SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2001
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 0-24206
PENN NATIONAL GAMING, INC.
---------------------------
(Exact name of Registrant as specified in its charter)
PENNSYLVANIA 23-2234473
------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Penn National Gaming, Inc.
825 Berkshire Blvd., Suite 200
Wyomissing, PA 19610
---------------------------
(Address of principal executive offices)
610-373-2400
---------------------------
(Registrant's telephone number including area code:)
Not Applicable
---------------------------
(Former name, former address, and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes ____ No ____
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Title Outstanding as of May 10, 2001
Common Stock par value .01 per share 15,099,100
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 REGARDING THE COMPANY'S OPERATIONS,
FINANCIAL POSITION AND BUSINESS STRATEGY MAY CONSTITUTE FORWARD-LOOKING
TERMINOLOGY. THESE STATEMENTS MAY BE IDENTIFIABLE BY WORDS 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 AND,
THEREFORE, YOU SHOULD NOT RELY ON ANY SUCH FORWARD-LOOKING STATEMENTS.
IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THE COMPANY'S EXPECTATIONS ("CAUTIONARY 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. THE COMPANY DOES
NOT INTEND (AND IS NOT OBLIGATED) TO UPDATE PUBLICLY ANY FORWARD-LOOKING
STATEMENTS. THIS DISCUSSION IS PERMITTED BY THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995.
2
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION PAGE
ITEM 1 - FINANCIAL STATEMENTS
Consolidated Balance Sheets -
March 31, 2001 (unaudited) and December 31, 2000 4-5
Consolidated Statements of Income -
Three Months Ended March 31, 2001
and 2000 (unaudited) 6
Consolidated Statement of Shareholders' Equity -
Three Months Ended March 31, 2001 (unaudited) 7
Consolidated Statements of Cash Flow -
Three Months Ended March 31, 2001
and 2000 (unaudited) 8
Notes to Consolidated Financial Statements 9-11
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 12-15
ITEM 3 - CHANGES IN INFORMATION ABOUT MARKET RISK 16
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 17
Signature Page 18
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PENN NATIONAL GAMING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
March 31, December 31,
2001 2000
(UNAUDITED)
----------- ------------
ASSETS
Current assets
Cash and cash equivalents $ 29,045 $ 23,287
Accounts receivable 9,874 10,341
Prepaid expenses and other current assets 6,020 5,312
Prepaid income taxes 442 1,905
-------- --------
TOTAL CURRENT ASSETS 45,381 40,845
-------- --------
Property, plant and equipment, at cost
Land and improvements 81,483 81,177
Building and improvements 143,882 142,753
Furniture, fixtures and equipment 81,146 79,606
Transportation equipment 1,015 1,015
Leasehold improvements 11,715 11,704
Construction in progress 3,638 3,643
-------- --------
322,879 319,898
Less accumulated depreciation and amortization 37,173 31,582
-------- --------
NET PROPERTY, PLANT AND EQUIPMENT 285,706 288,316
-------- --------
Other assets
Investment in and advances to unconsolidated affiliate 14,577 14,584
Cash in escrow 199,483 5,107
Excess of cost over fair market value of net assets acquired
(net of accumulated amortization of $4,367 and $3,858, respectively) 77,653 78,161
Deferred financing costs,net 15,328 9,585
Miscellaneous 3,660 3,302
-------- --------
TOTAL OTHER ASSETS 310,701 110,739
-------- --------
$641,788 $439,900
======== ========
See accompanying notes to consolidated financial statement
4
PENN NATIONAL GAMING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
March 31, December 31,
2001 2000
(UNAUDITED)
----------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 12,327 $ 11,390
Accounts payable 11,160 18,436
Purses due horsemen 3,412 2,262
Uncashed pari-mutuel tickets 1,693 1,393
Accrued expenses 16,746 12,159
Customer deposits 922 834
Taxes, other than income taxes 2,881 2,816
-------- --------
TOTAL CURRENT LIABILITIES 49,141 49,290
-------- --------
Long term liabilities
Long-term debt
net of current maturities 496,597 297,909
Deferred income taxes 14,530 13,480
-------- --------
TOTAL LONG-TERM LIABILITIES 511,127 311,389
-------- --------
Commitments and contingencies
Shareholders' equity
Preferred stock,$.01 par value, authorized 1,000,000 shares;
No shares issued
Common stock,$.01 par value, authorized 20,000,000 shares;
shares issued and outstanding 15,478,300 and 15,459,175, respectively 155 155
Treasury stock, at cost 424,700 shares (2,379) (2,379)
Additional paid in capital 39,593 39,482
Retained earnings 46,579 41,963
Other Comprehensive income (2,428) -
-------- --------
TOTAL SHAREHOLDERS' EQUITY 81,520 79,221
