PENN NATIONAL GAMING, INC. ® 2008 ANNUAL REPORT ® Penn National Gaming, Inc. 825 Berkshire Boulevard, Suite 200, Wyomissing, PA 19610 (610) 373-2400 www.pngaming.com OFFICERS AND DIRECTORS Peter M. Carlino, Chairman of the Board and Chief Executive Officer Timothy J. Wilmott, President and Chief Operating Officer William J. Clifford, Sr. Vice President, Finance and Chief Financial Officer Robert S. Ippolito, Vice President, Secretary & Treasurer Thomas P. Burke, Sr. Vice President, Regional Operations Gene Clark, Sr. Vice President, Human Resources John V. Finamore, Sr. Vice President, Regional Operations Jordan B. Savitch, Esq., Sr. Vice President and General Counsel Eric Schippers, Sr. Vice President, Public Affairs Steven T. Snyder, Sr. Vice President, Corporate Development Harold Cramer, Esq., Director, Retired Partner, Schnader Harrison Segal & Lewis LLP Wesley R. Edens, Director, Chairman of the Board and Chief Executive Officer of Fortress Investment Group LLC David A. Handler, Director, Partner, Centerview Partners John M. Jacquemin, Director, President, Mooring Financial Corporation Robert P. Levy, Director, Chairman of the Board, DRT Industries, Inc. Barbara Z. Shattuck, Director, Managing Director, Shattuck Hammond Partners LLC OTHER INFORMATION Ballard Spahr Andrews & Ingersoll, LLP Legal Counsel 1735 Market Street – 51st Floor Philadelphia, PA 19103-7599 Ernst and Young LLP Independent Registered Public Accounting Firm 2001 Market Street, Suite 4000 Philadelphia, PA 19103 Transfer Agent and Registrar Continental Stock Transfer & Trust Company 17 Battery Place New York, NY 10004 Company Website www.pngaming.com Market Information The Common Stock of the Company is listed on the NASDAQ Global Select Market under the symbol PENN. The Annual Report on Form 10-K filed with the United States Securities and Exchange Commission for the fiscal year ended December 31, 2008 may be obtained free of charge upon written request to Robert S. Ippolito, Vice President, Secretary & Treasurer, Penn National Gaming, Inc., 825 Berkshire Boulevard, Suite 200, Wyomissing, PA 19610. Dear Shareholders: corporate debt securities. We are confident that by effectively deploying this capital and our industry leading While 2008 will be balance sheet, we will generate new value for our remembered for the unprecedented shareholders through our proven practice of generating economic challenges that impacted long-term growth by focusing on return on investment, free consumers and businesses cash flow and disciplined financial and risk management. worldwide, I am pleased to report Our development, finance, legal and government that with our disciplined approach 28APR200914521874 to managing our operations and affairs teams are working hard to take advantage of the risk, Penn National Gaming recorded solid 2008 operating current environment and the likelihood that other gaming results and entered 2009 with two new growing facilities, companies may need to sell properties or be financially an exciting pipeline of potential development projects and unable to compete with us in the development of casino a balance sheet that positions the Company to pursue entertainment facilities in new jurisdictions. In this growth and other initiatives to enhance shareholder value. regard, we’ve recently announced proposals in Maryland, Ohio and Kansas that we believe can leverage our balance Notwithstanding our stable, diversified base of sheet, strong new jurisdictional development track record operations and financial liquidity, Penn National was not and significant operating expertise. immune from the economic downturn and fallout related to the credit crisis and its impact on the financial markets Early in 2008, we opened Hollywood Casino at Penn and consumer spending. As with other casino operators, National Race Course on time, on budget and to great Penn National’s operating results for 2008 reflected the acclaim from patrons, the industry and the media. For realities of the economic environment, new competition, long-term investors in Penn National, the development and smoking bans, higher gasoline prices, and other events opening of this state-of-the-art integrated racing and that collectively curtailed consumer spending. As a result, gaming facility fulfills one of our earliest commitments to our 2008 revenue remained relatively flat with 2007 levels shareholders. The finished product features over 2,200 at $2.4 billion even as we opened successful new facilities slot machines, a five-story garage, an innovative, multi- in Pennsylvania and Maine and had a full year benefit of media Hollywood design theme and bars and restaurants the operation of our hotel at Argosy Casino Riverside in ranging from casual dining to a high-end specialty Missouri