UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2018
OR
☐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.) |
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)
Not Applicable
(Former name, former address, and former fiscal year, if changed since last report)
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ Accelerated filer ◻Non-accelerated filer ◻ (Do not check if a smaller reporting company)
Smaller reporting company ◻ Emerging growth company ◻
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
|
Title |
|
Outstanding as of July 27, 2018 |
|
|
Common Stock, par value $.01 per share |
|
92,386,523 (includes 435,271 shares of restricted stock) |
|
This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the use of forward looking terminology such as “expects,” “believes,” “estimates,” “projects,” “intends,” “plans,” “seeks,” “may,” “will,” “should” or “anticipates” or the negative or other variations of these or similar words, or by discussions of future events, strategies or risks and uncertainties. Specifically, forward-looking statements may include, among others, statements concerning: our expectations of future results of operations and financial condition; expectations for our properties or our development projects; the timing, cost and expected impact of planned capital expenditures on our results of operations; our expectations with regard to the impact of competition; our expectations with regard to acquisitions and development opportunities, as well as the integration of any companies we have acquired or may acquire; the outcome and financial impact of the litigation in which we are or will be periodically involved; the actions of regulatory, legislative, executive or judicial decisions at the federal, state or local level with regard to our business and the impact of any such actions; our ability to maintain regulatory approvals for our existing businesses and to receive regulatory approvals for our new businesses; our expectations relative to margin improvement initiatives; our expectations regarding economic and consumer conditions; and our expectations for the continued availability and cost of capital. As a result, actual results may vary materially from expectations. Although we believe that our expectations are based on reasonable assumptions within the bounds of our knowledge of our business, 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 ability of our operating teams to drive revenue and margins; the impact of significant competition from other gaming and entertainment operations; our ability to obtain timely regulatory approvals required to own, develop and/or operate our facilities, or other delays, approvals or impediments to completing our planned acquisitions or projects, construction factors, including delays, and increased costs; 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 or the award of additional gaming licenses proximate to 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 rapid emergence of new competitors (traditional, internet, social, sweepstakes based and video gaming terminals (“VGTs”) in bars and truck stops); increases in the effective rate of taxation for any of our operations or at the corporate level; our ability to identify attractive acquisition and development opportunities (especially in new business lines) and to agree to terms with, and maintain good relationships with partners/municipalities 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 ability to maintain market share in established markets and to continue to ramp up operations at our recently opened facilities; our expectations for the continued availability and cost of capital; the impact of weather; changes in accounting standards; the risk of failing to maintain the integrity of our information technology infrastructure and safeguard our business, employee and customer data; factors which may cause the Company to curtail or suspend the share repurchase program; with respect to our Plainridge Park Casino in Massachusetts, the ultimate location and timing of the other gaming facilities in the state and the region; with respect to our interactive gaming endeavors, risks related to the commencement of real money online gaming in the state of Pennsylvania and our entry into this new line of business, significant competition in the social gaming industry, employee retention, cyber-security, data privacy, intellectual property and legal and regulatory challenges, as well as our ability to successfully develop innovative products that attract and retain a significant number of players in order to grow our revenues and earnings; with respect to Illinois Gaming Investors, LLC, d/b/a Prairie State Gaming, risks relating to potential changes in the VGT laws, our ability to successfully compete in the VGT market, our ability to retain existing customers and secure new customers, risks relating to municipal authorization of VGT operations and the implementation and the ultimate success of the products and services being offered; with respect to our proposed Pennsylvania casinos in York and Berks or Lancaster Counties, risks related to the ultimate location of other gaming facilities in the state; risks related to the acquisition of Pinnacle Entertainment, Inc. (“Pinnacle”) by Penn National and the integration of the businesses and assets to be acquired; the possibility that the proposed Pinnacle transaction does not close when expected or at all because required regulatory or other approvals are not received or other conditions to the closing are not satisfied on a timely basis or at all; the risk that the financing required to fund the Pinnacle transaction is not obtained on the terms anticipated or at all; the possibility that the Boyd Gaming Corporation and/or Gaming and Leisure Properties, Inc. (“GLPI”) transactions do not close in a timely fashion or at all; potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the Pinnacle transaction; potential litigation challenging the Pinnacle transaction; the possibility that the anticipated benefits of the transaction are not realized when expected or at all, including as a result of the impact of, or issues arising from, the integration of the two companies; the possibility that the anticipated divestitures are not completed in the anticipated timeframe or at all; the possibility that additional divestitures may be required; the possibility that the Pinnacle transaction may be more expensive to complete than anticipated, including as a result of unexpected factors or events; diversion of management’s attention from ongoing business operations and opportunities; litigation
2
relating to the Pinnacle transaction; and risks associated with increased leverage from the Pinnacle transaction; with respect to our management contract at Casino Rama, risks relating to the transition of management of this facility on July 18, 2018 to a newly selected operator; with respect to our pending acquisition of the Margaritaville Resort Casino (“Margaritaville”) operations, the possibility that the proposed Margaritaville transaction does not close when expected or at all because required regulatory or other approvals are not received or other conditions to the closing are not satisfied on a timely basis or at all; potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the Margaritaville transaction; potential litigation challenging the Margaritaville transaction; the possibility that the anticipated benefits of the Margaritaville transaction are not realized when expected or at all, including as a result of the impact of, or issues arising from, the integration of the companies and our ability to realize potential synergies or projected financial results; with respect to our proposed sports betting operations, risks relating to expanding this line of business, including our ability to establish relationships with key partners or vendors and generate sufficient returns on investment, as well as risks relating to potential legislation in various jurisdictions; and other factors as discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, each as filed with the United States Securities and Exchange Commission. We do not intend to update publicly any forward-looking statements except as required by law.
3
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
4
Penn National Gaming, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data) (unaudited)
|
|
|
June 30, |
|
December 31, |
|
||
|
|
|
2018 |
|
2017 |
|
||
|
Assets |
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
200,151 |
|
$ |
277,953 |
|
|
Receivables, net of allowance for doubtful accounts of $3,215 and $2,983 at June 30, 2018 and December 31, 2017, respectively |
|
|
54,969 |
|
|
62,805 |
|
|
Prepaid expenses |
|
|
37,321 |
|
|
43,780 |
|
|
Other current assets |
|
|
16,064 |
|
|
16,494 |
|
|
Total current assets |
|
|
308,505 |
|
|
401,032 |
|
|
Property and equipment, net |
|
|
2,680,565 |
|
|
2,756,669 |
|
|
Other assets |
|
|
|
|
|
|
|
|
Investment in and advances to unconsolidated affiliates |
|
|
146,593 |
|
|
148,912 |
|
|
Goodwill |
|
|
1,008,891 |
|
|
1,008,097 |
|
|
Other intangible assets, net |
|
|
475,317 |
|
|
422,606 |
|
|
Deferred income taxes |
|
|
384,777 |
|
|
390,943 |
|
|
Loan to the JIVDC, net of allowance for loan losses of $64,052 at December 31, 2017 |
|
|
— |
|
|
20,900 |
|
|
Other assets |
|
|
87,182 |
|
|
85,653 |
|
|
Total other assets |
|
|
2,102,760 |
|
|
2,077,111 |
|
|
Total assets |
|
$ |
5,091,830 |
|
$ |
5,234,812 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Current portion of financing obligation to GLPI |
|
$ |
34,329 |
|
$ |
56,248 |
|
|
Current maturities of long-term debt |
|
|
37,087 |
|
|
35,612 |
|
|
Accounts payable |
|
|
24,131 |
|
|
26,048 |
|
|
Accrued expenses |
|
|
132,589 |
|
|
125,688 |
|
|
Accrued interest |
|
|
12,513 |
|
|
13,528 |
|
|
Accrued salaries and wages |
|
|
90,767 |
|
|
111,252 |
|
|
Gaming, pari-mutuel, property, and other taxes |
|
|
63,074 |
|
|
69,645 |
|
|
Income taxes |
|
|
2,451 |
|
|
— |
|
|
Insurance financing |
|
|
3,131 |
|
|
2,404 |
|
|
Other current liabilities |
|
|
89,272 |
|
|
89,584 |
|
|
Total current liabilities |
|
|
489,344 |
|
|
530,009 |
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities |
|
|
|
|
|
|
|
|
Long-term financing obligation to GLPI, net of current portion |
|
|
3,471,726 |
|
|
3,482,573 |
|
|
Long-term debt, net of current maturities and debt issuance costs |
|
|
1,041,368 |
|
|
1,214,625 |
|
|
Noncurrent tax liabilities |
|
|
36,421 |
|
|
34,099 |
|
|
Other noncurrent liabilities |
|
|
25,215 |
|
|
46,652 |
|
|
Total long-term liabilities |
|
|
4,574,730 |
|
|
4,777,949 |
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity (deficit) |
|
|
|
|
|
|
|
|
Series B Preferred stock ($.01 par value, 1,000,000 shares authorized, no shares issued and outstanding at June 30, 2018 and December 31, 2017) |
|
|
— |
|
|
— |
|
|
Series C Preferred stock ($.01 par value, 18,500 shares authorized, no shares issued and outstanding at June 30, 2018 and December 31, 2017) |
|
|
— |
|
|
— |
|
|
Common stock ($.01 par value, 200,000,000 shares authorized, 94,363,678 and 93,392,635 shares issued, and 92,196,285 and 91,225,242 shares outstanding at June 30, 2018 and December 31, 2017, respectively) |
|
|
943 |
|
|
933 |
|
|
Treasury stock, at cost (2,167,393 shares held at June 30, 2018 and December 31, 2017) |
|
|
(28,414) |
|
|
(28,414) |
|
|
Additional paid-in capital |
|
|
1,018,723 |
|
|
1,007,606 |
|
|
Retained deficit |
|
|
(962,043) |
|
|
(1,051,818) |
|
|
Accumulated other comprehensive loss |
|
|
(1,453) |
|
|
(1,453) |
|
|
Total shareholders' equity (deficit) |
|
|
27,756 |
|
|
(73,146) |
|
|
Total liabilities and shareholders' equity (deficit) |
|
$ |
5,091,830 |
|
$ |
5,234,812 |
|
See accompanying notes to the condensed consolidated financial statements.
5
Penn National Gaming, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(in thousands, except per share data)
(unaudited)
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
|
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming |
|
$ |
665,094 |
|
$ |
680,979 |
|
$ |
1,319,588 |
|
$ |
1,342,235 |
|
|
Food, beverage, hotel and other |
|
|
133,664 |
|
|
152,148 |
|
|
264,633 |
|
|
299,889 |
|
|
Management service fees |
|
|
2,968 |
|
|
2,932 |
|
|
5,406 |
|
|
5,259 |
|
|
Reimbursable management costs |
|
|
25,187 |
|
|
6,387 |
|
|
53,371 |
|
