What changed in this filing

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Item 1. Financial Statements

2020-08-06 compared with 2020-05-08 · 502 added, 472 removed, 585 unchanged (62% of the section changed)

3 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except share and per share data)

(in millions, except share and per share data) June 30,

2020 December 31,

Current assets

1 unchanged sentence

Receivables, net of allowance for doubtful accounts of $ 11.0 and $ 7.7

Prepaid expenses 57.1 54.6

Income tax receivable 64.2 22.1

Assets held for sale

Prepaid expenses and other current assets

Other current assets 209.9 40.0

Total current assets 1,646.6 642.8

3 unchanged sentences

Lease right-of-use assets 4,862.3 4,837.3

Other assets 194.2 168.7

Total assets $ 14,321.5 $ 14,194.5

Current liabilities

5 unchanged sentences

Total current liabilities 827.8 905.6

Long-term debt, net of current maturities and debt issuance costs

Long-term debt, net of current maturities, debt discount and debt issuance costs 3,044.8 2,322.2

Long-term portion of financing obligations 4,084.6 4,102.2

1 unchanged sentence

Deferred income taxes 130.5 244.6

Other noncurrent liabilities

Other long-term liabilities 105.1 98.0

Total liabilities 12,816.6 12,342.6

6 unchanged sentences

Treasury stock, at cost, ( 2,167,393 shares held in both periods)

( 28.4 ) ( 28.4 )

Additional paid-in capital 2,170.4 1,718.3

7 unchanged sentences

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the three months ended March 31,

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME (LOSS)

For the three months ended June 30, For the six months ended June 30,

(in millions, except per share data) 2020 2019 2020 2019

Gaming $ 259.2 $ 1,062.1 $ 1,162.1 $ 2,096.7

Food, beverage, hotel and other 46.3 261.0 259.5 509.0

1 unchanged sentence

Operating expenses

Gaming 142.0 564.1 642.9 1,111.6

Food, beverage, hotel and other 32.9 167.6 189.9 329.3

6 unchanged sentences

Interest expense, net ( 135.0 ) ( 134.7 ) ( 264.8 ) ( 267.0 )

Income from unconsolidated affiliates

Income (loss) from unconsolidated affiliates ( 1.7 ) 6.2 2.4 11.9

Other 29.3 — 7.5 —

Total other expenses ( 107.4 ) ( 128.5 ) ( 254.9 ) ( 255.1 )

4 unchanged sentences

Net income (loss) attributable to Penn National $ ( 213.9 ) $ 51.6 $ ( 822.5 ) $ 92.5

Earnings (loss) per common share:

Basic earnings (loss) per common share

Diluted earnings (loss) per common share

Weighted average basic shares outstanding

Weighted average diluted shares outstanding

See accompanying notes to the Condensed Consolidated Financial Statements .

PENN NATIONAL GAMING, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

For the three months ended March 31,

(in millions)

Net income (loss)

Total comprehensive income (loss)

Comprehensive income (loss) $ ( 214.4 ) $ 51.4 $ ( 823.0 ) $ 92.3

Comprehensive loss attributable to non-controlling interest 0.5 0.2 0.5 0.2

Comprehensive income (loss) attributable to Penn National $ ( 213.9 ) $ 51.6 $ ( 822.5 ) $ 92.5

Earnings (loss) per share:

Basic earnings (loss) per share $ ( 1.69 ) $ 0.44 $ ( 6.78 ) $ 0.80

Diluted earnings (loss) per share $ ( 1.69 ) $ 0.44 $ ( 6.78 ) $ 0.78

Weighted-average common shares outstanding - basic 126.8 116.0 121.3 116.1

Weighted-average common shares outstanding - diluted 126.8 117.7 121.3 118.2

See accompanying notes to the Condensed Consolidated Financial Statements.

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Three Months Ended March 31, 2020 and 2019

Preferred Stock

Retained Earnings (Accum-

ulated Deficit)

Total Penn National Stock-

ling Interest

Three Months Ended June 30, 2020 and 2019

Preferred Stock Common Stock Treasury

Capital Retained Earnings (Accum-

ulated Deficit) Total Penn National Stock-

Equity Non-Control-

ling Interest Total

holders’ Equity

(in millions, except share data)

(in millions, except share data) Shares Amount Shares Amount

Balance as of April 1, 2020 883 $ 23.1 116,793,722 $ 1.2 $ ( 28.4 ) $ 1,728.9 $ ( 446.4 ) $ 1,278.4 $ ( 0.8 ) $ 1,277.6

Share-based compensation arrangements — — 1,474,701 — — 22.1 — 22.1 — 22.1

Common stock offering (Note 14) — — 19,166,667 0.2 — 331.0 — 331.2 — 331.2

Convertible debt offering (Note 9) — — — — — 88.2 — 88.2 — 88.2

Net loss — — — — — — ( 213.9 ) ( 213.9 ) ( 0.5 ) ( 214.4 )

Other — — — — — 0.2 — 0.2 — 0.2

Balance as of June 30, 2020 883 $ 23.1 137,435,090 $ 1.4 $ ( 28.4 ) $ 2,170.4 $ ( 660.3 ) $ 1,506.2 $ ( 1.3 ) $ 1,504.9

Balance as of April 1, 2019 — $ — 117,140,551 $ 1.2 $ ( 28.4 ) $ 1,730.3 $ 158.6 $ 1,861.7 $ — $ 1,861.7

Share-based compensation arrangements — — 1,041 — — 3.5 — 3.5 — 3.5

Share repurchases — — ( 1,271,823 ) — — ( 24.9 ) — ( 24.9 ) — ( 24.9 )

Net income (loss) — — — — — — 51.6 51.6 ( 0.2 ) 51.4

Balance as of June 30, 2019 — $ — 115,869,769 $ 1.2 $ ( 28.4 ) $ 1,708.9 $ 210.2 $ 1,891.9 $ ( 0.2 ) $ 1,891.7

Six Months Ended June 30, 2020 and 2019

Preferred Stock Common Stock Treasury

Capital Retained Earnings (Accum-

ulated Deficit) Total Penn National Stock-

Equity Non-Control-

ling Interest Total

holders’ Equity

(in millions, except share data) Shares Amount Shares Amount

Balance as of January 1, 2020 — $ — 115,958,259 $ 1.2 $ ( 28.4 ) $ 1,718.3 $ 161.6 $ 1,852.7 $ ( 0.8 ) $ 1,851.9

Share-based compensation arrangements — — 2,310,164 — — 32.7 — 32.7 — 32.7

Common stock offering (Note 14) — — 19,166,667 0.2 — 331.0 — 331.2 — 331.2

Convertible debt offering (Note 9) — — — — — 88.2 — 88.2 — 88.2

Barstool Sports investment (Note 11) 883 23.1 — — — — — 23.1 — 23.1

Cumulative-effect adjustment upon adoption of ASU 2016-13 — — — — — — 0.6 0.6 — 0.6

Balance as of March 31, 2020

Net loss — — — — — — ( 822.5 ) ( 822.5 ) ( 0.5 ) ( 823.0 )

Other — — — — — 0.2 — 0.2 — 0.2

Balance as of June 30, 2020 883 $ 23.1 137,435,090 $ 1.4 $ ( 28.4 ) $ 2,170.4 $ ( 660.3 ) $ 1,506.2 $ ( 1.3 ) $ 1,504.9

Balance as of January 1, 2019 — $ — 116,687,808 $ 1.2 $ ( 28.4 ) $ 1,726.4 $ ( 968.0 ) $ 731.2 $ — $ 731.2

1 unchanged sentence

Cumulative-effect adjustment upon adoption of ASC 842 — — — — — — 1,085.7 1,085.7 — 1,085.7

Balance as of March 31, 2019

Share repurchases — — ( 1,271,823 ) — — ( 24.9 ) — ( 24.9 ) — ( 24.9 )

Net income (loss) — — — — — — 92.5 92.5 ( 0.2 ) 92.3

Balance as of June 30, 2019 — $ — 115,869,769 $ 1.2 $ ( 28.4 ) $ 1,708.9 $ 210.2 $ 1,891.9 $ ( 0.2 ) $ 1,891.7

See accompanying notes to the Condensed Consolidated Financial Statements.

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the three months ended March 31,

For the six months ended June 30,

(in millions) 2020 2019

3 unchanged sentences

Depreciation and amortization 187.6 210.1

Amortization of items charged to interest expense

Amortization of debt discount and debt issuance costs 5.6 3.8

Noncash operating lease expense 52.5 61.0

Change in fair value of contingent purchase price ( 1.4 ) 5.8

Holding loss on equity securities

Loss on sale or disposal of property and equipment

Holding gain on equity securities ( 7.7 ) —

Loss (gain) on sale or disposal of property and equipment ( 27.9 ) 0.9

Noncash rent and interest expense related to the utilization of rent credits 110.7 —

Income from unconsolidated affiliates ( 2.4 ) ( 11.9 )

6 unchanged sentences

Prepaid expenses and other current assets 4.3 ( 0.3 )

Other assets 0.3 ( 1.5 )

Accounts payable ( 12.0 ) 0.1

Accrued expenses ( 39.9 ) ( 20.0 )

Income taxes ( 44.0 ) 7.6

Operating lease liabilities ( 49.9 ) ( 78.3 )

6 unchanged sentences

Proceeds from sale-and-leaseback transactions in conjunction with acquisitions — 961.1

Additional contributions to joint ventures ( 3.6 ) ( 0.3 )

Other ( 3.2 ) ( 1.0 )

Net cash used in investing activities ( 218.5 ) ( 494.6 )

For the six months ended June 30,

(in millions) 2020 2019

Financing activities

1 unchanged sentence

Repayments on revolving credit facility ( 10.0 ) ( 172.0 )

Proceeds from issuance of long-term debt, net of discounts 322.2 —

Principal payments on long-term debt ( 23.3 ) ( 23.4 )

Debt and equity issuance costs ( 6.1 ) —

Payments of other long-term obligations ( 8.4 ) ( 7.9 )

1 unchanged sentence

Principal payments on finance leases ( 2.1 ) ( 2.9 )

Proceeds from common stock offering, net of discounts and fees 331.2 —

Proceeds from exercise of options 27.5 0.7

Repurchase of common stock — ( 24.9 )

Proceeds from insurance financing 19.3 13.8

Payments on insurance financing ( 13.4 ) ( 10.5 )

Net cash provided by (used in) financing activities

Other ( 3.8 ) ( 0.7 )

Net cash provided by financing activities 1,155.1 86.9

Change in cash, cash equivalents, and restricted cash 805.7 ( 92.5 )

8 unchanged sentences

Cash paid for interest, net of amounts capitalized $ 188.8 $ 265.6

Cash refunds related to income taxes, net

Cash payments (refunds) related to income taxes, net $ ( 1.2 ) $ 4.5

Non-cash investing and financing activities:

Rent credits received upon sale of Tropicana land and buildings $ 307.5 $ —

Commencement of operating leases $ 63.5 $ 712.8

Commencement of finance leases $ — $ 4.3

Accrued capital expenditures $ ( 8.6 ) $ 3.6

6 unchanged sentences

Penn National Gaming, Inc., together with its subsidiaries (“Penn National,” the “Company,” “we,” “our,” or “us”), is a leading, diversified, multi-jurisdictional owner and manager of gaming and racing properties, sports betting operations, and video gaming terminal (“VGT”) operations.

We are licensed to offer live sports betting at our properties in Indiana, Iowa, Michigan, Mississippi, Nevada, Pennsylvania and West Virginia.

In addition, we operate an interactive gaming (“iGaming”) division through our subsidiary, Penn Interactive Ventures, LLC (“Penn Interactive”), which has launched an online casino (“iCasino”) in Pennsylvania through our HollywoodCasino.com gaming platform and entered into multi-year agreements with leading sports betting operators for online sports betting and iGaming market access across our portfolio of properties.

We also hold a 36 % equity interest in Barstool Sports, Inc.

In addition, we hold a 36 % equity interest in Barstool Sports, Inc.

(“Barstool Sports”), a leading digital sports, entertainment and media platform.

We also operate an interactive gaming (“iGaming”) division through our subsidiary, Penn Interactive Ventures, LLC (“Penn Interactive”), which launched an online casino (“iCasino”) through our HollywoodCasino.com gaming platform in the third quarter of 2019 and is scheduled to launch an online sports betting app called Barstool Sports in the third quarter of 2020.

Our MYCHOICE ® customer loyalty program (the “my choice program”) provides our members with various benefits, including complimentary goods and/or services.

As of March 31, 2020 , we owned, managed, or had ownership interests in 41 properties in 19 states.

As of June 30, 2020, we owned, managed, or had ownership interests in 41 gaming and racing properties in 19 states and were licensed to offer live sports betting at our properties in Indiana, Iowa, Michigan, Mississippi, Nevada, Pennsylvania and West Virginia.

The majority of the real estate assets (i.e., land and buildings) used in our operations are subject to triple net master leases;

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On March 11, 2020, the World Health Organization declared the novel coronavirus (known as “COVID-19”) outbreak to be a global pandemic.

As a result, we began temporary suspension of the operations of all of our 41 gaming properties starting between March 13, 2020 and March 19, 2020 pursuant to various orders from state gaming regulatory bodies or governmental authorities to combat the rapid spread of COVID-19, all of which remained temporarily closed as of March 31, 2020 and the date of filing this Quarterly Report on Form 10-Q with the U.S.

Securities and Exchange Commission (the “SEC”) .

These developments have caused significant disruptions to our business and have caused a material adverse impact on our financial condition, results of operations and cash flows, the extent of which is primarily based on the duration of the property closures as well as the timing and extent of any recovery in visitation and consumer spending at our properties.

We are currently unable to determine whether, when or how the conditions surrounding the COVID-19 pandemic will change, including when any restrictions or closure requirements will be lifted, when we will be able to reopen all of our gaming properties, whether we will be able to successfully staff our properties, the manner in which our properties will reopen, the impact that social distancing protocols will have on our operations, and the degree to which our customers will patronize our properties.

On March 13, 2020, in order to maintain maximum financial flexibility in light of the COVID-19 pandemic, we borrowed the remaining available amount of $ 430.0 million under our Revolving Credit Facility (as defined in Note 9, “Long-term Debt” ).

On April 14, 2020, we entered into a second amendment to our Amended Credit Agreement ( as defined in Note 9, “Long-term Debt” ), which, among other things, provides us with relief from our financial covenants for a period of up to one year (see Note 18, “Subsequent Events” ).

On March 27, 2020, we entered into a binding term sheet with GLPI (the “Term Sheet”) whereby GLPI agreed to (i) purchase the real estate assets associated with our Tropicana Las Vegas (“Tropicana”) property in exchange for rent credits of $ 307.5 million , which closed on April 16, 2020 (see Note 18, “Subsequent Events” ), and (ii) purchase the land underlying our H ollywood Casino Morgantown (“Morgantown”) development project in Morgantown, Pennsylvania, in exchange for rent credits of $ 30.0 million , which we expect to close by August 31, 2020.

