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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10‑K

10-K
(Mark One)

(Mark One)

☑

☒

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2020
or

For the fiscal year ended December 31, 2017

OR

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to            

For the transition period from __________ to __________
Commission file number 0‑24206

Penn National Gaming, Inc.

0-24206

PENN NATIONAL GAMING, INC.
(Exact name of registrant as specified in its charter)

Pennsylvania
23-2234473
(State or other jurisdiction of
incorporation or organization)

23‑2234473

(I.R.S. Employer
Identification No.)

825 Berkshire Blvd., Suite 200
Wyomissing, Pennsylvania
(Address of principal executive offices)

19610
(Zip Code)

Registrant’s

825 Berkshire Blvd., Suite 200
Wyomissing, Pennsylvania 19610
(Address of principal executive officers) (Zip Code)

(610) 373-2400
(Registrant's telephone number, including area code: (610) 373‑2400

code)


Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol

Name of each exchange on which registered

Common Stock, $0.01 par value $0.01 per share

PENN

The NASDAQ

Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act:

(Title of Class)

None

Indicate by check mark if the registrant is a well‑knownwell-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒☑ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

☑

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒☑ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S‑TS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒☑ No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S‑K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10‑K or any amendment to this Form 10‑K. ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒Accelerated filer ◻Non-accelerated filer   ◻(Do not check if a smaller reporting company)

Smaller reporting company ◻Emerging growth company ◻

Large accelerated filer☑Accelerated filer☐Non-accelerated filer☐Smaller reporting company☐Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑212b-2 of the Exchange Act). Yes ☐ No ☒

☑


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As of June 30, 2017 (the last business day of the registrant’s most recently completed second fiscal quarter),2020, the aggregate market value of the voting common stock held by non‑affiliatesnon-affiliates of the registrant was approximately $1.81$4.2 billion. Such aggregate market value was computed by reference to the closing price of the common stock as reported on the NASDAQ Global Select Market on June 30, 2017.

The2020. As of February 19, 2021, the number of shares of the registrant’s common stock outstanding as of February 15, 2018 was 91,674,552.

156,486,487.


DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive 2021 proxy statement, for its 2018 annual meetinganticipated to be filed with the Securities and Exchange Commission within 120 days after the end of shareholdersthe registrant’s fiscal year, are incorporated by reference into Part III.

III of this Form 10-K.


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PENN NATIONAL GAMING, INC.

TABLE OF CONTENTS

Page

Page
PART I

BUSINESS1

5

ITEM 1A.

RISK FACTORS

22

ITEM 1B.

UNRESOLVED STAFF COMMENTS

39

ITEM 2.

PROPERTIES

39

ITEM 3.

LEGAL PROCEEDINGS

42

ITEM 4.

MINE SAFETY DISCLOSURES

43

10
23
24
25
25
PART II

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES25

44

ITEM 6.

SELECTED FINANCIAL DATA

46

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS26

48

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

79

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

80

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

139

ITEM 9A.

CONTROLS AND PROCEDURES

139

ITEM 9B.

OTHER INFORMATION

143

46
48
104
104
106
PART III

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE106

143

EXECUTIVE COMPENSATION106

143

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS106

143

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE106

143

PRINCIPAL ACCOUNTING FEES AND SERVICES106

143

PART IV

EXHIBITS, FINANCIAL STATEMENT SCHEDULES106

144

SUMMARY INFORMATION107

144

115

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IMPORTANT FACTORSSPECIAL NOTE REGARDING FORWARD‑FORWARD LOOKING STATEMENTS

This documentAnnual Report on Form 10-K includes “forward‑looking“forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. References to Penn National Gaming, Inc., together with its subsidiaries (“Penn National,” the “Company,” “we,” “our,” or “us”) refer to Penn National Gaming, Inc. and its subsidiaries, except where stated or the context otherwise indicates. These statements are included throughout the document, including the section entitled “Riskwithin “Item 1A. Risk Factors,” and relate to our business strategy, our prospects and our financial position. These statements can be identified by the use of forward‑lookingforward-looking terminology such as “expects,” “believes,” “estimates,” “projects,” “intends,” “plans,” “seeks,” “may,” “will,” “should”“should,” or “anticipates” or the negative or other variationvariations of these or similar words, or by discussions of future events, strategies or risks and uncertainties. In addition,Specifically, forward-looking statements include, but are not limited to, statements regarding: COVID-19; the length of time the Company’s Zia Park and Valley Race Park properties will remain closed, the expected opening dates, and the impact of these closures on the Company and its stakeholders; demand for gaming as these gaming properties reopen as well as the impact of post-opening restrictions (hours of operations and capacity limitations); continued demand for the gaming properties that have opened and the possibility that our gaming properties may be required to close again in this document include information regardingthe future due to COVID-19; the impact of COVID-19 on general economic conditions, capital markets, unemployment, and the Company’s liquidity, operations, supply chain and personnel; the potential benefits and expected timing of the Perryville transaction with GLPI; the Company’s estimated cash burn and future liquidity, future revenue and Adjusted EBITDAR, including from our iGaming business in Pennsylvania and Michigan; the continued success of Barstool Sports in Pennsylvania, Michigan and in additional states in the future; the expected benefits and potential challenges of the investment in Barstool Sports, including the anticipated benefits for the Company’s online and retail sports betting, iGaming and social casino products; the expected financial returns from the transaction with Barstool Sports; expected future launches of the Barstool-branded mobile sports betting product; the future revenue and profit contributions of the Barstool-branded mobile sports betting product; the impact of shortened or cancelled


sports seasons on our results; our expectations of future results of operations and financial condition, including margins; our expectations for our properties; our development projects or our iGaming initiatives; our expectations with regard to the impact of competition; the anticipated opening dates of our retail sportsbooks in future states and our proposed acquisitionPennsylvania Category 4 casinos in York and Berks counties; our expectations with regard to acquisitions, potential divestitures and development opportunities, as well as the integration of Pinnacle Entertainment, Inc. (“Pinnacle”),and synergies related to any companies we have acquired or may acquire; the potential effectsoutcome and financial impact of the pending acquisition onlitigation in which we are or will be periodically involved; the actions of regulatory, legislative, executive or judicial decisions at the federal, state or local level with regard to our business and operations priorthe impact of any such actions; our ability to maintain regulatory approvals for our existing businesses and to receive regulatory approvals for our new business partners; our expectations with regard to the consummation thereof,impact of competition in online sports betting, iGaming and retail/mobile sportsbooks as well as the effectspotential impact of this business line on Penn National Gaming, Inc. (“Penn”)our existing businesses; the performance of our partners in online sports betting, iGaming and its subsidiaries (togetherretail/mobile sportsbooks, including the risks associated with Penn, collectively,any new business, the “Company”) ifactions of regulatory, legislative, executive or judicial decisions at the acquisition is not consummatedfederal, state or local level with regard to online sports betting, iGaming and information regardingretail/mobile sportsbooks and the combined operationsimpact of any such actions; and business of the Company and Pinnacle following the acquisition, if consummated.  Specifically, forward‑looking statements may include, among others, statements concerning:

·

the combination of our business and operations with Pinnacle’s operations and business;

·

the financing, timing of, and our expectations regarding, the completion of our acquisition of Pinnacle;

·

the real estate sales and divestitures anticipated to be required in order to complete our acquisition of Pinnacle;

·

potential litigation relating to the acquisition of Pinnacle;

·

our expectations of future results of operations or financial condition;

·

our expectations for our operating properties or our development projects;

·

the timing, cost and expected impact of planned capital expenditures on our results of operations;

·

the impact of our geographic diversification;

·

our expectations with regard to the impact of competition;

·

our expectations with regard to further acquisitions and development opportunities, as well as the integration and ultimate results of any companies we have acquired or may acquire;

·

the outcome and financial impact of the litigation in which we are or will be periodically involved;

·

the actions of regulatory, legislative, executive or judicial decisions at the federal, state or local level with regard to our business and new business lines and the impact of any such actions;

·

our ability to maintain regulatory approvals for our existing businesses and to receive regulatory approvals for our new businesses;

·

our expectations regarding economic and consumer conditions;

·

our expectations for the continued availability and cost of capital;

·

our expectations with respect to the termination of our management service contract for Casino Rama; and

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·

our expectations regarding the impact of the Tax Cuts and Jobs Act (the “Act”) on our net deferred tax assets and our tax expense with respect the repatriation of foreign earnings.

Although the Company believes that the expectations reflected in such forward‑looking statements are reasonable, they are inherently subject to risks, uncertainties and assumptions about our subsidiaries and us.  There can be no assurance that actual results will not differ materially from our expectations regarding economic and accordingly, our forward‑looking statements are qualified in their entirety by reference to the factors described below and in the information incorporated by reference herein. Meaningful factors that could cause actual results to differ materially from the forward‑looking statements include, without limitation, risks related to the following:

·

the ability of our operating teams to drive revenue and adjusted EBITDA margins at existing and recently acquired/opened properties;

·

the impact of significant competition from other gaming and entertainment operations;

·

our ability to obtain timely regulatory approvals required to own, develop and/or operate our facilities, or other delays, approvals or impediments to completing our planned acquisitions or projects, such as construction factors, including delays, unexpected remediation costs, local opposition, organized labor, and increased cost of labor and materials;

·

the passage of state, federal or local legislation (including referenda) that would expand, restrict, further tax, prevent or negatively impact operations in or adjacent to the jurisdictions in which we do or seek to do business (such as a smoking ban at any of our facilities);

·

our ability to maintain agreements with our horsemen, pari‑mutuel clerks and other organized labor groups;

·

the effects of local and national economic, credit, capital market, housing, and energy conditions on the economy in general and on the gaming and lodging industries in particular;

·

the activities of our competitors and the continued increase of new competitors (traditional, internet, social, sweepstakes based and video gaming terminals (“VGTs”) in bars, truck stops and other retail establishments);

·

increases in the effective rate of taxation at any of our properties or at the corporate level;

·

our ability to identify attractive acquisition and development opportunities (especially in new business lines) and to agree to terms with, and maintain good relationships with partners/municipalities for such transactions;

·

the costs and risks involved in the pursuit of such opportunities and our ability to complete the acquisition or development of, and achieve the expected returns from, such opportunities;

·

our ability to maintain market share in established markets and ramp up operations at our recently opened facilities;

·

our expectations for the continued availability and cost of capital;

·

the impact of weather;

·

the outcome of pending legal proceedings;

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·

changes in accounting standards;

·

the risk of failing to maintain the integrity of our information technology infrastructure and safeguard our business, employee and customer data;

·

our ability to generate sufficient future taxable income to realize our deferred tax assets;

·

with respect to our loan and related funding commitments to the Jamul Indian Village Development Corporation, particular risks associated with the collectability of our loan and the risk of future impairment charges as well as the risks associated with the pending termination of our management, license and development agreements;

·

with respect to our Plainridge Park Casino in Massachusetts, the ultimate location and timing of the other gaming facilities in the state and the region;

·

with respect to our social and other interactive gaming endeavors, risks related to the social gaming industry, employee retention, cyber-security, data privacy, intellectual property and legal and regulatory challenges, increasing competition as well as our ability to successfully develop innovative new games that attract and retain a significant number of players in order to grow our revenues and earnings;

·

with respect to Illinois Gaming Investors, LLC (d/b/a Prairie State Gaming), risks relating to recent acquisitions of additional assets and the integration of such acquisitions, our ability to successfully compete in the VGT market, our ability to retain existing customers and secure new customers, risks relating to municipal authorization of VGT operations and the implementation and the ultimate success of the products and services being offered;

·

with respect to recent gaming expansion anticipated in Pennsylvania, including our recently awarded Category 4 license in York County, risks related to the potential cannibalization to Hollywood Casino at Penn National Race Course and Hollywood Gaming at Mahoning Valley Race Course, ongoing litigation surrounding Pennsylvania’s gaming expansion legislation and the ultimate location of other gaming facilities in the Commonwealth;

·

with respect to our proposed acquisition of Pinnacle, risks relating to the integration of the businesses and assets to be acquired, the possibility that the proposed transaction does not close when expected or at all because of required regulatory, shareholder or other approvals that are not received or other conditions to the closing that are not satisfied on a timely basis or at all, the risk that the financing required to fund the transaction is not obtained on the terms anticipated or at all, the possibility that the transactions involving Boyd Gaming Corporation and/or Gaming and Leisure Properties, Inc. do not close in a timely fashion or at all, potential adverse reactions or changes to the business or employee relationships, potential litigation challenging the transaction, the possibility that the anticipated benefits of the transaction are not realized when expected or at all, the possibility that additional divestitures may be required, and the possibility that the transaction may be more expensive than anticipated; and

·

other factors included under the heading “Risk Factors” in this Annual Report on Form 10-K or discussed in our filings with the U.S. Securities and Exchange Commission.

All subsequent written and oral forward‑looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements included in this document. We undertake no obligation to publicly update or revise any forward‑looking statements, whether as a result of new information, future events or otherwise, except as required by law.consumer conditions. In light of these risks, uncertainties and assumptions, the forward‑looking

forward-looking events and circumstances discussed in this Form 10-K may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements. All forward-looking statements in this Form 10-K are based on information available to us as of the date hereof, such information may be limited or incomplete, and we assume no obligation to update any such forward-looking statements. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. The following discussion should be read in conjunction with our consolidated financial statements and the accompanying notes contained in this Form 10-K.


4

Risk Factor Summary

The following is a summary of some of the risks and uncertainties as of the date of the filing of this Annual Report on Form 10-K that could materially adversely affect our business, financial condition and results of operations. You should read this summary together with the more detailed description of each risk factor contained below.

Risks Related to the COVID-19 Pandemic

•The COVID-19 pandemic has had a material adverse impact on our business and financial performance, and we expect this adverse impact to continue until after the COVID-19 pandemic is contained.
•We are unable to predict the extent to which COVID-19 and its related impacts will continue to adversely affect our business operations, financial performance and the achievement of our strategic objectives.
•As a result of the COVID-19 pandemic, unforeseen events have occurred and may occur in the future that materially adversely affect the number of visitors to our properties, which could adversely disrupt our operations and negatively impact our business.
•Instability in the financial markets and global or regional economic weakness or uncertainty could have a material adverse effect on our stock price.

Risks Related to Our Business and Operations

•We face significant competition from other gaming and entertainment operations and may continue to do so in the future.
•Reductions in discretionary consumer spending have negatively impacted our business and may continue to do in the future.
•We depend on certain properties that generate a significant percentage of our revenues.
•Most of our facilities are leased, and we may face risks associated with leased properties.
•A significant portion of our cash flow is used for rent payments under our Triple Net Leases.
•Inclement weather and other casualty events could negatively impact our business.
•We may be unable to renew or we may have disputes regarding the terms of management agreements and/or leases we have with third parties and local governments.
•We may face additional costs related to the slot machine manufacturing industry.
•We cannot guarantee the recent expansion of our sports betting and iGaming operations or investment in Barstool Sports will be successful.
•Our operations are dependent on retaining experienced management and key personnel.
•The success of certain of our operations depends on our ability to renew our contracts and expand the business.
•Labor problems could negatively impact our future profits.
•We may be unable to protect or enforce our intellectual property rights.
•The market price of our common stock could fluctuate significantly.


•We are currently, or may become, involved in legal proceedings, the results of which could have a material adverse effect on us.

Risks Related to Our Indebtedness and Capital Structure

•Our substantial indebtedness could adversely affect our ability to meet our indebtedness obligations.
•The lack of availability and cost of financing could adversely impact our business.
•To service our indebtedness, we will require a significant amount of cash, which depends on many factors beyond our control.

Risks Related to Regulation, Taxes and Compliance

•We are subject to extensive regulation and our business may be adversely impacted by changes in legislation and regulations.
•State and local smoking restrictions have and may continue to negatively affect our business.
•We may face material increases in our current taxes or the adoption of new taxes.
•Failure to comply with certain federal, state and other laws and regulations may have an adverse effect on us.

Risks Related to Technology, Information Security and Penn Interactive

•We rely heavily on technology services and an uninterrupted supply of electrical power.
•Cyber security breaches could affect our operations and harm our reputation.
•If our third-party mobile distribution platforms or service providers fail to perform or terminate their relationship with us, our business could be adversely affected.
•We may be unable to grow Penn Interactive.

Risks Related to Acquisitions

•We may face disruptions, delays and other difficulties related to our recently acquired properties, future acquisitions, or new initiatives.
•In the event we make another acquisition, we may face risks related to our ability to receive regulatory approvals required to complete, or other delays or impediments to completing, such acquisition.

Risks Related to the Spin-Off

•We could be subject to significant tax liabilities if the Spin-Off of Gaming and Leisure Properties, Inc. (“GLPI”) does not qualify as a tax-free transaction.
•In connection with the Spin-Off, GLPI agreed to indemnify us for certain liabilities. However, there can be no assurance that these indemnities will be sufficient to insure us against the full amount of such liabilities, or that GLPI’s ability to satisfy its indemnification obligation will not be impaired in the future.




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events discussed in this document may not occur.

PART I

ITEM 1.BUSINESS


Overview

Penn National Gaming, Inc. (“Penn”) and, together with its subsidiaries (collectively,(“Penn National,” the “Company,” “we,” “our”“our,” or “us”), is a leading, geographically diversified, multi‑jurisdictionalmulti-jurisdictional owner and manager of gaming and racing facilitiesproperties, retail and online sports betting operations, and video gaming terminal operations with a focus on slot machine entertainment. The Company was incorporated in Pennsylvania in 1982 as PNRC Corp. and adopted its current name in 1994, when the Company became a publicly traded company. In 1997, we began our transition from a pari‑mutuel company to a diversified gaming company with the acquisition of the Charles Town property and the introduction of video lottery terminals in West Virginia. Since 1997, we have continued to expand our gaming operations through strategic acquisitions, greenfield projects, and property expansions.  For example, in 2015, we opened Plainridge Park Casino, an integrated racing and slots-only gaming facility in Plainville, Massachusetts in June, completed the acquisition of our first Las Vegas strip asset, Tropicana Hotel and Casino (“Tropicana Las Vegas”VGT”) in Las Vegas, Nevada in August, and acquired Illinois Gaming Investors LLC (d/b/a Prairie State Gaming, (“Prairie State Gaming”) one of the largest video gaming terminal route operators in Illinois, in September.

In 2016, our subsidiary, Prairie State Gaming, acquired two small video gaming terminal route operators in Illinois.  We have also recently implemented ouroperations. Our wholly-owned interactive gaming strategy through our subsidiary,division, Penn Interactive Ventures, LLC (“Penn Interactive Ventures”Interactive”) which included launching our HollywoodCasino.com Play4Fun, operates retail sports betting across the Company’s portfolio, as well as online sports betting, online social gaming platform with Scientific Gamescasino, bingo and online casinos (“iGaming”). In February 2020, the Company acquired 36% (inclusive of 1% on August 1, 2016, we enhanced our social gaming offerings with the acquisition of Rocket Speed,a delayed basis) equity interest in Barstool Sports, Inc. (“Rocket Speed”)Barstool Sports”), a leading developerdigital sports, entertainment, lifestyle and media company, and entered into a strategic relationship with Barstool Sports, whereby Barstool Sports will exclusively promote the Company's land-based retail sportsbooks, iGaming products and online sports betting products, including the Barstool Sportsbook mobile app, to its national audience. We launched an online sports betting app called Barstool Sports in Pennsylvania in September 2020 and in Michigan in January 2021. We also operate iGaming in Pennsylvania and Michigan. Our MYCHOICE® customer loyalty program (the "mychoice program") currently has over 20 million members and provides such members with various benefits, including complimentary goods and/or services. The Company’s strategy has continued to evolve from an owner and manager of social casino games.  On May 1, 2017,gaming and racing properties into an omni-channel provider of retail and online gaming, live racing and sports betting entertainment. We believe our continued evolution into a best-in-class omni-channel provider of retail and online gaming and sports betting entertainment will be a catalyst for our core land-based business, while also providing a platform for significant long-term shareholder value. References in this Annual Report on Form 10-K, to “Penn National,” the “Company,” “we,” “our,” or “us” refer to Penn National Gaming, Inc. and its subsidiaries, except where stated or the context otherwise indicates.


As of December 31, 2020, we completed our acquisitionowned, managed, or had ownership interests in 41 properties in 19 states. The majority of 1st Jackpot Casino Tunica (formerly knownthe real estate assets (i.e., land and buildings) used in the Company’s operations are subject to triple net master leases; the most significant of which are the Penn Master Lease and the Pinnacle Master Lease (as such terms are defined in the “Triple Net Leases” section below and collectively referred to as Bally’s Casino Tunica,the “Master Leases”), with Gaming and Leisure Properties, Inc. (NASDAQ: GLPI) (“1st Jackpot”GLPI”)) and Resorts Casino Tunica, a real estate investment trust (“Resorts”REIT”). In addition, we are currently developing two Category 4 satellite gaming casinos in Pennsylvania: Hollywood Casino York and Hollywood Casino Morgantown, both of which are expected to commence operations by the first halfend of 2017,2021.
On March 11, 2020, the World Health Organization declared the novel coronavirus (known as “COVID-19”) outbreak to be a global pandemic. To help combat the spread of COVID-19 and pursuant to various orders from state gaming regulatory bodies or governmental authorities, operations at all of our subsidiary, Prairie State Gaming acquiredproperties were temporarily suspended for single or multiple time periods during the assetsyear. Once re-opened, properties operated with reduced gaming and hotel capacity and limited food and beverage offerings in order to accommodate social distancing and health and safety protocols.
During the fourth quarter of two2020, our properties temporarily suspended operations in Pennsylvania, Michigan and Illinois and were subject to increased operational restrictions in Ohio and Massachusetts (among other states). Our Michigan property temporarily closed on November 17, 2020 and reopened on December 23, 2020. Our Pennsylvania properties temporarily closed on December 12, 2020 and reopened on January 4, 2021. Our Illinois properties temporarily closed on November 20, 2020 and began reopening with limited hours of operations beginning January 16, 2021 and throughout the week. The property closures were pursuant to the various orders from state gaming regulatory bodies or governmental authorities to combat the rapid spread of COVID-19. As of February 26, 2021, all of our properties were open to the public with the exception of Zia Park and Valley Race Park, which remain closed.

The COVID-19 pandemic caused significant disruptions to our business and had a material adverse impact on our financial condition, results of operations and cash flows, the magnitude of which continues to develop. During the year, substantial measures were taken to improve our financial position and liquidity as discussed in our Consolidated Financial Statements Note 1, “Organization and Basis of Presentation”.
In February 2020, we closed on our investment in Barstool Sports pursuant to a stock purchase agreement with Barstool Sports and stockholders of Barstool Sports, in which we purchased approximately 36% of the common stock of Barstool Sports for a purchase price of $161.2 million. Within three years after the closing or earlier at our election, we will increase our ownership in Barstool Sports to approximately 50% with an incremental investment of approximately $62 million, consistent with the implied valuation at the time of the initial investment. 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
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years after closing, all based on a fair market value calculation at the time of exercise (subject to a cap of $650.0 million and a floor of 2.25 times the annualized revenue of Barstool Sports, all subject to various adjustments). Upon closing, we became Barstool Sports’ exclusive gaming partner for up to 40 years and have the sole right to utilize the Barstool Sports brand for all of our online and retail sports betting and iGaming products. For additional smaller video gaming terminal operatorsinformation, see Note 7, "Investments in Illinois.

Anticipated Acquisition of Pinnacle

and Advances to Unconsolidated Affiliates".

On December 17, 2017,15, 2020, the Company entered into ana definitive agreement with GLPI to acquirepurchase the operations of Hollywood Casino Perryville for $31.1 million. The transaction is expected to close during the second or third quarter of 2021, subject to approval of the Maryland Lottery and Gaming Control Commission and other customary closing conditions. Simultaneous with the closing of the transaction, we would lease the real estate assets associated with Hollywood Casino Perryville from GLPI with initial annual rent of $7.8 million per year subject to escalation. For additional information on our acquisitions, see Note 6, “Acquisitions and Dispositions.”
In May 2019, we acquired Greektown Casino-Hotel (“Greektown”) in Detroit, Michigan, subject to a triple net lease with VICI Properties Inc. (NYSE: VICI) (“VICI”, a REIT and collectively with GLPI, our “REIT Landlords”) (the “Greektown Lease”) and, in January 2019, we acquired Margaritaville Casino Resort (“Margaritaville”) in Bossier City, Louisiana, subject to a triple net lease with VICI (the “Margaritaville Lease” and collectively with the Master Leases, the Greektown Lease, the Meadows Lease, the Tropicana Lease and the Morgantown Lease, of which the Meadows Lease, the Tropicana Lease and Morgantown Lease are defined in the “Triple Net Leases” section below, the “Triple Net Leases”).

In October 2018, the Company completed the acquisition of Pinnacle Entertainment, Inc. (“Pinnacle”), a leading regional gaming operator.  This transaction, which is expected to close inoperator (the “Pinnacle Acquisition”). In connection with the second half of 2018 (subject to receipt of all required regulatory approvals and the satisfaction of other conditions to closing), is expected to add eleven morePinnacle Acquisition, we added 12 gaming properties to our holdings and to provideportfolio, providing us with greater operational scale and geographic diversity.

We assumed the Pinnacle Master Lease concurrently with the closing of the Pinnacle Acquisition.


We believe that our portfolio of assets provides us the benefit of a geographically diversifiedgeographically-diversified cash flow from operations. We expect to continue to expand our gaming operations through the implementation and execution of a disciplined capital expenditure program at our existing properties, the pursuit of strategic acquisitions and investments, and the development of new gaming properties, particularly in attractiveproperties. In addition, the partnership with Barstool Sports reflects our strategy to continue evolving from the nation’s largest regional markets.

In this Annual Report on Form 10‑K,gaming operator to a best-in-class omni-channel provider of retail and online gaming and sports betting entertainment.


Triple Net Leases
As noted above, the terms “we,” “us,” “our,”majority of the “Company” and “Penn” refer to Penn National Gaming, Inc. and its subsidiaries, unless the context indicates otherwise.

Master Lease

On November 1, 2013, the Company completed its plan to separate its gaming operating assets from its real property assets by creating a newly formed, publicly traded real estate investment trust (“REIT”), known as Gaming and Leisure Properties, Inc. (“GLPI”), through a tax free spin‑off (the “Spin‑Off”).

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As a result of the Spin‑Off, GLPI owns substantially all of Penn’s former real property assets as of such date and leases back those assets (other than Hollywood Casino Baton Rouge and Hollywood Casino Perryville, the “TRS Properties”) to Penn for use by its subsidiaries, under a “triple net” master lease agreement (the “Master Lease”) (which has a fifteen‑year initial term that can be extended at Penn’s option for up to four five‑year renewal terms). Penn continues to operate the leased gaming facilities and holds the gaming licenses associated with these facilities.  The TRS Properties were transferred to GLPI in connection with the Spin-Off and the financial results from these properties were included in discontinued operations for 2013.

As of December 31, 2017, the Company leased from GLPI real property assets associated with twenty of the Company’s gaming and related facilities used in the Company’s operations. The following summary ofoperations are subject to either the Penn Master Lease is qualified in its entirety by referenceor the Pinnacle Master Lease. In addition to the Penn Master Lease and subsequent amendments, each of which has been filed with the U.S. Securities and Exchange Commission. It was determined that thePinnacle Master Lease, did not meet the requirements of a normal leaseback under Accounting Standards Codification (“ASC”) 840 “Leases” due to prohibited forms of continuing involvement and is therefore accounted for as a financing obligation.

The payment structure under the Master Lease, which became effective November 1, 2013, includes a fixed component, a portion of which isfive individual gaming facilities used in our operations are subject to an annual escalator of upindividual triple net leases. Under triple net leases, in addition to 2% if certain coverage ratio thresholds are met, and a component that is based on the performance of the facilities, which is prospectively adjusted, subject to a floor of zero (i) every five years by an amount equal to 4% of the average change to net revenues of all facilities under the Master Lease (other than Hollywood Casino Columbus and Hollywood Casino Toledo) during the preceding five years, and (ii) monthly by an amount equal to 20% of the change in net revenues of Hollywood Casino Columbus and Hollywood Casino Toledo during the preceding month. In addition, with the openings of Hollywood Gaming at Dayton Raceway and Hollywood Gaming at Mahoning Valley Race Course in the third quarter of 2014, our annual payment related to the Master Lease increased by approximately $19 million, which approximates 10% oflease payments for the real estate construction costs paid for by GLPI related to these facilities.

In April 2014, we entered into an amendment to the Master Lease in order to revise certain provisions relating to our Sioux City property. In accordance with that amendment, upon the cessation of gaming operations at Argosy Casino Sioux City on July 30, 2014, due to the termination of its gaming license, the annual payment to GLPI was reduced by $6.2 million.

On May 1, 2017, following the acquisition of RIH Acquisitions MS I, LLC and RIH Acquisitions MS II, LLC, the holding companies for the gaming operations of 1st Jackpot and Resorts in Tunica, Mississippi, an amendment to the Master Lease was entered into in order to add the two additional facilities. The Company is operating both of these casino properties and it leases the underlying real estate associated with these two businesses from GLPI with a total initial annual payment of $9.0 million subject to the provisions included in the terms of the Master Lease. The transaction increased the Company’s Master Lease financing obligation by $82.6 million on the acquisition date, which represents the purchase price GLPI paid for the underlying real estate assets.

The Master Lease is commonly known as a triple‑net lease. Accordingly, in addition to financing obligation payments,assets, the Company is required to pay the following, among other things: (1) all facility maintenance; (2) all insurance required in connection with the leased properties and the business conducted on the leased properties; (3) taxes levied on or with respect to the leased properties (other than taxes on the income of the lessor); (4) all tenant capital improvements; and (4)(5) all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties.

At the Company’s option,


The following summaries of the Master Leasesare qualified in their entirety by reference to either the Penn Master Lease may be extended for upor the Pinnacle Master Lease, as applicable, all of which are incorporated by reference in the exhibits to this Annual Report on Form 10-K.
Penn Master Lease
Pursuant to a triple net master lease with GLPI (the “Penn Master Lease”), which became effective November 1, 2013, the Company leases real estate assets associated with 19 of the gaming facilities used in its operations. The Penn Master Lease has an initial term of 15 years with four five‑yearsubsequent, five-year renewal terms beyond the initial fifteen‑year term,periods on the same terms and conditions.conditions, exercisable at the Company’s option. If we elect to renew the term of the Penn Master Lease, the renewal will be effective as to all but not less than all, of the leased propertyreal estate assets then subject to the Penn Master Lease, provided thatsubject to limitations on the final renewal option shall only be exercisableterm with respect to certain of the barge‑based facilities—i.e.barge-based facilities.
Pinnacle Master Lease
In connection with the Pinnacle Acquisition, the Company assumed a triple net master lease with GLPI (“Pinnacle Master Lease”), originally effective April 28, 2016. Pursuant to the Pinnacle Master Lease, the Company leases real estate assets associated with 12 of the gaming facilities where barges serveused in its operations from GLPI. Upon assumption of the Pinnacle Master Lease, as foundations upon which buildings are constructed to serve as gaming or related facilities or serve ancillary purposes such as access platforms or shear barges to protect a gaming facility from floating debris—following

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an independent third party expert’s review of the total useful life of the applicable barged‑based facility measured from the beginningamended, there were 7.5 years remaining of the initial term. Iften-year term, with five subsequent, five-year renewal periods exercisable at the final five‑year renewalCompany’s option. Furthermore, in conjunction with the Pinnacle Acquisition, GLPI acquired the real estate assets associated with Plainridge Park Casino and leased back such assets to the Company pursuant to an amendment to the Pinnacle Master Lease.


Morgantown Lease
On October 1, 2020, we sold the land underlying our Morgantown development project to GLPI in exchange for rent credits of $30.0 million. Contemporaneous with the sale, the Company entered into a triple net lease with a subsidiary of GLPI for the land underlying Morgantown (“Morgantown Lease”). The initial term would not cause the aggregate term to exceed 80% of the useful lifeMorgantown Lease is twenty years with six subsequent, five-year renewal periods, exercisable at the Company’s option.
Meadows Lease, Margaritaville Lease, Greektown Lease and Tropicana Lease
In connection with the Pinnacle Acquisition, the Company assumed a triple net lease of such facility, the facility shall be includedreal estate assets used in the five‑year renewal. In the event that a five‑year renewal of such facility would cause it to exceed 80% of the estimated useful life, such facility shall be included in the renewal for the period of time equal to but not exceeding 80% of the estimated useful life.

We do not have the ability to terminate our obligations under the Master Lease prior to its expiration without GLPI’s consent. If the Master Lease is terminated prior to its expiration other than with GLPI’s consent, we may be liable for damages and incur charges such as continued lease payments through the end of the lease term and maintenance costs for the leased property.

Segment Information

The Company’s Chief Executive Officer, who is the Company’s Chief Operating Decision Maker (“CODM”), as that term is defined in ASC 280 “Segment Reporting”, measures and assesses the Company’s business performance based on regional operations of various properties grouped together based primarily on their geographic locations.

The Northeast reportable segment consists of the following properties: HollywoodMeadows Racetrack and Casino at Charles Town Races, Hollywood Casino Bangor, Hollywood Casino at Penn National Race Course, Hollywood Casino Toledo, Hollywood Casino Columbus, Hollywood Gaming at Dayton Raceway, Hollywood Gaming at Mahoning Valley Race Course, and Plainridge Park Casino.  It also includes the Company’s Casino Rama management service contract.

The South/West reportable segment consists of the following properties: Zia Park Casino, Hollywood Casino Tunica, Hollywood Casino Gulf Coast, Boomtown Biloxi, M Resort, Tropicana Las Vegas, 1st Jackpot and Resorts which were acquired on May 1, 2017, as well as our management contract with Hollywood Casino Jamul-San Diego.  In late February 2018, the Company and the Jamul Tribe mutually agreed that Penn would no longer manage the facility or provide branding and development services on May 28, 2018. The company will provide a transition that it anticipates will last through approximately late May.

The Midwest reportable segment consists of the following properties: Hollywood Casino Aurora, Hollywood Casino Joliet, Argosy Casino Alton, Argosy Casino Riverside, Hollywood Casino Lawrenceburg, Hollywood Casino St. Louis, and Prairie State Gaming, which the Company acquired on(the “Meadows Lease”), originally effective September 1, 2015, and includes the Company’s 50% investment in Kansas Entertainment, LLC (“Kansas Entertainment”), which owns the Hollywood Casino at Kansas Speedway.

The Other category consists of the Company’s standalone racing operations, namely Rosecroft Raceway, which was sold on July 31,9, 2016, Sanford-Orlando Kennel Club, and the Company’s joint venture interests in Sam Houston Race Park, Valley Race Park, and Freehold Raceway. If the Company is successful in obtaining gaming operations at these locations, they would be assigned to one of the Company’s regional executives and reported in their respective reportable segment. The Other category also includes the Company’s corporate overhead operations, which does not meet the definition of an operating segment under ASC 280. Additionally, the Other category includes Penn Interactive Ventures, the Company’s wholly-owned subsidiary that represents its social online gaming initiatives, including Rocket Speed. Penn Interactive Ventures meets the definition of an operating segment under ASC 280, but is quantitatively not significant to the Company’s operations as it represents less than 2% of net revenues and 5% of income from operations for the year ended December 31, 2017, and its total assets represent less than 2% of the Company’s total assets at December 31, 2017.

In addition to GAAP financial measures, management uses adjusted EBITDA as an important measure of the operating performance of its segments, including the evaluation of operating personnel and believes it is especially relevant in evaluating large, long lived casino projects because they provide a perspective on the current effects of operating decisions separated from the substantial non-operational depreciation charges and financing costs of such

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projects. The Company defines adjusted EBITDA as earnings before interest, taxes, stock compensation, debt extinguishment and financing charges, impairment charges, insurance recoveries and deductible charges, depreciation and amortization, changes in the estimated fair value of our contingent purchase price obligations, gain or loss on disposal of assets, and other income or expenses. Adjusted EBITDA is also inclusive of income or loss from unconsolidated affiliates, with the Company’s share of non-operating items (such as depreciation and amortization) added back for its joint venture in Kansas Entertainment. Adjusted EBITDA excludes payments associated with our Master Lease agreement with GLPI as the transaction is accounted for as a financing obligation. Adjusted EBITDA should not be construed as an alternative to income from operations, as an indicatorlandlord. Upon assumption of the Company’s operating performance, as an alternative to cash flows from operating activities, as a measureMeadows Lease, there were eight years remaining of liquidity, or as any other measure of performance determined in accordancethe initial ten-year term, with GAAP. The Company has significant uses of cash flows, including capital expenditures, interest payments, taxesthree subsequent, five-year renewal options followed by one four-year renewal option on the same terms and debt principal repayments, which are not reflected in adjusted EBITDA.

See Note 15 to the consolidated financial statements for further information with respect toconditions, exercisable at the Company’s segments.

Properties

Penn National Gaming, Inc. owns, operates, or has ownership interestsoption.

As discussed above, in gaming and racing facilities and video gaming terminal operationsseparate acquisitions, the Company entered into the Margaritaville Lease with a focus on slot machine entertainment. As of December 31, 2017, we operated twenty‑nine facilitiesVICI for the real estate assets used in the following seventeen jurisdictions: Florida, Illinois, Indiana, Kansas, Maine, Massachusetts, Mississippi, Missouri, Nevada, New Jersey, New Mexico, Ohio, Pennsylvania, Texas, West Virginia, California,operations of Margaritaville and Ontario.

Thethe Greektown Lease with VICI for the real estate assets used in the operations of Greektown. Both the Margaritaville Lease and the Greektown Lease have initial terms of 15 years, with four subsequent five-year renewal options on the same terms and conditions, exercisable at the Company’s option.

On April 16, 2020, we sold the real estate assets associated with our Tropicana Las Vegas ("Tropicana") property to a subsidiary of GLPI in exchange for rent credits of $307.5 million. Contemporaneous with the sale, the Company entered into a leaseback of the Master Lease properties described below has been contributedreal estate assets for nominal cash rent.We are required to GLPI; however, Penn continuescontinue to operate the leased gaming facilities. The following table summarizes certain featuresTropicana for two years (subject to three one-year extensions at GLPI’s option) or until the real estate assets and the operations of the Master Lease properties operated and managedTropicana are earlier sold by us as of December 31, 2017:

GLPI.


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Master LeaseOperating Properties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

    

Approx.

    

 

    

 

    

 

 

 

 

 

 

 

 

Property

 

 

 

 

 

 

 

 

 

 

 

 

 

Square

 

Gaming

 

Table

 

Hotel

 

 

 

Location

 

Type of Facility

 

Footage(1)

 

Machines

 

Games(2)

 

Rooms

 

Hollywood Casino at Charles Town Races

 

Charles Town, WV

 

Land‑based gaming/Thoroughbred racing

 

511,249

 

2,391

 

73

 

153

 

Hollywood Casino Lawrenceburg

 

Lawrenceburg, IN

 

Dockside gaming

 

634,000

 

1,711

 

63

 

295

 

Hollywood Casino Toledo

 

Toledo, OH

 

Land‑based gaming

 

285,335

 

2,043

 

51

 

—

 

Hollywood Casino Columbus

 

Columbus, OH

 

Land‑based gaming

 

354,075

 

2,237

 

64

 

—

 

Hollywood Gaming at Dayton Raceway

 

Dayton, OH

 

Land‑based gaming/Harness racing

 

191,037

 

1,015

 

—

 

—

 

Hollywood Gaming at Mahoning Valley Race Course

 

Youngstown, OH

 

Land‑based gaming/Thoroughbred racing

 

177,448

 

1,036

 

—

 

—

 

Hollywood Casino St. Louis

 

Maryland Heights, MO

 

Dockside gaming

 

645,270

 

2,003

 

63

 

502

 

Hollywood Casino at Penn National Race Course

 

Grantville, PA

 

Land‑based gaming/Thoroughbred racing

 

451,758

 

2,319

 

54

 

—

 

M Resort

 

Henderson, NV

 

Land‑based gaming

 

910,173

 

1,180

 

40

 

390

 

Argosy Casino Riverside

 

Riverside, MO

 

Dockside gaming

 

450,397

 

1,479

 

42

 

258

 

Hollywood Casino Gulf Coast

 

Bay St. Louis, MS

 

Land‑based gaming

 

425,920

 

1,016

 

21

 

291

 

Hollywood Casino Tunica

 

Tunica, MS

 

Dockside gaming

 

315,831

 

1,020

 

17

 

494

 

1st Jackpot Casino (formerly known as Bally's Casino Tunica)

 

Tunica, MS

 

Dockside gaming

 

78,941

 

900

 

16

 

—

 

Resorts Casino Tunica

 

Tunica, MS

 

Dockside gaming

 

319,823

 

805

 

 7

 

201

 

Hollywood Casino Aurora

 

Aurora, IL

 

Dockside gaming

 

222,189

 

1,066

 

27

 

—

 

Boomtown Biloxi

 

Biloxi, MS

 

Dockside gaming

 

134,800

 

783

 

14

 

—

 

Hollywood Casino Joliet

 

Joliet, IL

 

Dockside gaming

 

322,446

 

1,100

 

18

 

100

 

Hollywood Casino Bangor

 

Bangor, ME

 

Land‑based gaming/Harness racing

 

257,085

 

739

 

14

 

152

 

Argosy Casino Alton(3)

 

Alton, IL

 

Dockside gaming

 

124,569

 

796

 

12

 

—

 

Zia Park Casino

 

Hobbs, NM

 

Land‑based gaming/Thoroughbred racing

 

193,645

 

734

 

—

 

154

 

Total

 

 

 

 

 

7,005,991

 

26,373

 

596

 

2,990

 

(1)

Square footage includes conditioned space and excludes parking garages and barns.

(2)

Excludes poker tables.

(3)

Excludes the riverboat, which continues to be owned by Penn.

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The following table below summarizes certain features of the properties that are not subject to the Master Lease and are owned, and operated or managed by us as of December 31, 2017:

Other Properties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

    

Approx.

    

 

    

 

    

 

 

 

 

 

 

 

 

Property

 

 

 

 

 

 

 

 

 

 

 

 

 

Square

 

Gaming

 

Table

 

Hotel

 

 

 

Location

 

Type of Facility

 

Footage(1)

 

Machines

 

Games(2)

 

Rooms

 

Owned Properties:

 

 

 

 

 

 

 

 

 

 

 

 

 

Hollywood Casino at Kansas Speedway(3)

 

Kansas City, KS

 

Land‑based gaming

 

244,791

 

2,000

 

41

 

—

 

Freehold Raceway(4)

 

Freehold, NJ

 

Standardbred racing

 

132,865

 

—

 

—

 

—

 

Sanford‑Orlando Kennel Club

 

Longwood, FL

 

Greyhound racing

 

58,940

 

—

 

—

 

—

 

Plainridge Park Casino

 

Plainville, MA

 

Land‑based gaming/Harness racing

 

196,473

 

1,249

 

—

 

—

 

Sam Houston Race Park(5)

 

Houston, TX

 

Thoroughbred racing

 

283,383

 

—

 

—

 

—

 

Valley Race Park(5)

 

Harlingen, TX

 

Greyhound racing

 

91,000

 

—

 

—

 

—

 

Tropicana Las Vegas

 

Las Vegas, NV

 

Land‑based gaming

 

1,183,984

 

655

 

35

 

1,470

 

Managed Property:

 

 

 

 

 

 

 

 

 

 

 

 

 

Casino Rama(6)

 

Orillia, Ontario

 

Land‑based gaming

 

864,047

 

2,523

 

101

 

289

 

Hollywood Casino Jamul - San Diego (7)

 

San Diego, CA

 

Land‑based gaming

 

195,913

 

1,730

 

40

 

—

 

VGT‑route Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

Prairie State Gaming

 

Illinois

 

Land‑based gaming

 

N/A

 

1,715

 

—

 

—

 

Total

 

 

 

 

 

3,251,396

 

9,872

 

217

 

1,759

 

2020, by reportable segment (all area and capacity metrics are approximate):

(1)

Square footage includes conditioned space and excludes parking garages and barns.

(2)

Excludes poker tables.

(3)

Pursuant to a joint venture with International Speedway Corporation (“International Speedway”).

(4)

Pursuant to a joint venture with Greenwood Limited Jersey, Inc., a subsidiary of Greenwood Racing, Inc.

(5)

Pursuant to a joint venture with MAXXAM, Inc. (“MAXXAM”).

(6)

Pursuant to a management contract.

(7)

Pursuant to management and branding services agreements.  Opened on October 10, 2016.

10

LocationReal Estate Assets Lease or Ownership StructureType of FacilityGaming Square FootageGaming Machines
Table Games (1)
Hotel Rooms
Northeast segment (2)
Ameristar East ChicagoEast Chicago, INPinnacle Master LeaseDockside gaming73,0001,79675288
Greektown Casino-HotelDetroit, MIGreektown LeaseLand-based gaming100,0002,36262400
Hollywood Casino BangorBangor, MEPenn Master LeaseLand-based gaming/racing31,75072614152
Hollywood Casino at Charles Town RacesCharles Town, WVPenn Master LeaseLand-based gaming/racing115,0002,29274153
Hollywood Casino ColumbusColumbus, OHPenn Master LeaseLand-based gaming177,0002,06674—
Hollywood Casino Lawrenceburg (3)
Lawrenceburg, INPenn Master LeaseDockside gaming149,5001,52158463
Hollywood Casino at Penn National Race CourseGrantville, PAPenn Master LeaseLand-based gaming/racing99,5001,96280—
Hollywood Casino ToledoToledo, OHPenn Master LeaseLand-based gaming125,0001,84869—
Hollywood Gaming at Dayton RacewayDayton, OHPenn Master LeaseLand-based gaming/racing40,600814——
Hollywood Gaming at Mahoning Valley Race CourseYoungstown, OHPenn Master LeaseLand-based gaming/racing50,0001,127——
Marquee by Penn (4)
PennsylvaniaN/ALand-based gamingN/A115——
Meadows Racetrack and CasinoWashington, PAMeadows LeaseLand-based gaming/racing125,0002,46395—
Plainridge Park CasinoPlainville, MAPinnacle Master LeaseLand-based gaming/racing50,0001,181——
South segment
1st Jackpot Casino
Tunica, MSPenn Master LeaseDockside gaming40,00083912—
Ameristar VicksburgVicksburg, MSPinnacle Master LeaseDockside gaming70,0001,10224148
Boomtown BiloxiBiloxi, MSPenn Master LeaseDockside gaming35,50060520—
Boomtown Bossier CityBossier City, LAPinnacle Master LeaseDockside gaming30,00080616187
Boomtown New OrleansNew Orleans, LAPinnacle Master LeaseDockside gaming30,0001,13231150
Hollywood Casino Gulf CoastBay St. Louis, MSPenn Master LeaseLand-based gaming51,00082920291
Hollywood Casino TunicaTunica, MSPenn Master LeaseDockside gaming54,00090010494
L’Auberge Baton RougeBaton Rouge, LAPinnacle Master LeaseDockside gaming71,5001,30549205
L’Auberge Lake CharlesLake Charles, LAPinnacle Master LeaseDockside gaming70,0001,46985995
Margaritaville Resort CasinoBossier City, LAMargaritaville LeaseDockside gaming30,0001,10950395
West segment
Ameristar Black HawkBlack Hawk, COPinnacle Master LeaseLand-based gaming56,0001,05038536
Cactus Petes and HorseshuJackpot, NVPinnacle Master LeaseLand-based gaming29,00074321416
M ResortHenderson, NVPenn Master LeaseLand-based gaming96,0001,07340390
Tropicana Las VegasLas Vegas, NVTropicana LeaseLand-based gaming72,000632201,470
Zia Park CasinoHobbs, NMPenn Master LeaseLand-based gaming/racing18,000754—154
Midwest segment
Ameristar Council Bluffs (5)
Council Bluffs, IAPinnacle Master LeaseDockside gaming35,0001,42122444
Argosy Casino Alton (6)
Alton, ILPenn Master LeaseDockside gaming23,00070512—
Argosy Casino RiversideRiverside, MOPenn Master LeaseDockside gaming56,0001,20042258
Hollywood Casino AuroraAurora, ILPenn Master LeaseDockside gaming53,00097627—
Hollywood Casino JolietJoliet, ILPenn Master LeaseDockside gaming50,0001,10026100
Hollywood Casino at Kansas Speedway (7)
Kansas City, KSOwned - JVLand-based gaming95,0002,00041—
Hollywood Casino St. LouisMaryland Heights, MOPenn Master LeaseDockside gaming120,0002,01763502
Prairie State Gaming (4)
IllinoisN/ALand-based gamingN/A2,047——
River City CasinoSt. Louis, MOPinnacle Master LeaseDockside gaming90,0001,94553200
Other
Freehold Raceway (8)
Freehold, NJOwned - JVStandardbred racing————
Retama Park Racetrack (9)
Selma, TXNone - ManagedThoroughbred racing————
Sam Houston Race Park (10)
Houston, TXOwned - JVThoroughbred racing————
Sanford-Orlando Kennel Club (11)
Longwood, FLOwnedGreyhound racing/simulcasting————
Valley Race Park (10)
Harlingen, TXOwned - JVGreyhound racing————
2,411,35048,0321,3238,791

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As mentioned above, we organize the properties we operate, manage and own, as applicable, into three segments, Northeast, South/West and Midwest. Below is a description of each of our properties by segment.

Northeast Properties

(1)Excludes poker tables.

(2)We expect that Hollywood Casino at Charles Town Races

York and Hollywood Casino Morgantown will be included within our Northeast segment.

(3)Includes 168 rooms at Charles Town Racesour hotel and event center located less than a mile from the gaming facility.
(4)VGT route operations.
(5)Includes 284 rooms operated by a third party and located on land leased by us and subleased to such third party.
(6)The riverboat is owned by us and not subject to the Penn Master Lease.
(7)Pursuant to a joint venture with NASCAR.
(8)Pursuant to a joint venture with Greenwood Limited Jersey, Inc., a subsidiary of Greenwood Racing, Inc.
(9)Pursuant to a management contract with Retama Development Corporation.
(10)Pursuant to a joint venture with MAXXAM, Inc. (“MAXXAM”).
(11)In the fourth quarter of 2020, we sold the land underlying the Sanford-Orlando Kennel Club racetrack which discontinued our live racing operations. We continue to operate our simulcast racing business.

Northeast Segment
Ameristar East Chicago is located less than 25 miles from downtown Chicago, Illinois and offers guests a gaming and entertainment experience in the Chicago metropolitan area. In addition to gaming amenities, the property features a full-service hotel, a sportsbook for live sports betting, a fitness center, dining venues, lounges and 5,400 square feet of meeting and event space.

Greektown Casino-Hotel is located in Charles Town, West Virginia, within approximately an hour drivethe Greektown district of Detroit, Michigan, and is one of four casino hotels in the Baltimore, Maryland and Washington, D.C. markets. Hollywood Casino at Charles Town Races features 511,249 of property square footage with 2,391 gamingDetroit-Windsor area. In addition to slot machines, 73 table games, and 16 poker tables and a 153‑room hotel. Hollywood Casino at Charles Town Races alsosportsbook for live sports betting, the property features variousa 30-story hotel, several food and beverage options from casual to fine dining, options, including a high‑end steakhouse, a sports bar and entertainment lounge, as well as an Asian themed restaurant. The complex also features live thoroughbred racing at a 3/4‑mile all‑weather lighted thoroughbred racetrack with a 3,000‑seat grandstand, parking for 5,781 vehicles10,000 square feet of convention and simulcast wagering and dining.

banquet space.


Hollywood Casino at Penn National Race Course

Hollywood Casino at Penn National Race CourseBangor is located less than five miles from the Bangor airport in Grantville, Pennsylvania, which is 15 miles northeast of Harrisburg. Hollywood Casino at Penn National Race CourseMaine. It features 451,758 of property square footage with 2,319 slot machines, 54 table games and 16 poker tables. The facility also includes an entertainment bar and lounge, a sports bar, a buffet, a high‑end steakhouse and various casual dining options,tables, as well as a simulcast facility and viewing area for live racing. The facility has ample parking, including a five‑story self‑parking garage, with capacity for approximately 2,200 cars, and approximately 1,500 surface parking spaces for self and valet parking. The property includes a one‑mile all‑weather lighted thoroughbred racetrack and a 7/8‑mile turf track. The property also includes approximately 393 acres that are available for future expansion or development.

Hollywood Casino Toledo

Hollywood Casino Toledo is located in Toledo, Ohio and opened on May 29, 2012. Hollywood Casino Toledo is a Hollywood‑themed casino featuring 285,335 of property square footage with 2,043 slot machines, 51 table games and 20 poker tables. Hollywood Casino Toledo also includes multiple food and beverage outlets, an entertainment lounge, and structured and surface parking for approximately 3,300 spaces.

Hollywood Casino Columbus

Hollywood Casino Columbus is located in Columbus, Ohio and opened on October 8, 2012. Hollywood Casino Columbus is a Hollywood‑themed casino featuring 354,075 of property square footage with 2,237 slot machines, 64 table games and 36 poker tables. Hollywood Casino Columbus also includes multiple food and beverage outlets, an entertainment lounge, and structured and surface parking for 4,616 spaces.

Hollywood Gaming at Dayton Raceway

Hollywood Gaming at Dayton Raceway is located in Dayton, Ohio and opened on August 28, 2014. Hollywood Gaming at Dayton Raceway is a Hollywood‑themed facility featuring 191,037 of property square footage with 1,015 video lottery terminals and a 5/8‑mile standardbred racetrack. Hollywood Gaming at Dayton Raceway also includes various restaurants, bars, surface parking for 1,806 spaces and other amenities.

Hollywood Gaming at Mahoning Valley Race Course

Hollywood Gaming at Mahoning Valley Race Course is located in Youngstown, Ohio and opened on September 17, 2014. Hollywood Gaming at Mahoning Valley Race Course is a Hollywood‑themed facility featuring

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177,448 of property square footage with 1,036 video lottery terminals and a one‑mile thoroughbred racetrack. Hollywood Gaming at Mahoning Valley Race Course also includes various restaurants, bars, surface parking with 1,254 spaces and other amenities.

Hollywood Casino Bangor

Hollywood Casino Bangor, which is located in Bangor, Maine, includes 257,085 of property square footage with 739 slot machines, 14 table games and four poker tables. Hollywood Casino Bangor’s amenities include a 152‑room hotel with 5,1195,100 square feet of meeting and multipurpose space, three eateries, a buffet, a snack barspace; and a casual dining restaurant, a smalland entertainment stage, and a four‑story parking garage with 1,500 spaces.options. Bangor Raceway, which is adjacent to the property, is located at historic Bass Park and includes a one‑halfone-half mile standardbred racetrack and a 12,000 square foot grandstand to seatcapable of seating 3,500 patrons.

Plainridge Park


Hollywood Casino

at Charles Town Races is located within approximately an hour drive of the Baltimore, Maryland and Washington, D.C. markets. In addition to slot machines, table games and poker tables, the property includes a sportsbook for live sports betting, as well as a variety of dining options. The complex also features live thoroughbred racing at a 3/4-mile all-weather lighted thoroughbred racetrack with a 3,000-seat grandstand and simulcast wagering.

Hollywood Casino Columbus is a Hollywood-themed casino located in Columbus, Ohio. It features slot machines, table games and poker tables as well as multiple food and beverage outlets, and an entertainment lounge.

Hollywood Casino Lawrenceburg is a Hollywood-themed casino riverboat located along the Ohio River in Lawrenceburg, Indiana, approximately 15 miles west of Cincinnati, Ohio. In addition to slot machines, table games, and poker tables, the riverboat features a sportsbook for live sports betting, as well as a variety of dining options. The hotel and event center, located within one mile from the casino, includes 18,000 square feet of multipurpose space and 19,500 square feet of ballroom and meeting space.

Hollywood Casino at Penn National Race Course is located 15 miles northeast of Harrisburg, Pennsylvania. This gaming facility also includes a variety of dining and entertainment options, as well as sports betting and a viewing area for live racing. The property includes a one-mile all-weather lighted thoroughbred racetrack and a 7/8-mile turf track.

Hollywood Casino Toledo is a Hollywood-themed casino, located on the bank of the Maumee River, in Toledo, Ohio. The property features slot machines, table games and poker tables, as well as multiple food and beverage outlets and an entertainment lounge.

Hollywood Gaming at Dayton Raceway is a Hollywood-themed casino and raceway located in Dayton, Ohio. It features video lottery terminals, a 5/8-mile standardbred racetrack, as well as various restaurants and bars, amongst other amenities.

Hollywood Gaming at Mahoning Valley Race Course is a Hollywood-themed casino and raceway located in Youngstown, Ohio featuring video lottery terminals and a one-mile thoroughbred racetrack. The property also includes various restaurants, and bars, amongst other amenities.
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Marquee by Penn is our licensed VGT route operator with a network of 23 truck stop establishments in Pennsylvania.

Meadows Racetrack and Casino is located in Washington, Pennsylvania, approximately 25 miles south of Pittsburgh, Pennsylvania. In addition to gaming amenities, the property offers a sportsbook for live sports betting, several dining options, as well as an event and banquet center, a simulcast betting parlor, a harness racetrack and a bowling alley.

Plainridge Park Casino which opened on June 24, 2015, is located 20 miles southwest of the Boston beltway just off interstate 95 in Plainville, Massachusetts. Plainridge Park features 196,473 of property square footage with 1,249In addition to gaming devices.offerings, Plainridge Park Casino offersfeatures various restaurants and bars, 1,620 structured and surface parking spaces, and other amenities. Plainridge Park Casino also includesalong with a 5/8‑mile5/8-mile live harness racing facility with approximate 55,000 square foot, two storya two-story clubhouse for simulcast operations, special events, and live racing viewing.

Casino Rama

Through CHC Casinos Canada Limited (“CHC Casinos”), our indirectly wholly‑owned subsidiary, we manage Casino Rama, a full service gaming and entertainment facility, on behalf of the Ontario Lottery and Gaming Corporation (“OLG”), an agency of the Province of Ontario. Casino Rama is located on the lands of the Rama First Nation, approximately 90 miles north of Toronto. The property has 864,047 of property square footage with 2,523 gaming machines, 101 table games and 10 poker tables. In addition, the property includes a 5,000‑seat entertainment facility, a 289‑room hotel and 3,422 surface parking spaces.

The Development and Operating Agreement, which we refer to as the management service contract for Casino Rama, sets out the duties, rights and obligations of CHC Casinos and our indirectly wholly‑owned subsidiary, CRC Holdings, Inc. The compensation under the management service agreement is a base fee equal to 2.0% of gross revenues of the casino and an incentive fee equal to 5.0% of the casino’s net operating profit.

In June 2014, we signed an agreement to extend the Casino Rama Agreement on a month‑to‑month basis with a 60‑day notice period for up to a maximum period of forty‑eight months, ending September 30, 2018. The OLG is exploring bids for new operating contracts and privatization in Ontario, including at Casino Rama.  As a result, we expect our management contract with the OLG to end shortly after June 30, 2018.

South/West Properties

M Resort

The M Resort, located approximately ten miles from the Las Vegas strip in Henderson, Nevada, is situated on approximately 90 acres on the southeast corner of Las Vegas Boulevard and St. Rose Parkway. The resort features 910,173 of property square footage with 1,180 slot machines and 40 table games. The M Resort also offers 390 guest rooms and suites, seven restaurants and six destination bars, more than 60,000 square feet of meeting and conference space, a 4,700 space parking facility, a spa and fitness center and a 100,000 square foot events piazza.

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South Segment

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Zia Park Casino

Zia Park Casino is located in Hobbs, New Mexico and includes a casino, as well as an adjoining racetrack. The property includes 193,645 of property square footage with 734 slot machines and two restaurants. The property has a one‑mile quarter/thoroughbred racetrack, with live racing from September to December, and a year‑round simulcast parlor. In August 2014, we opened a new hotel, which includes 148 rooms, six suites, a business center, exercise/fitness facilities and a breakfast venue.

Hollywood Casino Tunica

Hollywood Casino Tunica is located in Tunica, Mississippi. This single‑level property features 315,831 of property square footage with 1,020 slot machines, 17 table games and six poker tables. Hollywood Casino Tunica also has a 494‑room hotel and 123‑space recreational vehicle park. Entertainment amenities include a steakhouse, a buffet, a grill, an entertainment lounge, a premium players’ club, a themed bar facility, an indoor pool and showroom as well as banquet and meeting facilities. In addition, Hollywood Casino Tunica offers surface parking with 1,635 spaces.

1st1st Jackpot Casino (formerly known as Bally’s Casino Tunica)

1st Jackpot Casino, isthe closest Tunica-area casino to downtown Memphis, Tennessee. It features 78,941 of property square footage with 900 slot machines, and 16 table games, along with a steakhouse, buffet restaurant, 24-hour café, a sportsbook and a live entertainment venue.

Resorts Casino Tunica

Resorts Casino Tunica,


Ameristar Vicksburg, which is the largest dockside casino in central Mississippi, is located adjacentalong the Mississippi River approximately 45 miles west of Mississippi’s largest city, Jackson. In addition to Hollywood Casino Tunica,gaming amenities, the property features 319,823 of property square footage with 805 slot machinesa hotel, multiple dining and 7 table games. The property also offers a steakhouse, buffet restaurant and 24-hour café as well as 18,000bar facilities, an 1,800 square feet of meeting and event space, a sports book and an RV park.

Boomtown Biloxi, located in Biloxi Mississippi, offers slot machines and table games, and a 201-room hotel.

Hollywood Casino Gulf Coast

sportsbook for live sports betting, as well as a variety of dining options. The property also includes a recreational vehicle park, and a 3,600 square foot event center and board room.


Boomtown Bossier City features a hotel adjoining a dockside riverboat casino located less than one mile from the Louisiana Boardwalk. It also offers several dining options, ranging from a high-end steakhouse to casual dining restaurants, and 1,500 square feet of meeting and conference space.

Boomtown New Orleans is located in the West Bank area across the Mississippi River and approximately 15 minutes from the French Quarter of New Orleans, Louisiana. In addition to gaming amenities, it also features a five-story hotel, a fitness center, several restaurants, a 500-seat entertainment venue, and over 14,000 square feet of meeting and conference space.

Hollywood Casino Gulf Coast (formerly Hollywood Casino Bay St. Louis), which is located in Bay St. Louis, Mississippi and features 425,920 of property square footage with 1,016 slot machines, 21 table games, and five poker tables.a sportsbook for live sports betting. The property also features a golf course, various dining options, and an RV park amongst other amenities. The waterfront Hollywood Hotel features 291 rooms,hotel includes a 10,000 square foot ballroom, and nine separate meeting rooms offering more than 14,000 square feet of meeting space.

Hollywood Casino Gulf CoastTunica is a Hollywood-themed casino, located less than 10 miles from Tunica County River Park. In addition to gaming offerings, it features a sportsbook for live sports betting, a hotel, a 123-space recreational vehicle park, various dining and bar options, and banquet and meeting facilities.

L’Auberge Baton Rouge is located approximately ten miles southeast of downtown Baton Rouge, Louisiana. In addition to gaming options, the property features a 12-story hotel, a variety of dining choices, and 13,000 square feet of meeting and event space.

L’Auberge Lake Charles offers one of the closest full-scale casino hotel facilities to Houston, Texas, as well as to the Austin, Texas and San Antonio, Texas metropolitan areas. The location is approximately 140 miles from Houston and approximately 300 miles and 335 miles from Austin and San Antonio, respectively. In addition to gaming amenities, the property features several dining outlets, a golf course, a full-service spa, and more than 26,000 square feet of meeting and event space.

Margaritaville Resort Casino is one of the premier gaming, lodging, dining and entertainment experiences in Northern Louisiana. The property provides an island-style theme and includes a 15,000 square foot 1,000-seat theater, and 9,500 square feet of meeting space.

West Segment
Ameristar Black Hawk is located in the center of the Black Hawk gaming district, approximately 40 miles west of Denver, Colorado. In addition to gaming amenities, the resort features a hotel, a full-service day spa, several dining outlets, a live concertsentertainment bar, and various15,000 square feet of meeting and event space.
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Cactus Petes and Horseshu (collectively, “the Jackpot Properties”) are located just south of the Idaho border in Jackpot, Nevada. The Jackpot Properties collectively feature two hotels, several dining options, a 4,000 seat amphitheater, a showroom, a live entertainment on weekends.lounge, and meeting and event facilities.

M Resort, located approximately ten miles from the Las Vegas strip in Henderson, Nevada, is situated at the southeast corner of Las Vegas Boulevard and St. Rose Parkway. The resort features slot machines, table games and a sportsbook for live sports betting, as well as a hotel and a variety of dining and bar options. The property also features The Bridges golf course, an 18‑hole championship golf course. Hollywood Casino Gulf Coast has various dining facilities includingmore than 60,000 square feet of meeting and conference space, a steakhouse, a buffet, a grillspa and fitness center, and a clubhouse lounge as well as an entertainment bar. Other amenities include a recreational vehicle park with 100 spaces and a gift shop, lazy river, spa, and pool cabanas.

Boomtown Biloxi

Boomtown Biloxi is located in Biloxi, Mississippi and offers 134,800 of property100,000 square footage with 783 slot machines and 14 table games. It features a buffet, a steakhouse, a 24‑hour grill, a noodle bar and an recreational vehicle park with 50 spaces. Boomtown Biloxi also has 1,450 surface parking spaces.

foot event center.


Tropicana Las Vegas

The Company acquired Tropicana Las Vegas on August 25, 2015. Tropicana Las Vegas, ,located on the strip in Las Vegas, Nevada, is situated on an approximate 35‑acre land parcel at the corner of Tropicana Boulevard and Las Vegas Boulevard. TheIn addition to gaming, the resort features 1,183,984 of property square footage with 655 slot machines and 35 table games. Tropicana Las Vegas offers 1,470 guest rooms, a sports book, four full serviceshotel, a sportsbook kiosk, full-service restaurants, a food court, and a 1,100‑seat

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performance theater, a 300‑seat comedy club,bar and lounge options. The property also includes entertainment venues, over 100,000 square feet of exhibition and meeting space, and a five‑acrefive-acre tropical beach event area and spa,spa.


Zia Park Casino is located in Hobbs, New Mexico, and 2,095 parking spaces.

Hollywoodfeatures slot machines, a hotel, restaurants, a one-mile quarter/thoroughbred racetrack with live racing from September to December, and a year-round simulcast parlor.


Midwest Segment
Ameristar Council Bluffs is located across the Missouri River from Omaha, Nebraska and includes the largest riverboat in Iowa. In addition to gaming amenities, the property also features a hotel, a fitness center, several dining facilities, a sports bar featuring a sportsbook with live sports betting, and 5,000 square feet of convention and meeting space.

Argosy Casino Jamul-San Diego

HollywoodAlton is located on the Mississippi River in Alton, Illinois, approximately 20 miles northeast of downtown St. Louis, Missouri. Argosy Casino Jamul – San DiegoAlton is a three-storythree-deck riverboat featuring slot machines, table games and a sportsbook for live betting. Argosy Casino Alton includes an entertainment pavilion and features a deli, a VIP lounge and a 475-seat main showroom.


Argosy Casino Riverside is located on the Missouri River, approximately five miles from downtown Kansas City. In addition to gaming andamenities, this Mediterranean-themed property features a nine-story hotel, a spa, an entertainment facility featuring approximately 200,000various food and beverage areas, a VIP lounge and a sports/entertainment lounge and 19,000 square feet with 1,730 slot machines, 40 live table games, multiple restaurants, bars and lounges and a partially enclosed parking structure with over 1,800 spaces.  The facility opened to the public on October 10, 2016.  The Company currently provides a portion of the financing in connection with the project including additional commitments for future construction spending and, following the opening, manages the casino.  In late February 2018, the Company and the Jamul Tribe mutually agreed that Penn would no longer manage the facility or provide branding and development services on May 28, 2018. The company will provide a transition that it anticipates will last through approximately late May.

Midwest Properties

banquet/conference facilities.


Hollywood Casino Aurora

Hollywood Casino Aurora, part of the Chicagoland market, is located in Aurora, Illinois, the second largest city in Illinois, approximately 35 miles west of Chicago. This single‑levelsingle-level dockside casino provides 222,189 of property square footage with 1,066 slot machines, 27offers guests gaming tables and sixamenities, including a poker tables. The facility features a steakhouse with a private dining room a VIP lounge for premium players, a casino bar with video poker, a buffet, and a deli. Hollywood Casino Aurora also has a surface parking lot, two parking garages with approximately 1,500 parking spaces,sportsbook for live sports betting and a gift shop.

features multiple dining and bar options.


Hollywood Casino Joliet

Hollywood Casino Joliet, part of the Chicagoland market, is located on the Des Plaines River in Joliet, Illinois, approximately 40 miles southwest of Chicago. This barge‑basedThe complex includes a barge-based casino which provides guests with two levels with 1,100 slot machines, 18 table games and three poker tables. The land‑based pavilion includes a steakhouse, a buffet and a sports bar. The casino barge includes a deli and VIP lounge. The complex also includes a 100‑room hotel, a 1,100 space parking garage, surface parking areas with approximately 1,500 spaces and an 80‑space recreational vehicle park. In total, the facility includes 322,446 of property square footage.

Argosy Casino Alton

Argosy Casino Alton is located on the Mississippi River in Alton, Illinois, approximately 20 miles northeast of downtown St. Louis. Argosy Casino Alton is a three‑deck gaming facility featuring 124,569 of property square footage with 796 slot machines and 12 table games. Argosy Casino Alton includes an entertainment pavilion and features a 214‑seat buffet, a restaurant, a deli and a 475‑seat main showroom. The facility also includes surface parking areas with 1,341 spaces.

Argosy Casino Riverside

Argosy Casino Riverside is located on the Missouri River, approximately five miles from downtown Kansas City in Riverside, Missouri. The property features 450,397 of property square footage with 1,479 slot machines and 42 table games. This Mediterranean‑themed casino and hotel features a nine‑story, 258‑room hotel and spa, an entertainment facility featuring various food and beverage areas, including a buffet, a steakhouse, a deli, a coffee bar, a Mexican restaurant, a VIP lounge and a sports/entertainment lounge and 19,000 square feet of banquet/conference facilities. Argosy Casino Riverside also has parking for approximately 3,000 vehicles, including a 1,250 space parking garage.

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Hollywood Casino Lawrenceburg

Hollywood Casino Lawrenceburg is located on the Ohio River in Lawrenceburg, Indiana, approximately 15 miles west of Cincinnati. The Hollywood‑themed casino riverboat has 634,000 square feet of property square footage with 1,711 slot machines, 63 table games and 19 poker tables. Hollywood Casino Lawrenceburg also includes a 295‑room hotel,experience, as well as a restaurant, bar, nightclub, sports bar, two cafesland-based pavilion with several dining and meeting space.

The City of Lawrenceburg Department of Redevelopment constructedentertainment options. In addition, the property includes a sportsbook for live betting, a hotel, and event center located less than a mile away from our Hollywood Casino Lawrenceburg property. Effective in January 2015, by contractual agreement, the hotel and event center is owned and operated by a subsidiary of the Company. The hotel and event center includes 168 rooms, approximately 18,0004,600 square feet of multipurposemeeting space, and 19,500 square feet of ballroom and meeting space.

an 80-space RV park.


Hollywood Casino at Kansas Speedway

Hollywood Casino at Kansas Speedway,, our 50% joint venture with International Speedway,NASCAR, is located in Kansas City, Kansas and opened on February 3, 2012. The facilityKansas. It features 244,791 of property square footage with 2,000 slot machines, 41 table games and 12 poker tables. Hollywood Casino at Kansas Speedwaytables and offers a variety of dining and entertainment facilities, and has a 1,253 space parking structure.

Hollywood Casino St. Louis

meeting room.


Hollywood Casino St. Louis is located adjacent to the Missouri River in Maryland Heights, Missouri, directly off I‑70I-70 and approximately 22 miles northwest of downtown St. Louis, Missouri. The facility is situated on approximately 248 acres along the Missouri River and features 645,270 of property square footage with 2,003 slot machines, 63 table games, 20 poker tables, a 502 guestroom hotel, nineand a variety of dining and entertainment venues and structured and surface parking with approximately 4,600 spaces.

Prairie State Gaming

The Company acquired Illinois Gaming Investors, LLC, d/b/a venues.


Prairie State Gaming ais our licensed video gaming terminalVGT route operator in Illinois on September 1, 2015. Prairie State Gaming’s operations now include more than 1,715 video gaming terminals across a network of approximately 377over 390 bar andand/or retail gaming establishments in seven distinct geographic areas throughout Illinois.

Other Properties

Sanford‑Orlando Kennel Club

Sanford‑Orlando Kennel Club


River City Casino is a 1/4‑mile greyhound facility located in Longwood, Florida. The facility has capacity for 6,500 patrons, with seating for 4,000the St. Louis, Missouri metropolitan area, just south of the confluence of the Mississippi River and surface parking for 2,500 vehicles. The facility conducts year‑round greyhound racingthe River des Peres in the south St. Louis community of Lemay, Missouri. River City Casino features a hotel, multiple dining outlets, an entertainment lounge, and greyhound, thoroughbred, and harness racing simulcasts.

over 10,000 square feet of conference space.


Other
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Freehold Raceway

Raceway.Through our joint venture in Pennwood Racing, Inc. (“Pennwood”), we own 50% of Freehold Raceway, located in Freehold, New Jersey.Raceway. The property features a half‑milehalf-mile standardbred race track and a 117,715118,000 square foot grandstand.

In addition, through our Pennwood joint venture, we own 50% of a leased OTW in Toms River, New Jersey, and operate another OTW, which we constructed, in Gloucester Township, New Jersey.

15


Retama Park Racetrack.We have a management contract with Retama Development Corporation (“RDC”), a local government corporation of the City of Selma, Texas, to manage the day-to-day operations of Retama Park Racetrack. 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. Additionally, we own 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.

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Sam Houston Race Park and Valley Race Park

Park.Our joint venture with MAXXAM owns and operates the Sam Houston Race Park in Houston, Texas and the Valley Race Park, in Harlingen, Texas, and holds a license for a racetrack in Manor, Texas, just outside of Austin. Sam Houston Race Park, which is located 15 miles northwest from downtown Houston along Beltway 8. Sam Houston Race Park8, hosts thoroughbred and quarter horse racing and offers daily simulcast operations, as well as hosts various special events, private parties and meetings, concerts and national touring festivals throughout the year. Valley Race Park features 91,000 of property square footage as a dog racing and simulcasting facility.


Sanford-Orlando Kennel Club. The greyhound racetrack and related facility located in Harlingen, Texas.

Off‑track Wagering Facilities

Our off‑track wagering facilities (“OTWs”)was sold to a land developer during the fourth quarter of 2020. The remaining facility owned by the Company is used to operate a restaurant and racetracks provide areas for viewing importto offer year-round simulcast races of thoroughbred and standardbred horse racing televised sporting events, placing pari‑mutuel wagers and dining. We operate two OTWsoperations.


Penn Interactive
Penn Interactive is our interactive gaming division that operates our online sports betting app called Barstool Sportsbook as well as our iGaming platforms, which are currently live in Pennsylvania and through our joint venture in Pennwood, we own 50%Michigan. Penn Interactive includes the operations of Absolute Games, LLC, a leased OTW in Toms River, New Jersey.developer and operator of online social bingo and other casino games. In addition, Penn Interactive has entered into multi-year agreements with leading sports betting operators for online sports betting and iGaming market access across our portfolio of properties. Pursuant to these agreements, such sports betting operators have commenced operations in accordance with an operating agreement with Pennwood,Indiana, Pennsylvania and West Virginia. Penn Interactive also operates 16 internally-branded or Barstool-branded retail sportsbooks located at the Company constructed an OTWCompany's properties in Gloucester Township, New Jersey, which opened in July 2014. Per the operating agreement, this OTW is operated by us; however, Pennwood has the option to purchase the OTW once the Company has received its total investment as defined in the operating agreement.

Colorado, Illinois, Indiana, Iowa, Michigan, Mississippi, Pennsylvania and West Virginia.


Trademarks

We own a number of trademarks and service marks registered with the U.S. Patent and Trademark Office (“U.S. PTO”USPTO”), including but not limited to, “Hollywood Casino®“Ameristar®,” “Argosy®,” “Boomtown®,” “Greektown®,” “Hollywood Gaming®Casino®,” “Argosy®“Hollywood Gaming®,” “L’Auberge®,” “M Resort®,” “Hollywood Poker®Resort®,” and “Marquee Rewards®“MYCHOICE®,”. among other trademarks. We believe that our rights to our markstrademarks are well establishedwell-established and have competitive value to our properties. We also have a number of trademark applications pending with the U.S. PTO.

As partUSPTO.


Among others, we have a licensing agreement with a third party to use the “Margaritaville®” trademark in connection with the operations of Margaritaville in Bossier City, Louisiana. Upon closing of the transaction with Barstool Sports in February 2020, we have the sole right to utilize the Barstool Sports® brand for all of our acquisition of Tropicana Las Vegas in August 2015, we assumed a trademark settlement agreement with Tropicana Entertainment, LLC, an affiliate of Tropicana Entertainment, Inc. (NASDAQ: TCPA) that is not related to the Company, which,online and retail sports betting and iGaming products. In addition, subject to othercertain terms, conditions, and advertising limitations, set forth in the agreement, confirms, among other things, that (i) Tropicana Las Vegas owns and haswe have the exclusive right to use the “Tropicana Las Vegas”Vegas®” and the “Tropicana LV” markscertain other trademarks within 50 miles of the “Las Vegas Property” for the purpose of providing goods and services in the field of entertainment and hospitality and in the natural scope of expansion thereof (the “Services”), and for “Internet Uses” (as defined in the Agreement) without geographic limitation, (ii)our Tropicana Las Vegas may advertise the Services identified by the “Tropicana Las Vegas” and the “Tropicana LV” marks worldwide provided that the advertisements explicitly reference the location of the Tropicana Las Vegas Property, and (ii) Tropicana Entertainment, LLC owns and has the exclusive right to use the “Tropicana” and “Trop” marks, in connection with a modifier indicating the type of service being provided or a modifier designating an accurate geographic location of a property, outside of the Las Vegas area, and may advertise the Services worldwide provided that the advertisements explicitly reference the location of the properties.

Pursuant to a License Agreement with Boomtown, Inc., dated August 8, 2000, our subsidiary BTN, LLC (successor to BTN, Inc.) uses the “Boomtown” trademark.

The Company provides branding services with regards to the Hollywood Casino-branded gaming facility on the Jamul Tribe’s trust land in San Diego County, California pursuant to an Intellectual Property, License, Branding and Marketing Agreement dated April 3, 2013.

Effective as of November 1, 2015, the Company’s subsidiary, Hollywood Casinos, LLC, has a Trademark License Agreement with GLPI, pursuant to which GLPI has a license to use certain trademarks for use in connection with the Hollywood Casino Baton Rouge and Hollywood Casino Perryville facilities, which were contributed to GLPI in the Spin-Off.

property.

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Competition

The gaming industry is characterized by aan increasingly high degree of competition among a large number of operators, including riverboat casinos, dockside casinos, land‑based casinos, video lottery, video gaming terminals (VGTs) at taverns in certain states, such as Illinois, sweepstakes and poker machines not located in casinos, Native American gaming, emerging varieties of Internet and fantasy sports gaming, the potential for increased sports bettingparticipants operating from physical locations and/or through online or mobile platforms, and other forms of gaming in the U.S. In a broader sense, our gaming operations face competition from all manner of leisure and entertainment activities, including: shopping;including shopping, athletic events;events, television and movies;movies, concerts and travel. Legalized gaming is currently permitted in various forms throughout the U.S., in several Canadian provinces and on various lands taken into trust for the benefit of certain Native Americans inand as well as various land taken into trust for the U.S. andbenefit of certain First Nations people in Canada. Other jurisdictions, including states adjacent to states in which we currently have facilities (such as in Ohio, Massachusetts, Pennsylvania, and Maryland),properties, have recently legalized, implemented and expanded or have plans to license additional gaming facilities, video gaming terminals and other gaming offerings in the near future.gaming. In addition, moreestablished gaming jurisdictions could award additional gaming licenses or permit the expansion or relocation of existing gaming operations. New, relocated or expanded operations by other companies will increase competition for our gaming operations(including VGTs, skill games, sports betting and could have a material adverse impact on us. Finally, the imposition of smoking bans and/or higher gaming tax rates have a significant impact on our properties’ ability to compete with facilitiesiGaming). Competition is discussed in nearby jurisdictions.

Our racing operations face significant competition for wagering dollars from other racetracks and off-track wagering facilities (“OTWs”), some of which also offer other forms of gaming, as well as other gaming venues such as casinos and historic racing. Additionally, for a number of years, there has been a general decline in the number of people attending and wagering on live horse races at North American racetracks due to a number of factors, including increased competition from other wagering and entertainment alternatives and unwillingness of customers to travel a significant distance to racetracks. Our account wagering operations compete with large providers of such services throughout the country. We also face competition in the future from new OTWs, new racetracks, historic racing, or new providers of account wagering. From time to time, states consider legislation to permit other forms of gaming. If additional gaming opportunities become available near our racing operations, such gaming opportunities could have an adverse effect on our business, financial condition and results of operations.

Northeast.  Hollywood Casino at Charles Town Races has been and will continue to be negatively impacted by competition in the Baltimore, Maryland market, which includes Maryland Live! and Horseshoe Casino Baltimore. Maryland Live!, a casino complex at the Arundel Mills mall in Anne Arundel, Maryland, opened in June 2012 and  Horseshoe Casino Baltimore opened at the end of August 2014. Both of these facilities are substantial in nature, as Maryland Live! Has approximately 4,000 slot machines, over 200 table games and various food and beverage offerings whereas Horseshoe Baltimore has 2,200 slot machines and 180 table games.  In December 2013, the sixth casino license for Maryland in Prince George’s County was granted to MGM. In December 2016, MGM National Harbor casino and resort opened featuring 3,300 slot machines and 124 table games and has had an adverse impact our financial results, as it has created additional competition for Hollywood Casino at Charles Town Races.

In November 2011, the Expanded Gaming Act was signed into law in Massachusetts, which allows up to three destination resort casinos located in three geographically diverse regions across the state and a single slots facility for one location statewide. In February 2014, the Massachusetts Gaming Commission awarded us the slots‑only gaming license and in June 2015, we opened Plainridge Park Casino in Plainville. The licenses for two of three casino resorts have been awarded with the remaining license in Southeastern Massachusetts still open. MGM Springfield in Western Massachusetts is expected to be completed in September 2018 and Wynn Everett in the Boston Area is scheduled to open in mid-2019. Construction of a tribal casino in Taunton, Massachusetts, which was expected to open in 2017, is currently on hold following a judicial opinion issued during the third quarter of 2016 regarding the validity of the Tribe’s land in trust. In addition, a proposal to relocate the Newport Casino license to Tiverton, Rhode Island, near the Massachusetts border, was approved by local and statewide voters in November 2016. The proposal calls for a $75 million casino featuring 1,000 slot machines, 32 table games and an 84 room hotel.  The increased competition in

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further detail within “Item 1A. Risk

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Massachusetts will have a negative impactFactors,” of this Annual Report on the operations of Plainridge Park Casino; however, we anticipate that it will be the sole gaming facility in Massachusetts until at the least third quarter of 2018.

In Ohio, voters passed a referendum in 2009 to allow four land‑based casinos in four cities, one of which was in downtown Cincinnati, which is the primary feeder market for our Hollywood Casino Lawrenceburg property. The Cincinnati casino opened in March 2013 and has had and will likely continue to have an adverse impact on Hollywood Casino Lawrenceburg. However, this referendum also resulted in the Company operating two of the four land‑based casinos. We opened Hollywood Casino Toledo in May 2012 and Hollywood Casino Columbus in October 2012. Additionally, the State of Ohio approved the placement of video lottery terminals at the state’s seven racetracks. In June 2012, a new racino at Scioto Downs in Columbus, Ohio opened, which has had a negative impact on Hollywood Casino Lawrenceburg’s financial results and competes aggressively in the same market as Hollywood Casino Columbus. In addition, a racino at Miami Valley Gaming opened in mid‑December 2013,Form 10-K and a racino at Belterra Park opened in May 2014. Bothdiscussion of these racinos compete with Hollywood Casino Lawrenceburg. Conversely, we have opened our own racinos in Ohio, with Hollywood Gaming at Dayton Raceway opening in August 2014 and Hollywood Gaming at Mahoning Valley Race Course opening in September 2014. As a result, in a relatively short period of time, Ohio has gone from having no gaming facilities to having four casinos and seven video lottery terminal facilities. In addition, we continue to fight illegal gaming operations, such as internet sweepstakes.

In addition, legislators in Kentucky regularly consider new gaming legislation. The commencement of gaming in Kentucky would negatively impact certain of our existing properties in the Northeast segment. In October 2017, Pennsylvania enacted gaming expansion legislation that authorized licenses for up to ten new category 4 satellite casinos, VGTs at truck stops, online gaming, and other gaming offerings.  The new casinos will have the ability to operate between 300 and 750 slot machines and between 30 and 40 table games.  Only Pennsylvania’s existing gaming operators may initially participate in the auctions for these new casinos, with a preference given to the category 1 and category 2 license holders in the first round ending July 31, 2018.  On January 10, 2018, Penn was awarded the first category 4 satellite casino license to be located in York County, which will compete with our Hollywood Casino at Penn National Race Course facility. On February 8, 2018, the third category 4 satellite casino license was awarded in Lawrence County which is expected to compete with and have an adverse impact on our existing Hollywood Gaming at Mahoning Valley Race Course facility in Austintown, Ohio.  On February 22, 2018, the fourth category 4 satellite casino license was awarded in Cumberland County which is expected to compete with and have an adverse impact on our Hollywood Casino at Penn National Race Course facility in Grantville, Pennsylvania.  Depending on how many of the ten satellite casino licenses are ultimately issued, and the final locations, size and scope of these satellite casinos, and the impact of VGT’s at truck stops and online gaming offerings, there may be additional negative impactscompetition on our existing facilities in the Northeast segment.

South/West.  Our South/West segment contains our M Resort and Tropicana Las Vegas properties and Hollywood Casino Jamul- San Diego, which we operate under our management contract with the Jamul Tribe. M Resort and Tropicana Las Vegas compete directly with other Las Vegas hotels, resorts, and casinos, including those located on the Las Vegas Strip, on the basis of overall atmosphere, range of amenities, level of service, price, location, entertainment offered, convention and meeting facilities, shopping and restaurant facilities, theme, and size. In addition, a substantial number of customers are drawn from geographic areas outside of Las Vegas, particularly California and Arizona. Specifically, in California, we expect Hollywood Casino Jamul – San Diego to continue to experience significant competition from nearby casinos operated on Native American lands, which could negatively impact their results as well as the Las Vegas market.  In the Mississippi Gulf Coast market, a casino in D’Iberville, Mississippi opened in December 2015, which has had an adverse effect on the financial results of our Boomtown Biloxi property.

Midwest.  In Illinois, there have been perennial gaming expansion proposals introduced in the legislature, which we expect to continue.  In October 2012, video gambling in Illinois was officially launched with the first locations being allowed to operate VGTs. Currently, there are over 22,000 terminals at numerous locations throughout the state, which has had a negative impactoperations, and cash flows is included within “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of this Annual Report on our casinos near or in Illinois. In September 2015, we purchased Prairie StateForm 10-K.


Government Regulation and Gaming which is a licensed VGT operator in Illinois, whose operations now include more than 1,700 video gaming terminals.

Issues

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Illinois also continues to discuss the viability of gaming expansion in the state through a potential combination of additional riverboat operations, land-based casinos and slots at racetracks.  In addition, legislators in Indiana and Missouri are currently considering VGT legislation. The commencement of gaming in Indiana and Missouri or the expansion of gaming in Illinois would negatively impact certain of our existing properties in the Midwest segment.  In addition, there is a proposal to reopen a race track with slot machines at the Woodlands in Wyandotte County, which could have an adverse effect on the financial results of Hollywood Casino at Kansas Speedway.

U.S. and Foreign Revenues

Our net revenues in the U.S. for 2017, 2016, and 2015 were approximately $3,136.4 million, $3,023.2 million, and $2,828.1 million, respectively. Our revenues from operations in Canada for 2017, 2016, and 2015 were approximately $11.6 million, $11.2 million, and $10.3 million, respectively.

Management

The persons listed below represent executive officers of the Company.

Name

Age

Position

Timothy J. Wilmott

59

Chief Executive Officer

Jay Snowden

41

President and Chief Operating Officer

William J. Fair

55

Executive Vice President and Chief Financial Officer

Carl Sottosanti

53

Executive Vice President, General Counsel, and Secretary

Timothy J. Wilmott.  Mr. Wilmott joined us in February 2008 as President and Chief Operating Officer and was named Chief Executive Officer on November 1, 2013. In addition, in September 2014, Mr. Wilmott was appointed to the Board of Directors. Previously, Mr. Wilmott served as Chief Operating Officer of Harrah’s Entertainment, a position he held for approximately four years. In this position, he oversaw the operations of all of Harrah’s revenue‑generating businesses, including 48 casinos, 38,000 hotel rooms and 300 restaurants. All Harrah’s Division Presidents, Senior Vice Presidents of Brand Operations, Marketing and Information Technology personnel reported to Mr. Wilmott in his capacity as Chief Operating Officer. Prior to his appointment to the position of Chief Operating Officer, Mr. Wilmott served from 1997 to 2002 as Division President of Harrah’s Eastern Division with responsibility for the operations of eight Harrah’s properties.

Jay Snowden.  Mr. Snowden is currently our President and Chief Operating Officer. Mr. Snowden joined us in October 2011 as Senior Vice President‑Regional Operations, became our Chief Operating Officer in January 2014, and became our President and Chief Operating Officer in March 2017. Mr. Snowden is responsible for overseeing all of our operating businesses, as well as human resources, marketing, and information technology. Prior to joining us, Mr. Snowden was the Senior Vice President and General Manager of Caesars and Harrah’s in Atlantic City, and prior to that, held various leadership positions with them in St. Louis, San Diego and Las Vegas.

