FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1999
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 0-24206
Penn National Gaming, Inc.
(Exact name of Registrant as specified in its charter)
Pennsylvania 23-2234473
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Penn National Gaming, Inc.
825 Berkshire, Blvd., Suite 200
Wyomissing, PA 19610
(Address of principal executive offices) (Zip code)
610-373-2400
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Title Outstanding as of August 10, 1999
Common Stock Par value $.01 per share 14,869,021
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.
2
Penn National Gaming, Inc. And Subsidiaries
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1 - Financial Statements
Consolidated Balance Sheets -
June 30, 1999 (unaudited) and December 31, 1998 4-5
Consolidated Statements of Income -
Six Months Ended June 30, 1999
and 1998 (unaudited) 6
Consolidated Statements of Income -
Three Months Ended June 30, 1999 and
1998 (unaudited) 7
Consolidated Statement of Shareholders' Equity -
Six Months Ended June 30, 1999 (unaudited) 8
Consolidated Statements of Cash Flow -
Six Months Ended June 30, 1999
and 1998 (unaudited) 9-10
Notes to Consolidated Financial Statements 11-18
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 19-22
Item 3 - Changes in information about Market Risk 23
- -------------------------------------------------
PART II - OTHER INFORMATION 23
Item 1 - Legal Proceedings 23
- --------------------------
Item 6 - Exhibits and Reports on Form 8-K 24
- -----------------------------------------
Signature Page 25
Exhibit Index 26
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)
June 30, December 31,
1999 1998
(Unaudited)
---------------------------------------
Assets
Current assets
Cash and cash equivalents $ 10,484 $ 6,826
Accounts receivable 5,995 3,840
Prepaid expenses and other current assets 2,081 2,131
Deferred income taxes 332 458
Prepaid income tax 114 859
--------------------------------------
Total current assets 19,006 14,114
--------------------------------------
Property, plant and equipment, at cost
Land and improvements 27,500 26,969
Building and improvements 68,433 66,918
Furniture, fixtures and equipment 30,286 29,772
Transportation equipment 603 527
Leasehold improvements 9,767 9,579
Leased equipment under capitalized lease 824 824
Construction in progress 1,601 1,847
--------------------------------------
139,014 136,436
Less accumulated depreciation and amortization 19,235 15,684
--------------------------------------
Net property, plant and equipment 119,779 120,752
--------------------------------------
Other assets
Note receivable 11,250 -
Excess of cost over fair market value of net assets acquired
(net of accumulated amortization of $2,308 and $2,002,
respectively) 21,885 22,442
Deferred financing costs 2,700 2,403
Miscellaneous 1,107 1,087
--------------------------------------
Total other assets 36,942 25,932
--------------------------------------
$ 175,727 $ 160,798
======================================
See accompanying notes to consolidated financial statements.
4
PENN NATIONAL GAMING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
June 30, December31,
1999 1998
(Unaudited)
---------------------------------
Liabilities and Shareholders' Equity
Current liabilities
Current maturities of long-term debt and
capital lease obligations $ 5,158 $ 168
Accounts payable 6,575 6,217
Purses due horsemen 3,478 887
Uncashed pari-mutuel tickets 1,094 1,597
Accrued expenses 1,362 1,063
Accrued interest 413 468
Accrued salaries & wages 752 752
Customer deposits 719 548
Taxes, other than income taxes 965 503
----------------------------------
Total current liabilities 20,516 12,203
----------------------------------
Long Term Liabilities
Long-term debt and capital lease obligations,
net of current maturities 81,272 78,088
Deferred income taxes 11,917 11,471
----------------------------------
Total long-term liabilities 93,189 89,559
----------------------------------
Commitments and contingencies
Shareholders' equity
Preferred stock,$.01 par value, authorized 1,000,000 shares;
issued none - -
Common stock,$.01 par value, authorized 20,000,000 shares;
issued 15,286,021 and 15,164,080, respectively 154 152
Treasury stock, 424,700 shares at cost (2,379) (2,379)
Additional paid in capital 38,447 38,025
Retained earnings 25,800 23,238
----------------------------------
Total shareholders' equity 62,022 59,036
----------------------------------
$ 175,727 $ 160,798
===================================
See accompanying notes to consolidated financial statements.
5
PENN NATIONAL GAMING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Six Months Ended
June 30,
1999 1998
---------------------------
Revenues
Pari-mutuel revenues
Live races $ 8,283 $ 12,928
Import simulcasting 35,050 34,114
Export simulcasting 1,358 2,828
Gaming revenue 24,913 16,160
Admissions, programs and other racing revenue 2,984 2,956
Concessions revenues 5,584 4,427
----------------------------
Total revenues 78,172 73,413
----------------------------
Operating expenses
Purses, stakes, and trophies 14,098 13,946
Direct salaries, payroll taxes and employee benefits 8,720 9,263
Simulcast expenses 6,071 6,896
Pari-mutuel taxes 4,103 4,589
Lottery taxes and administration 9,904 6,302
Other direct meeting expenses 10,613 11,564
Concessions expenses 4,968 3,453
Other operating expenses 6,435 5,021
Horsemen's action expenses 1,250 -
Depreciation and amortization 4,145 2,841
----------------------------
Total operating expenses 70,307 63,875
----------------------------
Income from operations 7,865 9,538
----------------------------
Other income (expenses)
Interest (expense) (4,333) (4,243)
Interest income 605 451
Other (7) 30
----------------------------
Total other (expenses) (3,735) (3,762)
----------------------------
Income before taxes 4,130 5,776
Taxes on income 1,568 2,099
----------------------------
Net Income $ 2,562 $ 3,677
============================
Basic earnings per share on net income $ 0.17 $ 0.24
----------------------------
Diluted earnings per share on net income $ 0.17 $ 0.24
----------------------------
Weighted average number of basic common shares outstanding 14,784 15,154
----------------------------
Weighted average number of diluted common shares outstanding 15,135 15,558
----------------------------
See accompanying notes to consolidated financial statements.
