SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): February 4, 2002
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PENN NATIONAL GAMING, INC.
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(Exact Name of Registrant Specified in Charter)
PENNSYLVANIA 0-24206 23-2234473
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(State or Other (Commission File (I.R.S. Employer
Jurisdiction of Number) Identification No.)
Incorporation)
825 Berkshire Boulevard
Wyomissing, PA 19610
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(Address of Principal Executive Offices) (Zip Code)
Registrant"s telephone number, including area code: (610) 373-2400
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Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA INFORMATION AND EXHIBITS.
(c) Exhibits.
99.1 Certain information that will be disclosed by the Company in a
proposed public offering of common stock.
ITEM 9. REGULATION FD DISCLOSURE.
On February 4, 2002, we announced our plans to offer 3,500,000
shares of common stock in a public offering. Of the 3,500,000 shares to be
sold in the offering, 2,500,000 are being offered by us and 1,000,000 shares
are being offered by The Carlino Family Trust. Net proceeds to us from the
offering will be used to repay indebtedness under our existing credit
facility. We will not receive any proceeds from the offering by The Carlino
Family Trust.
In connection with the offering of the common stock, we anticipate
disclosing to prospective purchasers of the common stock certain information.
We have elected to provide certain of this information in this Current Report
on Form 8-K as Exhibit 99.1 for informational purposes. None of the
information contained in this Form 8-K or the exhibit hereto should be deemed
to be filed under the Securities Exchange Act of 1934 or incorporated by
reference into any other filings we have made or may make pursuant to the
Securities Act of 1933 or into any other documents unless such portion of
this Current Report on Form 8-K is expressly and specifically identified in
such filing as being incorporated by reference therein.
We can not provide any assurance whether we will be able to complete
the public offering of common stock. We presently expect to price the
offering during the week of February 11, 2002.
This current report on Form 8-K does not constitute an offer to sell
or the solicitation of an offer to buy any security and shall not constitute
an offer, solicitation or sale of any securities in any jurisdiction in which
such offer or sale would be lawful.
This current report on Form 8-K, together with the information
attached as an exhibit hereto, includes "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Exchange Act, regarding, among other things, our business
strategy, our prospects and our financial position. These statements can be
identified by the use of forward-looking terminology such as "believes,"
"estimates," "expects," "intends," "may," "will," "should" or "anticipates"
or the negative or other variation of these or similar words, or by
discussions of strategy or risks and uncertainties. Specifically,
forward-looking statements may include, among others, statements concerning:
o our expectations of future results of operations or financial
condition;
o our expectations for our properties and the facility that we
manage in Canada;
o the timing, cost and expected impact on our market share and
results of operations of our planned capital expenditures;
o the timing of completion of our acquisition of Bullwhackers
casino;
o the impact of our regional diversification;
o our expectations with regard to further acquisitions and the
integration of any companies we may acquire;
o the outcome and financial impact of the litigation in which we
are involved;
o the actions of regulatory authorities with regard to our
business and the impact of any such actions;
o the expected effect of regulatory changes that we are
pursuing; and
o expectations of the continued availability of capital
resources.
Although we believe that the expectations reflected in such
forward-looking statements are reasonable, they are inherently subject to
risks, uncertainties and assumptions about us and our subsidiaries and,
accordingly, we cannot assure you that such expectations will prove to be
correct. Important factors that could cause actual results to differ
materially from the forward-looking statements include, without limitation,
risks related to the following:
o capital projects at our gaming and pari-mutuel facilities;
o the activities of our competitors;
o the existence of attractive acquisition candidates;
o our ability to maintain regulatory approvals for our existing
businesses and to receive regulatory approvals for our new
businesses;
o our dependence on key personnel;
o the maintenance of agreements with our horsemen and
pari-mutuel clerks;
o other risks and uncertainties described from time to time in
our filings with the Securities and Exchange Commission;
o the risk factors or uncertainties listed herein or in any
document incorporated by reference herein or therein; and
o other risks and uncertainties that have not been identified at
this time.
All subsequent written and oral forward-looking statements attributable to us
or persons acting on our behalf are expressly qualified in their entirety by
the cautionary statements included in this document. We undertake no
obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise, except as
required by law. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this prospectus supplement, accompanying
prospectus and the documents incorporated by reference may not occur.
SIGNATURE
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 hereunto duly authorized.
PENN NATIONAL GAMING, INC.
(Registrant)
By \s\ Joseph A. Lashinger, Jr.
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Joseph A. Lashinger, Jr.
Vice President and General Counsel
Dated: February 5, 2002
EXHIBIT INDEX
Exhibit
Number Description
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99.1 Certain information that will be disclosed by the
Company in a proposed public offering of common stock.
EXHIBIT 99.1
THE FOLLOWING INFORMATION WILL BE DISCLOSED BY THE COMPANY IN A PROPOSED PUBLIC
OFFERING OF COMMON STOCK. FOR PURPOSES OF THIS DOCUMENT, THE "OFFERING" SHALL
MEAN OUR PROPOSED OFFERING OF 3,500,000 SHARES OF COMMON STOCK.
EXCEPT WHERE OTHERWISE NOTED, THE WORDS "WE," "US," "OUR" AND SIMILAR TERMS
AS WELL AS REFERENCES TO "PENN NATIONAL" OR THE "COMPANY" REFER TO PENN NATIONAL
GAMING, INC. AND ALL OF ITS SUBSIDIARIES.
THE COMPANY
We are a leading diversified, multi-jurisdictional owner and operator of
gaming properties, as well as horse racetracks and associated off-track wagering
facilities, which we refer to in this document as our pari-mutuel operations. We
own or operate five gaming properties located in West Virginia, Mississippi,
Louisiana and Ontario, Canada that are focused primarily on serving customers
within driving distance of our properties. We also own two racetracks and eleven
off-track wagering facilities in Pennsylvania. We believe our portfolio of
assets provides us with diversified cash flow. We intend to pursue the expansion
of our gaming operations through both the implementation of a disciplined
capital expenditure program at our existing properties and the continued pursuit
of strategic acquisitions of gaming properties in attractive regional markets.
In 1997, we began our transition from a pari-mutuel company to a diversified
gaming company with the introduction of video lottery terminals at our Charles
Town Entertainment Complex. In 1999, we expanded our offerings at Charles Town
with the introduction of reel-spinning, coin-in/coin-out machines. We continued
our transition through a series of strategic acquisitions in four different
regional markets. In August 2000, we acquired Casino Magic Bay St. Louis in Bay
St. Louis, Mississippi and Boomtown Biloxi in Biloxi, Mississippi for an
aggregate purchase price of approximately $200 million and, in April 2001, we
acquired Casino Rouge in Baton Rouge, Louisiana and the management contract for
Casino Rama in Orillia, Ontario, Canada for approximately $180 million. In
addition, we have signed an agreement to acquire the operations of Bullwhackers
casino in Black Hawk, Colorado. We are also in the process of implementing
significant capital improvement plans at Charles Town and Bay St. Louis. These
projects include the construction of additional floor space and a parking
facility at Charles Town and the development of an additional hotel in Bay St.
Louis. We believe these projects will broaden the customer appeal of these
properties.
On a pro forma basis reflecting our recent acquisitions, our revenues
would have been $537.0 million and $483.5 million for the twelve months ended
September 30, 2001 and 2000, respectively, and our EBITDA (as defined below)
would have been $119.4 million and $109.4 million for the twelve months ended
September 30, 2001 and 2000, respectively.
OUR PROPERTIES
The following table summarizes certain features of our owned or leased
properties and our managed facility as of January 31, 2002:
PRO FORMA
PROPERTY LEVEL
EBITDA(1) FOR
TWELVE
GAMING MONTHS ENDED
TYPE OF SQUARE GAMING TABLE SEPTEMBER 30,
PROPERTY LOCATION FACILITY FOOTAGE MACHINES GAMES 2001
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OWNED OR LEASED: (IN THOUSANDS)
Charles Town Entertainment Charles Town, WV Land-based gaming/ 50,000 2,000 -- $ 47,971
Complex Thoroughbred racing
Casino Magic Bay St. Louis Bay St. Louis, MS Dockside gaming 39,500 1,158 37 18,565
Boomtown Biloxi Biloxi, MS Dockside gaming 33,600 1,152 27 12,739
Casino Rouge Baton Rouge, LA Dockside gaming 28,000 1,029 38 21,142
Penn National Race Course(2) Harrisburg, PA Thoroughbred racing -- -- -- 7,907
Pocono Downs(2) Wilkes-Barre, PA Harness racing -- -- -- 6,783
OPERATED:
Casino Rama Orillia, Ontario Land-based gaming 75,000 2,202 122 11,098
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Total 226,100 7,541 224 $126,205
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(1) Excludes corporate overhead expense of $9.2 million and earnings from
unconsolidated affiliates of $2.1 million.