William J. Fair.  Mr. Fair is currently our Executive Vice President and Chief Financial Officer. In January 2014, Mr. Fair joined us as Senior Vice President and Chief Development Officer and became our Executive Vice President and Chief Financial Officer in January 2017. Previously, Mr. Fair worked in development leadership positions for Universal Studios and Disney Development. Most recently, Mr. Fair was the President and Chief Executive Officer of the American Skiing Company, where he had oversight of ten ski mountain resorts which included ski operations, nine hotels, condominium operations, food and beverage operations, retail and rental operations, real estate brokerage and development.

Carl Sottosanti.  Mr. Sottosanti is currently our Executive Vice President, General Counsel and Secretary. In February 2014, Mr. Sottosanti was appointed to the position of Senior Vice President and General Counsel and became

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Secretary in November 2014. Prior to this appointment, Mr. Sottosanti served as Vice President, Deputy General Counsel since 2003. Before joining the Company, Mr. Sottosanti served for five years as General Counsel at publicly traded, Sanchez Computer Associates, Inc. and had oversight of all legal, compliance and intellectual property matters. From 1994 to 1998, Mr. Sottosanti was the Assistant General Counsel for Salient 3 Communications, Inc., a publicly traded telecommunications company. Mr. Sottosanti began his legal career in 1989 with the Philadelphia law firm Schnader, Harrison, Segal & Lewis LLP.

Governmental Regulations

The gaming and racing industries are highly regulated, and we must maintain our licenses and pay gaming taxes to continue our operations. Each of our facilitiesproperties is subject to extensive regulation under the laws, rules and regulations of the jurisdiction where it is located. These laws, rules and regulations generally concern the responsibility, financial stability and character of the owners, managers, and persons with financial interests in the gaming operations. Violations of laws or regulations in one jurisdiction could result in disciplinary action in other jurisdictions. AFor a more detailed description of the statutes and regulations to which we are subject, is contained in see Exhibit 99.1, “Description of Government Regulations,” to this Annual Report on Form 10‑K,10-K, which is incorporated herein by reference.

Our businesses are subject to various federal, state and local laws and regulations in addition to gaming regulations. These laws and regulations include, but are not limited to, restrictions and conditions concerning alcoholic beverages, environmental matters, employees, health care, currency transactions, taxation, zoning and building codes, and marketing and advertising. Such laws and regulations could change or could be interpreted differently in the future, or new laws and regulations could be enacted. Material changes, new laws or regulations, or material differences in interpretations by courts or governmental authorities could adversely affect our financial condition, results of operations and cash flows.
Information about our Executive Officers
As of February 26, 2021, the persons serving as our executive officers and their positions with us are as follows:
NAMEAGEPOSITION WITH THE COMPANY
Jay Snowden44President, Chief Executive Officer and Director
Todd George51Executive Vice President, Operations
Harper Ko47Executive Vice President, Chief Legal Officer and Secretary

Jay Snowden.  In August 2019, the Company’s Board of Directors elected Mr. Snowden as a Board member. Effective January 1, 2020, Mr. Snowden became the Company’s Chief Executive Officer. Mr. Snowden joined the Company in October 2011 as Senior Vice President-Regional Operations and was promoted to Chief Operating Officer in January 2014. In March 2017, Mr. Snowden was named President and Chief Operating Officer and was responsible for overseeing all of our operating results.

businesses, as well as human resources, marketing, and information technology. Prior to joining the Company, Mr. Snowden was the Senior Vice President and General Manager of Caesars and Harrah’s in Atlantic City, New Jersey, and prior to that, held various leadership positions with them in St. Louis, Missouri, San Diego, California and Las Vegas, Nevada.


Todd George.  Mr. George has served as our Executive Vice President, Operations since January 2020. Mr. George joined us in October 2012 as Vice President and General Manager of Hollywood Casino in Lawrenceburg, Indiana, transitioning to the role of Vice President and General Manager of Hollywood Casino St. Louis in 2014. In 2017, he was promoted to his previous role as Senior Vice President, Regional Operations, overseeing nine properties in the Company’s Midwest Region. Prior to joining Penn National, Mr. George spent 12 years in various management positions at Pinnacle Entertainment Inc., including leading the development and launch of Pinnacle’s two St. Louis, Missouri properties.
Harper Ko.  Ms. Ko was appointed as the Company’s Executive Vice President, Chief Legal Officer and Secretary on January 1, 2021. Prior to joining Penn, Ms. Ko was the Executive Vice President, Chief Legal Officer – General Counsel and Secretary of Everi Holdings, Inc., a full-service casino gaming equipment and payment solutions provider from 2017 until December 2020. Prior to joining Everi, Ms. Ko served as Deputy General Counsel, Gaming for Scientific Games Corporation. During her time there from November 2014 to December 2017, Ms. Ko led the legal integration of Bally Gaming, Inc., SHFL entertainment Inc., and WMS Gaming Inc. into the Scientific Games Gaming division and served as a strategic advisor to their Gaming unit executive management team on all material commercial transactions, customer and third-party issues, and regulatory compliance and litigation matters.

Employees and Labor Relations

Human Capital Resources

The Company’s key human capital management objectives are to attract, retain and develop diverse and high quality talent. Our commitment to an equal-opportunity and respectful workplace characterized by both diversity and inclusion, in which everyone feels valued, respected and supported, is a factor driving our success. Our talent and development programs are designed to develop, support and maintain talent succession pipelines in preparation for key roles and leadership positions;
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recognize, reward and support our team members through competitive pay and wellness programs; enhance the Company’s philanthropic culture by encouraging participation and championing programs in the communities in which we work and live; and invest in technology and resources to provide our team members with the most efficient tools to perform their jobs.

Some of the key programs and initiatives developed to attract and retain high quality talent include:
•Executive and High Potential Talent Review Process
•Diversity and Veteran Recruitment Initiatives
•AwardCo Recognition Program and Property Engagement Committees

As of December 31, 2017,2020, we had 18,754 full‑approximately 18,321 full-time and part‑timepart-time employees.

The Company is required to have agreements with the horsemen at the majority As of its racetracks to conduct its live racing and/or simulcasting activities. In addition, in order to operate gaming machines and table games in West Virginia, the Company must maintain agreements with each of the Charles Town horsemen, pari‑mutuel clerks and breeders.

At Hollywood Casino at Charles Town Races, the Company renewed an agreement with the Charles Town Horsemen’s Benevolent and Protective Association that expires on June 18, 2018. Hollywood Casino at Charles Town Races also renewed an agreement with the breeders that expires on June 30, 2018. Additionally, the pari‑mutuel clerks at Charles Town are represented under a collective bargaining agreement with the West Virginia Union of Mutuel Clerks, which expired on December 31, 2010 and has been extended on a month‑to‑month basis.

The Company’s agreement with the Pennsylvania Horsemen’s Benevolent and Protective Association at Hollywood Casino at Penn National Race Course was renewed through January 31, 2019. The Company has an agreement with Laborers’ International Union of North America (LIUNA) Local 108, regarding both on-track and off-track pari-mutuel clerks and admission staff, which expired in December 2016. A new contract was negotiated and, once signed, will run through December 1, 2021. In August 2015, the Company entered into a three year collective bargaining agreement with the International Chapter of Horseshoers and Allied Equine Trades Local 947.

The Company’s agreement with the Maine Harness Horsemen Association at Bangor Raceway continues through the conclusion of the 2018 racing season.

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In March of 2014, Hollywood Gaming at Mahoning Valley Race Course entered into an agreement with the Ohio Horsemen’s Benevolent and Protective Association. The term is for a period of ten years from the September 2014 commencement of video lottery terminal operations at that facility.

In September 2015, Hollywood Gaming at Dayton Raceway entered into an agreement with the Ohio Harness Horsemen’s Association for racing at the property. The term is for a period of ten years from the September 2015 effective date.

In January 2014, the Company entered into an agreement with the Harness Horsemen’s Association of New England at Plainridge Park Casino which remains in effect through December 31, 2018.

Across certain of the Company’s properties, Seafarers Entertainment and Allied Trade Union (“SEATU”) represents approximately 1,670 of the Company’s employees under a National Agreement that expires on January 24, 2032 and Local Addenda that expire at various times between June 2021 and October 2024.

SEATU agreements are in place at Hollywood Casino Joliet, Hollywood Casino Lawrenceburg, Argosy Casino Riverside, Argosy Casino Alton, Hollywood Casino Kansas Speedway, Hollywood Gaming Dayton, Hollywood Gaming at Mahoning Valley and Plainridge Park Casino. Hollywood Gaming at Dayton Raceway and Hollywood Gaming at Mahoning Valley Race Course have a wage reopener in February 2018 (which is currently being negotiated), Hollywood Casino Lawrenceburg has a wage reopener in June 2018, Hollywood Casino Kansas Speedway has a wage reopener in July 2018 and Hollywood Casino Joliet and Plainridge Park Casino have a wage reopener in November 2018; the remainder of the SEATU agreements have expiration dates in 2019 and beyond.

At Hollywood Casino Joliet, the Hotel Employees and Restaurant Employees Union Local 1 represents approximately 167 employees under a collective bargaining agreement which expires on March 31, 2019. At Hollywood Casino Columbus and Hollywood Casino Toledo, a council comprised of the United Auto Workers and the United Steel Workers represents approximately 1,271 employees under a collective bargaining agreement which ends on November 15, 2019.

On August 25, 2015, the Company acquired Tropicana Las Vegas Hotel & Casino, which2020, we had seven existing38 collective bargaining agreements with the following unions: (1) Culinary & Bartenders (expires on May 31, 2018), (2) United Brotherhood of Carpenters (expires on July 31, 2019), (3) International Brotherhood of Electrical Workers (expires on February 28, 2021), (4) International Alliance of Theatrical Stage Employees (expires on December 31, 2018), (5) International Union of Painters and Allied Trades (expires on June 30, 2018), (6)/(7) Teamsters (front and back of the house, both expire on March 31, 2018).

The Company is also the developer, lender and manager of the Hollywood Casino Jamul – San Diego, which the Company opened on October 10, 2016.  Unite Here! International Union and Local 30 represents employees in stewarding, facilities, food and beverage, and operations classifications, and the parties are in the process of negotiating their firstcovering approximately 2,779 active employees. Nine collective bargaining agreement.

In addition, at some of the Company’s properties, the Security Policeagreements are scheduled to expire in 2021, and Fire Professionals of America, the International Brotherhood of Electrical Workers Local 649, the LIUNA Public Serviced Employees Local 1290PE, The International Association of Machinists and Aerospace Workers, Locals 447 and 264, the United Industrial, Service, Transportation, Professional and Government Workers of North America, and the United Steel Workers represent certain of the Company’s employees underwe are currently renegotiating three collective bargaining agreements that expire at various times between April 2018expired in 2020. Although we believe that we have good employee relations, there can be no assurance that we will be able to extend or enter into replacement agreements. If we are able to extend or enter into replacement agreements, there can be no assurance as to whether the terms will be on comparable terms to the existing agreements.


In addition, the Company established a special COVID-19 Emergency Relief Fund under the Penn National Gaming Foundation to provide assistance to team members who have not been called back from furlough due to the ongoing restrictions associated with COVID-19. The Company has raised $3.7 million from our Board of Directors, Chief Executive Officer, senior management and September 2025. Nonethe Penn National Gaming Foundation. In addition, we provided $13 million in one-time holiday cash bonuses in the fourth quarter to our non-executive team members companywide to help with the financial impact to their families from COVID-19. We also created the Hurricane Laura Relief Fund with an initial contribution of these additional unions represent$2.5 million to help our community and team members impacted by the storm, in addition to providing more than 77$6 million in full wages and benefits to our team members during the L'Auberge Lake Charles property closure. Finally, on the social justice front, our Diversity Committee announced a new scholarship program for disadvantaged team members that will be funded with a $1 million annual commitment from our Company, and we launched a series of the Company’s employees.

new inclusion-related initiatives.



Available Information

For

We maintain a website at www.pngaming.com that includes more information about us, visit our website at www.pngaming.com.us. The contents of our website are not part of this

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Annual Report on Form 10‑K.10-K. Our electronic filings with the U.S. Securities and Exchange Commission (“SEC”) (including all Annual Reports on Form 10‑K,10-K, Quarterly Reports on Form 10‑Q,10-Q, and Current Reports on Form 8‑K,8-K, and any amendments to these reports), including the exhibits, are available free of charge through our website as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC.

Our filings are also available through a database maintained by the SEC at www.sec.gov.


ITEM 1A.RISK FACTORS
Risks Related to the COVID-19 Pandemic

The COVID-19 pandemic has significantly impacted the global economy, including the gaming industry, and has had a material adverse effect on our business, financial condition, results of operations, and cash flows, and may continue to do so.

On March 11, 2020, the World Health Organization declared the COVID-19 outbreak to be a global pandemic. The COVID-19 pandemic has significantly impacted health and economic conditions throughout the United States. The global spread of the COVID-19 pandemic has been, and continues to be, complex and rapidly evolving, with governments, public institutions, and other organizations imposing or recommending, and businesses and individuals implementing, restrictions on various activities or other actions to combat its spread, such as restrictions and bans on travel or transportation, stay-at-home directives, social distancing and health and safety guidelines, limitations on the size of gatherings, closures of work facilities, schools, public buildings, and businesses, cancellation of events, including sporting events, concerts, conferences, and meetings, and quarantines and lock-downs. The COVID-19 pandemic and its consequences have also dramatically reduced travel and demand for casino gaming and related amenities. Many jurisdictions where our properties are located required mandatory closures or imposed capacity limitations, health and safety guidelines and other restrictions affecting our operations. The COVID-19 pandemic and these resulting developments caused significant disruptions to our ability to generate revenues, profitability, and cash flows and had a material adverse impact on our financial condition, results of operations, and cash flows. Such impact could worsen and last for an unknown period of time. In addition, these disruptions to us and the gaming industry in general as well as significant negative economic trends due to the COVID-19 pandemic may adversely affect our stock price.
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During the first quarter of 2020, all of the Company’s properties were closed pursuant to various orders from state gaming regulatory bodies or governmental authorities to combat the spread of COVID-19. We began reopening our properties on May 18, 2020 with reduced gaming and hotel capacity and limited food and beverage offerings in order to accommodate comprehensive social distancing and health and safety protocols. As of June 30, 2020, we had reopened 31 of our properties and as of September 30, 2020, we had reopened 39 of our properties. During the fourth quarter of 2020, our properties in Illinois, Michigan and Pennsylvania again temporarily suspended operations and as of December 31, 2020, we had reopened 34 of our properties. As of February 26, 2021, the only properties that remain closed are Zia Park and Valley Race Park.
Though virtually all of our properties have reopened, we may be required again to temporarily suspend operations at our properties if ordered by such governmental bodies. Our reopened properties face restrictions on our operations, including hours of operations, capacity limitations, cleaning requirements, restrictions on the number of seats per table game, slot machine spacing, temperature checks, mask protection and social distancing requirements and food and beverage options, which impact our future operations and ability to generate the same level of revenues and cash flows as before the COVID-19 pandemic. The continued operation of our reopened properties, may be affected by our ability to retain our workforce.

Moreover, once restrictions are lifted, it is unclear how quickly customers will return to our properties in numbers comparable to before the COVID-19 pandemic, which may be a function of continued concerns over health and safety, ongoing social distancing measures, perceptions of the efficacy of any vaccines and the ability to achieve herd immunity, or changes in consumer spending behavior due to adverse economic conditions, including job losses. Our properties have large customer-facing footprints and large areas where customers can gather together for personal interaction. As such, some customers may choose for a period of time not to travel or visit our properties for health and safety concerns or due to overall changes in consumer behavior resulting from social distancing. Upon reopening our properties, we have seen weakened visitation, which may have been due to increased level of unemployment, continued travel restrictions or warnings, consumer fears, reduced consumer discretionary spending or general economic uncertainty. Our vendors and other suppliers could also experience potential adverse effects of the pandemic that could impact our ability to operate to the same level as prior to the closures. Cancellations, delays or shortened sports seasons and sporting events due to the COVID-19 pandemic have also had an adverse impact on the revenues of our sports betting operations. If COVID-19 continues to spread significantly in its current form or as a more contagious variant of the virus, governmental agencies or officials may order additional closures or impose further restrictions on the number of people allowed in our properties or in proximity to each other. Any of these events could result in significant further disruption to our operations and a drop in demand for our properties and could have a material adverse effect on us.

We could experience other potential adverse impacts as a result of the COVID-19 pandemic, including, but not limited to, further charges from adjustments to the carrying amount of goodwill and other intangible assets, long-lived asset impairment charges, or impairments of investments in joint ventures.

The ultimate impact of the COVID-19 pandemic on our business, results of operations, financial condition and cash flows will depend on numerous evolving factors that we may not be able to accurately predict or assess, including the duration and scope of the pandemic (including how long the current resurgence may last, and whether there will be multiple resurgences in the future); the duration and impact on overall customer demand; the possibility that governmental bodies may again order temporary suspension of operation at our properties; our ability to again generate revenue and profits capable of supporting our ongoing operations; new information which may emerge concerning the severity of COVID-19 or variants of the virus, or the efficacy of, or adverse reactions to, vaccines; the negative impact it has on global and regional economies and economic activity; the ability of us and our business partners to successfully navigate the impacts of the pandemic; actions governments, businesses, and individuals continue to take in response to the pandemic, including limiting or banning travel and limiting or banning leisure, casino, and entertainment activities (including concerts, sports and similar events); and how quickly economies, travel activity, and demand for gaming, entertainment and leisure activities recovers after the pandemic subsides and an effective vaccine is widely available. The impact of the COVID-19 pandemic may also have the effect of exacerbating many of the other risks described in this Annual Report on Form 10-K. As a result of the foregoing, we cannot predict the ultimate scope, duration, and impact that the COVID-19 pandemic will have on our results of operations, but we expect that it will continue to have a material impact on our business, financial condition, liquidity, results of operations (including revenues and profitability), and stock price.

Risks Related to Our Business

and Operations

We face significant competition in the markets in which we operate and from other gaming and entertainment operations.

operations, which could have an adverse impact on our financial condition, results of operations, and cash flows.


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The gaming industry is characterized by an increasingly high degree of competition among a large number of participants including riverboat casinos, dockside casinos, land‑based casinos, video lottery, gaming at taverns in certain states, such as Illinois as well as the potential legalization in Indiana, sweepstakes and poker machines not located in casinos, the potential for increased sports betting and fantasy sports, Native American gamingoperating from physical locations and/or through online or mobile platforms, and other forms of gaming in the U.S. Recently, there has been additional significant competition in our markets as a result of the upgrading or expansion of properties by existing market participants, the entrance of new gaming participants into a market or legislative changes permitting additional forms of gaming. As competing properties and new markets open, our results of operations may be negatively impacted. We expect each existing or future market in which we participate to be highly competitive.

Furthermore, competition from internet lotteries, sweepstakes, illegal slot machines and otherskill games, fantasy sports and internet wagering services, which allow their customers to wager on a wide variety of sporting events and play Las Vegas‑style casino games from home or in non‑casino settings,mobile-based gaming platforms could divert customers from our properties and our online sports betting and iGaming apps and thus adversely affect our business. Such internet wagering services are often illegal under federal law but operate from overseas locations,financial condition, results of operations, and are nevertheless sometimes accessible to domestic gamblers.cash flows. Currently, there are proposals that would legalize internet poker, sports betting and other varieties of internet gamingiGaming in a number of states and at the federal level.states. Several states such as Nevada, New Jersey and Delaware, have enacted legislation authorizing intrastate internet gamingiGaming and internet gamingiGaming operations have begun or will begin in these states. Further, there has been recent expansion of sports betting in various states, as states have passed legislation legalizing sports betting in casinos and/or online. Expansion of internet gamingland-based and iGaming in other jurisdictions (both legalregulated and illegal)unregulated) could further compete with our traditional and iGaming operations, which could have an adverse impact on our businessfinancial condition, results of operations, and result of operations.

cash flows.


In a broader sense, our gaming operations face competition from all manner of leisure and entertainment activities, including: shopping;including shopping, athletic events;events, television and movies; concerts;movies, concerts and travel. Legalized gaming is currently permitted in various forms throughout the U.S., in several Canadian provinces and on various lands taken into trust for the benefit of certain Native Americans inand as well as various land taken into trust for the U.S. andbenefit of certain First Nations people in Canada. Other jurisdictions, including states adjacent to states in which we currently have facilities (such as in Ohio and Maryland),properties, have recently legalized, implemented and expanded gaming. In addition, established gaming jurisdictions could award additional gaming licenses or permit the expansion or relocation of existing gaming operations.operations (including VGTs, skill games, sports betting and iGaming). Voters and state legislatures may seek to supplement traditional tax revenue sources of state governments or fill COVID-related budget gaps by authorizing or expanding gaming in the states, in which we operate or the states that are adjacent to or near our existing properties. New, relocated, or expanded operations by other persons could increase competition for our gaming operations and could have a material adverse impact on us.

Gaming competition is intense in most of the markets where we operate. Recently, there has been additional  significant competition in our markets as a result of the upgrading or expansion of facilities by existing market  participants, the entrance of new gaming participants into a market or legislative changes. As competing properties and new markets are opened, our operating results may be negatively impacted.  For example, new casinos and racinos  have opened that compete  in the same market as our Lawrenceburg property, namely the opening  of Belterra  Park  in May 2014, our own Dayton facility in August  2014, and Horseshoe Casino in Cincinnati  in March  2013; there  is significantly increased competition to our Charles  Town property  from the casino complex at the Arundel  Mills mall in Anne  Arundel,  Maryland,  the opening  of Maryland  Live! and Horseshoe Casino Baltimore  in Baltimore,  Maryland  in 2014 and the opening  of MGM  National  Harbor casino in Prince George’s County, Maryland  in December 2016, which also competes  to a lesser extent  with Hollywood Casino  at Penn  National Race Course; the opening  of our joint venture  casino project  in Kansas in February 2012, which impacted  Argosy Casino Riverside; and the potential opening  of a tribal casino in Taunton, Massachusetts (the  construction is currently on hold following a judicial ruling in favor of the Taunton property  owners who contended that  the federal  government  erred  in placing reservation land in trust  for the Mashpee  Wampanoag tribe)  and the expected openings  of MGM Springfield  in Western Massachusetts in late 2018 and Wynn Everett  in Eastern  Massachusetts in mid-2019 are anticipated to negatively impact  our Plainridge  Park  Casino.  Hollywood Casino Aurora and Hollywood Casino Joliet have also been  negatively impacted  by the proliferation of VGTs at numerous locations  throughout the state of Illinois, which are in the vicinity of our

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operations. In addition, some of our direct competitors in certain markets may have superior facilities and/or operating conditions.  Pennsylvania recently enacted legislation that will expand gaming in the state which will cause additional competition for Hollywood Casino at Penn National Race Course and Hollywood Gaming at Mahoning Valley Race Course.  We expect each existing or future market in which we participate to be highly competitive.  The competitive position of each of our casino properties is discussed in detail in the subsection entitled “Competition” of this Annual Report on Form 10-K.

We may face disruption and other difficulties in integrating and managing facilities we have recently developed or acquired, or may develop or acquire in the future.

We expect to continue pursuing expansion opportunities, and we regularly evaluate opportunities for acquisition and development of new properties, which evaluations may include discussions and the review of confidential information after the execution of nondisclosure agreements with potential acquisition candidates, some of which may be potentially significant in relation to our size.

We could face significant challenges in managing and integrating our expanded or combined operations and any other properties we may develop or acquire, particularly in new competitive markets. The integration of more significant properties we may develop or acquire (such as those anticipated in the Pinnacle transaction) will require the dedication of management resources that may temporarily divert attention from our day‑to‑day business. The process of integrating properties that we may acquire also could interrupt the activities of those businesses, which could have a material adverse effect on our business, financial condition and results of operations. In addition, the development of new properties may involve construction, local opposition, regulatory, legal and competitive risks as well as the risks attendant to partnership deals on these development opportunities. In particular, in projects where we team up with a joint venture partner, if we cannot reach agreement with such partners, or our relationships otherwise deteriorate, we could face significant increased costs and delays. Local opposition can delay or increase the anticipated cost of a project. Finally, given the competitive nature of these types of limited license opportunities, litigation is possible.

Management of new properties, especially in new geographic areas and business lines may require that we increase our management resources. We cannot assure you that we will be able to manage the combined operations effectively or realize any of the anticipated benefits of our acquisitions or development projects. We also cannot assure you that if acquisitions are completed, that the acquired businesses will generate returns consistent with our expectations.

Our ability to achieve our objectives in connection with any acquisition we may consummate may be highly dependent on, among other things, our ability to retain the senior level property management teams of such acquisition candidates. If, for any reason, we are unable to retain these management teams following such acquisitions or if we fail to attract new capable executives, our operations after consummation of such acquisitions could be materially adversely affected.

The occurrence of some or all of the above described events could have a material adverse effect on our business, financial condition and results of operations.

We may face risks related to our ability to receive regulatory approvals required to complete, or other delays or impediments to completing certain of our acquisitions.

Our growth is fueled, in part, by the acquisition of existing gaming, racing, and development properties. In addition to standard closing conditions, our acquisitions are often conditioned on the receipt of regulatory approvals and other hurdles that create uncertainty and could increase costs. Such delays could significantly reduce the benefits to us of such acquisitions and could have a material adverse effect on our business, financial condition and results of operations.

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We face a number of challenges prior to opening new or upgraded gaming facilities.

No assurance can be given that, when we endeavor to open new or upgraded gaming facilities, the expected timetables for opening such facilities will be met in light of the uncertainties inherent in the development of the regulatory framework, construction, the licensing process, legislative action and litigation. Delays in opening new or upgraded facilities could lead to increased costs and delays in receiving anticipated revenues with respect to such facilities and could have a material adverse effect on our business, financial condition and results of operations.

We are required to pay a significant portion of our cash flows as financing payments under the Master Lease, which could adversely affect our ability to fund our operations and growth and limit our ability to react to competitive and economic changes.

We are required to pay more than half of our cash flow from operations to GLPI pursuant to and subject to the terms and conditions of the Master Lease. As a result of this commitment, our ability to fund our own operations or development projects, raise capital, make acquisitions and otherwise respond to competitive and economic changes may be adversely affected. For example, our obligations under the Master Lease may:

·

make it more difficult for us to satisfy our obligations with respect to our indebtedness and to obtain additional indebtedness;

·

increase our vulnerability to general or regional adverse economic and industry conditions or a downturn in our business;

·

require us to dedicate a substantial portion of our cash flow from operations to making lease payments, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes;

·

limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; and

·

restrict our ability to raise capital, make acquisitions, divestitures and engage in other significant transactions.

Any of the above listed factors could have a material adverse effect on our business, financial condition and results of operations.

Most of our gaming and racing facilities are leased and could experience risks associated with leased property, including risks relating to lease termination, lease extensions, charges and our relationship with GLPI, which could have a material adverse effect on our business, financial position or results of operations.

We lease 20 of the gaming and racing facilities we operate pursuant to the Master Lease. The Master Lease provides that GLPI may terminate the lease for a number of reasons, including, subject to applicable cure periods, the default in any payment of rent, taxes or other payment obligations or the breach of any other covenant or agreement in the lease. Termination of the Master Lease could result in a default under our debt agreements and could have a material adverse effect on our business, financial position or results of operations. Moreover, as a lessee we do not completely control the land and improvements underlying our operations and GLPI as lessor could take certain actions to disrupt our rights in the facilities leased under the Master Lease which are beyond our control. If GLPI chose to disrupt our use either permanently or for a significant period of time, then the value of our assets could be impaired and our business and operations could be adversely affected. There can also be no assurance that we will be able to comply with our

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obligations under the Master Lease in the future. In addition, if GLPI has financial, operational, regulatory or other challenges there can be no assurance that GLPI will be able to comply with its obligations under its agreements with us.

The Master Lease is commonly known as a triple‑net lease. Accordingly, in addition to rent, we are required to pay among other things the following: (1) all facility maintenance, (2) all insurance required in connection with the leased properties and the business conducted on the leased properties, (3) taxes levied on or with respect to the leased properties (other than taxes on the income of the lessor) and (4) all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties. We are responsible for incurring the costs described in the preceding sentence notwithstanding the fact that many of the benefits received in exchange for such costs shall in part accrue to GLPI as owner of the associated facilities. In addition, if some of our leased facilities should prove to be unprofitable, we could remain obligated for lease payments and other obligations under the Master Lease even if we decided to withdraw from those locations. We could incur special charges relating to the closing of such facilities including lease termination costs, impairment charges and other special charges that would reduce our net income and could have a material adverse effect on our business, financial condition and results of operations.

We may face reductions in discretionary consumer spending as a result of an economic downturn.

downturns (including as a result of COVID-19) which have had a material adverse effect on our business.


Our net revenues are highly dependent upon the volume and spending levels of customers at properties we manage, and as such, our business has been adversely impacted by economic downturns.downturns in the past and continues to be impacted by the economic downturn resulting from the COVID-19 pandemic. Decreases in discretionary consumer spending brought about by weakened general economic conditions such as, but not limited to, lackluster recoveries from recessions, high unemployment levels, higher income taxes, low levels of consumer confidence, weakness in the housing market, cultural and demographic changes, high fuel or other transportation costs, and increased stock market volatility mayhave negatively impactimpacted our revenues and operating cash flow.


We have certain properties that generate a significant percentage of our revenues and our ability to meet our operating and debt service requirements is dependent, in part, upon the continued success of these properties.

For the year ended December 31, 2020, we generated 16.7%, 10.7%, and 15.6% of our revenues from our properties within the states of Louisiana, Missouri, and Ohio, respectively. Additionally, we generated 6.6% of our revenues from our property in Charles Town, West Virginia. Our ability to meet our operating and debt service requirements is dependent, in part, upon the continued success of these properties.

In addition, we anticipate meaningful contributions from Ameristar Black Hawk, Greektown, and our properties in Pennsylvania. Therefore, our results will be dependent on the regional economies and competitive landscapes at these locations as well.

We are required to utilize a significant portion of our cash flow from operations to make our rent payments under our Triple Net Leases, which could adversely affect our ability to fund our operations and growth and limit our ability to react to competitive and economic changes.

We are required to utilize a significant portion of our cash flow from operations which was $891.1 million inclusive of rent credits utilized for the year ended December 31, 2020, to make our rent payments pursuant to and subject to the terms and conditions of our Master Leases with GLPI, our Meadows Lease and Morgantown Lease with GLPI, our Margaritaville Lease
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and Greektown Lease with VICI and our Tropicana Lease (as defined previously as our “Triple Net Leases”), although cash rent under our Tropicana Lease is nominal. In 2020, all of our properties were temporarily closed due to COVID-19 and we were able to obtain rent credits of $337.5 million from GLPI in order to maintain compliance with our Master Leases with GLPI in connection with the sale of Tropicana and the real estate associated with Morgantown. As a result of these commitments under our Triple Net Leases, our ability to fund our own operations or development projects, raise capital, make acquisitions and otherwise respond to competitive and economic changes may be adversely affected. Further, our obligations under the Triple Net Leases may make it more difficult for us to satisfy our obligations with respect to our indebtedness and to obtain additional indebtedness and restrict our ability to raise capital, make acquisitions, divestitures and engage in other significant transactions. Any of the aforementioned factors could have a material adverse effect on our financial condition, results of operations, and cash flows.

Most of our facilities are leased and could experience risks associated with leased property.

We lease 36 of the facilities we operate, or plan to operate, pursuant to the Triple Net Leases. Termination of the Penn Master Lease, Pinnacle Master Lease, Morgantown Lease or Tropicana Lease could result in a default under our debt agreements and could have a material adverse effect on our financial condition, results of operations, and cash flows. Moreover, as a lessee, we do not completely control the land and improvements underlying our operations, and our landlords under the Triple Net Leases could take certain actions to disrupt our rights in the facilities leased under the Triple Net Leases that are beyond our control. There can also be no assurance that we will be able to comply with our obligations under the Triple Net Leases in the future. In addition, there can be no assurance that our landlords will be able to comply with their obligations under the Triple Net Leases with us. In addition, if some of our leased facilities should prove to be unprofitable, we could remain obligated for lease payments and other obligations under the Triple Net Leases even if we decided to withdraw from those locations.

Inclement weather, acts or threats of terrorism, and other casualty events could seriously disrupt our business and have a material adverse effect on our financial condition, results of operations, and cash flows.

The operations of our properties are subject to disruptions or reduced patronage as a result of severe weather conditions, natural disasters, acts or threats of terrorism, concerns about contagious diseases such as the COVID-19 pandemic, and other casualty events, such as hurricanes or tornados. We maintain significant property insurance, including business interruption coverage, for these and other properties. However, there can be no assurances that we will be fully, promptly, or compensated at all for losses at any of our properties in the event of future inclement weather or casualty events or from the closings of our properties due to the COVID-19 pandemic or other contagious disease. For example, on August 27, 2020, Hurricane Laura made landfall in Lake Charles, Louisiana and caused significant damage to L’Auberge Lake Charles forcing it to close for approximately two weeks.

Our operations could be disrupted if management agreements and/or leases with third parties and local governments are not renewed.

Our operations in several jurisdictions depend on land leases and/or management and development agreements with third parties and local governments. If we, or if GLPI or VICI in the case of leases pursuant to which we are the sub-lessee, are unable to renew these leases and agreements on satisfactory terms as they expire or if disputes arise regarding the terms of these agreements, our business may be disrupted and, in the event of disruptions in multiple jurisdictions, could have a material adverse effect on our financial condition, results of operations, and cash flows

The concentration and evolution of the slot machine manufacturing industry could impose additional costs on us.

A majority of our revenues are attributable to slot machines and related systems operated by us at our gaming properties. A substantial majority of the slot machines sold in the U.S. in recent years were manufactured by a few select companies, and there has been extensive consolidation activity within the gaming equipment sector in recent years. In recent years, slot machine manufacturers have frequently refused to sell slot machines featuring the most popular games, instead requiring participation lease arrangements in order to acquire the machines.

For competitive reasons, we may be forced to purchase new slot machines or enter into participation lease arrangements that are more expensive than our current costs associated with the continued operation of our existing slot machines, which could hurt our profitability.

There can be no assurance that we will be able to compete effectively or generate sufficient returns on our recently expanded sports betting operations and investment in Barstool Sports.
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Certain of the jurisdictions in which we operate have legalized intra-state sports wagering and have established extensive state licensing and regulatory requirements governing any such intra-state sports wagering. Our sports betting operations compete, and will continue to compete, in a rapidly evolving and highly competitive market against an increasing number of competitors. We launched the Barstool Sportsbook app in Pennsylvania in September 2020 and in Michigan in January 2021, and we expect to launch our Barstool Sportsbook app in additional states throughout 2021. In addition, we have entered into certain market access agreements with certain other sports betting operators and may enter into agreements with additional strategic partners and other third-party vendors. The success of our proposed sports betting operations is dependent on a number of additional factors that are beyond our control, including the ultimate tax rates and license fees charged by jurisdictions across the United States; our ability to gain market share in a newly developing market; the timeliness and the technological and popular viability of our products; our ability to compete with new entrants in the market; changes in consumer demographics and public tastes and preferences; cancellations and delays in sporting seasons and sporting events as a result of the COVID-19 pandemic; and the availability and popularity of other forms of entertainment. There can be no assurance that we will be able to compete effectively or that our expansion will be successful and generate sufficient returns on our investment.

We may not be able to achieve the expected benefits or financial returns of our investment in Barstool Sports due to fees, costs, taxes, delays or disruptions in connection with our roll out of our online and retail sportsbooks, the Barstool Sportsbook app, and iGaming products. In addition, there can be no assurance that the Barstool Sports audience will engage in sports betting and iGaming products to the extent that we expect. Any of the factors above could prevent us from receiving the expected returns of our investment in Barstool Sports, cause the market price of our common stock to decline, and have a material adverse effect on our financial condition, results of operations, and cash flows.

Our investment in and partnership with Barstool Sports may result in potential adverse reactions, negative publicity or changes to our business or regulatory relationships. Our relationships with state gaming regulators and business partners could be adversely affected as a result of our affiliation with Barstool Sports. Gaming regulators may not have extensive experience in the digital media industry, which may present unique challenges in regulating our business. In addition, our business partners may react negatively to actual or perceived competitive threats from our affiliation with Barstool Sports.

Our operations and the success of our investment in Barstool Sports are largely dependent on the skill and experience of management and key personnel.

Our success and our competitive position are largely dependent upon, among other things, the efforts and skills of our senior executives and management team. Although we enter into employment agreements with certain of our senior executives and key personnel, we cannot assure you that we will be able to retain our existing senior executive and management personnel or attract additional qualified senior executive and management personnel. Further, Barstool Sports is dependent upon its ability to attract and retain key personnel, including content creators, bloggers, and marketing personnel. If Barstool Sports loses the services of its senior management team or other key personnel, or if there is a shortage in the availability of the requisite qualified personnel, it would limit the ability of Barstool Sports to grow, to increase sales, and promote our online sports betting and iGaming products and our gaming facilities.

Work stoppages, organizing drives, and other labor problems could negatively impact our future profits.

Some of our employees are currently represented by labor unions. A lengthy strike or other work stoppage at any of our casino properties or construction projects could have an adverse effect on our financial condition, results of operations, and cash flows. Given the large number of employees, labor unions are making a concerted effort to recruit more employees in the gaming industry. We cannot provide any assurance that we will not experience additional and more successful union organization activity in the future.

Further, there has from time to time been a shortage of skilled labor in our markets. In addition to limitations that may otherwise exist in the supply of skilled labor, the continued expansion of gaming near our properties, including the expansion of Native American gaming, may make it more difficult for us to attract qualified individuals. While we believe that we will continue to be able to attract and retain qualified employees, shortages of skilled labor will make it increasingly difficult and expensive to attract and retain the services of a satisfactory number of qualified employees, and we may incur higher costs than expected as a result.

We depend on agreements with our horsemen and pari-mutuel clerks, which if we fail to renew or modify on satisfactory terms, could have a material adverse effect on us.

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In jurisdictions where we operate pari-mutuel wagering, if we fail to present evidence of an agreement with the horsemen at a track, we may not be permitted to conduct live racing and to export and import simulcasting at that track and OTWs and, in West Virginia, our video lottery license may not be renewed.

Failure to protect or enforce our intellectual property rights or the costs involved in such enforcement could harm our business, financial condition, and results of operations.

We rely on trademark, copyright, patent, trade secret, and domain-name-protection laws to protect our proprietary rights. Third parties may knowingly or unknowingly infringe our proprietary rights, third parties may challenge proprietary rights held by us, and pending and future trademark and patent applications may not be approved. In any of these cases, we may be required to expend significant time and expense to prevent infringement or to enforce our rights.

The market price of our common stock could fluctuate significantly, which could have a material adverse effect on the stock price or trading volume of our common stock.

The U.S. securities markets in general have experienced significant price fluctuations in recent years, including recently due to the COVID-19 pandemic. The market price of our common stock may be volatile and subject to wide fluctuations, and the trading volume of our common stock may fluctuate and cause significant price variations to occur.

We are or may become involved in legal proceedings that, if adversely adjudicated or settled, could impact our financial condition and results of operations.

From time to time, we are defendants in various lawsuits relating to matters incidental to our business. The nature of our business subjects us to the risk of lawsuits filed by customers, past and present employees, competitors, business partners and others in the ordinary course of business (particularly in the case of class actions). As with all litigation, no assurance can be provided as to the outcome of these matters and, in general, litigation can be expensive and time consuming. We may not be successful in these lawsuits, and, especially with increasing class action claims in our industry, litigation could result in costs, settlements, or damages that could significantly impact our financial condition, results of operations, and cash flows.

Risks Related to Our Indebtedness and Capital Structure

Our substantial indebtedness could adversely affect our financial health and prevent us from fulfilling our obligations under our outstanding indebtedness.

As of December 31, 2020, we had indebtedness of $2,431.6 million, including $1,628.1 million in outstanding term loans. In addition, we are required to make significant annual lease payments to our REIT Landlords pursuant to the Triple Net Leases, which we currently expect will be approximately $814.6 million for the year ending December 31, 2021.

We have a substantial amount of indebtedness and significant fixed annual lease payments under the Triple Net Leases. Our substantial indebtedness and additional fixed costs under our Lease obligations could have important consequences to our financial health.

As noted above, due to the COVID-19 pandemic, our gaming properties had been temporarily closed. The closure of our gaming properties had significantly disrupted our ability to generate revenues. In order to remain in compliance with our debt covenants and meet our payment obligations, on April 14, 2020, we entered into an agreement to amend our Amended Credit Agreement to provide temporary relief from our financial covenants. In addition, our substantial indebtedness could result in an event of default if we fail to satisfy our obligations under our indebtedness or fail to comply with the financial and other restrictive covenants contained in our debt instruments, which event of default could result in all of our debt becoming immediately due and payable and could permit certain of our lenders to foreclose on any of our assets securing such debt.

In addition, the interest rates of our Senior Secured Credit Facilities are tied to the London Interbank Offered Rate, or LIBOR. In July 2017, the head of the United Kingdom Financial Conduct Authority announced the desire to phase out the use of LIBOR by the end of 2021 (“FCA Announcement”). The FCA Announcement indicates that the continuation of LIBOR on the current basis is not guaranteed after 2021, which may impact our Revolving Credit Facility.

The lack of availability and cost of financing could have an adverse effect on our business.

We intend to finance some of our current and future expansion, development and renovation projects and acquisitions with cash flow from operations, borrowings under our Senior Secured Credit Facilities and equity or debt financings. If we are
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unable to finance our current or future projects, we could have to seek alternative financing. Depending on credit market conditions, alternative sources of funds may not be sufficient to finance our expansion, development and/or renovation, or such other financing may not be available on acceptable terms, in a timely manner or at all. In addition, our existing indebtedness contains restrictions on our ability to incur additional indebtedness. If we are unable to secure additional financing, we could be forced to limit or suspend expansion, development and renovation projects and acquisitions, which may adversely affect our financial condition, results of operations, and cash flows.

The capacity under our Revolving Credit Facility, which expires in 2023, is $700.0 million. There is no certainty that our lenders will continue to remain solvent or fund their respective obligations under our Senior Secured Credit Facilities.

To service our indebtedness, we will require a significant amount of cash, which depends on many factors beyond our control.

We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under our Senior Secured Credit Facilities in amounts sufficient to enable us to fund our liquidity needs, including with respect to our indebtedness. We also may incur indebtedness related to properties we develop or acquire in the future prior to generating cash flow from those properties. If those properties do not provide us with cash flow to service that indebtedness (including as a result of COVID-19), we will need to rely on cash flow from our other properties, which would increase our leverage. In addition, if we consummate significant acquisitions in the future, our cash requirements may increase significantly.

Risks Related to Regulation, Taxes and Compliance

We face extensive regulation from gaming authorities, which could have a material adverse effect on us.

As owners and other regulatory authorities.

Licensing requirements.  As managers of casino gaming, online gaming, sports betting, video lottery, VGTs, and pari‑mutuelpari-mutuel wagering facilities,operations, we are subject to extensive state and local and, in Canada, provincial regulation. In addition, the Hollywood Casino Jamul-San  Diego is subject to the oversight of the National Indian Gaming Commission, which administers the Indian Gaming Regulatory Act of 1988 with respect to the terms and conditions of management contracts and the operation of casinos and all gaming on land held in trust for Native American tribes in the U.S. State, local and provincial authorities require us and our subsidiaries to demonstrate suitability to obtain and retain various licenses and require that we have registrations, permits and approvals to conduct gaming operations. These regulatory authorities have broad discretion, and may, for any reason set forth in the applicable legislation, rules and regulations, limit, condition, suspend, fail to renew or revoke a license or registration to conduct gaming operations or prevent us from owning the securities of any of our gaming subsidiaries or prevent another person from owning an equity interest in us. Like all gaming operators in the jurisdictions in which we operate, we must periodically apply to renew our gaming licenses or registrations and have the suitability of certain of our directors, officers and employees approved. We cannot assure you that we will be able to obtain such renewals or approvals. Regulatory authorities have input into our operations, for instance, hours of operation, location or relocation of a facility, and numbers and types of machines.slot machines and table games. Regulators may also levy substantial fines against or seize our assets or the assets ofus, our subsidiaries, or the people involved in violating gaming laws or regulations.regulations and/or seize our assets or the assets of our subsidiaries. Any of these events could have a material adverse effect on our business, financial condition, and results of operations.

operations, and cash flows.


We have demonstrated suitability to obtain and have obtained all governmental licenses, registrations, permits, and approvals necessary for us to operate our existing gaming and pari-mutuel facilities. Weproperties. There can givebe no assurance to you that we will be able to retain and renew those existing licenses or demonstrate suitability to obtain any new licenses, registrations, permits, or approvals. In addition, the loss of a license in one jurisdiction could trigger the loss of a license or affect our eligibility for a license in another jurisdiction. As we expand our gaming operations in our existing jurisdictions or to new areas, we may have to meet additional suitability requirements and obtain additional licenses, registrations, permits and approvals from gaming authorities in these jurisdictions. The approval process can be time-consuming and costly, and we cannot be sure that we will be successful.

Furthermore, this risk is particularly pertinent to our iGaming or sports betting initiatives because regulations in this area are not as fully developed or established.

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Gaming authorities in the U.S. generally can require that any record or beneficial owner of our securities file an application for a license or similar finding of suitability. If a gaming authority requires a record or beneficial owner of our securities to file a suitability application, the owner must generally apply for a finding of suitability within 30 days or at an earlier time prescribed by the gaming authority. The gaming authority has the power to investigate such an owner’s suitability and the owner must pay all costs of the investigation. If the owner is found unsuitable, then the owner may be required by law to dispose of our securities.

Potential changes


Our directors, officers, key employees, and joint venture partners must also meet approval standards of certain state regulatory authorities. If state gaming regulatory authorities were to find a person occupying any such position or a joint venture partner or one of our vendors unsuitable, we would be required to sever our relationship with that person or the joint
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venture partner or vendor. State regulatory agencies may conduct investigations into the conduct or associations of our directors, officers, key employees, joint venture partners or vendors to ensure compliance with applicable standards.

Certain public and private issuances of securities and other transactions that we are party to also require the approval of some state regulatory authorities.

Changes in legislation and regulation of our operations.business could have an adverse effect on our financial condition, results of operations, and cash flows.

Regulations governing the conduct of gaming activities and the obligations of gaming companies in any jurisdiction in which we have or in the future may have gaming operations are subject to change and could impose additional operating, financial, competitive or other burdens on the way we conduct our business.


In particular, certain areas of law governing new gaming activities, such as the federal and state law applicable to iGaming and sports betting, are new or developing in light of emerging technologies. New and developing areas of law may be subject to the interpretation of the government agencies tasked with enforcing them. In some circumstances, a government agency may interpret a statute or regulation in one manner and then reconsider its interpretation at a later date. No assurance can be provided that government agencies will interpret or enforce new or developing areas of law consistently, predictably, or favorably. Moreover, legislation to prohibit, limit or add burdens to our business may be introduced in the future in states where gaming has been legalized. In addition, from time to time, legislators and special interest groups have proposed legislation that would expand, restrict or prevent gaming operations or which may otherwise adversely impact our operations in the jurisdictions in which we operate. Any expansion of gaming or restriction on or prohibition of our gaming operations or enactment of other adverse regulatory changes could have a material adverse effect on our operating results.

The passage


State and local smoking restrictions have and may continue to negatively affect our business.

Legislation in various forms to ban or substantially curtail indoor tobacco smoking in public places has been enacted or introduced in many states and local jurisdictions, including several of the Smoke Free Illinois Actjurisdictions in which banned smoking in casinos, adversely affected revenues and operating results at our Illinois properties at the time it was implemented in January 2008. In Pennsylvania, we are currently permitted to allow smoking on only up to 50% of the gaming floor of our Grantville facility and smoking is banned in all other indoor areas. Additionally, in July 2012, a state statute in Indiana became effective that imposes a state wide smoking ban in specified businesses, buildings, public places and other specified locations. The statute specifically exempts riverboat casinos, and all other gaming facilities in Indiana, fromoperate. We believe the smoking ban. However, the statute allows local government to enact a more restrictive smoking ban than the state statute and also leaves in place any more restrictive local legislation that exists as of the effective date of the statute. To date, our facility in Lawrenceburg, Indiana is not subject to any such local legislation.restrictions have significantly impacted business volumes. If additional smoking bansrestrictions are enacted within jurisdictions where we operate or seek to do business, our businessfinancial condition, results of operations, and cash flows could be adversely affected.

Taxation and fees.


Material increases to our taxes or the adoption of new taxes or the authorization of new or increased forms of gaming could have a material adverse effect on our future financial results.

We believe that the prospect of significant revenue is one of the primary reasons that jurisdictions permit or expand legalized gaming. As a result, gaming companies are typically subject to significant revenue basedrevenue-based taxes and fees in addition to normal federal, state local and provinciallocal income taxes, and such taxes and fees are subject to increase at any time. We pay substantial taxes and fees with respect to our operations. From time to time,time-to-time, federal, state, local and provinciallocal legislators and officials have proposed changes in tax laws, or in the administration of such laws, affecting the gaming industry. In addition, worsening economic conditions could intensify the efforts of state and local governments to raise revenues through increases in gaming taxes, property taxes and/or by authorizing additional gaming facilitiesproperties each subject to payment of a new license fee. It is not possible to determine with certainty the likelihood of changes in such laws or in the administration of such laws. Such changes, if adopted, could have a material adverse effect on our business, financial condition, and results of operations.operations, and cash flows. The large number of state and local governments with significant current or projected budget deficits makes it more likely that those governments that currently permit gaming will seek to fund such deficits with new or increased gaming or new or increased gaming taxes and/or property taxes, and worsening economic conditions could intensify those efforts. Any new or increased gaming or the material increase or the adoption of additional taxes or fees, could have a material adverse effect on our future financial results.

Compliance with other laws.results, especially in light of our significant fixed rent payments.




We are also subject to a variety of other rulesenvironmental laws and regulations, including zoning,potential exposure to environmental constructionliabilities which could have an adverse effect on us.

We are subject to various federal, state, and land‑uselocal environmental laws and regulations governingthat govern our operations, including emissions and discharges into the servingenvironment, and the handling and disposal of alcoholic beverages. Ifhazardous and non-hazardous substances and wastes. Failure to comply with such laws and regulations could result in costs for corrective action, penalties or the imposition
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of other liabilities or restrictions. From time to time, we have incurred and are incurring costs and obligations for correcting environmental noncompliance matters. The extent of such potential conditions cannot be determined definitively. To date, none of these matters have had a material adverse effect on our financial condition, results of operations, and cash flows; however, there can be no assurance that such matters will not have such an effect in the future.

We also are subject to laws and regulations that impose liability and clean-up responsibility for releases of hazardous substances into the environment. Under certain of these laws and regulations, a current or previous owner or operator of the property may be liable for the costs of remediating contaminated soil or groundwater on or from its property, without regard to whether the owner or operator knew of, or caused, the contamination, as well as incur liability to third parties impacted by such contamination. The presence of contamination, or failure to remediate it properly, may adversely affect our ability to use, sell or rent property. Under our contractual arrangements under the Triple Net Leases, we will generally be responsible for both past and future environmental liabilities associated with our gaming operations, notwithstanding ownership of the underlying real property having been transferred. Furthermore, we are aware that there is or may have been soil or groundwater or other contamination at certain of our properties resulting from current or former operations. These environmental conditions may require remediation in isolated areas. The extent of such potential conditions cannot be determined definitely, and may result in additional expense in the event that additional or currently unknown conditions are detected.

Additionally, certain of the gaming chips used at many gaming properties, including some of ours, have been found to contain some level of lead. Analysis by third parties has indicated the normal handling of the chips does not create a health hazard. We have disposed of a majority of these gaming chips. To date, none of these matters or other matters arising under environmental laws has had a material adverse effect on our financial condition, results of operations, and cash flows; however, there can be no assurance that such matters will not have such an effect in compliancethe future.

We are subject to certain federal, state and other regulations, and if we fail to comply with these laws,such regulations, it could have a material adverse effect on our business, financial condition, and results of operations. operations, and cash flow.

We are subject to certain federal, state, and local laws, regulations and ordinances that apply to businesses generally. The Bank Secrecy Act, enforced by the Financial Crimes Enforcement Network (“FinCEN”) of the U.S. Treasury Department, requires us to report currency transactions in excess of $10,000 occurring within a gaming day, including identification of the guest by name and social security number, to the IRS. This regulation also requires us to report certain suspicious activity, including any transaction that exceeds $5,000 that we know, suspect or have reason to believe involves funds from illegal activity or is designed to evade federal regulations or reporting requirements and to verify sources of funds, in response to which we have implemented Know Your Customer processes. Periodic audits by the IRS and our internal audit department assess compliance with the Bank Secrecy Act, and substantial penalties can be imposed against us if we fail to comply with this regulation. In recent years the U.S. Treasury Department has increased its focus on Bank Secrecy Act compliance throughout the gaming industry, and public comments by FinCEN suggest that casinos should obtain information on each customer’s sources of income. This could impact our ability to attract and retain casino guests. Further, since we deal with significant amounts of cash in our operations, andwe are subject to various reporting and anti‑moneyanti-money laundering regulations. Any violation of anti‑moneyanti-money laundering laws or regulations, or any accusations of

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money laundering or regulatory investigations into possible money laundering activities, by any of our properties, employees, partners, affiliates, or customers could have a material adverse effect on our financial condition, results of operations, and cash flows.

We


The riverboats on which we operate must comply with certain federal and state laws and regulations with respect to boat design, on-board facilities, equipment, personnel, and safety. In addition, we are required to have certain properties that generate a significant percentagethird parties periodically inspect and certify all of our net revenues.

For the year ended December 31, 2017, our facility in Charles Town, West Virginia generated approximately 12% of our net revenues. Our ability tocasino barges for stability and single compartment flooding integrity. The casino barges on which we operate also must meet our operating and debt service requirements is dependent, in part, upon the continued success of this facility. The operations at this facility andlocal fire safety standards. We would incur additional costs if any of ourthe gaming facilities on which we operate were not in compliance with one or more of these regulations.


We are also subject to a variety of other facilities could be adversely affected by numerous factors,federal, state and local laws and regulations, including those describedrelating to zoning, construction, land use, employment, marketing, and advertising and the production, sale and service of alcoholic beverages. If we are not in compliance with these “Risk Factors” as well as more specifically those described below:

·

risks related to local and regional economic and competitive conditions, such as a decline in the number of visitors to a facility, a downturn in the overall economy in the market, a decrease in consumer spending on gaming activities in the market or an increase in competition within and outside the state in which each property is located;

·

changes in local and state governmental laws and regulations (including changes in laws and regulations affecting gaming operations and taxes) applicable to a facility;

·

impeded access to a facility due to weather, road construction or closures of primary access routes;

·

work stoppages, organizing drives and other labor problems as well as issues arising in connection with agreements with horsemen and pari‑mutuel clerks; and

·

the occurrence of natural disasters or other adverse regional weather trends.

In addition, althoughlaws and regulations or we are subject to a lesser extent than our facility in Charles Town, West Virginia, we anticipate meaningful contributions from Hollywood Casino at Penn National Race Course and Hollywood Casino St. Louis and our properties in Ohio. Therefore, our results will be dependent on the regional economies and competitive landscapes at these locations as well.

We are or may become involved in legal proceedings that, if adversely adjudicated or settled,substantial penalty, it could impact our financial condition.

From time to time, we are defendants in various lawsuits relating to matters incidental to our business. The nature of our business subjects us to the risk of lawsuits filed by customers, past and present employees, competitors, business partners and others in the ordinary course of business (particularly in the case of class actions). As with all litigation, no assurance can be provided as to the outcome of these matters and, in general, litigation can be expensive and time consuming. We may not be successful in these lawsuits, and, especially with increasing class action claims in our industry, could result in costs, settlements or damages that could significantly impact our business, financial condition and results of operations.

We depend on our key personnel.

We are highly dependent on the services of our executive management team and other members of our senior management team. Our ability to attract and retain key personnel is affected by the competitiveness of our compensation packages and the other terms and conditions of employment, our continued ability to compete effectively against other gaming companies and our growth prospects. The loss of the services of any members of our senior management team could have a material adverse effect on our business, financial condition and results of operations.

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Inclement weather and other casualty events could seriously disrupt our business and have a material adverse effect on our financial condition, and results of operations.

The operations, and cash flows.


Climate change, climate change regulations and greenhouse gas effects may adversely impact our operations.

There is a growing political and scientific consensus that greenhouse gas (“GHG”) emissions continue to alter the composition of our facilitiesthe global atmosphere in ways that are affecting and are expected to continue affecting the global climate.

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We may become subject to disruptionslegislation and regulation regarding climate change, and compliance with any new rules could be difficult and costly. Concerned parties, such as legislators and regulators, stockholders and nongovernmental organizations, as well as companies in many business sectors, are considering ways to reduce GHG emissions. Many states have announced or reduced patronageadopted programs to stabilize and reduce GHG emissions and in the past federal legislation has been proposed in Congress. If such legislation is enacted, we could incur increased energy, environmental and other costs and capital expenditures to comply with the limitations. Unless and until legislation is enacted and its terms are known, we cannot reasonably or reliably estimate its impact on our financial condition, operating performance, or ability to compete. Further, regulation of GHG emissions may limit our guests’ ability to travel to our properties as a result of severeincreased fuel costs or restrictions on transport related emissions. Climate change could have a material adverse effect on our financial condition, results of operations and cash flow. We have described the risks to us associated with extreme weather conditions, natural disastersevents in the risk factors above.

Risks Related to Technology, Information Security, and other casualty events. Because many of ourPenn Interactive

Our gaming operations, are located on or adjacent to bodies of water, these facilities are subject to risks in addition to those associated with land‑based casinos, including loss of service due to casualty, forces of nature, mechanical failure, extended or extraordinary maintenance, flood, hurricane or other severe weather conditions. Many of our casinos operate in areas which are subject to periodic flooding that has caused us to experience decreased attendanceonline sports betting and increased operating expenses. Any flood or other severe weather condition could lead to the loss of use of a casino facility for an extended period. For instance, Hollywood Casino Toledo was closed for brief periods in 2014, 2015 and 2016 due to harsh winter conditions and Argosy Casino Alton was closed for several days in December 2015, January 2016 and May 2017 due to flooding. Even if adverse weather conditions do not require the closure of our facilities, those conditions make it more difficult for our customers to reach our properties for an extended period of time, which can have an adverse impact on our operations.  Casualty events such as, the tragic shootings that occurred on the Las Vegas Strip on October 1, 2017 that affect tourism also impact our business.  Following the October 2017 tragedy, operations at Tropicana Las Vegas were adversely effected.

The extent to which we can recover under our insurance policies for damages sustained at our properties in the event of future inclement weather and other casualty events could adversely affect our business.

We maintain significant property insurance, including business interruption coverage, for these and other properties. However, there can be no assurances that we will be fully or promptly compensated for losses at any of our facilities in the event of future inclement weather or casualty events. In addition, our property insurance coverage is in an amount that may be significantly less than the expected and actual replacement cost of rebuilding certain facilities “as was” if there was a total loss. The Master Lease requires us, in the event of a casualty event, to rebuild a leased property to substantially the same condition as existed immediately before such casualty event. We renew our insurance policies (other than our builder’s risk insurance) on an annual basis. The cost of coverage may become so material that we may need to further reduce our policy limits, further increase our deductibles, or agree to certain exclusions from our coverage.

Our gaming operationsiGaming rely heavily on technology services and an uninterrupted supply of electrical power. Our security systems and all of our slot machines are controlled by computers and reliant on electrical power to operate.


Any unscheduled disruption in our technology services or interruption in the supply of electrical power could result in an immediate, and possibly substantial, loss of revenues due to a shutdown of our gaming operations. Such interruptions may occur as a result of, for example, a failure of our information technology or related systems, catastrophic events or rolling blackouts. Our systems are also vulnerable to damage or interruption from earthquakes, floods, fires, telecommunication failures, terrorist attacks, computer viruses, computer denial‑of‑service attacksoperations (including slot machines and similar events.

security systems), online sports betting, and iGaming operations.


Our information technology and other systems are subject to cyber security risk, including misappropriation of employee information, customer information or other breaches of information security.

security, particularly as our iGaming division grows.


We increasingly rely on information technology and other systems (particularly as our iGaming division grows), including our own systems and those of service providers and third parties, to manage our business and employee data and maintain and transmit customers’ personal and financial information, credit card settlements, credit card funds transmissions, mailing lists, and reservations information. Our collection of such data is subject to extensive regulation by private groups, such as the payment card industry, as well as governmental authorities, including gaming authorities. Privacy regulations continue to evolve and we have taken, and will continue to take, steps to comply by implementing processes

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designed to safeguard our business, employee and customers’the confidential and personal information.information of our business, employees and customers. In addition, our security measures are reviewed and evaluated regularly. However, our information and processes and those of our service providers and other third parties, are subject to the ever-changing threat of compromised security, in the form of a risk of potential breach, system failure, computer virus, or unauthorized or fraudulent use by customers, company employees, or employees of third party vendors. The steps we take to deter and mitigate the risks of breaches may not be successful, and any resulting compromise or loss of data or systems could adversely impact operations or regulatory compliance and could result in remedial expenses, fines, litigation, disclosures, and loss of reputation, potentially impacting our financial results.

Further, as cyber-attacks continue to evolve, we may incur significant costs in our attempts to modify or enhance our protective measures or investigate or remediate any vulnerability. Increased instances of cyber-attacks may also have a negative reputational impact on us and our properties that may result in a loss of customer confidence and, as a result, may have a material adverse effect on our business and results of operations.

Our operations in certain jurisdictions depend on management agreements and/or leases with third parties and local governments.

Our operations in several jurisdictions depend on land leases and/or management and development agreements with third parties and local governments. If we, or if GLPI in the case of leases pursuant to which we are the sub-lessee, are unable to renew these leases and agreements on satisfactory terms as they expire or disputes arise regarding the terms of these agreements, our business may be disrupted and, in the event of disruptions in multiple jurisdictions, could have a material adverse effect on our financial condition, and results of operations. For example, in the Province of Ontario, through CHC Casinos, our indirectly wholly owned subsidiary, we manage Casino Rama, a full service gaming and entertainment facility, on behalf of the OLG, an agency of the Province of Ontario. In June 2014, we signed an agreement to extend the management agreement for Casino Rama on a month-to-month basis with a 60-day notice period for up to a maximum period of forty-eight months. The OLG is exploring bids for new operating contracts and privatization in Ontario, including at Casino Rama.  As a result, we expect our management contract with the OLG to end shortly after June 30, 2018.

We depend on agreements with our horsemen and pari‑mutuel clerks

The Federal Interstate Horseracing Act of 1978, as amended, the West Virginia Race Horse Industry Reform Act and the Pennsylvania Racing Act require that, in order to simulcast races, we have certain agreements with the horse owners and trainers at our West Virginia and Pennsylvania racetracks. In addition, West Virginia requires applicants seeking to renew their gaming license to demonstrate they have an agreement regarding the proceeds of the gaming machines with a representative of a majority of the horse owners and trainers, a representative of a majority of the pari-mutuel clerks and a representative of a majority of the horse breeders.

At Hollywood Casino at Charles Town Races, we have an agreement with the Charles Town Horsemen’s Benevolent and Protective Association through June 18, 2018.  Additionally, the pari-mutuel clerks at Charles Town are represented under a collective bargaining agreement with the West Virginia Union of Mutuel Clerks, which expired on December 31, 2010 and has been extended on a month-to-month basis.

The Company’s agreement with the Pennsylvania Horsemen’s Benevolent and Protective Association at Hollywood Casino at Penn National Race Course was renewed through January 31, 2019. The Company has an agreement with Laborers’ International Union of North America (LIUNA) Local 108, regarding both on-track and off-track pari-mutuel clerks and admission staff which expired in December 2016 and a new contract was negotiated and, once signed, will run through December 1, 2021. In August 2015, the Company entered into a three year collective bargaining agreement with the International Chapter of Horseshoers and Allied Equine Trades Local 947.

Our agreement with the Maine Harness Horsemen Association at Bangor Raceway is in effect through the

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conclusion of the 2018 racing season. In March of 2014, Hollywood Gaming at Mahoning Valley Race Course entered into an agreement with the Ohio Horsemen’s Benevolent and Protective Association. The term is for a period of ten years from the September 2014 commencement of video lottery terminal operations at that facility. Hollywood Gaming at Dayton Raceway entered into a ten-year agreement with the Ohio Harness Horsemen’s Association for racing at Hollywood Gaming at Dayton Raceway in September of 2015.   In January 2014 Plainridge Park Casino entered into an agreement with the Harness Horsemen’s Association of New England which expires December 31, 2018.   

In certain jurisdictions where we operate pari-mutuel wagering, if we fail to present evidence of an agreement with the horsemen at a track, we may not be permitted to conduct live racing and export and import simulcasting at that track and OTWs and, in West Virginia, our video lottery license may not be renewed.  In addition, our annual simulcast export agreements are subject to the horsemen’s approval under the Federal Interstate Horseracing Act of 1978, as amended.   Some simulcast import agreements require horsemen approval depending on state law.  If we fail to renew or modify existing agreements on satisfactory terms, this failure could have a material adverse effect on our business, financial condition and results of operations

A deterioration in the performance of the Jamul Tribal facility could result in additional charges on our loan that we extended to the Jamul Indian Village Development Corporation.

We have made substantial loans to the Jamul Indian Village Development Corporation (“JIVDC”), an instrumentality of the Jamul Tribe, for the construction, development, equipment and operations of the Hollywood Casino Jamul-San Diego. Our subsidiary, San Diego Gaming Ventures, LLC (“SDGV”), provided a $98 million term loan C facility to the project. Furthermore, we provided additional delayed draw term loans and a limited completion guarantee for certain post-opening construction costs related to roadway improvements.  As of December 31, 2017, these future funding commitments total approximately $29 million.  All of our loans and any future funding obligations are subordinated to the other substantial debt on the property.  Our only material recourse for collection of indebtedness from the JIVDC or for money damages for breach or wrongful termination of a management, development, consulting or financing agreement is from positive cash flow, if any, from casino operations or from the sale of our loan to a third party.  Penn recorded charges of $89.8 million related to the loan and related loan commitments in 2017. We may realize little or no value for our loan which could result in additional charges of up to $27.9 million which represents our loan and loan commitments net of reserves at December 31, 2017.  Additionally, we may incur unexpected costs related to the termination and transition of our management contract with the Jamul Tribe.

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Our planned capital expenditures may not result in our expected improvements in our business.

We regularly expend capital to construct, maintain and renovate our properties to remain competitive, maintain the value and brand standards of our properties and comply with applicable laws and regulations.  Our ability to realize the expected returns on our capital investments is dependent on a number of factors, including, general economic conditions; changes to construction plans and specifications; delays in obtaining or inability to obtain necessary permits, licenses and approvals; disputes with contractors; disruptions to our business caused by construction; and other unanticipated circumstances or cost increases.

While we believe that the overall budgets for our planned capital expenditures are reasonable, these costs are estimates and the actual costs may be higher than expected.  In addition, we can provide no assurance that these investments will be sufficient or that we will realize our expected returns on our capital investments, or any returns at all. A failure to realize our expected returns on capital investments could materially adversely affect our business, financial condition and results of operations, or an outright sale of the loan to a third party.

The concentration and evolution of the slot machine manufacturing industry could impose additional costs on us.

A majority of our revenues are attributable to slot machinescash flows.


Our online sports betting and related systems operated by us at our gaming facilities. It is important, for competitive reasons, that we offer the most popular and up to date slot machine games with the latest technology to our customers.

A substantial majority of the slot machines sold in the U.S. in recent years were manufactured by a few select companies, and there has been extensive consolidation activity within the gaming equipment sector in recent years, including the acquisitions of Multimedia Games, Inc. by Global Cash Access, Bally Technologies, Inc. (which had acquired SHFL Entertainment, Inc.) and WMS Industries Inc. by Scientific Games Corporation and International Gaming Technologies by GTECH Holdings.

In recent years, slot machine manufacturers have frequently refused to sell slot machines featuring the most popular games, instead requiring participation lease arrangements in order to acquire the machines. Participation slot machine leasing arrangements typically require the payment of a fixed daily rental. Such agreements may also include a percentage payment of coin‑in or net win. Generally, a participation lease is substantially more expensive over the long term than the cost to purchase a new machine.

For competitive reasons, we may be forced to purchase new slot machines or enter into participation lease arrangements that are more expensive than our current costs associated with the continued operation of our existing slot machines. If the newer slot machines do not result in sufficient incremental revenues to offset the increased investment and participation lease costs, it could hurt our profitability.

We have announced several initiatives in the social gaming space, which is a new line of business for us in a rapidly evolving and highly competitive market. There can be no assurance that we will be able to compete effectively or that our new initiatives will be successful.

We have announced several initiatives in the social gaming space, including the 2016 acquisition of Rocket Speed, and expect to continue to invest in and market social gaming and other mobile gaming platforms to our customers in casinos and beyond and to explore other acquisitions in the space. Social gaming is a new line of business for us, which makes it difficult to assess its future prospects. Our products will compete in a rapidly evolving and highly competitive market against an increasing number of competitors, including Playtika, Zynga and slot manufacturers. Given the open nature of the development and distribution of games for electronic devices, our business will also compete with developers and distributors who are able to create and launch games and other content for these devices using relatively limited resources and with relatively limited start-up time or expertise. We have limited experience

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operating in this rapidly evolving marketplace and may not be able to compete effectively.

In addition, our ability to be successful with our social gaming platform is dependent on numerous factors beyond our control that affect the social and mobile gaming industry and the online gaming industry in the United States, including the occurrence and manner of legalization of online real money gaming in the United States beyond Nevada, Delaware and New Jersey; changes to the policies of social gaming distribution channels, including Apple and Google, changes in consumer demographics and public tastes and preferences; changing laws and regulations affecting social and mobile games; the reaction of regulatory bodies to social gaming initiatives by holders of gaming licenses; the availability and popularity of other forms of entertainment; any challenges to the intellectual property rights underlying our games; and outages and disruptions of our online services that may harm our business.

Our social gaming initiatives will result in increased operating expense and increased time and attention from our management. In addition, we may be particularly dependent on key personnel in our interactive business unit. We believe our social games are complementary to our current operations and offer additional avenues of access and interaction for our customers, and, the social gaming business depends on developing and publishing games that consumers will download and spend time and money on consistently.  We continue to invest in research and development, analytics and marketing to attract and retain customers for our social games. Our success depends, in part, on unpredictable factors beyond our control, including consumer preferences, competing games and other forms of entertainment, and the emergence of new platforms. Our inability to ultimately monetize our investment in social gaming initiatives could have a material adverse effect on our business and results of operations.

Our social gamingiGaming initiatives may result in increased risk of cyber-attack, hacking, or other security breaches, which could harm our reputation and competitive position and which could result in regulatory actions against us or in other penalties.


As our social gamingonline sports betting and iGaming business grows, we will face increased cyber risks and threats that seek to damage, disrupt or gain access to our networks, our products and services, and supporting infrastructure. Such cyber risks and threats, including to virtual currencies that may be used in the games, may be difficult to detect. Any failure to prevent or mitigate security breaches or cyber risk could result in interruptions to the services we provide, degrade the user experience, and cause our users to lose confidence in our products. The unauthorized access, acquisition or disclosure of consumer information could compel us to comply with disparate breach notification laws and otherwise subject us to proceedings by governmental entities or others and substantial legal and financial liability. Our key business partners also face these same risks with respect to consumer information they collect, and data security breaches with respect to such information could cause reputational harm to them and negatively impact our ability to offer our products and services through their platforms. This could harm our business and reputation, disrupt our relationships with partners and diminish our competitive position.

The success


If our third-party mobile application distribution platforms or service providers do not perform adequately or terminate their relationships with us, our costs may increase and our business, financial condition, and results of operations could be adversely affected.

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We rely upon third-party distribution platforms, including the Apple App Store and Google Play store, for distribution of our VGT operations in Illinois is dependent onmobile applications. As such, the promotion, distribution and operation of our ability to renew our contracts and expand the business.

On September 1, 2015, we completed our acquisition of Prairie State Gaming, one of the largest VGT operators in Illinois and subsequently have completed several smaller acquisitions of VGT operators in the state. We face competition from other VGT operators, as well as from casinos, hotels, taverns and other entertainment venues.  Our ability to compete successfully in this new line of business depends on our ability to retain existing customers and secure new establishments, both of which are dependent on the level of service and variety of products that we are able to offer to our customers. VGT contracts are renewable at the option of the owner of the applicable bar and retail gaming establishments and, as our contracts expire, we will be subject to competition for renewals. In addition, VGT operations in Illinoismobile applications are subject to approval by local municipalities,the respective distribution platforms’ standard terms and thereforepolicies, which are very broad and subject to frequent changes and interpretation. If Apple or Google choose to de-list any of our abilitymobile applications due to retain and expandwhat they perceive to be objectionable content, it could have a material negative impact on our VGT businessbusiness.


Further, the success of Penn Interactive depends in part on such approvals. In addition, there is a risk that the market for VGTs in Illinois could become oversaturated. If we are unable to retain our existing customers or their results suffer as a result of competition

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or because the market becomes oversaturated or if certain municipalities in Illinois elect to prohibit VGTs, our business and operations could be adversely impacted.

It is unclear what long-term impact our business structure will have on our key business relationships and our ability to compete with other gaming operators.

As a result of the completed Spin-Off, we were the first gaming operator that leases the majority of its properties from a single lessor under a master lease arrangement. As a result, it is difficult to predict whether and to what extent our relationship with GLPI, including any actual or perceived conflicts of interest on the part of our overlapping directors, will affect our relationships with suppliers, customers, regulatorsother third-party service providers for content delivery, load balancing and protection against distributed denial-of-service attacks. If those providers do not perform adequately or terminate their relationship with us, our ability to competeusers may experience issues or interruptions with other gaming operators that are not subject to a master lease arrangement with a single lessor.

Work stoppages, organizing drives and other labor problems could negatively impact our future profits.

Some of our employees are currently represented by labor unions. A lengthy strike or other work stoppages at any of our casino properties or construction projects could have an adverse effect on our business and results of operations. Given the large number of employees, labor unions are making a concerted effort to recruit more employees in the gaming industry. We cannot provide any assurance that we will not experience additional and more successful union organization activity in the future.

We are subject to environmental laws and potential exposure to environmental liabilities.

We are subject to various federal, state and local environmental laws and regulations that govern our operations, including emissions and discharges into the environment, and the handling and disposal of hazardous and non-hazardous substances and wastes. Failure to comply with such laws and regulations could result in costs for corrective action, penalties or the imposition of other liabilities or restrictions. From time to time, we have incurred and are incurring costs and obligations for correcting environmental noncompliance matters. For example, portions of Tropicana Las Vegas are known to contain asbestos as well as other environmental conditions, which may include the presence of mold. The environmental conditions may require remediation in isolated areas. The extent of such potential conditions cannot be determined definitively. To date, none of these matters have had a material adverse effect on our business, financial condition or results of operations; however, there can be no assurance that such matters will not have such an effect in the future.

their experiences. We also are subject to lawsrely on other software and regulations that impose liability and clean-up responsibility for releases of hazardous substances into the environment. Under certain of these laws and regulations, a current or previous owner or operator of property may be liable for the costs of remediating contaminated soil or groundwater on or from its property, without regard to whether the owner or operator knew of, or caused, the contamination, as well as incur liability to third parties impacted by such contamination. The presence of contamination, or failure to remediate it properly, may adversely affect our ability to use, sell or rent property. Under our contractual arrangements with GLPI, including the Master Lease, we will generally be responsible for both past and future environmental liabilities associated with our gaming operations, notwithstanding ownership of the underlying real property having been transferred to GLPI. Furthermore, we are aware that there is or may have been soil or groundwater contamination at certain of our properties resulting from current or former operations. By way of further example, portions of Tropicana Las Vegas are known to contain asbestos as well as other environmental conditions, which may include the presence of mold. The environmental conditions may require remediation in isolated areas. The extent of such potential conditions cannot be determined definitely, and may result in additional expense in the event that additional or currently unknown conditions are detected.

Additionally, certain of the gaming chips used at many gaming properties, including some of ours, have been found to contain some level of lead. Analysisservices supplied by third parties, has indicated the normal handling of the chips does not create a health hazard. We have disposed of a majority of these gaming chips. To date, none of these matters or other

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matters arising under environmental laws has had a material adverse effect on our business, financial condition, or results of operations; however, there can be no assurance that such matters will not have such an effect in the future.

Risks Related to the Anticipated Acquisition of Pinnacle

The transactions contemplated by the merger agreement with Pinnacle are subject to conditions, including certain conditions that may not be satisfied, or completed on a timely basis, if at all. Failure to complete the transactions contemplated by the merger agreementas communications and related transaction agreements could have materialinternal software, and adverse effects on us.

Completion of our proposed acquisition of Pinnacle is subject to a number of conditions, including the approval by our shareholders and Pinnacle’s stockholders and certain antitrust and state gaming approvals, which make the completion and timing of the completion of the transactions uncertain.  If the transactions contemplated by the merger agreement and related transaction agreements with Boyd Gaming Corporation (“Boyd”) and GLPI are not completed, or are not completed on a timely basis our business may be adversely affected to the extent such software and without realizingservices do not meet our expectations, contain errors or vulnerabilities, are compromised or experience outages. Further, any negative publicity related to any of our third-party partners could adversely affect our reputation and brand.


We also incorporate technology from third parties into our platform. We cannot be certain that our licensors are not infringing the benefitsintellectual property rights of having completedothers or that the transactions,suppliers and licensors have sufficient rights to the technology in all jurisdictions in which we may operate, which could adversely affect our business, financial condition and results of operations.

Further, we rely on third-party geolocation and identity verification systems to ensure we are in compliance with certain laws and regulations. There is no guarantee that the third-party geolocation and identity verification systems will perform adequately, or be effective, and any service disruption to those systems would prohibit us from operating our platform, and would adversely affect our business.

The growth of Penn Interactive will depend on our ability to attract and retain users.

Our ability to achieve growth in revenue in the future in Penn Interactive and Barstool Sports sports betting app will depend, in large part, upon our ability to attract new users to our offerings, retain existing users of our offerings and reactivate users in a cost-effective manner. Achieving growth in our community of users may require us to increasingly engage in sophisticated and costly sales and marketing and promotional efforts, which may not make sense in terms of return on investment. We have used and expect to continue to use a variety of free and paid marketing channels, in combination with compelling offers and exciting games to achieve our objectives. For paid marketing, we intend to leverage a broad array of advertising channels, including television, radio, social media influencers (brand ambassadors), social media platforms, such as Facebook, Instagram, Twitter and Snap, affiliates and paid and organic search, and other digital channels, such as mobile display. If the search engines on which we rely modify their algorithms, change their terms around gaming, or if the prices at which we may purchase listings increase, then our costs could increase, and fewer users may click through to our website. If links to our website are not displayed prominently in online search results, if fewer users click through to our website, if our other digital marketing campaigns are not effective, if the costs of attracting users using any of our current methods significantly increase, then our ability to efficiently attract new users could be reduced, our revenue could decline and our business, financial condition and results of operations could be harmed.

In addition, our ability to increase the number of users of our offerings will depend on continued user adoption of the Barstool Sportsbook app and iGaming. Growth in the sportsbook and iGaming industries and the level of demand for and market acceptance of our product offerings will be subject to a high degree of uncertainty. We cannot assure that consumer adoption of our product offerings will continue or exceed current growth rates, or that the industry will achieve more widespread acceptance.

Additionally, as technological or regulatory standards change and we modify our platform to comply with those standards, we may need users to take certain actions to continue playing, such as performing age verification checks or accepting new terms and conditions. Users may stop using our product offerings at any time, including if the quality of the user experience on our platform, including our support capabilities in the event of a problem, does not meet their expectations or keep pace with the quality of the customer experience generally offered by competitive offerings.

We face a number of risks,challenges prior to opening new or upgraded gaming properties or launching new iGaming or sports betting channels, which may lead to increased costs and expenses, includingdelays in anticipated revenues.

No assurance can be given that, when we endeavor to open new or upgraded gaming properties or launch new iGaming or sports betting channels, the following:

·

we will be required to pay our costs relating to the transactions, such as legal, accounting, financial advisory and printing fees, whether or not the transactions are completed; 

·

if the merger agreement is terminated as a result of the failure to obtain the requisite antitrust and gaming law approvals, Penn will be forced to pay Pinnacle a termination fee of $125 million;

·

in some circumstances, upon termination of the merger agreement, Penn or Pinnacle will be required to pay a $60 million termination fee to the other party;

·

if we are unable to close the merger prior to November 1, 2018, we will be required to pay an additional $0.01 per share per day until closing to Pinnacle stockholders;

·

the diversion of time and resources committed by our management to matters relating to the proposed transactions that could otherwise have been devoted to pursuing other opportunities;

·

the market price of our common stock could decline to the extent that the current market price reflects a market assumption that the transactions will be completed;

·

if the merger is not completed by October 31, 2018, assuming that Penn does not elect to extend this deadline and the deadline is not otherwise automatically extended as contemplated in the merger agreement, either Penn or Pinnacle may terminate the merger agreement; and

·

we may be subject to litigation related to any failure to complete the merger.

Weexpected timetables for opening such properties or channels will be subject to business uncertainties while our proposed acquisition of Pinnacle and related transaction with Boyd and GLPI are pending, which could adversely affect our business.

It is possible that certain persons with whom we have a business relationship may delay or defer business decisions or might decide to seek to terminate, change or renegotiate their relationships with us as a resultmet in light of the transactions contemplated byuncertainties inherent in the merger agreement with Pinnacledevelopment of the regulatory framework, construction, the licensing process, legislative action and related agreements with Boyd and GLPI, which could negatively affect our revenues, earnings and cash flows, as well as the market price of our common stock, regardless of whether the proposed transactions are completed.

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litigation. In

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In addition, underas we seek to launch iGaming and sports betting apps in additional states, we will need to hire additional qualified employees, such as engineers, IT professionals and other compliance personnel. Given the terms of the merger agreement, we are subject to certain restrictions on the conduct of our business prior to the closing, which may adversely affect our ability to execute certain of our business strategies, including the abilitysignificant competition in certain cases to acquire or dispose of assets or repurchase shares of our common stock.  Such limitations could negatively affect our business and operations prior to the completion of the transactions contemplated by the merger agreement.

If our proposed acquisition of Pinnacle and related transactions with Boyd and GLPI are completed,this area for qualified candidates, we may not achieve the intended benefits and the transactions may disrupt our current plansbe unable to hire qualified candidates. Delays in opening new or operations.

There can be no assurance that we will be ableupgraded properties could lead to successfully integrate Pinnacle’s assets or otherwise realize the expected benefits of the acquisition and related transactions with Boyd and GLPI. In addition, the merger is not subject to a financing condition, which means that we would be required to complete the merger even if financing is not available or is available only on terms other than those currently anticipated.  Our inability to finance the acquisition on attractive terms could result in increased costs dilutionand delays in receiving anticipated revenues with respect to our shareholders and/such properties or channels and could have ana material adverse effect on our financial condition, results of operations, and cash flows.


Negative events or negative media coverage relating to, or a declining popularity of, sports betting, the underlying sports or athletes, online sports betting, or iGaming may adversely impact our ability to retain or attract users, which could have an adverse impact on our business.

Public opinion can significantly influence our business. Unfavorable publicity regarding us or regarding the actions of third parties with whom we have relationships or the underlying sports (including declining popularity of the sports or athletes) could seriously harm our reputation. In addition, a negative shift in the perception of sports betting and iGaming by the public or by politicians, lobbyists or others could affect future legislation of sports betting and iGaming. Negative public perception could also lead to new restrictions on or to the prohibition of iGaming or sports betting in jurisdictions in which we currently operate. Such negative publicity could also adversely affect the size, demographics, engagement, and loyalty of our customer base and result in decreased revenue or slower user growth rates, which could seriously harm our business.

Risks Related to Acquisitions

We may face disruption and other difficulties in integrating and managing properties or other initiatives we have recently acquired, may develop, or may acquire in the future.

We could face significant challenges in managing and integrating our expanded or combined operations and any other properties we may develop or acquire, particularly in new competitive markets. The integration of more significant properties that we may develop or acquire (such as Morgantown, Perryville, and York) will require the dedication of management resources that may temporarily divert attention from our day-to-day business. In addition, development and integration of new information technology systems that may be required is costly and time-consuming. The process of integrating properties that we may acquire also could interrupt the activities of those businesses, which could have a material adverse effect on our financial condition, results of operations, and cash flows. In addition, the development of new properties may involve construction, local opposition, regulatory, legal and competitive risks as well as the risks attendant to partnership deals on these development opportunities. In particular, in projects where we team up with a joint venture partner, if we cannot reach agreement with such partners, or if our relationships otherwise deteriorate, we could face significant increased costs and delays. Local opposition can delay or increase the anticipated cost of a project. Many of these same risks apply to our iGaming and sports betting initiatives. Finally, given the competitive nature of these types of limited license opportunities, litigation is possible.

Management of new properties, especially in new geographic areas and business lines may require that we increase our management resources or divert the attention of our current management. We cannot assure you that we will be able to manage the combined operations effectively or realize any of the anticipated benefits of our acquisitions or development projects. We also cannot assure you that if acquisitions are completed, that the acquired businesses will generate returns consistent with our expectations.

Our ability to achieve our objectives in connection with any acquisition we may consummate may be negatively affected followinghighly dependent on, among other things, our ability to retain the transaction ifsenior level property management teams of such acquisition candidates. If, for any reason, we are unable to effectively manageretain these management teams following such acquisitions or if we fail to attract new capable executives, our expanded operations.  operations after consummation of such acquisitions could be materially adversely affected.

The integration will require significant timeoccurrence of some or all of the above described events could have a material adverse effect on our financial condition, results of operations, and focus fromcash flows.

In the event we make another acquisition, we may face risks related to our management followingability to receive regulatory approvals required to complete, or other delays or impediments to completing, such acquisition.

Our growth is fueled, in part, by the transaction.  Additionally, consummatingacquisition of existing gaming, racing, and development properties, as well as our iGaming and sports betting initiatives. In addition to standard closing conditions, our acquisitions are often conditioned on the transactionsreceipt of regulatory approvals and other hurdles that create uncertainty and could disrupt current plansincrease costs. Such delays could significantly reduce the benefits to us of such acquisitions and could have a material adverse effect on our financial condition, results of operations, which could delay the achievementand cash flows.
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Table of our strategic objectives.

Contents

Risks Related to the Spin‑Off

Spin-Off


If the Spin‑Off,Spin-Off, together with certain related transactions, does not qualify as a transaction that is generally tax‑freetax-free for U.S. federal income tax purposes, we could be subject to significant tax liabilities.


We received a private letter ruling (the “IRS Ruling”) from the IRS substantially to the effect that, among other things, the Spin‑Off,Spin-Off, together with certain related transactions, will qualify as a transaction that is generally tax‑freetax-free for U.S. federal income tax purposes under Sections 355 and/or 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended (the “Code”). The IRS Ruling does not address certain requirements for tax‑freetax-free treatment of the Spin‑OffSpin-Off under Section 355, and we received from our tax advisors a tax opinion substantially to the effect that, with respect to such requirements on which the IRS will not rule, such requirements will be satisfied. The IRS Ruling, and the tax opinions that we received from our tax advisors, relied on and will rely on, among other things, certain representations, assumptions and undertakings, including those relating to the past and future conduct of GLPI’s business, and the IRS Ruling and the opinions would not be valid if such representations, assumptions and undertakings were incorrect in any material respect.


Notwithstanding the IRS Ruling and the tax opinions, the IRS could determine the Spin‑OffSpin-Off should be treated as a taxable transaction for U.S. federal income tax purposes if it determines any of the representations, assumptions or undertakings that were included in the request for the IRS Ruling are false or have been violated or if it disagrees with the conclusions in the opinions that are not covered by the IRS Ruling.

If the Spin‑OffSpin-Off fails to qualify for tax‑freetax-free treatment, in general, we would be subject to tax as if we had sold the GLPI common stock in a taxable sale for its fair market value.


Under the tax matters agreement that GLPI entered into with us, GLPI generally is required to indemnify us against any tax resulting from the Spin‑OffSpin-Off to the extent that such tax resulted from (1) an acquisition of all or a portion of the equity securities or assets of GLPI, whether by merger or otherwise, (2) other actions or failures to act by GLPI, or (3) any of GLPI’s representations or undertakings being incorrect or violated. GLPI’s indemnification obligations to Penn and its subsidiaries, officers and directors will not be limited by any maximum amount. If GLPI is required to indemnify Penn or such other persons under the circumstance set forth in the tax matters agreement, GLPI may be

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subject to substantial liabilities and there can be no assurance that GLPI will be able to satisfy such indemnification obligations.

On September 27, 2017 the Internal Revenue Service finalized the audit examination of the 2013 U.S. federal income tax return with no adjustments related to the spin-off transaction including the tax-free treatment.  Although the 2013 examination is finalized, the statute of limitation was extended to June 30, 2018.

Peter M. Carlino, our Chairman, and David A. Handler, one of our directors, may have actual or potential conflicts of interest because of their positions at GLPI.

Peter M. Carlino serves as our Chairman and as the Chairman and Chief Executive Officer of GLPI. In addition, David A. Handler, one of our directors, is also a director of GLPI. While we have procedures in place to address such situations, these overlapping positions could create, or appear to create, potential conflicts of interest when our or GLPI’s management and directors pursue the same corporate opportunities, such as greenfield development opportunities or potential acquisition targets, or face decisions that could have different implications for us and GLPI. Further, potential conflicts of interest could arise in connection with the resolution of any dispute between us and GLPI (or its subsidiaries) regarding the terms of the agreements governing the separation and the relationship, between us and GLPI, such as under the Master Lease. Potential conflicts of interest could also arise if we and GLPI enter into any commercial or other adverse arrangements with each other in the future.


