FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ---- EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 0-24206
Penn National Gaming, Inc.
(Exact name of Registrant as specified in its charter)
Pennsylvania 23-2234473
------------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Penn National Gaming, Inc.
825 Berkshire Blvd., Suite 200
Wyomissing, PA 19610
(Address of principal executive offices)
610-373-2400
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No___
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Title Outstanding as of November 10, 2000
Common stock par value .01 per share 15,029,475
THIS REPORT INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION
27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT
OF 1934, AS AMENDED. ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS
INCLUDED IN THIS REPORT LOCATED ELSEWHERE HEREIN REGARDING THE COMPANY'S
OPERATIONS, FINANCIAL POSITION AND BUSINESS STRATEGY, MAY CONSTITUTE
FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY", "WILL", "EXPECT", "INTEND",
"ESTIMATE", "ANTICIPATE", "BELIEVE" OR "CONTINUE" OR THE NEGATIVE THEREOF OR
VARIATIONS THEREON OR SIMILAR TERMINOLOGY. ALTHOUGH THE COMPANY BELIEVES THAT
THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE AT
THIS TIME, IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO HAVE
BEEN CORRECT. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THE COMPANY'S EXPECTATIONS ("CAUTIOUNARY STATEMENTS") ARE
DISCLOSED IN THIS REPORT AND IN OTHER MATERIALS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION. ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS
ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY
QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS.
2
Penn National Gaming, Inc. and Subsidiaries
INDEX
PART I - FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets -
September 30, 2000 & December 31, 1999 (unaudited) 4-5
Consolidated Statements of Income -
Nine Months Ended September 30, 2000 and 1999 (unaudited) 6
Consolidated Statements of Income -
Three Months Ended September 30, 2000 and 1999 (unaudited) 7
Consolidated Statement of Shareholder's Equity -
Nine Months Ended September 30, 2000, (unaudited) 8
Consolidated Statement of Cash Flow -
Nine Months Ended September 30, 2000 and 1999 (unaudited) 9-10
Notes to Consolidated Financial Statements 11-16
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 17-22
Item 3. Quantitative and Qualitative Disclosures about Market Risk 22
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 23
Signature Page 24
3
Part I. Financial Information
Item 1. Financial Statements
PENN NATIONAL GAMING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
September 30, December 31,
2000 1999
(Unaudited)
------------------------------------
Assets
Current assets
Cash and cash equivalents $ 20,402 $ 9,434
Accounts receivable 8,494 4,779
Prepaid expenses and other current assets 6,144 1,793
Deferred income taxes 538 888
Prepaid income tax 245 1,088
----------------------------------
Total current assets 35,823 17,982
----------------------------------
Property, plant and equipment, at cost
Land and improvements 78,168 27,988
Building and improvements 139,298 70,870
Furniture, fixtures and equipment 69,932 36,195
Transportation equipment 913 860
Leasehold improvements 11,631 9,802
Construction in progress 9,998 1,980
----------------------------------
309,940 147,695
Less accumulated depreciation and amortization 27,371 20,824
----------------------------------
Net property, plant and equipment 282,569 126,871
----------------------------------
Other assets
Investment in and advances to unconsolidated affiliate 14,507 12,862
Cash in escrow 5,008 5,000
Excess of cost over fair market value of net assets acquired
(net of accumulated amortization of $3,359 and $2,611
respectively) 79,660 21,582
Deferred financing costs 9,860 5,014
Miscellaneous 3,307 1,289
----------------------------------
Total other assets 112,342 45,747
----------------------------------
$430,734 $190,600
==================================
See accompanying notes to consolidated financial statements.
4
PENN NATIONAL GAMING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
September 30, December 31,
2000 1999
(Unaudited)
------------------------------
Liabilities and Shareholders' Equity
Current liabilities
Current maturities of long-term debt and
capital lease obligations $ 10,563 $ 5,160
Accounts payable 13,578 10,210
Purses due horsemen 1,009 2,114
Uncashed pari-mutuel tickets 1,150 1,351
Accrued expenses 7,555 2,694
Accrued interest 1,372 433
Accrued salaries and wages 4,943 1,098
Customer deposits 1,006 800
Taxes, other than income taxes 2,014 1,491
------------------------------
Total current liabilities 43,190 25,351
------------------------------
Long-term Liabilities
Long-term debt and capital lease obligations,
net of current maturities 298,236 86,053
Deferred income taxes 13,145 12,924
------------------------------
Total long-term liabilities 311,381 98,977
------------------------------
Commitments and contingencies
Shareholders' equity
Preferred stock, $.01 par value, authorized 1,000,000 shares;
issued none -- --
Common stock, $.01 par value, authorized 20,000,000 shares;
issued 15,432,675 and 15,314,175, respectively 154 153
Treasury stock, 424,700 shares at cost (2,379) (2,379)
Additional paid-in capital 39,152 38,527
Retained earnings 39,236 29,971
------------------------------
Total shareholders' equity 76,163 66,272
------------------------------
$ 430,734 $ 190,600
==============================
See accompanying notes to consolidated financial statements.
