Penn National Gaming Inc. (PENN, Financial) filed Quarterly Report for the period ended 2010-06-30.
Penn National Gaming Inc. has a market cap of $2.26 billion; its shares were traded at around $28.46 with a P/E ratio of 35.14 and P/S ratio of 0.95. PENN is in the portfolios of Chuck Akre of Akre Capital Management, LLC, Ron Baron of Baron Funds, Columbia Wanger of Columbia Wanger Asset Management, George Soros of Soros Fund Management LLC, Jeremy Grantham of GMO LLC.
· On May 4, 2010, in a statewide election in Ohio, the voters determined that our casino in Columbus will be located at the site of the former Delphi Automotive plant in Columbuss West Side. As a result of the election, we initiated the process to sell the parcel of land that we purchased in Columbuss Arena District, and reclassified the land as held for sale. We obtained an appraisal to determine the estimated fair market value of the parcel of land that we had purchased in Columbuss Arena District, and recorded a pre-tax impairment charge of $30.5 million during the three and six months ended June 30, 2010 which was comprised of the difference between the lands estimated fair market value less costs to sell and its carrying value. Plans are currently being developed for a $400 million Hollywood-themed casino in Columbus, Ohio, inclusive of $50 million in licensing fees. The project scope for Hollywood Casino Columbus is in development, with a planned casino opening of 3,000 slot machines, 70 table games and 30 poker tables, structured and surface parking, as well as food and beverage outlets and an entertainment lounge. Hollywood Casino Columbus is estimated to be completed in the fourth quarter of 2012. In December 2009, we announced that we had completed the
· In April 2010, we entered into a termination contract with the city of Aurora, Illinois, whereby we will pay $7 million in lieu of perpetual annual payments (which are currently about $1 million) to have off duty Aurora police officials provide security at Hollywood Casino Aurora each day. A payment of $1.5 million was made on June 1, 2010 and additional payments of $1.5 million, $2.0 million and $2.0 million are due on September 1, 2010, June 1, 2011, and June 1, 2012, respectively. This liability was discounted using an estimate of our incremental borrowing rate over the term of the obligation . The accretion of this discount will be recorded in interest expense in the consolidated statements of income.
· In February 2010, Kansas Entertainment, LLC (Kansas Entertainment) received the final approval under the Kansas Expanded Lottery Act, along with its gaming license from the Kansas Racing and Gaming Commission, to proceed with the development of a Hollywood-themed destination facility overlooking Turn 2 at Kansas Speedway. Kansas Entertainment began construction of the facility in the second quarter of 2010 and has a planned opening in the first half of 2012. The approximately $410 million facility, inclusive of licensing fees, is expected to feature a 100,000 square foot casino with capacity for 2,300 slot machines, 61 table games and 25 poker tables, a 1,500 parking structure, as well as a variety of dining and entertainment amenities. Kansas Entertainment is resolving final design and program details at this time. We, along with our partner in Kansas Entertainment, International Speedway Corporation (International Speedway), will share equally the cost of developing and constructing the proposed facility, and intend to jointly seek third party financing for the project. If such third party financing cannot be obtained on satisfactory terms, we and International Speedway are prepared to finance the project. We estimate that our share of the project will be approximately $155 million.
· On March 20, 2009, Empress Casino Hotel, which was undergoing a $55 million renovation, was closed following a fire that started in the land-based pavilion at the facility. All customers and employees were successfully evacuated, and the fire was contained on the land-side of the property before it could spread to the adjacent casino barge. On June 25, 2009, the casino barge was reopened with temporary land-based facilities, and we began construction of a new land-based pavilion. At that time, we carried a builders risk insurance policy for the on-going renovations with a policy limit of $57 million, inclusive of $14 million for delay in completion and $43 million for property damage. The builders risk insurance policy included a $50,000 property damage deductible and a 30-day delay in completion deductible for the peril of fire. In addition, we carried comprehensive business interruption and property damage insurance for the operational components of the Empress Casino Hotel with an overall limit of $228 million. The operational insurance policy included a $2.5 million property damage deductible and a 48-hour business interruption deductible for the peril of fire. We recorded a $0.1 million and $0.2 million pre-tax loss during the three and six months ended June 30, 2010, respectively, and a $0.3 million and $5.7 million pre-tax loss during the three and six months ended June 30, 2009, respectively, for the insurance deductibles for property damage, business interruption and employee lost wages, as well as a write-off of construction fees related to the renovation that are not recoverable under the Companys insurance policies and certain consulting fees. During the six months ended June 30, 2010 and the year ended December 31, 2009, we received $20.0 million and $20.6 million, respectively, in insurance proceeds related to the fire at Empress Casino Hotel.
At June 30, 2010, we had $1,377.3 million in goodwill and $402.3 million in other intangible assets within our consolidated balance sheet, representing 30.8% and 9.0% of total assets, respectively, resulting from our acquisition of other businesses and payment for gaming licenses and racing permits. Two issues arise with respect to these assets that require significant management estimates and judgment: (i) the valuation in connection with the initial purchase price allocation; and (ii) the ongoing evaluation for impairment.
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Penn National Gaming Inc. has a market cap of $2.26 billion; its shares were traded at around $28.46 with a P/E ratio of 35.14 and P/S ratio of 0.95. PENN is in the portfolios of Chuck Akre of Akre Capital Management, LLC, Ron Baron of Baron Funds, Columbia Wanger of Columbia Wanger Asset Management, George Soros of Soros Fund Management LLC, Jeremy Grantham of GMO LLC.
