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Item 1. Financial Statements

2022-05-05 compared with 2021-11-04 · 445 added, 403 removed, 672 unchanged (56% of the section changed)

3 unchanged sentences

CONSOLIDATED BALANCE SHEETS

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

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

2022 December 31,

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

Series D Preferred stock ($ 0.01 par value, 5,000 shares authorized, 969 and 883 shares issued, and 775 and 883 shares outstanding)

Common stock ($ 0.01 par value, 400,000,000 and 200,000,000 shares authorized, 159,202,151 and 157,868,227 shares issued, and 157,045,294 and 155,700,834 shares outstanding)

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

Series D Preferred stock ($ 0.01 par value, 5,000 shares authorized, 969 shares issued in both periods, and 581 and 775 shares outstanding)

Common stock ($ 0.01 par value, 400,000,000 shares authorized in both periods, 172,131,619 and 171,729,276 shares issued, and 166,161,818 and 169,561,883 shares outstanding)

Exchangeable shares ($ 0.01 par value, 697,539 shares authorized and issued in both periods, 633,189 and 653,059 shares outstanding)

Treasury stock, at cost, ( 5,969,801 and 2,167,393 shares)

( 203.5 ) ( 28.4 )

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Retained earnings (accumulated deficit) ( 15.9 ) ( 86.5 )

Total Penn National stockholders’ equity 3,071.9 2,656.2

Accumulated other comprehensive loss ( 18.6 ) ( 54.4 )

Total Penn National Gaming stockholders’ equity 3,953.5 4,097.8

Non-controlling interest ( 0.8 ) ( 0.7 )

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Total liabilities and stockholders’ equity $ 18,071.1 $ 16,872.1

See accompanying notes to the Consolidated Financial Statements.

See accompanying notes to the unaudited Consolidated Financial Statements.

PENN NATIONAL GAMING, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME (LOSS)

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

CONSOLIDATED STATEMENTS OF OPERATIONS

For the three months ended March 31,

(in millions, except per share data) 2022 2021

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Depreciation and amortization 118.2 81.3

Impairment losses — — — 616.1

Total operating expenses 1,272.2 1,058.4

Operating income (loss) 239.1 196.2 833.5 ( 529.8 )

Operating income 292.0 216.5

Other income (expenses)

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Total other expenses ( 192.8 ) ( 105.0 )

Income (loss) before income taxes 122.5 126.9 485.8 ( 854.0 )

Income tax benefit (expense) ( 36.4 ) 14.3 ( 110.1 ) 172.2

Net income (loss) 86.1 141.2 375.7 ( 681.8 )

Income before income taxes 99.2 111.5

Income tax expense ( 47.6 ) ( 20.6 )

Net income 51.6 90.9

Net loss attributable to non-controlling interest 0.1 0.1

Net income (loss) attributable to Penn National $ 86.1 $ 141.9 $ 375.8 $ ( 680.6 )

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

Comprehensive loss attributable to non-controlling interest — 0.7 0.1 1.2

Comprehensive income (loss) attributable to Penn National $ 86.1 $ 141.9 $ 375.8 $ ( 680.6 )

Earnings (loss) per share:

Basic earnings (loss) per share $ 0.55 $ 1.02 $ 2.40 $ ( 5.36 )

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

Net income attributable to Penn National Gaming $ 51.7 $ 91.0

Earnings per share:

Basic earnings per share $ 0.31 $ 0.58

Diluted earnings per share $ 0.29 $ 0.55

Weighted-average common shares outstanding—basic 168.2 155.7

Weighted-average common shares outstanding—diluted 184.2 172.8

See accompanying notes to the Consolidated Financial Statements.

See accompanying notes to the unaudited Consolidated Financial Statements.

PENN NATIONAL GAMING, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Three Months Ended September 30, 2021 and 2020

Preferred Stock Common Stock Treasury

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

Equity Non-Control-

ling Interest Total

holders’ Equity

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

Balance as of 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 — — — —

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the three months ended March 31,

(in millions) 2022 2021

Net income $ 51.6 $ 90.9

Other — — — — — 0.2 — 0.2 — 0.2

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

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

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

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

Other comprehensive income:

Foreign currency translation adjustment during the period 35.8 —

Other comprehensive income 35.8 —

Total comprehensive income 87.4 90.9

Comprehensive loss attributable to non-controlling interest 0.1 0.1

Comprehensive income attributable to Penn National Gaming $ 87.5 $ 91.0

See accompanying notes to the unaudited Consolidated Financial Statements.

PENN NATIONAL GAMING, INC.

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Nine Months Ended September 30, 2021 and 2020

Preferred Stock Common Stock Treasury

Capital Retained Earnings (Accum-

ulated Deficit) Total Penn National Stock-

Equity Non-Control-

ling Interest Total

holders’ Equity

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

Three Months Ended March 31, 2022 and 2021

Preferred Stock Common Stock Treasury Stock Additional

Capital Retained Earnings (Accumulated Deficit) Accumulated Other Comprehensive Income (Loss) Total Penn Stockholders’ Equity Non-Controlling Interest Total Stockholders’ Equity

(in millions, except share data) Shares Amount Penn National Gaming Shares Amount Exchangeable Shares Amount

Balance as of January 1, 2022 775 $ 25.8 169,561,883 $ 1.7 653,059 $ — $ ( 28.4 ) $ 4,239.6 $ ( 86.5 ) $ ( 54.4 ) $ 4,097.8 $ ( 0.7 ) $ 4,097.1

Share-based compensation arrangements — — 188,273 — — — — 17.0 — — 17.0 — 17.0

Share issuance (Note 13) 86 8.1 241,787 — — 19.3 — 27.4 — 27.4

Preferred Stock Conversion (Note 13) ( 194 ) ( 5.4 ) 194,200 — — 5.4 — — — —

Share repurchases — — ( 3,802,408 ) — — — ( 175.1 ) — — — ( 175.1 ) — ( 175.1 )

Preferred stock conversions (Note 13) ( 194 ) ( 6.4 ) 194,200 — — — — 6.4 — — — — —

Exchangeable shares conversions (Note 13) — — 19,870 — ( 19,870 ) — — — — — — — —

Currency translation adjustment — — — — — — — — — 35.8 35.8 — 35.8

Cumulative-effect adjustment upon adoption of ASU 2020-06 — — — — — — — ( 88.2 ) 18.9 — ( 69.3 ) — ( 69.3 )

Net income (loss) — — — — — — — — 51.7 — 51.7 ( 0.1 ) 51.6

Other — — — — — — — ( 4.4 ) — — ( 4.4 ) — ( 4.4 )

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 March 31, 2022 581 $ 19.4 166,161,818 $ 1.7 633,189 $ — $ ( 203.5 ) $ 4,170.4 $ ( 15.9 ) $ ( 18.6 ) $ 3,953.5 $ ( 0.8 ) $ 3,952.7

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

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

Common stock offering (Note 13) — — 35,266,667 0.4 — 1,288.4 — 1,288.8 — 1,288.8

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

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

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

Net loss — — — — — — ( 680.6 ) ( 680.6 ) ( 1.2 ) ( 681.8 )

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

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

See accompanying notes to the Consolidated Financial Statements.

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

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

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

Balance as of March 31, 2021 775 $ 24.2 156,330,141 $ 1.6 — $ — $ ( 28.4 ) $ 3,175.2 $ ( 416.3 ) $ — $ 2,756.3 $ ( 0.5 ) $ 2,755.8

See accompanying notes to the unaudited Consolidated Financial Statements.