(2) In addition to our racetracks, Penn National Race Course and Pocono Downs
operate six and five off-track wagering facilities, respectively, located
throughout Pennsylvania. Property level EBITDA at these properties includes
the results of associated OTWs.
CHARLES TOWN ENTERTAINMENT COMPLEX. The Charles Town Entertainment Complex
in Charles Town, West Virginia features 2,000 gaming machines, a thoroughbred
racetrack, simulcast wagering, entertainment and dining. The facility is located
within driving distance of Baltimore, Maryland and Washington, D.C. and is a
leading gaming property serving the area. There is a total population of
approximately 3.1 million and 10.0 million persons within a 50 and 100-mile
radius, respectively, of the property. We have experienced strong growth at the
facility and have increased the number of gaming machines from 400 in
September 1997 to their current levels. A change in law in March 2001 increased
the maximum per pull wagering limit on the machines from $2 to $5. We have
undertaken a number of initiatives to drive growth at this property. In November
2000, we expanded the gaming area to over 50,000 square feet and opened a
150-seat restaurant and bar. We also have begun construction of a 1,500-space
structured parking facility that is expected to open in the second quarter of
2002 and we are expanding the gaming floor space to accommodate additional
gaming machines and patrons. The expansion will add 41,000 square feet of space
and will enable us to install 500 additional gaming machines. We expect to
complete this phase of the expansion in July 2002. Subject to regulatory
approval, we expect to install 500 machines in 2002 and an additional 1,000
machines in 2003, for a total of 3,500 machines.
CASINO MAGIC BAY ST. LOUIS. Casino Magic Bay St. Louis offers approximately
39,500 square feet of gaming space, with approximately 1,158 slot machines and
37 table games. The facility is located in the Gulf Coast gaming market and is
within driving distance of New Orleans, Louisiana, Mobile, Alabama and other
cities in the Southeast. The property includes a 201-room hotel with banquet and
meeting space, 1,800-seat arena, 18-hole Arnold Palmer-designed championship
golf course, steak and seafood restaurant, a buffet-style restaurant and a live
entertainment lounge. We are constructing a 300-room hotel with conference
facilities, which we expect to open in the late second quarter of 2002. The
hotel, which is attached to the casino, will be comprised of 236 deluxe rooms,
46 junior suites and 9 one-bedroom suites with attached parlors. We believe the
new hotel will enable us to enhance our status as a regional destination
property.
BOOMTOWN BILOXI. Boomtown Biloxi, also located in the Gulf Coast gaming
market, offers approximately 33,600 square feet of gaming space, with 1,152 slot
machines and 27 table games, as well as other gaming amenities including a full
service buffet/menu service restaurant, 120-seat deli-style restaurant,
full-service bakery, western dance hall/cabaret and 20,000-square foot family
entertainment center. We believe that the property offers a relaxed and friendly
environment and has a broad and loyal customer base. There is an adult
population of approximately 665,000 and 2.2 million persons within a 50 and
100-mile radius, respectively, of the Gulf Coast market.
CASINO ROUGE. Casino Rouge is one of two dockside riverboat gaming
facilities operating in Baton Rouge, Louisiana. The property features a
four-story, 47,000-square foot riverboat casino, replicating a nineteenth
century Mississippi River paddlewheel steamboat, and a two-story, 58,000-square
foot dockside embarkation building. The riverboat features approximately 28,000
square feet of gaming space, 1,029 gaming machines and 38 table games and has a
capacity of 1,800 customers. The dockside embarkation facility offers a variety
of amenities, including a steakhouse, a 268-seat buffet, food and bar service,
lounge areas, meeting and planning space and a gift shop. There is an adult
population of approximately 650,000 and 2.1 million persons within a 50 and
100-mile radius, respectively, of the Baton Rouge market.
CASINO RAMA. We operate Casino Rama, a full service gaming and
entertainment facility, on behalf of the Ontario Lottery and Gaming Corporation,
an agency of the Province of Ontario. Casino Rama, located on the lands of the
Mnjikaning First Nation, is approximately 90 miles north of Toronto, Canada, and
has approximately 75,000 square feet of gaming space, 2,202 gaming machines and
122 table games. A 5,000-seat entertainment facility opened in July 2001 and a
300-room hotel currently is under construction at the property and is expected
to open in the second quarter of 2002. We have not and are not required to
commit any of our capital to these projects. Under our operating agreement,
which expires in 2011, we are entitled to a base fee equal to two percent of
gross revenue of the casino and an incentive fee equal to five percent on the
casino's net operating profit.
PENN NATIONAL RACE COURSE, POCONO DOWNS AND OTHER PARI-MUTUEL ASSETS. In
addition to our gaming facilities, we own and operate Penn National Race Course,
located outside of Harrisburg, one of two thoroughbred racetracks in
Pennsylvania, and Pocono Downs, located outside of Wilkes-Barre, one of two
harness racetracks in Pennsylvania. There is a total population of approximately
2.2 million persons within a 50-mile radius of Penn National Race Course. There
is a total population of approximately 1.5 million persons within a 50-mile
radius of Pocono Downs. In addition to our racetracks, we operate eleven
off-track wagering facilities, or OTWs, in Pennsylvania and hold a 50% interest
in Pennwood Racing, Inc., a joint venture that owns and operates Freehold
Raceway in New Jersey.
In August 2001, we entered into a definitive agreement to acquire the
operations of Bullwhackers Casino in Black Hawk, Colorado for $6.5 million cash.
The Bullwhackers properties include 20,700 square feet of gaming space, 1,002
slot machines, 16 table games and a 475-car parking area. The properties are
located on leased land as well as 3.25 acres of land included in the
acquisition, much of which is utilized for parking. We expect to close the
acquisition in the second quarter of 2002.
BUSINESS STRATEGY AND STRENGTHS
We seek to provide our customers with high quality gaming, racing, lodging,
dining and entertainment offerings. Our strategy is to expand our gaming
operations through both internal growth and the selective acquisition of
strategic gaming properties in attractive gaming markets.
We believe that the following key competitive strengths will contribute to
the successful implementation of our strategy:
- LEADING PROPERTIES IN ESTABLISHED REGIONAL MARKETS. Each of our properties
is located in established regional markets and has a population of at
least two million people within a
100-mile radius. We believe that our properties occupy a niche position in
each market in which we operate. Charles Town, with $193.6 million in
revenue for the twelve months ended September 30, 2001, is positioned as
the dominant operator in its market. Bay St. Louis, with its current
expansion and existing golf course, is evolving into a complete overnight
destination resort with what we believe is the broadest offering of
amenities on the Gulf Coast. Boomtown is the leading locals property in
the Biloxi market. Casino Rouge, with a 55% market share of 2001 revenue,
has consistently been the top performing property in Baton Rouge. Through
the introduction of additional amenities, and the implementation of our
capital improvement plans, we believe we can further improve the relative
market share of each of our existing properties.
- HISTORICALLY STABLE CASH FLOWS FROM EXISTING PROPERTIES. Because each of
our properties caters predominantly to local customers who tend to visit
our properties on a regular basis, our properties historically have
generated relatively stable cash flows. Moreover, the majority of our
gross gaming revenues comes from either video lottery terminal or slot
machine play, which typically are more predictable and stable sources of
revenue than other forms of gaming revenues. Each of our owned properties
has been in operation for a minimum of seven years and each is an
established venue for entertainment in its respective market. We believe
the capital development plans we are implementing will help us improve the
cash flow generating capabilities of our properties in the future.
