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 September 30, 1997
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., Ste. 200
Wyomissing, PA 19610
(Address of Principal Executive Offices)
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 __
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 November 13, 1997
Common stock par value .01 per share 15,129,470
----------
This Report contains forward-looking statements that inherently involve risks
and uncertainties. The Company's actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those discussed in this Quarterly Report on Form 10-Q and
those discussed in the Company's Annual Report on Form 10-K. References to "Penn
National Gaming" or the "Company" include Penn National Gaming, Inc.
and its subsidiaries.
2
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
INDEX
PART I-FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets - 4-5
September 30, 1997 (unaudited) and December 31, 1996
Consolidated Statements of Income - 6
Nine Months Ended September 30, 1997 and 1996 (unaudited)
Consolidated Statements of Income - 7
Three Months Ended September 30, 1997 and 1996 (unaudited)
Consolidated Statement of Shareholders' Equity - 8
Nine Months Ended September 30, 1997 (unaudited)
Consolidated Statement of Cash Flow - 9-10
Nine Months Ended September 30, 1997 and 1996 (unaudited)
Notes to Consolidated Financial Statements 11-14
Item 2. Management's Discussion and Analysis of Financial 15-18
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8 - K 19
3
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
September 30, December 31,
1997 1996
------------- ------------
(Unaudited)
Assets
Current assets
Cash $ 3,951 $ 5,634
Accounts receivable 3,160 4,293
Prepaid expenses and other current assets 2,857 1,552
Deferred income taxes 58 90
-------- --------
Total current assets 10,026 11,569
-------- --------
Property, plant and equipment, at cost
Land and improvements 18,736 15,728
Building and improvements 63,570 30,484
Furniture, fixtures and equipment 14,445 8,937
Transportation equipment 505 366
Leasehold improvements 6,727 6,680
Leased equipment under capitalized lease 824 1,626
Construction in progress 4,332 2,926
-------- --------
109,139 66,747
Less accumulated depreciation and amortization 10,113 8,029
-------- --------
Net property, plant and equipment 99,026 58,718
-------- --------
Other assets
Excess of cost over fair market value of net assets
acquired (net of accumulated amortization) 23,532 21,885
Prepaid acquisition costs -- 1,764
Deferred financing costs 1,798 2,416
Miscellaneous 537 371
-------- --------
Total other assets 25,867 26,436
-------- --------
$134,919 $ 96,723
======== ========
See accompanying notes to consolidated financial statements
4
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
September 30, December 31,
1997 1996
------------ ------------
(Unaudited)
Liabilities and Shareholders' Equity
Current Liabilities
Current maturities of long-term debt and
capital lease obligations $ 6,009 $ 1,563
Accounts payable 8,718 5,066
Purses due horseman 587 1,421
Uncashed pari-mutuel tickets 1,202 1,336
Accrued expenses 2,070 1,880
Customer deposits 662 420
Taxes, other than income taxes 548 392
Income taxes 636 --
--------- ---------
Total current liabilities 20,432 12,078
--------- ---------
Long-term liabilities
Long-term debt and capital
lease obligations, net of
current maturities 47,851 45,954
Deferred income taxes 10,982 10,810
--------- ---------
Total long-term liabilities 58,833 56,764
--------- ---------
Commitments and contingencies
Shareholders' equity
Preferred stock, $.01 par value,
1,000,000 shares authorized:
none issued -- --
Common stock, $.01 par value,
20,000,000 shares authorized:
15,129,470 and 13,355,290
issued and outstanding 151 134
Additional paid in capital 38,072 14,299
Retained earnings 17,503 13,448
Treasury Stock, 4,320 shares at cost (72) --
--------- ---------
Total Shareholders' equity 55,654 27,881
--------- ---------
$ 134,919 $ 96,723
========= =========
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)
Nine Months Ended
September 30,
----------------------
1997 1996
---- ----
Revenues
Pari-mutuel revenues
Live races $ 18,234 $ 14,495
Import simulcasting 46,766 23,596
Export simulcasting 5,701 2,479
Gaming revenue 909 --
Admissions, programs and other racing revenues 4,388 3,403
Concession revenues 5.570 2,501
-------- --------
Total revenues 81,568 46,474
-------- --------
Operating expenses
Purses, stakes and trophies 16,550 9,744
Direct salaries, payroll taxes and employee benefits 12,034 6,211
Simulcast expenses 9,836 6,920
Pari-mutuel taxes 6,917 3,954
Lottery taxes and administration 298 --
Other direct meeting expenses 12,878 6,932
Off-track wagering concessions expenses 4,283 1,766
Other operating expenses 8,303 3,710
-------- --------
Total operating expenses 71,099 39,237