The Company has taken various actions to reduce its cost structure during the property closures to help mitigate the operating and financial impact of the COVID-19 pandemic, including:

(i) reducing its rent payments through the transactions with GLPI related to Tropicana and Morgantown described above;

(ii) furloughing approximately 26,000 employees and operating with a minimum, mission-critical staffing of less than 850 employees company-wide during the closures;

(iii) enacting meaningful compensation reductions to its remaining property and corporate leadership teams effective April 1, 2020 and until such time as the Company determines that its properties have substantially returned to normal operations;

and (iv) executing substantial reductions in operating expenses, capital expenditures, including temporarily suspending construction of our two planned Category 4 development projects, and overall costs.

In addition, the Company’s Board of Directors elected to

forgo their cash compensation effective April 1, 2020 and until such time as the Company determines that its properties have substantially returned to normal operations.

We are currently planning to reopen all of our gaming properties in the second quarter of 2020, if approved by our regulators, local and state governments, and/or public health authorities .

However, in the event that reopening approvals are delayed to the end of the third quarter of 2020 or if cash flows generated by our reopened properties are insufficient to cover our expenses, we may need to take additional actions to preserve liquidity and remain in compliance with our financial covenants.

We began temporary suspension of the operations of all of our 41 properties starting between March 13, 2020 and March 19, 2020 pursuant to various orders from state gaming regulatory bodies or governmental authorities to combat the rapid spread of COVID-19.

We began reopening our properties on May 18, 2020 with reduced gaming and hotel capacity and limited food and beverage offerings in order to accommodate comprehensive social distancing and health and safety protocols developed in close consultation with state regulators and local and state public health officials.

As of June 30, 2020, we reopened 31 of our properties and as of the date of filing this Quarterly Report on Form 10-Q with the U.S.

Securities and Exchange Commission (the “SEC”), all of our properties, with the exception of Tropicana Las Vegas (“Tropicana”), which is scheduled to reopen on September 1, 2020;

Valley Race Park;

and Zia Park Casino;

have reopened.

During the first quarter of 2020, the Company took various actions to reduce its cost structure during the property closures to help mitigate the operating and financial impact of the COVID-19 pandemic, which included:

(i) furloughing approximately 26,000 employees and operating with a minimum staffing of less than 850 employees company-wide during the closures;

(ii) enacting meaningful compensation reductions to its remaining property and corporate leadership teams effective April 1, 2020 until such time as the Company determines that its properties have substantially returned to normal operations;

and (iii) executing substantial reductions in operating expenses, capital expenditures, including temporarily suspending construction of its two planned Category 4 development projects in Pennsylvania, and overall costs.

In addition, the Company’s Board of Directors elected to forgo their cash compensation effective April 1, 2020 until such time as the Company determines that its properties have substantially returned to normal operations.

As of June 30, 2020, approximately 13,000 employees have returned to work.

Between March 13, 2020 and May 19, 2020, the Company entered into a series of transactions to improve its financial position and liquidity in light of the COVID-19 pandemic, including:

(i) borrowing the remaining available amount of $ 430.0 million under its Revolving Credit Facility;

(ii) entering into a binding term sheet with GLPI (the “Term Sheet”) whereby GLPI agreed to (a) purchase the real estate assets associated with Tropicana in exchange for rent credits of $ 307.5 million, which closed on April 14, 2020, and (b) purchase the land underlying the Company’s H ollywood Casino Morgantown (“Morgantown”) development project in Morgantown, Pennsylvania, in exchange for rent credits of $ 30.0 million, which is expected to close in the fourth quarter of 2020 (the land will be immediately leased back from GLPI);

(iii) completing an offering of $ 330.5 million aggregate principal amount of 2.75 % Convertible Notes ;

and (iv) completing a public offering of 19,166,667 aggregate shares of common stock, par value of $ 0.01 per share, of the Company (“Penn Common Stock”) for gross proceeds of $ 345.0 million.

In addition, on April 14, 2020, the Company entered into an amendment to its Credit Agreement , which, among other things, provides it with relief from its financial covenants for a period of up to one year .

The terms “Revolving Credit Facility,” “Convertible Notes” and “Credit Agreement” are defined in Note 9, “Long-term Debt.”

The COVID-19 pandemic caused significant disruptions to our business and a material adverse impact on our financial condition, results of operations and cash flows, the magnitude of which continues to develop based on (i) the timing and extent of any recovery in visitation and consumer spending at our properties;

(ii) the continued impact of implementing social

distancing and health and safety guidelines at our properties, including reductions in gaming and hotel capacity and limiting the number of food and beverage options;

and (iii) whether any of our properties will be required to again temporarily suspend operations in the event that the pandemic worsens.

We are currently unable to determine whether, when or how the conditions surrounding the COVID-19 pandemic will change or whether any recovery in visitation and consumer spending is sustainable.

In the event that the COVID-19 pandemic worsens and/or we are required to again temporarily suspend our operations, we may need to take additional actions to reduce costs, preserve liquidity and remain in compliance with our financial covenants.

On March 27, 2020, the President of the United States signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which provides emergency economic assistance for American workers, families and businesses affected by the COVID-19 pandemic.

The economic relief package includes government loan enhancement programs and various tax provisions to help improve liquidity for American businesses.

Based on our preliminary evaluation of the CARES Act, we currently believe we qualify for certain employer refundable payroll credits, deferral of applicable payroll taxes, net operating loss carryback and immediate expensing for eligible qualified improvement property.

Based on our evaluation of the CARES Act, we qualify for certain employer refundable payroll credits, deferral of applicable payroll taxes, net operating loss carryback and immediate expensing for eligible qualified improvement property.

We intend to continue to review and consider any available potential benefits under the CARES Act for which we qualify, including those described above.

1 unchanged sentence

In addition, the negative impacts of the COVID-19 pandemic may result in further changes in the amount of valuation allowance required.

Actual results may differ materially from the Company’s current estimates as the scope of the COVID-19 pandemic evolves, depending largely, though not exclusively, on the duration and extent of the disruption to its business.

Actual results may differ materially from the Company’s current estimates as the scope of the COVID-19 pandemic evolves, depending largely, though not exclusively, on the impact of required capacity reductions, social distancing and health guidelines, and the sustainability of current trends in recovery at our reopened properties.

Basis of Presentation:

8 unchanged sentences

and its subsidiaries.

Investments in and advances to unconsolidated affiliates that do not meet the consolidation criteria of the authoritative guidance for voting interest entities (“VOEs”) or variable interest entities (“VIEs”) are accounted for under the equity method.

Investments in and advances to unconsolidated affiliates that do not meet the consolidation criteria of the authoritative guidance for voting interest entities or variable interest entities (“VIEs”) are accounted for under the equity method.

All intercompany accounts and transactions have been eliminated in consolidation.

7 unchanged sentences

For financial reporting purposes, we aggregate our operating segments into the following four reportable segments:

Real Estate Assets Lease or Ownership Structure

Location Real Estate Assets Lease or Ownership Structure

Northeast segment

Ameristar East Chicago

East Chicago, Indiana

Pinnacle Master Lease

Greektown Casino-Hotel

Detroit, Michigan

Greektown Lease

Hollywood Casino Bangor

Bangor, Maine

Penn Master Lease

Hollywood Casino at Charles Town Races

Charles Town, West Virginia

Penn Master Lease

Hollywood Casino Columbus

Columbus, Ohio

Penn Master Lease

Hollywood Casino Lawrenceburg

Lawrenceburg, Indiana

Penn Master Lease

Hollywood Casino at Penn National Race Course

Grantville, Pennsylvania

Penn Master Lease

Hollywood Casino Toledo

Penn Master Lease

Hollywood Gaming at Dayton Raceway

Penn Master Lease

Hollywood Gaming at Mahoning Valley Race Course

Youngstown, Ohio

Penn Master Lease

Ameristar East Chicago East Chicago, Indiana Pinnacle Master Lease

Greektown Casino-Hotel Detroit, Michigan Greektown Lease

Hollywood Casino Bangor Bangor, Maine Penn Master Lease

Hollywood Casino at Charles Town Races Charles Town, West Virginia Penn Master Lease

Hollywood Casino Columbus Columbus, Ohio Penn Master Lease

Hollywood Casino Lawrenceburg Lawrenceburg, Indiana Penn Master Lease

Hollywood Casino at Penn National Race Course Grantville, Pennsylvania Penn Master Lease

Hollywood Casino Toledo Toledo, Ohio Penn Master Lease

Hollywood Gaming at Dayton Raceway Dayton, Ohio Penn Master Lease

Hollywood Gaming at Mahoning Valley Race Course Youngstown, Ohio Penn Master Lease

Marquee by Penn (1)

Meadows Racetrack and Casino

Washington, Pennsylvania

Meadows Lease

Plainridge Park Casino

Plainville, Massachusetts

Pinnacle Master Lease

Pennsylvania N/A

Meadows Racetrack and Casino Washington, Pennsylvania Meadows Lease

Plainridge Park Casino Plainville, Massachusetts Pinnacle Master Lease

South segment (2)

1 st Jackpot Casino

Tunica, Mississippi

Penn Master Lease

Ameristar Vicksburg

Vicksburg, Mississippi

Pinnacle Master Lease

Boomtown Biloxi

Biloxi, Mississippi

Penn Master Lease

Boomtown Bossier City

Bossier City, Louisiana

Pinnacle Master Lease

Boomtown New Orleans

New Orleans, Louisiana

Pinnacle Master Lease

Hollywood Casino Gulf Coast

Louis, Mississippi

Penn Master Lease

Hollywood Casino Tunica

Tunica, Mississippi

Penn Master Lease

L’Auberge Baton Rouge

Baton Rouge, Louisiana

Pinnacle Master Lease

L’Auberge Lake Charles

Lake Charles, Louisiana

Pinnacle Master Lease

Margaritaville Resort Casino

Bossier City, Louisiana

Margaritaville Lease

Ameristar Black Hawk

Black Hawk, Colorado

Pinnacle Master Lease

Cactus Petes and Horseshu

Jackpot, Nevada

Pinnacle Master Lease

Henderson, Nevada

Penn Master Lease

Tropicana Las Vegas

Las Vegas, Nevada

Zia Park Casino

Hobbs, New Mexico

Penn Master Lease

Tunica, Mississippi Penn Master Lease

Ameristar Vicksburg Vicksburg, Mississippi Pinnacle Master Lease

Boomtown Biloxi Biloxi, Mississippi Penn Master Lease

Boomtown Bossier City Bossier City, Louisiana Pinnacle Master Lease

Boomtown New Orleans New Orleans, Louisiana Pinnacle Master Lease

Hollywood Casino Gulf Coast Bay St.

Louis, Mississippi Penn Master Lease

Hollywood Casino Tunica Tunica, Mississippi Penn Master Lease

L’Auberge Baton Rouge Baton Rouge, Louisiana Pinnacle Master Lease

L’Auberge Lake Charles Lake Charles, Louisiana Pinnacle Master Lease

Margaritaville Resort Casino Bossier City, Louisiana Margaritaville Lease

Ameristar Black Hawk Black Hawk, Colorado Pinnacle Master Lease

Cactus Petes and Horseshu Jackpot, Nevada Pinnacle Master Lease

M Resort Henderson, Nevada Penn Master Lease

Tropicana Las Vegas Las Vegas, Nevada Tropicana Lease

Zia Park Casino Hobbs, New Mexico Penn Master Lease

Midwest segment

Ameristar Council Bluffs

Council Bluffs, Iowa

Pinnacle Master Lease

Ameristar Council Bluffs Council Bluffs, Iowa Pinnacle Master Lease

Argosy Casino Alton (3)

Alton, Illinois

Penn Master Lease

Argosy Casino Riverside

Riverside, Missouri

Penn Master Lease

Hollywood Casino Aurora

Aurora, Illinois

Penn Master Lease

Hollywood Casino Joliet

Joliet, Illinois

Penn Master Lease

Alton, Illinois Penn Master Lease

Argosy Casino Riverside Riverside, Missouri Penn Master Lease

Hollywood Casino Aurora Aurora, Illinois Penn Master Lease

Hollywood Casino Joliet Joliet, Illinois Penn Master Lease

Hollywood Casino at Kansas Speedway (4)

Kansas City, Kansas

Kansas City, Kansas Owned - JV

Hollywood Casino St.

Maryland Heights, Missouri

Penn Master Lease

Louis Maryland Heights, Missouri Penn Master Lease

Prairie State Gaming (1)

River City Casino

Louis, Missouri

Pinnacle Master Lease

River City Casino St.

Louis, Missouri Pinnacle Master Lease

(1) VGT route operations

(2) Resorts Casino Tunica ceased operations on June 30, 2019, but remains subject to the Penn Master Lease.

As noted in Note 18, “Subsequent Events,” in April 2020, we entered into a sale-leaseback transaction with GLPI for the real estate assets used in the operations of Tropicana.

(3) The riverboat is owned by us and not subject to the Penn Master Lease.

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Revenues recorded to food, beverage, hotel and other and offset to gaming revenues were as follows:

For the three months ended March 31,

For the three months ended June 30, For the six months ended June 30,

(in millions) 2020 2019 2020 2019

Food and beverage $ 7.3 $ 64.1 $ 61.3 $ 128.6

Hotel 5.8 40.8 36.7 77.4

Other 0.3 4.5 3.5 8.8

Total complimentaries associated with gaming contracts $ 13.4 $ 109.4 $ 101.5 $ 214.8

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In addition, members of the my choice program earn credit toward tier status, which entitles them to receive certain other benefits, such as gifts.

The obligation associated with our my choice program, which is included in “Accrued expenses and other current liabilities” within our unaudited Condensed Consolidated Balance Sheets, was $ 37.8 million and $ 36.2 million as of March 31, 2020 and December 31, 2019 , respectively, and consisted principally of the obligation associated with the loyalty points.

The obligation associated with our my choice program, which is included in “Accrued expenses and other current liabilities” within our unaudited Condensed Consolidated Balance Sheets, was $ 40.5 million and $ 36.2 million as of June 30, 2020 and December 31, 2019, respectively, and consisted principally of the obligation associated with the loyalty points.

Our loyalty point obligations are generally settled within six months of issuance;

however, as a result of the COVID-19 pandemic and resulting temporary closures, loyalty point obligations may take longer to settle.

Changes between the opening and closing balances primarily relate to the timing of our customers’ election to redeem loyalty points as well as the timing of when our customers receive their earned tier status benefits.

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Unpaid wagers primarily relate to the Company’s obligation to settle outstanding slot tickets, pari-mutuel racing tickets and gaming chips with customers and generally represent obligations stemming from prior wagering events, of which revenue was previously recognized.

The Company’s advance payments on goods and services yet to be provided and for unpaid wagers were $ 31.5 million and $ 42.2 million as of March 31, 2020 and December 31, 2019 , respectively, of which $ 0.6 million were classified as long-term in both periods.

The Company’s advance payments on goods and services yet to be provided and for unpaid wagers were $ 31.8 million and $ 42.2 million as of June 30, 2020 and December 31, 2019, respectively, of which $ 0.6 million were classified as long-term in both periods.

The current portion and long-term portion of our advance payments on goods and services yet to be provided and for unpaid wagers are included in “Accrued expenses and other current liabilities” and “Other long-term liabilities” within our unaudited Condensed Consolidated Balance Sheets, respectively.

