What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-11-03 compared with 2022-08-04 · 309 added, 240 removed, 913 unchanged (38% of the section changed)

3 unchanged sentences

CONSOLIDATED BALANCE SHEETS

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

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

2022 December 31,

45 unchanged sentences

CONSOLIDATED STATEMENTS OF OPERATIONS

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

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

(in millions, except per share data) 2022 2021 2022 2021

7 unchanged sentences

Depreciation and amortization 148.7 83.7 417.2 246.9

Impairment losses 104.6 — 104.6 —

Total operating expenses 1,488.3 1,272.7 4,085.0 3,499.0

5 unchanged sentences

Total other expenses ( 195.5 ) ( 116.6 ) ( 608.3 ) ( 347.7 )

Income before income taxes 82.4 251.8 181.6 363.3

Income tax expense ( 56.3 ) ( 53.1 ) ( 103.9 ) ( 73.7 )

Income (loss) before income taxes ( 58.8 ) 122.5 122.8 485.8

Income tax benefit (expense) 182.0 ( 36.4 ) 78.1 ( 110.1 )

Net income 123.2 86.1 200.9 375.7

9 unchanged sentences

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

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

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

(in millions) 2022 2021 2022 2021

3 unchanged sentences

Other comprehensive loss ( 119.8 ) — ( 146.7 ) —

Total comprehensive income (loss) ( 36.6 ) 198.7 50.8 289.6

Total comprehensive income 3.4 86.1 54.2 375.7

Comprehensive loss attributable to non-controlling interest 0.3 — 0.4 0.1

Comprehensive income (loss) attributable to PENN Entertainment $ ( 36.6 ) $ 198.7 $ 50.9 $ 289.7

Comprehensive income attributable to PENN Entertainment $ 3.7 $ 86.1 $ 54.6 $ 375.8

See accompanying notes to the unaudited Consolidated Financial Statements.

2 unchanged sentences

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Three Months Ended June 30, 2022 and 2021

Three Months Ended September 30, 2022 and 2021

Preferred Stock Common Stock Treasury Stock Additional

1 unchanged sentence

(in millions, except share data) Shares Amount PENN Entertainment Shares Amount Exchangeable Shares Amount

Balance as of April 1, 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 July 1, 2022 581 $ 19.4 160,725,723 $ 1.7 624,658 $ — $ ( 370.5 ) $ 4,187.3 $ 10.2 $ ( 81.3 ) $ 3,766.8 $ ( 0.8 ) $ 3,766.0

Share-based compensation arrangements — — 62,935 — — — — 13.6 — — 13.6 — 13.6

3 unchanged sentences

Currency translation adjustment — — — — — — — — — ( 119.8 ) ( 119.8 ) — ( 119.8 )

Net income — — — — — — — — 26.1 — 26.1 — 26.1

Net income (loss) — — — — — — — — 123.5 — 123.5 ( 0.3 ) 123.2

Other — — — — — — — 0.8 — — 0.8 — 0.8

Balance as of June 30, 2022 581 $ 19.4 160,725,723 $ 1.7 624,658 $ — $ ( 370.5 ) $ 4,187.3 $ 10.2 $ ( 81.3 ) $ 3,766.8 $ ( 0.8 ) $ 3,766.0

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

Balance as of September 30, 2022 581 $ 19.4 155,448,209 $ 1.7 620,353 $ — $ ( 538.5 ) $ 4,201.9 $ 133.7 $ ( 201.1 ) $ 3,617.1 $ ( 1.1 ) $ 3,616.0

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

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

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

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

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

Other — — — — — — — 0.2 — — 0.2 — 0.2

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

Balance as of 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

See accompanying notes to the unaudited Consolidated Financial Statements.

Six Months Ended June 30, 2022 and 2021

Nine Months Ended September 30, 2022 and 2021

Preferred Stock Common Stock Treasury Stock Additional

11 unchanged sentences

Other — — — — — — — ( 3.2 ) — — ( 3.2 ) — ( 3.2 )

Balance as of June 30, 2022 581 $ 19.4 160,725,723 $ 1.7 624,658 $ — $ ( 370.5 ) $ 4,187.3 $ 10.2 $ ( 81.3 ) $ 3,766.8 $ ( 0.8 ) $ 3,766.0

Balance as of September 30, 2022 581 $ 19.4 155,448,209 $ 1.7 620,353 $ — $ ( 538.5 ) $ 4,201.9 $ 133.7 $ ( 201.1 ) $ 3,617.1 $ ( 1.1 ) $ 3,616.0

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

4 unchanged sentences

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

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

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

See accompanying notes to the unaudited Consolidated Financial Statements.

2 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the six months ended June 30,

For the nine months ended September 30,

(in millions) 2022 2021

6 unchanged sentences

Noncash operating lease expense 67.8 117.1

Gain on acquisition of Sam Houston — ( 29.9 )

Holding loss (gain) on equity securities 66.4 ( 8.7 )

Loss (gain) on sale or disposal of property and equipment 7.2 ( 0.2 )

Loss on sale or disposal of property and equipment 7.0 0.1

Gain on Hurricane Laura ( 10.7 ) —

3 unchanged sentences

Stock-based compensation 45.1 21.9

Impairment losses 104.6 —

Loss on early extinguishment of debt 10.4 —

8 unchanged sentences

Other current and long-term liabilities ( 10.0 ) 47.4

Other 12.6 3.1

Net cash provided by operating activities 760.0 779.0

4 unchanged sentences

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

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

Acquisition of equity securities — ( 26.0 )

Consideration paid for a cost method investment ( 15.0 ) —

2 unchanged sentences

Net cash used in investing activities ( 180.0 ) ( 269.5 )

For the six months ended June 30,

For the nine months ended September 30,

(in millions) 2022 2021

39 unchanged sentences

PENN Entertainment, 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 26 million members a unique set of rewards and experiences across business channels.

PENN operates 43 properties in 20 states, online sports betting in 14 jurisdictions and iCasino in five jurisdictions, under a portfolio of well-recognized brands including Hollywood Casino ® , L’Auberge ® , Barstool Sportsbook ® , and theScore Bet Sportsbook and Casino ® .

PENN’s highly differentiated strategy, which is focused on organic cross-sell opportunities, is reinforced by its investments in market-leading retail casinos, sports media assets, technology, including a state-of-the-art, fully integrated digital sports and online casino 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 our approximately 26 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;

25 unchanged sentences

Interactive includes all of our iCasino and online sports betting operations, management of retail sports betting, media, and our proportionate share of earnings attributable to our equity method investment in Barstool Sports, Inc.

(“Barstool Sports”).

(“Barstool”).

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

17 unchanged sentences

Pennsylvania N/A

Hollywood Casino at Meadows Racetrack Washington, Pennsylvania Meadows Lease

Hollywood Casino at The Meadows Washington, Pennsylvania Meadows Lease

Plainridge Park Casino Plainville, Massachusetts Pinnacle Master Lease

14 unchanged sentences

Cactus Petes and Horseshu Jackpot, Nevada Pinnacle Master Lease

M Resort Henderson, Nevada PENN Master Lease

Tropicana Las Vegas Las Vegas, Nevada Tropicana Lease

M Resort Spa Casino Henderson, Nevada PENN Master Lease

Tropicana Las Vegas (2)

Las Vegas, Nevada Tropicana Lease

Zia Park Casino Hobbs, New Mexico PENN Master Lease

14 unchanged sentences

(1) VGT route operations

(2) On September 26, 2022, PENN sold its equity interest in the Tropicana Las Vegas Hotel and Casino Inc.

(“Tropicana”), which consisted of the gaming license to operate the property as described in Note 6, “Acquisitions and Dispositions” , and as a result of the sale, the Tropicana Lease (as defined in Note 9, “Leases” ) was terminated.

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

1 unchanged sentence

Revenue Recognition:

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.

3 unchanged sentences

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

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

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

(in millions) 2022 2021 2022 2021

5 unchanged sentences

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 iCasino market access.

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 $ 43.4 million and $ 37.6 million as of June 30, 2022 and December 31, 2021, 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, my choice redemption mall, 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 priority access, discounts, 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 $ 35.8 million and $ 37.6 million as of September 30, 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.

