SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report (Date of earliest event reported): APRIL 27, 2001 -------------- PENN NATIONAL GAMING, INC. --------------------------- (Exact Name of Registrant Specified in Charter) PENNSYLVANIA 0-24206 23-2234473 - -------------------- ---------------- ------------------- (State or Other (Commission File (I.R.S. Employer Jurisdiction of Number) Identification No.) Incorporation) 825 Berkshire Boulevard Wyomissing, PA 19610 - ------------------------------------------------- ---------------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (610) 373-2400 --------------- NOT APPLICABLE ------------------------ (Former Name or Former Address, if Changed Since Last Report)

ITEM 2. ACQUISITION OF ASSETS (a) On April 27, 2001 (the "Closing Date"), the Registrant completed its previously announced acquisitions of (i) CRC Holdings, Inc. ("CRC") from the shareholders of CRC and (ii) the minority interest in Louisiana Casino Cruises, Inc. not owned by CRC from Dan S. Meadows, Thomas L. Meehan and Jerry L. Bayles (together, the "Acquisition"). The Acquisition was accomplished pursuant to the terms of Agreement and Plan of Merger among CRC Holdings, Inc., Penn National Gaming, Inc., Casino Holdings, Inc. and certain shareholders of CRC Holdings, Inc., dated as of July 31, 2000 (the "Merger Agreement"), and a Stock Purchase Agreement by and among Penn National Gaming, Inc., Dan S. Meadows, Thomas L. Meehan and Jerry L. Bayles, dated as of July 31, 2000 (the "Stock Purchase Agreement"). Under the Merger Agreement, CRC merged with Casino Holdings, Inc., a wholly-owned subsidiary of the Registrant (the "Merger"). The terms of each of the agreements were the result of arm's length negotiations among the parties. The aggregate consideration paid by the Registrant for the Acquisition was approximately $181.3 million, including the repayment of existing debt at CRC or its subsidiaries. The purchase price of the Acquisition was funded by the proceeds of the Registrant's offering of senior subordinated notes, which was completed in March 2001. (b) The assets acquired pursuant to the Merger and Acquisition consist primarily of the Casino Rouge riverboat gaming facility in Baton Rouge, Louisiana, and a management contract for Casino Rama, a gaming facility located in Orillia, Canada. The Registrant intends to continue the use of such assets in the casino business. The Registrant issued a press release announcing the completion of the Acquisition, which release is filed herewith as Exhibit 99.1 and is incorporated herein by reference. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED. The following financial statements are filed as part of this Current Report on Form 8-K: (i) CRC Holdings, Inc. - Gaming Division Financial Statements - November 30, 2000 o Report of Independent Certified Public Accountants o Balance Sheets - November 30, 1999 and 2000 o Statements of Operations - Years ended November 30, 1998, 1999 and 2000 o Statements of Changes in Stockholders' Equity - Years ended November 30, 1998, 1999 and 2000 o Statements of Cash Flows - Years ended November 30, 1998, 1999 and 2000 o Notes to Financial Statements (ii) CRC Holdings, Inc. - Gaming Division Financial Statements - February 28, 2001 o Balance Sheets - November 30, 2000 and February 28, 2001 (unaudited) o Statements of Operations - Three Month Periods Ended February 29, 2000 (unaudited) and February 28, 2001 (unaudited) o Statement of Changes in Stockholders' Equity - Three Month Period Ended February 28, 2001 (unaudited) o Statements of Cash Flows - Three Month Periods Ended February 28, 2000 (unaudited) and February 28, 2001 (unaudited) o Notes to Financial Statements (b) PRO FORMA FINANCIAL INFORMATION. The following unaudited pro forma consolidated financial information is filed as part of this Current Report on Form 8-K: -- Unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 2000; -- Unaudited Pro Forma Consolidated Statement of Operations for the three months ended March

31, 2001; -- Notes to Unaudited Pro Forma Consolidated Statement of Operations; -- Unaudited Pro Forma Consolidated Balance Sheet as of March 31, 2001; and -- Notes to Unaudited Pro Forma Consolidated Balance Sheet. (c) EXHIBITS. EXHIBIT NO. DESCRIPTION OF DOCUMENT 2.1 + Agreement and Plan of Merger among CRC Holdings, Inc., Penn National Gaming, Inc., Casino Holdings, Inc. and certain shareholders of CRC Holdings, Inc. dated as of July 31, 2000. 2.2 + Stock Purchase Agreement by and among Penn National Gaming, Inc., Dan S. Meadows, Thomas L. Meehan and Jerry S. Bayles, dated as of July 31, 2000. 99.1 ++ Press Release dated April 30, 2000. ------------ + Previously filed as an exhibit to the Registrant's Current Report on Form 8-K filed August 8, 2000 and incorporated herein by reference. ++ Previously filed as an exhibit to the Registrant's Current Report on Form 8-K filed May 7, 2001 and incorporated herein by reference.

CRC HOLDINGS, INC. - GAMING DIVISION FINANCIAL STATEMENTS NOVEMBER 30, 2000 CONTENTS ------------------------------------- Report of Independent Certified Public Accountants Balance Sheets - November 30, 1999 and 2000 Statements of Operations - Years ended November 30, 1998, 1999 and 2000 Statements of Changes in Stockholders' Equity - Years ended November 30, 1998, 1999 and 2000 Statements of Cash Flows - Years ended November 30, 1998, 1999 and 2000 Notes to Financial Statements

Report of Independent Certified Public Accountants To the Board of Directors and Stockholders of CRC Holdings, Inc. In our opinion, the accompanying balance sheets and the related statements of operations, of changes in stockholders' equity and of cash flows present fairly, in all material respects, the financial position of CRC Holdings, Inc. - Gaming Division (the "Company") at November 30, 1999 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended November 30, 2000 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Miami, Florida February 2, 2001

CRC HOLDINGS, INC. - GAMING DIVISION BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE DATA) November 30, ------------ 1999 2000 ---- ---- ASSETS Current Assets Cash and cash equivalents $ 22,395 $ 27,395 Trade accounts receivable, net of allowance for doubtful accounts of $274 and $357 at 1999 and 2000, respectively 9,552 9,100 Receivables 7,754 5,937 Deferred income tax 1,595 976 Other current assets 2,471 1,278 --------- --------- Total current assets 43,767 44,686 Property and equipment, net 42,742 43,049 Receivables, net 5,938 -- Goodwill, net 3,367 3,366 Other assets 4,286 2,946 --------- --------- Total Assets $ 100,100 $ 94,047 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 2,137 $ 2,314 Due to affiliates and officers 164 163 Accrued expenses 16,922 17,054 Deferred compensation plan liability -- 1,123 Current portion of long-term debt 6,333 5,949 --------- --------- Total current liabilities 25,556 26,603 Deferred compensation plan liability 1,826 -- Long-term debt 58,958 53,000 Deferred income tax 4,044 4,974 Other liabilities 87 157 --------- --------- Total liabilities 90,471 84,734 --------- --------- Commitments and contingencies (Note 10) Minority interest 51 1,690 Stockholders' Equity Common stock $.005 par value; 20,000 shares authorized; 10,742 shares issued and outstanding 54 54 Additional paid-in capital 10,335 1,434 (Accumulated deficit) retained earnings (804) 6,186 Cumulative translation adjustment (7) (51) --------- --------- Total stockholders' equity 9,578 7,623 --------- --------- Total liabilities and stockholders' equity $ 100,100 $ 94,047 ========= ========= THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

CRC HOLDINGS, INC. - GAMING DIVISION STATEMENTS OF OPERATIONS (IN THOUSANDS) Year Ended November 30, ----------------------------------- 1998 1999 2000 ---- ---- ---- Revenues Casino $ 68,845 $ 82,250 $ 89,564 Food and beverage 6,174 7,465 7,736 Management service fees 14,800 15,790 13,218 Less: promotional allowances (4,174) (5,057) (5,746) --------- --------- --------- Net revenues 85,645 100,448 104,772 --------- --------- --------- Operating Expenses Casino 33,302 38,439 41,991 Food and beverage 1,539 1,659 1,150 Management service and operating costs 28,850 30,323 33,298 Depreciation and amortization 5,004 5,628 5,000 --------- --------- --------- Total operating expenses 68,695 76,049 81,439 --------- --------- --------- Income from operations before equity in net losses of affiliates 16,950 24,399 23,333 Equity in net losses of affiliates (174) -- -- --------- --------- --------- Income from operations 16,776 24,399 23,333 --------- --------- --------- Other Income (Expense) Interest income 2,249 2,200 1,695 Interest expense (8,896) (8,478) (7,213) Foreign currency gains (losses) 1,418 157 (111) Common and redeemable preferred stock dividends of subsidiary (1,094) (1,253) -- Other income (expense) 254 (505) (525) --------- --------- --------- Total other income (expense) (6,069) (7,879) (6,154) --------- --------- --------- Income before provision for income taxes, minority interest and extraordinary loss 10,707 16,520 17,179 Provision for income taxes 719 7,191 7,105 --------- --------- --------- Income before minority interest and extraordinary loss 9,988 9,329 10,074 Minority interest (108) 221 3,084 --------- --------- --------- Income before extraordinary loss 10,096 9,108 6,990 Extraordinary loss from early extinguishment of debt, net of income tax benefit of $1,106 in 1999 -- (1,731) -- --------- --------- --------- Net income $ 10,096 $ 7,377 $ 6,990 ========= ========= ========= THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

CRC HOLDINGS, INC. - GAMING DIVISION STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED NOVEMBER 30, 1998, 1999 AND 2000 (IN THOUSANDS) Retained Common Stock Additional Earnings Cumulative Total Paid-In (Accumulated Translation Stockholders' SHARES AMOUNT CAPITAL DEFICIT) ADJUSTMENT EQUITY ------ ------ ------- -------- ---------- ------ Balance, November 30, 1997 10,621 $ 53 $ 18,498 $(18,277) $ 26 $ 300 Additional common shares issued 121 1 (1) -- -- -- Net change in hospitality division intercompany account -- -- (362) -- -- (362) Net income -- -- -- 10,096 -- 10,096 Other comprehensive income: Foreign currency translation adjustment -- -- -- -- (64) (64) -------- Comprehensive income -- -- -- -- -- 10,032 ------ ------ -------- ---------- -------- -------- Balance, November 30, 1998 10,742 54 18,135 (8,181) (38) 9,970 ------ ------ -------- ---------- -------- -------- Net change in hospitality division intercompany account -- -- (7,800) -- -- (7,800) Net income -- -- -- 7,377 -- 7,377 Other comprehensive income: Foreign currency translation adjustment -- -- -- -- 31 31 -------- Comprehensive income -- -- -- -- -- 7,408 ------- ------ -------- ----------- --------- -------- Balance, November 30, 1999 10,742 54 10,335 (804) (7) 9,578 ------- ------ -------- ----------- --------- -------- Net change in hospitality division intercompany account -- -- (8,901) -- -- (8,901) Net income -- -- -- 6,990 -- 6,990 Other comprehensive income: Foreign currency translation adjustment -- -- -- -- (44) (44) -------- Comprehensive income -- -- -- -- -- 6,946 ------- ------ -------- ----------- --------- -------- Balance, November 30, 2000 10,742 $ 54 $ 1,434 $ 6,186 $ (51) $ 7,623 ======= ====== ========= ========= ======== ======== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