During the third quarter of 2019, Penn Interactive entered into multi-year agreements with sports betting operators for online sports betting and related iGaming market access across our portfolio, of which we received cash and equity securities,

including ordinary shares and warrants, specific to two operator agreements.

Deferred revenue associated with third-party sports betting operators for online sports betting and related iGaming market access, which is included in “Other long-term liabilities” within our unaudited Condensed Consolidated Balance Sheets, was $ 44.0 million and $ 43.6 million as of March 31, 2020 and December 31, 2019 , respectively.

Deferred revenue associated with third-party sports betting operators for online sports betting and related iGaming market access, which is included in “Other long-term liabilities” within our unaudited Condensed Consolidated Balance Sheets, was $ 46.3 million and $ 43.6 million as of June 30, 2020 and December 31, 2019, respectively.

Gaming and Racing Taxes:

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The Company primarily recognizes gaming and pari-mutuel tax expense based on the statutorily required percentage of revenue that is required to be paid to state and local jurisdictions in the states where or in which wagering occurs.

For the three months ended March 31, 2020 and 2019 , these expenses, which were recorded primarily in gaming expense within the unaudited Condensed Consolidated Statements of Operations, were $ 336.3 million and $ 386.5 million , respectively .

Correction of Cash Flow Classification:

Subsequent to the issuance of our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2019, we concluded that the $ 261.1 million in proceeds from the Margaritaville Resort Casino (“Margaritaville”) sale-and-leaseback transaction was incorrectly classified as cash provided by financing activities rather than cash provided by investing activities within our unaudited Condensed Consolidated Statement of Cash Flows for the three months ended March 31, 2019.

The accompanying unaudited Condensed Consolidated Statement of Cash Flows for the three months ended March 31, 2019 correctly reflects such amount as cash provided by investing activities.

For the three and six months ended June 30, 2020, these expenses, which were recorded primarily in gaming expense within the unaudited Condensed Consolidated Statements of Operations and

Comprehensive Income (Loss), were $ 97.6 million and $ 433.9 million, respectively, as compared to $ 399.8 million and $ 786.3 million, respectively , for the three and six months ended June 30, 2019.

Convertible Debt:

Under Accounting Standards Codification (“ASC”) 470-20, “Debt with Conversion and Other Options” (“ASC 470-20”), an entity must separately account for the liability and equity components of convertible debt instruments that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest.

The effect of ASC 470-20 on the accounting for our Convertible Notes is that the equity component is required to be included in “Additional paid-in capital” within our unaudited Condensed Consolidated Balance Sheets at the issuance date and the value of the equity component is treated as a debt discount.

See Note 9, “Long-term Debt,” for more information.

Earnings Per Share:

Basic earnings per share (“EPS”) is computed by dividing net income (loss) applicable to common stock by the weighted-average number of common shares outstanding during the period.

Diluted EPS reflects the additional dilution, if any, for all potentially-dilutive securities such as stock options, unvested restricted stock awards (“RSAs”), and outstanding convertible preferred stock and convertible debt.

Holders of the Company’s Series D Preferred Stock (as defined in Note 11, “Investments in and Advances to Unconsolidated Affiliates” ) are entitled to participate equally and ratably in all dividends and distributions paid to holders of Penn Common Stock irrespective of any vesting requirement.

Accordingly, the Series D Preferred Stock shares are considered a participating security and the Company is required to apply the two-class method to consider the impact of the preferred shares on the calculation of basic and diluted EPS.

Since the Company is currently in a net loss position and the holders of the Company’s Series D Preferred Stock are not obligated to absorb losses, the Company is not required to present the two-class method.

However, in the event the Company is in a net income position, the two-class method must be applied by allocating all earnings during the period to common shares and preferred shares.

See Note 15, “Earnings (Loss) per Share,” for more information.

Note 3— New Accounting Pronouncements

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We adopted ASU 2018-15 during the first quarter of 2020 using a prospective approach, which did not have a material impact on our unaudited Condensed Consolidated Financial Statements.

Accounting Pronouncements to be Implemented in 2021 and Beyond

Accounting Pronouncements to be Implemented

In December 2019, the FASB issued ASU No.

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In January 2020, the FASB issued ASU No.

2020-01, “Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815” (“ASU 2020-01”), which made targeted improvements to accounting for financial instruments, including providing an entity the ability to measure certain equity securities without a readily determinable fair value at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.

similar investment of the same issuer.

Among other topics, ASU 2020-01 clarifies that an entity should consider observable transactions that requires it to either apply or discontinue the equity method of accounting.

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ASU 2020-04 can be adopted no later than December 1, 2022 with early adoption permitted.

The interest rates associated with the Company’s borrowings under its Senior Secured Credit Facilities (as defined in Note 9, “Long-term Debt” ) are tied to LIBOR.

The Company is currently evaluating the impact of the adoption of ASU 2020-04 on its consolidated financial statements.

A variety of proposed or otherwise potential accounting standards are currently being studied by standard-setting organizations and certain regulatory agencies.

Because of the tentative and preliminary nature of such proposed standards, we have not yet determined the effect, if any, that the implementation of such proposed standards would have on our consolidated financial statements.

Note 4— Revenue Disaggregation

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Our revenue disaggregation by type of revenue and geographic location was as follows:

For the three months ended March 31, 2020

(in millions)

Intersegment Eliminations (1)

For the three months ended June 30, 2020

(in millions) Northeast South West Midwest Other Intersegment Eliminations (1)

Gaming $ 94.1 $ 103.7 $ 12.8 $ 33.5 $ 15.1 $ — $ 259.2

Food and beverage 2.2 7.6 2.2 1.0 0.1 — 13.1

Hotel 0.2 6.8 1.5 0.6 — — 9.1

Other 6.2 3.4 1.2 0.9 12.4 — 24.1

Total revenues $ 102.7 $ 121.5 $ 17.7 $ 36.0 $ 27.6 $ — $ 305.5

For the three months ended March 31, 2019

(in millions)

Intersegment Eliminations (1)

For the three months ended June 30, 2019

(in millions) Northeast South West Midwest Other Intersegment Eliminations (1)

Gaming $ 528.9 $ 206.8 $ 96.5 $ 229.9 $ — $ — $ 1,062.1

Food and beverage 37.6 39.6 29.5 19.6 0.4 — 126.7

Hotel 10.5 26.5 31.6 11.6 — — 80.2

Other 22.1 9.3 6.6 7.1 9.0 — 54.1

Total revenues $ 599.1 $ 282.2 $ 164.2 $ 268.2 $ 9.4 $ — $ 1,323.1

For the six months ended June 30, 2020

(in millions) Northeast South West Midwest Other Intersegment Eliminations (1)

Gaming $ 552.8 $ 272.3 $ 84.7 $ 229.7 $ 22.7 $ ( 0.1 ) $ 1,162.1

Food and beverage 36.1 37.3 25.7 18.8 0.3 — 118.2

Hotel 9.0 24.6 27.3 8.8 — — 69.7

Other 25.5 10.6 6.6 6.8 24.9 ( 2.8 ) 71.6

Total revenues $ 623.4 $ 344.8 $ 144.3 $ 264.1 $ 47.9 $ ( 2.9 ) $ 1,421.6

For the six months ended June 30, 2019

(in millions) Northeast South West Midwest Other Intersegment Eliminations (1)

Gaming $ 1,016.7 $ 426.9 $ 189.3 $ 463.7 $ 0.1 $ — $ 2,096.7

Food and beverage 73.4 79.7 57.4 40.7 0.7 — 251.9

Hotel 17.6 49.5 63.3 21.2 — — 151.6

Other 42.0 18.0 12.9 13.9 18.7 — 105.5

Total revenues $ 1,149.7 $ 574.1 $ 322.9 $ 539.5 $ 19.5 $ — $ 2,605.7

(1) Represents the elimination of intersegment revenues associated with our internally-branded retail sportsbooks, which are operated by Penn Interactive, and our live and televised poker tournament series that operates under the trademark, Heartland Poker Tour (“HPT”).

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During the first quarter of 2020, the Company finalized the allocation of the purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed, with the excess recorded as goodwill, as follows:

(in millions)

(in millions) Fair value

Cash and cash equivalents $ 31.1

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Gaming license 166.4

Trademark 24.4

Customer relationships 3.3

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Finance lease right-of-use assets 4.1

Total assets $ 855.7

Accounts payable, accrued expenses and other current liabilities $ 15.2

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Property and equipment acquired consists of non-REIT assets (e.g., equipment for use in gaming operations, furniture and other equipment).

We determined that the land and buildings subject to the Greektown Lease, which was entered into at the time of the acquisition, represented operating lease right-of-use assets with a corresponding operating lease liability calculated based on the present value of the future lease payments at the acquisition date in accordance with GAAP.

We determined that the land and buildings subject to the Greektown Lease, which was entered into at the time of the acquisition, represented operating lease right-of-use (“ROU”) assets with a corresponding operating lease liability calculated based on the present value of the future lease payments at the acquisition date in accordance with GAAP.

Management determined the fair value of its office equipment, computer equipment and slot machine gaming devices based on the market approach and other personal property based on the cost approach, supported where available by observable market data, which includes consideration of obsolescence.

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All valuation methods are forms of the income approach supported by observable market data for peer casino operator companies.

The following table includes unaudited pro forma consolidated financial information assuming our acquisition of Greektown had occurred as of January 1, 2018.

The pro forma financial information does not represent the anticipated future

results of the combined company.

The pro forma amounts include the historical operating results of Penn National and Greektown prior to the acquisition, with adjustments directly attributable to the acquisition, inclusive of adjustments for acquisition costs.

The below pro forma results do not include any adjustments related to synergies.

For the three months ended March 31,

(in millions)

Net income (loss) attributable to Penn National

Margaritaville Resort Casino

On January 1, 2019, the Company acquired the operations of Margaritaville for a net purchase price of $ 122.9 million , after working capital and other adjustments (of which, $ 3.0 million was paid during the three months ended March 31, 2020), pursuant to (i) an agreement and plan of merger (the “Margaritaville Merger Agreement”) among the Company, VICI, Bossier Casino Venture (HoldCo), Inc.

On January 1, 2019, the Company acquired the operations of Margaritaville for a net purchase price of $ 122.9 million, after working capital and other adjustments (of which $ 3.0 million was paid during the first quarter of 2020), pursuant to (i) an agreement and plan of merger (the “Margaritaville Merger Agreement”) among the Company, VICI, Bossier Casino Venture (HoldCo), Inc.

(“Holdco”), and Silver Slipper Gaming, LLC, and (ii) a membership interest purchase agreement (the “MIPA”) among VICI and the Company.

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In connection with the acquisition, the real estate assets used in the operations of Margaritaville were acquired by VICI for $ 261.1 million and the Company entered into the Margaritaville Lease (as defined in Note 10, “Leases” ).

The acquisition of the operations was financed through incremental borrowings under the Company’s Revolving Credit Facility.

Hollywood Casino Perryville Purchase Option

The Term Sheet discussed in Note 1, “Organization and Basis of Presentation” provides that the Company and GLPI will enter into an option agreement whereby GLPI will grant the Company the exclusive right until December 31, 2020 to purchase the operations of Hollywood Casino Perryville for $ 31.1 million, with the closing of such purchase to occur on a date selected by the Company during 2021.

If the option is exercised and the transaction is completed, we would lease the real estate assets associated with Hollywood Casino Perryville from GLPI with initial rent of $ 7.8 million per year subject to escalation.

The option agreement is expected to be formalized in the third quarter of 2020.

Tropicana Las Vegas

During the first quarter of 2020, we determined that the real estate assets used in the operations of our Tropicana property, which is included within our West segment, met the criteria for classification as assets held for sale pursuant to Accounting Standards Codification (“ASC”) Topic 360, “Property, Plant, and Equipment,” due to obtaining approval from the Board of Directors as well as the entrance into the Term Sheet on March 27, 2020 with GLPI for the sale of the real estate assets associated with Tropicana.

We will continue to operate the Tropicana subsequent to the sale to GLPI, which closed on April 16, 2020 (see Note 18, “Subsequent Events” ).

The carrying amounts of the major classes of assets held for sale were as follows:

(in millions)

Land and improvements, gross

Building and improvements, gross

Construction in progress

Accumulated depreciation

Total assets classified as held for sale , , current

On April 16, 2020, we closed on a purchase agreement with GLPI pursuant to which GLPI acquired the real estate assets associated with our Tropicana property in exchange for rent credits of $ 307.5 million that we began utilizing to pay rent under our existing Master Leases and the Meadows Lease in May 2020.

Contemporaneous with the sale, the Company entered into the Tropicana Lease (as defined and discussed in Note 10, “Leases” ).

Pursuant to the purchase agreement, GLPI will conduct a sale process with respect to both the real estate assets and the operations of Tropicana for up to 24 months (the “Sale Period”), with the Company receiving (i) 75 % of the proceeds above $ 307.5 million plus certain taxes, expenses and costs if an agreement for such sale is signed in the first 12 months of the Sale Period or (ii) 50 % of the proceeds above $ 307.5 million plus certain taxes, expenses and costs if an agreement for such sale is signed in the remainder of the Sale Period.

As noted above, Tropicana is scheduled to reopen on September 1, 2020.

As of June 30, 2020, we had $ 176.7 million of rent credits that will be utilized in future periods.

The rent credits are included in “Other current assets” within our unaudited Condensed Consolidated Balance Sheets.

We recognized a gain on this transaction of $ 28.5 million during the three and six months ended June 30, 2020, which is included in “General and administrative” within our unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

Note 6— Property and Equipment

Property and equipment, net, consisted of the following:

(in millions)

(in millions) June 30,

2020 December 31,

Property and equipment - Not Subject to Master Leases

Land and improvements $ 113.0 $ 353.2

Building, vessels and improvements

Buildings, vessels and improvements 220.7 420.4

Furniture, fixtures and equipment 1,681.3 1,598.3

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Construction in progress 96.8 59.3

2,299.8 2,614.8

Accumulated depreciation ( 1,585.2 ) ( 1,548.3 )

714.6 1,066.5

Property and equipment - Subject to Master Leases

Land and improvements 1,525.9 1,525.9

Building, vessels and improvements

Buildings, vessels and improvements 3,664.6 3,664.6

5,190.5 5,190.5

Accumulated depreciation ( 1,228.1 ) ( 1,136.8 )

3,962.4 4,053.7

Property and equipment, net $ 4,677.0 $ 5,120.2

Depreciation expense was as follows:

For the three months ended March 31,

For the three months ended June 30, For the six months ended June 30,

(in millions) 2020 2019 2020 2019

Depreciation expense (1)

Of such amounts, $ 46.0 million and $ 48.6 million , respectively, pertained to real estate assets subject to either of our Master Leases.

$ 83.8 $ 97.7 $ 171.3 $ 193.9

(1) Of such amounts, $ 45.8 million, $ 46.1 million, $ 91.8 million and $ 92.9 million, respectively, pertained to real estate assets subject to either of our Master Leases.

