UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| | | | | | | | |
| ☑ | | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 20212022
or
| | | | | | | | |
| ☐ | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to __________
Commission file number: 0-24206
PENN NATIONAL GAMING, INC.Entertainment, Inc.
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | |
| Pennsylvania | | | 23-2234473 |
| (State or other jurisdiction of incorporation or organization) | | | (I.R.S. employer identification no.) |
| 825 Berkshire Blvd., Suite 200 | Wyomissing, | Pennsylvania | 19610 |
| (Address of principal executive offices) | (Zip code) |
(610) 373-2400
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock, $0.01 par value per share | PENN | The Nasdaq Stock Market LLC |
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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 | ☐ | 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 is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
As of August 2, 2021,July 29, 2022, the number of shares of the registrant’s common stock outstanding was 156,789,295.158,562,535.
PENN NATIONAL GAMING,ENTERTAINMENT, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PENN NATIONAL GAMING,ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| | (in millions, except share and per share data) | (in millions, except share and per share data) | June 30,
2021 | | December 31,
2020 | (in millions, except share and per share data) | June 30,
2022 | | December 31,
2021 |
| Assets | Assets | | | | Assets | | | |
| Current assets | Current assets | | | | Current assets | | | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 2,274.7 | | | $ | 1,853.8 | | Cash and cash equivalents | $ | 1,708.3 | | | $ | 1,863.9 | |
| Receivables, net | 138.5 | | | 96.4 | | |
| Accounts receivable, net | | Accounts receivable, net | 169.4 | | | 195.0 | |
| Prepaid expenses | Prepaid expenses | 104.4 | | | 103.5 | | Prepaid expenses | 132.8 | | | 132.3 | |
| | Other current assets | Other current assets | 34.8 | | | 31.3 | | Other current assets | 48.4 | | | 32.4 | |
| Total current assets | Total current assets | 2,552.4 | | | 2,085.0 | | Total current assets | 2,058.9 | | | 2,223.6 | |
| Property and equipment, net | Property and equipment, net | 4,456.4 | | | 4,529.3 | | Property and equipment, net | 4,539.7 | | | 4,582.2 | |
| Investment in and advances to unconsolidated affiliates | Investment in and advances to unconsolidated affiliates | 277.3 | | | 266.8 | | Investment in and advances to unconsolidated affiliates | 250.3 | | | 255.1 | |
| Goodwill | Goodwill | 1,165.6 | | | 1,157.1 | | Goodwill | 2,799.6 | | | 2,822.5 | |
| Other intangible assets, net | Other intangible assets, net | 1,531.7 | | | 1,513.5 | | Other intangible assets, net | 1,842.1 | | | 1,872.6 | |
| | Lease right-of-use assets | Lease right-of-use assets | 4,767.1 | | | 4,817.7 | | Lease right-of-use assets | 6,181.3 | | | 4,853.0 | |
| Other assets | Other assets | 327.7 | | | 297.9 | | Other assets | 208.9 | | | 263.1 | |
| Total assets | Total assets | $ | 15,078.2 | | | $ | 14,667.3 | | Total assets | $ | 17,880.8 | | | $ | 16,872.1 | |
| | Liabilities | Liabilities | | | | Liabilities | | | |
| Current liabilities | Current liabilities | | | | Current liabilities | | | |
| Accounts payable | Accounts payable | $ | 38.3 | | | $ | 33.2 | | Accounts payable | $ | 38.9 | | | $ | 53.3 | |
| Current maturities of long-term debt | Current maturities of long-term debt | 90.4 | | | 81.4 | | Current maturities of long-term debt | 55.8 | | | 99.5 | |
| Current portion of financing obligations | Current portion of financing obligations | 37.4 | | | 36.0 | | Current portion of financing obligations | 63.8 | | | 39.0 | |
| Current portion of lease liabilities | Current portion of lease liabilities | 140.1 | | | 134.3 | | Current portion of lease liabilities | 189.7 | | | 142.9 | |
| Accrued expenses and other current liabilities | Accrued expenses and other current liabilities | 651.9 | | | 575.1 | | Accrued expenses and other current liabilities | 737.7 | | | 798.5 | |
| Total current liabilities | Total current liabilities | 958.1 | | | 860.0 | | Total current liabilities | 1,085.9 | | | 1,133.2 | |
| Long-term debt, net of current maturities, debt discount and debt issuance costs | Long-term debt, net of current maturities, debt discount and debt issuance costs | 2,269.9 | | | 2,231.2 | | Long-term debt, net of current maturities, debt discount and debt issuance costs | 2,730.4 | | | 2,637.3 | |
| Long-term portion of financing obligations | Long-term portion of financing obligations | 4,077.5 | | | 4,096.4 | | Long-term portion of financing obligations | 4,001.3 | | | 4,057.8 | |
| Long-term portion of lease liabilities | Long-term portion of lease liabilities | 4,534.7 | | | 4,578.2 | | Long-term portion of lease liabilities | 5,941.7 | | | 4,628.6 | |
| Deferred income taxes | Deferred income taxes | 148.1 | | | 126.3 | | Deferred income taxes | 227.9 | | | 189.1 | |
| Other long-term liabilities | Other long-term liabilities | 132.1 | | | 119.4 | | Other long-term liabilities | 127.6 | | | 129.0 | |
| Total liabilities | Total liabilities | 12,120.4 | | | 12,011.5 | | Total liabilities | 14,114.8 | | | 12,775.0 | |
| | 0 | | 0 | | 0 | | 0 |
| Stockholders’ equity | Stockholders’ equity | | | 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, 926 and 883 shares issued, and 775 and 883 shares outstanding) | 24.2 | | | 23.1 | | |
| Common stock ($0.01 par value, 400,000,000 and 200,000,000 shares authorized, 158,954,266 and 157,868,227 shares issued, and 156,786,873 and 155,700,834 shares outstanding) | 1.6 | | | 1.6 | | |
| Treasury stock, at cost, (2,167,393 shares held in both periods) | (28.4) | | | (28.4) | | |
| Series B Preferred stock ($0.01 par value, 1,000,000 shares authorized, no shares issued and outstanding) | | Series B Preferred stock ($0.01 par value, 1,000,000 shares authorized, no shares issued and outstanding) | — | | | — | |
| Series C Preferred stock ($0.01 par value, 18,500 shares authorized, no shares issued and outstanding) | | Series C Preferred stock ($0.01 par value, 18,500 shares authorized, no shares issued and outstanding) | — | | | — | |
| Series D Preferred stock ($0.01 par value, 5,000 shares authorized, 969 shares issued in both periods, and 581 and 775 shares outstanding) | | Series D Preferred stock ($0.01 par value, 5,000 shares authorized, 969 shares issued in both periods, and 581 and 775 shares outstanding) | 19.4 | | | 25.8 | |
| Common stock ($0.01 par value, 400,000,000 shares authorized in both periods, 172,234,701 and 171,729,276 shares issued, and 160,725,723 and 169,561,883 shares outstanding) | | Common stock ($0.01 par value, 400,000,000 shares authorized in both periods, 172,234,701 and 171,729,276 shares issued, and 160,725,723 and 169,561,883 shares outstanding) | 1.7 | | | 1.7 | |
| Exchangeable shares ($0.01 par value, 697,539 shares authorized and issued in both periods, 624,658 and 653,059 shares outstanding) | | Exchangeable shares ($0.01 par value, 697,539 shares authorized and issued in both periods, 624,658 and 653,059 shares outstanding) | — | | | — | |
| Treasury stock, at cost, (11,508,978 and 2,167,393 shares) | | Treasury stock, at cost, (11,508,978 and 2,167,393 shares) | (370.5) | | | (28.4) | |
| Additional paid-in capital | Additional paid-in capital | 3,178.5 | | | 3,167.2 | | Additional paid-in capital | 4,187.3 | | | 4,239.6 | |
| Retained earnings (accumulated deficit) | Retained earnings (accumulated deficit) | (217.6) | | | (507.3) | | Retained earnings (accumulated deficit) | 10.2 | | | (86.5) | |
| | Total Penn National stockholders’ equity | 2,958.3 | | | 2,656.2 | | |
| Accumulated other comprehensive loss | | Accumulated other comprehensive loss | (81.3) | | | (54.4) | |
| Total PENN Entertainment stockholders’ equity | | Total PENN Entertainment stockholders’ equity | 3,766.8 | | | 4,097.8 | |
| Non-controlling interest | Non-controlling interest | (0.5) | | | (0.4) | | Non-controlling interest | (0.8) | | | (0.7) | |
| Total stockholders’ equity | Total stockholders’ equity | 2,957.8 | | | 2,655.8 | | Total stockholders’ equity | 3,766.0 | | | 4,097.1 | |
| Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | $ | 15,078.2 | | | $ | 14,667.3 | | Total liabilities and stockholders’ equity | $ | 17,880.8 | | | $ | 16,872.1 | |
See accompanying notes to the unaudited Consolidated Financial Statements.
PENN NATIONAL GAMING,ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
| | | | For the three months ended June 30, | | For the six months ended June 30, | | For the three months ended June 30, | | For the six months ended June 30, |
| (in millions, except per share data) | (in millions, except per share data) | 2021 | | 2020 | | 2021 | | 2020 | (in millions, except per share data) | 2022 | | 2021 | | 2022 | | 2021 |
| Revenues | Revenues | | | | | | | | Revenues | | | | | | | |
| Gaming | Gaming | $ | 1,305.5 | | | $ | 259.2 | | | $ | 2,387.5 | | | $ | 1,162.1 | | Gaming | $ | 1,325.6 | | | $ | 1,305.5 | | | $ | 2,616.8 | | | $ | 2,387.5 | |
| Food, beverage, hotel and other | Food, beverage, hotel and other | 240.3 | | | 46.3 | | | 433.2 | | | 259.5 | | Food, beverage, hotel and other | 301.3 | | | 240.3 | | | 574.3 | | | 433.2 | |
| Total revenues | Total revenues | 1,545.8 | | | 305.5 | | | 2,820.7 | | | 1,421.6 | | Total revenues | 1,626.9 | | | 1,545.8 | | | 3,191.1 | | | 2,820.7 | |
| Operating expenses | Operating expenses | | | | | | | | Operating expenses | | | | | | | |
| Gaming | Gaming | 620.9 | | | 142.0 | | | 1,148.7 | | | 642.9 | | Gaming | 713.6 | | | 620.9 | | | 1,400.2 | | | 1,148.7 | |
| Food, beverage, hotel and other | Food, beverage, hotel and other | 148.6 | | | 32.9 | | | 271.7 | | | 189.9 | | Food, beverage, hotel and other | 186.8 | | | 148.6 | | | 358.7 | | | 271.7 | |
| General and administrative | General and administrative | 316.5 | | | 204.1 | | | 642.7 | | | 511.1 | | General and administrative | 273.8 | | | 316.5 | | | 569.3 | | | 642.7 | |
| Depreciation and amortization | Depreciation and amortization | 81.9 | | | 91.9 | | | 163.2 | | | 187.6 | | Depreciation and amortization | 150.3 | | | 81.9 | | | 268.5 | | | 163.2 | |
| Impairment losses | 0 | | | 0 | | | 0 | | | 616.1 | | |
| | Total operating expenses | Total operating expenses | 1,167.9 | | | 470.9 | | | 2,226.3 | | | 2,147.6 | | Total operating expenses | 1,324.5 | | | 1,167.9 | | | 2,596.7 | | | 2,226.3 | |
| Operating income (loss) | 377.9 | | | (165.4) | | | 594.4 | | | (726.0) | | |
| Operating income | | Operating income | 302.4 | | | 377.9 | | | 594.4 | | | 594.4 | |
| Other income (expenses) | Other income (expenses) | | Other income (expenses) | |
| Interest expense, net | Interest expense, net | (138.0) | | | (135.0) | | | (273.7) | | | (264.8) | | Interest expense, net | (193.6) | | | (138.0) | | | (354.4) | | | (273.7) | |
| Income (loss) from unconsolidated affiliates | 9.1 | | | (1.7) | | | 18.7 | | | 2.4 | | |
| Income from unconsolidated affiliates | | Income from unconsolidated affiliates | 1.8 | | | 9.1 | | | 10.5 | | | 18.7 | |
| | Other | Other | 2.8 | | | 29.3 | | | 23.9 | | | 7.5 | | Other | (28.2) | | | 2.8 | | | (68.9) | | | 23.9 | |
| Total other expenses | Total other expenses | (126.1) | | | (107.4) | | | (231.1) | | | (254.9) | | Total other expenses | (220.0) | | | (126.1) | | | (412.8) | | | (231.1) | |
| Income (loss) before income taxes | 251.8 | | | (272.8) | | | 363.3 | | | (980.9) | | |
| Income tax benefit (expense) | (53.1) | | | 58.4 | | | (73.7) | | | 157.9 | | |
| Net income (loss) | 198.7 | | | (214.4) | | | 289.6 | | | (823.0) | | |
| Income before income taxes | | Income before income taxes | 82.4 | | | 251.8 | | | 181.6 | | | 363.3 | |
| Income tax expense | | Income tax expense | (56.3) | | | (53.1) | | | (103.9) | | | (73.7) | |
| Net income | | Net income | 26.1 | | | 198.7 | | | 77.7 | | | 289.6 | |
| Less: Net loss attributable to non-controlling interest | Less: Net loss attributable to non-controlling interest | 0 | | | 0.5 | | | 0.1 | | | 0.5 | | Less: Net loss attributable to non-controlling interest | — | | | — | | | 0.1 | | | 0.1 | |
| Net income (loss) attributable to Penn National | $ | 198.7 | | | $ | (213.9) | | | $ | 289.7 | | | $ | (822.5) | | |
| Net income attributable to PENN Entertainment | | Net income attributable to PENN Entertainment | $ | 26.1 | | | $ | 198.7 | | | $ | 77.8 | | | $ | 289.7 | |
| | Comprehensive income (loss) | $ | 198.7 | | | $ | (214.4) | | | $ | 289.6 | | | $ | (823.0) | | |
| Less: Comprehensive loss attributable to non-controlling interest | 0 | | | 0.5 | | | 0.1 | | | 0.5 | | |
| Comprehensive income (loss) attributable to Penn National | $ | 198.7 | | | $ | (213.9) | | | $ | 289.7 | | | $ | (822.5) | | |
| | Earnings (loss) per share: | | | | | | | | |
| Basic earnings (loss) per share | $ | 1.27 | | | $ | (1.69) | | | $ | 1.85 | | | $ | (6.78) | | |
| Diluted earnings (loss) per share | $ | 1.17 | | | $ | (1.69) | | | $ | 1.72 | | | $ | (6.78) | | |
| Earnings per share: | | Earnings per share: | | | | | | | |
| Basic earnings per share | | Basic earnings per share | $ | 0.16 | | | $ | 1.27 | | | $ | 0.47 | | | $ | 1.85 | |
| Diluted earnings per share | | Diluted earnings per share | $ | 0.15 | | | $ | 1.17 | | | $ | 0.45 | | | $ | 1.72 | |
| | Weighted-average common shares outstanding—basic | Weighted-average common shares outstanding—basic | 156.0 | | | 126.8 | | | 155.8 | | | 121.3 | | Weighted-average common shares outstanding—basic | 164.8 | | | 156.0 | | | 166.5 | | | 155.8 | |
| Weighted-average common shares outstanding—diluted | Weighted-average common shares outstanding—diluted | 172.7 | | | 126.8 | | | 172.8 | | | 121.3 | | Weighted-average common shares outstanding—diluted | 180.2 | | | 172.7 | | | 182.3 | | | 172.8 | |
See accompanying notes to the unaudited Consolidated Financial Statements.
PENN NATIONAL GAMING,ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended June 30, | | For the six months ended June 30, |
| (in millions) | 2022 | | 2021 | | 2022 | | 2021 |
| Net income | $ | 26.1 | | | $ | 198.7 | | | $ | 77.7 | | | $ | 289.6 | |
| Other comprehensive loss: | | | | | | | |
| Foreign currency translation adjustment during the period | (62.7) | | | — | | | (26.9) | | | — | |
| Other comprehensive loss | (62.7) | | | — | | | (26.9) | | | — | |
| Total comprehensive income (loss) | (36.6) | | | 198.7 | | | 50.8 | | | 289.6 | |
| Less: Comprehensive loss attributable to non-controlling interest | — | | | — | | | 0.1 | | | 0.1 | |
| Comprehensive income (loss) attributable to PENN Entertainment | $ | (36.6) | | | $ | 198.7 | | | $ | 50.9 | | | $ | 289.7 | |
See accompanying notes to the unaudited Consolidated Financial Statements.
PENN ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2022 and 2021 |
| Preferred Stock | | Common Stock | | Treasury Stock | | Additional
Paid-In
Capital | | Retained Earnings (Accumulated Deficit) | | Accumulated Other Comprehensive Loss | | Total PENN Stockholders’ Equity | | Non-Controlling Interest | | Total Stockholders’ Equity |
| (in millions, except share data) | Shares | | Amount | | PENN Entertainment Shares | | Amount | | Exchangeable Shares | | Amount | | | | | | | |
| Balance as of April 1, 2022 | 581 | | | $ | 19.4 | | | 166,161,818 | | | $ | 1.7 | | | 633,189 | | | $ | — | | | $ | (203.5) | | | $ | 4,170.4 | | | $ | (15.9) | | | $ | (18.6) | | | $ | 3,953.5 | | | $ | (0.8) | | | $ | 3,952.7 | |
| Share-based compensation arrangements | — | | | — | | | 30,551 | | | — | | | — | | | — | | | — | | | 14.5 | | | — | | | — | | | 14.5 | | | — | | | 14.5 | |
| Share repurchases (Note 13) | — | | | — | | | (5,539,177) | | | — | | | — | | | — | | | (167.0) | | | — | | | — | | | — | | | (167.0) | | | — | | | (167.0) | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Common stock issuance (Note 13) | — | | | — | | | 64,000 | | | — | | | — | | | — | | | — | | | 2.0 | | | — | | | — | | | 2.0 | | | — | | | 2.0 | |
| Exchangeable shares conversions (Note 13) | — | | | — | | | 8,531 | | | — | | | (8,531) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Currency translation adjustment | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (62.7) | | | (62.7) | | | — | | | (62.7) | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 26.1 | | | — | | | 26.1 | | | — | | | 26.1 | |
| Other | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 0.4 | | | — | | | — | | | 0.4 | | | — | | | 0.4 | |
| Balance as of June 30, 2022 | 581 | | | $ | 19.4 | | | 160,725,723 | | | $ | 1.7 | | | 624,658 | | | $ | — | | | $ | (370.5) | | | $ | 4,187.3 | | | $ | 10.2 | | | $ | (81.3) | | | $ | 3,766.8 | | | $ | (0.8) | | | $ | 3,766.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance as of April 1, 2021 | 775 | | | $ | 24.2 | | | 156,330,141 | | | $ | 1.6 | | | — | | | $ | — | | | $ | (28.4) | | | $ | 3,175.2 | | | $ | (416.3) | | | $ | — | | | $ | 2,756.3 | | | $ | (0.5) | | | $ | 2,755.8 | |
| Share-based compensation arrangements | — | | | — | | | 413,048 | | | — | | | — | | | — | | | — | | | 9.4 | | | — | | | — | | | 9.4 | | | — | | | 9.4 | |
| Share issuance (Note 13) | — | | | — | | | 43,684 | | | — | | | — | | | — | | | — | | | 3.5 | | | — | | | — | | | 3.5 | | | — | | | 3.5 | |
| Net income | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 198.7 | | | — | | | 198.7 | | | — | | | 198.7 | |
| Other | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (9.6) | | | — | | | — | | | (9.6) | | | — | | | (9.6) | |
| Balance as of June 30, 2021 | 775 | | | $ | 24.2 | | | 156,786,873 | | | $ | 1.6 | | | — | | | $ | — | | | $ | (28.4) | | | $ | 3,178.5 | | | $ | (217.6) | | | $ | — | | | $ | 2,958.3 | | | $ | (0.5) | | | $ | 2,957.8 | |
See accompanying notes to the unaudited Consolidated Financial Statements.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2021 and 2020 |
| Preferred Stock | | Common Stock | | Treasury
Stock | | Addi-
tional
Paid-In
Capital | | Retained Earnings (Accum-ulated Deficit) | | Total Penn National Stock-holders’
Equity | | Non-Control-
ling Interest | | Total
Stock-
holders’ Equity |
| (in millions, except share data) | Shares | | Amount | | Shares | | Amount | | | | | | |
| Balance as of April 1, 2021 | 775 | | | $ | 24.2 | | | 156,330,141 | | | $ | 1.6 | | | $ | (28.4) | | | $ | 3,175.2 | | | $ | (416.3) | | | $ | 2,756.3 | | | $ | (0.5) | | | $ | 2,755.8 | |
| Share-based compensation arrangements | — | | | — | | | 413,048 | | | — | | | — | | | 9.4 | | | — | | | 9.4 | | | — | | | 9.4 | |
| Share issuance (Note 13) | — | | | — | | | 43,684 | | | — | | | — | | | 3.5 | | | — | | | 3.5 | | | — | | | 3.5 | |
| | | | | | | | | | | | | | | | | | | |
| Net income | — | | | — | | | — | | | — | | | — | | | — | | | 198.7 | | | 198.7 | | | — | | | 198.7 | |
| Other | — | | | — | | | — | | | — | | | — | | | (9.6) | | | | | (9.6) | | | — | | | (9.6) | |
| Balance as of June 30, 2021 | 775 | | | $ | 24.2 | | | 156,786,873 | | | $ | 1.6 | | | $ | (28.4) | | | $ | 3,178.5 | | | $ | (217.6) | | | $ | 2,958.3 | | | $ | (0.5) | | | $ | 2,957.8 | |
| | | | | | | | | | | | | | | | | | | |
| Balance as of April 1, 2020 | 883 | | | $ | 23.1 | | | 116,793,722 | | | $ | 1.2 | | | $ | (28.4) | | | $ | 1,728.9 | | | $ | (446.4) | | | $ | 1,278.4 | | | $ | (0.8) | | | $ | 1,277.6 | |
| Share-based compensation arrangements | — | | | — | | | 1,474,701 | | | — | | | — | | | 22.1 | | | — | | | 22.1 | | | — | | | 22.1 | |
| Common Stock Offering (Note 13) | — | | | — | | | 19,166,667 | | | 0.2 | | | — | | | 331.0 | | | — | | | 331.2 | | | — | | | 331.2 | |
| Convertible debt offering (Note 8) | — | | | — | | | — | | | — | | | — | | | 88.2 | | | — | | | 88.2 | | | — | | | 88.2 | |
| Net loss | — | | | — | | | — | | | — | | | — | | | — | | | (213.9) | | | (213.9) | | | (0.5) | | | (214.4) | |
| Other | — | | | — | | | — | | | — | | | — | | | 0.2 | | | — | | | 0.2 | | | — | | | 0.2 | |
| Balance as of June 30, 2020 | 883 | | | $ | 23.1 | | | 137,435,090 | | | $ | 1.4 | | | $ | (28.4) | | | $ | 2,170.4 | | | $ | (660.3) | | | $ | 1,506.2 | | | $ | (1.3) | | | $ | 1,504.9 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2022 and 2021 |
| Preferred Stock | | Common Stock | | Treasury Stock | | Additional
Paid-In
Capital | | Retained Earnings (Accumulated Deficit) | | Accumulated Other Comprehensive Loss | | Total PENN Stockholders’ Equity | | Non-Controlling Interest | | Total Stockholders’ Equity |
| (in millions, except share data) | Shares | | Amount | | PENN Entertainment Shares | | Amount | | Exchangeable Shares | | Amount | | | | | | | |
| Balance as of January 1, 2022 | 775 | | | $ | 25.8 | | | 169,561,883 | | | $ | 1.7 | | | 653,059 | | | $ | — | | | $ | (28.4) | | | $ | 4,239.6 | | | $ | (86.5) | | | $ | (54.4) | | | $ | 4,097.8 | | | $ | (0.7) | | | $ | 4,097.1 | |
| Share-based compensation arrangements | — | | | — | | | 218,824 | | | — | | | — | | | — | | | — | | | 31.5 | | | — | | | — | | | 31.5 | | | — | | | 31.5 | |
| Share repurchases (Note 13) | — | | | — | | | (9,341,585) | | | — | | | — | | | — | | | (342.1) | | | — | | | — | | | — | | | (342.1) | | | — | | | (342.1) | |
| Preferred stock conversions (Note 13) | (194) | | | (6.4) | | | 194,200 | | | — | | | — | | | — | | | — | | | 6.4 | | | — | | | — | | | — | | | — | | | — | |
| Common stock issuance (Note 13) | — | | | — | | | 64,000 | | | — | | | — | | | — | | | — | | | 2.0 | | | — | | | — | | | 2.0 | | | — | | | 2.0 | |
| Exchangeable shares conversions (Note 13) | — | | | — | | | 28,401 | | | — | | | (28,401) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Currency translation adjustment | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (26.9) | | | (26.9) | | | — | | | (26.9) | |
| Cumulative-effect adjustment upon adoption of ASU 2020-06 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (88.2) | | | 18.9 | | | — | | | (69.3) | | | — | | | (69.3) | |
| Net income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 77.8 | | | — | | | 77.8 | | | (0.1) | | | 77.7 | |
| Other | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (4.0) | | | — | | | — | | | (4.0) | | | — | | | (4.0) | |
| Balance as of June 30, 2022 | 581 | | | $ | 19.4 | | | 160,725,723 | | | $ | 1.7 | | | 624,658 | | | $ | — | | | $ | (370.5) | | | $ | 4,187.3 | | | $ | 10.2 | | | $ | (81.3) | | | $ | 3,766.8 | | | $ | (0.8) | | | $ | 3,766.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance as of January 1, 2021 | 883 | | | $ | 23.1 | | | 155,700,834 | | | $ | 1.6 | | | — | | | $ | — | | | $ | (28.4) | | | $ | 3,167.2 | | | $ | (507.3) | | | $ | — | | | $ | 2,656.2 | | | $ | (0.4) | | | $ | 2,655.8 | |
| Share-based compensation arrangements | — | | | — | | | 891,155 | | | — | | | — | | | — | | | — | | | 13.4 | | | — | | | — | | | 13.4 | | | — | | | 13.4 | |
| Share issuance (Note 13) | 43 | | | 5.1 | | | 43,684 | | | — | | | — | | | — | | | — | | | 3.5 | | | — | | | — | | | 8.6 | | | — | | | 8.6 | |
| Preferred stock conversion (Note 13) | (151) | | | (4.0) | | | 151,200 | | | — | | | — | | | — | | | — | | | 4.0 | | | — | | | — | | | — | | | — | | | — | |
| Net income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 289.7 | | | — | | | 289.7 | | | (0.1) | | | 289.6 | |
| Other | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (9.6) | | | — | | | — | | | (9.6) | | | — | | | (9.6) | |
| Balance as of June 30, 2021 | 775 | | | $ | 24.2 | | | 156,786,873 | | | $ | 1.6 | | | — | | | $ | — | | | $ | (28.4) | | | $ | 3,178.5 | | | $ | (217.6) | | | $ | — | | | $ | 2,958.3 | | | $ | (0.5) | | | $ | 2,957.8 | |
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
CONTINUED
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2021 and 2020 |
| Preferred Stock | | Common Stock | | Treasury
Stock | | Addi-
tional
Paid-In
Capital | | Retained Earnings (Accum-
ulated Deficit) | | Total Penn National Stock-
holders’
Equity | | Non-Control-
ling Interest | | Total
Stock-
holders’ Equity |
| (in millions, except share data) | Shares | | Amount | | Shares | | Amount | | | | | | |
| Balance as of January 1, 2021 | 883 | | | $ | 23.1 | | | 155,700,834 | | | $ | 1.6 | | | $ | (28.4) | | | $ | 3,167.2 | | | $ | (507.3) | | | $ | 2,656.2 | | | $ | (0.4) | | | $ | 2,655.8 | |
| Share-based compensation arrangements | — | | | — | | | 891,155 | | | — | | | — | | | 13.4 | | | — | | | 13.4 | | | — | | | 13.4 | |
| Share issuance (Note 13) | 43 | | | 5.1 | | | 43,684 | | | — | | | — | | | 3.5 | | | — | | | 8.6 | | | — | | | 8.6 | |
| Preferred Stock Conversion (Note 13) | (151) | | | (4.0) | | | 151,200 | | | — | | | — | | | 4.0 | | | — | | | — | | | — | | | 0 | |
| Net income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | 289.7 | | | 289.7 | | | (0.1) | | | 289.6 | |
| Other | — | | | — | | | — | | | — | | | — | | | (9.6) | | | | | (9.6) | | | — | | | (9.6) | |
| Balance as of June 30, 2021 | 775 | | | $ | 24.2 | | | 156,786,873 | | | $ | 1.6 | | | $ | (28.4) | | | $ | 3,178.5 | | | $ | (217.6) | | | $ | 2,958.3 | | | $ | (0.5) | | | $ | 2,957.8 | |
| | | | | | | | | | | | | | | | | | | |
| Balance as of January 1, 2020 | 0 | | | $ | 0 | | | 115,958,259 | | | $ | 1.2 | | | $ | (28.4) | | | $ | 1,718.3 | | | $ | 161.6 | | | $ | 1,852.7 | | | $ | (0.8) | | | $ | 1,851.9 | |
| Share-based compensation arrangements | — | | | — | | | 2,310,164 | | | — | | | — | | | 32.7 | | | — | | | 32.7 | | | — | | | 32.7 | |
| Common stock offering (Note 13) | — | | | — | | | 19,166,667 | | | 0.2 | | | — | | | 331.0 | | | — | | | 331.2 | | | — | | | 331.2 | |
| Convertible debt offering (Note 8) | — | | | — | | | — | | | — | | | — | | | 88.2 | | | — | | | 88.2 | | | — | | | 88.2 | |
| Barstool Sports investment (Note 10) | 883 | | | 23.1 | | | — | | | — | | | — | | | — | | | — | | | 23.1 | | | — | | | 23.1 | |
| Cumulative-effect adjustment upon adoption of ASU 2016-13 | — | | | — | | | — | | | — | | | — | | | — | | | 0.6 | | | 0.6 | | | — | | | 0.6 | |
| Net loss | — | | | — | | | — | | | — | | | — | | | — | | | (822.5) | | | (822.5) | | | (0.5) | | | (823.0) | |
| Other | — | | | — | | | — | | | — | | | — | | | 0.2 | | | — | | | 0.2 | | | — | | | 0.2 | |
| Balance as of June 30, 2020 | 883 | | | $ | 23.1 | | | 137,435,090 | | | $ | 1.4 | | | $ | (28.4) | | | $ | 2,170.4 | | | $ | (660.3) | | | $ | 1,506.2 | | | $ | (1.3) | | | $ | 1,504.9 | |
See accompanying notes to the Consolidated Financial Statements.
