What changed in this filing

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Item 1. Financial Statements

2021-05-06 compared with 2020-11-04 · 298 added, 482 removed, 646 unchanged (55% of the section changed)

2 unchanged sentences

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

CONSOLIDATED BALANCE SHEETS

(in millions, except share and per share data) March 31,

2021 December 31,

1 unchanged sentence

Cash and cash equivalents $ 2,062.2 $ 1,853.8

Receivables, net of allowance for doubtful accounts of $ 10.1 and $ 7.7

Receivables, net 137.5 96.4

Prepaid expenses 112.2 103.5

Income tax receivable 64.0 22.1

Other current assets 35.8 31.3

2 unchanged sentences

Investment in and advances to unconsolidated affiliates 275.8 266.8

Goodwill and other intangible assets, net 2,672.8 3,297.2

Goodwill 1,157.1 1,157.1

Other intangible assets, net 1,511.9 1,513.5

Lease right-of-use assets 4,785.9 4,817.7

18 unchanged sentences

Series C Preferred stock ($ 0.01 par value, 18,500 shares authorized, no shares issued and outstanding)

Series D Preferred stock ($ 0.01 par value, 5,000 shares authorized, 883 shares issued and outstanding)

Series D Preferred stock ($ 0.01 par value, 5,000 shares authorized, 926 and 883 shares issued, and 775 and 883 shares outstanding)

Common stock ($ 0.01 par value, 200,000,000 shares authorized, 158,497,534 and 157,868,227 shares issued, and 156,330,141 and 155,700,834 shares outstanding)

7 unchanged sentences

Total liabilities and stockholders’ equity $ 14,888.2 $ 14,667.3

See accompanying notes to the Condensed Consolidated Financial Statements.

See accompanying notes to the Consolidated Financial Statements.

PENN NATIONAL GAMING, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME (LOSS)

For the three months ended September 30, For the nine months ended September 30,

For the three months ended March 31,

(in millions, except per share data) 2021 2020

28 unchanged sentences

Weighted-average common shares outstanding—diluted 172.8 115.7

See accompanying notes to the Condensed Consolidated Financial Statements.

See accompanying notes to the Consolidated Financial Statements.

PENN NATIONAL GAMING, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Three Months Ended September 30, 2020 and 2019

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Three Months Ended March 31, 2021 and 2020

Preferred Stock Common Stock Treasury

5 unchanged sentences

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

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

Share-based compensation arrangements — — 1,718,828 — — 28.3 — 28.3 — 28.3

Common stock offering (Note 15) — — 16,100,000 0.2 — 957.4 — 957.6 — 957.6

Net income (loss) — — — — — — 141.9 141.9 ( 0.7 ) 141.2

Other — — — — — ( 0.3 ) — ( 0.3 ) — ( 0.3 )

Balance as of September 30, 2020 883 $ 23.1 155,253,918 $ 1.6 $ ( 28.4 ) $ 3,155.8 $ ( 518.4 ) $ 2,633.7 $ ( 2.0 ) $ 2,631.7

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

Balance as of January 1, 2021 883 $ 23.1 155,700,834 $ 1.6 $ ( 28.4 ) $ 3,167.2 $ ( 507.3 ) $ 2,656.2 $ ( 0.4 ) $ 2,655.8

Share-based compensation arrangements — — 478,107 — — 4.0 — 4.0 — 4.0

Share issuance (Note 13) 43 5.1 — — — — — 5.1 — 5.1

Conversion of Preferred Stock (Note 13) ( 151 ) ( 4.0 ) 151,200 — — 4.0 — — — —

Net income (loss) — — — — — — 91.0 91.0 ( 0.1 ) 90.9

Balance as of September 30, 2019 — $ — 115,877,265 $ 1.2 $ ( 28.4 ) $ 1,712.9 $ 254.1 $ 1,939.8 $ ( 0.4 ) $ 1,939.4

Nine Months Ended September 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 March 31, 2021 775 $ 24.2 156,330,141 $ 1.6 $ ( 28.4 ) $ 3,175.2 $ ( 416.3 ) $ 2,756.3 $ ( 0.5 ) $ 2,755.8

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 — — 835,463 — — 10.6 — 10.6 — 10.6

Common stock offering (Note 15) — — 35,266,667 0.4 — 1,288.4 — 1,288.8 — 1,288.8

Convertible debt offering (Note 10) — — — — — 88.2 — 88.2 — 88.2

Barstool Sports Investment (Note 10) 883 23.1 — — — — — 23.1 — 23.1

1 unchanged sentence

Net Loss — — — — — — ( 608.6 ) ( 608.6 ) — ( 608.6 )

Other — — — — — ( 0.1 ) — ( 0.1 ) — ( 0.1 )

Balance as of September 30, 2020 883 $ 23.1 155,253,918 $ 1.6 $ ( 28.4 ) $ 3,155.8 $ ( 518.4 ) $ 2,633.7 $ ( 2.0 ) $ 2,631.7

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

Share-based compensation arrangements — — 461,280 — — 11.4 — 11.4 — 11.4

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

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

Net income (loss) — — — — — — 136.4 136.4 ( 0.4 ) 136.0

Balance as of September 30, 2019 — $ — 115,877,265 $ 1.2 $ ( 28.4 ) $ 1,712.9 $ 254.1 $ 1,939.8 $ ( 0.4 ) $ 1,939.4

See accompanying notes to the Condensed Consolidated Financial Statements.

Balance as of March 31, 2020 883 $ 23.1 116,793,722 $ 1.2 $ ( 28.4 ) $ 1,728.9 $ ( 446.4 ) $ 1,278.4 $ ( 0.8 ) $ 1,277.6

See accompanying notes to the Consolidated Financial Statements.

PENN NATIONAL GAMING, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the nine months ended September 30,

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the three months ended March 31,

(in millions) 2021 2020

1 unchanged sentence

Net income (loss) $ 90.9 $ ( 608.6 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Depreciation and amortization 81.3 95.7

2 unchanged sentences

Change in fair value of contingent purchase price ( 0.1 ) ( 2.2 )

Holding gain on equity securities ( 75.6 ) ( 7.1 )

Holding (gain) loss on equity securities ( 26.2 ) 21.8

Change in fair value in puts/calls associated with our Barstool Sports investment 4.6 —

Loss (gain) on sale or disposal of property and equipment ( 0.1 ) 0.6

Noncash rent and interest expense related to the utilization of rent credits 232.3 —

Income from unconsolidated affiliates ( 9.6 ) ( 4.1 )

12 unchanged sentences

Other current and long-term liabilities 2.5 ( 29.9 )

Net cash provided by operating activities 220.8 519.2

Net cash provided by (used in) operating activities 180.5 ( 33.2 )

Investing activities

2 unchanged sentences

Consideration paid for acquisitions of businesses, net of cash acquired — ( 3.0 )

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

Acquisition of equity securities — ( 5.1 )

Additional contributions to joint ventures ( 3.9 ) —

Other ( 1.6 ) ( 2.6 )

Net cash used in investing activities ( 27.3 ) ( 183.4 )

For the nine months ended September 30,

For the three months ended March 31,

(in millions) 2021 2020

2 unchanged sentences

Repayments on revolving credit facility — ( 10.0 )

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

Principal payments on long-term debt ( 16.1 ) ( 11.7 )

Debt and equity issuance costs ( 6.9 ) —

Proceeds from other long-term obligations 72.5 —

Payments of other long-term obligations ( 0.7 ) ( 8.4 )

1 unchanged sentence

Principal payments on finance leases ( 1.7 ) ( 1.6 )

Proceeds from common stock offerings, net of discounts and fees 1,288.8 —

Proceeds from exercise of options 5.7 4.6

Repurchase of common stock — ( 24.9 )

Proceeds from insurance financing 23.1 15.7

1 unchanged sentence

Other ( 4.8 ) —

Net cash provided by (used in) financing activities 1,445.5 ( 33.9 )

Net cash provided by financing activities 60.1 508.8

Change in cash, cash equivalents, and restricted cash 213.3 292.2

8 unchanged sentences

Cash paid for interest, net of amounts capitalized $ 138.8 $ 135.6

Cash payments (refunds) related to income taxes, net $ ( 6.0 ) $ 20.9

Cash refunds related to income taxes, net $ ( 8.8 ) $ ( 1.1 )

Non-cash investing and financing activities:

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

Commencement of operating leases $ 5.7 $ 1.0

Commencement of finance leases $ — $ 4.3

Accrued capital expenditures $ 15.6 $ 7.4

Acquisition of equity securities $ — $ 16.1

See accompanying notes to the Condensed Consolidated Financial Statements.

See accompanying notes to the Consolidated Financial Statements.

PENN NATIONAL GAMING, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1— Organization and Basis of Presentation

Organization:

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.

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 operates an online casino (“iCasino”) and launched an online sports betting app called Barstool Sports in Pennsylvania in September 2020.

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

As of September 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;

the most significant of which are the Penn Master Lease and the Pinnacle Master Lease (as such terms are defined in Note 11, “Leases,” and collectively referred to as the “Master Leases”), with Gaming and Leisure Properties, Inc.