Note 7— Goodwill and Other Intangible Assets

A reconciliation of goodwill and accumulated goodwill impairment losses, by reportable segment, is as follows:

(in millions)

(in millions) Northeast South West Midwest Other Total

Balance as of December 31, 2019

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Impairment losses during period ( 43.5 ) ( 9.0 ) — ( 60.5 ) — ( 113.0 )

Balance as of March 31, 2020

Balance as of June 30, 2020

Goodwill, gross 914.3 236.6 216.8 1,116.7 156.1 2,640.5

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As a result of the COVID-19 pandemic, we revised our cash flow projections to reflect the current economic environment, including the uncertainty surrounding the nature, timing and extent of reopening our gaming properties.

As a result of the interim assessment for impairment, we recognized impairments on our goodwill, gaming licenses and trademarks of $ 113.0 million , $ 437.0 million and $ 61.5 million , respectively.

The estimated fair values of the reporting units

were determined through a combination of a discounted cash flow model and a market-based approach, which utilized Level 3 inputs.

As a result of the interim assessment for impairment, during the first quarter of 2020, we recognized impairments on our

goodwill, gaming licenses and trademarks of $ 113.0 million, $ 437.0 million and $ 61.5 million, respectively.

The estimated fair values of the reporting units were determined through a combination of a discounted cash flow model and a market-based approach, which utilized Level 3 inputs.

The estimated fair values of the gaming licenses and trademarks were determined by using discounted cash flow models, which utilized Level 3 inputs.

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The trademark impairments pertained to our Northeast, South, Midwest and West segments, in the amounts of $ 17.0 million, $ 17.0 million, $ 15.0 million and $ 12.5 million, respectively.

There were no impairment charges recorded on goodwill and other intangible assets during the three months ended March 31, 2019 .

The aforementioned impairments are included in “Impairment losses” within our unaudited Condensed Consolidated Statements of Operations.

There were no impairment charges recorded on goodwill and other intangible assets during the three months ended June 30, 2020 or the three and six months ended June 30, 2019.

The aforementioned impairments are included in “Impairment losses” within our unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

See Note 16, “Fair Value Measurements,” for quantitative information about the significant unobservable inputs used in the fair value measurements of other intangible assets.

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The table below presents the gross carrying amount, accumulated amortization and net carrying amount of each major class of other intangible assets:

March 31, 2020

December 31, 2019

(in millions)

Gross Carrying Amount

Accumulated Amortization

Net Carrying Amount

Gross Carrying Amount

Accumulated Amortization

Net Carrying Amount

June 30, 2020 December 31, 2019

(in millions) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount

Indefinite-lived intangible assets

Gaming licenses $ 1,246.0 $ — $ 1,246.0 $ 1,681.9 $ — $ 1,681.9

Trademarks 240.9 — 240.9 302.4 — 302.4

Other 0.7 — 0.7 0.7 — 0.7

Amortizing intangible assets

Customer relationships 106.8 ( 78.3 ) 28.5 104.4 ( 69.0 ) 35.4

Other 36.6 ( 33.0 ) 3.6 36.1 ( 30.0 ) 6.1

Total other intangible assets $ 1,631.0 $ ( 111.3 ) $ 1,519.7 $ 2,125.5 $ ( 99.0 ) $ 2,026.5

Amortization expense related to our amortizing intangible assets was $ 6.1 million and $ 5.9 million , for the three months ended March 31, 2020 and 2019 , respectively.

The following table presents the estimated amortization expense based on our amortizing intangible assets as of March 31, 2020 (in millions):

Remaining 2020

Amortization expense related to our amortizing intangible assets was $ 6.2 million and $ 12.3 million for the three and six months ended June 30, 2020, respectively, as compared to $ 6.4 million and $ 12.3 million for the three and six months ended June 30, 2019, respectively.

The following table presents the estimated amortization expense based on our amortizing intangible assets as of June 30, 2020 (in millions):

Years ending December 31,

2020 (excluding the six months ended June 30, 2020) $ 8.4

Thereafter 4.9

Note 8— Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:

(in millions)

(in millions) June 30,

2020 December 31,

Accrued salaries and wages $ 113.1 $ 142.1

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Accrued expenses and other current liabilities $ 560.4 $ 631.3

Amounts as of March 31, 2020 and December 31, 2019 include $ 40.1 million and $ 38.3 million , respectively, pertaining to the Company’s accrued progressive jackpot liability.

(1) Amounts as of June 30, 2020 and December 31, 2019 included $ 40.4 million and $ 38.3 million, respectively, pertaining to the Company’s accrued progressive jackpot liability.

Additionally, amounts include the obligation associated with its my choice program and the current portion of advance payments on goods and services yet to be provided and for unpaid wagers, which are discussed in Note 2, “Significant Accounting Policies.”

Amounts as of March 31, 2020 and December 31, 2019 include $ 61.3 million and $ 80.1 million , respectively, pertaining to the Company’s non-qualified deferred compensation plan that covers management and other highly-compensated employees.

(2) Amounts as of June 30, 2020 and December 31, 2019 included $ 71.7 million and $ 80.1 million, respectively, pertaining to the Company’s non-qualified deferred compensation plan that covers management and other highly-compensated employees.

Note 9— Long-term Debt

Long-term debt, net of current maturities, was as follows:

(in millions)

(in millions) June 30,

2020 December 31,

Senior Secured Credit Facilities:

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5.625 % Notes due 2027

2.75 % Convertible Notes due 2026

Other long-term obligations 80.8 89.2

3,247.7 2,419.0

Current maturities of long-term debt ( 72.1 ) ( 62.9 )

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Debt issuance costs ( 38.2 ) ( 31.5 )

$ 3,044.8 $ 2,322.2

Senior Secured Credit Facilities

In January 2017, the Company entered into an agreement to amend and restate its previous credit agreement, dated October 30, 2013, as amended (the “Credit Agreement”), which provided for:

(i) a five -year $ 700.0 million revolving credit facility (the “Revolving Credit Facility”), five -year $ 300.0 million term loan A facility (the “Term Loan A Facility”), and a seven -year $ 500.0 million Term Loan B facility (the “Term Loan B Facility” and collectively with the Revolving Credit Facility and the

Term Loan A Facility, the “Senior Secured Credit Facilities”).

(i) a five-year $ 700.0 million revolving credit facility (the “Revolving Credit Facility”), (ii) a five-year $ 300.0 million term loan A facility (the “Term Loan A Facility”), and (iii) a seven-year $ 500.0 million Term Loan B facility (the “Term Loan B Facility” and collectively with the Revolving Credit Facility and the Term Loan A Facility, the “Senior Secured Credit Facilities”).

The Term Loan B Facility was fully repaid and terminated prior to 2019.

As of June 30, 2020, the Company had conditional obligations under letters of credit issued pursuant to the Senior Secured Credit Facilities with face amounts aggregating $ 29.4 million.

In October 2018, in connection with the acquisition of Pinnacle Entertainment, Inc.

(the “Pinnacle Acquisition”), we entered into an incremental joinder agreement (the “Incremental Joinder”), which amended the Credit Agreement (the “Amended Credit Agreement”).

(the “Pinnacle Acquisition”), we entered into an incremental joinder agreement (the “Incremental Joinder”), which amended the Credit Agreement.

The Incremental Joinder provided for an additional $ 430.2 million of incremental loans having the same terms as the existing Term Loan A Facility, with the exception of extending the maturity date, and an additional $ 1,128.8 million of loans as a new tranche having new terms (the “Term Loan B-1 Facility”).

With the exception of extending the maturity date, the Incremental Joinder did not impact the Revolving Credit Facility.

As of March 31, 2020 , the Company had conditional obligations under letters of credit issued pursuant to the Senior Secured Credit Facilities with face amounts aggregating $ 29.5 million .

On April 14, 2020, the Company entered into a second amendment to its Credit Agreement with its various lenders ( the “Amendment Agreement”) to provide for certain modifications.

During the period beginning on April 14, 2020 and ending on the earlier of (x) the date that is two business days after the date on which the Company delivers a covenant relief period termination notice to the administrative agent and (y) the date on which the administrative agent receives a compliance certificate for the quarter ending March 31, 2021 (the “Covenant Relief Period”), the Company will not have to comply with any Maximum Leverage Ratio or Minimum Interest Coverage Ratio (as such terms are defined in the Credit Agreement).

During the Covenant Relief Period, the Company will be subject to a minimum liquidity covenant that requires cash and cash equivalents and availability under its Revolving Credit Facility to be (i) at least $ 400.0 million through April 30, 2020;

(ii) $ 350.0 million during the period from May 1, 2020 through May 31, 2020;

(iii) $ 300.0 million during the period from June 1, 2020 through June 30, 2020;

and (iv) $ 225.0 million during the period from July 1, 2020 through March 31, 2021.

The Amendment Agreement also amended the financial covenants that are applicable after the Covenant Relief Period to permit the Company to (i) maintain a maximum consolidated total net leverage ratio of up to a ratio that varies by quarter, ranging between 5.50 :1.00 and 4.50 :1.00 in 2021 and 4.25 :1.00 thereafter, tested quarterly on a pro forma trailing twelve month (“PF TTM”) basis;

(ii) maintain a maximum senior secured net leverage ratio of up to a ratio that varies by quarter, ranging between 4.50 :1.00 and 3.50 :1.00 in 2021 and 3.00 :1.00 thereafter, tested quarterly on a PF TTM basis;

and (iii) maintain an interest coverage ratio of 2.50 :1.00, tested quarterly on a PF TTM basis.

In addition, the Amendment Agreement (i) provides that, during the Covenant Relief Period, loans under the Revolving Credit Facility and the Term Loan A Facility shall bear interest at either a base rate or an adjusted LIBOR rate, in each case, plus an applicable margin, in the case of base rate loans, of 2.00 %, and in the case of adjusted LIBOR rate loans, of 3.00 %;

(ii) provides that, during the Covenant Relief Period, the Company shall pay a commitment fee on the unused portion of the commitments under the Revolving Credit Facility at a rate of 0.50 % per annum;

(iii) provides for a 0.75 % LIBOR floor applicable to all LIBOR loans under the Senior Secured Credit Facilities;

(iv) carves out COVID-19 related effects from certain terms of the Senior Secured Credit Facilities during the Covenant Relief Period;

and (v) makes certain other changes to the covenants and other provisions of the Credit Agreement.

The payment and performance of obligations under the Senior Secured Credit Facilities are guaranteed by a lien on and security interest in substantially all of the assets (other than excluded property such as gaming licenses) of the Company.

5.625 % Senior Unsecured Notes

On January 19, 2017, the Company completed an offering of $ 400.0 million aggregate principal amount of 5.625 % senior unsecured notes that mature on January 15, 2027 (the “ 5.625 % Notes”) at a price of par.

In January 2017, the Company completed an offering of $ 400.0 million aggregate principal amount of 5.625 % senior unsecured notes that mature on January 15, 2027 (the “ 5.625 % Notes”) at a price of par.

Interest on the 5.625 % Notes is payable on January 15 th and July 15 th of each year.

2.75 % Unsecured Convertible Notes

In May 2020, the Company completed an offering of $ 330.5 million aggregate principal amount of 2.75 % unsecured convertible notes that mature, unless earlier converted, redeemed or repurchased, on May 15, 2026 (the “Convertible Notes”) at a price of par.

After lender fees and discounts, net proceeds received by the Company were $ 322.2 million.

Interest on the Convertible Notes is payable on May 15 th and November 15 th of each year, beginning on November 15, 2020.

The Convertible Notes are convertible into shares of the Company’s common stock at an initial conversion price of $ 23.40 per share, or 42.7350 shares, per $1,000 principal amount of notes, subject to adjustment if certain corporate events occur.

However, in no event will the conversion exceed 55.5555 shares of common stock per $1,000 principal amount of notes.

As of June 30, 2020, based on the initial conversion price, the maximum number of shares that could be issued to satisfy the conversion feature of the Convertible Notes is 18,360,815 and the amount by which the Convertible Notes if-converted value exceeded its principal amount was $ 230.2 million.

Prior to February 15, 2026, at their election, holders of the Convertible Notes may convert outstanding notes starting in the fourth quarter of 2020 if the trading price of the Company’s common stock exceeds 130 % of the initial conversion price or, starting shortly after the issuance of the Convertible Notes, if the trading price per $1,000 principal amount of notes is less than 98 % of the product of the trading price of the Company’s common stock and the conversion rate then in effect.

The Convertible Notes may, at the Company’s election, be settled in cash, shares of common stock of the Company, or a combination thereof.

The Company has the option to redeem the Convertible Notes, in whole or in part, beginning November 20, 2023.

In addition, the Convertible Notes convert into shares of the Company’s common stock upon the occurrence of certain corporate events that constitute a fundamental change under the indenture governing the Convertible Notes at a purchase price equal to 100 % of the principal amount thereof, plus accrued and unpaid interest to, but excluding, the date of repurchase.

In connection with certain corporate events or if the Company issues a notice of redemption, it will, under certain circumstances, increase the conversion rate for holders who elect to convert their Convertible Notes in connection with such corporate events or during the relevant redemption period for such Convertible Notes.

The Convertible Notes contain a cash conversion feature, and as a result, the Company has separated it into liability and equity components.

The Company valued the liability component based on its borrowing rate for a similar debt instrument that does not contain a conversion feature.

The equity component, which is recognized as debt discount, was valued as the difference between the face value of the Convertible Notes and the fair value of the liability component.

The equity component was valued at $ 91.8 million upon issuance of the Convertible Notes.

In connection with the Convertible Notes issuance, the Company incurred debt issuance costs of $ 10.2 million, which were allocated on a pro rata basis to the liability component and the equity component in the amounts of $ 6.6 million and $ 3.6 million, respectively.

The Convertible Notes consisted of the following components:

(in millions) June 30,

Liability component:

Principal $ 330.5

Unamortized debt discount ( 90.4 )

Unamortized debt issuance costs ( 6.5 )

Net carrying amount $ 233.6

Carrying amount of equity component $ 88.2

Interest expense, net

Interest expense, net, was as follows:

For the three months ended March 31,

For the three months ended June 30, For the six months ended June 30,

(in millions) 2020 2019 2020 2019

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Interest expense, net $ ( 135.0 ) $ ( 134.7 ) $ ( 264.8 ) $ ( 267.0 )

Our Amended Credit Agreement and the indenture governing our 5.625 % Notes require us, among other obligations, to maintain specified financial ratios and to satisfy certain financial tests.

In addition, our Amended Credit Agreement and the indenture governing our 5.625 % Notes restrict, among other things, our ability to incur additional indebtedness, incur guarantee obligations, amend debt instruments, pay dividends, create liens on assets, make investments, engage in mergers or consolidations, and otherwise restrict corporate activities.

Interest expense related to the Convertible Notes was as follows:

For the three and six months ended June 30, 2020

(in millions)

Coupon interest $ 1.2

Amortization of debt discount 1.4

Amortization of debt issuance costs 0.1

Convertible Notes interest expense $ 2.7

The debt discount and the debt issuance costs attributable to the liability component are being amortized to interest expense over the term of the Convertible Notes at an effective interest rate of 9.23 %.

The remaining term of the Convertible Notes was 5.9 years as of June 30, 2020.

