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 8, 2007
(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 February 8, 2007, Penn National Gaming, Inc. (the “Company”) issued a press release announcing its financial results for the three months and year ended December 31, 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 February 8, 2007, issued by Penn National Gaming, Inc.
announcing its financial results for the three months and year ended December 31, 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: February 13, 2007		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 February 8, 2007, issued by Penn National Gaming, Inc. announcing its financial results for the three months and year ended December 31, 2006.

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Exhibit 99.1

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 FOURTH QUARTER

DILUTED EPS OF $1.00, INCLUSIVE OF NET BENEFIT FROM INSURANCE PROCEEDS, IMPAIRMENT CHARGE AND LOSS ON DISCONTINUED OPERATIONS

- EBITDA of $146.4 Million Exceeds Fourth Quarter Guidance -

- Establishes 2007 First Quarter and Full Year Guidance -

Wyomissing, Penn., (February 8, 2007) — Penn National Gaming, Inc. (PENN: Nasdaq) today reported fourth quarter operating results for the period ended December 31, 2006, as summarized below.

Summary of Fourth Quarter and Full Year Results

		Three Months Ended									Twelve Months Ended
(in millions, except per share data)		December 31,									December 31,
					2006 Guidance
		2006			(3)			2005 (4)			2006			2005 (4)
Net revenues (1)		$	572.9		$	558.6		$	504.5		$	2,244.5		$	1,369.1
EBITDA (2)		146.4			142.3			143.9			629.2			373.3
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		(58.4		)	(112.8		)	(107.7		)	(416.1		)	(286.1		)
Net income from continuing operations		88.0			29.5			36.2			213.1			87.2
Income (loss) from discontinued operations		—			—			1.4			—			(4.1		)
(Loss) gain on sale of discontinued operations		(0.7		)	—			—			114.0			37.9
Net income		$	87.3		$	29.5		$	37.6		$	327.1		$	120.9
Per share data
Diluted earnings per share from continuing operations		$	1.01		$	0.34		$	0.42		$	2.46		$	1.02
Diluted earnings per share from discontinued operations		(0.01		)	—			0.02			1.32			0.39
Diluted earnings per share		$	1.00		$	0.34		$	0.44		$	3.78		$	1.41

(1)          Revenue figures for all periods of 2005 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 and twelve month periods ended December 31, 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, 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.

(3)          The figures in this column present the guidance Penn National Gaming provided on October 26, 2006 for the fourth quarter ended December 31, 2006.

(4)          2005 results do not include charges for stock based compensation.  In the three and twelve months ended December 31, 2006, Penn National Gaming incurred pre-tax non-cash charges for stock based compensation of $5.3 million ($3.9 million, net of taxes, or $0.04 per diluted share) and $20.6 million ($14.9 million, net of taxes, or $0.17 per diluted share), respectively.

Review of Fourth Quarter 2006 Results vs. Guidance and Fourth Quarter 2005 Results

		Three Months Ended
		December 31,
		2006 Actual			2006 Guidance (1)			2005 Actual
Diluted earnings per share from continuing operations		$	1.01		$	0.34		$	0.42
Hurricane		(0.94		)				0.02
Goodwill impairment		0.25						—
Charge for early extinguishment of debt related to termination of senior credit facility		—						0.01
Diluted earnings per share from continuing operations before hurricane, goodwill impairment and charge for early extinguishment of debt		$	0.32		$	0.34		$	0.45

 

Review of Full Year 2006 Results vs. Guidance and Full Year 2005 Results

		Twelve Months Ended
		December 31,
		2006 Actual			2006 Guidance (1)			2005 Actual
Diluted earnings per share from continuing operations		$	2.46		$	1.79		$	1.02
Hurricane		(0.94		)				0.16
Goodwill impairment		0.25						—
Charge for early extinguishment of debt related to termination of senior credit facility		0.07			0.07			0.14
Settlement charge		—						0.20
Impairment charge for Penn National grandstand		—						0.03
Diluted earnings per share from continuing operations before hurricane, goodwill impairment, charge for early extinguishment of debt, settlement charge and impairment charge for Penn National grandstand		$	1.84		$	1.86		$	1.55

(1)             The figures in this column present the guidance Penn National Gaming provided on October 26, 2006 for the period ended December 31, 2006.

