What changed in this filing

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Item 1. Financial Statements

2021-11-04 compared with 2021-08-05 · 243 added, 205 removed, 832 unchanged (35% of the section changed)

3 unchanged sentences

CONSOLIDATED BALANCE SHEETS

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

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

2021 December 31,

1 unchanged sentence

Cash and cash equivalents $ 2,729.3 $ 1,853.8

Receivables, net 138.5 96.4

Accounts receivable, net 154.1 96.4

Prepaid expenses 112.0 103.5

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COMPREHENSIVE INCOME (LOSS)

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

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

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

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Interest expense, net ( 144.9 ) ( 142.3 ) ( 418.6 ) ( 407.1 )

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

Income from unconsolidated affiliates 9.1 5.0 27.8 7.4

Other 19.2 68.0 43.1 75.5

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Three Months Ended June 30, 2021 and 2020

Three Months Ended September 30, 2021 and 2020

Preferred Stock Common Stock Treasury

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(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

Balance as of July 1, 2021 775 $ 24.2 156,786,873 $ 1.6 $ ( 28.4 ) $ 3,178.5 $ ( 217.6 ) $ 2,958.3 $ ( 0.5 ) $ 2,957.8

Share-based compensation arrangements — — 17,318 — — 8.5 — 8.5 — 8.5

Share issuance (Note 13) 43 3.0 198,103 — — 15.8 — 18.8 — 18.8

Conversion of Preferred Stock (Note 13) ( 43 ) ( 1.4 ) 43,000 — — 1.4 — — — —

Net income — — — — — — 86.1 86.1 — 86.1

Other — — — — — 0.2 — 0.2 — 0.2

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

Balance as of September 30, 2021 775 $ 25.8 157,045,294 $ 1.6 $ ( 28.4 ) $ 3,204.4 $ ( 131.5 ) $ 3,071.9 $ ( 0.5 ) $ 3,071.4

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

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

Common Stock Offering (Note 13) — — 16,100,000 0.2 — 957.4 — 957.6 — 957.6

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

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

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

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

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

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

PENN NATIONAL GAMING, INC.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Six Months Ended June 30, 2021 and 2020

Nine Months Ended September 30, 2021 and 2020

Preferred Stock Common Stock Treasury

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Other — — — — — ( 9.4 ) — ( 9.4 ) — ( 9.4 )

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 September 30, 2021 775 $ 25.8 157,045,294 $ 1.6 $ ( 28.4 ) $ 3,204.4 $ ( 131.5 ) $ 3,071.9 $ ( 0.5 ) $ 3,071.4

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

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

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

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

See accompanying notes to the Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

For the six months ended June 30,

For the nine months ended September 30,

(in millions) 2021 2020

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Net income (loss) $ 375.7 $ ( 681.8 )

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

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

Depreciation and amortization 246.9 275.3

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Change in fair value of contingent purchase price 1.9 ( 1.4 )

Gain on acquisition of Sam Houston ( 29.9 ) —

Holding gain on equity securities ( 8.7 ) ( 75.6 )

Change in fair value in puts/calls associated with our Barstool Sports investment ( 0.6 ) —

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

Loss (gain) on sale or disposal of property and equipment 0.1 ( 33.9 )

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

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Other current and long-term liabilities 47.4 1.5

Net cash provided by (used in) operating activities 504.6 ( 130.9 )

Net cash provided by operating activities 779.0 220.8

Investing activities

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Consideration paid for acquisitions of businesses, net of cash acquired ( 34.4 ) ( 3.0 )

Consideration paid for remaining interest of Sam Houston ( 42.0 ) —

Acquisition of equity securities ( 26.0 ) —

Consideration paid for gaming licenses and other intangible assets ( 20.6 ) —

For the nine months ended September 30,

(in millions) 2021 2020

Other ( 8.7 ) ( 0.3 )

Net cash used in investing activities ( 269.5 ) ( 235.9 )

For the six months ended June 30,

(in millions) 2021 2020

Financing activities

Proceeds from revolving credit facility — 540.0

Repayments on revolving credit facility — ( 10.0 )

Repayments of revolving credit facility — ( 680.0 )

Proceeds from issuance of long-term debt, net of discounts 400.0 322.2

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Commencement of operating leases $ 31.6 $ 67.4

Commencement of finance leases $ 102.9 $ —

Accrued capital expenditures $ 25.0 $ ( 13.1 )

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Organization:

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

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

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

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

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

We launched an 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 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.

