Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
X: ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
-----------------
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)
Wyomissing Professional Center
825 Berkshire Blvd., Suite 200
PENNSYLVANIA 23-2234473 Wyomissing, Pennsylvania 19610
---------------------- ---------- ------------------------- -----
(State or other jurisdiction of (I.R.S. Employer (Address of principal executive
incorporation or organization) Identification No.) offices) (Zip Code)
Registrant's telephone number, including area code 610-373-2400
------------
Securities registered pursuant to Section
12(b) of the Act:
None
Securities registered pursuant to Section
12(g) of the Act:
Title of Each Class
Common stock par value .01 per share
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 ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
Aggregate market value of the voting common stock held by nonaffiliates of the
Registrant as of March 14, 2000 was approximately $111,809,813.
Number of Shares of Common Stock outstanding as of March 14, 2000 - 14,907,975
Documents Incorporated by Reference
Registrants Definitive Proxy Statement with respect to annual meeting of
Shareholders to be held on May 17, 2000.
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
PART 1
ITEM 1 BUSINESS
GENERAL
The Company, which began operations in 1972, is a diversified gaming
and pari-mutuel wagering company that owns an 89% interest in the Charles Town
entertainment complex which includes 1,500 gaming machines and a thoroughbred
racetrack in Charles Town, West Virginia. The Company also owns and operates two
racetracks and ten off-track wagering facilities ("OTWs") in Pennsylvania, and a
50% owned joint venture, Pennwood Racing Group, which owns and operates Freehold
Raceway and under a long-term lease operates Garden State Park in New Jersey.
The Company's Pennsylvania racetracks include Penn National Race Course, located
outside Harrisburg, one of two thoroughbred racetracks in Pennsylvania, and
Pocono Downs, located outside Wilkes-Barre, one of two harness racetracks in
Pennsylvania. The Company intends to develop one additional OTW that has been
allocated to it under Pennsylvania law, after which it will operate 11 of the 23
OTWs currently authorized in Pennsylvania. Between 1994 and 1999, the Company
increased total wagers at a compound annual growth rate of 8.4% by expanding its
simulcast and OTW operations.
STRATEGY
The Company has been a leading operator in the pari-mutuel wagering
industry through its horse racing expertise and its numerous wagering locations.
In developing its existing locations, the Company will, when possible, expand
them to include gaming machines, entertainment facilities and other amenities to
increase customer satisfaction and broaden market penetration of these
facilities. The Company plans to increase revenue significantly by focusing on
the following strategic objectives:
Focus on Gaming Machine Operations. The Company continues to seek
legislation to permit it to operate gaming machines at its racetracks where they
are not now permitted and to expand legislation in West Virginia to create
additional gaming opportunities. Legislation has been passed in West Virginia
which allows for coin out and reel slot machines at race tracks. In December
1999 the Company installed an additional 565 coin out, reel slot machines at the
Charles Town Entertainment Complex. The Company intends to convert some or all
of its current machines to coin out and, as demand dictates, increase the
maximum number of machines with reel slot machines.
Continue Development of Existing Facilities. Based on increasing demand
at the Company's Charles Town Entertainment Complex, the Company intends to
implement a master planned development of this facility in an effort to further
penetrate the primary market for this facility and to broaden its appeal as a
destination based entertainment facility serving the Baltimore/Washington DC
metropolitan area.
Acquisitions. The Company intends to grow it's gaming and entertainment
industry presence through select acquisitions of regional properties in emerging
gaming markets. In evaluating acquisition candidates, the Company intends to
focus its resources on under-developed properties which, with management's
focus, can generate improved operating performance by encouraging customer
loyalty among value conscious regional customers and by upgrading the amenities
offered at these facilities. In expanding the Company's gaming and destination
based entertainment offerings, the Company expects to diversify its revenue base
and to broaden its geographical presence. In implementing this strategy, the
Company intends to complete the recently announced acquisitions of the Casino
Magic Bay St. Louis and the Boomtown Biloxi properties in Mississippi. (See
pending Mississippi acquisition below.)
Expand Pari-mutuel Operations. The Company plans (subject to the
receipt of remaining regulatory approvals, including site approvals) to open and
operate an additional OTW in East Stroudsburg, Pennsylvania. We also intend to
seek legislation in other jurisdictions, principally New Jersey through the
Company's investment in Pennwood Group to operate additional OTWs. Additionally,
during the past five years, the Company has expanded its simulcasting operations
and taken advantage of favorable changes in pari-mutuel wagering and
simulcasting laws in various states and the expanded use of simulcasting
3
technology. In order to promote wagering, the Company has increased and expects
to continue to increase full-card import simulcasts from premier racetracks. The
Company also intends to increase export simulcasting of races from Company-owned
tracks to out-of-state racetracks, OTWs, casinos and other gaming facilities.
PENDING MISSISSIPPI ACQUISITION
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 known as Hollywood Park, Inc. (NYSE:PNK) for $195
million. The 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 Company will enter into a licensing
agreement to use the Boomtown and Casino Magic names and marks at the properties
being acquired. The transaction is 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
is refundable if certain conditions are not met. In connection with financing
the Mississippi acquisition, the Company will explore a number of financing
alternatives, which may include repaying or redeeming its existing debt.
Casino Magic Bay St. Louis started operations in September 1992 on a
permanently moored barge in a 17 acre marina with the adjoining land based
facilities situated on 591 acres. The facility in Bay St. Louis offers
approximately 39,500 square feet of gaming space, with 1,132 slot machines and
42 table games. The land based building is three stories with a restaurant,
buffet, snack bar, gift shop, and a live entertainment lounge. In December 1994,
Casino Magic Bay St. Louis also opened the Casino Magic Inn; a 201 room hotel,
including four deluxe and 20 junior suites. The property also contains an 1,800
seat arena, which hosts approximately 50 events annually, including televised
boxing matches, concerts and other special events. With the late 1997 addition
of the 18 hole Bridges Golf Resort, Casino Magic Bay St. Louis is positioned as
a full vacation resort destination.
Boomtown Biloxi, which occupies nine acres on Biloxi, Mississippi's
back bay, is located one-half mile from Interstate 110, the main highway
connecting Interstate 10 (the main thoroughfare connecting New Orleans,
Louisiana and Mobile, Alabama) and the Gulf of Mexico. Boomtown Biloxi, began
operations in July 1994, and consists of a land-based facility that houses
non-gaming operations and 33,000 square foot casino constructed on a 400 x 100
foot barge permanently moored to the land-based building. The casino offers
1,030 slot machines, 37 table games and other gaming amenities including
restaurants, a western dance hall/cabaret and a 20,000 square foot family
entertainment center.
TRACKPOWER
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 provides 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 value of
the warrants issued will be amortized over the vesting period or 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 1999 by Trackpower was not material.
In March 2000, the Company entered into a letter of intent with Trackpower
and eBet Limited ("eBet") which that, if a definitive agreement is executed,
will replace and restate the above agreement. Under the terms of the letter of
intent, the Company and eBet will contribute various assets, equipment,
management agreements relating to our telephone account wagering systems and
business operations to Trackpower. Under the proposed agreement, the Company
will continue to receive the same level of income as in 1999. The Company and
eBet will each receive 18,000,000 shares of Trackpower common stock as well as
warrants to purchase additional shares exercisable at $1.00 per share. Upon
completion of the proposed transaction the Company and eBet will each own 26.5%
of Trackpower prior to considering the exercises of options or warrants. The
agreement is subject to due diligence, regulatory and other approvals.
4
ACQUISITIONS
New Jersey Joint Venture
On January 28, 1999, pursuant to a First Amendment to an Asset Purchase
Agreement by and among Greenwood New Jersey, Inc. ("Greenwood"), International
Thoroughbred Breeders Inc., Garden State Race Track, Inc., Freehold Racing
Association, Atlantic City Harness, Inc. and Circa 1850, Inc., the original
parties to an Asset Purchase Agreement entered into as of July 2, 1998, and the
Company (the "Agreement"), and pursuant to which the Company entered into a
joint venture ("Joint Venture"), the Company, along with its Joint Venture
partner, Greenwood, agreed to purchase certain assets of the Garden State Race
Track and Freehold Raceway, both located in New Jersey (the "Acquisition").
The purchase price for the Acquisition was approximately $46 million
(subject to reduction of certain disputed items, for which amounts have been
placed in escrow). 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, pursuant to which Pennwood Inc. was formed
with Greenwood New Jersey, Inc. (a wholly-owned subsidiary of Greenwood Racing,
Inc. the owner of Philadelphia Park Race Track). Pursuant to the Joint Venture
Agreement, the Company agreed to guarantee severally: (i) up to 50% of the
obligation of the Joint Venture under its Put Option Agreement ($17.5 million)
with Credit Suisse First Boston Mortgage Capital LLC ("CSFB"); (ii) up to 50% of
the Joint Venture obligation for the seven year lease at Garden State Park;
(iii) up to 50% of the Joint Venture obligation to International Thoroughbred
Breeders, Inc. for the contingent purchase price notes ($10.0 million) relating
to the operation, subject to passage by the New Jersey legislature, by the Joint
Venture of OTWs and telephone wagering accounts in New Jersey. The Owner of
Garden State Park, International Thoroughbred Breeders, Inc., announced on
January 25, 2000 that it had entered into an agreement for the sale of the
Garden State Park property, excluding a 10-acre parcel owned by our joint
venture, to Turnbury/Cherry Hill, LLC. The closing of this agreement of sale is
scheduled to occur on or before April 15, 2000. If the sale of Garden State Park
is completed, our lease at Garden State Park will be terminated 180 days
following the closing of the sale. In conjunction with the closing, the Company
entered into a Debt Service Maintenance Agreement with Commerce Bank, N.A. for
the funding of a $23.0 million credit facility to the Joint Venture. The Joint
Venture Agreement provides for a limited obligation of the Company of $11.5
million subject to limitations provided for in the Company's 10.625% Senior
Notes Indenture. 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 or
loss of the Joint Venture is included in earnings of unconsolidated affiliates
in the accompanying Consolidated Statements of Income for the year ended
December 31, 1999.
GAMING MACHINE OPERATIONS AT CHARLES TOWN ENTERTAINMENT COMPLEX
On November 5, 1996, Jefferson County, West Virginia approved a referendum
authorizing the installation and operation of gaming machines at the Charles
Town Entertainment Complex. As a result, the Company consummated the Charles
Town Acquisition on January 15, 1997. In April 1997, the Company reopened the
Charles Town Entertainment Complex, featuring live racing, dining and simulcast
wagering. In September 1997, the Company expanded wagering opportunities by
installing gaming machines at the Charles Town Entertainment Complex. Since that
time, we have increased the number of slot machines from 400 machines to 1,500
machines as of March 14, 2000. We intend to increase the number of slot machines
if demand warrants and if approved by the West Virginia Lottery Commission.
Presently, there is no statutory cap on the number of slot machines that may be
installed at a location. Of the 1,500 machines, 565 machines are coin out, reel
slot machines that we installed following the passage of legislation in West
Virginia in April 1999 permitting this type of gaming machine. The remaining 935
slot machines are dollar bill-fed video slot machines that replicate traditional
spinning reel slot machines and also feature video card games, such as blackjack
and poker. We intend to convert some or all of the 935 video slot machines to
coin out to increase the number of machines with reel slot machines.
5
RACING AND PARI-MUTUEL OPERATIONS
Pari-mutuel wagering on thoroughbred or harness racing is pooled wagering
in which a pari-mutuel wagering system totals the amounts wagered and adjusts
the payouts to reflect the relative amounts bet on different horses and various
possible outcomes. The pooled wagers are (i) paid out to bettors as winnings in
accordance with the payoffs determined by the pari-mutuel wagering system, (ii)
paid to the applicable regulatory or taxing authorities and (iii) distributed to
the track's horsemen in the form of "purses" which encourage owners and trainers
to enter their horses in that track's live races. The balance of the pooled
wagers is retained by the wagering facility. Pari-mutuel wagering is currently
authorized in more than 40 states in the United States, all provinces in Canada
and approximately 100 other countries around the world.
Gaming and wagering companies, such as the Company, that focus on
pari-mutuel horse race wagering derive revenue through wagers placed at their
own tracks, at their OTWs and on their own races at the tracks and OTWs of
others. While some states, such as New York, operate off-track betting locations
that are independent of racetracks, in other states (such as Pennsylvania)
racetrack ownership and operation is a precondition to OTW ownership and
operation. Owning a racetrack in such a state, then, is akin to an "admission
ticket" to the OTW business. Over the past several years, attendance at live
racing has generally declined; however the decline in revenues from live racing
has been more than offset by an increase in telephone wagering, off-track
wagering and gaming machine operations.
The Company's racing and pari-mutuel revenues have been derived from (i)
wagering on the Company's live races (a) at the Company's racetracks, (b) at the
Company's OTWs, (c) at other Pennsylvania racetracks and OTWs and (d) through
telephone wagering, as well as wagering at the Company's racetracks on certain
stakes races run at out-of-state racetracks (collectively, referred to in the
Company's financial statements as "pari-mutuel revenues from live races"), (ii)
wagering on full-card import simulcasts at the Company's racetracks and OTWs and
through telephone wagering (collectively, referred to in the Company's financial
statements as "pari-mutuel revenues from import simulcasting") and (iii) fees
from wagering on export simulcasting Company races at out-of-state locations
(referred to in the Company's financial statements as "pari-mutuel revenues from
export simulcasting"). The Company's other revenues have been derived from
admissions, program sales, food and beverage sales and concessions and certain
other ancillary activities.
Pari-Mutuel Revenues
Revenues from Company races consist of the total amount wagered, less the
amount paid as winning wagers. Of the amount not returned to bettors as winning
wagers, a portion is paid to the state in which the track is located, a portion
is distributed to the track's horsemen in the form of "purses" and the balance
is retained by the wagering facility. The Pennsylvania Racing Act specifies the
maximum percentages of each dollar wagered on horse races in Pennsylvania which
can be retained by the Company (prior to required payments to the horse owners
(the "Horsemen") in Pennsylvania and applicable taxing authorities). The
percentages vary, based on the type of wager; the average percentage which is
retained by the Company has approximated 20%. The balance of each dollar wagered
must be paid out to the public as winning wagers. With the exception of revenues
derived from wagers at the Company's racetracks and OTWs, the Company's revenues
on each race are determined pursuant to such maximum percentage and agreements
with the other racetracks and OTWs at which wagering is taking place. Amounts
payable to the Pennsylvania Horsemen are determined under agreements ("Horsemen
Agreements") with the Pennsylvania Horsemen and vary depending upon where the
wagering is conducted and the racetrack at which such races take place. The
Pennsylvania Horsemen receive their share of such wagering as race purses. The
Company retains a higher percentage of wagers made at its own facilities than of
wagers made at other locations. The West Virginia Racing Act provides for a
similar disposition of pari-mutuel wagers placed at the Charles Town
Entertainment Complex, with the average percentage of wagers retained by the
Company having been approximately 20% (prior to required payments to the Charles
Town Horsemen and to applicable West Virginia taxing authorities and other
mandated beneficiary organizations).
Simulcasting
The Company has been transmitting simulcasts of its races to other wagering
locations and receiving simulcasts of races from other locations for wagering by
its customers at Company facilities year-round for more than five years. When
customers place wagers on import simulcast races, the Company receives revenue
6
and incurs expense in substantially the same manner as it would if the race had
been run at one of the Company's own tracks: of the amount not returned to
bettors as winning wagers, a portion is paid to the state in which the Company
wagering facility is located, a portion is paid to the purse fund for the horse
owners or trainers (thoroughbred or harness) of the Company's racetrack with
which the wagering facility is associated, a portion is paid to the racetrack
from which the race is simulcast and the balance is retained by the Company. The
Company believes that full-card import simulcasting, in which all of the races
at a non-Company track are import simulcast to a Company wagering facility, has
improved the wagering opportunities for its customers and thereby increased the
amount wagered at Company facilities. When the Company export simulcasts Company
races for wagering at non-Company locations, it receives a fixed percentage of
the amounts wagered on that race from the location to which the simulcast is
exported, while incurring minimal additional expense. During the years ended
December 31, 1998 and 1999, respectively, the Company received import simulcasts
from approximately 77 and 89 racetracks, respectively, including premier
racetracks such as Belmont Park, Church Hill Downs, Gulfstream Park, Hollywood
Park, Santa Anita and Saratoga and transmitted export simulcasts of Company
races to 126 and 108 locations, respectively.
Pursuant to an agreement among the members of the Pennsylvania Racing
Association, the Company and the two other Pennsylvania racetracks provide
simulcasts of all their races to all of each other's facilities and set the
commissions payable on such races. In addition, the Company has short-term
agreements with various racetracks throughout the United States to import
simulcast from, and export simulcast to, their facilities; these agreements
include import simulcasts of major stakes races. The Company believes that
import simulcasting of out-of-state races, including full card import
simulcasting, is beneficial economically to the Company because it makes
available wagering on higher quality races which tends to increase the size of
the average wager.
Telephone Wagering
In 1983, the Company pioneered Telebet, Pennsylvania's first telephone
account wagering system. A telebet customer opens an account by depositing funds
with the Company. Account holders can then place wagers by telephone on Company
races and import simulcast races to the extent of the funds on deposit in the
account; any winnings are posted to the account and are available for withdrawal
or future wagers. In December 1995, Pocono Downs instituted Dial-A-Bet, a
similar telephone account betting system.
OTWs
The Company operates ten of the 20 OTWs now open in Pennsylvania and has
the right to operate one of the three remaining OTWs that have been authorized
in Pennsylvania. The Company's OTWs are located in Allentown, Carbondale,
Chambersburg, Erie, Hazleton, Johnstown, Lancaster, Reading, Williamsport and
York, Pennsylvania. At OTWs, customers can place wagers on thoroughbred and
harness races simulcast from the Company's racetracks and on import simulcast
races from other tracks around the country. Under the Pennsylvania Racing Act,
only licensed thoroughbred and harness racing associations, such as the Company,
can operate OTWs or accept customer wagers on simulcast races at Pennsylvania
racetracks.