Our Credit Agreement and the indenture governing our 5.625 % Notes require us, among other obligations, to maintain specified financial ratios and to satisfy certain financial tests.

In addition, our Credit Agreement and the indenture governing our 5.625 % Notes restrict, among other things, our ability to incur additional indebtedness, incur guarantee obligations, amend debt instruments, pay dividends, create liens on assets, make investments, engage in mergers or consolidations, and otherwise restrict corporate activities.

Our debt agreements also contain customary events of default, including cross-default provisions that require us to meet certain requirements under the Penn Master Lease and the Pinnacle Master Lease, each with GLPI.

If we are unable to meet our financial covenants or in the event of a cross-default, it could trigger an acceleration of payment terms.

As of March 31, 2020 , the Company was in compliance with all required financial covenants.

On April 14, 2020, we entered into a second amendment to our Amended Credit Agreement, which, among other things, provides us with relief from our financial covenants for a period of up to one year .

See Note 18, “Subsequent Events” for further information.

As of June 30, 2020, the Company was in compliance with all required financial covenants.

The Company believes that it will remain in compliance with all of its required financial covenants for at least the next twelve months following the date of filing this Quarterly Report on Form 10-Q with the SEC.

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Ohio Relocation Fees

As of March 31, 2020 and December 31, 2019 , other long-term obligations included $ 68.8 million and $ 76.4 million , respectively, related to the relocation fees for Hollywood Gaming at Dayton Raceway (“Dayton”) and Hollywood Gaming at Mahoning Valley Race Course (“Mahoning Valley”), which opened in August 2014 and September 2014, respectively.

relocation fee for each property is payable as follows:

As of June 30, 2020 and December 31, 2019, other long-term obligations included $ 68.8 million and $ 76.4 million, respectively, related to the relocation fees for Hollywood Gaming at Dayton Raceway (“Dayton”) and Hollywood Gaming at Mahoning Valley Race Course (“Mahoning Valley”), which opened in August 2014 and September 2014, respectively.

The relocation fee for each property is payable as follows:

$ 7.5 million upon the opening of the property and eighteen semi-annual payments of $ 4.8 million beginning one year after the commencement of operations.

This obligation is accreted to interest expense at an effective yield of 5.0 %.

The amount included in interest expense related to this obligation was $ 0.9 million and $ 1.1 million for the three months ended March 31, 2020 and 2019 , respectively.

The amount included in interest expense related to this obligation was $ 0.9 million and $ 1.8 million for the three and six months ended June 30, 2020, respectively, as compared to $ 1.1 million and $ 2.2 million for the three and six months ended June 30, 2019, respectively.

Note 10— Leases

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Changes to future lease payments under the Master Leases (i.e., when future escalators become known or future variable rent resets occur), which are discussed below, require the Company to either (i) increase both the ROU assets and corresponding lease liabilities with respect to operating and finance leases or (ii) record the incremental variable payment associated with the financing obligation to interest expense.

In addition, monthly rent associated with Hollywood Casino Columbus (“Columbus”) and monthly rent in excess of the Hollywood Casino Toledo (“Toledo”) rent floor, which are discussed below, are considered contingent rent.

Pursuant to the Term Sheet, we agreed that, in the future, we would exercise the next scheduled five-year renewal under the Penn Master Lease as well as the Pinnacle Master Lease, and GLPI agreed they would grant us the option to exercise an additional five-year renewal term at the end of the lease term on the Penn Master Lease and the Pinnacle Master Lease, subject to certain conditions.

In the future, upon exercising each of these renewal options, the term of the Penn Master Lease would extend to November 30, 2033 and the term of the Pinnacle Master Lease would extend to April 30, 2031;

and if all renewal options contained within the Penn Master Lease and the Pinnacle Master Lease were exercised, inclusive of the these renewal options, the term of the Penn Master Lease would extend to November 30, 2053 and the term of the Pinnacle Master Lease would extend to April 30, 2056.

Penn Master Lease

Pursuant to a triple net master lease with GLPI (the “Penn Master Lease”), which became effective November 1, 2013, the Company leases real estate assets associated with 19 of the gaming facilities used in its operations.

Pursuant to the triple net master lease with GLPI (the “Penn Master Lease”), which became effective November 1, 2013, the Company leases real estate assets associated with 19 of the gaming facilities used in its operations.

The Penn Master Lease has an initial term of 15 years with four subsequent, five-year renewal periods on the same terms and conditions, exercisable at the Company’s option.

The Company has determined that the lease term is 35 years.

The payment structure under the Penn Master Lease includes a fixed component, a portion of which is subject to an annual escalator of up to 2 % , depending on the Adjusted Revenue to Rent Ratio (as defined in the Penn Master Lease) of 1.8 :1, and a component that is based on the performance, which is prospectively adjusted (i) every five years by an amount equal to 4 % of the average change in net revenues of all properties under the Penn Master Lease (other than Hollywood Casino Columbus (“Columbus”) and Hollywood Casino Toledo (“Toledo”)) compared to a contractual baseline during the preceding five years (“Penn Percentage Rent”) and (ii) monthly by an amount equal to 20 % of the net revenues of Columbus and Toledo in excess of a contractual baseline and subject to a rent floor specific to Toledo (see below).

The payment structure under the Penn Master Lease includes a fixed component, a portion of which is subject to an annual escalator of up to 2 %, depending on the Adjusted Revenue to Rent Ratio (as defined in the Penn Master Lease) of 1.8 :1, and a component that is based on performance, which is prospectively adjusted (i) every five years by an amount equal to 4 % of the average change in net revenues of all properties under the Penn Master Lease (other than Columbus and Toledo) compared to a contractual baseline during the preceding five years (“Penn Percentage Rent”) and (ii) monthly by an amount equal to 20 % of the net revenues of Columbus and Toledo in excess of a contractual baseline and subject to a rent floor specific to Toledo.

The next annual escalator test date is scheduled to occur effective November 1, 2020 and the next Penn Percentage Rent reset is scheduled to occur on November 1, 2023.

Monthly rent associated with Columbus and monthly rent in excess of the Toledo rent floor are considered contingent rent.

Expense related to operating lease components associated with Columbus and Toledo are included in “General and administrative” within our unaudited Condensed Consolidated Statements of Operations and the variable expense related to the financing obligation is included in “Interest expense, net” within our unaudited Condensed Consolidated Statements of Operations.

Total monthly variable expenses were as follows:

For the three months ended March 31,

(in millions)

Variable expenses included in “General and administrative”

Variable expenses included in “Interest expense, net”

Total variable expenses

Pinnacle Master Lease

In connection with the Pinnacle Acquisition in October 2018, we assumed a triple net master lease with GLPI (the “Pinnacle Master Lease”), originally effective April 28, 2016, pursuant to which the Company leases real estate assets associated with 12 of the gaming facilities used in its operations.

In connection with the acquisition of Pinnacle Entertainment, Inc., on October 15, 2018, the Company assumed a triple net master lease with GLPI (the “Pinnacle Master Lease”), originally effective April 28, 2016, pursuant to which the Company leases real estate assets associated with 12 of the gaming facilities used in its operations.

Upon assumption of the Pinnacle Master Lease, as amended, there were 7.5 years remaining of the initial ten-year term, with five subsequent, five-year renewal periods, on the same terms and conditions, exercisable at the Company’s option.

The Company has determined that the lease term is 32.5 years.

The payment structure under the Pinnacle Master Lease includes a fixed component, a portion of which is subject to an annual escalator of up to 2 % , depending on the Adjusted Revenue to Rent Ratio (as defined in the Pinnacle Master Lease) of 1.8 :1, and a component that is based on the performance, which is prospectively adjusted every two years by an amount equal to 4 % of the average change in net revenues compared to a contractual baseline during the preceding two

years (“Pinnacle Percentage Rent”).

The annual escalator test date and the Pinnacle Percentage Rent reset occurred on May 1, 2020.

The payment structure under the Pinnacle Master Lease includes a fixed component, a portion of which is subject to an annual escalator of up to 2 %, depending on the Adjusted Revenue to Rent Ratio (as defined in the Pinnacle Master Lease) of 1.8 :1, and a component that is based on the performance, which is prospectively adjusted every two years by an amount equal to 4 % of the average change in net revenues compared to a contractual baseline during the preceding two years (“Pinnacle Percentage Rent”).

Effective May 1, 2020, the Pinnacle Percentage Rent resulted in an annual rent reduction of $ 5.0 million, which will be in effect until the next Pinnacle Percentage Rent reset, scheduled to occur on May 1, 2022.

Upon reset of the Pinnacle Percentage Rent, effective May 1, 2020, we recognized an additional operating lease ROU asset and corresponding lease liability of $ 14.9 million.

We did not incur an annual escalator for the lease year ended April 30, 2020.

The next annual escalator test date is scheduled to occur on May 1, 2021.

Operating Leases

The Company’s operating leases consist mainly of (i) a triple net lease with GLPI for the real estate assets used in the operations of Meadows Racetrack and Casino (the “Meadows Lease”), (ii) a triple net lease with VICI Properties Inc.

VICI) (“VICI”) for the real estate assets used in the operation of Margaritaville (the “Margaritaville Lease”), (iii) a triple net lease with VICI for the real estate assets used in the operation of Greektown (the “Greektown Lease” and collectively with the Master Leases, the Meadows Lease, and the Margaritaville Lease, the “Triple Net Leases”), (iv) ground and levee leases to landlords which were not assumed by our REIT Landlords and remain an obligation of the Company, and (v) building and equipment not subject to the Master Leases.

In addition to the operating lease components contained within the Master Leases (primarily land), the Company’s operating leases consist mainly of (i) individual triple net leases with GLPI for the real estate assets used in the operations of Tropicana Las Vegas (the “Tropicana Lease”) and Meadows Racetrack and Casino (the “Meadows Lease”), (ii) individual triple net leases with VICI Properties Inc.

VICI) (“VICI”) for the real estate assets used in the operations of Margaritaville (the “Margaritaville Lease”) and Greektown (the “Greektown Lease” and collectively with the Master Leases, the Meadows Lease, the Margaritaville Lease, and the Tropicana Lease, the “Triple Net Leases”), (iii) ground and levee leases to landlords which were not assumed by our REIT Landlords and remain an obligation of the Company, and (iv) building and equipment not subject to the Master Leases.

Certain of our lease agreements include rental payments based on a percentage of sales over specified contractual amounts, rental payments adjusted periodically for inflation, and rental payments based on usage.

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The Company’s operating lease agreements do not contain any material residual value guarantees or material restrictive covenants.

On April 16, 2020, we entered into the Tropicana Lease with a subsidiary of GLPI for the real estate assets used in the operations of Tropicana for nominal rent and will continue to operate the Tropicana for two years (subject to three one-year

extensions at GLPI’s option) or until the real estate assets and the operations of the Tropicana are earlier sold, as discussed in Note 5, “Acquisitions and Dispositions.” In the event that GLPI sells the real estate assets used in the operations of Tropicana, the Tropicana Lease will automatically terminate.

Upon execution of the Tropicana Lease, we recorded an operating lease ROU asset of $ 61.6 million, which is included in “Lease right-of-use assets” within the unaudited Condensed Consolidated Balance Sheets.

On February 1, 2020, the Margaritaville Lease was amended to provide for a change in the measurement of the annual escalator from an Adjusted Revenue to Rent Ratio (as defined in the Margaritaville Lease) of 1.9 :1 to a minimum ratio of net revenue to rent of 6.1 :1.

As a result of the annual escalator, which was determined to be $ 0.3 million , effective February 1, 2020, an additional operating right-of-use asset and corresponding operating lease liability of $ 3.1 million were recognized.

Information related to lease term and discount rate was as follows:

March 31, 2020

December 31, 2019

Weighted-Average Remaining Lease Term

Operating leases

Finance leases

Financing obligations

Weighted-Average Discount Rate

Operating leases

Finance leases

Financing obligations

The following is a maturity analysis of our operating leases, finance leases and financing obligations as of March 31, 2020 :

(in millions)

Operating Leases

Finance Leases

Financing Obligations

As a result of the annual escalator, which was determined to be $ 0.3 million, effective February 1, 2020, an additional operating lease ROU asset and corresponding operating lease liability of $ 3.1 million were recognized.

The following is a maturity analysis of our operating leases, finance leases and financing obligations as of June 30, 2020:

(in millions) Operating Leases Finance Leases Financing Obligations

Years ending December 31,

2020 (excluding the three months ended March 31, 2020)

2020 (excluding the six months ended June 30, 2020) $ 214.4 $ 10.8 $ 183.6

2021 412.4 21.7 367.3

2022 403.7 21.6 367.3

2023 398.0 20.8 367.3

2024 381.7 16.7 367.3

Thereafter 8,156.4 393.5 9,270.6

Total lease payments 9,966.6 485.1 10,923.4

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Long-term portion of lease obligations $ 4,407.8 $ 216.0 $ 4,084.6

Total payments made under the Triple Net Leases, inclusive of rent credits utilized, were as follows:

For the three months ended June 30, For the six months ended June 30,

(in millions) 2020 2019 2020 2019

Penn Master Lease (1)

$ 108.3 $ 114.5 $ 223.1 $ 228.9

Pinnacle Master Lease (1)

81.8 82.0 164.3 163.3

Meadows Lease (1)

6.7 6.6 13.5 13.1

Margaritaville Lease 5.9 5.8 11.7 11.5

Greektown Lease 13.9 6.0 27.8 6.0

$ 216.6 $ 214.9 $ 440.4 $ 422.8

(1) During the three months ended June 30, 2020, we utilized rent credits to pay $ 72.1 million, $ 54.2 million and $ 4.5 million of rent under the Penn Master Lease, Pinnacle Master Lease and Meadows Lease, respectively.

(2) Rent payable under the Tropicana Lease is nominal.

Therefore, it has been excluded from the table above.

The components of lease expense were as follows:

For the three months ended March 31, 2020

Classification

Location on unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) For the three months ended June 30, For the six months ended June 30,

(in millions) 2020 2019 2020 2019

Gaming Expense

Food, Beverage, Hotel and Other Expense

General and Administrative

Interest Expense, net

Depreciation and Amortization

Operating Lease Costs

Rent expense associated with triple net leases classified as operating leases (1)

Rent expense associated with triple net operating leases (1)

General and administrative $ 103.8 $ 90.0 $ 201.3 $ 174.7

Operating lease cost (2)

Short-term lease cost

Primarily General and administrative 3.7 4.6 8.0 9.0

Short-term lease cost Primarily Gaming expense 4.1 14.8 16.2 28.5

Variable lease cost (2)

Primarily Gaming expense 0.2 0.3 1.0 1.8

Total $ 111.8 $ 109.7 $ 226.5 $ 214.0

Finance Lease Costs

Interest expense (3)

Amortization expense (3)

Financing Obligation Costs

Interest expense (4)

For the three months ended March 31, 2019

Classification

(in millions)

Gaming Expense

Food, Beverage, Hotel and Other Expense

General and Administrative

Interest on lease liabilities (3)

Interest expense, net $ 3.8 $ 3.9 $ 7.7 $ 7.7

Amortization of ROU assets (3)

Depreciation and amortization 2.0 1.9 4.0 3.9

Operating Lease Costs

Rent expense associated with triple net leases classified as operating leases (1)

Operating lease cost (2)

Short-term lease cost

Variable lease cost (2)

Finance Lease Costs

Interest expense (3)

Amortization expense (3)

Total $ 5.8 $ 5.8 $ 11.7 $ 11.6

Financing Obligation Costs

Interest expense (4)

Pertains to the operating lease components contained within the Master Leases (primarily land), the Meadows Lease, the Margaritaville Lease and the Greektown Lease, inclusive of the variable expense associated with Columbus and Toledo for the operating lease components (the land) (see table above).

