Penn National Gaming Reports Fourth Quarter Revenue of $743.8 Million and Adjusted EBITDA of $152.3 Million, Inclusive of $14.5
Penn National Gaming Reports Fourth Quarter Revenue of $743.8 Million and
Adjusted EBITDA of $152.3 Million, Inclusive of $14.5 Million of Corporate
Overhead
Expenses Not Included in Guidance
Establishes 2013 First Quarter Guidance and Updates 2013 Full Year Guidance
Business Wire
WYOMISSING, Penn. -- January 31, 2013
Penn National Gaming, Inc. (Nasdaq:PENN):
Conference Call: Today, January 31, 2013 at 10:00 a.m. ET
Dial-in number: 212/231-2906
Webcast: www.pngaming.com
Replay information provided below
Penn National Gaming, Inc. (PENN: Nasdaq) today reported fourth quarter and
full year 2012 operating results, as summarized below:
Summary of Fourth Quarter and Full Year Results
(in millions, Three Months Ended Twelve Months Ended
except per
share data) December 31, December 31,
2012 2012 2011 2012
Actual Guidance Actual 2012 Actual Guidance 2011 Actual
(2) (2)
Net revenues $ 743.8 $ 782.4 $ 676.5 $ 2,899.5 $ 2,938.1 $ 2,742.3
Adjusted 152.3 182.4 156.5 711.4 741.5 730.2
EBITDA (1)
Less: Impact
of stock
compensation,
insurance
recoveries and
deductible
charges,
depreciation
and
amortization,
gain/loss on (132.1 ) (147.2 ) (112.5 ) (499.4 ) (514.6 ) (487.8 )
disposal of
assets,
interest
expense - net,
income taxes,
loss on
early
extinguishment
of debt, and
other expenses
Net income $ 20.2 $ 35.2 $ 44.0 $ 212.0 $ 226.9 $ 242.4
Diluted
earnings per $ 0.19 $ 0.33 $ 0.41 $ 2.04 $ 2.15 $ 2.26
common share
Adjusted EBITDA is income (loss) from operations, excluding the impact
of stock compensation, insurance recoveries and deductible charges,
depreciation and amortization, and gain or loss on disposal of assets,
(1) and is inclusive of gain or loss from unconsolidated affiliates. A
reconciliation of net income (loss) per accounting principles generally
accepted in the United States of America (“GAAP”) to adjusted EBITDA, as
well as income (loss) from operations per GAAP to adjusted EBITDA, is
included in the accompanying financial schedules.
The figures in these columns present the guidance Penn National provided
(2) on November 15, 2012 when it announced that it is pursuing a plan to
split its businesses into two separately traded companies, a gaming
focused REIT and a gaming operator.
Review of Fourth Quarter 2012 Results vs. Guidance and Fourth Quarter 2011
Results
Three Months
Ended
December 31, 2012
Pre-tax After-tax
(in thousands)
Income, per guidance $ 73,001 $ 35,248
(1)
Midwest segment (10,587 ) (6,143 )
variance
Southern Plains segment (3,552 ) (2,061 )
variance
Other segment variances (1,523 ) (883 )
Cherokee County (6,420 ) (4,036 )
litigation accrual
Maryland lobbying (2,170 ) (2,170 )
efforts
Development costs (3,883 ) (2,441 )
Other (1,179 ) (781 )
Depreciation and 4,616 2,678
amortization variance
Tax rate variance from - 828
guidance
Income, as reported $ 48,303 $ 20,239
Three Months Ended
December 31,
2012 2012 Guidance (1) 2011
Diluted earnings per $ 0.19 $ 0.33 $ 0.41
common share
Cherokee County 0.04 - -
litigation accrual
Maryland lobbying 0.02 - -
efforts
Development costs 0.02 - -
Other 0.01 - 0.01
Depreciation and - 0.03 -
amortization variance
Tax rate variance from - 0.01 0.02
guidance
Unconsolidated - - 0.04
affiliate impairment
Diluted earnings per
common share excluding $ 0.28 $ 0.37 $ 0.48
items not included in
guidance
The guidance figures in the tables above present the guidance Penn
National provided on November 15, 2012 (which included $23.8 million of
(1) Maryland lobbying costs) when it announced that it is pursuing a plan to
split its businesses into two separately traded companies, a gaming
focused REIT and a gaming operator.
Peter M. Carlino, Chairman and Chief Executive Officer of Penn National
Gaming, commented, “Fourth quarter operating results fell short of our
guidance targets as our newer facilities have taken longer than expected to
ramp up and industry-wide regional gaming revenue trends softened during the
period. Consolidated results reflect a number of factors, including lobbying
expenses, development costs associated with new greenfield opportunities,
transaction costs associated with our proposed REIT transaction, and
litigation accruals.
“In retrospect, while full year 2012 regional market revenue trends and
customer visitation levels proved to be largely stable, quarterly visibility
and performance was impacted by volatility that did not follow historic
trends. Due to this volatility as well as the still challenging economic
environment, we are approaching 2013 with caution as consumers continue to
adjust to lower discretionary income levels related to higher taxes and other
factors. In this environment, we continue to vigilantly address operating
efficiencies while maintaining a disciplined approach to marketing spend and
promotional activities. This focus is evidenced in the fourth quarter property
level EBITDA margins for our Midwest, East/West and Southern Plains regions,
which rose to 29.0% from 27.3% in the comparable 2011 period despite revenue
trends on a same facility basis. We remain focused on expanding the EBITDA
contributions from all facilities as we rationalize operating costs, fine tune
the slot floor and table game mix, build our customer databases at newly
opened facilities, improve player marketing efforts and adjust food, beverage
and entertainment offerings.