In connection with the Spin‑Off,Spin-Off, GLPI agreed to indemnify us for certain liabilities. However, there can be no assurance that these indemnities will be sufficient to insure us against the full amount of such liabilities, or that GLPI’s ability to satisfy its indemnification obligation will not be impaired in the future.

future.


Pursuant to the separation and distribution agreement, GLPI has agreed to indemnify us for certain liabilities. However, third parties could seek to hold us responsible for any of the liabilities that GLPI agreed to retain, and there can be no assurance that GLPI will be able to fully satisfy its indemnification obligations. Moreover, even if we ultimately succeed in recovering from GLPI any amounts for which we are held liable, we may be temporarily required to bear these losses while seeking recovery from GLPI.


A court could deem the distribution in the Spin‑OffSpin-Off to be a fraudulent conveyance and void the transaction or impose substantial liabilities upon us.


If the transaction is challenged by a third party,third-party, a court could deem the distribution of GLPI common shares or certain internal restructuring transactions undertaken by us in connection with the Spin‑OffSpin-Off to be a fraudulent conveyance or transfer. Fraudulent conveyances or transfers are defined to include transfers made or obligations incurred with the actual intent to hinder, delay, or defraud current or future creditors or transfers made or obligations incurred for less than reasonably equivalent value when the debtor was insolvent, or that rendered the debtor insolvent, inadequately capitalized or unable to pay its debts as they become due. In such circumstances, a court could void the transactions or impose substantial liabilities upon us, which could adversely affect our financial condition and our results of operations. Among other things, the court could require our shareholders to return to us some or all of the shares of our common stock issued in the distribution or require us to fund liabilities of other companies involved in the restructuring transactions for the benefit of creditors. Whether a transaction is a fraudulent conveyance or transfer will vary depending upon the laws of the applicable jurisdiction.


If we and GLPI are treated by the IRS as being under common control, both we and GLPI could experience adverse tax consequences.


If we and GLPI are treated by the IRS as being under common control, the IRS will be authorized to reallocate income and deductions between us and GLPI to reflect arm’s length terms. If the IRS were to successfully establish that rents paid by us to
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GLPI are excessive, (1) we would be (i) denied a deduction for the excessive portion and (2) we would

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be(ii) subject to a penalty on the portion deemed excessive, each of which could have a material adverse effect on our business, financial position orcondition, results of operations. In addition,operations, and cash flows. Also, our shareholders would be deemed to have received a distribution that was then contributed to the capital of GLPI.

Risks Related to Our Capital Structure

Our substantial indebtedness could adversely affect our financial health and prevent us from fulfilling our obligations under our outstanding indebtedness.

We have a substantial amount of indebtedness and a significant fixed annual lease payment to GLPI which will increase upon the closing of the merger with Pinnacle. Our substantial indebtedness and additional fixed costs via our Master Lease obligation could have important consequences to our financial health. For example, it could:

·

make it more difficult for us to satisfy our obligations with respect to our indebtedness;

·

limit our ability to participate in multiple or large development projects, absent additional third party financing;

·

increase our vulnerability to general or regional adverse economic and industry conditions or a downturn in our business;

·

require us to dedicate a substantial portion of our cash flow from operations to satisfy our financing obligation and debt service, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes;

·

limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

·

place us at a competitive disadvantage compared to our competitors that are not as highly leveraged;

·

limit, along with the financial and other restrictive covenants in our indebtedness, among other things, our ability to borrow additional funds; and

·

result in an event of default if we fail to satisfy our obligations under our indebtedness or fail to comply with the financial and other restrictive covenants contained in our debt instruments, which event of default could result in all of our debt becoming immediately due and payable and could permit certain of our lenders to foreclose on any of our assets securing such debt.

Any of the above listed factors could have a material adverse effect on our business, financial condition and results of operations. The terms of our debt do not, and any future debt may not, fully prohibit us from incurring additional debt, including debt related to facilities we develop or acquire. If new debt is added to our current debt levels, the related risks that we now face could intensify.

Volatility and disruption of the capital and credit markets and adverse changes in the global economy may negatively impact our revenues and our ability to access favorable financing terms.

While we intend to finance expansion and renovation projects with existing cash, cash flow from operations and borrowings under our senior secured credit facility, we may require additional financing to support our continued growth. However, depending on then current economic or capital market conditions, our access to capital may not be available on terms acceptable to us or at all. Further, if adverse regional and national economic conditions persist or


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ITEM 1B.UNRESOLVED STAFF COMMENTS
None.
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worsen, we could experience decreased revenues fromITEM 2.PROPERTIES

As detailed in Item 1. Business, “Operating Properties,” the majority of our operations attributable to decreases in consumer spending levels and could fail to satisfy the financial and other restrictive covenants to which wefacilities are subject under our existing indebtedness. Finally, our borrowing costs under our senior secured credit facility are tied to LIBOR. We currently have no hedges in place to mitigate the impact of higher LIBOR rates and as such significant increases in LIBOR could have a negative impact on our results of operations.

The availability and cost of financing could have an adverse effect on business.

We intend to finance some of our current and future expansion, development and renovation projects and acquisitions with cash flow from operations, borrowings under our senior secured credit facility and equity or debt financings. We are required by the Master Lease to, in the case of certain expansion projects, or may choose, in the case of other development projects, provide GLPI the right to provide the financing needed for such purposes. Depending on the stateleases of the credit markets, if we are unable to finance our current or future projects, we could have to seek alternative financing, such as through sellingunderlying real estate assets, restructuring debt, increasing our reliance on equity financing or seeking additional joint venture partners. Depending on credit market conditions, alternative sources of funds may not be sufficient to finance our expansion, development and/or renovation, or such other financing may not be available on acceptable terms, in a timely manner or at all. In addition, our existing indebtedness contains restrictions on our ability to incur additional indebtedness. If we are unable to secure additional financing, we could be forced to limit or suspend expansion, development and renovation projects and acquisitions, which, may adversely affect our business, financial condition and results of operations.

The capacity under our revolving credit facility, which expires in 2022, has increased to $700 million via a bank group that is comprised of 12 large financial institutions with the top six institutions providing approximately 71% of the facility. If a large percentage of our lenders were to file for bankruptcy or otherwise default on their obligations to us, we could experience decreased levels of liquidity which could have a detrimental impact on our operations. There is no certainty that our lenders will continue to remain solvent or fund their respective obligations under our senior secured credit facility.

Our indebtedness imposes restrictive covenants on us that could limit our operations and lead to events of default if we do not comply with those covenants.

Our senior secured credit facility requires us, among other obligations, to maintain specified financial ratios and to satisfy certain financial tests, including interest coverage, senior secured net leverage and total net leverage ratios. In addition, our credit facility restricts, among other things, our ability to incur additional indebtedness, incur guarantee obligations, repay certain other indebtedness or amend debt instruments, pay dividends, create liens on our assets, make investments, make acquisitions, engage in mergers or consolidations, engage in certain transactions with subsidiariesincludes the land underlying the facility and affiliates or otherwise restrict corporate activities. In addition, the indenture governing our senior unsecured notes restricts, among other things, our ability to incur additional indebtedness (excluding certain indebtedness under our credit facility), issue certain preferred stock, pay dividends or distributions on our capital stock or repurchase our capital stock, make certain investments, create liens on our assets to secure certain debt, enter into transactions with affiliates, merge or consolidate with another company, transfer and sell assets and designate our subsidiaries as unrestricted subsidiaries. A failure to comply with the restrictions containedbuildings used in the documentation governing any of our indebtedness, terminationoperations of the Master Lease (subject to certain exceptions) orcasino and the occurrence of certain defaults under the Master Lease could lead to an event of default thereunder that could result in an acceleration of such indebtedness. Such acceleration would likely constitute an event of default under our other indebtedness, which event of default could result in all of our debt becoming immediately due and payable and could permit certain of our lenders to foreclose on any of our assets securing such debt.

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To service our indebtedness, we will require a significant amount of cash, which depends on many factors beyond our control.

We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under our senior secured credit facility in amounts sufficient to enable us to fund our liquidity needs, including with respect to our indebtedness. We also may incur indebtedness related to facilities we develop or acquire in the future prior to generating cash flow from those facilities. If those facilities do not provide us with cash flow to service that indebtedness, we will need to rely on cash flow from our other properties, which would increase our leverage. In addition,hotel, if we consummate significant acquisitions in the future, our cash requirements may increase significantly. As we are required to satisfy amortization requirements under our senior secured credit facility or as other debt matures, we may also need to raise funds to refinance all or a portion of our debt. We cannot assure you that we will be able to refinance any of our debt, including our senior secured credit facility, on attractive terms, commercially reasonable terms or at all. Our future operating performance and our ability to service, extend or refinance our debt will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control.

ITEM 1B.  UNRESOLVED STAFF COMMENTS

None.

ITEM 2.  PROPERTIES

applicable. The following describes ourthe principal real estate associated with our properties by segment:

Northeast

Hollywood Casino at Charles Town Races.  We lease approximately 300reportable segment (all area metrics are approximate):

LocationDescription of Owned Real PropertyAcreage of LandDescription of Leased Real PropertyAcreage of Land
Northeast segment
Ameristar East ChicagoEast Chicago, IN——Land, buildings, boat22
Greektown Casino-HotelDetroit, MI——Land, buildings8
Hollywood Casino BangorBangor, ME——Land, racetrack, buildings44
Hollywood Casino at Charles Town RacesCharles Town, WV——Land, racetrack, buildings299
Hollywood Casino ColumbusColumbus, OH——Land, buildings116
Hollywood Casino LawrenceburgLawrenceburg, INLand, buildings3Land, buildings, boat105
Hollywood Casino at Penn National Race CourseGrantville, PA——
Land (1), racetrack, buildings
574
Hollywood Casino ToledoToledo, OH——Land, buildings42
Hollywood Gaming at Dayton RacewayDayton, OH——Land, racetrack, buildings120
Hollywood Gaming at Mahoning Valley Race CourseYoungstown, OH——Land, racetrack, buildings193
Meadows Racetrack and CasinoWashington, PA——Land, racetrack, buildings156
Plainridge Park CasinoPlainville, MA——Land, racetrack, buildings88
South segment
1st Jackpot Casino
Tunica, MS——
Land (2), buildings, boat
147
Ameristar VicksburgVicksburg, MS——Land, buildings, boat74
Boomtown BiloxiBiloxi, MS——
Land (3), buildings, boat
26
Boomtown Bossier CityBossier City, LA——Land, buildings, boat22
Boomtown New OrleansNew Orleans, LA——Land, buildings, boat54
Hollywood Casino Gulf CoastBay St. Louis, MS——Land, buildings579
Hollywood Casino TunicaTunica, MS——Land, buildings, boat68
L’Auberge Baton RougeBaton Rouge, LAUndeveloped land478Land, buildings, barge99
L’Auberge Lake CharlesLake Charles, LAUndeveloped land54Land, buildings, barge235
Margaritaville Resort CasinoBossier City, LA——Land, buildings, barge34
Resorts Casino Tunica (4)
Tunica, MS————
West segment
Ameristar Black HawkBlack Hawk, CO——Land, buildings104
Cactus Petes and HorseshuJackpot, NV——Land, buildings80
M ResortHenderson, NV——Land, buildings84
Tropicana Las VegasLas Vegas, NV——Land, buildings35
Zia Park CasinoHobbs, NM——Land, racetrack, buildings317
Midwest segment
Ameristar Council BluffsCouncil Bluffs, IA——Land, buildings, boat59
Argosy Casino AltonAlton, ILBoat—Land, buildings4
Argosy Casino RiversideRiverside, MO——
Land (5), buildings, barge
45
Hollywood Casino AuroraAurora, IL——Land, buildings, barge2
Hollywood Casino JolietJoliet, IL——Land, buildings, barge276
Hollywood Casino at Kansas SpeedwayKansas City, KSLand, buildings101——
Hollywood Casino St. LouisMaryland Heights, MO——Land, buildings, barge221
River City CasinoSt. Louis, MO——
Land (6), buildings, barge
83
Other
Freehold RacewayFreehold, NJLand, racetrack, buildings51——
Cherry Hill, NJUndeveloped land10——
Retama Park Racetrack (7)
Selma, TXUndeveloped land14——
Sam Houston Race ParkHouston, TXLand, racetrack, buildings168——
Sanford-Orlando Kennel Club (8)
Longwood, FLLand, building2——
Valley Race ParkHarlingen, TXLand, racetrack, buildings71——
9524,415
(1)Of which, 393 acres on various parcels in Charles Town and Ranson, West Virginia of which approximately 155 acres comprise Hollywood Casino at Charles Town Races. The facility includes a 153‑room hotel and a 3/4‑mile all‑weather lighted thoroughbred racetrack, a training track, two parking garages, an employee parking lot, an enclosed grandstand/clubhouse and housing facilities for over 1,300 horses.

is undeveloped land surrounding Hollywood Casino at Penn National Race Course.  We lease approximately 574 acres in Grantville, Pennsylvania, where Penn National Race Course is located on approximately 181 acres. The facility includes a one‑mile all‑weather lighted thoroughbred racetrack and a 7/8‑mile turf track, a parking garage and surface parking spaces. The property also includes approximately 393 acres surrounding the Penn National Race Course that are available for future expansion or development.

Hollywood Casino Toledo.  We lease approximately 44‑acres in Toledo, Ohio, where we opened Hollywood Casino Toledo on May 29, 2012. The property includes the casino as well as structured and surface parking.

Hollywood Casino Columbus.  We lease approximately 116 acres of land in Columbus, Ohio, where we opened Hollywood Casino Columbus on October 8, 2012. The property includes the casino as well as structured and surface parking.

Hollywood Gaming at Dayton Raceway.  We lease approximately 120 acres on the site of an abandoned Delphi Automotive plant in Dayton, Ohio, where we relocated Raceway Park and opened a new gaming facility on August 28, 2014. The facility includes a 5/8‑mile standardbred racetrack and surface parking.

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Hollywood Gaming at Mahoning Valley Race Course.  We lease approximately 193(2)Of which, 53 acres in Austintown, Ohio, where we relocated Beulah Parkis wetlands.

(3)Of which, 3 acres is subject to the Penn Master Lease.
(4)Resorts Casino Tunica ceased operations on June 30, 2019, but remains subject to the Penn Master Lease.
(5)Of which, 38 acres is subject to the Penn Master Lease.
(6)Of which, 24 acres is land surrounding River City Casino reserved for community and opened a new gaming facility on September 17, 2014. recreational facilities.
(7)The facility includes a one‑mile thoroughbredland, racetrack, and surface parking.

Hollywood Casino Bangor.buildings used in the operations of Retama Park Racetrack are owned by the City of Selma, Texas. We lease theown undeveloped land on which the Hollywood Casino Bangor facility is located in Bangor, Maine, which consists of approximately 9 acres, and includes a 152‑room hotel and four‑story parking. In addition, we lease approximately 35 acres located at historic Bass Park, which is adjacent to the facility, which includes a one‑half mile standardbred racetrack and a grandstand with over 12,000 square feet and seating for 3,500 patrons.

PlainridgeRetama Park Casino.  We own an approximate 90‑acre site in Plainville, Massachusetts, whereRacetrack.

(8)In the fourth quarter of 2020, we opened Plainridge Park Casino on June 24, 2015. The property includes the casino as well as structured and surface parking. The facility also includes a 5/8‑mile live harness racing track, and a two story clubhouse.

Casino Rama.  We do not own any ofsold the land locatedrelated to the Sanford-Orlando Kennel Club due to state regulation prohibiting greyhound racing. We continue to offer simulcast racing at or near the casino or Casino Rama’s facilities and equipment. The OLG has a long‑term ground lease with an affiliate of the Rama First Nation, for the land on which Casino Rama is situated. Under the Agreement, CHC Casinos and CRC Holdings, Inc. have been granted full access to Casino Rama during the term of the Agreement to perform the management services under the Agreement. The Casino Rama facilities are located on approximately 61 acres.

South/West

M Resort.our existing facility.

We lease approximately 84 acres on the southeast corneroffice and warehouse space in various locations outside of Las Vegas Boulevard and St. Rose Parkway in Henderson, Nevada, where the M Resort is located. The M Resort property includes a 390‑room hotel, a 4,700 space parking facility, and other facilities. We also lease approximately 4 acres of land which is part of the property.

Zia Park Casino.  Our casino adjoins the racetrack and is located on approximately 317 acres that we lease in Hobbs, New Mexico. The property includes a one‑mile quarter/thoroughbred racetrack. In August 2014, we opened a new hotel, which includes 148 rooms, six suites, a business center, exercise/fitness facilities and a breakfast venue.

Hollywood Casino Tunica.  We lease approximately 68 acres of land in Tunica, Mississippi. The property includes a single‑level casino, a 494‑room hotel, surface parking and other land‑based facilities.

1st Jackpot Casino (formerly known as Bally’s Casino Tunica).  We lease approximately 94 acres of land and own approximately 53 acres of wetlands in Tunica, Mississippi. The property includes the casino, surface parking and other land‑based facilities.

Resorts Casino Tunica.  We lease approximately 87 acres of land in Tunica, Mississippi. The property includes the casino, a 201‑room hotel, surface parking and other land‑based facilities.

Hollywood Casino Gulf Coast.  We lease approximately 580 acres in the city of Bay St. Louis, Mississippi. The property includes a land‑based casino, 18‑hole golf course, a 291‑room hotel, a 20‑slip marina, a 100‑space RV Park and other facilities.

Boomtown Biloxi.  We lease approximately 19.5 acres in Biloxi, Mississippi, most of which is utilized for the gaming location. We also lease approximately 5 acres of submerged tidelands at the casino site from the State of Mississippi and approximately 1 acre of land utilized mostly for the daiquiri bar area and welcome center.

Tropicana Las Vegas.  We own approximately 35 acres on the strip of Las Vegas, Nevada. The property includes the casino as well as a 1,470‑room hotel and structured and surface parking.

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Hollywood Casino Jamul-San Diego.  We are the operator of this facility under our management contract with the Jamul Tribe.  As such we do not own the casino or the land on which the casino is located.  The Jamul Tribe is a federally recognized Indian Tribe holding a government-to-government relationship with the U.S. through the U.S. Department of the Interior’s Bureau of Indian Affairs and possessing certain inherent powers of self-government. The Jamul Tribe is the beneficial owner of approximately 6 acres of reservation land located within the exterior boundaries of the State of California held by the U.S. in trust for the Jamul Tribe. The Jamul Tribe exercises jurisdiction over the Property pursuant to its powers of self-government and consistent with the resolutions and ordinances of the Jamul Tribe.

In October 2016, the Company exercised an option agreement to purchase approximately 98 acres of land located adjacent to the Jamul Indian Village reservation in San Diego County, California and all buildings, structures and improvements erected or situated on the land.

Midwest

Hollywood Casino Aurora.  We lease a dockside barge structure and land‑based pavilion in Aurora, Illinois. We lease the land, which is 0.4 acres, on which the pavilion is located. We also lease the rights to a pedestrian walkway bridge and two parking garages, together comprising approximately 2 acres.

Hollywood Casino Joliet.  We lease approximately 276 acres in Joliet, Illinois, which includes a barge‑based casino, land‑based pavilion, a 100‑room hotel, structured and surface parking areas and a recreational vehicle park.

Argosy Casino Alton.  We lease 3.8 acres in Alton, Illinois, a portion of which serves as the dockside boarding for the Alton Belle II, a riverboat casino. The dockside facility includes an entertainment pavilion and office space, as well as surface parking areas.

Hollywood Casino St. Louis.  We lease approximately 248 acres along the Missouri River in Maryland Heights, Missouri, which includes a 502‑room hotel and structure and surface parking.

Argosy Casino Riverside.  We lease approximately 38 acres in Riverside, Missouri, which includes a barge‑based casino, a 258‑room luxury hotel, an entertainment/banquet facility and a parking garage. We also lease 6.8 acres which is primarily used for overflow parking.

Hollywood Casino Lawrenceburg.  We lease approximately 53 acres in Lawrenceburg, Indiana, a portion of which serves as the dockside embarkation for the gaming vessel, and includes a Hollywood‑themed casino riverboat, an entertainment pavilion, a 295‑room hotel, two parking garages and an adjacent surface lot. In addition, we lease approximately 52 acres on Route 50 used for remote parking. Effective January 2015, we own and operate a hotel and event center located less than a mile away from our Hollywood Casino Lawrenceburg property, which includes 168 rooms, approximately 18,000operating properties, including 86,542 square feet of multipurposeoffice space and 19,500 square feet of ballroom and meeting space.

Hollywood Casino at Kansas Speedway.  Throughfor our joint venture with International Speedway, we own approximately 101 acresshared services center in which Hollywood Casino sits on Turn Two of the Kansas Speedway.

Prairie State Gaming.  The Company acquired Prairie State Gaming, a licensed video gaming terminal operator in Illinois, on September 1, 2015. Prairie State Gaming’s operations include more than 1,715 video gaming terminals across a network of approximately 377 bar and retail gaming establishments in seven distinct geographic areas throughout Illinois.

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Other

Sanford‑Orlando Kennel Club.  We own approximately 26 acres in Longwood, Florida where Sanford‑Orlando Kennel Club is located. The property includes a 1/4‑mile racing surface, a clubhouse dining facility and a main grandstand building. Kennel facilities for up to 1,300 greyhounds are located at a leased location approximately 1/2 mile from the racetrack enclosure.

Freehold Raceway.  Through our joint venture in Pennwood, we own an approximate 51‑acre site in Freehold, New Jersey, where Freehold Raceway is located. The property features a half‑mile standardbred race track and a grandstand. In addition, through our joint venture in Pennwood, we own an approximate 10‑acre site in Cherry Hill, New Jersey, which is currently undeveloped.

Sam Houston Race Park and Valley Race Park.  Through our joint venture with MAXXAM, we own approximately 168 acres at Sam Houston Race Park and approximately 71 acres at Valley Race Park. Sam Houston Race Park includes a one‑mile dirt track and a 7/8‑mile turf track as well as a 226,000 square foot grandstand and pavilion centre. Valley Race Park features 91,000 of property square footage as a dog racing and simulcasting facility located in Harlingen, Texas.

Off‑track Wagering Facilities.  The following is a list of our three OTWs and their locations:

Approx. Size

Location

(Square Ft.)

Owned/Leased

Date Opened

York, PA

25,590

Leased

March 1995

Lancaster, PA

24,000

Leased

July 1996

Clementon, NJ

15,000

Leased

July 2014

In addition, through our joint venture in Pennwood, we own 50% of a leased OTW in Toms River, New Jersey, that has 28,160 square feet.

Corporate.  We leaseLas Vegas, Nevada; 52,116 square feet of executive office and warehouse space for buildings in Wyomissing, Pennsylvania.

Penn Interactive Ventures.  We leasePennsylvania; 32,212 square feet of office space in Cherry Hill, New Jersey; 29,609 square feet of office space in Philadelphia, Pennsylvania; 7,787 square feet of executive office space in Conshohocken, Pennsylvania, 10,463 square feet of executive office space in San Francisco, California,Pennsylvania; and 5,740 square feet of executive office space in Henderson, Nevada.


Our interests in the owned real property listed above (with the exception of the land, buildings, and racetracks, used in the operations of Hollywood Casino at Kansas Speedway, Freehold Raceway, Retama Park Racetrack, Sam Houston Race Park, and Valley Race Park; as well as the interests in the leased real property listed above); collateralize our obligations under our Senior Secured Credit Facilities (as defined in the “Liquidity and Capital Resources” section of “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” below).

ITEM 3.    LEGAL PROCEEDINGS

The Company is subject to various legal and administrative proceedings relating to personal injuries, employment matters, commercial transactions, development agreements and other matters arising in the ordinary course of business. Although the Company maintains what it believes to be adequate insurance coverage to mitigate the risk of loss pertaining to covered matters, legal and administrative proceedings can be costly, time-consuming and unpredictable. The Company does not believe that the final outcome of these matters will have a material adverse effect on the Company’s consolidatedits results of operations, financial position or results of operations. In addition, the Company maintains what it believes is adequate insurance coverage to further mitigate the risks of such proceedings. However, such proceedings can be costly, time consuming and unpredictable and, therefore, no assurance can be given that the final outcome of such proceedings may not materially impact the Company’s consolidated financial condition or results of operations. Further, no assurance can be given that the amount or scope of existing insurance coverage will be sufficient to cover losses arising from such matters.

cash flows.

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Legal proceedings could result in costs, settlements, damages, or rulings that materially impact the Company’s consolidated financial condition or operating results. The Company believes that it has meritorious defenses, claims and/or counter claims with respect to these proceedings, and intends to vigorously defend itself or pursue its claims.

ITEM 4.MINE SAFETY DISCLOSURES

Not applicable.

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PART II


ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Range

Ticker Symbol and Holders of Market Price

Record

Our common stock is quoted on the NASDAQ Global Select Market under the symbol “PENN.” The following table sets forth for the periods indicated the high and low sales prices per share of our common stock as reported on the NASDAQ Global Select Market.

 

 

 

 

 

 

 

 

 

    

High

    

Low

 

2017

 

 

 

 

 

 

 

First Quarter

 

$

18.50

 

$

13.06

 

Second Quarter

 

 

22.03

 

 

18.11

 

Third Quarter

 

 

23.39

 

 

20.14

 

Fourth Quarter

 

 

31.42

 

 

22.91

 

 

 

 

 

 

 

 

 

2016

 

 

 

 

 

 

 

First Quarter

 

$

16.69

 

$

12.81

 

Second Quarter

 

 

17.32

 

 

13.59

 

Third Quarter

 

 

15.07

 

 

12.72

 

Fourth Quarter

 

 

14.62

 

 

11.98

 

The closing sale price per share of our common stock on the NASDAQ Global Select Market on February 15, 2018 was $28.18.  As of February 15, 2018,19, 2021, there were approximately 4341,647 holders of record of our common stock.

Dividend Policy

Dividends
Since our initial public offering of common stock in May 1994, we have not paid any cash dividends on our common stock. We intend to retain all of our earnings to finance the development of our business, and thus, do not anticipate paying cash dividends on our common stock for the foreseeable future. Payment of any cash dividends in the future will be at the discretion of our Board of Directors and will depend upon, among other things, our future earnings, operations and capital requirements, our general financial condition and general business conditions. In addition, our senior secured credit facilitySenior Secured Credit Facilities and senior notes restrict, among other things, our ability to pay dividends. In addition, futureFuture financing arrangements may also prohibit the payment of dividends under certain conditions.

44

Sales of Unregistered Equity Securities

Table of Contents

Stock Repurchase

On February 3, 2017, the Company announced a repurchase program pursuant to which the Board of Directors authorized the repurchase of up to $100 million of the Company’s common stock which can be executed over a two year period. The following table provides information regarding purchases of our common stock pursuant to the repurchase program forDuring the year ended December 31, 2017.  All2020, the Company issued 883 shares of Series D Preferred Stock, par value $0.01 per share (the “Series D Preferred Stock”), to certain individual stockholders affiliated with Barstool Sports as disclosed in the repurchased shares have been retired.  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Number of

 

Maximum Dollar

 

 

 

 

 

 

 

 

Shares Purchased as

 

Value of Shares that

 

 

 

 

 

 

 

 

Part of Publicly

 

May Yet Be

 

 

    

Total Number of

    

Average Price Paid

    

Announced

    

Purchased Under

 

 

 

Shares Purchased

 

per Share

 

Program

 

the Program

 

 

 

 

 

 

 

 

 

 

 

 

January 1, 2017 - January 31 2017

 

 —

 

 

 —

 

N/A

 

N/A

 

February 1, 2017 - February 28, 2017

 

416,886

 

$

13.88

 

416,886

$

94,214,031

 

March 1, 2017 - March 31, 2017

 

 —

 

 

 —

 

N/A

$

94,214,031

 

April 1, 2017 - April 30, 2017

 

 —

 

 

 —

 

N/A

$

94,214,031

 

May 1, 2017 - May 31, 2017

 

 —

 

 

 —

 

N/A

$

94,214,031

 

June 1, 2017 - June 30, 2017

 

 —

 

 

 —

 

N/A

$

94,214,031

 

July 1, 2017 - July 31, 2017

 

 —

 

 

 —

 

N/A

$

94,214,031

 

August 1, 2017 - August 31, 2017

 

214,000

 

$

22.08

 

630,886

$

89,489,831

 

September 1, 2017 - September 30, 2017

 

633,263

 

$

22.52

 

1,264,149

$

75,229,530

 

October 1, 2017 - October 31, 2017

 

 —

 

 

 —

 

N/A

$

75,229,530

 

November 1, 2017 - November 30, 2017

 

 —

 

 

 —

 

N/A

$

75,229,530

 

December 1, 2017 - December 31, 2017

 

 —

 

 

 —

 

N/A

$

75,229,530

 

45

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ITEM 6.  SELECTED FINANCIAL DATA

The following selected consolidated financialCompany's Current Report on Form 8-K filed on January 29, 2020 and operating data for the five‑year period ended December 31, 2017 are derived from our audited financial statementsdiscussed in Note 7, "Investments in and should be read in conjunction with our consolidated financial statements and notes thereto, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the other financial information included herein.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31,

 

 

 

2017(1)

 

2016

 

2015(2)

 

2014(3)

 

2013(4)

 

 

 

(in thousands, except per share data)

 

Income statement data:

    

 

    

    

 

    

    

 

    

    

 

    

    

 

    

 

Net revenues

 

$

3,147,970

 

$

3,034,380

 

$

2,838,358

 

$

2,590,527

 

$

2,777,886

 

Total operating expenses

 

 

2,702,256

 

 

2,491,364

 

 

2,370,512

 

 

2,333,339

 

 

3,201,754

 

Income (loss) from continuing operations

 

 

445,714

 

 

543,016

 

 

467,846

 

 

257,188

 

 

(423,868)

 

Total other expenses

 

 

(470,758)

 

 

(422,399)

 

 

(411,236)

 

 

(410,491)

 

 

(202,509)

 

Income (loss) from continuing operations before income taxes

 

 

(25,044)

 

 

120,617

 

 

56,610

 

 

(153,303)

 

 

(626,377)

 

Income tax (benefit) provision

 

 

(498,507)

 

 

11,307

 

 

55,924

 

 

30,519

 

 

(33,580)

 

Net income (loss) from continuing operations including noncontrolling interests

 

 

473,463

 

 

109,310

 

 

686

 

 

(183,822)

 

 

(592,797)

 

Net income from discontinued operations net of tax

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

11,545

 

Net income (loss) attributable to the shareholders of Penn

 

$

473,463

 

$

109,310

 

$

686

 

$

(183,822)

 

$

(581,252)

 

Per share data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per common share from continuing operations

 

$

5.21

 

$

1.21

 

$

0.01

 

$

(2.34)

 

$

(7.59)

 

Diluted earnings (loss) per common share from continuing operations

 

$

5.07

 

$

1.19

 

$

0.01

 

$

(2.34)

 

$

(7.59)

 

Basic earnings per common share from discontinued operations

 

 

N/A

 

 

N/A

 

$

N/A

 

$

N/A

 

$

0.15

 

Diluted earnings per common share from discontinued operations

 

 

N/A

 

 

N/A

 

$

N/A

 

$

N/A

 

$

0.15

 

Weighted shares outstanding—Basic(5)

 

 

90,854

 

 

82,929

 

 

80,003

 

 

78,425

 

 

78,111

 

Weighted shares outstanding—Diluted(5)

 

 

93,378

 

 

91,407

 

 

90,904

 

 

78,425

 

 

78,111

 

Other data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities (6)

 

$

459,079

 

$

411,719

 

$

413,808

 

$

272,583

 

$

464,538

 

Net cash used in investing activities

 

 

(221,608)

 

 

(79,288)

 

 

(781,005)

 

 

(375,536)

 

 

(180,357)

 

Net cash (used in) provided by financing activities (6)

 

 

(189,028)

 

 

(339,930)

 

 

395,533

 

 

18,631

 

 

(251,653)

 

Depreciation and amortization

 

 

267,062

 

 

271,214

 

 

259,461

 

 

266,742

 

 

303,404

 

Interest expense

 

 

466,761

 

 

459,243

 

 

443,127

 

 

425,114

 

 

159,897

 

Capital expenditures

 

 

99,261

 

 

97,245

 

 

199,240

 

 

228,145

 

 

196,600

 

Balance sheet data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

277,953

 

$

229,510

 

$

237,009

 

$

208,673

 

$

292,995

 

Total assets

 

 

5,234,812

 

 

4,974,484

 

 

5,138,752

 

 

4,624,551

 

 

4,467,587

 

Total financing obligation

 

 

3,538,821

 

 

3,514,080

 

 

3,564,628

 

 

3,611,513

 

 

3,534,809

 

Total debt(7)

 

 

1,250,237

 

 

1,415,534

 

 

1,710,959

 

 

1,241,430

 

 

1,044,995

 

Shareholders’ deficit

 

 

(73,146)

 

 

(543,320)

 

 

(678,043)

 

 

(708,014)

 

 

(550,852)

 

Advances to Unconsolidated Affiliates."


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(1)

For the year ended December 31, 2017, the Company recorded goodwill impairment charges of $14.8 million within our South/West segment and $3.2 million within our Other category and a provision for its loan and unfunded loan commitments to the JIVDC of $89.8 million.  The Company also released $741.9 million of its total valuation allowance for the year ended December 31, 2017. Finally, during the fourth quarter of 2017, the Company recorded a $261.3 million write down of our deferred tax assets due to the lowering of the corporate tax rate to 21% effective on January 1, 2018.

(2)

For the year ended December 31, 2015, the Company recorded other intangible assets impairment charges of $40.0 million related to the write‑off of our Plainridge Park Casino gaming license and a partial write‑down of the gaming license at Hollywood Gaming at Dayton Raceway due to a reduction in the long term earnings forecast at both of these locations.

(3)

During the fourth quarter of 2014, the Company recorded goodwill and other intangible assets impairment charges of $155.3 million as we determined that a portion of the value of our goodwill and other intangible assets was impaired due to our outlook of continued challenging regional gaming conditions which persisted in 2014 at certain properties in our Midwest segment, as well as for the write‑off of a trademark intangible asset in the South/West segment. During the second quarter of 2014, the Company recorded an impairment charge of $4.6 million to write‑down certain idle assets to their estimated salvage value. Interest expense on the Master Lease financing obligation, which became effective November 1, 2013, was $379.2 million for the year ended December 31, 2014.

(4)

The Company recorded impairment charges of $724.2 million, which included the impact of the spin‑off, during the year ended December 31, 2013. In addition, as a result of a new gaming license being awarded for the development of an additional casino in Sioux City, Iowa to another applicant in April 2013, we recorded an impairment charge of $71.8 million for Argosy Casino Sioux City during the year ended December 31, 2013. Additionally, in conjunction with the relocation of our two racetracks in Ohio, we recorded an impairment charge of $2.2 million during the year ended December 31, 2013. Furthermore, for 2013, we incurred a $61.7 million loss on the early extinguishment of debt, transaction costs associated with the Spin‑Off of $39.5 million, and interest expense on the Master Lease financing obligation of $62.1 million. Finally, we recorded a valuation allowance in the fourth quarter of 2013 of which $90.3 million was recorded as income tax provision and $599.9 million was recorded as part of the Spin‑Off transaction.

(5)

Since we reported a loss from operations for the years ended December 31, 2014 and 2013, we were required to use basic weighted‑average common shares outstanding because to include diluted shares would be anti-dilutive.

(6)

On January 1, 2017, the Company adopted ASU 2016-09 and retrospectively reclassified the amount of excess tax deductions for share-based payment award transactions from financing activities to operating activities.

(7)

During the first quarter of 2015, the Company adopted ASU 2015-03 and retrospectively reclassified the amount of deferred financing fees previously recorded as an asset, to an offset to the Company’s long-term debt.

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ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

On February 8, 2018,

The following discussion and analysis of financial condition, results of operations, liquidity and capital resources should be read in conjunction with, and is qualified in its entirety by, our Consolidated Financial Statements and the Company issued a press release summarizing itsnotes thereto, included in this Annual Report on Form 10-K, and other filings with the Securities and Exchange Commission. This management’s discussion and analysis of financial condition and results of operations includes discussion as of and for the fourth quarter and year ended December 31, 2017.  These2020 compared to December 31, 2019. Discussion of our financial condition and results included an impairment charge of $48.5 million on the Company’s loanoperations as of and unfunded loan commitments to the JIVDC.  In late February 2018, the Company and the Jamul Tribe mutually agreed that Penn would no longer manage the facility or provide branding and development services on May 28, 2018. The company will provide a transition that it anticipates will last through approximately late May.  As a result, the Company recorded an additional charge of $29.4 million on the loan and unfunded loan commitments to the JIVDC for the fourth quarter and year ended December 31, 2017.

2019 compared to December 31, 2018 can be found in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the Securities and Exchange Commission on February 27, 2020.


EXECUTIVE OVERVIEW
Our Operations

We areBusiness

Penn National Gaming, Inc., together with its subsidiaries (“Penn National,” the “Company,” “we,” “our,” or “us”), is a leading, geographically diversified, multi‑jurisdictionalmulti-jurisdictional owner and manager of gaming and racing facilitiesproperties, retail and online sports betting operations, and video gaming terminal (“VGT”) operations. In 2015, we launched ourOur wholly-owned interactive gaming strategy through our subsidiary,division, Penn Interactive Ventures, which focusesLLC (“Penn Interactive”), operates retail sports betting across the Company’s portfolio, as well as online sports betting, online social casino, bingo and online casinos (“iGaming”).In February 2020, the Company acquired 36% (inclusive of 1% on sociala delayed basis) equity interest in Barstool Sports, Inc. (“Barstool Sports”), a leading digital sports, entertainment, lifestyle and media company, and entered into a strategic relationship with Barstool Sports, whereby Barstool Sports will exclusively promote the Company's land-based retail sportsbooks, iGaming products and online sports betting products, including the Barstool Sportsbook mobile app, to its national audience. We launched an online sports betting app called Barstool Sports in Pennsylvania in September 2020 and in Michigan in January 2021. We also operate iGaming in Pennsylvania and Michigan. Our mychoice program currently has over 20 million members and provides such members with various benefits, including complimentary goods and/or services. The Company’s strategy has continued to evolve from an owner and manager of gaming products.

and racing properties into an omni-channel provider of retail and online gaming, live racing and sports betting entertainment. We believe our continued evolution into a best-in-class omni-channel provider of retail and online gaming and sports betting entertainment will be a catalyst for our core land-based business, while also providing a platform for significant long-term shareholder value.


As of December 31, 2017,2020, we owned, managed, or had ownership interests in twenty‑nine facilities41 gaming and racing properties in 19 states and were licensed to offer live sports betting at our properties in Colorado, Illinois, Indiana, Iowa, Michigan, Mississippi, Nevada, Pennsylvania and West Virginia. The majority of the real estate assets (i.e., land and buildings) used in our operations are subject to triple net master leases; the most significant of which are the Penn Master Lease and the Pinnacle Master Lease (as such terms are defined in “Liquidity and Capital Resources” and collectively referred to as the “Master Leases”), with Gaming and Leisure Properties, Inc. (Nasdaq: GLPI) (“GLPI”), a real estate investment trust (“REIT”). In addition, we are currently developing two Category 4 satellite gaming casinos in Pennsylvania: Hollywood Casino York and Hollywood Casino Morgantown, both of which are expected to commence operations by the end of 2021.

Impact of the COVID-19 Pandemic and Company Response
On March 11, 2020, the World Health Organization declared the novel coronavirus (known as “COVID-19”) outbreak to be a global pandemic. We began temporarily suspending the operations of all of our properties between March 13, 2020 and March 19, 2020 pursuant to various orders from state gaming regulatory bodies or governmental authorities to combat the rapid spread of COVID-19. We began reopening our properties on May 18, 2020 with reduced gaming and hotel capacity and limited food and beverage offerings in order to accommodate comprehensive social distancing and health and safety protocols.

During the fourth quarter of 2020, our properties temporarily suspended operations in Pennsylvania, Michigan and Illinois and were subject to increased operational restrictions in Ohio and Massachusetts (among other states). Our Michigan property was temporarily closed on November 17, 2020 and reopened December 23, 2020. Our Pennsylvania properties were temporarily closed on December 12, 2020 and reopened on January 4, 2021. Our Illinois properties were temporarily closed on November 20, 2020 and began reopening with limited hours of operations beginning January 16, 2021 and throughout the week. The property closures were pursuant to various orders from state gaming regulatory bodies or governmental authorities to combat the rapid spread of COVID-19. As of February 26, 2021, all of our properties were open to the public with the
26
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exception of Zia Park and Valley Race Park, which remain closed. For a thorough discussion of the operating performance of our properties, see “Results of Operations” below.

Between March 13, 2020 and December 31, 2020, we entered into a series of transactions to improve our financial position and liquidity in light of the COVID-19 pandemic, including: (i) on March 13, 2020, we provided notice to our lenders to borrow the remaining available amount of $430.0 million under our Revolving Credit Facility; (ii) on March 27, 2020, we entered into a binding term sheet with GLPI (the “Term Sheet”) whereby GLPI agreed to (a) purchase the real estate assets associated with Tropicana Las Vegas (“Tropicana”) in exchange for rent credits of $307.5 million, which closed on April 16, 2020, and (b) a sale-leaseback of the land underlying our Hollywood Casino Morgantown (“Morgantown”) development project in Morgantown, Pennsylvania, in exchange for rent credits of $30.0 million, which closed on October 1, 2020; (iii) on May 14, 2020 (May 19, 2020 with respect to the underwriters’ exercising their options to acquire additional 2.75% Convertible Notes), we completed a public offering of $330.5 million aggregate principal amount of 2.75% Convertible Notes; (iv) on May 14, 2020 (May 19, 2020 with respect to the underwriters’ exercising their options to purchase additional shares), we completed a public offering of 19,166,667 aggregate shares of common stock, par value of $0.01 per share, of the Company (“Penn Common Stock”) for gross proceeds of $345.0 million; and (v) on September 24, 2020 (September 25, 2020 with respect to the underwriters’ exercising their options to purchase additional shares), we completed a public offering of 16,100,000 aggregate shares of Penn Common Stock for gross proceeds of $982.1 million. In addition, on April 14, 2020, the Company entered into an amendment to its Credit Agreement, which, among other things, provides it with relief from its financial covenants for a period of up to one year. On September 30, 2020, the Company fully repaid $670.0 million of outstanding borrowings under its Revolving Credit Facility. Further, on November 12, 2020 the Company prepaid $115.0 million of outstanding borrowings on its Term Loan B-1 Facility. The terms “Revolving Credit Facility,” “Convertible Notes,” “Credit Agreement” and "Term Loan B-1" are defined in “Liquidity and Capital Resources”.

The COVID-19 pandemic caused significant disruptions to our business and had a material adverse impact on our financial condition, results of operations and cash flows, the magnitude of which continues to develop based on (i) the timing and extent of the recovery in visitation and consumer spending at our properties; (ii) the continued impact of implementing social distancing and health and safety guidelines at our properties, including reductions in gaming, hotel capacity, limiting the number of food and beverage options and limiting other amenities; and (iii) whether any of our properties will be required to again temporarily suspend operations in the following seventeen jurisdictions: California, Florida, Illinois, Indiana, Kansas, Maine, Massachusetts, Mississippi, Missouri, Nevada, New Jersey, New Mexico, Ohio, Pennsylvania, Texas, West Virginia,event that the pandemic significantly worsens. We are currently unable to determine whether, when or how the conditions surrounding the COVID-19 pandemic will change or whether the recovery in visitation and Ontario, Canada.

��

consumer spending is sustainable.


The vast majorityCompany could experience other potential adverse impacts as a result of our revenue is gaming revenue, derived primarilythe COVID-19 pandemic, including, but not limited to, further charges from gaming on slot machines (which represented approximately 87% of our gaming revenue in 2017 and 2016 andadjustments to a lesser extent, table games, which is highly dependent upon the volume and spending levels of customers at our properties. Other revenues are derived from our management service fees from Casino Rama, our hotel, dining, retail, admissions, program sales, concessions and certain other ancillary activities, and our racing operations. Our racing revenue includes our share of pari‑mutuel wagering on live races after payment of amounts returned as winning wagers, our share of wagering from import and export simulcasting, and our share of wagering from our off‑track wagering facilities.

Key performance indicators related to gaming revenue are slot handle and table game drop (volume indicators) and “win” or “hold” percentage. Our typical property slot hold percentage is in the range of 6% to 10% of slot handle, and our typical table game win percentage is in the range of 16% to 26% of table game drop.

Slot handle is the gross amount wagered for the period cited. The win or hold percentage is the netcarrying amount of gaming winsgoodwill and losses, with liabilities recognized for accruals related toother intangible assets, long-lived asset impairment charges, or impairments of investments in joint ventures. In addition, the anticipated payoutnegative impacts of progressive jackpots. Our slot hold percentages have consistently beenthe COVID-19 pandemic may result in the 6% to 10% range over the past several years. Given the stability in our slot hold percentages, we have not experienced significant impacts to earnings fromfurther changes in these percentages.

For table games, customers usually purchase cash chips at the gaming tables. The cash and markers (extensions of credit granted to certain credit worthy customers) are deposited in the gaming table’s drop box. Table game win is the amount of drop thatvaluation allowance required. Actual results may differ materially from the Company’s current estimates as the scope of the COVID-19 pandemic evolves, depending largely, though not exclusively, on the impact of required capacity reductions, social distancing and health and safety guidelines, and the sustainability of current trends in recovery at our reopened properties.


Recent Acquisitions, Development Projects and Other
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 of Barstool Sports for a purchase price of $161.2 million. 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 million worth of additional shares of Barstool Sports common stock, consistent with the implied valuation at the time of the initial investment, which was $450.0 million. With respect to the remaining Barstool Sports shares, we have immediately exercisable call rights, and the existing Barstool Sports stockholders have put rights exercisable beginning three years after closing, all based on a fair market value calculation at the time of exercise (subject to a cap of $650.0 million and a floor of 2.25 times the annualized revenue of Barstool Sports, all subject to various adjustments). Upon closing, we became Barstool Sports’ exclusive gaming partner for up to 40 years and have the sole right to utilize the Barstool Sports brand for all of our online and retail sports betting and iGaming products.

As noted above, Penn Interactive launched the Barstool Sports online sports betting app in Pennsylvania in September 2020 and in Michigan in January 2021. In addition, Penn Interactive has entered into multi-year agreements with leading sports betting operators for online sports betting and iGaming market access across our portfolio of properties.

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In December 2020, the Company entered into a definitive agreement to purchase from GLPI the operations of Hollywood Casino Perryville for $31.1 million. The transaction is retainedexpected to close during the second or third quarter of 2021, subject to approval of the Maryland Lottery and recorded as casinoGaming Control Commission and other customary closing conditions. Simultaneous with the closing of the transaction, we would lease the real estate assets associated with Hollywood Casino Perryville from GLPI with initial annual rent of $7.8 million per year subject to escalation.

In May 2019, we acquired Greektown Casino-Hotel (“Greektown”) in Detroit, Michigan, subject to a triple net lease with VICI Properties Inc. (NYSE: VICI) (“VICI”, a REIT and collectively with GLPI, our “REIT Landlords”) (the “Greektown Lease”) and in January 2019, we acquired Margaritaville Casino Resort (“Margaritaville”) in Bossier City, Louisiana, subject to a triple net lease with VICI (the “Margaritaville Lease”). In March 2020, in light of the COVID-19 pandemic, we temporarily suspended construction of our development of two Category 4 satellite gaming revenue, with liabilities recognized for funds deposited by customers before gaming play occurscasinos in Pennsylvania: Hollywood Casino York and for unredeemed gaming chips. As we are primarily focused onMorgantown. We have since restarted construction and expect both casinos to open in late 2021, subject to regulatory approval.
In October 2018, the Company completed the acquisition of Pinnacle Entertainment, Inc. (“Pinnacle”), a leading regional gaming markets, our table win percentages are fairly stable asoperator (the “Pinnacle Acquisition”).In connection with the majority of these markets do not regularly experience high‑end play, which can lead to volatility in win percentages. Therefore, changes in table game win percentages do not typically have a material impactPinnacle Acquisition, we added 12 gaming properties to our earnings.

Our properties generate significant operating cash flow, since mostportfolio, providing us with greater operational scale and geographic diversity. We assumed the Pinnacle Master Lease concurrently with the closing of the Pinnacle Acquisition to our revenue is cash‑based from slot machines, table games,holdings and pari‑mutuel wagering. Our business is capital intensive,has provided us with greater operational scale and we rely ongeographic diversity.


We believe that our portfolio of assets provides us the benefit of geographically-diversified cash flow from our propertiesoperations. We expect to generate operating cash to satisfy our obligations under the Master Lease, repay debt, fund maintenance capital expenditures, fund new capital projects at existing properties and provide excess cash for future development and acquisitions.

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We continue to expand our gaming operations through the implementation and execution of a disciplined capital expenditure program at our existing properties, the pursuit of strategic acquisitions and investments, and the development of new gaming properties, particularly in attractiveproperties. In addition, the partnership with Barstool Sports reflects our strategy to continue evolving from the nation’s largest regional markets. Additional information regarding our capital projects is discussed in detail in the section entitled “Liquiditygaming operator to a best-in-class omni-channel provider of retail and Capital Resources—Capital Expenditures” below.

Segment Information

The Company’s Chief Executive Officer, who is the Company’s Chief Operating Decision Maker (“CODM”), as that term is defined in ASC 280, measures and assesses the Company’s business performance based on regional operations of various properties grouped together based primarily on their geographic locations.

The Northeast reportable segment consists of the following properties: Hollywood Casino at Charles Town Races, Hollywood Casino Bangor, Hollywood Casino at Penn National Race Course, Hollywood Casino Toledo, Hollywood Casino Columbus, Hollywood Gaming at Dayton Raceway, Hollywood Gaming at Mahoning Valley Race Course, and Plainridge Park Casino, which opened on June 24, 2015. It also includes the Company’s Casino Rama management service contract.

The South/West reportable segment consists of the following properties: Zia Park Casino, Hollywood Casino Tunica, Hollywood Casino Gulf Coast, Boomtown Biloxi, M Resort, Tropicana Las Vegas, which was acquired on August 25, 2015, 1st Jackpot and Resorts which were acquired on May 1, 2017, as well as our management contract with Hollywood Casino Jamul-San Diego, which opened on October 10, 2016.

The Midwest reportable segment consists of the following properties: Hollywood Casino Aurora, Hollywood Casino Joliet, Argosy Casino Alton, Argosy Casino Riverside, Hollywood Casino Lawrenceburg, Hollywood Casino St. Louis, and Prairie State Gaming, which the Company acquired on September 1, 2015, and includes the Company’s 50% investment in Kansas Entertainment, LLC (“Kansas Entertainment”), which owns the Hollywood Casino at Kansas Speedway.

The Other category consists of the Company’s standalone racing operations, namely Rosecroft Raceway, which was sold on July 31, 2016, Sanford-Orlando Kennel Club, and the Company’s joint venture interests in Sam Houston Race Park, Valley Race Park, and Freehold Raceway. If the Company is successful in obtaining gaming operations at these locations, they would be assigned to one of the Company’s regional executives and reported in their respective reportable segment. The Other category also includes the Company’s corporate overhead operations, which does not meet the definition of an operating segment under ASC 280. Additionally, the Other category includes Penn Interactive Ventures, the Company’s wholly-owned subsidiary that represents its social online gaming initiatives, including Rocket Speed. Penn Interactive Ventures meets the definition of an operating segment under ASC 280, but is quantitatively not significant to the Company’s operations as it represents less than 2% of net revenues and 5% of income from operations for the year ended December 31, 2017,sports betting entertainment.

Operating and its total assets represent less than 2% of the Company’s total assets at December 31, 2017.

In addition to GAAP financial measures, management uses adjusted EBITDA as an important measure of the operating performance of its segments, including the evaluation of operating personnel and believes it is especially relevant in evaluating large, long lived casino projects because they provide a perspective on the current effects of operating decisions separated from the substantial non-operational depreciation charges and financing costs of such projects. The Company defines adjusted EBITDA as earnings before interest, taxes, stock compensation, debt extinguishment and financing charges, impairment charges, insurance recoveries and deductible charges, depreciation and amortization, changes in the estimated fair valueCompetitive Environment

Most of our contingent purchase price obligations, gainproperties operate in mature, competitive markets. We expect that the majority of our future growth will come from new business lines or loss on disposaldistribution channels, such as retail and online gaming and sports betting; entrance into new jurisdictions; expansions of assets,gaming in existing jurisdictions; and, other income or expenses. Adjusted EBITDA is also inclusiveto a lesser extent, improvements/expansions of income or loss from unconsolidated affiliates, with the Company’s share of non-operating items (such as depreciation and amortization) added back for its joint venture in Kansas Entertainment. Adjusted EBITDA excludes payments associated with our

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Master Lease agreement with GLPI as the transaction is accounted for as a financing obligation. Adjusted EBITDA should not be construed as an alternative to income from operations, as an indicator of the Company’s operating performance, as an alternative to cash flows from operating activities, as a measure of liquidity, or as any other measure of performance determined in accordance with GAAP. The Company has significant uses of cash flows, including capital expenditures, interest payments, taxes and debt principal repayments, which are not reflected in adjusted EBITDA.

Executive Summary

As reported by most jurisdictions, regional gaming industry trends have shown little revenue growth in recent years as numerous jurisdictions now permit gaming or have expanded their gaming offerings. The proliferation of new gaming facilities continues to impact the overall domestic gaming industry as well as our operating results in certain markets.  However, the current economic environment, specifically low unemployment levels, strengths in residential real estate prices, and higher levels of consumer confidence, has resulted in a stable operating environment in recent periods.  Our ability to continue to succeed in this environment will be predicated on operating our existing facilities efficientlyproperties and offering our customers additionalstrategic acquisitions of gaming experiences through our multi-channel distribution strategy.  We will also seek to continue to expand our customer database through accretive acquisitions and capitalize on organic growth opportunities from our recent facility openings and new business lines.

We operate a geographically diversifiedproperties. Our portfolio is comprised largely of new and well maintainedwell-maintained regional gaming facilities. Thisfacilities, which has allowed us to develop what we believe to be a solid base for future growth opportunities supported by a flexible and attractively priced capital structure.opportunities. We have also made investments in joint ventures that we believe maywill allow us to capitalize on additional gaming opportunities in certain states if legislation or referenda are passed that permit and/or expand gaming in these jurisdictions and we are selected as a licensee.

Historically,

As reported by most jurisdictions, regional gaming industry trends have shown little revenue growth the Companylast several years as numerous jurisdictions now permit gaming or have expanded their gaming offerings. In recent years, the proliferation of new gaming properties has impacted the overall domestic gaming industry as well as our results of operations in certain markets. Prior to the COVID-19 pandemic, the economic environment, specifically historically low levels of unemployment, strength in residential real estate prices, and high levels of consumer confidence, had resulted in a stable operating environment in recent years. The COVID-19 pandemic has increased the level of unemployment and decreased the level of consumer confidence. Our ability to succeed in this new environment will be predicated on our ability to adjust operations and cost structures at our reopened properties to reflect the new economic and health and safety conditions, operating our properties efficiently, realizing revenue and cost synergies from recent acquisitions, and offering our customers additional gaming experiences through our omni-channel distribution strategy. We seek to continue to expand our customer database through accretive acquisitions or investments, such as Barstool Sports, capitalize on organic growth opportunities from the development of new properties or the expansion of recently-developed business lines, and develop partnerships that allow us to enter new jurisdictions for iGaming and sports betting.
The gaming industry is characterized by an increasingly high degree of competition among a large number of participants, including riverboat casinos; dockside casinos; land-based casinos; video lottery; iGaming; online and retail sports betting; gaming at taverns; gaming at truck stop establishments; sweepstakes and poker machines not located in casinos; the potential for increased fantasy sports, significant growth of Native American gaming tribes, historic racing or state-sponsored i-lottery products in or adjacent to states we operate in; and other forms of gaming in the U.S. See the “Segment comparison of the years ended December 31, 2020 and 2019” section below for discussions of the impact of competition on our results of operations by reportable segment.
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Key Performance Indicators
In our business, revenue is driven by discretionary consumer spending. We have no certain mechanism for determining why consumers choose to spend more or less money at our properties from period-to-period; therefore, we are unable to quantify a dollar amount for each factor that impacts our customers’ spending behaviors. However, based on our experience, we can generally offer some insight into the factors that we believe are likely to account for such changes and which factors may have a greater impact than others. For example, decreases in discretionary consumer spending have historically been reliantbrought about by weakened general economic conditions, such as lackluster recoveries from recessions, high unemployment levels, higher income taxes, low levels of consumer confidence, weakness in the housing market, and high fuel or other transportation costs. We believe that the COVID-19 pandemic has led to and will continue to lead to meaningful decreases in discretionary consumer spending and will continue to negatively impact visitation at our properties and the volume of play for the foreseeable future. In addition, visitation and the volume of play have historically been negatively impacted by significant construction surrounding our properties, adverse regional weather conditions and natural disasters. In all instances, such insights are based solely on our judgment and professional experience, and no assurance can be given as to the accuracy of our judgments.
The vast majority of our revenues is gaming revenue, which is highly dependent upon the volume and spending levels of customers at our properties. Our gaming revenue is derived primarily from slot machines (which represented approximately 87%, 92% and 92% of our gaming revenue in 2020, 2019 and 2018, respectively) and, to a lesser extent, table games and sports betting. Aside from gaming revenue, our revenues are derived from our hotel, dining, retail, commissions, program sales, admissions, concessions and certain keyother ancillary activities, and our racing operations.
Key performance indicators related to gaming revenue are slot handle and table game drop, which are volume indicators, and “win” or “hold” percentage. Our typical property slot win percentage is in the range of approximately 7% to 10% of slot handle, and our typical table game hold percentage is in the range of approximately 14% to 27% of table game drop.
Slot handle is the gross amount wagered during a given period. The win or hold percentage is the net amount of gaming wins and losses, with liabilities recognized for accruals related to the anticipated payout of progressive jackpots. Given the stability in our slot hold percentages on a historical basis, we have not experienced significant impacts to net income from changes in these percentages. For table games, customers usually purchase chips at the gaming tables. The cash and markers (extensions of credit granted to certain credit-worthy customers) are deposited in the gaming table’s drop box. Table game hold is the amount of drop that is retained and recorded as gaming revenue, with liabilities recognized for funds deposited by customers before gaming play occurs and for unredeemed gaming chips. As we are primarily focused on regional gaming markets, (for example, itsour table game hold percentages are fairly stable as the majority of these markets do not regularly experience high-end play, which can lead to volatility in hold percentages. Therefore, changes in table game hold percentages do not typically have a material impact to our results of operations and cash flows.
Under normal operating conditions, our properties generate significant operating cash flow since most of our revenue is cash-based from Hollywood Casino at Charles Town Racesslot machines, table games, and Hollywood Casino Lawrenceburg). Over the past several years, we have diversified our operations via development of new facilities and acquisitionspari-mutuel wagering. Our business is capital intensive, and we anticipate further reducingrely on cash flow from our relianceproperties to generate sufficient cash to satisfy our obligations under the Triple Net Leases (as defined in "Liquidity and Capital Resources”), repay debt, fund maintenance capital expenditures, fund new capital projects at existing properties and provide excess cash for future development and acquisitions. Additional information regarding our capital projects is discussed in “Liquidity and Capital Resources” below.
Reportable Segments
We view each of our gaming and racing properties as an operating segment with the exception of our two properties in Jackpot, Nevada, which we view as one operating segment. We consider our combined VGT operations, by state, to be separate operating segments. We aggregate our operating segments into four reportable segments: Northeast, South, West and Midwest. For a listing of our gaming properties and VGT operations included in each reportable segment, see Note 2, “Significant Accounting Policies,” in the notes to our Consolidated Financial Statements.
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RESULTS OF OPERATIONS
The following table highlights our revenues, net income (loss), and Adjusted EBITDA, on specific properties subsequenta consolidated basis, as well as our revenues and Adjusted EBITDAR by reportable segment. Such segment reporting is on a basis consistent with how we measure our business and allocate resources internally. We consider net income (loss) to be the closingmost directly comparable financial measure calculated in accordance with generally accepted accounting principles in the United States (“GAAP”) to Adjusted EBITDA and Adjusted EBITDAR, which are non-GAAP financial measures. Refer to “Non-GAAP Financial Measures” below for the definitions of Adjusted EBITDA, Adjusted EBITDAR, and Adjusted EBITDAR margin; as well as a reconciliation of net income (loss) to Adjusted EBITDA, Adjusted EBITDAR and Adjusted EBITDAR margin.
 For the year ended December 31,
(dollars in millions)202020192018
Revenues:   
Northeast segment$1,639.3$2,399.9$1,891.5
South segment849.61,118.9394.4
West segment302.5642.5437.9
Midwest segment681.41,094.5823.7
Other (1)
125.047.540.4
Intersegment eliminations (2)
(19.1)(1.9)—
Total$3,578.7$5,301.4$3,587.9
Net income (loss)$(669.1)$43.1$93.5
Adjusted EBITDAR:   
Northeast segment$478.9$720.8$583.8
South segment318.9369.8118.9
West segment82.2198.8114.3
Midwest segment258.3403.6294.3
Other (1)
(43.5)(87.8)(68.1)
Total (3)
1,094.81,605.21,043.2
Rent expense associated with triple net operating leases (4)
(419.8)(366.4)(3.8)
Adjusted EBITDA$675.0$1,238.8$1,039.4
Net income (loss) margin(18.7)%0.8 %2.6 %
Adjusted EBITDAR margin30.6 %30.3 %29.1 %
(1)The Other category consists of the Pinnacle transaction.

On December 18, 2017, we announcedCompany’s stand-alone racing operations, namely Sanford-Orlando Kennel Club and the Company’s joint venture interests in Sam Houston Race Park, Valley Race Park, and Freehold Raceway; our management contract for Retama Park Racetrack and our live and televised poker tournament series that we had entered intooperates under the trade name, Heartland Poker Tour ("HPT"). The Other category also includes Penn Interactive, which operates our social gaming, internally-branded retail sportsbooks, iGaming and our Barstool Sports online sports betting app. Expenses incurred for corporate and shared services activities that are directly attributable to a definitive agreement underproperty or are otherwise incurred to support a property are allocated to each property. The Other category also includes corporate overhead costs, which we will acquire Pinnacle inconsist of certain expenses, such as: payroll, professional fees, travel expenses and other general and administrative expenses that do not directly relate to or have not otherwise been allocated to a cash and stock transaction valued at approximately $2.8 billion inclusive of assumed indebtedness. Under the termsproperty. In addition, Adjusted EBITDAR of the agreement, Pinnacle shareholders will receive $20.00 in cash and 0.42 shares of Penn common stock for each Pinnacle share.

Coincident with the closing, we plan to divest the membership interests of certain Pinnacle subsidiaries which operate the casinos known as Ameristar Casino Resort Spa St. Charles (Missouri), Ameristar Casino Hotel Kansas City (Missouri), Belterra Casino Resort (Indiana), and Belterra Park (Ohio) to Boyd Gaming Corp (“Boyd”) for approximately $575 million in cash. These divestitures are anticipated to occur immediately prior to, and are conditioned upon, the completionOther category includes our proportionate share of the Pinnacle acquisition. Additionally, atnet income or loss of Barstool Sports after adding back our share of non-operating items (such as interest expense, net; income taxes; depreciation and amortization; and stock-based compensation expense).

(2)Represents the closingelimination of intersegment revenues associated with Penn Interactive and HPT.
(3)The total is a mathematical calculation derived from the merger, (i) GLPI will acquiresum of reportable segments (as well as the real estateOther category). As noted within “Non-GAAP Financial Measures” below, Adjusted EBITDAR, and the related margin, is presented on a consolidated basis outside the financial statements solely as a valuation metric.
(4)Solely comprised of rent expense associated with the Plainridge Park Casino for $250 million,operating lease components contained within the Master Leases (primarily land), the Tropicana Lease, the Meadows Lease, the Margaritaville Lease and concurrently be leased backthe Greektown Lease (of which the Tropicana Lease, Meadows Lease, Margaritaville Lease and the Greektown Lease as defined in “Liquidity and Capital Resources” and are referred to Penn pursuantcollectively as our “triple net operating leases”). The finance lease components contained within the Master Leases (primarily buildings) and the financing obligation associated with the Morgantown Lease (as defined in “Liquidity and Capital Resources”) result in interest expense, as opposed to the amended Pinnacle master lease for a fixed annual rent of $25 million and (ii) GLPI will acquire the real estate assets of Belterra Park from Penn for approximately $65 million, which subsequently will be included in an amended master lease between GLPI and Boyd.  The amended Pinnacle Master Lease will be adjusted for incremental rent of $13.9 million to adjust to market conditions. 

We will have significantly greater operational and geographic diversity and operate a combined 41 properties in 20 jurisdictions throughout North America. The transaction is expected to generate $100 million in annual run-rate cost synergies achieved within 24 months of closing.    We also believe the transaction will present opportunities with respect to increased Las Vegas visitation and higher social gaming revenues from the enhanced scale and size of the customer database. 

expense.

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Penn has received committed financing forDuring the transaction, subjectyear ended December 31, 2020 and as of February 26, 2021, our properties temporary closure dates pursuant to customary conditions,various orders from BofA Merrill Lynch and Goldman Sachs Bank USA, and expectsstate gaming regulatory bodies or governmental authorities to fundcombat the acquisition with a combinationrapid spread of COVID-19 are shown below:

LocationTemporary Closure and Reopening DateTemporary Closure and Reopening Date
Northeast segment
Ameristar East ChicagoEast Chicago, INMarch 16, 2020 - June 15, 2020
Greektown Casino-HotelDetroit, MIMarch 16, 2020 - August 5, 2020November 17, 2020 - December 23, 2020
Hollywood Casino BangorBangor, MEMarch 16, 2020 - July 10, 2020
Hollywood Casino at Charles Town RacesCharles Town, WVMarch 18, 2020 - June 5, 2020
Hollywood Casino ColumbusColumbus, OHMarch 13, 2020 - June 19, 2020
Hollywood Casino LawrenceburgLawrenceburg, INMarch 16, 2020 - June 15, 2020
Hollywood Casino at Penn National Race CourseGrantville, PAMarch 17, 2020 - June 19, 2020December 12, 2020 - January 4, 2021
Hollywood Casino ToledoToledo, OHMarch 13, 2020 - June 19, 2020
Hollywood Gaming at Dayton RacewayDayton, OHMarch 13, 2020 - June 19, 2020
Hollywood Gaming at Mahoning Valley Race CourseYoungstown, OHMarch 13, 2020 - June 19, 2020
Marquee by Penn (1)
PennsylvaniaMarch 19, 2020 - June 5, 2020December 12, 2020 - January 4, 2021
Meadows Racetrack and CasinoWashington, PAMarch 17, 2020 - June 9, 2020December 12, 2020 - January 4, 2021
Plainridge Park CasinoPlainville, MAMarch 15, 2020 - July 8, 2020
South segment
1st Jackpot Casino
Tunica, MSMarch 17, 2020 - May 21, 2020
Ameristar VicksburgVicksburg, MSMarch 17, 2020 - May 21, 2020
Boomtown BiloxiBiloxi, MSMarch 17, 2020 - May 21, 2020
Boomtown Bossier CityBossier City, LAMarch 17, 2020 - May 20, 2020
Boomtown New OrleansNew Orleans, LAMarch 17, 2020 - May 18, 2020
Hollywood Casino Gulf CoastBay St. Louis, MSMarch 17, 2020 - May 21, 2020
Hollywood Casino TunicaTunica, MSMarch 17, 2020 - May 21, 2020
L’Auberge Baton RougeBaton Rouge, LAMarch 17, 2020 - May 18, 2020
L’Auberge Lake CharlesLake Charles, LAMarch 17, 2020 - May 18, 2020
Margaritaville Resort CasinoBossier City, LAMarch 17, 2020 - May 18, 2020
West segment
Ameristar Black HawkBlack Hawk, COMarch 17, 2020 - June 17, 2020
Cactus Petes and HorseshuJackpot, NVMarch 17, 2020 - June 4, 2020
M ResortHenderson, NVMarch 17, 2020 - June 4, 2020
Tropicana Las VegasLas Vegas, NVMarch 17, 2020 - September 17, 2020
Zia Park CasinoHobbs, NMMarch 16, 2020 - remains closed
Midwest segment
Ameristar Council BluffsCouncil Bluffs, IAMarch 17, 2020 - June 1, 2020
Argosy Casino AltonAlton, ILMarch 16, 2020 - July 1, 2020November 20, 2020 - January 23, 2021
Argosy Casino RiversideRiverside, MOMarch 18, 2020 - June 1, 2020
Hollywood Casino AuroraAurora, ILMarch 16, 2020 - July 1, 2020November 20, 2020 - January 19, 2021
Hollywood Casino JolietJoliet, ILMarch 16, 2020 - July 1, 2020November 20, 2020 - January 22, 2021
Hollywood Casino at Kansas SpeedwayKansas City, KSMarch 17, 2020 - May 25, 2020
Hollywood Casino St. LouisMaryland Heights, MOMarch 18, 2020 - June 16, 2020
Prairie State Gaming (1)
IllinoisMarch 16, 2020 - July 1, 2020November 20, 2020 - January 16, 2021
River City CasinoSt. Louis, MOMarch 18, 2020 - June 16, 2020
Other
Freehold RacewayFreehold, NJMarch 16, 2020 - August 27, 2020
Retama Park RacetrackSelma, TXMarch 19, 2020 - June 4, 2020
Sam Houston Race ParkHouston, TXMarch 19, 2020 - June 4, 2020
Sanford-Orlando Kennel ClubLongwood, FLMarch 13, 2020 - May 26, 2020
Valley Race ParkHarlingen, TXMarch 19, 2020 - remains closed
(1)VGT route operations



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Consolidated comparison of the proceeds from the Boydyears ended December 31, 2020 and GLPI transactions, existing cash on its balance sheet2019
Revenues
The following table presents our consolidated revenues:
 For the year ended December 31,$ Change% Change
(dollars in millions)2020201920182020 vs. 20192019 vs. 20182020 vs. 20192019 vs. 2018
Revenues
Gaming$3,051.1 $4,268.7 $2,894.9 $(1,217.6)$1,373.8 (28.5)%47.5 %
Food, beverage, hotel and other527.6 1,032.7 629.7 (505.1)403.0 (48.9)%64.0 %
Management service and license fees— — 6.0 — (6.0)— (100.0)%
Reimbursable management costs— — 57.3 — (57.3)— (100.0)%
Total revenues$3,578.7 $5,301.4 $3,587.9 $(1,722.7)$1,713.5 (32.5)%47.8 %

Gaming revenues and new debt financing. Penn anticipates that the additional cash flow resulting from the acquisition will allow it to pay down debt on an accelerated basis after closing.

The transaction has been approved by the boards of directors of both companies and is now subject to approval of the shareholders of Penn and Pinnacle, the approval of applicable gaming authorities, the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Actfood, beverage, hotel and other customary closing conditions. The companies expect the transaction to close in the second half of 2018.

Upon completion of the transaction, former Penn and Pinnacle shareholders will hold 78 percent and 22 percent, respectively, of the combined company’s outstanding shares.

Financial Highlights:

We reported net revenues and income from operations of $3,148.0 million and $445.7 million, respectively, for the year ended December 31, 2017,2020 decreased compared to net revenues and income from operations of $3,034.4 million and $543.0 million, respectively, for the corresponding period in the prior year. year primarily as a result of the COVID-19 pandemic, which caused temporary closures of all of our properties during the year, and upon subsequent property reopenings, our operations were impacted by operating restrictions. Our properties are subject to restrictions on gaming capacity, which depending on the jurisdiction, are generally 50% less gaming devices. Furthermore, due primarily to the implementation of social distancing and health and safety protocols, our properties are subject to reduced hotel capacity, limitations on the number of food and beverage offerings and limitations on other amenities. As a result, upon reopening our properties, gaming revenue now represents a larger portion of our total revenues, which we expect to continue until at least such time that social distancing and health and safety protocols are relaxed or no longer necessary.


Since reopening, our properties have generally experienced reduced visitation and higher spend per trip, as compared to pre-closure levels. We largely attribute the higher spend per trip to pent-up demand, visitation from our higher worth customers, and customers’ propensity to spend after a prolonged period of limited domestic commerce and upon receipt of government stimulus payments. In addition, in many of the states in which we operate, leisure alternatives remain partially limited (e.g., bars, concerts, entertainment events, etc.), which may have impacted our operating results upon reopening our properties. See “Segment comparison of the years ended December 31, 2020, and 2019” below for more detailed explanations of the fluctuations in revenues.
Operating expenses
The major factors affectingfollowing table presents our resultsconsolidated operating expenses:
 For the year ended December 31,$ Change% Change
(dollars in millions)2020201920182020 vs. 20192019 vs. 20182020 vs. 20192019 vs. 2018
Operating expenses
Gaming$1,530.3 $2,281.8 $1,551.4 $(751.5)$730.4 (32.9)%47.1 %
Food, beverage, hotel and other337.7 672.7 439.3 (335.0)233.4 (49.8)%53.1 %
General and administrative1,130.8 1,187.7 618.9 (56.9)568.8 (4.8)%91.9 %
Reimbursable management costs— — 57.3 — (57.3)— (100.0)%
Depreciation and amortization366.7 414.2 269.0 (47.5)145.2 (11.5)%54.0 %
Impairment losses623.4 173.1 34.9 450.3 138.2 260.1 %396.0 %
Recoveries on loan loss and unfunded loan commitments— — (17.0)— 17.0 — (100.0)%
Total operating expenses$3,988.9 $4,729.5 $2,953.8 $(740.6)$1,775.7 (15.7)%60.1 %

Gaming expenses consist primarily of salaries and wages associated with our gaming operations and gaming taxes. Food, beverage, hotel and other expenses consist principally of salaries and wages and costs of goods sold associated with our food, beverage, hotel, retail, racing, and other operations. Gaming, food, beverage, hotel and other expenses for the year ended December 31, 2017,2020 decreased year over year primarily as compareda result of the temporary closures of all of our properties due to the
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COVID-19 pandemic, which reduced our salaries and wages, gaming taxes, costs of goods sold, and other expenses. As discussed above, our reopened properties are operating with reduced gaming, hotel capacity, limited food and beverage and limited other amenity offerings. As such, our properties are operating with a reduced workforce, which reduced our salaries and wages. In addition, our properties have reduced marketing costs, which reduces gaming expenses.
General and administrative expenses include items such as compliance, facility maintenance, utilities, property and liability insurance, surveillance and security, lobbying expenses, and certain housekeeping services, as well as all expenses for administrative departments such as accounting, purchasing, human resources, legal and internal audit. General and administrative expenses also include stock-based compensation expense; pre-opening and acquisition costs; gains and losses on disposal of assets; changes in the fair value of our contingent purchase price obligations; expense associated with cash-settled stock-based awards (including changes in fair value thereto); restructuring costs (primarily severance) associated with a company-wide initiative triggered by the COVID-19 pandemic; and rent expense associated with our triple net operating leases.
General and administrative expenses for the year ended December 31, 2016, were:

·

Provision for loan losses and unfunded loan commitments to the JIVDC of $89.8 million and goodwill impairment charges of $18.0 million for the year ended December 31, 2017, compared to no charges in 2016.

·

A $25.1 million loss on the early extinguishment of debt and finance charges related to the January 2017 refinancing of our senior secured credit facility, redemption of the $300 million 5.875% senior unsecured notes and issuance of $400 million of new 5.625% senior unsecured notes.

·

The acquisition of 1st Jackpot and Resorts in our South/West segment, which generated net revenues of $46.4 million for the eight months ended December 31, 2017.

·

The acquisition of Rocket Speed on August 1, 2016 in our Other segment, which generated net revenues of $29.3 million for the year ended December 31, 2017 and $17.3 million for the year ended December 31, 2016 (which only represented five months of activity given its acquisition date).

·

During the third quarter 2017, Penn Interactive Ventures reached an agreement with the former shareholders of Rocket Speed to buy out the two year contingent purchase price consideration which resulted in a benefit to general and administrative expense in the amount of $22.2 million.

·

Increased competition in our Northeast segment from the Baltimore, Maryland market, primarily due to the opening of MGM National Harbor in December 2016.

·

Lower depreciation and amortization expense of $4.2 million for the year ended December 31, 2017, as compared to the corresponding period in the prior year.

·

We had net income of $473.5 million and $109.3 million for the years ended December 31, 2017 and 2016, respectively, primarily due to the variances discussed above, as well as lower income taxes resulting from a $741.9 million tax valuation allowance reversal for the year ended December 31, 2017, which was partially

2020 decreased year over year primarily as a result of the actions taken to reduce our cost structure while our properties were temporarily closed, which included: (i) furloughing the vast majority of our employees and operating with a minimum staffing of less than 850 employees company-wide during the temporary closures; (ii) enacting meaningful compensation reductions to our remaining property and corporate leadership teams effective April 1, 2020 and through September 30, 2020 (compensation was fully restored effective October 1, 2020); and (iii) executing substantial reductions in operating expenses. In addition, we recognized a gain on disposal of assets of $29.2 million, which reduced general and administrative expenses in the current year. Additionally, the expense associated with the Company’s contingent purchase price obligations and preopening expenses decreased by $8.1 million and $10.5 million, respectively, as compared to the prior year period. Offsetting these decreases for the year ended December 31, 2020, as compared to the prior year, was an increase in expense associated with the Company’s cash-settled stock-based awards expense of $66.4 million, due to the increase in our stock price, and an increase in rent expense of $53.4 million, which principally relates to the Greektown Lease. Additionally, we incurred $13.4 million of restructuring costs, primarily related to employee severance as a result of the COVID-19 pandemic as described above.

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Depreciation and amortization for the year ended December 31, 2020 decreased year over year primarily due to fixed assets becoming fully depreciated since December 31, 2019, a reduction in capital spend in 2020 due to the casino closures and a $2.7 million decrease in amortization expense at Penn Interactive. These were offset for the year ended December 31, 2020 by an increase of $3.2 million at Greektown, which was acquired in May 2019.

Impairment losses for the year ended December 31, 2020 primarily relate to impairments taken on our goodwill and other intangible assets of $113.0 million and $498.5 million, respectively, as a result of an interim impairment assessment during the first quarter of 2020. During the first quarter of 2020, we identified an indicator of impairment triggered by the COVID-19 pandemic, which caused all of our gaming properties to temporarily close. At the time of the interim impairment assessment, we revised our cash flow projections to reflect the current economic environment, including the uncertainty of the nature, timing and extent of reopening our gaming properties. Additionally, we recorded an impairment charge of $7.3 million resulting from an impairment analysis of the long-lived assets at the Tropicana Las Vegas and an impairment charge of $4.6 million on our investment in the Texas Joint Venture.
Other income (expenses)
The following table presents our consolidated other income (expenses):
 For the year ended December 31,$ Change% Change
(dollars in millions)2020201920182020 vs. 20192019 vs. 20182020 vs. 20192019 vs. 2018
Other income (expenses)
Interest expense, net$(543.2)$(534.2)$(538.4)$(9.0)$4.2 1.7 %(0.8)%
Income from unconsolidated affiliates$13.8 $28.4 $22.3 $(14.6)$6.1 (51.4)%27.4 %
Loss on early extinguishment of debt$(1.2)$— $(21.0)$(1.2)$21.0 — (100.0)%
Income tax benefit (expense)$165.1 $(43.0)$3.6 $208.1 $(46.6)N/MN/M
Other$106.6 $20.0 $(7.1)$86.6 $27.1 433.0 %N/M
N/M - Not meaningful
Interest expense, netincreased for the year ended December 31, 2020, as compared to the prior year, due primarily to increases in interest expense related to our Master Leases of $8.8 million partially offset by an increase in capitalized interest of

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offset by a $261.3 million deferred tax asset write-off due to the recent Tax Cuts and Jobs Act, lower interest income, and increased interest expense primarily due to higher borrowings on our Term Loan A and our senior unsecured notes.

Segment Developments:

The following are recent developments that have had, may have or will have an impact$1.9 million. Additionally, the interest expense associated with our long-term debt increased $1.8 million, as compared to the prior year, due primarily to the issuance of our 2.75% Convertible Notes, which offset the reduction in interest expense incurred on us by segment:

During 2017, we engaged third party consultants to help us validate and quantifythe Senior Secured Credit Facilities (as defined in “ Note 11, “Long-term Debt,”) from a new set of strategic initiatives which we expect will improve our already industry-leading property level operating marginsdecrease in the coming years.London Interbank Offered Rate (referred to as "LIBOR") during the corresponding periods.

Income from unconsolidated affiliatesrelates principally to our Kansas Entertainment joint venture. The decrease for the year ended December 31, 2020, as compared to the prior year, was primarily due to a decrease in the results of operations of Hollywood Casino at Kansas Speedway, which temporarily closed on March 17, 2020 and reopened on May 25, 2020 and continues to be impacted by COVID-19 capacity restrictions. This effort encompassed both revenuedecrease was partially offset by income earned from Barstool Sports.
Loss on early extinguishment of debtfor the year December 31, 2020 related to the write-offs of previously unamortized debt issuance costs and debt discounts in connection with the prepayment of Term Loan B-1 Facility, (as defined inNote 11, “Long-term Debt,”). There were no principal prepayments of our long-term debt during the year ended December 31, 2019.

Income tax benefit (expense) for the year ended December 31, 2020, was a benefit of $165.1 million compared to income tax expense of $43.0 million in the prior year. Our effective tax rate was 19.8% for the year ended December 31, 2020, as compared to 49.9% for the year ended December 31, 2019. The Company’s effective tax rate for the year ended December 31, 2020 was lower than the federal statutory tax rate of 21% primarily driven by the increase in the valuation allowance (see Note 14, “Income Taxes”, in the notes to our Consolidated Financial Statements). The Company’s effective tax rate for the year ended December 31, 2019 was higher than the federal statutory tax rate of 21% primarily driven by the effect of the non-deductible goodwill impairment charge, non-deductible officers’ compensation, and higher state taxable income from operations.

Our effective income tax rate can vary each reporting period depending on, among other factors, the geographic and business mix of our earnings, changes to our valuation allowance, and the level of our tax credits. Certain of these and other factors, including our history and projections of pre-tax earnings, are considered in assessing our ability to realize our net deferred tax assets.

Other includes miscellaneous income and expense items. The amount for the years ended December 31, 2020 and 2019 relates primarily to unrealized holding gains of $106.7 million and $19.9 million, respectively, on equity securities (including warrants), which were acquired during the third quarter of 2019 in connection with Penn Interactive entering into multi-year agreements with sports betting operators for online sports betting and related iGaming market access across our portfolio.

Segment comparison of the years ended December 31, 2020 and 2019
Northeast Segment
For the year ended December 31,$ Change% / bps Change
(dollars in millions)2020201920182020 vs. 20192019 vs. 20182020 vs. 20192019 vs. 2018
Revenues:
Gaming$1,495.1$2,117.1$1,644.2$(622.0)$472.9 (29.4)%28.8 %
Food, beverage, hotel and other144.2282.8194.6(138.6)88.2 (49.0)%45.3 %
Management service and licensing fees— — 5.9— (5.9)— (100.0)%
Reimbursable management costs— — 46.8— (46.8)— (100.0)
Total revenues$1,639.3$2,399.9$1,891.5$(760.6)$508.4 (31.7)%26.9 %
Adjusted EBITDAR$478.9$720.8$583.8$(241.9)$137.0 (33.6)%23.5 %
Adjusted EBITDAR margin29.2 %30.0 %30.9 %(80) bps(90) bps
The Northeast segment’s results of operations for the year ended December 31, 2020 were primarily impacted by the COVID-19 pandemic. During the year ended December 31, 2020, our properties had temporary closures pursuant to various orders from state gaming regulatory bodies or governmental authorities to combat the rapid spread of COVID-19. All of our properties within the Northeast segment reopened and continue to operate with reduced gaming and hotel (if applicable) capacity, limited food and beverage and other amenity offerings. In response to the impact of the COVID-19 pandemic on our operations, we implemented cost saving initiatives throughout the organization which we expect to realize recurring benefits over the next several years. 

Northeast

·

In October 2017, Pennsylvania’s House Bill 271 was signed into law. The bill extensively expands gambling in the state by introducing licenses for up to ten additional casinos limited to 750 slot machines and up to 40 table games not to be within twenty-five miles of existing casinos, up to five video gaming terminals at certain truck stops, online gambling, fantasy contests and sport wagering. We believe Hollywood Casino at Penn National Race Course and Hollywood Gaming at Mahoning Valley Race Course may be impacted by new competition in the near future based on the ultimate location of the additional facilities.

·

Hollywood Casino at Charles Town Races faced increased competition from the Baltimore, Maryland market, which includes Maryland Live!, Horseshoe Casino Baltimore, which opened at the end of August 2014 and MGM National Harbor, which opened in December 2016.

·

Construction of a tribal casino in Taunton, Massachusetts that was expected to open in 2017, is currently on hold following a judicial opinion. MGM Springfield in Western Massachusetts is expected to be completed in September 2018 and Wynn Everett in Eastern Massachusetts is scheduled to open in mid-2019. The increased competition in Massachusetts will have a negative impact on the operations of Plainridge Park Casino.

·

The management service contract with Casino Rama in Ontario, Canada is expected to end in the third quarter of 2018.

South/West

·

On May 1, 2017, we acquired RIH Acquisitions MS I, LLC and RIH Acquisitions MS II, LLC, the holding companies for operations of 1st Jackpot Casino and Resorts Casino, in Tunica, Mississippi.

·

On October 10, 2016, we opened and began to manage Hollywood Casino Jamul – San Diego on the Jamul Tribe’s trust land in San-Diego California. During 2017, our loan to the JIVDC went into default and as a result Penn incurred impairment charges related to its loan and funding commitments of $89.8 million.  In late February 2018, the Company and the Jamul Tribe mutually agreed that Penn would no longer manage the facility or provide branding and development services on May 28, 2018. The company will provide a transition that it anticipates will last through approximately late May.

·

In August 2015 we completed the acquisition of Tropicana Las Vegas Hotel and Casino for $360 million. During the second quarter of 2016, we refreshed the gaming floor with new slot machines and launched our

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offset inevitable revenue degradation, such as: operating with a reduced

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Marquee Rewards player loyalty program at the Tropicana Las Vegas. During 2017, we made various incremental food and beverage offerings at the facility and on July 27, 2017, we opened celebrity chef Robert Irvine’s first signature Las Vegas restaurant, the Robert Irvine Public House. Additionally, we continue to evaluate additional improvements at the property which may include additional food, beverage, retail and entertainment and other non-gaming amenities and enhancements in future periods.

Midwest

·

On September 1, 2015, we acquired a leading Illinois video gaming terminal (“VGT”) operator, Prairie State Gaming. As one of the largest and most respected VGT route operators in Illinois, Prairie State Gaming’s operations include more than 1,715 terminals across a network of 377 bars and retail gaming establishments throughout Illinois. During the fourth quarter of 2016, we acquired two small video gaming terminal route operators in Illinois.  In addition, during the first half of 2017, we acquired two additional small video gaming route operators in Illinois.

Other

·

On August 1, 2016, we completed our acquisition of Rocket Speed, a leading developer of social casino games.

Critical Accounting Estimates

We makeworkforce, focusing on higher margin gaming offerings, reducing marketing costs, and limiting certain judgmentslower margin food and usebeverage offerings.

For the year ended December 31, 2020 the Northeast segment’s total revenues, Adjusted EBITDAR and Adjusted EBITDAR margin decreased, as compared to the prior year, due to the temporary closures described above. While revenues and Adjusted EBITDAR decreased 31.7% and 33.6% compared to the prior year, Adjusted EBITDAR margin decreased 80 basis points primarily as a result of cost cutting measures and other structural changes put in place in response to the COVID-19 pandemic.
South Segment
For the year ended December 31,$ Change% / bps Change
(dollars in millions)2020201920182020 vs. 20192019 vs. 20182020 vs. 20192019 vs. 2018
Revenues:
Gaming$684.0$831.1$302.9$(147.1)$528.2 (17.7)%174.4 %
Food, beverage, hotel and other165.6287.891.5(122.2)196.3 (42.5)%214.5 %
Total revenues$849.6$1,118.9$394.4$(269.3)$724.5 (24.1)%183.7 %
Adjusted EBITDAR$318.9$369.8$118.9$(50.9)$250.9 (13.8)%211.0 %
Adjusted EBITDAR margin37.5 %33.1 %30.1 %440 bps300 bps
The South segment’s results of operations for the year ended December 31, 2020 were primarily impacted by the COVID-19 pandemic and Hurricane Laura (described below). During the year ended December 31, 2020 our properties had temporary closures pursuant to various orders from state gaming regulatory bodies or governmental authorities to combat the rapid spread of COVID-19. All of our properties within the South segment reopened and continue to operate with reduced gaming, hotel (if applicable) capacity, limited food and beverage and other amenity offerings. In response to the COVID-19 pandemic on our operations, we implemented cost saving initiatives to offset inevitable revenue degradation, such as: operating with a reduced workforce, focusing on higher margin gaming offerings, reducing marketing costs, and limiting certain estimateslower margin food and assumptions when applying accounting principlesbeverage offerings.

For the year ended December 31, 2020, the South segment’s total revenues and Adjusted EBITDAR decreased, as compared to the prior year, due to the temporary closures, operational restrictions, and social distancing measures described above. The Souths segment’s Adjusted EBITDAR margin increased 440 basis points for the year ended December 31, 2020, as compared to the prior year due to our cost structure savings initiatives described above.