-------- --------
$641,788 $439,900
======== ========
See accompanying notes to consolidated financial statements
5
PENN NATIONAL GAMING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
(UNAUDITED)
Three Months Ended
March 31,
2001 2000
------------------------------------
REVENUE
Gaming $ 70,609 $ 22,324
Racing 27,123 26,967
Other Revenue 8,497 3,420
-------- --------
TOTAL REVENUES 106,229 52,711
-------- --------
OPERATING EXPENSES
Gaming 39,069 13,479
Racing 18,474 18,131
Other 7,228 2,813
General and administrative 19,145 8,263
Depreciation and amortization 6,935 2,176
-------- --------
TOTAL OPERATING EXPENSES 90,851 44,862
-------- --------
INCOME FROM OPERATIONS 15,378 7,849
-------- --------
Other income (expenses)
Interest expense (8,598) (2,382)
Interest income 1,006 296
Other (559) -
-------- --------
TOTAL OTHER EXPENSES (8,151) (2,086)
-------- --------
INCOME BEFORE TAXES 7,227 5,763
Taxes on income 2,611 2,141
-------- --------
Net Income $ 4,616 $ 3,622
======== =======
Per share data
Basic $ .31 $ .24
-------- --------
Diluted $ .30 $ .24
-------- --------
Weighted shares outstanding
Basic 15,044 14,898
Diluted 15,524 15,212
6
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
COMMON STOCK ADDITIONAL OTHER
------------ TREASURY PAID-IN RETAINED COMPREHENSIVE
SHARES AMOUNTS STOCK CAPITAL EARNINGS INCOME TOTAL
------- ------- ------- -------- -------- -------- -----
Balance, January 1, 2001 15,459,175 $155 $(2,379) $39,482 $41,963 $ - $79,221
Issuance of common stock 19,125 - - 111 - - 111
Comprehensive Income:
Net income for the three months
Ended March 31, 2001 - - - - 4,616 4,616
Fair Market Value of Swap
Agreement - - - - - (2,428) (2,428)
----------------------------------------------------------------------------------------------
Total comprehensive income - - - - 4,616 (2,428) 2,188
----------------------------------------------------------------------------------------------
Balance, March 31, 2001 15,478,300 $155 $(2,379) $39,593 $46,579 $(2,428) $81,520
==============================================================================================
See accompanying notes to consolidated financial statements
7
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Three Months Ended
March 31,
2001 2000
------------------------------------
Cash flows from operating activities
Net income $ 4,616 $ 3,619
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 6,935 2,176
Income (loss) from unconsolidated affiliates 7 (587)
Loss on sale of net assets 570 -
Deferred income taxes 1,050 176
Decrease (increase) in:
Accounts receivable 467 369
Prepaid expenses and other current assets (708) (498)
Prepaid income taxes 1,463 1,088
Miscellaneous other assets (361) 25
Increase (decrease) in:
Accounts payable (7,276) (4,865)
Purses due horsemen 1,150 1,487
Uncashed pari-mutuel tickets 300 290
Accrued expenses 2,159 492
Customers deposits 88 146
Taxes, other than income taxes 65 698
Income taxes - 845
--------- -------
Net cash provided by operating activities 10,525 5,461
--------- -------
Cash flows from investing activities
Expenditures for property, plant and equipment (4,015) (1,851)
Proceeds from sale of property and equipment 98 -
Increase in cash in escrow (194,376) -
Minority interest purchase - (5,845)
--------- -------
Net cash used in investing activities (198,293) (7,696)
--------- -------
Cash flows from financing activities
Proceeds from exercise of stock options 111 70
Proceeds of long-term debt 202,000 4,247
Principal payments on long-term debt (2,375) (8)
Increase in unamortized financing costs (6,210) (78)
--------- -------
Net cash provided by financing activities 193,526 4,231
--------- -------
Net increase in cash and cash equivalents 5,758 1,996
Cash and cash equivalents, at beginning of period 23,287 9,434
--------- -------
Cash and cash equivalents, at end of period $ 29,045 $11,430
========= =======
See accompanying notes to consolidated financial statements
8
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements are unaudited and include the
accounts of Penn National Gaming, Inc., (Penn) and its wholly owned
subsidiaries, (collectively the "Company"). All significant intercompany
accounts and transactions have been eliminated in consolidation. Certain prior
year amounts have been reclassified to conform to current year presentation.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) have been made which are necessary to present fairly the
financial position of the Company as of March 31, 2001 and the results of its
operations for the three month periods ended March 31, 2001 and 2000. The
results of operations experienced for the three month period ended March 31,
2001 are not necessarily indicative of the results to be experienced for the
fiscal year ended December 31, 2001.