PENN NATIONAL GAMING,ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| | | | For the six months ended June 30, | | | For the six months ended June 30, |
| (in millions) | (in millions) | 2021 | | 2020 | | (in millions) | 2022 | | 2021 |
| Operating activities | Operating activities | | | | | Operating activities | | | |
| Net income (loss) | $ | 289.6 | | | $ | (823.0) | | | |
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | |
| Net income | | Net income | $ | 77.7 | | | $ | 289.6 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | Adjustments to reconcile net income to net cash provided by operating activities: | |
| Depreciation and amortization | Depreciation and amortization | 163.2 | | | 187.6 | | | Depreciation and amortization | 268.5 | | | 163.2 | |
| Amortization of debt discount and debt issuance costs | Amortization of debt discount and debt issuance costs | 11.0 | | | 5.6 | | | Amortization of debt discount and debt issuance costs | 4.9 | | | 11.0 | |
| Noncash interest expense | Noncash interest expense | 5.2 | | | 0 | | | Noncash interest expense | 12.9 | | | 5.2 | |
| Noncash operating lease expense | Noncash operating lease expense | 75.5 | | | 52.5 | | | Noncash operating lease expense | 47.2 | | | 75.5 | |
| Change in fair value of contingent purchase price | 1.3 | | | (1.4) | | | |
| Holding gain on equity securities | (18.8) | | | (7.7) | | | |
| Change in fair value in puts/calls associated with our Barstool Sports investment | (1.3) | | | 0 | | | |
| Gain on sale or disposal of property and equipment | (0.2) | | | (27.9) | | | |
| Noncash rent and interest expense related to the utilization of rent credits | 0 | | | 110.7 | | | |
| | Holding loss (gain) on equity securities | | Holding loss (gain) on equity securities | 55.6 | | | (18.8) | |
| | Loss (gain) on sale or disposal of property and equipment | | Loss (gain) on sale or disposal of property and equipment | 7.2 | | | (0.2) | |
| | Gain on Hurricane Laura | | Gain on Hurricane Laura | (8.8) | | | — | |
| Income from unconsolidated affiliates | Income from unconsolidated affiliates | (18.7) | | | (2.4) | | | Income from unconsolidated affiliates | (10.5) | | | (18.7) | |
| Return on investment from unconsolidated affiliates | Return on investment from unconsolidated affiliates | 13.4 | | | 10.5 | | | Return on investment from unconsolidated affiliates | 17.0 | | | 13.4 | |
| Deferred income taxes | Deferred income taxes | 21.8 | | | (114.2) | | | Deferred income taxes | 39.6 | | | 21.8 | |
| Stock-based compensation | Stock-based compensation | 13.4 | | | 8.9 | | | Stock-based compensation | 31.5 | | | 13.4 | |
| Impairment losses | 0 | | | 616.1 | | | |
| | Loss on early extinguishment of debt | | Loss on early extinguishment of debt | 10.4 | | | — | |
| Changes in operating assets and liabilities, net of businesses acquired | Changes in operating assets and liabilities, net of businesses acquired | | | Changes in operating assets and liabilities, net of businesses acquired | |
| Accounts receivable | Accounts receivable | (42.1) | | | 18.3 | | | Accounts receivable | 7.7 | | | (42.1) | |
| Prepaid expenses and other current assets | Prepaid expenses and other current assets | (22.0) | | | 4.3 | | | Prepaid expenses and other current assets | (31.5) | | | (22.0) | |
| Other assets | Other assets | (8.4) | | | 0.3 | | | Other assets | 7.6 | | | (8.4) | |
| Accounts payable | Accounts payable | 1.0 | | | (12.0) | | | Accounts payable | (14.4) | | | 1.0 | |
| Accrued expenses | Accrued expenses | 55.3 | | | (39.9) | | | Accrued expenses | (23.0) | | | 55.3 | |
| Income taxes | Income taxes | 21.1 | | | (44.0) | | | Income taxes | 15.4 | | | 21.1 | |
| Operating lease liabilities | Operating lease liabilities | (63.2) | | | (49.9) | | | Operating lease liabilities | (43.2) | | | (63.2) | |
| Other current and long-term liabilities | Other current and long-term liabilities | 7.5 | | | (23.3) | | | Other current and long-term liabilities | (36.6) | | | 7.5 | |
| Net cash provided by (used in) operating activities | 504.6 | | | (130.9) | | | |
| Other | | Other | 1.2 | | | — | |
| Net cash provided by operating activities | | Net cash provided by operating activities | 436.4 | | | 504.6 | |
| Investing activities | Investing activities | | | | | Investing activities | | | |
| | Capital expenditures | Capital expenditures | (64.6) | | | (73.7) | | | Capital expenditures | (125.6) | | | (64.6) | |
| Consideration paid for Barstool Sports investment | 0 | | | (135.0) | | | |
| | Proceeds from sale of property and equipment | | Proceeds from sale of property and equipment | 4.6 | | | 0.4 | |
| Hurricane Laura insurance proceeds | | Hurricane Laura insurance proceeds | 24.2 | | | — | |
| Consideration paid for acquisitions of businesses, net of cash acquired | Consideration paid for acquisitions of businesses, net of cash acquired | (6.2) | | | (3.0) | | | Consideration paid for acquisitions of businesses, net of cash acquired | — | | | (6.2) | |
| | Consideration paid for a cost method investment | | Consideration paid for a cost method investment | (15.0) | | | — | |
| | Consideration paid for gaming licenses and other intangible assets | Consideration paid for gaming licenses and other intangible assets | (18.7) | | | 0 | | | Consideration paid for gaming licenses and other intangible assets | (1.9) | | | (18.7) | |
| Other | Other | (9.6) | | | (6.8) | | | Other | — | | | (10.0) | |
| Net cash used in investing activities | Net cash used in investing activities | (99.1) | | | (218.5) | | | Net cash used in investing activities | (113.7) | | | (99.1) | |
| | | | For the six months ended June 30, | | | For the six months ended June 30, |
| (in millions) | (in millions) | 2021 | | 2020 | | (in millions) | 2022 | | 2021 |
| Financing activities | Financing activities | | | | | Financing activities | | | |
| Proceeds from revolving credit facility | 0 | | | 540.0 | | | |
| Repayments on revolving credit facility | 0 | | | (10.0) | | | |
| | Proceeds from issuance of long-term debt, net of discounts | Proceeds from issuance of long-term debt, net of discounts | 0 | | | 322.2 | | | Proceeds from issuance of long-term debt, net of discounts | 1,545.0 | | | — | |
| Repayments on credit facilities (Note 8) | | Repayments on credit facilities (Note 8) | (1,543.2) | | | — | |
| Principal payments on long-term debt | Principal payments on long-term debt | (32.2) | | | (23.3) | | | Principal payments on long-term debt | (20.5) | | | (32.2) | |
| Debt and equity issuance costs | 0 | | | (6.1) | | | |
| Debt issuance costs | | Debt issuance costs | (18.2) | | | — | |
| Proceeds from other long-term obligations | Proceeds from other long-term obligations | 72.5 | | | 0 | | | Proceeds from other long-term obligations | — | | | 72.5 | |
| Payments of other long-term obligations | Payments of other long-term obligations | (8.6) | | | (8.4) | | | Payments of other long-term obligations | (9.1) | | | (8.6) | |
| Principal payments on financing obligations | Principal payments on financing obligations | (17.7) | | | (18.0) | | | Principal payments on financing obligations | (31.9) | | | (17.7) | |
| Principal payments on finance leases | Principal payments on finance leases | (3.4) | | | (2.1) | | | Principal payments on finance leases | (53.5) | | | (3.4) | |
| Proceeds from common stock offerings, net of discounts and fees | 0 | | | 331.2 | | | |
| | Proceeds from exercise of options | Proceeds from exercise of options | 8.5 | | | 27.5 | | | Proceeds from exercise of options | 2.8 | | | 8.5 | |
| | Repurchase of common stock | | Repurchase of common stock | (342.1) | | | — | |
| | Proceeds from insurance financing | Proceeds from insurance financing | 26.6 | | | 19.3 | | | Proceeds from insurance financing | — | | | 26.6 | |
| Payments on insurance financing | Payments on insurance financing | (17.5) | | | (13.4) | | | Payments on insurance financing | — | | | (17.5) | |
| Other | Other | (9.4) | | | (3.8) | | | Other | (6.6) | | | (9.4) | |
| Net cash provided by financing activities | 18.8 | | | 1,155.1 | | | |
| Net cash (used in) provided by financing activities | | Net cash (used in) provided by financing activities | (477.3) | | | 18.8 | |
| Effect of currency rate changes on cash, cash equivalents, and restricted cash | | Effect of currency rate changes on cash, cash equivalents, and restricted cash | (0.6) | | | — | |
| Change in cash, cash equivalents, and restricted cash | Change in cash, cash equivalents, and restricted cash | 424.3 | | | 805.7 | | | Change in cash, cash equivalents, and restricted cash | (155.2) | | | 424.3 | |
| Cash, cash equivalents and restricted cash at the beginning of the year | Cash, cash equivalents and restricted cash at the beginning of the year | 1,870.4 | | | 455.2 | | | Cash, cash equivalents and restricted cash at the beginning of the year | 1,880.1 | | | 1,870.4 | |
| Cash, cash equivalents and restricted cash at the end of the period | Cash, cash equivalents and restricted cash at the end of the period | $ | 2,294.7 | | | $ | 1,260.9 | | | Cash, cash equivalents and restricted cash at the end of the period | $ | 1,724.9 | | | $ | 2,294.7 | |
| | | Reconciliation of cash, cash equivalents and restricted cash: | Reconciliation of cash, cash equivalents and restricted cash: | | | Reconciliation of cash, cash equivalents and restricted cash: | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 2,274.7 | | | $ | 1,244.3 | | | Cash and cash equivalents | $ | 1,708.3 | | | $ | 2,274.7 | |
| Restricted cash included in Other current assets | Restricted cash included in Other current assets | 18.8 | | | 14.3 | | | Restricted cash included in Other current assets | 15.4 | | | 18.8 | |
| Restricted cash included in Other assets | Restricted cash included in Other assets | 1.2 | | | 2.3 | | | Restricted cash included in Other assets | 1.2 | | | 1.2 | |
| Total cash, cash equivalents and restricted cash | Total cash, cash equivalents and restricted cash | $ | 2,294.7 | | | $ | 1,260.9 | | | Total cash, cash equivalents and restricted cash | $ | 1,724.9 | | | $ | 2,294.7 | |
| | Supplemental disclosure: | Supplemental disclosure: | | | Supplemental disclosure: | |
| Cash paid for interest, net of amounts capitalized | Cash paid for interest, net of amounts capitalized | $ | 275.2 | | | $ | 188.8 | | | Cash paid for interest, net of amounts capitalized | $ | 338.5 | | | $ | 275.2 | |
| Cash payments (refunds) related to income taxes, net | $ | 27.7 | | | $ | (1.2) | | | |
| Cash payments related to income taxes, net | | Cash payments related to income taxes, net | $ | 45.5 | | | $ | 27.7 | |
| | Non-cash investing and financing activities: | | | |
| Rent credits received upon sale of Tropicana land and buildings | $ | 0 | | | $ | 307.5 | | | |
| Non-cash activities: | | Non-cash activities: | |
| Commencement of operating leases | Commencement of operating leases | $ | 28.9 | | | $ | 63.5 | | | Commencement of operating leases | $ | 39.0 | | | $ | 28.9 | |
| | Commencement of finance leases | | Commencement of finance leases | $ | 1,417.1 | | | $ | — | |
| Accrued capital expenditures | Accrued capital expenditures | $ | 25.5 | | | $ | (8.6) | | | Accrued capital expenditures | $ | 25.5 | | | $ | 25.5 | |
See accompanying notes to the unaudited Consolidated Financial Statements.
PENN NATIONAL GAMING,ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1—Organization and Basis of Presentation
Organization: On August 4, 2022, Penn National Gaming, Inc. was renamed PENN Entertainment, Inc. PENN Entertainment, Inc., together with its subsidiaries (“Penn National,PENN,” the “Company,” “we,” “our,” or “us”), is aNorth America’s leading diversified, multi-jurisdictional ownerprovider of integrated entertainment, sports content, and managercasino gaming experiences. A member of gaming and racingthe S&P 500®, PENN operates 44 properties online gaming, retail andin 20 states, online sports betting operations,in 13 jurisdictions and video gaming terminal (“VGT”) operations. Our wholly-owned interactive division, Penn Interactive Ventures, LLC (“Penn Interactive”)iCasino in 5, under a portfolio of well-recognized brands including Hollywood Casino®, operates retail sportsL’Auberge®, Barstool Sportsbook®, and theScore Bet®. PENN’s highly differentiated strategy, which is focused on organic cross-sell opportunities, is reinforced by its investments in owned technology, including a state-of-the-art media and betting across theplatform and an in-house iCasino content studio. The Company’s portfolio as well as online sports betting, online social casino, bingo and online casinos (“iGaming”). The Company holds a 36% (inclusive of 1% on a delayed basis) equity interest in Barstool Sports, Inc. (“Barstool Sports”), a leading digital sports, entertainment, lifestyle and media company, and entered into a strategic relationship with Barstool Sports, whereby Barstool Sports will exclusively promote the Company's land-based retail sportsbooks, iGaming products and online sports betting products, including the Barstool Sportsbook mobile app, tois further bolstered by its national audience. We launched an app called Barstool Sportsbook and Casino in Pennsylvania, Michigan, Illinois and Indiana. Ourindustry-leading mychoice® customer loyalty program (the "my“mychoice program"program”) currently has, which offers its over 2026 million members a unique set of rewards and provides such members with various benefits, including complimentary goods and/or services. The Company’s strategy continues to evolve from an owner and manager of gaming and racing properties into an omni-channel provider of retail and online gaming and sports betting entertainment.experiences across business channels.
As of June 30, 2021, we owned, managed, or had ownership interests in 41 gaming and racing properties in 19 states and were licensed to offer live sports betting at our properties in Colorado, Illinois, Indiana, Iowa, Michigan, Mississippi, Nevada, Pennsylvania, and West Virginia. The majority of the real estate assets (i.e., land and buildings) used in our operations are subject to triple net master leases,leases; the most significant of which are the PennPENN Master Lease and the Pinnacle Master Lease (as such terms are defined in Note 9, “Leases,” and collectively referred to as the “Master Leases”), with Gaming and Leisure Properties, Inc. (Nasdaq: GLPI) (“GLPI”), a real estate investment trust (“REIT”).Update on the Impact of the COVID-19 Pandemic: As of June 30, 2021, all of our properties have reopened, and the majority of our properties are operating at full capacity while adhering to state mandated health and safety protocols.
Basis of Presentation: The unaudited Consolidated Financial Statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and with the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and notes required by GAAP for complete consolidated financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.
Results of operations and cash flows for the interim periods presented herein are not necessarily indicative of the results that would be achieved during a full year of operations or in future periods. These unaudited Consolidated Financial Statements and notes thereto should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.2021.
Note 2—Significant Accounting Policies
Principles of Consolidation: The unaudited Consolidated Financial Statements include the accounts of Penn National Gaming,PENN Entertainment, 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 unaudited Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities at the date of the financial statements, and (iii) the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.
Segment Information: We view each of ourhave 5 reportable segments: Northeast, South, West, Midwest, and Interactive. Our gaming and racing properties are grouped by geographic location, and each is viewed as an operating segment with the exception of our 2 properties in Jackpot, Nevada, which we vieware viewed as 1 operating segment. We consider our combined VGTVideo Gaming Terminal (“VGT”) operations, by state, to be separate operating segments. Interactive includes all of our iCasino and online sports betting operations, management of retail sports betting, media, and our proportionate share of earnings attributable to our equity method investment in Barstool Sports, Inc. (“Barstool Sports”). See Note 16, “Segment Information,” for further information. For financial reporting purposes, we aggregate our operating segments into the following 4 reportable segments: | | | | | | | | | | | |
| Location | | Real Estate Assets Lease or Ownership Structure |
| Northeast segment | | | |
| Ameristar East Chicago | East Chicago, Indiana | | Pinnacle Master Lease |
Hollywood Casino at Greektown Casino-Hotel | Detroit, Michigan | | Greektown Lease |
| Hollywood Casino Bangor | Bangor, Maine | | PennPENN Master Lease |
| Hollywood Casino at Charles Town Races | Charles Town, West Virginia | | PennPENN Master Lease |
| Hollywood Casino Columbus | Columbus, Ohio | | PennPENN Master Lease |
| Hollywood Casino Lawrenceburg | Lawrenceburg, Indiana | | PennPENN Master Lease |
Hollywood Casino Morgantown | Morgantown, Pennsylvania | | Morgantown Lease |
Hollywood Casino at PennPENN National Race Course(1) | Grantville, Pennsylvania | | PennPENN Master Lease |
| Hollywood Casino Perryville | Perryville, Maryland | | Perryville Lease |
| Hollywood Casino Toledo | Toledo, Ohio | | PennPENN Master Lease |
| Hollywood Casino York | York, Pennsylvania | | Operating Lease (not with REIT Landlord) |
| Hollywood Gaming at Dayton Raceway | Dayton, Ohio | | PennPENN Master Lease |
| Hollywood Gaming at Mahoning Valley Race Course | Youngstown, Ohio | | PennPENN Master Lease |
Marquee by PennPENN (2)(1) | Pennsylvania | | N/A |
Hollywood Casino at Meadows Racetrack and Casino | Washington, Pennsylvania | | Meadows Lease |
| Plainridge Park Casino | Plainville, Massachusetts | | Pinnacle Master Lease |
| | | |
South segment | | | |
1st Jackpot Casino | Tunica, Mississippi | | PennPENN Master Lease |
| Ameristar Vicksburg | Vicksburg, Mississippi | | Pinnacle Master Lease |
| Boomtown Biloxi | Biloxi, Mississippi | | PennPENN Master Lease |
| Boomtown Bossier City | Bossier City, Louisiana | | Pinnacle Master Lease |
| Boomtown New Orleans | New Orleans, Louisiana | | Pinnacle Master Lease |
| Hollywood Casino Gulf Coast | Bay St. Louis, Mississippi | | PennPENN Master Lease |
| Hollywood Casino Tunica | Tunica, Mississippi | | PennPENN Master Lease |
| L’Auberge Baton Rouge | Baton Rouge, Louisiana | | Pinnacle Master Lease |
| L’Auberge Lake Charles | Lake Charles, Louisiana | | Pinnacle Master Lease |
| Margaritaville Resort Casino | Bossier City, Louisiana | | Margaritaville Lease |
| | | |
| West segment | | | |
| Ameristar Black Hawk | Black Hawk, Colorado | | Pinnacle Master Lease |
| Cactus Petes and Horseshu | Jackpot, Nevada | | Pinnacle Master Lease |
| M Resort | Henderson, Nevada | | PennPENN Master Lease |
| Tropicana Las Vegas | Las Vegas, Nevada | | Tropicana Lease |
| Zia Park Casino | Hobbs, New Mexico | | PennPENN Master Lease |
| | | |
| Midwest segment | | | |
| Ameristar Council Bluffs | Council Bluffs, Iowa | | Pinnacle Master Lease |
Argosy Casino Alton (3)(2) | Alton, Illinois | | PennPENN Master Lease |
| Argosy Casino Riverside | Riverside, Missouri | | PennPENN Master Lease |
| Hollywood Casino Aurora | Aurora, Illinois | | PennPENN Master Lease |
| Hollywood Casino Joliet | Joliet, Illinois | | PennPENN Master Lease |
Hollywood Casino at Kansas Speedway (4)(3) | Kansas City, Kansas | | Owned - JV |
| Hollywood Casino St. Louis | Maryland Heights, Missouri | | PennPENN Master Lease |
Prairie State Gaming (2)(1) | Illinois | | N/A |
| River City Casino | St. Louis, Missouri | | Pinnacle Master Lease |
(1)Our two Category 4 developments, Hollywood Casino York (not subject to the Penn Master Lease) and Hollywood Casino Morgantown (subject to the Morgantown Lease), are included with Hollywood Casino at Penn National Race Course.
(2)VGT route operations
(3)(2)The riverboat is owned by us and not subject to the PennPENN Master Lease.
(3)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.
Revenue Recognition: Our revenue from contracts with customers consists primarily of gaming wagers, inclusive of sports betting and iCasino products, food and beverage transactions, retail transactions, hotel room sales, racing wagers, management services related to the management of external operations and sports betting wagers.third-party revenue sharing agreements. See Note 5, “Revenue Disaggregation,” for information on our revenue by type and geographic location. Complimentaries Associated with Gaming Contracts
Food, beverage, hotel, and other services furnished to patrons for free as an inducement to gamble or through the redemption of our customers’ loyalty points are recorded as food, beverage, hotel, and other revenues, at their estimated standalone selling prices with an offset recorded as a reduction to gaming revenues. The cost of providing complimentary goods and services to patrons as an inducement to gamble as well as for the fulfillment of our loyalty point obligation is included in food, beverage, hotel, and other expenses. Revenues recorded to food, beverage, hotel and other and offset to gaming revenues were as follows:
| | | For the three months ended June 30, | | For the six months ended June 30, | | For the three months ended June 30, | | For the six months ended June 30, |
| (in millions) | (in millions) | 2021 | | 2020 | | 2021 | | 2020 | (in millions) | 2022 | | 2021 | | 2022 | | 2021 |
| Food and beverage | Food and beverage | $ | 44.1 | | | $ | 7.3 | | | $ | 80.2 | | | $ | 61.3 | | Food and beverage | $ | 52.1 | | | $ | 44.1 | | | $ | 102.8 | | | $ | 80.2 | |
| Hotel | Hotel | 30.7 | | | 5.8 | | | 57.1 | | | 36.7 | | Hotel | 36.6 | | | 30.7 | | | 68.8 | | | 57.1 | |
| Other | Other | 2.1 | | | 0.3 | | | 4.0 | | | 3.5 | | Other | 2.8 | | | 2.1 | | | 5.3 | | | 4.0 | |
| Total complimentaries associated with gaming contracts | Total complimentaries associated with gaming contracts | $ | 76.9 | | | $ | 13.4 | | | $ | 141.3 | | | $ | 101.5 | | Total complimentaries associated with gaming contracts | $ | 91.5 | | | $ | 76.9 | | | $ | 176.9 | | | $ | 141.3 | |
Customer-related Liabilities
The Company has 3three general types of liabilities related to contracts with customers: (i) the obligation associated with its mychoice program (loyalty points and tier status benefits), (ii) advance payments on goods and services yet to be provided and for unpaid wagers, and (iii) deferred revenue associated with third-party sports betting operators for online sports betting and related iGamingiCasino market access.
Our mychoice program allows members to utilize their reward membership card to earn loyalty points that are redeemable for slot play and complimentaries, such as food and beverage at our restaurants, lodging at our hotels and products offered at our retail stores across the vast majority of our properties. In addition, members of the mychoice program earn credit toward tier status, which entitles them to receive certain other benefits, such as gifts.gifts and free play. The obligation associated with our mychoice program, which is included in “Accrued expenses and other current liabilities” within our unaudited Consolidated Balance Sheets, was $36.7$43.4 million and $35.8$37.6 million as of June 30, 20212022 and December 31, 2020,2021, respectively, and consisted principally of the obligation associated with the loyalty points. Our loyalty point obligations are generally settled within six months of issuance; however, as a result of the COVID-19 pandemic and resulting temporary closures, loyalty point obligations may take longer to settle.issuance. 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) money deposited in an online wallet not yet wagered or wagered and not yet withdrawn, (iv) outstanding tickets generated by slot machine play or pari-mutuel wagering, (v) outstanding chip liabilities, (vi) unclaimed jackpots, and (vii) gift cards redeemable at our properties. Unpaid wagers primarily relate to the Company’s obligation to settle outstanding slot tickets, pari-mutuel racing tickets, gaming chips with customers and future withdrawals from online wallets. Unpaid wagers not yet withdrawn and generally represent obligations stemming from prior wagering events, of which revenue was previously recognized. The Company’s advance payments on goods and services yet to be provided and for unpaid wagers were $54.4$93.2 million and $47.1$112.0 million as of June 30, 20212022 and December 31, 2020, respectively, of which none was classified as long-term as of June 30, 2021, as compared to $0.5 million as of December 31, 2020. The current portion and long-term portion of our advancerespectively. Advance payments on goods and services yet to be provided and for unpaid wagers are included in “Accrued expenses and other current liabilities” and “Other long-term liabilities” within our unaudited Consolidated Balance Sheets, respectively.Sheets.
PennPENN Interactive Ventures, LLC (“PENN Interactive”) enters into multi-year agreements with sports betting operators for online sports betting and related iGamingiCasino 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.properties. Deferred revenue associated with third-party sports betting operators for online sports betting and related iGamingiCasino market access, which is included in “Other long-term liabilities” within our unaudited Consolidated Balance Sheets was $54.9$55.4 million and $52.7$52.2 million as of June 30, 20212022 and December 31, 2020,2021, respectively.
Advertising: The Company expenses advertising costs the first time the advertising takes place or as incurred. Advertising expenses, which generally relate to media placement costs and are primarily included in “Gaming” expenses within the unaudited Consolidated Statements of Operations, were $18.5 million, and $42.6 million for the three and six months ended June 30, 2022, respectively, as compared to $15.3 million and $32.4 million for the three and six months ended June 30, 2021, respectively.
Gaming and Racing Taxes: We are subject to gaming and pari-mutuel taxes primarily based on gross gaming revenue and pari-mutuel revenue in the jurisdictions in which we operate. The Company primarily recognizes gaming and pari-mutuel tax expense based on the statutorily required percentage of revenue that is required to be paid to state and local jurisdictions in the states where or in which the wagering occurs, as well as taxes on revenues derived from arrangements which allow for third partythird-party partners to operate online casinos and online sportsbooks under our gaming licenses. ForAdditionally, some states require us to prepay annual assessments to support the threeoperations of local regulatory authorities. We consider these prepaid costs to be a type of gaming and six months ended June 30, 2021, these expenses, which wereracing tax. Gaming and racing taxes are recorded in gaming“Gaming” expense or food,“Food, beverage, hotel, and otherother” expenses within the unaudited Consolidated Statements of Operations, and Comprehensive Income (Loss) as applicable, were $515.9$486.8 million and $933.8 million respectively, as compared to $97.6 million and $433.9$959.0 million for the three and six months ended June 30, 2020,2022, respectively, as compared to $515.9 million and $933.8 million for the three and six months ended June 30, 2021, respectively.
Foreign Currency Translation: The functional currency of the Company’s foreign subsidiaries is the local currency in which the subsidiary operates. Balance sheet accounts are translated at the exchange rate in effect at each balance sheet date. Translation adjustments resulting from this process are recorded to other comprehensive income. Revenues and expenses are translated at the average exchange rates during the year. Gains or losses resulting from foreign currency transactions are included in “Other” within our unaudited Consolidated Statements of Operations.
Comprehensive Income (Loss) and Accumulated Other Comprehensive Loss: Comprehensive income (loss) includes net income and all other non-stockholder changes in equity, or other comprehensive income (loss). The balance of accumulated other comprehensive loss consists solely of foreign currency translation adjustments.
Earnings Per Share: Basic earnings per share (“EPS”) is computed by dividing net income (loss) applicable to common stock by the weighted-average number of common shares outstanding during the period. Diluted EPS reflects the additional dilution, if any, for all potentially-dilutive securities such as stock options, unvested restricted stock awards (“RSAs”) and restricted stock units (“RSUs”) (collectively with RSAs, “restricted stock”), outstanding convertible preferred stock and convertible debt.
Holders of the Company’s Series D Preferred Stock (as defined in Note 10, “Investments in and Advances to Unconsolidated Affiliates”) are entitled to participate equally and ratably in all dividends and distributions paid to holders of PennPENN Common Stock irrespective of any vesting requirement. Accordingly, the Series D Preferred Stock shares are considered a participating security and the Company is required to apply the two-class method to consider the impact of the preferred shares on the calculation of basic and diluted EPS. The holders of the Company’s Series D Preferred Stock are not obligated to absorb losses; therefore, in reporting periods where the Company is in a net loss position, it does not apply the two-class method. In reporting periods where the Company is in a net income position, the two-class method is applied by allocating all earnings during the period to common shares and preferred shares. See Note 14, “Earnings (Loss) per Share,” for more information.
Note 3—New Accounting Pronouncements
Accounting Pronouncements to be Implemented
In March 2020, the FASB issued ASU 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 an optional expedient and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. In response to the concerns about structural risks of interbank offered rates and, particularly, the risk of cessation of the London Interbank Offered Rate (referred to as “LIBOR”), regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction-basedtransaction-
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 31, 2022 with early adoption permitted. The interest rates associated with the Company’s previous borrowings under its Senior Secured Credit Facilities (as defined in Note 8, “Long-term Debt”) were tied to LIBOR. Subsequent to the amendment of the Senior Secured Credit Facilities on May 3, 2022, the Company’s borrowings are tied to LIBOR.SOFR (see Note 8, “Long-term Debt”). The Company is currently evaluating the impact of the adoption of ASU 2020-04 did not have an impact on our unaudited Consolidated Financial Statements. In August 2020, The FASB issued ASU 2020-06, “Debt—Debt with Conversion and Other Options (Topic 470) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Topic 814): 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 an effort to increase financial reporting transparency.
The new standard impacts the Company’s existing 2.75% convertible senior notes due May 2026 (“Convertible Notes”) which prior to adoption of the new standard, were accounted for under the cash conversion feature model. The cash conversion feature model is eliminated under the new standard and entities will no longer separately present in stockholders’ equity an embedded conversion feature of a debt instrument.
The new guidance also requires the use of the if-converted method when calculating diluted EPS for convertible instruments and the treasury stock method should no longer be used. Under the new guidance, convertible instruments that may be settled in cash or shares (e.g., the Company’s Convertible Notes) are to be included in the calculation of diluted EPS if the effect is more dilutive, with no option for rebutting the presumption of share settlement based on stated policy or past experience. Each of these requirements are consistent with Company’s previous method for calculating diluted EPS.
The Company adopted ASU 2020-06 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 evaluatingJanuary 1, 2022, using the impactmodified retrospective approach. Adoption of ASU 2020-06 resulted in reclassification of the $88.2 million cash conversion feature related to the Company’s Convertible Notes, from stockholders’ equity to liabilities. As a result of the adoption, the Company recognized as a cumulative effect adjustment, an increase to the January 1, 2022 opening balance of ASU 2020-06 on our Consolidated Financial Statements.
A varietyretained earnings of proposed or otherwise potential accounting standards are currently being studied by standard-setting organizations and certain regulatory agencies. Because$18.9 million, net 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 2 weeks. The Company maintains insurance, subject to certain deductibles and coinsurance, forthat covers business interruption, including lost profits, and covers the repair or replacement of assets that suffered loss and provides coverage for interruption to our business, including lost profits.
The Company recorded a receivable relating to our estimate of repairs and maintenance costs which have been incurred and property and equipment which have been written off, and for which we deem the recovery of such costs and property and equipment from our insurers to be probable. The insurance recovery receivable iswas included in “Receivables,“Accounts Receivable, net” within the unaudited Consolidated Balance Sheets. As we deemdeemed it is probable that the proceeds to be recovered from our insurers exceeds the total of our insurance recovery recorded and our insurers’ deductible and coinsurance, we did not record any loss associated with the impact of this natural disaster. Timing differences are likely to exist between the recognition of (i) impairment losses and capital expenditures made to repair or restore the assets and (ii) the receipt of insurance proceeds within the unaudited Consolidated Financial Statements.
The amountAs of December 31, 2021, the receivable was $28.3 million and $23.0 million, as of June 30, 2021 and December 31, 2020, respectively. For the three and six months ended June 30, 2021, we identified an additional $1.3 million and $5.3 million of costs related to our policy claim, respectively. NaN proceeds were received from our insurers during$28.7 million. During the six months ended June 30, 2021.2022, we received additional insurance claim proceeds totaling $37.5 million, resulting in a gain of $8.8 million, which is included in “General and administrative” within our unaudited Consolidated Statements of Operations. We continuedid not receive insurance proceeds during the three months ended June 30, 2022.
As of August 4, 2022, the insurance claim remains open and we expect to be in the process of quantifying the claim amount under the policies to be submitted to our insurers.receive additional future proceeds.
We will record proceeds in excess of the recognized losses and lost profits under our business interruption insurance as a gain contingency in accordance with ASC 450, “Contingencies,” which we expect to recognize at the time of final settlement or when nonrefundable cash advances are made in a period subsequent to June 30, 2021.2022.
The following table summarizes the financial impact of Hurricane Laura related matters:
| | | | | | | | | | | |
| (in millions) | June 30, 2021 | | December 31, 2020 |
| Insurance Proceeds | $ | 47.5 | | | $ | 47.5 | |
| Deductible | $ | 15.0 | | | $ | 15.0 | |
| Coinsurance | $ | 2.5 | | | $ | 2.5 | |
| Clean-up and Restoration Costs | $ | 52.4 | | | $ | 47.1 | |
| Fixed Asset Write-off | $ | 23.2 | | | $ | 23.2 | |
| Inventory Write-off | $ | 0.2 | | | $ | 0.2 | |
| Insurance Receivable | $ | 28.3 | | | $ | 23.0 | |
| | | | | | | | | | | |
| (in millions) | June 30, 2022 | | December 31, 2021 |
| Insurance proceeds received through the end of the period | $ | 85.0 | | | $ | 47.5 | |
| Deductible | $ | 15.0 | | | $ | 15.0 | |
| Coinsurance | $ | 2.5 | | | $ | 2.5 | |
| Clean-up, restoration, and other costs | $ | 52.8 | | | $ | 52.8 | |
| Fixed asset write-off | $ | 23.2 | | | $ | 23.2 | |
| Inventory write-off | $ | 0.2 | | | $ | 0.2 | |
| Insurance receivable | $ | — | | | $ | 28.7 | |
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;iCasino, retail and online sports betting; (ii) food and beverage; (iii) hotel; and (iv) other. Other revenues are principally comprised of ancillary gaming-related activities, such as commissions received on ATM transactions, racing, and PennPENN Interactive’s social gaming. In addition, we assess our revenues based ongaming, and revenue from third-party sports betting operators and the related gross-up for taxes. Our revenue is disaggregated by type of revenue and geographic location of the related properties, which is consistent with our reportable segments, (see Note 16, “Segment Information,” for further information). Our revenue disaggregation by type of revenue and geographic location was as follows: | | | For the three months ended June 30, 2021 | | For the three months ended June 30, 2022 |
| (in millions) | (in millions) | Northeast | | South | | West | | Midwest | | Other | | Intersegment Eliminations (1) | | Total | (in millions) | Northeast | | South | | West | | Midwest | | Interactive | | Other | | Intersegment Eliminations (1) | | Total |
| Revenues: | Revenues: | | | | | | | | | | | | | | Revenues: | | | | | | | | | | | | | | | |
| Gaming | Gaming | $ | 602.5 | | | $ | 304.4 | | | $ | 96.7 | | | $ | 272.1 | | | $ | 29.8 | | | $ | 0 | | | $ | 1,305.5 | | Gaming | $ | 621.4 | | | $ | 269.0 | | | $ | 98.9 | | | $ | 267.0 | | | $ | 69.3 | | | $ | — | | | $ | — | | | $ | 1,325.6 | |
| Food and beverage | Food and beverage | 24.1 | | | 29.4 | | | 18.2 | | | 9.7 | | | 0.2 | | | 0 | | | 81.6 | | Food and beverage | 31.5 | | | 33.0 | | | 21.6 | | | 13.2 | | | — | | | 1.3 | | | — | | | 100.6 | |
| Hotel | Hotel | 6.7 | | | 24.1 | | | 19.9 | | | 7.0 | | | 0 | | | 0 | | | 57.7 | | Hotel | 10.3 | | | 26.0 | | | 26.4 | | | 9.1 | | | — | | | — | | | — | | | 71.8 | |
| Other | Other | 19.2 | | | 10.3 | | | 5.6 | | | 6.0 | | | 67.7 | | | (7.8) | | | 101.0 | | Other | 21.7 | | | 10.6 | | | 6.9 | | | 7.0 | | | 85.6 | | | 4.6 | | | (7.5) | | | 128.9 | |
| Total revenues | Total revenues | $ | 652.5 | | | $ | 368.2 | | | $ | 140.4 | | | $ | 294.8 | | | $ | 97.7 | | | $ | (7.8) | | | $ | 1,545.8 | | Total revenues | $ | 684.9 | | | $ | 338.6 | | | $ | 153.8 | | | $ | 296.3 | | | $ | 154.9 | | | $ | 5.9 | | | $ | (7.5) | | | $ | 1,626.9 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended June 30, 2021 |
| (in millions) | Northeast | | South | | West | | Midwest | | Interactive | | Other | | Intersegment Eliminations (1) | | Total |
| Revenues: | | | | | | | | | | | | | | | |
| Gaming | $ | 602.5 | | | $ | 304.4 | | | $ | 96.7 | | | $ | 272.1 | | | $ | 29.8 | | | $ | — | | | $ | — | | | $ | 1,305.5 | |
| Food and beverage | 24.1 | | | 29.4 | | | 18.2 | | | 9.7 | | | — | | | 0.2 | | | — | | | 81.6 | |
| Hotel | 6.7 | | | 24.1 | | | 19.9 | | | 7.0 | | | — | | | — | | | — | | | 57.7 | |
| Other | 19.2 | | | 10.3 | | | 5.6 | | | 6.0 | | | 66.2 | | | 1.5 | | | (7.8) | | | 101.0 | |
| Total revenues | $ | 652.5 | | | $ | 368.2 | | | $ | 140.4 | | | $ | 294.8 | | | $ | 96.0 | | | $ | 1.7 | | | $ | (7.8) | | | $ | 1,545.8 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the six months ended June 30, 2022 |
| (in millions) | Northeast | | South | | West | | Midwest | | Interactive | | Other | | Intersegment Eliminations (1) | | Total |
| Revenues: | | | | | | | | | | | | | | | |
| Gaming | $ | 1,220.5 | | | $ | 547.6 | | | $ | 193.0 | | | $ | 523.5 | | | $ | 132.2 | | | $ | — | | | $ | — | | | $ | 2,616.8 | |
| Food and beverage | 63.4 | | | 64.0 | | | 40.9 | | | 25.7 | | | — | | | 2.5 | | | — | | | 196.5 | |
| Hotel | 18.4 | | | 48.0 | | | 48.7 | | | 16.7 | | | — | | | — | | | — | | | 131.8 | |
| Other | 41.1 | | | 20.4 | | | 12.1 | | | 13.3 | | | 164.2 | | | 10.7 | | | (15.8) | | | 246.0 | |
| Total revenues | $ | 1,343.4 | | | $ | 680.0 | | | $ | 294.7 | | | $ | 579.2 | | | $ | 296.4 | | | $ | 13.2 | | | $ | (15.8) | | | $ | 3,191.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended June 30, 2020 |
| (in millions) | Northeast | | South | | West | | Midwest | | Other | | Intersegment Eliminations (1) | | Total |
| Revenues: | | | | | | | | | | | | | |
| Gaming | $ | 94.1 | | | $ | 103.7 | | | $ | 12.8 | | | $ | 33.5 | | | $ | 15.1 | | | $ | 0 | | | $ | 259.2 | |
| Food and beverage | 2.2 | | | 7.6 | | | 2.2 | | | 1.0 | | | 0.1 | | | 0 | | | 13.1 | |
| Hotel | 0.2 | | | 6.8 | | | 1.5 | | | 0.6 | | | 0 | | | 0 | | | 9.1 | |
| Other | 6.2 | | | 3.4 | | | 1.2 | | | 0.9 | | | 12.4 | | | 0 | | | 24.1 | |
| Total revenues | $ | 102.7 | | | $ | 121.5 | | | $ | 17.7 | | | $ | 36.0 | | | $ | 27.6 | | | $ | 0 | | | $ | 305.5 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the six months ended June 30, 2021 |
| (in millions) | Northeast | | South | | West | | Midwest | | Other | | Intersegment Eliminations (1) | | Total |
| Revenues: | | | | | | | | | | | | | |
| Gaming | $ | 1,129.5 | | | $ | 549.8 | | | $ | 165.8 | | | $ | 489.0 | | | $ | 53.4 | | | $ | 0 | | | $ | 2,387.5 | |
| Food and beverage | 45.0 | | | 52.5 | | | 30.1 | | | 16.7 | | | 0.3 | | | 0 | | | 144.6 | |
| Hotel | 12.5 | | | 43.7 | | | 32.4 | | | 12.9 | | | 0 | | | 0 | | | 101.5 | |
| Other | 36.4 | | | 18.1 | | | 8.7 | | | 10.9 | | | 131.9 | | | (18.9) | | | 187.1 | |
| Total revenues | $ | 1,223.4 | | | $ | 664.1 | | | $ | 237.0 | | | $ | 529.5 | | | $ | 185.6 | | | $ | (18.9) | | | $ | 2,820.7 | |
| | | For the six months ended June 30, 2020 | | For the six months ended June 30, 2021 |
| (in millions) | (in millions) | Northeast | | South | | West | | Midwest | | Other | | Intersegment Eliminations (1) | | Total | (in millions) | Northeast | | South | | West | | Midwest | | Interactive | | Other | | Intersegment Eliminations (1) | | Total |
| Revenues: | Revenues: | | | | | | | | | | | | | | Revenues: | | | | | | | | | | | | | | | |
| Gaming | Gaming | $ | 552.8 | | | $ | 272.3 | | | $ | 84.7 | | | $ | 229.7 | | | $ | 22.7 | | | $ | (0.1) | | | $ | 1,162.1 | | Gaming | $ | 1,129.5 | | | $ | 549.8 | | | $ | 165.8 | | | $ | 489.0 | | | $ | 53.4 | | | $ | — | | | $ | — | | | $ | 2,387.5 | |
| Food and beverage | Food and beverage | 36.1 | | | 37.3 | | | 25.7 | | | 18.8 | | | 0.3 | | | 0 | | | 118.2 | | Food and beverage | 45.0 | | | 52.5 | | | 30.1 | | | 16.7 | | | — | | | 0.3 | | | — | | | 144.6 | |
| Hotel | Hotel | 9.0 | | | 24.6 | | | 27.3 | | | 8.8 | | | 0 | | | 0 | | | 69.7 | | Hotel | 12.5 | | | 43.7 | | | 32.4 | | | 12.9 | | | — | | | — | | | — | | | 101.5 | |
| Other | Other | 25.5 | | | 10.6 | | | 6.6 | | | 6.8 | | | 24.9 | | | (2.8) | | | 71.6 | | Other | 36.4 | | | 18.1 | | | 8.7 | | | 10.9 | | | 128.9 | | | 3.0 | | | (18.9) | | | 187.1 | |
| Total revenues | Total revenues | $ | 623.4 | | | $ | 344.8 | | | $ | 144.3 | | | $ | 264.1 | | | $ | 47.9 | | | $ | (2.9) | | | $ | 1,421.6 | | Total revenues | $ | 1,223.4 | | | $ | 664.1 | | | $ | 237.0 | | | $ | 529.5 | | | $ | 182.3 | | | $ | 3.3 | | | $ | (18.9) | | | $ | 2,820.7 | |
(1) Primarily represents the elimination of intersegment revenues associated with our internally-branded retail sportsbooks, which are operated by PennPENN Interactive.