7
Operating Data of the Company
The following table summarizes certain key operating statistics for the
Company's pari-mutuel operations and their respective OTWs, including the pro
forma presentation of data assuming the acquisition of Pocono Downs occurred on
January 1, 1995:
YEAR ENDED DECEMBER 31
-------------------------------------------------------------------
1995 1996 1997 1998 1999
-------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT AVERAGE DAILY PURSES)
NUMBER OF LIVE RACING DAYS:
Penn National Race Course 204 206 212 206 153
Pocono Downs 135 134 134 135 130
Charles Town Races - - 159 206 213
TOTAL ATTENDANCE: (4)
Penn National Race Course (1) 430,128 370,898 339,487 304,220 209,364
Pocono Downs (1) 242,870 377,830 370,090 263,591 200,368
Reading OTW 246,012 214,314 178,237 159,818 123,126
Chambersburg OTW 143,554 132,447 125,448 105,384 86,894
York OTW 232,109 238,610 225,672 213,929 170,677
Lancaster OTW - 92,641 158,003 142,027 115,519
Williamsport OTW - - 81,797 66,378 54,257
Johnstown OTW - - - 25,411 68,794
Erie OTW 116,367 113,169 94,429 99,726 96,543
Allentown OTW 272,491 271,706 252,909 258,237 228,933
Carbondale OTW - - - 62,757 77,580
Hazleton OTW - - - 60,706 66,328
-------------------------------------------------------------------
Total paid attendance (1) 1,683,531 1,811,615 1,826,072 1,762,184 1,498,383
===================================================================
TOTAL WAGERING: (1) (2)
Penn National Race Course $ 85,661 $ 75,708 $ 69,687 $ 70,155 $ 60,018
Pocono Downs 57,784 53,190 47,217 38,867 33,134
Charles Town Races - - 40,195 69,659 79,847
Reading OTW 42,810 41,320 30,811 29,178 25,312
Chambersburg OTW 24,365 25,024 24,899 22,336 21,083
York OTW 42,140 49,864 45,245 43,873 38,470
Lancaster OTW - 13,079 29,292 29,131 24,964
Williamsport OTW - - 9,684 10,461 8,865
Johnstown OTW - - - 3,977 10,931
Erie OTW 29,379 27,200 21,767 20,737 19,795
Allentown OTW 56,440 56,216 58,681 56,719 53,397
Carbondale OTW - - - 10,284 16,430
Hazleton OTW - - - 9,926 13,474
Penn National Telebet 8,281 8,423 9,473 10,333 11,839
Pocono Downs Dial-A-Bet 75 5,510 8,179 9,088 12,145
Export simulcasting:
Penn National Race Course 113,639 148,702 181,281 194,939 130,719
Pocono Downs 30,121 32,493 26,426 23,986 17,764
Charles Town Races - - - - 22,876
-------------------------------------------------------------------
Total wagering $ 490,695 $ 536,729 $ 602,836 $ 653,649 $ 601,063
===================================================================
8
YEAR ENDED DECEMBER 31
-------------------------------------------------------------------
1995 1996 1997 1998 1999
-------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT AVERAGE DAILY PURSES)
AVERAGE DAILY PURSES:
Penn National Race Course $ 57,897 $ 62,328 $ 60,623 $ 63,374 $ 74,523
Pocono Downs 42,314 42,313 40,149 41,363 42,677
Charles Town Races - - 25,805 50,985 67,329
-------------------------------------------------------------------
Total average daily purse $ 100,211 $ 104,641 $ 126,577 $ 155,722 $ 184,529
===================================================================
GROSS MARGIN FROM WAGERING: (3)
Penn National Race Course $ 24,915 $ 27,955 $ 28,669 $ 29,068 $ 24,761
Pocono Downs 17,838 17,805 16,920 18,820 19,151
Charles Town Races - - 3,099 5,878 6,995
-------------------------------------------------------------------
Total gross margin from wagering $ 42,753 $ 45,760 $ 48,688 $ 53,766 $ 50,907
-------------------------------------------------------------------
- --------------------------------------
(1) Does not reflect attendance for wagering on simulcasts when live racing
is not conducted (i) for all periods presented, in the case of Penn
National Race Course (ii) for the year ended December 31, 1995, in the
case of Pocono Downs.
(2) Wagering on certain stakes races is included in wagering on the Penn
National Race Course races.
(3) Amounts equal total pari-mutuel revenues, less purses paid to the
Horsemen, taxes payable and simulcast commissions or host track fees
paid to other racetracks.
(4) Does not include attendance for Charles Town Races.
Live Racing
The following table summarizes the Company and its affiliates live racing
facilities:
RACING FACILITY LOCATION DATE OPENED/STATUS OPERATIONS CONDUCTED
- ---------------------------------------------------------------------------------------------------------
Penn National Race Course Grantville, PA Constructed in 1972; Live thoroughbred racing;
operated by the Company simulcast wagering; dining;
since 1972 telephone account wagering
Pocono Downs Plains Township, PA Constructed in 1965; Live harness racing;
operated by the Company simulcast wagering; dining;
since November 1996 telephone account wagering
Charles Town Races Charles Town, WV Charles Town Races was Gaming operations;
at the Charles Town constructed in 1933; Live thoroughbred racing;
Entertainment Complex acquired by Charles Town simulcast wagering; dining
Joint Venture on January
15, 1997; refurbished in
1997 and reopened as the
Charles Town Entertainment
Complex
AFFILIATE FACILITY LOCATION DATE OPENED/STATUS OPERATIONS CONDUCTED
- -------------------------------------------------------------------------------------------------------------
Freehold Raceway Freehold, NJ Freehold Raceway was Live harness racing; simulcast
constructed in 1986; wagering; dining
acquired by Pennwood
Racing, our 50% owned
Joint Venture
Garden State Park Cherry Hill, NJ Constructed in 1985; Leased by Live thoroughbred and harness racing;
Pennwood Racing, our 50% simulcast wagering; dining
owned Joint Venture
9
The Penn National Race Course is located on approximately 225 acres
approximately 15 miles northeast of Harrisburg, 100 miles west of Philadelphia
and 200 miles east of Pittsburgh. There is a total population of approximately
1.4 million persons within a 35 mile radius and approximately 2.2 million
persons within a 50-mile radius of the Penn National Race Course. The property
includes a one mile all-weather thoroughbred racetrack and a 7/8-mile turf
track. The property also includes approximately 400 acres surrounding the Penn
National Race Course which are available for future expansion or development.
The Penn National Race Course's main building is the
grandstand/clubhouse, which is completely enclosed and heated and, at the
clubhouse level, fully air-conditioned. The building has a capacity of
approximately 15,000 persons with seating for approximately 9,000, including
1,400 clubhouse dining seats. Several other dining facilities and numerous food
and beverage stands are situated throughout the facility. Television sets for
viewing live racing and simulcasts are located throughout the facility. The
pari-mutuel wagering areas are divided between those available for on-track
wagering and those available for simulcast wagering.
The Penn National Race Course includes stables for approximately 1,250
horses, a blacksmith shop, veterinarians' quarters, jockeys' quarters, a paddock
building, living quarters for grooms, a cafeteria and recreational building in
the backstretch area and water and sewage treatment plants. Parking facilities
for approximately 6,500 vehicles adjoin the Penn National Race Course.
The Company has conducted live racing at Penn National Race Course
since 1972, and has held at least 204 days of live racing at the facility in
each of the last five years except 1999, in which only 153 days of live racing
were held as a result of a Horsemen action. The Horsemen action was settled on
March 23, 1999. Penn National Race Course is one of only two thoroughbred
racetracks in Pennsylvania. Post time at Penn National Race Course is 7:30 p.m.
on Wednesdays, Fridays and Saturdays and 5:00 p.m. on Sundays and holidays.
On November 27, 1996, the Company acquired Pocono Downs for an
aggregate purchase price of $48.2 million plus approximately $730,000 in
acquisition-related fees and expenses. In addition, pursuant to the terms of the
purchase agreement, the Company will be required to pay the sellers of Pocono
Downs an additional $10.0 million if, within five years after the consummation
of the acquisition of Pocono Downs, Pennsylvania authorizes any additional form
of gaming in which the Company may participate. The $10.0 million payment is
payable in annual installments of $2.0 million a year for five years, beginning
on the date that the Company first offers such additional form of gaming. As of
March 7, 2000, no such additional form of gaming in Pennsylvania has been
adopted, therefore no such payment is due at this time.
Pocono Downs is located on approximately 400 acres in Plains Township,
outside Wilkes-Barre, Pennsylvania. There is a total population of approximately
785,000 persons within a 35 mile radius and approximately 1.5 million persons
within a 50-mile radius of Pocono Downs. The property includes a 5/8-mile
all-weather, lighted harness track. Pocono Downs's main buildings are the
grandstand and the clubhouse. The clubhouse is completely enclosed, heated and
fully air-conditioned. The grandstand has enclosed, heated and air-conditioned
seating for approximately 500 persons and permanent open-air stadium-style
seating for approximately 2,500 persons. The clubhouse is a tiered dining and
wagering facility that seats approximately 1,000 persons. The clubhouse dining
area seats 500 persons. Television sets for viewing live racing and simulcasts
are located throughout the facility along with pari-mutuel wagering areas.
A two-story 14,000 square foot building which houses the Pocono Downs
offices is located on the property. Pocono Downs also includes stables for
approximately 950 horses, five paddock stables, quarters for grooms, two
blacksmith shops and a cafeteria for the Harness Horsemen. Parking facilities
for approximately 5,000 vehicles adjoin the track.
The acquisition of Pocono Downs was consummated following the last day
of racing at Pocono Downs for the 1996 season. The Company resumed live racing
at Pocono Downs in April 1997. The Company conducted 135 and 130 days of live
harness racing at the facility during 1998 and 1999 racing seasons,
respectively. Post time at Pocono Downs is 7:15 p.m.
On January 15, 1997, the Charles Town Joint Venture acquired
substantially all of the assets of Charles Town Races for an aggregate net
purchase price of approximately $16.0 million plus approximately $2.2 million in
acquisition-related fees and expenses. Prior to its acquisition by the Charles
Town Joint Venture, Charles Town Races conducted live thoroughbred horse racing,
10
on-site pari-mutuel wagering on live races run at Charles Town Races and
wagering on import simulcast races. The Company has refurbished and reopened the
facility as the Charles Town Entertainment Complex, which features live racing,
dining, simulcast wagering and, effective September 1997, gaming machines. The
cost of the refurbishment, exclusive of the cost of the gaming machines, was
approximately $27.8 million.
The Charles Town Entertainment Complex is located on a portion of a
250-acre parcel in Charles Town, West Virginia, which is approximately a
60-minute drive from Baltimore, Maryland and a 70-minute drive from Washington,
D.C. There is a total population of approximately 3.1 million persons within a
50-mile radius and approximately 9.0 million persons within a 100-mile radius of
the Charles Town Entertainment Complex. The property includes a 3/4-mile
thoroughbred racetrack. The Charles Town Entertainment Complex's main building
is the grandstand/clubhouse, which is completely enclosed and heated. The
clubhouse dining room has seating for 600. Additional food and beverage areas
are situated throughout the facility. The property surrounding the Charles Town
Entertainment Complex, including the site of the former Shenandoah Downs
Racetrack, is available for future expansion or development. In addition, the
Company has a right of first refusal for an additional 250 acres that are
adjacent to the Charles Town Entertainment Complex. The Charles Town
Entertainment Complex also includes stables, ample parking and water and sewage
treatment facilities.
The Charles Town Races reopened in April 1997. The Company conducted
206 and 213 days of thoroughbred racing at the facility during 1998 and 1999
racing seasons, respectively. Post time at the Charles Town Races is 7:15 p.m.
on Thursdays, Fridays and Saturdays and 1:00 p.m. on Sundays. Although other
regional racetracks offer nighttime thoroughbred racing, Penn National Race
Course and Charles Town Races are the only racetracks in the Eastern time zone
conducting year-round nighttime thoroughbred horse racing, which the Company
believes increases its opportunities to export simulcast its races during
periods in which other racetracks are not conducting live racing.
The Freehold Raceway was constructed in 1986 and the grandstand is an
approximately 150,000 square foot, five level, steel frame, enclosed, fully
heated and air conditioned facility. The grandstand can accommodate up to 10,000
spectators, including seating for approximately 2,500 spectators, and has a
sit-down restaurant as well as seven food concession stands. Additional
facilities include receiving barns with an adjacent paddock area, parking lots
to accommodate 2,500 vehicles and a two story administration building.
The Garden State Park was constructed in 1985 and the reconstructed
grandstand and clubhouse is an approximately 500,000 square foot, seven level,
steel frame, glass enclosed, fully heated and air-conditioned facility with an
adjacent multi-level glass thoroughbred paddock area. The clubhouse can
accommodate up to 24,000 spectators, including seating for approximately 9,500
spectators, and contains three sit-down restaurants as well as 17 food
concession stands. The Company is not currently using a portion of the clubhouse
due to a decrease in business levels at Garden State Park over the last few
years as a result of year-round simulcasting and less live racing at Garden
State Park. The backstretch area includes 27 barns and stables capable of
accommodating approximately 1,500 horses, a harness paddock, a training track,
dormitories, cafeteria and recreation buildings for backstretch personnel, an
administration building and other service buildings. Reconstruction also
included restoration of the main dirt and turf tracks, installation of lighting
for nighttime racing, paving of parking facilities to accommodate approximately
4,000 automobiles, landscaping, fencing and other amenities. The approximately
56,000 square foot, 1-1/2 story pavilion is used by the Company for closed
circuit television events (racing as well as other sporting events and
non-sporting events), wagering, concerts, special events, concessions and other
conveniences. The pavilion has seating capacity for approximately 1,500
spectators.
11
OTWs
The Company's OTWs provide areas for viewing import simulcasts and
televised sporting events, placing pari-mutuel wagers and dining. The facilities
also provide convenient parking.
FACILITY/LOCATION DATE OPENED/STATUS SIZE (SQ.FT.) COST (1) OWNED/LEASED
- ----------------- ------------------ ------------- -------- ------------
Penn National Facilities
Lancaster, PA Opened 7/96 24,000 $ 2,700,000 Leased
Reading, PA Opened 5/92 22,500 $ 2,100,000 Leased
Williamsport, PA Opened 2/97 14,000 $ 3,000,000 Owned
York, PA Opened 3/95 25,000 $ 2,200,000 Leased
Chambersburg, PA Opened 4/94 12,500 $ 1,500,000 Leased
Johnstown, PA Opened 9/98 14,220 $ 1,300,000 Leased
Pocono Downs Facilities
Allentown, PA Opened 7/93 28,500 $ 5,207,000 Owned
Carbondale, PA Opened 3/98 13,000 $ 2,661,000 Owned
Erie, PA Opened 5/91 22,500 $ 3,575,000 Owned
Hazleton, PA Opened 3/98 13,000 $ 1,868,000 Leased
East Stroudsburg, PA License authorized; approval to 12,000 $ 2,000,000 Leased (2)
operate pending; site selected (estimated)
(1) Consists of original construction costs, equipment and, for owned
properties, the cost of land and building.
(2) The Company is licensed to operate one additional OTW and has identified a
site to operate the OTW facility in Stroudsburg, Pennsylvania, subject to
receipt of all applicable approvals to operate this site.
The Company considers its properties adequate for its presently
anticipated purposes.
MARKETING AND ADVERTISING
The Company seeks to increase wagering by broadening its customer base
and increasing the wagering activity of its existing customers. To attract new
customers, the Company seeks to increase the racing knowledge of its customers
through its television programming, and by providing "user friendly" automated
wagering systems and comfortable surroundings. The Company also seeks to attract
new customers by offering various types of promotions including family fun days,
premium give-away programs, contests and handicapping seminars.
Charles Town Gaming Machine Marketing and Player Tracking Programs
Our marketing efforts, at the Charles Town Entertainment Complex
include print and radio advertising and are focused on the Washington, D.C.,
Baltimore, Maryland, Northern Virginia, Eastern West Virginia and Southern
Pennsylvania markets. In 1999, we installed a computerized player tracking
system, called Player's Choice, at the Charles Town Entertainment Complex, which
has helped to further refine our marketing efforts. This system is the first
player tracking system installed in West Virginia. Our database consists of
approximately 70,000 players as of March 3 2000. Our marketing efforts also
include a bus program and numerous cash and merchandise give-aways.
Pari-mutuel Player Tracking Program
In 1999, we installed a computerized player tracking for all of the
Company's pari-mutuel locations. This system, called Player's Choice, allows
customer to accumulate points, at any of our facilities which are redeemable for
admission, programs, food and beverage etc. Our database consists of
approximately 15,000 players as of March 3, 2000.
12
Televised Racing Program
The Company's Racing Alive program is televised by satellite
transmission commencing approximately one hour before post time on each live
racing day at the Penn National Race Course. The program provides color
commentary on the races at the Penn National Race Course (including wagering
odds, past performance information and handicapper analysis), general education
on betting and handicapping, interviews with racing personalities and featured
races from other thoroughbred racetracks across the country. The Racing Alive
program is shown at the Penn National Race Course and on various cable
television systems in Pennsylvania and is transmitted to all OTWs that receive
the Penn National Race Course races. The Company has expanded Racing Alive and
created additional televised programming to cover racing at Pocono Downs and at
other harness racing venues throughout the United States. The Company's
satellite transmissions are encoded so that only authorized facilities can
receive the program.
Automated Wagering Systems
To make wagering more "user friendly" to the novice and more efficient
for the expert, the Company leases Autotote Corporation's automated wagering
equipment. These wagering systems enable the customer to choose a variety of
ways to place a bet through touch-screen interactive terminals and personalized
portable wagering terminals, provide current odds information and enable
customers to place bets and credit winning tickets to their accounts. Currently,
more than 35% of all wagers at Penn National are processed through these
self-service terminals and Telebet.
Modern Facilities
The Company provides a comfortable, upscale environment at each of its
OTWs, including a full bar, a range of restaurant services and an area devoted
to televised sporting events. The Company believes that its attractive
facilities appeal to its current customers and to new customers, including those
who have not previously visited a racetrack.
PURSES; AGREEMENTS WITH HORSEMEN
The agreements with the Horsemen at each of the Company's racetracks set
forth the purses. The continuation of these agreements is required to allow the
Company to conduct live racing and export and import simulcasting. (See "Racing
and Pari-Mutuel Operations").
The Penn National Race Course Thoroughbred Horsemen Agreement was entered
into in February 1996, and expired on February 15, 1999. After failing to reach
an agreement, the Pennsylvania Thoroughbred Horsemen stopped racing at Penn
National Race Course on February 16, 1999 and withdrew their permission for the
Company to import simulcast races from other racetracks. This resulted in the
closure of Penn National Race Course and its six OTW facilities at Reading,
Chambersburg, York, Lancaster, Williamsport and Johnstown. The Company continued
its efforts to negotiate a new agreement with the Pennsylvania Thoroughbred
Horsemen and on March 23, 1999 the Company signed a new Horsemen agreement with
the Pennsylvania Thoroughbred Horsemen with an initial term that expires on
January 1, 2004. As a result of the action the Company incurred a non-recurring
$1,250,000 expense, primarily related to costs incurred to maintain the closed
facilities inclusive of employee salaries and rents, for Horsemen's Action
Expense. Live racing at the Penn National Race Course resumed on April 23, 1999.
We believe that this new agreement will not have a material impact on our
operating expenses at the Penn National Race Course and its OTWs. The
Pennsylvania Harness Horsemen Agreement was entered into in November 1994,
became effective in January 1995 and expired in January 2000. On December 17,
1999 the Company signed a new Horsemen Agreement with the Pennsylvania Harness
Horsemen which became effective January 16, 2000 and expires on January 16,
2003. The Company has an agreement with the Charles Town Horsemen which expires
on December 31, 2000. On February 24, 2000 the Charles Town Horsemen agreed to
extend the contract to December 31, 2002. See Management's Discussion and
Analysis of Financial Condition and Results of Operations - "Liquidity and
Capital Resources."
13
COMPETITION
The Company faces significant competition for wagering dollars from other
racetracks and OTWs in Pennsylvania and neighboring states (some of which also
offer other forms of gaming), other gaming venues such as casinos and
state-sponsored lotteries, including the Pennsylvania Lottery and the West
Virginia Lottery. The Company may also face competition in the future from new
OTWs or from new racetracks. From time to time, Pennsylvania has considered
legislation to permit other forms of gaming. Although Pennsylvania has not
authorized any form of casino or other gaming, if additional gaming
opportunities become available in or near Pennsylvania, such gaming
opportunities could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company's live races compete for wagering dollars and simulcast fees
with live races and races simulcast from other racetracks both inside and
outside Pennsylvania (including several in New York, New Jersey, West Virginia,
Ohio, Maryland and Delaware). The Company's ability to compete successfully for
wagering dollars is dependent, in part, on the quality of its live horse races.
The quality of horse races at some racetracks that compete with the Company,
either by live races or simulcasts, is higher than the quality of Company races.
The Company believes that there has been some improvement over the last several
years in the quality of the horses racing at the Penn National Race Course, due
to higher purses being paid as a result of the Company's increased simulcasting
activities, however, there can be no assurance that the Company can continue
such improvement.
The Company's OTWs compete with the OTWs of other Pennsylvania racetracks,
and new OTWs may compete with the Company's existing or proposed wagering
facilities. Competition between OTWs increases as the distance between them
decreases. For example, the Company believes that its Allentown OTW, which was
acquired in the acquisition of Pocono Downs and which is approximately 50 miles
from the Penn National Race Course and 35 miles from the Company's Reading OTW,
has drawn some patrons from the Penn National Race Course, the Reading OTW and
the Company's telephone wagering system; and, the Company's Lancaster OTW, which
is approximately 31 miles from the Penn National Race Course and 25 miles from
the Company's York OTW, has drawn some patrons from the Penn National Race
Course, the York OTW and the Company's telephone wagering system. Moreover, the
Company believes that a competitor's OTW in King of Prussia, Pennsylvania, which
is approximately 23 miles from the Reading OTW, has drawn some patrons from the
Reading OTW. Although only two competing OTWs remain authorized by law for
future opening, the opening of a new OTW in close proximity to the Company's
existing or future OTWs could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company's gaming machine operations face competition from other gaming
machine venues in West Virginia and in neighboring states (including Dover Downs
in Dover, Delaware, Delaware Park in northern Delaware, Harrington Raceway in
southern Delaware and the casinos in Atlantic City, New Jersey). Venues in
Delaware and New Jersey, in addition to video gaming machines, currently offer
mechanical slot machines that feature physical spinning reels, pull-handles and
the ability to both accept and pay out coins. Legislation has been passed in
West Virginia, which allows for coin out and reel slot machines at race tracks.
