FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 0-24206
Penn National Gaming, Inc.
(Exact name of Registrant as specified in its charter)
Pennsylvania 23-2234473
------------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Penn National Gaming, Inc.
825 Berkshire, Blvd., Suite 200
Wyomissing, PA 19610
(Address of principal executive offices) (Zip code)
610-373-2400
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
<PAGE>
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Title Outstanding as of August 8, 2000
Common Stock Par value $.01 per share 15,006,475
THIS REPORT INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION
27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT
OF 1934, AS AMENDED. ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS
INCLUDED IN THIS REPORT LOCATED ELSEWHERE HEREIN REGARDING THE COMPANY'S
OPERATIONS, FINANCIAL POSITION AND BUSINESS STRATEGY, MAY CONSTITUTE
FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY", "WILL", "EXPECT", "INTEND",
"ESTIMATE", "ANTICIPATE", "BELIEVE" OR "CONTINUE" OR THE NEGATIVE THEREOF OR
VARIATIONS THEREON OR SIMILAR TERMINOLOGY. ALTHOUGH THE COMPANY BELIEVES THAT
THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE AT
THIS TIME, IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO HAVE
BEEN CORRECT. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THE COMPANY'S EXPECTATIONS ("CAUTIOUNARY STATEMENTS") ARE
DISCLOSED IN THIS REPORT AND IN OTHER MATERIALS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION. ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS
ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY
QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS.
References to "Penn National Gaming" or the "Company" include Penn National
Gaming, Inc. and its subsidiaries.
2
<PAGE>
Penn National Gaming, Inc. And Subsidiaries
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1 - Financial Statements
Consolidated Balance Sheets -
June 30, 2000 (unaudited) and December 31, 1999 4-5
Consolidated Statements of Income -
Six Months Ended June 30, 2000
and 1999 (unaudited) 6-7
Consolidated Statements of Income -
Three Months Ended June 30, 2000 and
1999 (unaudited) 8-9
Consolidated Statement of Shareholders' Equity -
Six Months Ended June 30, 2000 (unaudited) 10
Consolidated Statements of Cash Flow -
Six Months Ended June 30, 2000
and 1999 (unaudited) 11-12
Notes to Consolidated Financial Statements 13-22
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 30
Item3 - Changes in information about Market Risk 30
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Item 6 - Exhibits and Reports on Form 8-K 31
Signature Page 32
Part I. Financial Information
Item 1. Financial Statements
3
<PAGE>
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
(Unaudited)
-----------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 13,831 $ 9,434
Accounts receivable 5,011 4,779
Prepaid expenses and other current assets 2,748 1,793
Deferred income taxes 594 888
Prepaid income tax - 1,088
-----------------------------------------
Total current assets 22,184 17,982
-----------------------------------------
Property, plant and equipment, at cost
Land and improvements 28,014 27,988
Building and improvements 72,227 70,870
Furniture, fixtures and equipment 40,046 36,195
Transportation equipment 914 860
Leasehold improvements 9,826 9,802
Construction in progress 3,766 1,980
-----------------------------------------
154,793 147,695
Less accumulated depreciation and amortization 24,126 20,824
-----------------------------------------
Net property, plant and equipment 130,667 126,871
-----------------------------------------
Other assets
Investment in and advances to unconsolidated affiliate 13,517 12,862
Cash in escrow 5,000 5,000
Excess of cost over fair market value of net assets acquired
(net of accumulated amortization of $2,914 and $2,611,
respectively) 27,123 21,582
Deferred financing costs 4,569 5,014
Miscellaneous 1,306 1,289
-----------------------------------------
Total other assets 51,515 45,747
-----------------------------------------
$ 204,366 $ 190,600
=========================================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
(Unaudited)
-----------------------------------------------
<S> <C> <C>
Liabilities and Shareholders' Equity
Current liabilities
Current maturities of long-term debt $ 5,160 $ 5,160
Accounts payable 6,664 10,210
Purses due horsemen 2,451 2,114
Uncashed pari-mutuel tickets 809 1,351
Accrued expenses 1,814 2,694
Accrued interest 323 433
Accrued salaries & wages 1,310 1,098
Customer deposits 1,121 800
Taxes, other than income taxes 1,568 1,491
Income taxes 2,640 -
-----------------------------------------------
Total current liabilities 23,860 25,351
-----------------------------------------------
Long Term Liabilities
Long-term debt net of current maturities 90,883 86,053
Deferred income taxes 12,906 12,294
-----------------------------------------------
Total long-term liabilities 103,789 98,977
-----------------------------------------------
Commitments and contingencies
Shareholders' equity
Preferred stock, $.01 par value, authorized 1,000,000 shares;
issued none - -
Common stock, $.01 par value, authorized 20,000,000 shares;
issued 15,429,925 and 15,314,175, respectively 154 153
Treasury stock, 424,700 shares at cost (2,379) (2,379)
Additional paid in capital 39,125 38,527
Retained earnings 39,817 29,971
-----------------------------------------------
Total shareholders' equity 76,717 66,272
-----------------------------------------------
$ 204,366 $ 190,600
===============================================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Six Months Ended
June 30,
2000 1999
-------------------------------------------
<S> <C> <C>
Revenues
Pari-mutuel revenues
Live races $ 10,378 $ 8,283
Import simulcasting 40,005 35,050
Export simulcasting 3,418 1,358
Gaming revenue 49,019 24,913
Admissions, programs and other racing revenue 3,887 2,984
Concessions revenues 7,539 5,584
Earnings from unconsolidated affiliates 1,429 -
-------------------------------------------
Total revenues 115,675 78,172
-------------------------------------------
Operating expenses
Purses, stakes, and trophies 20,577 14,098
Direct salaries, payroll taxes and employee benefits 11,258 8,720
Simulcast expenses 7,639 6,071
Pari-mutuel taxes 4,926 4,103
Lottery taxes and administration 19,320 9,904
Other direct meeting expenses 12,932 10,613
Concessions expenses 6,565 4,968
Other operating expenses 8,564 6,435
Horsemen's action expenses - 1,250
Depreciation and amortization 4,368 4,145
-------------------------------------------
Total operating expenses 96,149 70,307
-------------------------------------------
Income from operations 19,526 7,865
-------------------------------------------
Other income (expenses)
Interest (expense) (4,816) (4,333)
Interest income 881 605
Other (154) (7)
-------------------------------------------
Total other (expenses) (4,089) (3,735)
-------------------------------------------
Income before taxes 15,437 4,130
Taxes on income 5,591 1,568
------------------------------------------
Net Income $ 9,846 $ 2,562
==========================================
</TABLE>
See accompanying notes to consolidated financial statements
6
<PAGE>
<TABLE>
<CAPTION>
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Six Months Ended
June 30,
2000 1999
-------------------------------------------
<S> <C> <C>
Per share data
Basic earnings per share $ .66 $ 0.17
------------------------------------------
Diluted earnings per share $ .64 $ 0.17
------------------------------------------
Weighted shares outstanding
Basic 14,918 14,784
------------------------------------------
Diluted 15,338 15,135
------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
PENN NATIONAL GAMING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended
June 30,
2000 1999
------------------------------------------
<S> <C> <C>
Revenues
Pari-mutuel revenues
Live races $ 6,313 $ 5,868
Import simulcasting 20,189 19,749
Export simulcasting 1,824 847
Gaming revenue 26,853 13,616
Admissions, programs and other racing revenue 2,231 1,865
Concessions revenues 4,161 3,438
Earnings of unconsolidated affiliates 842 -
------------------------------------------
Total revenues 62,413 45,383
------------------------------------------
Operating expenses
Purses, stakes, and trophies 11,007 8,388
Direct salaries, payroll taxes and employee benefits 5,886 5,005
Simulcast expenses 4,138 3,685
Pari-mutuel taxes 2,604 2,434
Lottery taxes and administration 10,572 5,415
Other direct meeting expenses 6,617 6,021
Concessions expenses 3,591 2,945
Other operating expenses 4,129 3,360
Depreciation and amortization 2,191 2,130
------------------------------------------
Total operating expenses 50,735 39,383
------------------------------------------
Income from operations 11,678 6,000
------------------------------------------
Other income (expenses)
Interest (expense) (2,434) (2,208)
Interest income 431 396
Other - (7)
------------------------------------------
Total other (expenses) (2,003) (1,819)
------------------------------------------
Income before taxes 9,675 4,181
Taxes on income 3,449 1,642
------------------------------------------
Net income $ 6,226 $ 2,539
==========================================
</TABLE>
See accompanying notes to consolidatedfinancial statements.