PENN NATIONAL GAMING, INC.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

For the nine months ended September 30,

For the three months ended March 31,

(in millions) 2022 2021

Operating activities

Net income (loss) $ 375.7 $ ( 681.8 )

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

Net income $ 51.6 $ 90.9

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 118.2 81.3

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Noncash operating lease expense 25.2 35.5

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 ) —

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

Holding (gain) loss on equity securities 38.7 ( 26.2 )

Gain on Hurricane Laura ( 8.8 ) —

Income from unconsolidated affiliates ( 8.7 ) ( 9.6 )

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Stock-based compensation 17.0 4.2

Impairment losses — 616.1

Changes in operating assets and liabilities, net of businesses acquired

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Other current and long-term liabilities ( 16.6 ) 2.5

Other 0.3 4.4

Net cash provided by operating activities 224.9 180.5

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Capital expenditures ( 65.6 ) ( 25.7 )

Consideration paid for Barstool Sports investment — ( 135.0 )

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

Proceeds from sale of property and equipment 3.8 —

Hurricane Laura insurance proceeds 24.2 —

Other ( 2.0 ) ( 1.6 )

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Financing activities

Proceeds from revolving credit facility — 540.0

Repayments of revolving credit facility — ( 680.0 )

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

Principal payments on long-term debt ( 20.5 ) ( 16.1 )

Debt and equity issuance costs ( 7.5 ) ( 6.9 )

Proceeds from other long-term obligations — 72.5

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Principal payments on finance leases ( 25.4 ) ( 1.7 )

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

Proceeds from exercise of options 2.3 5.7

Repurchase of common stock ( 175.1 ) —

Proceeds from insurance financing — 23.1

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Other ( 4.4 ) ( 4.8 )

Net cash provided by financing activities 375.2 1,445.5

Net cash (used in) provided by financing activities ( 239.2 ) 60.1

Effect of currency rate changes on cash, cash equivalents, and restricted cash ( 0.9 ) —

Change in cash, cash equivalents, and restricted cash ( 54.8 ) 213.3

For the three months ended March 31,

(in millions) 2022 2021

Cash, cash equivalents and restricted cash at the beginning of the year 1,880.1 1,870.4

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Cash payments (refunds) related to income taxes, net $ 1.0 $ ( 8.8 )

Non-cash investing and financing activities:

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

Non-cash activities:

Commencement of operating leases $ 38.1 $ 5.7

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Accrued capital expenditures $ 28.9 $ 15.6

See accompanying notes to the Consolidated Financial Statements.

See accompanying notes to the unaudited Consolidated Financial Statements.

PENN NATIONAL GAMING, INC.

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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 omni-channel provider 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, and online casinos (“iGaming”).

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

(“Barstool Sports”), a leading digital sports, entertainment, lifestyle and media company, and entered into a strategic relationship with Barstool Sports, whereby Barstool Sports 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.

Penn National Gaming, Inc., together with its subsidiaries (“Penn,” the “Company,” “we,” “our,” or “us”), is North America’s leading provider of integrated entertainment, sports content, and casino gaming experiences.

A member of the S&P 500, Penn operates 44 properties in 20 states, online sports betting in 13 jurisdictions and iCasino in five , under a portfolio of well-recognized brands including Hollywood Casino ® , L'Auberge ® , Barstool Sportsbook ® and theScore Bet ® .

Penn’s highly differentiated strategy, which is focused on organic cross-sell opportunities, is reinforced by its investments in owned technology, including a state-of-the-art media and betting platform and an in-house iCasino content studio.

The Company’s portfolio is further bolstered by its industry-leading my choice ® customer loyalty program (the “my choice program”), which offers its over 25 million members a unique set of rewards and experiences across business channels.

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

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

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

Update on the Impact of the COVID-19 Pandemic:

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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and its subsidiaries.

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

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

All intercompany accounts and transactions have been eliminated in consolidation.

Reclassifications:

Certain reclassifications have been made to conform the prior period presentation.

Use of Estimates:

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Segment Information:

We view each of our gaming and racing properties as an operating segment with the exception of our two properties in Jackpot, Nevada, which we view as one operating segment.

We consider our combined VGT operations, by state, to be separate operating segments.

We have five reportable segments:

Northeast, South, West, Midwest, and Interactive.

Our gaming and racing properties are grouped by geographic location and each is viewed as an operating segment with the exception of our two properties in Jackpot, Nevada, which are viewed as one operating segment.

We consider our combined Video Gaming Terminal (“VGT”) operations, by state, to be separate operating segments.

Interactive includes the operating results of Penn Interactive Ventures, LLC (“Penn Interactive”), Score Media and Gaming, Inc.

(“theScore”), and our proportionate share of earnings attributable to our equity method investment in Barstool Sports, Inc.

(“Barstool Sports”).

See Note 16, “Segment Information,” for further information.

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

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

Location Real Estate Assets Lease or Ownership Structure

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Hollywood Casino Lawrenceburg Lawrenceburg, Indiana Penn Master Lease

Hollywood Casino at Penn National Race Course (1)

Grantville, Pennsylvania Penn Master Lease

Hollywood Casino Morgantown Morgantown, Pennsylvania Morgantown Lease

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

Hollywood Casino Perryville Perryville, Maryland Perryville Lease

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Louis, Missouri Pinnacle Master Lease

(1) Our Category 4 development Hollywood Casino Morgantown (subject to the Morgantown Lease) is included with Hollywood Casino at Penn National Race Course.

(1) VGT route operations

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Revenue Recognition:

Our revenue from contracts with customers consists primarily of gaming wagers, food and beverage transactions, retail transactions, hotel room sales, racing wagers, and sports betting wagers.

Our revenue from contracts with customers consists primarily of gaming wagers, inclusive of sports betting and iCasino products, food and beverage transactions, retail transactions, hotel room sales, racing wagers, management services related to the management of external operations and third-party revenue sharing agreements.

See Note 5, “Revenue Disaggregation,” for information on our revenue by type and geographic location.

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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 September 30, For the nine months ended September 30,

For the three months ended March 31,

(in millions) 2022 2021

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The Company has three general types of liabilities related to contracts with customers:

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

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

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

The obligation associated with our my choice program, which is included in “Accrued expenses and other current liabilities” within our unaudited 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 my choice program allows members to earn loyalty points that are redeemable for slot play and complimentaries, such as food and beverage at our restaurants, lodging at our hotels and products offered at our retail stores across the vast majority of our properties.

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

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 $ 45.5 million and $ 37.6 million as of March 31, 2022 and December 31, 2021, respectively, and consisted principally of the obligation associated with the loyalty points.

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

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

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

Unpaid wagers generally represent obligations stemming from prior wagering events, of which revenue was previously recognized.

The Company’s advance payments on goods and services yet to be provided and for unpaid wagers were $ 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 $ 54.4 million and $ 52.7 million as of September 30, 2021 and December 31, 2020, respectively.

Unpaid wagers primarily relate to the Company’s obligation to settle outstanding slot tickets, pari-mutuel racing tickets, gaming chips with customers and online wagers not yet withdrawn and generally represent obligations stemming from prior wagering events, of which revenue was previously recognized.

The Company’s advance payments on goods and services yet to be provided and for unpaid wagers were $ 101.6 million and $ 112.0 million as of March 31, 2022 and December 31, 2021.

Advance payments on goods and services yet to be provided and for unpaid wagers are included in “Accrued expenses and other current liabilities” within our unaudited Consolidated Balance Sheets.

Penn Interactive enters into multi-year agreements with sports betting operators for online sports betting and related iCasino market access across our portfolio of properties.

Deferred revenue associated with third-party sports betting operators for online sports betting and related iCasino market access, which is included in “Other long-term liabilities” within our unaudited Consolidated Balance Sheets was $ 58.2 million and $ 52.2 million as of March 31, 2022 and December 31, 2021, respectively.

The Company expenses advertising costs the first time the advertising takes place or as incurred.

Advertising expenses, which generally relate to media placement costs and are primarily included in “Gaming” expenses within the unaudited Consolidated Statements of Operations, were $ 24.1 million, and $ 17.1 million, for the three months ended March 31, 2022 and 2021, respectively .

Gaming and Racing Taxes:

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

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

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 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.

Additionally, some states require us to prepay annual assessments to support the operations of local regulatory authorities.

We consider these prepaid costs to be a type of gaming and racing tax.

Gaming and racing taxes are recorded in “Gaming” expense or “Food, beverage, hotel, and other” expenses within the unaudited Consolidated Statements of Operations, and were $ 472.2 million and $ 417.9 million for the three months ended March 31, 2022 and 2021, respectively.

