What changed in this filing

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Item 1. Financial Statements

2021-08-05 compared with 2021-05-06 · 277 added, 184 removed, 760 unchanged (38% of the section changed)

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CONSOLIDATED BALANCE SHEETS

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

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

2021 December 31,

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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)

Common stock ($ 0.01 par value, 400,000,000 and 200,000,000 shares authorized, 158,954,266 and 157,868,227 shares issued, and 156,786,873 and 155,700,834 shares outstanding)

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

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COMPREHENSIVE INCOME (LOSS)

For the three months ended March 31,

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

(in millions, except per share data) 2021 2020 2021 2020

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Interest expense, net ( 138.0 ) ( 135.0 ) ( 273.7 ) ( 264.8 )

Income from unconsolidated affiliates 9.6 4.1

Income (loss) from unconsolidated affiliates 9.1 ( 1.7 ) 18.7 2.4

Other 2.8 29.3 23.9 7.5

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Three Months Ended March 31, 2021 and 2020

Three Months Ended June 30, 2021 and 2020

Preferred Stock Common Stock Treasury

Capital Retained Earnings (Accum-ulated Deficit) Total Penn National Stock-holders’

Equity Non-Control-

ling Interest Total

holders’ Equity

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

Balance as of April 1, 2021 775 $ 24.2 156,330,141 $ 1.6 $ ( 28.4 ) $ 3,175.2 $ ( 416.3 ) $ 2,756.3 $ ( 0.5 ) $ 2,755.8

Share-based compensation arrangements — — 413,048 — — 9.4 — 9.4 — 9.4

Share issuance (Note 13) — — 43,684 — — 3.5 — 3.5 — 3.5

Net income — — — — — — 198.7 198.7 — 198.7

Other — — — — — ( 9.6 ) ( 9.6 ) — ( 9.6 )

Balance as of June 30, 2021 775 $ 24.2 156,786,873 $ 1.6 $ ( 28.4 ) $ 3,178.5 $ ( 217.6 ) $ 2,958.3 $ ( 0.5 ) $ 2,957.8

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

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

Common Stock Offering (Note 13) — — 19,166,667 0.2 — 331.0 — 331.2 — 331.2

Convertible debt offering (Note 8) — — — — — 88.2 — 88.2 — 88.2

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

Other — — — — — 0.2 — 0.2 — 0.2

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

PENN NATIONAL GAMING, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Six Months Ended June 30, 2021 and 2020

Preferred Stock Common Stock Treasury

Capital Retained Earnings (Accum-

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Share issuance (Note 13) 43 5.1 43,684 — — 3.5 — 8.6 — 8.6

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

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

Net income (loss) — — — — — — 289.7 289.7 ( 0.1 ) 289.6

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

Other — — — — — ( 9.6 ) ( 9.6 ) — ( 9.6 )

Balance as of June 30, 2021 775 $ 24.2 156,786,873 $ 1.6 $ ( 28.4 ) $ 3,178.5 $ ( 217.6 ) $ 2,958.3 $ ( 0.5 ) $ 2,957.8

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 — — 2,310,164 — — 32.7 — 32.7 — 32.7

Common stock offering (Note 13) — — 19,166,667 0.2 — 331.0 — 331.2 — 331.2

Convertible debt offering (Note 8) — — — — — 88.2 — 88.2 — 88.2

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

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

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

Other — — — — — 0.2 — 0.2 — 0.2

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

See accompanying notes to the Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

For the three months ended March 31,

For the six months ended June 30,

(in millions) 2021 2020

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Amortization of debt discount and debt issuance costs 11.0 5.6

Noncash interest expense 5.2 —

Noncash operating lease expense 75.5 52.5

Change in fair value of contingent purchase price 1.3 ( 1.4 )

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

Holding gain on equity securities ( 18.8 ) ( 7.7 )

Change in fair value in puts/calls associated with our Barstool Sports investment ( 1.3 ) —

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

Gain on sale or disposal of property and equipment ( 0.2 ) ( 27.9 )

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

Income from unconsolidated affiliates ( 18.7 ) ( 2.4 )