Interest on financing obligations (4)

Interest expense, net $ 99.1 $ 98.4 $ 196.5 $ 196.0

(1) Pertains to the operating lease components contained within the Master Leases (primarily land), the Meadows Lease, the Margaritaville Lease, the Greektown Lease, and the Tropicana Lease, inclusive of the variable expense associated with Columbus and Toledo for the operating lease components (the land), which was $ 1.6 million and $ 4.7 million for the three and six months ended June 30, 2020, respectively, pertaining to Columbus, and $ 6.2 million and $ 13.0 million for the three and six months ended June 30, 2019, respectively, pertaining to Columbus and Toledo.

(2) Excludes the operating lease costs and variable lease costs pertaining to our triple net leases with our REIT landlords classified as operating leases, discussed in footnote (1) above.

(3) Primarily pertains to the Dayton and Mahoning Valley finance leases.

Pertains to the components contained within the Master Leases (primarily buildings) determined to be financing obligations, inclusive of the variable expense associated with Columbus and Toledo for the finance lease components (the buildings) (see table above).

Total payments made under the Triple Net Leases were as follows:

For the three months ended March 31,

(in millions)

Penn Master Lease

Pinnacle Master Lease

Meadows Lease

Margaritaville Lease

Greektown Lease

Supplemental cash flow information related to leases was as follows:

For the three months ended March 31,

(in millions)

Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows from finance leases

Operating cash flows from operating leases

Financing cash flows from finance leases

We lease our hotel rooms to patrons and record the corresponding lessor revenue in “Food, beverage, hotel and other revenues” within our unaudited Condensed Consolidated Statements of Operations.

For the three months ended March 31, 2020 and 2019 , the Company recognized $ 60.6 million and $ 71.4 million of lessor revenues related to the rental of hotel rooms, respectively.

Hotel leasing arrangements vary in duration, but are short-term in nature.

The cost and accumulated depreciation of property and equipment associated with hotel rooms is included in “Property and equipment, net” within our unaudited Condensed Consolidated Balance Sheets.

(4) Pertains to the components contained within the Master Leases (primarily buildings) determined to be financing obligations, inclusive of the variable expense associated with Columbus and Toledo for the finance lease components (the buildings), which was $ 2.2 million and $ 5.6 million for the three and six months ended June 30, 2020, respectively, pertaining to Columbus, and $ 5.7 million and $ 12.0 million for the three and six months ended June 30, 2019, respectively, pertaining to Columbus and Toledo.

Note 11— Investments in and Advances to Unconsolidated Affiliates

As of March 31, 2020 , investments in and advances to unconsolidated affiliates primarily consisted of the Company’s 36 % interest in Barstool Sports, its 50 % investment in Kansas Entertainment, which is a JV with International Speedway that owns Hollywood Casino at Kansas Speedway, its 50 % interest in Freehold Raceway, and its 50 % joint venture with MAXXAM, Inc.

As of June 30, 2020, investments in and advances to unconsolidated affiliates primarily consisted of the Company’s 36 % interest in Barstool Sports, its 50 % investment in Kansas Entertainment, the JV with International Speedway that owns Hollywood Casino at Kansas Speedway, its 50 % interest in Freehold Raceway, and its 50 % JV with MAXXAM, Inc.

(“MAXXAM”) that owns and operates racetracks in Texas.

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In February 2020, we closed on our investment in Barstool Sports pursuant to a stock purchase agreement with Barstool Sports and certain stockholders of Barstool Sports, in which we purchased 36 % (inclusive of 1 % on a delayed basis) of the common stock, par value $ 0.0001 per share, of Barstool Sports for a purchase price of $ 161.2 million.

The purchase price consisted of $ 135.0 million in cash and $ 23.1 million in shares of a new class of non-voting convertible preferred stock of the Company (the “Series D Preferred Stock”) (discussed below).

The purchase price consisted of $ 135.0 million in cash and $ 23.1 million in shares of a new class of non-voting convertible preferred stock of the Company (as discussed below).

Furthermore, three years after the closing of the transaction (or earlier at our election), we will increase our ownership in Barstool Sports to approximately 50 % by purchasing approximately $ 62 million worth of additional shares of Barstool Sports common stock, consistent with the implied valuation at the time of the initial investment, which was $ 450.0 million.

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As part of our investment, we recorded various forward arrangements with a fair value of $ 3.1 million.

On February 20, 2020, the Company issued 883 shares of Series D Preferred Stock, par value $ 0.01 per share, to certain individual stockholders affiliated with Barstool Sports.

1/1,000 th of a share of Series D Preferred Stock is convertible into one share of Penn National Gaming common stock, par value $ 0.01 per share (“Penn Common Stock”).

Series D Preferred Stock will be entitled to participate equally and ratably in all dividends and distributions paid to holders of Penn Common Stock based on the number of shares of Penn Common Stock into which such Series D Preferred Stock could convert.

Preferred Stock is nonvoting stock.

On February 20, 2020, the Company issued 883 shares of Series D Preferred Stock, par value $ 0.01 per share (the “Series D Preferred Stock”), to certain individual stockholders affiliated with Barstool Sports.

1/1,000 th of a share of Series D Preferred Stock is convertible into one share of Penn Common Stock.

The Series D Preferred Stock will be entitled to participate equally and ratably in all dividends and distributions paid to holders of Penn Common Stock based on the number of shares of Penn

Common Stock into which such Series D Preferred Stock could convert.

Series D Preferred Stock is nonvoting stock.

The Series D Preferred Stock issued to certain individual stockholders affiliated with Barstool Sports will be available for conversion into Penn Common Stock in tranches over the next four years as stipulated in the stock purchase agreement, with the first 20 % tranche available for conversion into Penn Common Stock in the first quarter of 2021.

As of March 31, 2020, none of the Series D Preferred Stock can be converted into Penn Common Stock.

As a part of the stock purchase agreement, we entered into a commercial agreement that provides us with access to Barstool Sports’ customer list and free advertising on the Barstool Sports platform over the term of the agreement.

As of June 30, 2020, none of the Series D Preferred Stock can be converted into Penn Common Stock.

As a part of the stock purchase agreement, we entered into a commercial agreement that provides us with access to Barstool Sports’ customer list and exclusive advertising on the Barstool Sports platform over the term of the agreement.

The initial term of the commercial agreement is ten years and, unless earlier terminated and subject to certain exceptions, will automatically renew for three additional ten-year terms (a total of 40 years assuming all renewals are exercised).

Upon consummation of the transaction, we recorded an amortizing intangible asset pertaining to the customer list of $ 2.4 million and a prepaid expense pertaining to the advertising in the amount of $ 17.5 million , of which $ 16.3 million is classified as long-term and included in “Other assets” within our unaudited Condensed Consolidated Balance Sheets.

As of March 31, 2020 , our investment in Barstool Sports was $ 144.7 million , which is inclusive of $ 3.4 million of costs we incurred to close the transaction.

We will record our proportionate share of Barstool Sports net income (loss) one quarter in arrears, which will commence in the second quarter of 2020.

The Company determined that Barstool Sports qualified as a VIE as of March 31, 2020 .

The Company did not consolidate its investment in Barstool Sports as of and for the three months ended March 31, 2020 as the Company determined that it did not qualify as the primary beneficiary of Barstool Sports either at the commencement date of its investment or for the subsequent period ended March 31, 2020 , primarily as a result of the Company not having the power to direct the activities of the VIE that most significantly affect Barstool Sports’ economic performance.

Upon consummation of the transaction, we recorded an amortizing intangible asset pertaining to the customer list of $ 2.4 million and a prepaid expense pertaining to the advertising in the amount of $ 17.5 million, of which $ 16.3 million was classified as long-term.

The long-term portion of the prepaid advertising expense is included in “Other assets” within our unaudited Condensed Consolidated Balance Sheets.

As of June 30, 2020, our investment in Barstool Sports was $ 144.0 million, which is inclusive of $ 3.4 million of costs we incurred to close the transaction.

We record our proportionate share of Barstool Sports’ net income (loss) one quarter in arrears.

The Company determined that Barstool Sports qualified as a VIE as of June 30, 2020.

The Company did not consolidate its investment in Barstool Sports as of and for the three and six months ended June 30, 2020 as the Company determined that it did not qualify as the primary beneficiary of Barstool Sports either at the commencement date of its investment or for the subsequent period ended June 30, 2020, primarily as a result of the Company not having the power to direct the activities of the VIE that most significantly affect Barstool Sports’ economic performance.

Kansas Joint Venture

As of March 31, 2020 and December 31, 2019 , our investment in Kansas Entertainment was $ 87.0 million and $ 90.8 million , respectively.

As of June 30, 2020 and December 31, 2019, our investment in Kansas Entertainment was $ 87.3 million and $ 90.8 million, respectively.

The Company has determined that Kansas Entertainment does not qualify as a VIE.

Using the guidance for entities that are not VIEs, the Company determined that it did not have a controlling financial interest in the JV, primarily as it did not have the ability to direct the activities of the JV that most significantly impacted the JV’s economic performance without the input of International Speedway.

Therefore, the Company did not consolidate its investment in Kansas Entertainment as of March 31, 2020 and December 31, 2019 and for the three months ended March 31, 2020 and 2019 .

The following table provides summary income statement information of Kansas Entertainment for the comparative periods that are included within the Company’s unaudited Condensed Consolidated Statements of Operations:

For the three months ended March 31,

Therefore, the Company did not consolidate its investment in Kansas Entertainment as of June 30, 2020 and December 31, 2019 and for the three and six months ended June 30, 2020 and 2019.

For the three months ended June 30, For the six months ended June 30,

(in millions) 2020 2019 2020 2019

Revenues $ 13.2 $ 40.2 $ 47.4 $ 79.6

Operating expenses 12.6 26.8 37.0 54.2

Operating income 0.6 13.4 10.4 25.4

Net income $ 0.6 $ 13.4 $ 10.4 $ 25.4

Net income attributable to Penn National $ 0.3 $ 6.7 $ 5.2 $ 12.7

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MAXXAM owns and operates the Sam Houston Race Park in Houston, Texas and the Valley Race Park in Harlingen, Texas, and holds a license for a racetrack in Austin, Texas.

During the three months ended March 31, 2020 , principally due to on-going negative operating results of these racetracks, we recorded an other-than-temporary impairment on our investment in the JV of $ 4.6 million , which is included in “Impairment losses” within our unaudited Condensed Consolidated Statements of Operations.

During the first quarter of 2020, principally due to on-going negative operating results of these racetracks, we recorded an other-than-temporary impairment on our investment in the JV of $ 4.6 million, which is included in “Impairment losses” within our unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

Note 12— Income Taxes

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Among other provisions, the CARES Act provides various forms of income tax relief to U.S.

taxpayers through temporary amendments to net operating loss (“NOLs”) rules, temporarily increases the limitation on interest expense deductibility and immediate expensing for eligible qualified

improvement property.

taxpayers through temporary amendments to net operating loss (“NOLs”) rules, temporarily increases the limitation on interest expense deductibility and immediate expensing for eligible qualified improvement property.

We are currently evaluating the provisions of the CARES Act.

As of March 31, 2020 , although we do not expect these provisions to have a significant impact on our effective tax rate, we are estimating an income tax refund between approximately $ 40 million and $ 50 million primarily attributable to the carryback of NOLs.

As of June 30, 2020, although we do not expect these provisions to have a significant impact on our effective tax rate, we are estimating an income tax refund between approximately $ 40 million and $ 50 million primarily attributable to the carryback of NOLs.

The Company calculates the provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate to its year-to-date pretax book income or loss.

The tax effects of discrete items, including but not limited to, excess tax benefits associated with stock-based compensation, valuation allowance adjustments based on new evidence and enactment of tax laws, are reported in the interim period in which they occur.

The effective tax rate (income taxes as a percentage of income or loss before income taxes) including discrete items was 14.1 % for the three months ended March 31, 2020 , as compared to 26.5 % for the three months ended March 31, 2019 .

The effective tax rate (income taxes as a percentage of income or loss before income taxes) including discrete items was 21.4 % and 16.1 % for the three and six months ended June 30, 2020, as compared to 26.5 % for both the three and six months ended June 30, 2019.

Our effective income tax rate can vary from period to period depending on, among other factors, the geographic and business mix of our earnings, changes to our valuation allowance and the level of our tax credits.

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The Company’s valuation allowance as of December 31, 2019 was $ 54.2 million.

During the three months ended March 31, 2020 , the Company reassessed the need for a valuation allowance due to the impairment charges of $ 616.1 million recorded related to the COVID-19 pandemic that caused the Company to have a three-year cumulative pretax loss of $ 564.2 million .

Such objective evidence limits our ability to consider other subjective evidence such as our forecast of pretax earnings.

As a result of this objective negative evidence, the Company recorded an increase of $ 74.4 million to its valuation allowance on certain federal and state deferred tax assets that are not more likely than not to be realized.

On March 27, 2020, we entered into the Term Sheet with GLPI whereby GLPI agreed to (i) purchase the real estate assets associated with our Tropicana property, which closed on April 16, 2020 , and (ii) purchase the land underlying our Morgantown development project subject to regulatory approval, which we expect to close by August 31, 2020.

These transactions will be treated as a sale of business assets for tax purposes.

We will assess the amount of gain or loss in the interim period when the transactions close, which may impact our estimated 2020 net operating loss.

During the three months ended June 30, 2020, the Company determined that a valuation allowance was still necessary due to the significant impairment charge previously recorded during the first quarter of 2020, related to the COVID-19 pandemic.

Such objective evidence of being in a three-year cumulative pretax loss limits our ability to consider other subjective evidence such as our forecast of pretax earnings.

As a result of this objective negative evidence, during the three months ended June 30, 2020, the Company increased the valuation allowance in the amount of $ 9.4 million on certain federal and state deferred tax assets that are more likely than not to be realized.

The Company also recorded a $ 22.5 million release in the valuation allowance recognized as part of “Additional paid-in-capital” related to the offering of the Convertible Notes (see Note 9, “Long-term Debt” ).

These transactions are treated as a sale of business assets for income tax purposes.

The Morgantown land sale will be included in the interim period when the transaction closes, which may impact our estimated 2020 net operating loss.

Note 13— Commitments and Contingencies

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The Company does not believe that the final outcome of these matters will have a material adverse effect on its financial position, results of operations, or cash flows.