2 unchanged sentences

(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 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 $ 93.2 million and $ 112.0 million as of June 30, 2022 and December 31, 2021, respectively.

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 $ 115.9 million and $ 112.0 million as of September 30, 2022 and December 31, 2021, respectively.

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 Ventures, LLC (“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 $ 55.4 million and $ 52.2 million as of June 30, 2022 and December 31, 2021, respectively.

PENN Interactive Ventures, LLC (“PENN Interactive”) enters into multi-year agreements with sports betting operators for online sports betting and iCasino market access across our portfolio of properties.

Deferred revenue associated with third-party sports betting operators for online sports betting and iCasino market access, which is included in “Other long-term liabilities”

within our unaudited Consolidated Balance Sheets was $ 55.0 million and $ 52.2 million as of September 30, 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 $ 18.5 million, and $ 42.6 million for the three and six months ended June 30, 2022, respectively, as compared to $ 15.3 million and $ 32.4 million for the three and six months ended June 30, 2021, respectively.

Gaming and Racing Taxes:

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

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.

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 $ 486.8 million and $ 959.0 million for the three and six months ended June 30, 2022, respectively, as compared to $ 515.9 million and $ 933.8 million for the three and six months ended June 30, 2021, respectively.

Advertising expenses, which generally relate to media placement costs and are primarily included in “Gaming” expenses within the unaudited Consolidated Statements of Operations, were $ 27.1 million, and $ 69.7 million for the three and nine months ended September 30, 2022, respectively, as compared to $ 26.4 million and $ 58.8 million for the three and nine months ended September 30, 2021, respectively.

Gaming and Pari-mutuel Taxes:

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

Also, included in gaming and pari-mutuel taxes are costs to support the operations of local regulatory authorities which some states require us to pay.

Gaming and pari-mutuel taxes are recorded in “Gaming” expense or “Food, beverage, hotel, and other” expenses within the unaudited Consolidated Statements of Operations, and were $ 540.3 million and $ 1.6 billion for the three and nine months ended September 30, 2022, respectively, as compared to $ 505.8 million and $ 1.4 billion for the three and nine months ended September 30, 2021, respectively.

Foreign Currency Translation:

1 unchanged sentence

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.

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

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 (Loss) and Accumulated Other Comprehensive Loss:

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

Comprehensive Income and Accumulated Other Comprehensive Loss:

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

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

17 unchanged sentences

Note 3— New Accounting Pronouncements

In June 2022, the FASB issued ASU 2022-03, “Fair Value Measurement (Topic 820):

Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions” (“ASU 2020-03”).

ASU 2020-03 clarifies the guidance on the fair value measurement of an equity security that is subject to a contractual sale restriction and requires specific disclosures related to such

an equity security.

Specifically, ASU 2022-03 clarifies that a “contractual sale restriction prohibiting the sale of an equity security is a characteristic of the reporting entity holding the equity security” and is not included in the equity security’s unit of account.

Accordingly, the Company is no longer permitted to apply a discount related to the contractual sale restriction, or lack of marketability, when measuring the equity security’s fair value.

In addition, ASU 2020-03 prohibits an entity from recognizing a contractual sale restriction as a separate unit of account.

ASU 2020-03 will be effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years.

Early adoption is permitted.

The Company is currently evaluating the impact of the adoption of ASU 2020-03 on our Consolidated Financial Statements.

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

1 unchanged sentence

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

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

based and less susceptible to manipulation.

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.

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

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” ).

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” ), upon which the Company adopted ASU 2020-04.

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

7 unchanged sentences

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.

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

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

9 unchanged sentences

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

During the six months ended June 30, 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.

We did not receive insurance proceeds during the three months ended June 30, 2022.

As of August 4, 2022, the insurance claim remains open and we expect to receive additional future proceeds.

We will record proceeds in excess of the recognized losses and lost profits under our business interruption insurance as a gain contingency in accordance with ASC 450, “Contingencies,” which we expect to recognize at the time of final settlement or when nonrefundable cash advances are made in a period subsequent to June 30, 2022.

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

(in millions) June 30, 2022 December 31, 2021

During the three and nine months ended September 30, 2022, we received additional insurance claim proceeds totaling $ 1.9 million and $ 39.4 million, respectively, resulting in a gain of $ 1.9 million and $ 10.7 million, respectively, which is included in “General and administrative” within our unaudited Consolidated Statements of Operations.

As of November 3, 2022, the insurance claim remains open, and we expect to receive additional future proceeds.

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

(in millions) September 30, 2022 December 31, 2021

Insurance proceeds received through the end of the period $ 86.9 $ 47.5

6 unchanged sentences

Note 5— Revenue Disaggregation

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

Our revenues are generated principally by providing the following types of services:

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

3 unchanged sentences

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 June 30, 2022

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

For the three months ended September 30, 2022

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

Other Intersegment Eliminations (2)

Gaming $ 616.8 $ 260.0 $ 102.8 $ 268.7 $ 69.2 $ — $ — $ 1,317.5

3 unchanged sentences

Total revenues $ 685.4 $ 329.8 $ 156.5 $ 298.4 $ 158.7 $ 4.2 $ ( 8.0 ) $ 1,625.0

For the three months ended June 30, 2021

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

For the three months ended September 30, 2021

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

Other Intersegment Eliminations (2)

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

3 unchanged sentences

Total revenues $ 672.4 $ 318.2 $ 145.7 $ 285.7 $ 93.0 $ 3.5 $ ( 6.7 ) $ 1,511.8

For the six months ended June 30, 2022

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

For the nine months ended September 30, 2022

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

Other Intersegment Eliminations (2)

Gaming $ 1,837.3 $ 807.6 $ 295.8 $ 792.2 $ 201.4 $ — $ — $ 3,934.3

3 unchanged sentences

Total revenues $ 2,028.8 $ 1,009.8 $ 451.2 $ 877.6 $ 455.1 $ 17.4 $ ( 23.8 ) $ 4,816.1

For the six months ended June 30, 2021

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

For the nine months ended September 30, 2021

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

Other Intersegment Eliminations (2)

Gaming $ 1,745.7 $ 802.8 $ 262.5 $ 748.3 $ 84.4 $ — $ — $ 3,643.7

3 unchanged sentences

Total revenues $ 1,895.8 $ 982.3 $ 382.7 $ 815.2 $ 275.3 $ 6.8 $ ( 25.6 ) $ 4,332.5

(1) Other revenues within the Interactive segment are inclusive of gaming tax reimbursement amounts charged to third-party partners for online sports betting and iCasino market access of $ 63.0 million and $ 168.7 million for the three and nine months ended September 30, 2022, respectively, as compared to $ 44.0 million and $ 129.5 million for the three and nine months ended September 30, 2021, respectively.

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

1 unchanged sentence

Tropicana Las Vegas

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 Racetrack and Casino Lease, beginning in May 2020.

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.

The transaction closed on September 26, 2022.

Score Media and Gaming Inc.

6 unchanged sentences

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.

See Note 13, “Stockholders’ Equity and Stock-Based Compensation” for further information.

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

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

During the three months ended September 30, 2022, we made the following purchase price measurement period adjustment:

(in millions) Estimated fair value, as previously reported .

Measurement period adjustments Final fair value

Cash and cash equivalents $ 160.3 $ — $ 160.3

17 unchanged sentences

Net assets acquired $ 2,082.7 $ — $ 2,082.7

(1) Amounts were initially reported within the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 28, 2022.

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.

17 unchanged sentences

(collectively “Hitpoint”), Hollywood Casino Perryville (“Perryville”), Sam Houston Race Park and Valley Race Park (collectively “Sam Houston”), and theScore had occurred as of January 1, 2021.

We acquired Hitpoint on May 11, 2021, Perryville on July 1, 2021, and Sam Houston on August 1, 2021.

The pro forma amounts include the historical

operating results of PENN and Hitpoint, Perryville, Sam Houston and theScore prior to our acquisitions.