6
PENN NATIONAL GAMING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended
June 30,
1999 1998
--------------------------------
Revenues
Pari-mutuel revenues
Live races $ 5,868 $ 7,623
Import simulcasting 19,749 17,763
Export simulcasting 847 1,502
Gaming revenue 13,616 9,004
Admissions, programs and other racing revenue 1,865 1,694
Concessions revenues 3,438 2,472
---------------------------------
Total revenues 45,383 40,058
---------------------------------
Operating expenses
Purses, stakes, and trophies 8,388 7,639
Direct salaries, payroll taxes and employee benefits 5,005 4,904
Simulcast expenses 3,685 3,795
Pari-mutuel taxes 2,434 2,476
Lottery taxes and administration 5,415 3,371
Other direct meeting expenses 6,021 6,122
Concessions expenses 2,945 1,948
Other operating expenses 3,360 2,625
Depreciation and amortization 2,130 1,422
--------------------------------
Total operating expenses 39,383 34,302
--------------------------------
Income from operations 6,000 5,756
--------------------------------
Other income (expenses)
Interest (expense) (2,208) (2,134)
Interest income 396 250
Other (7) 30
--------------------------------
Total other (expenses) (1,819) (1,854)
--------------------------------
Income before taxes 4,181 3,902
Taxes on income 1,641 1,435
--------------------------------
Net income $ 2,540 2,467
================================
Basic earnings per share on net income $ 0.17 $ 0.16
--------------------------------
Diluted earnings per share on net income $ 0.17 $ 0.16
--------------------------------
Weighted average number of basic common shares outstanding 14,822 15,156
--------------------------------
Weighted average number of diluted common shares outstanding 15,183 15,542
--------------------------------
See accompanying notes to consolidated financial statements.
7
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
(Unaudited)
Additional
Common Stock Treasury Paid-In Retained
Shares Amounts Stock Capital Earnings Total
Balance, at January 1, 1999 15,164,080 $ 152 $ (2,379) $ 38,025 $ 23,238 $ 59,036
Issuance of common stock 121,941 2 422 424
Net income for the six months
ended June 30, 1999 - - - - 2,562 2,562
--------------------------------------------------------------------------------------
Balance, at June 30, 1999 15,286,021 $ 154 $ (2,379) $ 38,447 $ 25,800 $ 62,022
======================================================================================
See accompanying notes to consolidated financial statements.
8
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)
Six Months Ended
June 30,
1999 1998
------------- ------------
Cash flows from operating activities
Net income $ 2,562 $ 3,677
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 4,145 2,841
Net deferred income tax assets and liabilities 572 222
Decrease (Increase) in
Accounts receivable (2,155) (1,803)
Prepaid expenses 50 (668)
Prepaid income taxes 745 2,123
Miscellaneous other assets (25) (213)
Increase (decrease) in
Accounts payable 358 (312)
Purses due horsemen 2,591 1,423
Uncashed pari-mutuel tickets (503) (554)
Accrued expenses 299 (579)
Accrued interest (55) 8
Accrued salaries & wages - 138
Customers deposits 171 233
Taxes other than income payable 462 157
------------- ------------
Net cash provided by operating activities 9,217 6,693
------------- ------------
Cash flows from investing activities
Expenditures for property and equipment (2,578) (4,932)
Notes receivable (11,250) -
Other 251 -
------------- ------------
Net cash (used in) investing activities (13,577) (4,932)
------------- ------------
See accompanying notes to consolidated financial statements.
9
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)
Six Months Ended
June 30,
1999 1998
-------------------------------
Cash flows from financing activities
Proceeds from sale of common stock 424 18
Proceeds from long term debt 11,500 -
Principal payments on long-term debt and capital lease obligations (3,326) (34)
Increase in unamortized financing cost (580) (107)
------------- -----------
Net cash provided by (used) in financing activities 8,018 (123)
------------- -----------
Net increase in cash 3,658 1,638
Cash and cash equivalents, at beginning of period 6,826 21,854
------------- -----------
Cash and cash equivalents, at end of period $ 10,484 $ 23,492
============= ===========
See accompanying notes to consolidated financial statements.
10
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Financial Statement Presentation
The accompanying consolidated financial statements are unaudited and
include the accounts of Penn National Gaming, Inc., (Penn) and its wholly and
majority owned subsidiaries, (collectively the "Company"). All significant
intercompany transactions and balances have been eliminated. Certain prior year
amounts have been reclassified to conform to current year presentation.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) have been made which are necessary to present fairly the
financial position of the Company as of June 30, 1999 and the results of its
operations for the three and six month periods ended June 30, 1999 and 1998. The
results of operations experienced for the six month period ended June 30, 1999
are not necessarily indicative of the results to be experienced for the fiscal
year ended December 31, 1999.