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, online gaming, retail and online sports betting operations, and video gaming terminal (“VGT”) operations.

Our wholly-owned interactive division, Penn Interactive Ventures, LLC (“Penn Interactive”), operates retail sports betting across the Company’s portfolio, as well as online sports betting, online social casino, bingo and online casinos (“iGaming”).

The Company holds a 36 % (inclusive of 1 % on a delayed basis) equity interest in Barstool Sports, Inc.

(“Barstool Sports”), a leading digital sports, entertainment, lifestyle and media company, and entered into a strategic relationship with Barstool Sports, whereby Barstool Sports will exclusively promote the Company's land-based retail sportsbooks, iGaming products and online sports betting products, including the Barstool Sportsbook mobile app, to its national audience.

We launched an online sports betting app called Barstool Sports in Pennsylvania, Michigan and Illinois.

We also operate iGaming in Pennsylvania and Michigan.

Our my choice ® customer loyalty program (the "my choice program") currently has over 20 million members and provides such members with various benefits, including complimentary goods and/or services.

The Company’s strategy continues to evolve from an owner and manager of gaming and racing properties into an omni-channel provider of retail and online gaming and sports betting entertainment.

As of March 31, 2021, 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 Colorado, Illinois, 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, the most significant of which are the Penn Master Lease and the Pinnacle Master Lease (as such terms are defined in Note 9, “Leases,” and collectively referred to as the “Master Leases”), with Gaming and Leisure Properties, Inc.

GLPI) (“GLPI”), a real estate investment trust (“REIT”).

Impact of the COVID-19 Pandemic and Company Response:

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

We began temporary suspension of the operations of all of our properties 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.

As of September 30, 2020 , with the exception of Valley Race Park and Zia Park Casino, all of our properties have reopened.

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

(i) furloughing the vast majority of its 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 and through September 30, 2020 (compensation was fully restored effective October 1, 2020);

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

In addition, during the pendency of property closures, the Company’s Board of Directors elected to forgo their cash compensation effective April 1, 2020 and through September 30, 2020.

Between March 13, 2020 and September 30, 2020, we entered into a series of transactions to improve our financial position and liquidity in light of the COVID-19 pandemic, including:

(i) on March 13, 2020, we provided notice to our lenders to borrow the remaining available amount of $ 430.0 million under our Revolving Credit Facility;

(ii) on March 27, 2020, we entered into a binding term sheet with GLPI (the “Term Sheet”) whereby GLPI agreed to (a) purchase the real estate assets associated with Tropicana Las Vegas (“Tropicana”) in exchange for rent credits of $ 307.5 million, which closed on April 16, 2020, and (b) a sale-leaseback of the land underlying our Hollywood Casino Morgantown (“Morgantown”) development project in Morgantown, Pennsylvania, in exchange for rent credits of $ 30.0 million, which closed on October 1, 2020;

(iii) on May 14, 2020 (May 19, 2020 with respect to the Underwriters’ exercising their options to acquire additional 2.75% Convertible Notes), we completed a public offering of $ 330.5 million aggregate principal amount of 2.75 % Convertible Notes;

(iv) on May 14, 2020 (May 19, 2020 with respect to the Underwriters’ exercising their options to purchase additional shares), we completed 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;

and (v) on September 24, 2020 (September 25, 2020 with respect to the Underwriters’ exercising their options to purchase additional shares), we completed a public offering of 16,100,000 aggregate shares of Penn Common Stock for gross proceeds of $ 982.1 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.

Further, on September 30, 2020, the Company fully repaid $ 670.0 million of outstanding borrowings under its Revolving Credit Facility.

The terms “Revolving Credit Facility,” “Convertible Notes” and “Credit Agreement” are defined in Note 10, “Long-term Debt.”

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 evaluation of the CARES Act, we qualify for certain employer refundable payroll credits, deferral of applicable payroll taxes, net operating loss (“NOL”) carrybacks and immediate expensing for eligible qualified improvement property.

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

The COVID-19 pandemic caused significant disruptions to our business and had 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 the 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 significantly worsens.

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

The Company 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.

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 impact of required capacity reductions, social distancing and health and safety guidelines, and the sustainability of current trends in recovery at our reopened properties.

Update on the Impact of the COVID-19 Pandemic:

As of March 31, 2021, with the exception of Valley Race Park, all of our properties have reopened.

Zia Park, which reopened on March 5, 2021, was subsequently ordered by the New Mexico State Health Department to temporarily close from April 8, 2021 through April 20, 2021.

Basis of Presentation:

The unaudited Condensed Consolidated Financial Statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and with the rules and regulations of the U.S.

The unaudited Consolidated Financial Statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and with the rules and regulations of the U.S.

Securities and Exchange Commission (the “SEC”).

2 unchanged sentences

Results of operations and cash flows for the interim periods presented herein are not necessarily indicative of the results that would be achieved during a full year of operations or in future periods.

These unaudited Condensed Consolidated Financial Statements and notes thereto should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

These unaudited Consolidated Financial Statements and notes thereto should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Note 2— Significant Accounting Policies

Principles of Consolidation:

The unaudited Condensed Consolidated Financial Statements include the accounts of Penn National Gaming, Inc.

The unaudited Consolidated Financial Statements include the accounts of Penn National Gaming, Inc.

and its subsidiaries.

2 unchanged sentences

Use of Estimates:

The preparation of unaudited Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities at the date of the financial statements, and (iii) the reported amounts of revenues and expenses during the reporting period.

The preparation of unaudited Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities at the date of the financial statements, and (iii) the reported amounts of revenues and expenses during the reporting period.

Actual results may differ from those estimates.

12 unchanged sentences

Hollywood Casino Lawrenceburg Lawrenceburg, Indiana Penn Master Lease

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

Hollywood Casino at Penn National Race Course (1)

Grantville, Pennsylvania Penn Master Lease

Hollywood Casino Toledo Toledo, Ohio Penn Master Lease

37 unchanged sentences

Louis, Missouri Pinnacle Master Lease

(1) Our two Category 4 developments, Hollywood Casino York and Hollywood Casino Morgantown, are included with Hollywood Casino at Penn National Race Course.

(2) VGT route operations

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

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

(4) Pursuant to a joint venture (“JV”) with International Speedway Corporation (“International Speedway”) and includes the Company’s 50 % investment in Kansas Entertainment, LLC (“Kansas Entertainment”), which owns Hollywood Casino at Kansas Speedway.

(4) Pursuant to a joint venture (“JV”) with NASCAR and includes the Company’s 50 % investment in Kansas Entertainment, LLC (“Kansas Entertainment”), which owns Hollywood Casino at Kansas Speedway.

Revenue Recognition:

2 unchanged sentences

Complimentaries Associated with Gaming Contracts

Food and beverage, hotel, and other services furnished to patrons for free as an inducement to gamble or through the redemption of our customers’ loyalty points are recorded as food, beverage, hotel and other revenues, at their estimated standalone selling prices with an offset recorded as a reduction to gaming revenues.

Food, beverage, hotel, and other services furnished to patrons for free as an inducement to gamble or through the redemption of our customers’ loyalty points are recorded as food, beverage, hotel and other revenues, at their estimated standalone selling prices with an offset recorded as a reduction to gaming revenues.

The cost of providing complimentary goods and services to patrons as an inducement to gamble as well as for the fulfillment of our loyalty point obligation is included in food, beverage, hotel and other expenses.

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

For the three months ended September 30, For the nine months ended September 30,

For the three months ended March 31,

(in millions) 2021 2020

6 unchanged sentences

(i) the obligation associated with its my choice program (loyalty points and tier status benefits), (ii) advance payments on goods and services yet to be provided and for unpaid wagers, and (iii) deferred revenue associated with third-party sports betting operators for online sports betting and related iGaming market access.

Our my choice program allows members to utilize their reward membership cards to earn loyalty points that are redeemable for slot play and complimentaries, such as food and beverage at our restaurants, lodging at our hotels and products offered at our retail stores across the vast majority of our properties.

Our my choice program allows members to utilize their reward membership card to earn loyalty points that are redeemable for slot play and complimentaries, such as food and beverage at our restaurants, lodging at our hotels and products offered at our retail stores across the vast majority of our properties.

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 $ 35.2 million and $ 36.2 million as of September 30, 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 Consolidated Balance Sheets, was $ 39.0 million and $ 35.8 million as of March 31, 2021 and December 31, 2020, respectively, and consisted principally of the obligation associated with the loyalty points.

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

2 unchanged sentences

The Company’s advance payments on goods and services yet to be provided and for unpaid wagers primarily consist of the following:

(i) deposits on rooms and convention space, (ii) money deposited on behalf of a customer in advance of their property visit (referred to as “safekeeping” or “front money”), (iii) outstanding tickets generated by slot machine play or pari-mutuel wagering, (iv) outstanding chip liabilities, (v) unclaimed jackpots, and (vi) gift cards redeemable at our properties.

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 $ 42.1 million and $ 42.2 million as of September 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.