5
PENN NATIONAL GAMING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Nine Months Ended
September 30,
2000 1999
-------------------------------
Revenues
Gaming $ 99,895 $ 40,069
Racing 87,960 76,062
Other revenue 18,903 9,608
-------------------------------
Total revenues 206,758 125,739
-------------------------------
Operating expenses
Gaming 69,510 25,777
Racing 63,821 61,587
Other operating expenses 14,600 8,082
General and administrative 15,977 9,614
Depreciation and amortization 8,457 6,469
-------------------------------
Total operating expenses 172,365 111,529
-------------------------------
Income from operations 34,393 14,210
-------------------------------
Other income (expenses)
Interest (expense) (11,004) (6,508)
Interest income 1,334 976
Other 1 (7)
-------------------------------
Total other (expenses) (9,669) (5,539)
-------------------------------
Income before taxes and extraordinary income 24,724 8,671
Taxes on income 8,876 3.271
-------------------------------
Income before extraordinary item 15,848 5,400
Extraordinary item, loss on early extinguishment of debt,
net of income taxes of $4,615 (6,583) --
Net income -------------------------------
$ 9,265 $ 5,400
-------------------------------
Per share data
Basic
Income before extraordinary item $ 1.06 $ .36
Extraordinary item (.44) --
-------------------------------
Net Income $ .62 $ .36
-------------------------------
Diluted
Income before extraordinary item $ 1.03 $ .36
Extraordinary items (.43) --
-------------------------------
Net Income $ .60 $ .36
-------------------------------
Weighted shares outstanding
Basic 14,948 14,812
Diluted 15,407 15,179
See accompanying notes to consolidated financial statements.
6
PENN NATIONAL GAMING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended
September 30,
2000 1999
---------------------------------
Revenues
Gaming $ 50,215 $ 15,030
Racing 30,933 28,514
Other revenue 9,934 4,023
---------------------------------
Total revenues 91,082 47,567
---------------------------------
Operating expenses
Gaming 34,902 9,521
Racing 21,776 23,081
Other operating expenses 8,040 3,115
General and administrative 7,407 3,180
Depreciation and amortization 4,089 2,324
--------------------------------
Total operating expenses 76,214 41,221
--------------------------------
Income from operations 14,868 6,346
--------------------------------
Other income (expenses)
Interest (expense) (6,188) (2,175)
Interest income 607 370
Other 1 -
--------------------------------
Total other (expenses) (5,580) (1,805)
--------------------------------
Income before taxes and extraordinary item 9,288 4,541
Taxes on income 3,286 1,703
--------------------------------
Income before extraordinary item 6,002 2,838
Extraordinary item, loss on early extinquishment of debt,
net of income taxes of $4,615 (6,583) -
--------------------------------
Net income (loss) $ (581) $ 2,838
--------------------------------
Per share data
Basic
Income before extraordinary item $ .40 $ .19
Extraordinary item (.44) -
--------------------------------
Net income (loss) $ (.04) $ .19
--------------------------------
Diluted
Income before extraordinary item $ .39 $ .19
Extraordinary item (.43) -
--------------------------------
Net income (loss) $ (.04) $ .19
--------------------------------
Weighted shares outstanding
Basic 15,007 14,868
Diluted 15,504 15,242
See accompanying notes to consolidated financial statements.
7
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except share data)
(Unaudited)
Additional
Common Stock Treasury Paid-In Retained
Shares Amounts Stock Capital Earnings Total
------ ------- ----- ------- -------- -----
Balance, at January 1, 2000 15,314,175 $ 153 $ (2,379) $ 38,527 $ 29,971 $ 66,272
Issuance of common stock 118,500 1 - 625 - 626
Net income for the nine months
ended September 30, 2000 - - - - 9,265 9,265
----------------------------------------------------------------------------------
Balance, at September 30, 2000 15,432,675 $ 154 $ (2,379) $ 39,152 $ 39,236 $ 76,163
==================================================================================
See accompanying notes to consolidated financial statements.
8
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
2000 1999
----------------------------
Cash flows from operating activities
Net income $ 9,265 $ 5,399
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 8,457 6,469
Income from unconsolidated affiliates (1,645) --
Extraordinary loss relating to early extinguishment of debt 11,198
Deferred income tax 571 861
Decrease (increase) in
Accounts receivable (3,715) (740)
Prepaid expenses and other current assets (4,584) (584)
Prepaid income taxes 843 859
Miscellaneous other assets (2,013) (42)
Increase (decrease) in
Accounts payable 3,368 657
Purses due horsemen (1,105) 1,720
Uncashed pari-mutuel tickets (201) (590)
Accrued expenses 4,859 88
Accrued interest 939 1,788
Accrued salaries and wages 3,845 217
Customers deposits 206 280
Taxes other than income taxes 523 783
Income taxes payable -- 74
----------------------------
Net cash provided by operating activities 30,811 17,239
----------------------------
Cash flows from investing activities
Expenditures for property, plant and equipment (17,348) (5,002)
Proceeds from sale of property and equipment 151 --
Investment in and advances to unconsolidated affiliate -- (12,269)
Acquistion of business,net of cash acquired (203,906) 251
(8) --
Cash in escrow
----------------------------
Net cash (used) in investing activities (221,111) (17,020)
----------------------------
See accompanying notes to consolidated financial statements.
9
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
2000 1999
------------------------------
Cash flows from financing activities
Proceeds from sale of common stock 626 503
Proceeds from long term debt 319,895 11,500
Principal payments on long-term debt and capital lease obligations (102,310) (6,034)
(Increase) in unamortized financing cost ( 10,258) (3,237)
Payment of Senior Notes tender fees ( 6,685) -
------------- ------------
Net cash provided by financing activities 201,268 2,732
------------- ------------
Net increase in cash and cash equivalents 10,968 2,951
Cash and cash equivalents, at beginning of period 9,434 6,826
------------- ------------
Cash and cash equivalents, at end of period $ 20,402 $ 9,777
============= ============
See accompanying notes to consolidated financial statements
10
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Financial Statement Presentation
The accompanying consolidated financial statements are unaudited and
include the accounts of Penn National Gaming, Inc., (Penn) and its wholly owned
subsidiaries, (collectively, the "Company"). All significant intercompany
transactions and balances have been eliminated. Certain prior year amounts have
been reclassified to conform to current year presentation.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) which have been made are necessary to present fairly the
financial position of the Company as of September 30, 2000 and the results of
its operations for the three and nine month periods ended September 30, 2000 and
1999. The results of operations for the nine month period ending September 30,
2000 are not necessarily indicative of the results to be experienced for the
fiscal year ended December 31, 2000.