The statements and related notes have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission. Accordingly, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted pursuant to such rules and regulations. The accompanying notes should
therefore be read in conjunction with the Company's December 31, 2000 annual
financial statements.
2. INTEREST RATE SWAPS
Financial Accounting Standards Board ("FASB") Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities," and Statement
No. 138, "Accounting for Derivative Instruments and Hedging Activities - an
amendment of FASB 133," are effective for fiscal years beginning after June 15,
2000 - fiscal year 2001 for the Company. The Company has conducted evaluations
of hedging policies and strategies for existing and anticipated future
derivative transactions. Adoption of these statements as of January 1, 2001 did
not have a significant effect on the Company's financial statements other than
recognition of derivative assets and liabilities on the balance sheet with
market value adjustments recognized in other comprehensive income.
3. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the three months ended March 31, 2001 and 2000 for
interest was $5,604,000 and $422,000 respectively.
Cash paid during the three months ended March 31, 2001 and 2000 for
income taxes was $21,000 and $29,800 respectively.
4. SEGMENT INFORMATION
The Company has adopted SFAS No. 131 "Disclosures About Segments of an
Enterprise and Related Information." The Company has determined that it
currently operates in the two segments: (1) gaming and (2) racing.
9
The accounting policies of the segments are the same as those described
in the "Summary of Significant Accounting Policies" for the year ended December
31, 2000. The Company and the gaming industry use EBITDA as a means to evaluate
performance. EBITDA should not be considered as an alternative to, or more
meaningful than, net income (as determined in accordance with accounting
principles generally accepted in the United States) as a measure of operating
results or cash flows (as determined in accordance with accounting principles
generally accepted in the United States) or as a measure of the Company's
limitations.
The table below presents information about reported segments:
REVENUES
THREE MONTHS ENDED MARCH 31, 2001 2000
----------------------------- --------- ---------
(in thousands)
Gaming(1)..................................................... $ 81,230 $ 28,183
Racing........................................................ 25,049 24,850
Eliminations(2)............................................... (50) (322)
--------- ---------
Total......................................................... $ 106,229 $ 52,711
========= =========
EBITDA
THREE MONTHS ENDED MARCH 31, 2001 2000
----------------------------- --------- ---------
(in thousands)
Gaming(1).................................................... $ 17,330 $ 5,083
Racing....................................................... 4,983 4,942
--------- ---------
Total........................................................ $ 22,313 $ 10,025
========= =========
TOTAL ASSESTS
------------- MARCH 31, DECEMBER 31,
AS OF 2001 2000
----- -------- ------------
(in thousands)
Gaming(1).................................................... $ 873,722 $ 671,655
Racing....................................................... 93,348 91,756
Eliminations(2).............................................. (325,282) (323,511)
--------- ---------
Total........................................................ $ 641,788 $ 439,900
========= =========
(1) Reflects results of the Mississippi properties since the August 8,
2000 acquisition from Pinnacle Entertainment.
(2) Primarily reflects intracompany transactions related to import/export
simulcasting.
5. SENIOR SUBORDINATED NOTES
On March 12, 2001, the Company completed an offering of $200,000,000
of its 11 1/8% Senior Subordinated Notes due 2008. Interest on the notes is
payable on March 1 and September 1 of each year, beginning September 1, 2001.
These notes will mature on March 1, 2008.
The Company may redeem all or part of the notes on or after March 1,
2005 at certain specified redemption prices. Prior to March 1, 2004, the
Company may redeem up to 35% of the notes from proceeds of certain sales of
its equity securities. The notes also are subject to redemption requirements
imposed by state and local gaming laws and regulations.