In December 1999, the Company installed 565 coin out, reel slot machines. The
Company intends to convert some or all of its current machines to coin out and
increase the maximum number of machines with reel slot machines. The failure to
attract or retain gaming machine customers at the Charles Town Entertainment
Complex, whether arising from such competition or from other factors, could have
a material adverse effect upon the Company's business, financial condition and
results of operations.
EFFECT OF INCLEMENT WEATHER AND SEASONALITY
Because horse racing is conducted outdoors, variable weather contributes to
the seasonality of the Company's business. Weather conditions, particularly
during the winter months, may cause races to be canceled or may curtail
attendance. Because a substantial portion of the Company's racetrack expenses
are fixed, the loss of scheduled racing days could have a material adverse
effect on the Company's business, financial condition and results of operations.
For the year ended December 31, 1999, the Company canceled a total of 15
racing days because of inclement weather. The severe winter weather in 1996
14
resulted in the closure of the Company's OTW facilities for two days in January
1996. Because of the Company's growing dependence upon OTW operations, severe
weather that causes the Company's OTWs to close could have an adverse effect
upon the Company's business, financial condition and results of operations.
Attendance and wagering at the Company's facilities have been favorably
affected by special racing events which stimulate interest in horse racing, such
as the Triple Crown races in May and June and the heavier racing schedule
throughout the country during the second and third quarter of the year. As a
result, the Company's revenues and net income have been greatest in the second
and third quarters of the year, and lowest in the first and fourth quarters of
the year.
REGULATION AND TAXATION
General
Certain of the Company's subsidiaries are authorized to conduct
thoroughbred racing and harness racing in Pennsylvania under the Pennsylvania
Racing Act. Such subsidiaries are also authorized, under the Pennsylvania Racing
Act and the Federal Horseracing Act, to conduct import simulcast wagering. The
Charles Town Joint Venture is subject to the provisions of the West Virginia
Racing Act, which governs the conduct of thoroughbred horse racing in West
Virginia, and the West Virginia Video Lottery Act, which governs the operation
of gaming machines in West Virginia. The Company's live racing, pari-mutuel
wagering and gaming machine operations are contingent upon the continued
governmental approval of such operations as forms of legalized gaming. All of
the Company's current and proposed operations are subject to extensive
regulations and could be subjected at any time to additional or more restrictive
regulations, or banned entirely.
Pennsylvania Racing Regulations
The Company's horse racing operations at Penn National Race Course and
Pocono Downs are subject to extensive regulation under the Pennsylvania Racing
Act, which established the Pennsylvania State Horse Racing Commission and the
State Harness Racing Commission (together, the "Pennsylvania Racing
Commissions") which are responsible for, among other things, (i) granting
permission annually to maintain racing licenses and schedule race meets, (ii)
approving, after a public hearing, the opening of additional OTWs, (iii)
approving simulcasting activities, (iv) licensing all officers, directors,
racing officials and certain other employees of the Company and (v) approving
all contracts entered into by the Company affecting racing, pari-mutuel wagering
and OTW operations.
As in most states, the regulations and oversight applicable to the
Company's operations in Pennsylvania are intended primarily to safeguard the
legitimacy of the sport and its freedom from inappropriate or criminal
influences. The Pennsylvania Racing Commissions have broad authority to regulate
in the best interests of racing and may, to that end, disapprove the involvement
of certain personnel in the Company's operations, deny approval of certain
acquisitions following their consummation or withhold permission for a proposed
OTW site for a variety of reasons, including community opposition. For example,
the Pennsylvania State Thoroughbred Racing Commission withheld approval for the
Company's initial site for its Lancaster OTW, but the Company applied and was
ultimately approved for another site in Lancaster, which opened in July 1996.
The Pennsylvania legislature also has reserved the right to revoke the power of
the Pennsylvania Racing Commissions to approve additional OTWs and could, at any
time, terminate pari-mutuel wagering as a form of legalized gaming in
Pennsylvania or subject such wagering to additional restrictive regulation; such
termination would, and any further restrictions could, have a material adverse
effect upon the Company's business, financial condition and results of
operations.
The Company may not be able to obtain all necessary approvals for the
continued operation or expansion of its business. Even if all such approvals are
obtained, the regulatory process could delay implementation of the Company's
plans to open additional OTWs. The Company has had continued permission from the
Pennsylvania State Horse Racing Commission to conduct live racing at the Penn
National Race Course since it commenced operations in 1972, and has obtained
permission from the Pennsylvania State Harness Racing Commission to conduct live
racing at Pocono Downs. Currently, the Company has approval from the
Pennsylvania Racing Commissions to operate the ten OTWs that are currently open
and the one additional OTW the Company proposes to open. A Commission may refuse
to grant permission to open additional OTWs or to continue to operate existing
facilities. The failure to obtain required regulatory approvals would have a
material adverse effect upon the Company's business, financial condition and
results of operations.
15
West Virginia Racing and Gaming Regulation
The Company's operations at the Charles Town Entertainment Complex are
subject to regulation by the West Virginia Racing Commission under the West
Virginia Racing Act, and by the West Virginia Lottery Commission under the West
Virginia Video Lottery Act. The powers and responsibilities of the West Virginia
Racing Commission under the West Virginia Racing Act are substantially similar
in scope and effect to those of the Pennsylvania Racing Commissions and extend
to the approval and/or oversight of all aspects of racing and pari-mutuel
wagering operations. The Charles Town Joint Venture has obtained from the West
Virginia Racing Commission a license to conduct racing and pari-mutuel wagering
at the Charles Town Entertainment Complex. Pursuant to the West Virginia Video
Lottery Act, the Company has obtained approval for the installation and
operation of a total of 1,500 gaming machines at the Charles Town Entertainment
Complex. The Company purchased and installed 565 reel spinning, coin-out
machines, which were open to the public on December 16, 1999 bringing the
Company's total gaming machines at the Charles Town Entertainment Complex to
1,500. Installing and operating additional machines would require approval
pursuant to the West Virginia Lottery act.
State and Federal Simulcast Regulation
The Federal Interstate Horseracing Act, the Pennsylvania Racing Act and the
West Virginia Racing Act require that the Company have a written agreement with
each applicable horsemen's organization in order to simulcast races. The Company
has entered into the Horsemen Agreements, and in accordance therewith has agreed
on the allocations of the Company's revenues from import simulcast wagering to
the purse funds for the Penn National Race Course, Charles Town Races and Pocono
Downs. Because the Company cannot conduct import simulcast wagering in the
absence of the Horsemen Agreements, the termination or non-renewal of such
Horsemen Agreements could have a material adverse effect on the Company's
business, financial condition and results of operations.
Taxation and Fees
The Company believes that the prospect of significant additional revenue is
one of the primary reasons that jurisdictions permit legalized gaming. As a
result, gaming companies are typically subject to significant taxes and fees in
addition to normal federal and state income taxes, and such taxes and fees are
subject to increase at any time. The Company pays substantial taxes and fees
with respect to its operations. From time to time, federal legislators and
officials have proposed changes in tax laws, or in the administration of such
laws, affecting the gaming industry. It is not possible to determine with
certainty the likelihood of changes in tax laws or in the administration of such
laws. Such changes, if adopted, could have a material adverse effect on the
Company's business, financial condition and results of operations.
Compliance with Other Laws
The Company and its OTWs are also subject to a variety of other rules and
regulations, including zoning, construction and land-use laws and regulations in
Pennsylvania and West Virginia governing the serving of alcoholic beverages.
Currently, Pennsylvania laws and regulations permit the construction of
off-track wagering facilities, but may affect the selection of a particular OTW
site because of parking, traffic flow and other similar considerations, any of
which may serve to delay the opening of future OTWs in Pennsylvania. By
contrast, West Virginia law does not permit the operation of OTWs. The Company
derives a significant portion of its other revenues from the sale of alcoholic
beverages to patrons of its facilities. Any interruption or termination of the
Company's existing ability to serve alcoholic beverages would have a material
adverse effect on the Company's business, financial condition and results of
operations.
Restrictions on Share Ownership and Transfer
The Pennsylvania Racing Act requires that any shareholder proposing to
transfer beneficial ownership of 5% or more of the Company's shares file an
affidavit with the Company setting forth certain information about the proposed
transfer and transferee, a copy of which the Company is required to furnish to
the Pennsylvania Racing Commissions. The certificates representing the Company
16
shares owned by 5% beneficial shareholders are required to bear certain legends
prescribed by the Pennsylvania Racing Act. In addition, under the Pennsylvania
Racing Act, the Pennsylvania Racing Commissions have the authority to order a 5%
beneficial shareholder of the Company to dispose of his Common Stock of the
Company if it determines that continued ownership would be inconsistent with the
public interest, convenience or necessity or the best interest of racing
generally. The West Virginia Video Lottery Act provides that a transfer of more
than 5% of the voting stock of a corporation which controls the license may only
be to persons who have met the licensing requirements of the West Virginia Video
Lottery Act or which transfer has been pre-approved by the West Virginia Lottery
Commission. Any transfer that does not comply with this requirement voids the
license.
Internal Revenue Service Regulations
The Internal Revenue Service, or IRS, requires operators of casinos located
in the United States to file information returns for U.S. citizens, including
names and addresses of winners, for keno and slot machine winnings in excess of
certain amounts. The IRS also requires operators to withhold taxes on certain
keno, bingo and slot machine winnings of nonresident aliens. We are unable to
predict the extent, if any, to which such requirements, if extended, might
impede or otherwise adversely affect operations of, and/or income from, such
other games.
Regulations adopted by the Financial Crimes Enforcement Network of the
United States Treasury Department and the gaming regulatory authorities in
certain domestic jurisdictions in which we operate casinos, or in which we have
applied for licensing to operate a casino, require the reporting of currency
transactions in excess of $10,000 occurring within a gaming day, including
identification of the patron by name and social security number. This reporting
obligation commenced in May 1985 and may have resulted in the loss of casino
revenues to jurisdictions outside the United States which are exempt from such
regulations.
ITEM 2 PROPERTIES
See, ITEM 1 - BUSINESS - "RACING AND PARI-MUTUEL OPERATIONS"
A solid waste landfill ("Landfill") is on a parcel of land we own that is
adjacent to Pocono Downs. The East Side Landfill Authority (the "Landfill
Authority"), which operated the Landfill from 1970 until 1982, disposed of
municipal waste on behalf of four municipalities. The Landfill is currently
subject to a closure order issued by the Pennsylvania Department of
Environmental Resources ("PADER") which the four municipalities are required to
implement pursuant to a 1986 Settlement Agreement among the former trustee in
bankruptcy for Pocono Downs, the Landfill Authority, the municipalities and
PADER (the "Settlement Agreement"). According to the Company's environmental
consulting firm, the Landfill closure is substantially complete. To date, the
municipalities obligated to implement the closure order pursuant to the
Settlement Agreement have been fulfilling their obligations under the Settlement
Agreement. In addition, the Company may be liable for future claims with respect
to the Landfill under the federal Comprehensive Environmental Response,
Compensation and Liability Act and analogous state laws. The Company may incur
expenses in connection with the Landfill in the future, which expenses may not
be reimbursed by the municipalities. Any such expenses could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Other Property and Equipment
The Company currently leases 5,974 square feet of office space in an office
building in Wyomissing, Pennsylvania for the Company's executive offices. The
lease expires in April 2000 and provides for an annual minimum rental of
$97,968. The office building is owned by an affiliate of Peter M. Carlino, the
Chairman and Chief Executive Officer of the Company. The Company believes that
the lease terms are not less favorable than lease terms that could have been
obtained from an unaffiliated third party.
The Company currently leases an aircraft from a company owned by John
Jacquemin, a director of the Company. The lease expires in September 2007 and
provides for monthly payments of $8,356. The Company believes that the lease
terms are not less favorable than lease terms that could have been obtained from
an unaffiliated third party.
17
EMPLOYEES AND LABOR RELATIONS
At March 1, 2000, the Company had 1,870 permanent employees, of whom 1,252
were full-time and 618 part-time. Employees of the Company who work in the
admissions department and pari-mutuels department at the Penn National Race
Course, Pocono Downs and the OTWs are represented under collective bargaining
agreements between the Company and Sports Arena Employees' Union Local 137. The
agreements extend until September 30, 2002 for track employees and September 30,
2001 for OTW employees. The pari-mutuel clerks at Pocono Downs voted to unionize
in June 1997. The Company has held negotiations with this union, but does not
have a contract to date. Failure to reach agreement with this union would not
result in the suspension or termination of the Company's license to operate live
racing at Pocono Downs or to conduct simulcast or OTW operations. The
pari-mutuel clerks and racing valets at Charles Town are represented under a
collective bargaining agreement with the West Virginia Division of Mutuel
Clerks, which expires on December 31, 2000. The West Virginia Video Lottery Act
also requires that the operator of the Charles Town Entertainment Complex be
subject to a written agreement with the pari-mutuel clerks in order to operate
gaming machines, this agreement expires on December 31, 2000. The Company
believes that its relations with its employees are satisfactory.
ITEM 3 LEGAL PROCEEDINGS
In December 1997, Amtote international, Inc. ("Amtote"), filed an
action against the Company and the Charles Town Joint Venture in the United
States District Court for the Northern District of West Virginia. In its
complaint, Amtote (i) states that the Company and the Charles Town Joint Venture
allegedly breached certain contracts with Amtote and its affiliates when it
entered into a wagering services contract with a third party (the "Third Party
Wagering Services Contract"), and not with Amtote, effective January 1, 1998,
(ii) sought preliminary and injunctive relief through a temporary restraining
order seeking to prevent Charles Town Joint Venture from (a) entering into a
wagering services contract with a party other than Amtote and (b) having a third
party provide such wagering services, (iii) sought declaratory relief through
September 2004 and (iv) sought unspecified compensatory damages, legal fees and
costs associated with the action and other legal and equitable relief as the
Court deemed just and appropriate. On December 24, 1997, a temporary restraining
order was issued, which prescribed performance under the Third Party Wagering
Contract. On January 14, 1998, a hearing was held to rule on whether a
preliminary injunction should have been issued or whether the temporary
restraining order should have been lifted. On February 20, 1998, the temporary
restraining order was lifted by the court. The Company then pursued legal
remedies in order to terminate Amtote and proceed under the Third Party Wagering
Services Contract. This matter was tried before the State Court of West Virginia
on June 17, 1999. On September 30, 1999 the United States District Court for the
Northern District of West Virginia rendered a decision in favor of Amtote. The
Court awarded liquidated damages to Amtote in connection with the Company's
cancellation of the Amtote contract, which cancellation enabled the Company to
enter into a computerized pari-mutuel wagering service contract with another
company to provide such services to three of its racetracks and its ten
off-track wagering facilities. On February 11, 2000, the Company and Amtote
entered into a settlement agreement in which the Company paid Amtote in full
satisfaction of the judgment the sum of $1.5 million.
The Company submitted an application to the Tennessee State Racing
Commission (the "Tennessee Commission") in October 1997 for an initial license
for the development and operation of a harness track and an OTW at a site in the
city of Memphis (the "Tennessee Development Project"). A land use plan for the
construction of a 5/8-mile harness track, clubhouse and grandstand area was
approved in October 1997 by the Land Use Hearing Board for the City of Memphis
and County of Shelby. Tennessee Downs, Inc. ("Tennessee Downs"), a subsidiary of
the Company, was determined to be financially suitable by the Tennessee
Commission and a public comment hearing before the Tennessee Commission was held
in November 1997. In December 1997, the Company received the necessary zoning
and land development approvals from the Memphis City Council. In April 1998, the
Tennessee Commission granted a license to Tennessee Downs, which would expire on
the earlier of: (i) December 31, 2000 or (ii) the expiration of Tennessee
Commission's term on June 30, 1998, if such term was not extended by the
Tennessee State Legislature. The Tennessee State Legislature voted against
extending the life of the Tennessee Commission, allowing the Tennessee
Commission's term to expire on June 30, 1998. The Tennessee Commission held a
meeting on May 29, 1998 at which it rejected the Company's request: (i) to grant
Tennessee Downs an extended timeframe for the effectiveness of its racing
license; and (ii) to operate a temporary simulcast facility. On July 28, 1998,
18
Tennessee Downs filed for a preliminary injunction and a declaratory ruling on
the legal status of racing in Memphis. On November 23, 1998, the court ruled
that the Tennessee Racing Control Act had not been repealed and cannot be
repealed by implication by dissolving the Tennessee Commission. It was the
opinion of the court that because the Tennessee Racing Control Act is still in
force, horse-racing and pari-mutuel betting is a legal unregulated activity in
Tennessee. This decision was appealed by the Tennessee Attorney General and a
hearing was held before the Court of Appeals on June 21, 1999. On July 30, 1999,
the Court of Appeals in Tennessee dissolved the injunction. The appellate court
reversed the lower court ruling on the basis of jurisdiction. On September 28,
1999, Tennessee Downs filed its application for Permission to Appeal and brief
to the Supreme Court of Tennessee. Tennessee Downs took a direct appeal to the
Supreme Court of the State of Tennessee so that it may continue its efforts to
develop and operate a harness track in Tennessee. In the appeal, Tennessee Downs
asked the Supreme Court to take the jurisdictional question from the appellate
court and to review the substantive issue of whether pari-mutuel wagering on
horse racing is lawful in Tennessee under the existing statute without the
Tennessee Commission. Costs incurred as of December 31, 1999 regarding the
Tennessee license amounted to $534,135. On February 11, 2000, the Tennessee
Supreme Court denied Tennessee Down's application for permission to appeal the
decision of the Court of Appeals. As a result of this decision, Tennessee Downs
has taken a charge against earnings in 1999 of $535,000 for costs incurred for
its Tennessee racing license and does not anticipate future involvement in
Tennessee.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is quoted on The Nasdaq National Market
under the symbol "PENN". The following table sets forth for the periods
indicated the high and low sales prices per share of the Company's Common Stock
as reported on The Nasdaq National Market.
HIGH LOW
1997
First Quarter $ 18.250 $ 14.000
Second Quarter 19.625 13.750
Third Quarter 20.125 14.625
Fourth Quarter 19.250 8.750
1998
First Quarter $ 13.125 $ 8.875
Second Quarter 12.000 6.813
Third Quarter 9.125 5.125
Fourth Quarter 10.313 5.500
1999
First Quarter $ 10.000 $ 5.813
Second Quarter 9.938 7.250
Third Quarter 10.375 8.250
Fourth Quarter 9.563 7.500
The closing sale price per share of Common Stock on The Nasdaq National
Market on March 14, 2000, was $7.50. As of March 14, 2000, there were 692
holders of record of Common Stock.
19
DIVIDEND POLICY
Since the Company's initial public offering of Common Stock in May
1994, the Company has not paid any cash dividends on its Common Stock. The
Company intends to retain all of its earnings to finance the development of the
Company's business, and thus, does not anticipate paying cash dividends on its
Common Stock for the foreseeable future. Payment of any cash dividends in the
future will be at the discretion of the Company's Board of Directors and will
depend upon, among other things, future earnings, operations, capital
requirements, the general financial condition of the Company and general
business conditions. Moreover, the Company's existing credit facility (the
"Credit Facility") prohibits the Company from authorizing, declaring or paying
any dividends until the Company's commitments under the Credit Facility have
been terminated and all amounts outstanding thereunder have been repaid. In
addition, future financing arrangements may prohibit the payment of dividends
under certain conditions.