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Consideration paid for acquisitions of businesses, net of cash acquired ( 6.2 ) ( 3.0 )

Consideration paid for gaming licenses and other intangible assets ( 18.7 ) —

Other ( 9.6 ) ( 6.8 )

Net cash used in investing activities ( 99.1 ) ( 218.5 )

For the three months ended March 31,

For the six months ended June 30,

(in millions) 2021 2020

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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 ( 32.2 ) ( 23.3 )

Debt and equity issuance costs — ( 6.1 )

Proceeds from other long-term obligations 72.5 —

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Principal payments on finance leases ( 3.4 ) ( 2.1 )

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

Proceeds from exercise of options 8.5 27.5

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Cash paid for interest, net of amounts capitalized $ 275.2 $ 188.8

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

Cash payments (refunds) related to income taxes, net $ 27.7 $ ( 1.2 )

Non-cash investing and financing activities:

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

Commencement of operating leases $ 28.9 $ 63.5

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(“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.

We launched an app called Barstool Sportsbook and Casino in Pennsylvania, Michigan, Illinois and Indiana.

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.

As of June 30, 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.

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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.

As of June 30, 2021, all of our properties have reopened, and the majority of our properties are operating at full capacity while adhering to state mandated health and safety protocols.

Basis of Presentation:

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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.

(1) Our two Category 4 developments, Hollywood Casino York (not subject to the Penn Master Lease) and Hollywood Casino Morgantown (subject to the Morgantown Lease), are included with Hollywood Casino at Penn National Race Course.

(2) VGT route operations

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

For the three months ended March 31,

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

(in millions) 2021 2020 2021 2020

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

The obligation associated with our my choice program, which is included in “Accrued expenses and other current liabilities” within our unaudited 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.

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 $ 36.7 million and $ 35.8 million as of June 30, 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;

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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.

The Company’s advance payments on goods and services yet to be provided and for unpaid wagers were $ 54.4 million and $ 47.1 million as of June 30, 2021 and December 31, 2020, respectively, of which none was classified as long-term as of June 30, 2021 as compared to $ 0.5 million as of December 31, 2020.

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 Consolidated Balance Sheets, respectively.

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 Consolidated Balance Sheets, was $ 54.8 million and $ 52.7 million as of March 31, 2021 and December 31, 2020, 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 $ 54.9 million and $ 52.7 million as of June 30, 2021 and December 31, 2020, respectively.

Gaming and Racing Taxes:

We are subject to gaming and pari-mutuel taxes based on gross gaming revenue and pari-mutuel revenue in the jurisdictions in which we operate.

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.

We are subject to gaming and pari-mutuel taxes primarily based on gross gaming revenue and pari-mutuel revenue in the jurisdictions in which we operate.

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, as well as taxes on revenues derived from arrangements which allow for third party partners to operate online casinos and online sportsbooks under our gaming licenses.

For the three and six months ended June 30, 2021, these expenses, which were recorded in gaming expense or food, beverage, hotel and other expenses within the unaudited Consolidated Statements of Operations and Comprehensive Income (Loss) as applicable, were $ 515.9 million and $ 933.8 million respectively, as compared to $ 97.6 million and $ 433.9 million for the three and six months ended June 30, 2020, respectively.

Earnings Per Share:

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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.

The insurance recovery receivable is included in “Receivables, net” 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.

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 unaudited Consolidated Financial Statements.

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.

The amount of the receivable was $ 28.3 million and $ 23.0 million, as of June 30, 2021 and December 31, 2020, respectively.

For the three and six months ended June 30, 2021, we identified an additional $ 1.3 million and $ 5.3 million of costs related to our policy claim, respectively.

No proceeds were received from our insurers during the six months ended June 30, 2021.

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

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 March 31, 2021.