CRC HOLDINGS, INC. - GAMING DIVISION STATEMENTS OF CASH FLOWS (IN THOUSANDS) Year Ended November 30, ---------------------------------------------- 1998 1999 2000 ---- ---- ---- Cash flows from operating activities: Net income $ 10,096 $ 7,377 $ 6,990 Adjustments to reconcile net income to net cash provided by operating activities: Extraordinary loss on early extinguishment of debt, net -- 1,731 -- Provision (recovery) for losses on receivables and equity investments, net 745 (446) 116 Depreciation and amortization 5,004 5,628 5,000 Amortization of deferred charges 1,560 778 528 Undistributed equity in net losses of affiliates 174 -- -- Foreign currency (gains) losses (1,418) (157) 111 Deferred income taxes (975) 1,161 1,590 Minority interest (108) 221 3,084 Other (3) (59) -- Change in assets and liabilities: (Increase) decrease in: Trade accounts receivable (146) (1,053) 255 Other assets 205 403 1,297 Increase (decrease) in: Accounts payable 400 (932) 177 Accrued expenses (4,705) 6,394 784 Deferred compensation plan liability 321 88 (703) Other liabilities 1,367 661 478 -------- -------- -------- Net cash provided by operating activities 12,517 21,795 19,707 -------- -------- -------- Cash flows from investing activities: Receipts from project loans and advances 3,438 6,250 7,754 Purchases of property and equipment (5,373) (5,328) Decrease in restricted cash 4,824 -- -- Investments in and advances to affiliates (578) -- -- Sale of property and equipment 42 -- -- Project loans and advances (760) (943) -- -------- -------- -------- Net cash flows provided (used) by investing activities 1,593 (1,036) 2,426 -------- -------- -------- Cash flows from financing activities: (Increase) decrease in due from affiliates (834) (278) (388) Borrowings 50,000 55,000 -- Payments of debt and other deferred charges (55,175) (56,736) (6,301) Payments of redeemable preferred and accrued dividends of subsidiary (1,760) -- -- Purchase of common stock and common stock warrants of subsidiary -- (4,073) (174) Payments of common stock dividends of subsidiary -- (174) (1,369) Net change in hospitality division intercompany account (362) (7,678) (8,901) -------- -------- -------- Net cash flows used by financing activities (8,131) (13,939) (17,133) -------- -------- -------- Net increase in cash and cash equivalents 5,979 6,820 5,000 Cash and cash equivalents at beginning of year 9,596 15,575 22,395 -------- -------- -------- Cash and cash equivalents at end of year $ 15,575 $ 22,395 $ 27,395 ======== ======== ======== Supplemental disclosure of cash flow information: Cash paid during the year for interest $ 9,700 $ 4,798 $ 7,045 Cash paid during the year for income taxes $ 415 $ 1,880 $ 4,137 Cash received during the year for income taxes $ 36 $ 12 $ -- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

CRC HOLDINGS, INC. - GAMING DIVISION NOTES TO FINANCIAL STATEMENTS (dollars in thousands, except per share data) NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION CRC Holdings, Inc. ("CRC"), d/b/a Carnival Resorts & Casinos, owns, operates and develops casino properties (for purposes hereof, the "CRC Gaming Division" or the "Company") and develops and manages hotel and resort properties. The CRC Gaming Division consists principally of an approximate 60% interest in Louisiana Casino Cruises, Inc. ("LCCI"), which owns the Casino Rouge, a riverboat casino based in Baton Rouge, Louisiana, and through a wholly-owned subsidiary, CHC Casinos Canada Limited ("CHC Canada"), the operations of Casino Rama located north of Toronto, Canada, on behalf of the Chippewas of Rama First Nation and the Ontario Lottery and Gaming Corporation. These financial statements depict the financial condition and results of operations of the CRC Gaming Division as of and for the periods presented. Pursuant to the Agreement and Plan of Merger among CRC, Penn National Gaming, Inc. ("Penn"), Casino Holdings, Inc. ("Casino Holdings"), a wholly-owned subsidiary of Penn, and certain stockholders of CRC, dated July 31, 2000 (the "Merger Agreement"), subject to appropriate approvals and certain conditions including financing, CRC has agreed to (i) distribute its hospitality division and certain other assets and liabilities to the stockholders of CRC, (ii) distribute its net after-tax income, as defined, less certain adjustments for the period from the date of the Merger Agreement through the closing date of the Merger Agreement to the stockholders of CRC, and (iii) immediately subsequent to the distributions, merge the CRC Gaming Division with and into Casino Holdings. In addition, pursuant to a Stock Purchase Agreement among certain minority stockholders of a 40% interest in LCCI (the "LCCI Minority Stockholders") and Penn dated July 31, 2000 (the "Stock Purchase Agreement"), the LCCI Minority Stockholders, subject to closing of the Merger Agreement, appropriate approvals and certain conditions, have agreed to sell their 40% interest in LCCI to Penn. The Merger Agreement and Stock Purchase Agreement provide the foregoing transactions shall be consummated on or before October 31, 2001 although there can be no assurance to that effect. Pursuant to an Agreement and Plan of Merger with CHC International, Inc. ("CHC"), Wyndham International, Inc. ("Wyndham"), and Patriot American Hospitality, Inc., on June 30, 1998, CHC (i) contributed its gaming and hospitality development business to CRC, (ii) distributed all of the common stock of CRC to the stockholders of CHC pro rata based on their ownership in CHC, and (iii) merged with and into Wyndham subsequent to the pro rata distribution (collectively the "Patriot Merger"). The financial statements have been prepared as if the Company has operated as an independent, stand alone entity for all periods presented. Such financial statements have been prepared using the historical basis of accounting and include all of the assets, liabilities, revenues and expenses previously included in CRC's and CHC's consolidated financial statements prior to the transactions contemplated by the Merger Agreement, the Stock Purchase Agreement and the Patriot Merger, except for all the assets, liabilities (including contingent liabilities), revenues and expenses of the THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

CRC HOLDINGS, INC. - GAMING DIVISION NOTES TO FINANCIAL STATEMENTS (dollars in thousands, except per share data) hospitality division of CRC and CHC and their respective subsidiaries. Consequently, these financial statements include certain balances and allocations for assets and liabilities and corresponding income and expense items related to the Company that were previously included in CRC's and CHC's consolidated financial statements. In accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 55, these financial statements exclude certain corporate expenses incurred by CRC and CHC on the hospitality division's behalf. All significant intercompany balances and transactions within the CRC Gaming Division have been eliminated. Investments in less than majority-owned gaming businesses, in which a significant equity ownership interest is held, are accounted for on the equity method. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States. Significant accounting policies are summarized below. ACCOUNTING ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. REVENUE RECOGNITION Casino Revenue represents the net win from gaming activities which is the difference between gaming wins and losses. Casino revenues are net of accruals for anticipated pay-outs of progressive jackpots. The estimated direct costs of providing promotional allowances for food and beverage and other items have been classified as casino operating expenses and totaled $2,793, $3,104 and $3,250 for the years ended November 30, 1998, 1999 and 2000, respectively. Revenues from food and beverage sales are recognized at the time the related service is performed. Revenues from management service fees for management of casinos are based upon contracted terms and are recognized when the services are performed, and include management service fees from affiliates of $144, for the year ended November 30, 1998. REIMBURSED OPERATING EXPENSES The Company is fully reimbursed by Casino Rama for salaries and related costs for casino personnel employed by the Company in accordance with management contract terms and the administration of services consisting primarily of sales, marketing and reservations. These costs amounted to $66,399, $67,921 and $72,388 for the years ended November 30, 1998, 1999 and 2000, respectively. All such costs and related reimbursements have been netted in the statements of THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

CRC HOLDINGS, INC. - GAMING DIVISION NOTES TO FINANCIAL STATEMENTS (dollars in thousands, except per share data) operations, with reimbursable amounts and accrued salaries and related costs reflected as trade accounts receivable and accrued expenses, respectively, in the balance sheets. FOREIGN CURRENCY TRANSLATION The assets and liabilities of the Company's foreign operations are generally translated into United States dollars at year-end exchange rates, and revenues and expenses are generally translated at average exchange rates for the year. Comprehensive income resulting from translation adjustments are reflected within stockholders' equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations, as incurred. STOCK BASED COMPENSATION The Company has adopted Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock Based Compensation" which establishes a fair value based method of accounting for stock based compensation plans, the effect of which can either be disclosed or recorded. The Company has chosen to retain its intrinsic value method of accounting for stock based compensation. CASH AND CASH EQUIVALENTS Cash and cash equivalents include short-term investments with original purchase maturities of 90 days or less. TRADE ACCOUNTS RECEIVABLE Trade accounts receivable are from properties under management and casino customers. The Company provides an allowance for doubtful accounts based on a periodic review of outstanding receivables and an evaluation of aggregate collectibility. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation and amortization are provided on a straight-line basis over the estimated useful lives of the assets or the expected term of the land lease (including renewals), whichever is shorter: Vessel 18 years Building 30 years Furniture, fixtures and other equipment 4 - 10 years Gaming equipment 5 - 15 years Expenditures for repairs and maintenance are charged to expense as incurred. Expenditures for major renewals and betterments, which significantly extend the useful lives of existing equipment, are capitalized and depreciated. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