8
<PAGE>
<TABLE>
<CAPTION>
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended
June 30,
2000 1999
------------------------------------------
<S> <C> <C>
Per share data
Basic earnings per share $ .42 $ .17
------------------------------------------
Diluted earnings per share $ .40 $ .17
------------------------------------------
Weighted shares outstanding
Basic 14,939 14,828
------------------------------------------
Diluted 15,431 15,190
------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except share data)
(Unaudited)
Additional
Common Stock Treasury Paid-In Retained
Shares Amounts Stock Capital Earnings Total
<S> <C> <C> <C> <C> <C> <C>
Balance, at January 1, 2000 15,314,175 $ 153 $ (2,379) $ 38,527 $ 29,971 $ 66,272
Issuance of common stock 115,750 1 - 598 - 599
Net income for the six months
ended June 30, 2000 - - - - 9,846 9,846
--------------------------------------------------------------------------------------
Balance, at June 30, 2000 15,429,925 $ 154 $ (2,379) $ 39,125 $ 39,817 $ 76,717
======================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands)
(Unaudited)
Six Months Ended
June 30,
2000 1999
-----------------------------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 9,846 $ 2,562
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 4,368 4,145
Income from unconsolidated affiliates (655) -
Deferred income taxes 276 572
Decrease (Increase) in
Accounts receivable (232) (2,155)
Prepaid expenses (1,155) 50
Prepaid income taxes 1,088 745
Miscellaneous other assets (17) (25)
Increase (decrease) in
Accounts payable (3,548) 358
Purses due horsemen 337 2,591
Uncashed pari-mutuel tickets (542) (503)
Accrued expenses (880) 299
Accrued interest (110) (55)
Accrued salaries & wages 212 -
Customers deposits 321 171
Taxes other than income payable 77 462
Income taxes 2,640 -
-----------------------------------
Net cash provided by operating activities 12,026 9,217
-----------------------------------
Cash flows from investing activities
Expenditures for property and equipment (7,298) (2,578)
Proceeds from sale of property and equipment 178 -
Investment in and advances to unconsolidated affiliate - (11,250)
Acquisition of business (5,845) -
Other - 251
-----------------------------------
Net cash (used in) investing activities (12,965) (13,577)
-----------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
11
<PAGE>
<TABLE>
<CAPTION>
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands)
(Unaudited)
Six Months Ended
June 30,
2000 1999
----------------------------------
<S> <C> <C>
Cash flows from financing activities
Proceeds from sale of common stock 599 424
Proceeds from long-term debt 4,847 11,500
Principal payments on long-term debt and capital lease obligations (17) (3,326)
(Increase) in unamortized financing cost (93) (580)
-----------------------------------
Net cash provided by financing activities 5,336 8,018
-----------------------------------
Net increase in cash 4,397 3,658
Cash and cash equivalents at beginning of period 9,434 6,826
------------------------------------
Cash and cash equivalents, at end of period $ 13,831 $ 10,484
====================================
</TABLE>
See accompanying notes to consolidated financial statements.
12
<PAGE>
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Financial Statement Presentation
The accompanying consolidated financial statements are unaudited and
include the accounts of Penn National Gaming, Inc. ("Penn"), and its
wholly owned subsidiaries, (collectively the "Company"). All
significant intercompany transactions and balances have been
eliminated. Certain prior year amounts have been reclassified to
conform to current year presentation.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) have been made which are necessary to present
fairly the financial position of the Company as of June 30, 2000 and
the results of its operations for the three and six month periods ended
June 30, 2000 and 1999. The results of operations experienced for the
six month period ended June 30, 2000 are not necessarily indicative of
the results to be experienced for the fiscal year ended December 31,
2000.
The statements and related notes herein have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission.
Accordingly, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted pursuant to such rules
and regulations. The accompanying notes should therefore be read in
conjunction with the Company's December 31, 1999 annual financial
statements.
