GLPI-2015.3.31-10Q
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q 
(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2015
 
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:  001-36124 
Gaming and Leisure Properties, Inc.
(Exact name of registrant as specified in its charter) 
Pennsylvania
 
46-2116489
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
825 Berkshire Blvd., Suite 400
Wyomissing, PA 19610
(Address of principal executive offices) (Zip Code)
 
610-401-2900
(Registrant’s telephone number, including area code)
 
Not Applicable
(Former name, former address, and former fiscal year, if changed since last report)
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 x No ¨
 Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).  Yes x No ¨
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act: 
Large accelerated filer x
 
Accelerated filer ¨
 
 
 
Non-accelerated filer ¨
 
Smaller reporting company ¨
(Do not check if a smaller reporting company)
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ¨ No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date
Title
 
Outstanding as of April 30, 2015
Common Stock, par value $.01 per share
 
115,846,867
 



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Forward-looking statements in this document are subject to known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of Gaming and Leisure Properties, Inc. ("GLPI") and its subsidiaries (collectively, the "Company") to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements include information concerning the Company’s business strategy, plans, and goals and objectives.
 
Statements preceded by, followed by or that otherwise include the words "believes," "expects," "anticipates," "intends," "projects," "estimates," "plans," "may increase," "may fluctuate," and similar expressions or future or conditional verbs such as "will," "should," "would," "may" and "could" are generally forward-looking in nature and not historical facts. You should understand that the following important factors could affect future results and could cause actual results to differ materially from those expressed in such forward-looking statements:
 
the ability to receive, or delays in obtaining, the regulatory approvals required to own, develop and/or operate our properties, or other delays or impediments to completing our planned acquisitions or projects;

the ultimate outcome of any potential transaction between the Company and Pinnacle Entertainment Inc. ("Pinnacle") including the possibilities that we will not pursue a transaction with Pinnacle and that Pinnacle will not engage in negotiations with respect to a transaction with us;

the outcome of our lawsuit against Cannery Casino Resorts LLC ("CCR"), the owner of the Meadows Racetrack and Casino, alleging among other things, fraud, breach of the agreement and breach of the related consulting agreement;

our ability to maintain our status as a real estate investment trust ("REIT"), given the highly technical and complex Internal Revenue Code ("Code") provisions for which only limited judicial and administrative authorities exist, where even a technical or inadvertent violation could jeopardize REIT status and where requirements may depend in part on the actions of third parties over which the Company has no control or only limited influence;
 
the satisfaction of certain asset, income, organizational, distribution, shareholder ownership and other requirements on a continuing basis in order for the Company to maintain its elected REIT status;
 
the ability and willingness of our tenants, operators and other third parties to meet and/or perform their obligations under their respective contractual arrangements with us, including, in some cases, their obligations to indemnify, defend and hold us harmless from and against various claims, litigation and liabilities;
 
the ability of our tenants and operators to maintain the financial strength and liquidity necessary to satisfy their respective obligations and liabilities to third parties, including without limitation obligations under their existing credit facilities and other indebtedness;
 
the ability of our tenants and operators to comply with laws, rules and regulations in the operation of our properties, to deliver high quality services, to attract and retain qualified personnel and to attract customers;
 
the availability and the ability to identify suitable and attractive acquisition and development opportunities and the ability to acquire and lease the respective properties on favorable terms;
 
the degree and nature of our competition;
 
the ability to generate sufficient cash flows to service our outstanding indebtedness;
 
the access to debt and equity capital markets;
 
fluctuating interest rates;
 
the availability of qualified personnel and our ability to retain our key management personnel;
 
GLPI’s duty to indemnify Penn National Gaming, Inc. and its subsidiaries ("Penn") in certain circumstances if the spin-off transaction described in Note 1 to the condensed consolidated financial statements fails to be tax-free;
 
changes in the United States tax law and other state, federal or local laws, whether or not specific to real estate, real estate investment trusts or to the gaming, lodging or hospitality industries;

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changes in accounting standards;
 
the impact of weather events or conditions, natural disasters, acts of terrorism and other international hostilities, war or political instability;
 
other risks inherent in the real estate business, including potential liability relating to environmental matters and illiquidity of real estate investments; and

additional factors as discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K as filed with the United States Securities and Exchange Commission.
 
Certain of these factors and other factors, risks and uncertainties are discussed in the "Risk Factors" section in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. Other unknown or unpredictable factors may also cause actual results to differ materially from those projected by the forward-looking statements. Most of these factors are difficult to anticipate and are generally beyond the control of the Company.
 
You should consider the areas of risk described above, as well as those set forth in the "Risk Factors" section in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, in connection with considering any forward-looking statements that may be made by the Company generally. Except for the ongoing obligations of the Company to disclose material information under the federal securities laws, the Company does not undertake any obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events unless required to do so by law.


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GAMING AND LEISURE PROPERTIES, INC. AND SUBSIDIARIES
 
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
 
Gaming and Leisure Properties, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(amounts in thousands, except share data)
 
 
March 31,
2015
 
December 31, 2014
 
(unaudited)
 
 
Assets
 
 
 
Real estate investments, net
$
2,157,003

 
$
2,180,124

Property and equipment, used in operations, net
136,533

 
134,028

Cash and cash equivalents
45,367

 
35,973

Prepaid expenses
7,468

 
7,900

Deferred tax assets, current
1,568

 
2,015

Other current assets
47,644

 
45,254

Goodwill
75,521

 
75,521

Other intangible assets
9,577

 
9,577

Debt issuance costs, net of accumulated amortization of $11,347 and $9,327 at March 31, 2015 and December 31, 2014, respectively
37,106

 
39,126

Loan receivable
33,463

 
34,000

Deferred tax assets, non-current
808

 
679

Other assets
419

 
383

Total assets
$
2,552,477

 
$
2,564,580

 
 
 
 
Liabilities
 
 
 
Accounts payable
$
3,301

 
$
4,409

Accrued expenses
5,756

 
5,339

Accrued interest
42,431

 
17,528

Accrued salaries and wages
6,387

 
12,581

Gaming, property, and other taxes
25,132

 
22,741

Income taxes
1,572

 

Current maturities of long-term debt
99

 
81

Other current liabilities
16,237

 
15,788

Long-term debt, net of current maturities
2,576,364

 
2,609,406

Deferred tax liabilities, non-current
738

 
1,443

Total liabilities
2,678,017

 
2,689,316

 
 
 
 
Shareholders’ deficit
 
 
 
 
 
 
 
Common stock ($.01 par value, 550,000,000 shares authorized, 114,213,335 and 112,981,088 shares issued at March 31, 2015 and December 31, 2014, respectively)
1,142

 
1,130

Additional paid-in capital
903,608

 
888,860

Retained deficit
(1,030,290
)
 
(1,014,726
)
Total shareholders’ deficit
(125,540
)
 
(124,736
)
Total liabilities and shareholders’ deficit
$
2,552,477

 
$
2,564,580

 
See accompanying notes to the condensed consolidated financial statements.