20
ITEM 6 SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data of the Company for
the years ended December 31, 1995, 1996, 1997, 1998 and 1999, except for
Operating Data, are derived from financial statements that have been audited by
BDO Seidman, LLP independent certified public accountants, adjusted as described
in the notes below. The selected consolidated financial data should be read in
conjunction with the consolidated financial statements of the Company and Notes
thereto, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the other financial information included herein.
YEAR ENDED DECEMBER 31
------------------------------------------------------------
1995 1996 1997 (1) 1998 1999
------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA
Revenue
Pari-mutuel revenues
Live races $ 21,376 $ 18,727 $ 27,653 $ 26,893 $ 20,760
Import simulcasting 27,254 27,653 59,810 68,136 71,369
Export simulcasting 2,142 3,347 5,279 5,810 4,733
Gaming revenue - - 5,712 37,396 55,125
Admissions, programs and other racing revenue 3,704 4,379 5,678 6,280 6,256
Concessions revenues 3,200 3,389 7,404 9,550 12,117
Earnings from unconsolidated affiliates - - - - 1,098
------------------------------------------------------------
Total revenues 57,676 62,834 111,536 154,065 171,458
------------------------------------------------------------
OPERATING EXPENSES
Purses, stakes, and trophies 12,091 12,874 22,335 29,141 31,290
Direct salaries, payroll taxes and employee benefits 7,699 8,669 16,200 19,134 19,519
Simulcast expenses 9,084 9,215 12,982 13,809 13,422
Pari-mutuel taxes 4,963 5,356 9,506 9,281 8,895
Lottery taxes and administration - - 1,874 14,749 21,545
Other direct meeting expenses 7,576 8,536 18,087 24,029 22,916
Concessions expenses 2,125 2,349 5,605 7,929 11,030
Other operating expenses 5,002 4,942 8,735 10,787 13,060
Horsemen's action expenses - - - - 1,250
Depreciation and amortization 881 1,433 4,040 5,748 8,679
Litigation expense - - - - 1,500
Site development and restructuring changes - - 2,437 - 535
------------------------------------------------------------
Total operating expenses 49,421 53,374 101,801 134,607 153,641
------------------------------------------------------------
Income from operations 8,255 9,460 9,735 19,458 17,817
------------------------------------------------------------
Other income (expenses)
Interest income (expense), net 198 (156) (3,656) (7,549) (7,299)
Other 10 - (2) 113 (8)
------------------------------------------------------------
Total other income (expenses) 208 (156) (3,658) (7,436) (7,307)
------------------------------------------------------------
Income before income taxes and extraordinary item 8,463 9,304 6,077 12,022 10,510
Taxes on income 3,467 3,794 2,308 4,519 3,777
------------------------------------------------------------
Income before extraordinary item 4,996 5,510 3,769 7,503 6,733
Extraordinary item - loss on early extinquishment of debt,
net of income taxes of $1,001. - - - 1,482 -
------------------------------------------------------------
21
YEAR ENDED DECEMBER 31
------------------------------------------------------------
1995 1996 1997 (1) 1998 1999
------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net income $ 4,996 $ 5,510 $ 2,287 $ 7,503 $ 6,733
============================================================
PER SHARE DATA:
Basic income per share before extraordinary item $ 0.39 $ 0.41 $ 0.25 $ 0.50 $ .45
Basic net income per share $ 0.39 $ 0.41 $ 0.15 $ 0.50 $ .45
Diluted income per share before extraordinary item $ 0.38 $ 0.40 $ 0.24 $ 0.49 $ .44
Diluted net income per share $ 0.38 $ 0.40 $ 0.15 $ 0.49 $ .44
WEIGHTED SHARES OUTSTANDING:
Basic 12,906 13,302 14,925 15,015 14,889
Diluted 13,017 13,822 15,458 15,374 15,223
OPERATING DATA: (Unaudited)
Pari-mutuel wagering
Live races $ 102,145 $ 89,327 $ 128,090 $ 122,686 $ 96,238
Import simulcasting 142,499 170,814 298,459 336,191 345,650
Export simulcasting 72,252 112,871 176,287 194,772 159,175
------------------------------------------------------------
Total pari-mutuel wagering $ 316,896 $ 373,012 $ 602,836 $ 653,649 $ 601,063
============================================================
Gross profit from wagering (2) $ 24,915 $ 27,955 $ 48,688 $ 53,766 $ 50,907
============================================================
BALANCE SHEET DATA as of DECEMBER 31:
Cash and cash equivalents $ 7,514 $ 5,634 $ 21,854 $ 6,826 $ 9,434
Working capital (deficiency) 4,134 (509) 15,226 1,911 (7,369)
Total assets 27,532 96,723 158,878 160,798 190,600
Total debt 390 47,517 80,336 78,256 91,213
Shareholders' equity 20,802 27,881 53,856 59,036 66,272
- ------------------------------------------
Management believes that the following calculation of Earnings Before Interest,
Taxes, Depreciation and Amortization ("EBITDA") and adjusted EBITDA are relevant
to shareholders:
Income from operations $ 8,255 $ 9,460 $ 9,735 $ 19,458 $ 17,817
add back depreciation and amortization 881 1,433 4,040 5,748 8,679
----------- ----------- ----------- ----------- ----------
EBITDA 9,136 10,893 13,775 25,206 26,496
add back Horsemens action expense -- -- -- -- 1,250
Litigation expense -- -- -- -- 1,500
Site development and restructuring charges -- -- 2,437 -- 535
----------- ----------- ----------- ----------- ----------
Adjusted EBITDA $ 9,136 $ 10,893 $ 16,212 $ 25,206 $ 29,781
=========== =========== =========== =========== ==========
EBITDA is not a measure of financial performance under Generally
Accepted Accounting Principles ("GAAP"), but is used by some investors to
determine a company's ability to service or incur indebtedness. EBITDA and
Adjusted EBITDA are not calculated by all entities in the same fashion and
accordingly, may not be an appropriate measure of performance. Neither EBITDA
nor Adjusted EBITDA should be considered in isolation from, or as a substitute
for, net income (loss), cash flows from operations, or cash flow data prepared
in accordance with GAAP.
(1) Reflects the November 27, 1996 acquisition of Pocono Downs and the
January 15, 1997 acquisition of a joint venture interest in
the Charles Town Entertainment Complex. See "Business-Acquisitions."
(2) Amounts equal total pari-mutuel revenues, less purses paid to Horsemen,
taxes payable to Pennsylvania and simulcast commissions or host track fees
paid to other racetracks. Figures for the years ended December 31, 1995
and 1996 do not include purses paid at Penn National Speedway.
22
ITEM 7 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
Acquisition 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. An example of a type of presentation that the Company is likely to
use is presented below.
The results of operations by property level are summarized as follows:
Charles Town Racing and Gaming Penn National and OTWs Pocono Downs and OTWs
1997 1998 1999 1997 1998 1999 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ----
Revenues
Gaming $ 5,739 $37,716 $55,564 $ - $ - $ - $ - $ - $ -
Racing 9,211 15,382 18,954 60,261 60,281 51,302 31,203 33,121 33,767
Other 1,533 3,785 5,254 3,302 3,339 4,308 2,255 2,455 2,555
--------------------------------- -------------------------------- -------------------------------
Total revenues 16,483 56,883 79,772 63,563 63,620 55,610 33,458 35,576 36,322
Expenses
Gaming 5,446 28,958 38,672 - - - - - -
Racing 9,566 15,585 18,766 45,815 45,276 41,441 22,203 22,748 23,169
Other* 2,111 5,237 6,554 5,329 5,305 6,334 3,784 4,109 4,199
--------------------------------- -------------------------------- -------------------------------
Total expenses 17,123 49,780 63,992 51,144 50,581 47,775 25,987 26,857 27,368
EBITDA
Gaming 293 8,758 16,892 - - - - - -
Racing (355) (203) 188 14,446 15,005 9,861 9,000 10,373 10,598
Other (578) (1,452) (1,300) (2,027) (1,966) (2,026) (1,529) (1,654) (1,644)
---------------------------------- -------------------------------- -------------------------------
Total EBITDA $ (640) $ 7,103 $15,780 $ 12,419 $13,039 $ 7,835 $ 7,471 $ 8,719 $ 8,954
================================== ================================ ===============================
- ----------------
*Other expenses includes property level general and administrative expenses and
excludes corporate overhead and non-recurring expenses.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Revenues in 1999 increased by approximately $17.4 million or 11.3% to
$171.5 million from $154.1 million in 1998. Operating expenses in 1999 increased
by approximately $19.0 million or 14.1% to $153.6 million from $134.6 million in
1998. Included in operating expenses were non-recurring expenses in 1999 for the
Horsemen's strike ($1.3 million) at Penn National Race Course, Tennessee
development and licensing expenses ($.5 million) and litigation expenses ($1.5
million) to settle a lawsuit with a totalisator company. Income from operations
decreased by $1.6 million or 8.4% to $17.8 million in 1999 from $19.4 million in
1998 due to the Horsemen's strike and non-recurring expenses. Other expenses for
the year ended December 31, 1999 and 1998 consisted of approximately $7.3
million and $7.4 million, respectively, of net interest primarily due to the
10.625% Senior Notes and the Revolving Credit Facility. Taxes on income
decreased by $.7 million to $3.8 million in 1999 from $4.5 million in 1998 and
net income decreased by $.8 million or 10.3% to $6.7 million in 1999 from $7.5
million in 1998 due substantially to the factors described.
23
Charles Town Entertainment Complex
Revenues increased at Charles Town by approximately $22.9 million or
40.2% to $79.8 million in 1999 from $56.9 million in 1998. Gaming revenue
increased by $17.8 million or 47.3% to $55.6 million in 1999 from $37.7 million
in 1998 due to the addition of 136 new video lottery machines and 565 new reel
spinning, coin-out slot machines during the year. At year-end there were 1,500
gaming machines in operation compared to 799 machines in 1998. The average
number of machines increased to 923 in 1999 from 704 in 1998 and the average win
per machine increased to $163 in 1999 from $145 in 1998. Racing revenue
increased by $3.5 million or 23.0% to $18.9 million in 1999 from $15.4 million
in 1998. The live meet consisted of 213 race days in 1999 compared to 206 race
days in 1998 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 $.9 million for
the year. Concession revenues increased by approximately $1.5 million or 40.0%
to $5.3 million in 1999 from $3.8 million in 1998 due to increased attendance
for gaming, racing, and the expansion of the concession areas, dining room and
buffet area. Operating expenses increased by $14.2 million or 28.6% to $64.0
million in 1999 from $49.8 million in 1998 due to the 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 gaming facility),
export simulcast expenses and expanded concession and dining capability and
capacity. In addition to the operating expenses, Charles Town had a
non-recurring expense of $1.5 million in litigation settlement expenses for the
settlement of a lawsuit involving a former totalisator company vendor.
Penn National Race Course and its OTW Facilities (Penn National Race Course)
Penn National Race Course had a decrease in revenue of approximately
$8.0 million or 12.6% to $55.6 million in 1999 from $63.6 million in 1998. The
decrease was due primarily to the expiration of the Horsemen's Agreement that
resulted in the closure of the facilities from February 16 to March 24, 1999.
Penn National re-opened for simulcast wagering on March 25, live racing on a
limited basis on April 23 and resumed a full live racing schedule the week of
June 26, 1999. For the year 1999, Penn National ran 153 live race days compared
to 206 live race days in 1998 and has run nine-race cards instead of ten-race
cards since the April reopening. Of the scheduled 210 live races for 1999, 46
race days were lost due to the strike and 11 days were cancelled due to weather
compared to 4 days cancelled due to weather in 1998. Expenses decreased by
approximately $2.8 million or 5.6% to $47.8 million in 1999 from $50.6 million
in 1998. Included in the 1999 expenses is $1.3 million for the Horsemen's
strike. The results of operations also includes the operation of the Johnstown
OTW facility for 12 months in 1999 compared to 3 months in 1998.
Pocono Downs and its OTW Facilities (Pocono Downs)
Pocono Downs live race meet, which runs from April to November,
consisted of 130 race days in 1999 compared to 135 races days in 1998. Revenues
at Pocono Downs increased by $.7 million or 2.1% to $36.3 million in 1999 from
$35.6 million in 1998. The increase resulted from a full year of operations at
the Carbondale ($1.4 million) and Hazleton ($.8 million) OTWs that was offset by
a decrease in revenue at the Pocono Downs Racetrack ($1.0 million). The decrease
was due to the close proximity of the two new OTWs to the track. Revenue also
decreased at the racetrack due to a 7.1% decrease in export simulcast wagering
on Pocono live races due to the temporary closing of the barn area last winter
due to the Company making improvements to the track that resulted in starting
the racing season with a shortage of horses. Expenses increased by approximately
$.5 million or 1.9% to $27.4 million in 1999 from $26.9 million in 1998.
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
(commencing on July 30, 1999) for the period ended December 31, 1999 include
$28.0 million in revenue, $23.0 million in operating expenses $5.0 million in
EBITDA and net income of $2.2 million. The Company's 50% share of the net income
or $1.1 million is recorded as "Earnings from unconsolidated affiliates" on the
income statement.
24
Capital Expenditures
The Company had capital expenditures of $13.2 million in 1999 compared
to $22.3 million in 1998. Capital expenditures at Charles Town were
approximately $12.1 million for the construction of a new outdoor paddock, the
purchase and construction of a new temporary gaming facility, and the purchase
of additional gaming machines and player tracking system and other projects.
Capital expenditures at Penn National and its OTW facilities ($.6 million) and
Pocono Downs and its OTW facilities ($.5 million) were for normal equipment
replacement and leasehold improvements. As a result, depreciation and
amortization increased $2.9 million or 51.0% to $8.7 million in 1999 from $5.8
million in 1998.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenue in 1998 increased by approximately $42.5 million or 38.1% to
$154.0 million in 1998 from $111.5 million in 1997. Operating expenses in 1998
increased by approximately $32.8 million or 32.2% to $134.6 million from $101.8
million in 1997. Included in operating expenses were non-recurring charges for
site development and restructuring expenses of $2.4 million in 1997. Income from
operations increased by approximately $9.7 million or 100.0 % to $19.4 million
in 1998 from $9.7 million in 1997. Other expenses increased by approximately
$3.8 million of 106.4 % to $7.4 million in 1998 from $3.6 million in 1997. Net
interest expense increased by $3.9 million (primarily due to the 10 5/8% Senior
Notes issued December 1997). Other income in 1998 of $113,000 consisted of a
gain on the sale of Casino Magic Corporation stock of $148,000 offset by a loss
on the repurchase of the Company's Senior Notes in the amount of $35,000. Taxes
on income increased by approximately $2.2 million to $4.5 million in 1998 from
$$2.3 million in 1997. The extraordinary item in 1997 consisted of a loss on the
early extinquishment of debt in the amount of $1,482,000, net of income taxes.
The loss consists primarily of write-offs of deferred finance costs associated
with the retired bank notes and legal and bank fees relating to the early
extinquishment of the debt. Net income increased by approximately $5.2 million
to $7.5 million in 1998 from $2.3 million in 1997 due to the factors described
above.
Charles Town Races
Charles Town Races was purchased in January of 1997 and began racing
operations on April 30, 1997 and video lottery machine operations on September
10, 1997. Revenues at Charles Town increased by $40.4 million or 276.3% to $56.9
million in 1998 from $15.1 million in 1997. Video lottery machines increased by
$32.0 million as a result of a full year of operations in 1998 compared to three
and one-half months of operations in 1997. Racing revenues increased by $6.2
million due to a racing season of 206 live race days at the Charles Town Races
in 1998 compared to 159 live races days in 1997 and the opening of the new
simulcast-racing center in January 1998. Concession and other revenues increased
by $2.2 million due to the increased attendance and the opening of the new
buffet area during the year. Operating expenses increased at Charles Town Races
by $32.6 million or 190.7% to $49.8 million in 1998 from $17.1 million in 1997.
The increase was due primarily to the video lottery operations ($23.5 million),
racing operations ($6.0 million) and concession and other operating expenses
($3.1 million).
Penn National Race Course and its OTW Facilities (Penn National Race Course)
Penn National Race Course had a small increase in revenue of
approximately $57,000 or .1% to $63.6 million in 1998 from $63.5 million in
1997. Revenues increased at the track ($.3 million) due to an increase in
on-track wagering and export simulcast wagering and the purchase and opening of
the Johnstown OTW ($.9 million) on September 1, 1998. The increases were offset
by a decrease in revenues at Chambersburg OTW ($.6 million) due to the opening
of the Charles Town Facility, Reading ($.3 million) and York ($.3 million). Penn
National Race Course had a net decrease in operating expenses of $.6 million or
1.1% to $50.6 million in 1998 from $51.1 million in 1997. The net decrease in
operating expenses was due to an increase in expenses at the new Johnstown OTW
($.8 million) offset by a decrease in operating expenses at the racetrack and
other OTW facilities ($1.4 million).
Pocono Downs and its OTW Facilities (Pocono Downs)
Revenues at Pocono Downs resulted in a net increase of $2.1 million or
6.3% to $35.6 million in 1998 from $33.5 million in 1997. The increase in
revenue was primarily due to the opening of new facilities in Hazleton ($2.2
25
million) and Carbondale ($2.4 million). This was offset by a decrease at the
Wilkes-Barre racetrack ($2.1 million) due to the proximity of the two new OTW
facilities and decreases at Allentown OTW ($.3 million) and Erie OTW ($.2
million). Pocono Downs had a net increase in operating expenses of $.9 million
or 3.3% to $26.9 million in 1998 from $26.0 million in 1997. The net increase in
operating expenses was due to the opening of the Hazleton OTW ($1.9 million) and
the Carbondale OTW ($1.8 million). The increase was offset by a decrease in
operating expenses at the Wilkes-Barre racetrack ($1.8 million), Allentown OTW
($.6 million) and Erie OTW ($.4 million).
Capital Expenditures
The Company had capital expenditures of $22.3 million in 1998 compared
to $29.4 million in 1997. Capital expenditures in 1998 consisted of renovation
and refurbishment of the Charles Town facility and racetrack ($1.1 million),
completion of the Hazleton and Carbondale OTW facilities ($3.2 million), the
purchase of the Johnstown facility ($1.3 million), the purchase of the GTech
video lottery machines and central monitoring system ($13.0 million), and $3.7
million in capital expenditures at other facilities. Depreciation and
amortization increased by $1.7 million or 42.3% to $5.7 million in 1998 from
$4.0 million in 1997. The increase was due primarily to depreciation associated
with new facilities for Charles Town Gaming (September 1997), Charles Town
Simulcast Center (January 1998), Hazleton and Carbondale OTW facilities (March
1998) and Johnstown OTW (September 1998).
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 $22.5 million for the year
ended December 31, 1999. This consisted of net income and non-cash expenses
($14.3 million), an increase in accounts receivable ($1.0 million) due from
other tracks, an increase in accounts payable and accrued expenses due to
construction at Charles Town ($5.6 million), an increase in purses due horsemen
($1.2 million) an increase in taxes, other than income taxes ($1.0 million) due
to a change in payment schedules for Pennsylvania pari-mutuel taxes and other
changes in certain assets and liabilities (-$.6 million).
Cash flows used in investing activities for the year ended December 31,
1999 ($29.8 million) consisted of the Company's investment in and advance to the
New Jersey Joint Venture ($11.7 million), a cash escrow deposit for the purchase
of the Mississippi casinos ($5.0 million), capital expenditures at Charles Town
for the outdoors paddock and jockey quarters ($.9 million), new temporary
structure for slot machines ($1.8 million) additional gaming machines ($4.9
million) player tracking system ($1.3 million) and other projects ($3.1 million)
and equipment replacement and building improvements at Penn National ($.6
million) and Pocono Downs ($.5 million) facilities.
Cash flows provided by financing activities ($9.9 million) consisted of
borrowings under the credit facility ($24.3 million) for the New Jersey Joint
Venture ($11.5 million), Charles Town expansion ($9.7 million), and to fund part
of the escrow deposit ($3.1 million) for the purchase of the Mississippi assets,
proceeds from the exercise of stock options and warrants ($.5 million). This was
offset by principal payments on long-term debt ($11.4 million), and an increase
in financing costs ($3.5 million) for amending the credit facility and
bondholder agreement.