-------- --------
Income from operations 10,469 7,237
-------- --------
Other income (expenses)
Interest (expense) (2,652) (44)
Interest income 296 229
Site development (expenses) (599) --
Other 17 --
-------- --------
Total other income (expenses) (2,938) 185
-------- --------
Income before income taxes and extraordinary item 7,531 7,422
Taxes on income 3,093 3,016
-------- --------
Income before extraordinary item 4,438 4,406
-------- --------
Extraordinary item
Loss on early extinguishment
of debt, net of income taxes 383 --
-------- --------
Net income $ 4,055 $ 4,406
======== ========
Earnings per share before extraordinary item $ 0.29 $ 0.32
======== ========
Earnings per share $ 0.26 $ 0.32
======== ========
Weighted average common shares outstanding 15,400 13,754
======== ========
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
September 30,
--------------------
Revenues 1997 1996
---- ----
Pari-mutuel revenues
Live races $ 6,837 $ 4,823
Import simulcasting 15,428 8,087
Export simulcasting 2,306 703
Gaming revenue 909 --
Admissions, programs and other racing revenues 1,564 1,355
Concession revenues 2,120 900
-------- --------
Total revenues 29,164 15,868
-------- --------
Operating expenses
Purses, stakes and trophies 6,232 3,296
Direct salaries, payroll taxes and employee benefits 4,614 2,244
Simulcast expenses 3,955 2,240
Pari-mutuel taxes 2,498 1,324
Lottery taxes and administration 298 --
Other direct meeting expenses 4,379 2,454
Off-track wagering concessions expenses 1,643 721
Other operating expenses 2,868 1,225
-------- --------
Total operating expenses 26,487 13,504
-------- --------
Income from operations 2,677 2,364
-------- --------
Other income (expenses)
Interest (expense) (977) (6)
Interest income 138 76
Site development (expenses) (599) --
Other 21 --
-------- --------
Total other income (expenses) (1,417) 70
-------- --------
Income before income taxes 1,260 2,434
Taxes on income 542 992
-------- --------
Net income $ 718 $ 1,442
======== ========
Earnings per share $ 0.05 $ 0.10
-------- --------
Weighted average common shares outstanding 15,680 13,994
======== ========
See accompanying notes to consolidated financial statements
7
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
Common Stock Treasury Stock
-------------- -------------- Additional
Paid-In
Shares Amounts Shares Amounts Capital Earnings Total
------ ------- ------ ------- ---------- -------- -----
Balance, at January 1, 1997 13,355,290 $ 134 - $ - $ 14,299 $ 13,448 $ 27,881
Issuance of common stock 1,774,180 17 23,200 23,217
Purchase of Treasury Stock
at cost 4,320 (72) (72)
Tax benefit related to stock
options exercised 573 573
Net income for the nine
months ended
September 30, 1997 4,055 4,055
Balance, at September
30, 1997 15,129,470 $ 151 4,320 $ (72) $ 38,072 $ 17,503 $ 55,654
========== ======= ===== ======= ======== ======== ========
See accompanying notes to consolidated financial statements
8
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(IN THOUSANDS)
(UNAUDITED)
Nine Months Ended
September 30,
-----------------
1997 1996
---- ----
Cash flows from operating activities
Net income $ 4,055 $ 4,406
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 2,701 911
Extraordinary item, loss on early extinguishment
of debt, before income tax benefit 642 --
Deferred Income taxes 204 144
Decrease (Increase) in
Accounts receivable 1,133 (350)
Prepaid expenses (1,305) (732)
Miscellaneous other assets (166) (197)
Increase (decrease) in
Accounts payable 3,652 473
Purses due horsemen (834) 36
Uncashed pari-mutuel tickets (134) (88)
Accrued expenses 190 (85)
Customer deposits 242 200
Taxes other than income payable 156 81
Taxes payable 636 (324)
-------- --------
Net cash provided by operating activities 11,172 4,475
-------- --------
Cash flows from investing activities
Expenditures for property and equipment (26,392) (4,784)
Acquisition of business,
(Primarily property and equipment) (16,000) --
Prepaid acquisition costs (310) (3,001)
-------- --------
Net cash provided by (used) in investing activities (42,702) (7,785)
-------- --------
9
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(IN THOUSANDS)
(UNAUDITED)
Nine Months Ended
Continued September 30,
-----------------
1997 1996
---- ----
Cash flows from financing activities
Proceeds from sale common stock 23,145 1,486
Tax benefit related to stock options exercised 573 --
Proceeds from long term debt 25,667 --
Principal payments on long-term debt and
capital lease obligations (19,324) (88)
Increase in unamortized financing cost (214) --
-------- --------
Net cash provided by financing activities 29,847 1,398
-------- --------
Net (decrease) in cash (1,683) (1,912)
Cash, at beginning of period 5,634 7,514
-------- --------
Cash, at end of period $ 3,951 $ 5,602
======== ========
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.
