

1,794

 

 

 

8,650

 

Hollywood Casino Tunica

 

4,740

 

 

1,846

 

(10

)

 

6,576

 

Hollywood Casino Bay St. Louis

 

180

 

 

3,500

 

 

 

3,680

 

Argosy Casino Sioux City

 

2,896

 

 

1,128

 

32

 

 

4,056

 

Boomtown Biloxi

 

434

 

 

2,687

 

518

 

 

3,639

 

Hollywood Slots at Bangor

 

2,039

 

 

1,050

 

 

 

3,089

 

Bullwhackers

 

320

 

 

528

 

(35

)

 

813

 

Black Gold Casino at Zia Park (1)

 

5,146

 

 

1,236

 

 

 

6,382

 

Casino Rama management service contract

 

3,916

 

 

 

 

 

3,916

 

Pennsylvania Racing Operations

 

(5,560

)

 

413

 

(29

)

 

(5,176

)

Raceway Park

 

(183

)

 

86

 

 

 

(97

)

Sanford Orlando Kennel Club (2)

 

(3

)

 

40

 

 

 

37

 

Earnings from Pennwood Racing, Inc.

 

 

 

 

 

(342

)

(342

)

Corporate overhead

 

(21,532

)

6,281

 

2,247

 

3

 

 

(13,001

)

Total

 

$

110,730

 

$

6,281

 

$

37,694

 

$

271

 

$

(342

)

$

154,634

 

 

Three Months Ended December 31, 2006

 

 

 

Income
from
continuing
operations

 

Charge for stock compensation

 

Hurricane

 

Goodwill impairment

 

Depreciation
and
amortization

 

(Gain)/loss
on disposal of
assets

 

Loss
from
joint
venture

 

EBITDA

 

Charles Town Entertainment Complex

 

$

30,637

 

$

 

$

 

$

 

$

5,681

 

$

135

 

$

 

$

36,453

 

Argosy Casino Lawrenceburg

 

33,798

 

 

 

 

4,310

 

(75

)

 

38,033

 

Hollywood Casino Aurora

 

16,216

 

 

 

 

2,357

 

 

 

18,573

 

Empress Casino Hotel

 

9,177

 

 

 

 

3,027

 

(28

)

 

12,176

 

Argosy Casino Riverside

 

9,373

 

 

 

 

2,904

 

135

 

 

12,412

 

Hollywood Casino Baton Rouge

 

8,961

 

 

 

 

2,024

 

366

 

 

11,351

 

Argosy Casino Alton

 

4,895

 

 

 

 

2,040

 

17

 

 

6,952

 

Hollywood Casino Tunica

 

3,579

 

 

 

 

1,816

 

 

 

5,395

 

Hollywood Casino Bay St. Louis

 

34,021

 

 

(69,071

)

34,522

 

3,140

 

2

 

 

2,614

 

Argosy Casino Sioux City

 

3,242

 

 

 

 

1,106

 

37

 

 

4,385

 

Boomtown Biloxi

 

61,591

 

 

(59,182

)

 

3,282

 

 

 

5,691

 

Hollywood Slots at Bangor

 

2,072

 

 

 

 

1,017

 

 

 

3,089

 

Bullwhackers

 

105

 

 

 

 

587

 

5

 

 

697

 

Casino Rama management service contract

 

3,667

 

 

 

 

 

 

 

3,667

 

Pennsylvania Racing Operations

 

(659

)

 

 

 

352

 

 

 

(307

)

Raceway Park

 

(282

)

 

 

 

116

 

 

 

(166

)

Earnings from Pennwood Racing, Inc.

 

 

 

 

 

 

 

(110

)

(110

)

Corporate overhead

 

(21,345

)

5,331

 

 

 

1,550

 

 

 

(14,464

)

Total

 

$

199,048

 

$

5,331

 

$

(128,253

)

$

34,522

 

$

35,309

 

$

594

 

$

(110

)

$

146,441

 

 


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

(2)          Reflects results since the October 17, 2007 acquisition effective date.