“We believe 2012 will be remembered as a transitional year for Penn National.
We successfully completed multiple significant strategic objectives, including
opening three first class casinos in metropolitan markets on time, and on
budget; completed an accretive acquisition of the facility formerly known as
Harrah’s St. Louis (which is being re-branded Hollywood Casino St. Louis);
advanced our plans for two new VLT facilities in Ohio; submitted a thoughtful,
comprehensive proposal to the City of Springfield, Massachusetts for the
re-development of the City’s North End; submitted a proposal to the
Pennsylvania Gaming Control Board for a new gaming and entertainment
destination in Philadelphia; and submitted two proposals to the Iowa Racing
and Gaming Commission for a new gaming and entertainment destination in
Woodbury County. In January, we reached an agreement with the City of Sioux
City to extend our current land lease for our riverboat casino for twelve
months with an option to extend the lease for an additional eighteen months.
Additionally, with our Zia Park Casino benefiting from a healthy economy in
its feeder markets, we anticipate commencing construction of a hotel at the
facility in the second half of 2013, which would feature 150 rooms with six
suites, a board/meeting room, exercise/fitness facilities and a breakfast
venue. The new hotel, budgeted at $26.2 million, will allow the property to
become more of a destination location enabling us to build relationships with
key customers from eastern New Mexico and western Texas as the new integrated
hotel, casino, and racing facility will far surpass any of the limited options
currently in the market.
“On a corporate level, during the fourth quarter we expanded the Company’s
senior secured credit facility by $1 billion at an attractive cost of capital.
Perhaps most notably, in November, we announced that we are pursuing a plan to
separate the Company’s gaming operating assets from our real property assets
by creating a newly formed, publicly traded real estate investment trust
(“REIT”) through a tax free spin off which we expect will result in a one-time
taxable cash and stock dividend to shareholders equivalent to approximately
$1.4 billion, or $16.00 per current Penn National Gaming common share.
“Following significant consideration and analysis, we expect the proposed REIT
structure will bring additional meaningful benefits to all Penn National
stakeholders as we unlock the value of the Company’s real estate assets,
create a vehicle for efficiently returning capital to shareholders, gain
access to capital at lower blended costs and create two well capitalized
platforms for sustained long-term growth in distinct industries led by
disciplined, market tested management teams. The operating entity, PNG, will
retain its existing growth pipeline while pursuing additional near- and
long-term domestic and international growth opportunities that can be highly
impactful for its shareholders. In addition, the new structure will allow PNG
to operate additional facilities in certain gaming jurisdictions that have
ownership limitations. PropCo will initially own substantially all of Penn
National’s real property assets and will lease back most of those assets to
the gaming operating entity for use by its subsidiaries under a triple net,
35-year master lease agreement (including renewal options). Under the master
lease agreement, it is expected that PNG would initially pay approximately
$442 million in annual rent, which would result in a rent coverage ratio of
approximately 1.9 times earnings before interest, taxes, depreciation,
amortization and rent (“EBITDAR”), thereby retaining ample capital at the
operating entity for growth, debt service and shareholder value enhancing
initiatives. We received a Private Letter Ruling from the IRS relating to the
tax treatment of the separation and the qualification of PropCo as a REIT,
which is subject to certain qualifications and based on certain
representations and statements made by Penn National Gaming, Inc. PropCo is
expected to distribute at least 90% of its annual taxable income to
shareholders as dividends and is expected to declare ordinary dividends of
$2.43 per share based on 2013 guidance.
“Over the past two months, Penn National has had constructive dialogue with
gaming regulators focused on the fact that our plan will not detract from the
Company’s operations, thereby ensuring the continued gaming tax revenue,
employment, and other benefits associated with our operations. Additionally,
earlier this month, we finalized our previously non-binding agreement with an
affiliate of Fortress Investment Group related to its Series B Redeemable
Preferred Stock exchange, as disclosed in our January 18, 2013 Form 8-K. This
agreement ensures that Fortress will realign its investment in advance of the
spin-off to ensure compliance with REIT tax rules. In addition, the Company
has signed an agreement with Centerbridge Capital Partners, LP, pursuant to
which the Company will repurchase their preferred shares at par in advance of
the spin-off. We expect to repurchase the Series B Redeemable Preferred Stock
of the remaining preferred shareholder at, or slightly below, par.”
Development and Expansion Projects
The table below summarizes Penn National Gaming’s current facility
development projects:
Amount
New Planned Expended Expected
Project/Scope Gaming Total through Opening
Positions Budget December Date
31,
2012
(in millions)
Hollywood Casino
Columbus (OH) - The
casino opened on
October 8, 2012 and
features
approximately 3,000
slot machines, 78 Opened
table games and 30 3,790 $400 (1) $388.6 October
poker tables, 8, 2012
structured and
surface parking,
plus food and
beverage outlets
and entertainment
lounge.