|
13,145 |
|
|
Revenues |
|
|
826,913 |
|
|
842,446 |
|
|
1,642,998 |
|
|
1,660,528 |
|
|
Less promotional allowances |
|
|
— |
|
|
(45,983) |
|
|
— |
|
|
(87,841) |
|
|
Net revenues |
|
|
826,913 |
|
|
796,463 |
|
|
1,642,998 |
|
|
1,572,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming |
|
|
350,694 |
|
|
345,156 |
|
|
691,210 |
|
|
677,209 |
|
|
Food, beverage, hotel and other |
|
|
95,112 |
|
|
105,231 |
|
|
188,092 |
|
|
206,306 |
|
|
General and administrative |
|
|
132,659 |
|
|
130,096 |
|
|
253,922 |
|
|
255,911 |
|
|
Reimbursable management costs |
|
|
25,187 |
|
|
6,387 |
|
|
53,371 |
|
|
13,145 |
|
|
Depreciation and amortization |
|
|
58,559 |
|
|
68,969 |
|
|
118,949 |
|
|
139,205 |
|
|
(Recovery) provision for loan loss and unfunded loan commitments to the JIVDC and impairment losses |
|
|
(16,985) |
|
|
5,635 |
|
|
(16,367) |
|
|
5,635 |
|
|
Insurance recoveries |
|
|
(68) |
|
|
— |
|
|
(68) |
|
|
— |
|
|
Total operating expenses |
|
|
645,158 |
|
|
661,474 |
|
|
1,289,109 |
|
|
1,297,411 |
|
|
Income from operations |
|
|
181,755 |
|
|
134,989 |
|
|
353,889 |
|
|
275,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(115,873) |
|
|
(116,768) |
|
|
(231,613) |
|
|
(231,764) |
|
|
Interest income |
|
|
241 |
|
|
235 |
|
|
490 |
|
|
2,881 |
|
|
Income from unconsolidated affiliates |
|
|
5,734 |
|
|
5,021 |
|
|
11,095 |
|
|
9,569 |
|
|
Loss on early extinguishment of debt and modification costs |
|
|
(2,579) |
|
|
— |
|
|
(3,461) |
|
|
(23,390) |
|
|
Other |
|
|
(48) |
|
|
(173) |
|
|
(44) |
|
|
(1,966) |
|
|
Total other expenses |
|
|
(112,525) |
|
|
(111,685) |
|
|
(223,533) |
|
|
(244,670) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations before income taxes |
|
|
69,230 |
|
|
23,304 |
|
|
130,356 |
|
|
30,606 |
|
|
Income tax provision |
|
|
15,242 |
|
|
6,225 |
|
|
30,931 |
|
|
8,423 |
|
|
Net income |
|
$ |
53,988 |
|
$ |
17,079 |
|
$ |
99,425 |
|
$ |
22,183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share |
|
$ |
0.59 |
|
$ |
0.19 |
|
$ |
1.09 |
|
$ |
0.24 |
|
|
Diluted earnings per common share |
|
$ |
0.57 |
|
$ |
0.18 |
|
$ |
1.05 |
|
$ |
0.24 |
|
See accompanying notes to the condensed consolidated financial statements.
6
Penn National Gaming, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(in thousands) (unaudited)
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
|
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
||||
|
Net income |
|
$ |
53,988 |
|
$ |
17,079 |
|
$ |
99,425 |
|
$ |
22,183 |
|
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment during the period |
|
|
— |
|
|
1,217 |
|
|
— |
|
|
1,654 |
|
|
Other comprehensive income (loss) |
|
|
— |
|
|
1,217 |
|
|
— |
|
|
1,654 |
|
|
Comprehensive income |
|
$ |
53,988 |
|
$ |
18,296 |
|
$ |
99,425 |
|
$ |
23,837 |
|
See accompanying notes to the condensed consolidated financial statements.
7
Penn National Gaming, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Shareholders’ (Deficit) Equity
(in thousands, except share data) (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
Other |
|
Total |
|
||||
|
|
|
Preferred Stock |
|
Common Stock |
|
Treasury |
|
Paid-In |
|
Retained |
|
Comprehensive |
|
Shareholders’ |
|
|||||||||||
|
|
|
Shares |
|
|
Amount |
|
Shares |
|
|
Amount |
|
Stock |
|
Capital |
|
(Deficit) |
|
(Loss) |
|
(Deficit ) Equity |
|
|||||
|
Balance, December 31, 2017 |
|
— |
|
|
— |
|
91,225,242 |
|
|
933 |
|
|
(28,414) |
|
|
1,007,606 |
|
|
(1,051,818) |
|
|
(1,453) |
|
|
(73,146) |
|
|
Share-based compensation arrangements |
|
— |
|
|
— |
|
971,043 |
|
|
10 |
|
|
— |
|
|
11,117 |
|
|
— |
|
|
— |
|
|
11,127 |
|
|
Cumulative-effect adjustment upon adoption of ASC 606 "Revenue from Contracts with Customers" |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(9,650) |
|
|
— |
|
|
(9,650) |
|
|
Net income |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
99,425 |
|
|
— |
|
|
99,425 |
|
|
Balance, June 30, 2018 |
|
— |
|
$ |
— |
|
92,196,285 |
|
$ |
943 |
|
$ |
(28,414) |
|
$ |
1,018,723 |
|
$ |
(962,043) |
|
$ |
(1,453) |
|
$ |
27,756 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the condensed consolidated financial statements.