Note 6—Acquisitions and Dispositions
HitPoint Inc. and LuckyPoint Inc.
On May 11, 2021, we acquired 100% of the outstanding equity of HitPoint Inc. and Lucky Point Inc. (collectively, “Hitpoint”). The purchase price totaled $12.7 million, consisting of $6.2 million in cash, $3.5 million of the Company's common equity, and a $3.0 million contingent liability. The contingent liability is payable in annual installments over three years, through a combination of cash and the Company's common equity, and is based on achievement of certain performance factors. The preliminary purchase price allocation resulted in recognition of $8.5 million of goodwill, $4.3 million in developed technology which is included in "Other intangible assets, net" within the unaudited Consolidated Balance Sheets, along with other miscellaneous operating assets and liabilities.
Tropicana Las Vegas
On April 16, 2020, we sold the real estate assets associated with ourthe operations of Tropicana Las Vegas Hotel and Casino, Inc. ("Tropicana"(“Tropicana”) property to GLPI in exchange for rent credits of $307.5 million, and utilized themthe rent credits to pay rent under our existing Master Leases and the Meadows Racetrack and Casino Lease, beginning in May 2020. Contemporaneous with the sale, the Company entered into the Tropicana Lease (as defined and discussed in Note 9, "Leases"). Pursuant to the purchase agreement, GLPI would conduct a sale process with respect to both the real estate assets and the operations of Tropicana for up to 24 months (the “Sale Period”), with the Company receiving (i) 75% of the proceeds above $307.5 million plus certain taxes, expenses and costs if an agreement for such sale is signed in the first 12 months of the Sale Period or (ii) 50% of the proceeds above $307.5 million plus certain taxes, expenses and costs if an agreement for such sale is signed in the remainder of the Sale Period.
On April 13, 2021, GLPI announced that itJanuary 11, 2022, PENN entered into a binding term sheet with Bally’s Corporation (“Bally’s”) whereby Bally’s plansdefinitive purchase agreement to acquire both GLPI’s non-land real estate assets and Penn’ssell its outstanding equity interestsinterest in Tropicana, which has the gaming license and operates the Tropicana, for an aggregate cash acquisition price of $150.0 million. GLPI will retain ownership of the land and will concurrently enter into a 50-year ground lease with initial annual rent of $10.5 million.to Bally’s Corporation (“Bally’s”). This transaction is expected to close in late 2021 or earlywithin the second half of 2022, subject to Penn,PENN, GLPI, and Bally'sBally’s entering into definitive agreements and obtaining regulatory approval.
Hollywood Casino Perryville
On December 15, 2020, we entered into a definitive agreement with GLPI to purchase the operations of Hollywood Casino Perryville for $31.1 million. The transaction closed on July 1, 2021. Simultaneous with the closing, we entered into a lease with GLPI for the real estate assets associated with Hollywood Casino Perryville for initial annual rent of $7.8 million per year subject to escalation.
Sam Houston Race Park and Valley Race Park
On March 15, 2021, we entered into a purchase agreement with PM Texas Holdings, LLC for the purchase of the remaining 50% ownership interest in the Sam Houston Race Park in Houston, Texas, the Valley Race Park in Harlingen, Texas, and a license to operate a racetrack in Austin, Texas. The purchase price consists of $56.0 million, comprised of $42.0 million in cash and $14.0 million of the Company's common equity, as well as a contingent consideration. The contingent consideration will be triggered in the event the State of Texas establishes a statutory framework authorizing land-based gaming or online gaming operations in the state prior to the ten-year anniversary of the closing date. The transaction closed August 1, 2021.
Score Media and Gaming Inc.
On August 4,October 19, 2021, we entered into an agreement withacquired 100% of Score Media and Gaming, Inc., (“theScore”) for a British Columbia corporation (“theScore”), under which we will acquire theScore in a cashpurchase price of approximately $2.1 billion. The acquisition provides us with the technology, resources and stock transaction valued at approximately $2.0 billion at the agreement date.audience reach to accelerate our media and sports betting strategy across North America. Under the terms of the agreement, 1317774 B.C. Ltd. (the “Purchaser”), an indirectly wholly owned subsidiary of PENN, acquired each of the issued and outstanding theScore shareholders will receive (a)shares (other than those held by PENN and its subsidiaries) for US$17.00 per share in cash consideration, totaling $922.8 million, and (b)either 0.2398 of a share of common stock, par value $0.01 perof PENN Common Stock or, if validly elected, 0.2398 of an exchangeable share in the capital of the Purchaser (each whole share, an “Exchangeable Share”), totaling 12,319,340 shares of PENN Common Stock and 697,539 Exchangeable Shares for approximately $1.0 billion. Each Exchangeable Share will be exchangeable into 1 share of PENN Common Stock at the Company’s common equity for each theScore share. The agreement is conditioned upon obtaining theScore shareholders’ approval and isoption of the holder, subject to regulatory approval.certain adjustments. In addition, Purchaser may redeem all outstanding Exchangeable Shares in exchange for shares of PENN Common Stock at any time following the fifth anniversary of the closing, or earlier under certain circumstances.
The Company held shares of theScore common stock prior to the acquisition and, as such, the acquisition date estimated fair value of this previously held investment was a component of the purchase consideration. Based on the acquisition date fair value of this investment of $58.9 million, the Company recorded a gain of $2.9 million related to remeasurement of the equity security investment immediately prior to the acquisition date which was included in “Other” within our Consolidated Statements of Operations.
The following table reflects the preliminary allocation of the purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed, with the excess recorded as goodwill:
| | | | | |
| (in millions) | Fair value |
| Cash and cash equivalents | $ | 160.3 |
| Other current assets | 22.8 |
| ROU assets | 2.6 |
| Property and equipment | 1.8 |
| Goodwill | 1,690.2 |
| Other intangible assets | |
| Gaming technology | 160.0 |
| Media technology | 57.0 |
| Tradename | 100.0 |
| Advertising relationships | 11.0 |
| Customer relationships | 8.0 |
| Re-acquired right | 2.6 |
| Other long-term assets | 5.2 |
| Total assets | $ | 2,221.5 | |
| | |
| Accounts payable, accrued expenses and other current liabilities | $ | 67.9 | |
| Deferred tax liabilities | 69.2 | |
| Other non-current liabilities | 1.7 | |
| Total liabilities | 138.8 | |
| Net assets acquired | $ | 2,082.7 | |
The Company used the income, or cost approach for the valuation, as appropriate, and used valuation inputs in these models and analyses that were based on market participant assumptions. Market participants are considered to be buyers and sellers unrelated to the Company in the principal or most advantageous market for the asset or liability.
Acquired identifiable intangible assets consist of gaming technology, media technology, tradename, advertising relationships, customer relationships, and a re-acquired right. Tradename is an indefinite-lived intangible asset. All other intangible assets are definite-lived with assigned useful lives primarily ranging from 1-7 years. The re-acquired right intangible asset was assigned a 17.8-year useful life based on the remaining term of a pre-acquisition market access contract between PENN and theScore.
Goodwill, none of which is deductible under the Canadian Income Tax Act, is approximately 81.2% of the net assets acquired and represents synergies, incremental market share capture and expansion into new markets not existing as of the acquisition date, and future technology development.
The following valuation approaches were utilized to determine the fair value of each intangible asset:
| | | | | |
| Intangible Asset | Valuation Approach |
| Gaming technology | Relief-from-royalty (variation of income approach) |
| Media technology | Replacement cost |
| Tradename | Relief-from-royalty (variation of income approach) |
| Advertising relationships | With-and-without (variation of income approach) |
| Customer relationships | Replacement cost |
| Re-acquired right | Replacement cost |
Unaudited Pro Forma Financial Information
The following table includes unaudited pro forma consolidated financial information assuming our acquisition of Hitpoint Inc. and Lucky Point Inc. (collectively “Hitpoint”), Hollywood Casino Perryville (“Perryville”), Sam Houston Race Park and Valley Race Park (collectively “Sam Houston”), and theScore had occurred as of January 1, 2021. We acquired Hitpoint on May 11, 2021, Perryville on July 1, 2021, and Sam Houston on August 1, 2021. The pro forma amounts include the historical
operating results of PENN and Hitpoint, Perryville, Sam Houston and theScore prior to our acquisitions. The pro forma financial information does not necessarily represent the results that may occur in the future. For the three and six months ended June 30, 2021, pro forma adjustments directly attributable to the acquisitions include acquisition and transaction related costs of $2.1 million and $3.7 million, respectively, incurred by both PENN and the respective acquirees. For the three and six months ended June 30, 2021, pro forma adjustments directly attributable to the acquisitions also include a loss of $8.5 million and gains of $34.9 million, respectively, related to our purchase of the remaining 50% of Sam Houston and a net unrealized gain on the equity security investment in theScore.
| | | | | | | | | | | |
| For the three months ended June 30, | | For the six months ended June 30, |
| (in millions) | 2021 |
| Revenues | $ | 1,580.8 | | | $ | 2,886.8 | |
| Net income | $ | 191.6 | | | $ | 227.7 | |
Note 7—Goodwill and Other Intangible Assets
A reconciliation of goodwill and accumulated goodwill impairment losses, by reportable segment, is as follows:
| | (in millions) | (in millions) | Northeast | | South | | West | | Midwest | | Other | | Total | (in millions) | Northeast | | South | | West | | Midwest | | Interactive | | Other | | Total |
| Balance as of December 31, 2020 | | | | | | | | | | | | |
| Goodwill, gross | $ | 914.3 | | | $ | 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 | | |
| | Goodwill acquired during the period | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 8.5 | | | $ | 8.5 | | |
| | Balance as of June 30, 2021 | | |
| Balance as of December 31, 2021 | | Balance as of December 31, 2021 | | | | | | | | | | | | | |
| Goodwill, gross | Goodwill, gross | $ | 914.3 | | | $ | 236.6 | | | $ | 216.8 | | | $ | 1,116.7 | | | $ | 164.0 | | | $ | 2,648.4 | | Goodwill, gross | $ | 923.5 | | | $ | 236.6 | | | $ | 216.8 | | | $ | 1,116.7 | | | $ | 1,724.0 | | | $ | 87.7 | | | $ | 4,305.3 | |
| Accumulated goodwill impairment losses | Accumulated goodwill impairment losses | (761.4) | | | (61.0) | | | (16.6) | | | (556.1) | | | (87.7) | | | (1,482.8) | | Accumulated goodwill impairment losses | (761.4) | | | (61.0) | | | (16.6) | | | (556.1) | | | — | | | (87.7) | | | (1,482.8) | |
| Goodwill, net | Goodwill, net | $ | 152.9 | | | $ | 175.6 | | | $ | 200.2 | | | $ | 560.6 | | | $ | 76.3 | | | $ | 1,165.6 | | Goodwill, net | $ | 162.1 | | | $ | 175.6 | | | $ | 200.2 | | | $ | 560.6 | | | $ | 1,724.0 | | | $ | — | | | $ | 2,822.5 | |
| | Effect of foreign currency exchange rates | | Effect of foreign currency exchange rates | — | | | — | | | — | | | — | | | (22.9) | | | — | | | (22.9) | |
| Balance as of June 30, 2022 | | Balance as of June 30, 2022 | |
| Goodwill, gross | | Goodwill, gross | $ | 923.5 | | | $ | 236.6 | | | $ | 216.8 | | | $ | 1,116.7 | | | $ | 1,701.1 | | | $ | 87.7 | | | $ | 4,282.4 | |
| Accumulated goodwill impairment losses | | Accumulated goodwill impairment losses | (761.4) | | | (61.0) | | | (16.6) | | | (556.1) | | | — | | | (87.7) | | | (1,482.8) | |
| Goodwill, net | | Goodwill, net | $ | 162.1 | | | $ | 175.6 | | | $ | 200.2 | | | $ | 560.6 | | | $ | 1,701.1 | | | $ | — | | | $ | 2,799.6 | |
There were 0no impairment charges recorded to goodwill during the three and six months ended June 30, 2021.
2020 Assessment for Impairment
During the first quarter of 2020, we identified an indicator of impairment on our goodwill2022 and other intangible assets due to the COVID-19 pandemic. As a result of the COVID-19 pandemic, we revised our cash flow projections to reflect changes in the economic environment, including the uncertainty surrounding the nature, timing and extent of gaming property closures. As a result of the interim assessment for impairment, during the first quarter of 2020, we recognized impairments on our goodwill, gaming licenses, and trademarks of $113.0 million, $437.0 million, and $61.5 million, respectively. The estimated fair values of
the reporting units were determined through a combination of a discounted cash flow model and a market-based approach, which utilized Level 3 inputs. The estimated fair values of the gaming licenses and trademarks were determined by using discounted cash flow models, which utilized Level 3 inputs.
The goodwill impairments pertained to our Northeast, South, and Midwest segments, in the amounts of $43.5 million, $9.0 million and $60.5 million, respectively. The gaming license impairments pertained to our Northeast, South, and Midwest segments in the amounts of $177.0 million, $166.0 million and $94.0 million, respectively. The trademark impairments pertained to our Northeast, South, Midwest, and West segments, in the amounts of $17.0 million, $17.0 million, $15.0 million, and $12.5 million, respectively.
NaN further impairments were recorded for the three months ended June 30, 2020.2021.
The table below presents the gross carrying amount, accumulated amortization, and net carrying amount of each major class of other intangible assets:
| | | June 30, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 |
| (in millions) | (in millions) | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | (in millions) | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| Indefinite-lived intangible assets | Indefinite-lived intangible assets | | | | | | | | | | | | Indefinite-lived intangible assets | | | | | | | | | | | |
| Gaming licenses | Gaming licenses | $ | 1,263.4 | | | $ | — | | | $ | 1,263.4 | | | $ | 1,246.1 | | | $ | — | | | $ | 1,246.1 | | Gaming licenses | $ | 1,285.4 | | | $ | — | | | $ | 1,285.4 | | | $ | 1,285.4 | | | $ | — | | | $ | 1,285.4 | |
| Trademarks | Trademarks | 240.9 | | | — | | | 240.9 | | | 240.9 | | | — | | | 240.9 | | Trademarks | 337.0 | | | — | | | 337.0 | | | 338.2 | | | — | | | 338.2 | |
| Other | Other | 0.7 | | | — | | | 0.7 | | | 0.7 | | | — | | | 0.7 | | Other | 0.7 | | | — | | | 0.7 | | | 0.7 | | | — | | | 0.7 | |
| Amortizing intangible assets | Amortizing intangible assets | | Amortizing intangible assets | |
| Customer relationships | Customer relationships | 106.1 | | | (87.4) | | | 18.7 | | | 106.9 | | | (85.2) | | | 21.7 | | Customer relationships | 114.7 | | | (97.7) | | | 17.0 | | | 114.9 | | | (91.4) | | | 23.5 | |
| Technology | | Technology | 251.8 | | | (60.3) | | | 191.5 | | | 252.7 | | | (40.5) | | | 212.2 | |
| Other | Other | 44.2 | | | (36.2) | | | 8.0 | | | 39.6 | | | (35.5) | | | 4.1 | | Other | 19.2 | | | (8.7) | | | 10.5 | | | 19.4 | | | (6.8) | | | 12.6 | |
| Total other intangible assets | Total other intangible assets | $ | 1,655.3 | | | $ | (123.6) | | | $ | 1,531.7 | | | $ | 1,634.2 | | | $ | (120.7) | | | $ | 1,513.5 | | Total other intangible assets | $ | 2,008.8 | | | $ | (166.7) | | | $ | 1,842.1 | | | $ | 2,011.3 | | | $ | (138.7) | | | $ | 1,872.6 | |
There were 0no impairment charges recorded to other intangible assets, net for the three and six months ended June 30, 2022 and 2021.
Amortization expense related to our amortizing intangible assets was $14.9 million and $29.9 million for the three and six months ended June 30, 2022, respectively, as compared to $2.5 million and $4.7 million for the three and six months ended June 30, 2021, respectively, as compared to $6.2 million and $12.3 million for the three and six months ended June 30, 2020, respectively. The following table presents the estimated amortization expense based on our amortizing intangible assets as of June 30, 20212022 (in millions):
| | Years ending December 31, | Years ending December 31, | | Years ending December 31, | |
| 2021 (excluding the six months ended June 30, 2021) | $ | 4.3 | | |
| 2022 | 6.9 | | |
| 2022 (excluding the six months ended June 30, 2022) | | 2022 (excluding the six months ended June 30, 2022) | $ | 28.3 | |
| 2023 | 2023 | 5.0 | | 2023 | 49.4 | |
| 2024 | 2024 | 4.5 | | 2024 | 45.4 | |
| 2025 | 2025 | 3.9 | | 2025 | 30.3 | |
| 2026 | | 2026 | 23.9 | |
| Thereafter | Thereafter | 2.1 | | Thereafter | 41.7 | |
| Total | Total | $ | 26.7 | | Total | $ | 219.0 | |
Note 8—Long-term Debt
The table below presents long-term debt, net of current maturities, debt discounts and issuance costs:
| | (in millions) | (in millions) | June 30,
2021 | | December 31,
2020 | (in millions) | June 30,
2022 | | December 31,
2021 |
| Senior Secured Credit Facilities: | Senior Secured Credit Facilities: | | | | Senior Secured Credit Facilities: | | | |
| Revolving Credit Facility due 2023 | $ | 0 | | | $ | 0 | | |
| Amended Revolving Credit Facility due 2027 | | Amended Revolving Credit Facility due 2027 | $ | — | | | $ | — | |
| Amended Term Loan A Facility due 2027 | | Amended Term Loan A Facility due 2027 | 550.0 | | | — | |
| Amended Term Loan B Facility due 2029 | | Amended Term Loan B Facility due 2029 | 1,000.0 | | | — | |
| Term Loan A Facility due 2023 | Term Loan A Facility due 2023 | 610.4 | | | 636.9 | | Term Loan A Facility due 2023 | — | | | 583.8 | |
| Term Loan B-1 Facility due 2025 | Term Loan B-1 Facility due 2025 | 985.5 | | | 991.2 | | Term Loan B-1 Facility due 2025 | — | | | 979.9 | |
| 5.625% Notes due 2027 | 5.625% Notes due 2027 | 400.0 | | | 400.0 | | 5.625% Notes due 2027 | 400.0 | | | 400.0 | |
| 4.125% Notes due 2029 | | 4.125% Notes due 2029 | 400.0 | | | 400.0 | |
| 2.75% Convertible Notes due 2026 | 2.75% Convertible Notes due 2026 | 330.5 | | | 330.5 | | 2.75% Convertible Notes due 2026 | 330.5 | | | 330.5 | |
| Other long-term obligations | Other long-term obligations | 141.9 | | | 73.0 | | Other long-term obligations | 150.1 | | | 146.3 | |
| | 2,468.3 | | | 2,431.6 | | | 2,830.6 | | | 2,840.5 | |
| Less: Current maturities of long-term debt | Less: Current maturities of long-term debt | (90.4) | | | (81.4) | | Less: Current maturities of long-term debt | (55.8) | | | (99.5) | |
| Less: Debt discount | Less: Debt discount | (79.9) | | | (86.2) | | Less: Debt discount | (4.9) | | | (73.1) | |
| Less: Debt issuance costs | Less: Debt issuance costs | (28.1) | | | (32.8) | | Less: Debt issuance costs | (39.5) | | | (30.6) | |
| | $ | 2,269.9 | | | $ | 2,231.2 | | | $ | 2,730.4 | | | $ | 2,637.3 | |
The following is a schedule of future minimum repayments of long-term debt as of June 30, 2022 (in millions):
| | | | | |
| Years ending December 31: | |
| 2022 (excluding the six months ended June 30, 2022) | $ | 27.4 | |
| 2023 | 56.2 | |
| 2024 | 47.6 | |
| 2025 | 38.2 | |
| 2026 | 472.0 | |
| Thereafter | 2,189.2 | |
| Total minimum payments | $ | 2,830.6 | |
Senior Secured Credit Facilities
In January 2017, the Company entered into an agreement to amend and restate its previous credit agreement, dated October 30, 2013, as amended (the “Credit Agreement”), which provided for: (i) a five-year $700.0$700 million revolving credit facility (the “Revolving Credit Facility”),; (ii) a five-year $300.0$300 million term loanTerm Loan A facility (the “Term Loan A Facility”),; and (iii) a seven-year $500.0$500 million Term Loan B facility (the “Term Loan B Facility” and collectively with the Revolving Credit Facility and the Term Loan A Facility, the “Senior Secured Credit Facilities”).
On October 15, 2018, in connection with the acquisition of Pinnacle Entertainment, Inc. (the “Pinnacle Acquisition”(“Pinnacle”), we entered into an incremental joinder agreement (the “Incremental Joinder”), which amended the Credit Agreement (the “Amended 2017“Amended Credit Agreement”). The Incremental Joinder provided for an additional $430.2 million of incremental loans having the same terms as the existing Term Loan A Facility, with the exception of extending the maturity date, and an additional $1,128.8 million$1.1 billion of loans as a new tranche having new terms (the “Term Loan B-1 Facility”). With the exception of extending the maturity date, the Incremental Joinder did not impact the Revolving Credit Facility.
On April 14, 2020, the Company entered into a second amendment to its Credit Agreement with its various lenders (the “Second Amendment”) to provide for certain modifications to required financial covenants and interest rates during, and subsequent to, a Covenant Relief Period,covenant relief period, which concluded on May 7, 2021.2021 (the “Covenant Relief Period”).
Upon conclusion of the Covenant Relief Period, the Second Amendment permitspermitted the Company to (i) maintain a maximum consolidated total net leverage ratio of 5.50:1.00 for the quarter ended March 31, 2021, 5.00:1.00 for the quarter ended June 30, 2021, 4.75:1.00 for the quarter ended September 30, 2021, 4.50:1.00 for the quarter ended December 31, 2021, and 4.25:1.00 thereafter, tested quarterly on a pro forma trailing twelve month (“PF TTM”) basis; (ii) maintain a maximum senior secured net leverage ratio of 4.50:1.00 for the quarter ended March 31, 2021, 4.00:1.00 for the quarter ended June 30, 2021, 3.75:1.00 for the quarter ended September 30, 2021, 3.50:1.00 for the quarter ended December 31, 2021, and 3.00:1.00 thereafter, tested quarterly on a PF TTM basis; and (iii) maintain an interest coverage ratio of 2.50:1.00, tested quarterly on a PF TTM basis.
In addition, uponUpon conclusion of the Covenant Relief Period, loans under the Senior Secured Credit Facilities bearcalled for interest at either a base rate or an adjusted LIBOR rate, plus an applicable margin. The applicable margins for the Revolving Credit Facility and Term Loan A Facility rangeranged 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 Term Loan B-1 Facility continues to bearbore interest at 2.25% per annum for LIBOR loans and 1.25% per annum for base rate loans. All loans under the Senior Secured Credit Facilities arewere subject to a LIBOR “floor” of 0.75%. In addition, a commitment fee iswas paid on the unused portion of the commitments under the Revolving Credit Facility at a rate that rangesranged from 0.20% to 0.50% per annum, depending on the Consolidated Total Net Leverage Ratio as of the most recent fiscal quarter.
On May 3, 2022, the Company entered into a Second Amended and Restated Credit Agreement with its various lenders (the “Second Amended and Restated Credit Agreement”). The Second Amended and Restated Credit Agreement provides for a $1.0 billion revolving credit facility, undrawn at close, (the “Amended Revolving Credit Facility”), a five-year $550.0 million term loan A facility (the “Amended Term Loan A Facility”) and a seven-year $1.0 billion term loan B facility (the “Amended Term Loan B Facility”) (together, the “Amended Credit Facilities”). The proceeds from the Amended Credit Facilities were used to repay the existing Term Loan A Facility and Term Loan B-1 Facility balances.
The interest rates per annum applicable to loans under the Amended Credit Facilities are, at the Company’s option, equal to either an adjusted secured overnight financing rate (“Term SOFR”) or a base rate, plus an applicable margin. The applicable margin for each of the Amended Revolving Credit Facility and the Amended Term Loan A Facility is initially 1.75% for Term SOFR loans and 0.75% for base rate loans until the Company provides financial reports for the first full fiscal quarter following closing and, thereafter, will range from 2.25% to 1.50% per annum for Term SOFR loans and 1.25% to 0.50% per annum for base rate loans, in each case depending on the Company’s total net leverage ratio (as defined within the Second Amended and Restated Credit Agreement). The applicable margin for the Amended Term Loan B Facility is 2.75% per annum for Term SOFR loans and 1.75% per annum for base rate loans. The Amended Term Loan B Facility is subject to a Term SOFR “floor” of 0.50% per annum and a base rate “floor” of 1.50% per annum. In addition, the Company will pay a commitment fee on the unused portion of the commitments under the Amended Revolving Credit Facility at a rate that is initially 0.25% per annum, until the Company provides financial reports for the first full fiscal quarter following closing, and thereafter, will range from 0.35% to 0.20% per annum, depending on the Company’s total net leverage ratio.
The Amended Credit Facilities contain customary covenants that, among other things, restrict, subject to certain exceptions, the ability of the Company and certain of its subsidiaries to grant liens on their assets, incur indebtedness, sell
Theassets, make investments, engage in acquisitions, mergers or consolidations, pay dividends and make other restricted payments and prepay certain indebtedness that is subordinated in right of payment and performance ofto the obligations under the Amended Credit Facilities. The Amended Credit Facilities contain two financial covenants: a maximum total net leverage ratio (as defined within the Second Amended and Restated Credit Agreement) of 4.50 to 1.00, which is subject to a step up to 5.00 to 1.00 in the case of certain significant acquisitions, and a minimum interest coverage ratio (as defined within the Second Amended and Restated Credit Agreement) of 2.00 to 1.00. The Amended Credit Facilities also contain certain customary affirmative covenants and events of default, including the occurrence of a change of control (as defined in the documents governing the Second Amended and Restated Credit Agreement), termination and certain defaults under the PENN Master Lease and the Pinnacle Master Lease (both of which are defined in Note 9, “Leases”).In connection with the repayment of the previous Senior Secured Credit Facilities, are guaranteed bythe Company recorded $1.3 million in refinancing costs and a lien$10.4 million loss on the early extinguishment of debt for the three and securitysix months ended June 30, 2022 which is included in “Other” within our unaudited Consolidated Statements of Operations. In addition, we recorded $5.0 million of original issue discount related to the Amended Term Loan B Facility which will be amortized to interest in substantially allexpense over the life of the assets (other than excluded property such as gaming licenses) of the Company.Amended Term Loan B Facility.
As of June 30, 2021, and2022, the Company had conditional obligations under letters of credit issued pursuant to the Amended Credit Facilities with face amounts aggregating to $25.4 million resulting in $974.6 million of available borrowing capacity under the Amended Revolving Credit Facility.
As of December 31, 2020,2021, the Company had conditional obligations under letters of credit issued pursuant to the Senior SecuredSecurity Credit Facilities with face amounts aggregating to $27.8$26.0 million and $28.2 million, respectively, resulting in $672.2$674.0 million and $671.8 million, respectively, of available borrowing capacity under the Revolving Credit Facility.
5.625% Senior Unsecured Notes
On January 19, 2017, the Company completed an offering of $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 15th and July 15th of each year. The 5.625% Notes are not guaranteed by any of the Company’s subsidiaries except in the event that the Company in the future issues certain subsidiary-guaranteed debt securities. The Company may redeem the 5.625% Notes at any time on or after January 15, 2022, at the declining redemption premiums set forth in the indenture governing the 5.625% Notes, and, prior to January 15, 2022, at a “make-whole” redemption premium set forth in the indenture governing the 5.625% Notes.
2.75% Unsecured Convertible Notes
In May 2020, the Company completed ana 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, commencing November 15, 2020.year.
The Convertible Notes are convertible into shares of the Company’s common stock at an initial conversion price of $23.40 per share, or 42.7350 shares, per $1,000 principal amount of notes, subject to adjustment if certain corporate events occur. However, in no event will the conversion exceed 55.5555 shares of common stock per $1,000 principal amount of notes. As of June 30, 2021,2022, the maximum number of shares that could be issued to satisfy the conversion feature of the Convertible Notes is 18,360,815 and the amount by which the Convertible Notes if-converted value exceeded its principal amount was $1,073.9$228.0 million.
Starting in the fourth quarter of 2020 and prior to February 15, 2026, at their election, holders of the Convertible Notes may convert outstanding notes if the trading price of the Company’s common stock exceeds 130% of the initial conversion price or, starting shortly after the issuance of the Convertible Notes, if the trading price per $1,000 principal amount of notes is less than 98% of the product of the trading price of the Company’s common stock and the conversion rate then in effect. 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.
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.
As of June 30, 20212022 and December 31, 2020,2021, no Convertible Notes have been converted into the Company'sCompany’s common stock.
The Convertible Notes contain a cash conversion feature, and as a result, the Company has separated it into liability and equity components. The Company valued the liability component based on its borrowing rate for a similar debt instrument that does not contain a conversion feature. The equity component, which is recognized as debt discount, was valued as the difference between the face value of the Convertible Notes and the fair value of the liability component. The equity component was valued at $91.8
$91.8 million upon issuance of the Convertible Notes.
In connection with the Convertible Notes issuance, the Company incurred debt issuance costs of $10.2 million, which were allocated on a pro rata basis to the liability component and the equity component in the amounts of $6.6 million and $3.6 million, respectively.
the $88.2 million cash conversion feature related to the Company’s Convertible Notes, from stockholders’ equity to liabilities as under ASU 2020-06, bifurcation for a cash conversion feature is no longer permitted. As a result of the adoption, the Company recognized as a cumulative effect adjustment, an increase to the January 1, 2022 opening balance of retained earnings of $18.9 million, net of taxes. The Convertible Notes consisted of the following components:
| | | | | | | | | | | | | |
| (in millions) | June 30,
2021 | | December 31,
2020 | | |
| Liability component: | | | | | |
| Principal | $ | 330.5 | | | $ | 330.5 | | | |
| Unamortized debt discount | (78.2) | | | (84.4) | | | |
| Unamortized debt issuance costs | (5.8) | | | (6.2) | | | |
| Net carrying amount | $ | 246.5 | | | $ | 239.9 | | | |
| | | | | |
| Carrying amount of equity component | $ | 88.2 | | | $ | 88.2 | | | |
4.125% Senior Unsecured Notes
On July 1, 2021, the Company completed an offering of $400.0 million aggregate principal amount of 4.125% senior unsecured notes that mature on July 1, 2029 (the “4.125% Notes”). The 4.125% Notes were issued at par and interest is payable semi-annually on January 1st and July 1st of each year. The 4.125% Notes are not guaranteed by any of the Company’s subsidiaries except in the event that the Company in the future issues certain subsidiary-guaranteed debt securities. The Company may redeem the 4.125% Notes at any time on or after July 1, 2024, at the declining redemption premiums set forth in the indenture governing the 4.125% Notes, and, prior to July 1, 2024, at a “make-whole” redemption premium set forth in the indenture governing the 4.125% Notes.
| | | | | | | | | | | |
| (in millions) | June 30,
2022 | | December 31,
2021 |
| Liability component: | | | |
| Principal | $ | 330.5 | | | $ | 330.5 | |
| Unamortized debt discount | — | | | (71.7) | |
| Unamortized debt issuance costs | (7.0) | | | (5.3) | |
| Net carrying amount | $ | 323.5 | | | $ | 253.5 | |
| | | |
| Carrying amount of equity component | $ | — | | | $ | 88.2 | |
Interest expense, net
The table below presents interest expense, net:
| | | For the three months ended June 30, | | For the six months ended June 30, | | | For the three months ended June 30, | | For the six months ended June 30, |
| (in millions) | (in millions) | 2021 | | 2020 | | 2021 | | 2020 | | (in millions) | 2022 | | 2021 | | 2022 | | 2021 |
| Interest expense | Interest expense | $ | (139.1) | | | $ | (135.7) | | | $ | (275.7) | | | $ | (266.1) | | | Interest expense | $ | (195.3) | | | $ | (139.1) | | | $ | (356.9) | | | $ | (275.7) | |
| Interest income | Interest income | 0.2 | | | 0.2 | | | 0.4 | | | 0.4 | | | Interest income | 1.3 | | | 0.2 | | | 1.8 | | | 0.4 | |
| Capitalized interest | Capitalized interest | 0.9 | | | 0.5 | | | 1.6 | | | 0.9 | | | Capitalized interest | 0.4 | | | 0.9 | | | 0.7 | | | 1.6 | |
| Interest expense, net | Interest expense, net | $ | (138.0) | | | $ | (135.0) | | | $ | (273.7) | | | $ | (264.8) | | | Interest expense, net | $ | (193.6) | | | $ | (138.0) | | | $ | (354.4) | | | $ | (273.7) | |
The table below presents interest expense related to the Convertible Notes: | | | For the three months ended June 30, | | For the six months ended June 30, | | | For the three months ended June 30, | | For the six months ended June 30, |
| (in millions) | (in millions) | 2021 | | 2020 | | 2021 | | 2020 | | (in millions) | 2022 | | 2021 | | 2022 | | 2021 |
| Coupon interest | Coupon interest | $ | 2.2 | | | $ | 1.2 | | | $ | 4.5 | | | $ | 1.2 | | | Coupon interest | $ | 2.2 | | | $ | 2.2 | | | $ | 4.5 | | | $ | 4.5 | |
| Amortization of debt discount | Amortization of debt discount | 3.1 | | | 1.4 | | | 6.2 | | | 1.4 | | | Amortization of debt discount | — | | | 3.1 | | | — | | | 6.2 | |
| Amortization of debt issuance costs | Amortization of debt issuance costs | 0.3 | | | 0.1 | | | 0.5 | | | 0.1 | | | Amortization of debt issuance costs | 0.4 | | | 0.3 | | | 0.8 | | | 0.5 | |
| Convertible Notes interest expense | Convertible Notes interest expense | $ | 5.6 | | | $ | 2.7 | | | $ | 11.2 | | | $ | 2.7 | | | Convertible Notes interest expense | $ | 2.6 | | | $ | 5.6 | | | $ | 5.3 | | | $ | 11.2 | |
The debt discount andSubsequent to the adoption of ASU 2020-06, the debt issuance costs attributable to the liability component are beingcontinue to be amortized to interest expense over the term of the Convertible Notes at an effective interest rate of 9.23%3.329%. The remaining term of the Convertible Notes was 4.93.9 years as of June 30, 2021.2022.
Covenants
Our Senior SecuredAmended Credit Facilities, 5.625% Notes and 4.125% Notes, require us, among other obligations, to maintain specified financial ratios and to satisfy certain financial tests. In addition, our Senior SecuredAmended Credit Facilities, 5.625% Notes and 4.125% notes, restrict, among other things, our ability to incur additional indebtedness, incur guarantee obligations, amend debt instruments, pay dividends, create liens on assets, make investments, engage in mergers or consolidations, and otherwise restrict corporate activities. Our debt agreements also contain customary events of default, including cross-default provisions that require us to meet certain requirements under the PennPENN Master Lease and the Pinnacle Master Lease (both of which are
defined in Note 9, "Leases"“Leases”), each with GLPI. If we are unable to meet our financial covenants or in the event of a cross-default, it could trigger an acceleration of payment terms. As of June 30, 2021,2022, the Company was in compliance with all required financial covenants. The Company believes that it will remain in compliance with all of its required financial covenants for at least the next twelve months following the date of filing this Quarterly Report on Form 10-Q with the SEC.
