WYOMISSING, Pennsylvania -- (PRESS RELEASE) -- Penn National Gaming, Inc. (Nasdaq:PENN) today reported fourth quarter operating results for the period ended December 31, 2007.
In the three months ended December 31, 2007, the Company recorded a non-cash pre-tax currency translation loss of $0.9 million ($0.5 million, net of taxes, or $0.01 per diluted share) related to Canadian currency fluctuations for FIN 48 estimated tax reserves.
In the three months ended December 31, 2006, the Company's financial results benefited from a settlement agreement with its property and business interruption insurance providers for a total of $225 million for Hurricane Katrina-related losses at its Hollywood Casino Bay St. Louis and Boomtown Biloxi facilities, as well as minor proceeds related to its National Flood Insurance coverage and auto insurance claims. Reflecting the settlement agreement, the Company recorded a pre-tax gain of $128.3 million ($81.8 million, net of taxes, or $0.94 per diluted share) in the three months ended December 31, 2006. In addition, as a result of the increased asset values resulting from the reconstruction at Hollywood Casino Bay St. Louis, the Company determined that all of the goodwill associated with the original purchase of the property was impaired. Accordingly, the Company recorded a pre-tax charge of $34.5 million ($22.0 million, net of taxes, or $0.25 per diluted share) in the three months ended December 31, 2006.
Commenting on the results, Peter M. Carlino, Chairman and Chief Executive Officer of Penn National Gaming said, "Our fourth quarter performance was relatively strong, considering the impact of weather in December at our five largest properties. In total, these facilities had 29 property days impacted by snow in the 2007 fourth quarter, versus 3 in the same period in 2006. In addition to the impact of weather, fourth quarter EBITDA was marginally below our guidance as overall revenue growth was impacted by continued competitive pressures at our Joliet facility and a pronounced decline at our Biloxi property related to ongoing post-hurricane market stabilization.
"We also recorded a $2.5 million pre-opening charge at Penn National for Pennsylvania Gaming Control Board start-up fees in the fourth quarter which was not anticipated in our guidance. This charge was partially offset by the timing of other pre-opening expenses, amounting to approximately $1.0 million, which were anticipated to occur in the quarter but were not recognized, improved property margins related to the Illinois tax rollbacks and property insurance cost reductions.
"During the quarter, we continued to execute on our long-term strategy for growth through the development and expansion of gaming facilities and the effective integration of acquired assets. In addition to completing the Sanford-Orlando Kennel Club transaction, during the quarter we also filed a license application with the Kansas Lottery Commission to be considered as a Lottery Gaming Facility Manager for a proposed $365 million Hollywood Casino Resort in Sumner County, Kansas. Following a highly competitive review process, Penn National received the unanimous endorsement of the Sumner County Commissioners for its proposed destination resort in Wellington, Kansas. As such, Penn National secured one of two endorsements from the Sumner County Commissioners, which is a prerequisite in negotiating for, and ultimately securing, a state lottery gaming facility management contract.
"As proposed, Hollywood Casino Resort – Wellington would be a 450,000 square foot state-of-the-art facility featuring a 350 room resort hotel with luxury suites, spa and fitness center, and a 70,000 square foot gaming floor with 1,500 slot machines and 40 table games; capable of quick expansion to 2,000 slots. In addition, the casino will feature Hollywood-themed memorabilia, a variety of culinary options, a sports bar, retail center, and a 1,750-seat entertainment and convention center. The facility is master-planned for up to $200 million in additional investment and expansion, including mixed use and retail space, an executive golf course and another first-class hotel, bringing the total project to an estimated cost of $565 million.
"Penn National also has a lottery gaming facility management application pending with the State Lottery Commission for its proposed Hollywood Casino Resort in Cherokee County, Kansas where we've secured an exclusive endorsement and have entered into a pre-development agreement with our host community. Our interest in developing two resorts in Southern Kansas stems from our strategy to create critical mass along the southern Kansas border and to create exciting entertainment destinations capable of competing against the ongoing proliferation of Oklahoma tribal gaming. Overall, we are confident that our long-term track record of developing a broad range of successful regional casino entertainment facilities, which create jobs, tax revenues and other sustainable economic benefits, will be important considerations as this process advances in Kansas.
"Reflecting the Company's emphasis on attracting and developing premier management talent, we recently named Tim Wilmott, a proven gaming industry executive who most recently served as Chief Operating Officer of Harrah's Entertainment, Inc., to the position of President and Chief Operating Officer. Tim brings to Penn National established management skills, an extensive industry record of success and innovation, and an in-depth knowledge of many of the markets where Penn National operates. Tim's background also includes the successful management of a growing property portfolio, and we are confident that his leadership, experience and relationships will be of great value to Penn National given our history and current pipeline of expansion projects.