Note 14— Stock-Based Compensation

Note 14— Stockholders’ Equity and Stock-Based Compensation

Common Stock Offering

On May 14, 2020, the Company completed a public offering of 16,666,667 shares of Penn Common Stock and on May 19, 2020, the underwriters exercised their right to purchase an additional 2,500,000 shares of Penn Common Stock, resulting in an aggregate public offering of 19,166,667 shares of Penn Common Stock.

All of the shares were issued at a public offering price of $ 18.00 per share, resulting in gross proceeds of $ 345.0 million, and net proceeds of $ 331.2 million after underwriter fees and discounts of $ 13.8 million.

2018 Long Term Incentive Compensation Plan

The Company’s 2018 Long Term Incentive Compensation Plan (the “2018 Plan”) permits it to issue stock options (incentive and/or non-qualified), stock appreciation rights (“SARs”), restricted stock awards (“RSAs”), phantom stock units (“PSUs”) and other equity and cash awards to employees.

The Company’s 2018 Long Term Incentive Compensation Plan (the “2018 Plan”) permits it to issue stock options (incentive and/or non-qualified), stock appreciation rights (“SARs”), RSAs, phantom stock units (“PSUs”) and other equity and cash awards to employees.

Non-employee directors are eligible to receive all such awards, other than incentive stock options.

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Any awards that are not settled in shares of common stock are not counted against the limit.

As of March 31, 2020 , there were 7,547,999 shares available for future grants under the 2018 Plan.

As of June 30, 2020, there were 7,532,384 shares available for future grants under the 2018 Plan.

Performance Share Program

In February 2019, the Company’s Compensation Committee of the Board of Directors adopted a performance share program (the “Performance Share Program II”) pursuant to the 2018 Plan.

An aggregate of 107,297 RSAs with performance-

based vesting conditions, at target, was granted in February 2020 under the Performance Share Program II, with the grant having a three -year award period consisting of three one -year performance periods and a three -year service period.

An aggregate of 107,297 RSAs with performance-based vesting conditions, at target, was granted in February 2020 under the Performance Share Program II, with the grant having a three-year award period consisting of three one-year performance periods and a three-year service period.

The performance threshold for vesting of these awards is 50 % of target and, based on the level of achievement, up to 150 % of target.

Stock Options

The Company granted 635,932 and 1,307,015 stock options during the three months ended March 31, 2020 and 2019 , respectively.

The Company granted 0.6 million and 1.3 million stock options during the six months ended June 30, 2020 and 2019, respectively.

Stock-based Compensation Expense

Stock-based compensation expense, which pertains principally to our stock options and RSAs, for the three months ended March 31, 2020 and 2019 was $ 6.0 million and $ 3.4 million , respectively, and is included within the unaudited Condensed Consolidated Statements of Operations under “General and administrative.”

Stock-based compensation expense, which pertains principally to our stock options and RSAs, for the three and six months ended June 30, 2020 was $ 2.9 million and $ 8.9 million, respectively, as compared to $ 3.3 million and $ 6.7 million for the three and six months ended June 30, 2019, respectively, and is included within the unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) under “General and administrative.”

Stock Appreciation Rights

Our SARs, which vest over a period of four years , are accounted for as liability awards since they will be settled in cash.

Our SARs are accounted for as liability awards since they will be settled in cash and vest over a period of four years .

The fair value of cash-settled SARs is calculated each reporting period and estimated using the Black-Scholes option pricing model.

The Company has a liability, which is included in “Accrued expenses and other current liabilities” within the unaudited Condensed Consolidated Balance Sheets, associated with its cash-settled SARs of $ 1.9 million and $ 14.4 million as of March 31, 2020 and December 31, 2019 , respectively.

For SARs held by employees of the Company, there was $ 5.4 million of total unrecognized compensation cost as of March 31, 2020 that will be recognized over the awards remaining weighted average vesting period of 3.2 years.

For the three months ended March 31, 2020 and 2019 , the Company recognized a reduction to compensation expense of $ 5.5 million associated with these awards compared to a charge to compensation expense of $ 3.0 million for the three months ended March 31, 2019 .

Compensation expense associated with our SARs is recorded in “General and administrative” within the unaudited Condensed Consolidated Statements of Operations.

We paid $ 6.6 million and $ 1.2 million during the three months ended March 31, 2020 and 2019 , respectively, pertaining to our cash-settled SARs.

The Company has a liability, which is included in “Accrued expenses and other current liabilities” within the unaudited Condensed Consolidated Balance Sheets, associated with its cash-settled SARs of $ 17.0 million and $ 14.4 million as of June 30, 2020 and December 31, 2019, respectively.

For SARs held by employees of the Company, there was $ 23.0 million of total unrecognized compensation cost as of June 30, 2020 that will be recognized over the awards remaining weighted-average vesting period of 2.9 years.

For the three and six months ended June 30, 2020, the Company recognized a charge to compensation expense of $ 17.7 million and $ 12.2 million, respectively, associated with these awards, as compared to a reduction to compensation expense of $ 0.5 million and a charge to compensation expense of $ 2.5 million for the three and six months ended June 30, 2019, respectively.

Compensation expense associated with our SARs is recorded in “General and administrative” within the unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

We paid $ 10.2 million and $ 1.8 million during the six months ended June 30, 2020 and 2019, respectively, related to cash-settled SARs.

Phantom Stock Units

Our PSUs, which vest over a period of three to four years , entitle employees and directors to receive cash based on the fair value of the Company’s common stock on the vesting date.

Our PSUs entitle employees and directors to receive cash based on the fair value of the Company’s common stock on the vesting date.

Our PSUs vest over a period of three or four years .

The cash-settled PSUs are accounted for as liability awards and are re-measured at fair value each reporting period until they become vested with compensation expense being recognized over the requisite service period.

The Company has a liability, which is included in “Accrued expenses and other current liabilities” within the unaudited Condensed Consolidated Balance Sheets, associated with its cash-settled PSUs of $ 0.8 million and $ 3.3 million as of March 31, 2020 and December 31, 2019 , respectively.

For PSUs held by employees and directors of the Company, there was $ 1.9 million of total unrecognized compensation cost as of March 31, 2020 that will be recognized over the awards remaining weighted average vesting period of 1.9 years.

For the three months ended March 31, 2020 and 2019 , the Company recognized $ 0.1 million and $ 1.1 million of compensation expense, respectively, associated with these awards.

Compensation expense associated with our PSUs is recorded in “General and administrative” within the unaudited Condensed Consolidated Statements of Operations.

We paid $ 2.8 million and $ 2.4 million during the three months ended March 31, 2020 and 2019 , respectively, pertaining to our cash-settled PSUs.

The Company has a liability, which is included in “Accrued expenses and other current liabilities” within the unaudited Condensed Consolidated Balance Sheets, associated with its cash-settled PSUs of $ 2.6 million and $ 3.3 million as of June 30, 2020 and December 31, 2019, respectively.

For PSUs held by employees and directors of the Company, there was $ 3.3 million of total unrecognized compensation cost as of June 30, 2020 that will be recognized over the awards remaining weighted-average vesting period of 1.7 years.

For the three and six months ended June 30, 2020, the Company recognized $ 1.9 million and $ 2.0 million of compensation expense, respectively, associated with these awards, as compared to $ 0.5 million and $ 1.6 million for the three and six months ended June 30, 2019, respectively.

Compensation expense associated with our PSUs is recorded in “General and administrative” within the unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

We paid $ 2.8 million and $ 2.5 million during the six months ended June 30, 2020 and 2019, respectively, pertaining to cash-settled PSUs.

Share Repurchase Program

In January 2019, the Company announced a share repurchase program pursuant to which the Board of Directors authorized to repurchase up to $ 200.0 million of the Company’s common stock, which expires on December 31, 2020.

The Company did not repurchase any shares of its common stock during the three months ended March 31, 2020 or 2019 .

The Company did not repurchase any shares of its common stock during the six months ended June 30, 2020.

During the six months ended June 30, 2019, the Company repurchased 1,271,823 shares of its common stock in open market transactions for $ 24.9 million at an average price of $ 19.55 per share.

All of the repurchased shares were retired.

Note 15— Earnings (Loss) per Share

For the three months ended March 31, 2020 , we recorded a net loss applicable to common stock.

As such, because the potential dilution from stock-based compensation awards was antidilutive, we used basic weighted average common shares outstanding, rather than diluted weighted average common shares outstanding when calculating diluted loss per share.

Stock options and RSAs that could potentially dilute basic earnings per share in the future that were not included in the computation of diluted loss per share for the three months ended March 31, 2020 were 2.2 million and 0.3 million , respectively.

Holders of the Company’s Series D Preferred Stock are entitled to participate equally and ratably in all dividends and distributions paid to holders of Penn Common Stock, irrespective of any vesting requirement.

Accordingly, although the vesting commences upon the elimination of the contingency, the Series D Preferred Stock shares are considered a participating security and the Company is required to apply the two-class method to consider the impact of the preferred shares on the calculation of basic and diluted earnings per share.

The Company is currently in a net loss position and is therefore not required to present the two-class method;

however, in the event the Company is in a net income position, the two-class method must be applied by allocating all earnings during the period to common shares and preferred shares.

The following table reconciles the weighted average common shares outstanding used in the calculation of basic earnings per share to the weighted average common shares outstanding used in the calculation of diluted earnings per share for the three months ended March 31, 2019 :

(in millions)

For the three months ended March 31, 2019

Determination of shares:

Weighted average common shares outstanding

For the three and six months ended June 30, 2020, we recorded a net loss attributable to Penn National.

As such, because the dilution from potential common shares was antidilutive, we used basic weighted-average common shares outstanding, rather than diluted weighted-average common shares outstanding when calculating diluted loss per share.

The stock options, RSAs, convertible preferred shares and convertible debt that could potentially dilute basic EPS in the future that were not included in the computation of diluted loss per share were as follows:

(in millions) For the three months ended June 30, 2020 For the six months ended June 30, 2020

Assumed conversion of dilutive stock options 1.5 1.8

Assumed conversion of dilutive RSAs 0.2 0.3

Diluted weighted average common shares outstanding

Options to purchase 1,234,909 shares and 1,940,633 shares were outstanding during the three months ended March 31, 2020 and 2019 , respectively, but were not included in the computation of diluted earnings (loss) per share because they were antidilutive.

The following table presents the calculation of basic and diluted earnings (loss) per share for the Company’s common stock for the three months ended March 31, 2020 and 2019 :

For the three months ended March 31,

Assumed conversion of convertible preferred shares 0.8 0.6

Assumed conversion of convertible debt 7.9 4.0

The following table reconciles the weighted-average common shares outstanding used in the calculation of basic EPS to the weighted-average common shares outstanding used in the calculation of diluted EPS for the three and six months ended June 30, 2019:

(in millions) For the three months ended June 30, 2019 For the six months ended June 30, 2019

Weighted-average common shares outstanding - Basic 116.0 116.1

Assumed conversion of dilutive stock options 1.6 1.9

Assumed conversion of dilutive RSAs 0.1 0.2

Weighted-average common shares outstanding - Diluted 117.7 118.2

Options to purchase 3.0 million and 1.9 million shares were outstanding during the three and six months ended June 30, 2020, respectively, as compared to 2.0 million and 1.9 million shares during the three and six months ended June 30, 2019, respectively, but were not included in the computation of diluted earnings (loss) per share because they were antidilutive.

The following table presents the calculation of basic and diluted earnings (loss) per share for the Company’s common stock for the three and six months ended June 30, 2020 and 2019:

For the three months ended June 30, For the six months ended June 30,

(in millions, except per share data) 2020 2019 2020 2019

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Net income (loss) applicable to common stock $ ( 213.9 ) $ 51.6 $ ( 822.5 ) $ 92.5

Weighted average common shares outstanding

Weighted-average common shares outstanding - basic 126.8 116.0 121.3 116.1

Basic earnings (loss) per share $ ( 1.69 ) $ 0.44 $ ( 6.78 ) $ 0.80

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Net income (loss) applicable to common stock $ ( 213.9 ) $ 51.6 $ ( 822.5 ) $ 92.5

Diluted weighted average common shares outstanding

Weighted-average common shares outstanding - diluted 126.8 117.7 121.3 118.2

Diluted earnings (loss) per share $ ( 1.69 ) $ 0.44 $ ( 6.78 ) $ 0.78

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Equity Securities

As of March 31, 2020 and December 31, 2019 , we held $ 18.7 million and $ 40.5 million in equity securities, respectively, including ordinary shares and warrants, which are reported as “Other assets” in our unaudited Condensed Consolidated Balance Sheet.

As of June 30, 2020 and December 31, 2019, we held $ 48.3 million and $ 40.5 million in equity securities, respectively, including ordinary shares and warrants, which are reported as “Other assets” in our unaudited Condensed Consolidated Balance Sheet.

These equity securities are the result of Penn Interactive entering into multi-year agreements with third-party sports betting operators for online sports betting and related iGaming market access across our portfolio during the third quarter of 2019.

During the three months ended March 31, 2020 , we recognized a holding loss of $ 21.8 million related to these equity securities, which is included in “Other,” as reported in “Other income (expenses)” within our unaudited Condensed Consolidated Statements of Operations.

During the three and six months ended June 30, 2020, we recognized a holding gain of $ 29.5 million and $ 7.7 million, respectively, related to these equity securities, which is included in “Other,” as reported in “Other income (expenses)” within our unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

The fair value of the equity securities was determined using Level 2 inputs, which use market approach valuation techniques.

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In addition, we own 1.0 % of the equity of Retama Nominal Holder, LLC, which holds a nominal interest in the racing license used to operate Retama Park Racetrack, and a 75.5 % interest in Pinnacle Retama Partners, LLC (“PRP”), which owns the contingent gaming rights that may arise if gaming under the existing racing license becomes legal in Texas in the future.

As of March 31, 2020 and December 31, 2019 , PRP held $ 15.1 million at each date in promissory notes issued by RDC and $ 6.6 million and $ 6.7 million , respectively, in local government corporation bonds issued by RDC, at amortized cost.

As of June 30, 2020 and December 31, 2019, PRP held $ 15.1 million in promissory notes issued by RDC and $ 6.7 million in local government corporation bonds issued by RDC, at amortized cost.

The promissory notes and the local government corporation bonds are collateralized by the assets of Retama Park Racetrack.

As of March 31, 2020 and December 31, 2019 , the promissory notes and the local government corporation bonds, which have long-term contractual maturities, were included in “Other assets” within our unaudited Condensed Consolidated Balance Sheets.

As of June 30, 2020 and December 31, 2019, the promissory notes and the local government corporation bonds, which have long-term contractual maturities, were included in “Other assets” within our unaudited Condensed Consolidated Balance Sheets.

The contractual terms of these promissory notes include interest payments due at maturity;

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Long-term Debt

The fair value of our Term Loan A Facility, Term Loan B-1 Facility and 5.625 % Notes is estimated based on quoted prices in active markets and is classified as a Level 1 measurement.

The fair value of our Term Loan A Facility, Term Loan B-1 Facility, 5.625 % Notes, and Convertible Notes is estimated based on quoted prices in active markets and is classified as a Level 1 measurement.

The fair value of our Revolving Credit Facility approximates its carrying amount as it is revolving, variable-rate debt, which we also classify as a Level 1 measurement.