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Gaming and Leisure Properties, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(in thousands, except per share data)
(unaudited)
 
        
 
Three Months Ended March 31,
 
2015
 
2014
Revenues
 

 
 

Rental
$
111,504

 
$
106,114

Real estate taxes paid by tenants
13,350

 
11,998

Total rental revenue
124,854

 
118,112

Gaming
36,379

 
38,755

Food, beverage and other
2,815

 
2,831

Total revenues
164,048

 
159,698

Less promotional allowances
(1,387
)
 
(1,370
)
Net revenues
162,661

 
158,328

 
 
 
 
Operating expenses
 

 
 

Gaming
19,016

 
21,562

Food, beverage and other
2,184

 
2,546

Real estate taxes
13,755

 
12,423

General and administrative
21,539

 
20,941

Depreciation
27,411

 
26,522

Total operating expenses
83,905

 
83,994

Income from operations
78,756

 
74,334

 
 
 
 
Other income (expenses)
 

 
 

Interest expense
(29,562
)
 
(28,974
)
Interest income
595

 
546

Total other expenses
(28,967
)
 
(28,428
)
 
 
 
 
Income before income taxes
49,789

 
45,906

Income tax expense
2,702

 
1,594

Net income
$
47,087

 
$
44,312

 
 
 
 
Earnings per common share:
 

 
 

Basic earnings per common share
$
0.41

 
$
0.40

Diluted earnings per common share
$
0.40

 
$
0.38

 
 
 
 
Dividends paid per common share
$
0.55

 
$
0.52

 
See accompanying notes to the condensed consolidated financial statements.


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Gaming and Leisure Properties, Inc. and Subsidiaries
Condensed Consolidated Statement of Changes in Shareholders’ Deficit
(in thousands, except share data)
(unaudited)
 
 
Common Stock
 
Additional
Paid-In
Capital
 
Retained
Deficit
 
Total
Shareholders’
Deficit
 
Shares
 
Amount
 
 
 
Balance, December 31, 2014
112,981,088

 
$
1,130

 
$
888,860

 
$
(1,014,726
)
 
$
(124,736
)
Stock option activity
1,166,823

 
11

 
12,597

 

 
12,608

Restricted stock activity
65,424

 
1

 
2,151

 

 
2,152

Dividends paid

 

 

 
(62,651
)
 
(62,651
)
Net income

 

 

 
47,087

 
47,087

Balance, March 31, 2015
114,213,335

 
$
1,142

 
$
903,608

 
$
(1,030,290
)
 
$
(125,540
)
 
See accompanying notes to the condensed consolidated financial statements.


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Gaming and Leisure Properties, Inc. and Subsidiaries
 Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 
Three months ended March 31,
 
2015
 
2014
Operating activities
 
 

 
 

Net income
 
$
47,087

 
$
44,312

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

 
 

Depreciation
 
27,411

 
26,522

Amortization of debt issuance costs
 
2,020

 
2,007

Losses on dispositions of property
 
1

 
158

Deferred income taxes
 
(386
)
 
(898
)
Stock-based compensation
 
4,394

 
1,951

Decrease (increase),
 
 

 
 

Prepaid expenses and other current assets
 
838

 
(5,201
)
Other assets
 

 
(273
)
(Decrease) increase,
 
 

 
 

Accounts payable
 
(1,345
)
 
43

Accrued expenses
 
415

 
(6,788
)
Accrued interest
 
24,903

 
24,814

Accrued salaries and wages
 
(6,194
)
 
(2,202
)
Gaming, pari-mutuel, property and other taxes
 
(406
)
 
4,975

Income taxes
 
1,572

 
(11,367
)
Other current and noncurrent liabilities
 
449

 
1,674

Net cash provided by operating activities
 
100,759

 
79,727

Investing activities
 
 

 
 

Capital project expenditures, net of reimbursements
 
(5,640
)
 
(24,002
)
Capital maintenance expenditures
 
(951
)
 
(871
)
Proceeds from sale of property and equipment
 
5

 

Increase in cash escrow
 

 
(3,356
)
Funding of loan receivable
 

 
(43,000
)
Principal payments on loan receivable
 
538

 
2,000

Acquisition of real estate
 

 
(140,730
)
Other investing activities
 
(36
)
 

Net cash used in investing activities
 
(6,084
)
 
(209,959
)
Financing activities
 
 

 
 

Dividends paid
 
(62,651
)
 
(270,040
)
Proceeds from exercise of options
 
10,394

 
13,321

Proceeds from issuance of long-term debt
 

 
182,008

Payments of long-term debt
 
(33,024
)
 
(32,000
)
Net cash used in financing activities
 
(85,281
)
 
(106,711
)
Net increase (decrease) in cash and cash equivalents
 
9,394

 
(236,943
)
Cash and cash equivalents at beginning of period
 
35,973

 
285,221

Cash and cash equivalents at end of period
 
$
45,367

 
$
48,278

 
See accompanying notes to the condensed consolidated financial statements.


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Gaming and Leisure Properties, Inc.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
 
1.              Organization and Operations
 
Gaming and Leisure Properties, Inc. ("GLPI") is a self-administered and self-managed Pennsylvania real estate investment trust ("REIT"). GLPI (together with its subsidiaries, the "Company") was incorporated on February 13, 2013, as a wholly-owned subsidiary of Penn National Gaming, Inc. ("Penn"). On November 1, 2013, Penn contributed to GLPI, through a series of internal corporate restructurings, substantially all of the assets and liabilities associated with Penn’s real property interests and real estate development business, as well as the assets and liabilities of Hollywood Casino Baton Rouge and Hollywood Casino Perryville, which are referred to as the "TRS Properties," and then spun-off GLPI to holders of Penn's common and preferred stock in a tax-free distribution (the "Spin-Off"). The Company elected on its United States ("U.S.") federal income tax return for its taxable year beginning on January 1, 2014 to be treated as a REIT and the Company, together with an indirectly wholly-owned subsidiary of the Company, GLP Holdings, Inc., jointly elected to treat each of GLP Holdings, Inc., Louisiana Casino Cruises, Inc. and Penn Cecil Maryland, Inc. as a "taxable REIT subsidiary" ("TRS") effective on the first day of the first taxable year of GLPI as a REIT. As a result of the Spin-Off, GLPI owns substantially all of Penn’s former real property assets and leases back most of those assets to Penn for use by its subsidiaries, under a master lease, a "triple-net" operating lease with an initial term of 15 years with no purchase option, followed by four 5 year renewal options (exercisable by Penn) on the same terms and conditions (the "Master Lease"), and GLPI also owns and operates the TRS Properties through an indirect wholly-owned subsidiary, GLP Holdings, Inc.
 
GLPI’s primary business consists of acquiring, financing, and owning real estate property to be leased to gaming operators in "triple net" lease arrangements. As of March 31, 2015, GLPI’s portfolio consisted of 21 gaming and related facilities, which included the TRS Properties, the real property associated with 18 gaming and related facilities operated by Penn and the real property associated with the Casino Queen in East St. Louis, Illinois.  These facilities are geographically diversified across 12 states.
 
In connection with the Spin-Off, Penn allocated its accumulated earnings and profits (as determined for U.S. federal income tax purposes) for periods prior to the consummation of the Spin-Off between Penn and GLPI. In connection with its election to be taxed as a REIT for U.S. federal income tax purposes, GLPI declared a special dividend to its shareholders to distribute any accumulated earnings and profits relating to the real property assets and attributable to any pre-REIT years, including any earnings and profits allocated to GLPI in connection with the Spin-Off, to comply with certain REIT qualification requirements (the "Purging Distribution"). The Purging Distribution, which was paid on February 18, 2014, totaled approximately $1.05 billion and was comprised of cash and GLPI common stock. Additionally, on December 19, 2014, the Company made a one-time distribution of $37.0 million to shareholders in order to confirm the Company appropriately allocated its historical earnings and profits relative to the separation from Penn, in response to the Pre-Filing Agreement requested from the IRS. See Note 9 for further details.
 
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes 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.
 
The condensed consolidated financial statements include the accounts of GLPI and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses for the reporting periods. Actual results could differ from those estimates.
 