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

(in millions) March 31,

2021 December 31,

(in millions) June 30, 2021 December 31, 2020

Insurance Proceeds $ 47.5 $ 47.5

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

For the three months ended March 31, 2021

For the three months ended June 30, 2021

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

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Total revenues $ 652.5 $ 368.2 $ 140.4 $ 294.8 $ 97.7 $ ( 7.8 ) $ 1,545.8

For the three months ended March 31, 2020

For the three months ended June 30, 2020

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

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

For the six months ended June 30, 2021

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

Gaming $ 1,129.5 $ 549.8 $ 165.8 $ 489.0 $ 53.4 $ — $ 2,387.5

Food and beverage 45.0 52.5 30.1 16.7 0.3 — 144.6

Hotel 12.5 43.7 32.4 12.9 — — 101.5

Other 36.4 18.1 8.7 10.9 131.9 ( 18.9 ) 187.1

Total revenues $ 1,223.4 $ 664.1 $ 237.0 $ 529.5 $ 185.6 $ ( 18.9 ) $ 2,820.7

For the six months ended June 30, 2020

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

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

Food and beverage 36.1 37.3 25.7 18.8 0.3 — 118.2

Hotel 9.0 24.6 27.3 8.8 — — 69.7

Other 25.5 10.6 6.6 6.8 24.9 ( 2.8 ) 71.6

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

(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

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.

HitPoint Inc.

and LuckyPoint Inc.

On May 11, 2021, we acquired 100 % of the outstanding equity of HitPoint Inc.

and Lucky Point Inc.

(collectively, “Hitpoint”).

The purchase price totaled $ 12.7 million, consisting of $ 6.2 million in cash, $ 3.5 million of the Company's common equity, and a $ 3.0 million contingent liability.

The contingent liability is payable in annual installments over three years , through a combination of cash and the Company's common equity, and is based on achievement of certain performance factors.

The preliminary purchase price allocation resulted in recognition of $ 8.5 million of goodwill, $ 4.3 million in developed technology which is included in "Other intangible assets, net" within the unaudited Consolidated Balance Sheets, along with other miscellaneous operating assets and liabilities.

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 and utilized them to pay rent under our existing Master Leases and the Meadows Lease beginning in May 2020.

On April 16, 2020, we sold the real estate assets associated with our Tropicana Las Vegas Hotel and Casino, Inc.

("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 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.

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, 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.

This transaction is expected to close in late 2021 or early 2022, subject to Penn, GLPI and Bally's entering into definitive agreements and obtaining 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.

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

The transaction closed on July 1, 2021.

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

Sam Houston Race Park and Valley Race Park

On March 15, 2021, we 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 consists 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 transaction closed August 1, 2021.

Score Media and Gaming Inc.

On August 4, 2021, we entered into an agreement with Score Media and Gaming Inc., a British Columbia corporation (“theScore”), under which we will acquire theScore in a cash and stock transaction valued at approximately $ 2.0 billion at the agreement date.

Under the terms of the agreement, theScore shareholders will receive (a) US$ 17.00 in cash consideration, and (b) 0.2398 of a share of common stock, par value $ 0.01 per share, of the Company’s common equity for each theScore share.

The agreement is conditioned upon obtaining theScore shareholders’ approval and is subject to regulatory approval.

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

Balance as of March 31, 2021

Goodwill acquired during the period $ — $ — $ — $ — $ 8.5 $ 8.5

Balance as of June 30, 2021

Goodwill, gross $ 914.3 $ 236.6 $ 216.8 $ 1,116.7 $ 164.0 $ 2,648.4

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Goodwill, net $ 152.9 $ 175.6 $ 200.2 $ 560.6 $ 76.3 $ 1,165.6

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

There were no impairment charges recorded to goodwill during the three and six months ended June 30, 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 COVID-19 pandemic, we revised our cash flow projections to reflect changes in the economic environment, including the uncertainty surrounding the nature, timing and extent of gaming property closures.

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

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

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

No further impairments were recorded for the three months ended June 30, 2020.

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

March 31, 2021 December 31, 2020

June 30, 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 $ 1,655.3 $ ( 123.6 ) $ 1,531.7 $ 1,634.2 $ ( 120.7 ) $ 1,513.5

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):

There were no impairment charges recorded to other intangible assets, net for the three and six months ended June 30, 2021.