Mahoning Valley
Race Track (OH) -
Full details and
design of the
project at
Austintown’s
Centrepointe
Business Park are
in the development
stage, with a new 1,500 $265 (2) $7.2 2014
Hollywood themed
facility featuring
a new racetrack and
up to 1,500 video
lottery terminals,
as well as various
restaurants, bars
and other
amenities.
Dayton Raceway (OH)
- Full details and
design of the
project at the site
of an abandoned
Delphi Automotive
plant are in the
development stage,
with our new 1,500 $257 (2) $5.0 2014
Hollywood themed
facility featuring
a new racetrack and
up to 1,500 video
lottery terminals,
as well as various
restaurants, bars
and other
amenities.
Hollywood Casino
St. Louis (MO) -
Rebranding of
former Harrah's
property to our Ongoing
Hollywood Theme. through
Integration of new $61 $11.0 Fourth
casino, hotel, Quarter
financial and 2013
operating systems
and upgrades of
slot machine
product.
(1) Includes a $50 million license fee.
(2) Includes a $75 million relocation fee in addition to a $50 million VLT
license fee.
Financial Guidance – Penn National Gaming, Inc.
The table below sets forth current guidance targets for financial results for
the 2013 first quarter and full year, based on the following assumptions:
* Excludes cash and non-cash charges associated with the proposed tax-free
spin-off transaction (including tender costs, consulting fees,
professional fees, debt issuance cost write-offs and impairments of
goodwill and other intangible assets);
* A competitor’s property, Horseshoe Cincinnati, opens in the first quarter
of 2013;
* Operators in Maryland begin offering table games in April of 2013;
* No disruptions to Penn National’s Argosy Casino Sioux City facility
arising from the ongoing litigation or regulatory proceedings;
* A full year of the Casino Rama management contract;
* Depreciation and amortization charges in 2013 of $314.0 million, with
$77.9 million projected to be incurred in the first quarter of 2013. The
increase in 2013 depreciation expense is due to Hollywood Casino St. Louis
partially offset by lower depreciation at Hollywood Casino Columbus;
* Estimated non-cash stock compensation expenses of $25.7 million for 2013,
with $7.1 million of the cost incurred in the first quarter of 2013;
* LIBOR is based on the forward curve;
* A blended 2013 income tax rate of 39%;
* A diluted share count of approximately 106.7 million shares for the full
year 2013, which excludes any reduction of the fully diluted weighted
average shares per the terms of the Preferred Stock resulting from Penn
National Gaming’s stock price exceeding $45 or as a result of the exchange
transaction with Fortress and our anticipated repurchase of the remaining
preferred shares; and,
* There will be no material changes in applicable legislation, regulatory
environment, world events, weather, recent consumer trends, economic
conditions, or other circumstances beyond our control that may adversely
affect the Company’s results of operations.
(in millions, Three Months Ending March
except per 31, Full Year Ending December 31,
share data)
2013 2013 Prior
2013 2012 Revised 2012 Actual
Guidance Actual Guidance
Guidance (2)
Net revenues $ 799.2 $ 736.1 $ 3,151.5 $ 3,201.6 $ 2,899.5
Adjusted 224.2 200.7 881.2 905.1 711.4
EBITDA (1)
Less: Impact
of stock
compensation,
insurance
recoveries
and
deductible
charges,
depreciation
and (155.9 ) (122.1 ) (617.3 ) (624.0 ) (499.4 )
amortization,
gain/loss on
disposal of
assets,
interest
expense -
net, income
taxes, and
other
expenses
Net income $ 68.3 $ 78.6 $ 263.9 $ 281.1 $ 212.0
Diluted
earnings per $ 0.64 $ 0.74 $ 2.47 $ 2.62 $ 2.04
common share
Adjusted EBITDA is income (loss) from operations, excluding the impact
(1) of stock compensation, insurance recoveries and deductible charges,
depreciation and amortization, and gain or loss on disposal of assets,
and is inclusive of gain or loss from unconsolidated affiliates.
These figures present the guidance Penn National provided on November
(2) 15, 2012 for the full year ending December 31, 2013 when it announced it
is pursuing a plan to split its businesses into two separately traded
companies, a gaming focused REIT and a gaming operator.
Pro Forma 2013 Financial Guidance for PropCo, Penn National’s Proposed REIT
Entity
Reflecting the assumptions below and the cash flow from the 2013 financial
guidance for Penn National Gaming, Inc. above, and if the spin-off were to
have occurred on January 1, 2013, PropCo would be expected to generate
adjusted EBITDA of $456.5 million and Adjusted Funds From Operations (“AFFO”)
of $289.6 million.
Significant changes in assumptions from the previous guidance issued November
15, 2012 are as follows:
* Previous guidance was based on Penn National Gaming’s expected debt levels
and free cash flow through December 31, 2012, while the revised guidance
factors in expected 2013 free cash flow and debt levels at December 31,
2013.