Other Long-Term Obligations
Other Long-term Obligation
In February 2021, we entered into a financing arrangement providing the Company with upfront cash proceeds while permitting us to participate in future proceeds on certain claims. The financing obligation has been classified as a non-current liability, which is expected to be settled in a future period of which the principal is contingent and predicated on other events. Consistent with an obligor’s accounting under a debt instrument, period interest will be accreted using an effective interest rate of 27.0% and until such time that the claims and related obligation is settled. The amount included in interest expense related to this obligation was $6.7 million and $12.9 million for the three and six months ended June 30, 2022, respectively, as compared to $3.7 million and $5.2 million for the three and six months ended June 30, 2021, respectively.
Ohio Relocation Fees
Other long-term obligations included $52.8$36.1 million and $60.9$44.5 million as of June 30, 20212022 and December 31, 2020,2021, respectively, related to the relocation fees for Hollywood Gaming at Dayton Raceway (“Dayton”) and Hollywood Gaming at Mahoning Valley Race Course (“Mahoning Valley”), which opened in August 2014 and September 2014, respectively. The relocation fee for each facility is payable as follows: $7.5 million upon the opening of the facilities and 18 semi-annual payments of $4.8 million beginning one year after the commencement of operations. This obligation is accreted to interest expense at an effective yield of 5.0%.
Event Center
As of June 30, 20212022 and December 31, 2020,2021, other long-term obligations included $11.4$10.7 million and $12.0$11.4 million, respectively, related to the repayment obligation of a hotel and event center located less than a mile away from Hollywood Casino Lawrenceburg, which was constructed by the City of Lawrenceburg Department of Redevelopment. Effective in January 2015, by contractual agreement, we assumed a repayment obligation for the hotel and event center in the amount of $15.3 million, which was financed through a loan with the City of Lawrenceburg Department of Redevelopment, in exchange for conveyance of the property. Beginning in January 2016, the Company was obligated to make annual payments on the loan of $1.0 million for 20 years. This obligation is accreted to interest expense at its effective yield of 3.0%.
Note 9—Leases
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 ROURight-of-use (“ROU”) assets and corresponding lease liabilities with respect to operating and finance leases or (ii) record the incremental variable payment associated with the financing obligation to interest expense. In addition, monthly rent associated with Hollywood Casino Columbus (“Columbus”) and monthly rent in excess of the Hollywood Casino Toledo (“Toledo”) rent floor, which are discussed below, are considered contingent rent.
Pursuant to a binding term sheet between the Company and GLPI entered into on March 27, 2020, we agreed that, in the future, we would exercise the next scheduled five-year renewal under the Penn Master Lease and the Pinnacle Master Lease. GLPI agreed they would grant us the option to exercise an additional five-year renewal term at the end of the lease term on the Penn Master Lease and the Pinnacle Master Lease, subject to certain conditions. In the future, upon exercising each of these renewal options, the term of the Penn Master Lease would extend to November 30, 2033 and the term of the Pinnacle Master Lease would extend to April 30, 2031. If all renewal options contained within the Penn Master Lease and the Pinnacle Master Lease were exercised, inclusive of these renewal options, the term of the Penn Master Lease would extend to November 30, 2053 and the term of the Pinnacle Master Lease would extend to April 30, 2056.
PennPENN Master Lease
Pursuant to the triple net master lease with GLPI (the “Penn“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 PennPENN Master Lease has an initial term of 15 years with 4 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 35 years.
The payment structure under the PennPENN 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 PennPENN Master Lease) of 1.8:1, and a component that is based on performance, which is prospectively adjusted (i) every five years by an amount equal to 4% of the average change in net revenues of all properties under the PennPENN Master Lease (other than Columbus and Toledo)
compared to a contractual baseline during the preceding five years (“PennPENN Percentage Rent”) and (ii) monthly by an amount equal to 20% of the net revenues of Columbus and Toledo in excess of a contractual baseline and subject to a rent floor specific to Toledo.
The next Annual Escalatorannual escalator test date is scheduled to occur effective November 1, 2021.2022. The next PennPENN Percentage Rent reset is scheduled to occur on November 1, 2023.
On January 14, 2022, the ninth amendment to the PENN Master Lease between the Company and GLPI became effective. The ninth amendment restates the definition of “Net Revenue” to clarify the inclusion of online-based revenues derived when a patron is physically present at a leased property, establishes a “floor” with respect to the Hollywood Casino at PENN National Race Course Net Revenue amount used in the calculation of the annual rent escalator and PENN Percentage Rent, and modifies the rent calculations upon a lease termination event as defined in the amendment. The lease term and the 4 five-year optional renewal periods, which if exercised would extend the PENN Master Lease through October 31, 2048, were not modified in the ninth amendment.
We concluded the ninth amendment constituted a modification event under ASC Topic 842, “Leases” (“ASC 842”), which required us to reassess the classifications of the lease components and remeasure the associated lease liabilities. As a result of our reassessment of the lease classifications, (i) the land components of substantially all of the PENN Master Lease properties, which were previously classified as operating leases, are now primarily classified as finance leases, and (ii) the land and building components associated with the operations of Dayton and Mahoning Valley, which were previously classified as finance leases, are now classified as operating leases. As a result of our measurement of the associated lease liabilities, we recognized additional ROU assets and corresponding lease liabilities of $455.4 million. The building components of substantially all of the PENN Master Lease properties continue to be classified as financing obligations.
Pinnacle Master Lease
In connection with the acquisition of Pinnacle, Entertainment, Inc., on October 15, 2018, the Company assumed a triple net master lease with GLPI (the “Pinnacle Master Lease”), originally effective April 28, 2016, pursuant to which the Company leases real estate assets associated with 12 of the gaming facilities used in its operations. 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, which is prospectively adjusted every two years by an amount equal to 4% of the average change in net revenues compared to a contractual baseline during the preceding two years (“Pinnacle Percentage Rent”).
On January 14, 2022, the fifth amendment to the Pinnacle Master Lease between the Company and GLPI became effective. The fifth amendment restates the definition of “Net Revenue” to clarify the inclusion of online-based revenues derived when a patron is physically present at a leased property and modifies the rent calculations upon a lease termination event as defined in the amendment. The lease term and the 5 five-year optional renewal periods, which if exercised would extend the Pinnacle Master Lease through April 30, 2051, were not modified in the fifth amendment.
We concluded the fifth amendment to the Pinnacle Master Lease constituted a modification event under ASC 842 (collectively with the ninth amendment to the PENN Master Lease, the “Lease Modification”). As a result of the modification, the land components of substantially all of the Pinnacle Master Lease properties, which were previously classified as operating leases, are now primarily classified as finance leases. As a result of our measurement of the associated lease liabilities, we recognized additional ROU assets and corresponding lease liabilities of $937.6 million. The building components of substantially all of the Pinnacle Master Lease properties continue to be classified as financing obligations.
As a result of the annual escalator, effective as of May 1, 20212022 for the lease year ended April 30, 2021,2022, the fixed component of rent increased by $4.5$4.6 million and an additional ROU asset and corresponding lease liability of $17.2$33.2 million were recognized associated with the operatingfinance lease components of the Pinnacle Master Lease.
The next Pinnacle Percentage Rent reset and Annual Escalatorannual escalator test date is scheduled to occur on May 1, 2022.2023.
The May 1, 2022 Pinnacle Percentage Rent reset resulted in an annual rent increase of $1.9 million, which will be in effect until the next Pinnacle Percentage Rent reset, scheduled to occur on May 1, 2024. Upon reset of the Pinnacle Percentage Rent, effective May 1, 2022, we recognized an additional finance lease ROU asset and corresponding lease liability of $26.1 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.
The initial term of the Morgantown Lease is 20 years with 6 subsequent, five-year renewal periods, exercisable at the Company’s option. Initial annual rent under the Morgantown Lease is $3.0 million, subject to a 1.50% fixed annual escalation in each of the first three years subsequent to the facility opening, which occurred on December 22, 2021. Thereafter, the lease will be subject to an annual escalator consisting of either (i) 1.25%, if the consumer price index increase is greater than 0.50%, or (ii) zero, if the consumer price index increase is less than 0.50%. All improvements made on the land, including the constructed building, will be owned by the Company while the lease is in effect, however, on the expiration or termination of the Morgantown Lease, ownership of all tenant improvements on the land will transfer to GLPI.
Perryville Lease
In conjunction with the acquisition of the operations of Hollywood Casino Perryville on July 1, 2021, the Company entered into a triple net lease with GLPI for the real estate assets associated with the property (“Perryville Lease”) for initial annual rent of $7.8 million per year subject to escalation.
The initial term of the Perryville Lease is 20 years with 3 subsequent, five-year renewal periods, exercisable at the Company’s option. The building portion of the annual rent is subject to a fixed annual escalation of 1.50% in each of the following three years, with subsequent annual escalations of either (i) 1.25%, if the consumer price index increase is greater than 0.50%, or (ii) zero, if the consumer price index increase is less than 0.50%.
Operating Leases
In addition to theany operating lease components contained within the Master Leases, (primarily land), the Company’s operating leases consist mainly of (i) individual triple net leases with GLPI for the real estate assets used in the operations of Tropicana (the “Tropicana Lease”) and Hollywood Casino at Meadows Racetrack and Casino (the “Meadows Lease”), (ii) individual triple net leases with VICI Properties Inc. (NYSE: VICI) (“VICI”) for the real estate assets used in the operations of Margaritaville Casino Resort Casino (the “Margaritaville Lease”) and Hollywood Casino at Greektown Casino-Hotel (the “Greektown Lease” and collectively with the Master LeasesLeases’ 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.
On January 14, 2022, the second amendment to the Meadows Lease between the Company and GLPI became effective.The second amendment restates the definition of “Net Revenue” to clarify the inclusion of online-based revenues derived when a patron is physically present at the facility. This amendment did not result in a modification event under ASC 842.
On February 1, 2021,2022, the Margaritaville Percentage Rent resetannual escalator test resulted in an annual rent reductionincrease of $0.1$0.4 million, which will be in effect untiland the next Margaritaville Percentage Rent reset, scheduled to occur on February 1, 2023. Upon resetrecognition of the Margaritaville Percentage Rent, effective February 1, 2021, we recognized an additional operating lease ROU asset and corresponding lease liability of $5.5$2.9 million. We did not incur an annual escalator for the lease year ended January 31, 2021. The next annual escalator test date isand Margaritaville Percentage Rent reset are scheduled to occur on February 1, 2022.2023.
On June 1, 2021,In May 2020, the Greektown Percentagelease 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 reset resulted in an annual rent reduction of $4.2 million, which willcoverage floor to be in effect untilmutually agreed upon prior to the next Greektown Percentage Rent reset, scheduled to occur on June 1, 2023. Upon resetcommencement of the Greektown Percentagefourth lease year (June 1, 2022). In April 2022, the lease was further amended to provide for a Net Revenue to Rent effective Junecoverage floor to be mutually agreed upon prior to the commencement of the fifth lease year (June 1, 2021, we recognized an additional operating lease ROU asset and corresponding lease2023).
liability of $4.1 million. We did not incur an Annual Escalator for the lease year ended May 31, 2021. The next annual escalator test date is scheduled to occur on June 1, 2022.
The following is a maturity analysis of our operating leases, finance leases and financing obligations as of June 30, 2021:2022:
| | (in millions) | (in millions) | Operating Leases | | Finance Leases | | Financing Obligations | (in millions) | Operating Leases | | Finance Leases | | Financing Obligations |
| Years ending December 31, | | | | | | |
| 2021 (excluding the six months ended June 30, 2021) | $ | 211.4 | | | $ | 10.8 | | | $ | 185.2 | | |
| 2022 | 414.4 | | | 21.6 | | | 370.3 | | |
| Year ended December 31, | | Year ended December 31, | | | | | |
| 2022 (excluding the six months ended June 30, 2022) | | 2022 (excluding the six months ended June 30, 2022) | $ | 68.0 | | | $ | 193.2 | | | $ | 186.3 | |
| 2023 | 2023 | 402.6 | | | 20.8 | | | 370.4 | | 2023 | 125.2 | | | 375.2 | | | 369.8 | |
| 2024 | 2024 | 385.2 | | | 16.7 | | | 370.4 | | 2024 | 119.9 | | | 347.9 | | | 355.3 | |
| 2025 | 2025 | 382.5 | | | 16.7 | | | 370.5 | | 2025 | 116.6 | | | 346.9 | | | 355.4 | |
| 2026 | | 2026 | 112.2 | | | 346.9 | | | 355.4 | |
| Thereafter | Thereafter | 7,824.3 | | | 376.8 | | | 9,095.3 | | Thereafter | 1,341.4 | | | 7,873.5 | | | 8,285.7 | |
| Total lease payments | Total lease payments | 9,620.4 | | | 463.4 | | | 10,762.1 | | Total lease payments | 1,883.3 | | | 9,483.6 | | | 9,907.9 | |
| Less: Imputed interest | Less: Imputed interest | (5,161.6) | | | (247.4) | | | (6,647.2) | | Less: Imputed interest | (814.0) | | | (4,421.5) | | | (5,842.8) | |
| Present value of future lease payments | Present value of future lease payments | 4,458.8 | | | 216.0 | | | 4,114.9 | | Present value of future lease payments | 1,069.3 | | | 5,062.1 | | | 4,065.1 | |
| Less: Current portion of lease obligations | Less: Current portion of lease obligations | (133.0) | | | (7.1) | | | (37.4) | | Less: Current portion of lease obligations | (74.2) | | | (115.5) | | | (63.8) | |
| Long-term portion of lease obligations | Long-term portion of lease obligations | $ | 4,325.8 | | | $ | 208.9 | | | $ | 4,077.5 | | Long-term portion of lease obligations | $ | 995.1 | | | $ | 4,946.6 | | | $ | 4,001.3 | |
|
Total payments made under the Triple Net Leases were as follows:
| | | | For the three months ended June 30, | | For the six months ended June 30, | | For the three months ended June 30, | | For the six months ended June 30, |
| (in millions) | (in millions) | 2021 | | 2020 | | 2021 | | 2020 | (in millions) | 2022 | | 2021 | | 2022 | | 2021 |
Penn Master Lease (1) | $ | 120.7 | | | $ | 108.3 | | | $ | 238.7 | | | $ | 223.1 | | |
| PENN Master Lease | | PENN Master Lease | $ | 120.6 | | | $ | 120.7 | | | $ | 239.8 | | | $ | 238.7 | |
Pinnacle Master Lease (1) | Pinnacle Master Lease (1) | 82.1 | | | 81.8 | | | 163.4 | | | 164.3 | | Pinnacle Master Lease (1) | 83.4 | | | 82.1 | | | 165.9 | | | 163.4 | |
Meadows Lease (1) | 6.2 | | | 6.7 | | | 12.4 | | | 13.5 | | |
| Perryville Lease | | Perryville Lease | 2.0 | | | — | | | 3.9 | | | — | |
| Meadows Lease | | Meadows Lease | 6.2 | | | 6.2 | | | 12.4 | | | 12.4 | |
| Margaritaville Lease | Margaritaville Lease | 5.9 | | | 5.9 | | | 11.7 | | | 11.7 | | Margaritaville Lease | 6.0 | | | 5.9 | | | 11.9 | | | 11.7 | |
| Greektown Lease | Greektown Lease | 13.5 | | | 13.9 | | | 27.4 | | | 27.8 | | Greektown Lease | 12.9 | | | 13.5 | | | 25.7 | | | 27.4 | |
| Morgantown Lease | Morgantown Lease | 0.7 | | | 0 | | | 1.5 | | | 0 | | Morgantown Lease | 0.7 | | | 0.7 | | | 1.5 | | | 1.5 | |
Total (2) | $ | 229.1 | | | $ | 216.6 | | | $ | 455.1 | | | $ | 440.4 | | |
Total (1) | | Total (1) | $ | 231.8 | | | $ | 229.1 | | | $ | 461.1 | | | $ | 455.1 | |
(1)During the three and six months ended June 30, 2020, we utilized rent credits to pay $72.1 million, $54.2 million and $4.5 million of rent under the Penn Master Lease, Pinnacle Master Lease and Meadows Lease, respectively.
(2)Rent payable under the Tropicana Lease is nominal. Therefore, it has been excluded from the table above.
The components of lease expense were as follows:
| | | Location on unaudited Consolidated Statements of Operations and Comprehensive Income (Loss) | | For the three months ended June 30, | | For the six months ended June 30, | | Location on unaudited
Consolidated Statements of Operations | | For the three months ended June 30, | | For the six months ended June 30, |
| (in millions) | (in millions) | | 2021 | | 2020 | | 2021 | | 2020 | (in millions) | | 2022 | | 2021 | | 2022 | | 2021 |
| Operating Lease Costs | Operating Lease Costs | | | | | | | | | | Operating Lease Costs | | | | | | | | | |
Rent expense associated with triple net operating leases (1) | Rent expense associated with triple net operating leases (1) | General and administrative | | $ | 116.5 | | | $ | 103.8 | | | $ | 226.9 | | | $ | 201.3 | | Rent expense associated with triple net operating leases (1) | General and administrative | | $ | 28.0 | | | $ | 116.5 | | | $ | 88.1 | | | $ | 226.9 | |
Operating lease cost (2) | Operating lease cost (2) | Primarily General and administrative | | 3.9 | | | 3.7 | | | 7.8 | | | 8.0 | | Operating lease cost (2) | Primarily General and administrative | | 4.9 | | | 3.9 | | | 9.9 | | | 7.8 | |
| Short-term lease cost | Short-term lease cost | Primarily Gaming expense | | 15.5 | | | 4.1 | | | 28.8 | | | 16.2 | | Short-term lease cost | Primarily Gaming expense | | 18.5 | | | 15.5 | | | 36.6 | | | 28.8 | |
Variable lease cost (2) | Variable lease cost (2) | Primarily Gaming expense | | 1.0 | | | 0.2 | | | 2.1 | | | 1.0 | | Variable lease cost (2) | Primarily Gaming expense | | 1.2 | | | 1.0 | | | 2.3 | | | 2.1 | |
| Total | Total | | $ | 136.9 | | | $ | 111.8 | | | $ | 265.6 | | | $ | 226.5 | | Total | | $ | 52.6 | | | $ | 136.9 | | | $ | 136.9 | | | $ | 265.6 | |
| | Finance Lease Costs | Finance Lease Costs | | Finance Lease Costs | |
Interest on lease liabilities (3) | Interest on lease liabilities (3) | Interest expense, net | | $ | 3.7 | | | $ | 3.8 | | | $ | 7.4 | | | $ | 7.7 | | Interest on lease liabilities (3) | Interest expense, net | | $ | 75.7 | | | $ | 3.7 | | | $ | 115.2 | | | $ | 7.4 | |
Amortization of ROU assets (3) | Amortization of ROU assets (3) | Depreciation and amortization | | 2.1 | | | 2.0 | | | 4.0 | | | 4.0 | | Amortization of ROU assets (3) | Depreciation and amortization | | 48.8 | | | 2.1 | | | 80.9 | | | 4.0 | |
| Total | Total | | $ | 5.8 | | | $ | 5.8 | | | $ | 11.4 | | | $ | 11.7 | | Total | | $ | 124.5 | | | $ | 5.8 | | | $ | 196.1 | | | $ | 11.4 | |
| | Financing Obligation Costs | Financing Obligation Costs | | Financing Obligation Costs | |
Interest on financing obligations (4) | Interest on financing obligations (4) | Interest expense, net | | $ | 105.3 | | | $ | 99.1 | | | $ | 207.9 | | | $ | 196.5 | | Interest on financing obligations (4) | Interest expense, net | | $ | 85.2 | | | $ | 105.3 | | | $ | 174.8 | | | $ | 207.9 | |
(1)Pertains to the operating lease components contained within the Master Leases, (primarily land), the Meadows Lease, the Margaritaville Lease, the Greektown Lease, and the Tropicana Lease, inclusive of the variable expense associated with Columbus and Toledo for the operating lease components, (the land), which was $6.1 millionthe Meadows Lease, the Margaritaville Lease, the Greektown Lease, and $9.3 million for the threeTropicana Lease.
Prior to the Lease Modification, the operating lease components contained within the Master Leases primarily consisted of the land, inclusive of the variable expense associated with Columbus and six months ended June 30, 2021, respectively;Toledo.
Subsequent to the Lease Modification, the operating lease components contained within the Master Leases consist of the land and $1.6 millionbuilding components associated with the operations of Dayton and $4.7 million for the three and six months ended June 30, 2020 respectively, pertaining to Columbus.Mahoning Valley.
(2)Excludes the operating lease costs and variable lease costs pertaining to our triple net leases with our REIT landlords classified as operating leases, discussed in footnote (1) above.
(3)Pertains to the finance lease components contained within the Master Leases, and the Perryville Lease (effective July 1, 2021) which results in interest expense and amortization expense (as opposed to rent expense).
Prior to the Lease Modification, the finance lease components contained within the Master Leases consisted of the land and building components associated with the operations of Dayton and Mahoning ValleyValley.
Subsequent to the Lease Modification, the finance leases.lease components contained within the Master Leases consist of the land, inclusive of the variable expense associated with Columbus and Toledo.
(4)Pertains to the components contained within the Master Leases (primarily buildings) and the Morgantown Lease determined to be a financing obligations,obligation, inclusive of the variable expense associated with Columbus and Toledo for the finance leasefinancing obligation components (the buildings), which was $5.5 million and $8.5 million for the three and six months ended June 30, 2021, respectively; and $2.2 million and $5.6 million for the three and six months ended June 30, 2020, respectively, pertaining to Columbus..
Note 10—Investments in and Advances to Unconsolidated Affiliates
As of June 30, 2021,2022, investments in and advances to unconsolidated affiliates primarily consisted of the Company’s 36% interest in Barstool Sports; its 50% investment in Kansas Entertainment, the JVjoint venture with NASCAR that owns Hollywood Casino at Kansas Speedway; and its 50% interest in Freehold Raceway; and its 50% JV with MAXXAM, Inc. (“MAXXAM”) that owns and operates racetracks in Texas.
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 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(originally subject to a cap of $650.0 million and, subject to such cap, a floor of 2.25 times the annualized revenue of Barstool Sports, all subject to various adjustments).
On October 1, 2021, the terms of the February 2020 stock purchase agreement were amended and restated (“Amended and Restated Stockholders’ Agreement”) to (i) set a definitive purchase price of $325.0 million on the second 50% of Barstool Sports common stock, which eliminates the floor of 2.25 times the annual revenue of Barstool Sports and (ii) fix a number of PENN common shares to be delivered to existing February 2020 employee holders of Barstool Sports common stock, to the extent PENN’s stock price exceeds a specified value defined in the Amended and Restated Stockholder’s Agreement and PENN elects to settle using a combination of cash and equity. Consistent with the February 2020 stock purchase agreement: (i) the Barstool Sports common stock remains subject to our immediately exercisable call rights and the existing Barstool Sports stockholders put rights beginning in February 2023, (ii) the requirement to increase our ownership in Barstool Sports to approximately 50% by purchasing approximately $62.0 million worth of additional shares in Barstool Sports common stock remains consistent with the implied valuation at the time of the initial investment, which was $450.0 million, and (iii), we may settle the call and put options, at our sole election, using either cash or a combination of cash and equity.
On July 7, 2022, we entered into the first amendment to the Amended and Restated Stockholders’ Agreement (“First Amendment”). The First Amendment updated the share price specified value used to calculate the fixed number of PENN common shares to be delivered to existing February 2020 employee holders of Barstool Sports common stock, to the extent PENN’s stock price exceeds the updated specified value and PENN elects to settle using a combination of cash and equity.
On February 20, 2020, the Company issued 883 shares of Series D Preferred Stock, par value $0.01 (the "Series“Series D Preferred Stock"Stock”) to certain individual stockholders affiliated with Barstool Sports. 1/1,000th of a share of Series D Preferred Stock is convertible into one1 share of PennPENN Common Stock. The Series D Preferred Stock will bestockholders are entitled to participate equally and ratably in all dividends and distributions paid to holders of PennPENN Common Stock based on the number of shares of PennPENN 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 PennPENN Common Stock in tranches over four years, beginning February 21, 2021, as stipulated in the stock purchase agreement, with the first 20% tranche having been available for conversion into Penn Common Stock in the first quarter of 2021.Amended and Restated Stockholder’s Agreement. As of June 30, 2021, 262022, 51 shares of the Series D Preferred Stock can be converted into PennPENN Common Stock.
During the first quarter of 2021, the Company acquired 0.3%, and subsequently acquired an additional 0.3% during the third quarter of 2021, of Barstool Sports common stock, par value $0.0001 per share, as contemplated within the February 2020 stock purchase agreement which represents a partial settlement of the 1% purchase on a delayed basis as noted above. The acquisition of the acquired Barstool Sports common stock was settled through a predetermined number of Series D Preferred Stock as contained within the stock purchase agreement (see Note 13, "Stockholders’“Stockholders’ Equity and Stock-Based Compensation,"” for further information).
During the three months ended June 30, 2022, the Company acquired an additional 0.3% of Barstool Sports common stock, par value $0.0001 per share, which represents a partial settlement of the 1% purchase on a delayed basis as noted above. The acquisition of the acquired Barstool Sports common stock was settled through a predetermined number of PENN Common Stock as contained within the Amended and Restated Stockholder’s Agreement (see Note 13, “Stockholders’ Equity and Stock-Based Compensation,” for further information) As a part of the stock purchase agreement, we entered into a commercial agreement that provides us with access to Barstool Sports’ customer list and exclusive advertising on the Barstool Sports platform over the term of the agreement. 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 exercised).
As of June 30, 20212022 and December 31, 2020,2021, we have an amortizing intangible asset pertaining to the customer list of $1.3$0.4 million and $1.6$0.8 million, respectively. As of June 30, 20212022 and December 31, 2020,2021, we have a prepaid expense pertaining to the advertising in the amount of $16.0$14.8 million, and $16.5$15.4 million respectively, of which $14.9$13.6 million and $15.4$14.2 million was classified as long-term, respectively. The long-term portion of the prepaid advertising expense is included in “Other assets” within our unaudited Consolidated Balance Sheets.
As of June 30, 20212022 and December 31, 2020,2021, our investment in Barstool Sports was $155.7$159.4 million and $147.5$162.5 million, respectively. We record our proportionate share of Barstool Sports’ net income or loss one quarter in arrears.
The Company determined that Barstool Sports qualified as a VIE as of June 30, 20212022 and December 31, 2020.2021. The Company did not consolidate the financial position of Barstool Sports as of June 30, 20212022 and December 31, 2020,2021, nor the results of operations for the three and six months ended June 30, 20212022 and 2020,2021, as the Company determined that it did not qualify as the primary beneficiary of Barstool Sports either at the commencement date of its investment or for subsequent periods, primarily as a result of the Company not having the power to direct the activities of the VIE that most significantly affect Barstool Sports’ economic performance.
Kansas Joint Venture
As of June 30, 20212022 and December 31, 2020,2021, our investment in Kansas Entertainment was $86.3$82.4 million and $85.2$83.8 million, respectively. During the three and six months ended June 30, 2021,2022, the Company received distributions from Kansas Entertainment totaling $7.9$9.0 million and $13.4$17.0 million, respectively, as compared to no distributions$7.9 million for the three months ended June 30, 20202021 and $8.7$13.4 million for the six months ended June 30, 2020.2021. The Company deems these distributions to be returns on its investment based on the source of those cash flows from the normal business operations of Kansas Entertainment.
The Company has determined that Kansas Entertainment does not qualify as a VIE. Using the guidance for entities that are not VIEs, the Company determined that it did not have a controlling financial interest in the JV,joint venture, primarily as it did not have the ability to direct the activities of the JVjoint venture that most significantly impacted the JV’sjoint venture’s economic performance without the input of NASCAR. Therefore, the Company did not consolidate the financial position of Kansas Entertainment as of June 30, 20212022 and December 31, 2020,2021, nor the results of operations for the three and six months ended June 30, 20212022 and 2020.2021.
Texas Joint Venture
The Company hashad a 50% interest in a JVjoint venture with MAXXAM,Sam Houston, which owns and operates the Sam Houston Race Park in Houston, Texas and the Valley Race Park in Harlingen, Texas, and holds a license for a racetrack in Austin, Texas.
On March 15,August 1, 2021, we completed the Company entered into a purchase agreement to purchaseacquisition of the remaining 50% ownership interest in the Sam Houston Race Park and the Valley Race Park located in Texas as well as a license to operate a racetrack in Austin, Texas. See Note 6, "Acquisitions and Dispositions" for further information.Houston.
During the first quarter of 2020, we recorded an other-than-temporary impairment on our investment in the JV of $4.6 million, which is included in “Impairment losses” within our unaudited Consolidated Statements of Operations and Comprehensive Income (Loss). NaN further impairment loss was recorded for the three months ended June 30, 2020. NaN impairment was recorded for the three and six months ended June 30, 2021.
Note 11—Income Taxes
The Company calculates the provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate to its year-to-date pretax book income or loss. The tax effects of discrete items, including but not limited to, excess tax benefits associated with stock-based compensation, are reported in the interim period in which they occur. The effective tax rate (income taxes as a percentage of income or loss before income taxes) including discrete items was 68.3% and 57.2% for the three and six months ended June 30, 2022, as compared to 21.1% and 20.3% for the three and six months ended June 30, 2021, as compared2021. We excluded certain foreign losses from our worldwide effective tax rate calculation due to 21.4% and 16.1%a year-to-date ordinary loss for the three and six months ended June 30, 2020. which no benefit may be recognized.Our effective income tax rate can vary from period to period depending on, among other factors, the geographic and business mix of our earnings and changes to our valuation allowance and the level of our tax credits.allowance. Certain of these and other factors, including our history and projections of pretax earnings, are considered in assessing our ability to realize our net deferred tax assets.
As of each reporting date, the Company considers all available positive and negative evidence that could affect its view of the future realization of deferred tax assets pursuant to ASC Topic 740, “Income Taxes.” As of June 30, 2021,2022, we intend to continue maintaining a valuation allowance on our deferred tax assets until there is sufficient positive evidence to support the reversal of all or some portion of these allowances. A reduction in the valuation allowance would result in a significant decrease to income tax expense in the period the release is recorded. However,Although the exact timing and amount of the reduction in our valuation allowancereversal amount are unknown at this time, and willthe Company believes there is a possibility that a significant portion of the valuation allowance may be subject toreleased within the year, which is contingent upon the earnings level we achieve in 20212022 as well as our projected income levels in future periods. During the three months ended June 30, 2021,2022, the Company decreasedincreased the valuation allowance in the amount of $12.9$27.2 million onrelated primarily to accounting modifications to certain federal and state deferred tax assets that are more likely than not to be realized.master leases (see Note 9, “Leases”). As of June 30, 20212022 and December 31, 2020,2021, prepaid income taxes of $31.6$27.1 million and $52.7$42.5 million, respectively, were included in “Prepaid expenses” within our unaudited Consolidated Balance Sheets. The reduction in prepaid income taxes is primarily related to an Internal Revenue Service refund of $28.2 million related to the Company’s carryback claim under the CARES Act for the year ended December 31, 2020.
On July 8, 2022, the Pennsylvania House Bill 1342 was signed into law that reduces the corporate income tax rate over the next nine years from the current rate of 9.99% to 4.99% by 2031. The Company is evaluating this law change and the impact it will have on our consolidated financial statements. The tax law change is accounted for in the period of enactment and therefore, we will recognize the impact during the quarter ended September 30, 2022.
Note 12—Commitments and Contingencies
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 its financial position, results of operations, or cash flows.
Note 13—Stockholders’ Equity and Stock-Based Compensation
Common and Preferred Stock
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 June 17, 2021, the Company filed its Second Amended and Restated Articles of Incorporation with the Department of State of the Commonwealth of Pennsylvania. These Articles of Incorporation, as amended and restated and approved by the Company’s shareholders at the 2021 Annual Meeting of Shareholders, increase the number of authorized shares of common stock from 200,000,000 to 400,000,000.
Preferred Stockthe acquisition of Sam Houston, the Company issued 198,103 shares for a total of $15.8 million.
On February 20, 2020,October 19, 2021, as part of the acquisition of theScore, the Company issued 88312,319,340 shares of Series D Preferred Stock,common stock and authorized and issued 697,539 Exchangeable Shares for approximately $1.0 billion, each with a par value of $0.01, per share, to certain individual stockholders affiliated with Barstool Sports as discussed in Note 10, "Investments in6, “Acquisitions and Advances to Unconsolidated Affiliates."Dispositions.” As of June 30, 2022 and December 31, 2021, there were 624,658 and 653,059 Exchangeable Shares outstanding, respectively.
During the quarter ended March 31,On each of February 22, 2021 151.2 shares of Series D Preferred Stock were converted to Penn Common Stock. As a result of the conversion, the Company issued 151,200 shares of common stock with a par value of $0.01.
During the quarter ended March 31,and August 23, 2021, the Company issued 43 shares of Series D Preferred Stock in conjunction with acquiring 0.3%additional shares of Barstool Sports common stock. On June 1, 2022, the Company issued 64,000 shares of common stock in conjunction with acquiring additional shares of Barstool Sports common stock from certain individual stockholders affiliated with Barstool Sports. The issuances were exempt from registration pursuant to Section 4(a)(2) of the Securities Act. The acquisition of the incremental Barstool Sports common stock represents a partial settlement of the 1% purchase on a delayed basis as described in Note 10, "Investments“Investments in and Advances to Unconsolidated Affiliates."”
On February 22, 2021 and August 23, 2021, 151 shares of Series D Preferred Stock and 43 shares of Series D Preferred Stock, respectively, were converted to common stock. As a result of the conversion, the Company issued 151,200 shares of common stock and 43,000 shares of common stock, respectively, each with a par value of $0.01. On February 23, 2022 and February 24, 2022, 43 shares of Series D Preferred Stock and 151 shares of Series D Preferred Stock, respectively, were converted to common stock. As a result of the conversion, the Company issued 43,000 shares of common stock and 151,200 shares of common stock, respectively, each with a par value of $0.01. The issuances were exempt from registration pursuant to Section 4(a)(2) of the Securities Act.
As of June 30, 20212022 and December 31, 2020,2021, there were 5,000 shares authorized of Series D Preferred Stock, of which 775581 shares and 883775 shares were outstanding, respectively.
2018Share Repurchase Authorization
On February 1, 2022, the Board of Directors of PENN approved a $750.0 million share repurchase authorization. The three-year authorization expires on January 31, 2025. Repurchases by the Company will be subject to available liquidity, general market and economic conditions, alternate uses for the capital and other factors. Share repurchases may be made from time to time through a 10b5-1 trading plan, open market transactions, block trades or in private transactions in accordance with applicable securities laws and regulations and other legal requirements. There is no minimum number of shares that the Company is required to repurchase and the repurchase authorization may be suspended or discontinued at any time without prior notice.
During the three months ended June 30, 2022, the Company repurchased 5,539,177 shares of its common stock in open market transactions for $167.0 million at an average price of $30.16 per share. During the six months ended June 30, 2022, the Company repurchased 9,341,585 shares of its common stock in open market transactions for $342.1 million at an average price of $36.62 per share. The cost of all repurchased shares is recorded as “Treasury stock” within our unaudited Consolidated Balance Sheets.
Subsequent to the quarter ended June 30, 2022, the Company repurchased 3,019,790 million shares of its common stock at an average price of $31.46 per share for an aggregate amount of $95.0 million. The remaining availability under our $750.0 million share repurchase authorization was $313.1 million as of August 3, 2022.
2022 Long Term Incentive Compensation Plan
TheOn June 7, 2022, the Company’s 2018shareholders, upon the recommendation of the Company’s Board of Directors, approved the Company’s 2022 Long Term Incentive Compensation Plan as amended (the “2018“2022 Plan”). The 2022 Plan permits itthe Company to issue stock options (incentive and/or non-qualified), stock appreciation rights (“SARs”),SARs, RSAs, restricted stock units (“RSUs”), cash-settled phantom stock units (“CPSUs”)RSUs, performance and other equity and cash awards to employees.executive directors and other employees of the Company and its subsidiaries. Non-employee directors and the chairman emeritusconsultants are eligible to receive all such awards, other than incentive stock options. Pursuant to the 20182022 Plan, 12,700,0006,870,000 shares of the Company’s common stock are reserved for issuance.issuance, plus any shares of common stock subject to outstanding awards under the 2018 Plan or theScore Plan (both as defined below) as of June 7, 2022 that are forfeited or settled for cash. For purposes of determining the number of shares available for issuance under the 20182022 Plan, stock options, restricted stock and SARs (except cash-settled SARs) count against the 12,700,0006,870,000 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 are not counted against the share limit. As of June 30, 2021,2022, there were 5,011,1936,816,817 shares available for future grants under the 2022 Plan.