The statements and related notes herein have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission.
Accordingly, certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations. The
accompanying notes should therefore be read in conjunction with the Company's
December 31, 1999 annual financial statements.
2. Commitments
At September 30, 2000, the Company was contingently obligated under
letters of credit with face amounts aggregating $2,031,000. These amounts
consisted of $1,727,000 relating to horsemen's account balances, $104,000 for
Pennsylvania pari-mutuel taxes and $200,000 for purses.
3. Mississippi Acquisitions
On December 10, 1999, the Company entered into two definitive
agreements to purchase substantially all of the assets of the Casino Magic Bay
St. Louis hotel, casino, golf resort, recreational vehicle (RV) park and marina
in Bay St. Louis, Mississippi and the Boomtown Biloxi casino in Biloxi,
Mississippi, from Pinnacle Entertainment, Inc. (formerly Hollywood Park, Inc.)
(NYSE:PNK) for an aggregate of $195 million (the "Mississippi Acquisitions"). In
addition, the Company has entered into licensing agreements to use the Boomtown
and Casino Magic Bay St. Louis names and marks for specified periods. On August
8, 2000 the Company entered into a new $350 million senior secured credit
facility with Lehman Brothers and CIBC World Markets, Corp. A portion of the
proceeds of the new credit facility were used to finance the Mississippi
Acquisitions which was consummated on August 8, 2000.
11
Unaudited pro forma financial information for the nine months ended
September 30, 2000 and the nine months ended September 30, 1999, as though the
Mississippi Acquisitions had occurred on January 1, 1999, is as follows:
For the nine months ended
September 30,
(Unaudited)
-----------------------------
1999 2000
-----------------------------
Revenues $245,633 $303,960
Net Income Before Extraordinary Item 5,484 15,816
Extraordinary Item, Net of Income Tax Benefit -- (6,583)
Net Income 5,484 9,233
Net Income Per Common Share
Basic $ 0.37 $ 0.62
Diluted 0.36 0.60
Weighted Shares Outstanding
Basic 14,812 14,948
Diluted 15,179 15,407
12
4. New Jersey Joint Venture
The Company's investment in the Joint Venture is accounted for under
the equity method, original investments are recorded at cost and adjusted by the
Company's share of income or losses of the Joint Venture. The income for the
three and nine months ended September 30, 2000 and 1999 of the Joint Venture is
included in other revenue in the accompanying Consolidated Statements of Income
for the three and nine months ended September 30, 2000 and 1999.
Summarized balance sheet information for the Joint Venture as of
September 30, 2000 is as follows (in thousands):
Current assets $ 14,101
Property, plant and equipment, net 30,035
Other 17,632
---------
Total assets $ 61,768
---------
Current liabilities $ 10,328
Long-term liabilities 45,381
Members' equity 6,059
---------
Total liabilities and members' equity $ 61,768
---------
Summarized results of operations of the unconsolidated Joint Venture
(commencing July 30, 1999) for the three and nine month periods ended September
30, 2000 are as follows (in thousands):
Three Months Ended
September 30,
2000 1999
-------------- ------------
Revenues $ 14,266 $ 10,471
Operating expenses 10,834 8,325
-------------- ------------
EBITDA* 3,432 2,146
-------------- ------------
Net Income $ 1,628 $ 1,032
-------------- ------------
Nine Months Ended
September 30,
2000 1999
---------------------------
Revenues $ 45,094 $ 10,471
Operating expenses 35,348 8,325
---------------------------
EBITDA* 9,746 2,146
---------------------------
Net Income $ 4,488 $ 1,032
---------------------------
* Earnings before interest, depreciation, taxes, and amortization
13
5. Supplemental Disclosures of Cash Flow Information
Cash paid during the nine months ended September 30, 2000 and 1999 for
interest was $10,025,000 and $4,715,000, respectively.
Cash paid during the nine months ended September 30, 2000 and 1999 for
income taxes was $2,984,000 and $1,463,000, respectively.
6. Long-Term Debt and Capital Lease Obligations
Long-term debt and capital lease obligations are as follows:
September 30, December 31,
2000 1999
(unaudited)
----------------------------------
(In thousands)
Long-term debt
$350 million senior secured credit facility
with banks and institutional lenders including a
$75 million revolving facility, a $75 million
Tranche A term loan maturing on August 8, 2005
and a $200 million Tranche B term loan maturing
on August 8, 2006. This credit facility is
secured by substantially all of the assets of
the Company (see additional information below
under Credit Facility). $ 308,625 $ --
$80 million Senior Notes, due December 15,
2004 with interest at 10.625% per annum payable
semi-annually. The Senior Notes were unsecured
and were unconditionally guaranteed by certain
subsidiaries of the Company. The Senior Notes
were repaid on August 8, 2000. -- 69,000
Revolving credit facility payable to a bank
group. This credit facility was repaid on August
8, 2000. -- 12,900
Term loan payable to a bank group due on
December 31, 2002 with interest at various
rates. This note was secured by certain assets
of the Company. This note was repaid on August
8, 2000. -- 9,100
Other notes payable 174 213
----------------------------------
308,799 91,213
Less Current maturities 10,563 5,160
----------------------------------
$ 298,236 $ 86,053
----------------------------------
14
Credit Facility
On August 8, 2000, the Company entered into a $350 million senior
secured credit facility with Lehman Brothers, Inc. and CIBC World Markets, Corp.
as co-arrangers, among others. The proceeds of the credit facility were used to
finance the Mississippi Acquisitions, to pay off the Company's existing debts
with First Union National Bank and Bank of America, to tender for the
outstanding 10 5/8% Senior Notes and for working capital purposes. The credit
facility provides for a $75 million revolving credit facility maturing on August
8, 2005, a $75 million Tranche A term loan maturing on August 8, 2005 and a $200
million Tranche B term loan maturing on August 8, 2006.