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

We launched the Barstool Sportsbook and Casino app in six additional states, bringing our total to ten live states, three of which offer online casino play.

Our my choice ® customer loyalty program (the “my choice program”) currently has over 24 million members, and rewards and recognizes such members for their loyalty to both retail and online gaming and sports betting products with dynamic offers, experiences, and service levels.

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, sports betting entertainment, and sports content.

As of September 30, 2021, we owned, managed, or had ownership interests in 43 gaming and racing properties in 20 states.

This includes the addition of Hollywood Casino York, located in York, Pennsylvania, which opened on August 12, 2021 and Hollywood Casino Perryville, located in Perryville, Maryland, acquired as of July 1, 2021.

In addition, we are licensed to offer live sports betting at our properties in ten states.

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 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.

As of September 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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Grantville, Pennsylvania Penn Master Lease

Hollywood Casino Perryville Perryville, Maryland Perryville Lease

Hollywood Casino Toledo Toledo, Ohio Penn Master Lease

Hollywood Casino York York, Pennsylvania Operating Lease (not with REIT Landlord)

Hollywood Gaming at Dayton Raceway Dayton, Ohio Penn Master Lease

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Pennsylvania N/A

Meadows Racetrack and Casino Washington, Pennsylvania Meadows Lease

Hollywood Casino at Meadows Racetrack Washington, Pennsylvania Meadows Lease

Plainridge Park Casino Plainville, Massachusetts Pinnacle Master Lease

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Louis, Missouri Pinnacle Master Lease

(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.

(1) Our Category 4 development Hollywood Casino Morgantown (subject to the Morgantown Lease) is 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 June 30, For the six months ended June 30,

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

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 $ 35.0 million and $ 35.8 million as of September 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.

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

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

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Unpaid wagers 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 $ 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 Company’s advance payments on goods and services yet to be provided and for unpaid wagers were $ 91.6 million and $ 47.1 million as of September 30, 2021 and December 31, 2020, respectively, of which none was classified as long-term as of September 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 $ 54.9 million and $ 52.7 million as of June 30, 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 $ 54.4 million and $ 52.7 million as of September 30, 2021 and December 31, 2020, respectively.

Gaming and Racing Taxes:

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

For the three and nine months ended September 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 $ 505.8 million and $ 1.4 billion respectively, as compared to $ 349.2 million and $ 783.1 million for the three and nine months ended September 30, 2020, respectively.

Earnings Per Share:

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

Holders of the Company’s Series D Preferred Stock (as defined in Note 10, “Investments in and Advances to Unconsolidated Affiliates” ) are entitled to participate equally and ratably in all dividends and distributions paid to holders of Penn Common Stock irrespective of any vesting requirement.

Holders of the Company’s Series D Preferred Stock (as defined in Note 10, “Investments in and Advances to Unconsolidated Affiliates” ) are entitled to participate equally and ratably in all dividends and distributions paid to holders of the Company's common stock ("Penn Common Stock") irrespective of any vesting requirement.

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

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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, 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.

The insurance recovery receivable is included in “Accounts Receivable, net” within the unaudited Consolidated Balance Sheets.

As we deem it 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.

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.

The amount of the receivable was $ 28.6 million and $ 23.0 million, as of September 30, 2021 and December 31, 2020, respectively.

No proceeds were received from our insurers during the nine months ended September 30, 2021.

For the three and nine months ended September 30, 2021, we identified an additional $ 0.3 million and $ 5.6 million of costs related to our policy claim, respectively.

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 June 30, 2021.