8
Penn National Gaming, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands) (unaudited)
|
Six Months Ended June 30, |
|
2018 |
|
2017 |
|
||
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
99,425 |
|
$ |
22,183 |
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
118,949 |
|
|
139,205 |
|
|
Amortization of items charged to interest expense and interest income |
|
|
3,143 |
|
|
3,275 |
|
|
Change in fair values of contingent purchase price |
|
|
1,337 |
|
|
3,922 |
|
|
Loss on sale of property and equipment |
|
|
3 |
|
|
7 |
|
|
Income from unconsolidated affiliates |
|
|
(11,095) |
|
|
(9,569) |
|
|
Distributions from unconsolidated affiliates |
|
|
13,300 |
|
|
13,000 |
|
|
Deferred income taxes |
|
|
8,210 |
|
|
2,087 |
|
|
Charge for stock-based compensation |
|
|
5,932 |
|
|
3,974 |
|
|
(Recovery) provision for loan loss and unfunded loan commitments to the JIVDC and impairment losses |
|
|
(16,367) |
|
|
5,635 |
|
|
Write off of debt issuance costs and discounts |
|
|
3,461 |
|
|
5,377 |
|
|
Loss on early extinguishment and modification of debt |
|
|
— |
|
|
18,012 |
|
|
Decrease (increase), net of businesses acquired |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
5,766 |
|
|
7,378 |
|
|
Prepaid expenses and other current assets |
|
|
(5,081) |
|
|
(4,829) |
|
|
Other assets |
|
|
(1,553) |
|
|
(2,876) |
|
|
(Decrease) increase, net of businesses acquired |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
(2,014) |
|
|
(3,929) |
|
|
Accrued expenses |
|
|
(3,987) |
|
|
8,895 |
|
|
Accrued interest |
|
|
(1,015) |
|
|
6,751 |
|
|
Accrued salaries and wages |
|
|
(20,485) |
|
|
(9,177) |
|
|
Gaming, pari-mutuel, property and other taxes |
|
|
(6,571) |
|
|
(3,997) |
|
|
Income taxes |
|
|
14,091 |
|
|
14,657 |
|
|
Other current and noncurrent liabilities |
|
|
1,636 |
|
|
(6,063) |
|
|
Net cash provided by operating activities |
|
|
207,085 |
|
|
213,918 |
|
|
Investing activities |
|
|
|
|
|
|
|
|
Project capital expenditures |
|
|
(1,661) |
|
|
(14,673) |
|
|
Maintenance capital expenditures |
|
|
(31,297) |
|
|
(28,287) |
|
|
Insurance remediation proceeds |
|
|
— |
|
|
577 |
|
|
Loan to the JIVDC |
|
|
(338) |
|
|
(372) |
|
|
Receipts applied against nonaccrual loan to the JIVDC |
|
|
512 |
|
|
2,720 |
|
|
Proceeds from the sale of loan to the JIVDC |
|
|
15,186 |
|
|
— |
|
|
Proceeds from sale of property and equipment |
|
|
218 |
|
|
477 |
|
|
Additional contributions to joint ventures |
|
|
(500) |
|
|
— |
|
|
Consideration paid for acquisitions of businesses, gaming licenses, and other intangibles, net of cash acquired |
|
|
(61,236) |
|
|
(126,653) |
|
|
Net cash used in investing activities |
|
|
(79,116) |
|
|
(166,211) |
|
|
Financing activities |
|
|
|
|
|
|
|
|
Proceeds from exercise of options |
|
|
5,195 |
|
|
3,721 |
|
|
Repurchase of common stock |
|
|
— |
|
|
(5,794) |
|
|
Principal payments on financing obligation with GLPI |
|
|
(32,766) |
|
|
(29,328) |
|
|
Proceeds from issuance of long-term debt, net of issuance costs |
|
|
— |
|
|
1,174,362 |
|
|
