Press Release

- Establishes 2012 Third Quarter Guidance and Updates 2012 Full Year Guidance -

WYOMISSING, Pa.--(BUSINESS WIRE)--Jul. 24, 2012--

Penn National Gaming, Inc. (PENN: Nasdaq):

Penn National Gaming, Inc. (PENN: Nasdaq) today reported second quarter operating results for the three months ended June 30, 2012, as summarized below:

Peter M. Carlino, Chairman and Chief Executive Officer of Penn National Gaming commented, “While second quarter regional gaming market revenues generally softened from the pace of the first quarter, six of the sixteen properties that Penn National Gaming operated for both periods recorded year-over-year revenue increases. More significantly, eight of these sixteen properties generated adjusted EBITDA gains in the second quarter relative to the comparable year-ago period. Reflecting these results, our second quarter revenue and adjusted EBITDA both exceeded guidance. Reported adjusted EBITDA of $189.8 million reflects $2.6 million of property operating results that exceeded the expectations in our guidance and was inclusive of $8.0 million of total pre-opening expenses. In addition, reported adjusted EBITDA was impacted by $0.8 million of costs not anticipated in the guidance related to our agreement during the second quarter to acquire Harrah’s St. Louis, which we anticipate will close in the fourth quarter. The Company’s second quarter 2012 adjusted EBITDA margins declined compared to the prior year due to a $6.6 million increase in preopening and acquisition related transaction costs. However, adjusted EBITDA margins are consistent for both periods once these costs are excluded.

“Overall, we’re pleased with our solid second quarter operating results, which were consistent with our guidance, including our assessment of the impact of new competition in some of our markets. On a consolidated basis, second quarter results benefited from a full quarter’s contribution from M Resort which we owned for just one month during last year’s second quarter, as well as a full quarter’s contribution from our joint venture at Hollywood Casino at Kansas Speedway which opened February 3. In addition, we benefited from approximately one month of results from Hollywood Casino Toledo which, to date, has performed very well. Finally, we have seen continued positive results across the organization in terms of enhancing operating efficiencies and maintaining a disciplined approach to marketing and promotional activities.

“We were pleased to announce during the quarter that we further expanded the Company’s strong growth pipeline through our agreement to acquire Harrah’s St. Louis in an accretive transaction. Harrah’s St. Louis will further expand Penn National’s regional operating platform with a facility that is well-positioned in a large metropolitan market. The $610 million transaction price represents a multiple of 7.75 times the property’s trailing twelve month EBITDA, which effectively declines to 6.75 times due to the amortization of goodwill for tax purposes. The acquisition will be funded through an add-on to our existing Senior Secured Credit Facility, which will result in a short-term increase in our total debt to adjusted EBITDA leverage ratio to 3.32 times from 2.79 times at June 30, 2012.

“We currently expect the Harrah’s St. Louis transaction to close in the fourth quarter of 2012, at which time we will re-brand Harrah’s St. Louis with the Company’s Hollywood-themed brand, which is now successfully deployed at twelve of our properties across the country. We are currently establishing the budget for re-branding the facility, refreshing areas of the gaming floor and aligning our IT and reporting functions. The St. Louis transaction represents yet another way for Penn National to sensibly leverage its strong balance sheet to further expand our property portfolio through return-focused investments.

“Near the end of the second quarter, the $320 million Hollywood Casino Toledo facility opened with more than 2,000 slot machines and 60 live tables, making it the first facility in Ohio to offer Las Vegas-style gaming and amenities on a single floor. With more than 1,300 new full and part time positions – 90 percent of which have been hired locally -- Hollywood Casino Toledo is fulfilling its commitments to the voters of Ohio with respect to new employment, significant new tax revenues and other economic benefits. We look forward to the successful launch of the $400 million Hollywood Casino Columbus early in the fourth quarter which will further Penn National’s positive economic impact on the State of Ohio.

“Elsewhere in Ohio, with the late June filing of our Video Lottery Terminal (VLT) license applications, as well as our formal request to relocate our Beulah Park racetrack in Columbus to the Mahoning Valley and Raceway Park in Toledo to Dayton, we are making measurable progress towards our planned construction of two new $150 million integrated racing and VLT facilities. Like our other initiatives in Ohio, these new developments are expected to drive significant new employment opportunities, with each expected to create approximately 1,000 direct and indirect jobs and generate approximately 2,000 construction jobs combined. As such, we view our Ohio investments as a win-win situation for the state, the host communities and Penn National. The state will receive $125 million per facility in licensing and relocation fees, as well as a new recurring tax base, while the Company believes the facilities will deliver attractive returns on invested capital.