Operating results for the three months ended March 31, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. The notes to the consolidated financial statements contained in the Annual Report on Form 10-K for the year ended December 31, 2014 (our "Annual Report") should be read in conjunction with these condensed consolidated financial statements.  The December 31, 2014 financial information has been derived from the Company’s audited consolidated financial statements.
 

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2.    New Accounting Pronouncements

In April 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2015-05, Intangibles - Goodwill and Other Internal-Use Software (Subtopic 350-40): Customer's Accounting for Fees Paid in a Cloud Computing Arrangement ("ASU 2015-05"). This ASU provides guidance on determining whether a cloud computing arrangement includes a software license, the accounting treatment of such a software license to be consistent with that of other licensed intangible assets, and the treatment of service agreements within cloud computing arrangements as service contracts. ASU 2015-05 is effective for financial statements issued for fiscal years beginning after December 15, 2015 and may be applied on a prospective or retrospective basis. The Company is evaluating the impact of adopting ASU 2015-05 and does not believe its adoption will have a material effect on its financial position or results of operation.
    
In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs ("ASU 2015-03"). This ASU requires that debt issuance costs related to a recognized debt liability be presented on the balance sheet as a direct reduction from the carrying amount of that debt liability, consistent with the presentation of debt discounts. ASU 2015-03 is effective for financial statements issued for fiscal years beginning after December 15, 2015 and will be applied on a retrospective basis, wherein the balance sheet of each period presented will be adjusted to reflect the period-specific effects of applying the new guidance. Consistent with current guidance, the Company currently recognizes its debt issuance costs as deferred charges or assets on its balance sheet. The Company is evaluating the impact of adopting ASU 2015-03 and does not believe its adoption will have a material effect on its financial position or results of operation, as it believes only a balance sheet reclassification between assets and liabilities will be required upon adoption of the new standard.
 
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"). This new standard will replace all current U.S. GAAP guidance on this topic and eliminate all industry-specific guidance. ASU 2014-09 provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. At the April 1, 2015 FASB meeting, the board voted to defer the effective date for the new revenue recognition standard to annual reporting periods beginning after December 15, 2017. The pronouncement was originally effective for annual reporting periods beginning after December 15, 2016, and companies are permitted to elect the adoption of the standard as of the original effective date. When adopted, the new guidance can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. The Company is evaluating the impact of adopting this new accounting standard on its financial statements and internal revenue recognition policies.
 
In April 2014, the FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity ("ASU 2014 -08"). This new standard raises the threshold for a disposal to qualify as a discontinued operation and requires new disclosures for both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. Under the new guidance, only disposals representing a strategic shift that will have a major effect on operations and financial results should be presented as discontinued operations.  ASU 2014 -08 is effective for fiscal years beginning on or after December 15, 2014. Early adoption is permitted but only for disposals that have not been reported in previously issued financial statements. The impact of the adoption of ASU 2014-08 on the Company’s results of operations, financial position, cash flows and disclosures will be based on the Company’s future disposal activity.
 
3.              Summary of Significant Accounting Policies
 
Fair Value of Financial Instruments
 
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:
 
Cash and Cash Equivalents
 
The fair value of the Company’s cash and cash equivalents approximates the carrying value of the Company’s cash and cash equivalents, due to the short maturity of the cash equivalents.





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Deferred Compensation Plan Assets and Corresponding Liabilities

The Company's deferred compensation plan assets consist of open-ended mutual funds and as such the fair value measurement of the assets is considered a Level 1 measurement as defined under Accounting Standards Code ("ASC") 820 "Fair Value Measurements and Disclosures." Deferred compensation plan assets are included within other current assets on the condensed consolidated balance sheets. Deferred compensation liabilities approximate the plan's assets and are included with current liabilities on the condensed consolidated balance sheets. The difference between the Company's deferred compensation plan assets and liabilities at both March 31, 2015 and December 31, 2014 is related to timing differences between the funding of assets held at the plan trustee and the actual contributions from eligible employees' compensation.

Loan Receivable

The fair value of the loan receivable approximates the carrying value of the Company's loan receivable, as collection on the outstanding loan balance is reasonably assured.

Long-term Debt
 
The fair value of the senior unsecured notes and senior unsecured credit facility is estimated based on quoted prices in active markets and as such is a Level 1 measurement as defined under Accounting Standards Code ("ASC") 820 "Fair Value Measurements and Disclosures."
 
The estimated fair values of the Company’s financial instruments are as follows (in thousands):
 
March 31, 2015
 
December 31, 2014
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Financial assets:
 

 
 

 
 

 
 

Cash and cash equivalents
$
45,367

 
$
45,367

 
$
35,973

 
$
35,973

Deferred compensation plan assets
14,826

 
14,826

 
14,280

 
14,280

Loan receivable
33,463

 
33,463

 
34,000

 
34,000

Financial liabilities:
 

 
 

 
 

 
 

Deferred compensation plan liabilities
14,901

 
14,901

 
14,369

 
14,369

Long-term debt
 

 
 

 
 

 
 

Senior unsecured credit facility
525,000

 
509,250

 
558,000

 
535,010

Senior notes
2,050,000

 
2,107,025

 
2,050,000

 
2,091,000

 
Comprehensive Income
 
Comprehensive income includes net income and all other non-owner changes in shareholders’ equity during a period. The Company did not have any non-owner changes in shareholders’ equity for the three months ended March 31, 2015 and 2014, and comprehensive income for the three months ended March 31, 2015 and 2014 was equivalent to net income for those time periods.
 
Revenue Recognition and Promotional Allowances
 
The Company recognizes rental revenue from tenants, including rental abatements, lease incentives and contractually fixed increases attributable to operating leases, on a straight-line basis over the term of the related leases when collectability is reasonably assured. Contingent rental income is recognized once the lessee achieves the specified target. Recognition of rental income commences when control of the facility has been transferred to the tenant.
 
As of March 31, 2015, all but one of the Company’s real estate investment properties were leased to a subsidiary of Penn under the Master Lease. The obligations under the Master Lease are guaranteed by Penn and by most Penn subsidiaries that occupy and operate the facilities leased under the Master Lease. A default by Penn or its subsidiaries with regard to any facility will cause a default with regard to the Master Lease. In January 2014, GLPI completed the asset acquisition of Casino Queen in East St. Louis, Illinois. GLPI subsequently leased the property back to Casino Queen on a "triple net" basis on terms similar to those in the Master Lease.
 

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The rent structure under the Master Lease with Penn includes a fixed component, a portion of which is subject to an annual 2% escalator if certain rent coverage ratio thresholds are met, and a component that is based on the performance of the facilities, which is adjusted, subject to certain floors (i) every five years by an amount equal to 4% of the average change to net revenues of all facilities under the Master Lease (other than Hollywood Casino Columbus and Hollywood Casino Toledo) during the preceding five years, and (ii) monthly by an amount equal to 20% of the change in net revenues of Hollywood Casino Columbus and Hollywood Casino Toledo during the preceding month. In addition to rent, all properties under the Master Lease with Penn are required to pay the following: (1) all facility maintenance, (2) all insurance required in connection with the leased properties and the business conducted on the leased properties, (3) taxes levied on or with respect to the leased properties (other than taxes on the income of the lessor) and (4) all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties.

The rent structure under the Casino Queen lease also includes a fixed component, a portion of which is subject to an annual 2% escalator if certain rent coverage ratio thresholds are met, and a component that is based on the performance of the facility, which is reset every five years to a fixed amount equal to the greater of (i) the annual amount of non-fixed rent applicable for the lease year immediately preceding such rent reset year and (ii) an amount equal to 4% of the average annual net revenues of the facility for the trailing five year period. Similar to Master Lease, the tenant is responsible for all executory charges described in the above paragraph.
 