Other long-term obligations as of March 31, 2020 and December 31, 2019 included the relocation fees for Dayton and Mahoning Valley, which are discussed in Note 9, “Long-term Debt,” and the repayment obligation of the hotel and event center located near Hollywood Casino Lawrenceburg.

Other long-term obligations as of June 30, 2020 and December 31, 2019 included the relocation fees for Dayton and Mahoning Valley, which are discussed in Note 9, “Long-term Debt,” and the repayment obligation of the hotel and event center located near Hollywood Casino Lawrenceburg.

The fair values of these long-term obligations are estimated based on rates consistent with the Company’s credit rating for comparable terms and debt instruments and are classified as Level 2 measurements.

Other Liabilities

Other liabilities as of March 31, 2020 and December 31, 2019 principally consisted of contingent purchase price related to Plainridge Park Casino and Absolute Games, LLC, which was acquired by Penn Interactive during the second quarter of 2018.

Other liabilities as of June 30, 2020 principally consisted of contingent purchase price related to Plainridge Park Casino and, as of December 31, 2019, principally consisted of contingent purchase price related to Plainridge Park Casino and Absolute Games, LLC (“Absolute Games”), which was acquired by Penn Interactive during the second quarter of 2018.

The Plainridge Park Casino contingent purchase price is calculated based on earnings of the gaming operations over the first ten years of operations, which commenced in June 24, 2015.

As of March 31, 2020 and December 31, 2019 , we were contractually obligated to make six additional annual payments.

The Absolute Games, LLC contingent purchase price is calculated based on earnings over the first two years of operations after the acquisition.

As of March 31, 2020 , we were contractually obligated to make one additional payment, corresponding to the second year of operations after the acquisition.

As of June 30, 2020, we were contractually obligated to make six additional annual payments.

During the second quarter of 2020, we made the second and final payment of $ 8.2 million on the Absolute Games contingent purchase price, which corresponded to the second year of operations after the acquisition and was calculated based on earnings.

The fair value of these liabilities, which are estimated based on an income approach using a discounted cash flow model and have been classified as Level 3 measurements, are included within our unaudited Condensed Consolidated Balance Sheets in “Accrued expenses and other current liabilities” or “Other long-term liabilities,” depending on the timing of the next payment.

The carrying amounts and estimated fair values by input level of the Company’s financial instruments were as follows:

March 31, 2020

(in millions)

Carrying Amount

June 30, 2020

(in millions) Carrying Amount Fair Value Level 1 Level 2 Level 3

Financial assets:

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Senior Secured Credit Facilities $ 2,403.1 $ 2,345.4 $ 2,345.4 $ — $ —

5.625 % Notes

$ 399.4 $ 375.3 $ 375.3 $ — $ —

Convertible Notes $ 233.6 $ 497.1 $ 497.1 $ — $ —

Other long-term obligations $ 80.8 $ 81.1 $ — $ 81.1 $ —

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December 31, 2019

(in millions)

Carrying Amount

(in millions) Carrying Amount Fair Value Level 1 Level 2 Level 3

Financial assets:

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Senior Secured Credit Facilities $ 1,896.5 $ 1,930.6 $ 1,930.6 $ — $ —

5.625 % Notes

$ 399.4 $ 426.0 $ 426.0 $ — $ —

Other long-term obligations $ 89.2 $ 89.7 $ — $ 89.7 $ —

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Other Liabilities

(in millions)

Contingent Purchase Price

(in millions) Contingent Purchase Price

Balance as of January 1, 2020 $ 17.5

Included in earnings (loss) (1)

Balance as of March 31, 2020

The reduction in expense is included in “General and administrative” within our unaudited Condensed Consolidated Statements of Operations.

The following table sets forth the assets measured at fair value on a non-recurring basis during the three months ended March 31, 2020 :

(in millions)

Valuation Date

Valuation Technique

Total Balance

Total Reduction in Fair Value

Discounted cash flow and market approach

Gaming licenses

Discounted cash flow

The following table summarizes the significant unobservable inputs used in calculating fair value for our Level 3 liabilities on a recurring basis as of March 31, 2020 :

Valuation Technique

Unobservable Input

Discount Rate

Contingent consideration - Plainridge Park Casino

Discounted cash flow

Discount rate

Payments ( 8.3 )

Included in loss (1)

Balance as of June 30, 2020 $ 7.8

(1) The reduction in expense is included in “General and administrative” within our unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

The following table sets forth the assets measured at fair value on a non-recurring basis during the six months ended June 30, 2020:

(in millions) Valuation Date Valuation Technique Level 1 Level 2 Level 3 Total Balance Total Reduction in Fair Value

Goodwill 3/31/2020 Discounted cash flow and market approach $ — $ — $ 160.5 $ 160.5 $ ( 113.0 )

Gaming licenses 3/31/2020 Discounted cash flow $ — $ — $ 568.0 $ 568.0 $ ( 437.0 )

Trademarks 3/31/2020 Discounted cash flow $ — $ — $ 216.5 $ 216.5 $ ( 61.5 )

The following table summarizes the significant unobservable inputs used in calculating fair value for our Level 3 liabilities on a recurring basis as of June 30, 2020:

Valuation Technique Unobservable Input Discount Rate

Contingent purchase price - Plainridge Park Casino Discounted cash flow Discount rate 8.09 %

As discussed in Note 7, “Goodwill and Other Intangible Assets,” we recorded impairments on our gaming licenses and trademarks, which are indefinite-lived intangible assets, as a result of the first quarter of 2020 interim assessment for impairment.

The following table presents quantitative information about the significant unobservable inputs used in the fair value measurements of other indefinite-lived intangible assets as of the valuation date below:

(in millions)

Valuation Technique

Unobservable Input

Range or Amount

(in millions) Fair Value Valuation Technique Unobservable Input Range or Amount

As of March 31, 2020

Gaming licenses

Discounted cash flow

Discount rate

13.25% - 14.0%

Gaming licenses $ 568.0 Discounted cash flow Discount rate 13.25 % - 14.0 %

Long-term revenue growth rate 2.0 %

Discounted cash flow

Discount rate

13.25% - 14.0%

Trademarks $ 216.5 Discounted cash flow Discount rate 13.25 % - 14.0 %

Long-term revenue growth rate 2.0 %

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The following table highlights our revenues and Adjusted EBITDAR for each reportable segment and reconciles Adjusted EBITDAR on a consolidated basis to net income (loss).

For the three months ended March 31,

For the three months ended June 30, For the six months ended June 30,

(in millions) 2020 2019 2020 2019

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South segment 121.5 282.2 344.8 574.1

West segment 17.7 164.2 144.3 322.9

Midwest segment 36.0 268.2 264.1 539.5

27.6 9.4 47.9 19.5

Intersegment eliminations (2)

— — ( 2.9 ) —

Total $ 305.5 $ 1,323.1 $ 1,421.6 $ 2,605.7

Adjusted EBITDAR (3) :

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South segment 44.4 92.8 97.0 190.6

West segment ( 3.0 ) 50.5 21.6 100.4

Midwest segment ( 4.6 ) 97.8 64.9 197.0

( 8.7 ) ( 20.8 ) ( 27.6 ) ( 41.1 )

24.5 406.5 276.8 797.9

Other operating benefits (costs) and other income (expenses):

Rent expense associated with triple net operating leases (4)

( 103.8 ) ( 90.0 ) ( 201.3 ) ( 174.7 )

Stock-based compensation ( 2.9 ) ( 3.3 ) ( 8.9 ) ( 6.7 )

Cash-settled stock-based awards variance ( 16.1 ) 3.4 ( 7.2 ) 3.0

Loss on disposal of assets

Gain (loss) on disposal of assets 28.5 ( 0.4 ) 27.9 ( 0.9 )

Contingent purchase price ( 0.8 ) ( 1.0 ) 1.4 ( 5.8 )

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Insurance recoveries, net of deductible charges — — 0.1 —

Non-operating items of joint venture (5)

Non-operating items of equity method investments (5)

( 1.1 ) ( 0.9 ) ( 2.0 ) ( 1.9 )

Interest expense, net ( 135.0 ) ( 134.7 ) ( 264.8 ) ( 267.0 )

Other 29.3 — 7.5 —

Income (loss) before income taxes ( 272.8 ) 69.9 ( 980.9 ) 125.7

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payroll, professional fees, travel expenses and other general and administrative expenses that do not directly relate to or have not otherwise been allocated to a property.

addition, the Other category includes our proportionate share of the Adjusted EBITDAR of Barstool Sports (as determined and discussed in footnotes (3) and (5) below).

(2) Represents the elimination of intersegment revenues associated with Penn Interactive and HPT.

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and other income or expenses.

Adjusted EBITDAR is also inclusive of income or loss from unconsolidated affiliates, with our share of non-operating items (such as depreciation and amortization) added back for our Kansas Entertainment JV and is inclusive of rent expense associated with triple net operating leases (which is a normal, recurring cash operating expense necessary to operate our business).

The Company’s triple net operating leases include certain components of the Master Leases (primarily land), the Meadows Lease, the Margaritaville Lease, and the Greektown Lease.

Consists principally of depreciation and amortization associated with the operations of Hollywood Casino at Kansas Speedway.

For the three months ended March 31,

Adjusted EBITDAR is also inclusive of income or loss from unconsolidated affiliates, with our share of non-operating items (see footnote (5) below) added back for Barstool Sports and our Kansas Entertainment JV.

(4) The Company’s triple net operating leases include certain components of the Master Leases (primarily land), the Meadows Lease, the Margaritaville Lease, the Greektown Lease, and the Tropicana Lease.

(5) Consists principally of interest expense, net;

income taxes;

depreciation and amortization;

and stock-based compensation expense associated with Barstool Sports and our Kansas Entertainment JV.

For the three months ended June 30, For the six months ended June 30,

(in millions) 2020 2019 2020 2019

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South segment 3.8 7.7 7.8 16.6

West segment 1.6 7.1 4.1 14.1

Midwest segment 1.3 9.3 4.9 16.4

Other 2.5 1.5 4.9 3.5

Total capital expenditures $ 30.9 $ 57.4 $ 73.7 $ 95.0

(in millions)

As of March 31, 2020

(in millions) Northeast South West Midwest Other (1)

As of June 30, 2020

Investment in and advances to unconsolidated affiliates (2)

$ 0.1 $ — $ — $ 87.3 $ 176.6 $ 264.0

Total assets $ 1,928.5 $ 1,142.5 $ 382.7 $ 1,171.8 $ 9,696.0 $ 14,321.5

As of December 31, 2019

Investment in and advances to unconsolidated affiliates $ 0.1 $ — $ — $ 90.9 $ 37.3 $ 128.3

Total assets $ 2,273.7 $ 1,397.0 $ 752.1 $ 1,412.2 $ 8,359.5 $ 14,194.5

(1) The real estate assets subject to the Master Leases, which are classified as either property and equipment, operating lease ROU assets, or finance lease ROU assets, are included within the Other category.

(2) Our investment in Barstool Sports is included within the Other category.

Note 18— Subsequent Events

Amendment to Credit Agreement

On April 14, 2020, the Company entered into a second amendment to its Amended Credit Agreement with its various lenders ( the “Amendment Agreement”) to provide for certain modifications.

(ii) $ 350.0 million during the period from May 1, 2020 through May 31, 2020;

(iii) $ 300.0 million during the period from June 1, 2020 through June 30, 2020;

and (iv) $ 225.0 million during the period from July 1, 2020 through March 31, 2021.

The Amendment Agreement also amends the financial covenants that are applicable after the Covenant Relief Period to permit the Company to (i) maintain a maximum consolidated total net leverage ratio of up to a ratio that varies by quarter, ranging between 5.50 :1.00 and 4.50 :1.00 in 2021 and 4.25 :1.00 thereafter, tested quarterly on a pro forma trailing twelve month (“PF TTM”) basis;

(ii) maintain a maximum senior secured net leverage ratio of up to a ratio that varies by quarter, ranging

between 4.50 :1.00 and 3.50 :1.00 in 2021 and 3.00 :1.00 thereafter, tested quarterly on a PF TTM basis;

and (iii) maintain an interest coverage ratio of 2.50 :1.00, tested quarterly on a PF TTM basis.

In addition, the Amendment Agreement (i) provides that, during the Covenant Relief Period, loans under the Revolving Credit Facility and the Term Loan A Facility shall bear interest at either a base rate or an adjusted LIBOR rate, in each case, plus an applicable margin, in the case of base rate loans, of 2.00 % , and in the case of adjusted LIBOR rate loans, of 3.00 % ;

(iii) provides for a 0.75 % LIBOR floor applicable to all LIBOR loans under the Senior Secured Credit Facilities;

(iv) carves out COVID-19 related effects from certain terms of the Senior Secured Credit Facilities during the Covenant Relief Period;

and (v) makes certain other changes to the covenants and other provisions of the Amended Credit Agreement.

Tropicana Sale-Leaseback with GLPI

On April 16, 2020, we entered into and closed on a purchase agreement with GLPI pursuant to which GLPI acquired the real estate assets associated with our Tropicana property in exchange for rent credits of $ 307.5 million that we began utilizing to pay rent under our existing Master Leases in May 2020.

Furthermore, contemporaneous with the sale, the Company entered into a lease with a subsidiary of GLPI for the real estate assets used in the operations of Tropicana for nominal rent and will continue to operate the Tropicana for two years (subject to three one -year extensions at GLPI’s option) or until the real estate assets and the operations of the Tropicana are earlier sold.

GLPI will conduct a sale process with respect to both the real estate assets and the operations of Tropicana for up to 24 months (the “Sale Period”), with the Company receiving (i) 75 % of the proceeds above $ 307.5 million plus certain taxes, expenses and costs if an agreement for such sale is signed in the first 12 months of the Sale Period or (ii) 50 % of the proceeds above $ 307.5 million plus certain taxes, expenses and costs if an agreement for such sale is signed in the remainder of the Sale Period.

The Term Sheet discussed in Note 1, “Organization and Basis of Presentation” provides that the Company and GLPI will enter into an option agreement whereby GLPI will grant the Company the exclusive right until December 31, 2020 to purchase the operations of Hollywood Casino Perryville for $ 31.1 million , with the closing of such purchase to occur on a date selected by the Company during 2021.

If the transaction is completed, we would lease the real estate assets associated with Hollywood Casino Perryville with initial rent of $ 7.8 million per year subject to escalation.

The option agreement will be executed at a later date.

Additionally, pursuant to the Term Sheet, we agreed that we would exercise the next scheduled five-year renewal under the Penn Master Lease as well as the Pinnacle Master Lease, and GLPI agreed they would grant us the option to exercise an additional five-year renewal term at the end of the lease term on the Penn Master Lease and the Pinnacle Master Lease, subject to certain conditions.

If each of these renewal options were exercised, the term of the Penn Master Lease would extend to November 30, 2033 and the term of the Pinnacle Master Lease would extend to April 30, 2031;

and if all renewals options contained within the Penn Master Lease and the Pinnacle Master Lease were exercised, inclusive of the these renewal options, the term of the Penn Master Lease would extend to November 30, 2053 and the term of the Pinnacle Master Lease would extend to April 30, 2056.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements