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 – October 26, 2006

(Date of earliest event reported)

PENN NATIONAL GAMING, INC.

(Exact name of registrant as specified in its charter)

 

 

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 October 26, 2006, Penn National Gaming, Inc. (the “Company”) issued a press release announcing its financial results for the three and nine months ended September 30, 2006 and conducted a conference call to discuss such financial results.  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 October 26, 2006, issued by Penn National Gaming, Inc. announcing its financial results for the three and nine months ended September 30, 2006.

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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: November 1, 2006		PENN NATIONAL GAMING, INC.
	By:	/s/ Robert S. Ippolito
		Robert S. Ippolito
		Vice President, Secretary and Treasurer

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EXHIBIT INDEX

Exhibit No.		Description
99.1		Press release, dated October 26, 2006, issued by Penn National Gaming, Inc. announcing its financial results for the three and nine months ended September 30, 2006.

 

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Exhibit 99.1

News Announcement

 

Conference Call:		Today, October 26, 2006 at 9:00 a.m. EDT
Dial-in numbers:		212/896-6011 or 415/537-1818
Webcast:		www.pngaming.com
Replay information provided below

 

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 THIRD QUARTER DILUTED EPS
OF $1.79, INCLUSIVE OF $1.32 PER SHARE GAIN ON SALE

- EBITDA Rises 107% to $162.8 Million -
- - Net Income Rises to $155.1 Million, Inclusive of $114.7 Million Gain on Sale - -

- Establishes 2006 Fourth Quarter EBITDA Guidance of $142.3 Million
and Diluted EPS From Continuing Operations Guidance of $0.34 -

Wyomissing, Penn., (October 26, 2006) – Penn National Gaming, Inc. (PENN: Nasdaq) today reported record third quarter operating results for the period ended September 30, 2006, as summarized below:

Summary of Third Quarter Results

		Three Months Ended
		September 30,
								Revised Guidance
(in millions)					2006 Guidance			from August 9,
(except per share data)		2006 Actual			Original (3)			2006 (4)			2005 Actual
Net revenues (1)		$	586.1		$	578.2					$	286.9
EBITDA (2)		162.8			160.2						78.6
Less depreciation and amortization, gain/loss on disposal of assets, interest expense - net, income taxes, charges for stock compensation and other expenses		(122.4		)	(117.1		)				(58.8		)
Net income from continuing operations		40.4			43.1						19.8
Loss from discontinued operations		—			—						(2.3		)
Gain on sale of discontinued operations		114.7			—						37.9
Net income		$	155.1		$	43.1					$	55.4
Per share data
Diluted earnings per share from continuing operations		$	0.47		$	0.49		$	0.47		$	0.23
Diluted earnings per share		$	1.79		$	0.49		N/A			$	0.64

-more-

 

(1)          Revenue figures for all periods reflect a reclassification for cash redemption coupons to contra-revenue from operating expense.  This reclassification had no effect on operating income, EBITDA, net income or earnings per share for the three month period ended September 30, 2005.

(2)          EBITDA is income from continuing operations excluding charges for stock compensation, depreciation and amortization, gain or loss on disposal of assets, settlement costs and hurricane expenses, 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.

(3)          The figures in this column present the guidance Penn National Gaming provided on July 27, 2006 for the third quarter ended September 30, 2006.

(4)          On August 9, 2006, Penn National reported that it had secured new property insurance and that the incremental cost of securing the insurance would impact the original third quarter 2006 guidance by $0.02 per diluted share (the original guidance was diluted earnings per share of $0.49).  The Company did not update its other third quarter financial guidance metrics on August 9, 2006.

In the three months ended September 30, 2006, Penn National Gaming executed an amended purchase agreement that, among other things, provided for the Mohegan Tribal Gaming Authority’s irrevocable waiver of any post-closing termination rights related to its purchase of The Downs Racing, Inc.  This agreement effectively completed the sale of The Downs Racing, Inc. and its subsidiaries to the Mohegan Tribal Gaming Authority, and Penn National recorded a net book gain on the sale of $114.7 million (net of $84.3 million of income taxes), or $1.32 per diluted share.

In the three months ended September 30, 2005, Penn National Gaming recorded $19.1 million of pre-tax expenses ($12.3 million, or $0.14 per diluted share, after-tax) related to the impact of Hurricane Katrina on two gulf coast properties.