and the facility in New Mexico that was acquired restaurant. On the top floor of the five-story casino in 2007. Property level EBITDA in 2008 fell about 5% to complex are banquet rooms with panoramic views of the $689 million from $727 million in 2007. In the face of the racetrack, which features exciting year-round deteriorating economic environment, Penn National took thoroughbred racing and simulcast wagering. Since proactive steps to maintain operating margins through cost opening, Hollywood Casino at Penn National Race Course reductions and other initiatives. While property level has emerged as one of the premier entertainment EBITDA margins fell to approximately 28.4% in 2008 attractions in the Commonwealth of Pennsylvania, with from approximately 29.8% in 2007, we credit our property strong and growing visitation. management teams for their focus on preserving margins in the current environment and we expect further progress In mid-2008, Hollywood Slots Hotel and Raceway in on this front in 2009. Bangor, Maine, opened and also received high acclaim from patrons and the media. With 1,000 slot machines, a In July 2008, the Company entered into an agreement 152-room hotel, an attached parking garage, and excellent with certain affiliates of Fortress Investment Group LLC dining offerings, the new property is generating strong and Centerbridge Partners, L.P., the entities that were to revenue growth. We believe our new Pennsylvania and acquire Penn National, whereby the merger agreement was Maine properties clearly highlight Penn National’s ability terminated and the Company received $1.475 billion in to develop branded, state-of-the-art integrated racing and cash comprised of a $225 million cash termination fee and gaming entertainment facilities in new jurisdictions. a $1.25 billion zero-coupon preferred equity investment These properties benefit local communities and which is redeemable in 2015. As a result, Penn National economies, while generating attractive returns and value ended 2008 with $746 million in cash and cash for our shareholders. While both new properties are equivalents after repaying debt under our credit facility, recording healthy revenues, we continue to refine the slot repurchasing 8.9 million shares of our common stock, floor mix, player marketing efforts, and food and beverage funding lobbying expenses in Ohio and investing in and entertainment offerings to build EBITDA margins. In addition to the new properties in Pennsylvania and represent excellent case studies of the thorough Maine, in September we opened the 153-room hotel at our consideration we apply to the development of new Charles Town Entertainment Complex. Charles Town, facilities. We place great emphasis on increasing the acquired in 1997 for under $20 million, was Penn Company’s scale and jurisdictional diversity by using our National’s first master planned development. The property financial strength and property development skills with a and the surrounding region have benefited from our over balanced focus on building first class entertainment $300 million of additional invested capital and the facility destinations that create jobs, tax revenues and other generated the highest revenue and EBITDA of all of our sustainable economic benefits for local communities. With properties in 2008. Reflecting our well-paced, careful this focus, in mid-2008 Penn National secured an investment plan, Charles Town is now an integrated, high exclusive 18 month option to purchase approximately 36 quality lodging, gaming, entertainment and racing acres of land in Cecil County, Maryland located along destination and we look forward to the opportunity to have Interstate 95, approximately 30 miles northeast of the local voters re-consider a referendum allowing table Baltimore Beltway. Last November, Maryland voters games which, if passed, would significantly increase the approved the authorization of up to 15,000 slot machines facility’s economic contributions to the county and the and earlier this year Penn National filed a license state. application with the Maryland Video Lottery Facility Location Commission to be considered for a Video Lottery While Argosy Casino Lawrenceburg was the Operation License in Cecil County, Maryland. In Company’s second largest revenue and EBITDA conjunction with the license application filing, Penn contributor in 2008, the property has long been capacity- National submitted a $3 million fee to reserve the rights to constrained and challenged by its three-tier layout and build a facility. Our proposed $75 million facility in Cecil recently has been impacted by new competition. Following County will include a 150-seat buffet, a coffee shop and over three years of planning and construction, we are parking