FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended JUNE 30, 1999 OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ___________ Commission file number: 0-24206 Penn National Gaming, Inc. (Exact name of Registrant as specified in its charter) Pennsylvania 23-2234473 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Penn National Gaming, Inc. 825 Berkshire, Blvd., Suite 200 Wyomissing, PA 19610 (Address of principal executive offices) (Zip code) 610-373-2400 (Registrant's telephone number including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____
(APPLICABLE ONLY TO CORPORATE REGISTRANTS) Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Title Outstanding as of August 10, 1999 Common Stock Par value $.01 per share 14,869,021 THIS REPORT INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS REPORT LOCATED ELSEWHERE HEREIN REGARDING THE COMPANY'S OPERATIONS, FINANCIAL POSITION AND BUSINESS STRATEGY, MAY CONSTITUTE FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY", "WILL", "EXPECT", "INTEND", "ESTIMATE", "ANTICIPATE", "BELIEVE" OR "CONTINUE" OR THE NEGATIVE THEREOF OR VARIATIONS THEREON OR SIMILAR TERMINOLOGY. ALTHOUGH THE COMPANY BELIEVES THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE AT THIS TIME, IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE COMPANY'S EXPECTATIONS ("CAUTIOUNARY STATEMENTS") ARE DISCLOSED IN THIS REPORT AND IN OTHER MATERIALS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS. 2
Penn National Gaming, Inc. And Subsidiaries INDEX PART I - FINANCIAL INFORMATION PAGE Item 1 - Financial Statements Consolidated Balance Sheets - June 30, 1999 (unaudited) and December 31, 1998 4-5 Consolidated Statements of Income - Six Months Ended June 30, 1999 and 1998 (unaudited) 6 Consolidated Statements of Income - Three Months Ended June 30, 1999 and 1998 (unaudited) 7 Consolidated Statement of Shareholders' Equity - Six Months Ended June 30, 1999 (unaudited) 8 Consolidated Statements of Cash Flow - Six Months Ended June 30, 1999 and 1998 (unaudited) 9-10 Notes to Consolidated Financial Statements 11-18 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 19-22 Item 3 - Changes in information about Market Risk 23 - ------------------------------------------------- PART II - OTHER INFORMATION 23 Item 1 - Legal Proceedings 23 - -------------------------- Item 6 - Exhibits and Reports on Form 8-K 24 - ----------------------------------------- Signature Page 25 Exhibit Index 26 3
Part I. Financial Information Item 1. Financial Statements PENN NATIONAL GAMING INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) <TABLE> <CAPTION> June 30, December 31, 1999 1998 (Unaudited) --------------------------------------- <S> <C> <C> Assets Current assets Cash and cash equivalents $ 10,484 $ 6,826 Accounts receivable 5,995 3,840 Prepaid expenses and other current assets 2,081 2,131 Deferred income taxes 332 458 Prepaid income tax 114 859 -------------------------------------- Total current assets 19,006 14,114 -------------------------------------- Property, plant and equipment, at cost Land and improvements 27,500 26,969 Building and improvements 68,433 66,918 Furniture, fixtures and equipment 30,286 29,772 Transportation equipment 603 527 Leasehold improvements 9,767 9,579 Leased equipment under capitalized lease 824 824 Construction in progress 1,601 1,847 -------------------------------------- 139,014 136,436 Less accumulated depreciation and amortization 19,235 15,684 -------------------------------------- Net property, plant and equipment 119,779 120,752 -------------------------------------- Other assets Note receivable 11,250 - Excess of cost over fair market value of net assets acquired (net of accumulated amortization of $2,308 and $2,002, respectively) 21,885 22,442 Deferred financing costs 2,700 2,403 Miscellaneous 1,107 1,087 -------------------------------------- Total other assets 36,942 25,932 -------------------------------------- $ 175,727 $ 160,798 ====================================== </TABLE> See accompanying notes to consolidated financial statements. 4
PENN NATIONAL GAMING INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) <TABLE> <CAPTION> June 30, December31, 1999 1998 (Unaudited) --------------------------------- <S> <C> <C> Liabilities and Shareholders' Equity Current liabilities Current maturities of long-term debt and capital lease obligations $ 5,158 $ 168 Accounts payable 6,575 6,217 Purses due horsemen 3,478 887 Uncashed pari-mutuel tickets 1,094 1,597 Accrued expenses 1,362 1,063 Accrued interest 413 468 Accrued salaries & wages 752 752 Customer deposits 719 548 Taxes, other than income taxes 965 503 ---------------------------------- Total current liabilities 20,516 12,203 ---------------------------------- Long Term Liabilities Long-term debt and capital lease obligations, net of current maturities 81,272 78,088 Deferred income taxes 11,917 11,471 ---------------------------------- Total long-term liabilities 93,189 89,559 ---------------------------------- Commitments and contingencies Shareholders' equity Preferred stock,$.01 par value, authorized 1,000,000 shares; issued none - - Common stock,$.01 par value, authorized 20,000,000 shares; issued 15,286,021 and 15,164,080, respectively 154 152 Treasury stock, 424,700 shares at cost (2,379) (2,379) Additional paid in capital 38,447 38,025 Retained earnings 25,800 23,238 ---------------------------------- Total shareholders' equity 62,022 59,036 ---------------------------------- $ 175,727 $ 160,798 =================================== </TABLE> See accompanying notes to consolidated financial statements. 5
PENN NATIONAL GAMING INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) (Unaudited) <TABLE> <CAPTION> Six Months Ended June 30, 1999 1998 --------------------------- <S> <C> <C> Revenues Pari-mutuel revenues Live races $ 8,283 $ 12,928 Import simulcasting 35,050 34,114 Export simulcasting 1,358 2,828 Gaming revenue 24,913 16,160 Admissions, programs and other racing revenue 2,984 2,956 Concessions revenues 5,584 4,427 ---------------------------- Total revenues 78,172 73,413 ---------------------------- Operating expenses Purses, stakes, and trophies 14,098 13,946 Direct salaries, payroll taxes and employee benefits 8,720 9,263 Simulcast expenses 6,071 6,896 Pari-mutuel taxes 4,103 4,589 Lottery taxes and administration 9,904 6,302 Other direct meeting expenses 10,613 11,564 Concessions expenses 4,968 3,453 Other operating expenses 6,435 5,021 Horsemen's action expenses 1,250 - Depreciation and amortization 4,145 2,841 ---------------------------- Total operating expenses 70,307 63,875 ---------------------------- Income from operations 7,865 9,538 ---------------------------- Other income (expenses) Interest (expense) (4,333) (4,243) Interest income 605 451 Other (7) 30 ---------------------------- Total other (expenses) (3,735) (3,762) ---------------------------- Income before taxes 4,130 5,776 Taxes on income 1,568 2,099 ---------------------------- Net Income $ 2,562 $ 3,677 ============================ Basic earnings per share on net income $ 0.17 $ 0.24 ---------------------------- Diluted earnings per share on net income $ 0.17 $ 0.24 ---------------------------- Weighted average number of basic common shares outstanding 14,784 15,154 ---------------------------- Weighted average number of diluted common shares outstanding 15,135 15,558 ---------------------------- </TABLE> See accompanying notes to consolidated financial statements. 6