(i) deposits on rooms and convention space, (ii) money deposited on behalf of a customer in advance of their property visit (referred to as “safekeeping” or “front money”), (iii) money deposited in an online wallet not yet wagered or wagered and not yet withdrawn, (iv) outstanding tickets generated by slot machine play or pari-mutuel wagering, (v) outstanding chip liabilities, (vi) unclaimed jackpots, and (vii) gift cards redeemable at our properties.

Unpaid wagers primarily relate to the Company’s obligation to settle outstanding slot tickets, pari-mutuel racing tickets, gaming chips with customers and future withdrawals from online wallets.

Unpaid wagers 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 $ 63.6 million and $ 47.1 million as of March 31, 2021 and December 31, 2020, respectively, of which $ 0.5 million was classified as long-term as of both March 31, 2021 and December 31, 2020.

Penn Interactive enters into multi-year agreements with sports betting operators for online sports betting and related iGaming market access across our portfolio of properties, from 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 $ 51.8 million and $ 43.6 million as of September 30, 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 Consolidated Balance Sheets, was $ 54.8 million and $ 52.7 million as of March 31, 2021 and December 31, 2020, respectively.

Gaming and Racing Taxes:

1 unchanged sentence

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 the wagering occurs.

For the three and nine months ended September 30, 2020, these expenses, which

were recorded primarily in gaming expense within the unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), were $ 349.2 million and $ 783.1 million, respectively, as compared to $ 403.1 million and $ 1,189.4 million, respectively , for the three and nine months ended September 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 10, “Long-term Debt,” for more information.

For the three months ended March 31, 2021, these expenses, which were recorded in gaming expense within the unaudited Consolidated Statements of Operations and Comprehensive Income (Loss), were $ 417.9 million, respectively, as compared to $ 336.3 million for the three months ended March 31, 2020.

Earnings Per Share:

8 unchanged sentences

Note 3— New Accounting Pronouncements

Accounting Pronouncements Implemented in 2020

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No.

2016-13, “Financial Instruments - Credit Losses (Topic 326):

Measurements of Credit Losses on Financial Instruments” (“ASU 2016-13”), which sets forth a “current expected credit loss” (referred to as “CECL”) model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts.

This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures.

We adopted ASU 2016-13 during the first quarter of 2020 using a modified retrospective approach, which resulted in a cumulative-effect adjustment to retained earnings as of January 1, 2020 of $ 0.6 million.

In August 2018, the FASB issued ASU No.

2018-15, “Customer’s Accounting for Implementation Cost Incurred in a Cloud Computing Arrangement That Is a Service Contract” (“ASU 2018-15”).

Under the new guidance, customers apply the same criteria for capitalizing implementation costs as they would for an arrangement that has a software license.

This will result in certain implementation costs being capitalized;

the associated amortization charge will, however, be recorded as an operating expense.

Under the previous guidance, costs incurred when implementing a cloud computing arrangement deemed to be a service contract were recorded as an operating expense when incurred.

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.

In December 2019, the FASB issued ASU No.

2019-12, “Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), which intends to simplify the guidance by removing certain exceptions to the general principles and clarifying or amending existing guidance.

ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.

We adopted ASU 2019-12 during the third quarter of 2020 on a prospective basis, which did not have a material impact on our unaudited Condensed Consolidated Financial Statements.

Accounting Pronouncements to be Implemented

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.

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

For public business entities, ASU 2020-01 is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.

Early adoption is permitted.

The Company is currently evaluating the impact of the adoption of ASU 2020-01 on its consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”).

ASU 2020-04 provides optional expedient and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

ASU 2020-04 provides an optional expedient and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

In response to the concerns about structural risks of interbank offered rates and, particularly, the risk of cessation of the London Interbank Offered Rate (referred to as “LIBOR”), regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction-based and less susceptible to manipulation.

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The interest rates associated with the Company’s borrowings under its Senior Secured Credit Facilities (as defined in Note 8, “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.

The Company is currently evaluating the impact of the adoption of ASU 2020-04 on our Consolidated Financial Statements.

In August 2020, The FASB issued ASU 2020-06, “Debt—Debt with Conversion and Other Options (Topic 470) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Topic 814):

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ASU 2020-06 eliminates the number of accounting models used to account for convertible debt instruments and convertible preferred stock.

The update also amends the disclosure requirements for convertible instruments and EPS in effort to increase financial reporting transparency.

The update also amends the disclosure requirements for convertible instruments and EPS in an effort to increase financial reporting transparency.

ASU 2020-06 will be effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

Early adoption is permitted.

The Company is currently evaluating the impact of the adoption of ASU 2020-06 on its consolidated financial statements.

The Company is currently evaluating the impact of the adoption of ASU 2020-06 on our Consolidated Financial Statements.

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

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Note 4— Hurricane Laura

On August 27, 2020, Hurricane Laura made landfall in Lake Charles, Louisiana, which caused significant damage to our L’Auberge Lake Charles property and closure of the property for 17 days.

The Company maintains insurance, subject to certain deductibles, for the repair or replacement of assets that suffered loss and provides coverage for interruption to our business, including lost profits.

As of September 30, 2020, the Company recorded a receivable of $ 50.6 million relating to our estimate of repairs and maintenance costs which have been incurred as well as identified property and equipment which have been written off for which we deem the recovery of such costs from our insurer to be probable.

The insurance recovery receivable is included in “Receivables” within the unaudited Condensed Consolidated Balance Sheets.

As we deem it is probable that the proceeds to be recovered from our insurers exceeds the total of our insurance recovery recorded and our insurers’ deductible, we did not record any loss associated with the impact of this natural disaster.

Additionally, as of September 30, 2020, we were in process of performing our due diligence in an effort to quantify the claim amount under the policy that will be submitted to the insurer.

We expect to complete our due diligence and submit the claim to the insurer during the fourth quarter of 2020.

As such, the Company did not receive any proceeds relating to this event for the three and nine months ended September 30, 2020.

Timing differences are likely to exist between the recognition of (i) impairment losses and capital expenditures made to repair or restore the assets and (ii) the receipt of insurance proceeds within the Company’s consolidated financial statements.

We will record proceeds in excess of the recognized losses and lost profits under our business interruption insurance as a gain contingency in accordance with ASC 450, “Contingencies,” which we expect to recognize at the time of final settlement or when nonrefundable cash advances are made in a period subsequent to September 30, 2020.

On August 27, 2020, Hurricane Laura made landfall in Lake Charles, Louisiana, which caused significant damage to our L’Auberge Lake Charles property and closure of the property for approximately two weeks.

The Company maintains insurance, subject to certain deductibles and coinsurance, for the repair or replacement of assets that suffered loss and provides coverage for interruption to our business, including lost profits.

The Company recorded a receivable relating to our estimate of repairs and maintenance costs which have been incurred and property and equipment which have been written off, and for which we deem the recovery of such costs and property and

equipment from our insurers to be probable.

The insurance recovery receivable is included in “Receivables” within the unaudited Consolidated Balance Sheets.

As we deem it is probable that the proceeds to be recovered from our insurers exceeds the total of our insurance recovery recorded and our insurers’ deductible and coinsurance, we did not record any loss associated with the impact of this natural disaster.

As of March 31, 2021 and December 31, 2020, the amount of the receivable was $ 27.0 million and $ 23.0 million, respectively.

During the three months ended March 31, 2021, no proceeds were received from our insurers and we identified an additional $ 4.0 million of costs related to our policy claim.

We continue to be in the process of quantifying the claim amount under the policies to be submitted to our insurers.

The following table summarizes the financial impact of Hurricane Laura related matters:

(in millions) March 31,

2021 December 31,

Insurance Proceeds $ 47.5 $ 47.5

Deductible $ 15.0 $ 15.0

Coinsurance $ 2.5 $ 2.5

Clean-up and Restoration Costs $ 51.1 $ 47.1

Fixed Asset Write-off $ 23.2 $ 23.2

Inventory Write-off $ 0.2 $ 0.2

Insurance Receivable $ 27.0 $ 23.0

Note 5— Revenue Disaggregation

We generate revenues at our owned, managed or operated properties principally by providing the following types of services:

(i) gaming, including iCasino;

(i) gaming, including iGaming;

(ii) food and beverage;

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

For the three months ended September 30, 2020

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

Gaming $ 508.0 $ 208.0 $ 54.0 $ 212.7 $ 11.0 $ ( 0.1 ) $ 993.6

Food and beverage 15.8 19.8 9.9 6.6 0.1 — 52.2

Hotel 4.0 20.6 9.0 5.1 — — 38.7

Other 17.3 7.2 5.8 4.7 12.6 ( 2.4 ) 45.2

Total revenues $ 545.1 $ 255.6 $ 78.7 $ 229.1 $ 23.7 $ ( 2.5 ) $ 1,129.7

For the three months ended September 30, 2019

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

Gaming $ 555.2 $ 201.2 $ 93.3 $ 236.1 $ 3.3 $ ( 0.6 ) $ 1,088.5

Food and beverage 39.4 39.0 29.5 21.0 0.5 — 129.4

Hotel 13.7 27.5 32.4 11.7 — — 85.3

Other 20.6 8.9 6.3 7.0 8.6 ( 0.1 ) 51.3

Total revenues $ 628.9 $ 276.6 $ 161.5 $ 275.8 $ 12.4 $ ( 0.7 ) $ 1,354.5

For the nine months ended September 30, 2020

For the three months ended March 31, 2021

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

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Total revenues $ 570.9 $ 295.9 $ 96.6 $ 234.7 $ 87.9 $ ( 11.1 ) $ 1,274.9

For the nine months ended September 30, 2019

For the three months ended March 31, 2020

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

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Total revenues $ 520.7 $ 223.3 $ 126.6 $ 228.1 $ 20.3 $ ( 2.9 ) $ 1,116.1

(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”).