Additionally, in accordance with ASC 605, "Revenue Recognition," the Company records revenue for the real estate taxes paid by its tenants on the leased properties with an offsetting expense in real estate taxes within the consolidated statement of income as the Company has concluded it is the primary obligor.
 
Gaming revenue generated by the TRS Properties mainly consists of video lottery gaming revenue, and to a lesser extent, table game and poker revenue. Video lottery gaming revenue is the aggregate net difference between gaming wins and losses with liabilities recognized for funds deposited by customers before gaming play occurs, for "ticket-in, ticket-out" coupons in the customers’ possession, and for accruals related to the anticipated payout of progressive jackpots. Progressive slot machines, which contain base jackpots that increase at a progressive rate based on the number of coins played, are charged to revenue as the amount of the jackpots increases. Table game gaming revenue is the aggregate of table drop adjusted for the change in aggregate table chip inventory. Table drop is the total dollar amount of the currency, coins, chips, tokens, outstanding counter checks (markers), and front money that are removed from the live gaming tables. Additionally, food and beverage revenue is recognized as services are performed.
 
The following table discloses the components of gaming revenue within the condensed consolidated statements of income for the three months ended March 31, 2015 and 2014:

        
 
Three Months Ended March 31,
 
2015
 
2014
 
(in thousands)
Video lottery
$
31,241

 
$
33,381

Table game
4,810

 
4,940

Poker
328

 
434

Total gaming revenue, net of cash incentives
$
36,379

 
$
38,755

 
Gaming revenue is recognized net of certain sales incentives in accordance with ASC 605-50, "Revenue Recognition— Customer Payments and Incentives." The Company records certain sales incentives and points earned in point-loyalty programs as a reduction of revenue.
 
The retail value of food and beverage and other services furnished to guests without charge is included in gross revenues and then deducted as promotional allowances. The amounts included in promotional allowances for the three months ended March 31, 2015 and 2014 are as follows: 
        
 
Three Months Ended March 31,
 
2015
 
2014
 
(in thousands)
Food and beverage
$
1,377

 
$
1,361

Other
10

 
9

Total promotional allowances
$
1,387

 
$
1,370


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The estimated cost of providing such complimentary services, which is primarily included in food, beverage, and other expense, for the three months ended March 31, 2015 and 2014 are as follows: 
        
 
Three Months Ended March 31,
 
2015
 
2014
 
(in thousands)
Food and beverage
$
596

 
$
716

Other
3

 
3

Total cost of complimentary services
$
599

 
$
719

 
Gaming and Admission Taxes
 
For the TRS Properties, the Company is subject to gaming and admission taxes based on gross gaming revenues in the jurisdictions in which it operates. The Company primarily recognizes gaming 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 wagering occurs. At Hollywood Casino Baton Rouge, the gaming and admission tax is based on graduated tax rates. At Hollywood Casino Perryville the gaming tax rate is flat. The Company records gaming and admission taxes at the Company’s estimated effective gaming tax rate for the year, considering estimated taxable gaming revenue and the applicable rates. Such estimates are adjusted each interim period. If gaming and admission tax rates change during the year, such changes are applied prospectively in the determination of gaming and admission tax expense in future interim periods.  For the three months ended March 31, 2015 and 2014, these expenses, which are recorded within gaming expense in the condensed consolidated statements of income, totaled $14.9 million and $17.3 million, respectively.

Earnings Per Share
 
The Company calculates earnings per share ("EPS") in accordance with ASC 260, "Earnings Per Share." Basic EPS is computed by dividing net income applicable to common stock by the weighted-average number of common shares outstanding during the period, excluding net income attributable to participating securities (unvested restricted stock awards). Diluted EPS reflects the additional dilution for all potentially-dilutive securities such as stock options, unvested restricted shares and unvested performance-based restricted shares. Diluted EPS for the Company's common stock is computed using the more dilutive of the two-class method or the treasury stock method.

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 months ended March 31, 2015 and 2014 (in thousands): 
        
 
Three Months Ended March 31,
 
2015
 
2014
 
(in thousands)
Determination of shares:
 

 
 

Weighted-average common shares outstanding
113,666

 
111,198

Assumed conversion of dilutive employee stock-based awards
4,232

 
6,282

Assumed conversion of restricted stock
219

 
370

Assumed conversion of performance-based restricted stock awards
382

 

Diluted weighted-average common shares outstanding
118,499

 
117,850

 










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The following table presents the calculation of basic and diluted EPS for the Company’s common stock for the three months ended March 31, 2015 and 2014
        
 
Three Months Ended March 31,
 
2015
 
2014
 
(in thousands, expect per share data)
Calculation of basic EPS:
 

 
 

Net income
$
47,087

 
$
44,312

Less: Net income allocated to participating securities
(215
)
 
(175
)
Net income attributable to common shareholders
$
46,872

 
$
44,137

Weighted-average common shares outstanding
113,666

 
111,198

Basic EPS
$
0.41

 
$
0.40

 
 
 
 
Calculation of diluted EPS:
 

 
 

Net income
$
47,087

 
$
44,312

Diluted weighted-average common shares outstanding
118,499

 
117,850

Diluted EPS
$
0.40

 
$
0.38

 
Options to purchase 15,529 shares were outstanding during the three months ended March 31, 2015 but were not included in the computation of diluted EPS because of being antidilutive.  There were no outstanding options to purchase shares of common stock during the three months ended March 31, 2014 that were not included in the computation of diluted EPS because of being antidilutive.
 
Stock-Based Compensation
 
The Company accounts for stock compensation under ASC 718, "Compensation - Stock Compensation," which requires the Company to expense the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. This expense is recognized ratably over the requisite service period following the date of grant. The fair value for stock options is estimated at the date of grant using the Black-Scholes option-pricing model. The fair value of the Company's time-based restricted stock awards is equivalent to the closing stock price on the day of grant. The Company utilizes a third party valuation firm to measure the fair value of performance-based restricted stock awards at grant date using the Monte Carlo model.
 
Additionally, the cash-settled phantom stock units ("PSU") entitle employees to receive cash based on the fair value of the Company’s common stock on the vesting date. These PSUs are accounted for as liability awards and are re-measured at fair value each reporting period until they become vested with compensation expense being recognized over the requisite service period in accordance with ASC 718-30, "Compensation-Stock Compensation, Awards Classified as Liabilities."
 
In addition, the Company’s stock appreciation rights ("SAR") are accounted for as liability awards. The fair value of these awards is calculated during each reporting period and estimated using the Black-Scholes option-pricing model.
 
In connection with the Spin-Off, each outstanding option and cash settled SAR with respect to Penn common stock outstanding on the distribution date was converted into two awards, an adjusted Penn option and a GLPI option, or, in the case of the SARs, an adjusted Penn SAR and a GLPI SAR. The adjustment preserved the aggregate intrinsic value of the options and SARs. Additionally, in connection with the Spin-Off, holders of outstanding restricted stock and PSUs with respect to Penn common stock became entitled to an additional share of restricted stock or PSU with respect to GLPI common stock for each share of Penn restricted stock or PSU held.

The adjusted options and SARs, as well as the restricted stock awards and PSUs, otherwise remain subject to their original terms, except that for purposes of the adjusted Penn awards (including in determining exercisability and the post-termination exercise period), continued service with GLPI following the distribution date shall be deemed continued service with Penn; and for purposes of the GLPI awards (including in determining exercisability and the post-termination exercise period), continued service with Penn following the distribution date shall be deemed continued service with GLPI.

