What changed in this filing

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Item 1A. Risk Factors

2020-08-06 compared with 2020-05-08 · 36 added, 118 removed, 50 unchanged (75% of the section changed)

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, Item 1A.

“Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019 , which could materially affect our business, financial condition, and future results.

The risks described in our Annual Report on Form 10-K are not the only risks that we face.

In addition to the other information set forth in this Form 10-Q, you should carefully consider the factors discussed in Part I, Item 1A.

“Risk Factors” in our Form 10-K for the year ended December 31, 2019, and our Form 10-Q for the quarterly period ended March 31, 2020, which could materially affect our business, financial condition, and future results.

The risks described in our Form 10-K for the year ended December 31, 2019 and our Form 10-Q for the quarterly period ended March 31, 2020 are not the only risks that we face.

Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our financial condition, operating results and cash flows.

The following are new or modified risk factors that should be read in conjunction with the risk factors disclosed under Part I, Item 1A.

“Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 .

“Risk Factors” in the Company’s Form 10-K for the year ended December 31, 2019 and Part II, Item 1A.

“Risk Factors” in the Company’s Form 10-Q for the quarterly period ended March 31, 2020.

The COVID-19 pandemic has significantly impacted the global economy, including the gaming industry, and has had a material adverse effect on our business, financial condition, results of operations and cash flows, and may continue to do so.

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Many jurisdictions where our properties are located required mandatory closures or imposed capacity limitations and other restrictions affecting our operations.

Currently, all of our gaming properties are temporarily closed and will remain closed until it is safe and we are allowed to reopen, and we are accordingly unable to generate revenues from such properties.

Revenues from such properties represent a great majority of our cash flows and revenue generation.

The COVID-19 pandemic and these resulting developments have caused significant disruptions to our ability to generate profitability and cash flows and have had a material adverse impact on our financial condition, results of operations and cash flows as of and for the three months ended March 31, 2020 and which we expect to more significantly impact our results of operations and cash flows for the three months ended June 30, 2020.

The COVID-19 pandemic and these resulting developments have caused significant disruptions to our ability to generate revenues, profitability and cash flows and have had a material adverse impact on our financial condition, results of operations and cash flows as of and for the three and six months ended June 30, 2020 and which we expect to impact our results of operations and cash flows for the three months ended September 30, 2020.

Such impact could worsen and last for an unknown period of time.

In addition, these disruptions to us and the gaming industry in general as well as significant negative economic trends due to the COVID-19 pandemic have adversely affected and could continue to adversely affect our stock price.

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.

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.

Such steps, and further changes we make in the future to reduce costs, may negatively impact our growth prospects, guest loyalty or our ability to attract and retain employees, and our business and reputation may suffer as a result.

While we have engaged in cost reduction efforts in connection with the closures, we still have significant fixed and variable expenses.

We cannot predict how soon we will be able to reopen our gaming properties or the period of time required for the ramp-up of operations upon reopening, as our ability to reopen will depend in part on the actions of a number of governmental bodies, including gaming regulatory authorities, over which we have no control.

Because we operate in several different jurisdictions, we may be able to reopen some, but not all, of our gaming properties within a certain time frame.

In order to reopen, gaming regulators may impose restrictions on our operations, including capacity limitations, cleaning requirements, restrictions on the

number of seats per table game, slot machine spacing, temperature checks, mask protection and social distancing requirements that may impact our future operations and ability to generate the same level of revenues and cash flows as before the COVID-19 pandemic.

The reopening of our gaming properties, when we are able to do so, may be affected by our ability to retain our workforce during the furlough as well as management-level corporate employees due to reductions in compensation or other factors.

For example, if our furloughed employees do not return to work with us when the COVID-19 pandemic subsides, including because they find new employment during the furlough, we may experience operational challenges that may impact our ability to resume operations in full.

Moreover, once restrictions are lifted, it is unclear how quickly customers will return to our gaming properties, which may be a function of continued concerns over health and safety, ongoing social distancing measures, or changes in consumer spending behavior due to adverse economic conditions, including job losses.