(1) Primarily represents the elimination of intersegment revenues associated with our internally-branded retail sportsbooks, which are operated by Penn Interactive.

Note 6— Acquisitions and Dispositions

Greektown Casino-Hotel

On May 23, 2019, the Company acquired all of the membership interests of Greektown Holdings, L.L.C., for a net purchase price of $ 320.3 million, after working capital and other adjustments, pursuant to a transaction agreement among the Company, VICI Properties L.P., a wholly-owned subsidiary of VICI, and Greektown Mothership LLC.

In connection with the acquisition, the real estate assets relating to Greektown Casino-Hotel (“Greektown”) were acquired by a subsidiary of VICI for an aggregate sales price of $ 700.0 million, and the Company entered into the Greektown Lease, which has an initial annual rent of $ 55.6 million and an initial term of 15 years, with four five-year renewal options.

The acquisition of the operations was financed through a combination of cash on hand and incremental borrowings under the Company’s Revolving Credit Facility.

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) Fair value

Cash and cash equivalents $ 31.1

Receivables, prepaid expenses and other current assets 14.5

Property and equipment 28.4

Other intangible assets

Gaming license 166.4

Trademark 24.4

Customer relationships 3.3

Operating lease right-of-use assets 516.1

Finance lease right-of-use assets 4.1

Total assets $ 855.7

Accounts payable, accrued expenses and other current liabilities $ 15.2

Operating lease liabilities 516.1

Finance lease liabilities 4.1

Total liabilities 535.4

Net assets acquired $ 320.3

(1) The goodwill has been assigned to our Northeast segment.

The entire $ 67.4 million goodwill amount is deductible for tax purposes.

The Company used the income, market, or cost approach (or a combination thereof) for the valuation, as appropriate, and used valuation inputs in these models and analyses that were based on market participant assumptions.

Market participants are considered to be buyers and sellers unrelated to the Company in the principal or most advantageous market for the asset or liability.

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 (“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.

Acquired identifiable intangible assets consist of a gaming license and a trademark, which are both indefinite-lived intangible assets, and customer relationships, which is an amortizing intangible asset with an assigned useful life of 2 years.

Management valued (i) the gaming license using the Greenfield Method under the income approach;

(ii) the trademark using the relief-from-royalty method under the income approach;

and (iii) customer relationships (rated player databases) using the with-and-without method of the income approach.

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

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 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.

Pursuant to the Margaritaville Merger Agreement, a subsidiary of VICI merged with and into Holdco with Holdco surviving the merger as a wholly-owned subsidiary of VICI (the “Merger”) and owner of the real estate assets relating to Margaritaville.

Pursuant to the MIPA, immediately following the consummation of the Merger, HoldCo sold its interests in its sole direct subsidiary and owner of the Margaritaville operating assets, to the Company.

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 11, “Leases” ).

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 expected to occur during the first half of 2021.

If, as anticipated, 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.

We expect to exercise the purchase option by the end of 2020.

Sam Houston Race Park and Valley Race Park

On March 15, 2021, the Company entered into a purchase agreement with PM Texas Holdings, LLC for the purchase of the remaining 50 % ownership interest in the Sam Houston Race Park in Houston, Texas, the Valley Race Park in Harlingen, Texas, and a license to operate a racetrack in Austin, Texas.

The purchase price consisted of $ 56.0 million, comprised of $ 42.0 million in cash and $ 14.0 million of the Company's common equity, as well as a contingent consideration.

The contingent consideration will be triggered in the event the State of Texas establishes a statutory framework authorizing land-based gaming or online gaming operations in the state prior to the ten-year anniversary of the closing date.

The transaction is expected to close in the second quarter of 2021.

Tropicana Las Vegas

On April 16, 2020, we sold the real estate assets associated with our Tropicana property to GLPI 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.

On April 16, 2020, we sold the real estate assets associated with our Tropicana property to GLPI in exchange for rent credits of $ 307.5 million and utilized them to pay rent under our existing Master Leases and the Meadows Lease beginning in May 2020.

Contemporaneous with the sale, the Company entered into the Tropicana Lease (as defined and discussed in Note 9, “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 of September 30, 2020, we had $ 35.0 million of rent credits that will be utilized in future periods pertaining to this transaction (see “Morgantown” discussion below).

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

We recognized gains on this transaction of $ 1.8 million and $ 30.3 million during the three and nine months ended September 30, 2020, respectively, which are included in “General and administrative” within our unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

On October 1, 2020, we sold the land underlying our Morgantown development project to GLPI in exchange for rent credits of $ 30.0 million.

Contemporaneous with the sale, the Company entered into a triple net lease with GLPI for the land underlying Morgantown (“Morgantown Lease”).

The initial term of the Morgantown Lease is twenty years with six subsequent, five-year renewal periods, exercisable at the Company’s option.

Annual rent under the Morgantown Lease will be $ 3.0 million and is subject to an annual escalator based on the consumer price index.

All improvements made on the leased land, including the building being constructed, will be owned by the Company while the lease is in effect, however, on the expiration or earlier termination of the Morgantown Lease, ownership of all tenant improvements on the land will transfer to GLPI.

The rent credits received as a part of this transaction may be utilized to pay rent under the Master Leases, the Meadows Lease, and the Morgantown Lease.

Note 7— Property and Equipment

Property and equipment, net, consisted of the following:

(in millions) September 30,

2020 December 31,

Property and equipment - Not Subject to Master Leases

Land and improvements $ 109.8 $ 353.2

Buildings, vessels and improvements 216.6 420.4

Furniture, fixtures and equipment 1,682.7 1,598.3

Leasehold improvements 197.4 183.6

Construction in progress 89.8 59.3

2,296.3 2,614.8

Accumulated depreciation ( 1,602.5 ) ( 1,548.3 )

693.8 1,066.5

Property and equipment - Subject to Master Leases

Land and improvements 1,525.1 1,525.9

Buildings, vessels and improvements 3,645.8 3,664.6

5,170.9 5,190.5

Accumulated depreciation ( 1,271.8 ) ( 1,136.8 )

3,899.1 4,053.7

Property and equipment, net $ 4,592.9 $ 5,120.2

Depreciation expense was as follows:

For the three months ended September 30, For the nine months ended September 30,

(in millions) 2020 2019 2020 2019

Depreciation expense (1)

$ 79.7 $ 97.9 $ 251.0 $ 291.8

(1) Of such amounts, $ 45.2 million, $ 26.5 million, $ 137.0 million and $ 119.4 million, respectively, pertained to real estate assets subject to either of our Master Leases.

Pursuant to the purchase agreement, GLPI would 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.

On April 13, 2021, GLPI announced that it entered into a binding term sheet with Bally’s Corporation (“Bally’s”) whereby Bally’s plans to acquire both GLPI’s non-land real estate assets and Penn’s outstanding equity interests in Tropicana Las Vegas Hotel and Casino, Inc., which has the gaming license and operates the Tropicana, for an aggregate cash acquisition price of $ 150.0 million.

GLPI will retain ownership of the land and will concurrently enter into a 50 -year ground lease with initial annual rent of $ 10.5 million.

This transaction is expected to close in early 2022, subject to Penn, GLPI and Bally's entering into definitive agreements and regulatory approval.

Hollywood Casino Perryville

On December 15, 2020, the Company entered into a definitive agreement with GLPI to purchase the operations of Hollywood Casino Perryville for $ 31.1 million.

The transaction is expected to close early in the third quarter of 2021, subject to approval of the Maryland Lottery and Gaming Control Commission and other customary closing conditions.

Simultaneous with the closing of the transaction, we would lease the real estate assets associated with Hollywood Casino Perryville from GLPI with initial annual rent of $ 7.8 million per year subject to escalation.

Note 7— Goodwill and Other Intangible Assets

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Goodwill, net $ 152.9 $ 175.6 $ 200.2 $ 560.6 $ 67.8 $ 1,157.1

Impairment losses during year-to-date period ( 43.5 ) ( 9.0 ) — ( 60.5 ) — ( 113.0 )

Balance as of September 30, 2020

Balance as of March 31, 2021

Goodwill, gross $ 914.3 $ 236.6 $ 216.8 $ 1,116.7 $ 155.5 $ 2,639.9

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Goodwill, net $ 152.9 $ 175.6 $ 200.2 $ 560.6 $ 67.8 $ 1,157.1

2020 Interim Assessment for Impairment

There were no impairment charges recorded to goodwill during the three months ended March 31, 2021.