At the Company's option, the revolving credit facility and the Tranche
A term loan may bear interest at (1) the highest of 1/2 of 1% in excess of the
federal funds effective rate or the rate that the bank group announces from time
to time as its prime lending rate plus an applicable margin of up to 2.25%, or
(2) a rate tied to a eurodollar rate plus an applicable margin up to 3.25%. At
the Company's option, the Tranche B term loan may bear interest at (1) the
highest of 1/2 of 1% in excess of the federal funds effective rate or the rate
that the bank group announces from time to time as its prime lending rate plus
an applicable margin of up to 3.25%, or (2) a rate tied to a eurodollar rate
plus an applicable margin up to 4.00%. The credit facility provides for certain
covenants, including those of a financial nature. Substantially all of the
Company's assets are pledged as collateral under the Credit Agreement. The
outstanding amounts under the credit facility as of September 30, 2000 is as
follows (in thousands):
Revolving credit facility $36.0
Tranche A 73.1
Tranche B 199.5
-----
Total $308.6
------
On June 29, 2000 the Company commenced a cash tender offer for all of
its outstanding $69 million 10 5/8% Senior Notes due 2004 (the "Notes") and a
related consent solicitation to eliminate certain restrictive covenants and
related provisions in the indenture pursuant to which the Notes were issued. All
of the holders of the Notes accepted the Company's tender offer, consented to
the proposed indenture amendments and delivered all of the outstanding Notes to
the trustee. The tender offer was completed on August 8, 2000.
As a result of the tender offer, the Company paid a tender premium of
$6,685 million. In addition, the Company charged to operations deferred
financing costs, amounting to $4,513 million as a result of the refinancing
discussed above. The total, $11,198 million has been reflected as an
extraordinary item, net of an income tax benefit of $4,165 million in the
consolidated statements of income for the tree and nine months ended September
30, 2000.
15
7. Trackpower, Inc. and eBet Limited
In July 1999, the Company entered into an agreement with Trackpower,
Inc. (OTC BB: TPWR) ("Trackpower") to serve as the exclusive pari-mutuel
wagering hub operator for Trackpower. Trackpower, up until August 1, 2000,
provided direct-to-home digital satellite transmissions of horse racing to its
subscriber base. The initial term of the contract is for five years with an
additional five-year option available. The Company pays Trackpower a commission
on all new revenues earned from their subscriber base. As an additional
incentive to enter into the contract, the Company received warrants to purchase
5,000,000 shares of common stock of Trackpower at prices ranging from $1.58 per
share to $2.58 per share. The warrants vest at 20% per year and expire on April
30, 2004. The fair market value of the warrants issued will be amortized over
the vesting period of one year from the anniversary date of the agreement. As a
result of the transition of operations in 1999, the amount to be amortized as a
reduction of commissions earned in 2000 by Trackpower was not material.
In March 2000, the Company entered into a letter of intent with
Trackpower and eBet Limited ("eBet") which, if a definitive agreement was
executed, would have replaced and restated the above described agreement between
the Company and Trackpower. On June 27, 2000, the March 2000 letter of intent
was terminated. The Company will continue to work under existing license
agreements and contracts entered into with Trackpower prior to March 2000.
8. Minority Interest Purchase
On March 15, 2000, the Company purchased from the BDC Group ("BDC"),
its joint venture partner in West Virginia, BDC's 11% interest in PNGI Charles
Town Gaming Limited Liability Company, which owns and operates Charles Town
Races, for $6.0 million in cash. The investment is recorded net of the minority
interest tax liability of $155,000 or $5.845 million. As a result of the
purchase, PNGI Charles Town Gaming Limited Liability Company is now a 100% owned
subsidiary of the Company.
9. Pending Acquisition
On July 31, 2000, the Company entered into a definitive agreement
to acquire by merger the gaming assets of CRC Holdings, Inc. ("CRC") which does
business as Carnival Resorts and Casinos for $95.8 million and the assumption of
approximately $32 million in net debt (the "CRC Acquisition"). CRC is an
experienced operator of gaming facilities and the owner of approximately 59% of
Louisiana Casino Cruises, Inc. ("LCCI") the owner and operator of the Casino
Rouge, a riverboat gaming facility located on the east bank of the Mississippi
River in Baton Rouge, Louisiana. The Company also entered into a definitive
agreement with the minority owners of LCCI to acquire their approximately 41%
stake for $32.5 million. CRC also has a management contract for the Casino Rama
casino which terminates in 2011. Casino Rama is located approximately 80 miles
north of Toronto, Canada, in Orillia, Canada on land owned by the Chippewas of
Mnjikaning First Nation. Under the terms of the agreement, CRC will divest all
of its non-gaming related assets prior to closing. The transaction, expected to
close in the first half of 2001, is subject to regulatory and other approvals in
both Louisiana and Canada, financing, the expiration of the applicable
Hart-Scott-Rodino waiting period and other customary closing conditions.
16
Item 2. Management's Discussion and Analysis of Financial Conditions and
Results of Operations
Results of Operations
Three Months Ended September 30, 2000 Compared To Three Months Ended
September 30, 1999
Revenues for the quarter rose 91.5% to $91.1 million compared to $47.6
million in the third quarter of 1999. The Company's Charles Town operations
achieved a 77.3% gain in third quarter revenues resulting from significant
increases in slot revenues related to a greater percentage of coin-out slot
machines which are generating higher levels of play. Third quarter revenue
comparisons also reflect the Company's first recognition of revenues from the
recently acquired Mississippi casinos and a 7.9% revenue gain from Penn National
Race Course and Pocono Downs and their eleven off-track wagering (OTW) sites.
EBITDA (earnings before interest, taxes, depreciation and amortization) rose
118.7% to $19.0 million, from $8.7 million in the third quarter of 1999. The
third quarter 2000 EBITDA growth includes a partial quarter EBITDA contribution
of $3.8 million from the Mississippi casinos and reflects a 119.0% rise in
operating income at Charles Town related to higher slot wagering and positive
operating income from on-track operations, a 57.8% EBITDA gain from the
Company's Pennwood Racing New Jersey joint venture, and a 20.9% EBITDA increase
from the Company's Pennsylvania racetracks and OTW operations.
Net income in the third quarter of 2000 was $6.0 million, or $0.39 per
diluted share, a gain of 111.9% (before an extraordinary charge for the early
extinquishment of debt) compared to net income of $2.8 million, or $0.19 per
diluted share, in the third quarter of 1999. Reflecting an extraordinary charge
net of taxes of $6.6 million, or $0.43 per diluted share, for the early
extinquishment of debt, the Company recorded a net loss of $581,000, or a $0.04
per diluted share loss, in the third quarter of 2000. Per share results are
based on a weighted average number of diluted shares outstanding of 15,504,000
and 15,242,000 for the third quarters of 2000 and 1999, respectively.
Business Segment Information
Three Months Ended September 30,
(In thousands)
(unaudited)
REVENUES EBITDA
-------- ------
2000 1999 2000 1999
---- ---- ---- ----
Penn Nationl Race Course and its OTWs $16,933 $16,132 $ 3,010 $2,409
------- ------- ------- ------
Pocono Downs and its OTWs 10,972 9,731 2,567 2,205
------- ------- ------- ------
Charles Town 38,460 21,695 10,364 4,732
------- ------- ------- ------
Mississippi casinos
Casino Magic - Bay St. Louis 13,794 - 2,417 -
------- ------- ------- ------
Boomtown Biloxi - Biloxi 10,615 - 1,419 -
------- ------- ------- ------
Earnings from Pennwood Racing, Inc.
(New Jersey) 815 516 815 516
------- ------- ------- ------
Corporate eliminations* (507) (508) - -
------- ------- ------- ------
Corporate overhead - - (1,635) (1,192)
------- ------- ------- ------
Total $91,082 $47,566 $18,957 $8,670
======= ======= ======= ======
* For intracompany transactions related to import/export simulcasting.
17
Charles Town Entertainment Complex
Revenues increased at Charles Town by approximately $16.7 million, or
77.2%, to $38.5 million in 2000 from $21.7 million in 1999. Gaming revenue
increased by $15.6 million, or 102.5%, to $30.6 million in 2000 from $15.0
million in 1999 due to the addition of 136 new video lottery machines and 565
new reel spinning, coin-out slot machines since January of last year. The
average number of machines in play increased to 1,439 in 2000 from 921 in 1999
and the average win per machine increased to $228 in 2000 from $177 in 1999.
Racing revenue increased by $.3 million or 7.1% to $5.5 million in 2000 from
$5.2 million in 1999. The live meet consisted of 55 race days in 2000 and
compared to 61 race days in 1999 and a change in the schedule from a Wednesday
afternoon race program to a Thursday evening race program in 2000 to accommodate
export simulcasting. Charles Town began exporting its live race program to
tracks across the country on June 5, 1999 and generated export simulcasting
revenues of $590,000 for 2000 compared to $360,000 in 1999. Concession revenues
increased by approximately $.8 million or 56.7% to $2.3 million in 2000 from
$1.5 million in 1999 due to increased attendance for gaming and racing and the
expansion of the concession areas, dining room and buffet area. Operating
expenses increased by $10.0 million or 55.4 % to $28.1 million in 2000 from
$18.1 million in 1999. The increase was due to an increase in direct costs
associated with additional wagering on horse racing and gaming machine play, the
addition of gaming machines and floor space (new temporary facility for gaming
machines), export simulcast expenses and expanded concession and dining
capability and capacity. EBITDA increased by $5.7 million or 121.2% to $10.4
million in 2000 from $4.7 million in 1999.
Mississippi Casinos
The Casino Magic-Bay St Louis and Boomtown Biloxi acquisitions were
completed on August 8, 2000. For the period August 8 to September 30, 2000, the
casinos had revenues of $24.2 million, operating expenses of $20.6 million and
EBITDA of $3.8 million.
Penn National Race Course and OTW Facilities (Penn National Race Course)
Penn National Race Course had an increase in revenue of approximately
$.8 million, or 5.0%, to $16.9 million in 2000 from $16.1 million in 1999.
Pari-mutuel wagering for the period was $96.1 million in 2000 compared to $100.0
million in 1999. The increase in revenues was primarily due to a refund from the
Commonwealth of Pennsylvania for pari-mutuel taxes paid in 1999 in the amount of
$1.0 million. Operating expenses increased by approximately $.2 million or,
1.4%, to $13.9 million in 2000 from $13.7 million in 1999.
Pocono Downs and OTW Facilities (Pocono Downs)
Revenues at Pocono Downs increased by $1.3 million or 12.7% to $11.0
million in 2000 from $9.7 million in 1999. Pari-mutuel wagering increased to
$47.5 million in 2000 compared to $46.3 million in 1999. Revenues increased due
to the opening of the East Stroudsburg OTW on July 29, 2000, a live racing
schedule change that added Monday racing and dropped Friday racing, and a refund
from the Commonwealth of Pennsylvania for pari-mutuel taxes paid in 1999 in the
amount of $.6 million. Expenses increased by approximately $.9 million or 11.6%
to $8.4 million in 2000 from $7.5 million in 1999. EBITDA increased $.4 million
or 16.7% to $2.6 million in 2000 from $2.2 million in 1999.
New Jersey Joint Venture
The Company completed its investment in the Joint Venture on July 29,
1999. The Joint Venture operates Freehold Raceway and Garden State Race Track.
Revenues of the Joint Venture increased to $14.3 million in 2000 compared to
$10.5 million in 1999 as a result of the recognition of operating results for a
full three-month period in 2000. Net income was $1.6 million in 2000 compared to
$1.0 million in 1999. The Company's 50% share of net income was $815,000 in 2000
compared to $516,000 in 1999 and was recorded as other income on the income
statement.
18
Capital Expenditures
Capital expenditures were $10.1 million in 2000 compared to $2.4
million in 1999. Capital expenditures at Charles Town were approximately $3.6
million for the indoor paddock project that will be the new gaming floor space
for 500 machines ($3.2 million) and equipment replacement and upgrades ($1.9
million). Capital expenditures at Penn National Race Course and its OTW
facilities ($.2 million), Pocono Downs and its OTW facilities ($.7 million), and
the Mississippi properties ($.5 million) were for normal equipment replacement
and leasehold improvements. The Company also spent $198.1 million to purchase
the Mississippi properties of which $58.8 million was recorded as goodwill. As a
result of goodwill amortization, depreciation and amortization increased $1.8
million or 75.9% to $4.1 million in 2000 from $2.3 million in 1999.
Nine Months Ended September 30, 2000 Compared To Nine Months Ended
September 30, 1999
Revenues for the nine month period ended September 30, 2000 increased
64.4% to $206.8 million from $125.7 million during the first nine months of
1999. EBITDA rose 107.2% to $42.9 million from $20.7 million in the first nine
months of 1999. Net income in the first nine months of 2000 was $15.8 million or
$1.06 per diluted share, (before the extraordinary charge for the early
extinguishment of debt) compared to net income of $5.4 million or $0.36 per
diluted share, in the first nine months of 1999. Reflecting the third quarter
2000 extraordinary charge net of taxes of $6.6 million or $0.43 per diluted
share, for the early extinguishment of debt, the Company recorded net income of
$9.3 million or $0.60 per diluted share, in the first nine months of 2000. Per
share results are based on a weighted average number of diluted shares
outstanding of 15,407,000 and 15,179,000 for the 2000 and 1999 periods,
respectively.
Nine Months Business Segment
(In thousands)
(unaudited)
REVENUES EBITDA
-------- ------
2000 1999 2000 1999
---- ---- ---- ----
Penn Nationl Race Course and its OTWs $49,939 $39,471 $8,537 $4,960
------- ------- ------- ------
Pocono Downs and its OTWs 29,317 28,398 6,541 7,094
------- ------- ------- ------
Charles Town 102,121 58,267 26,470 11,986
------- ------- ------- ------
Mississippi casinos
Casino Magic - Bay St. Louis 13,794 - 2,417 -
------- ------- ------- ------
Boomtown Biloxi - Biloxi 10,615 - 1,419 -
------- ------- ------- ------
Earnings from Pennwood Racing, Inc.
(New Jersey) 2,244 516 2,240 514
------- ------- ------- ------
Corporate eliminations* (1,272) (913) - -
------- ------- ------- ------
Corporate overhead - - (4,774) (3,875)
------- ------- ------- ------
Total $206,758 $125,739 $42,850 $20,679
======== ======== ======= =======
* For intracompany transactions related to import/export simulcasting.
19
Charles Town Entertainment Complex
Revenues increased at Charles Town by approximately $43.8 million, or
75.2%, to $102.1 million in 2000 from $58.3 million in 1999. Gaming revenue
increased by $40.2 million, or 103.0%, to $80.3 million in 2000 from $40.1
million in 1999 due to the addition of 136 new video lottery machines and 565
new reel spinning, coin-out slot machines since January of last year. The
average number of machines in play increased to 1,432 in 2000 from 893 in 1999
and the average win per machine increased to $202 in 2000 from $164 in 1999.
Racing revenue increased by $1.4 million or 9.8% to $15.7 million in 2000 from
$14.3 million in 1999. The live meet consisted of 160 race days in 2000 and
compared to 160 race days in 1999 and a change in the schedule from a Wednesday
afternoon race program to a Thursday evening race program in 2000 to accommodate
export simulcasting. Charles Town began exporting its live race program to
tracks across the country on June 5, 1999 and generated export simulcasting
revenues of $1.6 million in 2000 compared to $.4 million in 1999. Concession
revenues increased by approximately $2.3 million, or 57.4%, to $6.2 million in
2000 from $3.9 million in 1999 due to increased attendance for gaming and racing
and the expansion of the concession areas, dining room and buffet area.
Operating expenses increased by $26.3 million, or 53.4%, to $75.6 million in
2000 from $49.3 million in 1999. The increase was due to an increase in direct
costs associated with additional wagering on horse racing and gaming machine
play, the addition of gaming machines and floor space (new temporary facility
for gaming machines), export simulcast expenses and expanded concession and
dining capability and capacity. EBITDA increased by $14.5 million, or 120.8%, to
$26.5 million in 2000 from $12.0 million in 1999.
Penn National Race Course and OTW Facilities (Penn National Race Course)
Penn National Race Course had an increase in revenue of approximately
$10.4 million, or 26.5%, to $49.9 million in 2000 from $39.5 million in 1999.
Pari-mutuel wagering for the nine month period was $297.2 million in 2000
compared to $229.0 million in 1999. The increase in wagering and revenues is
attributed to Penn National Race Course running 153 live race days in 2000
compared to 101 live race days in 1999. Penn National only ran 101 live race
days in 1999 due to the Horsemen action in the first quarter that resulted in
the closure of all of the facilities from February 16 to March 24, 1999.
Operating expenses increased by approximately $6.9 million, or 20.0%, to $41.4
million in 2000 from $34.5 million in 1999. EBITDA increased by $3.6 million, or
72.1%, to $8.5 million in 2000 from $4.9 million in 1999.
Pocono Downs and OTW Facilities (Pocono Downs)
Revenues at Pocono Downs increased by $.9 million, or 3.2%, to $29.3
million in 2000 from $28.4 million in 1999. Pari-mutuel wagering was 126.8
million in 2000 and a refund from the Commonwealth of Pennsylvania for
pari-mutuel taxes paid in 1999 in the amount of $.6 million. Expenses increased
by approximately $1.5 million, or 7.1%, to $22.8 million in 2000 from $21.3
million in 1999. The opening of the new OTW facility in East Stroudsburg and the
increase in purse expense per the terms of the new horsemen's contract of
January 2000 accounted for most of the increase in expenses. EBITDA decreased
$.6 million, or 7.9%, to $6.5 million in 2000 from $7.1 million in 1999.
New Jersey Joint Venture
The Company completed its investment in the Joint Venture on July 29,
1999. The Joint Venture operates Freehold Raceway and Garden State Race Track.
Revenues of the Joint Venture increased to $45.1 million in 2000 compared to
$10.5 million in 1999 as a result of the recognition operating results for a
full nine-month period in 2000. Net income was $4.5 million in 2000 compared to
$1.0 million in 1999. The Company's 50% share of net income was $2.2 million in
2000 compared to $.5 million in 1999 and was recorded as other income on the
income statement.
Capital Expenditures
Capital expenditures were $17.3 million in 2000 compared to $5.0
million in 1999. Capital expenditures at Charles Town were approximately $13.8
million and includes the indoor paddock project ($4.7 million) that will be the
new gaming floor space for 500 machines ($5.0 million) and equipment replacement
and upgrades ($4.1 million).
20
Capital expenditures at Penn National Race Course and its OTW facilities ($.5
million), Pocono Downs and its OTW facilities ($.2 million), and the Mississippi
properties ($.5 million) were for normal equipment replacement and leasehold
improvements. Pocono Downs also spent $2.1 million on its new OTW facility in
East Stroudsburg, Pennsylvania, which opened July 29, 2000. The Company also
spent $198.1 million to purchase the Mississippi properties of which $58.8
million was recorded as goodwill. As a result of goodwill amortization,
depreciation and amortization increased $2.0 million or 30.7% to $8.5 million in
2000 from $6.5 million in 1999.
Liquidity and Capital Resources
Historically, the Company's primary source of liquidity and capital
resources have been cash flow from operations, borrowings from banks and
proceeds from the issuance of equity securities.
Net cash provided from operating activities was $30.8 million for the
period ended September 30, 2000. This consisted of net income and non-cash
expenses ($16.6 million), an extraordinary loss relating to the early
extinquishment of debt ($11.2 million), an increase in accounts receivable ($3.7
million) due to the addition of the Mississippi properties and the amount due
from the Commonwealth of Pennsylvania, an increase in prepaid expenses ($4.6
million) and miscellaneous other assets ($2.0 million) primarily from the
Mississippi properties, and increase in accounts payable ($3.4 million), accrued
expenses (4.9 million) and accrued salaries and wages ($3.8 million) primarily
from the Mississippi properties and other changes in certain assets and
liabilities ($1.2 million).
Cash flows used in investing activities for the period ended September
30, 2000 ($221.1 million) consisted of the Company's buyout of the 11% interest
in Charles Town that was owned by other investors, ($5.9 million), the purchase
of the Mississippi properties ($198.0 million), and expenditures for property
and equipment as described above ($17.2 million), net of dispositions.
Cash flows provided by financing activities consisted of borrowings
under the new financing agreement ($312 million) for the purchase of the
Mississippi properties and other borrowings ($7.9 million), proceeds from the
sale of common stock ($.6 million), principal payments on long-term debt ($102.3
million) primarily due the payment of and refinancing of all debt, an increase
in deferred financing cost due to the new financing credit facility and the
payment of tender fees ($6.7 million) for redeeming the 10 5/8% Senior Notes on
August 8, 2000.
The Company is subject to possible liabilities arising from the
environmental condition at the Landfill adjacent to Pocono Downs. Specifically,
the Company may incur expenses in municipalities, which are parties to the
Settlement Agreement. The Company is unable to estimate the amount, if any, that
it may be required to expend.
In fiscal year 2000, the Company anticipates spending approximately
$21.5 million on capital expenditures at its racetracks and OTW facilities. The
Company anticipates expending approximately $18.2 million at the Charles Town
Entertainment Complex for player tracking ($.7 million), new slot machines and
conversion kits ($2.1 million), paddock casino and interior renovations ($7.4
million), machinery and equipment ($2.0 million) and other projects including
construction of a structured parking facility, design and planning for a new
hotel ($6.0 million). The Company also plans to spend approximately $261,000 at
Pocono Downs, $550,000 at Penn National Race Course, $400,000 at the OTW
facilities for building improvements and equipment and $2.0 million on building
improvements and equipment for its new OTW facility in East Stroudsburg,
Pennsylvania. The Company spent approximately $17.3 million on these projects
through September 30, 2000.
The Company entered into a credit facility with Bankers Trust Company,
as agent in 1996. This credit facility was amended and restated on January 29,
1999 with First Union National Bank replacing Bankers Trust Company, as Agent.
The credit facility, as amended, provided for a $20 million revolving credit
facility, including a $3 million sub-limit for standby letters of credit and a
$5 million term loan. Under the terms of the credit facility, as amended, the
Company borrowed an additional $11.5 million which was used to finance its share
of the New Jersey Joint Venture (see Note 4). The outstanding amount under this
credit facility as of June 30, 2000 was $12.9 million at an interest rate of
9.16%. The credit facility was repaid on August 8, 2000.
On December 13, 1999, the Company entered into a $20.0 million Senior
Secured Multiple Draw Term Loan with Bank of America, as an Agent for a bank
group. The term loan was payable in quarterly installments of $1.3
21
million principle plus interest. The loan was secured by gaming equipment and
improvements at the Charles Town Entertainment Complex. Part of the term loan
was used to repay the $5.0 million First Union term loan and the balance was
used to finance gaming equipment and improvements at the Charles Town
Entertainment Complex. The outstanding amount under this credit facility as of
June 30, 2000 was $ 13.9 million at an interest rate of 9.15%. This credit
facility was repaid on August 8, 2000.
On June 14, 2000, the Company entered into a financing commitment
letter with Lehman Brothers, Inc. and CIBC World Markets, Corp. for a $350
million senior secured credit facility with bank and institutional lenders. On
August 8, 2000, the Company completed the credit agreement with Lehman Brothers,
Inc. and CIBC World Markets Corp. as co-arrangers among others. The proceeds of
the credit facility were used to finance the $195 million Mississippi
Acquisitions, to refinance the Company's existing debts with First Union
National Bank and Bank of America, to purchase the outstanding 10 5/8% Senior
Notes and for working capital purposes. The credit facility provides for a $75
million revolving credit facility maturing on August 8, 2005, a $75 million
Tranche A term loan maturing on August 8, 2005 and a $200 million Tranche B term
loan maturing on August 8, 2006.
At the Company's option, the revolving credit facility and the Tranche
A term loan may bear the interest at (1) the highest of 1/2 of 1% in excess of
the federal funds effective rate or the rate that the bank group announces from
time to time as its prime lending rate plus an applicable margin of up to 2.25%,
or (2) a rate tied to a eurodollar rate plus an applicable margin up to 3.25%.
At the Company's option, the Tranche B term loan may bear the interest at (1)
the highest of 1/2 of 1% in excess of the federal funds effective rate or the
rate that the bank group announces from time to time as its prime lending rate
plus an applicable margin of up to 3.25%, or (2) a rate tied to a eurodollar
rate plus an applicable margin up to 4.00%. The credit facility provides for
certain covenants, including those of a financial nature. Substantially all of
the Company's assets are pledged as collateral under the Credit agreement. The
outstanding amount under this credit facility as of September 30, 2000 was
$308.6 million.
The Company currently estimates that the cash generated from operations
and available borrowings under the new credit facilities will be sufficient to
finance its current operations and planned capital expenditure requirements, not
including the CRC Acquisition. There can be no assurance, however, that the
Company will not be required to seek additional capital, in addition to that
available from the foregoing sources. The Company may, from time to time, seek
additional funding through public or private financing, including equity
financing. There can be no assurance that adequate funding will be available as
needed or, if available, on terms acceptable to the Company.
Item 3. Quantitative and Qualitative Disclosures Market Risk
All of the Company's debt obligations at September 30, 2000 are
variable rate obligations. With the slowing of the economy, the Federal Reserve
Board is not expected to raise interest rates in the near future. Management,
therefore, does not believe that the Company has any material market risk from
its debt obligations during the last quarter of 2000.
22
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
None
(B) Reports on Form 8-K
The Company filed the following Current Reports on Form 8-K during the
third quarter of 2000:
On August 8, 2000 the Company filed a Current Report on Form 8-K which
reflected that the Company entered into a definitive agreement to acquire by
merger the gaming assets of CRC Holdings, Inc. (CRC) and the Company also
entered into a definitive agreement to acquire the approximately 41% of
Louisiana Casino Cruises, Inc. not owned by CRC.
On August 23, 2000 the Company filed a Current Report on Form 8-K that
reflected the completion on August 8, 2000, of its purchase of substantially all
of the assets of the Casino Magic Bay St Louis Casino and Boomtown Biloxi Casino
from Pinnacle Entertainment, Inc. (formerly Hollywood Park, Inc.) for $195
million.
On October 20, 2000 the Company filed a Current Report on Form 8-K/A
that included financial information pertaining to the purchase of substantially
all of the assets of the Casino Magic Bay St Louis Casino and Boomtown Biloxi
Casino from Pinnacle Entertainment, Inc. (formerly Hollywood Park, Inc.) for
$195 million which was reported in the Current Form 8-K filed August 23, 2000.
23
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.
Penn National Gaming, Inc.
Date: November 14, 2000 By: /s/ Robert S. Ippolito
-----------------------------------------
Robert S. Ippolito,
Chief Financial Officer/
Treasurer/Secretary
24
5
1,000
9-MOS
DEC-31-2000
JAN-01-2000
SEP-30-2000
20,402
0
8,494
0
0
35,823
309,940
27,371
430,734
43,190
308,799
0
0
154
76,009
430,734
206,758
206,758
172,365
172,365
9,669
0
11,004
24,724
8,876
15,848
0
(6,583)
0
9,265
.62
.60