Foreign Currency Translation:

The functional currency of the Company’s foreign subsidiaries is the local currency in which the subsidiary operates.

Balance sheet accounts are translated at the exchange rate in effect at each balance sheet date.

Translation adjustments resulting from this process are recorded to other comprehensive income.

Revenues and expenses are translated at the average exchange rates during the year.

Gains or losses resulting from foreign currency transactions are included in “Other” within our unaudited Consolidated Statements of Operations.

Comprehensive Income and Accumulated Other Comprehensive Income (Loss):

Comprehensive income includes net income and all other non-stockholder changes in equity, or other comprehensive income.

The balance of accumulated other comprehensive income consists solely of foreign currency translation adjustments.

Earnings Per Share:

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

Diluted EPS reflects the additional dilution, if any, for all potentially-dilutive securities such as stock options, unvested restricted stock awards (“RSAs”), 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 the Company's common stock ("Penn Common Stock") irrespective of any vesting requirement.

Diluted EPS reflects the additional dilution, if any, for all potentially-dilutive securities such as stock options, unvested restricted stock awards (“RSAs”) and restricted stock units (“RSUs”) (collectively with RSAs, “restricted stock”), 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.

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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See Note 14, “Earnings (Loss) per Share,” for more information.

Voting Interest Entities and Variable Interest Entities:

The Company consolidates all subsidiaries or other entities in which it has a controlling financial interest.

The consolidation guidance requires an analysis to determine if an entity should be evaluated for consolidation using the VOE model or the VIE model.

Under the VOE model, controlling financial interest is generally defined as a majority ownership of voting rights.

Under the VIE model, controlling financial interest is defined as (i) the power to direct activities that most significantly impact the economic performance of the entity and (ii) the obligation to absorb losses of or the right to receive benefits from the entity that could potentially be significant to the entity.

For those entities that qualify as a VIE, the primary beneficiary is generally defined as the party who has a controlling financial interest in the VIE.

The Company consolidates the financial position and results of operations of every VOE in which it has a controlling financial interest and VIEs in which it is considered to be the primary beneficiary.

See Note 10, “Investments in and Advances to Unconsolidated Affiliates.”

Note 3— New Accounting Pronouncements

Accounting Pronouncements to be Implemented

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

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

ASU 2020-04 also provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued.

ASU 2020-04 also provides companies with optional guidance to ease the potential

accounting burden associated with transitioning away from reference rates that are expected to be discontinued.

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

The interest rates associated with the Company’s borrowings under its Senior Secured Credit Facilities (as defined in Note 8, “Long - term Debt” ) are tied to LIBOR.

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

Subsequent to the amendment of the Senior Secured Credit Facilities on May 3, 2022, the Company’s borrowings are tied to SOFR (see Note 8, “Long-term Debt” ).

The adoption of ASU 2020-04 did not have an impact on our unaudited Consolidated Financial Statements.

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

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

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

Early adoption is permitted.

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

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

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

The new standard impacts the Company’s existing 2.75 % convertible senior notes due May 2026 (“Convertible Notes”) which prior to adoption of the new standard, were accounted for under the cash conversion feature model.

The cash conversion feature model is eliminated under the new standard and entities will no longer separately present in stockholders’ equity an embedded conversion feature of a debt instrument.

The new guidance also requires the use of the if-converted method when calculating diluted EPS for convertible instruments and the treasury stock method should no longer be used.

Under the new guidance, convertible instruments that may be settled in cash or shares (e.g., the Company’s Convertible Notes) are to be included in the calculation of diluted EPS if the effect is more dilutive, with no option for rebutting the presumption of share settlement based on stated policy or past experience.

Each of these requirements are consistent with Company’s previous method for calculating diluted EPS.

The Company adopted ASU 2020-06 effective January 1, 2022, using the modified retrospective approach.

Adoption of ASU 2020-06 resulted in reclassification of the $ 88.2 million cash conversion feature related to the Company’s Convertible Notes, from stockholders’ equity to liabilities.

As a result of the adoption, the Company recognized as a cumulative effect adjustment, an increase to the January 1, 2022 opening balance of retained earnings of $ 18.9 million, net of taxes.

Note 4— Hurricane Laura

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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 “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 $ 28.6 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 September 30, 2021.

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

As we deemed 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 exist between the recognition of (i) impairment losses and capital expenditures made to repair or restore the assets and (ii) the receipt of insurance proceeds within the unaudited Consolidated Financial Statements.

As of December 31, 2021, the receivable was $ 28.7 million.

During three months ended March 31, 2022, we received additional insurance claim proceeds totaling $ 37.5 million, resulting in a gain of $ 8.8 million, which is included in “General and administrative” within our unaudited Consolidated Statements of Operations.

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

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

Insurance proceeds $ 47.5 $ 47.5

(in millions) March 31, 2022 December 31, 2021

Insurance proceeds received through the end of the period $ 85.0 $ 47.5

Deductible $ 15.0 $ 15.0

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

(i) gaming, including iGaming;

(i) gaming, including iCasino, retail and online sports betting;

(ii) food and beverage;

and (iv) other.

Other revenues are principally comprised of ancillary gaming-related activities, such as commissions received on ATM transactions, racing, and Penn Interactive’s social gaming.

In addition, we assess our revenues based on geographic location of the related properties, which is consistent with our reportable segments (see Note 16, “Segment Information,” for further information).

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

For the three months ended September 30, 2021

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

Gaming $ 616.2 $ 253.0 $ 96.7 $ 259.3 $ 31.0 $ — $ 1,256.2

Food and beverage 28.0 28.7 19.5 11.0 0.4 — 87.6

Hotel 8.2 26.8 23.9 8.8 — — 67.7

Other 20.0 9.7 5.6 6.6 65.1 ( 6.7 ) 100.3

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

For the three months ended September 30, 2020

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

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

Food and beverage 15.8 19.8 9.9 6.6 0.1 — 52.2

Hotel 4.0 20.6 9.0 5.1 — — 38.7

Other 17.3 7.2 5.8 4.7 12.6 ( 2.4 ) 45.2

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

For the nine months ended September 30, 2021

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

Other revenues are principally comprised of ancillary gaming-related activities, such as commissions received on ATM transactions, racing, Penn Interactive’s social gaming, and revenue from third-party sports betting operators and the related gross-up for taxes.

Our revenue is disaggregated by type of revenue and geographic location of the related properties, which is consistent with our reportable segments, as follows:

For the three months ended March 31, 2022

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

Gaming $ 599.1 $ 278.6 $ 94.1 $ 256.5 $ 62.9 $ — $ — $ 1,291.2

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Total revenues $ 658.5 $ 341.4 $ 140.9 $ 282.9 $ 141.5 $ 7.3 $ ( 8.3 ) $ 1,564.2

For the nine months ended September 30, 2020

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

For the three months ended March 31, 2021

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

Gaming $ 527.0 $ 245.4 $ 69.1 $ 216.9 $ 23.6 $ — $ — $ 1,082.0

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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.

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

(“Tropicana”) 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.

$ 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 January 11, 2022, Penn entered into a definitive purchase agreement to sell its outstanding equity interest in Tropicana, which has the gaming license and operates the Tropicana, to Bally’s Corporation (“Bally’s”).

This transaction is expected to close within the second 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 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 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 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 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.

On July 1, 2021, we completed the 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 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 gaming license is an indefinite-lived intangible asset, and the customer relationships are 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;

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Sam Houston Race Park and Valley Race Park

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).

On August 1, 2021, we completed the 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 was included in “Other” within our Consolidated Statements of Operations.

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

Score Media and Gaming Inc.

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.

On October 19, 2021, we acquired 100 % of theScore for a purchase price of approximately $ 2.1 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.

(the “Purchaser”), an indirectly wholly owned subsidiary of Penn, acquired each of the issued and outstanding theScore shares (other than those held by Penn and its subsidiaries) for US$ 17.00 per share in cash consideration, totaling $ 922.8 million, 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 for 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.

The Company held shares of theScore common stock prior to the acquisition and, as such, the acquisition date estimated fair value of this previously held investment was a component of the purchase consideration.