CRC HOLDINGS, INC. - GAMING DIVISION NOTES TO FINANCIAL STATEMENTS (dollars in thousands, except per share data) Leasehold improvements and equipment held under capital leases are amortized over the lesser of useful life or lease term. IMPAIRMENT OF LONG-LIVED ASSETS When events or circumstances indicate that the carrying amount of long-lived assets to be held and used might not be recoverable, the expected future undiscounted cash flows from the assets is estimated and compared with the carrying amount of the assets. If the sum of the estimated undiscounted cash flows is less than the carrying amount of the assets, an impairment loss is recorded. The impairment loss is measured by comparing the fair value of the assets with their carrying amount. Long-lived assets that are held for disposal are reported at the lower of the assets' carrying amount or fair value less costs related to the assets' disposition. OTHER ASSETS Costs incurred in connection with the Company's financing arrangements are recorded as deferred charges and are amortized over the terms of the debt issuances. All costs incurred which relate to obtaining regulatory approval of the Baton Rouge riverboat facility are recorded as deferred charges and are amortized over the license period. Deferred licensing charges and debt issuance costs are included in other current assets and other assets. GOODWILL Goodwill is associated with the acquisition of LCCI and is amortized on a straight-line basis over 30 years, with accumulated amortization of $594 and $693 as of November 30, 1999 and 2000, respectively, and amortization expense of $99 in each of the three years ended November 30, 2000. INCOME TAXES Income taxes are provided based on the liability method of accounting pursuant to SFAS No. 109, "Accounting for Income Taxes." Deferred income taxes are recorded to reflect tax consequences on future years' differences between tax bases of assets and liabilities and their financial reporting amounts at each year-end, reflecting the combination of LCCI and CHC Canada as separate tax filers and as if the Company and its other subsidiaries were a stand alone taxpayer. CONCENTRATION OF CREDIT RISK The Company has a receivable from Casino Rama, Inc. pursuant to an agreement to develop and operate Casino Rama. To monitor the credit risk with respect to the receivable from Casino Rama, Inc., the Company periodically reviews the financial condition of Casino Rama, Inc. through its management of Casino Rama. Management currently believes the credit risk related to this receivable is minimal. FINANCIAL INSTRUMENTS The estimated fair value of financial instruments has been determined by the Company using THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

CRC HOLDINGS, INC. - GAMING DIVISION NOTES TO FINANCIAL STATEMENTS (dollars in thousands, except per share data) available market and effective interest rate information for such instruments. The carrying amounts of such financial instruments approximate their fair value except for LCCI's 11% senior secured notes which fair value approximated $56,585 at November 30, 2000. COMMON SHARE DATA On June 30, 1998, CRC's common stock was adjusted pursuant to a 10,621-for-1 stock split where each share of CRC's common stock, $.01 par value per share was converted into 10,621 shares of CRC's common stock, $.005 par value per share. NEW ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 establishes accounting and reporting standards for derivative instruments and is, as amended, effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The Company has evaluated the impact of SFAS No. 133 and believes it has no effect on its financial statements. The Company is reviewing SEC Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements". This Company is required to adopt SAB No. 101 for the year ending November 30, 2001 and does not expect the effect of the pronouncement on its financial condition and results of operations to be material. RECLASSIFICATIONS Certain amounts in the financial statements have been reclassified to conform to the current period presentation. NOTE 2 - RECEIVABLES Receivables consist of the following at November 30,: 1999 2000 ---- ---- Receivable from Casino Rama, Inc. - Canadian prime plus 1% (effective rate of interest of 7.74% and 8.43% as of November 30, 1999 and 2000, respectively), principal of $625 payable quarterly, plus interest for as long as there are amounts outstanding under the Casino Rama, Inc. credit agreements and principal of $1,563 payable quarterly, plus interest once there are no longer any amounts outstanding under the Casino Rama, Inc. credit agreements $12,188 $ 5,937 Receivable from the Kalispel Tribe - prime plus 2% (effective interest rate of 9.38% as of November 30, 1999). 1,504 -- Other receivables 139 139 Allowance for doubtful receivables (139) (139) ------- ------- 13,692 5,937 Current portion (7,754) (5,937) ------- ------- Noncurrent portion $ 5,938 $ -- ======= ======= NOTE 3 - PROPERTY AND EQUIPMENT THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

CRC HOLDINGS, INC. - GAMING DIVISION NOTES TO FINANCIAL STATEMENTS (dollars in thousands, except per share data) Property and equipment consist of the following at November 30,: 1999 2000 ---- ---- Land $ 1,385 $ 1,403 --------- --------- Vessel 17,138 17,463 Building 19,840 20,588 Furniture, fixtures and other equipment 13,988 15,168 Gaming equipment 11,282 12,345 Leasehold improvements 204 126 Equipment under capital leases 262 251 --------- --------- 64,099 67,344 Accumulated depreciation and amortization (21,629) (25,024) Construction in progress 272 729 --------- --------- Property and equipment, net $ 42,742 $ 43,049 ========= ========= Capitalized interest included in property and equipment is $1,628 as of November 30, 1999 and 2000. Unamortized capitalized interest is $1,099 and $1,025 as of November 30, 1999 and 2000, respectively. Depreciation expense is $4,789, $5,434 and $4,828 for the years ended November 30, 1998, 1999 and 2000, respectively, including net losses on disposals of fixed assets of $125, $69 and $314 for the years ended November 30, 1998, 1999 and 2000, respectively. NOTE 4 - LEASES LCCI has an operating lease agreement for property on which LCCI constructed the riverboat facility and parking facility. The initial lease term is 10 years beginning January 1994. The terms of the lease include payment of minimum monthly rent equal to the greater of $33 or 1.25% of LCCI's gross cash revenue. In addition, LCCI prepaid rent of approximately $1,756 in connection with the lessor's acquisition of an additional parcel of land. The prepaid rent is being amortized over the initial lease term and the remaining unamortized portion was $717 and $541 as of November 30, 1999 and 2000, respectively. LCCI has the option to purchase the entire site on or after 15 years for the then appraised value of the original parcel, excluding improvements. LCCI also leases a total of approximately 45,700 square feet for general warehouse, office and employee parking. The term of the lease is one year beginning September 2000 for $8 per month. The lease grants LCCI a right of first refusal to purchase the property. The Company also leases office and warehouse space under operating lease agreements. The following is a schedule of future minimum lease payments, for all operating leases with non-cancellable terms in excess of one year at November 30, 2000: Year ending November 30, 2001 $ 697 Year ending November 30, 2002 697 Year ending November 30, 2003 697 Year ending November 30, 2004 157 Thereafter -- ------ Total minimum lease payments $2,248 ====== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

CRC HOLDINGS, INC. - GAMING DIVISION NOTES TO FINANCIAL STATEMENTS (dollars in thousands, except per share data) Rental expense amounted to $1,636, $1,899 and $1,764 for the years ended November 30, 1998, 1999 and 2000, respectively. Rental expense for the years ended November 30, 1998, 1999 and 2000 includes $509, $698 and $769, respectively, of contingent rental payments in excess of the monthly minimum rent with respect to LCCI's land lease for riverboat and parking facilities. NOTE 5 - EMPLOYEE BENEFITS PLANS CRC maintains non-qualified defined contribution deferred compensation plans (the "Deferred Compensation Plan") which cover most management employees. Benefits accumulate by participants based on a percentage of their annual compensation and generally vest 20% per year. The Deferred Compensation Plan's costs, net of forfeitures, included in the statements of operations for the years ended November 30, 1998, 1999 and 2000 were approximately $576, $631 and $809, respectively. The earnings rate for the Deferred Compensation Plan unfunded benefit liability is 7% for the years ended November 30, 1998, 1999 and 2000. Deferred Compensation Plan benefits funded by the Company are taxable to the participants and the Company advances the participants amounts equal to the income and payroll taxes on the funded benefits. Interest accrues at 6% per annum on these advances. The amounts of such advances were $251 and $574 as of November 30, 1999 and 2000, respectively, and will be repaid from pledged death benefit proceeds of participants' life insurance policies. CRC also maintains defined contribution plans under Section 401(k) of the Internal Revenue Code for all qualified employees (the "401(k) Plans"). Contributions to the 401(k) Plans by the Company are based on the participants' contributions. For the years ended November 30 1998, 1999 and 2000, the Company contributed $147, $207, and $185 respectively. The Company paid certain expenses associated with administration of the 401(k) Plans. NOTE 6 - INCOME TAXES The Company's provision for income taxes attributable to continuing operations is comprised of the following for the years ended November 30,: 1998 1999 2000 ---- ---- ---- CURRENT Federal $ 271 $4,703 $4,017 State 4 459 904 Foreign 108 78 70 ------ ------ ------ Total current tax expense 383 5,240 4,991 DEFERRED Deferred tax expense 336 1,951 2,114 ------ ------ ------ Total provision for income taxes $ 719 $7,191 $7,105 ====== ====== ====== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

CRC HOLDINGS, INC. - GAMING DIVISION NOTES TO FINANCIAL STATEMENTS (dollars in thousands, except per share data) The difference between the taxes provided for continuing operations at the U.S. federal statutory rate and the Company's actual tax provision is reconciled below for the years ended November 30,: 1998 1999 2000 ---- ---- ---- Taxes provided at statutory rate $ 3,677 $ 5,542 $ 5,841 Release of valuation allowance (4,243) -- -- State tax expense, net of federal tax benefit 393 592 624 Foreign tax expense 158 26 11 Dividends of subsidiary 372 426 -- Other 362 605 629 ------- ------- ------- Total provision for income taxes $ 719 $ 7,191 $ 7,105 ======= ======= ======= The approximate effect of the Company's temporary differences and carryforwards that give rise to deferred tax balances at November 30, were as follows: 1999 2000 ---- ---- Deferred compensation plan liability $ -- $ 394 Allowance for doubtful accounts receivable - other -- 98 Alternative minimum tax credit carryforward 851 -- Other, net 744 484 ------- ------- Current deferred tax asset $ 1,595 $ 976 ======= ======= Foreign currency gain $ (686) $ (320) Other, net 255 294 ------- ------- Current deferred tax liability $ (431) $ (26) ======= ======= 1999 2000 ---- ---- Deferred compensation plan liability $ 686 $ -- Deferred prepayment penalty 206 -- Other, net 98 20 ------- ------- Noncurrent deferred tax asset $ 990 $ 20 ======= ======= Depreciation $(4,359) $(4,611) Alternative minimum tax credit carryforward 295 -- Other, net 20 (363) ------- ------- Noncurrent deferred tax liability $(4,044) $(4,974) ======= ======= NOTE 7 - LONG-TERM DEBT Long-term debt is comprised of the following as of November 30,: THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