Highlight of Business Operations:
· In June 2010, we announced that the new Hollywood Casino Perryville in Cecil County, Maryland will open to the public on September 30, 2010, four weeks earlier than originally estimated, subject to final customary approvals. In October 2009, the Maryland Video Lottery Facility Location Commission selected us to develop and manage a video lottery terminal facility in Cecil County, Maryland. Following our selection, we exercised our option and completed the purchase of approximately 36 acres of land located in Perryville, Maryland, and commenced construction of a $97.5 million Hollywood-themed facility, inclusive of licensing fees of $9.0 million. The new facility will feature 75,000 square feet of gaming space, 1,500 video lottery terminals, food and beverage offerings, and parking for over 1,600 vehicles.· On May 4, 2010, in a statewide election in Ohio, the voters determined that our casino in Columbus will be located at the site of the former Delphi Automotive plant in Columbuss West Side. As a result of the election, we initiated the process to sell the parcel of land that we purchased in Columbuss Arena District, and reclassified the land as held for sale. We obtained an appraisal to determine the estimated fair market value of the parcel of land that we had purchased in Columbuss Arena District, and recorded a pre-tax impairment charge of $30.5 million during the three and six months ended June 30, 2010 which was comprised of the difference between the lands estimated fair market value less costs to sell and its carrying value. Plans are currently being developed for a $400 million Hollywood-themed casino in Columbus, Ohio, inclusive of $50 million in licensing fees. The project scope for Hollywood Casino Columbus is in development, with a planned casino opening of 3,000 slot machines, 70 table games and 30 poker tables, structured and surface parking, as well as food and beverage outlets and an entertainment lounge. Hollywood Casino Columbus is estimated to be completed in the fourth quarter of 2012. In December 2009, we announced that we had completed the
· In April 2010, we entered into a termination contract with the city of Aurora, Illinois, whereby we will pay $7 million in lieu of perpetual annual payments (which are currently about $1 million) to have off duty Aurora police officials provide security at Hollywood Casino Aurora each day. A payment of $1.5 million was made on June 1, 2010 and additional payments of $1.5 million, $2.0 million and $2.0 million are due on September 1, 2010, June 1, 2011, and June 1, 2012, respectively. This liability was discounted using an estimate of our incremental borrowing rate over the term of the obligation . The accretion of this discount will be recorded in interest expense in the consolidated statements of income.
· In February 2010, Kansas Entertainment, LLC (Kansas Entertainment) received the final approval under the Kansas Expanded Lottery Act, along with its gaming license from the Kansas Racing and Gaming Commission, to proceed with the development of a Hollywood-themed destination facility overlooking Turn 2 at Kansas Speedway. Kansas Entertainment began construction of the facility in the second quarter of 2010 and has a planned opening in the first half of 2012. The approximately $410 million facility, inclusive of licensing fees, is expected to feature a 100,000 square foot casino with capacity for 2,300 slot machines, 61 table games and 25 poker tables, a 1,500 parking structure, as well as a variety of dining and entertainment amenities. Kansas Entertainment is resolving final design and program details at this time. We, along with our partner in Kansas Entertainment, International Speedway Corporation (International Speedway), will share equally the cost of developing and constructing the proposed facility, and intend to jointly seek third party financing for the project. If such third party financing cannot be obtained on satisfactory terms, we and International Speedway are prepared to finance the project. We estimate that our share of the project will be approximately $155 million.
· On March 20, 2009, Empress Casino Hotel, which was undergoing a $55 million renovation, was closed following a fire that started in the land-based pavilion at the facility. All customers and employees were successfully evacuated, and the fire was contained on the land-side of the property before it could spread to the adjacent casino barge. On June 25, 2009, the casino barge was reopened with temporary land-based facilities, and we began construction of a new land-based pavilion. At that time, we carried a builders risk insurance policy for the on-going renovations with a policy limit of $57 million, inclusive of $14 million for delay in completion and $43 million for property damage. The builders risk insurance policy included a $50,000 property damage deductible and a 30-day delay in completion deductible for the peril of fire. In addition, we carried comprehensive business interruption and property damage insurance for the operational components of the Empress Casino Hotel with an overall limit of $228 million. The operational insurance policy included a $2.5 million property damage deductible and a 48-hour business interruption deductible for the peril of fire. We recorded a $0.1 million and $0.2 million pre-tax loss during the three and six months ended June 30, 2010, respectively, and a $0.3 million and $5.7 million pre-tax loss during the three and six months ended June 30, 2009, respectively, for the insurance deductibles for property damage, business interruption and employee lost wages, as well as a write-off of construction fees related to the renovation that are not recoverable under the Companys insurance policies and certain consulting fees. During the six months ended June 30, 2010 and the year ended December 31, 2009, we received $20.0 million and $20.6 million, respectively, in insurance proceeds related to the fire at Empress Casino Hotel.
At June 30, 2010, we had $1,377.3 million in goodwill and $402.3 million in other intangible assets within our consolidated balance sheet, representing 30.8% and 9.0% of total assets, respectively, resulting from our acquisition of other businesses and payment for gaming licenses and racing permits. Two issues arise with respect to these assets that require significant management estimates and judgment: (i) the valuation in connection with the initial purchase price allocation; and (ii) the ongoing evaluation for impairment.
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