		Three Months Ended
		September 30,
		2006 Actual			2005 Actual
Diluted earnings per share from continuing operations		$	0.47		$	0.23
Hurricane Katrina expenses		—			0.14
Diluted earnings per share from continuing operations before Hurricane Katrina expenses		$	0.47		$	0.37

 

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There were numerous factors that affected the Company’s results for the three and nine month periods ended September 30, 2006, including the following:

·                  The successful integration of the Argosy Gaming Company properties, which were acquired in October 2005;

·                  The contribution of Hollywood Slots at Bangor, which opened in November 2005;

·                  A full-quarter’s contribution from Boomtown Biloxi, which re-opened in June 2006;

·                  A partial quarter’s contribution from Hollywood Casino® - Bay St. Louis, which re-opened in late August 2006;

·                  Continued better than historical operating results at Casino Rouge since Hurricane Katrina;

·                  The impact of the 3% Illinois tax surcharge on the Company’s two Chicagoland boats, which amounted to $4.0 million pre-tax, or $0.02 per diluted share in the quarter ended September 30, 2006;

·                  The impact of increased windstorm and flood insurance costs compared to the prior year which amounted to approximately $4.0 million pre-tax, or $0.02 per diluted share, for the period between August 8, 2006 and September 30, 2006;

·                  Funding Penn National Gaming’s share of the Ohio Learn and Earn referendum;

·                  Absorbing a $1.5 million pre-tax charge, or $0.01 per diluted share, related to the Company’s share of converting the Pension Plan at Freehold Raceway from a defined-benefit plan to a defined-contribution plan; and,

·                  A $3.8 million charge to income taxes, or $0.04 per diluted share, for items identified in preparation of our tax returns.

Commenting on the results, Peter M. Carlino, Chairman and Chief Executive Officer of Penn National said, “Reflecting the strength and resilience of the regional markets in which we operate, Penn National achieved record third quarter operating results.  With the opening in late August of Hollywood Casino-Bay St. Louis, Penn National has rebounded from the devastation of last year’s hurricane and is completely focused on expanding our operating base and generating returns on invested capital that will continue to bring value to our shareholders.

“As described in greater detail below, in Pennsylvania, we are presently in the process of developing a state-of-the-art integrated racing and gaming facility at our racetrack outside of Harrisburg.  In Maine, we’ve received the requisite host community approvals for construction of our permanent gaming facility.  In Ohio, we’re continuing to provide support for a proposed constitutional amendment that would establish a tuition grant program for Ohio students and permit slot machines at our Raceway Park facility, and eight other locations in the state.  In West Virginia, we’re continuing to advance our long-term plan for Charles Town Races.  Finally, the Company is moving forward on Argosy Casino Lawrenceburg’s new two-level barge, which will significantly expand the number of available gaming positions.

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“In August, the Company commenced construction of its planned, permanent Hollywood Casino racing and gaming facility at Penn National Race Course.  In late September, the Pennsylvania Gaming Control Board granted the Company a conditional Category 1 slot machine license.  Over the next year, we plan to create an exciting entertainment destination featuring a five-story, 365,000 square foot facility with initial capacity for 3,000 slot machines.  The project is expected to create approximately 800 new jobs, to open with 2,000 slots, and to feature a food court and track side dining, a sports bar, various racing area concessions, bar and lounge areas on the gaming level, and a five-story parking garage with valet service.  The long-term plan for Penn National Race Course, which includes the potential addition of a hotel and conference center, retail outlets, entertainment center, and additional parking deck, would allow the facility to accommodate up to 5,000 gaming devices.  We view Hollywood Casino at Penn National as both a near- and long-term growth driver, similar to Charles Town Races, in that we expect it to be among the largest in the nation in terms of gaming positions, have unique customer feeder markets, and, based on our analysis, deliver very attractive returns on invested capital.

“Charles Town has recorded growth in annual EBITDA in each year since its 1997 opening, which reflects our continued investment in the facility and the track according to our long-term plan.  The first phase of Charles Town’s current expansion adds gaming floor capacity for an additional 800 gaming devices and is on schedule for opening in the first quarter of 2007.  Subsequently, development will continue at the property with additional gaming floor space to accommodate another 1,000 slots, parking and food and beverage expansions and a hotel.  Ultimately, we envision Charles Town Races will feature approximately 6,000 slot machines.

“While smaller in scale than our Hollywood Casino at Penn National and Charles Town projects, we are also very excited about the prospective value to be derived from our Hollywood Slots at Bangor permanent facility given the strong EBITDA returns generated by the temporary facility in its first year of operation.  Last month, we presented to local leaders our plans for the proposed permanent facility, to be located across the street from Bangor Raceway at Bass Park, in close proximity to Interstate 395.  This followed our resolution during the quarter of the final property ownership issue related to the proposed site.  Construction of Hollywood Slots, which will feature a two-story semi-circular glass tower, is expected to begin in early 2007.  We anticipate the 116,000-square-foot Bangor facility will open mid-2008 with 500 employees, 1,000 slots, and capacity for 1,500 gaming machines, and will also include a four-story parking garage, restaurants and retail space as well as a new simulcast facility for off-track wagering.  We are pleased to report that for the first time, harness racing at Bangor Raceway has resumed in October and November as our operation of Hollywood Slots has doubled race purses this year, creating more interest among patrons and horsemen in the state.

