Penn National reports Q1 results
Summary of First Quarter Results
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(in millions, except per share data) Three Months Ended
March 31,
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2007 Guidance
2007 (3) 2006
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Net revenues (1) $ 596.3 $ 599.5 $ 547.8
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EBITDA (2) 167.7 159.0 164.8
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Less depreciation and amortization,
gain/loss on disposal of assets,
interest expense - net, income taxes,
charge for stock compensation, charge
for early extinguishment of debt and
other expenses (124.8) (118.9) (122.8)
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Net income $ 42.9 $ 40.1 $ 42.0
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Diluted earnings per share $ 0.49 $ 0.46 $ 0.49
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(1) Net revenues for 2006 reflect a reclassification for cash redemption coupons to contra-revenue from operating expense.
(2) EBITDA is income from operations, excluding charges for stock compensation, depreciation and amortization, and gain or loss on disposal of assets, and is inclusive of earnings from joint venture. A reconciliation of net income per accounting principles generally accepted in the United States of America ("GAAP") to EBITDA, as well as income from operations per GAAP to EBITDA is included in the accompanying financial schedules.
(3) The figures in this column present the guidance Penn National Gaming provided on February 8, 2007 for the quarter ended March 31, 2007.
Review of First Quarter 2007 Results vs. Guidance
and First Quarter 2006 Results
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Three Months Ended
March 31,
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2007 2007 Guidance 2006
Actual (1) Actual
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Diluted earnings per share $ 0.49 $ 0.46 $ 0.49
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Charge for early extinguishment of debt - - 0.07
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Diluted earnings per share before
charge for early extinguishment of
debt $ 0.49 $ 0.46 $ 0.56
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(1) The figures in this column present the guidance Penn National Gaming provided on February 8, 2007 for the quarter ended March 31, 2007.
Commenting on the results, Peter M. Carlino, Chairman and Chief Executive Officer of Penn National Gaming said, "Penn National exceeded its EPS and EBITDA guidance, reflecting operating gains at our two largest properties, growth in Bangor and contributions from our two Gulf Coast facilities which were closed a year ago. These factors offset the previously anticipated decline in Baton Rouge attributable to hurricane recovery and stabilization, the impact of increased insurance costs, the incremental Illinois tax at our Chicagoland facilities, pre-opening costs at Argosy Casino Riverside and Hollywood Casino at Penn National Race Course and costs associated with the closing of two of our off-track wagering facilities.
"Penn National continues to benefit from the diversification afforded by our portfolio of regional gaming properties, and we are poised for growth as expansion projects at Argosy Casino Riverside and Charles Town, as well as the acquisition of Zia Park Racetrack and its Black Gold Casino, our fourth integrated racing and gaming facility, are now coming on line. These developments will be followed in 2008 by the completion of three significant projects, including the grand opening early in the year of the Hollywood Casino racing and gaming facility at Penn National Race Course, followed shortly thereafter by the completion and opening of the permanent Hollywood Slots at Bangor facility and substantial additional parking at Lawrenceburg. All of the Company's development and expansion projects remain on track with our previously disclosed timetables and budgets.
"Earlier this month, Argosy Casino Riverside's Mediterranean-themed, nine-story, 258-room hotel and spa opened to the public, generating significant local interest. With an aggregate 22,000 square feet of meeting, ballroom and function space, including a total of 5,200 square feet of new meeting space and six new state-of-the-art meeting rooms, Argosy Casino Riverside is uniquely positioned to attract more corporate business and private parties to the complex, which is located a few minutes from downtown Kansas City.
"The Governor of Kansas recently signed into law a bill allowing a limited number of slot machines at the state's existing racetracks and four state-owned, but privately-managed, hotel casino resorts. Reflecting both our goals for expansion and to offset the potential impact that gaming in Kansas could have on Argosy Riverside in Missouri, Penn National is preparing a proposal for a gaming resort in southeastern Kansas. We are hopeful that our proven property development and operating disciplines will be important differentiating factors in the state independent review board's evaluation of our application for a gaming resort in Cherokee County, which will have a referendum on this issue on June 5, 2007. Before any gaming can begin in the state, local referenda need to be passed, procedures must be put in place for accepting gaming resort applications, threatened lawsuits challenging the constitutionality of the new law need to be resolved, and regulations must be established.