Though virtually all of our properties have reopened, we cannot predict the period of time required for the ramp-up of operations.

We also may be required again to temporarily suspend operations at our properties if ordered by such governmental bodies.

Our reopened properties face restrictions on our operations, including capacity limitations, cleaning requirements, restrictions on the number of seats per table game, slot machine spacing, temperature checks, mask protection and social distancing requirements which impact our future operations and ability to generate the same level of revenues and cash flows as before the COVID-19 pandemic.

The continued operation of our reopened properties, may be affected by our ability to retain our workforce still on furlough as well as management-level corporate employees due to reductions in compensation or other factors.

For example, if our employees that remain on furlough do not return to work with us when the COVID-19 pandemic further subsides, including because they find new employment during the furlough, we may experience operational challenges that may impact our ability to resume operations in full.

Moreover, once restrictions are lifted, it is unclear how quickly customers will return to our properties in numbers comparable to before the COVID-19 pandemic, which may be a function of continued concerns over health and safety, ongoing social distancing measures, or changes in consumer spending behavior due to adverse economic conditions, including job losses.

Our properties have large customer-facing footprints and high levels of customer traffic where customers can gather together for personal interaction.

As such, some customers may choose for a period of time not to travel or visit our properties for health concerns or due to overall changes in consumer behavior resulting from social distancing.

When we are able to re-open, we expect to see weakened demand at our properties in light of increased level of unemployment, continued travel restrictions or warnings, consumer fears and reduced consumer discretionary spending and general economic uncertainty.

Our vendors and other suppliers could also experience potential adverse effects of the pandemic that could impact our ability to reopen and operate to the same level as prior to the closures.

If COVID-19 continues to spread, we may elect to voluntarily close (after their reopening) certain of our properties or portions thereof, or governmental agencies or officials may order additional closures or impose further restrictions on the number of people allowed in our properties or in proximity to each other.

Upon reopening our properties, we saw weakened visitation, which may have been due to increased level of unemployment, continued travel restrictions or warnings, consumer fears, reduced consumer discretionary spending or general economic uncertainty.

Our vendors and other suppliers could also experience potential adverse effects of the pandemic that could impact our ability to operate to the same level as prior to the closures.

If COVID-19 continues to spread, governmental agencies or officials may order additional closures or impose further restrictions on the number of people allowed in our properties or in proximity to each other.

Any of these events could result in significant further disruption to our operations and a drop in demand for our properties and could have a material adverse effect on us.

We could experience other potential adverse impacts as a result of the COVID-19 pandemic, including, but not limited to, further charges from adjustments to the carrying amount of goodwill and other intangible assets, long-lived asset impairment charges, or impairments of investments in joint ventures.

The ultimate impact of the COVID-19 pandemic on our business, results of operations, financial condition and cash flows will depend on numerous evolving factors that we may not be able to accurately predict or assess, including the duration and scope of the pandemic (and whether there is a, or multiple, resurgences in the future);

the duration and impact on overall customer demand;

the timing of the reopening of our gaming properties, our ability to maintain sufficient liquidity until our gaming properties can reopen and again generate revenue and profits capable of supporting our ongoing operations, new information which may emerge concerning the severity of COVID-19;

the possibility that governmental bodies may again order temporary suspension of operation at our properties;

our ability to again generate revenue and profits capable of supporting our ongoing operations;

new information which may emerge concerning the severity of COVID-19;

the negative impact it has on global and regional economies and economic activity;

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and how quickly economies, travel activity, and demand for gaming, entertainment and leisure activities recovers after the pandemic subsides.

The impact of the COVID-19 pandemic may also have the effect of exacerbating many of the other risks described in our Annual Report on Form 10-K for the year ended December 31, 2019.

The impact of the COVID-19 pandemic may also have the effect of exacerbating many of the other risks described in our Form 10-K for the year ended December 31, 2019 and our Form 10-Q for the quarterly period ended March 31, 2020.