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

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

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

Insurance proceeds $ 47.5 $ 47.5

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Coinsurance $ 2.5 $ 2.5

Clean-up and Restoration Costs $ 52.4 $ 47.1

Clean-up, restoration, and other costs $ 52.7 $ 47.1

Fixed asset write-off $ 23.2 $ 23.2

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

For the three months ended June 30, 2021

For the three months ended September 30, 2021

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

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Total revenues $ 672.4 $ 318.2 $ 145.7 $ 285.7 $ 96.5 $ ( 6.7 ) $ 1,511.8

For the three months ended June 30, 2020

For the three months ended September 30, 2020

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

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

For the six months ended June 30, 2021

For the nine months ended September 30, 2021

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

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Total revenues $ 1,895.8 $ 982.3 $ 382.7 $ 815.2 $ 282.1 $ ( 25.6 ) $ 4,332.5

For the six months ended June 30, 2020

For the nine months ended September 30, 2020

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

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Note 6— Acquisitions and Dispositions

Tropicana Las Vegas

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 the rent credits to pay rent under our existing Master Leases and the Meadows Lease, (as defined and discussed in Note 9, “Leases” ), 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, 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 within the first half of 2022, subject to Penn, GLPI, and Bally’s entering into definitive agreements and obtaining regulatory approval.

HitPoint Inc.

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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 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" ).

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 late 2021 or early 2022, subject to Penn, GLPI and Bally's entering into definitive agreements and obtaining regulatory approval.

The preliminary purchase price allocation resulted in a recognition of $ 8.8 million of goodwill, $ 4.0 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.

The developed technology is an amortizing intangible asset with an assigned useful life of five years , and was valued using the multi-period excess earnings method, a variation of the income approach, which is supported by observable market data for peer companies.

Hollywood Casino Perryville

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.

On July 1, 2021, we completed the previously announced acquisition of the operations of Hollywood Casino Perryville (“Perryville”), from GLPI for a purchase price of $ 39.4 million, including working capital adjustments.

The preliminary purchase price allocation resulted in the recognition of a $ 12.7 million gaming license asset and a $ 1.0 million customer relationship asset, both of which are included in “Other intangible assets, net” within our unaudited Consolidated Balance Sheets, $ 9.2 million of goodwill, $ 8.2 million of tangible long-term assets, comprised primarily of property and equipment, and $ 8.3 million of various operating assets and liabilities.

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.

The gaming license is an indefinite-lived intangible asset, and the customer relationships is an amortizing intangible asset with a useful life of two years .

The Company valued (i) the gaming license using the Greenfield Method, a form of the income approach;

(ii) the customer relationships using the “with and without” method, a form of the income approach, and (iii) the property and equipment and other various operating assets and liabilities primarily utilizing the cost approach.

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

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 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 closed August 1, 2021.

On August 1, 2021, we completed the previously announced acquisition 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 (collectively, “Sam Houston”), from PM Texas Holdings, LLC for a purchase price of $ 57.8 million, comprised of $ 42.0 million in cash and $ 15.8 million of the Company's common equity, which was preliminarily allocated to property and equipment.

In conjunction with the acquisition, we recorded a gain of $ 29.9 million on our equity method investment, which is included in “Other” within our unaudited Consolidated Statements of Operations and Comprehensive Income (Loss).

The property and equipment assets were valued using a combination of the market and cost approaches.

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.

On October 19, 2021, we completed the previously announced 100 % acquisition of the Score Media and Gaming Inc., a British Columbia corporation (“theScore”) for a purchase price of approximately $ 1.9 billion.

Under the terms of the agreement, 1317774 B.C.

(the “Purchaser”), an indirectly wholly owned subsidiary of Penn National, acquired each of the issued and outstanding theScore shares (other than those held by Penn National and its subsidiaries) for US$ 17.00 per share in cash consideration, totaling $ 0.9 billion, and either 0.2398 of a share of common stock, par value $ 0.01 of Penn Common Stock or, if validly elected, 0.2398 of an exchangeable share in the capital of the Purchaser (each whole share, an “Exchangeable Share”), totaling 12,319,340 shares of Penn Common Stock and 697,539 Exchangeable Shares, or approximately $ 1.0 billion.

Each Exchangeable Share will be exchangeable into one share of Penn Common Stock at the option of the holder, subject to certain adjustments.

In addition, Purchaser may redeem all outstanding Exchangeable Shares in exchange for shares of Penn Common Stock at any time following the fifth anniversary of the closing, or earlier under certain circumstances.

Due to the timing of the acquisition and its proximity to the date of this report, the preliminary purchase price allocation has not been completed as the Company is currently in the process of determining the purchase price allocation to tangible and identifiable intangible assets acquired and liabilities assumed.