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 September 30, 1997 and the results of
its operations for the nine month periods ended September 30, 1997 and 1996. The
results of operations experienced for the nine month period ending September 30,
1997 are not necessarily indicative of the results to be experienced for the
fiscal year ending December 31, 1997.
The financial 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, 1996 annual financial statements.
2. Wagering Information (in thousands):
Three months ended September 30,
--------------------------------------------------------------------------
1997 1996
---------------------------------------------------------- -----
Penn National Pocono Downs Charles Town Total Penn National
Pari-mutuel wagering in-state on company live races $ 22,142 $ 9,520 $ 6,852 $ 38,514 $ 23,095
--------- -------- -------- -------- --------
Pari-mutuel wagering on simulcasting:
Import simulcasting from other racetracks 39,014 29,710 7,630 76,354 41,444
Export simulcasting to out of Pennsylvania
wagering facilities 37,026 10,133 - 47,159 24,440
--------- -------- --------- -------- --------
76,040 39,843 7,630 123,513 65,884
-------- ------- --------- -------- --------
Total pari-mutuel wagering $98,182 $49,363 $ 14,482 $162,027 $ 88,979
======= ======= ======== ======== ========
11
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. Wagering Information (in thousands)
Nine months ended September 30,
-------------------------------------------------------------------------
1997 1996
------ ----
Penn National Pocono Downs Charles Town Total Penn National
Pari-mutuel wagering in-state on company live races $ 69,716 $ 18,763 $ 11,492 $ 99,971 $ 69,200
-------- -------- -------- -------- --------
Pari-mutuel wagering on simulcasting:
Import simulcasting from other racetracks 124,857 89,220 14,275 228,352 122,960
Export simulcasting to out of Pennsylvania
wagering facilities 113,387 18,960 - 132,347 84,228
---------- -------- --------- --------- ---------
238,244 108,180 14,275 360,699 207,188
---------- -------- --------- --------- ----------
Total pari-mutuel wagering $ 307,960 $126,943 $ 25,767 $460,670 $ 276,388
========= ======== ======== ======== =========
3. Commitments
At September 30, 1997, the Company was contingently obligated under
letters of credit with face amounts aggregating $1,803,700. The $1,803,700
consisted of $1,703,700 relating to the horsemen's account balances and $100,000
for Pennsylvania pari-mutuel taxes.
On June 20, 1997, the Company acquired options to purchase
approximately 100 acres of land in Memphis, Tennessee for an aggregate purchase
price of $2.7 million. The Company paid $11,000 to acquire the options and has
the right to extend the options from month to month until June 20, 1998 upon the
payment of $11,000 per month. The Company has filed an application to the
Tennessee State Racing Commission for the proposed development of a harness race
track and off-track wagering facility at the site on October 9, 1997. A public
hearing on the Tennessee racing license application has been scheduled for
November 15, 1997.
On June 25, 1997, the Company entered into a five-year technology
agreement with GTECH Corporation for the installation and operation of the video
gaming machine ("Gaming Machine") system at the Charles Town facility. The
agreement provides for annual payments equal to the facility's net win
multiplied by a percentage which decreases as the net win per day per machine at
the facility increases.