"Last week, we opened phase one of our latest expansion at Charles Town. With the additional gaming floor capacity, we installed 924 gaming machines, or 800 net new positions, bringing Charles Town's total count to approximately 5,000 units. Market demand has supported the ongoing expansion and investment in this facility over the last ten years, and patron response to the new area has been positive since opening. Last month, the Governor of West Virginia signed into law the West Virginia Lottery Racetrack Table Games Act, which allows the four existing horse and dog tracks in the State to offer table games subject to local voter approval. All four counties that have racetracks will hold table game referendum votes on June 9, 2007. We remain very excited about the growth prospects for the facility and its appeal to patrons in the region. Our next phase of development at Charles Town includes plans for additional gaming floor space to accommodate additional gaming machines or, if approved, table games, a 153-room hotel, and additional food and beverage offerings.
"Last week, Penn National also completed its most recent accretive acquisition, the $200 million purchase of Zia Park Racetrack and its Black Gold Casino, which represents our fourth integrated racing and gaming facility and expands our operations into New Mexico. Zia Park's Black Gold Casino features approximately 750 slot machines and the facility's success in attracting patrons from west Texas has driven revenue growth during its first two years of operation. We are grateful to the New Mexico Racing Commission and New Mexico Gaming Control Board for their expeditious review of our gaming applications and subsequent approval of the transaction.
"The trial court in Illinois recently ruled that the legislation which singled out four Illinois casinos for a 3% tax surcharge to subsidize horse racing was unconstitutional. Since Illinois passed House Bill 1918 in the second quarter of 2006, Penn National expensed approximately $13.3 million in incremental tax, including $4.0 million in the first quarter of 2007. While the Illinois Attorney General has appealed the decision, the four impacted properties remain steadfast in their intention to overturn the legislation and, should we prevail, the incremental taxes paid under protest will be refunded.
"Management remains focused in applying its disciplined approach to diversification in pursuing additional growth that can enhance value for our shareholders based on returns on invested capital and free cash flow growth. As the remaining projects come on line, we will be well positioned to reduce debt or allocate capital in areas that will create even more opportunities to build value at a time when our EBITDA and free cash flow run rates will significantly exceed the levels we are achieving now.
"With a strong first quarter, the earlier-than-anticipated closing of the Zia transaction and expectations for the Riverside and Charles Town expansions, we are increasing our 2007 financial guidance for EBITDA to $668.6 million, up from $648.1 million, and diluted earnings per share to $1.89, compared with prior guidance of $1.86."
Development and Expansion Projects
The table below outlines Penn National Gaming's current pipeline of new or expanded facilities:
Amount
Expended
New Planned through Expected
Gaming Total March 31, Opening
Project/Scope Positions Budget 2007 Date
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(in millions)
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Charles Town (WV) -
Casino expansion,
including a 153-room,
on-site, hotel and a
65,000 square foot
expansion of the gaming
floor. Gaming space will
be finished in two First phase of
phases: the first phase gaming space -
was completed in April April 20, 2007
2007, allowing for 800 Hotel - 15 months
more gaming machines, from receipt of
and the second phase pending building
will provide capacity permits
for additional gaming Second phase of
machines or, if gaming space -
approved, table games. 800 $ 56 $ 29 Early 2008
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Argosy Casino Riverside
(MO) - Construction of Hotel - Opened
258-room hotel. - $ 66 $ 49 March 2007
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Argosy Casino
Lawrenceburg (IN) - New
two-level 270,000 square
foot gaming barge, an
additional 1,500 space
parking garage and road
and infrastructure
improvements. The gaming
barge will allow 4,000
positions on one level,
and another 400
positions will be added Parking facility
to the second level, - 2nd Quarter
along with restaurants 2008
and other amenities on Gaming facility -
the gaming barge. 1,600 $ 310 $ 70 2nd Quarter 2009
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Hollywood Casino at Penn
National (PA) - Building
an integrated racing and
gaming facility. Budget
includes a $50 million
license fee and the
purchase of an initial
2,000 slot machines
(with the building size