2. Wagering Information (in thousands)
<TABLE>
<CAPTION>
Three months ended June 30, 2000
Penn Pocono Charles
National Downs Town Total
<S> <C> <C> <C> <C>
Pari-mutuel wagering in-state on
Company's live races $ 14,477 $ 6,337 $ 7,981 $ 28,795
--------------------------------------------------------------
Pari-mutuel wagering on simulcasting:
Import simulcasting from other racetracks 49,722 33,815 12,933 96,470
Export simulcasting to out of
state wagering facilities 35,680 6,432 18,871 60,983
--------------------------------------------------------------
85,402 40,247 31,804 157,453
--------------------------------------------------------------
Total pari-mutuel wagering $ 99,879 $ 46,584 $ 39,785 $ 186,248
==============================================================
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Three months ended June 30, 1999
Penn Pocono Charles
National Downs Town Total
<S> <C> <C> <C> <C>
Pari-mutuel wagering in-state on
Company's live races $ 11,291 $ 7,197 $ 8,346 $ 26,834
--------------------------------------------------------------
Pari-mutuel wagering on simulcasting:
Import simulcasting from other racetracks 49,421 34,831 12,962 97,214
Export simulcasting to out of
state wagering facilities 20,228 6,348 2,042 28,618
--------------------------------------------------------------
69,649 41,179 15,004 125,832
--------------------------------------------------------------
Total pari-mutuel wagering $ 80,940 $ 48,376 $ 23,350 $ 152,666
==============================================================
</TABLE>
<TABLE>
<CAPTION>
Six months ended June 30, 2000
Penn Pocono Charles
National Downs Town Total
<S> <C> <C> <C> <C>
Pari-mutuel wagering in-state on
Company's live races $ 27,822 $ 6,337 $ 13,751 $ 47,910
--------------------------------------------------------------
Pari-mutuel wagering on simulcasting:
Import simulcasting from other racetracks 99,432 66,487 25,531 191,450
Export simulcasting to out of
state wagering facilities 73,870 6,432 33,564 113,866
--------------------------------------------------------------
173,302 72,919 59,095 305,316
--------------------------------------------------------------
Total pari-mutuel wagering $ 201,124 $ 79,256 $ 72,846 $ 353,226
==============================================================
</TABLE>
<TABLE>
<CAPTION>
Six months ended June 30, 1999
Penn Pocono Charles
National Downs Town Total
<S> <C> <C> <C> <C>
Pari-mutuel wagering in-state on
Company's live races $ 17,970 $ 7,197 $ 13,389 $ 38,556
--------------------------------------------------------------
Pari-mutuel wagering on simulcasting:
Import simulcasting from other racetracks 77,026 69,995 25,561 172,582
Export simulcasting to out of
state wagering facilities 37,382 6,348 2,042 45,772
--------------------------------------------------------------
114,408 76,343 27,603 218,354
--------------------------------------------------------------
Total pari-mutuel wagering $ 132,378 $ 83,540 $ 40,992 $ 256,910
==============================================================
</TABLE>
14
<PAGE>
3. Commitments
At June 30, 2000, the Company was contingently obligated under letters of
credit with face amounts aggregating $2,031,000. These amounts consisted of
$1,727,000 relating to horsemen's account balances, $104,000 for Pennsylvania
pari-mutuel taxes, and $200,000 for purses.
4. Supplemental Disclosures of Cash Flow Information
Cash paid during the six months ended June 30, 2000 and 1999 for
interest was $4,849,000 and $4,307,204, respectively.
Cash paid during the three months ended June 30, 2000 and 1999 for
income taxes was $1,735,000 and $206,000, respectively.
5. Subsidiary Guarantors
Summarized financial information as of June 30, 2000 and December 31, 1999
for the three and six months ended June 30, 2000 and 1999 for Penn National
Gaming, Inc. ("Parent"), the Subsidiary Guarantors and Subsidiary Nonguarantors
is as follows:
15
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
Subsidiary
Parent Subsidiary Non- Elimin- Consoli-
Company Guarantors Guarantors ations dated
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
As of June 30, 2000
Consolidated Balance Sheet (In Thousands)
Current assets $ 3,188 $ 6,222 $ 12,989 $ (215) $ 22,184
Net property plant and equipment 815 82,344 47,508 - 130,667
Other assets 120,163 170,965 7,598 (247,211) 51,515
--------------------------------------------------------------------------------------------------------------------------
Total $ 124,166 $ 259,531 $ 68,095 $ (247,426) $ 204,366
--------------------------------------------------------------------------------------------------------------------------
Current liabilities 2,600 24,906 6,958 (10,604) 23,860
Long-term liabilities 81,981 96,818 53,441 (128,451) 103,789
Shareholders' equity (deficiency) 39,585 137,807 7,696 (108,371) 76,717
--------------------------------------------------------------------------------------------------------------------------
Total $ 124,166 $ 259,531 $ 68,095 $ (247,426) $ 204,366
--------------------------------------------------------------------------------------------------------------------------
Three months ended June 30, 2000
Consolidated Statement of Income (In Thousands)
Total revenues $ 57 $ 30,393 $ 34,925 $ (2,962) $ 62,413
Total operating expenses (1,571) 26,878 28,390 (2,962) 50,735
--------------------------------------------------------------------------------------------------------------------------
Income from operations 1,628 3,515 6,535 - 11,678
Other income (expenses) (1,202) 360 (1,161) - (2,003)
--------------------------------------------------------------------------------------------------------------------------
Income before income taxes 426 3,875 5,374 - 9,675
Taxes on income 182 3,267 - - 3,449
--------------------------------------------------------------------------------------------------------------------------
Net income $ 244 $ 608 $ 5,374 $ - $ 6,226
--------------------------------------------------------------------------------------------------------------------------
Six months ended June 30, 2000
Consolidated Statement of Income (In Thousands)
Total revenues $ 63 $ 57,283 $ 63,643 $ (5,314) $ 115,675
Total operating expenses (3,042) 51,733 52,772 (5,314) 96,149
--------------------------------------------------------------------------------------------------------------------------
Income from operations 3,105 5,550 10,871 - 19,526
Other income (expenses) (2,383) 771 (2,323) (154) (4,089)
--------------------------------------------------------------------------------------------------------------------------
Income before income taxes 722 6,321 8,548 (154) 15,437
Taxes on income 307 5,336 - (52) 5,591
--------------------------------------------------------------------------------------------------------------------------
Net income $ 415 $ 985 $ 8,548 $ (102) $ 9,846
--------------------------------------------------------------------------------------------------------------------------
Six months ended June 30, 2000
Consolidated Statement of Cash Flow (In Thousands)
Net cash flows from operating $ (3,753) $ (3,151) $ 1,081 $ 18,000 $ 12,177
activities
Net cash flows from investing 1,419 (203) (2,181) (12,000) (12,965)
activities
Net cash flows from financing 961 4,241 5,983 (6,000) 5,185
activities
--------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash (1,373) 887 4,883 - 4,397
Cash and cash equivalents at January
1, 2000 $ 2,544 $ 2,538 $ 4,352 $ - $ 4,397
--------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at June
30, 2000 $ 1,171 $ 3,425 $ 9,235 $ - $ 13,831
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
Subsidiary
Parent Subsidiary Non- Elimin- Consoli-
Company Guarantors Guarantors ations dated
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
As of December 31, 1999
Consolidated Balance Sheet (In Thousands)
Current assets $ 3,651 $ 7,669 $ 6,523 $ 139 $ 17,982
Net property, plant and equipment 813 79,932 46,126 - 126,871
Other assets 116,170 155,509 1,620 (227,552) 45,747
-------------------------------------------------------------------------------------------------------------------------
Total $ 120,634 $ 243,110 $ 54,269 $ (227,413) $ 190,600