The acquisition provides us with the technology, resources and audience reach to accelerate our media and sports betting strategy across North America.

Pro Forma Financial Information

Pro forma results of operations for the acquisitions of Hitpoint, Perryville, Sam Houston and theScore have not been presented as they are not material to the consolidated results of operations.

Note 7— Goodwill and Other Intangible Assets

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Goodwill acquired during the period $ 9.2 $ — $ — $ — $ 8.8 $ 18.0

Balance as of June 30, 2021

Balance as of September 30, 2021

Goodwill, gross $ 923.5 $ 236.6 $ 216.8 $ 1,116.7 $ 164.3 $ 2,657.9

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Goodwill, net $ 162.1 $ 175.6 $ 200.2 $ 560.6 $ 76.6 $ 1,175.1

There were no impairment charges recorded to goodwill during the three and six months ended June 30, 2021.

There were no impairment charges recorded to goodwill during the three and nine months ended September 30, 2021.

2020 Assessment for Impairment

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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.

No further impairments were recorded for the remainder of the nine months ended September 30, 2020.

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

June 30, 2021 December 31, 2020

September 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 $ 1,676.2 $ ( 125.7 ) $ 1,550.5 $ 1,634.2 $ ( 120.7 ) $ 1,513.5

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):

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

Amortization expense related to our amortizing intangible assets was $ 2.0 million and $ 6.7 million for the three and nine months ended September 30, 2021, respectively, as compared to $ 5.9 million and $ 18.2 million for the three and nine months ended September 30, 2020, respectively.

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

Years ending December 31,

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

2021 (excluding the nine months ended September 30, 2021)

Thereafter 2.0

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

(in millions) June 30,

(in millions) September 30,

2021 December 31,

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5.625 % Notes due 2027

4.125 % Notes due 2029

2.75 % Convertible Notes due 2026

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

On October 15, 2018, in connection with the acquisition of Pinnacle Entertainment, Inc.

(the “Pinnacle Acquisition”), we entered into an incremental joinder agreement (the “Incremental Joinder”), which amended the Credit Agreement (the “Amended 2017 Credit Agreement”).

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

On October 15, 2018, in connection with the acquisition of Pinnacle Entertainment, Inc., we entered into an incremental joinder agreement (the “Incremental Joinder”), which amended the Credit Agreement (the “Amended Credit Agreement”).

The Incremental Joinder provided for an additional $ 430.2 million of incremental loans having the same terms as the existing Term Loan A Facility, with the exception of extending the maturity date, and an additional $ 1.1 billion of loans as a new tranche having new terms (the “Term Loan B-1 Facility”).

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

On April 14, 2020, the Company entered into a second amendment to its Credit Agreement with its various lenders (the “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.

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 required financial covenants and interest rates during, and subsequent to, a covenant relief period, which concluded on May 7, 2021 (the “Covenant Relief Period”).

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;

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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 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.

As of September 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 $ 26.4 million and $ 28.2 million, respectively, resulting in $ 673.6 million and $ 671.8 million, respectively, of available borrowing capacity under the Revolving Credit Facility.

5.625 % Senior Unsecured Notes

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

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.

2.75 % Unsecured Convertible 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 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.

As of September 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 $ 999.9 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 June 30, 2021 and December 31, 2020, no Convertible Notes have been converted into the Company's common stock.

As of September 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) June 30,

(in millions) September 30,

2021 December 31,

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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.

Interest expense, net

The table below presents interest expense, net:

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

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

For the three months ended September 30, For the nine months ended September 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 4.9 years as of June 30, 2021.

The remaining term of the Convertible Notes was 4.6 years as of September 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.

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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 June 30, 2021, the Company was in compliance with all required financial covenants.

As of September 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 $ 3.7 million and $ 5.2 million for the three and six months ended June 30, 2021, respectively.

The amount included in interest expense related to this obligation was $ 6.9 million and $ 12.1 million for the three and nine months ended September 30, 2021, respectively.

Ohio Relocation Fees

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.

Other long-term obligations included $ 52.8 million and $ 60.9 million as of September 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 %.

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.

As of September 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.

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

The next Annual Escalator test date is scheduled to occur effective November 1, 2021.