PENN NATIONAL GAMING INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) (Unaudited) <TABLE> <CAPTION> Three Months Ended June 30, 1999 1998 -------------------------------- <S> <C> <C> Revenues Pari-mutuel revenues Live races $ 5,868 $ 7,623 Import simulcasting 19,749 17,763 Export simulcasting 847 1,502 Gaming revenue 13,616 9,004 Admissions, programs and other racing revenue 1,865 1,694 Concessions revenues 3,438 2,472 --------------------------------- Total revenues 45,383 40,058 --------------------------------- Operating expenses Purses, stakes, and trophies 8,388 7,639 Direct salaries, payroll taxes and employee benefits 5,005 4,904 Simulcast expenses 3,685 3,795 Pari-mutuel taxes 2,434 2,476 Lottery taxes and administration 5,415 3,371 Other direct meeting expenses 6,021 6,122 Concessions expenses 2,945 1,948 Other operating expenses 3,360 2,625 Depreciation and amortization 2,130 1,422 -------------------------------- Total operating expenses 39,383 34,302 -------------------------------- Income from operations 6,000 5,756 -------------------------------- Other income (expenses) Interest (expense) (2,208) (2,134) Interest income 396 250 Other (7) 30 -------------------------------- Total other (expenses) (1,819) (1,854) -------------------------------- Income before taxes 4,181 3,902 Taxes on income 1,641 1,435 -------------------------------- Net income $ 2,540 2,467 ================================ Basic earnings per share on net income $ 0.17 $ 0.16 -------------------------------- Diluted earnings per share on net income $ 0.17 $ 0.16 -------------------------------- Weighted average number of basic common shares outstanding 14,822 15,156 -------------------------------- Weighted average number of diluted common shares outstanding 15,183 15,542 -------------------------------- </TABLE> See accompanying notes to consolidated financial statements. 7
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA) (Unaudited) <TABLE> <CAPTION> Additional Common Stock Treasury Paid-In Retained Shares Amounts Stock Capital Earnings Total <S> <C> <C> <C> <C> <C> <C> Balance, at January 1, 1999 15,164,080 $ 152 $ (2,379) $ 38,025 $ 23,238 $ 59,036 Issuance of common stock 121,941 2 422 424 Net income for the six months ended June 30, 1999 - - - - 2,562 2,562 -------------------------------------------------------------------------------------- Balance, at June 30, 1999 15,286,021 $ 154 $ (2,379) $ 38,447 $ 25,800 $ 62,022 ====================================================================================== </TABLE> See accompanying notes to consolidated financial statements. 8
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW (In thousands) (Unaudited) <TABLE> <CAPTION> Six Months Ended June 30, 1999 1998 ------------- ------------ <S> <C> <C> Cash flows from operating activities Net income $ 2,562 $ 3,677 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 4,145 2,841 Net deferred income tax assets and liabilities 572 222 Decrease (Increase) in Accounts receivable (2,155) (1,803) Prepaid expenses 50 (668) Prepaid income taxes 745 2,123 Miscellaneous other assets (25) (213) Increase (decrease) in Accounts payable 358 (312) Purses due horsemen 2,591 1,423 Uncashed pari-mutuel tickets (503) (554) Accrued expenses 299 (579) Accrued interest (55) 8 Accrued salaries & wages - 138 Customers deposits 171 233 Taxes other than income payable 462 157 ------------- ------------ Net cash provided by operating activities 9,217 6,693 ------------- ------------ Cash flows from investing activities Expenditures for property and equipment (2,578) (4,932) Notes receivable (11,250) - Other 251 - ------------- ------------ Net cash (used in) investing activities (13,577) (4,932) ------------- ------------ </TABLE> See accompanying notes to consolidated financial statements. 9
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW (In thousands) (Unaudited) <TABLE> <CAPTION> Six Months Ended June 30, 1999 1998 ------------------------------- <S> <C> <C> Cash flows from financing activities Proceeds from sale of common stock 424 18 Proceeds from long term debt 11,500 - Principal payments on long-term debt and capital lease obligations (3,326) (34) Increase in unamortized financing cost (580) (107) ------------- ----------- Net cash provided by (used) in financing activities 8,018 (123) ------------- ----------- Net increase in cash 3,658 1,638 Cash and cash equivalents, at beginning of period 6,826 21,854 ------------- ----------- Cash and cash equivalents, at end of period $ 10,484 $ 23,492 ============= =========== </TABLE> See accompanying notes to consolidated financial statements. 10
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Financial Statement Presentation The accompanying consolidated financial statements are unaudited and include the accounts of Penn National Gaming, Inc., (Penn) and its wholly and majority owned subsidiaries, (collectively the "Company"). All significant intercompany transactions and balances have been eliminated. Certain prior year amounts have been reclassified to conform to current year presentation. In the opinion of management, all adjustments (consisting of normal recurring accruals) have been made which are necessary to present fairly the financial position of the Company as of June 30, 1999 and the results of its operations for the three and six month periods ended June 30, 1999 and 1998. The results of operations experienced for the six month period ended June 30, 1999 are not necessarily indicative of the results to be experienced for the fiscal year ended December 31, 1999. The statements and related notes herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. The accompanying notes should therefore be read in conjunction with the Company's December 31, 1998 annual financial statements. <TABLE> <CAPTION> 2. Wagering Information (in thousands) Three months ended June 30, 1999 Penn Pocono Charles National Downs Town Total <S> <C> <C> <C> <C> Pari-mutuel wagering in-state on Company's live races $ 11,291 $ 7,197 $ 8,346 $ 26,834 ----------------------------------------------------- Pari-mutuel wagering on simulcasting: Import simulcasting from other racetracks 49,421 34,831 12,962 97,214 Export simulcasting to out of state wagering facilities 20,228 6,348 2,042 28,618 ----------------------------------------------------- 69,649 41,179 15,004 125,832 ----------------------------------------------------- Total pari-mutuel wagering $ 80,940 $48,376 $ 23,350 $ 152,666 ===================================================== </TABLE> 11