Based on the acquisition date fair value of this investment of $ 58.9 million, the Company recorded a gain of $ 2.9 million related to remeasurement of the equity security investment immediately prior to the acquisition date which was included in “Other” within our Consolidated Statements of Operations.

The following table reflects the preliminary allocation of the purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed, with the excess recorded as goodwill:

(in millions) Fair value

Cash and cash equivalents $ 160.3

Other current assets 22.8

ROU assets 2.6

Property and equipment 1.8

Goodwill 1,690.2

Other intangible assets

Gaming technology 160.0

Media technology 57.0

Tradename 100.0

Advertising relationships 11.0

Customer relationships 8.0

Re-acquired right 2.6

Other long-term assets 5.2

Total assets $ 2,221.5

Accounts payable, accrued expenses and other current liabilities $ 67.9

Deferred tax liabilities 69.2

Other non-current liabilities 1.7

Total liabilities 138.8

Net assets acquired $ 2,082.7

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

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

Acquired identifiable intangible assets consist of gaming technology, media technology, tradename, advertising relationships, customer relationships, and a re-acquired right.

Tradename is an indefinite-lived intangible asset.

All other intangible assets are definite-lived with assigned useful lives primarily ranging from 1 - 7 years.

The re-acquired right intangible asset was assigned a 17.8 year useful life based on the remaining term of a pre-acquisition market access contract between Penn and theScore.

Goodwill, none of which is deductible under the Canadian Income Tax Act, is approximately 81.2 % of the net assets acquired and represents synergies, incremental market share capture and expansion into new markets not existing as of the acquisition date, and future technology development.

The following valuation approaches were utilized to determine the fair value of each intangible asset:

Intangible Asset Valuation Approach

Gaming technology Relief-from-royalty (variation of income approach)

Media technology Replacement cost

Tradename Relief-from-royalty (variation of income approach)

Advertising relationships With-and-without (variation of income approach)

Customer relationships Replacement cost

Re-acquired right Replacement cost

Unaudited Pro Forma Financial Information

The following table includes unaudited pro forma consolidated financial information assuming our acquisition of Hitpoint, Perryville, Sam Houston and theScore had occurred as of January 1, 2021.

The pro forma amounts include the historical operating results of Penn and Hitpoint, Perryville, Sam Houston and theScore prior to our acquisitions.

The pro forma financial information does not necessarily represent the results that may occur in the future.

For the three months ended March 31, 2021, pro forma adjustments directly attributable to the acquisitions include acquisition and transaction related costs of $ 1.6 million incurred by both Penn and the respective acquirees’ and gains of $ 43.4 million related to our purchase of the remaining 50 % of Sam Houston and a net unrealized gain on the equity security investment in theScore.

For the three months ended March 31,

(in millions) 2021

Revenues $ 1,306.0

Net income $ 36.1

Note 7— Goodwill and Other Intangible Assets

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

(in millions) Northeast South West Midwest Other Total

(in millions) Northeast South West Midwest Interactive Other Total

Balance as of December 31, 2021

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Goodwill, net $ 162.1 $ 175.6 $ 200.2 $ 560.6 $ 1,724.0 $ — $ 2,822.5

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

Balance as of September 30, 2021

Effect of foreign currency exchange rates — — — — 24.6 — 24.6

Balance as of March 31, 2022

Goodwill, gross $ 923.5 $ 236.6 $ 216.8 $ 1,116.7 $ 1,748.6 $ 87.7 $ 4,329.9

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Goodwill, net $ 162.1 $ 175.6 $ 200.2 $ 560.6 $ 1,748.6 $ — $ 2,847.1

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

2020 Assessment for Impairment

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

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

As a result of the interim assessment for impairment, during the first quarter of 2020, we recognized impairments on our goodwill, gaming licenses, and trademarks of $ 113.0 million, $ 437.0 million, and $ 61.5 million, respectively.

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

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

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

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

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

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

There were no impairment charges recorded to goodwill during the three months ended March 31, 2022 and 2021.

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

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

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

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Customer relationships 115.0 ( 94.7 ) 20.3 114.9 ( 91.4 ) 23.5

Technology 256.0 ( 49.8 ) 206.2 252.7 ( 40.5 ) 212.2

Other 19.6 ( 7.9 ) 11.7 19.4 ( 6.8 ) 12.6

Total other intangible assets $ 2,016.5 $ ( 152.4 ) $ 1,864.1 $ 2,011.3 $ ( 138.7 ) $ 1,872.6

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):

There were no impairment charges recorded to other intangible assets, net for the three months ended March 31, 2022 and 2021.

Amortization expense related to our amortizing intangible assets was $ 15.0 million and $ 2.2 million for the three months ended March 31, 2022 and 2021, respectively.

The following table presents the estimated amortization expense based on our amortizing intangible assets as of March 31, 2022 (in millions):

Years ending December 31,

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

2022 (excluding the three months ended March 31, 2022)

Thereafter 43.2

Total $ 238.2

Note 8— Long-term Debt

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

(in millions) September 30,

(in millions) March 31,

2022 December 31,

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

(i) a five-year $ 700.0 million revolving credit facility (the “Revolving Credit Facility”), (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., we entered into an incremental joinder agreement (the “Incremental Joinder”), which amended the Credit Agreement (the “Amended Credit Agreement”).

(i) a five-year $ 700.0 million revolving credit facility (the “Revolving 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 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.

(“Pinnacle”), 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.

With the exception of extending the maturity date, the Incremental Joinder did not impact the Revolving 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 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;

Upon conclusion of the Covenant Relief Period, the Second Amendment permitted the Company to (i) maintain a maximum consolidated total net leverage ratio of 5.50 :1.00 for the quarter ended March 31, 2021, 5.00 :1.00 for the quarter ended June 30, 2021, 4.75 :1.00 for the quarter ended September 30, 2021, 4.50 :1.00 for the quarter ended December 31, 2021, and 4.25 :1.00 thereafter, tested quarterly on a pro forma trailing twelve month (“PF TTM”) basis;

(ii) maintain a maximum senior secured net leverage ratio of 4.50 :1.00 for the quarter ended March 31, 2021, 4.00 :1.00 for the quarter ended June 30, 2021, 3.75 :1.00 for the quarter ended September 30, 2021, 3.50 :1.00 for the quarter ended December 31, 2021, and 3.00 :1.00 thereafter, tested quarterly on a PF TTM basis;

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

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

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

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

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

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

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

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

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

As of 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.

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

On May 3, 2022, the Company entered into a Second Amended and Restated Credit Agreement with its various lenders (the “Second Amended and Restated Credit Agreement”).

The Second Amended and Restated Credit Agreement provides for a $ 1.0 billion revolving credit facility, undrawn at close, (the “Revolving Credit Facility”), a five-year $ 550.0 million term loan A facility (the “Term Loan A”) and a seven-year $ 1.0 billion term loan B facility (the “Term Loan B”) (together, the “Credit Facilities”).

The proceeds from the Credit Facilities were used to repay the existing Term Loan A Facility and Term Loan B-1 Facility balances.

The interest rates per annum applicable to loans under the Credit Facilities are, at the Company’s option, equal to either a secured overnight financing rate plus a 0.10 % credit spread adjustment (“Term SOFR”) or a base rate, in each case, plus an applicable margin.

The applicable margin for each of the Revolving Credit Facility and the Term Loan A is initially 1.75 % for Term SOFR loans and 0.75 % for base rate loans until the Company provides financial reports for the first full fiscal quarter following closing and, thereafter, will range from 2.25 % to 1.50 % per annum for Term SOFR loans and 1.25 % to 0.50 % per annum for base rate loans, in each case depending on the Company’s total net leverage ratio.

The applicable margin for the Term Loan B is 2.75 % per annum for Term SOFR loans and 1.75 % per annum for base rate loans.

The Term Loan B is subject to a Term SOFR “floor” of 0.50 % per annum and a base rate “floor” of 1.50 % per annum.

The Term Loan A and Revolving Credit Facility are subject to a Term SOFR “floor” of 0.00 % per annum and a base rate “floor” of 1.00 %.