sufficient to add 1,000
additional machines), a
2,500 space parking
garage and several
restaurants. 2,000 $ 310 $ 109 1st Quarter 2008
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Hollywood Slots at Bangor
(ME) - Building a
permanent facility,
which will include a
1,500 slot facility
(1,000 slot machines at
opening), a 152-room
hotel, 1,500 space
parking garage and
several restaurants. 525 $ 131 $ 14 3rd Quarter 2008
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Financial Guidance
The following table sets forth current guidance targets for continuing operations for the 2007 second quarter and full year, based on the following assumptions:
- The closing of the Zia Park acquisition on April 16, 2007;
- Increased competition related to new facility openings in the St. Louis market in the fourth quarter of 2007;
- The recently opened hotel project at Argosy Casino Riverside will take several months before meaningfully contributing to results;
- Penn National Gaming is currently required by the Illinois Gaming Board to reach a definitive sales agreement for the Empress Casino Hotel by June 30, 2008. However, the results of Empress Casino Hotel remain included in continuing operations as the Company assumes that the accounting standards for treating properties as "assets held for sale" will not be met in 2007; as such, the results from the property are included in our 2007 second quarter and full year guidance;
- The Company anticipates spending a material amount to support successful local referenda in both Kansas and West Virginia; these costs will be recorded in corporate overhead;
- Depreciation and amortization are projected to increase in the second quarter by $9.3 million and the full year 2007 by $21.0 million over the comparable prior year periods;
- Full year 2007 results will reflect a pre-tax non-cash charge for stock compensation of $26.4 million ($19.1 million, net of taxes, or $0.22 per diluted share);
- The effective tax rate for federal, state and local income taxes for the second quarter and full year 2007 will be 45.8% and 44.5%, respectively, reflecting the impact of better operating results in jurisdictions with higher state income tax and material amounts of non-deductible lobbying expense in the second quarter;
- The Company will have approximately 87.8 million diluted shares outstanding as of December 31, 2007; and,
- There will be no material changes in economic conditions, applicable legislation or regulation, world events, weather, or other circumstances beyond our control that may adversely affect the Company's results of operations.
Financial Guidance (continued)
(in millions, except per
share data) Three Months Ended Full Year Ended
------------------------------------------ ---------------------------
June 30, June 30, 2007 2007
2007 2006 Revised Prior 2006
Guidance Actual Guidance Guidance Actual
------------------------------------------ ---------------------------
Net revenues $ 626.0 $ 537.8 $2,478.0 $2,453.0 $2,244.5
------------------------------------------ ---------------------------
EBITDA (1) 167.9 155.1 668.6 648.1 629.2
------------------------------------------ ---------------------------
Less depreciation and
amortization, gain/loss
on disposal of assets,
interest expense - net,
income taxes, charge
for stock compensation
and other expenses (127.7) (112.4) (503.1) (485.5) (469.4)
------------------------------------------ ---------------------------
Net income from
continuing operations
before charge for early
extinguishment of debt,
hurricane and goodwill
impairment 40.2 42.7 165.5 162.6 159.8
------------------------------------------ ---------------------------
Charge for early
extinguishment of debt,
net of tax - - - - (6.5)
------------------------------------------ ---------------------------
Hurricane, net of tax - - - - 81.8
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Goodwill impairment, net
of tax - - - - (22.0)
------------------------------------------ ---------------------------
Net income from
continuing operations
GAAP $ 40.2 $ 42.7 $ 165.5 $ 162.6 $ 213.1
------------------------------------------ ---------------------------
Diluted earnings per
share before charge for
early extinguishment of
debt, hurricane and
goodwill impairment $ 0.46 $ 0.49 $ 1.89 $ 1.86 $ 1.84
------------------------------------------ ---------------------------
EPS impact of charge for
early extinguishment of
debt, hurricane and
goodwill impairment - - - - 0.62
------------------------------------------ ---------------------------
Diluted earnings per
share from continuing
operations $ 0.46 $ 0.49 $ 1.89 $ 1.86 $ 2.46
------------------------------------------ ---------------------------
(1) EBITDA is income from operations excluding charges for stock compensation, depreciation and amortization, gain or loss on disposal of assets, hurricane and goodwill impairment, and is inclusive of earnings from joint venture.
