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): July 29, 1999
Penn National Gaming, Inc.
(Exact name of Registrant as specified in its charter)
Pennsylvania 23-2234473
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
825 Berkshire Blvd, Suite 200
Wyomissing, PA 19610
(Address of principal executive offices) (Zip code)
610-373-2400
(Registrant's telephone number including area code)
1
<PAGE>
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED. The following financial
statements of The Racetrack Operations of International Thoroughbred
Breeders, Inc. and Pennwood Racing Group are filed as part of this Current
Report on Form 8-K:
The Racetrack Operations of
International Thoroughbred Breeders, Inc.
Contents
Report of Independent Certified Public Accountants 3
Combined financial statements
Balance sheets 4-5
Statements of income 6
Statements of stockholder's equity 7
Statements of cash flows 8-9
Notes to combined financial statements 10-20
2
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors
International Thoroughbred Breeders, Inc.
Cherry Hill, New Jersey
We have audited the accompanying combined balance sheets of The Racetrack
Operations of International Thoroughbred Breeders, Inc. (the "Company") as of
June 30, 1997 and 1998, and the related combined statements of income,
stockholder's equity and cash flows for the years then ended. These combined
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall combined
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of The
Racetrack Operations of International Thoroughbred Breeders, Inc. as of June 30,
1997 and 1998, and the results of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting principles.
As described in Note 2, on January 28, 1999 the Company completed the sale of
Freehold Raceway, a ten-acre parcel of land and certain net assets of Garden
State Park, and entered into a lease for its remaining Garden State Park
facilities.
/s/BDo Seidman, LLP
BDO Seidman, LLP
Philadelphia, Pennsylvania
October 9, 1998
3
<PAGE>
The Racetrack Operations of
International Thoroughbred Breeders, Inc.
Combined Balance Sheets
<TABLE>
<CAPTION>
January 27,
June 30,
---------------------------------------
1997 1998 1999
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(Unaudited)
Assets
Cash and cash equivalents $ 1,991,707 $ 3,166,902 $ 2,394,420
Restricted cash and investments 3,730,323 3,453,283 1,328,965
Accounts receivable 1,491,871 1,204,177 2,499,996
Prepaid expenses and other current assets 1,218,743 844,930 363,930
Land and improvements held for sale, net 6,762,809 -- --
- -------------------------------------------------------------------------------------------------------------------
Total current assets 15,195,453 8,669,292 6,587,311
Land, buildings and equipment, net 69,684,771 68,339,797 67,482,610
Deposits and other assets 235,129 248,142 245,644
Goodwill, net 3,041,280 2,930,688 2,866,392
- -------------------------------------------------------------------------------------------------------------------
Total assets $ 88,156,633 $ 80,187,919 $ 77,181,957
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to combined financial statements.
4
<PAGE>
The Racetrack Operations of
International Thoroughbred Breeders, Inc.
Combined Balance Sheets
<TABLE>
<CAPTION>
January 27,
June 30,
---------------------------------------
1997 1998 1999
- -------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Liabilities and Stockholder's Equity
Accounts payable $ 4,271,937 $ 3,542,045 $ 3,031,270
Accrued expenses 3,324,797 3,061,384 3,668,579
Purses payable 658,835 752,011 1,235,480
Current maturities of long-term debt 7,674,343 1,201,429 1,044,132
Deferred revenue 1,750,572 1,770,159 1,030,494
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 17,680,484 10,327,028 10,009,955
Long-term debt, net of current maturities 13,131,002 11,998,731 11,141,077
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 30,811,486 22,325,759 21,151,032
- -------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Stockholder's equity
Common stock 26,400 26,400 26,400
Additional paid-in capital 65,115,865 61,227,145 56,603,726
Accumulated deficit (7,797,118) (3,391,385) (599,201)
- -------------------------------------------------------------------------------------------------------------------
Total stockholder's equity 57,345,147 57,862,160 56,030,925
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity $ 88,156,633 $ 80,187,919 $ 77,181,957
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to combined financial statements.
5
<PAGE>
The Racetrack Operations of
International Thoroughbred Breeders, Inc.
Combined Statements of Income
<TABLE>
<CAPTION>
Period July 1,
Year ended June 30, 1998 to
--------------------------------------- January 27,
1997 1998 1999
- -------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Revenues $ 68,431,882 $ 68,636,449 $ 38,295,517
- -------------------------------------------------------------------------------------------------------------------
Expenses
Cost of revenues
Purses 23,120,176 22,370,695 13,115,586
Operating expenses 35,531,034 31,794,410 16,525,480
Depreciation and amortization 1,579,903 1,665,206 1,078,701
General and administrative expenses 5,606,265 4,607,984 2,449,454
Interest expense 944,791 855,421 472,112
- -------------------------------------------------------------------------------------------------------------------
Total expenses 66,782,169 61,293,716 33,641,333
- -------------------------------------------------------------------------------------------------------------------
Income before taxes 1,649,713 7,342,733 4,654,184
Income tax expense 660,000 2,937,000 1,862,000
- -------------------------------------------------------------------------------------------------------------------
Net income $ 989,713 $ 4,405,733 $ 2,792,184
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to combined financial statements.
6
<PAGE>
The Racetrack Operations of
International Thoroughbred Breeders, Inc.
Combined Statements of Stockholder's Equity
<TABLE>
<CAPTION>
Additional
Common Paid-In Accumulated
Stock Capital Deficit Total
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, June 30, 1996 $ 26,400 $ 63,939,554 $ (8,786,831) $ 55,179,123
Net income -- -- 989,713 989,713
Parent company related activity -- 1,176,311 -- 1,176,311
- ----------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1997 26,400 65,115,865 (7,797,118) 57,345,147
Gain on sale of land -- 1,687,096 -- 1,687,096
Net income -- -- 4,405,733 4,405,733
Parent company related activity -- (5,575,816) -- (5,575,816)
- ----------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1998 26,400 61,227,145 (3,391,385) 57,862,160
Net income for the period July 1, 1998 to
January 27, 1999 (unaudited) -- -- 2,792,184 2,792,184
Parent company related activity (unaudited) -- (4,623,419) -- (4,623,419)
- ----------------------------------------------------------------------------------------------------------------------------
Balance, January 27, 1999 (unaudited) $ 26,400 $ 56,603,726 $ (599,201) $ 56,030,925
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to combined financial statements.
7
<PAGE>
The Racetrack Operations of
International Thoroughbred Breeders, Inc.
Combined Statements of Cash Flows
<TABLE>
<CAPTION>
Period July
1, 1998 to
Year Ended June 30, January 27,
---------------------------------------
1997 1998 1999
- -------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 989,713 $ 4,405,733 $ 2,792,184
Adjustments to reconcile net income to net
cash
provided by operating activities
Depreciation and amortization 1,579,903 1,665,206 1,078,701
Non-cash income tax provision 613,383 2,801,900 1,712,000
(Gain) loss on disposal of fixed (783) 1,007 --
assets
Changes in assets and liabilities
(Increase) decrease in assets
Restricted cash and
investments (758,785) 277,040 2,124,318
Accounts receivable 404,743 287,694 (1,295,819)
Prepaid expenses and other
current assets (113,563) 634,618 481,000
(Decrease) increase in liabilities
Accounts and purses payable
and accrued expenses 1,075,927 (900,129) 579,889
Deferred revenue 251,123 19,587 (739,665)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 4,041,661 9,192,656 6,732,608
- ------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Proceeds from sale of land -- 8,449,904 --
Capital expenditures (1,418,520) (212,227) (51,449)
Increase (decrease) in deposits other assets 84,037 (13,013) (2,498)
- ------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (1,334,483) 8,224,664 (53,947)
- ------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Parent company related activity, net (1,094,400) (8,376,135) (6,436,192)
Proceeds from issuance of long-term notes 827,891 -- --
Principal payments on long-term debt (6,000,000) (6,000,000) --
Proceeds from long-term debt 6,000,000 -- --
Principal payments on short-term notes (698,112) (733,719) (157,297)
Principal payments on long-term notes (2,982,844) (1,132,271) (857,654)
- ------------------------------------------------------------------------------------------------------------------
Net cash (used in) financing activities (3,947,465) (16,242,125) (7,451,143)
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
The Racetrack Operations of
International Thoroughbred Breeders, Inc.