On August 27, 2020, Hurricane Laura made landfall in Lake Charles, Louisiana and caused significant damage to L’Auberge Lake Charles, forcing it to close for approximately two weeks. The Company maintains insurance, subject to certain deductibles and coinsurance, for the repair or replacement of assets that suffered loss and provides coverage for interruption to our business, including lost profits. The Company received upfront prepayments of $47.5 million from our insurers related to our anticipated policy claim (i.e. an advance) for the year ended December 31, 2020. The insurance proceeds were recorded as an offset to recovery costs incurred (i.e. Receivables within our Consolidated Balance Sheets) and we did not recognize any gain or loss as a result of this event.
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West Segment
For the year ended December 31,$ Change% / bps Change
(dollars in millions)2020201920182020 vs. 20192019 vs. 20182020 vs. 20192019 vs. 2018
Revenues:
Gaming$194.2$374.3$228.0$(180.1)$146.3 (48.1)%64.2 %
Food, beverage, hotel and other108.3268.2199.4(159.9)68.8 (59.6)%34.5 %
Reimbursable management costs——10.5— (10.5)— (100.0)%
Total revenues$302.5$642.5$437.9$(340.0)$204.6 (52.9)%46.7 %
Adjusted EBITDAR$82.2$198.8$114.3$(116.6)$84.5 (58.7)%73.9 %
Adjusted EBITDAR margin27.2 %30.9 %26.1 %(370) bps480 bps
The West segment’s results of operations for the year ended December 31, 2020 were primarily impacted by the COVID-19 pandemic. During the year ended December 31, 2020 our properties had temporary closures pursuant to various orders from state gaming regulatory bodies or governmental authorities to combat the rapid spread of COVID-19. All of our properties within the West segment reopened and continue to operate with reduced gaming, hotel (if applicable) capacity, limited food and beverage and other amenity offerings, with the exception of Zia Park which remains closed. In response to the COVID-19 pandemic on our operations, we implemented cost saving initiatives to offset inevitable revenue degradation, such as: operating with a reduced workforce, focusing on higher margin gaming offerings, reducing marketing costs, and limiting certain lower margin food and beverage offerings.
For the year ended December 31, 2020, the West segment’s total revenues, Adjusted EBITDAR and Adjusted EBITDAR margin decreased, as compared to the prior year, due to the temporary closures, operational restrictions, and social distancing measures described above.
Midwest Segment
For the year ended December 31,$ Change% / bps Change
(dollars in millions)2020201920182020 vs. 20192019 vs. 20182020 vs. 20192019 vs. 2018
Revenues:
Gaming$615.2$938.1$719.8$(322.9)$218.3 (34.4)%30.3 %
Food, beverage, hotel and other66.2156.4103.9(90.2)52.5 (57.7)%50.5 %
Total revenues$681.4$1,094.5$823.7$(413.1)$270.8 (37.7)%32.9 %
Adjusted EBITDAR$258.3$403.6$294.3$(145.3)$109.3 (36.0)%37.1 %
Adjusted EBITDAR margin37.9 %36.9 %35.7 %100 bps120 bps
The Midwest segment’s results of operations for the year ended December 31, 2020 were primarily impacted by the COVID-19 pandemic. During the year ended December 31, 2020 our properties had temporary closures pursuant to various orders from state gaming regulatory bodies or governmental authorities to combat the rapid spread of COVID-19. All of our properties within the Midwest segment reopened and continue to operate with reduced gaming, hotel (if applicable) capacity, limited food and beverage and other amenity offerings. In response to the COVID-19 pandemic on our operations, we implemented cost saving initiatives to offset inevitable revenue degradation, such as: operating with a reduced workforce, focusing on higher margin gaming offerings, reducing marketing costs, and limiting certain lower margin food and beverage offerings.
For the year ended December 31, 2020, the Midwest segment’s total revenues and Adjusted EBITDAR decreased, as compared to the prior year, due to the temporary closures, operational restrictions, and social distancing measures described above. The Midwest segment’s Adjusted EBITDAR margin increased 100 basis points for the year ended December 31, 2020, as compared to the prior year due to our cost structure savings initiatives described above.
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Other
For the year ended December 31,$ Change% / bps Change
(dollars in millions)2020201920182020 vs. 20192019 vs. 20182020 vs. 20192019 vs. 2018
Revenues:
Gaming$62.7 $8.8 $— $53.9 $8.8 612.5 %— 
Food, beverage, hotel and other62.3 38.7 40.3 23.6 (1.6)61.0 %(4.0)%
Management service and licensing fees— — 0.1 — (0.1)— (100.0)%
Total revenues$125.0 $47.5 $40.4 $77.5 $7.1 163.2 %17.6 %
Adjusted EBITDAR$(43.5)$(87.8)$(68.1)$44.3 $(19.7)(50.5)%28.9 %
Total revenues and Adjusted EBITDAR of the Other category increased for the year ended December 31, 2020, as compared to the prior year, primarily as a result of Penn Interactive. Penn Interactive's operations benefited from the launch of the online Barstool Sportsbook in Pennsylvania in September 2020 and increases in online social and real-money gaming revenue. Real-money online gaming revenue benefited from an improved conversion of the mychoice database to our real-money gaming platform, and was also positively impacted by the temporary closures of Pennsylvania casinos throughout portions of 2020.

In addition to benefiting from Penn Interactive's operating results, the increase in Adjusted EBITDAR is driven by decreases in corporate overhead costs of $20.5 million for the year ended December 31, 2020, principally driven by furloughs to team members, compensation reductions effective April 1, 2020 through September 30, 2020, and the overall reduction of expenses due to the temporary closures, as well as an overall permanent reduction to our workforce as a result of the COVID-19 pandemic, offset by increased expenses related to the ramp up of the Penn Interactive online sportsbook operations.

Non-GAAP Financial Measures
Use and Definitions
In addition to GAAP financial measures, management uses Adjusted EBITDA, Adjusted EBITDAR and Adjusted EBITDAR margin as non-GAAP financial measures. These non-GAAP financial measures should not be considered a substitute for, nor superior to, financial results and measures determined or calculated in accordance with GAAP. Each of these non-GAAP financial measures is not calculated in the preparationsame manner by all companies and, accordingly, may not be an appropriate measure of comparing performance among different companies.
We define Adjusted EBITDA as earnings before interest expense, net; income taxes; depreciation and amortization; stock-based compensation; debt extinguishment and financing charges; impairment losses; insurance recoveries and 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 and acquisition costs; and other income or expenses. Adjusted EBITDA is inclusive of income or loss from unconsolidated affiliates, with our share of non-operating items (such as interest expense, net; income taxes; depreciation and amortization; and stock-based compensation expense) added back for Barstool Sports and our Kansas Entertainment joint venture. Adjusted EBITDA is inclusive of rent expense associated with our triple net operating leases (the operating lease components contained within the Penn Master Lease and Pinnacle Master Lease (primarily land), the Meadows Lease, the Margaritaville Lease, the Greektown Lease and the Tropicana Lease). Although Adjusted EBITDA includes rent expense associated with our triple net operating leases, we believe Adjusted EBITDA is useful as a supplemental measure in evaluating the performance of our consolidated results of operations.
Adjusted EBITDA has economic substance because it is used by management as a performance measure to analyze the performance of our business, and is especially relevant in evaluating large, long-lived casino-hotel projects because it provides a perspective on the current effects of operating decisions separated from the substantial non-operational depreciation charges and financing costs of such projects. We present Adjusted EBITDA because it is used by some investors and creditors as an indicator of the strength and performance of ongoing business operations, including our ability to service debt, and to fund capital expenditures, acquisitions and operations. These calculations are commonly used as a basis for investors, analysts and credit rating agencies to evaluate and compare operating performance and value companies within our industry. In order to view the operations of their casinos on a more stand-alone basis, gaming companies, including us, have historically excluded from their Adjusted EBITDA calculations certain corporate expenses that do not relate to the management of specific casino
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properties. However, Adjusted EBITDA is not a measure of performance or liquidity calculated in accordance with GAAP. Adjusted EBITDA information is presented as a supplemental disclosure, as management believes that it is a commonly used measure of performance in the gaming industry and that it is considered by many to be a key indicator of the Company’s operating results.
We define Adjusted EBITDAR as Adjusted EBITDA (as defined above) plus rent expense associated with triple net operating leases (which is a normal, recurring cash operating expense necessary to operate our business). Adjusted EBITDAR is presented on a consolidated basis outside the financial statements.statements solely as a valuation metric. Management believes that Adjusted EBITDAR is an additional metric traditionally used by analysts in valuing gaming companies subject to triple net leases since it eliminates the effects of variability in leasing methods and capital structures. This metric is included as supplemental disclosure because (i) we believe Adjusted EBITDAR is traditionally used by gaming operator analysts and investors to determine the equity value of gaming operators and (ii) Adjusted EBITDAR is one of the metrics used by other financial analysts in valuing our business. We believe Adjusted EBITDAR is useful for equity valuation purposes because (i) its calculation isolates the effects of financing real estate; and (ii) using a multiple of Adjusted EBITDAR to calculate enterprise value allows for an adjustment to the balance sheet to recognize estimated liabilities arising from operating leases related to real estate. However, Adjusted EBITDAR when presented on a consolidated basis is not a financial measure in accordance with GAAP and should not be viewed as a measure of overall operating performance or considered in isolation or as an alternative to net income because it excludes the rent expense associated with our triple net operating leases and is provided for the limited purposes referenced herein.
Adjusted EBITDAR margin is defined as Adjusted EBITDAR on a consolidated basis (as defined above) divided by revenues on a consolidated basis. Adjusted EBITDAR margin is presented on a consolidated basis outside the financial statements solely as a valuation metric. We further define Adjusted EBITDAR margin by reportable segment as Adjusted EBITDAR for each segment divided by segment revenues.
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Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures
The following table includes a reconciliation of net income (loss), which is determined in accordance with GAAP, to Adjusted EBITDA, Adjusted EBITDAR and Adjusted EBITDAR margin, which are non-GAAP financial measures:
 For the year ended December 31,
(dollars in millions)202020192018
Net income (loss)$(669.1)$43.1$93.5
Income tax expense (benefit)(165.1)43.0(3.6)
Loss on early extinguishment of debt1.2—21.0
Income from unconsolidated affiliates(13.8)(28.4)(22.3)
Interest expense, net543.2534.2538.4
Other expense (income)(106.6)(20.0)7.1
Operating income (loss)(410.2)571.9634.1
Stock-based compensation (1)
14.514.912.0
Cash-settled stock-based award variance (1)(2)
67.20.8(19.6)
(Gain) loss on disposal of assets (1)
(29.2)5.53.2
Contingent purchase price (1)
(1.1)7.00.5
Pre-opening and acquisition costs (1)
11.822.395.0
Depreciation and amortization366.7414.2269.0
Impairment losses623.4173.134.9
Recoveries on loan loss and unfunded loan commitments——(17.0)
Insurance recoveries, net of deductible charges (1)
(0.1)(3.0)(0.1)
Income from unconsolidated affiliates13.828.422.3
Non-operating items of equity method investments (3)
4.73.75.1
Other expenses (1)(4)
13.5——
Adjusted EBITDA675.01,238.81,039.4
Rent expense associated with triple net operating leases (1)
419.8366.43.8
Adjusted EBITDAR$1,094.8$1,605.2$1,043.2
Net income (loss) margin(18.7)%0.8 %2.6 %
Adjusted EBITDAR margin30.6 %30.3 %29.1 %
(1)    These items are included in “General and administrative” within the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss).
(2)    Our cash-settled stock-based awards are adjusted to fair value each reporting period based primarily on the price of the Company’s common stock. As such, significant fluctuations in the price of the Company’s common stock during any reporting period could cause significant variances to budget on cash-settled stock-based awards. During the year ended December 31, 2020, the price of the Company’s common stock increased significantly, which resulted in unfavorable variances to budget.
(3)    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.
(4)    Consists of non-recurring restructuring charges (primarily severance) associated with a company-wide initiative, triggered by the COVID-19 pandemic, designed to (i) improve the operational effectiveness across our property portfolio; and (ii) improve the effectiveness and efficiency of our Corporate functional support areas.


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LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity and capital resources have been and will continue to be cash flow from operations, borrowings from banks and proceeds from the issuance of debt and equity securities. Our ongoing liquidity will depend on a number of factors, including available cash resources, cash flow from operations, acquisitions or investments, funding of construction for development projects, and our compliance with covenants contained under our debt agreements.
 For the year ended December 31,$ Change% Change
(dollars in millions)2020201920182020 vs. 20192019 vs. 20182020 vs. 20192019 vs. 2018
Net cash provided by operating activities$338.8 $703.9 $352.8 $(365.1)$351.1 (51.9)%99.5 %
Net cash used in investing activities$(233.7)$(607.5)$(1,423.1)$373.8 $815.6 (61.5)%(57.3)%
Net cash provided by (used in) financing activities$1,310.1 $(122.4)$1,272.1 $1,432.5 $(1,394.5)N/MN/M
N/M - Not meaningful
Operating Cash Flow
The decrease in net cash provided by operating activities of $365.1 million for the year ended December 31, 2020, is due to the temporary closures of our properties due to the COVID-19 pandemic, which significantly decreased cash receipts from customers. Offsetting this decrease was a $316.2 million decrease in cash paid for rent and interest payments, in total, under our Triple Net Leases, due primarily to utilizing rent credits to pay rent in the current year under the Master Leases, the Meadows Lease and the Morgantown Lease (offset by the increase in payments under the Greektown Lease due to the timing of the acquisition in the second quarter of 2019).
Investing Cash Flow
Net cash used in investing activities for the year ended December 31, 2020 decreased compared to the prior year primarily due to decrease in capital expenditures of $53.6 million in the current year and the 2019 acquisitions of the operations of Margaritaville and Greektown for $109.1 million and $289.2 million, respectively, both net of cash. As a part of the acquisitions of Margaritaville and Greektown, the Company entered into sale-leaseback transactions with VICI in the amounts of $261.1 million and $700.0 million, respectively, which had no net impact on net cash used in investing activities for the year ended December 31, 2019. In addition, during the year ended December 31, 2019, we paid $10.0 million for online and retail sports betting licenses in Pennsylvania. The decrease in capital expenditures in the current year primarily reflects our efforts to reduce or defer our planned Category 4 project capital expenditures as we mitigate the impact of the COVID-19 pandemic. These decreases were partially offset by our $135.0 million investment in Barstool Sports made during the first quarter of 2020.

Capital Expenditures

Capital expenditures are accounted for as either project capital (new facilities or expansions) or maintenance (replacement) capital expenditures. Cash provided by operating activities as well as cash available under our Revolving Credit Facility funded our capital expenditures for the years ended December 31, 2020, 2019 and 2018.

During the year ended December 31, 2020, we had capital expenditures of $137.0 million primarily related to our maintenance projects and our Category 4 development projects. For the year ending December 31, 2021, our expected capital expenditures are $296.8 million of which $98.9 million relates our Category 4 projects and $197.9 million relates to our maintenance projects. Our Category 4 projects are Hollywood Casino York and Hollywood Casino Morgantown. Hollywood Casino York, which is located in the York Galleria Mall in York County, will represent an overall capital investment of approximately $120.0 million inclusive of the gaming license. Hollywood Casino Morgantown is being built on a previously vacant 36-acre site in Berks County with a capital investment of approximately $111.0 million inclusive of the gaming license. We anticipate that both of these projects will be completed by the end of 2021.
Financing Cash Flow
Net cash provided by financing activities for the year ended December 31, 2020 was $1,310.1 million compared to net cash used in financing activities of $122.4 million in the prior year. The change is driven primarily by the separate public offerings of Penn Common Stock on May 14, 2020 and September 24, 2020, in which we received net proceeds of $331.2 million and $957.6 million, respectively. Additionally, we received $322.2 million of net proceeds from the issuance of the Convertible Notes. These proceeds were partially offset by net repayments under our Senior Secured Credit Facilities of $301.7 million. In the current year we fully repaid $670.0 million of outstanding borrowings under our Revolving Credit Facility and a $115.0
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million prepayment of outstanding borrowings on our Term Loan B-1 Facility. In comparison, in the prior year net cash used by financing activities consisted principally of net repayments of long-term debt of $18.6 million despite the borrowing associated with the acquisition of Greektown, $51.6 million of principal payments on our financing obligations, $6.2 million of principal payments on our finance leases, and $24.9 million in payments related to the repurchase of common stock.

Debt Issuances, Redemptions and Other Long-term Obligations

On March 13, 2020, we borrowed the remaining available amount of $430.0 million under our Revolving Credit Facility. The Company elected to draw down the remaining available funds from its Revolving Credit Facility in order to maintain maximum financial flexibility in light of the COVID-19 pandemic. Through the use of our September 2020 equity raise proceeds, we fully repaid $670.0 million outstanding borrowings under our Revolving Credit Facility. Additionally, on November 12, 2020 the Company prepaid $115.0 million of outstanding borrowings on its Term Loan B-1 Facility.
On April 14, 2020, the Company entered into a second amendment to its Credit Agreement with its various lenders (the “Second Amendment”) to provide for certain modifications. During the period beginning on April 14, 2020 and ending on the earlier of (x) the date that is two business days after the date on which the Company delivers a covenant relief period termination notice to the administrative agent and (y) the date on which the administrative agent receives a compliance certificate for the quarter ending March 31, 2021 (the “Covenant Relief Period”), the Company will not have to comply with any Maximum Leverage Ratio or Minimum Interest Coverage Ratio (as such terms are defined in the Credit Agreement that was amended on January 19, 2017, the "Amended 2017 Credit Agreement"). During the Covenant Relief Period, the Company will be subject to a minimum liquidity covenant that requires cash and cash equivalents and availability under its Revolving Credit Facility to be (i) at least $400.0 million through April 30, 2020; (ii) $350.0 million during the period from May 1, 2020 through May 31, 2020; (iii) $300.0 million during the period from June 1, 2020 through June 30, 2020; and (iv) $225.0 million during the period from July 1, 2020 through March 31, 2021.

The Second Amendment also amended the financial covenants that are applicable after the Covenant Relief Period to permit the Company to (i) maintain a maximum consolidated total net leverage ratio of up to a ratio that varies by quarter, ranging between 5.50:1.00 and 4.50:1.00 in 2021 and 4.25:1.00 thereafter, tested quarterly on a pro forma trailing twelve month (“PF TTM”) basis; (ii) maintain a maximum senior secured net leverage ratio of up to a ratio that varies by quarter, ranging between 4.50:1.00 and 3.50:1.00 in 2021 and 3.00:1.00 thereafter, tested quarterly on a PF TTM basis; and (iii) maintain an interest coverage ratio of 2.50:1.00, tested quarterly on a PF TTM basis.

In addition, the Second Amendment (i) provides that, during the Covenant Relief Period, loans under the Revolving Credit Facility and the Term Loan A Facility shall bear interest at either a base rate or an adjusted LIBOR rate, in each case, plus an applicable margin, in the case of base rate loans, of 2.00%, and in the case of adjusted LIBOR rate loans, of 3.00%; (ii) provides that, during the Covenant Relief Period, the Company shall pay a commitment fee on the unused portion of the commitments under the Revolving Credit Facility at a rate of 0.50% per annum; (iii) provides for a 0.75% LIBOR floor applicable to all LIBOR loans under the Senior Secured Credit Facilities; (iv) carves out COVID-19 related effects from certain terms of the Senior Secured Credit Facilities during the Covenant Relief Period; and (v) makes certain other changes to the covenants and other provisions of the Credit Agreement.
In May 2020, the Company completed a public offering of $330.5 million aggregate principal amount of 2.75% unsecured convertible notes that mature, unless earlier converted, redeemed or repurchased, on May 15, 2026 (the “Convertible Notes”) at a price of par. After lender fees and discounts, net proceeds received by the Company were $322.2 million. Interest on the Convertible Notes is payable on May 15th and November 15th of each year, beginning on November 15, 2020.
The Convertible Notes are convertible into shares of the Company’s common stock at an initial conversion price of $23.40 per share, or 42.7350 shares, per $1,000 principal amount of notes, subject to adjustment if certain corporate events occur. However, in no event will the conversion exceed 55.5555 shares of common stock per $1,000 principal amount of notes. As of December 31, 2020, the maximum number of shares that could be issued to satisfy the conversion feature of the Convertible Notes is 18,360,815 and the amount by which the Convertible Notes if-converted value exceeded its principal amount was $1,255.3 million.

Prior to February 15, 2026, at their election, holders of the Convertible Notes may convert outstanding notes starting in the fourth quarter of 2020 if the trading price of the Company’s common stock exceeds 130% of the conversion price or, starting shortly after the issuance of the Convertible Notes, if the trading price per $1,000 principal amount of notes is less than 98% of the product of the trading price of the Company’s common stock and the conversion rate then in effect. The Convertible Notes may, at the Company’s election, be settled in cash, shares of common stock of the Company, or a combination thereof. The Company has the option to redeem the Convertible Notes, in whole or in part, beginning November 20, 2023.
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In addition, the Convertible Notes convert into shares of the Company’s common stock upon the occurrence of certain corporate events that constitute a fundamental change under the indenture governing the Convertible Notes at a purchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to, but excluding, the date of repurchase. 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.

At December 31, 2020, we had $2,431.6 million in aggregate principal amount of indebtedness, including $1,628.1 million outstanding under our Senior Secured Credit Facilities, $330.5 million outstanding under our Convertible Notes, $400.0 million outstanding under our 5.625% senior unsecured notes, and $73.0 million outstanding in other long-term obligations. No amounts were drawn on our Revolving Credit Facility. We have no debt maturing prior to 2023. As of December 31, 2020 we had conditional obligations under letters of credit issued pursuant to the Senior Secured Credit Facilities with face amounts aggregating to $28.2 million resulting in $671.8 million available borrowing capacity under our Revolving Credit Facility.

Covenants

Our Senior Secured Credit Facilities and 5.625% Notes require us, among other obligations, to maintain specified financial ratios and to satisfy certain financial tests, including the Maximum Consolidated Total Net Leverage Ratio, Maximum Consolidated Senior Secured Net Leverage Ratio and Minimum Interest Coverage Ratio (as such terms are defined in our Amended 2017 Credit Agreement) as well as the Fixed Charge Coverage Ratio (as defined in the indenture governing our 5.625% Notes). In addition, our Senior Secured Credit Facilities and 5.625% Notes restrict, among other things, our ability to incur additional indebtedness, incur guarantee obligations, amend debt instruments, pay dividends, create liens on assets, make investments, engage in mergers or consolidations, and otherwise restrict corporate activities. As of December 31, 2020, the Company was in compliance with all required financial covenants. When our covenant relief period ends, the Company is subject to and expects to be in compliance with all required financial covenants including (i) Maximum Consolidated Total Net Leverage Ratio; (ii) Maximum Consolidated Senior Secured Net Leverage Ratio; and (iii) Minimum Interest Coverage Ratio (as discussed above) with the Company's submission of its compliance certificate for the quarter ending March 31, 2021.

See Note 11, “Long-term Debt,” in the notes to our Consolidated Financial Statements for additional information of the Company's debt and other long-term obligations.

Common Stock Offering
On May 14, 2020, the Company completed a public offering of 16,666,667 shares of Penn Common Stock and on May 19, 2020, the underwriters exercised their right to purchase an additional 2,500,000 shares of Penn Common Stock, resulting in an aggregate public offering of 19,166,667 shares of Penn Common Stock. All of the shares were issued at a public offering price of $18.00 per share, resulting in gross proceeds of $345.0 million, and net proceeds of $331.2 million after underwriter fees and discounts of $13.8 million.

On September 24, 2020, the Company completed a public offering of 14,000,000 shares of Penn Common Stock and on September 25, 2020, the underwriters exercised their right to purchase an additional 2,100,000 shares of Penn Common Stock, resulting in an aggregate public offering of 16,100,000 shares of Penn Common Stock. All of the shares were issued at a public offering price of $61.00 per share, resulting in gross proceeds of $982.1 million, and net proceeds of $957.6 million after underwriter fees and discounts of $24.5 million.
Triple Net Leases
The majority of the real estate assets used in the Company’s operations are subject to triple net master leases; the most significant of which are the Penn Master Lease and the Pinnacle Master Lease. Subsequent to the adoption of ASC 842, the Company’s Master Leases are accounted for as either operating leases, finance leases, or determined to continue to be financing obligations. Prior to the adoption of ASC 842, all components contained within the Master Leases were accounted for as financing obligations. In addition, five of the gaming facilities used in our operations are subject to individual triple net leases. As previously mentioned, we refer to the Penn Master Lease, the Pinnacle Master Lease, the Meadows Lease, the Margaritaville Lease, the Greektown Lease, the Tropicana Lease and the Morgantown Lease, collectively, as our Triple Net Leases.
Under our Triple Net Leases, in addition to lease payments for the real estate assets, we are required to pay the following, among other things: (1) all facility maintenance; (2) all insurance required in connection with the leased properties and the business conducted on the leased properties; (3) taxes levied on or with respect to the leased properties (other than taxes on the income of the lessor); (4) all tenant capital improvements; and (5) all utilities and other services necessary or appropriate for the
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leased properties and the business conducted on the leased properties. As of December 31, 2020, we are required to make annual minimum rent payments of $814.6 million. Additionally, our Triple Net Leases are subject to annual escalators and periodic percentage rent resets, as applicable. See Note 12, “Leases,” in the notes to our Consolidated Financial Statements for further discussion and disclosure related to the Company's leases.

Payments to our REIT Landlords under Triple Net Leases
Total payments made to our REIT Landlords, GLPI and VICI, inclusive of rent credits utilized, were as follows:
 For the year ended December 31,
(in millions)202020192018
Penn Master Lease (1)
$457.9 $457.9 $461.5 
Pinnacle Master Lease (1)
326.9 328.6 70.3 
Meadows Lease (1)
26.4 26.4 5.6 
Margaritaville Lease23.5 23.1 — 
Greektown Lease55.6 33.8 — 
Morgantown Lease (1)
0.8 — — 
Total (2)
$891.1 $869.8 $537.4 
(1)During the twelve months ended December 31, 2020 we utilized rent credits to pay $190.7 million, $135.5 million, $11.0 million and $0.3 million of rent under the Penn Master Lease, Pinnacle Master Lease, Meadows Lease and Morgantown Lease, respectively.
(2)Cash rent payable under the Tropicana Lease is nominal. Therefore, it has been excluded from the table above.
Share Repurchase Programs
In January 2019, the Company announced a share repurchase program pursuant to which the Board of Directors authorized the repurchase of up to $200.0 million of the Company’s common stock, which expired on December 31, 2020. During the year ended December 31, 2019, the Company repurchased 1,271,823 shares of its common stock in open market transactions for $24.9 million at an average price of $19.55 per share. All of the repurchased shares were retired. There were no repurchases of the Company’s common stock for the year ended December 31, 2020.
Other Contractual Cash Obligations
The following table presents our other contractual cash obligations as of December 31, 2020:
  Payments Due By Period
(in millions)Total20212022-20232024-20252026 and After
Purchase obligations$149.1 $59.7 $33.3 $12.9 $43.2 
Other liabilities reflected within our Consolidated Balance Sheets (1)
9.4 0.8 0.6 0.6 7.4 
Total$158.5 $60.5 $33.9 $13.5 $50.6 
(1)Excludes the liability for unrecognized tax benefits of $38.2 million, as we cannot reasonably estimate the period of cash settlement with the respective taxing authorities. Additionally, it does not include an estimate of the payments associated with our contingent purchase price obligations of $7.3 million as it is not a fixed obligation.
Outlook
Based on our current level of operations, we believe that cash generated from operations and cash on hand, together with amounts available under our Senior Secured Credit Facilities, will be adequate to meet our anticipated obligations under our Triple Net Leases, debt service requirements, capital expenditures and working capital needs for the foreseeable future. However, our ability to generate sufficient cash flow from operations will depend on a range of economic, competitive and business factors, many of which are outside our control, including the impact of the COVID-19 pandemic. We cannot be certain: (i) of the impact of the operating restrictions to accommodate social distancing and health and safety guidelines on our properties; (ii) of the magnitude and duration of the impact of the COVID-19 pandemic (including reoccurrences) on general economic conditions, capital markets, unemployment and our liquidity, operations, supply chain and personnel, including the potential that some or all of our properties may be forced to close or cease operations for a certain period of time; (iii) that the U.S. economy and our business will recover to levels that existed prior to the COVID-19 pandemic and on what time frame; (iv) that our anticipated earnings projections will be realized; (v) that we will achieve the expected synergies from our
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acquisitions; (vi) that future borrowings will be available under our Senior Secured Credit Facilities or otherwise will be available in the credit markets to enable us to service our indebtedness or to make anticipated capital expenditures. We caution you that the trends seen at our reopened properties (e.g., higher spend per trip) may not continue. In addition, while we anticipated that a significant amount of our future growth would come through the pursuit of opportunities within other distribution channels, such as retail and online sports betting, social gaming, retail gaming, and iGaming; from acquisitions of gaming properties at reasonable valuations; greenfield projects; and jurisdictional expansions and property expansion in under-penetrated markets; there can be no assurance that this will be the case given the uncertainty arising from the COVID-19 pandemic. If we consummate significant acquisitions in the future or undertake any significant property expansions, our cash requirements may increase significantly and we may need to make additional borrowings or complete equity or debt financings to meet these requirements. See “Risk Factors—Risks Related to Our Indebtedness and Capital Structure” within “Item 1A. Risk Factors,” of this Annual Report on Form 10-K for a discussion of the risks related to our capital structure. 

We have historically maintained a capital structure comprised of a mix of equity and debt financing. We vary our leverage to pursue opportunities in the marketplace in an effort to maximize our enterprise value for our shareholders. We expect to meet our debt obligations as they come due through internally-generated funds from operations and/or refinancing them through the debt or equity markets prior to their maturity.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
For information on new accounting pronouncements and the impact of these pronouncements on our Consolidated Financial Statements, see Note 3, “New Accounting Pronouncements,” in the notes to our Consolidated Financial Statements.
CRITICAL ACCOUNTING ESTIMATES
The preparation of the Consolidated Financial Statements in accordance with GAAP requires us to make estimates and judgments that are subject to an inherent degree of uncertainty. The nature of the estimates and assumptions are material due to the levels of subjectivity and judgment necessary to account for highly uncertain factors or the susceptibility of such factors to change. We have identified the accounting for long‑lived assets, goodwillThe development and other intangible assets, income taxes, and loans to the JIVDC asselection of critical accounting estimates, as they areand the most important torelated disclosures, have been reviewed with the Audit Committee of our financial statement presentation and require difficult, subjective and complex judgments.

Board of Directors. We believe the current assumptions and other considerations used to estimate amounts reflected in our consolidated financial statementsConsolidated Financial Statements are appropriate. However, if actual experience differs from the assumptions and other considerations used in estimating amounts reflected in our consolidated financial statements,Consolidated Financial Statements, the resulting changes could have a material adverse effect on our consolidatedfinancial condition, results of operations and in certain situations, could have a material adverse effect on our consolidated financial condition.

The development and selection of the critical accounting estimates, and the related disclosures, have been reviewed with the Audit Committee of our Board of Directors.

Long‑lived assets

At December 31, 2017, we had a net property and equipment balance of $2,756.7 million within our consolidated balance sheet, representing 52.7% of total assets. We depreciate property and equipment on a straight‑line basis over their estimated useful lives. The estimated useful lives are determined based on the nature of the assets as well as our current operating strategy. We review the carrying value of our property and equipment for possible impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable based on undiscounted estimated future cash flows expected to result from its use and eventual disposition. The factors considered by us in performing this assessment include current operating results, trends and prospects, as well as the effect of obsolescence, demand, competition and other economic factors. For purposes of recognizing and measuring impairment in accordance with ASC 360, “Property, Plant, and Equipment,” assets are grouped at the individual property level representing the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets. In assessing the recoverability of the carrying value of property and equipment, we must make assumptions

flows.

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regarding future cash flows and other factors. If these estimates or the related assumptions change in the future, we may be required to record an impairment loss for these assets. Such an impairment loss would be recognized as a non‑cash component of operating income.

Goodwill and other intangible assets

At

As of December 31, 2017,2020, the Company had $1,008.1$1,157.1 million in goodwill and $422.6$1,513.5 million in other intangible assets within its consolidated balance sheet, representing 19.3%Consolidated Balance Sheet, representing 7.9% and 8.1%10.3% of total assets, respectively, resulting fromrespectively. The Company’s goodwill and other intangible assets are primarily the Company’s acquisitionresult of otheracquisitions of businesses and paymentpayments for gaming licenses. These intangible assets require significant management estimates and judgment pertaining to: (i) the valuation in connection with the initial purchase price allocation;allocations and (ii) the ongoing evaluation for impairment.

During the fourth quarter we performed our annual impairment analysis and the fair value of goodwill for all reporting units exceeded the carrying value by a substantial margin. Therefore, none of our reporting units incurred any goodwill impairment charges as a result of the annual assessment.

In connection with the Company’s acquisitions, valuations are completed to determine the allocation of the purchase prices.price. The factors considered in the valuations include data gathered as a result of the Company’s due diligence in connection with the acquisitions, projections for future operations, and data obtained from third-party valuation specialists, as deemed appropriate. Goodwill represents the future economic benefits of a business combination measured as the excess purchase price over the fair market value of net assets acquired. Goodwill is tested annually, or more frequently if indicators of impairment exist. An
For the quantitative goodwill impairment test, an income approach, in which a discounted cash flow (“DCF”) model is utilized, and a market-based approach utilizingusing guideline public company (“GPC”) multiples of adjusted EBTIDAearnings before interest, taxes, depreciation, and amortization from the Company’s peer group isare utilized in order to estimate the fair market value of the Company’s reporting units.

For the quantitative goodwill impairment test, the current fair value of each reporting unit is estimated using the combination of a discounted cash flow model and a GPC multiples approach which is then compared to In determining the carrying value of each reporting unit. The Company adjusts the carrying valueamount of each reporting unit that utilizes property that isreal estate assets subject to the Master Lease by an allocation of aTriple Net Leases, if and as applicable, (i) the Company allocates each reporting unit their pro-rata portion of the GLPIright-of-use (“ROU”) assets, lease liabilities, and/or financing obligationobligations, and (ii) pushes down the carrying amount of the property and equipment subject to such leases. In general, as it pertains to the Master Leases, such amounts are allocated based on the reporting unit’s estimated fair valueprojected Adjusted EBITDA as a percentage of the aggregate estimated fair valueAdjusted EBITDA of all reporting units that utilize property that is subject to either of the Master Lease.

Leases, as applicable. The Company compares the aggregate weighted average fair value to the carrying value of its reporting units.units to the carrying amounts. If the carrying valueamount of the reporting unit exceeds the aggregate weighted average fair value, an impairment is recorded equal to the amount of the excess not(not to exceed the amount of goodwill allocated to the reporting unit.

In accordance with ASC 350, “Intangibles Goodwill and Other,” the Company considers itsunit).

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We consider our gaming licenses, trademarks, and certain other intangible assets as indefinite lifeindefinite-lived intangible assets that do not require amortization based on the Company’sour future expectations to operate itsour gaming facilitiesproperties indefinitely (notwithstanding our experience in 2014 in Iowa which the Company concluded was an isolated incident and the first time in the Company’s history a gaming regulator has taken an action which could cause it to lose its gaming license) as well as itsour historical experience in renewing these intangible assets at minimal cost with various state commissions. Rather, these intangible assets are tested annually for impairment, or more frequently if indicators of impairment exist, by comparing the fair value of the recorded assets to their carrying amount. If the carrying amounts of the indefinite lifeindefinite-lived intangible assets exceed their fair value, an impairment loss is recognized. The Company completes itsWe complete the testing of itsour indefinite-lived intangible assets prior to assessing the realizabilityour goodwill for impairment. Our annual goodwill and other indefinite-lived intangible assets impairment test is performed on October 1st of its goodwill.

The Company assessedeach year.

We assess the fair value of its indefinite life intangible assets (which are primarilyour gaming licenses)licenses using the Greenfield Method under the income approach. The Greenfield Methodapproach, which estimates the fair value of the gaming license using a discounted cash flowDCF model assuming the Companywe built a new casino with similar utility to that of the existing facility.casino. The method assumes a theoretical start upstart-up company going into business without any assets other than the intangible asset being valued. As such, the value of the gaming license is a function of the following items:

·

Projected revenues and operating cash flows (including an allocation of the Company’s projected financing payments to its reporting units consistent with how the GLPI financing obligation is allocated);

assumptions:

54

•Projected revenues and operating cash flows (including an allocation of the projected payments under any applicable Triple Net Lease);

•Estimated construction costs and duration;
•Pre-opening costs; and

Table•Discounting that reflects the level of Contents

risk associated with receiving future cash flows attributable to the license.

We assess the fair value of our trademarks using the relief-from-royalty method under the income approach. The principle behind this method is that the value of the trademark is equal to the present value of the after-tax royalty savings attributable to the owned trademark. As such, the value of the trademark is a function of the following assumptions:

·

Theoretical construction costs and duration;

•Projected revenues;

·

Pre-opening expenses; and

•Selection of an appropriate royalty rate to apply to projected revenues; and

·

Discounting that reflects the level of risk associated with receiving future cash flows attributable to the license.

•Discounting that reflects the level of risk associated with the after-tax revenue stream associated with the trademark.

The evaluation of goodwill and indefinite lifeindefinite-lived intangible assets requires the use of estimates about future operating results of each reporting unit to determine the estimated fair value of the reporting unit and the indefinite livedindefinite-lived intangible assets. The Company must make various assumptions and estimates in performing its impairment testing. The implied fair value includes estimates of future cash flows (including an allocation of the Company’s projected financing obligation to its reporting units)payments under any applicable Triple Net Lease) that are based on reasonable and supportable assumptions which represent the Company’s best estimates of the cash flows expected to result from the use of the assets including their eventual disposition. Changes in estimates, increases in the Company’s cost of capital, reductions in transaction multiples, changes in operating and capital expenditure assumptions or application of alternative assumptions and definitions could produce significantly different results. Future cash flow estimates are, by their nature, subjective and actual results may differ materially from the Company’s estimates. If the Company’sour ongoing estimates of future cash flows are not met, the Companywe may have to record additional impairment charges in future accounting periods. The Company’sOur estimates of cash flows are based on the current regulatory and economic climates (including as a result of COVID-19), recent operating information and budgets of the various properties where it conducts operations. These estimates could be negatively impacted by changes in federal, state or local regulations, economic downturns, or other events affecting the Company’sour properties.

Forecasted cash flows (based on the Company’sour annual operating plan as determined in the fourth quarter) can be significantly impacted by the local economy in which itsour reporting units operate. For example, increasesoperate, as illustrated by the COVID-19 pandemic which caused temporary suspension of our operations pursuant to various orders from state gaming regulatory bodies or governmental authorities. Increases in unemployment rates can also result in decreased customer visitations and/or lower customer spend per visit. In addition, the impact of new legislation which approves gaming in nearby jurisdictions or further expands gaming in jurisdictions where the Company’sour reporting units currently operate can result in opportunities for the Companyus to expand itsour operations. However, it also has the impact of increasing competition for the Company’sour established properties which generally will have a negative effect on those locations’ profitability once competitors become established as a certain level of cannibalization occurs absent an overall increase in customer visitations. Additionally, increases in gaming taxes approved by state regulatory bodies can negatively impact forecasted cash flows.


Assumptions and estimates about future cash flow levels and multiples by individual reporting units are complex and subjective. They are sensitive to changes in underlying assumptions and can be affected by a variety of factors, including external factors, such as industry, geopolitical and economic trends, and internal factors, such as changes in the Company’s business strategy, which may reallocatere-allocate capital and resources to different or new opportunities which management believes will enhance its overall value but may be to the detriment of an individual reporting unit.

Consistent with prior years,

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Once an impairment of goodwill or other intangible asset has been recorded, it cannot be reversed. Since the Company’s annual goodwill and other indefinite‑life intangible assets impairment test is performed on October 1st of each year.

For the year ended December 31, 2017, the Company recorded goodwill impairment charges of $18.0 million, related to the goodwill at Tropicana Las Vegas and Sanford Orlando Kennel Club. 

For the year ended December 31, 2015, the Company recorded other intangible assets impairment charges of $40.0 million, as of the valuation date of October 1, 2015, related to the write‑off of our Plainridge Park Casino gaming license and a partial write‑down of the gaming license at Hollywood Gaming at Dayton Raceway due to a reduction in the long term earnings forecast at both of these locations.

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Consistent with prior years, we believe at this time all of our reporting units with goodwill and otherindefinite-lived intangible assets are at risknot amortized, there may be volatility in reported net income or loss because impairment losses, if any, are likely to occur irregularly and in varying amounts. Intangible assets that have a definite life are amortized on a straight-line basis over their estimated useful lives or related service contract. The Company reviews the carrying amount of its amortizing intangible assets for possible impairment chargeswhenever events or changes in future periods regardlesscircumstances indicate that their carrying amount may not be recoverable. If the carrying amount of the margin by which the currentamortizing intangible assets exceed their fair value, of our reporting units exceed their carrying valuean impairment loss is recognized.

Revenue and that such margin cannot and should not be relied upon to predict which properties are most at risk for future impairment charges. This is because the revenue and earningearnings streams inwithin our industry can vary significantly based on various circumstances, which in many cases are outside of the Company’s control, and as such are extremely difficult to predict and quantify. We have disclosed several of these circumstances in the “Risk“Item 1A. Risk Factors” section of this Annual Report on Form 10‑K. For10-K. Circumstances include, for instance, temporary property closures as a result of COVID-19, changes in legislation that approves gaming in nearby jurisdictions, further expansion of gaming in jurisdictions where we currently operate, new state legislation that requires the implementation of smoking bansrestrictions at our casinos or any other events outside of our control that make the customer experience less desirable.

Once

During the first quarter of 2020, we identified an indicator of impairment of goodwill or other indefinite life intangible assets has been recorded, it cannot be reversed. Because the Company’s goodwill and indefinite life intangible assets are not amortized, there may be volatility in reported income because impairment losses, if any, are likely to occur irregularly and in varying amounts. Intangible assets that haveas a definite life are amortized on a straight line basis over their estimated useful lives or related service contract. The Company reviews the carrying value of its intangible assets that have a definite life for possible impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. If the carrying amountresult of the intangible assets that haveCOVID-19 pandemic and recognized impairments on our goodwill, gaming licenses and trademarks, of $113.0 million, $437.0 million and $61.5 million, respectively. Upon reopening of our gaming facilities and throughout the fourth quarter of 2020 we undertook various initiatives to mitigate the impact of regulatory restrictions imposed as a definite life exceed their fair value, anresult of the COVID-19 pandemic. We completed our annual assessment for impairment loss is recognized.

The Company’s remainingas of October 1, 2020, which did not result in any impairment charges to goodwill, gaming licenses and other intangible assets by reporting unit at December 31, 2017 is shown below (in thousands):

trademarks. See Note 9, “Goodwill and Other Intangible Assets,” in the notes to our Consolidated Financial Statements.

 

 

 

 

 

 

 

 

 

    

 

 

    

Total Intangible

 

Reporting Unit

 

Goodwill

 

Assets

 

Hollywood Casino St. Louis

 

$

205,783

 

$

58,418

 

Hollywood Casino Aurora

 

 

207,207

 

 

 —

 

Argosy Casino Riverside

 

 

154,332

 

 

4,964

 

Zia Park Casino

 

 

142,359

 

 

 —

 

Hollywood Gaming at Dayton Raceway

 

 

15,339

 

 

110,436

 

Hollywood Gaming at Mahoning Valley Race Course

 

 

 —

 

 

125,000

 

Penn Interactive Ventures

 

 

67,004

 

 

15,968

 

Hollywood Casino at Penn National Race Course

 

 

1,497

 

 

67,607

 

Prairie State Gaming

 

 

34,185

 

 

30,031

 

Hollywood Casino Lawrenceburg

 

 

63,189

 

 

 —

 

Hollywood Casino Tunica

 

 

44,042

 

 

 —

 

1st Jackpot Casino

 

 

35,929

 

 

567

 

Boomtown Biloxi

 

 

22,365

 

 

 —

 

Argosy Casino Alton

 

 

9,863

 

 

8,285

 

Plainridge Park Casino

 

 

3,052

 

 

 —

 

Hollywood Casino at Charles Town Races

 

 

1,354

 

 

 —

 

Others

 

 

597

 

 

1,330

 

Total

 

$

1,008,097

 

$

422,606

 

Income taxes

We account for income taxes in accordance with


Under ASC Topic 740, “Income Taxes” (“ASC 740”). Under ASC 740, deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities and are measured at the prevailing enacted tax rates that will be in effect when these differences are settled or realized. ASC 740 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized.

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The realizability of the net deferred tax assets is evaluated quarterly by assessing the valuation allowance and by adjusting the amount of the allowance, if necessary. We consider all available positive and negative evidence including projected future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. The evaluation of both positive and negative evidence is a requirement pursuant to ASC 740 in determining more likely than not the net deferred tax assets will be realized. In the event the Company determines that the deferred income tax assets would be realized in the future in excess of their net recorded amount, an adjustment to the valuation allowance would be recorded, which would reduce the provision for income taxes.

In connection with the failed spin off leaseback, the Company recorded real property assets and a financing obligation of $2.00 billion and $3.52 billion, respectively, on November 1, 2013, which resulted in a substantial increase to our net deferred tax assets of $599.9 million. ASC 740 suggests that additional scrutiny should be given to deferred tax assets of an entity with cumulative pre tax losses during the most recent three years. Positive evidence of sufficient quantity and quality is required to overcome such significant negative evidence to conclude that a valuation allowance is not warranted. As of September 30, 2017, the Company determined that a valuation allowance was no longer required against its federal net deferred tax assets for the portion that will be realized. As such, the Company released $741.9 million of its total valuation allowance for the year ended December 31, 2017 due to the positive evidence outweighing the negative evidence thereby allowing the Company to achieve the “more-likely-than-not” realization standard.  See Note 12 “Income Taxes” for additional information.

Federal Tax Reform – critical accounting changes

On December 22, 2017, the President signed into law comprehensive tax reform legislation commonly known as Tax Cuts and Jobs Act (the “Tax Act”), which introduces significant changes to the United States tax law.  The Tax Act provides numerous provisions including, but not limited to, a reduction to the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018, a temporary provision allowing 100% expensing of qualifying capital improvements (including those acquired via asset acquisitions) through 2022, which then phase out 20% a year thereafter, a one-time transition tax on foreign earnings, a general elimination of U.S. federal income taxes on dividends received from foreign subsidiaries and a new provision designed to tax global intangible low-taxed income (“GILTI”).

Also, on December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides accounting guidance for the Tax Act.  SAB 118 provides a measurement period similar to a business combination whereby recognizing provisional amounts to the extent that they are reasonably estimable and adjust them over time as more information becomes available not to extend beyond one year from the Tax Act enactment date.  In accordance with SAB 118, a company must reflect the income tax effects of the Tax Act for which the accounting under ASC 740 is complete.  To the extent the accounting related to the Tax Act is incomplete but a reasonable estimate is attainable, a provisional estimate should be reflected in the financial statements

We recorded a net charge of $266.0 million included in the income tax provision in the Consolidated Statements of Operations consisting of three components: (i) a $261.3 million charge due to the revaluation of the net deferred tax assets in the U.S. based on the new lower federal income tax rate, (ii) a $2.6 million charge related to the one-time mandatory repatriation tax on previously deferred earnings from our wholly-owned Canadian subsidiary (which we will pay interest free over 8 years) and (iii) a $2.1 million foreign withholding tax charge due to the new favorable U.S. treatment of foreign dividends whereby we have changed our indefinite reinvestment assertion.  While we believe the $266.0 million net charge represents a reasonable estimate of the income tax effects of the Tax Act in our Consolidated Statements of Operations as of December 31, 2017, these amounts are considered provisional. 

These adjustments reflected in our financial statements related to the application of the Tax Act are provisional amounts estimated based on published guidance and our interpretation as enacted.  The new law directs the United States

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Treasury to promulgate regulations as it deems appropriate as well as provide guidance implementing the intent of Congress.  We will recognize any change to the provisional amounts in the period any additional guidance is published. 

Loan and unfunded loan commitments to the JIVDC

For year ended December 31, 2017, we recorded a provision for loan loss and reserves for unfunded loan commitments to the JIVDC of $89.8 million within our consolidated statements of operations. Our loan is impaired and as such the value is estimated based on the present value of expected future cash flows of the facility discounted at the loan’s original effective interest rate in accordance with ASC 310 “Receivables”. The estimate uses subjective assumptions such as, but not limited to, projected future earnings of the facility and potential proceeds which could be realized upon termination of our relationship with the Jamul Tribe. If our estimates are not accurate, we could incur additional losses up to our remaining maximum exposure on the loan and unfunded loan commitments to the JIVDC of approximately $28 million.

Results of Operations

The following are the most important factors and trends that contribute to our operating performance:

·

Most of our properties operate in mature competitive markets. As a result, we expect a significant amount of our future growth to come from prudent acquisitions of gaming properties (such as our pending acquisition of Pinnacle Entertainment, our August 2015 acquisition of Tropicana Las Vegas Hotel and Casino), jurisdictional expansions (such as our June 2015 opening of a slots‑only gaming facility in Massachusetts, the September 2014 opening of Hollywood Gaming at Mahoning Valley Race Course and the August 2014 opening of Hollywood Gaming at Dayton Raceway), expansions of gaming in existing jurisdictions (such as the introduction of table games in July 2010 at Hollywood Casino at Charles Town Races and Hollywood Casino at Penn National Race Course, and at Hollywood Casino Bangor in March 2012), expansions/improvements of existing properties (such as Tropicana Las Vegas) and new growth opportunities (such as our acquisition of Prairie State Gaming, a leading video lottery terminal operator in Illinois, and our entry into the interactive and social gaming space through Penn Interactive Ventures, including our recent acquisition of Rocket Speed).

·

A number of states are currently considering or implementing legislation to legalize or expand gaming. Such legislation presents both potential opportunities to establish new properties (for example, in Massachusetts, where we opened a slots‑only gaming facility on June 24, 2015, in Kansas, where we opened a casino through a joint venture in February 2012, and in Ohio, where we opened casinos in Toledo and Columbus in May 2012 and October 2012, respectively, and opened video lottery terminal facilities at two racetracks in Ohio in the third quarter of 2014) and increased competitive threats to business at our existing properties (such as the introduction/expansion of commercial casinos in Kansas, Maryland, Ohio, Pennsylvania, and potentially Kentucky and Nebraska, and the introduction of tavern licenses in several states, most significantly in Illinois).

·

The successful implementation of our margin enhancement initiatives.

·

The actions of government bodies can affect our operations in a variety of ways. For instance, the continued pressure on governments to balance their budgets could intensify the efforts of state and local governments to raise revenues through increases in gaming taxes and/or property taxes, or via an expansion of gaming. In addition, government bodies may restrict, prevent or negatively impact operations in the jurisdictions in which we do business (such as the implementation of smoking bans).

·

The continued demand for, and our emphasis on, slot wagering entertainment at our properties.

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·

The successful execution of our development and construction activities, as well as the risks associated with the costs, regulatory approval and the timing of these activities.

·

The risks related to economic conditions and the effect of such prolonged sluggish conditions on consumer spending for leisure and gaming activities, which may negatively impact our operating results and our ability to continue to access financing at favorable terms.

The consolidated results of operations for the years ended December 31, 2017, 2016 and 2015 are summarized below:

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31,

 

2017

 

2016

 

2015

 

 

 

(in thousands)

 

Revenues:

    

 

    

    

 

    

    

 

    

 

Gaming

 

$

2,692,021

 

$

2,606,262

 

$

2,497,497

 

Food, beverage, hotel and other

 

 

601,731

 

 

575,434

 

 

485,534

 

Management service fee and licensing fees

 

 

11,654

 

 

11,348

 

 

10,314

 

Reimbursable management costs

 

 

26,060

 

 

15,997

 

 

 —

 

Revenues

 

 

3,331,466

 

 

3,209,041

 

 

2,993,345

 

Less promotional allowances

 

 

(183,496)

 

 

(174,661)

 

 

(154,987)

 

Net revenues

 

 

3,147,970

 

 

3,034,380

 

 

2,838,358

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

Gaming

 

 

1,364,989

 

 

1,334,980

 

 

1,271,679

 

Food, beverage, hotel and other

 

 

421,848

 

 

406,871

 

 

349,897

 

General and administrative

 

 

514,776

 

 

463,028

 

 

449,433

 

Reimbursable management costs

 

 

26,060

 

 

15,997

 

 

 —

 

Depreciation and amortization

 

 

267,062

 

 

271,214

 

 

259,461

 

Impairment losses, provision for loan loss and unfunded loan commitments to the JIVDC

 

 

107,810

 

 

 —

 

 

40,042

 

Insurance recoveries, net of deductible charges

 

 

(289)

 

 

(726)

 

 

 —

 

Total operating expenses

 

 

2,702,256

 

 

2,491,364

 

 

2,370,512

 

Income from operations

 

$

445,714

 

$

543,016

 

$

467,846

 

Certain information regarding our results of operations by segment for the years ended December 31, 2017, 2016 and 2015 is summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Revenues

 

Income (loss) from Operations

 

Year ended December 31,

 

2017

 

2016

 

2015

 

2017

 

2016

 

2015

 

 

 

 

(in thousands)

 

Northeast

    

$

1,584,119

    

$

1,568,514

    

$

1,505,838

    

$

408,693

    

$

397,524

    

$

328,567

 

South/West

 

 

604,665

 

 

546,608

 

 

478,128

 

 

(5,781)

 

 

92,629

 

 

102,380

 

Midwest

 

 

907,493

 

 

877,567

 

 

833,455

 

 

233,704

 

 

223,180

 

 

225,526

 

Other

 

 

51,693

 

 

41,691

 

 

20,937

 

 

(190,902)

 

 

(170,317)

 

 

(188,627)

 

Total

 

$

3,147,970

 

$

3,034,380

 

$

2,838,358

 

$

445,714

 

$

543,016

 

$

467,846

 

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Revenues

Revenues for the years ended December 31, 2017, 2016 and 2015 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

 

    

 

 

    

Percentage

 

 

Year Ended December 31,

 

2017

 

2016

 

Variance

 

Variance

 

 

Gaming

 

$

2,692,021

 

 

2,606,262

 

$

85,759

 

3.3

%

 

Food, beverage, hotel and other

 

 

601,731

 

 

575,434

 

 

26,297

 

4.6

%

 

Management service and licensing fees

 

 

11,654

 

 

11,348

 

 

306

 

2.7

%

 

Reimbursable management costs

 

 

26,060

 

 

15,997

 

 

10,063

 

62.9

%

 

Revenues

 

 

3,331,466

 

 

3,209,041

 

 

122,425

 

3.8

%

 

Less promotional allowances

 

 

(183,496)

 

 

(174,661)

 

 

(8,835)

 

5.1

%

 

Net revenues

 

$

3,147,970

 

$

3,034,380

 

$

113,590

 

3.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

 

    

 

 

    

Percentage

 

 

Year Ended December 31,

 

2016

 

2015

 

Variance

 

Variance

 

 

Gaming

 

$

2,606,262

 

 

2,497,497

 

$

108,765

 

4.4

%

 

Food, beverage, hotel and other

 

 

575,434

 

 

485,534

 

 

89,900

 

18.5

%

 

Management service and licensing fees

 

 

11,348

 

 

10,314

 

 

1,034

 

10.0

%

 

Reimbursable management costs

 

 

15,997

 

 

 —

 

 

15,997

 

N/A

 

 

Revenues

 

 

3,209,041

 

 

2,993,345

 

 

215,696

 

7.2

%

 

Less promotional allowances

 

 

(174,661)

 

 

(154,987)

 

 

(19,674)

 

12.7

%

 

Net revenues

 

$

3,034,380

 

$

2,838,358

 

$

196,022

 

6.9

%

 

In our business, revenue is driven by discretionary consumer spending. The proliferation of new gaming facilities has increased competition in many regional markets (including at some of our key facilities). As reported by most jurisdictions, regional gaming industry trends have shown limited revenue growth in recent years as numerous jurisdictions now permit gaming or have expanded their gaming offerings.

We have no certain mechanism for determining why consumers choose to spend more or less money at our properties from period to period and as such cannot quantify a dollar amount for each factor that impacts our customers’ spending behaviors.

However, based on our experience, we can generally offer some insight into the factors that we believe were likely to account for such changes. In instances where we believe one factor may have had a significantly greater impact than the other factors, we have noted that as well. However, in all instances, such insights are based only on our reasonable judgment and professional experience, and no assurance can be given as to the accuracy of our judgments.

The retail value of accommodations, food and beverage, and other services furnished to guests without charge is included in gross revenues and then deducted as “promotional allowances.” Our promotional allowance levels are determined based on various factors such as our marketing plans, competitive factors, economic conditions, and regulations.

Gaming revenue

2017 Compared with 20166

Gaming revenue increased by $85.8 million, or 3.3%, to $2,692.0 million in 2017, primarily due to the variances explained below.

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Gaming revenue for our Northeast segment increased by $14.1 million in 2017, primarily due to increased gaming revenue at all four of our Ohio properties, which together increased gaming revenues $37.6 million for the year ended December 31, 2017 and increased gaming revenues at Plainridge Park Casino, partially offset by decreased gaming revenue at Hollywood Casino Bangor and Hollywood Casino at Charles Town Races due to increased competition from the Maryland market.

Gaming revenue for our Midwest segment increased by $27.2 million in 2017, primarily due to increased gaming revenue at Prairie State Gaming primarily resulting from the acquisition of the assets of four smaller VGT route operators in Illinois since the fourth quarter 2016 and increased gaming revenue at Argosy Casino Riverside, partially offset by decreased gaming revenue at Argosy Casino Alton partly due to flooding which occurred in May 2017, and Hollywood Casino Lawrenceburg, primarily due to continued impact of competition in Ohio.

Gaming revenue for our South/West segment increased by $44.4 million in 2017, primarily due to the acquisitions of 1st Jackpot and Resorts on May 1, 2017, which contributed a combined $44.2 million of gaming revenue for the year ended December 31, 2017 and increased gaming revenue at Tropicana Las Vegas, M Resort and Zia Park, as the local economy has shown improvements over the second half of the year, partially offset by decreased gaming revenue at Hollywood Casino Gulf Coast and Boomtown Biloxi, both of which were negatively impacted by Hurricane Nate in October 2017 and decreased gaming revenue at Hollywood Casino Tunica.

2016 Compared with 2015

Gaming revenue increased by $108.8 million, or 4.4%, to $2,606.3 million in 2016, primarily due to the variances explained below.

Gaming revenue for our Northeast segment increased by $59.1 million in 2016, primarily due to a full year of operations at Plainridge Park Casino, which opened on June 24, 2015, which increased gaming revenue by $67.0 million, improved results at Hollywood Casino Columbus, Hollywood Gaming at Dayton Raceway, and Hollywood Gaming at Mahoning Valley Racecourse, which together increased gaming revenues $13.8 million for the year ended December 31, 2016. These increases were partially offset by decreased gaming revenue at Hollywood Casino at Charles Town Races and, to a lesser extent, Hollywood Casino at Penn National Race Course, primarily due to increased competition from the Baltimore, Maryland market, which includes Maryland Live!, Horseshoe Casino Baltimore, which opened at the end of August 2014, and MGM National Harbor, which opened in December 2016.

Gaming revenue for our Midwest segment increased by $40.9 million in 2016, primarily due to a full year of operations at Prairie State Gaming, which was acquired on September 1, 2015, and increased gaming revenue by $43.9 million, and increased gaming revenue at Hollywood Casino St. Louis and Argosy Casino Riverside. These increases were partially offset by decreased gaming revenue at Hollywood Casino Joliet, Argosy Casino Alton, which was negatively impacted by flooding that occurred during the first quarter 2016, and Hollywood Casino Lawrenceburg, primarily due to the continued impact of competition in Ohio, namely the openings of a racino at Belterra park, Horseshoe Casino in Cincinnati and our own facility in Dayton.

Gaming revenue for our South/West segment increased by $8.8 million in 2016, primarily due to a full year of operations at Tropicana Las Vegas, which was acquired on August 25, 2015 and had increased gaming revenue of $32.0 million, partially offset by decreased gaming revenue at Hollywood Casino Tunica, Zia Park, as low oil prices have continued to affect the economy in this area, and Boomtown Biloxi, due to new competition.

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Food, beverage, hotel and other revenue

2017 Compared with 2016

Food, beverage, hotel and other revenue increased by $26.3 million, or 4.6%, to $601.7 million in 2017 primarily due to the variances explained below.

Food, beverage, hotel and other revenue for our South/West segment increased by $12.7 million in 2017, primarily due to the acquisitions of 1st Jackpot and Resorts on May 1, 2017 and increased food, beverage, hotel and other revenue at Tropicana Las Vegas and M Resort, partially offset by decreased food, beverage, hotel and other revenue at Hollywood Casino Tunica.

Food, beverage, hotel and other revenue for our Northeast segment increased by $2.4 million in 2017, primarily due to increased food, beverage, hotel and other revenue at Hollywood Gaming at Mahoning Valley, Hollywood Gaming at Dayton Raceway and Hollywood Casino Columbus, partially offset by decreased food, beverage, hotel and other revenue at Hollywood Casino at Charles Town Races due to increased competition from the Maryland market.

Food, beverage, hotel and other revenue for our Other segment increased by $10.4 million in 2017, primarily due to a full year of operations for Rocket Speed, which was acquired on August 1, 2016, partially offset by the sale of Rosecroft Raceway on July 31, 2016.

2016 Compared with 2015

Food, beverage, hotel and other revenue increased by $89.9 million, or 18.5%, to $575.4 million in 2016 primarily due to the variances explained below.

Food, beverage, hotel and other revenue for our South/West segment increased by $55.7 million in 2016, primarily due to increased food, beverage, hotel and other revenue due to a full year of operations at Tropicana Las Vegas, which was acquired on August 25, 2015, which had increased food, beverage, hotel and other revenue of $58.5 million for the year ended December 31, 2016.  This increase was partially offset by decreased food, beverage, hotel and other revenue from Zia Park Casino.

Food, beverage, hotel and other revenue for our Northeast segment increased by $8.4 million in 2016, primarily due to increased food, beverage, hotel and other revenue from a full year of operations at Plainridge Park Casino which opened on June 24, 2015, which had increased food, beverage, hotel and other revenue of $6.5 million for the year ended December 31, 2016.

Food, beverage, hotel and other revenue for our Midwest segment increased by $5.1 million in 2016, primarily due to increased food, beverage, hotel and other revenue at Hollywood Casino Lawrenceburg, Hollywood Casino St. Louis, and Argosy Casino Riverside.

Promotional allowances

The retail value of accommodations, food and beverage, and other services furnished to guests without charge is included in gross revenues and then deducted as “promotional allowances.” Our promotional allowance levels are determined based on various factors such as our marketing plans, competitive factors, economic conditions, and regulations.

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2017 Compared with 2016

Promotional allowances increased by $8.8 million, or 5.1%, to $183.5 million in 2017, primarily due the acquisitions of 1st Jackpot and Resorts on May 1, 2017 and increased marketing efforts at Tropicana Las Vegas and M Resort.

2016 Compared with 2015

Promotional allowances increased by $19.7 million, or 12.7%, to $174.7 million in 2016, primarily due to increased promotional allowances from a full year of operations at Tropicana Las Vegas, which was acquired on August 25, 2015.

Operating Expenses

Operating expenses for the years ended December 31, 2017, 2016 and 2015 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

 

    

 

 

    

Percentage

 

Year ended December 31,

 

2017

 

2016

 

Variance

 

Variance

 

Gaming

 

$

1,364,989

 

$

1,334,980

 

$

30,009

 

2.2

%  

Food, beverage, hotel and other

 

 

421,848

 

 

406,871

 

 

14,977

 

3.7

%  

General and administrative

 

 

514,776

 

 

463,028

 

 

51,748

 

11.2

%  

Reimbursable management costs

 

 

26,060

 

 

15,997

 

 

10,063

 

62.9

%  

Depreciation and amortization

 

 

267,062

 

 

271,214

 

 

(4,152)

 

(1.5)

%  

Impairment losses, provision for loan loss and unfunded loan commitments to the JIVDC

 

 

107,810

 

 

 —

 

 

107,810

 

N/A

 

Insurance recoveries, net of deductible charges

 

 

(289)

 

 

(726)

 

 

437

 

(60.2)

%  

Total operating expenses

 

$

2,702,256

 

$

2,491,364

 

$

210,892

 

8.5

%  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

 

    

 

 

    

Percentage

 

Year ended December 31,

 

2016

 

2015

 

Variance

 

Variance

 

Gaming

 

$

1,334,980

 

$

1,271,679

 

$

63,301

 

5.0

%  

Food, beverage, hotel and other

 

 

406,871

 

 

349,897

 

 

56,974

 

16.3

%  

General and administrative

 

 

463,028

 

 

449,433

 

 

13,595

 

3.0

%  

Reimbursable management costs

 

 

15,997

 

 

 —

 

 

15,997

 

N/A

 

Depreciation and amortization

 

 

271,214

 

 

259,461

 

 

11,753

 

4.5

%  

Impairment losses

 

 

 —

 

 

40,042

 

 

(40,042)

 

(100.0)

%  

Insurance recoveries, net of deductible charges

 

 

(726)

 

 

 —

 

 

(726)

 

N/A

 

Total operating expenses

 

$

2,491,364

 

$

2,370,512

 

$

120,852

 

5.1

%  

Gaming expense

2017 Compared with 2016

Gaming expense increased by $30.0 million, or 2.2%, to $1,365.0 million in 2017, primarily due to the variances explained below.

Gaming expense for our Midwest segment increased by $19.7 million in 2017, primarily due to an increase in gaming taxes resulting from increased taxable gaming revenue mentioned above at Prairie State Gaming primarily resulting from the acquisition of four smaller VGT route operators in Illinois since the fourth quarter 2016 and Argosy Casino Riverside, partially offset by a decrease in gaming taxes resulting from decreased taxable gaming revenue

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mentioned above at Argosy Casino Alton and Hollywood Casino Lawrenceburg, primarily due to continued impact of competition in Ohio.

Gaming expense for our South/West segment increased by $9.9 million in 2017, primarily due to an increase in gaming taxes resulting from the acquisitions of 1st Jackpot and Resorts on May 1, 2017, and an increase in gaming taxes resulting from increased taxable gaming revenue mentioned above at Tropicana Las Vegas and Zia Park, as the local economy has shown improvements over the second half of the year, partially offset by a decrease in gaming taxes resulting from decreased taxable gaming revenue mentioned above at Hollywood Casino Gulf Coast and Boomtown Biloxi, both of which were negatively impacted by Hurricane Nate in October 2017 and at Hollywood Casino Tunica

2016 Compared with 2015

Gaming expense increased by $63.3 million, or 5.0%, to $1,335.0 million in 2016, primarily due to the variances explained below.

Gaming expense for our Midwest segment increased by $31.9 million in 2016, primarily due to a full year of operations at Prairie State Gaming, which was acquired on September 1, 2015 and an overall increase in gaming taxes resulting from increased taxable gaming revenue at Hollywood Casino St. Louis and Argosy Casino Riverside, partially offset by an overall decrease in gaming taxes resulting from decreased taxable gaming revenue at Hollywood Casino Joliet, Hollywood Casino Aurora, and Argosy Casino Alton.

Gaming expense for our Northeast segment increased by $28.8 million in 2016, primarily due to full year of operation at Plainridge Park Casino, which opened on June 24, 2015, and increased gaming taxes as a result of increased taxable gaming revenue at Hollywood Casino Columbus, Hollywood Gaming at Dayton Raceway, and Hollywood Gaming at Mahoning Valley Race Course. These increases were partially offset by an overall decrease in gaming taxes resulting from decreased taxable gaming revenue at Hollywood Casino at Charles Town Races and Hollywood Casino at Penn National Race Course.

Gaming expense for our South/West segment increased by $3.0 million in 2016, primarily due to a full year of operations at Tropicana Las Vegas, which was acquired on August 25, 2015, partially offset by an overall decrease in gaming taxes resulting from decreased taxable gaming revenue at Zia Park Casino as low oil prices have continued to affect the economy in this area, Hollywood Casino Tunica and M Resort.

Food, beverage, hotel and other expense

2017 Compared with 2016

Food, beverage, hotel and other expense increased by $15.0 million, or 3.7%, to $421.8 million in 2017, primarily due to the variances explained below.

Food, beverage, hotel and other expense for our South/West segment increased by $12.5 million in 2017, primarily due to the acquisition of 1st Jackpot and Resorts on May 1, 2017 and higher food, beverage, hotel and other expenses at Tropicana Las Vegas and M Resort, partially offset by lower food, beverage, hotel and other expenses at Hollywood Casino Tunica and Boomtown Biloxi.

Food, beverage, hotel and other expense for our Northeast segment increased by $2.2 million in 2017, primarily due to higher food, beverage, hotel and other expenses at Hollywood Casino at Penn National Race Course, Hollywood Gaming at Mahoning Valley Race Course, Hollywood Gaming at Dayton Raceway and Hollywood Casino Columbus, partially offset by lower food, beverage, hotel and other expenses at Hollywood Casino Toledo and Hollywood Casino at Charles Town Races due to increased competition from the Maryland market .

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2016 Compared with 2015

Food, beverage, hotel and other expense increased by $57.0 million, or 16.3%, to $406.9 million in 2016, primarily due to the variances explained below.

Food, beverage, hotel and other expense for our South/West segment increased by $39.9 million in 2016, primarily due to a full year of operations at Tropicana Las Vegas, which was acquired on August 25, 2015.

Food, beverage, hotel and other expense for our Northeast segment increased by $4.8 million in 2016, primarily due to increased food, beverage and other expense from a full year of operations at Plainridge Park Casino which opened on June 24, 2015.

Food, beverage, hotel and other expense for our Midwest segment increased by $3.8 million in 2016, primarily due to increased food, beverage, hotel and other expense at Hollywood Casino Joliet, Hollywood Casino St. Louis and Argosy Casino Riverside.

General and administrative expense

General and administrative expenses include items such as compliance, facility maintenance, utilities, property and liability insurance, surveillance and security, and certain housekeeping services, as well as all expenses for administrative departments such as accounting, purchasing, human resources, legal and internal audit. General and administrative expenses also include lobbying expenses and changes in the fair value of our contingent purchase price obligations.

2017 Compared with 2016

General and administrative expenses increased by $51.7 million, or 11.2%, to $514.8 million in 2017, primarily due to the variances explained below.

General and administrative expenses for Other increased by $19.0 million in 2017, primarily due to higher cash-settled stock-based compensation charges of $23.0 million from increases in Penn’s stock price during 2017 compared to 2016, higher bonus accrual expense of $3.5 million due to the Company’s better overall performance against its budget, higher outside services and legal fees of $9.4 million due to development and acquisition costs and a full year of operations of Rocket Speed, which was acquired on August 1, 2016, partially offset by a $22.2 million benefit from a buy out of the contingent purchase price obligation for Rocket Speed.

General and administrative expenses for our South/West segment increased by $18.6 million in 2017, primarily due to the acquisition of 1st Jackpot and Resorts on May 1, 2017 and higher expenses at Tropicana Las Vegas due to a favorable litigation settlement in 2016, partially offset by by cost saving measures at Hollywood Casino Gulf Coast and Hollywood Casino Tunica.

General and administrative expenses for our Northeast segment increased by $14.3 million in 2017, primarily due to higher contingent purchase price expense at Plainridge Park Casino due to improved results and long-term outlook.

2016 Compared with 2015

General and administrative expenses increased by $13.6 million, or 3.0%, to $463.0 million in 2016, primarily due to the variances explained below.

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General and administrative expenses for our Midwest segment increased by $13.1 million in 2016, primarily due to favorable property tax settlements of $17.4 million in 2015, partially offset by lower expenses at Hollywood Casino Joliet and Argosy Casino Alton.

General and administrative expenses for Other decreased by $10.0 million in 2016, primarily due to lower cash settled stock based compensation charges of $7.8 million mainly due to stock price decreases for Penn and GLPI common stock during 2016 compared to stock price increases in 2015 and lower bonus expense of $2.7 million.

General and administrative expenses for our South/West segment increased by $9.4 million in 2016, primarily due to a full year of operations at Tropicana Las Vegas, which was acquired on August 25, 2015, partially offset by decreased expenses at M Resort primarily due to decreases in outside service costs.

General and administrative expenses for our Northeast segment increased by $1.1 million in 2016, primarily due to a full year of operations at Plainridge Park Casino, which opened on June 24, 2015, partially offset by a favorable property tax adjustment for Hollywood Gaming at Dayton Raceway.

Depreciation and amortization expense

2017 Compared with 2016

Depreciation and amortization expense decreased by $4.2 million, or 1.5%, to $267.1 million in 2017, primarily due to decreases at the majority of our properties due to assets becoming fully depreciated, partially offset by the acquisitions of 1st Jackpot and Resorts on May 1, 2017, increased intangible asset amortization from a full year of operations at Rocket Speed and the acquisitions of the assets of four smaller VGT route operators in Illinois since the fourth quarter 2016.

2016 Compared with 2015

Depreciation and amortization expense increased by $11.8 million, or 4.5%, to $271.2 million in 2016, primarily due to a full year of operations at Plainridge Park Casino, which opened on June 24, 2015, Tropicana Las Vegas, which was acquired on August 25, 2015, Prairie State Gaming, which was acquired on September 1, 2015, and intangible asset amortization expense associated with our acquisition of Rocket Speed.  These increases were partially offset by lower expenses at the majority of our other properties as assets become fully depreciated.

Impairment losses, provision for loan loss and unfunded loan commitments to the JIVDC

For the year ended December 31, 2017, the Company recorded a provision for loan loss and unfunded loan commitments to the JIVDC of $89.8 million and goodwill impairment charges of $18.0 million.

For the year ended December 31, 2016, the Company did not record any impairment charges.

For the year ended December 31, 2015, the Company recorded other intangible assets impairment charges of $40.0 million related to the write‑off of our Plainridge Park Casino gaming license and a partial write‑down of the gaming license at Hollywood Gaming at Dayton Raceway due to a reduction in the long term earnings forecast at both of these locations.

Insurance recoveries, net of deductible charges

Insurance recoveries for the year ended December 31, 2017 were related to an insurance gain in our Midwest segment of $0.3 million for the second quarter flood that occurred at Argosy Casino Alton.

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Insurance recoveries for the year ended December 31, 2016 were related to an insurance gain in our Midwest segment of $0.7 million for the first quarter flood that occurred at Argosy Casino Alton.

Other income (expenses)

Other income (expenses) for the years ended December 31, 2017, 2016 and 2015 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

 

    

 

 

    

Percentage

 

Year ended December 31,

 

2017

 

2016

 

Variance

 

Variance

 

Interest expense

 

$

(466,761)

 

 

(459,243)

 

$

(7,518)

 

1.6

%

Interest income

 

 

3,552

 

 

24,186

 

 

(20,634)

 

(85.3)

%

Income from unconsolidated affiliates

 

 

18,671

 

 

14,337

 

 

4,334

 

30.2

%

Loss on early extinguishment of debt

 

 

(23,963)

 

 

 —

 

 

(23,963)

 

N/A

 

Other

 

 

(2,257)

 

 

(1,679)

 

 

(578)

 

34.4

%

Total other expenses

 

$

(470,758)

 

$

(422,399)

 

$

(48,359)

 

11.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

 

    

 

 

    

Percentage

 

Year ended December 31,

 

2016

 

2015

 

Variance

 

Variance

 

Interest expense

 

$

(459,243)

 

 

(443,127)

 

 

(16,116)

 

3.6

%

Interest income

 

 

24,186

 

 

11,531

 

 

12,655

 

109.7

%

Income from unconsolidated affiliates

 

 

14,337

 

 

14,488

 

 

(151)

 

(1.0)

%

Other

 

 

(1,679)

 

 

5,872

 

 

(7,551)

 

(128.6)

%

Total other expenses

 

$

(422,399)

 

$

(411,236)

 

$

(11,163)

 

2.7

%

Interest expense

Interest expense increased by $7.5 million, or 1.6%, to $466.8 million in 2017, primarily due to $5.8 million higher interest payments on the financing obligation to GLPI due to the acquisition of 1st Jackpot and Resorts on May 1, 2017 and the incurrence of rent escalators, $5.0 million from higher borrowing levels on the senior unsecured notes, partially offset by $2.5 million from lower borrowing levels and interest rates on the revolver portion of the senior secured credit facility and $0.7 million lower accretion on the relocation fees for Hollywood Gaming at Dayton Raceway and Hollywood Gaming at Mahoning Valley Race Course.

Interest expense increased by $16.1 million, or 3.6%, to $459.2 million in 2016, primarily due to $11.9 million from higher borrowings on the Term Loan A and revolver portions of the senior secured credit facility during year ended December 31, 2016, compared to prior year, lower capitalized interest of $1.7 million and higher payments of $1.7 million from the rent escalator on the financing obligation to GLPI.

Interest income

Interest income decreased by $20.6 million, or 85.3%, to $3.6 million in 2017, primarily due to lower interest accrued on the loan to the JIVDC due to their refinancing on October 20, 2016 (see Note 5 to the consolidated financial statements for further details).

Interest income increased by $12.7 million, or 109.7%, to $24.2 million in 2016, primarily due to higher interest accrued on the loan to the JIVDC (see Note 5 to the consolidated financial statements for further details).

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Income from unconsolidated affiliates

Income from unconsolidated affiliates increased by $4.3 million, or 30.2%, to $18.7 million in 2017, primarily due to increased earnings related to our joint venture in Kansas Entertainment primarily due to higher year over year revenue.

Other

Other changed by $0.6 million, or 34.4%, to $(2.3) million in 2017 compared to 2016 primarily due to costs associated with the January 2017 debt refinancing, partially offset by lower foreign currency translation losses for the year ended December 31, 2017 compared to 2016.

Other changed by $7.6 million, or 128.6%, to $(1.7) million in 2016 compared to 2015 primarily due to foreign currency translation losses for the year ended December 31, 2016 compared to foreign currency translation gains for 2015.

Taxes

Our income tax benefit from operations was $498.5 million for the year ended December 31, 2017, compared to an income tax expense of $11.3 million in the prior year period. Our effective tax rate (income taxes as a percentage of income from operations before income taxes) was 1,990.6% for the year ended December 31, 2017, as compared to 9.4% for the year ended December 31, 2016. The Company’s effective tax rate in the current year is lower than the federal statutory tax rate of 35% due to the effect of permanent items such as nondeductible goodwill amortization, stock compensation, and the contingent liability settlement, as well as the decrease in our valuation allowance during the year compared to the corresponding prior year period , which is partially offset by the effects of the deferred federal income tax rate reduction from 35% to 21% due to income tax reform legislation known as the Tax Cuts and Jobs Act. Our low level of pre tax earnings has magnified the impact of the above items on our effective tax rate during the year ended December 31, 2017, compared to the corresponding prior year period.

We recorded a net charge of $266.0 million included in the income tax provision in the Consolidated Statements of Operations consisting of three components: (i) a $261.3 million charge due to the revaluation of the net deferred tax assets in the U.S. based on the new lower federal income tax rate, (ii) a $2.6 million charge related to the one-time mandatory repatriation tax on previously deferred earnings from our wholly-owned Canadian subsidiary (which we will pay interest free over 8 years) and (iii) a $2.1 million foreign withholding tax charge due to the new favorable U.S. treatment of foreign dividends whereby we have changed our indefinite reinvestment assertion.  While we believe the $266.0 million net charge represents a reasonable estimate of the income tax effects of the Tax Act in our Consolidated Statements of Operations as of December 31, 2017, these amounts are considered provisional. 

Our effective income tax rate can vary from period to period depending on, among other factors, the geographic and business mix of our earnings and the level of our tax credits. Certain of these and other factors, including our history and projections of pre tax earnings, are considered in assessing our ability to realize our net deferred tax assets. During the year ended December 31, 2017, we determined that a valuation allowance was no longer required against the federal and state net deferred tax assets for the portion that will be realized.  As such, the Company released $741.9 million of its total valuation allowance for the year ended December 31, 2017. The Company continues to maintain a valuation allowance of $113.7 million as of December 31, 2017 for federal capital loss carryforwards, as well as certain state filing groups, where it continues to be in a cumulative three-year pretax loss position.

Adjusted EBITDA

In addition to GAAP financial measures, adjusted EBITDA is used by management as an important measure of the Company’s operating performance. We define adjusted EBITDA as earnings before interest, taxes, stock

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compensation, debt extinguishment and financing charges, impairment charges, insurance recoveries and deductible charges, depreciation and amortization, changes in the estimated fair value of our contingent purchase price obligations, gain or loss on disposal of assets, and other income or expenses. Adjusted EBITDA is also inclusive of income or loss from unconsolidated affiliates, with our share of non-operating items (such as depreciation and amortization) added back for our joint venture in Kansas Entertainment. Adjusted EBITDA excludes payments associated with our Master Lease agreement with GLPI as the transaction was accounted for as a financing obligation. Adjusted EBITDA has economic substance because it is used by management as a performance measure to analyze the performance of our business, and is especially relevant in evaluating large, long lived casino projects because they provide a perspective on the current effects of operating decisions separated from the substantial non-operational depreciation charges and financing costs of such projects. We also present adjusted EBITDA because it is used by some investors and creditors as an indicator of the strength and performance of ongoing business operations, including our ability to service debt, fund capital expenditures, acquisitions and operations. These calculations are commonly used as a basis for investors, analysts and credit rating agencies to evaluate and compare operating performance and value companies within our industry. In addition, gaming companies have historically reported adjusted EBITDA as a supplement to financial measures in accordance with GAAP. In order to view the operations of their casinos on a more stand-alone basis, gaming companies, including us, have historically excluded from their adjusted EBITDA calculations certain corporate expenses that do not relate to the management of specific casino properties. However, adjusted EBITDA is not a measure of performance or liquidity calculated in accordance with GAAP. Adjusted EBITDA information is presented as a supplemental disclosure, as management believes that it is a widely used measure of performance in the gaming industry, is used in the valuation of gaming companies, and that it is considered by many to be a key indicator of the Company’s operating results. Management uses adjusted EBITDA as an important measure of the operating performance of its segments, including the evaluation of operating personnel. Adjusted EBITDA should not be construed as an alternative to operating income, as an indicator of the Company’s operating performance, as an alternative to cash flows from operating activities, as a measure of liquidity, or as any other measure of performance determined in accordance with GAAP.  The Company has significant uses of cash flows, including capital expenditures, interest payments, taxes and debt principal repayments, which are not reflected in adjusted EBITDA. It should also be noted that other gaming companies that report adjusted EBITDA information may calculate adjusted EBITDA in a different manner than the Company and therefore, comparability may be limited. 

A reconciliation of the Company’s net income per GAAP adjusted EBITDA, as well as the Company’s income from operations per GAAP to adjusted EBITDA, is included below. Additionally, a reconciliation of each segment’s income (loss) from operations to adjusted EBITDA is also included above. On a segment level, income (loss) from operations per GAAP, rather than net income (loss) per GAAP is reconciled to adjusted EBITDA due to, among other things, the impracticability of allocating interest expense, interest income, income taxes and certain other items to the Company’s segments on a segment by segment basis. Management believes that this presentation is important to investors in evaluating the performance of the Company’s segments and is consistent with the reporting of other gaming companies.

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The reconciliation of the Company’s income (loss) from operations per GAAP to adjusted EBITDA, as well as the Company’s net income per GAAP to adjusted EBITDA, for the years ended December 31, 2017, 2016 and 2015 was as follows:

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31,

 

2017

 

2016

 

2015

 

 

 

(in thousands)

 

Net income

    

$

473,463

    

$

109,310

    

$

686

 

Income (benefit) tax provision

 

 

(498,507)

 

 

11,307

 

 

55,924

 

Other

 

 

26,220

 

 

1,679

 

 

(5,872)

 

Income from unconsolidated affiliates

 

 

(18,671)

 

 

(14,337)

 

 

(14,488)

 

Interest income

 

 

(3,552)

 

 

(24,186)

 

 

(11,531)

 

Interest expense

 

 

466,761

 

 

459,243

 

 

443,127

 

Income from operations

 

$

445,714

 

$

543,016

 

$

467,846

 

Loss (gain) on disposal of assets

 

 

172

 

 

(2,471)

 

 

1,286

 

Insurance recoveries, net of deductible charges

 

 

(289)

 

 

(726)

 

 

 —

 

Impairment losses, provision for loan loss and unfunded loan commitments to the JIVDC

 

 

107,810

 

 

 —

 

 

40,042

 

Charge for stock compensation

 

 

7,780

 

 

6,871

 

 

8,223

 

Contingent purchase price

 

 

(6,840)

 

 

1,277

 

 

(5,374)

 

Depreciation and amortization

 

 

267,062

 

 

271,214

 

 

259,461

 

Income from unconsolidated affiliates

 

 

18,671

 

 

14,337

 

 

14,488

 

Non operating items for Kansas JV(1)

 

 

5,866

 

 

10,311

 

 

10,377

 

Adjusted EBITDA

 

$

845,946

 

$

843,829

 

$

796,349

 

(1)

Adjusted EBITDA excludes our share of the impact of non‑operating items (such as depreciation and amortization expense) from our joint venture in Kansas Entertainment.

The reconciliation of each segment’s income (loss) from operations to adjusted EBITDA for the years ended December 31, 2017, 2016 and 2015 were as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

 

    

 

    

 

 

    

 

 

 

Year Ended December 31, 2017

 

Northeast

 

South/West

 

Midwest

 

Other (1)

 

Total

 

Income (loss) from operations

 

$

408,693

 

$

(5,781)

 

$

233,704

 

$

(190,902)

 

$

445,714

 

Charge for stock compensation

 

 

 —

 

 

 —

 

 

 —

 

 

7,780

 

 

7,780

 

Insurance recoveries, net of deductible charges

 

 

 —

 

 

 —

 

 

(289)

 

 

 —

 

 

(289)

 

Impairment losses, provision for loan loss and unfunded loan commitments to the JIVDC

 

 

 —

 

 

104,605

 

 

 —

 

 

3,205

 

 

107,810

 

Depreciation and amortization

 

 

80,105

 

 

36,622

 

 

37,837

 

 

112,498

 

 

267,062

 

Contingent purchase price

 

 

12,529

 

 

 —

 

 

13

 

 

(19,382)

 

 

(6,840)

 

(Gain) loss on disposal of assets

 

 

(56)

 

 

(122)

 

 

168

 

 

182

 

 

172

 

Income (loss) from unconsolidated affiliates

 

 

 —

 

 

 —

 

 

20,478

 

 

(1,807)

 

 

18,671

 

Non-operating items for Kansas JV

 

 

 —

 

 

 —

 

 

5,866

 

 

 —

 

 

5,866

 

Adjusted EBITDA

 

$

501,271

 

$

135,324

 

$

297,777

 

$

(88,426)

 

$

845,946

 

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Year Ended December 31, 2016

 

Northeast

 

South/West

 

Midwest

 

Other (1)

 

Total

 

Income (loss) from operations

 

$

397,524

 

$

92,629

 

$

223,180

 

$

(170,317)

 

$

543,016

 

Charge for stock compensation

 

 

 —

 

 

 —

 

 

 —

 

 

6,871

 

 

6,871

 

Insurance recoveries

 

 

 —

 

 

 —

 

 

(726)

 

 

 —

 

 

(726)

 

Depreciation and amortization

 

 

92,373

 

 

35,831

 

 

38,210

 

 

104,800

 

 

271,214

 

Contingent purchase price

 

 

(1,277)

 

 

 —

 

 

 6

 

 

2,548

 

 

1,277

 

Loss (gain) on disposal of assets

 

 

450

 

 

109

 

 

334

 

 

(3,364)

 

 

(2,471)

 

Income (loss) from unconsolidated affiliates

 

 

 —

 

 

 —

 

 

15,960

 

 

(1,623)

 

 

14,337

 

Non-operating items for Kansas JV

 

 

 —

 

 

 —

 

 

10,311

 

 

 —

 

 

10,311

 

Adjusted EBITDA

 

$

489,070

 

$

128,569

 

$

287,275

 

$

(61,085)

 

$

843,829

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

 

    

 

    

 

 

    

 

 

 

Year ended December 31, 2015

 

Northeast

 

South/West

 

Midwest

 

Other

 

Total

 

Income (loss) from operations

 

$

328,567

 

 

102,380

 

 

225,526

 

 

(188,627)

 

$

467,846

 

Charge for stock compensation

 

 

 —

 

 

 —

 

 

 —

 

 

8,223

 

 

8,223

 

Impairment losses

 

 

40,042

 

 

 —

 

 

 —

 

 

 —

 

 

40,042

 

Insurance recoveries, net of deductible charges

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Depreciation and amortization

 

 

93,299

 

 

25,793

 

 

39,917

 

 

100,452

 

 

259,461

 

Contingent purchase price

 

 

(5,374)

 

 

 —

 

 

 —

 

 

 —

 

 

(5,374)

 

Loss on disposal of assets

 

 

65

 

 

677

 

 

208

 

 

336

 

 

1,286

 

Income (loss) from unconsolidated affiliates

 

 

 —

 

 

 —

 

 

15,289

 

 

(801)

 

 

14,488

 

Non-operating items for Kansas JV

 

 

 —

 

 

 —

 

 

10,377

 

 

 —

 

 

10,377

 

Adjusted EBITDA

 

$

456,599

 

$

128,850

 

$

291,317

 

$

(80,417)

 

$

796,349

 

2017 Compared to 2016

Adjusted EBITDA for our Northeast segment increased by $12.2 million, or 2.5%, for the year ended December 31, 2017, as compared to the year ended December 31, 2016, primarily due to improved results at all four of our Ohio properties and Plainridge Park Casino, partially offset by lower Adjusted EBITDA at Hollywood Casino at Charles Town Races due to increased competition from the Maryland market.

Adjusted EBITDA for our Midwest segment increased by $10.5 million, or 3.7%, for the year ended December 31, 2017, as compared to the year ended December 31, 2016, primarily due to improved results at Argosy Casino Riverside and Prairie State Gaming which benefited from the acquisition of two smaller VGT route operators during the year, partially offset by lower adjusted EBITDA at Hollywood Casino Joliet and Hollywood Casino St. Louis.