* A reduction in adjusted EBITDA resulting from lower projected rent
payments due to slower than anticipated initial results at Hollywood
Casino Columbus and Toledo partially offset by higher taxable REIT
subsidiary (TRS) adjusted EBITDA levels driven by the addition of table
games at Hollywood Casino Perryville;
* An increase in AFFO due to a reduction in the assumed Penn National Gaming
(PNG, the operating entity post the proposed spin-off) employee option
holder dividends that will be incurred by PropCo as the remainder will be
incurred by PNG. This was partially offset by higher income taxes
resulting from increased TRS earnings;
* Increased depreciation expense due to Hollywood Casino St. Louis partially
offset by lower depreciation at Hollywood Casino Columbus;
* A reduction in the fully diluted share count from 95.9 million common
shares to 93.4 million common shares outstanding for 2013 (which excludes
the impact of the pro rata share distribution associated with the one-time
dividend to shareholders of accumulated earnings and profits) due to the
assumption that the Series B Redeemable Preferred Stock held by
Centerbridge Partners LP and Wells Fargo Securities, LLC are redeemed at
par for $252.5 million and an increase in the Fortress buy down amount of
$31.5 million to $449 million. This decrease was offset by the adjustment
required to reflect that there is no tax benefit of PropCo options;
* A reduction in the cash component of the E&P distribution (accumulated
earnings and profits attributable to any pre-REIT years to comply with
certain REIT qualification requirements) from $487 million, or
approximately $5.35 per current Penn National Gaming common share to
approximately $437 million or approximately $5.00 per current Penn
National Gaming common share resulting from the payments required to
execute the Preferred Stock restructuring;
* An increase in the share component of the E&P distribution to 0.48
additional PropCo shares, from the previously assumed 0.38, per Penn
National Gaming common share;
* The ordinary dividend amount is calculated as 80 percent of AFFO less the
PNG option holder dividends. The PNG option holders’ dividends are modeled
to pay down PropCo debt, additionally, the share count utilized in the per
share dividend calculation excludes the dilutive impact of employee stock
options; and,
* An increase in the annual dividend to $2.43 per Penn National Gaming, Inc.
common share from $2.36 due to the factors described above.
PropCo, Penn National’s Proposed REIT Entity
(in millions, except per share data) Full Year Ending December 31,
2013 Revised 2013 Prior
Guidance Guidance (3)
Net revenues $ 608.3 $ 608.3
Adjusted EBITDA (1) 456.5 459.1
Less: Interest expense and maintenance
CAPEX, employee stock (166.9 ) (189.9 )
option holder payments and income tax
payments
AFFO (2) 289.6 269.2
Less: Impact of stock compensation,
depreciation and amortization (161.0 ) (157.0 )
plus maintenance CAPEX
Net income $ 128.6 $ 112.2
Diluted earnings per common share $ 1.38 $ 1.17
Dividend per outstanding share $ 2.43 $ 2.36
Adjusted EBITDA is income (loss) from operations, excluding the impact
(1) of stock compensation, insurance recoveries and deductible charges,
depreciation and amortization, and gain or loss on disposal of assets,
and is inclusive of gain or loss from unconsolidated affiliates.
AFFO is net income, excluding gains or losses from sales of property,
(2) adding back depreciation and stock compensation expense and subtracting
maintenance capex.
These figures present the guidance Penn National provided on November
(3) 15, 2012 for the full year ending December 31, 2013 when it announced
that it is pursuing a plan to split its businesses into two separately
traded companies, a gaming focused REIT and a gaming operator.
Pro Forma 2013 Financial Guidance for Penn National Gaming (PNG, the Operating
Entity Post the Proposed Spin-off)
Reflecting the assumptions below and the 2013 financial guidance for PENN
above, and assuming the spin-off occurred on January 1, 2013, PNG would
generate approximately $410.8 million of adjusted EBITDA in 2013.
Significant changes in assumptions from the previous guidance issued November
15, 2012 are as follows:
* A reduction in net revenues and earnings resulting from a slower than
anticipated ramp up at Hollywood Casino Columbus and Toledo;
* A reduction in the fully diluted share count from 89 million common shares
to 84 million common shares outstanding for 2013, due to the assumption
that Centerbridge Partners LP and Wells Fargo Securities, LLC will redeem
their Series B Redeemable Preferred Stock holdings at par for $252.5
million and a $31.5 million increase in the Fortress buy down amount to
$449 million to ensure that Fortress’ ownership in PNG is less than 10%;
* Excludes charges associated with PropCo options held by Penn National
Gaming employees which will be paid by PNG. The anticipated cash required
for these dividend payments has been pre-funded in PNG; and,
* PNG’s rent expense is reduced by $7.8 million primarily due to a slower
than anticipated revenue ramp at Hollywood Casino Columbus and Toledo. The
rent coverage ratio would decline to approximately 1.9x EBITDAR from 2.0x
EBITDAR with actual total leverage (total debt to adjusted EBITDA) of
approximately 3.0x and implied total adjusted debt leverage (inclusive of
PNG’s obligation under the Master Lease) of 5.6x.