2020 Assessment for Impairment

During the first quarter of 2020, we identified an indicator of impairment on our goodwill and other intangible assets due to the COVID-19 pandemic.

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, 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.

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.

As noted in the table above, the goodwill impairments pertained to our Northeast, South and Midwest segments, in the amounts of $ 43.5 million, $ 9.0 million and $ 60.5 million, respectively.

The goodwill impairments pertained to our Northeast, South, and Midwest segments, in the amounts of $ 43.5 million, $ 9.0 million and $ 60.5 million, respectively.

The gaming license impairments pertained to our Northeast, South, and Midwest segments in the amounts of $ 177.0 million, $ 166.0 million and $ 94.0 million, respectively.

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 September 30, 2020 or the three and nine months ended September 30, 2019.

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

See Note 17, “Fair Value Measurements,” for quantitative information about the significant unobservable inputs used in the fair value measurements of other intangible assets.

As of March 31, 2020, five reporting units had negative carrying amounts.

The amount of goodwill at these reporting units was as follows (in millions):

Northeast segment

Hollywood Casino at Charles Town Races $ 8.7

Hollywood Casino Toledo $ 5.8

Plainridge Park Casino $ 6.3

South segment

Boomtown New Orleans $ 5.2

Midwest segment

Ameristar Council Bluffs $ 36.2

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

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

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

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Total other intangible assets $ 1,634.8 $ ( 122.9 ) $ 1,511.9 $ 1,634.2 $ ( 120.7 ) $ 1,513.5

Amortization expense related to our amortizing intangible assets was $ 5.9 million and $ 18.2 million for the three and nine months ended September 30, 2020, respectively, as compared to $ 6.4 million and $ 18.7 million for the three and nine months ended September 30, 2019, respectively.

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

There were no impairment charges recorded to other intangible assets for the three months ended March 31, 2021.

Amortization expense related to our amortizing intangible assets was $ 2.2 million and $ 6.1 million for the three months ended March 31, 2021 and 2020, respectively.

The following table presents the estimated amortization expense based on our amortizing intangible assets as of March 31, 2021 (in millions):

Years ending December 31,

2020 (excluding the nine months ended September 30, 2020) $ 3.0

2021 (excluding the three months ended March 31, 2021)

Thereafter 2.0

Note 9— Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:

(in millions) September 30,

2020 December 31,

Accrued salaries and wages $ 151.8 $ 142.1

Accrued gaming, pari-mutuel, property, and other taxes 93.5 103.3

Accrued interest 10.8 13.0

Other accrued expenses (1)

Other current liabilities (2)

Accrued expenses and other current liabilities $ 609.7 $ 631.3

(1) Amounts as of September 30, 2020 and December 31, 2019 included $ 40.7 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.”

(2) Amounts as of September 30, 2020 and December 31, 2019 included $ 76.8 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 8— Long-term Debt

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

(in millions) September 30,

The table below presents long-term debt, net of current maturities:

(in millions) March 31,

2021 December 31,

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(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 September 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.

On October 15, 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 2017 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.

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;

On April 14, 2020, the Company entered into a second amendment to its Credit Agreement with its various lenders (the “Second Amendment”) 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 delivered a covenant relief period termination notice to the administrative agent and (y) the date on which the administrative agent received a compliance certificate for the quarter ended March 31, 2021 (the “Covenant Relief Period”), the Company does not have to comply with any Maximum Leverage Ratio or Minimum Interest Coverage Ratio (as such terms are defined in the Amended 2017 Credit Agreement).

During the Covenant Relief Period, the Company would be subject to a minimum liquidity covenant that required

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;

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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;

The Second Amendment 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 5.50 :1.00 for the quarter ended March 31, 2021, 5.00 :1.00 for the quarter ended June 30, 2021, 4.75 :1.00 for the quarter ended September 30, 2021, 4.50 :1.00 for the quarter ended December 31, 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 4.50 :1.00 for the quarter ended March 31, 2021, 4.00 :1.00 for the quarter ended June 30, 2021, 3.75 :1.00 for the quarter ended September 30, 2021, 3.50 :1.00 for the quarter ended December 31, 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.

In addition, the Second Amendment (i) provided 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) provided 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) provided for a 0.75 % LIBOR floor applicable to all LIBOR loans under the Senior Secured Credit Facilities;

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

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

Interest on the Term Loan B-1 Facility was not affected by the Second Amendment.

Upon conclusion of the Covenant Relief Period, loans under the Senior Secured Credit Facilities bear interest at either a base rate or an adjusted LIBOR rate, plus an applicable margin.

The applicable margins for the Revolving Credit Facility and Term Loan A Facility range from 1.25 % to 3.00 % per annum for LIBOR loans and 0.25 % to 2.00 % per annum for base rate loans, in each case depending on the Consolidated Total Net Leverage Ratio (as defined in the Amended 2017 Credit Agreement) as of the most recent fiscal quarter.

The Term Loan B-1 Facility continues to bear interest at 2.25 % per annum for LIBOR loans and 1.25 % per annum for base rate loans.

All loans under the Senior Secured Credit Facilities are subject to a LIBOR “floor” of 0.75 %.

In addition, a commitment fee is paid on the unused portion of the commitments under the Revolving Credit Facility at a rate that ranges from 0.20 % to 0.50 % per annum, depending on the Consolidated Total Net Leverage Ratio as of the most recent fiscal quarter.

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.

As of March 31, 2021, and December 31, 2020, the Company had conditional obligations under letters of credit issued pursuant to the Senior Secured Credit Facilities with face amounts aggregating to $ 28.0 million and $ 28.2 million, respectively, resulting in $ 672.0 million and $ 671.8 million, respectively, of available borrowing capacity under the Revolving Credit Facility.

5.625 % Senior Unsecured Notes

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.

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.

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

The 5.625 % Notes are not guaranteed by any of the Company’s subsidiaries except in the event that the Company in the future issues certain subsidiary-guaranteed debt securities.

The Company may redeem the 5.625 % Notes at any time on or after January 15, 2022, at the declining redemption premiums set forth in the indenture governing the 5.625 % Notes, and, prior to January 15, 2022, at a “make-whole” redemption premium set forth in the indenture governing the 5.625 % Notes.

2.75 % Unsecured Convertible Notes

In May 2020, the Company completed a public 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.

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.

Interest on the Convertible Notes is payable on May 15th and November 15th of each year, commencing 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 September 30, 2020, 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 $ 1,004.3 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 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.

As of March 31, 2021, 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 $ 1,594.4 million.

Starting in the fourth quarter of 2020 and prior to February 15, 2026, at their election, holders of the Convertible Notes may convert outstanding notes 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.

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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.

As of March 31, 2021 and December 31, 2020, no Convertible Notes have been converted into the Company's common stock.

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

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The Convertible Notes consisted of the following components:

(in millions) September 30,

(in millions) March 31,

Liability component:

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Interest expense, net

Interest expense, net, was as follows:

For the three months ended September 30, For the nine months ended September 30,

The table below presents interest expense, net:

For the three months ended March 31,

(in millions) 2021 2020

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Interest expense, net $ ( 135.7 ) $ ( 129.8 )

Interest expense related to the Convertible Notes was as follows:

For the three months ended September 30, For the nine months ended September 30,

The table below presents interest expense related to the Convertible Notes:

For the three months ended March 31,

(in millions) 2021

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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 5.6 years as of September 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.

The remaining term of the Convertible Notes was 5.1 years as of March 31, 2021.

Our Senior Secured Credit Facilities and 5.625 % Notes require us, among other obligations, to maintain specified financial ratios and to satisfy certain financial tests.

In addition, our Senior Secured Credit Facilities and 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 September 30, 2020, the Company was in compliance with all required financial covenants.

As of March 31, 2021, 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.

Other Long-Term Obligations

Other Long-term Obligation

In February 2021, we entered into a financing arrangement providing the Company with upfront cash proceeds while permitting us to participate in future proceeds on certain claims.

The financing obligation has been classified as a non-current liability, which is expected to be settled in a future period of which the principal is contingent and predicated on other events.

Consistent with an obligor’s accounting under a debt instrument, period interest will be accreted using an effective interest rate of 25 % and until such time that the claims and related obligation is settled.

The amount included in interest expense related to this obligation was $ 1.5 million for the three months ended March 31, 2021.

Ohio Relocation Fees

As of September 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.

Other long-term obligations included $ 60.9 million as of March 31, 2021 and December 31, 2020, 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 facility is payable as follows:

$ 7.5 million upon the opening of the facilities 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 $ 0.8 million and $ 2.6 million for the three and nine months ended September 30, 2020, respectively, as compared to $ 1.0 million and $ 3.2 million for the three and nine months ended September 30, 2019, respectively.

The amount included in interest expense related to this obligation was $ 0.7 million and $ 0.9 million for the three months ended March 31, 2021 and 2020, respectively.

As of March 31, 2021 and December 31, 2020, other long-term obligations included $ 11.4 million and $ 12.0 million, respectively, related to the repayment obligation of a hotel and event center located less than a mile away from Hollywood Casino Lawrenceburg, which was constructed by the City of Lawrenceburg Department of Redevelopment.