Adjust EBITDA for our South/West segment increased by $6.8 million, or 5.3%, for the year ended December 31, 2017, as compared to the year ended December 31, 2016, primarily due to the acquisitions of 1st Jackpot and Resorts on May 1, 2017, which contributed adjusted EBITDA of $8.6 million, improved results at M Resort and Zia Park Casino, as the local economy has shown improvements in the second half of 2017, partially offset by lower adjusted EBITDA at Hollywood Casino Gulf Coast due to impacts from Hurricane Nate in October 2017 and at Tropicana Las Vegas, primarily due to negative impacts in the fourth quarter following the tragic shootings and a favorable litigation settlement in the prior year.

Adjusted EBITDA for Other decreased by $27.3 million, or 44.8%, for the year ended December 31, 2017, as compared to the year ended December 31, 2016, primarily due to increased corporate overhead costs of $34.8 million, primarily due to higher cash‑settled stock‑based compensation charges of $23.0 million mainly due to higher Penn stock price during 2017 compared to 2016, higher acquisition and development costs of $9.4 million as well as increased bonus expense of $3.5 million due to the Company’s better overall performance against its budget, partially offset by a full year of earnings from Rocket Speed, which was acquired on August 1, 2016.

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2016 Compared to 2015

Adjusted EBITDA for our Northeast segment increased by $32.5 million, or 7.1%, for the year ended December 31, 2016, as compared to the year ended December 31, 2015, primarily due to a full year of operations for Plainridge Park Casino, which opened on June 24, 2015, improved results at all of our Ohio properties, which together increased adjusted EBITDA by $11.5 million, partially offset by decreased adjusted EBITDA at Hollywood Casino at Charles Town Races and Hollywood Casino at Penn National Race Course, primarily due to the continued impact of competition of in the region, namely Maryland Live!, Horseshoe Casino Baltimore, and MGM National Harbor, which opened in December 2016.

Adjusted EBITDA for our Midwest segment decreased by $4.0 million, or 1.4%, for the year ended December 31, 2016, as compared to the year ended December 31, 2015, primarily due to decreased EBITDA at Hollywood St. Louis as a result of a $15.4 million property tax credit received during 2015, Hollywood Casino Lawrenceburg as a result of a $2.0 million property tax refund received in the first quarter of 2015, and Argosy Casino Alton due to flooding during the first quarter 2016, which resulted in declines in business volumes and difficulty recovering lost business, partially offset by increased adjusted EBITDA from a full year of operations of Prairie State Gaming which was acquired on September 1, 2015.

Adjusted EBITDA for Other increased by $19.3 million, or 24.0%, for the year ended December 31, 2016, as compared to the year ended December 31, 2015, primarily due to decreased corporate overhead costs of $11.7 million, primarily due to lower cash settled stock based compensation charges of $7.8 million mainly due to stock price decreases for Penn and GLPI common stock during 2016 compared to stock price increases in 2015, as well as decreased bonus expense of $2.7 million. Penn Interactive Ventures also increased adjusted EBITDA by $8.8 million for the year ended December 31, 2016, as compared to the year ended December 31, 2015, primarily due to growth from our HollywoodCasino.com social gaming business and the acquisition of Rocket Speed on August 1, 2016.

Liquidity and Capital Resources

Historically and prospectively, our primary sources of liquidity and capital resources have been and will be cash flow from operations, borrowings from banks and proceeds from the issuance of debt and equity securities.

Net cash provided by operating activities was $459.1 million, $411.7 million, and $413.8 million for the years ended December 31, 2017, 2016 and 2015, respectively. The increase in net cash provided by operating activities of $47.4 million for the year ended December 31, 2017, compared to the corresponding period in the prior year, was comprised primarily of an increase in cash receipts from customers of $109.2 million, primarily due to the acquisition of 1st Jackpot and Resorts on May 1, 2017, Rocket Speed on August 1, 2016 and four smaller acquisitions by Prairie State Gaming since the fourth quarter 2016 and an increase in income tax refunds of $32.1 million, offset by an increase in cash paid to suppliers and vendors of $37.6 million, primarily due to the acquisitions noted above, a reduction of $23.0 million in interest income collections resulting from the refinancing of the Jamul loan in October 2016, cash payments for the early extinguishment of debt of $18.0 million and an increase in cash paid to employees of $15.5 million.

Net cash used in investing activities totaled $221.6 million, $79.3 million, and $781.0 million for the years ended December 31, 2017, 2016 and 2015, respectively. The increase in net cash used in investing activities of $142.3 million for the year ended December 31, 2017, compared to the corresponding period in the prior year, was primarily due the $273.9 million received from the refinancing of loans to the Jamul Tribe in the prior year, cash payments of $42.5 million primarily related to the acquisition of 1st Jackpot and Resorts and decreased proceeds related to the sale of assets held for sale of $17.2 million primarily from the sale of Rosecroft Raceway in 2016. All of which were partially offset by $183.3 million decrease in loan to the JIVDC and $8.2 million of principal and interest collections applied against the nonaccrual loan to the JIVDC.

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Net cash (used in) provided by financing activities totaled $(189.0) million, $(339.9) million, and $395.5 million for the years ended December 31, 2017, 2016 and 2015, respectively. The decrease in net cash used in financing activities of $150.9 million for the year ended December 31, 2017, compared to the prior year, was primarily due to higher proceeds from our long-term debt of $1,308.0 million, due to the refinancing of corporate debt, and higher proceeds of $82.6 million from GLPI for financing the acquisition of 1st Jackpot and Resorts.  All of which were partially offset by higher principal payments on long-term debt of $1,167.3 million due to the previously mentioned refinancing, payments of $24.8 million relating to the repurchase of common stock, higher payments of $17.8 million primarily relating to a buy out of the contingent purchase price obligation with Rocket Speed, higher payments on other long-term obligations of $21.7 million and higher principal payments on the financing obligation with GLPI of $7.3 million.

Capital Expenditures

Capital expenditures are accounted for as either project capital or maintenance (replacement) capital expenditures. Project capital expenditures are for fixed asset additions that expand an existing facility or create a new facility. Maintenance capital expenditures are expenditures to replace existing fixed assets with a useful life greater than one year that are obsolete, worn out or no longer cost effective to repair.

The following table summarizes our project capital expenditures by segment for the year ended December 31, 2017:

 

 

 

 

 

 

    

Actual

 

 

 

(in millions)

 

South/West (1)

 

$

24.8

 

Midwest (2)

 

 

5.7

 

Total

 

$

30.5

 

(1)

Capital expenditures from our South/West segment are related to the improvements at the Tropicana Las Vegas.

(2)

Capital expenditures from our Midwest segment are related to hotel improvements at Hollywood St. Louis.

��

During 2017, we made further enhancements to our Tropicana Las Vegas facility including adding a celebrity chef restaurant, the Robert Irvine Public House, which opened on July 27, 2017.

During the year ended December 31, 2017, we spent $68.8 million on maintenance capital expenditures, with $22.6 million in our Northeast segment, $17.2 million in our South/West segment, $24.2 million in our Midwest segment, and $4.8 million in Other.  The majority of the maintenance capital expenditures were for slot machines and slot machine equipment.

Cash generated from operations and cash available under the revolving credit facility portion of our senior secured credit facility funded our capital projects and maintenance capital expenditures in 2017.

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The following table summarizes our expected capital expenditures for the year ending December 31, 2018 by segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Project Cap Ex

 

Maintenance Cap Ex

 

 

(in millions)

 

(in millions)

Northeast

 

$

 —

 

$

21.8

South/West(1)

 

 

1.8

 

 

17.7

Midwest

 

 

 —

 

 

26.6

Other

 

 

 —

 

 

37.6

Total

 

$

1.8

 

$

103.7

(1)

Expected project capital expenditures in 2018 for our South/West segment is for improvements at the Tropicana Las Vegas.

In January 2018, the Company secured a Category 4 satellite casino license in York County, Pennsylvania and paid $50.1 million for the gaming license.  At the time of this filing, the timing and scope of our future investment of capital for this project have not been determined and, as such, the table above does not include any amount related to this project.

Jamul Indian Village Development Corporation

Our loan to the JIVDC, net of allowance for loan losses, which totaled $20.9 million and $92.1 million at December 31, 2017 and 2016, is accounted for as a loan on the consolidated balance sheets and as such is not included in the capital expenditures table presented above.  See Note 5 to the consolidated financial statements for additional details.

Debt

Senior Secured Credit Facility

On October 30, 2013, the Company entered into a new senior secured credit facility. The new senior secured credit facility consists of a five year $500 million revolver, a five year $500 million Term Loan A facility, and a seven year $250 million Term Loan B facility. The Term Loan A facility was priced at LIBOR plus a spread (ranging from 2.75% to 1.25%) based on the Company’s consolidated total net leverage ratio as defined in the new senior secured credit facility. The Term Loan B facility was priced at LIBOR plus 2.50%, with a 0.75% LIBOR floor.

On April 28, 2015, the Company entered into an agreement to amend its senior secured credit facility.   In August 2015, the amendment to the senior secured credit facility went into effect increasing the capacity under an existing five year revolver from $500 million to $633.2 million and increased the existing five year $500 million Term Loan A facility by $146.7 million.  The seven year $250 million Term Loan B facility remained unchanged. 

On January 19, 2017, the Company entered into an amended and restated senior secured credit facility. The amended and restated senior secured credit facility consists of a five year $700 million revolver, a five year $300 million Term Loan A facility, and a seven year $500 million Term Loan B facility (the “Amended Credit Facilities”). The Term Loan A facility was priced at LIBOR plus a spread (ranging from 3.00% to 1.25%) based on the Company’s consolidated total net leverage ratio as defined in the new senior secured credit facility. The Term Loan B facility was priced at LIBOR plus 2.50%, with a 0.75% LIBOR floor.  At December 31, 2017, the Company’s senior secured credit facility had a gross outstanding balance of $760.0 million, consisting of a $288.8 million Term Loan A facility and a $471.2 million Term Loan B facility. The revolving credit facility had nothing drawn at December 31, 2017.

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Additionally, at December 31, 2017 and 2016, the Company had conditional obligations under letters of credit issued pursuant to the senior secured credit facility with face amounts aggregating $22.1 million and $23.0 million, respectively,  resulting in $677.9 million and $419.1 million of available borrowing capacity as of December 30, 2017 and 2016, respectively, under the revolving credit facility. In connection with the repayment of the previous senior secured credit facility, the Company recorded $1.7 million in refinancing costs and a $2.3 million loss on the early extinguishment of debt for the year  ended December 31, 2017 related to the write-off of deferred debt issuance costs and the discount on the Term Loan B facility of the previous senior secured credit facility.

The payment and performance of obligations under the senior secured credit facility are guaranteed by a lien on and security interest in substantially all of the assets (other than excluded property such as gaming licenses) of the Company and its subsidiaries.

5.875% Senior Unsecured Notes

On October 30, 2013, the Company completed an offering of $300 million 5.875% senior unsecured notes that mature on November 1, 2021 (the “5.875% Notes”) at a price of par. Interest on the 5.875% Notes is payable on May 1 and November 1 of each year. The 5.875% Notes are senior unsecured obligations of the Company. The 5.875% Notes will not be guaranteed by any of the Company’s subsidiaries except in the event that the Company in the future issues certain subsidiary guaranteed debt securities. The Company may redeem the 5.875% Notes at any time, and from time to time, on or after November 1, 2016, at the declining redemption premiums set forth in the indenture governing the 5.875% Notes, together with accrued and unpaid interest to, but not including, the redemption date. Prior to November 1, 2016, the Company may redeem the 5.875% Notes at any time, and from time to time, at a redemption price equal to 100% of the principal amount of the 5.875% Notes redeemed plus a “make whole” redemption premium described in the indenture governing the 5.875% Notes, together with accrued and unpaid interest to, but not including, the redemption date. In addition, the 5.875% Notes may be redeemed prior to November 1, 2016 from net proceeds raised in connection with an equity offering as long as the Company pays 105.875% of the principal amount of the 5.875% Notes, redeems the 5.875% Notes within 180 days of completing the equity offering, and at least 60% of the 5.875% Notes originally issued remains outstanding.

The Company used the proceeds of the new senior secured credit facility, new 5.875% Notes, and cash on hand, to repay its previous senior secured credit facility, to fund the cash tender offer to purchase any and all of its previously issued 83/4%  senior subordinated notes (“83/4% Notes”)and the related consent solicitation to make certain amendments to the indenture governing the 83/4% Notes, to satisfy and discharge such indenture, to pay related fees and expenses and for working capital purposes.

Redemption of 5.875% Senior Subordinated Notes

In the first quarter of 2017, the Company redeemed all of its $300 million 5.875% senior subordinated notes, which were due in 2021 (“5.875% Notes”). In connection with this redemption, the Company recorded a $21.1 million loss on the early extinguishment of debt for the year ended December 31, 2017 related to the difference between the reacquisition price of the 5.875% Notes compared to its carrying value.

5.625% Senior Unsecured Notes

On January 19, 2017, the Company completed an offering of $400 million 5.625% senior unsecured notes that mature on January 15, 2027 (the “5.625% Notes”) at a price of par. Interest on the 5.625% Notes is payable on January 15th and July 15th of each year. The 5.625% Notes are senior unsecured obligations of the Company. The 5.625% Notes will not be guaranteed by any of the Company’s subsidiaries except in the event that the Company in the future issues certain subsidiary guaranteed debt securities. The Company may redeem the 5.625% Notes at any time on or after January 15, 2022, at the declining redemption premiums set forth in the indenture governing the 5.625% Notes, and, prior to January 15, 2022, at a “make-whole” redemption premium set forth in the indenture governing the 5.625%

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Notes.  In addition, prior to January 15, 2020, the Company may redeem the 5.625% Notes with an amount equal to the net proceeds from one or more equity offerings, at a redemption price equal to 105.625% of the principal amount of the 5.625% Notes redeemed, together with accrued and unpaid interest to, but not including, the redemption date, so long as at least 60% of the aggregate principal amount of the notes originally issued under the indenture remains outstanding and such redemption occurs within 180 days of closing of the related equity offering.

The Company used a portion of the proceeds from the issuance of the 5.625% Notes to retire its existing 5.875% Notes and to fund related transaction fees and expenses. 

The Company used loans funded under the Amended Credit Facilities and a portion of the proceeds of the 5.625% Notes to repay amounts outstanding under its then existing Credit Agreement and to fund related transaction fees and expenses and for general corporate purposes.

Financing obligation with GLPI

The Company’s Master Lease with GLPI that became effective November 1, 2013 was accounted for as a financing obligation and totaled $3.54 billion and $3.51 billion at December 31, 2017 and 2016, respectively. At the inception of the lease, the Company determined that the lease term should include all option periods since renewal was reasonably assured given the high percentage of earnings from the Master Lease properties operations to the Company and the lack of alternative economically feasible leasing options for such real estate. The future minimum lease payments at lease inception were discounted at 9.7% which represented the Company’s estimated incremental borrowing rate over the term of the lease. The financing obligation increased by $24.7 million for the year ended December 31, 2017 compared to the prior year due to the addition of $82.6 million in connection with the acquisition of 1st Jackpot and Resorts, partially offset by principal payment reductions. Interest expense recognized on this obligation for the years ended December 31, 2017 and 2016 totaled $397.6 million and $391.7 million, respectively.

Other Long‑Term Obligations

Other long term obligations at December 31, 2017 and 2016 of $119.3 million and $154.1 million, respectively, included $105.4 million and $118.9 million, respectively, related to the relocation fees for Hollywood Gaming at Dayton Raceway and Hollywood Gaming at Mahoning Valley Race Course.  At December 31, 2017 and 2016, $13.8 million and $14.4 million, respectively, related to the repayment obligation of a hotel and event center located near Hollywood Casino Lawrenceburg.  The December 31, 2016 long term obligations included $20.8 million related to a corporate airplane loan; all of which are more fully described below.

In June 2013, the Company finalized the terms of its memorandum of understanding with the State of Ohio, which included an agreement by the Company to pay a relocation fee in return for being able to relocate its existing racetracks in Toledo and Grove City to Dayton and Mahoning Valley, respectively. Upon opening of these two racinos in Ohio in the third quarter of 2014, the relocation fee for each new racino was recorded at the present value of the contractual obligation, which was calculated to be $75 million based on the 5% discount rate included in the agreement. The relocation fee for each facility is payable as follows: $7.5 million upon the opening of the facility and eighteen semi-annual payments of $4.8 million beginning one year from the commencement of operations. This obligation is accreted to interest expense at an effective yield of 5.0%. The amount included in interest expense related to this obligation was $5.5 million and $6.2 million for the year ended December 31, 2017 and 2016, respectively

The City of Lawrenceburg Department of Redevelopment completed construction of a hotel and event center located less than a mile away from Hollywood Casino Lawrenceburg. Effective in mid-January 2015, by contractual agreement, a repayment obligation for the hotel and event center was assumed by a wholly-owned subsidiary of the Company 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.  The Company is obligated to make annual payments on the loan of approximately $1 million for twenty years beginning January 2016. This obligation is accreted to interest

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expense at its effective yield of 3.0%. The amount included in interest expense related to this obligation was $0.4 million for the years ended December 31, 2017 and 2016.

Corporate Airplane Loan

On September 30, 2016, the Company acquired a previously leased corporate airplane that was accounted for as a capital lease and financed the purchase price with an amortizing loan at a fixed interest rate of 5.22% for a term of five years with monthly payments of $220 thousand and a balloon payment of $12.6 million at the end of the loan term.  The loan was subsequently repaid in full on January 19, 2017. 

Covenants

The Company’s senior secured credit facility and senior unsecured notes require us, among other obligations, to maintain specified financial ratios and to satisfy certain financial tests, including fixed charge coverage, interest coverage, senior leverage and total leverage ratios. In addition, the Company’s senior secured credit facility and senior unsecured notes restrict, among other things, its 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.

At December 31, 2017, the Company was in compliance with all required financial covenants.

Outlook

Based on our current level of operations, we believe that cash generated from operations and cash on hand, together with amounts available under our senior secured credit facility, will be adequate to meet our anticipated Master Lease obligations, debt service requirements, capital expenditures and working capital needs for the foreseeable future. However, we cannot be certain that our business will generate sufficient cash flow from operations, that our anticipated earnings projections will be realized, or that future borrowings will be available under our senior secured credit facility or otherwise will be available to enable us to service our indebtedness or to make anticipated capital expenditures. In addition, we expect a majority of our future growth to come from acquisitions of gaming properties at reasonable valuations, greenfield projects, jurisdictional expansions and property expansion in under‑penetrated markets. If we consummate significant acquisitions in the future or undertake any significant property expansions, our cash requirements may increase significantly and we may need to make additional borrowings or complete equity or debt financings to meet these requirements. Our future operating performance and our ability to service or refinance our debt will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control. See “Risk Factors—Risks Related to Our Capital Structure” of this Annual Report on Form 10‑K for a discussion of the risks related to our capital structure.

We have historically maintained a capital structure comprising a mix of equity and debt financing. We vary our leverage to pursue opportunities in the marketplace and in an effort to maximize our enterprise value for our shareholders. We expect to meet our debt obligations as they come due through internally generated funds from operations and/or refinancing them through the debt or equity markets prior to their maturity.

We expect to fund the anticipated acquisition of Pinnacle with a combination of proceeds from asset divestitures and the sale-leaseback of Plainridge Park Casino, existing cash on our balance sheet, new debt financing and internally generated cash flow prior to the acquisition. We anticipate that the additional cash flow resulting from the acquisition will allow us to pay down debt on an accelerated basis after closing.

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Commitments and Contingencies

Contractual Cash Obligations

At December 31, 2017, there was approximately $677.9 million available for borrowing under our revolving credit facility. The following table presents our contractual cash obligations at December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payments Due By Period

 

 

 

Total

 

2018

 

2019-2020

 

2021-2022

 

2023 and After

 

 

 

(in thousands)

 

Senior secured credit facility

    

 

    

    

 

    

    

 

    

    

 

    

    

 

    

 

Principal

 

$

760,000

 

$

20,000

 

$

58,750

 

$

235,000

 

$

446,250

 

Interest (1)

 

 

179,057

 

 

33,745

 

 

63,246

 

 

52,130

 

 

29,936

 

5.875% senior unsecured notes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Principal

 

 

400,000

 

 

 —

 

 

 —

 

 

 —

 

 

400,000

 

Interest

 

 

211,375

 

 

22,250

 

 

44,500

 

 

44,500

 

 

100,125

 

Purchase obligations

 

 

73,551

 

 

44,060

 

 

22,968

 

 

6,523

 

 

 —

 

Capital expenditure commitments (2)

 

 

4,805

 

 

4,805

 

 

 —

 

 

 —

 

 

 —

 

Capital leases

 

 

890

 

 

824

 

 

66

 

 

 —

 

 

 —

 

Financing obligation to GLPI (3)

 

 

10,299,854

 

 

387,456

 

 

664,518

 

 

664,518

 

 

8,583,362

 

Operating leases

 

 

84,919

 

 

8,097

 

 

9,679

 

 

6,626

 

 

60,517

 

Ohio Payments (4)

 

 

188,956

 

 

33,224

 

 

64,448

 

 

62,448

 

 

28,836

 

Other liabilities reflected in the Company’s consolidated balance sheets (5)

 

 

13,015

 

 

13,015

 

 

 —

 

 

 —

 

 

 —

 

Total

 

$

12,216,422

 

$

567,476

 

$

928,175

 

$

1,071,745

 

$

9,649,026

 

(1)

The interest rates associated with the variable rate components of our senior secured credit facility are estimated, based on the forward LIBOR curves plus the current spread based on our current levels of indebtedness over LIBOR as of December 31, 2017. The contractual amounts to be paid on our variable rate obligations are affected by changes in market interest rates and changes in our spreads which are based on our leverage ratios. Future changes in such ratios will impact the contractual amounts to be paid.

(2)

The Company anticipates spending approximately $105.5 million for future capital expenditures over the next year, of which the Company has been contractually committed to spend approximately $4.8 million at year‑end.

(3)

Reflects the undiscounted future minimum lease payments to GLPI over the lease term, including renewal options. The amounts above exclude contingent payments (See Note 10 to the consolidated financial statements for further discussion).

(4)

The Company agreed to pay $110 million (of which $60.0 million remains to be paid) to the State of Ohio over ten years in return for certain clarifications from the State of Ohio with respect to various financial matters and limits on competition within the ten year time period. This amount also includes the remaining portion of the relocation fees to be paid associated with our two new facilities in Dayton and Mahoning Valley, Ohio (See Note 9 and Note 11 to the consolidated financial statements).

(5)

Represents liabilities associated with reward programs that can be redeemed for cash, free play or services. Does not include any liability for unrecognized tax benefits of $31.8 million, as the Company cannot make a reasonably reliable estimate of the period of cash settlement with the respective taxing authority. Additionally, it does not include an estimate of the payments associated with our contingent purchase price obligations of $22.7 million as it

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is not a fixed obligation. Finally, it does not include an estimate for unfunded loan commitments to the JIVDC which totaled approximately $29 million at December 31 ,2017 as we are unable to predict when these amounts would be incurred.  See Note 3 “Summary of Significant Accounting Policies” for more information on our player loyalty programs.

Other Commercial Commitments

The following table presents our material commercial commitments as of December 31, 2017 for the following future periods:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Amounts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Committed

 

2018

 

2019-2020

 

2021-2022

 

2023 and After

 

 

 

(in thousands)

 

Letters of Credit(1)

    

$

22,088

    

$

22,088

    

$

 —

    

$

 —

    

$

 —

 

Total

 

$

22,088

 

$

22,088

 

$

 —

 

$

 —

 

$

 —

 

(1)

The available balance under the revolving credit portion of our senior secured credit facility is reduced by outstanding letters of credit.

New Accounting Pronouncements

For information with respect to new accounting pronouncements and the impact of these pronouncements on our consolidated financial statements, see Note 4 “New Accounting Pronouncements” in the Notes to the Consolidated Financial Statements.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The table below provides information at December 31, 2017 about our financial instruments that are sensitive to changes in interest rates. For debt obligations, the table presents notional amounts maturing during the year and the related weighted‑average interest rates by maturity dates. Notional amounts are used to calculate the contractual payments to be exchanged by maturity date and the weighted‑average interest rates are based on implied forward LIBOR rates at December 31, 2017.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value

 

 

 

2018

 

2019

 

2020

 

2021

 

2022

 

Thereafter

 

Total

 

12/31/2017

 

 

 

(in thousands)

 

Long‑term debt:

    

 

    

    

 

    

    

 

    

    

 

    

    

 

    

    

 

    

    

 

    

    

 

    

 

Fixed rate

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

400,000

 

$

400,000

 

$

412,000

 

Average interest rate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5.63

%  

 

 

 

 

 

 

Variable rate

 

$

20,000

 

$

25,625

 

$

33,125

 

$

35,000

 

$

200,000

 

$

446,250

 

$

760,000

 

$

760,456

 

Average interest rate(1)

 

 

4.42

%  

 

4.40

%  

 

4.29

%  

 

4.29

%  

 

4.58

%  

 

5.33

%  

 

 

 

 

 

 

(1)

Estimated rate, reflective of forward LIBOR plus the spread over LIBOR applicable to variable‑rate borrowing.

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ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of

Penn National Gaming, Inc. and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Penn National Gaming, Inc. and Subsidiaries (the "Company") as of December 31, 2017, the related consolidated statement of operations, comprehensive income, changes in shareholders' deficit and cash flows for the year ended December 31, 2017, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017, and the results of its operations and its cash flows for the year ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2018 expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provide a reasonable basis for our opinion.

/s/ Deloitte & Touche LLP

Philadelphia, Pennsylvania

March 1, 2018

We have served as the Company's auditor since 2017.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders of

Penn National Gaming, Inc. and Subsidiaries


We have audited the accompanying consolidated balance sheet of Penn National Gaming, Inc. and Subsidiaries as of December 31, 2016, and the related consolidated statements of operations, comprehensive income (loss), changes in shareholders' deficit and cash flows for each of the two years in the period ended December 31, 2016. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Penn National Gaming, Inc. and Subsidiaries at December 31, 2016, and the consolidated results of their operations and their cash flows for each of the two years in the period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Penn National Gaming, Inc. and Subsidiaries’ internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 24, 2017 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Philadelphia, Pennsylvania
February 24, 2017, except for the classification adjustments to the Consolidated Statements of Cash Flows related to the adoption of Accounting Standards Update 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, described in Note 4, as to which the date is March 1, 2018

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Penn National Gaming, Inc. and Subsidiaries

Consolidated Balance Sheets

(in thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

 

2017

    

2016

 

Assets

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

277,953

 

$

229,510

 

Receivables, net of allowance for doubtful accounts of $2,983 and $3,180 at December 31, 2017 and December 31, 2016, respectively

 

 

62,805

 

 

61,855

 

Prepaid expenses

 

 

43,780

 

 

59,707

 

Other current assets

 

 

16,494

 

 

48,193

 

Total current assets

 

 

401,032

 

 

399,265

 

Property and equipment, net

 

 

2,756,669

 

 

2,820,383

 

Other assets

 

 

 

 

 

 

 

Investment in and advances to unconsolidated affiliates

 

 

148,912

 

 

156,176

 

Goodwill

 

 

1,008,097

 

 

989,685

 

Other intangible assets, net

 

 

422,606

 

 

435,494

 

Deferred income taxes

 

 

390,943

 

 

 —

 

Loan to the JIVDC, net of allowance for loan losses of $64,052 at December 31, 2017 and $0 at December 31, 2016

 

 

20,900

 

 

91,401

 

Other assets

 

 

85,653

 

 

82,080

 

Total other assets

 

 

2,077,111

 

 

1,754,836

 

Total assets

 

$

5,234,812

 

$

4,974,484

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Current portion of financing obligation to GLPI

 

$

56,248

 

$

56,595

 

Current maturities of long-term debt

 

 

35,612

 

 

85,595

 

Accounts payable

 

 

26,048

 

 

35,091

 

Accrued expenses

 

 

125,688

 

 

101,906

 

Accrued interest

 

 

13,528

 

 

6,345

 

Accrued salaries and wages

 

 

111,252

 

 

92,238

 

Gaming, pari-mutuel, property, and other taxes

 

 

69,645

 

 

60,384

 

Insurance financing

 

 

2,404

 

 

2,636

 

Other current liabilities

 

 

89,584

 

 

95,526

 

Total current liabilities

 

 

530,009

 

 

536,316

 

 

 

 

 

 

 

 

 

Long-term liabilities

 

 

 

 

 

 

 

Long-term financing obligation to GLPI, net of current portion

 

 

3,482,573

 

 

3,457,485

 

Long-term debt, net of current maturities and debt issuance costs

 

 

1,214,625

 

 

1,329,939

 

Deferred income taxes

 

 

 —

 

 

126,924

 

Noncurrent tax liabilities

 

 

34,099

 

 

26,791

 

Other noncurrent liabilities

 

 

46,652

 

 

40,349

 

Total long-term liabilities

 

 

4,777,949

 

 

4,981,488

 

 

 

 

 

 

 

 

 

Shareholders' deficit

 

 

 

 

 

 

 

Series B Preferred stock ($.01 par value, 1,000,000 shares authorized, no shares issued and outstanding at  December 31, 2017 and 2016)

 

 

 —

 

 

 —

 

Series C Preferred stock ($.01 par value, 18,500 shares authorized, no shares issued and outstanding at December 31, 2017 and 2016)

 

 

 —

 

 

 —

 

Common stock ($.01 par value, 200,000,000 shares authorized, 93,392,635 and 93,289,701 shares issued, and 91,225,242 and 91,122,308 shares outstanding at December 31, 2017 and 2016, respectively)

 

 

933

 

 

932

 

Treasury stock, at cost (2,167,393 shares held at December 31, 2017 and 2016)

 

 

(28,414)

 

 

(28,414)

 

Additional paid-in capital

 

 

1,007,606

 

 

1,014,119

 

Retained deficit

 

 

(1,051,818)

 

 

(1,525,281)

 

Accumulated other comprehensive loss

 

 

(1,453)

 

 

(4,676)

 

Total shareholders' deficit

 

 

(73,146)

 

 

(543,320)

 

Total liabilities and shareholders' deficit

 

$

5,234,812

 

$

4,974,484

 

See accompanying notes to the consolidated financial statements.

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Penn National Gaming, Inc. and Subsidiaries

Consolidated Statements of Operations

(in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31,

    

2017

    

2016

    

2015

 

Revenues

 

 

 

 

 

 

 

 

 

 

Gaming

 

$

2,692,021

 

$

2,606,262

 

$

2,497,497

 

Food, beverage, hotel and other

 

 

601,731

 

 

575,434

 

 

485,534

 

Management service and license fees

 

 

11,654

 

 

11,348

 

 

10,314

 

    Reimbursable management costs

 

 

26,060

 

 

15,997

 

 

 —

 

Revenues

 

 

3,331,466

 

 

3,209,041

 

 

2,993,345

 

Less promotional allowances

 

 

(183,496)

 

 

(174,661)

 

 

(154,987)

 

Net revenues

 

 

3,147,970

 

 

3,034,380

 

 

2,838,358

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

Gaming

 

 

1,364,989

 

 

1,334,980

 

 

1,271,679

 

Food, beverage, hotel and other

 

 

421,848

 

 

406,871

 

 

349,897

 

General and administrative

 

 

514,776

 

 

463,028

 

 

449,433

 

    Reimbursable management costs

 

 

26,060

 

 

15,997

 

 

 —

 

Depreciation and amortization

 

 

267,062

 

 

271,214

 

 

259,461

 

Impairment losses, provision for loan loss and unfunded loan commitments to the JIVDC

 

 

107,810

 

 

 —

 

 

40,042

 

Insurance recoveries

 

 

(289)

 

 

(726)

 

 

 —

 

Total operating expenses

 

 

2,702,256

 

 

2,491,364

 

 

2,370,512

 

Income from operations

 

 

445,714

 

 

543,016

 

 

467,846

 

Other income (expenses)

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(466,761)

 

 

(459,243)

 

 

(443,127)

 

Interest income

 

 

3,552

 

 

24,186

 

 

11,531

 

Income from unconsolidated affiliates

 

 

18,671

 

 

14,337

 

 

14,488

 

Loss on early extinguishment of debt

 

 

(23,963)

 

 

 —

 

 

 —

 

Other

 

 

(2,257)

 

 

(1,679)

 

 

5,872

 

Total other expenses

 

 

(470,758)

 

 

(422,399)

 

 

(411,236)

 

(Loss) income from operations before income taxes

 

 

(25,044)

 

 

120,617

 

 

56,610

 

Income tax (benefit) provision

 

 

(498,507)

 

 

11,307

 

 

55,924

 

Net income 

 

$

473,463

 

$

109,310

 

$

686

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share

 

$

5.21

 

$

1.21

 

$

0.01

 

Diluted earnings per common share

 

$

5.07

 

$

1.19

 

$

0.01

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average basic shares outstanding

 

 

90,854

 

 

82,929

 

 

80,003

 

Weighted average diluted shares outstanding

 

 

93,378

 

 

91,407

 

 

90,904

 

See accompanying notes to the consolidated financial statements.

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Table of Contents

Penn National Gaming, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

 

 

 

 

 

 

 

 

 

 

Year ended December 31,

    

2017

    

2016

    

2015

Net income

 

$

473,463

 

$

109,310

 

$

686

Other comprehensive loss, net of tax:

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment during the period

 

 

3,223

 

 

(122)

 

 

(3,272)

Other comprehensive income (loss)

 

 

3,223

 

 

(122)

 

 

(3,272)

Comprehensive income (loss)

 

$

476,686

 

$

109,188

 

$

(2,586)

See accompanying notes to the consolidated financial statements.

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Table of Contents

Penn National Gaming, Inc. and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Deficit

(in thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

Other

 

Total

 

 

 

Preferred Stock

 

Common Stock

 

Treasury

 

Paid-In

 

Retained

 

Comprehensive

 

Shareholders’

 

 

 

Shares

    

Amount

 

Shares

    

Amount

 

Stock

 

Capital

 

Deficit

 

Income (Loss)

 

Deficit

 

Balance, December 31, 2014

 

8,624

 

$

 -

 

79,161,817

 

$

813

 

$

(28,414)

 

$

956,146

 

$

(1,635,277)

 

$

(1,282)

 

$

(708,014)

 

Share-based compensation arrangements, net of tax
benefits of $14,826

 

 -

 

 

 -

 

1,727,458

 

 

17

 

 

 -

 

 

32,540

 

 

 -

 

 

 -

 

 

32,557

 

Foreign currency translation adjustment

 

 -

 

 

 -

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(3,272)

 

 

(3,272)

 

Net income

 

 -

 

 

 -

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

686

 

 

 -

 

 

686

 

Balance, December 31, 2015

 

8,624

 

 

 -

 

80,889,275

 

 

830

 

 

(28,414)

 

 

988,686

 

 

(1,634,591)

 

 

(4,554)

 

 

(678,043)

 

Share-based compensation arrangements, net of tax
benefits of $6,896

 

 -

 

 

 -

 

1,609,033

 

 

16

 

 

 -

 

 

25,519

 

 

 -

 

 

 -

 

 

25,535

 

Foreign currency translation adjustment

 

 -

 

 

 -

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(122)

 

 

(122)

 

Conversion of preferred stock

 

(8,624)

 

 

 -

 

8,624,000

 

 

86

 

 

 -

 

 

(86)

 

 

 -

 

 

 -

 

 

 -

 

Net income

 

 -

 

 

 -

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

109,310

 

 

 -

 

 

109,310

 

Balance, December 31, 2016

 

 -

 

 

 -

 

91,122,308

 

 

932

 

 

(28,414)

 

 

1,014,119

 

 

(1,525,281)

 

 

(4,676)

 

 

(543,320)

 

Share-based compensation arrangements

 

 -

 

 

 -

 

1,367,083

 

 

14

 

 

 -

 

 

18,270

 

 

 -

 

 

 -

 

 

18,284

 

Foreign currency translation adjustment

 

 -

 

 

 -

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

3,223

 

 

3,223

 

Share repurchases

 

 -

 

 

 -

 

(1,264,149)

 

 

(13)

 

 

 -

 

 

(24,783)

 

 

 -

 

 

 -

 

 

(24,796)

 

Net income

 

 -

 

 

 -

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

473,463

 

 

 -

 

 

473,463

 

Balance, December 31, 2017

 

 -

 

$

 -

 

91,225,242

 

$

933

 

$

(28,414)

 

$

1,007,606

 

$

(1,051,818)

 

$

(1,453)

 

$

(73,146)

 

See accompanying notes to the consolidated financial statements.

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Table of Contents

Penn National Gaming, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

    

2017

    

2016

    

2015

 

Operating activities

 

 

 

 

 

 

 

 

 

 

Net income

 

$

473,463

 

$

109,310

 

$

686

 

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

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

267,062

 

 

271,214

 

 

259,461

 

Amortization of items charged to interest expense and interest income

 

 

6,960

 

 

7,200

 

 

6,599

 

Change in fair values of contingent purchase price

 

 

(6,840)

 

 

1,277

 

 

(5,374)

 

Loss (gain) on sale of property and equipment and assets held for sale

 

 

172

 

 

(2,471)

 

 

1,286

 

Income from unconsolidated affiliates

 

 

(18,671)

 

 

(14,337)

 

 

(14,488)

 

Distributions from unconsolidated affiliates

 

 

26,450

 

 

26,300

 

 

28,150

 

Deferred income taxes

 

 

(517,906)

 

 

8,736

 

 

57,236

 

Charge for stock-based compensation

 

 

7,780

 

 

6,871

 

 

8,223

 

Impairment losses, provision for loan loss and unfunded loan commitments to the JIVDC

 

 

107,810

 

 

 —

 

 

40,042

 

Write off of debt issuance costs and discounts

 

 

5,951

 

 

 —

 

 

 —

 

(Decrease) increase, net of businesses acquired

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(9,186)

 

 

(5,911)

 

 

710

 

Prepaid expenses and other current assets

 

 

(7,239)

 

 

(485)

 

 

10,345

 

Other assets

 

 

1,662

 

 

(4,879)

 

 

4,363

 

(Decrease) increase, net of businesses acquired

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

 

(342)

 

 

(7,500)

 

 

2,113

 

Accrued expenses

 

 

23,761

 

 

1,519

 

 

7,243

 

Accrued interest

 

 

7,183

 

 

(746)

 

 

1,910

 

Accrued salaries and wages

 

 

15,783

 

 

(6,721)

 

 

8,454

 

Gaming, pari-mutuel, property and other taxes

 

 

8,495

 

 

3,379

 

 

3,933

 

Income taxes

 

 

20,448

 

 

26,008

 

 

1,443

 

Other current and noncurrent liabilities

 

 

46,283

 

 

(7,045)

 

 

(8,527)

 

Net cash provided by operating activities

 

 

459,079

 

 

411,719

 

 

413,808

 

Investing activities

 

 

 

 

 

 

 

 

 

 

Project capital expenditures

 

 

(25,033)

 

 

(18,740)

 

 

(136,548)

 

Maintenance capital expenditures

 

 

(74,228)

 

 

(78,505)

 

 

(62,692)

 

Insurance remediation proceeds

 

 

577

 

 

 —

 

 

 —

 

Loans to the JIVDC

 

 

(845)

 

 

(184,193)

 

 

(105,658)

 

Funds advanced to the JIVDC in connection with their refinancing

 

 

 —

 

 

(98,000)

 

 

 —

 

Reimbursement of advances with the JIVDC

 

 

 —

 

 

341,864

 

 

 —

 

Land purchased adjacent to Hollywood Casino Jamul - San Diego

 

 

(1,500)

 

 

(3,065)

 

 

 —

 

Repayment (Purchase) of note from the previous developer of the Jamul project

 

 

 —

 

 

30,000

 

 

(24,000)

 

Receipts applied against nonaccrual loan to the JIVDC

 

 

8,226

 

 

 —

 

 

 —

 

Proceeds from sale of property and equipment and assets held for sale

 

 

1,013

 

 

18,210

 

 

561

 

Additional fundings and investment in joint ventures

 

 

(500)

 

 

 —

 

 

(2,555)

 

Consideration paid for acquisitions of businesses, gaming licenses, and other intangibles, net of cash acquired

 

 

(129,318)

 

 

(86,859)

 

 

(450,113)

 

Net cash used in investing activities

 

 

(221,608)

 

 

(79,288)

 

 

(781,005)

 

Financing activities

 

 

 

 

 

 

 

 

 

 

Proceeds from exercise of options

 

 

10,447

 

 

11,601

 

 

9,399

 

Repurchase of common stock

 

 

(24,796)

 

 

 —

 

 

—

 

Principal payments on financing obligation with GLPI

 

 

(57,859)

 

 

(50,548)

 

 

(46,885)

 

Proceeds from issuance of long-term debt, net of issuance costs

 

 

1,430,796

 

 

122,747

 

 

562,076

 

Increase from financing obligation in connection with acquisition

 

 

82,600

 

 

 —

 

 

 —

 

Principal payments on long-term debt

 

 

(1,574,918)

 

 

(407,662)

 

 

(115,195)

 

Payments of other long-term obligations

 

 

(35,453)

 

 

(13,772)

 

 

(3,307)

 

Payments of contingent purchase price

 

 

(19,613)

 

 

(1,807)

 

 

 —

 

Proceeds from insurance financing

 

 

11,948

 

 

13,119

 

 

4,720

 

Payments on insurance financing

 

 

(12,180)

 

 

(13,608)

 

 

(15,275)

 

Net cash (used in) provided by financing activities

 

 

(189,028)

 

 

(339,930)

 

 

395,533

 

Net increase (decrease) in cash and cash equivalents

 

 

48,443

 

 

(7,499)

 

 

28,336

 

Cash and cash equivalents at beginning of year

 

 

229,510

 

 

237,009

 

 

208,673

 

Cash and cash equivalents at end of year

 

$

277,953

 

$

229,510

 

$

237,009

 

Supplemental disclosure

 

 

 

 

 

 

 

 

 

 

Interest expense paid, net of amounts capitalized

 

$

452,779

 

$

452,842

 

$

434,175

 

Income taxes (refunds received)/taxes paid

 

$

(43,067)

 

$

(11,412)

 

$

5,116

 

 

 

 

 

 

 

 

 

 

 

 

Non-cash investing activities

 

 

 

 

 

 

 

 

 

 

       Accrued capital expenditures

 

$

1,890

 

$

6,749

 

$

5,890

 

       Accrued advances to Jamul Tribe

 

$

2,465

 

$

6,962

 

$

39,625

 

See accompanying notes to the consolidated financial statements.

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Table of Contents

Non-cash transactions: In conjunction with the purchase price of Rocket Speed on August 1, 2016, the Company increased its acquired assets and other current and noncurrent liabilities by $34.4 million for the fair value of the contingent purchase price consideration at the time of acquisition.  The remaining portion of the purchase price was paid in cash.

In January 2015, a repayment obligation for a hotel and event center near Hollywood Casino Lawrenceburg was assumed by a subsidiary of the Company, which was financed through a loan with the City of Lawrenceburg Department of Redevelopment. This non-cash transaction increased property and equipment, net and total debt by $15.3 million. See Note 9 for further detail.

87

Table of Contents

Penn National Gaming, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

1.Business and Basis of Presentation

Penn National Gaming, Inc. (“Penn”) and together with its subsidiaries (collectively, the “Company”, “we”, “our” or “us”) is a geographically diversified, multi-jurisdictional owner and manager of gaming and racing facilities and video gaming terminal operations with a focus on slot machine entertainment. The Company was incorporated in Pennsylvania in 1982 as PNRC Corp. and adopted its current name in 1994, when the Company became a publicly traded company. In 1997, the Company began its transition from a pari-mutuel company to a diversified gaming company with the acquisition of the Charles Town property and the introduction of video lottery terminals in West Virginia. Since 1997, we have continued to expand our gaming operations through strategic acquisitions, greenfield projects, and property expansions. We, along with our joint venture partner, opened Hollywood Casino at Kansas Speedway in February 2012.  In Ohio, the Company opened four new gaming properties, including: Hollywood Casino Toledo in May 2012, Hollywood Casino Columbus in October 2012, Hollywood Gaming at Dayton Raceway in August 2014, and Hollywood Gaming at Mahoning Valley Race Course in September 2014.  In addition, in November 2012, the Company acquired Harrah’s St Louis, which was subsequently rebranded as Hollywood Casino St Louis. In 2015, the Company opened Plainridge Park Casino, an integrated racing and slots-only gaming facility in Plainville, Massachusetts, in June, completed the acquisition of our first Las Vegas strip asset, Tropicana Hotel and Casino in Las Vegas, Nevada in August, and acquired Illinois Gaming Investors, LLC (d/b/a Prairie State Gaming), one of the largest video gaming terminal route operators in Illinois, in September.

In 2016, Prairie State Gaming also acquired two smaller video gaming terminal route operators in Illinois.  Finally, the Company implemented its interactive gaming strategy through its subsidiary, Penn Interactive Ventures, which included launching the HollywoodCasino.com Play4Fun social gaming platform with Scientific Games.  On August 1, 2016, the Company completed its acquisition of Rocket Speed, a leading developer of social casino games. On May 1, 2017, the Company completed its acquisition of 1st Jackpot Casino Tunica (formerly known as Bally’s Casino Tunica, (“1st Jackpot”)) and Resorts Casino Tunica (“Resorts”).  In the first half of 2017, the Company’s subsidiary, Prairie State Gaming acquired the assets of two additional smaller video gaming terminal operators in Illinois.

As of December 31, 2017, the Company owned, managed, or had ownership interests in twenty‑nine facilities in the following seventeen jurisdictions: California, Florida, Illinois, Indiana, Kansas, Maine, Massachusetts, Mississippi, Missouri, Nevada, New Jersey, New Mexico, Ohio, Pennsylvania, Texas, West Virginia, and Ontario, Canada.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses for the reporting periods. Actual results could differ from those estimates.

2.Principles of Consolidation

The consolidated financial statements include the accounts of Penn and its subsidiaries. Investment in and advances to unconsolidated affiliates, that do not meet the consolidation criteria of the authoritative guidance for voting interest, controlling interest or variable interest entities (“VIEs”), are accounted for under the equity method. All intercompany accounts and transactions have been eliminated in consolidation.

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3.Summary of Significant Accounting Policies

Cash and Cash Equivalents

The Company considers all cash balances and highly‑liquid investments with original maturities of three months or less to be cash and cash equivalents.

Concentration of Credit Risk

Financial instruments that subject the Company to credit risk consist of cash and cash equivalents, and accounts receivable. 

The Company’s policy is to limit the amount of credit exposure to any one financial institution, and place investments with financial institutions evaluated as being creditworthy, or in short‑term money market and tax‑free bond funds which are exposed to minimal interest rate and credit risk. The Company has bank deposits and overnight repurchase agreements that exceed federally‑insured limits.

Concentration of credit risk, with respect to casino receivables, is limited through the Company’s credit evaluation process. The Company issues markers to approved casino customers only following credit checks and investigations of creditworthiness. Marker balances issued to approved casino customers were $3.7 million at December 31, 2017, compared to $4.4 million at December 31, 2016.

The Company’s receivables of $62.8 million and $61.9 million at December 31, 2017 and 2016, respectively, primarily consist of $6.1 million and $5.0 million, respectively, due from the West Virginia Lottery for gaming revenue settlements and capital reinvestment projects at Hollywood Casino at Charles Town Races, $9.9 million and $11.8 million, respectively, for reimbursement of expenses paid on behalf of Casino Rama and Hollywood Casino Jamul – San Diego, $5.5 million and $4.0 million, respectively, for racing settlements due from simulcasting at Hollywood Casino at Penn National Race Course, $3.4 million and $3.4 million, respectively, for reimbursement of payroll expenses paid on behalf of the Company’s joint venture in Kansas, $13.9 million and $10.8 million, respectively, for cash, credit card and other advances to customers, $3.0 million and $ 3.2 million, respectively, due from platform providers (i.e. Apple, Google, Amazon and Facebook) for social casino game revenues, and markers issued to customers mentioned above.

Accounts are written off when management determines that an account is uncollectible. Recoveries of accounts previously written off are recorded when received. An allowance for doubtful accounts is determined to reduce the Company’s receivables to their carrying value, which approximates fair value. The allowance is estimated based on historical collection experience, specific review of individual customer accounts, and current economic and business conditions. Historically, the Company has not incurred any significant credit‑related losses.

See Note 5 to the consolidated financial statements for a discussion of the credit risk associated with our loan to the Jamul Indian Village Development Corporation (“JIVDC”), including allowances for loan losses that were established in 2017.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation. Capital expenditures are accounted for as either project capital or maintenance (replacement) capital expenditures. Project capital expenditures are for fixed asset additions that expand an existing facility or create a new facility. Maintenance capital expenditures are expenditures to replace existing fixed assets with a useful life greater than one year that are obsolete, worn out or no longer cost effective to repair.  Maintenance and repairs that neither add materially to the value of the asset nor

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appreciably prolong its useful life are charged to expense as incurred. Gains or losses on the disposal of property and equipment are included in the determination of income.

Depreciation of property and equipment is recorded using the straight‑ line method over the following estimated useful lives:

Land improvements

15

years

Building and improvements

5 to 31

years

Furniture, fixtures, and equipment

3 to 31

years

All costs funded by Penn considered to be an improvement to the real property assets owned by GLPI under the Master Lease are recorded as leasehold improvements.  Leasehold improvements are depreciated over the shorter of the estimated useful life of the improvement or the related lease term.

The estimated useful lives are determined based on the nature of the assets as well as the Company’s current operating strategy.

The Company reviews the carrying value of its property and equipment for possible impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable based on undiscounted estimated future cash flows expected to result from its use and eventual disposition. The factors considered by the Company in performing this assessment include current operating results, trends and prospects, as well as the effect of obsolescence, demand, competition and other economic factors. For purposes of recognizing and measuring impairment in accordance with Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) 360, “Property, Plant, and Equipment,” assets are grouped at the individual property level representing the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets. In assessing the recoverability of the carrying value of property and equipment, the Company must make assumptions regarding future cash flows and other factors. If these estimates or the related assumptions change in the future, the Company may be required to record an impairment loss for these assets. Such an impairment loss would be recognized as a non‑cash component of operating income.

Goodwill and Other Intangible Assets

At December 31, 2017, the Company had $1,008.1 million in goodwill and $422.6 million in other intangible assets within its consolidated balance sheet, respectively, resulting from the Company’s acquisition of other businesses and payment for gaming licenses.

Goodwill represents the future economic benefits of a business combination measured as the excess purchase price over the fair market value of net assets acquired. Goodwill is tested annually, or more frequently if indicators of impairment exist. An income approach, in which a discounted cash flow model is utilized and a market-based approach utilizing guideline public company (“GPC”) multiples of adjusted EBTIDA from the Company’s peer group is utilized to estimate the fair market value of the Company’s reporting units.

For the quantitative goodwill impairment test, the current fair value of each reporting unit is estimated using the combination of a discounted cash flow model and a GPC multiples approach which is then compared to the carrying value of each reporting unit. The Company adjusts the carrying value of each reporting unit that utilizes property that is subject to the Master Lease by an allocation of a pro-rata portion of the GLPI financing obligation based on the reporting unit’s estimated fair value as a percentage of the aggregate estimated fair value of all reporting units that utilize property that is subject to the Master Lease.

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The Company compares the aggregate weighted average fair value to the carrying value of its reporting units. If the carrying value of the reporting unit exceeds the aggregate weighted average fair value, an impairment is recorded equal to the amount of the excess not to exceed the amount of goodwill allocated to the reporting unit.

In accordance with ASC 350, “Intangibles‑Goodwill and Other,” the Company considers its gaming licenses and certain other intangible assets as indefinite‑life intangible assets that do not require amortization based on the Company’s future expectations to operate its gaming facilities indefinitely as well as its historical experience in renewing these intangible assets at minimal cost with various state commissions. Rather, these intangible assets are tested annually for impairment, or more frequently if indicators of impairment exist, by comparing the fair value of the recorded assets to their carrying amount. If the carrying amounts of the indefinite‑life intangible assets exceed their fair value, an impairment loss is recognized. The Company completes its testing of its intangible assets prior to assessing the realizability of its goodwill.

The Company assessed the fair value of its indefinite‑life intangible assets (which are primarily gaming licenses) using the Greenfield Method under the income approach. The Greenfield Method estimates the fair value of the gaming license using a discounted cash flow model assuming the Company built a casino with similar utility to that of the existing facility. The method assumes a theoretical start‑up company going into business without any assets other than the intangible asset being valued. As such, the value of the gaming license is a function of the following items:

·

Projected revenues and operating cash flows (including an allocation of the Company’s projected financing payments to its reporting units consistent with how the GLPI financing obligation is allocated);

·

Theoretical construction costs and duration;

·

Pre‑opening expenses; and

·

Discounting that reflects the level of risk associated with receiving future cash flows attributable to the license.

The evaluation of goodwill and indefinite‑life intangible assets requires the use of estimates about future operating results of each reporting unit to determine the estimated fair value of the reporting unit and the indefinite‑lived intangible assets. The Company must make various assumptions and estimates in performing its impairment testing. The implied fair value includes estimates of future cash flows (including an allocation of the Company’s projected financing obligation to its reporting units) that are based on reasonable and supportable assumptions which represent the Company’s best estimates of the cash flows expected to result from the use of the assets including their eventual disposition. Changes in estimates, increases in the Company’s cost of capital, reductions in transaction multiples, changes in operating and capital expenditure assumptions or application of alternative assumptions and definitions could produce significantly different results. Future cash flow estimates are, by their nature, subjective and actual results may differ materially from the Company’s estimates. If the Company’s ongoing estimates of future cash flows are not met, the Company may have to record additional impairment charges in future accounting periods. The Company’s estimates of cash flows are based on the current regulatory and economic climates, recent operating information and budgets of the various properties where it conducts operations. These estimates could be negatively impacted by changes in federal, state or local regulations, economic downturns, or other events affecting the Company’s properties.

Forecasted cash flows (based on the Company’s annual operating plan as determined in the fourth quarter) can be significantly impacted by the local economy in which its reporting units operate. For example, increases in unemployment rates can result in decreased customer visitations and/or lower customer spend per visit. In addition, the impact of new legislation which approves gaming in nearby jurisdictions or further expands gaming in jurisdictions where the Company’s reporting units currently operate can result in opportunities for the Company to expand its operations. However, it also has the impact of increasing competition for the Company’s established properties which

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generally will have a negative effect on those locations’ profitability once competitors become established as a certain level of cannibalization occurs absent an overall increase in customer visitations. Additionally, increases in gaming taxes approved by state regulatory bodies can negatively impact forecasted cash flows.

Assumptions and estimates about future cash flow levels and multiples by individual reporting units are complex and subjective. They are sensitive to changes in underlying assumptions and can be affected by a variety of factors, including external factors, such as industry, geopolitical and economic trends, and internal factors, such as changes in the Company’s business strategy, which may reallocate capital and resources to different or new opportunities which management believes will enhance its overall value but may be to the detriment of an individual reporting unit.

Once an impairment of goodwill or other indefinite‑life intangible assets has been recorded, it cannot be reversed. Because the Company’s goodwill and indefinite‑life intangible assets are not amortized, there may be volatility in reported income because impairment losses, if any, are likely to occur irregularly and in varying amounts. Intangible assets that have a definite‑life are amortized on a straight‑line basis over their estimated useful lives or related service contract. The Company reviews the carrying value of its intangible assets that have a definite‑life for possible impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. If the carrying amount of the intangible assets that have a definite‑life exceed their fair value, an impairment loss is recognized.

Financing Obligation with GLPI

The Company’s spin-off of real property assets and corresponding Master Lease Agreement with GLPI on November 1, 2013 did not meet all of the requirements for sale-leaseback accounting treatment under ASC 840 “Leases” and therefore is accounted for as a financing obligation rather than a distribution of assets followed by an operating lease.  Specifically, the Master Lease contains provisions that would indicate the Company has prohibited forms of continuing involvement in the leased assets which are not a normal leaseback.  As a result, the Company calculated a financing obligation at the inception of the Master Lease based on the future minimum lease payments discounted at the Company’s estimated incremental borrowing rate at lease inception over the lease term of 35 years, which included renewal options that were reasonably assured of being exercised given the high percentage of the Company’s earnings that were derived from the Master Lease properties operations to the Company and the lack of alternative economically feasible leasing options for such real estate.  The minimum lease payments are recorded as interest expense and in part as a payment of principal reducing the financing obligation.  Contingent rentals are recorded as additional interest expense.  The real property assets in the transaction remain on the consolidated balance sheets and continue to be depreciated over their remaining useful lives.

Debt Issuance Costs

Debt issuance costs that are incurred by the Company in connection with the issuance of debt are deferred and amortized to interest expense using the effective interest method over the contractual term of the underlying indebtedness.  These costs are classified as a direct reduction of long-term debt on the Company’s consolidated balance sheets.

Self-Insurance Reserves

The Company is self-insured for employee health coverage, general liability and workers compensation up to certain stop loss amounts.  The Company uses a reserve method for each reported claim plus an allowance for claims incurred but not yet reported to a fully developed claims reserve method based on an actuarial computation of ultimate liability.  Self-insurance reserves are included in accrued expenses on the Company’s consolidated balance sheets.

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Contingent Purchase Price

The consideration for the Company’s acquisitions often includes future payments that are contingent upon the occurrence of a particular event. The Company records an obligation for such contingent payments at fair value at the acquisition date.

The Company revalues its contingent consideration obligations each reporting period. Changes in the fair value of the contingent consideration obligation are recognized in the Company’s consolidated statements of operations as a component of general and administrative expense.  Changes in the fair value of the contingent purchase price obligation can result from changes to one or multiple inputs, including adjustments to the discount rate and changes in the assumed probabilities of successful achievement of certain financial targets.

Other Comprehensive Income

The Company accounts for comprehensive income in accordance with ASC 220, “Comprehensive Income,” which establishes standards for the reporting and presentation of comprehensive income in the consolidated financial statements. The Company presents comprehensive income in two separate but consecutive statements. For the years ended December 31, 2017, 2016 and 2015, the only component of accumulated other comprehensive income was foreign currency translation adjustments.

Income Taxes

The Company accounts for income taxes in accordance with ASC 740, “Income Taxes” (“ASC 740”). Under ASC 740, deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities and are measured at the prevailing enacted tax rates that will be in effect when these differences are settled or realized. ASC 740 also requires that deferred tax assets be reduced by a valuation allowance if it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized.

The realizability of the net deferred tax assets is evaluated each reporting period by assessing the valuation allowance and by adjusting the amount of the allowance, if necessary. Pursuant to ASC 740, in evaluating the more-likely-than-not standard, we consider all available positive and negative evidence including projected future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. In the event the Company determines that the deferred income tax assets would be realized in the future in excess of their net recorded amount, an adjustment to the valuation allowance would be recorded, which would reduce the provision for income taxes.


ASC 740 suggests that additional scrutiny should be given to deferred tax assets of an entity with cumulative pre‑tax losses during the three most recent years and is widely considered significant negative evidence that is objective and verifiable and therefore, difficult to overcome. For the year ended December 31, 2020, we have cumulative pre‑tax losses and considered this factor in our analysis of deferred taxes. Additionally, we expect to remain in a three year cumulative loss position in the near future. As a result, the Company has recorded a valuation allowance against its net deferred tax assets, excluding assets that can be realized based on our ability to carry back losses to recoup taxes previously paid and excluding the reversal of deferred tax liabilities related to indefinite‑lived intangibles. We intend to continue to maintain a valuation allowance on our net deferred tax assets until there is sufficient positive evidence to support the reversal of all or some portion of these allowances.


ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We are exposed to market risk from adverse changes in interest rates with respect to the short-term floating interest rate on borrowings under our Senior Secured Credit Facilities. As of December 31, 2020, the Company’s Senior Secured Credit Facilities had a gross outstanding balance of $1,628.1 million, consisting of a $636.9 million Term Loan A Facility and a $991.2 million Term Loan B-1 Facility. As of December 31, 2020, we have $671.8 million of available borrowing capacity under our Revolving Credit Facility.
In May 2020, the Company completed a public offering of $330.5 million aggregate principal amount of 2.75% Convertible Notes that mature on May 15, 2026, unless earlier converted, redeemed or repurchased. Interest on the Convertible Notes is payable on May 15th and November 15th of each year, which began on November 15, 2020.
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The table below provides information as of December 31, 2020 about our long-term debt obligations that are sensitive to changes in interest rates, including the notional amounts maturing during the twelve-month period presented and the related weighted-average interest rates by maturity dates.
(dollars in millions)20212022202320242025ThereafterTotalFair Value
Fixed rate$— $— $— $— $— $400.0 $400.0 $418.0 
Average interest rate5.625 %
Fixed rate$— $— $— $— $— $330.5 $330.5 $1,274.5 
Average interest rate2.750 %
Variable rate$64.4 $82.1 $524.4 $11.3 $945.9 $— $1,628.1 $1,609.3 
Average interest rate (1)
3.62 %3.65 %3.73 %3.13 %3.27 %— %
(1)Estimated rate, reflective of forward LIBOR December 31, 2020 plus the spread over LIBOR applicable to variable-rate borrowing.
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ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of
Penn National Gaming, Inc. and Subsidiaries

Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Penn National Gaming, Inc. and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), changes in stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26, 2021, expressed an unqualified opinion on the Company’s internal control over financial reporting.

Change in Accounting Principle
As discussed in Note 2 to the financial statements, effective January 1, 2019, the Company adopted FASB ASC Topic 842, Leases, using the modified retrospective approach.

Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Goodwill and Other Intangible Assets - Refer to Notes 2 and 9 to the financial statements

Critical Audit Matter Description
The Company’s goodwill, gaming license, and trademarks are tested annually for impairment, or more frequently if indicators of impairment exist, by comparing the fair value of each reporting unit to their carrying amount for goodwill and by comparing the fair value of each gaming license or trademark to its carrying value. The Company determines the fair value of its reporting units using a combination of income-based and market-based approaches. The Company assesses the fair value of its gaming
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licenses using the Greenfield Method under the income approach, which estimates the fair value using a discounted cash flow model assuming the Company built a casino with similar utility to that of the existing casino. The Company assesses the fair value of its trademarks using the relief-from-royalty method under the income approach. The key inputs in determining the fair value, among others, include projected revenue and operating cash flows discounted to reflect the level of risk associated with receiving future cash flows. As of December 31, 2020, the book value of goodwill is $1,157.1 million, gaming license is $1,246.1 million, and trademarks is $240.9 million.

Auditing the fair value of the Company’s reporting units, gaming licenses, and trademarks involved a high degree of subjectivity in evaluating whether management’s estimates and assumptions of projected revenue and operating cash flows and the selection of the discount rates used to derive the fair value were reasonable, including the need to involve our fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to forecasts of future revenue and operating cash flows and the determination of the discount rates used by management to estimate the fair value of the reporting units, gaming licenses, and trademarks included the following, among others:

•We tested the effectiveness of controls over determining the fair value of the Company’s reporting units, gaming licenses, and trademarks, including those over the forecasts of future revenue and operating cash flows and the selection of the discount rates.

•We evaluated management’s ability to accurately forecast future revenues and operating cash flows by comparing actual results to management’s historical forecasts.

•We evaluated the reasonableness of management’s revenue and operating cash flow forecasts by comparing the forecasts to:

◦Historical results
◦Internal communications to management and the Board of Directors
◦Forecasted information included in the Company’s press release as well as in analyst and industry reports for the Company and certain of its peer companies
◦The impact of changes in the regulatory environment on management’s projections.
•With the assistance of our fair value specialists, we evaluated the reasonableness of the discount rates by:
◦Testing the source information underlying the determination of the discount rates and the mathematical accuracy of the calculations.
◦Developing a range of independent estimates and comparing those to the discount rates selected by management.

/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
February 26, 2021
We have served as the Company’s auditor since 2017.

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PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 December 31,
 (in millions, except share and per share data)20202019
Assets  
Current assets  
Cash and cash equivalents$1,853.8 $437.4 
Receivables, net of allowance for doubtful accounts of $8.8 and $7.796.4 88.7 
Prepaid expenses103.5 76.7 
Other current assets31.3 40.0 
Total current assets2,085.0 642.8 
Property and equipment, net4,529.3 5,120.2 
Investment in and advances to unconsolidated affiliates266.8 128.3 
Goodwill1,157.1 1,270.7 
Other intangible assets, net1,513.5 2,026.5 
Lease right-of-use assets4,817.7 4,837.3 
Other assets297.9 168.7 
Total assets$14,667.3 $14,194.5 
Liabilities  
Current liabilities  
Accounts payable$33.2 $40.3 
Current maturities of long-term debt81.4 62.9 
Current portion of financing obligations36.0 40.5 
Current portion of lease liabilities134.3 130.6 
Accrued expenses and other current liabilities575.1 631.3 
Total current liabilities860.0 905.6 
Long-term debt, net of current maturities, debt discount and debt issuance costs2,231.2 2,322.2 
Long-term portion of financing obligations4,096.4 4,102.2 
Long-term portion of lease liabilities4,578.2 4,670.0 
Deferred income taxes126.3 244.6 
Other long-term liabilities119.4 98.0 
Total liabilities12,011.5 12,342.6 
00
Stockholders’ equity 
Series B preferred stock ($0.01 par value, 1,000,000 shares authorized, 0 shares issued and outstanding)0 0 
Series C preferred stock ($0.01 par value, 18,500 shares authorized, 0 shares issued and outstanding)0 0 
Series D Preferred stock ($0.01 par value, 5,000 shares authorized, 883 shares issued and outstanding)23.1 0 
Common stock ($0.01 par value, 200,000,000 shares authorized, 157,868,227 and 118,125,652 shares issued, and 155,700,834 and 115,958,259 shares outstanding)1.6 1.2 
Treasury stock, at cost, (2,167,393 shares held in both periods)(28.4)(28.4)
Additional paid-in capital3,167.2 1,718.3 
Retained earnings (accumulated deficit)(507.3)161.6 
Total Penn National stockholders’ equity2,656.2 1,852.7 
Non-controlling interest(0.4)(0.8)
Total stockholders’ equity2,655.8 1,851.9 
Total liabilities and stockholders’ equity$14,667.3 $14,194.5 
See accompanying notes to the Consolidated Financial Statements.
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PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
 For the year ended December 31,
 (in millions, except per share data)202020192018
Revenues   
Gaming$3,051.1 $4,268.7 $2,894.9 
Food, beverage, hotel and other527.6 1,032.7 629.7 
Management service and license fees0 0 6.0 
Reimbursable management costs0 0 57.3 
Total revenues3,578.7 5,301.4 3,587.9 
Operating expenses   
Gaming1,530.3 2,281.8 1,551.4 
Food, beverage, hotel and other337.7 672.7 439.3 
General and administrative1,130.8 1,187.7 618.9 
Reimbursable management costs0 0 57.3 
Depreciation and amortization366.7 414.2 269.0 
Impairment losses623.4 173.1 34.9 
Recoveries on loan loss and unfunded loan commitments0 0 (17.0)
Total operating expenses3,988.9 4,729.5 2,953.8 
Operating income (loss)(410.2)571.9 634.1 
Other income (expenses)
Interest expense, net(543.2)(534.2)(538.4)
Income from unconsolidated affiliates13.8 28.4 22.3 
Loss on early extinguishment of debt(1.2)0 (21.0)
Other106.6 20.0 (7.1)
Total other expenses(424.0)(485.8)(544.2)
Income (loss) before income taxes(834.2)86.1 89.9 
Income tax benefit (expense)165.1 (43.0)3.6 
Net income (loss)(669.1)43.1 93.5 
Less: Net (income) loss attributable to non-controlling interest(0.4)0.8 0 
Net income (loss) attributable to Penn National$(669.5)$43.9 $93.5 
Comprehensive income (loss)$(669.1)$43.1 $93.5 
Less: Comprehensive (income) loss attributable to non-controlling interest(0.4)0.8 0 
Comprehensive income (loss) attributable to Penn National$(669.5)$43.9 $93.5 
 Earnings (loss) per share   
Basic earnings (loss) per share$(5.00)$0.38 $0.96 
Diluted earnings (loss) per share$(5.00)$0.37 $0.93 
Weighted-average common shares outstanding - basic134.0 115.7 97.1 
Weighted-average common shares outstanding - diluted134.0 117.8 100.3 
See accompanying notes to the Consolidated Financial Statements.
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PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Preferred StockCommon StockTreasury
Stock		Additional
Paid-In
Capital		Retained Earnings (Accum-
ulated Deficit)		Accum-
ulated
Other
Compre-
hensive
Loss		Total Penn National Stock-holders’
Equity (Deficit)		Non-Controlling InterestTotal
Stock-holders’ Equity (Deficit)
(in millions, except share data)SharesAmountSharesAmount
Balance as of January 1, 20180 $0 91,225,242 $0.9 $(28.4)$1,007.6 $(1,051.9)$(1.5)$(73.3)$0 $(73.3)
Share-based compensation arrangements— — 1,466,625 — — 19.4 — — 19.4 — 19.4 
Pinnacle Acquisition— — 26,295,439 0.3 — 749.4 — — 749.7 — 749.7 
Reclassification of accumulated other comprehensive loss to earnings upon termination of management contract— — — — — — — 1.5 1.5 — 1.5 
Cumulative-effect adjustment upon adoption of ASC 606— — — — — — (9.6)— (9.6)— (9.6)
Share repurchases— — (2,299,498)— — (50.0)— — (50.0)— (50.0)
Net income— — — — — — 93.5 — 93.5 — 93.5 
Balance as of December 31, 20180 0 116,687,808 1.2 (28.4)1,726.4 (968.0)0 731.2 0 731.2 
Share-based compensation arrangements— — 542,274 — — 16.8 — — 16.8 — 16.8 
Cumulative-effect adjustment upon adoption of ASC 842— — — — — — 1,085.7 — 1,085.7 — 1,085.7 
Share repurchases— — (1,271,823)— — (24.9)— — (24.9)— (24.9)
Net income (loss)— — — — — — 43.9 — 43.9 (0.8)43.1 
Balance as of December 31, 20190 0 115,958,259 1.2 (28.4)1,718.3 161.6 0 1,852.7 (0.8)1,851.9 
Share-based compensation arrangements— — 4,475,908 — — 71.0 — — 71.0 — 71.0 
Common stock offerings (Note 15)— — 35,266,667 0.4 — 1,288.4 — — 1,288.8 — 1,288.8 
Convertible debt offering (Note 11)— — — — — 88.2 — — 88.2 — 88.2 
Barstool Sports investment (Note 7)883 23.1 — — — — — — 23.1 — 23.1 
Cumulative-effect adjustment upon adoption of ASU 2016-13— — — — — — 0.6 — 0.6 — 0.6 
Net income (loss)— — — — — — (669.5)— (669.5)0.4 (669.1)
Other— — — — — 1.3 — — 1.3 — 1.3 
Balance as of December 31, 2020883 $23.1 155,700,834 $1.6 $(28.4)$3,167.2 $(507.3)$0 $2,656.2 $(0.4)$2,655.8 
See accompanying notes to the Consolidated Financial Statements.
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PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the year ended December 31,
(in millions)202020192018
Operating activities   
Net income (loss)$(669.1)$43.1 $93.5 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization366.7 414.2 269.0 
Amortization of items charged to interest expense16.3 7.7 6.4 
Noncash operating lease expense120.3 100.4 0 
Change in fair values of contingent purchase price(1.1)7.0 0.5 
Holding gain on equity securities(106.7)(19.9)0 
Loss (gain) on sale or disposal of property and equipment(29.2)5.5 3.2 
Noncash rent and interest expense related to the utilization of rent credits287.1 0 0 
Income from unconsolidated affiliates(13.8)(28.4)(22.3)
Return on investment from unconsolidated affiliates21.8 29.0 27.0 
Deferred income taxes(118.3)21.1 (26.7)
Stock-based compensation14.5 14.9 12.0 
Impairment losses623.4 173.1 34.9 
Recoveries on loan loss and unfunded loan commitments0 0 (17.0)
Reclassification of accumulated other comprehensive loss to earnings upon termination of management contract0 0 1.5 
Loss on early extinguishment of debt1.2 0 21.0 
Changes in operating assets and liabilities, net of businesses acquired
Accounts receivable(16.5)27.0 (1.8)
Prepaid expenses and other current assets13.5 9.7 13.3 
Other assets(12.8)(2.3)1.5 
Accounts payable(6.6)4.4 (6.1)
Accrued expenses(40.9)(3.9)(47.0)
Income taxes(32.5)(7.2)(3.3)
Operating lease liabilities(94.8)(139.1)0 
Other current and long-term liabilities16.3 47.6 (6.8)
Net cash provided by operating activities338.8 703.9 352.8 
Investing activities
Capital expenditures(137.0)(190.6)(92.6)
Dispositions of property and equipment16.1 0.6 0.4 
Hurricane Laura insurance proceeds32.7 0 0 
Consideration paid for Barstool Sports investment(135.0)0 0 
Consideration paid for acquisitions of businesses, net of cash acquired(3.0)(1,359.4)(1,945.2)
Proceeds from sale-and-leaseback transactions in conjunction with acquisitions0 961.1 — 
Cash received for the sale of the Divested Properties and Belterra Park0 0 661.7 
Consideration paid for gaming licenses and other intangible assets(4.8)(11.7)(81.6)
Acquisition of equity securities0 (5.1)0 
Additional contributions from (to) joint ventures(5.4)(0.4)18.9 
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 For the year ended December 31,
(in millions)202020192018
Proceeds from sale of loan0 0 15.2 
Receipts applied against non-accrual loan0 0 0.5 
Other2.7 (2.0)(0.4)
Net cash used in investing activities(233.7)(607.5)(1,423.1)
Financing activities
Proceeds from revolving credit facility540.0 412.0 201.0 
Repayments on revolving credit facility(680.0)(384.0)(89.0)
Proceeds from issuance of long-term debt, net of discounts322.2 0 1,558.9 
Principal payments on long-term debt(161.7)(46.6)(482.5)
Prepayment penalties and modification payments incurred with debt refinancing0 0 (11.3)
Debt and equity issuance costs(6.9)0 (27.3)
Payments of other long-term obligations(16.2)(15.4)(15.7)
Principal payments on financing obligations(26.7)(51.6)(67.4)
Principal payments on finance leases(3.9)(6.2)— 
Proceeds from the sale of real estate assets in conjunction with acquisitions— — 250.0 
Proceeds from common stock offerings, net of discounts and fees1,288.8 0 0 
Proceeds from exercise of options62.7 1.9 7.4 
Repurchase of common stock0 (24.9)(50.0)
Proceeds from insurance financing20.2 16.1 13.1 
Payments on insurance financing(21.4)(19.4)(11.0)
Other(7.0)(4.3)(4.1)
Net cash provided by (used in) financing activities1,310.1 (122.4)1,272.1 
Change in cash, cash equivalents, and restricted cash1,415.2 (26.0)201.8 
Cash, cash equivalents and restricted cash at the beginning of the year455.2 481.2 279.4 
Cash, cash equivalents and restricted cash at the end of the year$1,870.4 $455.2 $481.2 
 For the year ended December 31,
(in millions)202020192018
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents$1,853.8 $437.4 $479.6 
Restricted cash included in Other current assets15.3 15.5 0 
Restricted cash included in Other assets1.3 2.3 1.6 
Total cash, cash equivalents and restricted cash$1,870.4 $455.2 $481.2 
Supplemental disclosure:
Cash paid for interest, net of amounts capitalized$355.0 $528.1 $530.4 
Cash payments (refunds) related to income taxes, net$(15.2)$21.8 $24.4 
Non-cash investing activities:
Rent credits received upon sale of Tropicana land and buildings and Morgantown land$337.5 $0 $0 
Commencement of operating leases$73.6 $713.5 $0 
Commencement of finance leases$0 $4.6 $0 
Accrued capital expenditures$17.2 $12.6 $7.7 
Acquisition of equity securities$0 $16.1 $0 
See accompanying notes to the Consolidated Financial Statements
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PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1—Organization and Basis of Presentation
Organization: Penn National Gaming, Inc., together with its subsidiaries (“Penn National,” the “Company,” “we,” “our,” or “us”), is a leading, diversified, multi-jurisdictional owner and manager of gaming and racing properties, retail and online sports betting operations, and video gaming terminal (“VGT”) operations. Our wholly-owned interactive division, Penn Interactive Ventures, LLC (“Penn Interactive”), operates retail sports betting across the Company’s portfolio, as well as online sports betting, online social casino, bingo and online casinos (“iGaming”). In February 2020, the Company acquired 36% (inclusive of 1% on a delayed basis) equity interest in Barstool Sports, Inc. (“Barstool Sports”), a leading digital sports, entertainment, lifestyle and media company, and entered into a strategic relationship with Barstool Sports, whereby Barstool Sports will exclusively promote the Company's land-based retail sportsbooks, iGaming products and online sports betting products, including the Barstool Sportsbook mobile app, to its national audience. We launched an online sports betting app called Barstool Sports in Pennsylvania in September 2020 and in Michigan in January 2021. We also operate iGaming in Pennsylvania and Michigan. Our MYCHOICE® customer loyalty program (the "mychoice program") currently has over 20 million members and provides such members with various benefits, including complimentary goods and/or services. The Company’s strategy has continued to evolve from an owner and manager of gaming and racing properties into an omni-channel provider of retail and online gaming, live racing and sports betting entertainment.

As of December 31, 2020, we owned, managed, or had ownership interests in 41 gaming and racing properties in 19 states and were licensed to offer live sports betting at our properties in Colorado, Illinois, Indiana, Iowa, Michigan, Mississippi, Nevada, Pennsylvania and West Virginia. The majority of the real estate assets (i.e., land and buildings) used in our operations are subject to triple net master leases; the most significant of which are the Penn Master Lease and the Pinnacle Master Lease (as such terms are defined in Note 12, “Leases,” and collectively referred to as the “Master Leases”), with Gaming and Leisure Properties, Inc. (Nasdaq: GLPI) (“GLPI”), a real estate investment trust (“REIT”).
In May 2019, we acquired Greektown Casino-Hotel (“Greektown”), in Detroit, Michigan, subject to a triple net lease with VICI Properties Inc. (NYSE: VICI) (“VICI”, a REIT and collectively with GLPI, our “REIT Landlords”) (the “Greektown Lease”) and, in January 2019, we acquired Margaritaville Casino Resort (“Margaritaville”) in Bossier City, Louisiana, subject to a triple net lease with VICI (the “Margaritaville Lease”). See Note 12, “Leases,” In October 2018, the Company completed the acquisition of Pinnacle Entertainment, Inc. (“Pinnacle”), a leading regional gaming operator (the “Pinnacle Acquisition”), which added 12 gaming properties to our holdings. For more information on our acquisitions, see Note 6, “Acquisitions and Dispositions.”
Impact of the COVID-19 Pandemic and Company Response: On March 11, 2020, the World Health Organization declared the novel coronavirus (known as “COVID-19”) outbreak to be a global pandemic. We began temporarily suspending the operations of all of our properties between March 13, 2020 and March 19, 2020 pursuant to various orders from state gaming regulatory bodies or governmental authorities to combat the rapid spread of COVID-19. We began reopening our properties on May 18, 2020 with reduced gaming and hotel capacity and limited food and beverage offerings in order to accommodate comprehensive social distancing and health and safety protocols.
During the fourth quarter of 2020, our properties temporarily suspended operations in Pennsylvania, Michigan and Illinois and were subject to increased operational restrictions in Ohio and Massachusetts (among other states). Our Michigan property was temporarily closed on November 17, 2020 and reopened December 23, 2020. Our Pennsylvania properties were temporarily closed on December 12, 2020 and reopened on January 4, 2021. Our Illinois properties were temporarily closed on November 20, 2020 and began reopening with limited hours of operations beginning January 16, 2021 and throughout the week. The property closures were pursuant to various orders from state gaming regulatory bodies or governmental authorities to combat the rapid spread of COVID-19. As of February 26, 2021, all of our properties were open to the public with the exception of Zia Park and Valley Race Park, which remain closed.
Between March 13, 2020 and December 31, 2020, we entered into a series of transactions to improve our financial position and liquidity in light of the COVID-19 pandemic, including: (i) on March 13, 2020, we provided notice to our lenders to borrow the remaining available amount of $430.0 million under our Revolving Credit Facility; (ii) on March 27, 2020, we entered into a binding term sheet with GLPI (the “Term Sheet”) whereby GLPI agreed to (a) purchase the real estate assets associated with Tropicana Las Vegas (“Tropicana”) in exchange for rent credits of $307.5 million, which closed on April 16, 2020, and (b) a sale-leaseback of the land underlying our Hollywood Casino Morgantown (“Morgantown”) development project in Morgantown, Pennsylvania, in exchange for rent credits of $30.0 million, which closed on October 1, 2020; (iii) on May 14, 2020 (May 19, 2020 with respect to the underwriters’ exercising their options to acquire additional 2.75% Convertible Notes), we completed a public offering of $330.5 million aggregate principal amount of 2.75% Convertible Notes; (iv) on May 14, 2020 (May 19, 2020 with respect to the underwriters’ exercising their options to purchase additional shares), we completed a
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public offering of 19,166,667 aggregate shares of common stock, par value of $0.01 per share, of the Company (“Penn Common Stock”) for gross proceeds of $345.0 million; and (v) on September 24, 2020 (September 25, 2020 with respect to the underwriters’ exercising their options to purchase additional shares), we completed a public offering of 16,100,000 aggregate shares of Penn Common Stock for gross proceeds of $982.1 million. In addition, on April 14, 2020, the Company entered into an amendment to its Credit Agreement, which, among other things, provides it with relief from its financial covenants for a period of up to one year. On September 30, 2020, the Company fully repaid $670.0 million of outstanding borrowings under its Revolving Credit Facility. Further, on November 12, 2020 the Company prepaid $115.0 million of outstanding borrowings on its Term Loan B-1 Facility. The terms “Revolving Credit Facility,” “Convertible Notes”, “Credit Agreement” and "Term Loan B-1" are defined in Note 11, “Long-term Debt.”

The COVID-19 pandemic caused significant disruptions to our business and had a material adverse impact on our financial condition, results of operations and cash flows, the magnitude of which continues to develop based on (i) the timing and extent of the recovery in visitation and consumer spending at our properties; (ii) the continued impact of implementing social distancing and health and safety guidelines at our properties, including reductions in gaming, hotel capacity, limiting the number of food and beverage options and limiting other amenities; and (iii) whether any of our properties will be required to again temporarily suspend operations in the event that the pandemic significantly worsens. We are currently unable to determine whether, when or how the conditions surrounding the COVID-19 pandemic will change or whether the recovery in visitation and consumer spending is sustainable.
The Company could experience other potential adverse impacts as a result of the COVID-19 pandemic, including, but not limited to, further charges from adjustments to the carrying amount of goodwill and other intangible assets, long-lived asset impairment charges, or impairments of investments in joint ventures. In addition, the negative impacts of the COVID-19 pandemic may result in further changes in the amount of valuation allowance required. Actual results may differ materially from the Company’s current estimates as the scope of the COVID-19 pandemic evolves, depending largely, though not exclusively, on the impact of required capacity reductions, social distancing and health and safety guidelines, and the sustainability of current trends in recovery at our reopened properties.
As of December 31, 2020, the Company has a strong balance sheet and sufficient liquidity in place, including total cash and cash equivalents, excluding restricted cash, of $1.9 billion and available borrowing capacity of $0.7 billion.
Basis of Presentation: The Consolidated Financial Statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and with the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”).

Note 2—Significant Accounting Policies
Principles of Consolidation: The Consolidated Financial Statements include the accounts of Penn National Gaming, Inc. and its subsidiaries. Investments in and advances to unconsolidated affiliates that do not meet the consolidation criteria of the authoritative guidance for voting interest entities (“VOEs”) or variable interest entities (“VIEs”) are accounted for under the equity method. All intercompany accounts and transactions have been eliminated in consolidation.
Reclassifications: Certain reclassifications have been made to conform the prior period presentation.
Use of Estimates: The preparation of Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions as of the date of the Consolidated Financial Statements that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements, and (iii) the reported amounts of revenues and expenses during the reporting period. Estimates used by us include, among other things, the useful lives for depreciable and amortizable assets, the allowance for doubtful accounts receivable, income tax provisions, the evaluation of the future realization of deferred tax assets, determining the adequacy of reserves for self-insured liabilities, the liabilities associated with our mychoice program, the initial measurements of financing obligations associated with the Master Leases, projected cash flows in assessing the recoverability of long-lived assets, asset impairments, goodwill and other intangible assets, projected cash flows in assessing the initial valuation of intangible assets in conjunction with acquisitions, the initial selection of useful lives for depreciable and amortizable assets in conjunction with acquisitions, contingencies and litigation, and stock-based compensation expense. We applied estimation methods consistently for all periods presented within our Consolidated Financial Statements. Actual results may differ from those estimates.
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Segment Information: We view each of our gaming and racing properties as an operating segment with the exception of our 2 properties in Jackpot, Nevada, which we view as 1 operating segment. We consider our combined VGT operations, by state, to be separate operating segments. See Note 18, “Segment Information,” for further information. For financial reporting purposes, we aggregate our operating segments into the following 4 reportable segments:
LocationReal Estate Assets Lease or Ownership Structure
Northeast segment
Ameristar East ChicagoEast Chicago, IndianaPinnacle Master Lease
Greektown Casino-HotelDetroit, MichiganGreektown Lease
Hollywood Casino BangorBangor, MainePenn Master Lease
Hollywood Casino at Charles Town RacesCharles Town, West VirginiaPenn Master Lease
Hollywood Casino ColumbusColumbus, OhioPenn Master Lease
Hollywood Casino LawrenceburgLawrenceburg, IndianaPenn Master Lease
Hollywood Casino at Penn National Race CourseGrantville, PennsylvaniaPenn Master Lease
Hollywood Casino ToledoToledo, OhioPenn Master Lease
Hollywood Gaming at Dayton RacewayDayton, OhioPenn Master Lease
Hollywood Gaming at Mahoning Valley Race CourseYoungstown, OhioPenn Master Lease
Marquee by Penn (1)
PennsylvaniaN/A
Meadows Racetrack and CasinoWashington, PennsylvaniaMeadows Lease
Plainridge Park CasinoPlainville, MassachusettsPinnacle Master Lease
South segment (2)
1st Jackpot Casino
Tunica, MississippiPenn Master Lease
Ameristar VicksburgVicksburg, MississippiPinnacle Master Lease
Boomtown BiloxiBiloxi, MississippiPenn Master Lease
Boomtown Bossier CityBossier City, LouisianaPinnacle Master Lease
Boomtown New OrleansNew Orleans, LouisianaPinnacle Master Lease
Hollywood Casino Gulf CoastBay St. Louis, MississippiPenn Master Lease
Hollywood Casino TunicaTunica, MississippiPenn Master Lease
L’Auberge Baton RougeBaton Rouge, LouisianaPinnacle Master Lease
L’Auberge Lake CharlesLake Charles, LouisianaPinnacle Master Lease
Margaritaville Resort CasinoBossier City, LouisianaMargaritaville Lease
West segment
Ameristar Black HawkBlack Hawk, ColoradoPinnacle Master Lease
Cactus Petes and HorseshuJackpot, NevadaPinnacle Master Lease
M ResortHenderson, NevadaPenn Master Lease
Tropicana Las VegasLas Vegas, NevadaTropicana Lease
Zia Park CasinoHobbs, New MexicoPenn Master Lease
Midwest segment
Ameristar Council BluffsCouncil Bluffs, IowaPinnacle Master Lease
Argosy Casino Alton (3)
Alton, IllinoisPenn Master Lease
Argosy Casino RiversideRiverside, MissouriPenn Master Lease
Hollywood Casino AuroraAurora, IllinoisPenn Master Lease
Hollywood Casino JolietJoliet, IllinoisPenn Master Lease
Hollywood Casino at Kansas Speedway (4)
Kansas City, KansasOwned - JV
Hollywood Casino St. LouisMaryland Heights, MissouriPenn Master Lease
Prairie State Gaming (1)
IllinoisN/A
River City CasinoSt. Louis, MissouriPinnacle Master Lease
(1)VGT route operations
(2)Resorts Casino Tunica ceased operations on June 30, 2019, but remains subject to the Penn Master Lease.
(3)The riverboat is owned by us and not subject to the Penn Master Lease.
(4)Pursuant to a joint venture (“JV”) with NASCAR and includes the Company’s 50% investment in Kansas Entertainment, LLC (“Kansas Entertainment”), which owns Hollywood Casino at Kansas Speedway.

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Cash and Cash Equivalents: The Company considers all cash balances and highly-liquid investments with original maturities of three months or less at the date of purchase to be cash and cash equivalents.
Concentration of Credit Risk: Financial instruments that subject the Company to credit risk consist of cash and cash equivalents and accounts receivable. The Company’s policy is to limit the amount of credit exposure to any one financial institution, and place investments with financial institutions evaluated as being creditworthy, or in short-term money market and tax-free bond funds which are exposed to minimal interest rate and credit risk. The Company has bank deposits and overnight repurchase agreements that exceed federally-insured limits.
Concentration of credit risk, with respect to casino receivables, is limited through the Company’s credit evaluation process. The Company issues markers to approved casino customers following investigations of creditworthiness.
The Company’s receivables as of December 31, 2020 and 2019 primarily consisted of the following:
December 31,
(in millions)20202019
Markers issued to customers$14.8 $22.9 
Credit card receivables and other advances to customers8.9 16.5 
Receivables from ATM and cash kiosk transactions10.9 14.4 
Hotel and banquet receivables2.7 6.5 
Racing settlements7.7 6.6 
Receivables due from platform providers for social casino games10.5 3.3 
Insurance Receivable - Hurricane Laura23.0 0 
Other26.7 26.2 
Allowance for doubtful accounts(8.8)(7.7)
Accounts receivable, net$96.4 $88.7 

The Company adopted Accounting Standards Codification (“ASC”) No. 2016-13 (“ASC 2016-13”), “Financial Instruments - Credit Losses (Topic 326): Measurements of Credit Losses on Financial Instruments” during the first quarter of 2020 which utilizes a forward-looking current expected credit loss model to measure the allowance for doubtful accounts.Prior to the adoption of ASC 2016-13, accounts were written off when management determined that an account was uncollectible. Recoveries of accounts previously written off were recorded when received. Historically, the Company has not incurred any significant credit-related losses.