10
The notes are general unsecured obligations and are guaranteed on a
senior subordinated basis by all of the Company's current and future wholly
owned domestic subsidiaries. The notes rank equally with the Company's future
senior subordinated debt and junior to its senior debt, including debt under
the Company's senior credit facility. In addition, the notes will be
effectively junior to any indebtedness of our non-U.S. or unrestricted
subsidiaries, none of which guarantee the notes.
The Company and the subsidiary guarantors have agreed to file a
registration statement or, under certain circumstances, a shelf registration
statement with the United States Securities and Exchange Commission relating
to an offer to exchange the notes and guarantees for publicly tradable notes
and guarantees having substantially identical terms. The notes are designated
for trading in the Private Offering, Resales and Trading Automatic Linkages
(PORTAL) Market.
The proceeds from these notes were used to finance the CRC acquisition
that was completed on April 27, 2001.
6. SUBSEQUENT EVENTS
CRC ACQUISITION
On April 27, 2001, the Company completed its previously announced
acquisitions of (i) CRC Holdings, Inc. ("CRC") from the shareholders of CRC
and (ii) the minority interest in Louisiana Casino Cruises, Inc.("LCCI") not
owned by CRC from Dan S. Meadows, Thomas L. Meehan and Jerry L. Bayles
(together, the "Acquisition"). The Acquisition was accomplished pursuant to
the terms of Agreement and Plan of Merger among CRC Holdings, Inc., Penn
National Gaming, Inc., Casino Holdings, Inc. and certain shareholders of CRC
Holdings, Inc., dated as of July 31, 2000 (the "Merger Agreement"), and a
Stock Purchase Agreement by and among Penn National Gaming, Inc., Dan S.
Meadows, Thomas L. Meehan and Jerry L. Bayles, dated as of July 31, 2000.
Under the Merger Agreement, CRC merged with Casino Holdings, Inc., a
wholly-owned subsidiary of the Company (the "Merger"). The terms of each of
the agreements were the result of arm's length negotiations among the
parties. The aggregate consideration paid by the Company for the Acquisition
was approximately $160 million, including the repayment of existing debt at
CRC or its subsidiaries. The purchase price of the Acquisition was funded by
the proceeds of the Company's offering of senior subordinated notes, which
was completed in March 2001.
The assets acquired pursuant to the Merger and Acquisition consist
primarily of the Casino Rouge riverboat gaming facility in Baton Rouge,
Louisiana, and a management contract for Casino Rama, a gaming facility located
in Orillia, Canada.
LCCI NOTES TENDER OFFER
On February 20, 2001, the Company commenced a cash tender offer to
purchase all of the LCCI 11% Senior Secured Notes due 2005 (the "LCCI Notes")
and a related consent solicitation to eliminate certain restrictive covenants
and related provisions in the indenture pursuant to which the LCCI Notes were
issued. The tender offer was completed on April 27, 2001 in conjunction with the
completion of the Acquisition. The total consideration for each $1,000 principal
amount of notes tendered was $1,146.90, plus accrued and unpaid interest up to
but not including, the payment date, which includes a consent payment of $30 per
$1,000 principal amount of notes. Payment for the notes and consent payments
were made on April 30, 2001.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
We derive substantially all of our revenues from gaming and pari-mutuel
operations. Revenues from our gaming machines at the Charles Town Entertainment
Complex and Mississippi properties have accounted for an increasingly larger
share of our total revenues. Our pari-mutuel revenues have been derived from
wagering on our live races, wagering on import simulcasts at our racetracks and
OTWs and through telephone account wagering, and fees from wagering on export
simulcasting our races at out-of-state locations. Our other revenues have been
derived from admissions, program sales, food and beverage sales, concessions and
certain other ancillary activities.
On a prospective basis, our acquisition of the Mississippi properties
and the consummation of the CRC acquisition on April 27, 2001 will impact
further our revenue mix between gaming and pari-mutuel revenues. We expect that
in future periods gaming revenue as a percentage of our total revenues will
continue to increase as we continue to focus on our gaming operations. For the
three months ended March 31, 2000 and 2001, gaming revenue represented
approximately 53% and 76% of our total revenue, respectively.