Penn National Gaming (PNG, the Operating Entity Post the Proposed Spin-off)
(in millions, except per Full Year Ending December 31,
share data)
2013 Revised Guidance 2013 Prior Guidance
(3)
Net revenues $ 2,984.7 $ 3,042.6
Adjusted EBITDAR (2) 852.3 881.4
Rent Expense (441.5 ) (449.3 )
Adjusted EBITDA (1) 410.8 432.1
Less: Impact of stock
compensation, insurance
recoveries and
deductible charges,
depreciation and
amortization, gain/loss (307.2 ) (316.5 )
on
disposal of assets,
interest expense - net,
income taxes, and
other expenses
Net income $ 103.6 $ 115.6
Diluted earnings per $ 1.24 $ 1.29
common share
Adjusted EBITDA is income (loss) from operations, excluding the impact
(1) of stock compensation, insurance recoveries and deductible charges,
depreciation and amortization, and gain or loss on disposal of assets,
and is inclusive of gain or loss from unconsolidated affiliates.
(2) Adjusted EBITDAR is adjusted EBITDA less rent.
The guidance figures in the table above present the guidance Penn
(3) National Gaming provided on November 15, 2012 when it announced that it
is pursuing a plan to split its businesses into two separately traded
companies, a gaming focused REIT and a gaming operator.
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
Segment Information – Operations
(in thousands) (unaudited)
NET REVENUES ADJUSTED EBITDA
Three Months Ended Three Months Ended December
December 31, 31,
2012 2011 2012 2011
Midwest $ 279,091 $ 192,889 $ 88,987 $ 55,578
(1)
East/West 301,737 333,457 84,408 84,500
(2)
Southern 155,517 140,387 40,354 42,166
Plains (3)
Other (4) 7,466 9,717 (61,446 ) (25,771 )
Total $ 743,811 $ 676,450 $ 152,303 $ 156,473
NET REVENUES ADJUSTED EBITDA
Twelve Months Ended December Twelve Months Ended
31, December 31,
2012 2011 2012 2011
Midwest $ 949,464 $ 826,436 $ 298,673 $ 255,648
(1)
East/West 1,345,621 1,290,732 379,168 349,200
(2)
Southern 571,246 590,709 179,479 192,036
Plains (3)
Other (4) 33,134 34,380 (145,889 ) (66,648 )
Total $ 2,899,465 $ 2,742,257 $ 711,431 $ 730,236
Our Midwest segment consists of the following properties: Hollywood
Casino Lawrenceburg, Hollywood Casino Aurora, Hollywood Casino Joliet,
Argosy Casino Alton, Hollywood Casino Toledo, which opened on May 29,
2012, and Hollywood Casino Columbus, which opened on October 8, 2012. It
also includes our Casino Rama management service contract and the
(1) Mahoning Valley and Dayton Raceway projects which we anticipate
completing in 2014. Results for the three and twelve months ended
December 31, 2012 included preopening charges of $0.4 million and $20.2
million, respectively, as compared to preopening charges of $2.8 million
and $4.8 million for the three and twelve months ended December 31,
2011, respectively.
Our East/West segment consists of the following properties: Hollywood
Casino at Charles Town Races, Hollywood Casino Perryville, Hollywood
Casino Bangor, Hollywood Casino at Penn National Race Course, Zia Park
(2) Casino, and M Resort which was acquired on June 1, 2011. Results for the
twelve months ended December 31, 2012 included preopening charges of
$0.3 million. Results for the twelve months ended December 31, 2011
included acquisition related transaction costs associated with the M
Resort of $1.3 million.
Our Southern Plains segment consists of the following properties: Argosy
Casino Riverside, Argosy Casino Sioux City, Hollywood Casino Baton
Rouge, Hollywood Casino Tunica, Hollywood Casino Bay St. Louis, Boomtown
Biloxi, Hollywood Casino St. Louis, which we acquired on November 2,
2012, and our 50% joint venture interest in Kansas Entertainment, LLC
(“Kansas Entertainment”), which owns Hollywood Casino at Kansas Speedway
(3) that opened February 3, 2012. Costs associated with the St. Louis
acquisition totaled $1.8 million and $3.3 million for the three and
twelve months ended December 31, 2012, respectively. In addition,
results for the twelve months ended December 31, 2012 included our share
of the Kansas Entertainment joint venture’s preopening charges of $1.4
million, as compared to preopening charges of $2.0 million and $5.1
million for the three and twelve months ended December 31, 2011,
respectively.
Our Other segment consists of our standalone racing operations, namely
Beulah Park, Raceway Park, Rosecroft Raceway, Sanford Orlando Kennel
Club, and our joint venture interests in Sam Houston Race Park, Valley
Race Park and Freehold Raceway. It also included our joint venture
interest in the Maryland Jockey Club which was sold in July 2011. If the
Company is successful in obtaining gaming operations at these locations,
they would be assigned to one of our regional executives and reported in
their respective reportable segment. The Other segment also includes our
Bullwhackers property and our corporate overhead operations. Results for
the three and twelve months ended December 31, 2012 included corporate
overhead costs of $59.1 million and $141.7 million, respectively, as
(4) compared to corporate overhead costs of $17.8 million and $75.0 million
for the three and twelve months ended December 31, 2011, respectively.
Results for the three and twelve months ended December 31, 2012 included
$26.0 million and $45.1 million, respectively, of lobbying costs related
to our opposition to the November 2012 gaming referendum in Maryland and
a $6.4 million legal accrual for our Cherokee County, Kansas litigation,
whereas the twelve months in the prior year included a gain of $20.2
million related to the sale of our interests in the Maryland Jockey Club
partially offset by a $5.9 million charge for our share of a goodwill
impairment at our New Jersey joint venture in the fourth quarter of
2011. Results for the twelve months ended December 31, 2011 included
transaction costs of $0.3 million associated with the Rosecroft Raceway
acquisition.