<TABLE> <CAPTION> Three months ended June 30, 1998 Penn Pocono Charles National Downs Town Total <S> <C> <C> <C> <C> Pari-mutuel wagering in-state on Company's live races $ 21,605 $ 7,410 $ 5,524 $ 34,539 ----------------------------------------------------- Pari-mutuel wagering on simulcasting: Import simulcasting from other racetracks 43,735 35,040 10,917 89,692 Export simulcasting to out of state wagering facilities 42,964 7,188 - 50,152 ----------------------------------------------------- 86,699 42,228 10,917 139,844 ----------------------------------------------------- Total pari-mutuel wagering $ 108,304 $ 49,638 $ 16,441 $ 174,383 ===================================================== </TABLE> <TABLE> <CAPTION> Six months ended June 30, 1999 Penn Pocono Charles National Downs Town Total <S> <C> <C> <C> <C> Pari-mutuel wagering in-state on Company's live races $ 17,970 $ 7,197 $ 13,389 $ 38,556 ---------------------------------------------------- Pari-mutuel wagering on simulcasting: Import simulcasting from other racetracks 77,026 69,995 25,561 172,582 Export simulcasting to out of state wagering facilities 37,382 6,348 2,042 45,772 ---------------------------------------------------- 114,408 76,343 27,603 218,354 ---------------------------------------------------- Total pari-mutuel wagering $132,378 $83,540 $ 40,992 $256,910 ==================================================== </TABLE> 12
<TABLE> <CAPTION> Six months ended June 30, 1998 Penn Pocono Charles National Downs Town Total <S> <C> <C> <C> <C> Pari-mutuel wagering in-state on Company's live races $ 41,215 $ 8,325 $ 9,642 $ 59,182 --------------------------------------------------- Pari-mutuel wagering on simulcasting: Import simulcasting from other racetracks 86,580 66,105 21,070 173,755 Export simulcasting to out of state wagering facilities 86,584 7,763 - 94,347 --------------------------------------------------- 173,164 73,868 21,070 268,102 --------------------------------------------------- Total pari-mutuel wagering $ 214,379 $ 82,193 $ 30,712 $ 327,284 =================================================== </TABLE> 3. Commitments The Company submitted an application to the Tennessee State Racing Commission (the "Tennessee Commission") in October 1997 for an initial license for the development and operation of a harness track and Off-Track Wagering Facilities ("OTW") at a site in the city of Memphis (the "Tennessee Development Project"). A land use plan for the construction of a 5/8-mile harness track, clubhouse and grandstand area was approved in October 1997 by the Land Use Hearing Board for the City of Memphis and County of Shelby. Tennessee Downs, Inc. ("Tennessee Downs") was determined to be financially suitable by the Tennessee Commission and a public comment hearing before the Tennessee Commission was held in November 1997. In December 1997, the Company received the necessary zoning and land development approvals from the Memphis City Council. In April 1998, the Tennessee Commission granted a license to the Company, which would expire on the earlier of: (i) December 31, 2000 or (ii) the expiration of Tennessee Commission's term on June 30, 1998, if such term was not extended by the Tennessee State Legislature. The Tennessee State Legislature voted against extending the life of the Tennessee Commission, allowing the Tennessee Commission's term to expire on June 30, 1998. The Tennessee Commission held a meeting on May 29, 1998 at which it rejected the Company's request: (i) to grant the Company an extended timeframe for the effectiveness of its racing license; (ii) to operate a temporary simulcast facility. On July 28, 1998, the Company filed for a preliminary injunction and a declaratory ruling on the legal status of racing in Memphis. On November 23, 1998, the court ruled that the Tennessee Racing Control Act had not been repealed and cannot be repealed by implication by dissolving the Tennessee Commission. It is the opinion of the court that because the Tennessee Racing Control Act is still in force, horse-racing and pari-mutuel betting is a legal unregulated activity in Tennessee. This opinion has been appealed by the Tennessee Attorney General and a hearing was held before the Court of Appeals on June 21, 1999. On July 30, 1999, the Court of Appeals in Tennessee dissolved the injunction. The court reversed the lower court ruling on the basis of jurisdiction. Tennessee Downs intends to take a direct appeal to the Supreme Court of the State of Tennessee so that it may continue its efforts to develop and operate a harness track in Tennessee. Costs incurred as of June 30, 1999 regarding the Tennessee license amounted to $534,135 and are presented in prepaid expenses and other current assets. 13
On July 14, 1998, the Company entered into a lease agreement for an OTW facility in East Stroudsburg. The lease is for approximately 14,000 square feet at the Eagle's Glen Shopping Plaza located in East Stroudsburg, Pennsylvania. The initial term of the lease is for ten years with two additional five-year renewal options available. On November 6, 1998, the Company submitted its application for approval by the Pennsylvania Harness Racing Commission. The Pennsylvania Harness Racing Commission approved the application on February 23, 1999. The Company was denied building and zoning permits by the zoning office of the Borough of East Stroudsburg and filed suit on November 13, 1998 to obtain the permits. On May 17, 1999, the Court of Common Pleas of Monroe County granted a peremptory judgment in favor of the Company that directed the Borough of East Stroudsburg and its zoning officer to issue the required building and zoning permits to construct the OTW facility. The Company expects to start construction on the $2 million facility in August 1999 with a projected opening date in the first quarter of 2000. On March 23, 1999, the Company entered into a new four-year, nine-month purse agreement with the Horsemen's Benevolent and Protection Association, which represents the horsemen at the Company's Penn National Race Course facility in Grantville, Pennsylvania. The agreement ended a strike by the horsemen which began on February 16, and caused the Company to close Penn National Race Course and its six affiliated OTWs. The initial term of the agreement ends on January 1, 2004 and automatically renews for another two year period, without change, unless notice is given by either party at least ninety days prior to the end of the initial term. On April 9, 1999, the State of West Virginia passed legislation approving the use of coin-out and reel spinning slot machines at the four racetracks in West Virginia. The Company plans to convert certain machines at Charles Town to coin-out as well as replace a number of lesser-performing machines with reel spinning models. On April 27, 1999, the Company placed an additional thirty-six (36) machines in operation for a total machine base of 935. During the remainder of 1999, the Company plans to add, subject to regulatory approval, 565 more machines to bring the total machine base to 1,500. On May 10, 1999, the Company commenced a consent solicitation (the "Consent Solicitation") from the holders of its 10.625% Senior Notes due 2004, Series B (the Notes) to amend the Indenture pursuant to which the Notes were issued to permit the Company to make certain investments in a joint venture with Greenwood New Jersey, Inc., that will operate Freehold Raceway in Freehold, New Jersey and Garden State Track in Cherry Hill, New Jersey (the "Joint Venture"). The Consent Solicitation originally expired at 5:00 p.m., New York City time, on May 19, 1999 but was extended by the Company until July 30, 1999, by which time holders of more than a majority of the Company's had delivered consents. The Company and the Trustee