In the three months ended December 31, 2006, Penn National Gaming’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

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(formerly known as Casino Magic-Bay St. Louis) and Boomtown Biloxi facilities, as well as minor proceeds related to its National Flood Insurance coverage and auto insurance claims.  Both Mississippi facilities sustained significant damage as a result of Hurricane Katrina in August 2005.  Reflecting the settlement agreement, Penn National Gaming 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.

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 has been impaired.  Accordingly, Penn National 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.

The Company’s performance versus guidance, after giving effect to the insurance recovery and goodwill impairment, is attributable to costs associated with merger and acquisition activity which were expensed in the three months ended December 31, 2006, and increased depreciation as a result of underestimating the depreciation associated with the Gulf Coast assets, as the asset segregation analysis was not completed when the Company provided guidance.  The net impact of the costs associated with merger and acquisition activity and underestimation of the depreciation associated with the Gulf Coast assets was $0.04 per diluted share in the three months ended December 31, 2006.

In the three months ended December 31, 2005, Penn National Gaming recorded charges of $0.02 and $0.01 per diluted share related to the impact of Hurricane Katrina on two Gulf Coast properties and early extinguishment of debt, respectively.

Commenting on the results, Peter M. Carlino, Chairman and Chief Executive Officer of Penn National Gaming said, “During the fourth quarter, our portfolio of regionally diversified assets overcame several challenges including the normalization of results at our Baton Rouge property, as properties closed by Hurricane Katrina reopened, increased insurance costs and the incremental tax in Illinois of 3% of revenue at our Chicago-area facilities.  Despite these challenges, our operating management team did an excellent job of driving record fourth quarter revenue and EBITDA that exceeded our guidance.

“During the quarter, we also continued to execute on our long-term strategy for growth through acquisition and the development and expansion of gaming facilities.  Our focus is on prudently expanding our operating base and generating returns on invested capital that will continue to bring value to our shareholders.  In this regard, during the quarter, we evaluated both modest and significant acquisition opportunities, applying a disciplined approach to structuring transactions that

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would result in the long-term enhancement of shareholder value.  We succeeded in New Mexico, entering into a definitive agreement to purchase Zia Park Racetrack and its Black Gold Casino for $200 million, which will result in the operation being accretive to earnings while further diversifying Penn National’s regional asset base.  Management, in concert with financial and legal advisors, also pursued a significant M&A opportunity during the quarter.  In applying our criteria for returns, we adhered to a valuation and structure that our analysis indicated would provide meaningful free cash flow growth and support our long-term goals for value creation.  However, the cost of the opportunity reached a level where we felt the returns to our shareholders would not justify the higher level of risk associated with the transaction.  While we incurred costs during the quarter related to this process, we are confident that our aggressive — yet disciplined — approach to maximizing shareholder returns will continue to serve our shareholders well in the near- and long-term.

“We continued to move forward the Company’s broad slate of development and expansion projects that are expected to begin to drive new phases of growth for the next several years.  As these projects come online, we will be well-positioned to reduce debt or allocate capital in areas that will create even more opportunities to build value at a time when our EBITDA run rate will significantly exceed the levels we are achieving now.