As a result of the annual escalator effective November 1, 2021, for the lease year ended October 31, 2021, the fixed component of rent increased by $ 5.6 million.

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

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

Perryville Lease

In conjunction with the acquisition of the operations of Hollywood Casino Perryville on July 1, 2021, the Company entered into a triple net lease with GLPI for the real estate assets associated with the property (“Perryville Lease”) for initial annual rent of $ 7.8 million per year subject to escalation, as discussed in Note 6 “Acquisitions and Dispositions.”

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

The building portion of the annual rent is subject to a fixed annual escalation of 1.50 % in each of the following three years , with subsequent annual escalations of either (i) 1.25 %, if the consumer price index increase is greater than 0.50 %, or (ii) zero , if the consumer price index increase is less than 0.50 %.

We determined the transaction to be a finance lease arrangement and upon execution of the Perryville Lease, recorded a $ 102.9 million ROU asset and a corresponding lease liability.

The interest portion of lease payments is included in “Interest expense, net” and the depreciation of the ROU asset is included in “Depreciation and amortization”, both within our unaudited Consolidated Statements of Operations and Comprehensive Income (Loss).

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 (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.

("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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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:

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.

In May 2020, the lease was amended to remove the escalator for the lease years ending May 31, 2021 and 2022 and to provide for a Net Revenue to Rent coverage floor to be mutually agreed upon prior to the commencement of the fourth lease year (June 1, 2022).

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

(in millions) Operating Leases Finance Leases Financing Obligations

Years ending December 31,

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

Year ended December 31,

2021 (excluding the nine months ended September 30, 2021) $ 104.9 $ 7.4 $ 92.6

2022 414.9 29.4 370.3

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

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

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

(in millions) 2021 2020 2021 2020

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82.4 81.3 245.8 245.6

Perryville Lease 1.9 — 1.9 —

Meadows Lease (1)

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$ 228.5 $ 228.1 $ 683.6 $ 668.5

(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.

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

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

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

(in millions) 2021 2020 2021 2020

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Interest expense, net $ 104.5 $ 103.7 $ 312.4 $ 300.2

(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.

(1) Pertains to the Triple Net Operating Leases, inclusive of the variable expense associated with Columbus and Toledo for the operating lease components (the land), which was $ 5.0 million and $ 14.3 million for the three and nine months ended September 30, 2021, respectively;

and $ 4.8 million and $ 9.5 million for the three and nine months ended September 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 $ 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.

(3) Primarily pertains to the Dayton and Mahoning Valley finance leases and the Perryville Lease (effective July 1, 2021).

(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 $ 4.6 million and $ 13.1 million for the three and nine months ended September 30, 2021, respectively;

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

Note 10— Investments in and Advances to Unconsolidated Affiliates

As of June 30, 2021, investments in and advances to unconsolidated affiliates primarily consisted of the Company’s 36 % interest in Barstool Sports;

As of September 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;

its 50 % interest in Freehold Raceway;

and its 50 % JV with MAXXAM, Inc.

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

and its 50 % interest in Freehold Raceway.

During the third quarter, the Company purchased the remaining 50 % ownership interest of Sam Houston.

See Note 6, “Acquisitions and Dispositions” for further information.

Investment in Barstool Sports

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

Within the three years after the closing of the transaction or earlier at our election, we will increase our ownership in Barstool Sports to approximately 50 % by purchasing approximately $ 62.0 million worth of additional shares of Barstool Sports common stock, consistent with the implied valuation at the time of the initial investment, which was $ 450.0 million.

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

Within three years after the closing of the transaction or earlier at our election, we will increase our ownership in Barstool Sports to approximately 50 % by purchasing approximately $ 62.0 million worth of additional shares of Barstool Sports common stock, consistent with the implied valuation at the time of the initial investment, which was $ 450.0 million.

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

On October 1, 2021, the terms of the February 2020 stock purchase agreement were amended to (i) set a definitive purchase price of $ 325.0 million on the second 50 % of Barstool Sports common stock, which eliminates the floor of 2.25 times the annual revenue of Barstool Sports and (ii) fix a number of Penn common shares to be delivered to existing February 2020 employee holders of Barstool Sports common stock, to the extent Penn’s stock price exceeds a specified value defined in the amended stock purchase agreement and Penn elects to settle using a combination of cash and equity.