As a result of the foregoing, we cannot predict the ultimate scope, duration and impact the COVID-19 pandemic will have on our results of operations, but we expect that it will continue to have a material impact on our business, financial condition, liquidity, results of operations (including revenues and profitability) and stock price.

Following our borrowing of the remaining available amount under our Revolving Credit Facility, we may not have access to sufficient cash flows to fund our continued operations, which could adversely affect our business, financial condition, results of operations and cash flows.

While our gaming properties remain closed due to the ongoing COVID-19 pandemic, our ability to generate revenue and cash flows for our operations has been significantly disrupted, as the operation of such properties constitutes our most significant source of revenue generation.

Accordingly, on March 13, 2020, in order to maintain maximum financial flexibility, the Company borrowed the remaining available amount of $430.0 million under its Revolving Credit Facility.

As a result, our indebtedness has increased substantially since December 31, 2019.

We also entered into agreements with GLPI to sell certain real estate assets and land in exchange for rent credits totaling $337.5 million.

Such borrowings under the Revolving Credit Facility and rent credits are proactive measures in order to increase our cash position and preserve financial flexibility in light of current uncertainty in the global markets resulting from COVID-19.

Due to the uncertainty of the impacts of the COVID-19 pandemic, including the timing for the reopening of our gaming properties, there can be no assurance that such amounts will be sufficient, and we may require access to additional capital to fund operations, including satisfaction of our rent obligations.

We cannot guarantee that we will be able to obtain additional capital on commercially reasonable terms and when needed to continue to fund our operations.

Our access to and cost of financing will depend on, among other things, economic conditions, conditions in the credit or capital markets, the availability of sufficient amounts of financing, our prospects and credit ratings.

we are unable to access additional capital at the levels we require, or the cost of such capital is greater than expected, it would adversely affect our business, financial condition, results of operations and cash flows.

We may need to improve cash flow through a sale of assets to avoid a future liquidity shortfall, which sales could expose our business and operations to substantial additional risks.

The COVID-19 pandemic has caused significant disruptions to our ability to generate profitability and cash flows.

Depending on how long our gaming properties remain closed due to the COVID-19 pandemic, we may require additional cash flows to avoid a liquidity shortfall.

Absent operational improvements, we may explore the sale of certain assets in order to generate additional funds for operations.

We may be unable to sell such assets or properties on desirable terms and, in particular, while adverse economic conditions persist.

In addition, the disposition of assets, including our sale of certain real estate assets and proposed sale of land to GLPI, involves significant risks and uncertainties.

Such risks may relate to employment matters, counterparties, regulators and other stakeholders in the disposed business, risks relating to separating the disposed assets from the Company’s business, risks unknown to the Company at the time, and other financial, legal and operational risks related to such disposition.

In addition, the Company may be subject to material trailing liabilities from disposed assets.

Any such risk may result in one or more costly disputes or litigation.

There can also be no assurances that we will realize the anticipated benefits from any such dispositions.

The failure to realize the anticipated returns or benefits from a disposition could adversely affect our results of operations, financial condition, and cash flows.

The extent to which we can recover under our insurance policies for business interruption resulting from the COVID-19 pandemic could adversely affect our business.

We maintain significant property insurance, including business interruption coverage, for our properties.

However, there can be no assurance regarding the extent or the timing of our receipt of any insurance recovery for losses at our properties arising from the closing of our gaming properties due to the COVID-19 pandemic.

In addition, such insurance coverage is in an amount that may be significantly less than the expected and actual losses resulting from such closings.

If we are unable to recover any losses arising from business interruption caused by COVID-19, our financial condition, results of operations and cash flows may be adversely affected.

A prolonged closure of our gaming properties due to the COVID-19 pandemic would negatively impact our ability to remain in compliance with our financial covenants, which would raise substantial doubt about our ability to continue as a going concern.

Our properties generate a great majority of our income and operating cash flows that we rely upon to remain in compliance with financial covenants contained within our Amended Credit Agreement and the indenture governing our 5.625% Notes and meet our obligations when due.