“We continue to evaluate other domestic regional gaming opportunities where we can leverage our strong balance sheet, proven development and operating disciplines and the value we bring to local communities. In this regard, we are pursuing new gaming opportunities in Western Massachusetts; for our jointly owned racetracks in Texas; and in Maryland where we are advocating for legislative approval for slots at our Rosecroft Racetrack in Prince George’s County to help provide a long term solution for the state’s struggling horse racing industry. Whether Governor O’Malley will call a Special Session of the Legislature to consider gaming expansion remains to be seen, but Penn National will continue to aggressively push for the inclusion of Rosecroft as a potential sixth gaming location in the state at the current gaming tax levels.

“We are disappointed with the Iowa Racing and Gaming Commission’s recent decision to not approve an extension of our operating agreement with our qualified sponsorship organization through March 2015 as well as their decision to request applications for a new land based facility in Sioux City. We have filed a lawsuit to protect our interests and continue to explore our options related to this matter.

“Our revised 2012 guidance assumes, among other things, a continuation of recent consumer trends, the current expected opening date for our Columbus facility, and the impact to operating results in several markets related to new competition as outlined in the assumptions which precede the guidance later in this release. We are confident that Penn National’s operation of new and existing facilities will offset the new competition and we project growth in free cash flow over the record levels expected to be generated in 2012.”

Financial Guidance

The table below sets forth current guidance targets for financial results for the 2012 third quarter and full year, based on the following assumptions:

• Excludes the operating earnings and related financing costs, but includes preopening costs associated with the anticipated fourth quarter closing of the Harrah’s St. Louis acquisition;
• Hollywood Casino Columbus opens early in the fourth quarter of 2012, with an impact on Hollywood Casino Lawrenceburg;
• A continued impact from Scioto Downs on Hollywood Casino Lawrenceburg;
• Maryland Live! has a significant increase in slot capacity in the fourth quarter with an expected impact to our Hollywood Casino at Charles Town Races, Hollywood Casino at Penn National Race Course and Hollywood Casino Perryville properties;
• L’Auberge Baton Rouge opens in September 2012 with an impact to the Company’s Hollywood Casino Baton Rouge property;
• Horseshoe Cincinnati does not open during 2012 (and thus, no impact is expected to Hollywood Casino Lawrenceburg);
• No disruptions to Penn National’s Argosy Casino Sioux City facility arising from the ongoing negotiations with the City of Sioux City or the facility’s charitable sponsor or any related litigation or regulatory proceedings;
• A total of $24.3 million in 2012 for preopening expenses, with $8.5 million projected to be incurred in the third quarter of 2012;
• Depreciation and amortization charges in 2012 of $243.0 million, with $61.2 million projected to be incurred in the third quarter of 2012;
• Estimated non-cash stock compensation expenses of $29.7 million for 2012, with $7.2 million of the cost incurred in the third quarter of 2012;
• LIBOR is based on the forward curve;
• A blended 2012 income tax rate of 39%;
• Does not assume a reduction of the fully diluted weighted average shares related to the terms of the Series B Redeemable Preferred Stock if Penn National Gaming’s stock price exceeds $45;
• A diluted share count of approximately 105.9 million shares for the full year; 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.

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 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 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 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 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).

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.

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 212/231-2933; 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, through its subsidiaries, owns, operates or has ownership interests in gaming and racing facilities with a focus on slot machine entertainment. The Company presently operates twenty-seven 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 feature approximately 31,700 gaming machines, 725 table games, 2,400 hotel rooms and 1.35 million square feet of gaming floor space. Penn National is currently developing a casino in Columbus, Ohio targeted to open in early in the fourth quarter of 2012, and has agreed to acquire Harrah’s St. Louis gaming and lodging facility from Caesars Entertainment with the transaction expected to close in the fourth quarter of 2012.

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”) 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: our ability to receive and maintain, or delays in obtaining, the 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 recent appeal by the Ohio Roundtable addressing the legality of video lottery terminals in Ohio and the lawsuit to protect our interests in Iowa; 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 receive timely regulatory approval for and to otherwise complete our planned acquisition of Harrah’s St. Louis (failure to do so could, among other things, result in the loss of certain deposits); 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 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.

Source: Penn National Gaming, Inc.

Penn National Gaming, Inc.
William J. Clifford, 610-373-2400
Chief Financial Officer
or
Jaffoni & Collins Incorporated
Joseph N. Jaffoni, Richard Land
212-835-8500
penn@jcir.com