Combined Statements of Cash Flows
<TABLE>
<CAPTION>
Period July
1, 1998 to
Year Ended June 30, January 27,
---------------------------------------
1997 1998 1999
- -------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Net (decrease) increase in cash and cash
equivalents $ (1,240,287) $ 1,175,195 $ (772,482)
Cash and cash equivalents at beginning of year 3,231,994 1,991,707 3,166,902
- ------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 1,991,707 $ 3,166,902 $ 2,394,420
- ------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information
Cash paid during the period for
Interest $ 939,000 $ 885,000 $ 703,700
- ------------------------------------------------------------------------------------------------------------------
Income taxes $ 61,000 $ 200,000 $ 190,000
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to combined financial statements.
9
<PAGE>
The Racetrack Operations of
International Thoroughbred Breeders, Inc.
Notes to Combined Financial Statements
(Information as of January 27, 1999 and for the period
July 1, 1998 to January 27, 1999 is unaudited)
1. Summary of Nature of Operations
Significant
Accounting The Racetrack Operations of International
Policies ThoroughbredBreeders, Inc. (the "Company")
consists of Garden State Park owned by
Garden State Race Track, Inc. ("GSRT")
and Freehold Raceway owned by Freehold Racing
Association ("FRA"). GSRT and FRA are wholly
owned subsidiaries of the Company. All
material intercompany transactions and
accounts are eliminated in combination.
The Company conducts live race meetings for
Thoroughbred and Harness (Standardbred)
horses, and participates in intrastate and
interstate simulcast wagering as a host and
receiving track in Cherry Hill ("Garden State
Park") and Freehold ("Freehold Raceway"), New
Jersey. The Company's racetrack operations
are dependent upon continued governmental
acceptance of racing as a form of legalized
gambling. The Company competes for gaming
revenue, not only with other racetracks, but
also with other forms of gaming activities,
such as, off-track betting parlors, telephone
wagering, casino gambling in Atlantic City,
New Jersey, slot machines at other
racetracks, and various state lotteries, both
from within the State of New Jersey and from
neighboring states (Pennsylvania and Delaware
in particular). From time to time,
legislation has been introduced in New Jersey
and neighboring states which would further
expand gambling opportunities and increase
competition. Severe inclement weather, which
can affect the northeastern portion of the
United States in the winter months, can also
adversely affect operations. The Company is
required to annually renew its racing permits
with the New Jersey Racing Commission in
order to operate.
On January 28, 1999, the Company completed
the sale of Freehold Raceway, a ten-acre
parcel of land and certain net assets of
GSRT, and entered into a lease for its
remaining Garden State Park facilities for a
period of seven years (see Note 2).
Parent Company Activities
All loans and advances between the racetrack
operations and their parent company and
affiliates are being treated as contributions
from or distributions to the parent company
and are reflected as adjustments to
additional paid-in capital. Expenses incurred
by the parent company on behalf of the
Company are not material. The expenses of the
Company reflected in the financial statements
are those expected to be incurred on a
stand-alone basis.
10
<PAGE>
The Racetrack Operations of
International Thoroughbred Breeders, Inc.
Notes to Combined Financial Statements
(Information as of January 27, 1999 and for the period
July 1, 1998 to January 27, 1999 is unaudited)
Interim Financial Information
The accompanying unaudited combined financial
statements as of January 27, 1999 and for the
period July 1, 1998 to January 27, 1999 have
been prepared in accordance with generally
accepted accounting principles for interim
financial information and with Rule 10-01 of
Regulation S-X. Accordingly, they do not
include all of the information and footnotes
required by generally accepted accounting
principles for complete financial statements.
In the opinion of management, all adjustments
(consisting of normal recurring accruals)
considered necessary for a fair presentation
have been included. Operating results for the
period July 1, 1998 through January 27, 1999
are not necessarily indicative of the results
that might have been expected for the fiscal
year ended June 30, 1999.
Revenue Recognition
The Company recognizes the revenues
associated with horse racing at Garden State
Park and Freehold Raceway as they are earned.
Both Garden State Park and Freehold Raceway
also operate as satellite wagering sites for
both thoroughbred and harness racing meets
conducted at other racetracks. The tracks
receive broadcasts of live racing from other
racetracks under various simulcasting
agreements. The tracks also provide
broadcasts of live racing conducted at these
facilities to other racetracks under various
host simulcasting agreements. Under these
contracts, the Company receives or pays
pari-mutuel commissions of varying
percentages of simulcast pari-mutuel
wagering. Costs and expenses associated with
horse racing revenues are charged against
income in those periods in which the horse
racing revenues are recognized. Other costs
and expenses, including advertising, are
recognized as they actually occur throughout
the year. Deferred revenue primarily consists
of prepaid purse amounts.
Cash and Cash Equivalents
The Company considers all highly liquid
investments with an original maturity of
three months or less to be cash equivalents.
Concentrations of Credit Risk
Financial instruments which potentially
subject the Company to concentrations of
credit risk are cash and cash equivalents.
The Company places its cash investments with
high credit quality financial institutions
and currently invests primarily in U.S.
government obligations that have maturities
of less than three months. The amount on
deposit in any one institution that exceeds
federally-insured limits is subject to credit
risk. The Company does not require collateral
for its financial instruments. At January 27,
1999, the Company had amounts on deposit in
financial institutions that were subject to
such risk.
Goodwill, Depreciation and Amortization
Goodwill is the excess of the cost of
acquired net assets at Freehold over their
fair value and is being amortized over 30
years under the straight line method.
Accumulated amortization at June 30, 1997 and
1998 and January 27, 1999 was $556,349,
$666,941 and $731,237, respectively.
11
<PAGE>
The Racetrack Operations of
International Thoroughbred Breeders, Inc.
Notes to Combined Financial Statements
(Information as of January 27, 1999 and for the period
July 1, 1998 to January 27, 1999 is unaudited)
Management of the Company evaluates the
recoverability of goodwill quarterly or more
frequently whenever events and circumstances
warrant revised estimates, and considers
whether the goodwill should be completely
or partially written-off or the
amortization period accelerated.
Depreciation of property and equipment and
amortization of building improvements were
computed by the straight-line method at rates
adequate to allocate their cost or adjusted
fair value in accordance with accounting
principles applicable to a
quasi-reorganization over the estimated
remaining useful lives of the respective
assets.
The Company adopted the provisions of
Statement of Financial Accounting Standards
No. 121 ("SFAS 121"), "Accounting for the
Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" during
the year ended June 30, 1996. SFAS 121
establishes accounting standards for the
impairment of long-lived assets, certain
identifiable intangibles and goodwill related
to those assets to be held and used and for
long-lived assets and certain identifiable
intangibles to be disposed of. The Company
reviews the carrying values of its long-lived
and identifiable intangible assets for
possible impairment whenever events or
changes in circumstances indicate that the
carrying amount of the assets may not be
recoverable based on undiscounted estimated
future operating cash flows. As of January
27, 1999, the carrying value of these assets
has been determined not to be impaired.