Proceeds from revolving credit facility draws |
|
|
54,000 |
|
|
196,435 |
|
|
Increase to financing obligation in connection with acquisition |
|
|
— |
|
|
82,603 |
|
|
Repayments on long-term debt |
|
|
(170,750) |
|
|
(1,091,726) |
|
|
Prepayment penalties and modification payments incurred with debt refinancing |
|
|
— |
|
|
(18,012) |
|
|
Repayments on revolving credit facility |
|
|
(54,000) |
|
|
(337,435) |
|
|
Payments of other long-term obligations |
|
|
(7,636) |
|
|
(28,189) |
|
|
Payments of contingent purchase price |
|
|
(541) |
|
|
(41) |
|
|
Proceeds from insurance financing |
|
|
8,541 |
|
|
8,768 |
|
|
Payments on insurance financing |
|
|
(7,814) |
|
|
(8,182) |
|
|
Net cash used in financing activities |
|
|
(205,771) |
|
|
(52,818) |
|
|
Net decrease in cash and cash equivalents |
|
|
(77,802) |
|
|
(5,111) |
|
|
Cash and cash equivalents at beginning of year |
|
|
277,953 |
|
|
229,510 |
|
|
Cash and cash equivalents at end of period |
|
|
200,151 |
|
|
224,399 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure |
|
|
|
|
|
|
|
|
Interest expense paid, net of amounts capitalized |
|
$ |
230,023 |
|
$ |
222,641 |
|
|
Income taxes paid (refunds received) |
|
$ |
6,507 |
|
$ |
(5,659) |
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing activities |
|
|
|
|
|
|
|
|
Accrued capital expenditures |
|
$ |
4,089 |
|
$ |
9,595 |
|
|
Accrued advances to Jamul Tribe |
|
$ |
— |
|
$ |
1,274 |
|
|
|
|
|
|
|
|
|
|
Non-cash transactions: On January 1, 2018, the Company adopted the new revenue standard ASC 606, “Revenue from Contracts with Customers,” and all the related amendments to all contracts using the modified retrospective method. See Note 2 for further information regarding the net non-cash impact of the January 1, 2018 adoption.
See accompanying notes to the condensed consolidated financial statements.
9
Penn National Gaming, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
1. Organization and Basis of Presentation
Penn National Gaming, Inc. (“Penn”) and together with its subsidiaries (collectively, the “Company,” “we,” “our,” or “us”) is a diversified, multi-jurisdictional owner and manager of gaming and racing facilities and video gaming terminal operations with a focus on slot machine entertainment. We have also expanded into social online gaming offerings via our Penn Interactive Ventures, LLC (“Penn Interactive Ventures”) division and our acquisition of Rocket Speed, Inc. (“Rocket Speed”) and into retail gaming in Illinois with our Prairie State Gaming subsidiary. On May 1, 2017, we completed our acquisition of 1st Jackpot Casino Tunica (formerly known as Bally’s Casino Tunica, (“1st Jackpot”)) and Resorts Casino Tunica (“Resorts”). As of June 30, 2018, the Company owned, managed, or had ownership interests in twenty-eight facilities in the following sixteen jurisdictions: Florida, Illinois, Indiana, Kansas, Maine, Massachusetts, Mississippi, Missouri, Nevada, New Jersey, New Mexico, Ohio, Pennsylvania, Texas, West Virginia and Ontario, Canada.
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.