“The current expansion under way at Charles Town will add gaming floor capacity for 800 more slots.  However, we are slightly revising the opening of this phase of expansion from the first quarter of 2007 to May of this year to reflect certain construction delays.  We’re also carefully monitoring legislative activity in West Virginia related to table games and, independent of the outcome, development will continue at the property with further gaming floor space for either tables or 1,000 slot machines, the addition of a hotel, parking and additional food and beverage offerings.  Earlier this month, Jefferson County approved the Company’s plans for a 153-room hotel at Charles Town. Charles Town’s fourth quarter revenue and EBITDA were impressive, as they grew 12% and 18%, respectively, despite a lower number of available gaming positions compared to the prior year period.  This revenue growth, which partially benefited from a favorable calendar and weather, leads us to be very excited about the continued growth prospects for the facility and its appeal to patrons in the region.

“Argosy Casino Riverside recorded a 11% year-over-year fourth quarter revenue growth and 16% EBITDA increase, while progress on the facility’s 258-room hotel and 5,200 square feet of new meeting space continued on pace for an April 2007 opening.  These amenities will complement an already strong property and its attraction as a regional destination.

“Construction of the integrated Hollywood Casino racing and gaming facility at Penn National Race Course is moving forward at full force, with a significant portion of the steel building structure now in place.  Our enthusiasm for this project and its prospective returns remains very high based on the demographics and encouraging results reported by the facilities featuring slots that recently

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opened in Pennsylvania.  With our plans to open with 2,000 slots and expand as quickly as demand dictates to 3,000 positions, this project presents Penn National with solid near- and long-term growth opportunities.

“Penn National Gaming recently completed the purchase of the former Holiday Inn in Bangor, Maine, where we will build the permanent Hollywood Slots at Bangor facility.  With the impressive results being generated by our temporary facility and a substantial number of patrons driving significant distances to Hollywood Slots at Bangor, we are adding a hotel to the plans for the permanent facility, which will feature a two-story, semi-circular, glass tower casino area, a four-story parking garage, restaurants, retail space and a new simulcast facility for off-track wagering. Construction will commence in the first half of 2007 following the demolition of the existing hotel and adjacent buildings.  Reflecting higher construction costs and the addition of the hotel, the project budget has been revised to $131 million from $90 million.  The permanent facility will initially include 1,000 slots, or roughly double what we operate in Maine today at the temporary facility.  Like our facility at Penn National Race Course, we have designed the permanent Bangor site to accommodate future expansion, including up to 1,500 gaming machines.  So again, we have considered our goals to achieve both near- and longer-term returns and growth.

“Finally, while Argosy Casino Lawrenceburg recorded a year-over-year fourth quarter EBITDA gain, the property remains capacity-constrained, and is impacted by its three-tier layout.  Our plans for a new two-level barge, 1,600 more gaming positions and a significant parking expansion will address these impediments.  Unfortunately, some aspects of the project’s progress remain beyond our control as environmental and archeological studies continue to be conducted at the site.  As a result, we are disappointed that the expected opening date for the parking facility will now be in the second quarter of 2008, while the expanded casino floor will open in the second quarter of 2009.

“Reflecting our continued disciplined approach to growth, Penn National Gaming delivered exceptional 2006 operating results and gains over 2005.  As indicated in our guidance, 2007 will be somewhat of a transition year as we largely operate our existing base of properties and move forward our diversified, staggered development pipeline.  We expect these projects to significantly benefit 2008 results and beyond.”

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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			December 31,			Opening
Project/Scope		Positions		Budget			2006			Date
				(in millions)
Charles Town (WV) - Casino expansion, including a 153-room, on- site, 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 second quarter of 2007, allowing for 800 more gaming machines, and the second phase will provide capacity for an additional 1,000 gaming machines.		800		$	56		$	12		First phase of gaming space - May 2007 Hotel - 15 months from receipt of building permits Second phase of gaming space - To be determined
Argosy Casino Riverside (MO) - Construction of 258-room hotel.		—		$	66		$	46		Hotel - April 2007
Argosy Casino Lawrenceburg (IN) - New two-level 270,000 square foot gaming barge, an additional 1,500 space parking garage and road and infrastructure improvements. The gaming barge will allow 4,000 positions on one level, and another 400 positions will be added to the second level, along with restaurants and other amenities on the gaming barge.		1,600		$	310		$	63		Parking facility - 2nd Quarter 2008 Gaming facility - 2nd Quarter 2009
Hollywood Casino at Penn National (PA) - Building an integrated racing and gaming facility. Budget includes a $50 million license fee and the purchase of an initial 2,000 slot machines (with the building size sufficient to add 1,000 additional machines), a 2,500 space parking garage and several restaurants.		2,000		$	310		$	37		1st Quarter 2008
Hollywood Slots at Bangor (ME) - Building a permanent facility, which will include a 1,500 slot facility (1,000 slot machines at opening), a 152- room hotel, 1,500 space parking garage and several restaurants.		525		$	131		$	12		15 months from receipt of building permits

 

 

 

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Financial Guidance

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

·                  The closing of the Zia Park acquisition by the beginning of the third quarter of 2007;

·                  The Company believes that the operating results from its Hollywood Casino Baton Rouge property (formerly known as Casino Rouge) stabilized in the fourth quarter of 2006.  As such, the Company anticipates the contributions from this property to normalize near levels achieved in the fourth quarter of 2006;

·                  The Company assumes increased competition from new facility openings in the St. Louis market in the fourth quarter of 2007;

·                  The Company expects the hotel project at Argosy Casino Riverside to take several months to have meaningful results;

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

·                  Anticipated depreciation and amortization to increase in the first quarter by $5.8 million and the full year 2007 by $21.4 million;

·                  Anticipated 2007 results include a pre-tax non-cash charge for stock compensation of $24.4 million ($17.7 million, net of taxes, or $0.20 per diluted share);

·                  The effective tax rate for federal, state and local income taxes for the first quarter and full year 2007 will be 43.0%, reflecting the impact of better operating results in jurisdictions with higher state income tax;

·                  The Company will have approximately 87.5 million diluted shares outstanding as of December 31, 2007; and,

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

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(in millions, except per share data)		Three Months Ended						Full Year Ended
		March 31,			March 31,						2006
		2007 Guidance			2006 Actual			2007 Guidance			Actual
Net revenues (1)		$	599.5		$	547.8		$	2,453.0		$	2,244.5
EBITDA (2)		159.0			164.8			648.1			629.2
Less depreciation and amortization, gain/loss on disposal of assets, interest expense - net, income taxes, charge for stock compensation and other expenses		(118.9		)	(116.3		)	(485.5		)	(469.4		)
Net income from continuing operations before charge for early extinguishment of debt, hurricane and goodwill impairment		40.1			48.5			162.6			159.8
Charge for early extinguishment of debt, net of tax		—			(6.5		)	—			(6.5		)
Hurricane, net of tax		—			—			—			81.8
Goodwill impairment, net of tax		—			—			—			(22.0		)
Net income from continuing operations GAAP		$	40.1		$	42.0		$	162.6		$	213.1
Diluted earnings per share before charge for early extinguishment of debt, hurricane and goodwill impairment		$	0.46		$	0.56		$	1.86		$	1.84
EPS impact of charge for early extinguishment of debt, hurricane and goodwill impairment		—			(0.07		)	—			0.62
Diluted earnings per share from continuing operations		$	0.46		$	0.49		$	1.86		$	2.46

(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, hurricane and goodwill impairment, and is inclusive of earnings from joint venture.