The statements and related notes herein have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Accordingly,
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to such rules and regulations. The accompanying notes
should therefore be read in conjunction with the Company's December 31, 1998
annual financial
statements.
2. Wagering Information (in thousands)
Three months ended June 30, 1999
Penn Pocono Charles
National Downs Town Total
Pari-mutuel wagering in-state on
Company's live races $ 11,291 $ 7,197 $ 8,346 $ 26,834
-----------------------------------------------------
Pari-mutuel wagering on simulcasting:
Import simulcasting from other racetracks 49,421 34,831 12,962 97,214
Export simulcasting to out of
state wagering facilities 20,228 6,348 2,042 28,618
-----------------------------------------------------
69,649 41,179 15,004 125,832
-----------------------------------------------------
Total pari-mutuel wagering $ 80,940 $48,376 $ 23,350 $ 152,666
=====================================================
11
Three months ended June 30, 1998
Penn Pocono Charles
National Downs Town Total
Pari-mutuel wagering in-state on
Company's live races $ 21,605 $ 7,410 $ 5,524 $ 34,539
-----------------------------------------------------
Pari-mutuel wagering on simulcasting:
Import simulcasting from other racetracks 43,735 35,040 10,917 89,692
Export simulcasting to out of
state wagering facilities 42,964 7,188 - 50,152
-----------------------------------------------------
86,699 42,228 10,917 139,844
-----------------------------------------------------
Total pari-mutuel wagering $ 108,304 $ 49,638 $ 16,441 $ 174,383
=====================================================
Six months ended June 30, 1999
Penn Pocono Charles
National Downs Town Total
Pari-mutuel wagering in-state on
Company's live races $ 17,970 $ 7,197 $ 13,389 $ 38,556
----------------------------------------------------
Pari-mutuel wagering on simulcasting:
Import simulcasting from other racetracks 77,026 69,995 25,561 172,582
Export simulcasting to out of
state wagering facilities 37,382 6,348 2,042 45,772
----------------------------------------------------
114,408 76,343 27,603 218,354
----------------------------------------------------
Total pari-mutuel wagering $132,378 $83,540 $ 40,992 $256,910
====================================================
12
Six months ended June 30, 1998
Penn Pocono Charles
National Downs Town Total
Pari-mutuel wagering in-state on
Company's live races $ 41,215 $ 8,325 $ 9,642 $ 59,182
---------------------------------------------------
Pari-mutuel wagering on simulcasting:
Import simulcasting from other racetracks 86,580 66,105 21,070 173,755
Export simulcasting to out of
state wagering facilities 86,584 7,763 - 94,347
---------------------------------------------------
173,164 73,868 21,070 268,102
---------------------------------------------------
Total pari-mutuel wagering $ 214,379 $ 82,193 $ 30,712 $ 327,284
===================================================
3. Commitments
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 Off-Track Wagering
Facilities ("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") 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 the Company, 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
the Company an extended timeframe for the effectiveness of its racing license;
(ii) to operate a temporary simulcast facility. On July 28, 1998, the Company
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 is 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 opinion
has been 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 court reversed the lower
court ruling on the basis of jurisdiction. Tennessee Downs intends to take 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. Costs
incurred as of June 30, 1999 regarding the Tennessee license amounted to
$534,135 and are presented in prepaid expenses and other current assets.
13
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 expects to start construction
on the $2 million facility in August 1999 with a projected opening date in the
first 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 a strike by the horsemen which
began on February 16, and caused the Company to close Penn National Race Course
and its six affiliated OTWs. 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.
On April 9, 1999, the State of West Virginia passed legislation
approving the use of coin-out and reel spinning slot machines at the four
racetracks in West Virginia. The Company plans to convert certain machines at
Charles Town to coin-out as well as replace a number of lesser-performing
machines with reel spinning models. On April 27, 1999, the Company placed an
additional thirty-six (36) machines in operation for a total machine base of
935. During the remainder of 1999, the Company plans to add, subject to
regulatory approval, 565 more machines to bring the total machine base to 1,500.
On May 10, 1999, the Company commenced a consent solicitation (the
"Consent Solicitation") from the holders of its 10.625% Senior Notes due 2004,
Series B (the Notes) to amend the Indenture pursuant to which the Notes were
issued to permit the Company to make certain investments in a joint venture with
Greenwood New Jersey, Inc., that will operate Freehold Raceway in Freehold, New
Jersey and Garden State Track in Cherry Hill, New Jersey (the "Joint Venture").
The Consent Solicitation originally expired at 5:00 p.m., New York City time, on
May 19, 1999 but was extended by the Company until July 30, 1999, by which time
holders of more than a majority of the Company's had delivered consents. The
Company and the Trustee under the Indenture relating to the Notes have executed
and delivered a Supplemental Indenture containing the amendments described in
the Company's Consent Solicitation. The amendments became effective on July 30,
1999 when the Company acquired the Joint Venture. The consent fee payable to
holders who delivered consents (and did not validly revoke such consents) prior
to the expiration date is $32.50 per $1,000 principal amount of Notes as to
which a consent was given. Pursuant to the terms and conditions of the Consent
Solicitation, the Company made all consent payments contemporaneously with the
closing of the Joint Venture transaction.