- DIVERSIFIED PROPERTY PORTFOLIO. In addition to our established properties
in West Virginia and Pennsylvania, during the last 18 months we have
acquired three gaming properties in three regional markets and the right
to operate a fourth property in another regional market, enabling us to
develop a diversified portfolio of gaming properties. We believe this
regional diversification helps insulate us from softness in any one
market, while providing us with an opportunity to build a diversified
database of gaming customers to whom we can cross-market and promote all
of the properties within our portfolio. We intend to broaden the
diversification of our property portfolio through the continued pursuit of
strategic acquisitions in attractive markets.
- SUCCESSFUL ACQUISITION TRACK RECORD. During the past five years, we have
successfully transformed ourselves from an operator of racetracks and
off-track wagering facilities, into an operator of diversified gaming
properties. In implementing this transformation, we have positioned our
properties to achieve meaningful operating synergies, while simultaneously
building an experienced casino management team. We believe we have a
strong operational platform from which to pursue the continued growth of
our gaming operations.
- WELL-POSITIONED TO PURSUE GROWTH OPPORTUNITIES. According to the National
Association of State Budget Officers, there currently are more than
thirty-five states in the United States with projected budget deficits.
Many states are considering legislation that would introduce or broaden
gaming activities to help address these budget deficit problems. With
casino gaming, VLT or racetrack and off-track wagering operations in six
regional markets in North America, we believe we are a leading
multi-jurisdictional operator of a diversified mix of gaming properties.
We believe that our Pennsylvania and New Jersey pari-mutuel businesses may
provide us with significant growth opportunities if certain initiatives
are implemented. Pennsylvania currently has five bills pending in the
state legislature that would authorize the operation of slot machines at
racetracks. New Jersey recently has approved the introduction of off-track
wagering and telephone-account wagering. Pending the negotiation of a
participation agreement between our joint venture and the New Jersey
Sports Authority, and the final adoption of applicable regulations, we
expect that our joint venture will open its first off-track wagering
facility in late 2003.
- EXPERIENCED MANAGEMENT TEAM. Our senior management team has an average
industry tenure of more than 20 years and an established record of
acquiring, integrating and operating gaming and pari-mutuel facilities.
RECENT DEVELOPMENTS
On February 4, 2002, we announced fourth quarter 2001 results. Revenues for
the quarter rose 48.1% to $136.0 million, compared to $91.8 million in the
fourth quarter of 2000. Fourth quarter 2001 EBITDA rose 72.6% to $28.7 million,
from $16.6 million in the fourth quarter of 2000. Net income in the fourth
quarter of 2001 rose 105.2% to $5.6 million, or $0.35 per diluted share,
compared to net income of $2.7 million, or $0.18 per diluted share, in the
fourth quarter of 2000.
For the full year 2001, revenues rose 78.0% to $519.4 million, compared to
$291.8 million in 2000. EBITDA in 2001 rose 90.4% to $113.3 million, from
$59.5 million in 2000. Net income in 2001 rose 31.2% to $24.4 million, or $1.53
per diluted share, compared to net income before extraordinary item of
$18.6 million, or $1.20 per diluted share, in 2000.
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We are the successor to several businesses that have operated the Penn
National Race Course since 1972. We were incorporated in Pennsylvania in 1982 as
PNRC Corp. and adopted our present name in 1994. Our principal executive offices
are located in the Wyomissing Professional Center, 825 Berkshire Boulevard,
Suite 200, Wyomissing, Pennsylvania 19610; our telephone number is
(610) 373-2400.
SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA DATA
The following summary historical financial and operating data of Penn
National for the year ended December 31, 1999 and 2000, and Other data, are
derived from financial statements that have been audited by BDO Seidman, LLP,
independent certified public accountants. The summary consolidated financial and
Other data of Penn National for the nine months ended September 30, 2000 and
2001 have been prepared on the same basis as the historical information derived
from the audited financial statements and, in the opinion of management, contain
all adjustments, consisting only of normal recurring accruals, necessary for the
fair presentation of the results of operations for such periods.
The following summary unaudited consolidated pro forma data presented below
for the nine months ended September 30, 2000 and 2001 and the twelve months
ended September 30, 2000 and 2001 were prepared by consolidating our historical
results with the historical results of operations of Casino Magic Bay St. Louis,
Boomtown Biloxi, Casino Rouge and Casino Rama acquired for such periods. We
refer to Casino Magic Bay St. Louis and Boomtown Biloxi as the Mississippi
properties and Casino Rouge and Casino Rama as the CRC properties.
The following financial information is based on in part, and should be
read in conjunction with, the historical consolidated financial statements
and related notes of Penn National, Mardi Gras Casino Corp. (d/b/a Casino
Magic Bay St. Louis), Mississippi-I Gaming, L.P. (d/b/a Boomtown Biloxi) and
CRC Holdings, Inc.--Gaming Division and the unaudited pro forma consolidated
financial statements that we have filed with the SEC. This pro forma
information is presented for illustrative purposes only and is not
necessarily indicative of our operating results that would have occurred if
the Mississippi and CRC acquisitions had occurred in an earlier period, nor
is it necessarily indicative of our future operating results.
HISTORICAL RESULTS PRO FORMA RESULTS
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FOR THE YEAR FOR THE NINE FOR THE NINE FOR THE TWELVE
ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
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1999 2000 2000 2001 2000 2001 2000 2001
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(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Revenues................................ $170,360 $291,801 $200,017 $383,425 $376,724 $419,399 $483,515 $536,955
Income from operations.................. 16,719 43,565 32,149 57,533 58,789 66,302 68,458 79,225
Interest expense........................ 8,667 19,089 11,004 32,461 33,319 33,319 44,425 44,425
Income before extraordinary item........ 6,733 18,575 15,848 18,813 19,196 23,852 18,987 24,244
Net income.............................. 6,733 11,992 9,265 18,813 19,196 23,852 18,987 24,244
Diluted earnings per share before
extraordinary item.................... $ 0.44 $ 1.20 $ 1.03 $ 1.19 $ 1.25 $ 1.51 $ 1.23 $ 1.53
Diluted earnings per share.............. $ 0.44 $ 0.78 $ 0.60 $ 1.19 $ 1.25 $ 1.51 $ 1.23 $ 1.53
OTHER DATA:
EBITDA(1)............................... $ 26,496 $ 59,481 $ 42,850 $ 84,632 $ 89,589 $ 96,878 $109,357 $119,394
Capital expenditures.................... 13,243 27,295 17,348 22,967 25,692 25,868 40,515 37,014
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(1) EBITDA consists of income from operations plus depreciation and amortization
and earnings from joint venture. EBITDA is presented because we believe it
is frequently used by securities analysts, investors and other interested
parties in the evaluation of companies in our industry. However, other
companies in our industry may calculate EBITDA differently than we do.
EBITDA is not a measurement of financial performance under generally
accepted accounting principles and should not be considered as an
alternative to cash flow from operating activities or as a measure of
liquidity or an alternative to net income as an indicator of operating
performance or any other measure of performance derived in accordance with
generally accepted accounting principles.
RISK FACTORS
RISKS RELATED TO OUR BUSINESS
A SUBSTANTIAL PORTION OF OUR REVENUES AND EBITDA IS DERIVED FROM OUR CHARLES
TOWN FACILITY.
Approximately 37.4% and 46.0% of our revenue and EBITDA, respectively, for
the nine months ended September 30, 2001 was derived from our Charles Town
operations. If, among other things, new competitors enter the market, economic
conditions in the region deteriorate or a business interruption occurs, our
operating revenues and cash flow could decline significantly.
WE MAY FACE DISRUPTION IN INTEGRATING AND MANAGING FACILITIES WE MAY ACQUIRE OR
EXPAND.
We expect to continue pursuing expansion and acquisition opportunities and
could face significant challenges in managing and integrating the expanded or
combined operations. For example, in August 2001, we signed a definitive
agreement to acquire all of the assets of the Bullwhackers casino operations in
Black Hawk, Colorado. We currently expect the acquisition will close in the
second quarter of 2002. Management of new properties, especially in new
geographic areas, may require that we increase our managerial resources. If we
fail to effectively manage any growth we may have, it could materially adversely
affect our operating results.
The integration of the Bullwhackers operations and any other properties we
may acquire will require the dedication of management resources that may
temporarily detract attention from our day-to-day business. The process of
integrating Bullwhackers, and potentially other properties, also may interrupt
the activities of those businesses, which could have a material adverse effect
on our business, financial condition and results of operations. We cannot assure
you that we will be able to manage the combined operations effectively or
realize any of the anticipated benefits of our acquisitions.