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 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
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. 26
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 revolving credit
facility is secured by substantially all of the assets of the Company, except
for the assets of the Charles Town Entertainment Complex. The revolving Credit
Facility provides for certain covenants, including those of a financial nature.
The $5.0 million term loan was repaid on December 16, 1999. At the Company's
option, the revolving facility may bear interest at the highest of: (1) 1/2 of
1% in excess of the federal reserve reported certificate of deposit rate, (2)
the rate that the bank group announces from time to time as its prime lending
rate and (3) 1/2 of 1% in excess of the federal funds rate plus an applicable
margin of up to 2% or the revolving facility may also bear interest at a rate
tied to a eurodollar rate plus an applicable margin of up to 3%. The outstanding
amount under this Credit Facility as of December 31, 1999 was $12.9 million at
an interest rate of 8.93%. Mandatory repayments of the revolving facility are
required in an amount equal to a percentage of the net cash proceeds from any
issuance or incurrence of equity or funded debt by the Company, that percentage
to be dependent upon the then outstanding balance of the revolving facility and
the Company's leverage ratio. Mandatory repayments of varying percentages are
also required in the event of either asset sales in excess of stipulated amounts
or defined excess cash flow.
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 is payable in quarterly installments of $1.3 million
principle plus interest. The loan is secured by gaming equipment and
improvements at the Charles Town facility. The term loan is being used to repay
the $5.0 million First Union term loan and finance gaming equipment and
improvements at the Charles Town facility. At the Company's option the term loan
may bear interest at the highest of: (1) 1/2 of 1% in excess of the federal
reserve reported certificate of deposit rate, (2) the rate that the bank group
announces from time to time as its prime lending rate and (3) 1/2 of 1% in
excess of the federal funds rate plus an applicable margin of up to 1.75% or the
facility may also bear interest at a rate tied to a eurodollar rate plus an
applicable margin of up to 2.75%. The outstanding amount under this credit
facility as of December 31, 1999 was $ 9.1 million at an interest rate of 8.91%.
On March 23, 1999, the Company signed a new agreement with the
Pennsylvania Thoroughbred Horsemen, replacing the previous agreement that
expired on February 16, 1999. This new contract will result in an increase in
future operating expenses, which expenses may be offset in whole or in part by
changes in revenue mix or revenue increases going forward. These developments,
therefore, may decrease earnings before interest, taxes, depreciation and
amortization ("EBITDA") in future periods; however, management believes that
such decreases, if any, will not result in any material decrease in EBITDA.
In connection with the Company's agreement to acquire all of the assets
of Casino Magic Bay St. Louis and Boomtown Biloxi, the Company will explore a
number of financing alternatives, which may involve repaying or redeeming its
existing debt. The Company would expect to use part of the proceeds from the
refinancing to make certain improvements to the Mississippi properties.
The Company currently estimates that the cash generated from operations
and available borrowings under the credit facilities will be sufficient to
finance its current operations and planned capital expenditure requirements.
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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
All of the Company's debt obligations at December 31, 1999 were fixed
rate obligations, and Management, therefore, does not believe that the Company
has any material market risk from its debt obligations.
27
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Page No.
Report of Independent Certified Public Accountants 29
Consolidated financial statements
Balance sheets 30-31
Statements of income 32-33
Statements of shareholders' equity 34
Statements of cash flows 35-36
Notes to consolidated financial statements 37-38
28
Report of Independent Certified Public Accountants
Penn National Gaming, Inc.
and Subsidiaries
Wyomissing, Pennsylvania
We have audited the accompanying consolidated balance sheets of Penn National
Gaming, Inc. and Subsidiaries as of December 31, 1998 and 1999, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 1999. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Penn National
Gaming, Inc. and Subsidiaries at December 31, 1998 and 1999, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999 in conformity with generally accepted accounting
principles.
Philadelphia, Pennsylvania \s\ BDO Seidman, LLP
--------------------
February 29, 2000 except BDO Seidman, LLP
for Note 11 which is as of
March 7, 2000
29
Penn National Gaming, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share and per share data)
December 31, 1998 1999
-----------------------------
Assets
Current assets
Cash and cash equivalents $ 6,826 $ 9,434
Accounts receivable 3,840 4,779
Prepaid expenses and other current assets 2,131 1,793
Deferred income taxes 458 888
Prepaid income taxes 859 1,088
-----------------------------
Total current assets 14,114 17,982
-----------------------------
Property, plant and equipment, at cost
Land and improvements 26,969 27,988
Building and improvements 66,918 70,870
Furniture, fixtures and equipment 29,772 36,195
Transportation equipment 527 860
Leasehold improvements 9,579 9,802
Leased equipment under capitalized lease 824 -
Construction in progress 1,847 1,980
-----------------------------
136,436 147,695
Less accumulated depreciation and amortization 15,684 20,824
-----------------------------
Net property, plant and equipment 120,752 126,871
-----------------------------
Other assets
Investment in and advances to unconsolidated affiliate - 12,862
Cash in escrow - 5,000
Excess of cost over fair market value of net assets acquired
(net of accumulated amortization of $2,002 and $2,611,
respectively) 22,442 21,582
Deferred financing costs 2,403 5,014
Miscellaneous 1,087 1,289
-----------------------------
Total other assets 25,932 45,747
-----------------------------
$ 160,798 $ 190,600
-----------------------------
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
30
Penn National Gaming, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share and per share data)
December 31, 1998 1999
---------------------------
Liabilities and Shareholders' Equity
Current liabilities
Current maturities of long-term debt and
capital lease obligations $ 168 $ 5,160
Accounts payable 6,217 10,210
Purses due horsemen 887 2,114
Uncashed pari-mutuel tickets 1,597 1,351
Accrued expenses 1,063 2,694
Accrued interest 468 433
Accrued salaries and wages 752 1,098
Customer deposits 548 800
Taxes, other than income taxes 503 1,491
---------------------------
Total current liabilities 12,203 25,351
---------------------------
Long-term liabilities
Long-term debt and capital lease obligations,
net of current maturities 78,088 86,053
Deferred income taxes 11,471 12,924
---------------------------
Total long-term liabilities 89,559 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 and outstanding 15,164,080 and 15,314,175, respectively 152 153
Treasury stock, 424,700 shares at cost (2,379) (2,379)
Additional paid-in capital 38,025 38,527
Retained earnings 23,238 29,971
---------------------------
Total shareholders' equity 59,036 66,272
---------------------------
$ 160,798 $ 190,600
---------------------------
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
31
Penn National Gaming, Inc. and Subsidiaries
Consolidated Statements of Income
(In thousands, except per share data)
Year ended December 31, 1997 1998 1999
--------------------------------------------
Revenues
Pari-mutuel revenues
Live races $ 27,653 $ 26,893 $ 20,760
Import simulcasting 59,810 68,136 71,369
Export simulcasting 5,279 5,810 4,733
Gaming revenue 5,712 37,396 55,125
Admissions, programs and other racing revenues 5,678 6,280 6,256
Concessions revenues 7,404 9,550 12,117
Earnings from unconsolidated affiliates - - 1,098
--------------------------------------------
Total revenues 111,536 154,065 171,458
--------------------------------------------
Operating expenses
Purses, stakes and trophies 22,335 29,141 31,290
Direct salaries, payroll taxes and employee benefits 16,200 19,134 19,519
Simulcast expenses 12,982 13,809 13,422
Pari-mutuel taxes 9,506 9,281 8,895
Lottery taxes and administration 1,874 14,749 21,545
Other direct meet expenses 18,087 24,029 22,916
Concessions expenses 5,605 7,929 11,030
Other operating expenses 8,735 10,787 13,060
Horsemen's action expenses - - 1,250
Depreciation and amortization 4,040 5,748 8,679
Litigation settlement - - 1,500
Site development and restructuring charges 2,437 - 535
--------------------------------------------
Total operating expenses 101,801 134,607 153,641
--------------------------------------------
Income from operations 9,735 19,458 17,817
--------------------------------------------
Other income (expenses)
Interest (expense) (4,591) (8,374) (8,667)
Interest income 935 825 1,368
Other (2) 113 (8)
--------------------------------------------
Total other (expenses) (3,658) (7,436) (7,307)
--------------------------------------------
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
32
Penn National Gaming, Inc. and Subsidiaries
Consolidated Statements of Income
(In thousands, except per share data)
Year ended December 31, 1997 1998 1999
--------------------------------------------
Income before income taxes and extraordinary item $ 6,077 $ 12,022 $ 10,510
Taxes on income 2,308 4,519 3,777
--------------------------------------------
Income before extraordinary item 3,769 7,503 6,733
Extraordinary item
Loss on early extinguishment of debt,
net of income taxes of $1,001 1,482 - -
--------------------------------------------
Net income $ 2,287 $ 7,503 $ 6,733
--------------------------------------------
Per share data
Basic
Income before extraordinary item $ .25 $ .50 $ .45
Extraordinary item .10 - -
--------------------------------------------
Net income $ .15 $ .50 $ .45
--------------------------------------------
Diluted
Income before extraordinary item $ .24 $ .49 $ .44
Extraordinary item .09 - -
--------------------------------------------
Net income $ .15 $ .49 $ .44
--------------------------------------------
Weighted shares outstanding
Basic 14,925 15,015 14,837
Diluted 15,458 15,374 15,196
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
33
Penn National Gaming, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
(In thousands, except share data)
Additional
Common Stock Treasury Paid-In Retained
----------------------
Shares Amount Stock Capital Earnings Total
------------------------------------------------------------------------------
Balance, January 1, 1997 13,355,290 $ 134 $ - $ 14,299 $ 13,448 $ 27,881
Issuance of common stock 1,725,000 17 - 22,914 - 22,931
Exercise of stock options and warrants 72,290 1 - 154 - 155
Tax benefit related to -
stock options exercised - - 602 - 602
Net income for the year - - - - 2,287 2,287
------------------------------------------------------------------------------
Balance, December 31, 1997 15,152,580 152 - 37,969 15,735 53,856
Exercise of stock options and warrants 11,500 - - 56 - 56
Acquisition of treasury stock - - (2,379) - - (2,379)
Net income for the year - - - - 7,503 7,503
------------------------------------------------------------------------------
Balance, December 31, 1998 15,164,080 152 (2,379) 38,025 23,238 59,036
Exercise of stock options and warrants 150,095 1 - 502 - 503
Net income for the year - - - - 6,733 6,733
------------------------------------------------------------------------------
Balance, December 31, 1999 15,314,175 $ 153 $ (2,379) $ 38,527 $ 29,971 $ 66,272
------------------------------------------------------------------------------
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
34
Penn National Gaming, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
Year ended December 31, 1997 1998 1999
--------------------------------------------
Cash flows from operating activities
Net income $ 2,287 $ 7,503 $ 6,733
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 4,040 5,748 8,679
Write-off of deferred financing costs - 376 -
Income from unconsolidated affiliates - - (1,098)
Extraordinary loss relating to early
extinguishment of debt, before income
tax benefit 2,483 - -
Deferred income taxes (benefit) (97) 390 1,023
Decrease (increase) in
Accounts receivable 2,036 (1,583) (939)
Prepaid expenses and other current assets 111 (690) 338
Prepaid income taxes (3,003) 2,144 (229)
Miscellaneous other assets (258) (463) (202)
Increase (decrease) in
Accounts payable 2,339 (1,188) 3,993
Purses due horsemen (1,421) 887 1,227
Uncashed pari-mutuel tickets 168 93 (246)
Accrued expenses 1,155 (1,364) 1,631
Accrued interest 225 142 (35)
Accrued salaries and wages 306 (61) 346
Customer deposits 50 78 252
Taxes, other than income taxes 257 (146) 988
--------------------------------------------
Net cash provided by operating activities 10,678 11,866 22,461
--------------------------------------------
Cash flows from investing activities
Expenditures for property, plant and equipment (29,196) (22,333) (13,243)
Acquisition of business, net of cash acquired (18,248) - -
(Increase) in prepaid acquisition costs (176) - -
Investment in and advances to unconsolidated affiliate - - (11,764)
Cash in escrow - - (5,000)
Other - - 251
--------------------------------------------
Net cash (used in) investing activities (47,620) (22,333) (29,756)
--------------------------------------------
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
35
Penn National Gaming, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
Year ended December 31, 1997 1998 1999
--------------------------------------------
Cash flows from financing activities
Proceeds from sale of common stock $ 23,086 $ 56 $ 503
Acquisition of treasury stock - (2,379) -
Tax benefit related to stock options exercised 602 - -
Proceeds from long-term debt 111,167 9,000 24,350
Principal payments on long-term debt
and capital lease obligations (78,348) (11,080) (11,393)
(Increase) in unamortized financing costs (3,345) (158) (3,557)
--------------------------------------------
Net cash provided by (used in) financing activities 53,162 (4,561) 9,903
--------------------------------------------
Net (decrease) increase in cash and cash equivalents 16,220 (15,028) 2,608
Cash and cash equivalents at beginning of period 5,634 21,854 6,826
--------------------------------------------
Cash and cash equivalents at end of period $ 21,854 $ 6,826 $ 9,434
--------------------------------------------
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
36
1. Summary of Basis of Presentation
Significant
Accounting
Policies
The consolidated financial statements include the accounts of
Penn National Gaming, Inc. and its subsidiaries (collectively the
"Company"). All significant intercompany accounts and
transactions have been eliminated in consolidation. Certain prior
years' amounts have been reclassified to conform to the 1999
presentation.
Description of Business
The Company provides pari-mutuel wagering opportunities on live
and simulcast thoroughbred and harness horse races at two
racetracks and ten off-track wagering facilities ("OTWs") located
in Pennsylvania and pari-mutuel wagering opportunities and video
gaming machines at Charles Town Races, the Company's Charles
Town, West Virginia thoroughbred racetrack. The Company's sole
operating segment is gaming activities.
At each of its three racetracks, the Company conducts pari-mutuel
wagering on thoroughbred and harness races from the Company's
racetracks and simulcasts from other racetracks. The Company also
simulcasts its Penn National Race Course and Pocono Downs races
for wagering at other racetracks and OTWs, including all
Pennsylvania racetracks and OTWs and locations outside
Pennsylvania. Wagering on Penn National Race Course and Pocono
Downs races and races simulcast from other racetracks also occurs
through the Company's Pennsylvania racetracks' telephone account
betting network.
Glossary of Terminology
The following is a listing of terminology used throughout the
financial statements:
The Company's racetracks - Penn National Race Course near
Harrisburg, Pennsylvania, Pocono Downs near Wilkes-Barre,
Pennsylvania and Charles Town Races in Charles Town, West
Virginia.
Gaming machines - Video lottery terminal and coin operated gaming
machines.
OTW - Off-track wagering location.
Pari-mutuel wagering - All wagering at the Company's racetracks,
at the Company's OTWs and all wagering on the Company's races at
other racetracks and OTWs.
Telebet - Telephone account wagering.
Totalisator services - Computer services provided to the Company
by various totalisator companies for processing pari-mutuel
betting odds and wagering proceeds. 37
Pari-mutuel revenues -
Live races - The Company's share of pari-mutuel wagering on live
races within Pennsylvania and West Virginia and certain stakes
races from racetracks outside of Pennsylvania and West Virginia
after payment of the amount returned as winning wagers.
Import simulcasting - The Company's share of wagering at the
Company's racetracks, at the Company's OTWs and by Telebet on
full cards of races simulcast from other racetracks.
Export simulcasting - The Company's share of wagering at
out-of-state locations on live races conducted by the Company.
Gaming revenue - The Company's share of net winnings from gaming
wins and losses.
A summary of pari-mutuel wagering for the periods indicated is as follows:
Year ended December 31, 1997 1998 1999
-------------------------------------------------------------------------------
(in thousands)
Pari-mutuel wagering on
the Company's live races $ 128,090 $ 122,686 $ 96,238
Pari-mutuel wagering on
simulcasting
Import simulcasting from
other racetracks 298,459 336,191 345,650
Export simulcasting to out
of Pennsylvania
wagering facilities 176,287 194,772 159,175
---------------------------------------------
Total pari-mutuel wagering $ 602,836 $ 653,649 $ 601,063
---------------------------------------------
Racing Meet
The racing seasons for the past three years
consisted of the following number of live
race days:
Year ended December 31, 1997 1998 1999
--------------------------------------------------------------------
Penn National Race Course 212 206 153
Pocono Downs 134 135 130
Charles Town Races 159 206 213
38
Depreciation and Amortization
Depreciation of property, plant and equipment and amortization of
leasehold 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 years ended 1997, 1998 and 1999, amounted to $3,193,000,
$4,705,000, and $7,124,000, respectively.
The excess of cost over fair value of net assets acquired is
being amortized on the straight-line method over a forty-year
period. Amortization expense for 1997, 1998 and 1999, amounted to
$578,000, $613,000, and $609,000, respectively. 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.
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 December 31, 1999,
the Company has determined that no impairment has occurred.
Income Taxes
The Company recognizes deferred tax liabilities and assets for
the expected future tax consequences of events that have been
recognized in the Company's financial statements or tax returns.
Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial
statement carrying amounts and tax bases of assets and
liabilities using enacted tax rates in effect in the years in
which the differences are expected to reverse.
Customer Deposits
Customer deposits represent amounts held by the Company for
telephone wagering.
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.
Net Income Per Common Share
Basic net income per share includes no dilution and is calculated
by dividing net income by the weighted average number of common
shares outstanding for the period. Dilutive net income per share
reflects the potential dilution of securities that could share in
the net income of the Company which consist of stock options and
warrants (using the treasury stock method).
Deferred Financing Costs
Deferred financing costs which are incurred by the Company in
connection with debt are charged to operations over the life of
the underlying indebtedness using the interest
39
method adjusted to give effect to any early repayments. In 1999,
the Company paid a consent fee to the holders of its 10.625%
Senior Notes in the amount of $2,243,000 for approval of its
investment in the New Jersey Joint Venture (see Note 3).
Amortization of deferred financing costs for 1997, 1998 and 1999,
amounted to $269,000, $430,000, and $946,000, respectively.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
credit risk consist of cash equivalents and accounts receivable.
The Company's policy is to limit the amount of credit exposure to
any one financial institution and place investments with
financial institutions evaluated as being creditworthy, or in
short-term money market and tax-free bond funds which are exposed
to minimal interest rate and credit risk. At December 31, 1999,
the Company had bank deposits which exceeded federally insured
limits by approximately $5,235,000 and money market and tax-free
bond funds of approximately $400,000. Concentration of credit
risk, with respect to accounts receivable, is limited due to the
Company's credit evaluation process. The Company does not require
collateral from its customers. The Company's receivables consist
principally of amounts due from other racetracks and their OTWs.
Historically, the Company has not incurred any significant
credit-related losses.
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 and Capital Lease Obligations: The fair value of
the Company's long-term debt and capital lease obligations 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.
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.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments" ("SFAS 133 as amended by SFAS 137").
SFAS 137 delays the effective date of implementation of SFAS 133
by one year. SFAS 133 establishes accounting and
40
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. Presently, the Company does not
use derivative instruments either in hedging activities or as
investments. Accordingly, the Company believes that adoption of
SFAS 133 will have no impact on its financial position or results
of operations.
The Company has no comprehensive income items as defined in
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income".
2. Long-Term Debt Long-term debt and capital lease obligations are as follows:
and Capital Lease
Obligations
December 31, 1998 1999
--------------------------
(In thousands)
Long-term debt
$80 million Senior Notes,
due December 15, 2004 with interest at
10.625% per annum payable semi-annually.
The notes are unsecured and are
unconditionally guaranteed by certain
subsidiaries of the Company.