Income Taxes
GSRT and FRA are included as part of a
consolidated federal corporate tax return
with their parent company. Generally accepted
accounting principles require that the
consolidated amount of current and deferred
tax expense for a group that files a
consolidated tax return be allocated among
the members of the group when those members
issue separate financial statements.
Taxes are being provided at the rate of 40
percent. The liability related to the
provision is being treated as an adjustment
to additional paid-in capital. To the extent
that the parent company has experienced
losses in excess of the combined income of
the racetrack operations in each of the
periods presented, taxes are not expected to
be paid.
Fair Value of Financial Instruments
In assessing the fair value of financial
instruments, the Company has used a variety
of methods and assumptions, which were based
on estimates of market conditions and loan
risks existing at that time. For certain
instruments, including cash and cash
equivalents, restricted cash and investments,
non-trade accounts receivable and loans, and
short-term debt, it was estimated that the
carrying amount approximated fair value for
these instruments because of their short-term
maturity. Quoted market prices for the same
12
<PAGE>
The Racetrack Operations of
International Thoroughbred Breeders, Inc.
Notes to Combined Financial Statements
(Information as of January 27, 1999 and for the period
July 1, 1998 to January 27, 1999 is unaudited)
instrument were used for trading securities.
Estimated discounted value of future cash
flows, has been used to determine fair value
for long-term debt. The carrying amounts of
long-term debt approximate fair value since
the Company's interest rates approximate
current interest rates.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting
Standards Board issued two new disclosure
standards as described below. The Company's
results of operations and financial position
will be unaffected by implementation of these
new standards.
Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income"
("SFAS 130"), establishes standards for
reporting and display of comprehensive
income, its components and accumulated
balances. Comprehensive income is defined to
include all changes in equity except those
resulting from investments by owners and
distributions to owners. Among other
disclosures, SFAS 130 requires that all items
that are required to be recognized under
current accounting standards as components of
comprehensive income be reported in a
financial statement that is displayed with
the same prominence as other financial
statements.
Statement of Financial Accounting Standards
No. 131, "Disclosure about Segments of a
Business Enterprise" ("SFAS 131"),
establishes standards for the way that public
enterprises report information about
operating segments in annual financial
statements and requires reporting of selected
information about operating segments in
interim financial statements issued to the
public. It also establishes standards for
disclosures regarding products and services,
geographic areas and major customers. SFAS
131 defines operating segments as components
of an enterprise about which separate
financial information is available that is
evaluated regularly by the chief operating
decision maker in deciding how to allocate
resources and in assessing performance.
In February 1998, the Financial Accounting
Standards Board issued Statement of Financial
Accounting Standards No. 132, "Employers'
Disclosures about Pension and Other
Postretirement Benefits" ("SFAS 132"). SFAS
132 revised employers' disclosures about
pension and other post-retirement benefit
plans but does not change measurement or
recognition of those plans. Also, SFAS 132
requires additional information on changes in
the benefit obligations and fair values of
plan assets.
The Company believes that adoption of SFAS
130, 131 and 132 will have no impact on its
financial statements or disclosures.
13
<PAGE>
The Racetrack Operations of
International Thoroughbred Breeders, Inc.
Notes to Combined Financial Statements
(Information as of January 27, 1999 and for the period
July 1, 1998 to January 27, 1999 is unaudited)
In June 1998, the Financial Accounting
Standards Board issued Statement of Financial
Accounting Standards No. 133, "Accounting for
Derivative Instruments" ("SFAS 133"). SFAS
133 establishes accounting and reporting
standards for derivative instruments and for
hedging activities. SFAS 133 requires that an
entity recognize all derivatives as either
assets or liabilities and measure those
instruments at fair market value. Under
certain circumstances, a portion of the
derivative's gain or loss is initially
reported as a component of other
comprehensive income and subsequently
reclassified into income when the transaction
affects earnings. For a derivative not
designated as a hedging instrument, the gain
or loss is recognized in income in the period
of change. Presently, the Company does not
use derivative instruments either in hedging
activities or as investments. Accordingly,
the Company believes that the adoption of
SFAS 133 will have no impact on its financial
position or results of operations.
2. Sale and Lease On January 28, 1999, the
of Assets Company completed the sale of Freehold
Raceway and a ten-acre parcel of
land at Garden State Park to and entered into
a seven-year
lease providing for annual payments of
$300,000 for its remaining Garden State Park
facilities with subsidiaries of Greenwood
Racing, Inc., which owns Philadelphia Park
racetrack, the Turf Clubs and Phonebet (the
"Greenwood Transaction"). The purchase price
was $46 million ($1 million of which will be
held in escrow to cover certain
indemnification and other obligations of the
Company), with an additional $10 million in
contingent promissory notes (the "Contingent
Notes") which become effective upon, among
other things, the New Jersey Legislature's
approval of off-track wagering facilities or
telephone account pari-mutuel wagering on
horse racing. Further adjustments could be
made to increase the purchase price if
certain additional regulatory gaming changes
are approved by the New Jersey Legislature in
the future. Greenwood Racing, Inc. has
guaranteed the performance by the purchaser
of all obligations under the Contingent
Notes, and following a consummation of a
joint venture between Greenwood Racing, Inc.
and Penn National Gaming, Inc., both will
guarantee the Contingent Notes.
14
<PAGE>
The Racetrack Operations of
International Thoroughbred Breeders, Inc.
Notes to Combined Financial Statements
(Information as of January 27, 1999 and for the period
July 1, 1998 to January 27, 1999 is unaudited)
The proceeds of the Greenwood transaction
were principally used by the Company to pay
off the first lien on the assets of Freehold
Raceway, reduce the outstanding balance of
other indebtedness owed by the Company and to
consummate certain litigation settlements.
3. Restricted Cash At June 30, 1997 and 1998 and January 27,
and Investments 1999, the Company had approximately
$3,730,000, $3,453,000 and $1,329,000,
respectively, which was classified as
restricted cash and investments. These funds
are primarily cash received from horsemen for
nomination and entry fees to be applied to
upcoming racing meets, purse winnings held in
trust for horsemen and amounts held for
unclaimed ticket holder winnings.
Interest income for the fiscal years ended
June 30, 1997 and 1998 and for the period
July 1, 1998 to January 27, 1999 was
$118,025, $128,159 and $95,930, respectively.
4. Land, Buildings Land, buildings and equipment acquired
and Equipment prior to June 30, 1993 are carried at
their adjusted fair value in
accordance with accounting principles
applicable to a quasi-reorganization which
was completed on that date. The property
assets acquired with the acquisition of
Freehold Raceway in January 1995 were
recorded at their fair values as required
under the purchase method of accounting.
All other property assets are
recorded at cost. Depreciation is being
computed over the estimated remaining useful
lives using the straight-line method.
Major classes of land, buildings and
equipment consisted of the following:
<TABLE>
<CAPTION>
Estimated
Useful
Lives June 30, January 27,
-------------------------------------
in Years 1997 1998 1999
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Land $ 40,432,500 $ 40,432,500 $ 40,432,500
Building and
improvements 15-40 28,609,338 28,672,328 28,684,551
Equipment 5-15 4,670,448 4,789,035 4,811,992
-------------------------------------------------------------------------------------------
73,712,286 73,893,863 73,929,043
Less accumulated
depreciation and
amortization 4,027,515 5,554,066 6,446,433
-------------------------------------------------------------------------------------------
$ 69,684,771 $ 68,339,797 $ 67,482,610
-------------------------------------------------------------------------------------------
</TABLE>
Pursuant to the sale referred to in Note 2,
net property attributable to Freehold Raceway
of approximately $22,286,000 was sold.