Property and Equipment: Property and equipment are stated at cost, less accumulated depreciation. Capital expenditures are accounted for as either project capital or maintenance (replacement) capital expenditures. Project capital expenditures are for fixed asset additions that expand an existing facility or create a new facility. Maintenance capital expenditures are expenditures to replace existing fixed assets with a useful life greater than one year that are obsolete, worn out or no longer cost-effective to repair. Maintenance and repairs that neither add materially to the value of the asset nor appreciably prolong its useful life are charged to expense as incurred. Gains or losses on the disposal of property and equipment are included in the determination of income.
The estimated useful lives of property and equipment are determined based on the nature of the assets as well as the Company’s current operating strategy. Depreciation of property and equipment is recorded using the straight-line method over the shorter of the estimated useful life of the asset or the related lease term, if any, as follows:
Years
Land improvements15
Buildings and improvements5 to 31
Vessels10 to 35
Furniture, fixtures and equipment3 to 31
All costs funded by the Company considered to be an improvement to the real estate assets subject to any of our Triple Net Leases are recorded as leasehold improvements. Leasehold improvements are depreciated over the shorter of the estimated useful life of the improvement or the related lease term.
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The Company reviews the carrying amount of its property and equipment for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable based on undiscounted estimated future cash flows expected to result from its use and eventual disposition. The factors considered by the Company in performing this assessment include current operating results, trends and prospects, as well as the effect of obsolescence, demand, competition and other regulatory and economic factors. For purposes of recognizing and measuring impairment, assets are grouped at the individual property level representing the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets. In assessing the recoverability of the carrying amount of property and equipment, we must make assumptions regarding future cash flows and other factors. If these estimates or the related assumptions change in the future, we may be required to record an impairment loss for these assets. Such an impairment loss would be recognized as a non-cash component of operating income. See Note 8, “Property and Equipment.”
Goodwill and Other Intangible Assets: Goodwill represents the future economic benefits of a business combination measured as the excess of the purchase price over the fair value of net assets acquired and has been allocated to our reporting units. Goodwill is tested annually, or more frequently if indicators of impairment exist. For the quantitative goodwill impairment test, an income approach, in which a discounted cash flow (“DCF”) model is utilized, and a market-based approach using guideline public company multiples of earnings before interest, taxes, depreciation, and amortization (“EBITDA”) from the Company’s peer group are utilized in order to estimate the fair market value of the Company’s reporting units. In determining the carrying amount of each reporting unit that utilizes real estate assets subject to our Triple Net Leases, if and as applicable, (i) the Company allocates each reporting unit their pro-rata portion of the right-of-use (“ROU”) assets, lease liabilities, and/or financing obligations, and (ii) pushes down the carrying amount of the property and equipment subject to such leases. The Company compares the fair value of its reporting units to the carrying amounts. If the carrying amount of the reporting unit exceeds the fair value, an impairment is recorded equal to the amount of the excess (not to exceed the amount of goodwill allocated to the reporting unit).
We consider our gaming licenses, trademarks, and certain other intangible assets to be indefinite-lived based on our future expectations to operate our gaming properties indefinitely as well as our historical experience in renewing these intangible assets at minimal cost with various state commissions. Indefinite-lived intangible assets are tested annually for impairment, or more frequently if indicators of impairment exist, by comparing the fair value of the recorded assets to their carrying amount. If the carrying amounts of the indefinite-lived intangible assets exceed their fair value, an impairment is recognized. The Company completes its testing of its indefinite-lived intangible assets prior to assessing the realizability of its goodwill.
The Company assesses the fair value of its gaming licenses using the Greenfield Method under the income approach, which estimates the fair value using a DCF model assuming the Company built a casino with similar utility to that of the existing casino. The method assumes a theoretical start-up company going into business without any assets other than the intangible asset being valued. The Company assesses the fair value of its trademarks using the relief-from-royalty method under the income approach. The principle behind this method is that the value of the trademark is equal to the present value of the after-tax royalty savings attributable to the owned trademark.
Our annual goodwill and other indefinite-lived intangible assets impairment test is performed on October 1st of each year. Once an impairment of goodwill or other intangible asset has been recorded, it cannot be reversed. Other intangible assets that have a definite-life are amortized on a straight-line basis over their estimated useful lives or related service contract. The Company reviews the carrying amount of its amortizing intangible assets for possible impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. If the carrying amount of the amortizing intangible assets exceed their fair value, an impairment is recognized. See Note 9, “Goodwill and Other Intangible Assets.”
Equity Securities: The Company’s equity securities (including warrants) are measured at fair value each reporting period with unrealized holding gains and losses included in current period earnings. During the year ended December 31, 2020, the Company recognized a holding gain of $106.7 million related to equity securities, which is included in “Other,” as reported in “Other income (expenses)” within our Consolidated Statements of Operations and Comprehensive Income (Loss).
Convertible Debt: Under ASC 470-20, “Debt with Conversion and Other Options” (“ASC 470-20”), an entity must separately account for the liability and equity components of convertible debt instruments that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest. The effect of ASC 470-20 on the accounting for our Convertible Notes is that the equity component is required to be included in “Additional paid-in capital” within our Consolidated Balance Sheets at the issuance date and the value of the equity component is treated as a debt discount. See Note 11, “Long-term Debt,” for more information.
Financing Obligations: Subsequent to the adoption of ASC 842, “Leases” (“ASC 842”) on January 1, 2019, certain of the components contained within our Master Leases (primarily buildings) are accounted for as financing obligations, rather than leases. Prior to the adoption of ASC 842, our Master Leases, in their entirety, were accounted for as financing obligations.
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On November 1, 2013, the Company spun-off its real estate assets into GLPI (the “Spin-Off”) and entered into the Penn Master Lease. This transaction did not meet all of the requirements for sale-leaseback accounting treatment under ASC 840, “Leases,” (“ASC 840”); specifically, the Penn Master Lease contains provisions that indicate the Company has prohibited forms of continuing involvement in the leased assets, which are not a normal leaseback. Accordingly, at lease inception, we calculated a financing obligation based on the future minimum lease payments discounted at our estimated incremental borrowing rate at lease inception over the lease term of 35 years, which was determined to be 9.7%. The lease term included renewal options that were reasonably assured of being exercised and the funded construction of certain leased assets in development at the commencement of the Penn Master Lease.
On October 15, 2018, in connection with the Pinnacle Acquisition, we assumed the Pinnacle Master Lease. Within a business combination, an arrangement that previously did not meet all of the requirements for sale-leaseback accounting treatment (and is accounted for as a financing obligation by the acquiree) retains its classification as a financing obligation on the acquiring entity’s consolidated balance sheets at the business combination date. As of the date of acquisition, we calculated the financing obligation based on the future minimum lease payments discounted at a rate determined to be fair value at the business combination date, which was determined to be 7.3%, over the remaining lease term of 32.5 years. The remaining lease term included renewal options that were reasonably assured of being exercised. Furthermore, in conjunction with the Pinnacle Acquisition, GLPI acquired the real estate assets associated with Plainridge Park Casino and leased back such assets to the Company pursuant to an amendment to the Pinnacle Master Lease (the “Plainridge Park Casino Sale-Leaseback”). The effective yield used to determine the financing obligation associated with the Plainridge Park Casino Sale-Leaseback was 9.6%.
Subsequent to the adoption of ASC 842, minimum lease payments under our Master Lease are allocated between components that continue to be financing obligations (primarily buildings) and operating lease components (primarily land). Minimum lease payments related to financing obligations are recorded to interest expense and, in part, as repayments of principal reducing the associated financing obligations. Contingent payments are recorded as interest expense as incurred. The real estate assets subject to the Master Leases and which are accounted for as failed sales, are included in “Property and equipment, net” within the Company’s Consolidated Balance Sheets and are depreciated over the shorter of their remaining useful lives or lease term. Principal payments associated with financing obligations are presented as financing cash outflows and interest payments associated with financing obligations are presented as operating cash outflows within our Consolidated Statements of Cash Flows. For more information, see Note 8, “Property and Equipment,” and Note 12, “Leases”.
On October 1, 2020, we sold the land underlying our Morgantown development project to GLPI in exchange for rent credits of $30.0 million. Contemporaneous with the sale, the Company entered into a triple net lease with GLPI for the land underlying Morgantown (as defined and discussed in Note 12, “Leases.”).The sale-leaseback transaction did not meet the requirements for sale accounting as control of the underlying asset as defined in accordance with ASC 842 remains with the Company.Accordingly, at lease inception, we calculated a financing obligation based on the future minimum lease payments discounted at our estimated incremental borrowing rate over the lease term of 50 years, which was determined to be 11.4%. The lease term included renewal options that were reasonably assured of being exercised.

Operating and Finance Leases: The Company determines if a contract is or contains a leasing element at contract inception or the date in which a modification of an existing contract occurs. In order for a contract to be considered a lease, the contract must transfer the right to control the use of an identified asset for a period of time in exchange for consideration. Control is determined to have occurred if the lessee has the right to (i) obtain substantially all of the economic benefits from the use of the identified asset throughout the period of use and (ii) direct the use of the identified asset.
Upon adoption of ASC 842, we elected the following policies: (a) to account for lease and non-lease components as a single component for all classes of underlying assets and (b) to not recognize short-term leases (i.e., leases that are less than 12 months and do not contain purchase options) within the Consolidated Balance Sheets, with the expense related to these short-term leases recorded in total operating expenses within the Consolidated Statements of Operations and Comprehensive Income (Loss).
The Company has leasing arrangements that contain both lease and non-lease components. We account for both the lease and non-lease components as a single component for all classes of underlying assets. In determining the present value of lease payments at lease commencement date, the Company utilizes its incremental borrowing rate based on the information available, unless the rate implicit in the lease is readily determinable. The liability for operating and finance leases is based on the present value of future lease payments. Operating lease expenses are recorded as rent expense, which is included within general and administrative expense, within the Consolidated Statements of Operations and Comprehensive Income (Loss) and presented as operating cash outflows within the Consolidated Statements of Cash Flows. Finance lease expenses are recorded as depreciation expense, which is included within depreciation and amortization expense within the Consolidated Statements of Operations and Comprehensive Income (Loss) and interest expense over the lease term. Principal payments associated with finance leases are
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presented as financing cash outflows and interest payments associated with finance leases are presented as operating cash outflows within our Consolidated Statements of Cash Flows.
Debt Discount and Debt Issuance Costs: Debt issuance costs that are incurred by the Company in connection with the issuance of debt are deferred and amortized to interest expense using the effective interest method over the contractual term of the underlying indebtedness. These costs are classified as a direct reduction of long-term debt within the Company’s Consolidated Balance Sheets.
Self-Insurance Reserves: The Company is self-insured for employee health coverage, general liability and workers’ compensation up to certain stop-loss amounts (for general liability and workers’ compensation). We use a reserve method for each reported claim plus an allowance for claims incurred but not yet reported to a fully-developed claims reserve method based on an actuarial computation of ultimate liability. Self-insurance reserves are included in “Accrued expenses and other current liabilities” within the Company’s Consolidated Balance Sheets.
Contingent Purchase Price: The consideration for the Company’s acquisitions may include future payments that are contingent upon the occurrence of a particular event. We record an obligation for such contingent payments at fair value as of the acquisition date. We revalue our contingent purchase price obligations each reporting period. Changes in the fair value of the contingent purchase price obligation can result from changes to one or multiple inputs, including adjustments to the discount rate and changes in the assumed probabilities of successful achievement of certain financial targets. The changes in the fair value of contingent purchase price are recognized within our Consolidated Statements of Operations and Comprehensive Income (Loss) as a component of “General and administrative” expense.
Income Taxes: Under ASC 740, “Income Taxes” (“ASC 740”), deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities and are measured at the prevailing enacted tax rates that will be in effect when these differences are settled or realized. ASC 740 also requires that deferred tax assets be reduced by a valuation allowance if it is more-likely-than-not (a greater than 50% probability) that some portion or all of the deferred tax assets will not be realized.

The realizability of the net deferred tax assets is evaluated quarterly by assessing the valuation allowance and by adjusting the amount of the allowance, if necessary. The Company considers all available positive and negative evidence including projected future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. The evaluation of both positive and negative evidence is a requirement pursuant to ASC 740 in determining more-likely-than-not the net deferred tax assets will be realized. In the event the Company determines that the deferred income tax assets would be realized in the future in excess of their net recorded amount, an adjustment to the valuation allowance would be recorded, which would reduce the provision for income taxes.


ASC 740 also creates a single model to address uncertainty in tax positions and clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in an enterprise’s financial statements. It also provides guidance on derecognition,de-recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition.

See Note 14, “Income Taxes.”


Revenue RecognitionRecognition: Our revenue from contracts with customers consists of gaming wagers, food and Promotional Allowances

Gamingbeverage transactions, retail transactions, hotel room sales, racing wagers, sports betting wagers, and management services related to the management of external casinos and reimbursable costs associated with management contracts. In May 2018, our management contract was terminated for Hollywood Casino-Jamul San Diego, which is located in San Diego, California. In addition, our management contract was terminated for Casino Rama, which is located in Ontario, Canada, in July 2018. See Note 5, “Revenue Disaggregation,” for information on our revenue consists mainly of slotby type and video lotterygeographic location.

The transaction price for a gaming machine revenue as well as to a lesser extent table game and poker revenue. Gaming revenuewagering contract is the aggregate net difference between gaming wins and losses, with liabilities recognizednot the total amount wagered. The transaction price for funds deposited by customers before gaming play occurs,food and beverage, hotel and retail contracts is the net amount collected from the customer for "ticket-in, ticket-out" couponssuch goods and services. Sales tax and other taxes collected on behalf of governmental authorities are accounted for on the net basis and are not included in revenues or expenses. The transaction price for our racing operations, inclusive of live racing events conducted at our racing facilities and our import and export arrangements, is the customers' possession,commission received from the pari-mutuel pool less contractual fees and for accrualsobligations primarily consisting of purse funding requirements, simulcasting fees, tote fees and certain pari-mutuel taxes that are directly related to the anticipated payout of progressive jackpots. Progressive slot machines, which contain base jackpots that increase at a progressive rate based on the number of coins played, are charged to revenue asracing operations. The transaction price for our former management service contracts was the amount of the jackpots increases. Table game revenue is the aggregate of table drop adjusted

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collected for the changeservices rendered in aggregate table chip inventory. Table drop is the total dollar amount of the currency, coins, chips, tokens and outstanding markers (credit instruments) that are removed from the live gaming tables.

Food, beverage, hotel and other revenue, including racing revenue, is recognized as services are performed. Racing revenue includes the Company’s share of pari-mutuel wagering on live races after payment of amounts returned as winning wagers, its share of wagering from import and export simulcasting, and its share of wagering from its off-track wagering facilities (“OTWs”).

Revenue from our management service contract for Casino Rama and Hollywood Casino Jamul – San Diego are based upon contracted terms and are recognized when services are performed and collection is reasonably assured.

Revenues include reimbursable costs associatedaccordance with the Company’s management contract with the Jamul Tribe, which represent amounts received or due pursuant to the Company’s management agreementcontractual terms. The transaction price for the reimbursement of expenses, primarily payroll costs, incurred on their behalf. The Company recognizes the reimbursable costs associated with this contract as revenueour former management contracts was the gross amount of the reimbursable expenditure, which primarily consisted of payroll costs incurred by the Company for the benefit of the managed

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entity. Since the Company was the controlling entity to the arrangement, the reimbursement was recorded on a gross basis with an offsetting amount charged to operating expenseexpense.
Gaming revenue contracts involve two performance obligations for those customers earning points under our mychoice program and a single performance obligation for customers that do not participate in the mychoice program. The Company applies a practical expedient by accounting for its gaming contracts on a portfolio basis as opposed to an individual wagering contract. For purposes of allocating the transaction price in a gaming contract between the wagering performance obligation and the obligation associated with the loyalty points earned, we allocate an amount to the loyalty point contract liability based on the standalone selling price (“SSP”) of the points earned, which is determined by the value of a point that can be redeemed for slot play and complimentaries such as, food and beverage at our restaurants, lodging at our hotels and products offered at our retail stores, less estimated breakage. The allocated revenue for gaming wagers is recognized when the wagering occurs as all such wagers settle immediately. The liability associated with the loyalty points is deferred and recognized as revenue when the customer redeems the loyalty points for slot play and complimentaries and such goods and services are delivered to the customer.
Food and beverage, hotel and retail services have been determined to be separate, standalone performance obligations and the transaction price for such contracts is recorded as revenue as the good or service is transferred to the customer over their stay at the hotel or when the delivery is made for the food and beverage or retail product. Cancellation fees for hotel and meeting space services are recognized upon cancellation by the customer and are included in food, beverage, hotel and other revenue within our Consolidated Statements of Operations and Comprehensive Income (Loss).

Racing revenue contracts, inclusive of our (i) host racing facilities, (ii) import arrangements that permit us to simulcast in live racing events occurring at other racetracks, and (iii) export arrangements that permit our live racing events to be simulcast at other racetracks, provide access to and the processing of wagers into the pari-mutuel pool. The Company has concluded it is not the primary obligor for these costs.

Revenuescontrolling entity to the arrangement, but rather functions as an agent to the pari-mutuel pool. Commissions earned from the pari-mutuel pool less contractual fees and obligations are recognized on a net basis, which is included within food, beverage, hotel and other revenues within our Consolidated Statements of certain sales incentives in accordance with ASC 605-50, “Revenue Recognition—Customer PaymentsOperations and Incentives.”Comprehensive Income (Loss).


Management services have been determined to be separate, standalone performance obligations and the transaction price for such contracts was recorded as services were performed. The Company recorded revenues on a monthly basis calculated by applying the contractual rate called for in the contracts.
In addition to sports betting and iGaming revenues, Penn Interactive generates in-app purchase and advertising revenues from free-to-play social casino games, which can be downloaded to mobile phones and tablets from digital storefronts. Players can purchase virtual playing credits within our social casino games, which allows for increased playing opportunities and functionality. Penn Interactive records certain sales incentivesdeferred revenue from the sale of virtual playing credits and points earnedrecognizes this revenue over the average redemption period of the credits, which is approximately three days. Advertising revenues are recognized in point-loyalty programs as a reduction of revenue.

The retail value of accommodations, foodthe period when the advertising impression, click or install delivery occurs. 


Complimentaries Associated with Gaming Contracts
Food and beverage, hotel, and other services furnished to guests without charge is included in grosspatrons for free as an inducement to gamble or through the redemption of our customers’ loyalty points are recorded as food and beverage, hotel, and other revenues, and then deductedat their estimated SSPs with an offset recorded as promotional allowances.a reduction to gaming revenues. The estimated cost of providing such promotional allowancescomplimentary goods and services to patrons as an inducement to gamble as well as for the fulfillment of our loyalty point obligation is primarily included in food, beverage, hotel, and other expense.

The amounts included in promotional allowances for the years ended December 31, 2017, 2016expenses. Revenues recorded to food, beverage, hotel and 2015 areother and offset to gaming revenues were as follows (in thousands):

follows:

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31,

    

2017

    

2016

    

2015

 

Rooms

 

$

41,213

 

$

39,352

 

$

34,708

 

Food and beverage

 

 

133,104

 

 

126,438

 

 

111,144

 

Other

 

 

9,179

 

 

8,871

 

 

9,135

 

Total promotional allowances

 

$

183,496

 

$

174,661

 

$

154,987

 

For the year ended December 31,
(in millions)202020192018
Food and beverage$123.6 $261.4 $137.2 
Hotel79.6 159.6 60.8 
Other6.7 17.6 8.1 
Total complimentaries associated with gaming contracts$209.9 $438.6 $206.1 

The estimated cost of providing such complimentary services for the years ended December 31, 2017, 2016 and 2015 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31,

    

2017

    

2016

    

2015

 

Rooms

 

$

5,826

 

$

5,291

 

$

4,199

 

Food and beverage

 

 

51,460

 

 

48,497

 

 

44,012

 

Other

 

 

3,437

 

 

3,518

 

 

3,582

 

Total cost of complimentary services

 

$

60,723

 

$

57,306

 

$

51,793

 

Customer-related Liabilities

Player Loyalty Programs

The Company has a nationwide branded loyaltythree general types of liabilities related to contracts with customers: (i) the obligation associated with its mychoice program called Marquee Rewards.  Marquee Rewards(loyalty points and tier status benefits), (ii) advance payments on goods and services yet to be provided and
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for unpaid wagers, and (iii) deferred revenue associated with third-party sports betting operators for online sports betting and related iGaming market access.
Our mychoice program allows customersmembers to utilize their reward membership cards to earn loyalty points that are redeemable for slot play and complementaries.  Complimentaries are usually in the form of monetary discountscomplimentaries, such as food and other rewards which generally can only be redeemedbeverage at our restaurant, hotel,restaurants, lodging at our hotels and products offered at our retail and spa facilities.  These points expire on a monthly basis after six months of inactivity. Customers earn points for their playstores across the vast majority of our properties. In addition, members of the mychoice program earn credit toward tier status, which entitles them to receive certain other benefits, such as gifts. The obligation associated with our mychoice program, which is included in “Accrued expenses and other current liabilities” within our Consolidated Balance Sheets, was $35.8 million and $36.2 million as of December 31, 2020 and 2019, respectively, and consisted principally of the obligation associated with the loyalty points. Our loyalty point obligations are generally settled within six months of issuance; however, as a result of the COVID-19 pandemic and resulting temporary closures, loyalty point obligations may take longer to settle. Changes between the opening and closing balances primarily relate to the timing of our customers’ election to redeem loyalty points as well as the timing of when our customers receive their earned tier status benefits.
The Company’s advance payments on goods and services yet to be provided and for unpaid wagers primarily consist of the following: (i) deposits on rooms and convention space, (ii) money deposited on behalf of a customer in advance of their property visit (referred to as “safekeeping” or “front money”), (iii) outstanding tickets generated by slot machine play or pari-mutuel wagering, (iv) outstanding chip liabilities, (v) unclaimed jackpots, and (vi) gift cards redeemable at our properties. Unpaid wagers primarily relate to the Company’s casinosobligation to settle outstanding slot tickets, pari-mutuel racing tickets and can concurrently redeem them at our casinos. 

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which revenue was previously recognized. The Company’s player loyalty liability recorded within accrued expensesadvance payments on the consolidated balance sheets was $13.0goods and services yet to be provided and for unpaid wagers were $47.1 million and $14.2$42.2 million atas of December 31, 20172020 and 2016,2019, respectively, of which $0.5 million and $0.6 million were classified as long-term in both periods. The current portion and long-term portion of our advance payments on goods and services yet to be provided and for unpaid wagers are included in “Accrued expenses and other current liabilities” and “Other long-term liabilities” within our Consolidated Balance Sheets, respectively.  These liabilities are based on expected redemption rates

Penn Interactive enters into multi-year agreements with sports betting operators for online sports betting and related iGaming market access across our portfolio of properties, from which we received cash and equity securities, including ordinary shares and warrants, specific to 2 operator agreements. During the estimated costsfourth quarter of 2019, certain of the services or merchandise to be provided.  These assumptions are periodically evaluatedoperations contemplated by comparing historical redemption experiencethese agreements commenced, resulting in the recognition of $5.6 million and projected trends. 

$0.6 million of revenue (most of which was previously deferred) during the year ended December 31, 2020 and 2019, respectively. Deferred revenue associated with third-party sports betting operators for online sports betting and related iGaming market access, which is included in “Other long-term liabilities” within our Consolidated Balance Sheets was $52.7 million and $43.6 million as of December 31, 2020 and 2019, respectively.

Gaming and Racing Taxes

The Company isTaxes: We are subject to gaming and pari‑mutuelpari-mutuel taxes based on gross gaming revenue and pari‑mutuelpari-mutuel revenue in the jurisdictions in which it operates.we operate. The Company primarily recognizes gaming and pari‑mutuelpari-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 wagering occurs. In certain states in which the Company operates, gaming taxes are based on graduated rates. The Company records gaming tax expense at the Company’s estimated effective gaming tax rate for the year, considering estimated taxable gaming revenue and the applicable rates. Such estimates are adjusted each interim period. If gaming tax rates change during the year, such changes are applied prospectively in the determination of gaming tax expense in future interim periods. For the years ended December 31, 2017, 20162020, 2019 and 2015,2018, these expenses, which arewere recorded primarily withinin gaming expense inwithin the consolidated statementsConsolidated Statements of operations,Operations and Comprehensive Income (Loss), were $983.3$1,098.9 million, $962.7$1,590.0 million, and $921.6$1,102.3 million, respectively.

Payments related to the Master Lease

As

Stock-Based Compensation: The cost of December 31, 2017, the Company leases the real estate associated with twentyemployee services received in exchange for an award of the Company’s gaming and related facilities used in the Company’s operations under a Master Lease arrangement.

The Master Lease is commonly known as a triple-net lease. Accordingly, in addition to the required payments to GLPI, the Company is required to pay the following, among other things: (1) all facility maintenance; (2) all insurance required in connection with the leased properties and the business conducted on the leased properties; (3) taxes levied on or with respect to the leased properties (other than taxes on the income of the lessor); and (4) all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties. At the Company’s option, the Master Lease may be extended for up to four five‑year renewal terms beyond the initial fifteen‑year term, on the same terms and conditions.

The payment structure under the Master Lease, which became effective November 1, 2013, includes a fixed component, a portion of which is subject to an annual escalator of up to 2% if certain coverage ratio thresholds are met, and a component thatequity instruments is based on the performancegrant-date fair value of the facilities,award and the expense is recognized ratably over the requisite service period. The Company accounts for forfeitures in the period in which they occur based on actual amounts. The fair value of stock options is estimated at the grant date using the Black-Scholes option-pricing model, which requires us to make assumptions, including the expected term, which is prospectively adjusted, subject tobased on the contractual term of the stock option and historical exercise data of the Company’s employees; the risk-free interest rate, which is based on the U.S. Treasury spot rate with a floor of zero (i) every five years by an amountterm equal to 4%the expected term assumed at the grant date; the expected volatility, which is estimated based on the historical volatility of the average change to net revenues of all facilities underCompany’s stock price over the Master Lease (other than Hollywood Casino Columbus and Hollywood Casino Toledo) during the preceding five years, and (ii) monthly by an amount equal to 20% of the change in net revenues of Hollywood Casino Columbus and Hollywood Casino Toledo during the preceding month.

On May 1, 2017, following the acquisition of RIH Acquisitions MS I, LLC and RIH Acquisitions MS II, LLC, the holding companies for the gaming operations of 1st Jackpot and Resorts in Tunica, Mississippi, an amendment to the Master Lease was entered into in order to add the two additional facilities. The Company is operating both of these casino properties and it leases the underlying real estate associated with these two businesses from GLPI with a total initial annual payment of $9.0 million subject to the provisions included in the terms of the Master Lease. The transaction increased the Company’s Master Lease financing obligation by $82.6 millionexpected term assumed at the acquisition date,grant date; and the expected dividend yield, which represents the purchase price GLPIis 0 since we have not historically paid for the underlying real estate assets.

Based on the performance of the facilities under the Master Lease, the Company has incurred escalators which resulted in an increase to the Company’s annual payment of $2.4 million, $4.5 million and $5.0 million starting on

dividends. See Note 16, “Stock-based Compensation.”

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November 1, 2017, 2016 and 2015, respectively.  Total payments made to GLPI under the Master Lease were $455.4 million, $442.3 million and $437.0 million for the years ended December 31, 2017, 2016 and 2015, respectively.

Earnings Per Share

The Company calculatesShare: Basic earnings per share (“EPS”) in accordance with ASC 260, “Earnings Per Share” (“ASC 260”). Basic EPS is computed by dividing net income (loss) applicable to common stock by the weighted‑averageweighted-average number of common shares outstanding during the period. Diluted EPS reflects the additional dilution, if any, for all potentially‑dilutivepotentially-dilutive securities such as stock options, and unvested restricted shares.

During 2016,stock awards (“RSAs”), outstanding convertible preferred stock and convertible debt.

Holders of the Company’s 8,624 outstanding shares of Series CD Preferred Stock were sold by the(as defined in Note 7, “Investments in and Advances to Unconsolidated Affiliates”) are entitled to participate equally and ratably in all dividends and distributions paid to holders of these securities, and therefore automatically converted to 8,624,000 sharesPenn Common Stock irrespective of common stock under previously agreed upon terms.  As a result there are no longer any outstanding shares ofvesting requirement. Accordingly, the Series CD Preferred Stock asshares are considered a
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Table of December 31, 2017 and 2016.  The Company determined that the preferred stock qualified as a Contents
participating security as defined in ASC 260 since these securities participate in dividends withand the Company’s common stock. In accordance with ASC 260, a companyCompany is required to useapply the two‑classtwo-class method when computing EPS when a company has a security that qualifies as a “participating security.” The two‑class method is an earnings allocation formula that determines EPS for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. A participating security is included inconsider the computation of basic EPS using the two‑class method. Under the two‑class method, basic EPS for the Company’s common stock is computed by dividing net income applicable to common stock by the weighted‑average common shares outstanding during the period. Diluted EPS for the Company’s common stock is computed using the more dilutiveimpact of the two‑class method or the if-converted method.

The following table sets forth the allocation of net income for the years ended December 31, 2017, 2016 and 2015 under the two class method:

 

 

 

 

 

 

 

 

 

 

Year ended December 31,

    

2017

    

2016

 

2015

 

 

(in thousands)

Net income

 

$

473,463

 

$

109,310

 

$

686

Net income applicable to preferred stock

 

 

 —

 

 

8,662

 

 

67

Net income applicable to common stock

 

$

473,463

 

$

100,648

 

$

619

The following table reconciles the weighted‑average commonpreferred 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 years ended December 31, 2017, 2016 and 2015:

 

 

 

 

 

 

 

Year ended December 31,

    

2017

 

2016

 

2015

 

 

(in thousands)

Determination of shares:

 

 

 

 

 

 

Weighted-average common shares outstanding

 

90,854

 

82,929

 

80,003

Assumed conversion of dilutive employee stock-based awards

 

2,431

 

1,299

 

2,217

Assumed conversion of restricted stock

 

93

 

42

 

60

Diluted weighted-average common share outstanding before participating security

 

93,378

 

84,270

 

82,280

Assumed conversion of preferred stock

 

 —

 

7,137

 

8,624

Diluted weighted-average common shares outstanding

 

93,378

 

91,407

 

90,904

Options to purchase 51,803 shares, 3,036,819 shares and 1,635,929 shares were outstanding during the years ended December 31, 2017, 2016 and 2015, respectively, but were not included in the computation of diluted EPS because they were antidilutive.

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The following table presentson the calculation of basic and diluted EPS for the Company’s common stock for the years ended December 31, 2017, 2016 and 2015 (in thousands, except per share data):

 

 

 

 

 

 

 

 

 

 

Year ended December 31,

    

2017

 

2016

 

2015

Calculation of basic EPS:

 

 

 

 

 

 

 

 

 

Net income applicable to common stock

 

$

473,463

 

$

100,648

 

$

619

Weighted-average common shares outstanding

 

 

90,854

 

 

82,929

 

 

80,003

Basic EPS

 

$

5.21

 

$

1.21

 

$

0.01

Calculation of diluted EPS using two class method:

 

 

 

 

 

 

 

 

 

Net income applicable to common stock

 

$

473,463

 

$

100,648

 

$

619

Diluted weighted-average common shares outstanding before participating security

 

 

93,378

 

 

84,270

 

 

82,280

Diluted EPS

 

$

5.07

 

$

1.19

 

$

0.01

Stock‑Based Compensation

EPS. The Company accounts for stock compensation under ASC 718, “Compensation‑Stock Compensation,” which requires the Company to expense the cost of employee services received in exchange for an award of equity instruments based on the grant‑date fair value of the award. This expense is recognized ratably over the requisite service period following the date of grant.

The fair value for stock options was estimated at the date of grant using the Black‑Scholes option‑pricing model, which requires management to make certain assumptions. The risk‑free interest rate was based on the U.S. Treasury spot rate with a term equal to the expected life assumed at the date of grant. Expected volatility was estimated based on the historical volatilityholders of the Company’s stock price over a period of 5.30 years,Series D Preferred Stock are not obligated to absorb losses; therefore, in order to match the expected life of the options at the grant date. Historically, at the grant date, there has been no expected dividend yield assumption since the Company has not paid any cash dividends on its common stock since its initial public offering in May 1994 and since the Company intends to retain all of its earnings to finance the development of its business for the foreseeable future. The weighted‑average expected life was based on the contractual term of the stock option and expected employee exercise dates, which was based on the historical and expected exercise behavior of the Company’s employees.

The following are the weighted‑average assumptions used in the Black‑Scholes option‑pricing model for the years ended December 31, 2017, 2016 and 2015:

 

 

 

 

 

 

 

 

Year ended December 31,

 

2017

    

2016

 

2015

 

Risk-free interest rate

 

1.97

%  

1.20

%

1.54

%

Expected volatility

 

30.66

%  

31.23

%

36.68

%

Dividend yield

 

 —

 

 —

 

 —

 

Weighted-average expected life (years)

 

5.30

 

5.40

 

5.45

 

Segment Information

The Company’s Chief Executive Officer, who is the Company’s Chief Operating Decision Maker (“CODM”), as that term is defined in ASC 280, measures and assesses the Company’s business performance based on regional operations of various properties grouped together based primarily on their geographic locations.

The Northeast reportable segment consists of the following properties: Hollywood Casino at Charles Town Races, Hollywood Casino Bangor, Hollywood Casino at Penn National Race Course, Hollywood Casino Toledo, Hollywood Casino Columbus, Hollywood Gaming at Dayton Raceway, Hollywood Gaming at Mahoning Valley Race Course, Plainridge Park Casino and the Company’s Casino Rama management service contract.

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The South/West reportable segment consists of the following properties: Zia Park Casino, Hollywood Casino Tunica, Hollywood Casino Gulf Coast, Boomtown Biloxi, M Resort, Tropicana Las Vegas, 1st Jackpot and Resorts as well as our management contract with Hollywood Casino Jamul-San Diego.

The Midwest reportable segment consists of the following properties: Hollywood Casino Aurora, Hollywood Casino Joliet, Argosy Casino Alton, Argosy Casino Riverside, Hollywood Casino Lawrenceburg, Hollywood Casino St. Louis, and Prairie State Gaming, and includes the Company’s 50% investment in Kansas Entertainment, LLC (“Kansas Entertainment”), which owns the Hollywood Casino at Kansas Speedway.

The Other category consists of the Company’s standalone racing operations, namely Rosecroft Raceway, which was sold on July 31, 2016, Sanford-Orlando Kennel Club, and the Company’s joint venture interests in Sam Houston Race Park, Valley Race Park, and Freehold Raceway. Ifreporting periods where the Company is successful in obtaining gaming operations at these locations, they would be assigned to one of the Company’s regional executives and reported in their respective reportable segment. The Other category also includes the Company’s corporate overhead operations, whicha net loss position, it does not meetapply the definition of an operating segment under ASC 280. Additionally, the Other category includes Penn Interactive Ventures, the Company’s wholly-owned subsidiary that represents its social online gaming initiatives, including Rocket Speed. Penn Interactive Ventures meets the definition of an operating segment under ASC 280, but is quantitatively not significant to the Company’s operations as it represents less than 2% of net revenues and 5% of income from operations for the year ended December 31, 2017, and its total assets represent less than 2% of the Company’s total assets at December 31, 2017.

two-class method. In addition to GAAP financial measures, management uses adjusted EBITDA as an important measure of the operating performance of its segments, including the evaluation of operating personnel and believes it is especially relevant in evaluating large, long lived casino projects because they provide a perspective on the current effects of operating decisions separated from the substantial non-operational depreciation charges and financing costs of such projects. Adjusted EBITDA is a Non-GAAP financial measure whichreporting periods where the Company defines as earnings before interest, taxes, stock compensation, debt extinguishment and financing charges, impairment charges, insurance recoveries and deductible charges, depreciation and amortization, changesis in the estimated fair value of our contingent purchase price obligations, gain or loss on disposal of assets, and other income or expenses. Adjusted EBITDA is also inclusive of income or loss from unconsolidated affiliates, with the Company’s share of non-operating items (such as depreciation and amortization) added back for its joint venture in Kansas Entertainment. Adjusted EBITDA excludes payments associated with our Master Lease agreement with GLPI as the transaction is accounted for as a financing obligation. Adjusted EBITDA should not be construed as an alternative to income from operations, as an indicator of the Company’s operating performance, as an alternative to cash flows from operating activities, as a measure of liquidity, or as any other measure of performance determined in accordance with GAAP. The Company has significant uses of cash flows, including capital expenditures, interest payments, taxes and debt principal repayments, which are not reflected in adjusted EBITDA.

See Note 15 to the consolidated financial statements for further information with respect to the Company’s segments.

Statements of Cash Flows

The Company has presented the consolidated statements of cash flows using the indirect method, which involves the reconciliation of net income position, the two-class method is applied by allocating all earnings during the period to net cash flow from operating activities.

Acquisitions

The Company accountscommon shares and preferred shares. See Note 17, “Earnings (Loss) per Share,” for its acquisitionsmore information.


Application of Business Combination Accounting: We utilize the acquisition method of accounting in accordance with ASC 805, “Business Combinations.Combinations,” which requires us to allocate the purchase price to tangible and identifiable intangible assets based on their fair values. The resultsexcess of operations ofthe purchase price over the fair value ascribed to tangible and identifiable intangible assets is recorded as goodwill. If the fair value ascribed to tangible and identifiable intangible assets changes during the measurement period (due to additional information being available and related Company analysis), the measurement period adjustment is recognized in the reporting period in which the adjustment amount is determined and offset against goodwill. The measurement period for our acquisitions are includedno more than one year in the consolidated financial statements from their respective dates of acquisition.

duration. See Note 6, “Acquisitions and Dispositions.”

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Voting Interest Entities and Variable Interest Entities

In accordance with the authoritative guidance of ASC 810, “Consolidation” (“ASC 810”), theEntities: The Company consolidates all subsidiaries or other entities in which it has a controlling financial interest. The consolidation guidance requires an analysis to determine if an entity should be evaluated for consolidation using the VOE model or the VIE ifmodel. Under the CompanyVOE model, controlling financial interest is the primary beneficiary,generally defined as a majority ownership of voting rights. Under the party that has bothVIE model, controlling financial interest is defined as (i) the power to direct the activities that most significantly impact the VIE’s economic performance of the entity and (ii) the obligation to absorb losses of or the right to receive benefits from the VIEentity that could potentially be significant to the VIE. A variable interest isentity. For those entities that qualify as a contractual, ownership or other interest that changes with changes in the fair value of the VIE’s net assets exclusive of variable interests. To determine whether a variable interest the Company holds could potentially be significant to the VIE, the Company considers both qualitative and quantitative factors regardingprimary beneficiary is generally defined as the nature, size and form of its involvement withparty who has a controlling financial interest in the VIE. The Company assesses whether it isconsolidates the primary beneficiary of a VIE or the holder of a significant variable interest in a VIE on an on-going basis for each such interest.

Certain Risksfinancial position and Uncertainties

The Company faces intense gaming competition in most of the markets where its properties operate. Certain states are currently considering or implementing legislation to legalize or expand gaming. Such legislation presents potential opportunities for the Company to establish new properties; however, this also presents potential competitive threats to the Company’s existing properties. For example, the Company’s facility in Charles Town, West Virginia which generates approximately 10% or more of our net revenues has faced new sources of significant competition. Namely, Hollywood Casino at Charles Town Races has faced increased competition from the Baltimore, Maryland market, which includes Maryland Live!, Horseshoe Casino Baltimore and MGM National Harbor. Additionally, recent gaming expansion in Pennsylvania has authorized up to 10 additional gaming licenses for category 4 facilities which can have between 300 and 750 slot machines and up to 40 table games. We have secured one of these licenses that will be placed in York County. However, this location is anticipated to increase competition for our Hollywood Casino at Penn National Racecourse. Additionally, licenses have been awarded to competitors whose placement of a new facility is anticipated to compete with our Hollywood Gaming at Mahoning Valley Race Course.

The Company’s operations are dependent on its continued licensing by state gaming commissions. The loss of a license, in any jurisdiction in which the Company operates, could have a material adverse effect on future results of operations.

The Company is dependent on each gaming property’s local market for a significant number of its patrons and revenues. If economic conditions in these areas deteriorate or additional gaming licenses are awarded in these markets, the Company’s results of operations couldof every VOE in which it has a controlling financial interest and VIEs in which it is considered to be adversely affected.

The Company is dependent on the economy of the U.S.primary beneficiary. See Note 7, “Investments in general, and any deterioration in the national economic, energy, credit and capital markets could have a material adverse effect on future results of operations.

The Company is dependent upon a stable gaming and admission tax structure in the locations that it operates in. Any change in the tax structure could have a material adverse affect on future results of operations.

4.NewAdvances to Unconsolidated Affiliates.”


Note 3—New Accounting Pronouncements

Accounting Pronouncements Implemented in 2017

2020

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurements of Credit Losses on Financial Instruments” (“ASU 2016-13”), which sets forth a “current expected credit loss” (referred to as “CECL”) model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. We adopted ASU 2016-13 during the first quarter of 2020 using a modified retrospective approach, which resulted in a cumulative-effect adjustment to retained earnings of $0.6 million as of January 2017,1, 2020.
In August 2018, the FASB issued ASU No. 2017-04 “Intangibles – Goodwill and Other (Topic 350):  Simplifying2018-15, “Customer’s Accounting for Implementation Cost Incurred in a Cloud Computing Arrangement That Is a Service Contract” (“ASU 2018-15”). Under the Test for Goodwill Impairment.”  This new guidance, removed step twocustomers apply the same criteria for capitalizing implementation costs as they would for an arrangement that has a software license. This will result in certain implementation costs being capitalized; the associated amortization charge will, however, be recorded as an operating expense. Under the previous guidance, costs incurred when implementing a cloud computing arrangement deemed to be a service contract were recorded as an operating expense when incurred. We adopted ASU 2018-15 during the first quarter of the goodwill impairment test and specifies that an entity will recognize an impairment loss for the amount by2020 using a prospective approach, which did not have a reporting unit’s carrying amount exceeds its fair value.  The Company has elected to early adopt this change in accounting principle effective July 1, 2017.  The new standard has been applied to interim period goodwill impairment tests completed as of September 30,

material impact on our Consolidated Financial Statements.

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2017 as well as to the Company’s annual impairment test at October 1, 2017.  See Note 8 “Goodwill Impairment” for the disclosure of our impairment analysis.

In March 2016,December 2019, the FASB issued ASU No. 2016-09, “Compensation2019-12, “Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), which intends to simplify the guidance by removing certain exceptions to the general principles and clarifying or amending existing guidance. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. We elected to early adopt ASU 2019-12 during the third quarter of 2020 on a prospective basis, which did not have a material impact on our Consolidated Financial Statements.

In January 2020, the FASB issued ASU No. 2020-01, “Investments - Stock CompensationEquity Securities (Topic 718): Improvements to Employee Share-Based Payment Accounting.”  The amendments are intended to improve321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the accounting for employee share-based paymentsInteractions between Topic 321, Topic 323, and affect all organizations that issue share-based payment awards to their employees.  Several aspects of the accounting for share-based payment award transactions are simplified, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows.  The Company adopted this change in accounting principle effective January 1, 2017.  As a result of adopting the changeTopic 815” (“ASU 2020-01”), which made targeted improvements to accounting for financial instruments, including providing an entity the ability to measure certain equity securities without a readily determinable fair value at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Among other topics, ASU 2020-01 clarifies that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting. ASU 2020-01 is effective for fiscal
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years beginning after December 15, 2020, and interim periods within those fiscal years with early adoption permitted. The Company's early adoption of ASU 2020-01 did not have a material impact on our Consolidated Financial Statements.
In October 2020, the FASB issued ASU No. 2020-10, “Codification Improvements,” (“ASU 2020-10”) which updates various codification topics by clarifying or improving disclosure requirements to align with the SEC’s regulations. ASU 2020-10 is effective for fiscal years beginning after December 15, 2020 with early adoption permitted. The Company's early adoption of ASU 2020-10 did not have a material impact on our Consolidated Financial Statements.
Accounting Pronouncements to be Implemented
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”). ASU 2020-04 provides optional expedient and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. In response to the concerns about structural risks of interbank offered rates and, particularly, the risk of cessation of the London Interbank Offered Rate (referred to as “LIBOR”), regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction-based and less susceptible to manipulation. ASU 2020-04 also provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. ASU 2020-04 can be adopted no later than December 1, 2022 with early adoption permitted. The interest rates associated with the Company’s borrowings under its Senior Secured Credit Facilities (as defined in Note 11, “Long-term Debt”) are tied to LIBOR. The Company is currently evaluating the impact of the adoption of ASU 2020-04 on our Consolidated Financial Statements.
In August 2020, The FASB issued ASU No. 2020-06, “Debt—Debt with Conversion and Other Options (Topic 470) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Topic 814): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”). ASU 2020-06 eliminates the number of accounting models used to account for convertible debt instruments and convertible preferred stock. The update also amends the disclosure requirements for convertible instruments and EPS in effort to increase financial reporting transparency. ASU 2020-06 will be effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of ASU 2020-06 on our Consolidated Financial Statements.
A variety of proposed or otherwise potential accounting standards are currently being studied by standard-setting organizations and certain regulatory agencies. Because of the tentative and preliminary nature of such proposed standards, we have not yet determined the effect, if any, that the implementation of such proposed standards would have on our Consolidated Financial Statements.

Note 4—Hurricane Laura

On August 27, 2020, Hurricane Laura made landfall in Lake Charles, Louisiana, which caused significant damage to our L’Auberge Lake Charles property and closure of the property for approximately two weeks. The Company maintains insurance, subject to certain deductibles and coinsurance, for the repair or replacement of assets that suffered loss and provides coverage for interruption to our business, including lost profits.
As of December 31, 2020, the Company recorded a receivable of $23.0 million relating to our estimate of repairs and maintenance costs which have been incurred as well as identified property and equipment which have been written off for which we deem the recovery of such costs from our insurers to be probable. The insurance recovery receivable is included in “Receivables” within the Consolidated Balance Sheets. As we deem it is probable that the proceeds to be recovered from our insurers exceeds the total of our insurance recovery recorded and our insurers’ deductible and coinsurance, we did not record any loss associated with the impact of this natural disaster.
Additionally as of December 31, 2020, we continue to be in the process of performing our due diligence in an effort to quantify the claim amount under the policy that will be submitted to the insurers. During the fourth quarter we received $47.5 million of insurance proceeds from our insurers representing upfront payments related to our anticipated policy claim. Timing differences are likely to exist between the recognition of (i) impairment losses and capital expenditures made to repair or restore the assets and (ii) the receipt of insurance proceeds within the Consolidated Financial Statements.
We will record proceeds in excess of the recognized losses and lost profits under our business interruption insurance as a gain contingency in accordance with ASC 450, “Contingencies,” which we expect to recognize at the time of final settlement or when nonrefundable cash advances are made in a period subsequent to December 31, 2020.
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The following table summarizes the financial impact of Hurricane Laura related matters:
(in millions)For the year ended December 31, 2020
Insurance Proceeds$47.5 
Deductible$15.0 
Coinsurance$2.5 
Clean-up and Restoration Costs$47.1 
Fixed Asset Write-off$23.2 
Inventory Write-off$0.2 
Insurance Receivable$23.0 
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Note 5—Revenue Disaggregation
We generate revenues at our owned, managed or operated properties principally by providing the following types of services: (i) gaming, including iGaming and online sportsbook; (ii) food and beverage; (iii) hotel; (iv) reimbursable management costs; and (v) other. Other revenues are principally comprised of ancillary gaming-related activities, such as commissions received on ATM transactions, racing, and Penn Interactive’s social gaming. In addition, we assess our revenues based on geographic location of the related properties, which is consistent with our reportable segments (seeNote 18, “Segment Information,” for further information). Our revenue disaggregation by type of revenue and geographic location was as follows:


For the year ended December 31, 2020
(in millions)NortheastSouthWestMidwestOther
Intersegment Eliminations (1)
Total
Revenues:
Gaming$1,495.1 $684.0 $194.2 $615.2 $62.7 $(0.1)$3,051.1 
Food and beverage68.9 76.9 46.0 32.0 0.6 0 224.4 
Hotel17.4 64.3 46.4 18.7 0 0 146.8 
Other57.9 24.4 15.9 15.5 61.7 (19.0)156.4 
Total revenues$1,639.3 $849.6 $302.5 $681.4 $125.0 $(19.1)$3,578.7 

For the year ended December 31, 2019
(in millions)NortheastSouthWestMidwestOther
Intersegment Eliminations (1)
Total
Revenues:
Gaming$2,117.1 $831.1 $374.3 $938.1 $8.8 $(0.7)$4,268.7 
Food and beverage155.1 154.1 116.7 84.7 1.4 0 512.0 
Hotel43.5 98.2 125.9 43.4 0 0 311.0 
Other84.2 35.5 25.6 28.3 37.3 (1.2)209.7 
Total revenues$2,399.9 $1,118.9 $642.5 $1,094.5 $47.5 $(1.9)$5,301.4 

For the year ended December 31, 2018
(in millions)NortheastSouthWestMidwestOtherTotal
Revenues:
Gaming$1,644.2 $302.9 $228.0 $719.8 $0 $2,894.9 
Food and beverage109.6 56.6 89.6 57.9 1.1 314.8 
Hotel23.2 23.3 90.8 26.3 0 163.6 
Reimbursable management costs46.8 0 10.5 0 0 57.3 
Other67.7 11.6 19.0 19.7 39.3 157.3 
Total revenues$1,891.5 $394.4 $437.9 $823.7 $40.4 $3,587.9 

(1)     Represents the elimination of intersegment revenues associated with our Barstool-branded and internally-branded retail sportsbooks, which are operated by Penn Interactive, and our live and televised poker tournament series that operates under the trade name, Heartland Poker Tour (“HPT”).











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Note 6—Acquisitions and Dispositions
Greektown Casino-Hotel
On May 23, 2019, the Company acquired all of the membership interests of Greektown Holdings, L.L.C., for a net purchase price of $320.3 million, after working capital and other adjustments, pursuant to a transaction agreement among the Company, VICI Properties L.P., a wholly-owned subsidiary of VICI, and Greektown Mothership LLC. In connection with the acquisition, the real estate assets relating to Greektown were acquired by a subsidiary of VICI for an aggregate sales price of $700.0 million and the Company entered into the Greektown Lease, which has an initial annual rent of $55.6 million and an initial term of 15 years, with 4 five-year renewal options. The acquisition of the operations was financed through a combination of cash on hand and incremental borrowings under the Company’s Revolving Credit Facility (as defined in Note 11, “Long-term Debt”).
During the first quarter of 2020, the Company finalized the allocation of the purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed which resulted in no measurement period adjustments for the year ended December 31, 2020. The fair value is as follows:
(in millions)Fair value
Cash and cash equivalents$31.1 
Receivables, prepaid expenses, and other current assets14.5 
Property and equipment28.4 
Goodwill (1)
67.4 
Other intangible assets
Gaming license166.4 
Trademark24.4 
Customer relationships3.3 
Operating lease right-of-use assets516.1 
Finance lease right-of-use assets4.1 
Other assets0 
Total assets$855.7 
Accounts payable, accrued expenses and other current liabilities$15.2 
Operating lease liabilities516.1 
Finance lease liabilities4.1 
Total liabilities535.4 
Net assets acquired$320.3 
(1)The goodwill has been assigned to our Northeast segment. The entire $67.4 million goodwill amount is deductible for tax purposes.

The Company used the income, taxes,market, or cost approach (or a combination thereof) for the valuation, as appropriate, and used valuation inputs in these models and analyses that were based on market participant assumptions. Market participants are considered to be buyers and sellers unrelated to the Company in the principal or most advantageous market for the asset or liability. Property and equipment acquired consists of non-REIT assets (e.g., equipment for use in gaming operations, furniture and other equipment). We determined that the land and buildings subject to the Greektown Lease, which was entered into at the time of the acquisition, represented operating lease ROU assets with a corresponding operating lease liability calculated based on the present value of the future lease payments at the acquisition date in accordance with GAAP. Management determined the fair value of its office equipment, computer equipment and slot machine gaming devices based on the market approach and other personal property based on the cost approach, supported where available by observable market data, which includes consideration of obsolescence.
Acquired identifiable intangible assets consist of a gaming license and a trademark, which are both indefinite-lived intangible assets, and customer relationships, which is an amortizing intangible asset with an assigned useful life of 2 years. Management valued (i) the gaming license using the Greenfield Method under the income approach; (ii) the trademark using the relief-from-royalty method under the income approach; and (iii) customer relationships (rated player databases) using the
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with-and-without method of the income approach. All valuation methods are forms of the income approach supported by observable market data for peer casino operator companies. See Note 2, “Significant Accounting Policies,” for more information.
The following table includes the financial results of Greektown from the acquisition date through December 31, 2019, which is included within our Consolidated Statements of Operations and Comprehensive Income (Loss) for the year ended December 31, 2017,2019:
(in millions)Period from May 23, 2019 through December 31, 2019
Revenues$195.9 
Net income$10.9 
Margaritaville Resort Casino
On January 1, 2019, the Company recognizedacquired the operations of Margaritaville for a net purchase price of $122.9 million, after working capital and other adjustments, pursuant to (i) an incomeagreement and plan of merger (the “Margaritaville Merger Agreement”) among the Company, VICI, Bossier Casino Venture (HoldCo), Inc. (“Holdco”), and Silver Slipper Gaming, LLC, and (ii) a membership interest purchase agreement (the “MIPA”) among VICI and the Company.
Pursuant to the MIPA, HoldCo sold its interests in its sole direct subsidiary and owner of the Margaritaville operating assets, to the Company. In connection with the acquisition, the real estate assets used in the operations of Margaritaville were acquired by VICI for $261.1 million and the Company entered into the Margaritaville Lease, which has an initial annual rent of $23.2 million and an initial term of 15 years, with 4 five-year renewal options. The acquisition of the operations was financed through incremental borrowings under the Company’s Revolving Credit Facility.
During the fourth quarter of 2019, the Company finalized the allocation of the purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed, with the excess recorded as goodwill as follows:
(in millions)Fair value
Cash and cash equivalents$10.7 
Receivables, prepaid expenses, and other current assets7.0 
Property and equipment20.7 
Goodwill (1)
44.2 
Other intangible assets
Gaming license48.1 
Customer relationships2.3 
Operating lease right-of-use assets196.2 
Total assets$329.2 
Accounts payable, accrued expenses and other current liabilities$10.1 
Operating lease liabilities196.2 
Total liabilities206.3 
Net assets acquired$122.9 
(1)The goodwill has been assigned to our South segment. The entire $44.2 million goodwill amount is deductible for tax benefit of $6.3 million related to excess tax deductions that would have previously been recognized as additional paid in capital within Total Shareholders’ equity (deficit).  purposes.
The Company did not recordused the income, market, or cost approach (or a cumulative effect adjustment to retained earnings due to having a full valuation allowance against all deferred tax assets at January 1, 2017.  Deferred tax assets andcombination thereof) for the valuation, allowance increased by $15.4 million at January 1, 2017as appropriate, and used valuation inputs in these models and analyses that were based on market participant assumptions. Market participants are considered to be buyers and sellers unrelated to the Company in the principal or most advantageous market for the tax effect previously unrecognizedasset or liability. Property and equipment acquired consists of non-REIT assets (e.g., equipment for excess tax deductions.  The Company has elected to presentuse in gaming operations, furniture and other equipment). We determined that the change in classification of excess /(deficient) tax deductions from a financing activity to an operating activity within its consolidated statement of cash flows on a retrospective basis.  The impactland and buildings subject to the comparative periodMargaritaville Lease, which was entered into at the time of the acquisition, represented operating lease ROU assets with a corresponding operating lease liability calculated based on the present value of the future lease payments at the acquisition date in accordance with GAAP. Management determined the fair value of its office equipment, computer equipment and slot machine gaming devices based on the market
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approach and other personal property based on the cost approach, supported where available by observable market data, which includes consideration of obsolescence.

Acquired identifiable intangible assets consist of a gaming license, which is an indefinite-lived intangible asset, and a customer relationship, which is an amortizing intangible asset with an assigned useful life of 2 years. Management valued (i) the gaming license using the Greenfield Method under the income approach and (ii) the customer relationships using the with-and-without method of the income approach. All valuation methods are forms of the income approach supported by observable market data for peer casino operator companies. See Note 2, “Significant Accounting Policies,” for more information.
The following table includes the financial results of Margaritaville from the acquisition date through December 31, 2019, which is included within our Consolidated Statements of Operations and Comprehensive Income (Loss) for the year ended December 31, 2016 and 2015 was an increase to net cash provided by operating activities of $6.9 million and $14.8 million, respectively, and a decrease in net cash provided by (used in) financing activities of $6.9 million and $14.8 million, respectively.  The Company has also made an accounting policy election to account for forfeitures when they occur which had no cumulative effect to retained earnings.  Finally, effective January 1, 2017,2019:
(in millions)For the year ended December 31, 2019
Revenues$157.6 
Net income$13.7 
Pinnacle Acquisition
On October 15, 2018, the Company adoptedacquired all of the change related to diluted EPS onoutstanding shares of Pinnacle, for a prospective basis such that the net benefit/ (deficiency) attributable to taxes is no longer includedtotal purchase price of $2,816.2 million, which consisted of (i) a cash payment of $20.00 per share of Pinnacle common stock, totaling $1,252.2 million; (ii) issuance of Penn National common stock in the computationamount of assumed proceeds.

New Accounting Pronouncements to be Implemented in$749.7 million; and (iii) the fiscal year 2018

retirement of $814.3 million of Pinnacle debt obligations. In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” amending revenue recognition guidance and requiring more detailed disclosures to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The core principle of Topic 606 is that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017 . Additional ASUs have been issued that are part of the overall new revenue guidance including: (i) ASU No. 2016-08, “Principal versus Agent Considerations (Reporting Revenue Gross versus Net)”, (ii) ASU No. 2016-10, “Identifying Performance Obligations and Licensing”, (iii) ASU No. 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts” and, (iv) ASU No. 2016-12, “Narrow Scope Improvements and Practical Expedients”, which clarified guidance on certain items such as reporting revenue as a principal or agent, identifying performance obligations, accounting for fixed odds wagering contracts associatedconjunction with the Company’s racing operations, accounting for intellectual property licenses and accessing collectability and presentation of sales tax.  Management has completed its assessment of the impact of the new standard on the Company’s consolidated financial statements and has elected to adopt Topic 606 using the modified retrospective method on January 1, 2018.  As a result of the adoption, the following areas that are expected to result in significant changes to the Company’s accounting are: 

(1)

The new standard will change the accounting for loyalty points which are earned by our customers. The Company’s loyalty reward programs allow members to utilize their rewards membership card to earn loyalty points that are redeemable for slot play and complimentaries such as food and beverages at our restaurants and products offered at our retail stores across the vast majority of the Company’s casino properties. The estimated liability for unredeemed points is currently accrued based on expected redemption rates and the estimated costs of the services or merchandise to be provided.  Under the new standard, the Company will use a deferred revenue model and defer revenue at the estimated fair value

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when the loyalty points are earned by our customers and recognize revenue when the loyalty points are deemed.  The deferred revenue liability is based on the estimated standalone selling price of the loyalty points earned after factoring in the likelihood of redemption.  The modification will result in a cumulative-effect adjustment to opening retained earnings, with an insignificant change to revenue on a go-forward basis. At the January 1, 2018 adoption date, we expect to record a reduction to the opening balance of retained earnings of approximately $11.4 million on a pre-tax basis, and an increase to accrued expenses. 

(2)

The new standard will change the accounting for promotional allowances.  The Company will no longer be permitted to report revenue for goods and services provided to customers for free as an inducement to gamble as gross revenue with a corresponding reduction in promotional allowances to arrive at net revenues.  Under the new standard, amounts will be recorded as a reduction to gaming revenues, and promotional allowances will no longer be netted on our consolidated statements of operations.  

Additionally,Pinnacle Acquisition, the Company has identified and implemented changes to its accounting policies and practices, business processes, and controls to support the new revenue recognition standard. The Company is continuing its assessment of potential changes to our disclosures under the new guidance internally and through following the AICPA Revenue Recognition Task for Gaming Entities.

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Clarification of Certain Cash Receipts and Cash Payments.”  The amendments are intended to address diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows.  The amendments provide guidance on the following specific cash flow issues: (a) debt prepayment or debt extinguishment costs; (b) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; (c) contingent consideration payments made after a business combination; (d) proceeds from the settlement of insurance claims; (e) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (f) distributions received from equity method investees; (g) beneficial interest in securitization transactions; and (h) separately identifiable cash flows and application of the predominance principle.  The new guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017.  The Company plans to adopt this new guidance on January 1, 2018 on a retrospective basis. The Company does not expect the adoption to have a material impact on our consolidated financial statements.

In October 2016, the FASB issued ASU No. 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.” The new guidance requires that entities recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs, rather than when the asset is sold to an outside party. The new guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. The new guidance requires adoption on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption.  The Company does not expect the adoption to have a material impact on our consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business,” in an effort to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The new guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017 and will be adopted on a prospective basis.

In May 2017, the FASB issued ASU No. 2017-09, “Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting”, which clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as a modification. The new guidance requires the application of modification accounting if the value, vesting conditions or classification of the award changes. The new guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017 and will be adopted on a prospective basis.

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New Accounting Pronouncements to be Implemented in fiscal year 2019

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” which will require, among other items, lessees to recognize a right-of-use asset and a lease liability for most leases. Extensive quantitative and qualitative disclosures, including significant judgments made by management, will be required to provide greater insight into the extent of expenses recognized and expected to be recognized from existing contracts. The accounting applied by a lessor is largely unchanged from that applied under the current standard. The standard must be adopted using a modified retrospective transition approach and provides for certain practical expedients. In January 2018, the FASB issued ASU No. 2018-1, “Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842,” that provides an optional transitional practical expedient regarding land easements. The new guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted.   Management has not yet completed its assessment of the impact of the new standard on the Company’s consolidated financial statements, however, the Company has numerous operating leases which, under the new standard, will need to be reported as an asset and a liability on our consolidated balance sheet.  The precise amount of this asset and liability will be determined based on the leases that exist at the Company on the date of adoption. The adoption of this standard is expected to have a material impact on our consolidated financial statements as the Company has significant operating lease commitments that are off-balance sheet in accordance with current U.S. GAAP.

5.Acquisitions and Other Recent Business Ventures

Anticipated Acquisition of Pinnacle

On December 18, 2017, Penn announced that it had entered into a definitive agreement under which it will acquire Pinnacle in a cash and stock transaction valued at approximately $2.8 billion. Under the terms of the agreement, Pinnacle shareholders will receive $20.00 in cash and 0.42 shares of Penn common stock for each Pinnacle share.

Coincident with the closing of the merger, we plan to divestdivested the membership interests of certain Pinnacle subsidiaries, which operateoperated the casinos known as Ameristar Casino Resort Spa St. Charles, (Missouri), Ameristar Casino Hotel Kansas City, (Missouri), Belterra Casino Resort (Indiana), and Belterra Park (Ohio)(referred to collectively as the “Divested Properties”), to Boyd Gaming Corp (“Boyd”) for approximately $575 million in cash. These divestitures are anticipated to occur immediately prior to, and are conditioned upon, the completionCorporation (NYSE: BYD). Additionally, as a part of the transaction, GLPI acquired the real estate assets associated with Plainridge Park Casino, and concurrently leased back such assets to the Company. In connection with the sale of the Divested Properties and the Plainridge Park Casino Sale-Leaseback, the Pinnacle acquisition. Additionally, atMaster Lease, which was assumed by the Company concurrent with the closing of the merger, (i) GLPI will acquirePinnacle Acquisition, was amended. The Pinnacle Acquisition added 12 gaming properties to our holdings and provided us with greater operational scale and geographic diversity. For more information on the real estate associated with the Plainridge Park Casino for $250 million, and concurrently it will be leased back to Penn pursuant to the amended Pinnacle master lease for a fixed annual rent of $25 million and (ii) GLPI will acquire the real estate assets of Belterra Park from Penn for approximately $65 million, which subsequently will be included in an amended master lease between GLPI and Boyd.  The amended Pinnacle Master Lease will be adjustedand related amendment, see Note 12, “Leases.”

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During the third quarter of 2019, the Company finalized the allocation of the purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed, with the excess recorded as goodwill as follows:
(in millions)Fair value
Cash and restricted cash$124.2 
Assets held for sale667.5 
Other current assets81.1 
Property and equipment - non-Pinnacle Master Lease318.6 
Property and equipment - Pinnacle Master Lease (1)
3,954.9 
Goodwill (2)
238.2 
Other intangible assets
Gaming licenses1,067.6 
Trademarks298.0 
Customer relationships22.4 
Other long-term assets38.9 
Total assets$6,811.4 
Long-term financing obligation, including current portion (3)
$3,432.5 
Current liabilities206.1 
Deferred income taxes340.0 
Other long-term liabilities16.6 
Total liabilities3,995.2 
Net assets acquired$2,816.2 
(1)Includes buildings, boats, vessels, barges, and implied land and land use rights. Land use rights represent the intangible value of the Company’s ability to utilize and access land associated with long term ground lease agreements that give the Company the exclusive rights to operate the casino gaming facilities associated with such agreements.
(2)See Note 9, “Goodwill and Other Intangible Assets,” for incremental rentdetails on the impact to each reportable segment.
(3)Long-term financing obligation, including current portion represents the financing obligation associated with Pinnacle Master Lease, as amended.
Pro Forma Financial Information - Greektown, Margaritaville, and Pinnacle
The following table includes unaudited pro forma consolidated financial information assuming our acquisitions of $13.9 millionGreektown and Margaritaville had occurred as of January 1, 2018 and Pinnacle had occurred as of January 1, 2017. The pro forma financial information does not represent the anticipated future results of the combined company. The pro forma amounts include the historical operating results of Penn National, Greektown, Margaritaville, and Pinnacle, prior to adjustthe acquisition, with adjustments directly attributable to market conditions.the acquisitions, inclusive of adjustments for acquisition costs. The acquisition is expectedbelow pro forma results do not include any adjustments related to close in the second half of 2018.

synergies.

For the year ended December 31,
(in millions)20192018
Revenues$5,434.9 $5,552.2 
Net income (loss)$64.9 $101.9 
1stJackpot Casino and Resorts

Casino Tunica

On May 1, 2017, the Company acquired RIH Acquisitions MS I, LLC and RIH Acquisitions MS II, LLC, the holding companies for the gaming operations of 1st Jackpot Casino and Resorts inCasino Tunica, Mississippi, for total cash considerationa net purchase price of $47.0 million. The Company is operating both of these casino properties and it leasesIn connection with the underlyingacquisitions, the real estate associated with these two businesses fromassets relating to 1st Jackpot Casino and Resorts Casino Tunica were acquired by GLPI with a total initial annual paymentfor an aggregate sales price of $9.0$82.6 million subject to the provisionsand included in the terms of thePenn Master Lease. The underlying real estate leased from GLPI has been accounted for as a financing obligation, which is included in the total consideration for the transaction and increased the

Resorts Casino Tunica ceased operations on June 30, 2019.

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Company’s Master Lease financing obligation by $82.6 million at the acquisition date, which represents the purchase price GLPI paid for the underlying real estate assets.

The preliminary purchase price allocation has resulted in $35.9 million of goodwill which is deductible for tax purposes.  Property and equipment under the Master Lease is comprised of buildings and improvements and land rights that are amortized on a straight-line basis over thirty-one years.  This time period represents the remaining life of the Master Lease with GLPI, including renewal options that are reasonably assured of being exercised.  Additionally, prior to the acquisition date, the Company incurred transaction costs $1.0 million, which were reported in general and administrative expenses for the year ended December 31, 2017.  This acquisition was not material to the Company’s consolidated financial statements.

May 1, 2017

Cash

$ 6,725

Other current assets

2,735

Property and equipment - non-master lease

8,368

Property and equipment - master lease

82,603

Goodwill

35,929

Other intangible assets

851

Total Assets

$ 137,211

Current portion of financing obligation

$ 1,968

Accrued expenses

2,931

Accrued salaries and wages

3,256

Other current liabilities

1,448

Long-term financing obligation

80,635

Total liabilities

$ 90,238

Cash paid

46,973

Total consideration transferred

$ 137,211

DSG Amusements and Advantage Gaming

On February 1, 2017 and June 1, 2017, the Company acquired 100% of the assets of DSG Amusements, Ltd. (‘DSG”), and Advantage Gaming, LLC (“Advantage”) for $1.9 million and $2.1 million, respectively, in all cash transactions.  The transactions were funded by revolving commitments under the Company’s amended senior secured credit facility.  The results of DSG and Advantage have been included in the Company’s consolidated financial statements since the acquisition dates.  The Company’s preliminary purchase price allocations included $0.7 million in goodwill and $3.7 million in other intangible assets related to acquired customer contracts, as a result of these transactions.  The goodwill recognized for these two transactions is deductible for tax purposes.  The acquisitions of DSG and Advantage did not materially impact the 2017 consolidated results of operations.

Rocket Speed, Inc.

On August 1, 2016, the Company acquired 100% of the outstanding equity securities of social casino game developer, Rocket Speed, Inc. (f/k/a Rocket Games, Inc., (“Rocket Speed”)), for initial cash consideration of $60.5 million subject to customary working capital adjustments.  The Stock Purchase Agreement included contingent consideration payments over the next two years that were based on a multiple of 6.25 times Rocket Games’ then-trailing twelve months of earnings before interest, taxes, depreciation and amortization, subject to a cap of $110 million.  Up to $10 million of the contingent consideration was accounted for as compensation as it was tied to continued employment

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over a two year period. The acquisition was funded by Penn with cash on hand and revolving commitments under the Company’s senior secured credit facility.  The fair value of the contingent purchase price was estimated to be $34.4 million at the acquisition date based on an income approach by applying an option pricing method to the Company’s internal earning projections using a Monte Carlo simulation.  This acquisition complemented Penn’s interactive gaming strategy through its wholly-owned subsidiary Penn Interactive Ventures which is included in the Other category. The purchase price allocation is detailed in the table below (in thousands).  Current assets includes $4.1 million of cash acquired.

During the third quarter of 2017, Penn Interactive Ventures reached an agreement with the former shareholders of Rocket Speed to buy out the two year contingent purchase price consideration which resulted in a benefit to general and administrative expense in the amount of $22.2 million.

August 1, 2016

Current assets

$ 7,738

Fixed assets

235

Goodwill

67,164

Other intangible assets

35,383

Other assets

73

Total assets

$ 110,593

Current liabilities

$ 5,350

Deferred taxes

10,268

Other liabilities

100

Total liabilities

15,718

Cash paid

60,489

Contingent purchase price

34,386

Total consideration transferred

$ 110,593

Developed technology intangible

$ 17,969

User base intangible

11,563

Non-compete agreements intangible

5,851

Other intangible assets

$ 35,383

The developed technology intangible represents the intellectual property embodied by the developed, completed gaming apps of Rocket Speed as of the acquisition date.  The Company used a multiple period excess earnings model under the income approach to estimate the fair value for this intangible asset and are amortizing the asset over four years on an accelerated basis.  The user base intangible asset represents the estimated value of the acquired customer database. The Company used a replacement cost method to estimate the fair value for this intangible asset and are amortizing it on an accelerated basis over two years.  Non-compete agreements limit specific employees from competing in related businesses.  The Company used a with-and-without method under the income approach to estimate the fair value for this intangible asset and will amortize it over four years consistent with the length of the agreements.

The acquisition of Rocket Speed resulted in an increase the Company’s reported net revenues of $17.3 million for the year ended December 31, 2016.  Additionally, prior to the acquisition date, the Company incurred transactions costs of $1.0 million, which were reported in general and administrative expenses for the year ended December 31, 2016.

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Slot Kings and Bell Gaming

On October 3, 2016 and November 1, 2016, the Company acquired 100% of the assets of Slot Kings, LLC and Bell Gaming, LLC for $17.1 million and $10.8 million, respectively, in all cash transactions.  The transactions were funded by revolving commitments under the Company’s existing senior secured credit facility.  The results of Slot Kings and Bell Gaming have been included in the Company’s consolidated financial statements since the acquisition dates.  The Company’s purchase price allocations included $10.5 million in goodwill and $16.6 million in other intangible assets related to acquired customer contracts, as a result of these transactions.  The goodwill recognized for these two transactions is deductible for tax purposes.  The acquisitions of Slot Kings and Bell Gaming did not materially impact the 2016 consolidated results of operations.

Tropicana Las Vegas

On August 25, 2015, the Company acquired 100% of Tropicana Las Vegas Hotel and Casino in Las Vegas, Nevada from Trilliant Gaming Nevada, Inc. for the purchase price of $357.7 million.  The purchase price for this cash transaction was funded by revolving commitments under the Company’s existing senior secured credit facility and approximately $280 million of incremental commitments under an amended senior secured credit facility.  The results of the Tropicana Las Vegas facility have been included in the Company’s consolidated financial statements since the acquisition date. The purchase price allocation is detailed in the table below (in thousands). Current assets includes $8.0 million of cash acquired.

Tropicana Las Vegas, located on the strip in Las Vegas, Nevada, is situated on a 35-acre land parcel at the corner of Tropicana Boulevard and Las Vegas Boulevard. The resort features 1,183,984 of property square footage with 775 slot machines and 36 table games. Tropicana Las Vegas offers 1,470 guest rooms, a sports book, three full services restaurants, a food court, a 1,200-seat performance theater, a 300-seat comedy club, over 100,000 square feet of exhibition and meeting space, and a five-acre tropical beach event area and spa.  The Company believes this acquisition fulfilled our strategic objective of obtaining a presence on the Las Vegas Strip.

August 25, 2015

Current assets

$ 15,966

Property and equipment, net

365,492

Goodwill

14,821

Other assets

4,553

Total assets

$ 400,832

Current liabilities

$ 25,755

Other liabilities

17,417

Total liabilities

43,172

Cash paid / total consideration transferred

357,660

Prairie State Gaming

On September 1, 2015, the Company acquired 100% of Prairie State Gaming from The Robert H. Miller Trust and Illinois Funding, LLC in an all cash transaction.  The transaction was funded by revolving commitments under the Company’s existing senior secured credit facility.  The results of Prairie State Gaming have been included in the Company’s consolidated financial statements since the acquisition date. The Company recorded $22.9 million and $15.7 million in goodwill and other intangible assets, respectively, from this transaction.

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Prairie State Gaming is one of the largest slot-route operators in Illinois with operations that included, at the time of acquisition, more than 1,100 video gaming terminals across a network of 270 bar and retail gaming establishments throughout Illinois.  The Company intends to leverage its gaming experience, relationships, and purchasing power to improve Prairie State Gaming’s performance and expand its network.

The unaudited pro forma financial information for the periods set forth below gives effect to the 2015 acquisitions described above as if they had occurred as of January 1, 2015.  This incorporates the impacts on depreciation and amortization expense resulting from the Company’s purchase accounting adjustments to the acquired assets and liabilities. The pro forma results for the 2017 and 2016 acquisitions are not materially different than reported results.  The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisitions been consummated as of that time (in thousands):

Pro Forma Financial Information (Unaudited)

 

 

 

 

Year ended December 31,

    

2015

Net Revenues

 

$

3,154,848

Income from continuing operations

 

 

540,992

The acquisitions of Tropicana Las Vegas and Prairie State Gaming resulted in an increase to the Company’s reported net revenues of $57.3 million and a decrease of $3.0 million to income from continuing operations for the year ended December 31, 2015.  Additionally, prior to the acquisition dates, the Company incurred transaction costs of $1.9 million, which were reported in general and administrative expenses for the year ended December 31, 2015.

Jamul Indian Village

On Development Corporation

In April 5, 2013, the Company announced that, subject to final National Indian Gaming Commission approval, it and the Jamul Tribe, hada federally recognized Indian Tribe holding a government-to-government relationship with the U.S., entered into definitive agreements to assist the Jamul Tribe in the development of a Hollywood Casino‑branded
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Casino-branded casino on the Jamul Tribe’s trust land in San Diego County, California. TheIn addition, the definitive agreements were entered into to: (i) secure the development, management, and branding services of the Company to assist the Jamul Tribe during the pre‑development and entitlement phase of the project; (ii)a related loan commitment letter set forth the terms and conditions under which the Company willwould provide a loan or loans to the JIVDCJamul Indian Village Development Corporation (the “JIVDC”) to fund certain development costs; and (iii) create an exclusive arrangement betweencosts. Following the parties.

The Jamul Tribe is a federally recognized Indian Tribe holding a government-to-government relationship with the U.S. through the U.S. Department of the Interior’s Bureau of Indian Affairs and possessing certain inherent powers of self-government. The Jamul Tribe is the beneficial owner of approximately six acres of reservation land located within the exterior boundaries of the State of California held by the U.S. in trust for the Jamul Tribe (the “Property”).  The Jamul Tribe exercises jurisdiction over the Property pursuant to its powers of self-government and consistent with the resolutions and ordinances of the Jamul Tribe.  The arrangement between the Jamul Tribe andopening, the Company providesalso managed the Jamul Tribe with the expertise, knowledge and capacity of a proven developer and operator of gaming facilities and provides the Company with the exclusive right to administer and oversee planning, designing, development, construction management, and coordination during the development and construction of the project as well as the management of a gaming facility on the Property.

The Company considered whether the arrangement with the Jamul Tribe represents a variable interest that should be accounted for pursuant to the VIE subsections of ASC 810. The Company noted that the scope and scope exceptions of ASC 810-10-15-12(e) states that a reporting entity shall not consolidate a government organization or financing entity established by a government organization (other than certain financing entities established to circumvent

property.

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the provisions of the VIE subsections of ASC 810).  Based on the status of the Tribe as a government organization, the Company concluded its arrangement with the Jamul Tribe is not within the scope defined by ASC 810.

Hollywood Casino Jamul – San Diego is a three-story gaming and entertainment facility of approximately 200,000 square feet featuring 1,731 slot machines, 40 live table games, multiple restaurants, bars and lounges and a partially enclosed parking structure with over 1,800 spaces.  In mid-January 2014, the Company announced the commencement of construction activities at the site.  The facility opened to the public on October 10, 2016. The Company provided a portion of the financing to the JIVDC in connection with the project and, following the opening, has managed and provided branding for the casino.

The Company is accounting for the development agreement and related loan commitment letter with the JIVDC as a loan (the “Loan”) with accrued interest in accordance with ASC 310, “Receivables.”  The Loan represented advances made by the Company to the JIVDC for the development and construction of a gaming facility for the Jamul Tribe on reservation land.  As such, the Jamul Tribe owns the casino and its related assets and liabilities. Repayment of funds advanced to the Jamul Tribe is primarily predicated on cash flows from the operations of the facility. 

In December 2015, the Company entered into an agreement to purchase a $60 million subordinated note from the previous developer of the Jamul Indian Village project for $24 million.  Interest on this subordinated note, as of the effective date and at all times thereafter until the Loans has been paid in full, shall accrue as follows: as of the effective date, no interest shall accrue initially; at the opening date, interest shall accrue at a simple fixed rate of 4.25% per annum.  The subordinated note is subordinated to the Loan, and payments on the subordinated note may only be made after all necessary payments are made on the Loan subject to certain limitations.  The Company recorded the subordinated Note at its acquisition price of $24 million, which was considered to be its fair value. The Company has concluded that the $24 million carrying value, which is recorded within other assets on the consolidated balance sheet at December 31, 2015, represents the expected cash flows to be received. As described below, this subordinated note was repaid in connection with the Jamul Tribe refinancing of its existing indebtedness and the Company received a $6 million premium which was accounted for as an origination fee on our new loan with the JIVDC. 

On October 20, 2016, the JIVDC obtained long termlong-term secured financing, consisting of revolving and term loan credit facilities (the “Credit Facilities”) totaling approximately $460 million.  The Credit Facilities, all of which are due in 2022, consist of a $5 million revolving credit facility, a $340 million term loan B facility and a $98 million term loan C facility.  Thefacility (the “Term Loan C Facility” and collectively with the revolving credit facility was provided by various commercial banks;and the term loan B facility, is held by an affiliate of Och-Ziff Real Estate; and the term loan C facility is held by the Company.“Credit Facilities”) totaling approximately $460.0 million. The Company will also provide up to an additional $15 millionwas the lender under the Term Loan C Facility in the amount of delayed draw term loan C commitments to fund certain roadway improvement costs.  The various Credit Facilities rank pari passu with each other.  However, if, on$98.0 million.

As of December 31, 2017, the first anniversaryJIVDC breached one of the opening of Hollywood Casino Jamul – San Diego (the “Casino”), the JIVDC has not achieved a senior secured net leverage ratio equal to or less than 5.0 to 1.0, then all or a portion of the term loan C facility will become subordinated to the other Credit Facilities to the extent necessary such that, after giving effect to such conversion, such senior secured net leverage ratio is 5.0 to 1.0.  The rights of the Company to receive management and license fees are subordinated to the claims of the lenders underfinancial covenants contained within the Credit Facilities, and are subject to certain conditions containedresulting in the Credit Facilities.

The Company was repaid on October 20, 2016, a net amount of approximately $274 million (consisting of reimbursements totaling approximately $372 million less funds advanced of $98 million) of the advances to the JIVDC for the development and construction of the property as well as previously purchased Jamul Tribal debt.

As a condition to the availability of the Credit Facilities,default. Consequently, the Company provided a limited completion guarantee, in favorperformed an analysis of the administrative agent under the Credit Facilities, to provide up to $15 million of additional loans related to the construction and opening of the Casino, as well as certain post opening construction costs.  The term loan C facility bears interest at LIBOR plus 8.50% with a 1% LIBOR floor (or, at the JIVDC’s election, a base rate determined by reference to the prime rate, the federal funds effective rate or LIBOR, as applicable, plus 7.50%), and the subordinated loans will bear interest at 14.0% (with 12.0% to be paid in cash and 2.0% to be paid-in-kind).

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The Company is accounting for its term loan C with the JIVDC as a loan (the “Loan”) in accordance with ASC 310, “Receivables.”  The Loan represents advances made by the Company to the JIVDC for the development and construction of Hollywood Casino Jamul-San Diego for the Jamul Tribe on reservation land.  As such, the Jamul Tribe owns the casino and its related assets and liabilities. Repayment of the Loan is primarily predicated on cash flows from the operations of the facility.

Although Hollywood Casino Jamul San-Diego opened to strong business and earnings volumes in October 2016, which met our expectations, results began to soften earlier and with a steeper drop-off than anticipated.  As a result, we concluded the Loan was impaired at December 31, 2016 and at all time periods subsequent to this date.  A loan is considered impaired when, based on current information, events and projections, it is probable that the Company will be unable to collect the scheduled payments of principal and/or interest when contractually due under the terms of the loan agreement.  The fair value of the Loan is not observable, nor secured by any significant levels of collateral.  Therefore, the Loan is not measured using a practical expedient (observable market rate of interest or fair value of collateral) under ASC 310-10.  As such, an impairment charge is being recorded to the extent the present value of expected future cash flows it would receive based on forecasted operations of the property, discounted at the loan’sTerm Loan C Facility’s effective interest rate, exceeds the carrying amount of the loan.  The Company records interest income on a cash basis to the extent a reserve is not required for the impaired loan. 

At June 30, 2017, the JIVDC was effectively in breach of a financial covenant requirement with respect to debt to earnings ratios.  At September 30, 2017, the JIVDC was in active negotiations with its lenders to modify certain terms of its loan agreements including the elimination of its June 30, 2017 financial covenant requirement.  Amended terms that were negotiated during the three months ended December 31, 2017, were not accepted by the Jamul Tribe.  The JIVDC is currently in default on its obligations and our Loan is fully subordinated to the other lenders that have extended credit to the JIVDC.

In late February 2018, the Company and the Jamul Tribe mutually agreed that Pennas well as any concessions it would no longer manage the facility or provide branding and development services on May 28, 2018. The company will provide a transition that it anticipates will last through approximately late May.  The Company performed a comprehensive analysis of the future cash flows that we expect to receive on the Loan based upon our best estimates of the operations of the facility and the concessions we will grant to the JIVDC. The expected cash flows to be received by the Company on the Loan were then discounted at the Loan’s effective interest rate in accordance with ASC 310 which was less than its carrying value at December 31, 2017.  Therefore,As a result of such analysis, the Company recorded a charge of $86.0 million in the consolidated statements of operation for the year ended December 31, 2017, (see table below for allowance for loan losses balance).  The unpaid principal balance of the Loan at December 31, 2017 and December 31, 2016 was $98.3which $64.0 million and $98.0 million, respectively.  The net carrying value of the Loan totaled $20.9 million and $92.1 million at December 31, 2017 and December 31, 2016, respectively.  The Company’s remaining exposure at December 31, 2017 was $27.9 million inclusive of future unfunded commitments on the Loan.

 

 

 

 

 

 

 

 

 

Allowance

 

Reserve for unfunded

 

 

 

for loan loss

 

loan commitments (1)

 

 

 

 

 

 

 

 

Balance at January 1, 2017

$

 -

$

 

 -

 

Provisions

 

64,052

 

 

21,996

 

Balance at December 31, 2017

$

64,052

$

 

21,996

 

 

 

 

 

 

 

 

(1) Amount is reflected in other non-current liabilities on the Consolidated Balance Sheets

 

 

 

 

 

 

In additionpertained to the reserves above,Term Loan C Facility and $22.0 million was a reserve for unfunded loan commitments. In addition, the Company recorded charges of $3.8 million related to certain advances made to the JIVDC.

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TableIn February 2018, the Company and the Jamul Tribe mutually agreed that the Company would no longer manage the property nor provide branding and development services as of Contents

Plainridge Racecourse Acquisition

In September 2013,May 28, 2018. On May 25, 2018, the Company entered into an option anda purchase agreement to purchase Plainridge Racecourse in Massachusetts, with the sellers having no involvementsenior lender under the Credit Facilities for the property to sell them all of the Company’s outstanding rights and obligations under the Term Loan C Facility and the JIVDC commitments. As a result, the Company received cash proceeds of $15.2 million from the sale and was relieved of all rights and obligations with respect to the JIVDC. The sale of the loan resulted in a recovery of loan losses and unfunded loan commitments of $17.0 million for the year ended December 31, 2018.


Tropicana Las Vegas
On April 16, 2020, we sold the real estate assets associated with our Tropicana property to GLPI in exchange for rent credits of $307.5 million that we began utilizing to pay rent under our existing Master Leases and the Meadows Lease in May 2020. Contemporaneous with the sale, the Company entered into the Tropicana Lease (as defined and discussed in Note 12, “Leases”). Pursuant to the purchase agreement, GLPI will conduct a sale process with respect to both the real estate assets and the operations of Tropicana for up to 24 months (the “Sale Period”), with the Company receiving (i) 75% of the proceeds above $307.5 million plus certain taxes, expenses and costs if an agreement for such sale is signed in the business or operations from that date forward.  The Company subsequently began to operate Plainridge Racecourse effective January 1, 2014 pursuant to a temporary operations agreement. On February 28, 2014, the Massachusetts Gaming Commission awarded the Company a Category Two slots-only gaming license, and in early March 2014, the Company exercised its option to purchase Plainridge Racecourse. This acquisition reflects the continuing effortsfirst 12 months of the Company to expand its gaming operations through the development of new gaming properties. The fixed portionSale Period or (ii) 50% of the purchase price was paid on April 11, 2014.  The optionproceeds above $307.5 million plus certain taxes, expenses and purchasecosts if an agreement also contained contingent purchase price consideration thatfor such sale is calculated based onsigned in the actual earningsremainder of the gaming operations overSale Period.
We recognized a gain on this transaction of $29.8 million during the first ten years of gaming operations, which commenced on June 24, 2015.  The first payment was made 60 days after the completion of the first four full fiscal quarters of operation, and subsequent payments will be made every year for nine years after the first payment. The fair value of this liability was determined to be $21.3 million, $10.7 million, and $13.8 million atended December 31, 2017, 2016 and 2015, respectively, based on an income approach from the Company’s internal earning projections and was discounted at a rate consistent with the risk a third party market participant would require holding the identical instrument as an asset. This liability2020, which is included in other current“General and administrative” within our Consolidated Statements of Operations and Comprehensive Income (Loss).

Morgantown
On October 1, 2020, we sold the land underlying our Morgantown development project to GLPI in exchange for rent credits of $30.0 million. Contemporaneous with the sale, the Company entered into a triple net lease with GLPI for the land underlying Morgantown (as defined and discussed in Note 12, “Leases”).
As of December 31, 2020, we had utilized all of the rent credits pertaining to the Tropicana and Morgantown transactions which totaled $337.5 million (see Note 12, “Leases”).
Hollywood Casino Perryville
On December 15, 2020, the Company entered into a definitive agreement with GLPI to purchase the operations of Hollywood Casino Perryville for $31.1 million. The transaction is expected to close during the second or third quarter of 2021, subject to approval of the Maryland Lottery and Gaming Control Commission and other non-current liabilities oncustomary closing conditions. Simultaneous with the consolidated balance sheet.  At each reporting period,closing of the Company assessestransaction, we would lease the fair valuereal estate assets associated with Hollywood Casino Perryville from GLPI with initial annual rent of this obligation and changes$7.8 million per year subject to escalation.
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Note 7—Investments in its value are recorded in earnings.  The amount included in general and administrative expense related to the change in fair value of this obligation was a charge of $12.5 million, and a reduction of $1.3 million and $5.4 million for the years ended December 31, 2017, 2016 and 2015, respectively. In August 2016 and 2017, the first and second payment of $1.8 million and $2.0 million was made for the contingent purchase price.