Effective in January 2015, by contractual agreement, we assumed a repayment obligation for the hotel and event center in the amount of $ 15.3 million, which was financed through a loan with the City of Lawrenceburg Department of Redevelopment, in exchange for conveyance of the property.

Beginning in January 2016, the Company was obligated to make annual payments on the loan

of $ 1.0 million for 20 years.

This obligation is accreted to interest expense at its effective yield of 3.0 %.

The amount included in interest expense related to this obligation was $ 0.1 million for each of the three months ended March 31, 2021 and 2020.

Note 9— Leases

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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.

Pursuant to a binding term sheet between the Company and GLPI entered into on March 27, 2020, we agreed that, in the future, we would exercise the next scheduled five-year renewal under the Penn Master Lease and the Pinnacle Master Lease.

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.

If all renewal options contained within the Penn Master Lease and the Pinnacle Master Lease were exercised, inclusive of 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

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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.

The next annual escalator test date is scheduled to occur effective November 1, 2021.

The next Penn Percentage Rent reset is scheduled to occur on November 1, 2023.

Pinnacle Master Lease

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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.

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

The next Pinnacle Percentage Rent reset is scheduled to occur on May 1, 2022.

Operating Leases

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.

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 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 operating lease components (primarily the land), the Meadows Lease, the Margaritaville Lease and the Tropicana Lease, the “Triple Net Operating 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 6, “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 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 September 30, 2020:

On February 1, 2021, the Margaritaville Percentage Rent resulted in an annual rent reduction of $ 0.1 million, which will be in effect until the next Margaritaville Percentage Rent reset, scheduled to occur on February 1, 2023.

Upon reset of the Margaritaville Percentage Rent, effective February 1, 2021, we recognized an additional operating lease ROU asset and corresponding lease liability of $ 5.5 million.

We did not incur an annual escalator for the lease year ended January 31, 2021.

The next annual escalator test date is scheduled to occur on February 1, 2022.

The following is a maturity analysis of our operating leases, finance leases and financing obligations as of March 31, 2021:

(in millions) Operating Leases Finance Leases Financing Obligations

Years ending December 31,

2020 (excluding the nine months ended September 30, 2020) $ 105.4 $ 5.4 $ 91.8

2021 (excluding the three months ended March 31, 2021) $ 314.1 $ 16.5 $ 277.7

2022 410.3 21.6 370.3

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Long-term portion of lease obligations $ 4,337.0 $ 210.7 $ 4,087.0

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

For the three months ended September 30, For the nine months ended September 30,

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

For the three months ended March 31,

(in millions) 2021 2020

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Pinnacle Master Lease 81.3 82.5

81.3 82.3 245.6 245.6

Meadows Lease

6.7 6.6 20.2 19.7

Margaritaville Lease 5.9 5.9

Greektown Lease 13.9 13.9

Morgantown Lease 0.8 —

$ 226.0 $ 223.8

(1) During the three and nine months ended September 30, 2020, we utilized rent credits to pay $ 83.0 million, $ 54.2 million and $ 4.5 million and $ 155.1 million, $ 108.4 million, and $ 9.0 million of rent under the Penn Master Lease, Pinnacle Master Lease and Meadows Lease, respectively.

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

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The components of lease expense were as follows:

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

Location on unaudited Consolidated Statements of Operations and Comprehensive Income (Loss) For the three months ended March 31,

(in millions) 2021 2020

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Interest expense, net $ 102.6 $ 97.4

(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 $ 4.8 million and $ 9.5 million for the three and nine months ended September 30, 2020, respectively, pertaining to Columbus, and $ 2.3 million and $ 15.4 million for the three and nine months ended September 30, 2019, respectively, pertaining to Columbus and Toledo.

(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 $ 3.2 million and $ 3.1 million for the three months ended March 31, 2021 and 2020, respectively.

(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.

(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 $ 5.0 million and $ 10.6 million for the three and nine months ended September 30, 2020, respectively, pertaining to Columbus, and $ 2.1 million and $ 14.1 million for the three and nine months ended September 30, 2019, respectively, pertaining to Columbus and Toledo.

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

(4) Pertains to the components contained within the Master Leases (primarily buildings) and Morgantown Lease determined to be financing obligations, inclusive of the variable expense associated with Columbus and Toledo for the finance lease components (the buildings), which was $ 3.0 million and $ 3.4 million for the three months ended March 31, 2021 and 2020, respectively.

Note 10— Investments in and Advances to Unconsolidated Affiliates

As of September 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;

As of March 31, 2021, 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 NASCAR that owns Hollywood Casino at Kansas Speedway;

its 50 % interest in Freehold Raceway;

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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.

With respect to the remaining Barstool Sports shares, we have immediately exercisable call rights, and the existing Barstool Sports stockholders have put rights exercisable beginning three years after closing, all based on a fair market value calculation at the time of exercise (subject to a cap of $ 650.0 million and a floor of 2.25 times the annualized revenue of Barstool Sports, all subject to various adjustments).

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 (the “Series D Preferred Stock”), to certain individual stockholders affiliated with Barstool Sports.

Within the 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 $ 62.0 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.

With respect to the remaining Barstool Sports shares, we have immediately exercisable call rights, and the existing Barstool Sports stockholders have put rights exercisable beginning three years after closing, all based on a fair market value calculation at the time of exercise (subject to a cap of $ 650.0 million and, subject to such cap, a floor of 2.25 times the annualized revenue of Barstool Sports, all subject to various adjustments).

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

1/1,000th 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.

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

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 four years as stipulated in the stock purchase agreement, with the first 20 % tranche being available for conversion into Penn Common Stock in the first quarter of 2021.

As of March 31, 2021, 26 shares of the Series D Preferred Stock can be converted into Penn Common Stock.

During the quarter ended March 31, 2021, the Company acquired 0.3 % of Barstool Sports common stock, par value $ 0.0001 per share, as contemplated within the February 2020 stock purchase agreement which represents a partial settlement of the 1 % purchase on a delayed basis as noted above.

The acquisition of the acquired Barstool Sports common stock was settled through a predetermined number of Series D Preferred Stock as contained within the stock purchase agreement (see Note 13, "Stockholders’ Equity and Stock-Based Compensation," for further information).

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 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 September 30, 2020, our investment in Barstool Sports was $ 145.8 million, which is inclusive of $ 3.4 million of costs we incurred to close the transaction.

As of March 31, 2021 and December 31, 2020, we have an amortizing intangible asset pertaining to the customer list of $ 1.4 million and $ 1.6 million, respectively.

As of March 31, 2021 and December 31, 2020, we have a prepaid expense pertaining to the advertising in the amount of $ 16.3 million, and $ 16.5 million respectively, of which $ 15.2 million and $ 15.4 million was classified as long-term, respectively.

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

As of March 31, 2021 and December 31, 2020, our investment in Barstool Sports was $ 154.6 million and $ 147.5 million, respectively.

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

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

The Company did not consolidate its investment in Barstool Sports as of and for the three and nine months ended September 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 September 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.

The Company determined that Barstool Sports qualified as a VIE as of March 31, 2021 and December 31, 2020.

The Company did not consolidate the financial position of Barstool Sports as of March 31, 2021 and December 31, 2020, nor the results of operations for the three months ended March 31, 2021 and 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 subsequent periods, 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 September 30, 2020 and December 31, 2019, our investment in Kansas Entertainment was $ 84.8 million and $ 90.8 million, respectively.

As of March 31, 2021 and December 31, 2020, our investment in Kansas Entertainment was $ 85.9 million and $ 85.2 million, respectively.

During the three months ended March 31, 2021 and 2020, the Company received distributions from Kansas Entertainment totaling $ 5.5 million and $ 8.7 million, respectively, which the Company deemed to be returns on its investment based on the source of those cash flows from the normal business operations of Kansas Entertainment.

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 September 30, 2020 and December 31, 2019 and for the three and nine months ended September 30, 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 and Comprehensive Income (Loss):

For the three months ended September 30, For the nine months ended September 30,

(in millions) 2020 2019 2020 2019

Revenues $ 28.4 $ 40.6 $ 75.8 $ 120.2

Operating expenses 20.0 19.6 57.0 73.8

Operating income 8.4 21.0 18.8 46.4

Net income $ 8.4 $ 21.0 $ 18.8 $ 46.4

Net income attributable to Penn National $ 4.2 $ 10.5 $ 9.4 $ 23.2

Therefore, the Company did not consolidate the financial position of Kansas Entertainment as of March 31, 2021 and December 31, 2020, nor the results of operations for the three months ended March 31, 2021 and 2020.

Texas Joint Venture

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 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).

The Company has a 50 % interest in a JV with MAXXAM, which 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.

On March 15, 2021, the Company entered into a purchase agreement to purchase the remaining 50 % ownership interest in the Sam Houston Race Park and the Valley Race Park located in Texas as well as a license to operate a racetrack in Austin, Texas.

See Note 6, " Acquisitions and Dispositions" for further information.

During the three months ended March 31, 2020, 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 Consolidated Statements of Operations and Comprehensive Income (Loss).

No impairment was recorded for the three months ended March 31, 2021.