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“Ohio represents another market in which we are seeking to leverage our property development and management capabilities to deliver value for stockholders while creating a unique and very significant pool of tuition funds for in-state college students.  During the November 7 election, Ohioans will vote on Issue 3, an amendment to allow slots at seven existing racetracks — including Penn National’s Raceway Park in Toledo — and two non-racing casinos in Cleveland with up to 3,500 slots per location.  With support from the state’s three major horsemen’s groups and the potential to deliver more than $853 million per year in college tuition and an additional $200 million per year to local governments for attracting new businesses and jobs, we are hopeful that the amendment will pass.

“Penn National’s other development projects, including the hotel at Argosy Casino Riverside and the Argosy Casino Lawrenceburg barge and parking project, remain on track with our previously announced budgets.

“While our current properties consistently deliver excellent quarterly results, Penn National Gaming continues to execute on a disciplined, yet aggressive approach to achieving growth both organically and through acquisitions.”

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Development and Expansion Projects

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

							Amount
							Expended
		New		Planned			through			Expected
		Gaming		Total			September 30,			Opening
Project/Scope		Positions		Budget			2006			Date
		(in millions)
Charles Town (WV) - Casino expansion including a hotel and a 65,000 square foot expansion of the gaming floor. Gaming space will be finished in two phases: the first phase will be completed in the first quarter of 2007, and will allow for 800 more gaming machines, and the second phase will provide capacity for an additional 1,000 gaming machines.		800		$	80		$	7		First phase of gaming space 1Q ‘07
Argosy Casino Riverside (MO) - Construction of 258-room hotel.		—		$	66		$	37		Hotel 2Q ‘07
Argosy Casino Lawrenceburg (IN) - New two-level 250,000 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		$	57		Parking facility 4Q ‘07; gaming facility 4Q ‘08
Hollywood Casino at Penn National (PA) - Building an integratedracing 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		$	26		1Q ‘08
Hollywood Slots at Bangor (ME) - Building a permanent facility, which will include a 1,500 slot facility (1,000 slot machines at opening), a 1,500 space parking garage, several restaurants and an off-track wagering facility.		525		$	90		$	3		2Q ‘08

 

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Financial Guidance

The following table sets forth current guidance targets for continuing operations for the 2006 fourth quarter and full year, based on the following assumptions:

·                  The repair of Boomtown Biloxi and Hollywood Casino Bay St. Louis are assumed to be completely funded through insurance recoveries;

·                  Although Penn National Gaming expects to receive business interruption insurance proceeds resulting from the hurricane damage incurred at Boomtown Biloxi and Hollywood Casino Bay St. Louis, the Company cannot presently determine the amount or the timing of such payments and, as such, these proceeds are excluded from guidance;

·                  Fourth quarter operating results from the Company’s Casino Rouge property are expected to be moderately better than what the facility produced in the periods prior to the impact of Hurricane Katrina;

·                  The impact of increased windstorm and flood insurance costs compared to the fourth quarter of 2005 is expected to be approximately $6.0 million pre-tax, or $0.04 per diluted share;

·                  While the Company has been granted an injunction blocking the distribution of Illinois’ 3% additional gaming tax at its Empress Casino Hotel and Hollywood Casino Aurora properties, we will continue to accrue for and pay such taxes until the matter is resolved.  In aggregate, we will incur incremental gaming taxes in the 2006 fourth quarter of approximately $3.8 million, which will impact earnings per diluted share by $0.02;

·                  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 are included in continuing operations as the accounting standards for treating properties as “assets held for sale” will not be met in 2006; as such, the results from the property are included in our 2006 fourth quarter and full year guidance;

·                  Anticipated fourth quarter and full year 2006 results include our expected expenses for supporting the November 2006 referendum in Ohio, which are not deductible for tax purposes;

·                  Anticipated 2006 results include a pre-tax non-cash charge for stock compensation of $20.6 million ($13.3 million net of taxes, or $0.15 per share);

·                  The effective tax rate for federal, state and local income taxes for the fourth quarter and full year 2006 will be 43.2% and 43.5% respectively, reflecting the impact of better operating results in jurisdictions with higher state income tax and the non-deductibility of political lobbying expenses;

·                  The Company will have approximately 86.6 million diluted shares outstanding as of December 31, 2006; 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.