under the Indenture relating to the Notes have executed and delivered a Supplemental Indenture containing the amendments described in the Company's Consent Solicitation. The amendments became effective on July 30, 1999 when the Company acquired the Joint Venture. The consent fee payable to holders who delivered consents (and did not validly revoke such consents) prior to the expiration date is $32.50 per $1,000 principal amount of Notes as to which a consent was given. Pursuant to the terms and conditions of the Consent Solicitation, the Company made all consent payments contemporaneously with the closing of the Joint Venture transaction. On June 1, 1999, the Company amended its employment agreement with its Chairman which became effective June 1, 1999 and as amended, shall continue thereafter from year to year. The agreement provides for an annual base salary of $380,000, and prohibits the employee from competing with the Company during its term and for one year, thereafter. The agreement also provides for a death benefit payment by the Company equal to the amount of employee's annual salary in effect at the time of his death, for a period of two years following the date of employee's death. 14
On June 1, 1999, the Company amended its employment agreement with its Chief Financial Officer which became effective on June 1, 1999, and as amended, shall continue from year to year unless terminated by the Company upon 90 days written notice. The agreement provides for an annual base salary of $150,000, and prohibits the employee from competing with the Company during its term and for one year thereafter. The agreement also provides for a death benefit payment by the Company equal to the amount of the employee's annual salary in effect at the time of his death for a period of one year following the date of employees death. On June 30, 1999, all the race tracks in West Virginia (the "Tracks"), entered into a hardware and software purchase agreement (the "Agreement") with International Game Technology (IGT), for the purchase of a new video lottery central control computer system. The aggregate cost of the new system is $5.5 million of which PNGI Charles Town Gaming LLC is obligated to pay $1.4 million. On July 22, 1999, the Company submitted a check in the amount of $257,000 as the initial deposit and issued a letter of credit in the amount of $1,156,000 to secure the remaining payments due. In addition, the Tracks agreed to collectively acquire from IGT at least one thousand video lottery terminals by September 30, 1999. (Charles Town is to acquire 400 new terminals) The Agreement also requires each track to pay to IGT the sum of $7.50 per terminal, per day for each video lottery terminal offering progressive games operated through the IGT central system. Installation of the new central system should be completed by December 31, 1999. At June 30, 1999, the Company was contingently obligated under letters of credit with face amounts aggregating $2,031,000. These amounts consisted of $1,776,000 relating to horsemen's account balances, $100,000 for Pennsylvania pari-mutuel taxes, and $155,000 for purses. 4. Supplemental Disclosures of Cash Flow Information Cash paid during the six months ended June 30, 1999 and 1998 for interest was $4,307,204 and $4,230,000, respectively. Cash paid during the three months ended June 30, 1999 and 1998 for income taxes was $206,000 and $1,476,000, respectively. 15
5. Subsidiary Guarantors Summarized financial information as of June 30, 1999 and 1998 for the three and six months ended June 30, 1999 and 1998 for Penn National Gaming, Inc. ("Parent"), the Subsidiary Guarantors and Subsidiary Nonguarantors is as follows: <TABLE> <CAPTION> - -------------------------------------------------------------------------------------------------------------------------- Subsidiary Parent Susbsidiary Non- Elimin- Consoli- Company Guarantors Guarantors ations dated - -------------------------------------------------------------------------------------------------------------------------- As of June 30,1999 Consolidated Balance Sheet (In Thousands) <S> <C> <C> <C> <C> <C> Current assets $ 6,699 $ 6,164 $ 7,685 $ (1,542 ) $ 19,006 Net property plant and equipment 13,051 61,720 45,008 - 119,779 Other assets 111,679 156,936 1,539 (233,212 ) 36,942 - -------------------------------------------------------------------------------------------------------------------------- Total $ 131,429 $ 224,820 $ 54,232 $ (234,754 ) $ 175,727 - -------------------------------------------------------------------------------------------------------------------------- Current liabilities 8,259 15,416 $9,216 (12,375 ) 20,516 Long-term liabilities 84,633 78,342 47,553 (117,339 ) 93,189 Shareholders'equity (deficiency) 38,537 131,062 (2,537 ) (105,040 ) 62,022 - -------------------------------------------------------------------------------------------------------------------------- Total $ 131,429 $ 224,820 $ 54,232 $ (234,754 ) $ 175,727 - -------------------------------------------------------------------------------------------------------------------------- </TABLE> <TABLE> <CAPTION> Three months ended June 30, 1999 Consolidated Statement of Income (In Thousands) <S> <C> <C> <C> <C> <C> Total revenues $ 4,515 $ 22,173 $ 20,205 $ (1,510 ) $ 45,383 Total operating expenses 2,141 21,291 17,461 (1,510 ) 39,383 - -------------------------------------------------------------------------------------------------------------------------- Income from operations 2,374 882 2,744 - 6,000 Other income (expenses) (1,464 ) 749 (1,104 ) - (1,819 ) - -------------------------------------------------------------------------------------------------------------------------- Income before income taxes 910 1,631 1,640 - 4,181 Taxes on income 376 609 656 - 1,641 - -------------------------------------------------------------------------------------------------------------------------- Net income $ 534 $ 1,022 $ 984 $ - $ 2,540 - -------------------------------------------------------------------------------------------------------------------------- </TABLE> <TABLE> <CAPTION> Six months ended June 30, 1999 Consolidated Statement of Income (In Thousands) <S> <C> <C> <C> <C> <C> Total revenues $ 2,038 $ 42,199 $ 36,570 $ (2,635 ) $ 78,172 Total operating expenses (2,012 ) 42,642 32,312 (2,635 ) 70,307 - -------------------------------------------------------------------------------------------------------------------------- Income (loss) from operations 4,050 (443 ) 4,258 - 7,865 Other income (expenses) (2,969 ) 1,504 (2,270 ) (3,735 ) - -------------------------------------------------------------------------------------------------------------------------- Income before income taxes 1,081 1,061 1,988 - 4,130 Taxes on income 465 285 818 1,568 - -------------------------------------------------------------------------------------------------------------------------- Net income $ 616 $ 776 $ 1,170 $ - $ 2,562 - -------------------------------------------------------------------------------------------------------------------------- </TABLE> <TABLE> <CAPTION> Six months ended June 30, 1999 Consolidated Statement of Cash Flow (In Thousands) <S> <C> <C> <C> <C> <C> Net Cash Flows from Operating $ 6,000 $ 239 $ 2,978 $ - $ 9,217 Activities Net Cash Flows from Investing (11,736 ) (745 ) (1,096 ) - (13,577 ) Activities Net Cash Flows from Financing 8,527 (509 ) - - 8,018 Activities - -------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in cash 2,791 (1,015 ) 1,882 - 3,658 Cash and cash equivalents at 2,001 1,705 3,120 - 6,826 January 1, 1999 - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at June 30,1999 $ 4,792 $ 690 $ 5,002 $ - $ 10,484 - -------------------------------------------------------------------------------------------------------------------------- </TABLE> 16