In addition, the Company will pay a commitment fee on the unused portion of the commitments under the Revolving Credit Facility at a rate that is initially 0.25 % per annum, until the Company provides financial reports for the first full fiscal quarter following closing, and thereafter, will range from 0.35 % to 0.20 % per annum, depending on the Company’s total net leverage ratio.

The Credit Facilities contain customary covenants that, among other things, restrict, subject to certain exceptions, the ability of the Company and certain of its subsidiaries to grant liens on their assets, incur indebtedness, sell assets, make investments, engage in acquisitions, mergers or consolidations, pay dividends and make other restricted payments and prepay certain indebtedness that is subordinated in right of payment to the obligations under the Credit Facilities.

The Credit Facilities contain two financial covenants:

a maximum total net leverage ratio of 4.50 to 1.00, which is subject to a step up to 5.00 to 1.00 in the case of certain significant acquisitions, and a minimum interest coverage ratio of 2.00 to 1.00.

The Credit Facilities also contain certain customary affirmative covenants and events of default, including the occurrence of a change of control (as defined in the documents governing the Credit Facilities), termination and certain defaults under the Penn Master Lease and the Pinnacle Master Lease (both of which are defined in Note 9, “Leases” ).

As of March 31, 2022, and December 31, 2021, the Company had conditional obligations under letters of credit issued pursuant to the Senior Secured Credit Facilities with face amounts aggregating to $ 25.7 million and $ 26.0 million, respectively, resulting in $ 674.3 million and $ 674.0 million of available borrowing capacity under the Revolving Facility, respectively.

5.625 % Senior Unsecured Notes

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

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

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

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2.75 % Unsecured Convertible Notes

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

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

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

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

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

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

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

As of September 30, 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.

As of March 31, 2022, 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 $ 448.4 million.

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

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

As of March 31, 2022 and December 31, 2021, 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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In connection with the Convertible Notes issuance, the Company incurred debt issuance costs of $ 10.2 million, which were allocated on a pro rata basis to the liability component and the equity component in the amounts of $ 6.6 million and $ 3.6 million, respectively.

On January 1, 2022, the Company adopted ASU 2020-06, which resulted in a reclassification of the $ 88.2 million cash conversion feature related to the Company’s Convertible Notes, from stockholders’ equity to liabilities as under ASU 2020-06, bifurcation for a cash conversion feature is no longer permitted.

As a result of the adoption, the Company recognized as a cumulative effect adjustment, an increase to the January 1, 2022 opening balance of retained earnings of $ 18.9 million, net of taxes.

The Convertible Notes consisted of the following components:

(in millions) September 30,

(in millions) March 31,

2022 December 31,

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The table below presents interest expense, net:

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

For the three months ended March 31,

(in millions) 2022 2021

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

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

For the three months ended March 31,

(in millions) 2022 2021

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Convertible Notes interest expense $ 2.7 $ 5.6

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 4.6 years as of September 30, 2021.

Subsequent to the adoption of ASU 2020-06, the debt issuance costs attributable to the liability component continue to be amortized to interest expense over the term of the Convertible Notes at an effective interest rate of 3.329 %.

The remaining term of the Convertible Notes was 4.1 years as of March 31, 2022.

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

In addition, our Senior Secured Credit Facilities, 5.625 % Notes and 4.125 % notes, restrict, among other things, our ability to incur additional indebtedness, incur guarantee obligations, amend debt instruments, pay dividends, create liens on assets, make investments, engage in mergers or consolidations, and otherwise restrict corporate activities.

Our debt agreements also contain customary events of default, including cross-default provisions that require us to meet certain requirements under the Penn Master Lease and the Pinnacle Master Lease (both of which are

defined in Note 9, “Leases” ) , each with GLPI.

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

As of September 30, 2021, the Company was in compliance with all required financial covenants.

As of March 31, 2022, 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 $ 6.9 million and $ 12.1 million for the three and nine months ended September 30, 2021, respectively.

The amount included in interest expense related to this obligation was $ 6.2 million and $ 1.5 million for the three months ended March 31, 2022 and March 31, 2021, respectively.

Ohio Relocation Fees

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.

Other long-term obligations included $ 44.5 million as of March 31, 2022 and December 31, 2021, respectively, related to the relocation fees for Hollywood Gaming at Dayton Raceway (“Dayton”) and Hollywood Gaming at Mahoning Valley Race Course (“Mahoning Valley”), which opened in August 2014 and September 2014, respectively.

The relocation fee for each 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 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.

As of March 31, 2022 and December 31, 2021, other long-term obligations included $ 10.8 million and $ 11.4 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 components contained within the Master Leases are accounted for as either (i) operating leases, (ii) finance leases, or (iii) financing obligations.

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

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

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

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

GLPI agreed they would grant us the option to exercise an additional five-year renewal term at the end of the lease term on the Penn Master Lease and the Pinnacle Master Lease, subject to certain conditions.

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

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

Penn Master Lease

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

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 annual escalator test date is scheduled to occur effective November 1, 2022.

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

On January 14, 2022, the ninth amendment to the Penn Master Lease between the Company and GLPI became effective.

The ninth amendment restates the definition of “Net Revenue” to clarify the inclusion of online-based revenues derived when a

patron is physically present at a leased property, establishes a “floor” with respect to the Hollywood Casino at Penn National Race Course Net Revenue amount used in the calculation of the annual rent escalator and Penn Percentage Rent, and modifies the rent calculations upon a lease termination event as defined in the amendment.

The lease term and the four five-year optional renewal periods, which if exercised would extend the Penn Master Lease through October 31, 2048, were not modified in the ninth amendment.

We concluded the ninth amendment constituted a modification event under ASC Topic 842, “Leases” (“ASC 842”), which required us to reassess the classifications of the lease components and remeasure the associated lease liabilities.

As a result of our reassessment of the lease classifications, (i) the land components of substantially all of the Penn Master Lease properties, which were previously classified as operating leases, are now primarily classified as finance leases, and (ii) the land and building components associated with the operations of Dayton and Mahoning Valley, which were previously classified as finance leases, are now classified as operating leases.

As a result of our measurement of the associated lease liabilities, we recognized additional ROU assets and corresponding lease liabilities of $ 455.4 million.

The building components of substantially all of the Penn Master Lease properties continue to be classified as financing obligations.

Pinnacle Master Lease

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

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

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

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

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

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

The next annual escalator test date is scheduled to occur effective May 1, 2022.

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

On January 14, 2022, the fifth amendment to the Pinnacle Master Lease between the Company and GLPI became effective.

The fifth amendment restates the definition of “Net Revenue” to clarify the inclusion of online-based revenues derived when a patron is physically present at a leased property and modifies the rent calculations upon a lease termination event as defined in the amendment.

The lease term and the five five-year optional renewal periods, which if exercised would extend the Pinnacle Master Lease through April 30, 2051, were not modified in the fifth amendment.

We concluded the fifth amendment to the Pinnacle Master Lease constituted a modification event under ASC 842 (collectively with the ninth amendment to the Penn Master Lease, the “Lease Modification”).

As a result of the modification, the land components of substantially all of the Pinnacle Master Lease properties, which were previously classified as operating leases, are now primarily classified as finance leases.

As a result of our measurement of the associated lease liabilities, we recognized additional ROU assets and corresponding lease liabilities of $ 937.6 million.

The building components of substantially all of the Pinnacle Master Lease properties continue to be classified as financing obligations.

Morgantown Lease

On October 1, 2020, the Company entered into a triple net lease with a subsidiary of GLPI for the land underlying our development project in Morgantown, Pennsylvania (“Morgantown Lease”) in exchange for $ 30.0 million in rent credits to be utilized to pay rent under the Master Leases, Meadows Lease, and the Morgantown Lease.

The initial term of the Morgantown Lease is 20 years with six subsequent, five-year renewal periods, exercisable at the Company’s option.

Initial annual rent under the Morgantown Lease is $ 3.0 million, subject to a 1.50 % fixed annual escalation in each of the first three years subsequent to the facility opening, which occurred on December 22, 2021.