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Financial Guidance

		Three Months Ended						Full Year Ended
														Revised
		December 31,			December 31,			2006 Revised			2006 Guidance			Guidance from			2005
(in millions, except per share data)		2006 Guidance			2005 Actual (5)			Guidance			Original (3)			August 9, 2006 (4)			Actual (5)
Net revenues (1)		$	558.6		$	504.5		$	2,230.3		$	2,220.2					$	1,369.1
EBITDA (2)		142.3			143.9			625.1			627.1						373.3
Less depreciation and amortization, gain/loss on disposal of assets, interest expense - net, income taxes, hurricane costs, charge for stock compensation and other expenses		(112.8		)	(103.2		)	(463.9		)	(460.4		)				(241.1		)
Net income from continuing operations before charge for early extinguishment of debt, hurricane expense, settlement charges and impairment charge for Penn National grandstand		29.5			40.7			161.2			166.7						132.2
Charge for early extinguishment of debt, net of tax		—			(0.8		)	(6.5		)	(6.5		)				(11.7		)
Hurricane expense, net of tax		—			(1.2		)	—			—						(13.7		)
Settlement charges, net of tax		—			—			—			—						(16.8		)
Impairment charge for Penn National grandstand, net of tax		—			(2.5		)	—			—						(2.8		)
Net income from continuing operations GAAP		$	29.5		$	36.2		$	154.7		$	160.2					$	87.2
Diluted earnings per share before charge for early extinguishment of debt, hurricane expense, settlement charges, and impairment charge for Penn National grandstand		$	0.34		$	0.47		$	1.86		$	1.91					$	1.55
EPS impact of charge for early extinguishment of debt, hurricane expense, settlement charges, and impairment charge for Penn National grandstand		—			(0.05		)	(0.07		)	(0.07		)				(0.53		)
Diluted earnings per share from continuing operations		$	0.34		$	0.42		$	1.79		$	1.84		$	1.79		$	1.02

 

(1)          Reflects reclassification for cash redemption coupons to contra-revenue from operating expense.

(2)          EBITDA is income from continuing operations excluding charges for stock compensation, depreciation and amortization, gain or loss on disposal of assets, settlement costs and hurricane expenses, and is inclusive of earnings from joint venture.

(3)          The figures in this column present the guidance Penn National Gaming provided on July 27, 2006 for the full year ended December 31, 2006.

(4)          On August 9, 2006, Penn National reported that it had secured new property insurance and that the incremental cost of securing the insurance would impact the full year 2006 guidance by $0.05 per diluted share (the original guidance for diluted earnings per share from continuing operations was $1.84).  The Company did not update its other financial guidance metrics on August 9, 2006.

(5)          2005 Actual results do not include charges for stock compensation.

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PENN NATIONAL GAMING, INC. AND SUBSIDIARIES

Property Information – Continuing Operations

(in thousands) (unaudited)

		NET REVENUES (1)						EBITDA (2)
		Three Months Ended September 30,						Three Months Ended September 30,
		2006			2005			2006			2005
Charles Town Entertainment Complex		$	126,973		$	118,403		$	37,627		$	35,954
Argosy Casino Lawrenceburg		120,206			—			39,852			—
Hollywood Casino Aurora		61,781			58,619			18,964			20,059
Empress Casino Hotel		59,852			—			13,784			—
Argosy Casino Riverside		37,999			—			11,499			—
Casino Rouge		33,333			28,877			13,890			10,859
Argosy Casino Alton		29,090			—			7,638			—
Hollywood Casino Tunica		27,089			26,855			6,597			7,346
Hollywood Casino Bay St. Louis (3)		10,767			16,366			3,156			3,011
Argosy Casino Sioux City		13,319			—			4,215			—
Boomtown Biloxi (3)		27,927			10,782			12,456			2,355
Hollywood Slots at Bangor		11,187			733			3,191			(737		)
Bullwhackers		6,903			7,888			922			1,383
Casino Rama management service contract		4,819			5,201			4,466			4,829
Pennsylvania Racing Operations		12,691			13,213			795			268
Raceway Park		2,175			—			(163		)	—
Earnings from Pennwood Racing, Inc.		—			—			(1,665		)	230
Corporate overhead		—			—			(14,389		)	(6,984		)
Total		$	586,111		$	286,937		$	162,835		$	78,573

 

		NET REVENUES (1)						EBITDA (2)
		Nine Months Ended September 30,						Nine Months Ended September 30,
		2006			2005			2006			2005
Charles Town Entertainment Complex		$	366,343		$	334,390		$	107,181		$	98,562
Argosy Casino Lawrenceburg		355,363			—			118,593			—
Hollywood Casino Aurora		184,234			169,862			60,483			55,268
Empress Casino Hotel		179,904			—			48,568			—
Argosy Casino Riverside		114,601			—			37,100			—
Casino Rouge		111,900			86,428			50,492			32,078
Argosy Casino Alton		86,814			—			23,513			—
Hollywood Casino Tunica		82,146			79,553			21,497			20,483
Hollywood Casino Bay St. Louis (3)		10,767			69,576			3,156			14,103
Argosy Casino Sioux City		40,566			—			13,184			—
Boomtown Biloxi (3)		28,937			45,837			12,718			10,969
Hollywood Slots at Bangor		30,001			1,215			8,169			(860		)
Bullwhackers		20,525			21,992			2,464			3,184
Casino Rama management service contract		14,127			13,968			13,098			12,959
Pennsylvania Racing Operations		38,851			41,750			2,265			3,147
Raceway Park		6,607			—			(229		)	—
Earnings from Pennwood Racing, Inc.		—			—			(678		)	1,216
Corporate overhead		—			—			(38,790		)	(21,750		)
Total		$	1,671,686		$	864,571		$	482,784		$	229,359

 

(1)          Reflects reclassification for cash redemption coupons to contra-revenue from operating expense.