We acquired Hitpoint on May 11, 2021, Perryville on July 1, 2021, Sam Houston on August 1, 2021, and theScore on October 19, 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 and six months ended June 30, 2021, pro forma adjustments directly attributable to the acquisitions include acquisition and transaction related costs of $ 2.1 million and $ 3.7 million, respectively, incurred by both PENN and the respective acquirees.

For the three and six months ended June 30, 2021, pro forma adjustments directly attributable to the acquisitions also include a loss of $ 8.5 million and gains of $ 34.9 million, respectively, 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 June 30, For the six months ended June 30,

For the three and nine months ended September 30, 2021, pro forma adjustments directly attributable to the acquisitions include acquisition and transaction related costs of $ 15.8 million and $ 19.5 million, respectively, incurred by both PENN and the respective acquirees.

For the three and nine months ended September 30, 2021, pro forma adjustments directly attributable to the acquisitions also include gains of $ 18.5 million and $ 53.4 million, respectively, 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 September 30, For the nine months ended September 30,

(in millions) 2021

9 unchanged sentences

Effect of foreign currency exchange rates — — — — ( 124.8 ) — ( 124.8 )

Balance as of June 30, 2022

Impairment losses during year ( 37.4 ) — — — — — ( 37.4 )

— — — — 1.5 — 1.5

Balance as of September 30, 2022

Goodwill, gross $ 923.5 $ 236.6 $ 216.8 $ 1,116.7 $ 1,600.7 $ 87.7 $ 4,182.0

1 unchanged sentence

Goodwill, net $ 124.7 $ 175.6 $ 200.2 $ 560.6 $ 1,600.7 $ — $ 2,661.8

There were no impairment charges recorded to goodwill during the three and six months ended June 30, 2022 and 2021.

(1) Amount relates to theScore purchase price measurement period adjustment.

See Note 6, “Acquisitions and Dispositions” .

2022 Interim Assessment for Impairment

During the third quarter of 2022, we identified an indicator of impairment on goodwill and other intangible assets at the Hollywood Casino at Greektown reporting unit due to the majority of the hotel being out of service as a result of a longer than anticipated hotel room renovation related to water damage.

As a result, we revised the cash flow projections for the reporting unit to be reflective of current operating results and the related economic environment.

As a result of the interim assessment for impairment, during the third quarter of 2022, we recognized impairment charges on our goodwill and gaming licenses of $ 37.4 million and $ 65.4 million, respectively.

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

The estimated fair value of the gaming license was determined by using a discounted cash flow model, which utilized Level 3 inputs.

There were no other impairment charges recorded to goodwill and other intangible assets during the three and nine months ended September 30, 2022 and 2021.

The goodwill and gaming license impairment charges of $ 37.4 million and $ 65.4 million, respectively, pertained to our Northeast segment.

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

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

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

8 unchanged sentences

Total other intangible assets $ 1,933.6 $ ( 179.0 ) $ 1,754.6 $ 2,011.3 $ ( 138.7 ) $ 1,872.6

There were no impairment charges recorded to other intangible assets, net for the three and six months ended June 30, 2022 and 2021.

Amortization expense related to our amortizing intangible assets was $ 14.9 million and $ 29.9 million for the three and six months ended June 30, 2022, respectively, as compared to $ 2.5 million and $ 4.7 million for the three and six months ended June 30, 2021, respectively.

The following table presents the estimated amortization expense based on our amortizing intangible assets as of June 30, 2022 (in millions):

Amortization expense related to our amortizing intangible assets was $ 14.3 million and $ 44.2 million for the three and nine months ended September 30, 2022, respectively, as compared to $ 2.0 million and $ 6.7 million for the three and nine months ended September 30, 2021, respectively.

The following table presents the estimated amortization expense based on our amortizing intangible assets as of September 30, 2022 (in millions):

Years ending December 31,

2022 (excluding the six months ended June 30, 2022)

2022 (excluding the nine months ended September 30, 2022)

Thereafter 45.2

2 unchanged sentences

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

(in millions) June 30,

(in millions) September 30,

2022 December 31,

11 unchanged sentences

Current maturities of long-term debt ( 55.8 ) ( 99.5 )

Debt discount ( 4.9 ) ( 73.1 )

Debt discounts ( 4.7 ) ( 73.1 )

Debt issuance costs ( 37.6 ) ( 30.6 )

$ 2,730.2 $ 2,637.3

The following is a schedule of future minimum repayments of long-term debt as of June 30, 2022 (in millions):

The following is a schedule of future minimum repayments of long-term debt as of September 30, 2022 (in millions):

Years ending December 31:

2022 (excluding the six months ended June 30, 2022)

2022 (excluding the nine months ended September 30, 2022)

Thereafter 2,189.0

9 unchanged sentences

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 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.

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 ranged 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 of the most recent fiscal quarter.

The Term Loan B-1 Facility bore 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 were subject to a LIBOR “floor” of 0.75 %.

In addition, a commitment fee was paid on the unused portion of the commitments under the Revolving Facility at a rate that ranged 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”).

6 unchanged sentences

In addition, the Company will pay a commitment fee on the unused portion of the commitments under the Amended 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.

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 Amended Credit Facilities.

The Amended 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 Amended Credit Facilities.

The Amended Credit Facilities contain two financial covenants:

1 unchanged sentence

The Amended 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 Second Amended and Restated Credit Agreement), termination and certain defaults under the PENN Master Lease and the Pinnacle Master Lease (both of which are defined in Note 9, “Leases” ).

In connection with the repayment of the previous Senior Secured Credit Facilities, the Company recorded $ 1.3 million in refinancing costs and a $ 10.4 million loss on the early extinguishment of debt for the three and six months ended June 30, 2022 which is included in “Other” within our unaudited Consolidated Statements of Operations.

In connection with the repayment of the previous Senior Secured Credit Facilities, the Company recorded $ 1.3 million in refinancing costs and a $ 10.4 million loss on the early extinguishment of debt for the nine months ended September 30, 2022 which is included in “Other” within our unaudited Consolidated Statements of Operations.

In addition, we recorded $ 5.0 million of original issue discount related to the Amended Term Loan B Facility which will be amortized to interest expense over the life of the Amended Term Loan B Facility.

As of June 30, 2022, the Company had conditional obligations under letters of credit issued pursuant to the Amended Credit Facilities with face amounts aggregating to $ 25.4 million resulting in $ 974.6 million of available borrowing capacity under the Amended Revolving Credit Facility.

As of September 30, 2022, the Company had conditional obligations under letters of credit issued pursuant to the Amended Credit Facilities with face amounts aggregating to $ 22.7 million resulting in $ 977.3 million of available borrowing capacity under the Amended Revolving Credit Facility.

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

5 unchanged sentences

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

As of June 30, 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 $ 228.0 million.

As of September 30, 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 $ 174.6 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.

3 unchanged sentences

In connection with certain corporate events or if the Company issues a notice of redemption, it will, under certain circumstances, increase the conversion rate for holders who elect to convert their Convertible Notes in connection with such corporate events or during the relevant redemption period for such Convertible Notes.

As of June 30, 2022 and December 31, 2021, no Convertible Notes have been converted into the Company’s common stock.

As of September 30, 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 separated it into liability and equity components.

1 unchanged sentence

The equity component, recognized as debt discount, was valued as the difference between the face value of the Convertible Notes and the fair value of the liability component.

The equity component was valued at

$ 91.8 million upon issuance of the Convertible Notes.

The equity component was valued at $ 91.8 million upon issuance of the Convertible Notes.

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.

2 unchanged sentences

The Convertible Notes consisted of the following components:

(in millions) June 30,

(in millions) September 30,

2022 December 31,

7 unchanged sentences

The table below presents interest expense, net:

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

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

(in millions) 2022 2021 2022 2021

4 unchanged sentences

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

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

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

(in millions) 2022 2021 2022 2021

3 unchanged sentences

Convertible Notes interest expense $ 2.8 $ 5.7 $ 8.1 $ 16.9

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 3.9 years as of June 30, 2022.

Subsequent to the adoption of ASU 2020-06, the debt issuance costs attributable to the liability component continues 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 3.6 years as of September 30, 2022.

Our Amended 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 Amended 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 June 30, 2022, the Company was in compliance with all required financial covenants.