 

9



Reconciliation of Income from Continuing Operations (GAAP) to EBITDA

 

PENN NATIONAL GAMING, INC. AND SUBSIDIARIES

Property Information Including Corporate Overhead

(in thousands) (unaudited)

 

Twelve Months Ended December 31, 2007

 

 

 

Income
from
continuing
operations

 

Charge for stock compensation

 

Depreciation
and
amortization

 

(Gain)/loss
on disposal of
assets

 

Loss
from
joint
venture

 

EBITDA

 

Charles Town Entertainment Complex

 

$

127,277

 

$

 

$

24,398

 

$

(314

)

$

 

$

151,361

 

Argosy Casino Lawrenceburg

 

142,690

 

 

17,202

 

(89

)

 

159,803

 

Hollywood Casino Aurora

 

73,914

 

 

8,491

 

 

 

82,405

 

Empress Casino Hotel

 

38,821

 

 

12,243

 

(389

)

 

50,675

 

Argosy Casino Riverside

 

42,388

 

 

14,367

 

(42

)

 

56,713

 

Hollywood Casino Baton Rouge

 

47,417

 

 

8,469

 

214

 

 

56,100

 

Argosy Casino Alton

 

29,709

 

 

7,915

 

1

 

 

37,625

 

Hollywood Casino Tunica

 

19,536

 

 

7,578

 

34

 

 

27,148

 

Hollywood Casino Bay St. Louis

 

4,850

 

 

13,067

 

37

 

 

17,954

 

Argosy Casino Sioux City

 

13,259

 

 

4,471

 

32

 

 

17,762

 

Boomtown Biloxi

 

12,979

 

 

10,567

 

489

 

 

24,035

 

Hollywood Slots at Bangor

 

9,523

 

 

4,214

 

 

 

13,737

 

Bullwhackers

 

1,149

 

 

2,218

 

(17

)

 

3,350

 

Black Gold Casino at Zia Park (1)

 

16,702

 

 

3,501

 

 

 

20,203

 

Casino Rama management service contract

 

15,899

 

 

 

 

 

15,899

 

Pennsylvania Racing Operations

 

(9,451

)

 

1,569

 

1,344

 

 

(6,538

)

Raceway Park

 

(1,119

)

 

318

 

(2

)

 

(803

)

Sanford Orlando Kennel Club (2)

 

(3

)

 

40

 

 

 

37

 

Earnings from Pennwood Racing, Inc.

 

 

 

 

 

(99

)

(99

)

Corporate overhead

 

(87,731

)

25,465

 

7,287

 

339

 

 

(54,640

)

Total

 

$

497,809

 

$

25,465

 

$

147,915

 

$

1,637

 

$

(99

)

$

672,727

 

 

Twelve Months Ended December 31, 2006

 

 

 

Income
from
continuing
operations

 

Charge for stock compensation

 

Hurricane

 

Goodwill impairment

 

Depreciation
and
amortization

 

(Gain)/loss
on disposal of
assets

 

Loss
from
joint
venture

 

EBITDA

 

Charles Town Entertainment Complex

 

$

122,938

 

$

 

$

 

$

 

$

20,921

 

$

(225

)

$

 

$

143,634

 

Argosy Casino Lawrenceburg

 

139,267

 

 

 

 

17,474

 

(115

)

 

156,626

 

Hollywood Casino Aurora

 

70,140

 

 

 

 

9,084

 

(168

)

 

79,056

 

Empress Casino Hotel

 

47,822

 

 

 

 

12,950

 

(28

)

 

60,744

 

Argosy Casino Riverside

 

37,744

 

 

 

 

11,442

 

326

 

 

49,512

 

Hollywood Casino Baton Rouge

 

52,097

 

 

 

 

8,262

 

1,484

 

 

61,843

 

Argosy Casino Alton

 

21,373

 

 

 

 

9,075

 

17

 

 

30,465

 

Hollywood Casino Tunica

 

19,393

 

 

 

 

7,497

 

2

 

 

26,892

 

Hollywood Casino Bay St. Louis (3)

 

35,810

 

 

(69,071

)

34,522

 

4,485

 

24

 

 

5,770

 

Argosy Casino Sioux City

 

13,363

 

 

 

 

4,166

 

40

 

 

17,569

 

Boomtown Biloxi (3)

 

72,812

 

 

(59,182

)

 

4,779

 

 

 

18,409

 

Hollywood Slots at Bangor

 

7,332

 

 

 

 

3,926

 

 

 

11,258

 

Bullwhackers

 

947

 

 

 

 

2,195

 

19

 

 

3,161

 

Casino Rama management service contract

 

16,765

 

 

 

 

 

 

 

16,765

 

Pennsylvania Racing Operations

 

629

 

 

 

 

1,319

 

10

 

 

1,958

 

Raceway Park

 

(651

)

 

 

 

256

 

 

 

(395

)

Earnings from Pennwood Racing, Inc.