(2)          EBITDA is income from continuing operations excluding charges for stock compensation, depreciation and amortization, gain or loss on disposal of assets, settlement costs and hurricane expenses, 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.

(3)          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.

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Reconciliation of EBITDA to Net Income (GAAP)

PENN NATIONAL GAMING, INC. AND SUBSIDIARIES

Property Information – Continuing Operations

(in thousands) (unaudited)

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2006			2005			2006			2005
EBITDA		$	162,835		$	78,573		$	482,784		$	229,359
Loss (earnings) from joint venture		1,665			(230		)	678			(1,216		)
Depreciation and amortization		(31,196		)	(14,942		)	(88,642		)	(46,406		)
Charge for stock compensation		(4,831		)	—			(15,235		)	—
Settlement costs and hurricane expense		—			(19,142		)	—			(47,317		)
Loss on disposals		(418		)	(1,965		)	(792		)	(2,186		)
Income from continuing operations		$	128,055		$	42,294		$	378,793		$	132,234
Interest expense		(49,732		)	(12,824		)	(145,927		)	(41,652		)
Interest income		882			958			2,652			3,180
(Loss) earnings from joint venture		(1,665		)	230			(678		)	1,216
Other		(593		)	532			(519		)	438
Charge for early extinguishment of debt		—			—			(10,022		)	(16,673		)
Taxes on income		(36,548		)	(11,386		)	(99,222		)	(27,793		)
Net income from continuing operations		$	40,399		$	19,804		$	125,077		$	50,950
Loss from discontinued operations, net of tax		—			(2,291		)	—			(5,512		)
Gain on sale of discontinued operations		114,661			37,888			114,661			37,888
Net income		$	155,060		$	55,401		$	239,738		$	83,326

 

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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 September 30, 2006

		Income												Loss
		from						Depreciation			(Gain)/loss			from
		continuing			Charge for stock			and			on disposal of			joint
		operations			compensation			amortization			assets			venture			EBITDA
Charles Town Entertainment Complex		$	31,917		$	—		$	5,712		$	(2	)	$	—		$	37,627
Argosy Casino Lawrenceburg		35,599			—			4,273			(20		)	—			39,852
Hollywood Casino Aurora		16,680			—			2,284			—			—			18,964
Empress Casino Hotel		10,768			—			3,016			—			—			13,784
Argosy Casino Riverside		8,451			—			2,892			156			—			11,499
Casino Rouge		11,564			—			2,061			265			—			13,890
Argosy Casino Alton		5,573			—			2,065			—			—			7,638
Hollywood Casino Tunica		4,785			—			1,812			—			—			6,597
Hollywood Casino Bay St. Louis (1)		2,163			—			992			1			—			3,156
Argosy Casino Sioux City		3,133			—			1,082			—			—			4,215
Boomtown Biloxi (1)		10,959			—			1,497			—			—			12,456
Hollywood Slots at Bangor		2,130			—			1,061			—			—			3,191
Bullwhackers		350			—			564			8			—			922
Casino Rama management service contract		4,466			—			—			—			—			4,466
Pennsylvania Racing Operations		439			—			346			10			—			795
Raceway Park		(190		)	—			27			—			—			(163		)
Earnings from Pennwood Racing, Inc.		—			—			—			—			(1,665		)	(1,665		)
Corporate overhead		(20,732		)	4,831			1,512			—			—			(14,389		)
Total		$128,055			$	4,831		$	31,196		$	418		$	(1,665	)	$	162,835

 

PENN NATIONAL GAMING, INC. AND SUBSIDIARIES

Property Information Including Corporate Overhead

(in thousands) (unaudited)