CRC HOLDINGS, INC. - GAMING DIVISION NOTES TO FINANCIAL STATEMENTS (dollars in thousands, except per share data) 2000 1999 ---- ---- 11% senior secured notes - interest payable semi-annually June 1, and December 1, with balance due December 1, 2005 $ 53,000 $53,000 Variable-rate term loan - (effective interest rate of 9.59% and 11.05% at November 30, 1999 and 2000, respectively) - interest payable at the option of CHC Canada, in one, two, three or six month installments and principal payable in a quarterly installment of $241 on April 30, 1999, quarterly installments of $1,563 commencing July 31, 1999 through July 31, 2001, with balance due October 31, 2001 12,187 5,937 Capital lease obligations 104 12 -------- -------- Total debt 65,291 58,949 Current portion (6,333) (5,949) -------- -------- Total long-term debt $ 58,958 $ 53,000 ======== ======== Aggregate principal payments for the long-term debt, including capital lease obligations, are as follows at November 30, 2000: Year ending November 30, 2001 $ 5,949 Year ending November 30, 2002 -- Year ending November 30, 2003 -- Year ending November 30, 2004 -- Year ending November 30, 2005 -- Thereafter 53,000 -------- Total $ 58,949 ======== Variable-rate senior secured increasing rate notes - on November 25, 1998, LCCI issued $50,000 of variable rate senior secured increasing rate notes due December 1, 2001 ("the 1998 Notes") in a private placement offering to refinance the $51,000, 11 1/2% first mortgage notes issued in December 1993 in connection with the development of the Casino Rouge. 11% senior secured notes - on January 27, 1999, LCCI issued $55,000 of 11% senior secured notes due December 1, 2005, (the "1999 Notes") in a private placement offering with interest due semi-annually beginning June 1, 1999. The proceeds were used to defease and redeem the 1998 Notes. After December 1, 2002, LCCI may, at its option, redeem all or some of the 1999 Notes at a premium that will decrease over time from 105.5% in 2002 to 100% in 2004 of their face amount, plus interest. The redemption of the 1998 Notes resulted in LCCI incurring a net extraordinary loss of $1,731 during the year ended November 30, 1999 and the nine months ended August 31, 1999. The 1999 Notes were exchanged in May 1999 for Notes registered under the Securities Act of 1933. The registered 1999 Notes are freely transferable by holders thereof and are substantially identical in all material respects to the privately placed 1999 Notes for which they were exchanged. The registered 1999 Notes are collateralized by substantially all of LCCI's assets. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

CRC HOLDINGS, INC. - GAMING DIVISION NOTES TO FINANCIAL STATEMENTS (dollars in thousands, except per share data) Variable-rate secured term loan - in December 1998, CHC Canada amended the variable-rate secured loan denominating the outstanding balance in U.S. dollars and amending the repayment schedule. The amended loan bears interest at varying rates approximating LIBOR plus 4% per annum. The loan is collateralized by substantially all of CHC Canada's assets. CRC has a variable rate line of credit with a commercial bank collateralized by assets of certain shareholders of CRC. As of November 30, 2000, no amount was available under the variable rate line of credit. The 1999 Notes are collateralized by substantially all of LCCI's assets, other than certain identified excluded assets. The indenture to the 1999 Notes includes certain covenants which limit the ability of LCCI and its restricted subsidiaries, (as defined) subject to certain exceptions, to: (i) incur additional indebtedness; (ii) pay dividends or other distributions, repurchase capital stock or other equity interest or subordinated indebtedness; (iii) enter into certain transactions with affiliates; (iv) create certain liens or sell certain assets; and (v) enter into certain mergers and consolidations. The Company's other financing agreements also contain certain financial covenants. NOTE 8 - REDEEMABLE PREFERRED STOCK AND COMMON STOCK WARRANTS OF SUBSIDIARY LCCI has authorized 50,000 shares of preferred stock, of which 11,000 shares of 12% cumulative redeemable preferred stock was issued and outstanding at November 30, 1997, at a carrying value of $1,628 including accrued non-cash dividends. The preferred stock and accrued dividends were redeemed by LCCI on November 30, 1998 for $1,760. LCCI's debt offering in December 1993 included 153,000 detachable warrants with put rights whereby LCCI had an obligation to purchase the 153,000 warrants, at the value of LCCI's common stock as of December 1, 1998, as determined by two independent investment banking firms. At November 30, 1998, the warrants were classified as redeemable equity due to the put right feature and accreted to the amount at which LCCI expected to repurchase these warrants. Holders of 14,100 warrants elected to convert to an equivalent number of LCCI common shares, while holders of 138,900 warrants elected to have LCCI purchase the warrants. On March 1, 1999, LCCI received valuations from two investment banking firms. Based on the average of the values determined by the investment banking firms, LCCI paid on March 8, 1999, $3,749 to holders of 138,900 warrants who exercised their put rights. On September 21, 1999, at a previous warrantholder's request, LCCI purchased 12,000 LCCI common shares for $324, the price originally offered for the warrants. NOTE 9 - MINORITY INTEREST THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

CRC HOLDINGS, INC. - GAMING DIVISION NOTES TO FINANCIAL STATEMENTS (dollars in thousands, except per share data) The Company owns an approximate 60% interest in LCCI. The Company's financial statements include 100% of the assets, liabilities and operations of LCCI. The effects of the minority interest have been reflected in the accompanying balance sheets and statements of operations. During the years ended November 30, 1998, 1999 and 2000, LCCI paid cash dividends to holders of its common stock and common stock warrants totaling $1,996, $3,498 and $3,398 respectively. As LCCI's accumulated losses and dividends had previously eliminated the minority interest, $962 and $1,253 of LCCI common stock dividends paid to minority common stockholders and to the common stock warrantholders were charged to operations during the years ended November 30, 1998 and 1999, respectively. During the year ended November 30, 2000, LCCI paid cash dividends to the minority holders of its common stock of $1,369. On December 6, 2000, LCCI paid a cash dividend to the minority holders of its common stock of $355. NOTE 10 - COMMITMENTS AND CONTINGENCIES In the ordinary course of its business, the Company is involved in legal proceedings resulting from incidents taking place at casinos it manages, or in which it has an ownership interest. The Company maintains comprehensive liability insurance and also requires casino owners to maintain adequate insurance coverage. In the opinion of management, the ultimate outcome of all such matters should not have a material adverse effect on the financial position of the Company, but, if decided adversely to the Company, could have a material adverse effect upon the Company's operating results during the period in which the litigation is resolved. LCCI's original five-year gaming license was up for renewal in July 1999. On June 15, 1999, LCCI received a conditional license approval from the Louisiana Gaming Control Board (the "Louisiana Board") until completion of their investigation. On or about July 25, 2000, the Division of the Louisiana Attorney General's Office (the "Division") submitted a Report on Conditional License Renewal of LCCI, in which the Division and the Louisiana State Police outlined three conditions on the license renewal of LCCI. The first condition involved LCCI minority shareholder Jerry Bayles. The Division recommended that in order to renew the license of LCCI, that Mr. Bayles have no more direct day to day involvement in the management or operations of Casino Rouge than he currently maintained. The second condition related to CRC officer Robert Sturges. The division suggested in the report that LCCI's license also be conditioned upon the status quo relating to Mr. Sturges' day to day management and operation of Casino Rouge. Finally, the report addressed, among other things, Capital Lake Properties, Inc. ("CLP"), the landlord of the leased property where Casino Rouge is located, which currently receives rent based upon 1.25% of gross cash revenue, as defined. The Division's report contained a proposed condition on the license renewal of LCCI, that CLP submit itself to a suitability investigation. The report has not been formally acted upon by the Louisiana Board. Attorneys for the Louisiana Board have indicated that the Louisiana Board will decide the issue of renewal of LCCI's license, and any potential conditions, along with the decision to allow the transfer of LCCI's common stock to Penn. On or about November 29, 2000, LCCI filed suit against CLP for declaratory judgement in the 19th Judicial District Court of Louisiana seeking a determination whether CLP, as a matter of law, must submit to a suitability investigation and what, if any obligations CLP has under the lease agreement, to submit to suitability. It is expected that the litigation will, when complete, decide whether the Louisiana Board THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

CRC HOLDINGS, INC. - GAMING DIVISION NOTES TO FINANCIAL STATEMENTS (dollars in thousands, except per share data) will condition LCCI's license on the suitability of CLP. It is not expected that the conditions relating to the day to day involvement of Mr. Bayles or Mr. Sturges will be challenged by LCCI. In connection with LCCI's renewal application, each of LCCI's officers, directors, managers, principal shareholders, including the Company and its officers and directors and key gaming employees, will be subject to strict scrutiny and full suitability investigations and approval by the Louisiana Board. The factors the Louisiana Board has stated it will consider, among others, in order to renew LCCI's license, include LCCI's compliance with all the requirements of the Louisiana Riverboat Economic Development and Gaming Control Act, the approval of various systems and procedures, the demonstration of good character (including an examination of criminal and civil records) and methods of business practice. It is not possible to predict when the Louisiana Board will complete its investigation, and no time line frame such completion has been given. Gaming licenses in Ontario are issued for four-year terms. CHC Canada's original gaming license is up for renewal in July 2000. CHC Canada has filed its renewal application and paid its annual renewal fee and its license is deemed to continue to July 2001 pending completion of the relicensing investigation. CHC Canada and its officers, directors, managers, principal shareholders, including the Company and its officers and directors and key gaming employees, will be subject to strict scrutiny and full suitability investigations and approval by the Ontario Alcohol and Gaming Commission in connection with CHC Canada's renewal application. LCCI and CHC Canada believe they will be successful in receiving renewals of the licenses, but no assurance can be given as to whether or when the licenses will be renewed, or extent of any restrictions that may be imposed as conditions thereof. The loss, suspension or failure to obtain renewals of the licenses subject to burdensome conditions, would have a material adverse effect on the Company. Pursuant to the agreement to manage the Casino Rama complex, dated March 18, 1996, as amended (the "Agreement"), CHC Canada will receive during the first three years from the opening date, July 31, 1996, a management fee, subject to certain limitations, of 2.75% of gross revenues plus 5.0% of net operating margin (as such terms are defined in the Agreement) and, subsequent to year three, an operator's fee of 2.0% of gross revenues plus 5.0% of net operating margin. The term of the Agreement, which is 15 years from the opening date, consisting of an original 10 year term and a five year renewal, requires CHC Canada to loan Casino Rama, Inc. $25,000 (see Note 2) and, under certain circumstances additional amounts to fund Casino Rama operating deficits, if any. The performance and obligations of CHC Canada under the Agreement are guaranteed by CRC. In November 1993, LCCI was involved in a dispute regarding consulting services. Although a formal demand had not been made to LCCI, management believed the dispute could lead to litigation and accrued $1,700 for the estimated cost of resolution. LCCI settled litigation related to this dispute in May 1998. Pursuant to the settlement, each party entered into mutual general releases and neither party admitted any liability in connection with the settlement. As a result of the settlement, LCCI has recognized a net reduction of $400 in management services and operating costs for the year ended November 30, 1998. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