As of September 30, 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.

4 unchanged sentences

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 $ 6.7 million and $ 12.9 million for the three and six months ended June 30, 2022, respectively, as compared to $ 3.7 million and $ 5.2 million for the three and six months ended June 30, 2021, respectively.

The amount included in interest expense related to this obligation was $ 7.1 million and $ 20.0 million for the three and nine months ended September 30, 2022, respectively, as compared to $ 6.9 million and $ 12.1 million for the three and nine months ended September 30, 2021, respectively.

Ohio Relocation Fees

Other long-term obligations included $ 36.1 million and $ 44.5 million as of June 30, 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.

Other long-term obligations included $ 36.1 million and $ 44.5 million as of September 30, 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:

1 unchanged sentence

This obligation is accreted to interest expense at an effective yield of 5.0 %.

As of June 30, 2022 and December 31, 2021, other long-term obligations included $ 10.7 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.

As of September 30, 2022 and December 31, 2021, other long-term obligations included $ 10.7 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.

10 unchanged sentences

The Company has determined that the lease term is 35 years.

compared to a contractual baseline during the preceding five years (“PENN Percentage Rent”) and (ii) monthly by an amount equal to 20 % of the net revenues of Columbus and Toledo in excess of a contractual baseline and subject to a rent floor specific to Toledo.

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

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, 2022, for the lease year ended October 31, 2022, the fixed component of rent increased by $ 5.7 million.

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

6 unchanged sentences

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

Subsequent to quarter end, on October 9, 2022, the Company entered into a binding term sheet (the “Term Sheet”) with GLPI.

Pursuant to the Term Sheet, the Company and GLPI agreed to amend the PENN Master Lease to (i) remove the land and buildings for Hollywood Casino Aurora (“Aurora”), Hollywood Casino Joliet (“Joliet”), Columbus, Toledo and the M Resort Spa Casino (“M Resort”) and (ii) make associated adjustments to the rent under the PENN Master Lease, after which the initial Rent in the PENN Master Lease will be $ 284.1 million, consisting of $ 208.2 million of Building Base Rent, $ 43.0 million of Land Base Rent and $ 32.9 million of Percentage Rent (as such terms are defined in the PENN Master Lease).

We preliminarily concluded the pending amendment that will result from the Term Sheet (expected to be effective on January 1, 2023), constitutes a modification event under ASC 842 and are currently reassessing, remeasuring, and quantifying the impact of the modification to the Consolidated Financial Statements, which will be material.

The modification event is expected to result in (i) a non-cash debt extinguishment charge recorded to our Consolidated Statements of Operations and

corresponding change in our financing obligations on our Consolidated Balance Sheets;

and (ii) a revaluation of our lease ROU assets and corresponding lease liabilities on our Consolidated Balance Sheets.

Subsequent to quarter end, as part of the Term Sheet and concurrent with the PENN Master Lease amendment described above, the Company and GLPI agreed to enter into a new master lease (the “New Lease”), expected to be effective January 1, 2023, specific to the property associated with Aurora, Joliet, Columbus, Toledo, M Resort, Hollywood Casino at The Meadows (“Meadows”), and Perryville.

The New Lease will be cross-defaulted, cross-collateralized and coterminous with the PENN Master Lease, and subject to a parent guarantee.

The New Lease will include a base rent (the “New Lease Base Rent”) equal to $ 232.2 million and additional rent (together with the New Lease Base Rent, the “New Lease Rent”) equal to (i) 7.75 % of any project funding received by PENN from GLPI for an anticipated relocation of PENN’s riverboat casino and related developments with respect to Aurora (the “Aurora Project”) and (ii) a percentage, based on then-current market conditions, of any project funding received by PENN from GLPI for certain anticipated development projects with respect to Joliet, Columbus and M Resort (the “Other Development Projects”).

GLPI will fund up to $ 225 million for the Aurora Project, and GLPI has committed to fund, upon PENN’s request, up to $ 350 million in the aggregate for the Other Development Projects, in accordance with certain terms and conditions set forth in the Term Sheet.

The New Lease Rent will be subject to a one-time increase of $ 1.4 million, effective the fifth anniversary of the effective date.

The New Lease Rent will be further subject to a fixed escalator of 1.5 % on November 1, 2023 and annually thereafter.

PENN may elect not to proceed with or to abandon any development project, provided that GLPI will be reimbursed for any out-of-pocket costs associated with an abandoned project.

The Aurora Project and the Other Development projects are all subject to necessary regulatory and other government approvals.

Pinnacle Master Lease

2 unchanged sentences

The Company has determined that the lease term is 32.5 years.

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

The 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 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”).

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

10 unchanged sentences

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.

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 which were 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.

3 unchanged sentences

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.

In conjunction with the acquisition of the operations of 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.

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 %.

Subsequent to quarter end, as part of the Term Sheet and in conjunction with entering into the New Lease as described above, the Company agreed with GLPI that the Perryville Lease will be terminated effective on the expected date of January 1, 2023.

Operating 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 (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 Casino Resort (the “Margaritaville Lease”) and Hollywood Casino at 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.

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 (the “Tropicana Lease” which was terminated on September 26, 2022) and Hollywood Casino at The Meadows (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 Resort Casino (the “Margaritaville Lease”) and Hollywood Casino at 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.

1 unchanged sentence

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

Subsequent to quarter end, as part of the Term Sheet and in conjunction with entering into the New Lease as described above, the Company agreed with GLPI that the Meadows Lease will be terminated effective on the expected date of January 1, 2023.

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

1 unchanged sentence

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 the recognition of an additional operating lease ROU asset and corresponding lease liability of $ 2.9 million.

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

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

2 unchanged sentences

In April 2022, the lease was further amended to provide for a Net Revenue to Rent coverage floor to be mutually agreed upon prior to the commencement of the fifth lease year (June 1, 2023).

The following is a maturity analysis of our operating leases, finance leases and financing obligations as of June 30, 2022:

The following is a maturity analysis of our operating leases, finance leases and financing obligations as of September 30, 2022:

(in millions) Operating Leases Finance Leases Financing Obligations

Year ended December 31,

2022 (excluding the six months ended June 30, 2022) $ 68.0 $ 193.2 $ 186.3

2022 (excluding the nine months ended September 30, 2022) $ 31.9 $ 94.6 $ 93.2

2023 125.3 375.2 369.8

9 unchanged sentences

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

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

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

(in millions) 2022 2021 2022 2021

7 unchanged sentences

$ 232.0 $ 228.5 $ 693.1 $ 683.6

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

(1) Rent payable under the Tropicana Lease was nominal prior to termination on September 26, 2022.

Therefore, it has been excluded from the table above.

1 unchanged sentence

Location on unaudited

Consolidated Statements of Operations For the three months ended June 30, For the six months ended June 30,

Consolidated Statements of Operations For the three months ended September 30, For the nine months ended September 30,

(in millions) 2022 2021 2022 2021

18 unchanged sentences

(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.

The Tropicana Lease was terminated on September 26, 2022.

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.

1 unchanged sentence

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

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

(3) Pertains to the finance lease components contained within the Master Leases, and the Perryville Lease which results in interest expense and amortization 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.

2 unchanged sentences

Note 10— Investments in and Advances to Unconsolidated Affiliates

As of June 30, 2022, investments in and advances to unconsolidated affiliates primarily consisted of the Company’s 36 % interest in Barstool Sports;

As of September 30, 2022, investments in and advances to unconsolidated affiliates primarily consisted of the Company’s 36 % interest in Barstool;

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.

Investment in Barstool Sports

In February 2020, we closed on our investment in Barstool Sports pursuant to a stock purchase agreement with Barstool Sports and certain stockholders of Barstool Sports, in which we purchased 36 % (inclusive of 1 % on a delayed basis) of the common stock, par value $ 0.0001 per share, of Barstool Sports for a purchase price of $ 161.2 million.

Investment in Barstool

As previously disclosed, in February 2020, we closed on our investment in Barstool pursuant to a stock purchase agreement with Barstool and certain stockholders of Barstool, in which we purchased 36 % (inclusive of 1 % on a delayed basis) of the common stock, par value $ 0.0001 per share, of Barstool for a purchase price of $ 161.2 million.