Three Months Ended September 30, 2005

		Income			Settlement									Earnings
		from			costs and			Depreciation			(Gain)/loss			from
		continuing			hurricane			and			on disposal of			joint
		operations			expense			amortization			assets			venture			EBITDA
Charles Town Entertainment Complex		$	29,408		$	—		$	4,828		$	1,718		$	—		$	35,954
Hollywood Casino Aurora		17,842			—			2,217			—			—			20,059
Casino Rouge		8,897			—			1,884			78			—			10,859
Hollywood Casino Tunica		5,096			—			2,216			34			—			7,346
Hollywood Casino Bay St. Louis (1)		(10,809		)	12,351			1,442			27			—			3,011
Boomtown Biloxi (1)		(5,236		)	6,791			704			96			—			2,355
Hollywood Slots at Bangor		(780		)	—			43			—			—			(737		)
Bullwhackers		876			—			495			12			—			1,383
Casino Rama management service contract		4,829			—			—			—			—			4,829
Pennsylvania Racing Operations		(75		)	—			343			—			—			268
Earnings from Pennwood Racing, Inc.		—			—			—			—			230			230
Corporate overhead		(7,754		)	—			770			—			—			(6,984		)
Total		$	42,294		$	19,142		$	14,942		$	1,965		$	230		$	78,573

 

(1)          Income from continuing operations and EBITDA for the three months ended September 30, 2006 and 2005 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.

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Reconciliation of Income from Continuing Operations (GAAP) to EBITDA

PENN NATIONAL GAMING, INC. AND SUBSIDIARIES

Property Information Including Corporate Overhead

(in thousands) (unaudited)

Nine Months Ended September 30, 2006

		Income												Loss
		from						Depreciation			(Gain)/loss			from
		continuing			Charge for stock			and			on disposal of			joint
		operations			compensation			amortization			assets			venture			EBITDA
Charles Town Entertainment Complex		$	92,301		$	—		$	15,240		$	(360	)	$	—		$	107,181
Argosy Casino Lawrenceburg		105,469			—			13,164			(40		)	—			118,593
Hollywood Casino Aurora		53,924			—			6,727			(168		)	—			60,483
Empress Casino Hotel		38,645			—			9,923			—			—			48,568
Argosy Casino Riverside		28,371			—			8,538			191			—			37,100
Casino Rouge		43,136			—			6,238			1,118			—			50,492
Argosy Casino Alton		16,478			—			7,035			—			—			23,513
Hollywood Casino Tunica		15,814			—			5,681			2			—			21,497
Hollywood Casino Bay St. Louis (1)		1,789			—			1,345			22			—			3,156
Argosy Casino Sioux City		10,121			—			3,060			3			—			13,184
Boomtown Biloxi (1)		11,221			—			1,497			—			—			12,718
Hollywood Slots at Bangor		5,260			—			2,909			—			—			8,169
Bullwhackers		842			—			1,608			14			—			2,464
Casino Rama management service contract		13,098			—			—			—			—			13,098
Pennsylvania Racing Operations		1,288			—			967			10			—			2,265
Raceway Park		(369		)	—			140			—			—			(229		)
Earnings from Pennwood Racing, Inc.		—			—			—			—			(678		)	(678		)
Corporate overhead		(58,595		)	15,235			4,570			—			—			(38,790		)
Total		$	378,793		$	15,235		$	88,642		$	792		$	(678)		$	482,784

 

PENN NATIONAL GAMING, INC. AND SUBSIDIARIES

Property Information Including Corporate Overhead

(in thousands) (unaudited)

Nine Months Ended September 30, 2005

		Income			Settlement									Earnings
		from			costs and			Depreciation			(Gain)/loss			from
		continuing			hurricane			and			on disposal of			joint
		operations			expense			amortization			assets			venture			EBITDA
Charles Town Entertainment Complex		$	83,300		$	—		$	13,524		$	1,738		$	—		$	98,562
Hollywood Casino Aurora		48,371			—			6,897			—			—			55,268
Casino Rouge		(1,865		)	28,175			5,779			(11		)	—			32,078
Hollywood Casino Tunica		14,029			—			6,420			34			—			20,483
Hollywood Casino Bay St. Louis (1)		(4,436		)	12,351			6,098			90			—			14,103
Boomtown Biloxi (1)		1,123			6,791			2,766			289			—			10,969
Hollywood Slots at Bangor		(990		)	—			130			—			—			(860		)
Bullwhackers		1,705			—			1,431			48			—			3,184
Casino Rama management service contract		12,959			—			—			—			—			12,959
Pennsylvania Racing Operations		2,086			—			1,061			—			—			3,147
Earnings from Pennwood Racing, Inc.		—			—			—			—			1,216			1,216
Corporate overhead		(24,048		)	—			2,300			(2		)	—			(21,750		)
Total		$	132,234		$	47,317		$	46,406		$	2,186		$	1,216		$	229,359

 

(1)          Income from continuing operations and EBITDA for the three months ended September 30, 2006 and 2005 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.