Thereafter, the lease will be subject to an annual escalator consisting 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 %.

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

We determined the transaction to be a financing arrangement and upon execution of the Morgantown Lease, recorded a $ 30.0 million financing obligation

which is included in “Long-term portion of financing obligations” within our unaudited Consolidated Balance Sheets.

Lease payments are included in “Interest expense, net” within our unaudited Consolidated Statements of Operations.

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 initial term of the Perryville Lease is 20 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 Las Vegas Hotel and Casino (the “Tropicana Lease”) and Hollywood Casino at Meadows Racetrack (the “Meadows Lease”), (ii) individual triple net leases with VICI Properties Inc.

("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.

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

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

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

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

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

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

On January 14, 2022, the second amendment to the Meadows Lease between the Company and GLPI became effective.

The second amendment restates the definition of “Net Revenue” to clarify the inclusion of online-based revenues derived when a patron is physically present at the facility.

This amendment did not result in a modification event under ASC 842.

On February 1, 2022, the Margaritaville annual escalator test resulted in an annual rent increase of $ 0.4 million, and an additional operating lease ROU asset and corresponding lease liability of $ 2.9 million were recognized.

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

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

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.

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:

The following is a maturity analysis of our operating leases, finance leases and financing obligations as of March 31, 2022:

(in millions) Operating Leases Finance Leases Financing Obligations

Year ended December 31,

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

2022 (excluding the three months ended March 31, 2022) $ 102.0 $ 272.8 $ 280.7

2023 125.2 359.3 369.8

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

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

For the three months ended March 31,

(in millions) 2022 2021

Penn Master Lease $ 119.2 $ 117.9

$ 118.4 $ 120.3 $ 357.1 $ 343.4

Pinnacle Master Lease 82.5 81.3

82.4 81.3 245.8 245.6

Perryville Lease 1.9 —

Meadows Lease 6.2 6.2

6.2 6.7 18.6 20.2

Margaritaville Lease 5.9 5.9

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$ 229.3 $ 226.0

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

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

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The components of lease expense were as follows:

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

Location on unaudited

Consolidated Statements of Operations For the three months ended March 31,

(in millions) 2022 2021

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Interest expense, net $ 89.6 $ 102.6

(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.

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

Prior to the Lease Modification, the operating lease components contained within the Master Leases primarily consisted of the land, inclusive of the variable expense associated with Columbus and Toledo.

Subsequent to the Lease Modification, the operating lease components contained within the Master Leases consist of the land and building components associated with the operations of Dayton and Mahoning Valley.

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

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

(3) Pertains to the finance lease components contained within the Master Leases, and the Perryville Lease (effective July 1, 2021) which results in interest expense and depreciation expense (as opposed to rent expense).

Prior to the Lease Modification, the finance lease components contained within the Master Leases consisted of the land and building components associated with the operations of Dayton and Mahoning Valley.

Subsequent to the Lease Modification, the finance lease components contained within the Master Leases consist of the land, inclusive of the variable expense associated with Columbus and Toledo.

(4) Pertains to the components contained within the Master Leases (primarily buildings) and the Morgantown Lease determined to be a financing obligation, inclusive of the variable expense associated with Columbus and Toledo for the financing obligation components (the buildings).

Note 10— Investments in and Advances to Unconsolidated Affiliates

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;

As of March 31, 2022, 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 joint venture with NASCAR that owns Hollywood Casino at Kansas Speedway;

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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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.

On October 1, 2021, the terms of the February 2020 stock purchase agreement were amended (“Amended and Restated Stockholders’ Agreement”) 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.

(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.

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Series D Preferred Stock is nonvoting stock.

The Series D Preferred Stock issued to certain individual stockholders affiliated with Barstool Sports will be available for conversion into Penn Common Stock in tranches over 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 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 , beginning February 21, 2021, as stipulated in the stock purchase agreement.

As of March 31, 2022, 51 shares of the Series D Preferred Stock can be converted into Penn Common Stock.

During the first quarter of 2021, the Company acquired 0.3 %, and subsequently acquired an additional 0.3 % during the third quarter of 2021, 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 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.

As of March 31, 2022 and December 31, 2021, we have an amortizing intangible asset pertaining to the customer list of $ 0.6 million and $ 0.8 million, respectively.

As of March 31, 2022 and December 31, 2021, we have a prepaid expense pertaining to the advertising in the amount of $ 15.1 million, and $ 15.4 million respectively, of which $ 13.9 million and $ 14.2 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 September 30, 2021 and December 31, 2020, our investment in Barstool Sports was $ 160.0 million and $ 147.5 million, respectively.

As of March 31, 2022 and December 31, 2021, our investment in Barstool Sports was $ 164.1 million and $ 162.5 million, respectively.

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

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

The Company determined that Barstool Sports qualified as a VIE as of March 31, 2022 and December 31, 2021.

The Company did not consolidate the financial position of Barstool Sports as of March 31, 2022 and December 31, 2021, nor the results of operations for the three months ended March 31, 2022 and 2021, as the Company determined that it did not qualify as the primary beneficiary of Barstool Sports either at the commencement date of its investment or for subsequent periods, primarily as a result of the Company not having the power to direct the activities of the VIE that most significantly affect Barstool Sports’ economic performance.

Kansas Joint Venture

As of September 30, 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.

As of March 31, 2022 and December 31, 2021, our investment in Kansas Entertainment was $ 83.4 million and $ 83.8 million, respectively.

During the three months ended March 31, 2022 and 2021, the Company received distributions from Kansas Entertainment totaling $ 8.0 million and $ 5.5 million, 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.

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

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

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

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

Therefore, the Company did not consolidate the financial position of Kansas Entertainment as of March 31, 2022 and December 31, 2021, nor the results of operations for the three months ended March 31, 2022 and 2021.

Texas Joint Venture

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).

The Company had a 50 % interest in a joint venture with Sam Houston, 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 August 1, 2021, we completed the acquisition of the remaining 50 % ownership interest in Sam Houston.

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 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 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.

The effective tax rate (income taxes as a percentage of income or loss before income taxes) including discrete items was 48.0 % for the three months ended March 31, 2022, as compared to 18.5 % for the three months ended March 31, 2021.

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

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 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.

As of each reporting date, the Company considers all available positive and negative evidence that could affect its view of the future realization of deferred tax assets pursuant to ASC Topic 740, “Income Taxes.” As of March 31, 2022, 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 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.

Although the exact timing and valuation reversal amount are unknown at this time, the Company believes there is a possibility that a significant portion of the valuation allowance may be released within the year, which is contingent upon the earnings level we achieve in 2022 as well as our projected income levels in future periods.

During the three months ended March 31, 2022, the Company increased the valuation allowance in the amount of $ 35.7 million related primarily to accounting modifications to certain master leases (see Note 9, “Leases” ) and the adoption of ASU 2020-06 (see Note 3, “New Accounting Pronouncements” ) that had the effect on certain federal and state deferred tax assets that are not more likely than not to be realized.

A portion of the $ 35.7 million valuation allowance increase was recorded through equity in the amount of $ 18.6 million related to the Company’s adoption of ASU 2020-06.

As of March 31, 2022 and December 31, 2021, prepaid income taxes of $ 19.6 million and $ 42.5 million, respectively, were included in “Prepaid expenses” within our unaudited Consolidated Balance Sheets.

Note 12— Commitments and Contingencies

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Note 13— Stockholders’ Equity and Stock-Based Compensation

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

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

On 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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See Note 6, “Acquisitions and Dispositions.”

On October 19, 2021, as part of the acquisition of theScore, the Company issued 12,319,340 shares of common stock and authorized and issued 697,539 Exchangeable Shares for approximately $ 1.0 billion, each with a par value of $ 0.01 , as discussed in Note 6, “Acquisitions and Dispositions.” As of March 31, 2022 and December 31, 2021, there were 633,189 and 653,059 Exchangeable Shares outstanding, respectively.

Share Repurchase Authorization

On February 1, 2022, the Board of Directors of Penn approved a $ 750.0 million share repurchase authorization.