6.Investment In and Advances to Unconsolidated Affiliates

As of December 31, 2017, investment2020 and 2019, investments in and advances to unconsolidated affiliates primarily includedconsisted of the Company’s approximate 36% interest in Barstool Sports; its 50% investment in Kansas Entertainment, which is a joint venturethe JV with International Speedway Corporation (“International Speedway”),NASCAR that owns Hollywood Casino at Kansas Speedway; its 50% interest in Freehold Raceway,Raceway; and its 50% joint ventureJV with MAXXAM, Inc. (“MAXXAM”) that owns and operates racetracks in Texas.These investments
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. The purchase price primarily consisted of $135.0 million in cash and $23.1 million in shares of a new class of non-voting convertible preferred stock of the Company (as discussed below). Within the three years after the closing of the transaction or earlier at our election, we will increase our ownership in Barstool Sports to approximately 50% by purchasing approximately $62.0 million worth of additional shares of Barstool Sports common stock, consistent with the implied valuation at the time of the initial investment, which was $450.0 million. With respect to the remaining Barstool Sports shares, we have immediately exercisable call rights, and the existing Barstool Sports stockholders have put rights exercisable beginning three years after closing, all based on a fair market value calculation at the time of exercise (subject to a cap of $650.0 million and a floor of 2.25 times the annualized revenue of Barstool Sports, all subject to various adjustments).
On February 20, 2020, the Company issued 883 shares of Series D Preferred Stock, par value $0.01 per share (the “Series D Preferred Stock”) to certain individual stockholders affiliated with Barstool Sports. 1/1,000th of a share of Series D Preferred Stock is convertible into one share of Penn Common Stock. The Series D Preferred Stock will be entitled to participate equally and ratably in all dividends and distributions paid to holders of Penn Common Stock based on the number of shares of Penn Common Stock into which such Series D Preferred Stock could convert. Series D Preferred Stock is nonvoting stock. The Series D Preferred Stock issued to certain individual stockholders affiliated with Barstool Sports will be available for conversion into Penn Common Stock in tranches over the next four years as stipulated in the stock purchase agreement, with the first 20% tranche available for conversion into Penn Common Stock in the first quarter of 2021. As of December 31, 2020, none of the Series D Preferred Stock can be converted into Penn Common Stock.
As a part of the stock purchase agreement, we entered into a commercial agreement that provides us with access to Barstool Sports’ customer list and exclusive advertising on the Barstool Sports platform over the term of the agreement. The initial term of the commercial agreement is ten years and, unless earlier terminated and subject to certain exceptions, will automatically renew for 3 additional ten-year terms (a total of 40 years assuming all renewals are more fully described below.

exercised). As of December 31, 2020 we have an amortizing intangible asset pertaining to the customer list of $1.6 million and a prepaid expense pertaining to the advertising in the amount of $16.5 million, of which $15.4 million is classified as long-term. The long-term portion of the prepaid advertising expense is included in “Other assets” within our Consolidated Balance Sheets.

As of December 31, 2020, our investment in Barstool Sports was $147.5 million, which is inclusive of $3.4 million of costs we incurred to close the transaction. 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 December 31, 2020. The Company did not consolidate its investment in Barstool Sports as of and for the year ended December 31, 2020 as the Company determined that it did not qualify as the primary beneficiary of Barstool Sports either at the commencement date of its investment or for the subsequent period ended December 31, 2020, primarily as a result of the Company not having the power to direct the activities of the VIE that most significantly affect Barstool Sports’ economic performance.
Kansas Joint Venture

The Company has a 50%

As of December 31, 2020 and 2019, our investment in Kansas Entertainment which owns the Hollywood Casino at Kansas Speedway. Hollywood Casino at Kansas Speedway is a Hollywood-themed facility, which features 244,791 of property square footage with 2,000 slot machines, 41 table games and 12 poker tables, a 1,253 space parking structure, as well as a variety of dining and entertainment facilities. As of December 31, 2017 and 2016, the Company’s investment balance was $88.3$85.2 million and $93.8$90.8 million, respectively. During the years ended December 31, 2017, 2016,2020, 2019 and 2015,2018, the Company received distributions from Kansas Entertainment totaling $26.0$20.0 million, $25.8$29.0 million and $27.2$27.0 million, respectively, which the Company deemed to be returns on its investment based on the source of those cash flows from the normal business operations of Kansas Entertainment.

The Company

As of the years ended December 31, 2020 and 2019, we determined that Kansas Entertainment qualifieddoes not qualify as a VIE at December 31, 2017 and 2016. The Company didVIE. Using the guidance for entities that are not consolidate its investment in Kansas Entertainment asVIEs, the Company determined that it did not qualifyhave a controlling financial interest in the JV as the primary beneficiary of Kansas Entertainment at, and for the years ended December 31, 20172020 and 2016,2019, primarily as it did not have the ability to direct the activities
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Table of Kansas EntertainmentContents
of the JV that most significantly impacted Kansas Entertainment’sthe JV’s economic performance without the approvalinput of International Speedway. In addition,NASCAR. Therefore, the Company determined that International Speedway had substantive participating rightsdid not consolidate its investment in Kansas Entertainment at,the JV as of and for the years ended December 31, 20172020 and 2016.

2019.

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For the year ended December 31, 2017, the Company’s investment in Kansas Entertainment met the requirements of S-X Rule 4-08(g) to provide summarized financial information. The following table provides summary income statementsummarized balance sheet and results of operations information forrelated to Kansas Entertainment as required under S-X Rule 1-02(bb) for the comparative periods in the Company’s consolidated balance sheets and consolidated statementsour share of operations (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31,

 

 

2017

    

2016

    

2015

Current assets

 

$

18,452

 

$

16,638

 

$

16,550

Noncurrent assets

 

$

165,801

 

$

176,050

 

$

195,010

Current liabilities

 

$

17,861

 

$

15,351

 

$

14,544

 

 

 

 

 

 

 

 

 

 

 

 

For the twelve months ended December 31,

 

 

2017

    

2016

    

2015

Net revenues

 

$

155,636

 

$

152,926

 

$

153,407

Operating expenses

 

 

114,681

 

 

121,006

 

 

122,828

Income from operations

 

 

40,955

 

 

31,920

 

 

30,579

Net income

 

$

40,955

 

$

31,920

 

$

30,579

 

 

 

 

 

 

 

 

 

 

Net income attributable to Penn

 

$

20,478

 

$

15,960

 

$

15,290

In addition to the assessment performed by the Company of itsincome from unconsolidated affiliates from our investment in Kansas Entertainment under the requirements of S-X Rule 4-08(g), the Company also assessed its investment in Kansas Entertainment under the requirements of S-X Rule 3-09(b) for the year ended December 31, 2017,Entertainment:

December 31,
(in millions)20202019
Current assets$14.7 $21.5 
Long-term assets$151.4 $159.2 
Current liabilities$10.2 $13.5 
For the year ended December 31,
(in millions)202020192018
Revenues$104.2 $162.3 $159.0 
Operating expenses75.5 101.3 110.4 
Operating income28.7 61.0 48.6 
Net income$28.7 $61.0 $48.6 
Net income attributable to Penn National$14.4 $30.5 $24.3 
Texas and determined it was required to provide the audited financial statements of Kansas Entertainment. The consolidated financial statements of Kansas Entertainment for the years ended June 30, 2017, 2016 and 2015 are provided as exhibits to this document to comply with this rule.

TexasNew Jersey Joint Venture

Ventures

The Company has a 50% interest in a joint ventureJV with MAXXAM, which owns and operates the Sam Houston Race Park in Houston, Texas and the Valley Race Park in Harlingen, Texas, and holds a license for a racetrack in Austin, Texas. During the first quarter of 2020, principally due to on-going negative operating results of these racetracks, we recorded an other-than-temporary impairment on our investment in the JV of $4.6 million, which is included in “Impairment losses” within our Consolidated Statements of Operations and Comprehensive Income (Loss). Sam Houston Race Park hosts thoroughbred and quarter horsequarter-horse racing and offers daily simulcast operations, and Valley Race Park features dog racing and simulcasting.

In addition, through a separate arrangement, the Company has a 50% interest in a JV with Greenwood, which owns and operates Freehold Raceway, in Freehold, New Jersey. The Companyproperty features a half-mile standardbred racetrack and a grandstand. 

As of December 31, 2020 and 2019, we determined that theneither our Texas joint venture did notJV nor our New Jersey JV qualify as a VIE at December 31, 2017 and 2016.VIE. Using the guidance for entities that are not VIEs, in both cases, the Company determined that it did not have a controlling financial interest in either of the joint venture at,JVs as of and for the years ended December 31, 20172020 and 2016,2019, primarily as it did not have the ability to direct the activities of either of the joint ventureJVs that most significantly impacted the joint venture’sJVs’ economic performance without the input of MAXXAM.MAXXAM or Greenwood, respectively. Therefore, the Company did not consolidate either of its investment in the joint venture at,JVs as of and for the years ended December 31, 20172020 and 2016.

New Jersey Joint Venture

Through its joint venture with Greenwood Limited Jersey, Inc. (“Greenwood”), the Company owns 50% of Freehold Raceway, located in Freehold, New Jersey. The property features a half-mile standardbred race track and a  grandstand.

The Company determined that the New Jersey joint venture did not qualify as a VIE at December 31, 2017 and 2016. 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 at, and for the years ended December 31, 2017 and 2016, 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

2019.

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performance without the input of Greenwood. Therefore, the Company did not consolidate its investment in the joint venture at,Note 8—Property and for the years ended December 31, 2017 and 2016.

7.Property and Equipment

Property and equipment, net, consistsconsisted of the following:

 

 

 

 

 

 

 

 

December 31,

    

December 31,

 

December 31,

 

2017

 

2016

 

 

(in thousands)

 

 

 

 

 

 

 

 

Property and equipment - non-master lease

 

 

 

 

 

 

 

Land and improvements

 

$

294,695

 

$

294,590

 

Building and improvements

 

 

429,015

 

 

404,158

 

(in millions)(in millions)20202019
Property and equipment - Not Subject to Master LeasesProperty and equipment - Not Subject to Master Leases
Land and improvements (1)
Land and improvements (1)
$105.6 $353.2 
Building, vessels and improvements (1)
Building, vessels and improvements (1)
205.4 420.4 

Furniture, fixtures and equipment

 

 

1,385,889

 

 

1,355,615

 

Furniture, fixtures and equipment1,620.4 1,598.3 

Leasehold improvements

 

 

130,801

 

 

118,940

 

Leasehold improvements219.5 183.6 

Construction in progress

 

 

15,617

 

 

16,375

 

Construction in progress89.8 59.3 

 

 

2,256,017

 

 

2,189,678

 

 2,240.7 2,614.8 

Less Accumulated depreciation

 

 

(1,345,147)

 

 

(1,224,596)

 

Less: Accumulated depreciation(1)
Less: Accumulated depreciation(1)
(1,559.0)(1,548.3)

 

 

910,870

 

 

965,082

 

 681.7 1,066.5 

Property and equipment - master lease

 

 

 

 

 

 

 

Property and equipment - Subject to Master LeasesProperty and equipment - Subject to Master Leases

Land and improvements

 

 

424,700

 

 

382,246

 

Land and improvements1,523.2 1,525.9 

Building and improvements

 

 

2,258,577

 

 

2,219,018

 

Building, vessels and improvementsBuilding, vessels and improvements3,640.3 3,664.6 

 

 

2,683,277

 

 

2,601,264

 

 5,163.5 5,190.5 

Less accumulated depreciation

 

 

(837,478)

 

 

(745,963)

 

Less: Accumulated depreciationLess: Accumulated depreciation(1,315.9)(1,136.8)

 

 

1,845,799

 

 

1,855,301

 

 3,847.6 4,053.7 

Property and equipment, net

 

$

2,756,669

 

$

2,820,383

 

Property and equipment, net$4,529.3 $5,120.2 

(1)On April 16, 2020, we sold real estate assets associated with our Tropicana property to GLPI. See Note 6, Acquisitions and Dispositions.

Depreciation expense was as follows:
For the year ended December 31,
(in millions)202020192018
Depreciation expense (1)
$336.9 $381.6 $251.9 
(1)Of such amounts, $156.1 million, $158.9 million, and $112.1 million, respectively, pertained to real estate assets subject to either of our Master Leases.
Hurricane Laura
In August 2020, Hurricane Laura made landfall in Lake Charles, Louisiana, which caused significant damage to our L’Auberge Lake Charles property. As a result, we wrote off property and equipment with a net book value of $23.2 million of which $2.1 million and $21.1 million was included in Property and equipment net decreased by $63.7 million primarily due– Not subject to depreciation expense partially offset by the acquisition of 1st JackpotMaster Lease, and Resorts, additional video gaming terminals at Prairie State Gaming as well as improvements at Tropicana Las Vegas, Hollywood Casino St. Louis, M ResortProperty and Hollywood Casino Lawrenceburg duringequipment – Subject to Master Leases, respectively.

Tropicana
During the year ended December 31, 2017.

Depreciation expense, for2020, we recorded $7.3 million of impairment on the property and equipment as well as capital leases, totaled $248.2 million, $261.9 million,associated with Tropicana, relating to the operating assets, which is included in “Impairment losses” within our Consolidated Statements of Operations and $258.9 million in 2017, 2016 and 2015. Depreciation expense onComprehensive Income (Loss). The charge was the Master Lease assets was $92.4 million, $91.1 million and $92.4 million forresult of an impairment assessment performed after reviewing the years ended December 31, 2017, 2016, and 2015 respectively. Interest capitalized in connection with major construction projects was $0.2 million, $0.1 million, and $1.8 million in 2017, 2016 and 2015, respectively.

projected results of this property over the remaining lease term contained within the Tropicana Lease.

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8.GoodwillNote 9—Goodwill and Other Intangible Assets

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

follows:

 

 

 

 

 

Balance at December 31, 2015

    

 

    

 

Goodwill

 

$

2,175,507

 

Accumulated goodwill impairment losses

 

 

(1,263,565)

 

Goodwill, net

 

$

911,942

 

Goodwill acquired

 

 

77,743

 

Balance at December 31, 2016:

 

 

 

 

Goodwill

 

$

2,253,250

 

Accumulated goodwill impairment losses

 

 

(1,263,565)

 

Goodwill, net

 

$

989,685

 

Goodwill acquired

 

 

36,598

 

Goodwill impairment losses

 

 

(18,026)

 

Other

 

 

(160)

 

Balance at December 31, 2017:

 

 

 

 

Goodwill

 

$

2,289,848

 

Accumulated goodwill impairment losses

 

 

(1,281,751)

 

Goodwill, net

 

$

1,008,097

 

(in millions)NortheastSouthWestMidwestOtherTotal
Balance as of January 1, 2019
Goodwill, gross$848.4 $185.2 $210.4 $1,110.1 $156.1 $2,510.2 
Accumulated goodwill impairment losses(707.6)(34.6)(16.6)(435.3)(87.7)(1,281.8)
Goodwill, net140.8 150.6 193.8 674.8 68.4 1,228.4 
Goodwill acquired during year67.4 44.2 0 0 0 111.6 
Impairment losses during year(10.3)(17.4)0 (60.3)0 (88.0)
Other (1)
(1.5)7.2 6.4 6.6 0 18.7 
Balance as of December 31, 2019
Goodwill, gross914.3 236.6 216.8 1,116.7 156.1 2,640.5 
Accumulated goodwill impairment losses(717.9)(52.0)(16.6)(495.6)(87.7)(1,369.8)
Goodwill, net196.4 184.6 200.2 621.1 68.4 1,270.7 
Impairment losses during year(43.5)(9.0)0 (60.5)0 (113.0)
Other (2)
0 0 0 0 (0.6)(0.6)
Balance as of December 31, 2020
Goodwill, gross914.3 236.6 216.8 1,116.7 155.5 2,639.9 
Accumulated goodwill impairment losses(761.4)(61.0)(16.6)(556.1)(87.7)(1,482.8)
Goodwill, net$152.9 $175.6 $200.2 $560.6 $67.8 $1,157.1 

(1)Amounts relate to adjustments made to the preliminary purchase price allocation of Pinnacle during the year ended December 31, 2019, prior to it being finalized.
(2)Amounts relate to the write-off of goodwill related to the land sale at Sanford Orlando Kennel Club which discontinued our racing operations. The Company’swrite-off of this goodwill was testedbalance is included as a component of the gain calculation recorded on the sale.

2020 Annual and Interim Assessment for Impairment
During the first quarter of 2020, we identified an indicator of impairment on our goodwill and other intangible assets due to the COVID-19 pandemic. As a result of the COVID-19 pandemic, we revised our cash flow projections to reflect the current economic environment, including the uncertainty surrounding the nature, timing and extent of reopening our gaming properties. As a result of the interim assessment for impairment, during the thirdfirst quarter (beforeof 2020, we recognized impairments on our goodwill, gaming licenses and trademarks of $113.0 million, $437.0 million and $61.5 million, respectively. The estimated fair values of the reporting units were determined through a combination of a discounted cash flow model and a market-based approach, which utilized Level 3 inputs. The estimated fair values of the gaming licenses and trademarks were determined by using discounted cash flow models, which utilized Level 3 inputs.
As noted in the table above, the goodwill impairments pertained to our Northeast, South and Midwest segments, in the amounts of $43.5 million, $9.0 million and $60.5 million, respectively. The gaming license impairments pertained to our Northeast, South and Midwest segments in the amounts of $177.0 million, $166.0 million and $94.0 million, respectively. The trademark impairments pertained to our Northeast, South, Midwest and West segments, in the amounts of $17.0 million, $17.0 million, $15.0 million and $12.5 million, respectively.
Upon reopening of our gaming facilities and throughout the fourth quarter of 2020 we undertook various initiatives to mitigate the impact of regulatory restrictions imposed as a result of the COVID-19 pandemic. We completed our annual assessment for impairment dateas of October 1, 2017) due2020, which did not result in any impairment charges to a significant deferred tax valuation allowance reversal which resulted in an increase togoodwill, gaming licenses and trademarks. The estimated fair values of the carrying amounts of some of its reporting units were determined through a combination of discounted cash flow models and as such, was determined to be a triggering event. In accordance with ASC 805 “Business Combinations”, the Company’s allocationmarket-based approach, which utilized Level 3 inputs. The estimated fair values of the purchase pricegaming licenses and trademarks were determined by using discounted cash flow models, which utilized Level 3 inputs.




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2019 Annual Assessment for Tropicana Las Vegas, which was acquired in August 2015, included a significant amount of net operating losses (“NOL’s”). The Company did not record deferred tax assets (“DTA”) of approximately $68 million at the acquisition date due to the recognition of a full valuation allowance at that time. The Company’s purchase price allocation resulted in goodwill of $14.8 million being created which would not have been recorded if we had been able to recognize a deferred tax asset. As of September 30, 2017, Tropicana Las Vegas failed the quantitative goodwill impairment test as we determined its fair value was less than its carrying value. Impairment
As a result of our 2019 annual assessment for impairment, we recognized impairments on our goodwill, gaming licenses, and trademarks, of $88.0 million, $62.6 million, and $20.0 million, respectively. The impairments of goodwill were largely driven by increases in the carrying amount of certain of our reporting units as a result of decreases in the allocated amount of the financing obligation to such reporting units, which was driven by the adoption of ASC 842. The impairments of gaming licenses and trademarks were largely driven by reductions in the long-term projections for certain of our properties where competition has increased due to expansion of gaming legislation, primarily within the Northeast segment. The estimated fair values of the reporting units were determined through a combination of discounted cash flow models and a market-based approach, which utilized Level 3 inputs. The estimated fair values of the gaming licenses and trademarks were determined by using discounted cash flow models, which utilized Level 3 inputs.

As noted in the table above, the goodwill impairments pertained to our Northeast, South and Midwest segments, in the amounts of $10.3 million, $17.4 million and $60.3 million, respectively. The gaming license impairments pertained to our Northeast and South segments in the amounts of $55.1 million and $7.5 million, respectively. The trademark impairments pertained to our Northeast, South and Midwest segments, in the amounts of $11.5 million, $6.5 million and $2.0 million, respectively.
2018 Annual Assessment for Impairment
During the year ended December 31, 2018, the Company determined that the goodwillcompleted its 2018 annual assessment for the Tropicana Las Vegas reporting unit was fully impaired and recorded an impairment, charge of $14.8 million within our South/West segment. Additionally, the Company’s Sanford Orlando Kennel Club reporting unit within our Other category failed the quantitative goodwill impairment test as of September 30, 2017, and, as such, a partial impairment charge of $3.2 million was recorded.

No goodwillwhich did not result in any impairment charges were recordedto goodwill or other intangible assets.

The aforementioned impairments for the years ended December 31, 20162020 and 2015.

Hollywood Casino2019 are included in “Impairment losses” within our Consolidated Statements of Operations and Comprehensive Income (Loss). See Note 19, “Fair Value Measurements,” for quantitative information about the significant unobservable inputs used in the fair value measurements of other intangible assets.

Carrying Values of Goodwill and Other Intangible Assets
As of October 1, 2020, the date of the most recent annual impairment test, 7 reporting units had negative carrying amounts. The amount of goodwill at Charles Town Races and Hollywood Casino at Penn National Race Course both within the Company’s Northeast segment and Argosy Casino Alton within the Company’s Midwest segment have negative

these reporting units was as follows (in millions):

112

Northeast segment
Hollywood Casino at Charles Town Races$8.7 
Hollywood Casino Toledo$5.8 
Plainridge Park Casino$6.3 
South segment
Ameristar Vicksburg$19.5 
Boomtown New Orleans$5.2 
West segment
Cactus Petes and Horseshu$10.2 
Midwest segment
Ameristar Council Bluffs$36.2 

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carrying values with allocated goodwill of $1.4 million, $1.5 million and $9.9 million, respectively. All three of these reporting units generate significant earnings and as such the Company does not believe impairment charges are required.

Indefinite‑life intangible assets consist primarily of gaming licenses. The table below presents the gross carrying value,amount, accumulated amortization, and net book valuecarrying amount of each major class of other intangible assets at December 31, 2017 and 2016:

assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2017

 

December 31, 2016

 

 

 

(in thousands)

 

 

    

Gross

    

 

 

    

 

 

    

Gross

    

 

 

    

 

 

 

 

 

Carrying

 

Accumulated

 

Net Book

 

Carrying

 

Accumulated

 

Net Book

 

 

 

Value

 

Amortization

 

Value

 

Value

 

Amortization

 

Value

 

Indefinite-life intangible assets

 

$

375,405

 

$

 —

 

$

375,405

 

$

375,405

 

$

 —

 

$

375,405

 

Other intangible assets

 

 

131,483

 

 

84,282

 

 

47,201

 

 

125,584

 

 

65,495

 

 

60,089

 

Total

 

$

506,888

 

$

84,282

 

$

422,606

 

$

500,989

 

$

65,495

 

$

435,494

 

December 31, 2020December 31, 2019
(in millions)Gross Carrying AmountAccumulated AmortizationNet Carrying AmountGross Carrying AmountAccumulated AmortizationNet Carrying Amount
Indefinite-lived intangible assets
Gaming licenses$1,246.1 $— $1,246.1 $1,681.9 $— $1,681.9 
Trademarks240.9 — 240.9 302.4 — 302.4 
Other0.7 — 0.7 0.7 — 0.7 
Amortizing intangible assets
Customer relationships106.9 (85.2)21.7 104.4 (69.0)35.4 
Other39.6 (35.5)4.1 36.1 (30.0)6.1 
Total other intangible assets$1,634.2 $(120.7)$1,513.5 $2,125.5 $(99.0)$2,026.5 

Total other intangible assets decreased by $12.9 million for

During the year ended December 31, 2017 primarily due to amortization of $18.92020 we paid $1.3 million partially offset by acquisitions of definite-lived other intangible assets related to Illinois slot operator acquisitions. Other intangible assets have a weighted average remaining amortization period of 4.9 years.

No other intangible asset impairment charges were recorded for the years ended December 31, 2017online and 2016.

Forretail sports betting licenses. During the year ended December 31, 2015,2019, we paid $10.0 million for online and retail sports betting licenses in Pennsylvania. During the Company recorded otheryear ended December 31, 2018, we purchased 2 Category 4 gaming licenses to operate up to 750 slot machines and initially up to 30 table games, under each license, in York County, Pennsylvania for $50.1 million and in Berks County, Pennsylvania for $7.5 million, and iGaming and sports betting licenses in Pennsylvania for $20.0 million, all of which have been classified as indefinite-lived intangible assets.

Amortization expense related to our amortizing intangible assets impairment charges of $40.0was $21.7 million, as of the valuation date of October 1, 2015 (the date of our annual impairment test), related to the write-off of our Plainridge Park Casino gaming license and a partial write-down of the gaming license at Hollywood Gaming at Dayton Raceway due to a reduction in the long term earnings forecast at both of these locations.

The Company’s intangible asset amortization expense was $18.9 million, $9.3$24.7 million, and $0.5$17.1 million for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively.

The following table presents expected intangible assetthe estimated amortization expense based on existingour amortizing intangible assets atas of December 31, 20172020 (in thousands)millions):

 

 

 

 

 

2018

    

$

13,614

 

2019

 

 

8,505

 

2020

 

 

5,844

 

2021

 

 

3,599

 

2022

 

 

3,596

 

Thereafter

 

 

12,043

 

Total

 

$

47,201

 

Years ending December 31:
2021$7.4 
20225.5 
20233.9 
20243.7 
20254.9 
Thereafter0.4 
Total$25.8 

113


Note 10—Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following:
December 31,
(in millions)20202019
Accrued salaries and wages$120.4 $142.1 
Accrued gaming, pari-mutuel, property, and other taxes75.0 103.3 
Accrued interest13.2 13.0 
Other accrued expenses (1)
229.1 225.8 
Other current liabilities (2)
137.4 147.1 
Accrued expenses and other current liabilities$575.1 $631.3 
(1)Amounts as of December 31, 2020 and 2019 include $40.8 million and $38.3 million, respectively, pertaining to the Company’s accrued progressive jackpot liability. Additionally, amounts include the obligation associated with its mychoice program and the current portion of advance payments on goods and services yet to be provided and for unpaid wagers, which are discussed in Note 2, “Significant Accounting Policies.”
(2)Amounts as of December 31, 2020 and 2019 include $86.3 million and $80.1 million, respectively, pertaining to the Company’s non-qualified deferred compensation plan that covers management and other highly-compensated employees.

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The Company’s remaining goodwill and other intangible assets by reporting unit at December 31, 2017 is shown below (in thousands):

Note 11—Long-term Debt

 

 

 

 

 

 

 

 

 

    

 

 

    

Total Intangible

 

Reporting Unit

 

Goodwill

 

Assets

 

Hollywood Casino St. Louis

 

$

205,783

 

$

58,418

 

Hollywood Casino Aurora

 

 

207,207

 

 

 —

 

Argosy Casino Riverside

 

 

154,332

 

 

4,964

 

Zia Park Casino

 

 

142,359

 

 

 —

 

Hollywood Gaming at Dayton Raceway

 

 

15,339

 

 

110,436

 

Hollywood Gaming at Mahoning Valley Race Course

 

 

 —

 

 

125,000

 

Penn Interactive Ventures

 

 

67,004

 

 

15,968

 

Hollywood Casino at Penn National Race Course

 

 

1,497

 

 

67,607

 

Prairie State Gaming

 

 

34,185

 

 

30,031

 

Hollywood Casino Lawrenceburg

 

 

63,189

 

 

 —

 

Hollywood Casino Tunica

 

 

44,042

 

 

 —

 

1st Jackpot Casino

 

 

35,929

 

 

567

 

Boomtown Biloxi

 

 

22,365

 

 

 —

 

Argosy Casino Alton

 

 

9,863

 

 

8,285

 

Plainridge Park Casino

 

 

3,052

 

 

 —

 

Hollywood Casino at Charles Town Races

 

 

1,354

 

 

 —

 

Others

 

 

597

 

 

1,330

 

Total

 

$

1,008,097

 

$

422,606

 

9.Long‑term Debt

Long‑termLong-term debt, net of current maturities, iswas as follows:

 

 

 

 

 

 

 

 

 

 

December 31,

    

December 31,

 

 

 

2017

 

2016

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

Senior secured credit facility

 

$

760,000

 

$

976,845

 

$300 million 5.875% senior unsecured notes due November 1, 2021

 

 

 —

 

 

300,000

 

$400 million 5.625% senior unsecured notes due January 15, 2027

 

 

400,000

 

 

 —

 

Other long-term obligations

 

 

119,310

 

 

154,084

 

Capital leases

 

 

891

 

 

1,760

 

 

 

 

1,280,201

 

 

1,432,689

 

Less current maturities of long-term debt

 

 

(35,612)

 

 

(85,595)

 

Less discount on senior secured credit facility Term Loan B

 

 

(2,558)

 

 

(620)

 

Less debt issuance costs

 

 

(27,406)

 

 

(16,535)

 

 

 

$

1,214,625

 

$

1,329,939

 

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December 31,
(in millions)20202019
Senior Secured Credit Facilities:
Revolving Credit Facility due 2023$0 $140.0 
Term Loan A Facility due 2023636.9 672.3 
Term Loan B-1 Facility due 2025991.2 1,117.5 
5.625% Notes due 2027400.0 400.0 
2.75% Convertible Notes due 2026330.5 0 
Other long-term obligations73.0 89.2 
2,431.6 2,419.0 
Less: Current maturities of long-term debt(81.4)(62.9)
Less: Debt discount(86.2)(2.4)
Less: Debt issuance costs(32.8)(31.5)
$2,231.2 $2,322.2 

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The following is a schedule of future minimum repayments of long-term debt as of December 31, 20172020 (in thousands)millions):

 

 

 

 

2018

    

$

35,612

 

2019

 

 

41,132

 

2020

 

 

49,324

 

Year ending December 31:Year ending December 31:

2021

 

 

51,994

 

2021$81.4 

2022

 

 

217,828

 

202299.9 
20232023543.1 
2024202421.3 
20252025946.8 

Thereafter

 

 

884,311

 

Thereafter739.1 

Total minimum payments

 

$

1,280,201

 

Total minimum payments$2,431.6 

Senior Secured Credit Facility

On October 30, 2013, the Company entered into a new senior secured credit facility. The new senior secured credit facility consists of a five year $500 million revolver, a five year $500 million Term Loan A facility, and a seven year $250 million Term Loan B facility. The Term Loan A facility was priced at LIBOR plus a spread (ranging from 2.75% to 1.25%) based on the Company’s consolidated total net leverage ratio as defined in the new senior secured credit facility. The Term Loan B facility was priced at LIBOR plus 2.50%, with a 0.75% LIBOR floor.

On April 28, 2015, the Company entered into an agreement to amend its senior secured credit facility.   In August 2015, the amendment to the senior secured credit facility went into effect increasing the capacity under an existing five year revolver from $500 million to $633.2 million and increased the existing five year $500 million Term Loan A facility by $146.7 million.  The seven year $250 million Term Loan B facility remained unchanged. 

Facilities

On January 19, 2017, the Company entered into an amendedagreement to amend and restated senior secured credit facility. The amended and restated senior securedrestate its Amended 2013 Credit Agreement (the “Credit Agreement”), which provided for: (i) a five-year $700.0 million revolving credit facility consists of(the “Revolving Credit Facility”); (ii) a five year $700 million revolver, a five year $300five-year $300.0 million Term Loan A facility (the “Term Loan A Facility”); and (iii) a seven year $500seven-year $500.0 million Term Loan B facility (the “Amended“Term Loan B Facility” and collectively with the Revolving Credit Facility and the Term Loan A Facility, the “Senior Secured Credit Facilities”).
On October 15, 2018, in connection with the Pinnacle Acquisition, we entered into an incremental joinder agreement (the “Incremental Joinder”), which amended the Credit Agreement (the “Amended 2017 Credit Agreement”). The Incremental Joinder provided for an additional $430.2 million of incremental loans having the same terms as the existing Term Loan A Facility, with the exception of extending the maturity date, and an additional $1,128.8 million of loans as a new tranche having new terms (the “Term Loan B-1 Facility”). The proceeds resulting from the Incremental Joinder were used; together with cash on hand and proceeds received from (i) newly-issued shares of the Company’s common stock, (ii) the sale of the Divested Properties, (iii) the Plainridge Park Casino Sale-Leaseback, and (iv) the sale of the real estate assets associated with Belterra Park; to (a) acquire all of the issued and outstanding equity interests of Pinnacle, (b) repay in full Pinnacle’s existing senior secured credit facilities at the time of the acquisition, (c) redeem, repurchase, defease or satisfy and discharge in full Pinnacle’s outstanding 5.625% senior notes due 2024, (d) repay in full the Company’s outstanding borrowings under its Term Loan B Facility at the time of the acquisition, and (e) pay fees, costs and expenses associated with the foregoing. With the exception of extending the maturity date, the Incremental Joinder did not impact the Revolving Credit Facility.
The final maturity dates for the Term Loan A Facility and Term Loan B-1 Facility are October 19, 2023 and October 15, 2025, respectively. The applicable margin for the Term Loan A Facility ranges from 1.25% to 3.00% per annum for LIBOR loans and 0.25% to 2.00% per annum for base rate loans, in each case depending on the Consolidated Total Net Leverage Ratio (as defined in the Amended 2017 Credit Agreement) as of the most recent fiscal quarter. The applicable margin for the Term Loan B-1 Facility is 2.25% per annum for LIBOR loans and 1.25% per annum for base rate loans. The Term Loan A facilityB-1 Facility
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is subject to a LIBOR “floor” of 0.75%. Prior to the Amended 2017 Credit Agreement and related extinguishment of the Term Loan B Facility, the applicable margin for the Term Loan B Facility was priced at2.50% per annum for LIBOR plusloans and 1.50% per annum for base rate loans. In addition, we pay a spread (ranging from 3.00% to 1.25%) basedcommitment fee on the Company’sunused portion of the commitments under the Revolving Credit Facility at a rate that ranges from 0.20% to 0.50% per annum, depending on the Consolidated Total Net Leverage Ratio as of the most recent fiscal quarter.

On April 14, 2020, the Company entered into a second amendment to its Credit Agreement with its various lenders (the “Second Amendment”) to provide for certain modifications. During the period beginning on April 14, 2020 and ending on the earlier of (x) the date that is two business days after the date on which the Company delivers a covenant relief period termination notice to the administrative agent and (y) the date on which the administrative agent receives a compliance certificate for the quarter ending March 31, 2021 (the “Covenant Relief Period”), the Company will not have to comply with any Maximum Leverage Ratio or Minimum Interest Coverage Ratio (as such terms are defined in the Amended 2017 Credit Agreement). During the Covenant Relief Period, the Company will be subject to a minimum liquidity covenant that requires cash and cash equivalents and availability under its Revolving Credit Facility to be (i) at least $400.0 million through April 30, 2020; (ii) $350.0 million during the period from May 1, 2020 through May 31, 2020; (iii) $300.0 million during the period from June 1, 2020 through June 30, 2020; and (iv) $225.0 million during the period from July 1, 2020 through March 31, 2021. We are required to maintain specified financial ratios and to satisfy certain financial tests when our covenant relief period terminates on March 31, 2021.
The Second Amendment also amended the financial covenants that are applicable after the Covenant Relief Period to permit the Company to (i) maintain a maximum consolidated total net leverage ratio as definedof up to a ratio that varies by quarter, ranging between 5.50:1.00 and 4.50:1.00 in 2021 and 4.25:1.00 thereafter, tested quarterly on a pro forma trailing twelve month (“PF TTM”) basis; (ii) maintain a maximum senior secured net leverage ratio of up to a ratio that varies by quarter, ranging between 4.50:1.00 and 3.50:1.00 in 2021 and 3.00:1.00 thereafter, tested quarterly on a PF TTM basis; and (iii) maintain an interest coverage ratio of 2.50:1.00, tested quarterly on a PF TTM basis.
In addition, the Second Amendment (i) provides that, during the Covenant Relief Period, loans under the Revolving Credit Facility and the Term Loan A Facility shall bear interest at either a base rate or an adjusted LIBOR rate, in each case, plus an applicable margin, in the new senior secured credit facility. The Term Loan B facility was pricedcase of base rate loans, of 2.00%, and in the case of adjusted LIBOR rate loans, of 3.00%; (ii) provides that, during the Covenant Relief Period, the Company shall pay a commitment fee on the unused portion of the commitments under the Revolving Credit Facility at LIBOR plus 2.50%, witha rate of 0.50% per annum; (iii) provides for a 0.75% LIBOR floor.  Atfloor applicable to all LIBOR loans under the Senior Secured Credit Facilities; (iv) carves out COVID-19 related effects from certain terms of the Senior Secured Credit Facilities during the Covenant Relief Period; and (v) makes certain other changes to the covenants and other provisions of the Credit Agreement.
As of December 31, 2017, the Company’s senior secured credit facility had a gross outstanding balance of $760.0 million, consisting of a $288.8 million Term Loan A facility2020 and a $471.2 million Term Loan B facility. The revolving credit facility had nothing drawn at December 31, 2017. Additionally, at December 31, 2017 and 2016,2019, the Company had conditional obligations under letters of credit issued pursuant to the senior secured credit facilitySenior Secured Credit Facilities with face amounts aggregating $22.1to $28.2 million and $23.0$30.0 million, respectively, resulting in $677.9$671.8 million and $419.1$530.0 million of available borrowing capacity as of December 30, 2017 and 2016, respectively, under the revolving credit facility. InRevolving Credit Facility, respectively.
During the fourth quarter of 2020, in connection with a prepayment of $115.0 million of outstanding borrowings on our Term Loan B-1 Facility, we recorded a $1.2 million loss on early extinguishment of debt, related to the write-off of debt issuance costs and debt discounts.
For the year ended December 31, 2018, in connection with the repayment ofdebt financing transactions relating to the previous senior secured credit facility,Pinnacle Acquisition and principal repayments on the Term Loan B Facility, the Company recorded $1.7$5.5 million in refinancing costs and a $2.3$21.0 million loss on the early extinguishment of debt, forrelated to refinancing costs on the year  ended December 31, 2017 related toextinguishment of the Term Loan B Facility and the write-off of deferred debt issuance costs and the discount on the Term Loan B facilityFacility. The refinancing costs are included in “Other,” as reported in ���Other income (expenses)” within our Consolidated Statements of the previous senior secured credit facility.

Operations and Comprehensive Income (Loss).

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

5.875% Senior Unsecured Notes

On October 30, 2013, the Company completed an offering of $300 million 5.875% senior unsecured notes that mature on November 1, 2021 (the “5.875% Notes”) at a price of par. Interest on the 5.875% Notes is payable on May 1 and November 1 of each year. The 5.875% Notes are senior unsecured obligations of the Company. The 5.875% Notes will not be guaranteed by any of the Company’s subsidiaries except in the event that the Company in the future issues

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certain subsidiary‑guaranteed debt securities. The Company may redeem the 5.875% Notes at any time, and from time to time, on or after November 1, 2016, at the declining redemption premiums set forth in the indenture governing the 5.875% Notes, together with accrued and unpaid interest to, but not including, the redemption date. Prior to November 1, 2016, the Company may redeem the 5.875% Notes at any time, and from time to time, at a redemption price equal to 100% of the principal amount of the 5.875% Notes redeemed plus a “make‑whole” redemption premium described in the indenture governing the 5.875% Notes, together with accrued and unpaid interest to, but not including, the redemption date. In addition, the 5.875% Notes may be redeemed prior to November 1, 2016 from net proceeds raised in connection with an equity offering as long as the Company pays 105.875% of the principal amount of the 5.875% Notes, redeems the 5.875% Notes within 180 days of completing the equity offering, and at least 60% of the 5.875% Notes originally issued remains outstanding.

The Company used the proceeds of the new senior secured credit facility, new 5.875% Notes, and cash on hand, to repay its previous senior secured credit facility, to fund the cash tender offer to purchase any and all of its previously issued 83/4% senior subordinated notes (“83/4% Notes”)and the related consent solicitation to make certain amendments to the indenture governing the 83/4% Notes, to satisfy and discharge such indenture, to pay related fees and expenses and for working capital purposes.

Redemption of 5.875% Senior Subordinated Notes

In the first quarter of 2017, the Company redeemed all of its $300 million 5.875% senior subordinated notes, which were due in 2021 (“5.875% Notes”). In connection with this redemption, the Company recorded a $21.1 million loss on the early extinguishment of debt for the year ended December 31, 2017 related to the difference between the reacquisition price of the 5.875% Notes compared to its carrying value.

5.625% Senior Unsecured Notes


On January 19, 2017, the Company completed an offering of $400$400.0 million aggregate principal amount of 5.625% senior unsecured notes that mature on January 15, 2027 (the “5.625% Notes”) at a price of par. Interest on the 5.625% Notes is payable on January 15th15th and July 15th15th of each year. The 5.625% Notes are senior unsecured obligations of the Company. The 5.625% Notes will not be guaranteed by any of the Company’s subsidiaries except in the event that the Company in the future issues certain subsidiary‑guaranteedsubsidiary-guaranteed debt securities. The Company may redeem the 5.625% Notes at any time on or after January 15, 2022, at the declining redemption premiums set
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forth in the indenture governing the 5.625% Notes, and, prior to January 15, 2022, at a “make-whole” redemption premium set forth in the indenture governing the 5.625% Notes.

2.75% Unsecured Convertible Notes
In addition, prior to January 15,May 2020, the Company completed a public offering of $330.5 million aggregate principal amount of 2.75% unsecured convertible notes that mature, unless earlier converted, redeemed or repurchased, on May 15, 2026 (the “Convertible Notes”) at a price of par. After lender fees and discounts, net proceeds received by the Company were $322.2 million. Interest on the Convertible Notes is payable on May 15th and November 15th of each year, beginning on November 15, 2020.
The Convertible Notes are convertible into shares of the Company’s common stock at an initial conversion price of $23.40 per share, or 42.7350 shares, per $1,000 principal amount of notes, subject to adjustment if certain corporate events occur. However, in no event will the conversion exceed 55.5555 shares of common stock per $1,000 principal amount of notes. As of December 31, 2020, the maximum number of shares that could be issued to satisfy the conversion feature of the Convertible Notes is 18,360,815 and the amount by which the Convertible Notes if-converted value exceeded its principal amount was $1,255.3 million.
Prior to February 15, 2026, at their election, holders of the Convertible Notes may convert outstanding notes starting in the fourth quarter of 2020 if the trading price of the Company’s common stock exceeds 130% of the conversion price or, starting shortly after the issuance of the Convertible Notes, if the trading price per $1,000 principal amount of notes is less than 98% of the product of the trading price of the Company’s common stock and the conversion rate then in effect. The Convertible Notes may, at the Company’s election, be settled in cash, shares of common stock of the Company, or a combination thereof. The Company has the option to redeem the 5.625%Convertible Notes, with an amount equal toin whole or in part, beginning November 20, 2023.
In addition, the net proceeds from one or more equity offerings,Convertible Notes convert into shares of the Company’s common stock upon the occurrence of certain corporate events that constitute a fundamental change under the indenture governing the Convertible Notes at a redemptionpurchase price equal to 105.625%100% of the principal amount of the 5.625% Notes redeemed, together withthereof, plus accrued and unpaid interest to, but excluding, the date of repurchase. 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.
The Convertible Notes contain a cash conversion feature, and as a result, the Company has separated it into liability and equity components. The Company valued the liability component based on its borrowing rate for a similar debt instrument that does not including,contain a conversion feature. The equity component, which is recognized as debt discount, was valued as the redemption date, so long as at least 60%difference between the face value of the aggregate principal amountConvertible Notes and the fair value of the notes originally issued under the indenture remains outstanding and such redemption occurs within 180 days of closing of the relatedliability component. The equity offering.

The Company used a portion of the proceeds from thecomponent was valued at $91.8 million upon issuance of the 5.625%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 retire its existing 5.875%the liability component and the equity component in the amounts of $6.6 million and $3.6 million, respectively.

The Convertible Notes consisted of the following components:
(in millions)December 31,
2020
Liability component:
Principal$330.5 
Unamortized debt discount(84.4)
Unamortized debt issuance costs(6.2)
Net carrying amount$239.9 
Carrying amount of equity component$88.2 
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Interest expense, net
Interest expense, net, was as follows:
For the year ended December 31,
(in millions)202020192018
Interest expense$(546.3)$(535.9)$(539.4)
Interest income0.9 1.4 1.0 
Capitalized interest2.2 0.3 0 
Interest expense, net$(543.2)$(534.2)$(538.4)
Interest expense related to the Convertible Notes was as follows:
(in millions)For the year ended December 31, 2020
Coupon interest$5.7 
Amortization of debt discount7.3 
Amortization of debt issuance costs0.5 
Convertible Notes interest expense$13.5 
The debt discount and the debt issuance costs attributable to fund related transaction fees and expenses. 

the liability component are being amortized to interest expense over the term of the Convertible Notes at an effective interest rate of 9.23%. The Company used loans funded underremaining term of the AmendedConvertible Notes was 5.4 years as of December 31, 2020.

Covenants
Our Senior Secured Credit Facilities and a portion of the proceeds of the 5.625% Notes to repay amounts outstanding under its then existing Credit Agreement and to fund related transaction fees and expenses and for general corporate purposes.

Other Long‑Term Obligations

Other long term obligations at December 31, 2017 and 2016 of $119.3 million and $154.1 million, respectively, included $105.4 million and $118.9 million, respectively, related to the relocation fees for Hollywood Gaming at Dayton Raceway and Hollywood Gaming at Mahoning Valley Race Course.  At December 31, 2017 and 2016, $13.8 million

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and $14.4 million, respectively, related to the repayment obligation of a hotel and event center located near Hollywood Casino Lawrenceburg.  The December 31, 2016 long term obligations included $20.8 million related to a corporate airplane loan; all of which are more fully described below. 

Ohio Relocation Fees

In June 2013, the Company finalized the terms of its memorandum of understanding with the State of Ohio, which included an agreement by the Company to pay a relocation fee in return for being able to relocate its existing racetracks in Toledo and Grove City to Dayton and Mahoning Valley, respectively. Upon opening of these two racinos in Ohio in the third quarter of 2014, the relocation fee for each new racino was recorded at the present value of the contractual obligation, which was calculated to be $75 million based on the 5% discount rate included in the agreement. The relocation fee for each facility is payable as follows: $7.5 million upon the opening of the facility and eighteen semi-annual payments of $4.8 million beginning one year from the commencement of operations. This obligation is accreted to interest expense at an effective yield of 5.0%. The amount included in interest expense related to this obligation was $5.5 million and $6.2 million for the year ended December 31, 2017 and 2016, respectively.

Event Center

The City of Lawrenceburg Department of Redevelopment completed construction of a hotel and event center located less than a mile away from Hollywood Casino Lawrenceburg. Effective in mid-January 2015, by contractual agreement, a repayment obligation for the hotel and event center was assumed by a wholly-owned subsidiary of the Company 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.  The Company is obligated to make annual payments on the loan of approximately $1 million for twenty years beginning January 2016. This obligation is accreted to interest expense at its effective yield of 3.0%. The amount included in interest expense related to this obligation was $0.4 million for the years ended December 31, 2017 and 2016.

Corporate Airplane Loan

On September 30, 2016, the Company acquired a previously leased corporate airplane that was accounted for as a capital lease and financed the purchase price with an amortizing loan at a fixed interest rate of 5.22% for a term of five years with monthly payments of $220 thousand and a balloon payment of $12.6 million at the end of the loan term.  The loan was subsequently repaid in full on January 19, 2017. 

Covenants

The Company’s senior secured credit facility and senior unsecured notes require us, among other obligations, to maintain specified financial ratios and to satisfy certain financial tests, including fixed charge coverage, interest coverage, senior leverage and total leverage ratios.tests. In addition, the Company’s senior secured credit facilityour Senior Secured Credit Facilities and senior unsecured notes5.625% Notes restrict, among other things, itsour 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.

At Our debt agreements also contain customary events of default, including cross-default provisions that require us to meet certain requirements under the Penn Master Lease and the Pinnacle Master Lease, each with GLPI. If we are unable to meet our financial covenants or in the event of a cross-default, it could trigger an acceleration of payment terms. As of December 31, 2017,2020, the Company was in compliance with all required financial covenants.

10.Master Lease Financing Obligation

The Company’s lease obligationWhen our covenant relief period ends, the Company is subject to and expects to be in compliance with GLPI that is described in Note 3all required financial covenants including (i) Maximum Consolidated Total Net Leverage Ratio; (ii) Maximum Consolidated Senior Secured Net Leverage Ratio; and (iii) Minimum Interest Coverage Ratio (as discussed above) with the Company's submission of its compliance certificate for the quarter ending March 31, 2021.

Other Long-Term Obligations
Ohio Relocation Fees
As of December 31, 2020 and 2019, other long-term obligations included $60.9 million and $76.4 million, respectively, related to the consolidated financial statements is accountedrelocation fees for asDayton and Mahoning Valley, which opened in August 2014 and September 2014, respectively. In June 2013, we finalized the terms of our memorandum of understanding with the State of Ohio, which included an agreement for us to pay a financing obligation. Therelocation fee in return for being able to relocate our existing racetracks in Toledo and Grove City to Dayton and Mahoning Valley, respectively. Upon opening Dayton and Mahoning Valley, each relocation fee was recorded at the present value of the contractual obligation, which was calculated at the inception of the transactionas $75.0 million based on the future minimum lease5.0% discount rate included in the agreement. Each relocation fee is payable as follows: $7.5 million upon opening and 18 semi-annual payments discountedof $4.8 million beginning one year after opening. This obligation is accreted to interest expense at the Company’s estimated incremental borrowing rate at lease inception over the lease term, including renewal options, that were reasonably assuredan effective yield of being exercised and the funded

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construction of certain leased real estate assets5.0%. The amount included in development at the date of the Spin-Off. As of May 1, 2017, in connection with the acquisition of 1st Jackpot and Resorts, the Company’s Master Lease Financinginterest expense related to this obligation was increased by $82.6$3.4 million, which was the purchase price paid by GLPI for the casinos underlying real estate assets. Total payments to GLPI under the Master Lease were $455.4 million, $442.3$4.1 million and $437.0$4.8 million for the years ended December 31, 2017, 20162020, 2019 and 2015, respectively,2018, respectively.

Event Center
As of which $397.6 million, $391.7December 31, 2020 and 2019, other long-term obligations included $12.0 million and $390.1$12.6 million, respectively, were recognized as interest expense.  Therelated to the repayment obligation of a hotel and event center located less than a mile away from Hollywood Casino
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Lawrenceburg, which was constructed by the City of Lawrenceburg Department of Redevelopment. Effective in January 2015, by contractual agreement, we assumed a repayment obligation for the hotel and event center in the amount of $15.3 million, which was financed through a loan with the City of Lawrenceburg Department of Redevelopment, in exchange for conveyance of the property. Beginning in January 2016, the Company was obligated to make annual payments on the loan of $1.0 million for 20 years. This obligation is accreted to interest expense recognizedat its effective yield of 3.0%. The amount included in interest expense related to this obligation was $0.4 million for each of the years ended December 31, 2017, 20162020, 2019 and 2015 includes $46.8 million, $43.8 million2018.
Note 12—Leases
Lessee
Master Leases
The components contained within the Master Leases are accounted for as either (i) operating leases, (ii) finance leases, or (iii) financing obligations. Changes to future lease payments under the Master Leases (i.e., when future escalators become known or future variable rent resets occur), which are discussed below, require the Company to either (i) increase both the ROU assets and $43.5 million, respectively from contingent paymentscorresponding lease liabilities with respect to operating and finance leases or (ii) record the incremental variable payment associated with the financing obligation to interest expense. In addition, monthly variable components forrent associated with Hollywood Casino Columbus (“Columbus”) and monthly rent in excess of the Hollywood Casino Toledo.

Toledo (“Toledo”) rent floor, which are discussed below, are considered contingent rent.

Penn Master Lease
The future minimumpayment 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 the 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 (see below).
We did not incur an annual escalator on November 1, 2020 for the lease year ended October 31, 2020. The next annual escalator test date is scheduled to occur effective November 1, 2021. As a result of the annual escalator, effective as of November 1, 2019 and 2018, the fixed component of rent increased by $5.5 million and $5.4 million, for each respective year. As a result of the annual escalator effective November 1, 2019, an additional ROU asset and corresponding lease liability of $34.4 million were recognized associated with operating lease components and an additional ROU asset and corresponding lease liability of $3.1 million were recognized associated with finance lease components. Additionally, effective November 1, 2018, the Penn Percentage Rent reset resulted in an annual rent reduction of $11.3 million, which will be in effect until the next Penn Percentage Rent reset, occurring on November 1, 2023.
The acquisition of Greektown on May 23, 2019 activated a competition clause within the Penn Master Lease, which introduced a rent floor specific to Toledo. As a result, an additional ROU asset and corresponding lease liability of $151.2 million were recognized associated with operating lease components. Lease payments resulting from the rent floor associated with components determined to continue to be financing obligations are included in “Interest expense, net” within our Consolidated Statements of Operations and Comprehensive Income (Loss).
Monthly rent associated with Columbus and monthly rent in excess of the Toledo rent floor are variable and considered contingent rent. Expense related to operating lease components associated with Columbus and Toledo are included in “General and administrative” within our Consolidated Statements of Operations and Comprehensive Income (Loss) and the variable expense related to the financing obligation component is included in “Interest expense, net” within our Consolidated Statements of Operations and Comprehensive Income (Loss). The entire variable expense related to the year ended December 31, 2018 was included in “Interest expense, net” pursuant to the failed sale-leaseback accounting treatment under ASC 840. Total monthly variable expenses were as follows:
For the year ended December 31,
(in millions)202020192018
Variable expenses included in “General and administrative”$12.9 $16.4 $0 
Variable expenses included in “Interest expense, net”11.8 16.1 48.9 
Total variable expenses$24.7 $32.5 $48.9 
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Pinnacle Master Lease
In connection with the Pinnacle Acquisition, we assumed a triple net master lease with GLPI (the “Pinnacle Master Lease”), originally effective April 28, 2016, pursuant to which the Company leases real estate assets associated with 12 of the gaming facilities used in its operations. Upon assumption of the Pinnacle Master Lease, as amended, there were 7.5 years remaining of the initial ten-year term, with 5 subsequent, five-year renewal periods, on the same terms and conditions, exercisable at the Company’s option. 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 of the properties, 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”).
We did not incur an annual escalator on May 1, 2020 for the lease year ended April 30, 2020. As a result of the annual escalator, effective as of May 1, 2019 for the lease year ended April 30, 2019, the fixed component of rent increased by $1.0 million and an additional ROU asset and corresponding lease liability of $3.8 million were recognized associated with operating lease components of the Pinnacle Master Lease. The next annual escalator test date is scheduled to occur on May 1, 2021.
Effective May 1, 2020, the Pinnacle Percentage Rent resulted in an annual rent reduction of $5.0 million, which will be in effect until the next Pinnacle Percentage Rent reset, scheduled to occur on May 1, 2022. Upon reset of the Pinnacle Percentage Rent, effective May 1, 2020, we recognized an additional operating lease ROU asset and corresponding lease liability of $14.9 million.
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, as discussed in Note 6, “Acquisitions and Dispositions.”

The initial term of the Morgantown Lease is twenty years with 6 subsequent, five-year renewal periods, exercisable at the Company’s option.Annual rent under the Morgantown Lease will be $3.0 million and is subject to 1.50% fixed annual escalation in each of the first three years subsequent to the facility opening, and thereafter will be subject to an annual escalator consisting of either (i) 1.25% or (ii) zero depending upon the consumer price index being greater or less than 0.50%.All improvements made on the land, including the building currently being constructed, will be owned by the Company while the lease is in effect, however, on the expiration or termination of the Morgantown Lease, ownership of all tenant improvements on the land will transfer to GLPI.We determined the transaction to be a financing arrangement and upon execution of the Morgantown Lease, recorded a $30.0 million financing obligation which is included in “Long-term portion of financing obligations” within our Consolidated Balance Sheets. Lease payments are included in “Interest expense, net” within our Consolidated Statements of Operations and Comprehensive Income (Loss).

Operating Leases
In addition to the operating lease components contained within the Master Leases (primary land), the Company’s operating leases consist mainly of (i) individual triple net leases with GLPI for the real estate assets used in the operations of Tropicana Las Vegas (the “Tropicana Lease”) and Meadows Racetrack and Casino (the “Meadows Lease”), (ii) individual triple net leases with VICI for the real estate assets used in the operations of Margaritaville (the “Margaritaville Lease”) and Greektown (the “Greektown Lease” and collectively with the Master Leases operating lease components (primarily the land), the Meadows Lease, the Margaritaville Lease and the Tropicana Lease, the “Triple Net Operating Leases”), (iii) ground and levee leases to landlords which were not assumed by our REIT Landlords and remain an obligation of the Company, and (iv) building and equipment not subject to the Master Leases. Certain of our lease agreements include rental payments based on a percentage of sales over specified contractual amounts, rental payments adjusted periodically for inflation, and rental payments based on usage. The Company’s leases include options to extend the lease terms. The Company’s operating lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Tropicana Lease
On April 16, 2020, we entered into the Tropicana Lease with a subsidiary of GLPI for the real estate assets used in the operations of Tropicana for nominal cash rent and will continue to operate the Tropicana for two years (subject to 3 one-
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year extensions at GLPI’s option) or until the real estate assets and the operations of the Tropicana are earlier sold, as discussed in Note 6, “Acquisitions and Dispositions.” In the event that GLPI sells the real estate assets used in the operations of Tropicana, the Tropicana Lease will automatically terminate. Upon execution of the Tropicana Lease, we recorded an operating lease ROU asset of $61.6 million, which is included in “Lease right-of-use assets” within the Consolidated Balance Sheets.
Meadows Lease
In connection with the Pinnacle Acquisition, we assumed the Meadows Lease, originally effective September 9, 2016. Upon assumption of the Meadows Lease, there were eight years remaining of the initial ten-year term, with 3 subsequent, five-year renewal options followed by 1 four-year renewal option on the same terms and conditions, exercisable at the Company’s option. The payment structure under the Meadows Lease includes a fixed component (“Meadows Base Rent”), which is subject to an annual escalator of up to 5% for the initial term or until the lease year in which Meadows Base Rent plus Meadows Percentage Rent (as defined below) is a total of $31.0 million, subject to certain adjustments, and up to 2% thereafter, subject to an Adjusted Revenue to Rent Ratio (as defined in the Meadows Lease) of 2.0:1. The “Meadows Percentage Rent” is based on performance, which is prospectively adjusted for the next two-year period equal to 4.0% of the average annual net revenues of the property during the trailing two-year period.
We did not incur an annual escalator on October 1, 2020 for the lease year ended September 30, 2020. Effective October 1, 2019, as a result of the annual escalator for the lease year ended September 30, 2019, which was determined to be $0.8 million, an additional operating ROU asset and corresponding operating lease liability of $4.3 million were recognized.
Effective October 1, 2020, the Meadows Percentage Rent resulted in an annual rent reduction of $2.1 million, which will be in effect until the next Meadows Percentage Rent reset, scheduled to occur on October 1, 2022. Upon reset of the Meadows Percentage Rent, effective October 1, 2020, we recognized an additional operating lease ROU asset and corresponding lease liability of $17.1 million.
Margaritaville Lease
The Margaritaville Lease has an initial term of 15 years, with 4 subsequent five-year renewal options on the same terms and conditions, exercisable at the Company’s option. The payment structure under the Margaritaville Lease includes a fixed component, a portion which was originally subject to an annual escalator of up to 2% depending on an Adjusted Revenue to Rent Ratio (as defined in the Margaritaville Lease) of 1.9:1, 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 of the property compared to a contractual baseline during the preceding two years (“Margaritaville Percentage Rent”). On February 1, 2020, the Margaritaville Lease was amended to provide for a change in the measurement of the annual escalator from an Adjusted Revenue to Rent Ratio of 1.9:1 to a minimum coverage floor ratio of Net Revenue to Rent of 6.1:1. 
As a result of the annual escalator, which was determined to be $0.3 million, effective February 1, 2020 for the lease year ended January 31, 2020, an additional operating lease ROU asset and corresponding operating lease liability of $3.1 million were recognized. The first percentage rent reset is scheduled to occur on February 1, 2021.
Greektown Lease
The Greektown Lease has an initial term of 15 years, with 4 subsequent five-year renewal options on the same terms and conditions, exercisable at the Company’s option. The payment structure under the Greektown Lease includes a fixed component, a portion subject to an annual escalator of up to 2% depending on an Adjusted Revenue to Rent Ratio (as defined in the Greektown Lease) of 1.85:1, 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 of the property compared to a contractual baseline during the preceding two years (“Greektown Percentage Rent”).
We did not incur an annual escalator on June 1, 2020 for the lease year ended May 31, 2020. In May 2020, the lease was amended to remove the escalator for the lease years ending May 31, 2021 and 2022 and to provide for a Net Revenue to Rent coverage floor to be mutually agreed upon prior to the commencement of the fourth lease year (June 1, 2022). The first Greektown Percentage Rent reset is scheduled to occur on June 1, 2021.
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Information related to lease term and discount rate was as follows:
December 31, 2020
Weighted-Average Remaining Lease Term
Operating leases26.7 years
Finance leases27.8 years
Financing obligations29.5 years
Weighted-Average Discount Rate
Operating leases6.7 %
Finance leases6.9 %
Financing obligations8.1 %
The components of lease expense were as follows:
Location on Consolidated Statements of Operations and Comprehensive Income (Loss)For the year ended December 31,
(in millions)20202019
Operating Lease Costs
Rent expense associated with triple net operating leases (1)
General and administrative$419.8 $366.4 
Operating lease cost (2)
Primarily General and administrative15.8 17.5 
Short-term lease costPrimarily Gaming expense37.7 56.6 
Variable lease cost (2)
Primarily Gaming expense2.5 3.9 
Total$475.8 $444.4 
Finance Lease Costs
Interest on lease liabilities (3)
Interest expense, net$15.2 $15.4 
Amortization of ROU assets (3)
Depreciation and amortization8.0 7.9 
Total$23.2 $23.3 
Financing Obligation Costs
Interest expense (4)
Interest expense, net$403.1 $394.1 


(1)Pertains to the operating lease components contained within the Master Leases (primarily land), the Meadows Lease, the Margaritaville Lease, the Greektown Lease, and the Tropicana Lease, inclusive of the variable expense associated with Columbus and Toledo for the operating lease components (the land).
(2)Excludes the operating lease costs and variable lease costs pertaining to our Triple Net Leases with our REIT landlords classified as operating leases, discussed in footnote (1) above.
(3)Primarily pertains to the Dayton and Mahoning Valley finance leases.
(4)Pertains to the components contained within the Master Leases (primarily buildings) and Morgantown Lease determined to be financing obligations, inclusive of the variable expense associated with Columbus and Toledo for the finance lease components (the buildings).

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Total rent expense under all operating lease agreements pursuant to the accounting treatment under ASC 840 was $58.1 million for the year ended December 31, 20172018.
Supplemental cash flow information related to leases was as follows:
For the year ended December 31,
(in millions)20202019
Cash paid for amounts included in the measurement of lease liabilities(1)
Operating cash flows from finance leases$15.2 $15.4 
Operating cash flows from operating leases$426.7 $403.6 
Financing cash flows from finance leases$6.3 $6.2 
(1)Amounts related to the year ended December 31, 2020 are inclusive of utilized rent credits.
Total payments made under the Triple Net Leases, inclusive of rent credits utilized, were as follows (in thousands):

follows:

 

 

 

 

 

2018

    

$

387,456

 

2019

 

 

332,259

 

2020

 

 

332,259

 

2021

 

 

332,259

 

2022

 

 

332,259

 

Thereafter

 

 

8,583,363

 

Total minimum payments

 

 

10,299,855

 

Less amounts representing interest

 

 

(7,148,946)

 

Plus residual values

 

 

387,912

 

Present value of future minimum payments

 

 

3,538,821

 

Less current portion of financing obligation

 

 

(56,248)

 

Long-term portion of financing obligation

 

$

3,482,573

 

For the year ended December 31,
(in millions)20202019
Penn Master Lease (1)
$457.9 $457.9 
Pinnacle Master Lease (1)
326.9 328.6 
Meadows Lease (1)
26.4 26.4 
Margaritaville Lease23.5 23.1 
Greektown Lease55.6 33.8 
Morgantown Lease (1)
0.8 0 
Total (2)
$891.1 $869.8 

11.Commitments

(1)During the twelve months ended December 31, 2020 we utilized rent credits to pay $190.7 million, $135.5 million, $11.0 million and $0.3 million of rent under the Penn Master Lease, Pinnacle Master Lease, Meadows Lease and Morgantown Lease, respectively.
(2)Cash rent payable under the Tropicana Lease is nominal. Therefore, it has been excluded from the table above.

The following is a maturity analysis of our operating leases, finance leases and financing obligations as of December 31, 2020:
(in millions)Operating LeasesFinance LeasesFinancing Obligations
Years ending December 31:
2021$422.6 $21.7 $370.3 
2022412.4 21.6 370.3 
2023399.9 20.8 370.4 
2024383.7 16.7 370.4 
2025380.7 16.7 370.5 
Thereafter7,779.9 376.7 9,095.3 
Total lease payments9,779.2 474.2 10,947.2 
Less: Imputed interest(5,286.1)(254.8)(6,814.8)
Present value of future lease payments4,493.1 219.4 4,132.4 
Less: Current portion of lease obligations(127.4)(6.9)(36.0)
Long-term portion of lease obligations$4,365.7 $212.5 $4,096.4 
Lessor
The Company leases its hotel rooms to patrons and records the corresponding lessor revenue in “Food, beverage, hotel and other revenues” within our Consolidated Statements of Operations and Comprehensive Income (Loss). For the years ended
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December 31, 2020, 2019, and 2018, the Company recognized $146.8 million, $311.0 million, and $163.6 million, of lessor revenues related to the rental of hotel rooms, respectively. Hotel leasing arrangements vary in duration, but are short-term in nature. The cost and accumulated depreciation of property and equipment associated with hotel rooms is included in “Property and equipment, net” within our Consolidated Balance Sheets.

Note 13—Commitments and Contingencies

Litigation

The Company is subject to various legal and administrative proceedings relating to personal injuries, employment matters, commercial transactions, development agreements and other matters arising in the ordinary course of business. Although the Company maintains what it believes is adequate insurance coverage to mitigate the risk of loss pertaining to covered matters, legal and administrative proceedings can be costly, time-consuming and unpredictable. The Company believes that it has meritorious defenses, claims and/or counter-claims with respect to these proceedings, and intends to vigorously defend itself or pursue its claims.
Although no assurance can be given, the Company does not believe that the final outcome of these matters, including costs to defend itself in such matters, will have a material adverse effect on the Company’s consolidated financial position or results of operations. In addition, the Company maintains what it believes is adequate insurance coverage to further mitigate the risks of such proceedings. However, such proceedings can be costly, time consuming and unpredictable and, therefore, no assurance can be given that the final outcome of such proceedings may not materially impact the Company’s consolidated financial condition or results of operations.Consolidated Financial Statements. Further, no assurance can be given that the amount or scope of existing insurance coverage will be sufficient to cover losses arising from such matters.

Legal proceedings could result in costs, settlements, damages, or rulings that materially impact the Company’s consolidated financial condition or operating results. The Company believes that it has meritorious defenses, claims and/or counter‑claims with respect to these proceedings, and intends to vigorously defend itself or pursue its claims.

Operating Lease Commitments

The Company is liable under numerous operating leases for various assets, including but not limited to ground leases, automobiles, and other equipment. The majority of these lease arrangements are cancelable within 30 days.  Total rental expense under all operating lease agreements was $45.4 million, $40.3 million, and $37.9 million for the years ended December 31, 2017, 2016 and 2015, respectively.

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The future minimum lease commitments relating to the base lease rent portion of noncancelable operating leases at December 31, 2017 are as follows (in thousands):

 

 

 

 

Year ending December 31,

    

Total

2018

 

$

8,609

2019

 

 

6,387

2020

 

 

4,692

2021

 

 

4,026

2022

 

 

3,504

Thereafter

 

 

60,517

Total

 

$

87,735

Location Share Agreements

The Company’s subsidiary,

Prairie State Gaming (“PSG”) enters into location share agreements with bar and retail establishments in Illinois. These agreements are contracts which allow Prairie State GamingPSG to place VGTs in the bar or retail establishment in exchange for a percentage of the variable revenue generated by the VGTs. Prairie State GamingPSG holds the gaming license with the state of Illinois and the location share percentage is determined by the state of Illinois. For the years ended December 31, 2017, 20162020, 2019 and 2015,2018, the total location share payments made by Prairie State Gaming (recorded inPSG, which are recorded within our Consolidated Statements of Operations and Comprehensive Income (Loss) as gaming expenses)expenses, were $29.7$20.2 million, $21.2$33.1 million, and $6.0$34.7 million, respectively.

Purchase Obligations
The Company has obligations to purchase various goods and services totaling $149.1 million as of December 31, 2020, of which $59.7 million will be incurred in 2021.
Capital Expenditure Commitments

The Company currently has

Pursuant to each of our Triple Net Leases with the exception of our Morgantown Lease (which is a capital expenditures budget of approximately $105.5 million for 2018, of which the Company was contractually committed to spend approximately $4.8 million at December 31, 2017.  The Company’s properties that are subject to the Master Leaseland lease we entered into on October 1, 2020 with GLPI as discussed in Note 12 "Leases"), we are obligated to spend a minimum of 1% of annual net revenues, forin the aggregate under each lease, on the maintenance of thosesuch facilities.  The Company historically spends well in excess of this minimum threshold.

Purchase Obligations

The Company has obligations to purchase various goods and services totaling $73.6 million at December 31, 2017, of which $44.1 million will be incurred in 2018.

Loan Commitments to the JIVDC

The Company has $29.0 million of unfunded loan commitments related to its loan to the JIVDC.

Employee Benefit Plans

The Company maintains a qualified retirement plan under the provisions of Section 401(k) of the Internal Revenue Code of 1986, as amended, which covers all eligible employees.employees (the “Penn 401(k) Plan”). The planPenn 401(k) Plan enables participating employees to defer a portion of their salary in a retirement fund to be administered by the Company. The Company makes a discretionary match contribution, where applicable, of 50% of employees’ elective salary deferrals, up to a maximum of 6% of eligible employee compensation. The matching contributions forto the qualified retirement planPenn 401(k) Plan for the years ended December 31, 2017, 20162020, 2019 and 20152018 were $6.0 million, $5.3$11.7 million, and $5.0$6.5 million, respectively.

The Company also has

We maintain a defined contribution plan, the Charles Town Races Future Service Retirement Plan, covering substantially all of its union employees at Hollywood Casino at Charles Town Races. Hollywood Casino at Charles Town Races makes annual contributions to this plan for the eligible union employees and to the Penn National Gaming, Inc. 401(k) Plan for the eligible non‑union employees for an amount equal to the amount accrued for retirement

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expense, which is calculated as 0.25% of the daily mutual handle, 1.0% of net video lottery revenue up to a base and, after the base is met, it reverts to 0.5% and 0.84% of table and poker revenue, respectively. The contributions for the two plans at Hollywood Casino at Charles Town Races for the years ended December 31, 2017, 2016 and 2015 were $2.6 million, $2.8 million, and $2.9 million, respectively.

The Company maintains a non‑qualifiednon-qualified deferred compensation plan (the “EDC Plan”) that covers most management and other highly‑compensatedhighly-compensated employees. This planThe EDC Plan was effective beginning March 1, 2001. The planEDC Plan allows the participants to defer, on a pre‑taxpre-tax basis, a portion of their base annual salary and/or their annual bonus and earn tax‑deferredtax-deferred earnings on these deferrals. The planEDC Plan also provides for matching Company contributions that vest over a five‑yearfive-year period. The Company has established a Trust,trust, and transfers to the Trust,trust, on a periodic basis, an amount necessary to provide for its respective future liabilities with respect to participant deferral and Company contribution amounts. The Company’s matching contributions for the non‑qualified deferred compensation planEDC Plan for the years ended December 31, 2017, 20162020, 2019 and 20152018 were $2.2$2.6 million, $2.2$2.3 million, and $2.0$2.3 million, respectively. The Company’sOur deferred compensation liability, which wasis included in “Accrued expenses and other current liabilitiesliabilities” within the consolidated balance sheets,Consolidated Balance Sheets, was $64.7$86.3 million and $59.4$80.1 million atas of December 31, 20172020 and 2016,2019, respectively.

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As part of our initiative to reduce our cost structure while our properties were temporarily closed due to the COVID-19 pandemic, we suspended our matching contributions to the Penn 401(k) Plan and the EDC Plan from April 1, 2020 to September 30, 2020.
Labor Agreements

The Company is

We are required to have agreements with the horsemen at the majority of itsour racetracks to conduct itsour live racing and/or simulcasting activities. In addition, in order to operate gaming machines and table games in West Virginia, the Company must maintain agreements with each of the Charles Town horsemen, pari‑mutuelpari-mutuel clerks and breeders.

At Hollywood Casino at Charles Town Races, the Company renewed an agreement with the Charles Town Horsemen’s Benevolent and Protective Association that expires on June 18, 2018. Hollywood Casino at Charles Town Races also renewed an agreement with the breeders that expires on June 30, 2018. Additionally, the pari‑mutuel clerks at Charles Town are represented under a collective bargaining agreement with the West Virginia Union As of Mutuel Clerks, which expired on December 31, 2010 and has been extended on a month‑to‑month basis.

The Company’s agreement with the Pennsylvania Horsemen’s Benevolent and Protective Association at Hollywood Casino at Penn National Race Course was renewed through January 31, 2019. The Company has an agreement with Laborers’ International Union of North America (LIUNA) Local 108, regarding both on-track and off-track pari-mutuel clerks and admission staff which expired in December 2016 and a new contract was negotiated and, once signed, will run through December 1, 2021. In August 2015, the Company entered into a three year collective bargaining agreement with the International Chapter of Horseshoers and Allied Equine Trades Local 947.

The Company’s agreement with the Maine Harness Horsemen Association at Bangor Raceway continues through the conclusion of the 2018 racing season.

In March of 2014, Hollywood Gaming at Mahoning Valley Race Course entered into an agreement with the Ohio Horsemen’s Benevolent and Protective Association. The term is for a period of ten years from the September 2014 commencement of video lottery terminal operations at that facility.

In September 2015, Hollywood Gaming at Dayton Raceway entered into an agreement with the Ohio Harness Horsemen’s Association for racing at the property. The term is for a period of ten years from the September 2015 effective date.

In January 2014, the Company entered into an agreement with the Harness Horsemen’s Association of New England at Plainridge Park Casino which remains in effect through December 31, 2018.

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Across certain of the Company’s properties, SEATU represents approximately 1,670 of the Company’s employees under a National Agreement that expires on January 24, 2032 and Local Addenda that expire at various times between June 2021 and October 2024.

SEATU agreements are in place at Hollywood Casino Joliet, Hollywood Casino Lawrenceburg, Argosy Casino Riverside, Argosy Casino Alton, Hollywood Casino Kansas Speedway, Hollywood Gaming Dayton, Hollywood Gaming at Mahoning Valley and Plainridge Park Casino. Hollywood Gaming at Dayton Raceway and Hollywood Gaming at Mahoning Valley Race Course have a wage reopener in February 2018, Hollywood Casino Lawrenceburg has a wage reopener in June 2018, Hollywood Casino Kansas Speedway has a wage reopener in July 2018 and Hollywood Casino Joliet and Plainridge Park Casino have a wage reopener in November 2018; the remainder of the SEATU agreements have expiration dates in 2019 and beyond.

At Hollywood Casino Joliet, the Hotel Employees and Restaurant Employees Union Local 1 represents approximately 167 employees under a collective bargaining agreement which expires on March 31, 2019. At Hollywood Casino Columbus and Hollywood Casino Toledo, a council comprised of the United Auto Workers and the United Steel Workers represents approximately 1,271 employees under a collective bargaining agreement which ends on November 15, 2019.

On August 25, 2015, the Company acquired Tropicana Las Vegas Hotel & Casino, which2020, we had seven existing38 collective bargaining agreements with the following unions: (1) Culinary & Bartenders (expires on May 31, 2018.), (2) United Brotherhood of Carpenters (expires on July 31, 2019), (3) International Brotherhood of Electrical Workers (expires on February 28, 2021), (4) International Alliance of Theatrical Stage Employees (expires on December 31, 2018), (5) International Union of Painters and Allied Trades (expires on June 30, 2018), (6)/(7) Teamsters (front and back of the house, both expire on March 31, 2018).

The Company is also the developer, lender and manager of the Hollywood Casino Jamul – San Diego, which the Company opened on October 10, 2016.  Unite Here! International Union and Local 30 represents employees in stewarding, facilities, food and beverage, and operations classifications, and the parties are in the process of negotiating their firstcovering approximately 2,779 active employees. NaN collective bargaining agreement.

In addition, at some of the Company’s properties, the Security Policeagreements are scheduled to expire in 2021, and Fire Professionals of America, the International Brotherhood of Electrical Workers Local 649, the LIUNA Public Serviced Employees Local 1290PE, The International Association of Machinists and Aerospace Workers, Locals 447 and 264, the United Industrial, Service, Transportation, Professional and Government Workers of North America, and the United Steel Workers represent certain of the Company’s employees underwe are currently renegotiating 3 collective bargaining agreements that expire at various times between April 2018 and September 2025. None of these additional unions represent more than 77 of the Company’s employees.

If the Company fails to maintain operative agreements with the horsemen at a track, it will not be permitted to conduct live racing and export and import simulcasting at that track and OTWs and,expired in West Virginia, the Company will not be permitted to operate its gaming machines and table games unless the state intervenes or changes the statute. In addition, the Company’s simulcasting agreements are subject to the horsemen’s approval. If the Company fails to renew or modify existing agreements on satisfactory terms, this failure could have a material adverse effect on its business, financial condition and results of operations. Except for the closure of the facilities at Penn National Race Course and its OTWs from February 16, 1999 to March 24, 1999 due to a horsemen’s strike, and a few days at other times and locations, the Company has been able to maintain the necessary agreements. There can be no assurance that the Company will be able to maintain the required agreements.

12.Income2020.

Note 14—Income Taxes

On December 22, 2017, the President of the United States signed into law comprehensive tax reform legislation commonly known as Tax Cuts and Jobs Act (the “Tax Act”), which introduces significant changes to the United States

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tax law.  The Tax Act provides numerous provisions including, but not limited to, a reduction to the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018, a temporary provision allowing 100% expensing of qualifying capital improvements, a one-time transition tax on foreign earnings, a general elimination of U.S. federal income taxes on dividends received from foreign subsidiaries and a new provision designed to tax global intangible low-taxed income (“GILTI”).

Also, on December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides accounting guidance for the Tax Act.  SAB 118 provides a measurement period similar to a business combination whereby recognizing provisional amounts to the extent that they are reasonably estimable and adjust them over time as more information becomes available not to extend beyond one year from the Tax Act enactment date.  In accordance with SAB 118, a company must reflect the income tax effects of the Tax Act for which the accounting under ASC 740 is complete.  To the extent the accounting related to the Tax Act is incomplete but a reasonable estimate is attainable, a provisional estimate should be reflected in the financial statements.

The adjustments reflected in our financial statements related to the application of the Tax Act are provisional amounts estimated based on published guidance and the interpretation of these provisions as of December 31, 2017.  The new law directs the United States Treasury to promulgate regulations as it deems appropriate as well as provide guidance implementing the intent of Congress.  The Company will recognize any change to the provisional amounts in the period our computations are complete. 

The Company calculated reasonable estimates of certain Tax Act provisions including the federal corporate tax rate change, 100% expensing of capital improvements and the one-time transition tax on foreign earnings.  In connection with our initial analysis of the Tax Act impact, we have recorded a provisional decrease to net deferred tax assets of $261.3 million with a corresponding increase to deferred tax expense.  The Company recorded these provisional amounts in our consolidated financial statements in the period of enactment – December 22, 2017.  The Company’s computations are not complete since the Tax Act is unclear in many respects subjecting the legislation to potential technical corrections and interpretation from the United States Treasury and Internal Revenue Service. In addition, there is uncertainty regarding how these U.S. federal income tax changes will affect state and local taxation, which generally use federal taxable income as a starting point for computing the tax liability.  The Tax Act also provides for a 100% temporary tax deduction on all qualified assets placed into service after September 27, 2017 and before December 31, 2022 including significant improvements we regularly expend to construct, maintain and renovate our properties.  This provision phases out each year thereafter by 20% and will be completely phased out as of January 1, 2027.  Beginning in 2018, the new federal rate will also be reflected in the current federal tax expense or benefit in our consolidated statement of operations. 

Additionally, upon enactment, there is a one-time deemed repatriation tax on undistributed foreign earnings and profits (“transition tax”).  The application of the transition tax is relevant to certain undistributed and previously untaxed post-1986 foreign earnings and profits from our management service contract with Casino Rama located in Orillia, Ontario.  The Company recognized a provisional tax expense of $2.6 million related to the transition tax in 2017 and the new law allows a Company to pay this liability over an eight-year period without interest.  The Company is continuing to gather additional information to refine the amount of transition tax.  As of December 31, 2017, the Company changed its indefinite reinvestment assertion due to new favorable U.S. treatment of foreign dividends and the anticipated termination of the Casino Rama management service contract during the second half of 2018.  Because our indefinite reinvestment assertion changed, we recorded foreign withholding taxes of approximately $2.1 million.    The Tax Act also contains a new GILTI tax provision and due to the complexity, the Company is continuing to evaluate this provision and application of ASC 740.  Therefore, the Company did not record any amount related to GILTI in our financial statements or make a policy decision regarding whether to record deferred taxes related to GILTI.  The effects of other provisions within the Tax Act are not expected to have a material impact on our consolidated financial statements for the year ended December 31, 2017.

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The following table summarizes the tax effects of temporary differences between the financial statementConsolidated Financial Statements carrying valueamount of assets and liabilities and their respective tax basis, which are recorded at the prevailing enacted tax rate that will be in effect when these differences are settled or realized. These temporary differences result in taxable or deductible amounts in future years. The Company assessed all available positive and negative evidence to estimate whether sufficient future taxable income will be generated to realize our existing net deferred tax assets. In connection withFor the failed spin-off-leaseback,year ended December 31, 2020, the Company continuedmade a reclassification within the below table to record real property assetsseparate the right of use asset from the financing and a financing obligation of $2.00 billion and $3.52 billion, respectively, on November 1, 2013,operating lease obligations. This reclassification change was also made to 2019 for transparency, which resulted in a substantial increasehas no impact to ourthe net deferred tax assets of $599.9 million.  ASC 740 suggests that additional scrutiny should be given to deferred taxes of an entity with cumulative pre-tax losses during the three most recent three years. Positive evidence of sufficient quantity and quality is required to overcome such significant negative evidence to conclude that a valuation allowance is not warranted.

amount.


The components of the Company’s deferred tax assets and liabilities arewere as follows:

 

 

 

 

 

 

 

    

2017

    

2016

 

December 31,

 

(in thousands)

 

(in millions)(in millions)20202019

Deferred tax assets:

 

 

 

 

 

 

 

Deferred tax assets:

Stock-based compensation expense

 

$

15,038

 

$

17,773

 

Stock-based compensation expense$18.2 $11.7 

Accrued expenses

 

 

39,474

 

 

64,175

 

Accrued expenses43.3 37.6 

Loan to the JIVDC

 

 

26,237

 

 

2,268

 

Financing obligation to GLPI

 

 

900,311

 

 

1,359,193

 

Financing and operating leasing obligationsFinancing and operating leasing obligations2,336.9 2,178.0 

Unrecognized tax benefits

 

 

6,565

 

 

9,377

 

Unrecognized tax benefits7.9 7.7 

Net operating losses and tax credit carryforwards

 

 

59,842

 

 

78,021

 

Net operating losses, interest limitation and tax credit carryforwardsNet operating losses, interest limitation and tax credit carryforwards153.9 87.6 

Gross deferred tax assets

 

 

1,047,467

 

 

1,530,807

 

Gross deferred tax assets2,560.2 2,322.6 

Less valuation allowance

 

 

(113,699)

 

 

(828,501)

 

Less: Valuation allowanceLess: Valuation allowance(101.0)(54.2)

Net deferred tax assets

 

 

933,768

 

 

702,306

 

Net deferred tax assets2,459.2 2,268.4 

Deferred tax liabilities:

 

 

 

 

 

 

 

Deferred tax liabilities:  

Property, plant and equipment, non-master lease

 

 

(33,148)

 

 

(69,151)

 

Property, plant and equipment, master lease

 

 

(469,363)

 

 

(717,602)

 

Investments in unconsolidated affiliates

 

 

(1,218)

 

 

(1,383)

 

Property and equipment, not subject to the Master LeasesProperty and equipment, not subject to the Master Leases(51.1)(53.1)
Property and equipment, subject to the Master LeasesProperty and equipment, subject to the Master Leases(1,051.2)(1,088.9)
Investments in and advances to unconsolidated affiliatesInvestments in and advances to unconsolidated affiliates(27.9)(2.9)
Discount on convertible notesDiscount on convertible notes(20.9)0 

Undistributed foreign earnings

 

 

(2,061)

 

 

(8,596)

 

Undistributed foreign earnings(0.4)(0.4)

Intangibles

 

 

(37,035)

 

 

(32,498)

 

Intangible assetsIntangible assets(183.4)(287.3)
Lease right of use assetsLease right of use assets(1,250.6)(1,080.4)

Net deferred tax liabilities

 

 

(542,825)

 

 

(829,230)

 

Net deferred tax liabilities(2,585.5)(2,513.0)

Noncurrent deferred tax assets/(liabilities), net

 

$

390,943

 

$

(126,924)

 

Long-term deferred tax assets (liabilities), netLong-term deferred tax assets (liabilities), net$(126.3)$(244.6)

The realizability of the net deferred tax assets is evaluated quarterly by assessing the need for a valuation allowance and by adjusting the amount of the allowance, if necessary. The Company gives appropriate consideration to all available positive and negative evidence including statutory carryback periods, projected future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. The evaluation of both positive and negative evidence is a requirement pursuant to ASC 740 in determining if the net deferred tax assets will be realized. ASC 740 suggests that additional scrutiny should be given to deferred taxes of an entity with cumulative pre‑tax book losses during the three most recent years
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and is widely considered significant negative evidence that is objective and verifiable and therefore, difficult to overcome. Due to the financial results during the year ended December 31, 2020, the Company has a cumulative pre‑tax book loss of $658.2 million, which is significant negative evidence used in our assessment.

Additionally, the Company expects to remain in a three year cumulative loss position in the near future. As a result of these facts, the Company has recorded a valuation allowance against its net deferred tax assets, excluding net operating losses ("NOLs") that can be realized based on statutory carryback periods and the reversal of net deferred taxes related to indefinite‑lived intangibles. The Company intends to continue to maintain a valuation allowance on its net deferred tax assets until there is sufficient objectively verifiable positive evidence to support the realization of all or some portion of these deferred tax assets. In the event the Company determines that the deferred income tax assets would be realized in the future in excess of their net recorded amount, an adjustment to the valuation allowance would be recorded, which would reduce the provision for income taxes.

The Company determined that a valuation allowance was no longer required against its federal and state net deferred tax assets for the portion that will be realized.  The most significant evidence that led to the reversal of the valuation allowance during the three months ended September 30, 2017 includes the following:

·

Achievement and sustained growth in our three-year cumulative pretax earnings.  During the fourth quarter of 2016, we emerged from a three-year cumulative pretax loss position, generating a near break-even cumulative amount of pretax income.  This cumulative pretax income increased to $76.6 million as of

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September 30, 2017 and was expected to rise substantially at year end since the Company had recorded a $161.5 million pretax loss in the fourth quarter of 2014 due to impairment charges of $155.3 million in that period.

·

Substantial pretax income in seven of the last eight quarters with the only loss reported eight quarters ago. 

·

Lack of significant goodwill and intangible asset impairment charges expected in 2017.  The Company had experienced significant impairment charges in connection with the spin-off of its real estate assets to Gaming Leisure Properties, Inc. in November 2013.  The Company recorded impairment charges totaling $40.0 million, $159.9 million and $798.3 million for the years ended December 31, 2015, 2014 and 2013, respectively.  There were no impairments recorded in 2016 and for the nine months ended September 30, 2017, the Company recorded impairments of $29.9 million.

For the three months ended December 31, 2017, there were no material changes to our core business operations that altered our prior interim conclusion to release the valuation allowance against the federal and state net deferred tax assets for the portion that is more-likely-than-not to be realized.  The Company continues to experience significant three-year cumulative pretax income of $152.2 million at December 31, 2017 despite the Jamul impairment charge of $77.9 million during the three months ended December 31, 2017.  As such, the Company released $741.9 million of its total valuation allowance forDuring the year ended December 31, 2017 due to the positive evidence outweighing the negative evidence thereby allowing2020, the Company increased the valuation allowance by $46.8 million, primarily related to achieve the “more-likely-than-not” realization standard.  This reversal is reflected in our income tax benefitfederal and state NOL carryforwards, which substantially increased in the accompanying consolidated statementscurrent year as a result of operations.  The Company continues to maintain a valuation allowance of $113.7 million as of December 31, 2017 for federal capital loss carryforwards, as well as certain state filing groups, where it continues to be in a cumulative three-year pretax loss position.

the global pandemic.


Following the ownership changechanges of the Tropicana, Las Vegas, the Company has a$120.3 million of total gross federal net operating loss carry-forwards in the amount of $143.4 million for the year ended December 31, 2017, whichNOL carryforwards that will expire on various dates from 2029 through 2034.  These2035. All acquired tax attributes are subject to limitations under the Internal Revenue Code and underlying Treasury Regulations, however we believe itRegulations. During the year ended December 31, 2020, the Company increased its federal NOL carryforward by $148.1 million due to the current year loss, which resulted in an indefinite federal NOL carryforward. The utilization of the indefinite federal NOL carryforward is more-likely-than-not that the benefit from these tax attributes will be realized. 

limited to 80% of taxable income in any given year.