12
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. Supplemental Disclosures of Cash Flow Information
Cash paid during the nine months ended September 30, 1997 and 1996 for
interest was $3,010,000 and $44,000, respectively.
Cash paid during the nine months ended September 30, 1997 and 1996 for
income taxes was $2,741,000 and $3,196,000, respectively.
For the nine months ended September 30, 1997, the Company reclassified
approximately $1.8 million of prepaid acquisition costs to excess of cost over
fair market value of net assets acquired.
5. Common Stock
In February 1997, the Company completed a secondary public offering of
1,725,000 shares of its common stock. The net proceeds of $23 million were used
to repay $19 million of term loans outstanding under the $75 million credit
facility and to finance a portion of the cost of the refurbishment of the
Charles Town Races facility. In connection with such debt repayment, the Company
incurred an extraordinary loss of $383,000 after taxes, consisting primarily of
the write-off of deferred finance costs.
6. Acquisitions
On January 15, 1997, an 89% - owned Company subsidiary acquired
substantially all of the assets of Charles Town Races for approximately $16
million plus acquisition-related fees and expenses of approximately $1.9
million.
On March 26, 1997, the Company entered into an agreement to purchase
property for its Carbondale, Pennsylvania OTW facility. The agreement provides
for a purchase price of $200,000 and is subject to numerous contingencies,
including approval by the Pennsylvania State Harness Racing Commission. On June
5, 1997, the Company's application was approved by the Racing Commission. The
Company expects to have the facility constructed and operational in the first
quarter of 1998.
13
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On July 9, 1997, the Company entered into a lease agreement for its
Hazleton OTW facility. The lease is for 13,000 square feet at the Laurel Mall in
Hazleton, Pennsylvania. The initial term of the lease is for ten years with two
additional five-year renewal options available. The agreement is subject to
numerous contingencies, including approval by the Pennsylvania State Harness
Racing Commission. On September 26, 1997, the Company's application was approved
by the Racing Commission. The Company expects to have the facility constructed
and operational in the first quarter of 1998.
On September 9, 1997, the Company entered into a lease agreement for
its Stroudsburg, Pennsylvania OTW facility. The initial term of the lease is for
ten years with two additional five years renewal options available. The
agreement is subjected to numerous contingencies, including approval by the
Pennsylvania State Harness Racing Commission. On November 6, 1997, the Company's
application was approved by the Racing Commission. The Company expects to have
the facility renovated and operational in the third quarter of 1998.
On September 26, 1997, the Company entered into a lease agreement for
its proposed Altoona, Pennsylvania OTW facility. The lease is for 14,220 square
feet at the Pleasant Valley Shopping Center in Altoona, Pennsylvania. The
initial term of the lease is for ten years with two additional five-year renewal
options available. The agreement is subjected to numerous contingencies,
including approval by the Pennsylvania State Racing Commission. On September 26,
1997, the Company submitted its application for such approval. If approved, the
Company expects to have the facility operational in the third quarter of 1998.
7. Subsequent Items
On October 30, 1997 the Company increased its revolving credit facility
with its banks to $10.0 million.
14
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
Three months ended September 30, 1997 compared to three months ended September
30, 1996
Total revenue increased by approximately $13.3 million, or 83.8%, to
$29.2 million for the three months ended September 30, 1997, as compared to the
three months ended September 30, 1996. Pocono Downs, which was acquired in the
fourth quarter of 1996, accounted for $9.4 million of the increase. Charles Town
Races, which was purchased in January 1997, accounted for $4.9 million of the
revenue increase. The Company renovated and refurbished the Charles Town
facility following its acquisition and commenced racing operations on April 30,
1997 and Gaming Machine operations, with a soft opening, on September 10, 1997.
Revenues decreased by approximately $1.8 million in the aggregate at the
Company's Penn National Race Course and OTW facilities in Reading, and
Chambersburg. This decrease was offset by a revenue increase of $798,000 which
was primarily due to the opening of Penn National's OTW facility in Williamsport
in February 1997. Management believes that the decrease in revenues at the
Reading and Chambersburg OTWs, respectively, was primarily due to the opening of
a competitor's OTW facility near Reading and the opening of the Charles Town
facility, which is within the Chambersburg target market.