2018 Long Term Incentive Compensation Plan
The Company’s 2018 Long Term Incentive Compensation Plan, as amended (the “2018 Plan”) permitted it to issue stock options (incentive and/or non-qualified), stock appreciation rights (“SARs”), RSAs, RSUs, cash-settled phantom stock units (“CPSUs”) and other equity and cash awards to employees and any consultant or advisor to the Company or subsidiary. Non-employee directors and the chairman emeritus were eligible to receive all such awards, other than incentive stock options. Pursuant to the 2018 Plan, 12,700,000 shares of the Company’s common stock were reserved for issuance. For purposes of determining the number of shares available for issuance under the 2018 Plan, stock options and SARs (except cash-settled SARs) counted against the 12,700,000 limit as 1 share of common stock for each share granted and restricted stock or any other full value stock award counted as 2.30 shares of common stock for each share granted. Any awards that were not settled in shares of common stock were not counted against the share limit. In connection with the approval of the 2022 Plan, the 2018 Plan remains in place until all of the awards previously granted thereunder have been paid, forfeited or expired. However, the shares which remained available for issuance under the 2018 Plan, which totaled 2,858,438 as of June 30, 2022, are no longer available for issuance and all future equity awards will be granted pursuant to the 2022 Plan.
On April 12,In connection with the acquisition of theScore on October 19, 2021, the Board of Directors granted 600,000Company registered theScore Plan. theScore Plan permitted the Company to issue non-qualified stock options and RSUs to employees and 300,000 RSAsservice providers affiliated with market-based and service-based vesting conditions (collectively the “Stock Awards”), solelytheScore prior to the Company’s Presidentacquisition date. At the date of acquisition, the Company rolled over all outstanding, non-vested and Chief Executive Officer. The Stock Awards are classified as equity with separate tranchesunexercised stock options and requisite service periods identified for each separately achievable component. The fair valuenon-vested RSUs equivalent to 853,904 shares of the Stock Awards was $48.7 millionCompany. Each rollover option and was calculated usingRSU were subject to substantially the same terms and conditions applicable to the award immediately prior to the acquisition. In connection with the transaction, the vesting provisions of unvested options and RSUs, awarded under the theScore Plan prior to August 4, 2021, were amended to provide for a Monte Carlo simulation.new acceleration right for legacy theScore employees and service providers. The fair valueamendment provides that, if an involuntary termination without cause occurs at any time prior to April 19, 2023, unvested options and RSUs will automatically accelerate and become fully vested on the effective date of termination. In connection with the approval of the RSAs was estimated at $19.4 million and segregated into 15 tranches with expense recognition periods ranging from 2.2 to 6.0 years. The fair value2022 Plan, theScore Plan remains in place until all of the RSUs was estimated at $29.3 million and segregated into 4 tranches with expense recognition periods ranging from 6.7 to 8.7 years. We recognized $1.9 millionawards previously granted thereunder have been paid, forfeited or expired. However, the shares which remained available for future grants under theScore Plan, which totaled 251,825 as of stock compensation expense for the Stock Awards during the three and six months ended June 30, 2021.2022, are no longer available for issuance and all future equity awards will be pursuant to the 2022 Plan.
Performance Share Program
In February 2019, the Company’s Compensation Committee of the Board of Directors adopted a performance share program (the “Performance Share Program II”) pursuant to the 2018 Plan. An aggregate of 107,297 RSAs with performance-based vesting conditions, at target, was granted in February 2020 under the Performance Share Program II, with the grant having a three-year award period consisting of 3 one-year performance periods244,955 RSUs and a three-year service period. The performance threshold for vesting of these awards is 50% of target and, based on the level of achievement, up to 150% of target.
An aggregate of 95,276 RSAs and RSUs with performance-based vesting conditions, at target, waswere granted in Aprilduring the six months ended June 30, 2022 and June 30, 2021, respectively, under the Performance Share Program II, with the grant having a three-year award period consisting of 3 one-year performance periods and a three-year service period. The performance threshold for vesting of these awards is 50% of target and, based on the level of achievement, up to 150% of target.
Stock-based Compensation Expense
Stock-based compensation expense, which pertains principally to our stock options, RSAs and RSUs, for the three and six months ended June 30, 20212022 was $9.2$14.5 million and $13.4$31.5 million, respectively, as compared to $2.9$9.2 million and $8.9$13.4 million for the three and six months ended June 30, 2020, respectively,2021 and is included within the unaudited Consolidated Statements of Operations and Comprehensive Income (Loss) under “General and administrative.”
Stock Options
The Company granted 0.0 million3,316 and 0.2 million396,365 stock options during the three and six months ended June 30, 2022, respectively, as compared to 804 and 230,165 stock options during the three and six months ended June 30, 2021, respectively, as compared to 0.0 million and 0.6 million stock options during the three and six months ended June 30, 2020, respectively.
Cash-settled Phantom Stock Units
Our outstanding CPSUs entitle employees, non-employee directors, and the chairman emeritusplan recipients to receive cash based on the fair value of the Company’s common stock on the vesting date. Our CPSUs vest over a period of three or four years. The cash-settled CPSUs are accounted for as liability awards and are re-measured at fair value each reporting period until they become vested with compensation expense being recognized over the requisite service period. The Company has a liability, which is included in “Accrued expenses and other current liabilities” within the unaudited Consolidated Balance Sheets, associated with its cash-settled CPSUs of $9.8$2.0 million and $10.1$8.6 million as of June 30, 20212022 and December 31, 2020,2021, respectively.
For CPSUs, held by employees, non-employee directors, and the chairman emeritus of the Company, there was $12.4$5.9 million of total unrecognized compensation cost as of June 30, 20212022 that will be recognized over the awards remaining weighted-average vesting period of 1.90.9 years. For the three and six months ended June 30, 2021,2022 the Company recognized $1.0$0.8 million and $5.7$1.4 million of compensation expense associated with these awards, respectively, as compared to $1.9$1.0 million and $2.0$5.7 million for the three and six months ended June 30, 2020,2021, respectively. Compensation expense associated with our CPSUs is recorded in “General and administrative” within the unaudited Consolidated Statements of Operations and Comprehensive Income (Loss).Operations. We paid $8.0 million and $6.0 million and $2.8 million duringfor the six months ended June 30, 20212022 and 2020,2021, respectively, pertaining to cash-settled CPSUs.
Stock Appreciation Rights
Our outstanding SARs are accounted for as liability awards since they will be settled in 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 expenses and other current liabilities” within the unaudited Consolidated Balance Sheets, associated with its cash-settled SARs of $27.7$9.1 million and $54.6$18.5 million as of June 30, 20212022 and December 31, 2020,2021, respectively.
For SARs, held by employees of the Company, there was $50.7$11.5 million of total unrecognized compensation cost as of June 30, 20212022 that will be recognized over the awards remaining weighted-average vesting period of 2.32 years. The Company recognized a reduction to compensation expense of $6.8 million for the three and six months ended June 30, 2022, and recognized a reduction to compensation expense of $9.9 million and a charge to compensation expense of $10.4 million for the three and six months ended June 30, 2021, respectively, as compared to a charge of $17.7 million and $12.2 million for the three and six months ended June 30, 2020, respectively. Compensation expense associated with our SARs is recorded in “General and administrative” within the unaudited Consolidated Statements of Operations and Comprehensive Income (Loss).Operations. We paid $2.1 million and $38.0 million and $10.2 million during the six months ended June 30, 20212022 and 2020,2021, respectively, related to cash-settled SARs.
Other
In the second quarter of 2021, the Company entered into 2 promissory notes with shareholders for a total of $9.0 million. The promissory notes are unsecured and bear interest of 2.25%. TheAs of June 30, 2022 and December 31, 2021, the receivable is recorded as a reduction of equity within “Additional paid-in capital” in our unaudited Consolidated Balance Sheets and is presented within our unaudited Consolidated Statement of Changes in Stockholders’ Equity within the “other" caption.Sheets.
Note 14—Earnings (Loss) per Share
For the three and six months ended June 30, 2022, and 2021 we recorded net income attributable to Penn National.PENN. As such, we used diluted weighted-average common shares outstanding when calculating diluted income per share for the three and six months ended June 30, 2022, and 2021. Stock options, RSAs,restricted stock, convertible preferred shares and convertible debt that could potentially dilute basic EPS in the future are included in the computation of diluted income per share.
For the three and six months ended June 30, 2020, we recorded a net loss attributable to Penn National. As such, because the dilution from potential common shares was antidilutive, we used basic weighted-average common shares outstanding, rather than diluted weighted-average common shares outstanding when calculating diluted loss per share for the three and six months ended June 30, 2020. Stock options, RSAs, convertible preferred shares and convertible debt that could potentially dilute basic EPS in the future that were not included in the computation of diluted loss per share were as follows:
| | | | | | | | | | | |
| For the three months ended June 30, | | For the six months ended June 30, |
| (in millions) | 2020 | | 2020 |
| Assumed conversion of dilutive stock options | 1.5 | | | 1.8 | |
| Assumed conversion of dilutive RSAs | 0.2 | | | 0.3 | |
| Assumed conversion of convertible preferred shares | 0.8 | | | 0.6 | |
| Assumed conversion of convertible debt | 7.9 | | | 4.0 | |
| | | |
The following table sets forth the allocation of net income for the three and six months ended June 30,
2022 and 2021 under the two-class method.
For the three and six months ended June 30, 2020 we did not utilize the two-class method due to incurring a net loss for the period. | | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended June 30, | | For the six months ended June 30, |
| (in millions) | 2022 | | 2021 | | 2022 | | 2021 |
| Net income attributable to PENN Entertainment | $ | 26.1 | | | $ | 198.7 | | | $ | 77.8 | | | $ | 289.7 | |
| Net income applicable to preferred stock | 0.1 | | | 1.0 | | | 0.3 | | | 1.5 | |
| Net income applicable to common stock | $ | 26.0 | | | $ | 197.7 | | | $ | 77.5 | | | $ | 288.2 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended June 30, | | For the six months ended June 30, |
| (in millions) | 2021 | | 2020 | | 2021 | | 2020 |
| Net income (loss) attributable to Penn National | $ | 198.7 | | | $ | (213.9) | | | $ | 289.7 | | | $ | (822.5) | |
| Net income applicable to preferred stock | 1.0 | | | 0 | | | 1.5 | | | 0 | |
| Net income (loss) applicable to common stock | $ | 197.7 | | | $ | (213.9) | | | $ | 288.2 | | | $ | (822.5) | |
The following table reconciles the weighted-average common shares outstanding used in the calculation of basic EPS to the weighted-average common shares outstanding used in the calculation of diluted EPS for the three and six months ended June 30, 20212022 and 2020:2021:
| | | For the three months ended June 30, | | For the six months ended June 30, | | For the three months ended June 30, | | For the six months ended June 30, |
| (in millions) | (in millions) | 2021 | | 2020 | | 2021 | | 2020 | (in millions) | 2022 | | 2021 | | 2022 | | 2021 |
| Weighted-average common shares outstanding | Weighted-average common shares outstanding | 156.0 | | | 126.8 | | | 155.8 | | | 121.3 | | Weighted-average common shares outstanding | 164.8 | | | 156.0 | | | 166.5 | | | 155.8 | |
| Assumed conversion of: | Assumed conversion of: | | | | Assumed conversion of: | |
| Dilutive stock options | Dilutive stock options | 2.2 | | | 0 | | | 2.4 | | | 0 | | Dilutive stock options | 1.1 | | | 2.2 | | | 1.4 | | | 2.4 | |
| Dilutive RSAs | 0.4 | | | 0 | | | 0.5 | | | 0 | | |
| Dilutive restricted stock | | Dilutive restricted stock | 0.2 | | | 0.4 | | | 0.3 | | | 0.5 | |
| Convertible debt | Convertible debt | 14.1 | | | 0 | | | 14.1 | | | 0 | | Convertible debt | 14.1 | | | 14.1 | | | 14.1 | | | 14.1 | |
| Weighted-average common shares outstanding - Diluted | Weighted-average common shares outstanding - Diluted | 172.7 | | | 126.8 | | | 172.8 | | | 121.3 | | Weighted-average common shares outstanding - Diluted | 180.2 | | | 172.7 | | | 182.3 | | | 172.8 | |
RSAs and RSUsRestricted stock with performance and market based vesting conditions that have not been met as of June 30, 20212022 were excluded from the computation of diluted earnings (loss)per share.
Options to purchase 0.9 million and 0.8 million shares were outstanding during the three and six months ended June 30, 2022, respectively, compared to 0.2 million during the three and six months ended June 30, 2021, but were not included in the computation of diluted earnings per share because they were anti-dilutive.
The assumed conversion of 0.6 million preferred shares were excluded from the computation of diluted earnings per share for the three and six months ended June 30, 2021.
In addition,2022, as compared to 0.8 million shares from the assumed conversion of convertible preferred shares were excluded from the computation of diluted income per share for the three and six months ended June 30, 2021, because including them would have been anti-dilutive.
Stock-Based Compensation.”The following table presents the calculation of basic and diluted earnings (loss) per share for the Company’s common stock for the three and six months ended June 30, 20212022 and 2020:2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended June 30, | | For the six months ended June 30, |
| (in millions, except per share data) | 2021 | | 2020 | | 2021 | | 2020 |
| Calculation of basic earnings (loss) per share: | | | | | | | |
| Net income (loss) applicable to common stock | $ | 197.7 | | | $ | (213.9) | | | $ | 288.2 | | | $ | (822.5) | |
| Weighted-average common shares outstanding - basic | 156.0 | | | 126.8 | | | 155.8 | | | 121.3 | |
| Basic earnings (loss) per share | $ | 1.27 | | | $ | (1.69) | | | $ | 1.85 | | | $ | (6.78) | |
| | | | | | | |
| Calculation of diluted earnings (loss) per share: | | | | | | | |
| Net income (loss) applicable to common stock | $ | 197.7 | | | $ | (213.9) | | | $ | 288.2 | | | $ | (822.5) | |
Interest expense, net of tax (1): | | | | | | | |
| Convertible Notes | 4.3 | | | 0 | | | 8.6 | | | 0 | |
| Diluted income (loss) applicable to common stock | $ | 202.0 | | | $ | (213.9) | | | $ | 296.8 | | | $ | (822.5) | |
| Weighted-average common shares outstanding - diluted | 172.7 | | | 126.8 | | | 172.8 | | | 121.3 | |
| Diluted earnings (loss) per share | $ | 1.17 | | | $ | (1.69) | | | $ | 1.72 | | | $ | (6.78) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended June 30, | | For the six months ended June 30, |
| (in millions, except per share data) | 2022 | | 2021 | | 2022 | | 2021 |
| Calculation of basic earnings per share: | | | | | | | |
| Net income applicable to common stock | $ | 26.0 | | | $ | 197.7 | | | $ | 77.5 | | | $ | 288.2 | |
| Weighted-average shares outstanding - PENN Entertainment | 164.2 | | | 156.0 | | | 165.9 | | | 155.8 | |
| Weighted-average shares outstanding - Exchangeable Shares | 0.6 | | | — | | | 0.6 | | | — | |
| Weighted-average common shares outstanding - basic | 164.8 | | | 156.0 | | | 166.5 | | | 155.8 | |
| Basic earnings per share | $ | 0.16 | | | $ | 1.27 | | | $ | 0.47 | | | $ | 1.85 | |
| | | | | | | |
| Calculation of diluted earnings per share: | | | | | | | |
| Net income applicable to common stock | $ | 26.0 | | | $ | 197.7 | | | $ | 77.5 | | | $ | 288.2 | |
Interest expense, net of tax (1): | | | | | | | |
| Convertible Notes | 1.8 | | | 4.3 | | | 3.7 | | | 8.6 | |
| Diluted income applicable to common stock | $ | 27.8 | | | $ | 202.0 | | | $ | 81.2 | | | $ | 296.8 | |
| Weighted-average common shares outstanding - diluted | 180.2 | | | 172.7 | | | 182.3 | | | 172.8 | |
| Diluted earnings per share | $ | 0.15 | | | $ | 1.17 | | | $ | 0.45 | | | $ | 1.72 | |
(1)The three and six months ended June 30, 2022 were tax-affected at a rate of 21% . The three and six months ended June 30, 2021, were tax-affected at a rate of 20%.
Note 15—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 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. The fair value of the Company’s trade accounts receivable and payables approximates the carrying amounts.
Cash and Cash Equivalents
The fair value of the Company’s cash and cash equivalents approximates their carrying amount, due to the short maturity of the cash equivalents.
Equity Securities
As of June 30, 20212022 and December 31, 2020,2021, we held $161.9$31.4 million and $143.1$84.3 million in equity securities respectively, includingof ordinary shares, and warrants,respectively, which are reported as “Other assets” in our unaudited Consolidated Balance Sheets. These equity securities are the result of PennPENN Interactive entering into multi-year agreements with third-party sports betting operators for online sports betting and related iGaming market access across our portfolio. During the three and six months ended June 30, 2021,2022, we recognized holding losses of $16.9 million and $55.6 million related to these equity securities, respectively, compared to a holding loss of $7.4 million and a holding gain of $18.8 million related to these equity securities, respectively, compared to a gain of $29.5 million and $7.7 million for the three and six months ended June 30, 2020,2021, respectively, which is included in “Other,” as reported in “Other income (expenses)” within our unaudited Consolidated Statements of Operations and Comprehensive Income (Loss).
The fair value of the equity securities was determined using Level 2 inputs, which use market approach valuation techniques. The primary inputs to those techniques include the quoted market price of the equity securities, foreign currency exchange rates, a discount for lack of marketability (“DLOM”) with respect to the ordinary shares, and a Black-Scholes option pricing model previously associated with respect to the exercised warrants. The DLOM is based on the remaining term of the 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 June 30, 20212022 and December 31, 2020,2021, PRP held $7.9 million and $15.1 million in promissory notes issued by RDC, respectively. As of June 30, 2022 and December 31, 2021, PRP held $6.7 million in local government corporation bonds issued by RDC at amortized cost. The promissory notes and the local government corporation bonds are collateralized by the assets of Retama Park Racetrack. As of June 30, 20212022 and December 31, 2020,2021, the promissory notes and the local government corporation bonds were included in “Other assets” within our unaudited Consolidated Balance Sheets.
The contractual terms of these promissory notes include interest payments due at maturity; however, we have not recorded accrued interest on these promissory notes because uncertainty exists as to RDC’s ability to make interest payments. We have the positive intent and ability to hold the local government corporation bonds to maturity and until the amortized cost is
recovered. The estimated fair values of such investments are principally based on appraised values of the land associated with Retama Park Racetrack, which are classified as Level 2 inputs.
Long-term Debt
The fair value of our Term Loan A Facility, Term Loan B-1 Facility, Amended Term Loan A Facility, Amended Term Loan B Facility, 5.625% Notes, 4.125% Notes, and 2.75%the Convertible Notes is estimated based on quoted prices in active markets and is classified as a Level 1 measurement. The fair value of our Revolving Credit Facility approximates its carrying amount as it is revolving, variable-rate debt, which we also classify as a Level 1 measurement.
Other long-term obligations as of June 30, 20212022 and December 31, 20202021 included a financing arrangement entered in February of 2021, the relocation fees for Dayton and Mahoning Valley, and the repayment obligation of the hotel and event center located near Hollywood Casino Lawrenceburg. See Note 8, “Long-term Debt” for details. The fair values of the Dayton and Mahoning Valley relocationsrelocation fees and the Lawrenceburg repayment obligation are estimated based on rates consistent with the Company’s credit rating for comparable terms and debt instruments and are classified as Level 2 measurements. Additionally, in February 2021, we entered into a financing arrangement providing the Company with upfront cash proceeds while permitting us to participate in future proceeds on certain claims. The financing obligation has been classified as a non-current liability and the fair value of the financing obligation is based on what we expect to be settled in a future period of which the principal is contingent and predicated on other events, plus accreted period non-cash interest using an effective interest rate of 27.0% until the claims and related obligation is settled. The financing obligation has been classified as a Level 3 measurement and is included within our unaudited Consolidated Balance Sheets in “Long-term debt, net of current maturities, debt discount and debt issuance costs.” See Note 8, “Long-term Debt.” Other Liabilities
Other liabilities as of June 30, 20212022 and December 31, 2020 consisted of2021 includes contingent purchase price liabilities related to Plainridge Park Casino and Hitpoint, of which Hitpoint was acquired on May 11, 2021. The Hitpoint contingent purchase price liability is payable in installments up to a maximum of $1.0 million installments in the form of cash and equity, on the first 3 anniversaries of the acquisition close date (May 11, 2021) and is based on the achievement of mutual goals established by the Company and Hitpoint. As of June 30, 2022, there are 2 annual achievement evaluations remaining. The Plainridge Park Casino contingent purchase price liability is calculated based on earnings of the gaming operations over the first ten years of operations, which commenced on June 24, 2015. As of June 30, 2021,2022, we were contractually obligated to make 54 additional annual payments. The fair value of the Plainridge Park Casino contingent purchase price liability is estimated based on an income approach using a discounted cash flow model. These contingent purchase price liabilities have been classified as a Level 3 measurement and are included within our unaudited Consolidated Balance Sheets in “Accrued expenses and other current liabilities” or “Other long-term liabilities,” depending on the timing of the next payment.
The carrying amounts and estimated fair values by input level of the Company’s financial instruments were as follows:
| | | June 30, 2021 | | June 30, 2022 |
| (in millions) | (in millions) | Carrying Amount | | Fair Value | | Level 1 | | Level 2 | | Level 3 | (in millions) | Carrying Amount | | Fair Value | | Level 1 | | Level 2 | | Level 3 |
| Financial assets: | Financial assets: | | | | | | | | | | Financial assets: | | | | | | | | | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 2,274.7 | | | $ | 2,274.7 | | | $ | 2,274.7 | | | $ | 0 | | | $ | 0 | | Cash and cash equivalents | $ | 1,708.3 | | | $ | 1,708.3 | | | $ | 1,708.3 | | | $ | — | | | $ | — | |
| Equity securities | Equity securities | $ | 161.9 | | | $ | 161.9 | | | $ | 0 | | | $ | 161.9 | | | $ | 0 | | Equity securities | $ | 31.4 | | | $ | 31.4 | | | $ | — | | | $ | 31.4 | | | $ | — | |
| Held-to-maturity securities | Held-to-maturity securities | $ | 6.7 | | | $ | 6.7 | | | $ | 0 | | | $ | 6.7 | | | $ | 0 | | Held-to-maturity securities | $ | 6.7 | | | $ | 6.7 | | | $ | — | | | $ | 6.7 | | | $ | — | |
| Promissory notes | Promissory notes | $ | 15.1 | | | $ | 15.1 | | | $ | 0 | | | $ | 15.1 | | | $ | 0 | | Promissory notes | $ | 7.9 | | | $ | 7.9 | | | $ | — | | | $ | 7.9 | | | $ | — | |
| Puts and calls related to certain Barstool Sports shares | $ | 2.8 | | | $ | 2.8 | | | $ | 0 | | | $ | 2.8 | | | $ | 0 | | |
| Financial liabilities: | Financial liabilities: | | Financial liabilities: | |
| Long-term debt | Long-term debt | | Long-term debt | |
| Senior Secured Credit Facilities | Senior Secured Credit Facilities | $ | 1,572.4 | | | $ | 1,588.7 | | | $ | 1,588.7 | | | $ | 0 | | | $ | 0 | | Senior Secured Credit Facilities | $ | 1,519.7 | | | $ | 1,496.8 | | | $ | 1,496.8 | | | $ | — | | | $ | — | |
| 5.625% Notes | 5.625% Notes | $ | 399.5 | | | $ | 415.0 | | | $ | 415.0 | | | $ | 0 | | | $ | 0 | | 5.625% Notes | $ | 399.6 | | | $ | 350.0 | | | $ | 350.0 | | | $ | — | | | $ | — | |
| 4.125% Notes | | 4.125% Notes | $ | 393.3 | | | $ | 305.0 | | | $ | 305.0 | | | $ | — | | | $ | — | |
| Convertible Notes | Convertible Notes | $ | 246.5 | | | $ | 1,093.9 | | | $ | 1,093.9 | | | $ | 0 | | | $ | 0 | | Convertible Notes | $ | 323.5 | | | $ | 489.7 | | | $ | 489.7 | | | $ | — | | | $ | — | |
| Other long-term obligations | Other long-term obligations | $ | 141.9 | | | $ | 139.7 | | | $ | 0 | | | $ | 62.0 | | | $ | 77.7 | | Other long-term obligations | $ | 150.1 | | | $ | 148.3 | | | $ | — | | | $ | 45.0 | | | $ | 103.3 | |
| Other liabilities | Other liabilities | $ | 14.4 | | | $ | 14.2 | | | $ | 0 | | | $ | 2.6 | | | $ | 11.6 | | Other liabilities | $ | 11.4 | | | $ | 11.3 | | | $ | — | | | $ | 2.6 | | | $ | 8.7 | |
| Puts and calls related to certain Barstool Sports shares | | Puts and calls related to certain Barstool Sports shares | $ | 0.6 | | | $ | 0.6 | | | $ | — | | | $ | 0.6 | | | $ | — | |
| | | December 31, 2020 | | December 31, 2021 |
| (in millions) | (in millions) | Carrying Amount | | Fair Value | | Level 1 | | Level 2 | | Level 3 | (in millions) | Carrying Amount | | Fair Value | | Level 1 | | Level 2 | | Level 3 |
| Financial assets: | Financial assets: | | | | | | | | | | Financial assets: | | | | | | | | | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 1,853.8 | | | $ | 1,853.8 | | | $ | 1,853.8 | | | $ | 0 | | | $ | 0 | | Cash and cash equivalents | $ | 1,863.9 | | | $ | 1,863.9 | | | $ | 1,863.9 | | | $ | — | | | $ | — | |
| Equity securities | Equity securities | $ | 143.1 | | | $ | 143.1 | | | $ | 0 | | | $ | 143.1 | | | $ | 0 | | Equity securities | $ | 84.3 | | | $ | 84.3 | | | $ | — | | | $ | 84.3 | | | $ | — | |
| Held-to-maturity securities | Held-to-maturity securities | $ | 6.7 | | | $ | 6.7 | | | $ | 0 | | | $ | 6.7 | | | $ | 0 | | Held-to-maturity securities | $ | 6.7 | | | $ | 6.7 | | | $ | — | | | $ | 6.7 | | | $ | — | |
| Promissory notes | Promissory notes | $ | 15.1 | | | $ | 15.1 | | | $ | 0 | | | $ | 15.1 | | | $ | 0 | | Promissory notes | $ | 15.1 | | | $ | 15.1 | | | $ | — | | | $ | 15.1 | | | $ | — | |
| Puts and calls related to certain Barstool Sports shares | | Puts and calls related to certain Barstool Sports shares | $ | 1.9 | | | $ | 1.9 | | | $ | — | | | $ | 1.9 | | | $ | — | |
| Financial liabilities: | Financial liabilities: | | Financial liabilities: | |
| Long-term debt | Long-term debt | | Long-term debt | |
| Senior Secured Credit Facilities | Senior Secured Credit Facilities | $ | 1,600.3 | | | $ | 1,609.3 | | | $ | 1,609.3 | | | $ | 0 | | | $ | 0 | | Senior Secured Credit Facilities | $ | 1,544.5 | | | $ | 1,559.6 | | | $ | 1,559.6 | | | $ | — | | | $ | — | |
| 5.625% Notes | 5.625% Notes | $ | 399.5 | | | $ | 418.0 | | | $ | 418.0 | | | $ | 0 | | | $ | 0 | | 5.625% Notes | $ | 399.6 | | | $ | 411.5 | | | $ | 411.5 | | | $ | — | | | $ | — | |
| 4.125% Notes | | 4.125% Notes | $ | 392.9 | | | $ | 389.5 | | | $ | 389.5 | | | $ | — | | | $ | — | |
| Convertible notes | Convertible notes | $ | 239.8 | | | $ | 1,274.5 | | | $ | 1,274.5 | | | $ | 0 | | | $ | 0 | | Convertible notes | $ | 253.5 | | | $ | 780.0 | | | $ | 780.0 | | | $ | — | | | $ | — | |
| Other long-term obligations | Other long-term obligations | $ | 73.0 | | | $ | 72.8 | | | $ | 0 | | | $ | 72.8 | | | $ | 0 | | Other long-term obligations | $ | 146.3 | | | $ | 144.3 | | | $ | — | | | $ | 53.9 | | | $ | 90.4 | |
| Other liabilities | Other liabilities | $ | 10.1 | | | $ | 10.1 | | | $ | 0 | | | $ | 2.8 | | | $ | 7.3 | | Other liabilities | $ | 13.3 | | | $ | 13.2 | | | $ | — | | | $ | 2.7 | | | $ | 10.5 | |
| Puts and calls related to certain Barstool Sports shares | $ | 0.3 | | | $ | 0.3 | | | $ | 0 | | | $ | 0.3 | | | $ | 0 | | |
The following table summarizes the changes in fair value of our Level 3 liabilities measured on a recurring basis:
| | | | | |
| (in millions) | Other Liabilities |
Balance as of January 1, 20212022 | $ | 7.3100.9 | |
Additions | 75.5 | |
| Interest | 5.212.9 | |
| Payment installments | (0.8) | |
Included in earnings (1) | 1.3 (1.0) | |
Balance as of June 30, 20212022 | $ | 89.3112.0 | |
(1)The expense is included in “General and administrative” within our unaudited Consolidated Statements of Operations and Comprehensive Income (Loss).
The following table summarizes the significant unobservable inputs used in calculating fair value for our Level 3 liabilities on a recurring basis as of June 30, 2021:2022:
| | | | | | | | | | | | | | | | | |
| | Valuation Technique | | Unobservable Input | | Discount Rate |
| Other long-term obligation | Discounted cash flow | | Discount rate | | 27.00%27.0% |
| Contingent purchase price - Plainridge Park Casino | Discounted cash flow | | Discount rate | | 4.91%9.1% |
Note 16—Segment Information
We have aggregated our operating segments into 45 reportable segments. Retail operating segments are based on the similar characteristics of the operating segments within the regions in which they operate: Northeast, South, West, and Midwest. Our Interactive segment includes all of our iCasino and online sports betting operations, management of retail sports betting, media, and our proportionate share of earnings attributable to our equity method investment in Barstool Sports. The Other category is included in the following tables in order to reconcile the segment information to the consolidated information.
The Company utilizes Adjusted EBITDAR (as defined below) as its measure of segment profit or loss. The following table highlights our revenues and Adjusted EBITDAR for each reportable segment and reconciles Adjusted EBITDAR on a consolidated basis to net income (loss).income.
| | | | For the three months ended June 30, | | For the six months ended June 30, | | For the three months ended June 30, | | For the six months ended June 30, |
| (in millions) | (in millions) | 2021 | | 2020 | | 2021 | | 2020 | (in millions) | 2022 | | 2021 | | 2022 | | 2021 |
| Revenues: | Revenues: | | | | | | | | Revenues: | | | | | | | |
| Northeast segment | Northeast segment | $ | 652.5 | | | $ | 102.7 | | | $ | 1,223.4 | | | $ | 623.4 | | Northeast segment | $ | 684.9 | | | $ | 652.5 | | | $ | 1,343.4 | | | $ | 1,223.4 | |
| South segment | South segment | 368.2 | | | 121.5 | | | 664.1 | | | 344.8 | | South segment | 338.6 | | | 368.2 | | | 680.0 | | | 664.1 | |
| West segment | West segment | 140.4 | | | 17.7 | | | 237.0 | | | 144.3 | | West segment | 153.8 | | | 140.4 | | | 294.7 | | | 237.0 | |
| Midwest segment | Midwest segment | 294.8 | | | 36.0 | | | 529.5 | | | 264.1 | | Midwest segment | 296.3 | | | 294.8 | | | 579.2 | | | 529.5 | |
| Interactive segment | | Interactive segment | 154.9 | | | 96.0 | | | 296.4 | | | 182.3 | |
Other (1) | Other (1) | 97.7 | | | 27.6 | | | 185.6 | | | 47.9 | | Other (1) | 5.9 | | | 1.7 | | | 13.2 | | | 3.3 | |
Intersegment eliminations (2) | Intersegment eliminations (2) | (7.8) | | | 0 | | | (18.9) | | | (2.9) | | Intersegment eliminations (2) | (7.5) | | | (7.8) | | | (15.8) | | | (18.9) | |
| Total | Total | $ | 1,545.8 | | | $ | 305.5 | | | $ | 2,820.7 | | | $ | 1,421.6 | | Total | $ | 1,626.9 | | | $ | 1,545.8 | | | $ | 3,191.1 | | | $ | 2,820.7 | |
| Adjusted EBITDAR (3): | Adjusted EBITDAR (3): | | Adjusted EBITDAR (3): | |
| Northeast segment | Northeast segment | $ | 231.6 | | | $ | (3.6) | | | $ | 424.8 | | | $ | 120.9 | | Northeast segment | $ | 214.4 | | | $ | 231.6 | | | $ | 419.6 | | | $ | 424.8 | |
| South segment | South segment | 177.1 | | | 44.4 | | | 311.0 | | | 97.0 | | South segment | 143.3 | | | 177.1 | | | 289.8 | | | 311.0 | |
| West segment | West segment | 61.4 | | | (3.0) | | | 96.6 | | | 21.6 | | West segment | 59.7 | | | 61.4 | | | 110.9 | | | 96.6 | |
| Midwest segment | Midwest segment | 142.2 | | | (4.6) | | | 248.2 | | | 64.9 | | Midwest segment | 131.3 | | | 142.2 | | | 256.8 | | | 248.2 | |
| Interactive segment | | Interactive segment | (20.8) | | | 1.2 | | | (30.8) | | | 2.5 | |
Other (1) | Other (1) | (25.7) | | | (8.7) | | | (47.0) | | | (27.6) | | Other (1) | (23.4) | | | (26.9) | | | (47.1) | | | (49.5) | |
| Total (3) | Total (3) | 586.6 | | | 24.5 | | | 1,033.6 | | | 276.8 | | Total (3) | 504.5 | | | 586.6 | | | 999.2 | | | 1,033.6 | |
| | Other operating benefits (costs) and other income (expenses): | | |
Rent expense associated with triple net operating leases (4) | (116.5) | | | (103.8) | | | (226.9) | | | (201.3) | | |
| Stock-based compensation | (9.2) | | | (2.9) | | | (13.4) | | | (8.9) | | |
| Cash-settled stock-based awards variance | 12.4 | | | (16.1) | | | (9.1) | | | (7.2) | | |
| Gain on disposal of assets | 0.1 | | | 28.5 | | | 0.2 | | | 27.9 | | |
| Contingent purchase price | (1.2) | | | (0.8) | | | (1.3) | | | 1.4 | | |
Pre-opening expenses (5) | 0.4 | | | (3.5) | | | (1.2) | | | (6.7) | | |
| Depreciation and amortization | (81.9) | | | (91.9) | | | (163.2) | | | (187.6) | | |
| Impairment losses | 0 | | | 0 | | | 0 | | | (616.1) | | |
| Insurance recoveries, net of deductible charges | 0 | | | 0 | | | 0 | | | 0.1 | | |
Non-operating items of equity method investments (6) | (1.4) | | | (1.1) | | | (3.0) | | | (2.0) | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Interest expense, net | (138.0) | | | (135.0) | | | (273.7) | | | (264.8) | |
| | | | | | | |
Other (5)(7) | 0.5 | | | 29.3 | | | 21.3 | | | 7.5 | |
| Income (loss) before income taxes | 251.8 | | | (272.8) | | | 363.3 | | | (980.9) | |
| Income tax benefit (expense) | (53.1) | | | 58.4 | | | (73.7) | | | 157.9 | |
| Net income (loss) | $ | 198.7 | | | $ | (214.4) | | | $ | 289.6 | | | $ | (823.0) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Other operating benefits (costs) and other income (expenses): | | | | | | | |
Rent expense associated with triple net operating leases (4) | (28.0) | | | (116.5) | | | (88.1) | | | (226.9) | |
| Stock-based compensation | (14.5) | | | (9.2) | | | (31.5) | | | (13.4) | |
| Cash-settled stock-based awards variance | 9.5 | | | 12.4 | | | 12.4 | | | (9.1) | |
| Gain (loss) on disposal of assets | (7.3) | | | 0.1 | | | (7.2) | | | 0.2 | |
| Contingent purchase price | 0.9 | | | (1.2) | | | 1.0 | | | (1.3) | |
Pre-opening expenses (5) | (2.1) | | | 0.4 | | | (3.6) | | | (1.2) | |
| Depreciation and amortization | (150.3) | | | (81.9) | | | (268.5) | | | (163.2) | |
| | | | | | | |
| Insurance recoveries, net of deductible charges | — | | | — | | | 8.8 | | | — | |
Non-operating items of equity method investments (6) | (0.3) | | | (1.4) | | | (2.1) | | | (3.0) | |
| | | | | | | |
| Interest expense, net | (193.6) | | | (138.0) | | | (354.4) | | | (273.7) | |
Other (5)(7) | (36.4) | | | 0.5 | | | (84.4) | | | 21.3 | |
| Income before income taxes | 82.4 | | | 251.8 | | | 181.6 | | | 363.3 | |
| Income tax expense | (56.3) | | | (53.1) | | | (103.9) | | | (73.7) | |
| Net income | $ | 26.1 | | | $ | 198.7 | | | $ | 77.7 | | | $ | 289.6 | |
(1)The Other category consists of the Company’s stand-alone racing operations, namely Sanford-Orlando Kennel Club, Sam Houston and Valley Race Parks (the remaining 50% was acquired by PENN on August 1, 2021), the Company’s JVjoint venture interests in Sam Houston Race Park, Valley Race Park,Freehold Raceway, 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 Sportsbook mobile app.Racetrack. Expenses incurred for corporate and shared services activities that are directly attributable to a property or are otherwise incurred to support a property are allocated to each property. 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 Other category includes our proportionate share of the Adjusted EBITDAR of Barstool Sports (as determined and discussed in footnotes (3) and (5) below).