Our ability to achieve our objectives in connection with any acquisition we
may consummate may be highly dependent on, among other things, our ability to
retain the senior property level management teams of such acquisition
candidates. If, for any reason, we are unable to retain these management teams
following such acquisitions or if we fail to attract new capable executives, our
operations after consummation of such acquisitions could be materially adversely
affected.
WE FACE RISKS RELATED TO THE DEVELOPMENT AND EXPANSION OF OUR CURRENT
PROPERTIES.
We expect to use a portion of our cash on hand, cash flow from operations
and available borrowings under our revolving credit facility for capital
expenditures at the Charles Town Entertainment Complex and at Casino Magic Bay
St. Louis, including the construction of the new hotel at the latter facility.
The construction of the hotel at Casino Magic Bay St. Louis involves substantial
risks, including the possibility of construction cost over-runs and delays due
to various factors (including regulatory approvals, inclement weather and labor
or material shortages), market deterioration after construction has begun, and
the emergence of competition from unanticipated sources. The opening of the new
hotel at Bay St. Louis will be contingent upon, among other things, receipt of
all required licenses, permits and authorizations. The scope of the approvals
required for the new hotel at Bay St. Louis is extensive, including, without
limitation, state and local land-use permits, building and zoning permits and
health and safety permits. In addition, unexpected changes or concessions
required by local, regulatory and state authorities could involve significant
additional costs and could delay or prevent the completion of construction or
the opening of a new hotel. We cannot be sure that we will obtain the necessary
permits, licenses and approvals for the construction and operation of the new
hotels, or that we will obtain such permits, licenses and approvals within the
anticipated time frame.
We also are implementing enhancements at the Charles Town Entertainment
Complex, including the expansion of the gaming floor and the construction of a
structured parking lot. These planned enhancements involve similar risks to
hotel construction risks including cost over-runs, delays, market deterioration
and receipt of required licenses, permits or authorizations, among others.
The opening of the new hotel at Bay St. Louis and the other proposed
enhancements also will require us to significantly increase the size of our
existing work force at the property. We cannot be certain that management will
be able to hire and retain a sufficient number of employees to operate these
facilities at their optimal levels. The failure to employ the necessary work
force could result in inadequate customer service which could ultimately harm
profitability.
PRIOR TO AUGUST 2000, OUR GAMING EXPERIENCE DID NOT INCLUDE CASINO OPERATIONS.
Our Charles Town Entertainment Complex has featured gaming machines since
1997, but does not include the full complement of casino, entertainment and
other amenities available at traditional casinos. Through acquisitions beginning
August 2000, however, we began operating and managing full-scale casinos in
Mississippi, Louisiana and Canada. We cannot be sure that we will be successful
in managing and operating our business in response to the challenges of
conducting full-scale casino operations in highly competitive gaming markets.
These challenges are made more difficult as a result of the ongoing expansion of
our Charles Town and Bay St. Louis properties. Our failure to meet these
challenges may have a material adverse effect on our business, financial
condition and results of operations.
WE FACE SIGNIFICANT COMPETITION.
GAMING OPERATIONS
The gaming industry is highly fragmented and characterized by a high degree
of competition among a large number of participants, many of which have
financial and other resources that are greater than our resources. Competitive
gaming activities include casinos, video lottery terminals and other forms of
legalized gaming in the United States and other jurisdictions.
Legalized gambling is currently permitted in various forms throughout the
United States and in several Canadian provinces. Other jurisdictions may
legalize gaming in the near future. In addition, established gaming
jurisdictions could award additional gaming licenses or permit the expansion of
existing gaming operations. New or expanded operations by other persons will
increase competition for our gaming operations and could have a material adverse
impact on us.
CHARLES TOWN, WEST VIRGINIA. Our gaming machine operations at the Charles
Town Entertainment Complex face competition from other gaming machine venues in
West Virginia and in neighboring states (including Dover Downs, Delaware Park
and Harrington Raceway in Delaware and the casinos in Atlantic City, New
Jersey). These venues offer significantly higher stakes for their gaming
machines than are permitted in West Virginia. Atlantic City, New Jersey does not
have a per-pull limit on its gaming machines, while Delaware has a $25 per-pull
limit. The per-pull limit in West Virginia is currently $5 per gaming machine.
In addition to existing competition, both Pennsylvania and Maryland have in the
past considered legislation to expand gaming in their respective states. The
failure to attract or retain gaming machine customers at the Charles Town
Entertainment Complex, whether arising from such competition or from other
factors, could have a material adverse effect on our business, financial
condition and results of operations.
MISSISSIPPI GULF COAST. Dockside gaming has grown rapidly on the
Mississippi Gulf Coast, increasing from no dockside casinos in March 1992 to 12
operating dockside casinos at December 31, 2001. Nine of these facilities are
located in Biloxi, two are located in Gulfport and one is located in Bay St.
Louis. Our Mississippi casino operations have numerous competitors, many of
which have
greater name recognition and financial and marketing resources than we have.
Competition in the Mississippi gaming market is significantly more intense than
the competition our gaming operations face in West Virginia or our pari-mutuel
operations face in Pennsylvania and New Jersey. We cannot be sure that we will
succeed in the competitive Mississippi Gulf Coast gaming market. The failure to
do so would have a material adverse effect on our business, financial condition
and results of operations.
LOUISIANA. Our Casino Rouge riverboat faces competition from land-based and
riverboat casinos throughout Louisiana and on the Mississippi Gulf Coast,
casinos on Native American lands and from non-casino gaming opportunities within
Louisiana. The Louisiana Riverboat Economic Development and Gaming Control Act
limits the number of gaming casinos in Louisiana to fifteen riverboat casinos
statewide and one land-based casino in New Orleans. All fifteen riverboat
licenses are currently issued.
The principal competitor to Casino Rouge is the Belle of Baton Rouge, which
is the only other licensed riverboat casino in Baton Rouge. In February 2001, a
new 300-room Sheraton hotel opened at the Belle of Baton Rouge. We also face
competition from three major riverboat casinos and one land-based casino in the
New Orleans area, which is approximately 75 miles from Baton Rouge, and from
three Native American casinos in Louisiana. The two closest Native American
casinos are land-based facilities located approximately 45 miles southwest and
approximately 65 miles northwest of Baton Rouge. We also face competition from
several truck stop gaming facilities located in certain surrounding parishes,
each of which are authorized to operate up to 50 video poker machines.
ONTARIO. Our operation of Casino Rama through CHC Casinos Canada Limited
will face competition in Ontario from a number of casinos and racetracks with
gaming machine facilities. Currently, there are two other commercial casinos,
five charity casinos and at least fifteen racetracks with gaming machines in the
province of Ontario. All of the casinos and gaming machine facilities are
operated on behalf of the Ontario Lottery and Gaming Corporation, an agency of
the Province of Ontario. The Ontario Lottery and Gaming Corporation also
operates several province-wide lotteries.
Casino Rama is located near Orillia, Ontario, approximately 90 miles north
of Toronto. There is one charity casino and three racetracks with gaming machine
facilities that directly affect Casino Rama. The charity casino has 40 gaming
tables and 450 gaming machines. The number of gaming machines at the racetracks
range from 100 to 1,700 each.
There is an interim commercial casino located in Niagara Falls, Ontario, 80
miles southwest of Toronto with approximately 135 gaming tables and 2,000 gaming
machines. It is contemplated that Niagara Falls will have a permanent casino
with a similar number of gaming tables and gaming machines as the interim casino
that is scheduled to be completed by the spring of 2002. In addition, it has
been proposed in connection with the City of Toronto's waterfront revitalization
project that a casino be located in downtown Toronto. However, we are not aware
of any definitive plans for the development of such a casino.
RACING AND PARI-MUTUEL OPERATIONS
Our racing and pari-mutuel operations face significant competition for
wagering dollars from other racetracks and OTWs (some of which also offer other
forms of gaming), other gaming venues such as casinos and state-sponsored
lotteries, including the Pennsylvania, New Jersey, Delaware and West Virginia
lotteries. We also may face competition in the future from new OTWs or from new
racetracks. From time to time, states consider legislation to permit other forms
of gaming. If additional gaming opportunities become available near our racing
and pari-mutuel operations, such gaming opportunities could have a material
adverse effect on our business, financial condition and results of operations.