Consistent with the February 2020 stock purchase agreement:

(i) the Barstool Sports common stock remains subject to our immediately exercisable

call rights and the existing Barstool Sports stockholders put rights beginning in February 2023, (ii) the requirement to increase our ownership in Barstool Sports to approximately 50 % by purchasing approximately $ 62.0 million worth of additional shares in Barstool Sports common stock remains consistent with the implied valuation at the time of the initial investment, which was $ 450.0 million, and (iii), we may settle the call and put options, at our sole election, using either cash or a combination of cash and equity.

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

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

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

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

Series D Preferred Stock is nonvoting stock.

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 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 September 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 %, and subsequently acquired an additional 0.3 % during the third quarter, of Barstool Sports common stock, par value $ 0.0001 per share, 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 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.

As of September 30, 2021 and December 31, 2020, we have an amortizing intangible asset pertaining to the customer list of $ 1.0 million and $ 1.6 million, respectively.

As of September 30, 2021 and December 31, 2020, we have a prepaid expense pertaining to the advertising in the amount of $ 15.7 million, and $ 16.5 million respectively, of which $ 14.6 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 June 30, 2021 and December 31, 2020, our investment in Barstool Sports was $ 155.7 million and $ 147.5 million, respectively.

As of September 30, 2021 and December 31, 2020, our investment in Barstool Sports was $ 160.0 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 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.

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

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

As of September 30, 2021 and December 31, 2020, our investment in Kansas Entertainment was $ 83.4 million and $ 85.2 million, respectively.

During the three and nine months ended September 30, 2021, the Company received distributions from Kansas Entertainment totaling $ 10.5 million and $ 23.9 million, respectively, as compared to $ 6.8 million and $ 15.5 million for the three and nine months ended September 30, 2020, respectively.

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.

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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 June 30, 2021 and December 31, 2020, nor the results of operations for the three and six months ended June 30, 2021 and 2020.

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

Texas Joint Venture

The Company has a 50 % interest in a JV with MAXXAM, which owns and operates the Sam Houston Race Park in Houston, Texas and the Valley Race Park in Harlingen, Texas, and holds a license for a racetrack in Austin, Texas.

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

On August 1, 2021, we completed the previously announced acquisition of the remaining 50 % ownership interest in Sam Houston.

In conjunction with the acquisition we recorded a gain of $ 29.9 million on our equity method investment, which is included in “Other” within our unaudited Consolidated Statements of Operations and Comprehensive Income (Loss).

See Note 6, “Acquisitions and Dispositions” for further information.

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.

No further impairment loss was recorded for the remainder of the nine months ended September 30, 2020.

No impairment was recorded for the three and nine months ended September 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 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.

The effective tax rate (income taxes as a percentage of income or loss before income taxes) including discrete items was 29.7 % and 22.7 % for the three and nine months ended September 30, 2021, as compared to ( 11.3 )% and 20.2 % for the three and nine months ended September 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 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.

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 September 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 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.

During the three months ended September 30, 2021, the Company increased the valuation allowance in the amount of $ 1.2 million on certain federal and state deferred tax assets that are not more likely than not to be realized.

As of September 30, 2021 and December 31, 2020, prepaid income taxes of $ 41.6 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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All of the shares were issued at a public offering price of $ 18.00 per share, resulting in gross proceeds of $ 345.0 million, and net proceeds of $ 331.2 million after underwriter fees and discounts of $ 13.8 million.

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

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

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

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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 .

On August 1, 2021, as part of the acquisition of Sam Houston, the Company issued 198,103 shares for a total of $ 15.8 million.

See Note 6, “Acquisitions and Dispositions.”

Preferred Stock

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.

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

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

During each of the quarters ended March 31, 2021 and September 30, 2021, the Company issued 43 shares of Series D Preferred Stock, for a total of 86 shares, in conjunction with acquiring an additional 0.6 % of Barstool Sports common stock.

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

As of 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.

During the quarters ended March 31, 2021 and September 30, 2021, 151.2 and 43.0 shares of Series D Preferred Stock were converted to Penn Common Stock, respectively.

As a result of the conversion, the Company issued 151,200 and 43,000 shares of common stock, each with a par value of $ 0.01 .

As of September 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, 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.