On June 1, 1999, the Company amended its employment agreement with its
Chairman which became effective June 1, 1999 and as amended, shall continue
thereafter from year to year. The agreement provides for an annual base salary
of $380,000, and prohibits the employee from competing with the Company during
its term and for one year, thereafter. The agreement also provides for a death
benefit payment by the Company equal to the amount of employee's annual salary
in effect at the time of his death, for a period of two years following the date
of employee's death.
14
On June 1, 1999, the Company amended its employment agreement with its
Chief Financial Officer which became effective on June 1, 1999, and as amended,
shall continue from year to year unless terminated by the Company upon 90 days
written notice. The agreement provides for an annual base salary of $150,000,
and prohibits the employee from competing with the Company during its term and
for one year thereafter. The agreement also provides for a death benefit payment
by the Company equal to the amount of the employee's annual salary in effect at
the time of his death for a period of one year following the date of employees
death.
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 should be completed
by December 31, 1999.
At June 30, 1999, the Company was contingently obligated under letters of
credit with face amounts aggregating $2,031,000. These amounts consisted of
$1,776,000 relating to horsemen's account balances, $100,000 for Pennsylvania
pari-mutuel taxes, and $155,000 for purses.
4. Supplemental Disclosures of Cash Flow Information
Cash paid during the six months ended June 30, 1999 and 1998 for
interest was $4,307,204 and $4,230,000, respectively.
Cash paid during the three months ended June 30, 1999 and 1998 for
income taxes was $206,000 and $1,476,000, respectively.
15
5. Subsidiary Guarantors
Summarized financial information as of June 30, 1999 and 1998
for the three and six months ended June 30, 1999 and 1998 for Penn
National Gaming, Inc. ("Parent"), the Subsidiary Guarantors and
Subsidiary Nonguarantors is as follows:
- --------------------------------------------------------------------------------------------------------------------------
Subsidiary
Parent Susbsidiary Non- Elimin- Consoli-
Company Guarantors Guarantors ations dated
- --------------------------------------------------------------------------------------------------------------------------
As of June 30,1999
Consolidated Balance Sheet (In Thousands)
Current assets $ 6,699 $ 6,164 $ 7,685 $ (1,542 ) $ 19,006
Net property plant and equipment 13,051 61,720 45,008 - 119,779
Other assets 111,679 156,936 1,539 (233,212 ) 36,942
- --------------------------------------------------------------------------------------------------------------------------
Total $ 131,429 $ 224,820 $ 54,232 $ (234,754 ) $ 175,727
- --------------------------------------------------------------------------------------------------------------------------
Current liabilities 8,259 15,416 $9,216 (12,375 ) 20,516
Long-term liabilities 84,633 78,342 47,553 (117,339 ) 93,189
Shareholders'equity (deficiency) 38,537 131,062 (2,537 ) (105,040 ) 62,022
- --------------------------------------------------------------------------------------------------------------------------
Total $ 131,429 $ 224,820 $ 54,232 $ (234,754 ) $ 175,727
- --------------------------------------------------------------------------------------------------------------------------
Three months ended June 30, 1999
Consolidated Statement of Income (In Thousands)
Total revenues $ 4,515 $ 22,173 $ 20,205 $ (1,510 ) $ 45,383
Total operating expenses 2,141 21,291 17,461 (1,510 ) 39,383
- --------------------------------------------------------------------------------------------------------------------------
Income from operations 2,374 882 2,744 - 6,000
Other income (expenses) (1,464 ) 749 (1,104 ) - (1,819 )
- --------------------------------------------------------------------------------------------------------------------------
Income before income taxes 910 1,631 1,640 - 4,181
Taxes on income 376 609 656 - 1,641
- --------------------------------------------------------------------------------------------------------------------------
Net income $ 534 $ 1,022 $ 984 $ - $ 2,540
- --------------------------------------------------------------------------------------------------------------------------
Six months ended June 30, 1999
Consolidated Statement of Income (In Thousands)
Total revenues $ 2,038 $ 42,199 $ 36,570 $ (2,635 ) $ 78,172
Total operating expenses (2,012 ) 42,642 32,312 (2,635 ) 70,307
- --------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 4,050 (443 ) 4,258 - 7,865
Other income (expenses) (2,969 ) 1,504 (2,270 ) (3,735 )
- --------------------------------------------------------------------------------------------------------------------------
Income before income taxes 1,081 1,061 1,988 - 4,130
Taxes on income 465 285 818 1,568
- --------------------------------------------------------------------------------------------------------------------------
Net income $ 616 $ 776 $ 1,170 $ - $ 2,562
- --------------------------------------------------------------------------------------------------------------------------
Six months ended June 30, 1999
Consolidated Statement of Cash Flow (In Thousands)
Net Cash Flows from Operating $ 6,000 $ 239 $ 2,978 $ - $ 9,217
Activities
Net Cash Flows from Investing (11,736 ) (745 ) (1,096 ) - (13,577 )
Activities
Net Cash Flows from Financing 8,527 (509 ) - - 8,018
Activities
- --------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash 2,791 (1,015 ) 1,882 - 3,658
Cash and cash equivalents at 2,001 1,705 3,120 - 6,826
January 1, 1999
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at June
30,1999 $ 4,792 $ 690 $ 5,002 $ - $ 10,484
- --------------------------------------------------------------------------------------------------------------------------
16
Subsidiary
Parent Susbsidiary 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
- --------------------------------------------------------------------------------------------------------------------------
Three months ended June 30, 1998