2006 EBITDA to 2007 EBITDA Guidance Reconciliation
(in millions) Three Months Ended Full Year Ended
June 30, December 31,
----------------------------------------------------------------------
----------------------------------------------------------------------
2006 EBITDA Actual (1) $ 155.1 $ 629.2
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Existing Operations/Corporate 17.7 51.3
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Zia Park 5.5 18.8
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Incremental Insurance Costs (6.1) (14.2)
----------------------------------------------------------------------
Pre-Opening Expenses (1.7) (9.9)
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Incremental Illinois 3% Tax (2.6) (6.6)
----------------------------------------------------------------------
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2007 EBITDA Guidance (1) $ 167.9 $ 668.6
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(1) EBITDA is income from operations excluding charges for stock compensation, depreciation and amortization, gain or loss on disposal of assets, hurricane and goodwill impairment, and is inclusive of earnings from joint venture.
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
Property Information - Operations
(in thousands) (unaudited)
NET REVENUES (1) EBITDA (2)
Three Months Ended Three Months Ended
March 31, March 31,
2007 2006 2007 2006
--------- --------- --------- ---------
Charles Town Entertainment
Complex $119,596 $116,917 $ 36,785 $ 34,149
Argosy Casino Lawrenceburg 121,858 120,162 41,706 40,759
Hollywood Casino Aurora 64,500 61,750 20,671 21,399
Empress Casino Hotel 59,613 60,317 13,246 17,521
Argosy Casino Riverside 41,715 38,995 13,066 13,158
Hollywood Casino Baton Rouge 34,881 43,120 14,631 21,069
Argosy Casino Alton 30,863 29,519 8,790 8,183
Hollywood Casino Tunica 26,596 28,159 6,808 7,926
Hollywood Casino Bay St. Louis
(3) 23,484 22 4,426 -
Argosy Casino Sioux City 14,117 14,051 4,629 4,718
Boomtown Biloxi (3) 24,067 - 8,082 -
Hollywood Slots at Bangor 10,976 8,710 3,109 2,194
Bullwhackers 7,131 6,586 785 626
Casino Rama management service
contract 3,474 4,387 3,188 4,068
Pennsylvania Racing Operations 11,854 13,087 (428) 917
Raceway Park 1,533 2,020 (178) 21
Earnings from Pennwood Racing,
Inc. - - 40 413
Corporate overhead - - (11,657) (12,306)
--------- --------- --------- ---------
Total $596,258 $547,802 $167,699 $164,815
========= ========= ========= =========
(1) Net revenues for 2006 reflect a reclassification for cash redemption coupons to contra-revenue from operating expense.
(2) EBITDA is income from operations excluding charges for stock compensation, depreciation and amortization, and gain or loss on disposal of assets, and is inclusive of earnings from joint venture. A reconciliation of net income per accounting principles generally accepted in the United States of America ("GAAP") to EBITDA, as well as income from operations per GAAP to EBITDA is included in the accompanying financial schedules.
(3) Hollywood Casino Bay St. Louis and Boomtown Biloxi were closed effective August 28, 2005 due to hurricane damage. Boomtown Biloxi reopened on June 29, 2006 and Hollywood Casino Bay St. Louis reopened on August 31, 2006.