The unrecognized compensation relating to both Penn and GLPI’s stock options, SARs, restricted stock awards, performance-based restricted stock awards and PSUs held by GLPI employees will be amortized to expense over the awards’ remaining vesting periods.

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As of March 31, 2015, there was $1.9 million of total unrecognized compensation cost for stock options that will be recognized over the grants remaining weighted average vesting period of 0.76 years. For the three months ended March 31, 2015 and 2014, the Company recognized $0.7 million and $1.4 million, respectively, of compensation expense associated with these awards. In addition, the Company also recognized $2.9 million and $3.3 million of compensation expense for the three months ended March 31, 2015 and 2014, respectively, relating to each of the first quarter $0.55 and $0.52, respectively, per share dividends paid on vested employee stock options.
 
As of March 31, 2015, there was $12.8 million of total unrecognized compensation cost for restricted stock awards that will be recognized over the grants remaining weighted average vesting period of 2.26 years. For the three months ended March 31, 2015 and 2014, the Company recognized $1.4 million and $0.6 million, respectively, of compensation expense associated with these awards.
 
The following table contains information on restricted stock award activity for the three months ended March 31, 2015.
 
 
Number of Award
Shares
Outstanding at December 31, 2014
468,841

Granted
163,783

Released
(107,152
)
Canceled
(5,028
)
Outstanding at March 31, 2015
520,444

 
Performance-based restricted stock awards have a three year cliff vesting with the amount of restricted shares vesting at the end of the three-year period determined based on the Company’s performance as measured against its peers.  More specifically, the percentage of shares vesting at the end of the measurement period will be based on the Company’s three-year total shareholder return measured against the three-year return of the companies included in the MSCI US REIT index.  As of March 31, 2015, there was $16.9 million of total unrecognized compensation cost, which will be recognized over the awards remaining weighted average vesting period of 2.28 years for performance-based restricted stock awards.  For the three months ended March 31, 2015, the Company recognized $2.2 million of compensation expense associated with these awards.

The following table contains information on performance-based restricted stock award activity for the three months ended March 31, 2015.
 
Number of  Performance-Based Award Shares
Outstanding at December 31, 2014
543,556

Granted
548,000

Released

Canceled

Outstanding at March 31, 2015
1,091,556


As of March 31, 2015, there was $5.1 million of total unrecognized compensation cost, which will be recognized over the awards remaining weighted average vesting period of 1.71 years, for Penn and GLPI PSUs held by GLPI employees that will be cash-settled by GLPI. For the three months ended March 31, 2015 and 2014, the Company recognized $1.8 million and $0.4 million, respectively of compensation expense associated with these awards. In addition, the Company also recognized $0.1 million for the three months ended March 31, 2015, relating to the first quarter $0.55 per share dividends paid on unvested PSUs and $0.4 million for the three months ended March 31, 2014, relating to the purging distribution dividend and the first quarter $0.52 per share dividends paid on unvested PSUs.
 
As of March 31, 2015, there was $0.1 million of total unrecognized compensation cost, which will be recognized over the grants remaining weighted average vesting period of 1.23 years, for Penn and GLPI SARs held by GLPI employees that will be cash-settled by GLPI. For the three months ended March 31, 2015 and 2014, the Company recognized $6 thousand and $21 thousand, respectively, of compensation expense associated with these awards.
 

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Upon the declaration of the Purging Distribution, GLPI options and GLPI SARs were adjusted in a manner that preserved both the pre-distribution intrinsic value of the options and SARs and the pre-distribution ratio of the stock price to exercise price that existed immediately before the Purging Distribution. Additionally, upon declaration of the Purging Distribution, holders of GLPI PSUs were credited with the special dividend, which will accrue and be paid, if applicable, on the vesting date of the related PSU. Holders of GLPI restricted stock were entitled to receive the special dividend with respect to such restricted stock on the same date or dates that the special dividend was payable on GLPI common stock to shareholders of GLPI generally.

Segment Information
 
Consistent with how the Company’s Chief Operating Decision Maker reviews and assesses the Company’s financial performance, the Company has two reportable segments, GLP Capital, L.P. (a wholly-owned subsidiary of GLPI through which GLPI owns substantially all of its assets) ("GLP Capital") and the TRS Properties. The GLP Capital reportable segment consists of the leased real property and represents the majority of the Company’s business. The TRS Properties reportable segment consists of Hollywood Casino Perryville and Hollywood Casino Baton Rouge. See Note 10 for further information with respect to the Company’s segments.
 
4.              Acquisitions
 
In January 2014, the Company completed the asset acquisition of the real property associated with the Casino Queen in East St. Louis, Illinois for $140.7 million, including transaction fees of $0.7 million.  Simultaneously with the acquisition, GLPI also provided Casino Queen with a $43 million, five year term loan at 7% interest, pre-payable at any time, which, together with the sale proceeds, completely refinanced and retired all of Casino Queen’s outstanding long-term debt obligations. As of March 31, 2015, principal and interest payments reduced the balance of this loan to $33.5 million. Commencing on March 31, 2015, Casino Queen is obligated to make mandatory principal payments on the loan on the last day of each calendar year quarter equal to 1.25% of the original loan balance. The collectability of the remaining loan balance is reasonably assured, and it is recorded at carrying value which approximates fair value. Interest income related to the loan is recorded in interest income within the Company's consolidated statement of income in the period of receipt. GLPI leased the property back to Casino Queen on a "triple net" basis on terms similar to those in the Master Lease, resulting in approximately $14 million in annual rent. The lease has an initial term of 15 years, and the tenant has an option to renew it at the same terms and conditions for four successive five year periods.
 
5.              Real Estate Investments
 
Real estate investments, net, represents investments in 19 rental properties and the corporate headquarters building and is summarized as follows:
 
 
March 31,
2015
 
December 31,
2014
 
(in thousands)
Land and improvements
$
454,181

 
$
454,181

Building and improvements
2,288,664

 
2,288,664

Construction in progress
3,381

 
2,576

Total real estate investments
2,746,226

 
2,745,421

Less accumulated depreciation
(589,223
)
 
(565,297
)
Real estate investments, net
$
2,157,003

 
$
2,180,124

 











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6.              Property and Equipment Used in Operations
 
Property and equipment used in operations, net, consists of the following and primarily represents the assets utilized in the TRS: 
 
March 31,
2015
 
December 31,
2014
 
(in thousands)
Land and improvements
$
31,595

 
$
31,595

Building and improvements
116,867

 
116,867

Furniture, fixtures, and equipment
103,782

 
103,612

Construction in progress
6,455

 
724

Total property and equipment
258,699

 
252,798

Less accumulated depreciation
(122,166
)
 
(118,770
)
Property and equipment, net
$
136,533

 
$
134,028


The increase in construction in progress is primarily due to the purchase of slot machines at Hollywood Casino Perryville, totaling approximately $5.0 million for the three months ended March 31, 2015.
 