Consolidated Statement of Income (In Thousands)
Total revenues $ - $ 27,057 $ 13,697 $ (696 ) $ 40,058
Total operating expenses (1,765 ) 24,674 12,089 (696 ) 34,302
- --------------------------------------------------------------------------------------------------------------------------
Income from operations 1,765 2,383 1,608 - 5,756
Other income (expenses) (1,390 ) 700 (1,164 ) - (1,854 )
- --------------------------------------------------------------------------------------------------------------------------
Income before income taxes 375 3,083 444 - 3,902
Taxes on income 94 1,341 - - 1,435
- --------------------------------------------------------------------------------------------------------------------------
Net income $ 281 $ 1,742 $ 444 $ - $ 2,467
- --------------------------------------------------------------------------------------------------------------------------
Six months ended June 30, 1998
Consolidated Statement of Income (In Thousands)
Total revenues $ 2 $ 49,889 $ 24,667 $ (1,145 ) $ 73,413
Total operating expenses (3,243 ) 45,460 22,803 (1,145 ) 63,875
- --------------------------------------------------------------------------------------------------------------------------
Income from operations 3,245 4,429 1,864 - 9,538
Other income (expenses) (2,777 ) 1,345 (2,330 ) (3,762 )
- --------------------------------------------------------------------------------------------------------------------------
Income before income taxes 468 5,774 (466 ) - 5,776
Taxes on income 26 2,073 - 2,099
- --------------------------------------------------------------------------------------------------------------------------
Net income (Loss) $ 442 $ 3,701 $ (466 )$ - $ 3,677
- --------------------------------------------------------------------------------------------------------------------------
Six months ended June 30, 1998
Consolidated Statement of Cash Flow (In Thousands)
Net Cash Flows from Operating $ 3,945 $ (12,596 ) $ 565 $ 14,779 $ 6,693
Activities
Net Cash Flows from Investing (6,812 ) 7,168 2,844 (8,132 ) (4,932 )
Activities
Net Cash Flows from Financing 154 6,370 - (6,647 ) (123 )
Activities
- --------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash (2,713 ) 942 3,409 - 1,638
Cash and cash equivalents at
January 1, 1998 3,015 17,895 944 - 21,854
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at June
30, 1999 $ 302 $ 18,837 $ 4,353 $ - $ 23,492
- --------------------------------------------------------------------------------------------------------------------------
17
6. Year 2000 Compliance
The "Year 2000 issue" is typically the result of software and hardware
being written using two digits rather than four to define the applicable year.
If the Company's software and hardware with date-sensitive functions are not
Year 2000 compliant, these systems may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruption of operations, including, among other things,
interruptions in pari-mutuel wagering or the inability to operate the Company's
video lottery machines.
The Company, has been and is currently conducting a review of all
systems and contacting all software suppliers to determine major areas of
exposure to Year 2000 issues. The Company believes that, with minor
modifications and testing of its systems, the Year 2000 issue will not pose a
significant operations problem. The Company is using its internal resources to
reprogram or replace and test its software for Year 2000 modifications. If the
Company is unable to make the required modifications to existing software or
convert to new software in a timely manner, the Year 2000 issue could have a
material adverse impact on the Company's operations.
The Company has initiated formal communication with significant
suppliers and third party vendors to determine the extent to which the Company's
operations are vulnerable to those third parties failure to remediate their own
Year 2000 hardware and software issues. All of these parties state that they
intend to be Year 2000 compliant by 2000. In the event that any of the Company's
significant suppliers are unable to become Year 2000 compliant, the Company's
business or operations could be adversely affected. There can be no assurance
that the systems of other companies on which the Company relies will be
compliant by the year 2000 and would not have an adverse effect on operations.
The Company does not expect the total cost associated with required
modifications to become Year 2000 compliant to be material to its financial
position.
The Company has not yet fully developed a comprehensive contingency
plan addressing situations that may result if the Company is unable to achieve
Year 2000 readiness of its critical operations. Contingency plan development is
in process and the Company expects to finalize its plan during the remainder of
1999. There can be no assurance that the Company will be able to develop a
contingency plan that will adequately address issues that may arise in the year
2000.
7. Subsequent Events
On July 9, 1999, the Company entered into an agreement with American
Digital Communications, Inc. ("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 agreement is subject to approval by the Pennsylvania
Horse Racing Commission. In connection with the agreement 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.
On July 29, 1999, after receiving the necessary approvals from the New
Jersey Racing Commission and the consent from the holders of its 10.625% Senior
Notes due 2004, Series B, the Company completed its investment in the 50%/50%
Joint Venture, Pennwood, Inc., with Greenwood New Jersey, Inc., (a wholly-owned
subsidiary of Greenwood Racing, Inc. the owner of Philadelphia Park Race Track).
18
Pursuant to the Joint Venture Agreement, the Company agreed to guarantee
severally: (i) up to 50% of the obligations 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% to International
Thoroughbred Breeders, Inc. for the contingent purchase price notes ($10.0
million) relating to the operating, if passed by the New Jersey legislature, by
the Joint Venture of OTW's and a 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. A Form
8-K will be filed regarding this event.