The unaudited condensed consolidated financial statements include the accounts of Penn and its subsidiaries. Investment in and advances to unconsolidated affiliates, that do not meet the consolidation criteria of the authoritative guidance for voting interest, controlling interest or variable interest entities (“VIE”), are accounted for under the equity method. All intercompany accounts and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses for the reporting periods. Actual results could differ from those estimates.
Operating results for the three and six months ended June 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. The notes to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2017 should be read in conjunction with these condensed consolidated financial statements. The December 31, 2017 financial information has been derived from the Company’s audited consolidated financial statements.
10
2. New Accounting Pronouncements
Accounting Pronouncements Implemented in 2018
ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” - On January 1, 2018, the Company adopted the new revenue standard ASC 606, “Revenue from Contracts with Customers (Topic 606),” and all the related amendments (“new revenue standard”) to all contracts using the modified retrospective method. As part of the adoption, the Company utilized a practical expedient that permits the evaluation of incomplete contracts (such as our loyalty point obligations) as completed contracts. The Company recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The Company does not expect the adoption of the new revenue standard to have a material impact to its net income on a continuing basis and did not have a material effect for the three and six months ended June 30, 2018.
In accordance with the new revenue standard requirement, the disclosure of the impact of adoption on our condensed consolidated statements of income and condensed consolidated balance sheets at and for the period ended June 30, 2018 are as follows (in thousands):
|
|
|
Three |
|
Loyalty Point |
|
Promotional Allowance (Discretionary Comps) |
|
Promotional Allowance (Point Redemptions) |
|
Reimbursable Expense - Casino Rama |
|
Racing Reveue |
|
Balances |
|
Effect of |
||||||||
|
Income Statement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming |
|
$ |
665,094 |
|
$ |
(563) |
|
$ |
35,424 |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
699,955 |
|
$ |
(34,861) |
|
Food, beverage, hotel and other |
|
|
133,664 |
|
|
(29) |
|
|
- |
|
|
6,730 |
|
|
- |
|
|
9,866 |
|
|
150,231 |
|
|
(16,567) |
|
Management service fees |
|
|
2,968 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
2,968 |
|
|
- |
|
Reimbursable management costs |
|
|
25,187 |
|
|
- |
|
|
- |
|
|
- |
|
|
(21,068) |
|
|
- |
|
|
4,119 |
|
|
21,068 |
|
Revenues |
|
|
826,913 |
|
|
(592) |
|
|
35,424 |
|
|
6,730 |
|
|
(21,068) |
|
|
9,866 |
|
|
857,273 |
|
|
(30,360) |
|
Less: promotional allowances |
|
|
- |
|
|
- |
|
|
(35,424) |
|
|
(6,730) |
|
|
- |
|
|
- |
|
|
(42,154) |
|
|
42,154 |
|
Net Revenue |
|
|
826,913 |
|
|
(592) |
|
|
- |
|
|
- |
|
|
(21,068) |
|
|
9,866 |
|
|
815,119 |
|
|
11,794 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming |
|
|
350,694 |
|
|
(408) |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
350,286 |
|
|
408 |
|
Food, beverage, hotel and other |
|
|
95,112 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
9,866 |
|
|
104,978 |
|
|
(9,866) |
|
General and administrative |
|
|
132,659 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
132,659 |
|
|
- |
|
Reimbursable management costs |
|
|
25,187 |
|
|
- |
|
|
- |
|
|
- |
|
|
(21,068) |
|
|
- |
|
|
4,119 |
|
|
21,068 |
|
Depreciation and amortization |
|
|
58,559 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
58,559 |
|
|
- |
|
Recovery for loan loss and unfunded commitments to the JIVDC |
|
|
(16,985) |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
(16,985) |
|
|
- |
|
Insurance recoveries |
|
|
(68) |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
(68) |
|
|
- |
|
Total operating expenses |
|
|
645,158 |
|
|
(408) |
|
|
- |
|
|
- |
|
|
(21,068) |
|
|
9,866 |
|
|
633,548 |
|
|
11,610 |
|
Income from operations |
|
|
181,755 |
|
|
(184) |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
||||||