$ 69,000 $ 69,000
Revolving credit facility payable to a bank
group (see additional information below
under Credit Facilities). 9,000 12,900
Term loan payable to a bank group due
on December 31, 2002 with interest at
various rates. This note is secured by certain
assets of the Company (see additional
information below under Term Loan). - 9,100
Other notes payable 246 213
Capital lease obligations 10 -
--------------------------
78,256 91,213
Less current maturities 168 5,160
--------------------------
$ 78,088 $ 86,053
--------------------------
Credit Facilities
On January 28, 1999, the Company entered into a second amendment
and restatement of the Credit Facility. The Credit Facility, as
amended, provides for a $20 million revolving credit facility,
including a $3 million sublimit for standby letters of credit,
which matures in December 2002 and a $5 million term loan. Under
the terms of the Credit Facility, as amended, the Company
borrowed an additional $11.5 million, of which $11.2 million of
the proceeds was used to finance its share of the New Jersey
Joint Venture (see Note 3). The revolving credit facility is
secured by substantially all of the assets of the Company, except
for the assets of the Charles Town facility. The revolving credit
facility provides for certain covenants, including those of a
financial nature. The $5.0 million term loan was repaid on
December 16, 1999. 41
At the Company's option, the revolving facility may bear interest
at the highest of: (1) 1/2 of 1% in excess of the federal reserve
reported certificate of deposit rate, (2) the rate that the bank
group announces from time to time as its prime lending rate and
(3) 1/2 of 1% in excess of the federal funds rate plus an
applicable margin of up to 2% or the revolving facility may also
bear interest at a rate tied to a eurodollar rate plus an
applicable margin of up to 3%. The outstanding amount under this
credit facility as of December 31, 1999 was $12.9 million at an
interest rate of 8.93%.
Mandatory repayments of the revolving facility are required in an
amount equal to a percentage of the net cash proceeds from any
issuance or incurrence of equity or funded debt by the Company,
that percentage to be dependent upon the then outstanding balance
of the revolving facility and the Company's leverage ratio.
Mandatory repayments of varying percentages are also required in
the event of either asset sales in excess of stipulated amounts
or defined excess cash flow.
At December 31, 1999, the Company was contingently obligated
under letters of credit with face amounts aggregating $2,015,000.
This amount includes $1,786,000 relating to the horsemens'
account balances, and $100,000 for Pennsylvania pari-mutuel
taxes.
Term Loan
On December 13, 1999 the Company entered into a $20.0 million
Senior Secured Multiple Draw Term Loan with Bank of America as
Agent for a bank group. The term loan is payable in quarterly
installments of $1.3 million principal plus interest. The loan is
secured by gaming equipment and improvements at the Charles Town
Entertainment Complex. At the Company's option the term loan may
bear interest at the highest of (1)1/2of 1% in excess of the
federal reserve reported certificate of deposit rate, (2) the
rate that the bank group announces from time to time as its prime
lending rate and (3)1/2of 1% in excess of the federal funds rate
plus an applicable margin of up to 1.75% or the facility may also
bear interest at a rate tied to a eurodollar rate plus an
applicable margin of up to 2.75%. The outstanding amount under
this credit facility as of December 31, 1999 was $ 9.1 million at
an interest rate of 8.91%.
Debt Offering
On December 12, 1997, the Company and certain of its subsidiaries
(as guarantors) entered into a purchase agreement for the sale
and issuance of $80,000,000 aggregate principal amount of its
10.625% Senior Notes due 2004 (the "Offering"). The net proceeds
of the Offering were used for repayment of existing indebtedness,
for capital expenditures and for general corporate purposes.
Interest on the notes will accrue from their date of original
issuance (the "Issue Date") and will be payable semi-annually,
and commenced in 1998. The notes will be redeemable, in whole or
in part, at the option of the Company in 2001 or thereafter at
the redemption prices set forth in the Offering, plus accrued and
unpaid interest to the date of redemption.
The notes are general unsecured senior obligations of the Company
and rank equally in right of payment to any existing and future
unsubordinated indebtedness of the Company and senior in right of
payment with
42
all existing and future subordinated indebtedness of the Company.
The notes are unconditionally guaranteed (the "Guarantees") on a
senior basis by certain of the Company's existing subsidiaries
(the "Subsidiary Guarantors"). The Guarantees are general
unsecured obligations of the Subsidiary Guarantors and rank
equally in right of payment to any unsubordinated indebtedness of
the Subsidiary Guarantors and rank senior in right of payment to
all other subordinated obligations of the Subsidiary Guarantors.
The notes are effectively subordinated in right of payment to all
secured indebtedness of the Company, including indebtedness
incurred under the amended $20 million revolving credit facility.
On September 3, 1998, the Company repurchased $11 million of the
10.625% Senior Notes due 2004 at 97.25% of the principal amount
($10,697,500) plus accrued interest of $253,229 in public market
trading. In conjunction with the repurchase of the notes, the
Company recorded a write-off of deferred financing costs
associated with this portion of the long-term debt. The
extinguishment of these notes did not result in any material net
loss.
The following is a schedule of future minimum
repayments of long-term debt as of December
31, 1999:
December 31,
(In thousands)
2000 $ 5,160
2001 4,138
2002 12,915
2003 -
2004 69,000
-------------
Total minimum payments 91,213
Current maturities 5,160
-------------
Total noncurrent maturities $ 86,053
-------------
3. Commitments
and
Contingencies
Operating Agreements
In November 1997, the Company signed a new Totalisator services
and equipment agreement for all of its subsidiaries. Effective
November 1, 1999 the terms of the contract were amended and the
contract was extended through May 31, 2005. The amended agreement
provides for annual payments based on a specified percentage of
the total amount wagered at the Company's facilities with no
minimum annual payment.
The Company is also liable under numerous operating leases for
automobiles, other equipment and buildings, which expire through
2004. Total rental expense under these agreements was $807,000,
$1,169,000, and $1,296,000 for the years ended December 31, 1997,
1998, and 1999, respectively.
The future lease commitments relating to
noncancelable operating leases as of December
31, 1999 are as follows:
(In thousands)
2000 $ 1,468
2001 1,387
2002 1,218
2003 1,124
2004 1,069
Thereafter 1,794
--------
$ 8,060
--------
43
On February 26, 1996, the Company entered into a joint venture
agreement (the "Charles Town Joint Venture") with Bryant
Development Company and its affiliates ("Bryant"), the holder of
an option to purchase substantially all of the assets of Charles
Town Racing Limited Partnership and Charles Town Races, Inc.
(together, "Charles Town") relating to the Charles Town Race
Track and Shenandoah Downs (together, the "Charles Town
Entertainment Complex") in Jefferson County, West Virginia.
Bryant had acquired its option from Showboat Operating Company
("Showboat"). Showboat has retained an option (the "Showboat
Option") to operate any casino at the Charles Town Entertainment
Complex in return for a management fee (to be negotiated at the
time, based on rates payable for similar properties) and a right
of first refusal to purchase or lease the site of any casino at
the Charles Town Entertainment Complex proposed to be leased or
sold and to purchase any interest proposed to be sold in any such
casino on the same terms offered by a third party or otherwise
negotiated with the Charles Town Joint Venture. The rights
retained by Showboat under the Showboat Option extend for a
period of five years from November 6, 1996, the date that the
Charles Town Joint Venture exercised its option to purchase the
Charles Town Races, and expires thereafter unless legislation to
permit casino gaming at the Charles Town Entertainment Complex
has been adopted prior to the end of the five-year period. If
such legislation has been adopted prior to such time, then the
rights of Showboat continue for a reasonable time (not less than
24 months) to permit completion of negotiations.
While the express terms of the Showboat Option do not specify
which activities at the Charles Town Entertainment Complex would
constitute operation of a casino, Showboat has agreed that the
installation and operation of gaming devices linked to the
lottery (like the gaming machines the Company has installed and
will continue to install) at the Charles Town Entertainment
Complex's racetrack would not trigger Showboat's right to
exercise the Showboat Option.
Pursuant to the terms of the Pocono Downs purchase agreement
dated November 27, 1996, the Company will be required to pay the
sellers of Pocono Downs an additional $10 million if, within five
years after the consummation of the Pocono Downs acquisition,
Pennsylvania authorizes any additional form of gaming in which
the Company may participate. The $10 million payment would be
payable in annual installments of $2 million for five years,
beginning on the date that the Company first offers such
additional form of gaming.
Profit Sharing Plans
The Company has a profit sharing plan under the provisions of
Section 401(k) of the Internal Revenue Code, called The Penn
National Gaming, Inc. Profit Sharing Plan (the "Penn National
401(k) Plan") that cover all eligible employees who are not
members of a bargaining unit. The plan enables employees choosing
to participate to defer a portion of their salary in a retirement
fund to be administered by the Company. The Company's
contributions to the Penn National 401(k) Plan are set at 50% of
employees elective salary deferrals which may be made up to a
maximum of 6% of employee compensation for employees of Penn
National Race Course and Pocono Downs. Charles Town employees
receive an annual employer contribution based on an allocation
formula that is derived from a total retirement expense
calculated as .25% of the daily mutual handle and .5% of the net
44
video lottery revenues. The Company made contributions to the
plan of approximately $145,000, $172,000 and $169,000, for the
years ended December 31, 1997, 1998 and 1999, respectively.
The Company also has a defined contribution plan called the
Charles Town Races Future Service Retirement Plan covering
substantially all of its union employees. Charles Town makes
monthly contributions equal to the amount accrued for retirement
expense, which is calculated as .25% of the daily mutual handle
and .5% of the net video lottery revenues. Total contributions
for the years ended December 31, 1997, 1998 and 1999 were
$114,000, $185,000 and $239,000, respectively.
OTW and Operating Facilities
On July On July 14, 1998, the Company entered into a lease
agreement for an OTW facility in East Stroudsburg. The lease is
for approximately 14,000 square feet at the Eagle's Glen Shopping
Plaza located in East Stroudsburg, Pennsylvania. The initial term
of the lease is for ten years with two additional five-year
renewal options available. On November 6, 1998, the Company
submitted its application for approval by the Pennsylvania
Harness Racing Commission. The Pennsylvania Harness Racing
Commission approved the application on February 23, 1999. The
Company was denied building and zoning permits by the zoning
office of the Borough of East Stroudsburg and filed suit on
November 13, 1998 to obtain the permits. On May 17, 1999, the
Court of Common Pleas of Monroe County granted a peremptory
judgment in favor of the Company that directed the Borough of
East Stroudsburg and its zoning officer to issue the required
building and zoning permits to construct the OTW facility. The
Company started construction on the $2 million facility in
February 2000 with a projected opening date in the second quarter
of 2000.
On March 23, 1999, the Company entered into a new four-year,
nine-month purse agreement with the Horsemen's Benevolent and
Protection Association, which represents the horsemen at the
Company's Penn National Race Course facility in Grantville,
Pennsylvania. The agreement ended an action by the horsemen which
began on February 16, and caused the Company to close Penn
National Race Course and its six affiliated OTWs. As a result of
the action the Company incurred a non-recurring $1,250,000
expense, primarily related to costs incurred to maintain the
closed facilities inclusive of employee salaries and rents, for
Horsemen's Action Expense. The initial term of the agreement ends
on January 1, 2004 and automatically renews for another two year
period, without change, unless notice is given by either party at
least ninety days prior to the end of the initial term. 45
On June 30, 1999, all the race tracks in West Virginia (the
"Tracks"), entered into a hardware and software purchase
agreement (the "Agreement") with International Game Technology
("IGT"), for the purchase of a new video lottery central control
computer system. The aggregate cost of the new system is $5.5
million of which PNGI Charles Town Gaming LLC is obligated to pay
$1.4 million. On July 22, 1999, the Company submitted a check in
the amount of $257,000 as the initial deposit and issued a letter
of credit in the amount of $1,156,000 to secure the remaining
payments due. In addition, the Tracks agreed to collectively
acquire from IGT at least one thousand video lottery terminals by
September 30, 1999. (Charles Town is to acquire 400 new
terminals). The Agreement also requires each track to pay to IGT
the sum of $7.50 per terminal, per day for each video lottery
terminal offering progressive games operated through the IGT
central system. Installation of the new central system was
substantially complete on December 31, 1999.
On December 17, 1999, the Company entered into a new three-year
purse agreement with the Pennsylvania Harness Horsemen's
Association, Inc. which represents the owners, trainers, and
drivers at the Company's The Downs Racing, Inc. facility in
Wilkes-Barre, Pennsylvania. The contract term begins on January
16, 2000 and ends on January 15, 2003.
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 $195 million which
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 Company will
enter into a licensing agreement to use the Boomtown and Casino
Magic names and marks at the properties being acquired. The
transaction is 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 is refundable if certain conditions
are not met. In connection with financing the Mississippi
acquisition, the Company will explore a number of financing
alternatives, which may include repaying or redeeming its
existing debt.
New Jersey Joint Venture
On January 28, 1999, pursuant to a First Amendment to an Asset
Purchase Agreement by and among Greenwood New Jersey, Inc.
("Greenwood"), International Thoroughbred Breeders Inc., Garden
State Race Track, Inc., Freehold Racing Association, Atlantic
City Harness, Inc. and Circa 1850, Inc., the original parties to
an Asset Purchase Agreement entered into as of July 2, 1998, and
the Company (the "Agreement"), and pursuant to which the Company
entered into a joint venture ("Joint Venture"), the Company,
along with its Joint Venture partner, Greenwood, agreed to
purchase certain assets of the Garden State Race Track and
Freehold Raceway, both located in New Jersey (the "Acquisition").
46
The purchase price for the Acquisition was approximately $46
million (subject to reduction of certain disputed items, for
which amounts have been placed in escrow). The purchase price
consisted of $23 million in cash and $23 million pursuant to two
deferred purchase price promissory notes in the amount of $22
million and $1 million each. 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, pursuant to which Pennwood, Inc. was formed
with Greenwood New Jersey, Inc. (a wholly-owned subsidiary of
Greenwood Racing, Inc. the owner of Philadelphia Park Race
Track). Pursuant to the Joint Venture Agreement, the Company
agreed to guarantee severally: (i) up to 50% of the obligation of
the Joint Venture under its Put Option Agreement ($17.5 million)
with Credit Suisse First Boston Mortgage Capital LLC ("CSFB");
(ii) up to 50% of the Joint Venture obligation for the seven year
lease at Garden State Park; (iii) up to 50% of the Joint Venture
obligation to International Thoroughbred Breeders, Inc. for the
contingent purchase price notes ($10.0 million) relating to the
operation, subject to passage by the New Jersey legislature, by
the Joint Venture of OTWs and telephone wagering accounts in New
Jersey. In conjunction with the closing, the Company entered into
a Debt Service Maintenance Agreement with Commerce Bank, N.A. for
the funding of a $23.0 million credit facility to the Joint
Venture. The Joint Venture Agreement provides for a limited
obligation of the Company of $11.5 million subject to limitations
provided for in the Company's 10.625% Senior Notes Indenture. 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 from July 30, 1999 through December 31, 1999
of the Joint Venture is included in earnings of unconsolidated
affiliates in the accompanying Consolidated Statements of Income
for the year ended December 31, 1999.
Summarized balance sheet information for
the Joint Venture as of December 31, 1999
is as follows (in thousands):
Current assets $ 7,324
Property, plant and equipment, net 30,786
Other 18,158
-------------
Total assets $ 56,268
=============
Current liabilities $ 7,453
Long-term liabilities 46,221
Members' equity 2,594
-------------
Total liabilities and members' equity $ 56,268
=============
47
Summarized results of operations of the
unconsolidated Joint Venture (commencing on
July 30, 1999) for the year ended December
31, 1999 is as follows (in thousands):
Revenues $ 27,982
-------------
Operating expenses 23,005
-------------
EBITDA* 4,977
-------------
Net Income 2,196
-------------
* Earnings before interest, depreciation, taxes, and amortization.
4. Income Taxes The provision for income taxes charged to operations was as follows:
Year ended December 31, 1997 1998 1999
------------------------------------------------------------------------------
(in thousands)
Current tax expense
Federal $ 2,006 $ 3,374 $ 2,759
State 399 755 108
----------------------------------
Total current 2,405 4,129 2,867
----------------------------------
Deferred tax expense (benefit)
Federal (56) 378 (317)
State (41) 12 1,227
----------------------------------
Total deferred (97) 390 910
----------------------------------
Total provision $ 2,308 $ 4,519 $ 3,777
----------------------------------
Deferred tax assets and liabilities are comprised of the following:
December 31, 1998 1999
--------------------------
Deferred tax assets
Reserve for debit balances of
horsemens' accounts, bad debts
restructuring charges and
litigation $ 458 $ 888
--------------------------
Deferred tax liabilities
Property, plant and equipment $ 11,471 $ 12,924
--------------------------
48
The following is a reconciliation of the statutory federal income tax rate to
the actual effective income tax rate for the following periods:
Year ended December 31, 1997 1998 1999
--------------------------------------
Percent of pretax income
Federal tax rate 34.0 % 34.0 % 34.0 %
Increase in taxes resulting from
state and local income taxes,
net of federal tax benefit 3.9 4.2 2.0
Permanent difference relating to
amortization of goodwill .9 .4 .2
Other miscellaneous items (.8) (1.0) (.3)
--------------------------------------
38.0 % 37.6 % 35.9 %
--------------------------------------
5. Supplemental
Disclosures of
Cash Flow
Information
Cash paid during the year for interest was $4,346,000,
$8,192,000 and $8,742,000 in 1997, 1998 and 1999,
respectively.
Cash paid during the year for income taxes was $3,649,000,
$4,207,000, and $2,970,000 in 1997, 1998 and 1999,
respectively.
6. Common Stock
On February 18, 1997, the Company completed a secondary
public offering of 1,725,000 shares of its common stock. The
net proceeds of $23 million were used to reduce $19 million
of the Term Loan amounts outstanding under the Credit
Facility with the balance of the proceeds used to finance a
portion of the cost of the refurbishment of the Charles Town
Entertainment Complex (see Note 2 for Acquisitions).
In 1998, the Company purchased 424,700 shares of its common
stock in public market trading. The total cost of these
transactions was $2,378,465 or $5.60 per share average
price.
In April 1994, the Company's Board of Directors and
shareholders adopted and approved the Stock Option Plan (the
"Plan"). On April 30, 1997, the shareholders and the Board
of Directors approved an increase in the number of
authorized shares underlying stock options to be granted
from 1,290,000 to 2,000,000 shares. Therefore, the Plan
permits the grant of options to purchase up to 2,000,000
shares of Common Stock, subject to antidilution adjustments,
at a price per share no less than 100% of the fair market
value of the Common Stock on the date an option is granted
with respect to incentive stock options only. The price
would be no less than 110% of fair market value in the case
of an incentive stock option granted to any individual who
owns more than 10% of the total combined voting power of all
classes of outstanding stock. The Plan provides for the
granting of both incentive stock options intended to qualify
under Section 422 of the Internal Revenue Code of 1986, and
nonqualified stock options which do not so qualify. Unless
the Plan is terminated earlier by the Board of Directors,
the Plan will terminate in April 2004.
49
Stock options that expire between August 20, 2000 and
January 4, 2009 have been granted to officers and directors
to purchase Common Stock at prices ranging from $3.33 to
$17.63 per share. All options and warrants were granted at
market prices at date of grant. The following table contains
information on stock options issued under the Plan for the
three-year period ended December 31, 1999:
Exercise
Option Price Range Average
Shares Per Share Price
------------------------------------------------
Outstanding at
January 1, 1997 979,750 $ 3.33 to 17.63 $ 9.10
Granted 100,000 11.50 to 16.63 15.59
Exercised (39,250) 3.33 to 5.63 4.01
------------------------------------------------
Outstanding at
December 31, 1997 1,040,500 3.33 to 17.63 7.31
Granted 195,000 6.44 to 15.50 9.06
Exercised (11,500) 3.33 to 5.63 4.88
Canceled (39,500) 5.63 to 15.50 13.36
------------------------------------------------
Outstanding at
December 31, 1998 1,184,500 3.33 to 17.63 9.50
Granted 144,500 6.88 to 9.13 6.98
Exercised (27,000) 5.63 5.63
Canceled (31,750) 5.63 to 15.50 13.40
------------------------------------------------
Outstanding at
December 31, 1999 1,270,250 $ 3.33 to 17.63 $ 7.27
------------------------------------------------
In addition, 300,000 Common Stock options were issued to the
Chairman outside the Plan on October 23, 1996. These options
were issued at $17.63 per share and are exercisable through
October 23, 2006.