(2)Primarily represents the elimination of intersegment revenues associated with our internally-branded retail sportsbooks, which are operated by PennPENN Interactive.
(3)We define Adjusted EBITDAR as earnings before interest expense, net;net, income taxes;taxes, depreciation and amortization;amortization, rent expense associated with triple net operating leases (see footnote (4) below);, stock-based compensation;compensation, debt extinguishment and financing charges;charges, which is included in “Other” (see footnote (7) below), impairment losses;losses, insurance recoveries, net of deductible charges;charges, changes in the estimated fair value of our contingent purchase price obligations;obligations, gain or loss on disposal of assets;assets, the difference between budget and actual expense for cash-settled stock-based awards;awards, pre-opening expenses (see footnote (5) below);, and other. Adjusted EBITDAR is also inclusive of income or loss from unconsolidated affiliates, with our share of non-operating items (see footnote (5)(6) below) added back for Barstool Sports and our Kansas Entertainment JV.joint venture.
(4)The Company’s triple net operating leases includeSolely comprised of rent expense associated with the operating lease components contained within our triple net master lease dated November 1, 2013 with GLPI and the triple net master lease assumed in connection with our acquisition of Pinnacle Entertainment, Inc. (primarily land), our individual triple net leases with GLPI for the real estate assets used in the operation of Tropicana and Hollywood Casino at Meadows Racetrack, and Casino, and our individual triple net leases with VICI Properties Inc. for the real estate assets used in the operations of Margaritaville Casino Resort and Hollywood Casino at Greektown Casino-Hotel.(of which the Tropicana Lease, Meadows Lease, Margaritaville Lease and the Greektown Lease are defined in “Note 9, Leases”) and are referred to collectively as our “triple net operating leases”. As a result of the Lease Modification defined in Note 9, “Leases”, the land and building components associated with the operations of Dayton and Mahoning Valley are classified as operating leases which is recorded to rent expense, as compared to prior to the Lease Modification, whereby the land components of substantially all of the Master Lease properties were classified as operating leases and recorded to rent expense. Subsequent to the Lease Modification, the land components associated with the Master Lease properties are primarily classified as finance leases. (5)During 2020 and during the first quarter of 2021, acquisition costs were included within pre-opening and acquisition costs. As of and forBeginning with the quarter ended June 30, 2021, acquisition costs are presented as part of other expenses.
(6)Consists principally of interest expense, net;net, income taxes;taxes, depreciation and amortization;amortization, and stock-based compensation expense associated with Barstool Sports and our Kansas Entertainment JV.joint venture. We record our portion of Barstool Sports’ net income or loss, including adjustments to arrive at Adjusted EBITDAR, one quarter in arrears.
(7)Principally includesIncludes holding gains and losses on our equity securities, which are discussed in Note 15, “Fair Value Measurements.” Additionally, includesAlso consists of non-recurring acquisition and transaction costs, finance transformation costs associated with the implementation of our new Enterprise Resource Management system, other non-recurring transaction costs, and non-recurring restructuringdebt extinguishment and financing charges, (primarily severance) associated with a company-wide initiative, triggered by the COVID-19 pandemic, designed to (i) improve the operational effectiveness across our property portfolio; (ii) improve the effectiveness and efficiency of our Corporate functional support area.which are discussed in Note 8, “Long-term Debt.”
The table below presents capital expenditures by segment:
| | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended June 30, | | For the six months ended June 30, |
| (in millions) | 2021 | | 2020 | | 2021 | | 2020 |
| Capital expenditures: | | | | | | | |
| Northeast segment | $ | 20.8 | | | $ | 21.7 | | | $ | 36.2 | | | $ | 52.0 | |
| South segment | 6.3 | | | 3.8 | | | 8.1 | | | 7.8 | |
| West segment | 0 | | | 1.6 | | | 3.2 | | | 4.1 | |
| Midwest segment | 3.6 | | | 1.3 | | | 5.5 | | | 4.9 | |
| Other | 8.2 | | | 2.5 | | | 11.6 | | | 4.9 | |
| Total capital expenditures | $ | 38.9 | | | $ | 30.9 | | | $ | 64.6 | | | $ | 73.7 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended June 30, | | For the six months ended June 30, |
| (in millions) | 2022 | | 2021 | | 2022 | | 2021 |
| Capital expenditures: | | | | | | | |
| Northeast segment | $ | 25.1 | | | $ | 20.8 | | | $ | 55.7 | | | $ | 36.2 | |
| South segment | 16.6 | | | 6.3 | | | 36.3 | | | 8.1 | |
| West segment | 2.2 | | | — | | | 4.0 | | | 3.2 | |
| Midwest segment | 7.4 | | | 3.6 | | | 14.2 | | | 5.5 | |
| Interactive segment | 2.1 | | | 0.6 | | | 3.2 | | | 1.4 | |
| Other | 6.6 | | | 7.6 | | | 12.2 | | | 10.2 | |
| Total capital expenditures | $ | 60.0 | | | $ | 38.9 | | | $ | 125.6 | | | $ | 64.6 | |
The table below presents investment in and advances to unconsolidated affiliates and total assets by segment:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Northeast | | South | | West | | Midwest | | Other (1) | | Total |
| Balance sheet as of June 30, 2021 | | | | | | | | | | | |
Investment in and advances to unconsolidated affiliates (2) | $ | 0.1 | | | $ | 0 | | | $ | 0 | | | $ | 86.3 | | | $ | 190.9 | | | $ | 277.3 | |
| Total assets | $ | 2,059.5 | | | $ | 1,206.2 | | | $ | 414.7 | | | $ | 1,225.5 | | | $ | 10,172.3 | | | $ | 15,078.2 | |
| | | | | | | | | | | |
| Balance sheet as of December 31, 2020 | | | | | | | | | | | |
Investment in and advances to unconsolidated affiliates (2) | $ | 0.1 | | | $ | 0 | | | $ | 0 | | | $ | 85.2 | | | $ | 181.5 | | | $ | 266.8 | |
| Total assets | $ | 1,958.4 | | | $ | 1,165.4 | | | $ | 401.5 | | | $ | 1,161.1 | | | $ | 9,980.9 | | | $ | 14,667.3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Northeast | | South | | West | | Midwest | | Interactive | | Other (1) | | Total |
| Balance sheet as of June 30, 2022 | | | | | | | | | | | | | |
| Investment in and advances to unconsolidated affiliates | $ | 0.1 | | | $ | — | | | $ | — | | | $ | 82.4 | | | $ | 161.3 | | | $ | 6.5 | | | $ | 250.3 | |
| Total assets | $ | 2,228.7 | | | $ | 1,166.2 | | | $ | 381.8 | | | $ | 1,393.9 | | | $ | 2,526.4 | | | $ | 10,183.8 | | | $ | 17,880.8 | |
| | | | | | | | | | | | | |
| Balance sheet as of December 31, 2021 | | | | | | | | | | | | | |
| Investment in and advances to unconsolidated affiliates | $ | 0.1 | | | $ | — | | | $ | — | | | $ | 83.8 | | | $ | 164.4 | | | $ | 6.8 | | | $ | 255.1 | |
| Total assets | $ | 2,283.6 | | | $ | 1,224.6 | | | $ | 394.8 | | | $ | 1,215.8 | | | $ | 2,618.3 | | | $ | 9,135.0 | | | $ | 16,872.1 | |
(1)The real estate assets subject to the Master Leases, which are classified as either property and equipment, operating lease ROU assets, or finance lease ROU assets, are included within the Other category.
(2)Our investment in Barstool Sports is included within the Other category.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, the unaudited Consolidated Financial Statements and the notes thereto included in this Quarterly Report on Form 10-Q, and the Consolidated Financial Statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2020.
EXECUTIVE OVERVIEW
Our Business
On August 4, 2022, Penn National Gaming, Inc. was renamed PENN Entertainment, Inc., together with its subsidiaries (“Penn National,PENN,” the “Company,” “we,” “our,” or “us”), is aNorth America’s leading diversified, multi-jurisdictional ownerprovider of integrated entertainment, sports content, and managercasino gaming experiences. A member of gaming and racingthe S&P 500®, PENN operates 44 properties online gaming, retail andin 20 states, online sports betting operations,in 13 jurisdictions and video gaming terminal (“VGT”) operations. Our wholly-owned interactive division, Penn Interactive Ventures, LLC (“Penn Interactive”)iCasino in five, under a portfolio of well-recognized brands including Hollywood Casino®, operates retail sportsL'Auberge®, Barstool Sportsbook®, and theScore Bet®. PENN’s highly differentiated strategy, which is focused on organic cross-sell opportunities, is reinforced by its investments in owned technology, including a state-of-the-art media and betting across theplatform and an in-house iCasino content studio. The Company’s portfolio as well as online sports betting, online social casino, bingo and online casinos (“iGaming”). The Company holds a 36% (inclusive of 1% on a delayed basis) equity interest in Barstool Sports, Inc. (“Barstool Sports”), a leading digital sports, entertainment, lifestyle and media company, and entered into a strategic relationship with Barstool Sports, whereby Barstool Sports will exclusively promote the Company's land-based retail sportsbooks, iGaming products and online sports betting products, including the Barstool Sportsbook mobile app, tois further bolstered by its national audience. We launched an app called Barstool Sportsbook and Casino in Pennsylvania, Michigan, Illinois and Indiana, and anticipate extending this footprint to other states by the end of the year. Ourindustry-leading mychoice® customer loyalty program (the "my“mychoice program"program”) currently has, which offers its over 2026 million members a unique set of rewards and provides such members with various benefits, including complimentary goods and/or services. The Company’s strategy continues to evolve from an owner and manager of gaming and racing properties into an omni-channel provider of retail and online gaming, and sports betting entertainment.experiences across business channels.
As of June 30, 2021, we owned, managed, or had ownership interests in 41 gaming and racing properties in 19 states and were licensed to offer live sports betting at our properties in Colorado, Illinois, Indiana, Iowa, Michigan, Mississippi, Nevada, Pennsylvania and West Virginia. The majority of the real estate assets (i.e., land and buildings) used in our operations are subject to triple net master leases; the most significant of which are the PennPENN 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 will soon commence operations of two Category 4 satellite gaming casinos in Pennsylvania: Hollywood Casino York, which is scheduled to open August 12, 2021, and Hollywood Casino Morgantown is expected to commence operations by the end of 2021.Update on the Impact of the COVID-19 Pandemic: As of June 30, 2021, all of our properties have reopened, and majority of our properties are operating at full capacity while adhering to state mandated health and safety protocols.
Recent Acquisitions, Development Projects and Other
In FebruaryOn April 16, 2020, we closed onsold the real estate assets associated with the operations of Tropicana Las Vegas Hotel and Casino, Inc. (“Tropicana”) to GLPI in exchange for rent credits of $307.5 million, and utilized the rent credits to pay rent under our investmentexisting Master Leases and the Meadows Racetrack and Casino Lease, beginning in Barstool Sports pursuant toMay 2020. On January 11, 2022, PENN entered into a stockdefinitive purchase agreement with Barstool Sportsto sell its outstanding equity interest in Tropicana, which has the gaming license and certain stockholdersoperates the Tropicana, to Bally’s Corporation (“Bally’s”). This transaction is expected to close within the second half 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 $62.0 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,2022, subject to such cap, 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 yearsPENN, GLPI, and have the sole right to utilize the Barstool Sports brand for all of our onlineBally’s entering into definitive agreements and retail sports betting and iGaming products.
As noted above, Penn Interactive operates the Barstool Sports mobile app in Pennsylvania, Michigan, Illinois and Indiana. 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.obtaining regulatory approval.
On May 11, 2021, we acquired 100% of the outstanding equity of HitPoint Inc. and Lucky Point Inc. (collectively, “Hitpoint”). The purchase price totaled $12.7 million, consisting of $6.2 million in cash, $3.5 million of the Company'sCompany’s common equity, and a $3.0 million contingent liability. The contingent liability is payable in annual installments over three
years, through a combination of cash and the Company's common equity, and is based on achievement of certain performance factors. The preliminary purchase price allocation resulted in recognition of $8.5 million of goodwill, $4.3 million in developed technology which is included in "Other intangible assets, net" within the unaudited Consolidated Balance Sheets, along with other miscellaneous operating assets and liabilities.
On April 16, 2020, we sold the real estate assets associated with our Tropicana Las Vegas Hotel and Casino, Inc. ("Tropicana") property to GLPI in exchange for rent credits of $307.5 million and utilized them to pay rent under our existing Master Leases and the Meadows Racetrack and Casino Lease (as defined in Note 9, "Leases" of our unaudited Consolidated Financial Statements,) beginning in May 2020. Contemporaneous with the sale, the Company entered into the Tropicana Lease (as defined and discussed in Note 9, "Leases" of our unaudited Consolidated Financial Statements ). Pursuant to the purchase agreement, GLPI would conduct a sale process with respect to both the real estate assets and the operations of Tropicana for up to 24 months (the “Sale Period”), with the Company receiving (i) 75% of the proceeds above $307.5 million plus certain taxes, expenses and costs if an agreement for such sale is signed in the first 12 months of the Sale Period or (ii) 50% of the proceeds above $307.5 million plus certain taxes, expenses and costs if an agreement for such sale is signed in the remainder of the Sale Period.On April 13,July 1, 2021, GLPI announced that it entered into a binding term sheet with Bally’s Corporation (“Bally’s”) whereby Bally’s plans to acquire both GLPI’s non-land real estate assets and Penn’s outstanding equity interests in Tropicana, which haswe completed the gaming license and operates the Tropicana, for an aggregate cash acquisition price of $150.0 million. GLPI will retain ownership of the land and will concurrently enter into a 50-year ground lease with initial annual rent of $10.5 million. This transaction is expected to close in late 2021 or early 2022, subject to Penn, GLPI and Bally's entering into definitive agreements and obtaining regulatory approval.
On December 15, 2020, we entered into a definitive agreement with GLPI to purchase the operations of Hollywood Casino Perryville (“Perryville”), from GLPI for $31.1 million. The transaction closed on July 1, 2021.a purchase price of $39.4 million, including working capital adjustments. Simultaneous with the closing, we entered into a lease with GLPI for the real estate assets associated with Hollywood Casino Perryville for initial annual rent of $7.8 million per year subject to escalation.
On March 15,August 1, 2021, we entered into a purchase agreement with PM Texas Holdings, LLC forcompleted the purchaseacquisition of the remaining 50% ownership interest in the Sam Houston Race Park in Houston, Texas, the Valley Race Park in Harlingen, Texas, and a license to operate a racetrack in Austin, Texas. TheTexas (collectively, “Sam Houston”), from PM Texas Holdings, LLC for a purchase price consists of $56.0$57.8 million,, comprised of $42.0 million in cash and $14.0$15.8 million of the Company'sCompany’s common equity, as well as a contingent consideration. The contingent consideration will be triggered in the event the State of Texas establishes a statutory framework authorizing land-based gaming or online gaming operations in the state prior to the ten-year anniversary of the closing date. The transaction closed August 1, 2021.
On August 4,October 19, 2021, we entered into an agreement withacquired 100% of Score Media and Gaming, Inc., (“theScore”) for a British Columbia corporation (“theScore”), under which we will acquire theScore in a cashpurchase price of approximately $2.1 billion. The acquisition provides us with the technology, resources and stock transaction valued at approximately $2.0 billion at the agreement date.audience reach to accelerate our media and sports betting strategy across North America. Under the terms of the agreement, 1317774 B.C. Ltd. (the “Purchaser”), an indirectly wholly owned subsidiary of PENN, acquired each of the issued and outstanding theScore shareholders will receive (a)shares (other than those held by PENN and its subsidiaries) for US$17.00 per share in cash consideration, totaling $0.9 billion, and (b)either 0.2398 of a share of common stock, par value $0.01 perof PENN Common Stock or, if validly elected, 0.2398 of an exchangeable share in the capital of the Purchaser (each whole share, an “Exchangeable Share”), totaling 12,319,340 shares of PENN Common Stock and 697,539 Exchangeable Shares for approximately $1.0 billion. Each Exchangeable Share will be exchangeable into one share of PENN Common Stock at the Company’s common equity for each theScore share. The agreement is conditioned upon obtaining theScore shareholders’ approval and isoption of the holder, subject to regulatory approval.certain adjustments. In addition,
Purchaser may redeem all outstanding Exchangeable Shares in exchange for shares of PENN Common Stock at any time following the fifth anniversary of the closing, or earlier under certain circumstances.
We believe that our portfolio of assets provides us with the benefit of geographically-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. In addition, the partnership with Barstool Sports, Inc. (“Barstool Sports”) and the acquisition of theScore reflect our strategy to continue evolving from the nation’s largest regional gaming operator to a best-in-class omni-channel provider of retail and online gaming and sports betting entertainment.
Operating and Competitive Environment
Most of our properties operate in mature, competitive markets. We expect that the majority of our future growth will come from new business lines or distribution channels, such as retail and online gaming and sports betting; entrance into new jurisdictions; expansions of gaming in existing jurisdictions; and, to a lesser extent, improvements/expansions of our existing properties and strategic acquisitions of gaming properties. Our portfolio is comprised largely of well-maintained regional gaming facilities, which has allowed us to develop what we believe to be a solid base for future growth opportunities. We have also made investments in joint ventures that we believe will 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.
As the COVID-19 pandemic evolves, weWe continue to adjust operations and cost structures at our properties to reflect the changing economic and health and safety conditions. We also continue to focus on 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 expandgrow our customer database by partnering with third-party operators such as Choice Hotels International, Inc. to expand our loyalty program, as well as through accretive acquisitionsinvestments or investments,acquisitions, such as Barstool Sports and theScore, 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 iGamingiCasino 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;“iGaming” (which includes online sports betting and online social casino, bingo, and iCasino products); online and retail sports betting;
sports media companies; gaming at taverns; gaming at truck stop establishments; sweepstakes and poker machines not located in casinos; the potential for increased fantasy
sports,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 three and six months ended June 30, 2022 and 2021” section below for discussions of the impact of competition on our results of operations by reportable segment.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 brought about by weakened general economic conditions, such as lackluster recoveries from recessions, inflation, rising interest rate environments, high unemployment levels, higher income taxes, low levels of consumer confidence, weakness in the housing market, high fuel or other transportation costs, and most recently, the effects of the COVID-19 pandemic. 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 85%83% and 89%85% of our gaming revenue for the six months ended June 30, 20212022 and 2020)2021) and, to a lesser extent, table games and sports betting. Aside from gaming revenue, our revenues are primarily derived from our hotel, dining, retail, commissions, program sales, admissions, concessions and certain other 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%11% of slot handle, and our typical table game hold percentage is in the range of approximately 14%15% 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, our table game hold percentages are fairly stable assince 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 slot machines, table games, and pari-mutuel wagering. Our business is capital intensive, and we rely on cash flow from our properties 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, repurchase our common stock, 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 have aggregated our operating segments into five reportable segments. Retail operating segments are based on the similar characteristics within the regions in which they operate: Northeast, South, West, and Midwest. Our Interactive segment includes all of our iCasino and online sports betting operations, management of retail sports betting, media, and our proportionate share of earnings attributable to our equity method investment in Barstool Sports. 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 VGTVideo Gaming Terminal (“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 unaudited Consolidated Financial Statements.
RESULTS OF OPERATIONS
The following table highlights our revenues, net income, (loss), and Adjusted EBITDA, on a 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 most 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 EBITDA margin, Adjusted EBITDAR, and Adjusted EBITDAR margin; as well as a reconciliation of net income (loss) to Adjusted EBITDA and Adjusted EBITDAR and related margins.
| | | | For the three months ended June 30, | | | For the six months ended June 30, | | For the three months ended June 30, | | For the six months ended June 30, |
| (dollars in millions) | 2021 | | 2020 | | | 2021 | | 2020 | |
| | | 2022 | | 2021 | | 2022 | | 2021 |
| Revenues: | Revenues: | | | | | | | | | Revenues: | | | | | | | |
| Northeast segment | Northeast segment | $ | 652.5 | | $ | 102.7 | | | $ | 1,223.4 | | $ | 623.4 | Northeast segment | $ | 684.9 | | $ | 652.5 | | $ | 1,343.4 | | $ | 1,223.4 |
| South segment | South segment | 368.2 | | 121.5 | | | 664.1 | | 344.8 | South segment | 338.6 | | 368.2 | | 680.0 | | 664.1 |
| West segment | West segment | 140.4 | | 17.7 | | | 237.0 | | 144.3 | West segment | 153.8 | | 140.4 | | 294.7 | | 237.0 |
| Midwest segment | Midwest segment | 294.8 | | 36.0 | | | 529.5 | | 264.1 | Midwest segment | 296.3 | | 294.8 | | 579.2 | | 529.5 |
| Interactive segment | | Interactive segment | 154.9 | | 96.0 | | 296.4 | | 182.3 |
Other (1) | Other (1) | 97.7 | | 27.6 | | | 185.6 | | 47.9 | Other (1) | 5.9 | | 1.7 | | 13.2 | | 3.3 |
Intersegment eliminations (2) | Intersegment eliminations (2) | (7.8) | | — | | | (18.9) | | (2.9) | Intersegment eliminations (2) | (7.5) | | (7.8) | | (15.8) | | (18.9) |
| Total | Total | $ | 1,545.8 | | $ | 305.5 | | | $ | 2,820.7 | | $ | 1,421.6 | Total | $ | 1,626.9 | | $ | 1,545.8 | | $ | 3,191.1 | | $ | 2,820.7 |
| | Net income (loss) | $ | 198.7 | | $ | (214.4) | | | $ | 289.6 | | $ | (823.0) | |
| Net income | | Net income | $ | 26.1 | | $ | 198.7 | | $ | 77.7 | | $ | 289.6 |
| | Adjusted EBITDAR: | Adjusted EBITDAR: | | | | | | | | | Adjusted EBITDAR: | | | | | | | |
| Northeast segment | Northeast segment | $ | 231.6 | | $ | (3.6) | | | $ | 424.8 | | $ | 120.9 | Northeast segment | $ | 214.4 | | $ | 231.6 | | $ | 419.6 | | $ | 424.8 |
| South segment | South segment | 177.1 | | 44.4 | | | 311.0 | | 97.0 | South segment | 143.3 | | 177.1 | | 289.8 | | 311.0 |
| West segment | West segment | 61.4 | | (3.0) | | | 96.6 | | 21.6 | West segment | 59.7 | | 61.4 | | 110.9 | | 96.6 |
| Midwest segment | Midwest segment | 142.2 | | (4.6) | | | 248.2 | | 64.9 | Midwest segment | 131.3 | | 142.2 | | 256.8 | | 248.2 |
| Interactive segment | | Interactive segment | (20.8) | | 1.2 | | (30.8) | | 2.5 |
Other (1) | Other (1) | (25.7) | | (8.7) | | | (47.0) | | (27.6) | Other (1) | (23.4) | | (26.9) | | (47.1) | | (49.5) |
| Total (3) | Total (3) | 586.6 | | 24.5 | | | 1,033.6 | | 276.8 | Total (3) | 504.5 | | 586.6 | | 999.2 | | 1,033.6 |
Rent expense associated with triple net operating leases (4) | Rent expense associated with triple net operating leases (4) | (116.5) | | (103.8) | | | (226.9) | | (201.3) | Rent expense associated with triple net operating leases (4) | (28.0) | | (116.5) | | (88.1) | | (226.9) |
Adjusted EBITDA (3) | $ | 470.1 | | $ | (79.3) | | | $ | 806.7 | | $ | 75.5 | |
| Adjusted EBITDA | | Adjusted EBITDA | $ | 476.5 | | $ | 470.1 | | $ | 911.1 | | $ | 806.7 |
| | Net income (loss) margin | 12.9 | % | | (70.2) | % | | | 10.3 | % | | (57.9) | % | |
Adjusted EBITDAR margin (3) | 37.9 | % | | 8.0 | % | | | 36.6 | % | | 19.5 | % | |
| Net income margin | | Net income margin | 1.6 | % | | 12.9 | % | | 2.4 | % | | 10.3 | % |
Adjusted EBITDAR margin | | Adjusted EBITDAR margin | 31.0 | % | | 37.9 | % | | 31.3 | % | | 36.6 | % |
Adjusted EBITDA margin | Adjusted EBITDA margin | 30.4 | % | | (26.0) | % | | | 28.6 | % | | 5.3 | % | Adjusted EBITDA margin | 29.3 | % | | 30.4 | % | | 28.6 | % | | 28.6 | % |
(1)The Other category consists of the Company’s stand-alone racing operations, namely Sanford-Orlando Kennel Club, and Sam Houston and Valley Race Parks (the remaining 50% was acquired by PENN on August 1, 2021), the Company’s joint venture interests in Sam Houston Race Park, Valley Race Park,Freehold Raceway, 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 our social gaming, internally-branded retail sportsbooks, iGaming and our Barstool Sports mobile app.Racetrack. Expenses incurred for corporate and shared services activities that are directly attributable to a property or are otherwise incurred to support a property are allocated to each property. 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, Adjusted EBITDAR of the Other category includes our proportionate share of the net 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)Primarily represents the elimination of intersegment revenues associated with our internally-branded retail sportsbooks, which are operated by PennPENN Interactive.
(3)The total is a mathematical calculation derived from the sum of reportable segments (as well as the Other 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 operating lease components contained within our triple net master lease dated November 1, 2013 with GLPI and the triple net master lease assumed in connection with our acquisition of Pinnacle Entertainment, Inc. (primarily land), our individual triple net leases with GLPI for the real estate assets used in the operation of Tropicana and Hollywood Casino at Meadows Racetrack, and Casino, and our
individual triple net leases with VICI Properties Inc. (NYSE: VICI) (“VICI”) for the real estate assets used in the operations of Margaritaville Casino Resort and
Hollywood Casino at Greektown Casino-Hotel (of which the Tropicana Lease, Meadows Lease, Margaritaville Lease and the Greektown Lease are defined in “Liquidity and Capital Resources”) and are referred to collectively as our “triple net operating leases”. The finance lease As a result of the Lease Modification defined in Note 9, “Leases” to our unaudited Consolidated Financial Statements, the land and building components contained within the Master Leases (primarily buildings) and the financing obligation associated with the Morgantown Lease (as defined in “Liquidityoperations of Hollywood Gaming at Dayton Raceway and Capital Resources”) result in interestHollywood Gaming at Mahoning Valley Race Course are classified as operating leases which is recorded to rent expense, as opposedcompared to prior to the Lease Modification, whereby the land components of substantially all of the Master Lease properties were classified as operating leases and recorded to rent expense.
Consolidated comparison of the three and six months ended June 30, 20212022 and 2020.2021.
Revenues
The following table presents our consolidated revenues:
| | | | For the three months ended June 30, | | Change | | For the six months ended June 30, | | Change | | For the three months ended June 30, | | Change | | For the six months ended June 30, | | Change |
| (dollars in millions) | (dollars in millions) | 2021 | | 2020 | | $ | | % | | 2021 | | 2020 | | $ | | % | (dollars in millions) | 2022 | | 2021 | | $ | | % | | 2022 | | 2021 | | $ | | % |
| Revenues | Revenues | | | | | | | | | | | | | | | | Revenues | | | | | | | | | | | | | | | |
| Gaming | Gaming | $ | 1,305.5 | | | $ | 259.2 | | | $ | 1,046.3 | | | 403.7 | % | | $ | 2,387.5 | | | $ | 1,162.1 | | | $ | 1,225.4 | | | 105.4 | % | Gaming | $ | 1,325.6 | | | $ | 1,305.5 | | | $ | 20.1 | | | 1.5 | % | | $ | 2,616.8 | | | $ | 2,387.5 | | | $ | 229.3 | | | 9.6 | % |
| Food, beverage, hotel and other | Food, beverage, hotel and other | 240.3 | | | 46.3 | | | 194.0 | | | 419.0 | % | | 433.2 | | | 259.5 | | | 173.7 | | | 66.9 | % | Food, beverage, hotel and other | 301.3 | | | 240.3 | | | 61.0 | | | 25.4 | % | | 574.3 | | | 433.2 | | | 141.1 | | | 32.6 | % |
| Total revenues | Total revenues | $ | 1,545.8 | | | $ | 305.5 | | | $ | 1,240.3 | | | 406.0 | % | | $ | 2,820.7 | | | $ | 1,421.6 | | | $ | 1,399.1 | | | 98.4 | % | Total revenues | $ | 1,626.9 | | | $ | 1,545.8 | | | $ | 81.1 | | | 5.2 | % | | $ | 3,191.1 | | | $ | 2,820.7 | | | $ | 370.4 | | | 13.1 | % |
Gaming revenues for the threethree and six months ended June 30, 20212022 increased $1,046.3$20.1 million compared to the prior year period primarily due to increases in our Interactive segment and $1,225.4the inclusion of the operating results of three new properties, partially offset by decreases in gaming revenues in our South segment and Northeast segment properties in both current and prior year periods. Gaming revenues include Hollywood Casino Perryville, which was acquired on July 1, 2021; Hollywood Casino York, which opened August 12, 2021; and Hollywood Casino Morgantown, which opened December 22, 2021.
Gaming revenues for the six months ended June 30, 2022 increased $229.3 million respectively, compared to the prior year corresponding periods, period,primarily due to a full quarterincreases in our Interactive segment resulting from continued growth in our online and sports betting revenues, as well as the inclusion of the operating results in the current periods, strong visitation levels, and increased length of play. The prior year periods were negatively impacted by the COVID-19 pandemic, which caused temporary closures of all of ourthree new properties during the three and six months ended June 30, 2020.discussed above.
Food, beverage, hotel and other revenues for the three and six months ended June 30, 20212022 increased $194.0$61.0 million and $173.7$141.1 million, respectively, compared to the prior year corresponding periods, primarily due to easing of restrictions, strong visitation levels among all age groups, and increased lengthofferings and hours of play,operations, as well as the inclusion of the operating results from our three new properties as discussed above, and lifting of capacity and operational restrictions previously in place in response to the COVID-19 pandemic. Additionally, other revenues include a gross-up of gaming tax reimbursement amounts derived from arrangementstheScore, which allow for our third party partners to operate online casinos and online sportsbooks under our gaming licenses of $46.0 million and $85.5 million forwas acquired on October 19, 2021.
During the three and six months ended June 30, 2021, respectively. The prior year periods, food, beverage, hotel and other revenues were negatively impacted by the COVID-19 pandemic, which caused temporary closures of all ofas our properties during the three and six months ended June 30, 2020. Additionally during 2020, upon reopening our properties operated within locally restrictedlocally-restricted gaming capacity and limited food and beverage, hotel capacity, and other amenity offerings.offerings.
For the six month period ended June 30, 2021, our properties experienced strong visitation levels and increased length of play across all age segments of our player database, attributable to the increased willingness of the 55+ age group to engage in social gatherings as vaccines continue to roll out across the country and the younger demographic’s continued engagement even as other entertainment options become available. In addition, our unrated play continues to perform well as we work to introduce these customers into our mychoice loyalty program. See “Segment comparison of the three and six months ended June 30, 20212022 and 2020”2021” below for more detailed explanations of the fluctuations in revenues.Operating expenses
The following table presents our consolidated operating expenses:
| | | | For the three months ended June 30, | | | Change | | For the six months ended June 30, | | Change | | For the three months ended June 30, | | Change | | For the six months ended June 30, | | Change |
| (dollars in millions) | (dollars in millions) | 2021 | | 2020 | | | $ | | % | | 2021 | | 2020 | | $ | | % | (dollars in millions) | 2022 | | 2021 | | $ | | % | | 2022 | | 2021 | | $ | | % |
| Operating expenses | Operating expenses | | | | | | | | | | | | | | | | | Operating expenses | | | | | | | | | | | | | | | |
| Gaming | Gaming | $ | 620.9 | | | $ | 142.0 | | | | $ | 478.9 | | | 337.3 | % | | $ | 1,148.7 | | | $ | 642.9 | | | $ | 505.8 | | | 78.7 | % | Gaming | $ | 713.6 | | | $ | 620.9 | | | $ | 92.7 | | | 14.9 | % | | $ | 1,400.2 | | | $ | 1,148.7 | | | $ | 251.5 | | | 21.9 | % |
| Food, beverage, hotel and other | Food, beverage, hotel and other | 148.6 | | | 32.9 | | | | 115.7 | | | 351.7 | % | | 271.7 | | | 189.9 | | | 81.8 | | | 43.1 | % | Food, beverage, hotel and other | 186.8 | | | 148.6 | | | 38.2 | | | 25.7 | % | | 358.7 | | | 271.7 | | | 87.0 | | | 32.0 | % |
| General and administrative | General and administrative | 316.5 | | | 204.1 | | | | 112.4 | | | 55.1 | % | | 642.7 | | | 511.1 | | | 131.6 | | | 25.7 | % | General and administrative | 273.8 | | | 316.5 | | | (42.7) | | | (13.5) | % | | 569.3 | | | 642.7 | | | (73.4) | | | (11.4) | % |
| Depreciation and amortization | Depreciation and amortization | 81.9 | | | 91.9 | | | | (10.0) | | | (10.9) | % | | 163.2 | | | 187.6 | | | (24.4) | | | (13.0) | % | Depreciation and amortization | 150.3 | | | 81.9 | | | 68.4 | | | 83.5 | % | | 268.5 | | | 163.2 | | | 105.3 | | | 64.5 | % |
| Impairment losses | — | | | — | | | | — | | | — | % | | — | | | 616.1 | | | (616.1) | | | (100.0) | % | |
| | Total operating expenses | Total operating expenses | $ | 1,167.9 | | | $ | 470.9 | | | | $ | 697.0 | | | 148.0 | % | | $ | 2,226.3 | | | $ | 2,147.6 | | | $ | 78.7 | | | 3.7 | % | Total operating expenses | $ | 1,324.5 | | | $ | 1,167.9 | | | $ | 156.6 | | | 13.4 | % | | $ | 2,596.7 | | | $ | 2,226.3 | | | $ | 370.4 | | | 16.6 | % |
Gaming expenses consist primarily of salariespayroll, marketing and wagespromotional expenses associated with our gaming operations and gaming taxes. Gaming expenses for the three and six months ended June 30, 20212022 increased $478.9$92.7 million and $505.8$251.5 million, respectively, compared to the prior year corresponding periods, primarilyprimarily due to an increase in gaming taxes resulting from the increase in gaming revenues, as discussed above. Additionally, during the threehigher payroll expenses related to volume increases in addition to variable marketing and six months ended June 30, 2020, our properties were temporarily closed as a result of the COVID-19 pandemic,promotional expenses, which reduced our gaming taxes, marketing expenses, and salaries and wages.remain below pre-pandemic levels.
Food, beverage, hotel and other expenses consist primarily of salaries and wagespayroll expenses and costs of goods sold associated with our food, beverage, hotel, retail, racing, and otherinteractive operations. Also included in other expenses are gaming taxes of $46.0 million and $85.5 million for the three and six months ended June 30, 2021, respectively, on revenues derived from arrangements which allow for third party partners to operate online casinos and online sportsbooks under our gaming licenses for which we collect and remit applicable gaming taxes. Food, beverage, hotel and other expenses for the three and six months ended June 30, 20212022 increased $115.7$38.2 million and $81.8$87.0 million, respectively, compared to the prior year corresponding periods, primarily due to the inclusionincreased volumes as we operated with increased offerings and extended hours of the gaming taxesoperations, which resulted in the currentincreases in payroll expenses and cost of sales. The prior year periods discussed above,were impacted by reduced hotel capacity and due to continued revenue recovery in food, beverage, hotel and other activity as various health and safety restrictions are relaxed or lifted. In response to the COVID-19 pandemic, we implemented cost saving measures such as: operating with a reduced workforce, focusing on higher margin gaming offerings, reducing marketing costs, and limiting certain lower marginlimited food and beverage offerings which reduced our salaries and wages, costs of goods sold, and other expenses which helped mitigate our food, beverage, hotel and other expenses during the first six months of 2021 as compared to the previous year corresponding periods.options.