Our OTWs compete with the OTWs of other Pennsylvania racetracks, and new
OTWs may compete with our existing wagering facilities. Our competitors have a
number of OTW facilities that are near our OTWs. Although only two competing
OTWs remain authorized by law for future opening,
the opening of a new OTW in close proximity to our existing or future OTWs could
have a material adverse effect on our business, financial condition and results
of operations.
WE ARE INVOLVED IN LEGAL PROCEEDINGS THAT, IF ADVERSELY ADJUDICATED OR SETTLED,
COULD IMPACT OUR FINANCIAL CONDITION.
On August 20, 2001, Showboat Development Company brought a lawsuit against
us and certain other parties related to the Charles Town Entertainment Complex.
The suit alleges, among other things, that our operation of coin-out video
lottery terminals at the Charles Town facility constitutes the operation of a
casino, thereby triggering Showboat's option to manage the casino. The suit also
alleges that our March 2000 acquisition of the 11% minority interest in Charles
Town Races from BDC Group, our former joint venture partner, was made in
violation of a right of first refusal that Showboat holds from BDC covering the
sale of any interest in any casino at Charles Town Races. We have filed in
federal district court in Nevada a motion to dismiss this action for lack of
personal jurisdiction and, in the alternative, a motion to transfer the case to
the state of West Virginia. On January 25, 2002, the district court granted our
motion to dismiss. The district court's decision is subject to appeal on or
before February 24, 2002. Nevertheless, we continue to believe that each of
Showboat's claims is without merit, and we intend to vigorously defend ourselves
against them. Even if there ultimately is a judgment against us in this case, we
do not believe that it will have a material adverse effect on our financial
condition or results of operations.
In July 2001, a lawsuit was filed against us by certain surveillance
employees at the Charles Town facility claiming that our surveillance of those
employees during working hours was improper. The lawsuit claims damages of
$7.0 million and punitive damages of $14.0 million. We currently are conducting
discovery in the case but, at this time, believe that all of the claims of the
employees are without merit. We intend to vigorously defend ourselves against
this action and do not believe that this action will have a material adverse
effect on our financial condition or results of operations.
In January 2002, an employee at our Charles Town facility initiated a suit
against us alleging invasion of privacy. The employee claims in the suit that
she was subjected to an involuntary strip search by other Charles Town employees
as part of a theft investigation and is seeking punitive damages. The lawsuit
claims damages of $0.5 million and punitive damages of $3.5 million. We believe
we have meritorious defenses and intend to vigorously defend ourselves against
this suit.
We also are parties to certain other litigation but do not believe it will
have a material adverse effect on our financial condition or results of
operations if any of these legal proceedings were adversely adjudicated or
settled. Furthermore, the nature of our business subjects us to the risk of
lawsuits filed by customers and others.
WE FACE EXTENSIVE REGULATION FROM GAMING AUTHORITIES.
LICENSING REQUIREMENTS. As owners and operators of gaming and pari-mutuel
betting facilities, we are subject to extensive state, local and, in Canada,
provincial regulation. State, local and provincial authorities require us and
our subsidiaries to demonstrate suitability to obtain and retain various
licenses and require that we have registrations, permits and approvals to
conduct gaming operations. Various regulatory authorities, including the
Louisiana Gaming Control Board, the Mississippi Gaming Commission, the New
Jersey Casino Control Commission, the New Jersey Racing Commission, the Alcohol
and Gaming Commission of Ontario, the Pennsylvania State Horse Racing
Commission, the Pennsylvania State Harness Racing Commission, the West Virginia
Racing Commission and the West Virginia Lottery Commission may, for any reason
set forth in the applicable legislation, limit, condition, suspend or revoke a
license or registration to conduct gaming operations or prevent us from owning
the securities of any of our gaming subsidiaries. Like all gaming operators in
the jurisdictions in which we operate, we must periodically apply to renew our
gaming licenses or registrations. We cannot assure
you that we will be able to obtain such renewals. Regulatory authorities may
also levy substantial fines against or seize the assets of our company, our
subsidiaries or the people involved in violating gaming laws or regulations. Any
of these events could have a material adverse effect on our business, financial
condition and results of operations.
We have demonstrated suitability to obtain and have obtained all
governmental licenses, registrations, permits and approvals necessary for us to
operate our existing gaming facilities. We cannot assure you that we will be
able to retain them or demonstrate suitability to obtain any new licenses,
registrations, permits or approvals, including those required for us to
consummate the Bullwhackers acquisition. If we expand our gaming operations in
West Virginia, Mississippi, Louisiana, Pennsylvania, New Jersey, Canada or to
new areas, we will have to meet suitability requirements and obtain additional
licenses, registrations, permits and approvals from gaming authorities in these
jurisdictions. The approval process can be time-consuming and costly and we
cannot be sure that we will be successful.
Gaming authorities in the United States generally can require that any
beneficial owner of our securities, including holders of our common stock file
an application for a finding of suitability. If a gaming authority requires a
record or beneficial owner of our common stock to file a suitability
application, the owner must apply for a finding of suitability within 30 days or
at an earlier time prescribed by the gaming authority. The gaming authority has
the power to investigate an owner's suitability and the owner must pay all costs
of the investigation. If the owner is found unsuitable, then the owner may be
required by law to dispose of our common stock.
POTENTIAL CHANGES IN REGULATORY ENVIRONMENT. From time to time, legislators
and special interest groups have proposed legislation that would expand,
restrict or prevent gaming operations in the jurisdictions in which we operate.
Any expansion of gaming or restriction on or prohibition of our gaming
operations could have a material adverse effect on our operating results.
TAXATION. State and local authorities raise a significant amount of revenue
through taxes and fees on gaming activities. We believe that the prospect of
significant revenue is one of the primary reasons that jurisdictions permit
legalized gaming. As a result, gaming companies are typically subject to
significant taxes and fees in addition to normal federal, state, local and
provincial income taxes, and such taxes and fees are subject to increase at any
time. We pay substantial taxes and fees with respect to our operations. From
time to time, federal, state, local and provincial legislators and officials
have proposed changes in tax laws, or in the administration of such laws,
affecting the gaming industry. In addition, worsening economic conditions could
intensify the efforts of state and local governments to raise revenues through
increases in gaming taxes. It is not possible to determine with certainty the
likelihood of changes in tax laws or in the administration of such laws. Such
changes, if adopted, could have a material adverse effect on our business,
financial condition and results of operations.
COMPLIANCE WITH OTHER LAWS. We are also subject to a variety of other rules
and regulations, including zoning, environmental, construction and land-use laws
and regulations governing the serving of alcoholic beverages.
WE DEPEND ON OUR KEY PERSONNEL.
We are highly dependent on the services of Peter M. Carlino, our Chairman
and Chief Executive Officer, and other members of our senior management team. We
have entered into employment agreements with Mr. Carlino and certain other
officers. However, the loss of the services of any of these individuals could
have a material adverse effect on our business, financial condition and results
of operations.
INCLEMENT WEATHER AND OTHER CONDITIONS COULD SERIOUSLY DISRUPT OUR OPERATIONS.
The operations of our facilities are subject to disruptions or reduced
patronage as a result of severe weather conditions. Our dockside facilities in
Mississippi and Louisiana are subject to risks in addition to those associated
with land-based casinos, including loss of service due to casualty, mechanical
failure, extended or extraordinary maintenance, flood, hurricane or other severe
weather conditions. Reduced patronage and the loss of a dockside casino or
riverboat from service for any period of time due to severe weather could
adversely affect our business, financial condition and results of operations.
WE DEPEND ON AGREEMENTS WITH OUR HORSEMEN AND PARI-MUTUEL CLERKS TO OPERATE OUR
BUSINESS.
The Federal Horseracing Act, the West Virginia Racing Act and the
Pennsylvania Racing Act require that, in order to simulcast races, we have
written agreements with the horse owners and trainers at our West Virginia and
Pennsylvania race tracks. In addition, in order to operate gaming machines in
West Virginia, we are required to enter into written agreements regarding the
proceeds of the gaming machines with a representative of a majority of the horse
owners and trainers, a representative of a majority of the pari-mutuel clerks
and a representative of a majority of the horse breeders. On March 23, 1999, we
signed a new horsemen agreement with the Pennsylvania Thoroughbred Horsemen at
Penn National Race Course with an initial term that expires on January 1, 2004.