Reconciliation of Adjusted EBITDA to Net income (GAAP)
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
(in thousands) (unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
2012 2011 2012 2011
Adjusted $ 152,303 $ 156,473 $ 711,431 $ 730,236
EBITDA
(Gain) loss
from (258 ) 8,006 (3,804 ) (7,364 )
unconsolidated
affiliates
Depreciation
and (72,821 ) (51,893 ) (245,348 ) (211,476 )
amortization
Charge for
stock (6,415 ) (6,276 ) (28,609 ) (24,732 )
compensation
Insurance
recoveries,
net of - 38 7,229 13,257
deductible
charges
Gain (loss) on
disposal of 484 (429 ) 1,690 (340 )
assets
Income from $ 73,293 $ 105,919 $ 442,589 $ 499,581
operations
Interest (25,621 ) (20,915 ) (81,440 ) (99,564 )
expense
Interest 265 206 948 423
income
Gain (loss)
from 258 (8,006 ) 3,804 7,364
unconsolidated
affiliates
Loss on early
extinguishment - - - (17,838 )
of debt
Other 108 (1,127 ) (1,375 ) (734 )
Taxes on (28,064 ) (32,046 ) (152,555 ) (146,881 )
income
Net income $ 20,239 $ 44,031 $ 211,971 $ 242,351
Reconciliation of Income (loss) from operations (GAAP) to Adjusted EBITDA
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
Segment Information
(in thousands) (unaudited)
Three Months Ended December 31, 2012
Midwest East/West Southern Other Total
Plains
Income (loss)
from $ 57,953 $ 62,927 $ 23,414 $ (71,001 ) $ 73,293
operations
Charge for
stock - - - 6,415 6,415
compensation
Depreciation
and 30,700 22,233 15,780 4,108 72,821
amortization
Loss (gain) on
disposal of 334 (752 ) (60 ) (6 ) (484 )
assets
Gain (loss)
from - - 1,220 (962 ) 258
unconsolidated
affiliates (1)
Adjusted $ 88,987 $ 84,408 $ 40,354 $ (61,446 ) $ 152,303
EBITDA
Three Months Ended December 31, 2011
Midwest East/West Southern Other Total
Plains
Income (loss)
from $ 39,705 $ 61,923 $ 32,183 $ (27,892 ) $ 105,919
operations
Charge for
stock - - - 6,276 6,276
compensation
Insurance
deductible 1 - (39 ) - (38 )
charges, net
of recoveries
Depreciation
and 15,861 22,485 11,524 2,023 51,893
amortization
Loss on
disposal of 11 92 234 92 429
assets
Loss from
unconsolidated - - (1,736 ) (6,270 ) (8,006 )
affiliates
Adjusted $ 55,578 $ 84,500 $ 42,166 $ (25,771 ) $ 156,473
EBITDA
Twelve Months Ended December 31, 2012
Midwest East/West Southern Other Total
Plains
Income (loss)
from $ 206,462 $ 291,627 $ 132,153 $ (187,653 ) $ 442,589
operations
Charge for
stock - - - 28,609 28,609
compensation
Insurance
recoveries,
net of - - (7,229 ) - (7,229 )
deductible
charges
Depreciation
and 92,689 88,688 49,408 14,563 245,348
amortization
Gain on
disposal of (478 ) (1,147 ) (63 ) (2 ) (1,690 )
assets
Gain (loss)
from - - 5,210 (1,406 ) 3,804
unconsolidated
affiliates (1)
Adjusted $ 298,673 $ 379,168 $ 179,479 $ (145,889 ) $ 711,431
EBITDA
Twelve Months Ended December 31, 2011
Midwest East/West Southern Other Total
Plains
Income (loss)
from $ 211,356 $ 263,423 $ 137,580 $ (112,778 ) $ 499,581
operations
Charge for
stock - - - 24,732 24,732
compensation
Insurance
recoveries,
net of (18,535 ) - 5,278 - (13,257 )
deductible
charges
Depreciation
and 62,844 85,723 53,764 9,145 211,476
amortization
(Gain) loss on
disposal of (17 ) 54 248 55 340
assets
(Loss) gain
from - - (4,834 ) 12,198 7,364
unconsolidated
affiliates
Adjusted $ 255,648 $ 349,200 $ 192,036 $ (66,648 ) $ 730,236
EBITDA
On February 3, 2012, our joint venture in Kansas Entertainment commenced
operations of Hollywood Casino at Kansas Speedway. We record 50% of the
joint venture’s earnings in our gain from unconsolidated affiliates line
1) in the Southern Plains column which includes the impact of depreciation
and amortization expense. Our 50% share of depreciation and amortization
expense was $2.8 million and $9.9 million for the three and twelve months
ended December 31, 2012, respectively.