2006 EBITDA to 2007 EBITDA Guidance Reconciliation

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

 

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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 December 31,						Three Months Ended December 31,
		2006			2005			2006			2005
Charles Town Entertainment Complex		$	118,854		$	106,251		$	36,453		$	30,957
Argosy Casino Lawrenceburg		118,683			107,259			38,033			35,536
Hollywood Casino Aurora		61,241			57,477			18,573			19,837
Empress Casino Hotel		58,939			58,228			12,176			15,917
Argosy Casino Riverside		38,840			34,844			12,412			10,712
Hollywood Casino Baton Rouge		32,101			43,247			11,351			20,621
Argosy Casino Alton		28,380			26,046			6,952			5,205
Hollywood Casino Tunica		24,206			26,943			5,395			7,423
Hollywood Casino Bay St. Louis (3)		21,417			19			2,614			19
Argosy Casino Sioux City		13,343			13,218			4,385			4,158
Boomtown Biloxi (3)		22,484			(123		)	5,691			(122		)
Hollywood Slots at Bangor		10,870			4,742			3,089			(127		)
Bullwhackers		6,287			7,443			697			845
Casino Rama management service contract		4,019			4,627			3,667			4,275
Pennsylvania Racing Operations		11,452			12,027			(307		)	(449		)
Raceway Park		1,745			2,286			(166		)	134
Earnings from Pennwood Racing, Inc.		—			—			(110		)	240
Corporate overhead		—			—			(14,464		)	(11,237		)
Total		$	572,861		$	504,534		$	146,441		$	143,944

 

 

		NET REVENUES (1)						EBITDA (2)
		Twelve Months Ended December 31,						Twelve Months Ended December 31,
		2006			2005			2006			2005
Charles Town Entertainment Complex		$	485,197		$	440,641		$	143,634		$	129,520
Argosy Casino Lawrenceburg		474,046			107,259			156,626			35,536
Hollywood Casino Aurora		245,475			227,339			79,056			75,105
Empress Casino Hotel		238,843			58,228			60,744			15,917
Argosy Casino Riverside		153,441			34,844			49,512			10,712
Hollywood Casino Baton Rouge		144,001			129,675			61,843			52,699
Argosy Casino Alton		115,194			26,046			30,465			5,205
Hollywood Casino Tunica		106,352			106,496			26,892			27,906
Hollywood Casino Bay St. Louis (3)		32,184			69,595			5,770			14,123
Argosy Casino Sioux City		53,909			13,218			17,569			4,158
Boomtown Biloxi (3)		51,421			45,714			18,409			10,847
Hollywood Slots at Bangor		40,871			5,957			11,258			(987		)
Bullwhackers		26,812			29,435			3,161			4,029
Casino Rama management service contract		18,146			18,595			16,765			17,234
Pennsylvania Racing Operations		50,303			53,777			1,958			2,699
Raceway Park		8,352			2,286			(395		)	134
Earnings from Pennwood Racing, Inc.		—			—			(788		)	1,455
Corporate overhead		—			—			(53,254		)	(32,988		)
Total		$	2,244,547		$	1,369,105		$	629,225		$	373,304

(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, 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.

(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

 (in thousands) (unaudited)

		Three Months Ended						Twelve Months Ended
		December 31,						December 31,
		2006			2005			2006			2005
EBITDA		$	146,441		$	143,944		$	629,225		$	373,304
Loss (earnings) from joint venture		110			(240		)	788			(1,455		)
Depreciation and amortization		(35,309		)	(26,125		)	(123,951		)	(72,531		)
Charge for stock compensation		(5,331		)	—			(20,566		)	—
Settlement costs and hurricane		128,253			(2,003		)	128,253			(49,320		)
Goodwill impairment		(34,522		)	—			(34,522		)	—
Loss on disposals		(594		)	(4,264		)	(1,386		)	(6,450		)
Income from continuing operations		$	199,048		$	111,312		$	577,841		$	243,548
Interest expense		(50,401		)	(47,693		)	(196,328		)	(89,344		)
Interest income		873			930			3,525			4,111
(Loss) earnings from joint venture		(110		)	240			(788		)	1,455
Other		(3,777		)	(398		)	(4,296		)	39
Charge for early extinguishment of debt		—			(1,365		)	(10,022		)	(18,039		)
Taxes on income		(57,630		)	(26,800		)	(156,852		)	(54,593		)
Net income from continuing operations		$	88,003		$	36,226		$	213,080		$	87,177
Income (loss) from discontinued operations, net of tax		—			1,382			—			(4,135		)
(Loss) gain on sale of discontinued operations		(653		)	—			114,008			37,888
Net income		$	87,350		$	37,608		$	327,088		$	120,930