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

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

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

On October 1, 2021, the terms of the February 2020 stock purchase agreement were amended and restated (“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 and Restated Stockholder’s Agreement and PENN elects to settle using a combination of cash and equity.

Consistent with the February 2020 stock purchase agreement:

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

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

On July 7, 2022, we entered into the first amendment to the Amended and Restated Stockholders’ Agreement (“First Amendment”).

The First Amendment updated the share price specified value used to calculate the fixed 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 the updated specified value and PENN elects to settle using 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.

The First Amendment updated the share price specified value used to calculate the fixed number of PENN common shares to be delivered to existing February 2020 employee holders of Barstool common stock, to the extent PENN’s stock price exceeds the updated specified value and PENN elects to settle using a combination of cash and equity.

On August 17, 2022, the Company exercised its call rights to bring its ownership of Barstool to 100 %.

The acquisition of the remaining Barstool shares is expected to be completed in February 2023, after which Barstool will be a wholly-owned subsidiary of PENN.

Completion of the acquisition at that time is subject to the satisfaction of certain conditions, including regulatory approval.

In conjunction with the February 20, 2020 stock purchase agreement, 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.

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

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

Series D Preferred Stock is nonvoting stock.

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 Amended and Restated Stockholder’s Agreement.

As of June 30, 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).

During the three months ended June 30, 2022, the Company acquired an additional 0.3 % 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 PENN Common Stock as contained within the Amended and Restated Stockholder’s Agreement (see Note 13, “Stockholders’ Equity and Stock-Based Compensation,” for further information)

As a part of the stock purchase agreement, we entered into a commercial agreement that provides us with access to Barstool Sports’ customer list and exclusive advertising on the Barstool Sports platform over the term of the agreement.

As of September 30, 2022, 51 shares of the Series D Preferred Stock can be converted into PENN Common Stock.

During the three months ended June 30, 2022 and the year ended December 31, 2021, the Company acquired an additional 0.3 %, and 0.6 % of Barstool common stock, par value $ 0.0001 per share, respectively, which represents a partial settlement of the 1 % purchase on a delayed basis as noted above.

The acquisitions of the acquired Barstool common stock that occurred during the three months ended June 30, 2022 and the year ended December 31, 2021, were settled through a predetermined number of PENN Common Stock and Series D Preferred Stock, respectively, as contained within the Amended and Restated Stockholders’ Agreement (see Note 13, “Stockholders’ Equity and Stock-Based Compensation,” for further information).

As a part of the stock purchase agreement, we entered into a commercial agreement that provides us with access to Barstool’s customer list and exclusive advertising on the Barstool platform over the term of the agreement.

The initial term of the commercial agreement is ten years and, unless earlier terminated and subject to certain exceptions, will automatically renew for three additional ten-year terms (a total of 40 years assuming all renewals are exercised).

As of June 30, 2022 and December 31, 2021, we have an amortizing intangible asset pertaining to the customer list of $ 0.4 million and $ 0.8 million, respectively.

As of June 30, 2022 and December 31, 2021, we have a prepaid expense pertaining to the advertising in the amount of $ 14.8 million, and $ 15.4 million respectively, of which $ 13.6 million and $ 14.2 million was classified as long-term, respectively.

As of September 30, 2022 and December 31, 2021, we have an amortizing intangible asset pertaining to the customer list of $ 0.2 million and $ 0.8 million, respectively.

As of September 30, 2022 and December 31, 2021, we have a prepaid expense pertaining to the advertising in the amount of $ 14.5 million, and $ 15.4 million respectively, of which $ 13.3 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 June 30, 2022 and December 31, 2021, our investment in Barstool Sports was $ 159.4 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 June 30, 2022 and December 31, 2021.

The Company did not consolidate the financial position of Barstool Sports as of June 30, 2022 and December 31, 2021, nor the results of operations for the three and six months ended June 30, 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.

As of September 30, 2022 and December 31, 2021, our investment in Barstool was $ 160.2 million and $ 162.5 million, respectively.

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

The Company determined that Barstool qualified as a VIE as of September 30, 2022 and December 31, 2021.

The Company did not consolidate the financial position of Barstool as of September 30, 2022 and December 31, 2021, nor the results of operations for the three and nine months ended September 30, 2022 and 2021, as the Company determined that it did not qualify as the primary beneficiary of Barstool 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’s economic performance.

Kansas Joint Venture

As of June 30, 2022 and December 31, 2021, our investment in Kansas Entertainment was $ 82.4 million and $ 83.8 million, respectively.

During the three and six months ended June 30, 2022, the Company received distributions from Kansas Entertainment totaling $ 9.0 million and $ 17.0 million, respectively, as compared to $ 7.9 million for the three months ended June 30, 2021 and $ 13.4 million for the six months ended June 30, 2021.

As of September 30, 2022 and December 31, 2021, our investment in Kansas Entertainment was $ 79.9 million and $ 83.8 million, respectively.

During the three and nine months ended September 30, 2022, the Company received distributions from Kansas Entertainment totaling $ 10.5 million and $ 27.5 million, respectively, as compared to $ 10.5 million and $ 23.9 million for the three and nine months ended September 30, 2021.

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.

1 unchanged sentence

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 June 30, 2022 and December 31, 2021, nor the results of operations for the three and six months ended June 30, 2022 and 2021.

Texas Joint Venture

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.

Therefore, the Company did not consolidate the financial position of Kansas Entertainment as of September 30, 2022 and December 31, 2021, nor the results of operations for the three and nine months ended September 30, 2022 and 2021.

Note 11— Income Taxes

1 unchanged sentence

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 68.3 % and 57.2 % for the three and six months ended June 30, 2022, as compared to 21.1 % and 20.3 % for the three and six months ended June 30, 2021.

The effective tax rate (income taxes as a percentage of income or loss before income taxes) including discrete items was 226.7 % and ( 62.9 %) for the three and nine months ended September 30, 2022, as compared to 29.7 % and 22.7 % for the three and nine months ended September 30, 2021.

We excluded certain foreign losses from our worldwide effective tax rate calculation due to a year-to-date ordinary loss for which no benefit may be recognized.

1 unchanged sentence

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

As of each reporting date, the Company considers all available positive and negative evidence that could affect its view of the future realization of deferred tax assets pursuant to ASC Topic 740, “Income Taxes.” As of June 30, 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.

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 June 30, 2022, the Company increased the valuation allowance in the amount of $ 27.2 million related primarily to accounting modifications to certain master leases (see Note 9, “Leases” ).

As of June 30, 2022 and December 31, 2021, prepaid income taxes of $ 27.1 million and $ 42.5 million, respectively, were included in “Prepaid expenses” within our unaudited Consolidated Balance Sheets.

The reduction in prepaid income taxes is primarily related to an Internal Revenue Service refund of $ 28.2 million related to the Company’s carryback claim under the CARES Act for the year ended December 31, 2020.

ASC 740 requires that deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amount and the tax basis of existing assets and liabilities and are measured at the prevailing enacted tax rates that will be in effect when these differences are realized or settled.

As of June 30, 2022, and December 31, 2021, the Company had a valuation allowance of $ 187.2 million and $ 124.3 million, respectively, within its unaudited Consolidated Balance Sheets.

The accounting guidance also requires analysis regarding whether valuation allowances should be established based on the consideration of all available evidence using a “more-likely-than-not” realization standard.

We evaluate our deferred tax assets quarterly to determine if valuation allowances are required.

The realization of the deferred tax assets ultimately depends upon the existence of sufficient taxable income in future periods.

We established a full valuation allowance against our deferred tax assets beginning in the first quarter of 2020 because of the mandated property-wide closures resulting in zero revenues for an extended period.

The Company routinely analyzes all available positive and negative evidence in determining the continuing need for a valuation allowance.

Our evaluation process considered, among other factors, historical retail operating results, our three-year cumulative earnings position, projections of future sustained profitability and the duration of statutory carryforward periods.

As of September 30, 2022, the Company determined that a valuation allowance was no longer required against its federal, foreign, and state net deferred tax assets for the portion that will be realized.