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(in thousands, except per share data) (unaudited
Three Months Ended Twelve Months Ended December
December 31, 31,
2012 2011 2012 2011
Revenues
Gaming $ 665,774 $ 600,257 $ 2,590,533 $ 2,468,630
Food, beverage 112,239 110,897 438,837 400,258
and other
Management 3,431 3,355 14,835 15,185
service fee
Revenues 781,444 714,509 3,044,205 2,884,073
Less promotional (37,633 ) (38,059 ) (144,740 ) (141,816 )
allowances
Net revenues 743,811 676,450 2,899,465 2,742,257
Operating
expenses
Gaming 344,372 319,653 1,342,905 1,298,938
Food, beverage 89,947 90,000 343,611 321,801
and other
General and 163,378 109,023 532,241 423,718
administrative
Depreciation and 72,821 51,893 245,348 211,476
amortization
Insurance
recoveries, net - (38 ) (7,229 ) (13,257 )
of deductible
charges
Total operating 670,518 570,531 2,456,876 2,242,676
expenses
Income from 73,293 105,919 442,589 499,581
operations
Other income
(expenses)
Interest expense (25,621 ) (20,915 ) (81,440 ) (99,564 )
Interest income 265 206 948 423
Gain (loss) from
unconsolidated 258 (8,006 ) 3,804 7,364
affiliates
Loss on early
extinguishment - - - (17,838 )
of debt
Other 108 (1,127 ) (1,375 ) (734 )
Total other (24,990 ) (29,842 ) (78,063 ) (110,349 )
expenses
Income from
operations 48,303 76,077 364,526 389,232
before income
taxes
Taxes on income 28,064 32,046 152,555 146,881
Net income $ 20,239 $ 44,031 $ 211,971 $ 242,351
Earnings per
common share:
Basic earnings $ 0.21 $ 0.46 $ 2.24 $ 2.52
per common share
Diluted earnings $ 0.19 $ 0.41 $ 2.04 $ 2.26
per common share
Weighted-average
common shares
outstanding:
Basic 76,787 77,180 76,345 77,991
Diluted 104,470 106,195 103,804 107,051
Diluted Share Count Methodology
Reflecting the issuance of 12,500 shares on October 30, 2008 of the $1.25
billion, zero coupon, Series B Redeemable Preferred Stock (“Preferred Stock”)
and the repurchase of 225 shares in the first quarter of 2010, Penn National
Gaming is required to adjust its diluted weighted average outstanding share
count for the purposes of calculating diluted earnings per share as follows:
* When the price of Penn National Gaming’s common stock at the end of
reporting period is less than $45, the diluted weighted average
outstanding share count is increased by 27,277,778 shares (regardless of
how much the stock price is below $45);
* When the price of Penn National Gaming’s common stock at the end of the
reporting period is between $45 and $67, the diluted weighted average
outstanding share count will be increased by an amount which can be
calculated by dividing the $1.23 billion (face value) by the current price
per share. This will result in an increase in the diluted weighted average
outstanding share count of between 18,320,896 shares and 27,277,778 shares
depending on the current share price; and,
* When the price of Penn National Gaming’s common stock at the end of the
reporting period is above $67, the diluted weighted average outstanding
share count will be increased by 18,320,896 shares (regardless of how much
the stock price exceeds $67).
In connection with our proposed plan to separate our gaming operating assets
and real property assets into two publicly traded companies through a tax-free
spin-off of our real estate assets to holders of our common stock, an
affiliate of Fortress Investment Group, owners of approximately $975 million
or 79.4% of the Preferred Stock, has entered into an agreement to exchange
their Preferred Stock for non-voting common stock or equivalents at a price of
$67 per share or 14.6 million non-voting common shares or equivalents. The
non-voting common shares or equivalents would convert to Penn National
Gaming’s voting common shares upon sale to a third party. Fortress may
exchange its Preferred Stock for non-voting common shares or equivalents at
any time, but if Fortress does not fully exercise its exchange right prior to
the spin-off, any remaining Preferred Stock will automatically be converted
into non-voting common shares or equivalents. In addition, Fortress may either
divest 6.7 million of its 14.6 million non-voting Penn National Gaming common
shares or equivalents prior to the spin-off, or, if it does not, Penn National
Gaming has the right to repurchase the undisposed share for $67 per share.
In addition, the Company has signed an agreement with Centerbridge Capital
Partners, LP, pursuant to which the Company will repurchase their Preferred
Stock at par in advance of the spin-off. The Company also expects to
repurchase the Preferred Stock of the remaining preferred shareholder at, or
slightly below, par.
Reconciliation of Non-GAAP Measures to GAAP
Adjusted EBITDA, or earnings before interest, taxes, stock compensation,
insurance recoveries and deductible charges, depreciation and amortization,
gain or loss on disposal of assets, and other income or expenses, and
inclusive of gain or loss from unconsolidated affiliates, is not a measure of
performance or liquidity calculated in accordance with GAAP. Adjusted 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 adjusted EBITDA as the primary measure of the
operating performance of its segments, including the evaluation of operating
personnel. Adjusted 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 adjusted EBITDA. It should also be noted that other
gaming companies that report adjusted EBITDA information may calculate
adjusted EBITDA in a different manner than the Company. Adjusted EBITDA is
presented 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 (loss) per GAAP. A reconciliation of the Company’s
adjusted EBITDA to net income (loss) per GAAP, as well as the Company’s
adjusted EBITDA to income (loss) from operations per GAAP, is included in the
accompanying financial schedules.