7.              Long-term Debt
 
Long-term debt is as follows: 
 
March 31,
2015
 
December 31,
2014
 
(in thousands)
Senior unsecured credit facility
$
525,000

 
$
558,000

$550 million 4.375% senior unsecured notes due November 2018
550,000

 
550,000

$1,000 million 4.875% senior unsecured notes due November 2020
1,000,000

 
1,000,000

$500 million 5.375% senior unsecured notes due November 2023
500,000

 
500,000

Capital lease
$
1,463

 
$
1,487

Total long-term debt
$
2,576,463

 
$
2,609,487

Less current maturities of long-term debt
$
(99
)
 
$
(81
)
Long-term debt, net of current maturities
$
2,576,364

 
$
2,609,406

 
The following is a schedule of future minimum repayments of long-term debt as of March 31, 2015 (in thousands): 
Within one year
$
99

2-3 years
212

4-5 years
1,075,233

Over 5 years
1,500,919

Total minimum payments
$
2,576,463

 
Senior Unsecured Credit Facility

The Company participates in a one billion senior unsecured credit facility (the "Credit Facility"), consisting of a $700 million revolving credit facility and a $300 million Term Loan A facility. The Credit Facility matures on October 28, 2018. At March 31, 2015, the Credit Facility had a gross outstanding balance of $525 million, consisting of the $300 million Term Loan A facility and $225 million of borrowings under the revolving credit facility. Additionally, at March 31, 2015, the Company was contingently obligated under letters of credit issued pursuant to the senior unsecured credit facility with face amounts aggregating approximately $0.9 million, resulting in $474.1 million of available borrowing capacity under the revolving credit facility as of March 31, 2015.

The Credit Facility contains customary covenants that, among other things, restrict, subject to certain exceptions, the ability of GLPI and its subsidiaries, to grant liens on their assets, incur indebtedness, sell assets, make investments, engage in acquisitions, mergers or consolidations or pay certain dividends and other restricted payments. The Credit Facility contains the

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following financial covenants, which are measured quarterly on a trailing four-quarter basis: a maximum total debt to total asset value ratio, a maximum senior secured debt to total asset value ratio, a maximum ratio of certain recourse debt to unencumbered asset value and a minimum fixed charge coverage ratio. In addition, GLPI is required to maintain a minimum tangible net worth. GLPI is required to maintain its status as a REIT on and after the effective date of its election to be treated as a REIT, which the Company elected on its 2014 U.S. federal income tax return. GLPI is permitted to pay dividends to its shareholders as may be required in order to maintain REIT status, subject to the absence of payment or bankruptcy defaults. GLPI is also permitted to make other dividends and distributions subject to pro forma compliance with the financial covenants and the absence of defaults. The Credit Facility also contains certain customary affirmative covenants and events of default. Such events of default include the occurrence of a change of control and termination of the Master Lease (subject to certain replacement rights). The occurrence and continuance of an event of default under the Credit Facility will enable the lenders under the Credit Facility to accelerate the loans, and terminate the commitments, thereunder. At March 31, 2015, the Company was in compliance with all required covenants under the Credit Facility.

Senior Unsecured Notes
 
Each of the 4.375% Senior Unsecured Notes due 2018 (the "2018 Notes"); 4.875% Senior Unsecured Notes due 2020 (the "2020 Notes"); and 5.375% Senior Unsecured Notes due 2023 (the "2023 Notes," and collectively with the 2018 Notes and 2020 Notes, the "Notes") contains covenants limiting the Company’s ability to: incur additional debt and use their assets to secure debt; merge or consolidate with another company; and make certain amendments to the Master Lease. The Notes also require the Company to maintain a specified ratio of unencumbered assets to unsecured debt. These covenants are subject to a number of important and significant limitations, qualifications and exceptions.
 
At March 31, 2015, the Company was in compliance with all required covenants under the Notes.

Capital Lease

The Company assumed the capital lease obligation related to certain assets at its Aurora, Illinois property. GLPI recorded the asset and liability associated with the capital lease on its balance sheet. The original term of the capital lease was 30 years and it will terminate in 2026.

8.              Commitments and Contingencies
 
Litigation
On May 14, 2014, the Company announced that it entered into an agreement with CCR to acquire The Meadows Racetrack and Casino located in Washington, Pennsylvania, a suburb of Pittsburgh, Pennsylvania.  The agreement provides that closing of the acquisition is subject to, among other things, the accuracy of CCR’s representations and its compliance with the covenants set forth in the agreement, as well as the approval of the Pennsylvania Gaming Control Board and Pennsylvania Racing Commission.  On October 27, 2014, the Company filed a lawsuit in the Southern District of New York against CCR alleging, among other things, fraud, breach of the agreement and breach of the related consulting agreement entered into at the same time. The lawsuit was subsequently re-filed in New York state court on January 7, 2015 for procedural reasons. The Company asserts claims that CCR has breached the agreements, with the Company seeking return of $10 million paid pursuant to a related consulting agreement and an unspecified amount of additional damages.  The Company further seeks a declaration that a material adverse effect has occurred that excuses CCR from consummating the agreement.  The Company will further evaluate and consider all other remedies available to it, including termination of the agreements.
Although the Company intends to pursue its claims vigorously, there can be no assurances that the Company will prevail on any of the claims in the action, or, if the Company does prevail on one or more of the claims, of the amount of recovery that may be awarded to the Company for such claim(s). In addition, the timing and resolution of the claims set forth in the lawsuit are unpredictable and the Company is not able to currently predict any effect this suit may have on closing of the transaction.
Pursuant to a Separation and Distribution Agreement between Penn and GLPI, any liability arising from or relating to legal proceedings involving the businesses and operations of Penn’s real property holdings prior to the Spin-Off (other than any liability arising from or relating to legal proceedings where the dispute arises from the operation or ownership of the TRS Properties) will be retained by Penn and Penn will indemnify GLPI (and its subsidiaries, directors, officers, employees and agents and certain other related parties) against any losses it may incur arising from or relating to such legal proceedings. There can be no assurance that Penn will be able to fully satisfy its indemnification obligations. Moreover, even if we ultimately succeed in recovering from Penn any amounts for which we are liable, we may be temporarily required to bear those losses.


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Table of Contents

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

9.              Dividends

On February 3, 2015, the Company’s Board of Directors declared the first quarterly dividend of 2015 of $0.545 per common share, which was paid on March 27, 2015, in the amount of $62.1 million, to shareholders of record on March 10, 2015. In addition, first quarter dividend payments were made to GLPI restricted stock award holders and for both GLPI and Penn unvested employee stock options in the amount of $0.6 million.
 
On February 18, 2014, the Company’s Board of Directors declared the first quarterly dividend of 2014 of $0.52 per common share, which was paid on March 28, 2014, in the amount of $58.0 million, to shareholders of record on March 7, 2014. In addition, first quarter dividend payments were made to GLPI restricted stock award holders and for both GLPI and Penn unvested employee stock options in the amount of $1.0 million.

Additionally, on February 18, 2014, GLPI made the Purging Distribution, which totaled $1.05 billion and was comprised of cash and GLPI common stock, to distribute the accumulated earnings and profits related to the real property assets and attributable to any pre-REIT years, including any earnings and profits allocated to GLPI in connection with the Spin-Off. Shareholders were given the option to elect either an all-cash or all-stock dividend, subject to a total cash limitation of $210.0 million. Of the 88,691,827 shares of common stock outstanding on the record date, approximately 54.3% elected the cash distribution and approximately 45.7% elected a stock distribution or made no election. Shareholders electing cash received $4.358049 plus 0.195747 additional GLPI shares per common share held on the record date. Shareholders electing stock or not making an election received 0.309784 additional GLPI shares per common share held on the record date. Stock dividends were paid based on the volume weighted average price for the three trading days ended February 13, 2014 of $38.2162 per share. Approximately 22.0 million shares were issued in connection with this dividend payment.  In addition, cash distributions were made to GLPI and Penn employee restricted stock award holders in the amount of $1.0 million for the purging distribution. 
Additionally, on December 19, 2014, the Company made a one-time distribution of $37.0 million to shareholders in order to confirm the Company appropriately allocated its historical earnings and profits relative to the separation from Penn, in response to the Pre-Filing Agreement requested from the IRS. In addition, cash distributions were made to GLPI restricted stock award holders and for both GLPI and for Penn unvested employee stock options in the amount of $0.7 million for this one-time distribution.