Amortization expense related to our amortizing intangible assets was $ 2.5 million and $ 4.7 million for the three and six months ended June 30, 2021, respectively, as compared to $ 6.2 million and $ 12.3 million for the three and six months ended June 30, 2020, respectively.

The following table presents the estimated amortization expense based on our amortizing intangible assets as of June 30, 2021 (in millions):

Years ending December 31,

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

2021 (excluding the six months ended June 30, 2021)

Thereafter 2.1

Note 8— Long-term Debt

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

(in millions) March 31,

The table below presents long-term debt, net of current maturities, debt discounts and issuance costs:

(in millions) June 30,

2021 December 31,

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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 “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;

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

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

The 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;

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 to financial covenants and interest rates during, and subsequent to a Covenant Relief Period, which concluded on May 7, 2021.

Upon conclusion of the Covenant Relief Period, the Second Amendment permits 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 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.

In addition, 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.

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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.

As of June 30, 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 $ 27.8 million and $ 28.2 million, respectively, resulting in $ 672.2 million and $ 671.8 million, respectively, of available borrowing capacity under the Revolving Credit Facility.

5.625 % Senior Unsecured Notes

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

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.

As of June 30, 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 $ 1,073.9 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.

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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.

As of June 30, 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) March 31,

(in millions) June 30,

2021 December 31,

Liability component:

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Carrying amount of equity component $ 88.2 $ 88.2

4.125 % Senior Unsecured Notes

On July 1, 2021, the Company completed an offering of $ 400.0 million aggregate principal amount of 4.125 % senior unsecured notes that mature on July 1, 2029 (the “ 4.125 % Notes”).

The 4.125 % Notes were issued at par and interest is payable semi-annually on January 1st and July 1st of each year.

The 4.125 % 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 4.125 % Notes at any time on or after July 1, 2024, at the declining redemption premiums set forth in the indenture governing the 4.125 % Notes, and, prior to July 1, 2024, at a “make-whole” redemption premium set forth in the indenture governing the 4.125 % Notes.

Interest expense, net

The table below presents interest expense, net:

For the three months ended March 31,

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

(in millions) 2021 2020 2021 2020

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

For the three months ended March 31,

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

(in millions) 2021 2020 2021 2020

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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 5.1 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.

The remaining term of the Convertible Notes was 4.9 years as of June 30, 2021.

Our Senior Secured Credit Facilities, 5.625 % Notes and 4.125 % Notes, require us, among other obligations, to maintain specified financial ratios and to satisfy certain financial tests.

In addition, our Senior Secured Credit Facilities, 5.625 % Notes and 4.125 % 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.

defined in Note 9, "Leases" ) , each with GLPI.

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

As of March 31, 2021, the Company was in compliance with all required financial covenants.

As of June 30, 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.

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Consistent with an obligor’s accounting under a debt instrument, period interest will be accreted using an effective interest rate of 27.0 % 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.

The amount included in interest expense related to this obligation was $ 3.7 million and $ 5.2 million for the three and six months ended June 30, 2021, respectively.

Ohio Relocation Fees

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.

Other long-term obligations included $ 52.8 million and $ 60.9 million as of June 30, 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:

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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 $ 0.7 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.

As of June 30, 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.

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

The 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.

As a result of the annual escalator, effective as of May 1, 2021 for the lease year ended April 30, 2021, the fixed component of rent increased by $ 4.5 million and an additional ROU asset and corresponding lease liability of $ 17.2 million were recognized associated with the operating lease components of the Pinnacle Master Lease.

The next Pinnacle Percentage Rent reset and Annual Escalator test date is scheduled to occur on May 1, 2022.

Operating 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.

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 (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 Resort Casino (the “Margaritaville Lease”) and Greektown Casino-Hotel (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 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.

On February 1, 2021, the Margaritaville Percentage Rent reset 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.

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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:

On June 1, 2021, the Greektown Percentage Rent reset resulted in an annual rent reduction of $ 4.2 million, which will be in effect until the next Greektown Percentage Rent reset, scheduled to occur on June 1, 2023.