A reconciliation of each segment’s adjusted EBITDA to income (loss) from
operations is included in the financial schedules herein. On a segment level,
adjusted EBITDA is reconciled to income (loss) from operations per GAAP,
rather than net income (loss) 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 segments on a segment-by-segment
basis. Management believes that this presentation is more meaningful to
investors in evaluating the performance of the Company’s segments and is
consistent with the reporting of other gaming companies.
Adjusted EBITDAR is adjusted EBITDA less rent expense.
Funds From Operations (“FFO”), is defined by NAREIT (the National Association
of Real Estate Investment Trusts, the trade organization for REITs) as “the
most commonly accepted and reported measure of REIT operating performance.”
FFO is equal to net income, excluding gains or losses from sales of property,
adding back depreciation and stock compensation expense. Adjusted Funds From
Operations (“AFFO”) is defined as FFO less maintenance capex. A reconciliation
of FFO and AFFO to net income (loss) per GAAP is included in the accompanying
financial schedules.
Notwithstanding the foregoing, PropCo’s and/or PNG’s measures of adjusted
EBITDA, adjusted EBITDAR, FFO and AFFO may not be comparable to similarly
titled measures used by other companies.
Conference Call, Webcast and Replay Details
Penn National Gaming is hosting a conference call and simultaneous webcast at
10:00 am ET today, both of which are open to the general public. The
conference call number is 212/231-2906; please call five minutes in advance to
ensure that you are connected prior to the presentation. Questions will be
reserved for call-in analysts and investors. Interested parties may also
access the live call on the Internet at www.pngaming.com; allow 15 minutes to
register and download and install any necessary software. A replay of the call
can be accessed for thirty days on the Internet at www.pngaming.com.
This press release, which includes financial information to be discussed by
management during the conference call and disclosure and reconciliation of
non-GAAP financial measures, is available on the Company’s web site,
www.pngaming.com in the “Investors” section (select link for “Press
Releases”).
About Penn National Gaming
Penn National Gaming owns, operates or has ownership interests in gaming and
racing facilities with a focus on slot machine entertainment. The Company
presently operates twenty-nine facilities in nineteen jurisdictions, including
Colorado, Florida, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine,
Maryland, Mississippi, Missouri, Nevada, New Jersey, New Mexico, Ohio,
Pennsylvania, Texas, West Virginia, and Ontario. In aggregate, Penn National's
operated facilities currently feature approximately 35,600 gaming machines,
approximately 830 table games, 2,900 hotel rooms and approximately 1.6 million
square feet of gaming floor space.
Forward-looking Statements
This press release contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Actual results may vary
materially from expectations. Although Penn National Gaming, Inc. and its
subsidiaries (collectively, the “Company” or “PENN”) believe that our
expectations are based on reasonable assumptions within the bounds of our
knowledge of our business and operations, there can be no assurance that
actual results will not differ materially from our expectations. Meaningful
factors that could cause actual results to differ from expectations include,
but are not limited to, risks related to the following: the proposed
separation of PropCo from PENN, including our ability to timely receive all
necessary consents and approvals, the anticipated timing of the proposed
separation, the expected tax treatment of the proposed transaction, the
ability of each of the post spin Company and PropCo to conduct and expand
their respective businesses following the proposed spin-off, and the diversion
of management’s attention from traditional business concerns; our ability to
obtain timely regulatory approvals required to own, develop and/or operate our
facilities, or other delays or impediments to completing our planned
acquisitions or projects, including favorable resolution of any related
litigation, including the appeal by the Ohio Roundtable addressing the
legality of video lottery terminals in Ohio; our ability to secure state and
local permits and approvals necessary for construction; construction factors,
including delays, unexpected remediation costs, local opposition and increased
cost of labor and materials; our ability to successfully integrate Harrah’s
St. Louis into our existing business; our ability to reach agreements with the
thoroughbred and harness horseman in Ohio in connection with the proposed
relocations and to otherwise maintain agreements with our horseman,
pari-mutuel clerks and other organized labor groups; the passage of state,
federal or local legislation (including referenda) that would expand,
restrict, further tax, prevent or negatively impact operations in or adjacent
to the jurisdictions in which we do or seek to do business (such as a smoking
ban at any of our facilities); the effects of local and national economic,
credit, capital market, housing, and energy conditions on the economy in
general and on the gaming and lodging industries in particular; the activities
of our competitors and the emergence of new competitors (traditional and
internet based); increases in the effective rate of taxation at any of our
properties or at the corporate level; our ability to identify attractive
acquisition and development opportunities and to agree to terms with partners
for such transactions; the costs and risks involved in the pursuit of such
opportunities and our ability to complete the acquisition or development of,
and achieve the expected returns from, such opportunities; our expectations
for the continued availability and cost of capital; the outcome of pending
legal proceedings; changes in accounting standards; our dependence on key
personnel; the impact of terrorism and other international hostilities; the
impact of weather; and other factors as discussed in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2011, subsequent Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K as filed with the SEC.
The Company does not intend to update publicly any forward-looking statements
except as required by law.
Contact:
Penn National Gaming, Inc.
William J. Clifford, 610-373-2400
Chief Financial Officer
or
JCIR
Joseph N. Jaffoni / Richard Land, 212-835-8500
penn@jcir.com
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