Item 2. Management's Discussion and Analysis of Financial Conditions and Results
of Operations
Results of Operations
Three months ended June 30, 1999 compared to three months ended June 30, 1998
Total revenue increased by approximately $5.3 million or 13.3% from
$40.1 million for the three months ended June 30, 1998 to $45.4 million for the
three months ended June 30, 1999. Revenues decreased by $1.6 million or 9.9% at
Penn National Race Course and its OTW facilities due to the strike by The
Horsemen's Benevolent Protective Association (Horsemen) that resulted in the
closure of the facilities from February 16 to March 24, 1999. Penn National Race
Course re-opened for live racing on a limited basis on April 23 and resumed a
full live racing schedule the week of June 26, 1999. For the second quarter,
Penn National Race Course ran 32 live race days in 1999 compared to 52 live race
days in 1998. Charles Town Races had increased revenues of $6.5 million or 47.5%
for the quarter. Video lottery machine revenue increased by $4.6 million due to
an increase in the average number of machines in play of 700 in 1998 compared to
915 in 1999 and an increase in the average win per machine of $141 in 1998
compared to $164 in 1999. Racing revenue increased by $1.3 million due to the
improved quality of the live race card, a stronger full-card simulcast program,
and the start of export simulcasting the Charles Town live race program to
tracks across the country beginning on June 5, 1999. Concession revenues
increased by $.6 million due to the increased attendance at the Charles Town
facility. At Pocono Downs and its OTW facilities revenues increased by $121,000
or 1.2%.
Total operating expenses increased by approximately $5.1 million or 14.8%
from $34.3 million for the three months ended June 30, 1998 to $39.4 million for
the three months ended June 30, 1999. Expenses decreased by $.4 million or 3.4%
at Penn National Race Course and its OTW facilities due to the Horsemen's strike
that resulted in 20 fewer live race days for the second quarter in 1999 compared
to the second quarter in 1998. Charles Town Races had increased expenses of $5.2
million or 45.2% due to an increase in direct costs associated with additional
wagering on horse racing and video lottery machine play, an increase in the
number of video lottery machines and export simulcast expenses. Pocono Downs and
its OTW facilities had a $.1 million net decrease in expenses. Corporate
expenses increased by approximately $.5 million due to the consolidation of the
marketing and information technology departments at the corporate level and the
development of an OTW facility management department. Depreciation and
amortization expense increased by $.7 million due to the purchase of the video
lottery machines from GTECH in November 1998.
Income from operations increased by approximately $200,000 or 3.4% from
$5.8 million for the three months ended June 30, 1998 to $6.0 million for the
three months ended June 30, 1999 due to the factors described above.
Net income increased by approximately $73,000 or 2.9% from $2,467,000
for the three months ended June 30, 1998 to $2,540,000 for the three months
ended June 30, 1999 due to the factors described above. Income tax expense
increased by approximately $206,000 or 14.4% from $1,435,000 for the three
months ended June 30, 1998 to $1,641,000 for the three months ended June 30,
1999 due to the increase in income for the quarter.
19
Six months ended June 30, 1999 compared to six months ended June 30, 1998
Total revenue increased by approximately $4.8 million or 6.5% from
$73.4 million for the six months ended June 30, 1998 to $78.1 million for the
six months ended June 30, 1999. Revenues decreased by $8.8 million or 27.4% at
Penn National Race Course and its OTW facilities due to the Horsemen's strike
that resulted in the closure of the facilities from February 16 to March 24,
1999. Penn National Race Course re-opened for live racing on a limited basis on
April 23 and resumed a full live racing schedule the week of June 26, 1999. For
the six-month period, Penn National Race Course ran 50 live race days in 1999
compared to 102 live race days in 1998. Charles Town Races had increased
revenues of $11.9 million or 48.2% for the period. Video lottery machine revenue
increased by $8.8 million due to an increase in the average number of machines
in play of 632 in 1998 to 876 in 1999 and an increase in the average win per
machine of $141 in 1998 compared to $157 in 1999. Racing revenue increased by
$2.1 million due to the improved quality of the live race card, a stronger
full-card simulcast program, and the start of export simulcasting the Charles
Town live race program to tracks across the country beginning June 5, 1999.
Concession revenues increased by $1.0 million due to the increased attendance at
the Charles Town facility. At Pocono Downs and its OTW facilities revenues
increased by $1.1 million or 6.3%. The increase resulted from a full period of
operations for the Carbondale ($1.0 million) and Hazleton OTW's ($ .7 million)
that offset the decrease in revenues at the Pocono Downs racetrack ($.6 million)
due to the close proximity of these three facilities.
Total operating expenses increased by approximately $6.4 million or
10.0% from $63.9 million for the six months ended June 30, 1998 to $70.3 million
for the six months ended June 30, 1999. Expenses decreased by $4.4 million or
17.4% at Penn National Race Course and its OTW facilities due to the closing of
the facilities from February 16 to March 24, 1999 and the loss of 52 live races
in 1999 compared to 1998. Included in the operating expenses were $1.3 million
in shutdown related expenses. Charles Town Races had increased expenses of $9.4
million or 43.2% due to an increase in direct costs associated with additional
wagering on horse racing and video lottery machine play, additional video
lottery machines and export simulcast expenses. Pocono Downs and its OTW
facilities had a $.5 million net increase in expenses due to a full period of
operations at the Carbondale and Hazleton OTW facilities that was offset by a
decrease in expenses at the Pocono Downs racetrack. Corporate expenses increased
by approximately $1.0 million due to the consolidation of the marketing and
information technology departments at the corporate level and the development of
an OTW facility management department. Depreciation and amortization expense
increased by $1.3 million due to the purchase of the video lottery machines from
GTECH in November 1998.