-------------------------------------------------------------------------------------------------------------------------
Current liabilities $ (29) $ 25,731 $ 7,664 $ (8,015) $ 25,351
Long-term liabilities 82,091 86,556 47,459 (117,129) 98,977
Shareholders' equity (deficiency) 38,572 130,823 (854) (102,269) 66,272
-------------------------------------------------------------------------------------------------------------------------
Total $ 120,634 $ 243,110 $ 54,269 $ (227,413) $ 190,600
Three months ended June 30, 1999
Consolidated Statement of Income (In Thousands)
Total revenues $ 4,515 $ 22,173 $ 20,205 $ (1,510) $ 45,383
Total operating expenses 2,141 21,291 17,461 (1,510) 39,383
-------------------------------------------------------------------------------------------------------------------------
Income from operations 2,374 882 2,744 - 6,000
Other income (expenses) (1,464) 749 (1,104) - (1,819)
-------------------------------------------------------------------------------------------------------------------------
Income before income taxes 910 1,631 1,640 - 4,181
Taxes on income 376 609 656 - 1,641
-------------------------------------------------------------------------------------------------------------------------
Net income $ 534 $ 1,022 $ 984 $ - $ 2,540
-------------------------------------------------------------------------------------------------------------------------
Six months ended June 30, 1999
Consolidated Statement of Income (In Thousands)
Total revenues $ 2,038 $ 42,199 $ 36,570 $ (2,635) $ 78,172
Total operating expenses (2,012) 42,642 32,312 (2,635) 70,307
-------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 4,050 (443) 4,258 - 7,865
Other income (expenses) (2,969) 1,504 (2,270) (3,735)
-------------------------------------------------------------------------------------------------------------------------
Income before income taxes 1,081 1,061 1,988 - 4,130
Taxes on income 465 285 818 1,568
-------------------------------------------------------------------------------------------------------------------------
Net income $ 616 $ 776 $ 1,170 $ - $ 2,562
-------------------------------------------------------------------------------------------------------------------------
Six months ended June 30, 1999
Consolidated Statement of Cash Flow (In Thousands)
Net Cash Flows from Operating $ 6,000 $ 239 $ 2,978 $ - $ 9,217
Activities
Net Cash Flows from Investing (11,736) (745) (1,096) - (13,577)
Activities
Net Cash Flows from Financing 8,527 (509) - - 8,018
Activities
-------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash 2,791 (1,015) 1,882 - 3,658
Cash and cash equivalents at January 1, 2,001 1,705 3,120 - 6,826
1999
-------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at June $ 4,792 $ 690 $ 5,002 $ - $ 10,484
30, 1999
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
6. Mississippi Agreement
On December 10, 1999, the Company entered into two definitive agreements to
purchase all of the assets of the Casino Magic hotel, casino, golf resort,
recreational vehicle (RV) park and marina in Bay St. Louis, Mississippi and the
Boomtown Biloxi casino in Biloxi, Mississippi, from Pinnacle Entertainment, Inc.
(formerly Hollywood Park, Inc.) (NYSE:PNK) for an aggregate of $195 million.
These agreements are contingent upon each other. In addition to acquiring all of
the operating assets and related operations of the Casino Magic Bay St. Louis
and Boomtown Biloxi properties (the "Mississippi Acquisitions"), the Company has
entered into a licensing agreement to use Boomtown and Casino Magic names and
marks at the properties acquired. The transaction was subject to certain closing
conditions including the approval of the Mississippi Gaming Commission,
financing and expiration of the applicable Hart-Scott-Rodino waiting period. As
part of the agreement, the Company paid a deposit of $5 million to an escrow
account, which was refundable if certain conditions were not met. The Company
received approval for a gaming license from the Mississippi Gaming Commission on
April 20, 2000. On June 14, 2000 the Company entered into a financing commitment
letter agreement with Lehman Brothers and CIBC World Markets, Corp., the
proceeds of which in part will be used to finance the Mississippi Acquisitions.
On August 8, 2000 the Company completed the Mississippi Acquisitions and are now
operating both facilities. (See Note 11.)
7. New Jersey Joint Venture
The Company's investment in the Joint Venture is accounted for under the
equity method, original investments are recorded at cost and adjusted by the
Company's share of income or losses of the Joint Venture. The income for the
three and six months ended June 30, 2000 of the Joint Venture is included in
earnings of unconsolidated affiliates in the accompanying Consolidated
Statements of Income for the three and six months ended June 30, 2000.
Summarized balance sheet information for the Joint Venture as of June 30, 2000
is as follows (in thousands):
Current assets $ 11,027
Property, plant and equipment, net 30,220
Other 17,807
---------------------
Total assets $ 59,054
=====================
Current liabilities $ 8,858
Long-term liabilities 45,765
Members' equity 4,431
---------------------
Total liabilities and members' equity $ 59,054
=====================
18
<PAGE>
Summarized results of operations of the unconsolidated Joint Venture
is as follows: (in thousands)
Three Months Ended Six Months Ended
June 30, 2000 June 30, 2000
------------------------ -------------------------
Revenues $ 15,108 $ 29,787
Operating expenses 11,660 23,473
------------------------ -------------------------
EBITDA* $ 3,448 $ 6,314
------------------------ -------------------------
Net Income $ 1,686 $ 2,860
------------------------ -------------------------
* Earnings before interest, taxes, depreciation and amortization.
In connection with the refinancing described in Note 11, the Company
became a full guarantor of indebtedness of the Joint Venture in the amount of
$11.5 million.
8. Trackpower, Inc. and eBet Limited
In July 1999, the Company entered into an agreement with Trackpower, Inc.
(OTC BB: TPWR) ("Trackpower") to serve as the exclusive pari-mutuel wagering hub
operator for Trackpower. Trackpower, up until August 1, 2000, provided
direct-to-home digital satellite transmissions of horse racing to its subscriber
base. The initial term of the contract is for five years with an additional
five-year option available. The Company pays Trackpower a commission on all new
revenues earned from their subscriber base. As an additional incentive to enter
into the contract, the Company received warrants to purchase 5,000,000 shares of
common stock of Trackpower at prices ranging from $1.58 per share to $2.58 per
share. The warrants vest at 20% per year and expire on April 30, 2004. The fair
market value of the warrants issued will be amortized over the vesting period of
one year from the anniversary date of the agreement. As a result of the
transition of operations in 1999, the amount to be amortized as a reduction of
commissions earned in 2000 by Trackpower was not material.
In March 2000, the Company entered into a letter of intent with Trackpower
and eBet Limited ("eBet") which, if a definitive agreement was executed, would
have replaced and restated the above described agreement between the Company and
Trackpower. On June 27, 2000, the March 2000 letter of intent was terminated.
The Company will continue to work under existing license agreements and
contracts entered into with Trackpower prior to March 2000.
19
<PAGE>
9. Minority Interest Purchase
On March 15, 2000, the Company purchased from the BDC Group ("BDC"),
its joint venture partner in West Virginia, BDC's 11% interest in PNGI Charles
Town Gaming Limited Liability Company, which owns and operates Charles Town
Races for $6.0 million in cash. The investment is recorded net of the minority
interest tax liability of $155,000 or $5.845 million. The Company is in the
process of determining the allocation of the purchase price to the various
property, plant and equipment accounts. The allocation will be based on the
results of a recently completed appraisal on the property. As a result of the
purchase, PNGI Charles Town Gaming Limited Liability Company is now a 100%-owned
subsidiary of the Company.