The three-year authorization expires on January 31, 2025.

Repurchases by the Company will be subject to available liquidity, general market and economic conditions, alternate uses for the capital and other factors.

Share repurchases may be made from time to time through a 10b5-1 trading plan, open market transactions, block trades or in private transactions in accordance with applicable securities laws and regulations and other legal requirements.

There is no minimum number of shares that the Company is required to repurchase and the repurchase authorization may be suspended or discontinued at any time without prior notice.

During the three months ended March 31, 2022, the Company repurchased 3,802,408 shares of its common stock in open market transactions for $ 175.1 million at an average price of $ 46.04 per share.

The cost of all repurchased shares is recorded as “Treasury stock” within our unaudited Consolidated Balance Sheets.

The remaining availability under our $ 750.0 million share repurchase authorization was $ 574.9 million as of May 5, 2022.

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 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.”

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.

During the year ended December 31, 2021, the Company issued 86 shares of Series D Preferred Stock in conjunction with acquiring an additional 0.6 % of Barstool Sports common stock.

As of March 31, 2022, Series D Preferred Stock holders converted a total of 388 shares of Series D Preferred Stock to 388,400 shares of Penn Common Stock, of which, 194 and 151 Series D Preferred Stock were converted into 194,200 and 151,200 shares of common stock during the three months ended March 31, 2022 and 2021, respectively.

All common shares were issued with a par value of $ 0.01 .

As of March 31, 2022 and December 31, 2021, there were 5,000 shares authorized of Series D Preferred Stock, of which 581 shares and 775 shares were outstanding in each period, 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 and any consultant or advisor to the Company or Subsidiary.

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, RSUs, cash-settled phantom stock units (“CPSUs”) and other equity and cash awards to employees and any consultant or advisor to the Company or subsidiary.

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

As of March 31, 2022, there were 2,969,937 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 pursuant to the 2018 Plan.

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

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.

As of the grant date, 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 four tranches with expense recognition periods ranging from 6.7 to 8.7 years.

We recognized $ 2.1 million of stock compensation expense for the Stock Awards during the three months ended March 31, 2022.

Score Media And Gaming Inc.

Second Amended And Restated Stock Option And Restricted Stock Unit Plan (“theScore Plan”)

In connection with the acquisition of theScore on October 19, 2021, the Company registered theScore Plan.

theScore Plan permits the Company to issue non-qualified stock options and RSUs to employees and service providers affiliated with theScore prior to the acquisition date.

At the date of acquisition, the Company rolled over all outstanding, non-vested and unexercised stock options and non-vested RSUs equivalent to 853,904 shares of the Company.

Each rollover option and RSU is subject to substantially the same terms and conditions applicable to the award immediately prior to the acquisition.

In connection with the transaction, the vesting provisions of unvested options and RSUs, awarded under the theScore Plan prior to August 4, 2021, were amended to provide for a new acceleration right for legacy theScore employees and service providers.

The amendment provides that, if an involuntary termination without cause occurs at any time prior to April 19, 2023, unvested options and RSUs will automatically accelerate and become fully vested on the effective date of termination.

As of March 31, 2022, there were 232,913 shares available for future grants to legacy theScore employees and service providers.

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”) 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, 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 238,784 RSUs with performance-based vesting conditions, at target, was granted during the three months ended March 31, 2022 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.

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

Stock-based Compensation Expense

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-based compensation expense, which pertains principally to our stock options, RSAs and RSUs, for the three months ended March 31, 2022 and 2021 was $ 17.0 million and $ 4.2 million, respectively, and is included within the unaudited Consolidated Statements of Operations under “General and administrative.”

Stock Options

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.

The Company granted 393,049 and 229,361 stock options during the three months ended March 31, 2022 and 2021, respectively.

Cash-settled Phantom Stock Units

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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 $ 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 $ 13.5 million and $ 4.5 million during the nine months ended September 30, 2021 and 2020, respectively, pertaining to cash-settled CPSUs.

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 $ 1.8 million and $ 8.6 million as of March 31, 2022 and December 31, 2021, respectively.

For CPSUs held by employees, non-employee directors, and the chairman emeritus of the Company, there was $ 9.5 million of total unrecognized compensation cost as of March 31, 2022 that will be recognized over the awards remaining weighted-average vesting period of one year .

For the three months ended March 31, 2022 and 2021, the Company recognized $ 0.6 million and $ 4.7 million of compensation expense associated with these awards, respectively.

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

We paid $ 7.4 million and $ 5.9 million during the three months ended March 31, 2022 and 2021, 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 $ 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 $ 38.8 million and $ 22.8 million during the nine months ended September 30, 2021 and 2020, respectively, related to cash-settled SARs.

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 $ 16.9 million and $ 18.5 million as of March 31, 2022 and December 31, 2021, respectively.

For SARs held by employees of the Company, there was $ 21.9 million of total unrecognized compensation cost as of March 31, 2022 that will be recognized over the awards remaining weighted-average vesting period of 2.2 years.

The Company recognized no compensation expense for the three months ended March 31, 2022 and $ 20.3 million for the three months ended March 31, 2021.

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

We paid $ 0.2 million and $ 37.2 million during the three months ended March 31, 2022 and 2021, respectively, related to cash-settled SARs.

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

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

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

Note 14— Earnings (Loss) per Share

For the three 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 nine months ended September 30, 2020, we recorded a net loss attributable to Penn National.

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

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 nine months ended September 30,

(in millions) 2020

Assumed conversion of dilutive stock options 2.5

Assumed conversion of dilutive RSAs 0.4

Assumed conversion of convertible preferred shares 0.7

Assumed conversion of convertible debt 7.4

The following table sets forth the allocation of net income for the three and nine months ended September 30, 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,

As of March 31, 2022 and December 31, 2021, the receivable is recorded as a reduction of equity within “Additional paid-in capital” in our unaudited Consolidated Balance Sheets .

Note 14— Earnings per Share

For the three months ended March 31, 2022, and March 31, 2021 we recorded net income attributable to Penn.

As such, we used diluted weighted-average common shares outstanding when calculating diluted income per share for the three months ended March 31, 2022, and March 31, 2021.

Stock options, restricted stock, 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.

The following table sets forth the allocation of net income for the three months ended March 31, 2022 and March 31, 2021 under the two-class method.

For the three months ended March 31,

(in millions) 2022 2021

Net income (loss) attributable to Penn National $ 86.1 $ 141.9 $ 375.8 $ ( 680.6 )

Net income attributable to Penn National Gaming $ 51.7 $ 91.0

Net income applicable to preferred stock 0.2 0.5

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 nine months ended September 30, 2021 and 2020:

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

Net income applicable to common stock $ 51.5 $ 90.5

For the three months ended March 31,

(in millions) 2022 2021

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Dilutive stock options 1.5 2.6

Dilutive RSAs 0.4 0.4 0.4 —

Dilutive restricted stock 0.4 0.4

Convertible debt 14.1 14.1

Weighted-average common shares outstanding - Diluted 184.2 172.8

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,

Restricted stock with performance and market based vesting conditions that have not been met as of March 31, 2022 were excluded from the computation of diluted earnings per share.

Options to purchase 0.8 million and 0.2 million shares were outstanding during the three months ended March 31, 2022, and March 31, 2021, respectively, but were not included in the computation of diluted earnings per share because they were anti-dilutive.

In addition, 0.7 million and 0.8 million shares from the assumed conversion of convertible preferred shares were excluded from the computation of diluted earnings per share for the three months ended March 31, 2022 and March 31, 2021, respectively, because including them would have been anti-dilutive.