As a result, the Company released $ 172.7 million of its total valuation allowance during the three and nine months ended September 30, 2022, due to the positive evidence outweighing the negative evidence thereby allowing the Company to achieve the “more-likely-than-not” realization standard.

This reversal is reflected in our income tax benefit in the accompanying unaudited Consolidated Statements of Operations.

When a change in valuation allowance is recognized during an interim period, a portion of the valuation allowance to be reversed must be allocated to the remaining interim periods.

The Company continues to maintain a valuation allowance of approximately $ 14.5 million as of September 30, 2022 within its unaudited Consolidated Balance Sheets, for federal and foreign tax attributes in addition to certain state filing groups.

The most significant positive evidence that led to the reversal of the valuation allowance during this interim period includes the following:

Achievement and sustained growth in our three-year cumulative pretax earnings.

We anticipate emerging from a three-year cumulative pretax loss position during the fourth quarter of this year.

The Company has demonstrated profitability consecutively in the prior seven quarters including approximately $ 224.4 million and approximately $ 559.0 million of pretax book income for the nine months ended September 30, 2022 and for the year ended December 31 2021, respectively.

Substantial total revenue and earnings growth for the retail operating segment over the last seven quarters.

Total revenue and earnings for the retail operating segment increased 58.3 % and 87.2 %, respectively, from 2020 to 2021 showcasing a strong finish to a transformative year in a post pandemic environment.

The Company continued to have strong growth in total revenue and earnings for the retail operating segment for the nine months ended September 30, 2022.

Lack of significant asset impairment charges expected to be indicative of the Company’s retail business operations or projections for the foreseeable future.

The Company had experienced significant impairment charges as a result of mandated property-wide closures pursuant to various orders from state gaming regulators or governmental authorities to combat the rapid spread of COVID-19.

The Company recorded impairment charges totaling $ 623.4 million during the year ended December 31, 2020.

There were no impairments recorded in 2021 and for the nine months ended September 30, 2022, the Company recorded impairment of $ 104.6 million.

The impairment charge recorded in the third quarter of 2022 relates to an individual property and is specific to a prolonged hotel room renovation causing the majority of the hotel to be closed subsequent to the property reopening from the COVID-19 mandated closure, leading to amended cash flow projections to reflect the current operating results and the related economic environment.

As of September 30, 2022, and December 31, 2021, prepaid income taxes of $ 23.2 million and $ 42.5 million, respectively, were included in “Prepaid expenses” within our unaudited Consolidated Balance Sheets.

The reduction in prepaid income taxes is primarily related to an Internal Revenue Service refund of $ 28.2 million related to the Company’s carryback claim under the CARES Act.

On July 8, 2022, the Pennsylvania House Bill 1342 was signed into law that reduces the corporate income tax rate over the next nine years from the current rate of 9.99% to 4.99% by 2031.

The Company is evaluating this law change and the impact it will have on our consolidated financial statements.

The tax law change is accounted for in the period of enactment and therefore, we will recognize the impact during the quarter ended September 30, 2022.

The tax law change is accounted for in the period of enactment and therefore, we recognized an impact of approximately $ 10.3 million of additional expense during the three months ended September 30, 2022.

Note 12— Commitments and Contingencies

5 unchanged sentences

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

On July 8, 2022, the Company issued 4,055 shares, in connection with the achievement of the first of three annual mutual goals established by the Company and Hitpoint.

On July 8, 2022, the Company issued 4,055 shares, in connection with the achievement of the first of three annual mutual goals established by the Company and Hitpoint for a total of $ 0.2 million.

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

1 unchanged sentence

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

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 June 30, 2022 and December 31, 2021, there were 624,658 and 653,059 Exchangeable Shares outstanding, respectively.

On each of February 22, 2021 and August 23, 2021, the Company issued 43 shares of Series D Preferred Stock in conjunction with acquiring additional shares of Barstool Sports common stock.

On June 1, 2022, the Company issued 64,000 shares of common stock in conjunction with acquiring additional shares of Barstool Sports common stock from certain individual stockholders affiliated with Barstool Sports.

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 September 30, 2022 and December 31, 2021, there were 620,353 and 653,059 Exchangeable Shares outstanding, respectively.

On each of February 22, 2021 and August 23, 2021, the Company issued 43 shares of Series D Preferred Stock in conjunction with acquiring additional shares of Barstool common stock.

On June 1, 2022, the Company issued 64,000 shares of common stock in conjunction with acquiring additional shares of Barstool common stock from certain individual stockholders affiliated with Barstool.

The issuances were exempt from registration pursuant to Section 4(a)(2) of the Securities Act.

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.”

The acquisition of the incremental Barstool 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.”

On February 22, 2021 and August 23, 2021, 151 shares of Series D Preferred Stock and 43 shares of Series D Preferred Stock, respectively, were converted to common stock.

3 unchanged sentences

The issuances were exempt from registration pursuant to Section 4(a)(2) of the Securities Act.

As of June 30, 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, respectively.

As of September 30, 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, respectively.

Share Repurchase Authorization

4 unchanged sentences

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 June 30, 2022, the Company repurchased 5,539,177 shares of its common stock in open market transactions for $ 167.0 million at an average price of $ 30.16 per share.

During the six months ended June 30, 2022, the Company repurchased 9,341,585 shares of its common stock in open market transactions for $ 342.1 million at an average price of $ 36.62 per share.

During the three months ended September 30, 2022, the Company repurchased 5,348,809 shares of its common stock in open market transactions for $ 168.0 million at an average price of $ 31.40 per share.

During the nine months ended September 30, 2022, the Company repurchased 14,690,394 shares of its common stock in open market transactions for $ 510.1 million at an average price of $ 34.72 per share.

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

Subsequent to the quarter ended June 30, 2022, the Company repurchased 3,019,790 million shares of its common stock at an average price of $ 31.46 per share for an aggregate amount of $ 95.0 million.

The remaining availability under our $ 750.0 million share repurchase authorization was $ 313.1 million as of August 3, 2022.

Subsequent to the quarter ended September 30, 2022, the Company repurchased 1,005,188 shares of its common stock at an average price of $ 28.95 per share for an aggregate amount of $ 29.1 million.

The remaining availability under our $ 750.0 million share repurchase authorization was $ 211.1 million as of November 2, 2022.

2022 Long Term Incentive Compensation Plan

5 unchanged sentences

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

As of June 30, 2022, there 6,816,817 shares available for future grants under the 2022 Plan.

As of September 30, 2022, there are 6,575,083 shares available for future grants under the 2022 Plan.

2018 Long Term Incentive Compensation Plan

The Company’s 2018 Long Term Incentive Compensation Plan, as amended (the “2018 Plan”) permitted 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 were eligible to receive all such awards, other than incentive stock options.

Non-employee directors were eligible to receive all such awards, other than incentive stock options.

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

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

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

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

In connection with the approval of the 2022 Plan, the 2018 Plan remains in place until all of the awards previously granted thereunder have been paid, forfeited or expired.

However, the shares which remained available for issuance under the 2018 Plan, which totaled 2,858,438 as of June 30, 2022 , are no longer available for issuance and all future equity awards will be granted pursuant to the 2022 Plan.

However, the shares which remained available for issuance under the 2018 Plan are no longer available for issuance and all future equity awards will be granted pursuant to the 2022 Plan.

Score Media And Gaming Inc.

5 unchanged sentences

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.

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.

In connection with the approval of the 2022 Plan, theScore Plan remains in place until all of the awards previously granted thereunder have been paid, forfeited or expired.

However, the shares which remained available for future grants under theScore Plan, which totaled 251,825 as of June 30, 2022 , are no longer available for issuance and all future equity awards will be pursuant to the 2022 Plan.

However, the shares which remained available for future grants under theScore Plan are no longer available for issuance and all future equity awards will be pursuant to the 2022 Plan.

Performance Share Program

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

An aggregate of 244,955 RSUs and 95,276 RSAs and RSUs with performance-based vesting conditions, at target, were granted during the six months ended June 30, 2022 and June 30, 2021, respectively, under the Performance Share Program II, with the grant having a three-year award period consisting of three one-year performance periods and a three-year service period.