Upon reset of the Greektown Percentage Rent, effective June 1, 2021, we recognized an additional operating lease ROU asset and corresponding lease

liability of $ 4.1 million.

We did not incur an Annual Escalator for the lease year ended May 31, 2021.

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

The following is a maturity analysis of our operating leases, finance leases and financing obligations as of June 30, 2021:

(in millions) Operating Leases Finance Leases Financing Obligations

Years ending December 31,

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

2021 (excluding the six months ended June 30, 2021) $ 211.4 $ 10.8 $ 185.2

2022 414.4 21.6 370.3

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

For the three months ended March 31,

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

(in millions) 2021 2020 2021 2020

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Pinnacle Master Lease (1)

82.1 81.8 163.4 164.3

Meadows Lease (1)

6.2 6.7 12.4 13.5

Margaritaville Lease 5.9 5.9 11.7 11.7

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$ 229.1 $ 216.6 $ 455.1 $ 440.4

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

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

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The components of lease expense were as follows:

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

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

(in millions) 2021 2020 2021 2020

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Interest expense, net $ 105.3 $ 99.1 $ 207.9 $ 196.5

(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.

(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 $ 6.1 million and $ 9.3 million for the three and six months ended June 30, 2021, respectively;

and $ 1.6 million and $ 4.7 million for the three and six months ended June 30, 2020 respectively, pertaining to Columbus.

(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) 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.

(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 $ 5.5 million and $ 8.5 million for the three and six months ended June 30, 2021, respectively;

and $ 2.2 million and $ 5.6 million for the three and six months ended June 30, 2020, respectively, pertaining to Columbus.

Note 10— Investments in and Advances to Unconsolidated Affiliates

As of March 31, 2021, investments in and advances to unconsolidated affiliates primarily consisted of the Company’s 36 % interest in Barstool Sports;

As of June 30, 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;

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Series D Preferred Stock is nonvoting 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.

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 having been available for conversion into Penn Common Stock in the first quarter of 2021.

As of June 30, 2021, 26 shares of the Series D Preferred Stock can be converted into Penn Common Stock.

During the first quarter, 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).

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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).

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.

As of June 30, 2021 and December 31, 2020, we have an amortizing intangible asset pertaining to the customer list of $ 1.3 million and $ 1.6 million, respectively.

As of June 30, 2021 and December 31, 2020, we have a prepaid expense pertaining to the advertising in the amount of $ 16.0 million, and $ 16.5 million respectively, of which $ 14.9 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.

As of June 30, 2021 and December 31, 2020, our investment in Barstool Sports was $ 155.7 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 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.

The Company determined that Barstool Sports qualified as a VIE as of June 30, 2021 and December 31, 2020.

The Company did not consolidate the financial position of Barstool Sports as of June 30, 2021 and December 31, 2020, nor the results of operations for the three and six months ended June 30, 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 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.

As of June 30, 2021 and December 31, 2020, our investment in Kansas Entertainment was $ 86.3 million and $ 85.2 million, respectively.

During the three and six months ended June 30, 2021, the Company received distributions from Kansas Entertainment totaling $ 7.9 million and $ 13.4 million, respectively, as compared to no distributions for the three months ended June 30, 2020 and $ 8.7 million for the six months ended June 30, 2020.

The Company deems these distributions 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 NASCAR.

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.

Therefore, the Company did not consolidate the financial position of Kansas Entertainment as of June 30, 2021 and December 31, 2020, nor the results of operations for the three and six months ended June 30, 2021 and 2020.

Texas Joint Venture

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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.

During the first quarter of 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 further impairment loss was recorded for the three months ended June 30, 2020.

No impairment was recorded for the three and six months ended June 30, 2021.

Note 11— Income Taxes

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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.

The effective tax rate (income taxes as a percentage of income or loss before income taxes) including discrete items was 21.1 % and 20.3 % for the three and six months ended June 30, 2021, as compared to 21.4 % and 16.1 % for the three and six months ended June 30, 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 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.

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 June 30, 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.