Income from operations decreased by approximately $1.7 million or 17.7%
from $9.6 million for the six months ended June 30, 1998 to $7.9 million for the
six months ended June 30, 1999 due to the factors described above
Net income decreased by approximately $1.1 million or 30.3% from $3.7
million for the six months ended June 30, 1998 to $2.6 million for the six
months ended June 30, 1999 due to the factors described above. Income tax
expense decreased by approximately $.5 million or 25.3% from $2.1 million for
the six months ended June 30, 1998 to $1.6 million for the six months ended June
30, 1999 due to the decrease in income for the period.
20
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 the issuance of equity securities.
Net cash provided by operating activities for the six months ended June 30,
1999 ($9.2 million) consisted of net income and non-cash expenses ($7.3
million), an increase in purses due Horsemen ($2.6 million), an increase in
accounts payable ($.4 million) and an increase in other working capital ($1
million), offset by an increase in account receivables ($2.2 million). The
increase in accounts receivable was due to an increase in the amount due from
the West Virginia Lottery for VLT revenues and administration fee refund
($707,000), tourism grants receivable ($142,000), escrow settlement ($400,000)
other receivable at Charles Town ($251,000), and increased settlement
receivables for Pocono Downs and Charles Town ($700,000) due to live racing and
export simulcasting.
Cash flows used in investing activities ($13.8 million) consisted of a
note receivable ($11.2 million) from FR Park Racing, LP, a New Jersey limited
partnership and a part of the New Jersey Joint Venture agreement and $2.6
million in capital expenditures.
Cash flows provided by financing activities ($8.1 million) consisted of
principal payments on long-term debt ($3.3 million), borrowings under the credit
facility ($11.5 million) for the New Jersey Joint Venture and debt repayment,
proceeds from the exercise of stock options and warrants ($.4 million) and an
increase in financing costs ($.5 million) for amending the credit facility.
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 the first quarter of 1999, the Company incurred approximately $1.3
million in expenses associated with the actions by the Horsemen on February 16,
1999 that resulted in the closing of Penn National Race Course and its six OTW
facilities in Reading, Chambersburg, York, Lancaster, Williamsport and
Johnstown, from February 16, 1999 through March 24, 1999.
21
During the remainder of 1999 the Company anticipates spending
approximately $22.0 million on capital expenditures at its racetracks and OTW
facilities. The Company plans to spend approximately $1.0 million at Pocono
Downs, Penn National Race Course and the OTW facilities for building
improvements and equipment. The Company will also spend approximately $2.0
million on leasehold improvements, furniture and fixtures and equipment for the
new OTW facility in East Stroudsburg, Pennsylvania that is scheduled to open in
the first quarter of 2000. At Charles Town, the Company has applied to the West
Virginia Lottery Commission for approval to increase the number of gaming
machines to 1,500. If approved, the Company plans to spend approximately $19.0
million on an outdoor paddock and jockey room ($1.0 million), renovations for a
new slot machine area ($4.3 million), new gaming machines ($5.7 million,
conversion of existing machines to coin drop ($2.5 million), player tracking
($1.1 million), a new central system for the West Virginia Lottery Commission
($1.4 million) and other improvements ($2.5 million). If the State of Tennessee
reinstates the Tennessee Commission and the Company's racing license or if the
racing industry is regulated under another government agency, the Company
anticipates expending an additional $9.0 million to complete the first phase of
its Tennessee Development Project.
The Company entered into its Credit Facility with Bankers Trust Company, as
Agent in 1996. This Credit Facility was amended and restated on January 28, 1999
with First Union National Bank replacing Bankers Trust Company, as Agent. The
amended Credit Facility provides for, subject to certain terms and conditions, a
$20.0 million revolving credit facility, a $5.0 million term loan due in one
year, a $3.0 million sublimit for standby letters of credit and has a four-year
term for its closing. The Credit Facility, under certain circumstances, requires
the Company to make mandatory prepayments and commitment reductions and to
comply with certain covenants, including financial ratios and maintenance tests.
In addition, the Company may make optional prepayments and commitment reductions
pursuant to the terms of the Credit Facility. Borrowings under the Credit
Facility is secured by the assets of the Company and contains certain financial
ratios and maintenance tests. On June 30, 1999, the Company was in compliance
with all applicable ratios. On July 22, 1999 the Company entered into Amendment
No. 1 to the Credit Facility which increased the sublimit for the standby letter
of credit from $3.0 million to $3.5 million.
On July 29, 1999 the Company entered into Amendment No. 2 to the Credit
Facility which provided for the consent of the Banks, which are a party to the
Credit Facility, to permit the Company to enter into a Debt Service Maintenance
Agreement for the benefit of Commerce Bank, N.A. The Debt Service Maintenance
Agreement supports the extension of credit to the Joint Venture by Commerce
Bank, N.A. In addition , the Company entered into a Subordination and
Intercreditor Agreement with FR Park Racing, L.P. and Commerce Bank, N.A.
The Company currently estimates that the cash generated from operations
and available borrowings under the Credit Facility will be sufficient to finance
its current operations, planned capital expenditure requirements, and the costs
associated with first phase of the Tennessee Development Project. 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.
22
Item 3. Changes in Information About Market Risk
All of the Company's debt obligations at June 30, 1999 were fixed rate
obligations, and management, therefore, does not believe that the Company has
any material risk from its debt obligations.