 

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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 December 31, 2006

		Income																		Loss
		from			Charge for									Depreciation			(Gain)/loss			from
		continuing			stock						Goodwill			and			on disposal			joint
		operations			compensation			Hurricane			impairment			amortization			of assets			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 (1)		34,021			—			(69,071		)	34,522			3,140			2			—			2,614
Argosy Casino Sioux City		3,242			—			—			—			1,106			37			—			4,385
Boomtown Biloxi (1)		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

 

 

Three Months Ended December 31, 2005

		Income												Earnings
		from			Settlement			Depreciation			(Gain)/loss			from
		continuing			costs and			and			on disposal			joint
		operations			hurricane			amortization			of assets			venture			EBITDA
Charles Town Entertainment Complex		$	26,193		$	—		$	4,761		$	3		$	—		$	30,957
Argosy Casino Lawrenceburg		31,792			—			3,818			(74		)	—			35,536
Hollywood Casino Aurora		17,600			—			2,239			(2		)	—			19,837
Empress Casino Hotel		14,019			—			1,950			(52		)	—			15,917
Argosy Casino Riverside		7,680			—			3,026			6			—			10,712
Hollywood Casino Baton Rouge		18,511			—			1,988			122			—			20,621
Argosy Casino Alton		3,615			—			1,590			—			—			5,205
Hollywood Casino Tunica		5,156			—			2,251			16			—			7,423
Hollywood Casino Bay St. Louis (1)		(1,420		)	1,358			81			—			—			19
Argosy Casino Sioux City		2,929			—			1,226			3			—			4,158
Boomtown Biloxi (1)		(776		)	645			—			9			—			(122		)
Hollywood Slots at Bangor		(856		)	—			729			—			—			(127		)
Bullwhackers		323			—			522			—			—			845
Casino Rama management service contract		4,275			—			—			—			—			4,275
Pennsylvania Racing Operations		(5,043		)	—			361			4,233			—			(449		)
Raceway Park		124			—			10			—			—			134
Earnings from Pennwood Racing, Inc.		—			—			—			—			240			240
Corporate overhead		(12,810		)	—			1,573			—			—			(11,237		)
Total		$	111,312		$	2,003		$	26,125		$	4,264		$	240		$	143,944

(1)             Income from continuing operations and EBITDA for the three months ended December 31, 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)

Twelve Months Ended December 31, 2006

		Income																		Loss
		from			Charge for									Depreciation			(Gain)/loss			from
		continuing			stock						Goodwill			and			on disposal			joint
		operations			compensation			Hurricane			impairment			amortization			of assets			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 (1)		35,810			—			(69,071		)	34,522			4,485			24			—			5,770
Argosy Casino Sioux City		13,363			—			—			—			4,166			40			—			17,569
Boomtown Biloxi (1)		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

 