Note 11— Income Taxes

On March 27, 2020, the President of the United States signed into law the CARES Act, which focused on providing relief in response to the adverse economic impact of the COVID-19 pandemic.

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

taxpayers through temporary amendments to NOL 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 September 30, 2020, we are estimating an income tax refund between approximately $ 40 million and $ 50 million primarily attributable to the carryback of NOLs generated in the current year.

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 ( 11.3 )% and 20.2 % for the three and nine months ended September 30, 2020, as compared to 31.0 % and 28.0 % for the three and nine months ended September 30, 2019.

The tax effects of discrete items, including but not limited to, excess tax benefits associated with stock-based compensation, 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 18.5 % for the three months ended March 31, 2021, as compared to 14.1 % for the three months ended March 31, 2020.

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.

Certain of these and other factors, including our history and projections of pretax earnings, are considered in assessing our ability to realize our net deferred tax assets.

” As of December 31, 2019, the Company had significant three-year cumulative pretax income of $ 150.9 million and concluded that a valuation allowance was not necessary except for a federal capital loss carryforward and certain state deferred tax assets where we continue to be in a three-year cumulative pretax loss position.

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

During the three months ended September 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.

During the three months ended September 30, 2020, the Company decreased the valuation allowance in the amount of $ 37.7 million on certain federal and state deferred tax assets that are more likely than not to be realized as a result of the recent law change whereby qualified improvement property now qualifies for accelerated bonus depreciation, which was applied on a retroactive basis.

As of each reporting date, the Company considers all available positive and negative evidence that could affect its view of the future realization of deferred tax assets pursuant to ASC Topic 740, “Income Taxes.” As of March 31, 2021, we intend to continue maintaining a valuation allowance on our deferred tax assets until there is sufficient positive evidence to support the reversal of all or some portion of these allowances.

A reduction in the valuation allowance would result in a significant decrease to income tax expense in the period the release is recorded.

However, the exact timing and amount of the reduction in our valuation allowance are unknown at this time and will be subject to the earnings level we achieve in 2021 as well as our projected income levels in future periods.

During the three months ended March 31, 2021, the Company increased the valuation allowance in the amount of $ 5.3 million on certain federal and state deferred tax assets that are not more likely than not to be realized.

As of March 31, 2021 and December 31, 2020, prepaid income taxes of $ 32.5 million and $ 52.7 million, respectively, were included in “Prepaid expenses” within our unaudited Consolidated Balance Sheets.

Note 12— Commitments and Contingencies

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Note 13— Stockholders’ Equity and Stock-Based Compensation

Common Stock Offerings

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.

On September 24, 2020, the Company completed a public offering of 14,000,000 shares of Penn Common Stock and on September 25, 2020, the underwriters exercised their right to purchase an additional 2,100,000 shares of Penn Common Stock, resulting in an aggregate public offering of 16,100,000 shares of Penn Common Stock.

All of the shares were issued at a public offering price of $ 61.00 per share, resulting in gross proceeds of $ 982.1 million, and net proceeds of $ 957.6 million after underwriter fees and discounts of $ 24.5 million.

Preferred Stock

During the quarter ended March 31, 2021, 151.2 shares of Series D Preferred Stock were converted to Penn Common Stock.

As a result of the conversion, the Company issued 151,200 shares of common stock with a par value of $ 0.01 .

During the quarter ended March 31, 2021, the Company issued 43 shares of Series D Preferred Stock in conjunction with acquiring 0.3 % of Barstool Sports common stock.

The acquisition of the incremental Barstool Sports common stock represents a partial settlement of the 1 % purchase on a delayed basis as described in Note 10, "Investments in and Advances to Unconsolidated Affiliates."

As of March 31, 2021 and December 31, 2020, there were 5,000 shares authorized of Series D Preferred Stock of which 775 shares and 883 shares were outstanding, respectively.

2018 Long Term Incentive Compensation Plan

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Pursuant to the 2018 Plan, 12,700,000 shares of the Company’s common stock are reserved for issuance.

For purposes of determining the number of shares available for issuance under the 2018 Plan, stock options and SARs (except cash-settled SARs) count against the 12,700,000 limit as one share of common stock for each share granted and restricted stock or any other full value stock award count as issuing 2.30 shares of common stock for each share granted.

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

As of September 30, 2020, there were 7,592,306 shares available for future grants under the 2018 Plan.

As of March 31, 2021, there were 7,404,918 shares available for future grants under the 2018 Plan.

Performance Share Program

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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 0.6 million and 2.4 million stock options during the nine months ended September 30, 2020 and 2019, respectively.

There were no RSAs issued from the Performance Share Program II during the three months ended March 31, 2021.

Stock-based Compensation Expense

Stock-based compensation expense, which pertains principally to our stock options and RSAs, for the three and nine months ended September 30, 2020 was $ 2.8 million and $ 11.7 million, respectively, as compared to $ 3.7 million and $ 10.4 million for the three and nine months ended September 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 outstanding 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 $ 43.9 million and $ 14.4 million as of September 30, 2020 and December 31, 2019, respectively.

For SARs held by employees of the Company, there was $ 60.0 million of total unrecognized compensation cost as of September 30, 2020 that will be recognized over the awards remaining weighted-average vesting period of 2.8 years.

For the three and nine months ended September 30, 2020, the Company recognized a charge to compensation expense of $ 37.8 million and $ 50.0 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 $ 2.0 million for the three and nine months ended September 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 $ 22.8 million and $ 2.2 million during the nine months ended September 30, 2020 and 2019, respectively, related to cash-settled SARs.

Stock-based compensation expense, which pertains principally to our stock options and RSAs, for the three months ended March 31, 2021 and 2020 was $ 4.2 million and $ 6.0 million, respectively, and is included within the unaudited Consolidated Statements of Operations and Comprehensive Income (Loss) under “General and administrative.”

Stock Options

The Company granted 0.2 million and 0.6 million stock options during the three months ended March 31, 2021 and 2020, respectively.

Phantom Stock Units

Our outstanding PSUs entitle employees, non-employee, and the chairman emeritus to receive cash based on the fair value of the Company’s common stock on the vesting date.

Our outstanding PSUs entitle employees, non-employee directors, and the chairman emeritus 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 $ 6.1 million and $ 3.3 million as of September 30, 2020 and December 31, 2019, respectively.

For PSUs held by employees, non-employee directors, and the chairman emeritus of the Company, there was $ 15.4 million of total unrecognized compensation cost as of September 30, 2020 that will be recognized over the awards remaining weighted-average vesting period of 2.5 years.

For the three and nine months ended September 30, 2020, the Company recognized $ 5.3 million and $ 7.3 million of compensation expense, respectively, associated with these awards, as compared to $ 0.5 million and $ 2.1 million for the three and nine months ended September 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 $ 4.5 million and $ 2.5 million during the nine months ended September 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 the repurchase of 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 nine months ended September 30, 2020.

During the nine months ended September 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.

The Company has a liability, which is included in “Accrued expenses and other current liabilities” within the unaudited Consolidated Balance Sheets, associated with its cash-settled PSUs of $ 8.9 million and $ 10.1 million as of March 31, 2021 and December 31, 2020, respectively.

For PSUs held by employees, non-employee directors, and the chairman emeritus of the Company, there was $ 20.2 million of total unrecognized compensation cost as of March 31, 2021 that will be recognized over the awards remaining weighted-average vesting period of 2.0 years.

For the three months ended March 31, 2021 and 2020, the Company recognized $ 4.7 million and $ 0.1 million of compensation expense associated with these awards, respectively.

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

We paid $ 5.9 million and $ 2.8 million during the three months ended March 31, 2021 and 2020, respectively, pertaining to cash-settled PSUs.

Stock Appreciation Rights

Our outstanding 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 Consolidated Balance Sheets, associated with its cash-settled SARs of $ 38.7 million and $ 54.6 million as of March 31, 2021 and December 31, 2020, respectively.

For SARs held by employees of the Company, there was $ 79.9 million of total unrecognized compensation cost as of March 31, 2021 that will be recognized over the awards remaining weighted-average vesting period of 2.5 years.

The Company recognized a charge to compensation expense of $ 20.3 million and $ 5.5 million for the three months ended March 31, 2021 and March 31, 2020, respectively.

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

We paid $ 37.2 million and $ 6.6 million during the three months ended March 31, 2021 and 2020, respectively, related to cash-settled SARs.

Note 14— Earnings (Loss) per Share

For nine months ended September 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 for nine months ended September 30, 2020.

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 nine months ended September 30, 2020

For the three months ended March 31, 2021, we recorded net income attributable to Penn National.

As such, we used diluted weighted-average common shares outstanding when calculating diluted income per share for the three months ended March 31, 2021.

Stock options, RSAs, convertible preferred shares and convertible debt that could potentially dilute basic EPS in the future are included in the computation of diluted income per share.

For the three months ended March 31, 2020, we recorded a net loss attributable to Penn National.