15
<PAGE>
The Racetrack Operations of
International Thoroughbred Breeders, Inc.
Notes to Combined Financial Statements
(Information as of January 27, 1999 and for the period
July 1, 1998 to January 27, 1999 is unaudited)
On October 20, 1997, the Company sold a
parcel of land contiguous to Garden State
Park for $9,000,000, exclusive of closing
costs of approximately $545,000. The carrying
value of such property was $6,767,715. The
Company used $6,000,000 of such sales
proceeds to pay an existing mortgage on the
property. The resulting gain was recorded as
an adjustment to stockholder's equity in
accordance with accounting principles
applicable to quasi-reorganizations.
5. Long-Term Long-term debt consisted of the following:
Debt
<TABLE>
<CAPTION>
June 30,
------------------------------------------------------
1997 1998 January 27, 1999
- --------------------------------------------------------------------------------------------------------------------------
Interest
% Per
Annum Current Long-Term Current Long-Term Current Long-Term
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Freehold Raceway
Kenneth R. Fisher (a) 80% of $ 625,000 $ 10,625,000 $ 625,000 $ 10,000,000 $ 625,000 $ 9,375,000
Prime
(not to
exceed
6%)
(1/27/99
rate 6%)
Kenneth R. Fisher (b) 80% of 225,000 1,815,800 225,000 1,572,049 225,000 1,441,799
Prime
(1/27/99
rate
6.2%)
Other 42,537 -- -- -- -- --
Garden State Park
Sun National Bank (c) 6,000,000 -- -- -- -- --
Other Various 781,806 690,202 351,429 426,682 194,132 324,278
- --------------------------------------------------------------------------------------------------------------------------
Totals $ 7,674,343 $ 13,131,002 $ 1,201,429 $ 11,998,731 $ 1,044,132 $ 11,141,077
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
The Racetrack Operations of
International Thoroughbred Breeders, Inc.
Notes to Combined Financial Statements
(Information as of January 27, 1999 and for the period
July 1, 1998 to January 27, 1999 is unaudited)
(a) On February 2, 1995, the Company entered into an
agreement with the former owner of Freehold Raceway
whereby the $12.5 million balance of the purchase price
of the Freehold Raceway was financed by an eight
(8) year promissory note at 80% of the prevailing
prime rate, not to exceed 6%. Yearly principal and
interest payments during the first five (5) years
commencing January 1, 1996 are based upon a twenty (20)
year principal amortization schedule. During each
of the next three (3) years, commencing January 1,
2001, yearly principal and interest payments shall be
based upon a ten (10) year amortization schedule. On
January 1, 2003, the entire unpaid principal balance,
together with any accrued interest becomes due and
payable. The note is secured by a mortgage on the land
and buildings at Freehold Raceway. This note was
paid in full with the proceeds from the sale of
Freehold Raceway on January 28, 1999 (see Note 2).
(b) During February 1995, the seller of Freehold Raceway
advanced to Freehold Raceway $2,584,549 towards the
retirement of $5.2 million of existing debt on Freehold
Raceway. The seller received from Freehold
Raceway in fiscal 1995, a promissory note evidencing
the indebtedness secured by a mortgage on the
racetrack property and other collateral. Equal monthly
principal installments of $18,750 beginning on February
1, 1995 is paid to the seller together with accrued
interest. Interest is calculated at 80% of the prime
rate at January 1 of each year. The note is secured by
a mortgage on the land and buildings at Freehold
Raceway. This note was paid in full with the proceeds
from the sale of Freehold Raceway on January 28, 1999
(see Note 2).
(c) In June 1997, the Company received financing of
$6,000,000 from Sun National Bank (which was used to
pay two $3,000,000 mortgage notes), by issuing a
$6,000,000 mortgage note. On October 20, 1997, the
Company retired the $6,000,000 mortgage note with
proceeds from the sale of a portion of the Garden State
property (see Note 4). The note was originally due in
December 1998.
6. Commitments The Company has entered into lease agreements for
and certain equipment and maintenance contracts at
Contingencies Garden State Park and Freehold Raceway. Two of these
agreements are based upon the daily average of the
total amount wagered and number of live racing days at
the Company's racetracks. Minimum rental payments for
the next five years are based on projected racing
dates. Equipment lease expense for the years ended
June 30, 1997 and 1998 and for the period July 1, 1998
to January 27, 1999 was $1,914,667, $1,584,335 and
$1,282,893, respectively.
Garden State Park has granted the exclusive right to
operate all food and retail services and to sell or
rent all food products and merchandise sold or rented
at the racetrack facility to Service America
Corporation. The term of the agreement is for the
15-year period terminating during March 2000. Service
America agreed to invest $7,000,000 in the concession
premises at the racetrack facility. As of June 30,
1998, the Company is contingently liable for
approximately $900,000, the undepreciated value of the
equipment Service America installed at the track,
if this agreement were to be terminated. At the end
of the agreement or upon termination, Garden State Park
would take title to such equipment. In connection
with the sale (see Note 2), the commitment was assumed
by the purchaser.
17
<PAGE>
The Racetrack Operations of
International Thoroughbred Breeders, Inc.
Notes to Combined Financial Statements
(Information as of January 27, 1999 and for the period
July 1, 1998 to January 27, 1999 is unaudited)
The following summarizes commitments on
noncancelable equipment leases as of June 30,
1998:
Year ending June 30,
1999 $2,199,245
2000 1,346,776
2001 446,551
2002 127,025
-------------------------------------------------------
Total $4,119,597
-------------------------------------------------------
The operating leases were assumed by the
buyer of Freehold Raceway and lessor of
Garden State Park.
18
<PAGE>
From time to time, the Company is a defendant
in various lawsuits incident to the ordinary
course of business. It is not possible to
determine with any precision the probable
outcome or the amount of liability, if any,
under these lawsuits; however, in the opinion
of the Company and its counsel, the
disposition of these lawsuits will not have a
material adverse effect on the Company's
financial position, results of operations, or
cash flows.
7. Retirement The Company maintains a Retirement Plan
Plans under the provisions of section 401(k) of
the Internal Revenue Code (the "Code")
covering all its nonunion full time
employees who have completed one year of
service. The Company's basic contribution
under the plan is 4% of each covered
employee's compensation for such calendar
year. In addition, the Company contributes up
to an additional 50% of the first 4% of
compensation contributed by any covered
employee to the plan (an employee's maximum
contribution is $9,500 factored for inflation
annually). The Company's expense totaled
$190,882, $181,887 and $91,244 for the fiscal
years ended June 30, 1997 and 1998 and for
the period July 1, 1998 to January 27, 1999,
respectively.
For collectively-bargained, multi-employer
pension plans, contributions are made in
accordance with negotiated labor contracts
and generally are based on the number of
hours worked. With the passage of the
Multi-Employer Pension Plan Amendments Act of
1980 (the "Act"), the Company may, under
certain circumstances, become subject to
liabilities in excess of contributions made
under collective bargaining agreements.
Generally, these liabilities are contingent
upon the termination, withdrawal, or partial
withdrawal from the plans. Total
contributions charged to expense under all
collectively bargained multi-employer pension
plans were $1,106,906, $1,089,020 and
$444,176, in the fiscal years 1997 and 1998
and for the period July 1, 1998 to January
27, 1999, respectively.