Exercisable at year-end:
Exercise Weighted
Option Price Range Average
Shares Per Share Price
------------------------------------------------------
1997 653,833 $ 3.33 to 17.63 $ 7.08
1998 1,034,666 3.33 to 17.63 8.36
1999 1,242,625 3.33 to 17.63 9.49
------------------------------------------------------
Options available for future grant: 1994 Plan
-------------
1999 541,750
-------------
50
The following table summarizes information about stock
options outstanding at December 31, 1999
Ranges Total
--------------------------------------------
$3.33 $5.58 $3.33
Range of exercise prices to $5.50 to $17.63 to $17.63
--------------------------------------------
Outstanding options
Number outstanding at
December 31, 1999 637,250 933,000 1,570,250
Weighted average remaining
contractual life (years) 3.84 5.94 5.09
Weighted average exercise
price $ 3.84 $ 12.94 $ 9.25
Exercisable options
Number outstanding at
December 31, 1999 637,250 605,375 1,242,625
Weighted average exercise
price $ 3.84 $ 15.44 $ 9.49
Warrants were granted to the underwriters of the Company's
initial public offering at a price of $4.00 per share and
were all exercised prior to their expiration on June 2,
1999.
A summary of the warrant transactions follows:
Exercise
Price Weighted
Warrant Range Average
Shares Per Share Price
---------------------------------------------
Warrants outstanding at
January 1, 1997 195,000 $ 4.00 $ 4.00
Warrants exercised (43,000) 4.00 4.00
---------------------------------------------
Warrants outstanding at
December 31, 1997 152,000 4.00 4.00
Warrants exercised (3,000) 4.00 4.00
---------------------------------------------
Warrants outstanding
at December 31, 1998 149,000 4.00 4.00
Warrants exercised (149,000) 4.00 4.00
---------------------------------------------
Warrants outstanding at
December 31, 1999 -
---------------------------------------------
During 1995, the Financial Accounting Standards Board
adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"),
which has recognition provisions that establish a fair value
based method of accounting for stock-based employee
compensation plans and established fair value as the
measurement basis for transactions in which an entity
51
acquires goods or services from nonemployees in exchange for
equity instruments. SFAS 123 also has certain disclosure
provisions. Adoption of the recognition provisions of SFAS
123 with regard to these transactions with nonemployees was
required for all such transactions entered into after
December 15, 1994, and the Company adopted these provisions
as required. The recognition provision with regard to the
fair value based method of accounting for stock-based
employee compensation plans is optional. Accounting
Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employers" ("APB 25"), uses what is referred to as
an intrinsic value based method of accounting. The Company
has decided to continue to apply APB 25 for its stock-based
employee compensation arrangements. Accordingly, no
compensation cost has been recognized. Had compensation cost
for the Company's employee stock option plan been determined
based on the fair value at the grant date for awards under
the plan consistent with the method of SFAS 123, the
Company's net income and net income per share would have
been reduced to the pro forma amounts indicated below:
Year ended December 31, 1997 1998 1999
------------------------------------------------
Net income
As reported $ 2,287,000 $ 7,503,000 $ 6,733,000
Pro forma 1,660,000 6,827,000 6,143,000
Basic net income
per share
As reported $ .15 $ .50 $ .45
Pro forma .11 .45 .41
Diluted net income
per share
As reported $ .15 $ .49 $ .44
Pro forma .11 .44 .40
The fair value of each option and warrant grant is estimated
on the date of grant using the Black-Scholes option-pricing
model with the following weighted average assumptions used
for grants in 1997, 1998 and 1999: dividend yield of 0%;
expected volatility of 20%; risk-free interest rate of 6%;
and expected lives of five years. The effects of applying
SFAS 123 in this pro forma disclosure are not indicative of
future amounts. SFAS 123 does not apply to awards prior to
1995. Additional awards in future years are anticipated.
7. Shareholder
Rights Plan
On May 20, 1998, the Board of Directors of the Company
authorized and declared a dividend distribution of one
Preferred Stock purchase right (the "Rights") for each
outstanding share of the Company's common stock, par value
$.01 per share (the "Common Shares"), payable to
shareholders of record at the close of business on March 19,
1999. Each Right entitles the registered holder to purchase
from the Company one one-hundredth of a share (a "Preferred
Stock Fraction"), or a combination of securities and assets
of equivalent value, at a purchase price of $40.00 per
Preferred Stock Fraction (the "Purchase Price"), subject to
adjustment. The description and terms of the Rights are set
forth in a Rights Agreement (the "Rights Agreement") dated
March 2, 1999 between the Company and Continental Stock
Transfer and Trust Company as Rights Agent. All terms not
otherwise defined herein are used as defined in the Rights
Agreement.
The Rights will be exercisable only if a person or group
acquires 15% or more of the Company's common stock (the
"Stock Acquisition Date"), announces a tender or exchange
offer that will result in such person or group acquiring 20%
52
or more of the outstanding common stock or is a beneficial
owner of a substantial amount of Common Shares (at least
10%) whose ownership may have a material adverse impact
("Adverse Person") on the business or prospects of the
Company. The Company will be entitled to redeem the Rights
at a price of $.01 per Right (payable in cash or stock) at
anytime until 10 days following the Stock Acquisition Date
or the date on which a person has been determined to be an
Adverse Person. If the Company is involved in certain
transactions after the Rights become exercisable, a Holder
of Rights (other than Rights owned by a shareholder who has
acquired 15% or more of the Company's outstanding common
stock or is determined to be an Adverse Person, which Rights
become void) is entitled to buy a number of the acquiring
company's Common Shares or the Company's common stock, as
the case may be, having a market value of twice the exercise
price of each Right. A potential dilutive effect may exist
upon the exercise of the Rights. Until a Right is exercised,
the holder will have no rights as a stockholder of the
Company, including, without limitations, the right to vote
as a stockholder or to receive dividends. The Rights are not
exercisable until the Distribution Date and will expire at
the close of business on March 18, 2009, unless earlier
redeemed or exchanged by the Company.
8. Loss From
Retirement
of Debt
In 1997, the Company recorded an extraordinary loss of
$1,482,000 after taxes for the early retirement of debt. The
extraordinary loss consists primarily of write-offs of
deferred finance costs associated with the retired notes and
legal and bank fees relating to the early extinguishment of
the debt.
9. Site Development
and Restructuring
Charges
During 1997, the Company incurred site development
($1,735,000) and restructuring ($702,000) charges of
$2,437,000. The site development charges consist of $800,000
related to the Charles Town Races facility and $935,000
related to the abandonment of certain proposed operating
sites during 1997. The restructuring charges primarily
consist of: $350,000 in severance termination benefits and
other charges at the Charles Town Races facility; $300,000
for the restructuring of the Erie, Pennsylvania OTW facility
and $52,000 of property and equipment written off in
connection with the discontinuation of Penn National
Speedway, Inc. operations during 1997. These charges, net of
income taxes, decreased the 1997 net income and diluted net
income per share by $1,462,000 and $.09 per share,
respectively.
On February 11, 2000, the Tennessee Supreme Court denied the
Company's application for permission to appeal the decision
of the Court of Appeals. In the appeal, the Company was
asking the Supreme Court to take the jurisdictional question
from the Appellate Court and to review the substantive issue
of whether pari-mutuel wagering on horse racing is lawful in
Tennessee under the existing statute without the Tennessee
Commission. As a result of this decision, the Company has
taken a charge against earnings in the year 1999 of $535,000
for costs incurred for its Tennessee racing license.
10. Litigation Settlement
In December 1997, Amtote international, Inc. ("Amtote"),
filed an action against the Company and the Charles Town
Joint Venture in the United States District Court for the
Northern District of West Virginia. In its complaint, Amtote
stated that the Company and the Charles Town Joint Venture
allegedly breached certain contracts with Amtote and its
affiliates when it entered into a wagering services contract
with a third party. On September 30, 1999 the United States
District Court for the Northern District of West Virginia
rendered a decision which awarded liquidated damages to
Amtote. On February 11, 2000, the Company and Amtote entered
into a settlement agreement in which the Company which paid
Amtote in full satisfaction of the judgement the sum of $1.5
million, which is included in accrued expenses.
53
11. Subsequent Events
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 provides 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 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 value of the warrants issued will be amortized over
the vesting period or 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 1999 by Trackpower was not material.
In March 2000, the Company entered into a letter of intent
with Trackpower and eBet Limited ("eBet") which that, if a
definitive agreement is executed, will replace and restate
the above agreement. Under the terms of the letter of
intent, the Company and eBet will contribute various assets,
equipment, management agreements relating to our telephone
account wagering systems and business operations to
Trackpower. Under the proposed agreement, the Company will
continue to receive the same level of income as in 1999. The
Company and eBet will each receive 18,000,000 shares of
Trackpower common stock as well as warrants to purchase
additional shares exercisable at $1.00 per share. Upon
completion of the proposed transaction the Company and eBet
will each own 26.5% of Trackpower prior to considering the
exercises of options or warrants. The agreement is subject
to due diligence, regulatory and other approvals.
54
12. Subsidiary
Guarantors
Summarized financial information for years ended December 31, 1997, 1998,
and 1999 for Penn National Gaming, Inc. ("Parent"), the Subsidiary
Guarantors and Subsidiary Nonguarantors is as follows:
- ------------------------- --- ------------- -- ------------- -- ------------- --- ------------ --- --------------
Subsidiary
Parent Subsidiary Non- Elimin- Consoli-
Company Guarantors Guarantors ations dated
Year ended December 31, 1997
Consolidated Statement of Income (In Thousands)
Total revenues $ 6,887 $ 90,320 $ 16,484 $ (2,155) $ 111,536
Total operating expenses 3,434 81,822 18,700 (2,155) 101,801
- ------------------------- --- ------------- -- ------------- -- ------------- --- ------------ --- --------------
Income from operations 3,453 8,498 (2,216) -- 9,735
Other income(expenses) (3,565) 1,612 (1,705) -- (3,658)
- ----------------------------- ------------- -- ------------- -- ------------- --- ------------ --- --------------
Income before income taxes (112) 10,110 (3,921) -- 6,077
Taxes on income (38) 3,909 (1,563) -- 2,308
Extraordinary item (142) (768) (572) (1,482)
- ------------------------- --- ------------- -- ------------- -- ------------- --- ------------ --- --------------
- ------------------------- --- ------------- -- ------------- -- ------------- --- ------------ --- --------------
Net income (loss) $ (216) $ 5,433 $ (2,930) $ -- $ 2,287
- ------------------------- --- ------------- -- ------------- -- ------------- --- ------------ --- --------------
Consolidated Statement of Cash Flows (In Thousands)
Net cash provided by
(used in) operating
activities $ 2,559 $ (169,422) $ 882 $ 176,659 $ 10,678
Net cash provided by
(used in) investing
activities (8,995) 68,529 40 (107,194) (47,620)
Net cash provided by
(used in) financing
activities 22,361 100,266 -- (69,465) 53,162
- ------------------------- --- ------------- -- ------------- -- ------------- --- ------------ --- --------------
Net increase (decrease)
in cash and cash
equivalents 15,925 (627) 922 -- 16,220
Cash and cash
equivalents at
beginning of period 3,015 2,597 22 -- 5,634
- ------------------------- --- ------------- -- ------------- -- ------------- --- ------------ --- --------------
Cash and cash
equivalents at end of
period $ 18,940 $ 1,970 $ 944 $ -- $ 21,854
- ------------------------- --- ------------- -- ------------- -- ------------- --- ------------ --- --------------
55
- ------------------------- --- ------------- -- ------------- -- ------------- --- ------------ --- --------------
Subsidiary
Parent Subsidiary Non- Elimin- Consoli-
Company Guarantors Guarantors ations dated
- ------------------------- --- ------------- -- ------------- -- ------------- --- ------------ --- --------------
As of December 31, 1998
Consolidated Balance Sheet (In Thousands)
Current assets $ 3,558 $ 6,944 $ 4,204 $ (592) $ 14,114
Net property, plant and
equipment 13,576 62,598 44,578 -- 120,752
Other assets 102,400 153,818 1,779 (232,065) 25,932
- ------------------------- --- ------------- -- ------------- -- ------------- --- ------------ --- --------------
Total $ 119,534 $ 223,360 $ 50,561 $ (232,657) $ 160,798
- ------------------------- --- ------------- -- ------------- -- ------------- --- ------------ --- --------------
Current liabilities $ 1,000 $ 13,961 $ 7,520 $ (10,278) $ 12,203
Long-term liabilities 81,037 78,527 47,334 (117,339) 89,559
Shareholders' equity
(deficiency) 37,497 130,872 (4,293) (105,040) 59,036
- ------------------------- --- ------------- -- ------------- -- ------------- --- ------------ --- --------------
Total $ 119,534 $ 223,360 $ 50,561 $ (232,657) $ 160,798
- ------------------------- --- ------------- -- ------------- -- ------------- --- ------------ --- --------------
Year ended December 31, 1998
Consolidated Statement of Income (In Thousands)
Total revenues $ 10,789 $ 89,142 $ 56,883 $ (2,749) $ 154,065
Total operating expenses 4,612 81,187 51,557 (2,749) 134,607
- ------------------------- --- ------------- -- ------------- -- ------------- --- ------------ --- --------------
Income from operations 6,177 7,955 5,326 -- 19,458
Other income(expenses) (5,535) 2,842 (4,743) -- (7,436)
- ----------------------------- ------------- -- ------------- -- ------------- --- ------------ --- --------------
Income before income taxes 642 10,797 583 -- 12,022
Taxes on income 100 4,186 233 -- 4,519
- ------------------------- --- ------------- -- ------------- -- ------------- --- ------------ --- --------------
Net income $ 542 $ 6,611 $ 350 $ -- $ 7,503
- ------------------------- --- ------------- -- ------------- -- ------------- --- ------------ --- --------------
Year ended December 31, 1998
Consolidated Statement of Cash Flows (In Thousands)
Net cash provided by
(used in) operating
activities $ (2,072) $ (4,121) $ 1,267 $ 16,792 $ 11,866
Net cash provided by
(used in) investing
activities (13,387) 290 909 (10,145) (22,333)
Net cash provided by
(used in) financing
activities (1,480) 3,566 -- (6,647) (4,561)
- ------------------------- --- ------------- -- ------------- -- ------------- --- ------------ --- --------------
Net increase (decrease)
in cash and cash
equivalents (16,939) (265) 2,176 -- (15,028)
Cash and cash
equivalents at
beginning of period 18,940 1,970 944 -- 21,854
- ------------------------- --- ------------- -- ------------- -- ------------- --- ------------ --- --------------
Cash and cash
equivalents at end of
period $ 2,001 $ 1,705 $ 3,120 $ -- $ 6,826
- ------------------------- --- ------------- -- ------------- -- ------------- --- ------------ --- --------------
56
- -----------------------------------------------------------------------------------------------------------------
Subsidiary
Parent Subsidiary Non- Elimin- Consoli-
Company Guarantors Guarantors ations dated
- -----------------------------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------
Year ended December 31, 1999
Consolidated Statement of Income (In Thousands)
Total revenues $ 4,147 $ 93,651 $ 79,772 $ (6,112) $ 171,458
Total operating expenses (3,393) 91,448 71,698 (6,112) 153,641
- -----------------------------------------------------------------------------------------------------------------
Income from operations 7,540 2,203 8,074 -- 17,817
Other income(expenses) (5,693) 3,020 (4,634) -- (7,307)
- -----------------------------------------------------------------------------------------------------------------
Income before income taxes 1,847 5,223 3,440 -- 10,510
Taxes on income 642 3,135 -- -- 3,777
- -----------------------------------------------------------------------------------------------------------------
Net income $ 1,205 $ 2,088 $ 3,440 $ -- $ 6,733
- -----------------------------------------------------------------------------------------------------------------
Year ended December 31, 1999
Consolidated Statement of Cash Flows (In Thousands)
Net cash provided by
(used in) operating
activities $ 6,287 $ 14,842 $ 4,313 $ (2,981) $ 22,461
Net cash provided by
(used in) investing
activities (6,516) (20,245) (3,205) 210 (29,756)
Net cash provided by
financing activities 772 6,236 124 2,771 9,903
- -----------------------------------------------------------------------------------------------------------------
Net increase in cash
and cash equivalents 543 833 1,232 -- 2,608
Cash and cash
equivalents at
beginning of period 2,001 1,705 3,120 -- 6,826
- -----------------------------------------------------------------------------------------------------------------
Cash and cash
equivalents at end of
period $ 2,544 $ 2,538 $ 4,352 $ -- $ 9,434
- -----------------------------------------------------------------------------------------------------------------
57
ITEM 9 CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not Applicable
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 is incorporated by
reference from the Company's definitive proxy statement with
respect to the Company's Annual Meeting of Shareholders to be
held on May 17, 2000. Such proxy statement shall be filed
pursuant to Regulation 14A promulgated under the Securities
Exchange Act of 1934, as amended, within 120 days after the
end of the fiscal year covered by this Annual Report on Form
10-K.
ITEM 11 EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by
reference from the Company's definitive proxy statement with
respect to the Company's Annual Meeting of Shareholders to be
held on May 17, 2000. Such proxy statement shall be filed
pursuant to Regulation 14A promulgated under the Securities
Exchange Act of 1934, as amended, within 120 days after the
end of the fiscal year covered by this Annual Report on Form
10-K.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information required by Item 12 is incorporated by
reference from the Company's definitive proxy statement with
respect to the Company's Annual Meeting of Shareholders to be
held on May 17, 2000. Such proxy statement shall be filed
pursuant to Regulation 14A promulgated under the Securities
Exchange Act of 1934, as amended, within 120 days after the
end of the fiscal year covered by this Annual Report on Form
10-K.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated by
reference from the Company's definitive proxy statement with
respect to the Company's Annual Meeting of Shareholders to be
held on May 17, 2000. Such proxy statement shall be filed
pursuant to Regulation 14A promulgated under the Securities
Exchange Act of 1934, as amended, within 120 days after the
end of the fiscal year covered by this Annual Report on Form
10-K.
58
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(A) (1) The Financial Statements included in the Index to Part II,
Item 8, are filed as part of this Report
(2) List of Exhibits
EXHIBIT
NOS. DESCRIPTION OF EXHIBIT
1. Purchase Agreement dated December 12, 1997 between Penn National Gaming,
Inc. and BT Alex Brown Incorporated and Jefferies & Company, Inc.
2.1 Agreement and Plan of Reorganization dated April 11, 1994 among Penn
National Gaming, Inc., Carlino Family Partnership, Carlino Financial
Corporation and the shareholders and general partners of the entities now
comprising Penn National Gaming, Inc. (Incorporated by reference to the
Company's registration statement on Form S-1, File #33-77758, dated May 26,
1994.)
2.1 First Amendment to Asset Purchase Agreement dated as of January 28, 1999 by
and between among Greenwood New Jersey, Inc., International Thoroughbred
Breeders, Inc., Garden State Race Track, Inc., Freehold Racing Association,
Atlantic City Harness Inc., Circa 1850, Inc., and Penn National Gaming,
Inc. (Incorporated by reference to the Company's current report on Form
8-K, dated February 12, 1999.)
2.1.1Amendment to Agreement and Plan of Reorganization dated April 26, 1994
among Penn National Gaming, Inc., Carlino Family Partnership, Carlino
Financial Corporation and the shareholders and general partners of the
entities now comprising Penn National Gaming, Inc. (Incorporated by
reference to the Company's registration statement on Form S-1, File
#33-77758, dated May 26, 1994.)
2.2 Agreement and Plan of Reorganization dated April 11, 1994 between Penn
National Gaming, Inc. and Thomas J. Gorman. (Incorporated by reference to
the Company's registration statement on Form S-1, File #33-77758, dated May
26, 1994.)
2.2 First Amendment to Joint Venture Agreement dated as of January 28, 1999, by
and between Greenwood New Jersey, Inc., and Penn National Gaming, Inc.
(Incorporated by reference to the Company's current report on Form 8-K,
dated February 12, 1999.)
2.2.1Amendment to Agreement and Plan of Reorganization dated April 26, 1994
between Penn National Gaming, Inc. and Thomas J. Gorman. (Incorporated by
reference to the Company's registration statement on Form S-1, File
#33-77758, dated May 26, 1994.)