During the three months ended June 30, 2021, the Company decreased the valuation allowance in the amount of $ 12.9 million on certain federal and state deferred tax assets that are more likely than not to be realized.

As of June 30, 2021 and December 31, 2020, prepaid income taxes of $ 31.6 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

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 May 11, 2021, as part of the acquisition of Hitpoint, the Company issued 43,684 shares for a total of $ 3.5 million.

See Note 6, "Acquisitions and Dispositions."

On June 17, 2021, the Company filed its Second Amended and Restated Articles of Incorporation with the Department of State of the Commonwealth of Pennsylvania.

These Articles of Incorporation, as amended and restated and approved by the Company’s shareholders at the 2021 Annual Meeting of Shareholders, increase the number of authorized shares of common stock from 200,000,000 to 400,000,000 .

Preferred Stock

On February 20, 2020, the Company issued 883 shares of Series D Preferred Stock, par value $ 0.01 per share (the “Series D Preferred Stock”), to certain individual stockholders affiliated with Barstool Sports as discussed in Note 10, " Investments in and Advances to Unconsolidated Affiliates.

On February 20, 2020, the Company issued 883 shares of Series D Preferred Stock, par value $ 0.01 per share, to certain individual stockholders affiliated with Barstool Sports as discussed in Note 10, "Investments in and Advances to Unconsolidated Affiliates."

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

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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.

As of June 30, 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

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

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

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

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

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

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

As of June 30, 2021, there were 5,011,193 shares available for future grants under the 2018 Plan.

On April 12, 2021, the Board of Directors granted 600,000 RSUs and 300,000 RSAs with market-based and service-based vesting conditions (collectively the “Stock Awards”), solely to the Company’s President and Chief Executive Officer.

The Stock Awards are classified as equity with separate tranches and requisite service periods identified for each separately achievable component.

The fair value of the Stock Awards was $ 48.7 million and was calculated using a Monte Carlo simulation.

The fair value of the RSAs was estimated at $ 19.4 million and segregated into 15 tranches with expense recognition periods ranging from 2.2 to 6.0 years.

The fair value of the RSUs was estimated at $ 29.3 million and segregated into 4 tranches with expense recognition periods ranging from 6.7 to 8.7 years.

We recognized $ 1.9 million of stock compensation expense for the Stock Awards during the three and six months ended June 30, 2021.

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.

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

An aggregate of 95,276 RSAs and RSUs with performance-based vesting conditions, at target, was granted in April 2021 under the Performance Share Program II, with the grant having a three-year award period consisting of three one-year performance periods and a three-year service period.

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

Stock-based Compensation Expense

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-based compensation expense, which pertains principally to our stock options, RSAs and RSUs, for the three and six months ended June 30, 2021 was $ 9.2 million and $ 13.4 million, respectively, as compared to $ 2.9 million and $ 8.9 million for the three and six months ended June 30, 2020, 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 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 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.

The Company granted 0.0 million and 0.2 million stock options during the three and six months ended June 30, 2021, respectively, as compared to 0.0 million and 0.6 million stock options during the three and six months ended June 30, 2020, respectively.

Cash-settled Phantom Stock Units

Our outstanding CPSUs 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 CPSUs vest over a period of three or four years .

The cash-settled CPSUs 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 Consolidated Balance Sheets, associated with its cash-settled CPSUs of $ 9.8 million and $ 10.1 million as of June 30, 2021 and December 31, 2020, respectively.

For CPSUs held by employees, non-employee directors, and the chairman emeritus of the Company, there was $ 12.4 million of total unrecognized compensation cost as of June 30, 2021 that will be recognized over the awards remaining weighted-average vesting period of 1.9 years.

For the three and six months ended June 30, 2021, the Company recognized $ 1.0 million and $ 5.7 million of compensation expense associated with these awards, respectively, as compared to $ 1.9 million and $ 2.0 million for the three and six months ended June 30, 2020, respectively.

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

We paid $ 6.0 million and $ 2.8 million during the six months ended June 30, 2021 and 2020, respectively, pertaining to cash-settled CPSUs.