The Company has approximately 74% of its
labor force covered by collective bargaining
agreements at June 30, 1998; 52% of its labor
force is covered by collective bargaining
agreements that will expire during fiscal
1999.
19
<PAGE>
The Racetrack Operations of
International Thoroughbred Breeders, Inc.
Notes to Combined Financial Statements
(Information as of January 27, 1999 and for the period
July 1, 1998 to January 27, 1999 is unaudited)
8. Common Stock
Common stock (no par value) consisted of the
following for each period:
<TABLE>
<CAPTION>
Number of Shares
---------------------------------
Issued
and
Authorized Outstanding Amount
----------------------------------------------------------------------------------
<S> <C> <C> <C>
GSRT 1,000 1,000 $ 1,000
FRA 16,000 6,600 25,400
----------------------------------------------------------------------------------
17,000 7,600 $ 26,400
----------------------------------------------------------------------------------
</TABLE>
9. Year 2000 Issues Like others, the Company could be adversely
(Unaudited) affected ifthe computer systems they, their
suppliers or customers usedo not properly
process and calculate
date-related information and data for the
period surrounding and including January 1,
2000. This is commonly known as the "Year
2000" issue. Additionally, this issue could
impact noncomputer systems and devices such
as production equipment, elevators, etc. At
this time, because of the complexities
involved in the issue, management cannot
provide assurances that the Year 2000 issue
will not have an impact on the Company's
operations.
20
<PAGE>
Pennwood Racing Group
Contents
Page
Pennwood Racing Group Combined Balance Sheets 22-23
Pennwood Racing Group Combined Statement of Income 24
Pennwood Racing Group Combined Statement of Partners' Capital 25
Pennwood Racing Group Combined Statement of Cash Flows 26
Pennwood Racing Group Notes to Combined Financial Statements 27-32
21
<PAGE>
<TABLE>
<CAPTION>
Pennwood Racing Group
Combined Balance Sheet
(In thousands)
July 31, 1999
(Unaudited)
--------------------
<S> <C>
Assets
Current assets
Cash and cash equivalents $ 3,202
Restricted cash 2,193
Accounts receivable, trade and other 1,754
Prepaid expenses and other current assets 810
-------------------
Total current assets 7,959
-------------------
Property, plant and equipment
Land, buildings and equipment 31,882
Less accumulated depreciation 632
-------------------
Net property, plant and equipment 31,250
-------------------
Other assets
Excess of cost over fair market value of net assets acquired
13,322
Intangible, favorable lease 1,486
Restricted cash 3,000
Miscellaneous 21
-------------------
Total other assets 17,829
-------------------
Total assets $ 57,038
-------------------
</TABLE>
See accompanying summary of significant accounting policies and notes to
combined financial statements.
22
<PAGE>
Pennwood Racing Group
Combined Balance Sheet
(In thousands)
<TABLE>
<CAPTION>
July 31, 1999
(Unaudited)
-------------------
<S> <C>
Liabilities and Partners' Capital
Current liabilities
Accounts payable $ 2,630
Purses due horsemen 4,065
Uncashed pari-mutuel tickets 719
Accrued expenses and other current liabilities 1,163
-------------------
Total current liabilities 8,577
-------------------
Long-term liabilities
Notes payable, bank 23,000
Notes payable, affiliates 22,500
Due to affiliates 472
-------------------
Total long-term liabilities 45,972
-------------------
Commitments and contingencies
Partners' capital 2,489
-------------------
Total liabilities and partners' capital $ 57,038
-------------------
</TABLE>
See accompanying summary of significant accounting policies and notes to
combined financial statements.
23
<PAGE>
Pennwood Racing Group
Combined Statement of Income
(In thousands)
<TABLE>
<CAPTION>
For the period January
28, 1999 (inception) to
July 31, 1999
(Unaudited)
-----------------------
<S> <C>
Revenues
Pari-mutuel revenues
Live races $ 4,221
Import simulcasting 19,677
Export simulcasting 5,813
Admissions, programs and other racing revenues 2,391
Concessions revenues 228
-----------------------
Total revenues 32,330
-----------------------
Operating expenses
Purses, stakes and trophies 10,838
Simulcast expenses 1,450
Other direct meet expenses 10,160
Other operating expenses 3,247
Depreciation and amortization 910
-----------------------
Total operating expenses 26,605
-----------------------
Income from operations 5,725
Interest (expense) (2,286 )
-----------------------
Net income $ 3,439
-----------------------
</TABLE>
See accompanying summary of significant accounting policies and notes to
combined financial statements.
24
<PAGE>
Pennwood Racing Group
Combined Statement of Partners' Capital
(In thousands)
<TABLE>
<CAPTION>
(Unaudited)
<S> <C>
Balance, January 28, 1999 $ -
Partners' contributions 500
Net income for the period January 28, 1999 (inception) to July 31, 1999 3,439
Partners' distributions (1,450)
-------------------
Balance, July 31, 1999 $ 2,489
------------------
See accompanying summary of significant accounting policies and notes to
combined financial statements.
</TABLE>
25
<PAGE>
Pennwood Racing Group
Combined Statement of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
For the period
January 28, 1999
(inception) to
July 31, 1999
(Unaudited)
-------------------
<S> <C>
Cash flows from operating activities
Net income $ 3,439
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 910
Decrease (increase) in
Accounts receivable (1,754)
Cash restricted (5,193)
Prepaid expenses and other current assets (810)
Miscellaneous other assets (21)
Increase (decrease) in
Accounts payable 2,630
Purses due horsemen 4,065
Uncashed pari-mutuel tickets 719
Accrued expenses 1,163
-------------------
Net cash provided by operating activities 5,148
-------------------
Cash flows from investing activities
Expenditures for property and equipment (47)
Acquisition of business (primarily property, plant and equipment) (45,321)
Intangible, favorable lease (1,600)
-------------------
Net cash (used in) investing activities (46,968)
-------------------
Cash flows from financing activities
Proceeds from partners' contributions 500
Proceeds from notes payable, bank 23,000
Proceeds from notes payable, affiliates 22,500
Partners' distributions (1,450)
Due to affiliates 472
-------------------
Net cash provided by financing activities 45,022
-------------------
Net increase in cash and cash equivalents and cash and cash equivalents at end
of period $ 3,202
===================
</TABLE>
See accompanying summary of significant accounting policies and notes to
combined financial statements.
26
<PAGE>
Pennwood Racing Group
Notes to Combined Financial Statements
July 31, 1999
(Unaudited)
1. Summary of Nature of Business
Significant
Accounting The combined financial statements include
Policies the accounts of FR Park Racing, L.P., FR
Park Services, L.P., GS Park Racing,
L.P., and GS Park Services, L.P.
(collectively the "Company") all related
under common ownership. All significant
inter-company accounts and transactions have
been eliminated in combination.
On January 28, 1999, the Company purchased
Freehold Raceway, a ten-acre parcel of land
and certain net assets of Garden State Park,
and entered into a lease for the Garden State
Park facilities for a period of seven years.