 

 

 

 

 

 

 

(788

)

(788

)

Corporate overhead

 

(79,940

)

20,566

 

 

 

6,120

 

 

 

(53,254

)

Total

 

$

577,841

 

$

20,566

 

$

(128,253

)

$

34,522

 

$

123,951

 

$

1,386

 

$

(788

)

$

629,225

 

 


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

 

(2)          Reflects results since the October 17, 2007 acquisition effective date.

 

(3)          Income from continuing operations and EBITDA for the twelve months ended December 31, 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.

 

10



 

PENN NATIONAL GAMING, INC. AND SUBSIDIARIES

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

 

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 

 

 

2007

 

2006

 

2007

 

2006

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

Gaming

 

$

533,853

 

$

526,462

 

$

2,227,944

 

$

2,057,617

 

Management service fee

 

4,241

 

4,019

 

17,273

 

18,146

 

Food, beverage and other

 

81,438

 

71,240

 

320,520

 

275,700

 

 

 

 

 

 

 

 

 

 

 

Gross revenues

 

619,532

 

601,721

 

2,565,737

 

2,351,463

 

Less promotional allowances

 

(33,691

)

(28,860

)

(128,944

)

(106,916

)

Net revenues

 

585,841

 

572,861

 

2,436,793

 

2,244,547

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

Gaming

 

276,766

 

273,934

 

1,155,062

 

1,061,904

 

Food, beverage and other

 

63,647

 

57,957

 

247,576

 

224,673

 

General and administrative

 

97,004

 

100,344

 

388,431

 

349,909

 

Hurricane

 

 

(128,253

)

 

(128,253

)

Goodwill impairment

 

 

34,522

 

 

34,522

 

Depreciation and amortization

 

37,694

 

35,309

 

147,915

 

123,951

 

Total operating expenses

 

475,111

 

373,813

 

1,938,984

 

1,666,706

 

Income from continuing operations

 

110,730

 

199,048

 

497,809

 

577,841

 

 

 

 

 

 

 

 

 

 

 

Other income (expenses)

 

 

 

 

 

 

 

 

 

Interest expense

 

(48,207

)

(50,401

)

(198,059

)

(196,328

)

Interest income

 

831

 

873

 

4,016

 

3,525

 

Loss from joint venture

 

(342

)

(110

)

(99

)

(788

)

Other

 

(3,086

)

(3,777

)

(11,427

)

(4,296

)

Loss on early extinguishment of debt

 

 

 

 

(10,022

)

Total other expenses

 

(50,804

)

(53,415

)

(205,569

)

(207,909

)

 

 

 

 

 

 

 

 

 

 

Income from continuing operations before income taxes

 

59,926

 

145,633

 

292,240

 

369,932

 

Taxes on income

 

27,703

 

57,630

 

132,187

 

156,852

 

Net income from continuing operations

 

$

32,223

 

$

88,003

 

$

160,053

 

$

213,080

 

 

 

 

 

 

 

 

 

 

 

(Loss) gain on sale of discontinued operations, net of tax

 

 

(653

)

 

114,008

 

Net income

 

$

32,223

 

$

87,350

 

$

160,053

 

$

327,088

 

 

 

 

 

 

 

 

 

 

 

Earnings per share - Basic

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.37

 

$

1.04

 

$

1.87

 

$

2.53

 

Discontinued operations, net of tax

 

 

(0.01

)

 

1.35

 

Basic earnings per share

 

$

0.37

 

$

1.03

 

$

1.87

 

$

3.88

 

 

 

 

 

 

 

 

 

 

 

Earnings per share - Diluted

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.36

 

$

1.01

 

$

1.81

 

$

2.46

 

Discontinued operations, net of tax

 

 

(0.01

)

 

1.32

 

Diluted earnings per share

 

$

0.36

 

$

1.00

 

$

1.81

 

$

3.78

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

86,295

 

84,541

 

85,578

 