As noted above, due to the COVID-19 pandemic, our gaming properties have been temporarily closed and there is uncertainty as to when they will reopen.

The closure of our gaming properties has significantly disrupted our ability to generate revenues.

In order to remain in compliance with our debt covenants and meet our payment obligations, on April 14, 2020, we entered into an agreement to amend our Amended Credit Agreement to provide temporary relief from our financial covenants.

As part of the Amendment Agreement, we do not have to maintain compliance 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.

However, we have no control over and cannot predict the length of the closure of our gaming properties due to the COVID-19 pandemic.

If we continue to be unable to generate revenues from our properties due to a prolonged period of closure or experience significant declines in business upon reopening, this would negatively impact our ability to remain in compliance with our financial covenants and meet our payment obligations even after the amendment.

If we are unable to meet our financial covenants or in the event some other event of default arises, our lenders could instruct the administrative agent under the Senior Secured Credit Facilities to exercise certain remedies, including declaring the principal of and accrued interest on all outstanding indebtedness due and payable, terminating all remaining commitments and obligations under the Revolving Credit Facility and requiring the posting of cash collateral in respect of 103% of the outstanding letters of credit under the Revolving Credit Facility.

Although the lenders under the Senior Secured Credit Facilities could waive the defaults or forebear the exercise of remedies, they would not be obligated to do so.

Failure to obtain such a waiver in the future would have a material adverse effect on our liquidity, financial condition and results of operations and may result in the Company filing a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in order to implement a restructuring plan.

In the event we are unable to pay our landlords, vendors, suppliers, and other business partners due to a lack of cash flows and liquidity, we may become subject to disputes with such parties, which could subject us to significant liabilities and have a material adverse effect on our business, financial condition, results of operations and cash flows.

Although we have taken precautionary measures to maximize liquidity and to increase available cash on hand, given the uncertainty resulting from the COVID-19 pandemic, such measures may be insufficient to allow us to continue paying our landlords, vendors, suppliers, and other business partners when and as due.

As an additional precautionary measure given the significant uncertainty affecting our business, we have begun discussions with such parties to reduce our lease and contract payments and to obtain other concessions from them.

There can be no assurance however that we will be successful in obtaining any or all of the reductions and concessions we are seeking.

If we are unable to obtain such reductions and concessions, our inability to pay such parties could result in a breach of obligations we owe to these parties pursuant to contracts or otherwise.

The breach of our obligations could cause our landlords, vendors, suppliers, and other business partners to suspend or cease providing material services to us, which could impact our ability to operate and reopen our gaming properties.

In addition, we could become subject to disputes and litigation with such parties as a result of our inability to meet our contractual obligations, which disputes and litigation could expose us to significant liabilities and have a material adverse effect on our business, financial condition, results of operations and cash flows.

We may be unable to qualify for or be unsuccessful in obtaining governmental relief and other benefits that have been or will be made available in response to the COVID-19 pandemic, which could adversely affect our business, financial condition, results of operations and cash flows.

In recognition of the significant threat to the liquidity of financial markets posed by the COVID-19 pandemic, the Federal Reserve and U.S.

Congress have taken dramatic actions to provide liquidity to businesses and the banking system in the United States.

For example, on March 27, 2020, the President of the United States signed into law the CARES Act, a sweeping stimulus bill intended to bolster the U.S.

economy, among other things, and provide emergency assistance to qualifying businesses and individuals.

There can be no assurance that these interventions by the government will be successful, and the financial markets may experience significant contractions in available liquidity.

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.

In addition, although we intend to continue to review and consider any available benefits under the CARES Act or similar legislation that may be enacted in response to the COVID-19 pandemic for which we qualify, we cannot predict the manner in which such benefits will be allocated or administered and we cannot assure you that we will be able to receive such benefits in a timely manner or at all.

While the Company may receive tax or other relief and benefits under and as a result of the CARES Act or other governmental programs, the availability, extent or impact of any such benefits or relief is highly uncertain.