<TABLE> <CAPTION> Subsidiary Parent Susbsidiary Non- Elimin- Consoli- Company Guarantors Guarantors ations dated - -------------------------------------------------------------------------------------------------------------------------- As of December 31, 1998 Consolidated Balance Sheet (In Thousands) <S> <C> <C> <C> <C> <C> Current assets $ 3,558 $ 6,944 $ 4,204 $ (592 ) $ 14,114 Net property plant and equipment 13,576 62,598 44,578 - 120,752 Other assets 102,400 153,818 1,779 (232,065 ) 25,932 - -------------------------------------------------------------------------------------------------------------------------- Total $ 119,534 $ 223,360 50,561 (232,657 ) 160,798 - -------------------------------------------------------------------------------------------------------------------------- Current liabilities 1,000 13,961 7,520 (10,278 ) 12,203 Long-term liabilities 81,037 78,527 47,334 (117,339 ) 89,559 Shareholders'equity (deficiency) 37,497 130,872 (4,293 ) ( 105,040 ) 59,036 - -------------------------------------------------------------------------------------------------------------------------- Total $ 119,534 $ 223,360 $ 50,561 $ (232,657 ) $ 160,798 - -------------------------------------------------------------------------------------------------------------------------- </TABLE> <TABLE> <CAPTION> Three months ended June 30, 1998 Consolidated Statement of Income (In Thousands) <S> <C> <C> <C> <C> <C> Total revenues $ - $ 27,057 $ 13,697 $ (696 ) $ 40,058 Total operating expenses (1,765 ) 24,674 12,089 (696 ) 34,302 - -------------------------------------------------------------------------------------------------------------------------- Income from operations 1,765 2,383 1,608 - 5,756 Other income (expenses) (1,390 ) 700 (1,164 ) - (1,854 ) - -------------------------------------------------------------------------------------------------------------------------- Income before income taxes 375 3,083 444 - 3,902 Taxes on income 94 1,341 - - 1,435 - -------------------------------------------------------------------------------------------------------------------------- Net income $ 281 $ 1,742 $ 444 $ - $ 2,467 - -------------------------------------------------------------------------------------------------------------------------- </TABLE> <TABLE> <CAPTION> Six months ended June 30, 1998 Consolidated Statement of Income (In Thousands) <S> <C> <C> <C> <C> <C> Total revenues $ 2 $ 49,889 $ 24,667 $ (1,145 ) $ 73,413 Total operating expenses (3,243 ) 45,460 22,803 (1,145 ) 63,875 - -------------------------------------------------------------------------------------------------------------------------- Income from operations 3,245 4,429 1,864 - 9,538 Other income (expenses) (2,777 ) 1,345 (2,330 ) (3,762 ) - -------------------------------------------------------------------------------------------------------------------------- Income before income taxes 468 5,774 (466 ) - 5,776 Taxes on income 26 2,073 - 2,099 - -------------------------------------------------------------------------------------------------------------------------- Net income (Loss) $ 442 $ 3,701 $ (466 )$ - $ 3,677 - -------------------------------------------------------------------------------------------------------------------------- </TABLE> <TABLE> <CAPTION> Six months ended June 30, 1998 Consolidated Statement of Cash Flow (In Thousands) <S> <C> <C> <C> <C> <C> Net Cash Flows from Operating $ 3,945 $ (12,596 ) $ 565 $ 14,779 $ 6,693 Activities Net Cash Flows from Investing (6,812 ) 7,168 2,844 (8,132 ) (4,932 ) Activities Net Cash Flows from Financing 154 6,370 - (6,647 ) (123 ) Activities - -------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in cash (2,713 ) 942 3,409 - 1,638 Cash and cash equivalents at January 1, 1998 3,015 17,895 944 - 21,854 - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at June 30, 1999 $ 302 $ 18,837 $ 4,353 $ - $ 23,492 - -------------------------------------------------------------------------------------------------------------------------- </TABLE> 17
6. Year 2000 Compliance The "Year 2000 issue" is typically the result of software and hardware being written using two digits rather than four to define the applicable year. If the Company's software and hardware with date-sensitive functions are not Year 2000 compliant, these systems may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruption of operations, including, among other things, interruptions in pari-mutuel wagering or the inability to operate the Company's video lottery machines. The Company, has been and is currently conducting a review of all systems and contacting all software suppliers to determine major areas of exposure to Year 2000 issues. The Company believes that, with minor modifications and testing of its systems, the Year 2000 issue will not pose a significant operations problem. The Company is using its internal resources to reprogram or replace and test its software for Year 2000 modifications. If the Company is unable to make the required modifications to existing software or convert to new software in a timely manner, the Year 2000 issue could have a material adverse impact on the Company's operations. The Company has initiated formal communication with significant suppliers and third party vendors to determine the extent to which the Company's operations are vulnerable to those third parties failure to remediate their own Year 2000 hardware and software issues. All of these parties state that they intend to be Year 2000 compliant by 2000. In the event that any of the Company's significant suppliers are unable to become Year 2000 compliant, the Company's business or operations could be adversely affected. There can be no assurance that the systems of other companies on which the Company relies will be compliant by the year 2000 and would not have an adverse effect on operations. The Company does not expect the total cost associated with required modifications to become Year 2000 compliant to be material to its financial position. The Company has not yet fully developed a comprehensive contingency plan addressing situations that may result if the Company is unable to achieve Year 2000 readiness of its critical operations. Contingency plan development is in process and the Company expects to finalize its plan during the remainder of 1999. There can be no assurance that the Company will be able to develop a contingency plan that will adequately address issues that may arise in the year 2000. 7. Subsequent Events On July 9, 1999, the Company entered into an agreement with American Digital Communications, Inc. ("TrackPower") to serve as the exclusive pari-mutuel wagering hub operator for TrackPower. TrackPower provides direct-to-home digital satellite transmissions of horse racing to its subscriber base. The initial term of the contract is for five years with an additional five year option available. The agreement is subject to approval by the Pennsylvania Horse Racing Commission. In connection with the agreement the Company received Warrants to purchase 5,000,000 shares of common stock of TrackPower at prices ranging from $1.58 per share to $2.58 per share. The Warrants vest at 20% per year and expire on April 30, 2004. On July 29, 1999, after receiving the necessary approvals from the New Jersey Racing Commission and the consent from the holders of its 10.625% Senior Notes due 2004, Series B, the Company completed its investment in the 50%/50% Joint Venture, Pennwood, Inc., with Greenwood New Jersey, Inc., (a wholly-owned subsidiary of Greenwood Racing, Inc. the owner of Philadelphia Park Race Track). 18
Pursuant to the Joint Venture Agreement, the Company agreed to guarantee severally: (i) up to 50% of the obligations of the Joint Venture under its Put Option Agreement ($17.5 million) with Credit Suisse First Boston Mortgage Capital LLC ("CSFB"); (ii) up to 50% of the Joint Venture obligation for the seven year lease at Garden State Park; (iii) up to 50% to International Thoroughbred Breeders, Inc. for the contingent purchase price notes ($10.0 million) relating to the operating, if passed by the New Jersey legislature, by the Joint Venture of OTW's and a telephone wagering accounts in New Jersey. In conjunction with the closing, the Company entered into a Debt Service Maintenance Agreement with Commerce Bank, N.A. for the funding of a $23.0 million credit facility to the Joint Venture. The Joint Venture Agreement provides for a limited obligation of the Company of $11.5 million subject to limitations provided for in the Company's 10.625% Senior Notes Indenture. A Form 8-K will be filed regarding this event. Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations Results of Operations Three months ended June 30, 1999 compared to three months ended June 30, 1998 Total revenue increased by approximately $5.3 million or 13.3% from $40.1 million for the three months ended June 30, 1998 to $45.4 million for the three months ended June 30, 1999. Revenues decreased by $1.6 million or 9.9% at Penn National Race Course and its OTW facilities due to the strike by The Horsemen's Benevolent Protective Association (Horsemen) that resulted in the closure of the facilities from February 16 to March 24, 1999. Penn National Race Course re-opened for live racing on a limited basis on April 23 and resumed a full live racing schedule the week of June 26, 1999. For the second quarter, Penn National Race Course ran 32 live race days in 1999 compared to 52 live race days in 1998. Charles Town Races had increased revenues of $6.5 million or 47.5% for the quarter. Video lottery machine revenue increased by $4.6 million due to an increase in the average number of machines in play of 700 in 1998 compared to 915 in 1999 and an increase in the average win per machine of $141 in 1998 compared to $164 in 1999. Racing revenue increased by $1.3 million due to the improved quality of the live race card, a stronger full-card simulcast program, and the start of export simulcasting the Charles Town live race program to tracks across the country beginning on June 5, 1999. Concession revenues increased by $.6 million due to the increased attendance at the Charles Town facility. At Pocono Downs and its OTW facilities revenues increased by $121,000 or 1.2%. Total operating expenses increased by approximately $5.1 million or 14.8% from $34.3 million for the three months ended June 30, 1998 to $39.4 million for the three months ended June 30, 1999. Expenses decreased by $.4 million or 3.4% at Penn National Race Course and its OTW facilities due to the Horsemen's strike that resulted in 20 fewer live race days for the second quarter in 1999 compared to the second quarter in 1998. Charles Town Races had increased expenses of $5.2 million or 45.2% due to an increase in direct costs associated with additional wagering on horse racing and video lottery machine play, an increase in the number of video lottery machines and export simulcast expenses. Pocono Downs and its OTW facilities had a $.1 million net decrease in expenses. Corporate expenses increased by approximately $.5 million due to the consolidation of the marketing and information technology departments at the corporate level and the development of an OTW facility management department. Depreciation and amortization expense increased by $.7 million due to the purchase of the video lottery machines from GTECH in November 1998. Income from operations increased by approximately $200,000 or 3.4% from $5.8 million for the three months ended June 30, 1998 to $6.0 million for the three months ended June 30, 1999 due to the factors described above. Net income increased by approximately $73,000 or 2.9% from $2,467,000 for the three months ended June 30, 1998 to $2,540,000 for the three months ended June 30, 1999 due to the factors described above. Income tax expense increased by approximately $206,000 or 14.4% from $1,435,000 for the three months ended June 30, 1998 to $1,641,000 for the three months ended June 30, 1999 due to the increase in income for the quarter. 19
Six months ended June 30, 1999 compared to six months ended June 30, 1998 Total revenue increased by approximately $4.8 million or 6.5% from $73.4 million for the six months ended June 30, 1998 to $78.1 million for the six months ended June 30, 1999. Revenues decreased by $8.8 million or 27.4% at Penn National Race Course and its OTW facilities due to the Horsemen's strike that resulted in the closure of the facilities from February 16 to March 24, 1999. Penn National Race Course re-opened for live racing on a limited basis on April 23 and resumed a full live racing schedule the week of June 26, 1999. For the six-month period, Penn National Race Course ran 50 live race days in 1999 compared to 102 live race days in 1998. Charles Town Races had increased revenues of $11.9 million or 48.2% for the period. Video lottery machine revenue increased by $8.8 million due to an increase in the average number of machines in play of 632 in 1998 to 876 in 1999 and an increase in the average win per machine of $141 in 1998 compared to $157 in 1999. Racing revenue increased by $2.1 million due to the improved quality of the live race card, a stronger full-card simulcast program, and the start of export simulcasting the Charles Town live race program to tracks across the country beginning June 5, 1999. Concession revenues increased by $1.0 million due to the increased attendance at the Charles Town facility. At Pocono Downs and its OTW facilities revenues increased by $1.1 million or 6.3%. The increase resulted from a full period of operations for the Carbondale ($1.0 million) and Hazleton OTW's ($ .7 million) that offset the decrease in revenues at the Pocono Downs racetrack ($.6 million) due to the close proximity of these three facilities. Total operating expenses increased by approximately $6.4 million or 10.0% from $63.9 million for the six months ended June 30, 1998 to $70.3 million for the six months ended June 30, 