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PENN NATIONAL GAMING, INC. AND SUBSIDIARIES

Consolidated Statements of Income

(in thousands, except per share data) (unaudited)

 

		For the Three Months						For the Nine Months
		Ended September 30,						Ended September 30,
		2006			2005			2006			2005
Revenues
Gaming (1)		$	536,901		$	249,824		$	1,531,155		$	749,962
Racing		13,075			11,627			40,277			36,731
Management service fee		4,819			5,201			14,127			13,968
Food, beverage and other		59,198			34,113			164,183			111,263
Gross revenues		613,993			300,765			1,749,742			911,924
Less promotional allowances		(27,882		)	(13,828		)	(78,056		)	(47,353		)
Net revenues		586,111			286,937			1,671,686			864,571
Operating expenses
Gaming (1)		278,079			136,535			788,705			403,557
Racing		10,094			9,173			31,020			28,241
Food, beverage and other		52,703			25,603			149,931			75,328
General and administrative		85,984			39,248			234,595			131,488
Hurricane expense		—			19,142			—			19,142
Settlement costs		—			—			—			28,175
Depreciation and amortization		31,196			14,942			88,642			46,406
Total operating expenses		458,056			244,643			1,292,893			732,337
Income from continuing operations		128,055			42,294			378,793			132,234
Other income (expenses)
Interest expense		(49,732		)	(12,824		)	(145,927		)	(41,652		)
Interest income		882			958			2,652			3,180
(Loss) earnings from joint venture		(1,665		)	230			(678		)	1,216
Other		(593		)	532			(519		)	438
Loss on early extinguishment of debt		—			—			(10,022		)	(16,673		)
Total other expenses		(51,108		)	(11,104		)	(154,494		)	(53,491		)
Income from continuing operations before income taxes		76,947			31,190			224,299			78,743
Taxes on income		36,548			11,386			99,222			27,793
Net income from continuing operations		40,399			19,804			125,077			50,950
Loss from discontinued operations, net of tax		—			(2,291		)	—			(5,512		)
Gain on sale of discontinued operations, net of tax		114,661			37,888			114,661			37,888
Net income		$	155,060		$	55,401		$	239,738		$	83,326
Earnings per share-Basic
Income from continuing operations		$	0.48		$	0.24		$	1.49		$	0.62
Discontinued operations, net of tax		1.36			0.43			1.36			0.39
Basic earnings per share		$	1.84		$	0.67		$	2.85		$	1.01
Earnings per share-Diluted
Income from continuing operations		$	0.47		$	0.23		$	1.45		$	0.59
Discontinued operations, net of tax		1.32			0.41			1.32			0.38
Diluted earnings per share		$	1.79		$	0.64		$	2.77		$	0.97
Weighted average shares outstanding
Basic		84,385			83,259			84,124			82,754
Diluted		86,580			86,186			86,505			85,777

 

(1)          Reflects reclassification for cash redemption coupons to contra-revenue from operating expense.

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Argosy Gaming Company - Results for the Three and Nine Months Ended September 30, 2006 and 2005

 

On October 3, 2005, Penn National Gaming completed the acquisition of Argosy Gaming Company with the transaction treated for accounting purposes as effective October 1, 2005.  The table below summarizes the operating performance of the Argosy Gaming Company properties during the three and nine month periods ended September 30, 2006 and 2005.  Although Penn National Gaming did not own Argosy Gaming Company during the three and nine month periods ended September 30, 2005, the Company believes this data is useful to investors in considering the value this transaction brings to Penn National.  As previously disclosed, Penn National Gaming completed the sale of Argosy Casino-Baton Rouge on October 25, 2005 and is currently required by the Illinois Gaming Board to reach a definitive sales agreement for the Empress Casino Hotel by June 30, 2008.

Investors should also be aware that Argosy previously included (gain)/loss on disposal of assets in EBITDA while Penn National does not; the results below are furnished based on Penn National’s methodology.

		NET REVENUES (1)						EBITDA (2)
		(in thousands)						(in thousands)
		Three Months Ended September 30,						Three Months Ended September 30,
		2006			2005			2006			2005
Argosy Casino Lawrenceburg		$	120,206		$	114,441		$	39,852		$	37,776
Empress Casino Hotel		59,852			60,770			13,784			17,391
Argosy Casino Riverside		37,999			33,599			11,499			9,363
Argosy Casino Alton		29,090			27,516			7,638			5,941
Argosy Casino Sioux City		13,319			13,242			4,215			3,926
Raceway Park		2,175			—			(163		)	—

 

		NET REVENUES (1)						EBITDA (2)
		(in thousands)						(in thousands)
		Nine Months Ended September 30,						Nine Months Ended September 30,
		2006			2005			2006			2005
Argosy Casino Lawrenceburg		$	355,363		$	339,068		$	118,593		$	111,552
Empress Casino Hotel		179,904			172,098			48,568			44,403
Argosy Casino Riverside		114,601			106,351			37,100			31,235
Argosy Casino Alton		86,814			81,346			23,513			17,279
Argosy Casino Sioux City		40,566			40,180			13,184			12,462
Raceway Park		6,607			—			(229		)	—

 

(1)          Reflects reclassification for cash redemption coupons to contra-revenue from operating expense.