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

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.

As of September 30, 2021, there were 4,863,345 shares available for future grants under the 2018 Plan.

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.

As of the grant date, (i) the fair value of the Stock Awards was $ 48.7 million and was calculated using a Monte Carlo simulation, (ii) 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, and (iii) 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 $ 2.2 million and $ 4.1 million of stock compensation expense for the Stock Awards during the three and nine months ended September 30, 2021, respectively.

Performance Share Program

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

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

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

An aggregate of 107,297 RSAs with performance-based vesting conditions, at target, was granted in February 2020 under the Performance Share Program, 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.

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.

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, 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, 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-based compensation expense, which pertains principally to our stock options, RSAs and RSUs, for the three and nine months ended September 30, 2021 was $ 8.5 million and $ 21.9 million, respectively, as compared to $ 2.8 million and $ 11.7 million for the three and nine months ended September 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 0.0 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.

The Company granted 736 and 230,901 stock options during the three and nine months ended September 30, 2021, respectively, as compared to 12,327 and 648,259 stock options during the three and nine months ended September 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 outstanding CPSUs entitle plan recipients 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.

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 $ 7.8 million and $ 10.1 million as of September 30, 2021 and December 31, 2020, respectively.

For CPSUs held by plan recipients, there was $ 21.1 million of total unrecognized compensation cost as of September 30, 2021 that will be recognized over the awards remaining weighted-average vesting period of 2 years.

For the three and nine months ended September 30, 2021, the Company recognized $ 5.5 million and $ 11.2 million of compensation expense associated with these awards, respectively, as compared to $ 5.3 million and $ 7.3 million for the three and nine months ended September 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.

We paid $ 13.5 million and $ 4.5 million during the nine months ended September 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 $ 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.

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 $ 30.1 million and $ 54.6 million as of September 30, 2021 and December 31, 2020, respectively.

For SARs held by employees of the Company, there was $ 44.0 million of total unrecognized compensation cost as of September 30, 2021 that will be recognized over the awards remaining weighted-average vesting period of 2.1 years.

The Company recognized compensation expense of $ 3.2 million and $ 13.6 million for the three and nine months ended September 30, 2021, respectively, as compared to an expense of $ 37.8 million and $ 50.0 million for the three and nine months ended September 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 $ 38.0 million and $ 10.2 million during the six months ended June 30, 2021 and 2020, respectively, related to cash-settled SARs.

We paid $ 38.8 million and $ 22.8 million during the nine months ended September 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.

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Note 14— Earnings (Loss) per Share

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.

For the three and nine months ended September 30, 2021, and for the three months ended September 30, 2020 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 nine months ended September 30, 2021 and the three months ended September 30, 2020.

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

As such, because the dilution from potential common shares was antidilutive, we used basic weighted-average common shares outstanding, rather than diluted weighted-average common shares outstanding when calculating diluted loss per share for the three and six months ended June 30, 2020.

For the nine months ended September 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,

For the nine months ended September 30,

(in millions) 2020

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Assumed conversion of convertible debt 7.4

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,

The following table sets forth the allocation of net income for the three and nine months ended September 30, 2021 and the three months ended September 30, 2020 under the two-class method.

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

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

(in millions) 2021 2020 2021 2020

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Net income (loss) applicable to common stock $ 85.7 $ 141.1 $ 373.9 $ ( 680.6 )

The following table reconciles the weighted-average common shares outstanding used in the calculation of basic EPS to the weighted-average common shares outstanding used in the calculation of diluted EPS for the three and six months ended June 30, 2021 and 2020:

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

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

(in millions) 2021 2020 2021 2020

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Weighted-average common shares outstanding - Diluted 172.7 155.5 172.7 126.9

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,

RSAs with performance and market based vesting conditions that have not been met as of September 30, 2021 were excluded from the computation of diluted earning per share for the three and nine months ended September 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 nine months ended September 30, 2021 because including them would have been anti-dilutive.

Options to purchase 0.2 million shares were outstanding during the three and nine months ended September 30, 2021, respectively, compared to zero and 0.9 million during the three and nine months ended September 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 nine months ended September 30, 2021 and 2020:

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

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

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Diluted earnings (loss) per share $ 0.52 $ 0.93 $ 2.24 $ ( 5.36 )

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

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

Note 15— Fair Value Measurements

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Equity Securities

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.