Our agreement with the Pennsylvania Harness Horsemen was entered into in
November 1999 and expires on January 16, 2003. At the Charles Town Entertainment
Complex, we have an agreement with the Charles Town Horsemen that expires on
December 31, 2002. Our agreement with the pari-mutuel clerks at Charles Town
expires on December 31, 2004.
If we fail to maintain operative agreements with the horsemen at a track, we
will not be permitted to conduct live racing and export and import simulcasting
at that track, and, in West Virginia, we will not be permitted to operate our
gaming machines. In addition, our simulcasting agreements are subject to the
horsemen's approval. In February 1999, the Pennsylvania Thoroughbred Horsemen
stopped racing at Penn National Race Course and withdrew their permission for us
to import simulcast races from other racetracks, resulting in the closure of
Penn National Race Course and its six OTWs. As a result of this action, our
operations at Penn National Race Course and its OTWs were suspended for more
than five weeks, we lost 46 race days at Penn National Race Course, and it took
nearly six months from the beginning of the action before we returned to
pre-action levels of racing and operations. If we fail to renew or modify
existing agreements on satisfactory terms, this failure could have a material
adverse effect on our business, financial condition and results of operations.
In addition, pursuant to the New Jersey Simulcasting Racing Act, our New
Jersey joint venture, Pennwood Racing, Inc., must maintain written agreements
with the horsemen at Freehold Raceway in order to simulcast races to the
Atlantic City casinos. Horsemen agreements currently are in effect at both
facilities.
RISKS RELATED TO OUR CAPITAL STRUCTURE
OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH.
We have a significant amount of indebtedness. On a pro forma basis as of
September 30, 2001, after giving effect to the application of the net proceeds
from this offering, we would have had total indebtedness of approximately
$393.3 million (excluding unused commitments under the credit facility) and
total shareholders' equity of $169.7 million.
Our substantial indebtedness could have important consequences to our
financial health. For example, it could:
- increase our vulnerability to general adverse economic and industry
conditions;
- require us to dedicate a substantial portion of our cash flow from
operations to debt service, thereby reducing the availability of our cash
flow to fund working capital, capital expenditures, and other general
corporate purposes;
- limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
- place us at a competitive disadvantage compared to our competitors that
are not as highly leveraged; and
- limit, along with the financial and other restrictive covenants in our
indebtedness, among other things, our ability to borrow additional funds.
Any of the above-listed factors could have a material adverse effect on our
business, financial condition and results of operations. In addition, we may
incur substantial additional indebtedness in the future. The terms of the
existing indebtedness do not fully prohibit us from doing so. If new debt is
added to our current debt levels, the related risks that we now face could
intensify.
OUR STOCK PRICE IS VOLATILE AND YOU MAY NOT BE ABLE TO RESELL YOUR SHARES AT OR
ABOVE THE PRICE YOU PAID FOR THEM.
Between January 1, 2001 and February 1, 2002, the closing sale price of our
common stock has ranged from a high of $32.38 per share to a low of $9.56 per
share. The market price of our common stock could continue to fluctuate
substantially due to a variety of factors, including:
- quarterly fluctuations in results of operations;
- the construction of new gaming facilities by competitors near our existing
properties;
- legislative or regulatory developments adverse to our existing gaming
properties or the gaming industry in general;
- changes in or failure to meet earnings estimates by securities analysts;
- sales of our common stock by existing shareholders or the perception that
these sales may occur;
- adverse judgments or settlements obligating us to pay damages;
- negative publicity about us or the gaming industry in general;
- loss of key personnel; and
- the termination of a material contract with our horsemen and pari-mutuel
clerks.
In addition, overall volatility has often significantly affected the market
prices of securities for reasons unrelated to a company's operating performance.
In the past, securities class action litigation has often been commenced against
companies that have experienced periods of volatility in the price of their
stock. Securities litigation initiated against us could cause us to incur
substantial costs and could lead to the diversion of management's attention and
resources.
ANTI-TAKEOVER PROVISIONS MAY DETER A THIRD PARTY FROM ACQUIRING US, LIMITING OUR
SHAREHOLDERS' ABILITY TO PROFIT FROM SUCH A TRANSACTION.
Our Articles of Incorporation include provisions that may delay, deter or
prevent a takeover attempt that shareholders might consider desirable. For
example, our Articles of Incorporation provide that our directors are to be
divided into three classes and elected to serve staggered three-year terms. This
structure could impede or discourage an attempt to obtain control of us by
preventing shareholders from replacing our entire board in a single proxy
contest, making it more difficult for a third party to take control of us
without the consent of our board of directors. Our Articles of
Incorporation further provide that our shareholders may not take any action in
writing without a meeting. This prohibition could impede or discourage an
attempt to obtain control of us by requiring that any actions required to be
taken by shareholders be taken at properly called shareholder meetings.
We also have adopted a shareholder rights plan that will dilute the stock
ownership of an acquirer of our common stock upon the occurrence of certain
events. The provisions in our Articles of Incorporation and our shareholder
rights plan may have the effect of deterring hostile takeovers, including
transactions in which shareholders might otherwise profit.
THE SALE OF A SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK AFTER THIS
OFFERING COULD CAUSE THE MARKET PRICE OF OUR COMMON STOCK TO DECLINE.
Our executive officers, directors and the selling shareholder, who
collectively beneficially own approximately 37.1% of our outstanding common
stock (approximately 27.0% of our outstanding common stock after completion of
this offering), have agreed to hold their shares until 90 days after this
offering, subject to certain exceptions. Sales, or the availability for sale, of
shares of our common stock by these or other shareholders could cause the market
price of our common stock to decline. In addition, approximately 984,667
additional shares of common stock issuable upon exercise of vested stock options
are currently available for immediate resale.
OUR EXECUTIVE OFFICERS AND DIRECTORS AS A GROUP OWN SUFFICIENT SHARES OF OUR
COMMON STOCK TO SIGNIFICANTLY AFFECT THE RESULTS OF ANY SHAREHOLDER VOTE.
As a result of the significant share ownership described above, our
executive officers and directors have the ability to significantly influence the
outcome of matters requiring a shareholder vote, including the election of our
board of directors, amendments to our organizational documents, or approval of
any merger, sale of assets or other major corporate transaction. The interests
of our executive officers and directors may differ from yours and our executive
officers and directors may be able to delay or prevent us from entering into
transactions that would result in a change in control, including transactions in
which our shareholders might otherwise receive a premium over the then current
market price for their shares.
CAPITALIZATION
The following table sets forth our consolidated cash and cash equivalents
and capitalization (i) on an actual basis as of September 30, 2001, and (ii)
on an as adjusted basis to reflect the sale of the 2,500,000 shares of our
common stock at an assumed offering price of $31.95 per share (less estimated
underwriting discounts, commissions and offering expenses), as if it occurred
on September 30, 2001. You should read this information in conjunction with
the consolidated financial statements and related notes and other financial
information incorporated by reference in this prospectus supplement.
AS OF SEPTEMBER 30, 2001
------------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
Cash and cash equivalents................................... $ 36,401 $ 36,401
======== ========
Long-term debt, including current portion:
Senior secured credit facility............................ $268,687 $193,294
Other debt................................................ 35 35
11 1/8% senior subordinated notes due 2008................ 200,000 200,000
-------- --------
Total long-term debt(1)................................. 468,722 393,329
-------- --------
Shareholders' equity
Preferred stock, $.01 par value, authorized 1,000,000
shares; no shares issued and outstanding................ -- --
Common stock, $0.01 par value, authorized 200,000,000
shares; 15,901,300 shares issued, actual; 18,401,300
shares issued, as adjusted.............................. 159 184
Treasury stock, at cost, 427,700 shares................... (2,379) (2,379)
Additional paid-in capital................................ 44,348 120,005
Retained earnings......................................... 60,776 58,306
Other comprehensive income................................ (6,358) (6,358)
Cumulative translation adjustment......................... (32) (32)
-------- --------
Total shareholders' equity.............................. 96,514 169,726
-------- --------
Total capitalization........................................ $565,236 $563,055
======== ========
- ------------------------
(1) We have entered into a number of arrangements that impose financial
obligations on us, but do not appear as liabilities on our balance sheet.