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 expenses; acquisition and transaction costs; gains and losses on disposal of assets; insurance recoveries, net of deductible charges; 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.
For the three and sixmonths ended June 30, 2021,2022, general and administrative expenses increased period over perioddecreased by $42.7 million and $73.4 million respectively, primarily due to a $70.6decrease in rent costs associated with our Master Leases of $88.5 million increaseand $138.8 million respectively, representing changes in payroll expenses as minimal payroll costs were incurredlease classifications from operating to finance as a result of property closures duringthe Lease Modification as described in Note 9, “Leases” to our unaudited Consolidated Financial Statements. The decrease was offset by increased payroll costs of $13.3 million and $33.0 million, and increased facility costs due to increased volumes of $10.4 million and $23.8 million, in each respective period. In addition, general and administrative expenses include a $6.4 million loss on the sale of land for the three months ended June 30, 2020, and a $12.7 million increase in rent expenses associated with our triple net operating leases, offset by a $28.5 million decrease associated with the Company’s cash-settled stock-based awards. Additionally, the prior year quarter included a $28.5 million gain on disposal of capital assets related to sale of our Tropicana property in April 2020. For the six months ended June 30, 2021, general and administrative expenses increased period over period primarily due to an increase of $49.2 million in payroll expenses as minimal payroll costs were incurred as a result of property closures during the six months ended June 30, 2020, a $25.6 million increase in rent expenses associated with our triple net operating leases, principally related to the Tropicana Lease, and the inclusion of the gain on the sale of our Tropicana property discussed above.2022.
Depreciation and amortization for the three and six months ended June 30, 2021 decreased2022 increased period over period primarily due to fixed assetsincreased amortization costs associated with our Master Leases of $46.7 million and intangible assets becoming fully depreciated and amortized, and the sale$76.9 million, respectively, representing changes in lease classifications from operating to finance as a result of the real estate assets of TropicanaLease Modification as described in April 2020.
Impairment losses Note 9, “Leases” to our unaudited Consolidated Financial Statements. In addition, for the sixthree and six months ended June 30, 2020 primarily relates to impairments taken2022, amortization on our goodwill and other intangible assets of $113.0increased by $12.4 million and $498.5$25.2 million respectively, as a resultprimarily due to the amortization of an interim impairment assessment during the first quarter of 2020. During the first quarter of 2020, we identified an indicator of impairment triggeredother intangible assets held by the COVID-19 pandemic, which caused all of our gaming properties to temporarily close. There were no impairment losses during the three and theScore.six months ended June 30, 2021.
Other income (expenses)
The following table presents our consolidated other income (expenses):
| | | | For the three months ended June 30, | | | Change | | | For the six months ended June 30, | | Change | | For the three months ended June 30, | | Change | | For the six months ended June 30, | | Change |
| (dollars in millions) | (dollars in millions) | 2021 | | 2020 | | | $ | | % | | | 2021 | | 2020 | | $ | | % | (dollars in millions) | 2022 | | 2021 | | $ | | % | | 2022 | | 2021 | | $ | | % |
| Other income (expenses) | Other income (expenses) | | | | | | | | | | | | | | | | | | Other income (expenses) | | | | | | | | | | | | | | | |
| Interest expense, net | Interest expense, net | $ | (138.0) | | | $ | (135.0) | | | | $ | (3.0) | | | 2.2 | % | | | $ | (273.7) | | | $ | (264.8) | | | $ | (8.9) | | | 3.4 | % | Interest expense, net | $ | (193.6) | | | $ | (138.0) | | | $ | (55.6) | | | 40.3 | % | | $ | (354.4) | | | $ | (273.7) | | | $ | (80.7) | | | 29.5 | % |
| Income from unconsolidated affiliates | Income from unconsolidated affiliates | $ | 9.1 | | | $ | (1.7) | | | | $ | 10.8 | | | N/M | | | $ | 18.7 | | | $ | 2.4 | | | $ | 16.3 | | | 679.2 | % | Income from unconsolidated affiliates | $ | 1.8 | | | $ | 9.1 | | | $ | (7.3) | | | (80.2) | % | | $ | 10.5 | | | $ | 18.7 | | | $ | (8.2) | | | (43.9) | % |
| | Other | Other | $ | 2.8 | | | $ | 29.3 | | | | $ | (26.5) | | | (90.4) | % | | | $ | 23.9 | | | $ | 7.5 | | | $ | 16.4 | | | 218.7 | % | Other | $ | (28.2) | | | $ | 2.8 | | | $ | (31.0) | | | N/M | | $ | (68.9) | | | $ | 23.9 | | | $ | (92.8) | | | N/M |
| Income tax benefit (expense) | $ | (53.1) | | | $ | 58.4 | | | | $ | (111.5) | | | N/M | | | $ | (73.7) | | | $ | 157.9 | | | $ | (231.6) | | | N/M | |
| Income tax expense | | Income tax expense | $ | (56.3) | | | $ | (53.1) | | | $ | (3.2) | | | 6.0 | % | | $ | (103.9) | | | $ | (73.7) | | | $ | (30.2) | | | 41.0 | % |
Interest expense, net increased for the three and six months ended June 30, 2021,2022 as compared to the prior year corresponding periods, primarily due to ana net increase in Master Lease interest expense relatedcosts due to changes in lease classifications as a result of the issuance of our 2.75% Convertible NotesLease Modification as described in May, 2020 and interest expense relatedNote 9, “Leases” to our Other long-term obligations.unaudited Consolidated Financial Statements of $51.9 million and $74.7 million respectively. Income from unconsolidated affiliates relates principally to our investment in Barstool Sports, and our Kansas Entertainment and Freehold Raceway joint venture.ventures. The increasedecrease for the three and six months ended June 30, 2021, as2022, compared to the prior year corresponding periods, wasis due to ongoing positive results in the operations at Hollywood Casino at Kansas Speedway, which was closed for a period during the three and six months ended June 30, 2020, andlower income earned from our Barstool Sports investment, which we completedinvestments in February, 2020.unconsolidated affiliates. We record our proportionate share of Barstool Sports'Sports’ net income or loss one quarter in arrears.
Other includes miscellaneous income and expense items and primarily relates to realized and unrealized gains and losses on equity securities (including warrants), held by PennPENN Interactive, andlosses on early retirement of debt, unrealized gains and losses related to certain Barstool Sports shares. Theshares as well as miscellaneous income and expense items. Equity securities arewere provided to the Company in conjunction with entering into multi-year agreements with sports betting operators for online sports betting and related iGamingiCasino market access across our portfolio. DuringFor the three mthree and six monthsonths ended June 30, 2021 we recorded an2022, other income primarily consisted of unrealized holding losses of $16.9 million as well as a $10.4 million loss on the early extinguishment of $7.4 milliondebt in connection with refinancing our Senior Secured Credit Facilities, as described in “Liquidity and an unrealized holding gain of $18.8 million, respectively, compared to unrealized holding gains of $29.5 million and $7.7 million for the Capital Resources.”three and six months ended June 30, 2020, respectively. During For the three monthsmonths ended June 30, 2021 the, other income primarily consisted of unrealized holding losses of $7.4 million, unrealized holding loss was offset by a $5.8 million unrealized gain related to certain Barstool Sports shares and other miscellaneous income. For the six months ended June 30, 2022, other income primarily consisted of unrealized holding losses of $55.6 million on equity shares, as well as the loss on the early extinguishment of debt described above, compared to an unrealized holding gain on equity shares (including warrants) of $18.8 million for the six months ended June 30, 2021.
Income tax benefit (expense)expense was a $53.1$56.3 million and $73.7$103.9 million expense for the three and six months ended June 30, 2021,2022, respectively, as compared to a $58.4$53.1 million and $157.9$73.7 million benefitexpense for the three and six months ended June 30, 2020, respectively.2021. Our effective tax rate (income taxes as a percentage of income or loss from operations before income taxes) including discrete items was 68.3% and 57.2% for the three and six months ended June 30, 2022 as compared to 21.1% and 20.3% for the three and six months ended June 30, 2021 respectively, as compared to 21.4% and 16.1% for the three and six months ended June 30, 2020,, respectively. The change in the effective rate for the six months ended June 30, 20212022 as compared to the prior year period was primarily due to the decrease in income before taxes as well as an increase of pre-tax income.in the valuation allowance attributed to the Lease Modification.
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.
Segment comparison of the three and six months ended June 30, 20212022 and 20202021
Northeast Segment
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended June 30, | | | | Change | | | | | | For the six months ended June 30, | | Change |
| (dollars in millions) | 2021 | | 2020 | | | | $ | | % | | | | | | 2021 | | 2020 | | $ | | % |
| Revenues | | | | | | | | | | | | | | | | | | | | | |
| Gaming | $ | 602.5 | | | $ | 94.1 | | | | | $ | 508.4 | | | 540.3 | % | | | | | | $ | 1,129.5 | | | $ | 552.8 | | | $ | 576.7 | | | 104.3 | % |
| Food, beverage, hotel and other | 50.0 | | | 8.6 | | | | | 41.4 | | | 481.4 | % | | | | | | 93.9 | | | 70.6 | | | 23.3 | | | 33.0 | % |
| Total revenues | $ | 652.5 | | | $ | 102.7 | | | | | $ | 549.8 | | | 535.3 | % | | | | | | $ | 1,223.4 | | | $ | 623.4 | | | $ | 600.0 | | | 96.2 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Adjusted EBITDAR | $ | 231.6 | | | $ | (3.6) | | | | | $ | 235.2 | | | N/M | | | | | | $ | 424.8 | | | $ | 120.9 | | | $ | 303.9 | | | 251.4 | % |
| Adjusted EBITDAR margin | 35.5 | % | | (3.5) | % | | | | | | 3,900 bps | | | | | | 34.7 | % | | 19.4 | % | | | | 1,530 bps |
N/M - Not meaningful | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended June 30, | | Change | | For the six months ended June 30, | | Change |
| (dollars in millions) | 2022 | | 2021 | | $ | | % | | 2022 | | 2021 | | $ | | % |
| Revenues | | | | | | | | | | | | | | | |
| Gaming | $ | 621.4 | | | $ | 602.5 | | | $ | 18.9 | | | 3.1 | % | | $ | 1,220.5 | | | $ | 1,129.5 | | | $ | 91.0 | | | 8.1 | % |
| Food, beverage, hotel and other | 63.5 | | | 50.0 | | | 13.5 | | | 27.0 | % | | 122.9 | | | 93.9 | | | 29.0 | | | 30.9 | % |
| Total revenues | $ | 684.9 | | | $ | 652.5 | | | $ | 32.4 | | | 5.0 | % | | $ | 1,343.4 | | | $ | 1,223.4 | | | $ | 120.0 | | | 9.8 | % |
| | | | | | | | | | | | | | | |
| Adjusted EBITDAR | $ | 214.4 | | | $ | 231.6 | | | $ | (17.2) | | | (7.4) | % | | $ | 419.6 | | | $ | 424.8 | | | $ | (5.2) | | | (1.2) | % |
| Adjusted EBITDAR margin | 31.3 | % | | 35.5 | % | | | | -420 bps | | 31.2 | % | | 34.7 | % | | | | -350 bps |
The NortheastNortheast segment’s revenues for the three months ended June 30, 2022 increased by $32.4 million over the prior year corresponding period, primarily due to the inclusion of operating results from our three new properties: Hollywood Casino Perryville, Hollywood Casino York, and Hollywood Casino Morgantown. The revenue increases resulting from the inclusion of our new properties were partially offset by decreases in gaming revenues in our properties with operations in both current and prior year periods. Additionally, operating results at our Ameristar East Chicago property were negatively impacted by increased competition as a new property opened in Northern Indiana in May of 2021.
The Northeast segment’s revenues for the six months ended June 30, 20212022 increased by $549.8$120.0 million and $600.0 million, respectively, over the prior year corresponding periods,period, primarily due to a full quarterthe inclusion of operating results from our three new properties, as discussed above, and increases in food, beverage, hotel and other revenues as we operated with increased offerings and extended hours of operations, partially offset by decreases in gaming revenues in our properties with operations in both current and prior year periods.
During the currentprior year periods, strong visitation levels, and increased length of play. During the three and six months ended June 30, 2020, the COVID-19 pandemic caused temporary closures of all ofour Northeast segment’s operating results were negatively impacted as our properties which negatively impactedoperated within locally-restricted gaming capacity and limited food and beverage and other amenity offerings. Additionally, our operations. OurPennsylvania properties located at Greektown, Bangor and Plainridge Park were temporarily closed during the entire quarter ended June 30, 2020.for three days in January 2021, due to COVID-19 restrictions.
For the three months ended June 30, 2021,2022, the Northeast segment’s Adjusted EBITDAR increased $235.2decreased $17.2 million, and AdjustedAdjusted EBITDAR margin increaseddecreased to 35.5%31.3%, primarily due to high proportionate share of gaming activity yielding a higher overall Adjusted EBITDAR marginincreased variable marketing and due topromotional, and payroll expenses associated with hotel and food and beverage offerings not available in the negative impact of temporary closures duringprior year period.
For the threesix months ended June 30, 2020.2022,
For the six months endedNortheast segment’s Adjusted EBITDAR decreased $5.2 million, primarily due to increased June 30, 2021variable marketing and promotional, and payroll expenses associated with hotel and food and beverage offerings not available in the prior year period, the Northeast segment's Adjusted EBITDAR increased by $303.9 million andresulting in an Adjusted EBITDAR margin increased to 34.7% primarily due to a higher proportionate share of gaming activity yielding a higher overall Adjusted EBITDAR margin, and cost saving initiatives implemented throughout the prior year, designed to mitigate revenue degradation in 2020, 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.31.2%.
South Segment | | | For the three months ended June 30, | | | Change | | | For the six months ended June 30, | | Change | | For the three months ended June 30, | | Change | | For the six months ended June 30, | | Change |
| (dollars in millions) | (dollars in millions) | 2021 | | 2020 | | | $ | | % | | | 2021 | | 2020 | | $ | | % | (dollars in millions) | 2022 | | 2021 | | $ | | % | | 2022 | | 2021 | | $ | | % |
| Revenues | Revenues | | | | | | | | | | | | | | | | | | Revenues | | | | | | | | | | | | | | | |
| Gaming | Gaming | $ | 304.4 | | | $ | 103.7 | | | | $ | 200.7 | | | 193.5 | % | | | $ | 549.8 | | | $ | 272.3 | | | $ | 277.5 | | | 101.9 | % | Gaming | $ | 269.0 | | | $ | 304.4 | | | $ | (35.4) | | | (11.6) | % | | $ | 547.6 | | | $ | 549.8 | | | $ | (2.2) | | | (0.4) | % |
| Food, beverage, hotel and other | Food, beverage, hotel and other | 63.8 | | | 17.8 | | | | 46.0 | | | 258.4 | % | | | 114.3 | | | 72.5 | | | 41.8 | | | 57.7 | % | Food, beverage, hotel and other | 69.6 | | | 63.8 | | | 5.8 | | | 9.1 | % | | 132.4 | | | 114.3 | | | 18.1 | | | 15.8 | % |
| Total revenues | Total revenues | $ | 368.2 | | | $ | 121.5 | | | | $ | 246.7 | | | 203.0 | % | | | $ | 664.1 | | | $ | 344.8 | | | $ | 319.3 | | | 92.6 | % | Total revenues | $ | 338.6 | | | $ | 368.2 | | | $ | (29.6) | | | (8.0) | % | | $ | 680.0 | | | $ | 664.1 | | | $ | 15.9 | | | 2.4 | % |
| | Adjusted EBITDAR | Adjusted EBITDAR | $ | 177.1 | | | $ | 44.4 | | | | $ | 132.7 | | | 298.9 | % | | | $ | 311.0 | | | $ | 97.0 | | | $ | 214.0 | | | 220.6 | % | Adjusted EBITDAR | $ | 143.3 | | | $ | 177.1 | | | $ | (33.8) | | | (19.1) | % | | $ | 289.8 | | | $ | 311.0 | | | $ | (21.2) | | | (6.8) | % |
| Adjusted EBITDAR margin | Adjusted EBITDAR margin | 48.1 | % | | 36.5 | % | | | 1,160 bps | | | 46.8 | % | | 28.1 | % | | 1,870 bps | Adjusted EBITDAR margin | 42.3 | % | | 48.1 | % | | -580 bps | | 42.6 | % | | 46.8 | % | | -420 bps |
The South segment’s revenues for the three months ended June 30, 2022 decreased by $29.6 million from the prior year period, primarily due to strong visitation levels and customer spend in the prior period. Revenues for the six months ended June 30, 20212022 increased by $246.7$15.9 million and $319.3 million, respectively,from the prior year period, primarily due to a full quarter and year-to-date operating results in the current year periods, strong visitation levels andamong all age groups, increased length of play. Duringplay, and increased spend per guest during the three and six months ended June 30, 2020, the COVID-19 pandemic caused temporary closuresfirst quarter of all of our properties which negatively impacted our operations.2022.
For the three months ended June 30, 2021,2022, the South segment’s Adjusted EBITDAR increased $132.7decreased $33.8 million and Adjusted EBITDAR margin increaseddecreased to 48.1%, due to high proportionate share of gaming activity yielding a higher overall Adjusted EBITDAR margin and42.3% primarily due to the negative impact of temporary closures duringdecrease in gaming revenues, increased variable marketing and promotional expenses, which remain below pre-pandemic levels, and increased payroll expenses as we reopened outlets and offered additional amenities such as banquets, conferences, and new restaurants.
For the threesix months ended June 30, 2020.
For the six months ended2022, June 30, 2021, the South segment’s Adjusted EBITDAR increased $214.0decreased $21.2 million and Adjusted EBITDAR margin increaseddecreased to 46.8%42.6% primarily due to ahigher variable marketing and promotional expenses, which remain below pre-pandemic levels, in addition to higher proportionate share of gaming activity yielding a higher overallpayroll expenses
Adjusted EBITDAR margin,associated with hotel and cost saving initiatives implemented throughoutfood and beverage offerings not available in the prior year designed to mitigate revenue degradation in 2020, 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.period.
West Segment | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended June 30, | | | | Change | | For the six months ended June 30, | | Change |
| (dollars in millions) | 2021 | | 2020 | | | | $ | | % | | 2021 | | 2020 | | $ | | % |
| Revenues | | | | | | | | | | | | | | | | | |
| Gaming | $ | 96.7 | | | $ | 12.8 | | | | | $ | 83.9 | | | 655.5 | % | | $ | 165.8 | | | $ | 84.7 | | | $ | 81.1 | | | 95.7 | % |
| Food, beverage, hotel and other | 43.7 | | | 4.9 | | | | | 38.8 | | | 791.8 | % | | 71.2 | | | 59.6 | | | 11.6 | | | 19.5 | % |
| Total revenues | $ | 140.4 | | | $ | 17.7 | | | | | $ | 122.7 | | | 693.2 | % | | $ | 237.0 | | | $ | 144.3 | | | $ | 92.7 | | | 64.2 | % |
| | | | | | | | | | | | | | | | | |
| Adjusted EBITDAR | $ | 61.4 | | | $ | (3.0) | | | | | $ | 64.4 | | | N/M | | $ | 96.6 | | | $ | 21.6 | | | $ | 75.0 | | | 347.2 | % |
| Adjusted EBITDAR margin | 43.7 | % | | (16.9) | % | | | | | | 6,060 bps | | 40.8 | % | | 15.0 | % | | | | 2,580 bps |
N/M - Not meaningful | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended June 30, | | Change | | For the six months ended June 30, | | Change |
| (dollars in millions) | 2022 | | 2021 | | $ | | % | | 2022 | | 2021 | | $ | | % |
| Revenues | | | | | | | | | | | | | | | |
| Gaming | $ | 98.9 | | | $ | 96.7 | | | $ | 2.2 | | | 2.3 | % | | $ | 193.0 | | | $ | 165.8 | | | $ | 27.2 | | | 16.4 | % |
| Food, beverage, hotel and other | 54.9 | | | 43.7 | | | 11.2 | | | 25.6 | % | | 101.7 | | | 71.2 | | | 30.5 | | | 42.8 | % |
| Total revenues | $ | 153.8 | | | $ | 140.4 | | | $ | 13.4 | | | 9.5 | % | | $ | 294.7 | | | $ | 237.0 | | | $ | 57.7 | | | 24.3 | % |
| | | | | | | | | | | | | | | |
| Adjusted EBITDAR | $ | 59.7 | | | $ | 61.4 | | | $ | (1.7) | | | (2.8) | % | | $ | 110.9 | | | $ | 96.6 | | | $ | 14.3 | | | 14.8 | % |
| Adjusted EBITDAR margin | 38.8 | % | | 43.7 | % | | | | -490 bps | | 37.6 | % | | 40.8 | % | | | | -320 bps |
The West segment’s revenues for the three and six months ended June 30, 20212022 increased by $122.7$13.4 million and $92.7$57.7 million respectively,over the prior year corresponding periods, primarily due to a full quarterincreases in food, beverage, hotel and other revenues due to the easing of operating results in the current year periods,restrictions and strong visitation levels at our Zia Park, Tropicana, and increased length of play.M Resort properties. During the three and six months ended June 30, 2020, 2021, our West segment’s operating results were negatively impacted by the temporary closure of our Zia Park property due to the COVID-19 pandemic, caused temporary closureswhich remained closed until March 5, 2021 and for an additional thirteen days in April of all of2021. Additionally, during the prior year periods, our properties which negatively impacted our operations. Our Tropicanain the West segment operated within locally restricted gaming and Zia Park properties were temporarily closed during the entire quarter ended June 30, 2020.hotel capacity and limited food and beverage and other amenities offerings.
For the three months ended June 30, 2021,2022, the West segment’s Adjusted EBITDAR increased $64.4decreased $1.7 million and Adjusted EBITDAR margin increaseddecreased to 43.7%38.8%, primarily due to high proportionate share ofhigher payroll expenses related to volume increases in addition to variable marketing and promotional expenses, which remain below pre-pandemic levels.
For the six months ended June 30, 2022, the West segment’s Adjusted EBITDAR increased $14.3 million primarily due to increases in gaming activity yielding aand non gaming revenues as described above, offset by higher overallpayroll expenses related to volume increases in addition to higher variable marketing and promotional expenses, which remain below pre-pandemic levels, reflected in Adjusted EBITDAR margin, and duewhich decreased by 320 basis points to the negative impact of temporary closures during37.6%.
Midwest Segment | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended June 30, | | Change | | For the six months ended June 30, | | Change |
| (dollars in millions) | 2022 | | 2021 | | $ | | % | | 2022 | | 2021 | | $ | | % |
| Revenues | | | | | | | | | | | | | | | |
| Gaming | $ | 267.0 | | | $ | 272.1 | | | $ | (5.1) | | | (1.9) | % | | $ | 523.5 | | | $ | 489.0 | | | $ | 34.5 | | | 7.1 | % |
| Food, beverage, hotel and other | 29.3 | | | 22.7 | | | 6.6 | | | 29.1 | % | | 55.7 | | | 40.5 | | | 15.2 | | | 37.5 | % |
| Total revenues | $ | 296.3 | | | $ | 294.8 | | | $ | 1.5 | | | 0.5 | % | | $ | 579.2 | | | $ | 529.5 | | | $ | 49.7 | | | 9.4 | % |
| | | | | | | | | | | | | | | |
| Adjusted EBITDAR | $ | 131.3 | | | $ | 142.2 | | | $ | (10.9) | | | (7.7) | % | | $ | 256.8 | | | $ | 248.2 | | | $ | 8.6 | | | 3.5 | % |
| Adjusted EBITDAR margin | 44.3 | % | | 48.2 | % | | | | -390 bps | | 44.3 | % | | 46.9 | % | | | | -260 bps |
The Midwest segment’s revenues for the three months ended June 30, 2020.2022 increased slightly compared to the prior year quarter. The Midwest segment’s revenues for the six months ended June 30, 2022 increased by $49.7 million over the prior year corresponding period, due to strong operating results in the first quarter of 2022, resulting from easing of restrictions, strong visitation levels among all age groups, increased length of play and increased spend per guest. During the prior year periods, our Midwest segment’s operating results were negatively impacted as our properties operated within locally-restricted gaming capacity and limited food and beverage and other amenity offerings. Additionally, our Illinois properties were temporarily closed for periods between fifteen and twenty-two days in January 2021, due to COVID-19 restrictions.
For the three months ended June 30, 2022, the Midwest segment’s Adjusted EBITDAR decreased $10.9 million and Adjusted EBITDAR margin decreased to 44.3%, primarily due to the decrease in gaming revenues, increased variable marketing and promotional expenses, which remain below pre-pandemic levels in addition to higher payroll expenses associated with hotel and food and beverage offerings not available in the prior year period.
For the six months ended June 30, 20212022, , the WestMidwest segment’s Adjusted EBITDAR increased $75.0$8.6 million primarily due to increases in gaming and non gaming revenues as discussed above, offset by higher payroll expenses related to volume increases in addition to higher variable marketing and promotional expenses, which remain below pre-pandemic levels, reflected in Adjusted EBITDAR margin, increasedwhich decreased by 260 basis points to 40.8% primarily due to a higher proportionate share of gaming activity yielding a higher overall Adjusted EBITDAR margin, and cost saving initiatives implemented throughout the prior year designed to mitigate revenue degradation in 2020, 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.44.3%.
MidwestInteractive Segment | | | For the three months ended June 30, | | | Change | | For the six months ended June 30, | | Change | | For the three months ended June 30, | | Change | | For the six months ended June 30, | | Change |
| (dollars in millions) | (dollars in millions) | 2021 | | 2020 | | | $ | | % | | 2021 | | 2020 | | $ | | % | (dollars in millions) | 2022 | | 2021 | | $ | | % | | 2022 | | 2021 | | $ | | % |
| Revenues | Revenues | | | | | | | | | | | | | | | | | Revenues | | | | | | | | | | | | | | | |
| Gaming | Gaming | $ | 272.1 | | | $ | 33.5 | | | | $ | 238.6 | | | 712.2 | % | | $ | 489.0 | | | $ | 229.7 | | | $ | 259.3 | | | 112.9 | % | Gaming | $ | 69.3 | | | $ | 29.8 | | | $ | 39.5 | | | 132.6 | % | | $ | 132.2 | | | $ | 53.4 | | | $ | 78.8 | | | 147.6 | % |
| Food, beverage, hotel and other | Food, beverage, hotel and other | 22.7 | | | 2.5 | | | | 20.2 | | | 808.0 | % | | 40.5 | | | 34.4 | | | 6.1 | | | 17.7 | % | Food, beverage, hotel and other | 85.6 | | | 66.2 | | | 19.4 | | | 29.3 | % | | 164.2 | | | 128.9 | | | 35.3 | | | 27.4 | % |
| Total revenues | Total revenues | $ | 294.8 | | | $ | 36.0 | | | | $ | 258.8 | | | 718.9 | % | | $ | 529.5 | | | $ | 264.1 | | | $ | 265.4 | | | 100.5 | % | Total revenues | $ | 154.9 | | | $ | 96.0 | | | $ | 58.9 | | | 61.4 | % | | $ | 296.4 | | | $ | 182.3 | | | $ | 114.1 | | | 62.6 | % |
| | Adjusted EBITDAR | Adjusted EBITDAR | $ | 142.2 | | | $ | (4.6) | | | | $ | 146.8 | | | N/M | | $ | 248.2 | | | $ | 64.9 | | | $ | 183.3 | | | 282.4 | % | Adjusted EBITDAR | $ | (20.8) | | | $ | 1.2 | | | $ | (22.0) | | | N/M | | $ | (30.8) | | | $ | 2.5 | | | $ | (33.3) | | | N/M |
| Adjusted EBITDAR margin | Adjusted EBITDAR margin | 48.2 | % | | (12.8) | % | | | 6,100 bps | | 46.9 | % | | 24.6 | % | | 2,230 bps | Adjusted EBITDAR margin | (13.4) | % | | 1.3 | % | | N/M | | (10.4) | % | | 1.4 | % | | N/M |
The MidwestInteractive segment’s revenues for the three and six months ended June 30, 20212022 increased by $258.8$58.9 million and $265.4$114.1 million respectively,over the prior year corresponding periods, primarily due to a full quartercontinued increases in online activity with the launch of operating resultstheScore Bet in Ontario and the current year periods, strong visitation levels, and increased lengthBarstool Sportsbook in additional states, as well as the inclusion of play. During the three and six months ended June 30, 2020, the COVID-19 pandemic caused temporary closures of all of our properties which negatively impacted our operations. Our Alton, Aurora and Joliet properties were temporarily closed during the entire quarter ended June 30, 2020.
For the three months ended June 30, 2021, the Midwest segment’s Adjusted EBITDAR increased $146.8 million, and Adjusted EBITDAR margin increased to 48.2%, due to high proportionate share of gaming activity yielding a higher overall Adjusted EBITDAR margin and due to the negative impact of temporary closures during the three months ended June 30, 2020.revenues from theScore,
Forwhich was acquired on October 19, 2021. Additionally, revenues are inclusive of a tax gross-up of $55.4 million and $105.7 million for the three and six months ended June 30, 2022, respectively, compared to $46.0 and $85.5 million for the three and six months ended June 30, 2021, respectively.
For the three and six months ended June 30, 2022, , the MidwestInteractive segment’s Adjusted EBITDAR increased $183.3 million and Adjusted EBITDAR margin increased to 46.9%decreased primarily due to a higher proportionate shareincreased expenses related to ramping and launching theScore Bet in Ontario and the Barstool Sportsbook in additional states, and the inclusion of gaming activity yielding a higher overall Adjusted EBITDAR margin, and cost saving initiatives implemented throughout the prior year designed to mitigate revenue degradation in 2020, 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.theScore financial results, as indicated above.
Other
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended June 30, | | | | Change | | For the six months ended June 30, | | Change |
| (dollars in millions) | 2021 | | 2020 | | | | $ | | % | | 2021 | | 2020 | | $ | | % |
| Revenues | | | | | | | | | | | | | | | | | |
| Gaming | $ | 29.8 | | | $ | 15.1 | | | | | $ | 14.7 | | | 97.4 | % | | $ | 53.4 | | | $ | 22.7 | | | $ | 30.7 | | | 135.2 | % |
| Food, beverage, and other | 67.9 | | | 12.5 | | | | | 55.4 | | | 443.2 | % | | 132.2 | | | 25.2 | | | 107.0 | | | 424.6 | % |
| Total revenues | $ | 97.7 | | | $ | 27.6 | | | | | $ | 70.1 | | | 254.0 | % | | $ | 185.6 | | | $ | 47.9 | | | $ | 137.7 | | | 287.5 | % |
| | | | | | | | | | | | | | | | | |
| Adjusted EBITDAR | $ | (25.7) | | | $ | (8.7) | | | | | $ | (17.0) | | | 195.4 | % | | $ | (47.0) | | | $ | (27.6) | | | $ | (19.4) | | | 70.3 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended June 30, | | Change | | For the six months ended June 30, | | Change |
| (dollars in millions) | 2022 | | 2021 | | $ | | % | | 2022 | | 2021 | | $ | | % |
| Revenues | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Food, beverage, and other | $ | 5.9 | | | $ | 1.7 | | | $ | 4.2 | | | 247.1 | % | | 13.2 | | | 3.3 | | | 9.9 | | | 300.0 | % |
| Total revenues | $ | 5.9 | | | $ | 1.7 | | | $ | 4.2 | | | 247.1 | % | | $ | 13.2 | | | $ | 3.3 | | | $ | 9.9 | | | 300.0 | % |
| | | | | | | | | | | | | | | |
| Adjusted EBITDAR | $ | (23.4) | | | $ | (26.9) | | | $ | 3.5 | | | 13.0 | % | | $ | (47.1) | | | $ | (49.5) | | | $ | 2.4 | | | 4.8 | % |
Total revenues forOther consists of the Other category increased Company’s stand-alone racing operations, as well as corporate overhead costs, which primarily includes 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. Revenues for the three and six months ended June 30, 2021, 2022, have increased as compared to the prior year corresponding periods, primarily as a resultdue to the acquisition of Sam Houston, the activities at Penn Interactive. The three and six months ended June 30, 2021 include a gross-upremaining 50% of gaming tax reimbursement amounts derived from arrangements which allow for our third party partners to operate online casinos and online sportsbooks under our gaming licenses of $46.0 million and $85.5 million, respectively. Penn Interactive's operations continue to build with the launch of the online Barstool Sportsbook in Pennsylvania during the third quarter of 2020 and the launch of Michigan, Illinois and Indiana in 2021, and with ongoing increases in online social and real-money gaming revenue.was acquired on August 1, 2021.
Adjusted EBITDAR decreasedincreased by $17.0$3.5 million and $19.4$2.4 million for the three and six months ended June 30, 2021,2022 respectively, as compared to the prior year corresponding periods, primarily due to increased expenses related to the ramp up of the Penn Interactive online sportsbook operations and increaseschanges in corporate overhead costs, as operations returned to pre-pandemic levels. Forwhich are reflective of the three and six months ended current operating environment.June 30, 2021, corporate overhead costs were $26.1 million and $50.1 million, as compared to $16.7 million and $40.9 million for the three and six months ended June 30, 2020.
Non-GAAP Financial Measures
Use and Definitions
In addition to GAAP financial measures, management uses Adjusted EBITDA, Adjusted EBITDAR, Adjusted EBITDA margin, 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 same 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;charges (which are included in “other (income) expenses”); impairment losses; insurance recoveries, net of deductible charges; changes in the estimated fair value of our contingent purchase price obligations; gain or loss on disposal of assets,assets; the difference between budget and actual expense for cash-settled stock-based awards; pre-opening expenses; and other. 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, Inc. ("Barstool Sports") and our Kansas Entertainment, LLC joint venture. Adjusted EBITDA is inclusive of rent expense associated with our triple net operating leases (the operating lease components contained within our triple net master lease dated November 1, 2013 with Gaming and Leisure Properties, Inc. ("GLPI"(Nasdaq: GLPI) (“GLPI”) and the triple net master lease assumed in connection with our acquisition of Pinnacle Entertainment, Inc. (primarily land), our individual triple net leases with GLPI for the real estate assets used in the operation of Tropicana Las Vegas Hotel and Casino, Inc. and Hollywood Casino at Meadows Racetrack, and Casino, and our individual triple net leases with VICI Properties Inc. (NYSE: VICI) (“VICI”) for the real estate assets used in the operations of Margaritaville Casino Resort and Greektown Casino-Hotel)Hollywood Casino at Greektown). 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. We define adjustedAdjusted EBITDA margin as Adjusted EBITDA divided by consolidated revenues.
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 of 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 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 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 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.