As of September 30, 2021, we held $ 176.8 million in equity securities of ordinary shares which are reported as “Other assets” in our unaudited Consolidated Balance Sheets.

During the quarter ended September 30, 2021, all warrants were exercised for ordinary shares which resulted in a loss of $ 20.1 million included in “Other,” as reported in “Other income (expenses)” within our unaudited Consolidated Statements of Operations and Comprehensive Income (Loss).

As of December 31, 2020, we held $ 143.1 million in equity securities, which included ordinary shares and warrants which are reported as “Other assets” in our unaudited Consolidated Balance Sheets.

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

During the three and 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).

During the three and nine months ended September 30, 2021, we recognized a holding gain of $ 10.1 million, and a holding gain of $ 28.9 million, respectively, related to these equity securities, compared to a gain of $ 67.9 million and $ 75.6 million for three and nine months ended September 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 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 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.

As of September 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 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.

As of September 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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Long-term Debt

The fair value of our Term Loan A Facility, Term Loan B-1 Facility, 5.625 % Notes, and 2.75 % Convertible Notes is estimated based on quoted prices in active markets and is classified as a Level 1 measurement.

The fair value of our Term Loan A Facility, Term Loan B-1 Facility, 5.625 % Notes, 4.125 % Notes, and Convertible Notes is estimated based on quoted prices in active markets and is classified as a Level 1 measurement.

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

Other long-term obligations as of 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.

Other long-term obligations as of September 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.

The fair values of the Dayton and Mahoning Valley relocations fees and the Lawrenceburg repayment obligation are estimated based on rates consistent with the Company’s credit rating for comparable terms and debt instruments and are classified as Level 2 measurements.

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

The financing obligation has been classified as a non-current liability and the fair value of the financing obligation is based on what we expect to be settled in a future period of which the principal is contingent and predicated on other events, plus accreted period interest using an effective interest rate of 27.0 % until the claims and related obligation is settled.

The financing obligation has been classified as a Level 3 measurement and is included within our unaudited Consolidated Balance Sheets in “Long-term debt, net of current maturities, debt discount and debt issuance costs.” See Note 8, “Long-term Debt.”

Other Liabilities

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.

Other liabilities as of September 30, 2021 and December 31, 2020 includes contingent purchase price liabilities related to Plainridge Park Casino and Hitpoint, of which Hitpoint 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.

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 September 30, 2021, we were contractually obligated to make four 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.

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

June 30, 2021

September 30, 2021

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

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$ 399.6 $ 413.5 $ 413.5 $ — $ —

4.125 % Notes

$ 392.7 $ 393.5 $ 393.5 $ — $ —

Convertible Notes $ 250.0 $ 1,058.8 $ 1,058.8 $ — $ —

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Additions 75.5

Interest 12.1

Payments ( 1.7 )

Included in earnings (1)

Balance as of June 30, 2021 $ 89.3

Balance as of September 30, 2021 $ 95.1

(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 June 30, 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 September 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 June 30, For the six months ended June 30,

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

(in millions) 2021 2020 2021 2020

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Cash-settled stock-based awards variance ( 5.2 ) ( 39.5 ) ( 14.3 ) ( 46.7 )

Gain on disposal of assets 0.1 28.5 0.2 27.9

Gain (loss) on disposal of assets ( 0.3 ) 6.0 ( 0.1 ) 33.9

Contingent purchase price ( 0.6 ) — ( 1.9 ) 1.4

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Net income (loss) $ 86.1 $ 141.2 $ 375.7 $ ( 681.8 )

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

(1) The Other category consists of the Company’s stand-alone racing operations, namely Sanford-Orlando Kennel Club, and Sam Houston and Valley Race Parks (the remaining 50 % was acquired by Penn National on August 1, 2021), and the Company’s JV interests in Freehold Raceway;

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

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(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.

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

Beginning with 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.

(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;

We record our portion of Barstool Sports, Inc.'s net income or loss, including adjustments to arrive at Adjusted EBITDAR, one quarter in arrears.

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

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

(in millions) 2021 2020 2021 2020

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

Balance sheet as of June 30, 2021

Balance sheet as of September 30, 2021

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