10. Financing Agreement
On June 14, 2000, the Company entered into a financing commitment letter
with Lehman Brothers, Inc. and CIBC World Markets, Corp. for a $350 million
credit facility with bank and institutional lenders. On August 8, 2000, the
Company completed the credit agreement with Lehman Brothers, Inc. and CIBC World
Markets, Corp. as co-arrangers, among others. The proceeds of the credit
facility were used to finance the $195 million Mississippi Acquisitions, to
refinance the Company's existing debts with First Union National Bank and Bank
of America, to purchase the outstanding 10 5/8% Senior Notes and for working
capital purposes. The credit facility provides for a $75 million revolving
credit facility maturing on August 8, 2005, a $75 million Tranche A term loan
maturing on August 8, 2005 and a $200 million Tranche B term loan maturing on
August 8, 2006.
At the Company's option, the revolving credit facility and the Tranche A
term loan may bear interest at (1) the highest of 1/2 of 1% in excess of the
federal funds effective rate or the rate that the bank group announces from time
to time as its prime lending rate plus an applicable margin of up to 2.25% or,
(2) a rate tied to a eurodollar rate plus an applicable margin up to 3.25%. At
the Company's option, the Tranche B term loan may bear interest at (1) the
highest of 1/2 of 1% in excess of the federal funds effective rate or the rate
that the bank group announces from time to time as its prime lending rate plus
an applicable margin of up to 3.25% or, (2) a rate tied to a eurodollar rate
plus an applicable margin up to 4.00%. The credit facility provides for certain
covenants, including those of a financial nature. Substantially all of the
Company's assets are pledged as collateral under the Credit Agreement. The
outstanding amount under this credit facility as of August 8, 2000 was $312
million. A form 8-K will be filed with further information regarding this Credit
Facility.
On June 29, 2000 the Company commenced a cash tender offer to purchase all
of its outstanding $69 million 10 5/8% Senior Notes due 2004 (the "Notes") and a
related consent solicitation to eliminate certain restrictive covenants and
related provisions in the indenture pursuant to which the notes were issued. The
total consideration payable pursuant to the tender offer and consent
solicitation to holders who tender Notes (and thereby deliver consents) prior to
5:00pm, New York City time, on the Consent Date (as defined below) will be
calculated using a fixed spread of 75 basis points over the bid side yield of
the reference U.S. Treasury security on the second business day immediately
20
<PAGE>
preceding the expiration date. The total consideration includes a consent fee of
$30 per Note. If a holder's Notes are not properly tendered prior to 5:00p.m.,
New York City time, on the Consent Date, the holder will not receive the consent
payment, even though the Notes are subsequently tendered by the expiration date
of the tender offer. Under the terms of the tender offer and consent
solicitation, holders may not deliver consents without also tendering Notes. The
Consent Date is the later of July 17, 2000 or the date on which the Company
receives consents from holders of a majority in principal amount of the
outstanding Notes. The tender offer was scheduled to expire at 5:00p.m., New
York City time, on August 1, 2000 unless extended. The tender offer and the
consent solicitation are subject to the terms and conditions set forth in the
Offer to Purchase and Consent Solicitation Statement and the related Consent and
Letter of Transmittal that are being sent to all holders of Notes. Subject to
the terms and conditions of the tender offer and consent solicitation, the
Company will make all payments promptly after the acceptance date.
On July 18, 2000, the Company announced that holders of more than a
majority of the Company's outstanding Notes had tendered Notes and delivered
consents in connection with the Company's tender offer and consent solicitation
announced on June 29, 2000. Accordingly, the Company and the trustee under the
Indenture relating to the Notes have executed and delivered a supplemental
indenture containing the amendments described in the Company's Offer to Purchase
and Consent Solicitation Statement dated as of June 29, 2000. The amendments
will not become operative unless the Notes are accepted for purchase in
accordance with the terms of the tender offer. If the amendments become
operative, holders of all untendered Notes will be bound thereby.
On July 28, 2000 the Company announced that it was extending, until
5:00pm on August 8, 2000, the expiration date of the Company's tender offer for
its Notes, as a result, the pricing of the tender was extended until 2:00pm on
August 4, 2000. The tender offer had previously been scheduled to expire August
1, 2000. The expiration was extended to accommodate the execution and funding of
a new credit agreement with a group of lenders as described in the Company's
Offer to Purchase and Consent Solicitation Statement dated June 29, 2000 (the
"Statement"). The tender offer was completed on August 8, 2000.
11. Subsequent Events
On July 31, 2000, the Company announced that it entered into a
definitive agreement to acquire CRC Holdings, Inc. ("CRC") which does business
as Carnival Resorts and Casinos for $95.8 million and the assumption of
approximately $32 million in net debt (the "CRC Acquisition"). CRC is an
experienced operator of gaming facilities and the owner of approximately 59% of
Louisiana Casino Cruises, Inc. ("LCCI"). The Company also announced that it had
entered into a definitive agreement with the minority owners of LCCI to acquire
their approximately 41% stake for $32.5 million. Under the terms of the
agreement, CRC will divest all of its non-gaming related assets prior to
closing. The acquisitions are expected to be accretive to Penn National's
results in the first year of operations after closing. In the twelve months
ended February 29, 2000 CRC's gaming business, including LCCI, generated
approximately $30.6 million in EBITDA.
21
<PAGE>
LCCI owns and operates the Casino Rouge, a riverboat gaming facility on
the east bank of the Mississippi River in Baton Rouge, Louisiana. The Casino
Rouge features a four-story, 47,000 square foot riverboat casino replicating a
19th century Mississippi River paddlewheel steamboat, a two-story, 58,000 square
foot dockside embarkation facility and parking for 1,650 cars. The riverboat has
a capacity of 1,800 patrons and emphasizes spaciousness and excitement with its
generous aisle space, 15-foot ceilings, a large central atrium and specially
designed lighting. The Casino Rouge offers 28,000 square feet of gaming space
spread over three decks with 974 gaming machines and 42 table games. The
dockside embarkation facility offers a panoramic view of the Mississippi River
and a variety of amenities including a 268-seat buffet, bar and lounge areas,
meeting and planning space and a gift shop. The Casino Rouge cruises eight times
a day. Located on a 23-acre site, five acres of which are owned by LCCI, the
Casino Rouge is within approximately one mile of both Interstate 10 and
Interstate 110. For the year ended November 30, 1999 the Casino Rouge had a
61.9% share of the Baton Rouge gaming market casino revenues, as reported by the
Louisiana State Police, a regulatory body governing the market.
CRC also has a management contract for Casino Rama which is in effect
until 2011. Casino Rama is located approximately 80 miles north of Toronto,
Canada, in Orillia, Canada on the Chippewas of Mnjikaning First Nation land.
Casino Rama, with 75,000 square feet of gaming space, features 2,300 slot
machines and 110 table games as well as a buffet, two restaurants, a nightclub,
a retail center and a 3,000 seat outdoor theater. The Casino Rama facility is
currently undergoing a U.S. $160 million expansion.