An aggregate of 244,955 RSUs and 95,276 RSAs and RSUs with performance-based vesting conditions, at target, were granted during the nine months ended September 30, 2022 and September 30, 2021, respectively, under the Performance Share Program II, with the grant having a three-year award period consisting of three one-year performance periods and a three-year service period.

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

Stock-based Compensation Expense

Stock-based compensation expense, which pertains principally to our stock options, RSAs and RSUs, for the three and six months ended June 30, 2022 was $ 14.5 million and $ 31.5 million, respectively, as compared to $ 9.2 million and $ 13.4 million for the three and six months ended June 30, 2021 and is included within the unaudited Consolidated Statements of Operations under “General and administrative.”

Stock-based compensation expense, which pertains principally to our stock options, RSAs and RSUs, for the three and nine months ended September 30, 2022 was $ 13.6 million and $ 45.1 million, respectively, as compared to $ 8.5 million and $ 21.9 million for the three and nine months ended September 30, 2021 and is included within the unaudited Consolidated Statements of Operations under “General and administrative.”

Stock Options

The Company granted 3,316 and 396,365 stock options during the three and six months ended June 30, 2022, respectively, as compared to 804 and 230,165 stock options during the three and six months ended June 30, 2021, respectively.

The Company granted 1,516 and 397,881 stock options during the three and nine months ended September 30, 2022, respectively, as compared to 736 and 230,901 stock options during the three and nine months ended September 30, 2021, respectively.

Cash-settled Phantom Stock Units

2 unchanged sentences

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 $ 2.0 million and $ 8.6 million as of June 30, 2022 and December 31, 2021, respectively.

For CPSUs, there was $ 5.9 million of total unrecognized compensation cost as of June 30, 2022 that will be recognized over the awards remaining weighted-average vesting period of 0.9 years.

For the three and six months ended June 30, 2022 the Company recognized $ 0.8 million and $ 1.4 million of compensation expense associated with these awards, respectively, as compared to $ 1.0 million and $ 5.7 million for the three and six months ended June 30, 2021, respectively.

The Company has a liability, which is included in “Accrued expenses and other current liabilities” within the unaudited Consolidated Balance Sheets, associated with its cash-settled CPSUs of $ 1.1 million and $ 8.6 million as of September 30, 2022 and December 31, 2021, respectively.

For CPSUs, there was $ 4.2 million of total unrecognized compensation cost as of September 30, 2022 that will be recognized over the awards remaining weighted-average vesting period of 0.8 years.

For the three and nine months ended September 30, 2022 the Company recognized $ 1.0 million and $ 2.4 million of compensation expense associated with these awards, respectively, as compared to $ 5.5 million and $ 11.2 million for the three and nine months ended September 30, 2021, respectively.

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

We paid $ 8.0 million and $ 6.0 million for the six months ended June 30, 2022 and 2021, respectively, pertaining to cash-settled CPSUs.

We paid $ 9.9 million and $ 13.5 million for the nine months ended September 30, 2022 and 2021, respectively, pertaining to cash-settled CPSUs.

Stock Appreciation Rights

1 unchanged sentence

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 $ 9.1 million and $ 18.5 million as of June 30, 2022 and December 31, 2021, respectively.

For SARs, there was $ 11.5 million of total unrecognized compensation cost as of June 30, 2022 that will be recognized over the awards remaining weighted-average vesting period of 2 years.

The Company recognized a reduction to compensation expense of $ 6.8 million for the three and six months ended June 30, 2022, and recognized a reduction to compensation expense of $ 9.9 million and a charge to compensation expense of $ 10.4 million for the three and six months ended June 30, 2021, respectively.

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 $ 7.1 million and $ 18.5 million as of September 30, 2022 and December 31, 2021, respectively.

For SARs, there was $ 7.8 million of total unrecognized compensation cost as of September 30, 2022 that will be recognized over the awards remaining weighted-average vesting period of 1.9 years.

The Company recognized a reduction to compensation expense of $ 1.3 million and $ 8.1 million for the three and nine months ended September 30, 2022, and recognized compensation expense of $ 3.2 million and $ 13.6 million for the three and nine months ended September 30, 2021, respectively.

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

We paid $ 2.1 million and $ 38.0 million during six months ended June 30, 2022 and 2021, respectively, related to cash-settled SARs.

We paid $ 2.8 million and $ 38.8 million during the nine months ended September 30, 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 %.

As of June 30, 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.

As of September 30, 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 and six months ended June 30, 2022, and 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 and six months ended June 30, 2022, and 2021.

For the three and nine months ended September 30, 2022, and 2021 we recorded net income attributable to PENN.

As such, we used diluted weighted-average common shares outstanding when calculating diluted income per share.

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 and six months ended June 30, 2022 and 2021 under the two-class method.

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

The following table sets forth the allocation of net income for the three and nine months ended September 30, 2022 and 2021 under the two-class method.

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

(in millions) 2022 2021 2022 2021

2 unchanged sentences

Net income applicable to common stock $ 123.0 $ 85.7 $ 200.5 $ 373.9

The following table reconciles the weighted-average common shares outstanding used in the calculation of basic EPS to the weighted-average common shares outstanding used in the calculation of diluted EPS for the three and six months ended June 30, 2022 and 2021:

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

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

(in millions) 2022 2021 2022 2021

5 unchanged sentences

Weighted-average common shares outstanding - Diluted 173.0 172.7 179.0 172.7

Restricted stock with performance and market based vesting conditions that have not been met as of June 30, 2022 were excluded from the computation of diluted earnings per share.

Options to purchase 0.9 million and 0.8 million shares were outstanding during the three and six months ended June 30, 2022, respectively, compared to 0.2 million during the three and six months ended June 30, 2021, but were not included in the computation of diluted earnings per share because they were anti-dilutive.

The assumed conversion of 0.6 million preferred shares were excluded from the computation of diluted earnings per share for the three and six months ended June 30, 2022, as compared to 0.8 million preferred shares for the three and six months ended June 30, 2021, 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 and six months ended June 30, 2022 and 2021:

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

Restricted stock with performance and market based vesting conditions that have not been met as of September 30, 2022 were excluded from the computation of diluted earnings per share.

Options to purchase 0.9 million and 0.8 million shares were outstanding during the three and nine months ended September 30, 2022, respectively, compared to 0.2 million during both the three and nine months ended September 30, 2021, but were not included in the computation of diluted earnings per share because they were anti-dilutive.

The assumed conversion of 0.6 million preferred shares were excluded from the computation of diluted earnings per share for both the three and nine months ended September 30, 2022, as compared to 0.8 million preferred shares for both the three and nine months ended September 30, 2021, 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 and nine months ended September 30, 2022 and 2021:

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

(in millions, except per share data) 2022 2021 2022 2021

12 unchanged sentences

Diluted earnings per share $ 0.72 $ 0.52 $ 1.15 $ 2.24

(1) The three and six months ended June 30, 2022 were tax-affected at a rate of 21 % .

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

(1) The three and nine months ended September 30, 2022 were tax-affected at a rate of 21 %.

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

Note 15— Fair Value Measurements

11 unchanged sentences

Equity Securities

As of June 30, 2022 and December 31, 2021, we held $ 31.4 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 market access across our portfolio.

During the three and six months ended June 30, 2022, we recognized holding losses of $ 16.9 million and $ 55.6 million related to these equity securities, respectively, compared to a holding loss of $ 7.4 million and a holding gain of $ 18.8 million for the three and six months ended June 30, 2021, respectively, which is included in “Other,” as reported in “Other income (expenses)” within our unaudited Consolidated Statements of Operations.

As of September 30, 2022 and December 31, 2021, we held $ 20.6 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 iCasino market access across our portfolio.

During the three and nine months ended September 30, 2022, we recognized holding losses of $ 10.8 million and $ 66.4 million related to these equity securities, respectively, compared to a holding gains of $ 10.1 million and $ 28.9 million for the three and nine months ended September 30, 2021, respectively, which is included in “Other,” as reported in “Other income (expenses)” within our unaudited Consolidated Statements of Operations.