The Company's calculation of weighted-average common shares outstanding includes the Exchangeable Shares issued in connection with theScore acquisition, as discussed in Note 6, “Acquisitions and Dispositions” and Note 13, “Stockholders’ Equity and Stock-Based Compensation.” The following table presents the calculation of basic and diluted earnings per share for the Company’s common stock for the three months ended March 31, 2022 and 2021:

For the three months ended March 31,

(in millions, except per share data) 2022 2021

Calculation of basic earnings (loss) per share:

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

Calculation of basic earnings per share:

Net income applicable to common stock $ 51.5 $ 90.5

Weighted-average shares outstanding - Penn National Gaming 167.5 155.7

Weighted-average shares outstanding - Exchangeable Shares 0.7 —

Weighted-average common shares outstanding - basic 168.2 155.7

Basic earnings (loss) per share $ 0.55 $ 1.02 $ 2.40 $ ( 5.36 )

Calculation of diluted earnings (loss) per share:

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

Basic earnings per share $ 0.31 $ 0.58

Calculation of diluted earnings per share:

Net income applicable to common stock $ 51.5 $ 90.5

Interest expense, net of tax (1) :

Convertible Notes 1.8 4.3

Diluted income (loss) applicable to common stock $ 90.1 $ 145.3 $ 386.9 $ ( 680.6 )

Diluted income applicable to common stock $ 53.3 $ 94.8

Weighted-average common shares outstanding - diluted 184.2 172.8

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

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

Diluted earnings per share $ 0.29 $ 0.55

(1) The three months ended March 31, 2022 were tax-affected at a rate of 20 %.

Note 15— Fair Value Measurements

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Equity Securities

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.

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).

As of March 31, 2022 and December 31, 2021, we held $ 48.2 million and $ 84.3 million in equity securities of ordinary shares, respectively, 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,” (which includes online sports betting and online social casino, bingo, and iCasino products) market access across our portfolio.

During the three months ended March 31, 2022 and 2021, we recognized a holding loss of $ 38.7 million and a holding gain of $ 26.1 million related to these equity securities, which is included in “Other,” as reported in “Other income (expenses)” within our unaudited Consolidated Statements of Operations.

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

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

As of 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.

As of March 31, 2022 and December 31, 2021, PRP held $ 7.9 million and $ 15.1 million in promissory notes issued by RDC, respectively.

As of March 31, 2022 and December 31, 2021, PRP held $ 6.7 million in local government corporation bonds issued by RDC at amortized cost.

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

As of September 30, 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 March 31, 2022 and December 31, 2021, 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, 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 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.

The fair value of our Term Loan A Facility, Term Loan B-1 Facility, 5.625 % Notes, 4.125 % Notes, and the 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 Facility approximates its carrying amount as it is revolving, variable-rate debt, which we also classify as a Level 1 measurement.

Other long-term obligations as of March 31, 2022 and December 31, 2021 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.

The fair values of the Dayton and Mahoning Valley relocation 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 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 non-cash 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 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.

Other liabilities as of March 31, 2022 and December 31, 2021 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.

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 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 March 31, 2022, 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:

September 30, 2021

March 31, 2022

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

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

Puts and calls related to certain Barstool Sports shares $ 1.9 $ 1.9 $ — $ 1.9 $ —

Financial liabilities:

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$ 399.6 $ 411.5 $ 411.5 $ — $ —

4.125 % Notes

$ 392.9 $ 389.5 $ 389.5 $ — $ —

Convertible notes $ 253.5 $ 780.0 $ 780.0 $ — $ —

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Other liabilities $ 13.3 $ 13.2 $ — $ 2.7 $ 10.5

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

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

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Balance as of January 1, 2022 $ 100.9

Additions 75.5

Interest 12.1

Payments ( 1.7 )

Included in earnings (1)

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 September 30, 2021:

Balance as of March 31, 2022 $ 107.0

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

The following table summarizes the significant unobservable inputs used in calculating fair value for our Level 3 liabilities on a recurring basis as of March 31, 2022:

Valuation Technique Unobservable Input Discount Rate

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Note 16— Segment Information

We have aggregated our operating segments into four reportable segments based on the similar characteristics of the operating segments within the regions in which they operate:

We have aggregated our operating segments into five reportable segments.

Retail operating segments are based on the similar characteristics within the regions in which they operate:

Northeast, South, West, and Midwest.

Our Interactive segment includes the operating results of Penn Interactive, theScore, and the Company’s proportionate share of earnings attributable to its equity method investment in Barstool Sports.

The Other category is included in the following tables in order to reconcile the segment information to the consolidated information.

The Company utilizes Adjusted EBITDAR (as defined below) as its measure of segment profit or loss.

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

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

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

For the three months ended March 31,

(in millions) 2022 2021

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Midwest segment 282.9 234.7

96.5 23.7 282.1 71.6

Interactive segment 141.5 86.3

Intersegment eliminations (2)

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Midwest segment 125.5 106.0

( 58.1 ) ( 14.6 ) ( 105.1 ) ( 42.2 )

Interactive segment ( 10.0 ) 1.3

( 23.7 ) ( 22.6 )

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Cash-settled stock-based awards variance 2.9 ( 21.5 )

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

Gain on disposal of assets 0.1 0.1

Contingent purchase price 0.1 ( 0.1 )

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Depreciation and amortization ( 118.2 ) ( 81.3 )

Impairment losses — — — ( 616.1 )

Insurance recoveries, net of deductible charges 8.8 —

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( 48.0 ) 20.8

Income (loss) before income taxes 122.5 126.9 485.8 ( 854.0 )

Income tax benefit (expense) ( 36.4 ) 14.3 ( 110.1 ) 172.2

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 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”).

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

Income before income taxes 99.2 111.5

Income tax expense ( 47.6 ) ( 20.6 )

Net income $ 51.6 $ 90.9

(1) The Other category consists of the Company’s stand-alone racing operations, namely Sanford-Orlando Kennel Club, Sam Houston and Valley Race Parks (the remaining 50 % was acquired by Penn on August 1, 2021), the Company’s joint venture interests in Freehold Raceway, and our management contract for Retama Park Racetrack.

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

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

In addition, the Other category includes our proportionate share of the Adjusted EBITDAR of Barstool Sports (as determined and discussed in footnotes (3) and (6) below).

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

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

Adjusted EBITDAR is also inclusive of income or loss from unconsolidated affiliates, with our share of non-operating items (see footnote (6) below) added back for Barstool Sports and our Kansas Entertainment JV.

(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 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.

(4) Solely comprised of rent expense associated with 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., our individual triple net leases with GLPI for the real estate assets used in the operation of Tropicana 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 (of which the Tropicana Lease, Meadows Lease, Margaritaville Lease and the Greektown Lease are defined in “Note 9, Leases” ) and are referred to collectively as our “triple net operating leases”.

As a result of the Lease Modification defined in Note 9, “Leases” the land and building components associated with the operations of Dayton and Mahoning Valley are classified as operating leases which is recorded to rent expense, as compared to prior to the Lease Modification, whereby the land components of substantially all of the Master Lease properties were classified as operating leases and recorded to rent expense.

Subsequent to the Lease Modification, the land components associated with the Master Lease properties are primarily classified as finance leases.

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

Beginning with the quarter ended June 30, 2021, acquisition costs are presented as part of other expenses.

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depreciation and amortization;

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

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.

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

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

(7) 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, and finance transformation costs associated with the implementation of our new Enterprise Resource Management system.

The table below presents capital expenditures by segment:

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

For the three months ended March 31,

(in millions) 2022 2021

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Midwest segment 6.8 1.9

Interactive segment 1.1 0.8

Other 5.6 2.6

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

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

Balance sheet as of September 30, 2021

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

Balance sheet as of March 31, 2022

Investment in and advances to unconsolidated affiliates $ 0.1 $ — $ — $ 83.4 $ 166.0 $ 6.7 $ 256.2

$ 0.1 $ — $ — $ 83.4 $ 168.5 $ 252.0

Total assets $ 2,249.7 $ 1,163.1 $ 382.6 $ 1,401.9 $ 2,567.6 $ 10,306.2 $ 18,071.1

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Investment in and advances to unconsolidated affiliates $ 0.1 $ — $ — $ 83.8 $ 164.4 $ 6.8 $ 255.1

$ 0.1 $ — $ — $ 85.2 $ 181.5 $ 266.8

Total assets $ 2,283.6 $ 1,224.6 $ 394.8 $ 1,215.8 $ 2,618.3 $ 9,135.0 $ 16,872.1

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

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

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