RESULTS OF OPERATIONS
The results of operations by property level for the three months ended
March 31, 2001 and 2000 are summarized below:
REVENUES EBITDA (1)
-------- ----------
2001 2000 2001 2000
------- -------- --------- --------
Charles Town Entertainment Complex............ $ 41,116 $28,183 $10,999 $ 6,713
Casino Magic Bay St. Louis(2)................. 22,221 - 5,098 -
Boomtown Biloxi(2)............................ 17,893 - 3,585 -
Penn National Race Course and its OTWs........ 15,279 16,272 2,302 2,765
Pocono Downs and its OTWs..................... 8,700 7,991 1,613 1,590
Pennwood Racing, Inc.......................... 1,070 587 1,070 587
Corporate eliminations(3)..................... (50) (322) - -
Corporate operations.......................... - - (2,354) (1,630)
-----------------------------------------------------
Total $106,229 $52,711 $22.313 $10,025
======== ======= ======= =======
(1) Reflects property level EBITDA and excludes non-recurring changes
(2) Reflects results of the Mississippi properties since the August 8,
2000 acquisition from Pinnacle Entertainment.
(3) Primarily reflects intracompany transactions related to import/export
simulcasting.
12
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000
Revenues for the three months ended March 31, 2001 increased 101.5% to
$106.2 million from $52.7 million for the three months ended March 31, 2000.
EBITDA rose 125.6% to $22.6 million from $10.0 million for the three months
ended March 31, 2000. Income before taxes in 2001 was $7.8 million compared to
$5.8 million in 2000.
CHARLES TOWN ENTERTAINMENT COMPLEX
Revenues increased at Charles Town by approximately $12.9 million or
45.9% to $41.1 million in 2001 from $28.2 million in 2000. Gaming revenue
increased by $12.5 million, or 56.2%, to $34.9 million in 2001 from $22.3
million in 2000, primarily due to additional machines and higher win per machine
in 2001. The average number of machines in play increased to 1,640 in 2001 from
1,449 in 2000; the average win per machine increased to $234 in 2001 from $170
in 2000, primarily as a result of a higher percentage of reel spinning, coin-out
gaming machines in 2001, which tend to yield average wins higher then video
lottery machines. Racing revenue increased by $.1 million, or 2.1% to $4.8
million in 2001 from $4.7 million in 2000. The live meet consisted of 44 race
days in 2001 compared to 45 race days in 2000. Operating expenses increased by
$8.6 million, or 40.3%, to $30.1 million in 2001 from $21.5 million in 2000. The
increase was due to an increase in direct costs associated with the addition of
gaming machines and floor space (specifically, the opening of the OK Corral slot
center), and expanded concession and dining capability and capacity (the opening
of the Sundance Cafe). EBITDA attributable to Charles Town increased by $4.3
million, or 63.9%, to $11.0 million in 2001 from $6.7 million in 2000.
MISSISSIPPI CASINOS
The Casino Magic Bay St Louis and Boomtown Biloxi acquisitions were
completed on August 8, 2000. For the three months ended March 31, 2001, these
two casinos had combined revenues of $40.1 million, and EBITDA of $8.7 million.
PENN NATIONAL RACE COURSE AND ITS OTW FACILITIES
Penn National Race Course had a decrease in revenue of approximately
$1.0 million, or 6.1%, to $15.3 million in 2001 from $16.3 million in 2000.
Pari-mutuel wagering was $104.1 million in 2001 compared to $103.4 million in
2000. The increase in wagering is attributed to Penn National Race Course
running 50 live race days in 2001 compared to 48 live races days in 2000 offset
by slightly lower wagering levels per race day. The decrease in revenue is
attributed to a change in the percent of wagering between full card, common
pool, and live racing. Operating expenses decreased by approximately $.5
million, or 3.9%, to $13.0 million in 2001 from $13.5 million in 2000. EBITDA
attributable to these properties decreased by $.5 million, or 16.7%, to $2.3
million in 2001 from $2.8 million in 2000.
POCONO DOWNS AND ITS OTW FACILITIES
Revenues at Pocono Downs increased by $.7 million, or 8.9%, to $8.7
million in 2001 from $8.0 million in 2000. Pari-mutuel wagering was $38.8
million in 2001 compared to $34.8 million in 2000. Expenses increased by
approximately $.7 million, or 10.7%, to $7.1 million in 2001 from $6.4 million
in 2000. In 2001, the Company had additional revenue and expenses
13
from the operation of the East Stroudsburg OTW (opened July 2000) and the
running of its live meet (8 race days) in March. In 2000, the live meet did not
occur until April. EBITDA was approximately $1.6 million in each of 2001 and
2000.