Total operating expenses increased by approximately $13.0 million, or
96.3%, to $26.5 million for the three months ended September 30, 1997, as
compared to the three months ended September 30, 1996. Pocono Downs and Charles
Town Races, which the Company did not operate in the corresponding quarter,
accounted for $7.9 million and $5.2 million of this increase, respectively.
Operating expenses decreased by approximately $1.0 million in the aggregate at
the Company's Penn National Race Course and OTW facilities in Reading and
Chambersburg. This decrease was offset by a operating expense increase of
$596,000 which was primarily due to the opening of Penn National's OTW facility
in Williamsport in February 1997. The increase in corporate expenses of $321,000
was due to increased personnel and other administrative expense necessary to
support the expansion of the Company.
Income from operations increased by approximately $313,000, or 13.2%,
to $2.7 million due to the factors described above. Other expenses for the three
months ended September 30, 1997 consisted of approximately $1.0 million in
interest expense (primarily due to the financing of the Pocono Downs and Charles
Town acquisitions) compared to $6,000 in interest expense for the three months
ended September 30, 1996. Site development expenses for the three months ended
September 30, 1997 consist of a non-recurring pre-tax charge of $599,000
associated with the Company's failure to obtain the approval for the Downingtown
OTW and discontinued site development efforts in Indiana.
15
Net income decreased by approximately $724,000 or 50.2% from $1.4
million to $718,000 for the three months ended September 30, 1997 compared to
the three months ended September 30, 1996 based on the factors described above.
Nine months ended September 30, 1997 compared to nine months ended September 30,
1996
Total revenue increased by approximately $35.1 million, or 75.5%, to
$81.6 million for the nine months ended September 30, 1997, as compared to the
nine months ended September 30, 1996. Pocono Downs, which was acquired in the
fourth quarter of 1996, accounted for $26.2 million of the increase. Charles
Town Races, which was purchased in January 1997, accounted for $7.8 million of
the increase. The Company renovated and refurbished the Charles Town facility
following its acquisition and commenced racing operations on April 30, 1997 and
Gaming Machine operations, with a soft opening, on September 10, 1997. The
remaining revenue increase of $1.1 million was primarily due to an increase of
$5.9 million associated with the opening of the Penn National OTW facility in
Williamsport in February 1997 and a full period of operations at the Lancaster
OTW facility; this increase was offset by a decrease in revenues of
approximately $4.2 million at the Company's OTW facilities in Reading and York
and at the Penn National Race Course. Management believes that the decrease in
revenues at these facilities was primarily due to the opening of a competitor's
OTW facility and the opening of the Company's Lancaster OTW facility in July of
1996. The company also had a decrease of $600,000 relating to the closing of
Penn National Speedway in Grantville at the end of 1996.
Total operating expenses increased by approximately $31.9 million, or
81.2%, to $71.1 million for the nine months ended September 30, 1997, as
compared to the nine months ended September 30, 1996. Pocono Downs and Charles
Town Races, which the Company did not operate in the corresponding prior period,
accounted for $21.4 million and $8.2 million of this increase, respectively.
Operating expenses also increased by $1.2 million primarily due to an increase
of $3.9 million associated with the opening of the OTW facility in Williamsport
in February 1997, and operations at the Lancaster OTW facility, which was offset
by a decrease in operating expenses of approximately $1.7 million at the
Company's OTW facilities in Reading and York and at the Penn National Race
Course associated with lower revenue levels at these facilities In addition,
there was a decrease of approximately $800,000 in operating expenses due to the
closing of Penn National Speedway. The increase in corporate expenses of $1.0
million was due to increased personnel, office space and other administrative
expense necessary to support the expansion of the Company.
Income from operations increased by approximately $3.2 million, or
44.7%, to $10.5 million due to the factors described above. Other expenses for
the nine months ended September 30, 1997 consisted of approximately $2.7 million
in interest expense (primarily due to the financing of the Pocono Downs and
Charles Town acquisitions) compared to $44,000 in interest expense for
16
the nine months ended September 30, 1996. Site development expenses for the nine
months ended September 30, 1997 consist of a non-recurring pre-tax charge of
approximately $599,000 associated with the Company's failure to obtain the
approval for the Downingtown OTW facility and discontinued site development
efforts in Indiana.
The extraordinary item consisted of a non-cash write-off associated
with the early extinguishment of debt of $383,000, net of income taxes. This
resulted from the Company receiving approximately $23.0 million as proceeds from
the February 1997 equity offering and using approximately $19.0 million to
reduce long-term debt.