They include:
- A $100 million, notional amount, interest rate swap agreement that
converts a portion of our floating rate interest obligation into a fixed
LIBOR of 5.835% plus an applicable margin up to 4% per annum. This
instrument matures in December 2003.
- A $36 million, notional amount, interest rate swap agreement that fixes
LIBOR at 4.8125% plus an applicable margin up to 4% per annum. This
instrument matures in June 2004.
- Four letters of credit totaling approximately $4.4 million.
- A guarantee of up to 50% of a term loan obligation of our New Jersey joint
venture. As of January 31, 2002, our obligation under our guaranty of the
term loan was limited to approximately $10.3 million.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
The accompanying unaudited pro forma consolidated statements of
operations for the nine months ended September 30, 2000 and 2001 and the
twelve months ended September 30, 2000 and 2001 were prepared giving effect
to the acquisition of the Mississippi properties and CRC as if each event
occurred on October 1, 1999. In the pro forma consolidated statements of
operations, we have consolidated our historical results with the historical
results of operations of the Mississippi and CRC properties acquired for such
periods.
You should read the following pro forma consolidated statements of
operations in conjunction with the historical consolidated financial
statements of Penn National, Mardi Gras Casino Corp. (d/b/a/ Casino Magic Bay
St. Louis), Mississippi-I Gaming, L.P. (d/b/a Boomtown Biloxi) and CRC
Holdings, Inc.--Gaming Division incorporated herein by reference. The
unaudited pro forma consolidated statements of operations are presented for
illustrative purposes only and are not necessarily indicative of the
operating results that would have occurred if all of the events as described
above had occurred on the first day of the respective periods presented, nor
are they necessarily indicative of our future operating results.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000
PRO FORMA
FOR
MISSISSIPPI
PROPERTIES
PENN MISSISSIPPI CRC PRO FORMA AND CRC
NATIONAL PROPERTIES ACQUISITION ADJUSTMENTS ACQUISITION
(1) (2) (3) (4) (5)
-------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues
Gaming.................................... $ 99,895 $ 84,840 $ 67,751 $ -- $252,486
Racing.................................... 87,913 -- -- -- 87,913
Management servicing fees................. -- -- 10,177 -- 10,177
Other..................................... 12,209 12,362 1,577 -- 26,148
-------- -------- -------- -------- --------
Total revenues.............................. 200,017 97,202 79,505 -- 376,724
-------- -------- -------- -------- --------
Operating expenses
Gaming.................................... 59,050 47,516 31,603 -- 138,169
Racing.................................... 59,065 -- -- -- 59,065
Other operating expenses.................. 11,980 9,961 908 (269)(c) 22,580
General and administrative................ 29,316 17,104 25,315 (2,170)(d) 69,565
Depreciation and amortization............. 8,457 5,070 3,833 11,196 (a) 28,556
-------- -------- -------- -------- --------
Total operating expenses.................... 167,868 79,651 61,659 8,757 317,935
-------- -------- -------- -------- --------
Income from operations...................... 32,149 17,551 17,846 (8,757) 58,789
Interest income............................. 1,334 3 1,237 -- 2,574
Interest expense............................ (11,004) (93) (5,486) (16,736)(b) (33,319)
Earnings income from joint venture.......... 2,244 -- -- -- 2,244
Other income (expense), net................. 1 (301) (364) -- (664)
-------- -------- -------- -------- --------
Income before income taxes, minority
interest and extraordinary item........... 24,724 17,160 13,233 (25,493) 29,624
Income tax expense.......................... 8,876 3,946 5,466 (7,860)(e) 10,428
-------- -------- -------- -------- --------
Income before minority interest and
extraordinary item........................ 15,848 13,214 7,767 (17,633) 19,196
Minority interest........................... -- -- (2,346) 2,346 (f) --
-------- -------- -------- -------- --------
Income before extraordinary item............ 15,848 13,214 5,421 (15,287) 19,196
Extraordinary item.......................... (6,583) -- -- 6,583 (g) --
-------- -------- -------- -------- --------
Net income.................................. $ 9,265 $ 13,214 $ 5,421 $ (8,704) $ 19,196
======== ======== ======== ======== ========
Diluted earnings per share
Income before extraordinary item.......... $ 1.03 $ 1.25
======== ========
Net income................................ $ 0.60 $ 1.25
======== ========
EBITDA...................................... $ 42,850 $ 89,589
======== ========
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2001
PRO
FORMA
FOR
PENN CRC PRO FORMA CRC
NATIONAL ACQUISITION ADJUSTMENTS ACQUISITION
(1) (3) (4) (5)
-------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues
Gaming.......................................... $267,264 $31,480 $ -- $298,744
Racing.......................................... 85,508 -- -- 85,508
Management servicing fees....................... 5,480 4,494 -- 9,974
Other........................................... 25,173 -- -- 25,173
-------- ------- ------- --------
Total revenues.................................... 383,425 35,974 419,399
-------- ------- ------- --------
Operating expenses
Gaming.......................................... 146,940 12,401 -- 159,341
Racing.......................................... 59,511 -- -- 59,511
Other operating expenses........................ 25,847 13,429 -- 39,276
General and administrative...................... 68,515 -- (2,102)(d) 66,413
Depreciation and amortization................... 25,079 1,756 1,721 (a) 28,556
-------- ------- ------- --------
Total operating expenses.......................... 325,892 27,586 (381) 353,097
-------- ------- ------- --------
Income from operations............................. 57,533 8,388 381 66,302
-------- ------- ------- --------
Interest income.................................... 2,654 447 -- 3,101
Interest expense................................... (32,461) (2,138) 1,280 (b) (33,319)
Earnings from joint venture........................ 2,020 -- -- 2,020
Other (expense), net............................... (729) (565) -- (1,294)
-------- ------- ------- --------
Income before income taxes, minority interest and
extraordinary item............................... 29,017 6,132 1,661 36,810
Income tax expense................................. 10,204 2,611 143 (e) 12,958
-------- ------- ------- --------
Income before minority interest and extraordinary
item............................................. 18,813 3,521 1,518 23,852
Minority interest.................................. -- (154)(f) 154 (f) --
-------- ------- ------- --------
Income before extraordinary item................... 18,813 3,367 1,672 23,852
-------- ------- ------- --------
Extraordinary item............................... -- -- -- --
Net income......................................... $18,813 $ 3,367 $1,672 $ 23,852
======== ======= ======= ========
Diluted earnings per share
Income before extraordinary item................. $ 1.19 $ 1.51
======== ========
Net income....................................... $ 1.19 $ 1.51
======== ========
EBITDA............................................. $84,632 $ 96,878
======== ========
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED SEPTEMBER 30, 2000
PRO FORMA
FOR
MISSISSIPPI
PROPERTIES
PENN MISSISSIPPI CRC PRO FORMA AND CRC
NATIONAL PROPERTIES ACQUISITION ADJUSTMENTS ACQUISITION
(1) (2) (3) (4) (5)
-------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues
Gaming................................... $115,241 $117,288 $ 88,001 $ -- $320,530
Racing................................... 114,678 -- -- -- 114,678
Management servicing fees................ -- -- 14,173 -- 14,173
Other.................................... 15,234 16,741 2,159 -- 34,134
-------- -------- -------- -------- --------
Total revenues............................. 245,153 134,029 104,333 -- 483,515
-------- -------- -------- -------- --------
Operating expenses
Gaming................................... 68,800 66,028 41,401 -- 176,229
Racing................................... 77,090 -- -- -- 77,090
Other operating expenses................. 14,958 13,736 1,206 (269)(c) 29,631
General and administrative............... 38,466 24,174 33,843 (2,448)(d) 94,035
Depreciation and amortization............ 10,667 7,487 5,328 14,590 (a) 38,072
-------- -------- -------- -------- --------
Total operating expenses................... 209,981 111,425 81,778 11,873 415,057
-------- -------- -------- -------- --------
Income from operations..................... 35,172 22,604 22,555 (11,873) 68,458
Interest income............................ 1,727 113 1,726 -- 3,566