Reconciliation of EBITDA to Net Income (GAAP)
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
(in thousands) (unaudited)
Three Months Ended
March 31,
2007 2006
-------------- --------------
EBITDA $ 167,699 $ 164,815
Earnings from joint venture (40) (413)
Depreciation and amortization (35,358) (29,718)
Charge for stock compensation (6,598) (4,911)
Loss on disposals (923) (872)
-------------- --------------
Income from operations $ 124,780 $ 128,901
Interest expense (48,347) (48,429)
Interest income 876 903
Earnings from joint venture 40 413
Other (228) (110)
Charge for early extinguishment of debt - (10,022)
Taxes on income (34,180) (29,673)
-------------- --------------
Net income $ 42,941 $ 41,983
============== ==============
Reconciliation of Income from Operations (GAAP) to EBITDA
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
Property Information Including Corporate Overhead
(in thousands) (unaudited)
Three Months Ended March 31, 2007
Charge Deprec-
Income for iation (Gain)/loss Earnings
from stock and on from
oper- compen- amort- disposal joint
ations sation ization of assets venture EBITDA
-----------------------------------------------------------
Charles
Town
Enter-
tainment
Complex $ 30,723 $ - $ 6,062 $ - $ - $ 36,785
Argosy
Casino
Lawren-
ceburg 37,414 - 4,292 - - 41,706
Hollywood
Casino
Aurora 18,332 - 2,339 - - 20,671
Empress
Casino
Hotel 10,601 - 3,032 (387) - 13,246
Argosy
Casino
Riverside 10,007 - 3,133 (74) - 13,066
Hollywood
Casino
Baton
Rouge 12,587 - 2,056 (12) - 14,631
Argosy
Casino
Alton 6,756 - 2,033 1 - 8,790
Hollywood
Casino
Tunica 5,004 - 1,824 (20) - 6,808
Hollywood
Casino Bay
St. Louis
(1) 1,239 - 3,150 37 - 4,426
Argosy
Casino
Sioux City 3,522 - 1,107 - - 4,629
Boomtown
Biloxi (1) 5,558 - 2,524 - - 8,082
Hollywood
Slots at
Bangor 2,058 - 1,051 - - 3,109
Bull-
whackers 136 - 631 18 - 785
Casino Rama
management
service
contract 3,188 - - - - 3,188
Pennsyl-
vania
Racing
Operations (2,115) - 367 1,320 - (428)
Raceway
Park (247) - 71 (2) - (178)
Earnings
from
Pennwood
Racing,
Inc. - - - - 40 40
Corporate
overhead (19,983) 6,598 1,686 42 - (11,657)
-----------------------------------------------------------
Total $124,780 $ 6,598 $35,358 $ 923 $ 40 $167,699
===========================================================
Three Months Ended March 31, 2006
Charge Deprec-
Income for iation (Gain)/loss Earnings
from stock and on disposal from
oper- compen- amorti- of joint
ations sation zation assets venture EBITDA
----------------------------------------------------------
Charles
Town
Enter-
tainment
Complex $ 29,490 $ - $ 4,657 $ 2 $ - $ 34,149
Argosy
Casino
Lawren-
ceburg 36,146 - 4,635 (22) - 40,759
Hollywood
Casino
Aurora 19,215 - 2,184 - - 21,399
Empress
Casino
Hotel 13,399 - 4,113 9 - 17,521
Argosy
Casino
Riverside 10,234 - 2,887 37 - 13,158
Hollywood
Casino
Baton
Rouge 18,117 - 2,110 842 - 21,069
Argosy
Casino
Alton 5,441 - 2,742 - - 8,183
Hollywood
Casino
Tunica 5,831 - 2,094 1 - 7,926
Hollywood
Casino Bay
St. Louis
(1) (156) - 156 - - -
Argosy
Casino
Sioux City 3,827 - 888 3 - 4,718
Boomtown
Biloxi (1) - - - - - -
Hollywood
Slots at
Bangor 1,333 - 861 - - 2,194
Bull
whackers 106 - 520 - - 626
Casino Rama
management
service
contract 4,068 - - - - 4,068
Pennsyl-
vania
Racing
Operations 645 - 272 - - 917
Raceway
Park 21 - - - - 21
Earnings
from
Pennwood
Racing,
Inc. - - - - 413 413
Corporate
overhead (18,816) 4,911 1,599 - - (12,306)
----------------------------------------------------------
Total $128,901 $ 4,911 $29,718 $ 872 $ 413 $164,815
==========================================================
(1) Income from operations and EBITDA for the three months ended March 31, 2006 reflects the closure of Hollywood Casino Bay St. Louis and Boomtown Biloxi, which incurred extensive hurricane damage in August 2005. Boomtown Biloxi reopened on June 29, 2006 and Hollywood Casino Bay St. Louis reopened on August 31, 2006.