Net income decreased by approximately $351,000, or 8.0%, to $4.0 for
the nine months ended September 30, 1997 compared to the nine months ended
September 30, 1996 based on the factors described above.
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 issuances of equity securities.
Net cash provided from operating activities for the nine months ended
September 30, 1997 ($11.0 million) consisted of net income and non-cash expenses
($7.6 million), the repayment of the Charles Town Races receivable in January
1997 ($1.3 million) and other changes in working capital ($2.1 million).
Cash flows used in investing activities ($42.7 million) consisted of
the acquisition of the Charles Town facility ($16.0 million), construction in
progress and renovation and refurbishment of the Charles Town facility ($22.8
million), and $3.9 million in capital expenditures, including approximately
$700,000 for the completion of the Williamsport OTW facility.
Cash flows from financing activities ($29.9 million) consisted
principally of $23.1 million in proceeds from a secondary equity offering in
February 1997 and $16.5 million in proceeds from long-term debt used as payment
for the Charles Town acquisition on January 15, 1997. The Company used the
proceeds from the equity offering to repay $19.0 million of its bank debt
(including Charles Town acquisition borrowings), and the remaining amount was
used for the refurbishment of the Charles Town facility. The Company received an
additional $6.5 million in proceeds from long-term debt during the third quarter
to use for the refurbishment of the Charles Town facility.
17
The Company has a $5.0 million revolving credit facility which
includes a $2.0 million sublimit for standby letters of credit for periods of up
to twelve months. At September 30, 1997 the Company borrowed $2.5 million of the
revolving credit facility for the refurbishment of the Charles Town Facility. On
October 30, 1997, the revolving credit facility was increased to $10.0 million.
The Company is subject to possible liabilities arising from
environmental conditions at the landfill adjacent to Pocono Downs Harness Track.
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 parities to an existing settlement agreement. The Company is unable to
estimate the amount, if any, that it may be required to expend.
During the balance of 1997, the Company anticipates capital
expenditures of approximately $2.4 million, exclusive of the cost of
refurbishing the Charles Town Facility (described below), to construct two
additional OTW facilities and approximately $200,000 for other capital
expenditures and improvements to existing facilities for Penn National Race
Course and Pocono Downs. Under the Company's credit facility, the Company is
permitted to make capital expenditures (not including the refurbishment of the
Charles Town Facility, or the cost of Gaming Machines to be installed there
pursuant to a lease arrangement) of $12.0 million in 1997, $4.0 million in 1998
and $2.0 million in 1999 and in each year thereafter. The Company anticipates
expending approximately $27.3 million on the refurbishment of the Charles Town
Facility (excluding Gaming Machines), of which $22.8 million had already been
expended through September 30, 1997.
The Company currently estimates that the cash generated from operations
and borrowings under its credit facility, will be sufficient to finance its
current operations and planned capital expenditure requirements. There can be no
assurance, however, that the Company will not be required to seek 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. If
additional funds are raised by issuing equity securities, existing shareholders
may experience dilution.
18
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2.9 Second amended and related operating agreement dated
as of October 17, 1997, among Penn National Gaming of
West Virginia, Inc., BDC Group, and PNGI Charles Town
Gaming Limited Liability Company.
10.66 Fourth amendment waiver and consent dated as of October 20,
1997, among the company Bankers Trust Company as agent,
CoreStates Bank, N.A. as co-agent, and certain banks party to the
credit agreement dated as of November 17, 1996
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
19
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.
Date: November 14, 1997 By: /s/ Robert S. Ippolito
------------------------
Robert S. Ippolito
Chief Financial Officer
Secretary/Treasurer
20
EXHIBIT INDEX
Exhibit Nos. Description of Exhibits Page No.
2.9 Second amended and related operating agreement
dated as of October 17, 1997, among Penn National
Gaming of West Virginia, Inc., BDC Group and
PNGI Charles Town Gaming Limited Liability
Company.
10.66 Fourth amendment waiver and consent dated as
of October 20, 1997, among the company, Bankers
Trust as agent, CoreStates Bank, N.A. as co-agent
and certain banks party to the credit agreement dated
as of November 17, 1996.
27.1 Financial Data Schedule
21