Stock Appreciation Rights

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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.

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 $ 27.7 million and $ 54.6 million as of June 30, 2021 and December 31, 2020, respectively.

For SARs held by employees of the Company, there was $ 50.7 million of total unrecognized compensation cost as of June 30, 2021 that will be recognized over the awards remaining weighted-average vesting period of 2.3 years.

The Company recognized a reduction to compensation expense of $ 9.9 million and a charge to compensation expense of $ 10.4 million for the three and six months ended June 30, 2021, respectively, as compared to a charge of $ 17.7 million and $ 12.2 million for the three and six months ended June 30, 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.

We paid $ 38.0 million and $ 10.2 million during the six months ended June 30, 2021 and 2020, respectively, related to cash-settled SARs.

In the second quarter of 2021, the Company entered into two promissory notes with shareholders for a total of $ 9.0 million.

The promissory notes are unsecured and bear interest of 2.25 %.

The receivable is recorded as a reduction of equity within our unaudited Consolidated Balance Sheets and is presented within our unaudited Consolidated Statement of Changes in Stockholders’ Equity within the “other" caption.

Note 14— Earnings (Loss) per Share

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.

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

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 the three months ended March 31, 2020.

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

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

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:

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

(in millions) 2020 2020

Assumed conversion of dilutive stock options 1.5 1.8

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Assumed conversion of convertible preferred shares 0.8 0.6

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,

Assumed conversion of convertible debt 7.9 4.0

The following table sets forth the allocation of net income for the three and six months ended June 30, 2021 under the two-class method.

For the three and six months ended June 30, 2020 we did not utilize the two-class method due to incurring a net loss for the period.

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

(in millions) 2021 2020 2021 2020

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Net income (loss) applicable to common stock $ 197.7 $ ( 213.9 ) $ 288.2 $ ( 822.5 )

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 months ended March 31, 2021 and 2020:

For the three months ended March 31,

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

(in millions) 2021 2020 2021 2020

Weighted-average common shares outstanding - Basic 155.7 115.7

Weighted-average common shares outstanding 156.0 126.8 155.8 121.3

Assumed conversion of:

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Weighted-average common shares outstanding - Diluted 172.7 126.8 172.8 121.3

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,

RSAs and RSUs with performance and market based vesting conditions that have not been met as of June 30, 2021 were excluded from the computation of diluted earnings (loss) per share for the three and six months ended June 30, 2021.

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 and six months ended June 30, 2021 because including them would have been anti-dilutive.

Options to purchase 0.2 million shares were outstanding during the three and six months ended June 30, 2021, respectively, compared to 3.0 million and 1.9 million during the three and six months ended June 30, 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 and six months ended June 30, 2021 and 2020:

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

(in millions, except per share data) 2021 2020 2021 2020

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Diluted earnings (loss) per share $ 1.17 $ ( 1.69 ) $ 1.72 $ ( 6.78 )

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

(1) The three and six months ended June 30, 2021 were tax-affected at a rate of 20 %.

Note 15— Fair Value Measurements

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Equity Securities

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.

As of June 30, 2021 and December 31, 2020, we held $ 161.9 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 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).

During the three and six months ended June 30, 2021, we recognized a holding loss of $ 7.4 million, and a holding gain of $ 18.8 million related to these equity securities, respectively, compared to a gain of $ 29.5 million and $ 7.7 million for three and six months ended June 30, 2020, respectively, 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 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.

As of June 30, 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 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.

As of June 30, 2021 and December 31, 2020, the promissory notes and the local government corporation bonds 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 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.

Other long-term obligations as of June 30, 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.

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Other Liabilities

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 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.

Other liabilities as of June 30, 2021 and December 31, 2020 consisted of contingent purchase price liabilities related to Plainridge Park Casino and Hitpoint, which was acquired on May 11, 2021.

The Hitpoint contingent purchase price liability is payable in $ 1.0 million installments in the form of cash and equity, on the first three anniversaries of the acquisition close date (May 11, 2021) and is based on the achievement of mutual goals established by the Company and Hitpoint.