84,229

 

Diluted

 

89,140

 

86,986

 

88,384

 

86,634

 

 

11



 

Black Gold Casino at Zia Park - Results for the Three Months Ended December 31, 2007 and 2006

On April 16, 2007, pursuant to the Asset Purchase Agreement dated November 7, 2006 among Zia Partners, LLC (“Zia”) and Zia Park LLC, a wholly-owned subsidiary of Penn National Gaming (the “Buyer”) 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 Black Gold Casino at Zia Park and all related assets of Zia 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 Black Gold Casino at Zia Park during the three month period ended December 31, 2007 and 2006.  Although Penn National Gaming did not own Black Gold Casino at Zia Park during the entire three month period ended December 31, 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

 

EBITDA (1)

 

 

 

(in thousands)

 

(in thousands)

 

 

 

Three Months Ended

 

Three Months Ended

 

Three Months Ended

 

Three Months Ended

 

 

 

December 31, 2007

 

December 31, 2006

 

December 31, 2007

 

December 31, 2006

 

Black Gold Casino at Zia Park

 

$

21,292

 

$

23,918

 

$

6,382

 

$

6,265

 

 


(1)          EBITDA is income from continuing operations, excluding charges for stock compensation, depreciation and amortization, 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 continuing operations per GAAP to EBITDA, is included in the accompanying financial schedules.

 

12



 

BLACK GOLD CASINO AT ZIA PARK

 

Property Information

(in thousands) (unaudited)

Three Months Ended December 31, 2006

 

Reconciliation of Income from Continuing Operations (GAAP) to Adjusted EBITDA

 

 

 

Income
from
continuing
operations

 

Depreciation
and
amortization

 

EBITDA (1)

 

Black Gold Casino at Zia Park

 

$

5,399

 

$

866

 

6,265

 

 


(1)          EBITDA is income from continuing operations, excluding charges for stock compensation, depreciation and amortization, 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 continuing operations per GAAP to EBITDA is included in the accompanying financial schedules.

 

13



 

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.  EBITDA is presented 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 continuing operations per GAAP, is included in the accompanying financial schedules.

 

A reconciliation of each property’s EBITDA to income from continuing operations is included in the financial schedules herein.  On a property level, EBITDA is reconciled to income from continuing 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 nineteen facilities in fifteen jurisdictions, including Colorado, Florida, 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 over 23,000 slot machines, approximately 400 table games, over 1,731 hotel rooms and approximately 805,000 square feet of gaming floor space.

 

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 Fortress Investment Group LLC (FIG: NYSE) and Centerbridge Partners, L.P. whereby Penn National Gaming shareholders will receive $67.00 in cash for each share of Company common stock they own.  If the merger is not consummated by June 15, 2008, the per share merger consideration will be increased by $0.0149 per day.  Penn National Gaming, Inc. is seeking to complete the merger late in the second quarter of 2008.  The timing of the closing is subject to obtaining certain regulatory approvals and satisfying other customary closing conditions.

 

14



 

About the Transaction

In connection with the proposed merger, Penn National Gaming filed a Definitive Proxy Statement and other documents with the Securities and Exchange Commission (the “SEC”).  INVESTORS AND SECURITY HOLDERS ARE STRONGLY ADVISED TO READ THE DEFINITIVE PROXY STATEMENT AND OTHER DOCUMENTS, BECAUSE THEY CONTAIN IMPORTANT INFORMATION.  Investors and security holders may obtain a free copy of the Definitive Proxy Statement and other documents filed by Penn National Gaming, Inc. at the SEC’s Web site at http://www.sec.gov.

 

The Definitive Proxy Statement and other such 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.

 

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 National Gaming 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 the 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; construction factors, including delays, increased cost for labor and materials; 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 merger agreement with Fortress and Centerbridge; the outcome of any legal proceedings that may be instituted against Penn National Gaming related to the merger agreement; the inability to complete the merger due to 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 proposed merger disrupts current plans and operations and the potential difficulties in key employee retention as a result of the pendency of the merger; 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; Fortress and Centerbridge’s access to available and reasonable financing on a timely basis; and, changes in laws, including increased tax rates, regulations or accounting standards, third-party relations and approvals, and decisions of courts, regulators and governmental bodies.  Penn National Gaming 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.

 

15