Stock options, RSAs, and convertible preferred shares 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 March 31, 2020

Assumed conversion of dilutive stock options 2.2

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Assumed conversion of convertible preferred shares 0.4

Assumed conversion of convertible debt 7.4

The following table sets forth the allocation of net income for the three and nine months ended September 30, 2020 and 2019 under the two-class method:

For the three months ended September 30, For the nine months ended September 30,

The following table sets forth the allocation of net income for the three months ended March 31, 2021 under the two-class method.

For the three months ended March 31, 2020 we did not utilize the two-class method due to incurring a net loss for the period.

For the three months ended March 31,

(in millions) 2021 2020

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Net income (loss) applicable to common stock $ 90.5 $ ( 608.6 )

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 nine months ended September 30, 2020 and 2019:

For the three months ended September 30, For the nine months ended September 30,

For the three months ended March 31,

(in millions) 2021 2020

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Weighted-average common shares outstanding - Diluted 172.8 115.7

In addition, 0.8 million shares from the assumed conversion of convertible preferred shares were excluded from the computation of diluted income per share for the three months ended September 30, 2020 because including them would have been anti-dilutive.

Options to purchase zero and 0.9 million shares were outstanding during the three and nine months ended September 30, 2020, respectively, as compared to 2.5 million and 2.1 million shares during the three and nine months ended September 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 nine months ended September 30, 2020 and 2019:

For the three months ended September 30, For the nine months ended September 30,

In addition, 0.8 million shares from the assumed conversion of convertible preferred shares were excluded from the computation of diluted income per share for the three months ended March 31, 2021 because including them would have been anti-dilutive.

Options to purchase 0.2 million and 1.2 million shares were outstanding during the three months ended March 31, 2021 and 2020, respectively, but were not included in the computation of diluted earnings (loss) per share because they were anti-dilutive.

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, 2021 and 2020:

For the three months ended March 31,

(in millions, except per share data) 2021 2020

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Diluted earnings (loss) per share $ 0.55 $ ( 5.26 )

(1) The three months ended September 30, 2020 were tax-affected at a rate of 21%.

(1) The three months ended March 31, 2021 were tax-affected at a rate of 20 %.

Note 15— Fair Value Measurements

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Equity Securities

As of September 30, 2020 and December 31, 2019, we held $ 112.1 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 March 31, 2021 and December 31, 2020, we held $ 169.3 million and $ 143.1 million in equity securities, respectively, including ordinary shares and warrants, which are reported as “Other assets” in our unaudited Consolidated Balance Sheets.

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 three and nine months ended September 30, 2020, we recognized a holding gain of $ 67.9 million and $ 75.6 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).

During the three months ended March 31, 2021, we recognized a holding gain of $ 26.1 million related to these equity securities, compared to a loss of $ 21.8 million for the three months ended March 31, 2020, which is included in “Other,” as reported in “Other income (expenses)” within our unaudited 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.

The primary inputs to those techniques include the quoted market price of the equity securities, foreign currency exchange rates, a discount for lack of marketability (“DLOM”) with respect to the ordinary shares, and a Black-Scholes option pricing model with respect to the warrants.

The primary inputs to those techniques include the quoted market price of the equity securities, foreign currency

exchange rates, a discount for lack of marketability (“DLOM”) with respect to the ordinary shares, and a Black-Scholes option pricing model with respect to the warrants.

The DLOM is based on the remaining term of the relevant lock-up periods and the volatility associated with the underlying equity securities.

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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 September 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.

As of March 31, 2021 and December 31, 2020, 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 September 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.

As of March 31, 2021 and December 31, 2020, the promissory notes and the local government corporation bonds, which have long-term contractual maturities, were included in “Other assets” within our unaudited Consolidated Balance Sheets.

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

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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 September 30, 2020 and December 31, 2019 included the relocation fees for Dayton and Mahoning Valley, which are discussed in Note 10, “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 long-term obligations as of March 31, 2021 and December 31, 2020 included a financing arrangement entered in February of 2021, the relocation fees for Dayton and Mahoning Valley, and the repayment obligation of the hotel and event center located near Hollywood Casino Lawrenceburg.

See Note 8, “Long-term Debt” for details.

The fair values of the Dayton and Mahoning Valley relocations fees and the Lawrenceburg repayment obligation 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 September 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.

Other liabilities as of March 31, 2021 and December 31, 2020 consisted of a contingent purchase price related to Plainridge Park Casino.

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 on June 24, 2015.

As of September 30, 2020, we were contractually obligated to make five 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.

As of March 31, 2021, we were contractually obligated to make five additional annual payments.

The fair value of this liability, which is estimated based on an income approach using a discounted cash flow model and has been classified as a Level 3 measurement, is included within our unaudited 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:

September 30, 2020

March 31, 2021

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

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Other liabilities $ 10.2 $ 10.0 $ — $ 2.6 $ 7.4

Puts and calls related to certain Barstool Sports shares $ 3.1 $ 3.1 $ — $ 3.1 $ —

December 31, 2020

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$ 399.5 $ 418.0 $ 418.0 $ — $ —

Convertible notes $ 239.8 $ 1,274.5 $ 1,274.5 $ — $ —

Other long-term obligations $ 73.0 $ 72.8 $ — $ 72.8 $ —

Other liabilities $ 10.1 $ 10.1 $ — $ 2.8 $ 7.3

Puts and calls related to certain Barstool Sports shares $ 0.3 $ 0.3 $ — $ 0.3 $ —

The following table summarizes the changes in fair value of our Level 3 liabilities measured on a recurring basis:

Other Liabilities

(in millions) Contingent Purchase Price

(in millions) Other Liabilities

Balance as of January 1, 2021 $ 7.3

Payments ( 9.1 )

Included in loss (1)

Balance as of September 30, 2020 $ 7.0

(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 nine months ended September 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 September 30, 2020:

Additions 72.5

Included in earnings (1)

Balance as of March 31, 2021 $ 81.4

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

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, 2021:

Valuation Technique Unobservable Input Discount Rate

Other long-term obligation Discounted cash flow Discount rate 25.00 %

Contingent purchase price - Plainridge Park Casino Discounted cash flow Discount rate 5.28 %

As discussed in Note 8, “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) Fair Value Valuation Technique Unobservable Input Range or Amount

As of March 31, 2020

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

Long-term revenue growth rate 2.0 %

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

Long-term revenue growth rate 2.0 %

Pretax royalty rate 1.0 % - 2.0 %

Note 16— Segment Information

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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 September 30, For the nine months ended September 30,

For the three months ended March 31,

(in millions) 2021 2020

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Midwest segment 234.7 228.1

23.7 12.4 71.6 31.9

Intersegment eliminations (2)

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( 21.3 ) ( 18.9 )

Intersegment eliminations (2)

— ( 0.1 ) — ( 0.1 )

452.6 407.9 729.4 1,205.8

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

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(1) The Other category consists of the Company’s stand-alone racing operations, namely Sanford-Orlando Kennel Club and the Company’s JV interests in Sam Houston Race Park, Valley Race Park, and Freehold Raceway;

our management contract for Retama Park Racetrack and our live and televised poker tournament series that operates under the trade name, Heartland Poker Tour (“HPT”).

The Other category also includes Penn Interactive, which operates social gaming, our internally-branded retail sportsbooks, iGaming and our Barstool Sports online sports betting app.

our management contract for Retama Park Racetrack;

Expenses incurred for corporate and shared services activities that are directly attributable to a property or are otherwise

incurred to support a property are allocated to each property.

Expenses incurred for corporate and shared services activities that are directly attributable to a property or are otherwise incurred to support a property are allocated to each property.

The Other category also includes corporate overhead costs, which consist of certain expenses, such as:

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In 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.

(2) Primarily represents the elimination of intersegment revenues associated with our internally-branded retail sportsbooks, which are operated by Penn Interactive.

(3) We define Adjusted EBITDAR as earnings before interest expense, net;

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impairment losses;

insurance recoveries and deductible charges;

insurance recoveries, net of deductible charges;

changes in the estimated fair value of our contingent purchase price obligations;

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

(6) Principally includes holding gains on our equity securities, which are discussed in Note 17, “Fair Value Measurements.” Additionally, includes non-recurring restructuring charges (primarily severance) of $ 12.4 million associated with a company-wide initiative, triggered by the COVID-19 pandemic, designed to (i) improve the operational effectiveness across our property portfolio;

(6) Principally includes holding gains on our equity securities, which are discussed in Note 15, “Fair Value Measurements.” Additionally, includes non-recurring restructuring charges (primarily severance) associated with a company-wide initiative, triggered by the COVID-19 pandemic, designed to (i) improve the operational effectiveness across our property portfolio;

and (ii) improve the effectiveness and efficiency of our Corporate functional support areas.

For the three months ended September 30, For the nine months ended September 30,

For the three months ended March 31,

(in millions) 2021 2020

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

As of September 30, 2020

As of March 31, 2021

Investment in and advances to unconsolidated affiliates (2)

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Investment in and advances to unconsolidated affiliates (2)

$ 0.1 $ — $ — $ 85.2 $ 181.5 $ 266.8

Total assets $ 1,958.4 $ 1,165.4 $ 401.5 $ 1,161.1 $ 9,980.9 $ 14,667.3

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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 1. Financial Statements