Part II. Other Information
Item 1. 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) seeks declaratory relief that through September
2004 and (iv) seeks unspecified compensatory damages, legal fees and costs
associated with the action and other legal and equitable relief as the Court
deems just and appropriate. On December 24, 1997, a temporary restraining order
was issued, which prescribes performance under the Third Party Wagering
Contract. On January 14, 1998, a hearing was held to rule on whether a
preliminary injunction should be issued or whether the temporary restraining
order should be lifted. On February 20, 1998, the temporary restraining order
was lifted by the court. The Company is pursuing 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
and a decision is still pending. The Company believes that its action, and any
resolution thereof, will not have any material adverse impact upon its financial
condition, results, or the operations of either the Charles Town Joint Venture
or the Company.
23
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.89 Amendment to Employment Agreement dated
June 1, 1999, between the Company and Peter M. Carlino.
10.90 Amendment to Employment Agreement dated
June 1, 1999, between the Company and Robert S. Ippolito.
10.91 Second Amendment to Joint Venture Agreement dated as of
July 29, 1999, between the Company and Greenwood
Racing, Inc.
10.92 Shareholder's Agreement dated July 29, 1999,
between Penn National Holding Company and
Greenwood Racing, Inc.
10.93 Amended and Restated Limited Partnership Agreement
dated July 29, 1999, between FR Park Racing, L.P.,
Pennwood Racing, Inc. and Penn National GSFR, Inc.
10.94 Amended and Restated Limited Partnership Agreement
dated July 29, 1999, between FR Park Services, L.P.,
Pennwood Racing, Inc. and Penn National GSFR, Inc.
10.95 Amended and Restated Limited Partnership Agreement
dated July 29, 1999, between GS Park Racing, L.P.,
Pennwood Racing, Inc. and Penn National GSFR, Inc.
10.96 Amended and Restated Limited Partnership Agreement
dated July 29, 1999, between GS Park Services, L.P.,
Pennwood Racing, Inc. and Penn National GSFR, Inc.
10.97 Amendment No. 1 to Second Amended and Restated
Credit Agreement dated July 29, 1999, between the
Company and First Union National Bank.
10.98 Amendment No. 2 to Second Amended and Restated
Credit Agreement dated July 29, 1999, between the
Company and First Union National Bank.
10.99 Agreement dated July 9, 1999, between the
Company and American Digital Communications,
Inc. (Portions of this Exhibit have been omitted
pursuant to a request for confidential treatment).
10.01a Subordination and Intercreditor Agreement dated
July 29, 1999, between the Company, FR Park Racing, L.P. and
Commerce Bank, N.A.
10.02a Debt Service Maintenance Agreement dated
July 29, 1999, between the Company and
Commerce Bank, N.A.
10.03a First Supplemental Indenture dated May 19,
1999, between the Company and State Street
Bank and Trust Company, Trustee.
(b) Reports on Form 8-K
None
24
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.
08/12/99 By: /s/Robert S. Ippolito
Date Robert S. Ippolito, Chief Financial Officer
25
Exhibit Index
Exhibit Nos. Description of Exhibits Page No.
10.89 Amendment to Employment Agreement dated
June 1, 1999, between the Company and Peter M. Carlino. 27
10.90 Amendment to Employment Agreement dated
June 1, 1999, between the Company and Robert S. Ippolito. 28
10.91 Second Amendment to Joint Venture Agreement dated as
of July 29, 1999, between the Company and Greenwood
Racing, Inc. 29-33
10.92 Shareholder's Agreement dated July 29, 1999 between Penn
National Holding Company and Greenwood Racing, Inc. 34-52
10.93 Amended and Restated Limited Partnership Agreement
dated July 29, 1999, between FR Park Racing, L.P.,
Pennwood Racing, Inc. and Penn National GSFR, Inc. 53-71
10.94 Amended and Restated Limited Partnership Agreement
dated July 29, 1999, between FR Park Services, L.P.,
Pennwood Racing, Inc. and Penn National GSFR, Inc. 72-89
10.95 Amended and Restated Limited Partnership Agreement
dated July 29, 1999, between GS Park Racing, L.P.,
Pennwood Racing, Inc. and Penn National GSFR, Inc. 90-106
10.96 Amended and Restated Limited Partnership Agreement
dated July 29, 1999, between GS Park Services, L.P.,
Pennwood Racing, Inc. and Penn National GSFR, Inc. 107-123
10.97 Amendment No. 1 to Second Amended and Restated
Credit Agreement dated July 29, 1999, between the
Company and First Union National Bank. 124-132
10.98 Amendment No. 2 to Second Amended and Restated
Credit Agreement dated July 29, 1999, between the
Company and First Union National Bank. 133-139
10.99 Agreement dated July 9, 1999, between the Company
and American Digital Communications, Inc.
(Portions of this Exhibit have been omitted pursuant
to a request for confidential treatment). 140-157
10.01a Subordination and Intercreditor Agreement dated
July 29, 1999, between the Company, FR Park Racing
and Commerce Bank N.A.. 158-170
10.02a Debt Service Maintenance Agreement dated July
29, 1999, between the Company and Commerce Bank N.A. 171-179
10.03a First Supplemental Indenture dated May 19, 1999, between
the Company and State Street Bank and Trust Company, Trustee. 180-187
26