1999. Expenses decreased by $4.4 million or 17.4% at Penn National Race Course and its OTW facilities due to the closing of the facilities from February 16 to March 24, 1999 and the loss of 52 live races in 1999 compared to 1998. Included in the operating expenses were $1.3 million in shutdown related expenses. Charles Town Races had increased expenses of $9.4 million or 43.2% due to an increase in direct costs associated with additional wagering on horse racing and video lottery machine play, additional video lottery machines and export simulcast expenses. Pocono Downs and its OTW facilities had a $.5 million net increase in expenses due to a full period of operations at the Carbondale and Hazleton OTW facilities that was offset by a decrease in expenses at the Pocono Downs racetrack. Corporate expenses increased by approximately $1.0 million due to the consolidation of the marketing and information technology departments at the corporate level and the development of an OTW facility management department. Depreciation and amortization expense increased by $1.3 million due to the purchase of the video lottery machines from GTECH in November 1998. Income from operations decreased by approximately $1.7 million or 17.7% from $9.6 million for the six months ended June 30, 1998 to $7.9 million for the six months ended June 30, 1999 due to the factors described above Net income decreased by approximately $1.1 million or 30.3% from $3.7 million for the six months ended June 30, 1998 to $2.6 million for the six months ended June 30, 1999 due to the factors described above. Income tax expense decreased by approximately $.5 million or 25.3% from $2.1 million for the six months ended June 30, 1998 to $1.6 million for the six months ended June 30, 1999 due to the decrease in income for the period. 20
Liquidity and Capital Resources Historically, the Company's primary sources of liquidity and capital resources have been cash flow from operations, borrowings from banks and proceeds from the issuance of equity securities. Net cash provided by operating activities for the six months ended June 30, 1999 ($9.2 million) consisted of net income and non-cash expenses ($7.3 million), an increase in purses due Horsemen ($2.6 million), an increase in accounts payable ($.4 million) and an increase in other working capital ($1 million), offset by an increase in account receivables ($2.2 million). The increase in accounts receivable was due to an increase in the amount due from the West Virginia Lottery for VLT revenues and administration fee refund ($707,000), tourism grants receivable ($142,000), escrow settlement ($400,000) other receivable at Charles Town ($251,000), and increased settlement receivables for Pocono Downs and Charles Town ($700,000) due to live racing and export simulcasting. Cash flows used in investing activities ($13.8 million) consisted of a note receivable ($11.2 million) from FR Park Racing, LP, a New Jersey limited partnership and a part of the New Jersey Joint Venture agreement and $2.6 million in capital expenditures. Cash flows provided by financing activities ($8.1 million) consisted of principal payments on long-term debt ($3.3 million), borrowings under the credit facility ($11.5 million) for the New Jersey Joint Venture and debt repayment, proceeds from the exercise of stock options and warrants ($.4 million) and an increase in financing costs ($.5 million) for amending the credit facility. The Company is subject to possible liabilities arising from the environmental condition at the landfill adjacent to Pocono Downs. Specifically, the Company may incur expenses in connection with the landfill in the future, which expenses may not be reimbursed by the four municipalities, which are parties to the settlement agreement. The Company is unable to estimate the amount, if any, that it may be required to expend. In the first quarter of 1999, the Company incurred approximately $1.3 million in expenses associated with the actions by the Horsemen on February 16, 1999 that resulted in the closing of Penn National Race Course and its six OTW facilities in Reading, Chambersburg, York, Lancaster, Williamsport and Johnstown, from February 16, 1999 through March 24, 1999. 21
During the remainder of 1999 the Company anticipates spending approximately $22.0 million on capital expenditures at its racetracks and OTW facilities. The Company plans to spend approximately $1.0 million at Pocono Downs, Penn National Race Course and the OTW facilities for building improvements and equipment. The Company will also spend approximately $2.0 million on leasehold improvements, furniture and fixtures and equipment for the new OTW facility in East Stroudsburg, Pennsylvania that is scheduled to open in the first quarter of 2000. At Charles Town, the Company has applied to the West Virginia Lottery Commission for approval to increase the number of gaming machines to 1,500. If approved, the Company plans to spend approximately $19.0 million on an outdoor paddock and jockey room ($1.0 million), renovations for a new slot machine area ($4.3 million), new gaming machines ($5.7 million, conversion of existing machines to coin drop ($2.5 million), player tracking ($1.1 million), a new central system for the West Virginia Lottery Commission ($1.4 million) and other improvements ($2.5 million). If the State of Tennessee reinstates the Tennessee Commission and the Company's racing license or if the racing industry is regulated under another government agency, the Company anticipates expending an additional $9.0 million to complete the first phase of its Tennessee Development Project. The Company entered into its Credit Facility with Bankers Trust Company, as Agent in 1996. This Credit Facility was amended and restated on January 28, 1999 with First Union National Bank replacing Bankers Trust Company, as Agent. The amended Credit Facility provides for, subject to certain terms and conditions, a $20.0 million revolving credit facility, a $5.0 million term loan due in one year, a $3.0 million sublimit for standby letters of credit and has a four-year term for its closing. The Credit Facility, under certain circumstances, requires the Company to make mandatory prepayments and commitment reductions and to comply with certain covenants, including financial ratios and maintenance tests. In addition, the Company may make optional prepayments and commitment reductions pursuant to the terms of the Credit Facility. Borrowings under the Credit Facility is secured by the assets of the Company and contains certain financial ratios and maintenance tests. On June 30, 1999, the Company was in compliance with all applicable ratios. On July 22, 1999 the Company entered into Amendment No. 1 to the Credit Facility which increased the sublimit for the standby letter of credit from $3.0 million to $3.5 million. On July 29, 1999 the Company entered into Amendment No. 2 to the Credit Facility which provided for the consent of the Banks, which are a party to the Credit Facility, to permit the Company to enter into a Debt Service Maintenance Agreement for the benefit of Commerce Bank, N.A. The Debt Service Maintenance Agreement supports the extension of credit to the Joint Venture by Commerce Bank, N.A. In addition , the Company entered into a Subordination and Intercreditor Agreement with FR Park Racing, L.P. and Commerce Bank, N.A. The Company currently estimates that the cash generated from operations and available borrowings under the Credit Facility will be sufficient to finance its current operations, planned capital expenditure requirements, and the costs associated with first phase of the Tennessee Development Project. There can be no assurance, however, that the Company will not be required to seek additional capital, in addition to that available from the foregoing sources. The Company may, from time to time, seek additional funding through public or private financing, including equity financing. There can be no assurance that adequate funding will be available as needed or, if available, on terms acceptable to the Company. 22