Description of Exhibit

Stock Purchase Agreement by and among Penn National Gaming, Inc., Barstool Sports, Inc., TCG XII, LLC, TCG Digital Spots, LLC and the Individuals Set Forth on Schedule A, dated as of January 28, 2020 is hereby incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on January 29, 2020.

(SEC File No.

Binding Term Sheet, dated as of March 27, 2020, by and among Penn National Gaming, Inc.

and Gaming and Leisure Properties, Inc.

is hereby incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on March 30, 2020.

(SEC File No.

Number Description of Exhibit

2.1†† Purchase Agreement, dated as of April 16, 2020, by and among Tropicana Las Vegas, Inc., Penn National Gaming, Inc., GLP Capital, L.P., Gold Merger Sub, LLC, PA Meadows, LLC, Tropicana LV LLC and, solely for the purposes set forth therein, Gaming and Leisure Properties, Inc.

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(SEC File No.

Amended and Restated Articles of Incorporation of Penn National Gaming, Inc., filed with the Pennsylvania Department of State on October 15, 1996, as amended by the Articles of Amendments to the Amended and Restated Articles of Incorporation filed with the Pennsylvania Department of State on November 13, 1996, July 23, 2001 and December 28, 2007, the Statement with Respect to Shares of Series C Convertible Preferred Stock of Penn National Gaming, Inc., dated as of January 17, 2013, and the Statement with Respect to Shares of Series D Convertible Preferred Stock of Penn National Gaming, Inc., dated as of February 19, 2020.

First Amendment to Executive Agreement, dated March 27, 2020, between Penn National Gaming, Inc.

Snowden is hereby incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 30, 2020.

4.1 Indenture, dated May 14, 2020, between the Company and Wells Fargo Bank, National Association, as trustee is hereby incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on May 14, 2020.

(SEC File No.

Executive Agreement, dated January 22, 2020, between Penn National Gaming, Inc.

and David Williams is hereby incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 24, 2020.

4.2 First Supplemental Indenture, dated May 14, 2020, between the Company and Wells Fargo Bank, National Association, as trustee is hereby incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on May 14, 2020.

(SEC File No.

First Amendment to Executive Agreement, dated March 27, 2020, between Penn National Gaming, Inc.

and David Williams is hereby incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on March 30, 2020.

First Amendment to Executive Agreement, dated March 27, 2020, between Penn National Gaming, Inc.

and Carl Sottosanti is hereby incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on March 30, 2020.

Separation and Transition Agreement and General Release, dated February 27, 2020, between Penn National Gaming, Inc.

and Timothy J.

Wilmott is hereby incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 28, 2020.

First Amendment to Executive Agreement, dated January 23, 2020, between Penn National Gaming, Inc.

and William J.

Fair is hereby incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on January 24, 2020.

4.3 Form of Note representing the 2.75% Convertible Senior Notes due 2026 (included in Exhibit 4.2) is hereby incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on May 14, 2020.

(SEC File No.

Separation Agreement and General Release, dated April 10, 2020 between William J.

Fair and Penn National Gaming, Inc.

10.1† Second Amendment, dated as of April 14, 2020, by and among Penn National Gaming, Inc., the guarantors party thereto, the lenders party thereto and Bank of America, N.A., as letter of credit lender, swingline lender, administrative agent and collateral agent is hereby incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 20, 2020.

Sixth Amendment to the Penn National Gaming, Inc.

Deferred Compensation Plan.

Description of Exhibit

Form of Notice of Performance Award Terms and Criteria under the Performance Share Programs, pursuant to the Penn National Gaming, Inc.

2018 Long Term Incentive Compensation Plan.

31.1* CEO Certification pursuant to rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934.

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Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.

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104 Cover Page Inline XBRL File (included in Exhibit 101)

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PENN NATIONAL GAMING, INC.

August 6, 2020 By:

/s/ Christine LaBombard

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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 1A. Risk Factors