CRC HOLDINGS, INC. - GAMING DIVISION NOTES TO FINANCIAL STATEMENTS (dollars in thousands, except per share data) NOTE 11 - STOCKHOLDERS' EQUITY CRC has an Employee Stock Option Plan (the "Plan") which provides for the grant to employees of both incentive stock options (within the meaning of Section 422 of the Internal Revenue Code) and nonstatutory stock options to eligible employees (including officers and directors) and non-employee directors. A total of 1,700,000 shares of common stock have been reserved for issuance under the Plan. In conjunction with the Patriot Merger, CHC's options were cancelled and CRC granted new options which retained the term and vesting attributes of the CHC options. The table below summarizes the status of the CRC's Plan as of November 30, 1998, 1999 and 2000 and changes for the years then ended as follows: 1998 1999 2000 ---------------------------- ---------------------------- ------------------------- SHARES WEIGHTED-AVERAGE SHARES WEIGHTED-AVERAGE SHARES WEIGHTED-AVERAGE OPTIONS EXERCISE PRICE EXERCISE PRICE EXERCISE PRICE - ------- --------- -------------- ---------- ---------------- ------------------------- Outstanding at beginning of year -- $ -- 1,387,071 $ 2.36 1,372,421 $ 2.35 Granted 1,387,071 2.36 -- -- -- -- Exercised -- (14,150) 3.43 -- -- Forfeited -- (500) 3.43 (10,616) 3.43 --------- --------- Outstanding at end of year 1,387,071 2.36 1,372,421 2.35 1,361,805 2.34 ========= ========= ========= Options excercisable at year-end 933,315 2.16 1,203,439 2.20 1,255,211 2.25 Weighted-average fair value of options granted during the year $ 2.08 $ -- $ -- The following table summarizes information about options outstanding at November 30, 2000: OPTIONS OUTSTANDING OPTIONS EXCERCISABLE ------------------------------------------------- ----------------------------- WEIGHTED-AVERAGE RANGE OF NUMBER REMAINING WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXCERCISABLE EXERCISE PRICE - --------------- ----------- ---------------- -------------- ------------ -------------- $1.93 988,052 4.0 years $1.93 988,052 $1.93 $3.43 373,753 5.7 3.43 267,159 3.43 --------- --------- 1,361,805 4.5 2.34 1,255,211 2.25 ========= ========= All options issued were granted at fair market value on the original date of grant, generally have a term of 10 years, and generally become exercisable with respect to 20% of the covered shares commencing one year after grant, and are generally exercisable with respect to an additional 20% of the covered shares after each additional year until fully exercisable. The fair value of each option grant was estimated on the date of the grant using the minimum value method with the following assumptions: risk-free interest rate of 7.5%, no dividend yield, expected lives of 10 years and no volatility. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

CRC HOLDINGS, INC. - GAMING DIVISION NOTES TO FINANCIAL STATEMENTS (dollars in thousands, except per share data) The Company applies Accounting Principles Board No. 25 and related interpretations in accounting for the Plan. Accordingly, no compensation cost has been recognized. Had compensation cost for the Company's Plan been determined based on the fair value at the grant dates for awards under the Plan consistent with the method of SFAS No. 123, the Company's pro forma net income would have been $9,519, $6,805 and $6,869 for the years ended November 30, 1998, 1999 and 2000, respectively. On June 30, 1998, CRC settled a liability assumed as part of the Patriot Merger by issuing to an executive officer 121,289 shares of CRC common stock. The stock grant vested immediately. NOTE 12 - RELATED PARTY TRANSACTIONS CRC and Carnival Corporation entered into a trademark license agreement providing for the Company's use of the "Carnival" trademark so that the Company may conduct business as "Carnival Resorts and Casinos." Fees due under the agreement are the greater of $100 or 1% of the Company's revenues, as defined. The trademark license fees for the years ended November 30, 1998, 1999 and 2000 were $518, $649 and $679 respectively. The Company provides accounting services, at cost, to certain entities owned and controlled by certain of its officers. The entities are obligated to reimburse the Company for such services provided. The cost of such services were $154, $46 and $85 for the years ended November 30, 1998, 1999 and 2000, respectively, and the balance due the Company was $200 and $285 as of November 30, 1999 and 2000, respectively. **************************** THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

CRC HOLDINGS, INC. - GAMING DIVISION FINANCIAL STATEMENTS FEBRUARY 28, 2001 CONTENTS Balance Sheets - November 30, 2000 and February 28, 2001 (unaudited) Statements of Operations - Three Month Periods Ended February 29, 2000 (unaudited) and February 28, 2001 (unaudited) Statement of Changes in Stockholders' Equity - Three Month Period Ended February 28, 2001 (unaudited) Statements of Cash Flows - Three Month Periods Ended February 28, 2000 (unaudited) and February 28, 2001 (unaudited) Notes to Financial Statements

CRC HOLDINGS, INC. - GAMING DIVISION BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE DATA) NOVEMBER 30, FEBRUARY 28, 2000 2001 ---- ---- ASSETS (unaudited) ------ Current Assets Cash and cash equivalents $ 27,395 $ 26,134 Trade accounts receivable, net of allowances for doubtful accounts of $357 and $390 at 2000 and 2001, respectively 9,100 6,143 Receivables 5,937 4,375 Deferred income tax 976 730 Other current assets 1,278 1,725 ---------- ---------- Total current assets 44,686 39,107 Property and equipment, net 43,049 43,860 Goodwill, net 3,366 3,341 Other assets 2,946 2,622 ---------- ---------- Total Assets $ 94,047 $ 88,930 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 2,314 $ 4,117 Due to affiliates and officers 163 172 Accrued expenses 17,054 10,155 Deferred compensation plan liability 1,123 218 Current portion of long-term debt 5,949 4,376 ---------- ---------- Total current liabilities 26,603 19,038 Long-term debt 53,000 53,000 Deferred income tax 4,974 5,052 Other liabilities 157 143 ---------- ---------- Total liabilities 84,734 77,233 ---------- ---------- Commitments and contingencies (Note 4) Minority interest 1,690 2,417 Stockholders' Equity Common stock, $.005 par value; 20,000 shares authorized; 10,742 shares issued and outstanding 54 54 Additional paid-in capital 1,434 821 Retained earnings 6,186 8,452 Cumulative translation adjustment (51) (47) ---------- ---------- Total stockholders' equity 7,623 9,280 ---------- ---------- Total liabilities and stockholders' equity $ 94,047 $ 88,930 ========== ========== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

CRC HOLDINGS, INC. - GAMING DIVISION STATEMENTS OF OPERATIONS (IN THOUSANDS) (UNAUDITED) THREE MONTHS ENDED FEBRUARY 28/29 2000 2001 ---- ---- Revenues Casino $ 22,871 $ 24,284 Food and beverage 2,102 1,756 Management service fees 3,419 2,371 Less: promotional allowances (1,569) (1,328) --------- ---------- Net revenues 26,823 27,083 Operating Expenses Casino 10,241 11,156 Food and beverage 339 253 Management service and operating costs 8,432 7,105 Depreciation and amortization 1,478 1,221 --------- ---------- Total operating expenses 20,490 19,735 --------- ---------- Income from operations 6,333 7,348 Other Income (Expenses) Interest income 422 370 Interest expense (1,876) (1,670) Foreign currency losses (48) (48) Other expense -- (268) --------- ---------- Total other (expense) (1,502) (1,616) --------- ---------- Income before provision for income taxes and minority interest 4,831 5,732 Provision for income taxes 1,958 2,384 --------- ---------- Income before minority interest 2,873 3,348 Minority interest 815 1,082 --------- ---------- Net income $ 2,058 $ 2,266 ========= ========== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

CRC HOLDINGS, INC. - GAMING DIVISION STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY THREE MONTHS ENDED FEBRUARY 28, 2001 (IN THOUSANDS) (UNAUDITED) Common Stock Additional Cumulative Total ---------------- Paid-In Retained Translation Stockholders' Shares Amount Capital Earnings Adjustment Equity ------ ------ ------- -------- ---------- ------ Balance, November 30, 2000 10,742 $ 54 $ 1,434 $ 6,186 $ (51) $ 7,623 Net change in hospitality division intercompany account -- -- (613) -- -- (613) Net income -- -- -- 2,266 -- 2,266 Other comprehensive income: Foreign currency translation adjustment -- -- -- -- 4 4 ------- Comprehensive income 2,270 ------- ------- ------- ------- ------- ------- BALANCE, FEBRUARY 28, 2001 10,742 $ 54 $ 821 $ 8,452 $ (47) $ 9,280 ======= ======= ======= ======= ======= ======= THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

CRC HOLDINGS, INC. - GAMING DIVISION STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED) THREE MONTHS ENDED FEBRUARY 28/29, 2000 2001 ---- ---- Cash flows from operating activities: Net income $ 2,058 $ 2,266 Adjustments to reconcile net income to net cash provided by operating activities: Provision for doubtful accounts 30 32 Depreciation and amortization 1,478 1,221 Amortization of deferred charges 145 110 Foreign currency losses 48 48 Deferred income taxes 160 256 Operating costs (Note 1) -- (623) Minority interest 815 1,082 Changes in assets and liabilities: (Increase) decrease in: Trade accounts receivable 2,500 2,894 Other assets 521 (468) Increase (decrease) in: Accounts payable 856 1,803 Accrued expenses (6,355) (6,857) Deferred compensation plan liability 74 18 Other liabilities (89) 22 -------- -------- Net cash provided by operating activities 2,241 1,804 -------- -------- Cash flows from investing activities: Receipts from project loans and advances 3,067 1,562 Capital expenditures (1,555) (2,006) -------- -------- Net cash flows provided (used) by investing activities 1,512 (444) -------- -------- Cash flows from financing activities: Decrease in due to affiliates (47) (83) Payments of debt and other deferred charges (1,587) (1,570) Common stock dividends of subsidiary (214) (355) Net change in hospitality division intercompany account (2,855) (613) -------- -------- Net cash flows used by financing activities (4,703) (2,621) -------- -------- Net decrease in cash and cash equivalents (950) (1,261) Cash and cash equivalents at beginning of period 22,395 27,395 -------- -------- Cash and cash equivalents at end of period $ 21,445 $ 26,134 ======== ======== Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 3,525 $ 3,281 Cash paid during the period for income taxes $ 30 $ 10 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

CRC HOLDINGS, INC. - GAMING DIVISION NOTES TO FINANCIAL STATEMENTS (dollars in thousands) NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION CRC Holdings, Inc. ("CRC"), d/b/a Carnival Resorts & Casinos, owns, operates and develops casino properties (for purposes hereof, the "CRC Gaming Division" or the "Company") and develops and manages hotel and resort properties. The CRC Gaming Division consists principally of an approximate 60% interest in Louisiana Casino Cruises, Inc. ("LCCI"), which owns the Casino Rouge, a riverboat casino based in Baton Rouge, Louisiana, and through a wholly owned subsidiary, CHC Casinos Canada Limited ("CHC Canada"), the operations of Casino Rama located north of Toronto, Canada, on behalf of the Chippewas of Rama First Nation and the Ontario Lottery and Gaming Corporation. These financial statements depict the financial condition and results of operations of the CRC Gaming Division as of and for the periods presented. Pursuant to the Agreement and Plan of Merger among CRC, Penn National Gaming, Inc. ("Penn"), Casino Holdings, Inc. ("Casino Holdings"), a wholly-owned subsidiary of Penn and certain shareholders of CRC, dated July 31, 2000 (the "Merger Agreement"), subject to appropriate approvals and certain conditions including financing, CRC has agreed to (i) distribute its hospitality division and certain other assets and liabilities to the stockholders of CRC, (ii) distribute its net after-tax income, as defined, less certain adjustments for the period from the date of the Merger Agreement through the closing date of the Merger Agreement to the stockholders of CRC, and (iii) immediately subsequent to the distributions, merge the CRC Gaming Division with and into Casino Holdings. In addition, pursuant to a Stock Purchase Agreement among certain minority stockholders of a 40% interest in LCCI (the "LCCI Minority Stockholders") and Penn dated July 31, 2000 (the "Stock Purchase Agreement"), the LCCI Minority Stockholders, subject to closing of the Merger Agreement, appropriate approvals and certain conditions, have agreed to sell their 40% interest in LCCI to Penn. The Merger Agreement and Stock Purchase Agreement provide the foregoing transactions shall be consummated on or before October 31, 2001 although there can be no assurance to that effect. Financing and regulatory approvals from the Louisiana Gaming Control Board (the "Board") and the Alcohol and Gaming Commission of Ontario have been obtained while consent from the Chippewas of Rama First Nation has been withheld. CRC and Penn are pursuing all options available to obtain this consent although there can be no assurances that this consent will be obtained (Note 6). The financial statements have been prepared as if the Company has operated as an independent, stand alone entity for all periods presented. Such financial statements have been prepared using the historical basis of accounting and include all of the assets, liabilities, revenues and expenses previously included in CRC's consolidated financial statements prior to the transaction contemplated by the Merger Agreement and the Stock Purchase Agreement, except for all the assets, liabilities (including contingent liabilities), revenues and expenses of the hospitality division of CRC and its respective subsidiaries. Consequently, these financial statements include certain balances and allocations for assets and liabilities and corresponding income and expense items related to the Company that were previously included in CRC's consolidated financial statements. In accordance with Securities and Exchange

CRC HOLDINGS, INC. - GAMING DIVISION NOTES TO FINANCIAL STATEMENTS (dollars in thousands) Commission Staff Accounting Bulletin No. 55, these financial statements exclude certain corporate expenses incurred by CRC on the hospitality division's behalf. All significant intercompany balances and transactions within the CRC Gaming Division have been eliminated. Investments in less than majority-owned gaming businesses, in which a significant equity ownership interest is held, are accounted for on the equity method. INTERIM UNAUDITED INFORMATION The accompanying financial statements as of February 28, 2001 and for the three month periods ended February 29, 2000 and February 28, 2001 are unaudited and do not include all information and footnotes necessary for the presentation of financial position, results of operations and cash flows in conformity with accounting principals generally accepted in the United States of America. However, in the opinion of management, all adjustments (consisting of normal recurring accruals) have been included to present fairly, in all material respects, the financial position of the Company as of February 28, 2001, and the results of its operations and its cash flows for the three month periods ended February 29, 2000 and February 28, 2001. Operating results for the three month periods ended February 29, 2000 and February 28, 2001 are not necessarily indicative of the results that may be expected for a full year. PROMOTIONAL ALLOWANCES The estimated direct costs of providing promotional allowances for food and beverage and other items have been classified as casino operating expenses and totaled $885 and $810 for the three month periods ended February 29, 2000, and February 28, 2001, respectively. MANAGEMENT SERVICE AND OPERATING COSTS During the three month period ended February 28, 2001, the Company and certain officers renegotiated the deferred compensation arrangements, resulting in a $923 reduction in the Company's deferred compensation obligations. In addition, $300 in receivables from certain officers relating to accounting services performed by the Company on certain officers' behalf were forgiven. These amounts have been recorded as adjustments to management service and operating costs. NEW ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS"), No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 establishes accounting and reporting standards for derivative instruments and is, as amended, effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The Company's adoption of SFAS No. 133 in the quarter ended February 28, 2001 had no effect on its financial condition, results of operations or cash flows.

CRC HOLDINGS, INC. - GAMING DIVISION NOTES TO FINANCIAL STATEMENTS (dollars in thousands) NOTE 2 - LONG TERM DEBT Pursuant to the indenture, dated as of January 27, 1999, between LCCI and U.S. Bank Trust National Association, as Trustee (the "1999 Indenture"), LCCI issued in a private placement, $55,000 of its 11% Senior Secured Notes (the "1999 Notes"), due December 1, 2005, in an offering under Rule 144A under the Securities act of 1933, with interest due semi-annually beginning June 1, 1999. LCCI exchanged the privately issued 1999 Notes in May 1999 for $55,000 in aggregate principal of new, publicly tradable 1999 Notes. The new 1999 Notes are identical in all material respects to the privately issued 1999 Notes, other than certain provisions relating to registration rights and related liquidated damages. LCCI used the proceeds to redeem $50,000 of LCCI's Senior Secured Increasing Rate Notes, due December 1, 2001, and for general corporate purposes. On May 28, 1999, LCCI repurchased $2,000 of the 1999 Notes at a cost of $2, 010 plus accrued interest. On March 5, 2001, LCCI cancelled the repurchased 1999 Notes. The 1999 Notes are collaterialized by substantially all of LCCI's assets, other than certain identified excluded assets. The 1999 Indenture includes certain convenants which limit the ability of LCCI and its restricted subsidiaries, (as defined in the 1999 Indenture) subject to certain exceptions, to: (i) incur additional indebtedness; (ii) pay dividends or other distributions, repurchase capital stock or other equity interest or subordinated indebtedness; (iii) enter into certain transactions with affiliates; (iv) create certain liens or sell certain assets; and (v) enter into certain mergers and consolidations. Under the terms of the 1999 Indenture, after December 1, 2001, LCCI may, at its option, redeem all or some of the 1999 Notes at a premium that will decrease over time from 105.5% to 100% of their face amount, plus accrued but unpaid interest. Prior to December 1, 2001, if LCCI publicly offers certain equity securities LCCI may, at its option apply certain of the net proceeds from those transactions to the redemption of up to one-third of the principal amount of the notes at 111% of their face amount, plus interest. If LCCI goes through a change in control (which for these purposes would include the proposed transactions involving CRC, LCCI and Penn), it must give holders of the notes the opportunity to sell their notes to LCCI at 101% of their face amount, plus interest. On February 20, 2001, Penn commenced a cash tender offer to purchase all of the 1999 Notes, and a related consent solicitation to eliminate certain restrictive convenants and related provisions in the 1999 Indenture pursuant to which the 1999 Notes were issues. On March 6, 2001, Penn announced that all of the holders of the 1999 Notes had tendered Notes and delivered consents in connection with Penn's tender offer and consent solicitation. The tender offer and the effectiveness of the related amendments to the indenture are conditioned upon, among other things, consummation of Penn of its acquisition of CRC and LCCI. The principal purpose of the tender offer is to permit Penn to acquire all of the outstanding 1999 Notes in connection with Penn's acquisition of CRC and LCCI. The total consideration payable pursuant to the tender offer and consent solicitation will be calculated using a fixed spread of 50 basis points over the bid side yield on the 5 5/8% U.S. Treasury Note due November 30, 2002, on the second business day immediately preceding the expiration date which has been extended to April 27, 2001. The total consideration includes a consent fee of $30 per $1,000 principal amount of the 1999 Notes. Under the terms of the tender offer and consent solicitation, holders may not deliver consents without also tendering their 1999 Notes (Note 6).

CRC HOLDINGS, INC. - GAMING DIVISION NOTES TO FINANCIAL STATEMENTS (dollars in thousands) NOTE 3 - GAMING TAX INCREASE On March 22, 2001, the Louisiana Legislature passed a riverboat gaming tax increase. The increase raised the riverboat gaming tax beginning April 1, 2001, on the nine riverboat casinos in southern Louisiana from 18.5% to 21.5%. In return, these riverboats are no longer required to cruise when weather and water conditions allow for safe cruising. For the five riverboat casinos in northern Louisiana, the riverboat gaming tax increase is being phased in over a 25-month period. Effective April 1, 2001, their riverboat gaming tax rate is 19.5%, followed by an annual increase of 1% on April 1, 2002 and 2003. These boats are currently allowed to remain dockside due to low water levels at their locations. NOTE 4 - MINORITY INTEREST The Company owns an approximate 60% interest in LCCI. The Company's financial statements include 100% of the assets, liabilities and operations of LCCI. The effects of the minority interest have been reflected in the accompanying balance sheets and statements of operations. During the three-month periods ended February 29, 2000 and February 28, 2001, LCCI paid a cash dividend to the minority holders of its common stock of $214 and $355, respectively. On March 5, 2001, LCCI paid a cash dividend to the minority holders of its common stock of $521. NOTE 5 - COMMITMENTS AND CONTINGENCIES In the ordinary course of its business, the Company is involved in legal proceedings including but not limited to proceedings resulting from incidents taking place at casinos it manages, or in which it has an ownership interest. The Company maintains comprehensive liability insurance and also requires casino owners to maintain adequate insurance coverage. In the opinion of management, the ultimate outcome of all such matters should not have a material adverse effect on the financial position of the Company, but, if decided adversely to the Company, could have a material adverse effect upon the Company's operating results during the period in which the litigation is resolved. LCCI's original five-year gaming license for the Casino Rouge was up for renewal in July 1999. On June 15, 1999, LCCI received conditional license approval from the Board until the completion of their investigation. On March 29, 2001, the Board approved relicensing of LCCI through July 18, 2005, with two conditions. The first condition relates to CRC Gaming Division officer Robert Sturges. The Board stipulated that Mr. Sturges shall not participate in the day-to-day management and operation of LCCI until the Board has a hearing as to whether this condition can be rescinded. LCCI has advised the Board that it will abide by the results of the hearing. The second condition relates to Capitol Lake Properties, Inc. ("CLP"), the landlord of the leased property where Casino Rouge is located. The Board stipulated that the Company shall use good faith efforts to require CLP to comply with all suitability requirements of the Board and the Division of the Louisiana Attorney General's Office. Additionally, the Board required that if a final judgement by a Louisiana court determines that it would not be a default under LCCI's lease with CLP, LCCI shall deposit rental payments and other sums due CLP into escrow or the registry of the court until further order of the court or the Board. CLP, which previously objected to submitting to a suitability investigation by the Board, caused LCCI, on or about November