For state income tax reporting, as of December 31, 2020, the Company hashad gross state net operating loss carry-forwardsNOL carryforwards aggregating approximately $478.3$1,332.0 million available to reduce future state income taxes, primarily for the Commonwealth of Pennsylvania and the States of Colorado, Iowa, Louisiana, Missouri, New Mexico Maine, Illinois, and Ohio localities as of December 31, 2017.localities. The tax benefit associated with these net operating loss carry-forwards is approximately $28.7NOL carryforwards was $78.3 million. Due to statutorily limited operating loss carry-forwardsNOL carryforwards and income and loss projections in the applicable jurisdictions, a valuation allowance has been recorded to reflect the net operating lossesNOLs which are not presently expected to be realized in the amount of $28.3$60.2 million. If not used, substantially all the carry-forwardsmajority of the carryforwards will expire at various dates from December 31, 2018 to2021 through December 31, 2037.

Additionally, included in the Company’s valuation allowance is $0.1 million for realized federal capital losses that will expire if not used via the realization of capital gains by December 31, 2018, as well as $26.2 million for an unrealized capital loss associated with our loan to the JIVDC.  Overall the Company’s valuation allowance at December 31, 2017 decreased from December 31, 2016 by a net amount of $714.8 million primarily due to the reversal of the federal valuation allowance, and a partial reversal of the state valuation allowance. 

2040.


The domestic and foreign components of income (loss) before income tax expensetaxes for the years ended December 31, 2017, 20162020, 2019 and 2015 was2018 were as follows:

124

For the year ended December 31,
(in millions)202020192018
Domestic$(834.0)$85.5 $89.6 
Foreign(0.2)0.6 0.3 
Total$(834.2)$86.1 $89.9 

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Year ended December 31,

2017

 

2016

 

2015

 

 

 

 

 

 

Domestic

(29,538)

 

116,693

 

54,443

Foreign

4,494

 

3,924

 

2,167

Total

(25,044)

 

120,617

 

56,610

The provision forcomponents of income taxes charged to operationstax benefit (expense) for the years ended December 31, 2017, 20162020, 2019 and 2015 was2018 were as follows:

 

 

 

 

 

 

 

 

 

 

Year ended December 31,

    

2017

    

2016

    

2015

 

 

(in thousands)

 

For the year ended December 31,

Current tax expense (benefit)

 

 

 

 

 

 

 

 

 

 

(in millions)(in millions)202020192018
Current tax benefit (expense)Current tax benefit (expense)

Federal

 

$

16,318

 

$

8,721

 

$

(5,158)

 

Federal$47.0 $(12.5)$(15.3)

State

 

 

6,062

 

 

3,489

 

 

133

 

State0.2 (9.2)(6.4)

Foreign

 

 

(2,981)

 

 

(9,639)

 

 

3,713

 

Foreign(0.4)(0.2)(1.4)

Total current

 

 

19,399

 

 

2,571

 

 

(1,312)

 

Total current46.8 (21.9)(23.1)

Deferred tax (benefit) expense

 

 

 

 

 

 

 

 

 

 

Deferred tax benefit (expense)Deferred tax benefit (expense)

Federal

 

 

(480,712)

 

 

4,701

 

 

51,817

 

Federal103.6 (16.7)14.6 

State

 

 

(39,255)

 

 

3,279

 

 

5,419

 

State14.7 (4.4)10.9 

Foreign

 

 

2,061

 

 

756

 

 

 —

 

Foreign0 0 1.2 

Total deferred

 

 

(517,906)

 

 

8,736

 

 

57,236

 

Total deferred118.3 (21.1)26.7 

Total income tax (benefit) provision

 

$

(498,507)

 

$

11,307

 

$

55,924

 

Total income tax benefit (expense)Total income tax benefit (expense)$165.1 $(43.0)$3.6 

The negative pretax income magnifies the impact of one-time items including reversal of the valuation allowance and the federal deferred rate change in the Company’s effective tax rate for the year ended December 31, 2017.

The following table reconciles the statutory federal income tax rate to the actual effective income tax rate, for 2017, 2016 and 2015:

 

 

 

 

 

 

 

 

Year ended December 31,

    

2017

    

2016

    

2015

 

Percent of pretax income

 

 

 

 

 

 

 

Federal statutory rate

 

35.0

%  

35.0

%  

35.0

%

State and local income taxes - net of federal benefits

 

6.3

%  

1.2

%  

6.1

%

Nondeductible expenses

 

(16.0)

%  

0.3

%  

3.0

%

Goodwill impairment

 

(20.5)

%  

 —

%  

 —

%

Compensation

 

29.5

%  

(1.5)

%  

2.8

%

Contingent liability settlement

 

22.9

%  

0.6

%  

 —

%

Foreign

 

11.3

%  

(8.5)

%  

5.2

%

Valuation allowance

 

2,962.3

%  

(17.1)

%  

55.3

%

Federal tax reform enactment - deferred rate change

 

(1,043.5)

%  

 —

%  

 —

%

Other miscellaneous items

 

3.3

%  

(0.6)

%  

(8.6)

%

Total effective tax rate

 

1,990.6

%  

9.4

%  

98.8

%

Therelated amounts of income tax (benefit)/expense differs frombenefit (expense), for the federal statutory amount because the effect of the items detailed in the table below. 

years ended December 31, 2020, 2019 and 2018:

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For the year ended December 31,
202020192018
(in millions, except tax rates)PercentAmountPercentAmountPercentAmount
Percent and amount of pretax income
Federal statutory rate21.0 %$175.2 21.0 %$(18.1)21.0 %$(18.9)
State and local income taxes, net of federal benefits1.4 12.1 9.9 (8.5)(6.2)5.6 
Nondeductible expenses(0.3)(2.6)4.0 (3.5)6.9 (6.2)
Goodwill impairment losses(2.3)(19.0)14.4 (12.4)0 0 
Compensation2.5 20.5 0.3 (0.3)(3.8)3.4 
Foreign0 (0.4)0.1 (0.1)(0.1)0.1 
Federal valuation allowance(3.9)(32.7)0 0 (20.3)18.3 
Tax credits1.2 10.0 0 0 0 0 
Other0.2 2.0 0.2 (0.1)(1.5)1.3 
Total effective tax rate and income tax benefit (expense)19.8 %$165.1 49.9 %$(43.0)(4.0)%$3.6 

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Year ended December 31,

    

2017

    

2016

    

2015

 

 

 

(in thousands)

 

Amount of pretax income

 

 

 

 

 

 

 

 

 

 

Federal statutory rate

 

$

(8,765)

 

$

42,216

 

$

19,814

 

State and local income taxes - net of federal benefits

 

 

(1,567)

 

 

1,498

 

 

3,435

 

Nondeductible expenses

 

 

4,018

 

 

371

 

 

1,717

 

Goodwill impairment

 

 

5,131

 

 

 —

 

 

 —

 

Compensation

 

 

(7,376)

 

 

(1,817)

 

 

1,559

 

Contingent liability settlement

 

 

(5,740)

 

 

756

 

 

 —

 

Foreign

 

 

(2,840)

 

 

(10,268)

 

 

2,955

 

Valuation allowance

 

 

(741,872)

 

 

(20,675)

 

 

31,288

 

Federal tax reform enactment - deferred rate change

 

 

261,329

 

 

 —

 

 

 —

 

Other miscellaneous items

 

 

(825)

 

 

(774)

 

 

(4,844)

 

Total income tax provision

 

$

(498,507)

 

$

11,307

 

$

55,924

 

A reconciliation of the beginning and ending amount for the liability foramounts of unrecognized tax benefits is as follows:

 

 

 

 

 

 

    

Unrecognized

 

 

 

tax benefits

 

 

 

(in thousands)

 

Unrecognized tax benefits

 

$

33,569

 

Cumulative advance deposits on account

 

 

(31,371)

 

Balance at December 31, 2015

 

$

2,198

 

 

 

 

 

 

Additions based on current year positions

 

 

 —

 

Additions based on prior year positions

 

 

3,749

 

Decreases due to settlements and/or reduction in reserves

 

 

(9,091)

 

Currency translation adjustments

 

 

2,565

 

Settlement payments

 

 

(4,000)

 

Unrecognized tax benefits at December 31, 2016

 

$

26,792

 

 

 

 

 

 

Additions based on current year positions

 

 

2,979

 

Additions based on prior year positions

 

 

2,836

 

Decreases due to settlements and/or reduction in reserves

 

 

(1,322)

 

Currency translation adjustments

 

 

(119)

 

Settlement payments

 

 

(216)

 

Unrecognized tax benefits at December 31, 2017

 

$

30,950

 

(in millions)Unrecognized tax benefits
Unrecognized tax benefits as of January 1, 2018$30.9 
Additions based on prior year positions0.8 
Decreases due to settlements and/or reduction in reserves(2.0)
Unrecognized tax benefits as of December 31, 201829.7 
Additions based on prior year positions6.5 
Decreases due to settlements and/or reduction in reserves(0.2)
Unrecognized tax benefits as of December 31, 201936.0 
Additions based on prior year positions1.2 
Decreases due to settlements and/or reduction in reserves(0.9)
Unrecognized tax benefits as of December 31, 2020$36.3 

The Company is required under ASC 740 to disclose its accounting policy for classifying interest and penalties, the amount of interest and penalties charged to expense each period, as well as the cumulative amounts recorded in the consolidated balance sheets. The Company will continue to classify any income tax related penalties and interest accrued related to unrecognized tax benefits in income tax provisions within the consolidated statements of operations.

The U.S. and Canadian competent authorities have effectively settled and issued refunds for the transfer pricing dispute related to our Casino Rama management service agreement.  

During the year ended December 31, 2017, the Company received a cash refund of $9.5 million and $29.7 million from U.S. and Canada (inclusive of advances on account listed in the table above), respectively, which was classified in other current assets at December 31, 2016. 

During the year ended December 31, 2017, the Company recorded $3.6 million of2020, we did 0t record any new tax reserves, and accrued interest andor penalties related to current year uncertain tax positions. In regard toRegarding prior year tax positions, the Companywe recorded $3.1$1.9 million of tax reserves and accrued

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interest and reversed $1.4$1.0 million of previously recorded tax reserves

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and accrued interest for uncertain tax positions that have settled and/or closed. Thepositions. As of December 31, 2020 and 2019, unrecognized tax benefits, inclusive of $31.8accruals for income tax related penalties and interest, of $38.2 million is classifiedand $37.2 million, respectively, were included in other noncurrent tax liabilities.“Other long-term liabilities” within the Company’s Consolidated Balance Sheets. Overall, the Company recorded a net tax expense of $8.0$0.9 million in connection with its uncertain tax positions for the year ended December 31, 2017.

Included in the2020.


The liability for unrecognized tax benefits atas of December 31, 20172020 and 2016 were $25.12019 included $30.2 million and $9.4$29.4 million, respectively, of tax positions that, if reversed, would affect the effective tax rate. Also included in the reserve at December 31, 2017 and 2016 were $0.1 million and $1.7 million gain of currency translation related to foreign currency tax positions and the settlement receivable on account, respectively.

During the years ended December 31, 20172020, 2019 and 2016, the Company2018, we recognized approximately $1.7$0.5 million, $0.1 million and $0.3$0.5 million, respectively, of interest and penalties, net of deferred taxes. In addition, due to settlements and/or reductions in previously recorded liabilities, the Company had reductions in previously accrued interest and penalties of $0.1 million, net of deferred taxes. These accruals are includedThe Company had 0 reductions in noncurrentpreviously accrued interest and penalties for the year ended December 31, 2019. We classify any income tax liabilitiesrelated penalties and prepaid expensesinterest accrued related to unrecognized tax benefits in “Income tax benefit (expense)” within the consolidated balance sheets at December 31, 2017Consolidated Statements of Operations and 2016, respectively.

Comprehensive Income (Loss).


The Company is currently in various stages of the examination process in connection with its open audits. Generally, it is difficult to determine when these examinations will be closed, but the Company reasonably expects that its ASC 740 liabilities will not significantly change over the next twelve months.

As of December 31, 2017,2020, the Company ishas open tax years 2017 through 2019 that could be subject to examination for U.S. federal income tax examinations for the tax years 2014, 2015, and 2016. The 2013 U.S. federal income tax return was audited by the Internal Revenue Service and the examination concluded on September 27, 2017 with no adjustments other than the expected Canada competent authority settlement. The 2013 income tax return statute of limitation was extended to June 30, 2018 to accommodate the processing of this change.taxes. In addition, the Company iswe are subject to state and local income tax examinations for various tax years in the taxing jurisdictions in which we operate. Such audits could result in increased tax liabilities, interest and penalties. While the Company operates.

Atbelieves its tax positions are appropriate, we cannot assure the outcome will remain consistent with our expectation. The Company believes we have adequately reserved for potential audit exposures of uncertain tax positions. In the event the final outcome of these matters is different than the amounts recorded, such differences will impact our income tax provision in the period in which the determination is made. As of December 31, 20172020 and 2016, prepaid expenses within the consolidated balance sheets included2019, prepaid income taxes of $12.0$52.7 million and $30.1$22.2 million, respectively. Therespectively, were included in “Prepaid expenses” within the Company’s Consolidated Balance Sheets.


Note 15—Stockholders’ Equity
Common Stock Offerings
On May 14, 2020, the Company received federal income tax refundscompleted a public offering of $28.116,666,667 shares of Penn Common Stock and on May 19, 2020, the underwriters exercised their right to purchase an additional 2,500,000 shares of Penn Common Stock, resulting in an aggregate public offering of 19,166,667 shares of Penn Common Stock. All of the shares were issued at a public offering price of $18.00 per share, resulting in gross proceeds of $345.0 million, including interest duringand net proceeds of $331.2 million after underwriter fees and discounts of $13.8 million.
On September 24, 2020, the year relatedCompany completed a public offering of 14,000,000 shares of Penn Common Stock and on September 25, 2020, the underwriters exercised their right to purchase an additional 2,100,000 shares of Penn Common Stock, resulting in an aggregate public offering of 16,100,000 shares of Penn Common Stock. All of the shares were issued at a public offering price of $61.00 per share, resulting in gross proceeds of $982.1 million, and net operating loss carryback, general business credit carrybackproceeds of $957.6 million after underwriter fees and a prior year overpayment.

13.Shareholders’ Equity

Preferred Equity Investment

On June 15, 2007,discounts of $24.5 million.

Share Repurchase Program
In January 2019, the Company announced that it had entered into a merger agreement that, at the effective time of the transactions contemplated thereby, would have resulted in the Company’s shareholders receiving $67.00 per share. Specifically, the Company, PNG Acquisition Company Inc. (“Parent”) and PNG Merger Sub Inc., a wholly‑owned subsidiary of Parent (“Merger Sub”), announced that they had entered into an Agreement and Plan of Merger, dated as of June 15, 2007 (the “Merger Agreement”), that provided, among other things, for Merger Sub to be merged with and into the Company, as a result of which the Company would have continued as the surviving corporation and would have become a wholly‑owned subsidiary of Parent. Parent is indirectly owned by certain funds managed by affiliates of Fortress Investment Group LLC (“Fortress”) and Centerbridge Partners, L.P. (“Centerbridge”).

On July 3, 2008, the Company entered into an agreement with certain affiliates of Fortress and Centerbridge, terminating the Merger Agreement. In connection with the termination of the Merger Agreement, certain affiliates of Fortress and Centerbridge agreed to pay the Company a total of $1.475 billion, consisting of a nonrefundable $225 million cash termination fee and a $1.25 billion, zero coupon, preferred equity investment (the “Investment”). On October 30, 2008, the Company closed the sale of the Investment and issued 12,500 shares of the Series B Preferred Stock. During the year ended December 31, 2010, the Company repurchased 225 shares of Series B Preferred Stock for $11.2 million.

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As part of the Spin‑Off, the Company entered into an agreement (the “Exchange Agreement”) with FIF V PFD LLC, an affiliate of Fortress, providing for the exchange of shares of the Company’s Series B Preferred Stock for shares of a new class of preferred stock, Series C Preferred Stock, in contemplation of the Spin‑Off.

The Exchange Agreement provided Fortress with the right to exchange its 9,750 shares of Series B Preferred Stock for fractional shares of Series C Preferred Stock at an exchange ratio that treated each such fractional share (and therefore each share of common stock into which such fractional share was convertible) as worth $67 per share, which was the “ceiling price” at which the shares of Series B Preferred Stock were redeemable by the Company at maturity. Any shares of Series B Preferred Stock that were not exchanged for shares of Series C Preferred Stock prior to the second business day before October 16, 2013, the record date established for the distribution of GLPI common stock in the Spin‑Off, were automatically exchanged for shares of Series C Preferred Stock on such date. Subsequently, the Company had the right to purchase from Fortress, prior to the record date for the Spin‑Off, a number of shares of Series C Preferred Stock, at a price of $67 per fractional share of Series C Preferred Stock, such that, immediately following the consummation of the Spin‑Off, Fortress would not own more than 9.9% of GLPI’s common stock.

On October 11, 2013, the Company completed its exchange and repurchase transactions with Fortress and repurchased all of the 2,300 shares of Series B Preferred Stock held by Centerbridge at par and issued to the affiliate of Fortress 14,553 shares of non-voting Series C Preferred Stock in order to redeem all of the previously outstanding shares of Series B Preferred Stock. The Company then repurchased 5,929 shares of Series C Preferred Stock from Fortress. Additionally, in February 2013, the Company repurchased 225 shares of Series B Preferred Stock from WF Investment Holdings, LLC at a slight discount to par. In these transactions, the Company paid a total of $649.5 million, which was primarily funded by borrowings under the revolving credit facility, to the affiliates of Fortress, Centerbridge and WF Investment Holdings, LLC. As a result of these transactions, there are currently no outstanding shares of Series B Preferred Stock and Fortress held 8,624 shares of Series C Preferred Stock at December 31, 2015.

During 2016, Fortress sold all 8,624 shares of Series C Preferred Stock, which converted upon sale into 8,624,000 shares of common stock under previously agreed upon terms. As a result, no shares of Series C Preferred Stock were outstanding at December 31, 2017 and 2016.

Repurchase of Common Stock

On February 3, 2017, the Company announced a repurchase program pursuant to which the Board of Directors authorized tothe repurchase of up to $100$200.0 million of the Company’s common stock, which can be executed over a two year period.expired on December 31, 2020. During the year ended December 31, 2017,2019, the Company repurchased 1,264,1491,271,823 shares of its Common Stockcommon stock in open market transactions for approximately $24.8$24.9 million at an average price of $19.59$19.55 per share. All of the repurchased shares have beenwere retired.

14.Stock‑Based Compensation

On April 16, 2003, There were no repurchases of the Company’s Boardcommon stock for the year ended December 31, 2020.


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Preferred Stock
On February 20, 2020, the Company issued 883 shares of Series D Preferred Stock, par value $0.01 per share (the “Series D Preferred Stock”), to certain individual stockholders affiliated with Barstool Sports as discussed in "Note 7—Investments in and approved the 2003Advances to Unconsolidated Affiliates." There were 5,000 shares authorized of Series D Preferred Stock and 883 shares outstanding as of December 31, 2020.
The Company previously issued 2 series of preferred stock, Series B and Series C, each with a par value of $0.01 per share. As of December 31, 2020 and 2019, there were 1,000,000 and 18,500 shares authorized of our Series B and Series C preferred stock, respectively. There were 0 shares outstanding of either Series B or Series C preferred stock as of December 31, 2020 and 2019.

Note 16—Stock-Based Compensation
2018 Long Term Incentive Compensation Plan (the “2003 Plan”). On May 22, 2003, the
The Company’s shareholders approved the 2003 Plan. The 2003 Plan was effective June 1, 2003 and permitted the grant of options to purchase common stock and other market‑based and performance‑based awards. Up to 12,000,000 shares of common stock were available for awards under the 2003 Plan. The 2003 Plan provided for the granting of both incentive stock options intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended, and nonqualified stock options, which do not so qualify. The exercise price per share may be no less than (i) 100% of the fair market value of the common stock on the date an option is granted for incentive stock options and (ii) 85% of the fair market value of the common stock on the date an option is granted for nonqualified stock options. However, the shares which remained available for issuance under such

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plan as of November 12, 2008 are no longer available for issuance and all future equity awards will be pursuant to the 20082018 Long Term Incentive Compensation Plan, as amended (the “2008“2018 Plan”) described below.

On August 20, 2008, the Company’s Board of Directors adopted and approved the 2008 Plan. On November 12, 2008, the Company’s shareholders approved the 2008 Plan. The 2008 Plan permits the Companyit to issue stock options (incentive and/or non‑qualified)non-qualified), stock appreciation rights (“SARs”), restricted stock awards (“RSAs”), phantom stock units (“PSUs”) and other equity and cash awards to employees. Non‑ employeeNon-employee directors and the chairman emeritus are eligible to receive all such awards, other than incentive stock options. On June 9, 2011,Pursuant to the 2018 Plan, 12,700,000 shares of the Company’s shareholders approved an amendment to the 2008 Plan to increase the aggregate number of shares of common stock that may be issued by 2,350,000 to 9,250,000, and on June 12, 2014 the Company’s shareholders approved an amendment to increase the aggregate number of shares of common stock that may be issued from 9,250,000 to 16,350,000. Awards of stock options and stock appreciation rights will be counted against the 16,350,000 limit as one share of common stockare reserved for each share granted. However, each share awarded in the form of restricted stock, or any other full value stock award, will be counted as issuing 2.44 shares of common stock forissuance. For purposes of determining the number of shares available for issuance under the plan.2018 Plan, stock options and SARs count against the 12,700,000 limit as 1 share of common stock for each share granted and restricted stock or any other full value stock award count as issuing 2.30 shares of common stock for each share granted. Any awards that are not settled in shares of common stock shallare not countcounted against thisthe limit. AtAs of December 31, 2017,2020, there were 1,436,3487,612,054 shares available for future grants under the 2018 Plan.

2008 Long Term Incentive Compensation Plan
In November 2008, the Company’s shareholders approved the 2008 Long Term Incentive Compensation Plan (the “2008 Plan”), which permitted the Company to issue stock options (incentive and/or non-qualified), SARs, RSAs, PSUs and other equity and cash awards to employees. Non-employee directors were eligible to receive all such awards, other than incentive stock options. Upon approval of the 2018 Plan, awards were no longer available to be granted under the 2008 Plan.

However, the 2008 Plan remains in place until all of the awards previously granted thereunder have been paid, forfeited or expired.

Stock-based Compensation Expense
Stock-based compensation expense, which pertains principally to our stock options and RSAs, for the years ended December 31, 2020, 2019 and 2018 totaled $14.5 million, $14.9 million and $12.0 million, respectively, and is included within the Consolidated Statements of Operations and Comprehensive Income (Loss) under “General and administrative.”
Stock Options
Stock options that expire between February 21, 2021 and October 31, 2030 have been granted to officers, directors, employees, and predecessor employees to purchase common stock at prices ranging from $12.65 to $55.74 per share. All options were granted at the fair market value of the common stock on the grant date (as defined in the respective plan document) and have contractual lives ranging from four to ten years. The Company issues new authorized common shares to satisfy stock option exercises.
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The following table contains information about our stock options:
 Number of Option
Shares		Weighted-Average
Exercise Price		Weighted-Average Remaining Contractual
Term
(in years)		Aggregate
Intrinsic Value
(in millions)
Outstanding as of January 1, 20207,817,436 $16.30   
Granted652,733 $26.79   
Exercised(4,362,654)$14.37   
Forfeited(508,326)$21.69   
Outstanding as of December 31, 20203,599,189 $19.79 6.46$242.2 
Exercisable as of December 31, 20201,343,421 $16.71 3.94$94.6 
The weighted-average grant-date fair value of options granted during the years ended December 31, 2020, 2019 and 2018 were $8.62, $6.39 and $9.88, respectively. The aggregate intrinsic value of stock options exercised during the years ended December 31, 2020, 2019 and 2018 was $128.9 million, $2.0 million and $28.7 million, respectively. The total fair value of stock options that vested during the years ended December 31, 2020, 2019 and 2018 was $9.6 million, $6.2 million and $5.9 million, respectively.
The following table summarizes information about our outstanding stock options as of December 31, 2020:
 Exercise Price RangeTotal
 
$12.65 to
$18.63
$18.81 to
$26.14
$30.74 to
$36.31
$55.74 to
$55.74
$12.65 to
$55.74
Outstanding options    
Number outstanding1,045,257 2,245,484 303,974 4,474 3,599,189 
Weighted-average remaining contractual term (in years)2.778.444.469.846.46
Weighted-average exercise price$13.86 $20.88 $31.57 $55.74 $19.79 
Exercisable options 
Number outstanding830,121 389,945 123,355 0 1,343,421 
Weighted-average exercise price$13.48 $19.14 $30.74 $0 $16.71 
As of December 31, 2020, the unamortized compensation costs not yet recognized related to stock options granted totaled $11.5 million and the weighted-average period over which the costs are expected to be recognized was 2.5 years.
The following are the weighted-average assumptions used in the Black-Scholes option-pricing model for the years ended December 31, 2020, 2019 and 2018:
For the year ended December 31,
202020192018
Risk-free interest rate1.55 %2.00 %2.26 %
Expected volatility33.78 %32.90 %30.80 %
Dividend yield0 0 0 
Weighted-average expected life (in years)5.005.305.30
Restricted Stock Awards
As noted above, the Company grants RSAs to our employees and certain non-employee directors. In addition, the Company issues its named executive officers (“NEOs”) and other key executives RSAs with performance conditions (we refer to our RSAs with performance conditions as “PSAs”), which are discussed in further detail below.
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Performance Share Programs
The Company’s Performance Share Programs (as defined below) were adopted in order to provide our NEOs and certain other key executives with stock-based compensation tied directly to the Company’s performance, which further aligns their interests with those of shareholders and provides compensation only if the designated performance goals are met for the applicable performance periods.
On February 9, 2016,6, 2018, our Compensation Committee adopted a performance share program (the “2018 Performance Share Program”) pursuant to the 2018 Plan, which provided for the issuance of 197,727 PSAs, at target, to be granted in one-third increments.
In February 2019, the Company’s Compensation Committee of the Board of Directors adopted a Performance Share Programperformance share program (the “Performance Share Program”Program II”) pursuant to the 2008 Plan, which contains performance‑based2018 Plan.
On February 14, 2019, an aggregate of 278,780 PSAs with performance-based vesting for a meaningful portion of restricted stock awards. Theconditions, at target, was granted under the Performance Share Program II, to be granted in one-third increments.
On February 25, 2020, an aggregate of 107,297 PSAs with performance-based vesting conditions, at target, was adopted to provide key executives with equity‑based compensation tied directly to Company performance to further align their interests with those of shareholders, and to provide compensation only if the designated performance goal is met for the applicable performance period. The Company’s named executive officers and other key executives are eligible to participate ingranted under the Performance Share Program.  An aggregateProgram II, to be granted in one-third increments.
PSAs issued pursuant to the Performance Share Programs consist of 172,245 and 189,085 performance shares were awarded on February 17, 2017 and February 9, 2016, respectively, with each award having a three-year award period consisting of three3 one-year performance periods andover a three-year service period. The performance goal for each performance period willawards have the potential to be an adjusted EBITDA goal established for each one-year performance period.  The awards will potentially be earned at between 0% and 150% of the number of shares awarded in one-third incrementsgranted depending on achievement of the annual performance goals, but remain subject to vesting for the full three-year service term.

At December 31, 2017, the adjusted EBITDA target for the third tranche of the 2016 performance awards and the second and third tranches of the 2017 performance awards were not yet established and therefore the Company concluded aperiod.

The grant date has not occurred under ASC 718.  Stock based compensation expense will be measured for each tranchefair value of our RSAs is based on the fair value of the restricted stock awards using Penn’smost recent closing stock price onof the Company’s shares of common stock. The stock-based compensation expense is recognized over the remaining service period at the time of grant, date since all key termsadjusted for the specific tranche were established and mutually understood byCompany’s expectation of the Company and the individuals receiving the awards.  At each reporting period, accruals of stock based compensation expense are based on the probable outcomeachievement of the performance condition.

Stock options that expire between July 8, 2018 and August 7, 2024, have been granted to officers, directors, employees, and predecessor employees to purchase common stock at prices ranging from $6.96 to $20.75 per share. All options were granted at the fair market value of the common stock on the date the options were granted (as defined in the respective plan document) and have contractual lives ranging from 4 to 10 years. The Company issues new authorized common shares to satisfy stock option exercises as well as lapses of forfeiture of restrictions on restricted stock.

conditions.

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The following table contains information on stock options issued under the plans for the year endedour RSAs:

With Performance ConditionsWithout Performance Conditions
 Number of 
Shares		Weighted- Average Grant Date Fair ValueNumber of 
Shares		Weighted- Average Grant Date Fair Value
Nonvested as of January 1, 2020395,362 $24.35 298,479 $23.15 
Granted179,045 $28.68 131,313 $26.18 
Vested(352,371)$23.63 (106,666)$22.53 
Forfeited0 $0 (39,180)$25.18 
Nonvested as of December 31, 2020222,036 $28.73 283,946 $24.50 
As of December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

 

    

Weighted-

    

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

 

 

 

Remaining

 

Aggregate

 

 

 

Number of Option

 

Weighted-Average

 

Contractual

 

Intrinsic Value

 

 

 

 Shares

 

Exercise Price

 

Term (in years)

 

(in thousands)

 

Outstanding at December 31, 2016

 

6,326,593

 

$

11.17

 

 

 

 

 

 

Granted

 

1,486,790

 

 

14.26

 

 

 

 

 

 

Exercised

 

(1,226,345)

 

 

8.81

 

 

 

 

 

 

Canceled

 

(35,724)

 

 

14.38

 

 

 

 

 

 

Outstanding at December 31, 2017

 

6,551,314

 

$

12.29

 

3.98

 

$

124,709

 

2020, the unamortized compensation costs not yet recognized related to RSAs totaled $6.4 million and the weighted-average period over which the costs are expected to be recognized is 1.7 years. The weighted‑average grant‑datetotal fair value of options grantedRSAs that vested during the years ended December 31, 20172020, 2019 and 2016 were $4.48 and $3.97, respectively.  The aggregate intrinsic value of stock options exercised during the years ended December 31, 2017, 2016, and 20152018 was $15.8$16.7 million, $10.3$5.5 million and $19.5$0.9 million, respectively.  At December 31, 2017, there were 3,106,177 shares that were exercisable, with a weighted‑average exercise price of $10.94, a weighted‑average remaining contractual term of 2.67 years, and an aggregate intrinsic value of $63.3 million.

The following table summarizes information about stock options

Phantom Stock Units
Our outstanding at December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise Price Range

 

Total

 

 

    

$6.96 to

    

$11.12 to

    

$16.59 to

    

$6.96 to

 

 

 

$10.41

 

$16.02

 

$20.75

 

$20.75

 

Outstanding options

 

 

 

 

 

 

 

 

 

 

 

 

 

Number outstanding

 

 

1,178,054

 

 

5,283,711

 

 

89,549

 

 

6,551,314

 

Weighted-average remaining contractual life (years)

 

 

0.77

 

 

4.67

 

 

5.48

 

 

3.98

 

Weighted-average exercise price

 

$

8.16

 

$

13.11

 

$

18.36

 

$

12.29

 

Exercisable options

 

 

 

 

 

 

 

 

 

 

 

 

 

Number outstanding

 

 

1,176,804

 

 

1,915,712

 

 

13,661

 

 

3,106,177

 

Weighted-average exercise price

 

$

8.16

 

$

12.60

 

$

16.59

 

$

10.94

 

The following table contains information on restricted stock awards issued under the plans for the year ended December 31, 2017:

Number of Award

Shares

Outstanding at December 31, 2016

175,886

Awarded

176,865

Released

(68,257)

Canceled

(16,839)

Outstanding at December 31, 2017

267,655

Stock-based compensation expenses for the years ended December 31, 2017, 2016 and 2015 totaled $7.8 million, $6.9 million and $8.2 million, respectively, and are included within the consolidated statements of operations under general and administrative expense.

At December 31, 2017, 2016 and 2015, the total compensation cost related to nonvested awards not yet recognized equaled $12.2 million, $11.6 million and $11.2 million, respectively, including $9.8 million, $9.9 million and $8.8 million for stock options, respectively, and $2.4 million, $1.7 million and $2.4 million for restricted stock, respectively. This cost is expected to be recognized over the remaining vesting periods, which will not exceed four years.

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The Company’s PSUs which vest over a period of three to four years, entitle employees, non-employee directors, and directorsthe chairman emeritus to receive cash based on the fair value of the Company’s common stock on the vesting date. Our PSUs vest over a period of three or four years. The cash-settled PSUs are accounted for as liability awards and are re-measured at fair value each reporting period until they become vested with compensation expense being recognized over the requisite service period in accordance with ASC 718-30, “Compensation—Stock Compensation, Awards Classified as Liabilities.”period. The Company has a liability, which is included in accrued salaries“Accrued expenses and wagesother current liabilities” within the consolidated balance sheets,Consolidated Balance Sheets, associated with its cash-settled PSUs of $4.8$10.1 million and $5.6$3.3 million atas of December 31, 20172020 and 2016,2019, respectively.

For PSUs held by Penn employees, non-employee directors, and directors,the chairman emeritus of the Company, there was $5.7$16.0 million of total unrecognized compensation cost atas of December 31, 20172020 that will be recognized over the grantsawards remaining weighted averageweighted-average vesting period of 2.362.3 years. For the years ended December 31, 2017, 20162020, 2019 and 2015,2018, the Company recognized $11.9$11.5 million, $8.5$4.1 million, and $14.1$1.1 million of compensation expense associated with these awards, respectively. The reason forCompensation expense associated with our PSUs is recorded in “General and administrative” within the increase was primarily due to an increase in the stock priceConsolidated Statements of Penn common stock
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Operations and Comprehensive Income (Loss). We paid $4.7 million, $2.5 million, and $4.2 million during 2017.  Amounts paid by the Company for the years ended December 31, 2017, 2016,2020, 2019 and 2015 on these2018, respectively, pertaining to cash-settled awards totaled $12.7 million, $10.7 million, and $14.5 million, respectively.

For the Company’sPSUs.

Stock Appreciation Rights
Our outstanding cash-settled SARs the fair value of the SARs is calculated during each reporting period and estimated using the Black-Scholes option pricing model based on the various inputs discussed in Note 3. The Company’s SARs, which vest over a period of four years, are accounted for as liability awards since they will be settled in cash.cash and vest over a period of four years. The fair value of cash-settled SARs is calculated each reporting period and estimated using the Black-Scholes option pricing model. The Company has a liability, which is included in accrued salaries“Accrued expenses and wagesother current liabilities” within the consolidated balance sheets,Consolidated Balance Sheets, associated with its cash-settled SARs of $24.0$54.6 million and $7.3$14.4 million atas of December 31, 20172020 and 2016,2019, respectively.

For SARs held by Penn employees of the Company, there was $17.5$71.2 million of total unrecognized compensation cost atas of December 31, 20172020 that will be recognized over the awards remaining weighted averageweighted-average vesting period of 2.502.7 years. For the years ended December 31, 2017, 20162020 and 2015,2019, the Company recognized $21.9 million, $2.4a charge to compensation expense of $69.7 million and $5.1$10.7 million, respectively, associated with these awards, as compared to a reduction to compensation expense of compensation$6.7 million for the year ended December 31, 2018. Compensation expense associated with these awards. The reasonthe SARs is recorded in “General and administrative” within the Consolidated Statements of Operations and Comprehensive Income (Loss). We paid $32.6 million, $3.5 million and $10.5 million during the years ended December 31, 2020, 2019 and 2018, respectively, related to cash-settled SARs.

Note 17—Earnings (Loss) per Share
For the year ended December 31, 2020, we recorded a net loss attributable to Penn Common Stock. As such, because the dilution from potential common shares was antidilutive, we used basic weighted-average common shares outstanding, rather than diluted weighted-average common shares outstanding when calculating diluted loss per share for the increaseyear ended December 31, 2020.
On February 20, 2020, the Company issued 883 shares of Series D Preferred Stock to certain individual stockholders affiliated with Barstool Sports which can be converted into 883,000 shares of Penn Common Stock. The Series D Preferred Stock will be entitled to participate equally and ratably in all dividends and distributions paid to holders of Penn Common Stock. Holders of the Company's Series D Preferred Stock are not obligated to absorb losses therefore the two-class method was primarily duenot applied for the year ended December 31, 2020. (See Note 7 - Investments in and Advances to an increaseUnconsolidated Affiliates).
The stock options, RSAs, convertible preferred shares and convertible debt that could potentially dilute basic EPS in the stock pricefuture that were not included in the computation of Penndiluted loss per share were as follows:
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(in millions)For the year ended December 31, 2020
Assumed conversion of dilutive stock options3.0 
Assumed conversion of dilutive RSAs0.5 
Assumed conversion of convertible preferred shares0.7 
Assumed conversion of convertible debt9.1 
The following table reconciles the weighted-average common stock during 2017. Amounts paid byshares outstanding used in the Companycalculation of basic EPS to the weighted-average common shares outstanding used in the calculation of diluted EPS for the years ended December 31, 2017, 20162019 and 2015 on these cash-settled awards totaled $6.2 million, $3.32018:
For the year ended December 31,
(in millions)20192018
Weighted-average common shares outstanding—Basic115.7 97.1 
Assumed conversion of:
Dilutive stock options1.8 3.0 
Dilutive RSAs0.3 0.2 
Weighted-average common shares outstanding—Diluted117.8 100.3 
Options to purchase 0, 2.4 million, and $3.40.7 million respectively.

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15.Segment Information

The following tables present certain information with respect toshares were outstanding during the Company’s segments. Intersegment revenues between the Company’s segmentsyears ended December 31, 2020, 2019 and 2018, respectively, but were not materialincluded in anythe computation of the periods presented below. 

 

 

 

 

 

 

 

Year ended December 31,

    

2017

    

2016

 

2015

 

 

(in thousands)

Net Revenues

 

 

 

 

 

 

Northeast

$

1,584,119

$

1,568,514

$

1,505,838

South/West

 

604,665

 

546,608

 

478,128

Midwest

 

907,493

 

877,567

 

833,455

Other (1)

 

51,693

 

41,691

 

20,937

Total Reportable Segment Net Revenues

 

3,147,970

 

3,034,380

 

2,838,358

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

 

 

 

 

 

Northeast

 

501,271

 

489,070

 

456,599

South/West

 

135,324

 

128,569

 

128,850

Midwest

 

297,777

 

287,275

 

291,317

Other (1)

 

(88,426)

 

(61,085)

 

(80,417)

Total Reportable Segment Adjusted EBITDA

 

845,946

 

843,829

 

796,349

 

 

 

 

 

 

 

Other operating costs and other expenses (income)

 

 

 

 

 

 

Depreciation and amortization

 

267,062

 

271,214

 

259,461

Unconsolidated non-operating costs - Kansas JV

 

5,866

 

10,311

 

10,377

Interest expense

 

466,761

 

459,243

 

443,127

Interest income

 

(3,552)

 

(24,186)

 

(11,531)

Loss (gain) on disposal of assets

 

172

 

(2,471)

 

1,286

Impairment losses, provision for loan loss and unfunded loan commitments to the JIVDC

 

107,810

 

 —

 

40,042

Insurance recoveries

 

(289)

 

(726)

 

 —

Loss on early extinguishment of debt

 

23,963

 

 —

 

 —

Other

 

2,257

 

1,679

 

(5,872)

Contingent purchase price

 

(6,840)

 

1,277

 

(5,374)

Charge for stock compensation

 

7,780

 

6,871

 

8,223

Income before income taxes

 

(25,044)

 

120,617

 

56,610

Income taxes

 

(498,507)

 

11,307

 

55,924

Net income

$

473,463

$

109,310

$

686

diluted EPS because they were antidilutive.

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Northeast

 

South/West

 

Midwest

 

Other (1)

 

Total

 

 

 

(in thousands)

 

Year ended December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

$

22,632

 

$

42,025

 

$

29,827

 

$

4,777

 

$

99,261

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

$

30,677

 

$

30,458

 

$

30,921

 

$

5,189

 

$

97,245

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

$

155,413

 

$

16,805

 

$

22,679

 

$

4,343

 

$

199,240

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance sheet at December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

821,649

 

$

794,274

 

$

1,070,204

 

$

2,548,685

 

$

5,234,812

 

Investment in and advances to unconsolidated affiliates

 

 

102

 

 

 —

 

 

88,296

 

 

60,514

 

 

148,912

 

Goodwill

 

 

21,242

 

 

244,695

 

 

674,558

 

 

67,602

 

 

1,008,097

 

Other intangible assets, net

 

 

303,043

 

 

1,623

 

 

101,698

 

 

16,242

 

 

422,606

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance sheet at December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

861,951

 

$

840,076

 

$

1,103,231

 

$

2,169,226

 

$

4,974,484

 

Investment in and advances to unconsolidated affiliates

 

 

76

 

 

 —

 

 

93,768

 

 

62,332

 

 

156,176

 

Goodwill

 

 

21,242

 

 

223,586

 

 

673,889

 

 

70,968

 

 

989,685

 

Other intangible assets, net

 

 

303,043

 

 

1,133

 

 

101,488

 

 

29,830

 

 

435,494

 

(1)

Total assets include the real property assets under the Master Lease with GLPI. Net revenues and adjusted EBITDA relate to the Company’s stand-alone racing operations, namely Rosecroft Raceway, which the Company sold on July 31, 2016, Sanford Orlando Kennel Club and the Company’s joint venture interests in Texas and New Jersey (see Note 6 to the consolidated financial statements) which do not have gaming operations.  Other also includes corporate overhead operations as well as Penn Interactive Ventures, which is a wholly-owned subsidiary that is pursuing the Company’s interactive gaming strategy.

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16.Summarized Quarterly Data (Unaudited)

The following table summarizespresents the quarterly resultscalculation of operationsbasic and diluted earnings (loss) for the Company’s common stock for the years ended December 31, 20172020, 2019 and 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal Quarter

 

 

    

First (1)

    

Second (1,2)

    

Third

    

Fourth

 

 

 

(in thousands, except per share data)

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues

 

$

776,224

 

$

796,463

 

$

806,247

 

$

769,036

 

Income from operations

 

 

140,287

 

 

134,989

 

 

143,663

 

 

26,775

 

Net income (loss)

 

 

5,104

 

 

17,079

 

 

789,340

 

 

(338,060)

 

Earnings (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per common share

 

$

0.06

 

$

0.19

 

$

8.68

 

$

(3.72)

 

Diluted earnings (loss) per common share

 

$

0.06

 

$

0.18

 

$

8.43

 

$

(3.72)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal Quarter

 

 

 

First

    

Second

    

Third (3)

    

Fourth (4)

 

 

 

(in thousands, except per share data)

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues

 

$

756,451

 

$

769,422

 

$

765,597

 

$

742,910

 

Income from operations

 

 

140,531

 

 

149,337

 

 

139,300

 

 

113,848

 

Net income

 

 

23,708

 

 

34,035

 

 

46,535

 

 

5,032

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share

 

$

0.26

 

$

0.38

 

$

0.52

 

$

0.06

 

Diluted earnings per common share

 

$

0.26

 

$

0.37

 

$

0.51

 

$

0.05

 

2018:
(in millions, except per share data)202020192018
Calculation of basic earnings (loss) per share:
Net income (loss) applicable to common stock$(669.5)$43.9 $93.5 
Weighted-average common shares outstanding - basic134.0 115.7 97.1 
Basic earnings (loss) per share$(5.00)$0.38 $0.96 
Calculation of diluted earnings (loss) per share:
Net income (loss) applicable to common stock(669.5)$43.9 $93.5 
Weighted-average common shares outstanding - diluted134.0 117.8 100.3 
Diluted earnings (loss) per share$(5.00)$0.37 $0.93 

(1)

On February 1, 2017 and June 1, 2017, the Company acquired DSG Amusement, Ltd. and Advantage Gaming LLC, respectively.

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(2)

On May 1, 2017 the Company acquired 1st Jackpot and Resorts.

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(3)

On August 1, 2016 the Company acquired Rocket Speed.

Note 18—Segment Information

(4)

On October 3, 2016 and November 1, 2016 the Company acquired Slot Kings, LLC and Bell Gaming, LLC, respectively.

ForWe have aggregated our operating segments into 4 reportable segments based on the second, thirdsimilar characteristics of the operating segments within the regions in which they operate: Northeast, South, West and fourth quartersMidwest. The Other category is included in the following tables in order to reconcile the segment information to the consolidated information.

The Company utilizes Adjusted EBITDAR (as defined below) as its measure of 2017, the Company recordedsegment profit or loss. The following table highlights our revenues and Adjusted EBITDAR for each reportable segment and reconciles Adjusted EBITDAR on a $5.6 million, $6.3 million, and $77.9 millionconsolidated basis to net income (loss).
 For the year ended December 31,
(in millions)202020192018
Revenues:   
Northeast segment$1,639.3 $2,399.9 $1,891.5 
South segment849.6 1,118.9 394.4 
West segment302.5 642.5 437.9 
Midwest segment681.4 1,094.5 823.7 
Other (1)
125.0 47.5 40.4 
Intersegment eliminations (2)
(19.1)(1.9)0 
Total$3,578.7 $5,301.4 $3,587.9 
Adjusted EBITDAR (3):
Northeast segment$478.9 $720.8 $583.8 
South segment318.9 369.8 118.9 
West segment82.2 198.8 114.3 
Midwest segment258.3 403.6 294.3 
Other (1)
(43.5)(87.8)(68.1)
Total (3)
1,094.8 1,605.2 1,043.2 
Other operating benefits (costs) and other income (expenses):
Rent expense associated with triple net operating leases (4)
(419.8)(366.4)(3.8)
Stock-based compensation(14.5)(14.9)(12.0)
Cash-settled stock-based awards variance(67.2)(0.8)19.6 
Gain (loss) on disposal of assets29.2 (5.5)(3.2)
Contingent purchase price1.1 (7.0)(0.5)
Pre-opening and acquisition costs(11.8)(22.3)(95.0)
Depreciation and amortization(366.7)(414.2)(269.0)
Impairment losses(623.4)(173.1)(34.9)
Recoveries on loan loss and unfunded loan commitments0 0 17.0 
Insurance recoveries, net of deductible charges0.1 3.0 0.1 
Non-operating items of equity method investments (5)
(4.7)(3.7)(5.1)
Interest expense, net(543.2)(534.2)(538.4)
Loss on early extinguishment of debt(1.2)0 (21.0)
Other (6)
93.1 20.0 (7.1)
Income (loss) before income taxes(834.2)86.1 89.9 
Income tax benefit (expense)165.1 (43.0)3.6 
Net income (loss)$(669.1)$43.1 $93.5 
(1)The Other category consists of charges, respectively, for the Company’s loanstand-alone racing operations, namely Sanford-Orlando Kennel Club and unfunded loan commitmentsthe Company’s JV interests in Sam Houston Race Park, Valley Race Park, and Freehold Raceway; our management contract for Retama Park Racetrack and our live and televised poker tournament series that operates under the trade name, Heartland Poker Tour (“HPT”). The Other category also includes Penn Interactive, which operates social gaming, our internally-branded retail sportsbooks, iGaming and our Barstool Sports online sports betting app.
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Expenses incurred for corporate and shared services activities that are directly attributable to the JIVDC.a property or are otherwise incurred to support a property are allocated to each property. The Other category also includes corporate overhead costs, which consist of certain expenses, such as: payroll, professional fees, travel expenses and other general and administrative expenses that do not directly relate to or have not otherwise been allocated to a property. In addition, the Company recorded a goodwillOther category includes our proportionate share of the Adjusted EBITDAR of Barstool Sports (as determined and discussed in footnotes (3) and (5) below).
(2)Represents the elimination of intersegment revenues associated with Penn Interactive and HPT.
(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; impairment charges of $18.0 million for Tropicana Las Vegaslosses; insurance recoveries and Sanford Orlando Kennel Clubdeductible charges; changes in the third quarterestimated fair value of 2017. 

In the third quarter of 2017, the Company determined that a valuation allowance was no longer required against its federal net deferred tax assets for the portion that will be realized. As a result, the Company released $766.2 million of its total valuation allowance due to the positive evidence outweighing the negative evidence.  In the fourth quarter of 2017, the Company wrote-off $257.0 million of deferred tax assets due to the passage of the tax reform act in December of 2017. See Note 12 to the consolidated financial statements for more details. 

During the first quarter of 2017, the Company recorded a $25.1 million loss on the early extinguishment of debt and finance charges related to the January 2017 refinancing.  See Note 9 to the consolidated financial statements for more details.

During the third quarter of 2017, Penn Interactive Ventures reached an agreement with the former shareholders of Rocket Speed to buy out the two yearour contingent purchase price consideration which resulted in a benefit to generalobligations; gain or loss on disposal of assets; the difference between budget and administrativeactual expense in the amountfor cash-settled stock-based awards; pre-opening and acquisition costs; and other income or expenses. Adjusted EBITDAR is also inclusive of $22.2 million.

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

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17.Related Party Transactions

(4)The Company currentlyCompany’s triple net operating leases executive office buildings in Wyomissing, Pennsylvania from affiliates of its Chairmaninclude certain components of the BoardMaster Leases (primarily land), the Meadows Lease, the Margaritaville Lease, the Greektown Lease, and the Tropicana Lease.

(5)Consists principally of Directors. Rentinterest expense, for eachnet; income taxes; depreciation and amortization; and stock-based compensation expense associated with Barstool Sports and our Kansas Entertainment JV.
(6)Principally includes holding gains on our equity securities, which are discussed in Note 19, “Fair Value Measurements.” Additionally, includes non-recurring restructuring charges (primarily severance) of $13.4 million associated with a company-wide initiative, triggered by the COVID-19 pandemic, designed to (i) improve the operational effectiveness across our property portfolio; and (ii) improve the effectiveness and efficiency of our Corporate functional support areas.
 For the year ended December 31,
(in millions)202020192018
Capital expenditures:   
Northeast segment$78.0 $96.2 $38.9 
South segment15.8 29.8 10.6 
West segment8.2 21.2 12.8 
Midwest segment15.1 32.7 25.3 
Other19.9 10.7 5.0 
Total capital expenditures$137.0 $190.6 $92.6 
(in millions)NortheastSouthWestMidwestOtherTotal
As of December 31, 2020
Investment in and advances to unconsolidated affiliates (1)
$0.1 $0 $0 $85.2 $181.5 $266.8 
Total assets (2)
$1,958.4 $1,165.4 $401.5 $1,161.1 $9,980.9 $14,667.3 
As of December 31, 2019
Investment in and advances to unconsolidated affiliates$0.1 $0 $0 $90.9 $37.3 $128.3 
Total assets (2)
$2,273.7 $1,397.0 $752.1 $1,412.2 $8,359.5 $14,194.5 
As of December 31, 2018
Investment in and advances to unconsolidated affiliates$0.1 $0 $0 $89.4 $39.0 $128.5 
Total assets (3)
$1,330.2 $1,082.3 $755.7 $1,411.5 $6,381.3 $10,961.0 
(1)Our investment in Barstool Sports is included within the Other category.
(2)As of December 31, 2020 and 2019, total assets of the years endedOther category includes real estate assets subject to the Master Leases, which are classified as either property and equipment, operating lease ROU assets, or finance lease ROU assets.
(3)As of December 31, 2017, 20162018, total assets of the Other category includes the real estate assets subject to the Master Leases, which are classified as property and 2015 amounted to $1.2 million, respectively. The leases for the office space expire in May 2019 and August 2024. The future minimum lease commitments relating to these leases at December 31, 2017 are $4.5 million.

18.Fairequipment.


Note 19—Fair Value Measurements

ASC Topic 820, “Fair Value Measurements and Disclosures,” establishes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques (market approach, income approach and cost approach). The levels of the hierarchy are described below:

·

Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities.

•Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities.

·

Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; these include quoted prices for similar assets or liabilities in active markets, such as interest rates and yield curves that are observable at commonly quoted intervals.

99

·

Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions, as there is little, if any, related market activity.

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•Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; these include quoted prices for similar assets or liabilities in active markets, such as interest rates and yield curves that are observable at commonly quoted intervals.
•Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions, as there is little, if any, related market activity.
The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of assets and liabilities and their placement within the fair value hierarchy.

The following methods and assumptions are used to estimate the fair value of each class of financial instruments for which it is practicable to estimate:

estimate. The fair value of the Company’s trade accounts receivable and payables approximates the carrying amounts.

Cash and cash equivalents

Cash Equivalents

The fair value of the Company’s cash and cash equivalents approximates thetheir carrying value of the Company’s cash and cash equivalents,amount, due to the short maturity of the cash equivalents.

Loan

Equity Securities
As of December 31, 2020 and 2019, we held $143.1 million and $40.5 million in equity securities, respectively, including ordinary shares and warrants, which are reported as “Other assets” in our 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 year ended December 31, 2020 and 2019, we recognized a holding gain of $106.7 million and $19.9 million, respectively, related to the JIVDC

these equity securities, which is included in “Other,” as reported in “Other income (expenses)” within our Consolidated Statements of Operations and Comprehensive Income (Loss).

The fair value of the Company’s loanequity securities was determined using Level 2 inputs, which use market approach valuation techniques. The primary inputs to those techniques include the quoted market price of the equity securities, foreign currency exchange rates, a discount for lack of marketability (“DLOM”) with respect to the JIVDC wasordinary shares, and a Black-Scholes option pricing model with respect to the warrants. The DLOM is based on the present valueremaining term of the projected future cash flows discounted at 14%relevant lock-up periods and the volatility associated with the underlying equity securities. The Black-Scholes option pricing model utilizes the exercise price of the warrants, a risk-free rate, volatility associated with the underlying equity securities and the expected life of the warrants.
Held-to-maturity Securities and Promissory Notes
We have a management contract with Retama Development Corporation (“RDC”), a local government corporation of the City of Selma, Texas, to manage the day-to-day operations of Retama Park Racetrack, located outside of San Antonio, Texas. 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 December 31, 2020 and 2019, PRP held $15.1 million in promissory notes issued by RDC and $6.7 million in local government corporation bonds issued by RDC, at amortized cost. The promissory notes and the local government corporation bonds are collateralized by the assets of Retama Park Racetrack. As of December 31, 2020 and 2019, the promissory notes and the local government corporation bonds, which have long-term contractual maturities, are included in “Other assets” within our Consolidated Balance Sheets.
During the year ended December 31, 2019, principally due to the lack of legislative progress and on-going negative operating results of Retama Park Racetrack, we believe approximatesrecorded an other-than-temporary impairment on the return a market participant would require.  Sincepromissory notes and the projectionslocal government corporation bonds totaling $2.5 million, which is included in “Impairment losses” within our Consolidated Statements of Operations and Comprehensive Income (Loss).
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 recovered. The estimated fair values of such investments are principally based on management’s internal projections,appraised values of the Company concluded that this instrument should beland associated with Retama Park Racetrack, which are classified as a Level 3 measurement.  See Note 5 to the consolidated financial statements for further details, including how the loans carrying amount was determined.

2 inputs.

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Long-term debt

Debt

The fair value of the Company’sour Term Loan A Facility, Term Loan B-1 Facility, 5.625% Notes, and B components of its senior secured credit facility and senior unsecured notesthe 2.75% Convertible Notes is estimated based on quoted prices in active markets and is classified as such is a Level 1 measurement. The fair value of the remainder of the Company’s senior secured credit facilityour Revolving Credit Facility approximates its carrying valueamount as it is revolving, variable rate debt, andwhich we also classify as such is a Level 21 measurement.

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TableOther long-term obligations as of Contents

Other long term obligations at December 31, 2017 include2020 and 2019 included the relocation fees for Hollywood Gaming at Dayton Raceway and Hollywood Gaming at Mahoning Valley, Race Course,which are discussed in Note 11, “Long-term Debt,” and the repayment obligation of athe hotel and event center located near Hollywood Casino Lawrenceburg. The fair valuevalues of the relocation fees for Hollywood Gaming at Dayton Raceway and Hollywood Gaming at Mahoning Valley Race Course and the repayment obligation for the hotel and event centerthese long-term obligations are estimated based on rates consistent with the Company’s credit rating for comparable terms and debt instruments and are classified as such are Level 2 measurements.

Other Liabilities

Other liabilities atas of December 31, 2017 include the2020 principally consisted of contingent purchase price consideration related to Plainridge Park Casino and, as of December 31, 2019, principally consisted of contingent purchase price related to Plainridge Park Casino and Absolute Games, LLC, which was acquired by Penn Interactive during the second quarter of 2018. The Plainridge Park Casino contingent purchase price is calculated based on earnings of Plainridge Racecourse.the gaming operations over the first ten years of operations, which commenced on June 24, 2015. As of December 31, 2020 and 2019, we were contractually obligated to make 5 and 6 additional annual payments, respectively. During the second quarter of 2020, we made the second and final payment of $8.2 million on the Absolute Games, LLC contingent purchase price, which corresponded to the second year of operations after the acquisition and was calculated based on earnings. The fair value of the Company’s contingent purchase price consideration related to its Plainridge Racecourse acquisition isthese liabilities, which are estimated based on an income approach using a discounted cash flow model and have been classified as such is a Level 3 measurement.  Duringmeasurements, are included within our Consolidated Balance Sheets in “Accrued expenses and other current liabilities” or “Other long-term liabilities,” depending on the three months ended September 30, 2017, Penn Interactive Ventures reached an agreement withtiming of the former owners of Rocket Speed to buy out the contingent purchase price obligation which resulted in a $22.2 million benefit to general and administrative expense.  At each reporting period, the Company assesses the fair value of its contingent purchase price obligations and changes in its value are recorded in earnings. The amount included in general and administrative expenses related to the change in fair value of these obligations resulted in a reduction of $6.8 million for the year ended December 31, 2017 compared to a charge of $1.3 million for the year ended December 31, 2016.

next payment.

The carrying amounts and estimated fair values by input level of the Company’s financial instruments during the years ended December 31, 2017 and 2016 arewere as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2017

 

 

 

Carrying

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Amount

    

Fair Value

    

Level 1

    

Level 2

    

Level 3

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

277,953

 

$

277,953

 

$

277,953

 

$

 —

 

$

 —

 

Loan to the JIVDC

 

 

20,900

 

 

16,533

 

 

 —

 

 

 —

 

 

16,533

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior secured credit facility

 

 

730,787

 

 

760,456

 

 

760,456

 

 

 —

 

 

 —

 

Senior unsecured notes

 

 

399,249

 

 

412,000

 

 

412,000

 

 

 —

 

 

 —

 

Other long-term obligations

 

 

119,310

 

 

113,460

 

 

 —

 

 

113,460

 

 

 —

 

Other liabilities

 

 

22,696

 

 

22,696

 

 

 —

 

 

 —

 

 

22,696

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

 

 

Carrying

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Amount

    

Fair Value

    

Level 1

    

Level 2

    

Level 3

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

229,510

 

$

229,510

 

$

229,510

 

$

 —

 

$

 —

 

Loan to the JIVDC

 

 

92,100

 

 

98,000

 

 

 —

 

 

 —

 

 

98,000

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior secured credit facility

 

 

962,703

 

 

976,092

 

 

785,092

 

 

191,000

 

 

 —

 

Senior unsecured notes

 

 

296,895

 

 

312,000

 

 

312,000

 

 

 —

 

 

 —

 

Other long-term obligations

 

 

154,084

 

 

152,132

 

 

 —

 

 

152,132

 

 

 —

 

Other liabilities

 

 

48,244

 

 

48,244

 

 

 —

 

 

 —

 

 

48,244

 

follows:

136

December 31, 2020
(in millions)Carrying AmountFair ValueLevel 1Level 2Level 3
Financial assets:
Cash and cash equivalents$1,853.8 $1,853.8 $1,853.8 $0 $0 
Equity securities$143.1 $143.1 $0 $143.1 $0 
Held-to-maturity securities$6.7 $6.7 $0 $6.7 $0 
Promissory notes$15.1 $15.1 $0 $15.1 $0 
Financial liabilities:
Long-term debt
Senior Secured Credit Facilities$1,600.3 $1,609.3 $1,609.3 $0 $0 
5.625% Notes$399.5 $418.0 $418.0 $0 $0 
Convertible Notes$239.8 $1,274.5 $1,274.5 $0 $0 
Other long-term obligations$73.0 $72.8 $0 $72.8 $0 
Other liabilities$10.1 $10.1 $0 $2.8 $7.3 
Puts and calls related to certain Barstool Sports shares$0.3 $0.3 $0 $0.3 $0 

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December 31, 2019
(in millions)Carrying AmountFair ValueLevel 1Level 2Level 3
Financial assets:
Cash and cash equivalents$437.4 $437.4 $437.4 $0 $0 
Equity securities$40.5 $40.5 $0 $40.5 $0 
Held-to-maturity securities$6.7 $6.7 $0 $6.7 $0 
Promissory notes$15.1 $15.1 $0 $15.1 $0 
Financial liabilities:
Long-term debt
Senior Secured Credit Facilities$1,896.5 $1,930.6 $1,930.6 $0 $0 
5.625% Notes$399.4 $426.0 $426.0 $0 $0 
Other long-term obligations$89.2 $89.7 $0 $89.7 $0 
Other liabilities$20.3 $20.3 $0 $2.8 $17.5 

The following table summarizes the changes in fair value of the Company’sour Level 3 liabilities (in thousands):

measured on a recurring basis:

 

 

 

 

 

 

 

 

Other Liabilities

 

 

 

 

Contingent

 

 

 

 

Purchase Price

 

 

 

 

 

 

 

 

Balance at January 1, 2015

 

$

19,189

 

 

Included in earnings

 

 

(5,374)

 

 

Balance at December 31, 2015

 

$

13,815

 

 

Additions

 

 

34,945

 

 

Payments

 

 

(1,793)

 

 

Included in earnings

 

 

1,277

 

 

Balance at December 31, 2016

 

$

48,244

 

 

Additions

 

 

905

 

 

Payments

 

 

(19,613)

 

 

Included in earnings

 

 

(6,840)

 

 

Balance at December 31, 2017

 

$

22,696

 

 

Other Liabilities
(in millions)Contingent Purchase Price
Balance as of January 1, 2018$22.7 
Payments(4.2)
Included in earnings (1)
0.5 
Balance as of December 31, 201819.0 
Payments(8.5)
Included in earnings (1)
7.0 
Balance as of December 31, 201917.5 
Payments(9.1)
Included in loss (1)
(1.1)
Balance as of December 31, 2020$7.3 

(1)The expense is included in “General and administrative” within our Consolidated Statements of Operations and Comprehensive Income (Loss).
The following table sets forth the assets measured at fair value on a non-recurring basis during the years ended December 31, 2020 and 2019:
(in millions)Valuation DateValuation TechniqueLevel 1Level 2Level 3Total BalanceTotal 
Reduction in
Fair Value
Recorded
Property and equipment (1)
12/31/2020Discounted cash flow$0 $0 $0 $0 $(7.3)
Goodwill (2)
3/31/2020Discounted cash flow and market approach$0 $0 $160.5 $160.5 $(113.0)
Gaming licenses (2)
3/31/2020Discounted cash flow$0 $0 $568.0 $568.0 $(437.0)
Trademarks (2)
3/31/2020Discounted cash flow$0 $0 $216.5 $216.5 $(61.5)
Goodwill10/1/2019Discounted cash flow and market approach$0 $0 $161.1 $161.1 $(88.0)
Gaming licenses10/1/2019Discounted cash flow$0 $0 $290.0 $290.0 $(62.6)
Trademarks10/1/2019Discounted cash flow$0 $0 $87.5 $87.5 $(20.0)
(1)The fair value, which was concluded to be zero, of our property and equipment associated with Tropicana was determined using Level 3 inputs.     See Note 8, “Property and Equipment,” for more information.
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(2)During the first quarter of 2020, we identified an indicator of impairment on our goodwill and other intangible assets due to the COVID-19 pandemic. See Note 9, “Goodwill and Other Intangible Assets” for more information.

The following table summarizes the significant unobservable inputs used in calculating fair value for our Level 3 liabilities:

liabilities on a recurring basis as of December 31, 2020:

Valuation Technique

Valuation

Unobservable Input

Unobservable

Discount Rate

Technique

Input

Discount Rate

Contingent purchase price - Plainridge

Park Casino

Discounted cash flow

Discount rate

8.30

%

5.05%


As discussed in Note 9, “Goodwill and Other Intangible Assets,” we recorded impairments on our goodwill, gaming licenses and trademarks as a result of the interim assessment for impairment during the first quarter of 2020. Our annual assessment for impairment as of October 1, 2020, did not result in any impairment charges to goodwill, gaming licenses and trademarks. The following table sets forthpresents quantitative information about the assets measured at fair value on a non-recurring basis during the year ended December 31, 2017 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

 

    

 

    

 

 

    

 

 

    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Reduction in

 

 

 

 

 

 

 

 

 

 

 

Balance at

 

Fair Value

 

 

 

Balance

 

 

 

 

 

 

 

December 31,

 

Recorded during

 

 

 

Sheet

 

 

 

 

 

 

 

 

 

 

2017

 

the year ended

 

 

    

Location

    

Level 1

    

Level 2

    

Level 3

    

Total

    

December 31, 2017,

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

Goodwill

 

$

 —

 

$

 —

 

$

598

 

$

598

 

$

(18,026)

 

Goodwill

The valuation techniquesignificant unobservable inputs used to measure the fair value of goodwill and intangible assets was the income approach. See Note 3 to the consolidated financial statements for a description of the inputs and the information used to develop the inputs in calculating the fair value measurements of goodwill and indefinite-lifeother indefinite-lived intangible assets.

assets as of the valuation date below:

(in millions)Fair ValueValuation TechniqueUnobservable InputRange or Amount
As of March 31, 2020
Gaming licenses$568.0 Discounted cash flowDiscount rate13.25% - 14.00%
Long-term revenue growth rate2.0 %
Trademarks$216.5 Discounted cash flowDiscount rate13.25% - 14.00%
Long-term revenue growth rate2.0 %
Pretax royalty rate1.0% - 2.0%

Note 20—Related Party Transactions
The Company’s goodwill was tested for impairment during the third quarter (before the next annual impairment test date of October 1, 2017) due to a significant deferred tax valuation allowance reversal which resultedCompany currently leases executive office buildings in an increase to the carrying amounts of someWyomissing, Pennsylvania from affiliates of its reporting units, and, as such, was determined to be a triggering event.  In accordance with ASC 805 “Business Combinations,” the Company’s allocationChairman Emeritus of the purchase priceBoard of Directors. Rent expense for Tropicana Las Vegas, whichthe years ended December 31, 2020, 2019 and 2018 was acquired$1.2 million, $1.2 million and $1.3 million, respectively. Certain of the leases for the office space expired in May 2019, but have been extended on a month-to-month basis; the remaining long-term lease for the office space expires in August 2015, included a significant amount2024. The future minimum lease commitments relating to these leases as of net operating losses (“NOL’s”).  The Company did not record deferred tax assets (“DTA”) of approximately $68 million at the acquisition date due to the recognition of a full valuation allowance at that time.  The Company’s purchase price allocation resulted in goodwill of $14.8 million being created which would not have been recorded if we had been able to recognize a deferred tax asset. 

December 31, 2020 were $1.5 million.


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As of September 30, 2017, Tropicana Las Vegas failed the quantitative goodwill impairment test as we determined its fair value was less than its carrying value.  As a result, the Company determined that the goodwill for the Tropicana Las Vegas reporting unit was fully impaired and recorded an impairment charge of $14.8 million within our South/West segment.  Additionally, the Company’s Sanford Orlando Kennel Club reporting unit within our Other category failed the quantitative goodwill impairment test as of September 30, 2017, and, as such, a partial impairment charge of $3.2 million was recorded.

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ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.


ITEM 9A.CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company’s management, under the supervision and with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of the Company’s disclosure controls and procedures, as such term is defined under Rule 13a‑15(e)13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of December 31, 2017,2020, which is the end of the period covered by this Annual Report on Form 10-K. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well-designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, our principal executive officer and principal financial officer concluded that the Company'sCompany’s disclosure controls and procedures were effective as of December 31, 20172020 to ensure that information required to be disclosed by the Company in reports we file or submit under the Exchange Act is (i) recorded, processed, summarized, evaluated and reported, as applicable, within the time periods specified in the United States Securities and Exchange Commission'sCommission’s rules and forms and (ii) accumulated and communicated to the Company'sCompany’s management, including the Company'sCompany’s principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures. 

Management’s Report on Internal Control Over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules 13a‑ 15(f)13a-15(f) and 15d‑15(f)15d-15(f)). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of our internal control over financial reporting, and concluded that it was effective as of December 31, 2017.2020. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control—Integrated Framework (2013 framework).

The Company completed its acquisition of 1st Jackpot and Resorts on May 1, 2017.  Since the Company has not yet fully incorporated the internal controls and procedures of 1st Jackpot and Resort into the Company’s internal control over financial reporting, management excluded 1st Jackpot and Resorts from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017.  This acquisition constituted approximately 1% of the Company’s total consolidated assets and approximately 1.5% of the Company’s consolidated net revenues as of and for the year ended December 31, 2017, respectively.

Based on this assessment, management determined that the Company maintained effective internal control over financial reporting as of December 31, 2017.

Deloitte & Touche LLP, the Company’s independent registered public accounting firm that audited the consolidated financial statementsConsolidated Financial Statements for the year ended December 31, 2017,2020, issued an attestation report on the Company’s internal control over financial reporting which immediately follows this report.

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Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the fiscal quarter ended December 31, 2017,2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

140

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders ofshareholders and the Board of Directors of

Penn National Gaming, Inc. and Subsidiaries

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Penn National Gaming, Inc. and Subsidiariessubsidiaries (the “Company”) as of December 31, 2017,2020, based on criteria established in Internal Control —- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2020, based on criteria established in Internal Control —- Integrated Framework (2013) issued by COSO.


We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 20172020, of the Company and our report dated March 1, 2018February 26, 2021, expressed an unqualified opinion on those financial statements.

As described in Management’s Report on Internal Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at 1st Jackpot Casino Tunica and Resorts Casino Tunica, which were acquired on May 1, 2017 and whose financial statements constitute 1 % of total assets and 1.5 % of net revenues of the consolidated financial statement amounts as of and for the year ended December 31, 2017. Accordingly, our audit did not include the internal control over financial reporting at 1st Jackpot Casino Tunica and Resorts Casino Tunica.     


Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB

PCAOB.


We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.


Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Deloitte & Touche LLP

Philadelphia, Pennsylvania

March 1, 2018


142

/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
February 26, 2021
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ITEM 9B.OTHER INFORMATION

None

None.

PART III


ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The remaining information required by this item concerning directors and corporate governance is hereby incorporated by reference to the Company’s definitive proxy statement for its Annual Meeting of Shareholders (the “2018“2021 Proxy Statement”), to be filed with the U.S. Securities and Exchange Commission within 120 days after December 31, 2017,2020, pursuant to Regulation 14A under the Securities Act. Information required by this item concerning executive officers is included in Part I of this Annual Report on Form 10‑K.

10-K.


ITEM 11.EXECUTIVE COMPENSATION

The information required by this item is hereby incorporated by reference to the 20182021 Proxy Statement.


ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS

The information required by this item is hereby incorporated by reference to the 20182021 Proxy Statement.


ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

The information required by this item is hereby incorporated by reference to the 20182021 Proxy Statement.


ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this item is hereby incorporated by reference to the 20182021 Proxy Statement.

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PART IV


ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) 1 and 2.

1.

Financial Statements and Financial Statement Schedules. Statements.

The following is a list of the Consolidated Financial Statements of the Company and its subsidiaries and supplementary data filed as part ofincluded herein under Item 8 hereof:

of Part II of this report, “Financial Statements and Supplementary Data”:

Page

48

50

51

Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2017, 2016 and 2015

52

53

55

2.

Financial Statement Schedules.

All other schedules arehave been omitted because they are not applicable, or not required, or because the required information is included in the Consolidated Financial Statements or notes thereto.

3.

3.  Exhibits, Including Those Incorporated by Reference.

The exhibits to this Report are listed on the accompanying index to exhibits and are incorporated herein by reference or are filed as part of this annual report on Form 10‑K.

10-K.

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Table of Contents
ITEM 16.    FORM 10-K SUMMARY INFORMATION

We have elected not to disclose the optional summary information.

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Table of Contents

EXHIBIT INDEX

Exhibit

NumberDescription of Exhibit

2.12.1††

2.2

2.2††
2.3

2.3††

2.4††
2.5††
2.6††
2.4

2.7 
2.5

Purchase Agreement by and between Plainville Gaming and Redevelopment, LLC (d/b/a Plainridge Park Casino), Penn National Gaming, Inc. and Gold Merger Sub, LLC, dated as of December 17, 2017 (Incorporated by reference to Exhibit 2.5 to the Company’s current report on Form 8-K, filed on December 20, 2017).

2.6

Purchase AgreementMarch 27, 2020, by and between Penn National Gaming, Inc., Gold Merger Sub, LLC, and upon their executionGaming and delivery of the joinder, PNK (Ohio), LLC and Pinnacle Entertainment,Leisure Properties, Inc., dated as of December 17, 2017 (Incorporated is hereby incorporated by reference to Exhibit 2.62.1 to the Company’s current reportCurrent Report on Form 8-K filed on December 20, 2017).March 30, 2020. (SEC File No. 000-24206)

3.1(a)

3.1 

3.1(b)

Articles of AmendmentAmendments to the Amended and Restated Articles of Incorporation of Penn National Gaming, Inc., filed with the Pennsylvania Department of State on November 13, 1996. (Incorporated by reference to Exhibit 3.2 to the Company’s registration statement on Form S-3, File No. 333 63780, dated June 25, 2001).

3.1(c)

Articles of Amendment to the Amended and Restated Articles of Incorporation of Penn National Gaming, Inc., filed with the Pennsylvania Department of State on1996, July 23, 2001. (Incorporated by reference to Exhibit 3.4 to the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2001).

3.1(d)

Articles of Amendment to the Amended2001 and Restated Articles of Incorporation of Penn National Gaming, Inc., filed with the Pennsylvania Department of State on December 28, 2007. (Incorporated by reference to Exhibit 3.1 to2007 and the Company’s current report on Form 8-K, filed on January 2, 2008).

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Exhibit

Description of Exhibit

3.1(e)

Statement with Respect to Shares of Series C Convertible Preferred Stock of Penn National Gaming, Inc. dated as of January 17, 2013. (Incorporated2013, and the Statement with Respect to Shares of Series D Convertible Preferred Stock of Penn National Gaming, Inc. dated as of February 19, 2020 is hereby incorporated by reference to Exhibit 4.13.1 to the Company’s current reportQuarterly Report on Form 8-K, filed on January 18, 2013).10-Q for the quarterly period ended March 31, 2020. (SEC File No. 000-24206)

3.2

3.2 
4.1

3.3 
3.4 
4.2

Indenture, dated as of October 30, 2013 between Penn National Gaming, Inc. and Wells Fargo Bank, N.A., as Trustee, relating to the 5.875% Senior Notes due 2021. (Incorporated by reference to Exhibit 4.1 to the Company’s current report on Form 8-K, filed on November 4, 2013).

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Table of Contents
4.3Exhibit

Form of Note for 5.875% Senior Notes due 2021. (Incorporated by reference to Exhibit 4.2 to the Company’s current report on Form 8-K, filed on November 4, 2013).

4.4Number

Investor Rights Agreement, dated asDescription of July 3, 2008, by and among Penn National Gaming, Inc., FIF V PFD LLC, Centerbridge Capital Partners, L.P., DB Investment Partners, Inc. and Wachovia Investment Holdings, LLC. (Incorporated by reference to Exhibit 4.2 to the Company’s current report on Form 8-K, filed on July 9, 2008).

4.4(a)

4.1 

Supplementary Investor Rights Agreement, dated as of January 16, 2013, by and between Penn National Gaming, Inc. and FIF V PFD LLC. (Incorporated by reference to Exhibit 4.2 to the Company’s current report on Form 8-K, filed on January 18, 2013).

4.5

Indenture, dated as of January 19, 2017 between Penn National Gaming, Inc. and Wells Fargo Bank, National AssociationN.A., as Trustee. (IncorporatedTrustee, relating to the 5.625% Senior Notes due 2027 is hereby incorporated by reference to Exhibit 4.1 to the Company’s current reportCurrent Report on Form 8-K filed on January 20, 2017).2017. (SEC File No. 000-24206)

4.5(a)

4.1(a)
9.1

4.2 
4.2(a)
4.2(b)
4.3 
9.1***Form of Trust Agreement of Peter D. Carlino, Peter M. Carlino, Richard J. Carlino, David E. Carlino, Susan F. Harrington, Anne de Lourdes Irwin, Robert M. Carlino, Stephen P. Carlino and Rosina E. Carlino Gilbert. (IncorporatedGilbert is hereby incorporated by reference to the Company’s registration statementRegistration Statement on Form S-1, File No. 33 77758, dated May 26, 1994).

1994. (SEC File No. 33-77758)

10.1#

10.1*†

10.1(a)#

First Amendment to the Penn National Gaming, Inc. Deferred Compensation Plan. (Incorporated by reference to Exhibit 10.3 to the Company’s quarterly report on Form 10-Q for the quarter ended March 31, 2016).

10.1(b)#

10.2†

Second Amendment to the Penn National Gaming, Inc. Deferred Compensation Plan. (Incorporated by reference to Exhibit 10.3 to the Company’s quarterly report on Form 10-Q for the quarter ended March 31, 2016).

10.2#

Penn National Gaming, Inc. 2003 Long Term Incentive Compensation Plan. (Incorporated by reference to Appendix A of the Company’s Proxy Statement dated April 22, 2003 filed pursuant to Section 14(a) of the Securities Exchange Act of 1934, as amended).

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Exhibit

Description of Exhibit

10.3#

Penn National Gaming, Inc. 2008 Long Term Incentive Compensation Plan, as amended. (Incorporatedamended is hereby incorporated by reference to Exhibit 10.1 to the Company’s quarterly reportQuarterly Report on Form 10-Q for the quarterquarterly period ended March 31, 2017).2017. (SEC File No. 000-24206)

10.4#

10.2(a)†

10.5#

10.2(b)†

10.6#

10.2(c)†

10.7#

10.2(d)†

10.8#

10.2(e)†

10.9#

Form of Performance Shares Award Certificate forProgram under the Penn National Gaming, Inc. 2008 Long Term Incentive Compensation Plan, as amended. (Incorporatedamended, is hereby incorporated by reference to Exhibit 10.210.1 to the Company’s quarterly reportCurrent Report on Form 10-Q for the quarter ended March 31, 2017)8-K filed on February 11, 2016). (SEC File No. 000-24206)

10.10#

10.2(e)(i)†
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Exhibit
NumberDescription of Exhibit
10.3†
10.3(a)†
10.3(b)†
10.3(c)†
10.3(d)†
10.3(e)†
10.3(f)†
10.3(f)(i)†
10.3(f)(ii)†
10.3(g)†
10.3(g)(i)†
10.3(h)†

10.11#

10.3(i)†
10.3(j)†
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Exhibit
NumberDescription of Exhibit
10.3(k)†
10.3(l)†
10.3(m)†
10.3(n)†
10.4†
10.4(a)†
10.4(b)†
10.5†

10.12#

10.5(a)†
10.6†
10.7†

10.13#

10.7(a)†
10.7(b)†
10.7(c)†
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10.14#

Exhibit

NumberDescription of Exhibit
10.8†
10.8(a)†
10.8(b)†
10.9*†
10.10*†
10.11†
10.11(a)†
10.15

10.11(b)†
10.11(c)†
10.16

10.12†

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Exhibit

Description of Exhibit

10.17

Tax Matters Agreement between Penn National Gaming, Inc. and Gaming and Leisure Properties, Inc. dated as of November 1, 2013. (Incorporated by reference to Exhibit 10.2 to the Company’s current report on Form 8-K, filed on November 7, 2013).

10.18

Employee Matters Agreement dated November 1, 2013 between Penn National Gaming, Inc. and Gaming and Leisure Properties, Inc. (Incorporated by reference to Exhibit 10.4 to the Company’s current report on Form 8-K, filed on November 7, 2013).

10.19

Master Lease between GLP Capital L.P. and Penn Tenant LLC dated November 1, 2013. (IncorporatedChristine LaBombard is hereby incorporated by reference to Exhibit 10.1 to the Company’s current reportCurrent Report on Form 8-K filed on November 7, 2013).January 31, 2019. (SEC File No. 000-24206)

10.20(a)

10.13 

10.20(b)

Second Amendment to the Master Lease. (Incorporated by reference to Exhibit 10.4 to the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2014).

10.20(c)

10.14 

Third Amendment to the Master Lease. (Incorporated by reference to Exhibit 10.4 to the Company’s quarterly report on Form 10-Q for the quarter ended September 30, 2016).

10.20(d)

Fourth Amendment to the Master Lease. (Incorporated by reference to Exhibit 10.6 to the Company’s quarterly report on Form 10-Q for the quarter ended March 31, 2017).

10.21

Lease dated January 25,30, 2002 between Wyomissing Professional Center II, LP and Penn National Gaming, Inc. for portion of the Wyomissing Corporate Office. (Incorporatedas amended by certain amendments dated May 23, 2002, December 4, 2002, January 29, 2003, October 19, 2010, May 25, 2012, and September 1, 2017, respectively, is hereby incorporated by reference to Exhibit 10.1210.11 to the Company’s annual reportAnnual Report on Form 10-K for the fiscal year ended December 31, 2004).2019. (SEC File No. 000-24206)

10.21(a)

Commencement Agreement, dated May 21, 2002, in connection with Lease dated January 25, 2002 between Wyomissing Professional Center II, LP and Penn National Gaming, Inc. for portion of the Wyomissing Corporate Office. (Incorporated by reference to Exhibit 10.12(a) to the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2004).

10.21(b)

10.15 

First Lease Amendment, dated December 4, 2002, to Lease dated January 25, 2002 between Wyomissing Professional Center II, LP and Penn National Gaming, Inc. for portion of the Wyomissing Corporate Office. (Incorporated by reference to Exhibit 10.12(b) to the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2004).

10.22

Lease dated August 22, 2003 between The Corporate Campus at Spring Ridge 1250, L.P. and Penn National Gaming, Inc. for portion of the Wyomissing Corporate Office. (Incorporated by reference to Exhibit 10.13 to the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2004).

10.23

Amended and Restated Lease dated April 5, 2005 between Wyomissing Professional Center III, Limited Partnership and Penn National Gaming, Inc. for portion of the Wyomissing Corporate Office. (Incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K, filed on April 8, 2005).

10.24

Lease dated April 5, 2005 between Wyomissing Professional Center, Inc. and Penn National Gaming, Inc. as amended by certain amendments dated April 20, 2006 and May 25, 2012, respectively, is hereby incorporated by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K for portionthe year ended December 31, 2019. (SEC File No. 000-24206)

10.16††
111
Table of Contents
Exhibit
NumberDescription of Exhibit
10.16(a)
10.16(b)
10.16(c)
10.16(d)
10.16(e)
10.16(f)
10.16(g)
10.16(h)
10.17††

148

Table of Contents

Exhibit

Description of Exhibit

10.2510.17(a)

Credit Agreement,First Amendment to PNK Master Lease, dated October 30, 2013,August 29, 2016, by and among Penn National Gaming, Inc., the Subsidiary Guarantors party thereto, the Lenders party thereto, the L/C Lenders Party thereto, Merrill Lynch, Pierce, Fenner & Smith, Incorporated, J.P. Morgan Securitiesbetween Pinnacle MLS, LLC and Fifth Third Bank, as Joint Bookrunners for the Revolving Facility and the Term A Facility, J.P. Morgan SecuritiesGold Merger Sub, LLC Wells Fargo Securities, LLC and UBS Securities LLC, as Joint Bookrunners for the Term B Facility and Merrill Lynch, Pierce, Fenner & Smith, Incorporated, J.P. Morgan Securities LLC, Fifth Third Bank, Wells Fargo Securities, LLC, UBS Securities LLC, Credit Agricole Corporate and Investment Bank, Goldman Sachs Bank USA, Manufactures & Traders Trust Company, Nomura Securities International, Inc. RBS Securities Inc. and SunTrust Robinson Humphrey, Inc., as Joint Lead Arrangers, Bank of America, N.A., as Administrative Agent and Collateral Agent and U.S. Bank N.A., as Documentation Agent. (Incorporatedis hereby incorporated by reference to Exhibit 10.22.3 to Pinnacle Entertainment, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2016. (SEC File No. 001-37666)
10.17(b)
10.17(c)
10.17(d)††

10.26(a)

10.18 
10.19††
112
Table of Contents

10.26(b)

Exhibit

NumberDescription of Exhibit
10.20 
10.27

10.21 
10.28

Riverboat

10.21(a)
10.21(b)

10.28(a)

Second Amendment to Riverboat Gaming Development Agreement between City of Lawrenceburg, Indiana, and the Indiana Gaming Company, L.P. dated August 20, 1996. (Incorporatedcollateral agent is hereby incorporated by reference to Exhibit 10.23(a)10.1 to the Company’s annual reportCurrent Report on Form 10-K for the fiscal year ended December 31, 2005).8-K filed on April 20, 2020. (SEC File No. 000-24206)

10.28(b)

10.21(c)††
10.29

10.22 
10.30

10.23 

149

Table of Contents

Exhibit

Description of Exhibit

10.3110.24 

10.32

Agreement dated February 20, 2009 between PNGI Charles Town Gaming Limited Liability Company and Charles Town HBPA,Ameristar Casino Council Bluffs, Inc. (Incorporatedis hereby incorporated by reference to Exhibit 10.1610.25 to the Company’s annual reportPinnacle Entertainment, Inc.’s Amendment No. 4 to Registration Statement on Form 10 filed on March 17, 2016. (SEC File No. 001-37666)

10.24(a)
10.24(b)
10.33

10.25††
10.34

Stock Purchase Agreement, dated July 28, 2016, by and among Rocket Games, Inc., the sellers party thereto, Shareholder Representative Services LLC, as the representative of the sellers, and Penn Interactive Ventures, LLC. (Incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K, filed on August 3, 2016).

10.3521.1*

Revolving Credit and Term Loan Agreement, dated as of October 20, 2016, by and among the Jamul Indian Village Development Corporation, as borrower, the Jamul Indian Village of California, the Administrative Agent, the financial institutions from time to time party thereto in the capacity of lenders and the other agents and arrangers party thereto. (Incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K, filed on October 20, 2016).

21.1*

23.1*

113
Table of Contents
Exhibit
NumberDescription of Exhibit
23.1*

23.2*

Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.

23.3*

31.1*

23.4*

Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.

31.1*

31.2*

31.2*

CFO Certification pursuant to rule 13a‑14(a) or 15d‑14(a) of the Securities Exchange Act of 1934.

32.1*

*

32.2*

32.2**

99.1*

99.1*

99.2*

Kansas Entertainment, LLC Financial Statements for the Years Ended June 30, 2017 and 2016.

99.3*

101.INS

Kansas Entertainment, LLC Financial Statements forInline XBRL Instance Document - the Years Ended June 30, 2016 and 2015.

instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 
101

Interactive data files

101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Inline XBRL File (included in Exhibit 101)
*Filed herewith.
**Furnished herewith.
***Paper filing.
†Management contract or compensatory plan or arrangement.
††Annexes, schedules and/or exhibits have been omitted pursuant to Rule 405Item 601(b)(2) of Regulation S‑T: (i) the Consolidated Balance Sheets at December 31, 2017 and 2016, (ii) the Consolidated StatementsS-K. Penn National Gaming, Inc. agrees to furnish supplementally a copy of Operations for the years ended December 31, 2017, 2016 and 2015, (iii) the Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2017, 2016 and 2015, (iv) the Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2017, 2016 and 2015, (v) the Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015 and (vi) the notesany omitted attachment to the Consolidated Financial Statements, tagged as blocks of text.

SEC on a confidential basis upon request.
114

150

Table of Contents

#

Compensation plans and arrangements for executives and others.

SIGNATURES

*

Filed herewith.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

PENN NATIONAL GAMING, INC.

Dated:

February 26, 2021

By:  		/s/ Jay A. Snowden

By:

/s/ Timothy J. Wilmott

Jay A. Snowden

Timothy J. Wilmott

President and Chief Executive Officer

Dated: March 1, 2018

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature

Title

Date

Signature

Title

Date

/s/ Timothy J. Wilmott

Jay A. Snowden

President, Chief Executive Officer and Director


(Principal Executive Officer)

March 1, 2018

February 26, 2021

Timothy J. Wilmott

Jay A. Snowden

/s/ WILLIAM J. FAIR

Christine LaBombard

ExecutiveSenior Vice President Finance and Chief FinancialAccounting Officer (Principal
(Principal Financial Officer and Principal Accounting Officer)

March 1, 2018

February 26, 2021

William J. Fair

Christine LaBombard

/s/ Peter M. Carlino

Chairman of the Board

March 1, 2018

Peter M. Carlino

/s/ David A. Handler

Director,

Chairman of the Board

March 1, 2018

February 26, 2021

David A. Handler

/s/ John M. Jacquemin

Director

March 1, 2018

February 26, 2021

John M. Jacquemin

/s/ Marla Kaplowitz

DirectorFebruary 26, 2021
Marla Kaplowitz
/s/ Ronald J. Naples

Director

March 1, 2018

February 26, 2021

Ronald J. Naples

/s/ Saul V. Reibstein

DirectorFebruary 26, 2021
Saul V. Reibstein
/s/ Barbara Z. Shattuck Kohn

Director

March 1, 2018

February 26, 2021

Barbara Z. Shattuck Kohn

/s/ Jane Scaccetti

Director

March 1, 2018

February 26, 2021

Jane Scaccetti

151

115