Item 3. Changes in Information About Market Risk All of the Company's debt obligations at June 30, 1999 were fixed rate obligations, and management, therefore, does not believe that the Company has any material risk from its debt obligations. Part II. Other Information Item 1. Legal Proceedings In December 1997, Amtote international, Inc. ("Amtote"), filed an action against the Company and the Charles Town Joint Venture in the United States District Court for the Northern District of West Virginia. In its complaint, Amtote (i) states that the Company and the Charles Town Joint Venture allegedly breached certain contracts with Amtote and its affiliates when it entered into a wagering services contract with a third party (the "Third Party Wagering Services Contract"), and not with Amtote, effective January 1, 1998, (ii) sought preliminary and injunctive relief through a temporary restraining order seeking to prevent Charles Town Joint Venture from (a) entering into a wagering services contract with a party other than Amtote and (b) having a third party provide such wagering services, (iii) seeks declaratory relief that through September 2004 and (iv) seeks unspecified compensatory damages, legal fees and costs associated with the action and other legal and equitable relief as the Court deems just and appropriate. On December 24, 1997, a temporary restraining order was issued, which prescribes performance under the Third Party Wagering Contract. On January 14, 1998, a hearing was held to rule on whether a preliminary injunction should be issued or whether the temporary restraining order should be lifted. On February 20, 1998, the temporary restraining order was lifted by the court. The Company is pursuing legal remedies in order to terminate Amtote and proceed under the Third Party Wagering Services Contract. This matter was tried before the State Court of West Virginia on June 17, 1999 and a decision is still pending. The Company believes that its action, and any resolution thereof, will not have any material adverse impact upon its financial condition, results, or the operations of either the Charles Town Joint Venture or the Company. 23
Item 6. Exhibits and Reports on Form 8-K <TABLE> <CAPTION> (a) Exhibits <S> <C> <C> 10.89 Amendment to Employment Agreement dated June 1, 1999, between the Company and Peter M. Carlino. 10.90 Amendment to Employment Agreement dated June 1, 1999, between the Company and Robert S. Ippolito. 10.91 Second Amendment to Joint Venture Agreement dated as of July 29, 1999, between the Company and Greenwood Racing, Inc. 10.92 Shareholder's Agreement dated July 29, 1999, between Penn National Holding Company and Greenwood Racing, Inc. 10.93 Amended and Restated Limited Partnership Agreement dated July 29, 1999, between FR Park Racing, L.P., Pennwood Racing, Inc. and Penn National GSFR, Inc. 10.94 Amended and Restated Limited Partnership Agreement dated July 29, 1999, between FR Park Services, L.P., Pennwood Racing, Inc. and Penn National GSFR, Inc. 10.95 Amended and Restated Limited Partnership Agreement dated July 29, 1999, between GS Park Racing, L.P., Pennwood Racing, Inc. and Penn National GSFR, Inc. 10.96 Amended and Restated Limited Partnership Agreement dated July 29, 1999, between GS Park Services, L.P., Pennwood Racing, Inc. and Penn National GSFR, Inc. 10.97 Amendment No. 1 to Second Amended and Restated Credit Agreement dated July 29, 1999, between the Company and First Union National Bank. 10.98 Amendment No. 2 to Second Amended and Restated Credit Agreement dated July 29, 1999, between the Company and First Union National Bank. 10.99 Agreement dated July 9, 1999, between the Company and American Digital Communications, Inc. (Portions of this Exhibit have been omitted pursuant to a request for confidential treatment). 10.01a Subordination and Intercreditor Agreement dated July 29, 1999, between the Company, FR Park Racing, L.P. and Commerce Bank, N.A. 10.02a Debt Service Maintenance Agreement dated July 29, 1999, between the Company and Commerce Bank, N.A. 10.03a First Supplemental Indenture dated May 19, 1999, between the Company and State Street Bank and Trust Company, Trustee. </TABLE> (b) Reports on Form 8-K None 24
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Penn National Gaming, Inc. 08/12/99 By: /s/Robert S. Ippolito Date Robert S. Ippolito, Chief Financial Officer 25
Exhibit Index <TABLE> <CAPTION> Exhibit Nos. Description of Exhibits Page No. <S> <C> <C> 10.89 Amendment to Employment Agreement dated June 1, 1999, between the Company and Peter M. Carlino. 27 10.90 Amendment to Employment Agreement dated June 1, 1999, between the Company and Robert S. Ippolito. 28 10.91 Second Amendment to Joint Venture Agreement dated as of July 29, 1999, between the Company and Greenwood Racing, Inc. 29-33 10.92 Shareholder's Agreement dated July 29, 1999 between Penn National Holding Company and Greenwood Racing, Inc. 34-52 10.93 Amended and Restated Limited Partnership Agreement dated July 29, 1999, between FR Park Racing, L.P., Pennwood Racing, Inc. and Penn National GSFR, Inc. 53-71 10.94 Amended and Restated Limited Partnership Agreement dated July 29, 1999, between FR Park Services, L.P., Pennwood Racing, Inc. and Penn National GSFR, Inc. 72-89 10.95 Amended and Restated Limited Partnership Agreement dated July 29, 1999, between GS Park Racing, L.P., Pennwood Racing, Inc. and Penn National GSFR, Inc. 90-106 10.96 Amended and Restated Limited Partnership Agreement dated July 29, 1999, between GS Park Services, L.P., Pennwood Racing, Inc. and Penn National GSFR, Inc. 107-123 10.97 Amendment No. 1 to Second Amended and Restated Credit Agreement dated July 29, 1999, between the Company and First Union National Bank. 124-132 10.98 Amendment No. 2 to Second Amended and Restated Credit Agreement dated July 29, 1999, between the Company and First Union National Bank. 133-139 10.99 Agreement dated July 9, 1999, between the Company and American Digital Communications, Inc. (Portions of this Exhibit have been omitted pursuant to a request for confidential treatment). 140-157 10.01a Subordination and Intercreditor Agreement dated July 29, 1999, between the Company, FR Park Racing and Commerce Bank N.A.. 158-170 10.02a Debt Service Maintenance Agreement dated July 29, 1999, between the Company and Commerce Bank N.A. 171-179 10.03a First Supplemental Indenture dated May 19, 1999, between the Company and State Street Bank and Trust Company, Trustee. 180-187 </TABLE> 26