10.       Segment Information
 
The following tables present certain information with respect to the Company’s segments. Intersegment revenues between the Company’s segments were not material in any of the periods presented below.
 
 
 
Three Months Ended March 31, 2015
 
Three Months Ended March 31, 2014
(in thousands)
 
GLP Capital
 
TRS Properties
 
Eliminations (1)
 
Total
 
GLP Capital 
 
TRS Properties
 
Eliminations (1)
 
Total
Net revenues
 
$
124,854

 
$
37,807

 
$

 
$
162,661

 
$
118,112

 
$
40,216

 
$

 
$
158,328

Income from operations
 
71,556

 
7,200

 

 
78,756

 
67,871

 
6,463

 

 
74,334

Interest, net
 
28,968

 
2,600

 
(2,601
)
 
28,967

 
28,428

 
2,601

 
(2,601
)
 
28,428

Income before income taxes
 
45,189

 
4,600

 

 
49,789

 
42,044

 
3,862

 

 
45,906

Income tax expense
 
810

 
1,892

 

 
2,702

 

 
1,594

 

 
1,594

Net income
 
44,379

 
2,708

 

 
47,087

 
42,044

 
2,268

 

 
44,312

Depreciation
 
24,393

 
3,018

 

 
27,411

 
23,441

 
3,081

 

 
26,522

Capital project expenditures, net of reimbursements
 
609

 
5,031

 

 
5,640

 
24,002

 

 

 
24,002

Capital maintenance expenditures
 

 
951

 

 
951

 

 
871

 

 
871

 
(1)              Amounts in the "Eliminations" column represent the elimination of intercompany interest payments from the Company’s TRS Properties business segment to its GLP Capital business segment.



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11.       Supplemental Disclosures of Cash Flow Information
 
There was no cash paid for income taxes for the three months ended March 31, 2015 and $13.8 million paid for the three months ended March 31, 2014, primarily for 2013 extension payments while GLPI was still a corporation. Cash paid for interest was $2.6 million and $2.1 million for the three months ended March 31, 2015 and 2014, respectively.
 
12.       Related Party Transactions

During the year ended December 31, 2014, the Company entered into an Agreement of Sale (the "Sale Agreement") with Wyomissing Professional Center Inc. ("WPC") and acquired certain land in an office complex known as The Wyomissing Professional Center Campus, located in Wyomissing, Pennsylvania. The Company subsequently paid $39,000 to WPC during the three months ended March 31, 2015 in connection with numerous construction costs WPC paid on the Company's behalf.
 
In connection with completion of construction of the building in The Wyomissing Professional Center Campus, the Company entered into an agreement (the "Construction Management Agreement") with CB Consulting Group LLC (the "Construction Manager"). Pursuant to the Construction Management Agreement, the Construction Manager will, among other things, provide certain construction management services to the Company in exchange for three percent (3%) of the total cost of work to complete the building construction project, and certain additional costs for added services. During the three months ended March 31, 2015, the Company made no payments to the Construction Manager.

Peter M. Carlino, the Company’s Chairman of the Board of Directors and Chief Executive Officer, is also the sole owner of WPC. In addition, Mr. Carlino’s son owns a material interest in the Construction Manager.

13.       Supplementary Condensed Consolidating Financial Information of Parent Guarantor and Subsidiary Issuers
 
GLPI guarantees the Notes issued by its subsidiaries, GLP Capital, L.P. and GLP Financing II, Inc. Each of the subsidiary issuers is 100% owned by GLPI. The guarantees of GLPI are full and unconditional. GLPI is not subject to any material or significant restrictions on its ability to obtain funds from its subsidiaries by dividend or loan or to transfer assets from such subsidiaries, except as provided by applicable law. No subsidiaries of GLPI guarantee the Notes.
 
Summarized financial information as of March 31, 2015 and December 31, 2014 and for the three months ended March 31, 2015 and 2014 for GLPI as the parent guarantor, for GLP Capital, L.P. and GLP Financing II, Inc. as the subsidiary issuers and the other subsidiary non-issuers is presented below. In preparation for the Company's potential use of an UPREIT structure, on January 1, 2015, all employees and associated assets and liabilities were transferred from GLPI to GLP Capital, L.P.

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At March 31, 2015
Condensed Consolidating Balance Sheet
 
Parent 
Guarantor
 
Subsidiary 
Issuers
 
Other 
Subsidiary 
Non-Issuers
 
Eliminations
 
Consolidated
 
 
(in thousands)
Assets
 
 

 
 

 
 

 
 

 
 

Real estate investments, net
 
$

 
$
2,019,952

 
$
137,051

 
$

 
$
2,157,003

Property and equipment, used in operations, net
 

 
24,775

 
111,758

 

 
136,533

Cash and cash equivalents
 

 
20,020

 
25,347

 

 
45,367

Prepaid expenses
 

 
4,408

 
3,060

 

 
7,468

Deferred tax assets, current
 

 

 
1,568

 

 
1,568

Other current assets
 

 
44,115

 
3,529

 

 
47,644

Goodwill
 

 

 
75,521

 

 
75,521

Other intangible assets
 

 

 
9,577

 

 
9,577

Debt issuance costs, net of accumulated amortization of $11,347 at March 31, 2015
 

 
37,106

 

 

 
37,106

Loan receivable
 

 

 
33,463

 

 
33,463

Intercompany loan receivable
 

 
193,595

 

 
(193,595
)
 

Intercompany transactions and investment in subsidiaries
 
(125,540
)
 
194,180

 
85,370

 
(154,010
)
 

Deferred tax assets, non-current
 

 

 
808

 

 
808

Other assets
 

 
292

 
127

 

 
419

Total assets
 
$
(125,540
)
 
$
2,538,443

 
$
487,179

 
$
(347,605
)
 
$
2,552,477

 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 

 
 

 
 

 
 

 
 

Accounts payable
 
$

 
$
2,636

 
$
665

 
$

 
$
3,301

Accrued expenses
 

 
1,041

 
4,715

 

 
5,756

Accrued interest
 

 
42,431

 

 

 
42,431

Accrued salaries and wages
 

 
4,283

 
2,104

 

 
6,387

Gaming, property, and other taxes
 

 
21,548

 
3,584

 

 
25,132

Income taxes
 

 
682

 
890

 

 
1,572

Current maturities of long-term debt
 

 
99

 

 

 
99

Other current liabilities
 

 
14,901

 
1,336

 

 
16,237

Long-term debt, net of current maturities
 

 
2,576,364

 

 

 
2,576,364

Intercompany loan payable
 

 

 
193,595

 
(193,595
)
 

Deferred tax liabilities, non-current
 

 

 
738

 

 
738

Total liabilities
 

 
2,663,985

 
207,627

 
(193,595
)
 
2,678,017

 
 
 
 
 
 
 
 
 
 
 
Shareholders’ (deficit) equity
 
 

 
 

 
 

 
 

 
 

Common stock ($.01 par value, 550,000,000 shares authorized, 114,213,335 shares issued at March 31, 2015
 
1,142

 
1,142

 
1,142

 
(2,284
)
 
1,142

Additional paid-in capital
 
903,608

 
903,608

 
1,056,445

 
(1,960,053
)
 
903,608

Retained (deficit) earnings
 
(1,030,290
)
 
(1,030,292
)
 
(778,035
)
 
1,808,327

 
(1,030,290
)
Total shareholders’ (deficit) equity
 
(125,540
)
 
(125,542
)
 
279,552

 
(154,010
)
 
(125,540
)
Total liabilities and shareholders’ (deficit) equity
 
$
(125,540
)
 