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.

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

5 unchanged sentences

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

As of June 30, 2022 and December 31, 2021, PRP held $ 7.9 million and $ 15.1 million in promissory notes issued by RDC, respectively.

As of June 30, 2022 and December 31, 2021, PRP held $ 6.7 million in local government corporation bonds issued by RDC at amortized cost.

As of September 30, 2022 and December 31, 2021, PRP held $ 7.9 million and $ 15.1 million in promissory notes issued by RDC, respectively.

As of September 30, 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 June 30, 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.

As of September 30, 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;

however, we have not recorded accrued interest on these promissory notes because uncertainty exists as to RDC’s ability to make interest payments.

We have the positive intent and ability to hold the local government corporation bonds to maturity and until the amortized cost is

We have the positive intent and ability to hold the local government corporation bonds to maturity and until the amortized cost is recovered.

The estimated fair values of such investments are principally based on appraised values of the land associated with Retama Park Racetrack, which are classified as Level 2 inputs.

1 unchanged sentence

The fair value of our Term Loan A Facility, Term Loan B-1 Facility, Amended Term Loan A Facility, Amended Term Loan B 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.

Other long-term obligations as of June 30, 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.

Other long-term obligations as of September 30, 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.

4 unchanged sentences

Other Liabilities

Other liabilities as of June 30, 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 installments up to a maximum of $ 1.0 million 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.

As of June 30, 2022, there are two annual achievement evaluations remaining.

Other liabilities as of September 30, 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 installments up to a maximum of $ 1.0 million in the form of cash and equity, on the first three

anniversaries of the acquisition close date and is based on the achievement of mutual goals established by the Company and Hitpoint.

As of September 30, 2022, there are two annual achievement periods remaining.

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

As of June 30, 2022, we were contractually obligated to make four additional annual payments.

As of September 30, 2022, we were contractually obligated to make three 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.

1 unchanged sentence

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

June 30, 2022

September 30, 2022

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

14 unchanged sentences

Other liabilities $ 9.7 $ 9.4 $ — $ 2.5 $ 6.9

Puts and calls related to certain Barstool Sports shares $ 0.6 $ 0.6 $ — $ 0.6 $ —

Puts and calls related to certain Barstool shares $ 0.4 $ 0.4 $ — $ 0.4 $ —

December 31, 2021

5 unchanged sentences

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

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

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

Financial liabilities:

14 unchanged sentences

Included in earnings (1)

Balance as of June 30, 2022 $ 112.0

Balance as of September 30, 2022 $ 117.3

(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 June 30, 2022:

The following table sets forth the assets measured at fair value on a non-recurring basis as of September 30, 2022, which were all at the Hollywood Casino at Greektown reporting unit:

(in millions) Valuation Date Valuation Technique Level 1 Level 2 Level 3 Total Balance Total Reduction in Fair Value

Goodwill 9/30/2022 Discounted cash flow and market approach $ — $ — $ 199.2 $ 199.2 $ 37.4

Gaming licenses 9/30/2022 Discounted cash flow $ — $ — $ 101.1 $ 101.1 $ 65.4

Trademarks 9/30/2022 Discounted cash flow $ — $ — $ 42.7 $ 42.7 $ —

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, 2022:

Valuation Technique Unobservable Input Discount Rate

1 unchanged sentence

Contingent purchase price - Plainridge Park Casino Discounted cash flow Discount rate 8.9 %

As discussed in Note 7, “Goodwill and Other Intangible Assets,” we recorded impairments on goodwill and our gaming licenses, which are indefinite-lived intangible assets, at the Hollywood Casino at Greektown reporting unit as a result of the third quarter of 2022 interim assessment for impairment.

The following table presents quantitative information about the significant unobservable inputs used in the fair value measurements of other indefinite-lived intangible assets as of the valuation date below:

(in millions) Fair Value Valuation Technique Unobservable Input Range or Amount

As of September 30, 2022

Goodwill $ 199.2 Discounted cash flow Discount rate 12.0 %

Long-term revenue growth rate 2.0 %

Gaming licenses $ 101.1 Discounted cash flow Discount rate 13.0 %

Long-term revenue growth rate 2.0 %

Note 16— Segment Information

2 unchanged sentences

Northeast, South, West, and Midwest.

Our Interactive segment includes all of our iCasino and online sports betting operations, management of retail sports betting, media, and our proportionate share of earnings attributable to our equity method investment in Barstool Sports.

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

1 unchanged sentence

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 June 30, For the six months ended June 30,

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

(in millions) 2022 2021 2022 2021

26 unchanged sentences

Depreciation and amortization ( 148.7 ) ( 83.7 ) ( 417.2 ) ( 246.9 )

Impairment losses (6)

( 104.6 ) — ( 104.6 ) —

Insurance recoveries, net of deductible charges 1.9 — 10.7 —

3 unchanged sentences

( 41.7 ) 6.0 ( 126.1 ) 27.3

Income before income taxes 82.4 251.8 181.6 363.3

Income tax expense ( 56.3 ) ( 53.1 ) ( 103.9 ) ( 73.7 )

Income (loss) before income taxes ( 58.8 ) 122.5 122.8 485.8

Income tax benefit (expense) 182.0 ( 36.4 ) 78.1 ( 110.1 )

Net income $ 123.2 $ 86.1 $ 200.9 $ 375.7

5 unchanged sentences

(3) We define Adjusted EBITDAR as earnings before interest expense, net, income taxes, depreciation and amortization, rent expense associated with triple net operating leases (see footnote (4) below), stock-based compensation, debt extinguishment and financing charges, which is included in “Other” (see footnote (8) below), impairment losses, insurance recoveries, net of deductible charges, changes in the estimated fair value of our contingent purchase price obligations, gain or loss on disposal of assets, the difference between budget and actual expense for cash-settled stock-based awards, pre-opening expenses (see footnote (5) below), and other.

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 joint venture.

(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 Hollywood Casino at Greektown (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”.

Adjusted EBITDAR is also inclusive of income or loss from

unconsolidated affiliates, with our share of non-operating items (see footnote (7) below) added back for Barstool and our Kansas Entertainment joint venture.

(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 (on September 26, 2022, we sold the equity interests to Bally’s) and Hollywood Casino at The Meadows, and our individual triple net leases with VICI for the real estate assets used in the operations of Margaritaville Resort Casino and Hollywood Casino at Greektown (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.

2 unchanged sentences

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

(6) Consists principally of interest expense, net, income taxes, depreciation and amortization, 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.” Also consists of non-recurring acquisition and transaction costs, finance transformation costs associated with the implementation of our new Enterprise Resource Management system, and debt extinguishment and financing charges, which are discussed in Note 8, “Long-term Debt.”

(6) Amount primarily relates to a $ 102.8 million impairment charge in the Northeast segment.

(7) Consists principally of interest expense, net, income taxes, depreciation and amortization, and stock-based compensation expense associated with Barstool and our Kansas Entertainment joint venture.

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

(8) Includes holding losses on our equity securities of $ 10.8 million and $ 66.4 million for the three and nine months ended September 30, 2022, respectively, and holding gains on our equity securities of $ 10.1 million and $ 28.9 million for the three and nine months ended September 30, 2021, respectively, which are discussed in Note 15, “Fair Value Measurements.” Also consists of non-recurring acquisition and transaction costs of $ 31.9 million and $ 46.3 million for the three and nine months ended September 30, 2022, respectively, and $ 12.9 million and $ 14.7 million for the three and nine months ended September 30, 2021, respectively, finance transformation costs associated with the implementation of our new Enterprise Resource Management system, and a $ 10.4 million debt extinguishment and financing charge incurred in the second quarter of 2022, which is discussed in Note 8, “Long-term Debt.”

The table below presents capital expenditures by segment:

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

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

(in millions) 2022 2021 2022 2021

9 unchanged sentences

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

Balance sheet as of June 30, 2022

Balance sheet as of September 30, 2022

Investment in and advances to unconsolidated affiliates $ 0.1 $ — $ — $ 79.9 $ 160.2 $ 6.1 $ 246.3

5 unchanged sentences

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