Since opening in 1996, Casino Rama has built its revenues to
approximately U.S. $354 million in 1999. Casino Rama's daily win per position at
U.S. $320 in 1999 ranks among the highest of casinos in the U.S. and Canada. The
transaction, expected to close in the first half of 2001, is subject to
regulatory and other approvals in both Louisiana and Canada, financing, the
expiration of the applicable Hart-Scott-Rodino waiting period and other
customary closing conditions.
22
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The percentage of the Company's revenue derived from gaming operations
has increased over the last few years as a result of the gaming operations at
the Charles Town Entertainment Complex. The Company expects that the Mississippi
Acquisitions and the continued expansion of the Charles Town Entertainment
Complex will cause this trend to continue. In the future the Company expects to
alter the presentation of certain of its financial information to better capture
this trend.
Three Months Ended June 30, 2000 Compared To Three Months Ended June 30, 1999
Revenues for the three months ended June 30, 2000 increased by
approximately $17.0 million or 37.5% to $62.4 million from $45.4 million for the
three months ended June 30, 1999. At Charles Town, the increase in revenues
($14.7 million) is attributed to the operation of an average of 1,406 gaming
machines for the three months ended June 30, 2000 compared to 915 gaming
machines for the three months ended June 30, 1999. Operating expenses for the
three months ended June 30, 2000 increased by approximately 11.3 million or
28.8% to $50.7 million from $39.4 million for the three months ended June 30,
1999. Income from operations increased by $5.7 million or 94.7% to $11.7 million
for the three months ended June 30, 2000 from $6.0 million for the three months
ended June 30, 1999. Other expenses for the three months ended June 30, 2000 and
1999 consisted of approximately $2.0 million and $1.8 million, respectively, of
net interest primarily due to the 10.625% Senior Notes and the Revolving Credit
Facility. Taxes on income increased by $1.8 million to $3.4 million for the
three months ended June 30, 2000 from $1.6 million for the three months ended
June 30, 1999. Net income increased by $3.7 million to $6.2 million for the
three months ended June 30, 2000 from $2.5 million for the three months ended
June 30, 1999.
23
<PAGE>
The results of operations for the three months ended June 30, 1999 and 2000
by property level are summarized as follows: (in thousands)
<TABLE>
<CAPTION>
Charles Town Racing Penn National and Pocono Downs and OTWs
and Gaming OTWs
1999 2000 1999 2000 1999 2000
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Revenues
Gaming $ 13,768 $26,878 $ - $ - $ - $ -
Racing 4,763 5,214 13,668 15,406 9,674 9,483
Other 1,674 2,833 1,241 1,328 859 871
------------------------- ------------------------ -------------------------
Total revenues 20,205 34,925 14,909 16,734 10,533 10,354
------------------------- ------------------------ -------------------------
Expenses
Gaming 9,674 18,075 - - - -
Racing 3,835 4,101 10,652 12,086 6,705 6,827
Other* 2,333 3,353 1,807 1,885 1,160 1,142
------------------------- ------------------------ -------------------------
Total expenses 15,842 25,529 12,459 13,971 7,865 7,969
------------------------- ------------------------ -------------------------
EBITDA
Gaming 4,094 8,803 - - - -
Racing 928 1,113 3,016 3,320 2,969 2,656
Other (659) (520) (566) (557) (301) (271)
------------------------- ------------------------ -------------------------
Total EBITDA $ 4,363 $ 9,396 $ 2,450 $ 2,763 $ 2,668 $ 2,385
========================= ======================== =========================
</TABLE>
* Other expenses include property level general and administrative expenses and
excludes corporate overhead and non-recurring expenses.
Charles Town Entertainment Complex
Revenues increased at Charles Town by approximately $14.7 million or
72.8% to $34.9 million in 2000 from $20.2 million in 1999. Gaming revenue
increased by $13.1 million or 95.2% to $26.9 million in 2000 from $13.8 million
in 1999 due to the addition of 565 new reel spinning, coin-out slot machines
since the second quarter of last year. The average number of machines in play
increased to 1,406 in 2000 from 915 in 1999 and the average win per machine
increased to $211 in 2000 from $164 in 1999. Racing revenue increased by $.5
million or 9.7% to $5.2 million in 2000 from $4.7 million in 1999. The live meet
consisted of 60 race days in 2000 and 1999 and a change in the schedule from a
Wednesday afternoon race program to a Thursday evening race program to
accommodate export simulcasting. Charles Town began exporting its live race
program to tracks across the country on June 5, 1999 and generated export
simulcasting revenues of $566,000 for 2000 compared to $61,000 in 1999.
Concession and other revenues increased by approximately $1.1 million or 69.2%
24
<PAGE>
to $2.8 million in 2000 from $1.7 million in 1999 due to increased attendance
for gaming and racing and the expansion of the concession areas, dining room and
buffet area. Operating expenses increased by $9.7 million or 61.1 % to $25.5
million in 2000 from $15.8 million in 1999. The increase was due to an increase
in direct costs associated with additional wagering on horse racing and gaming
machine play, the addition of gaming machines and floor space (new temporary
facility for gaming machines), export simulcast expenses and expanded concession
and dining capability and capacity. Earnings before interest, taxes,
depreciation and amortization (EBITDA) increased by $5.0 million or 115.4% to
$9.4 million in 2000 from $4.4 million in 1999.
Penn National Race Course and OTW Facilities (Penn National Race Course)
Penn National Race Course had an increase in revenue of approximately
$1.8 million or 12.2% to $16.7 million in 2000 from $14.9 million in 1999. The
increase in revenues is attributed to Penn National Race Course running 51 live
race days in 2000 compared to 32 live race days in 1999 resulting in an increase
in live racing commissions and export simulcasting revenue. Expenses increased
by approximately $1.5 million or 12.1% to $14.0 million in 2000 from $12.5
million in 1999.
Pocono Downs and OTW Facilities (Pocono Downs)
Revenues at Pocono Downs decreased by $.2 million or 1.7% to $10.3
million in 2000 from $10.5 million in 1999. Revenue decreased at Allentown and
Hazleton due to loss of Penn National Race Course customers wagering at Pocono
Downs sites during the 1999 strike. Expenses increased by approximately $.1
million or 1.3% to $8.0 million in 2000 from $7.9 million in 1999.
New Jersey Joint Venture
On July 29, 1999, after receiving the necessary approvals from the New
Jersey Racing Commission and the necessary consents from the holders of its
10.625% Senior Notes due 2004, Series B, the Company completed its investment in
the Joint Venture. The Joint Venture operates Freehold Raceway and Garden State
Race Track. Summarized results of operations of the unconsolidated Joint Venture
for the period ended June 30, 2000 include $15.1 million in revenue, $11.6
million in operating expenses and net income of $1.7 million. The Company's 50%
share of net income or $.8 million is recorded as "Earnings from unconsolidated
affiliates" on the income statement.