NEW JERSEY JOINT VENTURE
The Company has an investment in Pennwood Racing, Inc., which
operates Freehold Raceway and Garden State Park. Revenues of the joint
venture increased by $.1 million to $15.2 million in 2001 from $15.1 million
in 2000. Net income increased by $1.0 million to $2.2 million in 2001
compared to $1.2 million in 2000 primarily due to the decrease in expenses
associated with running no live race days in 2001 compared to eight live race
days in 2000 at Garden State Park. Our 50% share of net income was $1.1
million in 2001 compared to $.6 million in 2000 and was recorded as other
income on the income statement.
LIQUIDITY AND CAPITAL RESOURCES
Historically, our primary sources of liquidity and capital resources
have been cash flow from operations, borrowings from banks and proceeds from the
issuance of equity securities.
Net cash provided by operating activities was $10.5 million for the
period ended March 31, 2001. This consisted of net income and non-cash items
($12.1 million), an increase in deferred income taxes ($1.0 million), and a
decrease in current assets ($.1 million) and current liabilities ($2.5 million)
related to the normal course of business.
Cash flows from investing totaled $198.3 million for the period
ended March 31, 2001. Expenditures for property, plant, and equipment totaled
$4.0 million and included new hotel planning and design at Casino Magic ($0.4
million), new gaming equipment at Casino Magic (0.7 million) new gaming
equipment and slot system at Boomtown ($0.4 million), land and building
acquisitions at Charles Town ($0.4 million), the OK Corral slot center at
Charles Town ($.5 million), other small projects ($0.1 million) and
maintenance capital expenditures ($2.0 million). Proceeds from the issuance
of $200.0 million, in 11 1/8% senior subordinated notes ($194.3 million),
were placed in escrow until the closing of the CRC acquisition on April 27,
2001.
Cash flows from financing activities provided net cash flow of $193.5
million for the period ended March 31, 2001. Aggregate proceeds from the
issuance of notes were $200.0 million, a portion of which were used to pay
financing costs associated with the issuance ($6.2 million). Principal payments
on long-term debt under our existing credit facility, net of additional
borrowings on the revolving line of credit, were $0.3 million.
14
CAPITAL EXPENDITURES
The following table summarizes our planned capital expenditures,
other than maintenance capital expenditures, by property level, for 2001:
BUDGET EXPENDITURES BALANCE
PROPERTY 2001 THRU 3/31/01 TO EXPEND
- -------- ------ ------------ ---------
Charles Town Entertainment Complex $ 9,200 $ 989 $ 8,211
Casino Magic Bay St. Louis 18,500 402 18,098
Boomtown Biloxi 2,000 447 1,553
Casino Rouge 2,000 - 2,000
Pennsylvania Racetracks and OTW's 800 101 699
---------- ---------- ----------
Total $32,500 $1,939 $30,561
========== ========== ==========
SENIOR SUBORDINATED NOTES
On March 12, 2001, we completed through a private placement, the
sale of $200 million in aggregate principal amount of 11 1/8% of Senior
Subordinated Notes due March 1, 2008 the proceeds of the notes were used, in
part, to complete the acquisition of CRC Holding, Inc. and the minority
interest in Louisiana Casino Cruises, Inc. (LCCI) not owned by CRC. The
Senior Subordinated Notes rank equally with our other senior indebtedness and
junior to our senior debt, including debt under our senior secured credit
facility. The Senior Subordinated Notes are guaranteed by all of our current
and future wholly owned domestic subsidiaries. It is anticipated that we
subsequently will file a registration statement under the Securities Act of
1933 to effect an exchange offer of registered Senior Subordinated Notes.