$
2,538,443

 
$
487,179

 
$
(347,605
)
 
$
2,552,477


20

Table of Contents

Three months ended March 31, 2015
Condensed Consolidating Statement of Operations
 
Parent 
Guarantor
 
Subsidiary 
Issuers
 
Other 
Subsidiary 
Non-Issuers
 
Eliminations
 
Consolidated
 
 
(in thousands)
Revenues
 
 

 
 

 
 

 
 

 
 

Rental
 
$

 
$
108,004

 
$
3,500

 
$

 
$
111,504

Real estate taxes paid by tenants
 

 
12,827

 
523

 

 
13,350

Total rental revenue
 

 
120,831

 
4,023

 

 
124,854

Gaming
 

 

 
36,379

 

 
36,379

Food, beverage and other
 

 

 
2,815

 

 
2,815

Total revenues
 

 
120,831

 
43,217

 

 
164,048

Less promotional allowances
 

 

 
(1,387
)
 

 
(1,387
)
Net revenues
 

 
120,831

 
41,830

 

 
162,661

Operating expenses
 
 

 
 

 
 

 
 

 
 

Gaming
 

 

 
19,016

 

 
19,016

Food, beverage and other
 

 

 
2,184

 

 
2,184

Real estate taxes
 

 
12,827

 
928

 

 
13,755

General and administrative
 

 
15,556

 
5,983

 

 
21,539

Depreciation
 

 
23,632

 
3,779

 

 
27,411

Total operating expenses
 

 
52,015

 
31,890

 

 
83,905

Income from operations
 

 
68,816

 
9,940

 

 
78,756

 
 
 
 
 
 
 
 
 
 
 
Other income (expenses)
 
 

 
 

 
 

 
 

 
 

Interest expense
 

 
(29,562
)
 

 

 
(29,562
)
Interest income
 

 
10

 
585

 

 
595

Intercompany dividends and interest
 

 
10,086

 
400

 
(10,486
)
 

Total other expenses
 

 
(19,466
)
 
985

 
(10,486
)
 
(28,967
)
 
 
 
 
 
 
 
 
 
 
 
Income before income taxes
 

 
49,350

 
10,925

 
(10,486
)
 
49,789

Income tax expense
 

 
810

 
1,892

 

 
2,702

Net income
 
$

 
$
48,540

 
$
9,033

 
$
(10,486
)
 
$
47,087


21

Table of Contents

Three months ended March 31, 2015
Condensed Consolidating Statement of Cash Flows
 
Parent
Guarantor
 
Subsidiary
Issuers
 
Other
Subsidiary
Non-Issuers
 
Eliminations
 
Consolidated
 
 
(in thousands)
Operating activities
 
 

 
 

 
 

 
 

 
 

Net income
 
$

 
$
48,540

 
$
9,033

 
$
(10,486
)
 
$
47,087

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

 
 

 
 

 
 

 
 

Depreciation
 

 
23,632

 
3,779

 

 
27,411

Amortization of debt issuance costs
 

 
2,020

 

 

 
2,020

Losses on dispositions of property
 

 

 
1

 

 
1

Deferred income taxes
 

 

 
(386
)
 

 
(386
)
Stock-based compensation
 

 
4,394

 

 

 
4,394

(Increase) decrease,
 
 

 
 

 
 

 
 

 
 
Prepaid expenses and other current assets
 

 
(593
)
 
1,431

 

 
838

Other assets
 

 

 

 

 

Intercompany
 

 
2,365

 
(2,365
)
 

 

Increase (decrease),
 
 

 
 

 
 

 
 

 
 
Accounts payable
 

 
(1,800
)
 
455

 

 
(1,345
)
Accrued expenses
 

 
408

 
7

 

 
415

Accrued interest
 

 
24,903

 

 

 
24,903

Accrued salaries and wages
 

 
(5,730
)
 
(464
)
 

 
(6,194
)
Gaming, pari-mutuel, property and other taxes
 

 
(613
)
 
207

 

 
(406
)
Income taxes
 

 
847

 
725

 

 
1,572

Other current and noncurrent liabilities
 

 
532

 
(83
)
 

 
449

Net cash provided by (used in) operating activities
 

 
98,905

 
12,340

 
(10,486
)
 
100,759

Investing activities
 
 

 
 

 
 

 
 

 
 

Capital project expenditures, net of reimbursements
 

 
(609
)
 
(5,031
)
 

 
(5,640
)
Capital maintenance expenditures
 

 

 
(951
)
 

 
(951
)
Proceeds from sale of property and equipment
 

 

 
5

 

 
5

Funding of loan receivable
 

 

 

 

 

Principal payments on loan receivable
 

 

 
538

 

 
538

Acquisition of real estate
 

 

 

 

 

Other investing activities
 

 
(36
)
 

 

 
(36
)
Net cash used in investing activities
 

 
(645
)
 
(5,439
)
 

 
(6,084
)
Financing activities
 
 

 
 

 
 

 
 

 
 

Dividends paid
 
(62,651
)
 

 

 

 
(62,651
)
Proceeds from exercise of options
 
10,394

 

 

 

 
10,394

Proceeds from issuance of long-term debt
 

 

 

 

 

Financing costs
 

 

 

 

 

Payments of long-term debt
 

 
(33,024
)
 

 

 
(33,024
)
Intercompany financing
 
49,614

 
(49,666
)
 
(10,434
)
 
10,486

 

Net cash (used in) provided by financing activities
 
(2,643
)
 
(82,690
)
 
(10,434
)
 
10,486

 
(85,281
)
Net (decrease) increase in cash and cash equivalents
 
(2,643
)
 
15,570

 
(3,533
)
 

 
9,394

Cash and cash equivalents at beginning of period
 
2,643

 
4,450

 
28,880

 

 
35,973

Cash and cash equivalents at end of period
 
$

 
$
20,020

 
$
25,347

 
$

 
$
45,367


22

Table of Contents

At December 31, 2014
Condensed Consolidating Balance Sheet
 
Parent
Guarantor
 
Subsidiary
Issuers
 
Other
Subsidiary
Non-Issuers
 
Eliminations
 
Consolidated
 
 
(in thousands)
Assets
 
 

 
 

 
 

 
 

 
 

Real estate investments, net
 
$

 
$
2,042,311

 
$
137,813

 
$

 
$
2,180,124

Property and equipment, used in operations, net
 
25,228

 

 
108,800

 

 
134,028

Cash and cash equivalents
 
2,643

 
4,450

 
28,880

 

 
35,973

Prepaid expenses
 
1,096

 
2,196

 
3,110

 
1,498

 
7,900

Deferred tax assets, current
 

 

 
2,015

 

 
2,015

Other current assets
 
14,947

 
27,417

 
2,890

 

 
45,254

Goodwill
 

 

 
75,521

 

 
75,521

Other intangible assets
 

 

 
9,577

 

 
9,577

Debt issuance costs, net of accumulated amortization of $9,327 at December 31, 2014
 

 
39,126

 

 

 
39,126

Loan receivable
 

 

 
34,000

 

 
34,000

Intercompany loan receivable
 

 
193,595

 

 
(193,595
)
 

Intercompany transactions and investment in subsidiaries
 
(138,987
)
 
195,092

 
65,255

 
(121,360
)
 

Deferred tax assets, non-current
 

 

 
679

 

 
679

Other assets
 
256

 

 
127

 

 
383

Total assets
 
$
(94,817
)
 
$
2,504,187

 
$
468,667

 
$
(313,457
)
 
$
2,564,580

 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 

 
 

 
 

 
 

 
 

Accounts payable
 
$
4,011

 
$
188