Capital Expenditures
The Company had capital expenditures of $5.2 million in 2000 compared
to $1.1 million in 1999. Capital expenditures at Charles Town were approximately
$3.7 million for the indoor paddock project that will be the new gaming floor
space for 500 machines ($1.6 million), 174 new reel spinning, coin-out slot
machines ($1.3 million), and equipment replacement and upgrades ($.8 million).
Capital expenditures at Penn National and its OTW facilities ($.2 million) and
Pocono Downs and its OTW facilities ($.1 million) were for normal equipment
replacement and leasehold improvements. Pocono Downs has also spent $1.2 million
on the construction of its new OTW facility in East Stroudsburg, Pennsylvania.
The new OTW opened July 31, 2000. As a result, depreciation and amortization
increased $.1 million or 2.9% to $2.2 million in 2000 from $2.1 million in 1999.
25
<PAGE>
Six Months Ended June 30, 2000 Compared To Six Months Ended June 30, 1999
Revenues for the six months ended June 30, 2000 increased by
approximately $37.5 million or 48.0% to $115.7 million from $78.2 million for
the six months ended June 30, 1999. Operating expenses for the six months ended
June 30, 2000 increased by approximately 25.8 million or 36.8% to $96.1 million
from $70.3 million for the six months ended June 30, 1999. Income from
operations increased by 11.7 million or 148.2% to $19.5 million for the six
months ended June 30, 2000 from $7.8 million for the six months ended June 30,
1999. Other expenses for the six months ended June 30, 2000 and 1999 consisted
of approximately $4.1 million and $3.7 million, respectively, of net interest
primarily due to the 10.625% Senior Notes and the Revolving Credit Facility.
Taxes on income increased by $4.0 million to $5.6 million for the six months
ended June 30, 2000 from $1.6 million for the six months ended June 30, 1999.
Net income increased by 7.3 million to $9.8 million for the six months ended
June 30, 2000 from $2.5 million for the six months ended June 30, 1999.
The results of operations for the six months ended June 30, 1999 and 2000
by property level are summarized as follows: (in thousands)
<TABLE>
<CAPTION>
Charles Town Racing Penn National and Pocono Downs and OTWs
and Gaming OTWs
1999 2000 1999 2000 1999 2000
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Revenues
Gaming $ 25,206 $49,059 $ - $ - $ - $ -
Racing 8,575 9,612 21,447 30,474 17,276 16,899
Other 2,789 4,972 1,892 2,532 1,389 1,446
------------------------- ------------------------ -------------------------
Total revenues 36,570 63,643 23,339 33,006 18,665 18,345
------------------------- ------------------------ -------------------------
Expenses
Gaming 18,622 33,514 - - - -
Racing 6,957 7,671 16,657 23,804 11,637 12,140
Other* 3,740 6,284 2,874 3,675 2,133 2,230
------------------------- ------------------------ -------------------------
Total expenses 29,319 47,469 19,531 27,479 13,770 14,370
------------------------- ------------------------ -------------------------
EBITDA
Gaming 6,584 15,545 - - - -
Racing 1,618 1,941 4,790 6,670 5,639 4,759
Other (951) (1,312) (982) (1,143) (744) (784)
------------------------- ------------------------ -------------------------
Total EBITDA $ 7,251 $16,174 $ 3,808 $ 5,527 $ 4,895 $ 3,975
========================= ======================== =========================
</TABLE>
* Other expenses include property level general and administrative expenses and
excludes corporate overhead and non-recurring expenses.
26
<PAGE>
Charles Town Entertainment Complex
Revenues increased at Charles Town by approximately $27.1 million or
74.0% to $63.6 million in 2000 from $36.5 million in 1999. Gaming revenue
increased by $23.9 million or 94.6% to $49.1 million in 2000 from $25.2 million
in 1999 due to the addition of 136 new video lottery machines and 565 new reel
spinning, coin-out slot machines since January of last year. The average number
of machines in play increased to 1,435 in 2000 from 876 in 1999 and the average
win per machine increased to $190 in 2000 from $157 in 1999. Racing revenue
increased by $1.0 million or 12.1% to $9.6 million in 2000 from $8.6 million in
1999. The live meet consisted of 105 race days in 2000 and compared to 99 race
days in 1999 and a change in the schedule from a Wednesday afternoon race
program to a Thursday evening race program in 2000 to accommodate export
simulcasting. Charles Town began exporting its live race program to tracks
across the country on June 5, 1999 and generated export simulcasting revenues of
$1,031,000 for 2000 compared to $61,000 in 1999. Concession and other revenues
increased by approximately $2.2 million or 78.3% to $5.0 million in 2000 from
$2.8 million in 1999 due to increased attendance for gaming and racing and the
expansion of the concession areas, dining room and buffet area. Operating
expenses increased by $18.1 million or 61.2 % to $47.4 million in 2000 from
$29.3 million in 1999. The increase was due to an increase in direct costs
associated with additional wagering on horse racing and gaming machine play, the
addition of gaming machines and floor space (new temporary facility for gaming
machines), export simulcast expenses and expanded concession and dining
capability and capacity. Earnings before interest, taxes, depreciation and
amortization (EBITDA) increased by $8.9 million or 123.1% to $16.2 million in
2000 from $7.3 million in 1999.
Penn National Race Course and OTW Facilities (Penn National Race Course)
Penn National Race Course had an increase in revenue of approximately
$9.7 million or 41.4% to $33.0 million in 2000 from $23.3 million in 1999. The
increase in revenues is attributed to Penn National Race Course running 99 live
race days in 2000 compared to 50 live race days in 1999 resulting in an increase
in live racing commissions and export simulcasting revenue. Penn National only
ran 50 live race days in 1999 due to the Horsemen action in the first quarter
that resulted in the closure of all of the facilities from February 16 to March
24, 1999. Expenses increased by approximately $6.7 million or 32.2% to $27.5
million in 2000 from $20.8 million in 1999.
Pocono Downs and OTW Facilities (Pocono Downs)
Revenues at Pocono Downs decreased by $.3 million or 1.7% to $18.3
million in 2000 from $18.6 million in 1999. Revenue decreased at Allentown and
Hazleton due to loss of Penn National Race Course customers wagering at Pocono
Downs sites during the 1999 horsemen action. Expenses increased by approximately
$.6 million or 4.3% to $14.4 million in 2000 from $13.8 million in 1999.
27
<PAGE>
New Jersey Joint Venture
Summarized results of operations of the unconsolidated Joint Venture
for the six months ended June 30, 2000 were $29.8 million in revenue, $23.5
million in operating expenses and net income of $2.8 million. The Company's 50%
share of net income or $1.4 million is recorded as "Earnings from unconsolidated
affiliates" on the income statement.
Capital Expenditures
The Company had capital expenditures of $7.3 million in 2000 compared
to $2.6 million in 1999. Capital expenditures at Charles Town were approximately
$5.1 million for the indoor paddock project that will be the new gaming floor
space for 500 machines ($1.7 million), 174 new reel spinning, coin-out slot
machines ($1.3 million) and equipment replacement and upgrades ($2.3 million).