"During the quarter, we made further progress with our strategies to generate growth both from existing facilities and through new development. We are on schedule to complete four significant projects in 2008, including the Hollywood Casino at Penn National Race Course, significant additional parking capacity at Lawrenceburg, the Hollywood Slots Hotel and Raceway permanent facility in Bangor and the 153-room hotel at Charles Town.
"After years of planning and development, the soft opening of Hollywood Casino at Penn National Race Course is scheduled for February 12, with an official grand opening party planned for March 1. True to our word, we invested heavily in reinventing and refurbishing our namesake property, and, in addition to the $50 million license fee, we invested $260 million in this state-of-the-art integrated racing and gaming facility. On the site that once housed the four-story grandstand, we've created a spectacular casino and five-story racing facility that we believe will quickly emerge as one of central Pennsylvania's signature attractions, featuring entertainment and exciting live racing.
"While we've previously highlighted the facility's significant features and amenities including the initial 2,000 slot machines, 700,000 square-foot, five story garage, and a Hollywood design and theme which will make visitors believe they are on site at a Hollywood movie set, we'll also open the Hollywood Memories museum, which will showcase an extensive collection of memorabilia. Hollywood Casino's slots will include the latest video favorites from major equipment suppliers and we already have on site capacity for 3,000 machines, with additions coming based on demand. Multiple dining options, sports bars, simulcast theaters, spectator boxes and other design elements add to the comfort and excitement of this facility.
"Reflecting our commitment to the communities in which we operate, we also applied an environmentally friendly approach to the design and construction of this facility that included significant capital investment in a waste water treatment plant that allows reclaimed water to be used in lavatories and to water the dirt and turf racing surfaces and landscaping throughout the property. I couldn't be more proud or excited about the completed project, the committed employees who made it happen and the facility's potential to impress patrons and generate solid returns on invested capital.
"As indicated when we established guidance for 2007, we anticipated a transition year as we expected to largely operate our existing base of properties while allocating resources to our diversified, staggered development pipeline. With the imminent grand opening of Hollywood Casino at Penn National Race Course and continued progress with our development and expansion activities in other jurisdictions, proven local property management and the recent appointment of Tim Wilmott, we are upbeat about Penn National's near- and long-term financial prospects and ability to deliver quality entertainment to customers. We expect these projects to begin making financial contributions in 2008 and to benefit results over the coming years."
Financial Guidance
Following shareholder approval of the Company's agreement with Fortress Investment Group LLC and Centerbridge Partners, L.P., Penn National Gaming has elected to discontinue providing financial guidance.
The Transaction
On June 15, 2007, Penn National Gaming announced that it had entered into a definitive agreement to be acquired by certain funds managed by affiliates of Fortress Investment Group LLC (FIG: NYSE) ("Fortress") and Centerbridge Partners, L.P. ("Centerbridge"). Under the terms of the merger agreement, if the merger is completed by June 15, 2008, the Company's shareholders will be entitled to receive $67.00 in cash, without interest, for each share of Company common stock they own. If the merger is not completed by June 15, 2008, the $67.00 per share merger consideration will be increased $0.0149 per day.
At a special meeting of shareholders held on December 12, 2007, Penn National Gaming shareholders approved the merger agreement, with 81.6% of the Company's outstanding shares voting and 99.3% of those shares voting in favor of the transaction.
Penn National Gaming is seeking to complete the merger late in the second quarter of 2008. The timing of the closing is subject to obtaining certain regulatory approvals and satisfying other customary closing conditions. As previously reported, the Company believes that the appropriate affiliates of Fortress and Centerbridge complied with their respective obligation to file all requisite initial applications and documents by August 15, 2007, which was the deadline for such filings in the merger agreement. In November 2007, the Ohio Racing Commission approved the merger, subject to delivery of several additional documents. In December 2007, representatives from Fortress and Centerbridge appeared for their first hearing in front of the Illinois Gaming Board. Also, in December 2007, the applicable waiting period under the Hart-Scott-Rodino Act expired without Fortress, Centerbridge or the Company having received a second request for information. On February 6, 2008, the New Jersey Racing Commission approved the merger, subject to several customary conditions including final approval of the meeting's minutes by the Attorney General of New Jersey.
In connection with the proposed merger, Penn National Gaming filed a definitive proxy statement and other documents with the Securities and Exchange Commission that include additional information on the transaction.