OUTLOOK
Based on our current level of operations, and anticipated revenue
growth, we believe that cash generated from operations and amounts available
under our credit facility will be adequate to meet our anticipated debt service
requirements, capital expenditures and working capital needs for the foreseeable
future. We cannot assure you, however, that our business will generate
sufficient cash flow from operations, that our anticipated revenue growth will
be realized, or that future borrowings will be available under our credit
facility or otherwise will be available to enable us to service our
indebtedness, including the credit facility and the notes, to retire or redeem
the notes when required or to make anticipated capital expenditures. In
addition, if we consummate significant acquisitions in the future, our cash
requirements may increase significantly. We may need to refinance all or a
portion of our debt on or before maturity. Our future operating performance and
our ability to service or refinance our debt will be subject to future economic
conditions and to financial, business and other factors, many of which are
beyond our control.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
On December 20, 2000, we entered into an interest rate swap
agreement with a financial institution in the notional amount of $100 million.
The interest rate swap agreement hedges our exposure on our outstanding floating
rate obligations, which were $308,875,000 at March 31, 2001. The purpose of the
interest rate swap is to convert a portion of our floating rate interest
obligations to obligations having a fixed rate of 5.835% plus an applicable
margin up to 4.00% per annum through December 20, 2003. The fixing of interest
rates reduces in part our exposure to the uncertainty of floating interest
rates. The differentials paid or received by us on the interest rate swap
agreement is recognized as adjustments to interest expense in the period
incurred. For the three months ended March 31, 2001, we reduced interest expense
by approximately $124,000 as a result of the interest rate swap agreement. We
are exposed to credit loss in the event of nonperformance by our counter party
to the interest rate swap agreement. We do not anticipate nonperformance by such
financial institution, and no material loss would be expected from the
nonperformance by such financial institution. Our interest rate swap agreement
expires in December 2003.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4.1* Indenture dated as of March 12, 2001 by and among Penn
National Gaming, Inc., certain guarantors and State Street
Bank and Trust Company relating to the Series A and Series
B 11 1/8% Senior Subordinated Notes due 2008.
10.22a* Amendment No. 1 dated as of October 4, 2000 to Credit
Agreement among Penn National Gaming, Inc., as Borrower,
the Lenders under the Credit Agreement, Lehman Commercial
Paper Inc., as syndication agent for the Lenders, and
Canadian Imperial Bank of Commerce, as administrative
agent for the Lenders.
10.23a* Amendment No. 2 dated as of April 5, 2001 to Credit
Agreement among PennNational Gaming, Inc., as Borrower, the
Lenders under the Credit Agreement, Lehman Commercial Paper
Inc., as syndication agent for the Lenders, and Canadian
Imperial Bank of Commerce, as administrative agent for the
Lenders.
10.24a* Registration Rights Agreement dated as of March 12, 2001,
by and among Penn National Gaming, Inc., certain of its
subsidiaries, and Lehman Brothers Inc. and CIBC World
Markets Corp.
------------
* Filed herewith.
(b) Reports on Form 8-K
o Current Report on Form 8-K filed on February 14, 2001 disclosing certain
information that was to be disclosed in connection with the private
placement of senior subordinated notes and filing a press release
announcing the Company's intent to pursue a private placement of $200
million of senior subordinated notes.
o Current Report on Form 8-K filed on March 2, 2001 filing a press release
announcing the sale of $200 million of senior subordinated notes.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Penn National Gaming, Inc.
MAY 15, 2001 By: /s/ ROBERT S. IPPOLITO
- ----------------- ---------------------------------------------
Date Robert S. Ippolito, Chief Financial Officer,
Secretary/Treasurer
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
4.1* Indenture dated as of March 12, 2001 by and among Penn
National Gaming, Inc., certain guarantors and State Street
Bank and Trust Company relating to the Series A and Series B
11 1/8% Senior Subordinated Notes due 2008.
10.22a* Amendment No. 1 dated as of October 4, 2000 to Credit
Agreement among Penn National Gaming, Inc., as Borrower, the
Lenders under the Credit Agreement, Lehman Commercial Paper
Inc., as syndication agent for the Lenders, and Canadian
Imperial Bank of Commerce, as administrative agent for the
Lenders.
10.23a* Amendment No. 2 dated as of April 5, 2001 to Credit
Agreement among Penn National Gaming, Inc., as Borrower, the
Lenders under the Credit Agreement, Lehman Commercial Paper
Inc., as syndication agent for the Lenders, and Canadian
Imperial Bank of Commerce, as administrative agent for the
Lenders.
10.24a* Registration Rights Agreement dated as of March 12, 2001,
by and among Penn National Gaming, Inc., certain of its
subsidiaries, and Lehman Brothers Inc. and CIBC World
Markets Corp.
- ------------
* Filed herewith.
19