In the opinion of management, all adjustments
(consisting of normal recurring accruals)
have been made which are necessary to present
fairly the financial position of the Company
as of July 31, 1999 and the results of its
operations for the period then ended July 31,
1999. The results of operation experienced
for the period ended July 31, 1999 are not
necessarily indicative of the results to be
experienced for the fiscal year ended
December 31, 1999
The Company conducts live race meetings for
Thoroughbred and Harness (Standardbred)
horses, and participates in intrastate and
interstate simulcast wagering as a host and
receiving track in Cherry Hill ("Garden State
Park") and Freehold ("Freehold Raceway"), New
Jersey. The Company's racetrack operations
are dependent upon continued governmental
acceptance of racing as a form of legalized
gambling. The Company competes for gaming
revenue, not only with other racetracks, but
also with other forms of gaming activities,
such as, off-track betting parlors, telephone
wagering, casino gambling in Atlantic City,
New Jersey, slot machines at other
racetracks, and various state lotteries, both
from within the State of New Jersey and from
neighboring states (Pennsylvania and Delaware
in particular). From time to time,
legislation has been introduced in New Jersey
and neighboring states which would further
expand gambling opportunities and increase
competition. Severe inclement weather, which
can affect the northeastern portion of the
United States in the winter months, can also
adversely affect operations. The Company is
required to annually renew its racing permits
with the New Jersey Racing Commission in
order to operate.
Revenue Recognition
The Company recognizes revenue associated
with horse racing at Garden State Park and
Freehold Raceway as they are earned. Garden
State Park and Freehold Raceway operate as
satellite wagering sites for thoroughbred and
harness racing meets conducted at other
racetracks. The tracks receive broadcasts of
live racing from other racetracks under
various simulcasting agreements. The track
also provides broadcast of live racing
conducted at these facilities to other
racetracks under various host simulcasting
agreements. Under these contracts, the
Company receives or pays pari-mutuel
commissions of varying percentages of
simulcast pari-mutuel wagering. Costs and
expenses associated with horse racing
revenues are charged against income in those
periods in which the horse racing revenues
are recognized. Other costs and expenses,
including advertising, are recognized as they
actually occur throughout the year.
27
<PAGE>
Pennwood Racing Group
Notes to Combined Financial Statements
July 31, 1999
(Unaudited)
Goodwill, Depreciation and Amortization
Goodwill is the excess of cost over fair
value of net assets acquired and is being
amortized on the straight-line method over a
forty-year period. Amortization expense for
the period ended July 31, 1999 amounted to
$164,000. The Company evaluates the
recoverability of the goodwill quarterly, or
more frequently whenever events and
circumstances warrant revised estimates and
considers whether the goodwill should be
completely or partially written off or the
amortization period accelerated.
Property, plant and equipment related to the
January 28, 1999 acquisition is recorded at
fair market value. All other property, plant
and equipment is recorded at cost.
Depreciation of property, equipment and
amortization of building improvements are
computed by the straight-line method at rates
adequate to allocate the cost of applicable
assets over their estimated useful lives.
Depreciation and amortization for the period
ended July 31, 1999 amounted to $632,000.
The Company reviews the carrying values of
its long-lived and identifiable intangible
assets for possible impairment whenever
events or changes in circumstances indicates
that the carrying amount of the assets may
not be recoverable based on undiscounted
estimated future operating cash flows. As of
July 31, 1999, the Company has determined
that no impairment has occurred.
The fair value of the intangible, favorable
lease is charged to operations over the life
of the underlying lease at Garden State Park.
Amortization of intangibles related to
favorable lease for the period ended July 31,
1999 amounted to $114,000.
Cash and Cash Equivalents
The Company considers all cash balances and
highly liquid investments with original
maturities of three months or less to be cash
equivalents.
Concentration of Credit Risk
Financial instruments which potentially
subject the Company to concentrations of
credit risk are cash and cash equivalents.
The Company places its cash investments with
high credit quality financial institutions
and currently invests primarily in U.S.
government obligations that have maturities
of less than 3 months. The amount on deposit
in any one institution that exceeds
federally-insured limits is subject to credit
risk. The Company does not require collateral
for its financial instruments. At July 31,
1999 the Company had approximately $4,995,000
on deposit in financial institutions that was
subject to such risk.
28
<PAGE>
Pennwood Racing Group
Notes to Combined Financial Statements
July 31, 1999
(Unaudited)
Fair Value of Financial Instruments
The following methods and assumptions are
used to estimate the fair value of each class
of financial instruments for which it is
practical to estimate.
Cash and Cash Equivalents: The
carrying amount approximates the
fair value due to the short maturity of
the cash equivalents.
Long-Term Debt: The fair value of the
Company's long-term debt is estimated
based on the quoted market prices for
the same or similar issues or on the
current rates offered to the Company
for debt of the same remaining
maturities. The carrying amount
approximates fair value since the
Company's interest rates approximate
current interest rates.
Income Taxes
As Partnerships, taxable income is reported
and the resultant tax liabilities paid by the
individual partners. Consequently, no Federal
or state income taxes have been provided in
the accompanying financial statements.
Use of Estimates
The preparation of financial statements in
conformity with generally accepted accounting
principles 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 at the reporting period.
Actual results could differ from those
estimates.
29
<PAGE>
Pennwood Racing Group
Notes to Combined Financial Statements
July 31, 1999
(Unaudited)
3. Restricted Cash and At July 31, 1999, the Company had
Investments approximately $5,193,000, classified as
restricted cash. These funds represent
cash which was received from horsemen for
nomination and entry fees to be
applied to upcoming racing meets, purse
winnings held in trust for horsemen and
amounts held for unclaimed ticket holder
winnings. ($2,193,000) and cash held in
escrow on behalf of the Company's term loan
lender.
4. Notes Payable, Bank In July 1999, the Company
entered into an agreement with a bank for a
term loan in the mount of $23,000,000 (the
"Credit Facility"). Simultaneously with the
closing of the Credit Facility, the company
repaid amounts outstanding to affiliates. The
Credit Facility consists of a term loan of
$23,000,000 which was used for the purchase
of Freehold Raceway, and ten acres of land at
Garden State Park.
The term loan is payable in quarterly
installments of interest only, at the rate
equal to prime rate plus 1 1/4% (9 1/4% at
July 31, 1999), and commencing September 30,
2000 quarterly installments equal to $383,333
plus interest. The term loan is secured by
substantially all of the assets of the
company and $3,000,000 in cash. The Credit
Facility agreement provides for certain
covenants, including those of financial
nature and is guaranteed by affiliates. The
term loan matures on September 30, 2004.
The following is a schedule of principle
payments of notes payable bank as of July 31,
1999.
July 31,
(in thousands)
2001 $ 1,533
2002 1,533
2003 1,533
2004 1,533
Thereafter 16,868
--------
Total minimum payments $ 23,000
========
5. Notes Payable, Affiliates Notes payable bear
interest at 2 1/4% over the prime rate (10
1/4% at July 31, 1999), which is paid
quarterly. The notes are collateralized by a
second mortgage on Freehold Raceway and are
payable upon demand. Pursuant to restrictions
contained in the Company's term loan
agreement, such amounts have been classified
as non-current. Interest on such notes from
January 28, 1999 through July 31, 1999
amounted to $929,000.
30
<PAGE>
Pennwood Racing Group
Notes to Combined Financial Statements
July 31, 1999
(Unaudited)
6. Commitments The Company has assumed lease agreements
and for certain equipment maintenance and
Contingencies contract at Garden State Park and Freehold
Raceway. Two of these agreements are based
upon the daily average of the total amount
wagered and number of live
racing days at the Company's racetracks.
Minimum rental payments for the next five
years are based on projected racing dates.
The Company also leases Garden State Park
under a seven year operating lease at an
annual lease payment of $300,000. Equipment
and facility lease expense for the period
ended July 31, 1999 was $255,000.