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(in thousands, except per share data) (unaudited)
For the Three Months
Ended March 31,
------------------------
2007 2006
----------- -----------
Revenues
Gaming (1) $ 549,093 $ 503,450
Management service fee 3,474 4,387
Food, beverage and other 73,770 66,135
----------- -----------
Gross revenues 626,337 573,972
Less promotional allowances (30,079) (26,170)
----------- -----------
Net revenues 596,258 547,802
----------- -----------
Operating expenses
Gaming (1) 284,291 255,585
Food, beverage and other 58,330 53,672
General and administrative 93,499 79,926
Depreciation and amortization 35,358 29,718
----------- -----------
Total operating expenses 471,478 418,901
----------- -----------
Income from operations 124,780 128,901
----------- -----------
Other income (expenses)
Interest expense (48,347) (48,429)
Interest income 876 903
Earnings from joint venture 40 413
Other (228) (110)
Loss on early extinguishment of debt - (10,022)
----------- -----------
Total other expenses (47,659) (57,245)
----------- -----------
Income from operations before income taxes 77,121 71,656
Taxes on income 34,180 29,673
----------- -----------
Net income $ 42,941 $ 41,983
=========== ===========
Basic earnings per share $ 0.51 $ 0.50
Diluted earnings per share $ 0.49 $ 0.49
Weighted average shares outstanding
Basic 84,890 83,646
Diluted 87,472 86,044
(1) Reflects reclassification for cash redemption coupons to contra-revenue from operating expense.
Reconciliation of Non-GAAP Measures to GAAP
EBITDA, or earnings before interest, taxes, charges for stock compensation, depreciation and amortization, and gain or loss on disposal of assets, and inclusive of earnings from joint venture, is not a measure of performance or liquidity calculated in accordance with accounting principles generally accepted in the United States of America ("GAAP"). EBITDA information is presented as a supplemental disclosure, as management believes that it is a widely used measure of performance in the gaming industry. In addition, management uses EBITDA as the primary measure of the operating performance of its properties, including the evaluation of operating personnel. EBITDA should not be construed as an alternative to operating income, as an indicator of the Company's operating performance, as an alternative to cash flows from operating activities, as a measure of liquidity, or as any other measure of performance determined in accordance with GAAP. The Company has significant uses of cash flows, including capital expenditures, interest payments, taxes and debt principal repayments, which are not reflected in EBITDA. It should also be noted that other gaming companies that report EBITDA information may calculate EBITDA in a different manner than the Company. Diluted earnings per share from operations before charge for early extinguishment of debt is presented solely as a supplemental disclosure, as management believes that it is a principal basis for the valuation of gaming companies, as this measure is considered by many to be a better indicator of the Company's operating results than diluted net income per share per GAAP. A reconciliation of the Company's EBITDA to net income per GAAP, as well as the Company's EBITDA to income from operations per GAAP, is included in the accompanying financial schedules.
A reconciliation of each property's EBITDA to income from operations is included in the financial schedules herein. On a property level, EBITDA is reconciled to income from operations per GAAP, rather than net income per GAAP due to, among other things, the impracticability of allocating interest expense, interest income, income taxes and certain other items to the Company's various properties on a property-by-property basis. Management believes that this presentation is more meaningful to investors in evaluating the performance of the Company's individual properties and is consistent with the reporting of other gaming companies.