Interest expense........................... (13,163) (274) (7,415) (23,573)(b) (44,425)
Earnings from joint venture................ 2,827 -- -- -- 2,827
Other income (expense), net................ -- (210) (914) -- (1,124)
-------- -------- -------- -------- --------
Income before income taxes, minority
interest and extraordinary item.......... 26,563 22,233 15,952 (35,446) 29,302
Income tax expense......................... 9,382 4,534 6,836 (10,437)(e) 10,315
-------- -------- -------- -------- --------
Income before minority interest and
extraordinary item....................... 17,181 17,699 9,116 (25,009) 18,987
Minority interest.......................... -- -- (2,397) 2,397 (f) --
-------- -------- -------- -------- --------
Income before extraordinary item........... 17,181 17,699 6,719 (22,612) 18,987
Extraordinary item......................... (6,583) -- -- 6,583 (g) --
-------- -------- -------- -------- --------
Net income................................. $ 10,598 $ 17,699 $ 6,719 $(16,029) $ 18,987
======== ======== ======== ======== ========
Diluted earnings per share
Income before extraordinary item......... $ 1.12 $ 1.23
======== ========
Net income............................... $ 0.69 $ 1.23
======== ========
EBITDA..................................... $ 48,666 $109,357
======== ========
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED SEPTEMBER 30, 2001
PRO FORMA
PENN CRC PRO FORMA FOR CRC
NATIONAL ACQUISITION ADJUSTMENTS ACQUISITION
(1) (3) (4) (5)
-------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues
Gaming........................................ $326,958 $53,928 $ -- $380,886
Racing........................................ 110,826 -- -- 110,826
Management servicing fees..................... 5,480 7,815 -- 13,295
Other......................................... 31,948 -- -- 31,948
-------- ------- ------- --------
Total revenues.................................... 475,212 61,743 -- 536,955
-------- ------- ------- --------
Operating expenses
Gaming........................................ 181,977 30,991 -- 212,968
Racing........................................ 77,512 -- -- 77,512
Other operating expenses...................... 32,644 -- -- 32,644
General and administrative.................... 83,916 15,027 (2,409)(d) 96,534
Depreciation and amortization................. 30,216 2,964 4,892 (a) 38,072
-------- ------- ------- --------
Total operating expenses.......................... 406,265 48,982 2,483 457,730
-------- ------- ------- --------
Income from operations............................ 68,947 12,761 (2,483) 79,225
-------- ------- ------- --------
Interest income................................... 3,195 (1,296) -- 1,899
Interest expense.................................. (40,546) (1,359) (2,520)(b) (44,425)
Earnings from joint venture....................... 2,097 -- -- 2,097
Other (expense), net.............................. (691) (691) -- (1,382)
-------- ------- ------- --------
Income before income taxes, minority interest and
extraordinary item.............................. 33,002 9,415 (5,003) 37,414
Income tax expense................................ 11,465 4,058 (2,353)(e) 13,170
-------- ------- ------- --------
Income before minority interest and extraordinary
item............................................ 21,537 5,357 (2,650) 24,244
Minority interest................................. -- (893) 893 (f) --
-------- ------- ------- --------
Income before extraordinary item.................. 21,537 4,464 (1,757) 24,244
-------- ------- ------- --------
Extraordinary item.............................. -- -- -- --
Net income........................................ $ 21,537 $ 4,464 $(1,757) $ 24,244
======== ======= ======= ========
Diluted earnings per share
Income before extraordinary item................ $ 1.36 $ 1.53
======== ========
Net income...................................... $ 1.36 $ 1.53
======== ========
EBITDA............................................ $101,260 $119,394
======== ========
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
The following notes describe the column headings in the pro forma
consolidated statement of operations and the pro forma adjustments that have
been made to the unaudited pro forma consolidated statements of operations.
(1) Reflects the consolidated historical statements of operations of Penn
National Gaming, Inc. and subsidiaries.
(2) Represents the combined historical statements of operations for Casino
Magic and Boomtown Biloxi for each of the periods presented. We acquired
the Mississippi properties on August 8, 2000. As a result, the operating
results of the Mississippi properties for the period from August 8, 2000
through September 30, 2001 are included in our operating results.
(3) Represents the historical statements of operations of CRC Holdings, Inc.
- Gaming Division, and the minority interest in LCCI not owned by CRC
prior to our acquisition. We acquired CRC on April 27, 2001. As a result,
the operating results of CRC for the period from April 27, 2001
through September 30, 2001 are included in our operating results for
the nine months ended and twelve months ended September 30, 2001. For
the nine months ended September 30, 2000, the operating results for
CRC are for the period from December 1, 1999 to August 31, 2000. For
the twelve months ended September 30, 2000, the operating results for
CRC are for the period September 1, 1999 to August 31, 2000.
(4) Reflects the following pro forma adjustments to the operating results:
(a) Adjustments to reflect the acquisitions of Mississippi properties and
CRC:
NINE NINE TWELVE TWELVE
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 2001 2000 2001
-------------- ------------- ------------- -------------
(IN THOUSANDS)
Net increase in expense
resulting from the
depreciation of $86.4 million
and $116.9 million of
property related to
Mississippi properties and
CRC, respectively, using
lives ranging from 5 to 39
years........................ $ 4,854 $ 86 $ 8,248 $1,435
Net increase in amortization
expense of goodwill related
to Mississippi properties and
CRC of $78.3 million and
$59.1 million, respectively,
using a life of 40 years..... 2,852 664 2,852 1,652
Net increase in expense
resulting from the
amortization of $17.0 million
in deferred financing costs
over the term of the
Company's debt obligations... 1,042 203 1,042 425
Amortization of fair value of
management contract of $25.7
million over its 10 1/4-year
term......................... 2,448 768 2,448 1,380
------- ------- ------- ------
$11,196 $ 1,721 $14,590 $4,892
======= ======= ======= ======
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(b) Reflects net increase in interest expense resulting from the increase in
debt related to the Mississippi properties and CRC acquisitions.
(c) Adjustment to reflect elimination of legal fees and other expenses paid
by CRC in connection with the acquisition.
(d) Reflects pro forma adjustments relating to the CRC acquisition to
reflect the elimination of:
NINE MONTHS NINE MONTHS TWELVE MONTHS TWELVE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 2001 2000 2001
------------- ------------- ------------- -------------
(IN THOUSANDS)
Management fees.............. $ 455 $ 178 $ 574 $ 352
Royalty fees................. 515 172 674 305
Management bonus............. 1,000 1,452 1,000 1,452
Other charges................ 200 300 200 300
------ ------ ------ ------
$2,170 $2,102 $2,448 $2,409
====== ====== ====== ======
(e) Reflects the net income tax adjustments associated with the pro forma
adjustments described in (a), (b), (c), and (d) above.
(f) Adjustment to reflect elimination of minority interest in LCCI.
(g) Reflects elimination of extraordinary item per Penn National historical
financial statements.
(5) Reflects unaudited pro forma consolidated statement of operations of Penn
National as adjusted for Mississippi acquisitions and CRC acquisition.
YEAR ENDED DECEMBER 31, 2001
PRO FORMA REVENUE PERCENTAGES
-----------------------------
Gaming 72%
Racing 20%
Other(1) 8%
---
Total 100%
- ----------
(1) Includes management servicing fees.
PRO FORMA PROPERTY LEVEL
EBITDA(1) FOR YEAR ENDED
DECEMBER 31, 2001
-----------------
PROPERTY: AMOUNT PERCENTAGE
- --------- ------ ----------
(in millions)
Charles Town $51.3 37%
Casino Magic Bay St. Louis 18.7 14
Boomtown Biloxi 13.5 10
Casino Rouge 25.2 18
Casino Rama 10.8 8
Penn National 7.6 6
Pocono Downs 7.1 5
Pennwood Joint Venture 2.5(2) 2
------ ---
TOTAL $136.7 100%
====== ===
- ------------
(1) Excludes corporate expenses.
(2) Indicates earnings.
YEAR ENDED PRO FORMA PRO FORMA PRO FORMA EBITDA PRO FORMA
DECEMBER 31, REVENUES EBITDA (EXCLUDING CORPORATE EXPENSES) E.P.S.(1)
------------ -------- ------ ------------------------------ ---------
(in millions, except per share data)
2000 $493.8 $113.2 $126.6 $1.37
2001 $555.4 $125.6 $136.7 $1.74
- ------------
(1) Represent diluted earnings per share before extraordinary items.