The following summarizes commitments on
non-cancelable equipment leases as of July
31, 1999:
Years Ending July 31,
2000 $ 511,000
2001 511,000
2002 318,000
2003 300,000
2004 300,000
Thereafter 450,000
---------
Total $ 2,390,000
=========
31
<PAGE>
Pennwood Racing Group
Notes to Combined Financial Statements
July 31, 1999
(Unaudited)
From time to time, the Company is a defendant
in various lawsuits incident to the ordinary
course of business. It is not possible to
determine with any precision the probable
outcome or the amount of liability, if any,
under these lawsuits; however, in the opinion
of the Company and its counsel, the
disposition of these lawsuits will not have a
material adverse effect on the Company's
financial position, results of operations, or
cash flows.
7. Supplemental Cash paid for interest was $ 1,820,000 for
Disclosures of Cash Flow the period ended July 31, 1999.
Information
8. Retirement Plans
For collectively bargained,
multi-employer pension plans, contributions
are made in accordance with negotiated
labor contracts and generally
are based on the number of hours worked.
With the passage of the Multi-Employer
Pension Plan Amendments Act of 1980 (the
"Act"), the Company may, under certain
circumstances, become subject to
liabilities in excess of contributions
made under collective bargaining
agreements. Generally, these liabilities
are contingent upon the termination,
withdrawal, or partial withdrawal from the
plans. Total contributions charged to
expense under all collectively
bargained multi-employer pension plans were
$ 254,000 for the period
ended July 31, 1999.
9. Year 2000 Issues
Like others, the Company could be adversely
affected if the computer systems they, their
suppliers or customers use do not properly
process and calculate date-related
information and data from the period
surrounding and including January 1, 2000.
This is commonly known as the "Year 2000"
issue. Additionally, this issue could
impact non-computer systems and devices
such as production equipment, elevators,
etc. At this time, because of the
complexities involved in the issue,management
cannot provide assurances that the Year 2000
issue will not have an impact on the
Company's operations.
32
<PAGE>
(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:
Page No.
Unaudited Pro Forma Consolidated Financial Information 33
Unaudited Pro Forma Consolidated Balance Sheet as of June 30, 1999 34
Unaudited Pro Forma Consolidated Statement of Income
for the year ended December 31, 1998 35
Unaudited Pro Forma Consolidated Statement of Income
for the six months ended June 30, 1999 36
Notes to Unaudited Pro Forma Consolidated Financial Statements 37-38
Unaudited Pro Forma Consolidated Financial Information
The unaudited pro forma consolidated financial statements present pro
forma information for Penn National Gaming, Inc. (the "Company") giving effect
under the equity method of accounting for the acquisition of a 50% interest in
the Pennwood Racing Group joint venture (the "Joint Venture"). On January 28,
1999, the Joint Venture acquired for the purchase price of $46.0 million
Freehold Raceway, a ten-acre parcel of land and certain net assets of Garden
State Park, and entered into a lease for the Garden State Park facilities for a
period of seven years. The Company consummated its Joint Venture agreement on
July 29, 1999. These pro forma consolidated financial statements are based upon
the historical financial statements of the Company as of June 30, 1999 and for
the year ended December 31, 1998 and for the six months ended June 30, 1999.
The accompanying pro forma consolidated balance sheet as of June 30,
1999 has been presented as if the acquisition had occurred on June 30, 1999. The
accompanying pro forma consolidated statements of income for the year ended
December 31, 1998 and for the six months ended June 30, 1999 have been presented
as if the acquisition had occurred on January 1, 1998.
The pro forma consolidated financial statements are unaudited and are
not necessarily indicative of the results that would have been obtained if the
acquisition had occurred on the dates indicated, or the results of operations
that may be obtained in the future. These statements are qualified in their
entirety by, and should be read in conjunction with, the historical financial
statements of the Company and the Pennwood Racing Group.
33
<PAGE>
Unaudited Pro Forma Consolidated Balance Sheet
June 30, 1999
<TABLE>
<CAPTION>
Pro Forma
Adjustments
Company and Company
Historical Eliminations Pro Forma
(In thousands)
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents $ 10,484 (1) $ (250) $ 7,176
Other current assets 8,522 (2) (2,618) 8,562
(3) (400)
------------------------------------------------------------
Total current assets 19,006 (3,268) 15,738
------------------------------------------------------------
Net property, plant and equipment 119,779 119,779
Intangibles, including goodwill 21,885 21,885
Investment in and advances to unconsolidated
affiliates - (1) 11,500 11,500
Other assets, including deferred charges 15,057 (1) (11,250) 6,825
(2) 2,618
(3) 400
------------------------------------------------------------
Total assets $ 175,727 $ - $ 175,727
------------------------------------------------------------
Liabilities and shareholders' equity
Current maturities of long-term debt 5,158 5,158
Other current liabilities 15,358 15,358
------------------------------------------------------------
Total current liabilities 20,516 - 20,516
------------------------------------------------------------
Long-term debt 81,272 81,272
Other long-term liabilities 11,917 11,917
------------------------------------------------------------
Total long-term liabilities 93,189 - 93,189
------------------------------------------------------------
Total shareholders' equity 62,022 - 62,022
------------------------------------------------------------
Total liabilities and shareholders' equity $ 175,727 $ - $ 175,727
============================================================
</TABLE>
The accompanying notes are an integral part of these pro
forma consolidated financial statements.
34
<PAGE>
Unaudited Pro Forma Consolidated Statement of Income
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Pro Forma
Adjustments
Company and Company
Historical Eliminations Pro Forma
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Total revenues $ 154,065 $ - $ 154,065
Total operating expenses 134,607 (5) 400 135,007
----------------------------------------------------------------
Income from operations 19,458 (400) 19,058
----------------------------------------------------------------
Total other income (expense) (7,436) (4) 1,660 (6,261)
(5) (485)
Income before income taxes 12,022 775 12,797
Taxes on income 4,519 (6) 564 4,729
(7) (354)
----------------------------------------------------------------
Net income $ 7,503 $ 565 $ 8,068
----------------------------------------------------------------
Per Share Data:
Basic net income per share
$ 0.50 $ 0.54
Diluted net income per share $ 0.49 $ 0.52
Weighted Shares Outstanding:
Basic 15,015 15,015
Diluted 15,374 15,374
</TABLE>
The accompanying notes are an integral part of these pro
forma consolidated financial statements.
35
<PAGE>
Unaudited Pro Forma Consolidated Statement of Income
Six Months Ended June 30, 1999
<TABLE>
<CAPTION>
Pro Forma
Adjustments
Company and Company
Historical Eliminations Pro Forma
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Total revenues $ 78,172 $ - $ 78,172
Total operating expenses 70,307 (9) 200 70,507
------------------------------------------------------------
Income from operations 7,865 (200) 7,665
Total other income (expense) (3,735) (8) 1,720 (2,257)
(9) (242)
Income before income taxes 4,130 1,278 5,408
Taxes on income 1,568 (10) 585 1,976
(11) (177)
------------------------------------------------------------
Net income $ 2,562 $ 870 $ 3,432
------------------------------------------------------------
Per Share Data:
Basic net income per share $ 0.17 $ 0.23
Diluted net income per share $ 0.17 $ 0.23
Weighted Shares Outstanding:
Basic 14,784 14,784
Diluted 15,135 15,135
</TABLE>
The accompanying notes are an integral part of these pro
forma consolidated financial statements.
36
<PAGE>
Notes to Unaudited Pro Forma Consolidated Financial Statements
(In thousands)
Pennwood Racing Group Investement
The pro forma adjustments are as follows:
(1) The Company loaned Pennwood Racing Group $11,250,000
on January 27, 1999 (the date of the first closing)
and paid an additional $250,000 on July 29, 1999 (the
date of the second closing). The investment of
$250,000, after distribution of profits to such dates,
will represent 50% of the then remaining capital. The
following pro forma adjustment represents the
reclassification of the loan and the recording of the
investment as of June 30, 1999.