Capital expenditures at Penn National and its OTW facilities ($.3 million) and
Pocono Downs and its OTW facilities ($.2 million) were for normal equipment
replacement and leasehold improvements. Pocono Downs has also spent $1.5 million
on the construction of its new OTW facility in East Stroudsburg, Pennsylvania.
The new OTW opened July 31, 2000. As a result, depreciation and amortization
increased $.2 million or 5.4% to $4.4 million in 2000 from $4.1 million in 1999.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's primary sources of liquidity and capital
resources have been cash flow from operations, borrowings from banks and
proceeds from issuance of equity securities.
Net cash provided from operating activities was $12.0 million for the
period ended June 30, 2000. This consisted of net income and non-cash expenses
($13.8 million), a decrease in prepaid income taxes ($1.1 million) and an
increase in corporate income tax liability ($2.6 million) due to an increase in
taxable income, a decrease in accounts payable and accrued expenses due to
completion of construction for the temporary facility at Charles Town ($4.2
million), an increase in prepaid expenses for the Mississippi acquisition ($.8
million) and other expenses ($.4 million), and other changes in certain assets
and liabilities ($.1 million).
Cash flows used in investing activities for the period ended June 30,
2000 ($13.0 million) consisted of the Company's buyout of the 11% interest in
Charles Town that was owned by other investors ($5.9 million), machinery,
equipment and improvements at Charles Town ($2.3 million), 174 new reel
spinning, coin-out slot machines at Charles Town ($1.3 million), construction of
the new gaming area at Charles Town ($1.6 million), equipment replacement and
building improvements at Penn National ($.3 million) and Pocono Downs ($.2
million) facilities, and construction of the East Stroudsburg OTW facility ($1.5
million).
Cash flows provided by financing activities ($5.3 million) consisted of
borrowings under the credit facility ($4.8 million) for Charles Town expansion
and proceeds from the exercise of stock options and warrants ($.6 million). This
was offset by an increase in financing costs ($.1 million) for amending the
credit facility.
28
<PAGE>
The Company is subject to possible liabilities arising from the
environmental condition at the Landfill adjacent to Pocono Downs. Specifically,
the Company may incur expenses in connection with the Landfill in the future,
which expenses may not be reimbursed by the four municipalities, which are
parties to the Settlement Agreement. The Company is unable to estimate the
amount, if any, that it may be required to expend.
In fiscal year 2000, the Company anticipates spending approximately
$21.5 million on capital expenditures at its racetrack and OTW facilities. The
Company anticipates expending approximately $18.2 million at the Charles Town
Entertainment Complex for player tracking ($.7 million), new slot machines and
conversion kits ($2.1 million), paddock casino and interior renovations ($7.4
million), machinery and equipment ($2.0 million) and other projects including
construction of a structured parking facility, design and planning for a new
hotel ($6.0 million). The Company also plans to spend approximately $261,000 at
Pocono Downs, $550,000 at Penn National, $400,000 at the OTW facilities for
building improvements and equipment and $2.0 million on building improvements
and equipment for its new OTW facility in East Stroudsburg, Pennsylvania. The
Company spent approximately $7.3 million on these projects through June 30,
2000.
The Company entered into its Credit Facility with Bankers Trust
Company, as Agent in 1996. This Credit Facility was amended and restated on
January 29, 1999 with First Union National Bank replacing Bankers Trust Company,
as Agent. The Credit Facility, as amended, provides for a $20 million revolving
Credit Facility, including a $3 million sub-limit for standby letters of credit
and a $5 million term loan. Under the terms of the Credit Facility, as amended,
the Company borrowed an additional $11.5 million which was used to finance its
share of the New Jersey Joint Venture (see Note 4). The outstanding amount under
this Credit Facility as of June 30, 2000 was $12.9 million at an interest rate
of 9.16%. The credit facility was repaid on August 8, 2000.
On December 13, 1999, the Company entered into a $20.0 million Senior
Secured Multiple Draw Term Loan with Bank of America, as an Agent for a bank
group. The term loan was payable in quarterly installments of $1.3 million
principle plus interest. The loan was secured by gaming equipment and
improvements at the Charles Town Entertainment Complex. Part of the term loan
was used to repay the $5.0 million First Union term loan and the balance will be
used to finance gaming equipment and improvements at the Charles Town
Entertainment Complex. The outstanding amount under this credit facility as of
June 30, 2000 was $ 13.9 million at an interest rate of 9.15%. The credit
facility was repaid on August 8, 2000.
On June 14, 2000, the Company entered into a financing commitment letter
with Lehman Brothers, Inc. and CIBC World Markets, Corp. for a $350 million
credit facility with bank and institutional lenders. On August 8, 2000, the
Company completed the credit agreement with Lehman Brothers, Inc. and CIBC World
Markets Corp. as co-arrangers among others. The proceeds of the credit facility
were used to finance the $195 million Mississippi acquisition, to refinance the
Company's existing debts with First Union National Bank and Bank of America, to
purchase the outstanding 10 5/8% Senior Notes and for working capital purposes.
The credit facility provides for a $75 million revolving credit facility
maturing on August 8, 2005, a $75 million Tranche A term loan maturing on August
8, 2005 and a $200 million Tranche B term loan maturing on August 8, 2006.
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At the Company's option, the revolving credit facility and the Tranche A
term loan may bear the interest at (1) the highest of 1/2 of 1% in excess of the
federal funds effective rate or the rate that the bank group announces from time
to time as its prime lending rate plus an applicable margin of up to 2.25% or,
(2) a rate tied to a eurodollar rate plus an applicable margin up to 3.25%. At
the Company's option, the Tranche B term loan may bear the interest at (1) the
highest of 1/2 of 1% in excess of the federal funds effective rate or the rate
that the bank group announces from time to time as its prime lending rate plus
an applicable margin of up to 3.25%, or, (2) a rate tied to a eurodollar rate
plus an applicable margin up to 4.00%. The credit facility provides for certain
covenants, including those of a financial nature. Substantially all of the
Company's assets are pledged as collateral under the Credit agreement. The
outstanding amount under this credit facility as of August 8, 2000 was $312
million. A form 8-K will be filed with further information regarding this Credit
Facility.
The Company currently estimates that the cash generated from operations
and available borrowings under the new credit facilities will be sufficient to
finance its current operations and planned capital expenditure requirements, not
including the CRC Acquisition. There can be no assurance, however, that the
Company will not be required to seek additional capital, in addition to that
available from the foregoing sources. The Company may, from time to time, seek
additional funding through public or private financing, including equity
financing. There can be no assurance that adequate funding will be available as
needed or, if available, on terms acceptable to the Company.
Item 3. Changes in Information about Market Risk
Most of the Company's debt obligations at June 30, 2000 were fixed rate
obligations, and management, therefore, does not believe that the Company has
any material risk from its debt obligations.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Penn National Gaming, Inc.
August 14, 2000 By: /s/Robert S. Ippolito
Date Chief Financial Officer
Secretary/Treasurer
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