2.3 Closing Agreement dated January 15, 1997 among Charles Town Races, Inc.,
Charles Town Racing Limited Partnership, and PNGI Charles Town Gaming
Limited Liability Company. (Incorporated by reference to the Company's
current report on Form 8-K, dated January 30, 1997.)
2.4 Amended and Restated Operating Agreement dated as of December 31, 1996
among Penn National Gaming of West Virginia, Inc., Bryant Development
Company and PNGI Charles Town Gaming limited Liability Company.
(Incorporated by reference to the Company's current report on Form 8-K,
dated January 30, 1997.)
2.5 Letter dated January 14, 1997 from Peter M. Carlino to James A. Reeder
(Incorporated by reference to the Company's current report on Form 8-K,
dated January 30, 1997.)
2.6 First Amendment and Consent dated as of January 7, 1997 among Penn National
Gaming, Inc., Bankers Trust Company as Agent, CoreStates Bank, N.A. as
Co-Agent, and certain banks party to the Credit Agreement dated as of
November 27, 1996 (Incorporated by reference to the current report on Form
8-K, dated January 30, 1997.)
59
2.7 Amended and Restated Option Agreement dated as of February 17, 1995 among
Charles Town Races, Inc., Charles Town Racing Limited Partnership, and PNGI
Charles Town Gaming limited Liability Company (Incorporated by reference to
Exhibit 2.1 of the Company's current report on Form 8-K, dated January 30,
1997.)
2.8 Transfer, Assignment and Assumption Agreement and Bill of Sale dated
January 15, 1997 among Charles Town Races, Inc., Charles Town Racing
Limited Partnership, and PNGI Charles Town Limited Liability Company
(Incorporated by reference to Exhibit 2.2 of the Company's Form 10-Q, dated
November 14, 1997.)
2.9 Second Amended and Restated Operating Agreement dated as of October 17,
1997, among Penn National Gaming of West Virginia, Inc., BDC Group and PNGI
Charles Town Gaming Limited Liability Company (Incorporated by reference to
the Company's Form 10-Q, dated November 14, 1997.)
2.10 Purchase Agreement dated September 13, 1996 between Penn National Gaming,
Inc. and the Estate of Joseph B. Banks for the purchase of Pocono Downs
Race Track and two related OTW facilities. (Incorporated by reference to
the Company's Form 10-Q, dated November 13, 1996.)
3.1 Amended and Restated Articles of Incorporation of Penn National Gaming,
Inc., filed with the Pennsylvania Department of State on April 12, 1994.
(Incorporated by reference to the Company's registration statement on Form
S-1, File #33-77758, dated May 26, 1994.)
3.2 By-laws of Penn National Gaming, Inc. (Incorporated by reference to the
Company's registration statement on Form S-1, File #33-77758, dated May 26,
1994.)
4. Rights Agreement dated as of March 2, 1999, between Penn National Gaming,
Inc. and Continental Stock Transfer and Trust Company. (Incorporated by
reference to the Company's current report on Form 8-K, dated March 17,
1999.)
4.1 Indenture dated December 17, 1997 between Penn National Gaming, Inc. and
State Street Bank and Trust Company. (Incorporated by reference to the
Company's registration statement on Form S-4, File #333-45337, dated
January 30, 1998.)
9.1 Form of Trust Agreement of Peter D. Carlino, Peter M. Carlino, Richard J.
Carlino, David E. Carlino, Susan F. Harrington, Anne de Lourdes Irwin,
Robert M. Carlino, Stephen P. Carlino and Rosina E. Carlino Gilbert.
(Incorporated by reference to the Company's registration statement on Form
S-1, File #33-77758, dated May 26, 1994.)
10.1 1994 Stock Option Plan. (Incorporated by reference to the Company's
registration statement on Form S-1, File #33-77758, dated May 26, 1994.)
10.2 Employment Agreement dated April 12, 1994 between Penn National Gaming,
Inc. and Peter M. Carlino. (Incorporated by reference to the Company's
registration statement on Form S-1, File #33-77758, dated May 26, 1994.)
10.3 Credit Agreement, dated as of November 27, 1996, among Penn National
Gaming, Inc., various banks, CoreStates bank, N.A., as Co-Agent and Bankers
Trust Company, as Agent. (Incorporated by reference to Exhibit 10.1 of the
Company's current report on Form 8-K, dated December 12, 1996.)
10.4 Employment Agreement dated April 12, 1994 between the Registrant and Robert
S. Ippolito. (Incorporated by reference to the Company's registration
statement on Form S-1, File #33-77758, dated May 26, 1994.)
10.8 Consolidation of PRA Agreement dated May 18, 1992 and PRA Amendment dated
February 9, 1993 among all members of the Pennsylvania Racing Association.
(Incorporated by reference to the Company's registration statement on Form
S-1, File #33-77758, dated May 26, 1994.)
60
10.11Lease dated March 7, 1991 between Shelbourne Associated and PNRC Limited
Partnership. (Incorporated by reference to the Company's registration
statement on Form S-1, File #33-77758, dated May 26, 1994.)
10.13.1 Lease dated June 30, 1993 between John E. Kyner, Jr. and Sandra R.
Kyner, and PNRC Chambersburg, Inc. (Incorporated by reference to the
Company's registration statement on Form S-1, File #33-77758, dated May 26,
1994.)
10.38Consulting Agreement dated August 29, 1994, between Penn National Gaming,
Inc. and Peter D. Carlino. (Incorporated by reference to the Company's Form
10-K, dated March 23, 1995.)
10.39Lease dated July 7, 1994, between North Mall Associates and Penn National
Gaming, Inc. for the York OTW. (Incorporated by reference to the Company's
Form 10-K, dated March 23, 1995.)
10.41.1 Lease dated March 31, 1995 between Wyomissing Professional Center III,
LP and Penn National Gaming, Inc. for the Wyomissing Corporate Office.
(Incorporated by reference to the Company's Form 10-K, dated March 20,
1996.)
10.42Employment agreement dated June 1, 1995 between Penn National Gaming, Inc.
and William J. Bork. (Incorporated by reference to the Company's Form 10-K,
dated March 20, 1996.)
10.43Lease dated July 17, 1995 between E. Lampeter Associates and Pennsylvania
National Turf Club, Inc. for the Lancaster OTW, as amended. (Incorporated
by reference to the Company's Form 10-K, dated March 20, 1996.)
10.44Agreement dated September 1, 1995 between Mountainview Thoroughbred racing
Association and Pennsylvania National Turf Club, Inc. and Sports Arena
Employees' Union Local 137 (non-primary location.) (Incorporated by
reference to the Company's Form 10-K, dated March 20, 1996.)
10.45Agreement dated December 27, 1995 between Pennsylvania National Turf Club,
Inc. and Teleview Racing Patrols, Inc. (Incorporated by reference to the
Company's Form 10-K, dated March 20, 1996.)
10.50Formation Agreement dated February 26, 1996 between Penn National Gaming,
Inc. and Bryant Development Company. (Incorporated by reference to the
Company's Form 10-K, dated March 20, 1996.)
10.51Assignment of Agreement of Sale dated March 6, 1996 between Penn National
Gaming, Inc. and Montgomery Realty Growth Fund, Inc. (Incorporated by
reference to the Company's Form 10-Q, dated May 14, 1996.)
10.56Amended and Restated Option Agreement dated as of February 17, 1995
between the PNGI Charles Town Gaming Limited Liability Company (The Joint
Venture) and Charles Town Racing Limited Partnership and Charles Town
Races, Inc. (Incorporated by reference to the Company's Form 10-Q, dated
November 13,1996.)
10.58Agreement dated March 19, 1997, between PNGI Charles Town Gaming Limited
Liability Company and the Charles Town HBPA, Inc. (Incorporated by
reference to the Company's Form 10-K, dated March 27, 1997.)
10.59Agreement dated March 21, 1997, between PNGI Charles Town Gaming Limited
Liability Company and The West Virginia Thoroughbred Breeders Association.
(Incorporated by reference to the Company's Form 10-K, dated March 27,
1997.)
10.60Agreement between PNGI Charles Town Gaming Limited Liability Company and
The West Virginia Union of Mutuel Clerks, Local 533, Service Employees
International Union, AFL-CIO. (Incorporated by reference to the Company's
Form 10-K, File #0-24206, dated March 27, 1997.)
10.66Fourth Amendment Waiver and Consent dated as of October 20, 1997, among
Penn National Gaming, Inc., Bankers Trust, as Agent, CoreStates Bank, N.A.
as Co-Agent and certain banks party to the Credit Agreement dated as of
November 17, 1996. (Incorporated by reference to the Company's Form 10-Q,
dated November 14, 1997.)
61
10.67Agreement dated October 2, 1996 between Pennsylvania National Turf Club,
Inc., Mountainview Racing Association and Sports Arena Employees' Union
Local No. 137 (Primary Location.) (Incorporated by reference to the
Company's Form 10-K, dated March 27, 1998.)
10.68Lease dated July 1, 1997 between Laurel Mall Associated and the Downs
Off-Track Wagering, Inc. (Incorporated by reference to the Company's Form
10-K, dated March 27, 1998.)
10.72Totalisator Agreement dated November 19, 1997, between Penn National
Gaming, Inc. and AutoTote Systems, Inc. (Incorporated by reference to the
Company's Form 10-K, dated March 27, 1998.)
10.73Amended and Restated Credit Facility dated as of December 17, 1997, among
Penn National Gaming, Inc., certain lenders, Bankers Trust Company, as
Agent, and CoreStates Bank, N.A., as Co-Agent. (Incorporated by reference
to the Company's Form 10-K, dated March 27, 1998.)
10.74Waiver dated March 25, 1998, between Penn National Gaming, Inc., certain
lenders, Bankers Trust Company as Agent, and CoreStates Bank, N.A., as
Co-Agent. (Incorporated by reference to the Company's Form 10-K, dated
March 27, 1998.)
10.76First Amendment and Waiver dated May 15, 1998, among Penn National Gaming,
Inc., CoreStates Bank, N.A. and Bankers Trust Company. (Incorporated by
reference to the Company's Form 10-Q, dated March 31, 1998.)
10.77Purchase Agreement dated July 7, 1998, between Ladbroke Racing Management
- Pennsylvania and Mountainview Thoroughbred Racing Association.
(Incorporated by reference to the Company's Form 10-Q, dated June 30,
1998.)
10.78Lease Agreement between Penn National Gaming, Inc. and Eagle Valley Realty
dated July 14, 1998. (Incorporated by reference to the Company's Form 10-Q,
dated September 30, 1998.)
10.79Joint Venture Agreement dated October 30, 1998 between Penn National
Gaming, Inc. and Greenwood New Jersey, Inc. (Incorporated by reference to
the Company's Form 10-Q, dated September 30, 1998.)
10.80Amendment dated November 2, 1998 to Joint Venture Agreement between Penn
National Gaming, Inc. and Greenwood New Jersey, Inc. (Incorporated by
reference to the Company's Form 10-Q, dated September 30, 1998.)
10.82First Amendment to Asset Purchase Agreement dated as of January 28, 1999 by
and among Greenwood New Jersey, Inc., International Thoroughbred Breeders,
Inc., Garden State Race Track, Inc., Freehold Racing Association, Atlantic
City Harness Inc., Circa 1850, Inc., and Penn National Gaming, Inc.
(Incorporated by reference to the Company's current report on Form 8-K,
dated January 28, 1999.)
10.83First Amendment to Joint Venture Agreement dated as of January 28, 1999, by
and between Greenwood New Jersey, Inc. and Penn National Gaming, Inc.
(Incorporated by reference to the Company's current report on Form 8-K,
dated January 28, 1999.)
10.85Assignment and Assumption of Lease Agreement dated December 31, 1998
between Mountainview Thoroughbred Racing Association and Ladbroke Racing
Management-Pennsylvania. (Incorporated by reference to the Company's Form
10K, dated March 30, 1999.)
10.86Subordination, Non-Disturbance and Attornment Agreement dated December 31,
1998 between Mountainview Thoroughbred Racing Association and CRIIMI MAE
Services Limited Partnership. (Incorporated by reference to the Company's
Form 10-K, dated March 30, 1999.)
10.87Second Amended and Restated Credit Agreement dated as of January 28, 1999
between Penn National Gaming, Inc. and various banks, First Union National
Bank, as Agent. (Incorporated by reference to the Company's Form 10-K,
dated March 30, 1999.)
10.88Live Racing Agreement dated March 23, 1999 between Pennsylvania National
Turf Club, Inc. and Mountainview Thoroughbred Racing Association and
Pennsylvania Horsemen's Benevolent and Protection Association, Inc.
(Incorporated by reference to the Company's Form 10-K, dated March 30,
1999.)
62
10.89Amendment to Employment Agreement dated June 1, 1999, between Penn National
Gaming, Inc. and Peter M.Carlino. (Incorporated by reference to the
Company's Form 10-Q, dated August 12, 1999.)
10.90Amendment to Employment Agreement dated June 1, 1999, between Penn National
Gaming, Inc. and Robert S. Ippolito. (Incorporated by reference to the
Company's Form 10-Q, dated August 12, 1999.)
10.91Second Amendment to Joint Venture Agreement dated as of July 29, 1999,
between Penn National Gaming, Inc. and Greenwood Racing, Inc. (Incorporated
by reference to the Company's Form 10-Q, dated August 12, 1999.)
10.92Shareholder'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, dated August 12, 1999.)
10.93Amended 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, dated August
12, 1999.)
10.94Amended 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, dated
August 12, 1999.)
10.95Amended 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, dated August
12, 1999.)
10.96Amended 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, dated
August 12, 1999.)
10.97Amendment No. 1 to Second Amended and Restated Credit Agreement dated July
29, 1999, between Penn National Gaming, Inc. and First Union National Bank.
(Incorporated by reference to the Company's Form 10-Q, dated August 12,
1999.)
10.98Amendment No. 2 to Second Amended and Restated Credit Agreement dated July
29, 1999, Penn National Gaming, Inc. and First Union National Bank.
(Incorporated by reference to the Company's Form 10-Q, dated August 12,
1999.)
10.99Agreement dated July 9, 1999, between Penn National Gaming, Inc. and
American Digital Communications, Inc. (Portions of this Exhibit have been
omitted pursuant to a request for confidential treatment.) (Incorporated by
reference to the Company's Form 10-Q, dated August 12, 1999.)
10.01a Subordination and Intercreditor Agreement dated July 29, 1999, between
Penn National Gaming, Inc., FR Park Racing, L.P., and Commerce Bank, N.A.
(Incorporated by reference to the Company's Form 10-Q, dated August 12,
1999.)
10.02a Debt Service Maintenance Agreement dated July 29, 1999, between Penn
National Gaming, Inc. and Commerce Bank, N.A. (Incorporated by reference to
the Company's Form 10-Q, dated August 12, 1999.)
10.03a First Supplemental Indenture dated May 19, 1999, between Penn National
Gaming, Inc. and State Street Bank and Trust Company, Trustee.
(Incorporated by reference to the Company's Form 10-Q, dated August 12,
1999.)
10.04a Asset Purchase Agreement between BSL., Inc. and Casino Magic Corp. dated
December 9, 1999. (Filed as exhibit 99.2 to the Company's current report on
Form 8-K, dated December 17, 1999.)
10.05a Guaranty of Penn National Gaming, Inc. to Casino Magic Corp. dated
December 9, 1999 (Filed as exhibit 99.3 to the Company's current report on
Form 8-K, dated December 17, 1999.)
63
10.06a Guaranty of Hollywood Park, Inc. to BSL, Inc. dated December 9, 1999.
(Filed as exhibit 99.4 to the Company's current report on Form 8-K, dated
December 17, 1999.)
10.07a First Amendment to Asset Purchase Agreement between BSL, Inc. and Casino
Magic Corp. dated December 17, 1999. (Filed as exhibit 99.5 to the
Company's current report on Form 8-K, dated December 17, 1999.)
10.08a Asset Purchase Agreement between BTN, Inc. and Boomtown, Inc. dated
December 9, 1999 (Filed as exhibit 99.6 to the Company's current report on
Form 8-K, dated December 17, 1999.)
10.09a Guaranty of Penn National Gaming, Inc. to Boomtown, Inc. dated December
9, 1999 (Filed as exhibit 99.7 to the Company's current report on Form 8-K,
dated December 17, 1999.)
10.10a Guaranty of Hollywood Park, Inc. to BTN, Inc. dated December 9, 1999.
(Filed as exhibit 99.8 to the Company's current report on Form 8-K, dated
December 17, 1999.)
10.11a First Amendment to Asset Purchase Agreement between BTN, Inc. and
Boomtown, inc. dated December 17, 1999. (Filed as exhibit 99.9 to the
Company's current report on Form 8-K, dated December 17, 1999.)
10.12a Senior secured multiple draw term loan dated December 13, 1999 between
Penn National Gaming of West Virginia, Inc. and Bank of America.
10.13a Amendment No. 3 and Consent and Waiver under Second Amended and Restated
Credit Agreement dated December 13, 1999 between Penn National Gaming, Inc.
and First Union National Bank, as Agent.
10.14a Harness horsemen agreement dated December 17, 1999 between The Downs
Racing, Inc. and the Pennsylvania Harness Horsemen.
10.15a Settlement agreement dated February 11, 2000 between Penn National
Gaming, Inc. and Amtote International, Inc.
10.16a Thoroughbred horsemen letter dated February 24, 2000 between PNGI Charles
Town Gaming, LLC and the Charles Town thoroughbred horsemen.
10.17a Agreement dated March 7, 2000 between Penn National Gaming, Inc. and
Trackpower, Inc. and eBet Limited, Inc.
21 Subsidiaries of the Registrant.
27.1 Financial Data Schedule.
(B) Reports on Form 8-K
The Company filed the following reports on Form 8K during the fourth
quarter 1999:
On December 10, 1999, the Company filed a current report on Form 8K which
reflected the definitive agreement to purchase all of the assets of Casino Magic
hotel, etc.
64
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By /s/Peter M. Carlino
Peter M. Carlino, Chairman of the Board
Dated: March 20, 2000
Pursuant to the requirements of the Securities Act of 1934 this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
Chief Executive Officer and
Director (Principal Executive
/s/Peter M. Carlino Officer) March 20, 2000
- --------------------------------------
Peter M. Carlino
Chief Operating Officer and
Director (Principal Operating
/s/William J. Bork Officer) March 20, 2000
- --------------------------------------
William J. Bork
Chief Financial Officer
/s/Robert S. Ippolito (Principal Financial Officer) March 20, 2000
- --------------------------------------
Robert S. Ippolito
/s/Harold Cramer Director March 20, 2000
- --------------------------------------
Harold Cramer
/s/David A. Handler Director March 20, 2000
- --------------------------------------
David A. Handler
/s/Robert P. Levy Director March 20, 2000
- --------------------------------------
Robert P. Levy
/s/ John M. Jacquemin Director March 20, 2000
- --------------------------------------
John M. Jacquemin
65
EXHIBIT INDEX
Exhibit Nos. Description of Exhibits Page No.
- ------- ------------------------------ -- -------- --------
10.04a Senior secured multiple draw term loan dated December
13, 1999 between Penn National Gaming of West
Virginia, Inc. and Bank of America. 67-186
10.13a Amendment No. 3 and Consent and Waiver under Second Amended 187-196
and Restated Credit Agreement dated December 13, 1999 between
Penn National Gaming, Inc. and First Union National Bank, as Agent.
10.05a Harness horsemen agreement dated December 17, 1999 between 197-205
The Downs Racing, Inc. and the Pennsylvania Harness Horsemen.
10.06a Settlement agreement dated February 11, 2000 between Penn National 206-208
Gaming, Inc. and Amtote International, Inc.
10.07a Thoroughbred horsemen letter dated February 24, 2000
between PNGI 209 Charles Town Gaming, LLC and the
Charles Town thoroughbred horsemen.
10.08a Agreement dated March 7, 2000 between Penn National Gaming, Inc. 210-218
and Trackpower, Inc. and eBet Limited, Inc.
66