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 and Adjusted EBITDAR, which are non-GAAP financial measures, as well as related margins:
| | | | For the three months ended June 30, | | | For the six months ended June 30, | | For the three months ended June 30, | | For the six months ended June 30, |
| (dollars in millions) | (dollars in millions) | 2021 | | 2020 | | | 2021 | | 2020 | (dollars in millions) | 2022 | | 2021 | | 2022 | | 2021 |
| Net income (loss) | $ | 198.7 | | | $ | (214.4) | | | | $ | 289.6 | | | $ | (823.0) | | |
| Income tax expense (benefit) | 53.1 | | | (58.4) | | | | 73.7 | | | (157.9) | | |
| Net income | | Net income | $ | 26.1 | | $ | 198.7 | | $ | 77.7 | | | $ | 289.6 | |
| Income tax expense | | Income tax expense | 56.3 | | 53.1 | | 103.9 | | | 73.7 | |
| | Loss (income) from unconsolidated affiliates | (9.1) | | | 1.7 | | | | (18.7) | | | (2.4) | | |
| Income from unconsolidated affiliates | | Income from unconsolidated affiliates | (1.8) | | (9.1) | | (10.5) | | | (18.7) | |
| Interest expense, net | Interest expense, net | 138.0 | | | 135.0 | | | | 273.7 | | | 264.8 | | Interest expense, net | 193.6 | | 138.0 | | 354.4 | | | 273.7 | |
| Other income | (2.8) | | | (29.3) | | | | (23.9) | | | (7.5) | | |
| Operating income (loss) | 377.9 | | | (165.4) | | | | 594.4 | | | (726.0) | | |
| Other (income) expenses | | Other (income) expenses | 28.2 | | (2.8) | | 68.9 | | | (23.9) | |
| Operating income | | Operating income | 302.4 | | 377.9 | | 594.4 | | | 594.4 | |
Stock-based compensation (1) | Stock-based compensation (1) | 9.2 | | | 2.9 | | | | 13.4 | | | 8.9 | | Stock-based compensation (1) | 14.5 | | 9.2 | | 31.5 | | | 13.4 | |
Cash-settled stock-based award variance (1)(2) | Cash-settled stock-based award variance (1)(2) | (12.4) | | | 16.1 | | | | 9.1 | | | 7.2 | | Cash-settled stock-based award variance (1)(2) | (9.5) | | (12.4) | | (12.4) | | | 9.1 | |
Gain on disposal of assets (1) | (0.1) | | | (28.5) | | | | (0.2) | | | (27.9) | | |
Loss (gain) on disposal of assets (1) | | Loss (gain) on disposal of assets (1) | 7.3 | | (0.1) | | 7.2 | | | (0.2) | |
Contingent purchase price (1) | Contingent purchase price (1) | 1.2 | | | 0.8 | | | | 1.3 | | | (1.4) | | Contingent purchase price (1) | (0.9) | | 1.2 | | (1.0) | | | 1.3 | |
Pre-opening expenses (1)(3) | Pre-opening expenses (1)(3) | (0.4) | | | 3.5 | | | | 1.2 | | | 6.7 | | Pre-opening expenses (1)(3) | 2.1 | | (0.4) | | 3.6 | | | 1.2 | |
| Depreciation and amortization | Depreciation and amortization | 81.9 | | | 91.9 | | | | 163.2 | | | 187.6 | | Depreciation and amortization | 150.3 | | 81.9 | | 268.5 | | | 163.2 | |
| Impairment losses | — | | | — | | | | — | | | 616.1 | | |
| | Insurance recoveries, net of deductible charges (1) | Insurance recoveries, net of deductible charges (1) | — | | | — | | | | — | | | (0.1) | | Insurance recoveries, net of deductible charges (1) | — | | — | | (8.8) | | | — | |
| Income (loss) from unconsolidated affiliates | 9.1 | | | (1.7) | | | | 18.7 | | | 2.4 | | |
| Income from unconsolidated affiliates | | Income from unconsolidated affiliates | 1.8 | | 9.1 | | 10.5 | | | 18.7 | |
Non-operating items of equity method investments (4) | Non-operating items of equity method investments (4) | 1.4 | | | 1.1 | | | | 3.0 | | | 2.0 | | Non-operating items of equity method investments (4) | 0.3 | | 1.4 | | 2.1 | | | 3.0 | |
Other expenses (1)(3)(5) | Other expenses (1)(3)(5) | 2.3 | | | — | | | | 2.6 | | | — | | Other expenses (1)(3)(5) | 8.2 | | 2.3 | | 15.5 | | | 2.6 | |
| Adjusted EBITDA | Adjusted EBITDA | 470.1 | | | (79.3) | | | | 806.7 | | | 75.5 | | Adjusted EBITDA | 476.5 | | 470.1 | | 911.1 | | | 806.7 | |
Rent expense associated with triple net operating leases (1) | Rent expense associated with triple net operating leases (1) | 116.5 | | | 103.8 | | | | 226.9 | | | 201.3 | | Rent expense associated with triple net operating leases (1) | 28.0 | | 116.5 | | 88.1 | | | 226.9 | |
| Adjusted EBITDAR | Adjusted EBITDAR | $ | 586.6 | | | $ | 24.5 | | | | $ | 1,033.6 | | | $ | 276.8 | | Adjusted EBITDAR | $ | 504.5 | | $ | 586.6 | | $ | 999.2 | | | $ | 1,033.6 | |
| | Net income (loss) margin | 12.9 | % | | (70.2) | % | | | 10.3 | % | | (57.9) | % | |
| Net income margin | | Net income margin | 1.6 | % | | 12.9 | % | | 2.4 | % | | 10.3 | % |
| Adjusted EBITDA margin | Adjusted EBITDA margin | 30.4 | % | | (26.0) | % | | | 28.6 | % | | 5.3 | % | Adjusted EBITDA margin | 29.3 | % | | 30.4 | % | | 28.6 | % | | 28.6 | % |
| Adjusted EBITDAR margin | Adjusted EBITDAR margin | 37.9 | % | | 8.0 | % | | | 36.6 | % | | 19.5 | % | Adjusted EBITDAR margin | 31.0 | % | | 37.9 | % | | 31.3 | % | | 36.6 | % |
(1) These items are included in “General and administrative” within the Company’s unaudited Consolidated Statements of Operations and Comprehensive Income (Loss).Operations.
(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 three and six months ended June 30, 2021, the fluctuations in the price of the Company’s common stock resulted in respective gains and losses.
(3) During 2020 and during the first quarter of 2021, acquisition costs were included within pre-opening and acquisition costs. As of and forBeginning with the quarter ended June 30, 2021, acquisition costs are presented as part of other expenses.
(4) Consists principally of interest expense, net;net, income taxes;taxes, depreciation and amortization;amortization, and stock-based compensation expense associated with Barstool Sports and our Kansas Entertainment joint venture. We record our portion of Barstool Sports’ net income or loss, including adjustments to arrive at Adjusted EBITDAR, one quarter in arrears.
(5) Consists of non-recurring acquisition and transaction costs, and finance transformation costs associated with the implementation of our new Enterprise Resource Management system, other non-recurring transaction costs, and non-recurring restructuring charges (primarily severance) associated with a company-wide initiative, triggered by the COVID-19 pandemic, designed to (i) improve the operational effectiveness across our property portfolio; (ii) improve the effectiveness and efficiencysystem.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity and capital resources have been and are expected 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 six months ended June 30, | | | Change | | | | For the six months ended June 30, | | Change |
| (dollars in millions) | (dollars in millions) | | 2021 | | 2020 | | | $ | | % | | (dollars in millions) | | 2022 | | 2021 | | $ | | % |
| Net cash provided by (used in) operating activities | | $ | 504.6 | | | $ | (130.9) | | | | $ | 635.5 | | | N/M | | |
| Net cash provided by operating activities | | Net cash provided by operating activities | | $ | 436.4 | | | $ | 504.6 | | | $ | (68.2) | | | (13.5)% |
| Net cash used in investing activities | Net cash used in investing activities | | $ | (99.1) | | | $ | (218.5) | | | | $ | 119.4 | | | (54.6)% | | Net cash used in investing activities | | $ | (113.7) | | | $ | (99.1) | | | $ | (14.6) | | | 14.7% |
| Net cash provided by financing activities | | $ | 18.8 | | | $ | 1,155.1 | | | | $ | (1,136.3) | | | (98.4)% | | |
| Net cash (used in) provided by financing activities | | Net cash (used in) provided by financing activities | | $ | (477.3) | | | $ | 18.8 | | | $ | (496.1) | | | N/M |
Operating Cash Flow
Trends in our operating cash flows tend to follow trends in operating income, excluding non-cash charges, but can be affected by changes in working capital, the timing of significant interest payments, tax payments or refunds, and distributions from unconsolidated affiliates. Net cash provided by operating activities of $504.6decreased by $68.2 million for the six months ended June 30, 2021, compared to net cash used of $130.9 million in the prior year period, is principally2022, primarily due to increasedan increase in cash paid for income taxes and a negative impact in changes in working capital related to gaming revenues as operations at our properties benefited from strong visitation levels, increased length of play,taxes and higher overall Adjusted EBITDAR margins, resulting from cost saving initiatives implemented throughout 2020, such as: operating with a reduced workforce, focusing on higher marginother gaming offerings, reducing marketing costs,liabilities and limiting certain lower margin food and beverage offerings. Operating cash flows in the prior year were negatively impacted by the temporary closures of all of our properties due to the COVID-19 pandemic, which significantly decreased cash receipts from customers, offset by the utilization of rent credits resulting from the sale of our Tropicana property.payroll related liabilities.
Investing Cash Flow
The decrease of $119.4 million in net cashCash used in investing activities for the six months ended June 30, 2021 compared to the same period in the prior year was2022 of $113.7 million is primarily due to the completion of our investment in Barstool Sports in February of 2020, as well as decrease in capital expenditures partiallyof $125.6 million and the acquisition of a $15.0 million cost method investment, offset by $6.2insurance proceeds received for losses incurred due to Hurricane Laura in 2020. For the six months ended June 30, 2021, cash used in investing activities of $99.1 million in cashwas primarily due to capital expenditures and consideration related to the Hitpoint acquisition and purchases ofpaid for gaming licenses and developed technology.other intangible assets.
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 Amended Revolving Credit Facility is usedand Revolving Facility, was available to fund our capital expenditures for six months ended June 30, 2022 and 2021, and 2020.respectively.
Capital expenditures for the six months ended June 30, 2022 and 2021 and 2020 were $64.6$125.6 million and $73.7$64.6 million, respectively. Capital expenditures related to our York and Morgantown development project were $13.3 million and $25.6 million for the six months ended June 30, 2021. Capital expenditures have decreased for 2022 and 2021, respectively. During the six months ended June 30, 2021, as compared to the prior year period, due to continued cautionary spending and uncertainty surrounding the COVID-19 pandemic, which has carried forward to the current year. We expect that as operations continue to recover,2022, capital expenditures will increase.also included $17.8 million in construction costs related to hurricane damage sustained at our Lake Charles property of which insurance proceeds were previously received. For the year ending December 31, 2022, our anticipated capital expenditures are approximately $300 million, which includes capital expenditures required under our Triple Net Leases, which require us to spend a specified percentage of net revenues.
Financing Cash Flow
For the six months ended June 30, 2022, net cash used in financing activities totaled $477.3 million, primarily related to $342.1 million common stock repurchases, net debt repayments of $18.7 million, $18.2 million in debt issuance costs, and $85.4 million in principal payments on our finance leases and finance obligations.
During the six months ended June 30, 2021, net cash provided by financing activities totaledof $18.8 million comparedwas primarily due to $1,155.1 million in net cash provided in the prior year period. During the six months ended June 30, 2020, we had net borrowings under our Senior Secured Credit Facilities of $540.0 million, net cash proceeds of $322.2$72.5 million related to the issuance offrom other long-term obligations, offset by principal payments on long-term debt and principal payments on our 2.75% Convertible Notes,finance leases and net cash proceeds of $331.2 million related to the issuance of the Company's common equity in May 2020, which primarily resulted in a decrease of $1,136.3 million as compared to the current year period.
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.
finance obligations
On April 14, 2020, the Company entered into a second amendment to its Credit Agreement with its various lenders (the “Second Amendment”) to provide for certain modifications to financial covenants and interest rates during, and subsequent to a Covenant Relief Period, which concluded on May 7, 2021.
In May 2020, the Company completed an offering of $330.5 million aggregate principal amount of 2.75% unsecured convertible notes that mature, unless earlier converted, redeemed or repurchased, on May 15, 2026 (the “Convertible Notes”) at
a priceBorrowings and Repayments of par. After lender fees and discounts, net proceeds received by the Company were $322.2 million. Interest on the Convertible Notes is payable onLong-term Debt
On May 15th and November 15th of each year, commencing November 15, 2020.
In February 2021,3, 2022, the Company entered into a financing arrangement providing the CompanySecond Amended and Restated Credit Agreement with upfront cash proceeds while permitting us to participate in future proceeds on certain claims. The financing obligation has been classified as a non-current liability, which is expected to be settled in a future period of which the principal is contingentits various lenders (the “Second Amended and predicated on other events. Consistent with an obligor’s accounting under a debt instrument, period interest will be accreted using an effective interest rate of 27.0% and until such time that the claims and related obligation is settled. The amount included in interest expense related to this obligation was $3.7 million and $5.2 million for the three and six months ended June 30, 2021, respectively.
On July 1, 2021. the Company completed an offering of $400.0 million aggregate principal amount of 4.125% Senior Unsecured Notes that mature on July 1, 2029 (the “4.125% Notes”Restated Credit Agreement”). The 4.125% Notes were issuedSecond Amended and Restated Credit Agreement provides for a $1.0 billion revolving credit facility, undrawn at parclose, (the “Amended Revolving Credit Facility”), a five-year $550.0 million term loan A facility (the “Amended Term Loan A Facility”) and interest is payable semi-annually on January 1st and July 1st of each year.a seven-year $1.0 billion term loan B facility (the “Amended Term Loan B Facility”) facilities (together, the “Amended Credit Facilities”). The Company intends to use the proceeds from the 4.125% Notes for general corporate purposes.
At June 30, 2021,2022, we had $2,468.3 million$2.8 billion in aggregate principal amount of indebtedness, including $1,595.9 million$1.6 billion outstanding under our Senior SecuredAmended Credit Facilities, $330.5 million outstanding under our Convertible Notes, $400.0 million outstanding under our 5.625% senior unsecured notes, $400.0 million outstanding under our 4.125% senior unsecured notes, $330.5 million outstanding under our 2.75% Convertible Notes due 2026, and $141.9$150.1 million outstanding in other long-term obligations. No amounts were drawn on our Amended Revolving Credit Facility. WeAfter the refinancing of our Senior Secured Credit Facilities discussed above, we have no debt maturing prior to 2023.2026. As of June 30, 20212022 we had conditional obligations under letters of credit issued pursuant to the Senior SecuredAmended Credit Facilities with face amounts aggregating to $27.8$25.4 million resulting in $672.2$974.6 million available borrowing capacity under our Amended Revolving Credit Facility.
Covenants
Our Senior SecuredAmended Credit Facilities, 5.625% Notes and 4.125% Notes require us, among other obligations, to maintain specified financial ratios and to satisfy certain financial tests. In addition, our Senior SecuredAmended Credit Facilities, 5.625% Notes and 4.125% Notes, restrict, among other things, our ability to incur additional indebtedness, incur guarantee obligations, amend debt instruments, pay dividends, create liens on assets, make investments, engage in mergers or consolidations, and otherwise restrict corporate activities. Our debt agreements also contain customary events of default, including cross-default provisions that require us to meet certain requirements under the PennPENN Master Lease and the Pinnacle Master Lease (both of which are defined in Note 9, "Leases"“Leases” ofto our unauditedunaudited Consolidated Financial StatementsStatements), each with GLPI. If we are unable to meet our financial covenants or in the event of a cross-default, it could trigger an acceleration of payment terms.
As of June 30, 2021,2022, the Company was in compliance with all required financial covenants. The Company believes that it will remain in compliance with all of its required financial covenants for at least the next twelve months following the date of filing this Quarterly Report on Form 10-Q with the SEC.
See Note 8, “Long-term Debt,” in the notes to our unaudited Consolidated Financial Statements for additional information of the Company'sCompany’s debt and other long-term obligations.
Common Stock OfferingShare Repurchase Authorization
On May 14, 2020,February 1, 2022, the Board of Directors of PENN approved a $750.0 million share repurchase authorization. The three-year authorization expires on January 31, 2025. Repurchases by the Company completedwill be subject to available liquidity, general market and economic conditions, alternate uses for the capital and other factors. Share repurchases may be made from time to time through a public offering10b5-1 trading plan, open market transactions, block trades or in private transactions in accordance with applicable securities laws and regulations and other legal requirements. There is no minimum number of 16,666,667shares that the Company is required to repurchase and the repurchase authorization may be suspended or discontinued at any time without prior notice.
During the three months ended June 30, 2022, the Company repurchased 5,539,177 shares of Penn Common Stock and on May 19, 2020,its common stock in open market transactions for $167.0 million at an average price of $30.16 per share. During the underwriters exercised their right to purchase an additional 2,500,000six months ended June 30, 2022, the Company repurchased 9,341,585 shares of Penn Common Stock, resultingits common stock in open market transactions for $342.1 million at an average price of $36.62 per share. The cost of all repurchased shares is recorded as “Treasury stock” within our unaudited Consolidated Balance Sheets.
Subsequent to the quarter ended June 30, 2022, the Company repurchased 3,019,790 million shares of its common stock at an average price of $31.46 per share for an aggregate public offeringamount of 19,166,667 shares$95.0 million. The remaining availability under our $750.0 million share repurchase authorization was $313.1 million as 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.
Score Media and Gaming Inc.
On August 4, 2021, we entered into an agreement with Score Media and Gaming Inc., a British Columbia corporation (“theScore”), under which we will acquire theScore in a cash and stock transaction valued at approximately $2.0 billion at the agreement date. Under the terms of the agreement, theScore shareholders will receive (a) US$17.00 in cash consideration, and (b) 0.2398 of a share of common stock, par value $0.01 per share, of the Company’s common equity for each theScore share. The agreement is conditioned upon obtaining theScore shareholders’ approval and is subject to regulatory approval.3, 2022.
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 PennPENN Master Lease and the Pinnacle Master Lease. The Company’s Master Leases are accounted for as either operating leases, finance leases, or financing obligations. In addition, fivesix of the gaming facilities used in
our operations are subject to individual triple net leases. As previously mentioned, weWe refer to the PennPENN Master Lease, the Pinnacle Master Lease, the Perryville Lease, the Meadows Lease, the Margaritaville Lease, the Greektown Lease, the Tropicana Lease and the Morgantown Lease, collectively, as our Triple Net Leases. The Company’s Triple Net Leases are accounted for as either operating leases, finance leases, or financing obligations.
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)(i) all facility maintenance; (2)(ii) all insurance required in connection with the leased properties and the business conducted on the leased properties; (3)(iii) taxes levied on or with respect to the leased properties (other than taxes on the income of the lessor); (4)(iv) all tenant capital improvements; and (5)(v) all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties. Additionally, our Triple Net Leases are subject to annual escalators and periodic percentage rent resets, as applicable. See Note 9, “Leases,” in the notes to our unaudited 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, were as follows:
| | | | For the three months ended June 30, | | | For the six months ended June 30, | | For the three months ended June 30, | | For the six months ended June 30, | |
| (in millions) | (in millions) | 2021 | | 2020 | | | 2021 | | 2020 | (in millions) | 2022 | | 2021 | | 2022 | | 2021 | |
Penn Master Lease (1) | $ | 120.7 | | | $ | 108.3 | | | | $ | 238.7 | | | $ | 223.1 | | |
| PENN Master Lease | | PENN Master Lease | $ | 120.6 | | | $ | 120.7 | | | $ | 239.8 | | | $ | 238.7 | | |
Pinnacle Master Lease (1) | Pinnacle Master Lease (1) | 82.1 | | | 81.8 | | | | 163.4 | | | 164.3 | | Pinnacle Master Lease (1) | 83.4 | | | 82.1 | | | 165.9 | | | 163.4 | | |
Meadows Lease (1) | 6.2 | | | 6.7 | | | | 12.4 | | | 13.5 | | |
| Perryville Lease | | Perryville Lease | 2.0 | | | — | | | 3.9 | | | — | | |
| Meadows Lease | | Meadows Lease | 6.2 | | | 6.2 | | | 12.4 | | | 12.4 | | |
| Margaritaville Lease | Margaritaville Lease | 5.9 | | | 5.9 | | | | 11.7 | | | 11.7 | | Margaritaville Lease | 6.0 | | | 5.9 | | | 11.9 | | | 11.7 | | |
| Greektown Lease | Greektown Lease | 13.5 | | | 13.9 | | | | 27.4 | | | 27.8 | | Greektown Lease | 12.9 | | | 13.5 | | | 25.7 | | | 27.4 | | |
| Morgantown Lease | Morgantown Lease | 0.7 | | | — | | | | 1.5 | | | — | | Morgantown Lease | 0.7 | | | 0.7 | | | 1.5 | | | 1.5 | | |
Total (2) | $ | 229.1 | | | $ | 216.6 | | | | $ | 455.1 | | | $ | 440.4 | | |
Total (1) | | Total (1) | $ | 231.8 | | | $ | 229.1 | | | $ | 461.1 | | | $ | 455.1 | | |
(1)During the three and six months ended June 30, 2020, we utilized rent credits to pay $72.1 million, $54.2 million and $4.5 million of rent under the Penn Master Lease, Pinnacle Master Lease and Meadows Lease, respectively.
(2)Rent payable under the Tropicana Lease is nominal. Therefore, this lease has been excluded from the table above.
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 SecuredAmended 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 ongoing impact of the COVID-19 pandemic.control. We cannot be certain: (i) of the impact of any continuing operating restrictions to accommodate social distancing and health and safety guidelines on our properties and financial results, including the cash generated from operations; (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,global supply chain disruptions, price inflation, and personnel, including the potential that some or all of our properties may again be forced to close or cease operations for a certain period of time; (iii) thatrising interest rates on the U.S. economy and the ability of our business will recover to levels that existed prior tomaintain its recovery from the impacts of the COVID-19 pandemic and on what time frame; (iv)pandemic; (ii) that our anticipated earnings projections will be realized; (v)(iii) that we will achieve the expected synergies from our acquisitions; and (vi)(iv) that future borrowings will be available under our Senior SecuredAmended 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, such as strong visitation and increased length of play, 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 "Part II, Item 1A. Risk Factors" of this Form 10-Q and Part I, Item 1A. “Risk Factors” of the
Company’s Form 10-K for the year ended December 31, 20202021 for a discussion of additional risks related to the Company’s 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.
CRITICAL ACCOUNTING ESTIMATES
A complete discussion of our critical accounting estimates is included in our Form 10-K for the year ended December 31, 2020.2021. There have been no significant changes in our critical accounting estimates during the six months ended June 30, 2021.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
For information with respect to new accounting pronouncements and the impact of these pronouncements on our unaudited Consolidated Financial Statements, see Note 3, “New Accounting Pronouncements,” in the notes to our unaudited Consolidated Financial Statements.
IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q includes “forward-lookingcontains “forward-looking statements” within the meaning of Section 27A of the Private Securities Litigation Reform Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.1995. These statements can be identified by the use of forward-looking terminology such as “expects,” “believes,” “estimates,” “projects,” “intends,” “plans,” “goal,” “seeks,” “may,” “will,” “should,” or “anticipates” or the negative or other variations of these or similar words, or by discussions of future events, strategies or risks and uncertainties. Specifically, forward-looking statements include, but are not limited to, statements regarding: COVID-19; continued demand for the gaming properties that have reopened and the possibility that the Company’s gaming properties may be required to close again in the 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 of the Perryville transaction with Gaming and Leisure Properties, Inc.; the potential benefits of the Hitpoint transaction; the Company’s estimated cash burn and future liquidity, future revenue and Adjusted EBITDAR, including from the Company’s iGaming business in Pennsylvania and Michigan; the expected benefits and potential challenges of the investment in Barstool Sports; the expected launch of the Barstool-branded mobile sports betting product in future states and its future revenue and profit contributions; the Company’s expectations of, and guidance regarding, future results of operations and financial condition, the assumptions provided regarding the guidance, including margins;the scale and timing of the Company’s product and technology investments; the Company’s anticipated share repurchases; the Company’s expectations forwith regard to results, and the impact of competition, in online sports betting, iGaming and retail/mobile sportsbooks; the Company’s launch of its propertiesInteractive segment’s products in new jurisdictions and enhancements to existing Interactive segment products, including the integration of the Barstool Sportsbook into theScore mobile app in the U.S., and the migration of the Barstool Sportsbook to theScore’s player account management trading platforms; the Company’s expectations with regard to its future investments in Barstool Sports and the future success of its products; the Company’s expectations with respect to the integration and synergies related to the Company’s integration of theScore and Barstool Sports; the Company’s expectations with respect to the ongoing introduction and the potential benefits of the cashless, cardless and contactless (“3Cs”) technology; the Company’sCompany's development projects or its iGaming initiatives;projects; and the timing, cost and expected impact of planned capital expenditures on the Company’sCompany's results of operations; the anticipated opening dates of the Company’s retail sportsbooks in future states; the Company’s expectations with regard to acquisitions, potential divestitures and development opportunities, as well as the integration of and synergies related to any companies the Company have acquired or may acquire; the outcome and financial impact of the litigation in which the Company is 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 the impact of any such actions; the Company’s ability to maintain regulatory approvals for its existing businesses and to receive regulatory approvals for its new business partners; the Company’s expectations with regard to the impact of competition in online sports betting, iGaming and retail/mobile sportsbooks as well as the potential impact of this business line on the Company’s existing businesses; and the performance of the Company’s partners in online sports betting, iGaming and retail/mobile sportsbooks, including the risks associated with any new business, the actions of regulatory, legislative, executive or judicial decisions with regard to online sports betting, iGaming and retail/mobile sportsbooks and the impact of any such actions. operations.
Such statements are all subject to risks, uncertainties and changes in circumstances that could significantly affect the Company’s future financial results and business.
Accordingly, the Company cautions that the forward-looking statements contained herein are qualified by important factors that could cause actual results to differ materially from those reflected by such statements. Such factors include, but are not limited to: (a)include: the magnitude and durationeffects of the impact of the COVID-19 pandemic on general economic conditions capitaland market conditions in the markets unemployment, consumer spending and the Company’s liquidity, financial condition, supply chain, operations and personnel; (b) industry, market, economic, political, regulatory and health conditions; (c) disruptions in operations from data protection breaches, cyberattacks, extreme weather conditions, medical epidemics or pandemics such as the COVID-19, and other natural or man-made disasters or catastrophic events; (d) the Company’s ability to access additional capital on favorable terms or at all; (e) the Company’s ability to remain in compliance with the financial covenants of its debt obligations; (f) actions to reduce costs and improve efficiencies to mitigate losses as a result of the COVID-19 pandemic that could negatively impact
guest loyalty and the Company’s ability to attract and retain employees; (g) the outcome of any legal proceedings that may be instituted against the Company or its directors, officers or employees; (h) the impact of new or changes in current laws, regulations, rules or other industry standards; (i) the ability of the Company’s operating teams to drive revenue and margins; (j) the impact of significant competition from other gaming and entertainment operations; (k) the Company’s ability to obtain timely regulatory approvals required to own, develop and/or operate its properties, or other delays, approvals or impediments to completing its planned acquisitions or projects, construction factors, including delays, and increased costs; (l) the passage of state, federal or local legislation that would expand, restrict, further tax, prevent or negatively impact operations in or adjacent to the jurisdictions in which the Company does or seek to do business; (m)operates; competition with other entertainment, sports content, and casino gaming experiences; the effectstiming, cost and expected impact of localproduct and national economic, credit, capital market, housing, and energy conditions on the economy in general and on the gaming and lodging industries in particular; (n) 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 and municipalities for such transactions; (o) 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; (p) the risk of failing to maintain the integrity of our information technology infrastructure and safeguard our business, employee and customer data (particularly as our iGaming division grows); (q) with respect to new casinos,investments; risks relating to construction,international operations, permits, licenses, financings, approvals and its ability to achieve its expected budgets, timelines and investment returns; (r) the Company may not be able to achieve the anticipated financial returns from the acquisition of Score Media & Gaming, Inc. (“theScore”), including due to fees, costs and taxesother contingencies in connection with the integration of theScoregrowth in new or existing jurisdictions; and expansion of its bettingadditional risks and content platform; (s) the closing of the acquisition of theScore may be delayed or may not occur at all, for reasons beyond the Company’s control; (t) the requirement to satisfy the closing conditions in the agreement with theScore, including receipt of regulatory approvals and the approval of shareholders of theScore; (u) there is significant competition in the interactive gaming market; (v) potential adverse reactions or changes to business or regulatory relationships resulting from the announcement or completion of the acquisition of theScore; (w) the ability of the Company or theScore to retain and hire key personnel; (x) the occurrence of any event, change or other circumstances that could give rise to the right of one or both of the Company and theScore to terminate the agreement between the companies; (y) the outcome of any legal proceedings that may be instituted against the Company, theScore or their respective directors, officers or employees; and (z) other factors as discusseduncertainties described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020,2021, subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, each as filed with the U.S. Securities and Exchange Commission. The Company does not intend to update publicly any forward-looking statements except as required by law.
ITEM 3. 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 interestinterests rate on borrowings under our Senior SecuredAmended Credit Facilities. As of June 30, 2021,2022, the Company’s Senior SecuredAmended Credit Facilities had a gross outstanding balance of $1,595.9 million,$1.6 billion, consisting of a $610.4$550.0 million Amended Term Loan A Facility, a $985.5 million$1.0 billion Amended Term Loan B-1B Facility. As of June 30, 2021,2022, we have $672.2$974.6 million of available borrowing capacity under our Amended Revolving Credit Facility.
The table below provides information as of June 30, 20212022 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) | (dollars in millions) | 07/01/21 - 06/30/22 | | 07/01/22 - 06/30/23 | | 07/01/23 - 06/30/24 | | 07/01/24 -06/30/25 | | 07/01/25 - 06/30/26 | | Thereafter | | Total | | Fair Value | (dollars in millions) | 7/01/22 - 6/30/23 | | 7/01/23 - 6/30/24 | | 7/01/24 - 6/30/25 | | 7/01/25 - 6/30/26 | | 7/01/26 - 6/30/27 | | Thereafter | | Total | | Fair Value |
| Fixed rate | Fixed rate | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 400.0 | | | $ | 400.0 | | | $ | 415.0 | | Fixed rate | $ | — | | $ | — | | $ | — | | $ | — | | $ | 400.0 | | $ | — | | $ | 400.0 | | | $ | 350.0 | |
| Average interest rate | Average interest rate | | 5.625 | % | | Average interest rate | | 5.625 | % | |
| Fixed rate | Fixed rate | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 330.5 | | | $ | 330.5 | | | $ | 1,093.9 | | Fixed rate | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 400.0 | | $ | 400.0 | | | $ | 305.0 | |
| Average interest rate | Average interest rate | | 2.75 | % | | Average interest rate | | 4.125 | % | |
| Fixed rate | | Fixed rate | $ | — | | $ | — | | $ | — | | $ | 330.5 | | $ | — | | $ | — | | $ | 330.5 | | | $ | 489.7 | |
| Average interest rate | | Average interest rate | | 2.75 | % | |
| Variable rate | Variable rate | $ | 73.2 | | | $ | 82.1 | | | $ | 488.9 | | | $ | 11.3 | | | $ | 940.4 | | | $ | — | | | $ | 1,595.9 | | | $ | 1,588.7 | | Variable rate | $ | 37.5 | | $ | 37.5 | | $ | 37.5 | | $ | 37.5 | | $ | 450.0 | | $ | 950.0 | | $ | 1,550.0 | | | $ | 1,496.8 | |
Average interest rate (1) | Average interest rate (1) | 4.26 | % | | 4.53 | % | | 4.79 | % | | 4.15 | % | | 4.27 | % | | Average interest rate (1) | 4.63 | % | | 4.68 | % | | 4.70 | % | | 4.71 | % | | 4.48 | % | | 5.48 | % | |
(1)Estimated rate, reflective of forward LIBORSOFR as of June 30, 20212022 plus the spread over LIBORSOFR applicable to variable-rate borrowing.
We are exposed to currency translation risk because the results of our international entities are reported in local currency, which we then translate to U.S. dollars for inclusion in our unaudited Consolidated Financial Statements. As a result, changes between the foreign exchange rates, in particular the Canadian dollar compared to the U.S. dollar, affect the amounts we record for our foreign assets, liabilities, revenues and expenses, and could have a negative effect on our financial results. The results of theScore are reported in Canadian dollars, which we then translate to U.S. dollars for inclusion in our unaudited Consolidated Financial Statements. We do not currently enter into hedging arrangements to minimize the impact of foreign currency fluctuations on our operations. For the three and six months ended June 30, 2022, we incurred an unrealized foreign currency translation adjustment loss of $62.7 million and $26.9 million, respectively.
ITEM 4.CONTROLS AND PROCEDURES
The Company’s management, under the supervision and with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of June 30, 2021.2022. Based on this evaluation, our principal executive officer and principal financial officer concluded that the Company’s
disclosure controls and procedures were effective as of June 30, 20212022 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’s rules and forms and (ii) accumulated and communicated to the Company’s management, including the Company’s principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.
During the quarter ended June 30, 2021,2022, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are a party to a number of other pending legal proceedings. Management does not expect that the outcome of such proceedings, either individually or in the aggregate, will have a material effect on our financial position, results of operations or cash flows.
ITEM 1A.RISK FACTORS
The following are new or modifiedWe refer you to our 2021 Annual Report on Form 10-K for a discussion of the risk factors that should be read in conjunction withaffect our business and financial results. There have been no material changes to those risk factors.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table presents the risk factors disclosed under Part I, Item 1A. “Risk Factors” intotal number of shares of our common stock that we repurchased during the Company’s Form 10-Ksecond quarter of 2022, the average price paid per share, the number of shares that we repurchased as part of our share repurchase program, and the approximate dollar value of shares that still could have been repurchased at the end of the applicable fiscal period pursuant to our share repurchase program:
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| (dollars in millions, except for per share data) | | Total Number of Shares Purchased (1) | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Program (2) | | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Program |
| April 1, 2022 - April 30, 2022 | | 402 | | | $ | 42.42 | | | — | | | $ | 575.0 | |
| May 1, 2022 - May 31, 2022 | | 1,895,830 | | | $ | 30.09 | | | 1,893,947 | | | $ | 518.0 | |
| June 1, 2022 - June 30, 2022 | | 3,645,230 | | | $ | 30.19 | | | 3,645,230 | | | $ | 408.1 | |
| Total | | 5,541,462 | | | $ | 30.16 | | | 5,539,177 | | | |
(1)Includes 402 and 1,883 shares withheld to pay taxes due upon the vesting of employee restricted stock for the yearmonths ended DecemberApril 30 and May 31, 20202022, respectively.
(2)On February 1, 2022, our Board of Directors authorized and Part II, Item 1A. “Risk Factors”announced the repurchase of up to $750.0 million of our common stock from time to time on the open market or in the Company’s subsequent Form 10-Q filings.
Risks Related to the COVID-19 Pandemic
privately negotiated transactions. The COVID-19 pandemic has significantly impacted the global economy,share purchase authorization expires on January 31, 2025. Stock repurchases, if any, will be funded using our available liquidity. The timing and amount of stock repurchases will depend on a variety of factors, 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 economicmarket 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 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.
corporate and regulatory considerations. As of June 30, 2021, all2022, we have repurchased a total of 9,341,585 shares of our properties are open, and the majoritycommon stock at an average price of our properties are operating at full capacity while adhering to state mandated health and safety protocols. Though all of our properties are open, we may be required to again temporarily suspend operations at our properties if ordered by such governmental bodies. Our properties may again 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 compared to our current operation and compared to pre COVID-19 pandemic levels. Additionally, our operation may be affected by our ability to retain our workforce or hire new team members.
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. 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 COVID-19 pandemic. Cancellations, delays or shortened sports seasons and sporting events due to the COVID-19 pandemic could also have 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 again order closures or impose restrictions on the number of people allowed in our properties or in proximity to each other. Any of these events could result in significant 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, 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. 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 it could have a material impact on our business, financial condition, liquidity, results of operations (including revenues and profitability), and stock price.
ITEM 6. EXHIBITS
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| Number | | Description of Exhibit |
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4.1**3.1* | | |
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| 3.2* | | |
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| 10.1† | | Second Amended and Restated ArticlesCredit Agreement, dated as of Incorporation ofMay 3, 2022, by and among Penn National Gaming, Inc., as borrower, the guarantors from time to time party thereto, the lenders from time to time party thereto, Bank of America, N.A., as administrative agent and as collateral agent. (incorporated by reference to Exhibit 3.110.3 to the Company's Quarterly Report on Form 10-Q filed May 5, 2022) |
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| 10.2 | | |
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4.2**10.3 | | |
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4.3**10.4 | | |
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10.110.5†**
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10.210.6†*
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10.310.7†*
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| 10.8 | | |
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| 31.1* | | |
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| 31.2* | | |
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| 32.1** | | |
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| 32.2** | | |
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| 101.INS | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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101.SCH | | Inline XBRL Taxonomy Extension Schema Document. |
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Exhibit | | |
Number | | Description of Exhibit |
| 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
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| 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document. |
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| 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document. |
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| 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
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| 104 | | Cover Page Inline XBRL File (included in Exhibit 101) |
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| * | | Filed herewith. |
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| ** | | Furnished herewith. |
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| † | | Management contract Annexes, schedules and/or compensatory plan or arrangement.exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company agrees to furnish supplementally a copy of any omitted attachment to the SEC on a confidential basis upon request. |
SIGNATURES
Pursuant to the requirements 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.
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| | | PENN NATIONAL GAMING,ENTERTAINMENT, INC. |
| Dated: | August 5, 20214, 2022 | By: | /s/ Christine LaBombard |
| | | Christine LaBombard |
| | | Senior Vice President and Chief Accounting Officer |