(2)          EBITDA is income from continuing 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 income from operations per accounting principles generally accepted in the United States of America (“GAAP”) to EBITDA is included in the accompanying financial schedules.

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ARGOSY GAMING COMPANY

Property Information Including Corporate Overhead

(in thousands) (unaudited)

Three Months Ended September 30, 2005

 

Reconciliation of Income from Operations (GAAP) to Adjusted EBITDA

		Income			Depreciation					(Gain)/loss
		from			and					on disposal			Adjusted
		operations			amortization			EBITDA (1)		of assets			EBITDA (2)
Argosy Casino Lawrenceburg		$	33,914		$	3,862		37,776		$	—		$	37,776
Empress Casino Hotel		15,035			2,352			17,387		4			17,391
Argosy Casino Riverside		6,268			3,095			9,363		—			9,363
Argosy Casino Alton		4,418			1,523			5,941		—			5,941
Argosy Casino Sioux City		2,902			1,025			3,927		(1		)	3,926

 

ARGOSY GAMING COMPANY

Property Information Including Corporate Overhead

(in thousands) (unaudited)

Nine Months Ended September 30, 2005

Reconciliation of Income from Operations (GAAP) to Adjusted EBITDA

		Income			Depreciation					(Gain)/loss
		from			and					on disposal			Adjusted
		operations			amortization			EBITDA (1)		of assets			EBITDA (2)
Argosy Casino Lawrenceburg		$	100,308		$	11,243		111,551		$	1		$	111,552
Empress Casino Hotel		37,395			7,101			44,496		(93		)	44,403
Argosy Casino Riverside		21,292			9,898			31,190		45			31,235
Argosy Casino Alton		12,461			4,818			17,279		—			17,279
Argosy Casino Sioux City		9,489			2,971			12,460		2			12,462

 

(1)          EBITDA is income from continuing 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.

(2)          Adjusted EBITDA excludes gain/loss on disposal of assets.

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Reconciliation of Non-GAAP Measures to GAAP

EBITDA, or earnings before interest, taxes, charges for stock compensation, depreciation and amortization, gain or loss on disposal of assets, settlement costs and hurricane expenses, 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 charges for early extinguishment of debt and stock compensation 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 continuing 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 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.

Penn National is hosting a conference call and simultaneous webcast at 9:00 am EDT today, both of which are open to the general public.  The conference call number is 212/896-6011 or 415/537-1818; please call five minutes in advance to ensure that you are connected prior to the presentation.  Questions and answers will be reserved for call-in analysts and investors.  Interested parties may also access the live call on the Internet at www.pngaming.com; allow 15 minutes to register and download and install any necessary software.

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Following its completion, a replay of the call can be accessed until November 9, 2006, by dialing 800/633-8284 or 402/977-9140 (international callers).  The access code for the replay is 21306136.  A replay of the call can also be accessed for thirty days on the Internet at www.pngaming.com.  This press release, which includes financial information to be discussed by management during the conference call and disclosure and reconciliation of non-GAAP financial measures, is available on the Company’s web site, www.pngaming.com in the “News” section (select link for “Press Releases”).

About Penn National Gaming

Penn National Gaming owns and operates casino and horse racing facilities with a focus on slot machine entertainment.  The Company presently operates sixteen facilities in thirteen jurisdictions including Colorado, Illinois, Indiana, Iowa, Louisiana, Maine, Mississippi, Missouri, New Jersey, Ohio, Pennsylvania, West Virginia, and Ontario.  In aggregate, Penn National’s facilities feature approximately 21,000 slot machines, over 425 table games, approximately 1,500 hotel rooms and approximately 630,000 square feet of gaming floor space.

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, 2005.  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 the jurisdictions in which we do business; our ability to successfully integrate the operations of Argosy Gaming Company; the activities of our competitors; increases in our effective rate of taxation at any of our properties or at the corporate level; successful completion of capital projects at our gaming and pari-mutuel facilities; the ability of the Company to recover losses under its insurance policies; the existence of attractive acquisition candidates and the costs and risks involved in the pursuit of those acquisitions; our ability to maintain regulatory approvals for our existing businesses and to receive regulatory approvals for our new businesses (including without limitation a final operators’ license in Pennsylvania); delays in the process of finalizing gaming regulations and the establishment of related governmental infrastructure in Pennsylvania; the maintenance of agreements with our horsemen, pari-mutuel clerks and other organized labor groups; our dependence on key personnel; the impact of terrorism and other international hostilities and the availability and cost of financing and other factors as discussed in the Company’s filings with the United States Securities and Exchange Commission. 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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