CRC HOLDINGS, INC. - GAMING DIVISION NOTES TO FINANCIAL STATEMENTS (dollars in thousands) 29, 2000, to file suit in the 19th Judicial District Court of Louisiana against CLP. In its action, LCCI seeks a declaratory judgment that CLP must, as a matter of law, submit to a suitability investigation by the Board, and a declaration of what, if any, obligations CLP has under its lease with LCCI to submit to such a suitability investigation. LCCI intends to prosecute the action vigorously, but it is not possible to determine the outcome of the litigation at this time. Gaming licenses in Ontario are issued for four-year terms. CHC Canada's original gaming license is up for renewal in July 2000. CHC Canada has filed its renewal application and paid its annual renewal fee and its license is deemed to continue to July 2001 pending completion of the re-licensing investigation. CHC Canada and its officers, directors, managers, principal shareholders, including the Company and its officers and directors and key gaming employees, will be subject to strict scrutiny and full suitability investigations and approval by the Ontario Alcohol and Gaming Commission in connection with CHC Canada's renewal application. CHC Canada believes it will be successful in receiving renewal of its license, but no assurance can be given as to whether or when the license will be renewed, or extent of any restrictions that may be imposed as conditions thereof. The loss, suspension or failure to obtain renewal of the license subject to burdensome conditions, would have a material adverse effect on the Company. NOTE 6 - SUBSEQUENT EVENTS On April 24, 2001, consent of the Chippewas of Rama First Nation for Penn's acquisition of CRC was obtained. On April 27, 2001, Penn completed its acquisition of CRC pursuant to the Merger Agreement and repaid the 1999 Notes. ****************************

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS On April 27, 2001, Penn National Gaming, Inc. (the "Company" or "PNGI") completed its acquisitions of: (i) CRC Holdings, Inc. and (ii) the minority interest in Louisiana Casino Cruises, Inc. ("LCCI") not owned by CRC (together, "CRC"). The transactions were accounted for as purchases. As a result, the net assets of CRC were recorded at their fair value with the excess of the purchase price over the fair value of the net assets acquired allocated to goodwill. The total purchase price for the acquisitions was approximately $181.3 million, including the repayment of certain existing debt at CRC and its subsidiaries. The purchase price of the acquisitions was funded by the proceeds of the Company's offering of $200 million of its senior subordinated notes, which was completed in March 2001. The following unaudited pro forma consolidated statement of operations for the year ended December 31, 2000 has been prepared giving effect to the acquisition of CRC, the acquisition of the net assets of the Casino Magic Bay St. Louis and Boomtown Biloxi casinos (together, the "Mississippi Properties"), the offering of the Company's $200 million senior subordinated notes and the tender offer to purchase all of the LCCI 11% senior secured notes as if they occurred on January 1, 2000. The following unaudited pro forma consolidated statement of operations for the three months ended March 31, 2001 has been prepared giving effect to the acquisition of CRC, the offering of the Company's $200 million senior subordinated notes and the tender offer of the LCCI 11% senior secured notes as if they occurred on January 1, 2001. The following unaudited pro forma consolidated balance sheet has been prepared as if the acquisition of CRC and the tender offer of the LCCI 11% senior secured notes occurred on March 31, 2001. The unaudited pro forma consolidated financial information should be read in conjunction with the notes hereto and the following: o The Company's historical consolidated financial statements and notes thereto for the year ended December 31, 2000 included in the Company's Annual Report on Form 10-K. o The Company's historical consolidated financial statements and notes thereto for the three months ended March 31, 2001 included in the Company's Quarterly Report on Form 10-Q. o The historical financial statements and notes thereto of CRC Holdings, Inc.-Gaming Division included elsewhere in this Form 8-K.

PENN NATIONAL GAMING, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2000 (IN THOUSANDS, EXCEPT PER SHARE DATA) PNGI and Mississippi CRC Holdings CRC Pro Forma Subsidiaries Mississippi Pro Forma Inc. - Gaming Pro Forma as Adjusted as reported Properties Adjustments Division Adjustments for (1) (2) (3) (4a) (5) Acquisitions - ------------------------------------------------------------------------------------------------------------------------------------ REVENUES Gaming $ 159,589 $ 84,840 $ -- $ 89,564 $ -- $ 333,993 Racing 113,230 -- -- -- -- 113,230 Management service fees -- -- -- 13,218 -- 13,218 Other 21,304 12,362 -- 1,990 -- 35,656 -------------------------------------------------------------------------------------- TOTAL REVENUES 294,123 97,202 -- 104,772 -- 496,097 -------------------------------------------------------------------------------------- OPERATING EXPENSES Gaming 94,087 47,516 -- 41,991 -- 183,594 Racing 77,063 -- -- -- -- 77,063 Other operating expenses 18,776 9,961 -- 1,150 -- 29,887 General and administrative 44,716 17,104 -- 33,298 (2,477) (a) 92,641 Depreciation and amortization 13,594 5,070 1,078 (a) 5,000 6,898 (b) 31,640 -------------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES 248,236 79,651 1,078 81,439 4,421 414,825 -------------------------------------------------------------------------------------- INCOME FROM OPERATIONS 45,887 17,551 (1,078) 23,333 (4,421) 81,272 OTHER INCOME (EXPENSES) Interest income 1,875 3 -- 1,695 -- 3,573 Interest expense (19,089) (93) (8,898) (b) (7,213) (15,037) (c) (50,330) Foreign currency (losses) -- -- -- (111) -- (111) Other income (expense), net 39 (301) -- (525) 534 (f) (253) -------------------------------------------------------------------------------------- TOTAL OTHER (EXPENSES), net (17,175) (391) (8,898) (6,154) (14,503) (47,121) -------------------------------------------------------------------------------------- INCOME BEFORE TAXES AND MINORITY 28,712 17,160 (9,976) 17,179 (18,924) 34,151 INTEREST INCOME TAX EXPENSE (BENEFIT) 10,137 3,946 2,793 (c) 7,105 (10,370) (d) 13,611 -------------------------------------------------------------------------------------- INCOME BEFORE MINORITY INTEREST 18,575 13,214 (12,769) 10,074 (8,554) 20,540 MINORITY INTEREST -- -- -- 3,084 (3,084) (e) -- -------------------------------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS $ 18,575 $ 13,214 $ (12,769) $ 6,990 $ (5,470) $ 20,540 ====================================================================================== INCOME PER COMMON SHARE FROM CONTINUING OPERATIONS Basic $1.24 $1.37 Diluted 1.20 1.33 ========= ======== WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING Basic 14,968 14,968 Diluted 15,443 15,443 ========= =========

PENN NATIONAL GAMING, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2001 (IN THOUSANDS, EXCEPT PER SHARE DATA) PNGI and CRC Holdings CRC Pro Forma Subsidiaries Inc. - Gaming Pro Forma as Adjusted as reported Division Adjustments for CRC (1) (4b) (5) Acquisition - ------------------------------------------------------------------------------------------------- REVENUES Gaming $ 70,609 $ 24,284 -- $ 94,893 Racing 27,123 -- -- 27,123 Management service fees -- 2,371 -- 2,371 Other 8,497 428 -- 8,925 ---------------------------------------------------------- TOTAL REVENUES 106,229 27,083 -- 133,312 ---------------------------------------------------------- OPERATING EXPENSES Gaming 39,069 11,156 -- 50,225 Racing 18,474 -- -- 18,474 Other operating expenses 7,228 253 -- 7,481 General and administrative 19,145 7,105 (350) (a) 25,900 Depreciation and amortization 6,935 1,221 1,756 (b) 9,912 ---------------------------------------------------------- TOTAL OPERATING EXPENSES 90,851 19,735 1,406 111,992 ---------------------------------------------------------- INCOME FROM OPERATIONS 15,378 7,348 (1,406) 21,320 OTHER INCOME (EXPENSES) Interest income 1,006 370 -- 1,376 Interest expense (8,598) (1,670) (1,788) (c) (12,056) Foreign currency (losses) -- (48) -- (48) Other income (expense), net (559) (268) 268 (f) (559) ---------------------------------------------------------- TOTAL OTHER (EXPENSES), net (8,151) (1,616) (1,520) (11,287) ---------------------------------------------------------- INCOME BEFORE TAXES AND MINORITY INTEREST 7,227 5,732 (2,926) 10,033 INCOME TAX EXPENSE (BENEFIT) 2,611 2,384 (1,024) (d) 3,971 ---------------------------------------------------------- INCOME BEFORE MINORITY INTEREST 4,616 3,348 (1,902) 6,062 MINORITY INTEREST -- 1,082 (1,082) (e) -- ---------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS $ 4,616 $ 2,266 $ (820) $ 6,062 ========================================================== INCOME PER COMMON SHARE FROM CONTINUING OPERATIONS Basic $.31 $.40 Diluted .30 .39 ========== ========== WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING Basic 15,044 15,044 Diluted 15,524 15,524 ========== ==========

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (AMOUNTS IN THOUSANDS) The following notes describe the column headings in the pro forma consolidated statements of operations and the pro forma adjustments that have been made to these statements: (1) (a) Reflects the audited consolidated historical statement of operations of PNGI for the year ended December 31, 2000. (b) Reflects the unaudited consolidated historical statement of operations of PNGI for the three months ended March 31, 2001. (2) Represents the combined historical statements of operations for the Mississippi Properties for the period from January 1, 2000 through August 7, 2000. The Company acquired the Mississippi Properties on August 8, 2000 and accounted for the acquisitions by the purchase method of accounting. As a result, the operating results of the combined statements for the period August 8, 2000 through December 31, 2000 are included in the operating results of the Company. (3) (a) Reflects the following pro forma adjustments to the operating results as a result of the acquisition of the Mississippi properties: Year ended December 31, 2000 -------------- Net (decrease) in expense resulting from the depreciation of $139,400 of property using lives ranging from 5 to 39 years $ (243) Amortization of goodwill of $56,800 using a life of 40 years 856 Net increase in expense resulting from the amortization of $10,200 in deferred financing costs over the six-year term of the notes payable under the Company's $350,000 senior secured credit facility 465 ------- $1,078 ======= (b) Net increase in interest expense resulting from the $350,000 senior secured credit facility entered into in August 2000. The proceeds of the credit facility were used to finance the Mississippi acquisitions and to pay off other long-term debt. (c) Reflects the income tax adjustments associated with the pro forma adjustments described above and pro forma entry necessary to adjust for Boomtown Biloxi becoming a consolidated tax payor with PNGI upon consummation of the Mississippi acquisition. (4) (a) Reflects the audited historical results of operations of CRC Holdings, Inc. - Gaming Division for the year ended November 30, 2000. (b) Reflects the unaudited historical results of operations of CRC Holdings, Inc. - Gaming Division for the three months ended February 28, 2001.