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

As of June 30, 2021, we were contractually obligated to make five additional annual payments.

The fair value of the Plainridge Park Casino contingent purchase price liability is estimated based on an income approach using a discounted cash flow model.

These contingent purchase price liabilities have been classified as a Level 3 measurement and are 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:

March 31, 2021

June 30, 2021

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

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Promissory notes $ 15.1 $ 15.1 $ — $ 15.1 $ —

Puts and calls related to certain Barstool Sports shares $ 2.8 $ 2.8 $ — $ 2.8 $ —

Financial liabilities:

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Other liabilities $ 14.4 $ 14.2 $ — $ 2.6 $ 11.6

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

December 31, 2020

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Included in earnings (1)

Balance as of March 31, 2021 $ 81.4

Balance as of June 30, 2021 $ 89.3

(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:

The following table summarizes the significant unobservable inputs used in calculating fair value for our Level 3 liabilities on a recurring basis as of June 30, 2021:

Valuation Technique Unobservable Input Discount Rate

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

For the three months ended March 31,

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

(in millions) 2021 2020 2021 2020

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Midwest segment 294.8 36.0 529.5 264.1

97.7 27.6 185.6 47.9

Intersegment eliminations (2)

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( 25.7 ) ( 8.7 ) ( 47.0 ) ( 27.6 )

586.6 24.5 1,033.6 276.8

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

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Cash-settled stock-based awards variance 12.4 ( 16.1 ) ( 9.1 ) ( 7.2 )

Gain (loss) on disposal of assets 0.1 ( 0.6 )

Gain on disposal of assets 0.1 28.5 0.2 27.9

Contingent purchase price ( 1.2 ) ( 0.8 ) ( 1.3 ) 1.4

Pre-opening and acquisition costs ( 1.6 ) ( 3.2 )

Pre-opening expenses (5)

0.4 ( 3.5 ) ( 1.2 ) ( 6.7 )

Depreciation and amortization ( 81.9 ) ( 91.9 ) ( 163.2 ) ( 187.6 )

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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.

The Other category also includes Penn Interactive, which operates social gaming, our internally-branded retail sportsbooks, iGaming and our Barstool Sportsbook mobile app.

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.

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the difference between budget and actual expense for cash-settled stock-based awards;

pre-opening and acquisition costs;

and other income or expenses.

pre-opening expenses (see footnote (5) below);

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

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

(4) The Company’s triple net operating leases include the operating lease components contained within our triple net master lease dated November 1, 2013 with GLPI and the triple net master lease assumed in connection with our acquisition of Pinnacle Entertainment, Inc.

(primarily land), our individual triple net leases with GLPI for the real estate assets used in the operation of Tropicana and Meadows Racetrack and Casino, and our individual triple net leases with VICI Properties Inc.

for the real estate assets used in the operations of Margaritaville Casino Resort and Greektown Casino-Hotel.

(5) During 2020 and during the first quarter of 2021, acquisition costs were included within pre-opening and acquisition costs.

As of and for the quarter ended June 30, 2021, acquisition costs are presented as part of other expenses.

(6) Consists principally of interest expense, net;

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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 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 March 31,

(7) Principally includes holding gains and losses on our equity securities, which are discussed in Note 15, “Fair Value Measurements.” Additionally, includes finance transformation costs associated with the implementation of our new Enterprise Resource Management system, other non-recurring transaction costs, and 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;

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

The table below presents capital expenditures by segment:

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

(in millions) 2021 2020 2021 2020

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Total capital expenditures $ 38.9 $ 30.9 $ 64.6 $ 73.7

The table below presents investment in and advances to unconsolidated affiliates and total assets by segment:

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

As of March 31, 2021

Balance sheet as of June 30, 2021

Investment in and advances to unconsolidated affiliates (2)

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Total assets $ 2,059.5 $ 1,206.2 $ 414.7 $ 1,225.5 $ 10,172.3 $ 15,078.2

As of December 31, 2020

Balance sheet as of December 31, 2020

Investment in and advances to unconsolidated affiliates (2)

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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