Twelve Months Ended December 31, 2005

		Income from continuing operations			Settlement costs and hurricane			Depreciation and amortization			(Gain)/loss on disposal of assets			Earnings from joint venture			EBITDA
Charles Town Entertainment Complex		$	109,495		$	—		$	18,285		$	1,740		$	—		$	129,520
Argosy Casino Lawrenceburg		31,792			—			3,818			(74		)	—			35,536
Hollywood Casino Aurora		65,972			—			9,135			(2		)	—			75,105
Empress Casino Hotel		14,019			—			1,950			(52		)	—			15,917
Argosy Casino Riverside		7,680			—			3,026			6			—			10,712
Hollywood Casino Baton Rouge		16,645			28,175			7,768			111			—			52,699
Argosy Casino Alton		3,615			—			1,590			—			—			5,205
Hollywood Casino Tunica		19,187			—			8,670			49			—			27,906
Hollywood Casino Bay St. Louis (1)		(5,855		)	13,709			6,179			90			—			14,123
Argosy Casino Sioux City		2,929			—			1,226			3			—			4,158
Boomtown Biloxi (1)		346			7,436			2,766			299			—			10,847
Hollywood Slots at Bangor		(1,845		)	—			858			—			—			(987		)
Bullwhackers		2,028			—			1,953			48			—			4,029
Casino Rama management service contract		17,234			—			—			—			—			17,234
Pennsylvania Racing Operations		(2,956		)	—			1,422			4,233			—			2,699
Raceway Park		124			—			10			—			—			134
Earnings from Pennwood Racing, Inc.		—			—			—			—			1,455			1,455
Corporate overhead		(36,862		)	—			3,875			(1		)	—			(32,988		)
Total		$	243,548		$	49,320		$	72,531		$	6,450		$	1,455		$	373,304

(1)             Income from continuing operations and EBITDA for the twelve months ended December 31, 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 Twelve Months
		Ended December 31,						Ended December 31,
		2006			2005			2006			2005
Revenues
Gaming (1)		$	526,462		$	461,400		$	2,057,617		$	1,211,360
Management service fee		4,019			4,627			18,146			18,596
Food, beverage and other		71,240			65,094			275,700			213,089
Gross revenues		601,721			531,121			2,351,463			1,443,045
Less promotional allowances		(28,860		)	(26,587		)	(106,916		)	(73,940		)
Net revenues		572,861			504,534			2,244,547			1,369,105
Operating expenses
Gaming (1)		274,358			242,751			1,063,063			646,305
Food, beverage and other		62,756			61,897			243,707			165,468
General and administrative		95,121			60,446			329,716			191,933
Hurricane		(128,253		)	2,003			(128,253		)	21,145
Goodwill impairment		34,522			—			34,522			—
Settlement costs		—			—			—			28,175
Depreciation and amortization		35,309			26,125			123,951			72,531
Total operating expenses		373,813			393,222			1,666,706			1,125,557
Income from continuing operations		199,048			111,312			577,841			243,548
Other income (expenses)
Interest expense		(50,401		)	(47,693		)	(196,328		)	(89,344		)
Interest income		873			930			3,525			4,111
(Loss) earnings from joint venture		(110		)	240			(788		)	1,455
Other		(3,777		)	(398		)	(4,296		)	39
Loss on early extinguishment of debt		—			(1,365		)	(10,022		)	(18,039		)
Total other expenses		(53,415		)	(48,286		)	(207,909		)	(101,778		)
Income from continuing operations before income taxes		145,633			63,026			369,932			141,770
Taxes on income		57,630			26,800			156,852			54,593
Net income from continuing operations		88,003			36,226			213,080			87,177
Income (loss) from discontinued operations, net of tax		—			1,382			—			(4,135		)
(Loss) gain on sale of discontinued operations, net of tax		(653		)	—			114,008			37,888
Net income		$	87,350		$	37,608		$	327,088		$	120,930
Earnings (loss) per share-Basic
Income from continuing operations		$	1.04		$	0.43		$	2.53		$	1.05
Discontinued operations, net of tax		(0.01		)	0.02			1.35			0.41
Basic earnings per share		$	1.03		$	0.45		$	3.88		$	1.46
Earnings (loss) per share-Diluted
Income from continuing operations		$	1.01		$	0.42		$	2.46		$	1.02
Discontinued operations, net of tax		(0.01		)	0.02			1.32			0.39
Diluted earnings per share		$	1.00		$	0.44		$	3.78		$	1.41
Weighted average shares outstanding
Basic		84,541			83,307			84,229			82,893
Diluted		86,986			85,899			86,634			85,857

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

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