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (AMOUNTS IN THOUSANDS) (CONTINUED) (5) Reflects pro forma adjustments relating to the CRC acquisition as follows: (a) Adjustments to reflect the following eliminations: Three Year months ended ended December 31, March 31, 2000 2001 ---------------------------------- Management fees $ (599) $ (178) Royalty fees (678) (172) Management bonus (1,000) -- Other charges (200) -- -------------------------------- $ (2,477) $ (350) ================================ (b) Adjustments to reflect the acquisition of CRC: Three Year months ended ended December 31, March 31, 2000 2001 ---------------------------------- Net (decrease) in expense resulting from the depreciation of $97,000 of property using lives ranging from 5 to 39 years $ (150) $ (9) Amortization of goodwill of $82,100 using a life of 40 years, net of historical amortization related to $3,300 of existing goodwill of CRC 1,953 491 Amortization of the fair value of a management contract of $43,000 over its 10 1/2-year term 4,095 1,024 Increase in expense resulting from the amortization of $7,000 in deferred financing costs related to the issuance of the senior subordinated notes to be amortized over the 7-year term of the notes. 1,000 250 -------------------------------- $ 6,898 $ 1,756 ================================

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (AMOUNTS IN THOUSANDS) (CONTINUED) (c) Reflects the net increase in interest expense resulting from the Company's offering of $200,000 of senior subordinated notes, the proceeds of which were used to fund the acquisition of CRC and repayment of existing debt of LCCI. (d) Adjustment to reflect the income tax effect associated with the pro forma adjustments other than in (e) below and to adjust for LCCI becoming a consolidated tax payor with CRC/PNGI upon consummation of the CRC acquisition. (e) Adjustment to reflect elimination of minority interest in LCCI. (f) Adjustment to reflect elimination of legal fees and other expenses paid by CRC in connection with the acquisition.

PENN NATIONAL GAMING, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET MARCH 31, 2001 (IN THOUSANDS) PNGI and CRC Holdings CRC Pro Forma Subsidiaries Inc. - Gaming Pro Forma as Adjusted as reported Division Adjustments for CRC (1) (2) (3) Acquisition - ------------------------------------------------------------------------------------------------ ASSETS CURRENT ASSETS Cash and cash equivalents $ 29,045 $ 26,134 $ (15,000) (d) $ 40,179 Accounts receivable 9,874 6,143 -- 16,017 Prepaid expenses 6,020 -- (832) (a)(e) 5,188 Deferred income taxes -- 730 -- 730 Prepaid income taxes 442 -- -- 442 Other current assets -- 6,100 -- 6,100 - ------------------------------------------------------------------------------------------------ TOTAL CURRENT ASSETS 45,381 39,107 (15,832) 68,656 PROPERTY, PLANT AND EQUIPMENT, NET 285,706 43,860 53,140 (e) 382,706 OTHER ASSETS Investments and advances to unconsolidated affiliate 14,577 -- -- 14,577 Cash in escrow 199,483 -- (199,483) (a)(c) -- Intangible assets 77,653 3,341 121,771 (e) 202,765 Deferred financing costs 15,328 782 (782) (f) 15,328 Miscellaneous 3,660 1,840 (1,470) (g) 4,030 - ------------------------------------------------------------------------------------------------ TOTAL OTHER ASSETS 310,701 5,963 (79,964) 236,700 - ------------------------------------------------------------------------------------------------ TOTAL ASSETS $ 641,788 $ 88,930 $ (42,656) $ 688,062 - ------------------------------------------------------------------------------------------------

PENN NATIONAL GAMING, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET MARCH 31, 2001 (IN THOUSANDS) PNGI and CRC Holdings CRC Pro Forma Subsidiaries Inc. - Gaming Pro Forma as Adjusted as reported Division Adjustments for CRC (1) (2) (3) Acquisition - ------------------------------------------------------------------------------------------------ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current maturities of long-term debt $ 12,327 $ 4,376 $ (4,376) (c) $ 12,327 Accounts payable 11,160 4,117 -- 15,277 Due to affiliates -- 172 (172) (g) -- Purses due horsemen 3,412 -- -- 3,412 Uncashed pari-mutuel tickets 1,693 -- -- 1,693 Accrued expenses 16,746 10,155 8,054 (b)(e) 34,955 Deferred pension plan liability -- 218 -- 218 Customer deposits 922 -- -- 922 Taxes, other than income taxes 2,881 -- -- 2,881 - ----------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 49,141 19,038 3,506 71,685 - ------------------------------------------------------------------------------------------------ LONG-TERM LIABILITIES Long-term debt, net of current maturities 496,597 53,000 (70,361) (d) 479,236 Deferred income taxes 14,530 5,052 36,868 (e)(h) 56,450 Other liabilities -- 143 -- 143 - ------------------------------------------------------------------------------------------------ TOTAL LONG-TERM LIABILITIES 511,127 58,195 (33,493) 535,829 - ------------------------------------------------------------------------------------------------ MINORITY INTEREST -- 2,417 (2,417) (g) -- STOCKHOLDERS' EQUITY Common stock 155 54 (54) (g) 155 Treasury stock (2,379) -- -- (2,379) Additional paid-in capital 39,593 821 (821) (g) 39,593 Retained earnings 46,579 8,452 (9,424) (b)(g) 45,607 Other comprehensive income (2,428) (47) 47 (g) (2,428) - ------------------------------------------------------------------------------------------------ TOTAL STOCKHOLDERS' EQUITY 81,520 9,280 (10,252) 80,548 - ------------------------------------------------------------------------------------------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 641,788 $ 88,930 $ (42,656) $ 688,062 - ------------------------------------------------------------------------------------------------

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET (AMOUNTS IN THOUSANDS) The following notes describe the column headings in the unaudited pro forma consolidated balance sheet and the pro forma adjustments that have been made to the unaudited pro forma consolidated balance sheet: (1) Reflects the historical unaudited consolidated balance sheet of PNGI as of March 31, 2001. (2) Reflects the unaudited balance sheet of CRC Holdings, Inc. - Gaming Division as of February 28, 2001. (3) Reflects pro forma adjustments of the CRC acquisitions as follows: (a) CRC purchase price, net of cash in escrow of $5,183 $ 123,117 Acquisition fees and other charges 1,242 ----------- Cash paid at settlement to acquire CRC $ 124,359 =========== (b) LCCI 11% senior secured notes $ 53,000 Tender premium 7,786 Interest expense through settlement date 2,418 ----------- Cash paid at settlement to complete tender offer $ 63,204 =========== Total interest accrued at February 28, 2001 amounted to $1,446. Interest expense charged to operations from the period March 1, 2001 through the date of settlement amounted to $972. (c) Cash paid at settlement was as follows: Acquisition of CRC $ 124,359 Tender offer on LCCI 11% senior secured notes 63,204 Payment of other debt of CRC 4,376 ----------- Total cash paid 191,939 Total cash in escrow (194,300) ----------- Net decrease in borrowings under senior secured credit facility $ (2,361) ===========

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET (AMOUNTS IN THOUSANDS) (CONTINUED) (d) The pro forma activity for long-term debt is as follows: Senior CRC Secured Senior Credit Subordinated Secured Facility Notes Notes Total - ------------------------------------------------------------------------------------------ As reported $ 308,924 $ 200,000 $ -- $ 508,924 Acquisition of CRC -- -- 53,000 53,000 Payment of LCCI notes -- -- (53,000) (53,000) Net decrease in borrowings (2,361) -- -- (2,361) Debt payments using CRC cash (15,000) -- -- (15,000) ------------------------------------------------ Total pro forma debt $ 291,563 $ 200,000 $ -- $ 491,563 ================================================ (e) Pro forma purchase price allocation: CRC acquisition consideration $ 128,300 Tender offer premium on LCCI 11% senior secured notes 7,786 Accrued liabilities in connection with acquisitions 9,500 Acquisition fees and costs 2,074 --------- Pro forma purchase price $ 147,660 ========= Pro forma purchase price allocation: Property, plant and equipment $ 97,000 Management contract 43,000 Net operating liabilities (37,584) Goodwill 82,112 Deferred income tax liability (36,868) --------- $ 147,660 ========= Property, plant and equipment - adjusted to fair value as follows: Property, plant and equipment acquired at cost $ 43,860 Adjustment to increase property, plant and equipment to fair value 53,140 --------- Property, plant and equipment at fair value $ 97,000 =========

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET (AMOUNTS IN THOUSANDS) (CONTINUED) Certain operating assets, net of certain liabilities, were recorded at historical cost at the acquisition date, which approximates their market value. Intangible assets recorded in connection with CRC acquisition: Goodwill $ 82,112 Management contract 43,000 --------- Total intangible assets recorded in connection with acquisition 125,112 Less: Elimination of goodwill related to CRC (3,341) --------- Net increase to intangible assets $ 121,771 ========= The goodwill will be amortized over a 40-year period. The management contract will be amortized over the life of the contract, which is 10.5 years. (f) To write off deferred financing costs related to repayment of the LCCI 11% senior secured notes. (g) To eliminate CRC's amount due to/from affiliate, minority interest and equity accounts. (h) To record deferred tax liability attributable to the difference between the tax and accounting basis of the management contract and property, plant, and equipment acquired from CRC.

SIGNATURE 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 hereunto duly authorized. PENN NATIONAL GAMING, INC. (Registrant) By /s/ Robert S. Ippolito ------------------------------------ Robert S. Ippolito Chief Financial Officer Dated: June 8, 2001

EXHIBIT INDEX EXHIBIT NO. DESCRIPTION OF DOCUMENT 2.1 + Agreement and Plan of Merger among CRC Holdings, Inc., Penn National Gaming, Inc., Casino Holdings, Inc. and certain shareholders of CRC Holdings, Inc. dated as of July 31, 2000. 2.2 + Stock Purchase Agreement by and among Penn National Gaming, Inc., Dan S. Meadows, Thomas L. Meehan and Jerry S. Bayles, dated as of July 31, 2000. 99.1 ++ Press Release dated April 30, 2000. - ------------ + Previously filed as an exhibit to the Registrant's Current Report on Form 8-K filed August 8, 2000 and incorporated herein by reference. ++ Previously filed as an exhibit to the Registrant's Current Report on Form 8-K filed May 7, 2001 and incorporated herein by reference