<TABLE>
<CAPTION>
Debit Credit
<S> <C> <C> <C>
Cash 250
Other assets, including deferred charges 11,250
Investment in unconsolidated affiliates 11,500
(2) Pro forma adjustment to record the consent fees paid
to the Company's Senior Note holders approving the
investments in the Joint Venture as of June 30, 1999.
Cash 2,618
Other assets 2,618
(3) Pro forma adjustment to record the fee paid to
Greenwood of New Jersey Inc. related to their
Guarantee of Pennwood Racing Group's bank credit
facility.
Cash 400
Other assets 400
(4) Pro forma adjustment to record the Company's 50% share
of the Racetrack operations of International
Thoroughbred Breeders, Inc. (predecessor to Pennwood
Racing Group) income for the twelve months ended
December 31, 1998.
Total other income (expense) 1,660
(5) Pro forma adjustment to record the amortization of the
consent and the Greenwood Racing, Inc. Guarantee fee
for the twelve months ended December 31, 1998.
Total operating expenses 400
Total other income (expense) 485
</TABLE>
37
<PAGE>
(6) Pro forma adjustment to record income tax effect of
pro forma income statement adjustment for the twelve
months ended December 31, 1998 at an estimated tax
rate of 34%.
<TABLE>
Debit Credit
<S> <C> <C>
Taxes on income 564
(7) Pro forma adjustment to record the income tax effect
relating to the amortization of the consent fees and
the Greenwood Racing, Inc. Guarantee fee at the
estimated tax rate of 40% for the twelve months ended
December 31, 1998.
Taxes on income 354
(8) Pro forma adjustment to record the Company's 50% share
of Pennwood Racing Group's income for the six months
ended July 31, 1999.
Total other income (expense) 1,720
(9) Pro forma adjustment to record the amortization of the
consent fees, and the Greenwood Racing, Inc. Guarantee
for the six months ended June 30, 1999.
Total operating expenses 200
Total other income (expense) 242
(10) Pro forma adjustment to record income tax effect of
pro forma income statement adjustment for the six
months ended July 31, 1999 at an estimated tax rate
of 34%.
Taxes on income
585
(11) Pro forma adjustment to record the income tax effect
relating to the amortization of the consent fees and
other related expenses at the estimated tax rate of
40% for the six months ended June 30, 1999.
Taxes on income 177
</TABLE>
38
<PAGE>
(c) Exhibits
Exhibit No. Description
10.91 Second Amendment to Joint Venture Agreement dated
as of July 29, 1999, between the Company and Greenwood
Racing, Inc. (Incorporated by reference to the Company's
Form 10-Q, File # 0-24206, dated August 12, 1999.) *
10.92 Shareholder's Agreement dated July 29, 1999, between
Penn National Holding Company and Greenwood Racing,
Inc. (Incorporated by reference to the Company's Form
10-Q File # 0-24206, dated August 12, 1999) *
10.93 Amended and Restated Limited Partnership Agreement
dated July 29, 1999, between FR Park Racing, L.P.,
Pennwood Racing, Inc. and Penn National GSFR, Inc.
(Incorporated by reference to the Company's Form 10-Q,
File # 0-24206, dated August 12, 1999.) *
10.94 Amended and Restated Limited Partnership Agreement
dated July 29, 1999, between FR Park Services, L.P.,
Pennwood Racing, Inc. and Penn National GSFR, Inc.
(Incorporated by reference to the Company's Form 10-Q,
File # 0-24206, dated August 12, 1999.) *
10.95 Amended and Restated Limited Partnership Agreement
dated July 29, 1999, between GS Park Racing, L.P.,
Pennwood Racing, Inc. and Penn National GSFR, Inc.
(Incorporated by reference to the Company's Form 10-Q,
File # 0-24206, dated August 12, 1999.) *
10.96 Amended and Restated Limited Partnership Agreement
dated July 29, 1999, between GS Park Services, L.P.,
Pennwood Racing, Inc. and Penn National GSFR, Inc.
(Incorporated by reference to the Company's Form 10-Q,
File # 0-24206, dated August 12, 1999.) *
10.01a Subordination and Intercreditor Agreement dated July 29, 1999,
between the Company, FR Park Racing and Commerce Bank, N.A.
(Incorporated by reference to the Company's Form 10-Q, File #
0-24206, dated August 12, 1999.) *
10.02a Debt Service Maintenance Agreement dated July 29, 1999,
between the Company and Commerce Bank, N.A. (Incorporated by
reference to the Company's Form 10-Q, File # 0-24206, dated
August 12, 1999.) *
10.03a First Supplemental Indenture dated May 19, 1999, between the
Company and State Street Bank and Trust Company, Trustee.
(Incorporated by reference to the Company's Form 10-Q, File #
0-24206, dated August 12, 1999.) *
* Previously filed.
39
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Penn National Gaming, Inc.
October 12, 1999 By:_/s/Robert S. Ippolito_____________________
Date Robert S. Ippolito, Chief Financial Officer
40
<PAGE>
Exhibit Index
Exhibit No. Description
10.91 Second Amendment to Joint Venture Agreement dated
as of July 29, 1999, between the Company and Greenwood
Racing, Inc. (Incorporated by reference to the Company's
Form 10-Q, File # 0-24206, dated August 12, 1999.) *
10.92 Shareholder's Agreement dated July 29, 1999, between
Penn National Holding Company and Greenwood Racing,
Inc. (Incorporated by reference to the Company's Form
10-Q File # 0-24206, dated August 12, 1999) *
10.93 Amended and Restated Limited Partnership Agreement
dated July 29, 1999, between FR Park Racing, L.P.,
Pennwood Racing, Inc. and Penn National GSFR, Inc.
(Incorporated by reference to the Company's Form 10-Q,
File # 0-24206, dated August 12, 1999.) *
10.94 Amended and Restated Limited Partnership Agreement
dated July 29, 1999, between FR Park Services, L.P.,
Pennwood Racing, Inc. and Penn National GSFR, Inc.
(Incorporated by reference to the Company's Form 10-Q,
File # 0-24206, dated August 12, 1999.) *
10.95 Amended and Restated Limited Partnership Agreement
dated July 29, 1999, between GS Park Racing, L.P.,
Pennwood Racing, Inc. and Penn National GSFR, Inc.
(Incorporated by reference to the Company's Form 10-Q,
File # 0-24206, dated August 12, 1999.) *
10.96 Amended and Restated Limited Partnership Agreement
dated July 29, 1999, between GS Park Services, L.P.,
Pennwood Racing, Inc. and Penn National GSFR, Inc.
(Incorporated by reference to the Company's Form 10-Q,
File # 0-24206, dated August 12, 1999.) *
10.01a Subordination and Intercreditor Agreement dated July 29, 1999,
between the Company, FR Park Racing and Commerce Bank, N.A.
(Incorporated by reference to the Company's Form 10-Q, File #
0-24206, dated August 12, 1999.) *
10.02a Debt Service Maintenance Agreement dated July 29, 1999,
between the Company and Commerce Bank, N.A. (Incorporated by
reference to the Company's Form 10-Q, File # 0-24206, dated
August 12, 1999.) *
10.03a First Supplemental Indenture dated May 19, 1999, between the
Company and State Street Bank and Trust Company, Trustee.
(Incorporated by reference to the Company's Form 10-Q, File #
0-24206, dated August 12, 1999.) *
* Previously filed.
41
